SECOND DIVISION
are hereby declared guilty of illegal dismissal and
G.R. No. 205061, June 08, 2016
EMERTIA G. MALIXI, Petitioner, v. MEXICALI PHILIPPINES AND/OR
FRANCESCA MABANTA, Respondents.
DECISION
DEL CASTILLO, J.:
Before us is a Petition for Review on Certiorari1 seeking to set aside the
August 29, 2012 Decision2 of the Court of Appeals (CA) in CA-G.R. SP
No. 115413, which dismissed the Petition for Certiorari filed therewith and
affirmed the May 28, 2010 Resolution3 of the National Labor Relations
Commission (NLRC) reinstating respondents Mexicali Philippines
(Mexicali) and Francesca Mabanta's appeal, partly granting it and
ordering petitioner Emerita G. Malixi's (petitioner) reinstatement but
without the payment of backwages. Likewise assailed is the December 14,
2012 Resolution4 of the CA denying petitioner's Motion for
Reconsideration.5
Antecedent Facts
This case arose from an Amended Complaint6 for illegal dismissal and
nonpayment of service charges, moral and exemplary damages and
attorney's fees filed by petitioner against respondents Mexicali and its
General Manager, Francesca Mabanta, on February 4, 2009 before the
Labor Arbiter, docketed as NLRC NCR Case No. 12-17618-08.
Petitioner alleged that on August 12, 2008, she was hired by respondents
as a team leader assigned at the delivery service, receiving a daily wage
of Three Hundred Eighty Two Pesos (P382.00) sans employment
contract and identification card (ID). In October 2008, Mexicali's training
officer, Jay Teves (Teves), informed her of the management's intention to
transfer and appoint her as store manager at a newly opened branch in
Alabang Town Center, which is a joint venture between Mexicali and
Calexico Food Corporation (Calexico), due to her satisfactory
performance. She was apprised that her monthly salary as the new store
manager would be Fifteen Thousand Pesos (P15,000,00) with service
charge, free meal and side tip. She then subsequently submitted a
resignation letter7 dated October 15, 2008, as advised by Teves. On
October 17, 2008, she started working as the store manager of Mexicali in
Alabang Town Center although, again, no employment contract and ID
were issued to her. However, in December 2008, she was compelled by
Teves to sign an end-of-contract letter by reason of a criminal complaint
for sexual harassment she filed on December 3, 2008 against Mexicali's
operations manager, John Pontero (Pontero), for the sexual advances
made against her during Pontero's visits at Alabang branch. 8 When she
refused to sign the end-of-contract letter, Mexicali's administrative officer,
Ding Luna (Luna), on December 15, 2008, personally went to the branch
and caused the signing of the same. Upon her vehement refusal to sign,
she was informed by Luna that it was her last day of work.
Respondents, however, denied responsibility over petitioner's alleged
dismissal. They averred that petitioner has resigned from Mexicali in
October 2008 and hence, was no longer Mexicali's employee at the time
of her dismissal but rather an employee of Calexico, a franchisee of
Mexicali located in Alabang Town Center which is a separate and distinct
corporation.
In her reply, petitioner admitted having resigned from Mexicali but averred
that her resignation was a condition for her promotion as store manager
at Mexicali's Alabang Town Center branch. She asserted that despite her
resignation, she remained to be an employee of Mexicali because
Mexicali was the one who engaged her, dismissed her and controlled the
performance of her work as store manager in the newly opened branch.
Proceedings before the Labor Arbiter
In a Decision9 dated August 27, 2009, the Labor Arbiter declared
petitioner to have been illegally dismissed by respondents. By piercing
the veil of corporate fiction, the Labor Arbiter ruled that Mexicali and
Calexico are one and the same with interlocking board of directors. The
Labor Arbiter sustained petitioner's claim that she is an employee of
Mexicali as she was hired at Calexico by Mexicali's corporate officers and
also dismissed by them and hence, held Mexicali responsible for
petitioner's dismissal. The Labor Arbiter then observed that petitioner was
only forced to resign as a condition for her promotion, thus, cannot be
utilized by Mexicali as a valid defense. As the severance from
employment was attended by fraud, petitioner was awarded moral and
exemplary damages. The dispositive portion of the Decision reads:
chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, respondents
ORDERED to reinstate complainant to her former
position even pending appeal. All the respondents
are hereby jointly and severally ordered to pay
complainant the following:
1. Full backwages from date of dismissal to
date of actual reinstatement which to date
amounts to P139,013.94.
2. Moral damages in the sum of
P100,000.00.
3. Exemplary damages in the sum of
P50,000.00.
SO ORDERED.10ChanRoblesVirtualawlibrary
Proceedings before the National Labor Relations Commission
On October 26, 2009, respondents filed an Appeal Memorandum with
Prayer for Injunction11 with the NLRC, averring that the Labor Arbiter
erred in: (1) holding them liable for the acts of Calexico, which is a
separate entity created with a different purpose, principal office,
directors/incorporators, properties, management and business plans from
Mexicali as evidenced by their respective Articles of Incorporation and
By-Laws;12 (2) ruling that petitioner's resignation was not voluntary; and,
(3) ruling that there is an employer-employee relationship between
petitioner and Mexicali on the basis of petitioner's mere allegation that
she was hired and dismissed by Mexicali's officers.
In a Resolution13 dated November 25, 2009, the NLRC dismissed the
appeal for having been filed beyond the 10-day reglementary period to
appeal. The NLRC rioted that the Appeal Memorandum was filed only on
October 26, 2009 despite respondents' receipt of the Labor Arbiter's
Decision on October 13, 2009 (as stated in the Appeal Memorandum).
Respondents filed a Motion for Reconsideration and Motion for Issuance
of TRO/Injunction14 explaining that the Appeal Memorandum filed by
them contained a typographical error as to the date of actual receipt of the
Labor Arbiter's Decision; that while a copy of the said decision was
received by them on October 13, 2009, the same was only received by
their counsel of record on October 15, 200915 which is the reckoning date
of the 10-day reglementary period within which to appeal.
In a Resolution16 dated May 28, 2010, the NLRC granted respondents'
motion and reinstated the appeal. The NLRC ruled that pursuant to its
Rules of Procedure, the date to reckon the 10-day reglementary period
should be the date when the counsel actually received the copy of the
Labor Arbiter's Decision and that respondents' appeal was filed on time.
The NLRC likewise ruled on the merits of the appeal. It partly granted it by
sustaining respondents' contention that Mexicali and Calexico are
separate and distinct entities, Calexico being the true employer of
petitioner at the time of her dismissal. Contrary to the findings of the
Labor Arbiter, petitioner voluntarily resigned from Mexicali to transfer to
Calexico in consideration of a higher pay and upon doing so severed her
employment ties with Mexicali. The NLRC, nevertheless, ordered Mexicali,
being the employer of Teves and Luna who caused petitioner's
termination from her employment with Calexico, to reinstate petitioner to
her job at Calexico but without paying her any backwages. The
dispositive portion of the NLRC Resolution reads:
chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, this
Commission GRANTS the Motion, for
Reconsideration of its 25 November 2009 Resolution
which dismissed the appeal for having been filed out
of time.
This Commission also PARTLY GRANTS the appeal
of respondents-appellants and the Decision of the
Labor Arbiter dated 27 August 2009 is MODIFIED
ordering Mexicali Food Corporation to cause the
reinstatement of complainant-appellee to his former
position as store manager at its franchisee Calexico
Food Corporation within ten (10) days from receipt of
this Resolution without backwages.
SO ORDERED.17ChanRoblesVirtualawlibrary
Proceedings before the Court of Appeals
Petitioner sought recourse with the CA via Petition for Certiorari.18 It was
petitioner's contention that the NLRC erred in reinstating respondents'
appeal despite being filed beyond the reglementary period; in resolving Section 6, Rule III of the 2005 Revised Rules of Procedure of the NLRC
the issue of dismissal considering that only the timeliness of the appeal (2005 NLRC Rules) expressly mandates that "(f)or purposes of appeal,
was the sole issue raised in respondents' motion for reconsideration; and the period shall be counted from receipt of such decisions, resolutions, or
in holding that she was not illegally dismissed but voluntarily resigned orders by the counsel or representative of record." This procedure is in
from Mexicali. line with the established rule that if a party has appeared by counsel,
service upon him shall be made upon his counsel. 22 "The purpose of the
In a Decision19 dated August 29, 2012, the CA dismissed the Petition rule is to maintain a uniform procedure calculated to place in competent
for Certiorari and affirmed the May 28, 2010 Resolution of the NLRC. The hands the prosecution of a party's case."23 Thus, Section 9, Rule III of the
CA ruled that the NLRC correctly reinstated respondents' appeal and NLRC Rules provides that "(a)ttorneys and other representatives of
properly resolved the issues raised therein to conform with the parties shall have authority to bind their clients in all matters of procedure
well-settled principle of expeditious administration of justice. The CA also x x x."
agreed with the NLRC that there was no illegal dismissal since petitioner
voluntarily tendered her resignation to assume a position in Calexico. Accordingly, the 10-day period for filing an appeal with the NLRC should
be counted from the receipt by respondents' counsel of a copy of the
Petitioner moved for reconsideration which was denied by the CA in its Labor Arbiter's Decision on October 15, 2009. Petitioner's contention that
Resolution20 of December 14, 2012. the reckoning period should be the date respondents actually received
the Decision on October 13, 2009 is bereft of any legal basis. As
Hence, this Petition. mentioned, when a party to a suit appears by counsel, service of every
judgment and all orders of the court must be sent to the counsel. Notice to
Issues counsel is an effective notice to the client, while notice to the client and
not his counsel is not notice in law.24 Therefore, receipt of notice by the
counsel of record is the reckoning point of the reglementary
period.25 From the receipt of the Labor Arbiter's Decision by respondent's
I
counsel on October 15, 2009, the 10th day falls on October 25, 2009
which is a Sunday, hence, Monday, October 26, 2009, is the last day to
WHETHER THE COURT OF APPEALS ERRED IN file the appeal. Consequently, respondents' appeal was timely filed.
SUSTAINING THE NATIONAL LABOR RELATIONS
COMMISSION'S DECISION REINSTATING THE The NLRC has authority to resolve the appeal on its merits despite being
RESPONDENTS' APPEAL DESPITE BEING FILED a non-issue in respondents' motion for reconsideration.
OUT OF TIME.
Petitioner still argues that the NLRC gravely abused its discretion in ruling
on the merits of the case despite being a non-issue in the motion for
II
reconsideration, She contends that in resolving the issue of the legality or
illegality of her dismissal, which was not raised in respondents' motion for
WHETHER THE COURT OF APPEALS ERRED IN reconsideration, the NLRC deprived her of the opportunity to properly
SUSTAINING THE NATIONAL LABOR RELATIONS refute or oppose respondents' evidence thereby violating her right to due
COMMISSION'S RESOLUTION (TO THE process.
RESPONDENTS' MOTION FOR
RECONSIDERATION) PARTLY GRANTING THE The contention is untenable. The essence of procedural due process is
RESPONDENTS' APPEAL (REGARDING THE that a party to a case must be given sufficient opportunity to be heard and
ISSUE OF ILLEGAL DISMISSAL) DESPITE BEING to present evidence.26 Indeed, petitioner had this opportunity to present
A NON-ISSUE IN THEIR MOTION FOR her own case and submit evidence to support her allegations. She has
RECONSIDERATION. submitted her position paper with supporting documents as well as reply
to respondents' position paper to refute respondents' evidence before the
Labor Arbiter.
III
On the basis of these documents submitted by the parties, the NLRC then
WHETHER THE COURT OF APPEALS resolved the merits of respondents' appeal. The Court finds that the
COMMITTED A REVERSIBLE ERROR IN NLRC has authority to rely on the available evidence obtaining in the
HOLDING THAT THERE WAS NO ILLEGAL records. Article 221 of the Labor Code allows the NLRC to decide the
DISMISSAL. case on the basis of the position papers and other documents submitted
by the parties without resorting to the technical rules of evidence
observed in the regular courts of justice. 27 After all, the NLRC is not
IV
bound by the technical niceties of law and procedure and the rules
obtaining in the courts of law.28 In any event, the NLRC is mandated to
WHETHER THE COURT OF APPEALS use every and all reasonable means to ascertain the facts in each case
COMMITTED A REVERSIBLE ERROR IN speedily and objectively, without regard to technicalities of law or
HOLDING THAT THE PETITIONER RESIGNED procedure, all in the interest of due process.29
FROM HER EMPLOYMENT WITH THE
RESPONDENTS. Petitioner voluntarily resigned from Mexicali. No employer-employee
relationship between petitioner and Mexicali at the time of alleged
dismissal.
V
Ruling on the substantive matters, the Court finds that there exists no
WHETHER THE COURT OF APPEALS employer-employee relationship between petitioner and respondents as
COMMITTED A REVERSIBLE ERROR IN FAILING to hold the latter liable for illegal dismissal.
TO RULE ON THE ISSUE OF WHETHER OR NOT
THE PETITIONER IS ENTITLED TO THE AWARD The CA, affirming the NLRC, found that petitioner voluntarily resigned
OF MORAL AND EXEMPLARY DAMAGES from Mexicali. Petitioner, however, claims that she was induced into
RENDERED BY THE LABOR ARBITER, DESPITE resigning considering the higher position and attractive salary package;
BEING RAISED IN THE PETITIONER'S PETITION moreover, she avers that her resignation cannot effectively sever her
FOR CERTIORARI.21ChanRoblesVirtualawlibrary employment ties with Mexicali.

Petitioner maintains that the CA gravely erred in affirming the NLRC's
reinstatement of respondents' appeal despite being filed out of time and
the NLRC's ruling that there was no illegal dismissal, arguing that it is a
non-issue in respondents' motion for reconsideration and there was
absence of any valid cause for terminating her employment with Mexicali.
Our Ruling
The Petition has no merit.
The appeal before the NLRC was filed on time.
We disagree. "Resignation is the voluntary act of an employee who is in a
situation where one believes that personal reasons cannot be sacrificed
in favor of the exigency of the service, and one has no other choice but to
dissociate oneself from employment. It is a formal pronouncement or
relinquishment of an office, with the intention of relinquishing the office
accompanied by the act of relinquishment. As the intent to relinquish must
concur with the overt act of relinquishment, the acts of the employee
before and after the alleged resignation must be considered in
determining whether he or she, in fact, intended to sever his or her
employment."30 Here, petitioner tendered her resignation letter
preparatory to her transfer to Calexico for a higher position and pay. In
the said letter, she expressed her gratitude and appreciation for the two
months of her employment with Mexicali and intimated that she regrets
having to leave the company. Clearly, expressions of gratitude and
appreciation as well as manifestation of regret in leaving the company
negates the notion that she was forced and coerced to resign. In the
same vein, an inducement for a higher position and salary cannot defeat
the voluntariness of her actions. It should be emphasized that petitioner
had an option to decline the offer for her transfer, however, she opted to
resign on account of a promotion and increased pay. "In termination
cases, the employee is not afforded any option; the employee is
dismissed and his only recourse is to institute a complaint for illegal
dismissal against his employer x x x."31 Clearly, this does not hold true for
petitioner in the instant case. Further, as aptly observed by the CA,
petitioner is a managerial employee, who, by her educational background
could not have been coerced, forced or induced into resigning from her
work.
Upon petitioner's resignation, petitioner ceased to be an employee of
Mexicali and chose to be employed at Calexico. Petitioner, however,
claims that Mexicali and Calexico are one and the same and that Mexicali
was still her employer upon her transfer to Calexico since she was hired
and dismissed by Mexicali's officers and that Mexicali exercised the
power of control over her work performance.
We rule otherwise. The Labor Arbiter's finding that the two corporations
are one and the same with interlocking board of directors has no factual
basis. It is basic that "a corporation is an artificial being invested with a
personality separate and distinct from those of the stockholders and from
other corporations to which it may be connected or related." 32 Clear and
convincing evidence is needed to warrant the application of the doctrine
of piercing the veil of corporate fiction,33 In our view, the Labor Arbiter
failed to provide a clear justification for the application of the doctrine. The
Articles of Incorporation and By-Laws of both corporations show that they
have distinct business locations and distinct business purposes. It can
also be gleaned therein that they have a different set of incorporators or
directors since only two out of the five directors of Mexicali are also
directors of Calexico. At any rate, the Court has ruled that the existence of
interlocking directors, corporate officers and shareholders is not enough
justification to disregard the separate corporate personalities. 34 To pierce
the veil of corporate fiction, there should be clear and convincing proof
that fraud, illegality or inequity has been committed against third
persons.35 For while respondents' act of not issuing employment contract
and ID may be an indication of the proof required, however, this, by itself,
is not sufficient evidence to pierce the corporate veil between Mexicali
and Calexico.
More importantly, there was no existing employer-employee relationship
between petitioner and Mexicali. To prove petitioner's claim of an
employer-employee relationship, the following should be established by
competent evidence: "(1) the selection and engagement of the employee;
(2) the payment of wages; (3) the power of dismissal; and (4) the power of
control over the employee's conduct."36 "Although no particular form of
evidence is required to prove the existence of the relationship, and any
competent and relevant evidence to prove the relationship may be
admitted, a finding mat the relationship exists must nonetheless rest on
substantial evidence, which is that amount of relevant evidence that a
reasonable mind might accept as adequate to justify a conclusion." 37 We
find that petitioner failed to establish her claim based on the
aforementioned criteria. As to petitioner's allegation that it was Teves who
selected and hired her as store manager of Calexico and likewise,
together with Luna, initiated her dismissal, suffice it to state that bare
allegations, unsubstantiated by evidence, are not equivalent to
proof.38 Nevertheless, Teves merely informed petitioner of the
management's intention to transfer her and thereafter advised her to
execute a resignation letter, to which she complied. Nowhere was there
any allegation or proof that Teves was the one who directly hired her as
store manager of Calexico. Also, Teves and Luna merely initiated
petitioner's dismissal. The end-of-contract purportedly signed by Luna to
effectuate her termination was not presented. Again, mere allegation is
not synonymous with proof No substantial evidence was adduced to show
that respondents had the power to wield petitioner's termination from
employment. Anent the element of control, petitioner failed to cite a single
instance to prove that she was subject to the control of respondents
insofar as the manner in which she should perform her work as store
manager. The bare assertion that she was required to work from Friday
through Wednesday is not enough indication that the performance of her
job was subject to the control of respondents. On the other hand, the
payslips39 presented by petitioner reveal that she received her salary from
Calexico and no longer from Mexicali starting the month of October 2008.
This Court is, therefore, convinced that petitioner is no longer an
employee of respondents considering her resignation. In the absence of
an employer-employee relationship between petitioner and respondents,
petitioner cannot successfully claim that she was dismissed, much more
illegally dismissed, by the latter. The dismissal of petitioner's complaint
against respondents is, therefore, proper.
In the Resolution dated May 28, 2010, however, the NLRC ordered
respondents to reinstate petitioner as store manager at Calexico but
without the payment of backwages, ratiocinating that Mexicali's officers
(Teves and Luna) wrongly arrogated upon themselves the power to
dismiss petitioner. We view that the NLRC erred in this respect. It is to be
noted that Calexico is not a party to this case."It is well-settled that no
man shall be affected by any proceeding to which he is a stranger, and
strangers to a case are not bound by a judgment rendered by the
court."40 "Due process requires that a court decision can only bind a party
to the litigation and not against one who did not have his day in
court."41 An adjudication in favour of or against Calexico, a stranger to this
case, is hence void.chanrobleslaw
WHEREFORE, the Petition is DENIED. The August 29, 2012 Decision
and December 14, 2012 Resolution of the Court of Appeals in CA-G.R.
SP No. 115413 affirming the May 28, 2010 Resolution of the National
Labor Relations Commission are AFFIRMED with MODIFICATION that
the order for respondent Mexicali Food Corporation to cause the
reinstatement of petitioner Emerita G. Malixi to her former position as
store manager at Calexico Food Corporation without backwages
is DELETED. The Complaint against respondents Mexicali Philippines
and/or Francesca Mabanta is DISMISSED.
SO ORDERED.
G.R. No. 168134, October 05, 2016
FERRO CHEMICALS, INC., Petitioner, v. ANTONIO M. GARCIA,
ROLANDO NAVARRO, JAIME Y. GONZALES AND CHEMICAL
INDUSTRIES OF THE PHILIPPINES, INC., Respondents.
G.R. NO. 168183
JAIME Y. GONZALES, Petitioner, v. HON. COURT OF APPEALS AND
FERRO CHEMICALS, INC., Respondents.
G.R. NO. 168196
ANTONIO M. GARCIA, Petitioner, v. FERRO CHEMICALS,
INC., Respondent.
DECISION
PEREZ, J.:
Before us are three consolidated Petitions for Review on Certiorari
assailing the 3 March 2004 Decision1 and the 17 May 2005 Resolution2 of
the Court of Appeals (CA) in CA-G.R. CV No. 69970, which affirmed with
modification the 4 September 2000 Decision3 of the Regional Trial Court
(RTC) of Makati City, Branch 61. The RTC found Antonio M. Garcia,
Jaime Y. Gonzales, Rolando Navarro and Chemical Industries of the
Philippines, Inc. solidarily liable for the amount of P256,255,537.41,
representing the value of the shares of stocks here in question. In its
assailed Decision and Resolution, the CA absolved Rolando Navarro and
Chemical Industries of the Philippines, Inc. from liability, reduced the
amount of attorney's fees from P1,000,000.00 to P500,000.00, and
deleted the additional 10% of the value of the shares to the amount of
attorney's fees that was awarded. The dispositive portion of theCA
Decision reads:
chanRoblesvirtualLawlibrary
"WHEREFORE, the appeal is hereby PARTIALLY
GRANTED. The appealed Decision, dated 04
September 2000, rendered by Hon. Judge Fernando
V. Gorospe, Jr., of the Regional Trial Court of Makati,
Branch 61, is MODIFIED, in that:
1. [CHEMICAL INDUSTRIES OF THE
PHILIPPINES] and ROLANDO
NAVARRO are
hereby EXONERATED from any liability in
this case.
2. ANTONIO
M.
GARCIA an
d JAIME
GONZALE
S are
hereby OR
DERED,
 jointly and
severally, to
pay FERRO
CHEMICAL
S, INC., the
following:C
hanRobles
Virtualawlib
rary
a.) P256,255,537.41, which is
the value of the lost shares
minus the balance of the
purchase price;
b.) P100,000.00, as exemplary
damages.
c.) P500,000.00 as attorney's
fees; and
d.) Costs of the suit.
3.
4. The award of P12,000,000.00, which is the
cost of suit and expenses of litigation in the
case against the Consortium is
hereby DELETED for lack of factual basis.
SO ORDERED."4chanroblesvirtuallawlibrary
The Facts
Ferro Chemicals Incorporated (Ferro Chemicals), is a domestic
corporation duly authorized by existing law to engage in business in the
Philippines. It is represented in this action by its President, Ramon M.
Garcia.
Chemical Industries of the Philippines Inc. (Chemical Industries), on the
other hand, is also a domestic corporation duly organized and existing by
virtue of Philippine laws. Antonio Garcia, one of the parties in the instant
case, is the Chairman of the Board of Directors (BOD) of Chemical
Industries and a brother of Ferro Chemical's President, Ramon Garcia.
Rolando Navarro is the Corporate Secretary of Chemical Industries while
Jaime Gonzales is a close financial advisor of Antonio Garcia.
The Deed of Absolute Sale and Purchase of Shares of Stock
On 15 July 1988, Antonio Garcia and Ferro Chemicals entered into a
Deed of Absolute Sale and Purchase of Shares of Stock 5 over 1,717,678
shares of capital stock of Chemical Industries registered under the name
of Antonio Garcia for a consideration of P-79,207,331.28 (subject shares).
Included as subjects of the sale were Antonio Garcia's 371,697 shares of
stocks in Vision Insurance Consultants, Inc., (VIC) and his proprietary
membership in Alabang Country Club and Manila Polo Club. Under the
sale agreement, Antonio Garcia warranted the following:
chanRoblesvirtualLawlibrary
(1) That the subject shares are free from the liens
and encumbrances except the ones under the
Security Bank and Trust Company (Security Bank)
and the Insular Bank of Asia and America (Insular
Bank);
(2) That the seller undertakes to defend the sale
contract and defray the litigation cost should its
validity be assailed, and, to reimburse Ferro
Chemicals the amount of the purchase price
(3) That in the event that the sale is invalidated, the
seller will reimburse the buyer the amount of the
purchase price.
The parties also stipulated in the agreement that Ferro Chemicals will
deliver a part of the purchase price to Security Bank in satisfaction of
Antonio Garcia's obligation as judgment obligor with Security Bank.
Pursuant to the sale contract, Ferro Chemicals remitted the amount of
P-35,462,869.92 to Security Bank and Trust Co. (SBTC) in the form of a
check drawn against its account with Bank of America. On the ground that
the amount tendered was insufficient to satisfy Antonio Garcia's obligation,
the payment was not accepted by Security Bank, leaving the obligor with
no recourse but to consign the check to the court which adjudicated his
liability. (Security Bank Case) On 19 June 1990, the CA approved the
consignation effected by Antonio Garcia and held that the amount
tendered is sufficient to discharge his liability. In a Resolution dated 21
November 1990 the Court affirmed the final settlement of Antonio
Garcia's liability with the bank. This settled the Security Bank Case with
finality.
The Compromise Agreement
On 17 January 1989, Antonio Garcia entered into a Compromise
Agreement6 with Philippine Investments System Organization (PISO),
Bank of the Philippine Islands (BPI), Philippine Commercial International
Bank (PCIB), Rizal Commercial Banking Corporation (RCBC) and Land
Bank of the Philippines (LBP) (collectively known as Consortium Banks).
The settlement was entered in connection with the Surety Agreements
previously contracted by Antonio Garcia and Dynetics Corporation with
the onsortium Banks.
The First Consortium Case
The 17 January 1989 Compromise Agreement sprang from Civil Case No.
8527, filed by Antonio Garcia and Dynetics,. Inc. before the RTC of
Makati City, seeking to enjoin the Consortium Banks from collecting the
amount of P117,800,000.00, excluding interests, penalties and attorney's
fees, purportedly representing their liability under surety contracts.
The RTC, upon application therefor by the Consortium Banks, issued
a Notice of Garnishment7 dated 19 July 1985 over the 1,717,678 shares
of stocks of Antonio Garcia in Chemical Industries to secure any
contingent claims that may be awarded in favor of the banks. On the
ground that only absolute transfers of shares are required to be on the
corporation's stock and transfer books, the Corporate Secretary did not
annotate the banks' claims on Chemical Industries' books.
Subsequently, the RTC issued Orders dated 25 March 1988 and 20 May
1988 dismissing Civil Case No. 8527. In effect, the causes of action of the
plaintiffs and the counterclaims of the defendants were all denied.
Insisting on their right to enforce the surety contracts, the Consortium
Banks assailed the dismissal of Civil Case No. 8527 before the appellate
court. During the pendency of the appeal docketed as CA-G.R. No. 20467,
the parties agreed to amicably settle the case, and thus, the creditors
accepted the offer of the debtors to immediately pay the obligation in
exchange for the waiver of interests, penalties and attorney's fees. The
compromise agreement, which required Antonio Garcia and Dynetics to
pay the Consortium Banks the amount of P145,000,000.00, was
consequently approved by the CA in a Judgment dated 22 May 1989.
The Deed of Right to Repurchase
After the parties in the First Consortium Case forged a Compromise
Agreement, Antonio Garcia and Ferro Chemicals entered into a Deed
of Right to Repurchase8 dated 3 March 1989. Under the repurchase
contract, Ferro Chemicals stipulated to sell back the subject shares to
Antonio Garcia within 180 days from its execution or until 30 August 1989
subject to the foregoing terms:
chanRoblesvirtualLawlibrary
(1) That the consideration for the repurchase shall
either be equivalent to the amount actually paid by
the buyer for the sale or the sum of P79,207,331.28,
whichever is lesser, plus interest charges, bank
charges, broker's commission, transfer taxes and
documentary stamp tax;
(2) Should the tender of the repurchase price be
effected 90 days after 3 March 1989, the seller, shall,
in addition to the payment of the above stated
amount, shall pay a surcharge equivalent to 5% over
and above the actual cost of the buyer in holding the
shares.
Desirous to reacquire the ownership of the subject shares, Antonio Garcia,
on 12 July 1989, notified Ferro Chemicals of his intention to exercise his
right, under the repurchase deed. On 31 July 1989, Antonio Garcia
reiterated his intent to reacquire the subject shares by sending another
notice to Ferro Chemicals and tendering the amount of the agreed
repurchase price. On the ground that the taxes and the interests due were
not included in the consideration for repurchase price tendered by
Antonio Garcia, Ferro Chemicals refused to sell back the shares to him.
Instead, Ferro Chemicals opted to cede its rights over the subject shares
to Chemphil Export and Import Corporation (Chemphil Export) by virtue of
an Agreement9 dated 26 June 1989.
First and Second Repurchase Cases
The assignment. effected by Ferro Chemicals to a third party did not deter
Antonio Garcia's efforts to recover the subject shares. On 21 August 1989,
he initiated an action for Specific Performance before the RTC of Makati
City. The case, which was raffled to Branch 145 and docketed as Civil
Case No. 89-4837, sought for the enforcement of the seller's right under
the repurchase agreement and prayed that the buyer be ordered to
reconvey the subject shares to him. Finding that the issues raised
involved an intra-corporate dispute cognizable by the Securities and
Exchange Commission (SEC), the RTC dismissed Civil Case No.
89-4837.
Undeterred, Antonio Garcia filed a Second Repurchase Case before the
SEC which was docketed as SEC Case No. 04303. In his Complaint, the
seller cited the unjustified refusal of the buyer to comply with the terms of
the agreement and reiterated his prayer in the First Repurchase
Case that the buyer be enjoined to observe its obligation under the
repurchase agreement.
Enforcement o[the First Consortium Case
With Antonio Garcia and Dynetics' failure to comply with the compromise
agreement, the Consortium Banks, on 18 July 1989, filed a Motion for
Execution.10 Thus, the RTC, issued a Writ of Execution11 on 11 August
1989, to enforce the court-approved compromise against Antonio Garcia
and Dynetics.
Pursuant to the writ of execution, the sheriff levied the 1,717,678 shares
of capital stocks in Chemical Industries that were previously attached on
the strength of the 19 July 1985 RTC Order12 in the First Consortium
Case. After the notice and the publication requirements were complied
with, a public auction was conducted whereby the Consortium Banks
were declared as the highest bidders as shown in the Certificate of
Sale.13chanrobleslaw
The RTC, upon application of the Consortium Banks, issued an
Order14 dated 4 September 1989, directing the Corporate Secretary of
Chemical Industries to enter the sheriffs certificate of sale in the
company's stock and transfer books. In effect, the corporate secretary
was enjoined to cancel the certificates of shares of stocks under the name
of Antonio Garcia and all those claiming rights under him and issue new
ones in favor of the Consortium Banks.
The Second Consortium Case
Before the corporate secretary could carry out the foregoing directive,
Chemphil Export filed an Urgent Motion15 opposing the 4 September 1989
RTC Order. Tracing back its ownership to Ferro Chemicals, which in tum,
came into ownership of the disputed shares as early as 15 July 1988, the
intervenor propounded that it has superior right as against the Consortium
Banks.
On 27 September 1989, the RTC issued an Order, 16 allowing the
intervention. On the belief that there is a necessity of resolving first the
question of which between Chemphil Export on the one hand, and the
Consortium Banks on the other, is rightfully entitled to the ownership of
the disputed shares, the RTC recalled its 4 September 1989 Order. For
Chemphil Export, the garnishment effected by the Sheriff on 19 July 1985
is not binding on third persons because it was not recorded on the stock
and transfer book of the corporation.
The Second Consortium Case was litigated all the way up to this Court in
G.R. Nos. 112438-39 and 113394. In a Decision dated 12 December
1995, the Court ruled in favor of the Consortium Banks and declared that
the attachment lien they previously acquired is valid and effective even
though it was not annotated in the corporation's stock and transfer books.
The chief purpose of the remedy of attachment is to secure a contingent
lien on the defendant's property until plaintiff can, by appropriate
proceedings, obtain a judgment and have such property applied to its
satisfaction.17 For this reason, the Court adjudged the Consortium Banks
as the rightful owners of the disputed shares. This decision settled with
finality the Second Consortium Case.18chanrobleslaw
The Ferro Chemicals Case
After losing the disputed shares to the Consortium Banks, Chemphil
Export proceeded to demand from Ferro Chemicals the value of the lost
shares in the amount of P100,000,000.00. In payment thereof, Ferro
Chemicals ceded its fights over its chrome plant in Misamis Oriental m
favor of the former.19chanrobleslaw
In the interregnum, Consortium Banks also assigned their rights over the
disputed shares to Jaime Gonzales by executing a Deed of Assignment
of Credit Without Recourse20 on 7 July 1993.
On the belief that it is aggrieved by the tum of events, Ferro Chemicals
initiated several civil and criminal cases against Chemical Industries,
Antonio Garcia, Rolando Navarro, Jaime Gonzales and a certain Atty.
Virgilio Gesmundo before different courts and judicial bodies.
On 3 December 1996, Ferro Chemicals filed an action for damages
before the RTC of Makati, seeking for the recovery of the amount of the
shares that was lost by Chemphil Export to the Consortium Banks in
the Second Consortium Case.
In its Complaint21 docketed as Civil Case No. 96-1964, Ferro Chemicals
claimed that defendants conspired and abetted to fraudulently induce the
buyer to purchase Antonio Garcia's shares by falsely warranting that
these shares are free from liens and encumbrances. These
representations were made despite their knowledge that the subject
shares were previously garnished by Consortium Banks. Relying on
defendants' warranty, Ferro Chemicals parted with the amount of
P35,462,868.69 as payment for those shares only to lose the said shares
to prior lienholders after a protracted legal battle which reached all the
way up to this Court. It was alleged that the fraudulent scheme was
perpetuated by Antonio Garcia, together with his co-defendants, Jaime
Gonzales and Rolando Navarro, who conspired with him in enticing Ferro
Chemicals to purchase the subject shares.
In refuting liability, defendants Chemical Industries and Antonio Garcia
averred that there is no truth to the claim of Ferro Chemicals that it was
not made aware of the prior attachment of the Consortium Banks. They
insisted that, all the outstanding claims against the subject shares, were
fully disclosed to Ferro Chemicals' President, Ramon Garcia, during the
negotiation of the sale which took almost a year before the parties finally
decided to sign the transfer deed. While the subject lien was not
mentioned in the purchase agreement, Ramon Garcia, however, was
wholly apprised of the status of the encumbrance who went to the extent
of inserting the "reimbursement clause" and "the obligation to defend the
sale clause" in the agreement in order to protect Ferro Chemicals' rights
in the event that prior lienholders will exercise their right over the subject
properties. The reason why the said lien was not expressly stated,
defendants argued, was because at the time the contract was perfected,
the First Consortium Case was ordered dismissed by the
RTC.22chanrobleslaw
To expose the frailty of the case, defendants Chemical Industries and
Antonio Garcia punctuated Ferro Chemical's unjustified refusal to sell
back the shares to Antonio Garcia and the latter's unrelenting efforts to
reacquire the shares at the price stipulated in the Deed of Right to
Repurchase. It was postulated that had it been the intention of the
defendants to deprive plaintiff of the subject shares, an offer to
repurchase made in good faith, coupled with the tender of the agreed
consideration, would not have been made.23chanrobleslaw
By its obstinate refusal to divest its ownership over the shares, it was
argued that plaintiff obviously chose to profit from the shares even at the
risk of losing it to third person·s. After it was finally divested of its right to
receive dividends, defendants pointed out, Ferro Chemicals turned to
Antonio Garcia for the value of the lost shares trumpeting all sorts of
specious claims against him and other defendants.24chanrobleslaw
For his part, defendant Jaime Gonzales claimed that he is not a party to
the agreement which was merely between the brothers Ramon Garcia
and Antonio Garcia and their respective corporations, Ferro Chemicals
and Chemical Industries.25cralawred Contrary to the claim of Ferro
Chemicals, Jaime Gonzales maintained that Ramon Garcia was well
aware of the levy of Consortium Banks against the shares of Antonio
Garcia as this issue was fully discussed to him in the presence of Jaime
Gonzales during the negotiation of the agreement. He invited the
attention of the trial court to the peculiar provisions in the transfer deed
which stipulates "the seller undertook to defend the validity of the sale
and defray the cost of litigation and reimburse the buyer of the payments
made should the sale be invalidated' that were inserted for the precise
reason that the parties wanted to protect the interest of Ferro Chemicals
from the claims of the Consortium Banks. In any case, Jaime Gonzales
claimed that there is no proof that he conspired with his co-defendants to
carry out the sinister design alleged by the plaintiff.26chanrobleslaw
Defendant Rolando Navarro also denied liability by pointing out that he
was neither a party nor a privy to the contract in question and his
participation in the transaction was limited to his signing of the deed as an
instrumental witness thereof. It was Atty. Virgilio Gesmundo who was
consulted by Antonio Garcia during the negotiation of the agreement and
was the one who also prepared the draft of the contract in accordance
with the terms agreed upon by parties. Not being a party nor a privy,
Rolando Navarro posited that he was not in a position to make any
representation or warranty with respect to the subject shares.
After the Pre-Trial Conference, trial on the merits ensued. During the trial,
parties adduced their respective testimonial and documentary evidence to
support their case.
The RTC Decision
On 4 September 2000, the RTC rendered a Decision27 in favor of Ferro
Chemicals and found Chemical Industries, Antonio Garcia, Jaime
Gonzales and Rolando Navarro solidarily liable for the total amount of
P269,355,537.41, representing the value ofthe lost shares, costs of
litigation, attorney's fees and exemplary damages.
In finding Antonio Garcia liable, the RTC harbored the belief that no
reasonable businessman would assume the risk of buying the shares for
P-79,207,331.28 and then end up answering liabilities to its prior
lienholders in the amount of P145,000,000.00. To find flawed Antonio
Garcia's defense, the court a quo went on to declare that it would be an
unwise business decision for Ferro Chemicals to purchase shares of
stocks that were already attached to answer for contingent claims, viz:
chanRoblesvirtualLawlibrary
"Verily, Antonio Garcia has more reason not to
disclose the lien/claim of the consortium since the
consummation of the sale is more to his benefit.
Ramon Garcia's testimony that Antonio Garcia's
[Chemical Industries] shares which have been
garnished by [Security Bank] have been the subject
of attempts by the latter to ell the same at public
auction which will result in its disposal at much lower
price as is always the case in such sales, and
acquisition thereof by the bank itself, an adverse
party is undisputed. xxx.
xxxx
In fine, Antonio Garcia entered into an agreement
with [Ferro Chemicals] for the sale and purchase of
his [Chemical Industries] shares, among others,
covered by Deed of Absolute Sale and Purchase of
Shares of Stock. He falsely represented and
warranted that the same is free from all liens and
encumbrances except that of [Security Bank] and
[Insular Bank], despite his knowledge of the lien of
the consortium. He, therefore, concealed [the] said
lien from [Ferro Chemicals]. The [Chemical
Industries] shares were subsequently lost when said
shares were executed and sold at public auction to
satisfy Antonio Garcia's liability with the consortium,
the ownership of the latter having been declared by
the Supreme Court."28
After having found that Antonio Garcia violated the terms of the purchase
agreement by falsely representing to Ferro Chemicals that the subject
shares were free from liens and encumbrances other than the ones
mentioned in the agreement, the trial court found him liable under Article
1170 of the New Civil Code which states that "those who in the
performance of their obligations are guilty of fraud, negligence or delay,
and those who in any manner contravene the tenor thereof, are liable for
damages."
With respect to acts imputed against Jaime Gonzales and Rolando
Navarro, the RTC found that their conduct prior to, during and subsequent
to the execution of the contract reflected a common design to aide
Antonio Garcia to evade his contractual obligations with Ferro Chemicals.
In effect, the lower court found Jaime Gonzales and Rolando Navarro
liable for tortious interference for having perpetrated acts which are akin
to the scenario wherein third persons induce a party to renege on or
violate his undertaking under the contract warranting relief therefrom. The
RTC decreed that these acts of Jaime Gonzales and Rolando Navarro
are indicative of their scheme to aide Antonio Garcia unjustly deprive
Ferro Chemicals of its purchased shares, to wit:
chanRoblesvirtualLawlibrary
"Defendant Navarro is now estopped from
disclaiming his active participation in the transaction
involving the sale of Antonio Garcia's shares to
[Ferro Chemicals]. The Court believes that he
showed the stock and transfer book of [Chemical
Industries] to Ramon Garcia confident that the
garnishment of the corporation will not be revealed
because as corporate secretary who had the duty to
annotate the garnishment he did not respond to the
call obviously because he was protecting the interest
of Antonio Garcia whom he had been assisting
regarding the former's shares and/or disposition
thereof. Worse, defendant Navarro even cancelled
the certificate of shares in the name of Antonio
Garcia and issued new ones to [Ferro Chemicals].
This was followed by the issuance of new certificates
of shares to [Chemphil Export]. What cannot be
explained is the fact that he continuously did not
record the consortium's garnishment despite being
aware that the interests of Antonio Garcia over his
[Chemical Industries] shares was already being
transferred to third parties, whose interests are
definitely affected.
Likewise, defendant Gonzales is also estopped from
denying his participation in the transaction involving
the sale of Antonio Garcia's [Chemical Industries]
shares to [Ferro Chemicals] after previously
admitting unconditionally his participation in his
Affidavit of 30 May 1990. His subsequent
qualification of such participation is unavailing. In
fact, defendant Gonzales' interest being intertwined
with that of Antonio Garcia personally, in business
and in matters regarding the subject [Chemical
Industries] shares of the latter is an understatement-
he is a financial officer and [a] business associate of
Antonio Garcia; he was also [an] attorney-in-fact of
Antonio Garcia in negotiating and entering into a
compromise agreement with the consortium; and the
subject [Chemical Industries] shares of Antonio
Garcia were ultimately assigned [']to his name['] by
the said consortium."29
As to defendant Chemical Industries, the RTC made the corporation
accountable for the acts of its Corporate Secretary, Rolando Navarro,
which were carried out to the damage and prejudice of Ferro Chemicals.
Having laid the individual participation of each defendant to defraud the
plaintiff, the RTC then found them jointly and severally liable for the
purchase price of the subject shares, cost of litigation, attorney's fees and
exemplary damages, viz:
chanRoblesvirtualLawlibrary
"WHEREFORE, premises above considered, and
[Ferro Chemicals] having duly established its claim,
judgement is hereby rendered in favor of [Ferro
Chemicals] and as against [Chemical Industries,
Antonio Garcia, Jaime Gonzales and Rolando
Navarro], who are hereby ordered to pay [Ferro
Chemicals], jointly and severally, as follows:
chanRoblesvirtualLawlibrary
(1) P256,255,537.41, which is
the value of the lost shares
minus the balance of the
purchase price;
(2) P12,000,000.00, which is the
cost of suit and expenses of
litigation in the case against the
consortium and the instant case;
(3) P100,000.000 as exemplary
damages[;]
(4) P1,000,000.00 plus
additional 10% of the value of
the shares as attorney's fees.
SO ORDERED."30chanroblesvirtuallawlibrary
The Court of Appeals Decision
On 3 March 2004, the CA rendered a Decision affirming with modification
the RTC Decision. Finding no sufficient evidence on record that Rolando
Navarro actively participated in the fraud perpetrated by Antonio Garcia
against Ferro Chemicals, the CA discharged him from liability. Underlying
the ruling was the finding that Rolando Navarro's participation was limited
to his failure to disclose the existence of lien in favor of Consortium Banks
without any showing that he subsequently "abetted, actively participated
or connived" with Antonio Garcia in breaching the latter's obligation under
the agreement. Being a corporation with a personality separate and
distinct from its officers and members, the CA held that Chemical
Industries could not be held liable for the acts of the latter. Finally, the CA THE HONORABLE COURT OF APPEALS
struck down the grant of "attorney's fees in the sum of P1,000,000.00 plus GRAVELY AND PALPABLY ERRED IN
10% of the value of the shares" for being reasonable and excessive and EXONERATING [CHEMICAL INDUSTRIES] FROM
deleted the grant for reimbursement of litigation expenses for lack of proof. LIABILITY DESPITE THE TORTIOUS ACTS OF ITS
RESPONSIBLE OFFICERS;
In a Resolution dated 17 May 2005, the CA denied the Motions for Partial
Reconsideration separately filed by Ferro Chemicals, Antonio Garcia and III.
Jaime Gonzales for lack of merit.

