G.R. No.

108734 May 29, 1996

CONCEPT
BUILDERS,
INC., petitioner,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, (First
Division); and Norberto Marabe; Rodolfo Raquel, Cristobal
Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar,
Norberto Comendador, Rogelio Salut, Emilio Garcia, Jr., Mariano
Rio, Paulina Basea, Alfredo Albera, Paquito Salut, Domingo
Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana,
Gavino Sualibio, Moreno Escares, Ferdinand Torres, Felipe
Basilan, and Ruben Robalos, respondents.

HERMOSISIMA, JR., J.:p

The corporate mask may be lifted and the corporate veil may be
pierced when a corporation is just but the alter ego of a person or of
another corporation. Where badges of fraud exist; where public
convenience is defeated; where a wrong is sought to be justified
thereby, the corporate fiction or the notion of legal entity should come
to naught. The law in these instances will regard the corporation as a
mere association of persons and, in case of two corporations, merge
them into one.
Thus, where a sister corporation is used as a shield to evade a
corporation's subsidiary liability for damages, the corporation may not
be heard to say that it has a personality separate and distinct from the
other corporation. The piercing of the corporate veil comes into play.
This special civil action ostensibly raises the question of whether the
National Labor Relations Commission committed grave abuse of
discretion when it issued a "break-open order" to the sheriff to be

enforced against personal property found in the premises of petitioner's

sister company.
Petitioner Concept Builders, Inc., a domestic corporation, with
principal office at 355 Maysan Road, Valenzuela, Metro Manila, is
engaged in the construction business. Private respondents were
employed by said company as laborers, carpenters and riggers.
On November, 1981, private respondents were served individual
written notices of termination of employment by petitioner, effective
on November 30, 1981. It was stated in the individual notices that their
contracts of employment had expired and the project in which they
were hired had been completed.
Public respondent found it to be, the fact, however, that at the time of
the termination of private respondent's employment, the project in
which they were hired had not yet been finished and completed.
Petitioner had to engage the services of sub-contractors whose workers
performed the functions of private respondents.
Aggrieved, private respondents filed a complaint for illegal dismissal,
unfair labor practice and non-payment of their legal holiday pay,
overtime pay and thirteenth-month pay against petitioner.
On December 19, 1984, the Labor Arbiter rendered
judgment 1 ordering petitioner to reinstate private respondents and to
pay them back wages equivalent to one year or three hundred working
days.
On November 27, 1985, the National Labor Relations Commission
(NLRC) dismissed the motion for reconsideration filed by petitioner
on the ground that the said decision had already become final and
executory. 2

On October 16, 1986, the NLRC Research and Information

Department made the finding that private respondents' back wages
amounted to P199,800.00. 3
On October 29, 1986, the Labor Arbiter issued a writ of execution
directing the sheriff to execute the Decision, dated December 19, 1984.
The writ was partially satisfied through garnishment of sums from
petitioner's debtor, the Metropolitan Waterworks and Sewerage
Authority, in the amount of P81,385.34. Said amount was turned over
to the cashier of the NLRC.
On February 1, 1989, an Alias Writ of Execution was issued by the
Labor Arbiter directing the sheriff to collect from herein petitioner the
sum of P117,414.76, representing the balance of the judgment award,
and to reinstate private respondents to their former positions.
On July 13, 1989, the sheriff issued a report stating that he tried to
serve the alias writ of execution on petitioner through the security
guard on duty but the service was refused on the ground that petitioner
no longer occupied the premises.
On September 26, 1986, upon motion of private respondents, the
Labor Arbiter issued a second alias writ of execution.
The said writ had not been enforced by the special sheriff because, as
stated in his progress report, dated November 2, 1989:
1. All the employees inside petitioner's premises at 355 Maysan Road,
Valenzuela, Metro Manila, claimed that they were employees of Hydro
Pipes Philippines, Inc. (HPPI) and not by respondent;

The said special sheriff recommended that a "break-open order" be

issued to enable him to enter petitioner's premises so that he could
proceed with the public auction sale of the aforesaid personal
properties on November 7, 1989.
On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party
claim with the Labor Arbiter alleging that the properties sought to be
levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI)
of which he is the Vice-President.
On November 23, 1989, private respondents filed a "Motion for
Issuance of a Break-Open Order," alleging that HPPI and petitioner
corporation were owned by the same incorporator/stockholders. They
also alleged that petitioner temporarily suspended its business
operations in order to evade its legal obligations to them and that
private respondents were willing to post an indemnity bond to answer
for any damages which petitioner and HPPI may suffer because of the
issuance of the break-open order.
In support of their claim against HPPI, private respondents presented
duly certified copies of the General Informations Sheet, dated May 15,
1987, submitted by petitioner to the Securities Exchange Commission
(SEC) and the General Information Sheet, dated May 25, 1987,
submitted by HPPI to the Securities and Exchange Commission.
The General Information Sheet submitted by the petitioner revealed
the following:
1. Breakdown of Subscribed Capital
Name of Stockholder Amount Subscribed

2. Levy was made upon personal properties he found in the premises;

HPPI P 6,999,500.00
3. Security guards with high-powered guns prevented him from
removing the properties he had levied upon. 4

Antonio W. Lim 2,900,000.00

Dennis S. Cuyegkeng 300.00

On the other hand, the General Information Sheet of HPPI revealed the
following:

Elisa C. Lim 100,000.00

1. Breakdown of Subscribed Capital
Teodulo R. Dino 100.00
Virgilio O. Casino 100.00
2. Board of Directors

Name
of
Subscribed

Stockholder

Antonio W. Lim P 400,000.00

Antonio W. Lim Chairman

Elisa C. Lim 57,700.00

Dennis S. Cuyegkeng Member

AWL Trading 455,000.00

Elisa C. Lim Member

Dennis S. Cuyegkeng 40,100.00

Teodulo R. Dino Member

Teodulo R. Dino 100.00

Virgilio O. Casino Member

Virgilio O. Casino 100.00

3. Corporate Officers

2. Board of Directors

Antonio W. Lim President

Antonio W. Lim Chairman

Dennis S. Cuyegkeng Assistant to the

President

Elisa C. Lim Member

Dennis S. Cuyegkeng Member

Elisa O. Lim Treasurer

Virgilio O. Casino Member
Virgilio O. Casino Corporate Secretary
Teodulo R. Dino Member
4. Principal Office
3. Corporate Officers
355 Maysan Road
Antonio W. Lim President
Valenzuela, Metro Manila. 5

Amount

Dennis S. Cuyegkeng Assistant to the

President
Elisa C. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road, Valenzuela, Metro
Manila. 6
On February 1, 1990, HPPI filed an Opposition to private respondents'
motion for issuance of a break-open order, contending that HPPI is a
corporation which is separate and distinct from petitioner. HPPI also
alleged that the two corporations are engaged in two different kinds of
businesses, i.e., HPPI is a manufacturing firm while petitioner was
then engaged in construction.
On March 2, 1990, the Labor Arbiter issued an Order which denied
private respondents' motion for break-open order.
Private respondents then appealed to the NLRC. On April 23, 1992,
the NLRC set aside the order of the Labor Arbiter, issued a break-open
order and directed private respondents to file a bond. Thereafter, it
directed the sheriff to proceed with the auction sale of the properties
already levied upon. It dismissed the third-party claim for lack of
merit.
Petitioner moved for reconsideration but the motion was denied by the
NLRC in a Resolution, dated December 3, 1992.
Hence, the resort to the present petition.

Petitioner alleges that the NLRC committed grave abuse of discretion

when it ordered the execution of its decision despite a third-party
claim on the levied property. Petitioner further contends, that the
doctrine of piercing the corporate veil should not have been applied, in
this case, in the absence of any showing that it created HPPI in order
to evade its liability to private respondents. It also contends that HPPI
is engaged in the manufacture and sale of steel, concrete and iron
pipes, a business which is distinct and separate from petitioner's
construction business. Hence, it is of no consequence that petitioner
and HPPI shared the same premises, the same President and the same
set of officers and subscribers. 7
We find petitioner's contention to be unmeritorious.
It is a fundamental principle of corporation law that a corporation is an
entity separate and distinct from its stockholders and from other
corporations to which it may be connected. 8 But, this separate and
distinct personality of a corporation is merely a fiction created by law
for convenience and to promote justice. 9 So, when the notion of
separate juridical personality is used to defeat public convenience,
justify wrong, protect fraud or defend crime, or is used as a device to
defeat the labor laws, 10 this separate personality of the corporation
may be disregarded or the veil of corporate fiction pierced. 11 This is
true likewise when the corporation is merely an adjunct, a business
conduit or an alter ego of another corporation. 12
The conditions under which the juridical entity may be disregarded
vary according to the peculiar facts and circumstances of each case.
No hard and fast rule can be accurately laid down, but certainly, there
are some probative factors of identity that will justify the application
of the doctrine of piercing the corporate veil, to wit:
1. Stock ownership by one or common ownership of
both corporations.

2. Identity of directors and officers.

3. The manner of keeping corporate books and records.
4. Methods of conducting the business. 13
The SEC en banc explained the "instrumentality rule" which the courts
have applied in disregarding the separate juridical personality of
corporations as follows:
Where one corporation is so organized and controlled
and its affairs are conducted so that it is, in fact, a mere
instrumentality or adjunct of the other, the fiction of the
corporate entity of the "instrumentality" may be
disregarded. The control necessary to invoke the rule is
not majority or even complete stock control but such
domination of instances, policies and practices that the
controlled corporation has, so to speak, no separate
mind, will or existence of its own, and is but a conduit
for its principal. It must be kept in mind that the control
must be shown to have been exercised at the time the
acts complained of took place. Moreover, the control
and breach of duty must proximately cause the injury or
unjust loss for which the complaint is made.
The test in determining the applicability of the doctrine of piercing the
veil of corporate fiction is as follows:
1. Control, not mere majority or complete stock control,
but complete domination, not only of finances but of
policy and business practice in respect to the transaction
attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or
existence of its own;

2. Such control must have been used by the defendant

to commit fraud or wrong, to perpetuate the violation of
a statutory or other positive legal duty or dishonest and
unjust act in contravention of plaintiff's legal rights; and
3. The aforesaid control and breach of duty must
proximately cause the injury or unjust loss complained
of.
The absence of any one of these elements prevents
"piercing the corporate veil." In applying the
"instrumentality" or "alter ego" doctrine, the courts are
concerned with reality and not form, with how the
corporation operated and the individual defendant's
relationship to that operation. 14
Thus the question of whether a corporation is a mere alter ego, a mere
sheet or paper corporation, a sham or a subterfuge is purely one of
fact. 15
In this case, the NLRC noted that, while petitioner claimed that it
ceased its business operations on April 29, 1986, it filed an
Information Sheet with the Securities and Exchange Commission on
May 15, 1987, stating that its office address is at 355 Maysan Road,
Valenzuela, Metro Manila. On the other hand, HPPI, the third-party
claimant, submitted on the same day, a similar information sheet
stating that its office address is at 355 Maysan Road, Valenzuela,
Metro Manila.
Furthermore, the NLRC stated that:
Both information sheets were filed by the same Virgilio
O. Casio as the corporate secretary of both
corporations. It would also not be amiss to note that

both
corporations
had
the same president,
thesame board of directors, the same corporate officers,
and substantially the same subscribers.
From the foregoing, it appears that, among other things,
the respondent (herein petitioner) and the third-party
claimant shared the same address and/or premises.
Under this circumstances, (sic) it cannot be said that the
property levied upon by the sheriff were not of
respondents. 16
Clearly, petitioner ceased its business operations in order to evade the
payment to private respondents of back wages and to bar their
reinstatement to their former positions. HPPI is obviously a business
conduit of petitioner corporation and its emergence was skillfully
orchestrated to avoid the financial liability that already attached to
petitioner corporation.
The facts in this case are analogous to Claparols v. Court of Industrial
Relations, 17 where we had the occasion to rule:
Respondent court's findings that indeed the Claparols
Steel and Nail Plant, which ceased operation of June
30, 1957, was SUCCEEDED by the Claparols Steel
Corporation effective the next day, July 1, 1957, up to
December 7, 1962, when the latter finally ceased to
operate, were not disputed by petitioner. It is very clear
that the latter corporation was a continuation and
successor of the first entity . . . . Both predecessors and
successor were owned and controlled by petitioner
Eduardo Claparols and there was no break in the
succession and continuity of the same business. This
"avoiding-the-liability" scheme is very patent,
considering that 90% of the subscribed shares of stock

of the Claparols Steel Corporation (the second

corporation) was owned by respondent . . . Claparols
himself, and all the assets of the dissolved Claparols
Steel and Nail plant were turned over to the emerging
Claparols Steel Corporation.
It is very obvious that the second corporation seeks the
protective shield of a corporate fiction whose veil in the
present case could, and should, be pierced as it was
deliberately and maliciously designed to evade its
financial obligation to its employees.
In view of the failure of the sheriff, in the case at bar, to effect a levy
upon the property subject of the execution, private respondents had no
other recourse but to apply for a break-open order after the third-party
claim of HPPI was dismissed for lack of merit by the NLRC. This is in
consonance with Section 3, Rule VII of the NLRC Manual of
Execution of Judgment which provides that:
Should the losing party, his agent or representative,
refuse or prohibit the Sheriff or his representative entry
to the place where the property subject of execution is
located or kept, the judgment creditor may apply to the
Commission or Labor Arbiter concerned for a breakopen order.
Furthermore, our perusal of the records shows that the twin
requirements of due notice and hearing were complied with. Petitioner
and the third-party claimant were given the opportunity to submit
evidence in support of their claim.
Hence, the NLRC did not commit any grave abuse of discretion when
it affirmed the break-open order issued by the Labor Arbiter.

Finally, we do not find any reason to disturb the rule that factual
findings of quasi-judicial agencies supported by substantial evidence
are binding on this Court and are entitled to great respect, in the
absence of showing of grave abuse of a discretion. 18
WHEREFORE, the petition is DISMISSED and the assailed
resolutions of the NLRC, dated April 23, 1992 and December 3, 1992,
are AFFIRMED.
SO ORDERED.
Republic
SUPREME
Manila

of

the

Philippines
COURT

SECOND DIVISION
G.R. No. 147993

July 21, 2006

ENRIQUEZ
SECURITY
SERVICES,
vs.
VICTOR A. CABOTAJE, respondent.

INC., petitioner,

DECISION
CORONA, J.:
Sometime in January 1979, respondent Victor A. Cabotaje was
employed as a security guard by Enriquez Security and Investigation
Agency (ESIA). On November 13, 1985, petitioner Enriquez Security
Services, Inc. (ESSI) was incorporated. Respondent continued to work
as security guard in petitioners agency.
On reaching the age of 60 in July 1997,1 respondent applied for
retirement.

Petitioner acknowledged that respondent was entitled to retirement

benefits but opposed his claim that the computation of such benefits
must be reckoned from January 1979 when he started working for
ESIA. It claimed that the benefits must be computed only from
November 13, 1985 when ESSI was incorporated.
Respondent consequently filed a complaint in the National Labor
Relations Commission (NLRC) seeking the payment of retirement
benefits under Republic Act No. (RA) 7641, otherwise known as the
Retirement Pay Law.2
On January 15, 1999, labor arbiter Eduardo Carpio decided in
respondents favor:
Complainant is entitled to retirement pay. This entitlement was
not denied by respondents. xxx The computation of this
benefits shall cover the entire period of his employment from
January 1979 up to July 16, 1997 based on his latest monthly
salary of P5,383.15 per the payroll sheet submitted by
respondents. While respondents claim that respondent
corporation was merely registered with the DOTC on
November 13, 1985, they did not deny however that
complainant was an employee of the then Enriquez Security
and Investigation Agency, and that complainants services with
the said security agency up to the present respondent
corporation was uninterrupted. The obligation of the new
company involves not only to absorb the workers of the
dissolved company, but also to include the length of service
earned by the absorbed employee with their former employer
as well. To rule otherwise would be manifestly less than fair,
certainly less than just and equitable.
xxx

xxx

xxx

WHEREFORE, judgment is hereby rendered ordering

respondents to pay complainant the grand total amount
of P228,581.00 representing his retirement benefits and other
money claims.
SO ORDERED.

On appeal, the NLRC set aside the labor arbiters award of one-month
salary for every year of service for being excessive. It ruled that under
RA 7641, respondent Cabotaje was entitled to retirement pay
equivalent only to one-half month salary for every year of service.
Thus:
WHEREFORE, the assailed decision is hereby set aside and a
new one entered ordering respondents to pay complainant the
amount of P76,710.60 representing his retirement benefits.
SO ORDERED.4
On March 15, 2000, the NLRC denied petitioners motion for
reconsideration.5

2. [w]hether the whole 5 days service incentive leave or just a

portion thereof equivalent to 1/12 should be included in the
month salary for purposes of computing the retirement pay.
3. [w]hether or not the length of service of a retired employee
in a dissolved company (his former employer) should be
included in his length of service with his last employer for
purposes of computing the retirement pay.10
We find no merit in the petition.
First. Petitioners contention that RA 7641 cannot be applied
retroactively has long been settled in the Guidelines for Effective
Implementation of RA 7641 issued on October 24, 1996 by the
Department of Labor and Employment. Paragraph B of the guidelines
provides:
In reckoning the length of service, the period of employment
with the same employer before the effectivity date of the law
on January 7, 1993 should be included.
Thus, in Rufina Patis Factory v. Lucas, Sr.,11 we held:

On May 25, 2000, petitioner filed a special civil action for

certiorari6 with the Court of Appeals.
On September 26, 2000, the appellate court affirmed the NLRC
decision.7 It also denied the motion for reconsideration on May 8,
2001.8
Hence, this petition for review on certiorari9 on the following issues:
1. [w]hether or not the Retirement [Pay] Law has retroactive
effect.

RA 7641 is undoubtedly a social legislation. The law has been

enacted as a labor protection measure and as a curative statute
that absent a retirement plan devised by, an agreement with,
or a voluntary grant from, an employer can respond, in part at
least, to the financial well-being of workers during their
twilight years soon following their life of labor. There should
be little doubt about the fact that the law can apply to labor
contracts still existing at the time the statute has taken
effect, and that its benefits can be reckoned not only from
the date of the laws enactment but retroactively to the time
said employment contracts have started. (emphasis ours)

Second. Petitioners insistence that only 1/12 of the service incentive

leave (SIL) should be included in the computation of the retirement
benefit has no basis. Section 1, RA 7641 provides:
x x x Unless the parties provide for broader inclusions, the term
one-half (1/2) month salary shall mean fifteen (15) days plus
one-twelfth (1/12) of the 13th month pay and the cash
equivalent of not more than five (5) days of service incentive
leave. x x x
Section 5.2, Rule II of the Implementing Rules of Book VI of the
Labor Code further clarifies what comprises the "1/2 month salary"
due a retiring employee:
5.2 Components of One-half (1/2) Month Salary. For the
purpose of determining the minimum retirement pay due an
employee under this Rule, the term "one-half month salary"
shall include all the following:
(a) Fifteen (15) days salary of the employee based on his latest
salary rate. x x x;
(b) The cash equivalent of not more than five (5) days of
service incentive leave;
(c) One-twelfth of the 13th month pay due an employee;
(d) All other benefits that the employer and employee may
agree upon that should be included in the computation of the
employees retirement pay.
The foregoing rules are clear that the whole 5 days of SIL are included
in the computation of a retiring employees pay.

Third. It is a well-entrenched doctrine that the Supreme Court does not

pass upon questions of fact in an appeal by certiorari under Rule
45.12 It is not our function to assess and evaluate the evidence all over
again13 where the findings of the quasi-judicial agency and the
appellate court on the matter coincide.
The consistent rulings of the labor arbiter, the NLRC and the appellate
court should be respected and petitioners veil of corporate fiction
should likewise be pierced. These are based on the following
uncontroverted facts: (1) respondent worked with ESIA and petitioner
ESSI; (2) his employment with both security agencies was continuous
and uninterrupted; (3) both agencies were owned by the Enriquez
family and (4) petitioner ESSI maintained its office in the same place
where ESIA previously held office.14
The attempt to make the security agencies appear as two separate
entities, when in reality they were but one, was a devise to defeat the
law and should not be permitted. Although respect for corporate
personality is the general rule, there are exceptions. In appropriate
cases, the veil of corporate fiction may be pierced as when it is used as
a means to perpetrate a social injustice or as a vehicle to evade
obligations. Petitioner was thus correctly ordered to pay respondents
retirement under RA 7641, computed from January 1979 up to the time
he applied for retirement in July 1997.
WHEREFORE, the petition is hereby DENIED. Theassailed decision
and resolution of the Court of Appeals areAFFIRMED.
Costs against petitioner.
SO ORDERED.

Republic
SUPREME
Manila

of

the

Philippines
COURT

FIRST DIVISION
G.R. No. 116781 September 5, 1997
TOMAS LAO CONSTRUCTION, LVM CONSTRUCTION
CORPORATION, THOMAS and JAMES DEVELOPERS
(PHIL.),
INC., petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, MARIO O.
LABENDIA, SR., ROBERTO LABENDIA, NARCISO ADAN,
FLORENCIO
GOMEZ,
ERNESTO
BAGATSOLON,
SALVADOR BABON, PATERNO BISNAR, CIRPRIANO
BERNALES, ANGEL MABUHAY, SR., LEO SURIGAO, and
ROQUE MORILLO, respondents.

BELLOSILLO, J.:
From October to December 1990 private respondents individually filed
complaints for illegal dismissal against petitioners with the National
Labor Relations Commission Regional Arbitration Branch No. VIII
(NLRC RAB VIII), Tacloban City. Alleging that they were hired for
various periods as construction workers in different capacities they
described their contractual terms as follows: (a) Roberto Labendia,
general construction foreman, from 1971 to 17 October 1990 at
P3,700/month; (b) Narciso Adan, tireman, from October 1981 to
November 1990 at P75.00/day; (c) Florencio Gomez, welder, from
July 1983 to July 1990 at P260.00/day; (d) Ernesto Bagatsolon
leadman/checker, from June 1982 to October 1990 at P2,800/month;

(e) Salvador Babon, clerk/timekeeper/paymaster, from June 1982 to

October 1990 at P3,200/month; (f) Paterno Bisnar, road grader
operator, from January 1979 to October 1990 at 105/day; (g) Cipriano
Bernales, instrument man, from February 1980 to November 1990 at
P3,200/month; (h) Angel Mabulay, Sr., dump truck driver, from
August 1974 to October 1990 at P90/day; (I) Leo Surigao, payloader
operator, from March 1975 to January 1978 at P100/day; (J) Mario
Labendia, Sr. surveyor/foreman, from August 1971 to July 1990 at
P2,900/month; and, (k) Roque Morillo, company watchman, from
August 1983 to October 1990 at P3,200/month. 1
Within the periods of their respective employments, they alternately
worked for petitioners Tomas Lao Corporation (TLC), Thomas and
James Developers (T&J) and LVM Construction Corporation (LVM),
altogether informally referred to as the "Lao Group of Companies," the
three (3) entities comprising a business conglomerate exclusively
controlled and managed by members of the Lao family.
TLC, T&J and LVM are engaged in the construction of public roads
and bridges. Under joint venture agreements they entered into among
each other, they would undertake their projects either simultaneously
or successively so that, whenever necessary, they would lease tools
and equipment to one another. Each one would also allow the
utilization of their employees by the other two (2). With this
arrangement, workers were transferred whenever necessary to ongoing projects of the same company or of the others, or were rehired
after the completion of the project or project phase to which they were
assigned. Soon after, however, TLC ceased its operations 2 while T&J
and LVM stayed on.
Sometime in 1989 Andres Lao, Managing Director of LVM and
President of T&J, 3 issued a memorandum 4 requiring all workers and
company personnel to sign employment contract forms and clearances
which were issued on 1 July 1989 but antedated 10 January 1989.

