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CORPORATION CASES FOR November 22, 2014

MARIANO A. ALBERT vs UNIVERSITY PUBLISHING CO., INC.,.
Mariano A. Albert sued University Publishing Co., Inc. Plaintiff
alleged inter alia that defendant was a corporation duly
organized and existing under the laws of the Philippines; that
defendant, through Jose M. Aruego, its President, entered into
a contract with plaintifif; that defendant had thereby agreed to
pay plaintiff P30,000.00 for the exclusive right to publish his
revised Commentaries on the Revised Penal Code and for his
share in previous sales of the book's first edition; that
defendant had undertaken to pay in eight quarterly
installments of P3,750.00; that per contract failure to pay one
installment would render the rest due; and that defendant had
failed to pay the second installment.
Defendant admitted plaintiff's allegation of defendant's
corporate existence; admitted the execution and terms of the
contract but alleged that it was plaintiff who breached their
contract by failing to deliver his manuscript. Furthermore,
defendant counterclaimed for damages.
Plaintiff died before trial and Justo R. Albert, his estate's
administrator, was substituted for him.
RTC ruled in favor of the plaintiff and against the defendant the
University Publishing Co., Inc., ordering the defendant to pay
the administrator Justo R. Albert, the sum of P23,000.00 with
legal [rate] of interest from the date of the filing of this
complaint until the whole amount shall have been fully paid.
The defendant shall also pay the costs. The counterclaim of the
defendant is hereby dismissed for lack of evidence.
Plaintiff, however, petitioned for a writ of execution
against Jose M. Aruego, as the real defendant, stating,
"plaintiff's counsel and the Sheriff of Manila discovered
that there is no such entity as University Publishing Co., Inc."
Plaintiff annexed to his petition a certification from the
Securities and Exchange Commission attesting: "The records of
this Commission do not show the registration of UNIVERSITY
PUBLISHING CO., INC., either as a corporation or partnership."
"University Publishing Co., Inc." countered by filing, through
counsel (Jose M. Aruego's own law firm), a "manifestation"
stating that "Jose M. Aruego is not a party to this case," and
that, therefore, plaintiff's petition should be denied.
Parenthetically, it is not hard to decipher why "University
Publishing Co., Inc.," through counsel, would not want Jose M.
Aruego to be considered a party to the present case: should a
separate action be now instituted against Jose M. Aruego, the
plaintiff will have to reckon with the statute of limitations.
The fact of non-registration of University Publishing Co., Inc. in
the Securities and Exchange Commission has not been
disputed. Defendant would only raise the point that "University
Publishing Co., Inc.," and not Jose M. Aruego, is the party
defendant; thereby assuming that "University Publishing Co.,
Inc." is an existing corporation with an independent juridical
personality. Precisely, however, on account of the nonregistration it cannot be considered a corporation, not even a
corporation de facto (Hall vs. Piccio, 86 Phil. 603). It has

therefore no personality separate from Jose M. Aruego; it

cannot be sued independently.
The corporation-by-estoppel doctrine has not been invoked. At
any rate, the same is inapplicable here. Aruego represented a
non-existent entity and induced not only the plaintiff but even
the court to believe in such representation. He signed the
contract as "President" of "University Publishing Co., Inc.,"
stating that this was "a corporation duly organized and existing
under the laws of the Philippines," and obviously misled
plaintiff (Mariano A. Albert) into believing the same. One who
has induced another to act upon his wilful misrepresentation
that a corporation was duly organized and existing under the
law, cannot thereafter set up against his victim the principle of
corporation by estoppel.
"University Publishing Co., Inc." purported to come to court,
answering the complaint and litigating upon the merits. But as
stated, "University Publishing Co., Inc." has no independent
personality; it is just a name. Jose M. Aruego was, in reality, the
one who answered and litigated, through his own law firm as
counsel. He was in fact, if not, in name, the defendant.
Even with regard to corporations duly organized and existing
under the law, we have in many a case pierced the veil of
corporate fiction to administer the ends of justice. * And
in Salvatiera vs. Garlitos, supra, p. 3073, we ruled: "A person
acting or purporting to act on behalf of a corporation which has
no valid existence assumes such privileges and obligations and
becomes personally liable for contracts entered into or for
other acts performed as such agent." Had Jose M. Aruego been
named as party defendant instead of, or together with,
"University Publishing Co., Inc.," there would be no room for
debate as to his personal liability. Since he was not so named,
the matters of "day in court" and "due process" have arisen.
The evidence is patently clear that Jose M. Aruego, acting as
representative of a non-existent principal, was the real party to
the contract sued upon; that he was the one who reaped the
benefits resulting from it, so much so that partial payments of
the consideration were made by him; that he violated its
terms, thereby precipitating the suit in question; and that in
the litigation he was the real defendant. Perforce, in line with
the ends of justice, responsibility under the judgment falls on
him.
PREMISES CONSIDERED, the order appealed from is hereby set
aside and the case remanded ordering the lower court to hold
supplementary proceedings for the purpose of carrying the
judgment into effect against University Publishing Co., Inc.
and/or Jose M. Aruego. So ordered.
Adm. Matter No. R-181-P
July 31, 1987
ADELIO C. CRUZ vs QUITERIO L. DALISAY, Deputy Sheriff, RTC,
Manila, respondents.
Adelio C. Cruz charged Quiterio L. Dalisay, Senior Deputy Sheriff
of Manila, with "malfeasance in office, corrupt practices and
serious irregularities" allegedly committed as follows:
1. Respondent sheriff attached and/or levied the money
belonging to complainant Cruz when he was not himself the

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judgment debtor in the final judgment of NLRC NCR Case
sought to be enforced but rather the company known as
"Qualitrans Limousine Service, Inc.," a duly registered
corporation; and,
2. Respondent likewise caused the service of the alias writ of
execution upon complainant who is a resident of Pasay City,
despite knowledge that his territorial jurisdiction covers Manila
only and does not extend to Pasay City.
In his Comments, respondent Dalisay explained that when he
garnished complainant's cash deposit at the Philtrust bank, he
was merely performing a ministerial duty. While it is true that
said writ was addressed to Qualitrans Limousine Service, Inc.,
yet it is also a fact that complainant had executed an affidavit
before the Pasay City assistant fiscal stating that he is the
owner/president of said corporation and, because of that
declaration, the counsel for the plaintiff in the labor case
advised him to serve notice of garnishment on the Philtrust
bank.
Prior to the termination of the proceedings, however,
complainant executed an affidavit of desistance stating that he
is no longer interested in prosecuting the case against
respondent Dalisay and that it was just a "misunderstanding"
between them. Upon respondent's motion, the Executive
Judge issued an order dated May 29, 1986 recommending the
dismissal of the case.
It has been held that the desistance of complainant does not
preclude the taking of disciplinary action against respondent.
Neither does it dissuade the Court from imposing the
appropriate corrective sanction. One who holds a public
position, especially an office directly connected with the
administration of justice and the execution of judgments, must
at all times be free from the appearance of impropriety.1
We hold that respondent's actuation in enforcing a judgment
against complainant who is not the judgment debtor in the
case calls for disciplinary action. Considering the ministerial
nature of his duty in enforcing writs of execution, what is
incumbent upon him is to ensure that only that portion of a
decision ordained or decreed in the dispositive part should be
the subject of execution.2 No more, no less. That the title of the
case specifically names complainant as one of the respondents
is of no moment as execution must conform to that directed in
the dispositive portion and not in the title of the case.
The tenor of the NLRC judgment and the implementing writ is
clear enough. It directed Qualitrans Limousine Service, Inc. to
reinstate the discharged employees and pay them full
backwages. Respondent, however, chose to "pierce the veil of
corporate entity" usurping a power belonging to the court and
assumed improvidently that since the complainant is the
owner/president of Qualitrans Limousine Service, Inc., they are
one and the same. It is a well-settled doctrine both in law and
in equity that as a legal entity, a corporation has a personality
distinct and separate from its individual stockholders or
members. The mere fact that one is president of a corporation
does not render the property he owns or possesses the

property of the corporation, since the president, as individual,

and the corporation are separate entities.3
ACCORDINGLY, we find Respondent Deputy Sheriff Quiterio L.
Dalisay NEGLIGENT in the enforcement of the writ of execution
in NLRC Case-No. 8-12389-91, and a fine equivalent to three [3]
months salary is hereby imposed with a stern warning that the
commission of the same or similar offense in the future will
merit a heavier penalty. Let a copy of this Resolution be filed in
the personal record of the respondent.
SO ORDERED.
G.R. No. L-67626 April 18, 1989 JOSE REMO, JR. vs.
THE HON. INTERMEDIATE APPELLATE COURT and E.B.
MARCHA TRANSPORT COMPANY, INC., represented by
APIFANIO B. MARCHA,
A corporation is an entity separate and distinct from its
stockholders. While not in fact and in reality a person, the law
treats a corporation as though it were a person by process of
fiction or by regarding it as an artificial person distinct and
separate from its individual stockholders.
However, the corporate fiction or the notion of legal entity
may be disregarded when it "is used to defeat public
convenience, justify wrong, protect fraud, or defend crime" in
which instances "the law will regard the corporation as an
association of persons, or in case of two corporations, will
merge them into one." The corporate fiction may also be
disregarded when it is the "mere alter ego or business conduit
of a person." 2 There are many occasions when this Court
pierced the corporate veil because of its use to protect fraud
and to justify wrong.
Board of directors of Akron Customs Brokerage Corporation
(hereinafter referred to as Akron), composed of petitioner Jose
Remo, Jr., Ernesto Baares, Feliciano Coprada, Jemina Coprada,
and Dario Punzalan with Lucia Lacaste as Secretary, adopted a
resolution authorizing the purchase of thirteen (13) trucks for
use in its business to be paid out of a loan the corporation may
secure from any lending institution.
Feliciano Coprada, as President and Chairman of Akron,
purchased thirteen trucks from private respondent on for and
in consideration of P525, 000.00 as evidenced by a deed of
absolute sale. In a side agreement of the same date, the parties
agreed on a downpayment in the amount of P50,000.00 and
that the balance of P475,000.00 shall be paid within sixty (60)
days from the date of the execution of the agreement. The
parties also agreed that until said balance is fully paid, the
down payment of P50,000.00 shall accrue as rentals of the 13
trucks; and that if Akron fails to pay the balance within the
period of 60 days, then the balance shall constitute as a chattel
mortgage lien covering said cargo trucks and the parties may
allow an extension of 30 days and thereafter private
respondent may ask for a revocation of the contract and the
reconveyance of all said trucks.
The obligation is further secured by a promissory note
executed by Coprada in favor of Akron. It is stated in the
promissory note that the balance shall be paid from the

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proceeds of a loan obtained from the Development Bank of the
Philippines (DBP) within sixty (60) days. After the lapse of 90
days, private respondent tried to collect from Coprada but the
latter promised to pay only upon the release of the DBP loan.
Meanwhile, two of the trucks were sold under a pacto de
retro sale to a certain Mr. Bais of the Perpetual Loans and
Savings Bank at Baclaran. The sale was authorized by a board
resolution.
Upon inquiry, private respondent found that no loan
application was ever filed by Akron with DBP.
In the meantime, Akron paid rentals of P500.00 a day pursuant
to a subsequent agreement. Thereafter, no more rental
payments were made.
Coprada wrote private respondent begging for a grace period
of until the end of the month to pay the balance of the
purchase price; that he will update the rentals within the week;
and in case he fails, then he will return the 13 units should
private respondent elect to get back the same. Private
respondent, through counsel, wrote Akron demanding the
return of the 13 trucks and the payment of P25,000.00 back
rentals covering the period from June 1 to August 1, 1978.
Again, Coprada wrote private respondent on August 8, 1978
asking for another grace period of up to August 31, 1978 to pay
the balance, stating as well that he is expecting the approval of
his loan application from a certain financing company, and that
ten (10) trucks have been returned to Bagbag,
Novaliches. Coprada informed private respondent anew that
he had returned ten (10) trucks to Bagbag and that a resolution
was passed by the board of directors confirming the deed of
assignment to private respondent of P475,000 from the
proceeds of a loan obtained by Akron from the State
Investment House, Inc.
In due time, private respondent filed a complaint for the
recovery of P525,000.00 or the return of the 13 trucks with
damages against Akron and its officers and directors. Only
petitioner answered the complaint denying any participation in
the transaction and alleging that Akron has a distinct corporate
personality. He was, however, declared in default for his failure
to attend the pre-trial.
In the meanwhile, petitioner sold all his shares in Akron to
Coprada. It also appears that Akron amended its articles of
incorporation thereby changing its name to Akron Transport
International, Inc. which assumed the liability of Akron to
private respondent.
Finding the evidence sufficient to prove the case of the
plaintiff, judgment is hereby rendered in favor of the plaintiff
and against the defendants.
The appellate court entered another decision affirming the
appealed decision of the trial court, with costs against
petitioner.
Hence, this petition for review wherein petitioner raises the
following issues:
I. The Intermediate Appellate Court (IAC) erred in disregarding
the corporate fiction and in holding the petitioner personally

liable for the obligation of the Corporation which decision is

patently contrary to law and the applicable decision thereon.
II. The Intermediate Appellate Court (IAC) committed grave
error of law in its decision by sanctioning the merger of the
personality of the corporation with that of the petitioner when
the latter was held liable for the corporate debts.
We reverse.
The environmental facts of this case show that there is no
cogent basis to pierce the corporate veil of Akron and hold
petitioner personally liable for its obligation to private
respondent. While it is true that in December, 1977 petitioner
was still a member of the board of directors of Akron and that
he participated in the adoption of a resolution authorizing the
purchase of 13 trucks for the use in the brokerage business of
Akron to be paid out of a loan to be secured from a lending
institution, it does not appear that said resolution was
intended to defraud anyone and more particularly private
respondent. It was Coprada, President and Chairman of Akron,
who negotiated with said respondent for the purchase of 13
cargo trucks. It was Coprada who signed a promissory note to
guarantee the payment of the unpaid balance of the purchase
price out of the proceeds of a loan he supposedly sought from
the DBP. The word "WE' in the said promissory note must refer
to the corporation which Coprada represented in the execution
of the note and not its stockholders or directors. Petitioner did
not sign the said promissory note so he cannot be personally
bound thereby.
Thus, if there was any fraud or misrepresentation that was
foisted on private respondent in that there was a forthcoming
loan from the DBP when it fact there was none, it is Coprada
who should account for the same and not petitioner.
As to the sale through pacto de retro of the two units to a third
person by the corporation by virtue of a board resolution,
petitioner asserts that he never signed said resolution. Be that
as it may, the sale is not inherently fraudulent as the 13 units
were sold through a deed of absolute sale to Akron so that the
corporation is free to dispose of the same. Of course, it was
stipulated that in case of default in payment to private
respondent of the balance of the consideration, a chattel
mortgage lien shall be constituted on the 13 units.
Nevertheless, said mortgage is a prior lien as against the pacto
de retro sale of the 2 units.
As to the amendment of the articles of incorporation of Akron
thereby changing its name to Akron Transport International,
Inc., petitioner alleges that the change of corporate name was
in order to include trucking and container yard operations in its
customs brokerage of which private respondent was duly
informed in a letter. Indeed, the new corporation confirmed
and assumed the obligation of the old corporation. There is no
indication of an attempt on the part of Akron to evade
payment of its obligation to private respondent.
There is the fact that petitioner sold his shares in Akron to
Coprada during the pendency of the case. Since petitioner has
no personal obligation to private respondent, it is his inherent