The Petitions Before This Court THE HONORABLE COURT OF APPEALS

GRAVELY AND PALPABLY ERRED IN RULING
THAT THERE IS NO EVIDENCE THAT [FERRO
From the foregoing CA Decision and Resolution arose three separate CHEMICALS] ASSUMED THE EXPENSES OF
Petitions for Review n Certiorari: (1) G.R. No. 168134. Ferro Chemicals, LITIGATION IN A CASE AGAINST THE
Inc., v. Antonio M. Garcia, Rolando P. Navarro, Jaime Y. Gonzales and CONSORTIUM BANKS IN THE AMOUNT OF
Chemical Industries of the Philippines, Inc.; (2) G.R. No. 168183, Jaime Y. P12,000,000.00;
Gonzales v. Hon. Court of Appeals and Ferro Chemicals, Inc.; and
(3) G.R. No. 168196, Antonio M. Garcia v. Ferro Chemicals, Inc. For IV.
identity of the parties and similarity of the issues involved, the Court
directed the consolidation of G.R. Nos. 168196, 168134 and 168183.
THE HONORABLE COURT OF APPEALS
G.R. No. 168134 GRAVELY AND PALPABLY ERRED IN
DISREGARDING THE UNCONTROVERTED
EVIDENCE AND LEGAL JUSTIFICATION FOR THE
This is a petition filed by Ferro Chemicals assailing the CA ruling which AWARD OF P1,000,000.00 PLUS THE
discharged Rolando Navarro and Chemical Industries from liability. Ferro ADDITIONAL 10% OF THE VALUE OF THE
Chemicals likewise questioned in this petition the deletion of the SHARES AS ATTORNEY'S FEES IN FAVOR OF
reimbursement for the. litigation costs expended by Chemphil Export in THE PETITIONERS.
the Second Consortium Case in the amount of P12,000,000.00, and, the
attorney's fees in the sum of P1,000,000.00 with the additional 10% of the V.
value of the shares which were previously awarded by the RTC.

G.R. No. 168183 THE HONORABLE COURT OF APPEALS

GRAVELY AND PALPABLY ERRED IN FINDING
JAIME GONZALES LIABLE FOR TORTIOUS
In G.R. No. 168183, Jaime Gonzales controverts the CA's finding which INTERFERENCE FOR HIS PARTICIPATION IN
adjudged him liable for tortious interference under Article 1314 of the New THE NEGOTIATION OF THE PURCHASE
Civil Code on account of participation in the negotiation of sale of the AGREEMENT AND IN EVENTUALLY ACQUIRING
shares and his eventual acquisition of the same shares from the THE SUBJECT SHARES FROM THE
Consortium Banks. CONSORTIUM BANKS;

G.R. No. 168196 VI.

For his part, Antonio Garcia initiated G.R. No. 168196 seeking the nullity THE HONORABLE COURT OF APPEALS
of the CA Decision and Resolution finding him guilty of fraud in the GRAVELY AND PALPABLY ERRED IN FINDING
performance of his obligations and in failing to comply with his obligation ANTONIO GARCIA GUILTY OF FRAUD IN THE
to defend the sale. He questions the failure of the CA to deduct the PERFORMANCE OF HIS OBLIGATION UNDER
dividends earned by the subject shares in its computation of the value of THE PURCHASE AGREEMENT IN FAILING TO
the shares lost including the value of Alabang Country Club, Inc. and COMPLY WITH HIS OBLIGATION TO DEFEND
Manila Polo Club, Inc. shares which were both transferred by Antonio THE SALE UNDER THE SAID CONTRACT;
Garcia to Ferro Chemicals thereby allowing Ferro Chemicals to unjustly
enrich itself at his expense. VII.

