G.R. No.

173297 March 6, 2013

STRONGHOLD INSURANCE COMPANY, INC., Petitioner,

vs.
TOMAS CUENCA, MARCELINA CUENCA, MILAGROS CUENCA, BRAMIE T. TAYACTAC, and MANUEL D. MARANON, JR.,
Respondents.

DECISION

BERSAMIN, J.:

The personality of a corporation is distinct and separate from the personalities of its stockholders. Hence, its stockholders
are not themselves the real parties in interest to claim and recover compensation for the damages arising from the
wrongful attachment of its assets. Only the corporation is the real party in interest for that purpose.

The Case

Stronghold Insurance Company, Inc. (Stronghold Insurance), a domestic insurance company, assails the decision
promulgated on January 31, 2006,1 whereby the Court of Appeals (CA) in CA-G.R. CV No. 79145 affirmed the judgment
rendered on April 28, 2003 by the Regional Trial Court in Parafiaque City (RTC) holding Stronghold Insurance and
respondent Manuel D. Marafion, Jr. jointly and solidarily liable for damages to respondents Tomas Cuenca, Marcelina
Cuenca, Milagros Cuenca (collectively referred to as Cuencas), and Bramie Tayactac, upon the latter’s claims against the
surety bond issued by Stronghold Insurance for the benefit of Marañon.2

Antecedents

On January 19, 1998, Marañon filed a complaint in the RTC against the Cuencas for the collection of a sum of money and
damages. His complaint, docketed as Civil Case No. 98-023, included an application for the issuance of a writ of preliminary
attachment.3 On January 26, 1998, the RTC granted the application for the issuance of the writ of preliminary attachment
conditioned upon the posting of a bond of ₱1,000,000.00 executed in favor of the Cuencas. Less than a month later,
Marañon amended the complaint to implead Tayactac as a defendant.4

On February 11, 1998, Marañon posted SICI Bond No. 68427 JCL (4) No. 02370 in the amount of ₱1,000,000.00 issued by
Stronghold Insurance. Two days later, the RTC issued the writ of preliminary attachment.5 The sheriff served the writ, the
summons and a copy of the complaint on the Cuencas on the same day. The service of the writ, summons and copy of the
complaint were made on Tayactac on February 16, 1998.6

Enforcing the writ of preliminary attachment on February 16 and February 17, 1998, the sheriff levied upon the equipment,
supplies, materials and various other personal property belonging to Arc Cuisine, Inc. that were found in the leased
corporate office-cum-commissary or kitchen of the corporation.7 On February 19, 1998, the sheriff submitted a report on
his proceedings,8 and filed an ex parte motion seeking the transfer of the levied properties to a safe place. The RTC granted
the ex parte motion on February 23, 1998.9

On February 25, 1998, the Cuencas and Tayactac presented in the RTC a Motion to Dismiss and to Quash Writ of
Preliminary Attachment on the grounds that: (1) the action involved intra-corporate matters that were within the original
and exclusive jurisdiction of the Securities and Exchange Commission (SEC); and (2) there was another action pending in
the SEC as well as a criminal complaint in the Office of the City Prosecutor of Parañaque City.10

On March 5, 1998, Marañon opposed the motion.11

On August 10, 1998, the RTC denied the Motion to Dismiss and to Quash Writ of Preliminary Attachment, stating that the
action, being one for the recovery of a sum of money and damages, was within its jurisdiction.12
Under date of September 3, 1998, the Cuencas and Tayactac moved for the reconsideration of the denial of their Motion
to Dismiss and to Quash Writ of Preliminary Attachment, but the RTC denied their motion for reconsideration on
September 16, 1998.

Thus, on October 14, 1998, the Cuencas and Tayactac went to the CA on certiorari and prohibition to challenge the August
10, 1998 and September 16, 1998 orders of the RTC on the basis of being issued with grave abuse of discretion amounting
to lack or excess of jurisdiction (C.A.-G.R. SP No. 49288).13

On June 16, 1999, the CA promulgated its assailed decision in C.A.-G.R. SP No. 49288,14 granting the petition. It annulled
and set aside the challenged orders, and dismissed the amended complaint in Civil Case No. 98-023 for lack of jurisdiction,
to wit:

WHEREFORE, the Orders herein assailed are hereby ANNULLED AND SET ASIDE, and the judgment is hereby rendered
DISMISSING the Amended Complaint in Civil Case No. 98-023 of the respondent court, for lack of jurisdiction.

SO ORDERED.

On December 27, 1999, the CA remanded to the RTC for hearing and resolution of the Cuencas and Tayactac’s claim for
the damages sustained from the enforcement of the writ of preliminary attachment.15

On February 17, 2000,16 the sheriff reported to the RTC, as follows:

On the scheduled inventory of the properties (February 17, 2000) and to comply with the Resolution of the Court of
Appeals dated December 24, 1999 ordering the delivery of the attached properties to the defendants, the proceedings
thereon being:

1. With the assistance for (sic) the counsel of Cuencas, Atty. Pulumbarit, Atty. Ayo, defendant Marcelina Cuenca, and two
Court Personnel, Robertson Catorce and Danilo Abanto, went to the warehouse where Mr. Marañon recommended for
safekeeping the properties in which he personally assured its safety, at No. 14, Marian II Street, East Service Road,
Parañaque Metro Manila.

2. That to our surprise, said warehouse is now tenanted by a new lessee and the properties were all gone and missing.

3. That there are informations (sic) that the properties are seen at Conti’s Pastry & Bake Shop owned by Mr. Marañon,
located at BF Homes in Parañaque City.

On April 6, 2000, the Cuencas and Tayactac filed a Motion to Require Sheriff to Deliver Attached Properties and to Set
Case for Hearing,17 praying that: (1) the Branch Sheriff be ordered to immediately deliver the attached properties to
them; (2) Stronghold Insurance be directed to pay them the damages being sought in accordance with its undertaking
under the surety bond for ₱1,000,0000.00; (3) Marañon be held personally liable to them considering the insufficiency of
the amount of the surety bond; (4) they be paid the total of ₱1,721,557.20 as actual damages representing the value of
the lost attached properties because they, being accountable for the properties, would be turning that amount over to
Arc Cuisine, Inc.; and (5) Marañon be made to pay ₱200,000.00 as moral damages, ₱100,000.00 as exemplary damages,
and ₱100,000.00 as attorney’s fees.

Stronghold Insurance filed its answer and opposition on April 13, 2000. In turn, the Cuencas and Tayactac filed their reply
on May 5, 2000.

On May 25, 2000, Marañon filed his own comment/opposition to the Motion to Require Sheriff to Deliver Attached
Properties and to Set Case for Hearing of the Cuencas and Tayactac, arguing that because the attached properties
belonged to Arc Cuisine, Inc. 50% of the stockholding of which he and his relatives owned, it should follow that 50% of the
value of the missing attached properties constituted liquidating dividends that should remain with and belong to him.
Accordingly, he prayed that he should be required to return only ₱100,000.00 to the Cuencas and Tayactac.18
On June 5, 2000, the RTC commanded Marañon to surrender all the attached properties to the RTC through the sheriff
within 10 days from notice; and directed the Cuencas and Tayactac to submit the affidavits of their witnesses in support
of their claim for damages.19

On June 6, 2000, the Cuencas and Tayactac submitted their Manifestation and Compliance.20

Ruling of the RTC

After trial, the RTC rendered its judgment on April 28, 2003, holding Marañon and Stronghold Insurance jointly and
solidarily liable for damages to the Cuencas and Tayactac,21 viz:

WHEREFORE, premises considered, as the defendants were able to preponderantly prove their entitlement for damages
by reason of the unlawful and wrongful issuance of the writ of attachment, MANUEL D. MARAÑON, JR., plaintiff and
defendant, Stronghold Insurance Company Inc., are found to be jointly and solidarily liable to pay the defendants the
following amount to wit:

(1) Ph₱1,000,000.00 representing the amount of the bond;

(2) PhP 100,000.00 as moral damages;

(3) PhP 50,000.00 as exemplary damages;

(4) Php 100,000.00 as attorney’s fees; and

(5) To pay the cost of suit.

SO ORDERED.

Ruling of the CA

Only Stronghold Insurance appealed to the CA (C.A.-G.R. CV No. 79145), assigning the following errors to the RTC, to wit:

I.

THE LOWER COURT ERRED IN ORDERING SURETY-APPELLANT TO PAY THE AMOUNT OF ₱1,000,000.00 REPRESENTING THE
AMOUNT OF THE BOND AND OTHER DAMAGES TO THE DEFENDANTS.

II.

THE LOWER COURT ERRED IN NOT TAKING INTO ACCOUNT THE INDEMNITY AGREEMENT (EXH. "2-SURETY") EXECUTED BY
MANUEL D. MARAÑON, JR. IN FAVOR OF STRONGHOLD WHEREIN HE BOUND HIMSELF TO INDEMNIFY STRONGHOLD OF
WHATEVER AMOUNT IT MAY BE HELD LIABLE ON ACCOUNT OF THE ISSUANCE OF THE ATTACHMENT BOND.22

On January 31, 2006, the CA, finding no reversible error, promulgated its decision affirming the judgment of the RTC.23

Stronghold Insurance moved for reconsideration, but the CA denied its motion for reconsideration on June 22, 2006.

Issues

Hence, this appeal by petition for review on certiorari by Stronghold Insurance, which submits that:

I.
THE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR AND DECIDED QUESTIONS OF SUBSTANCE IN A WAY NOT
IN ACCORDANCE WITH LAW AND APPLICABLE DECISIONS OF THE HONORABLE COURT CONSIDERING THAT THE COURT OF
APPEALS AFFIRMED THE ERRONEOUS DECISION OF THE TRIAL COURT HOLDING RESPONDENT MARA[Ñ]ON AND
PETITIONER STRONGHOLD JOINTLY AND SOLIDARILY LIABLE TO PAY THE RESPONDENTS CUENCA, et al., FOR PURPORTED
DAMAGES BY REASON OF THE ALLEGED UNLAWFUL AND WRONGFUL ISSUANCE OF THE WRIT OF ATTACHMENT, DESPITE
THE FACT THAT:

A) RESPONDENT CUENCA et al., ARE NOT THE OWNERS OF THE PROPERTIES ATTACHED AND THUS, ARE NOT THE PROPER
PARTIES TO CLAIM ANY PURPORTED DAMAGES ARISING THEREFROM.

B) THE PURPORTED DAMAGES BY REASON OF THE ALLEGED UNLAWFUL AND WRONGFUL ISSUANCE OF THE WRIT OF
ATTACHMENT WERE CAUSED BY THE NEGLIGENCE OF THE BRANCH SHERIFF OF THE TRIAL COURT AND HIS FAILURE TO
COMPLY WITH THE PROVISIONS OF THE RULES OF COURT PERTAINING TO THE ATTACHMENT OF PROPERTIES.

C) THE TRIAL COURT GRAVELY ERRED WHEN IT HELD PETITIONER STRONGHOLD TO BE SOLIDARILY LIABLE WITH
RESPONDENT MARA[Ñ]ON TO RESPONDENTS CUENCA et al., FOR MORAL DAMAGES, EXEMPLARY DAMAGES, ATTORNEY’S
FEES AND COST OF SUIT DESPITE THE FACT THAT THE GUARANTY OF PETITIONER STRONGHOLD PURSUANT TO ITS SURETY
BOND IS LIMITED ONLY TO THE AMOUNT OF ₱1,000,000.00.

II

IN ANY EVENT, THE DECISION OF THE COURT APPEALS SHOULD HAVE HELD RESPONDENT MARA[Ñ]ON TO BE LIABLE TO
INDEMNIFY PETITIONER STRONGHOLD FOR ALL PAYMENTS, DAMAGES, COSTS, LOSSES, PENALTIES, CHARGES AND
EXPENSES IT SUSTAINED IN CONNECTION WITH THE INSTANT CASE, PURSUANT TO THE INDEMNITY AGREEMENT ENTERED
INTO BY PETITIONER STRONGHOLD AND RESPONDENT MARA[Ñ]ON.24

On their part, the Cuencas and Tayactac counter:

A. Having actively participated in the trial and appellate proceedings of this case before the Regional Trial Court and the
Court of Appeals, respectively, petitioner Stronghold is legally and effectively BARRED by ESTOPPEL from raising for the
first time on appeal before this Honorable Court a defense and/or issue not raised below.25

B. Even assuming arguendo without admitting that the principle of estoppel is not applicable in this instant case, the
assailed Decision and Resolution find firm basis in law considering that the writ of attachment issued and enforced against
herein respondents has been declared ILLEGAL, NULL AND VOID for having been issued beyond the jurisdiction of the trial
court.

C. There having been a factual and legal finding of the illegality of the issuance and consequently, the enforcement of the
writ of attachment, Maranon and his surety Stronghold, consistent with the facts and the law, including the contract of
suretyship they entered into, are JOINTLY AND SEVERALLY liable for the damages sustained by herein respondents by
reason thereof.

D. Contrary to the allegations of Stronghold, its liability as surety under the attachment bond without which the writ of
attachment shall not issue and be enforced against herein respondent if prescribed by law. In like manner, the obligations
and liability on the attachment bond are also prescribed by law and not left to the discretion or will of the contracting
parties to the prejudice of the persons against whom the writ was issued.

E. Contrary to the allegations of Stronghold, its liability for the damages sustained by herein respondents is both a statutory
and contractual obligation and for which, it cannot escape accountability and liability in favor of the person against whom
the illegal writ of attachment was issued and enforced. To allow Stronghold to delay, excuse or exempt itself from liability
is unconstitutional, unlawful, and contrary to the basic tenets of equity and fair play.
F. While the liability of Stronghold as surety indeed covers the principal amount of ₱1,000,000.00, nothing in the law and
the contract between the parties limit or exempt Stronghold from liability for other damages. Including costs of suit and
interest.26

In his own comment,27

Marañon insisted that he could not be personally held liable under the attachment bond because the judgment of the RTC
was rendered without jurisdiction over the subject matter of the action that involved an intra-corporate controversy
among the stockholders of Arc Cuisine, Inc.; and that the jurisdiction properly pertained to the SEC, where another action
was already pending between the parties.

Ruling

Although the question of whether the Cuencas and Tayactac could themselves recover damages arising from the wrongful
attachment of the assets of Arc Cuisine, Inc. by claiming against the bond issued by Stronghold Insurance was not raised
in the CA, we do not brush it aside because the actual legal interest of the parties in the subject of the litigation is a matter
of substance that has jurisdictional impact, even on appeal before this Court.

The petition for review is meritorious.

There is no question that a litigation should be disallowed immediately if it involves a person without any interest at stake,
for it would be futile and meaningless to still proceed and render a judgment where there is no actual controversy to be
thereby determined. Courts of law in our judicial system are not allowed to delve on academic issues or to render advisory
opinions. They only resolve actual controversies, for that is what they are authorized to do by the Fundamental Law itself,
which forthrightly ordains that the judicial power is wielded only to settle actual controversies involving rights that are
legally demandable and enforceable.28

To ensure the observance of the mandate of the Constitution, Section 2, Rule 3 of the Rules of Court requires that unless
otherwise authorized by law or the Rules of Court every action must be prosecuted or defended in the name of the real
party in interest.29 Under the same rule, a real party in interest is one who stands to be benefited or injured by the
judgment in the suit, or one who is entitled to the avails of the suit. Accordingly, a person , to be a real party in interest in
whose name an action must be prosecuted, should appear to be the present real owner of the right sought to be enforced,
that is, his interest must be a present substantial interest, not a mere expectancy, or a future, contingent, subordinate, or
consequential interest.30

Where the plaintiff is not the real party in interest, the ground for the motion to dismiss is lack of cause of action.31 The
reason for this is that the courts ought not to pass upon questions not derived from any actual controversy. Truly, a person
having no material interest to protect cannot invoke the jurisdiction of the court as the plaintiff in an action.32 Nor does
a court acquire jurisdiction over a case where the real party in interest is not present or impleaded.

The purposes of the requirement for the real party in interest prosecuting or defending an action at law are: (a) to prevent
the prosecution of actions by persons without any right, title or interest in the case; (b) to require that the actual party
entitled to legal relief be the one to prosecute the action; (c) to avoid a multiplicity of suits; and (d) to discourage litigation
and keep it within certain bounds, pursuant to sound public policy.33 Indeed, considering that all civil actions must be
based on a cause of action,34 defined as the act or omission by which a party violates the right of another,35 the former
as the defendant must be allowed to insist upon being opposed by the real party in interest so that he is protected from
further suits regarding the same claim.36 Under this rationale, the requirement benefits the defendant because "the
defendant can insist upon a plaintiff who will afford him a setup providing good res judicata protection if the struggle is
carried through on the merits to the end."37

The rule on real party in interest ensures, therefore, that the party with the legal right to sue brings the action, and this
interest ends when a judgment involving the nominal plaintiff will protect the defendant from a subsequent identical
action. Such a rule is intended to bring before the court the party rightfully interested in the litigation so that only real
controversies will be presented and the judgment, when entered, will be binding and conclusive and the defendant will
be saved from further harassment and vexation at the hands of other claimants to the same demand.38

But the real party in interest need not be the person who ultimately will benefit from the successful prosecution of the
action. Hence, to aid itself in the proper identification of the real party in interest, the court should first ascertain the
nature of the substantive right being asserted, and then must determine whether the party asserting that right is
recognized as the real party in interest under the rules of procedure. Truly, that a party stands to gain from the litigation
is not necessarily controlling.39

It is fundamental that the courts are established in order to afford reliefs to persons whose rights or property interests
have been invaded or violated, or are threatened with invasion by others’ conduct or acts, and to give relief only at the
instance of such persons. The jurisdiction of a court of law or equity may not be invoked by or for an individual whose
rights have not been breached.40

The remedial right or the remedial obligation is the person’s interest in the controversy. The right of the plaintiff or other
claimant is alleged to be violated by the defendant, who has the correlative obligation to respect the right of the former.
Otherwise put, without the right, a person may not become a party plaintiff; without the obligation, a person may not be
sued as a party defendant; without the violation, there may not be a suit. In such a situation, it is legally impossible for
any person or entity to be both plaintiff and defendant in the same action, thereby ensuring that the controversy is actual
and exists between adversary parties. Where there are no adversary parties before it, the court would be without
jurisdiction to render a judgment.41

There is no dispute that the properties subject to the levy on attachment belonged to Arc Cuisine, Inc. alone, not to the
Cuencas and Tayactac in their own right. They were only stockholders of Arc Cuisine, Inc., which had a personality distinct
and separate from that of any or all of them.42 The damages occasioned to the properties by the levy on attachment,
wrongful or not, prejudiced Arc Cuisine, Inc., not them. As such, only Arc Cuisine, Inc. had the right under the substantive
law to claim and recover such damages. This right could not also be asserted by the Cuencas and Tayactac unless they did
so in the name of the corporation itself. But that did not happen herein, because Arc Cuisine, Inc. was not even joined in
the action either as an original party or as an intervenor.

The Cuencas and Tayactac were clearly not vested with any direct interest in the personal properties coming under the
levy on attachment by virtue alone of their being stockholders in Arc Cuisine, Inc. Their stockholdings represented only
their proportionate or aliquot interest in the properties of the corporation, but did not vest in them any legal right or title
to any specific properties of the corporation. Without doubt, Arc Cuisine, Inc. remained the owner as a distinct legal
person.43

Given the separate and distinct legal personality of Arc Cuisine, Inc., the Cuencas and Tayactac lacked the legal personality
to claim the damages sustained from the levy of the former’s properties. According to Asset Privatization Trust v. Court of
Appeals,44 even when the foreclosure on the assets of the corporation was wrongful and done in bad faith the
stockholders had no standing to recover for themselves moral damages; otherwise, they would be appropriating and
distributing part of the corporation’s assets prior to the dissolution of the corporation and the liquidation of its debts and
liabilities. Moreover, in Evangelista v. Santos,45 the Court, resolving whether or not the minority stockholders had the
right to bring an action for damages against the principal officers of the corporation for their own benefit, said:

As to the second question, the complaint shows that the action is for damages resulting from mismanagement of the
affairs and assets of the corporation by its principal officer, it being alleged that defendant’s maladministration has
brought about the ruin of the corporation and the consequent loss of value of its stocks. The injury complained of is thus
primarily to the corporation, so that the suit for the damages claimed should be by the corporation rather than by the
stockholders (3 Fletcher, Cyclopedia of Corporation pp. 977-980). The stockholders may not directly claim those damages
for themselves for that would result in the appropriation by, and the distribution among them of part of the corporate
assets before the dissolution of the corporation and the liquidation of its debts and liabilities, something which cannot be
legally done in view of section 16 of the Corporation Law, which provides:
No shall corporation shall make or declare any stock or bond dividend or any dividend whatsoever except from the surplus
profits arising from its business, or divide or distribute its capital stock or property other than actual profits among its
members or stockholders until after the payment of its debts and the termination of its existence by limitation or lawful
dissolution.

xxxx

In the present case, the plaintiff stockholders have brought the action not for the benefit of the corporation but for their
own benefit, since they ask that the defendant make good the losses occasioned by his mismanagement and pay to them
the value of their respective participation in the corporate assets on the basis of their respective holdings. Clearly, this
cannot be done until all corporate debts, if there be any, are paid and the existence of the corporation terminated by the
limitation of its charter or by lawful dissolution in view of the provisions of section 16 of the Corporation Law. (Emphasis
ours)

It results that plaintiffs complaint shows no cause of action in their favor so that the lower court did not err in dismissing
the complaint on that ground.

While plaintiffs ask for remedy to which they are not entitled unless the requirement of section 16 of the Corporation Law
be first complied with, we note that the action stated in their complaint is susceptible of being converted into a derivative
suit for the benefit of the corporation by a mere change in the prayer. Such amendment, however, is not possible now,
since the complaint has been filed in the wrong court, so that the same has to be dismissed.46

That Marañon knew that Arc Cuisine, Inc. owned the properties levied on attachment but he still excluded Arc Cuisine,
Inc. from his complaint was of no consequence now. The Cuencas and Tayactac still had no right of action even if the
affected properties were then under their custody at the time of the attachment, considering that their custody was only
incidental to the operation of the corporation.

It is true, too, that the Cuencas and Tayactac could bring in behalf of Arc Cuisine, Inc. a proper action to recover damages
resulting from the attachment. Such action would be one directly brought in the name of the corporation. Yet, that was
not true here, for, instead, the Cuencas and Tayactac presented the claim in their own names.

In view of the outcome just reached, the Court deems it unnecessary to give any extensive consideration to the remaining
issues.

WHEREFORE, the Court GRANTS the petition for review; and REVERSES and SETS ASIDE the decision of the Court of Appeals
in CA-G.R. CV No. 79145 promulgated on January 31,2006.

No pronouncements on costs of suit.

SO ORDERED.

THIRD DIVISION
[G.R. No. 166282, February 13, 2013]
HEIRS OF FE TAN UY (REPRESENTED BY HER HEIR, MANLING UY LIM), Petitioners, v.INTERNATIONAL EXCHANGE BANK,
RESPONDENT.

[G.R. NO. 166283]

GOLDKEY DEVELOPMENT CORPORATION, PETITIONER. VS. INTERNATIONAL EXCHANGE BANK,Respondents.

DECISION
MENDOZA, J.:
Before the Court are two consolidated petitions for review on certiorari under Rule 45 of the l997 Revised Rules of Civil
Procedure, assailing the August 16, 2004 Decision1 and the December 2, 2004 Resolution2of the Court of Appeals (CA) in
CA-G.R. CV No. 69817 entitled “International Exchange Bank v. Hammer Garments Corp., et al.”
The Facts

On several occasions, from June 23, 1997 to September 3, 1997, respondent International Exchange Bank (iBank), granted
loans to Hammer Garments Corporation (Hammer), covered by promissory notes and deeds of assignment, in the
following amounts:3
Date of Promissory Note Amount
June 23, 1997 P 5,599,471.33
July 24, 1997 2,700,000.00
July 25, 1997 2,300,000.00
August 1, 1997 2,938,505.04
August 1, 1997 3,361,494.96
August 14, 1997 980,000.00
August 21, 1997 2,527,200.00
August 21, 1997 3,146,715.00
September 3, 1997 1,385,511.75
Total P24,938,898.08

These were made pursuant to the Letter-Agreement,4 dated March 23,

1996, between iBank and Hammer, represented by its President and General Manager, Manuel Chua (Chua) a.k.a. Manuel
Chua Uy Po Tiong, granting Hammer a P 25 Million-Peso Omnibus Line.5 The loans were secured by a P 9 Million-Peso Real
Estate Mortgage6 executed on July 1, 1997 by Goldkey Development Corporation (Goldkey) over several of its properties
and a P 25 Million-Peso Surety Agreement7 signed by Chua and his wife, Fe Tan Uy (Uy), on April 15, 1996.

As of October 28, 1997, Hammer had an outstanding obligation of P25,420,177.62 to iBank.8 Hammer defaulted in the
payment of its loans, prompting iBank to foreclose on Goldkey’s third-party Real Estate Mortgage. The mortgaged
properties were sold for P 12 million during the foreclosure sale, leaving an unpaid balance of P 13,420,177.62.9 For failure
of Hammer to pay the deficiency, iBank filed a Complaint10 for sum of money on December 16, 1997 against Hammer,
Chua, Uy, and Goldkey before the Regional Trial Court, Makati City (RTC).11

Despite service of summons, Chua and Hammer did not file their respective answers and were declared in default. In her
separate answer, Uy claimed that she was not liable to iBank because she never executed a surety agreement in favor of
iBank. Goldkey, on the other hand, also denies liability, averring that it acted only as a third-party mortgagor and that it
was a corporation separate and distinct from Hammer.12

Meanwhile, iBank applied for the issuance of a writ of preliminary attachment which was granted by the RTC in its
December 17, 1997 Order.13

The Notice of Levy on Attachment of Real Properties, dated July 15, 1998, covering the properties under the name of
Goldkey, was sent by the sheriff to the Registry of Deeds of Quezon City.14

The RTC, in its Decision,15 dated December 27, 2000, ruled in favor of iBank. While it made the pronouncement that the
signature of Uy on the Surety Agreement was a forgery, it nevertheless held her liable for the outstanding obligation of
Hammer because she was an officer and stockholder of the said corporation. The RTC agreed with Goldkey that as a third-
party mortgagor, its liability was limited to the properties mortgaged. It came to the conclusion, however, that Goldkey
and Hammer were one and the same entity for the following reasons: (1) both were family corporations of Chua and Uy,
with Chua as the President and Chief Operating Officer; (2) both corporations shared the same office and transacted
business from the same place, (3) the assets of Hammer and Goldkey were co-mingled; and (4) when Chua absconded,
both Hammer and Goldkey ceased to operate. As such, the piercing of the veil of corporate fiction was warranted. Uy, as
an officer and stockholder of Hammer and Goldkey, was found liable to iBank together with Chua, Hammer and Goldkey
for the deficiency of P13,420,177.62.

Aggrieved, the heirs of Uy and Goldkey (petitioners) elevated the case to the CA. On August 16, 2004, it promulgated its
decision affirming the findings of the RTC. The CA found that iBank was not negligent in evaluating the financial stability
of Hammer. According to the appellate court, iBank was induced to grant the loan because petitioners, with intent to
defraud the bank, submitted a falsified Financial Report for 1996 which incorrectly declared the assets and cashflow of
Hammer.16 Because petitioners acted maliciously and in bad faith and used the corporate fiction to defraud iBank, they
should be treated as one and the same as Hammer.17

Hence, these petitions filed separately by the heirs of Uy and Goldkey. On February 9, 2005, this Court ordered the
consolidation of the two cases.18
The Issues

Petitioners raise the following issues:

Whether or not a trial court, under the facts of this case, can go out of the issues raised by the pleadings;19

Whether or not there is guilt by association in those cases where the veil of corporate fiction may be pierced; 20 and

Whether or not the “alter ego” theory in disregarding the corporate personality of a corporation is applicable to
Goldkey.21

Simplifying the issues in this case, the Court must resolve the following: (1) whether Uy can be held liable to iBank for the
loan obligation of Hammer as an officer and stockholder of the said corporation; and (2) whether Goldkey can be held
liable for the obligation of Hammer for being a mere alter ego of the latter.
The Court’s Ruling

The petitions are partly meritorious.

Uy is not liable; The piercing of the

veil of corporate fiction is not justified

The heirs of Uy argue that the latter could not be held liable for being merely an officer of Hammer and Goldkey because
it was not shown that she had committed any actionable wrong22 or that she had participated in the transaction between
Hammer and iBank. They further claim that she had cut all ties with Hammer and her husband long before the execution
of the loan.23

The Court finds in favor of Uy.

Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a legal personality separate
and distinct from those acting for and in its behalf and, in general, from the people comprising it. Following this principle,
obligations incurred by the corporation, acting through its directors, officers and employees, are its sole liabilities. A
director, officer or employee of a corporation is generally not held personally liable for obligations incurred by the
corporation.24 Nevertheless, this legal fiction may be disregarded if it is used as a means to perpetrate fraud or an illegal
act, or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues.25

This is consistent with the provisions of the Corporation Code of the Philippines, which states:
Sec. 31. Liability of directors, trustees or officers. – Directors or trustees who wilfully and knowingly vote for or assent to
patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be
liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members
and other persons.
Solidary liability will then attach to the directors, officers or employees of the corporation in certain circumstances, such
as:
1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote for or assent to patently
unlawful acts of the corporation; (b) act in bad faith or with gross negligence in directing the corporate affairs; and (c) are
guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons;

2. When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not
forthwith file with the corporate secretary his written objection thereto;

3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable
with the corporation; or

4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action.26

Before a director or officer of a corporation can be held personally liable for corporate obligations, however, the following
requisites must concur: (1) the complainant must allege in the complaint that the director or officer assented to patently
unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and (2) the complainant
must clearly and convincingly prove such unlawful acts, negligence or bad faith.27

While it is true that the determination of the existence of any of the circumstances that would warrant the piercing of the
veil of corporate fiction is a question of fact which cannot be the subject of a petition for review on certiorari under Rule
45, this Court can take cognizance of factual issues if the findings of the lower court are not supported by the evidence on
record or are based on a misapprehension of facts.28

In this case, petitioners are correct to argue that it was not alleged, much less proven, that Uy committed an act as an
officer of Hammer that would permit the piercing of the corporate veil. A reading of the complaint reveals that with regard
to Uy, iBank did not demand that she be held liable for the obligations of Hammer because she was a corporate officer
who committed bad faith or gross negligence in the performance of her duties such that the lifting of the corporate mask
would be merited. What the complaint simply stated is that she, together with her errant husband Chua, acted as surety
of Hammer, as evidenced by her signature on the Surety Agreement which was later found by the RTC to have been
forged.29

Considering that the only basis for holding Uy liable for the payment of the loan was proven to be a falsified document,
there was no sufficient justification for the RTC to have ruled that Uy should be held jointly and severally liable to iBank
for the unpaid loan of Hammer. Neither did the CA explain its affirmation of the RTC’s ruling against Uy. The Court cannot
give credence to the simplistic declaration of the RTC that liability would attach directly to Uy for the sole reason that she
was an officer and stockholder of Hammer.

At most, Uy could have been charged with negligence in the performance of her duties as treasurer of Hammer by allowing
the company to contract a loan despite its precarious financial position. Furthermore, if it was true, as petitioners claim,
that she no longer performed the functions of a treasurer, then she should have formally resigned as treasurer to isolate
herself from any liability that could result from her being an officer of the corporation. Nonetheless, these shortcomings
of Uy are not sufficient to justify the piercing of the corporate veil which requires that the negligence of the officer must
be so gross that it could amount to bad faith and must be established by clear and convincing evidence. Gross negligence
is one that is characterized by the lack of the slightest care, acting or failing to act in a situation where there is a duty to
act, wilfully and intentionally with a conscious indifference to the consequences insofar as other persons may be
affected.30

It behooves this Court to emphasize that the piercing of the veil of corporate fiction is frowned upon and can only be done
if it has been clearly established that the separate and distinct personality of the corporation is used to justify a wrong,
protect fraud, or perpetrate a deception.31 As aptly explained in Philippine National Bank v. Andrada Electric & Engineering
Company:32
Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court should be
mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was misused to such an extent
that injustice, fraud, or crime was committed against another, in disregard of its rights. The wrongdoing must be clearly
and convincingly established; it cannot be presumed. Otherwise, an injustice that was never unintended may result from
an erroneous application.33

Indeed, there is no showing that Uy committed gross negligence. And in the absence of any of the aforementioned
requisites for making a corporate officer, director or stockholder personally liable for the obligations of a corporation, Uy,
as a treasurer and stockholder of Hammer, cannot be made to answer for the unpaid debts of the corporation.

Goldkey is a mere alter ego of Hammer

Goldkey contends that it cannot be held responsible for the obligations of its stockholder, Chua.34Moreover, it theorizes
that iBank is estopped from expanding Goldkey’s liability beyond the real estate mortgage.35 It adds that it did not
authorize the execution of the said mortgage.36 Finally, it passes the blame on to iBank for failing to exercise the requisite
due diligence in properly evaluating Hammer’s creditworthiness before it was extended an omnibus line.37

The Court disagrees with Goldkey.

There is no reason to discount the findings of the CA that iBank duly inspected the viability of Hammer and satisfied itself
that the latter was a good credit risk based on the Financial Statement submitted. In addition, iBank required that the loan
be secured by Goldkey’s Real Estate Mortgage and the Surety Agreement with Chua and Uy. The records support the
factual conclusions made by the RTC and the CA.

To the Court’s mind, Goldkey’s argument, that iBank is barred from pursuing Goldkey for the satisfaction of the unpaid
obligation of Hammer because it had already limited its liability to the real estate mortgage, is completely absurd. Goldkey
needs to be reminded that it is being sued not as a consequence of the real estate mortgage, but rather, because it acted
as an alter ego of Hammer. Accordingly, they must be treated as one and the same entity, making Goldkey accountable
for the debts of Hammer.

In fact, it is Goldkey who is now precluded from denying the validity of the Real Estate Mortgage. In its Answer with
Affirmative Defenses and Compulsory Counterclaim, dated January 5, 1998, it already admitted that it acted as a third-
party mortgagor to secure the obligation of Hammer to iBank.38 Thus, it cannot, at this late stage, question the due
execution of the third-party mortgage.

Similarly, Goldkey is undoubtedly mistaken in claiming that iBank is seeking to enforce an obligation of Chua. The records
clearly show that it was Hammer, of which Chua was the president and a stockholder, which contracted a loan from iBank.
What iBank sought was redress from Goldkey by demanding that the veil of corporate fiction be lifted so that it could not
raise the defense of having a separate juridical personality to evade liability for the obligations of Hammer.

Under a variation of the doctrine of piercing the veil of corporate fiction, when two business enterprises are owned,
conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third
parties, disregard the legal fiction that two corporations are distinct entities and treat them as identical or one and the
same.39

While the conditions for the disregard of the juridical entity may vary, the following are some probative factors of identity
that will justify the application of the doctrine of piercing the corporate veil, as laid down in Concept Builders, Inc. v NLRC:40
(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.41

These factors are unquestionably present in the case of Goldkey and

Hammer, as observed by the RTC, as follows:
1. Both corporations are family corporations of defendants Manuel Chua and his wife Fe Tan Uy. The other incorporators
and shareholders of the two corporations are the brother and sister of Manuel Chua (Benito Ng Po Hing and Nenita Chua
Tan) and the sister of Fe Tan Uy, Milagros Revilla. The other incorporator/share holder is Manling Uy, the daughter of
Manuel Chua Uy Po Tiong and Fe Tan Uy.

The stockholders of Hammer Garments as of March 23, 1987, aside from spouses Manuel and Fe Tan Uy are: Benito Chua,
brother Manuel Chua, Nenita Chua Tan, sister of Manuel Chua and Tessie See Chua Tan. On March 8, 1988, the shares of
Tessie See Chua Uy were assigned to Milagros T. Revilla, thereby consolidating the shares in the family of Manuel Chua
and Fe Tan Uy.

2. Hammer Garments and Goldkey share the same office and practically transact their business from the same place.

3. Defendant Manuel Chua is the President and Chief Operating Officer of both corporations. All business transactions of
Goldkey and Hammer are done at the instance of defendant Manuel Chua who is authorized to do so by the corporations.

The promissory notes subject of this complaint are signed by him as Hammer’s President and General Manager. The third-
party real estate mortgage of defendant Goldkey is signed by him for Goldkey to secure the loan obligation of Hammer
Garments withplaintiff "iBank''. The other third-party real estate mortgages which Goldkey executed in favor of the other
creditor banks of Hammer are also signed by Manuel Chua.

4. The assets of Goldkey and Hammer are co-mingled. The real properties of Goldkey are mortgaged to secure Hammer's
obligation with creditor hanks.

The proceeds of at least two loans which Hammer obtained from plaintiff "iBank", purportedly to finance its export to
WalMart are instead used to finance the purchase of a manager's check payable to Goldkey. The defendants' claim that
Goldkey is a creditor of Hammer to justify its receipt of the Manager's cheek is not substantiated by evidence. Despite
subpoenas issued by this Court, Goldkey thru its treasurer, defendant Fe Tan Uy and or its corporate secretary Manling
Uy failed to produce the Financial Statement of Goldke.

5. When defendant Manuel Chua "disappeared", the defendant Goldkey ceased to operate despite the claim that the
other "officers" and stockholders like Benito Chua, Nenita Chua Tan, Fe Tan Uy, Manling Uy and Milagros T. Revilla are still
around and may be able to continue the business of Goldkey, if it were different or distinct from Hammer which suffered
financial set back.42

Based on the foregoing findings of the RTC, it was apparent that Goldkey was merely an adjunct of Hammer and, as such,
the legal fiction that it has a separate personality from that of Hammer should be brushed aside as they are, undeniably,
one and the same.

WHEREFORE, the petitions are PARTLY GRANTED. The August 16, 2004 Decision and the December 2, 2004 Resolution of
the Court of Appeals, in CA-G.R. CV No. 69817, are hereby MODIFIED. Fe Tan Uy is released from any liability arising from
the debts incurred by Hammer from iBank. Hammer Garments Corporation, Manuel Chua Uy Po Tiong and Goldkey
Development Corporation are jointly and severally liable to pay International Exchange Bank the sum of P13,420,177.62
representing the unpaid loan obligation of Hammer as of December 12, 1997 plus interest. No costs.

SO ORDERED.

G.R. No. 171118 September 10, 2012

PARK HOTEL, J's PLAYHOUSE BURGOS CORP., INC., and/or GREGG HARBUTT, General Manager, ATTY. ROBERTO
ENRIQUEZ, President, and BILL PERCY, Petitioners,
vs.
MANOLO SORIANO, LESTER GONZALES, and YOLANDA BADILLA, Respondents.
DECISION
PERALTA, J.:
Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to set aside the
Decision1 and the Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 67766.
The antecedents are as follows:
Petitioner Park Hotel3 is a corporation engaged in the hotel business. Petitioners Gregg Harbutt4 (Harbutt) and Bill
Percy5 (Percy) are the General Manager and owner, respectively, of Park Hotel. Percy, Harbutt and Atty. Roberto Enriquez
are also the officers and stockholders of Burgos Corporation (Burgos),6 a sister company of Park Hotel.
Respondent Manolo Soriano (Soriano) was hired by Park Hotel in July 1990 as Maintenance Electrician, and then
transferred to Burgos in 1992. Respondent Lester Gonzales (Gonzales) was employed by Burgos as Doorman, and later
promoted as Supervisor. Respondent Yolanda Badilla (Badilla) was a bartender of J's Playhouse operated by Burgos.
In October of 1997, Soriano, Gonzales and Badilla7 were dismissed from work for allegedly stealing company properties.
As a result, respondents filed complaints for illegal dismissal, unfair labor practice, and payment of moral and exemplary
damages and attorney's fees, before the Labor Arbiter (LA). In their complaints, respondents alleged that the real reason
for their dismissal was that they were organizing a union for the company's employees.
On the other hand, petitioners alleged that aside from the charge of theft, Soriano and Gonzales have violated various
company rules and regulations8 contained in several memoranda issued to them. After dismissing respondents, Burgos
filed a case for qualified theft against Soriano and Gonzales before the Makati City Prosecutor's Office, but the case was
dismissed for insufficiency of evidence.
In his Affidavit,9 Soriano claimed that on October 4, 1997, he was barred from entering the company premises and that
the following day, Harbutt shouted at him for having participated in the formation of a union. He was later dismissed from
work. For his part, Gonzales averred that he was coerced to resign by Percy and Harbutt in the presence of their goons.
Badilla10 claimed that she was also forced by Percy and Harbutt to sign a resignation letter, but she refused to do so
because she was innocent of the charges against her. She was nevertheless dismissed from service.
The three (3) respondents averred that they never received the memoranda containing their alleged violation of company
rules and they argued that these memoranda were fabricated to give a semblance of cause to their termination. Soriano
and Gonzales further claimed that the complaint filed against them was only an afterthought as the same was filed after
petitioners learned that a complaint for illegal dismissal was already instituted against them.
On September 27, 1998, the LA rendered a Decision11 finding that respondents were illegally dismissed because the alleged
violations they were charged with were not reduced in writing and were not made known to them, thus, denying them
due process. The LA found that respondents did not actually receive the memoranda allegedly issued by petitioners, and
that the same were mere afterthought to conceal the illegal dismissal. The dispositive portion of the Decision reads:
WHEREFORE, premises all considered, respondents (petitioners herein) are hereby ordered, jointly and severally:
a. To reinstate within ten (10) days herein complainants to their former positions without loss of seniority rights with full
backwages from actual dismissal to actual reinstatement;
b. To declare the respondents (petitioners herein) guilty of unfair labor practice for terminating complainants due to their
union activities, which is union-busting, and to pay a fine of Ten Thousand Pesos (₱ 10,000.00) pursuant to Article 288 of
the Labor Code, as amended, payable to the Commission;
c. To pay the amount of One Hundred Fifty Thousand [Pesos] (₱ 150,000.00) each to complainants by way of moral and
exemplary damages, plus ten percent (10%) attorney's fees of the total award, chargeable to the respondents (petitioners
herein).
SO ORDERED.12
Unsatisfied with the LA's decision, petitioners appealed to the National Labor Relations Commission (NLRC). On August
31, 1999, the NLRC, First Division, rendered a Decision13 remanding the case to the arbitration branch of origin for further
proceedings.14 On August 3, 2000, the LA rendered a new Decision, the dispositive portion of which reads as follows:
WHEREFORE, premises all considered, respondents (petitioners herein) are hereby ORDERED, jointly and severally:
a. to reinstate within ten (10) days herein three (3) complainants to their former positions without loss of seniority rights
with full backwages from actual dismissal to actual reinstatement; to pay complainant Soriano his unpaid wages for seven
(7) days in the amount of ₱ 1,680.00, his five (5) days incentive leave pay in the amount of ₱ 1,200,00 (₱ 240x5), unpaid
proportionate 13th month pay in the amount of ₱ 4,992.00, plus other benefits;
b. to cease and desist from committing unfair labor practice against the complainant and to pay a fine of Ten Thousand (₱
10,000.00) Pesos pursuant to Art. 288 of the Labor Code, payable to the Commission; and
c. to pay the amount of ₱ 150,000.0015 each to the complainants by way of moral and exemplary damages, plus ten percent
(10%) attorney's fees of the total award, chargeable to the respondents (petitioners herein).
SO ORDERED.16
Discontented with the LA's decision, petitioners again appealed to the NLRC. On February 1, 2001, the NLRC affirmed the
LA's decision and dismissed the appeal for lack of merit.17 Petitioners filed a motion for reconsideration, but it was denied
for lack of merit.18
Undaunted, Park Hotel, Percy, and Harbutt filed a petition for certiorari with the CA ascribing grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the NLRC in holding Park Hotel, Harbutt and Percy jointly and
severally liable to respondents.
On January 24, 2005, the CA rendered a Decision19 dismissing the petition and affirming with modification the ruling of
the NLRC, the dispositive portion of which states:
WHEREFORE, the instant Petition is DISMISSED for lack of merit and the assailed Decision dated 1 February 2001 of the
1st Division of the NLRC is hereby AFFIRMED with MODIFICATION in that the award of damages is reduced to ₱ 100,000.00
in favor of each of the Private Respondents, including 10% of the total amount of wages to be received as attorney's fees.
SO ORDERED.20
The CA ruled that petitioners failed to observe the mandatory requirements provided by law in the conduct of terminating
respondents, i.e., lack of due process and just cause. The CA also found that petitioners' primary objective in terminating
respondents' employment was to suppress their right to self-organization.
Petitioners filed a Motion for Reconsideration, but was denied in the Resolution21 dated January 13, 2006.
Hence, the instant petition assigning the following errors:
I
THE HONORABLE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION AND ACTED WITHOUT AUTHORITY IN FINDING
PARK HOTEL, BILL PERCY AND [GREGORY] HARBUTT, TOGETHER WITH BURGOS CORPORATION AND ITS PRESIDENT, AS
ONE AND THE SAME ENTITY.
II
THE HONORABLE COURT OF APPEALS COMMITTED ERROR WHEN IT OVERLOOKED MATERIAL CIRCUMSTANCES AND
FACTS, WHICH IF TAKEN INTO ACCOUNT, WOULD ALTER THE RESULTS OF ITS DECISION, PARTICULARLY IN FINDING [THAT]
THE SAID ENTITIES WERE FORMED IN PURSUANCE TO THE COMMISSION OF FRAUD.
III
THE HONORABLE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION AND ACTED WITHOUT AUTHORITY IN FINDING
PARK HOTEL, BILL PERCY AND GREGORY HARBUTT, TOGETHER WITH BURGOS CORPORATION AND ITS PRESIDENT, GUILTY
OF UNFAIR LABOR PRACTICE.22
For brevity and clarity, the issues in this case may be re-stated and simplified as follows: (1) whether the respondents were
validly dismissed; and (2) if petitioners are liable, whether Park Hotel, Percy and Harbutt are jointly and severally liable
with Burgos for the dismissal of respondents.
Park Hotel argued that it is not liable on the ground that respondents were not its employees. On the other hand, Percy
and Harbutt argued that the CA committed error in piercing the corporate veil between them and respondent
corporations, thereby making them all solidarily liable to the respondents.
To begin with, it is significant to note that the LA, the NLRC and the CA were unanimous in their findings that respondents
were dismissed without just cause and due process. They were also in agreement that unfair labor practice was committed
against respondents. We reiterate the rule that findings of fact of the Court of Appeals, particularly where it is in absolute
agreement with that of the NLRC and the LA, as in this case, are accorded not only respect but even finality and are deemed
binding upon this Court so long as they are supported by substantial evidence.23 The function of this Court is limited to the
review of the appellate court’s alleged errors of law. It is not required to weigh all over again the factual evidence already
considered in the proceedings below.24 In any event, we found no compelling reason to disturb the unanimous findings
and conclusions of the CA, the NLRC and the LA with respect to the finding of illegal dismissal.
The requisites for a valid dismissal are: (a) the employee must be afforded due process, i.e., he must be given an
opportunity to be heard and defend himself; and (b) the dismissal must be for a valid cause as provided in Article 282 of
the Labor Code, or for any of the authorized causes under Articles 283 and 284 of the same Code.25 In the case before us,
both elements are completely lacking. Respondents were dismissed without any just or authorized cause and without
being given the opportunity to be heard and defend themselves. The law mandates that the burden of proving the validity
of the termination of employment rests with the employer. Failure to discharge this evidentiary burden would necessarily
mean that the dismissal was not justified and, therefore, illegal. Unsubstantiated suspicions, accusations, and conclusions
of employers do not provide for legal justification for dismissing employees. In case of doubt, such cases should be
resolved in favor of labor, pursuant to the social justice policy of labor laws and the Constitution.26
Anent the unfair labor practice, Article 248 (a) of the Labor Code27 considers it an unfair labor practice when an employer
interferes, restrains or coerces employees in the exercise of their right to self-organization or the right to form an
association.28 In order to show that the employer committed unfair labor practice under the Labor Code, substantial
evidence is required to support the claim. Substantial evidence has been defined as such relevant evidence as a reasonable
mind might accept as adequate to support a conclusion.29 In the case at bar, respondents were indeed unceremoniously
dismissed from work by reason of their intent to form and organize a union. As found by the LA:
The immediate impulse of respondents (petitioners herein), as in the case at bar, was to terminate the organizers.
Respondents (petitioners herein) have to cripple the union at sight, to frustrate attempts of employees from joining or
supporting it, preventing them, at all cost and to frustrate the employees’ bid to exercise their right to self-organization.
x x x30
Having settled that respondents were illegally dismissed and were victims of unfair labor practice, the question that comes
to fore is who are liable for the illegal dismissal and unfair labor practice?
A perusal of the records would show that Burgos is the respondents' employer at the time they were dismissed.
Notwithstanding, the CA held that despite Soriano's transfer to Burgos in 1992, he was still an employee of Park Hotel at
the time of his dismissal in 1997. The Court, however, rules that the CA's finding is clearly contrary to the evidence
presented. From the documents presented by Soriano, it appears that Soriano's payroll passbook31contained withdrawals
and deposits, made in 1991, and that Soriano's payslip32 issued by Park Hotel covered the period from September to
October 1990. Hence, these documents merely show that Soriano was employed by Park Hotel before he was transferred
to Burgos in 1992. Nowhere in these documents does it state that Soriano continued to work for Park Hotel in 1992 and
onwards. Clearly therefore, Park Hotel cannot be made liable for illegal dismissal as it no longer had Soriano in its employ
at the time he was dismissed from work.
As to whether Park Hotel may be held solidarily liable with Burgos, the Court rules that before a corporation can be held
accountable for the corporate liabilities of another, the veil of corporate fiction must first be pierced.33 Thus, before Park
Hotel can be held answerable for the obligations of Burgos to its employees, it must be sufficiently established that the
two companies are actually a single corporate entity, such that the liability of one is the liability of the other.34
A corporation is an artificial being invested by law with a personality separate and distinct from that of its stockholders
and from that of other corporations to which it may be connected.35 While a corporation may exist for any lawful purpose,
the law will regard it as an association of persons or, in case of two corporations, merge them into one, when its corporate
legal entity is used as a cloak for fraud or illegality. This is the doctrine of piercing the veil of corporate fiction. The doctrine
applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend
crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is the 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.36 To disregard the separate
juridical personality of a corporation, the wrongdoing must be established clearly and convincingly. It cannot be
presumed.37
In the case at bar, respondents utterly failed to prove by competent evidence that Park Hotel was a mere instrumentality,
agency, conduit or adjunct of Burgos, or that its separate corporate veil had been used to cover any fraud or illegality
committed by Burgos against the respondents. Accordingly, Park Hotel and Burgos cannot be considered as one and the
same entity, and Park Hotel cannot be held solidary liable with Burgos.
Nonetheless, although the corporate veil between Park Hotel and Burgos cannot be pierced, it does not necessarily mean
that Percy and Harbutt are exempt from liability towards respondents. Verily, a corporation, being a juridical entity, may
act only through its directors, officers and employees. Obligations incurred by them, while acting as corporate agents, are
not their personal liability but the direct accountability of the corporation they represent.38However, corporate officers
may be deemed solidarily liable with the corporation for the termination of employees if they acted with malice or bad
faith.39 In the present case, the lower tribunals unanimously found that Percy and Harbutt, in their capacity as corporate
officers of Burgos, acted maliciously in terminating the services of respondents without any valid ground and in order to
suppress their right to self-organization.
Section 3140 of the Corporation Code makes a director personally liable for corporate debts if he willfully and knowingly
votes for or assents to patently unlawful acts of the corporation. It also makes a director personally liable if he is guilty of
gross negligence or bad faith in directing the affairs of the corporation.1âwphi1 Thus, Percy and Harbutt, having acted in
bad faith in directing the affairs of Burgos, are jointly and severally liable with the latter for respondents' dismissal.
In cases when an employee is unjustly dismissed from work, he shall be entitled to reinstatement without loss of seniority
rights and other privileges, inclusive of allowances, and other benefits or their monetary equivalent from the time the
compensation was withheld up to the time of actual reinstatement.41
In the case at bar, the Court finds that it would be best to award separation pay instead of reinstatement, in view of the
passage of a long period of time since respondents' dismissal. In St. Luke's Medical Center, Inc. v. Notario,42 the Court held
that if reinstatement proves impracticable, and hardly in the best interest of the parties, due to the lapse of time since the
employee's dismissal, the latter should be awarded separation pay in lieu of reinstatement.
In view of the foregoing, respondents are entitled to the payment of full backwages, inclusive of allowances, and other
benefits or their monetary equivalent, and separation pay in lieu of reinstatement equivalent to one month salary for
every year of service.43 The awards of separation pay and backwages are not mutually exclusive, and both may be given
to respondents.44
The awards of moral and exemplary damages45 in favor of respondents are also 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.46 The grant of attorney's fees is likewise proper.
Attorney's fees may likewise be awarded to respondents who were illegally dismissed in bad faith and were compelled to
litigate or incur expenses to protect their rights by reason of the oppressive acts47 of petitioners. The unjustified act of
petitioners had obviously compelled respondents to institute an action primarily to protect their rights and interests which
warrants the granting of the award.
WHEREFORE, the Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 67766, dated January 24, 2005 and
January 13, 2006, respectively, are AFFIRMED with the following MODIFICATIONS: (a) Petitioner Park Hotel is exonerated
from any liability to respondents; and (b) The award of reinstatement is deleted, and in lieu thereof, respondents are
awarded separation pay.
The case is REMANDED to the Labor Arbiter for the purpose of computing respondents' full backwages, inclusive of
allowances, and other benefits or their monetary equivalent, computed from the date of their dismissal up to the finality
of the decision, and separation pay in lieu of reinstatement equivalent to one month salary for every year of service,
computed from the time of their engagement up to the finality of this Decision.

GOLD LINE TOURS, INC., G.R. No. 159108

Petitioner,
Present:

LEONARDO-DE CASTRO,
Acting Chairperson,
-versus- BERSAMIN,
DEL CASTILLO,
VILLARAMA, JR., and
PERLAS-BERNABE, JJ.
Promulgated:
HEIRS OF MARIA CONCEPCION LACSA,
Respondents. June 18, 2012
x-----------------------------------------------------------------------------------------x

DECISION

BERSAMIN, J.:

The veil of corporate existence of a corporation is a fiction of law that should not defeat the ends of justice.
Petitioner seeks to reverse the decision promulgated on October 30, 2002[1] and the resolution promulgated on June 25,
2003,[2] whereby the Court of Appeals (CA) upheld the orders issued on August 2, 2001[3] and October 22, 2001[4] by the
Regional Trial Court (RTC), Branch 51, in Sorsogon in Civil Case No. 93-5917 entitled Heirs of Concepcion Lacsa, represented
by Teodoro Lacsa v. Travel & Tours Advisers, Inc., et al. authorizing the implementation of the writ of execution against
petitioner despite its protestation of being a separate and different corporate personality from Travel & Tours Advisers,
Inc. (defendant in Civil Case No. 93-5917).

In the orders assailed in the CA, the RTC declared petitioner and Travel & Tours Advisers, Inc. to be one and the same
entity, and ruled that the levy of petitioners property to satisfy the final and executory decision rendered on June 30, 1997
against Travel & Tours Advisers, Inc. in Civil Case No. 93-5917[5] was valid even if petitioner had not been impleaded as a
party.

Antecedents

On August 2, 1993, Ma. Concepcion Lacsa (Concepcion) and her sister, Miriam Lacsa (Miriam), boarded a Goldline
passenger bus with Plate No. NXM-105 owned and operated by Travel &Tours Advisers, Inc. They were enroute from
Sorsogon to Cubao, Quezon City.[6] At the time, Concepcion, having just obtained her degree of Bachelor of Science in
Nursing at the Ago Medical and Educational Center, was proceeding to Manila to take the nursing licensure board
examination.[7] Upon reaching the highway at Barangay San Agustin in Pili, Camarines Sur, the Goldline bus, driven by Rene
Abania (Abania), collided with a passenger jeepney with Plate No. EAV-313 coming from the opposite direction and driven
by Alejandro Belbis.[8] As a result, a metal part of the jeepney was detached and struck Concepcion in the chest, causing
her instant death.[9]

On August 23, 1993, Concepcions heirs, represented by Teodoro Lacsa, instituted in the RTC a suit against Travel & Tours
Advisers Inc. and Abania to recover damages arising from breach of contract of carriage.[10] The complaint, docketed as
Civil Case No. 93-5917 and entitled Heirs of Concepcion Lacsa, represented by Teodoro Lacsa v. Travel & Tours Advisers,
Inc. (Goldline) and Rene Abania, alleged that the collision was due to the reckless and imprudent manner by which Abania
had driven the Goldline bus.[11]

In support of the complaint, Miriam testified that Abania had been occasionally looking up at the video monitor installed
in the front portion of the Goldline bus despite driving his bus at a fast speed;[12] that in Barangay San Agustin, the Goldline
bus had collided with a service jeepney coming from the opposite direction while in the process of overtaking another
bus;[13] that the impact had caused the angle bar of the jeepney to detach and to go through the windshield of the bus
directly into the chest of Concepcion who had then been seated behind the drivers seat;[14] that concerned bystanders
had hailed another bus to rush Concepcion to the Ago Foundation Hospital in Naga City because the Goldline bus
employees and her co-passengers had ignored Miriams cries for help;[15] and that Concepcion was pronounced dead upon
arrival at the hospital.[16]

To refute the plaintiffs allegations, the defendants presented SPO1 Pedro Corporal of the Philippine National Police Station
in Pili, Camarines Sur, and William Cheng, the operator of the Goldline bus.[17] SPO1 Corporal opined that based on his
investigation report, the driver of the jeepney had been at fault for failing to observe precautionary measures to avoid the
collision;[18] and suggested that criminal and civil charges should be brought against the operator and driver of the
jeepney.[19] On his part, Cheng attested that he had exercised the required diligence in the selection and supervision of his
employees; and that he had been engaged in the transportation business since 1980 with the use of a total of 60 units of
Goldline buses, employing about 100 employees (including drivers, conductors, maintenance personnel, and
mechanics);[20] that as a condition for regular employment, applicant drivers had undergone a one-month training period
and a six-month probationary period during which they had gotten acquainted with Goldlines driving practices and
demeanor;[21] that the employees had come under constant supervision, rendering improbable the claim that Abania, who
was a regular employee, had been glancing at the video monitor while driving the bus; [22] that the incident causing
Concepcions death was the first serious incident his (Cheng) transportation business had encountered, because the rest
had been only minor traffic accidents;[23] and that immediately upon being informed of the accident, he had instructed his
personnel to contact the family of Concepcion.[24]
The defendants blamed the death of Concepcion to the recklessness of Bilbes as the driver of the jeepney, and of its
operator, Salvador Romano;[25] and that they had consequently brought a third-party complaint against the latter.[26]

After trial, the RTC rendered its decision dated June 30, 1997, disposing:

ACCORDINGLY, judgment is hereby rendered:

(1) Finding the plaintiffs entitled to damages for the death of Ma. Concepcion Lacsa in violation of the contract of carriage;

(2) Ordering defendant Travel & Tours Advisers, Inc. (Goldline) to pay plaintiffs:

a. P30,000.00 expenses for the wake;

b. P 6,000.00 funeral expenses;

c. P50,000.00 for the death of Ma. Concepcion Lacsa;

d. P150,000.00 for moral damages;

e. P20,000.00 for exemplary damages;

f. P8,000.00 for attorneys fees;

g. P2,000.00 for litigation expenses;

h. Costs of suit.