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right as a stockholder to dispose of his shares of stock anytime
he so desires.
Mention is also made of the alleged "dumping" of 10 units in
the premises of private respondent at Bagbag, Novaliches
which to the mind of the Court does not prove fraud and
instead appears to be an attempt on the part of Akron to
attend to its obligations as regards the said trucks. Again
petitioner has no part in this.
If the private respondent is the victim of fraud in this
transaction, it has not been clearly shown that petitioner had
any part or participation in the perpetration of the same. Fraud
must be established by clear and convincing evidence. If at all,
the principal character on whom fault should be attributed is
Feliciano Coprada, the President of Akron, whom private
respondent dealt with personally all throughout. Fortunately,
private respondent obtained a judgment against him from the
trial court and the said judgment has long been final and
executory.
WHEREFORE, the petition is GRANTED. The questioned
resolution of the Intermediate Appellate Court dated February
8,1984 is hereby set aside and its decision dated June 30,1983
setting aside the decision of the trial court dated October 28,
1980 insofar as petitioner is concemed is hereby reinstated and
affirmed, without costs.
SO ORDERED.
G.R. No. 88013 March 19, 1990 SIMEX INTERNATIONAL
(MANILA), INCORPORATED, petitioner, vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL
BANK, respondents.
The petitioner is a private corporation engaged in the
exportation of food products. It buys these products from
various local suppliers and then sells them abroad, particularly
in the United States, Canada and the Middle East. Most of its
exports are purchased by the petitioner on credit.
The petitioner was a depositor of the respondent bank and
maintained a checking account in its branch at Romulo Avenue,
Cubao, Quezon City. The petitioner deposited to its account in
the said bank the amount of P100,000.00, thus increasing its
balance as of that date to P190,380.74. Subsequently, the
petitioner issued several checks against its deposit but was
surprised to learn later that they had been dishonored for
insufficient funds.
As a consequence, the California Manufacturing Corporation
sent a letter of demand to the petitioner, threatening
prosecution if the dishonored check issued to it was not made
good. It also withheld delivery of the order made by the
petitioner. Similar letters were sent to the petitioner by the
Malabon Long Life Trading, and by the G. and U. Enterprises.
Malabon also canceled the petitioner's credit line and
demanded that future payments be made by it in cash or
certified check. Meantime, action on the pending orders of the
petitioner with the other suppliers whose checks were
dishonored was also deferred.

The petitioner complained to the respondent

bank. Investigation disclosed that the sum of P100, 000.00
deposited by the petitioner had not been credited to it. The
error was rectified and the dishonored checks were paid after
they were re-deposited.
After trial, Judge Johnico G. Serquinia rendered judgment
holding that moral and exemplary damages were not called for
under the circumstances. However, observing that the
plaintiff's right had been violated, he ordered the defendant to
pay nominal damages in the amount of P20,000.00 plus
P5,000.00 attorney's fees and costs. This decision was
affirmed in toto by the respondent court.
The respondent court found with the trial court that the
private respondent was guilty of negligence but agreed that
the petitioner was nevertheless not entitled to moral damages.
Indeed, there was the omission by the defendant-appellee
bank to credit appellant's deposit of P100,000.00. But the bank
rectified its records. It credited the said amount in favor of
plaintiff-appellant in less than a month. The dishonored checks
were eventually paid. These circumstances negate any
imputation or insinuation of malicious, fraudulent, wanton and
gross bad faith and negligence on the part of the defendantappellant.
It is this ruling that is faulted in the petition now before us.
This Court has carefully examined the facts of this case and
finds that it cannot share some of the conclusions of the lower
courts. It seems to us that the negligence of the private
respondent had been brushed off rather lightly as if it were a
minor infraction requiring no more than a slap on the wrist. We
feel it is not enough to say that the private respondent rectified
its records and credited the deposit in less than a month as if
this were sufficient repentance. The error should not have
been committed in the first place. The respondent bank has
not even explained why it was committed at all. It is true that
the dishonored checks were, as the Court of Appeals put it,
"eventually" paid. However, this took almost a month when,
properly, the checks should have been paid immediately upon
presentment.
As the Court sees it, the initial carelessness of the respondent
bank, aggravated by the lack of promptitude in repairing its
error, justifies the grant of moral damages. This rather
lackadaisical attitude toward the complaining depositor
constituted the gross negligence, if not wanton bad faith, that
the respondent court said had not been established by the
petitioner.
We also note that while stressing the rectification made by the
respondent bank, the decision practically ignored the prejudice
suffered by the petitioner. This was simply glossed over if not,
indeed, disbelieved. The fact is that the petitioner's credit line
was canceled and its orders were not acted upon pending
receipt of actual payment by the suppliers. Its business
declined. Its reputation was tarnished. Its standing was
reduced in the business community. All this was due to the

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fault of the respondent bank which was undeniably remiss in
its duty to the petitioner.
Article 2205 of the Civil Code provides that actual or
compensatory damages may be received "(2) for injury to the
plaintiff s business standing or commercial credit." There is no
question that the petitioner did sustain actual injury as a result
of the dishonored checks and that the existence of the loss
having been established "absolute certainty as to its amount is
not required." 7 Such injury should bolster all the more the
demand of the petitioner for moral damages and justifies the
examination by this Court of the validity and reasonableness of
the said claim.
From every viewpoint except that of the petitioner's, its claim
of moral damages in the amount of P1,000,000.00 is nothing
short of preposterous. Its business certainly is not that big, or
its name that prestigious, to sustain such an extravagant
pretense. Moreover, a corporation is not as a rule entitled to
moral damages because, not being a natural person, it cannot
experience physical suffering or such sentiments as wounded
feelings, serious anxiety, mental anguish and moral shock. The
only exception to this rule is where the corporation has a good
reputation that is debased, resulting in its social humiliation. 9
We shall recognize that the petitioner did suffer injury because
of the private respondent's negligence that caused the
dishonor of the checks issued by it. The immediate
consequence was that its prestige was impaired because of the
bouncing checks and confidence in it as a reliable debtor was
diminished. The private respondent makes much of the one
instance when the petitioner was sued in a collection case, but
that did not prove that it did not have a good reputation that
could not be marred, more so since that case was ultimately
settled. 10 It does not appear that, as the private respondent
would portray it, the petitioner is an unsavory and disreputable
entity that has no good name to protect.
The banking system is an indispensable institution in the
modern world and plays a vital role in the economic life of
every civilized nation. Whether as mere passive entities for the
safekeeping and saving of money or as active instruments of
business and commerce, banks have become an ubiquitous
presence among the people, who have come to regard them
with respect and even gratitude and, most of all, confidence.
Thus, even the humble wage-earner has not hesitated to
entrust his life's savings to the bank of his choice, knowing that
they will be safe in its custody and will even earn some interest
for him. The ordinary person, with equal faith, usually
maintains a modest checking account for security and
convenience in the settling of his monthly bills and the
payment of ordinary expenses. As for business entities like the
petitioner, the bank is a trusted and active associate that can
help in the running of their affairs, not only in the form of loans
when needed but more often in the conduct of their day-today transactions like the issuance or encashment of checks.
In every case, the depositor expects the bank to treat his
account with the utmost fidelity, whether such account

consists only of a few hundred pesos or of millions. The bank

must record every single transaction accurately, down to the
last centavo, and as promptly as possible. This has to be done if
the account is to reflect at any given time the amount of
money the depositor can dispose of as he sees fit, confident
that the bank will deliver it as and to whomever he directs. A
blunder on the part of the bank, such as the dishonor of a
check without good reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps even civil
and criminal litigation.
The point is that as a business affected with public interest and
because of the nature of its functions, the bank is under
obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of
their relationship. In the case at bar, it is obvious that the
respondent bank was remiss in that duty and violated that
relationship. What is especially deplorable is that, having been
informed of its error in not crediting the deposit in question to
the petitioner, the respondent bank did not immediately
correct it but did so only one week later or twenty-three days
after the deposit was made. It bears repeating that the record
does not contain any satisfactory explanation of why the error
was made in the first place and why it was not corrected
immediately after its discovery. Such ineptness comes under
the concept of the wanton manner contemplated in the Civil
Code that calls for the imposition of exemplary damages.
After deliberating on this particular matter, the Court, in the
exercise of its discretion, hereby imposes upon the respondent
bank exemplary damages in the amount of P50,000.00, "by
way of example or correction for the public good," in the words
of the law. It is expected that this ruling will serve as a warning
and deterrent against the repetition of the ineptness and
indifference that has been displayed here, lest the confidence
of the public in the banking system be further impaired.
ACCORDINGLY, the appealed judgment is hereby MODIFIED
and the private respondent is ordered to pay the petitioner, in
lieu of nominal damages, moral damages in the amount of
P20,000.00, and exemplary damages in the amount of
P50,000.00 plus the original award of attorney's fees in the
amount of P5,000.00, and costs.
SO ORDERED.
G.R. No. 128066
June 19, 2000
JARDINE DAVIES INC., petitioner, vs.COURT OF APPEALS and
FAR EAST MILLS SUPPLY CORPORATION, respondents.
G.R. No. 128069
PURE FOODS CORPORATION, petitioner, vs.COURT OF
APPEALS and FAR EAST MILLS SUPPLY
CORPORATION, respondents.
The controversy started in 1992 at the height of the power
crisis which the country was then experiencing. To remedy and
curtail further losses due to the series of power failures,
petitioner PURE FOODS CORPORATION (hereafter PUREFOODS)
decided to install two (2) 1500 KW generators in its food
processing plant in San Roque, Marikina City.

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A bidding for the supply and installation of the generators was
held. Several suppliers and dealers were invited to attend a
pre-bidding conference to discuss the conditions, propose
scheme and specifications that would best suit the needs of
PUREFOODS. Out of the eight (8) prospective bidders who
attended the pre-bidding conference, only three (3) bidders,
namely, respondent FAR EAST MILLS SUPPLY CORPORATION
(hereafter FEMSCO), MONARK and ADVANCE POWER
submitted bid proposals and gave bid bonds equivalent to 5%
of their respective bids, as required.
Thereafter in a letter addressed to FEMSCO President Alfonso
Po, PUREFOODS confirmed the award of the contract to
FEMSCO
Later, however, in a letter, PUREFOODS through its Senior Vice
President Teodoro L. Dimayuga unilaterally canceled the award
as "significant factors were uncovered and brought to (their)
attention which dictate (the) cancellation and warrant a total
review and re-bid of (the) project." Consequently, FEMSCO
protested the cancellation of the award and sought a meeting
with PUREFOODS. However, before the matter could be
resolved, PUREFOODS already awarded the project and
entered into a contract with JARDINE NELL, a division of Jardine
Davies, Inc. (hereafter JARDINE), which incidentally was not
one of the bidders.
FEMSCO thus wrote PUREFOODS to honor its contract with the
former, and to JARDINE to cease and desist from delivering and
installing the two (2) generators at PUREFOODS. Its demand
letters unheeded, FEMSCO sued both PUREFOODS and
JARDINE: PUREFOODS for reneging on its contract, and
JARDINE for its unwarranted interference and inducement.
Trial ensued. After FEMSCO presented its evidence, JARDINE
filed a Demurrer to Evidence.
The trial court rendered a decision ordering PUREFOODS: (a) to
indemnify FEMSCO the sum of P2,300,000.00 representing the
value of engineering services it rendered; (b) to pay FEMSCO
the sum of US$14,000.00 or its peso equivalent, and
P900,000.00 representing contractor's mark-up on installation
work, considering that it would be impossible to compel
PUREFOODS to honor, perform and fulfill its contractual
obligations in view of PUREFOOD's contract with JARDINE and
noting that construction had already started thereon; (c) to pay
attorney's fees in an amount equivalent to 20% of the total
amount due; and, (d) to pay the costs. The trial court dismissed
the counterclaim filed by PUREFOODS for lack of factual and
legal basis.
Both FEMSCO and PUREFOODS appealed to the Court of
Appeals. FEMSCO appealed the Resolution of the trial court
which granted the Demurrer to Evidence filed by JARDINE
resulting in the dismissal of the complaint against it, while
PUREFOODS appealed the Decision of the same court which
ordered it to pay FEMSCO.
Court of Appeals affirmed in toto the 28 July 1994 Decision of
the trial court. 3 It also reversed the 27 June 1994 Resolution of
the lower court and ordered JARDINE to pay FEMSCO damages

