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,
Rogello Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea,
Aifredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve,
Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno
Escares, Ferdinand Torres, Felipe Basilan, and Ruben
Robalos, respondents.
DECISION
HERMOSISIMA, JR., J.:

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
corporations 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 petitioners 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 respondents 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 ordering
petitioner to reinstate private respondents and to pay them back wages
equivalent to one year or three hundred working days.
1

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 backwages 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 petitioners 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 petitioners premises at 355 Maysan Road, Valenzuela,
Metro Manila, claimed that they were employees of Hydro Pipes Philippines, Inc.
(HPPI) and not by respondent;

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

3. Security guards with high-powered guns prevented him from removing the
properties he had levied upon.
4

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

to enable him to enter petitioners 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 and Exchange Commission (SEC)
and the General Information Sheet, dated May 15, 1987, submitted by HPPI
to the Securities and Exchange Commission.
The General Information Sheet submitted by the petitioner1 revealed the
following:
1. Breakdown of Subscribed Capital
Name of Stockholder Amount Subscribed
HPPI P6,999,500.00
Antonio W. Lim 2,900,000.00
Dennis S. Cuyegkeng 300.00
Elisa C. Lim 100,000.00
Teodulo R. Dino 100.00

Virgilio O. Casino 100.00

2. Board of Directors
Antonio W. Lim Chairman
Dennis S. Cuyegkeng Member
Elisa C. Lim Member
Teodulo R. Dino Member
Virgilio O. Casino Member
3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the President
Elisa 0. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road
Valenzuela, Metro Manila.

On the other hand, the General Information Sheet of HPPI revealed the
following:
1. Breakdown of Subscribed Capital
Name of Stockholder Amount Subscribed
Antonio W. Lim P400,000.00
Elisa C. Lim 57,700.00
AWL Trading 455,000.00

Dennis S. Cuyegkeng 40,100.00

Teodulo R. Dino 100.00
Virgilio O. Casino 100.00
2. Board of Directors
Antonio W. Lim Chairman
Elisa C. Lim Member
Dennis S. Cuyegkeng Member
Virgilio O. Casino Member
Teodulo R. Dino Member
3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the President
Elisa O. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road, Valenzuela, Metro Manila.

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 petitioners 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 petitioners 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. But, this separate and distinct personality of a
corporation is merely a fiction created by law for convenience and to promote
justice. So, when the notion of separate juridical personality is used to defeat
public convenience, justify wrong, protect fraud or defend crime, or is used as
a device to defeat the labor laws, this separate personality of the corporation
may be disregarded or the veil of corporate fiction pierced. This is true
likewise when the corporation is merely an adjunct, a business conduit or an
alter ego of another corporation.
8

10

11

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
finances, 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 plaintiffs 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 defendants
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. Casino as the corporate
secretary of both corporations. It would also not be amiss to note that both
corporations had the same president, the same 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 backwages 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 where we had the occasion to rule:
17

Respondent courts 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 x x x. 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 x x x 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 break-open 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.
Concept Builders Inc. vs. NLRC Case Digest
Concept Builders Inc. vs. National Labor Relations Commission
[GR 108734, 29 May 1996]
Facts: Concept Builders, Inc., (CBI) a domestic corporation, with principal office at 355 Maysan Road,
Valenzuela, Metro Manila, is engaged in the construction business while 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 were employed by said company as laborers, carpenters and riggers. On November 1981,
Marabe, et. al. were served individual written notices of termination of employment by CBI, effective on 30
November 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. The National Labor Relations Commission (NLRC) found
it to be, the fact, however, that at the time of the termination of Marabe, et.al.'s employment, the project in
which they were hired had not yet been finished and completed. CBI had to engage the services of subcontractors whose workers performed the functions of Marabe, et. al. Aggrieved, Marabe, et. al. filed a
complaint for illegal dismissal, unfair labor practice and non-payment of their legal holiday pay, overtime pay
and thirteenth-month pay against CBI. On 19 December 1984, the Labor Arbiter rendered judgment ordering
CBI to reinstate Marabe et. al. and to pay them back wages equivalent to 1 year or 300 working days. On 27

November 1985, the NLRC dismissed the motion for reconsideration filed by CBI on the ground that the said
decision had already become final and executory.
On 16 October 1986, the NLRC Research and Information Department made the finding that Marabe, et. al.'s
back wages amounted to P199,800.00. On 29 October 1986, the Labor Arbiter issued a writ of execution
directing the sheriff to execute the Decision, dated 19 December 1984. The writ was partially satisfied through
garnishment of sums from CBI'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 1 February 1989, an Alias Writ of
Execution was issued by the Labor Arbiter directing the sheriff to collect from CBI the sum of P117,414.76,
representing the balance of the judgment award, and to reinstate Marabe, et. al. to their former positions. On
13 July 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 CBI no longer occupied the
premises. On 26 September 1986, upon motion of Marabe, et. al., 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 2 November 1989, that all the employees inside CBI's premises claimed that they were employees
of Hydro Pipes Philippines, Inc. (HPPI) and not by CBI; that levy was made upon personal properties he found
in the premises; and that security guards with high-powered guns prevented him from removing the properties
he had levied upon. The said special sheriff recommended that a "break-open order" be issued to enable him to
enter CBI's premises so that he could proceed with the public auction sale of the aforesaid personal properties
on 7 November 1989. On 6 November 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 HPPI, of which
he is the Vice-President. On 23 November 1989, Marabe, et. al. filed a "Motion for Issuance of a Break-Open
Order," alleging that HPPI and CBI 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
Marabe, et. al. were willing to post an indemnity bond to answer for any damages which CBI and HPPI may
suffer because of the issuance of the break-open order. On 2 March 1990, the Labor Arbiter issued an Order
which denied Marabe, et. al.'s motion for break-open order.
Marabe, et. al. then appealed to the NLRC. On 23 April 1992, the NLRC set aside the order of the Labor
Arbiter, issued a break-open order and directed Marabe, et. al. 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. CBI moved for reconsideration but the motion was denied by the NLRC in a Resolution, dated 3
December 1992. Hence, the petition.
Issue: Whether the NLRC was correct in issuing the break-open order to levy the HPPI properties located at
CBI amd/or HPPIs premises at 355 Maysan Road, Valenzuela, Metro Manila.
Held: It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from
its stockholders and from other corporations to which it may be connected. But, this separate and distinct
personality of a corporation is merely a fiction created by law for convenience and to promote justice. So, when
the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect fraud or
defend crime, or is used as a device to defeat the labor laws, this separate personality of the corporation may
be disregarded or the veil of corporate fiction pierced. This is true likewise when the corporation is merely an
adjunct, a business conduit or an alter ego of another corporation. 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; and (4) Methods of conducting the business. The SEC en banc explained the
"instrumentality rule" which the courts have applied in disregarding the separate juridical personality of
corporations as "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 (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. 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. Here, while CBI claimed that it
ceased its business operations on 29 April 1986, it filed an Information Sheet with the Securities and Exchange
Commission on 15 May 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. Further, both information
sheets were filed by the same Virgilio O. Casio as the corporate secretary of both corporations. Both
corporations had the same president, the same board of directors, the same corporate officers, and
substantially the same subscribers. From the foregoing, it appears that, among other things, the CBI and the
HPPI shared the same address and/or premises. Under these circumstances, it cannot be said that the
property levied upon by the sheriff were not of CBI's. Clearly, CBI ceased its business operations in order to
evade the payment to Marabe, et. al. of back wages and to bar their reinstatement to their former positions.
HPPI is obviously a business conduit of CBI and its emergence was skillfully orchestrated to avoid the financial
liability that already attached to CBI.