The Issues
THE HONORABLE COURT OF APPEALS
GRAVELY AND PALPABLY ERRED IN FAILING TO
DEDUCT THE DIVIDENDS EARNED BY THE
I. SUBJECT SHARES INCLUDING THE VALUE OF
THE ALABANG GOLF CLUB AND MANILA POLO
CLUB SHARES IN ITS COMPUTATION OF THE
THE HONORABLE COURT OF VALUE OF FERRO CHEMICAL'S LOSS.
APPEALS GRAVELY AND
PALPABLY ERRED IN
EXONERATING
RESPONDENT ROLANDO The Court's Ruling
NAVARRO FROM LIABILITY
DESPITE HIS PARtiCIPATION
IN THE SINISTER PLAN TO
DECEIVE [FERRO On the liability of
CHEMICALS]. HIS FAILURE Antonio Garcia for fraud and
TO COMPLY WITH HIS breach of obligation
DUTIES AS CORPORATE
SECRETARY AND Resonating the RTC, the CA arrived at the conclusion that Antonio Garcia
INTERFERING AND is guilty of fraud in the performance of his obligation, but the CA made its
OBSTRUCTING THE independent judgment pinning Antonio Garcia on the basis of the
FAITHFUL FULFILLMENT OF following assumptions:
[ANTONIO GARCIA'S]
OBLIGATION UNDER THE chanRoblesvirtualLawlibrary
CONTRACT BETWEEN
[FERRO CHEMICALS] AND
[ANTONIO GARCIA];
1. That Ferro Chemicals would not have
entered into the sale had it known that the
subject shares were subject of the
II. Consortium Banks' lien as to do so would
 be tantamount to "committing financial
suicide;"
2. That if it were true that Ferro Chemicals
was apprised of the pendency of the
claims in question, that fact would have
been embodied in the provisions of the
contract. Under the Best Evidence Rule,
defendants cannot be permitted to present
evidence aliunde;
3. That defendants cannot impute negligence
to Ramon Garcia for failing to uncover the
subject attachment prior to the execution
of the sale as it is the obligation of Antonio
Garcia to fully disclose in good faith all
existing claims against the disputed
shares.
The CA endeavored to tie all the loose ends by declaring that Antonio
Garcia's liability was hinged primarily not on his misrepresentations with
respect to the sale contract, but on alleged fraudulent acts he perpetrated
in connection with the First Consortium Case. For the CA, his acts
subsequent to the consummation of the sale were not at arm's length and
jeopardized the position of Ferro Chemicals in relation to Chemical
Industries' shares. All these circumstances, taken together, led the CA to
its conclusion that Antonio Garcia breached his obligation under the
circumstances, to wit:
chanRoblesvirtualLawlibrary
1. By recognizing his liability with the banks
in the Compromise Agreement, Antonio
Garcia placed the subject shares within the
reach of his obligors knowing that these
shares were previously attached to answer
his obligation with them;
2. By failing to move for the lifting of the
attachment effected by the Consortium
Banks over the subject shares and to offer
his other properties as substitutes after he
sold these shares to Ferro Chemicals;
3. By allowing the execution on sale to
proceed without opposition on his part and
by refusing to reimburse Ferro Chemicals
of the amount of litigation expenses it
incurred in its effort to defend its ownership
of the subject shares;
The appellate court, in other words, saw that Antonio Garcia, all
throughout the First Consortium Case, maintained a lackadaisical stance
which paved the way for the Consortium Banks' enforcement of
garnishment and the consequent sale of the attached shares at the public
auction to the damage and prejudice of Ferro Chemicals.
We are not convinced.
TheCA's lament, in every tum, that Antonio Garcia was guilty of bad faith
from the inception of the sale contract until his compromise with the
Consortium Banks is inexorably rebuked by the following chronology of
factual incidents that governs the relationship of Antonio Garcia and Ferro
Chemicals:
chanRoblesvirtualLawlibrary
(1) On 15 July 1988, Antonio Garcia and Ferro
Chemicals entered into a Deed of Absolute Sale and
Purchase of Shares of Stock;31chanrobleslaw
(2) On 17 January 1989, Antonio Garcia and
Consortium Banks entered into a Compromise
Agreement32 with respect to the First Consortium
Case;
(3) On 3 March 1989, Antonio Garcia and Ferro
Chemicals entered into a Deed of Right to
Repurchase;33chanrobleslaw
(4) On 12 July 1989, Antonio Garcia notified Ferro
Chemicals of his intention to exercise his right to
buy back the sold shares under the repurchase
deed;
(5) On 31 July 1989, Antonio Garcia reiterated his
intent to reacquire the subject shares by sending
another notice to Ferro Chemicals coupled with
the tender of the amount of the agreed
repurchase price;
(6) On 11 August 1989, the RTC of Makati, Branch
145, issued a Writ of Execution34 to enforce the
Judgment by Compromise in the First Consortium
Case;
(7) On 22 August 1989, the Consortium Banks were
declared as the highest bidders of the levied shares
at the public auction;35chanrobleslaw
(8) On 26 September 1989, Ferro Chemicals (thru
Chemphil Export) successor-in-interest, opposed the
consolidation of ownership of the subject shares in
the names of the Consortium Banks;36chanrobleslaw
(9) From 26 September 1989 up to 12 December
1995, the Second Consortium Case was under
litigation;
(10) On 1 April 1996, Ferro Chemicals lost
the Second Consortium Case with
finality;37chanrobleslaw
(11) On 3 December 1996, Ferro Chemicals initiated
the Ferro Chemicals Case for the payment of
damages based on fraud.38 (Emphasis supplied)
While the factual milieu of this case is seemingly mazy because of the
number of cases and legal issues that stemmed from a simple transfer of
shares contract, there are two clearly crucial evidentiary matters that were
without warrant overlooked by the lower tribunals: (I) the execution by
Ferro Chemicals and Antonio Garcia of the Deed of Right to
Repurchase on 3 March 1989; and (2) that on two separate
occasions, Antonio Garcia conveyed in writing his intent to buy back
the shares in accordance with the terms of the repurchase deed. These
pieces of evidence, if appreciated in light of the allegation of fraud, would
overthrow the very foundation upon which the Ferro Chemicals rested its
case.
Notably, Antonio Garcia's right to repurchase the subject shares, his
attempts to exercise that right and Ferro Chemicals' refusal to honor it, as
well as the legal actions taken by Antonio Garcia against Ferro Chemicals,
were duly pleaded as affirmative allegations in Antonio Garcia's
Answer,39 in Civil Case No. 96-1964 to wit:
chanRoblesvirtualLawlibrary
"3.7 On 3 March 1989, [Antonio Garcia] and [Ferro
Chemicals] entered into a Deed of Right to
Repurchase (the "Repurchase Deed", hereafter)
covering the shares subject matter of the Deed of
Sale, including the CIP Shares, confirming earlier
verbal agreement between the brothers, Ramon M.
Garcia and [Antonio Garcia], that the latter could
repurchase the said shares from [Ferro Chemicals].
Under the Repurchase Deed, defendant Garcia had
until 30 August 1989 to exercise his right to
repurchase the shares.
3.7.1 On July 1989, or long before the expiration of
his right to repurchase the shares, Antonio Garcia
informed [Ferro Chemicals] that it was going to
exercise said right. This notice was reiterated on 31
July 1989 with a tender of the repurchase price as
stipulated in the Repurchase Deed;
3.7.2 [Ferro Chemicals] refused to honor [Antonio
Garcia's] right under the Repurchase Deed alleging
that the amount tendered was insufficient in that
interest for one day and the broker's commission
were not included in said amount. [Antonio Garcia]
offered to pay the interest for one day but refused to
pay the broker's commission because the sale of the
shares was not coursed through the stock exchange.
[Ferro Chemicals] still refused to honor [Antonio
Garcia's] right under the Repurchase Agreement.
Worse, [Ferro Chemicals] assigned its rights over the
 [Chemical Industries] Shares to [Chemphil Export] x x x fraud when, through
supposedly on 26 June 1989; insidious words or machinations
of one of the contracting parties,
3.7.3 Accordingly, on 21 August 1989; Antonio the other is induced to enter into
Garcia filed a complaint for specific performance and contract which, without them, he
annulment of transfer of shares against [Ferro would not have agreed to.
Chemicals] and [Chemphil Export] entitled [']Antonio
M. Garcia v. Ferro Chemicals,,Inc., et al.,['] docketed This is followed by the articles which provide legal
as Civil Case No. 89-4837, with the Regional Trial examples and illustrations of fraud.
Court of Makati, which was raffled to Branch 145 (the
"First Repurchase Case", hereafter). [Antonio Garcia] Art. 1339. Failure to disclose
sought, among other reliefs, the reconveyance of the facts, when there is a duty to
shares, including the [Chemical Industries] Shares reveal them, as when the parties
from [Ferro Chemicals] and [Chemphil Export]. This are bound by confidential
case was, however, ordered dismissed by the Court relations, constitutes fraud. (n)
of Appeals based on its finding that the Repurchase
Case involved an intra-corporate dispute over which Art. 1340. The usual
the Securities and Exchange Commission ("SEC") exaggerations in trade, when the
has exclusive jurisdiction; other party had an opportunity to
know the facts, are not in
3.7.4 Pursuant to the Court of Appeals decision, themselves fraudulent. (n)
[Antonio Garcia], on 26 August 1992, filed with the
SEC a complaint for specific performance and/or Art. 1341. . A mere expression
rescission, with damages against Ramon M. Garcia, of an opm10n does not signify
[Chemphil Export] and [Ferro Chemicals]', docketed fraud, unless made by an expert
as SEC Case No. 04303 (the "Second Repurchase and the other party has relied on
Case", hereafter). In the Second Repurchase Case, the former's special knowledge.
[Antonio Garcia] again sought, among other relief, (n)
the reconveyance of the [Chemical Industries] shares.
As in the First Reconveyance Case, Ramon M. Art. 1342. Misrepresentation by
Garcia, [Chemphil Export] and [Ferro Chemicals] a third person does not vitiate
again vigorously opposed [Antonio Garcia's] action to consent, unless such
recover the shares subject matter of the Deed of misrepresentation has created
Sale, including the [Chemical Industries] Shares. The substantial mistake and the
Second Repurchase Case is still pending with the same is mutual. '(n)
SEC."40
Art. 1343. Misrepresentation
made in good faith 1s not
Antonio Garcia attached a copy of the Deed of Right to Repurchase as fraudulent but may constitute
Annex 1 of his Answer and argued, as one of his affirmative defenses, error. (n)
that Ferro Chemicals does not have a cause of action against him
because:
"The distinction between fraud as a ground for
chanRoblesvirtualLawlibrary rendering a contract voidable or as basis for an
award of damages is provided in Article 1344:
"4.1.3 Despite its full knowledge of the Bank
Consortium's claim on the [Chemical Industries] chanRoblesvirtualLawlibrary
shares, Ferro Chemicals refused and opposed all
offers and efforts of Antonio Garcia to repurchase the In order that fraud may make a
[Chemical Industries] shares."41 contract voidable, it should be
serious and should not have
been employed by both
Harping on the infallibility of the lower tribunals' factual findings, Ferro contracting parties.
Chemicals impresses upon this Court that Antonio Garcia, driven by the
desire to profit from the disposal of his shares and to satisfy his Incidental fraud only obliges the
obligations with his creditors at the same time, employed deceptive person employing it to pay
schemes to lure Ramon Garcia to purchase the subject shares by damages. (1270)
concealing the lien of the Consortium Banks. The non-disclosure of the
subject lien, Ferro Chemicals claimed and the RTC and CA believed, is
constitutive of an actionable fraud warranting the award of damages. In "There are two types of fraud contemplated in the
no uncertain terms both tribunals pronounced that the non-mention of the performance of contracts: dolo incidente or incidental
lien in the transfer contract was intentionally and deceptively done by fraud and dolo causante or fraud serious enough to
Antonio Garcia in bad faith and with intent to defraud. For the lower courts, render a contract voidable.
the testimonial evidence sought to be introduced by Antonio Garcia,
which modifies the express terms of the purchase agreement to suggest In Geraldez v. Court of Appeals, this Court held
that the subject lien was purportedly contemplated by the parties in the that:ChanRoblesVirtualawlibrary
contract, is not permissible under the Parole Evidence Rule.
This fraud or dolo which is
We do not agree. present or employed at the time
of birth or perfection of a
Fraud, in its general sense, is deemed to comprise anything calculated to contract may either be dolo
deceive, including all acts, omissions, and concealment involving a causante or dolo incidente. The
breach of legal or equitable duty, trust or confidence justly reposed, first, or causal fraud referred to
resulting in the damage to another, or by which an undue and in Article 1338, are those
unconscionable advantage is taken of another. It is a question of fact and deceptions or
the circumstances constituting it must be alleged and proved in the court misrepresentations of a serious
below.42chanrobleslaw character employed by one
party and without which the
In the case of Tankeh v. DBP, et al.,43 this Court reviewed the doctrines of other party would not have
fraud in relation to contractual relations and the quantum of proof entered into the contract. Dolo
necessary to prove fraud and establish liability therefor: incidente, or incidental fraud
which is referred to in Article
chanRoblesvirtualLawlibrary 1344, are those which are not
serious in character and without
"Fraud is defined in Article 1338 of the Civil Code which the other party would still
as:ChanRoblesVirtualawlibrary have entered into the
contract. Dolo
 causante determines or is the
essential cause of the consent,
while dolo incidente refers only
to some particular or accident of
the obligation. The effects
of dolo causante are the nullity
of the contract and the
indemnification of damages,
and dolo incidente also obliges
the person employing it to pay
damages..
"In Solidbank Corporation v. Mindanao Ferroalloy
Corporation, et al., this Court elaborated on the
distinction between dolo causante and dolo incidente:
chanRoblesvirtualLawlibrary
Fraud refers to all kinds of
deception -- whether through
insidious machination,
manipulation, concealment or
misrepresentation -- that would
lead an ordinarily prudent
person into error after taking the
circumstances into account. In
contracts, a fraud known as dolo
causante or causal fraud is
basically a deception used by
one party prior to or
simultaneous with the contract,
in order to secure the consent of
the other. Needless to say, the
deceit employed must be
serious. In contradistinction,
only some particular or accident
of the obligation is referred to by
incidental fraud or dolo incidente,
or that which is not serious in
character and without which the
other party would have entered
into the contract anyway.
"Under Article 1344, the fraud must be serious to
annul or avoid a contract and render it voidable. This
fraud or deception must be so material that had it not
been present, the defrauded party would not have
entered into the contract. In the recent case
of Spouses Carmen S. Tongson and Jose C.
Tongson, et al., v. Emergency Pawnshop Bula, Inc.,
this Court provided some examples of what
constituted dolo causante or causal fraud:
chanRoblesvirtualLawlibrary
Some of the instances where
this Court found the existence of
causal fraud include: (1) when
the seller, who had no intention
to part with her property, was
"tricked into believing" that what
she signed were papers
pertinent to her application for
the reconstitution of her burned
certificate of title, not a deed of
sale; (2) when the signature of
the authorized corporate officer
was forged; or (3) when the
seller was seriously ill, and died
a week after signing the deed of
sale raising doubts on whether
the seller could have read, or
fully understood, the contents of
the documents he signed or of
the consequences of his act.
(Citations omitted)
"However, Article 1344 also provides that if fraud is
incidental, it follows that this type of fraud is not
serious enough so as to render the original contract
voidable.
"A classic example of dolo incidente is Woodhouse v.
Halili. In this case, the plaintiff Charles Woodhouse
entered into a written agreement with the defendant
Fortunato Halili to organize a partnership for the
bottling and distribution of soft drinks. However, the
partnership did not come into fruition, and the plaintiff
filed a Complaint in order to execute the partnership.
The defendant filed a Counterclaim, alleging that the
plaintiff had defrauded him because the latter was
not actually the owner of the franchise of a soft drink
bottling operation. Thus, defendant sought the
nullification of the contract to enter into the
partnership. This Court concluded that:
chanRoblesvirtualLawlibrary
x x x from all the foregoing x x x
plaintiff did actually represent to
defendant that he was the
holder of the exclusive franchise.
The defendant was made to
believe, and he actually believed,
that plaintiff had the exclusive
franchise. x x x The record
abounds with circumstances
indicative that the fact that the
principal consideration, the main
cause that induced defendant to
enter into the partnership.
agreement with plaintiff, was the
ability of plaintiff to get the
exclusive franchise to bottle and
distribute for the defendant or for
the partnership. x x x The
defendant was, therefore, led to
the belief that plaintiff had the
exclusive franchise, but that the
same was to be secured for or
transferred to the partnership.
The plaintiff no longer had the
exclusive franchise, or the
option thereto, at the time the
contract was perfected. But
while he had already lost his
option thereto (when the
contract was entered into), the
principal obligation that he
assumed or undertook was to
secure said franchise for the
partnership, as the bottler and
distributor for the Mission Dry
Corporation. We declare,
therefore, that if he was guilty of
a false representation, this was
not the causal consideration, or
the principal inducement, that
led plaintiff to enter into the
partnership agreement.
But, on the other hand, this
supposed ownership of an
exclusive franchise was actually
the consideration or price
plaintiff gave in exchange for the
share of 30 percent granted him
in the net profits of the
partnership business. Defendant
agreed to give plaintiff 30 per
cent share in the net profits
because he was transferring his
exclusive franchise to the
partnership. x x x.
Plaintiff had never been a bottler
or a chemist; he never had
experience in the production or
distribution of beverages. As a
matter of fact, when the bottling
plant being built, all that he
suggested was about the toilet
facilities for the laborers.
We conclude from the above
that while the representation that
plaintiff had the exclusive
franchise' did not vitiate
defendant's consent to the
contract, it was used by plaintiff
to get from defendant a share of
30 per cent of the net profits; in
 other words, by pretending that
he had the exclusive franchise
and promising to transfer it to
defendant, he obtained the
consent of the latter to give him
(plaintiff) a big slice in the net
profits. This is the dolo
incidente defined in article 1270
of the Spanish Civil Code,
because it was used to get the
other party's consent to a big
share in the profits, an incidental
matter in the agreement.
"Thus, this Court held that the original agreement
may not be declared null and void. This Court also
said that the plaintiff had been entitled to damages
because of the refusal of the defendant to enter into
the partnership. However, the plaintiff was also held
liable for damages to the defendant for the
misrepresentation that the former had the exclusive
franchise to soft drink bottling operations.
To summarize, if there is fraud in the performance of
the contract, then this fraud will give rise to damages.
If the fraud did not compel the imputing party to give
his or her consent, it may not serve as the basis to
annul the contract; which exhibits dolo causante.
However, the party alleging the existence of fraud
may prove the existence of dolo incidente. This may
make the party against whom fraud is alleged liable
for damages."44
Applying the foregoing precepts in this case, we find it hard to believe that
Antonio Garcia, in view of his impassioned efforts to buy back the
disputed shares way before the Second Consortium Case commenced
and even after the shares were assigned already to Chemphil Export,
could be motivated by his fraudulent desire to extract money and then
ease out Ferro Chemicals from its ownership of the subject shares. The
flagrancy of the Deed of the Right to Repurchase ought to have caused
the lower courts to delve into the repurchase issue since this could have
very well dispelled the fraud alleged to have attended the acts of Antonio
Garcia. By disregarding the repurchase contract and Antonio Garcia's
intent in good faith to buy back the shares, the lower tribunals fell prey
into the skewed representations of Ferro Chemicals of the factual
incidents of this case. Indeed, both the contractual agreement on Antonio
Garcia's right to repurchase and Antonio Garcia's actual earnest attempts
at repurchase were central to the cause of Antonio Garcia in the
proceedings below.
Though it fashioned itself as the vulnerable party, who was lured into
buying shares of stocks that later turned out to be overburdened by liens,
the fact is that Ramon· Garcia is the President of Ferro Chemicals and
the brother of Antonio Garcia of Chemical Industries which, like Ferro
Chemicals, is into initiated business ventures. The transactions that
Ramon and Antonio Garcia had with each other were between brothers
about their businesses. Ramon Garcia, both in buying the subject shares
from Antonio Garcia, and later on, in refusing to sell back the shares to
Antonio Garcia did so in furtherance of his interests. It would be rash
judgment to say it was not so and hold that business dealings in
multimillions were done without conducting due diligence on the subject
of the contract.
Indeed, the allegation that Antonio Garcia employed fraudulent
machinations to hide the subject lien to facilitate the disposal of his shares
and to lure Ferro Chemicals to part with its money is diametrically
opposed to Antonio Garcia's subsequent offers to repurchase the shares
and tender of the repurchase price. On the other hand, Ferro Chemicals'
explanation that the reason why it did not agree to the reacquisition was
because the repurchase price tendered did not include the amount of
taxes and interest due,45 is flimsy and unacceptable under the
circumstances. It must be pointed out that no negotiation in good faith
between. the parties as to the correct amount of taxes and interests
should be paid took place since Ferro Chemicals at the outset flatly
refused the offer to buy. As a matter of fact, Antonio Garcia was
constrained to initiate two repurchase cases in his effort to reacquire the
property.
The succession of events shows that Ferro Chemical's refusal to sell back
the shares to Antonio Garcia was a calculated move by Ramon Garcia
who measured the risk of losing the subject shares to the Consortium
Banks against the visible returns on the shares during the pendency of
the Consortium Bank Case. Between the time of the initial offer of Antonio
Garcia to buy back the shares on 31 July 1989' up to the finality of the
Court's decision in the Second Consortium Case on 12 December 1995,
Ferro Chemicals thru Chemphil Export, profited from the Chemical
Industries' shares. It was only after it had lost the shares to the
Consortium Banks by the decision of the Court that Ferro Chemicals went
back to Antonio Garcia and his co-defendants for the enforcement of the
sale contract asking for the reimbursement of the amount of the shares
that was lost. The buying and selling of stocks and the subsequent
agreement on reversed activities were in the exercise of business
judgment.
Fraud has been defined to include an inducement through insidious
machination. Insidious machination refers to a deceitful scheme or plot
with an evil or devious purpose. Deceit exists where the party, with intent
to deceive, conceals or omits to state material facts and, by reason of
such omission or concealment, the other party was induced to give
consent that would not otherwise have been given. These are allegations
of fact that demand clear and convincing proof. They are serious
accusations that can be so conveniently and casually invoked, and that is
why they are never presumed.46Applying the doctrines to the case at bar,
a judgment on fraud requires allegation and proof of facts and
circumstances by which undue and unconscionable advantage is taken
by Antonio Garcia. Ramon Garcia failed in this regard. In contrast, the
succession of transaction between Antonio and Ramon Garcia indicated
that Ramon Garcia wanted to have a way out of his failed business
decision of holding on to his shares instead of selling it back to Antonio
Garcia when he had the opportunity to do so. He saw that it was better to
hold on to the shares he bought from Antonio Garcia. The Court cannot
save him from the fall that came from his own choice.
On the liability of Rolando Navarro
and Jaime Gonzales for tortious
interference
In imputing liability to Rolando Navarro, Ferro Chemicals harps on the
following acts found by the trial court to be demonstrative of his malicious
intention to interfere with the contract between Antonio Garcia and Ferro
Chemicals:
chanRoblesvirtualLawlibrary
(1) He facilitated in the execution of the Deed by
showing the Stock and Transfer Book of [Chemical
Industries] to [Ferro Chemicals] thru [Ramon Garcia]
to assure the latter that the disputed shares had no
lien other than those in the Stock and Transfer Book
and in order to conceal the [Consortium Bank's] lien;
(2) He, together with Atty. Virgilio Gesmundo, also
drafted in the boardroom of the [Chemical Industries]
the Deed which embodied the basic terms and
conditions of the sale as agreed upon by the parties;
(3) He also signed as instrumental witness in the
Deed;
(4) Upon examination of the Deed and despite
knowledge of the irregularity of the sale, he, acting as
corporate secretary of [Chemical Industries],
transferred the disputed shares in the name of [Ferro
Chemicals] and issued the corresponding certificates
of stock;
(5) He drafted the Deed of Right to Repurchase
under which [Antonio Garcia] was given the right to
redeem the shares sold to [Ferro Chemicals] within
180 days from signing of the said deed and subject to
other conditions stated therein;
(6) He, as the corporate secretary of [Chemical
Industries], again made the transfer of the said
shares in the Stock and Transfer Book of [Chemical
Industries] this time with respect to the 4,119,614
shares (which included the disputed shares)
assigned by [Ferro Chemicals] to [Chemphil Export].
In essence, Ferro Chemicals contends that while Rolando Navaro is not
privy to the contract, his individual acts form part of the bigger scheme to
defraud the corporation.
In his Comment,47 Rolando Navarro denies liability by arguing that not
being a party to the contract, he cannot be held liable for breach thereof
under Article 1311 of the New Civil Code. He underscores that Ferro
Chemical's complaint was for ·breach of contract, i.e. for failure to deliver
the clean title of the subject shares, which obligation befalls on the buyer
alone. As an instrumental witness to the deed, it is absurd to hold him
liable for failure of the buyer to make good his warranty under the
agreement. Invoking that only absolute transfers of shares of stocks are
required to be recorded in the corporation's stock and transfer book,
Rolando Navarro insists that he cannot be held liable for failing to record
the claim of the Consortium Banks since it is merely an attachment.
Finally, he asserts that none of the conduct imputed against him
constitute tortious interference under Article 1314 of the New Civil Code
because these acts, i.e., transfer the certificate of title of the said shares
and preparing a draft of contracts, were mainly part of his primary duty as
the Corporate Secretary of the Chemical Industries.
We affirm the ruling of the Court of Appeals in favor of Rolando
Navarro.
The basic principle of relativity of contracts is that contracts can only bind
the parties who entered into it, and cannot favor or prejudice a third
person, even if he is aware of such contract and has acted with
knowledge thereof.48 Where there is no privity of contract, there is
likewise no obligation or liability to speak about.49 Article 1311 of the New
Civil Code provides:
chanRoblesvirtualLawlibrary
Art. 1311. Contracts take effect only between the
parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract
are not transmissible by their nature, or by stipulation
or by provision of law. The heir is not liable beyond
the value of the property he received from the
decedent.
The obligation of contracts is limited to the parties making them and,
ordinarily, only those who are parties to contracts are liable for their
breach. Parties to a contract cannot thereby impose any liability on one
who, under its terms, is a stranger to the contract, and, in any event, in
order to bind a third person contractually, an expression of assent by such
person is necessary.50chanrobleslaw
Under Article 1314 of the New Civil Code, however, any third person who
induces another to violate .his contract shall be liable for damages to the
other contracting party. The tort recognized in that provision is known as
interference with contractual relations. The interference is penalized
because it violates the property right of a party in a contract to reap the
benefits that should result therefrom.51chanrobleslaw
The Court, in the case of So Ping Bun v. Court of Appeals, et al.,52 laid
down the elements of tortious interference with contractual relations: (1)
existence of a valid contract; (2) knowledge on the part of the third person
of the existence of the contract and (3) interference on the part of the third
person without legal justification or excuse.53chanrobleslaw
A duty which the law of torts is concerned with is respect for property of
others, and cause of action ex delicto may be predicated by an unlawful
interference by any person of the enjoyment of the other of his private
property. This may pertain to a situation where a third person induces a
person to renege on or violate his undertaking under a
contract.54chanrobleslaw
A perusal of the. allegations proffered against Rolando Navarro would
show that none of his conduct prior or even subsequent to the execution
of the subject deed, which was primarily done in furtherance of his duties
as corporate secretary, constitutes tortious interference. To imply that by
preparing a draft of a contract, signing as instrumental witness of the
deed and recording of transfer of shares on the corporate books, Rolando
Navarro can now be held liable for tortious interference, is incredulous.
Nothing from his acts as found by the trial court, which were clearly
carried out within the bounds of his office devoid of malice and bad faith,
would suggest involvement in the sinister design to deprive Ferro
Chemicals of its property right over the disputed shares. As the Corporate
Secretary of Chemical Industries, Rolando Navarro is under obligation to
record in the stock and transfer book any and all alienation involving the
shares of stocks of the corporation as mandated by Section 74 of the
Corporation Code which states:
chanRoblesvirtualLawlibrary
Sec. 74. Books to he kept; stock transfer agent. x
xx
xxxx
Stock corporations must also keep a book to be
known as the "stock and transfer book," in which
must be kept a record of all stocks in the names of
the stockholders alphabetically arranged; the
installments paid and unpaid on all stock for which
subscription has been made, and the date of
payment of any installment; a statement of every
alienation, sale or transfer of stock made the date
thereof, and by and to whom made; and such other
entries as the by-laws may prescribe. The stock and
transfer book shall be kept in the principal office of
the corporation or in the office of its stock transfer
agent and shall be open for inspection by any
director or stockholder of the corporation at
reasonable hours on business days.
Clearly, the transfer of the certificates of stocks covering the subject
shares in favor of Ferro Chemicals effected on the strength of a valid
deed of sale cannot be taken as an actionable tortious conduct, whether
such action is viewed in isolation or in connection with conduct of his
co-defendants. The Court, in So Ping Bun v. Court of Appeals, et
al.,55 defined what constitutes an unlawful interference with contract:
chanRoblesvirtualLawlibrary
"The foregoing issues involve, essentially, the correct
interpretation of the applicable law on tortuous
conduct, particularly unlawful interference with
contract. We have to begin, obviously, with certain
fundamental principles on torts and damages.
Damage is the loss, hurt, or harm which results from
injury, and damages are the recompense or
compensation awarded for the damage suffered.
One becomes liable in an action for damages for a
nontrespassory invasion of another's interest in the
private use and enjoyment of asset if (a) the other
has property rights and privileges with respect to the
use or enjoyment interfered with, (b) the invasion is
substantial, (c) the defendant's conduct is a legal
cause of the invasion, and (d) the invasion is either
intentional and unreasonable or unintentional and
actionable under general negligence rules."
For sure, Rolando Navarro has transgressed no right of Ferro Chemicals
while performing his obligation as an officer of Chemical Industries. There
is absolutely no proof other than the weak indicia which, the plaintiff
contends, show the existence thereof.. Even if we lend credence to the
graver allegation that Rolando Navarro showed the stock and transfer
books of the corporation to Ramon Garcia which bore no record of the
Consortium Banks' lien, still he could not be faulted in the absence of
showing that he acted in bad faith with the intention to lure the buyer to
believe that the subject shares were lien-free. As the Corporate Secretary
of Chemical Industries, he is under no obligation to record the attachment
of the Consortium Banks, not being a transfer of ownership but merely a
burden on the title of the owner. Only absolute transfers of shares of
stock are required to be recorded in the corporation's stock and
transfer book in order to have "force and effect as a ainst third
persons."56 In Chemphil Export and Import Corporation v. Court of
Appeals, et al.,57the Court enunciated the rule that attachments of shares
are not considered "transfer" and need not be recorded in the
corporations' stock and transfer book, viz:
chanRoblesvirtualLawlibrary
"'Are attachments of shares of stock included in
the term "transfer" as provided in Sec. 63 of the
Corporation Code? We rule in the negative. As
succinctly declared in the case of Monserrat v. Ceron,
chattel mortgage over shares of stock need not be
registered in the corporation's stock and transfer
book inasmuch as chattel mortgage over shares of
stock does not involve a "transfer of shares," and that
only absolute transfers of shares of stock are
required to be recorded in the corporation's stock
and transfer book in order to have "force and effect
as against third persons."
xxxx
"A 'transfer' is the act by which the owner of a thing
delivers it to another with the intent of passing the
rights which he has in it to the latter, and a chattel
mortgage is not within the meaning of such term.
xxxx
Although the Monserrat case refers to a chattel
mortgage over shares of stock, the same may be
applied to the attachment of the disputed shares
of stock in the present controversy since an
attachment does not constitute an absolute
 conveyance of property but is primarily used as a
means "to seize the debtor's property in order to
secure the debt or claim of the creditor in the
event that a judgment is rendered."
Known commentators on the Corporation Code
expound, thus:
chanRoblesvirtualLawlibraryxxxx
Shares of stock being personal property, may be the
subject matter of pledge and chattel mortgage. Such
collateral transfers are however not covered by the
registration requirement of Section 63, since our
Supreme Court has held that such provision applies
only to absolute transfers thus, the registration in the
corporate books of pledges and chattel mortgages of
share cannot have any legal effect.
xxxx
The requirement that the transfer shall be
recorded in the books of the corporation to be
valid as against third persons has reference only
to absolute transfers or absolute conveyance of
the ownership or title to a share."58[Emphasis
supplied]
Veritably, the facts, statutes and jurisprudence do not support Ferro
Chemical's imputation of fraud to Rolando Navarro. The accusations of
fraud directed to him upon which Ferro Chemicals rests its case are
unsubstantiated, no direct evidence of it exists; it was clutching at straws
pointing out to a remote participation of the defendant who carried out the
imputed acts within the bounds of his office. Fraud cannot be presumed
but must be proved by clear and convincing evidence.59 Whoever alleges
fraud affecting a transaction must substantiate his allegation, because a
person is always presumed to take ordinary care of his concerns, and
private transactions are similarly presumed to have been fair and
regular.60 To be remembered is that mere allegation is definitely not
evidence; hence, it must be proved by sufficient
evidence.61chanrobleslaw
Be that as it may, undisputed is the fact that Rolando Navarro derived no
financial gains from the breach of Antonio Garcias obligation to Ferro
Chemicals watering down the allusion that his acts were impelled by
economic motive.
Even if Jaime ,Gonzales, on other hand, eventually became the assignee
of the subject shares, he cannot, for that reason alone, be held liable for
tortious interference as the elements of this act are clearly wanting in this
case. Jaime Gonzales did nothing more than act as instrumental witness
of the deed of sale and give Antonio Garcia financial advice on the matter.
None of these acts is actionable tort.
In any case, the allegations against Rolando Navarro and Jaime
Gonzales have no more leg to stand on as we have ruled that fraud never
attended the transaction and that Ferro Chen1icals entered the contract
subject of this case with the full knowledge and discretion of the existence
of any and all liens.
On the liability of Chemical Industries
for the acts of its responsible officers
On the premise that Chemical Industries afforded plenary powers to its
officers to make certain representations to third persons, Ferro Chemicals
faults the ruling of the appellate court absolving Chemical Industries from
liability by arguing that the corporation is liable for the tortious and
wrongful acts of its corporate officers, Antonio Garcia and Rolando
Navarro, under the principle of agency.
Chemical Industries, however, argues otherwise. It submits that Ferro
Chemical's reliance on the doctrine of apparent authority is misplaced.
Citing the findings of the appellate court, it posits that the sale of Antonio
Garcia's shares was a purely personal transaction between him and Ferro
Chemicals which requires no "express direction or authority" from
Chemical Industries.
Having settled that Rolando Navarro committed no tortious acts
generative of liability, we now limit our discussion on whether Chemical
Industries can be held liable supposedly for the fraud and breach of
contract perpetrated by Antonio Garcia.
We rule in the negative.
A corporation, upon coming to existence, is invested by law with a
personality separate and distinct from those of the persons composing it.
Ownership by a single or a small group of stockholders of nearly all of the
capital stock of the corporation is not, without more, sufficient to disregard
the fiction of separate corporate personality. Thus, obligations incurred by
corporate officers, acting as corporate agents, are not theirs, but direct
accountabilities of the corporation they represent. Solidary liability on the
part of corporate officers may at times attach, but only under exceptional
circumstances, such as when they act with malice or in bad faith. Also, in
appropriate cases, the veil of corporate fiction shall be disregarded when
the separate juridical personality of a corporation is abused or used to
commit fraud and perpetrate a social injustice, or used as a vehicle to
evade obligations.62chanrobleslaw
It must be stressed at the onset that the sale contract was entered by
Antonio Garcia in his personal capacity and not as the President of
Chemical Industries. As aptly found by the CA:
chanRoblesvirtualLawlibrary
"xxx. As can be gleaned from the Deed of Sale,
[Antonio Garcia] sold the disputed shares in his
private capacity as owner thereof and not as
responsible officer or representative of [Chemical
Industries]. Moreover, the disputed shares constitute
merely 20% of [Chemical Industries'] outstanding
capital stocks. As such, the corporation's consent in
the disposition is not required. Neither does its
conveyance require any action on the part of the
corporation, except the ministerial duty of recording
the same in its stock and transfer book.
Considering the nature of the transaction involved,
whatever obligation [Antonio Garcia] incurred, it was
incurred in his personal capacity. xxx" 63
Even if Antonio Garcia was selling his shares of stocks in the Chemical
Industries, the corporation was neither made a party to the contract nor
did the sale redound to its benefit. As a matter of fact, the subject of the
purchase agreement was not limited to Antonio Garcia's shares in
Chemical Industries, but likewise included his shares in Vision Insurance
Consultants, Inc., Alabang Country Club, Inc. and Manila Polo Club,
Inc.64 His shares of capital stocks with Chemical Industries became the
subject of controversy because of the allegation that he intentionally
withheld the information from Ferro Chemicals that these shares were
subject of the Consortium Banks' claim. Notably, the purported
misrepresentation was: not alleged to have been authorized or abetted by
the corporation. It was a purely personal act of the seller desirous to
dispose conveniently his shares in the corporation. It bears underscoring
that a corporation has a personality separate and distinct from that of
each stockholder. It has the right ,of continuity or perpetual
succession,65 that is, its existence is not extinguished by the transfer of
ownership of its shares of capital stock from one shareholder to another.
Needless to say, the imputation of liability Chemical Industries for the acts
of its corporate officer and the consequent shedding of corporate shroud
cannot rest on flimsy grounds. The application of the doctrine of piercing
the veil of corporate fiction is frowned upon.66 It can only be done if it has
been clearly established that the separate and distinct personality of the
corporation is used to justify a wrong, protect fraud, or perpetrate a
deception.67 As explained by the Court in Philippine National Bank v.
Andrada Electric & Engineering Company:68chanrobleslaw
"Hence, any application of the doctrine of piercing
the corporate veil should be done with caution. A
court should be mindful of the milieu where it is to be
applied. It must be certain that the corporate fiction
was misused to such an extent that injustice, fraud,
or crime was committed against another, in disregard
of its rights. The wrongdoing must be clearly and
convincingly established; it cannot be presumed.
Otherwise, an injustice that was never unintended
may result from an erroneous application."
In the case at bar, Ferro Chemicals failed to adduce satisfactory evidence
to prove that Chemical Industries' separate corporate personality was
being used by Antonio Garcia to protect fraud or perpetrate deception
warranting the shedding of its veil and the consequent imposition of
solidary liability upon it.
On Ferro Chemical's claim for
reimbursement of litigation expenses
in the amount of P12,000,000.00, as
payment of attorney's fees
The award of litigation expenses in the amount of P12,000,000.00 is not
proper because Ferro Chemicals failed to justify satisfactorily its claim,
and the trial court failed to state explicitly in its decision the rationale for
the award. Likewise, We agree with the CA's finding that the award of
attorney's fees in the sum of P1,000,000.00 plus additional 10% ofthe
value of the shares is unreasonable and excessive. Article 2208 of the
New Civil Code enumerates the instances where such may be awarded
and, in any event, it must be reasonable, just and equitable. 69 Attorney's
fees as part of damages are not meant to enrich the winning party at the
expense of the losing litigant.70They are not awarded every time a party
prevails in a suit because of the policy that no premium should be placed
on the right to litigate. The award of attorney's fees is the exception rather
than the rule.71chanrobleslaw
As such, it is necessary for the court to make findings of fact and law that
would bring the -case within the exception and justifY the grant of such
award.72chanrobleslaw
For lack of factual basis, we cannot likewise lend credence to Antonio
Garcia's claim that the dividends earned from Alabang Country Club, Inc.
and Manila Polo Club, Inc. shares should be deducted from the cost of
the lost shares.
WHEREFORE, premises considered, the petition of Ferro Chemicals, Inc.
in G.R. No. 168134 is hereby DENIED while the petitions of Jaime Y.
Gonzales in G.R. No. 168183 and Antonio M. Garcia in G.R. No. 168196
are hereby GRANTED. Consequently, the Decision of the Court of
Appeals is modified to read:
chanRoblesvirtualLawlibrary1) Chemical Industries of the Philippines, Inc.
and Rolando Navarro are hereby exonerated from liabilities;
2) Antonio M. Garcia and Jaime Y. Gonzales are likewise discharged
from liabilities;
3) The award of P12,000,000.00, representing the cost of the suit and
expenses of litigation in the Consortium Case is deleted.
SO ORDERED.chanRoblesvirtu
SECOND DIVISION
G.R.No. 204261, October 05, 2016
EDWARD C. DE CASTRO AND MA. GIRLIE F.
PLATON, Petitioners, v. COURT OF APPEALS, NATIONAL LABOR
RELATIONS COMMISSION, SILVERICON, INC., AND/OR NUVOLAND
PHILS., INC., AND/OR RAUL MARTINEZ, RAMON BIENVENIDA, AND
THE BOARD OF DIRECTORS OF NUVOLAND, Respondents.
DECISION
MENDOZA, J.:
This is a Petition for Certiorari under Rule 65 of the Rules of Court
assailing the June 1, 2012 Decision1and the September 21, 2012
Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 122415, for
having been issued with grave abuse of discretion, when it affirmed the
July 29, 2011 Decision3 and the September 22, 2011 Resolution4 of the
National Labor Relations Commission (NLRC) in NLRC -NCR Case Nos.
11-16356-09 and 12-17308-09, consolidated cases for illegal dismissal
filed against respondent corporations, Nuvoland Phils.,
Inc. (Nuvoland) and Silvericon, Inc. (Silvericon).
The July 29, 2011 NLRC Decision, in turn, reversed the March 15 2011
Decision5 of the Labor Arbiter (LA), finding that the petitioners were
illegally dismissed.chanroblesvirtuallawlibrary
The Antecedents
Nuvoland, a corporation formed primarily "to own, use, improve, develop,
subdivide, sell, exchange, lease and hold for investment or otherwise,
real estate of all kinds, including buildings, houses, apartments and other
structures," was registered with the Securities and Exchange
Commission (SEC) on August 9, 2006.6 Respondent Ramon
Bienvenida (Bienvenida) was the principal stockholder and member of
the Board of Directors while Raul Martinez (Martinez) was its President.
Silvericon, on the other hand, was registered with the SEC on December
19, 2006. Its Articles: of Incorporation described it as a "corporation
organized 'to own, use, improve, develop, subdivide, sell, exchange,
lease and hold for investment or otherwise, real estate of all kinds,
including buildings, houses, apartments and other structures.'"7
Sometime in 2007, Martinez recruited petitioner Edward de Castro (De
Castro), a sales and marketing professional in the field of real estate, to
handle its sales and marketing operations, including the hiring and
supervision of the sales and marketing personnel. To formalize this
undertaking, De Castro was made to sign a Memorandum of
Agreement (MOA), denominated as Shareholders Agreement,8wherein
Martinez proposed to create a new corporation, through which the latter's
compensation, benefits and commissions, including those of other sales
personnel, would be coursed. It was stipulated in the said MOA that the
new corporation9 would have an authorized capital stock of
P4,000,000.00, of which P1,000,000.00 was subscribed and paid equally
by the Martinez Group and the De Castro Group.10
As it turned out, the supposedly new corporation contemplated was
Silvericon. De Castro was appointed the President and majority
stockholder of Silvericon while Bienvenida and Martinez were named as
stockholders and incorporators thereof, each owning one (1) share of
subscribed capital stock.
In the same MOA, Martinez was designated as Chairman of the new
corporation to whom De Castro, as President and Chief Operating Officer,
would directly report. De Castro was tasked to manage the day to day
operations of the new corporation based on policies, procedures and
strategies set by Martinez. For their respective roles, Martinez was to
receive a monthly allowance of P125,000.00, while De Castro's monthly
salary was P400,000.00, with car plan and project income bonus, among
other perks. Both Martinez and De Castro were stipulated to receive
override commissions at 1% each, based on the net contract price of
each condominium unit sold.
During De Castro's tenure as Chief Operating Officer of the newly created
Silvericon, he recruited forty (40) sales and marketing personnel. One of
them was petitioner Ma. Girlie F. Platon (Platon) who occupied the
position of Executive Property Consultant. De Castro and his team of
sales personnel were responsible for the sale of 100% of the projects
owned and developed by Nuvoland.11
Thereafter, the Sales and Marketing Agreement12(SMA), dated February
26, 2008, was purportedly executed by Nuvoland and Silvericon,
stipulating that all payments made for the condominium projects of
Nuvoland were to be given directly to it. Clients secured by the sales and
marketing personnel would issue checks payable to Nuvoland while the
cash payments, as the case may be, were deposited to Nuvoland's
account. Meanwhile, the corresponding sales commission of the sales
personnel were issued to them by Nuvoland, with Martinez signing on
behalf of the said company.
In a Letter,13 dated December 12, 2008 and signed by Bienvenida,
Nuvoland terminated the SMA on the ground that Silvericon personnel
committed an unauthorized walkout and abandonment of the Nuvo City
Showroom for two (2) days. In the same letter, Nuvoland demanded that
Silvericon make a full accounting of all its uses of the marketing advances
from Nuvoland. It, however, assured that all sales commissions earned by
Silvericon personnel would be released as per existing policy.
After the issuance of the said termination letter, De Castro and all the
sales and marketing personnel of Silvericon were barred from entering
the office premises. Nuvoland, eventually, was able to secure the
settlement of all sales and marketing personnel's commissions and
wages with the exception of those of De Castro and Platon. The claims of
one of Silvericon's senior manager were settled during the pendency of a
complaint with the LA.14
Aggrieved, De Castro and Platon filed a complaint for illegal dismissal
before the LA, demanding the payment of their unpaid wages,
commissions and other benefits with prayer for the payment of moral and
exemplary damages and attorney's fees against Silvericon, Nuvoland,
Martinez, Bienvenida, and the Board of Directors of Nuvoland.
Nuvoland and its directors and officers denied a direct contractual
relationship with De Castro and Platon, and contended that if there was
any dispute at all, it was merely between the complainants and Silvericon.
For its part, Silvericon admitted that it had employed De Castro as
President and COO. It, however, asserted the application of Presidential
Decree (P.D.) No. 902-A to the case, arguing that the claims come within
the purview of corporate affairs and management, thus, falling within the
jurisdiction of the regular courts.15
The Ruling of the Labor Arbiter
On March 15, 2011, after the filing of the parties' respective position
papers, the LA handed down his decision in favor of De Castro and
Platon. He concluded that Silvericon was a mere labor-only contractor
and, therefore, a mere agent of Nuvoland.
Thus:chanRoblesvirtualLawlibrary
 It should be noted that in the Sales and Marketing
Agreement between Silvericon and Nuvoland, the
latter committed to advance all the necessary
amount of money up to the extent of P30 million per
building to fund the marketing expenses for the
project. This alone disqualifies respondent Silvericon
as an independent contractor as it could not
undertake the contracted sales and marketing work
under its own account and under its own
responsibility. Not only that, that respondent
Nuvoland has to bankroll the marketing expenses of
respondent Silvericon up to the extent of P30 million
per building means that the latter does not have
substantial capital to undertake the contract work on
its own account and under its own responsibility.
Thus, the argument by the respondents that the
paid-up capital of respondent Silvericon in the
amount of P1 million as shown by its Articles of
Incorporation to be substantial capital is simply
puerile. If it were true that said amount of Pi million
would be substantial enough for Silvericon to carry
out its undertaking under Sales and Marketing
Agreement, then there was no need for respondent
Nuvoland to advance the amount of P30,000,000.00
for the marketing expenses of Silvericon. Moreover,
as argued by complainants, how can P1,000,000.00
be deemed as substantial capitalization if
complainant De Castro's salary per month alone is
already about almost half of Silver/icon's paid-up
capitalization. This is not to mention the salaries of
the more than forty sales and marketing staff. This
means that after only one (1) month in operation,
Silvericon's capitalization would not have been
enough to pay even the salaries of its employees.
To be added to the foregoing findings is the admitted
fact that it was respondent Nuvoland which paid the
sales commissions of the sales personnel of
respondent Silvericon. Even the power to dismiss the
complainants and the other sales personnel of
Silvericon was exercised by respondent Nuvoland. If
indeed there was an unauthorized walkout and
abandonment by the sales personnel of the Nuvo
City showroom for a period of two (2) days, then what
Nuvoland could have done was to notify Silvericon to
institute appropriate disciplinary action against the
erring personnel, and not to take the cudgels for
Silvericon in abruptly terminating the entire sales
force including the complainants herein.16
chanrobleslaw
Nuvoland was adjudged as the direct employer of De Castro and Platon
and, thus, liable to pay their money claims as a consequence of their
illegal dismissal. According to the LA, the ground relied upon for the
termination of the employment of De Castro and Platon - abandonment of
the Nuvo City Showroom - was not at all proven. Mere suspicion that De
Castro instigated the walkout did not discharge the burden of proof which
heavily rested on the employer. Without an unequivocal showing that an
employee deliberately and unjustifiably refused his employment sans any
intention to return to work, abandonment as a cause for dismissal could
not stand. Worse, procedural due process could not be said to have been
observed through the expediency of a letter in contravention to Article 277,
paragraph 2 of the Labor Code.17 Hence, the
disposed:chanRoblesvirtualLawlibrary
WHEREFORE, all the foregoing premises being
considered, judgment is hereby rendered ordering
respondent Nuvoland Phils. Inc. and/or Raul
Martinez and Ramon Bienvenida to pay jointly and
solidarity the awarded claims in favor of the
complainants, as follows:cralawlawlibrary
EDWARD DE CASTRO
Backwages................................ P10,800,000.00
Separation pay.............................. 1,600,000.00
Unpaid Salaries................................ 146,667.00
13th Month Pay............................... 380,000.00
Unpaid Override Commissions ........26,454.839.88
TOTAL........................P39,381,506.88
MA. GIRLIE PLATON
Backwages................................ P405,000.00
Separation pay.............................. 60,000.00
Unpaid Salaries................................ 5,500.00
13th Month Pay.............................. 14,250.00
Unpaid Override Commissions ........530.231.93
TOTAL........................P1,014,981.93
chanrobleslaw
Not in conformity, Nuvoland, Bienvenida and Martinez interposed an
appeal before the NLRC, arguing that the LA gravely abused his
discretion in ruling that: 1) Silvericon was a labor-only contractor; 2) the
case did not involve an intra-corporate dispute; and 3) Martinez and
Bienvenida were solidarity liable for illegal dismissal.
The Ruling of the NLRC
In its July 29, 2011 Decision, the NLRC reversed the LA decision, finding
that Silvericon was an independent contractor, thus, the direct employer
of De Castro and Platon. In its view, in the SMA, Silvericon had full
discretion on how to perform and conduct its marketing and sales tasks;
and there was no showing that Nuvoland had exercised control over the
method of sales and marketing strategies used by Silvericon. The NLRC
further concluded that Silvericon had substantial capital. It pointed out
that in several cases decided by the Court, even an amount less than
One Million Pesos was sufficient to constitute : substantial capital; and so
to require Silvericon to prove that it had investments in the form of tools,
equipment, machinery, and work premises would be going beyond what
the law and jurisprudence required. Hence, it could not consider
Silvericon as a dummy corporation of Nuvoland organized to effectively
evade the latter's obligation of providing employment benefits to its sales
and marketing agents. This being the case, the NLRC ruled that no
employer-employee relationship existed between Nuvoland, on one hand,
and De Castro and Platon, on the other. There was no evidence showing
that Nuvoland hired, paid wages, dismissed or controlled De Castro and
Platon, or anyone of Silvericon's employees. Resultantly, Martinez and
Bienvenida could not be held liable for they merely acted as officers of
Nuvoland.
Unfazed, De Castro and Platon assailed the decision of the NLRC via a
petition for certiorari under Rule 65 with the CA.
The Ruling of the CA
In its June 1, 2012 Decision, the CA affirmed the findings of the NLRC,
pointing out that what was terminated was the SMA. As such, the
employment of the forty (40) personnel hired by Silvericon, as well as the
petitioners' employment, was not affected. Considering that there was no
employer-employee relationship between the petitioners and Nuvoland,
the CA deemed that the latter could not be held liable for the claim of
illegal dismissal. Even assuming that De Castro was illegally dismissed,
the CA opined that the NLRC was correct in refraining from taking
cognizance of the complaint because De Castro's employment with
Silvericon put him within the ambit of Section 5.2 of Republic
Act (R.A.) No. 8799, otherwise known as The Securities Regulation Code.
As such, his claim should have been brought before the Regional Trial
Court (RTC) instead.
Upon the denial of their motion for reconsideration, the petitioners filed
this petition on the following
GROUNDS
I
LA
THE HONORABLE COURT OF
APPEALS GRAVELY ABUSED
ITS DISCRETION WHEN IT
AGREED WITH THE NLRC
THAT SILVERICON IS NOT A
LABOR-ONLY CONTRACTOR
II
THE HONORABLE COURT OF APPEALS
GRAVELY ABUSED ITS DISCRETION WHEN IT
AGREED WITH THE NLRC THAT THE INSTANT
CASE INVOLVES AN INTRA-CORPORATE
DISPUTE
III
THE HONORABLE COURT OF APPEALS
 GRAVELY ABUSED ITS DISCRETION WHEN IT
HELD THAT NO BAD FAITH WAS ESTABLISHED
ON THE PART OF RESPONDENTS RAUL
MARTINEZ AND RAMON BIENVENIDA.18
chanrobleslaw
Essentially, petitioners De Castro and Platon argue that Silvericon, far
from being an independent contractor, was engaged in labor-only
contracting as shown by: 1) its lack of a substantial capital necessary in
the conduct of its business; 2) its lack of investment on tools, equipment,
machineries, work premises, and other materials; and 3) its failure to
secure a certificate of authority to act as an independent contractor
issued by the Department of Labor and Employment (DOLE); and 4) its
services to Nuvoland being exclusive in nature.
According to De Castro and Platon, the evaluation of the authorized
capital stock of Silvericon against the marketing and sales activities of its
sales personnel would readily show that it needed a huge amount of
funds for salaries and operating expenses, not to mention the funds for
promotions and advertisements for the Aspire Condominium Project and
Infinity Office and Residential Condominium Prpject. Suffice it to say,
Silvericon's authorized or paid up capital was deficient to cover its
operations. This is the reason why Nuvoland made advancements
amounting to P30 Million per building.
The petitioners contend that the CA gravely erred when it relied on the
eventual deduction of the said advances from the earned marketing fee of
Silvericon pursuant to the SMA. The advancements, whether or not at
cost on the part of Silvericon, only proved that the latter had no
substantial capital necessary for its business. Although jurisprudence was
replete with rulings considering an amount less than the paid-up capital of
Silvericon as substantial, the industry in which the respondent
corporations were engaged, that is, the sale and marketing of enormous
condominium projects, should be taken into account. In other words, the
test of a substantial paid-up capital for purposes of identifying an entity;
as an independent contractor should be evaluated in light of the business
it is undertaking. In the case of Silvericon, the paid-up capital of P1 Million
Pesos could hardly be considered substantial.
Further, Silvericon had no investment in the form of tools and equipment
necessary in the conduct of its business, the sales and marketing
activities of which were conducted in the premises of Nuvoland. The latter
itself designed and constructed the model units used for the sales and
marketing of the condominium projects.
More significantly, the petitioners explained that Nuvoland created
Silvericon to serve, not any other clientele, but its creator. If Nuvoland
really wanted to engage a truly independent contractor to undertake its
sales and marketing needs, it should have engaged a more experienced
one, not a two-year old untested company. But then, they are one and the
same. The services of Silvericon were exclusively for Nuvoland. Hence,
there was no need for Nuvoland to require Silvericon to secure a
certificate of authority from the DOLE. Undeniably, De Castro was merely
engaged to facilitate the recruitment of sales and marketing personnel,
who then performed functions which were directly related to the main
business of the principal, Nuvoland.
Position of the Respondents
In their Comment,19 respondents Nuvoland, Martinez and Bienvenida
argued that the subject petition should be dismissed outright for having
been filed under a wrong mode of appeal. In other words, instead of being
captioned as a petition under Rule 45, the petitioners availed of the
special civil action under Rule 65, setting forth grave abuse of discretion
on the part of the CA as a main ground. The respondents pointed out that
the petitioners may not utilize a petition for certiorari as a pretext for a
belated filing of a petition for review.
Respondent Silvericon for its part, submitted its Manifestation, 20 dated
December 12, 2013, praying that it be excused from filing a comment as it
did not see any need to be part of the appeal.
Reply of Petitioners
In their Reply,21 the petitioners asserted that their petition was strongly
grounded on grave abuse of discretion due to the CA's deliberate failure
to consider material and undisputed facts showing that Silvericon was
indeed a labor-only contractor. They hinged their choice of remedy on
their view that the NLRC, as affirmed by the CA, acted in total disregard of
the evidence decisive of the present
controversy.chanroblesvirtuallawlibrary
The Court's Ruling
Initially, because of the divergence in the conclusions of the LA and the
NLRC, it appears that the issues surrounding the legal arrangements
between and among the parties are complicated. After a perusal of the
records, however, the Court comes to view the case as a simple question
of whether Silvericon was engaged in independent contracting or a
labor-only scheme. The answer to this issue would necessarily shape the
conclusions as to respondents' other contentions like jurisdiction. Before
delving into these matters, though, there is a need to first resolve the
procedural issues.
Procedural Issues
After a careful review of the records, the Court decides to apply a
tempered relaxation of the procedural rules in accord with substantial
justice.
It is elementary that parties seeking the review of NLRC decisions should
file a Rule 65 petition for certiorari in the CA on the ground of grave abuse
of discretion amounting to lack or excess of jurisdiction. Thereafter, the
remedy of the aggrieved party from the CA decision is an appeal via a
Rule 45 petition for review on certiorari.22 It is equally true, however, that
the Court, on several occasions, has relaxed the procedural application in
accordance with the liberal spirit and in the interest of substantial justice.
Where the exigencies of the case are such that the ordinary methods of
appeal may not prove adequate - either in point of promptness or
completeness, so that a partial if not a total failure of justice could result -
a writ of certiorari may still be issued.23
In the broader interest of justice, the Court deems it proper to suspend the
rules and allow due course to the petition as one for certiorari under Rule
65. As will be discussed hereafter, the Court has determined points of
contention that were disregarded by the authorities a quo, the outright
conclusion of which stripped off the petitioners of a remedy to demand
their claims which were founded on a legal obligation. The propriety of the
mode of appeal used by the petitioners pales in comparison with the
alleged grave errors of judgment committed by the CA. For said reason,
matters deserving clear resolution by the Court of last resort cannot be
ignored lest a miscarriage of justice come to pass.
Substantive Issues
As to the substantive issues, the Court is faced with divergent views in the
arguments raised. On one hand, the petitioners strongly urge the Court to
consider numerous factors that would justify the piercing of the corporate
veil showing that Silvericon was just a business conduit of Nuvoland. On
the other, the respondents vehemently deny the existence of an
employer-employee relationship between Nuvoland and the petitioners.
This absence of a juridical tie, according to Nuvoland, necessarily directs
the claims of the petitioners to Silvericon as their employer, being an
independent contractor.
Pertinently, Article 106 of the Labor Code
provides:chanRoblesvirtualLawlibrary
Article 106. Contractor or subcontractor. - Whenever
an employer enters into a contract with another
person for the performance of the former's work, the
employees of the contractor and of the latter's
subcontractor, if any, shall be paid in accordance
with the provisions of this Code.
In the event that the contractor or subcontractor fails
to pay the wages of his employees in accordance
with this Code, the employer shall be jointly and
severally liable with his contractor or subcontractor to
such employees to the extent of the work performed
under the contract, in the same manner and extent
that he is liable to employees directly employed by
him.
The Secretary of Labor and Employment may, by
appropriate regulations, restrict or prohibit the
contracting-out of labor to protect the rights of
workers established under this Code. In so
prohibiting or restricting, he may make appropriate
distinctions between labor-only contracting and
jobcontracting as well as differentiations within these
types of contracting and determine who among the
parties involved shall be considered the employer for
purposes of this Code, to prevent any violation or
circumvention of any provision of this Code.
There is "labor-only" contracting where the person
supplying workers to an employer does not have
substantial capital or investment in the form of tools,
equipment, machineries, work premises, among
others, and the workers recruited and placed by such
person are performing activities which are directly
 related to the principal business of such employer. In
such cases, the person or intermediary shall be
considered merely as an agent of the emplover
who shall be responsible to the workers in the
same manner and extent as if the latter were
directly employed by him. [Emphasis and
underscoring supplied]
chanrobleslaw
Corollary thereto, DOLE Department Order No. 18-02, Series of
2002 (D.O. 18-02), implements the above provision of
law:chanRoblesvirtualLawlibrary
Section 5. Prohibition against labor-only
contracting. -Labor-only contracting is hereby
declared prohibited x x x labor-only contracting shall
refer to an arrangement where the contractor or
subcontractor merely recruits, supplies or places
workers to perform a job, work or service for a
principal, and any of the following elements are
present:cralawlawlibrary
i) The contractor or subcontractor does not have
substantial capital or investment which relates to the
job, work or service to be performed and the
employees recruited, supplied or placed by such
contractor or subcontractor are performing activities
which are directly related to the main business of the
principal; or
ii) The contractor does not exercise the right to
control over the performance of the work of the
contractual-employee.chanroblesvirtuallawlibrary
xxxx
"Substantial capital or investment" refers to
capital stocks and subscribed capitalization in
the case of corporations, tools or equipment,
implements, machineries and work premises,
actually and directly used by the contractor or
subcontractor in the performance or completion
of the job, work or service contracted out.
The "right to control" shall refer to the right reserved
to the person for whom the services of the
contractual parties are performed to determine, not
only the end to be achieved, but also the manner and
means to be used in reaching that end. [Emphasis
and underscoring supplied]
chanrobleslaw
At the outset it should be rioted that a real estate company like Nuvoland
may opt to advertise and; sell its real estate assets on its own, or allow an
independent contractor to market these developments in a manner that
does not violate aforesaid regulations. Basically, a legitimate job
contractor complies with the requirements on sufficient capitalization and
equipment to undertake the needs of its client. Although this is not the
sole determining factor of legitimate contracting, independent contractors
are likewise required to register with the DOLE. This is required by D.O.
18-02. Thus:chanRoblesvirtualLawlibrary
Section 11. Registration of Contractors or
Subcontractors. - Consistent with the authority of the
Secretary of Labor and Employment to restrict or
prohibit the contracting out of labor through
appropriate regulations, a registration system to
govern contracting arrangements and to be
implemented by the Regional Offices is hereby
established.
The registration of contractors and subcontractors
shall be necessary for purposes of establishing an
effective labor market information and monitoring.
Failure to register shall give rise to
the presumption that the contractor is engaged
in labor-only contracting. [Emphasis and
underscorings supplied]
chanrobleslaw
In the present case, the Court is hounded by nagging doubts in its review
of the assailed decision. Several factors showing that Silvericon
was not an independent contractor were, conveniently brushed aside
resulting in an unjust outcome. For clarity, the Court lists down these
factors, most of which were left unexplained by the respondents.
First. As earlier pointed out, D.O. 18-02 expressly provides for a
registration requirement. Remarkably, the respondents do not deny the
apparent non-compliance with the rules governing independent
contractors.
This failure on the part of Silvericon reinforces the Court's view that it was
engaged in labor-only contracting. Nuvoland did not even bother to make
Silvericon comply with this vital requirement had it really entered into a
legitimate contracting arrangement with a truly independent outfit. The
efforts which the two corporations have put into the drafting of the SMA
belie mere inadvertence and heedlessness on this matter.
That the NLRC and the CA failed to consider this fact of non-compliance
confounds the Court. The tribunals below should have looked into the
cited provision, as non-compliance thereto gives rise to a presumption
completely opposite to their claim. The presumption finds more
significance especially when the respondents have nothing but silence to
rebut the same.
All they could say was that what Nuvoland terminated was the SMA, the
termination of which produced no effect whatsoever on the personnel of
Silvericon. The sweeping conclusion might have been the simplest and
easiest way to dismiss the case but this certainly failed to rebut the fact
that Silvericon was a labor-only contracting entity. To the Court's mind,
this is a clear attribute of grave abuse of discretion on the part of the CA.
Second. D.O. No. 18-A, series of 2011, defines substantial capital as the
paid-up capital stocks/shares of at least P3,000,000.00 in the case of
corporations, partnerships and cooperatives. This amount was set with
speciflty to avoid the subterfuge resorted to by entities with the intention
to circumvent the law. As things now stand, even the subscribed capital of
Silvericon was a far cry from the amount set by the rules. It is important to
note that at the time Nuvoland engaged the services of Silvericon, the
latter's authorized stock capital was P4,000,000.00, out of which only
P1,000,000.00 was subscribed.
In Vinoya v. National Labor Relations Commission,24 the Court tackled
the insufficiency of paid-in capitalization taking into account the "current
economic atmosphere in the country."25 In other words, the determination
of sufficient capital stock for independent contractors must be assessed in
a broad and extensive manner with consideration of the industry involved.
In this case, the sufficiency of a subscribed capital of P1,000,000.00 for
independent contracting must be assessed taking into consideration the
extent of the undertaking relative to the nature of the industry in which
Nuvoland was engaged.
Nuvoland was one of the prominent corporations in the real estate
industry. It is safe to assume then that the marketing of its condominium
projects would entail a substantially high amount in what was typically a
capital intensive industry. The undertaking covered not just one but two
considerably huge condominium projects located in prime spots in the
metropolis.
For the sale and marketing of two condominium buildings, it would require
massive funds for promotions, advertisements, shows, salaries, and
operating expenses of its more or less 40 personnel. In light of this vast
business undertaking, it is obvious that the P1 million subscribed capital
of Silvericon would hardly suffice to satisfy this huge
engagement. Nuvoland was apparently aware of this that it had to fund
the marketing expenses of the project in an amount not exceeding P30
million per building. This was even provided in paragraph 6 of the SMA.
This being the case, the paid-in capitalization of Silvericon amounting to
P1 million was woefully inadequate to be considered as substantial
capital. Thus, Silvericon could not qualify as an independent contractor.
The CA finding that Silvericon's capital was sufficient for independent
contracting due to the agreement that Nuvoland would advance the
amount of P30,000,000.00 for marketing expenses, though deductible
from Silvericon's earned marketing fees at a later time, was a strained
reasoning. The Court agrees with the observation of the LA that this
set-up would not have been resorted to if Silvericon's capital was
substantial enough from the start of the business venture. It is logical to
presume that an established corporation like Nuvoland would select an
independent contractor, which had the financial resources to adequately
undertake its marketing and advertising requirements, and not an under
capitalized company like Silvericon. It perplexes the Court that the CA
disregarded this set-up as it certainly shows that Silvericon, from the
beginning, did not have substantial capital to service the needs of
Nuvoland.
Third. Silvericon had no substantial equipment in the form of tools,
equipment, machinery, and work premises. Records reveal that Nuvoland
itself designed and constructed the model units used in the sales and
marketing of its condominium units. This indisputably proves that at the
time of its engagement, Silvericon had no such investment necessary for
the conduct of its business.
Fourth. Although it is true that the respondents had explicitly assailed the
authenticity of the MO A attached with the petition, their faint denial fails
to explain the exclusivity which had characterized the relationship
between Nuvoland and Silvericon. If Silvericon was an independent
contractor, it is only but logical that it should have also offered its services
to the public.
The respondents claim that they had presented a contract tending to
show that Silvericon had catered its services to one LNC (SPV-AMC)
Corporation in 2007. In their own words, the respondents assert that the
relationship of Nuvoland with Silvericon, particularly as to its contractual
rights and obligations, was exactly the same as the transaction of
Silvericon with LNC (SPV-AMC) Corporation. Unfortunately for the
respondents, this allegation alone could not override the other tell-tale
indicators of labor-only contracting present in this case.
Fifth. The respondents do not deny that Nuvoland and Silvericon shared
the same officers and employees: respondents Bienvenida and Martinez
were stockholders and incorporators thereof while De Castro was the
President and majority stockholder of Silvericon. At the same time,
Bienvenida was a principal stockholder and member of the Board of
Directors of Nuvoland while Martinez was Nuvoland's President.
Admittedly, this fact alone does not give rise to an inference that
Nuvoland and Silvericon are one and the same. It effectively sows doubt,
however, when taken together with the other indicators of labor-only
contracting, as previously discussed.
If Nuvoland and Silvericon were indeed separate entities, out of all other
Nuvoland officers, why did Bienvenida, as an incorporator
of both corporations, choose to authorize the purported termination of the
SMA without at least calling for an investigation of the incident? As a
stockholder of Silvericon, he possessed an interest in the said corporation.
Curiously though, Nuvoland's decision to part with Silvericon as
expressed in Bienvenida's letter was reached without consultation or, at
the least, a preliminary notice. Had there really been a breach of contract,
Nuvoland would have demanded an explanation from Silvericon before
barring the personnel's entry in their work premises to think that the latter
was engaged in an important aspect of its business.
Further, with Nuvoland having advanced a huge amount of money for
Silvericon, it could have at least exercised caution before terminating the
SMA with a meager request for an accounting of funds. A closer scrutiny
of the events that transpired would show that the termination of the SMA
was one and the same with the termination of all Silvericon personnel.
This conclusion proceeded from the irrefutable fact that Silvericon was
actually a creation of Nuvoland. As a labor-only contractor, for all intents
and purposes, Silvericon was a mere mock-up.
In truth, the termination of the SMA was actually a ruse to make it appear
that Silvericon was an independent entity. It was simply a way to
terminate the employment of several employees altogether and escape
liability as an employer. True enough, Nuvoland insisted that the
petitioners direct their claims to Silvericon.
The conclusion that Silvericon was a mere labor-only contractor and a
business conduit of Nuvoland warrants the piercing of its corporate veil.
At this point, it is apt to restate the Court's ruling in Sarona v. National
Labor Relations Commission:26chanroblesvirtuallawlibrary
The doctrine of piercing the corporate veil applies
only in three (3) basic areas, namely: 1) defeat of
public convenience as when the corporate fiction is
used as a vehicle for the evasion of an existing
obligation; 2) fraud cases or when the corporate
entity is used to justify a wrong, protect fraud, or
defend a crime; or 3) alter ego cases, where a
corporation merely a farce since it is a mere alter ego
or business conduit of a person, or where the
corporation is so organized and controlled and its
affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another
corporation.
chanrobleslaw
As ruled in Prince Transport, Inc. v. Garcia,27 it is the act of hiding behind
the separate and distinct personalities of juridical entities to perpetuate
fraud, commit illegal acts and evade one's obligations, that the equitable
piercing doctrine was formulated to address and prevent:
Thus:chanRoblesvirtualLawlibrary
x x x A settled formulation of the doctrine of piercing
the corporate veil is that when two business
enterprises are owned, conducted and controlled by
the same parties, both law and equity will, when
necessary to protect the rights of third parties,
disregard the legal fiction that these two entities are
distinct and treat them as identical or as one and the
same, xxx However, petitioners' attempt to isolate
themselves from and hide behind the supposed
separate and distinct personality of Lubas so as to
evade their liabilities is precisely what the classical
doctrine of piercing the veil of corporate entity seeks
to prevent and remedy.28
chanrobleslaw
Consequently, the piercing of the corporate veil disregards the seemingly
separate and distinct personalities of Nuvoland and Silvericon with the
aim of preventing the anomalous situation abhorred by prevailing labor
laws. That Silvericon was independent from Nuvoland's personality could
not be given legal imprimatur as the same would pave the way for
Nuvoland's complete exoneration from liability after a circumvention of the
law. Besides, a contrary proposition would leave the petitioners without
any recourse notwithstanding the unquestioned fact that Nuvoland
eventually assented to the settlement of all the sales and marketing
personnel's commissions and wages before the LA, except the petitioners.
The respondents in their comment were strikingly silent on this point.
In the interest of justice and equity, that veil of corporate fiction must be
pierced, and Nuvoland and Silvericon be regarded as one and the same
entity to prevent a denial of what the petitioners are entitled to. In a
situation like this, an employer-employee relationship between the
principal and the dismissed employees arises by operation of law.
Silvericon being merely an agent, its employees were in fact those of
Nuvoland. Stated differently, Nuvoland was the principal employer of the
petitioners.
Sixth. As additional basis of this outcome, the Court highlights the
presence of the elements of an employer-employee relationship between
the parties. In determining the presence or absence of an
employer-employee relationship, the Court has consistently looked for the
following incidents, to wit; (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power of dismissal; and (d)
the employer's power to control the employee on the means and methods
by which the work is accomplished. The last element, the so-called
control test, is the most important element.29 Jurisprudentially speaking,
there is no hard and fast rule designed to establish the aforesaid
elements. It depends on the peculiar facts of each case.30 Here, the Court
acknowledges the findings of the LA since the inception of this legal
controversy -
To be added to the foregoing findings is the admitted
fact that it was respondent Nuvoland which paid the
sales commissions of the sales personnel of
respondent Silvericon. Even the power to dismiss the
complainants and the other sales personnel of
Silvericon was exercised by respondent Nuvoland. If
indeed there was an unauthorized walkout and
abandonment by the sales personnel of the Nuvo
City showroom for a period of two (2) days, then what
Nuvoland could have done was to notify Silvericon to
institute appropriate disciplinary action against the
erring personnel, and not to take the cudgels for
Silvericon in abruptly terminating the entire sales
force including the complainants herein.31
chanrobleslaw
Not to be excluded from this pronouncement is the observation that the
subject termination letter itself mentioned the release of all the
commissions earned by Silvericon personnel after the impetuous decision
of Nuvoland to physically bar the personnel from entry to their workplace.
If these are not indicators of the power of engagement, payment of wages
and power of dismissal, the Court is at a loss as to what to call this
authority. Astonishingly, Nuvoland did not refute its conformity to the
payment of commissions, as if it was oblivious to an admission that all
commissions were taken directly from Nuvoland, and not from Silvericon.
Verily, this reflects Nuvoland's exercise of the power to compensate
Silvericon personnel. The power to terminate employees had also been
exercised by Nuvoland when it clearly dispensed with the cancellation
clause in the SMA providing a 30-day period for grievance resolution.
Instead, Nuvoland utilized the alleged abandonment of the showroom as
a ground for unilateral termination of the simulated agreement.
As regards the power of control, the only argument raised by the
respondents was the inclusion of a provision in the SMA which stated that
Silvericon, as its agent, "shall be responsible for all advertisements,
promotions, public relations, special events, marketing collaterals, road
shows, open houses, etc. as part of its marketing efforts."32 For Nuvoland,
this provision in the SMA showed that Silvericon exercised full and
exclusive control over all levels of work, especially as to the means
thereof.33 Regrettably, the existence of the subject provision would not
cause an automatic proposition that Silvericon exercised control over the
work of its personnel. A clear showing of Silvericon's control over its chanrobleslaw
day-to-day operations and ultimate work performance would have Taking the foregoing into consideration, the Court finds that the LA
dispelled any doubt, but Nuvoland fell short on this score. Worse, it again properly took cognizance of the existence of an employer-employee
opted for silence when the petitioners alleged that Nuvoland provided the relationship between the parties. The NLRC's position that the case
work premises of the sales and marketing; personnel of Silvericon; that belonged to the RTC as an "intra-corporate dispute" could not be applied
Nuvoland dictated the end result of the undertaking, that is, to sell at least to Platon as she was merely a rank-and-file personnel raising illegal
eighty percent of the condominium project within a period of twenty-four dismissal as her main cause of action.
months; that Nuvoland decided on the models, designs and prices of the
units; that Nuvoland was the ultimate recipient of all amounts collected by With respect to De Castro, the Court recalls the pronouncement in Viray v.
the sales and marketing team; and lastly, Nuvoland determined the Court of Appeals,34 which provided for the policy in determining
maximum amount of marketing expenses for the accomplishment of the jurisdiction in similar cases. In order to determine whether a dispute
goal. constitutes an intra-corporate controversy or not, the Court considers two
elements instead, namely: (a) the status or relationship of the parties; and
On Jurisdiction (b) the nature of their controversy. Concurrence of these two renders a
case as an intra-corporate dispute.
Anent the issue on jurisdiction, Article 217 of the Labor Code, as
amended by Section 9 of R.A. No. 6715 is Under the nature-of-the-controversy test, the dispute must not only be
instructive:chanRoblesvirtualLawlibrary rooted in the existence of an intra-corporate relationship, but must also
refer to the enforcement of the parties' correlative rights and obligations
ART. 217. Jurisdiction of the Labor Arbiters and the under the Corporation Code, as well as the internal and intra-corporate
Commission-- (a) Except as otherwise provided regulatory rules of the corporation.35 The combined application of the
under this Code, the Labor Arbiter shall have original relationship test and the nature-of-the-controversy test has, consequently,
and exclusive jurisdiction to hear and decide, within become the norm in determining whether a case is an intra-corporate
thirty (30) calendar days after the submission of the controversy or purely civil in character.36 In the absence of any one of
case by the parties for decision without extension, these factors, the case cannot be considered an intra-corporate dispute
even in the absence of stenographic notes, the and the RTC acting as a special commercial court cannot acquire any
following cases involving all workers, whether jurisdiction. The criteria for distinguishing between corporate officers who
agricultural or may be ousted from office at will, on one hand, and ordinary corporate
nonagricultural:chanRoblesvirtualLawlibrary employees, who may only be terminated for just cause, on the other hand,
do not depend on the nature of the services performed, but on the
manner of creation of the office.
1. Unfair labor practice
cases; As it had been determined that Silvericon was a mere subterfuge for
2. Termination Nuvoland's sales and marketing activities, the circumstances surrounding
disputes; the nature of De Castro's hiring and the very nature of his claims must be
3. If accompanied with a fully considered to determine jurisdiction. It must be remembered that De
claim for Castro was hired by Martinez and Bienvenida to be the President and
reinstatement, those COO of Silvericon. This appears in the SMA, which the Court has
cases that workers interpreted as a ruse to conceal Nuvoland's labor-contracting activities.
may file involving As previously discussed, the contrived cancellation of the SMA was, in
wages, rates of pay, effect, a termination of its personnel assigned to Silvericon.
hours of work and
other terms and Equally important for contemplation is the nature of the petitioners' claims
conditions of and arguments which not only demonstrates a firm avowal of labor-only
employment; contracting on the part of Nuvoland and Silvericon but also shows that the
ultimate issue to be resolved is not rooted in a corporate issue governed
4. Claims for actual, by the Corporation Code and its implementing rules, but a labor problem,
moral, exemplary and the resolution of which is covered by labor laws and DOLE issuances.
other forms of
damages arising from The Court reiterates the odd silence that pervaded Nuvoland despite the
the allegation that it was able to settle the payment of all the sales and
employer-employee marketing personnel's commissions and wages with the exception of the
relations; petitioners and one Amy Rose Palileo, whose claims were settled during
5. Cases arising from any the pendency of her complaint with LA Fe Cellan. 37 This information
violation of Article 264 raised serious doubts as to Nuvoland's refutation of the jurisdiction of the
of this Code, including LA over the case. The Court, in fact, expected a denial or, at the least, an
questions involving explanation of this matter on the part of Nuvoland but all it got was silence.
the legality of strikes Certainly, this distinctive treatment of the petitioners influences the Court
and lockouts; to take a position against any attempt to sidestep legal obligations under
and cralawlawlibrary a pretense of a jurisdictional challenge.