for inducing PUREFOODS to violate the latter's contract with

FEMSCO. As such, JARDINE was ordered to pay FEMSCO
P2,000,000.00 for moral damages. In addition, PUREFOODS
was also directed to pay FEMSCO P2,000,000.00 as moral
damages and P1,000,000.00 as exemplary damages as well as
20% of the total amount due as attorney's fees.
PUREFOODS maintains that the conclusions of both the trial
court and the appellate court are premised on a
misapprehension of facts. It argues that its 12 December 1992
letter to FEMSCO was not an acceptance of the latter's bid
proposal and award of the project but more of a qualified
acceptance constituting a counter-offer which required
FEMSCO's express conforme. Since PUREFOODS never received
FEMSCO's conforme, PUREFOODS was very well within reason
to revoke its qualified acceptance or counter-offer. Hence, no
contract was perfected between PUREFOODS and FEMSCO.
PUREFOODS also contends that it was never in bad faith when
it dealt with FEMSCO. Hence moral and exemplary damages
should not have been awarded.
Corollarily, JARDINE asserts that the records are bereft of any
showing that it had prior knowledge of the supposed contract
between PUREFOODS and FEMSCO, and that it induced
PUREFOODS to violate the latter's alleged contract with
FEMSCO. Moreover, JARDINE reasons that FEMSCO, an
artificial person, is not entitled to moral damages. But
granting arguendo that the award of moral damages is proper,
P2,000,000.00 is extremely excessive.
In the main, these consolidated cases present two (2) issues:
first, whether there existed a perfected contract between
PUREFOODS and FEMSCO; and second, granting there existed a
perfected contract, whether there is any showing that JARDINE
induced or connived with PUREFOODS to violate the latter's
contract with FEMSCO.
In the instant case, there is no issue as regards the subject
matter of the contract and the cause of the obligation. The
controversy lies in the consent whether there was an
acceptance of the offer, and if so, if it was communicated,
thereby perfecting the contract.
To resolve the dispute, there is a need to determine what
constituted the offer and the acceptance. Since petitioner
PUREFOODS started the process of entering into the contract
by conducting a bidding, Art. 1326 of the Civil Code, which
provides that "[a]dvertisements for bidders are simply
invitations to make proposals," applies. Accordingly, the Terms
and Conditions of the Bidding disseminated by petitioner
PUREFOODS constitutes the "advertisement" to bid on the
project. The bid proposals or quotations submitted by the
prospective suppliers including respondent FEMSCO, are the
offers. And, the reply of petitioner PUREFOODS, the
acceptance or rejection of the respective offers.
Quite obviously, the letter of petitioner. PUREFOODS to
FEMSCO constituted acceptance of respondent FEMSCO's offer
as contemplated by law. The tenor of the letter, i.e., "This will
confirm that Pure Foods has awarded to your firm (FEMSCO)

7
the project," could not be more categorical. While the same
letter enumerated certain "basic terms and conditions," these
conditions were imposed on the performance of the obligation
rather than on the perfection of the contract. Thus, the first
"condition" was merely a reiteration of the contract price and
billing scheme based on the Terms and Conditions of Bidding
and the bid or previous offer of respondent FEMSCO. The
second and third "conditions" were nothing more than general
statements that all items and materials including those
excluded in the list but necessary to complete the project shall
be deemed included and should be brand new. The fourth
"condition" concerned the completion of the work to be
done, i.e., within twenty (20) days from the delivery of the
generator set, the purchase of which was part of the contract.
The fifth "condition" had to do with the putting up of a
performance bond and an all-risk insurance, both of which
should be given upon commencement of the project. The sixth
"condition" related to the standard warranty of one (1) year. In
fine, the enumerated "basic terms and conditions" were
prescriptions on how the obligation was to be performed and
implemented. They were far from being conditions imposed on
the perfection of the contract.
In Babasa v. Court of Appeals 8 we distinguished between a
condition imposed on the perfection of a contract and a
condition imposed merely on the performance of an obligation.
While failure to comply with the first condition results in the
failure of a contract, failure to comply with the second merely
gives the other party options and/or remedies to protect his
interests.
We thus agree with the conclusion of respondent appellate
court which affirmed the trial court
As can be inferred from the actual phrase used in the first
portion of the letter, the decision to award the contract has
already been made. The letter only serves as a confirmation of
such decision. Hence, to the Court's mind, there is already an
acceptance made of the offer received by Purefoods.
Notwithstanding the terms and conditions enumerated
therein, the offer has been accepted and/or amplified the
details of the terms and conditions contained in the Terms and
Conditions of Bidding given out by Purefoods to prospective
bidders. 9
But even granting arguendo that the 12 December 1992 letter
of petitioner PUREFOODS constituted a "conditional counteroffer," respondent FEMCO's submission of the performance
bond and contractor's all-risk insurance was an implied
acceptance, if not a clear indication of its acquiescence to, the
"conditional counter-offer," which expressly stated that the
performance bond and the contractor's all-risk insurance
should be given upon the commencement of the contract.
Corollarily, the acknowledgment thereof by petitioner
PUREFOODS, not to mention its return of FEMSCO's bidder's
bond, was a concrete manifestation of its knowledge that
respondent FEMSCO indeed consented to the "conditional
counter-offer." After all, as earlier adverted to, an acceptance

may either be express or implied, 10 and this can be inferred

from the contemporaneous and subsequent acts of the
contracting parties.
Accordingly, for all intents and purposes, the contract at that
point has been perfected, and respondent
FEMSCO'sconforme would only be a mere surplusage. The
discussion of the price of the project two (2) months after the
12 December 1992 letter can be deemed as nothing more than
a pressure being exerted by petitioner PUREFOODS on
respondent FEMSCO to lower the price even after the contract
had been perfected. Indeed from the facts, it can easily be
surmised that petitioner PUREFOODS was haggling for a lower
price even after agreeing to the earlier quotation, and was
threatening to unilaterally cancel the contract, which it
eventually did. Petitioner PUREFOODS also makes an issue out
of the absence of a purchase order (PO). Suffice it to say that
purchase orders or POs do not make or break a contract. Thus,
even the tenor of the subsequent letter of petitioner
PUREFOODS, i.e., "Pure Foods Corporation is hereby canceling
the award to your company of the project," presupposes that
the contract has been perfected. For, there can be no
cancellation if the contract was not perfected in the first place.
This Court has awarded in the past moral damages to a
corporation whose reputation has been besmirched. 12 In the
instant case, respondent FEMSCO has sufficiently shown that
its reputation was tarnished after it immediately ordered
equipment from its suppliers on account of the urgency of the
project, only to be canceled later. We thus sustain respondent
appellate court's award of moral damages. We however reduce
the award from P2,000,000.00 to P1,000,000.00, as moral
damages are never intended to enrich the recipient. Likewise,
the award of exemplary damages by way of example for the
public good is excessive and should be reduced to P100,000.00.
Petitioner JARDINE maintains on the other hand that
respondent appellate court erred in ordering it to pay moral
damages to respondent FEMSCO as it supposedly induced
PUREFOODS to violate the contract with FEMSCO. We agree.
While it may seem that petitioners PUREFOODS and JARDINE
connived to deceive respondent FEMSCO, we find no specific
evidence on record to support such perception. Likewise, there
is no showing whatsoever that petitioner JARDINE induced
petitioner PUREFOODS. The similarity in the design submitted
to petitioner PUREFOODS by both petitioner JARDINE and
respondent FEMSCO, and the tender of a lower quotation by
petitioner JARDINE are insufficient to show that petitioner
JARDINE indeed induced petitioner PUREFOODS to violate its
contract with respondent FEMSCO.
WHEREFORE, judgment is hereby rendered as follows:
(a) The petition in G.R. No. 128066 is GRANTED. The assailed
Decision of the Court of Appeals reversing the 27 June 1994
resolution of the trial court and ordering petitioner JARDINE
DAVIES, INC., to pay private respondent FAR EAST MILLS
SUPPLY CORPORATION P2,000,000.00 as moral damages is
REVERSED and SET ASIDE for insufficiency of evidence; and

8
(b) The petition in G.R. No. 128069 is DENIED. The assailed
Decision of the Court of Appeals ordering petitioner
PUREFOODS CORPORATION to pay private respondent FAR
EAST MILLS SUPPLY CORPORATION the sum of P2,300,000.00
representing the value of engineering services it rendered,
US$14,000.00 or its peso equivalent, and P900,000.00
representing the contractor's mark-up on installation work, as
well as attorney's fees equivalent to twenty percent (20%) of
the total amount due, is AFFIRMED. In addition, petitioner
PURE FOODS CORPORATION is ordered to pay private
respondent FAR EAST MILLS SUPPLY CORPORATION moral
damages in the amount of P1,000,000.00 and exemplary
damages in the amount of P1,000,000.00. Costs against
petitioner.
SO ORDERED.
G.R. No. 128690 January 21, 1999
ABS-CBN BROADCASTING CORPORATION, petitioner, vs.
HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING
CORP, VIVA PRODUCTION, INC., and VICENTE DEL
ROSARIO, respondents.
ABS-CBN and Viva executed a Film Exhibition Agreement
whereby Viva gave ABS-CBN an exclusive right to exhibit some
Viva films. In accordance with paragraph 2.4 [sic] of said
agreement stating that :
1.4 ABS-CBN shall have the right of first refusal to the next
twenty-four (24) Viva films for TV telecast under such terms as
may be agreed upon by the parties hereto, provided, however,
that such right shall be exercised by ABS-CBN from the actual
offer in writing.
Viva, through defendant Del Rosario, offered ABS-CBN, through
its vice-president Charo Santos-Concio, a list of three(3) film
packages (36 title) from which ABS-CBN may exercise its right
of first refusal under the afore-said agreement. ABS-CBN,
however through Mrs. Concio, "can tick off only ten (10) titles"
(from the list) "we can purchase" and therefore did not accept
said list. The titles ticked off by Mrs. Concio are not the subject
of the case at bar except the film ''Maging Sino Ka Man."
For further enlightenment, this rejection letter is hereby
quoted:
6 January 1992
Dear Vic,
This is not a very formal business letter I am writing to you as I
would like to express my difficulty in recommending the
purchase of the three film packages you are offering ABS-CBN.
From among the three packages I can only tick off 10 titles we
can purchase. Please see attached. I hope you will understand
my position. Most of the action pictures in the list do not have
big action stars in the cast. They are not for primetime. In line
with this I wish to mention that I have not scheduled for
telecast several action pictures in our very first contract
because of the cheap production value of these movies as well
as the lack of big action stars. As a film producer, I am sure you
understand what I am trying to say as Viva produces only big
action pictures.

In fact, I would like to request two (2) additional runs for these
movies as I can only schedule them in our non-primetime slots.
We have to cover the amount that was paid for these movies
because as you very well know that non-primetime advertising
rates are very low. These are the unaired titles in the first
contract.
1. Kontra Persa [sic].
2. Raider Platoon.
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. Lady Commando
7. Batang Matadero
8. Rebelyon
I hope you will consider this request of mine.
The other dramatic films have been offered to us before and
have been rejected because of the ruling of MTRCB to have
them aired at 9:00 p.m. due to their very adult themes.
As for the 10 titles I have choosen [sic] from the 3 packages
please consider including all the other Viva movies produced
last year. I have quite an attractive offer to make.
Thanking you and with my warmest regards.
(Signed)
Charo Santos-Concio
Defendant Del Rosario approached ABS-CBN's Ms. Concio, with
a list consisting of 52 original movie titles (i.e. not yet aired on
television) including the 14 titles subject of the present case, as
well as 104 re-runs (previously aired on television) from which
ABS-CBN may choose another 52 titles, as a total of 156 titles,
proposing to sell to ABS-CBN airing rights over this package of
52 originals and 52 re-runs for P60,000,000.00 of which
P30,000,000.00 will be in cash and P30,000,000.00 worth of
television spots.
Defendant Del Rosario and ABS-CBN general manager, Eugenio
Lopez III, met at the Tamarind Grill Restaurant in Quezon City
to discuss the package proposal of Viva. What transpired in
that lunch meeting is the subject of conflicting versions. Mr.
Lopez testified that he and Mr. Del Rosario allegedly agreed
that ABS-CRN was granted exclusive film rights to fourteen (14)
films for a total consideration of P36 million; that he allegedly
put this agreement as to the price and number of films in a
"napkin'' and signed it and gave it to Mr. Del Rosario. On the
other hand, Del Rosario denied having made any agreement
with Lopez regarding the 14 Viva films; denied the existence of
a napkin in which Lopez wrote something; and insisted that
what he and Lopez discussed at the lunch meeting was Viva's
film package offer of 104 films (52 originals and 52 re-runs) for
a total price of P60 million. Mr. Lopez promising [sic]to make a
counter proposal which came in the form of a proposal
contract Annex "C" of the complaint.
Del Rosario and Mr. Graciano Gozon of RBS Senior vicepresident for Finance discussed the terms and conditions of
Viva's offer to sell the 104 films, after the rejection of the same
package by ABS-CBN.