ENRIQUEZ SECURITY G.R. No. 147993

SERVICES, INC.,
Petitioner,
Present:
PUNO, J., Chairperson,
- v e r s u s - SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA and
GARCIA, JJ.
VICTOR A. CABOTAJE,
Respondent. Promulgated:
July 21, 2006
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION

CORONA, J.:

Sometime in January 1979, respondent Victor A. Cabotaje was

employed

as

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.[3]

On appeal, the NLRC set aside the labor arbiters award of onemonth 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]
On May 25, 2000, petitioner filed a special civil action for
certiorari[6] 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 certiorari [9] on the following
issues:
1.

[w]hether or not the Retirement [Pay] Law has retroactive

effect.

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:

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 again[13] 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. The assailed
decision and resolution of the Court of Appeals are AFFIRMED.
Costs against petitioner.
SO ORDERED.
THE HEIRS OF THE LATE
PANFILO V. PAJARILLO,
Petitioners,

G.R. No. 155056-57

Present:

-versus THE
HON.
COURT
OF
APPEALS, NATIONAL LABOR
RELATIONS
COMMISSION
and SAMAHAN NG MGA
MANGGAGAWA NG PANFILO

YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,

V. PAJARILLO, ALFREDO
HOYOHOY,
HERMINIO
CASTILLO,
BERNARDO
ROCO, RODOLFO TORRES,
JULIAN JORVINA, LOURDES
ROCO,
FLORITA YAPOC,
MARLON
ALDANA,
PARALUMAN
ULANG,
TOLENTINO SANHI, JOHNNY
SORIANO,
ANDRES
CALAQUE,
ROBERTO
LAVAREZ,
FRANCISCO
MORALES,
SALVACION
PERINA, ANTONIO ABALA,
ROMEO SALONGA, AUGUR
M. MANIPOL, BIENVENIDA
TEQUIL,
MARIO
ELEP,
ALADINO
LATIGO,
BERNARDINE
BANSAL,
PEDRO
DE
BAGUIO,
RICARDO CALICA, LAURA
CO,
VICENTE
RECANA,
ELENA TOLLEDO, ALFREDO
PLAZA,
SR.,
HERMINIO
BALDONO, FELIPE YAPOC,
ARISTON NIPA, and ALFONSO
C. BALDOMAR,
Respondents.

NACHURA, and
REYES, JJ.

Promulgated:

October 19, 2007

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

DECISION

CHICO-NAZARIO, J.:

In this Petition for Review on Certiorari under Rule 45 of the

Rules of Court,[1] petitioners, heirs of Panfilo V. Pajarillo, seek to
set aside the Decision, [2] and Resolution,[3] dated 12 March 2002
and 28 August 2002, respectively, of the Court of Appeals in CAG.R. SP No. 54330 and CA-G.R. SP No. 54331, reversing the
two Per Curiam Orders dated 28 October 1996 and 10 January

1997,[4] of the National Labor Relations Commission (NLRC) in

NLRC NCR Cases No. 08-03013-87 and 01-00331-88.

Stripped of the non-essentials, the facts are as follows:

Panfilo V. Pajarillo (Panfilo) was the owner and operator of

several buses plying certain routes in Metro Manila. He used the
name PVP Liner in his buses. Private respondents were
employed as drivers, conductors and conductresses by Panfilo.

During their employment with Panfilo, private respondents

worked at least four times a week or for an average of fifteen
working days per month. They were required to observe a work
schedule starting from 4:00 in the morning up to 10:00 in the
evening on a straight time basis. Private respondent drivers were
paid a daily commission of 10%, while private respondent
conductors and conductresses received a daily commission of
7%.In sum, each of the private respondents earned an average
daily commission of about P150.00 a day. They were not given
emergency cost of living allowance (ECOLA), 13 th month pay, legal
holiday pay and service incentive leave pay. [5]

The following were deducted from the private respondents

daily commissions: (a) costs of washing the assigned buses; (b)
terminal fees; (c) fees for sweeping the assigned buses; (d) fees
paid to the barangay tanod at bus terminals; and (e) rental fees
for the use of stereo in the assigned buses. Any employee who
refused such deductions were either barred from working or
dismissed from work.[6]
Thereafter, private respondents and several co-employees
formed a union called SAMAHAN NG MGA MANGGAGAWA NG
PANFILO V. PAJARILLO (respondent union). The Department of
Labor and Employment (DOLE) issued a Certificate of Registration
in favor of the respondent union.[7]