In view of the foregoing, the complete resolution of this case now boils
6. Except claims for down to the determination of the: 1) corporate liability of Nuvoland as the
Employees principal employer of the petitioners; and 2) individual liabilities of the
Compensation, Social respondents, as officers thereof, if any.
Security, Medicare
and maternity Solidary liability is imposed by law on the principal who is deemed as the
benefits, all other direct employer of the employees as provided in Section 19 of D.O. No.
claims arising from 18-02-
employer-employee
relations, including Section 19. Solidary liability. - The principal shall be
those of persons in deemed as the direct employer of the contractual
domestic or employees and therefore, solidarity liable with the
household service, contractor or subcontractor for whatever monetary
involving an amount claims the contractual employees may have against
exceeding five the former in the case of violations as provided for in
thousand pesos Sections 5 (Labor-Only contracting), 6 (Prohibitions),
(P5,000.00) 8 (Rights of Contractual Employees) and 16
regardless of (Delisting) of these Rules. In addition, the principal
whether shall also be solidarity liable in case the contract
accompanied with a between the principal and contractor or
claim for subcontractor is preterminated for reasons not
reinstatement. [Emp attributable to the fault of the contractor or
hases and subcontractor.
underscoring
supplied] chanrobleslaw
Based on the said provision, Nuvoland is solidarity liable with Silvericon
for the monetary claims of the petitioners who were clearly their
employees. Further, the application of law and jurisprudence on illegal
dismissal becomes relevant. In Skippers United Pacific, Inc. v. Doza38 the
Court held that for a worker's dismissal to be considered valid, it must
comply with both procedural and substantive due process,
viz.:chanRoblesvirtualLawlibrary
For a worker's dismissal to be considered valid, it
must comply with both procedural and substantive
due process. The legality of the manner of
dismissal constitutes procedural due process,
while the legality of the act of dismissal
constitutes substantive due process.39 [Emphasis
and underscoring supplied]
chanrobleslaw
Procedural due process in dismissal cases consists of the twin
requirements of notice and hearing. The employer must furnish the
employee with two written notices before the termination of employment
can be effected: (1) the first notice apprises the employee of the particular
acts or omissions for which his dismissal is sought; and (2) the second
notice informs the employee of the employer's decision to dismiss him.
Before the issuance of the second notice, the requirement of a hearing
must be complied with by giving the worker an opportunity to be heard. It
is not necessary though that an actual hearing be
conducted.40 Substantive due process, on the other hand, requires that
the dismissal by the employer be made for a just or authorized cause
under Articles 282 to 284 of the Labor Code.41cralawred
As correctly observed by the LA, the respondents failed to show any valid
or just cause under the Labor Code on which it may justify the termination
of services of the petitioners. There was no iota of evidence to
substantiate their story of staged walkout and abandonment which
caused them to terminate the employment of the petitioners. After the
issuance of the termination letter, De Castro and all the sales and
marketing personnel of Nuvoland were barred from entering the premises
of their office and payment of wages, commissions and all other benefits
were withheld. The respondents also failed to comply with the
rudimentary requirement of notifying the petitioners why they were being
dismissed, as well as giving them ample opportunity to contest the legality
of their dismissal. Failing to show compliance with the requirements of
termination of employment under the Labor Code, the respondents were
found liable for illegal dismissal. A contrary ruling would serve as a wallop
on the very principles of labor - justice and equity for a man to be made to
work and thereafter be denied of his due as to the fruits of his labor.
Corporate Directors and Officers,
Not Liable
A corporation, being a juridical entity, may act only through its directors,
officers and employees. Obligations incurred by them, acting as such
corporate agents, are not theirs but the direct accountabilities of the
corporation they represent.42 Pursuant to this principle, a director, officer
or employee of a corporation is generally not held personally liable for
obligations incurred by the corporation; it is only in exceptional
circumstances that solidary liability will attach to them. 43 Thus, in labor
cases, the Court has held that corporate directors and officers are
solidarity liable with the corporation for the employee's termination only
when the same is done with malice or in bad faith.44
"Xxx. Bad faith is never presumed. Bad faith does not simply connote bad
judgment or negligence - it imports a dishonest purpose or some moral
obliquity and conscious doing of wrong. It means a breach of a known
duty through some motive or interest or ill will that partakes of the nature
of fraud."45
The records are bereft of any evidence at all that respondents Martinez
and Bienvenida acted with malice, ill will or bad faith when the SMA was
terminated. Hence, the said individual officers cannot be held solidarity
liable for the money claims due the petitioners.
WHEREFORE, the petition is GRANTED. The June 1, 2012 Decision and
the September 21, 2012 Resolution of the Court of Appeals in CA-G.R.
SP No. 122415 are REVERSED and SET ASIDE.
The March 15, 2011 Decision of the Labor Arbiter declaring Nuvoland as
a labor-only contractor is REINSTATED, but the pronouncement on the
solidary liability of Ramon Bienvenida and Raul Martinez is
ordered DELETED.
The case is hereby REMANDED to the Labor Arbiter for the computation
of the separation pay, back wages and other monetary awards that the
petitioners deserve to receive.
No pronouncement as to costs.
So ordered.
G.R. No. 198967, March 07, 2016
JOSE EMMANUEL P. GUILLERMO, Petitioner, v. CRISANTO P.
USON, Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the
Rules of Court seeking to annul and set aside the Court of Appeals
Decision1 dated June 8, 2011 and Resolution2 dated October 7, 2011 in
CA G.R. SP No. 115485, which affirmed in toto the decision of the
National Labor Relations Commission (NLRC).
The facts of the case follow.
On March 11, 1996, respondent Crisanto P. Uson (Uson) began his
employment with Royal Class Venture Phils., Inc. (Royal Class Venture)
as an accounting clerk.3 Eventually, he was promoted to the position of
accounting supervisor, with a salary of Php13,000.00 a month, until he
was allegedly dismissed from employment on December 20, 2000.4
On March 2, 2001, Uson filed with the Sub-Regional Arbitration . Branch
No. 1, Dagupan City, of the NLRC a Complaint for Illegal Dismissal, with
prayers for backwages, reinstatement, salaries and 13thmonth pay, moral
and exemplary damages and attorney's fees against Royal Class
Venture.5
Royal Class Venture did not make an appearance in the case despite its
receipt of summons.6
On May 15, 2001, Uson filed his Position Paper7 as complainant.
On October 22, 2001, Labor Arbiter Jose G. De Vera rendered a
Decision8 in favor of the complainant Uson and ordering therein
respondent Royal Class Venture to reinstate him to his former position
and pay his backwages, 13th month pay as well as moral and exemplary
damages and attorney's fees.
Royal Class Venture, as the losing party, did not file an appeal of the
decision.9 Consequently, upon Uson's motion, a Writ of Execution10 dated
February 15, 2002 was issued to implement the Labor Arbiter's decision.
On May 17, 2002, an Alias Writ of Execution11 was issued. But with the
judgment still unsatisfied, a Second Alias Writ of Execution 12 was issued
on September 11, 2002.
Again, it was reported in the Sheriff's Return that the Second Alias Writ of
Execution dated September 11, 2002 remained "unsatisfied." Thus, on
November 14, 2002, Uson filed a Motion for Alias Writ of Execution and to
Hold Directors and Officers of Respondent Liable for Satisfaction of the
Decision.13The motion quoted from a portion of the Sheriffs Return, which
states:
chanRoblesvirtualLawlibrary
On September 12, 2002, the undersigned proceeded
at the stated present business office address of the
respondent which is at Minien East, Sta. Barbara,
Pangasinan to serve the writ of execution. Upon
arrival, I found out that the establishment erected
thereat is not [in] the respondent's name but JOEL
and SONS CORPORATION, a family corporation
owned by the Guillermos of which, Jose Emmanuel F.
Guillermo the General Manager of the respondent, is
one of the stockholders who received the writ using
his nickname "Joey," [and who] concealed his real
identity and pretended that he [was] the brother of
Jose, which [was] contrary to the statement of the
guard-on-duty that Jose and Joey [were] one and the
same person. The former also informed the
undersigned that the respondent's (sic) corporation
has been dissolved.
On the succeeding day, as per [advice] by the
[complainant's] counsel that the respondent has an
account at the Bank of Philippine Islands Magsaysay
Branch, A.B. Fernandez Ave., Dagupan City, the
undersigned immediately served a notice of
garnishment, thus, the bank replied on the same day
stating that the respondent [does] not have an
account with the
branch.14ChanRoblesVirtualawlibrary
On December 26, 2002, Labor Arbiter Irenarco R. Rimando issued an
Order15 granting the motion filed by Uson. The order held that officers of a
corporation are jointly and severally liable for the obligations of the
corporation to the employees and there is no denial of due process in
holding them so even if the said officers were not parties to the case when
the judgment in favor of the employees was rendered. 16 Thus, the Labor
Arbiter pierced the veil of corporate fiction of Royal Class Venture and
held herein petitioner Jose Emmanuel Guillermo (Guillermo), in his
personal capacity, jointly and severally liable with the corporation for the
enforcement of the claims of Uson.17
Guillermo filed, by way of special appearance, a Motion for
Reconsideration/To Set Aside the Order of December 26, 2002.18 The
same, however, was not granted as, this time, in an Order dated
November 24, 2003, Labor Arbiter Niña Fe S. Lazaga-Rafols sustained
the findings of the labor arbiters before her and even castigated Guillenno
for his unexplained absence in the prior proceedings despite notice,
effectively putting responsibility on Guillermo for the case's outcome
against him.19
On January 5, 2004, Guillermo filed a Motion for Reconsideration of the
above Order,20 but the same was promptly denied by the Labor Arbiter in
an Order dated January 7, 2004.21
On January 26, 2004, Uson filed a Motion for Alias Writ of Execution, 22 to
which Guillermo filed a Comment and Opposition on April 2, 2004. 23
On May 18, 2004, the Labor Arbiter issued an Order24 granting Uson's
Motion for the Issuance of an Alias Writ of Execution and rejecting
Guillermo's arguments posed in his Comment and Opposition.
Guillermo elevated the matter to the NLRC by filing a Memorandum of
Appeal with Prayer for a (Writ of) Preliminary Injunction dated June 10,
2004.25cralawred
In a Decision26 dated May 11, 2010, the NLRC dismissed Guillermo's
appeal and denied his prayers for injunction.
On August 20, 2010, Guillermo filed a Petition for Certiorari27 before the
Court of Appeals, assailing the NLRC decision.
On June 8, 2011, the Court of Appeals rendered its assailed
Decision28 which denied Guillermo's petition and upheld all the findings of
the NLRC.
The appellate court found that summons was in fact served on Guillermo
as President and General Manager of Royal Class Venture, which was
how the Labor Arbiter acquired jurisdiction over the company. 29 But
Guillermo subsequently refused to receive all notices of hearings and
conferences as well as the order to file Royal Class Venture's position
paper.30 Then, it was learned during execution that Royal Class Venture
had been dissolved.31 However, the Court of Appeals held that although
the judgment had become final and executory, it may be modified or
altered "as when its execution becomes impossible or unjust."32 It also
noted that the motion to hold officers and directors like Guillermo
personally liable, as well as the notices to hear the same, was sent to
them by registered mail, but no pleadings were submitted and no
appearances were made by anyone of them during the said motion's
pendency.33 Thus, the court held Guillermo liable, citing jurisprudence
that hold the president of the corporation liable for the latter's obligation to
illegally dismissed employees.34 Finally, the court dismissed Guillermo's
allegation that the case is an intra-corporate controversy, stating that
jurisdiction is determined by the allegations in the complaint and the
character of the relief sought.35
From the above decision of the appellate court, Guillermo filed a Motion
for Reconsideration36 but the same was again denied by the said court in
the assailed Resolution37 dated October 7, 2011.
Hence, the instant petition.
Guillermo asserts that he was impleaded in the case only more than a
year after its Decision had become final and executory, an act which he
claims to be unsupported in law and jurisprudence. 38 He contends that
the decision had become final, immutable and unalterable and that any
amendment thereto is null and void.39 Guillermo assails the so-called
"piercing the veil" of corporate fiction which allegedly discriminated
against him when he alone was belatedly impleaded despite the
existence of other directors and officers in Royal Class Venture.40 He also
claims that the Labor Arbiter has no jurisdiction because the case is one
of an intra-corporate controversy, with the complainant Uson also
claiming to be a stockholder and director of Royal Class Venture. 41
In his Comment,42 Uson did not introduce any new arguments but merely
cited verbatim the disquisitions of the Court of Appeals to counter
Guillermo's assertions in his petition.
To resolve the case, the Court must confront the issue of whether an
officer of a corporation may be included as judgment obligor in a labor
case for the first time only after the decision of the Labor Arbiter had
become final and executory, and whether the twin doctrines of "piercing
the veil of corporate fiction" and personal liability of company officers in
labor cases apply.
The petition is denied.
In the earlier labor cases of Claparols v. Court of Industrial
Relations43 and A.C. Ransom Labor Union-CCLU v. NLRC,44 persons
who were not originally impleaded in the case were, even during
execution, held to be solidarity liable with the employer corporation for the
latter's unpaid obligations to complainant-employees. These included a
newly-formed corporation which was considered a mere conduit or alter
ego of the originally impleaded corporation, and/or the officers or
stockholders of the latter corporation.45 Liability attached, especially to the
responsible officers, even after final judgment and during execution, when
there was a failure to collect from the employer corporation the judgment
debt awarded to its workers.46 In Naguiat v. NLRC,47 the president of the
corporation was found, for the first time on appeal, to be solidarily liable to
the dismissed employees. Then, in Reynoso v. Court of Appeals,48 the
veil of corporate fiction was pierced at the stage of execution, against a
corporation not previously impleaded, when it was established that such
corporation had dominant control of the original party corporation, which
was a smaller company, in such a manner that the latter's closure was
done by the former in order to defraud its creditors, including a former
worker.
The rulings of this Court in A.C. Ransom, Naguiat, and Reynoso,
however, have since been tempered, at least in the aspects of the lifting
of the corporate veil and the assignment of personal liability to directors,
trustees and officers in labor cases. The subsequent cases of McLeod v.
NLRC,49Spouses Santos v. NLRC50 and Carag v. NLRC,51 have all
established, save for certain exceptions, the primacy of Section 31 52 of
the Corporation Code in the matter of assigning such liability for a
corporation's debts, including judgment obligations in labor cases.
According to these cases, a corporation is still an artificial being invested
by law with a personality separate and distinct from that of its
stockholders and from that of other corporations to which it may be
connected.53 It is not in every instance of inability to collect from a
corporation that the veil of corporate fiction is pierced, and the
responsible officials are made liable. Personal liability attaches only when,
as enumerated by the said Section 31 of the Corporation Code, there is a
wilfull and knowing assent to patently unlawful acts of the corporation,
there is gross negligence or bad faith in directing the affairs of the
corporation, or there is a conflict of interest resulting in damages to the
corporation.54 Further, in another labor case, Pantranco Employees
Association (PEA-PTGWO), et al. v. NLRC, et al.,55 the doctrine of
piercing the corporate veil is held to apply only in three (3) basic areas,
namely: ( 1) defeat of public convenience as when the corporate fiction is
used as a vehicle for the evasion of an existing obligation; (2) fraud cases
or when the corporate entity is used to justify a wrong, protect fraud, or
defend a crime; or (3) alter ego cases, where a corporation is merely a
farce since it is a mere alter ego or business conduit of a person, or where
the corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation. In the absence of malice, bad faith, or a
specific provision of law making a corporate officer liable, such corporate
officer cannot be made personally liable for corporate liabilities. 56 Indeed,
in Reahs Corporation v. NLRC,57 the conferment of liability on officers for
a corporation's obligations to labor is held to be an exception to the
general doctrine of separate personality of a corporation.
It also bears emphasis that in cases where personal liability attaches, not
even all officers are made accountable. Rather, only the "responsible
officer," i.e., the person directly responsible for and who "acted in bad
faith" in committing the illegal dismissal or any act violative of the Labor
Code, is held solidarily liable, in cases wherein the corporate veil is
pierced.58 In other instances, such as cases of so-called corporate tort of
a close corporation, it is the person "actively engaged" in the
management of the corporation who is held liable. 59 In the absence of a
clearly identifiable officer(s) directly responsible for the legal infraction,
the Court considers the president of the corporation as such officer. 60
The common thread running among the aforementioned cases, however,
is that the veil of corporate fiction can be pierced, and responsible
corporate directors and officers or even a separate but related corporation,
may be impleaded and held answerable solidarily in a labor case, even
after final judgment and on execution, so long as it is established that
such persons have deliberately used the corporate vehicle to unjustly
evade the judgment obligation, or have resorted to fraud, bad faith or
malice in doing so. When the shield of a separate corporate identity is
used to commit wrongdoing and opprobriously elude responsibility, the
courts and the legal authorities in a labor case have not hesitated to step
in and shatter the said shield and deny the usual protections to the
offending party, even after final judgment. The key element is the
presence of fraud, malice or bad faith. Bad faith, in this instance, does not
connote bad judgment or negligence but imports a dishonest purpose or
some moral obliquity and conscious doing of wrong; it means breach of a
known duty through some motive or interest or ill will; it partakes of the
nature of fraud.61
As the foregoing implies, there is no hard and fast rule on when corporate
fiction may be disregarded; instead, each case must be evaluated
according to its peculiar circumstances.62 For the case at bar, applying
the above criteria, a finding of personal and solidary liability against a
corporate officer like Guillermo must be rooted on a satisfactory showing
of fraud, bad
faith or malice, or the presence of any of the justifications for disregarding
the corporate fiction. As stated in McLeod,63 bad faith is a question of fact
and is evidentiary, so that the records must first bear evidence of malice
before a finding of such may be made.
It is our finding that such evidence exists in the record. Like the A. C.
Ransom, and Naguiat cases, the case at bar involves an apparent family
corporation. As in those two cases, the records of the present case bear
allegations and evidence that Guillermo, the officer being held liable, is
the person responsible in the actual running of the company and for the
malicious and illegal dismissal of the complainant; he, likewise, was
shown to have a role in dissolving the original obligor company in an
obvious "scheme to avoid liability" which jurisprudence has always looked
upon with a suspicious eye in order to protect the rights of labor.64
Part of the evidence on record is the second page of the verified Position
Paper of complainant (herein respondent) Crisanto P. Uson, where it was
clearly alleged that Uson was "illegally dismissed by the
President/General Manager of respondent corporation (herein petitioner)
Jose Emmanuel P. Guillermo when Uson exposed the practice of the said
President/General Manager of dictating and undervaluing the shares of
stock of the corporation."65 The statement is proof that Guillermo was the
responsible officer in charge of running the company as well as the one
who dismissed Uson from employment. As this sworn allegation is
uncontroverted - as neither the company nor Guillermo appeared before
the Labor Arbiter despite the service of summons and notices - such
stands as a fact of the case, and now functions as clear evidence of
Guillermo's bad faith in his dismissal of Uson from employment, with the
motive apparently being anger at the latter's reporting of unlawful
activities.
Then, it is also clearly reflected in the records that it was Guillermo
himself, as President and General Manager of the company, who
received the summons to the case, and who also subsequently and
without justifiable cause refused to receive all notices and orders of the
Labor Arbiter that followed.66This makes Guillermo responsible for his and
his company's failure to participate in the entire proceedings before the
said office. The fact is clearly narrated in the Decision and Orders of the
Labor Arbiter, Uson's Motions for the Issuance of Alias Writs of Execution,
as well as in the Decision of the NLRC and the assailed Decision of the
Court of Appeals,67 which Guillermo did not dispute in any of his belated
motions or pleadings, including in his petition for certiorari before the
Court of Appeals and even in the petition currently before this
Court.68 Thus, again, the same now stands as a finding of fact of the said
lower tribunals which binds this Court and which it has no power to alter
or revisit.69Guillermo's knowledge of the case's filing and existence and
his unexplained refusal to participate in it as the responsible official of his
company, again is an indicia of his bad faith and malicious intent to evade
the judgment of the labor tribunals.
Finally, the records likewise bear that Guillermo dissolved Royal Class
Venture and helped incorporate a new firm, located in the same address
as the former, wherein he is again a stockl1older. This is borne by the
Sherif11s Return which reported: that at Royal Class Venture's business
address at Minien East, Sta. Barbara, Pangasinan, there is a new
establishment named "Joel and Sons Corporation," a family corporation
owned by the Guillermos in which Jose Emmanuel F. Guillermo is again
one of the stockholders; that Guillermo received the writ of execution but
used the nickname "Joey" and denied being Jose Emmanuel F. Guillermo
and, instead, pretended to be Jose's brother; that the guard on duty
confirmed that Jose and Joey are one and the same person; and that the
respondent corporation Royal Class Venture had been dissolved.70 Again,
the facts contained in the Sheriffs Return were not disputed nor
controverted by Guillermo, either in the hearings of Uson's Motions for
Issuance of Alias Writs of Execution, in subsequent motions or pleadings,
or even in the petition before this Court. Essentially, then, the facts form
part of the records and now stand as further proof of Guillermo's bad faith
and malicious intent to evade the judgment obligation.
The foregoing clearly indicate a pattern or scheme to avoid the
obligations to Uson and frustrate the execution of the judgment award,
which this Court, in the interest of justice, will not countenance.
As for Guillermo's assertion that the case is an intra-corporate
controversy, the Court sustains the finding of the appellate court that the
nature of an action and the jurisdiction of a tribunal are determined by the
allegations of the complaint at the time of its filing, irrespective of whether
or not the plaintiff is entitled to recover upon all or some of the claims
asserted therein.71 Although Uson is also a stockholder and director of
Royal Class Venture, it is settled in jurisprudence that not all conflicts
between a stockholder and the corporation are intra-corporate; an
examination of the complaint must be made on whether the complainant
is involved in his capacity as a stockholder or director, or as an
employee.72 If the latter is found and the dispute does not meet the test of
what qualities as an intra-corporate controversy, then the case is a labor
case cognizable by the NLRC and is not within the jurisdiction of any
other tribunal.73 In the case at bar, Uson's allegation was that he was
maliciously and illegally dismissed as an Accounting Supervisor by
Guillermo, the Company President and General Manager, an allegation
that was not even disputed by the latter nor by Royal Class Venture. It
raised no intra-corporate relationship issues between him and the
corporation or Guillermo; neither did it raise any issue regarding the
regulation of the corporation. As correctly found by the appellate court,
Uson's complaint and redress sought were centered alone on his
dismissal as an employee, and not upon any other relationship he had
with the company or with Guillermo. Thus, the matter is clearly a labor
dispute cognizable by the labor tribunals.chanrobleslaw
WHEREFORE, the petition is DENIED. The Court of Appeals Decision
dated June 8, 2011 and Resolution dated October 7, 2011 in CA G.R. SP
No. 115485 are AFFIRMED.
SO ORDERED.cralawlaw
SERENO, C.J.:
The instant case is an offshoot of this Court's Decision dated 13 January
2004 (2004 Decision) in a related case entitled Information Technology
Foundation of the Philippines v. Commission on Elections.[1]
In the 2004 case, We declared void the automation contract executed by
respondent Mega Pacific eSolutions, Inc. (MPEI) and the Commission on
Elections (COMELEC) for the supply of automated counting machines
(ACMs) for the 2004 national elections.
The present case involves the attempt of petitioner Republic of the
Philippines to cause the attachment of the properties owned by
respondent MPEI, as well as by its incorporators and stockholders
(individual respondents in this case), in order to secure petitioner's
interest and to ensure recovery of the payments it made to respondents
for the invalidated automation contract.
At bench is a Rule 45 Petition assailing the Amended Decision dated 22
September 2008 (Amended Decision) issued by the Court of Appeals (CA)
in CA-G.R. SP No. 95988.[2] In said Amended Decision, the CA directed
the remand of the case to the Regional Trial Court of Makati City, Branch
59 (RTC Makati) for the reception of evidence in relation to petitioner's
application for the issuance of a writ of preliminary attachment. The CA
had reconsidered and set aside its previous Decision dated 31 January
2008 (First Decision)[3] entitling petitioner to the issuance of said writ.
Summarized below are the relevant facts of the case, some of which have
already been discussed in this Court's 2004 Decision:
The Facts
Republic Act No. 8436 authorized the COMELEC to use an automated
election system for the May 1998 elections. However, the automated
system failed to materialize and votes were canvassed manually during
the 1998 and the 2001 elections.
For the 2004 elections, the COMELEC again attempted to implement the
automated election system. For this purpose, it invited bidders to apply for
the procurement of supplies, equipment, and services. Respondent MPEI,
as lead company, purportedly formed a joint venture - known as the Mega
Pacific Consortium (MPC) - together with We Solv, SK C & C, ePLDT,
Election.com and Oracle. Subsequently, MPEI, on behalf of MPC,
submitted its bid proposal to COMELEC.
The COMELEC evaluated various bid offers and subsequently found
MPC and another company eligible to participate in the next phase of the
bidding process.[4] The two companies were referred to the Department
of Science and Technology (DOST) for technical evaluation. After due
assessment, the Bids and Awards Committee (BAC) recommended that
the project be awarded to MPC. The COMELEC favorably acted on the
recommendation and issued Resolution No. 6074, which awarded the
automation project to MPC.
Despite the award to MPC, the COMELEC and MPEI executed on 2 June
2003 the Automated Counting and Canvassing Project Contract
(automation contract)[5] for the aggregate amount of P1,248,949,088.
MPEI agreed to supply and deliver 1,991 units of ACMs and such other
equipment and materials necessary for the computerized electoral
system in the 2004 elections. Pursuant to the automation contract, MPEI
delivered 1,991 ACMs to the COMELEC. The latter, for its part, made
partial payments to MPEI in the aggregate amount of P1.05 billion.
The full implementation of the automation contract was rendered
impossible by the fact that, after a painstaking legal battle, this Court in its
2004 Decision declared the contract null and void.[6] We held that the
COMELEC committed a clear violation of law and jurisprudence, as well
as a reckless disregard of its own bidding rules and procedure. In addition,
the COMELEC entered into the contract with inexplicable haste, and
without adequately checking and observing mandatory financial, technical,
and legal requirements. In a subsequent Resolution, We summarized the
COMELEC's grave abuse of discretion as having consisted of the
following:[7]
1. By a formal Resolution, it awarded the
project to "Mega Pacific Consortium," an
entity that had not participated in the
bidding. Despite this grant, Comelec
entered into the actual Contract with
"Mega Pacific eSolutions, Inc." (MPEI), a
company that joined the bidding process
but did not meet the eligibility
requirements.
2. Comelec accepted and irregularly paid for
MPEI's ACMs that had failed the accuracy
requirement of 99.9995 percent set up by
the Comelec bidding rules. Acknowledging
that this rating could have been too steep,
the Court nonetheless noted that "the
essence of public bidding is violated by the
practice of requiring very high standards or
unrealistic specifications that cannot be
met, x x x only to water them
down after the award is made. Such
scheme, which discourages the entry
of bona fidebidders, is in fact a
sure indication of fraud in the bidding,
designed to eliminate fair competition."
3. The software program of the counting
machines likewise failed to detect
previously downloaded precinct results
and to prevent them from being reentered.
This failure, which has not been corrected
x x x, would have allowed unscrupulous
persons to repeatedly feed into the
computers the results favorable to a
particular candidate, an act that would
have translated into massive election fraud
by just a few key strokes.
4. Neither were the ACMs able to print audit
trails without loss of data - a mandatory
requirement under Section 7 of Republic
Act No. 8436. Audit trails would enable the
Comelec to document the identities of the
ACM operators responsible for data entry
and downloading, as well as the times
when the various data were processed, in
order to forestall fraud and to identify the
perpetrators. The absence of audit trails
would have posed a serious threat to free
and credible elections.
5. Comelec failed to explain satisfactorily why
it had ignored its own bidding rules and
requirements. It admitted that the software
program used to test the ACMs was
merely a "demo" version, and that the final
one to be actually used in the elections
was still being developed. By awarding the
Contract and irregularly paying for the
supply of the ACMs without having seen —
much less, evaluated — the final product
being purchased, Comelec desecrated the
law on public bidding. It would have
allowed the winner to alter its bid
substantially, without any public bidding.
All in all, Comelec subverted the
essence of public bidding: to
give the public an opportunity for
fair competition and a clear
basis for a precise comparison
of bids.[8] (Emphasis supplied)
As a consequence of the nullification of the automation contract, We
directed the Office of the Ombudsman to determine the possible criminal
liability of persons responsible for the contract.[9] This Court likewise
directed the Office of the Solicitor General to protect the government from
the ill effects of the illegal disbursement of public funds in relation to the
automation contract.[10]
After the declaration of nullity of the automation contract, the following
incidents transpired:
1. Private respondents in the 2004 case
moved for reconsideration of the 2004
Decision, but the motion was denied by
this Court in a Resolution dated 17
February 2004 (2004 Resolution).[11]
2. The COMELEC filed a "Most Respectful
Motion for Leave to Use the Automated
Counting Machines in the Custody of the
Commission on Elections for use in the 8
August 2005 Elections in the Autonomous
Region for Muslim Mindanao" dated 9
December 2004 (Motion for Leave to Use
ACMs), which was denied by this Court in
its Resolution dated 15 June 2005 (2005
Resolution).
3. Atty. Romulo B. Macalintal (Macalintal)
filed an "Omnibus Motion for Leave of
Court (1) to Reopen the Case; and (2) to
Intervene and Admit the Attached Petition
in Intervention," which was denied by this
Court in its Resolution dated 22 August
2006 (2006 Resolution); and
4. Respondent MPEI filed a Complaint for
Damages[12] (Complaint) with the RTC
Makati, from which the instant case arose.
The above-mentioned incidents are discussed in more detail below.
BACKGROUND PROCEEDINGS
Private respondents' Motion for Reconsideration
Private respondents in the 2004 case moved for reconsideration of the
2004 Decision. Aside from reiterating the procedural and substantive
arguments they had raised, they also argued that the 2004 Decision had
exposed them to possible criminal prosecution.[13]
This Court denied the motion in its 2004 Resolution and ruled that no
prejudgment had been made on private respondents' criminal liability. We
further ruled that although the 2004 Decision stated that the Ombudsman
shall "determine the criminal liability, if any, of the public officials (and
conspiring private individuals, if any) involved in the subject Resolution
and Contract," We did not make any premature conclusion on any
wrongdoing, but precisely directed the Ombudsman to make that
determination after conducting appropriate proceedings and observing
due process.
Similarly, it appears from the record that several criminal and
administrative Complaints had indeed been filed with the Ombudsman in
relation to the declaration of nullity of the automation contract.[14] The
Complaints were filed against several public officials and the individual
respondents in this case.[15]
In a Resolution issued on 28 June 2006,[16] the Ombudsman
recommended the filing of informations before the Sandiganbayan
against some of the public officials and the individual respondents[17] for
violation of Section 3(e) of Republic Act No. 3019 (the Anti-Graft and
Corrupt Practices Act). However, on 27 September 2006,[18] upon
reconsideration, the Ombudsman reversed its earlier ruling in a
Supplemental Resolution (September Resolution), directing the dismissal
of the criminal cases against the public officials, as well as the individual
respondents, for lack of probable cause.[19]
With this development, a Petition for Certiorari was filed with this Court on
13 October 2006 and docketed as G.R. No. 174777.[20] In the Petition,
several individuals[21] assailed the September Resolution of the
Ombudsman finding no probable cause to hold respondents criminally
liable. The case remains pending with this Court as of this date.
COMELEC's Motion for Leave to Use ACMs in the ARMM Elections
The COMELEC filed a motion with this Court requesting permission to
use the 1,991 ACMs previously delivered by respondent MPEI, for the
ARMM elections, then slated to be held on 8 August 2005. In its motion,
the COMELEC claimed that automation of the ARMM elections was
mandated by Republic Act No. 9333, and since the government had no
available funds to finance the automation of those elections, the ACMs
could be utilized for the 2005 elections.
This Court denied the Motion in Our 2005 Resolution. We ruled that
allowing the use of the ACMs would have the effect of illegally reversing
and subverting a final decision We had promulgated. We further ruled that
the COMELEC was asking for permission to do what it had precisely been
prohibited from doing under the 2004 Decision. This Court also ruled that
the grant of the motion would bar or jeopardize the recovery of
government funds paid to respondents. Considering that the COMELEC
did not present any evidence to prove that the defects had been
addressed, We held that the use of the ACMs and the software would
expose the ARMM elections to the same electoral ills pointed out in the
2004 Decision.
Atty. Macalintal's Omnibus Motion
Atty. Romulo Macalintal sought to reopen the 2004 case in order that he
may be allowed to intervene as a taxpayer and citizen. His purpose for
intervening was to seek another testing of the ACMs with the ultimate
objective of allowing the COMELEC to use them, this time for the 2007
national elections.
This Court denied his motion in Our 2006 Resolution, ruling that Atty.
Macalintal failed to demonstrate that certain supervening events and legal
circumstances had transpired to justify the reliefs sought. We in fact found
that, after Our determination that the ACMs had failed to pass legally
mandated technical requirements in 2004, they were simply put in storage.
The ACMs had remained idle and unused since the last evaluation, at
which they failed to hurdle crucial tests. Consequently, We ruled that if the
ACMs were not good enough for the 2004 national elections or the 2005
ARMM elections, then neither would they be good enough for the 2007
national elections, considering that nothing was done to correct the flaws
that had been previously underscored in the 2004 Decision. We held that
granting the motion would be tantamount to rendering the 2004 Decision
totally ineffective and nugatory.
Moreover, because of our categorical ruling that the whole bidding
process was void and fraudulent, the proposal to use the illegally
procured, demonstratively defective, and fraud-prone ACMs was
rendered nonsensical. Thus:
We stress once again that the Contract entered into
by the Comelec for the supply of the ACMs was
declared VOID by the Court in its Decision, because
of clear violations of law and jurisprudence, as well
as the reckless disregard by the Commission of its
own bidding rules and procedure. In addition, the poll
body entered into the Contract with inexplicable
haste, without adequately checking and observing
mandatory financial, technical and legal
requirements. As explained in our Decision,
Comelec's gravely abusive acts consisted of the
following:
xxxx
To muddle the issue, Comelec keeps on saying
that the "winning" bidder presented a lower price
than the only other bidder. It ignored the fact that
the whole bidding process was VOID and
FRAUDULENT. How then could there have been a
"winning" bid?[22] (Emphasis supplied)
THE INSTANT CASE
Complaint for Damages filed by respondents with the RTC Makati
and petitioner's Answer with Counterclaim, with an application for a
writ of preliminary attachment, from which the instant case arose
Upon the finality of the declaration of nullity of the automation contract,
respondent MPEI filed a Complaint for Damages before the RTC Makati,
arguing that, notwithstanding the nullification of the automation contract,
the COMELEC was still bound to pay the amount of P200,165,681.89.
This amount represented the difference between the value of the ACMs
and the support services delivered on one hand, and on the other, the
payment previously made by the COMELEC.[23]
Petitioner filed its Answer with Counterclaim[24] and argued that
respondent MPEI could no longer recover the unpaid balance from the
void automation contract, since the payments made were illegal
disbursements of public funds. It contended that a null and void contract
vests no rights and creates no obligations, and thus produces no legal
effect at all. Petitioner further posited that respondent MPEI could not
hinge its claim upon the principles of unjust enrichment and
quasi-contract, because such presume that the acts by which the authors
thereof become obligated to each other are lawful, which was not the
case herein.[25]
By way of a counterclaim, petitioner demanded from respondents the
return of the payments made pursuant to the automation contract.[26] It
argued that individual respondents, being the incorporators of MPEI,
likewise ought to be impleaded and held accountable for MPEI's liabilities.
The creation of MPC was, after all, merely an ingenious scheme to feign
eligibility to bid.[27]
Pursuant to Section 1(d) of Rule 57 of the Rules of Court, petitioner
prayed for the issuance of a writ of preliminary attachment against the
properties of MPEI and individual respondents. The application was
grounded upon the fraudulent misrepresentation of respondents as to
their eligibility to participate in the bidding for the COMELEC automation
project and the failure of the ACMs to comply with mandatory technical
requirements.[28]
Subsequently, the trial court denied the prayer for the issuance of a writ of
preliminary attachment,[29] ruling that there was an absence of factual
allegations as to how the fraud was actually committed.
The allegations of petitioner were found to be unreliable, as the latter
merely copied from the declarations of the Supreme Court in Information
Technology Foundation of the Phils, v. COMELEC the factual allegations
of MPEI's lack of qualification and noncompliance with bidding
requirements. The trial court further ruled that the allegations of fraud on
the part of MPEI were not supported by the COMELEC, the office in
charge of conducting the bidding for the election automation contract. It
was likewise held that there was no evidence that respondents harbored
a preconceived plan not to comply with the obligation; neither was there
any evidence that MPEI's corporate fiction was used to perpetrate fraud.
Thus, it found no sufficient basis to pierce the veil of corporate fiction or to
cause the attachment of the properties owned by individual respondents.
Petitioner moved to set aside the trial court's Order denying the writ of
attachment,[30] but its motion was denied.[31]
Appeal before the CA and the First Decision
Aggrieved, petitioner filed an appeal with the CA, arguing that the trial
court had acted with grave abuse of discretion in denying the application
for a writ of attachment.
As mentioned earlier, the CA in its First Decision[32] reversed and set
aside the trial court's Orders and ruled that there was sufficient basis for
the issuance of a writ of attachment in favor of petitioner.
The appellate court explained that the averments of petitioner in support
of the latter's application actually reflected pertinent conclusions reached
by this Court in its 2004 Decision. It held that the trial court erred in
disregarding the following findings of fact, which remained unaltered and
unreversed: (1) COMELEC bidding rules provided that the eligibility and
capacity of a bidder may be proved through financial documents including,
among others, audited financial statements for the last three years; (2)
MPEI was incorporated only on 27 February 2003, or 11 days prior to the
bidding itself; (3) in an attempt to disguise its ineligibility, MPEI
participated in the bidding as lead company of MPC, a putative
consortium, and submitted the incorporation papers and financial
statements of the members of the consortium; and (4) no proof of the joint
venture agreement, consortium agreement, memorandum of agreement,
or business plan executed among the members of the purported
consortium was ever submitted to the COMELEC.[33]
According to the CA, the foregoing were glaring indicia or badges of fraud,
which entitled petitioner to the issuance of the writ. It further ruled that
there was sufficient reason to pierce the corporate veil of MPEI. Thus, the
CA allowed the attachment of the properties belonging to both MPEI and
individual respondents.[34] The CA likewise ruled that even if the
COMELEC committed grave abuse of discretion in capriciously
disregarding the rules on public bidding, this should not preclude or deter
petitioner from pursuing its claim against respondents. After all, the State
is not estopped by the mistake of its officers and employees.[35]
Respondents moved for reconsideration[36] of the First Decision of the
CA.
Motion for Reconsideration before the CA and the Amended
Decision
Upon review, the CA reconsidered its First Decision[37] and directed the
remand of the case to the RTC Makati for the reception of evidence of
allegations of fraud and to determine whether attachment should
necessarily issue.[38]
The CA explained in its Amended Decision that respondents could not be
considered to have fostered a fraudulent intent to dishonor their obligation,
since they had delivered 1,991 units of ACMs.[39] It directed petitioner to
present proof of respondents' intent to defraud COMELEC during the
execution of the automation contract.[40] The CA likewise emphasized
that the Joint Affidavit submitted in support of petitioner's application for
the writ contained allegations that needed to be substantiated.[41] It
added that proof must likewise be adduced to verify the requisite fraud
that would justify the piercing of the corporate veil of respondent MPEI.[42]
The CA further clarified that the 2004 Decision did not make a definite
finding as to the identities of the persons responsible for the illegal
disbursement or of those who participated in the fraudulent
dealings.[43] It instructed the trial court to consider, in its determination of
whether the writ of attachment should issue, the illegal, imprudent and
hasty acts in awarding the automation contract by the COMELEC. In
particular, these acts consisted of: (1) awarding the automation contract
to MPC, an entity that did not participate in the bidding; and (2) signing
the actual automation contract with respondent MPEI, the company that
joined the bidding without meeting the eligibility requirement.[44]
Rule 45 Petition before Us
Consequently, petitioner filed the instant Rule 45 Petition,[45] arguing that
the CA erred in ordering the remand of the case to the trial court for the
reception of evidence to determine the presence of fraud. Petitioner
contends that this Court's 2004 Decision was sufficient proof of the fraud
committed by respondents in the execution of the voided automation
contract.[46] Respondents allegedly committed fraud by securing the
automation contract, although MPEI was not qualified to bid in the first
place.[47] Their claim that the members of MPC bound themselves to the
automation contract was an indication of bad faith as the contract was
executed by MPEI alone.[48] Neither could they deny that the software
submitted during the bidding process was not the same one that would be
used on election day.[49]They could not dissociate themselves from
telltale signs such as purportedly supplying software that later turned out
to be non-existent.[50]
In their respective Comments, respondents Willy Yu, Bonnie Yu, Enrique
Tansipek, and Rosita Tansipek counter[51] that this Court never ruled
that individual respondents were guilty of any fraud or bad faith in
connection with the automation contract, and that it was incumbent upon
petitioner to present evidence on the allegations of fraud to justify the
issuance of the writ.[52] They likewise argue that the 2004 Decision
cannot be invoked against them, since petitioner and MPEI were
co-respondents in the 2004 case and not adverse parties
therein.[53] Respondents further contend that the allegations of fraud are
belied by their actual delivery of 1,991 units of ACMs to the COMELEC,
which they claim is proof that they never had any intention to evade
performance.[54]
They further allege that this Court, in its 2004 Decision, even recognized
that it had not found any wrongdoing on their part, and that the
Ombudsman had already made a determination that no probable cause
existed with respect to charges of violation of Anti-Graft and Corrupt
Practices Act.[55]
Echoing the other respondents' arguments on the lack of particularity in
the allegations of fraud,[56] respondents MPEI, Johnson Wong, Bernard
Fong, Pedro Tan, and Lauriano Barrios likewise argue that they were not
parties to the 2004 case; thus, the 2004 Decision thereon is not binding
on them.[57] Individual respondents likewise argue that the findings of
fact in the 2004 Decision were not conclusive,[58] considering that eight
(8) of the fifteen (15) justices allegedly refused to go along with the factual
findings as stated in the majority opinion.[59] Thereafter, petitioner filed
its Reply to the Comments.[60]
Based on the submissions of both parties, the following issues are
presented to this Court for resolution:
1. Whether petitioner has sufficiently established fraud on the part
of respondents to justify the issuance of a writ of preliminary
attachment in its favor; and
2. Whether a writ of preliminary attachment may be issued
against the properties of individual respondents, considering
that they were not parties to the 2004 case.
The Court's Ruling
The Petition is meritorious. A writ of preliminary attachment should issue
in favor of petitioner over the properties of respondents MPEI, Willy Yu
(Willy) and the remaining individual respondents, namely: Bonnie S. Yu
(Bonnie), Enrique T. Tansipek (Enrique), Rosita Y. Tansipek (Rosita),
Pedro O. Tan (Pedro), Johnson W. Fong (Johnson), Bernard I. Fong
(Bernard), and Lauriano Barrios (Lauriano). The bases for the writ are the
following:
1. Fraud on the part of respondent MPEI was sufficiently
established by the factual findings of this Court in its 2004
Decision and subsequent pronouncements.
2. A writ of preliminary attachment may issue over the properties
of the individual respondents using the doctrine of piercing the
corporate veil.
3. The factual findings of this Court that have become final cannot
be modified or altered, much less reversed, and are controlling
in the instant case.
4. The delivery of 1,991 units of ACMs does not negate fraud on
the part of respondents MPEI and Willy.
5. Estoppel does not lie against the state when it acts to rectify
mistakes, errors or illegal acts of its officials and agents.
6. The findings of the Ombudsman are not controlling in the
instant case.
DISCUSSION
I.
Fraud on the part of respondent MPEI was sufficiently established
by the factual findings of this Court in the latter's 2004 Decision and
subsequent pronouncements.
Petitioner argues that the findings of this Court in the 2004 Decision serve
as sufficient basis to prove that, at the time of the execution of the
automation contract, there was fraud on the part of respondents that
justified the issuance of a writ of attachment. Respondents, however,
argue the contrary. They claim that fraud had not been sufficiently
established by petitioner.
We rule in favor of petitioner. Fraud on the part of respondents MPEI and
Willy, as well as of the other individual respondents — Bonnie, Enrique,
Rosita, Pedro, Johnson, Bernard, and Lauriano — has been established.
A writ of preliminary attachment is a provisional remedy issued upon the
order of the court where an action is pending. Through the writ, the
property or properties of the defendant may be levied upon and held
thereafter by the sheriff as security for the satisfaction of whatever
judgment might be secured by the attaching creditor against the
defendant.[61] The provisional remedy of attachment is available in order
that the defendant may not dispose of the property attached, and thus
prevent the satisfaction of any judgment that may be secured by the
plaintiff from the former.[62]
The purpose and function of an attachment or garnishment is twofold.
First, it seizes upon property of an alleged debtor in advance of final
judgment and holds it subject to appropriation, thereby preventing the
loss or dissipation of the property through fraud or other means. Second,
it subjects the property of the debtor to the payment of a creditor's claim,
in those cases in which personal service upon the debtor cannot be
obtained.[63] This remedy is meant to secure a contingent lien on the
defendant's property until the plaintiff can, by appropriate proceedings,
obtain a judgment and have the property applied to its satisfaction, or to
make some provision for unsecured debts in cases in which the means of
satisfaction thereof are liable to be removed beyond the jurisdiction, or
improperly disposed of or concealed, or otherwise placed beyond the
reach of creditors.[64]
Petitioner relied upon Section 1(d), Rule 57 of the Rules of Court as basis
for its application for a writ of preliminary attachment. This provision
states:
Section 1. Grounds upon which attachment may
issue. At the commencement of the action or at any
time before entry of judgment, a plaintiff or any
proper party may have the property of the adverse
party attached as security for the satisfaction of any
judgment that may be recovered in the following
cases:
xxxx
(d) In an action against a party who has been guilty
of a fraud in contracting the debt or incurring the
obligation upon which the action is brought, or in
the performance thereof. (Emphasis supplied)
For a writ of preliminary attachment to issue under the above-quoted rule,
the applicant must sufficiently show the factual circumstances of the
alleged fraud.[65] In Metro, Inc. v. Lara's Gift and Decors, Inc.,[66] We
explained:
itself.[68]
Fraud may be characterized as the voluntary execution of a wrongful act
or a wilful omission, while knowing and intending the effects that naturally
and necessarily arise from that act or omission.[69] In its general sense,
fraud is deemed to comprise anything calculated to deceive—including all
acts and omission and concealment involving a breach of legal or
equitable duty, trust, or confidence justly reposed—resulting in damage to
or in undue advantage over another.[70] Fraud is also described as
embracing all multifarious means that human ingenuity can device, and is
resorted to for the purpose of securing an advantage over another by
false suggestions or by suppression of truth; and it includes all surprise,
trick, cunning, dissembling, and any other unfair way by which another is
cheated.[71]
While fraud cannot be presumed, it need not be proved by direct evidence
and can well be inferred from attendant circumstances.[72]Fraud by its
nature is not a thing susceptible of ocular observation or readily
demonstrable physically; it must of necessity be proved in many cases by
inferences from circumstances shown to have been involved in the
transaction in question.[73]
In the case at bar, petitioner has sufficiently discharged the burden of
demonstrating the commission of fraud by respondent MPEI in the
execution of the automation contract in the two ways that were
enumerated earlier and discussed below:
A. Respondent MPEI had perpetrated a scheme against petitioner to
secure the automation contract by using MPC as supposed bidder
and eventually succeeding in signing the automation contract as
MPEI alone, an entity which was ineligible to bid in the first place.
To avoid any confusion relevant to the basis of fraud, We quote herein the
pertinent portions of this Court's 2004 Decision with regard to the identity,
existence, and eligibility of MPC as bidder:[74]

To sustain an attachment on this On the question of the identity and the existence of
ground, it must be shown that the real bidder, respondents insist that, contrary to
the debtor in contracting the petitioners' allegations, the bidder was not Mega
debt or incurring the obligation Pacific eSolutions, Inc. (MPEI), which was
intended to defraud the incorporated only on February 27, 2003, or 11
creditor. The fraud must relate days prior to the bidding itself. Rather, the bidder
to the execution of the was Mega Pacific Consortium (MPC), of which MPEI
agreement and must have was but a part. As proof thereof, they point to the
been the reason which March 7, 2003 letter of intent to bid, signed by the
induced the other party into president of MPEI allegedly for and on behalf of MPC.
giving consent which he They also call attention to the official receipt issued
would not have otherwise to MPC, acknowledging payment for the bidding
given. To constitute a ground documents, as proof that it was the "consortium" that
for attachment in Section 1(d), participated in the bidding process.
Rule 57 of the Rules of Court,
fraud should be committed upon We do not agree. The March 7, 2003 letter, signed by
contracting the obligation sued only one signatory — "Willy U. Yu, President, Mega
upon. A debt is fraudulently Pacific eSolutions, Inc., (Lead Company/Proponent)
contracted if at the time of For: Mega Pacific Consortium" — and without any
contracting it the debtor has a further proof, does not by itself prove the existence of
preconceived plan or intention the consortium. It does not show that MPEI or its
not to pay, as it is in this case. x president have been duly pre-authorized by the other
x x. members of the putative consortium to represent
them, to bid on their collective behalf and, more
important, to commit them jointly and severally to the
The applicant for a writ of bid undertakings. The letter is purely self-serving and
preliminary attachment must uncorroborated.
sufficiently show the factual
circumstances of the alleged Neither does an official receipt issued to MPC,
fraud because fraudulent intent acknowledging payment for the bidding documents,
cannot be inferred from the constitute proof that it was the purported consortium
debtor's mere non-payment of that participated in the bidding. Such receipts are
the debt or failure to comply with issued by cashiers without any legally sufficient
his obligation. (Emphasis inquiry as to the real identity or existence of the
supplied) supposed payor.