These were to be used allegedly for audit purposes pursuant to a joint

venture agreement between LVM and T&J. To ensure compliance with
the directive, the company ordered the withholding of the salary of any
employee who refused to sign. Quite notably, the contracts expressly
described the construction workers as project employees whose
employments were for a definite period, i.e., upon the expiration of the
contract period or the completion of the project for which the workers
was hired.
Except for Florencio Gomez 5 all private respondents refused to sign
contending that this scheme was designed by their employer to
downgrade their status from regular employees to mere project
employees. Resultantly, their salaries were withheld. They were also
required to explain why their services should not be terminated for
violating company rules and warned that failure to satisfactorily
explain would be construed as "disinterest" in continued employment
with the company. Since the workers stood firm in their refusal to
comply with the directives their services were terminated.
NLRC RAB VIII dismissed the complaints lodged before it, finding
that private respondents were project employees whose employments
could be terminated upon completion of the projects or project phase
for which they were hired. It upheld petitioners' contention that the
execution of their employment contracts was to forestall the
eventuality of being compelled to pay the workers their salaries even if
there was no more work to be done due to the completion of the
projects or project phases. The labor court however granted each
employee a separation pay of P6,435.00 computed at one-half (1/2)
month salary for every year of service, uniformly rounded at five (5)
years. 6
The decision of Labor Arbiter Gabino A. Velasquez, Jr., was reversed
on appeal by the Fourth Division of the National Labor Relations
Commission (NLRC) of Cebu City which found that private

respondents were regular employees who were dismissed without just

cause and denied due process. The NLRC also overruled the fixing by
the Labor Arbiter of the term of employment of complainants
uniformly at five (5) years since the periods of employment of the
construction workers as alleged in their complaints were never refuted
by petitioners. In granting monetary awards to complainants, NLRC
disregarded the veil of corporate fiction and treated the three (3)
corporations as forming only one entity on the basis of the admission
of petitioners that "the three (3) operated as one (1), intermingling and
commingling all its resources, including manpower facility." 7
Petitioners now lay their cause before us and assign the following
errors: (a) NLRC erred in classifying the employees as regular instead
of project employees; (b) assuming that the workers were regular
employees, NLRC failed to consider that they were terminated for
cause; (c) assuming further that the employees were illegally
dismissed, NLRC erred in awarding back wages in excess of three (3)
years; and, (d) assuming finally that the decision is correct, NLRC
erred when it pierced the veil of corporate personality of petitionercorporations.
The main thrust of petitioners' expostulation is that respondents have
no valid cause to complain about their employment contracts since
these documents merely formalized their status as project employees.
They cite Policy Instruction No. 20 of the Department of Labor which
defines project employees as those employed in connection with a
particular construction project, adding that the ruling in Sandoval
Shipyards, Inc. v. NLRC 8applies squarely to the instant case because
there the Court declared that the employment of project employees is
co-terminous with the completion of the project regardless of the
number of projects in which they have worked. And as their
employment is one for a definite period, they are not entitled to
separation pay nor is their employer required to obtain clearance from
the Secretary of Labor in connection with their termination. Petitioners

thus argue that their dismissal from the service of private respondents
was legal since the projects for which they were hired had already
been completed. As additional ground, they claim that Mario Labendia
and Roberto Labendia had absented themselves without leave giving
management no choice but to sever their employment.
We are not convinced. The principal test in determining whether
particular employees are "project employees" distinguished from
"regular employees" is whether the "project employees" are assigned
to carry out "specific project or undertaking," the duration (and scope)
of which are specified at the time the employees are engaged for the
project. "Project" in the realm of business and industry refers to a
particular job or undertaking that is within the regular or usual
business of employer, but which is distinct and separate and
identifiable as such from the undertakings of the company. Such job or
undertaking begins and ends at determined or determinable times. 9
While it may be allowed that in the instant case the workers were
initially hired for specific projects or undertakings of the company and
hence can be classified as project employees, the repeated re-hiring
and the continuing need for their services over a long span of time (the
shortest, at seven [7] years) have undeniably made them regular
employees. Thus, we held that where the employment of project
employees is extended long after the supposed project has been
finished, the employees are removed from the scope of project
employees and considered regular employees. 10
While length of time may not be a controlling test for project
employment, it can be a strong factor in determining whether the
employee was hired for a specific undertaking or in fact tasked to
perform functions which are vital, necessary and indispensable to the
usual business or trade of the employer. In the case at bar, private
respondents had already gone through the status of project employees.
But their employments became non-coterminous with specific projects

when they started to be continuously re-hired due to the demands of

petitioners' business and were re-engaged for many more projects
without interruption. We note petitioners' own admission
[t]hese construction projects have been prosecuted by either of
the three petitioners, either individually or in a joint venture
with one another. Likewise, these construction projects have
been prosecuted by either of the three petitioners, either
simultaneously, one construction project overlapping another
and/or one project commencing immediately after another
project has been completed or terminated. Perhaps because of
their capacity to prosecute government projects and their good
record and performance, at least one of the three petitioners
had an on-going construction project and/or one of the three
petitioners' construction project overlapped that of another. 11
The denial by petitioners of the existence of a work pool in the
company because their projects were not continuous is amply belied
by petitioners themselves who admit that
All the employees of either of the three petitioners were
actually assigned to a particular project to remain in said
project until the completion or termination of that project.
However, after the completion of that particular project or
when their services are no longer needed in the project or
particular phase of the project where they were assigned, they
were transferred and rehired in another on-going project. 12
A work pool may exist although the workers in the pool do not receive
salaries and are free to seek other employment during temporary
breaks in the business, provided that the worker shall be available
when called to report for a project. Although primarily applicable to
regular seasonal workers, this set-up can likewise be applied to project
workers insofar as the effect of temporary cessation of work is

concerned. This is beneficial to both the employer and employee for it

prevents the unjust situation of "coddling labor at the expense of
capital" and at the same time enables the workers to attain the status of
regular employees. Clearly, the continuous rehiring of the same set of
employees within the framework of the Lao Group of Companies is
strongly indicative that private respondents were an integral part of a
work pool from which petitioners drew its workers for its various
projects.
In a final attempt to convince the Court that private respondents were
indeed project employees, petitioners point out that the workers were
not regularly maintained in the payroll and were free to offer their
services to other companies when there were no on-going projects.
This argument however cannot defeat the workers' status of regularity.
We apply by analogy the case of Industrial-Commercial-Agricultural
Workers Organization v. CIR 13which deals with regular seasonal
employees. There we held
That during the temporary layoff the laborers are free to seek
other employment is natural, since the laborers are not being
paid, yet must find means of support. A period during which
the Central is forced to suspend or cease operation for a time . .
. should not mean starvation for employees and their
families(emphasis supplied).
Truly, the cessation of construction activities at the end of every
project is a foreseeable suspension of work. Of course, no
compensation can be demanded from the employer because the
stoppage of operations at the end of a project and before the start of a
new one is regular and expected by both parties to the labor relations.
Similar to the case of regular seasonal employees, the employment
relation is not severed by merely being suspended. 14 The employees
are, strictly speaking, not separated from services but merely on leave
of absence without pay until they are reemployed. 15 Thus we cannot

affirm the argument that non-payment of salary or non-inclusion in the

payroll and the opportunity to seek other employment denote project
employment.
Contrary to petitioners' assertion, our ruling in Sandoval Shipyards is
inapplicable considering the special circumstances attendant to the
present case. In Sandoval, the hiring of construction workers, unlike in
the instant case, was intermittent and not continuous for the "shipyard
merely accepts contracts for shipbuilding or for repair of vessels from
third parties and, only on occasions when it has work contract of this
nature that it hires workers to do the job which, needless to say, lasts
only for less than a year or longer." 16
Moreover, if private respondents were indeed employed as "project
employees," petitioners should have submitted a report of termination
to the nearest public employment office every time their employment
was terminated due to completion of each construction project. 17 The
records show that they did not. Policy Instruction No. 20 is explicit
that employers of project employees are exempted from the clearance
requirement but not from the submission of termination report. We
have consistently held that failure of the employer to file termination
reports after every project completion proves that the employees are
not project employees. 18 Nowhere in the New Labor Code is it
provided that the reportorial requirement is dispensed with. The fact is
that Department Order No. 19 superseding Policy Instruction No. 20
expressly provides that the report of termination is one of the
indicators of project employment. 19
We agree with the NLRC that the execution of the project employment
contracts was "farcical." 20 Obviously, the contracts were a scheme of
petitioners to prevent respondents' from being considered as regular
employees. It imposed time frames into an otherwise flexible
employment period of private respondents some of whom were
employed as far back as 1969. Clearly, here was an attempt to

circumvent labor laws on tenurial security. Settled is the rule that when
periods have been imposed to preclude the acquisition of tenurial
security by the employee, they should be struck down as contrary to
public morals, good customs or public order. 21 Worth noting is that
petitioners had engaged in various joint venture agreements in the past
without having to draft project employment contracts. That they would
require execution of employment contracts and waivers at this point,
ostensibly to be used for audit purposes, is a suspect excuse,
considering that petitioners enforced the directive by withholding the
salary of any employee who spurned the order.
We likewise reject petitioners' justification in re-hiring private
respondents i.e., that it is much cheaper and economical to re-hire or
re-employ the same workers than to train a new set of employees. It is
precisely because of this cost-saving benefit to the employer that the
law deems it fair that the employees be given a regular status. We need
not belabor this point.
The NLRC was correct in finding that the workers were illegally
dismissed. The rule is that in effecting a valid dismissal, the mandatory
requirements of substantive and procedural due process must be
strictly complied with. These were wanting in the present case. Private
respondents were dismissed allegedly because of insubordination or
blatant refusal to comply with a lawful directive of their employer. But
willful disobedience of the employer's lawful orders as a just cause for
the dismissal of the employees envisages the concurrence of at least
two (2) requisites: (a) the employee's assailed conduct must have been
willful or intentional, the willfulness being characterized by a
wrongful and perverse attitude; and, (b) the order violated must have
been reasonable, lawful, made known to the employee and must
pertain to the duties which he has been engaged to discharge. 22 The
refusal of private respondents was willful but not in the sense of plain
and perverse insubordination. It was dictated by necessity and
justifiable reasons for what appeared to be an innocent

memorandum was actually a veiled attempt to deny them their rightful

status as regular employees. The workers therefore had no option but
to disobey the directive which they deemed unreasonable and unlawful
because it would result in their being downsized to mere project
workers. This act of self-preservation should not merit them the
extreme penalty of dismissal.
The allegation of petitioners that private respondents are guilty of
abandonment of duty is without merit. The elements of abandonment
are: (a) failure to report for work or absence without valid or justifiable
reason, and, (b) a clear intention to sever the employer-employee
relationship, with the second element as the more determinative factor
manifested by some overt acts. 23 In this case, private respondents
Roberto Labendia and Mario Labendia were forced to leave their
respective duties because their salaries were withheld. They could not
simply sit idly and allow their families to starve. They had to seek
employment elsewhere, albeit temporarily, in order to survive. On the
other hand, it would be the height of injustice to validate abandonment
in this particular case as a ground for dismissal of respondents thereby
making petitioners benefit from a gross and unjust situation which they
themselves created. 24 Private respondents did not intend to sever ties
with petitioner and permanently abandon their jobs; otherwise, they
would not have filed this complaint for illegal dismissal. 25
Petitioners submit that since private respondents were only project
employees, they are not entitled to security of tenure. This is incorrect.
In Archbuild Masters and Construction, Inc. v. NLRC 26 we held
. . . a project employee hired for a specific task also enjoys
security of tenure. A termination of his employment must be
for a lawful cause and must be done in a manner which affords
him the proper notice and hearing . . . . To allow employers to
exercise their prerogative to terminate a project worker's
employment based on gratuitous assertions of project

completion would destroy the constitutionally protected right

of labor to security of tenure (emphasis supplied).
The burden of proving that an employee has been lawfully dismissed
therefore lies with the employer. In the case at bar, the assertions of
petitioners were self-serving and insufficient to substantiate their claim
of proximate project completion. The services of the employees were
terminated not because of contract expiration but as sanction for their
refusal to sign the project employment forms and quitclaims.
Finding that the dismissal was without just cause, we find it
unnecessary to dwell on the non-observance of procedural due process.
Suffice it to state that private respondents were not priorly notified of
their impending dismissal and that they were not provided ample
opportunity to defend themselves.
Petitioners charge as erroneous the grant to private respondents by
NLRC of back wages in excess of three (3) years or, in the alternative,
to an award of separation pay if reinstatement is no longer feasible.
We disagree. Since the illegal dismissal was made in 1990 or after the
effectivity of the amendatory provision of RA No. 6715 on 21 March
1989, private respondents' back wages should be computed on the
basis of Art. 279 of the Labor Code which states that "(a)n employee
who is unjustly dismissed from work shall be entitled to reinstatement
without loss of seniority rights and other privileges and to his full back
wages, inclusive of allowances, and to his other benefits or their
monetary equivalent computed from the time his compensation was
withheld from him up to the time of his actual reinstatement."
Conformably with our ruling in Bustamante v. NLRC 27 the illegally
dismissed employees are entitled to full back wages, undiminished by
earnings derived elsewhere during the period of their illegal dismissal.
In the event that reinstatement is no longer feasible, back wages shall

be computed from the time of illegal termination until the time of the
finality of the decision. 28 The award shall be based on the documents
submitted by private respondents, i.e. affidavits, SSS and Medicare
documents, since petitioners failed to adduce competent evidence to
the contrary. The separation pay shall be equivalent to "at least one (1)
month salary or to one (1) month salary for every year of service,
whichever is higher, a fraction of at least six (6) months being
considered as one whole year." 29
Finally, public respondent NLRC did not err in disregarding the veil of
separate corporate personality and holding petitioners jointly and
severally liable for private respondents' back wages and separation
pay. The records disclose that the three (3) corporations were in fact
substantially owned and controlled by members of the Lao family
composed of Lao Hian Beng alias Tomas Lao, Chiu Siok Lian (wife of
Tomas Lao), Andrew C. Lao, Lao Y. Heng, Vicente Lao Chua, Lao E.
Tin, Emmanuel Lao and Ismaelita Maluto. A majority of the
outstanding shares of stock in LVM and T&J is owned by the Lao
family. T&J is 100% owned by the Laos as reflected in its Articles of
Incorporation. The Lao Group of Companies therefore is a closed
corporation where the incorporators and directors belong to a single
family. Lao Hian Beng is the same Tomas Lao who owns Tomas Lao
Corporation and is the majority stockholder of T&J. Andrew C. Lao is
the Managing Director of LVM Construction, and President and
Managing Director of the Lao Group of Companies. Petitioners are
engaged in the same line of business under one management and use
the same equipment including manpower services. Where it appears
that [three] business enterprises are owned, conducted and controlled
by the same parties, both law and equity will, when necessary to
protect the rights of third persons, disregard the legal fiction that the
[three] corporations are distinct entities, and treat them as identical. 30
Consonant with our earlier ruling, 31 we hold that the liability of
petitioners extends to the responsible officers acting in the interest of

the corporations. In view of the peculiar circumstances of this case, we

disregard the separate personalities of the three (3) corporations and at
the same time declare the members of the corporations jointly and
severally liable with the corporations for the monetary awards due to
private respondents. It should always be borne in mind that the fiction
of law that a corporation as a juridical entity has a distinct and separate
personality was envisaged for convenience and to serve justice;
therefore it should not be used as a subterfuge to commit injustice and
circumvent labor laws.
WHEREFORE, the petition is DENIED and the decision of the
National Labor Relations Commission dated 05 August 1994 is
AFFIRMED. Petitioners are ordered to reinstate private respondents to
their former positions without loss of seniority rights and other
privileges with full back wages, inclusive of allowances, computed
from the time compensation was withheld up to the time of actual
reinstatement. In the event that reinstatement is no longer feasible,
petitioners are directed to pay private respondents separation pay
equivalent to one month salary for every year of service, a fraction of
at least six (6) months being considered one (1) year in the
computation thereof, and full back wages computed from the time
compensation was withheld until the finality of this decision. All other
claims of the parties are DISMISSED for lack of merit. Costs against
petitioners.
SO ORDERED.
Republic
SUPREME
Manila

of

the

FIRST DIVISION
G.R. No. 154975

January 29, 2007

Philippines
COURT

GENERAL CREDIT CORPORATION (now PENTA CAPITAL

FINANCE
CORPORATION), Petitioner,
vs.
ALSONS
DEVELOPMENT
and
INVESTMENT
CORPORATION
and
CCC
EQUITY
CORPORATION,Respondents.
DECISION
GARCIA, J.:
In this petition for review on certiorari under Rule 45 of the Rules of
Court, petitioner General Credit Corporation, now known as Penta
Capital Finance Corporation, seeks to annul and set aside the
Decision1 and Resolution2dated April 11, 2002 and August 20, 2002,
respectively, of the Court of Appeals (CA) in CA-G.R. CV No.
31801,affirming the November 8, 1990 decision of the Regional Trial
Court (RTC) of Makati City in its Civil Case No. 12707, an action for
a sum of money thereat instituted by the herein respondent Alsons
Development and Investment Corporation against the petitioner and
respondent CCC Equity Corporation.
The facts:
Shortly after its incorporation in 1957 as a finance and investment
company, petitioner General Credit Corporation (GCC, for short), then
known as Commercial Credit Corporation (CCC), established CCC
franchise companies in different urban centers of the country.3 In
furtherance of its business, GCC had, as early as 1974, applied for and
was able to secure license from the then Central Bank (CB) of the
Philippines and the Securities and Exchange Commission (SEC) to
engage also in quasi-banking activities.4 On the other hand, respondent
CCC Equity Corporation (EQUITY, for brevity) was organized in
November 1994 by GCC for the purpose of, among other things,

taking over the operations and management of the various franchise

companies. At a time material hereto, respondent Alsons Development
and Investment Corporation (ALSONS, hereinafter) and Conrado,
Nicasio, Editha and Ladislawa, all surnamed Alcantara, and Alfredo de
Borja (hereinafter the Alcantara family, for convenience), each owned,
just like GCC, shares in the aforesaid GCC franchise companies, e.g.,
CCC Davao and CCC Cebu.

judgment ALSONS might secure against EQUITY and, under

the doctrine of piercing the veil of corporate fiction, against
GCC, EQUITY having been organized as a tool and mere
conduit of GCC.

In December 1980, ALSONS and the Alcantara family, for a

consideration of Two Million (P2,000,000.00) Pesos, sold their
shareholdings a total of 101,953 shares, more or less in the CCC
franchise companies to EQUITY.[5] On January 2, 1981, EQUITY
issued ALSONS et al., a "bearer" promissory note for P2,000,000.00
with a one-year maturity date, at 18% interest per annum, with
provisions for damages and litigation costs in case of default.6

a) was purposely organized by GCC for the latter to

avoid CB Rules and Regulations on DOSRI (Directors,
Officers, Stockholders and Related Interest) limitations,
and that it acted merely as intermediary or bridge for
loan transactions and other dealings of GCC to its
franchises and the investing public; and

Some four years later, the Alcantara family assigned its rights and
interests over the bearer note to ALSONS which thenceforth became
the holder thereof.7 But even before the execution of the assignment
deal aforestated, letters of demand for interest payment were already
sent to EQUITY, through its President, Wilfredo Labayen, who
pleaded inability to pay the stipulated interest, EQUITY no longer then
having assets or property to settle its obligation nor being extended
financial support by GCC.
What happened next, as narrated in the assailed Decision of the CA,
may be summarized, as follows:
1. On January 14, 1986, before the RTC of Makati, ALSONS,
having failed to collect on the bearer note aforementioned, filed
a complaint for a sum of money8 against EQUITY and GCC.
The case, docketed as Civil Case No. 12707, was eventually
raffled to Branch 58 of the court. As stated in par. 4 of the
complaint, GCC is being impleaded as party-defendant for any

2. Answering with a cross-claim against GCC, EQUITY stated

by way of special and affirmative defenses that it (EQUITY):

b) is solely dependent upon GCC for its funding

requirements, to settle, among others, equity purchases
made by investors on the franchises; hence, GCC is
solely and directly liable to ALSONS, the former
having failed to provide EQUITY the necessary
funds to meet its obligations to ALSONS.
3. GCC filed its ANSWER to Cross-claim, stressing that it is a
distinct and separate entity from EQUITY and alleging, in
essence that the business relationships with each other were
always at arms length. And following the denial of its motion
to dismiss ALSONS complaint, on the ground of lack of
jurisdiction and want of cause of action, GCC filed its Answer
thereto and set up affirmative defenses with counterclaim for
exemplary damages and attorneys fees.
Issues having been joined, trial ensued. Presented by ALSONS, but
testifying as adverse witnesses, were CB and GCC officers. Among
other things, ALSONS evidence, which included the EQUITY-issued

"bearer" promissory note marked as Exhibit "K" and over sixty (60)
other marked and subsequently admitted documents, 9 were to the
effect that five (5) incorporators, each contributing P100,000.00 as the
initial paid up capital of the company, organized EQUITY to manage,
as it did manage, various GCC franchises through management
contracts. Before EQUITYs incorporation, however, GCC was
already into the financing business as it was in fact managing and
operating various CCC franchises. Presented in evidence, too, was the
September 29, 1982 letter-reply of one G. Villanueva, then GCC
President, to EQUITY President Wilfredo Labayen, bearing on the sale
of EQUITY shares to third parties, part of the proceeds of which the
Alcantaras wanted applied to liquidate the promissory note in question.
In said letter, Mr. Villanueva explained that the GCC Board denied the
Alcantaras request to be paid out of such proceeds, but nonetheless
authorized EQUITY to pay them interest out of EQUITYs operation
income, in preference over what was due GCC.10
Albeit EQUITY presented its president, it opted to adopt the testimony
of some of ALSONS witnesses, inclusive of the documentary exhibits
testified to by each of them, as its evidence.
For its part, GCC called only Wilfredo Labayen to testify. It stuck to
its underlying defense of separateness and presented documentary
evidence detailing the organizational structures of both GCC and
EQUITY. And in a bid to negate the notion that it was conducting its
business illegally, GCC presented CB and SEC-issued licenses
authoring it to engage in financing and quasi-banking activities. It also
adduced evidence to prove that it was never a party to any of the
actionable documents ALSONS and its predecessors-in-interest had in
their possession and that the November 27, 1985 deed of assignment
of rights over the promissory note was unenforceable.
Eventually, the trial court, on its finding that EQUITY was but an
instrumentality or adjunct of GCC and considering the legal

consequences and implications of such relationship, came out with its

decision on November 8, 1990, rendering judgment for ALSONS, to
wit:
WHEREFORE, the foregoing premises considered, judgment is
hereby rendered in favor of plaintiff [ALSONS] and against the
defendants [EQUITY and GCC] who are hereby ordered, jointly and
severally, to pay plaintiff:
1. the principal sum of Two Million Pesos (P2,000,000.00)
together with the interest due thereon at the rate of eighteen
percent (18%) annually computed from Jan. 2, 1981 until the
obligation is fully paid;
2. liquidated damages due thereon equivalent to three percent
(3%) monthly computed from January 2, 1982 until the
obligation is fully paid;
3. attorneys fees in an amount equivalent to twenty four
percent (24%) of the total obligation due; and
4. the costs of suit.
IT IS SO ORDERED. (Words in brackets added.)
Therefrom, GCC went on appeal to the CA where its appellate
recourse was docketed as CA-G.R. CV No. 31801, ascribing to the
trial court the commission of the following errors:
1. In holding that there is a "Parent-Subsidiary" corporate
relationship between EQUITY and GCC;
2. In not holding that EQUITY and GCC are distinct and
separate corporate entities;

3. In applying the doctrine of "Piercing the Veil of Corporate

Fiction" in the case at bar; and
4. In not holding ALSONS in estoppel to question the
corporate personality of EQUITY.
On April 11, 2002, the appellate court rendered the herein assailed
Decision,11 affirming that of the trial court, thus:
WHEREFORE, premises considered, the Decision of the Regional
Trial Court, Branch 58, Makati in Civil Case No. 12707 is hereby
AFFIRMED.
SO ORDERED.
In time, GCC moved for reconsideration followed by a motion for oral
argument, but both motions were denied by the CA in its equally
assailed Resolution of August 20, 2002.12
Hence, GCCs present recourse anchored on the following arguments,
issues and/or submissions:
1. The motion for oral argument with motion for
reconsideration and its supplement were perfunctorily denied
by the CA without justifiable basis;
2. There is absolutely no basis for piercing the veil of corporate
fiction;
3. Respondent Alsons is not a real party-in-interest as the
promissory note payable to bearer subject of the collection suit
is but a simulated document and/or refers to another party.
Moreover, the subject promissory note is not admissible in
evidence because it has not been duly authenticated and it is an
altered document;

4. The fact of full payment stated in the ten (10) deeds of sale
of the shares of stock is conclusive on the sellers, and by the
patrol evidence rule, the alleged fact of its non-payment cannot
be introduced in evidenced; and
5. The counter-claim filed by GCC against Alsons should be
granted in the interest of justice.
The petition and the arguments and/or issues holding it together are
without merit. The desired reversal of the assailed decision and
resolution of the appellate court is accordingly DENIED.
Instead of raising distinctly formulated questions of law, as is expected
of one seeking a review under Rule 45 of the Rules of Court of a final
CA judgment,13 petitioner GCC starts off by voicing disappointment
over the "perfunctory" denial by the CA of its twin motions for
reconsideration and oral argument. Petitioner, to be sure, cannot
plausibly expect a reversal action premised on the cursory way its
motions were denied, if such indeed were the case. Such manner of
denial, while perhaps far from ideal, is not even a recognized ground
for appeal by certiorari, unless a denial of due process ensues, which is
not the case here. And lest it be overlooked, the CA prefaced its
assailed denial resolution with the clause: "[F]inding no reversible
error committed to warrant the modification and/or reversal of the
April 11, 2002 Decision," suggesting that the appellate court gave the
petitioners motion for reconsideration the attention it deserved. At the
very least, the petitioner was duly apprised of the reasons why
reconsideration could not be favorably considered. An extended
resolution was not really necessary to dispose of the motion for
reconsideration in question.
Petitioners lament about being deprived of procedural due process
owing to the denial of its motion for oral argument is simply specious.
Under the CA Internal Rules, the appellate court may tap any of the

three (3) alternatives therein provided to aid the court in resolving

appealed cases before it. It may rely on available records alone, require
the submission of memoranda or set the case for oral argument. The
option the Internal Rules thus gives the CA necessarily suggests that
the appellate court may, at its sound discretion, dispense with a tedious
oral argument exercise. Rule VI, Section 6 of the 2002 Internal Rules
of the CA, provides:

opposing party is antithetical to the sporting idea of fair play, justice

and due process; hence, the proscription against a party shifting from
one theory at the trial court to a new and different theory in the
appellate level. On the same rationale, points of law, theories, issues
not brought to the attention of the lower court or, in fine, not
interposed during the trial cannot be raised for the first time on
appeal.15

SEC. 6 Judicial Action on Certain Petitions.- (a) In petitions for

review, after the receipt of the respondents comment on the petition,
the Court [of Appeals] may dismiss the petition if it finds the same
to be patently without merit , otherwise, it shall give due course to
it.