(3) Ordering the dismissal of the case against Rene Abania;

(4) Ordering the dismissal of the third-party complaint.

SO ORDERED.[27]

The RTC found that a contract of carriage had been forged between Travel & Tours Advisers, Inc. and Concepcion as soon
as she had boarded the Goldline bus as a paying passenger; that Travel & Tours Advisers, Inc. had then become duty-
bound to safely transport her as its passenger to her destination; that due to Travel & Tours Advisers, Inc.s inability to
perform its duty, Article 1786 of the Civil Code created against it the disputable presumption that it had been at fault or
had been negligent in the performance of its obligations towards the passenger; that Travel & Tours Advisers, Inc. failed
to disprove the presumption of negligence; and that a rigid selection of employees was not sufficient to exempt Travel &
Tours Advisers, Inc. from the obligation of exercising extraordinary diligence to ensure that its passenger was carried safely
to her destination.

Aggrieved, the defendants appealed to the CA.

On June 11, 1998,[28] the CA dismissed the appeal for failure of the defendants to pay the docket and other lawful fees
within the required period as provided in Rule 41, Section 4 of the Rules of Court (1997). The dismissal became final, and
entry of judgment was made on July 17, 1998.[29]

Thereafter, the plaintiffs moved for the issuance of a writ of execution to implement the decision dated June 30,
1997.[30] The RTC granted their motion on January 31, 2000,[31] and issued the writ of execution on February 24, 2000.[32]

On May 10, 2000, the sheriff implementing the writ of execution rendered a Sheriffs Partial Return, [33] certifying that the
writ of execution had been personally served and a copy of it had been duly tendered to Travel & Tours Advisers, Inc. or
William Cheng, through his secretary, Grace Miranda, and that Cheng had failed to settle the judgment amount despite
promising to do so. Accordingly, a tourist bus bearing Plate No. NWW-883 was levied pursuant to the writ of execution.

The plaintiffs moved to cite Cheng in contempt of court for failure to obey a lawful writ of the RTC. [34] Cheng filed his
opposition.[35] Acting on the motion to cite Cheng in contempt of court, the RTC directed the plaintiffs to file a verified
petition for indirect contempt on February 19, 2001.[36]

On April 20, 2001, petitioner submitted a so-called verified third party claim,[37] claiming that the tourist bus bearing Plate
No. NWW-883 be returned to petitioner because it was the owner; that petitioner had not been made a party to Civil Case
No. 93-5917; and that petitioner was a corporation entirely different from Travel & Tours Advisers, Inc., the defendant in
Civil Case No. 93-5917.

It is notable that petitioners Articles of Incorporation was amended on November 8, 1993,[38] shortly after the filing of Civil
Case No. 93-5917 against Travel & Tours Advisers, Inc.

Respondents opposed petitioners verified third-party claim on the following grounds, namely: (a) the third-party claim did
not comply with the required notice of hearing as required by Rule 15, Sections 4 and 5 of the Rules of Court; (b) Travel &
Tours Advisers, Inc. and petitioner were identical entities and were both operated and managed by the same person,
William Cheng; and (c) petitioner was attempting to defraud its creditors respondents herein hence, the doctrine of
piercing the veil of corporate entity was squarely applicable.[39]

On August 2, 2001, the RTC dismissed petitioners verified third-party claim, observing that the identity of Travel & Tours
Adivsers, Inc. could not be divorced from that of petitioner considering that Cheng had claimed to be the operator as well
as the President/Manager/incorporator of both entities; and that Travel & Tours Advisers, Inc. had been known in
Sorsogon as Goldline.[40]

Petitioner moved for reconsideration,[41] but the RTC denied the motion on October 22, 2001.[42]

Thence, petitioner initiated a special civil action for certiorari in the CA,[43] asserting:

THE RESPONDENT HONORABLE RTC JUDGE HAD ACTED WITHOUT JURISDICTION OR COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF JURISDICTION IN ISSUING THE: (A) ORDER DATED 2 AUGUST 2001, COPY OF WHICH
IS HERETO ATTACHED AS ANNEX A, DISMISSING HEREIN PETITIONERS THIRD PARTY CLAIM; AND (B) ORDER DATED 22
OCTOBER 2001, COPY OF WHICH IS HERETO ATTACHED AS ANNEX B DENYING SAID PETITIONERS MOTION FOR
RECONSIDERATION; AND THAT THERE IS NO APPEAL, OR ANY PLAIN, SPEEDY AND ADEQUATE REMEDY AVAILABLE TO SAID
PETITIONER.

On October 30, 2002, the CA promulgated its decision dismissing the petition for certiorari,[44] holding as follows:

The petition lacks merit.

As stated in the decision supra, William Ching disclosed during the trial of the case that defendant Travel & Tours Advisers,
Inc. (Goldline), of which he is an officer, is operating sixty (60) units of Goldline buses. That the Goldline buses are used in
the operations of defendant company is obvious from Mr. Chengs admission. The Amended Articles of Incorporation of
Gold Line Tours, Inc. disclose that the following persons are the original incorporators thereof: Antonio O. Ching, Maribel
Lim Ching, witness William Ching, Anita Dy Ching and Zosimo Ching. (Rollo, pp. 105-106) We see no reason why defendant
company would be using Goldline buses in its operations unless the two companies are actually one and the same.

Moreover, the name Goldline was added to defendants name in the Complaint. There was no objection from William
Ching who could have raised the defense that Gold Line Tours, Inc. was in no way liable or involved. Indeed, it appears to
this Court that rather than Travel & Tours Advisers, Inc., it is Gold Line Tours, Inc., which should have been named party
defendant.
Be that as it may, We concur in the trial courts finding that the two companies are actually one and the same, hence the
levy of the bus in question was proper.

WHEREFORE, for lack of merit, the petition is DISMISSED and the assailed Orders are AFFIRMED.

SO ORDERED.

Petitioner filed a motion for reconsideration,[45] which the CA denied on June 25, 2003.[46]

Hence, this appeal, in which petitioner faults the CA for holding that the RTC did not act without jurisdiction or grave abuse
of discretion in finding that petitioner and Travel & Tours Advisers, Inc., the defendant in Civil Case No. 5917, were one
and same entity, and for sustaining the propriety of the levy of the tourist bus with Plate No. NWW-883 in satisfaction of
the writ of execution. [47]
In the meantime, respondents filed in the RTC a motion to direct the sheriff to implement the writ of execution in view of
the non-issuance of any restraining order either by this Court or the CA.[48] On February 23, 2007, the RTC granted the
motion and directed the sheriff to sell the Goldline tourist bus with Plate No. NWW-883 through a public auction.[49]

Issue

Did the CA rightly find and conclude that the RTC did not gravely abuse its discretion in denying petitioners verified third-
party claim?

Ruling

We find no reason to reverse the assailed CA decision.

In the order dated August 2, 2001, the RTC rendered its justification for rejecting the third-party claim of petitioner in the
following manner:

xxx
The main contention of Third Party Claimant is that it is the owner of the Bus and therefore, it should not be seized by the
sheriff because the same does not belong to the defendant Travel & Tours Advises, Inc. (GOLDLINE) as the third party
claimant and defendant are two separate corporation with separate juridical personalities. Upon the other hand, this
Court had scrutinized the documents submitted by the Third party Claimant and found out that William Ching who claimed
to be the operator of the Travel & Tours Advisers, Inc. (GOLDLINE) is also the President/Manager and incorporator of the
Third Party Claimant Goldline Tours Inc. and he is joined by his co-incorporators who are Ching and Dy thereby this Court
could only say that these two corporations are one and the same corporations. This is of judicial knowledge that since
Travel & Tours Advisers, Inc. came to Sorsogon it has been known as GOLDLINE.

This Court is not persuaded by the proposition of the third party claimant that a corporation has an existence separate
and/or distinct from its members insofar as this case at bar is concerned, for the reason that
whenever necessary for the interest of the public or for the protection of

enforcement of their rights, the notion of legal entity should not and is not to be used to defeat public convenience, justify
wrong, protect fraud or defend crime.

Apposite to the case at bar is the case of Palacio vs. Fely Transportation Co., L-15121, May 31, 1962, 5 SCRA 1011 where
the Supreme Court held:

Where the main purpose in forming the corporation was to evade ones subsidiary liability for damages in a criminal case,
the corporation may not be heard to say that it has a personality separate and distinct from its members, because to allow
it to do so would be to sanction the use of fiction of corporate entity as a shield to further an end subversive of justice (La
Campana Coffee Factory, et al. v. Kaisahan ng mga Manggagawa, etc., et al., L-5677, May 25, 1953). The Supreme Court
can even substitute the real party in interest in place of the defendant corporation in order to avoid multiplicity of suits
and thereby save the parties unnecessary expenses and delay. (Alfonso vs. Villamor, 16 Phil. 315).

This is what the third party claimant wants to do including the defendant in this case, to use the separate and distinct
personality of the two corporation as a shield to further an end subversive of justice by avoiding the execution of a final
judgment of the court.[50]

As we see it, the RTC had sufficient factual basis to find that petitioner and Travel and Tours Advisers, Inc. were one and
the same entity, specifically: (a) documents submitted by petitioner in the RTC showing that William Cheng, who claimed
to be the operator of Travel and Tours Advisers, Inc., was also the President/Manager and an incorporator of the
petitioner; and (b) Travel and Tours Advisers, Inc. had been known in Sorsogon as Goldline. On its part, the CA cogently
observed:

As stated in the (RTC) decision supra, William Ching disclosed during the trial of the case that defendant Travel & Tours
Advisers, Inc. (Goldline), of which he is an officer, is operating sixty (60) units of Goldline
buses. That the Goldline buses are used in the operations of
defendant company is obvious from Mr. Chengs admission. The Amended Articles of Incorporation of Gold Line Tours, Inc.
disclose that the following persons are the original incorporators thereof: Antonio O. Ching, Maribel Lim Ching, witness
William Ching, Anita Dy Ching and Zosimo Ching. (Rollo, pp. 105-108) We see no reason why defendant company would
be using Goldline buses in its operations unless the two companies are actually one and the same.

Moreover, the name Goldline was added to defendants name in the Complaint. There was no objection from William
Ching who could have raised the defense that Gold Line Tours, Inc. was in no way liable or involved. Indeed it appears to
this Court that rather than Travel & Tours Advisers, Inc. it is Gold Line Tours, Inc., which should have been named party
defendant.

Be that as it may, We concur in the trial courts finding that the two companies are actually one and the same, hence the
levy of the bus in question was proper.[51]
The RTC thus rightly ruled that petitioner might not be shielded from liability under the final judgment through the use of
the doctrine of separate corporate identity. Truly, this fiction of law could not be employed to defeat the ends of justice.

But petitioner continues to challenge the RTC orders by insisting that the evidence to establish its identity with Travel and
Tours Advisers, Inc. was insufficient.

We cannot agree with petitioner. As already stated, there was sufficient evidence that petitioner and Travel and Tours
Advisers, Inc. were one and the same entity. Moreover, we remind that a petition for the writ of certiorari neither deals
with errors of judgment nor extends to a mistake in the appreciation of the contending parties evidence or in the
evaluation of their relative weight.[52] It is timely to remind that the petitioner in a special civil action
for certiorari commenced against a trial court that has jurisdiction over the proceedings bears the burden to demonstrate
not merely reversible error, but grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the
respondent trial court in issuing the impugned order.[53] The term grave abuse of discretion is defined as a capricious and
whimsical exercise of judgment so patent and gross as to amount to an evasion of a positive duty or a virtual refusal to
perform a duty enjoined by law, as where the power is exercised in an arbitrary and despotic manner because of passion
or hostility.[54] Mere abuse of discretion is not enough; it must be grave.[55] Yet, here, petitioner did not discharge its
burden because it failed to demonstrate that the CA erred in holding that the RTC had not committed grave abuse of
discretion. A review of the records shows, indeed, that the RTC correctly rejected petitioners third-party claim. Hence, the
rejection did not come within the domain of the writ of certioraris limiting requirement of excess or lack of jurisdiction.[56]

WHEREFORE, the Court DENIES the petition for review on certiorari, and AFFIRMS the decision promulgated by the Court
of Appeals on October 30, 2002. Costs of suit to be paid by petitioner.
SO ORDERED.

VIVIAN T. RAMIREZ, ALBERTO B. DIGNO, DANILO M. G.R. No. 168208

CASQUITE, JUMADIYA A. KADIL, FAUJIA SALIH,
ANTONIO FABIAN, ROMEL DANAG, GINA PANTASAN, Present:
ARTHUR MATUGAS, VIRGILIA OSARIO, ORLANDO
EBRADA, ROSANA CABATO, WILFREDO LUNA, LILIA
BARREDO, ISABEL ALBERTO, NORA BONIAO, PILAR CARPIO, J., Chairperson,
OSARIO, LYDIA ESLIT, AMMAN SALI, AKMAD AKIL, BRION,
ROGELIO LAZARO, ISABEL CONCILLADO, MARLON PEREZ,
ABIAL, HERMOCILLO NAPALCRUZ, WALTER BUHIAN, SERENO, and
ELISEO AMATORIO, JOSE CASTRO, JAMIL LAGBAY, MA. REYES, JJ.
EVELYN SANTOS, LEDENIA T. BARON, ELSA AMATORIO,
SARAH F. BUCOY, EXPEDITO L. RELUYA, ARNULFO
ALFARO, EDGARDO F. BORGONIA, DANILO R. Promulgated:
MANINGO, ABDUSAID H. DAMBONG, LORINDA M.
MUTIA, DOMINADOR DEL ROSARIO, JOEL E. TRONO, June 13, 2012
HUSSIN A. JAWAJI, JUL-ASNAM JAKARIA, LUZVIMINDA
A. NOLASCO, VILMA G. GASCO, MORITA S. MARMETO,
PROCESA JUANICO, ANTONIO A. MONDRAGON, JR.,
JESSICA F. QUIACHON, PACITA G. MEDINA, ARNEL S.
SANTOS, ANECITA T. TARAS, TOMINDAO T. TARAS,
NULCA C. SABDANI, AKMAD A. SABDANI, ROWENA J.
GARCIA, LINA P. CASAS, MARLYN G. FRANCISCO,
MERCEDITA MAQUINANO, NICOLAS T. RIO, TERESITA A.
CASINAS, VIRGILIO F. IB-IB, PANTALEON S. ROJAS, JR.,
EVELYN V. BEATINGO, MATILDE G. HUSSIN, ESPERANZA
I. LLEDO, ADOLFINA DELA MERCED, LAURA E. SANTOS,
ROGACIANA MAQUILING, ALELIE D. SAMSON, SHIRLEY
L. ALVAREZ, MAGDALENA A. MARCOS, VIRGINIA S.
ESPINOSA, ANTONIO C. GUEVARA, AUGUSTA S. DE
JESUS, SERVILLA A. BANCALE, PROSERFINA GATINAO,
RASMA A. FABRIGA, ROLANDO D. GATINAO, ANALISA G.
MEA, SARAH A. SALCEDO, ALICIA M. JAYAG, FERNANDO
G. CABEROY, ROMEO R. PONCE, EDNA S. PONCE,
TEODORA T. LUY, WALDERICO F. ARIO, MELCHOR S.
BUCOY, EDITA H. CINCO, RUDY I. LIMBAROC, PETER
MONTOJO, MARLYN S. ATILANO, REGIDOR MEDALLO,
EDWIN O. DEMASUAY, DENNIS M. SUICANO, ROSALINA
Q. ATILANO, ESTRELLA FELICIANO, IMELDA T. DAGALEA,
MARILYN RUFINO, JOSE AGUSTIN, EFREN RIVERA,
CRISALDO VALERO, SAFIA HANDANG, LUCENA R.
MEDINA, DANNY BOY B. PANGASIAN, ABDURASA HASIL,
ROEL ALTA, JOBERT BELTRAN, EDNA FAUSTO,
TAJMAHAR HADJULA, ELENA MAGHANOY, ERIC B.
QUITIOL, JESSE D. FLORES, GEMMA CANILLAS, ERNITO
CANILLAS, MARILOU JAVIER, MARGANI MADDIN,
RICHARD SENA, FE D. CANOY, GEORGE SALUD,
EDGARDO BORGONIA, JR., ANTONIO ATILANO, JOSE
CASTRO, and LIBERATO BAGALANON,
Petitioners,
 - versus -

MAR FISHING CO., INC., MIRAMAR FISHING CO., INC.,

ROBERT BUEHS AND JEROME SPITZ.
Respondents.

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION

SERENO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, seeking a review of the
Court of Appeals (CA) 19 March 2004 and 12 May 2005 Resolutions in CA-G.R. SP NO. 82651. The appellate court had
dismissed the Petition for Review on the ground that it lacked a Verification and Certification against forum shopping.
The pertinent facts are as follows:
On 28 June 2001, respondent Mar Fishing Co., Inc. (Mar Fishing), engaged in the business of fishing and canning of tuna,
sold its principal assets to co-respondent Miramar Fishing Co., Inc. (Miramar) through public bidding.[1] The proceeds of
the sale were paid to the Trade and Investment Corporation of the Philippines (TIDCORP) to cover Mar Fishings
outstanding obligation in the amount of ₱897,560,041.26.[2] In view of that transfer, Mar Fishing issued a Memorandum
dated 23 October 2001 informing all its workers that the company would cease to operate by the end of the month.[3] On
29 October 2001 or merely two days prior to the months end, it notified the Department of Labor and Employment (DOLE)
of the closure of its business operations.[4]
Thereafter, Mar Fishings labor union, Mar Fishing Workers Union NFL and Miramar entered into a Memorandum of
Agreement.[5] The Agreement provided that the acquiring company, Miramar, shall absorb Mar Fishings regular rank and
file employees whose performance was satisfactory, without loss of seniority rights and privileges previously enjoyed.[6]
Unfortunately, petitioners, who worked as rank and file employees, were not hired or given separation pay by
Miramar.[7] Thus, petitioners filed Complaints for illegal dismissal with money claims before the Arbitration Branch of the
National Labor Relations Commission (NLRC).
In its 30 July 2002 Decision, the Labor Arbiter (LA) found that Mar Fishing had necessarily closed its operations, considering
that Miramar had already bought the tuna canning plant.[8] By reason of the closure, petitioners were legally dismissed
for authorized cause.[9] In addition, even if Mar Fishing reneged on notifying the DOLE within 30 days prior to its closure,
that failure did not make the dismissals void. Consequently, the LA ordered Mar Fishing to give separation pay to its
workers.[10]
The LA held thus:[11]
WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered in these cases:

1. Ordering Mar Fishing Company, Inc., through its president, treasurer, manager or other proper officer or
representative, to pay the complainants their respective separation pay, as computed in page 12 to 33 hereof, all
totaling SIX MILLION THREE HUNDRED THIRTY SIX THOUSAND FIVE HUNDRED EIGHTY SEVEN & 77/100 PESOS
(₱6,336,587.77);

2. Dismissing these case [sic] as against Miramar Fishing Company, Inc., as well as against Robert Buehs and Jerome
Spitz, for lack of cause of action;

3. Dismissing all other charges and claims of the complainants, for lack of merit.
SO ORDERED.
Aggrieved, petitioners pursued the action before the NLRC, which modified the LAs Decision. Noting that Mar Fishing
notified the DOLE only two days before the business closed, the labor court considered petitioners dismissal as
ineffectual.[12] Hence, it awarded, apart from separation pay, full back wages to petitioners from the time they were
terminated on 31 October 2001 until the date when the LA upheld the validity of their dismissal on 30 July 2002. [13]
Additionally, the NLRC pierced the veil of corporate fiction and ruled that Mar Fishing and Miramar were one and the
same entity, since their officers were the same.[14]Hence, both companies were ordered to solidarily pay the monetary
claims.[15]
On reconsideration, the NLRC modified its ruling by imposing liability only on Mar Fishing. The labor court held that
petitioners had no cause of action against Miramar, since labor contracts cannot be enforced against the transferee of an
enterprise in the absence of a stipulation in the contract that the transferee assumes the obligation of the
transferor.[16] Hence, the dispositive portion reads:[17]
WHEREFORE, foregoing premises considered, the assailed resolution is MODIFIED in that only Mar Fishing Company, Inc.
through its responsible officers, is ordered to pay complainants their separation pay, and full backwages from the date
they were terminated from employment until 30 July 2002, subject to computation during execution stage of proceedings
at the appropriate Regional Arbitration Branch.
SO ORDERED.
Despite the award of separation pay and back wages, petitioners filed a Rule 65 Petition before the CA. This time, they
argued that both Mar Fishing and Miramar should be made liable for their separation pay, and that their back wages
should be up to the time of their actual reinstatement. However, finding that only 3 of the 228 petitioners[18]signed the
Verification and Certification against forum shopping, the CA instantly dismissed the action for certiorari against the 225
other petitioners without ruling on the substantive aspects of the case.[19]
By means of a Manifestation with Omnibus Motion,[20] petitioners submitted a Verification and Certification against forum
shopping executed by 161 signatories. In the said pleading, petitioners asked the CA to reconsider by invoking the rule
that technical rules do not strictly apply to labor cases.[21] Still, the CA denied petitioners contentions and held thus:[22]
Anent the liberality in application of the rules, as alleged by petitioners, the same deserves scant consideration. x x x.
xxx. While litigation is not a game of technicalities, and that the rules of procedure should not be enforced strictly at the
cost of substantial justice, still it does not follow that the Rules of Court may be ignored at will and at random to the
prejudice of the orderly presentation, assessment and just resolution of the issues. xxx.
Before this Court, 124 petitioners raise the issue of whether the CA gravely erred in dismissing their Petition for Review
on the ground that their pleading lacked a Verification and Certification against forum shopping.[23]
The Rules of Court provide that a petition for certiorari must be verified and accompanied by a sworn certification of non-
forum shopping.[24] Failure to comply with these mandatory requirements shall be sufficient ground for the dismissal of
the petition.[25] Considering that only 3 of the 228 named petitioners signed the requirement, the CA dismissed the case
against them, as they did not execute a Verification and Certification against forum shopping.
Petitioners invoke substantial compliance with procedural rules when their Manifestation already contains a Verification
and Certification against forum shopping executed by 161 signatories. They heavily rely on Jaro v. Court of
Appeals,[26] citing Piglas-Kamao v. National Labor Relations Commission and Cusi-Hernandez v. Diaz, in which we discussed
that the subsequent submission of the missing documentary attachments with the Motion for Reconsideration amounted
to substantial compliance.
However, this very case does not involve a failure to attach the Annexes. Rather, the procedural infirmity consists of
omission the failure to sign a Verification and Certification against forum shopping. Addressing this defect squarely, we
have already resolved that because of noncompliance with the requirements governing the certification of non-forum
shopping, no error could be validly attributed to the CA when it ordered the dismissal of the special civil action for
certiorari.[27] The lack of certification against forum shopping is not curable by mere amendment of a complaint, but shall
be a cause for the dismissal of the case without prejudice.[28] Indeed, the general rule is that subsequent compliance with
the requirements will not excuse a party's failure to comply in the first instance. [29] Thus, on procedural aspects, the
appellate court correctly dismissed the case.
However, this Court has recognized that the merit of a case is a special circumstance or compelling reason that justifies
the relaxation of the rule requiring verification and certification of non-forum shopping.[30] In order to fully resolve the
issue, it is thus necessary to determine whether technical rules were brushed aside at the expense of substantial
justice.[31] This Court will then delve into the issue on (1) the solidary liability of Mar Fishing and Miramar to pay petitioners
monetary claims and (2) the reckoning period for the award of back wages.
For a dismissal based on the closure of business to be valid, three (3) requirements must be established. Firstly, the
cessation of or withdrawal from business operations must be bona fide in character. Secondly, there must be payment to
the employees of termination pay amounting to at least one-half (1/2) month pay for each year of service, or one (1)
month pay, whichever is higher. Thirdly, the company must serve a written notice on the employees and on the DOLE at
least one (1) month before the intended termination.[32]
In their Petition for Review on Certiorari, petitioners did not dispute the conclusion of the LA and the NLRC that Mar
Fishing had an authorized cause to dismiss its workers. Neither did petitioners challenge the computation of their
separation pay.
Rather, they questioned the holding that only Mar Fishing was liable for their monetary claims.[33]
Basing their conclusion on the Memorandum of Agreement and Supplemental Agreement between Miramar and Mar
Fishings labor union, as well as the General Information Sheets and Company Profiles of the two companies, petitioners
assert that Miramar simply took over the operations of Mar Fishing. In addition, they assert that these companies are one
and the same entity, given the commonality of their directors and the similarity of their business venture in tuna canning
plant operations.[34]
At the fore, the question of whether one corporation is merely an alter ego of another is purely one of fact generally
beyond the jurisdiction of this Court.[35] In any case, given only these bare reiterations, this Court sustains the ruling of the
LA as affirmed by the NLRC that Miramar and Mar Fishing are separate and distinct entities, based on the marked
differences in their stock ownership.[36] Also, the fact that Mar Fishings officers remained as such in Miramar does not by
itself warrant a conclusion that the two companies are one and the same. As this Court held in Sesbreo v. Court of Appeals,
the mere showing that the corporations had a common director sitting in all the boards without more does not authorize
disregarding their separate juridical personalities.[37]
Neither can the veil of corporate fiction between the two companies be pierced by the rest of petitioners submissions,
namely, the alleged take-over by Miramar of Mar Fishings operations and the evident similarity of their businesses. At this
point, it bears emphasizing that since piercing the veil of corporate fiction is frowned upon, those who seek to pierce the
veil must clearly establish that the separate and distinct personalities of the corporations are set up to justify a wrong,
protect a fraud, or perpetrate a deception.[38] This, unfortunately, petitioners have failed to do. In Indophil Textile Mill
Workers Union vs. Calica, we ruled thus:[39]
In the case at bar, petitioner seeks to pierce the veil of corporate entity of Acrylic, alleging that the creation of the
corporation is a devi[c]e to evade the application of the CBA between petitioner Union and private respondent
company. While we do not discount the possibility of the similarities of the businesses of private respondent and Acrylic,
neither are we inclined to apply the doctrine invoked by petitioner in granting the relief sought. The fact that the
businesses of private respondent and Acrylic are related, that some of the employees of the private respondent are the
same persons manning and providing for auxiliary services to the units of Acrylic, and that the physical plants, offices
and facilities are situated in the same compound, it is our considered opinion that these facts are not sufficient to justify
the piercing of the corporate veil of Acrylic. (Emphasis supplied.)
Having been found by the trial courts to be a separate entity, Mar Fishing and not Miramar is required to compensate
petitioners. Indeed, the back wages and retirement pay earned from the former employer cannot be filed against the new
owners or operators of an enterprise.[40]
Evidently, the assertions of petitioners fail on both procedural and substantive aspects. Therefore, no special reasons exist
to reverse the CAs dismissal of the case due to their failure to abide by the mandatory procedure for filing a petition for
review on certiorari. Given the correctness of the appellate courts ruling and the lack of appropriate remedies, this Court
will no longer dwell on the exact computation of petitioners claims for back wages, which have been sufficiently threshed
out by the LA and the NLRC. Judicial review of labor cases does not go beyond an evaluation of the sufficiency of the
evidence upon which labor officials' findings rest.[41]
While we sympathize with the situation of the workers in this case, we cannot disregard, absent compelling reasons, the
factual determinations and the legal doctrines that support the findings of the courts a quo. Generally, the findings of fact
and the conclusion of the labor courts are not only accorded great weight and respect, but are even clothed with finality
and deemed binding on this Court, as long as they are supported by substantial evidence.[42]
On a final note, this Court reminds the parties seeking the ultimate relief of certiorari to observe the rules, since
nonobservance thereof cannot be brushed aside as a mere technicality.[43] Procedural rules are not to be belittled or simply
disregarded, for these prescribed procedures ensure an orderly and speedy administration of justice.[44]
IN VIEW THEREOF, the assailed 19 March 2004 and 12 May 2005 Resolutions of the Court of Appeals in CA-GR SP NO.
82651 are AFFIRMED. Hence, the 04 July 2005 Petition for Review filed by petitioners is hereby DENIED for lack of merit.
MA. CORINA C. JIAO, RODEN B. LOPEZ, FRANCISCO L. G.R. No. 182331
DIMAYUGA, NORMA G. DEL VALLE, MACARIO G.
MARASIGAN, LANIE MARIA B. PASANA, NILO M. DE Present:
CASTRO, ANGELITO M. BALITAAN, CESAR L. RICO,
CRISPIN S. CONSTANTINO, GLENDA S. CORPUZ, LEONILA CARPIO, J.,
C. TUAZON, ALFREDO S. DAZA, LORNA R. CRUZ, MARIA Chairperson,
M. AMBOJIA, NOEMI M. JAPOR, ANGELITO V. DANAN, BRION,
GLORIA M. SALAZAR, JOHN V. VIGILIA, ROEL D. ROBINO, PEREZ,
WILLIAM L. ENDAYA, TERESITA M. ROMAN, ARTURO M. SERENO,
SABALLE, AUGUSTO N. RIGOR, ALLAN O. OLANO, REYES, JJ.
RODOLFO T. CABATU, NICANOR R. BRAVO, EDUARDO M.
ALCANTARA, FELIPE F. OCAMPO, ELPIDIO C. ADALIA,
RENATO M. CRUZ, JOSE C. PEREZ, JR., FERNANDO V.
MAPILE, ROMEO R. PATRICIO, FERNANDO N.
RONGAVILLA, FERMIN A. COBRADOR, ANTONIO O.
BOSTRE, RALPH M. MICHAELSON, CRISTINA G. MANIO,
EDIGARDO M. BAUTISTA, CYNTHIA C. SANIEL, PRISCILLA
F. DAVID, MACARIO V. ARNEDO, NORLITO V.
HERNANDEZ, ALFREDO G. BUENAVENTURA, JOSE R.
CASTRONUEVO, OLDERICO M. AGORILLA, CESAR M.
PEREZ, RONALD M. GENER, EMMANUEL G. QUILAO,
BENJAMIN C. CUBA, EDGARDO S. MEDRANO,
GODOFREDO D. PATENA, VIRGILIO G. ILAGAN, MYRNA
C. LEGASPI, ELIZABETH P. REYES, ANTONIO A. TALON,
ROMEO P. CRUZ, ELEANOR
T. TAN, FERDINAND G. PINAUIN, MA. OLIVETTE A.
NAKPIL, GILBERT NOVIEM A. COLUMNA, ARTHUR L.
ABELLA, BENJAMIN L. ENRIQUEZ, ANTONINO P.
QUEVEDO, ADFEL GEORGE MONTEMAYOR, RAMON S.
VELASCO, WILFREDO M. HALILI, ANTONIO M.
LUMANGLAS, ANDREW M. MAGNO, SONNY S.
ESTANISLAO, RODOLFO S. ALABASTRO, MICAH B.
MARALIT, LINA M. QUEBRAL, REBECCA R. NARCISO,
RONILO T. TOLENTINO, RUPERTO B. LETAN, JR.,
MEDARDO A. VASQUEZ, VALENTINA A. SANTIAGO,
RODELO S. DIAZ, JOHN O. CORDIAL, EDWIN J. ANDAYA,
RODRIGO M. MOJADO, GERMAN L. ESTRADA,
BENJAMIN B. DADUYA, MARLYN A. MUNOZ, MARIVIC
M. DIONISIO, CESAR M. FLORES, JACINTO T. GUINTO, JR.,
BELEN C. SALAVERRIA, EVELYN M. ANZURES, GLORIA D.
ABELLA, LILIAN V. BUNUAN, MA. CONCEPCION G.
UBIADAS, ROLANDO I. CAMPOSANO, MONICO R.
GOREMBALEM, ELADIO M. VICENCIO, AMORSOLO B.
BELTRAN, LEOPOLDO B. JUAREZ, NEPHTALI V. SALAZAR,
SANGGUNI P. ROQUE, ROY O. SAPANGHILA, MELVIN A.
DEVEZA, CARMENCITA D. ABELLA, PRIMITIVO S. AGUAS,
JOSE MA. ANTONIO I. BUGAY, HILARIO P. DE GUZMAN,
WILLIAM C. VENTIGAN, NOEL L. AMA, ROMEO G. USON,
RAOUL E. VELASCO, FLORENCIO B. PAGSALIGAN, RUBEN
C. CRUZ, ANGELA D. CUSTODIO, NOEL C. CABEROY,
GUILLERMO V. GAVINO, JR., GAUDENCIO P. BESA, AIDA
M. PADILLA, ROWENA M. BAUYON, HENRY C. EPISCOPE,
ALVIN T. PATRIARCA, EUSTAQUIO C. AQUINO, JR.,
VALENTINO T. ARELLANO, REYNALDO J. AUSTRIA,
BAYANI A. CUNANAN, EFREN T. JOSE, EDUARDO P.
LORIA, REYNALDO M. PORTILLO, ARMANDO B. DUPAYA,
SESINANDO S. GOMEZ, BRICCIO B. GAFFUD III, DANILO
N. PALO, MARIO F. SOLANO, MARIANITO B. GOOT and
ELSA S. TANGO, ZENAIDA N. GARIN, RUBY L. TEJADA,
JOEL B. GARCIA, MA. RUBY L. JIMENEA, ARLENE L.
MADLANGBAYAN, ROCELY P. MARASIGAN, MA.
ROSARIO H. RIVERA, OSCAR G. BARACHINA, EDITA M.
REMO, ROBERTO P. ENDAYA, ALELI B. ALANO,
FRANCISCO T. MENEZ, CAMILO N. CARILLO, ROSEMARIE
A. DOMINGO, LYNDON D. ENOROBA, MERLY H.
JAVELLANA, HERNES M. MANDABON, LUZ G. ONG,
GILBERTO B. PICO, CRISPIN A. TAMAYO, RICARDO C.
VERNAIZ, RENATO V. SACRAMENTO, CLODUALDO O.
GOMEZ, MARINEL O. ALPINO, ELY P. RAMOS, NICANOR
E. REYES, JR.,
Petitioners,

- versus -

NATIONAL LABOR RELATIONS COMMISSION, GLOBAL

BUSINESS BANK, INC., CORPORATE OFFICERS OF GLOBAL
BANK: ROBIN KING, HENRY M. SUN, BENJAMIN G. CHUA,
JR., JOVENCIO F. CINCO, EDWARD S. GO, MARY VY TY,
TAKANORI NAKANO, JOHN K.C. NG, FLORENCIO T.
MALLARE, EDMUND/EDDIE GAISANO, FRANCISCO
SEBASTIAN, SAMUEL S. YAP, ALFRED VY TY, GEN TOMII,
CHARLES WAI-BUN CHEUNG and METROPOLITAN BANK
AND TRUST COMPANY,
Respondents.
 Promulgated:

April 18, 2012

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

DECISION

REYES, J.:

Nature of the Case

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court wherein the petitioners assail
the Resolutions dated November 7, 2007[1] and March 26, 2008,[2] respectively, of the Court of Appeals (CA) in CA-G.R. SP
No. 101065.

Antecedent Facts

The petitioners were regular employees of the Philippine Banking Corporation (Philbank), each with at least ten years of
service in the company.[3] Pursuant to its Memorandum dated August 28, 1970, Philbank established a Gratuity Pay Plan
(Old Plan) for its employees. The Old Plan provided:

1. Any employee who has reached the compulsory retirement age of 60 years, or who wishes to retire or resign prior to
the attainment of such age or who is separated from service by reason of death, sickness or other causes beyond his/her
control shall for himself or thru his/her heirs file with the personnel office an application for the payment of benefits under
the plan[.][4]

Section 1 laid down the benefits to which the employee would be entitled, to wit:
Section 1

Benefits

1.1 The gratuity pay of an employee shall be an amount equivalent to one-month salary for every year of credited service,
computed on the basis of last salary received.
1.2 An employee with credited service of 10 years or more, shall be entitled to and paid the full amount of the gratuity
pay, but in no case shall the gratuity pay exceed the equivalent of 24 months, or two years, salary.[5]

On March 8, 1991, Philbank implemented a new Gratuity Pay Plan (New Gratuity Plan).[6] In particular, the New Gratuity
Plan stated thus:

x x x An Employee who is involuntarily separated from the service by reason of death, sickness or physical disability, or for
any authorized cause under the law such as redundancy, or other causes not due to his own fault, misconduct or voluntary
resignation, shall be entitled to either one hundred percent (100%) of his accrued gratuity benefit or the actual benefit
due him under the Plan, whichever is greater.[7]

In February 2000, Philbank merged with Global Business Bank, Inc. (Globalbank), with the former as the surviving
corporation and the latter as the absorbed corporation, but the bank operated under the name Global Business Bank, Inc.
As a result of the merger, complainants respective positions became redundant. A Special Separation Program (SSP) was
implemented and the petitioners were granted a separation package equivalent to one and a half months pay (or 150%
of one months salary) for every year of service based on their current salary. Before the petitioners could avail of this
program, they were required to sign two documents, namely, an Acceptance Letter and a Release, Waiver, Quitclaim
(quitclaim).[8]

As their positions were included in the redundancy declaration, the petitioners availed of the SSP, signed acceptance
letters and executed quitclaims in Globalbanks favor[9] in consideration of their receipt of separation pay equivalent to
150% of their monthly salaries for every year of service.

In August 2002, respondent Metropolitan Bank and Trust Company (Metrobank) acquired the assets and liabilities of
Globalbank through a Deed of Assignment of Assets and Assumption of Liabilities.[10]

Subsequently, the petitioners filed separate complaints for non-payment of separation pay with prayer for damages and
attorneys fees before the National Labor Relations Commission (NLRC).[11]

The petitioners asserted that, under the Old Plan, they were entitled to an additional 50% of their gratuity pay on top of
150% of one months salary for every year of service they had already received. They insisted that 100% of the 150%
rightfully belongs to them as their separation pay. Thus, the remaining 50% was only half of the gratuity pay that they are
entitled to under the Old Plan. They argued that even if the New Gratuity Plan were to be followed, the computation
would be the same, since Section 10.1 of the New Gratuity Plan provided that:

10.1 Employees who have attained a regular status as of March 8, 1991 who are covered by the Old Gratuity Plan and are
now covered by this Plan shall be entitled to which is the higher benefit between the two Plans. Double recovery from
both plans is not allowed.[12]

The petitioners further argued that the quitclaims they signed should not bar them from claiming their full entitlement
under the law. They also claimed that they were defrauded into signing the same without full knowledge of its legal
implications.[13]
On the other hand, Globalbank asserted that the SSP should prevail and the petitioners were no longer entitled to the
additional 50% gratuity pay which was already paid, the same having been included in the computation of their separation
pay. It maintained further that the waivers executed by the petitioners should be held binding, since these were executed
in good faith and with the latters full knowledge and understanding.[14]

Meanwhile, Metrobank denied any liability, citing the absence of an employment relationship with the petitioners. It
argued that its acquisition of the assets and liabilities of Globalbank did not include the latters obligation to its employees.
Moreover, Metrobank pointed out that the petitioners employment with Globalbank had already been severed before it
took over the latters banking operations.[15]

The Labor Arbiters Decision

On August 30, 2004, the Labor Arbiter (LA) promulgated a decision[16] dismissing the complaint.[17] The LA ruled that the
petitioners were not entitled to the additional 50% in gratuity pay that they were asking for.[18]

The LA held that the 150% rate used by Globalbank could legally cover both the separation pay and the gratuity pay of
complainants. The LA upheld the right of the employer to enact a new gratuity plan after finding that its enactment was
not attended by bad faith or any design to defraud complainants. Thus, the New Gratuity Plan must be deemed to have
superseded the Old Plan.[19] The LA also ruled that the minimum amount due to the petitioners under the New Gratuity
Plan, in relation to Article 283 of the Labor Code was one months pay for every year of service. Thus, anything over that
amount was discretionary.
As to the validity of the quitclaim, the LA held that the issue has been rendered moot. Nonetheless, the LA upheld the
petitioners undertaking under their respective quitclaims, considering the amount involved is not unconscionable, and
that their supposed lack of complete understanding did
[20]
not mean that they were coerced or deceived into executing the same.

The LA also absolved Metrobank from liability. The LA found that the petitioners had already been separated from
Globalbank when Metrobank took over the formers banking operations. Moreover, the liabilities that Metrobank assumed
were limited to those arising from banking operations and excluded those pertaining to Globalbanks employees or to
claims of previous employees.[21]

The NLRCs Decision

Aggrieved, the petitioners appealed to the NLRC. In a decision[22] dated August 15, 2007, the NLRC dismissed the appeal
and affirmed the LAs decision.

The NLRC held that the petitioners did not acquire a vested right to Philbanks gratuity plans since, at the outset, it was
made clear that these plans would not perpetuate into eternity. It also noted that, under the SSP, the employee to be
separated due to redundancy would be receiving more than the rate in the old plan and higher than the legal rate for the
separated employees.

The petitioners elevated the case to the CA via a Petition for Certiorari under Rule 65.

The CAs Decision

In the first of the assailed CA resolutions, the CA ruled that the petition was dismissible outright for failure of the
petitioners to file a motion for reconsideration of the decision under review before resorting to certiorari. Further, the CA
held that the case did not fall under any of the recognized exceptions to the rule on motions for reconsideration.[23]

The petitioners then moved for the reconsideration, which was denied in the second assailed Resolution, noting the
absence of an explanation for their failure to file a motion for reconsideration of the assailed NLRC decision in their petition
for certiorari.[24]
The Issues

The petitioners are now before this Court raising the following errors supposedly committed by the CA:

1. In dismissing the petition for failure to file a motion for reconsideration before filing a petition under Rule 65
as it blatantly ignored the application of the recent jurisprudence on labor law.

2. In dismissing the petition without taking into consideration the meritorious grounds laid down by [the]
petitioners by categorically outlining the grave abuse of discretion amounting to lack or excess of jurisdiction committed
by [the] NLRC in affirming the decision of the Labor Arbiter, to wit:

2.a. In holding that [the] petitioners did not acquire a vested right under the PHILBANK gratuity plan.

2.b. In holding that the bank had abandoned the old plan (referring to the old Gratuity Pay Plan) and replaced it with
a Special Separation Program under which [the] petitioners would be receiving more than the rate in the old plan and
higher than the legal rate for redundant employees.

2.c. In holding that the benefits under the Special Separation Program legally replaced not only the gratuity pay
plan to which [the] petitioners were entitled under the old and new Gratuity Pay Plans but also all other benefits including
separation pay under the law.
2.d. In not holding that when [the] petitioners were separated due to redundancy they were entitled per provision
of Article 283 of the Labor Code to separation pay equivalent to one month pay for every year of service.

2.e. In holding that [the] petitioners are bound under the Acceptance x x x and Release, Waiver and Quitclaim x x x
that they had executed and [cannot] question the same, hence they [cannot] claim benefits in addition to those they had
received from the bank.

2.f. In not holding that respondent METROBANK is the parent corporation of GLOBALBANK and the latter is the
subsidiary, hence METROBANK is liable for the payment of the employment benefits of [the] petitioners as it had acquired
all the assets of GLOBALBANK.

2.g. In not holding that the Assignment of Assets and Liabilities x x x executed by GLOBALBANK and METROBANK is
a scheme to defraud [the] petitioners of the employment benefits due them upon separation from service.

2.h. In not holding that [the] respondents are liable to [the] petitioners for moral, exemplary and temperate
damages because [the] respondents are guilty of deceit and fraud in not paying [the] petitioners the full amount of their
employment benefits.[25]

The Courts Decision

The Petition has no merit, hence, must be denied.

The petitioners unexplained failure to move for the reconsideration of the NLRCs resolution before applying for a writ
of certiorari in the CA is reason enough to deny such application.

We shall first discuss the procedural issue raised by the petitioners: whether the CA erred in dismissing their petition due
to their failure to file a motion for reconsideration of the NLRCs adverse resolution.
The petitioners claim that it was error for the CA to have dismissed their petition on the sole basis thereof. According to
the petitioners, they had opted not to file a motion for reconsideration as the issues that will be raised therein are those
that the NLRC had already passed upon. The petitioners likewise invoke the liberal application of procedural rules.

To begin with, the petitioners do not have the discretion or prerogative to determine the propriety of complying with
procedural rules. This Court had repeatedly emphasized in various cases involving the tedious attempts of litigants to
relieve themselves of the consequences of their neglect to follow a simple procedural requirement for perfecting a petition
for certiorari that he who seeks a writ of certiorari must apply for it only in the manner and strictly in accordance with the
provisions of the law and the Rules. The petitioners may not arrogate to themselves the determination of whether a
motion for reconsideration is necessary or not. To dispense with the requirement of filing a motion for reconsideration,
the petitioners must show a concrete, compelling, and valid reason for doing so.[26]

As the CA correctly noted, the petitioners did not bother to explain their omission and only did so in their motion for
reconsideration of the dismissal of their petition. Aside from the fact that such belated effort will not resurrect their
application for a writ of certiorari, the reason proffered by the petitioners does not fall under any of the recognized
instances when the filing of a motion for reconsideration may be dispensed with. Whimsical and arbitrary deviations from
the rules cannot be condoned in the guise of a plea for a liberal interpretation thereof. We cannot respond with alacrity
to every claim of injustice and bend the rules to placate vociferous protestors crying and claiming to be victims of a
wrong.[27]

We now rule on the substantive issues.

The petitioners receipt of separation pay equivalent to their one and a half months salary for every year of service as
provided in the SSP and the New Gratuity Plan more than sufficiently complies with the Labor Code, which only requires
the payment of separation pay at the rate of one month salary for every year of service.

The petitioners do not question the legality of their separation from the service or the basis for holding their positions
redundant. What they raise is their entitlement to gratuity pay, as provided in the Old Plan, in addition to what they
received under the SSP. According to the petitioners, they are entitled to separation pay at a rate of one month salary for
every year of service under the Labor Code and gratuity pay at a rate of one month salary for every year of service whether
under the Old Plan or the New Gratuity Plan. Since what they received as separation pay was equivalent to only 150% or
one and one-half of their monthly salaries for every year of service, the respondents are still liable to pay them the
deficiency equivalent to one-half of their monthly salary for every year of service.

We disagree.

The New Gratuity Plan has

repealed the Old Plan.

It is clear from the provisions of Section 8 of the New Gratuity Plan that the Old Plan has been revoked or superseded.
Thus:

SECTION 8
INTEGRATION OF SOCIAL LEGISLATION,
CONTRACTS, ETC.

8.1 This Plan is not intended to duplicate or cause the double payment of similar or analogous benefits provided for under
existing labor and social security laws. Accordingly, benefits under this Plan shall be deemed integrated with and in lieu of
(i) statutory benefits under the New Labor Code and Social Security Laws, as now or hereafter amended[;] and (ii)
analogous benefits granted under present or future collective bargaining agreements, and other employee benefit plans
providing analogous benefits which may be imposed by future legislations. In the event the benefits due under the Plan
are less than those due and demandable under the provisions of the New Labor Code and/or present or future Collective
Bargaining Agreements and/or future plans of similar nature imposed by law, the Fund shall respond for the difference.[28]

Globalbanks right to replace the Old Plan and the New Gratuity Plan is within legal bounds as the terms thereof are in
accordance with the provisions of the Labor Code and complies with the minimum requirements thereof. Contrary to the
petitioners claim, they had no vested right over the benefits under the Old Plan considering that none of the events
contemplated thereunder occurred prior to the repeal thereof by the adoption of the New Gratuity Plan. Such right
accrues only upon their separation from service for causes contemplated under the Old Plan and the petitioners can only
avail the benefits under the plan that is effective at the time of their dismissal. In this case, when the merger and the
redundancy program were implemented, what was in effect were the New Gratuity Plan and the SSP; the petitioners
cannot, thus, insist on the provisions of the Old Plan which is no longer existent.

The SSP did not revoke or supersede the New Gratuity Plan.

On the other hand, the issuance of the SSP did not result to the repeal of the New Gratuity Plan. As the following provision
of the SSP shows, the terms of the New Gratuity Plan had been expressly incorporated in the SSP and should, thus, be
implemented alongside the SSP:

II. Separation Pay Package

Affected employees are entitled to the following tax free:

a. Gratuity Benefits which they are entitled to under the respective retirement plans. The bank shall give a premium
by rounding up the benefit to an equivalent of 1.5 months salary per every year of service based on their salary as of
separation date.[29] (emphasis supplied)

The SSP was not intended to supersede the New Gratuity Plan. On the contrary, the SSP was issued to make the benefits
under the New Gratuity Plan available to employees whose positions had become redundant because of the merger
between Philbank and Globalbank, subject to compliance with certain requirements such as age and length of service, and
to improve such benefits by increasing or rounding it up to an amount equivalent to the affected employees one and a
half monthly salary for every year of service. In other words, the benefits to which the redundated employees are entitled
to, including the petitioners, are the benefits under the New Gratuity Plan, albeit increased by the SSP.

Considering that the New Gratuity Plan still stands and has not been revoked by the SSP, does this mean that the
petitioners can claim the benefits thereunder in addition to or on top of what is required under the Article 283 of the
Labor Code?

For as long as the minimum requirements of the Labor Code are met, it is within the management prerogatives of
employers to come up with separation packages that will be given in lieu of what is provided under the Labor Code.

A direct reference to the New Gratuity Plan reveals the contrary. The above-quoted Section 8 of the New Gratuity Plan
expressly states that the benefits under this Plan shall be deemed integrated with and in lieu of (i) statutory benefits under
the New Labor Code and Social Security Laws, as now or hereafter amended and that [t]his Plan is not intended to
duplicate or cause the double payment of similar or analogous benefits provided for under existing labor and security
laws.

Article 283 of the Labor Code[30] provides only the required minimum amount of separation pay, which employees
dismissed for any of the authorized causes are entitled to receive. Employers, therefore, have the right to create plans,
providing for separation pay in an amount over and above what is imposed by Article 283. There is nothing therein that
prohibits employers and employees from contracting on the terms of employment, or from entering into agreements on
employee benefits, so long as they do not violate the Labor Code or any other law, and are not contrary to morals, good
customs, public order, or public policy.[31] As this Court held in a case:

[E]ntitlement to benefits consequent thereto are not limited to those provided by said provision of law. Otherwise, the
provisions of collective bargaining agreements, individual employment contracts, and voluntary retirement plans of
companies would be rendered inutile if we were to limit the award of monetary benefits to an employee only to those
provided by statute. x x x.[32]

Previously, the Court adopted the CAs ruling, upholding the validity of a similar provision in a companys retirement plan:

[T]here is no further doubt that the payment of separation pay is a requirement of the law, i.e.[,] the Labor Code, which
is a social legislation. The clear intent of Article XI, section 6 [of the Retirement Plan] is to input the effects of social
legislation in the circulation of Retirement benefits due to retiring employees x x x. The Retirement Plan itself clearly sets
forth the intention of the parties to entitle employees only to whatever is greater between the Retirement Benefits
then due and that which the law requires to be given by way of separation pay. To give way to complainants demands
would be to totally ignore the contractual obligations of the parties in the Retirement Plan, and to distort the clear intent
of the parties as expressed in the terms and conditions contained in such plan. x x x.[33] (emphasis supplied)

Consequently, if the petitioners were allowed to receive separation pay from both the Labor Code, on the one hand, and
the New Gratuity Plan and the SSP, on the other, they would receive double compensation for the same cause (i.e.,
separation from the service due to redundancy) even if such is contrary to the provisions of the New Gratuity Plan. The
petitioners claim of being shortchanged is certainly unfounded. They have recognized the validity of the SSP and the New
Gratuity Plan as evidenced by the acceptance letters and quitclaims they executed; and the benefits they received under
the SSP and the New Gratuity Plan are more than what is required by the Labor Code.

In the absence of proof that any of the vices of consent are present, the petitioners acceptance letters and quitclaims
are valid; thus, barring them from claiming additional separation pay.

The Court now comes to the issue on the validity of the acceptance letters and quitclaims that the petitioners executed,
which they claim do not preclude them from asking for the benefits rightfully due them under the law.

It is true that quitclaims executed by employees are often frowned upon as contrary to public policy.[34] Hence, deeds of
release or quitclaims cannot bar employees from demanding benefits to which they are legally entitled or from contesting
the legality of their dismissal. The acceptance of those benefits would not amount to estoppel.[35]

However, the Court, in other cases, has upheld quitclaims if found to comply with the following requisites: (1) the
employee executes a deed of quitclaim voluntarily; (2) there is no fraud or deceit on the part of any of the parties; (3) the
consideration of the quitclaim is credible and reasonable; and (4) the contract is not contrary to law, public order, public
policy, morals or good customs or prejudicial to a third person with a right recognized by law.[36]

In this case, there is no allegation of fraud or deceit employed by the

respondents in making the petitioners sign the acceptance letters and quitclaims. Neither was there any claim of force or
duress exerted upon the petitioners to compel them to sign the acceptance letters and quitclaims. Likewise, the
consideration is credible and reasonable since the petitioners are getting more than the amount required under the law.
Thus, the acceptance letters and quitclaims executed by the petitioners are valid and binding.

Considering that the petitioners have already waived their right to file an action for any of their claims in relation to their
employment with Globalbank, the question of whether Metrobank can be held liable for these claims is now academic.
However, in order to put to rest any doubt in the petitioners minds as to Metrobanks liabilities, we shall proceed to discuss
this issue.

We hold that Metrobank cannot be held liable for the petitioners claims.

As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling corporation,
provided the former acted in good faith and paid adequate consideration for such assets, except when any of the following
circumstances is present: (1) where the purchaser expressly or impliedly agrees to assume the debts; (2) where the
transaction amounts to a consolidation or merger of the corporations; (3) where the purchasing corporation is merely a
continuation of the selling corporation; and (4) where the selling corporation fraudulently enters into the transaction to
escape liability for those debts.[37]

Under the Deed of Assignments of Assets and Assumption of

[38]
Liabilities between Globalbank and Metrobank, the latter accepted the formers assets in exchange for assuming its
liabilities. The liabilities that Metrobank assumed, which were clearly set out in Annex A of the instrument, are: deposit
liabilities; interbank loans payable; bills payable; managers checks and demand drafts outstanding; accrued taxes, interest
and other expenses; and deferred credits and other liabilities.[39]

Based on this enumeration, the liabilities that Metrobank assumed can be characterized as those pertaining to
Globalbanks banking operations. They do not include Globalbanks liabilities to pay separation pay to its former employees.
This must be so because it is understood that the same liabilities ended when the petitioners were paid the amounts
embodied in their respective acceptance letters and quitclaims. Hence, this obligation could not have been passed on to
Metrobank.

The petitioners insist that Metrobank is liable because it is the parent company of Globalbank and that majority of the
latters board of directors are also members of the formers board of directors.

While the petitioners allegations are true, one fact cannot be ignored that Globalbank has a separate and distinct juridical
personality. The petitioners own evidence Global Business Holdings, Inc.s General Information Sheet[40] filed with the
Securities and Exchange Commission bears this out.

Even then, the petitioners would want this Court to pierce the veil of corporate identity in order to hold Metrobank liable
for their claims.

What the petitioners desire, the Court cannot do. This fiction of corporate entity can only be disregarded in cases when it
is used to defeat public convenience, justify wrong, protect fraud, or defend crime. Moreover, to justify the disregard of
the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established.[41]

In the instant case, none of these circumstances is present such as to warrant piercing the veil of corporate fiction and
treating Globalbank and Metrobank as one.

Lastly, the petitioners prayer for the award of damages must be denied for lack of legal basis.

In sum, the New Gratuity Plan and SSP are valid and must be given effect, inasmuch as their provisions are not contrary
to law; and, indeed, grant benefits that meet the minimum amount required by the Labor Code. The petitioners have
voluntarily sought such benefits and upon their receipt thereof, executed quitclaims in Globalbanks favor. The petitioners
cannot, upon a mere change of mind, seek to invalidate such quitclaims and renege on their undertaking thereunder,
which, to begin with, is supported by a substantial consideration and which they had knowingly assumed and imposed
upon themselves.