An amendment to the Rules of Court added the phrase "in the
performance thereof" to include within the scope of the grounds for
issuance of a writ of preliminary attachment those instances relating to
fraud in the performance of the obligation.[67]
Fraud is a generic term that is used in various senses and assumes so
many different degrees and forms that courts are compelled to content
themselves with comparatively few general rules for its discovery and
defeat. For the same reason, the facts and circumstances peculiar to
each case are allowed to bear heavily on the conscience and judgment of
the court or jury in determining the presence or absence of fraud. In fact,
the fertility of man's invention in devising new schemes of fraud is so
great that courts have always declined to define it, thus, reserving for
themselves the liberty to deal with it in whatever form it may present
To assure itself properly of the due existence (as well
as eligibility and qualification) of the putative
consortium, Comelec's BAC should have examined
the bidding documents submitted on behalf of MPC.
They would have easily discovered the following fatal
flaws.
xxxx
The Eligibility Envelope was to contain legal
documents such as articles of incorporation, x x x to
establish the bidder's financial capacity.
In the case of a consortium or joint venture desirous
of participating in the bidding, it goes without saying
that the Eligibility Envelope would necessarily have
to include a copy of the joint venture agreement, the
consortium agreement or memorandum of
agreement — or a business plan or some other
instrument of similar import — establishing the due
existence, composition and scope of such
aggrupation. Otherwise, how would Comelec know
who it was dealing with, and whether these parties
are qualified and capable of delivering the products
and services being offered for bidding?
In the instant case, no such instrument was
submitted to Comelec during the bidding
process. x x x
xxxx
However, there is no sign whatsoever of any joint
venture agreement, consortium agreement,
memorandum of agreement, or business plan
executed among the members of the purported
consortium.
The only logical conclusion is that no such
agreement was ever submitted to the Comelec
for its consideration, as part of the bidding
process.
It thus follows that, prior the award of the
Contract, there was no documentary or other
basis for Comelec to conclude that a consortium
had actually been formed amongst MPEI, SK
C&C and WeSolv, along with Election.com and
ePLDT. Neither was there anything to indicate the
exact relationships between and among these firms;
their diverse roles, undertakings and prestations, if
any, relative to the prosecution of the project, the
extent of their respective investments (if any) in the
supposed consortium or in the project; and the
precise nature and extent of their respective liabilities
with respect to the contract being offered for bidding.
And apart from the self-serving letter of March 7,
2003, there was not even any indication that MPEI
was the lead company duly authorized to act on
behalf of the others.
xxxx
Hence, had the proponent MPEI been evaluated
based solely on its own experience, financial and
operational track record or lack thereof, it would
surely not have qualified and would have been
immediately considered ineligible to bid, as
respondents readily admit.
xxxx
At this juncture, one might ask: What, then, if there
are four MOAs instead of one or none at all? Isn't it
enough that there are these corporations coming
together to carry out the automation project? Isn't it
true, as respondent aver, that nowhere in the RFP
issued by Comelec is it required that the members of
the joint venture execute a single written agreement
to prove the existence of a joint venture. x x x
xxxx
The problem is not that there are four agreements
instead of only one. The problem is that Comelec
never bothered to check. It never based its decision
on documents or other proof that would concretely
establish the existence of the claimed consortium or
joint venture or agglomeration.
xxxx
True, copies of financial statements and
incorporation papers of the alleged "consortium"
members were submitted. But these papers did not
establish the existence of a consortium, as they
could have been provided by the companies
concerned for purposes other than to prove that they
were part of a consortium or joint venture.
xxxx
In brief, despite the absence of competent proof
as to the existence and eligibility of the alleged
consortium (MPC), its capacity to deliver on the
Contract, and the members' joint and several
liability therefor, Comelec nevertheless assumed
that such consortium existed and was eligible. It
then went ahead and considered the bid of MPC,
to which the Contract was eventually awarded, in
gross violation of the former's own bidding rules
and procedures contained in its RFP. Therein lies
Comclec's grave abuse of discretion.
Sufficiency of the Four Agreements
Instead of one multilateral agreement executed by,
and effective and binding on, all the five "consortium
members" — as earlier claimed by Commissioner
Tuason in open court — it turns out that what was
actually executed were four (4) separate and distinct
bilateral Agreements. Obviously, Comelec was
furnished copies of these Agreements
only after the bidding process had been
terminated, as these were not included in the
Eligibility Documents. x x x
xxxx
At this point, it must be stressed most vigorously
that the submission of the four bilateral
Agreements to Comelec after the end of the
bidding process did nothing to eliminate the
grave abuse of discretion it had already
committed on April 15, 2003.
Deficiencies Have Not Been "Cured"
In any event, it is also claimed that the automation
Contract awarded by Comelec incorporates all
documents executed by the "consortium" members,
even if these documents are not referred to therein. x
xx
xxxx
Thus, it is argued that whatever perceived
deficiencies there were in the supplementary
contracts - those entered into by MPEI and the other
members of the "consortium" as regards their joint
and several undertakings — have been cured. Better
still, such deficiencies have supposedly been
prevented from arising as a result of the
above-quoted provisions, from which it can be
immediately established that each of the members of
MPC assumes the same joint and several liability as
the other members.
The foregoing argument is unpersuasive. First, the
contract being referred to, entitled "The
Automated Counting and Canvassing Project
Contract," is between Comelec and MPEI, not the
alleged consortium, MPC. To repeat, it is MPEI -
not MPC - that is a party to the Contract. Nowhere
in that Contract is there any mention of a
consortium or joint venture, of members thereof,
much less of joint and several
liability. Supposedly executed sometime in May
2003, the Contract bears a notarization date of
June 30, 2003, and contains the signature of Willy
U. Yu signing as president of MPEI (not for and
on behalf of MPC), along with that of the Comelec
chair. It provides in Section 3.2 that MPEI (not
MPC) is to supply the Equipment and perform the
Services under the Contract, in accordance with
the appendices thereof; nothing whatsoever is
said about any consortium or joint venture or
partnership.
xxxx
Eligibility of a Consortium Based on the Collective
Qualifications of Its Members

Respondents declare that, for purposes of assessing
the eligibility of the bidder, the members of MPC
should be evaluated on a collective basis. Therefore,
they contend, the failure of MPEI to submit
financial statements (on account of its recent
incorporation) should not by itself disqualify
MPC, since the other members of the
"consortium" could meet the criteria set out in
the RFP.
xxxx
Unfortunately, this argument seems to assume that
the "collective" nature of the undertaking of the
members of MPC, their contribution of assets and
sharing of risks, and the "community" of their interest
in the performance of the Contract entitle MPC to be
treated as a joint venture or consortium; and to be
evaluated accordingly on the basis of the members'
collective qualifications when, in fact, the evidence
before the Court suggest otherwise.
xxxx
Going back to the instant case, it should be
recalled that the automation Contract with
Comelec was not executed by the "consortium"
MPC - or by MPEI for and on behalf of MPC - but
by MPEI, period. The said Contract contains no
mention whatsoever of any consortium or
members thereof. This fact alone seems to
contradict all the suppositions about a joint
undertaking that would normally apply to a joint
venture or consortium: that it is a commercial
enterprise involving a community of interest, a
sharing of risks, profits and losses, and so on.
xxxx
To the Court, this strange and beguiling arrangement
of MPEI with the other companies does not qualify
them to be treated as a consortium or joint venture,
at least of the type that government agencies like the
Comelec should be dealing with. With more reason is
it unable to agree to the proposal to evaluate the
members of MPC on a collective basis. (Emphases
supplied)
These findings found their way into petitioner's application for a writ of
preliminary attachment,[75] in which it claimed the following as bases for
fraud: (1) respondents committed fraud by securing the election
automation contract and, in order to perpetrate the fraud, by
misrepresenting the actual bidder as MPC and MPEI as merely acting on
MPC's behalf; (2) while knowing that MPEI was not qualified to bid for the
automation contract, respondents still signed and executed the contract;
and (3) respondents acted in bad faith when they claimed that they had
bound themselves to the automation contract, because it was not
executed by MPC—or by MPEI on MPC's behalf—but by MPEI alone.[76]
We agree with petitioner that respondent MPEI committed fraud by
securing the election automation contract; and, in order to perpetrate the
fraud, by misrepresenting that the actual bidder was MPC and not MPEI,
which was only acting on behalf of MPC. We likewise rule that respondent
MPEI has defrauded petitioner, since the former still executed the
automation contract despite knowing that it was not qualified to bid for the
same.
The established facts surrounding the eligibility, qualification and
existence of MPC — and of MPEI for that matter — and the subsequent
execution of the automation contract with the latter, when all taken
together, constitute badges of fraud that We simply cannot ignore. MPC
was considered an illegitimate entity, because its existence as a joint
venture had not been established. Notably, the essential document/s that
would have shown its eligibility as a joint venture/consortium were not
presented to the COMELEC at the most opportune time, that is, during
the qualification stage of the bidding process. The concealment by
respondent MPEI of the essential documents showing its eligibility to bid
as part a joint venture is too obvious to be missed. How could it not have
known that the very document showing MPC as a joint venture should
have been included in their eligibility envelope?
Likewise notable is the fact that these supposed agreements, allegedly
among the supposed consortium members, were belatedly provided to
the COMELEC after the bidding process had been terminated; these
were not included in the Eligibility Documents earlier submitted by MPC.
Similarly, as found by this Court, these documents did not prove any joint
venture agreement among the parties in the first place, but were actually
individual agreements executed by each member of the supposed
consortium with respondent MPEI.
More startling to the dispassionate mind is the incongruence between the
supposed actual bidder MPC, on one hand, and, on the other, respondent
MPEI, which executed the automation contract. Significantly, respondent
MPEI was not even eligible and qualified to bid in the first place; and yet,
the automation contract itself was executed and signed singly by
respondent MPEI, not on behalf of the purported bidder MPC, without any
mention whatsoever of the members of the supposed consortium.
From these established facts, We can surmise that in order to secure the
automation contract, respondent MPEI perpetrated a scheme against
petitioner by using MPC as supposed bidder and eventually succeeding
in signing the automation contract as MPEI alone. Worse, it was
respondent MPEI alone, an entity that was ineligible to bid in the first
place, that eventually executed the automation contract.
To a reasonable mind, the entire situation reeks of fraud, what with the
misrepresentation of identity and misrepresentation as to
creditworthiness. It is in these kinds of fraudulent instances, when the
ability to abscond is greatest, to which a writ of attachment is precisely
responsive.
Further, the failure to attach the eligibility documents is tantamount to
failure on the part of respondent MPEI to disclose material facts. That
omission constitutes fraud.
Pursuant to Article 1339 of the Civil Code,[77] silence or concealment
does not, by itself, constitute fraud, unless there is a special duty to
disclose certain facts, or unless the communication should be made
according to good faith and the usages of commerce.[78]
Fraud has been defined to include an inducement through insidious
machination. Insidious machination refers to a deceitful scheme or plot
with an evil or devious purpose. Deceit exists where the party, with intent
to deceive, conceals or omits to state material factsand, by reason of
such omission or concealment, the other party was induced to give
consent that would not otherwise have been given.[79]
One form of inducement is covered within the scope of the crime of estafa
under Article 315, paragraph 2, of the Revised Penal Code, in which, any
person who defrauds another by using fictitious name, or falsely pretends
to possess power, influence, qualifications, property, credit, agency,
business or imaginary transactions, or by means of similar deceits
executed prior to or simultaneously with the commission of fraud is held
criminally liable. In Joson v. People,[80] this Court explained the element
of defraudation by means of deceit, by giving a definition of fraud and
deceit, in this wise:
What needs to be determined therefore is whether or
not the element of defraudation by means of deceit
has been established beyond reasonable doubt.
In the case of People v. Menil, Jr., the Court
has defined fraud and deceit in this wise:
Fraud, in its general sense, is
deemed to comprise anything
calculated to deceive, including
all acts, omissions, and
concealment involving a breach
of legal or equitable duty, trust,
or confidence justly reposed,
resulting in damage to another,
or by which an undue and
unconscientious advantage is
taken of another. It is a generic
term embracing all multifarious
means which human ingenuity
can devise, and which are
resorted to by one individual to
secure an advantage over
another by false suggestions or
by suppression of truth and
includes all surprise, trick,
cunning, dissembling and any
unfair way by which another is
cheated. On the other hand,
deceit is the false
representation of a matter of
fact, whether by words or
conduct, by false or
misleading allegations, or by
concealment of that which
 should have been disclosed
which deceives or is intended
to deceive another so that he
shall act upon it to his legal
injury. (Emphases supplied)
For example, in People v. Comila,[81] both accused-appellants therein
represented themselves to the complaining witnesses to have the
capacity to send them to Italy for employment, even as they did not have
the authority or license for the purpose. It was such misrepresentation
that induced the complainants to part with their hard-earned money for
placement and medical fees. Both accused-appellants were criminally
held liable for estafa.
In American jurisprudence, fraud may be predicated on a false
introduction or identification.[82] In Union Co. v. Cobb,[83] the defendant
therein procured the merchandise by misrepresenting that she was Mrs.
Taylor Ray and at another time she was Mrs. Ben W. Chiles, and she
forged their name on charge slips as revealed by the exhibits of the
plaintiff. The sale of the merchandise was induced by these
representations, resulting in injury to the plaintiff.
In Raser v. Moomaw,[84] it was ruled that the essential elements
necessary to constitute actionable fraud and deceit were present in the
complaint. It was alleged that, to induce plaintiff to procure a loan,
defendant introduced him to a woman who was falsely represented to be
Annie L. Knowles of Seattle, Washington, the owner of the property, and
that plaintiff had no means of ascertaining her true identity. On the other
hand, defendant knew, or in the exercise of reasonable caution should
have known, that she was an impostor, and that plaintiff relied on the
representations, induced his client to make the loan, and had since been
compelled to repay it. In the same case, the Court ruled that false
representations as to the identity of a person are actionable, if made to
induce another to act thereon, and such other does so act thereon to his
prejudice.[85]
In this case, analogous to the fraud and deceit exhibited in the
above-mentioned circumstances, respondent MPEI had no excuse not to
be forthright with the documents showing MPC's eligibility to bid as a joint
venture. The Invitation to Bid, as quoted in our 2004 Decision, could not
have been any clearer when it stated that only bids from qualified entities,
such as a joint venture, would be entertained:
INVITATION TO APPLY FOR ELIGIBILITY AND TO
BID
The Commission on Elections
(COMELEC), pursuant to the
mandate of Republic Act Nos.
8189 and 8436, invites
interested offerers, vendors,
suppliers or lessors to apply for
eligibility and to bid for the
procurement by purchase, lease,
lease with option to purchase, or
otherwise, supplies, equipment,
materials and services needed
for a comprehensive Automated
Election System, consisting of
three (3) phases: (a)
registration/verification of voters,
(b) automated counting and
consolidation of votes, and (c)
electronic transmission of
election results, with an
approved budget of TWO
BILLION FIVE HUNDRED
MILLION (Php2,500,000,000)
Pesos.
Only bids from the following
entities shall be entertained:
xxxx
d. Manufacturers, suppliers
and/or distributors forming
themselves into a joint
venture, i.e., a group of two (2)
or more manufacturers,
suppliers and/or distributors
that intend to be jointly and
severally responsible or liable
for a particular contract,
provided that Filipino
ownership thereof shall be at
least sixty percent (60%); and
e. Cooperatives duly registered
with the Cooperatives
Development
Authority.[86] (Emphases
supplied)
No reasonable mind would argue that documents showing the very
existence of a joint venture need not be included in the bidding envelope
showing its existence, qualification, and eligibility to undertake the project,
considering that the purpose of prequalification in any public bidding is to
determine, at the earliest opportunity, the ability of the bidder to undertake
the project.[87]
As found by this Court in its 2004 Decision, it appears that the documents
that were submitted after the bidding, which respondents claimed would
prove the existence of the relationship among the members of the
consortium, were actually separate agreements individually executed by
the supposed members with MPEI. We had ruled that these documents
were highly irregular, considering that each of the four different and
separate bilateral Agreements was valid and binding only between MPEI
and the other contracting party, leaving the other "consortium" members
total strangers thereto. Consequently, the other consortium members had
nothing to do with one another, as each one dealt only with MPEI.[88]
Considering that they merely showed MPEI's individual agreements with
the other supposed members, these agreements confirm to our mind the
fraudulent intent on the part of respondent MPEI to deceive the relevant
officials about MPC. The intent was to cure the deficiency of the winning
bid, which intent miserably failed. Said this Court:[89]
We are unconvinced, PBAC was guided by the rules,
regulations or guidelines existing before the bid
proposals were opened on November 10, 1989. The
basic rule in public bidding is that bids should be
evaluated based on the required documents
submitted before and not after the opening of
bids. Otherwise, the foundation of a fair and
competitive public bidding would be defeated.
Strict observance of the rules, regulations, and
guidelines of the bidding process is the only
safeguard to a fair, honest and competitive
public bidding.
In underscoring the Court's strict application of the
pertinent rules, regulations and guidelines of the
public bidding process, We have ruled in C & C
Commercial vs. Menor (L-28360, January 27, 1983,
120 SCRA 112), that Nawasa properly rejected a bid
of C & C Commercial to supply asbestos cement
pressure which bid did not include a tax clearance
certificate as required by Administrative Order No. 66
dated June 26, 1967. In Caltex (Phil.) Inc., et. al. vs.
Delgado Brothers, Inc. et. al., (96 Phil. 368, 375), We
stressed that public biddings are held for the
protection of the public and the public should be
given the best possible advantages by means of
open competition among the bidders.
xxxx
INTER TECHNICAL's failure to comply with what
is perceived to be an elementary and customary
practice in a public bidding process, that is, to
enclose the Form of Bid in the original and eight
separate copies of the bidding documents
submitted to the bidding committee is fatal to its
cause. All the four pre-qualified bidders which
include INTER TECHNICAL were subject to Rule IB
2.1 of the Implementing Rules and Regulations of
P.D. 1594 in the preparation of bids, bid bonds, and
pre-qualification statement and Rule IB 2.8 which
states that the Form of Bid, among others, shall form
part of the contract. INTER TECHNICAL's
explanation that its bid form was inadvertently left in
the office (p. 6, Memorandum for Private Respondent,
p. 355, Rollo) will not excuse compliance with such a
simple and basic requirement in the public bidding
process involving a multi-million project of the
Government. There should be strict application of
the pertinent public bidding rules, otherwise the
essential requisites of fairness, good faith, and
competitiveness in the public bidding process
 would be rendered meaningless. (Emphases
supplied)
All these circumstances, taken together, reveal a scheme on the part of
respondent MPEI to perpetrate fraud against the government. The
purpose of the scheme was to ensure that MPEI, an entity that was
ineligible to bid in the first place, would eventually be awarded the
contract. While respondent argues that it was merely a passive participant
in the bidding process, We cannot ignore its cavalier disregard of its
participation in the now voided automation contract.
B. Fraud on the part of respondent MPEI was further shown by the
fact that despite the failure of its ACMs to pass the tests conducted
by the DOST, respondent still acceded to being awarded the
automation contract.
Another token of fraud is established by Our findings in relation to the
failure of the ACMs to pass the tests of the DOST. We quote herein the
pertinent portions of this Court's 2004 Decision in relation thereto:
After respondent "consortium" and the other bidder,
TIM, had submitted their respective bids on March 10,
2003, the Comelec's BAC — through its Technical
Working Group (TWG) and the DOST — evaluated
their technical proposals.
xxxx
According to respondents, it was only after the TWG
and the DOST had conducted their separate tests
and submitted their respective reports that the BAC,
on the basis of these reports formulated its
comments/recommendations on the bids of the
consortium and TIM.
The BAG, in its Report dated April 21, 2003,
recommended that the Phase II project involving the
acquisition of automated counting machines be
awarded to MPEI. x x x
xxxx
The BAC, however, also stated on page 4 of its
Report: "Based on the 14 April 2003 report (Table
6) of the DOST, it appears that both Mega-Pacific
and TIM (Total Information Management
Corporation) failed to meet some of the
requirements. x x x
xxxx
Failure to Meet the Required Accuracy Rating
The first of the key requirements was that the
counting machines were to have an accuracy rating
of at least 99.9995 percent. The BAC Report
indicates that both Mega Pacific and TIM failed to
meet this standard.
The key requirement of accuracy rating happens
to be part and parcel of the Comelec's Request
for Proposal (RFP). x x x
xxxx
x x x Whichever accuracy rating is the right standard
— whether 99.995 or 99.9995 percent — the fact
remains that the machines of the so-called "consort
him" failed to even reach the lesser of the two. On this
basis alone, it ought to have been disqualified and its
bid rejected outright.
At this point, the Court stresses that the essence
of public bidding is violated by the practice of
requiring very high standards or unrealistic
specifications that cannot be met — like the
99.9995 percent accuracy rating in this case —
only to water them down after the bid has been
award.[sic] Such scheme, which discourages the
entry of prospective bona fide bidders, is in fact a
sure indication of fraud in the bidding, designed
to eliminate fair competition. Certainly, if no
bidder meets the mandatory requirements,
standards or specifications, then no award
should be made and a failed bidding declared.
xxxx
Failure of Software to Detect Previously Downloaded
Data
Furthermore, on page 6 of the BAC Report, it
appears that the "consortium" as well as TIM
failed to meet another key requirement — for the
counting machine's software program to be able
to detect previously downloaded precinct results
and to prevent these from being entered again
into the counting machine. This same deficiency
on the part of both bidders reappears on page 7 of
the BAC Report, as a result of the recurrence of their
failure to meet the said key requirement.
That the ability to detect previously downloaded data
at different canvassing or consolidation levels is
deemed of utmost importance can be seen from the
fact that it is repeated three times in the RFP. x x x.
Once again, though, Comelec chose to ignore this
crucial deficiency, which should have been a cause
for the gravest concern. x x x.
xxxx
Inability to Print the Audit Trail
But that grim prospect is not all. The BAC Report, on
pages 6 and 7, indicate that the ACMs of both
bidders were unable to print the audit trail without
any loss of data. In the case of MPC, the audit trail
system was "not yet incorporated" into its ACMs.
xxxx
Thus, the RFP on page 27 states that the ballot
counting machines and ballot counting
software must print an audit trail of all machine
operations for documentation and verification
purposes. Furthermore, the audit trail must be
stored on the internal storage device and be
available on demand for future printing and verifying.
On pages 30-31, the RFP also requires that
the city/municipal canvassing system software be
able to print an audit trail of the canvassing
operations, including therein such data as the date
and time the canvassing program was started, the
log-in of the authorized users (the identity of the
machine operators), the date and time the canvass
data were downloaded into the canvassing system,
and so on and so forth. On page 33 of the RFP, we
find the same audit trail requirement with respect to
the provincial/district canvassing system software;
and again on pages 35-36 thereof, the same audit
trail requirement with respect to
the national canvassing system software.
xxxx
The said provision which respondents have quoted
several times, provides that ACMs are to possess
certain features divided into two classes: those that
the statute itself considers mandatory and other
features or capabilities that the law deems
optional. Among those considered mandatory are
"provisions for audit trails"! x x x.
In brief, respondents cannot deny that the
provision requiring audit trails is indeed
mandatory, considering the wording of Section 7
of RA 8436. Neither can Respondent Comelec deny
that it has relied on the BAC Report, which indicates
that the machines or the software was deficient in
that respect. And yet, the Commission simply
disregarded this shortcoming and awarded the
Contract to private respondent, thereby violating the
very law it was supposed to
implement.[90] (Emphases supplied)
The above-mentioned findings were further echoed by this Court in its
2006 Resolution with a categorical conclusion that the bidding process
was void and fraudulent.[91]
Again, these factual findings found their way into the application of
petitioner for a writ of preliminary attachment,[92] as it claimed that
respondents could not dissociate themselves from their telltale acts of
supplying defective machines and nonexistent software.[93] The latter
offered no defense in relation to these claims.
We see no reason to deviate from our finding of fraud on the part of
respondent MPEI in the 2004 Decision and 2006 Resolution. Despite its
failure to meet the mandatory requirements set forth in the bidding
procedure, respondent still acceded to being awarded the contract. These
circumstances reveal its ploy to gain undue advantage over the other
bidders in general, even to the extent of cheating the government.
The word "bidding" in its comprehensive sense means making an offer or
an invitation to prospective contractors, whereby the government
manifests its intention to make proposals for the purpose of securing
supplies, materials, and equipment for official business or public use, or
for public works or repair.[94] Three principles involved in public bidding
are as follows: (1) the offer to the public; (2) an opportunity for competition,
and (3) a basis for an exact comparison of bids. A regulation of the matter,
which excludes any of these factors, destroys the distinctive character of
the system and thwarts the purpose of its adoption.[95]
In the instant case, We infer from the circumstances that respondent
MPEI welcomed and allowed the award of the automation contract, as it
executed the contract despite the full knowledge that it had not met the
mandatory requirements set forth in the RFP. Respondent acceded to
and benefitted from the watering down of these mandatory requirements,
resulting in undue advantage in its favor. The fact that there were
numerous mandatory requirements that were simply set aside to pave the
way for the award of the automation contract does not escape the
attention of this Court. Respondent MPEI, through respondent Willy,
signed and executed the automation contract with COMELEC. It is
therefore preposterous for respondent argue that it was a "passive
participant" in the whole bidding process.
We reject the CA's denial of petitioner's plea for the ancillary remedy of
preliminary attachment, considering that the cumulative effect of the
factual findings of this Court establishes a sufficient basis to conclude that
fraud had attended the execution of the automation contract. Such fraud
is deducible from the 2004 Decision and further upheld in the 2006
Resolution. It was incongruous, therefore, for the CA to have denied the
application for a writ of preliminary attachment, when the evidence on
record was the same that was used to demonstrate the propriety of the
issuance of the writ of preliminary attachment. This was the same
evidence that We had already considered and passed upon, and on
which We based Our 2004 Decision to nullify the automation contract. It
would not be right for this Court to ignore these illegal transactions, as to
do so would be tantamount to abandoning its constitutional duty of
safeguarding public interest.
II.
Application of the piercing doctrine justifies the issuance of a writ of
preliminary attachment over the properties of the individual
respondents.
Individual respondents argue that since they were not parties to the 2004
case, any factual findings or conclusions therein should not be binding
upon them.[96] Since they were strangers to that case, they are not
bound by the judgment rendered by this Court.[97] They claim that their
fundamental right to due process would be violated if their properties
were to be attached for a purported corporate debt on the basis of a court
ruling in a case in which they were not given the right or opportunity to be
heard.[98]
We cannot subscribe to this argument. In the first place, it could not be
reasonably expected that individual respondents would be impleaded in
the 2004 case. As admitted by respondents, the issues resolved in the
2004 Decision were limited to the following: (1) whether to declare
Resolution No. 6074 of the COMELEC null and void; (2) whether to enjoin
the implementation of any further contract that may have been entered
into by COMELEC with MPC or MPEI; and (3) whether to compel
COMELEC to conduct a rebidding of the project. To implead individual
respondents then was improper, considering that the automation contract
was entered into by respondent MPEI. This Court even acknowledged
this fact by directing that the liabilities of persons responsible for the
nullity of the contract be determined in another appropriate proceeding
and by directing the OSG to undertake measures to protect the interests
of the government.
At any rate, individual respondents have been fully afforded the right to
due process by being impleaded and heard in the subsequent
proceedings before the courts a quo. Finally, they cannot argue violation
of due process, as respondent MPEI, of which they are
incorporators/stockholders, remains vulnerable to the piercing of its
corporate veil.
A. There are red flags indicating that MPEI was used to perpetrate
the fraud against petitioner, thus allowing the piercing of its
corporate veil.
Petitioner seeks the issuance of a writ of preliminary attachment over the
personal assets of the individual respondents, notwithstanding the
doctrine of separate juridical personality.[99] It invokes the use of the
doctrine of piercing the corporate veil, to which the canon of separate
juridical personality is vulnerable, as a way to reach the personal
properties of the individual respondents. Petitioner paints a picture of a
sham corporation set up by all the individual respondents for the purpose
of securing the automation contract.
We agree with petitioner.
Veil-piercing in fraud cases requires that the legal fiction of separate
juridical personality is used for fraudulent or wrongful ends.[100] For
reasons discussed below, We see red flags of fraudulent schemes in
public procurement, all of which were established in the 2004 Decision,
the totality of which strongly indicate that MPEI was a sham corporation
formed merely for the purpose of perpetrating a fraudulent scheme.
The red flags are as follows: (1) overly narrow specifications; (2)
unjustified recommendations and unjustified winning bidders; (3) failure to
meet the terms of the contract; and (4) shell or fictitious company. We
shall discuss each in detail.
Overly Narrow Specifications
The World Bank's Fraud and Corruption Awareness Handbook: A
Handbook for Civil Servants Involved in Public Procurement, (Handbook)
identifies an assortment of fraud and corruption indicators and relevant
schemes in public procurement.[101] One of the schemes recognized by
the Handbook is rigged specifications:
Scheme: Rigged specifications. In a competitive
market for goods and services, any specifications
that seem to be drafted in a way that favors a
particular company deserve closer scrutiny. For
example, specifications that are too narrow can
be used to exclude other qualified bidders or justify
improper sole source awards. Unduly vague or
broad specifications can allow an unqualified
bidder to compete or justify fraudulent change orders
after the contract is awarded. Sometimes, project
officials will go so far as to allow the favored bidder to
draft the specifications.[102]
In Our 2004 Decision, We identified a red flag of rigged bidding in the
form of overly narrow specifications. As already discussed, the accuracy
requirement of 99.9995 percent was set up by COMELEC bidding rules.
This Court recognized that this rating was "too high and was a sure
indication of fraud in the bidding, designed to eliminate fair
competition."[103] Indeed, "the essence of public bidding is violated by
the practice of requiring very high standards or unrealistic specifications
that cannot be met...only to water them down after the bid has been
award(ed)."[104]
Unjustified Recommendations and Unjustified Winning Bidders
Questionable evaluation in a Bid Evaluation Report (BER) is an indicator
of bid rigging. The Handbook expounds:
Questionable evaluation and unusual bid
patterns may emerge in the BER. After the
completion of the evaluation process, the Bid
Evaluation Committee should present to the
implementing agency its BER, which describes
the results and the process by which the BEC
has evaluated the bids received. The BER may
include a number of indicators of bid rigging, e.g.,
questionable disqualifications, and unusual bid
patterns.[105]
The Handbook lists unjustified recommendations and unjustified winning
bidders as red flags of a rigged bidding.[106]
The red flags of questionable recommendation and unjustified awards are
raised in this case. As earlier discussed, the project was awarded to MPC,
which proved to be a nonentity. It was MPEI that actually participated in
the bidding process, but it was not qualified to be a bidder in the first place.
Moreover, its ACMs failed the accuracy requirement set by COMELEC.
Yet, MPC — the nonentity — obtained a favorable recommendation from
the BAC, and the automation contract was awarded to the former.
Failure to Meet Contract Terms
Failure to meet the terms of a contract is regarded as a fraud by the
Handbook:
Scheme: Failure to meet contract terms. Firms may
deliberately fail to comply with contract requirements.
The contractor will attempt to conceal such actions
often by falsifying or forging supporting
documentation and bill for the work as if it were done
in accordance with specifications. In many cases, the
contractors must bribe inspection or project
personnel to accept the substandard goods or works,
or supervision agents are coerced to approve
substandard work. x x x[107]
As mentioned earlier, this Court already found the ACMs to be below the
standards set by the COMELEC. We reiterated their noncompliant status
in Our 2005 and 2006 Resolutions.
As early as 2005, when the COMELEC sought permission from this Court
to utilize the ACMs in the then scheduled ARMM elections, We declared
that the proposed use of the machines would expose the ARMM elections
to the same dangers of massive electoral fraud that would have been
inflicted by the projected automation of the 2004 national elections. We
based this pronouncement on the fact that the COMELEC failed to show
that the deficiencies had been cured.[108] Yet again, this Court in 2006
blocked another attempt to use the ACMs, this time for the 2007 elections.
We reiterated that because the ACMs had merely remained idle and
unused since their last evaluation, in which they failed to hurdle the
crucial tests, then their defects and deficiencies could not have been
cured by then.[109]
Based on the foregoing, the ACMs delivered were plagued with defects
that made them fail the requirements set for the automation project.
Shell or fictitious company
The Handbook regards a shell or fictitious company as a "serious red
flag," a concept that it elaborates upon:
Fictitious companies are by definition fraudulent and
may also serve as fronts for government officials.
The typical scheme involves corrupt government
officials creating a fictitious company that will serve
as a "vehicle" to secure contract awards. Often, the
fictitious—or ghost— company will subcontract work
to lower cost and sometimes unqualified firms. The
fictitious company may also utilize designated losers
as subcontractors to deliver the work, thus indicating
collusion.
Shell companies have no significant assets, staff or
operational capacity. They pose a serious red
flag as a bidder on public contracts, because they
often hide the interests of project or government
officials, concealing a conflict of interest and
opportunities for money laundering. Also, by
definition, they have no experience.[110]
MPEI qualifies as a shell or fictitious company. It was nonexistent at the
time of the invitation to bid; to be precise, it was incorporated only 11 days
before the bidding. It was a newly formed corporation and, as such, had
no track record to speak of.
Further, MPEI misrepresented itself in the bidding process as "lead
company" of the supposed joint venture. The misrepresentation appears
to have been an attempt to justify its lack of experience. As a new
company, it was not eligible to participate as a bidder. It could do so only
by pretending that it was acting as an agent of the putative consortium.
The timing of the incorporation of MPEI is particularly noteworthy. Its
close nexus to the date of the invitation to bid and the date of the bidding
(11 days) provides a strong indicium of the intent to use the corporate
vehicle for fraudulent purposes. This proximity unmistakably indicates
that the automation contract served as motivation for the formation of
MPEI: a corporation had to be organized so it could participate in the
bidding by claiming to be an agent of a pretended joint venture.
The timing of the formation of MPEI did not escape the scrutiny of Justice
Angelina Sandoval-Gutierrez, who made this observation in her
Concurring Opinion in the 2004 Decision:
At this juncture, it bears stressing that MPEI was
incorporated only on February 27, 2003 as
evidenced by its Certificate of Incorporation. This
goes to show that from the time the COMELEC
issued its Invitation to Bid (January 28, 2003) and
Request for Proposal (February 17, 2003) up to the
time it convened the Pre-bid Conference (February
18, 2003), MPEI was literally a non-existent entity. It
came into being only on February 27, 2003 or eleven
(11) days prior to the submission of its bid, i.e. March
10, 2003. This poses a legal obstacle to its
eligibility as a bidder. The Request for Proposal
requires the bidder to submit financial documents
that will establish to the BAC's satisfaction its
financial capability which include:
(1) audited financial statements
of the Bidder's firm for the last
three (3) calendar years,
stamped "RECEIVED" by the
appropriate government agency,
to show its capacity to finance
the manufacture and supply of
Goods called for and a
statement or record of volumes
of sales;
(2) Balance Sheet;
(3) Income Statement; and
(4) Statement of Cash Flow.
As correctly pointed out by petitioners, how could
MPEI comply with the above requirement of audited
financial statements for the last three (3) calendar
years if it came into existence only eleven (11) days
prior to the bidding?
To do away with such complication, MPEI asserts
that it was MP CONSORTIUM who submitted the bid
on March 10, 2003. It pretends compliance with the
requirements by invoking the financial capabilities
and long time existence of the alleged members of
the MP CONSORTIUM, namely, Election.Com,
WeSolv, SK CeC, ePLDT and Oracle. It wants this
Court to believe that it is MP CONSORTIUM who
was actually dealing with the COMELEC and that its
(MPEI) participation is merely that of a "lead
company and proponent" of the joint venture. This is
hardly convincing. For one, the contract for the
supply and delivery of ACM was between COMELEC
and MPEI, not MP CONSORTIUM. As a matter of
fad, there cannot be found in the contract any
reference to the MP CONSORTIUM or any member
thereof for that matter. For another, the agreements
among the alleged members of MP CONSORTIUM
do not show the existence of a joint-venture
agreement. Worse, MPEI cannot produce the
agreement as to the "joint and several liability" of the
alleged members of the MP CONSORTIUM as
required by this Court in its Resolution dated October
7, 2003.[111]
Respondent MPEI was formed to perpetrate the fraud against
petitioner.
The totality of the red flags found in this case leads Us to the inevitable
conclusion that MPEI was nothing but a sham corporation formed for the
purpose of defrauding petitioner. Its ultimate objective was to secure the
P1,248,949,088 automation contract. The scheme was to put up a
corporation that would participate in the bid and enter into a contract with
the COMELEC, even if the former was not qualified or authorized to do so.
Without the incorporation of MPEI, the defraudation of the government
would not have been possible. The formation of MPEI paved the way for
its participation in the bid, through its claim that it was an agent of a
supposed joint venture, its misrepresentations to secure the automation
contract, its misrepresentation at the time of the execution of the contract,
its delivery of the defective ACMs, and ultimately its acceptance of the
benefits under the automation contract.
The foregoing considered, veil-piercing is justified in this case.
We shall next consider the question of whose assets shall be reached by
the application of the piercing doctrine.
B. Because all the individual respondents actively participated in the
perpetration of the fraud against petitioner, their personal assets
may be subject to a writ of preliminary attachment by piercing the
corporate veil.
A corporation's privilege of being treated as an entity distinct and
separate from the stockholders is confined to legitimate uses, and is
subject to equitable limitations to prevent its being exercised for
fraudulent, unfair, or illegal purposes.[112] As early as the 19th century, it
has been held that:
The general proposition that a corporation is to be
regarded as a legal entity, existing separate and
apart from the natural persons composing it, is not
disputed; but that the statement is a mere fiction,
existing only in idea, is well understood, and not
controverted by any one who pretends to accurate
knowledge on the subject. It has been introduced for
the convenience of the company in making contracts,
in acquiring property for corporate purposes, in suing
and being sued, and to preserve the limited liability of
the stockholder by distinguishing between the
corporate debts and property of the company and of
the stockholders in their capacity as individuals. All
fictions of law have been introduced for the
purpose of convenience, and to subserve the
ends of justice. It is in this sense that the maxim in
fictione juris subsistit aequitas is used, and the
doctrine of fictions applied. But when they are
urged to an intent and purpose not within the
reason and policy of the fiction, they have always
been disregarded by the courts. Broom's, Legal
Maxims 130. "It is a certain rule," says Lord
Mansfield, C.J., "that a fiction of law never be
contradicted so as to defeat the end for which it was
invented, but for every other purpose it may be
contradicted." Johnson v. Smith, 2 Burr, 962.[113]
The main effect of disregarding the corporate fiction is that stockholders
will be held personally liable for the acts and contracts of the corporation,
whose existence, at least for the purpose of the particular situation
involved, is ignored.[114]
We have consistently held that when the notion of legal entity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime,
the law will regard the corporation as an association of
persons.[115] Thus, considering that We find it justified to pierce the
corporate veil in the case before Us, MPEI must, perforce, be treated as a
mere association of persons whose assets are unshielded by corporate
fiction. Such persons' individual liability shall now be determined with
respect to the matter at hand.
Contrary to respondent Willy's claims, his participation in the fraud is
clearly established by his unequivocal agreement to the execution of the
automation contract with the COMELEC, and his signature that appears
on the voided contract. As far back as in the 2004 Decision, his
participation as a signatory' to the automation contract was already
established:
The foregoing argument is unpersuasive. First, the
contract being referred to, entitled "The Automated
Counting and Canvassing Project Contract," is
between Comelec and MPEI, not the alleged
consortium, MPC. To repeat, it is MPEI - not MPC -
that is a party to the Contract. Nowhere in that
Contract is there any mention of a consortium or joint
venture, of members thereof much less of joint and
several liability. Supposedly executed sometime in
May 2003, the Contract bears a notarization date of
June 30, 2003, and contains the signature of Willy
U. Yu signing as president of MPEI (not for and
on behalf of MPC), along with that of the Comelec
chair. It provides in Section 3.2 that MPEI (not MPC)
is to supply the Equipment and perform the Services
under the Contract, in accordance with the
appendices thereof; nothing whatsoever is said
about any consortium or joint venture or partnership.
x x x (Emphasis supplied)
That his signature appears on the automation contract means that he
agreed and acceded to its terms.[116] His participation in the fraud
involves his signing and executing the voided contract.
The execution of the automation contract with a non-eligible entity and the
subsequent award of the contract despite the failure to meet the
mandatory requirements were "badges of fraud" in the procurement
process that should have been recognized by the CA to justify the
issuance of the writ of preliminary attachment against the properties of
respondent Willy.
With respect to the other individual respondents, petitioner, in its Answer
with Counterclaim, alleged:
30. Also, inasmuch as MPEI is in truth a mere shell
corporation with no real assets in its name,
incorporated merely to feign eligibility for the bidding
of the automated contract when it in fact had none, to
the great prejudice of the Republic, plaintiffs
individual incorporators should likewise be made
liable together with MPEI for the automated
contract amount paid to and received by the latter.
The following circumstances altogether manifest that
the individual incorporators merely cloaked
themselves with the veil of corporate fiction to
perpetrate a fraud and to eschew liability therefor,
thus:
xxxx
From the time it was incorporated until today, MPEI has not complied
f. with the reportorial requirements of the Securities and Exchange
Commission;
Individual incorporators, acting fraudulently through MPEI, and
in violation of the bidding rules, then subcontracted the
automation contract to four (4) other corporations, namely:
g.
WeSolve Corporation, SK C&C, ePLDT and election.com, to comply
with the capital requirements, requisite five (5)-year corporate
standing and the technical qualifications of the Request for Proposal;
x x x x[117]
In response to petitioner's allegations, respondents Willy and Bonnie
stated in their Reply and Answer (Re: Answer with Counterclaim dated 28
June 2004):[118]
3.3 As far as plaintiff MPEI and
defendants-in-counterclaim are concerned, they
dealt with the COMELEC with full transparency
and in utmost good faith. All documents support its
eligibility to bid for the supply of the ACMs and their
peripheral services, were submitted to the
COMELEC for its evaluation in full transparency.
Pertinently, neither plaintiff MPEI nor any of its
directors, stockholders, officers or employees had
any participation in the evaluation of the bids and
eventual choice of the winning bidder.[119]
Respondents Johnson's and Bernard's denials were made in paragraphs
2.17 and 3.3 of their Answer with Counterclaim to the Republic's
Counterclaim, to wit:[120]
2.17 The erroneous conclusion of fact and law in
paragraph 30 (f) and (g) of the Republic's answer is
denied, having been pleaded in violation of the
requirement, that only ultimate facts arc to be stated
in the pleadings and they are falsehoods. The truth of
the matter is that there could not have been fraud, as
these agreements were submitted to the COMELEC
for its evaluation and assessment, as to the
qualification of the Consortium as a bidder, a
showing of transparency in plaintiffs dealings with the
Republic.[121]
3.3 As far as plaintiff MPEI and
defendants-in-counterclaim are concerned, they
dealt with the COMELEC with full transparency
and in utmost good faith. All documents support its
eligibility to bid for the supply of the automated
counting machines and its peripheral services, were
submitted to the COMELEC for its evaluation in full
transparency. Pertinently, the plaintiff or any of its
directors, stockholders, officers or employees had no
participation in the evaluation of the bids and
eventual choice of the winning bidder.[122]
As regards Enrique and Rosita, the relevant paragraphs in the Answer
with Counterclaim to the Republic's Counterclaim[123] are quoted below:
 2.17. The erroneous conclusion of fact and law in
paragraph 30 (F) and (G) of the Republic's answer is
denied, having been pleaded in violation of the
requirement, that only ultimate facts are to be stated
in the pleadings and they are falsehoods. The truth of
the matter is that there could not have been fraud, as
these agreements were submitted to the COMELEC
for its evaluation and assessment, as to the
qualification of the Consortium as a bidder, a
showing of transparency in plaintiffs dealings with the
Republic.[124]
3.3. As far as the plaintiff and herein answering
defendants-in-counterclaim are concerned, they
dealt with the Commission on Elections with full
transparency and in utmost good faith. All
documents in support of its eligibility to bid for the
supply of the automated counting machines and its
peripheral services were submitted to the
Commission on Elections for its evaluation in full
transparency. Pertinently, the plaintiff or any of its
directors, stockholders, officers or employees had no
participation in the evaluation of the bids and
eventual choice of the winning bidder.[125]
Pedro and Laureano offer a similar defense in paragraph 3.3 of their
Reply and Answer with Counterclaim to the Republic's
Counterclaim[126] dated 28 June 2004, which reads:
3.3. As far as plaintiff MPEI and
defendants-in-counterclaim are concerned, they
dealt with the COMELEC with full transparency
and in utmost good faith. All documents support its
eligibility to bid for the supply of the ACMs and their
peripheral services, were submitted to the
COMELEC for its evaluation in full transparency.
Pertinently, neither plaintiff MPEI nor any of its
directors, stockholders, officers or employees had
any participation in the evaluation of the bids and
eventual choice of the winning bidder.[127]
It can be seen from the above-quoted paragraphs that the individual
respondents never denied their participation in the questioned
transactions of MPEI, merely raising the defense of good faith and shifting
the blame to the COMELEC. The individual respondents have, in effect,
admitted that they had knowledge of and participation in the fraudulent
subcontracting of the automation contract to the four corporations.
It bears stressing that the remaining individual respondents, together with
respondent Willy, incorporated MPEI. As incorporators, they are expected
to be involved in the management of the corporation and they are
charged with the duty of care. This is one of the reasons for the
requirement of ownership of at least one share of stock by an
incorporator:
The reason for this, as explained by the lawmakers,
is to avoid the confusion and/or ambiguities arising in
a situation under the old corporation law where there
exists one set of incorporators who are not even
shareholders and another set of
directors/incorporators who must all be
shareholders of the corporation. The people who
deal with said corporation at such an early stage are
confused as to who are the persons or group really
authorized to act in behalf of the corporation.
(Proceedings of the Batasan Pambansa on the
Proposed Corporation Code). Another reason may
be anchored on the presumption that when an
incorporator has pecuniary interest in the
corporation, no matter how minimal, he will be
more involved in the management of corporate
affairs and to a greater degree, be concerned
with the welfare of the corporation.[128]
As incorporators and businessmen about to embark on a new business
venture involving a sizeable capital (P300 million), the remaining
individual respondents should have known of Willy's scheme to
perpetrate the fraud against petitioner, especially because the objective
was a billion peso automation contract. Still, they proceeded with the illicit
business venture.
It is clear to this Court that inequity would result if We do not attach
personal liability to all the individual respondents. With a definite finding
that MPEI was used to perpetrate the fraud against the government, it
would be a great injustice if the remaining individual respondents would
enjoy the benefits of incorporation despite a clear finding of abuse of the
corporate vehicle. Indeed, to allow the corporate fiction to remain intact
would not subserve, but instead subvert, the ends of justice.
III.
The factual findings of this Court that have become final cannot be
modified or altered, much less reversed, and are controlling in the
instant case.
Respondents argue that the 2004 Decision did not resolve and could not
have resolved the factual issue of whether they had committed any fraud,
as the Supreme Court is not a trier of facts; and the 2004 case, being a
certiorari case, did not deal with questions of fact.[129]
Further, respondents argue that the findings of this Court ought to be
confined only to those issues actually raised and resolved in the 2004
case, in accordance with the principle of conclusiveness of
judgment.[130] They explain that the issues resolved in the 2004
Decision were only limited to the following: (1) whether to declare
COMELEC Resolution No. 6074 null and void; (2) whether to enjoin the
implementation of any further contract that may have been entered into
by COMELEC with MPC or MPEI; and (3) whether to compel COMELEC
to conduct a rebidding of the project.[131]
It is obvious that respondents are merely trying to escape the implications
or effects of the nullity of the automation contract that they had executed.
Section 1, Rule 65 of the Rules of Court, clearly sets forth the instances
when a petition for certiorari can be used as a proper remedy:
Section 1. Petition for certiorari. — When any tribunal,
board or officer exercising judicial or quasi-judicial
functions has acted without or in excess of its
jurisdiction, or with grave abuse of discretion
amounting to lack or excess of jurisdiction, and there
is no appeal, or any plain, speedy, and adequate
remedy in the ordinary course of law. a person
aggrieved thereby may file a verified petition in the
proper court, alleging the facts with certainty and
praying that judgment be rendered annulling or
modifying the proceedings of such tribunal, board or
officer, and granting such incidental reliefs as law
and justice may require.
The term "grave abuse of discretion" has a specific meaning. An act of a
court or tribunal can only be considered to have been committed with
grave abuse of discretion when the act is done in a "capricious or
whimsical exercise of judgment as is equivalent to lack of
jurisdiction."[132] The abuse of discretion must be so patent and gross as
to amount to an "evasion of a positive duty or to a virtual refusal to
perform a duty enjoined by law, or to act at all in contemplation of law, as
where the power is exercised in an arbitrary and despotic manner by
reason of passion and hostility."[133] Furthermore, the use of a petition
for certiorari is restricted only to "truly extraordinary cases wherein the act
of the lower court or quasi-judicial body is wholly void."[134] From the
foregoing definition, it is clear that the special civil action of certiorari
under Rule 65 can only strike down an act for having been done with
grave abuse of discretion if the petitioner could manifestly show that such
act was patent and gross.[135]
We had to ascertain from the evidence whether the COMELEC
committed grave abuse of discretion, and in the process, were justified in
making some factual findings. The conclusions derived from the factual
findings are inextricably intertwined with this Court's determination of
grave abuse of discretion. They have a direct bearing and are in fact
necessary to illustrate that the award of the automation contract was done
hastily and in direct violation of law. This Court has indeed made factual
findings based on the evidence presented before it; in turn, these factual
findings constitute the controlling legal rule between the parties that
cannot be modified or amended by any of them. This Court is bound to
consider the factual findings made in the 2004 Decision in order to
declare that there is fraud for the purpose of issuing the writ of preliminary
attachment.
Respondents appear to have misunderstood the implications of the
principle of conclusiveness of judgment on their cause. Contrary to their
claims, the factual findings are conclusive and have been established as
the controlling legal rule in the instant case, on the basis of the principle
of res judicata—more particularly, the principle of conclusiveness of
judgment.
This doctrine of res judicata which is set forth in Section 47 of Rule 39 of
the Rules of Court[136] lays down two main rules, namely: (1) the
judgment or decree of a court of competent jurisdiction on the merits
concludes the litigation between the parties and their privies and
constitutes a bar to a new action or suit involving the same cause of
action either before the same or any other tribunal; and (2) any right, fact,
or matter in issue directly adjudicated or necessarily involved in the
determination of an action before a competent court in which a judgment
or decree is rendered on the merits is conclusively settled by the
judgment therein and cannot again be litigated between the parties and
their privies whether or not the claims or demands, purposes, or subject
matters of the two suits are the same.[137]
These two main rules mark the distinction between the principles
governing the two typical cases in which a judgment may operate as
evidence.[138] The first general rule stated above and corresponding to
the afore-quoted paragraph (b) of Section 47, Rule 39 of the Rules of
Court, is referred to as "bar by former judgment"; while the second
general rule, which is embodied in paragraph (c) of the same section and
rule, is known as "conclusiveness of judgment."[139]
In Calalang v. Register of Deeds of Quezon City,[140] We discussed the
concept of conclusiveness of judgment as pertaining even to those
matters essentially connected with the subject of litigation in the first
action. This Court explained therein that the bar on re-litigation extends to
those questions necessarily implied in the final judgment, although no
specific finding may have been made in reference thereto, and although
those matters were directly referred to in the pleadings and were not
actually or formally presented. If the record of the former trial shows that
the judgment could not have been rendered without deciding a particular
matter, it will be considered as having settled that matter as to all future
actions between the parties; and if a judgment necessarily presupposes
certain premises, they are as conclusive as the judgment itself:
The second concept — conclusiveness of
judgment — states that a fact or question which
was in issue in a former suit and was there
judicially passed upon and determined by a court
of competent jurisdiction, is conclusively settled
by the judgment therein as far as the parties to
that action and persons in privity with them are
concerned and cannot be again litigated in any
future action between such parties or their
privies, in the same court or any other court of
concurrent jurisdiction on either the same or
different cause of action, while the judgment
remains unreversed by proper authority. It has
been held that in order that a judgment in one action
can be conclusive as to a particular matter in another
action between the same parties or their privies, it is
essential that the issue be identical. If a particular
point or question is in issue in the second action,
and the judgment will depend on the
determination of that particular point or question,
a former judgment between the same parties or
their privies will be final and conclusive in the
second if that same point or question was in
issue and adjudicated in the first suit (Nabus v.
Court of Appeals, 193 SCRA 732 [1991]). Identity of
cause of action is not required but merely identity of
issue.
Justice Fcliciano, in Smith Bell & Company (Phils.),
Inc. v. Court of Appeals (197 SCRA 201, 210 [1991]),
reiterated Lopez v. Reyes(76 SCRA 179 [1977]) in
regard to the distinction between bar by former
judgment which bars the prosecution of a second
action upon the same claim, demand, or cause of
action, and conclusiveness of judgment which bars
the relitigation of particular facts or issues in another
litigation between the same parties on a different
claim or cause of action.
The general rule precluding
the re-litigation of material
facts or questions which were
in issue and adjudicated in
former action are commonly
applied to all matters
essentially connected with the
subject matter of the litigation.
Thus, it extends to questions
necessarily implied in the final
judgment, although no
specific finding may have
been made in reference
thereto and although such
matters were directly referred
to in the pleadings and were
not actually or formally
presented. Under this rule, if
the record of the former trial
shows that the judgment
could not have been rendered
without deciding the
particular matter, it will be
considered as having settled
that matter as to all future
actions between the parties
and if a judgment necessarily
presupposes certain premises,
they are as conclusive as the
judgment
itself.[141] (Emphases
supplied)
The foregoing disquisition finds application to the case at bar.
Undeniably, the present case is merely an adjunct of the 2004 case, in
which the automation contract was declared to be a nullity. Needless to
say, the 2004 Decision has since become final. As earlier explained, this
Court arrived at several factual findings showing the illegality of the
automation contract; in turn, these findings were used as basis to justify
the declaration of nullity.
A closer scrutiny of the 2004 Decision would reveal that the judgment
could not have been rendered without deciding particular factual matters
in relation to the following: (1) identity, existence and eligibility of MPC as
a bidder; (2) failure of the ACMs to pass DOST technical tests; and (3)
remedial measures undertaken by the COMELEC after the award of the
automation contract. Under the principle of conclusiveness of judgment,
We are precluded from re-litigating these facts, as these were essential to
the question of nullity. Otherwise stated, the judgment could not have
been rendered without necessarily deciding on the above-enumerated
factual matters.
Thus, under the principle of conclusiveness of judgment, those material
facts became binding and conclusive on the parties, in this case MPEI
and, ultimately, the persons that comprised it. When a right or fact has
been judicially tried and determined by a court of competent jurisdiction,
or when an opportunity for that trial has been given, the judgment of the
court—as long as it remains unreversed—should be conclusive upon
the parties and those in privity with them.[142] Thus, the CA should
not have required petitioner to present further evidence of fraud on the
part of respondent Willy and MPEI, as it was already necessarily
adjudged in the 2004 case.
To allow respondents to argue otherwise would be violative of the
principle of immutability of judgment. When a final judgment becomes
executory, it becomes immutable and unalterable and may no longer
undergo any modification, much less any reversal.[143] In Navarro v.
Metropolitan Bank & Trust Company[144] this Court explained that the
underlying reason behind this principle is to avoid delay in the
administration of justice and to avoid allowing judicial controversies to
drag on indefinitely, viz.:
No other procedural law principle is indeed more
settled than that once a judgment becomes final,
it is no longer subject to change, revision,
amendment or reversal, except only for
correction of clerical errors, or the making
of nunc pro tunc entries which cause no
prejudice to any party, or where the judgment
itself is void. The underlying reason for the rule is
two-fold: (1) to avoid delay in the administration of
justice and thus make orderly the discharge of
judicial business, and (2) to put judicial controversies
to an end, at the risk of occasional errors, inasmuch
as controversies cannot be allowed to drag on
indefinitely and the rights and obligations of every
litigant must not hang in suspense for an indefinite
period of time. As the Court declared in Yau v.
Silverio,
Litigation must end and
terminate sometime and
somewhere, and it is essential to
an effective and efficient
administration of justice that,
once a judgment has become
final, the winning party be, not
through a mere subterfuge,
deprived of the fruits of the
verdict. Courts must therefore
guard against any scheme
calculated to bring about that
result. Constituted as they are to
 put an end to controversies, V.
courts should frown upon any Estoppel does not lie against the State when it acts to rectify the
attempt to prolong them. mistakes, errors or illegal acts of its officials and agents.