There are, to be sure, exceptions to the rule respecting what may be

raised for the first time on appeal. Lack of jurisdiction over when the
issues raised present a matter of public policy16 comes immediately to
mind. None of the well-recognized exceptions obtain in this case,
however.

xxx xxx xxx

Lest it be overlooked vis--vis the same last three arguments thus

pressed, both the trial court and the CA, based on the evidence
adduced, adjudged the petitioner and respondent EQUITY jointly and
severally liable to pay what respondent ALSONS is entitled to under
the "bearer" promissory note. The judgment argues against the notion
of the note being simulated or altered or that respondent ALSONS has
no standing to sue on the note, not being the payee of the "bearer"
note. For, the declaration of liability not only presupposes the duly
established authenticity and due execution of the promissory note over
which ALSONS, as the holder in due course thereof, has interest, but
also the untenability of the petitioners counterclaim for attorneys fees
and exemplary damages against ALSONS. At bottom, the petitioner
predicated such counter-claim on the postulate that respondent
ALSONS had no cause of action, the supposed promissory note being,
according to the petitioner, either a simulated or an altered document.

If the petition is given due course, the Court may consider the case
submitted for decision or require the parties to submit their
memorandum or set the case for oral argument. xxx. After the oral
argument or upon submission of the memoranda the case shall be
deemed submitted for decision.
In the case at bench, records reveal that the appellate court, in line with
the prescription of its own rules, required the parties to just submit, as
they did, their respective memoranda to properly ventilate their
separate causes. Under this scenario, the petitioner cannot be validly
heard, having been deprived of due process.
Just like the first, the last three (3) arguments set forth in the petition
will not carry the day for the petitioner. In relation therewith, the Court
notes that these arguments and the issues behind them were not raised
before the trial court. This appellate maneuver cannot be allowed. For,
well-settled is the rule that issues or grounds not raised below cannot
be resolved on review in higher courts.14 Springing surprises on the

In net effect, the definitive conclusion of the appellate court

affirmatory of that of the trial court was that the bearer promissory
note (Exh. "K") was a genuine and authentic instrument payable to the
holder thereof. This factual determination, as a matter of long and

sound appellate practice, deserves great weight and shall not be

disturbed on appeal, save for the most compelling reasons,17 such as
when that determination is clearly without evidentiary support or when
grave abuse of discretion has been committed.18 This is as it should be
since the Court, in petitions for review of CA decisions under Rule 45
of the Rules of Court, usually limits its inquiry only to questions of
law. Stated otherwise, it is not the function of the Court to analyze and
weigh all over again the evidence or premises supportive of the factual
holdings of lower courts.19
As nothing in the record indicates any of the exceptions adverted to
above, the factual conclusion of the CA that the P2 Million promissory
note in question was authentic and was issued at the first instance to
respondent ALSONS and the Alcantara family for the amount stated
on its face, must be affirmed. It should be stressed in this regard that
even the issuing entity, i.e., respondent EQUITY, never challenged the
genuineness and due execution of the note.
This brings us to the remaining but core issue tendered in this case and
aptly raised by the petitioner, to wit: whether there is absolutely no
basis for piercing GCCs veil of corporate identity.
A corporation is an artificial being vested by law with a personality
distinct and separate from those of the persons composing it 20 as well
as from that of any other entity to which it may be related. 21 The first
consequence of the doctrine of legal entity of the separate personality
of the corporation is that a corporation may not be made to answer for
acts and liabilities of its stockholders or those of legal entities to which
it may be connected or vice versa.22
The notion of separate personality, however, may be disregarded under
the doctrine "piercing the veil of corporate fiction" as in fact the
court will often look 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 (2) 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 one and the same.23
Whether the separate personality of the corporation should be pierced
hinges on obtaining facts, appropriately pleaded or proved. However,
any piercing of the corporate veil has to be done with caution, albeit
the Court will not hesitate to disregard the corporate veil when it is
misused or when necessary in the interest of justice.24 After all, the
concept of corporate entity was not meant to promote unfair
objectives.
Authorities are agreed on at least three (3) basic areas where piercing
the veil, with which the law covers and isolates the corporation from
any other legal entity to which it may be related, is allowed. 25 These
are: 1) defeat of public convenience,26 as when the corporate fiction is
used as vehicle for the evasion of an existing obligation;27 2) fraud
cases or when the corporate entity is used to justify a wrong, protect
fraud, or defend a crime;28 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.29
The CA found valid grounds to pierce the corporate veil of petitioner
GCC, there being justifiable basis for such action. When the appellate
court spoke of a justifying factor, the reference was to what the trial
court said in its decision, namely: the existence of "certain
circumstances [which], taken together, gave rise to the ineluctable

conclusion that [respondent] EQUITY is but an instrumentality or

adjunct of [petitioner] GCC."
The Court agrees with the disposition of the appellate court on the
application of the piercing doctrine to the transaction subject of this
case. Per the Courts count, the trial court enumerated no less than 20
documented circumstances and transactions, which, taken as a
package, indeed strongly supported the conclusion that respondent
EQUITY was but an adjunct, an instrumentality or business conduit of
petitioner GCC. This relation, in turn, provides a justifying ground to
pierce petitioners corporate existence as to ALSONS claim in
question. Foremost of what the trial court referred to as "certain
circumstances" are the commonality of directors, officers and
stockholders and even sharing of office between petitioner GCC and
respondent EQUITY; certain financing and management arrangements
between the two, allowing the petitioner to handle the funds of the
latter; the virtual domination if not control wielded by the petitioner
over the finances, business policies and practices of respondent
EQUITY; and the establishment of respondent EQUITY by the
petitioner to circumvent CB rules. For a perspective, the following are
some relevant excerpts from the trial courts decision setting forth in
some detail the tipping circumstances adverted to therein:
It must be noted that as characterized by their business relationship,
[respondent] EQUITY and [petitioner] GCC had common directors
and/or officers as well as stockholders. This is revealed by the
proceedings recorded in SEC Case No. 25-81 entitled "Avelina
Ramoso, et al., vs. GCC, et al., where it was established, thru the
testimony of EQUITYs own President that more than 90% of the
stockholders of EQUITY were also stockholders of GCC ..
Disclosed likewise is the fact that when [EQUITYs President]
Labayen sold the shareholdings of EQUITY in said franchise
companies, practically the entire proceeds thereof were surrendered to
GCC, and not received by EQUITY (EXHIBIT "RR") xxx.

It was likewise shown by a preponderance of evidence that not only

had GCC financed EQUITY and that the latter was heavily
indebted to the former but EQUITY was, in fact, a wholly owned
subsidiary of GCC. Thus, as affirmed by EQUITYs President,
the funds invested by EQUITY in the CCC franchise companies
actually came from CCC Phils. or GCC (Exhibit "Y-5"). that, as
disclosed by the Auditors report for 1982, past due receivables alone
of GCC exceeded P101,000,000.00 mostly to GCC affiliates especially
CCC EQUITY. ; that [CBs] Report of Examination dated July 14,
1977 shows that EQUITY which has a paid-up capital of only
P500,000.00 was the biggest borrower of GCC with a total loan of
P6.70 Million .
xxx xxx xxx
It has likewise been amply substantiated by [respondent ALSONS]
evidence that not only did GCC cause the incorporation of
EQUITY, but, the latter had grossly inadequate capital for the pursuit
of its line of business to the extent that its business affairs were
considered as GCCs own business endeavors. xxx.
xxx xxx xxx
ALSONS has likewise shown that the bonuses of the officers and
directors of EQUITY was based on its total financial performance
together with all its affiliates both firms were sharing one and the
same office when both were still operational and that the directors
and executives of EQUITY never acted independently but took
their orders from GCC.
The evidence has also indubitably established that EQUITY was
organized by GCC for the purpose of circumventing [CB] rules and
regulations and the Anti-Usury Law. Thus, as disclosed by the
Advance Report on the result of Central Banks Operations

Examination conducted on GCC as of March 31, 1977 (EXHIBITS

"FFF" etc.), the latter violated [CB] rules and regulations by : (a) using
as a conduit its non-quasi bank affiliates . (b) issuing without
recourse facilities to enable GCC to extend credit to affiliates like
EQUITY which go beyond the single borrowers limit without the
need of showing outstanding balance in the book of accounts.
(Emphasis over words in brackets added.)
It bears to stress at this point that the facts and the inferences drawn
therefrom, upon which the two (2) courts below applied the piercing
doctrine, stand, for the most part, undisputed. Among these is, to
reiterate, the matter of EQUITY having been incorporated to serve, as
it did serve, as an instrumentality or adjunct of GCC. With the view we
take of this case, GCC did not adduce any evidence, let alone rebut the
testimonies and documents presented by ALSONS, to establish the
prevailing circumstances adverted to that provided the justifying
occasion to pierce the veil of corporate fiction between GCC and
EQUITY. We quote the trial court:
Verily, indeed, as the relationships binding herein [respondent
EQUITY and petitioner GCC] have been that of "parent-subsidiary
corporations" the foregoing principles and doctrines find suitable
applicability in the case at bar; and, it having been satisfactorily and
indubitably shown that the said relationships had been used to perform
certain functions not characterized with legitimacy, this Court feels
amply justified to "pierce the veil of corporate entity" and disregard
the separate existence of the percent (sic) and subsidiary the latter
having been so controlled by the parent that its separate identity is
hardly discernible thus becoming a mere instrumentality or alter ego of
the former. Consequently, as the parent corporation, [petitioner] GCC
maybe (sic) held responsible for the acts and contracts of its subsidiary
[respondent] EQUITY - most especially if the latter (who had
anyhow acknowledged its liability to ALSONS) maybe (sic) without
sufficient property with which to settle its obligations. For, after all,

GCC was the entity which initiated and benefited immensely from the
fraudulent scheme perpetrated in violation of the law. (Words in
parenthesis in the original; emphasis and bracketed words added).
Given the foregoing considerations, it behooves the petitioner, as a
matter of law and equity, to assume the legitimate financial obligation
of a cash-strapped subsidiary corporation which it virtually controlled
to such a degree that the latter became its instrument or agent. The
facts, as found by the courts a quo, and the applicable law call for this
kind of disposition. Or else, the Court would be allowing the wrong
use of the fiction of corporate veil.
WHEREFORE, the instant petition is DENIED and the appealed
Decision and Resolution of the Court of Appeals are accordingly
AFFIRMED.
Costs against the petitioner.
SO ORDERED.
Republic
SUPREME
Manila

of

the

Philippines
COURT

FIRST DIVISION
G.R. No. L-28694 May 13, 1981
TELEPHONE ENGINEERING & SERVICE COMPANY, INC.,
petitioner,
vs.
WORKMEN'S
COMPENSATION
COMMISSION,
PROVINCIAL SHERIFF OF RIZAL and LEONILA SANTOS
GATUS, for herself and in behalf of her minor children, Teresita,
Antonina and Reynaldo, all surnamed GATUS, respondents.

MELENCIO-HERRERA, J.:1wph1.t
These certiorari proceedings stem from the award rendered against
petitioner Telephone Engineering and Services, Co., Inc. (TESCO) on
October 6, 1967 by the Acting Referee of Regional Office No. 4,
Quezon City Sub-Regional Office, Workmen's Compensation Section,
in favor of respondent Leonila S. Gatus and her children, dependents
of the deceased employee Pacifico L. Gatus. The principal contention
is that the award was rendered without jurisdiction as there was no
employer-employee relationship between petitioner and the deceased.
Petitioner is a domestic corporation engaged in the business of
manufacturing telephone equipment with offices at Sheridan Street,
Mandaluyong, Rizal. Its Executive Vice-President and General
Manager is Jose Luis Santiago. It has a sister company, the Utilities
Management Corporation (UMACOR), with offices in the same
location. UMACOR is also under the management of Jose Luis
Santiago.
On September 8, 1964, UMACOR employed the late Pacifica L. Gatus
as Purchasing Agent. On May 16, 1965, Pacifico L. Gatus was detailed
with petitioner company. He reported back to UMACOR on August 1,
1965. On January 13, 1967, he contracted illness and although he
retained to work on May 10, 1967, he died nevertheless on July 14,
1967 of "liver cirrhosis with malignant degeneration."
On August 7, 1967, his widow, respondent Leonila S. Gatus, filed a
"Notice and Claim for Compensation" with Regional Office No. 4,
Quezon City Sub-Regional Office, Workmen's Compensation Section,
alleging therein that her deceased husband was an employee of
TESCO, and that he died of liver cirrhosis. 1 On August 9, 1967, and
Office wrote petitioner transmitting the Notice and for Compensation,

and requiring it to submit an Employer's Report of Accident or

Sickness pursuant to Section 37 of the Workmen's Compensation Act
(Act No. 3428). 2 An "Employer's Report of Accident or Sickness" was
thus submitted with UMACOR indicated as the employer of the
deceased. The Report was signed by Jose Luis Santiago. In answer to
questions Nos. 8 and 17, the employer stated that it would not
controvert the claim for compensation, and admitted that the deceased
employee contracted illness "in regular occupation." 3 On the basis of
this Report, the Acting Referee awarded death benefits in the amount
of P5,759.52 plus burial expenses of P200.00 in favor of the heirs of
Gatus in a letter-award dated October 6, 1967 4 against TESCO.
Replying on October 27, 1967, TESCO, through Jose Luis Santiago,
informed the Acting Referee that it would avail of the 15-days-notice
given to it to state its non-conformity to the award and contended that
the cause of the illness contracted by Gatus was in no way aggravated
by the nature of his work. 5
On November 6, 1967, TESCO requested for an extension of ten days
within which to file a Motion for Reconsideration, 6 and on November
15, 1967, asked for an additional extension of five days. 7 TESCO filed
its "Motion for Reconsideration and/or Petition to Set Aside Award" on
November 18, 1967, alleging as grounds therefor, that the admission
made in the "Employer's Report of Accident or Sickness" was due to
honest mistake and/or excusable negligence on its part, and that the
illness for which compensation is sought is not an occupational
disease, hence, not compensable under the law. 8 The extension
requested was denied. The Motion for Reconsideration was likewise
denied in an Order issued by the Chief of Section of the Regional
Office dated December 28, 1967 9 predicated on two grounds: that the
alleged mistake or negligence was not excusable, and that the basis of
the award was not the theory of direct causation alone but also on that
of aggravation. On January 28, 1968, an Order of execution was issued
by the same Office.

On February 3, 1968, petitioner filed an "Urgent Motion to Compel

Referee to Elevate the Records to the Workmen's Compensation
Commission for Review." 10 Meanwhile, the Provincial Sheriff of Rizal
levied on and attached the properties of TESCO on February 17, 1968,
and scheduled the sale of the same at public auction on February 26,
1968. On February 28, 1968, the Commission issued an Order
requiring petitioner to submit verified or true copies of the Motion for
Reconsideration and/or Petition to Set Aside Award and Order of
December 28, 1967, and to show proof that said Motion for
Reconsideration was filed within the reglementary period, with the
warning that failure to comply would result in the dismissal of the
Motion. However, before this Order could be released, TESCO filed
with this Court, on February 22, 1968, The present petition for
"Certiorari with Preliminary Injunction" seeking to annul the award
and to enjoin the Sheriff from levying and selling its properties at
public auction.
On February 29, 1968, this Court required respondents to answer the
Petition but denied Injunction. 11 TESCO'S Urgent Motion dated April
2, 1968, for the issuance of a temporary restraining order to enjoin the
Sheriff from proceeding with the auction sale of its properties was
denied in our Resolution dated May 8, 1968.
TESCO asserts: 1wph1.t
I. That the respondent Workmen's Compensation
Commission has no jurisdiction nor authority to render
the award (Annex 'D', Petition) against your petitioner
there being no employer-employee relationship between
it and the deceased Gatus;
II. That petitioner can never be estopped from
questioning the jurisdiction of respondent commission

especially considering that jurisdiction is never

conferred by the acts or omission of the parties;
III. That this Honorable Court has jurisdiction to nullify
the award of respondent commission.
TESCO takes the position that the Commission has no jurisdiction to
render a valid award in this suit as there was no employer-employee
relationship between them, the deceased having been an employee of
UMACOR and not of TESCO. In support of this contention, petitioner
submitted photostat copies of the payroll of UMACOR for the periods
May 16-31, 1967 and June 1-15, 1967 12 showing the name of the
deceased as one of the three employees listed under the Purchasing
Department of UMACOR. It also presented a photostat copy of a
check of UMACOR payable to the deceased representing his salary for
the period June 14 to July 13, 1967. 13
Both public and private respondents contend, on the other hand, that
TESCO is estopped from claiming lack of employer employee
relationship.
To start with, a few basic principles should be re-stated the existence
of employer-employee relationship is the jurisdictional foundation for
recovery of compensation under the Workmen's Compensation
Law. 14 The lack of employer-employee relationship, however, is a
matter of defense that the employer should properly raise in the
proceedings below. The determination of this relationship involves a
finding of fact, which is conclusive and binding and not subject to
review by this Court. 15
Viewed in the light of these criteria, we note that it is only in this
Petition before us that petitioner denied, for the first time, the
employer-employee relationship. In fact, in its letter dated October 27,
1967 to the Acting Referee, in its request for extension of time to file

Motion for Reconsideration, in its "Motion for Reconsideration and/or

Petition to Set Aside Award," and in its "Urgent Motion to Compel the
Referee to Elevate Records to the Commission for Review," petitioner
represented and defended itself as the employer of the deceased.
Nowhere in said documents did it allege that it was not the employer.
Petitioner even admitted that TESCO and UMACOR are sister
companies operating under one single management and housed in the
same building. Although respect for the corporate personality as such,
is the general rule, there are exceptions. In appropriate cases, the veil
of corporate fiction may be pierced as when the same is made as a
shield to confuse the legitimate issues. 16
While, indeed, jurisdiction cannot be conferred by acts or omission of
the parties, TESCO'S denial at this stage that it is the employer of the
deceased is obviously an afterthought, a devise to defeat the law and
evade its obligations. 17 This denial also constitutes a change of theory
on appeal which is not allowed in this jurisdiction. 18Moreover, issues
not raised before the Workmen's Compensation Commission cannot be
raised for the first time on appeal.19 For that matter, a factual question
may not be raised for the first time on appeal to the Supreme Court. 20
This certiorari proceeding must also be held to have been prematurely
brought. Before a petition for certiorari can be instituted, all remedies
available in the trial Court must be exhausted first. 21 certiorari cannot
be resorted to when the remedy of appeal is present. 22 What is sought
to be annulled is the award made by the Referee. However, TESCO
did not pursue the remedies available to it under Rules 23, 24 and 25
of the Rules of the Workmen's Compensation Commission, namely, an
appeal from the award of the Referee, within fifteen days from notice,
to the Commission; a petition for reconsideration of the latter's
resolution, if adverse, to the Commission en banc; and within ten days
from receipt of an unfavorable decision by the latter, an appeal to this
Court. As petitioner had not utilized these remedies available to it,
certiorari win not he, it being prematurely filed. As this Court ruled in

the case of Manila Jockey Club, Inc. vs. Del Rosario, 2 SCRA 462
(1961). 1wph1.t
An aggrieved party by the decision of a Commissioner
should seek a reconsideration of the decision by the
Commission en banc. If the decision is adverse to him,
he may appeal to the Supreme Court. An appeal brought
to the Supreme Court without first resorting to the
remedy referred to is premature and may be dismissed.
Although this rule admits of exceptions, as where public welfare and
the advancement of public policy so dictate, the broader interests of
justice so require, or where the Orders complained of were found to be
completely null and void or that the appeal was not considered the
appropriate remedy, 23 the case at bar does not fan within any of these
exceptions. WHEREFORE, this Petition is hereby dismissed.
SO ORDERED.

G.R. No. 100812 June 25, 1999

FRANCISCO
MOTORS
CORPORATION, petitioner,
vs.
COURT OF APPEALS and SPOUSES GREGORIO and
LIBRADA MANUEL, respondents.