WHEREFORE, the foregoing premises considered, the petition is DENIED. The assailed Resolutions dated November 7,
2007 and March 26, 2008, respectively, of the Court of Appeals in CA-G.R. SP No. 101065 are AFFIRMED.
 PRINCE TRANSPORT, INC. and MR. RENATO CLAROS, G.R. No. 167291
Petitioners,
Present:

CARPIO, J., Chairperson,

- versus - NACHURA,
PERALTA,
ABAD, and
_____________,** JJ.
DIOSDADO GARCIA, LUISITO GARCIA, RODANTE
ROMERO, REX BARTOLOME, FELICIANO GASCO, JR.,
DANILO ROJO, EDGAR SANFUEGO, AMADO GALANTO, Promulgated:
EUTIQUIO LUGTU, JOEL GRAMATICA, MIEL CERVANTES,
TERESITA CABANES, ROE DELA CRUZ, RICHELO BALIDOY,
VILMA PORRAS, MIGUELITO SALCEDO, CRISTINA GARCIA,
MARIO NAZARENO, DINDO TORRES, ESMAEL January 12, 2011
RAMBOYONG, ROBETO*MANO, ROGELIO BAGAWISAN,
ARIEL SNACHEZ, ESTAQULO VILLAREAL, NELSON
MONTERO, GLORIA ORANTE, HARRY TOCA, PABLITO
MACASAET and RONALD GARCITA
Respondents.
x-----------------------------------------------------------------------------------------x

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court praying for the annulment of the
Decision[1] and Resolution[2] of the Court of Appeals (CA) dated December 20, 2004 and February 24, 2005, respectively,
in CA-G.R. SP No. 80953. The assailed Decision reversed and set aside the Resolutions dated May 30, 2003 [3] and
September 26, 2003[4] of the National Labor Relations Commission (NLRC) in CA No. 029059-01, while the disputed
Resolution denied petitioners' Motion for Reconsideration.

The present petition arose from various complaints filed by herein respondents charging petitioners with illegal dismissal,
unfair labor practice and illegal deductions and praying for the award of premium pay for holiday and rest day, holiday
pay, service leave pay, 13th month pay, moral and exemplary damages and attorney's fees.

Respondents alleged in their respective position papers and other related pleadings that they were employees of Prince
Transport, Inc. (PTI), a company engaged in the business of transporting passengers by land; respondents were hired either
as drivers, conductors, mechanics or inspectors, except for respondent Diosdado Garcia (Garcia), who was assigned as
Operations Manager; in addition to their regular monthly income, respondents also received commissions equivalent to
8 to 10% of their wages; sometime in October 1997, the said commissions were reduced to 7 to 9%; this led respondents
and other employees of PTI to hold a series of meetings to discuss the protection of their interests as employees; these
meetings led petitioner Renato Claros, who is the president of PTI, to suspect that respondents are about to form a union;
he made known to Garcia his objection to the formation of a union; in December 1997, PTI employees requested for a
cash advance, but the same was denied by management which resulted in demoralization on the employees' ranks; later,
PTI acceded to the request of some, but not all, of the employees; the foregoing circumstances led respondents to form
a union for their mutual aid and protection; in order to block the continued formation of the union, PTI caused the transfer
of all union members and sympathizers to one of its sub-companies, Lubas Transport (Lubas); despite such transfer, the
schedule of drivers and conductors, as well as their company identification cards, were issued by PTI; the daily time
records, tickets and reports of the respondents were also filed at the PTI office; and, all claims for salaries were transacted
at the same office; later, the business of Lubas deteriorated because of the refusal of PTI to maintain and repair the units
being used therein, which resulted in the virtual stoppage of its operations and respondents' loss of employment.
Petitioners, on the other hand, denied the material allegations of the complaints contending that herein respondents were
no longer their employees, since they all transferred to Lubas at their own request; petitioners have nothing to do with
the management and operations of Lubas as well as the control and supervision of the latter's employees;petitioners were
not aware of the existence of any union in their company and came to know of the same only in June 1998 when they
were served a copy of the summons in the petition for certification election filed by the union; that before the union was
registered on April 15, 1998, the complaint subject of the present petition was already filed; that the real motive in the
filing of the complaints was because PTI asked respondents to vacate the bunkhouse where they (respondents) and their
respective families were staying because PTI wanted to renovate the same.

Subsequently, the complaints filed by respondents were consolidated.

On October 25, 2000, the Labor Arbiter rendered a Decision,[5] the dispositive portion of which reads as follows:

WHEREFORE, judgment is hereby rendered:

1. Dismissing the complaints for Unfair Labor Practice, non-payment of holiday pay and holiday premium, service
incentive leave pay and 13th month pay;
Dismissing the complaint of Edgardo Belda for refund of boundary-hulog;
2. Dismissing the complaint for illegal dismissal against the respondents Prince Transport, Inc. and/or Prince Transport
Phils. Corporation, Roberto Buenaventura, Rory Bayona, Ailee Avenue, Nerissa Uy, Mario Feranil and Peter Buentiempo;

3. Declaring that the complainants named below are illegally dismissed by Lubas Transport; ordering said Lubas
Transport to pay backwages and separation pay in lieu of reinstatement in the following amount:

Complainants Backwages Separation Pay

(1) Diosdado Garcia P222,348.70 P79,456.00
(2) Feliciano Gasco, Jr. 203,350.00 54,600.00
(3) Pablito Macasaet 145,250.00 13,000.00
(4) Esmael Ramboyong 221,500.00 30,000.00
(5) Joel Gramatica 221,500.00 60,000.00
(6) Amado Galanto 130,725.00 29,250.00
(7) Miel Cervantes 265,800.00 60,000.00
(8) Roberto Mano 221,500.00 50,000.00
(9) Roe dela Cruz 265,800.00 60,000.00
(10) Richelo Balidoy 130,725.00 29,250.00
(11) Vilma Porras 221,500.00 70,000.00
(12) Miguelito Salcedo 265,800.00 60,000.00
(13) Cristina Garcia 130,725.00 35,100.00
(14) Luisito Garcia 145,250.00 19,500.00
(15) Rogelio Bagawisan 265,800.00 60,000.00
(16) Rodante H. Romero 221,500.00 60,000.00
(17) Dindo Torres 265,800.00 50,000.00
(18) Edgar Sanfuego 221,500.00 40,000.00
(19) Ronald Gacita 221,500.00 40,000.00
(20) Harry Toca 174,300.00 23,400.00
(21) Amado Galanto 130,725.00 17,550.00
(22) Teresita Cabaes 130,725.00 17,550.00
(23) Rex Bartolome 301,500.00 30,000.00
(24) Mario Nazareno 221,500.00 30,000.00
(25) Eustaquio Villareal 145,250.00 19,500.00
(26) Ariel Sanchez 265,800.00 60,000.00
(27) Gloria Orante 263,100.00 60,000.00
(28) Nelson Montero 264,600.00 60,000.00
(29) Rizal Beato 295,000.00 40,000.00
(30) Eutiquio Lugtu 354,000.00 48,000.00
(31) Warlito Dickensomn 295,000.00 40,000.00
(32) Edgardo Belda 354,000.00 84,000.00
(33) Tita Go 295,000.00 70,000.00
(34) Alex Lodor 295,000.00 50,000.00
(35) Glenda Arguilles 295,000.00 40,000.00
(36) Erwin Luces 354,000.00 48,000.00
(37) Jesse Celle 354,000.00 48,000.00
(38) Roy Adorable 295,000.00 40,000.00
(39) Marlon Bangcoro 295,000.00 40,000.00
(40)Edgardo Bangcoro 354,000.00 36,000.00

4. Ordering Lubas Transport to pay attorney's fees equivalent to ten (10%) of the total monetary award; and

6. Ordering the dismissal of the claim for moral and exemplary damages for lack merit.
SO ORDERED.[6]

The Labor Arbiter ruled that petitioners are not guilty of unfair labor practice in the absence of evidence to show that they
violated respondents right to self-organization. The Labor Arbiter also held that Lubas is the respondents employer and
that it (Lubas) is an entity which is separate, distinct and independent from PTI. Nonetheless, the Labor Arbiter found that
Lubas is guilty of illegally dismissing respondents from their employment.

Respondents filed a Partial Appeal with the NLRC praying, among others, that PTI should also be held equally liable as
Lubas.

In a Resolution dated May 30, 2003, the NLRC modified the Decision of the Labor Arbiter and disposed as follows:

WHEREFORE, premises considered, the appeal is hereby PARTIALLY GRANTED. Accordingly, the Decision appealed from
is SUSTAINED subject to the modification that Complainant-Appellant Edgardo Belda deserves refund of his boundary-
hulog in the amount of P446,862.00; and that Complainants-Appellants Danilo Rojo and Danilo Laurel should be included
in the computation of Complainants-Appellants claim as follows:

Complainants Backwages Separation Pay

41. Danilo Rojo P355,560.00 P48,000.00
42. Danilo Laurel P357,960.00 P72,000.00

As regards all other aspects, the Decision appealed from is SUSTAINED.

SO ORDERED.[7]

Respondents filed a Motion for Reconsideration, but the NLRC denied it in its Resolution[8] dated September 26, 2003.

Respondents then filed a special civil action for certiorari with the CA assailing the Decision and Resolution of the NLRC.

On December 20, 2004, the CA rendered the herein assailed Decision which granted respondents' petition. The CA ruled
that petitioners are guilty of unfair labor practice; that Lubas is a mere instrumentality, agent conduit or adjunct of PTI;
and that petitioners act of transferring respondents employment to Lubas is indicative of their intent to frustrate the
efforts of respondents to organize themselves into a union. Accordingly, the CA disposed of the case as follows:
WHEREFORE, the Petition for Certiorari is hereby GRANTED. Accordingly, the subject decision is hereby REVERSED and
SET ASIDE and another one ENTERED finding the respondents guilty of unfair labor practice and ordering them to reinstate
the petitioners to their former positions without loss of seniority rights and with full backwages.

With respect to the portion ordering the inclusion of Danilo Rojo and Danilo Laurel in the computation of petitioner's claim
for backwages and with respect to the portion ordering the refund of Edgardo Belda's boundary-hulog in the amount
of P446,862.00, the NLRC decision is affirmed and maintained.

SO ORDERED.[9]

Petitioners filed a Motion for Reconsideration, but the CA denied it via its Resolution[10] dated February 24, 2005.

Hence, the instant petition for review on certiorari based on the following grounds:

A
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN GIVING DUE COURSE TO THE RESPONDENTS'
PETITION FOR CERTIORARI

1. THE COURT OF APPEALS SHOULD HAVE RESPECTED THE FINDINGS OF THE LABOR ARBITER AND AFFIRMED BY THE NLRC

2. ONLY ONE PETITIONER EXECUTED AND VERIFIED THE PETITION

3. THE COURT OF APPEALS SHOULD NOT HAVE GIVEN DUE COURSE TO THE PETITION WITH RESPECT TO RESPONDENTS
REX BARTOLOME, FELICIANO GASCO, DANILO ROJO, EUTIQUIO LUGTU, AND NELSON MONTERO AS THEY FAILED TO FILE
AN APPEAL TO THE NLRC

B
THE COURT OF APPEALS SERIOUSLY ERRED IN DECLARING THAT PETITIONERS PRINCE TRANSPORT, INC. AND MR. RENATO
CLAROS AND LUBAS TRANSPORT ARE ONE AND THE SAME CORPORATION AND THUS, LIABLE IN SOLIDUM TO
RESPONDENTS.

C
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN ORDERING THE REINSTATEMENT OF
RESPONDENTS TO THEIR PREVIOUS POSITION WHEN IT IS NOT ONE OF THE ISSUES RAISED IN RESPONDENTS' PETITION
FOR CERTIORARI.[11]

Petitioners assert that factual findings of agencies exercising quasi-judicial functions like the NLRC are accorded not only
respect but even finality; that the CA should have outrightly dismissed the petition filed before it because
in certiorari proceedings under Rule 65 of the Rules of Court it is not within the province of the CA to evaluate the
sufficiency of evidence upon which the NLRC based its determination, the inquiry being limited essentially to whether or
not said tribunal has acted without or in excess of its jurisdiction or with grave abuse of discretion. Petitioners assert that
the CA can only pass upon the factual findings of the NLRC if they are not supported by evidence on record, or if the
impugned judgment is based on misapprehension of facts which circumstances are not present in this case. Petitioners
also emphasize that the NLRC and the Labor Arbiter concurred in their factual findings which were based on substantial
evidence and, therefore, should have been accorded great weight and respect by the CA.

Respondents, on the other hand, aver that the CA neither exceeded its jurisdiction nor committed error in re-
evaluating the NLRCs factual findings since such findings are not in accord with the evidence on record and the applicable
law or jurisprudence.
The Court agrees with respondents.

The power of the CA to review NLRC decisions via a petition for certiorari under Rule 65 of the Rules of Court has been
settled as early as this Courts decision in St. Martin Funeral Homes v. NLRC.[12] In said case, the Court held that the proper
vehicle for such review is a special civil action for certiorari under Rule 65 of the said Rules, and that the case should be
filed with the CA in strict observance of the doctrine of hierarchy of courts. Moreover, it is already settled that under
Section 9 of Batas Pambansa Blg. 129, as amended by Republic Act No. 7902, the CA pursuant to the exercise of its original
jurisdiction over petitions for certiorari is specifically given the power to pass upon the evidence, if and when necessary,
to resolve factual issues.[13] Section 9 clearly states:

xxxx

The Court of Appeals shall have the power to try cases and conduct hearings, receive evidence and perform any and all
acts necessary to resolve factual issues raised in cases falling within its original and appellate jurisdiction, including the
power to grant and conduct new trials or further proceedings. x x x

However, equally settled is the rule that factual findings of labor officials, who are deemed to have acquired expertise in
matters within their jurisdiction, are generally accorded not only respect but even finality by the courts when supported
by substantial evidence, i.e., the amount of relevant evidence which a reasonable mind might accept as adequate to justify
a conclusion.[14] But these findings are not infallible. When there is a showing that they were arrived at arbitrarily or in
disregard of the evidence on record, they may be examined by the courts.[15] The CA can grant the petition for certiorari if
it finds that the NLRC, in its assailed decision or resolution, made a factual finding not supported by substantial
evidence.[16] It is within the jurisdiction of the CA, whose jurisdiction over labor cases has been expanded to review the
findings of the NLRC.[17]

In this case, the NLRC sustained the factual findings of the Labor Arbiter. Thus, these findings are generally binding on the
appellate court, unless there was a showing that they were arrived at arbitrarily or in disregard of the evidence on record.
In respondents' petition for certiorari with the CA, these factual findings were reexamined and reversed by the appellate
court on the ground that they were not in accord with credible evidence presented in this case. To determine if the CA's
reexamination of factual findings and reversal of the NLRC decision are proper and with sufficient basis, it is incumbent
upon this Court to make its own evaluation of the evidence on record.[18]

After a thorough review of the records at hand, the Court finds that the CA did not commit error in arriving at its own
findings and conclusions for reasons to be discussed hereunder.

Firstly, petitioners posit that the petition filed with the CA is fatally defective, because the attached verification and
certificate against forum shopping was signed only by respondent Garcia.

The Court does not agree.

While the general rule is that the certificate of non-forum shopping must be signed by all the plaintiffs in a case and the
signature of only one of them is insufficient, the Court has stressed that the rules on forum shopping, which were designed
to promote and facilitate the orderly administration of justice, should not be interpreted with such absolute literalness as
to subvert its own ultimate and legitimate objective.[19] Strict compliance with the provision regarding the certificate of
non-forum shopping underscores its mandatory nature in that the certification cannot be altogether dispensed with or its
requirements completely disregarded.[20] It does not, however, prohibit substantial compliance therewith under justifiable
circumstances, considering especially that although it is obligatory, it is not jurisdictional.[21]

In a number of cases, the Court has consistently held that when all the petitioners share a common interest and invoke a
common cause of action or defense, the signature of only one of them in the certification against forum shopping
substantially complies with the rules.[22] In the present case, there is no question that respondents share a common
interest and invoke a common cause of action. Hence, the signature of respondent Garcia is a sufficient compliance with
the rule governing certificates of non-forum shopping. In the first place, some of the respondents actually executed a
Special Power of Attorney authorizing Garcia as their attorney-in-fact in filing a petition for certiorari with the CA.[23]

The Court, likewise, does not agree with petitioners' argument that the CA should not have given due course to the petition
filed before it with respect to some of the respondents, considering that these respondents did not sign the verification
attached to the Memorandum of Partial Appeal earlier filed with the NLRC. Petitioners assert that the decision of the
Labor Arbiter has become final and executory with respect to these respondents and, as a consequence, they are barred
from filing a petition for certiorari with the CA.

With respect to the absence of some of the workers signatures in the verification, the verification requirement is deemed
substantially complied with when some of the parties who undoubtedly have sufficient knowledge and belief to swear to
the truth of the allegations in the petition had signed the same. Such verification is deemed a sufficient assurance that the
matters alleged in the petition have been made in good faith or are true and correct, and not merely speculative.
Moreover, respondents' Partial Appeal shows that the appeal stipulated as complainants-appellants Rizal Beato, et al.,
meaning that there were more than one appellant who were all workers of petitioners.

In any case, the settled rule is that a pleading which is required by the Rules of Court to be verified, may be given due
course even without a verification if the circumstances warrant the suspension of the rules in the interest of
justice.[24] Indeed, the absence of a verification is not jurisdictional, but only a formal defect, which does not of itself justify
a court in refusing to allow and act on a case.[25] Hence, the failure of some of the respondents to sign the verification
attached to their Memorandum of Appeal filed with the NLRC is not fatal to their cause of action.

Petitioners also contend that the CA erred in applying the doctrine of piercing the corporate veil with respect to Lubas,
because the said doctrine is applicable only to corporations and Lubas is not a corporation but a single proprietorship;
that Lubas had been found by the Labor Arbiter and the NLRC to have a personality which is separate and distinct from
that of PTI; that PTI had no hand in the management and operation as well as control and supervision of the employees
of Lubas.

The Court is not persuaded.

On the contrary, the Court agrees with the CA that Lubas is a mere agent, conduit or adjunct of PTI. 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.[26] 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.

Thus, the Court agrees with the observations of the CA, to wit:

As correctly pointed out by petitioners, if Lubas were truly a separate entity, how come that it was Prince Transport who
made the decision to transfer its employees to the former? Besides, Prince Transport never regarded Lubas Transport as
a separate entity. In the aforesaid letter, it referred to said entity as Lubas operations. Moreover, in said letter, it did not
transfer the employees; it assigned them. Lastly, the existing funds and 201 file of the employees were turned over not to
a new company but a new management.[27]

The Court also agrees with respondents that if Lubas is indeed an entity separate and independent from PTI why is it that
the latter decides which employees shall work in the former?

What is telling is the fact that in a memorandum issued by PTI, dated January 22, 1998, petitioner company admitted that
Lubas is one of its sub-companies.[28] In addition, PTI, in its letters to its employees who were transferred to Lubas, referred
to the latter as its New City Operations Bus.[29]
Moreover, petitioners failed to refute the contention of respondents that despite the latters transfer to Lubas of their
daily time records, reports, daily income remittances of conductors, schedule of drivers and conductors were all made,
performed, filed and kept at the office of PTI. In fact, respondents identification cards bear the name of PTI.

It may not be amiss to point out at this juncture that in two separate illegal dismissal cases involving different groups of
employees transferred by PTI to other companies, the Labor Arbiter handling the cases found that these companies and
PTI are one and the same entity; thus, making them solidarily liable for the payment of backwages and other money claims
awarded to the complainants therein.[30]

Petitioners likewise aver that the CA erred and committed grave abuse of discretion when it ordered petitioners to
reinstate respondents to their former positions, considering that the issue of reinstatement was never brought up before
it and respondents never questioned the award of separation pay to them.

The Court is not persuaded.

It is clear from the complaints filed by respondents that they are seeking reinstatement.[31]

In any case, Section 2 (c), Rule 7 of the Rules of Court provides that a pleading shall specify the relief sought, but may add
a general prayer for such further or other reliefs as may be deemed just and equitable. Under this rule, a court can grant
the relief warranted by the allegation and the proof even if it is not specifically sought by the injured party; the inclusion
of a general prayer may justify the grant of a remedy different from or together with the specific remedy sought, if the
facts alleged in the complaint and the evidence introduced so warrant.[32]

Moreover, in BPI Family Bank v. Buenaventura,[33] this Court ruled that the general prayer is broad enough to justify
extension of a remedy different from or together with the specific remedy sought. Even without the prayer for a specific
remedy, proper relief may be granted by the court if the facts alleged in the complaint and the evidence introduced so
warrant. The court shall grant relief warranted by the allegations and the proof even if no such relief is prayed for. The
prayer in the complaint for other reliefs equitable and just in the premises justifies the grant of a relief not otherwise
specifically prayed for.[34] In the instant case, aside from their specific prayer for reinstatement, respondents, in their
separate complaints, prayed for such reliefs which are deemed just and equitable.

As to whether petitioners are guilty of unfair labor practice, the Court finds no cogent reason to depart from the findings
of the CA that respondents transfer of work assignments to Lubas was designed by petitioners as a subterfuge to foil the
formers right to organize themselves into a union. Under Article 248 (a) and (e) of the Labor Code, an employer is guilty
of unfair labor practice if it interferes with, restrains or coerces its employees in the exercise of their right to self-
organization or if it discriminates in regard to wages, hours of work and other terms and conditions of employment in
order to encourage or discourage membership in any labor organization.

Indeed, evidence of petitioners' unfair labor practice is shown by the established fact that, after respondents' transfer to
Lubas, petitioners left them high and dry insofar as the operations of Lubas was concerned. The Court finds no error in the
findings and conclusion of the CA that petitioners withheld the necessary financial and logistic support such as spare parts,
and repair and maintenance of the transferred buses until only two units remained in running condition. This left
respondents virtually jobless.

WHEREFORE, the instant petition is DENIED. The assailed Decision and Resolution of the Court of Appeals,
dated December 20, 2004 and February 24, 2005, respectively, in CA-G.R. SP No. 80953, are AFFIRMED.
 MARC II MARKETING, INC. and LUCILA V. JOSON, G.R. No. 171993
Petitioners, Present:

CARPIO, J.,
Chairperson,
BRION,
- versus - PEREZ,
SERENO, and
REYES, JJ.

ALFREDO M. JOSON, Promulgated:

Respondent.
December 12, 2011

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

DECISION

PEREZ, J.:

In this Petition for Review on Certiorari under Rule 45 of the Rules of Court, herein petitioners Marc II Marketing, Inc. and
Lucila V. Joson assailed the Decision[1] dated 20 June 2005 of the Court of Appeals in CA-G.R. SP No. 76624 for reversing
and setting aside the Resolution[2] of the National Labor Relations Commission (NLRC) dated 15 October 2002, thereby
affirming the Labor Arbiters Decision[3] dated 1 October 2001 finding herein respondent Alfredo M. Josons dismissal from
employment as illegal. In the questioned Decision, the Court of Appeals upheld the Labor Arbiters jurisdiction over the
case on the basis that respondent was not an officer but a mere employee of petitioner Marc II Marketing, Inc., thus,
totally disregarding the latters allegation of intra-corporate controversy. Nonetheless, the Court of Appeals remanded the
case to the NLRC for further proceedings to determine the proper amount of monetary awards that should be given to
respondent.

Assailed as well is the Court of Appeals Resolution[4] dated 7 March 2006 denying their Motion for Reconsideration.

Petitioner Marc II Marketing, Inc. (petitioner corporation) is a corporation duly organized and existing under and by virtue
of the laws of the Philippines. It is primarily engaged in buying, marketing, selling and distributing in retail or wholesale
for export or import household appliances and products and other items.[5] It took over the business operations of Marc
Marketing, Inc. which was made non-operational following its incorporation and registration with the Securities and
Exchange Commission (SEC). Petitioner Lucila V. Joson (Lucila) is the President and majority stockholder of petitioner
corporation. She was also the former President and majority stockholder of the defunct Marc Marketing, Inc.

Respondent Alfredo M. Joson (Alfredo), on the other hand, was the General Manager, incorporator, director and
stockholder of petitioner corporation.

The controversy of this case arose from the following factual milieu:
Before petitioner corporation was officially incorporated,[6] respondent has already been engaged by petitioner Lucila, in
her capacity as President of Marc Marketing, Inc., to work as the General Manager of petitioner corporation. It was
formalized through the execution of a Management Contract[7] dated 16 January 1994 under the letterhead of Marc
Marketing, Inc.[8] as petitioner corporation is yet to be incorporated at the time of its execution. It was explicitly provided
therein that respondent shall be entitled to 30% of its net income for his work as General Manager. Respondent will also
be granted 30% of its net profit to compensate for the possible loss of opportunity to work overseas.[9]
Pending incorporation of petitioner corporation, respondent was designated as the General Manager of Marc Marketing,
Inc., which was then in the process of winding up its business. For occupying the said position, respondent was among its
corporate officers by the express provision of Section 1, Article IV[10] of its by-laws.[11]

On 15 August 1994, petitioner corporation was officially incorporated and registered with the SEC. Accordingly, Marc
Marketing, Inc. was made non-operational. Respondent continued to discharge his duties as General Manager but this
time under petitioner corporation.

Pursuant to Section 1, Article IV[12] of petitioner corporations by-laws,[13] its corporate officers are as follows: Chairman,
President, one or more Vice-President(s), Treasurer and Secretary. Its Board of Directors, however, may, from time to
time, appoint such other officers as it may determine to be necessary or proper.

Per an undated Secretarys Certificate,[14] petitioner corporations Board of Directors conducted a meeting on 29 August
1994 where respondent was appointed as one of its corporate officers with the designation or title of General Manager
to function as a managing director with other duties and responsibilities that the Board of Directors may provide and
authorized.[15]

Nevertheless, on 30 June 1997, petitioner corporation decided to stop and cease its operations, as evidenced by an
Affidavit of Non-Operation[16] dated 31 August 1998, due to poor sales collection aggravated by the inefficient
management of its affairs. On the same date, it formally informed respondent of the cessation of its business
operation.Concomitantly, respondent was apprised of the termination of his services as General Manager since his
services as such would no longer be necessary for the winding up of its affairs.[17]

Feeling aggrieved, respondent filed a Complaint for Reinstatement and Money Claim against petitioners before the Labor
Arbiter which was docketed as NLRC NCR Case No. 00-03-04102-99.

In his complaint, respondent averred that petitioner Lucila dismissed him from his employment with petitioner
corporation due to the feeling of hatred she harbored towards his family. The same was rooted in the filing by petitioner
Lucilas estranged husband, who happened to be respondents brother, of a Petition for Declaration of Nullity of their
Marriage.[18]

For the parties failure to settle the case amicably, the Labor Arbiter required them to submit their respective position
papers. Respondent complied but petitioners opted to file a Motion to Dismiss grounded on the Labor Arbiters lack of
jurisdiction as the case involved an intra-corporate controversy, which jurisdiction belongs to the SEC [now with the
Regional Trial Court (RTC)].[19] Petitioners similarly raised therein the ground of prescription of respondents monetary
claim.

On 5 September 2000, the Labor Arbiter issued an Order[20] deferring the resolution of petitioners Motion to Dismiss until
the final determination of the case. The Labor Arbiter also reiterated his directive for petitioners to submit position
paper. Still, petitioners did not comply. Insisting that the Labor Arbiter has no jurisdiction over the case, they instead filed
an Urgent Motion to Resolve the Motion to Dismiss and the Motion to Suspend Filing of Position Paper.

In an Order[21] dated 15 February 2001, the Labor Arbiter denied both motions and declared final the Order dated 5
September 2000. The Labor Arbiter then gave petitioners a period of five days from receipt thereof within which to file
position paper, otherwise, their Motion to Dismiss will be treated as their position paper and the case will be considered
submitted for decision.

Petitioners, through counsel, moved for extension of time to submit position paper. Despite the requested extension,
petitioners still failed to submit the same.Accordingly, the case was submitted for resolution.

On 1 October 2001, the Labor Arbiter rendered his Decision in favor of respondent. Its decretal portion reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered declaring [respondents] dismissal from employment
illegal. Accordingly, [petitioners] are hereby ordered:

1. To reinstate [respondent] to his former or equivalent position without loss of seniority rights, benefits, and privileges;
2. Jointly and severally liable to pay [respondents] unpaid wages in the amount of P450,000.00 per month from [26
March 1996] up to time of dismissal in the total amount of P6,300,000.00;
3. Jointly and severally liable to pay [respondents] full backwages in the amount of P450,000.00 per month from date
of dismissal until actual reinstatement which at the time of promulgation amounted to P21,600,000.00;
4. Jointly and severally liable to pay moral damages in the amount of P100,000.00 and attorneys fees in the amount of
5% of the total monetary award.[22] [Emphasis supplied.]
In the aforesaid Decision, the Labor Arbiter initially resolved petitioners Motion to Dismiss by finding the ground of lack
of jurisdiction to be without merit. The Labor Arbiter elucidated that petitioners failed to adduce evidence to prove that
the present case involved an intra-corporate controversy. Also, respondents money claim did not arise from his being a
director or stockholder of petitioner corporation but from his position as being its General Manager. The Labor Arbiter
likewise held that respondent was not a corporate officer under petitioner corporations by-laws. As such, respondents
complaint clearly arose from an employer-employee relationship, thus, subject to the Labor Arbiters jurisdiction.

The Labor Arbiter then declared respondents dismissal from employment as illegal. Respondent, being a regular employee
of petitioner corporation, may only be dismissed for a valid cause and upon proper compliance with the requirements of
due process. The records, though, revealed that petitioners failed to present any evidence to justify respondents dismissal.

Aggrieved, petitioners appealed the aforesaid Labor Arbiters Decision to the NLRC.

In its Resolution dated 15 October 2002, the NLRC ruled in favor of petitioners by giving credence to the Secretarys
Certificate, which evidenced petitioner corporations Board of Directors meeting in which a resolution was approved
appointing respondent as its corporate officer with designation as General Manager. Therefrom, the NLRC reversed and
set aside the Labor Arbiters Decision dated 1 October 2001 and dismissed respondents Complaint for want of
jurisdiction.[23]

The NLRC enunciated that the validity of respondents appointment and termination from the position of General Manager
was made subject to the approval of petitioner corporations Board of Directors. Had respondent been an ordinary
employee, such board action would not have been required. As such, it is clear that respondent was a corporate officer
whose dismissal involved a purely intra-corporate controversy. The NLRC went further by stating that respondents claim
for 30% of the net profit of the corporation can only emanate from his right of ownership therein as stockholder, director
and/or corporate officer. Dividends or profits are paid only to stockholders or directors of a corporation and not to any
ordinary employee in the absence of any profit sharing scheme. In addition, the question of remuneration of a person
who is not a mere employee but a stockholder and officer of a corporation is not a simple labor problem. Such matter
comes within the ambit of corporate affairs and management and is an intra-corporate controversy in contemplation of
the Corporation Code.[24]

When respondents Motion for Reconsideration was denied in another Resolution[25] dated 23 January 2003, he filed a
Petition for Certiorari with the Court of Appeals ascribing grave abuse of discretion on the part of the NLRC.

On 20 June 2005, the Court of Appeals rendered its now assailed Decision declaring that the Labor Arbiter has jurisdiction
over the present controversy. It upheld the finding of the Labor Arbiter that respondent was a mere employee of petitioner
corporation, who has been illegally dismissed from employment without valid cause and without due
process. Nevertheless, it ordered the records of the case remanded to the NLRC for the determination of the appropriate
amount of monetary awards to be given to respondent. The Court of Appeals, thus, decreed:

WHEREFORE, the petition is by us PARTIALLY GRANTED. The Labor Arbiter is DECLARED to have jurisdiction over the
controversy. The records are REMANDED to the NLRC for further proceedings to determine the appropriate amount of
monetary awards to be adjudged in favor of [respondent]. Costs against the [petitioners] in solidum.[26]
Petitioners moved for its reconsideration but to no avail.[27]

Petitioners are now before this Court with the following assignment of errors:

I.
THE COURT OF APPEALS ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION IN DECIDING THAT THE NLRC HAS THE
JURISDICTION IN RESOLVING A PURELY INTRA-CORPORATE MATTER WHICH IS COGNIZABLE BY THE SECURITIES AND
EXCHANGE COMMISSION/REGIONAL TRIAL COURT.

II.

ASSUMING, GRATIS ARGUENDO, THAT THE NLRC HAS JURISDICTION OVER THE CASE, STILL THE COURT OF APPEALS
SERIOUSLY ERRED IN NOT RULING THAT THERE IS NO EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN [RESPONDENT]
ALFREDO M. JOSON AND MARC II MARKETING, INC. [PETITIONER CORPORATION].

III.

ASSUMING GRATIS ARGUENDO THAT THE NLRC HAS JURISDICTION OVER THE CASE, THE COURT OF APPEALS ERRED
IN NOT RULING THAT THE LABOR ARBITER COMMITTED GRAVE ABUSE OF DISCRETION IN AWARDING MULTI-MILLION
PESOS IN COMPENSATION AND BACKWAGES BASED ON THE PURPORTED GROSS INCOME OF [PETITIONER
CORPORATION].

IV.

THE COURT OF APPEALS SERIOUSLY ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION IN NOT MAKING ANY
FINDINGS AND RULING THAT [PETITIONER LUCILA] SHOULD NOT BE HELD SOLIDARILY LIABLE IN THE ABSENCE OF
EVIDENCE OF MALICE AND BAD FAITH ON HER PART.[28]

Petitioners fault the Court of Appeals for having sustained the Labor Arbiters finding that respondent was not a corporate
officer under petitioner corporations by-laws.They insist that there is no need to amend the corporate by-laws to specify
who its corporate officers are. The resolution issued by petitioner corporations Board of Directors appointing respondent
as General Manager, coupled with his assumption of the said position, positively made him its corporate officer. More so,
respondents position, being a creation of petitioner corporations Board of Directors pursuant to its by-laws, is a corporate
office sanctioned by the Corporation Code and the doctrines previously laid down by this Court. Thus, respondents
removal as petitioner corporations General Manager involved a purely intra-corporate controversy over which the RTC
has jurisdiction.

Petitioners further contend that respondents claim for 30% of the net profit of petitioner corporation was anchored on
the purported Management Contract dated 16 January 1994. It should be noted, however, that said Management
Contract was executed at the time petitioner corporation was still nonexistent and had no juridical personality yet. Such
being the case, respondent cannot invoke any legal right therefrom as it has no legal and binding effect on petitioner
corporation. Moreover, it is clear from the Articles of Incorporation of petitioner corporation that respondent was its
director and stockholder. Indubitably, respondents claim for his share in the profit of petitioner corporation was based on
his capacity as such and not by virtue of any employer-employee relationship.

Petitioners further avow that even if the present case does not pose an intra-corporate controversy, still, the Labor
Arbiters multi-million peso awards in favor of respondent were erroneous. The same was merely based on the latters self-
serving computations without any supporting documents.
Finally, petitioners maintain that petitioner Lucila cannot be held solidarily liable with petitioner corporation. There was
neither allegation nor iota of evidence presented to show that she acted with malice and bad faith in her dealings with
respondent. Moreover, the Labor Arbiter, in his Decision, simply concluded that petitioner Lucila was jointly and severally
liable with petitioner corporation without making any findings thereon. It was, therefore, an error for the Court of Appeals
to hold petitioner Lucila solidarily liable with petitioner corporation.

From the foregoing arguments, the initial question is which between the Labor Arbiter or the RTC, has jurisdiction over
respondents dismissal as General Manager of petitioner corporation. Its resolution necessarily entails the determination
of whether respondent as General Manager of petitioner corporation is a corporate officer or a mere employee of the
latter.

While Article 217(a)2[29] of the Labor Code, as amended, provides that it is the Labor Arbiter who has the original and
exclusive jurisdiction over cases involving termination or dismissal of workers when the person dismissed or terminated
is a corporate officer, the case automatically falls within the province of the RTC. The dismissal of a corporate officer is
always regarded as a corporate act and/or an intra-corporate controversy.[30]
Under Section 5[31] of Presidential Decree No. 902-A, intra-corporate controversies are those controversies arising out of
intra-corporate or partnership relations, between and among stockholders, members or associates; between any or all of
them and the corporation, partnership or association of which they are stockholders, members or associates, respectively;
and between such corporation, partnership or association and the State insofar as it concerns their individual franchise or
right to exist as such entity. It also includes controversies in the election or appointments of directors, trustees, officers
or managers of such corporations, partnerships or associations.[32]

Accordingly, in determining whether the SEC (now the RTC) has jurisdiction over the controversy, the status or relationship
of the parties and the nature of the question that is the subject of their controversy must be taken into consideration.[33]

In Easycall Communications Phils., Inc. v. King, this Court held that in the context of Presidential Decree No. 902-
A, corporate officers are those officers of a corporation who are given that character either by the Corporation Code or
by the corporations by-laws. Section 25[34] of the Corporation Code specifically enumerated who are these corporate
officers, to wit: (1) president; (2) secretary; (3) treasurer; and (4) such other officers as may be provided for in the by-
laws.[35]

The aforesaid Section 25 of the Corporation Code, particularly the phrase such other officers as may be provided for in
the by-laws, has been clarified and elaborated in this Courts recent pronouncement in Matling Industrial and Commercial
Corporation v. Coros, where it held, thus:

Conformably with Section 25, a position must be expressly mentioned in the [b]y-[l]aws in order to be considered as a
corporate office. Thus, the creation of an office pursuant to or under a [b]y-[l]aw enabling provision is not enough to
make a position a corporate office. [In] Guerrea v. Lezama [citation omitted] the first ruling on the matter, held that the
only officers of a corporation were those given that character either by the Corporation Code or by the [b]y-[l]aws; the
rest of the corporate officers could be considered only as employees or subordinate officials. Thus, it was held in Easycall
Communications Phils., Inc. v. King [citation omitted]:

An "office" is created by the charter of the corporation and the officer is elected by the directors or stockholders. On the
other hand, an employee occupies no office and generally is employed not by the action of the directors or stockholders
but by the managing officer of the corporation who also determines the compensation to be paid to such employee.

xxxx

This interpretation is the correct application of Section 25 of the Corporation Code, which plainly states that the
corporate officers are the President, Secretary, Treasurer and such other officers as may be provided for in the [b]y-
[l]aws. Accordingly, the corporate officers in the context of PD No. 902-A are exclusively those who are given that
character either by the Corporation Code or by the corporations [b]y[l]aws.
A different interpretation can easily leave the way open for the Board of Directors to circumvent the constitutionally
guaranteed security of tenure of the employee by the expedient inclusion in the [b]y-[l]aws of an enabling clause on
the creation of just any corporate officer position.

It is relevant to state in this connection that the SEC, the primary agency administering the Corporation Code, adopted
a similar interpretation of Section 25 of the Corporation Code in its Opinion dated November 25, 1993 [citation omitted],
to wit:

Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are the corporate officers
enumerated in the by-laws are the exclusive Officers of the corporation and the Board has no power to create other
Offices without amending first the corporate [b]y-laws. However, the Board may create appointive positions other than
the positions of corporate Officers, but the persons occupying such positions are not considered as corporate officers
within the meaning of Section 25 of the Corporation Code and are not empowered to exercise the functions of the
corporate Officers, except those functions lawfully delegated to them. Their functions and duties are to be determined by
the Board of Directors/Trustees.[36] [Emphasis supplied.]

A careful perusal of petitioner corporations by-laws, particularly paragraph 1, Section 1, Article IV,[37] would explicitly
reveal that its corporate officers are composed only of: (1) Chairman; (2) President; (3) one or more Vice-President; (4)
Treasurer; and (5) Secretary.[38] The position of General Manager was not among those enumerated.

Paragraph 2, Section 1, Article IV of petitioner corporations by-laws, empowered its Board of Directors to appoint such
other officers as it may determine necessary or proper.[39] It is by virtue of this enabling provision that petitioner
corporations Board of Directors allegedly approved a resolution to make the position of General Manager a corporate
office, and, thereafter, appointed respondent thereto making him one of its corporate officers. All of these acts were done
without first amending its by-laws so as to include the General Manager in its roster of corporate officers.

With the given circumstances and in conformity with Matling Industrial and Commercial Corporation v. Coros, this Court
rules that respondent was not a corporate officer of petitioner corporation because his position as General Manager was
not specifically mentioned in the roster of corporate officers in its corporate by-laws. The enabling clause in petitioner
corporations by-laws empowering its Board of Directors to create additional officers, i.e., General Manager, and the
alleged subsequent passage of a board resolution to that effect cannot make such position a corporate
office. Matling clearly enunciated that the board of directors has no power to create other corporate offices without first
amending the corporate by-laws so as to include therein the newly created corporate office. Though the board of directors
may create appointive positions other than the positions of corporate officers, the persons occupying such positions
cannot be viewed as corporate officers under Section 25 of the Corporation Code.[40] In view thereof, this Court holds
that unless and until petitioner corporations by-laws is amended for the inclusion of General Manager in the list of its
corporate officers, such position cannot be considered as a corporate office within the realm of Section 25 of the
Corporation Code.

This Court considers that the interpretation of Section 25 of the Corporation Code laid down in Matling safeguards the
constitutionally enshrined right of every employee to security of tenure. To allow the creation of a corporate officer
position by a simple inclusion in the corporate by-laws of an enabling clause empowering the board of directors to do so
can result in the circumvention of that constitutionally well-protected right.[41]

It is also of no moment that respondent, being petitioner corporations General Manager, was given the functions of a
managing director by its Board of Directors. As held in Matling, the only officers of a corporation are those given that
character either by the Corporation Code or by the corporate by-laws. It follows then that the corporate officers
enumerated in the by-laws are the exclusive officers of the corporation while the rest could only be regarded as mere
employees or subordinate officials.[42] Respondent, in this case, though occupying a high ranking and vital position in
petitioner corporation but which position was not specifically enumerated or mentioned in the latters by-laws, can only
be regarded as its employee or subordinate official. Noticeably, respondents compensation as petitioner corporations
General Manager was set, fixed and determined not by the latters Board of Directors but simply by its President, petitioner
Lucila. The same was not subject to the approval of petitioner corporations Board of Directors. This is an indication that
respondent was an employee and not a corporate officer.

To prove that respondent was petitioner corporations corporate officer, petitioners presented before the NLRC an
undated Secretarys Certificate showing that corporations Board of Directors approved a resolution making respondents
position of General Manager a corporate office. The submission, however, of the said undated Secretarys Certificate will
not change the fact that respondent was an employee. The certification does not amount to an amendment of the by-
laws which is needed to make the position of General Manager a corporate office.

Moreover, as has been aptly observed by the Court of Appeals, the board resolution mentioned in that undated Secretarys
Certificate and the latter itself were obvious fabrications, a mere afterthought. Here we quote with conformity the Court
of Appeals findings on this matter stated in this wise:

The board resolution is an obvious fabrication. Firstly, if it had been in existence since [29 August 1994], why did not
[herein petitioners] attach it to their [M]otion to [D]ismiss filed on [26 August 1999], when it could have been the best
evidence that [herein respondent] was a corporate officer? Secondly, why did they report the [respondent] instead as
[herein petitioner corporations] employee to the Social Security System [(SSS)] on [11 October 1994] or a later date than
their [29 August 1994] board resolution? Thirdly, why is there no indication that the [respondent], the person concerned
himself, and the [SEC] were furnished with copies of said board resolution? And, lastly, why is the corporate [S]ecretarys
[C]ertificate not notarized in keeping with the customary procedure? That is why we called it manipulative evidence as it
was a shameless sham meant to be thrown in as a wild card to muddle up the [D]ecision of the Labor Arbiter to the end
that it be overturned as the latter had firmly pointed out that [respondent] is not a corporate officer under [petitioner
corporations by-laws]. Regrettably, the [NLRC] swallowed the bait hook-line-and sinker. It failed to see through its nature
as a belatedly manufactured evidence. And even on the assumption that it were an authentic board resolution, it did
not make [respondent] a corporate officer as the board did not first and properly create the position of a [G]eneral
[M]anager by amending its by-laws.

(2) The scope of the term officer in the phrase and such other officers as may be provided for in the by-laws[] (Sec. 25,
par. 1), would naturally depend much on the provisions of the by-laws of the corporation. (SEC Opinion, [4 December
1991.]) If the by-laws enumerate the officers to be elected by the board, the provision is conclusive, and the board is
without power to create new offices without amending the by-laws. (SEC Opinion, [19 October 1971.])

(3) If, for example, the general manager of a corporation is not listed as an officer, he is to be classified as an employee
although he has always been considered as one of the principal officers of a corporation [citing De Leon, H. S., The
Corporation Code of the Philippines Annotated, 1993 Ed., p. 215.][43] [Emphasis supplied.]

That respondent was also a director and a stockholder of petitioner corporation will not automatically make the case fall
within the ambit of intra-corporate controversy and be subjected to RTCs jurisdiction. To reiterate, not all conflicts
between the stockholders and the corporation are classified as intra-corporate. Other factors such as the status or
relationship of the parties and the nature of the question that is the subject of the controversy [44] must be considered in
determining whether the dispute involves corporate matters so as to regard them as intra-corporate controversies.[45] As
previously discussed, respondent was not a corporate officer of petitioner corporation but a mere employee thereof so
there was no intra-corporate relationship between them. With regard to the subject of the controversy or issue involved
herein, i.e., respondents dismissal as petitioner corporations General Manager, the same did not present or relate to an
intra-corporate dispute. To note, there was no evidence submitted to show that respondents removal as petitioner
corporations General Manager carried with it his removal as its director and stockholder. Also, petitioners allegation that
respondents claim of 30% share of petitioner corporations net profit was by reason of his being its director and stockholder
was without basis, thus, self-serving. Such an allegation was tantamount to a mere speculation for petitioners failure to
substantiate the same.

In addition, it was not shown by petitioners that the position of General Manager was offered to respondent on account
of his being petitioner corporations director and stockholder. Also, in contrast to NLRCs findings, neither petitioner
corporations by-laws nor the Management Contract stated that respondents appointment and termination from the
position of General Manager was subject to the approval of petitioner corporations Board of Directors. If, indeed,
respondent was a corporate officer whose termination was subject to the approval of its Board of Directors, why is it that
his termination was effected only by petitioner Lucila, President of petitioner corporation? The records are bereft of any
evidence to show that respondents dismissal was done with the conformity of petitioner corporations Board of Directors
or that the latter had a hand on respondents dismissal. No board resolution whatsoever was ever presented to that effect.

With all the foregoing, this Court is fully convinced that, indeed, respondent, though occupying the General Manager
position, was not a corporate officer of petitioner corporation rather he was merely its employee occupying a high-ranking
position.

Accordingly, respondents dismissal as petitioner corporations General Manager did not amount to an intra-corporate
controversy. Jurisdiction therefor properly belongs with the Labor Arbiter and not with the RTC.

Having established that respondent was not petitioner corporations corporate officer but merely its employee, and that,
consequently, jurisdiction belongs to the Labor Arbiter, this Court will now determine if respondents dismissal from
employment is illegal.

It was not disputed that respondent worked as petitioner corporations General Manager from its incorporation on 15
August 1994 until he was dismissed on 30 June 1997.The cause of his dismissal was petitioner corporations cessation of
business operations due to poor sales collection aggravated by the inefficient management of its affairs.

In termination cases, the burden of proving just and valid cause for dismissing an employee from his employment rests
upon the employer. The latter's failure to discharge that burden would necessarily result in a finding that the dismissal is
unjustified.[46]

Under Article 283 of the Labor Code, as amended, one of the authorized causes in terminating the employment of an
employee is the closing or cessation of operation of the establishment or undertaking. Article 283 of the Labor Code, as
amended, reads, thus:

ART. 283. Closure of establishment and reduction of personnel. The employer may also terminate the employment of
any employee due to the installation of labor saving-devices, redundancy, retrenchment to prevent losses or the closing
or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the
provisions of this Title, by serving a written notice on the workers and the Department of Labor and Employment at least
one (1) month before the intended date thereof. x x x In case of retrenchment to prevent losses and in cases of closures
or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the
separation pay shall be equivalent to one (1) month pay or to at least one-half (1/2) month pay for every year of service,
whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year. [Emphasis supplied.]

From the afore-quoted provision, the closure or cessation of operations of establishment or undertaking may either be
due to serious business losses or financial reverses or otherwise. If the closure or cessation was due to serious business
losses or financial reverses, it is incumbent upon the employer to sufficiently and convincingly prove the same. If it is
otherwise, the employer can lawfully close shop anytime as long as it was bona fide in character and not impelled by a
motive to defeat or circumvent the tenurial rights of employees and as long as the terminated employees were paid in
the amount corresponding to their length of service.[47]

Accordingly, under Article 283 of the Labor Code, as amended, there are three requisites for a valid cessation of business
operations: (a) service of a written notice to the employees and to the Department of Labor and Employment (DOLE) at
least one month before the intended date thereof; (b) the cessation of business must be bona fide in character; and
(c) payment to the employees of termination pay amounting to one month pay or at least one-half month pay for every
year of service, whichever is higher.
In this case, it is obvious that petitioner corporations cessation of business operations was not due to serious business
losses. Mere poor sales collection, coupled with mismanagement of its affairs does not amount to serious business
losses. Nonetheless, petitioner corporation can still validly cease or close its business operations because such right is
legally allowed, so long as it was not done for the purpose of circumventing the provisions on termination of employment
embodied in the Labor Code.[48] As has been stressed by this Court in Industrial Timber Corporation v. Ababon, thus:
Just as no law forces anyone to go into business, no law can compel anybody to continue the same. It would be stretching
the intent and spirit of the law if a court interferes with management's prerogative to close or cease its business operations
just because the business is not suffering from any loss or because of the desire to provide the workers continued
employment.[49]

A careful perusal of the records revealed that, indeed, petitioner corporation has stopped and ceased business operations
beginning 30 June 1997. This was evidenced by a notarized Affidavit of Non-Operation dated 31 August 1998. There was
also no showing that the cessation of its business operations was done in bad faith or to circumvent the Labor
Code. Nevertheless, in doing so, petitioner corporation failed to comply with the one-month prior written notice rule. The
records disclosed that respondent, being petitioner corporations employee, and the DOLE were not given a written notice
at least one month before petitioner corporation ceased its business operations. Moreover, the records clearly show that
respondents dismissal was effected on the same date that petitioner corporation decided to stop and cease its
operation. Similarly, respondent was not paid separation pay upon termination of his employment.

As respondents dismissal was not due to serious business losses, respondent is entitled to payment of separation pay
equivalent to one month pay or at least one-half month pay for every year of service, whichever is higher. The rationale
for this was laid down in Reahs Corporation v. National Labor Relations Commission,[50] thus:

The grant of separation pay, as an incidence of termination of employment under Article 283, is a statutory obligation
on the part of the employer and a demandable right on the part of the employee, except only where the closure or
cessation of operations was due to serious business losses or financial reverses and there is sufficient proof of this fact or
condition.In the absence of such proof of serious business losses or financial reverses, the employer closing his business
is obligated to pay his employees and workers their separation pay.

The rule, therefore, is that in all cases of business closure or cessation of operation or undertaking of the employer, the
affected employee is entitled to separation pay. This is consistent with the state policy of treating labor as a primary
social economic force, affording full protection to its rights as well as its welfare. The exception is when the closure of
business or cessation of operations is due to serious business losses or financial reverses duly proved, in which case, the
right of affected employees to separation pay is lost for obvious reasons.[51] [Emphasis supplied.]

As previously discussed, respondents dismissal was due to an authorized cause, however, petitioner corporation failed to
observe procedural due process in effecting such dismissal. In Culili v. Eastern Telecommunications Philippines, Inc.,[52] this
Court made the following pronouncements, thus:

x x x there are two aspects which characterize the concept of due process under the Labor Code: one
is substantive whether the termination of employment was based on the provision of the Labor Code or in accordance
with the prevailing jurisprudence; the other is procedural the manner in which the dismissal was effected.

Section 2(d), Rule I, Book VI of the Rules Implementing the Labor Code provides:

(d) In all cases of termination of employment, the following standards of due process shall be substantially observed:

xxxx

For termination of employment as defined in Article 283 of the Labor Code, the requirement of due process shall be
deemed complied with upon service of a written notice to the employee and the appropriate Regional Office of the
Department of Labor and Employment at least thirty days before effectivity of the termination, specifying the ground
or grounds for termination.
In Mayon Hotel & Restaurant v. Adana, [citation omitted] we observed:

The requirement of law mandating the giving of notices was intended not only to enable the employees to look for another
employment and therefore ease the impact of the loss of their jobs and the corresponding income, but more importantly,
to give the Department of Labor and Employment (DOLE) the opportunity to ascertain the verity of the alleged authorized
cause of termination.[53] [Emphasis supplied].

The records of this case disclosed that there was absolutely no written notice given by petitioner corporation to the
respondent and to the DOLE prior to the cessation of its business operations. This is evident from the fact that petitioner
corporation effected respondents dismissal on the same date that it decided to stop and cease its business operations. The
necessary consequence of such failure to comply with the one-month prior written notice rule, which constitutes a
violation of an employees right to statutory due process, is the payment of indemnity in the form of nominal
damages.[54] In Culili v. Eastern Telecommunications Philippines, Inc., this Court further held:
In Serrano v. National Labor Relations Commission [citation omitted], we noted that a job is more than the salary that it
carries. There is a psychological effect or a stigma in immediately finding ones self laid off from work. This is exactly why
our labor laws have provided for mandating procedural due process clauses. Our laws, while recognizing the right of
employers to terminate employees it cannot sustain, also recognize the employees right to be properly informed of the
impending severance of his ties with the company he is working for. x x x.

x x x Over the years, this Court has had the opportunity to reexamine the sanctions imposed upon employers who fail to
comply with the procedural due process requirements in terminating its employees. In Agabon v. National Labor Relations
Commission [citation omitted], this Court reverted back to the doctrine in Wenphil Corporation v. National Labor Relations
Commission[citation omitted] and held that where the dismissal is due to a just or authorized cause, but without
observance of the due process requirements, the dismissal may be upheld but the employer must pay an indemnity to
the employee. The sanctions to be imposed however, must be stiffer than those imposed in Wenphil to achieve a result
fair to both the employers and the employees.

In Jaka Food Processing Corporation v. Pacot [citation omitted], this Court, taking a cue from Agabon, held that since there
is a clear-cut distinction between a dismissal due to a just cause and a dismissal due to an authorized cause, the legal
implications for employers who fail to comply with the notice requirements must also be treated differently:

Accordingly, it is wise to hold that: (1) if the dismissal is based on a just cause under Article 282 but the employer failed to
comply with the notice requirement, the sanction to be imposed upon him should be tempered because the dismissal
process was, in effect, initiated by an act imputable to the employee; and (2) if the dismissal is based on an authorized
cause under Article 283 but the employer failed to comply with the notice requirement, the sanction should be stiffer
because the dismissal process was initiated by the employer's exercise of his management prerogative.[55] [Emphasis
supplied.]

Thus, in addition to separation pay, respondent is also entitled to an award of nominal damages. In conformity with this
Courts ruling in Culili v. Eastern Telecommunications Philippines, Inc. and Shimizu Phils. Contractors, Inc. v. Callanta, both
citing Jaka Food Processing Corporation v. Pacot,[56] this Court fixed the amount of nominal damages to P50,000.00.

With respect to petitioners contention that the Management Contract executed between respondent and petitioner Lucila
has no binding effect on petitioner corporation for having been executed way before its incorporation, this Court finds
the same meritorious.

Section 19 of the Corporation Code expressly provides:

Sec. 19. Commencement of corporate existence. - A private corporation formed or organized under this Code commences
to have corporate existence and juridical personality and is deemed incorporated from the date the Securities and
Exchange Commission issues a certificate of incorporation under its official seal; and thereupon the incorporators,
stockholders/members and their successors shall constitute a body politic and corporate under the name stated in the
articles of incorporation for the period of time mentioned therein, unless said period is extended or the corporation is
sooner dissolved in accordance with law. [Emphasis supplied.]

Logically, there is no corporation to speak of prior to an entitys incorporation. And no contract entered into before
incorporation can bind the corporation.

As can be gleaned from the records, the Management Contract dated 16 January 1994 was executed between respondent
and petitioner Lucila months before petitioner corporations incorporation on 15 August 1994. Similarly, it was done when
petitioner Lucila was still the President of Marc Marketing, Inc. Undeniably, it cannot have any binding and legal effect on
petitioner corporation. Also, there was no evidence presented to prove that petitioner corporation adopted, ratified or
confirmed the Management Contract. It is for the same reason that petitioner corporation cannot be considered estopped
from questioning its binding effect now that respondent was invoking the same against it. In no way, then, can it be
enforced against petitioner corporation, much less, its provisions fixing respondents compensation as General Manager
to 30% of petitioner corporations net profit. Consequently, such percentage cannot be the basis for the computation of
respondents separation pay. This finding, however, will not affect the undisputed fact that respondent was, indeed, the
General Manager of petitioner corporation from its incorporation up to the time of his dismissal.
Accordingly, this Court finds it necessary to still remand the present case to the Labor Arbiter to conduct further
proceedings for the sole purpose of determining the compensation that respondent was actually receiving during the
period that he was the General Manager of petitioner corporation, this, for the proper computation of his separation pay.
As regards petitioner Lucilas solidary liability, this Court affirms the same.