9
Defendant Del Rosario received through his secretary, a
handwritten note from Ms. Concio which reads: "Here's the
draft of the contract. I hope you find everything in order," to
which was attached a draft exhibition agreement a counterproposal covering 53 films, 52 of which came from the list sent
by defendant Del Rosario and one film was added by Ms.
Concio, for a consideration of P35 million. Exhibit "C" provides
that ABS-CBN is granted films right to 53 films and contains a
right of first refusal to "1992 Viva Films." The said counter
proposal was however rejected by Viva's Board of Directors [in
the] evening of the same day, as Viva would not sell anything
less than the package of 104 films for P60 million pesos and
such rejection was relayed to Ms. Concio.
After the rejection of ABS-CBN and following several
negotiations and meetings defendant Del Rosario and Viva's
President Teresita Cruz, in consideration of P60 million, signed
a letter of agreement granting RBS the exclusive right to air 104
Viva-produced and/or acquired films including the fourteen
(14) films subject of the present case.
ABS-CBN filed before the RTC a complaint for specific
performance with a prayer for a writ of preliminary injunction
and/or temporary restraining order against private
respondents Republic Broadcasting Corporation (hereafter RBS
), Viva Production (hereafter VIVA), and Vicente Del Rosario.
Thereafter, RTC rendered a decision in favor of RBS and VIVA
and against ABS-CBN.
According to the RTC, there was no meeting of minds on the
price and terms of the offer. The alleged agreement between
Lopez III and Del Rosario was subject to the approval of the
VIVA Board of Directors, and said agreement was disapproved
during the meeting of the Board. Hence, there was no basis for
ABS-CBN's demand that VIVA signed the 1992 Film Exhibition
Agreement. Furthermore, the right of first refusal under the
1990 Film Exhibition Agreement had previously been exercised
per Ms. Concio's letter to Del Rosario ticking off ten titles
acceptable to them, which would have made the 1992
agreement an entirely new contract.
Aggrieved by the RTC's decision, ABS-CBN appealed to the
Court of Appeals claiming that there was a perfected contract
between ABS-CBN and VIVA granting ABS-CBN the exclusive
right to exhibit the subject films. Private respondents VIVA and
Del Rosario also appealed seeking moral and exemplary
damages and additional attorney's fees.
Court of Appeals agreed with the RTC that the contract
between ABS-CBN and VIVA had not been perfected, absent
the approval by the VIVA Board of Directors of whatever Del
Rosario, it's agent, might have agreed with Lopez III. The
appellate court did not even believe ABS-CBN's evidence that
Lopez III actually wrote down such an agreement on a
"napkin," as the same was never produced in court. It likewise
rejected ABS-CBN's insistence on its right of first refusal and
ratiocinated as follows:
As regards the matter of right of first refusal, it may be true
that a Film Exhibition Agreement was entered into between

Appellant ABS-CBN and appellant VIVA and that parag. 1.4

thereof provides:
1.4 ABS-CBN shall have the right of first refusal to the next
twenty-four (24) VIVA films for TV telecast under such terms as
may be agreed upon by the parties hereto, provided, however,
that such right shall be exercised by ABS-CBN within a period of
fifteen (15) days from the actual offer in writing.
[H]owever, it is very clear that said right of first refusal in favor
of ABS-CBN shall still be subject to such terms as may be
agreed upon by the parties thereto, and that the said right shall
be exercised by ABS-CBN within fifteen (15) days from the
actual offer in writing.
Said parag. 1.4 of the agreement on the right of first refusal did
not fix the price of the film right to the twenty-four (24) films,
nor did it specify the terms thereof. The same are still left to be
agreed upon by the parties.
In the instant case, ABS-CBN's letter of rejection stated that it
can only tick off ten (10) films, and the draft contract accepted
only fourteen (14) films, while parag. 1.4 o speaks of the next
twenty-four (24) films.
The offer of VIVA was sometime in December, when the first
list of VIVA films was sent by Mr. Del Rosario to ABS-CBN. The
Vice President of ABS-CBN, Ms. Charo Santos-Concio, sent a
letter where ABS-CBN exercised its right of refusal by rejecting
the offer of VIVA. As aptly observed by the trial court, with the
said letter of Mrs. Concio, ABS-CBN had lost its right of first
refusal. And even if We reckon the fifteen (15) day period from
February 27, 1992 when another list was sent to ABS-CBN after
the letter of Mrs. Concio, still the fifteen (15) day period within
which ABS-CBN shall exercise its right of first refusal has
already expired.
On the other hand, respondent Court of Appeals denied VIVA
and Del Rosario's appeal because it was "RBS and not VIVA
which was actually prejudiced when the complaint was filed by
ABS-CBN."
ABS-CBN claims that it had yet to fully exercise its right of first
refusal over twenty-four titles under the 1990 Film Exhibition
Agreement, as it had chosen only ten titles from the first list. It
insists that we give credence to Lopez's testimony that he and
Del Rosario met at the Tamarind Grill Restaurant, discussed the
terms and conditions of the second list (the 1992 Film
Exhibition Agreement) and upon agreement thereon, wrote
the same on a paper napkin. It also asserts that the contract
has already been effective, as the elements thereof, namely,
consent, object, and consideration were established. It then
concludes that the Court of Appeals' pronouncements were
not supported by law and jurisprudence, as per our decision of
1 December 1995 in Limketkai Sons Milling, Inc. v. Court of
Appeals,23 which cited Toyota Shaw, Inc. v. Court of
Appeals, 24 Ang Yu Asuncion v. Court of Appeals, 25 and Villonco
Realty Company v. Bormaheco. Inc. 26
The key issues for our consideration are (1) whether there was
a perfected contract between VIVA and ABS-CBN, and (2)
whether RBS is entitled to damages and attorney's fees. It may

10
be noted that the award of attorney's fees of P212,000 in favor
of VIVA is not assigned as another error.
I.
The first issue should be resolved against ABS-CBN. A contract
is a meeting of minds between two persons whereby one binds
himself to give something or to render some service to
another 37 for a consideration. There is no contract unless the
following requisites concur: (1) consent of the contracting
parties; (2) object certain which is the subject of the contract;
and (3) cause of the obligation, which is established. 38 A
contract undergoes three stages:
(a) preparation, conception, or generation, which is the period
of negotiation and bargaining, ending at the moment of
agreement of the parties;
(b) perfection or birth of the contract, which is the moment
when the parties come to agree on the terms of the contract;
and
(c) consummation or death, which is the fulfillment or
performance of the terms agreed upon in the contract. 39
When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-CBN
at the Tamarind Grill to discuss the package of films, said
package of 104 VIVA films was VIVA's offer to ABS-CBN to enter
into a new Film Exhibition Agreement. But ABS-CBN, sent,
through Ms. Concio, a counter-proposal in the form of a draft
contract proposing exhibition of 53 films for a consideration of
P35 million. This counter-proposal could be nothing less than
the counter-offer of Mr. Lopez during his conference with Del
Rosario at Tamarind Grill Restaurant. Clearly, there was no
acceptance of VIVA's offer, for it was met by a counter-offer
which substantially varied the terms of the offer.
In the case at bar, ABS-CBN made no unqualified acceptance of
VIVA's offer. Hence, they underwent a period of bargaining.
ABS-CBN then formalized its counter-proposals or counteroffer in a draft contract, VIVA through its Board of Directors,
rejected such counter-offer, Even if it be
conceded arguendo that Del Rosario had accepted the counteroffer, the acceptance did not bind VIVA, as there was no proof
whatsoever that Del Rosario had the specific authority to do so.
Under Corporation Code, 46 unless otherwise provided by said
Code, corporate powers, such as the power; to enter into
contracts; are exercised by the Board of Directors. However,
the Board may delegate such powers to either an executive
committee or officials or contracted managers. The delegation,
except for the executive committee, must be for specific
purposes, 47 Delegation to officers makes the latter agents of
the corporation; accordingly, the general rules of agency as to
the bindings effects of their acts would apply. 48 For such
officers to be deemed fully clothed by the corporation to
exercise a power of the Board, the latter must specially
authorize them to do so. That Del Rosario did not have the
authority to accept ABS-CBN's counter-offer was best
evidenced by his submission of the draft contract to VIVA's
Board of Directors for the latter's approval. In any event, there

was between Del Rosario and Lopez III no meeting of minds.

The following findings of the trial court are instructive:
A number of considerations militate against ABS-CBN's claim
that a contract was perfected at that lunch meeting on April
02, 1992 at the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon at the
Tamarind Grill referred to the price and the number of films,
which he wrote on a napkin. However, Exhibit "C"
contains numerous provisions which, were not discussed at the
Tamarind Grill, if Lopez testimony was to be believed nor could
they have been physically written on a napkin. There was even
doubt as to whether it was a paper napkin or a cloth napkin. In
short what were written in Exhibit "C'' were not discussed, and
therefore could not have been agreed upon, by the parties.
How then could this court compel the parties to sign Exhibit "C"
when the provisions thereof were not previously agreed upon?
SECOND, Mr. Lopez claimed that what was agreed upon as the
subject matter of the contract was 14 films. The complaint in
fact prays for delivery of 14 films. But Exhibit "C" mentions 53
films as its subject matter. Which is which If Exhibits "C"
reflected the true intent of the parties, then ABS-CBN's claim
for 14 films in its complaint is false or if what it alleged in the
complaint is true, then Exhibit "C" did not reflect what was
agreed upon by the parties. This underscores the fact that
there was no meeting of the minds as to the subject matter of
the contracts, so as to preclude perfection thereof. For settled
is the rule that there can be no contract where there is no
object which is its subject matter (Art. 1318, NCC).
THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit
testimony states:
We were able to reach an agreement. VIVA gave us the
exclusive license to show these fourteen (14) films, and we
agreed to pay Viva the amount of P16,050,000.00 as well as
grant Viva commercial slots worth P19,950,000.00. We had
already earmarked this P16, 050,000.00.which gives a total
consideration of P36 million (P19,950,000.00 plus
P16,050,000.00. equals P36,000,000.00).
On cross-examination Mr. Lopez testified:
Q. What was written in this napkin?
A. The total price, the breakdown the known Viva movies, the 7
blockbuster movies and the other 7 Viva movies because the
price was broken down accordingly. The none [sic] Viva and the
seven other Viva movies and the sharing between the cash
portion and the concerned spot portion in the total amount of
P35 million pesos.
Now, which is which? P36 million or P35 million? This weakens
ABS-CBN's claim.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she
transmitted Exhibit "C" to Mr. Del Rosario with a handwritten
note, describing said Exhibit "C" as a "draft." The said draft has
a well-defined meaning.
Since Exhibit "C" is only a draft, or a tentative, provisional or
preparatory writing prepared for discussion, the terms and
conditions thereof could not have been previously agreed upon

11
by ABS-CBN and Viva Exhibit "C'' could not therefore legally
bind Viva, not having agreed thereto. In fact, Ms. Concio
admitted that the terms and conditions embodied in Exhibit
"C" were prepared by ABS-CBN's lawyers and there was no
discussion on said terms and conditions. . . .
As the parties had not yet discussed the proposed terms and
conditions in Exhibit "C," and there was no evidence
whatsoever that Viva agreed to the terms and conditions
thereof, said document cannot be a binding contract. The fact
that Viva refused to sign Exhibit "C" reveals only too [sic] well
that it did not agree on its terms and conditions, and this court
has no authority to compel Viva to agree thereto.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del
Rosario agreed upon at the Tamarind Grill was only provisional,
in the sense that it was subject to approval by the Board of
Directors of Viva.
The testimony of Mr. Lopez shows beyond doubt that he knew
Mr. Del Rosario had no authority to bind Viva to a contract with
ABS-CBN until and unless its Board of Directors approved it.
The complaint, in fact, alleges that Mr. Del Rosario "is the
Executive Producer of defendant Viva" which "is a
corporation." (par. 2, complaint). As a mere agent of Viva, Del
Rosario could not bind Viva unless what he did is ratified by its
Board of Directors. As a mere agent, recognized as such by
plaintiff, Del Rosario could not be held liable jointly and
severally with Viva and his inclusion as party defendant has no
legal basis.
The testimony of Mr. Lopez and the allegations in the
complaint are clear admissions that what was supposed to
have been agreed upon at the Tamarind Grill between Mr.
Lopez and Del Rosario was not a binding agreement. It is as it
should be because corporate power to enter into a contract is
lodged in the Board of Directors. (Sec. 23, Corporation Code).
Without such board approval by the Viva board, whatever
agreement Lopez and Del Rosario arrived at could not ripen
into a valid contract binding upon Viva. The evidence adduced
shows that the Board of Directors of Viva rejected Exhibit "C"
and insisted that the film package for 140 films be maintained.
The contention that ABS-CBN had yet to fully exercise its right
of first refusal over twenty-four films under the 1990 Film
Exhibition Agreement and that the meeting between Lopez and
Del Rosario was a continuation of said previous contract is
untenable. As observed by the trial court, ABS-CBN right of first
refusal had already been exercised when Ms. Concio wrote to
VIVA ticking off ten films, Thus:
[T]he subsequent negotiation with ABS-CBN two (2) months
after this letter was sent, was for an entirely different package.
Ms. Concio herself admitted on cross-examination to having
used or exercised the right of first refusal. She stated that the
list was not acceptable and was indeed not accepted by ABSCBN, (TSN, June 8, 1992, pp. 8-10). Even Mr. Lopez himself
admitted that the right of the first refusal may have been
already exercised by Ms. Concio (as she had). (TSN, June 8,
1992, pp. 71-75). Del Rosario himself knew and understand