Upon learning of the formation of respondent union, Panfilo

and his children ordered some of the private respondents to sign
a document affirming their trust and confidence in Panfilo and
denying any irregularities on his part. Other private respondents
were directed to sign a blank document which turned out to be a
resignation letter. Private respondents refused to sign the said
documents, hence, they were barred from working or were
dismissed without hearing and notice. Panfilo and his children and
relatives also formed a company union where they acted as its
directors and officers.[8]

On 25 August 1987, respondent union and several

employees filed a Complaint for unfair labor practice and illegal
deduction before the Labor Arbiter with Panfilo V. Pajarillo
Liner as party-respondent. This was docketed as NLRC/NCR Case
No. 00-08-03013-87.[9] On 28 September 1987, the respondent
union filed an Amended Complaint alleging this time not only
unfair labor practice and illegal deduction but also illegal
dismissal.[10]

On 20 January 1988, respondent union and several

employees filed another Complaint for violation of labor standard
laws claiming non-payment of (1) ECOLA, (2) 13 th month pay, (3)
overtime pay, (4) legal holiday pay, (5) premium pay, and (6)
service incentive leave. The party-respondents in this complaint
were PVP LINER INC. and PANFILO V. PAJARILLO, as its
General Manager/Operator. This was docketed as NLRC Case
No. 00-01-00331-88.[11]

Notifications and summons with respect to NLRC/NCR Case

No. 00-08-03013-87 were addressed and sent to PANFILO V.
PAJARILLO,
President/Manager,
Panfilo
V.
Pajarillo
Liner, Pasig Line St., Sta. Ana, Manila on 31 August
1987. The Registry Return Receipt dated 4 September 1987 was

addressed to Panfilo V. Pajarillo, and a signature therein

appears on top of the signature of the name of the addressee.
[12]
With regard to NLRC Case No. 00-01-00331-88, notifications
and
summonses
were addressed
and
sent
to THE
PRESIDENT/MANAGER, PVP Liner Inc. and Panfilo V.
Pajarillo, 2175 Zamora Street, Sta. Ana, Manila on 25
January 1988. The Registry Return Receipt dated 4 February
1988 was addressed to PVP Liner Inc. and was signed by a
certain Irene G. Pajarillo as the addressees agent.[13]

Panfilo denied the charges in the complaints. He maintained

that private respondents were not dismissed from work on
account of their union activities; that private respondents and
several of their co-employees either resigned or were separated
from work, or simply abandoned their employment long before
the respondent union was organized and registered with the
DOLE; that the private respondents are not entitled to ECOLA and
13th month pay because they received wages above the minimum
provided by law; that the private respondents are not entitled to
overtime and legal holiday pay because these are already
included in their daily commissions; that the private respondents
are not entitled to five days incentive leave pay because they
work only four days a week; that no deductions were made in the
daily commissions of the private respondents; that the private
respondents voluntarily and directly paid certain individuals
for barangay protection and for the cleaning of the assigned
buses;
that
he
had
no
participation
in
these
activities/arrangements; that the private respondents were not
dismissed from work; and that the private respondents either
abandoned their jobs or voluntarily resigned from work. [14]

Upon motion of Panfilo, the complaints in NLRC/NCR Case

No. 00-08-03013-87 and NLRC Case No. 00-01-00331-88 were
consolidated.[15] On 29 January 1991, Panfilo died.[16]

After hearing and submission by both parties of their

respective position papers and memoranda, Labor Arbiter Manuel
P. Asuncion (Arbiter Asuncion) rendered a Decision [17] dated 28
December 1992, dismissing the consolidated complaints for lack
of merit. Thus:

IN
THE
LIGHT
OF
ALL
THE
FOREGOING
CONSIDERATIONS, the complaint should be as it is hereby
dismissed for lack of merit.

Respondent union appealed to the NLRC. On 18 June 1996,

the NLRC reversed the decision of Arbiter Asuncion and ordered
the
reinstatement
of,
and
payment
of
th
backwages, ECOLA, 13 month pay, legal holiday pay and service
incentive leave pay to, private respondents. [18] The dispositive
portion of the NLRC decision reads:

Wherefore, the appealed decision is hereby set

aside. Accordingly, judgment is hereby rendered
directing:

(1) The respondent, PVP Liner, Inc. to

reinstate to their former positions, without loss
of seniority rights and other benefits, the
following
complainants: Alfredo
[Hoyohoy],
Bernardo Roco, Rodolfo Torres, Julian Jorvina,
Florita Yapoc, Marlon Aldana, Paraluman Ulang,
Tolentino Sanhi, Johnny Soriano, Andres
Calaque, Roberto Lavarez, Francisco Morales,
Salvacion Perina, Antonio Abala, Alfonso
Baldomar, Jr., Romeo Salonga, Augur Manipol,

Bienvenida Tequil, Mario Elep, Aladino Latigo,

Bernardine Bansal, Pedro de Baguio, Ricardo
Calica, Laura Co, Vicente Recana, Elena
Tolledo, Alfredo Plaza, Sr., Herminio Baldono,
Felioe Yapoc, Ariston Nipa and Herminia Castillo
and
to
pay
them
their
backwages
corresponding to a period of three (3) years
without qualifications and deductions;

(2) The same respondent PVP Liner, Inc.

to pay amounts to be computed in a hearing
called for said purpose by the Arbitration
Branch of Origin, the aforesaid complainants
their claims for emergency cost of living
allowance (ECOLA), 13th month pay, legal
holiday pay and service incentive leave
benefits subject to the three-year prescriptive
period provided under Article 291 of the Labor
Code, as amended;

(3) The dismissal of the claims on alleged

illegal deductions of the respondents for lack of
merits; and

(4) The dismissal of the case of Lourdes

Roco due to prescription.

All other claims of the complainants and the

respondents are likewise DISMISSED, for being without
merit.

The Arbitration Branch of Origin is hereby directed to

enforce this decision.