As a rule, corporation has a personality separate and distinct from its officers, stockholders and members such
that corporate officers are not personally liable for their official acts unless it is shown that they have exceeded their
authority. However, this corporate veil can be pierced when the notion of the legal entity is used as a means to perpetrate
fraud, an illegal act, as a vehicle for the evasion of an existing obligation, and to confuse legitimate issues. Under the Labor
Code, for instance, when a corporation violates a provision declared to be penal in nature, the penalty shall be imposed
upon the guilty officer or officers of the corporation.[57]

Based on the prevailing circumstances in this case, petitioner Lucila, being the President of petitioner corporation, acted
in bad faith and with malice in effecting respondents dismissal from employment. Although petitioner corporation has a
valid cause for dismissing respondent due to cessation of business operations, however, the latters dismissal therefrom
was done abruptly by its President, petitioner Lucila. Respondent was not given the required one-month prior written
notice that petitioner corporation will already cease its business operations. As can be gleaned from the records,
respondent was dismissed outright by petitioner Lucila on the same day that petitioner corporation decided to stop and
cease its business operations. Worse, respondent was not given separation pay considering that petitioner corporations
cessation of business was not due to business losses or financial reverses.
WHEREFORE, premises considered, the Decision and Resolution dated 20 June 2005 and 7 March 2006, respectively, of
the Court of Appeals in CA-G.R. SP No. 76624 are hereby AFFIRMED with the MODIFICATION finding respondents
dismissal from employment legal but without proper observance of due process. Accordingly, petitioner corporation,
jointly and solidarily liable with petitioner Lucila, is hereby ordered to pay respondent the following; (1) separation pay
equivalent to one month pay or at least one-half month pay for every year of service, whichever is higher, to be computed
from the commencement of employment until termination; and (2) nominal damages in the amount of P50,000.00.