Indeed, just as a losing party has the right to file an Respondents claim that the 2004 Decision may not be invoked against
appeal within the prescribed period, the winning them, since the petitioner and the respondents were co-respondents and
party also has the correlative right to enjoy the finality not adverse parties in the 2004 case. Respondents further explain that
of the resolution of his case by the execution and since petitioner and respondents were on the same side at the time, had
satisfaction of the judgment. Any attempt to thwart the same interest, and took the same position on the validity and
this rigid rule and deny the prevailing litigant his right regularity of the automation contract, petitioner cannot now invoke the
to savor the fruit of his victory must immediately be 2004 Decision against them.[156]
struck down. x x x. (Emphasis supplied)[145]
Contrary to respondents' contention, estoppel generally finds no
In the instant case, adherence to respondents' position would mean a
application against the State when it acts to rectify mistakes, errors,
complete disregard of the factual findings We made in the 2004 Decision,
irregularities, or illegal acts of its officials and agents, irrespective of rank.
and would certainly be tantamount to reversing the same. This would
This principle ensures the efficient conduct of the affairs of the State
invariably cause further delay in the efforts to recover the amounts of
without any hindrance to the implementation of laws and regulations by
government money illegally disbursed to respondents back in 2004.
the government. This holds true even if its agents' prior mistakes or illegal
acts shackle government operations and allow others—some by
Next, respondents argue that the findings of fact in the 2004 Decision are
malice—to profit from official error or misbehavior, and even if the
not conclusive[146] considering that eight (8) of the fifteen (15) justices of
rectification prejudices parties who have meanwhile received
this Court refused to go along with the factual findings as stated in the
benefit.[157] Indeed, in the 2004 Decision, this Court even directed the
majority opinion.[147] This argument fails to convince.
Ombudsman to determine the possible criminal liability of public officials
and private persons responsible for the contract, and the OSG to
Fourteen (14) Justices participated in the promulgation of the 2004
undertake measures to protect the government from the ill effects of the
Decision. Out of the fourteen (14) Justices, three (3) Justices registered
illegal disbursement of public funds.[158]
their dissent,[148] and two (2) Justices wrote their Separate Opinions,
each recommending the dismissal of the Petition.[149]Of the nine (9)
The equitable doctrine of estoppel for the prevention of injustice and is for
Justices who voted to grant the Petition, four (4) joined the ponente in his
the protection of those who have been misled by that which on its face
disposition of the case,[150] and two (2) Justices wrote Separate
was fair and whose character, as represented, parties to the deception
Concurring Opinions.[151] As to the remaining two (2) Justices, one (1)
will not, in the interest of justice, be heard to deny.[159] It cannot
Justice[152] merely concurred in the result, while the other joined another
therefore be utilized to insulate from liability the very perpetrators of the
Justice in her Separate Opinion.[153]
injustice complained of.
Contrary to the allegations of respondents, an examination of the voting
shows that nine (9) Justices voted in favor of the majority opinion, without VI.
any qualification regarding the factual findings made therein. In fact, the The findings of the Office of the Ombudsman are not controlling in
two (2) Justices who wrote their own Concurring Opinions echoed the the instant case.
lack of eligibility of MPC and the failure of the ACMs to pass the
mandatory requirements.
Respondents further claim that this Court has recognized the fact that it
did not determine or adjudge any fraud that may have been committed by
Finally, respondents cannot argue that, from the line of questioning of
individual respondents. Rather, it referred the matter to the Ombudsman
then Justice Leonardo A. Quisumbing during the oral arguments in the
for the determination of criminal liability.[160]The Ombudsman in fact
2004 case, he did not agree with the factual findings of this Court. Oral
made its own determination that there was no probable cause to hold
arguments before this Court are held precisely to test the soundness of
individual respondents criminally liable.[161]
each proponent's contentions. The questions and statements propounded
by Justices during such an exercise are not to be construed as their
Respondents miss the point. The main issue in the instant case is
definitive opinions. Neither are they indicative of how a Justice shall vote
whether respondents are guilty of fraud in obtaining and executing the
on a particular issue; indeed, Justice Quisumbing clearly states in the
automation contract, to justify the issuance of a writ of preliminary
2004 Decision that he concurs in the results. At any rate, statements
attachment in petitioner's favor. Meanwhile, the issue relating to the
made by Our Members during oral arguments are not stare decisis; what
proceedings before the Ombudsman (and this Court in G.R. No. 174777)
is conclusive are the decisions reached by the majority of the Court.
pertains to the finding of lack of probable cause for the possible criminal
liability of respondents under the Anti-Graft and Corrupt Practices Act.
IV.
The delivery of 1,991 units of ACMs does not negate fraud on the The matter before Us involves petitioner's application for a writ of
part of respondents Willy and MPEI. preliminary attachment in relation to its recovery of the expended amount
under the voided contract, and not the determination of whether there is
probable cause to hold respondents liable for possible criminal liability
The CA in its Amended Decision explained that respondents could not be
due to the nullification of the automation contract. Whether or not the
considered to have fostered a fraudulent intent to not honor their
Ombudsman has found probable cause for possible criminal liability on
obligation, since they delivered 1,991 units of ACMs.[154] In turn,
the part of respondents is not controlling in the instant case.
respondents argue that respondent MPEI had every intention of fulfilling
its obligation, because it in fact delivered the ACMs as required by the
automation contract.[155] CONCLUSION

We disagree with the CA and respondents. The fact that the ACMs were
If the State is to be serious in its obligation to develop and implement
delivered cannot induce this Court to disregard the fraud respondent
coordinated anti-corruption policies that promote proper management of
MPEI had employed in securing the award of the automation contract, as
public affairs and public property, integrity, transparency and
established above. Furthermore, they cannot cite the fact of delivery in
accountability,[162] it needs to establish and promote effective practices
their favor, considering that the ACMs delivered were substandard and
aimed at the prevention of corruption,[163] as well as strengthen our
noncompliant with the requirements initially set for the automation project.
efforts at asset recovery.[164]
In Our 2004 Decision, We already found the ACMs to be below the
As a signatory to the United Nations Convention Against Corruption
standards set by the COMELEC. The noncompliant status of these ACMs
(UNCAC),[165] the Philippines acknowledges its obligation to establish
was reiterated by this Court in its 2005 and 2006 Resolutions. The CA
appropriate systems of procurement based on transparency, competition
therefore gravely erred in considering the delivery of 1,991 ACMs as
and objective criteria in decision-making that are effective in preventing
evidence of respondents' willingness to perform the obligation (and thus,
corruption.[166] To promote transparency, and in line with the country's
their lack of fraud) considering that, as exhaustively discussed earlier, the
efforts to curb corruption, it is useful to identify certain fraud indicators or
ACMs delivered were plagued with defects and failed to meet the
"red flags" that can point to corrupt activity.[167] This case - arguably the
requirements set for the automation project.
first to provide palpable examples of what could be reasonably
considered as "red flags" of fraud and malfeasance in public procurement
Under Article 1233 of the New Civil Code, a debt shall not be understood
- is the Court's contribution to the nation's continuing battle against
to have been paid, unless the thing or service in which the obligation
corruption, in accordance with its mandate to dispense justice and
consists has been completely delivered or rendered. In this case,
safeguard the public interest.
respondents cannot be considered to have performed their obligation,
because the ACMs were defective.
WHEREFORE, premises considered, the Petition is GRANTED. The
Amended Decision dated 22 September 2008 of the Court of Appeals in
CA-G.R. SP. No. 95988 is ANNULLED AND SET ASIDE. A new one is
entered DIRECTING the Regional Trial Court of Makati City, Branch 59,
to ISSUE in Civil Case No. 04-346, entitled Mega Pacific eSolutions, Inc.,
vs. Republic of the Philippines, the Writ of Preliminary Attachment prayed
for by petitioner Republic of the Philippines against the properties of
respondent Mega Pacific eSolutions, Inc., and Willy U. Yu, Bonnie S. Yu,
Enrique T. Tansipek, Rosita Y. Tansipek, Pedro O. Tan, Johnson W.
Fong, Bernard I. Fong and Lauriano Barrios.
No costs.
SO ORDERED.
ECOND DIVISION
G.R. No. 208535, October 19, 2016
LEO'S RESTAURANT AND BAR CAFÉ MOUNTAIN SUITE
BUSINESS APARTELLE, LEO Y. LUA AND AMELIA
LUA, Petitioners, v. LAARNE1 C. BENSING, Respondent.
DECISION
DEL CASTILLO, J.:
This is a Petition for Review en Certiorari assailing the November 27,
2012 Decision2 of the Court of Appeals (CA) in CA GR. SP No,
03222-MIN, The CA set aside the June 4, 20093 and July 31,
20094Resolutions of the National Labor Relations Commission (NLRC) in
NLRC Case No. MAC-02-010081-2008, and reinstated the November 28,
2008 NLRC Resolution5 finding illegal respondent Laarne C. Densing's
(respondant) dismissal from work. Also assailed is the July 12, 2013 CA
Resulution6 denying petitioners' Motion for Reconsideration.
Factual Antecedents
On January 2, 2002, Kimwa Construction & Development Corporation
(Kimwa) employed respondent as liaison officer. 7 Allegedly, Kimwa also
operated Leo's Restaurant and Bar Cafe (Restobar), and the Mountain
Suite Business Apartelle (Apartelle); on July 4, 2005, it appointed
respondent as Administrative Officer/Human Resource (HR) Head of
these establishments with a salary of P15,000.00 per month; and, said
appointment took effect on October 18, 2005 when the establishments
became fully operational.8chanrobleslaw
Thereafter, Leo Y. Lua (Leo), the Manager of the Restobar and the
Apartelle, issued upon respondent a Memorandum 9 requesting her to
temporarily report at Kimwa's Main Office starting December 30, 2005.
On December 30, 2005, respondent received another
Memorandum10 from Leo requiring her to explain the circumstances
surrounding the agreement between the Restobar and Pepsi Products
Philippines, Inc. (Pepsi), and the benefits she derived therefrom. Leo
accused her of having signed said contract without authority from him and
of not informing him of the benefits arising from the contract. The
Memorandum also indicated that Pepsi gave the Restobar 10 cases of
soft drinks during its opening night, and additional 67 cases for December
2005 but its records reflected receiving only 20 out of said 67 cases.
In her Explanation,11 respondent stated that on October 24, 2005, in the
presence of Jovenal12Ablanque (Ablanque), Sales Manager of Pepsi, Leo
verbally authorized her to sign the contract with Pepsi on behalf of the
Restobar. The following day, Ablanque, returned to the Restobar, and
respondent signed the contract pursuant to Leo's verbal instruction. She
gave no explanation anent the benefits arising from the contract as she
purportedly did not intervene in Leo and Ablanque's discussion on the
matter. She added that the Restobar received only 10 and additional 20
cases of Pepsi drinks, and she did not receive personal benefits arising
from the contract.
13
On January 2, 2006, Leo issued another Memorandum requiring
respondent to answer why she signed the Pepsi contract even without
authority to do so, and to explain whether her apology addressed to Leo
was an acceptance of her fault on the charges against her.
In her Answer,14 respondent remained firm that she did not receive any
personal benefits from Pepsi. Also, she stated that she apologized to Leo
because she knew that the latter had "feelings of doubt" about her but it
was not because she accepted the accusations against her.
Later, in a Memorandum15 dated January 3, 2006, respondent was
required to answer these charges: 1) she committed dishonesty when she
charged to the Restobar's account 50% of the food she ordered therefrom
without approval of its Owner or Manager; 2) she violated her duties when
she did not inform Leo of the signing of the Pepsi contract; and, 3) she
failed to account for 47 soft drinks cases that Pepsi gave the Restobar.
In her Explanation,16 respondent asserted that the charges of dishonesty
was not related to the Pepsi Qonteact such that she opted not to answer
said accusation. With regard to the alleged missing Pepsi drinks, she
affirmed that Pepsi clarified the matter already, particularly to where these
soft drinks were placed or given.
In a Letter17 dated January 4, 2006, Pepsi, through its Settlement and
Credit Manager Jerome T. Eslabon, certified that Pepsi gave the
Restobar 10 cases of Pepsi products on its opening day, and 20 cases of
Pepsi 12 oz. on December 7, 2005. It stressed that it did riot give cash
assistance or cash equivalent to any staff of the Restobar. It also asked
Leo to disregard the erroneous volume of documents it inadvertently gave
him, and assured him that Pepsi already adjusted his records to reflect
the correct figures.
However, on January 12, 2006, on the ground of loss of trust and
confidence, Leo terminated respondent effective January 15,
2006.18chanrobleslaw
Respondent thus filed an Amended Complaint19 for illegal dismissal,
illegal suspension, non-payment of 13th month pay, separation pay in lieu
of reinstatement, moral and exemplary damages, and attorney's fees
against Kimwa, and herein petitioners, the Restobar, the Apartelle, Leo,
and/or Amelia Y. Lua (Amelia).
In her Position Paper,20 respondent claimed that petitioners and Kimwa
failed to establish that she was dismissed for valid causes. She argued
that as Administrative Officer/HR Head, she was tasked to oversee the
operations of the Restobar and the Apartelle, including the authority to
sign the agreement with Pepsi. According to her, Leo also authorized her
to sign the agreement in his behalf, and such authority was.
communicated to her in the presence of the Sales Manager of Pepsi.
In addition, respondent emphasized that she received no personal
benefits in connection with the Pepsi contract, and there was no proof that
she received anything from Pepsi. She also stressed that Pepsi was
delivering its products to the Restobar and the Apartelle, not to her. In fine,
she. argued that her having entered the Pepsi contract was insufficient
basis for petitioners and Kimwa to lose their trust in her, and use the
same to terminate her.
For their part, petitioners and Kimwa, in their Position Paper, 21 argued
that it was Amelia, Leo's sister, who owned the Restobar and the
Apartelle. They averred that these establishments were separate entities
from Kimwa, and Leo was merely its Manager. They further claimed that
on October 15, 2005, respondent resigned from Kimwa and transferred to
the Restobar and the Apartelle for higher pay.
In addition, petitioners and Kimwa asserted that respondent, was validly
terminated as she committed dishonesty, abuse of confidence, and
breach of trust against her employer. They explained that respondent
entered into a contract with Pepsi, whereby the Restobar committed to
purchase 2,400 cases of Pepsi products per year for a period of two years
or from October 2005 to October 2007. They stressed that respondent
entered this contract without prior authority from Leo or Amelia, and
without disclosure to them of the benefits arising therefrom. They also
alleged that respondent committed dishonesty when she charged some
of her meals and offer/invitation expenses to the Restobar, without
approval of its Owner or Manager. They likewise stated that respondent
was given opportunity to explain her side before she was terminated.
Furthermore, petitioners and Kimwa insisted that while under the employ
of Kimwa, respondent received advance payment of her benefits,
separation pay and other claims. They added that having received
monetary benefits, respondent had no more cause of action against them.
Ruling of the Executive Labor Arbiter
On November 20, 2007, the Executive Labor Arbiter (LA) rendered a
Decision22 dismissing the Complaint for lack of. merit. The LA,
nonetheless, ordered petitioners and Kimwa to pay respondent
separation pay amounting to P15,000.00.
The LA decreed that petitioners and Kimwa validly dismissed respondent
on the ground of loss of trust and confidence. He pointed out that
employers cannot be compelled to retain the services of their employees
who were guilty of acts inimical to the interests of the employer; and, the
dismissal of an erring employee was a measure of self-protection,
The LA also declared that respondent committed acts contrary to the
interest of her employer when she charged personal food consumption to
the Restobar, entered into an exclusive contract with Pepsi, and failed to
account for the Pepsi products donated to the Restobar. He further stated
that petitioners and Kimwa complied with the required procedural due
process when they issued memoranda informing respondent of the
charges against her and giving her notice of her dismissal.
Nevertheless, the LA granted respondent one month salary as separation
pay ratiocinating that respondent entered the Pepsi contract in good faith
and she presumed that she was authorized to enter the same.
Respondent appealed the LA Decision.
Ruling of the National Labor Relations Commission
On November 28, 2008, the NLRC issued its Resolution23 finding
respondent's dismissal illegal. It set aside the LA Decision and ordered
petitioners to pay respondent backwages, separation pay, moral and
exemplary damages, 13th month pay differential, and attorney's fees. The
dispositive portion of the NLRC Resolution reads:
chanRoblesvirtualLawlibrary
WHEREFORE, premises laid, the appealed Decision
of the Executive Labor Arbiter dated November 20,
2007 is hereby set aside and a new one is entered
finding complainant Laarne Densing illegally
dismissed and respondents Leo Restaurant and Bar
Cafe and Mountain Suite Apartelle and/or Leo Y. Lua
and Amelia Y. Lua, proprietors of the said
establishment, to be solidarily liable to pay
complainant Laarne Densing's backwages, based on
her latest salary, to be computed from the date of her
dismissal on January 15, 2006 up to the finality of
this resolution; separation pay, based on her latest
salary, to be computed from the inception of her
employment on January 2, 2002 up to the finality of
this Resolution; moral and exemplary damages in the
amount of Fifty Thousand (Php50,000.00) each;
13th month pay differential in the amount of
Pbp1,250.00; and ten percent (10%) attorney's fees
computed from the total monetary awards.
SO ORDERED.24
According to the NLRC, respondent's claim that she had the authority to
enter the contract with Pepsi was supported by evidence, which included
the Sworn Statement of the Sales Manager of-Pepsi, and a Certification
from concerned Pepsi Managers that Pepsi donated only 10 cases of
softdrinks and additional 20 cases of Pepsi 12 oz. to the Restobar.
The NLRC added that even assuming that respondent was without
explicit authority from the owner of the Restobar, she still validly entered
the contract with Pepsi as the signing thereof was within her duty as the
one in charge of the operations of the Restobar. It also noted that there
was no showing that respondent was ill-motivated in signing the Pepsi
contract; and she signed it to the best interest of the Restobar.
The NLRC ruled that the imputation that respondent charged food to the
Restobar was related to her representation privilege granted her by the
Restobar; and, there was no evidence that she abused this privilege.
Petitioners and Kimwa moved for a reconsideration of the November 28,
2008 NLRC Resolution.
On June 4,2009, the NLRC granted the Motion for Reconsideration. It set
aside its November 28, 2008 Resolution, and dismissed the Complaint for
lack of merit.25cralawredchanrobleslaw
In reversing itself, the NLRC held that respondent's functions did not
include any authority to sign or execute contracts for and in behalf of the
Restobar. It added that even assuming that Leo verbally authorized her to
sign the Pepsi agreement, respondent signed the same in her name, as if
she was the Restobar's owner. It also held that if not for the fact that
respondent was suspended and later dismissed, the whereabouts of the
donated Pepsi products would not have been traced. It likewise faulted
respondent for charging 50% of her meals to the Restobar without
approval from its Owner or Chief Officer. It added that respondent was
given opportunity to be heard when various memoranda were issued to
her.
On July 31, 2009, the NLRC denied26 respondent's Motion for
Reconsideration.
Ruling of the Court of Appeals
Respondent filed: with the CA a Petition for Certiorari essentially
reiterating that she was illegally dismissed.
On November 27, 2012s the CA rendered the assailed Decision 27 setting
aside the June 4, 2009 and July 31, 2009 Resolutions of the NLRC, and
reinstating the November 28, 2008 NLRC Resolution.
The CA reasoned that as Administrative Officer/HR Head, respondent
held a position of trust and confidence. Nevertheless, it explained that
petitioners failed to prove that respondent committed any of the following
acts imputed against her: a) signing the Pepsi agreement on behalf of the
Restobar without authority from Leo; b) failure to account for the products
donated by Pepsi to the Restobar; and, c) unauthorized charges of food
on the account of the Restobar.
The CA stressed that the foregoing grounds had been adequately passed
upon in the NLRC November 28, 2008 Resolution before it reversed itself
and issued its June 4, 2009 and July 31, 2009 Resolutions. It added that
even if respondent had no express authority to sign the agreement with
Pepsi, her having entered it was not sufficient to dismiss her from work,
especially in the absence of malicious intent or fraud on her part. It
pointed out that the Restobar did not suffer damage because of
respondent's act.
According to the CA, respondent even acted in good faith when she
signed the contract with Pepsi on the impression that sit was part of her
duties and responsibilities. It also quoted with approval the November 28,
2003 NLRC Resolution declaring that there was no evidence that
respondent abused her representation privilege, which included the
charging of food expense when entertaining guests of the Restobar.
Finally, it held that respondent did not deserve the penalty of dismissal
especially so since she committed no prior infractions in her more than
three years of service.
On July 12,2013, the CA denied28 petitioners' Motion for Reconsideration.
Petitioners thus filed this Petition raising these grounds:
chanRoblesvirtualLawlibrary
1. [T]he Honorable Appellate Court erred in
[accepting the [t]heory of the Respondent
that Kimwa Construction operated Leo's
Restobar or Leo's Restaurant and Bar
Cafe, Mountain Suite Business
Apartelle.29chanrobleslaw
2. [T]he Honorable Appellate Court erred
when it [h]eld that x x x to justify the
dismissal of an employee base[d], on loss
of trust and confidence, the acts of said
employee should be proven by substantial
evidence and founded on clearly
established facts.30chanrobleslaw
3. [T]he Petition for Review [r]aises a
question of law and of facts that justif[y
r]eview of the Appellate Court's Decision
and its denial of the Motion for
Reconsideration.31chanrobleslaw
4. [T]he Appellate Court also erred in
[granting] Moral and Exemplary Damages
[to respondent].32
Petitioners argue that the CA erred in holding that Kimwa owned and
operated the Restobar and the Apartelle. They assert that these
establishments are single proprietorships owned by Amelia and managed
by Leo. They also asseverate that there are sufficient bases to dismiss
respondent as she signed the exclusivity contract with Pepsi as if she was
the owner of the Restobar, and she did not account for the products
donated by Pepsi to the latter. Finally, they submit that respondent is not
entitled to moral and exemplary damages as they did not act in bad faith
in dismissing her.
Respondent, on her end, counters that although she held a position of
trust and confidence, there is no showing that she committed willful
breach of trust against her employer. She argued that she acted in good
faith when she signed the exclusivity contract with Pepsi such that there is
no reason to hold that she committed any dishonest conduct that would
warrant her employer's loss of trust in her.
Issue
 It must rest on substantial grounds and not on mere suspicion, whims, or
Whether respondent was validly dismissed on the ground of loss of trust caprices of the employer.44chanrobleslaw
and confidence.
In fine, "loss of confidence should not be simulated. It should not be used
Our Ruling as a subterfuge for causes which are improper, illegal, or unjustified. Loss
of confidence may not be arbitrarily asserted in the face of overwhelming
evidence to the contrary. It must be genuine, not a mere afterthought to
The Court denies the Petition. justify earlier action taken in bad faith."45chanrobleslaw

As a rule, the findings of fact of the CA when fully supported by evidence
are conclusive and binding on the parties and are not reviewable by the
Court. However, this rule admits of exceptions including such instance
where the factual findings of the CA are contrary to those of the labor
tribunals.33chanrobleslaw
Here, respondent, as Administrative Officer/HR Head of the Restobar and
the Apartelle, had the following duties and functions:
chanRoblesvirtualLawlibrary

In this case, the LA and the NLRC are one in ruling that respondent was 1. Has the authority/information in all
validly dismissed from work. The CA ruled otherwise, Considering these operation, administrative and functional
divergent positions, the Court deems it necessary to review, re-evaluate, matters.
and re-examine the findings of the CA as they are contrary to those of the 2. Reports directly to the owner.
LA and the NLRC.34chanrobleslaw
3. Oversees the entire operations of the
business that includes over-all
First, petitioners deny that Kimwa owned and operated the Restobar and
property/furnitur[e] maintenance &
the Apartelle. They claim that Amelia owned these establishments, and
expenditures.
Leo only managed them.
4. Handles all employees of the
The Court is unconvinced. establishments.
5. Carries out HR policies & procedures[.]
As will be discussed hereunder, sufficient pieces of evidence show that
Kimwa, Leo, and Amelia owned, managed, and operated the Restobar 6. Responsible in the recruitment, screening
and the Apartelle. They also continuously employed respondent, & selection of new employment for vacant
previously as liaison officer and thereafter as Administrative Officer/HR position. .
Head of the Restobar and the Apartelle. 7. Plans & conducts new employee
orientation to foster positive attitude
On July 4, 2005, while respondent was still a liaison officer of Kimwa, Leo, towards company goals.
as "Proprietor/Chief Executive Officer of Kimwa Construction &
Development Corp./Mountain Suite Business Apartelle" appointed her as
8. Develops & maintains a human resourc[e]
system that meets top management
Administrative Officer/HR Head of the Restobar and the Apartelle to be
information needs.
effective as soon as the establishments were officially operational.35 On
October 19, 2005, Leo, in the same capacity as cited above, confirmed 9. Wage and salary administration.
the appointment of respondent and declared its effectivity beginning 10. Labor & Employee relations, welfare &
October 18, 2005.36chanrobleslaw benefits.46]

Moreover, in his January 2, 2006 Memorandum,37 while respondent was
acting as Adrninistrative Officer/HR Head of the Restobar and the
Apartelle, Leo required her to temporarily report at Kimwa's Main Office.
Apart from this, all Memoranda38 to Explain issued by Leo to respondent
as well as the Notice39 of her Termination were written under the heading
"Kimwa Construction & Dev. Corp." It is also worth noting that the
Restobar is a namesake of Leo as the same is named "Leo's Restaurant
and Bar Cafe." As regards Amelia, petitioners repeatedly alleged that she
is the owner of the Restobar and the Apartelle and she never disputed
this matter.
At the same time, it is settled that where it shows that business entities
are owned, controlled, and conducted by tfce same parties, Jaw and
equity will disregard the legal fiction that they are distinct and shall treat
them as one entity in order to protect the rights of third persons. Here, it
appearing that Kimwa, Leo, and Amelia owned, controlled and managed
the Restobar and the Apartelle, they are treated as a single entity
accountable for the dismissal of respondent.40chanrobleslaw
Based on the foregoing, petitioners continually employed respondent
from the time she was assigned in Kimwa until she was appointed
Administrative Officer/HR Head of the Restobar and the Apartelle.
Second, petitioners argue that respondent was validly terminated for loss
of trust and confidence.
As far as the first requisite is concerned, respondent is shown to occupy a
position of trust as her managerial work was directly related to
management policies, and generally required exercise of discretion and
independent judgment.47chanrobleslaw
Nonetheless, the second requirement is wanting since petitioners failed to
prove that their loss of trust on respondent was founded on clearly
established facts.
Records show that on December 30, 2005, Leo required respondent to
explain her supposed infractions when she signed, without the approval
of the owner, the contract between the Restobar and Pepsi; and her
failure to account the items Pepsi donated to the Restobar.
Respondent aptly explained these matters to Leo. According to her, Leo
verbally authorized her to sign the agreement with Pepsi. This verbal
instruction was given in the presence of Ablanque, Sales Manager of
Pepsi.
In his Affidavit48 dated February 9, 2006, Ablanque corroborated
respondent's assertion. He certified that during his visits in the Restobar,
he discussed with Leo his proposal of an exclusivity contract between
Pepsi and the Restobar. In the course of their negotiation in September
2005, Leo agreed to the contract, and authorized respondent to sign the
same.