Panfilos counsel filed a motion for reconsideration which was

partially granted by the NLRC in its Order dated 28 October 1996,
to wit:

Dictated, however, by the imperatives of due

process, we find it more judicious to just remand this case
for further hearing on key questions of:

1) whether or not PVP Liner Inc. was properly

impleaded as party respondent in the
consolidated cases below;

2) whether or not summons was properly

served on said corporation below; and

3) whether or not the subject cases can be

considered as principally money claims which
have to be litigated in intestate/testate
proceedings involving the estate of the late
Panfilo V. Pajarillo.

WHEREFORE, our decision dated June 18, 1996 is hereby

set aside. Let this case be remanded to the NCR
Arbitration Branch for further hearing on the questions
above-mentioned.[19]

Respondent union filed a motion for reconsideration of the

above-stated Order, but this was denied by the NLRC in its Order
dated 10 January 1997.[20] Thus, respondent union filed a Petition
for Certiorari under Rule 65 before this Court. Pursuant, however,
to our ruling in St. Martin Funeral Home v. National Labor
Relations Commission,[21] we remanded the petition to the Court
of Appeals for proper disposition.

On 12 March 2002, the Court of Appeals rendered a Decision

granting the respondent unions petition and nullifying the Orders
dated 28 October 1996 and 10 January 1997 of the NLRC. It also
reinstated the Decision dated 18 June 1986 of the NLRC.[22] The
appellate court decreed:

WHEREFORE, premises considered, the PETITION

FOR CERTIORARI is hereby GRANTED. Accordingly, the
Order dated October 28 1996 and January 10, 1997 of the
NLRC are hereby NULLIFIED and its Decision dated 18
June 1986 be REINSTATED.

Panfilos counsel filed a motion for reconsideration of the said

decision but this was denied by the appellate court in its
Resolution dated 28 August 2002.[23]

Herein petitioners, as heirs of Panfilo, filed the instant

petition before this Court assigning the following errors:

I.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED
IN ARRIVING AT THE CONCLUSION THAT PVP LINER INC.
WAS PROPERLY MISPLEADED, WHICH IS A NON-EXISTING
CORPORATION.

II.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED

IN NOT CONSIDERING THAT THERE WAS NO PROPER AND
EFFECTIVE SERVICE OF SUMMONS.

III.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED

IN PIERCING THE VEIL OF CORPORATE ENTITY OF PVP
PAJARILLO LINER INC.

IV.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED

IN REINSTATING THE ORDER OF THE NLRC DATED JUNE
18,
1996,
WHICH
DECLARED
THAT
PRIVATE
[24]
RESPONDENTS WERE ILLEGALLY DISMISSED.

Anent the first issue, petitioners alleged that the Decision

dated 18 June 1996 of the NLRC, ordered PVP Liner Inc. to
reinstate private respondents and pay their backwages,
ECOLA, 13th month pay, legal holiday pay and service incentive
leave pay; that there was no such entity as PVP Liner
Inc. organized and existing in the Philippines; that it was not
possible for Arbiter Asuncion and the NLRC to acquire jurisdiction
over a non-existing company; that there can never be a service of
summons or notice to a non-existent entity; that the true
employer of private respondents was Panfilo as the sole
proprietor/operator of passenger buses doing business under the
tradename, PVP Liner, and not PVP Liner Inc. which was nonexistent; that Panfilo never used PVP Liner Inc. as his
tradename; that the present operator of PVP Liner buses
is P.V. PAJARILLO LINER, a corporation duly registered with the
Securities and Exchange Commission; that at the time the instant
case was filed before Arbiter Asuncion in 1987, the latter did not
have jurisdiction over P.V. PAJARILLO LINERbecause it was
organized and duly registered only on 22 January 1990;
that P.V. PAJARILLO LINER has a separate and distinct
personality from Panfilo as the sole operator of PVP Liner buses;
that, therefore, P.V.PAJARILLO LINER cannot be made a party or
impleaded in the present case; that the amended complaint in
NLRC/NCR Case No. 00-08-03013-87 impleaded as partyrespondent PANFILO V. PAJARILLO LINER and PANFILO V.
PAJARILLO, as operator and responsible officer; that PVP
Liner Inc. was not impleaded in the instant case; and that no
summons was ever served on PVP Liner Inc. in NLRC/NCR Case
No. 00-08-03013-87.[25]

The contentions are bereft of merit.

In the Complaint dated 20 January 1988, PVP Liner Inc. and

Panfilo were impleaded as party-respondents, thus:

That respondent PVP Liner, Inc., is a private

business entity, engaged in transportation of
passengers, duly organized and existing pursuant to law
and for this purpose maintains its principal office at 2175,
Zamora Street, Sta. Ana, Manila; while individual
respondent
[Panfilo]
is
the
General
Manager/Operator and may be served with
summons, notices and other processes at the
aforementioned principal office.[26]

Panfilo did not question in his position paper or in his motion

for
consolidation
of
the
complaints
the
foregoing
allegations. Neither did he assail the inclusion of PVP Liner Inc.
as party-respondent in respondent unions position paper dated 6
June 1988.

In Panfilos position paper as well as in the records of the

proceedings before Arbiter Asuncion, there is nothing that shows
that Panfilo challenged the jurisdiction of Arbiter Asuncion
over PVP Liner Inc. When Arbiter Asuncion decided in favor of
Panfilo, the latter said nothing about the inclusion of PVP Liner
Inc. as party respondent and the lack of jurisdiction of Arbiter
Asuncion over the same. It was only when the NLRC rendered a
Decision adverse to Panfilo that the latter alleged the nonexistence of PVP Liner Inc. and the fact that Arbiter Asuncion
and the NLRC had no jurisdiction over it.