This Court, however, finds it proper to still remand the records to the Labor Arbiter to conduct further proceedings for the
sole purpose of determining the compensation that respondent was actually receiving during the period that he was the
General Manager of petitioner corporation for the proper computation of his separation pay.
G.R. No. 171101 July 5, 2011
HACIENDA LUISITA, INCORPORATED, Petitioner,
LUISITA INDUSTRIAL PARK CORPORATION and RIZAL COMMERCIAL BANKING CORPORATION,Petitioners-in-
Intervention,
vs.
PRESIDENTIAL AGRARIAN REFORM COUNCIL; SECRETARY NASSER PANGANDAMAN OF THE DEPARTMENT OF
AGRARIAN REFORM; ALYANSA NG MGA MANGGAGAWANG BUKID NG HACIENDA LUISITA, RENE GALANG, NOEL
MALLARI, and JULIO SUNIGA1 and his SUPERVISORY GROUP OF THE HACIENDA LUISITA, INC. and WINDSOR
ANDAYA, Respondents.
DECISION
VELASCO, JR., J.:
"Land for the landless," a shibboleth the landed gentry doubtless has received with much misgiving, if not resistance, even
if only the number of agrarian suits filed serves to be the norm. Through the years, this battle cry and root of discord
continues to reflect the seemingly ceaseless discourse on, and great disparity in, the distribution of land among the people,
"dramatizing the increasingly urgent demand of the dispossessed x x x for a plot of earth as their place in the sun." 2 As
administrations and political alignments change, policies advanced, and agrarian reform laws enacted, the latest being
what is considered a comprehensive piece, the face of land reform varies and is masked in myriads of ways. The stated
goal, however, remains the same: clear the way for the true freedom of the farmer.3
Land reform, or the broader term "agrarian reform," has been a government policy even before the Commonwealth era.
In fact, at the onset of the American regime, initial steps toward land reform were already taken to address social
unrest.4 Then, under the 1935 Constitution, specific provisions on social justice and expropriation of landed estates for
distribution to tenants as a solution to land ownership and tenancy issues were incorporated.
In 1955, the Land Reform Act (Republic Act No. [RA] 1400) was passed, setting in motion the expropriation of all tenanted
estates.5
On August 8, 1963, the Agricultural Land Reform Code (RA 3844) was enacted,6 abolishing share tenancy and converting
all instances of share tenancy into leasehold tenancy.7 RA 3844 created the Land Bank of the Philippines (LBP) to provide
support in all phases of agrarian reform.
As its major thrust, RA 3844 aimed to create a system of owner-cultivatorship in rice and corn, supposedly to be
accomplished by expropriating lands in excess of 75 hectares for their eventual resale to tenants. The law, however, had
this restricting feature: its operations were confined mainly to areas in Central Luzon, and its implementation at any level
of intensity limited to the pilot project in Nueva Ecija.8
Subsequently, Congress passed the Code of Agrarian Reform (RA 6389) declaring the entire country a land reform area,
and providing for the automatic conversion of tenancy to leasehold tenancy in all areas. From 75 hectares, the retention
limit was cut down to seven hectares.9
Barely a month after declaring martial law in September 1972, then President Ferdinand Marcos issued Presidential
Decree No. 27 (PD 27) for the "emancipation of the tiller from the bondage of the soil." 10 Based on this issuance, tenant-
farmers, depending on the size of the landholding worked on, can either purchase the land they tilled or shift from share
to fixed-rent leasehold tenancy.11 While touted as "revolutionary," the scope of the agrarian reform program PD 27
enunciated covered only tenanted, privately-owned rice and corn lands.12
Then came the revolutionary government of then President Corazon C. Aquino and the drafting and eventual ratification
of the 1987 Constitution. Its provisions foreshadowed the establishment of a legal framework for the formulation of an
expansive approach to land reform, affecting all agricultural lands and covering both tenant-farmers and regular
farmworkers.13
So it was that Proclamation No. 131, Series of 1987, was issued instituting a comprehensive agrarian reform program
(CARP) to cover all agricultural lands, regardless of tenurial arrangement and commodity produced, as provided in the
Constitution.
On July 22, 1987, Executive Order No. 229 (EO 229) was issued providing, as its title14 indicates, the mechanisms for CARP
implementation. It created the Presidential Agrarian Reform Council (PARC) as the highest policy-making body that
formulates all policies, rules, and regulations necessary for the implementation of CARP.
On June 15, 1988, RA 6657 or the Comprehensive Agrarian Reform Law of 1988, also known as CARL or the CARP Law,
took effect, ushering in a new process of land classification, acquisition, and distribution. As to be expected, RA 6657 met
stiff opposition, its validity or some of its provisions challenged at every possible turn. Association of Small Landowners in
the Philippines, Inc. v. Secretary of Agrarian Reform 15 stated the observation that the assault was inevitable, the CARP
being an untried and untested project, "an experiment [even], as all life is an experiment," the Court said, borrowing from
Justice Holmes.
The Case
In this Petition for Certiorari and Prohibition under Rule 65 with prayer for preliminary injunctive relief, petitioner
Hacienda Luisita, Inc. (HLI) assails and seeks to set aside PARC Resolution No. 2005-32-0116 and Resolution No. 2006-34-
0117 issued on December 22, 2005 and May 3, 2006, respectively, as well as the implementing Notice of Coverage dated
January 2, 2006 (Notice of Coverage).18
The Facts
At the core of the case is Hacienda Luisita de Tarlac (Hacienda Luisita), once a 6,443-hectare mixed agricultural-industrial-
residential expanse straddling several municipalities of Tarlac and owned by Compañia General de Tabacos de Filipinas
(Tabacalera). In 1957, the Spanish owners of Tabacalera offered to sell Hacienda Luisita as well as their controlling interest
in the sugar mill within the hacienda, the Central Azucarera de Tarlac (CAT), as an indivisible transaction. The Tarlac
Development Corporation (Tadeco), then owned and/or controlled by the Jose Cojuangco, Sr. Group, was willing to buy.
As agreed upon, Tadeco undertook to pay the purchase price for Hacienda Luisita in pesos, while that for the controlling
interest in CAT, in US dollars.19
To facilitate the adverted sale-and-purchase package, the Philippine government, through the then Central Bank of the
Philippines, assisted the buyer to obtain a dollar loan from a US bank.20 Also, the Government Service Insurance System
(GSIS) Board of Trustees extended on November 27, 1957 a PhP 5.911 million loan in favor of Tadeco to pay the peso price
component of the sale. One of the conditions contained in the approving GSIS Resolution No. 3203, as later amended by
Resolution No. 356, Series of 1958, reads as follows:
That the lots comprising the Hacienda Luisita shall be subdivided by the applicant-corporation and sold at cost to the
tenants, should there be any, and whenever conditions should exist warranting such action under the provisions of the
Land Tenure Act;21
As of March 31, 1958, Tadeco had fully paid the purchase price for the acquisition of Hacienda Luisita and Tabacalera’s
interest in CAT.22
The details of the events that happened next involving the hacienda and the political color some of the parties embossed
are of minimal significance to this narration and need no belaboring. Suffice it to state that on May 7, 1980, the martial
law administration filed a suit before the Manila Regional Trial Court (RTC) against Tadeco, et al., for them to surrender
Hacienda Luisita to the then Ministry of Agrarian Reform (MAR, now the Department of Agrarian Reform [DAR]) so that
the land can be distributed to farmers at cost. Responding, Tadeco or its owners alleged that Hacienda Luisita does not
have tenants, besides which sugar lands––of which the hacienda consisted––are not covered by existing agrarian reform
legislations. As perceived then, the government commenced the case against Tadeco as a political message to the family
of the late Benigno Aquino, Jr.23
Eventually, the Manila RTC rendered judgment ordering Tadeco to surrender Hacienda Luisita to the MAR. Therefrom,
Tadeco appealed to the Court of Appeals (CA).
On March 17, 1988, the Office of the Solicitor General (OSG) moved to withdraw the government’s case against Tadeco,
et al. By Resolution of May 18, 1988, the CA dismissed the case the Marcos government initially instituted and won against
Tadeco, et al. The dismissal action was, however, made subject to the obtention by Tadeco of the PARC’s approval of a
stock distribution plan (SDP) that must initially be implemented after such approval shall have been secured. 24 The
appellate court wrote:
The defendants-appellants x x x filed a motion on April 13, 1988 joining the x x x governmental agencies concerned in
moving for the dismissal of the case subject, however, to the following conditions embodied in the letter dated April 8,
1988 (Annex 2) of the Secretary of the [DAR] quoted, as follows:
1. Should TADECO fail to obtain approval of the stock distribution plan for failure to comply with all the requirements for
corporate landowners set forth in the guidelines issued by the [PARC]: or
2. If such stock distribution plan is approved by PARC, but TADECO fails to initially implement it.
xxxx
WHEREFORE, the present case on appeal is hereby dismissed without prejudice, and should be revived if any of the
conditions as above set forth is not duly complied with by the TADECO.25
Markedly, Section 10 of EO 22926 allows corporate landowners, as an alternative to the actual land transfer scheme of
CARP, to give qualified beneficiaries the right to purchase shares of stocks of the corporation under a stock ownership
arrangement and/or land-to-share ratio.
Like EO 229, RA 6657, under the latter’s Sec. 31, also provides two (2) alternative modalities, i.e., land or stock transfer,
pursuant to either of which the corporate landowner can comply with CARP, but subject to well-defined conditions and
timeline requirements. Sec. 31 of RA 6657 provides:
SEC. 31. Corporate Landowners.¾Corporate landowners may voluntarily transfer ownership over their agricultural
landholdings to the Republic of the Philippines pursuant to Section 20 hereof or to qualified beneficiaries x x x.
Upon certification by the DAR, corporations owning agricultural lands may give their qualified beneficiaries the right to
purchase such proportion of the capital stock of the corporation that the agricultural land, actually devoted to
agricultural activities, bears in relation to the company’s total assets, under such terms and conditions as may be agreed
upon by them. In no case shall the compensation received by the workers at the time the shares of stocks are distributed
be reduced. x x x
Corporations or associations which voluntarily divest a proportion of their capital stock, equity or participation in favor of
their workers or other qualified beneficiaries under this section shall be deemed to have complied with the provisions of
this Act: Provided, That the following conditions are complied with:
(a) In order to safeguard the right of beneficiaries who own shares of stocks to dividends and other financial benefits, the
books of the corporation or association shall be subject to periodic audit by certified public accountants chosen by the
beneficiaries;
(b) Irrespective of the value of their equity in the corporation or association, the beneficiaries shall be assured of at least
one (1) representative in the board of directors, or in a management or executive committee, if one exists, of the
corporation or association;
(c) Any shares acquired by such workers and beneficiaries shall have the same rights and features as all other shares; and
(d) Any transfer of shares of stocks by the original beneficiaries shall be void ab initio unless said transaction is in favor of
a qualified and registered beneficiary within the same corporation.
If within two (2) years from the approval of this Act, the [voluntary] land or stock transfer envisioned above is not made
or realized or the plan for such stock distribution approved by the PARC within the same period, the agricultural land of
the corporate owners or corporation shall be subject to the compulsory coverage of this Act. (Emphasis added.)
Vis-à-vis the stock distribution aspect of the aforequoted Sec. 31, DAR issued Administrative Order No. 10, Series of 1988
(DAO 10),27 entitled Guidelines and Procedures for Corporate Landowners Desiring to Avail Themselves of the Stock
Distribution Plan under Section 31 of RA 6657.
From the start, the stock distribution scheme appeared to be Tadeco’s preferred option, for, on August 23, 1988, 28 it
organized a spin-off corporation, HLI, as vehicle to facilitate stock acquisition by the farmworkers. For this purpose, Tadeco
assigned and conveyed to HLI the agricultural land portion (4,915.75 hectares) and other farm-related properties of
Hacienda Luisita in exchange for HLI shares of stock.29
Pedro Cojuangco, Josephine C. Reyes, Teresita C. Lopa, Jose Cojuangco, Jr., and Paz C. Teopaco were the incorporators of
HLI.30
To accommodate the assets transfer from Tadeco to HLI, the latter, with the Securities and Exchange Commission’s (SEC’s)
approval, increased its capital stock on May 10, 1989 from PhP 1,500,000 divided into 1,500,000 shares with a par value
of PhP 1/share to PhP 400,000,000 divided into 400,000,000 shares also with par value of PhP 1/share, 150,000,000 of
which were to be issued only to qualified and registered beneficiaries of the CARP, and the remaining 250,000,000 to any
stockholder of the corporation.31
As appearing in its proposed SDP, the properties and assets of Tadeco contributed to the capital stock of HLI, as appraised
and approved by the SEC, have an aggregate value of PhP 590,554,220, or after deducting the total liabilities of the farm
amounting to PhP 235,422,758, a net value of PhP 355,531,462. This translated to 355,531,462 shares with a par value of
PhP 1/share.32
On May 9, 1989, some 93% of the then farmworker-beneficiaries (FWBs) complement of Hacienda Luisita signified in a
referendum their acceptance of the proposed HLI’s Stock Distribution Option Plan. On May 11, 1989, the Stock Distribution
Option Agreement (SDOA), styled as a Memorandum of Agreement (MOA),33 was entered into by Tadeco, HLI, and the
5,848 qualified FWBs34 and attested to by then DAR Secretary Philip Juico. The SDOA embodied the basis and mechanics
of the SDP, which would eventually be submitted to the PARC for approval. In the SDOA, the parties agreed to the
following:
1. The percentage of the value of the agricultural land of Hacienda Luisita (P196,630,000.00) in relation to the total assets
(P590,554,220.00) transferred and conveyed to the SECOND PARTY [HLI] is 33.296% that, under the law, is the proportion
of the outstanding capital stock of the SECOND PARTY, which is P355,531,462.00 or 355,531,462 shares with a par value
of P1.00 per share, that has to be distributed to the THIRD PARTY [FWBs] under the stock distribution plan, the said
33.296% thereof being P118,391,976.85 or 118,391,976.85 shares.
2. The qualified beneficiaries of the stock distribution plan shall be the farmworkers who appear in the annual payroll,
inclusive of the permanent and seasonal employees, who are regularly or periodically employed by the SECOND PARTY.
3. At the end of each fiscal year, for a period of 30 years, the SECOND PARTY shall arrange with the FIRST PARTY [Tadeco]
the acquisition and distribution to the THIRD PARTY on the basis of number of days worked and at no cost to them of
one-thirtieth (1/30) of 118,391,976.85 shares of the capital stock of the SECOND PARTY that are presently owned and held
by the FIRST PARTY, until such time as the entire block of 118,391,976.85 shares shall have been completely acquired and
distributed to the THIRD PARTY.
4.The SECOND PARTY shall guarantee to the qualified beneficiaries of the [SDP] that every year they will receive on top of
their regular compensation, an amount that approximates the equivalent of three (3%) of the total gross sales from the
production of the agricultural land, whether it be in the form of cash dividends or incentive bonuses or both.
5. Even if only a part or fraction of the shares earmarked for distribution will have been acquired from the FIRST PARTY
and distributed to the THIRD PARTY, FIRST PARTY shall execute at the beginning of each fiscal year an irrevocable proxy,
valid and effective for one (1) year, in favor of the farmworkers appearing as shareholders of the SECOND PARTY at the
start of said year which will empower the THIRD PARTY or their representative to vote in stockholders’ and board of
directors’ meetings of the SECOND PARTY convened during the year the entire 33.296% of the outstanding capital stock
of the SECOND PARTY earmarked for distribution and thus be able to gain such number of seats in the board of directors
of the SECOND PARTY that the whole 33.296% of the shares subject to distribution will be entitled to.
6. In addition, the SECOND PARTY shall within a reasonable time subdivide and allocate for free and without charge among
the qualified family-beneficiaries residing in the place where the agricultural land is situated, residential or homelots of
not more than 240 sq.m. each, with each family-beneficiary being assured of receiving and owning a homelot in the
barangay where it actually resides on the date of the execution of this Agreement.
7. This Agreement is entered into by the parties in the spirit of the (C.A.R.P.) of the government and with the supervision
of the [DAR], with the end in view of improving the lot of the qualified beneficiaries of the [SDP] and obtaining for them
greater benefits. (Emphasis added.)
As may be gleaned from the SDOA, included as part of the distribution plan are: (a) production-sharing equivalent to three
percent (3%) of gross sales from the production of the agricultural land payable to the FWBs in cash dividends or incentive
bonus; and (b) distribution of free homelots of not more than 240 square meters each to family-beneficiaries. The
production-sharing, as the SDP indicated, is payable "irrespective of whether [HLI] makes money or not," implying that
the benefits do not partake the nature of dividends, as the term is ordinarily understood under corporation law.
While a little bit hard to follow, given that, during the period material, the assigned value of the agricultural land in the
hacienda was PhP 196.63 million, while the total assets of HLI was PhP 590.55 million with net assets of PhP 355.53 million,
Tadeco/HLI would admit that the ratio of the land-to-shares of stock corresponds to 33.3% of the outstanding capital stock
of the HLI equivalent to 118,391,976.85 shares of stock with a par value of PhP 1/share.
Subsequently, HLI submitted to DAR its SDP, designated as "Proposal for Stock Distribution under C.A.R.P.," 35which was
substantially based on the SDOA.
Notably, in a follow-up referendum the DAR conducted on October 14, 1989, 5,117 FWBs, out of 5,315 who participated,
opted to receive shares in HLI.36 One hundred thirty-two (132) chose actual land distribution.37
After a review of the SDP, then DAR Secretary Miriam Defensor-Santiago (Sec. Defensor-Santiago) addressed a letter dated
November 6, 198938 to Pedro S. Cojuangco (Cojuangco), then Tadeco president, proposing that the SDP be revised, along
the following lines:
1. That over the implementation period of the [SDP], [Tadeco]/HLI shall ensure that there will be no dilution in the shares
of stocks of individual [FWBs];
2. That a safeguard shall be provided by [Tadeco]/HLI against the dilution of the percentage shareholdings of the [FWBs],
i.e., that the 33% shareholdings of the [FWBs] will be maintained at any given time;
3. That the mechanics for distributing the stocks be explicitly stated in the [MOA] signed between the [Tadeco], HLI and
its [FWBs] prior to the implementation of the stock plan;
4. That the stock distribution plan provide for clear and definite terms for determining the actual number of seats to be
allocated for the [FWBs] in the HLI Board;
5. That HLI provide guidelines and a timetable for the distribution of homelots to qualified [FWBs]; and
6. That the 3% cash dividends mentioned in the [SDP] be expressly provided for [in] the MOA.
In a letter-reply of November 14, 1989 to Sec. Defensor-Santiago, Tadeco/HLI explained that the proposed revisions of the
SDP are already embodied in both the SDP and MOA.39 Following that exchange, the PARC, under then Sec. Defensor-
Santiago, by Resolution No. 89-12-240 dated November 21, 1989, approved the SDP of Tadeco/HLI.41
At the time of the SDP approval, HLI had a pool of farmworkers, numbering 6,296, more or less, composed of permanent,
seasonal and casual master list/payroll and non-master list members.
From 1989 to 2005, HLI claimed to have extended the following benefits to the FWBs:
(a) 3 billion pesos (P3,000,000,000) worth of salaries, wages and fringe benefits
(b) 59 million shares of stock distributed for free to the FWBs;
(c) 150 million pesos (P150,000,000) representing 3% of the gross produce;
(d) 37.5 million pesos (P37,500,000) representing 3% from the sale of 500 hectares of converted agricultural land of
Hacienda Luisita;
(e) 240-square meter homelots distributed for free;
(f) 2.4 million pesos (P2,400,000) representing 3% from the sale of 80 hectares at 80 million pesos (P80,000,000) for the
SCTEX;
(g) Social service benefits, such as but not limited to free hospitalization/medical/maternity services, old age/death
benefits and no interest bearing salary/educational loans and rice sugar accounts. 42
Two separate groups subsequently contested this claim of HLI.
On August 15, 1995, HLI applied for the conversion of 500 hectares of land of the hacienda from agricultural to industrial
use,43 pursuant to Sec. 65 of RA 6657, providing:
SEC. 65. Conversion of Lands.¾After the lapse of five (5) years from its award, when the land ceases to be economically
feasible and sound for agricultural purposes, or the locality has become urbanized and the land will have a greater
economic value for residential, commercial or industrial purposes, the DAR, upon application of the beneficiary or the
landowner, with due notice to the affected parties, and subject to existing laws, may authorize the reclassification, or
conversion of the land and its disposition: Provided, That the beneficiary shall have fully paid its obligation.
The application, according to HLI, had the backing of 5,000 or so FWBs, including respondent Rene Galang, and Jose Julio
Suniga, as evidenced by the Manifesto of Support they signed and which was submitted to the DAR.44After the usual
processing, the DAR, thru then Sec. Ernesto Garilao, approved the application on August 14, 1996, per DAR Conversion
Order No. 030601074-764-(95), Series of 1996,45 subject to payment of three percent (3%) of the gross selling price to the
FWBs and to HLI’s continued compliance with its undertakings under the SDP, among other conditions.
On December 13, 1996, HLI, in exchange for subscription of 12,000,000 shares of stocks of Centennary Holdings, Inc.
(Centennary), ceded 300 hectares of the converted area to the latter.46 Consequently, HLI’s Transfer Certificate of Title
(TCT) No. 28791047 was canceled and TCT No. 29209148 was issued in the name of Centennary. HLI transferred the
remaining 200 hectares covered by TCT No. 287909 to Luisita Realty Corporation (LRC) 49 in two separate transactions in
1997 and 1998, both uniformly involving 100 hectares for PhP 250 million each.50
Centennary, a corporation with an authorized capital stock of PhP 12,100,000 divided into 12,100,000 shares and wholly-
owned by HLI, had the following incorporators: Pedro Cojuangco, Josephine C. Reyes, Teresita C. Lopa, Ernesto G. Teopaco,
and Bernardo R. Lahoz.
Subsequently, Centennary sold51 the entire 300 hectares to Luisita Industrial Park Corporation (LIPCO) for PhP 750 million.
The latter acquired it for the purpose of developing an industrial complex.52 As a result, Centennary’s TCT No. 292091 was
canceled to be replaced by TCT No. 31098653 in the name of LIPCO.
From the area covered by TCT No. 310986 was carved out two (2) parcels, for which two (2) separate titles were issued in
the name of LIPCO, specifically: (a) TCT No. 36580054 and (b) TCT No. 365801,55 covering 180 and four hectares,
respectively. TCT No. 310986 was, accordingly, partially canceled.
Later on, in a Deed of Absolute Assignment dated November 25, 2004, LIPCO transferred the parcels covered by its TCT
Nos. 365800 and 365801 to the Rizal Commercial Banking Corporation (RCBC) by way of dacion en pago in payment of
LIPCO’s PhP 431,695,732.10 loan obligations. LIPCO’s titles were canceled and new ones, TCT Nos. 391051 and 391052,
were issued to RCBC.
Apart from the 500 hectares alluded to, another 80.51 hectares were later detached from the area coverage of Hacienda
Luisita which had been acquired by the government as part of the Subic-Clark-Tarlac Expressway (SCTEX) complex. In
absolute terms, 4,335.75 hectares remained of the original 4,915 hectares Tadeco ceded to HLI.56
Such, in short, was the state of things when two separate petitions, both undated, reached the DAR in the latter part of
2003. In the first, denominated as Petition/Protest,57 respondents Jose Julio Suniga and Windsor Andaya, identifying
themselves as head of the Supervisory Group of HLI (Supervisory Group), and 60 other supervisors sought to revoke the
SDOA, alleging that HLI had failed to give them their dividends and the one percent (1%) share in gross sales, as well as
the thirty-three percent (33%) share in the proceeds of the sale of the converted 500 hectares of land. They further claimed
that their lives have not improved contrary to the promise and rationale for the adoption of the SDOA. They also cited
violations by HLI of the SDOA’s terms.58 They prayed for a renegotiation of the SDOA, or, in the alternative, its revocation.
Revocation and nullification of the SDOA and the distribution of the lands in the hacienda were the call in the second
petition, styled as Petisyon (Petition).59 The Petisyon was ostensibly filed on December 4, 2003 by Alyansa ng mga
Manggagawang Bukid ng Hacienda Luisita (AMBALA), where the handwritten name of respondents Rene Galang as
"Pangulo AMBALA" and Noel Mallari as "Sec-Gen. AMBALA"60 appeared. As alleged, the petition was filed on behalf of
AMBALA’s members purportedly composing about 80% of the 5,339 FWBs of Hacienda Luisita.
HLI would eventually answer61 the petition/protest of the Supervisory Group. On the other hand, HLI’s answer62 to the
AMBALA petition was contained in its letter dated January 21, 2005 also filed with DAR.
Meanwhile, the DAR constituted a Special Task Force to attend to issues relating to the SDP of HLI. Among other duties,
the Special Task Force was mandated to review the terms and conditions of the SDOA and PARC Resolution No. 89-12-2
relative to HLI’s SDP; evaluate HLI’s compliance reports; evaluate the merits of the petitions for the revocation of the SDP;
conduct ocular inspections or field investigations; and recommend appropriate remedial measures for approval of the
Secretary.63
After investigation and evaluation, the Special Task Force submitted its "Terminal Report: Hacienda Luisita, Incorporated
(HLI) Stock Distribution Plan (SDP) Conflict"64 dated September 22, 2005 (Terminal Report), finding that HLI has not
complied with its obligations under RA 6657 despite the implementation of the SDP.65 The Terminal Report and the Special
Task Force’s recommendations were adopted by then DAR Sec. Nasser Pangandaman (Sec. Pangandaman).66
Subsequently, Sec. Pangandaman recommended to the PARC Executive Committee (Excom) (a) the recall/revocation of
PARC Resolution No. 89-12-2 dated November 21, 1989 approving HLI’s SDP; and (b) the acquisition of Hacienda Luisita
through the compulsory acquisition scheme. Following review, the PARC Validation Committee favorably endorsed the
DAR Secretary’s recommendation afore-stated.67
On December 22, 2005, the PARC issued the assailed Resolution No. 2005-32-01, disposing as follows:
NOW, THEREFORE, on motion duly seconded, RESOLVED, as it is HEREBY RESOLVED, to approve and confirm the
recommendation of the PARC Executive Committee adopting in toto the report of the PARC ExCom Validation Committee
affirming the recommendation of the DAR to recall/revoke the SDO plan of Tarlac Development Corporation/Hacienda
Luisita Incorporated.
RESOLVED, further, that the lands subject of the recalled/revoked TDC/HLI SDO plan be forthwith placed under the
compulsory coverage or mandated land acquisition scheme of the [CARP].
APPROVED.68
A copy of Resolution No. 2005-32-01 was served on HLI the following day, December 23, without any copy of the
documents adverted to in the resolution attached. A letter-request dated December 28, 200569 for certified copies of said
documents was sent to, but was not acted upon by, the PARC secretariat.
Therefrom, HLI, on January 2, 2006, sought reconsideration.70 On the same day, the DAR Tarlac provincial office issued the
Notice of Coverage71 which HLI received on January 4, 2006.
Its motion notwithstanding, HLI has filed the instant recourse in light of what it considers as the DAR’s hasty placing of
Hacienda Luisita under CARP even before PARC could rule or even read the motion for reconsideration.72 As HLI later rued,
it "can not know from the above-quoted resolution the facts and the law upon which it is based."73
PARC would eventually deny HLI’s motion for reconsideration via Resolution No. 2006-34-01 dated May 3, 2006.
By Resolution of June 14, 2006,74 the Court, acting on HLI’s motion, issued a temporary restraining order,75enjoining the
implementation of Resolution No. 2005-32-01 and the notice of coverage.
On July 13, 2006, the OSG, for public respondents PARC and the DAR, filed its Comment76 on the petition.
On December 2, 2006, Noel Mallari, impleaded by HLI as respondent in his capacity as "Sec-Gen. AMBALA," filed his
Manifestation and Motion with Comment Attached dated December 4, 2006 (Manifestation and Motion). 77 In it, Mallari
stated that he has broken away from AMBALA with other AMBALA ex-members and formed Farmworkers Agrarian Reform
Movement, Inc. (FARM).78 Should this shift in alliance deny him standing, Mallari also prayed that FARM be allowed to
intervene.
As events would later develop, Mallari had a parting of ways with other FARM members, particularly would-be intervenors
Renato Lalic, et al. As things stand, Mallari returned to the AMBALA fold, creating the AMBALA-Noel Mallari faction and
leaving Renato Lalic, et al. as the remaining members of FARM who sought to intervene.
On January 10, 2007, the Supervisory Group79 and the AMBALA-Rene Galang faction submitted their Comment/Opposition
dated December 17, 2006.80
On October 30, 2007, RCBC filed a Motion for Leave to Intervene and to File and Admit Attached Petition-In-Intervention
dated October 18, 2007.81 LIPCO later followed with a similar motion.82 In both motions, RCBC and LIPCO contended that
the assailed resolution effectively nullified the TCTs under their respective names as the properties covered in the TCTs
were veritably included in the January 2, 2006 notice of coverage. In the main, they claimed that the revocation of the
SDP cannot legally affect their rights as innocent purchasers for value. Both motions for leave to intervene were granted
and the corresponding petitions-in-intervention admitted.
On August 18, 2010, the Court heard the main and intervening petitioners on oral arguments. On the other hand, the
Court, on August 24, 2010, heard public respondents as well as the respective counsels of the AMBALA-Mallari-Supervisory
Group, the AMBALA-Galang faction, and the FARM and its 27 members83 argue their case.
Prior to the oral arguments, however, HLI; AMBALA, represented by Mallari; the Supervisory Group, represented by Suniga
and Andaya; and the United Luisita Workers Union, represented by Eldifonso Pingol, filed with the Court a joint submission
and motion for approval of a Compromise Agreement (English and Tagalog versions) dated August 6, 2010.
On August 31, 2010, the Court, in a bid to resolve the dispute through an amicable settlement, issued a
Resolution84 creating a Mediation Panel composed of then Associate Justice Ma. Alicia Austria-Martinez, as chairperson,
and former CA Justices Hector Hofileña and Teresita Dy-Liacco Flores, as members. Meetings on five (5) separate dates,
i.e., September 8, 9, 14, 20, and 27, 2010, were conducted. Despite persevering and painstaking efforts on the part of the
panel, mediation had to be discontinued when no acceptable agreement could be reached.
The Issues
HLI raises the following issues for our consideration:
I.
WHETHER OR NOT PUBLIC RESPONDENTS PARC AND SECRETARY PANGANDAMAN HAVE JURISDICTION, POWER AND/OR
AUTHORITY TO NULLIFY, RECALL, REVOKE OR RESCIND THE SDOA.
II.
[IF SO], x x x CAN THEY STILL EXERCISE SUCH JURISDICTION, POWER AND/OR AUTHORITY AT THIS TIME, I.E., AFTER SIXTEEN
(16) YEARS FROM THE EXECUTION OF THE SDOA AND ITS IMPLEMENTATION WITHOUT VIOLATING SECTIONS 1 AND 10
OF ARTICLE III (BILL OF RIGHTS) OF THE CONSTITUTION AGAINST DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF
LAW AND THE IMPAIRMENT OF CONTRACTUAL RIGHTS AND OBLIGATIONS? MOREOVER, ARE THERE LEGAL GROUNDS
UNDER THE CIVIL CODE, viz, ARTICLE 1191 x x x, ARTICLES 1380, 1381 AND 1382 x x x ARTICLE 1390 x x x AND ARTICLE
1409 x x x THAT CAN BE INVOKED TO NULLIFY, RECALL, REVOKE, OR RESCIND THE SDOA?
III.
WHETHER THE PETITIONS TO NULLIFY, RECALL, REVOKE OR RESCIND THE SDOA HAVE ANY LEGAL BASIS OR GROUNDS AND
WHETHER THE PETITIONERS THEREIN ARE THE REAL PARTIES-IN-INTEREST TO FILE SAID PETITIONS.
IV.
WHETHER THE RIGHTS, OBLIGATIONS AND REMEDIES OF THE PARTIES TO THE SDOA ARE NOW GOVERNED BY THE
CORPORATION CODE (BATAS PAMBANSA BLG. 68) AND NOT BY THE x x x [CARL] x x x.
On the other hand, RCBC submits the following issues:
I.
RESPONDENT PARC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
WHEN IT DID NOT EXCLUDE THE SUBJECT PROPERTY FROM THE COVERAGE OF THE CARP DESPITE THE FACT THAT
PETITIONER-INTERVENOR RCBC HAS ACQUIRED VESTED RIGHTS AND INDEFEASIBLE TITLE OVER THE SUBJECT PROPERTY
AS AN INNOCENT PURCHASER FOR VALUE.
A. THE ASSAILED RESOLUTION NO. 2005-32-01 AND THE NOTICE OF COVERAGE DATED 02 JANUARY 2006 HAVE THE
EFFECT OF NULLIFYING TCT NOS. 391051 AND 391052 IN THE NAME OF PETITIONER-INTERVENOR RCBC.
B. AS AN INNOCENT PURCHASER FOR VALUE, PETITIONER-INTERVENOR RCBC CANNOT BE PREJUDICED BY A SUBSEQUENT
REVOCATION OR RESCISSION OF THE SDOA.
II.
THE ASSAILED RESOLUTION NO. 2005-32-01 AND THE NOTICE OF COVERAGE DATED 02 JANUARY 2006 WERE ISSUED
WITHOUT AFFORDING PETITIONER-INTERVENOR RCBC ITS RIGHT TO DUE PROCESS AS AN INNOCENT PURCHASER FOR
VALUE.
LIPCO, like RCBC, asserts having acquired vested and indefeasible rights over certain portions of the converted property,
and, hence, would ascribe on PARC the commission of grave abuse of discretion when it included those portions in the
notice of coverage. And apart from raising issues identical with those of HLI, such as but not limited to the absence of valid
grounds to warrant the rescission and/or revocation of the SDP, LIPCO would allege that the assailed resolution and the
notice of coverage were issued without affording it the right to due process as an innocent purchaser for value. The
government, LIPCO also argues, is estopped from recovering properties which have since passed to innocent parties.
Simply formulated, the principal determinative issues tendered in the main petition and to which all other related
questions must yield boil down to the following: (1) matters of standing; (2) the constitutionality of Sec. 31 of RA 6657;
(3) the jurisdiction of PARC to recall or revoke HLI’s SDP; (4) the validity or propriety of such recall or revocatory action;
and (5) corollary to (4), the validity of the terms and conditions of the SDP, as embodied in the SDOA.
Our Ruling
I.
We first proceed to the examination of the preliminary issues before delving on the more serious challenges bearing on
the validity of PARC’s assailed issuance and the grounds for it.
Supervisory Group, AMBALA and their
respective leaders are real parties-in-interest
HLI would deny real party-in-interest status to the purported leaders of the Supervisory Group and AMBALA, i.e., Julio
Suniga, Windsor Andaya, and Rene Galang, who filed the revocatory petitions before the DAR. As HLI would have it,
Galang, the self-styled head of AMBALA, gained HLI employment in June 1990 and, thus, could not have been a party to
the SDOA executed a year earlier.85 As regards the Supervisory Group, HLI alleges that supervisors are not regular
farmworkers, but the company nonetheless considered them FWBs under the SDOA as a mere concession to enable them
to enjoy the same benefits given qualified regular farmworkers. However, if the SDOA would be canceled and land
distribution effected, so HLI claims, citing Fortich v. Corona,86 the supervisors would be excluded from receiving lands as
farmworkers other than the regular farmworkers who are merely entitled to the "fruits of the land."87
The SDOA no less identifies "the SDP qualified beneficiaries" as "the farmworkers who appear in the annual payroll,
inclusive of the permanent and seasonal employees, who are regularly or periodically employed by [HLI]."88 Galang, per
HLI’s own admission, is employed by HLI, and is, thus, a qualified beneficiary of the SDP; he comes within the definition of
a real party-in-interest under Sec. 2, Rule 3 of the Rules of Court, meaning, one who stands to be benefited or injured by
the judgment in the suit or is the party entitled to the avails of the suit.
The same holds true with respect to the Supervisory Group whose members were admittedly employed by HLI and whose
names and signatures even appeared in the annex of the SDOA. Being qualified beneficiaries of the SDP, Suniga and the
other 61 supervisors are certainly parties who would benefit or be prejudiced by the judgment recalling the SDP or
replacing it with some other modality to comply with RA 6657.
Even assuming that members of the Supervisory Group are not regular farmworkers, but are in the category of "other
farmworkers" mentioned in Sec. 4, Article XIII of the Constitution,89 thus only entitled to a share of the fruits of the land,
as indeed Fortich teaches, this does not detract from the fact that they are still identified as being among the "SDP qualified
beneficiaries." As such, they are, thus, entitled to bring an action upon the SDP.90 At any rate, the following admission
made by Atty. Gener Asuncion, counsel of HLI, during the oral arguments should put to rest any lingering doubt as to the
status of protesters Galang, Suniga, and Andaya:
Justice Bersamin: x x x I heard you a while ago that you were conceding the qualified farmer beneficiaries of Hacienda
Luisita were real parties in interest?
Atty. Asuncion: Yes, Your Honor please, real party in interest which that question refers to the complaints of protest
initiated before the DAR and the real party in interest there be considered as possessed by the farmer beneficiaries who
initiated the protest.91
Further, under Sec. 50, paragraph 4 of RA 6657, farmer-leaders are expressly allowed to represent themselves, their fellow
farmers or their organizations in any proceedings before the DAR. Specifically:
SEC. 50. Quasi-Judicial Powers of the DAR.¾x x x
xxxx
Responsible farmer leaders shall be allowed to represent themselves, their fellow farmers or their organizations in any
proceedings before the DAR: Provided, however, that when there are two or more representatives for any individual or
group, the representatives should choose only one among themselves to represent such party or group before any DAR
proceedings. (Emphasis supplied.)
Clearly, the respective leaders of the Supervisory Group and AMBALA are contextually real parties-in-interest allowed by
law to file a petition before the DAR or PARC.
This is not necessarily to say, however, that Galang represents AMBALA, for as records show and as HLI aptly noted,92 his
"petisyon" filed with DAR did not carry the usual authorization of the individuals in whose behalf it was supposed to have
been instituted. To date, such authorization document, which would logically include a list of the names of the authorizing
FWBs, has yet to be submitted to be part of the records.
PARC’s Authority to Revoke a Stock Distribution Plan
On the postulate that the subject jurisdiction is conferred by law, HLI maintains that PARC is without authority to revoke
an SDP, for neither RA 6657 nor EO 229 expressly vests PARC with such authority. While, as HLI argued, EO 229 empowers
PARC to approve the plan for stock distribution in appropriate cases, the empowerment only includes the power to
disapprove, but not to recall its previous approval of the SDP after it has been implemented by the parties.93 To HLI, it is
the court which has jurisdiction and authority to order the revocation or rescission of the PARC-approved SDP.
We disagree.
Under Sec. 31 of RA 6657, as implemented by DAO 10, the authority to approve the plan for stock distribution of the
corporate landowner belongs to PARC. However, contrary to petitioner HLI’s posture, PARC also has the power to revoke
the SDP which it previously approved. It may be, as urged, that RA 6657 or other executive issuances on agrarian reform
do not explicitly vest the PARC with the power to revoke/recall an approved SDP. Such power or authority, however, is
deemed possessed by PARC under the principle of necessary implication, a basic postulate that what is implied in a statute
is as much a part of it as that which is expressed.94
We have explained that "every statute is understood, by implication, to contain all such provisions as may be necessary
to effectuate its object and purpose, or to make effective rights, powers, privileges or jurisdiction which it grants, including
all such collateral and subsidiary consequences as may be fairly and logically inferred from its terms." 95 Further, "every
statutory grant of power, right or privilege is deemed to include all incidental power, right or privilege.96
Gordon v. Veridiano II is instructive:
The power to approve a license includes by implication, even if not expressly granted, the power to revoke it. By extension,
the power to revoke is limited by the authority to grant the license, from which it is derived in the first place. Thus, if the
FDA grants a license upon its finding that the applicant drug store has complied with the requirements of the general laws
and the implementing administrative rules and regulations, it is only for their violation that the FDA may revoke the said
license. By the same token, having granted the permit upon his ascertainment that the conditions thereof as applied x x x
have been complied with, it is only for the violation of such conditions that the mayor may revoke the said
permit.97 (Emphasis supplied.)
Following the doctrine of necessary implication, it may be stated that the conferment of express power to approve a plan
for stock distribution of the agricultural land of corporate owners necessarily includes the power to revoke or recall the
approval of the plan.
As public respondents aptly observe, to deny PARC such revocatory power would reduce it into a toothless agency of
CARP, because the very same agency tasked to ensure compliance by the corporate landowner with the approved SDP
would be without authority to impose sanctions for non-compliance with it.98 With the view We take of the case, only
PARC can effect such revocation. The DAR Secretary, by his own authority as such, cannot plausibly do so, as the
acceptance and/or approval of the SDP sought to be taken back or undone is the act of PARC whose official composition
includes, no less, the President as chair, the DAR Secretary as vice-chair, and at least eleven (11) other department heads.99
On another but related issue, the HLI foists on the Court the argument that subjecting its landholdings to compulsory
distribution after its approved SDP has been implemented would impair the contractual obligations created under the
SDOA.
The broad sweep of HLI’s argument ignores certain established legal precepts and must, therefore, be rejected.
A law authorizing interference, when appropriate, in the contractual relations between or among parties is deemed read
into the contract and its implementation cannot successfully be resisted by force of the non-impairment guarantee. There
is, in that instance, no impingement of the impairment clause, the non-impairment protection being applicable only to
laws that derogate prior acts or contracts by enlarging, abridging or in any manner changing the intention of the parties.
Impairment, in fine, obtains if a subsequent law changes the terms of a contract between the parties, imposes new
conditions, dispenses with those agreed upon or withdraws existing remedies for the enforcement of the rights of the
parties.100 Necessarily, the constitutional proscription would not apply to laws already in effect at the time of contract
execution, as in the case of RA 6657, in relation to DAO 10, vis-à-vis HLI’s SDOA. As held in Serrano v. Gallant Maritime
Services, Inc.:
The prohibition [against impairment of the obligation of contracts] is aligned with the general principle that laws newly
enacted have only a prospective operation, and cannot affect acts or contracts already perfected; however, as to laws
already in existence, their provisions are read into contracts and deemed a part thereof. Thus, the non-impairment clause
under Section 10, Article II [of the Constitution] is limited in application to laws about to be enacted that would in any way
derogate from existing acts or contracts by enlarging, abridging or in any manner changing the intention of the parties
thereto.101 (Emphasis supplied.)
Needless to stress, the assailed Resolution No. 2005-32-01 is not the kind of issuance within the ambit of Sec. 10, Art. III
of the Constitution providing that "[n]o law impairing the obligation of contracts shall be passed."
Parenthetically, HLI tags the SDOA as an ordinary civil law contract and, as such, a breach of its terms and conditions is not
a PARC administrative matter, but one that gives rise to a cause of action cognizable by regular courts.102 This contention
has little to commend itself. The SDOA is a special contract imbued with public interest, entered into and crafted pursuant
to the provisions of RA 6657. It embodies the SDP, which requires for its validity, or at least its enforceability, PARC’s
approval. And the fact that the certificate of compliance103––to be issued by agrarian authorities upon completion of the
distribution of stocks––is revocable by the same issuing authority supports the idea that everything about the
implementation of the SDP is, at the first instance, subject to administrative adjudication.
HLI also parlays the notion that the parties to the SDOA should now look to the Corporation Code, instead of to RA 6657,
in determining their rights, obligations and remedies. The Code, it adds, should be the applicable law on the disposition
of the agricultural land of HLI.
Contrary to the view of HLI, the rights, obligations and remedies of the parties to the SDOA embodying the SDP are
primarily governed by RA 6657. It should abundantly be made clear that HLI was precisely created in order to comply with
RA 6657, which the OSG aptly described as the "mother law" of the SDOA and the SDP.104 It is, thus, paradoxical for HLI to
shield itself from the coverage of CARP by invoking exclusive applicability of the Corporation Code under the guise of being
a corporate entity.
Without in any way minimizing the relevance of the Corporation Code since the FWBs of HLI are also stockholders, its
applicability is limited as the rights of the parties arising from the SDP should not be made to supplant or circumvent the
agrarian reform program.
Without doubt, the Corporation Code is the general law providing for the formation, organization and regulation of private
corporations. On the other hand, RA 6657 is the special law on agrarian reform. As between a general and special law, the
latter shall prevail—generalia specialibus non derogant.105 Besides, the present impasse between HLI and the private
respondents is not an intra-corporate dispute which necessitates the application of the Corporation Code. What private
respondents questioned before the DAR is the proper implementation of the SDP and HLI’s compliance with RA 6657.
Evidently, RA 6657 should be the applicable law to the instant case.
HLI further contends that the inclusion of the agricultural land of Hacienda Luisita under the coverage of CARP and the
eventual distribution of the land to the FWBs would amount to a disposition of all or practically all of the corporate assets
of HLI. HLI would add that this contingency, if ever it comes to pass, requires the applicability of the Corporation Code
provisions on corporate dissolution.
We are not persuaded.
Indeed, the provisions of the Corporation Code on corporate dissolution would apply insofar as the winding up of HLI’s
affairs or liquidation of the assets is concerned. However, the mere inclusion of the agricultural land of Hacienda Luisita
under the coverage of CARP and the land’s eventual distribution to the FWBs will not, without more, automatically trigger
the dissolution of HLI. As stated in the SDOA itself, the percentage of the value of the agricultural land of Hacienda Luisita
in relation to the total assets transferred and conveyed by Tadeco to HLI comprises only 33.296%, following this equation:
value of the agricultural lands divided by total corporate assets. By no stretch of imagination would said percentage
amount to a disposition of all or practically all of HLI’s corporate assets should compulsory land acquisition and distribution
ensue.
This brings us to the validity of the revocation of the approval of the SDP sixteen (16) years after its execution pursuant to
Sec. 31 of RA 6657 for the reasons set forth in the Terminal Report of the Special Task Force, as endorsed by PARC Excom.
But first, the matter of the constitutionality of said section.
Constitutional Issue
FARM asks for the invalidation of Sec. 31 of RA 6657, insofar as it affords the corporation, as a mode of CARP compliance,
to resort to stock distribution, an arrangement which, to FARM, impairs the fundamental right of farmers and farmworkers
under Sec. 4, Art. XIII of the Constitution.106
To a more specific, but direct point, FARM argues that Sec. 31 of RA 6657 permits stock transfer in lieu of outright
agricultural land transfer; in fine, there is stock certificate ownership of the farmers or farmworkers instead of them
owning the land, as envisaged in the Constitution. For FARM, this modality of distribution is an anomaly to be annulled for
being inconsistent with the basic concept of agrarian reform ingrained in Sec. 4, Art. XIII of the Constitution.107
Reacting, HLI insists that agrarian reform is not only about transfer of land ownership to farmers and other qualified
beneficiaries. It draws attention in this regard to Sec. 3(a) of RA 6657 on the concept and scope of the term "agrarian
reform." The constitutionality of a law, HLI added, cannot, as here, be attacked collaterally.
The instant challenge on the constitutionality of Sec. 31 of RA 6657 and necessarily its counterpart provision in EO 229
must fail as explained below.
When the Court is called upon to exercise its power of judicial review over, and pass upon the constitutionality of, acts of
the executive or legislative departments, it does so only when the following essential requirements are first met, to wit:
(1) there is an actual case or controversy;
(2) that the constitutional question is raised at the earliest possible opportunity by a proper party or one with locus standi;
and
(3) the issue of constitutionality must be the very lis mota of the case.108
Not all the foregoing requirements are satisfied in the case at bar.
While there is indeed an actual case or controversy, intervenor FARM, composed of a small minority of 27 farmers, has
yet to explain its failure to challenge the constitutionality of Sec. 3l of RA 6657, since as early as November 21, l989 when
PARC approved the SDP of Hacienda Luisita or at least within a reasonable time thereafter and why its members received
benefits from the SDP without so much of a protest. It was only on December 4, 2003 or 14 years after approval of the
SDP via PARC Resolution No. 89-12-2 dated November 21, 1989 that said plan and approving resolution were sought to
be revoked, but not, to stress, by FARM or any of its members, but by petitioner AMBALA. Furthermore, the AMBALA
petition did NOT question the constitutionality of Sec. 31 of RA 6657, but concentrated on the purported flaws and gaps
in the subsequent implementation of the SDP. Even the public respondents, as represented by the Solicitor General, did
not question the constitutionality of the provision. On the other hand, FARM, whose 27 members formerly belonged to
AMBALA, raised the constitutionality of Sec. 31 only on May 3, 2007 when it filed its Supplemental Comment with the
Court. Thus, it took FARM some eighteen (18) years from November 21, 1989 before it challenged the constitutionality of
Sec. 31 of RA 6657 which is quite too late in the day. The FARM members slept on their rights and even accepted benefits
from the SDP with nary a complaint on the alleged unconstitutionality of Sec. 31 upon which the benefits were derived.
The Court cannot now be goaded into resolving a constitutional issue that FARM failed to assail after the lapse of a long
period of time and the occurrence of numerous events and activities which resulted from the application of an alleged
unconstitutional legal provision.
It has been emphasized in a number of cases that the question of constitutionality will not be passed upon by the Court
unless it is properly raised and presented in an appropriate case at the first opportunity.109 FARM is, therefore, remiss in
belatedly questioning the constitutionality of Sec. 31 of RA 6657. The second requirement that the constitutional question
should be raised at the earliest possible opportunity is clearly wanting.
The last but the most important requisite that the constitutional issue must be the very lis mota of the case does not
likewise obtain. The lis mota aspect is not present, the constitutional issue tendered not being critical to the resolution of
the case. The unyielding rule has been to avoid, whenever plausible, an issue assailing the constitutionality of a statute or
governmental act.110 If some other grounds exist by which judgment can be made without touching the constitutionality
of a law, such recourse is favored.111 Garcia v. Executive Secretary explains why:
Lis Mota — the fourth requirement to satisfy before this Court will undertake judicial review — means that the Court will
not pass upon a question of unconstitutionality, although properly presented, if the case can be disposed of on some other
ground, such as the application of the statute or the general law. The petitioner must be able to show that the case cannot
be legally resolved unless the constitutional question raised is determined. This requirement is based on the rule that
every law has in its favor the presumption of constitutionality; to justify its nullification, there must be a clear and
unequivocal breach of the Constitution, and not one that is doubtful, speculative, or argumentative.112 (Italics in the
original.)
The lis mota in this case, proceeding from the basic positions originally taken by AMBALA (to which the FARM members
previously belonged) and the Supervisory Group, is the alleged non-compliance by HLI with the conditions of the SDP to
support a plea for its revocation. And before the Court, the lis mota is whether or not PARC acted in grave abuse of
discretion when it ordered the recall of the SDP for such non-compliance and the fact that the SDP, as couched and
implemented, offends certain constitutional and statutory provisions. To be sure, any of these key issues may be resolved
without plunging into the constitutionality of Sec. 31 of RA 6657. Moreover, looking deeply into the underlying petitions
of AMBALA, et al., it is not the said section per se that is invalid, but rather it is the alleged application of the said provision
in the SDP that is flawed.
It may be well to note at this juncture that Sec. 5 of RA 9700,113 amending Sec. 7 of RA 6657, has all but superseded Sec.
31 of RA 6657 vis-à-vis the stock distribution component of said Sec. 31. In its pertinent part, Sec. 5 of RA 9700 provides:
"[T]hat after June 30, 2009, the modes of acquisition shall be limited to voluntary offer to sell and compulsory
acquisition." Thus, for all intents and purposes, the stock distribution scheme under Sec. 31 of RA 6657 is no longer an
available option under existing law. The question of whether or not it is unconstitutional should be a moot issue.
It is true that the Court, in some cases, has proceeded to resolve constitutional issues otherwise already moot and
academic114 provided the following requisites are present:
x x x first, there is a grave violation of the Constitution; second, the exceptional character of the situation and the
paramount public interest is involved; third, when the constitutional issue raised requires formulation of controlling
principles to guide the bench, the bar, and the public; fourth, the case is capable of repetition yet evading review.
These requisites do not obtain in the case at bar.
For one, there appears to be no breach of the fundamental law. Sec. 4, Article XIII of the Constitution reads:
The State shall, by law, undertake an agrarian reform program founded on the right of the farmers and regular
farmworkers, who are landless, to OWN directly or COLLECTIVELY THE LANDS THEY TILL or, in the case of other
farmworkers, to receive a just share of the fruits thereof. To this end, the State shall encourage and undertake the just
distribution of all agricultural lands, subject to such priorities and reasonable retention limits as the Congress may
prescribe, taking into account ecological, developmental, or equity considerations, and subject to the payment of just
compensation. In determining retention limits, the State shall respect the right of small landowners. The State shall further
provide incentives for voluntary land-sharing. (Emphasis supplied.)
The wording of the provision is unequivocal––the farmers and regular farmworkers have a right TO OWN DIRECTLY OR
COLLECTIVELY THE LANDS THEY TILL. The basic law allows two (2) modes of land distribution—direct and indirect
ownership. Direct transfer to individual farmers is the most commonly used method by DAR and widely accepted. Indirect
transfer through collective ownership of the agricultural land is the alternative to direct ownership of agricultural land by
individual farmers. The aforequoted Sec. 4 EXPRESSLY authorizes collective ownership by farmers. No language can be
found in the 1987 Constitution that disqualifies or prohibits corporations or cooperatives of farmers from being the legal
entity through which collective ownership can be exercised. The word "collective" is defined as "indicating a number of
persons or things considered as constituting one group or aggregate,"115 while "collectively" is defined as "in a collective
sense or manner; in a mass or body."116 By using the word "collectively," the Constitution allows for indirect ownership of
land and not just outright agricultural land transfer. This is in recognition of the fact that land reform may become
successful even if it is done through the medium of juridical entities composed of farmers.
Collective ownership is permitted in two (2) provisions of RA 6657. Its Sec. 29 allows workers’ cooperatives or associations
to collectively own the land, while the second paragraph of Sec. 31 allows corporations or associations to own agricultural
land with the farmers becoming stockholders or members. Said provisions read:
SEC. 29. Farms owned or operated by corporations or other business associations.—In the case of farms owned or
operated by corporations or other business associations, the following rules shall be observed by the PARC.
In general, lands shall be distributed directly to the individual worker-beneficiaries.
In case it is not economically feasible and sound to divide the land, then it shall be owned collectively by the worker
beneficiaries who shall form a workers’ cooperative or association which will deal with the corporation or business
association. x x x (Emphasis supplied.)
SEC. 31. Corporate Landowners.— x x x
xxxx
Upon certification by the DAR, corporations owning agricultural lands may give their qualified beneficiaries the right to
purchase such proportion of the capital stock of the corporation that the agricultural land, actually devoted to agricultural
activities, bears in relation to the company’s total assets, under such terms and conditions as may be agreed upon by
them. In no case shall the compensation received by the workers at the time the shares of stocks are distributed be
reduced. The same principle shall be applied to associations, with respect to their equity or participation. x x x (Emphasis
supplied.)
Clearly, workers’ cooperatives or associations under Sec. 29 of RA 6657 and corporations or associations under the
succeeding Sec. 31, as differentiated from individual farmers, are authorized vehicles for the collective ownership of
agricultural land. Cooperatives can be registered with the Cooperative Development Authority and acquire legal
personality of their own, while corporations are juridical persons under the Corporation Code. Thus, Sec. 31 is
constitutional as it simply implements Sec. 4 of Art. XIII of the Constitution that land can be owned COLLECTIVELY by
farmers. Even the framers of the l987 Constitution are in unison with respect to the two (2) modes of ownership of
agricultural lands tilled by farmers––DIRECT and COLLECTIVE, thus:
MR. NOLLEDO. And when we talk of the phrase "to own directly," we mean the principle of direct ownership by the tiller?
MR. MONSOD. Yes.
MR. NOLLEDO. And when we talk of "collectively," we mean communal ownership, stewardship or State ownership?
MS. NIEVA. In this section, we conceive of cooperatives; that is farmers’ cooperatives owning the land, not the State.
MR. NOLLEDO. And when we talk of "collectively," referring to farmers’ cooperatives, do the farmers own specific areas
of land where they only unite in their efforts?
MS. NIEVA. That is one way.
MR. NOLLEDO. Because I understand that there are two basic systems involved: the "moshave" type of agriculture and
the "kibbutz." So are both contemplated in the report?
MR. TADEO. Ang dalawa kasing pamamaraan ng pagpapatupad ng tunay na reporma sa lupa ay ang pagmamay-ari ng lupa
na hahatiin sa individual na pagmamay-ari – directly – at ang tinatawag na sama-samang gagawin ng mga magbubukid.
Tulad sa Negros, ang gusto ng mga magbubukid ay gawin nila itong "cooperative or collective farm." Ang ibig sabihin ay
sama-sama nilang sasakahin.
xxxx
MR. TINGSON. x x x When we speak here of "to own directly or collectively the lands they till," is this land for the tillers
rather than land for the landless? Before, we used to hear "land for the landless," but now the slogan is "land for the
tillers." Is that right?
MR. TADEO. Ang prinsipyong umiiral dito ay iyong land for the tillers. Ang ibig sabihin ng "directly" ay tulad sa
implementasyon sa rice and corn lands kung saan inaari na ng mga magsasaka ang lupang binubungkal nila. Ang ibig
sabihin naman ng "collectively" ay sama-samang paggawa sa isang lupain o isang bukid, katulad ng sitwasyon sa
Negros.117 (Emphasis supplied.)
As Commissioner Tadeo explained, the farmers will work on the agricultural land "sama-sama" or collectively. Thus, the
main requisite for collective ownership of land is collective or group work by farmers of the agricultural land. Irrespective
of whether the landowner is a cooperative, association or corporation composed of farmers, as long as concerted group
work by the farmers on the land is present, then it falls within the ambit of collective ownership scheme.
Likewise, Sec. 4, Art. XIII of the Constitution makes mention of a commitment on the part of the State to pursue, by law,
an agrarian reform program founded on the policy of land for the landless, but subject to such priorities as Congress may
prescribe, taking into account such abstract variable as "equity considerations." The textual reference to a law and
Congress necessarily implies that the above constitutional provision is not self-executoryand that legislation is needed to
implement the urgently needed program of agrarian reform. And RA 6657 has been enacted precisely pursuant to and as
a mechanism to carry out the constitutional directives. This piece of legislation, in fact, restates 118 the agrarian reform
policy established in the aforementioned provision of the Constitution of promoting the welfare of landless farmers and
farmworkers. RA 6657 thus defines "agrarian reform" as "the redistribution of lands … to farmers and regular farmworkers
who are landless … to lift the economic status of the beneficiaries and all other arrangements alternative to the physical
redistribution of lands, such as production or profit sharing, labor administration and the distribution of shares of
stock which will allow beneficiaries to receive a just share of the fruits of the lands they work."
With the view We take of this case, the stock distribution option devised under Sec. 31 of RA 6657 hews with the agrarian
reform policy, as instrument of social justice under Sec. 4 of Article XIII of the Constitution. Albeit land ownership for the
landless appears to be the dominant theme of that policy, We emphasize that Sec. 4, Article XIII of the Constitution, as
couched, does not constrict Congress to passing an agrarian reform law planted on direct land transfer to and ownership
by farmers and no other, or else the enactment suffers from the vice of unconstitutionality. If the intention were
otherwise, the framers of the Constitution would have worded said section in a manner mandatory in character.
For this Court, Sec. 31 of RA 6657, with its direct and indirect transfer features, is not inconsistent with the State’s
commitment to farmers and farmworkers to advance their interests under the policy of social justice. The legislature, thru
Sec. 31 of RA 6657, has chosen a modality for collective ownership by which the imperatives of social justice may, in its
estimation, be approximated, if not achieved. The Court should be bound by such policy choice.
FARM contends that the farmers in the stock distribution scheme under Sec. 31 do not own the agricultural land but are
merely given stock certificates. Thus, the farmers lose control over the land to the board of directors and executive officials
of the corporation who actually manage the land. They conclude that such arrangement runs counter to the mandate of
the Constitution that any agrarian reform must preserve the control over the land in the hands of the tiller.
This contention has no merit.
While it is true that the farmer is issued stock certificates and does not directly own the land, still, the Corporation Code
is clear that the FWB becomes a stockholder who acquires an equitable interest in the assets of the corporation, which
include the agricultural lands. It was explained that the "equitable interest of the shareholder in the property of the
corporation is represented by the term stock, and the extent of his interest is described by the term shares. The expression
shares of stock when qualified by words indicating number and ownership expresses the extent of the owner’s interest in
the corporate property."119 A share of stock typifies an aliquot part of the corporation’s property, or the right to share in
its proceeds to that extent when distributed according to law and equity and that its holder is not the owner of any part
of the capital of the corporation.120 However, the FWBs will ultimately own the agricultural lands owned by the
corporation when the corporation is eventually dissolved and liquidated.
Anent the alleged loss of control of the farmers over the agricultural land operated and managed by the corporation, a
reading of the second paragraph of Sec. 31 shows otherwise. Said provision provides that qualified beneficiaries have "the
right to purchase such proportion of the capital stock of the corporation that the agricultural land, actually devoted to
agricultural activities, bears in relation to the company’s total assets." The wording of the formula in the computation of
the number of shares that can be bought by the farmers does not mean loss of control on the part of the farmers. It must
be remembered that the determination of the percentage of the capital stock that can be bought by the farmers depends
on the value of the agricultural land and the value of the total assets of the corporation.
There is, thus, nothing unconstitutional in the formula prescribed by RA 6657. The policy on agrarian reform is that control
over the agricultural land must always be in the hands of the farmers. Then it falls on the shoulders of DAR and PARC to
see to it the farmers should always own majority of the common shares entitled to elect the members of the board of
directors to ensure that the farmers will have a clear majority in the board. Before the SDP is approved, strict scrutiny of
the proposed SDP must always be undertaken by the DAR and PARC, such that the value of the agricultural land
contributed to the corporation must always be more than 50% of the total assets of the corporation to ensure that the
majority of the members of the board of directors are composed of the farmers. The PARC composed of the President of
the Philippines and cabinet secretaries must see to it that control over the board of directors rests with the farmers by
rejecting the inclusion of non-agricultural assets which will yield the majority in the board of directors to non-farmers. Any
deviation, however, by PARC or DAR from the correct application of the formula prescribed by the second paragraph of
Sec. 31 of RA 6675 does not make said provision constitutionally infirm. Rather, it is the application of said provision that
can be challenged. Ergo, Sec. 31 of RA 6657 does not trench on the constitutional policy of ensuring control by the farmers.
A view has been advanced that there can be no agrarian reform unless there is land distribution and that actual land
distribution is the essential characteristic of a constitutional agrarian reform program. On the contrary, there have been
so many instances where, despite actual land distribution, the implementation of agrarian reform was still unsuccessful.
As a matter of fact, this Court may take judicial notice of cases where FWBs sold the awarded land even to non-qualified
persons and in violation of the prohibition period provided under the law. This only proves to show that the mere fact
that there is land distribution does not guarantee a successful implementation of agrarian reform.
As it were, the principle of "land to the tiller" and the old pastoral model of land ownership where non-human juridical
persons, such as corporations, were prohibited from owning agricultural lands are no longer realistic under existing
conditions. Practically, an individual farmer will often face greater disadvantages and difficulties than those who exercise
ownership in a collective manner through a cooperative or corporation. The former is too often left to his own devices
when faced with failing crops and bad weather, or compelled to obtain usurious loans in order to purchase costly fertilizers
or farming equipment. The experiences learned from failed land reform activities in various parts of the country are lack
of financing, lack of farm equipment, lack of fertilizers, lack of guaranteed buyers of produce, lack of farm-to-market roads,
among others. Thus, at the end of the day, there is still no successful implementation of agrarian reform to speak of in
such a case.
Although success is not guaranteed, a cooperative or a corporation stands in a better position to secure funding and
competently maintain the agri-business than the individual farmer. While direct singular ownership over farmland does
offer advantages, such as the ability to make quick decisions unhampered by interference from others, yet at best, these
advantages only but offset the disadvantages that are often associated with such ownership arrangement. Thus,
government must be flexible and creative in its mode of implementation to better its chances of success. One such option
is collective ownership through juridical persons composed of farmers.
Aside from the fact that there appears to be no violation of the Constitution, the requirement that the instant case be
capable of repetition yet evading review is also wanting. It would be speculative for this Court to assume that the
legislature will enact another law providing for a similar stock option.
As a matter of sound practice, the Court will not interfere inordinately with the exercise by Congress of its official functions,
the heavy presumption being that a law is the product of earnest studies by Congress to ensure that no constitutional
prescription or concept is infringed.121 Corollarily, courts will not pass upon questions of wisdom, expediency and justice
of legislation or its provisions. Towards this end, all reasonable doubts should be resolved in favor of the constitutionality
of a law and the validity of the acts and processes taken pursuant thereof.122
Consequently, before a statute or its provisions duly challenged are voided, an unequivocal breach of, or a clear conflict
with the Constitution, not merely a doubtful or argumentative one, must be demonstrated in such a manner as to leave
no doubt in the mind of the Court. In other words, the grounds for nullity must be beyond reasonable doubt.123 FARM has
not presented compelling arguments to overcome the presumption of constitutionality of Sec. 31 of RA 6657.
The wisdom of Congress in allowing an SDP through a corporation as an alternative mode of implementing agrarian reform
is not for judicial determination. Established jurisprudence tells us that it is not within the province of the Court to inquire
into the wisdom of the law, for, indeed, We are bound by words of the statute.124
II.
The stage is now set for the determination of the propriety under the premises of the revocation or recall of HLI’s SDP. Or
to be more precise, the inquiry should be: whether or not PARC gravely abused its discretion in revoking or recalling the
subject SDP and placing the hacienda under CARP’s compulsory acquisition and distribution scheme.
The findings, analysis and recommendation of the DAR’s Special Task Force contained and summarized in its Terminal
Report provided the bases for the assailed PARC revocatory/recalling Resolution. The findings may be grouped into two:
(1) the SDP is contrary to either the policy on agrarian reform, Sec. 31 of RA 6657, or DAO 10; and (2) the alleged violation
by HLI of the conditions/terms of the SDP. In more particular terms, the following are essentially the reasons underpinning
PARC’s revocatory or recall action:
(1) Despite the lapse of 16 years from the approval of HLI’s SDP, the lives of the FWBs have hardly improved and the
promised increased income has not materialized;
(2) HLI has failed to keep Hacienda Luisita intact and unfragmented;
(3) The issuance of HLI shares of stock on the basis of number of hours worked––or the so-called "man days"––is grossly
onerous to the FWBs, as HLI, in the guise of rotation, can unilaterally deny work to anyone. In elaboration of this ground,
PARC’s Resolution No. 2006-34-01, denying HLI’s motion for reconsideration of Resolution No. 2005-32-01, stated that
the man days criterion worked to dilute the entitlement of the original share beneficiaries;125
(4) The distribution/transfer of shares was not in accordance with the timelines fixed by law;
(5) HLI has failed to comply with its obligations to grant 3% of the gross sales every year as production-sharing benefit on
top of the workers’ salary; and
(6) Several homelot awardees have yet to receive their individual titles.
Petitioner HLI claims having complied with, at least substantially, all its obligations under the SDP, as approved by PARC
itself, and tags the reasons given for the revocation of the SDP as unfounded.
Public respondents, on the other hand, aver that the assailed resolution rests on solid grounds set forth in the Terminal
Report, a position shared by AMBALA, which, in some pleadings, is represented by the same counsel as that appearing for
the Supervisory Group.
FARM, for its part, posits the view that legal bases obtain for the revocation of the SDP, because it does not conform to
Sec. 31 of RA 6657 and DAO 10. And training its sight on the resulting dilution of the equity of the FWBs appearing in HLI’s
masterlist, FARM would state that the SDP, as couched and implemented, spawned disparity when there should be none;
parity when there should have been differentiation.126
The petition is not impressed with merit.
In the Terminal Report adopted by PARC, it is stated that the SDP violates the agrarian reform policy under Sec. 2 of RA
6657, as the said plan failed to enhance the dignity and improve the quality of lives of the FWBs through greater
productivity of agricultural lands. We disagree.
Sec. 2 of RA 6657 states:
SECTION 2. Declaration of Principles and Policies.¾It is the policy of the State to pursue a Comprehensive Agrarian Reform
Program (CARP). The welfare of the landless farmers and farm workers will receive the highest consideration to promote
social justice and to move the nation towards sound rural development and industrialization, and the establishment of
owner cultivatorship of economic-sized farms as the basis of Philippine agriculture.
To this end, a more equitable distribution and ownership of land, with due regard to the rights of landowners to just
compensation and to the ecological needs of the nation, shall be undertaken to provide farmers and farm workers with
the opportunity to enhance their dignity and improve the quality of their lives through greater productivity of agricultural
lands.
The agrarian reform program is founded on the right of farmers and regular farm workers, who are landless, to own
directly or collectively the lands they till or, in the case of other farm workers, to receive a share of the fruits thereof. To
this end, the State shall encourage the just distribution of all agricultural lands, subject to the priorities and retention
limits set forth in this Act, having taken into account ecological, developmental, and equity considerations, and subject to
the payment of just compensation. The State shall respect the right of small landowners and shall provide incentives for
voluntary land-sharing. (Emphasis supplied.)
Paragraph 2 of the above-quoted provision specifically mentions that "a more equitable distribution and ownership of
land x x x shall be undertaken to provide farmers and farm workers with the opportunity to enhance their dignity and
improve the quality of their lives through greater productivity of agricultural lands." Of note is the term "opportunity"
which is defined as a favorable chance or opening offered by circumstances.127 Considering this, by no stretch of
imagination can said provision be construed as a guarantee in improving the lives of the FWBs. At best, it merely provides
for a possibility or favorable chance of uplifting the economic status of the FWBs, which may or may not be attained.
Pertinently, improving the economic status of the FWBs is neither among the legal obligations of HLI under the SDP nor
an imperative imposition by RA 6657 and DAO 10, a violation of which would justify discarding the stock distribution
option. Nothing in that option agreement, law or department order indicates otherwise.
Significantly, HLI draws particular attention to its having paid its FWBs, during the regime of the SDP (1989-2005), some
PhP 3 billion by way of salaries/wages and higher benefits exclusive of free hospital and medical benefits to their
immediate family. And attached as Annex "G" to HLI’s Memorandum is the certified true report of the finance manager
of Jose Cojuangco & Sons Organizations-Tarlac Operations, captioned as "HACIENDA LUISITA, INC. Salaries, Benefits and
Credit Privileges (in Thousand Pesos) Since the Stock Option was Approved by PARC/CARP," detailing what HLI gave their
workers from 1989 to 2005. The sum total, as added up by the Court, yields the following numbers: Total Direct Cash Out
(Salaries/Wages & Cash Benefits) = PhP 2,927,848; Total Non-Direct Cash Out (Hospital/Medical Benefits) = PhP 303,040.
The cash out figures, as stated in the report, include the cost of homelots; the PhP 150 million or so representing 3% of
the gross produce of the hacienda; and the PhP 37.5 million representing 3% from the proceeds of the sale of the 500-
hectare converted lands. While not included in the report, HLI manifests having given the FWBs 3% of the PhP 80 million
paid for the 80 hectares of land traversed by the SCTEX.128 On top of these, it is worth remembering that the shares of
stocks were given by HLI to the FWBs for free. Verily, the FWBs have benefited from the SDP.
To address urgings that the FWBs be allowed to disengage from the SDP as HLI has not anyway earned profits through the
years, it cannot be over-emphasized that, as a matter of common business sense, no corporation could guarantee a
profitable run all the time. As has been suggested, one of the key features of an SDP of a corporate landowner is the
likelihood of the corporate vehicle not earning, or, worse still, losing money.129
The Court is fully aware that one of the criteria under DAO 10 for the PARC to consider the advisability of approving a
stock distribution plan is the likelihood that the plan "would result in increased income and greater benefits to [qualified
beneficiaries] than if the lands were divided and distributed to them individually."130 But as aptly noted during the oral
arguments, DAO 10 ought to have not, as it cannot, actually exact assurance of success on something that is subject to the
will of man, the forces of nature or the inherent risky nature of business.131 Just like in actual land distribution, an SDP
cannot guarantee, as indeed the SDOA does not guarantee, a comfortable life for the FWBs. The Court can take judicial
notice of the fact that there were many instances wherein after a farmworker beneficiary has been awarded with an
agricultural land, he just subsequently sells it and is eventually left with nothing in the end.
In all then, the onerous condition of the FWBs’ economic status, their life of hardship, if that really be the case, can hardly
be attributed to HLI and its SDP and provide a valid ground for the plan’s revocation.
Neither does HLI’s SDP, whence the DAR-attested SDOA/MOA is based, infringe Sec. 31 of RA 6657, albeit public
respondents erroneously submit otherwise.
The provisions of the first paragraph of the adverted Sec. 31 are without relevance to the issue on the propriety of the
assailed order revoking HLI’s SDP, for the paragraph deals with the transfer of agricultural lands to the government, as a
mode of CARP compliance, thus:
SEC. 31. Corporate Landowners.¾Corporate landowners may voluntarily transfer ownership over their agricultural
landholdings to the Republic of the Philippines pursuant to Section 20 hereof or to qualified beneficiaries under such terms
and conditions, consistent with this Act, as they may agree, subject to confirmation by the DAR.
The second and third paragraphs, with their sub-paragraphs, of Sec. 31 provide as follows:
Upon certification by the DAR, corporations owning agricultural lands may give their qualified beneficiaries the right to
purchase such proportion of the capital stock of the corporation that the agricultural land, actually devoted to
agricultural activities, bears in relation to the company’s total assets, under such terms and conditions as may be agreed
upon by them. In no case shall the compensation received by the workers at the time the shares of stocks are distributed
be reduced. x x x
Corporations or associations which voluntarily divest a proportion of their capital stock, equity or participation in favor of
their workers or other qualified beneficiaries under this section shall be deemed to have complied with the provisions of
this Act: Provided, That the following conditions are complied with:
(a) In order to safeguard the right of beneficiaries who own shares of stocks to dividends and other financial benefits, the
books of the corporation or association shall be subject to periodic audit by certified public accountants chosen by the
beneficiaries;
(b) Irrespective of the value of their equity in the corporation or association, the beneficiaries shall be assured of at least
one (1) representative in the board of directors, or in a management or executive committee, if one exists, of the
corporation or association;
(c) Any shares acquired by such workers and beneficiaries shall have the same rights and features as all other shares; and
(d) Any transfer of shares of stocks by the original beneficiaries shall be void ab initio unless said transaction is in favor of
a qualified and registered beneficiary within the same corporation.
The mandatory minimum ratio of land-to-shares of stock supposed to be distributed or allocated to qualified beneficiaries,
adverting to what Sec. 31 of RA 6657 refers to as that "proportion of the capital stock of the corporation that the
agricultural land, actually devoted to agricultural activities, bears in relation to the company’s total assets" had been
observed.
Paragraph one (1) of the SDOA, which was based on the SDP, conforms to Sec. 31 of RA 6657. The stipulation reads:
1. The percentage of the value of the agricultural land of Hacienda Luisita (P196,630,000.00) in relation to the total assets
(P590,554,220.00) transferred and conveyed to the SECOND PARTY is 33.296% that, under the law, is the proportion of
the outstanding capital stock of the SECOND PARTY, which is P355,531,462.00 or 355,531,462 shares with a par value of
P1.00 per share, that has to be distributed to the THIRD PARTY under the stock distribution plan, the said 33.296% thereof
being P118,391,976.85 or 118,391,976.85 shares.
The appraised value of the agricultural land is PhP 196,630,000 and of HLI’s other assets is PhP 393,924,220. The total
value of HLI’s assets is, therefore, PhP 590,554,220.132 The percentage of the value of the agricultural lands (PhP
196,630,000) in relation to the total assets (PhP 590,554,220) is 33.296%, which represents the stockholdings of the 6,296
original qualified farmworker-beneficiaries (FWBs) in HLI. The total number of shares to be distributed to said qualified
FWBs is 118,391,976.85 HLI shares. This was arrived at by getting 33.296% of the 355,531,462 shares which is the
outstanding capital stock of HLI with a value of PhP 355,531,462. Thus, if we divide the 118,391,976.85 HLI shares by 6,296
FWBs, then each FWB is entitled to 18,804.32 HLI shares. These shares under the SDP are to be given to FWBs for free.
The Court finds that the determination of the shares to be distributed to the 6,296 FWBs strictly adheres to the formula
prescribed by Sec. 31(b) of RA 6657.
Anent the requirement under Sec. 31(b) of the third paragraph, that the FWBs shall be assured of at least one (1)
representative in the board of directors or in a management or executive committee irrespective of the value of the equity
of the FWBs in HLI, the Court finds that the SDOA contained provisions making certain the FWBs’ representation in HLI’s
governing board, thus:
5. Even if only a part or fraction of the shares earmarked for distribution will have been acquired from the FIRST PARTY
and distributed to the THIRD PARTY, FIRST PARTY shall execute at the beginning of each fiscal year an irrevocable proxy,
valid and effective for one (1) year, in favor of the farmworkers appearing as shareholders of the SECOND PARTY at the
start of said year which will empower the THIRD PARTY or their representative to vote in stockholders’ and board of
directors’ meetings of the SECOND PARTY convened during the year the entire 33.296% of the outstanding capital stock
of the SECOND PARTY earmarked for distribution and thus be able to gain such number of seats in the board of directors
of the SECOND PARTY that the whole 33.296% of the shares subject to distribution will be entitled to.
Also, no allegations have been made against HLI restricting the inspection of its books by accountants chosen by the FWBs;
hence, the assumption may be made that there has been no violation of the statutory prescription under sub-paragraph
(a) on the auditing of HLI’s accounts.
Public respondents, however, submit that the distribution of the mandatory minimum ratio of land-to-shares of stock,
referring to the 118,391,976.85 shares with par value of PhP 1 each, should have been made in full within two (2) years
from the approval of RA 6657, in line with the last paragraph of Sec. 31 of said law.133
Public respondents’ submission is palpably erroneous. We have closely examined the last paragraph alluded to, with
particular focus on the two-year period mentioned, and nothing in it remotely supports the public respondents’ posture.
In its pertinent part, said Sec. 31 provides:
SEC. 31. Corporate Landowners x x x
If within two (2) years from the approval of this Act, the [voluntary] land or stock transfer envisioned above is not made
or realized or the plan for such stock distribution approved by the PARC within the same period, the agricultural land of
the corporate owners or corporation shall be subject to the compulsory coverage of this Act. (Word in bracket and
emphasis added.)
Properly viewed, the words "two (2) years" clearly refer to the period within which the corporate landowner, to avoid land
transfer as a mode of CARP coverage under RA 6657, is to avail of the stock distribution option or to have the SDP
approved. The HLI secured approval of its SDP in November 1989, well within the two-year period reckoned from June
1988 when RA 6657 took effect.
Having hurdled the alleged breach of the agrarian reform policy under Sec. 2 of RA 6657 as well as the statutory issues,
We shall now delve into what PARC and respondents deem to be other instances of violation of DAO 10 and the SDP.
On the Conversion of Lands
Contrary to the almost parallel stance of the respondents, keeping Hacienda Luisita unfragmented is also not among the
imperative impositions by the SDP, RA 6657, and DAO 10.
The Terminal Report states that the proposed distribution plan submitted in 1989 to the PARC effectively assured the
intended stock beneficiaries that the physical integrity of the farm shall remain inviolate. Accordingly, the Terminal Report
and the PARC-assailed resolution would take HLI to task for securing approval of the conversion to non-agricultural uses
of 500 hectares of the hacienda. In not too many words, the Report and the resolution view the conversion as an
infringement of Sec. 5(a) of DAO 10 which reads: "a. that the continued operation of the corporation with its agricultural
land intact and unfragmented is viable with potential for growth and increased profitability."
The PARC is wrong.
In the first place, Sec. 5(a)––just like the succeeding Sec. 5(b) of DAO 10 on increased income and greater benefits to
qualified beneficiaries––is but one of the stated criteria to guide PARC in deciding on whether or not to accept an SDP.
Said Sec. 5(a) does not exact from the corporate landowner-applicant the undertaking to keep the farm intact and
unfragmented ad infinitum. And there is logic to HLI’s stated observation that the key phrase in the provision of Sec. 5(a)
is "viability of corporate operations": "[w]hat is thus required is not the agricultural land remaining intact x x x but the
viability of the corporate operations with its agricultural land being intact and unfragmented. Corporate operation may
be viable even if the corporate agricultural land does not remain intact or [un]fragmented."134
It is, of course, anti-climactic to mention that DAR viewed the conversion as not violative of any issuance, let alone
undermining the viability of Hacienda Luisita’s operation, as the DAR Secretary approved the land conversion applied for
and its disposition via his Conversion Order dated August 14, 1996 pursuant to Sec. 65 of RA 6657 which reads:
Sec. 65. Conversion of Lands.¾After the lapse of five years from its award when the land ceases to be economically feasible
and sound for agricultural purposes, or the locality has become urbanized and the land will have a greater economic value
for residential, commercial or industrial purposes, the DAR upon application of the beneficiary or landowner with due
notice to the affected parties, and subject to existing laws, may authorize the x x x conversion of the land and its
dispositions. x x x
On the 3% Production Share
On the matter of the alleged failure of HLI to comply with sharing the 3% of the gross production sales of the hacienda
and pay dividends from profit, the entries in its financial books tend to indicate compliance by HLI of the profit-sharing
equivalent to 3% of the gross sales from the production of the agricultural land on top of (a) the salaries and wages due
FWBs as employees of the company and (b) the 3% of the gross selling price of the converted land and that portion used
for the SCTEX. A plausible evidence of compliance or non-compliance, as the case may be, could be the books of account
of HLI. Evidently, the cry of some groups of not having received their share from the gross production sales has not
adequately been validated on the ground by the Special Task Force.
Indeed, factual findings of administrative agencies are conclusive when supported by substantial evidence and are
accorded due respect and weight, especially when they are affirmed by the CA.135 However, such rule is not absolute. One
such exception is when the findings of an administrative agency are conclusions without citation of specific evidence on
which they are based,136 such as in this particular instance. As culled from its Terminal Report, it would appear that the
Special Task Force rejected HLI’s claim of compliance on the basis of this ratiocination:
  The Task Force position: Though, allegedly, the Supervisory Group receives the 3% gross production share and
that others alleged that they received 30 million pesos still others maintain that they have not received anything
yet. Item No. 4 of the MOA is clear and must be followed. There is a distinction between the total gross sales from
the production of the land and the proceeds from the sale of the land. The former refers to the fruits/yield of the
agricultural land while the latter is the land itself. The phrase "the beneficiaries are entitled every year to an
amount approximately equivalent to 3% would only be feasible if the subject is the produce since there is at least
one harvest per year, while such is not the case in the sale of the agricultural land. This negates then the claim of
HLI that, all that the FWBs can be entitled to, if any, is only 3% of the purchase price of the converted land.
 Besides, the Conversion Order dated 14 August 1996 provides that "the benefits, wages and the like, presently
received by the FWBs shall not in any way be reduced or adversely affected. Three percent of the gross selling
price of the sale of the converted land shall be awarded to the beneficiaries of the SDO." The 3% gross production
share then is different from the 3% proceeds of the sale of the converted land and, with more reason, the 33%
share being claimed by the FWBs as part owners of the Hacienda, should have been given the FWBs, as
stockholders, and to which they could have been entitled if only the land were acquired and redistributed to them
under the CARP.
xxxx
 The FWBs do not receive any other benefits under the MOA except the aforementioned [(viz: shares of stocks
(partial), 3% gross production sale (not all) and homelots (not all)].
Judging from the above statements, the Special Task Force is at best silent on whether HLI has failed to comply with the
3% production-sharing obligation or the 3% of the gross selling price of the converted land and the SCTEX lot. In fact, it
admits that the FWBs, though not all, have received their share of the gross production sales and in the sale of the lot to
SCTEX. At most, then, HLI had complied substantially with this SDP undertaking and the conversion order. To be sure, this
slight breach would not justify the setting to naught by PARC of the approval action of the earlier PARC. Even in contract
law, rescission, predicated on violation of reciprocity, will not be permitted for a slight or casual breach of contract;
rescission may be had only for such breaches that are substantial and fundamental as to defeat the object of the parties
in making the agreement.137
Despite the foregoing findings, the revocation of the approval of the SDP is not without basis as shown below.
On Titles to Homelots
Under RA 6657, the distribution of homelots is required only for corporations or business associations owning or operating
farms which opted for land distribution. Sec. 30 of RA 6657 states:
SEC. 30. Homelots and Farmlots for Members of Cooperatives.¾The individual members of the cooperatives or
corporations mentioned in the preceding section shall be provided with homelots and small farmlots for their family use,
to be taken from the land owned by the cooperative or corporation.
The "preceding section" referred to in the above-quoted provision is as follows:
SEC. 29. Farms Owned or Operated by Corporations or Other Business Associations.¾In the case of farms owned or
operated by corporations or other business associations, the following rules shall be observed by the PARC.
In general, lands shall be distributed directly to the individual worker-beneficiaries.
In case it is not economically feasible and sound to divide the land, then it shall be owned collectively by the worker-
beneficiaries who shall form a workers’ cooperative or association which will deal with the corporation or business
association. Until a new agreement is entered into by and between the workers’ cooperative or association and the
corporation or business association, any agreement existing at the time this Act takes effect between the former and the
previous landowner shall be respected by both the workers’ cooperative or association and the corporation or business
association.
Noticeably, the foregoing provisions do not make reference to corporations which opted for stock distribution under Sec.
31 of RA 6657. Concomitantly, said corporations are not obliged to provide for it except by stipulation, as in this case.
Under the SDP, HLI undertook to "subdivide and allocate for free and without charge among the qualified family-
beneficiaries x x x residential or homelots of not more than 240 sq. m. each, with each family beneficiary being assured of
receiving and owning a homelot in the barrio or barangay where it actually resides," "within a reasonable time."
More than sixteen (16) years have elapsed from the time the SDP was approved by PARC, and yet, it is still the contention
of the FWBs that not all was given the 240-square meter homelots and, of those who were already given, some still do
not have the corresponding titles.
During the oral arguments, HLI was afforded the chance to refute the foregoing allegation by submitting proof that the
FWBs were already given the said homelots:
Justice Velasco: x x x There is also an allegation that the farmer beneficiaries, the qualified family beneficiaries were not
given the 240 square meters each. So, can you also [prove] that the qualified family beneficiaries were already provided
the 240 square meter homelots.
Atty. Asuncion: We will, your Honor please.138
Other than the financial report, however, no other substantial proof showing that all the qualified beneficiaries have
received homelots was submitted by HLI. Hence, this Court is constrained to rule that HLI has not yet fully complied with
its undertaking to distribute homelots to the FWBs under the SDP.
On "Man Days" and the Mechanics of Stock Distribution
In our review and analysis of par. 3 of the SDOA on the mechanics and timelines of stock distribution, We find that
it violates two (2) provisions of DAO 10. Par. 3 of the SDOA states:
3. At the end of each fiscal year, for a period of 30 years, the SECOND PARTY [HLI] shall arrange with the FIRST PARTY [TDC]
the acquisition and distribution to the THIRD PARTY [FWBs] on the basis of number of days worked and at no cost to them
of one-thirtieth (1/30) of 118,391,976.85 shares of the capital stock of the SECOND PARTY that are presently owned and
held by the FIRST PARTY, until such time as the entire block of 118,391,976.85 shares shall have been completely acquired
and distributed to the THIRD PARTY.
Based on the above-quoted provision, the distribution of the shares of stock to the FWBs, albeit not entailing a cash out
from them, is contingent on the number of "man days," that is, the number of days that the FWBs have worked during
the year. This formula deviates from Sec. 1 of DAO 10, which decrees the distribution of equal number of shares to the
FWBs as the minimum ratio of shares of stock for purposes of compliance with Sec. 31 of RA 6657. As stated in Sec. 4 of
DAO 10:
Section 4. Stock Distribution Plan.¾The [SDP] submitted by the corporate landowner-applicant shall provide for the
distribution of an equal number of shares of the same class and value, with the same rights and features as all other
shares, to each of the qualified beneficiaries. This distribution plan in all cases, shall be at least the minimum ratio for
purposes of compliance with Section 31 of R.A. No. 6657.
On top of the minimum ratio provided under Section 3 of this Implementing Guideline, the corporate landowner-applicant
may adopt additional stock distribution schemes taking into account factors such as rank, seniority, salary, position and
other circumstances which may be deemed desirable as a matter of sound company policy. (Emphasis supplied.)
The above proviso gives two (2) sets or categories of shares of stock which a qualified beneficiary can acquire from the
corporation under the SDP. The first pertains, as earlier explained, to the mandatory minimum ratio of shares of stock to
be distributed to the FWBs in compliance with Sec. 31 of RA 6657. This minimum ratio contemplates of that "proportion
of the capital stock of the corporation that the agricultural land, actually devoted to agricultural activities, bears in relation
to the company’s total assets."139 It is this set of shares of stock which, in line with Sec. 4 of DAO 10, is supposed to be
allocated "for the distribution of an equal number of shares of stock of the same class and value, with the same rights and
features as all other shares, to each of the qualified beneficiaries."
On the other hand, the second set or category of shares partakes of a gratuitous extra grant, meaning that this set or
category constitutes an augmentation share/s that the corporate landowner may give under an additional stock
distribution scheme, taking into account such variables as rank, seniority, salary, position and like factors which the
management, in the exercise of its sound discretion, may deem desirable.140
Before anything else, it should be stressed that, at the time PARC approved HLI’s SDP, HLI recognized 6,296individuals as
qualified FWBs. And under the 30-year stock distribution program envisaged under the plan, FWBs who came in after
1989, new FWBs in fine, may be accommodated, as they appear to have in fact been accommodated as evidenced by their
receipt of HLI shares.
Now then, by providing that the number of shares of the original 1989 FWBs shall depend on the number of "man days,"
HLI violated the afore-quoted rule on stock distribution and effectively deprived the FWBs of equal shares of stock in the
corporation, for, in net effect, these 6,296 qualified FWBs, who theoretically had given up their rights to the land that
could have been distributed to them, suffered a dilution of their due share entitlement. As has been observed during the
oral arguments, HLI has chosen to use the shares earmarked for farmworkers as reward system chips to water down the
shares of the original 6,296 FWBs.141 Particularly:
Justice Abad: If the SDOA did not take place, the other thing that would have happened is that there would be CARP?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: That’s the only point I want to know x x x. Now, but they chose to enter SDOA instead of placing the land
under CARP. And for that reason those who would have gotten their shares of the land actually gave up their rights to this
land in place of the shares of the stock, is that correct?
Atty. Dela Merced: It would be that way, Your Honor.
Justice Abad: Right now, also the government, in a way, gave up its right to own the land because that way the government
takes own [sic] the land and distribute it to the farmers and pay for the land, is that correct?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: And then you gave thirty-three percent (33%) of the shares of HLI to the farmers at that time that numbered
x x x those who signed five thousand four hundred ninety eight (5,498) beneficiaries, is that correct?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: But later on, after assigning them their shares, some workers came in from 1989, 1990, 1991, 1992 and the
rest of the years that you gave additional shares who were not in the original list of owners?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: Did those new workers give up any right that would have belong to them in 1989 when the land was
supposed to have been placed under CARP?
Atty. Dela Merced: If you are talking or referring… (interrupted)
Justice Abad: None! You tell me. None. They gave up no rights to land?
Atty. Dela Merced: They did not do the same thing as we did in 1989, Your Honor.
Justice Abad: No, if they were not workers in 1989 what land did they give up? None, if they become workers later on.
Atty. Dela Merced: None, Your Honor, I was referring, Your Honor, to the original… (interrupted)
Justice Abad: So why is it that the rights of those who gave up their lands would be diluted, because the company has
chosen to use the shares as reward system for new workers who come in? It is not that the new workers, in effect, become
just workers of the corporation whose stockholders were already fixed. The TADECO who has shares there about sixty six
percent (66%) and the five thousand four hundred ninety eight (5,498) farmers at the time of the SDOA? Explain to me.
Why, why will you x x x what right or where did you get that right to use this shares, to water down the shares of those
who should have been benefited, and to use it as a reward system decided by the company?142
From the above discourse, it is clear as day that the original 6,296 FWBs, who were qualified beneficiaries at the time of
the approval of the SDP, suffered from watering down of shares. As determined earlier, each original FWB is entitled to
18,804.32 HLI shares. The original FWBs got less than the guaranteed 18,804.32 HLI shares per beneficiary, because the
acquisition and distribution of the HLI shares were based on "man days" or "number of days worked" by the FWB in a
year’s time. As explained by HLI, a beneficiary needs to work for at least 37 days in a fiscal year before he or she becomes
entitled to HLI shares. If it falls below 37 days, the FWB, unfortunately, does not get any share at year end. The number of
HLI shares distributed varies depending on the number of days the FWBs were allowed to work in one year. Worse, HLI
hired farmworkers in addition to the original 6,296 FWBs, such that, as indicated in the Compliance dated August 2, 2010
submitted by HLI to the Court, the total number of farmworkers of HLI as of said date stood at 10,502. All these
farmworkers, which include the original 6,296 FWBs, were given shares out of the 118,931,976.85 HLI shares representing
the 33.296% of the total outstanding capital stock of HLI. Clearly, the minimum individual allocation of each original FWB
of 18,804.32 shares was diluted as a result of the use of "man days" and the hiring of additional farmworkers.
Going into another but related matter, par. 3 of the SDOA expressly providing for a 30-year timeframe for HLI-to-FWBs
stock transfer is an arrangement contrary to what Sec. 11 of DAO 10 prescribes. Said Sec. 11 provides for the
implementation of the approved stock distribution plan within three (3) months from receipt by the corporate landowner
of the approval of the plan by PARC. In fact, based on the said provision, the transfer of the shares of stock in the names
of the qualified FWBs should be recorded in the stock and transfer books and must be submitted to the SEC within sixty
(60) days from implementation. As stated:
Section 11. Implementation/Monitoring of Plan.¾The approved stock distribution plan shall be implemented within three
(3) months from receipt by the corporate landowner-applicant of the approval thereof by the PARC, and the transfer of
the shares of stocks in the names of the qualified beneficiaries shall be recorded in stock and transfer books and submitted
to the Securities and Exchange Commission (SEC) within sixty (60) days from the said implementation of the stock
distribution plan. (Emphasis supplied.)
It is evident from the foregoing provision that the implementation, that is, the distribution of the shares of stock to the
FWBs, must be made within three (3) months from receipt by HLI of the approval of the stock distribution plan by PARC.
While neither of the clashing parties has made a compelling case of the thrust of this provision, the Court is of the view
and so holds that the intent is to compel the corporate landowner to complete, not merely initiate, the transfer process
of shares within that three-month timeframe. Reinforcing this conclusion is the 60-day stock transfer recording (with the
SEC) requirement reckoned from the implementation of the SDP.
To the Court, there is a purpose, which is at once discernible as it is practical, for the three-month threshold. Remove this
timeline and the corporate landowner can veritably evade compliance with agrarian reform by simply deferring to absurd
limits the implementation of the stock distribution scheme.
The argument is urged that the thirty (30)-year distribution program is justified by the fact that, under Sec. 26 of RA 6657,
payment by beneficiaries of land distribution under CARP shall be made in thirty (30) annual amortizations. To HLI, said
section provides a justifying dimension to its 30-year stock distribution program.
HLI’s reliance on Sec. 26 of RA 6657, quoted in part below, is obviously misplaced as the said provision clearly deals with
land distribution.
SEC. 26. Payment by Beneficiaries.¾Lands awarded pursuant to this Act shall be paid for by the beneficiaries to the LBP in
thirty (30) annual amortizations x x x.
Then, too, the ones obliged to pay the LBP under the said provision are the beneficiaries. On the other hand, in the instant
case, aside from the fact that what is involved is stock distribution, it is the corporate landowner who has the obligation
to distribute the shares of stock among the FWBs.
Evidently, the land transfer beneficiaries are given thirty (30) years within which to pay the cost of the land thus awarded
them to make it less cumbersome for them to pay the government. To be sure, the reason underpinning the 30-year
accommodation does not apply to corporate landowners in distributing shares of stock to the qualified beneficiaries, as
the shares may be issued in a much shorter period of time.
Taking into account the above discussion, the revocation of the SDP by PARC should be upheld for violating DAO 10. It
bears stressing that under Sec. 49 of RA 6657, the PARC and the DAR have the power to issue rules and regulations,
substantive or procedural. Being a product of such rule-making power, DAO 10 has the force and effect of law and must
be duly complied with.143 The PARC is, therefore, correct in revoking the SDP. Consequently, the PARC Resolution No. 89-
12-2 dated November 21, l989 approving the HLI’s SDP is nullified and voided.
III.
We now resolve the petitions-in-intervention which, at bottom, uniformly pray for the exclusion from the coverage of the
assailed PARC resolution those portions of the converted land within Hacienda Luisita which RCBC and LIPCO acquired by
purchase.
Both contend that they are innocent purchasers for value of portions of the converted farm land. Thus, their plea for the
exclusion of that portion from PARC Resolution 2005-32-01, as implemented by a DAR-issued Notice of Coverage dated
January 2, 2006, which called for mandatory CARP acquisition coverage of lands subject of the SDP.
To restate the antecedents, after the conversion of the 500 hectares of land in Hacienda Luisita, HLI transferred the 300
hectares to Centennary, while ceding the remaining 200-hectare portion to LRC. Subsequently, LIPCO purchased the entire
three hundred (300) hectares of land from Centennary for the purpose of developing the land into an industrial
complex.144 Accordingly, the TCT in Centennary’s name was canceled and a new one issued in LIPCO’s name. Thereafter,
said land was subdivided into two (2) more parcels of land. Later on, LIPCO transferred about 184 hectares to RCBC by
way of dacion en pago, by virtue of which TCTs in the name of RCBC were subsequently issued.
Under Sec. 44 of PD 1529 or the Property Registration Decree, "every registered owner receiving a certificate of title in
pursuance of a decree of registration and every subsequent purchaser of registered land taking a certificate of title for
value and in good faith shall hold the same free from all encumbrances except those noted on the certificate and
enumerated therein."145
It is settled doctrine that one who deals with property registered under the Torrens system need not go beyond the four
corners of, but can rely on what appears on, the title. He is charged with notice only of such burdens and claims as are
annotated on the title. This principle admits of certain exceptions, such as when the party has actual knowledge of facts
and circumstances that would impel a reasonably cautious man to make such inquiry, or when the purchaser has
knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire
into the status of the title of the property in litigation.146 A higher level of care and diligence is of course expected from
banks, their business being impressed with public interest.147
Millena v. Court of Appeals describes a purchaser in good faith in this wise:
x x x A purchaser in good faith is one who buys property of another, without notice that some other person has a right to,
or interest in, such property at the time of such purchase, or before he has notice of the claim or interest of some other
persons in the property. Good faith, or the lack of it, is in the final analysis a question of intention; but in ascertaining the
intention by which one is actuated on a given occasion, we are necessarily controlled by the evidence as to the conduct
and outward acts by which alone the inward motive may, with safety, be determined. Truly, good faith is not a visible,
tangible fact that can be seen or touched, but rather a state or condition of mind which can only be judged by actual or
fancied tokens or signs. Otherwise stated, good faith x x x refers to the state of mind which is manifested by the acts of
the individual concerned.148 (Emphasis supplied.)
In fine, there are two (2) requirements before one may be considered a purchaser in good faith, namely: (1) that the
purchaser buys the property of another without notice that some other person has a right to or interest in such property;
and (2) that the purchaser pays a full and fair price for the property at the time of such purchase or before he or she has
notice of the claim of another.
It can rightfully be said that both LIPCO and RCBC are––based on the above requirements and with respect to the adverted
transactions of the converted land in question––purchasers in good faith for value entitled to the benefits arising from
such status.
First, at the time LIPCO purchased the entire three hundred (300) hectares of industrial land, there was no notice of any
supposed defect in the title of its transferor, Centennary, or that any other person has a right to or interest in such
property. In fact, at the time LIPCO acquired said parcels of land, only the following annotations appeared on the TCT in
the name of Centennary: the Secretary’s Certificate in favor of Teresita Lopa, the Secretary’s Certificate in favor of Shintaro
Murai, and the conversion of the property from agricultural to industrial and residential use.149
The same is true with respect to RCBC. At the time it acquired portions of Hacienda Luisita, only the following general
annotations appeared on the TCTs of LIPCO: the Deed of Restrictions, limiting its use solely as an industrial estate; the
Secretary’s Certificate in favor of Koji Komai and Kyosuke Hori; and the Real Estate Mortgage in favor of RCBC to guarantee
the payment of PhP 300 million.
It cannot be claimed that RCBC and LIPCO acted in bad faith in acquiring the lots that were previously covered by the SDP.
Good faith "consists in the possessor’s belief that the person from whom he received it was the owner of the same and
could convey his title. Good faith requires a well-founded belief that the person from whom title was received was himself
the owner of the land, with the right to convey it. There is good faith where there is an honest intention to abstain from
taking any unconscientious advantage from another."150 It is the opposite of fraud.
To be sure, intervenor RCBC and LIPCO knew that the lots they bought were subjected to CARP coverage by means of a
stock distribution plan, as the DAR conversion order was annotated at the back of the titles of the lots they acquired.
However, they are of the honest belief that the subject lots were validly converted to commercial or industrial purposes
and for which said lots were taken out of the CARP coverage subject of PARC Resolution No. 89-12-2 and, hence, can be
legally and validly acquired by them. After all, Sec. 65 of RA 6657 explicitly allows conversion and disposition of agricultural
lands previously covered by CARP land acquisition "after the lapse of five (5) years from its award when the land ceases
to be economically feasible and sound for agricultural purposes or the locality has become urbanized and the land will
have a greater economic value for residential, commercial or industrial purposes." Moreover, DAR notified all the affected
parties, more particularly the FWBs, and gave them the opportunity to comment or oppose the proposed conversion.
DAR, after going through the necessary processes, granted the conversion of 500 hectares of Hacienda Luisita pursuant to
its primary jurisdiction under Sec. 50 of RA 6657 to determine and adjudicate agrarian reform matters and its original
exclusive jurisdiction over all matters involving the implementation of agrarian reform. The DAR conversion order became
final and executory after none of the FWBs interposed an appeal to the CA. In this factual setting, RCBC and LIPCO
purchased the lots in question on their honest and well-founded belief that the previous registered owners could legally
sell and convey the lots though these were previously subject of CARP coverage. Ergo, RCBC and LIPCO acted in good faith
in acquiring the subject lots.
And second, both LIPCO and RCBC purchased portions of Hacienda Luisita for value. Undeniably, LIPCO acquired 300
hectares of land from Centennary for the amount of PhP 750 million pursuant to a Deed of Sale dated July 30, 1998.151 On
the other hand, in a Deed of Absolute Assignment dated November 25, 2004, LIPCO conveyed portions of Hacienda Luisita
in favor of RCBC by way of dacion en pago to pay for a loan of PhP 431,695,732.10.
As bona fide purchasers for value, both LIPCO and RCBC have acquired rights which cannot just be disregarded by DAR,
PARC or even by this Court. As held in Spouses Chua v. Soriano:
With the property in question having already passed to the hands of purchasers in good faith, it is now of no moment that
some irregularity attended the issuance of the SPA, consistent with our pronouncement in Heirs of Spouses Benito Gavino
and Juana Euste v. Court of Appeals, to wit:
x x x the general rule that the direct result of a previous void contract cannot be valid, is inapplicable in this case as it will
directly contravene the Torrens system of registration. Where innocent third persons, relying on the correctness of the
certificate of title thus issued, acquire rights over the property, the court cannot disregard such rights and order the
cancellation of the certificate. The effect of such outright cancellation will be to impair public confidence in the certificate
of title. The sanctity of the Torrens system must be preserved; otherwise, everyone dealing with the property registered
under the system will have to inquire in every instance as to whether the title had been regularly or irregularly issued,
contrary to the evident purpose of the law.
Being purchasers in good faith, the Chuas already acquired valid title to the property. A purchaser in good faith holds
an indefeasible title to the property and he is entitled to the protection of the law.152 x x x (Emphasis supplied.)
To be sure, the practicalities of the situation have to a point influenced Our disposition on the fate of RCBC and LIPCO.
After all, the Court, to borrow from Association of Small Landowners in the Philippines, Inc.,153 is not a "cloistered
institution removed" from the realities on the ground. To note, the approval and issuances of both the national and local
governments showing that certain portions of Hacienda Luisita have effectively ceased, legally and physically, to be
agricultural and, therefore, no longer CARPable are a matter of fact which cannot just be ignored by the Court and the
DAR. Among the approving/endorsing issuances:154
(a) Resolution No. 392 dated 11 December 1996 of the Sangguniang Bayan of Tarlac favorably endorsing the 300-hectare
industrial estate project of LIPCO;
(b) BOI Certificate of Registration No. 96-020 dated 20 December 1996 issued in accordance with the Omnibus Investments
Code of 1987;
(c) PEZA Certificate of Board Resolution No. 97-202 dated 27 June 1997, approving LIPCO’s application for a mixed ecozone
and proclaiming the three hundred (300) hectares of the industrial land as a Special Economic Zone;
(d) Resolution No. 234 dated 08 August 1997 of the Sangguniang Bayan of Tarlac, approving the Final Development Permit
for the Luisita Industrial Park II Project;
(e) Development Permit dated 13 August 1997 for the proposed Luisita Industrial Park II Project issued by the Office of
the Sangguniang Bayan of Tarlac;155
(f) DENR Environmental Compliance Certificate dated 01 October 1997 issued for the proposed project of building an
industrial complex on three hundred (300) hectares of industrial land;156
(g) Certificate of Registration No. 00794 dated 26 December 1997 issued by the HLURB on the project of Luisita Industrial
Park II with an area of three million (3,000,000) square meters;157
(h) License to Sell No. 0076 dated 26 December 1997 issued by the HLURB authorizing the sale of lots in the Luisita
Industrial Park II;
(i) Proclamation No. 1207 dated 22 April 1998 entitled "Declaring Certain Parcels of Private Land in Barangay San Miguel,
Municipality of Tarlac, Province of Tarlac, as a Special Economic Zone pursuant to Republic Act No. 7916," designating the
Luisita Industrial Park II consisting of three hundred hectares (300 has.) of industrial land as a Special Economic Zone; and
(j) Certificate of Registration No. EZ-98-05 dated 07 May 1998 issued by the PEZA, stating that pursuant to Presidential
Proclamation No. 1207 dated 22 April 1998 and Republic Act No. 7916, LIPCO has been registered as an Ecozone
Developer/Operator of Luisita Industrial Park II located in San Miguel, Tarlac, Tarlac.
While a mere reclassification of a covered agricultural land or its inclusion in an economic zone does not automatically
allow the corporate or individual landowner to change its use,158 the reclassification process is a prima facie indicium that
the land has ceased to be economically feasible and sound for agricultural uses. And if only to stress, DAR Conversion
Order No. 030601074-764-(95) issued in 1996 by then DAR Secretary Garilao had effectively converted 500 hectares of
hacienda land from agricultural to industrial/commercial use and authorized their disposition.
In relying upon the above-mentioned approvals, proclamation and conversion order, both RCBC and LIPCO cannot be
considered at fault for believing that certain portions of Hacienda Luisita are industrial/commercial lands and are, thus,
outside the ambit of CARP. The PARC, and consequently DAR, gravely abused its discretion when it placed LIPCO’s and
RCBC’s property which once formed part of Hacienda Luisita under the CARP compulsory acquisition scheme via the
assailed Notice of Coverage.
As regards the 80.51-hectare land transferred to the government for use as part of the SCTEX, this should also be excluded
from the compulsory agrarian reform coverage considering that the transfer was consistent with the government’s
exercise of the power of eminent domain159 and none of the parties actually questioned the transfer.
While We affirm the revocation of the SDP on Hacienda Luisita subject of PARC Resolution Nos. 2005-32-01 and 2006-34-
01, the Court cannot close its eyes to certain "operative facts" that had occurred in the interim. Pertinently, the "operative
fact" doctrine realizes that, in declaring a law or executive action null and void, or, by extension, no longer without force
and effect, undue harshness and resulting unfairness must be avoided. This is as it should realistically be, since rights might
have accrued in favor of natural or juridical persons and obligations justly incurred in the meantime.160 The actual
existence of a statute or executive act is, prior to such a determination, an operative fact and may have consequences
which cannot justly be ignored; the past cannot always be erased by a new judicial declaration.161
The oft-cited De Agbayani v. Philippine National Bank162 discussed the effect to be given to a legislative or executive act
subsequently declared invalid:
x x x It does not admit of doubt that prior to the declaration of nullity such challenged legislative or executive act must
have been in force and had to be complied with. This is so as until after the judiciary, in an appropriate case, declares its
invalidity, it is entitled to obedience and respect. Parties may have acted under it and may have changed their positions.
What could be more fitting than that in a subsequent litigation regard be had to what has been done while such legislative
or executive act was in operation and presumed to be valid in all respects. It is now accepted as a doctrine that prior to its
being nullified, its existence as a fact must be reckoned with. This is merely to reflect awareness that precisely because
the judiciary is the government organ which has the final say on whether or not a legislative or executive measure is valid,
a period of time may have elapsed before it can exercise the power of judicial review that may lead to a declaration of
nullity. It would be to deprive the law of its quality of fairness and justice then, if there be no recognition of what had
transpired prior to such adjudication.
In the language of an American Supreme Court decision: "The actual existence of a statute, prior to such a determination
of [unconstitutionality], is an operative fact and may have consequences which cannot justly be ignored. The past cannot
always be erased by a new judicial declaration. The effect of the subsequent ruling as to invalidity may have to be
considered in various aspects,––with respect to particular relations, individual and corporate, and particular conduct,
private and official." x x x
Given the above perspective and considering that more than two decades had passed since the PARC’s approval of the
HLI’s SDP, in conjunction with numerous activities performed in good faith by HLI, and the reliance by the FWBs on the
legality and validity of the PARC-approved SDP, perforce, certain rights of the parties, more particularly the FWBs, have to
be respected pursuant to the application in a general way of the operative fact doctrine.
A view, however, has been advanced that the operative fact doctrine is of minimal or altogether without relevance to the
instant case as it applies only in considering the effects of a declaration of unconstitutionality of a statute, and not of a
declaration of nullity of a contract. This is incorrect, for this view failed to consider is that it is NOT the SDOA dated May
11, 1989 which was revoked in the instant case. Rather, it is PARC’s approval of the HLI’s Proposal for Stock Distribution
under CARP which embodied the SDP that was nullified.
A recall of the antecedent events would show that on May 11, 1989, Tadeco, HLI, and the qualified FWBs executed the
SDOA. This agreement provided the basis and mechanics of the SDP that was subsequently proposed and submitted to
DAR for approval. It was only after its review that the PARC, through then Sec. Defensor-Santiago, issued the assailed
Resolution No. 89-12-2 approving the SDP. Considerably, it is not the SDOA which gave legal force and effect to the stock
distribution scheme but instead, it is the approval of the SDP under the PARC Resolution No. 89-12-2 that gave it its validity.
The above conclusion is bolstered by the fact that in Sec. Pangandaman’s recommendation to the PARC Excom, what he
proposed is the recall/revocation of PARC Resolution No. 89-12-2 approving HLI’s SDP, and not the revocation of the SDOA.
Sec. Pangandaman’s recommendation was favorably endorsed by the PARC Validation Committee to the PARC Excom,
and these recommendations were referred to in the assailed Resolution No. 2005-32-01. Clearly, it is not the SDOA which
was made the basis for the implementation of the stock distribution scheme.
That the operative fact doctrine squarely applies to executive acts––in this case, the approval by PARC of the HLI proposal
for stock distribution––is well-settled in our jurisprudence. In Chavez v. National Housing Authority,163 We held:
Petitioner postulates that the "operative fact" doctrine is inapplicable to the present case because it is an equitable
doctrine which could not be used to countenance an inequitable result that is contrary to its proper office.
On the other hand, the petitioner Solicitor General argues that the existence of the various agreements implementing the
SMDRP is an operative fact that can no longer be disturbed or simply ignored, citing Rieta v. People of the Philippines.
The argument of the Solicitor General is meritorious.
The "operative fact" doctrine is embodied in De Agbayani v. Court of Appeals, wherein it is stated that a legislative or
executive act, prior to its being declared as unconstitutional by the courts, is valid and must be complied with, thus:
xxx xxx xxx
This doctrine was reiterated in the more recent case of City of Makati v. Civil Service Commission, wherein we ruled that:
Moreover, we certainly cannot nullify the City Government's order of suspension, as we have no reason to do so, much
less retroactively apply such nullification to deprive private respondent of a compelling and valid reason for not filing the
leave application. For as we have held, a void act though in law a mere scrap of paper nonetheless confers legitimacy upon
past acts or omissions done in reliance thereof. Consequently, the existence of a statute or executive order prior to its
being adjudged void is an operative fact to which legal consequences are attached. It would indeed be ghastly unfair to
prevent private respondent from relying upon the order of suspension in lieu of a formal leave application. (Citations
omitted; Emphasis supplied.)
The applicability of the operative fact doctrine to executive acts was further explicated by this Court in Rieta v.
People,164 thus:
Petitioner contends that his arrest by virtue of Arrest Search and Seizure Order (ASSO) No. 4754 was invalid, as the law
upon which it was predicated — General Order No. 60, issued by then President Ferdinand E. Marcos — was subsequently
declared by the Court, in Tañada v. Tuvera, 33 to have no force and effect. Thus, he asserts, any evidence obtained
pursuant thereto is inadmissible in evidence.
We do not agree. In Tañada, the Court addressed the possible effects of its declaration of the invalidity of various
presidential issuances. Discussing therein how such a declaration might affect acts done on a presumption of their validity,
the Court said:
". . .. In similar situations in the past this Court had taken the pragmatic and realistic course set forth in Chicot County
Drainage District vs. Baxter Bank to wit:
‘The courts below have proceeded on the theory that the Act of Congress, having been found to be unconstitutional, was
not a law; that it was inoperative, conferring no rights and imposing no duties, and hence affording no basis for the
challenged decree. . . . It is quite clear, however, that such broad statements as to the effect of a determination of
unconstitutionality must be taken with qualifications. The actual existence of a statute, prior to [the determination of its
invalidity], is an operative fact and may have consequences which cannot justly be ignored. The past cannot always be
erased by a new judicial declaration. The effect of the subsequent ruling as to invalidity may have to be considered in
various aspects — with respect to particular conduct, private and official. Questions of rights claimed to have become
vested, of status, of prior determinations deemed to have finality and acted upon accordingly, of public policy in the light
of the nature both of the statute and of its previous application, demand examination. These questions are among the
most difficult of those which have engaged the attention of courts, state and federal, and it is manifest from numerous
decisions that an all-inclusive statement of a principle of absolute retroactive invalidity cannot be justified.’
xxx xxx xxx
"Similarly, the implementation/enforcement of presidential decrees prior to their publication in the Official Gazette is ‘an
operative fact which may have consequences which cannot be justly ignored. The past cannot always be erased by a new
judicial declaration . . . that an all-inclusive statement of a principle of absolute retroactive invalidity cannot be justified.’"
The Chicot doctrine cited in Tañada advocates that, prior to the nullification of a statute, there is an imperative necessity
of taking into account its actual existence as an operative fact negating the acceptance of "a principle of absolute
retroactive invalidity." Whatever was done while the legislative or the executive act was in operation should be duly
recognized and presumed to be valid in all respects. The ASSO that was issued in 1979 under General Order No. 60 — long
before our Decision in Tañada and the arrest of petitioner — is an operative fact that can no longer be disturbed or simply
ignored. (Citations omitted; Emphasis supplied.)
To reiterate, although the assailed Resolution No. 2005-32-01 states that it revokes or recalls the SDP, what it actually
revoked or recalled was the PARC’s approval of the SDP embodied in Resolution No. 89-12-2. Consequently, what was
actually declared null and void was an executive act, PARC Resolution No. 89-12-2,165and not a contract (SDOA). It is,
therefore, wrong to say that it was the SDOA which was annulled in the instant case. Evidently, the operative fact doctrine
is applicable.
IV.
While the assailed PARC resolutions effectively nullifying the Hacienda Luisita SDP are upheld, the revocation must, by
application of the operative fact principle, give way to the right of the original 6,296 qualified FWBs to choose whether
they want to remain as HLI stockholders or not. The Court cannot turn a blind eye to the fact that in 1989, 93% of the
FWBs agreed to the SDOA (or the MOA), which became the basis of the SDP approved by PARC per its Resolution No. 89-
12-2 dated November 21, 1989. From 1989 to 2005, the FWBs were said to have received from HLI salaries and cash
benefits, hospital and medical benefits, 240-square meter homelots, 3% of the gross produce from agricultural lands, and
3% of the proceeds of the sale of the 500-hectare converted land and the 80.51-hectare lot sold to SCTEX. HLI shares
totaling 118,391,976.85 were distributed as of April 22, 2005.166 On August 6, 20l0, HLI and private respondents submitted
a Compromise Agreement, in which HLI gave the FWBs the option of acquiring a piece of agricultural land or remain as
HLI stockholders, and as a matter of fact, most FWBs indicated their choice of remaining as stockholders. These facts and
circumstances tend to indicate that some, if not all, of the FWBs may actually desire to continue as HLI shareholders. A
matter best left to their own discretion.
With respect to the other FWBs who were not listed as qualified beneficiaries as of November 21, 1989 when the SDP was
approved, they are not accorded the right to acquire land but shall, however, continue as HLI stockholders. All the benefits
and homelots167 received by the 10,502 FWBs (6,296 original FWBs and 4,206 non-qualified FWBs) listed as HLI
stockholders as of August 2, 2010 shall be respected with no obligation to refund or return them since the benefits (except
the homelots) were received by the FWBs as farmhands in the agricultural enterprise of HLI and other fringe benefits were
granted to them pursuant to the existing collective bargaining agreement with Tadeco. If the number of HLI shares in the
names of the original FWBs who opt to remain as HLI stockholders falls below the guaranteed allocation of 18,804.32 HLI
shares per FWB, the HLI shall assign additional shares to said FWBs to complete said minimum number of shares at no
cost to said FWBs.
With regard to the homelots already awarded or earmarked, the FWBs are not obliged to return the same to HLI or pay
for its value since this is a benefit granted under the SDP. The homelots do not form part of the 4,915.75 hectares covered
by the SDP but were taken from the 120.9234 hectare residential lot owned by Tadeco. Those who did not receive the
homelots as of the revocation of the SDP on December 22, 2005 when PARC Resolution No. 2005-32-01 was issued, will
no longer be entitled to homelots. Thus, in the determination of the ultimate agricultural land that will be subjected to
land distribution, the aggregate area of the homelots will no longer be deducted.
There is a claim that, since the sale and transfer of the 500 hectares of land subject of the August 14, 1996 Conversion
Order and the 80.51-hectare SCTEX lot came after compulsory coverage has taken place, the FWBs should have their
corresponding share of the land’s value. There is merit in the claim. Since the SDP approved by PARC Resolution No. 89-
12-2 has been nullified, then all the lands subject of the SDP will automatically be subject of compulsory coverage under
Sec. 31 of RA 6657. Since the Court excluded the 500-hectare lot subject of the August 14, 1996 Conversion Order and the
80.51-hectare SCTEX lot acquired by the government from the area covered by SDP, then HLI and its subsidiary,
Centennary, shall be liable to the FWBs for the price received for said lots. HLI shall be liable for the value received for the
sale of the 200-hectare land to LRC in the amount of PhP 500,000,000 and the equivalent value of the 12,000,000 shares
of its subsidiary, Centennary, for the 300-hectare lot sold to LIPCO for the consideration of PhP 750,000,000. Likewise, HLI
shall be liable for PhP 80,511,500 as consideration for the sale of the 80.51-hectare SCTEX lot.
We, however, note that HLI has allegedly paid 3% of the proceeds of the sale of the 500-hectare land and 80.51-hectare
SCTEX lot to the FWBs. We also take into account the payment of taxes and expenses relating to the transfer of the land
and HLI’s statement that most, if not all, of the proceeds were used for legitimate corporate purposes. In order to
determine once and for all whether or not all the proceeds were properly utilized by HLI and its subsidiary, Centennary,
DAR will engage the services of a reputable accounting firm to be approved by the parties to audit the books of HLI to
determine if the proceeds of the sale of the 500-hectare land and the 80.51-hectare SCTEX lot were actually used for
legitimate corporate purposes, titling expenses and in compliance with the August 14, 1996 Conversion Order. The cost
of the audit will be shouldered by HLI. If after such audit, it is determined that there remains a balance from the proceeds
of the sale, then the balance shall be distributed to the qualified FWBs.
A view has been advanced that HLI must pay the FWBs yearly rent for use of the land from 1989. We disagree. It should
not be forgotten that the FWBs are also stockholders of HLI, and the benefits acquired by the corporation from its
possession and use of the land ultimately redounded to the FWBs’ benefit based on its business operations in the form of
salaries, and other fringe benefits under the CBA. To still require HLI to pay rent to the FWBs will result in double
compensation.
For sure, HLI will still exist as a corporation even after the revocation of the SDP although it will no longer be operating
under the SDP, but pursuant to the Corporation Code as a private stock corporation. The non-agricultural assets amounting
to PhP 393,924,220 shall remain with HLI, while the agricultural lands valued at PhP 196,630,000 with an original area of
4,915.75 hectares shall be turned over to DAR for distribution to the FWBs. To be deducted from said area are the 500-
hectare lot subject of the August 14, 1996 Conversion Order, the 80.51-hectare SCTEX lot, and the total area of 6,886.5
square meters of individual lots that should have been distributed to FWBs by DAR had they not opted to stay in HLI.
HLI shall be paid just compensation for the remaining agricultural land that will be transferred to DAR for land distribution
to the FWBs. We find that the date of the "taking" is November 21, 1989, when PARC approved HLI’s SDP per PARC
Resolution No. 89-12-2. DAR shall coordinate with LBP for the determination of just compensation. We cannot use May
11, 1989 when the SDOA was executed, since it was the SDP, not the SDOA, that was approved by PARC.
The instant petition is treated pro hac vice in view of the peculiar facts and circumstances of the case.
WHEREFORE, the instant petition is DENIED. PARC Resolution No. 2005-32-01 dated December 22, 2005 and Resolution
No. 2006-34-01 dated May 3, 2006, placing the lands subject of HLI’s SDP under compulsory coverage on mandated land
acquisition scheme of the CARP, are hereby AFFIRMED with the MODIFICATION that the original 6,296 qualified FWBs
shall have the option to remain as stockholders of HLI. DAR shall immediately schedule meetings with the said 6,296 FWBs
and explain to them the effects, consequences and legal or practical implications of their choice, after which the FWBs will
be asked to manifest, in secret voting, their choices in the ballot, signing their signatures or placing their thumbmarks, as
the case may be, over their printed names.
Of the 6,296 FWBs, he or she who wishes to continue as an HLI stockholder is entitled to 18,804.32 HLI shares, and, in case
the HLI shares already given to him or her is less than 18,804.32 shares, the HLI is ordered to issue or distribute additional
shares to complete said prescribed number of shares at no cost to the FWB within thirty (30) days from finality of this
Decision. Other FWBs who do not belong to the original 6,296 qualified beneficiaries are not entitled to land distribution
and shall remain as HLI shareholders. All salaries, benefits, 3% production share and 3% share in the proceeds of the sale
of the 500-hectare converted land and the 80.51-hectare SCTEX lot and homelots already received by the 10,502 FWBs,
composed of 6,296 original FWBs and 4,206 non-qualified FWBs, shall be respected with no obligation to refund or return
them.
Within thirty (30) days after determining who from among the original FWBs will stay as stockholders, DAR shall segregate
from the HLI agricultural land with an area of 4,915.75 hectares subject of PARC’s SDP-approving Resolution No. 89-12-2
the following: (a) the 500-hectare lot subject of the August 14, l996 Conversion Order; (b) the 80.51-hectare lot sold to,
or acquired by, the government as part of the SCTEX complex; and (c) the aggregate area of 6,886.5 square meters of
individual lots that each FWB is entitled to under the CARP had he or she not opted to stay in HLI as a stockholder. After
the segregation process, as indicated, is done, the remaining area shall be turned over to DAR for immediate land
distribution to the original qualified FWBs who opted not to remain as HLI stockholders.
The aforementioned area composed of 6,886.5-square meter lots allotted to the FWBs who stayed with the corporation
shall form part of the HLI assets.
HLI is directed to pay the 6,296 FWBs the consideration of PhP 500,000,000 received by it from Luisita Realty, Inc. for the
sale to the latter of 200 hectares out of the 500 hectares covered by the August 14, 1996 Conversion Order, the
consideration of PhP 750,000,000 received by its owned subsidiary, Centennary Holdings, Inc. for the sale of the remaining
300 hectares of the aforementioned 500-hectare lot to Luisita Industrial Park Corporation, and the price of PhP 80,511,500
paid by the government through the Bases Conversion Development Authority for the sale of the 80.51-hectare lot used
for the construction of the SCTEX road network. From the total amount of PhP 1,330,511,500 (PhP 500,000,000 + PhP
750,000,000 + PhP 80,511,500 = PhP 1,330,511,500) shall be deducted the 3% of the total gross sales from the production
of the agricultural land and the 3% of the proceeds of said transfers that were paid to the FWBs, the taxes and expenses
relating to the transfer of titles to the transferees, and the expenditures incurred by HLI and Centennary Holdings, Inc. for
legitimate corporate purposes. For this purpose, DAR is ordered to engage the services of a reputable accounting firm
approved by the parties to audit the books of HLI and Centennary Holdings, Inc. to determine if the PhP 1,330,511,500
proceeds of the sale of the three (3) aforementioned lots were used or spent for legitimate corporate purposes. Any
unspent or unused balance as determined by the audit shall be distributed to the 6,296 original FWBs.
HLI is entitled to just compensation for the agricultural land that will be transferred to DAR to be reckoned from November
21, 1989 per PARC Resolution No. 89-12-2. DAR and LBP are ordered to determine the compensation due to HLI.
DAR shall submit a compliance report after six (6) months from finality of this judgment. It shall also submit, after
submission of the compliance report, quarterly reports on the execution of this judgment to be submitted within the first
15 days at the end of each quarter, until fully implemented.