[sic] that ABS-CBN has lost its rights of the first refusal when his
list of 36 titles were rejected (Tsn, June 9, 1992, pp. 10-11) 50
WHEREFORE, the instant petition is GRANTED. The challenged
decision of the Court of Appeals in CA-G.R. CV No, 44125 is
hereby REVERSED except as to unappealed award of attorney's
fees in favor of VIVA Productions, Inc.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 126204
November 20, 2001 NATIONAL POWER
CORPORATION, petitioner, vs.
PHILIPP BROTHERS OCEANIC, INC., respondent.
National Power Corporation (NAPOCOR) issued invitations to
bid for the supply and delivery of 120,000 metric tons of
imported coal for its Batangas Coal-Fired Thermal Power Plant
in Calaca, Batangas. The Philipp Brothers Oceanic, Inc.
(PHIBRO) prequalified and was allowed to participate as one of
the bidders. After the public bidding was conducted, PHIBRO's
bid was accepted. NAPOCOR's acceptance was conveyed in a
letter which was received by PHIBRO. The "Bidding Terms and
Specifications"4provide for the manner of shipment of coals,
thus:
"SECTION V
SHIPMENT
The winning TENDERER who then becomes the SELLER shall
arrange and provide gearless bulk carrier for the shipment of
coal to arrive at discharging port on or before thirty (30)
calendar days after receipt of the Letter of Credit by the SELLER
or its nominee as per Section XIV hereof to meet the vessel
arrival schedules at Calaca, Batangas, Philippines.
PHIBRO sent word to NAPOCOR that industrial disputes might
soon plague Australia, the shipment's point of origin, which
could seriously hamper PHIBRO's ability to supply the needed
coal. PHIBRO again apprised NAPOCOR of the situation in
Australia, particularly informing the latter that the ship owners
therein are not willing to load cargo unless a "strike-free"
clause is incorporated in the charter party or the contract of
carriage.7 In order to hasten the transfer of coal, PHIBRO
proposed to NAPOCOR that they equally share the burden of a
"strike-free" clause. NAPOCOR refused.
PHIBRO received from NAPOCOR a confirmed and workable
letter of credit. Instead of delivering the coal on or before the
thirtieth day after receipt of the Letter of Credit, as agreed
upon by the parties in the July contract, PHIBRO effected its
first shipment only on November 17, 1987.
Consequently, in October 1987, NAPOCOR once more
advertised for the delivery of coal to its Calaca thermal plant.
PHIBRO participated anew in this subsequent bidding.
NAPOCOR disapproved PHIBRO's application for prequalification to bid for not meeting the minimum
requirements.8 Upon further inquiry, PHIBRO found that the
real reason for the disapproval was its purported failure to
satisfy NAPOCOR's demand for damages due to the delay in the
delivery of the first coal shipment.

12
This prompted PHIBRO to file an action for damages with
application for injunction against NAPOCOR with the Regional
Trial Court, Branch 57, Makati City.9 In its complaint, PHIBRO
alleged that NAPOCOR's act of disqualifying it in the October
1987 bidding and in all subsequent biddings was tainted with
malice and bad faith. PHIBRO prayed for actual, moral and
exemplary damages and attorney's fees.
In its answer, NAPOCOR averred that the strikes in Australia
could not be invoked as reason for the delay in the delivery of
coal because PHIBRO itself admitted that as of July 28, 1987
those strikes had already ceased. And, even assuming that the
strikes were still ongoing, PHIBRO should have shouldered the
burden of a "strike-free" clause because their contract was "C
and F Calaca, Batangas, Philippines," meaning,
the cost and freight from the point of origin until the point of
destination would be for the account of PHIBRO. Furthermore,
NAPOCOR claimed that due to PHIBRO's failure to deliver the
coal on time, it was compelled to purchase coal from ASEA at a
higher price. NAPOCOR claimed for actual damages in the
amount of P12,436,185.73, representing the increase in the
price of coal, and a claim of P500,000.00 as litigation
expenses.10
Thereafter, trial on the merits ensued.
On January 16, 1992, the trial court rendered a decision in
favor of PHIBRO.
Unsatisfied, NAPOCOR, through the Solicitor General, elevated
the case to the Court of Appeals. On August 27, 1996, the Court
of Appeals rendered a Decision affirming in toto the Decision of
the Regional Trial Court. It ratiocinated that:
"There is ample evidence to show that although PHIBRO's
delivery of the shipment of coal was delayed, the delay was in
fact caused by a) Napocor's own delay in opening a workable
letter of credit; and b) the strikes which plaqued the Australian
coal industry from the first week of July to the third week of
September 1987. Strikes are included in the definition of
force majeure in Section XVII of the Bidding Terms and
Specifications, (supra), so Phibro is not liable for any delay
caused thereby.
Phibro was informed of the acceptance of its bid on July 8,
1987. Delivery of coal was to be effected thirty (30) days from
Napocor's opening of a confirmed and workable letter of
credit. Napocor was only able to do so on August 6, 1987.
By that time, Australia's coal industry was in the middle of a
seething controversy and unrest, occasioned by strikes,
overtime bans, mine stoppages. The origin, the scope and the
effects of this industrial unrest are lucidly described in the
uncontroverted testimony of James Archibald, an employee of
Phibro and member of the Export Committee of the Australian
Coal Association during the time these events transpired.
xxx
xxx
xxx
The records also attest that Phibro periodically informed
Napocor of these developments as early as July 1, 1987, even
before the bid was approved. Yet, Napocor did not forthwith

open the letter of credit in order to avoid delay which might be

caused by the strikes and their after-effects.
"Strikes" are undoubtedly included in the force majeure clause
of the Bidding Terms and Specifications (supra). The renowned
civilist, Prof. Arturo Tolentino, defines force majeure as "an
event which takes place by accident and could not have been
foreseen." He further states:
"Fortuitous events may be produced by two general causes: (1)
by Nature, such as earthquakes, storms, floods, epidemics,
fires, etc., and (2) by the act of man, such as an armed invasion,
attack by bandits, governmental prohibitions, robbery, etc."
Hence, by law and by stipulation of the parties, the strikes
which took place in Australia from the first week of July to the
third week of September, 1987, exempted Phibro from the
effects of delay of the delivery of the shipment of coal."12
Twice thwarted, NAPOCOR comes to us via a petition for
review
With the foregoing settled jurisprudence, we find it pointless to
delve lengthily on the factual issues raised by petitioner. The
existence of strikes in Australia having been duly established in
the lower courts, we are left only with the burden of
determining whether or not NAPOCOR acted wrongfully or
with bad faith in disqualifying PHIBRO from participating in the
subsequent public bidding.
Let us consider the case in its proper perspective.
The Court of Appeals is justified in sustaining the Regional Trial
Court's decision exonerating PHIBRO from any liability for
damages to NAPOCOR as it was clearly established from the
evidence, testimonial and documentary, that what prevented
PHIBRO from complying with its obligation under the July 1987
contract was the industrial disputes which besieged Australia
during that time. Extant in our Civil Code is the rule that no
person shall be responsible for those events which could not
be foreseen, or which, though foreseen, were inevitable.22 This
means that when an obligor is unable to fulfill his obligation
because of a fortuitous event or force majeure, he cannot be
held liable for damages for non-performance.23
In addition to the above legal precept, it is worthy to note that
PHIBRO and NAPOCOR explicitly agreed in Section XVII of the
"Bidding Terms and Specifications"24 that "neither seller
(PHIBRO) nor buyer (NAPOCOR) shall be liable for any delay in
or failure of the performance of its obligations, other than the
payment of money due, if any such delay or failure is due to
Force Majeure." Specifically, they defined force majeure as
"any disabling cause beyond the control of and without fault or
negligence of the party, which causes may include but are not
restricted to Acts of God or of the public enemy; acts of the
Government in either its sovereign or contractual capacity;
governmental restrictions; strikes, fires, floods, wars, typhoons,
storms, epidemics and quarantine restrictions."
The law is clear and so is the contract between NAPOCOR and
PHIBRO. Therefore, we have no reason to rule otherwise.
However, proceeding from the premise that PHIBRO was
prevented by force majeure from complying with its obligation,

13
does it necessarily follow that NAPOCOR acted unjustly,
capriciously, and unfairly in disapproving PHIBRO's application
for pre-qualification to bid?
First, it must be stressed that NAPOCOR was not bound under
any contract to approve PHIBRO's pre-qualification
requirements. In fact, NAPOCOR had expressly reserved its
right to reject bids. The Instruction to Bidders found in the
"Post-Qualification Documents/Specifications for the Supply
and Delivery of Coal for the Batangas Coal-Fired Thermal Power
Plant I at Calaca, Batangas Philippines,"25 is explicit.
This Court has held that where the right to reject is so
reserved, the lowest bid or any bid for that matter may be
rejected on a mere technicality.27 And where the government
as advertiser, availing itself of that right, makes its choice in
rejecting any or all bids, the losing bidder has no cause to
complain nor right to dispute that choice unless an unfairness
or injustice is shown. Accordingly, a bidder has no ground of
action to compel the Government to award the contract in his
favor, nor to compel it to accept his bid. Even the lowest bid or
any bid may be rejected.
Verily, a reservation of the government of its right to reject any
bid, generally vests in the authorities a wide discretion as to
who is the best and most advantageous bidder. The exercise of
such discretion involves inquiry, investigation, comparison,
deliberation and decision, which are quasi-judicial functions,
and when honestly exercised, may not be reviewed by the
court.30
Owing to the discretionary character of the right involved in
this case, the propriety of NAPOCOR's act should therefore be
judged on the basis of the general principles regulating human
relations, the forefront provision of which is Article 19 of the
Civil Code which provides that "every person must, in the
exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and
good faith."32Accordingly, a person will be protected only when
he acts in the legitimate exercise of his right, that is, when he
acts with prudence and in good faith; but not when he acts
with negligence or abuse.33
Did NAPOCOR abuse its right or act unjustly in disqualifying
PHIBRO from the public bidding?
We rule in the negative.
We went over the record of the case with painstaking
solicitude and we are convinced that NAPOCOR's act of
disapproving PHIBRO's application for pre-qualification to bid
was without any intent to injure or a purposive motive to
perpetrate damage. Apparently, NAPOCOR acted on the strong
conviction that PHIBRO had a "seriously-impaired" track
record. NAPOCOR cannot be faulted from believing so. At this
juncture, it is worth mentioning that at the time NAPOCOR
issued its subsequent Invitation to Bid, i.e., October 1987,
PHIBRO had not yet delivered the first shipment of coal under
the July 1987 contract, which was due on or before September
5, 1987. Naturally, NAPOCOR is justified in entertaining doubts

on PHIBRO's qualification or capability to assume an obligation

under a new contract.
Moreover, PHIBRO's actuation in 1987 raised doubts as to the
real situation of the coal industry in Australia. It appears from
the records that when NAPOCOR was constrained to consider
an offer from another coal supplier (ASEA) at a price of
US$33.44 per metric ton, PHIBRO unexpectedly offered the
immediate delivery of 60,000 metric tons of Ulan steam coal at
US$31.00 per metric ton for arrival at Calaca, Batangas on
September 20-21, 1987."35 Of course, NAPOCOR had reason to
ponder how come PHIBRO could assure the immediate
delivery of 60,000 metric tons of coal from the same source to
arrive at Calaca not later than September 20/21, 1987 but it
could not deliver the coal it had undertaken under its contract?
Significantly, one characteristic of a fortuitous event, in a legal
sense, and consequently in relations to contracts, is that "the
concurrence must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner."36 Faced
with the above circumstance, NAPOCOR is justified in assuming
that, may be, there was really no fortuitous event or
force majeure which could render it impossible for PHIBRO to
effect the delivery of coal. Correspondingly, it is also justified in
treating PHIBRO's failure to deliver a serious impairment of its
track record. That the trial court, thereafter, found PHIBRO's
unexpected offer actually a result of its desire to minimize
losses on the part of NAPOCOR is inconsequential. In
determining the existence of good faith, the yardstick is the
frame of mind of the actor at the time he committed the act,
disregarding actualities or facts outside his knowledge. We
cannot fault NAPOCOR if it mistook PHIBRO's unexpected offer
a mere attempt on the latter's part to undercut ASEA or an
indication of PHIBRO's inconsistency. The circumstances
warrant such contemplation.
That NAPOCOR believed all along that PHIBRO's failure to
deliver on time was unfounded is manifest from its
letters37 reminding PHIBRO that it was bound to deliver the
coal within 30 days from its (PHIBRO's) receipt of the Letter of
Credit, otherwise it would be constrained to take legal action.
The very purpose of requiring a bidder to furnish the awarding
authority its pre-qualification documents is to ensure that only
those "responsible" and "qualified" bidders could bid and be
awarded with government contracts. It bears stressing that the
award of a contract is measured not solely by the smallest
amount of bid for its performance, but also by the
"responsibility" of the bidder. Consequently, the integrity,
honesty, and trustworthiness of the bidder is to be considered.
An awarding official is justified in considering a bidder not
qualified or not responsible if he has previously defrauded the
public in such contracts or if, on the evidence before him, the
official bona fide believes the bidder has committed such
fraud, despite the fact that there is yet no judicial
determination to that effect.39Otherwise stated, if the awarding
body bona fide believes that a bidder has seriously impaired its
track record because of a particular conduct, it is justified in

14
disqualifying the bidder. This policy is necessary to protect the
interest of the awarding body against irresponsible bidders.
41
The circumstances under which NAPOCOR disapproved
PHIBRO's pre-qualification to bid do not show an intention to
cause damage to the latter. The measure it adopted was one of
self-protection. Consequently, we cannot penalize NAPOCOR
for the course of action it took. NAPOCOR cannot be made
liable for actual, moral and exemplary damages.
NAPOCOR, in this petition, likewise contests the judgment of
the lower courts awarding PHIBRO the amount of $73,231.91
as reimbursement for expenses, cost of litigation and
attorney's fees.
We agree with NAPOCOR.
This Court has laid down the rule that in the absence of
stipulation, a winning party may be awarded attorney's fees
only in case plaintiff's action or defendant's stand is so
untenable as to amount to gross and evident bad faith.50This
cannot be said of the case at bar. NAPOCOR is justified in
resisting PHIBRO's claim for damages. As a matter of fact, we
partially grant the prayer of NAPOCOR as we find that it did not
act in bad faith in disapproving PHIBRO's pre-qualification to
bid.
At this point, we believe that, in the interest of fairness,
NAPOCOR should give PHIBRO another opportunity to
participate in future public bidding. As earlier mentioned, the
delay on its part was due to a fortuitous event.
But before we dispose of this case, we take this occasion to
remind PHIBRO of the indispensability of coal to a coal-fired
thermal plant. With households and businesses being entirely
dependent on the electricity supplied by NAPOCOR, the
delivery of coal cannot be venturesome. Indeed, public interest
demands that one who offers to deliver coal at an appointed
time must give a reasonable assurance that it can carry
through. With the deleterious possible consequences that may
result from failure to deliver the needed coal, we believe there
is greater strain of commitment in this kind of obligation.
WHEREFORE, the decision of the Court of Appeals in CA-G.R.
CV No. 126204 dated August 27, 1996 is hereby MODIFIED. The
award, in favor of PHIBRO, of actual, moral and exemplary
damages, reimbursement for expenses, cost of litigation and
attorney's fees, and costs of suit, is DELETED.
SO ORDERED.
G.R. No. 100866 July 14, 1992
REBECCA BOYER-ROXAS and GUILLERMO
ROXAS, petitioners, vs HON. COURT OF APPEALS and HEIRS OF
EUGENIA V. ROXAS, INC., respondents.
In the case of petitioner Rebecca Boyer-Roxas, the respondent
corporation alleged that Rebecca is in possession of two (2)
houses, one of which is still under construction, built at the
expense of the respondent corporation; and that her
occupancy on the two (2) houses was only upon the tolerance
of the respondent corporation.