Petitioners are now precluded from questioning the inclusion

of PVP Liner Inc. as party-respondent as well as the jurisdiction
of Arbiter Asuncion and the NLRC over them under the principle
of estoppel. It is settled that the active participation of a party
against whom the action was brought, coupled with his failure to
object to the jurisdiction of the court or quasi-judicial body where
the action is pending, is tantamount to an invocation of that
jurisdiction and a willingness to abide by the resolution of the
case and will bar said party from later on impugning the court or
bodys jurisdiction.[27] This Court has time and again frowned upon
the undesirable practice of a party submitting his case for
decision and then accepting the judgment only if favorable, and
attacking it for lack of jurisdiction when adverse. [28]

It is apparent that Panfilo V. Pajarillo Liner and PVP Liner

Inc. are one and the same entity belonging to one and the same
person, Panfilo. When PVP Liner Inc. and Panfilo V. Pajarillo
Liner were impleaded as party-respondents, it was Panfilo,
through counsel, who answered the complaints and filed the
position papers, motions for reconsideration and appeals. It was
also Panfilo, through counsel, who participated in the hearings
and proceedings. In fact, Abel Pajarillo (Abel), son of Panfilo,
testified before Arbiter Asuncion that he was the operations
manager
of PVP
Liner
Inc.[29] Further,
both
Panfilo
and PVP Liner Inc. were charged jointly and severally in the
aforesaid complaints.

Apropos the second issue, petitioners alleged that the

notices and summons were received by a certain Irene G. Pajarillo
(Irene) for and in behalf of the PVP Liner Inc.; that Irene was
neither and could not have been the President/Manager of PVP
Liner Inc., the latter being non-existent; and that Irene was not an
officer of P.V. Pajarillo Liner.[30]

Sections 4 and 5 of Rule IV of the Revised Rules of Procedure

of the NLRC provides the rule for the service of summonses and
notices in NLRC cases, viz:

Sec. 4. Service of notices and resolutions. a) Notices

or summons and copies of orders, resolutions or decisions
shall be served personally by the bailiff or the duly
authorized public officer or by registered mail on the
parties to the case within five (5) days from receipt
thereof by the serving officer.

Sec. 5. Proof and completeness of service. The

return is prima facie proof of the facts indicated therein.
Service by registered mail is complete upon receipt by
the addressee or his agent.[31]

Records show that Irene received the summons for NLRC

Case No. 00-01-00331-88 on 4 February 1988 in behalf of PVP
Liner Inc. These summonses were addressed and sent to THE
PRESIDENT/MANAGER, PVP Liner Inc. and Panfilo V.
Pajarillo, 2175 Zamora Street, Sta. Ana, Manila on 25
January 1988. The Registry Return Receipt dated 4 February
1988 was addressed to PVP Liner Inc. and was signed by Irene
as the addressees agent.[32] Abel, one of the heirs of Panfilo and
the Operations Manager of PVP Liner Inc., testified during the
hearing before Arbiter Asuncion that Irene was one of the
secretaries of PVP Liner Inc.[33] Hence, there was a valid service of
summons.

Regarding the third issue, petitioners posited that P.V.

Pajarillo Liner Inc. is an independent corporation and cannot be

considered as an adjunct or extension of Panfilo as the sole

operator of PVP Liner buses; and that at the time P.V. Pajarillo
Liner Inc. was established, it had no liability or obligation which it
tried to shield or circumvent.[34]

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. However, this separate and distinct personality of a
corporation is merely a fiction created by law for convenience and
to promote justice. Hence, 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
labor laws, this separate personality of the corporation may be
disregarded or the veil of the corporate fiction pierced. This is true
likewise when the corporation is merely an adjunct, a business
conduit or an alter ego of another corporation. The corporate
mask may be lifted and the corporate veil may be pierced when a
corporation is but the alter ego of a person or another
corporation.[35]

It is apparent that Panfilo started his transportation business

as the sole owner and operator of passenger buses utilizing the
name PVP Liner for his buses. After being charged by respondent
union of unfair labor practice, illegal deductions, illegal dismissal
and violation of labor standard laws, Panfilo transformed his
transportation business into a family corporation, namely, P.V.
Pajarillo Liner Inc. He and petitioners were the incorporators,
stockholders and officers therein. P.V. Pajarillo Inc. and the sole
proprietorship of Panfilo have the same business address. P.V.
Pajarillo Inc. also uses the name PVP Liner in its buses. Further,
the license to operate or franchise of the sole proprietorship was
merely transferred to P.V. Pajarillo Liner Inc. The testimony of
Abel during the hearing before Arbiter Asuncion is revealing, thus:

Q: Mr. Pajarillo, when did you start assuming the functions

of operations manager of PVP Liner?
A: Seven years from now, sometime in the year 1984 or
1985, sir.

Q: Do you have any written appointment as Operations

Manager?
A: No, sir.

Q: I noticed that your surname is Pajarillo you are one

way or another related to Mr. Panfilo V. Pajarillo, is
that correct?

Witness:

A: I am the son of Panfilo Pajarillo, sir.

Q: In so far as PVP Liner is concerned and being the

operations manager, are you aware if it is a single
proprietor or a corporation?
A: At the start it was a single proprietorship, lately,
it has become a family corporation.

Atty. Flores, Jr. (to witness)

Q: When you became the Operations Manager of PVP

Liner, is it a single proprietor or a family
Corporation?
A: It was a single proprietorship.

Q: Mr. Witness, since PVP Liner is a transportation

business it has a license to operate these buses?
A: Yes, there is, sir.

Atty. Flores, Jr. (to witness)

Q: In whose name was it registered?

A: Before it was with my father Panfilo V. Pajarillo,
sir.

Q: Do I understand that the licensing of this

transportation company was transferred to
another person?
A: It was never transferred to another person,
except now, that it has been transferred to a
corporation.[36]

It is clear from the foregoing that P.V. Pajarillo Liner Inc.

was a mere continuation and successor of the sole proprietorship
of Panfilo. It is also quite obvious that Panfilo transformed his sole
proprietorship into a family corporation in a surreptitious attempt
to evade the charges of respondent union. Given these

considerations, Panfilo and P.V. Pajarillo Liner Inc. should be

treated as one and the same person for purposes of liability. [37]

Finally, petitioners averred that no unfair labor practice was

committed, and that private respondents were not illegally
dismissed from work.