G.R. No. 182729 September 29, 2010

KUKAN INTERNATIONAL CORPORATION, Petitioner,
vs.
HON. AMOR REYES, in her capacity as Presiding Judge of the Regional Trial Court of Manila, Branch 21, and ROMEO M.
MORALES, doing business under the name and style "RM Morales Trophies and Plaques,"Respondents.
DECISION
VELASCO, JR., J.:
The Case
This Petition for Review on Certiorari under Rule 45 seeks to nullify and reverse the January 23, 2008 Decision 1and the
April 16, 2008 Resolution2 rendered by the Court of Appeals (CA) in CA-G.R. SP No. 100152.
The assailed CA decision affirmed the March 12, 20073 and June 7, 20074 Orders of the Regional Trial Court (RTC) of Manila,
Branch 21, in Civil Case No. 99-93173, entitled Romeo M. Morales, doing business under the name and style RM Morales
Trophies and Plaques v. Kukan, Inc. In the said orders, the RTC disregarded the separate corporate identities of Kukan, Inc.
and Kukan International Corporation and declared them to be one and the same entity. Accordingly, the RTC held Kukan
International Corporation, albeit not impleaded in the underlying complaint of Romeo M. Morales, liable for the judgment
award decreed in a Decision dated November 28, 20025 in favor of Morales and against Kukan, Inc.
The Facts
Sometime in March 1998, Kukan, Inc. conducted a bidding for the supply and installation of signages in a building being
constructed in Makati City. Morales tendered the winning bid and was awarded the PhP 5 million contract. Some of the
items in the project award were later excluded resulting in the corresponding reduction of the contract price to PhP
3,388,502. Despite his compliance with his contractual undertakings, Morales was only paid the amount of PhP
1,976,371.07, leaving a balance of PhP 1,412,130.93, which Kukan, Inc. refused to pay despite demands. Shortchanged,
Morales filed a Complaint6 with the RTC against Kukan, Inc. for a sum of money, the case docketed as Civil Case No. 99-
93173 and eventually raffled to Branch 17 of the court.
Following the joinder of issues after Kukan, Inc. filed an answer with counterclaim, trial ensued. However, starting
November 2000, Kukan, Inc. no longer appeared and participated in the proceedings before the trial court, prompting the
RTC to declare Kukan, Inc. in default and paving the way for Morales to present his evidence ex parte.
On November 28, 2002, the RTC rendered a Decision finding for Morales and against Kukan, Inc., disposing as follows:
WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil Procedure, and by preponderance of evidence,
judgment is hereby rendered in favor of the plaintiff, ordering Kukan, Inc.:
1. to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND SEVEN HUNDRED TWENTY FOUR PESOS
(P1,201,724.00) with legal interest at 12% per annum from February 17, 1999 until full payment;
2. to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages;
3. to pay the sum of TWENTY THOUSAND PESOS, (P20,000.00) as reasonable attorney’s fees; and
4. to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY PESOS and SIX CENTAVOS (P7,960.06) as litigation expenses.
For lack of factual foundation, the counterclaim is DISMISSED.
IT IS SO ORDERED.7
After the above decision became final and executory, Morales moved for and secured a writ of execution8 against Kukan,
Inc. The sheriff then levied upon various personal properties found at what was supposed to be Kukan, Inc.’s office at Unit
2205, 88 Corporate Center, Salcedo Village, Makati City. Alleging that it owned the properties thus levied and that it was
a different corporation from Kukan, Inc., Kukan International Corporation (KIC) filed an Affidavit of Third-Party Claim.
Notably, KIC was incorporated in August 2000, or shortly after Kukan, Inc. had stopped participating in Civil Case No. 99-
93173.
In reaction to the third party claim, Morales interposed an Omnibus Motion dated April 30, 2003. In it, Morales prayed,
applying the principle of piercing the veil of corporate fiction, that an order be issued for the satisfaction of the judgment
debt of Kukan, Inc. with the properties under the name or in the possession of KIC, it being alleged that both corporations
are but one and the same entity. KIC opposed Morales’ motion. By Order of May 29, 2003 9as reiterated in a subsequent
order, the court denied the omnibus motion.
In a bid to establish the link between KIC and Kukan, Inc., and thus determine the true relationship between the two,
Morales filed a Motion for Examination of Judgment Debtors dated May 4, 2005. In this motion Morales sought that
subponae be issued against the primary stockholders of Kukan, Inc., among them Michael Chan, a.k.a. Chan Kai Kit. This
too was denied by the trial court in an Order dated May 24, 2005.10
Morales then sought the inhibition of the presiding judge, Eduardo B. Peralta, Jr., who eventually granted the motion. The
case was re-raffled to Branch 21, presided by public respondent Judge Amor Reyes.
Before the Manila RTC, Branch 21, Morales filed a Motion to Pierce the Veil of Corporate Fiction to declare KIC as having
no existence separate from Kukan, Inc. This time around, the RTC, by Order dated March 12, 2007, granted the motion,
the dispositive portion of which reads:
WHEREFORE, premises considered, the motion is hereby GRANTED. The Court hereby declares as follows:
1. defendant Kukan, Inc. and newly created Kukan International Corp. as one and the same corporation;
2. the levy made on the properties of Kukan International Corp. is hereby valid;
3. Kukan International Corp. and Michael Chan are jointly and severally liable to pay the amount awarded to plaintiff
pursuant to the decision of November [28], 2002 which has long been final and executory.
SO ORDERED.
From the above order, KIC moved but was denied reconsideration in another Order dated June 7, 2007.
KIC went to the CA on a petition for certiorari to nullify the aforesaid March 12 and June 7, 2007 RTC Orders.
On January 23, 2008, the CA rendered the assailed decision, the dispositive portion of which states:
WHEREFORE, premises considered, the petition is hereby DENIED and the assailed Orders dated March 12, 2007 and June
7, 2007 of the court a quo are both AFFIRMED. No costs.
SO ORDERED.11
The CA later denied KIC’s motion for reconsideration in the assailed resolution.
Hence, the instant petition for review, with the following issues KIC raises for the Court’s consideration:
1. There is no legal basis for the [CA] to resolve and declare that petitioner’s Constitutional Right to Due Process was not
violated by the public respondent in rendering the Orders dated March 12, 2007 and June 7, 2007 and in declaring
petitioner to be liable for the judgment obligations of the corporation "Kukan, Inc." to private respondent – as petitioner
is a stranger to the case and was never made a party in the case before the trial court nor was it ever served a summons
and a copy of the complaint.
2. There is no legal basis for the [CA] to resolve and declare that the Orders dated March 12, 2007 and June 7, 2007
rendered by public respondent declaring the petitioner liable to the judgment obligations of the corporation "Kukan, Inc."
to private respondent are valid as said orders of the public respondent modify and/or amend the trial court’s final and
executory decision rendered on November 28, 2002.
3. There is no legal basis for the [CA] to resolve and declare that the Orders dated March 12, 2007 and June 7, 2007
rendered by public respondent declaring the petitioner [KIC] and the corporation "Kukan, Inc." as one and the same, and,
therefore, the Veil of Corporate Fiction between them be pierced – as the procedure undertaken by public respondent
which the [CA] upheld is not sanctioned by the Rules of Court and/or established jurisprudence enunciated by this
Honorable Supreme Court.12
In gist, the issues to be resolved boil down to the question of, first, whether the trial court can, after the judgment against
Kukan, Inc. has attained finality, execute it against the property of KIC; second, whether the trial court acquired jurisdiction
over KIC; and third, whether the trial and appellate courts correctly applied, under the premises, the principle of piercing
the veil of corporate fiction.
The Ruling of the Court
The petition is meritorious.
First Issue: Against Whom Can a Final and
Executory Judgment Be Executed
The preliminary question that must be answered is whether or not the trial court can, after adjudging Kukan, Inc. liable
for a sum of money in a final and executory judgment, execute such judgment debt against the property of KIC.
The poser must be answered in the negative.
In Carpio v. Doroja,13 the Court ruled that the deciding court has supervisory control over the execution of its judgment:
A case in which an execution has been issued is regarded as still pending so that all proceedings on the execution are
proceedings in the suit. There is no question that the court which rendered the judgment has a general supervisory control
over its process of execution, and this power carries with it the right to determine every question of fact and law which
may be involved in the execution.
We reiterated the above holding in Javier v. Court of Appeals14 in this wise: "The said branch has a general supervisory
control over its processes in the execution of its judgment with a right to determine every question of fact and law which
may be involved in the execution."
The court’s supervisory control does not, however, extend as to authorize the alteration or amendment of a final and
executory decision, save for certain recognized exceptions, among which is the correction of clerical errors. Else, the court
violates the principle of finality of judgment and its immutability, concepts which the Court, in Tan v. Timbal,15 defined:
As we held in Industrial Management International Development Corporation vs. NLRC:
It is an elementary principle of procedure that the resolution of the court in a given issue as embodied in the dispositive
part of a decision or order is the controlling factor as to settlement of rights of the parties. Once a decision or order
becomes final and executory, it is removed from the power or jurisdiction of the court which rendered it to further alter
or amend it. It thereby becomes immutable and unalterable and any amendment or alteration which substantially affects
a final and executory judgment is null and void for lack of jurisdiction, including the entire proceedings held for that
purpose. An order of execution which varies the tenor of the judgment or exceeds the terms thereof is a nullity. (Emphasis
supplied.)
Republic v. Tango16 expounded on the same principle and its exceptions:
Deeply ingrained in our jurisprudence is the principle that a decision that has acquired finality becomes immutable and
unalterable. As such, it may no longer be modified in any respect even if the modification is meant to correct erroneous
conclusions of fact or law and whether it will be made by the court that rendered it or by the highest court of the land. x
xx
The doctrine of finality of judgment is grounded on the fundamental principle of public policy and sound practice that, at
the risk of occasional error, the judgment of courts and the award of quasi-judicial agencies must become final on some
definite date fixed by law. The only exceptions to the general rule are the correction of clerical errors, the so-called nunc
pro tunc entries which cause no prejudice to any party, void judgments, and whenever circumstances transpire after the
finality of the decision which render its execution unjust and inequitable. None of the exceptions obtains here to merit
the review sought. (Emphasis added.)
So, did the RTC, in breach of the doctrine of immutability and inalterability of judgment, order the execution of its final
decision in a manner as would amount to its prohibited alteration or modification?
We repair to the dispositive portion of the final and executory RTC decision. Pertinently, it provides:
WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil Procedure, and by preponderance of evidence,
judgment is hereby rendered in favor of the plaintiff, ordering Kukan, Inc.:
1. to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND SEVEN HUNDRED TWENTY FOUR PESOS
(P1,201,724.00) with legal interest at 12% per annum from February 17, 1999 until full payment;
2. to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages;
3. to pay the sum of TWENTY THOUSAND PESOS (P20,000.00) as reasonable attorney’s fees; and
4. to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY PESOS and SIX CENTAVOS (P7,960.06) as litigation expenses.
x x x x (Emphasis supplied.)
As may be noted, the above decision, in unequivocal terms, directed Kukan, Inc. to pay the aforementioned awards to
Morales. Thus, making KIC, thru the medium of a writ of execution, answerable for the above judgment liability is a clear
case of altering a decision, an instance of granting relief not contemplated in the decision sought to be executed. And the
change does not fall under any of the recognized exceptions to the doctrine of finality and immutability of judgment. It is
a settled rule that a writ of execution must conform to the fallo of the judgment; as an inevitable corollary, a writ beyond
the terms of the judgment is a nullity.17
Thus, on this ground alone, the instant petition can already be granted. Nonetheless, an examination of the other issues
raised by KIC would be proper.
Second Issue: Propriety of the RTC
Assuming Jurisdiction over KIC
The next issue turns on the validity of the execution the trial court authorized against KIC and its property, given that it
was neither made a party nor impleaded in Civil Case No. 99-93173, let alone served with summons. In other words, did
the trial court acquire jurisdiction over KIC?
In the assailed decision, the appellate court deemed KIC to have voluntarily submitted itself to the jurisdiction of the trial
court owing to its filing of four (4) pleadings adverted to earlier, namely: (a) the Affidavit of Third-Party Claim;18(b) the
Comment and Opposition to Plaintiff’s Omnibus Motion;19 (c) the Motion for Reconsideration of the RTC Order dated
March 12, 2007;20 and (d) the Motion for Leave to Admit Reply.21 The CA, citing Section 20, Rule 14 of the Rules of Court,
stated that "the procedural rule on service of summons can be waived by voluntary submission to the court’s jurisdiction
through any form of appearance by the party or its counsel."22
We cannot give imprimatur to the appellate court’s appreciation of the thrust of Sec. 20, Rule 14 of the Rules in concluding
that the trial court acquired jurisdiction over KIC.
Orion Security Corporation v. Kalfam Enterprises, Inc.23 explains how courts acquire jurisdiction over the parties in a civil
case:
Courts acquire jurisdiction over the plaintiffs upon the filing of the complaint. On the other hand, jurisdiction over the
defendants in a civil case is acquired either through the service of summons upon them or through their voluntary
appearance in court and their submission to its authority. (Emphasis supplied.)
In the fairly recent Palma v. Galvez,24 the Court reiterated its holding in Orion Security Corporation, stating: "[I]n civil cases,
the trial court acquires jurisdiction over the person of the defendant either by the service of summons or by the latter’s
voluntary appearance and submission to the authority of the former."
The court’s jurisdiction over a party-defendant resulting from his voluntary submission to its authority is provided under
Sec. 20, Rule 14 of the Rules, which states:
Section 20. Voluntary appearance. – The defendant’s voluntary appearance in the actions shall be equivalent to service of
summons. The inclusion in a motion to dismiss of other grounds aside from lack of jurisdiction over the person of the
defendant shall not be deemed a voluntary appearance.
To be sure, the CA’s ruling that any form of appearance by the party or its counsel is deemed as voluntary appearance
finds support in the kindred Republic v. Ker & Co., Ltd.25 and De Midgely v. Ferandos.26
Republic and De Midgely, however, have already been modified if not altogether superseded27 by La Naval Drug
Corporation v. Court of Appeals,28 wherein the Court essentially ruled and elucidated on the current view in our
jurisdiction, to wit: "[A] special appearance before the court––challenging its jurisdiction over the person through a motion
to dismiss even if the movant invokes other grounds––is not tantamount to estoppel or a waiver by the movant of his
objection to jurisdiction over his person; and such is not constitutive of a voluntary submission to the jurisdiction of the
court."29
In the instant case, KIC was not made a party-defendant in Civil Case No. 99-93173. Even if it is conceded that it raised
affirmative defenses through its aforementioned pleadings, KIC never abandoned its challenge, however implicit, to the
RTC’s jurisdiction over its person. The challenge was subsumed in KIC’s primary assertion that it was not the same entity
as Kukan, Inc. Pertinently, in its Comment and Opposition to Plaintiff’s Omnibus Motion dated May 20, 2003, KIC entered
its "special but not voluntary appearance" alleging therein that it was a different entity and has a separate legal
personality from Kukan, Inc. And KIC would consistently reiterate this assertion in all its pleadings, thus effectively resisting
all along the RTC’s jurisdiction of its person. It cannot be overemphasized that KIC could not file before the RTC a motion
to dismiss and its attachments in Civil Case No. 99-93173, precisely because KIC was neither impleaded nor served with
summons. Consequently, KIC could only assert and claim through its affidavits, comments, and motions filed by special
appearance before the RTC that it is separate and distinct from Kukan, Inc.
Following La Naval Drug Corporation,30 KIC cannot be deemed to have waived its objection to the court’s lack of
jurisdiction over its person. It would defy logic to say that KIC unequivocally submitted itself to the jurisdiction of the RTC
when it strongly asserted that it and Kukan, Inc. are different entities. In the scheme of things obtaining, KIC had no other
option but to insist on its separate identity and plead for relief consistent with that position.
Third Issue: Piercing the
Veil of Corporate Fiction
The third and main issue in this case is whether or not the trial and appellate courts correctly applied the principle of
piercing the veil of corporate entity––called also as disregarding the fiction of a separate juridical personality of a
corporation––to support a conclusion that Kukan, Inc. and KIC are but one and the same corporation with respect to the
contract award referred to at the outset. This principle finds its context on the postulate that a corporation is an artificial
being invested with a personality separate and distinct from those of the stockholders and from other corporations to
which it may be connected or related.31
In Pantranco Employees Association (PEA-PTGWO) v. National Labor Relations Commission,32 the Court revisited the
subject principle of piercing the veil of corporate fiction and wrote:
Under the doctrine of "piercing the veil of corporate fiction," the court looks at the corporation as a mere collection of
individuals or an aggregation of persons undertaking business as a group, disregarding the separate juridical personality
of the corporation unifying the group. Another formulation of this doctrine is that when two business enterprises are
owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of
third parties, disregard the legal fiction that two corporations are distinct entities and treat them as identical or as one
and the same.
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. x x x (Emphasis supplied.)
The same principle was the subject and discussed in Rivera v. United Laboratories, Inc.:
While a corporation may exist for any lawful purpose, the law will regard it as an association of persons or, in case of two
corporations, merge them into one, when its corporate legal entity is used as a cloak for fraud or illegality. This is the
doctrine of piercing the veil of corporate fiction. The doctrine applies only when such corporate fiction is used to defeat
public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield to confuse the legitimate
issues, or where a corporation is the 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.
To disregard the separate juridical personality of a corporation, the wrongdoing must be established clearly and
convincingly. It cannot be presumed.33 (Emphasis supplied.)
Now, as before the appellate court, petitioner KIC maintains that the RTC violated its right to due process when, in the
execution of its November 28, 2002 Decision, the court authorized the issuance of the writ against KIC for Kukan, Inc.’s
judgment debt, albeit KIC has never been a party to the underlying suit. As a counterpoint, Morales argues that KIC’s
specific concern on due process and on the validity of the writ to execute the RTC’s November 28, 2002 Decision would
be mooted if it were established that KIC and Kukan, Inc. are indeed one and the same corporation.
Morales’ contention is untenable.
The principle of piercing the veil of corporate fiction, and the resulting treatment of two related corporations as one and
the same juridical person with respect to a given transaction, is basically applied only to determine established liability;34 it
is not available to confer on the court a jurisdiction it has not acquired, in the first place, over a party not impleaded in a
case. Elsewise put, a corporation not impleaded in a suit cannot be subject to the court’s process of piercing the veil of its
corporate fiction. In that situation, the court has not acquired jurisdiction over the corporation and, hence, any
proceedings taken against that corporation and its property would infringe on its right to due process. Aguedo Agbayani,
a recognized authority on Commercial Law, stated as much:
23. Piercing the veil of corporate entity applies to determination of liability not of jurisdiction. x x x
This is so because the doctrine of piercing the veil of corporate fiction comes to play only during the trial of the case after
the court has already acquired jurisdiction over the corporation. Hence, before this doctrine can be applied, based on the
evidence presented, it is imperative that the court must first have jurisdiction over the corporation. 35 x x x (Emphasis
supplied.)
The implication of the above comment is twofold: (1) the court must first acquire jurisdiction over the corporation or
corporations involved before its or their separate personalities are disregarded; and (2) the doctrine of piercing the veil of
corporate entity can only be raised during a full-blown trial over a cause of action duly commenced involving parties duly
brought under the authority of the court by way of service of summons or what passes as such service.
The issue of jurisdiction or the lack of it over KIC has already been discussed. Anent the matter of the time and manner of
raising the principle in question, it is undisputed that no full-blown trial involving KIC was had when the RTC disregarded
the corporate veil of KIC. The reason for this actuality is simple and undisputed: KIC was not impleaded in Civil Case No.
99-93173 and that the RTC did not acquire jurisdiction over it. It was dragged to the case after it reacted to the improper
execution of its properties and veritably hauled to court, not thru the usual process of service of summons, but by mere
motion of a party with whom it has no privity of contract and after the decision in the main case had already become final
and executory. As to the propriety of a plea for the application of the principle by mere motion, the following excerpts are
instructive:
Generally, a motion is appropriate only in the absence of remedies by regular pleadings, and is not available to settle
important questions of law, or to dispose of the merits of the case. A motion is usually a proceeding incidental to an action,
but it may be a wholly distinct or independent proceeding. A motion in this sense is not within this discussion even though
the relief demanded is denominated an "order."
A motion generally relates to procedure and is often resorted to in order to correct errors which have crept in along the
line of the principal action’s progress. Generally, where there is a procedural defect in a proceeding and no method under
statute or rule of court by which it may be called to the attention of the court, a motion is an appropriate remedy. In many
jurisdictions, the motion has replaced the common-law pleas testing the sufficiency of the pleadings, and various common-
law writs, such as writ of error coram nobis and audita querela. In some cases, a motion may be one of several remedies
available. For example, in some jurisdictions, a motion to vacate an order is a remedy alternative to an appeal therefrom.
Statutes governing motions are given a liberal construction.36 (Emphasis supplied.)
The bottom line issue of whether Morales can proceed against KIC for the judgment debt of Kukan, Inc.––assuming
hypothetically that he can, applying the piercing the corporate veil principle––resolves itself into the question of whether
a mere motion is the appropriate vehicle for such purpose.
Verily, Morales espouses the application of the principle of piercing the corporate veil to hold KIC liable on theory that
Kukan, Inc. was out to defraud him through the use of the separate and distinct personality of another corporation, KIC.
In net effect, Morales’ adverted motion to pierce the veil of corporate fiction dated January 3, 2007 stated a new cause of
action, i.e., for the liability of judgment debtor Kukan, Inc. to be borne by KIC on the alleged identity of the two
corporations. This new cause of action should be properly ventilated in another complaint and subsequent trial where the
doctrine of piercing the corporate veil can, if appropriate, be applied, based on the evidence adduced. Establishing the
claim of Morales and the corresponding liability of KIC for Kukan Inc.’s indebtedness could hardly be the subject, under
the premises, of a mere motion interposed after the principal action against Kukan, Inc. alone had peremptorily been
terminated. After all, a complaint is one where the plaintiff alleges causes of action.
In any event, the principle of piercing the veil of corporate fiction finds no application to the instant case.
As a general rule, courts should be wary of lifting the corporate veil between corporations, however related. Philippine
National Bank v. Andrada Electric Engineering Company37 explains why:
A corporation is an artificial being created by operation of law. x x x 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.
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.
Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court should be
mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was misused to such an extent
that injustice, fraud, or crime was committed against another, in disregard of its rights. The wrongdoing must be clearly
and convincingly established; it cannot be presumed. Otherwise, an injustice that was never unintended may result from
an erroneous application.
This Court has pierced the corporate veil to ward off a judgment credit, to avoid inclusion of corporate assets as part of
the estate of the decedent, to escape liability arising from a debt, or to perpetuate fraud and/or confuse legitimate issues
either to promote or to shield unfair objectives or to cover up an otherwise blatant violation of the prohibition against
forum-shopping. Only in these and similar instances may the veil be pierced and disregarded. (Emphasis supplied.)
In fine, to justify the piercing of the veil of corporate fiction, it must be shown by clear and convincing proof that the
separate and distinct personality of the corporation was purposefully employed to evade a legitimate and binding
commitment and perpetuate a fraud or like wrongdoings. To be sure, the Court has, on numerous occasions,38applied the
principle where a corporation is dissolved and its assets are transferred to another to avoid a financial liability of the first
corporation with the result that the second corporation should be considered a continuation and successor of the first
entity.
In those instances when the Court pierced the veil of corporate fiction of two corporations, there was a confluence of the
following factors:
1. A first corporation is dissolved;
2. The assets of the first corporation is transferred to a second corporation to avoid a financial liability of the first
corporation; and
3. Both corporations are owned and controlled by the same persons such that the second corporation should be
considered as a continuation and successor of the first corporation.
In the instant case, however, the second and third factors are conspicuously absent. There is, therefore, no compelling
justification for disregarding the fiction of corporate entity separating Kukan, Inc. from KIC. In applying the principle, both
the RTC and the CA miserably failed to identify the presence of the abovementioned factors. Consider:
The RTC disregarded the separate corporate personalities of Kukan, Inc. and KIC based on the following premises and
arguments:
While it is true that a corporation has a separate and distinct personality from its stockholder, director and officers, the
law expressly provides for an exception. When Michael Chan, the Managing Director of defendant Kukan, Inc. (majority
stockholder of the newly formed corporation [KIC]) confirmed the award to plaintiff to supply and install interior signages
in the Enterprise Center he (Michael Chan, Managing Director of defendant Kukan, Inc.) knew that there was no sufficient
corporate funds to pay its obligation/account, thus implying bad faith on his part and fraud in contracting the obligation.
Michael Chan neither returned the interior signages nor tendered payment to the plaintiff. This circumstance may warrant
the piercing of the veil of corporation fiction. Having been guilty of bad faith in the management of corporate matters the
corporate trustee, director or officer may be held personally liable. x x x
Since fraud is a state of mind, it need not be proved by direct evidence but may be inferred from the circumstances of the
case. x x x [A]nd the circumstances are: the signature of Michael Chan, Managing Director of Kukan, Inc. appearing in the
confirmation of the award sent to the plaintiff; signature of Chan Kai Kit, a British National appearing in the Articles of
Incorporation and signature of Michael Chan also a British National appearing in the Articles of Incorporation [of] Kukan
International Corp. give the impression that they are one and the same person, that Michael Chan and Chan Kai Kit are
both majority stockholders of Kukan International Corp. and Kukan, Inc. holding 40% of the stocks; that Kukan
International Corp. is practically doing the same kind of business as that of Kukan, Inc.39 (Emphasis supplied.)
As is apparent from its disquisition, the RTC brushed aside the separate corporate existence of Kukan, Inc. and KIC on the
main argument that Michael Chan owns 40% of the common shares of both corporations, obviously oblivious that
overlapping stock ownership is a common business phenomenon. It must be remembered, however, that KIC’s properties
were the ones seized upon levy on execution and not that of Kukan, Inc. or of Michael Chan for that matter. Mere
ownership by a single stockholder or by another corporation of a substantial block of shares of a corporation does not,
standing alone, provide sufficient justification for disregarding the separate corporate personality.40 For this ground to
hold sway in this case, there must be proof that Chan had control or complete dominion of Kukan and KIC’s finances,
policies, and business practices; he used such control to commit fraud; and the control was the proximate cause of the
financial loss complained of by Morales. The absence of any of the elements prevents the piercing of the corporate
veil.41 And indeed, the records do not show the presence of these elements.
On the other hand, the CA held:
In the present case, the facts disclose that Kukan, Inc. entered into a contractual obligation x x x worth more than three
million pesos although it had only Php5,000.00 paid-up capital; [KIC] was incorporated shortly before Kukan, Inc. suddenly
ceased to appear and participate in the trial; [KIC’s] purpose is related and somewhat akin to that of Kukan, Inc.; and in
[KIC] Michael Chan, a.k.a., Chan Kai Kit, holds forty percent of the outstanding stocks, while he formerly held the same
amount of stocks in Kukan Inc. These would lead to the inescapable conclusion that Kukan, Inc. committed fraudulent
representation by awarding to the private respondent the contract with full knowledge that it was not in a position to
comply with the obligation it had assumed because of inadequate paid-up capital. It bears stressing that shareholders
should in good faith put at the risk of the business, unencumbered capital reasonably adequate for its prospective
liabilities. The capital should not be illusory or trifling compared with the business to be done and the risk of loss.
Further, it is clear that [KIC] is a continuation and successor of Kukan, Inc. Michael Chan, a.k.a. Chan Kai Kit has the largest
block of shares in both business enterprises. The emergence of the former was cleverly timed with the hasty withdrawal
of the latter during the trial to avoid the financial liability that was eventually suffered by the latter. The two companies
have a related business purpose. Considering these circumstances, the obvious conclusion is that the creation of Kukan
International Corporation served as a device to evade the obligation incurred by Kukan, Inc. and yet profit from the
goodwill attained by the name "Kukan" by continuing to engage in the same line of business with the same list of
clients.42 (Emphasis supplied.)
Evidently, the CA found the meager paid-up capitalization of Kukan, Inc. and the similarity of the business activities in
which both corporations are engaged as a jumping board to its conclusion that the creation of KIC "served as a device to
evade the obligation incurred by Kukan, Inc." The appellate court, however, left a gaping hole by failing to demonstrate
that Kukan, Inc. and its stockholders defrauded Morales. In fine, there is no showing that the incorporation, and the
separate and distinct personality, of KIC was used to defeat Morales’ right to recover from Kukan, Inc. Judging from the
records, no serious attempt was made to levy on the properties of Kukan, Inc. Morales could not, thus, validly argue that
Kukan, Inc. tried to avoid liability or had no property against which to proceed.
Morales further contends that Kukan, Inc.’s closure is evidenced by its failure to file its 2001 General Information Sheet
(GIS) with the Securities and Exchange Commission. However, such fact does not necessarily mean that Kukan, Inc. had
altogether ceased operations, as Morales would have this Court believe, for it is stated on the face of the GIS that it is only
upon a failure to file the corporate GIS for five (5) consecutive years that non-operation shall be presumed.
The fact that Kukan, Inc. entered into a PhP 3.3 million contract when it only had a paid-up capital of PhP 5,000 is not an
indication of the intent on the part of its management to defraud creditors. Paid-up capital is merely seed money to start
a corporation or a business entity. As in this case, it merely represented the capitalization upon incorporation in 1997 of
Kukan, Inc. Paid-up capitalization of PhP 5,000 is not and should not be taken as a reflection of the firm’s capacity to meet
its recurrent and long-term obligations. It must be borne in mind that the equity portion cannot be equated to the viability
of a business concern, for the best test is the working capital which consists of the liquid assets of a given business relating
to the nature of the business concern.lawphil
Neither should the level of paid-up capital of Kukan, Inc. upon its incorporation be viewed as a badge of fraud, for it is in
compliance with Sec. 13 of the Corporation Code,43 which only requires a minimum paid-up capital of PhP 5,000.1avvphi1
The suggestion that KIC is but a continuation and successor of Kukan, Inc., owned and controlled as they are by the same
stockholders, stands without factual basis. It is true that Michael Chan, a.k.a. Chan Kai Kit, owns 40% of the outstanding
capital stock of both corporations. But such circumstance, standing alone, is insufficient to establish identity. There must
be at least a substantial identity of stockholders for both corporations in order to consider this factor to be constitutive of
corporate identity.
It would not avail Morales any to rely44 on General Credit Corporation v. Alsons Development and Investment
Corporation.45 General Credit Corporation is factually not on all fours with the instant case. There, the common
stockholders of the corporations represented 90% of the outstanding capital stock of the companies, unlike here where
Michael Chan merely represents 40% of the outstanding capital stock of both KIC and Kukan, Inc., not even a majority of
it. In that case, moreover, evidence was adduced to support the finding that the funds of the second corporation came
from the first. Finally, there was proof in General Credit Corporation of complete control, such that one corporation was
a mere dummy or alter ego of the other, which is absent in the instant case.
Evidently, the aforementioned case relied upon by Morales cannot justify the application of the principle of piercing the
veil of corporate fiction to the instant case. As shown by the records, the name Michael Chan, the similarity of business
activities engaged in, and incidentally the word "Kukan" appearing in the corporate names provide the nexus between
Kukan, Inc. and KIC. As illustrated, these circumstances are insufficient to establish the identity of KIC as the alter ego or
successor of Kukan, Inc.
It bears reiterating that piercing the veil of corporate fiction is frowned upon. Accordingly, those who seek to pierce the
veil must clearly establish that the separate and distinct personalities of the corporations are set up to justify a wrong,
protect fraud, or perpetrate a deception. In the concrete and on the assumption that the RTC has validly acquired
jurisdiction over the party concerned, Morales ought to have proved by convincing evidence that Kukan, Inc. was collapsed
and thereafter KIC purposely formed and operated to defraud him. Morales has not to us discharged his burden.
WHEREFORE, the petition is hereby GRANTED. The CA’s January 23, 2008 Decision and April 16, 2008 Resolution in CA-
G.R. SP No. 100152 are hereby REVERSED and SET ASIDE. The levy placed upon the personal properties of Kukan
International Corporation is hereby ordered lifted and the personal properties ordered returned to Kukan International
Corporation. The RTC of Manila, Branch 21 is hereby directed to execute the RTC Decision dated November 28, 2002
against Kukan, Inc. with reasonable dispatch.

CONTINENTAL CEMENT G.R. No. 171660

CORPORATION,
Petitioner, Present:

CORONA, C. J., Chairperson,

- versus - LEONARDO-DE CASTRO,
PERALTA,⃰
DEL CASTILLO, and
ASEA BROWN BOVERI, INC., VILLARAMA, JR., JJ.
BBC BROWN BOVERI, CORP.,
AND TORD B. ERIKSON,⃰ ⃰ Promulgated:
Respondents. October 17, 2011
x--------------------------------------------------------x

DECISION

DEL CASTILLO, J.:

Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss
suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages.[1]

This Petition for Review on Certiorari[2] under Rule 45 of the Rules of Court assails the Decision[3] dated August 25, 2005
and the Resolution[4] dated February 16, 2006 of the Court of Appeals (CA) in CA-G.R. CV No. 58551.

Factual Antecedents

Sometime in July 1990, petitioner Continental Cement Corporation (CCC),

a corporation engaged in the business of producing cement,[5] obtained the services of respondents[6] Asea Brown Boveri,
Inc. (ABB) and BBC Brown Boveri, Corp. to repair its 160 KW Kiln DC Drive Motor (Kiln Drive Motor).[7]
On October 23, 1991, due to the repeated failure of respondents to repair the Kiln Drive Motor, petitioner filed with
Branch 101 of the Regional Trial Court (RTC) of Quezon City a Complaint[8] for sum of money and damages, docketed as
Civil Case No. Q-91-10419, against respondent corporations and respondent Tord B. Eriksson (Eriksson), Vice-President of
the Service Division of the respondent ABB.[9] Petitioner alleged that:

4. On July 11, 1990, the plaintiff delivered the 160 KW Kiln DC Drive Motor to the defendants to be repaired under
PO No. 17136-17137, x x x

The defendant, Tord B. Eriksson, was personally directing the repair of the said Kiln Drive Motor. He has direction and
control of the business of the defendant corporations. Apparently, the defendant Asea Brown Boveri, Inc. has no separate
personality because of the 4,000 shares of stock, 3996 shares were subscribed by Honorio Poblador, Jr. The four other
stockholders subscribed for one share of stock each only.

5. After the first repair by the defendants, the 160 KW Kiln Drive Motor was installed for testing on October 3,
1990. On October 4, 1990 the test failed. The plaintiff removed the DC Drive Motor and replaced it with its old motor. It
was only on October 9, 1990 that the plaintiff resumed operation. The plaintiff lost 1,040 MTD per day from October 5 to
October 9, 1990.
6. On November 14, 1990, after the defendants had undertaken the second repair of the motor in question, it was
installed in the kiln. The test failed again. The plaintiff resumed operation with its old motor on November 19, 1990. The
plaintiff suffered production losses for five days at the rate of 1,040 MTD daily.

7. The defendants were given a third chance to repair the 160 KW Kiln DC Drive Motor. On March 13, 1991, the
motor was installed and tested. Again, the test failed. The plaintiff resumed operation on March 15, 1991. The plaintiff
sustained production losses at the rate of 1,040 MTD for two days.

8. As a consequence of the failure of the defendants to comply with their contractual obligation to repair the 160
KW Kiln DC Drive Motor, the plaintiff sustained the following losses:

(a) Production and opportunity losses - P10,600,000.00

This amount represents only about 25% of the production losses at the rate of P72.00 per bag of cement.

(b) Labor Cost and Rental of Crane - 26,965.78

(c) Penalties (at P987.25 a day) for

failure to deliver the motor from
Aug. 29, 1990 to July 31, 1991. - 331,716.00

(d) Cost of money interest of the

P987.25 a day from July 18, 1990
to April 5, 1991 at 34% for 261 days - 24,335.59
Total Damages 10,983,017.42
9. The plaintiff has made several demands on the defendants for the payment of the above-enumerated damages,
but the latter refused to do so without valid justification.

10. The plaintiff was constrained to file this action and has undertaken to pay its counsel Twenty Percentum (20%) of the
amount sought to be recovered as attorneys fees.[10]

Respondents, however, claimed that under Clause 7 of the General Conditions,[11] attached to the letter of offer[12] dated
July 4, 1990 issued by respondent ABB to petitioner, the liability of respondent ABB does not extend to consequential
damages either direct or indirect.[13] Moreover, as to respondent Eriksson, there is no lawful and tenable reason for
petitioner to sue him in his personal capacity because he did not personally direct the repair of the Kiln Drive Motor.[14]
Ruling of the Regional Trial Court

On August 30, 1995, the RTC rendered a Decision[15] in favor of petitioner. The RTC rejected the defense of limited liability
interposed by respondents since they failed to prove that petitioner received a copy of the General
Conditions.[16] Consequently, the RTC granted petitioners claims for production loss, labor cost and rental of crane, and
attorneys fees.[17] Thus:

WHEREFORE, premises above considered, finding the complaint substantiated by plaintiff, judgment is hereby rendered
in favor of plaintiff and against defendants, hereby ordering the latter to pay jointly and severally the former, the following
sums:

P10,600,00.00 for loss of production;

P 26,965.78 labor cost and rental of crane;

P 100,000.00 attorneys fees and cost.

SO ORDERED.[18]

Ruling of the Court of Appeals

On appeal, the CA reversed the ruling of the RTC. The CA applied the exculpatory clause in the General Conditions and
ruled that there is no implied warranty on repair work; thus, the repairman cannot be made to pay for loss of production
as a result of the unsuccessful repair.[19] The fallo of the CA Decision[20] reads:

WHEREFORE, premises considered, the assailed August 30, 1995 Decision of the Regional Trial Court of Quezon City,
Branch 101 is hereby REVERSED and SET ASIDE. The October 23, 1991 Complaint is hereby DISMISSED.

SO ORDERED.[21]

Petitioner moved for reconsideration[22] but the CA denied the same in its Resolution[23] dated February 16, 2006.

Issues

Hence, the present recourse where petitioner interposes the following issues:

1. Whether x x x the [CA] gravely erred in applying the terms of the General Conditions of Purchase Orders Nos. 17136
and 17137 to exculpate the respondents x x x from liability in this case.

2. Whether x x x the [CA] seriously erred in applying the concepts of implied warranty and warranty against hidden defects
of the New Civil Code in order to exculpate the respondents x x x from its contractual obligation.[24]

Petitioners Arguments

Petitioner reiterates that the General Conditions cannot exculpate respondents because petitioner never agreed to be
bound by it nor did petitioner receive a copy of it.[25] Petitioner also imputes error on the part of the CA in applying the
concepts of warranty against hidden defects and implied warranty.[26] Petitioner contends that these concepts are not
applicable because the instant case does not involve a contract of sale.[27] What applies are Articles 1170 and 2201 of
the Civil Code.[28]
Respondents Arguments

Conversely, respondents insist that petitioner is bound by the General Conditions.[29] By issuing Purchase Order Nos.
17136-37, petitioner in effect accepted the General Conditions appended to respondent ABBs letter of
offer.[30] Respondents likewise defend the ruling of the CA that there could be no implied warranty on the repair made by
respondent ABB as the warranty of the fitness of the equipment should be enforced directly against the manufacturer of
the Kiln Drive Motor.[31] Respondents also deny liability for damages claiming that they performed their obligation in good
faith.[32]
Our Ruling

The petition has merit.

Petitioner and respondent ABB entered into a contract for the repair of petitioners Kiln Drive Motor, evidenced by
Purchase Order Nos. 17136-37,[33] with the following terms and conditions:

a) Total Price: P197,450.00

b) Delivery Date: August 29, 1990 or six (6) weeks from receipt of order and down payment[34]

c) Penalty: One half of one percent of the total cost or Nine Hundred Eighty Seven Pesos and Twenty five centavos
(P987.25) per day of delay.

Respondent ABB, however, not only incurred delay in performing its obligation but likewise failed to repair the Kiln
Drive Motor; thus, prompting petitioner to sue for damages.

Clause 7 of the General Conditions is not binding on petitioner

Respondents contend that under Clause 7 of the General Conditions their liability does not extend to consequential
damages either direct or indirect.[35] This contention, however, is unavailing because respondents failed to show that
petitioner was duly furnished with a copy of said General Conditions. Hence, it is not binding on petitioner.

Having breached the contract it entered with petitioner, respondent ABB is liable for damages pursuant to Articles 1167,
1170, and 2201 of the Civil Code, which state:

Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be
decreed that what has been poorly done be undone.

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in
any manner contravene the tenor thereof, are liable for damages.

Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be
those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen
or could have reasonably foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be
reasonably attributed to the non-performance of the obligation.
Based on the foregoing, a repairman who fails to perform his obligation is liable to pay for the cost of the execution of the
obligation plus damages. Though entitled, petitioner in this case is not claiming reimbursement for the repair allegedly
done by Newton Contractor,[36] but is instead asking for damages for the delay caused by respondent ABB.

Petitioner is entitled to penalties under Purchase Order Nos. 17136-37

As per Purchase Order Nos. 17136-37, petitioner is entitled to penalties in the amount of P987.25 per day from the time
of delay, August 30, 1990, up to the time the Kiln Drive Motor was finally returned to petitioner. Records show that
although the testing of Kiln Drive Motor was done on March 13, 1991, the said motor was actually delivered to petitioner
as early as January 7, 1991.[37] The installation and testing was done only on March 13, 1991 upon the request of petitioner
because the Kiln was under repair at the time the motor was delivered; hence, the load testing had to be postponed.[38]

Under Article 1226[39] of the Civil Code, the penalty clause takes the place of indemnity for damages and the payment of
interests in case of non-compliance with the obligation, unless there is a stipulation to the contrary. In this case, since
there is no stipulation to the contrary, the penalty in the amount of P987.25 per day of delay covers all other damages
(i.e.production loss, labor cost, and rental of the crane) claimed by petitioner.

Petitioner is not entitled to recover production loss, labor cost and the
rental of crane

Article 1226 of the Civil Code further provides that if the obligor refuses to pay the penalty, such as in the instant
case, [40] damages and interests may still be recovered on top of the penalty. Damages claimed must be the natural and
probable consequences of the breach, which the parties have foreseen or could have reasonably foreseen at the time the
obligation was constituted.[41]

Thus, in addition to the penalties, petitioner seeks to recover as damages production loss, labor cost and the rental of the
crane.

Petitioner avers that every time the Kiln Drive Motor is tested, petitioner had to rent a crane and pay for labor to install
the motor.[42] But except for the Summary of Claims for Damages,[43] no other evidence was presented by petitioner to
show that it had indeed rented a crane or that it incurred labor cost to install the motor.

Petitioner likewise claims that as a result of the delay in the repair of the Kiln Drive Motor, its production from August 29,
1990 to March 15, 1991 decreased since it had to use its old motor which was not able to produce cement as much as the
one under repair;[44] and that every time the said motor was installed and tested, petitioner had to stop its operations;
thereby, incurring more production losses.[45] To support its claim, petitioner presented its monthly production
reports[46] for the months of April to June 1990 showing that on the average it was able to produce 1040 MT of cement
per day. However, the production reports for the months of August 1990 to March 1991 were not presented. Without
these production reports, it cannot be determined with reasonable certainty whether petitioner indeed incurred
production losses during the said period. It may not be amiss to say that competent proof and a reasonable degree of
certainty are needed to justify a grant of actual or compensatory damages; speculations, conjectures, assertions or
guesswork are not sufficient.[47]

Besides, consequential damages, such as loss of profits on account of delay or failure of delivery, may be recovered only
if such damages were reasonably foreseen or have been brought within the contemplation of the parties as the probable
result of a breach at the time of or prior to contracting.[48] Considering the nature of the obligation in the instant case,
respondent ABB, at the time it agreed to repair petitioners Kiln Drive Motor, could not have reasonably foreseen that it
would be made liable for production loss, labor cost and rental of the crane in case it fails to repair the motor or incurs
delay in delivering the same, especially since the motor under repair was a spare motor.[49]

For the foregoing reasons, petitioner is not entitled to recover production loss, labor cost and the rental of the crane.
Petitioner is not entitled to attorneys fees

Neither is petitioner entitled to the award of attorneys fees. Jurisprudence requires that the factual basis for the award of
attorneys fees must be set forth in the body of the decision and not in the dispositive portion only. [50] In this case, no
explanation was given by the RTC in awarding attorneys fees in favor of petitioner. In fact, the award of attorneys fees
was mentioned only in the dispositive portion of the decision.