QUISUMBING, J.:

This petition for review on certiorari, under Rule 45 of the Rules of

Court, seeks to annul the decision 1 of the Court of Appeals in C.A.
G.R. CV No. 10014 affirming the decision rendered by Branch 135,
Regional Trial Court of Makati, Metro Manila. The procedural
antecedents of this petition are as follows:
On January 23, 1985, petitioner filed a complaint 2 against private
respondents to recover three thousand four hundred twelve and six
centavos (P3,412.06), representing the balance of the jeep body
purchased by the Manuels from petitioner; an additional sum of twenty
thousand four hundred fifty-four and eighty centavos (P20,454.80)
representing the unpaid balance on the cost of repair of the vehicle;
and six thousand pesos (P6,000.00) for cost of suit and attorney's
fees. 3 To the original balance on the price of jeep body were added the
costs of repair. 4 In their answer, private respondents interposed a
counterclaim for unpaid legal services by Gregorio Manuel in the
amount of fifty thousand pesos (P50,000) which was not paid by the
incorporators, directors and officers of the petitioner. The trial court
decided the case on June 26, 1985, in favor of petitioner in regard to
the petitioner's claim for money, but also allowed the counter-claim of
private respondents. Both parties appealed. On April 15, 1991, the
Court of Appeals sustained the trial court's decision. 5 Hence, the
present petition.
For our review in particular is the propriety of the permissive
counterclaim which private respondents filed together with their
answer to petitioner's complaint for a sum of money. Private
respondent Gregorio Manuel alleged as an affirmative defense that,
while he was petitioner's Assistant Legal Officer, he represented
members of the Francisco family in the intestate estate proceedings of
the late Benita Trinidad. However, even after the termination of the
proceedings, his services were not paid. Said family members, he said,
were also incorporators, directors and officers of petitioner. Hence to
petitioner's collection suit, he filed a counter permissive counterclaim
for the unpaid attorney's fees. 6
For failure of petitioner to answer the counterclaim, the trial court
declared petitioner in default on this score, and evidence ex-parte was
presented on the counterclaim. The trial court ruled in favor of private

respondents and found that Gregorio Manuel indeed rendered legal

services to the Francisco family in Special Proceedings Number 7803
"In the Matter of Intestate Estate of Benita Trinidad". Said court
also found that his legal services were not compensated despite
repeated demands, and thus ordered petitioner to pay him the amount
of fifty thousand (P50,000.00) pesos. 7
Dissatisfied with the trial court's order, petitioner elevated the matter to
the Court of Appeals, posing the following issues:
I.
WHETHER OR NOT THE DECISION RENDERED
BY THE LOWER COURT IS NULL AND VOID AS
IT NEVER ACQUIRED JURISDICTION OVER THE
PERSON OF THE DEFENDANT.
II.
WHETHER OR NOT PLAINTIFF-APPELLANT NOT
BEING A REAL PARTY IN THE ALLEGED
PERMISSIVE COUNTERCLAIM SHOULD BE
HELD LIABLE TO THE CLAIM OF DEFENDANTAPPELLEES.
III.
WHETHER OR NOT THERE IS FAILURE ON THE
PART OF PLAINTIFF-APPELLANT TO ANSWER
THE ALLEGED PERMISSIVE COUNTERCLAIM. 8
Petitioner contended that the trial court did not acquire jurisdiction
over it because no summons was validly served on it together with the
copy of the answer containing the permissive counterclaim. Further,
petitioner questions the propriety of its being made party to the case
because it was not the real party in interest but the individual members
of the Francisco family concerned with the intestate case.

In its assailed decision now before us for review, respondent Court of

Appeals held that a counterclaim must be answered in ten (10) days,
pursuant to Section 4, Rule 11, of the Rules of Court; and nowhere
does it state in the Rules that a party still needed to be summoned
anew if a counterclaim was set up against him. Failure to serve
summons, said respondent court, did not effectively negate trial court's
jurisdiction over petitioner in the matter of the counterclaim. It
likewise pointed out that there was no reason for petitioner to be
excused from answering the counterclaim. Court records showed that
its former counsel, Nicanor G. Alvarez, received the copy of the
answer with counterclaim two (2) days prior to his withdrawal as
counsel for petitioner. Moreover when petitioner's new counsel, Jose
N. Aquino, entered his appearance, three (3) days still remained within
the period to file an answer to the counterclaim. Having failed to
answer, petitioner was correctly considered in default by the trial
court. 9 Even assuming that the trial court acquired no jurisdiction over
petitioner, respondent court also said, but having filed a motion for
reconsideration seeking relief from the said order of default, petitioner
was estopped from further questioning the trial court's jurisdiction. 10
On the question of its liability for attorney's fees owing to private
respondent Gregorio Manuel, petitioner argued that being a
corporation, it should not be held liable therefor because these fees
were owed by the incorporators, directors and officers of the
corporation in their personal capacity as heirs of Benita Trinidad.
Petitioner stressed that the personality of the corporation, vis-a-vis the
individual persons who hired the services of private respondent, is
separate and distinct, 11 hence, the liability of said individuals did not
become an obligation chargeable against petitioner.
Nevertheless, on the foregoing issue, the Court of Appeals ruled as
follows:
However, this distinct and separate personality is
merely a fiction created by law for convenience and to
promote justice. Accordingly, this separate personality
of the corporation may be disregarded, or the veil of
corporate fiction pierced, in cases where it is used as a
cloak or cover for found (sic) illegality, or to work an

injustice, or where necessary to achieve equity or when

necessary for the protection of creditors. (Sulo ng
Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347)
Corporations are composed of natural persons and the
legal fiction of a separate corporate personality is not a
shield for the commission of injustice and inequity.
(Chemplex Philippines, Inc. vs. Pamatian, 57 SCRA
408).
In the instant case, evidence shows that the plaintiffappellant Francisco Motors Corporation is composed of
the heirs of the late Benita Trinidad as directors and
incorporators for whom defendant Gregorio Manuel
rendered legal services in the intestate estate case of
their deceased mother. Considering the aforestated
principles and circumstances established in this case,
equity and justice demands plaintiff-appellant's veil of
corporate identity should be pierced and the defendant
be compensated for legal services rendered to the heirs,
who are directors of the plaintiff-appellant
corporation. 12
Now before us, petitioner assigns the following errors:
I.
THE COURT OF APPEALS ERRED IN APPLYING
THE DOCTRINE OF PIERCING THE VEIL OF
CORPORATE ENTITY.
II.
THE COURT OF APPEALS ERRED IN AFFIRMING
THAT THERE WAS JURISDICTION OVER
PETITIONER
WITH
RESPECT
TO
THE
COUNTERCLAIM. 13
Petitioner submits that respondent court should not have resorted to
piercing the veil of corporate fiction because the transaction concerned

only respondent Gregorio Manuel and the heirs of the late Benita
Trinidad. According to petitioner, there was no cause of action by said
respondent against petitioner; personal concerns of the heirs should be
distinguished from those involving corporate affairs. Petitioner further
contends that the present case does not fall among the instances
wherein the courts may look beyond the distinct personality of a
corporation. According to petitioner, the services for which respondent
Gregorio Manuel seeks to collect fees from petitioner are personal in
nature. Hence, it avers the heirs should have been sued in their
personal capacity, and not involve the corporation. 14
With regard to the permissive counterclaim, petitioner also insists that
there was no proper service of the answer containing the permissive
counterclaim. It claims that the counterclaim is a separate case which
can only be properly served upon the opposing party through
summons. Further petitioner states that by nature, a permissive
counterclaim is one which does not arise out of nor is necessarily
connected with the subject of the opposing party's claim. Petitioner
avers that since there was no service of summons upon it with regard
to the counterclaim, then the court did not acquire jurisdiction over
petitioner. Since a counterclaim is considered an action independent
from the answer, according to petitioner, then in effect there should be
two simultaneous actions between the same parties: each party is at the
same time both plaintiff and defendant with respect to the
other,15 requiring in each case separate summonses.
In their Comment, private respondents focus on the two questions
raised by petitioner. They defend the propriety of piercing the veil of
corporate fiction, but deny the necessity of serving separate
summonses on petitioner in regard to their permissive counterclaim
contained in the answer.
Private respondents maintain both trial and appellate courts found that
respondent Gregorio Manuel was employed as assistant legal officer of
petitioner corporation, and that his services were solicited by the
incorporators, directors and members to handle and represent them in
Special Proceedings No. 7803, concerning the Intestate Estate of the
late Benita Trinidad. They assert that the members of petitioner
corporation took advantage of their positions by not compensating

respondent Gregorio Manuel after the termination of the estate

proceedings despite his repeated demands for payment of his services.
They cite findings of the appellate court that support piercing the veil
of corporate identity in this particular case. They assert that the
corporate veil may be disregarded when it is used to defeat public
convenience, justify wrong, protect fraud, and defend crime. It may
also be pierced, according to them, where the corporate entity is being
used as an alter ego, adjunct, or business conduit for the sole benefit of
the stockholders or of another corporate entity. In these instances, they
aver, the corporation should be treated merely as an association of
individual persons. 16
Private respondents dispute petitioner's claim that its right to due
process was violated when respondents' counterclaim was granted due
course, although no summons was served upon it. They claim that no
provision in the Rules of Court requires service of summons upon a
defendant in a counterclaim. Private respondents argue that when the
petitioner filed its complaint before the trial court it voluntarily
submitted itself to the jurisdiction of the court. As a consequence, the
issuance of summons on it was no longer necessary. Private
respondents say they served a copy of their answer with affirmative
defenses and counterclaim on petitioner's former counsel, Nicanor G.
Alvarez. While petitioner would have the Court believe that
respondents served said copy upon Alvarez after he had withdrawn his
appearance as counsel for the petitioner, private respondents assert that
this contention is utterly baseless. Records disclose that the answer
was received two (2) days before the former counsel for petitioner
withdrew his appearance, according to private respondents. They
maintain that the present petition is but a form of dilatory appeal, to set
off petitioner's obligations to the respondents by running up more
interest it could recover from them. Private respondents therefore
claim damages against petitioner. 17
To resolve the issues in this case, we must first determine the propriety
of piercing the veil of corporate fiction.
Basic in corporation law is the principle that a corporation has a
separate personality distinct from its stockholders and from other
corporations to which it may be connected. 18 However, under the

doctrine of piercing the veil of corporate entity, the corporation's

separate juridical personality may be disregarded, for example, when
the corporate identity is used to defeat public convenience, justify
wrong, protect fraud, or defend crime. Also, where the corporation 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, then its distinct personality may be
ignored. 19 In these circumstances, the courts will treat the corporation
as a mere aggrupation of persons and the liability will directly attach to
them. The legal fiction of a separate corporate personality in those
cited instances, for reasons of public policy and in the interest of
justice, will be justifiably set aside.
In our view, however, given the facts and circumstances of this case,
the doctrine of piercing the corporate veil has no relevant application
here. Respondent court erred in permitting the trial court's resort to this
doctrine. The rationale behind piercing a corporation's identity in a
given case is to remove the barrier between the corporation from the
persons comprising it to thwart the fraudulent and illegal schemes of
those who use the corporate personality as a shield for undertaking
certain proscribed activities. However, in the case at bar, instead of
holding certain individuals or persons responsible for an alleged
corporate act, the situation has been reversed. It is the petitioner as a
corporation which is being ordered to answer for the personal liability
of certain individual directors, officers and incorporators concerned.
Hence, it appears to us that the doctrine has been turned upside down
because of its erroneous invocation. Note that according to private
respondent Gregorio Manuel his services were solicited as counsel for
members of the Francisco family to represent them in the intestate
proceedings over Benita Trinidad's estate. These estate proceedings did
not involve any business of petitioner.
Note also that he sought to collect legal fees not just from certain
Francisco family members but also from petitioner corporation on the
claims that its management had requested his services and he acceded
thereto as an employee of petitioner from whom it could be deduced
he was also receiving a salary. His move to recover unpaid legal fees
through a counterclaim against Francisco Motors Corporation, to

offset the unpaid balance of the purchase and repair of a jeep body
could only result from an obvious misapprehension that petitioner's
corporate assets could be used to answer for the liabilities of its
individual directors, officers, and incorporators. Such result if
permitted could easily prejudice the corporation, its own creditors, and
even other stockholders; hence, clearly inequitous to petitioner.
Furthermore, considering the nature of the legal services involved,
whatever obligation said incorporators, directors and officers of the
corporation had incurred, it was incurred in their personal capacity.
When directors and officers of a corporation are unable to compensate
a party for a personal obligation, it is far-fetched to allege that the
corporation is perpetuating fraud or promoting injustice, and be
thereby held liable therefor by piercing its corporate veil. While there
are no hard and fast rules on disregarding separate corporate identity,
we must always be mindful of its function and purpose. A court should
be careful in assessing the milieu where the doctrine of piercing the
corporate veil may be applied. Otherwise an injustice, although
unintended, may result from its erroneous application.
The personality of the corporation and those of its incorporators,
directors and officers in their personal capacities ought to be kept
separate in this case. The claim for legal fees against the concerned
individual incorporators, officers and directors could not be properly
directed against the corporation without violating basic principles
governing corporations. Moreover, every action including a
counterclaim must be prosecuted or defended in the name of the
real party in interest. 20 It is plainly an error to lay the claim for legal
fees of private respondent Gregorio Manuel at the door of petitioner
(FMC) rather than individual members of the Francisco family.
However, with regard to the procedural issue raised by petitioner's
allegation, that it needed to be summoned anew in order for the court
to acquire jurisdiction over it, we agree with respondent court's view to
the contrary. Section 4, Rule 11 of the Rules of Court provides that a
counterclaim or cross-claim must be answered within ten (10) days
from service. Nothing in the Rules of Court says that summons should
first be served on the defendant before an answer to counterclaim must
be made. The purpose of a summons is to enable the court to acquire

jurisdiction over the person of the defendant. Although a counterclaim

is treated as an entirely distinct and independent action, the defendant
in the counterclaim, being the plaintiff in the original complaint, has
already submitted to the jurisdiction of the court. Following Rule 9,
Section 3 of the 1997 Rules of Civil Procedure, 21 if a defendant
(herein petitioner) fails to answer the counterclaim, then upon motion
of plaintiff, the defendant may be declared in default. This is what
happened to petitioner in this case, and this Court finds no procedural
error in the disposition of the appellate court on this particular issue.
Moreover, as noted by the respondent court, when petitioner filed its
motion seeking to set aside the order of default, in effect it submitted
itself to the jurisdiction of the court. As well said by respondent court:
Further on the lack of jurisdiction as raised by plaintiffappellant[,] [t]he records show that upon its request,
plaintiff-appellant was granted time to file a motion for
reconsideration of the disputed decision. Plaintiffappellant did file its motion for reconsideration to set
aside the order of default and the judgment rendered on
the counterclaim.
Thus, even if the court acquired no jurisdiction over
plaintiff-appellant on the counterclaim, as it vigorously
insists, plaintiff-appellant is considered to have
submitted to the court's jurisdiction when it filed the
motion for reconsideration seeking relief from the
court. (Soriano vs. Palacio, 12 SCRA 447). A party is
estopped from assailing the jurisdiction of a court after
voluntarily submitting himself to its jurisdiction.
(Tejones vs. Gironella, 159 SCRA 100). Estoppel is a
bar against any claims of lack of jurisdiction. (Balais
vs. Balais, 159 SCRA 37). 22
WHEREFORE, the petition is hereby GRANTED and the assailed
decision is hereby REVERSED insofar only as it held Francisco
Motors Corporation liable for the legal obligation owing to private
respondent Gregorio Manuel; but this decision is without prejudice to
his filing the proper suit against the concerned members of the

Francisco family in their personal capacity. No pronouncement as to

costs.1wphi1.nt
SO ORDERED.
Bellosillo, Puno, Mendoza and Buena, JJ., concur.

Republic
SUPREME
Manila

of

the

Philippines
COURT

SECOND DIVISION
G.R. No. 185280

January 18, 2012

TIMOTEO
H.
SARONA, Petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, ROYALE
SECURITY AGENCY (FORMERLY SCEPTRE SECURITY
AGENCY) and CESAR S. TAN, Respondents.
DECISION
REYES, J.:
This is a petition for review under Rule 45 of the Rules of Court from
the May 29, 2008 Decision1 of the Twentieth Division of the Court of
Appeals (CA) in CA-G.R. SP No. 02127 entitled "Timoteo H. Sarona
v. National Labor Relations Commission, Royale Security Agency
(formerly Sceptre Security Agency) and Cesar S. Tan" (Assailed
Decision), which affirmed the National Labor Relations Commissions
(NLRC) November 30, 2005 Decision and January 31, 2006
Resolution, finding the petitioner illegally dismissed but limiting the
amount of his backwages to three (3) monthly salaries. The CA
likewise affirmed the NLRCs finding that the petitioners separation
pay should be computed only on the basis of his length of service with

respondent Royale Security Agency (Royale). The CA held that absent

any showing that Royale is a mere alter ego of Sceptre Security
Agency (Sceptre), Royale cannot be compelled to recognize the
petitioners tenure with Sceptre. The dispositive portion of the CAs
Assailed Decision states:
WHEREFORE, in view of the foregoing, the instant petition
is PARTLY GRANTED, though piercing of the corporate veil is
hereby denied for lack of merit. Accordingly, the assailed Decision and
Resolution of the NLRC respectively dated November 30, 2005 and
January 31, 2006 are hereby AFFIRMED as to the monetary awards.
SO ORDERED.

Factual Antecedents
On June 20, 2003, the petitioner, who was hired by Sceptre as a
security guard sometime in April 1976, was asked by Karen Therese
Tan (Karen), Sceptres Operation Manager, to submit a resignation
letter as the same was supposedly required for applying for a position
at Royale. The petitioner was also asked to fill up Royales
employment application form, which was handed to him by Royales
General Manager, respondent Cesar Antonio Tan II (Cesar).3
After several weeks of being in floating status, Royales Security
Officer, Martin Gono (Martin), assigned the petitioner at Highlight
Metal Craft, Inc. (Highlight Metal) from July 29, 2003 to August 8,
2003. Thereafter, the petitioner was transferred and assigned to Wide
Wide World Express, Inc. (WWWE, Inc.). During his assignment at
Highlight Metal, the petitioner used the patches and agency cloths of
Sceptre
and
it
was
only
when he was posted at WWWE, Inc. that he started using those of
Royale.4
On September 17, 2003, the petitioner was informed that his
assignment at WWWE, Inc. had been withdrawn because Royale had
allegedly been replaced by another security agency. The petitioner,
however, shortly discovered thereafter that Royale was never replaced
as WWWE, Inc.s security agency. When he placed a call at WWWE,

Inc., he learned that his fellow security guard was not relieved from his
post.5
On September 21, 2003, the petitioner was once again assigned at
Highlight Metal, albeit for a short period from September 22, 2003 to
September 30, 2003. Subsequently, when the petitioner reported at
Royales office on October 1, 2003, Martin informed him that he
would no longer be given any assignment per the instructions of Aida
Sabalones-Tan (Aida), general manager of Sceptre. This prompted him
to file a complaint for illegal dismissal on October 4, 2003.6
In his May 11, 2005 Decision, Labor Arbiter Jose Gutierrez (LA
Gutierrez) ruled in the petitioners favor and found him illegally
dismissed. For being unsubstantiated, LA Gutierrez denied credence to
the respondents claim that the termination of the petitioners
employment relationship with Royale was on his accord following his
alleged employment in another company. That the petitioner was no
longer interested in being an employee of Royale cannot be presumed
from his request for a certificate of employment, a claim which, to
begin with, he vehemently denies. Allegation of the petitioners
abandonment is negated by his filing of a complaint for illegal
dismissal three (3) days after he was informed that he would no longer
be given any assignments. LA Gutierrez ruled:
In short, respondent wanted to impress before us that complainant
abandoned his employment. We are not however, convinced.
There is abandonment when there is a clear proof showing that one has
no more interest to return to work. In this instant case, the record has
no proof to such effect. In a long line of decisions, the Supreme Court
ruled:
"Abandonment of position is a matter of intention expressed in
clearly certain and unequivocal acts, however, an interim
employment does not mean abandonment." (Jardine Davis, Inc. vs.
NLRC, 225 SCRA 757).
"In abandonment, there must be a concurrence of the intention to
abandon and some overt acts from which an employee may be

declared as having no more interest to work." (C. Alcontin & Sons,

Inc. vs. NLRC, 229 SCRA 109).
"It is clear, deliberate and unjustified refusal to severe employment
and not mere absence that is required to constitute abandonment." x
x x" (De Ysasi III vs. NLRC, 231 SCRA 173).
Aside from lack of proof showing that complainant has abandoned his
employment, the record would show that immediate action was taken
in order to protest his dismissal from employment. He filed a
complaint [for] illegal dismissal on October 4, 2004 or three (3) days
after he was dismissed. This act, as declared by the Supreme Court is
inconsistent with abandonment, as held in the case of Pampanga Sugar
Development Co., Inc. vs. NLRC, 272 SCRA 737 where the Supreme
Court ruled:
"The immediate filing of a complaint for [i]llegal [d]ismissal by an
employee is inconsistent with abandonment."7
The respondents were ordered to pay the petitioner backwages, which
LA Gutierrez computed from the day he was dismissed, or on October
1, 2003, up to the promulgation of his Decision on May 11, 2005. In
lieu of reinstatement, the respondents were ordered to pay the
petitioner separation pay equivalent to his one (1) month salary in
consideration of his tenure with Royale, which lasted for only one (1)
month and three (3) days. In this regard, LA Gutierrez refused to
pierce Royales corporate veil for purposes of factoring the petitioners
length of service with Sceptre in the computation of his separation pay.
LA Gutierrez ruled that Royales corporate personality, which is
separate and distinct from that of Sceptre, a sole proprietorship owned
by the late Roso Sabalones (Roso) and later, Aida, cannot be pierced
absent clear and convincing evidence that Sceptre and Royale share
the same stockholders and incorporators and that Sceptre has complete
control and dominion over the finances and business affairs of Royale.
Specifically:
To support its prayer of piercing the veil of corporate entity of
respondent Royale, complainant avers that respondent Royal (sic) was
using the very same office of SCEPTRE in C. Padilla St., Cebu City.

In addition, all officers and staff of SCEPTRE are now the same
officers and staff of ROYALE, that all [the] properties of SCEPTRE
are now being owned by ROYALE and that ROYALE is now
occupying the property of SCEPTRE. We are not however, persuaded.
It should be pointed out at this juncture that SCEPTRE, is a single
proprietorship. Being so, it has no distinct and separate personality. It
is owned by the late Roso T. Sabalones. After the death of the owner,
the property is supposed to be divided by the heirs and any claim
against the sole proprietorship is a claim against Roso T. Sabalones.
After his death, the claims should be instituted against the estate of
Roso T. Sabalones. In short, the estate of the late Roso T. Sabalones
should have been impleaded as respondent of this case.
Complainant wanted to impress upon us that Sceptre was organized
into another entity now called Royale Security Agency. There is
however, no proof to this assertion. Likewise, there is no proof that
Roso T. Sabalones, organized his single proprietorship business into a
corporation, Royale Security Agency. On the contrary, the name of
Roso T. Sabalones does not appear in the Articles of Incorporation.
The names therein as incorporators are:
Bruno M. Kuizon -

[P]150,000.00

Wilfredo K. Tan -

100,000.00

Karen Therese S. Tan -

100,000.00

Cesar Antonio S. Tan -

100,000.00

Gabeth Maria K. Tan -

50,000.00

Complainant claims that two (2) of the incorporators are the

granddaughters of Roso T. Sabalones. This fact even give (sic) us
further reason to conclude that respondent Royal (sic) Security Agency
is not an alter ego or conduit of SCEPTRE. It is obvious that
respondent Royal (sic) Security Agency is not owned by the owner of
"SCEPTRE".

It may be true that the place where respondent Royale hold (sic) office
is the same office formerly used by "SCEPTRE." Likewise, it may be
true that the same officers and staff now employed by respondent
Royale Security Agency were the same officers and staff employed by
"SCEPTRE." We find, however, that these facts are not sufficient to
justify to require respondent Royale to answer for the liability of
Sceptre, which was owned solely by the late Roso T. Sabalones. As we
have stated above, the remedy is to address the claim on the estate of
Roso T. Sabalones.8

The NLRC partially affirmed LA Gutierrezs May 11, 2005 Decision.