In its Decision dated 18 June 1996, the NLRC made an

exhaustive discussion of the allegations and evidence of both
parties as regards unfair labor practice and illegal dismissal. It
concluded that private respondents, officers and members of
respondent union were dismissed by reason of their union
activities and that there was no compliance with substantial and
procedural due process in terminating their services. It also held
that the private respondents who were not members of the
respondent union were also dismissed without just or valid cause,
and that they were denied due process. These factual findings
and conclusions were supported by substantial evidence
comprised of affidavits, sworn statements, testimonies of
witnesses during hearings before Arbiter Asuncion, and other
documentary evidence. These findings were sustained by the
Court of Appeals.

The rule is that findings of fact of quasi-judicial agencies like

the NLRC are accorded by this Court not only respect but even
finality if they are supported by substantial evidence, or that
amount of relevant evidence which a reasonable mind might
accept as adequate to justify a conclusion. [38] We find no
compelling reason to deviate from such findings of the NLRC as
affirmed by the Court of Appeals.

Consequently, the private respondents are entitled to

reinstatement, backwages and other privileges and benefits
under Article 279 of the Labor Code. Separation pay may be given

in lieu of reinstatement if the employee concerned occupies a

position of trust and confidence. In the case at bar, however, the
private respondents, as former bus drivers, conductors and
conductresses of petitioners, do not hold the position of trust and
confidence.[39]

Nonetheless, it appears from the records that some of the

private respondents, namely, Augur Manipol, Rodolfo Torres,
Ricardo Calica, Paraluman Ulang, Edith Chua, Alfredo Hoyohoy,
Johnny Soriano, Bernardo Roco, Tolentino Sanhi, Salvacion Perina,
Pedro L. de Baguio, Ariston Nipa, Felipe Yapoc, Laura Co,
Bienvenida Tequil, Roberto Lavarez, Francisco Morales and
Herminio Castillo, had executed a Quitclaim/Release discharging
petitioners from any and all claims by way of unpaid wages,
separation pay, overtime pay, differential pay, ECOLA, 13 th month
pay, holiday pay, service incentive leave pay or otherwise.[40]

Generally, deeds of release, waivers, or quitclaims cannot

bar employees from demanding benefits to which they are legally
entitled or from contesting the legality of their dismissal, since
quitclaims are looked upon with disfavor and are frowned upon as
contrary to public policy. Where, however, the person making the
waiver has done so voluntarily, with a full understanding thereof,
and the consideration for the quitclaim is credible and reasonable,
the transaction must be recognized as being a valid and binding
undertaking.[41]

There is no showing that the executions of these quitclaims

were tainted with deceit or coercion. On the contrary, each of the
private respondents Sinumpaang Salaysay, which accompanied
the quitclaims, evinces voluntariness and full understanding of
the execution and consequence of the quitclaim. In their
said Sinumpaang Salaysay, the private respondents stated that
their lawyer had extensively explained to them the computation
and the actual amount of consideration they would receive; that
they were not forced or tricked by their lawyer in accepting the

same; and that

consideration.[42]

they

already

received

the

amount

of

Further, the considerations received by the private

respondents were credible and reasonable because they were not
grossly disproportionate to the computation by the NLRC of the
amount of backwages and other money claims. [43]

Given these circumstances, the quitclaims should be

considered as binding on the private respondents who executed
them. It is settled that a legitimate waiver which represents a
voluntary and reasonable settlement of a workers claim should be
respected as the law between the parties. [44] Accordingly, the
private respondents who made such quitclaims are already
precluded from claiming reinstatement, backwages, ECOLA,
13THmonth pay, legal holiday pay, service incentive leave pay,
and other monetary claims.

With regard to the other private respondents who did not

execute such quitclaims, they are entitled to reinstatement,
backwages, ECOLA, 13TH month pay, legal holiday pay and service
incentive leave pay in accordance with the computation of the
NLRC.

WHEREFORE, the petition is hereby DENIED. The Decision

and Resolution dated 12 March 2002 and 28 August 2002,
respectively, of the Court of Appeals in CA-G.R. SP No. 54330 and
CA-G.R. SP No. 54331, are hereby AFFIRMED with the
following MODIFICATIONS: (1) Private
respondents Augur
Manipol, Rodolfo M. Torres, Ricardo Calica, Paraluman Ulang, Edith
Chua, Alfredo Hoyohoy, Johnny Soriano, Bernardo Roco, Tolentino
Sanhi, Salvacion Perina, Pedro L. de Baguio, Ariston Nipa, Felipe
Yapoc, Laura Co, Bienvenida Tequil, Roberto Lavarez, Francisco
Morales and Herminio Castillo are hereby precluded from

claiming reinstatement, backwages, ECOLA, 13TH month pay,

legal holiday pay and service incentive leave pay by reason of
their respective quitclaims; (2) Petitioners are hereby ordered
to reinstate private respondents Julian Jorvina, Florita Yapoc,
Marlon Aldana, Andres Calaque, Antonio Abala, Alfonso Baldomar,
Romeo Salonga, Mario Elep, Aladino Latigo, Bernardine Bansal,
Vicente Recana, Elena Tolledo and Alfredo Plaza, Sr., and to
pay these respondents backwages from the time of their
dismissal up to the finality of this Decision. Petitioners are also
ordered to pay the foregoing private respondents ECOLA,
13TH month pay, legal holiday pay and service incentive leave pay
in accordance with the computation of the NLRC. Costs against
petitioners.