Respondent Eriksson cannot be made jointly and severally liable for the penalties

Respondent Eriksson, however, cannot be made jointly and severally liable for the penalties. There is no showing that
respondent Eriksson directed or participated in the repair of the Kiln Drive Motor or that he is guilty of bad faith or gross
negligence in directing the affairs of respondent ABB. It is a basic principle that a corporation has a personality separate
and distinct from the persons composing or representing it; hence, personal liability attaches only in exceptional cases,
such as when the director, trustee, or officer is guilty of bad faith or gross negligence in directing the affairs of the
corporation.[51]

In sum, we find petitioner entitled to penalties in the amount of P987.25 per day from August 30, 1990 up to January 7,
1991 (131 days) or a total amount of P129,329.75 for the delay caused by respondent ABB. Finally, we impose interest at
the rate of six percent (6%) on the total amount due from the date of filing of the complaint until finality of this
Decision. However, from the finality of judgment until full payment of the total award, the interest rate of twelve percent
(12%) shall apply.[52]

WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated August 25, 2005 and the Resolution dated
February 16, 2006 of the Court of Appeals in CA-G.R. CV No. 58551 are hereby REVERSED and SET ASIDE. Respondent ABB
is ORDERED to pay petitioner the amount of P129,329.75, with interest at 6% per annum to be computed from the date
of the filing of the complaint until finality of this Decision and 12% per annum thereafter until full payment.
SO ORDERED.

G.R. No. 185814 October 13, 2010

SHS PERFORATED MATERIALS, INC., WINFRIED HARTMANNSHENN, and HINRICH JOHANN SCHUMACHER, Petitioners,
vs.
MANUEL F. DIAZ, Respondent.
DECISION
MENDOZA, J.:
Petitioners, by way of this petition for review on certiorari under Rule 45, seek to annul and set aside the December 23,
2008 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 100015, which reversed and set aside the December 29,
2006 Resolution2 of the National Labor Relations Commission (NLRC). The NLRC Resolution, in turn, reversed and set aside
the June 15, 2006 Decision3 of the Labor Arbiter (LA).4
THE FACTS
Petitioner SHS Perforated Materials, Inc. (SHS) is a start-up corporation organized and existing under the laws of the
Republic of the Philippines and registered with the Philippine Economic Zone Authority. Petitioner Winfried
Hartmannshenn (Hartmannshenn), a German national, is its president, in which capacity he determines the administration
and direction of the day-to-day business affairs of SHS. Petitioner Hinrich Johann Schumacher (Schumacher), also a
German national, is the treasurer and one of the board directors. As such, he is authorized to pay all bills, payrolls, and
other just debts of SHS of whatever nature upon maturity. Schumacher is also the Executive Vice-President of the
European Chamber of Commerce of the Philippines (ECCP) which is a separate entity from SHS. Both entities have an
arrangement where ECCP handles the payroll requirements of SHS to simplify business operations and minimize
operational expenses. Thus, the wages of SHS employees are paid out by ECCP, through its Accounting Services
Department headed by Juliet Taguiang (Taguiang).
Manuel F. Diaz (respondent) was hired by petitioner SHS as Manager for Business Development on probationary status
from July 18, 2005 to January 18, 2006, with a monthly salary of ₱100,000.00. Respondent’s duties, responsibilities, and
work hours were described in the Contract of Probationary Employment,5 as reproduced below:
NAME : Jose Manuel F. Diaz

TITLE/STATUS : Manager for Business Development

LOCATION : Lot C3-2A, Phase I, Camelray

Industrial Park II, Calamba, Laguna

REPORTS TO : Direct to Mr. Winfried

Hartmannshenn

Normal Working Hours : 8:00 a.m. to 5:00 p.m.

subject to requirements of the job

OVERTIME : ________________________
JOB DESCRIPTION AND RESPONSIBILITIES:
DAILY/GENERAL DUTIES:
(a) Represent the company in any event organized by PEZA;
(b) Perform sales/marketing functions;
(c) Monitor/follow-up customer’s inquiry on EMPLOYER’s services;
(d) Monitor on-going job orders/projects;
(e) Submit requirements as needed in application/renewal of necessary permits;
(f) Liaise closely with the other commercial and technical staff of the company;
(g) Accomplish PEZA documents/requirements for every sales made; with legal assistance where necessary at EMPLOYER’s
expense; and
(h) Perform other related duties and responsibilities.
OTHER RESPONSIBILITIES:
(a) abide by and perform to the best of his abilities all functions, duties and responsibilities to be assigned by the
EMPLOYER in due course;
(b) comply with the orders and instructions given from time to time by the EMPLOYER, INC. through its authorized
representatives;
(c) will not disclose any confidential information in respect of the affairs of the EMPLOYER to any unauthorized person;
(d) perform any other administrative or non-administrative duties, as assigned by any of the EMPLOYER’s representative
from time to time either through direct written order or by verbal assignment. The EMPLOYER may take into account
EMPLOYEE’s training and expertise when assigning additional tasks.
AGREED:
(sgd. Manuel Diaz).
In addition to the above-mentioned responsibilities, respondent was also instructed by Hartmannshenn to report to the
SHS office and plant at least two (2) days every work week to observe technical processes involved in the manufacturing
of perforated materials, and to learn about the products of the company, which respondent was hired to market and sell.
During respondent’s employment, Hartmannshenn was often abroad and, because of business exigencies, his instructions
to respondent were either sent by electronic mail or relayed through telephone or mobile phone. When he would be in
the Philippines, he and the respondent held meetings. As to respondent’s work, there was no close supervision by him.
During meetings with the respondent, Hartmannshenn expressed his dissatisfaction over respondent’s poor performance.
Respondent allegedly failed to make any concrete business proposal or implement any specific measure to improve the
productivity of the SHS office and plant or deliver sales except for a meagre ₱2,500.00 for a sample product. In numerous
electronic mail messages, respondent acknowledged his poor performance and offered to resign from the company.
Respondent, however, denied sending such messages but admitted that he had reported to the SHS office and plant only
eight (8) times from July 18, 2005 to November 30, 2005.
On November 16, 2005, in preparation for his trip to the Philippines, Hartmannshenn tried to call respondent on his mobile
phone, but the latter failed to answer. On November 18, 2005, Hartmannshenn arrived in the Philippines from Germany,
and on November 22 and 24, 2005, notified respondent of his arrival through electronic mail messages and advised him
to get in touch with him. Respondent claimed that he never received the messages.
On November 29, 2005, Hartmannshenn instructed Taguiang not to release respondent’s salary. Later that afternoon,
respondent called and inquired about his salary. Taguiang informed him that it was being withheld and that he had to
immediately communicate with Hartmannshenn. Again, respondent denied having received such directive.
The next day, on November 30, 2005, respondent served on SHS a demand letter and a resignation letter. The resignation
letter reads:
This is to tender my irrevocable resignation from SHS Perforated Materials, Inc, Philippines, effective immediately upon
receipt of my due and demandable salary for the period covering November 16 to 30, 2005, which has yet been unpaid
and is still currently being withheld albeit illegally. This covers and amounts to the sum of Php50,000.00 pesos net of all
taxes. As my employment contract clearly shows I receive a monthly salary of Php100,000.00 net of all taxes.
It is precisely because of illegal and unfair labor practices such as these that I offer my resignation with neither regret nor
remorse.6
In the evening of the same day, November 30, 2005, respondent met with Hartmannshenn in Alabang. The latter told him
that he was extremely disappointed for the following reasons: his poor work performance; his unauthorized leave and
malingering from November 16 to November 30, 2005; and failure to immediately meet Hartmannshenn upon his arrival
from Germany.
Petitioners averred that respondent was unable to give a proper explanation for his behavior. Hartmannshenn then
accepted respondent’s resignation and informed him that his salary would be released upon explanation of his failure to
report to work, and proof that he did, in fact, work for the period in question. He demanded that respondent surrender
all company property and information in his possession. Respondent agreed to these "exit" conditions through electronic
mail. Instead of complying with the said conditions, however, respondent sent another electronic mail message to
Hartmannshenn and Schumacher on December 1, 2005, appealing for the release of his salary.
Respondent, on the other hand, claimed that the meeting with Hartmannshenn took place in the evening of December 1,
2005, at which meeting the latter insulted him and rudely demanded that he accept ₱25,000.00 instead of his accrued
wage and stop working for SHS, which demands he refused. Later that same night, he sent Hartmannshenn and
Schumacher an electronic mail message appealing for the release of his salary. Another demand letter for respondent’s
accrued salary for November 16 to November 30, 2005, 13th month pay, moral and exemplary damages, and attorney’s
fees was sent on December 2, 2005.
To settle the issue amicably, petitioners’ counsel advised respondent’s counsel by telephone that a check had been
prepared in the amount of ₱50,000.00, and was ready for pick-up on December 5, 2005. On the same date, a copy of the
formal reply letter relating to the prepared payment was sent to the respondent’s counsel by facsimile transmission.
Despite being informed of this, respondent never picked up the check.
Respondent countered that his counsel received petitioners’ formal reply letter only on December 20, 2005, stating that
his salary would be released subsequent to the turn-over of all materials owned by the company in his possession.
Respondent claimed that the only thing in his possession was a sample panels folder which he had already returned and
which was duly received by Taguiang on November 30, 2005.
On December 9, 2005, respondent filed a Complaint7 against the petitioners for illegal dismissal; non-payment of
salaries/wages and 13th month pay with prayer for reinstatement and full backwages; exemplary damages, and attorney’s
fees, costs of suit, and legal interest.
THE RULING OF THE LABOR ARBITER
On June 15, 2006, the LA rendered his decision, the dispositive portion of which states:
WHEREFORE, premises considered, judgment is hereby rendered declaring complainant as having been illegally dismissed
and further ordering his immediate reinstatement without loss of seniority rights and benefits. It is also ordered that
complainant be deemed as a regular employee. Accordingly, respondents are hereby ordered to jointly and severally pay
complainant the following
1. P704,166.67 (P100,000.00 x 6.5 + (P100,000.00 x 6.5/12) as backwages;
2. P50,000.00 as unpaid wages;
3. P37,083.33 as unpaid 13th month pay
4. P200,000.00 as moral and exemplary damages;
5. P99,125.00 as attorney’s fees.
SO ORDERED.8
The LA found that respondent was constructively dismissed because the withholding of his salary was contrary to Article
116 of the Labor Code as it was not one of the exceptions for allowable wage deduction by the employer under Article
113 of the Labor Code. He had no other alternative but to resign because he could not be expected to continue working
for an employer who withheld wages without valid cause. The LA also held that respondent’s probationary employment
was deemed regularized because petitioners failed to conduct a prior evaluation of his performance and to give notice
two days prior to his termination as required by the Probationary Contract of Employment and Article 281 of the Labor
Code. Petitioners’ contention that they lost trust and confidence in respondent as a managerial employee was not given
credence for lack of notice to explain the supposed loss of trust and confidence and absence of an evaluation of
respondent’s performance.
The LA believed that the respondent complied with the obligations in his contract as evidenced by his electronic mail
messages to petitioners. He ruled that petitioners are jointly and severally liable to respondent for backwages including
13th month pay as there was no showing in the salary vouchers presented that such was integrated in the salary; for moral
and exemplary damages for having in bad faith harassed respondent into resigning; and for attorney’s fees.
THE RULING OF THE NLRC
On appeal, the NLRC reversed the decision of the LA in its December 29, 2006 Resolution, the dispositive portion of which
reads:
WHEREFORE, premises considered, the appeal is hereby GRANTED.
The Decision dated June 15, 2006 is hereby REVERSED and SET ASIDE and a new one is hereby entered:
(1) dismissing the complaint for illegal dismissal for want of merit;
(2) dismissing the claims for 13th month pay, moral and exemplary damages and attorney’s fees for lack of factual and
legal basis; and
(3) ordering respondents to pay the complainant’s unpaid salary for the period covering November 16-30, 2005 in the
amount of FIFTY THOUSAND PESOS (Php 50,000.00).
SO ORDERED.9
The NLRC explained that the withholding of respondent’s salary was a valid exercise of management prerogative. The act
was deemed justified as it was reasonable to demand an explanation for failure to report to work and to account for his
work accomplishments. The NLRC held that the respondent voluntarily resigned as evidenced by the language used in his
resignation letter and demand letters. Given his professional and educational background, the letters showed
respondent’s resolve to sever the employer-employee relationship, and his understanding of the import of his words and
their consequences. Consequently, respondent could not have been regularized having voluntarily resigned prior to the
completion of the probationary period. The NLRC further noted that respondent’s 13th month pay was already integrated
in his salary in accordance with his Probationary Contract of Employment and, therefore, no additional amount should be
due him.
On January 25, 2007, respondent filed a motion for reconsideration but the NLRC subsequently denied it for lack of merit
in its May 23, 2007 Resolution.
THE RULING OF THE COURT OF APPEALS
The CA reversed the NLRC resolutions in its December 23, 2008 Decision, the dispositive portion of said decision reads:
WHEREFORE, premises considered, the herein petition is GRANTED and the 29 December 2006 Resolution of the NLRC in
NLRC CN RAB-IV-12-21758-05-L, and the 23 May 2007 Resolution denying petitioner’s Motion for Reconsideration, are
REVERSED and SET ASIDE. Accordingly, a new judgment is hereby entered in that petitioner is hereby awarded separation
pay equivalent to at least one month pay, and his full backwages, other privileges and benefits, or their monetary
equivalent during the period of his dismissal up to his supposed actual reinstatement by the Labor Arbiter on 15 June
2006.
SO ORDERED.10
Contrary to the NLRC ruling, the CA held that withholding respondent’s salary was not a valid exercise of management
prerogative as there is no such thing as a management prerogative to withhold wages temporarily. Petitioners’ averments
of respondent’s failure to report to work were found to be unsubstantiated allegations not corroborated by any other
evidence, insufficient to justify said withholding and lacking in probative value. The malicious withholding of respondent’s
salary made it impossible or unacceptable for respondent to continue working, thus, compelling him to resign. The
respondent’s immediate filing of a complaint for illegal dismissal could only mean that his resignation was not voluntary.
As a probationary employee entitled to security of tenure, respondent was illegally dismissed. The CA ruled out actual
reinstatement, however, reasoning out that antagonism had caused a severe strain in their relationship. It was of the view
that separation pay equivalent to at least one month pay would be a more equitable disposition.
THE ISSUES
Aggrieved, the petitioners come to this Court praying for the reversal and setting aside of the subject CA decision
presenting the following
ISSUES
I
THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN NOT AFFIRMING THE DECISION OF THE NLRC,
WHICH WAS BASED ON SUBSTANTIAL EVIDENCE.
II
THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN NOT AFFIRMING THE NLRC’S HOLDING THAT
PETITIONERS’ WITHHOLDING OF RESPONDENT’S SALARY FOR THE PAYROLL PERIOD NOVEMBER 16-30, 2005 IN VIEW OF
RESPONDENT’S FAILURE TO RENDER ACTUAL WORK FOR SAID PAYROLL PERIOD WAS A VALID EXERCISE OF MANAGEMENT
PREROGATIVE.
III
THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN AFFIRMING THE LABOR ARBITER’S FINDING
THAT RESPONDENT HAD BEEN CONSTRUCTIVELY DISMISSED.
IV
THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN AWARDING RESPONDENT SEPARATION PAY
EQUIVALENT TO AT LEAST ONE MONTH PAY IN LIEU OF REINSTATEMENT, FULL BACKWAGES, AND OTHER PRIVILEGES AND
BENEFITS, OR THEIR MONETARY EQUIVALENT IN VIEW OF THE FACT THAT RESPONDENT VOLUNTARILY RESIGNED FROM
PETITIONER SHS AND WAS NOT ILLEGALLY DISMISSED.
V
THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN NOT HOLDING THAT INDIVIDUAL PETITIONERS
HARTMANNSHENN AND SCHUMACHER MAY NOT BE HELD SOLIDARILY AND PERSONALLY LIABLE WITH PETITIONER SHS
FOR THE PAYMENT OF THE MONETARY AWARD TO RESPONDENT.
The resolution of these issues is dependent on whether or not respondent was constructively dismissed by petitioners,
which determination is, in turn, hinged on finding out (i) whether or not the temporary withholding of respondent’s
salary/wages by petitioners was a valid exercise of management prerogative; and (ii) whether or not respondent
voluntarily resigned.
THE COURT’S RULING
As a rule, the factual findings of the courts below are conclusive in a petition for review on certiorari where only errors of
law should be reviewed. The case, however, is an exception because the factual findings of the CA and the LA are
contradictory to that of the NLRC. Thus, a review of the records is necessary to resolve the factual issues involved and
render substantial justice to the parties.11
Petitioners contend that withholding respondent’s salary from November 16 to November 30, 2005, was justified because
respondent was absent and did not show up for work during that period. He also failed to account for his whereabouts
and work accomplishments during said period. When there is an issue as to whether an employee has, in fact, worked and
is entitled to his salary, it is within management prerogative to temporarily withhold an employee’s salary/wages pending
determination of whether or not such employee did indeed work.
We disagree with petitioners.
Management prerogative refers "to the right of an employer to regulate all aspects of employment, such as the freedom
to prescribe work assignments, working methods, processes to be followed, regulation regarding transfer of employees,
supervision of their work, lay-off and discipline, and dismissal and recall of work."12 Although management prerogative
refers to "the right to regulate all aspects of employment," it cannot be understood to include the right to temporarily
withhold salary/wages without the consent of the employee. To sanction such an interpretation would be contrary to
Article 116 of the Labor Code, which provides:
ART. 116. Withholding of wages and kickbacks prohibited. – It shall be unlawful for any person, directly or indirectly, to
withhold any amount from the wages of a worker or induce him to give up any part of his wages by force, stealth,
intimidation, threat or by any other means whatsoever without the worker’s consent.
Any withholding of an employee’s wages by an employer may only be allowed in the form of wage deductions under the
circumstances provided in Article 113 of the Labor Code, as set forth below:
ART. 113. Wage Deduction. – No employer, in his own behalf or in behalf of any person, shall make any deduction from
the wages of his employees, except:
(a) In cases where the worker is insured with his consent by the employer, and the deduction is to recompense the
employer for the amount paid by him as premium on the insurance;
(b) For union dues, in cases where the right of the worker or his union to check-off has been recognized by the employer
or authorized in writing by the individual worker concerned; and
(c) In cases where the employer is authorized by law or regulations issued by the Secretary of Labor.
As correctly pointed out by the LA, "absent a showing that the withholding of complainant’s wages falls under the
exceptions provided in Article 113, the withholding thereof is thus unlawful."13
Petitioners argue that Article 116 of the Labor Code only applies if it is established that an employee is entitled to his
salary/wages and, hence, does not apply in cases where there is an issue or uncertainty as to whether an employee has
worked and is entitled to his salary/wages, in consonance with the principle of "a fair day’s wage for a fair day’s work."
Petitioners contend that in this case there was precisely an issue as to whether respondent was entitled to his salary
because he failed to report to work and to account for his whereabouts and work accomplishments during the period in
question.
To substantiate their claim, petitioners presented hard copies of the electronic mail messages 14 sent to respondent on
November 22 and 24, 2005, directing the latter to contact Hartmannshenn; the Affidavit 15 of Taguiang stating that she
advised respondent on or about November 29, 2005 to immediately communicate with Mr. Hartmannshenn at the SHS
office; Hartmannshenn’s Counter-Affidavit16 stating that he exerted earnest efforts to contact respondent through mobile
phone; Schumacher’s Counter-Affidavit17 stating that respondent had not filed any request for official leave; and
respondent’s admission in his Position Paper18 that he found it absurd to report to the SHS plant when only security guards
and machinists were present.
Respondent, on the other hand, presented reports19 prepared by him and submitted to Hartmannshenn on November 18
and 25, 2005; a receipt20 issued to him by Taguiang for a client’s payment during the subject period; and eight notarized
letters21 of prospective clients vouching for meetings they had with the respondent during the subject period.
The Court finds petitioners’ evidence insufficient to prove that respondent did not work from November 16 to November
30, 2005. As can be gleaned from respondent’s Contract of Probationary Employment and the exchanges of electronic
mail messages22 between Hartmannshenn and respondent, the latter’s duties as manager for business development
entailed cultivating business ties, connections, and clients in order to make sales. Such duties called for meetings with
prospective clients outside the office rather than reporting for work on a regular schedule. In other words, the nature of
respondent’s job did not allow close supervision and monitoring by petitioners. Neither was there any prescribed daily
monitoring procedure established by petitioners to ensure that respondent was doing his job. Therefore, granting that
respondent failed to answer Hartmannshenn’s mobile calls and to reply to two electronic mail messages and given the
fact that he admittedly failed to report to work at the SHS plant twice each week during the subject period, such cannot
be taken to signify that he did not work from November 16 to November 30, 2005.
Furthermore, the electronic mail reports sent to Hartmannshenn and the receipt presented by respondent as evidence of
his having worked during the subject period were not controverted by petitioners. The eight notarized letters of
prospective clients vouching for meetings they had with respondent during the subject period may also be given credence.
Although respondent only presented such letters in support of his Motion for Reconsideration filed with the NLRC, they
may be considered by this Court in light of Section 10, Rule VII, of the 2005 New Rules of Procedure of the NLRC, which
provides in part that "the rules of procedure and evidence prevailing in courts of law and equity shall not be controlling
and the Commission shall use every and all reasonable means to ascertain the facts in each case speedily and objectively,
without regard to technicalities of law or procedure, all in the interest of due process." While administrative tribunals
exercising quasi-judicial functions are free from the rigidity of certain procedural requirements, they are bound by law
and practice to observe the fundamental and essential requirements of due process in justiciable cases presented before
them.23 In this case, due process was afforded petitioners as respondent filed with the NLRC a Motion to Set Case for
Reception of Additional Evidence as regards the said letters, which petitioners had the opportunity to, and did, oppose.
Although it cannot be determined with certainty whether respondent worked for the entire period from November 16 to
November 30, 2005, the consistent rule is that if doubt exists between the evidence presented by the employer and that
by the employee, the scales of justice must be tilted in favor of the latter24 in line with the policy mandated by Articles 2
and 3 of the Labor Code to afford protection to labor and construe doubts in favor of labor. For petitioners’ failure to
satisfy their burden of proof, respondent is presumed to have worked during the period in question and is, accordingly,
entitled to his salary. Therefore, the withholding of respondent’s salary by petitioners is contrary to Article 116 of the
Labor Code and, thus, unlawful.
Petitioners contend that respondent could not have been constructively dismissed because he voluntarily resigned as
evidenced by his resignation letter. They assert that respondent was not forced to draft the letter and his intention to
resign is clear from the contents and terms used, and that given respondent’s professional and educational background,
he was fully aware of the import and consequences of the said letter. They maintain that respondent resigned to ‘save
face’ and avoid disciplinary measures due to his allegedly dismal work performance and failure to report to work.
The Court, however, agrees with the LA and the CA that respondent was forced to resign and was, thus, constructively
dismissed. In Duldulao v. Court of Appeals, it was written:
There is constructive dismissal if an act of clear discrimination, insensibility, or disdain by an employer becomes so
unbearable on the part of the employee that it would foreclose any choice by him except to forego his continued
employment. It exists where there is cessation of work because continued employment is rendered impossible,
unreasonable or unlikely, as an offer involving a demotion in rank and a diminution in pay. 25
What made it impossible, unreasonable or unlikely for respondent to continue working for SHS was the unlawful
withholding of his salary. For said reason, he was forced to resign. It is of no moment that he served his resignation letter
on November 30, 2005, the last day of the payroll period and a non-working holiday, since his salary was already due him
on November 29, 2005, being the last working day of said period. In fact, he was then informed that the wages of all the
other SHS employees were already released, and only his was being withheld. What is significant is that the respondent
prepared and served his resignation letter right after he was informed that his salary was being withheld. It would be
absurd to require respondent to tolerate the unlawful withholding of his salary for a longer period before his employment
can be considered as so impossible, unreasonable or unlikely as to constitute constructive dismissal. Even granting that
the withholding of respondent’s salary on November 30, 2005, would not constitute an unlawful act, the continued refusal
to release his salary after the payroll period was clearly unlawful. The petitioners’ claim that they prepared the check
ready for pick-up cannot undo the unlawful withholding.
It is worthy to note that in his resignation letter, respondent cited petitioners’ "illegal and unfair labor practice"26 as his
cause for resignation. As correctly noted by the CA, respondent lost no time in submitting his resignation letter and
eventually filing a complaint for illegal dismissal just a few days after his salary was withheld. These circumstances are
inconsistent with voluntary resignation and bolster the finding of constructive dismissal.
Petitioners cite the case of Solas v. Power & Telephone Supply Phils., Inc.27 to support their contention that the mere
withholding of an employee’s salary does not by itself constitute constructive dismissal. Petitioners are mistaken in
anchoring their argument on said case, where the withholding of the salary was deemed lawful. In the above-cited case,
the employee’s salary was withheld for a valid reason - it was applied as partial payment of a debt due to the employer,
for withholding taxes on his income and for his absence without leave. The partial payment of a debt due to the employer
and the withholding of taxes on income were valid deductions under Article 113 paragraph (c) of the Labor Code. The
deduction from an employee’s salary for a due and demandable debt to an employer was likewise sanctioned under Article
1706 of the Civil Code. As to the withholding for income tax purposes, it was prescribed by the National Internal Revenue
Code. Moreover, the employee therein was indeed absent without leave.
In this case, the withholding of respondent’s salary does not fall under any of the circumstances provided under Article
113. Neither was it established with certainty that respondent did not work from November 16 to November 30, 2005.
Hence, the Court agrees with the LA and the CA that the unlawful withholding of respondent’s salary amounts to
constructive dismissal.
Respondent was constructively dismissed and, therefore, illegally dismissed.1avvphi1 Although respondent was a
probationary employee, he was still entitled to security of tenure. Section 3 (2) Article 13 of the Constitution guarantees
the right of all workers to security of tenure. In using the expression "all workers," the Constitution puts no distinction
between a probationary and a permanent or regular employee. This means that probationary employees cannot be
dismissed except for cause or for failure to qualify as regular employees.28
This Court has held that probationary employees who are unjustly dismissed during the probationary period are entitled
to reinstatement and payment of full backwages and other benefits and privileges from the time they were dismissed up
to their actual reinstatement.29 Respondent is, thus, entitled to reinstatement without loss of seniority rights and other
privileges as well as to full backwages, inclusive of allowances, and other benefits or their monetary equivalent computed
from the time his compensation was withheld up to the time of actual reinstatement. Respondent, however, is not entitled
to the additional amount for 13th month pay, as it is clearly provided in respondent’s Probationary Contract of
Employment that such is deemed included in his salary. Thus:
EMPLOYEE will be paid a net salary of One Hundred Thousand (Php100,000.00) Pesos per month payable every 15th day
and end of the month.
The compensation package defined in this paragraph shall represent all that is due and demandable under this Contract
and includes all benefits required by law such as the 13th month pay. No other benefits, bonus or allowance shall be due
the employee. 30
(emphasis supplied)
Respondent’s reinstatement, however, is no longer feasible as antagonism has caused a severe strain in their working
relationship. Under the doctrine of strained relations, the payment of separation pay is considered an acceptable
alternative to reinstatement when the latter option is no longer desirable or viable. Payment liberates the employee from
what could be a highly oppressive work environment, and at the same time releases the employer from the obligation of
keeping in its employ a worker it no longer trusts. Therefore, a more equitable disposition would be an award of separation
pay equivalent to at least one month pay, in addition to his full backwages, allowances and other benefits.31
With respect to the personal liability of Hartmannshenn and Schumacher, this Court has held that corporate directors and
officers are only solidarily liable with the corporation for termination of employment of corporate employees if effected
with malice or in bad faith.32 Bad faith does not connote bad judgment or negligence; it imports dishonest purpose or
some moral obliquity and conscious doing of wrong; it means breach of unknown duty through some motive or interest
or ill will; it partakes of the nature of fraud.33 To sustain such a finding, there should be evidence on record that an officer
or director acted maliciously or in bad faith in terminating the employee.34
Petitioners withheld respondent’s salary in the sincere belief that respondent did not work for the period in question and
was, therefore, not entitled to it. There was no dishonest purpose or ill will involved as they believed there was a justifiable
reason to withhold his salary. Thus, although they unlawfully withheld respondent’s salary, it cannot be concluded that
such was made in bad faith. Accordingly, corporate officers, Hartmannshenn and Schumacher, cannot be held personally
liable for the corporate obligations of SHS.
WHEREFORE, the assailed December 23, 2008 Decision of the Court of Appeals in CA-G.R. SP No. 100015 is
hereby AFFIRMED with MODIFICATION. The additional amount for 13th month pay is deleted. Petitioners Winfried
Hartmannshenn and Hinrich Johann Schumacher are not solidarily liable with petitioner SHS Perforated Materials, Inc.

QUEENSLAND-TOKYO COMMODITIES, INC., ROMEO G.R. No. 172727

Y. LAU, and CHARLIE COLLADO,
Petitioners, Present:

CARPIO, J.
Chairperson,
- versus - NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.

THOMAS GEORGE, Promulgated:

Respondent.
September 8, 2010

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

RESOLUTION

NACHURA, J.:

At bar is a petition for review on certiorari under Rule 45 of the Rules of Court filed by Queensland-Tokyo Commodities,
Inc. (QTCI), Romeo Y. Lau (Lau), and Charlie Collado (Collado), challenging the September 30, 2005 Decision [1] and the
January 20, 2006 Resolution[2] of the Court of Appeals (CA) in CA-G.R. SP No. 58741.
QTCI is a duly licensed broker engaged in the trading of commodity futures. In 1995, Guillermo Mendoza, Jr. (Mendoza)
and Oniler Lontoc (Lontoc) of QTCI met with respondent Thomas George (respondent), encouraging the latter to invest
with QTCI. On July 7, 1995, upon Mendozas prodding, respondent finally invested with QTCI. On the same day, Collado, in
behalf of QTCI, and respondent signed the Customers Agreement.[3] Forming part of the agreement was the Special Power
of Attorney[4] executed by respondent, appointing Mendoza as his attorney-in-fact with full authority to trade and manage
his account.

On June 20, 1996, the Securities and Exchange Commission (SEC) issued a Cease-and-Desist Order (CDO) against
QTCI. Alarmed by the issuance of the CDO, respondent demanded from QTCI the return of his investment, but it was not
heeded. He then sought legal assistance, and discovered that Mendoza and Lontoc were not licensed commodity futures
salesmen.

On February 4, 1998, respondent filed a complaint for Recovery of Investment with Damages[5] with the SEC against QTCI,
Lau, and Collado (petitioners), and against the unlicensed salesmen, Mendoza and Lontoc. The case was docketed as SEC
Case No. 02-98-5886, and was raffled to SEC Hearing Officer Julieto F. Fabrero.

Only petitioners answered the complaint, as Mendoza and Lontoc had since vanished into thin air. Traversing the
complaint, petitioners denied the material allegations in the complaint and alleged lack of cause of action, as a
defense. Petitioners averred that QTCI only assigned duly qualified persons to handle the accounts of its clients; and
denied allowing unlicensed brokers or agents to handle respondents account. They claimed that they were not aware of,
nor were they privy to, any arrangement which resulted in the account of respondent being handled by unlicensed
brokers. They added that even assuming that the subject account was handled by an unlicensed broker, respondent is
now estopped from raising it as a ground for the return of his investment. They pointed out that respondent transacted
business with QTCI for almost a year, without questioning the license or the authority of the traders handling his
account. It was only after it became apparent that QTCI could no longer resume its business transactions by reason of the
CDO that respondent raised the alleged lack of authority of the brokers or traders handling his account. The losses suffered
by respondent were due to circumstances beyond petitioners control and could not be attributed to them. Respondents
remedy, they added, should be against the unlicensed brokers who handled the account. Thus, petitioners prayed for the
dismissal of the complaint.[6]

After due proceedings, the SEC Hearing Officer rendered a decision[7] in favor of respondent, decreeing that:

WHEREFORE, premises considered, [petitioners] Queensland Tokyo [C]ommodities, Inc., Romeo Y. Lau (aka Lau Ching Yee)
and Charlie F. Collado are hereby ordered to jointly and severally pay the [respondent] the following:

1. The amount of P138,164.00, Philippine currency, representing the x x x return of his [respondents] peso investment,
plus legal rate of interest from February 1998 until fully paid;

2. The amount of $19,820.00, American dollars, or its peso equivalent at the time of payment representing the
[respondents] return of his dollar investments, plus legal rate of interest from February 1998 until fully paid;

3. The amount of P100,000.00 as (sic) by way of moral damages;

4. The amount of P50,000.00 as and (sic) by way of exemplary damages;

5. The amount of P10,000.00 as and for attorneys fees; and

6. The amount of P2,877.00 as cost of suit.

SO ORDERED.[8]
Petitioners appealed to the Commission en banc, but the appeal was dismissed because the Notice of Appeal and the
Memorandum on Appeal were not verified.[9]

Petitioners then went to the CA via a petition for review[10] under Rule 43, faulting the Commission en banc for dismissing
their appeal on purely technical ground. They insisted that they did not violate the rules on commodity futures
trading. Thus, they faulted the SEC Hearing Officer for nullifying the Customers Agreement and for holding them liable for
respondents claims.

On September 30, 2005, the CA rendered the now challenged Decision.[11] It declared the dismissal of petitioners appeal
by the Commission en banc improper.Nevertheless, it did not order a remand of the case to the Commission en
banc because jurisdiction over petitioners appeal had already been transferred to the Regional Trial Court (RTC) by virtue
of Republic Act No. 8799 or the Securities Regulation Code. The CA thus proceeded to decide the merits of the case,
affirming in toto the decision of the SEC Hearing Officer. The appellate court failed to see any reason to disturb the SEC
Hearing Officers finding of liability on the part of petitioners. It sustained the finding that petitioners violated the Revised
Rules and Regulations on Commodity Futures Trading when they allowed
an unlicensed salesman, like Mendoza, to handle respondents account. The CA also upheld the nullification of
the Customers Agreement, and the award of moral and exemplary damages, as well attorneys fees, in favor of
respondent. The CA disposed, thus:

WHEREFORE, premises considered, the petition is DISMISSED for lack of merit. The assailed decision dated February 7,
2000 is hereby AFFIRMED in toto.

SO ORDERED.[12]

Petitioners filed a motion for reconsideration,[13] but the CA denied it on January 20, 2006.[14]

Hence, this recourse by petitioners arguing that:

A.

THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONERS KNOWINGLY PERMITTED AN
UNLICENSED TRADER TO SOLICIT AND HANDLE REPONDENTS ACCOUNT, AND THAT PETITIONERS ARE GUILTY OF FRAUD
AND MISREPRESENTATION.

B.

THE HONORABLE COURT OF APPEALS ERRED IN FINDING INDIVIDUAL PETITIONERS SOLIDARILY LIABLE FOR THE DAMAGES
AND AWARDS DUE [THE] RESPONDENT.[15]
Petitioners insist that they did not violate the Revised Rules and Regulations on Commodity Futures Trading. They claim
that it has been QTCIs policy and practice to appoint only licensed traders to trade the clients account. They denied any
participation in the designation of Mendoza as respondents attorney-in-fact; taking exception to the findings that they
permitted Mendoza to trade respondents account. Petitioners also assailed the weight given by the SEC Hearing Officer
and by the CA to respondents evidence.

It is evident that the issue raised in this petition is the correctness of the factual findings of the SEC Hearing Officer, as
affirmed by the CA. It is well-settled that factual findings of administrative agencies are generally held to be binding and
final so long as they are supported by substantial evidence in the records of the case. It is not the function of this Court to
analyze or weigh all over again the evidence and the credibility of witnesses presented before the lower court, tribunal,
or office, as we are not a trier of facts.Our jurisdiction is limited to reviewing and revising errors of law imputed to the
lower court, the latters findings of fact being conclusive and not reviewable by this Court.[16]
We sustain the finding of the SEC Hearing Officer and the CA that petitioners allowed unlicensed individuals to engage in,
solicit or accept orders in futures contracts, and thus, transgressed the Revised Rules and Regulations on Commodity
Futures Trading.[17]

We are not persuaded by petitioners assertion that they had no hand in Mendozas designation as respondents attorney-
in-fact. As pointed out by the CA, the Special Power of Attorney formed part of respondents agreement with QTCI, and
under the Customers Agreement,[18] only a licensed or registered dealer or investment consultant may be appointed as
attorney-in-fact. Thus:

2. If I so desire, I shall appoint you as my agent pursuant to a Special Power of Attorney which I shall execute for this
purpose and which form part of this Agreement.

xxxx

18. I hereby confer, pursuant to the Special Power of Attorney herewith attached, full authority to your licensed/registered
dealer/investment in charge of my account/s and your Senior Officer, who must also be a licensed/registered
dealer/investment consultant, to sign all order slips on futures trading. [19]

Inexplicably, petitioners did not object to, and in fact recognized, Mendozas appointment as respondents attorney-in-
fact. Collado, in behalf of QTCI, concluded the Customers Agreement despite the fact that the appointed attorney-in-fact
was not a licensed dealer. Worse, petitioners permitted Mendoza to handle respondents account.

Indubitably, petitioners violated the Revised Rules and Regulations on Commodity Futures Trading prohibiting any
unlicensed person to engage in, solicit or accept orders in futures contract. Consequently, the SEC Hearing Officer and the
CA cannot be faulted for declaring the contract between QTCI and respondent void.

Batas Pambansa Bilang (B.P. Blg.) 178 or the Revised Securities Act explicitly provided:

SEC. 53. Validity of Contracts. x x x.

(b) Every contract executed in violation of any provision of this Act, or any rule or regulation thereunder, and every
contract, including any contract for listing a security on an exchange heretofore or hereafter made, the performance of
which involves the violation of, or the continuance of any relationship or practice in violation of, any provision of this Act,
or any rule and regulation thereunder, shall be void.

Likewise, Paragraph 29[20] of the Customers Agreement provides:

29.

Contracts entered into by unlicensed Account Executives (A/E) or Investment consultants are deemed void and of no legal
effect.

Clearly, the CA merely adhered to the clear provision of B.P. Blg. 178 and to the stipulation in the parties agreement when
it declared as void the Customers Agreement between QTCI and respondent.

It is settled that a void contract is equivalent to nothing; it produces no civil effect. It does not create, modify, or extinguish
a juridical relation. Parties to a void agreement cannot expect the aid of the law; the courts leave them as they are, because
they are deemed in pari delicto or in equal fault.[21] This rule, however, is not absolute. Article 1412 of the Civil Code
provides an exception, and permits the return of that which may have been given under a void contract. Thus:
Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following
rules shall be observed:

(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the
contract, or demand the performance of the other's undertaking;

(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or
ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he
has given without any obligation to comply with his promise.

The evidence on record established that petitioners indeed permitted an unlicensed trader and salesman, like Mendoza,
to handle respondents account. On the other hand, the record is bereft of proof that respondent had knowledge that the
person handling his account was not a licensed trader. Respondent can, therefore, recover the amount he had given under
the contract. The SEC Hearing Officer and the CA, therefore, committed no reversible error in holding that respondent is
entitled to a full recovery of his investments.

Petitioners Collado and Lau next fault the CA in making them solidarily liable for the payment of respondents claim.

Doctrine dictates that a corporation is invested by law with a personality separate and distinct from those of the persons
composing it, such that, save for certain exceptions, corporate officers who entered into contracts in behalf of the
corporation cannot be held personally liable for the liabilities of the latter. Personal liability of a corporate director,
trustee, or officer, along (although not necessarily) with the corporation, may validly attach, as a rule, only when (1) he
assents to a patently unlawful act of the corporation, or when he is guilty of bad faith or gross negligence in directing its
affairs, or when there is a conflict of interest resulting in damages to the corporation, its stockholders, or other persons;
(2) he consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with
the corporate secretary his written objection thereto; (3) he agrees to hold himself personally and solidarily liable with
the corporation; or (4) he is made by a specific provision of law personally answerable for his corporate action.[22]

In holding Lau and Collado jointly and severally liable with QTCI for respondents claim, the SEC Hearing Officer explained
in this wise:

Anent the issue of who among the individual [petitioners] are jointly liable with QTCI in the payment of the awards, the
Commission took into consideration, among others, that audit report on the trading activities submitted by the Brokers
and Exchange Department (BED) of this Commission (Exhibit J). The findings contained in the report include the presence
of seven (7) unlicensed investment consultants in QTCI, and the company practice of changing deeds of Special Power of
Attorney bearing those who are licensed (exhibits J-1 and J-2).

The Commission also took into consideration the fact that [petitioner] Collado, who is not a licensed commodity salesman,
himself violated the aforequoted provisions of the Revised Rules and Regulations on Commodity Futures Trading when he
admitted having participated in the execution of the customers orders (p. 7, TSN dated January 21, 1999) without giving
any exception thereto, which presumably includes his participation in the execution of customers orders of the
[respondent].

Such being the case, [Mendozas] participation in the trading of [respondents] account is within the knowledge of
[petitioner] Collado.

The presence of seven (7) unlicensed investment consultants within QTCI apart from x x x Mendoza, and [petitioner]
Collados participation in the unlawful execution of orders under the [respondents] account clearly established the fact
that the management of QTCI failed to implement the rules and regulations against the hiring of, and associating with,
unlicensed consultants or traders. How these unlicensed personnel been able to pursue their unlawful activities is a
reflection of how negligent [the] management was.
[Petitioner] Romeo Lau, as president of [petitioner] QTCI, cannot feign innocence on the existence of these unlawful
activities within the company, especially so that Collado, himself a ranking officer of QTCI, is involved in the unlawful
execution of customers orders. [Petitioner] Lau, being the chief operating officer, cannot escape the fact that had he
exercised a modicum of care and discretion in supervising the operations of QTCI, he could have detected and prevented
the unlawful acts of [petitioner] Collado and Mendoza.

It is therefore safe to conclude that although Lau may not have participated nor been aware of the unlawful acts, he is
however deemed to have been grossly negligence in directing the affairs of QTCI.

In all, it having been established by substantial evidence that [petitioner] Collado assented to the unlawful act of QTCI,
and that [petitioner] Lau is grossly negligent in directing the affairs of QTCI, and pursuant to Section 31 of the Corporation
Code, they are therefore, jointly and severally liable with QTCI for all the damages and awards due to the [respondent].[23]

We find no compelling reason to depart from the conclusion of the SEC Hearing Officer, which was affirmed by the CA. We
are in full accord with his reasons for holding Lau and Collado jointly and severally liable with QTCI for the payment of
respondents claim.

Finally we sustain the awards for moral and exemplary damages in favor of respondent. Moral damages are meant to
compensate the claimant for any physical suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar injuries unjustly caused. Although incapable of pecuniary
estimation, the amount must somehow be proportional to and in approximation of the suffering inflicted. Moral
damages are not punitive in nature and were never intended to enrich the claimant at the expense of the defendant.[24]

Likewise, exemplary damages are properly exigible of QTCI. Article 2229[25] of the Civil Code provides that such damages
may be imposed by way of example or correction for the public good. While exemplary damages cannot be recovered as a
matter of right, they need not be proved,
although plaintiff must show that he is entitled to moral, temperate, or compensatory damages before the court may
consider the question of whether or not exemplary damages should be awarded. Exemplary damages are imposed not to
enrich one party or impoverish another, but to serve as a deterrent against or as a negative incentive to curb socially
deleterious actions.[26]

However, the same statutory and jurisprudential standards dictate reduction of the amounts of moral and exemplary
damages fixed by the SEC. Certainly, there is no hard-and-fast rule in determining what would be a fair and reasonable
amount of moral and exemplary damages, since each case must be governed by its own peculiar facts.[27]Courts are given
discretion in determining the amount, with the limitation that it should not be palpably and scandalously excessive.
Indeed, it must be commensurate to the loss or injury suffered.[28]

In this case, we find a need to modify, by reducing the awards for moral damages from P100,000.00 to P50,000.00; and
for exemplary damages from P50,000.00 to P30,000.00.

In fine, except for the modification of the awards for moral and exemplary damages, there is no justification to overturn
the findings of the SEC Hearing Officer, as affirmed by the CA.

We reiterate that the findings of facts and conclusions of law of the SEC are controlling on the reviewing authority. Indeed,
the rule is that the findings of fact of administrative bodies, if based on substantial evidence, are controlling on the
reviewing authority. It has been held that it is not for the appellate court to substitute its own judgment for that of the
administrative agency on the sufficiency of the evidence and the credibility of the witnesses. The Hearing Officer had the
optimum opportunity to review the pieces of evidence presented before him and to observe the demeanor of the
witnesses. Administrative decisions on matters within his jurisdiction are entitled to respect and can only be set aside on
proof of grave abuse of discretion, fraud, or error of law,[29] which has not been shown by petitioner in this case.
WHEREFORE, the challenged Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 58741
are AFFIRMED with MODIFICATION that the awards for moral and exemplary damages are reduced to P50,000.00
and P30,000.00, respectively.
 WENSHA SPA CENTER, INC. and/or XU G.R. No. 185122
ZHI JIE,
Petitioners, Present:

CARPIO, J., Chairperson,

NACHURA,
PERALTA,
- versus - ABAD, and
MENDOZA, JJ.

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,[9] citing its observation that Wensha was still
considering the proper action to take on the day Loreta left Wensha and filed her complaint. The NLRC added that this
finding was bolstered by Wenshas September 10, 2004 letter to Loreta asking her to come back to personally clarify some
matters, but she declined because she had already filed a case.

Loreta moved for a reconsideration of the NLRCs ruling but her motion was denied. Loreta then went to the CA on a
petition for certiorari. The CA reversed the ruling of the NLRC on the ground that it gravely abused its discretion in
appreciating the factual bases that led to Loretas dismissal. The CA noted that there were irregularities and inconsistencies
in Wenshas position. The CA stated the following:

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

x x x x.

Finally, after the Private Respondents filed their position paper, they alleged mistake on the part of their former counsel
in stating that Yung was dismissed on August 31, 2004. Thus, they subsequently moved for the admission of their
rejoinder. Notably, however, the said rejoinder was dated October 4, 2004, earlier than the date when their position paper
was filed, which was on November 3, 2004. It is also puzzling that their position paper was dated November 25, 2004,
much later than its date of filing.The irregularities are simply too glaring to be ignored. Nevertheless, the Private
Respondents admission of Yungs termination on August 31, 2004 cannot be retracted. They cannot use the mistake of
their counsel as an excuse considering that the position paper was verified by their Operations Manager, delos
Reyes, who attested to the truth of the contents therein.[10] [Emphasis supplied]

Hence, the fallo of the CA decision reads:

WHEREFORE, the instant petition is GRANTED. Wensha Spa Center, Inc. and Xu Zhi Jie are ORDERED to, jointly and
severally, pay Loreta T. Yung her full backwages, other privileges, and benefits, or their monetary equivalent,
corresponding to the period of her dismissal from September 1, 2004 up to the finality of this decision, and damages in
the amounts of fifty thousand pesos (Php50,000.00) as moral damages, twenty five thousand pesos (Php25,000.00) as
exemplary damages, and twenty thousand pesos (Php20,000.00) as attorneys fees. No costs.

SO ORDERED.[11]

Wensha and Xu now assail this ruling of the CA in this petition presenting the following:

V. GROUNDS FOR THE ALLOWANCE OF THE PETITION

5.1 The following are the reasons and arguments, which are purely questions of law and some questions of facts, which
justify the appeal by certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure, as amended, to this Honorable
SUPREME COURT of the assailed Decision and Resolution, to wit:

5.1.1 The Honorable COURT OF APPEALS gravely erred in reversing that factual findings of the Honorable Labor Arbiter
and the Honorable NLRC (Third Division) notwithstanding recognized and established rule in our jurisdiction that findings
of facts of quasi-judicial agencies who have gained expertise on their respective subject matters are given respect and
finality;

5.1.2 The Honorable COURT OF APPEALS committed grave abuse of discretion and serious errors when it ruled that
findings of facts of the Honorable Labor Arbiter and the Honorable NLRC are not supported by substantial evidence despite
the fact that the records clearly show that petitioner therein was not dismissed but is under investigation, and that she is
guilty of serious infractions that warranted her termination;

5.1.3 The Honorable COURT OF APPEALS grave[ly] erred when it ordered herein petitioner to pay herein respondent her
separation pay, in lieu of reinstatement, and full backwages, as well as damages and attorneys fees;

5.1.4 The Honorable COURT OF APPEALS committed grave abuse of discretion and serious errors when it held that
petitioner XU ZHI JIE to be solidarily liable with WENSHA, assuming that respondent was illegally dismissed;

5.2 The same need to be corrected as they would work injustice to the herein petitioner, grave and irreparable damage
will be done to him, and would pose dangerous precedent.[12]

THE COURTS RULING:

Loretas security of tenure is guaranteed by the Constitution and the Labor Code. The 1987 Philippine Constitution provides
in Section 18, Article II that the State shall protect the rights of workers and promote their welfare. Section 3, Article XIII
also provides that all workers shall be entitled to security of tenure. Along that line, Article 3 of the Labor Code mandates
that the State shall assure the rights of workers to security of tenure.
Under the security of tenure guarantee, a worker can only be terminated from his employment for cause and after due
process. For a valid termination by the employer: (1) the dismissal must be for a valid cause as provided in Article 282, or
for any of the authorized causes under Articles 283 and 284 of the Labor Code; and (2) the employee must be afforded an
opportunity to be heard and to defend himself. A just and valid cause for an employees dismissal must be supported by
substantial evidence, and before the employee can be dismissed, he must be given notice and an adequate opportunity
to be heard.[13] In the process, the employer bears the burden of proving that the dismissal of an employee was for a valid
cause. Its failure to discharge this burden renders the dismissal unjustified and, therefore, illegal.[14]

As a rule, the factual findings of the court below are conclusive on Us in a petition for review on certiorari where We
review only errors of law. This case, however, is an exception because the CAs factual findings are not congruent with
those of the NLRC and the LA.

According to Wensha in its position paper,[15] it dismissed Loreta on August 31, 2004 after investigating the complaints
against her. Wensha asserted that her dismissal was a valid exercise of an employers right to terminate a managerial
employee for loss of trust and confidence. It claimed that she caused the resignation of an employee because of gossips
initiated by her. It was the reason she was asked to take a leave of absence with pay for one month starting August 10,
2004.[16]

Wensha also alleged that Loreta was sowing intrigues in the company which was inimical to Wensha. She was also accused
of dishonesty, serious breach of trust reposed in her, tardiness, and abuse of authority.[17]
In its Rejoinder, Wensha changed its position claiming that it did not terminate Loretas employment on August 31, 2004. It
even sent her a notice requesting her to report back to work. She, however, declined because she had already filed her
complaint.[18]

As correctly found by the CA, the cause of Loretas dismissal is questionable. Loss of trust and confidence to be a valid
ground for dismissal must have basis and must be founded on clearly established facts.[19]

The Court finds the LA ruling that states, [a]bsent any proof submitted by the complainant, this office finds it more
probable that the complainant was dismissed due to loss of trust and confidence,[20] to be utterly erroneous as it is contrary
to the applicable rules and pertinent jurisprudence. The onus of proving a valid dismissal rests on the employer, not on
the employee.[21] It is the employer who bears the burden of proving that its dismissal of the employee is for a valid or
authorized cause supported by substantial evidence. [22]

According to the NLRC, [p]erusal of the entire records show that complainant left the respondents premises when she was
confronted with the infractions imputed against her.[23] This information was taken from the 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 on September 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 TODAY SEPTEMBER 10, 2004.

ANY TRANSACTION MADE BY HER IS NO LONGER A LIABILITY OF THE COMPANY.

(SGD.) THE MANAGEMENT [Italics were in red letters.][29]

The Court finds Loretas complaint credible. There is consistency in her pleadings and evidence. In contrast, Wenshas
pleadings and evidence, taken as a whole, suffer from inconsistency. Moreover, the affidavits of the employees only
pertain to petty matters that, to the Courts mind, are not sufficient to support Wenshas alleged loss of trust and
confidence. To be a valid cause for termination of employment, the act or acts constituting breach of trust must have been
done intentionally, knowingly, and purposely; and they must be founded on clearly established facts.

The CA decision is supported by evidence and logically flows from a review of the records. Loretas narration of the events
surrounding her termination from employment was simple and straightforward. Her claims are more credible than the
affidavits which were clearly prepared as an afterthought.

More importantly, the records are bereft of evidence that Loreta was duly informed of the charges against her and that
she was given the opportunity to respond to those charges prior to her dismissal. If there were indeed charges against
Loreta that Wensha had to investigate, then it should have informed her of those charges and required her to explain her
side. Wensha should also have kept records of the investigation conducted while Loreta was on leave. 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, and separation pay reckoned from the date of her dismissal,
September 1, 2004, up to the finality of this decision, plus damages in the amounts of Fifty Thousand (P50,000.00) Pesos,
as moral damages; Twenty Five Thousand (P25,000.00) Pesos as exemplary damages; and Twenty Thousand (P20,000.00)
Pesos, as attorneys fees. No costs.
 PRISMA CONSTRUCTION & DEVELOPMENT G.R. No. 160545
CORPORATION and ROGELIO S. PANTALEON,
Petitioners,
Present:

*
NACHURA, J.,
- versus - BRION, Acting Chairperson,
DEL CASTILLO,
ABAD, and
PEREZ, JJ.

ARTHUR F. MENCHAVEZ ,
Respondent.
Promulgated:

March 9, 2010

x------------------------------------------------------------------------------------------x
DECISION

BRION, J.:

We resolve in this Decision the petition for review on certiorari[1] filed by petitioners Prisma Construction & Development
Corporation (PRISMA) and Rogelio S. Pantaleon (Pantaleon) (collectively, petitioners) who seek to reverse and set aside
the Decision[2] dated May 5, 2003 and the Resolution[3] dated October 22, 2003 of the Former Ninth Division of the Court
of Appeals (CA) in CA-G.R. CV No. 69627. The assailed CA Decision affirmed the Decision of the Regional Trial Court (RTC),
Branch 73, Antipolo City in Civil Case No. 97-4552 that held the petitioners liable for payment of P3,526,117.00 to
respondent Arthur F. Menchavez (respondent), but modified the interest rate from 4% per month to 12% per annum,
computed from the filing of the complaint to full payment. The assailed CA Resolution denied the petitioners Motion for
Reconsideration.

FACTUAL BACKGROUND

The facts of the case, gathered from the records, are briefly summarized below.

On December 8, 1993, Pantaleon, the President and Chairman of the Board of PRISMA, obtained a P1,000,000.00[4] loan
from the respondent, with a monthly interest of P40,000.00 payable for six months, or a total obligation
of P1,240,000.00 to be paid within six (6) months,[5] under the following schedule of payments:

January 8, 1994 . P40,000.00

February 8, 1994 ... P40,000.00
March 8, 1994 ... P40,000.00
April 8, 1994 . P40,000.00
May 8, 1994 .. P40,000.00
June 8, 1994 P1,040,000.00[6]
Total P1,240,000.00
To secure the payment of the loan, Pantaleon issued a promissory note[7] that states:

I, Rogelio S. Pantaleon, hereby acknowledge the receipt of ONE MILLION TWO HUNDRED FORTY THOUSAND PESOS
(P1,240,000), Philippine Currency, from Mr. Arthur F. Menchavez, representing a six-month loan payable according to the
following schedule:

January 8, 1994 . P40,000.00

February 8, 1994 ... P40,000.00
March 8, 1994 ... P40,000.00
April 8, 1994 . P40,000.00
May 8, 1994 .. P40,000.00
June 8, 1994 P1,040,000.00

The checks corresponding to the above amounts are hereby acknowledged.[8]

and six (6) postdated checks corresponding to the schedule of payments. Pantaleon signed the promissory note in his
personal capacity,[9] and as duly authorized by the Board of Directors of PRISMA.[10] The petitioners failed to completely
pay the loan within the stipulated six (6)-month period.

From September 8, 1994 to January 4, 1997, the petitioners paid the following amounts to the respondent:

September 8, 1994 P320,000.00

October 8, 1995.P600,000.00
November 8, 1995.....P158,772.00
January 4, 1997 P30,000.00[11]

As of January 4, 1997, the petitioners had already paid a total of P1,108,772.00. However, the respondent found that the
petitioners still had an outstanding balance of P1,364,151.00 as of January 4, 1997, to which it applied a 4% monthly
interest.[12] Thus, on August 28, 1997, the respondent filed a complaint for sum of money with the RTC to enforce the
unpaid balance, plus 4% monthly interest, P30,000.00 in attorneys fees, P1,000.00 per court appearance and costs of
suit.[13]

In their Answer dated October 6, 1998, the petitioners admitted the loan of P1,240,000.00, but denied the stipulation on
the 4% monthly interest, arguing that the interest was not provided in the promissory note. Pantaleon also denied that
he made himself personally liable and that he made representations that the loan would be repaid within six (6) months.[14]

THE RTC RULING

The RTC rendered a Decision on October 27, 2000 finding that the respondent issued a check for P1,000,000.00 in favor
of the petitioners for a loan that would earn an interest of 4% or P40,000.00 per month, or a total of P240,000.00 for a 6-
month period. It noted that the petitioners made several payments amounting to P1,228,772.00, but they were still
indebted to the respondent for P3,526,117.00 as of February 11,[15] 1999 after considering the 4% monthly interest. The
RTC observed that PRISMA was a one-man corporation of Pantaleon and used this circumstance to justify the piercing of
the veil of corporate fiction. Thus, the RTC ordered the petitioners to jointly and severally pay the respondent the amount
of P3,526,117.00 plus 4% per month interest from February 11, 1999 until fully paid.[16]

The petitioners elevated the case to the CA via an ordinary appeal under Rule 41 of the Rules of Court, insisting that there
was no express stipulation on the 4% monthly interest.