It concurred with the latters finding that the petitioner was illegally
dismissed and the manner by which his separation pay was computed,
but modified the monetary award in the petitioners favor by reducing
the amount of his backwages from P95,600.00 toP15,600.00. The
NLRC determined the petitioners backwages as limited to three (3)
months of his last monthly salary, considering that his employment
with Royale was only for a period for one (1) month and three (3)
days, thus:11

The respondents appealed LA Gutierrezs May 11, 2005 Decision to

the NLRC, claiming that the finding of illegal dismissal was attended
with grave abuse of discretion. This appeal was, however, dismissed
by the NLRC in its November 30, 2005 Decision, 9 the dispositive
portion of which states:

On the other hand, while complainant is entitled to backwages, We are

aware that his stint with respondent Royal (sic) lasted only for one (1)
month and three (3) days such that it is Our considered view that his
backwages should be limited to only three (3) months.
Backwages:

WHEREFORE, premises considered, the Decision of the Labor

Arbiter declaring the illegal dismissal of complainant is
hereby AFFIRMED.
However[,] We modify the monetary award by limiting the grant of
backwages to only three (3) months in view of complainants very
limited service which lasted only for one month and three days.
1. Backwages -

[P]15,600.00

2. Separation Pay -

5,200.00

3. 13th Month Pay -

583.34

[P]21,383.34 Attorney's Fees -

2,138.33

Total

[P]23,521.67

The appeal of respondent Royal (sic) Security Agency is

hereby DISMISSED for lack of merit.
SO ORDERED.10

[P]5,200.00 x 3 months = [P]15,600.0012

The petitioner, on the other hand, did not appeal LA Gutierrezs May
11, 2005 Decision but opted to raise the validity of LA Gutierrezs
adverse findings with respect to piercing Royales corporate
personality and computation of his separation pay in his Reply to the
respondents Memorandum of Appeal. As the filing of an appeal is the
prescribed remedy and no aspect of the decision can be overturned by
a mere reply, the NLRC dismissed the petitioners efforts to reverse
LA Gutierrezs disposition of these issues. Effectively, the petitioner
had already waived his right to question LA Gutierrezs Decision when
he failed to file an appeal within the reglementary period. The NLRC
held:
On the other hand, in complainants Reply to Respondents Appeal
Memorandum he prayed that the doctrine of piercing the veil of
corporate fiction of respondent be applied so that his services with
Sceptre since 1976 [will not] be deleted. If complainant assails this
particular finding in the Labor Arbiters Decision, complainant should
have filed an appeal and not seek a relief by merely filing a Reply to
Respondents Appeal Memorandum.13

Consequently, the petitioner elevated the NLRCs November 30, 2005

Decision to the CA by way of a Petition forCertiorari under Rule 65 of
the Rules of Court. On the other hand, the respondents filed no appeal
from the NLRCs finding that the petitioner was illegally dismissed.
The CA, in consideration of substantial justice and the jurisprudential
dictum that an appealed case is thrown open for the appellate courts
review, disagreed with the NLRC and proceeded to review the
evidence on record to determine if Royale is Sceptres alter ego that
would warrant the piercing of its corporate veil.14 According to the
CA, errors not assigned on appeal may be reviewed as technicalities
should not serve as bar to the full adjudication of cases. Thus:
In Cuyco v. Cuyco, which We find application in the instant case, the
Supreme Court held:
"In their Reply, petitioners alleged that their petition only raised the
sole issue of interest on the interest due, thus, by not filing their own
petition for review, respondents waived their privilege to bring matters
for the Courts review that [does] not deal with the sole issue raised.
Procedurally, the appellate court in deciding the case shall consider
only the assigned errors, however, it is equally settled that the Court is
clothed with ample authority to review matters not assigned as errors
in an appeal, if it finds that their consideration is necessary to arrive at
a just disposition of the case."
Therefore, for full adjudication of the case, We have to primarily
resolve the issue of whether the doctrine of piercing the corporate veil
be justly applied in order to determine petitioners length of service
with private respondents.15 (citations omitted)
Nonetheless, the CA ruled against the petitioner and found the
evidence he submitted to support his allegation that Royale and
Sceptre are one and the same juridical entity to be wanting. The CA
refused to pierce Royales corporate mask as one of the "probative
factors that would justify the application of the doctrine of piercing the
corporate veil is stock ownership by one or common ownership of
both corporations" and the petitioner failed to present clear and

convincing proof that Royale and Sceptre are commonly owned or

controlled. The relevant portions of the CAs Decision state:
In the instant case, We find no evidence to show that Royale Security
Agency, Inc. (hereinafter "Royale"), a corporation duly registered with
the Securities and Exchange Commission (SEC) and Sceptre Security
Agency (hereinafter "Sceptre"), a single proprietorship, are one and the
same entity.
Petitioner, who has been with Sceptre since 1976 and, as ruled by both
the Labor Arbiter and the NLRC, was illegally dismissed by Royale on
October 1, 2003, alleged that in order to circumvent labor laws,
especially to avoid payment of money claims and the consideration on
the length of service of its employees, Royale was established as an
alter ego or business conduit of Sceptre. To prove his claim, petitioner
declared that Royale is conducting business in the same office of
Sceptre, the latter being owned by the late retired Gen. Roso
Sabalones, and was managed by the latters daughter, Dr. Aida
Sabalones-Tan; that two of Royales incorporators are grandchildren
[of] the late Gen. Roso Sabalones; that all the properties of Sceptre are
now owned by Royale, and that the officers and staff of both business
establishments are the same; that the heirs of Gen. Sabalones should
have applied for dissolution of Sceptre before the SEC before forming
a new corporation.
On the other hand, private respondents declared that Royale was
incorporated only on March 10, 2003 as evidenced by the Certificate
of Incorporation issued by the SEC on the same date; that Royales
incorporators are Bruino M. Kuizon, Wilfredo Gracia K. Tan, Karen
Therese S. Tan, Cesar Antonio S. Tan II and [Gabeth] Maria K. Tan.
Settled is the tenet that allegations in the complaint must be duly
proven by competent evidence and the burden of proof is on the party
making the allegation. Further, Section 1 of Rule 131 of the Revised
Rules of Courtprovides:
"SECTION 1. Burden of proof. Burden of proof is the duty of a party
to present evidence on the facts in issue necessary to establish his
claim or defense by the amount of evidence required by law."

We believe that petitioner did not discharge the required burden of

proof to establish his allegations. As We see it, petitioners claim that
Royale is an alter ego or business conduit of Sceptre is without basis
because aside from the fact that there is no common ownership of both
Royale and Sceptre, no evidence on record would prove that Sceptre,
much less the late retired Gen. Roso Sabalones or his heirs, has control
or complete domination of Royales finances and business
transactions. Absence of this first element, coupled by petitioners
failure to present clear and convincing evidence to substantiate his
allegations, would prevent piercing of the corporate veil. Allegations
must be proven by sufficient evidence. Simply stated, he who alleges a
fact has the burden of proving it; mere allegation is not
evidence.16 (citations omitted)
By way of this Petition, the petitioner would like this Court to revisit
the computation of his backwages, claiming that the same should be
computed from the time he was illegally dismissed until the finality of
this decision.17 The petitioner would likewise have this Court review
and examine anew the factual allegations and the supporting evidence
to determine if the CA erred in its refusal to pierce Royales corporate
mask and rule that it is but a mere continuation or successor of
Sceptre. According to the petitioner, the erroneous computation of his
separation pay was due to the CAs failure, as well as the NLRC and
LA Gutierrez, to consider evidence conclusively demonstrating that
Royale and Sceptre are one and the same juridical entity. The
petitioner claims that since Royale is no more than Sceptres alter ego,
it should recognize and credit his length of service with Sceptre.18
The petitioner claimed that Royale and Sceptre are not separate legal
persons for purposes of computing the amount of his separation pay
and other benefits under the Labor Code. The piercing of Royales
corporate personality is justified by several indicators that Royale was
incorporated for the sole purpose of defeating his right to security of
tenure and circumvent payment of his benefits to which he is entitled
under the law: (i) Royale was holding office in the same property used
by Sceptre as its principal place of business;19 (ii) Sceptre and Royal
have the same officers and employees;20 (iii) on October 14, 1994,
Roso, the sole proprietor of Sceptre, sold to Aida, and her husband,
Wilfredo Gracia K. Tan (Wilfredo),21 the property used by Sceptre as

its principal place of business;22 (iv) Wilfredo is one of the

incorporators of Royale;23 (v) on May 3, 1999, Roso ceded the license
to operate Sceptre issued by the Philippine National Police to
Aida;24 (vi) on July 28, 1999, the business name "Sceptre Security &
Detective Agency" was registered with the Department of Trade and
Industry (DTI) under the name of Aida;25 (vii) Aida exercised control
over the affairs of Sceptre and Royale, as she was, in fact, the one who
dismissed the petitioner from employment;26 (viii) Karen, the daughter
of Aida, was Sceptres Operation Manager and is one of the
incorporators of Royale;27 and (ix) Cesar Tan II, the son of Aida was
one of Sceptres officers and is one of the incorporators of Royale.28
In their Comment, the respondents claim that the petitioner is barred
from questioning the manner by which his backwages and separation
pay were computed. Earlier, the petitioner moved for the execution of
the NLRCs November 30, 2005 Decision29 and the respondents paid
him the full amount of the monetary award thereunder shortly after the
writ of execution was issued.30 The respondents likewise maintain that
Royales separate and distinct corporate personality should be
respected considering that the evidence presented by the petitioner fell
short of establishing that Royale is a mere alter ego of Sceptre.
The petitioner does not deny that he has received the full amount of
backwages and separation pay as provided under the NLRCs
November 30, 2005 Decision.31 However, he claims that this does not
preclude this Court from modifying a decision that is tainted with
grave abuse of discretion or issued without jurisdiction.32
ISSUES
Considering the conflicting submissions of the parties, a judicious
determination of their respective rights and obligations requires this
Court to resolve the following substantive issues:
a. Whether Royales corporate fiction should be pierced for the
purpose of compelling it to recognize the petitioners length of
service with Sceptre and for holding it liable for the benefits
that have accrued to him arising from his employment with
Sceptre; and

b. Whether the petitioners backwages should be limited to his

salary for three (3) months.
OUR RULING
Because his receipt of the proceeds of the award under the
NLRCs November 30, 2005 Decision is qualified and without
prejudice to the CAs resolution of his petition for certiorari, the
petitioner is not barred from exercising his right to elevate the
decision of the CA to this Court.
Before this Court proceeds to decide this Petition on its merits, it is
imperative to resolve the respondents contention that the full
satisfaction of the award under the NLRCs November 30, 2005
Decision bars the petitioner from questioning the validity thereof. The
respondents submit that they had paid the petitioner the amount
of P21,521.67 as directed by the NLRC and this constitutes a waiver of
his right to file an appeal to this Court.
The respondents fail to convince.
The petitioners receipt of the monetary award adjudicated by the
NLRC is not absolute, unconditional and unqualified. The petitioners
May 3, 2007 Motion for Release contains a reservation, stating in his
prayer that: "it is respectfully prayed that the respondents and/or Great
Domestic Insurance Co. be ordered to RELEASE/GIVE the amount
of P23,521.67 in favor of the complainant TIMOTEO H. SARONA
without prejudice to the outcome of the petition with the CA."33
In Leonis Navigation Co., Inc., et al. v. Villamater, et al.,34 this Court
ruled that the prevailing partys receipt of the full amount of the
judgment award pursuant to a writ of execution issued by the labor
arbiter does not close or terminate the case if such receipt is qualified
as without prejudice to the outcome of the petition
for certioraripending with the CA.1avvphi1
Simply put, the execution of the final and executory decision or
resolution of the NLRC shall proceed despite the pendency of a
petition for certiorari, unless it is restrained by the proper court. In the

present case, petitioners already paid Villamaters widow, Sonia, the

amount of P3,649,800.00, representing the total and permanent
disability award plus attorneys fees, pursuant to the Writ of Execution
issued by the Labor Arbiter. Thereafter, an Order was issued declaring
the case as "closed and terminated". However, although there was no
motion for reconsideration of this last Order, Sonia was, nonetheless,
estopped from claiming that the controversy had already reached its
end with the issuance of the Order closing and terminating the case.
This is because the Acknowledgment Receipt she signed when she
received petitioners payment was without prejudice to the final
outcome of the petition for certiorari pending before the CA.35
The finality of the NLRCs decision does not preclude the filing of a
petition for certiorari under Rule 65 of the Rules of Court. That the
NLRC issues an entry of judgment after the lapse of ten (10) days
from the parties receipt of its decision 36 will only give rise to the
prevailing partys right to move for the execution thereof but will not
prevent the CA from taking cognizance of a petition for certiorari on
jurisdictional and due process considerations.37 In turn, the decision
rendered by the CA on a petition for certiorari may be appealed to this
Court by way of a petition for review on certiorari under Rule 45 of
the Rules of Court. Under Section 5, Article VIII of the Constitution,
this Court has the power to "review, revise, reverse, modify, or affirm
on appeal or certiorari as the law or the Rules of Court may provide,
final judgments and orders of lower courts in x x x all cases in which
only an error or question of law is involved." Consistent with this
constitutional mandate, Rule 45 of the Rules of Court provides the
remedy of an appeal by certiorari from decisions, final orders or
resolutions of the CA in any case, i.e., regardless of the nature of the
action or proceedings involved, which would be but a continuation of
the appellate process over the original case.38 Since an appeal to this
Court is not an original and independent action but a continuation of
the proceedings before the CA, the filing of a petition for review under
Rule 45 cannot be barred by the finality of the NLRCs decision in the
same way that a petition for certiorari under Rule 65 with the CA
cannot.
Furthermore, if the NLRCs decision or resolution was reversed and
set aside for being issued with grave abuse of discretion by way of a

petition for certiorari to the CA or to this Court by way of an appeal

from the decision of the CA, it is considered void ab initio and, thus,
had never become final and executory.39
A Rule 45 Petition should be confined to questions of law.
Nevertheless, this Court has the power to resolve a question of
fact, such as whether a corporation is a mere alter ego of another
entity or whether the corporate fiction was invoked for fraudulent
or malevolent ends, if the findings in assailed decision is not
supported by the evidence on record or based on a
misapprehension of facts.
The question of whether one corporation is merely an alter ego of
another is purely one of fact. So is the question of whether a
corporation is a paper company, a sham or subterfuge or whether the
petitioner adduced the requisite quantum of evidence warranting the
piercing of the veil of the respondents corporate personality.40
As a general rule, this Court is not a trier of facts and a petition for
review on certiorari under Rule 45 of the Rules of Court must
exclusively raise questions of law. Moreover, if factual findings of the
NLRC and the LA have been affirmed by the CA, this Court accords
them the respect and finality they deserve. It is well-settled and oftrepeated that findings of fact of administrative agencies and quasijudicial bodies, which have acquired expertise because their
jurisdiction is confined to specific matters, are generally accorded not
only respect, but finality when affirmed by the CA. 41
Nevertheless, this Court will not hesitate to deviate from what are
clearly procedural guidelines and disturb and strike down the findings
of the CA and those of the labor tribunals if there is a showing that
they are unsupported by the evidence on record or there was a patent
misappreciation of facts. Indeed, that the impugned decision of the CA
is consistent with the findings of the labor tribunals does not per
se conclusively demonstrate the correctness thereof. By way of
exception to the general rule, this Court will scrutinize the facts if only
to rectify the prejudice and injustice resulting from an incorrect
assessment of the evidence presented.

A resolution of an issue that has supposedly become final and

executory as the petitioner only raised it in his reply to the
respondents appeal may be revisited by the appellate court if such
is necessary for a just disposition of the case.
As above-stated, the NLRC refused to disturb LA Gutierrezs denial of
the petitioners plea to pierce Royales corporate veil as the petitioner
did not appeal any portion of LA Gutierrezs May 11, 2005 Decision.
In this respect, the NLRC cannot be accused of grave abuse of
discretion. Under Section 4(c), Rule VI of the NLRC Rules,42 the
NLRC shall limit itself to reviewing and deciding only the issues that
were elevated on appeal. The NLRC, while not totally bound by
technical rules of procedure, is not licensed to disregard and violate the
implementing rules it implemented. 43
Nonetheless, technicalities should not be allowed to stand in the way
of equitably and completely resolving the rights and obligations of the
parties. Technical rules are not binding in labor cases and are not to be
applied strictly if the result would be detrimental to the working
man.44 This Court may choose not to encumber itself with
technicalities and limitations consequent to procedural rules if such
will only serve as a hindrance to its duty to decide cases judiciously
and in a manner that would put an end with finality to all existing
conflicts between the parties.
Royale is a continuation or successor of Sceptre.
A corporation is an artificial being created by operation of law. It
possesses the right of succession and such powers, attributes, and
properties expressly authorized by law or incident to its existence. It
has a personality separate and distinct from the persons composing it,
as well as from any other legal entity to which it may be related. This
is basic.45
Equally well-settled is the principle that the corporate mask may be
removed or the corporate veil pierced when the corporation is just an
alter ego of a person or of another corporation. For reasons of public
policy and in the interest of justice, the corporate veil will justifiably

be impaled only when it becomes a shield for fraud, illegality or

inequity committed against third persons.46
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 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.47
Whether the separate personality of the corporation should be pierced
hinges on obtaining facts appropriately pleaded or proved. However,
any piercing of the corporate veil has to be done with caution, albeit
the Court will not hesitate to disregard the corporate veil when it is
misused or when necessary in the interest of justice. After all, the
concept of corporate entity was not meant to promote unfair
objectives.48
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 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.49
In this regard, this Court finds cogent reason to reverse the CAs
findings. Evidence abound showing that Royale is a mere continuation
or successor of Sceptre and fraudulent objectives are behind Royales
incorporation and the petitioners subsequent employment therein.
These are plainly suggested by events that the respondents do not
dispute and which the CA, the NLRC and LA Gutierrez accept as fully
substantiated but misappreciated as insufficient to warrant the use of
the equitable weapon of piercing.

As correctly pointed out by the petitioner, it was Aida who exercised

control and supervision over the affairs of both Sceptre and Royale.
Contrary to the submissions of the respondents that Roso had been the
only one in sole control of Sceptres finances and business affairs,
Aida took over as early as 1999 when Roso assigned his license to
operate Sceptre on May 3, 1999.50 As further proof of Aidas
acquisition of the rights as Sceptres sole proprietor, she caused the
registration of the business name "Sceptre Security & Detective
Agency" under her name with the DTI a few months after Roso
abdicated his rights to Sceptre in her favor.51 As far as Royale is
concerned, the respondents do not deny that she has a hand in its
management and operation and possesses control and supervision of
its employees, including the petitioner. As the petitioner correctly
pointed out, that Aida was the one who decided to stop giving any
assignments to the petitioner and summarily dismiss him is an
eloquent testament of the power she wields insofar as Royales affairs
are concerned. The presence of actual common control coupled with
the misuse of the corporate form to perpetrate oppressive or
manipulative conduct or evade performance of legal obligations is
patent; Royale cannot hide behind its corporate fiction.
Aidas control over Sceptre and Royale does not, by itself, call for a
disregard of the corporate fiction. There must be a showing that a
fraudulent intent or illegal purpose is behind the exercise of such
control to warrant the piercing of the corporate veil.52 However, the
manner by which the petitioner was made to resign from Sceptre and
how he became an employee of Royale suggest the perverted use of
the legal fiction of the separate corporate personality.lavvphil It is
undisputed that the petitioner tendered his resignation and that he
applied at Royale at the instance of Karen and Cesar and on the
impression they created that these were necessary for his continued
employment. They orchestrated the petitioners resignation from
Sceptre and subsequent employment at Royale, taking advantage of
their ascendancy over the petitioner and the latters lack of knowledge
of his rights and the consequences of his actions. Furthermore, that the
petitioner was made to resign from Sceptre and apply with Royale
only to be unceremoniously terminated shortly thereafter leads to the
ineluctable conclusion that there was intent to violate the petitioners
rights as an employee, particularly his right to security of tenure. The

respondents scheme reeks of bad faith and fraud and compassionate

justice dictates that Royale and Sceptre be merged as a single entity,
compelling Royale to credit and recognize the petitioners length of
service with Sceptre. The respondents cannot use the legal fiction of a
separate corporate personality for ends subversive of the policy and
purpose behind its creation53 or which could not have been intended by
law to which it owed its being.54
For the piercing doctrine to apply, it is of no consequence if Sceptre is
a sole proprietorship. As ruled in Prince Transport, Inc., et al. v.
Garcia, et al.,55 it is the act of hiding behind the separate and distinct
personalities of juridical entities to perpetuate fraud, commit illegal
acts, evade ones obligations that the equitable piercing doctrine was
formulated to address and prevent:
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. In the present case, it may be true that Lubas is a
single proprietorship and not a corporation. 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.56
Also, Sceptre and Royale have the same principal place of business.
As early as October 14, 1994, Aida and Wilfredo became the owners
of the property used by Sceptre as its principal place of business by
virtue of a Deed of Absolute Sale they executed with Roso. 57 Royale,
shortly after its incorporation, started to hold office in the same
property. These, the respondents failed to dispute.

The respondents do not likewise deny that Royale and Sceptre share
the same officers and employees. Karen assumed the dual role of
Sceptres Operation Manager and incorporator of Royale. With respect
to the petitioner, even if he has already resigned from Sceptre and has
been employed by Royale, he was still using the patches and agency
cloths of Sceptre during his assignment at Highlight Metal.
Royale also claimed a right to the cash bond which the petitioner
posted when he was still with Sceptre. If Sceptre and Royale are
indeed separate entities, Sceptre should have released the petitioners
cash bond when he resigned and Royale would have required the
petitioner to post a new cash bond in its favor.
Taking the foregoing in conjunction with Aidas control over Sceptres
and Royales business affairs, it is patent that Royale was a mere
subterfuge for Aida. Since a sole proprietorship does not have a
separate and distinct personality from that of the owner of the
enterprise, the latter is personally liable. This is what she sought to
avoid but cannot prosper.
Effectively, the petitioner cannot be deemed to have changed
employers as Royale and Sceptre are one and the same. His separation
pay should, thus, be computed from the date he was hired by Sceptre
in April 1976 until the finality of this decision. Based on this Courts
ruling in Masagana Concrete Products, et al. v. NLRC, et al.,58 the
intervening period between the day an employee was illegally
dismissed and the day the decision finding him illegally dismissed
becomes final and executory shall be considered in the computation of
his separation pay as a period of "imputed" or "putative" service:
Separation pay, equivalent to one month's salary for every year of
service, is awarded as an alternative to reinstatement when the latter is
no longer an option. Separation pay is computed from the
commencement of employment up to the time of termination,
including the imputed service for which the employee is entitled to
backwages, with the salary rate prevailing at the end of the period of
putative service being the basis for computation.59

It is well-settled, even axiomatic, that if reinstatement is not

possible, the period covered in the computation of backwages is
from the time the employee was unlawfully terminated until the
finality of the decision finding illegal dismissal.
With respect to the petitioners backwages, this Court cannot subscribe
to the view that it should be limited to an amount equivalent to three
(3) months of his salary. Backwages is a remedy affording the
employee a way to recover what he has lost by reason of the unlawful
dismissal.60 In awarding backwages, the primordial consideration is the
income that should have accrued to the employee from the time that he
was dismissed up to his reinstatement 61 and the length of service prior
to his dismissal is definitely inconsequential.
As early as 1996, this Court, in Bustamante, et al. v. NLRC, et
al.,62 clarified in no uncertain terms that if reinstatement is no longer
possible, backwages should be computed from the time the employee
was terminated until the finality of the decision, finding the dismissal
unlawful.
Therefore, in accordance with R.A. No. 6715, petitioners are entitled
on their full backwages, inclusive of allowances and other benefits or
their monetary equivalent, from the time their actual compensation
was withheld on them up to the time of their actual reinstatement.
As to reinstatement of petitioners, this Court has already ruled that
reinstatement is no longer feasible, because the company would be
adjustly prejudiced by the continued employment of petitioners who at
present are overage, a separation pay equal to one-month salary
granted to them in the Labor Arbiter's decision was in order and,
therefore, affirmed on the Court's decision of 15 March
1996. Furthermore, since reinstatement on this case is no longer
feasible, the amount of backwages shall be computed from the
time of their illegal termination on 25 June 1990 up to the time of
finality of this decision.63 (emphasis supplied)
A further clarification was made in Javellana, Jr. v. Belen:64

Article 279 of the Labor Code, as amended by Section 34 of Republic

Act 6715 instructs:
Art. 279. Security of Tenure. - In cases of regular employment, the
employer shall not terminate the services of an employee except for a
just cause or when authorized by this Title. An employee who is
unjustly dismissed from work shall be entitled to reinstatement without
loss of seniority rights and other privileges and to his full backwages,
inclusive of allowances, and to his other benefits or their monetary
equivalent computed from the time his compensation was withheld
from him up to the time of his actual reinstatement.
Clearly, the law intends the award of backwages and similar benefits to
accumulate past the date of the Labor Arbiter's decision until the
dismissed employee is actually reinstated. But if, as in this case,
reinstatement is no longer possible, this Court has consistently ruled
that backwages shall be computed from the time of illegal dismissal
until the date the decision becomes final.65 (citation omitted)
In case separation pay is awarded and reinstatement is no longer
feasible, backwages shall be computed from the time of illegal
dismissal up to the finality of the decision should separation pay not be
paid in the meantime. It is the employees actual receipt of the full
amount of his separation pay that will effectively terminate the
employment of an illegally dismissed employee.66 Otherwise, the
employer-employee relationship subsists and the illegally dismissed
employee is entitled to backwages, taking into account the increases
and other benefits, including the 13th month pay, that were received by
his co-employees who are not dismissed.67 It is the obligation of the
employer to pay an illegally dismissed employee or worker the whole
amount of the salaries or wages, plus all other benefits and
bonuses and general increases, to which he would have been normally
entitled had he not been dismissed and had not stopped working.68
In fine, this Court holds Royale liable to pay the petitioner backwages
to be computed from his dismissal on October 1, 2003 until the finality
of this decision. Nonetheless, the amount received by the petitioner
from the respondents in satisfaction of the November 30, 2005
Decision shall be deducted accordingly.