SO ORDERED.
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, CIPRIANO BERNALES, ANGEL
MABULAY,
SR.,
LEO
SURIGAO,
and
ROQUE
MORILLO, respondents.
DECISION
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 atP3,700/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 P60.00/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 P105/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 atP100/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 on-going 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 while T&J and LVM
stayed on.
[2]

Sometime in 1989 Andres Lao, Managing Director of LVM and President of

T&J, issued a memorandum 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.
[3]

[4]

Except for Florencio Gomez 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
[5]

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 petitioner-corporations.
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 applies
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.
[8]

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 noncoterminous with specific projects when they started to be continuously rehired 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 which
deals with regular seasonal employees. There we held [13]

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 xxx 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. The employees are, strictly speaking, not separated from
services but merely on leave of absence without pay until they are
reemployed. 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.
[14]

[15]

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. 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. 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.
[17]

[18]

[19]

We agree with the NLRC that the execution of the project employment
contracts was farcical. 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
[20]

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. 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.
[21]

We likewise reject petitioners justification in re-hiring private

respondents i.e., that it is much cheaper and economical to re-hire or reemploy 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
employers lawful orders as a just cause for the dismissal of the employees
envisages the concurrence of at least two (2) requisites: (a) the employees
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. 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.
[22]

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. In
this case, private respondents Roberto Labendia and Mario Labendia were
forced to leave their respective duties because their salaries were
[23]

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. 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.
[24]

[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 we held [26]

x x x 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 x x x x To allow employers
to exercise their prerogative to terminate a project workers 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 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. 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."
[27]

[28]

[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, 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
[31]

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.

GENERAL
CREDIT G.R. No. 154975
CORPORATION (now PENTA
CAPITAL
FINANCE
Present:
CORPORATION),
Petitioner,
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
-

versus -

CORONA,
AZCUNA, and
GARCIA, JJ.

ALSONS DEVELOPMENT and

INVESTMENT
CORPORATION
and
CCC
EQUITY
CORPORATION,
Respondents.

Promulgated:

January 29, 2007

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

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 Decision[1] and Resolution[2] dated 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.

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]

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
money[8] 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 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.

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

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

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

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 SECissued 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 onNovember 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

arguments, issues and/or submissions:

on

the following

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:

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, itshall give due
course to it.

xxx xxx xxx

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 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]

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
policy[16] comes immediately to mind. None of the well-recognized
exceptions obtain in this case, however.

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.

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 EQUITYsPresident, 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.
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 employeremployee 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.

FRANCISCO MOTORS CORPORATION, petitioner, vs. COURT OF

APPEALS
and
SPOUSES
GREGORIO
and
LIBRADA
MANUEL, respondents.
DECISION
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 attorneys 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 petitioners 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 courts 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 petitioners complaint for a sum of money. Private
respondent Gregorio Manuel alleged as an affirmative defense that, while he was petitioners
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 counter petitioners collection suit, he filed a permissive
counterclaim for the unpaid attorneys 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 courts 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 DEFENDANT-APPELLEES.
III.

WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFFAPPELLANT 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 courts 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 petitioners 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 courts jurisdiction.[10]
On the question of its liability for attorneys 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--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 plaintiff-appellant 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-

appellants veil of corporate identity should be pierced and the defendant be

compensated for legal services rendered to the heirs, who are directors of the plaintiffappellant 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 partys
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 petitioners 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 petitioners
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 petitioners 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 corporations 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
courts resort to this doctrine. The rationale behind piercing a corporations 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 Trinidads
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 petitioners 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 petitioners allegation, that it needed
to be summoned anew in order for the court to acquire jurisdiction over it, we agree with
respondent courts view to the contrary. Section 4, Rule 11 of the Rules of Courtprovides 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 plaintiff-appellant[,] [t]he records show

that upon its request, plaintiff-appellant was granted time to file a motion for
reconsideration of the disputed decision. Plaintiff-appellant 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 courts 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.
SO ORDERED.

TIMOTEO H. SARONA,

G.R. No. 185280

Petitioner,
Present:

CARPIO, J.,
- versus -

Chairperson,
PEREZ,
SERENO,
REYES, and

NATIONAL LABOR RELATIONS

COMMISSION, ROYALE SECURITY

BERNABE, JJ.

AGENCY (FORMERLY SCEPTRE

SECURITY AGENCY) and
Promulgated:

CESAR S. TAN,
Respondents.

January 18, 2012

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

DECISION

REYES, J.:

This is a petition for review under Rule 45 of the Rules of Court from the May
29, 2008 Decision of the Twentieth Division of the Court of Appeals (CA) in CAG.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:
1

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 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, the dispositive portion of which states:
9

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 Attorneys 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

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
to P15,600.00. 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

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:

[P]5,200.00 x 3 months = [P]15,600.00

12

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 for Certiorari 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. 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:
14

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. (citations omitted)
15

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 Court provides:

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. (citations omitted)
16

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. 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.
17

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; (ii) Sceptre and Royal have the same officers and
employees; (iii) on October 14, 1994, Roso, the sole proprietor of Sceptre, sold to
Aida, and her husband, Wilfredo Gracia K. Tan (Wilfredo), the property used by
Sceptre as its principal place of business; (iv) Wilfredo is one of the incorporators of
Royale; (v) on May 3, 1999, Roso ceded the license to operate Sceptre issued by the
Philippine National Police to Aida; (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; (vii) Aida exercised control over the affairs
of Sceptre and Royale, as she was, in fact, the one who dismissed the petitioner from
employment; (viii) Karen, the daughter of Aida, was Sceptres Operation Manager
and is one of the incorporators of Royale; and (ix) Cesar Tan II, the son of Aida was
one of Sceptres officers and is one of the incorporators of Royale.
19

20

21

22

23

24

25

26

27

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
Decision and the respondents paid him the full amount of the monetary award
thereunder shortly after the writ of execution was issued. 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.
29

30

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. 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.
31

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 forcertiorari, 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., 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
34

close or terminate the case if such receipt is qualified as without prejudice to the
outcome of the petition for certiorari pending with the CA.