THE CA RULING

The CA decided the appeal on May 5, 2003. The CA found that the parties agreed to a 4% monthly interest principally
based on the board resolution that authorized Pantaleon to transact a loan with an approved interest of not more than
4% per month. The appellate court, however, noted that the interest of 4% per month, or 48% per annum, was
unreasonable and should be reduced to 12% per annum. The CA affirmed the RTCs finding that PRISMA was a mere
instrumentality of Pantaleon that justified the piercing of the veil of corporate fiction. Thus, the CA modified the RTC
Decision by imposing a 12% per annum interest, computed from the filing of the complaint until finality of judgment, and
thereafter, 12% from finality until fully paid.[17]
After the CA's denial[18] of their motion for reconsideration,[19] the petitioners filed the present petition for review
on certiorari under Rule 45 of the Rules of Court.

THE PETITION

The petitioners submit that the CA mistakenly relied on their board resolution to conclude that the parties agreed to a 4%
monthly interest because the board resolution was not an evidence of a loan or forbearance of money, but merely an
authorization for Pantaleon to perform certain acts, including the power to enter into a contract of loan. The expressed
mandate of Article 1956 of the Civil Code is that interest due should be stipulated in writing, and no such stipulation exists.
Even assuming that the loan is subject to 4% monthly interest, the interest covers the six (6)-month period only and cannot
be interpreted to apply beyond it. The petitioners also point out the glaring inconsistency in the CA Decision, which
reduced the interest from 4% per month or 48% per annum to 12% per annum, but failed to consider that the amount
of P3,526,117.00 that the RTC ordered them to pay includes the compounded 4% monthly interest.

THE CASE FOR THE RESPONDENT

The respondent counters that the CA correctly ruled that the loan is subject to a 4% monthly interest because the board
resolution is attached to, and an integral part of, the promissory note based on which the petitioners obtained the loan.
The respondent further contends that the petitioners are estopped from assailing the 4% monthly interest, since they
agreed to pay the 4% monthly interest on the principal amount under the promissory note and the board resolution.

THE ISSUE

The core issue boils down to whether the parties agreed to the 4% monthly interest on the loan. If so, does the rate of
interest apply to the 6-month payment period only or until full payment of the loan?

OUR RULING

We find the petition meritorious.

Interest due should be stipulated in writing; otherwise, 12% per annum

Obligations arising from contracts have the force of law between the contracting parties and should be complied with in
good faith.[20] When the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the
literal meaning of its stipulations governs.[21] In such cases, courts have no authority to alter the contract by construction
or to make a new contract for the parties; a court's duty is confined to the interpretation of the contract the parties made
for themselves without regard to its wisdom or folly, as the court cannot supply material stipulations or read into the
contract words the contract does not contain.[22] It is only when the contract is vague and ambiguous that courts are
permitted to resort to the interpretation of its terms to determine the parties intent.

In the present case, the respondent issued a check for P1,000,000.00.[23] In turn, Pantaleon, in his personal capacity and
as authorized by the Board, executed the promissory note quoted above. Thus, the P1,000,000.00 loan shall be payable
within six (6) months, or from January 8, 1994 up to June 8, 1994. During this period, the loan shall earn an interest
of P40,000.00 per month, for a total obligation of P1,240,000.00 for the six-month period. We note that this agreed sum
can be computed at 4% interest per month, but no such rate of interest was stipulated in the promissory note; rather
a fixed sum equivalent to this rate was agreed upon.

Article 1956 of the Civil Code specifically mandates that no interest shall be due unless it has been expressly stipulated in
writing. Under this provision, the payment of interest in loans or forbearance of money is allowed only if: (1) there was an
express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing.
The concurrence of the two conditions is required for the payment of interest at a stipulated rate. Thus, we held in Tan v.
Valdehueza[24] and Ching v. Nicdao[25] that collection of interest without any stipulation in writing is prohibited by law.
Applying this provision, we find that the interest of P40,000.00 per month corresponds only to the six (6)-month period of
the loan, or from January 8, 1994 to June 8, 1994, as agreed upon by the parties in the promissory note. Thereafter, the
interest on the loan should be at the legal interest rate of 12% per annum, consistent with our ruling in Eastern Shipping
Lines, Inc. v. Court of Appeals:[26]

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money,
the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code. (Emphasis supplied)

We reiterated this ruling in Security Bank and Trust Co. v. RTC-Makati, Br. 61,[27] Sulit v. Court of Appeals,[28] Crismina
Garments, Inc. v. Court of Appeals,[29] Eastern Assurance and Surety Corporation v. Court of Appeals,[30] Sps. Catungal v.
Hao,[31] Yong v. Tiu,[32] and Sps. Barrera v. Sps. Lorenzo.[33] Thus, the RTC and the CA misappreciated the facts of the case;
they erred in finding that the parties agreed to a 4% interest, compounded by the application of this interest beyond the
promissory notes six (6)-month period. The facts show that the parties agreed to the payment of a specific sum of
money of P40,000.00 per month for six months, not to a 4% rate of interest payable within a six (6)-month period.

Medel v. Court of Appeals not applicable

The CA misapplied Medel v. Court of Appeals[34] in finding that a 4% interest per month was unconscionable.

In Medel, the debtors in a P500,000.00 loan were required to pay an interest of 5.5% per month, a service charge of 2%
per annum, and a penalty charge of 1% per month, plus attorneys fee equivalent to 25% of the amount due, until the loan
is fully paid. Taken in conjunction with the stipulated service charge and penalty, we found the interest rate of 5.5% to be
excessive, iniquitous, unconscionable, exorbitant and hence, contrary to morals, thereby rendering the stipulation null
and void.

Applying Medel, we invalidated and reduced the stipulated interest in Spouses Solangon v. Salazar[35] of 6% per month or
72% per annum interest on a P60,000.00 loan; in Ruiz v. Court of Appeals,[36] of 3% per month or 36% per annum interest
on a P3,000,000.00 loan; in Imperial v. Jaucian,[37] of 16% per month or 192% per annum interest on a P320,000.00 loan;
in Arrofo v. Quio,[38] of 7% interest per month or 84% per annum interest on a P15,000.00 loan; in Bulos, Jr. v.
Yasuma,[39] of 4% per month or 48% per annum interest on a P2,500,000.00 loan; and in Chua v. Timan,[40] of 7% and 5%
per month for loans totalling P964,000.00. We note that in all these cases, the terms of the loans were open-ended; the
stipulated interest rates were applied for an indefinite period.

Medel finds no application in the present case where no other stipulation exists for the payment of any extra amount
except a specific sum of P40,000.00 per month on the principal of a loan payable within six months. Additionally, no issue
on the excessiveness of the stipulated amount of P40,000.00 per month was ever put in issue by the petitioners;[41] they
only assailed the application of a 4% interest rate, since it was not agreed upon.

It is a familiar doctrine in obligations and contracts that the parties are bound by the stipulations, clauses, terms and
conditions they have agreed to, which is the law between them, the only limitation being that these stipulations, clauses,
terms and conditions are not contrary to law, morals, public order or public policy.[42] The payment of the specific sum of
money of P40,000.00 per month was voluntarily agreed upon by the petitioners and the respondent. There is nothing
from the records and, in fact, there is no allegation showing that petitioners were victims of fraud when they entered into
the agreement with the respondent.
Therefore, as agreed by the parties, the loan of P1,000,000.00 shall earn P40,000.00 per month for a period of six (6)
months, or from December 8, 1993 to June 8, 1994, for a total principal and interest amount of P1,240,000.00. Thereafter,
interest at the rate of 12% per annum shall apply. The amounts already paid by the petitioners during the pendency of the
suit, amounting to P1,228,772.00 as of February 12, 1999,[43] should be deducted from the total amount due, computed
as indicated above. We remand the case to the trial court for the actual computation of the total amount due.
Doctrine of Estoppel not applicable

The respondent submits that the petitioners are estopped from disputing the 4% monthly interest beyond the six-month
stipulated period, since they agreed to pay this interest on the principal amount under the promissory note and the board
resolution.

We disagree with the respondents contention.

We cannot apply the doctrine of estoppel in the present case since the facts and circumstances, as established by the
record, negate its application. Under the promissory note,[44]what the petitioners agreed to was the payment of a specific
sum of P40,000.00 per month for six months not a 4% rate of interest per month for six (6) months on a loan whose
principal is P1,000,000.00, for the total amount of P1,240,000.00. Thus, no reason exists to place the petitioners in
estoppel, barring them from raising their present defenses against a 4% per month interest after the six-month period of
the agreement. The board resolution,[45] on the other hand, simply authorizes Pantaleon to contract for a loan with a
monthly interest of not more than 4%. This resolution merely embodies the extent of Pantaleons authority to contract
and does not create any right or obligation except as between Pantaleon and the board. Again, no cause exists to place
the petitioners in estoppel.

Piercing the corporate veil unfounded

We find it unfounded and unwarranted for the lower courts to pierce the corporate veil of PRISMA.

The doctrine of piercing the corporate veil applies only in three (3) basic instances, namely: a) when the separate and
distinct corporate personality defeats public convenience, as when the corporate fiction is used as a vehicle for the evasion
of an existing obligation; b) in fraud cases, or when the corporate entity is used to justify a wrong, protect a fraud, or
defend a crime; or c) is used in alter ego cases, i.e., where a corporation is essentially 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 so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of another corporation.[46] In the absence of malice, bad
faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally
liable for corporate liabilities.[47]

In the present case, we see no competent and convincing evidence of any wrongful, fraudulent or unlawful act on the part
of PRISMA to justify piercing its corporate veil. While Pantaleon denied personal liability in his Answer, he made himself
accountable in the promissory note in his personal capacity and as authorized by the Board Resolution of PRISMA.[48] With
this statement of personal liability and in the absence of any representation on the part of PRISMA that the obligation is
all its own because of its separate corporate identity, we see no occasion to consider piercing the corporate veil as material
to the case.

WHEREFORE, in light of all the foregoing, we hereby REVERSE and SET ASIDE the Decision dated May 5, 2003 of the Court
of Appeals in CA-G.R. CV No. 69627. The petitioners loan of P1,000,000.00 shall bear interest of P40,000.00 per month for
six (6) months from December 8, 1993 as indicated in the promissory note. Any portion of this loan, unpaid as of the end
of the six-month payment period, shall thereafter bear interest at 12% per annum. The total amount due and unpaid,
including accrued interests, shall bear interest at 12% per annum from the finality of this Decision. Let this case
be REMANDED to the Regional Trial Court, Branch 73, Antipolo City for the proper computation of the amount due as
herein directed, with due regard to the payments the petitioners have already remitted. Costs against the respondent.

G.R. No. 150283 April 16, 2008

RYUICHI YAMAMOTO, petitioner,
vs.
NISHINO LEATHER INDUSTRIES, INC. and IKUO NISHINO, respondents.
DECISION
CARPIO MORALES, J.:
In 1983, petitioner, Ryuichi Yamamoto (Yamamoto), a Japanese national, organized under Philippine laws Wako
Enterprises Manila, Incorporated (WAKO), a corporation engaged principally in leather tanning, now known as Nishino
Leather Industries, Inc. (NLII), one of herein respondents.
In 1987, Yamamoto and the other respondent, Ikuo Nishino (Nishino), also a Japanese national, forged a Memorandum of
Agreement under which they agreed to enter into a joint venture wherein Nishino would acquire such number of shares
of stock equivalent to 70% of the authorized capital stock of WAKO.
Eventually, Nishino and his brother1 Yoshinobu Nishino (Yoshinobu) acquired more than 70% of the authorized capital
stock of WAKO, reducing Yamamoto’s investment therein to, by his claim, 10%,2 less than 10% according to Nishino.3
The corporate name of WAKO was later changed to, as reflected earlier, its current name NLII.
Negotiations subsequently ensued in light of a planned takeover of NLII by Nishino who would buy-out the shares of stock
of Yamamoto. In the course of the negotiations, Yoshinobu and Nishino’s counsel Atty. Emmanuel G. Doce (Atty. Doce)
advised Yamamoto by letter dated October 30, 1991, the pertinent portions of which follow:
Hereunder is a simple memorandum of the subject matters discussed with me by Mr. Yoshinobu Nishino yesterday,
October 29th, based on the letter of Mr. Ikuo Nishino from Japan, and which I am now transmitting to you.4
xxxx
12. Machinery and Equipment:
The following machinery/equipment have been contributed by you to the company:
Splitting machine - 1 unit

Samming machine - 1 unit

Forklift - 1 unit

Drums - 4 units

Toggling machine - 2 units

Regarding the above machines, you may take them out with you (for your own use and sale) if you want, provided, the
value of such machines is deducted from your and Wako’s capital contributions, which will be paid to you.
Kindly let me know of your comments on all the above, soonest.
x x x x5 (Emphasis and underscoring supplied)
On the basis of such letter, Yamamoto attempted to recover the machineries and equipment which were, by Yamamoto’s
admission, part of his investment in the corporation,6 but he was frustrated by respondents, drawing Yamamoto to file on
January 15, 1992 before the Regional Trial Court (RTC) of Makati a complaint7 against them for replevin.
Branch 45 of the Makati RTC issued a writ of replevin after Yamamoto filed a bond. 8
In their Answer with Counterclaim,9 respondents claimed that the machineries and equipment subject of replevin form
part of Yamamoto’s capital contributions in consideration of his equity in NLII and should thus be treated as corporate
property; and that the above-said letter of Atty. Doce to Yamamoto was merely a proposal, "conditioned on [Yamamoto’s]
sell-out to . . . Nishino of his entire equity,"10 which proposal was yet to be authorized by the stockholders and Board of
Directors of NLII.
By way of Counterclaim, respondents, alleging that they suffered damage due to the seizure via the implementation of
the writ of replevin over the machineries and equipment, prayed for the award to them of moral and exemplary damages,
attorney’s fees and litigation expenses, and costs of suit.
The trial court, by Decision of June 9, 1995, decided the case in favor of Yamamoto,11 disposing thus:
WHEREFORE, judgment is hereby rendered: (1) declaring plaintiff as the rightful owner and possessor of the machineries
in question, and making the writ of seizure permanent; (2) ordering defendants to pay plaintiff attorney’s fees and
expenses of litigation in the amount of Fifty Thousand Pesos (P50,000.00), Philippine Currency; (3) dismissing defendants’
counterclaims for lack of merit; and (4) ordering defendants to pay the costs of suit.
SO ORDERED.12 (Underscoring supplied)
On appeal,13 the Court of Appeals held in favor of herein respondents and accordingly reversed the RTC decision and
dismissed the complaint.14 In so holding, the appellate court found that the machineries and equipment claimed by
Yamamoto are corporate property of NLII and may not thus be retrieved without the authority of the NLII Board of
Directors;15 and that petitioner’s argument that Nishino and Yamamoto cannot hide behind the shield of corporate fiction
does not lie,16 nor does petitioner’s invocation of the doctrine of promissory estoppel.17 At the same time, the Court of
Appeals found no ground to support respondents’ Counterclaim.18
The Court of Appeals having denied19 his Motion for Reconsideration,20 Yamamoto filed the present petition,21faulting the
Court of Appeals
A.
x x x IN HOLDING THAT THE VEIL OF CORPORATE FICTION SHOULD NOT BE PIERCED IN THE CASE AT BAR.
B.
x x x IN HOLDING THAT THE DOCTRINE OF PROMISSORY ESTOPPEL DOES NOT APPLY TO THE CASE AT BAR.
C.
x x x IN HOLDING THAT RESPONDENTS ARE NOT LIABLE FOR ATTORNEY’S FEES.22
The resolution of the petition hinges, in the main, on whether the advice in the letter of Atty. Doce that Yamamoto may
retrieve the machineries and equipment, which admittedly were part of his investment, bound the corporation. The Court
holds in the negative.
Indeed, without a Board Resolution authorizing respondent Nishino to act for and in behalf of the corporation, he cannot
bind the latter. Under the Corporation Law, unless otherwise provided, corporate powers are exercised by the Board of
Directors.23
Urging this Court to pierce the veil of corporate fiction, Yamamoto argues, viz:
During the negotiations, the issue as to the ownership of the Machiner[ies] never came up. Neither did the issue on the
proper procedure to be taken to execute the complete take-over of the Company come up since Ikuo, Yoshinobu, and
Yamamoto were the owners thereof, the presence of other stockholders being only for the purpose of complying with the
minimum requirements of the law.
What course of action the Company decides to do or not to do depends not on the "other members of the Board of
Directors". It depends on what Ikuo and Yoshinobu decide. The Company is but a mere instrumentality of Ikuo [and]
Yoshinobu.24
xxxx
x x x The Company hardly holds board meetings. It has an inactive board, the directors are directors in name only and are
there to do the bidding of the Nish[i]nos, nothing more. Its minutes are paper minutes. x x x 25
xxxx
The fact that the parties started at a 70-30 ratio and Yamamoto’s percentage declined to 10% does not mean the 20%
went to others. x x x The 20% went to no one else but Ikuo himself. x x x Yoshinobu is the younger brother of Ikuo and
has no say at all in the business. Only Ikuo makes the decisions. There were, therefore, no other members of the Board
who have not given their approval.26 (Emphasis and underscoring supplied)
While the veil of separate corporate personality may be pierced when the corporation is merely an adjunct, a business
conduit, or alter ego of a person,27 the mere ownership by a single stockholder of even all or nearly all of the capital stocks
of a corporation is not by itself a sufficient ground to disregard the separate corporate personality.28
The elements determinative of the applicability of the doctrine of piercing the veil of corporate fiction follow:
"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 the 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."29 (Italics in the original; emphasis and underscoring supplied)
In relation to the second element, to disregard the separate juridical personality of a corporation, the wrongdoing or
unjust act in contravention of a plaintiff’s legal rights must be clearly and convincingly established; it cannot be
presumed.30 Without a demonstration that any of the evils sought to be prevented by the doctrine is present, it does not
apply.31
In the case at bar, there is no showing that Nishino used the separate personality of NLII to unjustly act or do wrong to
Yamamoto in contravention of his legal rights.
Yamamoto argues, in another vein, that promissory estoppel lies against respondents, thus:
Under the doctrine of promissory estoppel, x x x estoppel may arise from the making of a promise, even though without
consideration, if it was intended that the promise should be relied upon and in fact it was relied upon, and if a refusal to
enforce it would be virtually to sanction the perpetration of fraud or would result in other injustice.
x x x Ikuo and Yoshinobu wanted Yamamoto out of the Company. For this purpose negotiations were had between the
parties. Having expressly given Yamamoto, through the Letter and through a subsequent meeting at the Manila Peninsula
where Ikuo himself confirmed that Yamamoto may take out the Machinery from the Company anytime, respondents
should not be allowed to turn around and do the exact opposite of what they have represented they will do.
In paragraph twelve (12) of the Letter, Yamamoto was expressly advised that he could take out the Machinery if he wanted
to so, provided that the value of said machines would be deducted from his capital contribution x x x.
xxxx
Respondents cannot now argue that they did not intend for Yamamoto to rely upon the Letter. That was the purpose of
the Letter to begin with. Petitioner[s] in fact, relied upon said Letter and such reliance was further strengthened during
their meeting at the Manila Peninsula.
To sanction respondents’ attempt to evade their obligation would be to sanction the perpetration of fraud and injustice
against petitioner.32 (Underscoring supplied)
It bears noting, however, that the aforementioned paragraph 12 of the letter is followed by a request for Yamamoto to
give his "comments on all the above, soonest."33
What was thus proffered to Yamamoto was not a promise, but a mere offer, subject to his acceptance. Without
acceptance, a mere offer produces no obligation.34
Thus, under Article 1181 of the Civil Code, "[i]n conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the
condition." In the case at bar, there is no showing of compliance with the condition for allowing Yamamoto to take the
machineries and equipment, namely, his agreement to the deduction of their value from his capital contribution due him
in the buy-out of his interests in NLII. Yamamoto’s allegation that he agreed to the condition35remained just that, no proof
thereof having been presented.
The machineries and equipment, which comprised Yamamoto’s investment in NLII,36 thus remained part of the capital
property of the corporation.37
It is settled that the property of a corporation is not the property of its stockholders or members. 38 Under the trust fund
doctrine, the capital stock, property, and other assets of a corporation are regarded as equity in trust for the payment of
corporate creditors which are preferred over the stockholders in the distribution of corporate assets.39The distribution of
corporate assets and property cannot be made to depend on the whims and caprices of the stockholders, officers, or
directors of the corporation unless the indispensable conditions and procedures for the protection of corporate creditors
are followed.40
WHEREFORE, the petition is DENIED.

[G.R. No. 124715. January 24, 2000]

RUFINA LUY LIM petitioner, vs. COURT OF APPEALS, AUTO TRUCK TBA CORPORATION, SPEED DISTRIBUTING, INC.,
ACTIVE DISTRIBUTORS, ALLIANCE MARKETING CORPORATION, ACTION COMPANY, INC. respondents.
DECISION
BUENA, J.:
May a corporation, in its universality, be the proper subject of and be included in the inventory of the estate of a deceased
person?
Petitioner disputes before us through the instant petition for review on certiorari, the decision[1] of the Court of Appeals
promulgated on 18 April 1996, in CA-GR SP No. 38617, which nullified and set aside the orders dated 04 July 1995[2], 12
September 1995[3] and 15 September 1995[4] of the Regional Trial Court of Quezon City, Branch 93, sitting as a probate
court.
Petitioner Rufina Luy Lim is the surviving spouse of the late Pastor Y. Lim whose estate is the subject of probate
proceedings in Special Proceedings Q-95-23334, entitled, "In Re: Intestate Estate of Pastor Y. Lim Rufina Luy Lim,
represented by George Luy, Petitioner".
Private respondents Auto Truck Corporation, Alliance Marketing Corporation, Speed Distributing, Inc., Active Distributing,
Inc. and Action Company are corporations formed, organized and existing under Philippine laws and which owned real
properties covered under the Torrens system.
On 11 June 1994, Pastor Y. Lim died intestate. Herein petitioner, as surviving spouse and duly represented by her nephew
George Luy, filed on 17 March 1995, a joint petition[5] for the administration of the estate of Pastor Y. Lim before the
Regional Trial Court of Quezon City.
Private respondent corporations, whose properties were included in the inventory of the estate of Pastor Y. Lim, then filed
a motion[6] for the lifting of lis pendens and motion[7] for exclusion of certain properties from the estate of the decedent.
In an order[8] dated 08 June 1995, the Regional Trial Court of Quezon City, Branch 93, sitting as a probate court, granted
the private respondents twin motions, in this wise:
"Wherefore, the Register of Deeds of Quezon City is hereby ordered to lift, expunge or delete the annotation of lis pendens
on Transfer Certificates of Title Nos. 116716, 116717, 116718, 116719 and 5182 and it is hereby further ordered that the
properties covered by the same titles as well as those properties by (sic) Transfer Certificate of Title Nos. 613494, 363123,
236236 and 263236 are excluded from these proceedings.
SO ORDERED."
Subsequently, Rufina Luy Lim filed a verified amended petition[9] which contained the following averments:
"3. The late Pastor Y. Lim personally owned during his lifetime the following business entities, to wit:
Business Entity Address:
XXXX
Alliance Marketing ,Inc. Block 3, Lot 6, Dacca
BF Homes,
Paraaque,
Metro Manila.
XXXX
Speed Distributing Inc. 910 Barrio Niog,
Aguinaldo Highway,
Bacoor, Cavite.
XXXX
Auto Truck TBA Corp. 2251 Roosevelt Avenue,
Quezon City.
XXXX
Active Distributors, Inc. Block 3, Lot 6, Dacca BF
Homes, Paraaque,
Metro Manila.
XXXX
Action Company 100 20th Avenue
Murphy, Quezon City
or
92-D Mc-Arthur Highway
Valenzuela Bulacan.
"3.1 Although the above business entities dealt and engaged in business with the public as corporations, all their capital,
assets and equity were however, personally owned by the late Pastor Y Lim. Hence the alleged stockholders and officers
appearing in the respective articles of incorporation of the above business entities were mere dummies of Pastor Y. Lim,
and they were listed therein only for purposes of registration with the Securities and Exchange Commission.
"4. Pastor Lim, likewise, had Time, Savings and Current Deposits with the following banks: (a) Metrobank, Grace Park,
Caloocan City and Quezon Avenue, Quezon City Branches and (b) First Intestate Bank (formerly Producers Bank), Rizal
Commercial Banking Corporation and in other banks whose identities are yet to be determined.
"5. That the following real properties, although registered in the name of the above entities, were actually acquired by
Pastor Y. Lim during his marriage with petitioner, to wit:
Corporation Title Location
XXXX
k. Auto Truck TCT No. 617726 Sto. Domingo
TBA Corporation Cainta, Rizal
q. Alliance Marketing TCT No. 27896 Prance,
Metro Manila
Copies of the above-mentioned Transfer Certificate of Title and/or Tax Declarations are hereto attached as Annexes "C"
to "W".
XXXX
"7. The aforementioned properties and/or real interests left by the late Pastor Y. Lim, are all conjugal in nature, having
been acquired by him during the existence of his marriage with petitioner.
"8. There are other real and personal properties owned by Pastor Y. Lim which petitioner could not as yet identify.
Petitioner, however will submit to this Honorable Court the identities thereof and the necessary documents covering the
same as soon as possible."
On 04 July 1995, the Regional Trial Court acting on petitioners motion issued an order[10], thus:
"Wherefore, the order dated 08 June 1995 is hereby set aside and the Registry of Deeds of Quezon City is hereby directed
to reinstate the annotation of lis pendens in case said annotation had already been deleted and/or cancelled said TCT Nos.
116716, 116717, 116718, 116719 and 51282.
Further more (sic), said properties covered by TCT Nos. 613494, 365123, 236256 and 236237 by virtue of the petitioner
are included in the instant petition.
SO ORDERED."
On 04 September 1995, the probate court appointed Rufina Lim as special administrator[11] and Miguel Lim and Lawyer
Donald Lee, as co-special administrators of the estate of Pastor Y. Lim, after which letters of administration were
accordingly issued.
In an order[12] dated 12 September 1995, the probate court denied anew private respondents motion for exclusion, in this
wise:
"The issue precisely raised by the petitioner in her petition is whether the corporations are the mere alter egos or
instrumentalities of Pastor Lim, Otherwise (sic) stated, the issue involves the piercing of the corporate veil, a matter that
is clearly within the jurisdiction of this Honorable Court and not the Securities and Exchange Commission. Thus, in the case
of Cease vs. Court of Appeals, 93 SCRA 483, the crucial issue decided by the regular court was whether the corporation
involved therein was the mere extension of the decedent. After finding in the affirmative, the Court ruled that the assets
of the corporation are also assets of the estate.
A reading of P.D. 902, the law relied upon by oppositors, shows that the SECs exclusive (sic) applies only to intra-corporate
controversy. It is simply a suit to settle the intestate estate of a deceased person who, during his lifetime, acquired several
properties and put up corporations as his instrumentalities.
SO ORDERED."
On 15 September 1995, the probate court acting on an ex parte motion filed by petitioner, issued an order[13] the
dispositive portion of which reads:
"Wherefore, the parties and the following banks concerned herein under enumerated are hereby ordered to comply
strictly with this order and to produce and submit to the special administrators , through this Honorable Court within (5)
five days from receipt of this order their respective records of the savings/current accounts/time deposits and other
deposits in the names of Pastor Lim and/or corporations above-mentioned, showing all the transactions made or done
concerning savings /current accounts from January 1994 up to their receipt of this court order.
XXX XXX XXX
SO ORDERED."
Private respondent filed a special civil action for certiorari[14], with an urgent prayer for a restraining order or writ of
preliminary injunction, before the Court of Appeals questioning the orders of the Regional Trial Court, sitting as a probate
court.
On 18 April 1996, the Court of Appeals, finding in favor of herein private respondents, rendered the assailed decision[15],
the decretal portion of which declares:
"Wherefore, premises considered, the instant special civil action for certiorari is hereby granted, The impugned orders
issued by respondent court on July 4,1995 and September 12, 1995 are hereby nullified and set aside. The impugned order
issued by respondent on September 15, 1995 is nullified insofar as petitioner corporations" bank accounts and records
are concerned.
SO ORDERED."
Through the expediency of Rule 45 of the Rules of Court, herein petitioner Rufina Luy Lim now comes before us with a
lone assignment of error[16]:
"The respondent Court of Appeals erred in reversing the orders of the lower court which merely allowed the preliminary
or provisional inclusion of the private respondents as part of the estate of the late deceased (sic) Pastor Y. Lim with the
respondent Court of Appeals arrogating unto itself the power to repeal, to disobey or to ignore the clear and explicit
provisions of Rules 81,83,84 and 87 of the Rules of Court and thereby preventing the petitioner, from performing her duty
as special administrator of the estate as expressly provided in the said Rules."
Petitioners contentions tread on perilous grounds.
In the instant petition for review, petitioner prays that we affirm the orders issued by the probate court which were
subsequently set aside by the Court of Appeals.
Yet, before we delve into the merits of the case, a review of the rules on jurisdiction over probate proceedings is indeed
in order.
The provisions of Republic Act 7691[17], which introduced amendments to Batas Pambansa Blg. 129, are pertinent:
"Section 1. Section 19 of Batas Pambansa Blg. 129, otherwise known as the "Judiciary Reorganization Act of 1980", is
hereby amended to read as follows:
Section 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise exclusive jurisdiction:
xxx xxx xxx
(4) In all matters of probate, both testate and intestate, where the gross value of the estate exceeds One Hundred
Thousand Pesos (P100,000) or, in probate matters in Metro Manila, where such gross value exceeds Two Hundred
Thousand Pesos (P200,000);
xxx xxx xxx
Section 3. Section 33 of the same law is hereby amended to read as follows:
Section 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in Civil Cases.-
Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts shall exercise:
1. Exclusive original jurisdiction over civil actions and probate proceedings, testate and intestate, including the grant of
provisional remedies in proper cases, where the value of the personal property, estate or amount of the demand does not
exceed One Hundred Thousand Pesos(P100,000) or, in Metro Manila where such personal property, estate or amount of
the demand does not exceed Two Hundred Thousand Pesos (P200,000), exclusive of interest, damages of whatever kind,
attorneys fees, litigation expenses and costs, the amount of which must be specifically alleged, Provided, that interest,
damages of whatever kind, attorneys, litigation expenses and costs shall be included in the determination of the filing
fees, Provided further, that where there are several claims or causes of actions between the same or different parties,
embodied in the same complaint, the amount of the demand shall be the totality of the claims in all the causes of action,
irrespective of whether the causes of action arose out of the same or different transactions;
xxx xxx xxx"
Simply put, the determination of which court exercises jurisdiction over matters of probate depends upon the gross value
of the estate of the decedent.
As to the power and authority of the probate court, petitioner relies heavily on the principle that a probate court may
pass upon title to certain properties, albeit provisionally, for the purpose of determining whether a certain property
should or should not be included in the inventory.
In a litany of cases, We defined the parameters by which the court may extend its probing arms in the determination of
the question of title in probate proceedings.
This Court, in PASTOR, JR. vs. COURT OF APPEALS,[18] held:
"X X X As a rule, the question of ownership is an extraneous matter which the probate court cannot resolve with finality.
Thus, for the purpose of determining whether a certain property should or should not be included in the inventory of
estate properties, the Probate Court may pass upon the title thereto, but such determination is provisional, not conclusive,
and is subject to the final decision in a separate action to resolve title."
We reiterated the rule in PEREIRA vs. COURT OF APPEALS[19]:
"X X X The function of resolving whether or not a certain property should be included in the inventory or list of properties
to be administered by the administrator is one clearly within the competence of the probate court. However, the courts
determination is only provisional in character, not conclusive, and is subject to the final decision in a separate action which
may be instituted by the parties."
Further, in MORALES vs. CFI OF CAVITE[20] citing CUIZON vs. RAMOLETE[21], We made an exposition on the probate courts
limited jurisdiction:
"It is a well-settled rule that a probate court or one in charge of proceedings whether testate or intestate cannot adjudicate
or determine title to properties claimed to be a part of the estate and which are equally claimed to belong to outside
parties. All that the said court could do as regards said properties is to determine whether they should or should not be
included in the inventory or list of properties to be administered by the administrator. If there is no dispute, well and
good; but if there is, then the parties, the administrator and the opposing parties have to resort to an ordinary action for
a final determination of the conflicting claims of title because the probate court cannot do so."
Again, in VALERA vs. INSERTO[22], We had occasion to elucidate, through Mr. Justice Andres Narvasa[23]:
"Settled is the rule that a Court of First Instance (now Regional Trial Court), acting as a probate court, exercises but limited
jurisdiction, and thus has no power to take cognizance of and determine the issue of title to property claimed by a third
person adversely to the decedent, unless the claimant and all other parties having legal interest in the property consent,
expressly or impliedly, to the submission of the question to the probate court for adjudgment, or the interests of third
persons are not thereby prejudiced, the reason for the exception being that the question of whether or not a particular
matter should be resolved by the court in the exercise of its general jurisdiction or of its limited jurisdiction as a special
court (e.g. probate, land registration, etc.), is in reality not a jurisdictional but in essence of procedural one, involving a
mode of practice which may be waived. x x x
x x x. These considerations assume greater cogency where, as here, the Torrens title is not in the decedents name but
in others, a situation on which this Court has already had occasion to rule x x x."(emphasis Ours)
Petitioner, in the present case, argues that the parcels of land covered under the Torrens system and registered in the
name of private respondent corporations should be included in the inventory of the estate of the decedent Pastor Y. Lim,
alleging that after all the determination by the probate court of whether these properties should be included or not is
merely provisional in nature, thus, not conclusive and subject to a final determination in a separate action brought for the
purpose of adjudging once and for all the issue of title.
Yet, under the peculiar circumstances, where the parcels of land are registered in the name of private respondent
corporations, the jurisprudence pronounced in BOLISAY vs., ALCID[24] is of great essence and finds applicability, thus:
"It does not matter that respondent-administratrix has evidence purporting to support her claim of ownership, for, on the
other hand, petitioners have a Torrens title in their favor, which under the law is endowed with incontestability until after
it has been set aside in the manner indicated in the law itself, which, of course, does not include, bringing up the matter
as a mere incident in special proceedings for the settlement of the estate of deceased persons. x x x"
"x x x. In regard to such incident of inclusion or exclusion, We hold that if a property covered by Torrens title is involved,
the presumptive conclusiveness of such title should be given due weight, and in the absence of strong compelling evidence
to the contrary, the holder thereof should be considered as the owner of the property in controversy until his title is
nullified or modified in an appropriate ordinary action, particularly, when as in the case at bar, possession of the property
itself is in the persons named in the title. x x x"
A perusal of the records would reveal that no strong compelling evidence was ever presented by petitioner to bolster her
bare assertions as to the title of the deceased Pastor Y. Lim over the properties. Even so, P.D. 1529, otherwise known as,
" The Property Registration Decree", proscribes collateral attack on Torrens Title, hence:
"xxx xxx xxx
Section 48. Certificate not subject to collateral attack.
- A certificate of title shall not be subject to collateral attack. It cannot be altered, modified or cancelled except in a direct
proceeding in accordance with law."
In CUIZON vs. RAMOLETE, where similarly as in the case at bar, the property subject of the controversy was duly registered
under the Torrens system, We categorically stated:
"x x x Having been apprised of the fact that the property in question was in the possession of third parties and more
important, covered by a transfer certificate of title issued in the name of such third parties, the respondent court should
have denied the motion of the respondent administrator and excluded the property in question from the inventory of the
property of the estate. It had no authority to deprive such third persons of their possession and ownership of the property.
x x x"
Inasmuch as the real properties included in the inventory of the estate of the late Pastor Y. Lim are in the possession of
and are registered in the name of private respondent corporations, which under the law possess a personality separate
and distinct from their stockholders, and in the absence of any cogency to shred the veil of corporate fiction, the
presumption of conclusiveness of said titles in favor of private respondents should stand undisturbed.
Accordingly, the probate court was remiss in denying private respondents motion for exclusion. While it may be true that
the Regional Trial Court, acting in a restricted capacity and exercising limited jurisdiction as a probate court, is competent
to issue orders involving inclusion or exclusion of certain properties in the inventory of the estate of the decedent, and to
adjudge, albeit, provisionally the question of title over properties, it is no less true that such authority conferred upon by
law and reinforced by jurisprudence, should be exercised judiciously, with due regard and caution to the peculiar
circumstances of each individual case.
Notwithstanding that the real properties were duly registered under the Torrens system in the name of private
respondents, and as such were to be afforded the presumptive conclusiveness of title, the probate court obviously opted
to shut its eyes to this gleamy fact and still proceeded to issue the impugned orders.
By its denial of the motion for exclusion, the probate court in effect acted in utter disregard of the presumption of
conclusiveness of title in favor of private respondents. Certainly, the probate court through such brazen act transgressed
the clear provisions of law and infringed settled jurisprudence on this matter.
Moreover, petitioner urges that not only the properties of private respondent corporations are properly part of the
decedents estate but also the private respondent corporations themselves. To rivet such flimsy contention, petitioner
cited that the late Pastor Y. Lim during his lifetime, organized and wholly-owned the five corporations, which are the
private respondents in the instant case.[25] Petitioner thus attached as Annexes "F"[26] and "G"[27] of the petition for review
affidavits executed by Teresa Lim and Lani Wenceslao which among others, contained averments that the incorporators
of Uniwide Distributing, Inc. included on the list had no actual participation in the organization and incorporation of the
said corporation. The affiants added that the persons whose names appeared on the articles of incorporation of Uniwide
Distributing, Inc., as incorporators thereof, are mere dummies since they have not actually contributed any amount to the
capital stock of the corporation and have been merely asked by the late Pastor Y. Lim to affix their respective signatures
thereon.
It is settled that a corporation is clothed with personality separate and distinct from that of the persons composing it. It
may not generally be held liable for that of the persons composing it. It may not be held liable for the personal
indebtedness of its stockholders or those of the entities connected with it.[28]
Rudimentary is the rule that a corporation is invested by law with a personality distinct and separate from its stockholders
or members. In the same vein, a corporation by legal fiction and convenience is an entity shielded by a protective mantle
and imbued by law with a character alien to the persons comprising it.
Nonetheless, the shield is not at all times invincible. Thus, in FIRST PHILIPPINE INTERNATIONAL BANK vs. COURT OF
APPEALS[29], We enunciated:
"x x x When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an
existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the
perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members or
stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals. x x x"
Piercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders
from liabilities that ordinarily, they could be subject to, or distinguishes one corporation from a seemingly separate one,
were it not for the existing corporate fiction.[30]
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.[31]
Further, 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 right; and (3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of. The absence of any of these elements prevent "piercing the corporate veil".[32]
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 a sufficient reason for disregarding the fiction of separate corporate personalities.[33]
Moreover, to disregard the separate juridical personality of a corporation, the wrong-doing must be clearly and
convincingly established. It cannot be presumed.[34]
Granting arguendo that the Regional Trial Court in this case was not merely acting in a limited capacity as a probate court,
petitioner nonetheless failed to adduce competent evidence that would have justified the court to impale the veil of
corporate fiction. Truly, the reliance reposed by petitioner on the affidavits executed by Teresa Lim and Lani Wenceslao
is unavailing considering that the aforementioned documents possess no weighty probative value pursuant to the hearsay
rule. Besides it is imperative for us to stress that such affidavits are inadmissible in evidence inasmuch as the affiants were
not at all presented during the course of the proceedings in the lower court. To put it differently, for this Court to uphold
the admissibility of said documents would be to relegate from Our duty to apply such basic rule of evidence in a manner
consistent with the law and jurisprudence.
Our pronouncement in PEOPLE BANK AND TRUST COMPANY vs. LEONIDAS[35] finds pertinence:
"Affidavits are classified as hearsay evidence since they are not generally prepared by the affiant but by another who uses
his own language in writing the affiants statements, which may thus be either omitted or misunderstood by the one writing
them. Moreover, the adverse party is deprived of the opportunity to cross-examine the affiants. For this reason, affidavits
are generally rejected for being hearsay, unless the affiant themselves are placed on the witness stand to testify thereon."
As to the order[36] of the lower court, dated 15 September 1995, the Court of Appeals correctly observed that the Regional
Trial Court, Branch 93 acted without jurisdiction in issuing said order; The probate court had no authority to demand the
production of bank accounts in the name of the private respondent corporations.
WHEREFORE, in view of the foregoing disquisitions, the instant petition is hereby DISMISSED for lack of merit and the
decision of the Court of Appeals which nullified and set aside the orders issued by the Regional Trial Court, Branch 93,
acting as a probate court, dated 04 July 1995 and 12 September 1995 is AFFIRMED.
SO ORDERED.

[G.R. No. 125986. January 28, 1999]

LUXURIA HOMES, INC., and/or AIDA M. POSADAS, petitioners, vs. HONORABLE COURT OF APPEALS, JAMES BUILDER
CONSTRUCTION and/or JAIME T. BRAVO, respondents.
DECISION
MARTINEZ, J.:
This petition for review assails the decision of the respondent Court of Appeals dated March 15, 1996, [1] which affirmed
with modification the judgment of default rendered by the Regional Trial Court of Muntinlupa, Branch 276, in Civil Case
No. 92-2592 granting all the reliefs prayed for in the complaint of private respondent James Builder Construction and/or
Jaime T. Bravo.
As culled from the record, the facts are as follows:
Petitioner Aida M. Posadas and her two (2) minor children co-owned a 1.6 hectare property in Sucat, Muntinlupa, which
was occupied by squatters. Petitioner Posadas entered into negotiations with private respondent Jaime T. Bravo regarding
the development of the said property into a residential subdivision. On May 3, 1989, she authorized private respondent
to negotiate with the squatters to leave the said property. With a written authorization, respondent Bravo buckled down
to work and started negotiations with the squatters.
Meanwhile, some seven (7) months later, on December 11, 1989, petitioner Posadas and her two (2) children, through a
Deed of Assignment, assigned the said property to petitioner Luxuria Homes, Inc., purportedly for organizational and tax
avoidance purposes. Respondent Bravo signed as one of the witnesses to the execution of the Deed of Assignment and
the Articles of Incorporation of petitioner Luxuria Homes, Inc.
Then sometime in 1992, the harmonious and congenial relationship of petitioner Posadas and respondent Bravo turned
sour when the former supposedly could not accept the management contracts to develop the 1.6 hectare property into a
residential subdivision, the latter was proposing. In retaliation, respondent Bravo demanded payment for services
rendered in connection with the development of the land. In his statement of account dated 21 August 1991[2] respondent
demanded the payment of P1,708,489.00 for various services rendered, i.e., relocation of squatters, preparation of the
architectural design and site development plan, survey and fencing.
Petitioner Posadas refused to pay the amount demanded. Thus, in September 1992, private respondents James Builder
Construction and Jaime T. Bravo instituted a complaint for specific performance before the trial court against petitioners
Posadas and Luxuria Homes, Inc. Private respondents alleged therein that petitioner Posadas asked them to clear the
subject parcel of land of squatters for a fee of P1,100,000.00 for which they were partially paid the amount of P461,511.50,
leaving a balance of P638,488.50. They were also supposedly asked to prepare a site development plan and an
architectural design for a contract price of P450,000.00 for which they were partially paid the amount of P25,000.00,
leaving a balance of P425,000.00. And in anticipation of the signing of the land development contract, they had to
construct a bunkhouse and warehouse on the property which amounted to P300,000.00, and a hollow blocks factory
for P60,000.00. Private respondents also claimed that petitioner Posadas agreed that private respondents will develop
the land into a first class subdivision thru a management contract and that petitioner Posadas is unjustly refusing to comply
with her obligation to finalize the said management contract.
The prayer in the complaint of the private respondents before the trial court reads as follows:
WHEREFORE, premises considered, it is respectfully prayed of this Honorable Court that after hearing/trial judgment be
rendered ordering defendant to:
a) Comply with its obligation to deliver/finalize Management Contract of its land in Sucat, Muntinlupa, Metro Manila and
to pay plaintiff its balance in the amount of P1,708,489.00;
b) Pay plaintiff moral and exemplary damages in the amount of P500,000.00;
c) Pay plaintiff actual damages in the amount of P500,000.00 (Bunkhouse/warehouse P300,000.00, Hollow-block
factory P60,000.00, lumber, cement, etc., P120,000.00, guard P20,000.00);
d) Pay plaintiff attorneys fee of P50,000 plus P700 per appearance in court and 5% of that which may be awarded by the
court to plaintiff re its monetary claims;
e) Pay cost of this suit.[3]
On September 27, 1993, the trial court declared petitioner Posadas in default and allowed the private respondents to
present their evidence ex-parte. On March 8, 1994, it ordered petitioner Posadas, jointly and in solidum with petitioner
Luxuria Homes, Inc., to pay private respondents as follows:
1. x x x the balance of the payment for the various services performed by Plaintiff with respect to the land covered by TCT
NO. 167895 previously No. 158290 in the total amount of P1,708,489.00.
2. x x x actual damages incurred for the construction of the warehouses/bunks, and for the materials used in the total sum
of P1,500,000.00.
3. Moral and exemplary damages of P500,000.00.
4. Attorneys fee of P50,000.00.
5. And cost of this proceedings.
Defendant Aida Posadas as the Representative of the Corporation Luxuria Homes, Incorporated, is further directed to
execute the management contract she committed to do, also in consideration of the various undertakings that Plaintiff
rendered for her.[4]
Aggrieved by the aforecited decision, petitioners appealed to respondent Court of Appeals, which, as aforestated, affirmed
with modification the decision of the trial court. The appellate court deleted the award of moral damages on the ground
that respondent James Builder Construction is a corporation and hence could not experience physical suffering and mental
anguish. It also reduced the award of exemplary damages. The dispositive portion of the decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED with the modification that the award of moral damages is
ordered deleted and the award of exemplary damages to the plaintiffs-appellee should only be in the amount of FIFTY
THOUSAND (P50,000.00) PESOS.[5]
Petitioners motion for reconsideration was denied, prompting the filing of this petition for review before this Court.
On January 15, 1997, the Third Division of this Court denied due course to this petition for failing to show convincingly any
reversible error on the part of the Court of Appeals. This Court however deleted the grant of exemplary damages and
attorneys fees. The Court also reduced the trial courts award of actual damages from P1,500,000.00 to P500,000.00
reasoning that the grant should not exceed the amount prayed for in the complaint. In the prayer in the complaint
respondents asked for actual damages in the amount of P500,000.00 only.
Still feeling aggrieved with the resolution of this Court, petitioners filed a motion for reconsideration. On March 17, 1997,
this Court found merit in the petitioners motion for reconsideration and reinstated this petition for review.
From their petition for review and motion for reconsideration before this Court, we now synthesize the issues as follows:
1. Were private respondents able to present ex-parte sufficient evidence to substantiate the allegations in their complaint
and entitle them to their prayers?
2. Can petitioner Luxuria Homes, Inc., be held liable to private respondents for the transactions supposedly entered into
between petitioner Posadas and private respondents?
3. Can petitioners be compelled to enter into a management contract with private respondents?
Petitioners who were declared in default assert that the private respondents who presented their evidence ex-
parte nonetheless utterly failed to substantiate the allegations in their complaint and as such cannot be entitled to the
reliefs prayed for.
A perusal of the record shows that petitioner Posadas contracted respondents Bravo to render various services for the
initial development of the property as shown by vouchers evidencing payments made by petitioner Posadas to
respondents Bravo for squatter relocation, architectural design, survey and fencing.
Respondents prepared the architectural design, site development plan and survey in connection with petitioner Posadas
application with the Housing and Land Regulatory Board (HLRUB) for the issuance of the Development Permit, Preliminary
Approval and Locational Clearance.[6] Petitioner benefited from said services as the Development Permit and the
Locational Clearance were eventually issued by the HLURB in her favor. Petitioner Posadas is therefore liable to pay for
these services rendered by respondents. The contract price for the survey of the land is P140,000.00. Petitioner made
partial payments totaling P130,000.00 leaving a payable balance of P10,000.00.
In his testimony,[7] he alleged that the agreed price for the preparation of the site development plan is P500,000.00 and
that the preparation of the architectural designs is for P450,000, or a total of P950,000.00 for the two contracts. In his
complaint however, respondent Bravo alleged that he was asked to prepare the site development plan and the
architectural designs x x x for a contract price of P450,000.00 x x x.[8] The discrepancy or inconsistency was never reconciled
and clarified.
We reiterate that we cannot award an amount higher than what was claimed in the complaint. Consequently for the
preparation of both the architectural design and site development plan, respondent is entitled to the amount
of P450,000.00 less partial payments made in the amount of P25,000.00. In Policarpio v. RTC of Quezon City,[9] it was held
that a court is bereft of jurisdiction to award, in a judgment by default, a relief other than that specifically prayed for in
the complaint.
As regards the contracts for the ejectment of squatters and fencing, we believe however that respondents failed to show
proof that they actually fulfilled their commitments therein. Aside from the bare testimony of respondent Bravo, no other
evidence was presented to show that all the squatter were ejected from the property. Respondent Bravo failed to show
how many shanties or structures were actually occupying the property before he entered the same, to serve as basis for
concluding whether the task was finished or not. His testimony alone that he successfully negotiated for the ejectment of
all the squatters from the property will not suffice.
Likewise, in the case of fencing, there is no proof that it was accomplished as alleged. Respondent Bravo claims that he
finished sixty percent (60%) of the fencing project but he failed to present evidence showing the area sought to be fenced
and the actual area fenced by him. We therefore have no basis to determining the veracity respondents allegations. We
cannot assume that the said services rendered for it will be unfair to require petitioner to pay the full amount claimed in
case the respondents obligations were not completely fulfilled.
For respondents failure to show proof of accomplishment of the aforesaid services, their claims cannot be granted. In P.T.
Cerna Corp. v. Court of Appeals,[10] we ruled that in civil cases, the burden of proof rests upon the party who, as
determined by the pleadings or the nature of the case, asserts the affirmative of an issue. In this case the burden lies on
the complainant, who is duty bound to prove the allegations in the complaint. As this Court has held, he who alleges a fact
has the burden of proving it and A MERE ALLEGATION IS NOT EVIDENCE.
And the rules do not change even if the defendant is declared in default. In the leading case of Lopez v. Mendezona,[11] this
Court ruled that after entry of judgment in default against a defendant who has neither appeared nor answered, and
before final judgment in favor of the plaintiff, the latter must establish by competent evidence all the material allegations
of his complaint upon which he bases his prayer for relief. In De los Santos v. De la Cruz[12] this Court declared that a
judgment by default against a defendant does not imply a waiver of rights except that of being heard and of presenting
evidence in his favor. It does not imply admission by the defendant of the facts and causes of action of the plaintiff,
because the codal section requires the latter to adduce his evidence in support of his allegations as an indispensable
condition before final judgment could be given in his favor. Nor could it be interpreted as an admission by the defendant
that the plaintiffs causes of action finds support in the law or that the latter is entitled to the relief prayed for.
We explained the rule in judgments by default in Pascua v. Florendo,[13] where we said that nowhere is it stated that the
complainants are automatically entitled to the relief prayed for, once the defendants are declared in default. Favorable
relief can be granted only after the court has ascertained that the evidence offered and the facts proven by the presenting
party warrant the grant of the same.Otherwise it would be meaningless to require presentation of evidence if everytime
the other party is declared in default, a decision would automatically be rendered in favor of the non-defaulting party and
exactly according to the tenor of his prayer. In Lim Tanhu v. Ramolete[14] we elaborated and said that a defaulted
defendant is not actually thrown out of court. The rules see to it that any judgment against him must be in accordance
with law. The evidence to support the plaintiffs cause is, of course, presented in his absence, but the court is not supposed
to admit that which is basically incompetent. Although the defendant would not be in a position to object, elementary
justice requires that only legal evidence should be considered against him. If the evidence presented should not be
sufficient to justify a judgment for the plaintiff, the complaint must be dismissed. And if an unfavorable judgment should
be justifiable, it cannot exceed the amount or be different in kind from what is prayed for in the complaint.
The prayer for actual damages in the amount of P500,000.00, supposedly for the bunkhouse/warehouse, hollow-block
factory, lumber, cement, guard, etc., which the trial court granted and even increased to P1,500,000.00, and which this
Court would have rightly reduced to the amount prayed for in the complaint, was not established, as shown upon further
review of the record. No receipts or vouchers were presented by private respondents to show that they actually spent the
amount. In Salas v. Court of Appeals,[15] we said that the burden of proof of the damages suffered is on the party claiming
the same. It his duty to present evidence to support his claim for actual damages. If he failed to do so, he has only himself
to blame if no award for actual damages is handed down.
In fine, as we declared in PNOC Shipping & Transport Corp. v. Court of Appeals,[16] basic is the rule that to recover actual
damages, the amount of loss must not only be capable of proof but must actually be proven with reasonable degree of
certainty, premised upon competent proof or best evidence obtainable of the actual amount thereof.
We go to the second issue of whether Luxuria Homes, Inc., was a party to the transactions entered into by petitioner
Posadas and private respondents and thus could be held jointly and severally with petitioner Posadas. Private respondents
contend that petitioner Posadas surreptitiously formed Luxuria Homes, Inc., and transferred the subject parcel of land to
it to evade payment and defraud creditors, including private respondents. This allegation does not find support in the
evidence on record.
On the contrary we hold that respondents Court of Appeals committed a reversible error when it upheld the factual finding
of the trial court that petitioners liability was aggravated by the fact that Luxuria Homes, Inc., was formed by petitioner
Posadas after demand for payment had been made, evidently for her to evade payment of her obligation, thereby showing
that the transfer of her property to Luxuria Homes, Inc., was in fraud of creditors.
We easily glean from the record that private respondents sent demand letters on 21 August 1991 and 14 September 1991,
or more than a year and a half after the execution of the Deed of Assignment on 11 December 1989, and the issuance of
the Articles of Incorporation of petitioner Luxuria Homes on 26 January 1990. And, the transfer was made at the time the
relationship between petitioner Posadas and private respondents was supposedly very pleasant. In fact the Deed of
Assignment dated 11 December 1989 and the Articles of Incorporation of Luxuria Homes, Inc., issued 26 January 1990
were both signed by respondent Bravo himself as witness. It cannot be said then that the incorporation of petitioner
Luxuria Homes and the eventual transfer of the subject property to it were in fraud of private respondent as such were
done with the full knowledge of respondent Bravo himself.
Besides petitioner Posadas is not the majority stockholder of petitioner Luxuria Homes, Inc., as erroneously stated by the
lower court. The Articles of Incorporation of petitioner Luxuria Homes, Inc., clearly show that petitioner Posadas owns
approximately 33% only of the capital stock. Hence petitioner Posadas cannot be considered as an alter ego of petitioner
Luxuria Homes, Inc.
To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly
established. It cannot be presumed. This is elementary. Thus in Bayer-Roxas v. Court of Appeals,[17] we said that the
separate personality of the corporation may be disregarded only when the corporation is used as a cloak or cover for fraud
or illegality, or to work injustice, or where necessary for the protection of the creditors. Accordingly in Del Rosario v.
NLRC,[18] where the Philsa International Placement and Services Corp. was organized and registered with the POEA in 1981,
several years before the complainant was filed a case in 1985, we held that this cannot imply fraud.
Obviously in the instant case, private respondents failed to show proof that petitioner Posadas acted in bad
faith. Consequently since private respondents failed to show that petitioner Luxuria Homes, Inc., was a party to any of the
supposed transactions, not even to the agreement to negotiate with and relocate the squatters, it cannot be held liable,
nay jointly and in solidum, to pay private respondents. In this case since it was petitioner Aida M. Posadas who contracted
respondent Bravo to render the subject services, only she is liable to pay the amounts adjudged herein.
We now resolved the third and final issue. Private respondents urge the court to compel petitioners to execute a
management contract with them on the basis of the authorization letter dated May 3, 1989.The full text of Exh D reads:
I hereby certify that we have duly authorized the bearer, Engineer Bravo to negotiate, in our behalf, the ejectment of
squatters from our property of 1.6 hectares, more or less, in Sucat, Muntinlupa. This authority is extended to him as the
representatives of the Managers, under our agreement for them to undertake the development of said area and the
construction of housing units intended to convert the land into a first class subdivision.
The aforecited document is nothing more than a to-whom-it-may-concern authorization letter to negotiate with the
squatters. Although it appears that there was an agreement for the development of the area, there is no showing that
same was never perfected and finalized. Private respondents presented in evidence only drafts of a proposed
management contract with petitioners handwritten marginal notes but the management contract was not put in its final
form. The reason why there was no final uncorrected draft was because the parties could not agree on the stipulations of
said contract, which even the private respondents admitted as found by the trial court.[19] As a consequence the
management drafts submitted by the private respondents should at best be considered as mere unaccepted offers. We
find no cogent reason, considering that the parties no longer are in a harmonious relationship, for the execution of a
contract to develop a subdivision.
It is fundamental that there can be no contract in the true sense in the absence of the element of agreement, or of mutual
assent of the parties. To compel petitioner Posadas, whether as representatives of petitioners Luxuria Homes or in her
personal capacity, to execute a management contract under the terms and conditions of private respondents would be to
violate the principle of consensuality of contracts.In Philippine National bank v. Court of Appeals,[20] we held that if the
assent is wanting on the part of one who contracts, his act has no more efficacy than if it had been done under duress or
by a person of unsound mind. In ordering petitioner Posadas to execute a management contract with private respondents,
the trial court in effect is putting her under duress.
The parties are bound to fulfill the stipulations in a contract only upon its perfection. At anytime prior to the perfection of
a contract, unaccepted offers and proposals remain as such and cannot be considered as binding commitments; hence
not demandable.
WHEREFORE, the petition is PARTIALLY GRANTED. The assailed decision dated March 15, 1996, of respondent Honorable
Court of Appeals and its Resolution dated August 12, 1996, are MODIFIED ordering PETITIONER AIDA M. POSADAS to pay
PRIVATE RESPONDENTS the amount of P435,000.00 as balance for the preparation of the architectural design, site
development plan and survey. All other claims of respondents are hereby DENIED for lack of merit.