Finally, moral damages and exemplary damages at P25,000.00 each as

indemnity for the petitioners dismissal, which was tainted by bad faith
and fraud, are in order. Moral damages may be recovered where the
dismissal of the employee was tainted by bad faith or fraud, or where it
constituted an act oppressive to labor, and done in a manner contrary
to morals, good customs or public policy while exemplary damages
are recoverable only if the dismissal was done in a wanton, oppressive,
or malevolent manner.69

Republic
SUPREME
Manila

WHEREFORE,
premises
considered,
the
Petition
is
hereby GRANTED. We REVERSE and SET ASIDE the CAs May
29, 2008 Decision in C.A.-G.R. SP No. 02127 and order the
respondents to pay the petitioner the following minus the amount of
(P23,521.67) paid to the petitioner in satisfaction of the NLRCs
November 30, 2005 Decision in NLRC Case No. V-000355-05:

WENSHA SPA CENTER, INC. and/or XU ZHI JIE, Petitioners,

vs.
LORETA T. YUNG, Respondent.

a) full backwages and other benefits computed from October 1,

2003 (the date Royale illegally dismissed the petitioner) until
the finality of this decision;
b) separation pay computed from April 1976 until the finality
of this decision at the rate of one month pay per year of
service;
c) ten percent (10%) attorneys fees based on the total amount
of the awards under (a) and (b) above;
d) moral damages
(P25,000.00); and

of

Twenty-Five

Thousand

Pesos

e) exemplary damages of Twenty-Five Thousand Pesos

(P25,000.00).
This case is REMANDED to the labor arbiter for computation of the
separation pay, backwages, and other monetary awards due the
petitioner.
SO ORDERED.

of

the

Philippines
COURT

SECOND DIVISION
G.R. No. 185122

August 16, 2010

DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of
Court filed by an employer who was charged before the National
Labor Relations Commission (NLRC) for dismissing an employee
upon the advice of a Feng Shui master. In this action, the petitioners
assail the May 28, 2008 Decision1 and October 23, 2008 Resolution2 of
the Court of Appeals (CA) in CA-G.R. SP No. 98855 entitled Loreta T.
Yung v. National Labor Relations Commission, Wensha Spa Center,
Inc. and/or Xu Zhi Jie.
THE FACTS:
Wensha Spa Center, Inc. (Wensha) in Quezon City is in the business of
sauna bath and massage services. Xu Zhi Jie a.k.a. Pobby Co (Xu) is
its president,3 respondent Loreta T. Yung (Loreta) was its
administrative manager at the time of her termination from
employment.
In her position paper,4 Loreta stated that she used to be employed by
Manmen Services Co., Ltd. (Manmen) where Xu was a client. Xu was

apparently impressed by Loretas performance. After he established

Wensha, he convinced Loreta to transfer and work at Wensha. Loreta
was initially reluctant to accept Xus offer because her job at Manmen
was stable and she had been with Manmen for seven years. But Xu
was persistent and offered her a higher pay. Enticed, Loreta resigned
from Manmen and transferred to Wensha. She started working on April
21, 2004 as Xus personal assistant and interpreter at a monthly salary
of P12,000.00.
Loreta introduced positive changes to Wensha which resulted in
increased business. This pleased Xu so that on May 18, 2004, she was
promoted to the position of Administrative Manager.5
Loreta recounted that on August 10, 2004, she was asked to leave her
office because Xu and a Feng Shui master were exploring the
premises. Later that day, Xu asked Loreta to go on leave with pay for
one month. She did so and returned on September 10, 2004. Upon her
return, Xu and his wife asked her to resign from Wensha because,
according to the Feng Shui master, her aura did not match that of Xu.
Loreta refused but was informed that she could no longer continue
working at Wensha. That same afternoon, Loreta went to the NLRC
and filed a case for illegal dismissal against Xu and Wensha.
Wensha and Xu denied illegally terminating Loretas employment.
They claimed that two months after Loreta was hired, they received
various complaints against her from the employees so that on August
10, 2004, they advised her to take a leave of absence for one month
while they conducted an investigation on the matter. Based on the
results of the investigation, they terminated Loretas employment on
August 31, 2004 for loss of trust and confidence.6

The Labor Arbiter (LA) Francisco Robles dismissed Loretas complaint

for lack of merit. He found it more probable that Loreta was dismissed
from her employment due to Wenshas loss of trust and confidence in
her. The LAs decision7 partly reads:
However, this office has found it dubious and hard to believe the
contentions made by the complainant that she was dismissed by the
respondents on the sole ground that she is a "mismatch" in
respondents' business as advised by an alleged Feng Shui Master. The
complainant herself alleged in her position paper that she has done
several improvements in respondents business such as uplifting the
morale and efficiency of its employees and increasing respondents
clientele, and that respondent Co was very much pleased with the
improvements made by the complainant that she was offered twice a
promotion but she nevertheless declined. It would be against human
experience and contrary to business acumen to let go of someone, who
was an asset and has done so much for the company merely on the
ground that she is a "mismatch" to the business. Absent any proof
submitted by the complainant, this office finds it more probable that
the complainant was dismissed due to loss of trust and confidence.8
This ruling was affirmed by the NLRC in its December 29, 2006
Resolution,9 citing its observation that Wensha was still considering
the proper action to take on the day Loreta left Wensha and filed her
complaint. The NLRC added that this finding was bolstered by
Wenshas September 10, 2004 letter to Loreta asking her to come back
to personally clarify some matters, but she declined because she had
already filed a case.
Loreta moved for a reconsideration of the NLRCs ruling but her
motion was denied. Loreta then went to the CA on a petition for
certiorari. The CA reversed the ruling of the NLRC on the ground that
it gravely abused its discretion in appreciating the factual bases that

led to Loretas dismissal. The CA noted that there were irregularities

and inconsistencies in Wenshas position. The CA stated the following:
We, thus, peruse the affidavits and documentary evidence of the
Private Respondents and find the following:First, on the affidavits of
their witnesses, it must be noted that the same were mere photocopies.
It was held that [T]he purpose of the rule in requiring the production
of the best evidence is the prevention of fraud, because if a party is in
possession of such evidence and withholds it, and seeks to substitute
inferior evidence in its place, the presumption naturally arise[s] that
the better evidence is withheld for fraudulent purposes which its
production would expose and defeat. Moreover, the affidavits were not
executed under oath. The rule is that an affiant must sign the document
in the presence of and take his oath before a notary public as evidence
that the affidavit was properly made. Guided by these principles, the
affidavits cannot be assigned any weighty probative value and are
mere scraps of paper the contents of which are hearsay. Second, on the
sales report and order slips, which allegedly prove that Yung had been
charging her food and drinks to Wensha, the said pieces of evidence do
not, however, bear Yungs name thereon or even her signature. In fact,
it does not state anyones name, except that of Wensha. Hence, it
would simply be capricious to pinpoint, or impute, on Yung as the
author in charging such expenses to Wensha on the basis of hearsay
evidence. Third, while the affidavit of Wenshas Operations Manager,
Princess delos Reyes (delos Reyes), may have been duly executed
under oath, she did not, however, specify the alleged infractions that
Yung committed. If at all, delos Reyes only made general statements
on the alleged complaints against Yung that were not even
substantiated by any other piece of evidence. Finally, the daily time
records (DTRs) of Yung, which supposedly prove her habitual
tardiness, were mere photocopies that are not even signed by Wenshas
authorized representative, thus suspect, if not violative of the best
evidence rule and, therefore, incompetent evidence. x x x [Emphases
appear in the original]

x x x x.
Finally, after the Private Respondents filed their position paper, they
alleged mistake on the part of their former counsel in stating that Yung
was dismissed on August 31, 2004. Thus, they subsequently moved for
the admission of their rejoinder. Notably, however, the said rejoinder
was dated October 4, 2004, earlier than the date when their position
paper was filed, which was on November 3, 2004. It is also puzzling
that their position paper was dated November 25, 2004, much later
than its date of filing. The irregularities are simply too glaring to be
ignored. Nevertheless, the Private Respondents admission of Yungs
termination on August 31, 2004 cannot be retracted. They cannot use
the mistake of their counsel as an excuse considering that the position
paper was verified by their Operations Manager, delos Reyes, who
attested to the truth of the contents therein.10 [Emphasis supplied]
Hence, the fallo of the CA decision reads:
WHEREFORE, the instant petition is GRANTED. Wensha Spa Center,
Inc. and Xu Zhi Jie are ORDERED to, jointly and severally, pay
Loreta T. Yung her full backwages, other privileges, and benefits, or
their monetary equivalent, corresponding to the period of her dismissal
from September 1, 2004 up to the finality of this decision, and
damages in the amounts of fifty thousand pesos (Php50,000.00) as
moral damages, twenty five thousand pesos (Php25,000.00) as
exemplary damages, and twenty thousand pesos (Php20,000.00) as
attorneys fees. No costs.
SO ORDERED.11
Wensha and Xu now assail this ruling of the CA in this petition
presenting the following:
V. GROUNDS FOR THE ALLOWANCE OF THE PETITION

5.1 The following are the reasons and arguments, which are
purely questions of law and some questions of facts, which
justify the appeal by certiorari under Rule 45 of the 1997
Revised Rules of Civil Procedure, as amended, to this
Honorable SUPREME COURT of the assailed Decision and
Resolution, to wit:
5.1.1 The Honorable COURT OF APPEALS gravely erred in
reversing that factual findings of the Honorable Labor Arbiter
and the Honorable NLRC (Third Division) notwithstanding
recognized and established rule in our jurisdiction that findings
of facts of quasi-judicial agencies who have gained expertise
on their respective subject matters are given respect and
finality;
5.1.2 The Honorable COURT OF APPEALS committed grave
abuse of discretion and serious errors when it ruled that
findings of facts of the Honorable Labor Arbiter and the
Honorable NLRC are not supported by substantial evidence
despite the fact that the records clearly show that petitioner
therein was not dismissed but is under investigation, and that
she is guilty of serious infractions that warranted her
termination;
5.1.3 The Honorable COURT OF APPEALS grave[ly] erred
when it ordered herein petitioner to pay herein respondent her
separation pay, in lieu of reinstatement, and full backwages, as
well as damages and attorneys fees;
5.1.4 The Honorable COURT OF APPEALS committed grave
abuse of discretion and serious errors when it held that
petitioner XU ZHI JIE to be solidarily liable with WENSHA,
assuming that respondent was illegally dismissed;

5.2 The same need to be corrected as they would work injustice

to the herein petitioner, grave and irreparable damage will be
done to him, and would pose dangerous precedent.12
THE COURTS RULING:
Loretas security of tenure is guaranteed by the Constitution and the
Labor Code. The 1987 Philippine Constitution provides in Section 18,
Article II that the State shall protect the rights of workers and promote
their welfare. Section 3, Article XIII also provides that all workers
shall be entitled to security of tenure. Along that line, Article 3 of the
Labor Code mandates that the State shall assure the rights of workers
to security of tenure.
Under the security of tenure guarantee, a worker can only be
terminated from his employment for cause and after due process. For a
valid termination by the employer: (1) the dismissal must be for a valid
cause as provided in Article 282, or for any of the authorized causes
under Articles 283 and 284 of the Labor Code; and (2) the employee
must be afforded an opportunity to be heard and to defend himself. A
just and valid cause for an employees dismissal must be supported by
substantial evidence, and before the employee can be dismissed, he
must be given notice and an adequate opportunity to be heard. 13 In the
process, the employer bears the burden of proving that the dismissal of
an employee was for a valid cause. Its failure to discharge this burden
renders the dismissal unjustified and, therefore, illegal.14
As a rule, the factual findings of the court below are conclusive on Us
in a petition for review on certiorari where We review only errors of
law. This case, however, is an exception because the CAs factual
findings are not congruent with those of the NLRC and the LA.
According to Wensha in its position paper,15 it dismissed Loreta on
August 31, 2004 after investigating the complaints against her. Wensha

asserted that her dismissal was a valid exercise of an employers right

to terminate a managerial employee for loss of trust and confidence. It
claimed that she caused the resignation of an employee because of
gossips initiated by her. It was the reason she was asked to take a leave
of absence with pay for one month starting August 10, 2004.16
Wensha also alleged that Loreta was "sowing intrigues in the
company" which was inimical to Wensha. She was also accused of
dishonesty, serious breach of trust reposed in her, tardiness, and abuse
of authority.17
In its Rejoinder, Wensha changed its position claiming that it did not
terminate Loretas employment on August 31, 2004. It even sent her a
notice requesting her to report back to work. She, however, declined
because she had already filed her complaint.18
As correctly found by the CA, the cause of Loretas dismissal is
questionable. Loss of trust and confidence to be a valid ground for
dismissal must have basis and must be founded on clearly established
facts.19
The Court finds the LA ruling that states, "[a]bsent any proof
submitted by the complainant, this office finds it more probable that
the complainant was dismissed due to loss of trust and
confidence,"20 to be utterly erroneous as it is contrary to the applicable
rules and pertinent jurisprudence. The onus of proving a valid
dismissal rests on the employer, not on the employee. 21 It is the
employer who bears the burden of proving that its dismissal of the
employee is for a valid or authorized cause supported by substantial
evidence. 22
According to the NLRC, "[p]erusal of the entire records show that
complainant left the respondents premises when she was confronted
with the infractions imputed against her." 23 This information was taken

from the affidavit24 of Princess Delos Reyes (Delos Reyes) which was
dated March 21, 2005, not in Wenshas earlier position paper or
pleadings submitted to the LA. The affidavits 25 of employees attached
to Delos Reyes affidavit were all dated November 19, 2004 indicating
that they were not yet executed when the complaints against Loreta
were supposedly being investigated in August 2004.
It is also noteworthy that Wenshas position paper related that because
of the gossips perpetrated by Loreta, a certain Oliva
Gonzalo (Gonzalo) resigned from Wensha. Because of the incident,
Gonzalo, whose father was a policeman, "reportedly got angry with
complainant and of the management telling her friends at respondent
company that she would retaliate thus creating fear among those
concerned."26 As a result, Loreta was advised to take a paid leave of
absence for one month while Wensha conducted an investigation.
According to Loreta, however, the reason for her termination was her
aura did not match that of Xu and the work environment at Wensha.
Loreta narrated:
On August 10, 2004 however, complainant was called by respondent
Xu and told her to wait at the lounge area while the latter and a Feng
Shui Master were doing some analysis of the office. After several
hours of waiting, respondent Xu then told complainant that according
to the Feng Shui master her Chinese Zodiac sign is a "mismatch" with
that of the respondents; that complainant should not enter the
administrative office for a month while an altar was to be placed on the
left side where complainant has her table to allegedly correct the
"mismatch" and that it is necessary that offerings and prayers have to
be made and said for about a month to correct the alleged "jinx."
Respondent Xu instructed complainant not to report to the office for a
month with assurance of continued and regular salary. She was ordered
not to seek employment elsewhere and was told to come back on the
10th of September 2004.27

Although she was a little confused, Loreta did as she was instructed
and did not report for work for a month. She returned to work on
September 10, 2004. This is how Loreta recounted the events of that
day:
On September 10, 2004, in the morning, complainant reported to the
office of respondents. As usual, she punched-in her time card and
signed in the logbook of the security guard. When she entered the
administrative office, some of its employees immediately contacted
respondent Xu. Respondent Xu then contacted complainant thru her
mobile phone and told her to leave the administrative office
immediately and instead to wait for him in the dining area.
xxx
Complainant waited for respondent Xu in the dining area. After
waiting for about two (2) hours, respondent Xu was nowhere. Instead,
it was Jiang Xue Qin a.k.a Annie Co, the Chinese wife of respondent
Xu, who arrived and after a short conversation between them, the
former frankly told complainant that she has to resign allegedly she is
a mismatch to respondent Xu according to the Feng Shui master and
therefore she does not fit to work (sic) with the respondents. Surprised
and shocked, complainant demanded of Jiang Xue Qin to issue a letter
of termination if it were the reason therefor.
Instead of a termination letter issued, Jiang Xue Qin insisted for the
complainant's resignation. But when complainant stood her ground,
Jian Xue Qin shouted invectives at her and told to leave the office
immediately.
Respondent Xu did not show up but talked to the complainant over the
mobile phone and convinced her likewise to resign from the company
since there is no way to retain her because her aura unbalanced the
area of employment according to the Feng Shui, the Chinese spiritual

art of placement. Hearing this from no lees than respondent Xu,

complainant left the office and went straight to this Office and filed the
present case on September 10, 2004. xxx28
Loreta also alleged that in the afternoon of that day, September 10,
2004, a notice was posted on the Wensha bulletin board that reads:
TO ALL EMPLOYEES OF WENSHA SPA CENTER
WE WOULD LIKE TO INFORM YOU THAT MS. LORIE TSE
YUNG, FORMER ADMINISTRATIVE OFFICER OF WENSHA SPA
CENTER IS NO LONGER CONNECTED TO THIS COMPANY
STARTING TODAY SEPTEMBER 10, 2004.
ANY TRANSACTION MADE BY HER IS NO LONGER A
LIABILITY OF THE COMPANY.
(SGD.) THE MANAGEMENT [Italics were in red letters.]29
The Court finds Loretas complaint credible. There is consistency in
her pleadings and evidence. In contrast, Wenshas pleadings and
evidence, taken as a whole, suffer from inconsistency. Moreover, the
affidavits of the employees only pertain to petty matters that, to the
Courts mind, are not sufficient to support Wenshas alleged loss of
trust and confidence. To be a valid cause for termination of
employment, the act or acts constituting breach of trust must have been
done intentionally, knowingly, and purposely; and they must be
founded on clearly established facts.
The CA decision is supported by evidence and logically flows from a
review of the records. Loretas narration of the events surrounding her
termination from employment was simple and straightforward. Her
claims are more credible than the affidavits which were clearly
prepared as an afterthought.

More importantly, the records are bereft of evidence that Loreta was
duly informed of the charges against her and that she was given the
opportunity to respond to those charges prior to her dismissal. If there
were indeed charges against Loreta that Wensha had to investigate,
then it should have informed her of those charges and required her to
explain her side. Wensha should also have kept records of the
investigation conducted while Loreta was on leave.1avvphi1 The law
requires that two notices be given to an employee prior to a valid
termination: the first notice is to inform the employee of the charges
against her with a warning that she may be terminated from her
employment and giving her reasonable opportunity within which to
explain her side, and the second notice is the notice to the employee
that upon due consideration of all the circumstances, she is being
terminated from her employment.30 This is a requirement of due
process and clearly, Loreta did not receive any of those required
notices.
We are in accord with the pronouncement of the CA that the
reinstatement of Loreta to her former position is no longer feasible in
the light of the strained relations between the parties. Reinstatement,
under the circumstances, would no longer be practical as it would not
be in the interest of both parties. Under the law and jurisprudence, an
illegally dismissed employee is entitled to two reliefs - backwages and
reinstatement, which are separate and distinct. If reinstatement would
only exacerbate the tension and further ruin the relations of the
employer and the employee, or if their relationship has been unduly
strained due to irreconcilable differences, particularly where the
illegally dismissed employee held a managerial or key position in the
company, it would be prudent to order payment of separation pay
instead of reinstatement.31 In the case of Golden Ace Builders v.
Talde,32 We wrote:
Under the doctrine of strained relations, the payment of separation pay
has been considered an acceptable alternative to reinstatement when

the latter option is no longer desirable or viable. On the one hand, such
payment liberates the employee from what could be a highly
oppressive work environment. On the other, the payment releases the
employer from the grossly unpalatable obligation of maintaining in its
employ a worker it could no longer trust.
In the case at bench, the CA, upon its own assessment, pronounced
that the relations between petitioners and the respondent have become
strained because of her dismissal anchored on dubious charges. The
respondent has not contested the finding. As she is not insisting on
being reinstated, she should be paid separation pay equivalent to one
(1) month salary for every year of service.33 The CA, however, failed
to decree such award in the dispositive portion.ten.lihpwal This should
be rectified.
Nevertheless, the Court finds merit in the argument of petitioner Xu
that the CA erred in ruling that he is solidarily liable with Wensha.
Elementary is the rule that a corporation is invested by law with a
personality separate and distinct from those of the persons composing
it and from that of any other legal entity to which it may be related.
"Mere ownership by a single stockholder or by another corporation of
all or nearly all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate personality."34
In labor cases, corporate directors and officers may be held solidarily
liable with the corporation for the termination of employment only if
done with malice or in bad faith. 35 Bad faith does not connote bad
judgment or negligence; it 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.36

In the subject decision, the CA concluded that petitioner Xu and

Wensha are jointly and severally liable to Loreta. 37 We have read the
decision in its entirety but simply failed to come across any finding of
bad faith or malice on the part of Xu. There is, therefore, no
justification for such a ruling. To sustain such a finding, there should
be an evidence on record that an officer or director acted maliciously
or in bad faith in terminating the services of an employee. 38 Moreover,
the finding or indication that the dismissal was effected with malice or
bad faith should be stated in the decision itself.39
WHEREFORE, the petition is PARTIALLY GRANTED. The
decretal portion of the May 28, 2008 Decision of the Court of Appeals,
in CA-G.R. SP No. 98855, is hereby MODIFIED to read as follows:
WHEREFORE, the petition is GRANTED. Wensha Spa Center, Inc. is
hereby ordered to pay Loreta T. Yung her full backwages, other
privileges, and benefits, or their monetary equivalent, and separation
pay reckoned from the date of her dismissal, September 1, 2004, up to
the finality of this decision, plus damages in the amounts of Fifty
Thousand (P50,000.00) Pesos, as moral damages; Twenty Five
Thousand (P25,000.00) Pesos as exemplary damages; and Twenty
Thousand (P20,000.00) Pesos, as attorneys fees. No costs.
SO ORDERED.
Republic
SUPREME
Manila

HI-CEMENT
vs.

x-----------------------x
G.R. No. 132419
E.T. HENRY & CO. and SPOUSES ENRIQUE TAN and LILIA
TAN, Petitioners,
vs.
INSULAR BANK OF ASIA AND AMERICA (later PHILIPPINE
COMMERCIAL
INTERNATIONAL
BANK
and
now,
EQUITABLE-PCI BANK), Respondent.
DECISION
CORONA, J.:
At bar are consolidated petitions assailing the decision of the Court of
Appeals (CA) dated January 21, 1998 in CA-G.R. CV No. 31600
entitled Insular Bank of Asia and America [now Philippine
Commercial International Bank/(PCIB)] v. E.T. Henry & Co., et al.1
The antecedent facts follow.

of

the

Philippines
COURT

FIRST DIVISION
G.R. No. 132403

INSULAR BANK OF ASIA AND AMERICA (later PHILIPPINE

COMMERCIAL
INTERNATIONAL
BANK
and
now,
EQUITABLE-PCI BANK) Respondent.

September 28, 2007

CORPORATION, Petitioner,

Petitioners Enrique Tan and Lilia Tan (spouses Tan) were the
controlling stockholders of E.T. Henry & Co., Inc. (E.T. Henry), a
company engaged in the business of processing and distributing
bunker fuel.2 Among E.T. Henry's customers were petitioner HiCement Corporation (Hi-Cement),3 Riverside Mills Corporation
(Riverside) and Kanebo Cosmetics Philippines, Inc. (Kanebo). For
their purchases, these corporations issued postdated checks to E.T.
Henry.