In the case of petitioner Guillermo Roxas, the respondent

corporation alleged that Guillermo occupies a house which was
built at the expense of the former during the time when
Guillermo's father, Eriberto Roxas, was still living and was the
general manager of the respondent corporation; that the
house was originally intended as a recreation hall but was
converted for the residential use of Guillermo; and that
Guillermo's possession over the house and lot was only upon
the tolerance of the respondent corporation.
In both cases, the respondent corporation alleged that the
petitioners never paid rentals for the use of the buildings and
the lots and that they ignored the demand letters for them to
vacate the buildings.
In their separate answers, the petitioners traversed the
allegations in the complaint by stating that they are heirs of
Eugenia V. Roxas and therefore, co-owners of the Hidden
Valley Springs Resort; and as co-owners of the property, they
have the right to stay within its premises.
The petitioners appealed the decision to the Court of Appeals.
However, as stated earlier, the appellate court affirmed the
lower court's decision. The Petitioners' motion for
reconsideration was likewise denied.
Hence, this petition.
In a resolution dated February 5, 1992, we gave due course to
the petition.
The petitioners now contend:
I Respondent Court erred when it refused to pierce the veil of
corporate fiction over private respondent and maintain the
petitioners in their possession and/or occupancy of the subject
premises considering that petitioners are owners of aliquot
part of the properties of private respondent. Besides, private
respondent itself discarded the mantle of corporate fiction by
acts and/or omissions of its board of directors and/or
stockholders.
II The respondent Court erred in not holding that petitioners
were in fact denied due process or their day in court brought
about by the gross negligence of their former counsel.
III The respondent Court misapplied the law when it ordered
petitioner Rebecca Boyer-Roxas to remove the unfinished
building in
Petitioners contend, through their new counsel, that the
judgment rendered against them by the respondent court was
null and void, because they were therein deprived of their day
in court and divested of their property without due process of
law, through the gross ignorance, mistake and negligence of
their previous counsel. They acknowledge that, while as a rule,
clients are bound by the mistake of their counsel, the rule
should not be applied automatically to their case, as their trial
counsel's blunder in procedure and gross ignorance of existing
jurisprudence changed their cause of action and violated their
substantial rights.
We now discuss the merits of the cases.

15
In the first assignment of error, the petitioners maintain that
their possession of the questioned properties must be
respected in view of their ownership of an aliquot portion of all
the properties of the respondent corporation being
stockholders thereof. They propose that the veil of corporate
fiction be pierced, considering the circumstances under which
the respondent corporation was formed.
Originally, the questioned properties belonged to Eugenia V.
Roxas. After her death, the heirs of Eugenia V. Roxas, among
them the petitioners herein, decided to form a corporation
Heirs of Eugenia V. Roxas, Incorporated (private respondent
herein) with the inherited properties as capital of the
corporation. The corporation was incorporated on December 4,
1962 with the primary purpose of engaging in agriculture to
develop the inherited properties. The Articles of Incorporation
of the respondent corporation were amended in 1971 to allow
it to engage in the resort business. Accordingly, the corporation
put up a resort known as Hidden Valley Springs Resort where
the questioned properties are located.
These facts, however, do not justify the position taken by the
petitioners.
The respondent is a bona fide corporation. As such, it has a
juridical personality of its own separate from the members
composing it. There is no dispute that title over the questioned
land where the Hidden Valley Springs Resort is located is
registered in the name of the corporation. The records also
show that the staff house being occupied by petitioner Rebecca
Boyer-Roxas and the recreation hall which was later on
converted into a residential house occupied by petitioner
Guillermo Roxas are owned by the respondent corporation.
Regarding properties owned by a corporation, we stated in the
case of Stockholders of F. Guanzon and Sons, Inc. v. Register of
Deeds of Manila, (6 SCRA 373 [1962]):
xxx xxx xxx
. . . Properties registered in the name of the corporation are
owned by it as an entity separate and distinct from its
members. While shares of stock constitute personal property,
they do not represent property of the corporation. The
corporation has property of its own which consists chiefly of
real estate. A share of stock only 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 but
its holder is not the owner of any part of the capital of the
corporation. Nor is he entitled to the possession of any definite
portion of its property or assets. The stockholder is not a coowner or tenant in common of the corporate property. The
petitioners point out that their occupancy of the staff house
which was later used as the residence of Eriberto Roxas,
husband of petitioner Rebecca Boyer-Roxas and the recreation
hall which was converted into a residential house were with
the blessings of Eufrocino Roxas, the deceased husband of
Eugenia V. Roxas, who was the majority and controlling
stockholder of the corporation. In his lifetime, Eufrocino Roxas
together with Eriberto Roxas, the husband of petitioner

Rebecca Boyer-Roxas, and the father of petitioner Guillermo

Roxas managed the corporation. The Board of Directors did not
object to such an arrangement. The petitioners argue that . . .
the authority thus given by Eufrocino Roxas for the conversion
of the recreation hall into a residential house can no longer be
questioned by the stockholders of the private respondent
and/or its board of directors for they impliedly but no leas
explicitly delegated such authority to said Eufrocino Roxas.
(Rollo, p. 12)
Again, we must emphasize that the respondent corporation
has a distinct personality separate from its members. The
corporation transacts its business only through its officers or
agents. Whatever authority these officers or agents may have
is derived from the board of directors or other governing body
unless conferred by the charter of the corporation. An officer's
power as an agent of the corporation must be sought from the
statute, charter, the by-laws or in a delegation of authority to
such officer, from the acts of the board of directors, formally
expressed or implied from a habit or custom of doing business.
In the present case, the record shows that Eufrocino V. Roxas
who then controlled the management of the corporation,
being the majority stockholder, consented to the petitioners'
stay within the questioned properties. Specifically, Eufrocino
Roxas gave his consent to the conversion of the recreation hall
to a residential house, now occupied by petitioner Guillermo
Roxas. The Board of Directors did not object to the actions of
Eufrocino Roxas. The petitioners were allowed to stay within
the questioned properties until August 27, 1983, when the
Board of Directors approved a Resolution ejecting the
petitioners, to wit:
R E S O L U T I O N No. 83-12
RESOLVED, That Rebecca B. Roxas and Guillermo Roxas, and all
persons claiming under them, be ejected from their occupancy
of the Hidden Valley Springs compound on which their houses
have been constructed and/or are being constructed only on
tolerance of the Corporation and without any contract
therefor, in order to give way to the Corporation's expansion
and improvement program and obviate prejudice to the
operation of the Hidden Valley Springs Resort by their
continued interference.
We find nothing irregular in the adoption of the Resolution by
the Board of Directors. The petitioners' stay within the
questioned properties was merely by tolerance of the
respondent corporation in deference to the wishes of
Eufrocino Roxas, who during his lifetime, controlled and
managed the corporation. Eufrocino Roxas' actions could not
have bound the corporation forever. The petitioners have not
cited any provision of the corporation by-laws or any resolution
or act of the Board of Directors which authorized Eufrocino
Roxas to allow them to stay within the company premises
forever. We rule that in the absence of any existing contract
between the petitioners and the respondent corporation, the
corporation may elect to eject the petitioners at any time it

16
wishes for the benefit and interest of the respondent
corporation.
The petitioners' suggestion that the veil of the corporate fiction
should be pierced is untenable. 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 to achieve equity or when
necessary for the protection of the creditors." The
circumstances in the present cases do not fall under any of the
enumerated categories.
WHEREFORE, the present petition is partly GRANTED. The
questioned decision of the Court of Appeals affirming the
decision of the Regional Trial Court of Laguna, Branch 37, in
RTC Civil Case No. 802-84-C is MODIFIED in that subparagraphs
(c) and (d) of Paragraph 1 of the dispositive portion of the
decision are deleted. In their stead, the petitioner Rebecca
Boyer-Roxas and the respondent corporation are ordered to
follow the provisions of Article 448 of the Civil Code as regards
the questioned unfinished building in RTC Civil Case No. 80284-C. The questioned decision is affirmed in all other respects.
SO ORDERED.
G.R. No. 100812 June 25, 1999
FRANCISCO MOTORS CORPORATION, petitioner, vs. COURT OF
APPEALS and SPOUSES GREGORIO and LIBRADA
MANUEL, respondents.
Petitioner filed a complaint 2 against private respondents to
recover three thousand four hundred twelve and six centavos
(P3,412.06), representing the balance of the jeep body
purchased by the Manuels from petitioner; an additional sum
of twenty thousand four hundred fifty-four and eighty centavos
(P20,454.80) representing the unpaid balance on the cost of
repair of the vehicle; and six thousand pesos (P6,000.00) for
cost of suit and attorney's fees. 3 To the original balance on the
price of jeep body were added the costs of repair. 4 In their
answer, private respondents interposed a counterclaim for
unpaid legal services by Gregorio Manuel in the amount of fifty
thousand pesos (P50,000) which was not paid by the
incorporators, directors and officers of the petitioner. The trial
court decided the case on June 26, 1985, in favor of petitioner
in regard to the petitioner's claim for money, but also allowed
the counter-claim of private respondents. Both parties
appealed. On April 15, 1991, the Court of Appeals sustained
the trial court's decision. 5 Hence, the present petition.
On the question of its liability for attorney's fees owing to
private respondent Gregorio Manuel, petitioner argued that
being a corporation, it should not be held liable therefor
because these fees were owed by the incorporators, directors
and officers of the corporation in their personal capacity as
heirs of Benita Trinidad. Petitioner stressed that the personality
of the corporation, vis-a-vis the individual persons who hired
the services of private respondent, is separate and

distinct, 11 hence, the liability of said individuals did not

become an obligation chargeable against petitioner.
Nevertheless, on the foregoing issue, the Court of Appeals
ruled as follows:
However, this distinct and separate personality is merely a
fiction created by law for convenience and to promote justice.
Accordingly, this separate personality of the corporation may
be disregarded, or the veil of corporate fiction pierced, in cases
where it is used as a cloak or cover for found (sic) illegality, or
to work an injustice, or where necessary to achieve equity or
when necessary for the protection of creditors
In the instant case, evidence shows that the plaintiff-appellant
Francisco Motors Corporation is composed of the heirs of the
late Benita Trinidad as directors and incorporators for whom
defendant Gregorio Manuel rendered legal services in the
intestate estate case of their deceased mother. Considering the
aforestated principles and circumstances established in this
case, equity and justice demands plaintiff-appellant's veil of
corporate identity should be pierced and the defendant be
compensated for legal services rendered to the heirs, who are
directors of the plaintiff-appellant corporation.
Now before us, petitioner assigns the following errors:
I.
THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF
PIERCING THE VEIL OF CORPORATE ENTITY.
II.
THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE
WAS JURISDICTION OVER PETITIONER WITH RESPECT TO THE
COUNTERCLAIM. 13
Petitioner submits that respondent court should not have
resorted to piercing the veil of corporate fiction because the
transaction concerned only respondent Gregorio Manuel and
the heirs of the late Benita Trinidad. According to petitioner,
there was no cause of action by said respondent against
petitioner; personal concerns of the heirs should be
distinguished from those involving corporate affairs. Petitioner
further contends that the present case does not fall among the
instances wherein the courts may look beyond the distinct
personality of a corporation. According to petitioner, the
services for which respondent Gregorio Manuel seeks to collect
fees from petitioner are personal in nature. Hence, it avers the
heirs should have been sued in their personal capacity, and not
involve the corporation.14
In their Comment, private respondents focus on the two
questions raised by petitioner. They defend the propriety of
piercing the veil of corporate fiction, but deny the necessity of
serving separate summonses on petitioner in regard to their
permissive counterclaim contained in the answer.
Private respondents maintain both trial and appellate courts
found that respondent Gregorio Manuel was employed as
assistant legal officer of petitioner corporation, and that his
services were solicited by the incorporators, directors and
members to handle and represent them in Special Proceedings
No. 7803, concerning the Intestate Estate of the late Benita