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 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. 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. Since an appeal to this Court is not an original and independent action but a
36

37

38

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 oft-repeated that findings of fact of administrative agencies and quasi-judicial
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, 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.
42

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. 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.
44

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. 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. As far as Royale is
concerned, the respondents do not deny that she has a hand in its management and
50

51

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. 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. 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
creation or which could not have been intended by law to which it owed its being.
52

53

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., 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:
55

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. Royale, shortly after its incorporation, started to hold office in
the same property. These, the respondents failed to dispute.
57

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., 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:
58

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. 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 and the length of service prior to his
dismissal is definitely inconsequential.
60

61

As early as 1996, this Court, in Bustamante, et al. v. NLRC, et al., 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.
62

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. (emphasis supplied)
63

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. (citation omitted)
65

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. 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 13 th month pay, that were
received by his co-employees who are not dismissed. 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.
66

67

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

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:

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 of Twenty-Five Thousand Pesos (P25,000.00); and

5. 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.
WENSHA SPA CENTER,
INC. and/or XU ZHI JIE,
Petitioners,

G.R. No. 185122

Present:
CARPIO, J., Chairperson,
NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.

- versus -

Promulgated:
LORETA T. YUNG,
Respondent.

August 16, 2010

X -------------------------------------------------------------------------------------- X

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 Decision [1] and
October 23, 2008 Resolution[2] 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
decision[7] 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,
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.
[9]

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 PETITION

THE

ALLOWANCE

OF

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 quasijudicial 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
affidavit[24] 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
onSeptember 10, 2004. xxx[28]

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 TODAYSEPTEMBER 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. 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. 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, andseparation
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.
HI-CEMENT CORPORATION, G.R. No. 132403
Petitioner,

-versus-

INSULAR BANK OF ASIA AND

AMERICA
(later
PHILIPPINE
COMMERCIAL
INTERNATIONAL
BANK and now, EQUITABLE-PCI
BANK)
Respondent.

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

E.T. HENRY & CO. and G.R. No. 132419

SPOUSES ENRIQUE TAN
and LILIA TAN,
Petitioners, Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA,
AZCUNA and
GARCIA, JJ.

INSULAR BANK OF ASIA AND

AMERICA
(later
PHILIPPINE
COMMERCIAL
INTERNATIONAL
BANK and now, EQUITABLE-PCI
BANK),
Respondent.

Promulgated:

September 28, 2007

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

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.

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 rediscounting 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 checks [5] 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 money [7] in the then

Court of First Instance of Rizal [8] against E.T. Henry, the spouses
Tan,

Hi-Cement

treasurer

[10]

(including

its

general

manager [9] and

its

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 to P1,661,266.51
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 crossclaims 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 extra-judicial sale of the mortgaged
Sucat property was void due to gross inadequacy of the bid
price[15]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 rediscounting 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

Riverside and Kanebo], to wit:

1.

Tan,

Hi-Cement,

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:

(a) Riverside Mills Corporation P 115,312.50

(b) Kanebo Cosmetics Philippines, Inc. 5,811,750.00
(c) Hi-Cement Corporation 10,000,000.00

plus interests, services, charges and penalties until fully

paid;

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;

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]

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]

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 cross-claims and counterclaims, and (3) not declaring the
foreclosure of E.T. Henry's Sucat property as void. [19]

(A) G.R. 132403

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.

AUTHORITY OF HI-CEMENTS
GENERAL
MANAGER AND TREASURER
TO
ISSUE
THE POSTDATED CROSSED C
HECKS

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.

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 52[23] 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 onlyonce 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 treasurer [26] 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 HiCement

postdated

checks

which it endorsed to Atrium. When the latter presented the

crossed checks to thedrawee 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 HICEMENT 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. HiCement 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 the fallo 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)

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.

At any rate, the issue has become moot in view of our ruling that
Hi-Cement is not liable for the checks.

(B) G.R. No. 132419

DOCTRINE OF PIERCING THE

VEIL OF CORPORATE ENTITY

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.

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.

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

corporate veil should not have been pierced at all.

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:

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]

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

constituted the fraud. Fraud is an allegation offact that

act

demands

clear and convincing evidence.[36] It is never presumed.[37]

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.[40]

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 CROSSCLAIMS

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 HiCement, 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 HiCement, 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 cross-claim), 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.[42] Hence, for this technical lapse, we are constrained
not to pass on E.T. Henry's and the spouses Tan's cross-claims.

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

CA-G.R.

CV

No.

31600

is

hereby AFFIRMED with MODIFICATION. 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.

Costs against petitioners E.T. Henry and the spouses Enrique and
Lilia Tan.

SO ORDERED.
G.R. No. 147993

July 21, 2006

ENRIQUEZ SECURITY SERVICES, INC., petitioner,

vs.
VICTOR A. CABOTAJE, respondent.
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.3

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
On May 25, 2000, petitioner filed a special civil action for certiorari 6 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.
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:
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.
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 Code 2 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 Certiorari 3 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
Agustin and De Guzman accepted the terms and conditions proposed by Samson and signed the conforme
portion of the Letter Agreements.10
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, except for Simeon, Jr., 26 were not rehired. After a month in service, Simeon,
Jr. again resigned on October 2001.27
Respondent-employees demanded the payment of their respective separation pays, but their requests were
denied.
1wphi1

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
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
Simeon B. Espiritu, Jr. = P26,000.00
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
SO ORDERED.31
On 28 November 2006, the NLRC denied the Motions for Reconsideration filed by Agustin, De Guzman and the
Samson Group.32
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 200835 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.
There are two types of corporate acquisitions: asset sales and stock sales. 58 In asset sales, the corporate
entity59sells 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.
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 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.
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.
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:
A change of ownership in a business concern is not proscribed bylaw. In Central Azucarera del Danao vs. Court
of Appeals, this Court stated:
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 the qualified separated employees in the
filling of vacancies in the facilities of the purchaser.
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)
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.
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.
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
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.
As to Simeon Espiritu, Jr.
The CA and the NLRC discussed the case of Simeon, Jr. together with that of the rest of respondentemployees. However, a review of the records shows that the conditions leading to his dismissal from
employment are different. We thus discuss his circumstance separately.
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
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
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.
We hold that Simeon, Jr. was likewise illegally dismissed from his employment.
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

We rule that these circumstances show that Simeon, Jr. was constructively dismissed. In
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 CA-G.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.