Sometime in 1979, respondent Insular Bank of Asia and America (later

PCIB and now Equitable PCI-Bank) granted E.T. Henry a credit
facility known as "Purchase of Short Term Receivables." Through this
arrangement, E.T. Henry was able to encash, with pre-deducted
interest, the postdated checks of its clients. In other words, E.T. Henry
and respondent were into "re-discounting" of checks.
For every transaction, respondent required E.T. Henry to execute a
promissory note and a deed of assignment bearing the conformity of
the client to the re-discounting.4
From 1979 to 1981, E.T. Henry was able to re-discount its clients'
checks (with deeds of assignment) with respondent. However, in
February 1981, 20 checks5 of Hi-Cement (which were crossed and
which bore the restriction "deposit to payees account only") were
dishonored. So were the checks of Riverside and Kanebo.6
Respondent filed a complaint for sum of money7 in the then Court of
First Instance of Rizal8 against E.T. Henry, the spouses Tan, HiCement (including its general manager9 and its treasurer 10 as
signatories of the postdated crossed checks), Riverside and Kanebo.11
In its complaint, respondent claimed that, due to the dishonor of the
checks, it suffered actual damages equivalent to their value, exclusive
of accrued and accruing interests, charges and penalties such as
attorneys fees and expenses of litigation, as follows:
1. Riverside Mills Corporation P 115,312.50
2. Kanebo Cosmetics Philippines, Inc. 5,811,750.00
3. Hi-Cement Corporation 10,000,000.00
Respondent also sought to collect from E.T. Henry and the spouses
Tan
other
loan
obligations
(amounting
toP1,661,266.51

and P4,900,805, respectively) as deficiencies resulting from the

foreclosure of the real estate mortgage on E.T. Henry's property in
Sucat, Paraaque.12
Hi-Cement filed its answer alleging, among others, that: (1) its general
manager and treasurer were not authorized to issue the postdated
crossed checks in E.T. Henry's favor; (2) the deed of assignment
purportedly executed by Hi-Cement assigning them to respondent only
bore the conformity of its treasurer and (3) respondent was not a
holder in due course as it should not have discounted them for being
"crossed checks."13
In their answer (with counterclaim against respondent and cross-claims
against Hi-Cement, Riverside and Kanebo), 14 E.T. Henry and the
spouses Tan claimed that: (1) the drawers of the postdated checks
failed to honor them due to the adverse economic conditions prevailing
at the time respondent presented them for payment; (2) the extrajudicial sale of the mortgaged Sucat property was void due to gross
inadequacy of the bid price15 and (3) their loans were subjected to a
usurious interest rate of 21% p.a.
For their part, Riverside and Kanebo sought the dismissal of the case
against them, arguing that they were not privy to the re-discounting
arrangement between respondent and E.T. Henry.
On June 30, 1989, the trial court rendered a decision which read:
WHEREFORE, in view of the foregoing, and as a consequence of the
preponderance of evidence, this Court hereby renders judgment in
favor of [respondent] and against [E.T. Henry, spouses Tan, HiCement, Riverside and Kanebo], to wit:
1. Ordering [E.T. Henry, spouses Tan, Hi-Cement, Riverside
and Kanebo], jointly and severally, to pay [respondent]

damages represented by the face value of the postdated checks

as follows:

(b) Kanebo Cosmetics Philippines, Inc. 5,811,750.00

In G.R. No. 132419, on the other hand, E.T. Henry and the spouses
Tan essentially contend that the lower courts erred in: (1) applying the
doctrine of piercing the veil of the corporate entity to make the spouses
Tan solidarily liable with E.T. Henry; (2) not ruling on their crossclaims and counterclaims, and (3) not declaring the foreclosure of E.T.
Henry's Sucat property as void.19

(c) Hi-Cement Corporation 10,000,000.00

(A) G.R. 132403

plus interests, services, charges and penalties until fully

paid;

As a rule, an appeal by certiorari under Rule 45 of the Rules of Court

is limited to review of errors of law.20 The factual findings of the trial
court, specially when affirmed by the appellate court, are generally
binding on us unless there was a misapprehension of facts or when the
inference drawn from the facts was manifestly mistaken.21 This case
falls within the exception.

(a) Riverside Mills Corporation P 115,312.50

2. Ordering [E.T. Henry] and/or [spouses Tan] to pay to

[respondent] the sum of P4,900,805.00 plus accrued interests,
charges, penalties until fully paid;
3. Ordering [E.T. Henry and spouses Tan] to pay [respondent]
the sum of P1,661,266.51 plus interests, charges, and penalties
until fully paid;

Authority of Hi-Cements General Manager and Treasurer to

Issue the Postdated Crossed Checks

4. Ordering [E.T. Henry, spouses Tan, Hi-Cement, Riverside

and Kanebo] to pay [respondent] [a]ttorneys fees and expenses
of litigation in the amount of P200,000.00 and pay the cost of
this suit.16

Both the trial court and the CA concluded that Hi-Cement authorized
its general manager and treasurer to issue the subject postdated crossed
checks. They both held that Hi-Cement was already estopped from
denying such authority since it never objected to the signatories'
issuance of all previous checks to E.T. Henry which the latter, in turn,
was able to re-discount with respondent.

SO ORDERED.17
Only petitioners appealed the decision to the CA which affirmed
it in toto. Hence, these petitions.
In G.R. No. 132403, petitioner Hi-Cement disclaims liability for the
postdated crossed checks because (1) it did not authorize their
issuance; (2) respondent was not a holder in due course and (3) there
was no basis for the lower courts holding that it was solidarily liable
for the face value of Riversides and Kanebos checks.18

We agree with the lower courts that both the general manager and
treasurer of Hi-Cement were authorized to issue the subjects checks.
However, notwithstanding such fact, respondent could not be
considered a holder in due course.
Respondent Bank Not a Holder In Due Course
The Negotiable Instruments Law (NIL), specifically Section
191,22 provides:

"Holder" means the payee or indorsee of a bill or a note, or the person

who is in possession of it, or the bearer thereof.
On the other hand, Section 5223 states:
A holder in due course is a holder who has taken the instrument under
the following conditions: (a) it is complete and regular on its face; (b)
he became the holder of it before it was overdue, and without notice
that it has previously been dishonored, if such was the fact; (c) he took
it in good faith and for value and (d) at the time it was negotiated to
him, he had no notice of any infirmity in the instrument or defect in
the title of the person negotiating it.
Absent any of the elements set forth in Section 52, the holder is not a
holder in due course. In the case at bar, the last two requirements were
not met.
In Bataan Cigar and Cigarette Factory, Inc. (BCCF) v. CA,24 we held
that the holder of crossed checks was not a holder in due course.
There, the drawer (BCCF) issued postdated crossed checks in favor of
one of its suppliers (George King) who promised to deliver bales of
tobacco leaf but failed. George King, however, sold the checks on
discount to State Investment House, Inc. (SIHI) and upon the latters
presentment to the drawee bank, BCCF ordered a "stop payment."
Thereafter, SIHI filed a collection case against it. In ruling that SIHI
was not a holder in due course, we explained:

In order to preserve the credit worthiness of checks, jurisprudence has

pronounced that crossing of a check should have the following effects:
(a) the check may not be encashed but only deposited in the bank; (b)
the check may be negotiated only once to one who has an account
with a bank [and]; (c) the act of crossing the checks serves
as warning to the holder that the check has been issued for a definite
purpose so that he must inquire if he has received the check pursuant
to that purpose, otherwise, he is not a holder in due course.
Likewise, in Atrium Management Corporation v. CA,25 where E.T.
Henry, Hi-Cement and its treasurer26 again engaged in a legal scuffle
over four postdated crossed checks, we held that Atrium (with which
the checks were re-discounted) was not a holder in due course. In that
case, E.T. Henry was the payee of four Hi-Cement postdated checks
which it endorsed to Atrium. When the latter presented the crossed
checks to the drawee bank, Hi-Cement stopped payment.27 We held
that Atrium was not a holder in due course:
In the instant case, the checks were crossed and specifically indorsed
for deposit to payees account only. From the beginning, Atrium was
aware of the fact that the checks were all for deposit only to payees
account, meaning E.T. Henry. Clearly, then, Atrium could not be
considered a holder in due course.
In the case at bar, respondent's claim that it acted in good faith when it
accepted and discounted Hi-Cements postdated crossed checks from
E.T. Henry (as payee therein) fails to convince us. Good faith becomes
inconsequential amidst proof of respondent's grossly negligent conduct
in dealing with the subject checks.
Respondent was all too aware that subject checks were crossed and
bore restrictions that they were for deposit to payee's account only;
hence, they could not be further negotiated to it. The records likewise
reveal that respondent completely disregarded a telling sign of

irregularity in the re-discounting of the checks when the general

manager did not acquiesce to it as only the treasurer's signature
appeared on the deed of assignment. As a banking institution, it
behooved respondent to act with extraordinary diligence
in every transaction.28 Its business is impressed with public interest,
thus, it was not expected to be careless and negligent, specially so
where the checks it dealt with were crossed. In Bataan Cigar and
Cigarette Factory, Inc.,29 we ruled:
It is then settled that crossing of checks should put the holder on
inquiry and upon him devolves the duty to ascertain the indorsers
title to the check or the nature of his possession. Failing in this
respect, the holder is declared guilty of gross negligence amounting
to legal absence of good faithand as such[,] the consensus of
authority is to the effect that the holder of the check is not a holder in
due course. (emphasis supplied)
The next query is whether Hi-Cement can still be made liable for the
checks. We answer in the negative.
In State Investment House, Inc. (SIHI) v. Intermediate Appellate
Court,30 SIHI re-discounted crossed checks and was declared not a
holder in due course. As a result, when it presented the checks for
deposit, we deemed that its presentment to the drawee bank was not
proper, hence, the liability did not attach to the drawer of the checks.
We ruled that:
The three subject checks in the case at bar had been crossedwhich
could only mean that the drawer had intended the same for deposit
only by the rightful person, i.e., the payee named therein. Apparently,
it was not the payee who presented the same for payment and
therefore, there was no proper presentment, and the liability did not
attach to the drawer. Thus, in the absence of due presentment, the
drawer did not become liable. 31

Our resolution in the foregoing case was reiterated in Atrium

Management Corporation v. CA,32 where we affirmed the CA ruling
that the drawer of the postdated crossed checks was not liable to the
holder who was deemed not a holder in due course.
We note, however, that in the two aforementioned cases, we made it
clear that the NIL does not absolutely bar a holder who is not a holder
in due course from recovering on the checks. In both, we ruled that it
may recover from the party who indorsed/encashed the checks "if the
latter has no valid excuse for refusing payment." Here, there was no
doubt that it was E.T. Henry that re-discounted Hi-Cement's checks
and received their value from respondent. Since E.T. Henry had no
justification to refuse payment, it should pay respondent.
Solidary Liability of Hi-Cement for The Face Value of Riverside's
and Kanebo's Checks
Hi-Cement could not also be made solidarily liable with Riverside and
Kanebo for the face value of their checks. Hi-Cement had nothing to
do with the checks of these two corporations. However, although the
language of the trial court decision's dispositive portion seemed
confusing, a reading of the decision in its entirety reveals that
thefallo was for each corporation to be liable solidarily with E.T.
Henry and/or the spouses Tan for the respective values of their checks.
Furthermore, solidary liability cannot be presumed but must be
established by law or contract. Neither is present here. Articles 1207
and 1208 of the Civil Code provide:
Art. 1207. The concurrence of two or more debtors in one and the
same obligation does not imply that each one of the former has a right
to demand, or that each one of the latter is bound to render, entire
compliance with the presentation. There is solidary liability only

when the obligation expressly so states, or when the obligation

requires solidarity. (emphasis supplied)

After a careful study of the records, we hold that E.T. Henry's

corporate veil should not have been pierced at all.

Art. 1208. If from the law, or the nature of the wording of the
obligations to which the preceding article refers to the contrary does
not appear, the credit or debt shall be presumed to be divided into as
many equal shares as there are creditors or debtors, the credits or debts
being considered distinct from one another, subject to the Rules
governing the multiplicity of suits.

First, the trial court failed to provide a clear ground why the doctrine
was used. It merely stated that it agreed with respondents arguments
but did not explain why the doctrine was relevant to petitioner E.T.
Henry's and the spouses Tans case. On the other hand, the CA held:

the

It appears that spouses Tan are controlling stockholders of E.T.

Henry & Co., Inc. as well as its authorized signatories. The business of
the corporation was conducted solely for the benefit of the spouses Tan
who colluded with [Hi-Cement] in defrauding [respondent]. As the
lower court cited[I]t is a settled law in this and other jurisdictions
that when the corporation is a mere alter ego of a person, same being
true when the corporation is controlled, and its affairs are so conducted
to make it merely an instrumentality, agency or conduit of another.35

In their petition, E.T. Henry and the spouses Tan argue that the lower
courts erred in applying the "piercing the veil of corporate entity"
doctrine to their case. They claim that both the trial and appellate
courts failed to cite the reasons why the doctrine was relevant to them.

Similarly, the CA left a gaping hole by failing to provide the basis for
its ruling that E.T. Henry and the spouses Tan defrauded respondent. It
did not also state what act constituted the fraud. Fraud is an allegation
of fact that demands clear and convincing evidence.36 It is never
presumed.37

At any rate, the issue has become moot in view of our ruling that HiCement is not liable for the checks.
(B) G.R. No. 132419
Doctrine
of
Veil of Corporate Entity

Piercing

We agree with petitioners E.T. Henry and the spouses Tan in this
respect.
If any general rule can be laid down, it is that the corporation will be
looked upon as a legal entity until sufficient reasons to the contrary
appear. 33 It is only when the fiction or notion of legal entity is used to
defeat public convenience, justify wrong, perpetuate fraud or defend
crime that the law will shred the corporate legal veil and regard it as a
mere association of persons.34 This is referred to as the doctrine of
piercing the veil of corporate entity.

Second, the mere ownership by a single stockholder or by another

corporation of all or nearly all of the capital stock of a corporation is
not of itself sufficient ground for disregarding the separate corporate
personality.38 For this ground to stand in this case, there must be proof
that the spouses Tan: (1) had control or complete domination of E.T.
Henrys finances and that the latter had no separate existence with
respect to the act complained of; (2) used such control to commit fraud
or wrong and (3) the control was the proximate cause of the loss or
injury complained of by respondent.39 The records of this case do not
show that these elements were present.

Inadequacy of the Bid Price to Annul Foreclosure Proceeding

With respect to the allegation that foreclosure was void due to the
inadequacy of the bid price, we agree with the CA that the "mere
inadequacy of the price obtained at the [s]heriffs sale, unless shocking
to the conscience, (was) not sufficient to set aside the sale if there
(was) no showing that, in the event of a regular sale, a better price
(could) be obtained."401wphi1
Furthermore, in the absence of any irregularity in the foreclosure
proceeding or proof that it was carried out without strict observance of
the procedure, we will continue to assume its regularity and strike
down any attempt to vitiate it. In this case, E.T. Henry and the spouses
Tan made no mention of any anomaly to support the nullification of
the foreclosure sale but merely alleged a disparity in the bid price and
the propertys fair market value.
Counterclaims and Cross-claims
Lastly, E.T. Henry and the spouses Tan call this Court's attention to the
alleged failure of the lower court to pass upon their counterclaim
against respondent or cross-claims against Hi-Cement, Riverside and
Kanebo. They ask us now to hold these parties liable on the basis of
said claims. We decline to do so.
First, E.T. Henry and the spouses Tan failed to implead Hi-Cement,
Riverside and Kanebo as parties in the case at bar. Under Rule 3 of the
Rules of Court, every action, including a counterclaim (or a crossclaim), must be prosecuted or defended in the name of the real party in
interest.41 The term "defendant" may refer to the original defending
party, the defendant in a counterclaim, the cross-defendant or the third
(fourth, etc.) party defendant.42Hence, for this technical lapse, we are
constrained not to pass on E.T. Henry's and the spouses Tan's crossclaims.

Second, E.T. Henry and the spouses Tan filed the counterclaim against
respondent on the basis of an alleged void foreclosure proceeding on
E.T. Henry's Sucat property due to an inadequate bid price. It is no
longer necessary to delve into this matter in view of our finding that
the mere inadequacy of the bid price on the property did not
automatically render the foreclosure sale irregular or void.
Incidentally, the petition in G.R. No. 132419 posed no contest on the
lower courts ruling on E.T. Henrys and the spouses Tans solidary
liability with Riverside and Kanebo vis-a-vis their checks.43 To be
consistent, however, with our dictum on the separate personality of
E.T. Henry and the spouses Tan, the solidarity liability arising from the
checks of Riverside and Kanebo shall only be enforced against E.T.
Henry.
WHEREFORE, the assailed decision of the Court of Appeals in CAG.R. CV No. 31600 is hereby AFFIRMED withMODIFICATION.
Accordingly, petitioner Hi-Cement Corporation is discharged from any
liability. Only petitioner E.T. Henry & Co. is ORDERED to pay
respondent Insular Bank of Asia and America (later Philippine
Commercial International Bank and now Equitable PCI-Bank) the
following:
1. P10,000,000 representing the value of Hi-Cement's checks it
received from respondent plus accrued interests, charges and
penalties until fully paid, and
2. the loans for P1,661,266.51 and P4,900,805 plus accrued
interests, charges and penalties until fully paid.
Let the records of this case be remanded to the trial court for the
proper computation of E.T. Henry's, Riverside's and Kanebo's
liabilities for the checks, attorney's fees and costs of litigation.

Republic
SUPREME
Manila

of

the

Philippines
COURT

EN BANC
G.R. No. 184517

October 8, 2013

SME BANK INC., ABELARDO P. SAMSON, OLGA SAMSON

and
AURELIO
VILLAFLOR,
JR., Petitioners,
vs.
PEREGRIN T. DE GUZMAN,EDUARDO M. AGUSTIN, JR.,
ELICERIO GASPAR, , RICARDO GASPAR JR., EUFEMIA
ROSETE, FIDEL ESPIRITU, SIMEONESPIRITU, JR., and
LIBERATO MANGOBA, Respondents.
x-----------------------x
G.R. No. 186641
SME BANK INC., ABELARDO P. SAMSON, OLGA SAMSON
and
AURELIO
VILLAFLOR,
JR., Petitioners,
vs.
ELICERIO GASPAR, RICARDO GASPAR, JR., EUFEMIA
ROSETE, FIDEL ESPIRITU, SIMEONESPIRITU, JR., and
LIBERATO MANGOBA, Respondents.
DECISION
SERENO, CJ.:
Security of tenure is a constitutionally guaranteed right. 1 Employees
may not be terminated from their regular employment except for just
or authorized causes under the Labor Code2 and other pertinent laws. A
mere change in the equity composition of a corporation is neither a just

nor an authorized cause that would legally permit the dismissal of the
corporations employees en masse.
Before this Court are consolidated Rule 45 Petitions for Review on
Certiorari3 assailing the Decision4 and Resolution5 of the Court of
Appeals(CA) in CA-G.R. SP No. 97510 and its Decision 6 and
Resolution7 in CA-G.R. SP No. 97942.
The facts of the case are as follows:
Respondent employees Elicerio Gaspar (Elicerio), Ricardo Gaspar, Jr.
(Ricardo), Eufemia Rosete (Eufemia), Fidel Espiritu (Fidel), Simeon
Espiritu, Jr. (Simeon, Jr.), and Liberato Mangoba (Liberato) were
employees of Small and Medium Enterprise Bank, Incorporated (SME
Bank).Originally, the principal shareholders and corporate directors of
the bank were Eduardo M. Agustin, Jr. (Agustin) and Peregrin de
Guzman, Jr. (De Guzman).
In June 2001, SME Bank experienced financial difficulties. To remedy
the situation, the bank officials proposed its sale to Abelardo
Samson(Samson).8
Accordingly, negotiations ensued, and a formal offer was made to
Samson. Through his attorney-in-fact, Tomas S. Gomez IV, Samson
then sent formal letters (Letter Agreements) to Agustin and De
Guzman, demanding the following as preconditions for the sale of
SME Banks shares of stock:
4. You shall guarantee the peaceful turn over of all assets as well as the
peaceful transition of management of the bank and shall
terminate/retire the employees we mutually agree upon, upon transfer
of shares in favor of our groups nominees;
xxxx

7.
All
retirement
benefits,
if
any
of
the
above
officers/stockholders/board of directors are hereby waived upon
consummation [sic] of the above sale. The retirement benefits of the
rank and file employees including the managers shall be honored by
the new management in accordance with B.R. No. 10, S. 1997.9

respondent employees, except for Simeon, Jr.,26 were not rehired. After
a month in service, Simeon, Jr. again resigned on October 2001.27

Agustin and De Guzman accepted the terms and conditions proposed

by Samson and signed the conforme portion of the Letter
Agreements.10

Aggrieved by the loss of their jobs, respondent employees filed a

Complaint before the National Labor Relations Commission (NLRC)
Regional Arbitration Branch No. III and sued SME Bank, spouses
Abelardo and Olga Samson and Aurelio Villaflor (the Samson Group)
for unfair labor practice; illegal dismissal; illegal deductions;
underpayment; and nonpayment of allowances, separation pay and
13th month pay.28 Subsequently, they amended their Complaint to
include Agustin and De Guzman as respondents to the case.29

Simeon Espiritu (Espiritu), then the general manager of SME Bank,

held a meeting with all the employees of the head office and of the
Talaveraand Muoz branches of SME Bank and persuaded them to
tender their resignations,11 with the promise that they would be rehired
upon reapplication. His directive was allegedly done at the behest of
petitioner Olga Samson.12
Relying on this representation, Elicerio,13 Ricardo,14 Fidel,15 Simeon,
Jr.,16 and Liberato17 tendered their resignations dated 27 August 2001.
As for Eufemia, the records show that she first tendered a resignation
letter dated27 August 2001,18 and then a retirement letter dated
September 2001.19
Elicerio,20 Ricardo,21 Fidel,22 Simeon, Jr.,23 and Liberato24 submitted
application letters on 11 September 2001. Both the resignation letters
and copies of respondent employees application letters were
transmitted by Espiritu to Samsons representative on 11 September
2001.25
On 11 September 2001, Agustin and De Guzman signified their
conformity to the Letter Agreements and sold 86.365% of the shares of
stock of SME Bank to spouses Abelardo and Olga Samson. Spouses
Samson then became the principal shareholders of SME Bank, while
Aurelio Villaflor, Jr. was appointed bank president. As it turned out,

Respondent-employees demanded the payment of their respective

separation pays, but their requests were denied.1wphi1

On 27 October 2004, the labor arbiter ruled that the buyer of an

enterprise is not bound to absorb its employees, unless there is an
express stipulation to the contrary. However, he also found that
respondent employees were illegally dismissed, because they had
involuntarily executed their resignation letters after relying on
representations that they would be given their separation benefits and
rehired by the new management. Accordingly, the labor arbiter decided
the case against Agustin and De Guzman, but dismissed the Complaint
against the Samson Group, as follows:
WHEREFORE, premises considered, judgment is hereby rendered
ordering respondents Eduardo Agustin, Jr. and Peregrin De Guzman to
pay complainants separation pay in the total amount of P339,403.00
detailed as follows:
Elicerio B. Gaspar = P 5,837.00
Ricardo B. Gaspar, Jr. = P11,674.00
Liberato B. Mangoba = P64,207.00

Fidel E. Espiritu = P29,185.00

SO ORDERED.31

Simeon B. Espiritu, Jr. = P26,000.00

On 28 November 2006, the NLRC denied the Motions for

Reconsideration filed by Agustin, De Guzman and the Samson
Group.32

Eufemia E. Rosete = P202,510.00

All other claims including the complaint against Abelardo Samson,
Olga Samson and Aurelio Villaflor are hereby DISMISSED for want
of merit.
SO ORDERED.30
Dissatisfied with the Decision of the labor arbiter, respondent
employees, Agustin and De Guzman brought separate appeals to the
NLRC. Respondent employees questioned the labor arbiters failure to
award backwages, while Agustin and De Guzman contended that they
should not be held liable for the payment of the employees claims.
The NLRC found that there was only a mere transfer of shares and
therefore, a mere change of management from Agustin and De
Guzman to the Samson Group. As the change of management was not
a valid ground to terminate respondent bank employees, the NLRC
ruled that they had indeed been illegally dismissed. It further ruled that
Agustin, De Guzman and the Samson Group should be held jointly and
severally liable for the employees separation pay and backwages, as
follows:
WHEREFORE, premises considered, the Decision appealed from is
hereby MODIFIED. Respondents are hereby Ordered to jointly and
severally pay the complainants backwages from 11 September 2001
until the finality of this Decision, separation pay at one month pay for
every year of service, P10,000.00 and P5,000.00 moral and exemplary
damages, and five (5%) percent attorneys fees.
Other dispositions are AFFIRMED

Agustin and De Guzman filed a Rule 65 Petition for Certiorari with the
CA, docketed as CA-G.R. SP No. 97510. The Samson Group likewise
filed a separate Rule 65 Petition for Certiorari with the CA, docketed
as CA-G.R. SP No. 97942. Motions to consolidate both cases were not
acted upon by the appellate court.
On 13 March 2008, the CA rendered a Decision in CA-G.R. SP
No.97510 affirming that of the NLRC. The fallo of the CA Decision
reads:
WHEREFORE, in view of the foregoing, the petition is DENIED.
Accordingly, the Decision dated May 8, 2006, and Resolution dated
November 28, 2006 of the National Labor Relations Commission in
NLRC NCR CA No. 043236-05 (NLRC RAB III-07-4542-02) are
hereby AFFIRMED.
SO ORDERED.33
Subsequently, CA-G.R. SP No. 97942 was disposed of by the appellate
court in a Decision dated 15 January 2008, which likewise affirmed
that of the NLRC. The dispositive portion of the CA Decision states:
WHEREFORE, premises considered, the instant Petition for Certiorari
is denied, and the herein assailed May 8, 2006 Decision and November
28, 2006 Resolution of the NLRC are hereby AFFIRMED.
SO ORDERED.34

The appellate court denied the Motions for Reconsideration filed by

the parties in Resolutions dated 1 September 2008 35 and 19 February
2009.36
The Samson Group then filed two separate Rule 45 Petitions
questioning the CA Decisions and Resolutions in CA-G.R. SP No.
97510 and CA-G.R. SP No. 97942. On 17 June 2009, this Court
resolved to consolidate both Petitions.37
THE ISSUES
Succinctly, the parties are asking this Court to determine whether
respondent employees were illegally dismissed and, if so, which of the
parties are liable for the claims of the employees and the extent of the
reliefs that may be awarded to these employees.
THE COURTS RULING
The instant Petitions are partly meritorious.
I
Respondent employees were illegally dismissed.
As to Elicerio Gaspar, Ricardo Gaspar, Jr., Fidel Espiritu, Eufemia
Rosete and Liberato Mangoba
The Samson Group contends that Elicerio, Ricardo, Fidel, and
Liberato voluntarily resigned from their posts, while Eufemia retired
from her position. As their resignations and retirements were
voluntary, they were not dismissed from their employment. 38 In
support of this argument, it presented copies of their resignation and
retirement letters,39 which were couched in terms of gratitude.