17
Trinidad. They assert that the members of petitioner
corporation took advantage of their positions by not
compensating respondent Gregorio Manuel after the
termination of the estate proceedings despite his repeated
demands for payment of his services. They cite findings of the
appellate court that support piercing the veil of corporate
identity in this particular case. They assert that the corporate
veil may be disregarded when it is used to defeat public
convenience, justify wrong, protect fraud, and defend crime. It
may also be pierced, according to them, where the corporate
entity is being used as an alter ego, adjunct, or business
conduit for the sole benefit of the stockholders or of another
corporate entity. In these instances, they aver, the corporation
should be treated merely as an association of individual
persons. 16
To resolve the issues in this case, we must first determine the
propriety of piercing the veil of corporate fiction.
Basic in corporation law is the principle that a corporation has
a separate personality distinct from its stockholders and from
other corporations to which it may be connected. 18 However,
under the doctrine of piercing the veil of corporate entity, the
corporation's separate juridical personality may be
disregarded, for example, when the corporate identity is used
to defeat public convenience, justify wrong, protect fraud, or
defend crime. Also, where the corporation is a mere alter ego
or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit or adjunct
of another corporation, then its distinct personality may be
ignored. 19 In these circumstances, the courts will treat the
corporation as a mere aggrupation of persons and the liability
will directly attach to them. The legal fiction of a separate
corporate personality in those cited instances, for reasons of
public policy and in the interest of justice, will be justifiably set
aside.
In our view, however, given the facts and circumstances of this
case, the doctrine of piercing the corporate veil has no relevant
application here. Respondent court erred in permitting the trial
court's resort to this doctrine. The rationale behind piercing a
corporation's identity in a given case is to remove the barrier
between the corporation from the persons comprising it to
thwart the fraudulent and illegal schemes of those who use the
corporate personality as a shield for undertaking certain
proscribed activities. However, in the case at bar, instead of
holding certain individuals or persons responsible for an
alleged corporate act, the situation has been reversed. It is the
petitioner as a corporation which is being ordered to answer
for the personal liability of certain individual directors, officers
and incorporators concerned. Hence, it appears to us that the
doctrine has been turned upside down because of its
erroneous invocation. Note that according to private
respondent Gregorio Manuel his services were solicited as
counsel for members of the Francisco family to represent them
in the intestate proceedings over Benita Trinidad's estate.

These estate proceedings did not involve any business of

petitioner.
Note also that he sought to collect legal fees not just from
certain Francisco family members but also from petitioner
corporation on the claims that its management had requested
his services and he acceded thereto as an employee of
petitioner from whom it could be deduced he was also
receiving a salary. His move to recover unpaid legal fees
through a counterclaim against Francisco Motors Corporation,
to offset the unpaid balance of the purchase and repair of a
jeep body could only result from an obvious misapprehension
that petitioner's corporate assets could be used to answer for
the liabilities of its individual directors, officers, and
incorporators. Such result if permitted could easily prejudice
the corporation, its own creditors, and even other
stockholders; hence, clearly inequitous to petitioner.
Furthermore, considering the nature of the legal services
involved, whatever obligation said incorporators, directors and
officers of the corporation had incurred, it was incurred in their
personal capacity. When directors and officers of a corporation
are unable to compensate a party for a personal obligation, it is
far-fetched to allege that the corporation is perpetuating fraud
or promoting injustice, and be thereby held liable therefor by
piercing its corporate veil. While there are no hard and fast
rules on disregarding separate corporate identity, we must
always be mindful of its function and purpose. A court should
be careful in assessing the milieu where the doctrine of
piercing the corporate veil may be applied. Otherwise an
injustice, although unintended, may result from its erroneous
application.
The personality of the corporation and those of its
incorporators, directors and officers in their personal capacities
ought to be kept separate in this case. The claim for legal fees
against the concerned individual incorporators, officers and
directors could not be properly directed against the
corporation without violating basic principles governing
corporations. Moreover, every action including a
counterclaim must be prosecuted or defended in the name
of the real party in interest. 20 It is plainly an error to lay the
claim for legal fees of private respondent Gregorio Manuel at
the door of petitioner (FMC) rather than individual members of
the Francisco family.
WHEREFORE, the petition is hereby GRANTED and the assailed
decision is hereby REVERSED insofar only as it held Francisco
Motors Corporation liable for the legal obligation owing to
private respondent Gregorio Manuel; but this decision is
without prejudice to his filing the proper suit against the
concerned members of the Francisco family in their personal
capacity. No pronouncement as to costs.1wphi1.nt
SO ORDERED.
G.R. No. 142616
July 31, 2001
PHILIPPINE NATIONAL BANK, petitioner, vs. RITRATTO GROUP
INC., RIATTO INTERNATIONAL, INC., and DADASAN GENERAL
MERCHANDISE,respondents.

18
Petitioner Philippine National Bank is a domestic corporation
organized and existing under Philippine law. Meanwhile,
respondents Ritratto Group, Inc., Riatto International, Inc. and
Dadasan General Merchandise are domestic corporations,
likewise, organized and existing under Philippine law.
PNB International Finance Ltd. (PNB-IFL) a subsidiary company
of PNB, organized and doing business in Hong Kong, extended a
letter of credit in favor of the respondents in the amount of
US$300,000.00 secured by real estate mortgages constituted
over four (4) parcels of land in Makati City. Respondents made
repayments of the loan incurred by remitting those amounts to
their loan account with PNB-IFL in Hong Kong.
However, their outstanding obligations stood at
US$1,497,274.70. Pursuant to the terms of the real estate
mortgages, PNB-IFL, through its attorney-in-fact PNB, notified
the respondents of the foreclosure of all the real estate
mortgages and that the properties subject thereof were to be
sold at a public auction.
I
n their Comment, respondents argue that even
assuming arguendo that petitioner and PNB-IFL are two
separate entities, petitioner is still the party-in-interest in the
application for preliminary injunction because it is tasked to
commit acts of foreclosing respondents'
properties.4 Respondents maintain that the entire credit facility
is void as it contains stipulations in violation of the principle of
mutuality of contracts.5 In addition, respondents justified the
act of the court a quo in applying the doctrine of "Piercing the
Veil of Corporate Identity" by stating that petitioner is merely
an alter ego or a business conduit of PNB-IFL.6
The petition is impressed with merit.
Based on the aforementioned grounds, respondents sought to
enjoin and restrain PNB from the foreclosure and eventual sale
of the property in order to protect their rights to said property
by reason of void credit facilities as bases for the real estate
mortgage over the said property.8
The contract questioned is one entered into between
respondent and PNB-IFL, not PNB. In their complaint,
respondents admit that petitioner is a mere attorney-in-fact for
the PNB-IFL with full power and authority to, inter alia,
foreclose on the properties mortgaged to secure their loan
obligations with PNB-IFL. In other words, herein petitioner is an
agent with limited authority and specific duties under a special
power of attorney incorporated in the real estate mortgage. It
is not privy to the loan contracts entered into by respondents
and PNB-IFL.
The issue of the validity of the loan contracts is a matter
between PNB-IFL, the petitioner's principal and the party to the
loan contracts, and the respondents. Yet, despite the
recognition that petitioner is a mere agent, the respondents in
their complaint prayed that the petitioner PNB be ordered to
re-compute the rescheduling of the interest to be paid by them
in accordance with the terms and conditions in the documents

evidencing the credit facilities, and crediting the amount

previously paid to PNB by herein respondents.9
Clearly, petitioner not being a part to the contract has no
power to re-compute the interest rates set forth in the
contract. Respondents, therefore, do not have any cause of
action against petitioner.
The trial court, however, in its Order dated October 4, 1994,
ruled that since PNB-IFL, is a wholly owned subsidiary of
defendant Philippine National Bank, the suit against the
defendant PNB is a suit against PNB-IFL.10 In justifying its ruling,
the trial court, citing the case of Koppel Phil. Inc. vs.
Yatco,11 reasoned that the corporate entity may be disregarded
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.12
We disagree.
The general rule is that as a legal entity, a corporation has a
personality distinct and separate from its individual
stockholders or members, and is not affected by the personal
rights, obligations and transactions of the latter.13 The mere
fact that a corporation owns all of the stocks of another
corporation, taken alone is not sufficient to justify their being
treated as one entity. If used to perform legitimate functions, a
subsidiary's separate existence may be respected, and the
liability of the parent corporation as well as the subsidiary will
be confined to those arising in their respective business. The
courts may in the exercise of judicial discretion step in to
prevent the abuses of separate entity privilege and pierce the
veil of corporate entity.
We find, however, that the ruling in Koppel finds no application
in the case at bar. In said case, this Court disregarded the
separate existence of the parent and the subsidiary on the
ground that the latter was formed merely for the purpose of
evading the payment of higher taxes. In the case at bar,
respondents fail to show any cogent reason why the separate
entities of the PNB and PNB-IFL should be disregarded.
While there exists no definite test of general application in
determining when a subsidiary may be treated as a mere
instrumentality of the parent corporation, some factors have
been identified that will justify the application of the treatment
of the doctrine of the piercing of the corporate veil. The case
of Garrett vs. Southern Railway Co.14 is enlightening. The case
involved a suit against the Southern Railway Company. Plaintiff
was employed by Lenoir Car Works and alleged that he
sustained injuries while working for Lenoir. He, however, filed a
suit against Southern Railway Company on the ground that
Southern had acquired the entire capital stock of Lenoir Car
Works, hence, the latter corporation was but a mere
instrumentality of the former. The Tennessee Supreme Court
stated that as a general rule the stock ownership alone by one
corporation of the stock of another does not thereby render
the dominant corporation liable for the torts of the subsidiary

19
unless the separate corporate existence of the subsidiary is a
mere sham, or unless the control of the subsidiary is such that
it is but an instrumentality or adjunct of the dominant
corporation. Said Court then outlined the circumstances which
may be useful in the determination of whether the subsidiary is
but a mere instrumentality of the parent-corporation:
The Circumstance rendering the subsidiary an instrumentality.
It is manifestly impossible to catalogue the infinite variations of
fact that can arise but there are certain common circumstances
which are important and which, if present in the proper
combination, are controlling.
These are as follows:
(a) The parent corporation owns all or most of the capital stock
of the subsidiary.
(b) The parent and subsidiary corporations have common
directors or officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of
the subsidiary or otherwise causes its incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses
or losses of the subsidiary.
(g) The subsidiary has substantially no business except with the
parent corporation or no assets except those conveyed to or by
the parent corporation.
(h) In the papers of the parent corporation or in the statements
of its officers, the subsidiary is described as a department or
division of the parent corporation, or its business or financial
responsibility is referred to as the parent corporation's own.
(i) The parent corporation uses the property of the subsidiary
as its own.
(j) The directors or executives of the subsidiary do not act
independently in the interest of the subsidiary but take their
orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are not
observed.
The Tennessee Supreme Court thus ruled:
In the case at bar only two of the eleven listed indicia occur,
namely, the ownership of most of the capital stock of Lenoir by
Southern, and possibly subscription to the capital stock of
Lenoir. . . The complaint must be dismissed.
Similarly, in this jurisdiction, we have held that the doctrine of
piercing the corporate veil is an equitable doctrine developed
to address situations where the separate corporate personality
of a corporation is abused or used for wrongful purposes. The
doctrine applies when the 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.15

In Concept Builders, Inc. v. NLRC,16 we have laid the test in

determining the applicability of the doctrine of piercing the veil
of corporate fiction, to wit:
1. Control, not mere majority or complete control, but
complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so that
the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own.
2. Such control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or dishonest and, unjust
act in contravention of plaintiffs legal rights; and,
3. The aforesaid control and breach of duty must proximately
cause the injury or unjust loss complained of.
The absence of any one of these elements prevents "piercing
the corporate veil." In applying the "instrumentality" or "alter
ego" doctrine, the courts are concerned with reality and not
form, with how the corporation operated and the individual
defendant's relationship to the operation.17
Aside from the fact that PNB-IFL is a wholly owned subsidiary
of petitioner PNB, there is no showing of the indicative factors
that the former corporation is a mere instrumentality of the
latter are present. Neither is there a demonstration that any of
the evils sought to be prevented by the doctrine of piercing the
corporate veil exists. Inescapably, therefore, the doctrine of
piercing the corporate veil based on the alter ego or
instrumentality doctrine finds no application in the case at bar.
In any case, the parent-subsidiary relationship between PNB
and PNB-IFL is not the significant legal relationship involved in
this case since the petitioner was not sued because it is the
parent company of PNB-IFL. Rather, the petitioner was sued
because it acted as an attorney-in-fact of PNB-IFL in initiating
the foreclosure proceedings. A suit against an agent cannot
without compelling reasons be considered a suit against the
principal. Under the Rules of Court, every action must be
prosecuted or defended in the name of the real party-ininterest, unless otherwise authorized by law or these Rules.18 In
mandatory terms, the Rules require that "parties-in-interest
without whom no final determination can be had, an action
shall be joined either as plaintiffs or defendants."19 In the case
at bar, the injunction suit is directed only against the agent, not
the principal.
All told, respondents do not have a cause of action against the
petitioner as the latter is not privy to the contract the
provisions of which respondents seek to declare void.
Accordingly, the case before the Regional Trial Court must be
dismissed and the preliminary injunction issued in connection
therewith, must be lifted.
IN VIEW OF THE FOREGOING, the petition is hereby GRANTED.
The assailed decision of the Court of Appeals is hereby
REVERSED. The Orders dated June 30, 1999 and October 4,
1999 of the Regional Trial Court of Makati, Branch 147 in Civil
Case No. 99-1037 are hereby ANNULLED and SET ASIDE and the
complaint in said case DISMISSED.