Such argument is without merit.
An employer has the right to dismiss an employee for just causes, which
include willful breach of trust and confidence reposed on him or her by the
employer. To temper such right to dismiss, and to reconcile it with the
employee's security of tenure, it is the employer who has the burden to
show that the dismissal of the employee is for a just cause. 41 Such
determination of just cause must also be made with fairness, in good faith,
and only after observance of due process of law.42chanrobleslaw
Moreover, to dismiss an employee on the ground of loss of trust and
confidence, two requisites must concur: (a) the concerned employee
must be holding a position of trust; and, (b) the loss of trust must be
based on willful breach of trust based on clearly established
facts.43chanrobleslaw
Loss of trust and confidence as a ground for dismissal is never intended
for abuse by reason of its subjective nature. It must be pursuant to a
breach done willfully, knowingly and purposely without any valid excuse.
Also, as declared by the CA, even granting for the sake of argument that
respondent signed the Pepsi contract without the express authority from
Leo, her act was .well within her functions. As above quoted, respondent
1) had the authority in all operational, administrative and functional
matters of the Restobar and the Apartelle; and, 2) had the duty to oversee
the entire operations of the business, including the over-all
property/furniture, maintenance and expenditures.49chanrobleslaw
Therefore, having entered the Pepsi contract is not sufficient basis for
petitioners to lose their;; trust in respondent. Leo authorized her to enter
said agreement. Even assuming that there was no explicit order for her to
do so, respondent still acted within her authority as in-charge of all
operation, administrative and functional matters of the establishments.
Notably, although the LA ruled that respondent was validly dismissed, the
LA (in granting separation pay), recognized that respondent acted in good
faith when she entered into the Pepsi contract, viz.:

chanRoblesvirtualLawlibrary
[Respondent] x x x nonetheless entered into said
agreement in good faith. [Respondent] presumed
that she was authorized to enter into said Exclusivity
Agreement. In this regard, the undersigned is
inclined to grant [respondent's] claim for separation
pay considering that her dismissal is premised on a
vague authority, x x x50
Indeed, there was no malice or any fraudulent intent on the part of
respondent when she sighed the Pepsi contract. There is likewise no
evidence that she personally benefited therefrom. In fact, the Restobar
itself received the items donated by Pepsi, and the Restobar did not suffer
any damage arising from the Pepsi contract.
Loss of trust and confidence must stem from dishonest, deceitful or
fraudulent acts. In the absence of such malicious intent or fraud on the
part of respondent, she committed no willful breach of trust against her
employer.51chanrobleslaw
In addition, the Court finds that the charge that respondent failed to
account for a certain number of products Pepsi donated to the Restobar is
without basis.
On January 4, 2006, Pepsi clarified that it donated only 10 cases of its
products on the opening night of the Restobar, and an additional 20 cases
of Pepsi 12 oz. on December 7, 2005. It added that Pepsi gave no other
donation to the Restobar or its staff. Pepsi admitted its lapses, and
apologized to Leo; it also requested him to disregard the inadvertent
entries in the documents it gave him.
Since Pepsi clarified the matter and as established, there is no
unaccounted donation made by Pepsi to the Restobar, then the allegation
- that respondent committed loss of trust because of unaccounted
donation from Pepsi — is untenable. Indeed, petitioners' loss of trust and
confidence was merely simulated. It was arbitrarily asserted despite
sufficient evidence to the contrary.52chanrobleslaw
Moreover, the charge of dishonesty against respondent for purportedly
charging 50% of the food she personally ordered to the account of the
Restobar is unsubstantiated. This accusation was cited in Leo's January
3,2006 Memorandum but was not at all specified in the Notice of
Termination against respondent as said notice centered on respondent's
act of having entered the contract with Pepsi. In any case, as correctly
observed in the November 28, 2008 Resolution of the NLRC, Restobar
"was not really saddled by those entertainment expenses because the
foods and meals were eventually deducted against [respondent's] salary,
which for one reason or another [respondent] offered no
objection."53chanrobleslaw
Finally, the Court sustains the grant of moral and exemplary damages,
and attorney's fees in favor of respondent.
Moral damages is awarded to an illegally dismissed or suspended
employee when the employer acted in bad faith or fraud, or in such
manner oppressive to labor or contrary to morals, good customs or public
policy,54 as in this case.
As discussed, petitioners primarily charged respondent of having entered
the contract with Pepsi without authority from the Owner or the Manager
of the Restobar. Nevertheless, as also established, Leo was well aware of
this contract, as Pepsi itself attested, The Restobar also directly received
the Pepsi products. Moreover, despite respondent having explained
herself, and Pepsi having fully and timely clarified the matters surrounding
the contract, petitioners still dismissed respondent. It thus appears that
such dismissal was pre-determined by petitioners even before
respondent explained herself regarding the charges against her.
For having shown bad faith or such "conscious and intentional design to
do a wrongful act for a dishonest purpose or moral obliquity,"55 petitioners
are liable to pay respondent moral damages amounting to P50,000.00.
They are 'likewise liable to pay respondent exemplary damages
amounting to P50,000.00 as it is also shown that her dismissal was
carried out in such a malicious and oppressive manner. Such grant of
exemplary damages is deemed necessary to deter employers from
committing the same or similar acts. The award of attorney's fees is
likewise sustained since exemplary damages is awarded here, and
considering further that respondent has been compelled to file this case
and incurred expenses to protect her interest.56chanrobleslaw
To recapitulate, in order to dismiss an employee on the ground of loss of
trust and confidence, the employee must be guilty of an actual and willful
breach of duty duly supported by substantial evidence.57 Since
petitioners failed to show that respondent actually and willfully breached
their trust, then the CA properly ruled that petitioners dismissed her
without any valid cause. Henceforth, the CA properly set aside the NLRC
Resolutions dated June 4, 2009 and July 31, 2009, and reinstated the
NLRC Resolution dated November 28,2008.
WHEREFORE, the Petition is DENIED. The Decision dated November 27,
2012 and Resolution dated July 12, 2013 of the Court of Appeals in
CA-G.R SP No. 03222-MIN are AFFIRMED.
SO ORDERED.chanRoblesvirtualLawlibrary
G.R. No. 193816
ERSON ANG LEE DOING BUSINESS as "SUPER LAMINATION
SERVICES," Petitioner
vs.
SAMAHANG MANGGAGAWA NG SUPER LAMINATION
(SMSLS-NAFLU-KMU), Respondent
DECISION
SERENO, CJ.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court on the Decision1 and Resolution2of the Court of Appeals (CA)
affirming the assailed Decision3 of the Department of Labor and
Employment (DOLE). DOLE allowed the conduct of certification election
among the rank-and-file employees of Super Lamination Services (Super
Lamination), Express Lamination Services, Inc. (Express Lamination),
and Express Coat Enterprises, Inc. (Express Coat).
THE ANTECEDENT FACTS
Petitioner Erson Ang Lee (petitioner), through Super Lamination, is a duly
registered entity principally engaged in the business of providing
lamination services to the general public. Respondent Samahan ng mga
Manggagawa ng Super Lamination Services (Union A) is a legitimate
labor organization, which is also a local chapter affiliate of the National
Federation of Labor Unions - Kilusang Mayo Uno.4 It appears that Super
Lamination is a sole proprietorship under petitioner's name, 5 while
Express Lamination and Express Coat are duly incorporated entities
separately registered with the Securities and Exchange Commission
(SEC).6
On 7 March 2008, Union A filed a Petition for Certification Election7 to
represent all the rank-and-file employees of Super Lamination.8
Notably, on the same date, Express Lamination Workers' Union (Union B)
also filed a Petition for Certification Election to represent all the
rank-and-file employees of Express Lamination.9
Also on the same date, the Samahan ng mga Manggagawa ng Express
Coat Enterprises, Inc. (Union C) filed a Petition for Certification Election to
represent the rank-and-file employees of Express Coat.10
Super Lamination, Express Lamination, and Express Coat, all
represented by one counsel, separately claimed in their Comments and
Motions to Dismiss that the petitions must be dismissed on the same
ground - lack of employer-employee relationship between these
establishments and the bargaining units that Unions A, B, and C seek to
represent as well as these unions' respective members. 11 Super
Lamination, in its Motion, posited that a majority of the persons who were
enumerated in the list of members and officers of Union A were not its
employees, but were employed by either Express Lamination or Express
Coat.12 Interestingly, both Express Lamination and Express Coat, in turn,
maintained the same argument - that a majority of those who had
assented to the Petition for Certification Election were not employees of
either company, but of one of the two other companies involved.13
All three Petitions for Certification Election of the Unions were denied. On
21 May 2008, an Order was issued by DOLE National Capital Region
(NCR) Med-Arbiter Michael Angelo Parado denying the respective
petitions of Unions B and C on the ground that there was no existing
employer-employee relationship between the members of the unions and
the companies concerned. On 23 May 2008, DOLE NCR Med-Arbiter
Alma Magdaraog-Alba also denied the petition of respondent Union A on
the same ground.14
The three unions filed their respective appeals before the Office of the
DOLE Secretary, which consolidated the appeal because the involved
companies alternately referred to one another as the employer of the
members of the bargaining units sought to be represented. 15 The unions
argued that their petitions should have been allowed considering that the
companies involved were unorganized, and that the employers had no
concomitant right to oppose the petitions. They also claimed that while
the questioned employees might have been assigned to perform work at
the other companies, they were all under one management's direct
control and supervision.16
DOLE, through Undersecretary Romeo C. Lagman, rendered the assailed
Decision, the dispositive portion of which reads as follows:
WHEREFORE, premises considered, the appeals
filed by Express Lamination Workers Union
(ELWU-NAFLU-KMU), Samahang Manggagawa ng
Express Coat Enterprises, Inc. (SMEC-NAFLU-KMU)
and Samahang Manggagawa ng Super Lamination
Services (SMSLS-NAFLU-KMU) are
hereby GRANTED and the Orders dated 21 May
2008 of DOLE-NCR Mediator-Arbiter Michael Angelo
T. Parado are hereby REVERSED and SET ASIDE.
The Order dated 23 May 2008 of DOLE NCR
Mediator-Arbiter Alma E. Magdaraog-Alba is
likewise REVERSED and SET ASIDE.
Accordingly, let the entire records of this be
remanded to the regional office of origin for the
immediate conduct of certification election among the
rank-and-file employees of Express Lamination
Services, Inc., Super Lamination Services and
Express Coat Enterprises Inc., after the conduct of
pre-election conference/s, with the following as
choices;
1. Express Lamination Workers Union-NAFLU-KMU;
2. Samahan ng mga Manggagawa ng Super
Lamination Services-NAFLU-KMU;
3. Samahang ng mga Manggagawa ng Express Coat
Enterprises, Inc.-NAFLU-KMU; and
4. "No Union."
The employer/s and/or contending union(s) are
hereby directed to submit to the Regional Office of
origin, within ten (10) days from receipt of this
Decision, a certified list of employees in the
bargaining unit or the payrolls covering the members
of the bargaining unit for the last three (3) months
prior to the issuance of the Decision.
SO DECIDED.17 (Emphases in the original)
DOLE found that Super Lamination, Express Lamination, and Express
Coat were sister companies that had a common human resource
department responsible for hiring and disciplining the employees of the
three companies. The same department was found to have also given
them daily instructions on how to go about their work and where to report
for work. It also found that the three companies involved constantly
rotated their workers, and that the latter's identification cards had only one
signatory.18
To DOLE, these circumstances showed that the companies were
engaged in a work-pooling scheme, in light of which they might be
considered as one and the same entity for the purpose of determining the
appropriate bargaining unit in a certification election. 19 DOLE applied the
concept of multi-employer bargaining under Sections 5 and 6 of DOLE
Department Order 40-03, Series of 2003. Under that concept, the creation
of a single bargaining unit for the rank-and-file employees of all three
companies was not implausible and was justified under the given
circumstances.20 Thus, it considered these rank-and-file employees as
one bargaining unit and ordered the conduct of a certification election as
uniformly prayed for by the three unions.
Aggrieved, petitioner instituted an appeal before the CA, which denied his
Petition and affirmed the Decision of DOLE.1âwphi1 It sided with DOLE in
finding that Super Lamination, Express Lamination, and Express Coat
were sister companies that had adopted a work-pooling scheme.
Therefore, it held that DOLE had correctly applied the concept of
multi-employer bargaining in finding that the three companies could be
considered as the same entity, and their rank-and-file employees as
comprising one bargaining unit.21
Petitioner filed a Motion for Reconsideration of the CA Decision, but the
motion was denied.22 Therefore, he now comes to this Court through the
present Petition.
ISSUES
From the established facts and arguments, we cull the issues as follows:
1. Whether the application of the doctrine of piercing the corporate veil is
warranted
2. Whether the rank-and-file employees of Super Lamination, Express
Lamination, and Express Coat constitute an appropriate bargaining unit
THE COURT'S RULING
We deny the petition.
An application of the doctrine of
piercing the corporate veil is
warranted.
Petitioner argues that separate corporations cannot be treated as a single
bargaining unit even if their businesses are related,23 as these companies
are indubitably distinct entities with separate juridical
personalities.24 Hence, the employees of one corporation cannot be
allowed to vote in the certification election of another corporation, lest the
abovementioned rule be violated.25
Petitioner's argument, while correct, is a general rule. This Court has time
and again disregarded separate juridical personalities under the doctrine
of piercing the corporate veil. It has done so in cases where a separate
legal entity is used to defeat public convenience, justify wrong, protect
fraud, or defend crime, among other grounds.26 In any of these situations,
the law will regard it as an association of persons or, in case of two
corporations, merge them into one.27
A settled formulation of the doctrine of piercing the corporate veil is that
when two business enterprises are owned, conducted, and controlled by
the same parties, both law and equity will, when necessary to protect the
rights of third parties, disregard the legal fiction that these two entities are
distinct and treat them as identical or as one and the same. 28
This formulation has been applied by this Court to cases in which the
laborer has been put in a disadvantageous position as a result of the
separate juridical personalities of the employers involved.29Pursuant to
veil-piercing, we have held two corporations jointly and severally liable for
an employee's back wages.30 We also considered a corporation and its
separately-incorporated branches as one and the same for purposes of
finding the corporation guilty of illegal dismissal. 31 These rulings were
made pursuant to the fundamental doctrine that the corporate fiction
should not be used as a subterfuge to commit injustice and circumvent
labor laws.32
Here, a certification election was ordered to be held for all the rank-and-
file employees of Super Lamination, Express Lamination, and Express
Coat.1âwphi1 The three companies were supposedly distinct entities
based on the fact that Super Lamination is a sole proprietorship while
Express Lamination and Express Coat were separately registered with
the SEC.33 The directive was therefore, in effect, a piercing of the
separate juridical personalities of the corporations involved. We find the
piercing to be proper and in accordance with the law as will be discussed
below.
The following established facts show that Super Lamination, Express
Lamination, and Express Coat are under the control and management of
the same party - petitioner Ang Lee. In effect, the employees of these
three companies have petitioner as their common employer, as shown by
the following facts:
1. Super Lamination, Express Lamination, and
Express Coat were engaged in the same business of
providing lamination services to the public as
admitted by petitioner in his petition.34
2. The three establishments operated and hired
employees through a common human resource
department as found by DOLE in a clarificatory
hearing.35 Though it was not clear which company
the human resource department was officially
attached to, petitioner admits in his petition that such
 department was shared by the three companies for
purposes of convenience.36
3. The workers of all three companies were
constantly rotated and periodically assigned to Super
Lamination or Express Lamination or Express Coat
to perform the same or similar tasks.37 This finding
was further affirmed when petitioner admitted in his
petition before us that the Super Lamination had
entered into a work-pooling agreement with the two
other companies and shared a number of their
employees.38
4. DOLE found and the CA affirmed that the common
human resource department imposed disciplinary
sanctions and directed the daily performance of all
the members of Unions A, B, and C.39
5. Super Lamination included in its payroll and SSS
registration not just its own employees, but also the
supposed employees of Express Lamination and
Express Coat. This much was admitted by petitioner
in his Motion to Dismiss40 which was affirmed by the
Med-Arbiter in the latter's Order.41
6. Petitioner admitted that Super Lamination had
issued and signed the identification cards of
employees who were actually working for Express
Lamination and Express Coat.42
7. Super Lamination, Express Lamination, and
Express Coat were represented by the same counsel
who interposed the same arguments in their motions
before the Med-Arbiters and DOLE.43
Further, we discern from the synchronized movements of petitioner and
the two other companies an attempt to frustrate or defeat the workers'
right to collectively bargain through the shield of the corporations'
separate juridical personalities. We make this finding on the basis of the
motions to dismiss filed by the three companies. While similarly alleging
the absence of an employer-employee relationship, they alternately
referred to one another as the employer of the members of the bargaining
units sought to be represented respectively by the unions. This fact was
affirmed by the Med-Arbiters' Orders finding that indeed, the supposed
employees of each establishment were found to be alternately the
employees of either of the two other companies as well. This was
precisely the reason why DOLE consolidated the appeals filed by Unions
A, B, and C.44
Due to the finger-pointing by the three companies at one another, the
petitions were dismissed. As a result, the three unions were not able to
proceed with the conduct of the certification election. This also caused
confusion among the employees as to who their real employer is, as
Union A claims in its Comment.45
We hold that if we allow petitioner and the two other companies to
continue obstructing the holding of the election in this manner, their
employees and their respective unions will never have a chance to
choose their bargaining representative. We take note that all three
establishments were unorganized. That is, no union therein was ever duly
recognized or certified as a bargaining representative. 46
Therefore, it is only proper that, in order to safeguard the right of the
workers and Unions A, B, and C to engage in collective bargaining, the
corporate veil of Express Lamination and Express Coat must be pierced.
The separate existence of Super Lamination, Express Lamination, and
Express Coat must be disregarded. In effect, we affirm the lower tribunals
in ruling that these companies must be treated as one and the same unit
for purposes of holding a certification election.
Petitioner has cited Diatagon Labor Federation Local
Ople47 and lndophil Textile Mill Worker Union v. Calica48 in which this
Court refused to treat separate corporations as a single bargaining unit.
Those cases, however, are not substantially identical with this case and
would not warrant their application herein. Unlike in the instant case, the
corporations involved were found to be completely independent or were
not involved in any act that frustrated the laborers' rights.
In Diatagon,49 we refused to include the 236 employees of Georgia
Pacific International Corporation in the bargaining unit of the employees
of Liangga Bay Logging Co., Inc. This Court's refusal was in light of the
fact that the two corporations were indubitably distinct entities with
separate corporate identities and origins. Moreover, there was no
discernible attempt to frustrate any of their labor-related rights, as the only
conflict was over which bargaining unit they belonged to.
In Indophil,50 this Court refused to pierce the corporate veil of Indophil
Textile Mill and Indophil Acrylic Manufacturing. We found that the creation
of Indophil Acrylic was not a device to evade the application of the
collective bargaining agreement (CBA) between petitioner union and
Indophil Textile Mill. This Court further found that despite the similarity in
their business operations, the separate personalities of the two
corporations were maintained and were not used for any of the purposes
specified under the law that would warrant piercing. It is also apparent in
this case that the workers' rights were not being hampered by the
employers concerned, as the only issue between them was the extent of
the subject CBA's application.
In this case, not only were Super Lamination, Express Lamination, and
Express Coat found to be under the control of petitioner, but there was
also a discernible attempt to disregard the workers' and unions' right to
collective bargaining.
The foregoing considered, we find no error in the CA' s affirmance of the
DOLE directive. We affirm DOLE's application by analogy of the concept
of multi-employer bargaining to justify its Decision to treat the three
companies as one. While the multi-employer bargaining mechanism is
relatively new and purely optional under Department Order No. 40-03, it
illustrates the State's policy to promote the primacy of free and
responsible exercise of the right to collective bargaining. 51 The existence
of this mechanism in our labor laws affirm DOLE's conclusion that its
treatment of the employees of the three companies herein as a single
bargaining unit is neither impossible nor prohibited.52 It is justified under
the circumstances discussed above.
Besides, it is an established rule that factual findings of labor officials,
who are deemed to have acquired expertise in matters within their
jurisdiction, are generally accorded by the courts not only respect but
even finality when supported by substantial evidence; i.e., that amount of
relevant evidence which a reasonable mind might accept as adequate to
justify a conclusion.53
The bargaining unit of the rank-and-
file employees of the three companies
is appropriate.
Petitioner argues that there is no showing that the rank-and-file
employees of the three companies would constitute an appropriate
bargaining unit on account of the latter's different geographical
locations.54 This contention lacks merit. The basic test for determining the
appropriate bargaining unit is the application of a standard whereby a unit
is deemed appropriate if it affects a grouping of employees who have
substantial, mutual interests in wages, hours, working conditions, and
other subjects of collective bargaining.55 We have ruled that geographical
location can be completely disregarded if the communal or mutual
interests of the employees are not sacrificed.56
In the present case, there was communal interest among the rank-and-file
employees of the three companies based on the finding that they were
constantly rotated to all three companies, and that they performed the
same or similar duties whenever rotated.57 Therefore, aside from
geographical location, their employment status and working conditions
were so substantially similar as to justify a conclusion that they shared a
community of interest. This finding is consistent with the policy in favor of
a single-employer unit, unless the circumstances require otherwise.58 The
more solid the employees are, the stronger is their bargaining capacity. 59
As correctly observed by the CA and DOLE, while there is no prohibition
on the mere act of engaging in a work-pooling scheme as sister
companies, that act will not be tolerated, and the sister companies'
separate juridical personalities will be disregarded, if they use that
scheme to defeat the workers' right to collective bargaining. The
employees' right to collectively bargain with their employers is necessary
v. to promote harmonious labor-management relations in the interest of
sound and stable industrial peace.60
WHEREFORE, the Petition for Review on Certiorari under Rule 45
is DENIED for lack of merit. The Court of Appeals Decision61 and
Resolution62 in CA-G.R. SP No. 109486 are hereby AFFIRMED.
SO ORDERED.
G.R. No. 193816
ERSON ANG LEE DOING BUSINESS as "SUPER LAMINATION
SERVICES," Petitioner
vs.
SAMAHANG MANGGAGAWA NG SUPER LAMINATION
(SMSLS-NAFLU-KMU), Respondent
DECISION
SERENO, CJ.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court on the Decision1 and Resolution2of the Court of Appeals (CA)
affirming the assailed Decision3 of the Department of Labor and
Employment (DOLE). DOLE allowed the conduct of certification election
among the rank-and-file employees of Super Lamination Services (Super
Lamination), Express Lamination Services, Inc. (Express Lamination),
and Express Coat Enterprises, Inc. (Express Coat).
THE ANTECEDENT FACTS
Petitioner Erson Ang Lee (petitioner), through Super Lamination, is a duly
registered entity principally engaged in the business of providing
lamination services to the general public. Respondent Samahan ng mga
Manggagawa ng Super Lamination Services (Union A) is a legitimate
labor organization, which is also a local chapter affiliate of the National
Federation of Labor Unions - Kilusang Mayo Uno.4 It appears that Super
Lamination is a sole proprietorship under petitioner's name, 5 while
Express Lamination and Express Coat are duly incorporated entities
separately registered with the Securities and Exchange Commission
(SEC).6
On 7 March 2008, Union A filed a Petition for Certification Election7 to
represent all the rank-and-file employees of Super Lamination.8
Notably, on the same date, Express Lamination Workers' Union (Union B)
also filed a Petition for Certification Election to represent all the
rank-and-file employees of Express Lamination.9
Also on the same date, the Samahan ng mga Manggagawa ng Express
Coat Enterprises, Inc. (Union C) filed a Petition for Certification Election to
represent the rank-and-file employees of Express Coat.10
Super Lamination, Express Lamination, and Express Coat, all
represented by one counsel, separately claimed in their Comments and
Motions to Dismiss that the petitions must be dismissed on the same
ground - lack of employer-employee relationship between these
establishments and the bargaining units that Unions A, B, and C seek to
represent as well as these unions' respective members.11 Super
Lamination, in its Motion, posited that a majority of the persons who were
enumerated in the list of members and officers of Union A were not its
employees, but were employed by either Express Lamination or Express
Coat.12 Interestingly, both Express Lamination and Express Coat, in turn,
maintained the same argument - that a majority of those who had
assented to the Petition for Certification Election were not employees of
either company, but of one of the two other companies involved. 13
All three Petitions for Certification Election of the Unions were denied. On
21 May 2008, an Order was issued by DOLE National Capital Region
(NCR) Med-Arbiter Michael Angelo Parado denying the respective
petitions of Unions B and C on the ground that there was no existing
employer-employee relationship between the members of the unions and
the companies concerned. On 23 May 2008, DOLE NCR Med-Arbiter
Alma Magdaraog-Alba also denied the petition of respondent Union A on
the same ground.14
The three unions filed their respective appeals before the Office of the
DOLE Secretary, which consolidated the appeal because the involved
companies alternately referred to one another as the employer of the
members of the bargaining units sought to be represented. 15 The unions
argued that their petitions should have been allowed considering that the
companies involved were unorganized, and that the employers had no
concomitant right to oppose the petitions. They also claimed that while
the questioned employees might have been assigned to perform work at
the other companies, they were all under one management's direct
control and supervision.16
DOLE, through Undersecretary Romeo C. Lagman, rendered the assailed
Decision, the dispositive portion of which reads as follows:
WHEREFORE, premises considered, the appeals
filed by Express Lamination Workers Union
(ELWU-NAFLU-KMU), Samahang Manggagawa ng
Express Coat Enterprises, Inc. (SMEC-NAFLU-KMU)
and Samahang Manggagawa ng Super Lamination
Services (SMSLS-NAFLU-KMU) are
hereby GRANTED and the Orders dated 21 May
2008 of DOLE-NCR Mediator-Arbiter Michael Angelo
T. Parado are hereby REVERSED and SET ASIDE.
The Order dated 23 May 2008 of DOLE NCR
Mediator-Arbiter Alma E. Magdaraog-Alba is
likewise REVERSED and SET ASIDE.
Accordingly, let the entire records of this be
remanded to the regional office of origin for the
immediate conduct of certification election among the
rank-and-file employees of Express Lamination
Services, Inc., Super Lamination Services and
Express Coat Enterprises Inc., after the conduct of
pre-election conference/s, with the following as
choices;
1. Express Lamination Workers Union-NAFLU-KMU;
2. Samahan ng mga Manggagawa ng Super
Lamination Services-NAFLU-KMU;
3. Samahang ng mga Manggagawa ng Express Coat
Enterprises, Inc.-NAFLU-KMU; and
4. "No Union."
The employer/s and/or contending union(s) are
hereby directed to submit to the Regional Office of
origin, within ten (10) days from receipt of this
Decision, a certified list of employees in the
bargaining unit or the payrolls covering the members
of the bargaining unit for the last three (3) months
prior to the issuance of the Decision.
SO DECIDED.17 (Emphases in the original)
DOLE found that Super Lamination, Express Lamination, and Express
Coat were sister companies that had a common human resource
department responsible for hiring and disciplining the employees of the
three companies. The same department was found to have also given
them daily instructions on how to go about their work and where to report
for work. It also found that the three companies involved constantly
rotated their workers, and that the latter's identification cards had only one
signatory.18
To DOLE, these circumstances showed that the companies were
engaged in a work-pooling scheme, in light of which they might be
considered as one and the same entity for the purpose of determining the
appropriate bargaining unit in a certification election. 19 DOLE applied the
concept of multi-employer bargaining under Sections 5 and 6 of DOLE
Department Order 40-03, Series of 2003. Under that concept, the creation
of a single bargaining unit for the rank-and-file employees of all three
companies was not implausible and was justified under the given
circumstances.20 Thus, it considered these rank-and-file employees as
one bargaining unit and ordered the conduct of a certification election as
uniformly prayed for by the three unions.
Aggrieved, petitioner instituted an appeal before the CA, which denied his
Petition and affirmed the Decision of DOLE.1âwphi1 It sided with DOLE in
finding that Super Lamination, Express Lamination, and Express Coat
were sister companies that had adopted a work-pooling scheme.
Therefore, it held that DOLE had correctly applied the concept of
multi-employer bargaining in finding that the three companies could be
considered as the same entity, and their rank-and-file employees as
comprising one bargaining unit.21
Petitioner filed a Motion for Reconsideration of the CA Decision, but the
motion was denied.22 Therefore, he now comes to this Court through the
present Petition.
ISSUES
From the established facts and arguments, we cull the issues as follows:
1. Whether the application of the doctrine of piercing the corporate veil is
warranted
2. Whether the rank-and-file employees of Super Lamination, Express 4. DOLE found and the CA affirmed that the common
Lamination, and Express Coat constitute an appropriate bargaining unit human resource department imposed disciplinary
sanctions and directed the daily performance of all
THE COURT'S RULING the members of Unions A, B, and C.39

5. Super Lamination included in its payroll and SSS

We deny the petition.
registration not just its own employees, but also the
An application of the doctrine of
supposed employees of Express Lamination and
piercing the corporate veil is
Express Coat. This much was admitted by petitioner
warranted.
in his Motion to Dismiss40 which was affirmed by the
Med-Arbiter in the latter's Order.41
Petitioner argues that separate corporations cannot be treated as a single
bargaining unit even if their businesses are related,23 as these companies
6. Petitioner admitted that Super Lamination had
are indubitably distinct entities with separate juridical
issued and signed the identification cards of
personalities.24 Hence, the employees of one corporation cannot be
employees who were actually working for Express
allowed to vote in the certification election of another corporation, lest the
Lamination and Express Coat.42
abovementioned rule be violated.25

7. Super Lamination, Express Lamination, and

Petitioner's argument, while correct, is a general rule. This Court has time
Express Coat were represented by the same counsel
and again disregarded separate juridical personalities under the doctrine
who interposed the same arguments in their motions
of piercing the corporate veil. It has done so in cases where a separate
before the Med-Arbiters and DOLE.43
legal entity is used to defeat public convenience, justify wrong, protect
fraud, or defend crime, among other grounds.26 In any of these situations,
the law will regard it as an association of persons or, in case of two Further, we discern from the synchronized movements of petitioner and
corporations, merge them into one.27 the two other companies an attempt to frustrate or defeat the workers'
right to collectively bargain through the shield of the corporations'
separate juridical personalities. We make this finding on the basis of the
A settled formulation of the doctrine of piercing the corporate veil is that
motions to dismiss filed by the three companies. While similarly alleging
when two business enterprises are owned, conducted, and controlled by
the absence of an employer-employee relationship, they alternately
the same parties, both law and equity will, when necessary to protect the
referred to one another as the employer of the members of the bargaining
rights of third parties, disregard the legal fiction that these two entities are
units sought to be represented respectively by the unions. This fact was
distinct and treat them as identical or as one and the same. 28
affirmed by the Med-Arbiters' Orders finding that indeed, the supposed
employees of each establishment were found to be alternately the
This formulation has been applied by this Court to cases in which the employees of either of the two other companies as well. This was
laborer has been put in a disadvantageous position as a result of the precisely the reason why DOLE consolidated the appeals filed by Unions
separate juridical personalities of the employers involved.29Pursuant to A, B, and C.44
veil-piercing, we have held two corporations jointly and severally liable for
an employee's back wages.30 We also considered a corporation and its
Due to the finger-pointing by the three companies at one another, the
separately-incorporated branches as one and the same for purposes of
petitions were dismissed. As a result, the three unions were not able to
finding the corporation guilty of illegal dismissal. 31 These rulings were
proceed with the conduct of the certification election. This also caused
made pursuant to the fundamental doctrine that the corporate fiction
confusion among the employees as to who their real employer is, as
should not be used as a subterfuge to commit injustice and circumvent
Union A claims in its Comment.45
labor laws.32

We hold that if we allow petitioner and the two other companies to

Here, a certification election was ordered to be held for all the rank-and-
continue obstructing the holding of the election in this manner, their
file employees of Super Lamination, Express Lamination, and Express
employees and their respective unions will never have a chance to
Coat.1âwphi1 The three companies were supposedly distinct entities
choose their bargaining representative. We take note that all three
based on the fact that Super Lamination is a sole proprietorship while
establishments were unorganized. That is, no union therein was ever duly
Express Lamination and Express Coat were separately registered with
recognized or certified as a bargaining representative. 46
the SEC.33 The directive was therefore, in effect, a piercing of the
separate juridical personalities of the corporations involved. We find the
piercing to be proper and in accordance with the law as will be discussed Therefore, it is only proper that, in order to safeguard the right of the
below. workers and Unions A, B, and C to engage in collective bargaining, the
corporate veil of Express Lamination and Express Coat must be pierced.
The separate existence of Super Lamination, Express Lamination, and
The following established facts show that Super Lamination, Express
Express Coat must be disregarded. In effect, we affirm the lower tribunals
Lamination, and Express Coat are under the control and management of
in ruling that these companies must be treated as one and the same unit
the same party - petitioner Ang Lee. In effect, the employees of these
for purposes of holding a certification election.
three companies have petitioner as their common employer, as shown by
the following facts:
Petitioner has cited Diatagon Labor Federation Local v.
Ople47 and lndophil Textile Mill Worker Union v. Calica48 in which this
1. Super Lamination, Express Lamination, and
Express Coat were engaged in the same business of Court refused to treat separate corporations as a single bargaining unit.
Those cases, however, are not substantially identical with this case and
providing lamination services to the public as
would not warrant their application herein. Unlike in the instant case, the
admitted by petitioner in his petition.34
corporations involved were found to be completely independent or were
not involved in any act that frustrated the laborers' rights.
2. The three establishments operated and hired
employees through a common human resource
In Diatagon,49 we refused to include the 236 employees of Georgia
department as found by DOLE in a clarificatory
hearing.35 Though it was not clear which company Pacific International Corporation in the bargaining unit of the employees
of Liangga Bay Logging Co., Inc. This Court's refusal was in light of the
the human resource department was officially
fact that the two corporations were indubitably distinct entities with
attached to, petitioner admits in his petition that such
separate corporate identities and origins. Moreover, there was no
department was shared by the three companies for
discernible attempt to frustrate any of their labor-related rights, as the only
purposes of convenience.36
conflict was over which bargaining unit they belonged to.