We disagree. While resignation letters containing words of gratitude

may indicate that the employees were not coerced into
resignation,40 this fact alone is not conclusive proof that they
intelligently, freely and voluntarily resigned. To rule that resignation
letters couched in terms of gratitude are, by themselves, conclusive
proof that the employees intended to relinquish their posts would open
the floodgates to possible abuse. In order to withstand the test of
validity, resignations must be made voluntarily and with the intention
of relinquishing the office, coupled with an act of
relinquishment.41 Therefore, in order to determine whether the
employees truly intended to resign from their respective posts, we
cannot merely rely on the tenor of the resignation letters, but must take
into consideration the totality of circumstances in each particular case.
Here, the records show that Elicerio, Ricardo, Fidel, and Liberato only
tendered resignation letters because they were led to believe that, upon
reapplication, they would be reemployed by the new
management.42 As it turned out, except for Simeon, Jr., they were not
rehired by the new management. Their reliance on the representation
that they would be reemployed gives credence to their argument that
they merely submitted courtesy resignation letters because it was
demanded of them, and that they had no real intention of leaving their
posts. We therefore conclude that Elicerio, Ricardo, Fidel, and
Liberato did not voluntarily resign from their work; rather, they were
terminated from their employment.
As to Eufemia, both the CA and the NLRC discussed her case together
with the cases of the rest of respondent-employees. However, a review
of the records shows that, unlike her co-employees, she did not resign;
rather, she submitted a letter indicating that she was retiring from her
former position.43
The fact that Eufemia retired and did not resign, however, does not
change our conclusion that illegal dismissal took place.

Retirement, like resignation, should be an act completely voluntary on

the part of the employee. If the intent to retire is not clearly established
or if the retirement is involuntary, it is to be treated as a discharge.44
In this case, the facts show that Eufemias retirement was not of her
own volition. The circumstances could not be more telling. The facts
show that Eufemia was likewise given the option to resign or retire in
order to fulfill the precondition in the Letter Agreements that the seller
should "terminate/retire the employees [mutually agreed upon] upon
transfer of shares" to the buyers.45 Thus, like her other co-employees,
she first submitted a letter of resignation dated 27 August 2001. 46 For
one reason or another, instead of resigning, she chose to retire and
submitted a retirement letter to that effect. 47 It was this letter that was
subsequently transmitted to the representative of the Samson Group on
11 September 2001.48
In San Miguel Corporation v. NLRC,49 we have explained that
involuntary retirement is tantamount to dismissal, as employees can
only choose the means and methods of terminating their employment,
but are powerless as to the status of their employment and have no
choice but to leave the company. This rule squarely applies to
Eufemias case. Indeed, she could only choose between resignation
and retirement, but was made to understand that she had no choice but
to leave SME Bank. Thus, we conclude that, similar to her other coemployees, she was illegally dismissed from employment.
The Samson Group further argues50 that, assuming the employees were
dismissed, the dismissal is legal because cessation of operations due to
serious business losses is one of the authorized causes of termination
under Article 283 of the Labor Code.51
Again, we disagree.

The law permits an employer to dismiss its employees in the event of

closure of the business establishment.52However, the employer is
required to serve written notices on the worker and the Department of
Labor at least one month before the intended date of
closure.53 Moreover, the dismissed employees are entitled to separation
pay, except if the closure was due to serious business losses or
financial reverses.54 However, to be exempt from making such
payment, the employer must justify the closure by presenting
convincing evidence that it actually suffered serious financial
reverses.55
In this case, the records do not support the contention of SME Bank
that it intended to close the business establishment. On the contrary,
the intention of the parties to keep it in operation is confirmed by the
provisions of the Letter Agreements requiring Agustin and De Guzman
to guarantee the "peaceful transition of management of the bank" and
to appoint "a manager of [the Samson Groups] choice x x x to oversee
bank operations."
Even assuming that the parties intended to close the bank, the records
do not show that the employees and the Department of Labor were
given written notices at least one month before the dismissal took
place. Moreover, aside from their bare assertions, the parties failed to
substantiate their claim that SME Bank was suffering from serious
financial reverses.
In fine, the argument that the dismissal was due to an authorized cause
holds no water.
Petitioner bank also argues that, there being a transfer of the business
establishment, the innocent transferees no longer have any obligation
to continue employing respondent employees, 56 and that the most that
they can do is to give preference to the qualified separated employees;
hence, the employees were validly dismissed.57

The argument is misleading and unmeritorious. Contrary to petitioner

banks argument, there was no transfer of the business establishment to
speak of, but merely a change in the new majority shareholders of the
corporation.

transferee acquires the controlling shares of stock of the corporation.

Thus, following the rule in stock sales, respondent employees may not
be dismissed except for just or authorized causes under the Labor
Code.

There are two types of corporate acquisitions: asset sales and stock
sales.58 In asset sales, the corporate entity59 sells all or substantially all
of its assets60 to another entity. In stock sales, the individual or
corporate shareholders61 sell a controlling block of stock62 to new or
existing shareholders.

Petitioner bank argues that, following our ruling in Manlimos v.

NLRC,67 even in cases of stock sales, the new owners are under no
legal duty to absorb the sellers employees, and that the most that the
new owners may do is to give preference to the qualified separated
employees.68 Thus, petitioner bank argues that the dismissal was
lawful.

In asset sales, the rule is that the seller in good faith is authorized to
dismiss the affected employees, but is liable for the payment of
separation pay under the law.63 The buyer in good faith, on the other
hand, is not obliged to absorb the employees affected by the sale, nor
is it liable for the payment of their claims. 64 The most that it may do,
for reasons of public policy and social justice, is to give preference to
the qualified separated personnel of the selling firm.65
In contrast with asset sales, in which the assets of the selling
corporation are transferred to another entity, the transaction in stock
sales takes place at the shareholder level. Because the corporation
possesses a personality separate and distinct from that of its
shareholders, a shift in the composition of its shareholders will not
affect its existence and continuity. Thus, notwithstanding the stock
sale, the corporation continues to be the employer of its people and
continues to be liable for the payment of their just claims.
Furthermore, the corporation or its new majority share holders are not
entitled to lawfully dismiss corporate employees absent a just or
authorized cause.
In the case at bar, the Letter Agreements show that their main object is
the acquisition by the Samson Group of 86.365% of the shares of stock
of SME Bank.66 Hence, this case involves a stock sale, whereby the

We are not persuaded.

Manlimos dealt with a stock sale in which a new owner or
management group acquired complete ownership of the corporation at
the shareholder level.69 The employees of the corporation were later
"considered terminated, with their conformity"70 by the new majority
shareholders. The employees then re-applied for their jobs and were
rehired on a probationary basis. After about six months, the new
management dismissed two of the employees for having abandoned
their work, and it dismissed the rest for committing "acts prejudicial to
the interest of the new management."71 Thereafter, the employees
sought reinstatement, arguing that their dismissal was illegal, since
they "remained regular employees of the corporation regardless of the
change of management."72
In disposing of the merits of the case, we upheld the validity of the
second termination, ruling that "the parties are free to renew the
contract or not [upon the expiration of the period provided for in their
probationary contract of employment]."73 Citing our pronouncements
in Central Azucarera del Danao v. Court of Appeals, 74 San Felipe Neri
School of Mandaluyong, Inc. v. NLRC,75 and MDII Supervisors &
Confidential Employees Association v. Presidential Assistant on Legal

Affairs,76 we likewise upheld the validity of the employees first

separation from employment, pronouncing as follows:

the qualified separated employees in the filling of vacancies in the

facilities of the purchaser.

A change of ownership in a business concern is not proscribed bylaw.

In Central Azucarera del Danao vs. Court of Appeals, this Court stated:

Since the petitioners were effectively separated from work due to a

bona fide change of ownership and they were accordingly paid their
separation pay, which they freely and voluntarily accepted, the private
respondent corporation was under no obligation to employ them; it
may, however, give them preference in the hiring. x x x. (Citations
omitted)

There can be no controversy for it is a principle well-recognized, that

it is within the employers legitimate sphere of management control of
the business to adopt economic policies or make some changes or
adjustments in their organization or operations that would insure profit
to itself or protect the investment of its stockholders. As in the exercise
of such management prerogative, the employer may merge or
consolidate its business with another, or sellor dispose all or
substantially all of its assets and properties which may bring about the
dismissal or termination of its employees in the process. Such
dismissal or termination should not however be interpreted in such a
manner as to permit the employer to escape payment of termination
pay. For such a situation is not envisioned in the law. It strikes at the
very concept of social justice.
In a number of cases on this point, the rule has been laid down that the
sale or disposition must be motivated by good faith as an element of
exemption from liability. Indeed, an innocent transferee of a business
establishment has no liability to the employees of the transfer or to
continue employer them. Nor is the transferee liable for past unfair
labor practices of the previous owner, except, when the liability
therefor is assumed by the new employer under the contract of sale, or
when liability arises because of the new owners participation in
thwarting or defeating the rights of the employees.
Where such transfer of ownership is in good faith, the transferee is
under no legal duty to absorb the transferors employees as there is no
law compelling such absorption. The most that the transferee may do,
for reasons of public policy and social justice, is to give preference to

We take this opportunity to revisit our ruling in Manlimos insofar as it

applied a doctrine on asset sales to a stock sale case. Central Azucarera
del Danao, San Felipe Neri School of Mandaluyong and MDII
Supervisors &Confidential Employees Association all dealt with asset
sales, as they involved a sale of all or substantially all of the assets of
the corporation. The transactions in those cases were not made at the
shareholder level, but at the corporate level. Thus, applicable to those
cases were the rules in asset sales: the employees may be separated
from their employment, but the seller is liable for the payment of
separation pay; on the other hand, the buyer in good faith is not
required to retain the affected employees in its service, nor is it liable
for the payment of their claims.
The rule should be different in Manlimos, as this case involves a stock
sale. It is error to even discuss transfer of ownership of the business, as
the business did not actually change hands. The transfer only involved
a change in the equity composition of the corporation. To reiterate, the
employees are not transferred to a new employer, but remain with the
original corporate employer, notwithstanding an equity shift in its
majority shareholders. This being so, the employment status of the
employees should not have been affected by the stock sale. A change
in the equity composition of the corporate shareholders should not
result in the automatic termination of the employment of the
corporations employees. Neither should it give the new majority

shareholders the right to legally dismiss the corporations employees,

absent a just or authorized cause.

records shows that the conditions leading to his dismissal from

employment are different. We thus discuss his circumstance separately.

The right to security of tenure guarantees the right of employees to

continue in their employment absent a just or authorized cause for
termination. This guarantee proscribes a situation in which the
corporation procures the severance of the employment of its
employees who patently still desire to work for the corporation
only because new majority stockholders and a new management have
come into the picture. This situation is a clear circumvention of the
employees constitutionally guaranteed right to security of tenure, an
act that cannot be countenanced by this Court.

The Samson Group contends that Simeon, Jr., likewise voluntarily

resigned from his post.78 According to them, he had resigned from
SME Bank before the share transfer took place.79

It is thus erroneous on the part of the corporation to consider the

employees as terminated from their employment when the sole reason
for so doing is a change of management by reason of the stock sale.
The conformity of the employees to the corporations act of
considering them as terminated and their subsequent acceptance of
separation pay does not remove the taint of illegal dismissal.
Acceptance of separation pay does not bar the employees from
subsequently contesting the legality of their dismissal, nor does it
estop them from challenging the legality of their separation from the
service.77

Simeon, Jr., on the other hand, contends that while he was reappointed
by the new management after his letter of application was transmitted,
he was not given a clear position, his benefits were reduced, and he
suffered a demotion in rank.82 These allegations were not refuted by
the Samson Group.

Upon the change of ownership of the shares and the management of

the company, Simeon, Jr. submitted a letter of application to and was
rehired by the new management.80 However, the Samson Group
alleged that for purely personal reasons, he again resigned from his
employment on 15 October 2001.81

We hold that Simeon, Jr. was likewise illegally dismissed from his
employment.

As to Simeon Espiritu, Jr.

Similar to our earlier discussion, we find that his first courtesy

resignation letter was also executed involuntarily. Thus, it cannot be
the basis of a valid resignation; and thus, at that point, he was illegally
terminated from his employment. He was, however, rehired by SME
Bank under new management, although based on his allegations, he
was not reinstated to his former position or to a substantially
equivalent one.83 Rather, he even suffered a reduction in benefits and a
demotion in rank.84 These led to his submission of another resignation
letter effective 15 October 2001.85

The CA and the NLRC discussed the case of Simeon, Jr. together with
that of the rest of respondent-employees. However, a review of the

We rule that these circumstances show that Simeon, Jr. was

constructively dismissed. In

We therefore see it fit to expressly reverse our ruling in Manlimos

insofar as it upheld that, in a stock sale, the buyer in good faith has no
obligation to retain the employees of the selling corporation; and that
the dismissal of the affected employees is lawful, even absent a just or
authorized cause.

Peaflor v. Outdoor Clothing Manufacturing Corporation, 86 we have

defined constructive dismissal as follows:
Constructive dismissal is an involuntary resignation by the employee
due to the harsh, hostile, and unfavorable conditions set by the
employer and which arises when a clear discrimination, insensibility,
or disdain by an employer exists and has become unbearable to the
employee.87
Constructive dismissal exists where there is cessation of work, because
"continued employment is rendered impossible, unreasonable or
unlikely, as an offer involving a demotion in rank or a diminution in
pay" and other benefits.88
These circumstances are clearly availing in Simeon, Jr.s case. He was
made to resign, then rehired under conditions that were substantially
less than what he was enjoying before the illegal termination occurred.
Thus, for the second time, he involuntarily resigned from his
employment. Clearly, this case is illustrative of constructive dismissal,
an act prohibited under our labor laws.
II
SME Bank, Eduardo M. Agustin, Jr. and Peregrin de Guzman, Jr. are
liable for illegal dismissal.
Having ruled on the illegality of the dismissal, we now discuss the
issue of liability and determine who among the parties are liable for
the claims of the illegally dismissed employees.
The settled rule is that an employer who terminates the employment of
its employees without lawful cause or due process of law is liable for
illegal dismissal.89

None of the parties dispute that SME Bank was the employer of
respondent employees. The fact that there was a change in the
composition of its shareholders did not affect the employer-employee
relationship between the employees and the corporation, because an
equity transfer affects neither the existence nor the liabilities of a
corporation. Thus, SME Bank continued to be the employer of
respondent employees notwithstanding the equity change in the
corporation. This outcome is in line with the rule that a corporation has
a personality separate and distinct from that of its individual
shareholders or members, such that a change in the composition of its
shareholders or members would not affect its corporate liabilities.
Therefore, we conclude that, as the employer of the illegally dismissed
employees before and after the equity transfer, petitioner SME Bank is
liable for the satisfaction of their claims.
Turning now to the liability of Agustin, De Guzman and the Samson
Group for illegal dismissal, at the outset we point out that there is no
privity of employment contracts between Agustin, De Guzman and the
Samson Group, on the one hand, and respondent employees on the
other. Rather, the employment contracts were between SME Bank and
the employees. However, this fact does not mean that Agustin, De
Guzman and the Samson Group may not be held liable for illegal
dismissal as corporate directors or officers. In Bogo-Medellin
Sugarcane Planters Association, Inc. v. NLRC, 90 we laid down the rule
as regards the liability of corporate directors and officers in illegal
dismissal cases, as follows:
Unless they have exceeded their authority, corporate officers are, as a
general rule, not personally liable for their official acts, because a
corporation, by legal fiction, has a personality separate and distinct
from its officers, stockholders and members. However, this fictional
veil may be pierced whenever the corporate personality is used as a
means of perpetuating a fraud or an illegal act, evading an existing

obligation, or confusing a legitimate issue. In cases of illegal

dismissal, corporate directors and officers are solidarily liable with the
corporation, where terminations of employment are done with malice
or in bad faith.91 (Citations omitted)
Thus, in order to determine the respective liabilities of Agustin, De
Guzman and the Samson Group under the afore-quoted rule, we must
determine, first, whether they may be considered as corporate directors
or officers; and, second, whether the terminations were done
maliciously or in bad faith.
There is no question that both Agustin and De Guzman were corporate
directors of SME Bank. An analysis of the facts likewise reveals that
the dismissal of the employees was done in bad faith. Motivated by
their desire to dispose of their shares of stock to Samson, they agreed
to and later implemented the precondition in the Letter Agreements as
to the termination or retirement of SME Banks employees. However,
instead of going through the proper procedure, the bank manager
induced respondent employees to resign or retire from their respective
employments, while promising that they would be rehired by the new
management. Fully relying on that promise, they tendered courtesy
resignations or retirements and eventually found themselves jobless.
Clearly, this sequence of events constituted a gross circumvention of
our labor laws and a violation of the employees constitutionally
guaranteed right to security of tenure. We therefore rule that, as
Agustin and De Guzman are corporate directors who have acted in bad
faith, they may be held solidarily liable with SME Bank for the
satisfaction of the employees lawful claims.
As to spouses Samson, we find that nowhere in the records does it
appear that they were either corporate directors or officers of SME
Bank at the time the illegal termination occurred, except that the
Samson Group had already taken over as new management when
Simeon, Jr. was constructively dismissed. Not being corporate

directors or officers, spouses Samson were not in legal control of the

bank and consequently had no power to dismiss its employees.
Respondent employees argue that the Samson Group had already taken
over and conducted an inventory before the execution of the share
purchase agreement.92 Agustin and De Guzman likewise argued that it
was at Olga Samsons behest that the employees were required to
resign from their posts.93 Even if this statement were true, it cannot
amount to a finding that spouses Samson should be treated as
corporate directors or officers of SME Bank. The records show that it
was Espiritu who asked the employees to tender their resignation and
or retirement letters, and that these letters were actually tendered to
him.94 He then transmitted these letters to the representative of the
Samson Group.95 That the spouses Samson had to ask Espiritu to
require the employees to resign shows that they were not in control of
the corporation, and that the former shareholders through Espiritu
were still in charge thereof. As the spouses Samson were neither
corporate officers nor directors at the time the illegal dismissal took
place, we find that there is no legal basis in the present case to hold
them in their personal capacities solidarily liable with SME Bank for
illegally dismissing respondent employees, without prejudice to any
liabilities that may have attached under other provisions of law.
Furthermore, even if spouses Samson were already in control of the
corporation at the time that Simeon, Jr. was constructively dismissed,
we refuse to pierce the corporate veil and find them liable in their
individual steads. There is no showing that his constructive dismissal
amounted to more than a corporate act by SME Bank, or that spouses
Samson acted maliciously or in bad faith in bringing about his
constructive dismissal.
Finally, as regards Aurelio Villaflor, while he may be considered as a
corporate officer, being the president of SME Bank, the records are
bereft of any evidence that indicates his actual participation in the

termination of respondent employees. Not having participated at all in

the illegal act, he may not be held individually liable for the
satisfaction of their claims.
III
Respondent employees are entitled to separation pay, full backwages,
moral damages, exemplary damages and attorneys fees.
The rule is that illegally dismissed employees are entitled to (1) either
reinstatement, if viable, or separation pay if reinstatement is no longer
viable; and (2) backwages.96
Courts may grant separation pay in lieu of reinstatement when the
relations between the employer and the employee have been so
severely strained; when reinstatement is not in the best interest of the
parties; when it is no longer advisable or practical to order
reinstatement; or when the employee decides not to be reinstated. 97 In
this case, respondent employees expressly pray for a grant of
separation pay in lieu of reinstatement. Thus, following a finding of
illegal dismissal, we rule that they are entitled to the payment of
separation pay equivalent to their one-month salary for every year of
service as an alternative to reinstatement.
Respondent employees are likewise entitled to full backwages
notwithstanding the grant of separation pay. In Santos v. NLRC,98 we
explained that an award of backwages restores the income that was
lost by reason of the unlawful dismissal, while separation pay
"provides the employee with 'the wherewithal during the period that he
is looking for another employment."99 Thus, separation pay is a proper
substitute only for reinstatement; it is not an adequate substitute for

both reinstatement and backwages.100 Hence, respondent employees

are entitled to the grant of full backwages in addition to separation pay.
As to moral damages, exemplary damages and attorney's fees, we
uphold the appellate court's grant thereof based on our finding that the
forced resignations and retirement were fraudulently done and
attended by bad faith.
WHEREFORE, premises considered, the instant Petitions for Review
are PARTIALLY GRANTED.
The assailed Decision and Resolution of the Court of Appeals in
CAG.R. SP No. 97510 dated 13 March 2008 and 1 September
2008,respectively, are hereby REVERSED and SET ASIDE insofar as
it held Abelardo P. Samson, Olga Samson and Aurelio Villaflor, Jr.
solidarily liable for illegal dismissal.
The assailed Decision and Resolution of the Court of Appeals in CAG.R. SP No. 97942 dated 15 January 2008 and 19 February
2009,respectively, are likewise REVERSED and SETASIDE insofar as
it held Abelardo P. Samson, Olga Samson and Aurelio Villaflor, Jr.
solidarily liable for illegal dismissal.
We REVERSE our ruling in Manlimos v. NLRC insofar as it upheld
that, in a stock sale, the buyer in good faith has no obligation to retain
the employees of the selling corporation, and that the dismissal of the
affected employees is lawful even absent a just or authorized cause.
SO ORDERED.