3. The workers of all three companies were

In Indophil,50 this Court refused to pierce the corporate veil of Indophil
constantly rotated and periodically assigned to Super
Textile Mill and Indophil Acrylic Manufacturing. We found that the creation
Lamination or Express Lamination or Express Coat
of Indophil Acrylic was not a device to evade the application of the
to perform the same or similar tasks.37 This finding
collective bargaining agreement (CBA) between petitioner union and
was further affirmed when petitioner admitted in his
petition before us that the Super Lamination had Indophil Textile Mill. This Court further found that despite the similarity in
their business operations, the separate personalities of the two
entered into a work-pooling agreement with the two
corporations were maintained and were not used for any of the purposes
other companies and shared a number of their
specified under the law that would warrant piercing. It is also apparent in
employees.38
this case that the workers' rights were not being hampered by the
employers concerned, as the only issue between them was the extent of
the subject CBA's application.
In this case, not only were Super Lamination, Express Lamination, and
Express Coat found to be under the control of petitioner, but there was
also a discernible attempt to disregard the workers' and unions' right to
collective bargaining.
The foregoing considered, we find no error in the CA' s affirmance of the
DOLE directive. We affirm DOLE's application by analogy of the concept
of multi-employer bargaining to justify its Decision to treat the three
companies as one. While the multi-employer bargaining mechanism is
relatively new and purely optional under Department Order No. 40-03, it
illustrates the State's policy to promote the primacy of free and
responsible exercise of the right to collective bargaining. 51 The existence
of this mechanism in our labor laws affirm DOLE's conclusion that its
treatment of the employees of the three companies herein as a single
bargaining unit is neither impossible nor prohibited.52 It is justified under
the circumstances discussed above.
Besides, it is an established rule that factual findings of labor officials,
who are deemed to have acquired expertise in matters within their
jurisdiction, are generally accorded by the courts not only respect but
even finality when supported by substantial evidence; i.e., that amount of
relevant evidence which a reasonable mind might accept as adequate to
justify a conclusion.53
The bargaining unit of the rank-and-
file employees of the three companies
is appropriate.
Petitioner argues that there is no showing that the rank-and-file
employees of the three companies would constitute an appropriate
bargaining unit on account of the latter's different geographical
locations.54 This contention lacks merit. The basic test for determining the
appropriate bargaining unit is the application of a standard whereby a unit
is deemed appropriate if it affects a grouping of employees who have
substantial, mutual interests in wages, hours, working conditions, and
other subjects of collective bargaining.55 We have ruled that geographical
location can be completely disregarded if the communal or mutual
interests of the employees are not sacrificed.56
In the present case, there was communal interest among the rank-and-file
employees of the three companies based on the finding that they were
constantly rotated to all three companies, and that they performed the
same or similar duties whenever rotated.57 Therefore, aside from
geographical location, their employment status and working conditions
were so substantially similar as to justify a conclusion that they shared a
community of interest. This finding is consistent with the policy in favor of
a single-employer unit, unless the circumstances require otherwise.58 The
more solid the employees are, the stronger is their bargaining capacity. 59
As correctly observed by the CA and DOLE, while there is no prohibition
on the mere act of engaging in a work-pooling scheme as sister
companies, that act will not be tolerated, and the sister companies'
separate juridical personalities will be disregarded, if they use that
scheme to defeat the workers' right to collective bargaining. The
employees' right to collectively bargain with their employers is necessary
to promote harmonious labor-management relations in the interest of
sound and stable industrial peace.60
WHEREFORE, the Petition for Review on Certiorari under Rule 45
is DENIED for lack of merit. The Court of Appeals Decision61 and
Resolution62 in CA-G.R. SP No. 109486 are hereby AFFIRMED.
SO ORDERED.
G.R. No. 203770, November 23, 2016
MANUELA AZUCENA MAYOR, Petitioner, v. EDWIN TIU AND
DAMIANA CHARITO MARTY, Respondents.
DECISION
MENDOZA, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court assailing the October 5, 20111 and September 24, 20122
Resolutions of the Court of Appeals (CA) in CA-G.R. SP No. 06256,
which dismissed the petition filed by Remedios Tiu (Remedios) and
Manuela Azucena Mayor (Manuela) for procedural infirmities. The said
CA petition challenged the January 20, 20113 and June 10, 20114 Orders
of the Regional Trial Court, Branch 6, Tacloban City (RTC-Br. 6), in Sp.
Proc. No. 2008-05-30, a case for Probate of Last Will and Testament and
Issuance of Letters of Testamentary.
The Antecedents:
On May 25, 2008, Rosario Guy-Juco Villasin Casilan (Rosario), the widow
of the late Primo Villasin (Primo), passed away and left a holographic Last
Will and Testament,5 wherein she named her sister, Remedios Tiu
(Remedios), and her niece, Manuela Azucena Mayor (Manuela), as
executors. Immediately thereafter, Remedios and Manuela filed a petition
for the probate of Rosario's holographic will 6 with prayer for the issuance
of letters testamentary (probate proceedings). The petition was raffled to
the Regional Trial Court, Branch 9, Tacloban City (RTC-Br. 9) and
docketed as Sp. Proc. No. 2008-05-30. They averred that Rosario left
properties valued at approximately P2.5 million.
On May 29, 2008, respondent Damiana Charito Marty (Marty) claiming to
be the adopted daughter of Rosario, filed a petition for letters of
administration before the RTC, Branch 34, Tacloban City (RTC-Br. 34),
docketed as Sp. Proc. No. 2008-05-32, but it was not given due course
because of the probate proceedings. Per records, this dismissal is subject
of a separate proceeding filed by Marty with the CA Cebu City, docketed
as CA G.R. SP No. 04003.7
On June 12, 2008, in its Order,8 the RTC-Br. 9 found the petition for
probate of will filed by Remedios and Manuela as sufficient in form and
substance and set the case for hearing.
Consequently, Marty filed her Verified Urgent Manifestation and
Motion,9 dated June 23, 2008, stating that Remedios kept the decedent
Rosario a virtual hostage for the past ten (10) years and her family was
financially dependent on her which led to the wastage and disposal of the
properties owned by her and her husband, Primo. Marty averred that until
the alleged will of the decedent could be probated and admitted,
Remedios
and her ten (10) children had no standing to either possess or control the
properties comprising the estate of the Villasins. She prayed for the
probate court to: 1) order an immediate inventory of all the properties
subject of the proceedings; 2) direct the tenants of the estate, namely,
Mercury Drug and Chowking, located at Primrose Hotel, to deposit their
rentals with the court; 3) direct Metrobank, P. Burgos Branch, to freeze
the accounts in the name of Rosario, Primrose Development Corporation
(Primrose) or Remedios; and 4) lock up the Primrose Hotel in order to
preserve the property until final disposition by the court.
On July 8, 2008, Remedios and Manuela filed their
Comment/Opposition10 to the urgent manifestation averring that Marty
was not an adopted child of the Villasins based on a certification issued
by the Office of the Clerk of Court of Tacloban City, attesting that no
record of any adoption proceedings involving Marty existed in their
records. They also argued that the probate court had no jurisdiction over
the properties mistakenly claimed by Marty as part of Rosario's estate
because these properties were actually owned by, and titled in the name
of, Primrose. Anent the prayer to direct the tenants to deposit the rentals
to the probate court, Remedios and Manuela countered that the probate
court had no jurisdiction over properties owned by third persons,
particularly by Primrose, the latter having a separate and distinct
personality from the decedent's estate.
In her Reply,11 dated July 15, 2008, Marty cited an order of the Court of
First Instance of Leyte (CFI Leyte) in SP No. 1239,12 claiming that as
early as March 3, 1981, the veil of corporate entity of Primrose was
pierced on the ground that it was a closed family corporation controlled by
Rosario after Primo's death. Thus, Marty alleged that "piercing" was
proper in the case of Rosario's estate because the incorporation of
Primrose was founded on a fraudulent consideration, having been done in
contemplation of Primo's death.
Further, on July 22, 2008, in her Opposition to the Petition for the
Approval of the Will of the Late Rosario Guy-Juco Villasin
Casilan,13 Marty impugned the authenticity of her holographic will.
Meanwhile, Edwin Tiu (Edwin), a son of Remedios, also filed his
Opposition,14 dated June 13, 2008.
After a protracted exchange of pleadings, the parties submitted their
respective memoranda.
The January 14, 2009 Order
In its January 14, 2009 Order,15 the RTC-Br. 9 granted the motion of
Marty and appointed the OIC Clerk of Court as special administrator of
the Estate. The Probate Court also ordered Mercury Drug and Chowking
to deposit the rental income to the court and Metrobank to freeze the
bank accounts mentioned in the motion of Marty. The doctrine of piercing
the corporate veil was applied in the case considering that Rosario had no
other properties that comprised her estate other than Primrose. According
to the probate court, for the best interest of whoever would be adjudged
as the legal heirs of the Estate, it was best to preserve the properties from
dissipation.
On January 22, 2009, Remedios and Manuela filed their Motion for
Inhibition16 on the ground of their loss of trust and confidence in RTC-Br.
9 Presiding Judge Rogelio C. Sescon (Judge Sescon) to dispense justice.
Later, they also filed their Motion for Reconsideration Ad
Cautelam,17 dated February 3, 2009, arguing that Rosario's estate
consisted only of shares of stock in Primrose and not the corporation itself.
Thus, the probate court could not order the lessees of the corporation to
remit the rentals to the Estate's administrator. With regard to the
appointment of a special administrator, Remedios and Manuela insisted
that it be recalled. They claimed that if ever there was a need to appoint
one, it should be the two of them because it was the desire of the
decedent in the will subject of the probation proceedings.
In its Order,18 dated March 27, 2009, the RTC-Br. 9 denied the motion for
reconsideration for lack of merit and affirmed its January 14, 2009 Order.
The presiding judge, Judge Sescon, also granted the motion for inhibition
and ordered that the records of the case be referred to the RTC Executive
Judge for reraffling. The case was later re-raffled to RTC-Br.6, Judge
Alphinor C. Serrano, presiding judge.
Aggrieved by the denial of their motion for reconsideration, Remedios and
Manuela filed a petition for certiorari with the CA in Cebu City, docketed
as CA-G.R. S.P. No. 04254, assailing the January 14, 2009 and March 27,
2009 Orders of the RTC-Br. 9.19
Ruling of the CA
In its October 16, 2009 Decision,20 the CA reversed the assailed orders of
the RTC Br. 9, except as to the appointment of a special administrator
insofar as this relates to properties specifically belonging to the "Estate."
It held that Primrose had a personality separate and distinct from the
estate of the decedent and that the probate court had no jurisdiction
to apply the doctrine of piercing the corporate veil.
According to the CA, nowhere in the assailed orders of the probate court
was it stated that its determination of the title of the questioned properties
was only for the purpose of determining whether such properties ought to
be included in the inventory. When the probate court applied the doctrine
of "piercing," in effect, it adjudicated with finality the ownership of the
properties in favor of the Estate. The CA stated that RTC-Br. 9 had no
jurisdiction to adjudicate ownership of a property claimed by another
based on adverse title; and that questions like this must be submitted to a
court of general jurisdiction and not to a probate court.
The CA added that assuming that the probate court's determination on
the issue of ownership was merely intended to be provisional, Marty's
contentions still had no merit. The properties, which she claimed to be
part of the estate of Rosario and over which she claimed co-ownership,
comprised of real properties registered under the Torrens system. As
such, Primrose was considered the owner until the titles to those
properties were nullified in an appropriate ordinary action. The CA further
stated that the RTC erroneously relied on the order issued by the CFI
Leyte in 1981, in the probate proceedings involving the estate of Primo.
Whatever determination the CFI made at the time regarding the title of the
properties was merely provisional, hence, not conclusive as to the
ownership.
By reason of the favorable decision by the CA, Remedios and Manuela
filed their Motion to Partially Revoke the Writ of Execution Enforcing the
January 14, 2009 Order of the Honorable Court and Manifestation in
Compliance with the October 21, 2009 Order (Ad Cautelam),21 dated
October 27, 2009.
In its Order,22 dated November 17, 2009, the RTC-Br. 6 partially
granted the motion as it revoked the power of the special administrator to
oversee the day-to-day operations of Primrose. It also revoked the order
with respect to Mercury Drug and Chowking, reasoning out that the said
establishments dealt with Primrose, which had a personality distinct and
separate from the estate of the decedent. In the said order, Atty. Blanche
A. Sa1ino nominated by oppositors Marty and Edwin, was appointed
special administrator to oversee the day-to-day operations of the estate.
The same order also upheld the January 14, 2009 Order, as to the
conduct and inventory of all the properties comprising the estate.
This order was not questioned or appealed by the parties.
Omnibus Motion
On September 24, 2010, or almost ten (10) months after the November
17, 2009 Order of the probate court was issued, Marty, together with her
new counsel, filed her Omnibus Motion,23 praying for the probate court to:
1) order Remedios and Manuela to render an accounting of all the
properties and assets comprising the estate of the decedent; 2) deposit or
consign all rental payments or other passive income derived from the
properties comprising the estate; and 3) prohibit the disbursement of
funds comprising the estate of the decedent without formal motion and
approval by the probate court.
Ruling of the RTC-Br. 6
In its January 20, 2011 Order, the RTC-Br. 6 granted Marty's Omnibus
Motion. Although it agreed with the October 16, 2009 CA Decision
reversing the January 14, 2009 Order of the RTC-Br. 9, nonetheless, it
acknowledged the urgency and necessity of appointing a special
administrator. According to the probate court, considering that there was
clear evidence of a significant decrease of Rosario's shares in the
outstanding capital stock of Primrose, 24 prudence dictated that an inquiry
into the validity of the transfers should be made. A final determination of
this matter would be outside the limited jurisdiction of the probate court,
but it was likewise settled that the power to institute an action for the
recovery of a property claimed to be part of the estate was normally
lodged with the executor or administrator. Thus, the probate court
disposed:
WHEREFORE, for the reasons aforestated, and so
as not to render moot any action that the special
administrator, or the regular administrator upon the
latter's qualification and appointment, may deem
appropriate to take on the matter (i.e. Whether or not
to institute in the name of the estate the appropriate
action for the recovery of the shares of stock), this
Court hereby GRANTS Oppositor Marty's Omnibus
Motion, dated September 24, 2010, and thus hereby:
1. DIRECTS petitioners, either individually or jointly,
to: (a) RENDER AN ACCOUNTING of all the
properties and assets comprising the estate of the
decedent that may have come into their possession;
and, (b) DEPOSIT OR CONSIGN all the rentals
payments or such other passive incomes from the
properties and assets registered in the name of
Primrose Development Corporation, including all
income derived from the Primrose Hotel and the
lease contracts with Mercury Drug and Chowking
Restaurant, both within fifteen (15) days from receipt
of this Order;
2. DIRECTS the Special Administrator to take
possession and charge of the properties comprising
the decedent's estate, specially those pertaining to
the sharesholding of the decedent in Primrose
Development Corporation, to determine whether or
not action for the recovery of the shares of stock
supposedly transferred from the decedent to
petitioners Remedios Tiu, Manuela Azucena Mayor
should be instituted in the name of the estate against
the said transferees and to submit a Report on the
foregoing matters to this Court, within fifteen (15)
days from receipt of this Order; and,
3. ORDERS that no funds comprising the estate of
the decedent shall be disbursed without formal
Motion therefor, with the conformity of the Special
Administrator, duly approved by this Court.
SO
ORDERED. cralawlawlibrary25cralawred [Underscori
ng supplied]
The partial motion for reconsideration of the above order filed by
Remedios and Manuela was denied in the other assailed order of the
RTC-Br. 6, dated June 10, 2011.26
Dissatisfied, Remedios and Manuela availed of the special civil action
of certiorari under Rule 65, and filed a petition before the CA.
Action by the CA
The CA, however, in its October 5, 2011 Resolution, 27 dismissed the
same based on the following infirmities: 1) there was no proper proof of
service of a copy of the petition on the respondents which was sent by
registered mail; 2) petitioners failed to indicate on the petition the material
date when the motion for reconsideration was filed; 3) the copy of the
assailed order was not certified true and correct by the officer having
custody of the original copy; and 4) the serial number of the commission
of the notary public, the province-city where he was commissioned, the 2009 WHICH HAS LONG BECOME FINAL AND
office address of the notary public and the roll of attorney's number were EXECUTORY.28
not properly indicated on the verification and certification of non-forum
shopping. Petitioner Manuela argued that:

Remedios and Manuela moved for reconsideration of the assailed CA
resolution, but to no avail, as the appellate court denied the motion in its
September 24, 2012 Resolution.
1)
Hence, this petition before the Court, filed only by Manuela as Remedios
had also passed away, and anchored on the following
GROUNDS
There was actual compliance with Section 13, Rule 13 of the Rules
of Court. The CA petition was accompanied by a notarized affidavit
of service and filing of registered mail. At the time the petition was
filed, this was the best evidence of the service. The other registry
receipts for the other parties were also attached to the petition.
Further, the available registry return card was furnished the CA in
the motion for reconsideration.29

I.

THE HONORABLE COURT OF

The failure of the petition to comply with the rule on a statement of
APPEALS COMMITTED
2) material dates could be excused because the dates were evident
GROSS AND REVERSIBLE
from the records.30
ERROR IN THE APPLICATION
OF LAW AND THE RULES
WARRANTING REVIEW
WHEN IT MISAPPLIED
SECTION 13, RULE 13 OF THE
RULES OF COURT AND The petitioner went to the RTC of Tacloban to secure certified true
DECLARED THAT THERE copies of the assailed orders. Only the stamped name of the Clerk of
WAS NO PROPER PROOF OF Court, however, appeared thereon, because the particular branch
SERVICE BY REGISTERED 3) had no stamp pad which had the phrase for certification. The branch
MAIL. did not even have a typewriter in order to affix the phrase on the
copies. These inadequacies could not be attributed to the
II. petitioners.31

THE HONORABLE COURT OF APPEALS

COMMITTED GROSS AND REVERSIBLE ERROR
IN THE APPLICATION OF LAW AND THE RULES
WARRANTING REVIEW WHEN IT MISAPPLIED
JURISPRUDENCE AND RULE 65 AND IT HELD
THAT PETITIONER MAYOR DID NOT COMPLY
WITH THE MATERIAL DATE RULE.
The lack of information pertaining to the notary public in the
verification and certification against forum-shopping should not
4)
invalidate the same because, again, it was not attributable to the
parties.32

III.

THE HONORABLE COURT OF APPEALS

COMMITTED GROSS AND REVERSIBLE ERROR Technicalities should never be used to defeat the substantive rights
5)
IN THE APPLICATION OF LAW AND THE RULES of a party.33
WARRANTING REVIEW WHEN IT DECLARED
THAT PETITIONER MAYOR FAILED TO COMPLY
In its January 23, 2013 Resolution34 the Court ordered the respondents to
WITH THE REQUIREMENT OF SECTION 1, RULE
file their respective comments. Marty, in her Comment, insisted that the
65 FOR FAILING TO ATTACH CERTIFIED TRUE
petitioner failed to comply with the procedural requirements as stated by
COPY OF THE ORDER OF THE TRIAL COURT.
the CA.35

IV. In her Reply to Comment,36 petitioner Manuela clarified that the affidavit
of service was executed on August 31, 2011, which was after the petition
was signed by the lawyers and after it was verified by the petitioner
THE HONORABLE COURT OF APPEALS
herself. After contesting Marty's arguments on the alleged procedural
COMMITTED GROSS AND REVERSIBLE ERROR
infirmities of the petitions with the CA and this Court, Manuela asserted
IN THE APPLICATION OF LAW AND THE RULES
that the final and executory October 16, 2009 Decision of the CA already
WARRANTING REVIEW WHEN IT DECLARED
held that Primrose had a personality separate and distinct from the estate
THAT PETITIONER MAYOR DID NOT COMPLY
of decedent Rosario.
WITH THE REQUIREMENT OF VERIFICATION
AND CERTIFICATION AGAINST FORUM
Meanwhile, in his Manifestation,37 dated May 29, 2013, Edwin affirmed
SHOPPING.
that he and Manuela decided to patch up their differences and agreed to
settle amicably. Accordingly, he manifested that he was withdrawing from
V. the case pursuant to their agreement.

On June 18, 2014, Manuela filed her Motion for Issuance of Temporary
THE HONORABLE COURT OF APPEALS
Restraining Order and Writ of Preliminary Injunction38 on the ground that
COMMITTED GROSS AND REVERSIBLE ERROR
a flurry of orders had been issued by the RTC-Br. 6 in the implementation
IN THE APPLICATION OF LAW AND THE RULES
of the assailed January 20, 2011 Order, such as the Order, 39 dated May
WARRANTING REVIEW WHEN IT ALLOWED
27, 2013, wherein the probate court vaguely ordered "the inventory of the
TECHNICALITIES TO BE USED TO DEFEAT
exact extent of the 'decedent's estate.'" Then another order was issued
SUBSTANTIAL RIGHT OF THE PARTIES.
appointing an auditing firm to conduct an inventory/audit of the Estate
including the rentals and earnings derived from the lease of Mercury Drug
VI. and Chowking Restaurant, as tenants of Primrose.40 According to
petitioner Manuela, although an inventory of the assets of the decedent
was proper, the probate court ordered an inventory of the assets of
PETITIONERS HAVE GOOD CAUSE AND A
Primrose, a separate and distinct entity. Manuela asserts that it was
MERITORIOUS CASE AGAINST HEREIN
clearly in error.
RESPONDENTS AS PARAGRAPH 1(B) OF THE
DISPOSITIVE PORTION OF THE FIRST ASSAILED
In her Supplement to the Motion for Issuance of Temporary Restraining
ORDER SHOULD HAVE BEEN REVERSED
Order and Writ of Preliminary Injunction,41 dated June 17, 2013, Manuela
BECAUSE IT OVERTURNS THE DECISION OF
informed the Court that the inventory and accounting of Primrose would
THE COURT OF APPEALS DATED 16 OCTOBER
already commence on June 19, 2013.

Marty filed her Opposition,42 dated July 3, 2013, stating that the petition of
Manuela had been rendered moot and academic as the probate court had
declared her as the sole heir of Rosario and appointed her administrator
of the estate. She argued that an injunctive relief would work injustice to
the estate because of the total assimilation by petitioner of the
shareholdings of the decedent in Primrose and her share in the
corporation's income corresponding to her shareholdings.
Finding that the requisites for preliminary injunctive relief were
present,43 the Court issued the TRO44in favor of Manuela on October 14,
2013. At the outset, the Court was convinced that the rights of Primrose
sought to be protected by the grant of injunctive relief were material and
substantial and the TRO was issued in order to prevent any irreparable
damage to a corporate entity that could arise from the conduct of an
accounting by the court-appointed inventory.
The Court's Ruling
The Court now resolves the subject case by the issuance of a permanent
injunction, as prayed for by petitioner Manuela. This position is supported
by law and jurisprudence, as follows:
First. Artificial persons include (1) a collection or succession of natural
persons forming a corporation; and (2) a collection of property to which
the law attributes the capacity of having rights and duties. This class of
artificial persons is recognized only to a limited extent in our law. Example
is the estate of a bankrupt or deceased person.45 From this
pronouncement, it can be gleaned that the estate of the deceased person
is a juridical person separate and distinct from the person of the decedent
and any other corporation. This status of an estate comes about by
operation of law. This is in consonance with the basic tenet under
corporation law that a corporation has a separate personality distinct from
its stockholders and from other corporations to which it may be
connected.46
Second. The doctrine of piercing the corporate veil has no relevant
application in this case. Under this doctrine, the court looks at the
corporation as a mere collection of individuals or an aggregation of
persons undertaking business as a group, disregarding the separate
juridical personality of the corporation unifying the group. Another
formulation of this doctrine is that when two business enterprises are
owned, conducted and controlled by the same parties, both law and
equity will, when necessary to protect the rights of third parties, disregard
the legal fiction that two corporations are distinct entities and treat them
as identical or as one and the same.47 The purpose behind piercing a
corporation's identity is to remove the barrier between the corporation and
the persons comprising it to thwart the fraudulent and illegal schemes of
those who use the corporate personality as a shield for undertaking
certain proscribed activities.48
Here, instead of holding the decedent's interest in the corporation
separately as a stockholder, the situation was reversed. Instead, the
probate court ordered the lessees of the corporation to remit rentals to the
estate's administrator without taking note of the fact that the decedent
was not the absolute owner of Primrose but only an owner of shares
thereof. Mere ownership by a single stockholder or by another corporation
of all or nearly all of the capital stocks of a corporation is not of itself a
sufficient reason for disregarding the fiction of separate corporate
personalities.49 Moreover, to disregard the separate juridical personality
of a corporation, the wrongdoing cannot be presumed, but must be clearly
and convincingly established.50
Third. A probate court is not without limits in the determination of the
scope of property covered in probate proceedings. In a litany of cases,
the Court had defined the parameters by which a probate court may
extend its probing arms in the determination of the question of title in
probate proceedings. In Pastor, Jr. vs. Court of Appeals,51 the Court
explained that, as a rule, the question of ownership was an extraneous
matter which the probate court could not resolve with finality. Thus, for the
purpose of determining whether a certain property should, or should not,
be included in the inventory of estate properties, the probate court may
pass upon the title thereto, but such determination is provisional, not
conclusive, and is subject to the final decision in a separate action to
resolve title. It is a well-settled rule that a probate court or one in charge of
proceedings, whether testate or intestate, cannot adjudicate or determine
title to properties claimed to be part of the estate but which are equally
claimed to belong to outside parties. It can only determine whether they
should, or should not, be included in the inventory or list of properties to
be overseen by the administrator. If there is no dispute, well and good;
but if there is, then the parties, the administrator and the opposing parties
have to resort to an ordinary action for a final determination of the
conflicting claims of title because the probate court cannot do so.52
In this case, respondent Marty argues that the subject properties and the
parcel of land on which these were erected should be included in the
inventory of Rosario's estate. More so, the arrears from the rental of these
properties were later on ordered to be remitted to the administrator of the
estate grounded on the allegation that Rosario had no other properties
other than her interests in Primrose. To the Court's mind, this holding of
the probate court was in utter disregard of the undisputed fact the subject
land is registered under the Torrens system in the name of Primrose, a
third person who may be prejudiced by the orders of the probate court.
In Valera vs. Inserto:53 the Court stated:
x x x, settled is the rule that a Court of First Instance
(now Regional Trial Court), acting as a probate court,
exercises but limited jurisdiction, and thus has no
power to take cognizance of and determine the issue
of title to property claimed by a third person
adversely to the decedent, unless the claimant and
all the other parties having legal interest in the
property consent, expressly or impliedly, to the
submission of the question to the probate court for
adjudgment, or the interests of third persons are not
thereby prejudiced, the reason for the exception
being that the question of whether or not a particular
matter should be resolved by the Court in the
exercise of its general jurisdiction or of its limited
jurisdiction as a special court (e.g. probate, land
registration, etc.), is in reality not a jurisdictional but
in essence of procedural one, involving a mode of
practice which may be waived.
xxxx
x x x These considerations assume greater
cogency where, as here, the Torrens title to the
property is not in the decedent's names but in
others, a situation on which this Court has
already had occasion to rule.54 [Emphasis and
underscoring supplied]
Thus, the probate court should have recognized the incontestability
accorded to the Torrens title of Primrose over Marty's arguments of
possible dissipation of properties. In fact, in the given setting, even
evidence purporting to support a claim of ownership has to yield to the
incontestability of a Torrens title, until after the same has been set aside
in the manner indicated in the law itself. In other words, the existence of a
Torrens title may not be discounted as a mere incident in special
proceedings for the settlement of the estate of deceased persons. Put
clearly, if a property covered by Torrens title is involved, "the presumptive
conclusiveness of such title should be given due weight, and in the
absence of strong compelling evidence to the contrary, the holder thereof
should be considered as the owner of the property in controversy until his
title is nullified or modified in an appropriate ordinary action, particularly,
when as in the case at bar, possession of the property itself is in the
persons named in the title."55
Additionally, Presidential Decree (P.D.) No. 152956 proscribes a collateral
attack on a Torrens title:
Sec. 48. Certificate not subject to collateral attack. -
A certificate of title shall not be subject to collateral
attack. It cannot be altered, modified or cancelled
except in a direct proceeding in accordance with law.
In Cuizon vs. Ramolete,57 the property subject of the controversy was
duly registered under the Torrens system. To this, Court categorically
stated:
Having been apprised of the fact that the property in
question was in the possession of third parties and
more important, covered by a transfer certificate of
title issued in the name of such third parties, the
respondent court should have denied the motion
of the respondent administrator and excluded the
property in question from the inventory of the
property of the estate. It had no authority to
deprive such third persons of their possession
and ownership of the property.58 x x x [Emphasis
and underscoring supplied]
A perusal of the records of this case would show that that no compelling
evidence was ever presented to substantiate the position of Marty that
Rosario and Primrose were one and the same, justifying the inclusion of
the latter's properties in the inventory of the decedent's properties. This
has remained a vacant assertion. At most, what Rosario owned were
shares of stock in Primrose. In turn, this boldly underscores the fact that
Primrose is a separate and distinct personality from the estate of the
decedent. Inasmuch as the real properties included in the inventory of the
estate of Rosario are in the possession of, and are registered in the name
of, Primrose, Marty's claims are bereft of any logical reason and
conclusion to pierce the veil of corporate fiction.

Fourth. The probate court in this case has not acquired jurisdiction over
Primrose and its properties. Piercing the veil of corporate entity applies to
determination of liability not of jurisdiction; it is basically applied only to
determine established liability. It is not available to confer on the court a
jurisdiction it has not acquired, in the first place, over a party not
impleaded in a case.59 This is so because the doctrine of piercing the veil
of corporate fiction comes to play only during the trial of the case after the
court has already acquired jurisdiction over the corporation. Hence,
before this doctrine can be even applied, based on the evidence
presented, it is imperative that the court must first have jurisdiction over
the corporation.60
Hence, a corporation not impleaded in a suit cannot be subject to the
court's process of piercing the veil of its corporate fiction. Resultantly, any
proceedings taken against the corporation and its properties would
infringe on its right to due process.
In the case at bench, the probate court applied the doctrine of piercing the
corporate veil ratiocinating that Rosario had no other properties that
comprise her estate other than her shares in Primrose. Although the
probate court's intention to protect the decedent's shares of stock in
Primrose from dissipation is laudable, it is still.an error to order the
corporation's tenants to remit their rental payments to the estate of
Rosario.
Considering the above disquisition, the Court holds that a permanent and
final injunction is in order in accordance with Section 9, Rule 58 of the
Rules of Court which provides that "[i]f after the trial of the action it
appears that the applicant is entitled to have the act or acts complained of
permanently enjoined, the court shall grant a final injunction perpetually
restraining the party or person enjoined from the commission or
continuance of the act or acts or confirming the preliminary mandatory
injunction." Undoubtedly, Primrose stands to suffer an irreparable injury
from the subject order of the probate court.
WHEREFORE, the petition is GRANTED. The Temporary Restraining
Order, dated June 14, 2013, is hereby made PERMANENT, effective
immediately. The Regional Trial Court, Branch 6, Tacloban City,
is ENJOINED from enforcing and implementing its January 20, 2011 and
June 10, 2011 Orders, insofar as the corporate properties of Primrose
Development Corporation are concerned, to avert irreparable damage to
a corporate entity, separate and distinct from the Estate of Rosario
Guy-Juco Villasin Casilan.
SO ORDERED.
Reyno C. Dimson vs. Gerry T. Chua
G.R. No. 192318. December 5, 2016
Facts
The instant case filed by the petitioner, representing the other 14
complainants, against the respondent, is an offshoot of the labor case
entitled "Reyno Dimson, et al. v. SEASUMCO, MAC, United Coconut
Planters Bank (UPCB), and Cotabato Sugar Central Co., Inc.
(COSUCECO)." On September 22, 2003, the said labor case for illegal
dismissal with monetary claims was decided in favor of the complainants.
Hence, SEASUMCO and MAC, as well as the members of their board of
directors, were ordered to pay jointly and severally the sum of Three
Million Eight Hundred Twenty-Seven Thousand Four Hundred Seventy
Pesos and Fifty-One Centavos (P3,827,470.51).
The LA's decision became final and executory but the judgment remained
unsatisfied. Consequently, the petitioner filed an Ex-parte Motion for the
issuance of an amended alias writ of execution asking for the inclusion of
the board of directors arid corporate officers of SEASUMCO and MAC to
hold them liable for satisfaction of the said decision.
In an Order dated August 16, 2007, the LA granted the motion; hence, an
amended alias writ of execution was issued which now included the
respondent. Aggrieved, the respondent elevated the matter to the NLRC
by filing a Memorandum of Appeal arguing that he was denied due
process.
In a Resolution dated January 11, 2008, the NLRC dismissed the appeal
for lack of merit and sustained the findings of the LA. The respondent filed
a Motion for Reconsideration, but the NLRC Resolution dated July 31,
2008 denied his motion.
Hence, he filed a petition for certiorari with application for temporary
restraining order (TRO)/preliminary injunction before the CA. He
maintained that the labor tribunals violated his right to due process when
the LA authorized the issuance of the amended alias writ of execution
against him for the corporation's judgment debt, although he has never
been a party to the underlying suit.
Issue
Whether the respondent can be held solidarily liable with the corporation,
of which he was an officer and a stockholder, when he was not served
with summons and was never impleaded as a party to the case.
Ruling
No. Following the explicit language of the NLRC Rules, notices or
summons shall be served on the parties to the case personally. The same
rule allows under special circumstances, that service of summons may be
effected in accordance with the provisions of the Rules of Court. The
service of summons in cases before the LAs shall be served on the
parties personally or by registered mail, provided that in special
circumstances, service of summons ,.nay be effected in accordance with
the pertinent provisions of the Rules of Court.
It is basic that the LA cannot acquire jurisdiction over the person of the
respondent without the latter being served with summons. However, if
there is no valid service of summons, court can still acquire jurisdiction
over the person of the defendant by virtue of the latter's voluntary
appearance. In this case, since the respondent is one of the officers of
SEASUMCO, service of summons must be made to him personally or by
registered mail. However, as borne by the records, it is evident that no
service of summons and notices were served on the respondent and he
was not impleaded in NLRC RAB Case No. 12-01-00005-03. He was
hauled to the case after he reacted to the improper execution of his
properties and was actually dragged to court by mere motion of the
petitioner with whom he has no privity of contract and after the decision in
the main case had already become final and executory.
The Court scanned the records but found nothing to indicate that
summons with respect to the said complaints were ever served upon the
respondent. The petitioner in fact does not even dispute· the respondent's
claim that no summons or notices were ever issued and served on him
either personally or through registered mail. True to his claim, the
respondent, indeed, was never summoned by the LA. Besides, even
assuming that the respondent has knowledge of a labor case against
SEASUMCO, this will not serve the same purpose as summons to him.
More so, the respondent did not voluntarily appear before the LA as to
submit himself to its jurisdiction. Contrary to the petitioner's position, the
validity of a judgment or order of a court or quasi-judicial tribunal which
has become final and executory may be attacked when the records show
that it lacked jurisdiction to render the judgment. For a judgment rendered
against one in a case where jurisdiction over his person was not acquired
is void, and a void judgment maybe assailed or impugned at any time
either directly or collaterally by means of a petition filed in the same or
separate case, or by resisting such judgment in any action or proceeding
wherein it is invoked.
Guided by the foregoing norms, the CA properly concluded that the
proceedings before the LA deprived the respondent of due process.
Considering that the respondent was never impleaded as a party
respondent and was never validly served with summons, the LA never
acquired jurisdiction over his person. Perforce, the proceedings
conducted and the decision rendered are nugatory and without effect.
This utter lack of jurisdiction voids any liability of the respondent for any
monetary award or judgment in favor of the petitioner.
WHEREFORE, the petition is DENIED. The Decision dated August 13,
2009 and Resolution dated April 14, 2010 of the Court of Appeals in
CA-G.R. SP No. 02575-MIN are AFFIRMED.
[G.R. No. 211312. December 5, 2016.]
PEOPLE'S SECURITY, INC. and NESTOR
RACHO, petitioners, vs. JULIUS S. FLORES and
ESTEBAN S. TAPIRU, respondents.
RESOLUTION
REYES, J p:
This is a Petition for Review on Certiorari 1 under Rule 45
of the Rules of Court seeking to annul and set aside the
Decision 2 dated April 25, 2013 and the Resolution 3 dated
February 7, 2014 issued by the Court of Appeals (CA) in CA-G.R.
SP No. 115464. HTcADC
Facts
 Julius S. Flores (Flores) and Esteban S. Tapiru (Tapiru)
(collectively, the respondents) were security guards previously
employed by People'sSecurity, Inc. (PSI). The respondents were
assigned at the various facilities of Philippine Long Distance
Telephone Company (PLDT) pursuant to a securityservices
agreement between PSI and PLDT. On October 1, 2001, however,
PSI's security services agreement with PLDT was terminated and,
accordingly, PSI recalled its security guards assigned to PLDT
including the respondents. 4
On October 8, 2001, the respondents, together with
several other security guards employed by PSI, filed a complaint for
illegal dismissal with the National Labor Relations Commission
(NLRC) against PLDT and PSI, claiming that they are PLDT
employees. The case was raffled to Labor Arbiter (LA) Felipe Pati
(LA Pati) for resolutions. 5
Thereafter, PSI assigned the respondents to the facilities
of its other clients such as the warehouse of a certain Marivic Yulo in
Sta. Ana, Manila and Trinity College's Elementary Department in
Quezon City. 6
On October 22, 2002, LA Pati rendered a Decision
declaring that the respondents and the other complainants therein
were employees of PLDT and are, thus, entitled to be reinstated to
their former assignments. Consequently, however, LA Pati's
decision was set aside by the NLRC, which ruled that the
complainants therein are not employees of PLDT. The NLRC's
disposition was affirmed by the CA and, ultimately, by this
Court. 7 aScITE
Meanwhile, on January 13, 2003, the respondents were
relieved from their respective assignments pursuant to Special
Order No. 20031010 8dated January 10, 2003 issued by Col.
Leonardo L. Aquino, the Operations Manager of
PSI. 9 Accordingly, Flores and Tapiru, on September 6 and 27, 2005,
respectively, filed with the Regional Arbitration Branch of the NLRC
in Quezon City a complaint for illegal dismissal and non-payment of
service incentive leave pay and cash bond, with prayer for
separation pay, against PSI and its President Nestor Racho (Racho)
(collectively, the petitioners). 10
On January 16, 2006, the petitioners filed a Motion to
Dismiss 11 the complaints for illegal dismissal on the ground of
forum shopping. In their comment, 12 the respondents denied that
they are guilty of forum shopping. They pointed out that the illegal
dismissal complaint that they previously filed against PLDT and PSI
is a separate case since it involves their removal from their
respective assignments on account of the termination of
thesecurity services agreement between PSI and PLDT. 13
On May 21, 2006, the LA issued an Order, 14 dismissing
the respondents' complaints on the ground of forum shopping.
However, upon reconsideration, it was subsequently reversed by the
NLRC in its Decision dated March 26, 2008. The case was then
remanded to the LA for further proceedings. 15 DETACa
On October 22, 2008, the LA directed the parties to submit
their respective position papers within an unextendible period of 10
days from receipt of the Order. 16
In their position paper, 17 the respondents claimed that,
after they were relieved from their assignment in the warehouse in
Sta. Ana, Manila on January 13, 2003, they repeatedly reported to
PSI's office for possible assignment, but the latter refused to give
them any assignment. 18
On the other hand, the petitioners, in their position
paper, 19 claimed that the respondents were merely relieved from
their assignment in the warehouse in Sta. Ana, Manila and that the
same was on account of their performance evaluation, which
indicated that they were ill-suited for the said assignment. They
likewise averred that while the respondents vacated their post
pursuant to Special Order No. 20031010, the latter refused to
acknowledge receipt of the same. The petitioners claimed that the
respondents, after vacating their posts in the warehouse in Sta. Ana,
Manila, no longer reported to PSI's premises for their next
assignment. 20
The petitioners pointed out that the respondents' relief
from their last assignment was an exercise of PSI's management
prerogative to transfer its employees in accordance with the
requirements of its business. 21 They also claimed that the
respondents, in failing to report to PSI's premises after being
relieved from their previous assignment, had abandoned and
effectively resigned from their employment. 22 HEITAD
On January 30, 2009, the LA rendered a
Decision 23 finding that the respondents were illegally dismissed
from their employment and, thus, directing the petitioners jointly and
severally liable to pay the former separation pay and backwages.
The LA dismissed the petitioners' defense of abandonment, ruling
that the records do not bear any credible evidence that would
warrant such a finding. 24
On appeal, the NLRC, in its Decision 25 dated April 14,
2010, reversed the LA Decision dated January 30, 2009. The NLRC,
in finding for the petitioners, opined that:
Undisputed here in this case is the
fact that when [the respondents] were relieved
from their posts on January 13, 2003, they
sought employment from
other security agencies.
Complainant Flores contracted regular
employment with Multimodal Security and
Investigation Agency, on May 2003, while
complainant Tapiru also contracted
employment with Pacific World Security and
Investigation Agency on July 2003, as indicated
by their SSS records.
All of the foregoing evidences [sic]
considered, coupled by their overt acts of filing
an illegal dismissal case against [the petitioners]
only after they lost their case against PLDT in
the Supreme Court, finding work with
another security agency when the six months
floating periods have not yet lapsed, and asking
only for separation pay after three years from
their alleged dismissal from employment, are
proofs that [the respondents] herein were the
ones who severed the employer-employee
relationship with [PSI]. 26
The respondents sought a reconsideration 27 of the
Decision dated April 14, 2010, but it was denied by the NLRC in its
Resolution 28 dated June 15, 2010. Aggrieved, the respondents
filed a petition for certiorari 29 with the CA, maintaining that they
were illegally dismissed from their employment and that the
petitioners failed to substantiate their defense of abandonment.
On April 25, 2013, the CA rendered the herein assailed
Decision, 30 reversing the NLRC's Decision dated April 14, 2010
and Resolution dated June 15, 2010. In finding that the respondents
were illegally dismissed, the CA found that the petitioners failed to
prove that the respondents had abandoned their work and that their
defense of abandonment was negated by the filing of a case for
illegal dismissal. 31 The CA likewise opined that the petitioners
failed to prove that it sent the respondents a written notice asking
them to explain their supposed failure to report to work as required
under Book V, Rule XIV, Sections 2 and 5 of the Implementing
Rules of the Labor Code. 32
The petitioners sought reconsideration 33 of the CA's
Decision dated April 25, 2013, but it was denied by the CA in its
Resolution 34 dated February 7, 2014.
In this petition for review on certiorari, the petitioners claim
that the CA committed reversible error in ruling that the respondents
were illegally dismissed from their employment. They maintain that
PSI never terminated the respondents' employment. On the contrary,
they claim that the respondents freely and voluntarily resigned from
their employment. 35 They also claim that the CA erred when it ruled
that they should be held jointly and solidarily liable to pay the
respondents separation pay and backwages considering that there
was absolutely no allegation or proof of participation, bad faith, or
malice on the part of Racho in dealing with the respondents. 36
Issues
Essentially, the issues for the Court's resolution are: first,
whether the respondents were illegally dismissed; and second,
whether Racho is jointly and solidarily liable with PSI for the payment
of the monetary awards to the respondents.
Ruling of the Court
The petition is denied.
As a rule, employment cannot be terminated by an
employer without any just or authorized cause. No less than
the 1987 Constitution in Section 3, Article 13 guarantees security of
tenure for workers and because of this, an employee may only be
terminated for just or authorized causes that must comply with the
due process requirements mandated by law. Hence, employers are
barred from arbitrarily removing their workers whenever and
however they want. The law sets the valid grounds for termination as
well as the proper procedure to take when terminating the services
of an employee. 37
There is no merit to the petitioners' claim that the
respondents were not dismissed, but merely relieved from their
respective assignments. While it is true that Special Order No.
20031010, 38 which the petitioners issued to the respondents on
January 13, 2003, indicated that the latter were merely relieved from
the warehouse in Sta. Ana, Manila, such fact alone would not negate
the respondents' claim of illegal dismissal. Indeed, the respondents
pointed out that after they were relieved from their previous
assignment, the petitioners refused to provide them with new
assignments. ETHIDa
It should be stressed that in termination cases, the burden
of proving that the dismissal of the employees was for a valid and
authorized cause rests on the employer. It is incumbent upon the
employer to show by substantial evidence that the dismissal of the
employee was validly made and failure to discharge that duty would
mean that the dismissal is not justified and therefore illegal. 39
Accordingly, the burden of proof to show that the
respondents' dismissal from employment was for a just cause falls
on PSI as employer. PSI cannot discharge this burden by merely
alleging that it did not dismiss the respondents. It would also be the
height of absurdity if PSI would be allowed to escape liability by
claiming that the respondents abandoned their work. Considering
that there is no showing of a clear, valid and legal cause for the
termination of employment, the law considers it a case of illegal
dismissal.
Further, as aptly ruled by the CA, the petitioners miserably
failed to prove that the respondents abandoned their work.
Abandonment is a matter of intention and cannot lightly be inferred
or legally presumed from certain equivocal acts. For abandonment
to exist, two requisites must concur: first, the employee must have
failed to report for work or must have been absent without valid or
justifiable reason; and second, there must have been a clear
intention on the part of the employee to sever the
employer-employee relationship as manifested by some overt
acts. 40
The Court is not convinced that the respondents failed to
report for work or have been absent without valid or justifiable cause.
After the petitioners relieved them from their previous assignment in
Sta. Ana, Manila, the respondents were no longer given any
assignment. Indeed, the petitioners failed to show that new
assignments were given to the respondents and that the latter were
informed of the same. As regards the second requisite, suffice it to
state that the respondents' act of filing a complaint for illegal
dismissal against the petitioners negates any intention on their part
to sever the employer-employee relationship. 41
Moreover, considering the hard times in which we are in, it
is incongruous for the respondents to simply abandon their
employment after being relieved from their previous assignment. No
employee would recklessly abandon his job knowing fully well the
acute unemployment problem and the difficulty of looking for a
means of livelihood nowadays. 42
within which to institute the complaint. This is based on Article 1146
of the New Civil Code which states that actions based upon an injury
to the rights of the plaintiff must be brought within four years. The
four-year prescriptive period shall commence to run only upon the
accrual of a cause of action of the worker. 44 The respondents were
dismissed on January 13, 2003. They filed their respective
complaints for illegal dismissal in September 2005. Clearly, then, the
complaints for illegal dismissal were filed within the prescriptive
period.
Anent, the propriety of holding Racho, PSI's President,
jointly and solidarily liable with PSI for the payment of the money
awards in favor of the respondents, the Court finds for the
petitioners.
A corporation has a personality separate and distinct from
its directors, officers, or owners. Nevertheless, in exceptional cases,
courts find it proper to breach this corporate personality in order to
make directors, officers, or owners solidarily liable for the
companies' acts. Thus, under Section 31 of the Corporation Code of
the Philippines, "[d]irectors or trustees who willfully and knowingly
vote for or assent to patently unlawful acts of the corporation or who
are guilty of gross negligence or bad faith in directing the affairs of
the corporation or acquire any personal or pecuniary interest in
conflict with their duty as such directors, or trustees, shall be liable
jointly and severally for all damages resulting therefrom suffered by
the corporation, its stockholders or members and other persons."
The doctrine of piercing the corporate veil applies only
when the corporate fiction is used to defeat public convenience,
justify wrong, protect fraud, or defend crime. In the absence of
malice, bad faith, or a specific provision of law making a corporate
officer liable, such corporate officer cannot be made personally liable
for corporate liabilities. 45
The respondents failed to adduce any evidence to prove
that Racho, as President and General Manager of PSI, is hiding
behind the veil of corporate fiction to defeat public convenience,
justify wrong, protect fraud, or defend crime. Thus, it is only PSI who
is responsible for the respondents' illegal dismissal.
WHEREFORE, in view of the foregoing disquisitions, the
petition for review on certiorari is hereby DENIED. The Decision
dated April 25, 2013 and Resolution dated February 7, 2014 of the
Court of Appeals in CA-G.R. SP No. 115464 and the Decision dated
January 30, 2009 of the Labor Arbiter areAFFIRMED with
MODIFICATION in that petitioner Nestor Racho is held not solidarily
liable with petitioner People's Security, Inc. for the payment of the
monetary awards in favor of respondents Julius S. Flores and
Esteban S. Tapiru.
SO ORDERED. AaCTcI
||| (People's Security, Inc. v. Flores, G.R. No. 211312 (Resolution),
[December 5, 2016])

What is more, PSI did not afford the respondents due

process. The validity of the dismissal of an employee hinges not only
on the fact that the dismissal was for a just or authorized cause, but
also on the very manner of the dismissal itself. It is elementary that
the termination of an employee must be effected in accordance with
law. It is required that the employer furnish the employee with two
written notices: (1) a written notice served on the employee
specifying the ground or grounds for termination, and giving to said
employee reasonable opportunity within which to explain his side;
and (2) a written notice of termination served on the employee
indicating that upon due consideration of all the circumstances,
grounds have been established to justify his termination. 43
Beyond dispute is the fact that no written notice was sent
by PSI informing the respondents that they had been terminated due
to abandonment of work. This failure on the part of PSI to comply
with the twin-notice requirement, indeed, placed the legality of the
dismissal in question, at the very least, doubtful, rendering the
dismissal illegal.
The petitioners' further claim that the respondents' belated
filing of the complaint of illegal dismissal, almost three years since
the time of the dismissal, negated the allegation of illegal dismissal
and, on the contrary, showed that the respondents intended to
abandon their employment. The foregoing assertion is
untenable. AIDSTE
In illegal dismissal cases, the employee concerned is
given a period of four years from the time of his illegal dismissal