20
SO ORDERED.
G.R. No. L-78412 September 26, 1989
TRADERS ROYAL BANK, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, HON. BALTAZAR M.
DIZON, Presiding Judge, Regional Trial Court, Branch 113,
Pasay City and ALFREDO CHING, respondents.
Philippine Blooming Mills, Inc. (PBM) and Alfredo Ching jointly
submitted to the Securities and Exchange Commission a
petition for suspension of payments (SEC No. 2250) where
Alfredo Ching was joined as co-petitioner because under the
law, he was allegedly entitled, as surety, to avail of the
defenses of PBM and he was expected to raise most of the
stockholders' equity of Pl00 million being required under the
plan for the rehabilitation of PBM. Traders Royal Bank was
included among PBM's creditors named in Schedule A
accompanying PBM's petition for suspension of payments.
Petitioner bank filed a civil case in the Regional Trial Court
against PBM and Alfredo Ching, to collect P22,227,794.05
exclusive of interests, penalties and other bank charges
representing PBM's outstanding obligation to the bank. Alfredo
Ching, a stockholder of PBM, was impleaded as co-defendant
for having signed as a surety for PBM's obligations to the
extent of ten million pesos (Pl0,000,000).
SEC issued an Order placing PBM's business, including its assets
and liabilities, under rehabilitation receivership, and ordered
that "all actions for claims listed in Schedule A of the petition
pending before any court or tribunal are hereby suspended in
whatever stage the same may be, until further orders from the
Commission" (p. 22, Rollo). As directed by the SEC, said order
was published once a week for three consecutive weeks in the
Bulletin Today, Philippine Daily Express and Times Journal at
the expense of PBM and Alfredo Ching.
PBM and Ching jointly filed a motion to dismiss Civil Case No.
1028-P in the RTC, Pasay City, invoking the pendency in the SEC
of PBM's application for suspension of payments (which Ching
co-signed) and over which the SEC had already assumed
jurisdiction.
Before the motion to dismiss could be resolved, the court
dropped PBM from the complaint, on motion of the plaintiff
bank, for the reason that the SEC had already placed PBM
under rehabilitation receivership.
The trial court denied Ching's motion to dismiss the complaint
against himself. The court pointed out that "P.D. 1758 is only
concerned with the activities of corporations, partnerships and
associations. Never was it intended to regulate and/or control
activities of individuals" (p.11, Rollo). Ching's motion for
reconsideration of that order was denied. Respondent Judge
argued that under P ' D. 902-A, as amended, the SEC may not
validly acquire jurisdiction over an individual, like Ching (p. 62,
Rollo).
The main issue raised in the petition was whether the court a
quo could acquire jurisdiction over Ching in his personal and

individual capacity as a surety of PBM in the collection suit filed

by the bank, despite the fact that PBM's obligation to the bank
had been placed under receivership by the SEC.
The Bank assails that decision in this petition for review
alleging that the appellate court erred;
1. in holding that jurisdiction over respondent Alfredo Ching
was assumed by the SEC because he was a co-signer or surety
of PBM and that the lower court may not assume jurisdiction
over him so as to avoid multiplicity of suits; and
2. in holding that the jurisdiction assumed by the SEC over
Ching was to the exclusion of courts or tribunals of coordinate
rank.
The petition for review is meritorious.
Although Ching was impleaded in SEC Case, as a co-petitioner
of PBM, the SEC could not assume jurisdiction over his person
and properties. The Securities and Exchange Commission was
empowered, as rehabilitation receiver, to take custody and
control of the assets and properties of PBM only, for the SEC
has jurisdiction over corporations only not over private
individuals, except stockholders in an intra-corporate dispute.
Being a nominal party, Ching's properties were not included in
the rehabilitation receivership that the SEC constituted to take
custody of PBM's assets. Therefore, the petitioner bank was
not barred from filing a suit against Ching, as a surety for PBM.
An anomalous situation would arise if individual sureties for
debtor corporations may escape liability by simply co- filing
with the corporation a petition for suspension of payments in
the SEC whose jurisdiction is limited only to corporations and
their corporate assets.
The term "parties-in-interest" in Section 6, Rule 3 of the SEC's
New Rules of Procedure contemplates only private individuals
sued or suing as stockholders, directors, or officers of a
corporation.
Ching can be sued separately to enforce his liability as surety
for PBM, as expressly provided by Article 1216 of the New Civil
Code:
ART. 1216. The creditor may proceed against any of the
solidary debtors or all of them simultaneously. The demand
made against one of them shall not be an obstacle to those
which may subsequently be directed against the others, as long
as the debt has not been fully collected.
It is elementary that a corporation has a personality distinct
and separate from its individual stockholders or members.
Being an officer or stockholder of a corporation does not make
one's property the property also of the corporation, for they
are separate entities.
Ching's act of joining as a co-petitioner with PBM in SEC Case
No. 2250 did not vest in the SEC jurisdiction over his person or
property, for jurisdiction does not depend on the consent or
acts of the parties but upon express provision of law
WHEREFORE, the petition for review is granted. The decision of
the Court of Appeals in CA-G.R. SP No. 03593 is set aside.
Respondent Judge of the Regional Trial Court in Pasay City is
ordered to reinstate Civil Case No. 1028-P and to proceed

21
therein against the private respondent Alfredo Ching. Costs
against the private respondent.SO ORDERED.
G.R. No. 58168 December 19, 1989
CONCEPCION MAGSAYSAY-LABRADOR, SOLEDAD
MAGSAYSAY-CABRERA, LUISA MAGSAYSAY-CORPUZ, assisted
be her husband, Dr. Jose Corpuz, FELICIDAD P. MAGSAYSAY,
and MERCEDES MAGSAYSAY-DIAZ, petitioners, vs.THE COURT
OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY, Special
Administratrix of the Estate of the late Genaro F.
Magsaysay respondents.
Adelaida Rodriguez-Magsaysay, widow and special
administratix of the estate of the late Senator Genaro
Magsaysay, brought before the then Court of First Instance of
Olongapo an action against Artemio Panganiban, Subic Land
Corporation (SUBIC), Filipinas Manufacturer's Bank
(FILMANBANK) and the Register of Deeds of Zambales. In her
complaint, she alleged that in 1958, she and her husband
acquired, thru conjugal funds, a parcel of land with
improvements, known as "Pequena Island; that after the
death of her husband, she discovered [a] an annotation at the
back of TCT that "the land was acquired by her husband from
his separate capital;" [b] the registration of a Deed of
Assignment purportedly executed by the late Senator in favor
of SUBIC, as a result of which TCT was cancelled and TCT issued
in the name of SUBIC; and [c] the registration of Deed of
Mortgage in the amount of P 2,700,000.00 executed by SUBIC
in favor of FILMANBANK; that the foregoing acts were void and
done in an attempt to defraud the conjugal partnership
considering that the land is conjugal, her marital consent to the
annotation on TCT was not obtained, the change made by the
Register of Deeds of the titleholders was effected without the
approval of the Commissioner of Land Registration and that the
late Senator did not execute the purported Deed of Assignment
or his consent thereto, if obtained, was secured by mistake,
violence and intimidation. She further alleged that the
assignment in favor of SUBIC was without consideration and
consequently null and void. She prayed that the Deed of
Assignment and the Deed of Mortgage be annulled and that
the Register of Deeds be ordered to cancel TCT No. 22431 and
to issue a new title in her favor.
Herein petitioners, sisters of the late senator, filed a motion for
intervention on the ground that their brother conveyed to
them one-half (1/2 ) of his shareholdings in SUBIC or and as
assignees of around 41 % of the total outstanding shares of
such stocks of SUBIC, they have a substantial and legal interest
in the subject matter of litigation and that they have a legal
interest in the success of the suit with respect to SUBIC.
Court ruled that petitioners have no legal interest whatsoever
in the matter in litigation and their being alleged assignees or
transferees of certain shares in SUBIC cannot legally entitle
them to intervene because SUBIC has a personality separate
and distinct from its stockholders.

On appeal, respondent Court of Appeals found no factual or

legal justification to disturb the findings of the lower court. The
appellate court further stated that whatever claims the
petitioners have against the late Senator or against SUBIC for
that matter can be ventilated in a separate proceeding, such
that with the denial of the motion for intervention, they are
not left without any remedy or judicial relief under existing
law.
Petitioners' motion for reconsideration was denied. Hence, the
instant recourse.
Petitioners anchor their right to intervene on the purported
assignment made by the late Senator of a certain portion of his
shareholdings to them as evidenced by a Deed of Sale. 2 Such
transfer, petitioners posit, clothes them with an interest,
protected by law, in the matter of litigation.
Invoking the principle enunciated in the case of PNB v. Phil.
Veg. Oil Co, 3petitioners strongly argue that their ownership of
41.66% of the entire outstanding capital stock of SUBIC entitles
them to a significant vote in the corporate affairs; that they are
affected by the action of the widow of their late brother for it
concerns the only tangible asset of the corporation and that it
appears that they are more vitally interested in the outcome of
the case than SUBIC.
The words "an interest in the subject" mean a direct interest in
the cause of action as pleaded, and which would put the
intervenor in a legal position to litigate a fact alleged in the
complaint, without the establishment of which plaintiff could
not recover. 7
Here, the interest, if it exists at all, of petitioners-movants is
indirect, contingent, remote, conjectural, consequential and
collateral. At the very least, their interest is purely inchoate, or
in sheer expectancy of a right in the management of the
corporation and to share in the profits thereof and in the
properties and assets thereof on dissolution, after payment of
the corporate debts and obligations.
While a share of stock represents a proportionate or aliquot
interest in the property of the corporation, it does not vest the
owner thereof with any legal right or title to any of the
property, his interest in the corporate property being equitable
or beneficial in nature. Shareholders are in no legal sense the
owners of corporate property, which is owned by the
corporation as a distinct legal person. 8
Petitioners' interests are no doubt amply protected in these
cases.
Neither do we lend credence to petitioners' argument that
they are more interested in the outcome of the case than the
corporation-assignee, owing to the fact that the latter is willing
to compromise with widow-respondent and since a
compromise involves the giving of reciprocal concessions, the
only conceivable concession the corporation may give is a total
or partial relinquishment of the corporate assets. 10
Such claim all the more bolsters the contingent nature of
petitioners' interest in the subject of litigation.

22
The factual findings of the trial court are clear on this point.
The petitioners cannot claim the right to intervene on the
strength of the transfer of shares allegedly executed by the late
Senator. The corporation did not keep books and
records. 11 Perforce, no transfer was ever recorded, much less
effected as to prejudice third parties. The transfer must be
registered in the books of the corporation to affect third
persons. The law on corporations is explicit. Section 63 of the
Corporation Code provides, thus: "No transfer, however, shall
be valid, except as between the parties, until the transfer is
recorded in the books of the corporation showing the names of
the parties to the transaction, the date of the transfer, the
number of the certificate or certificates and the number of
shares transferred."
And even assuming arguendo that there was a valid transfer,
petitioners are nonetheless barred from intervening inasmuch
as their rights can be ventilated and amply protected in
another proceeding.
WHEREFORE, the instant petition is hereby DENIED. Costs
against petitioners.
SO ORDERED.
G.R. No. 82797 February 27, 1991
GOOD EARTH EMPORIUM INC., and LIM KA
PING, petitioners, vs. HONORABLE COURT OF APPEALS and
ROCES-REYES REALTY INC., respondents.
A Lease Contract was entered into by and between ROCESREYES REALTY, INC., as lessor, and GOOD EARTH EMPORIUM,
INC., as lessee, for a term of three years at a monthly rental of
P65,000.00. The building which was the subject of the contract
of lease is a five-storey building located at the corner of Rizal
Avenue and Bustos Street in Sta. Cruz, Manila.
From March 1983, up to the time the complaint was filed, the
lessee had defaulted in the payment of rentals, as a
consequence of which, private respondent ROCES-REYES
REALTY, INC., (hereinafter designated as ROCES for brevity)
filed an ejectment case (Unlawful Detainer) against herein
petitioners, GOOD EARTH EMPORIUM, INC. and LIM KA PING,
hereinafter designated as GEE. After the latter had tendered
their responsive pleading, the lower court rendered judgment
on the ordering defendants (herein petitioners) and all persons
claiming title under him to vacate the premises and surrender
the same to the plaintiffs (herein respondents)
Regional Trial Court of Manila, finding that the amount of P1
million evidenced by Exhibit "I" and another P1 million
evidenced by the pacto de retro sale instrument (Exhibit "2")
were in full satisfaction of the judgment obligation, reversed
the decision of the Municipal Trial Court, the dispositive
portion of which reads:
Premises considered, judgment is hereby rendered reversing
the Resolution appealed from quashing the writ of execution
and ordering the cancellation of the notice of levy and
declaring the judgment debt as having been fully paid and/or
Liquidated. (Rollo, p. 29).

On further appeal, the Court of Appeals reversed the decision

of the Regional Trial Court and reinstated the Resolution of the
Metropolitan Trial Court of Manila.
The main issue in this case is whether or not there was full
satisfaction of the judgment debt in favor of respondent
corporation which would justify the quashing of the Writ of
Execution.
Article 1240 of the Civil Code of the Philippines provides that:
Payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in interest, or
any person authorized to receive it.
In the case at bar, the supposed payments were not made to
Roces-Reyes Realty, Inc. or to its successor in interest nor is
there positive evidence that the payment was made to a
person authorized to receive it. No such proof was submitted
but merely inferred by the Regional Trial Court (Rollo, p. 25)
from Marcos Roces having signed the Lease Contract as
President which was witnessed by Jesus Marcos Roces. The
latter, however, was no longer President or even an officer of
Roces-Reyes Realty, Inc. at the time he received the money
(Exhibit "1") and signed the sale with pacto de retro (Exhibit
"2"). He, in fact, denied being in possession of authority to
receive payment for the respondent corporation nor does the
receipt show that he signed in the same capacity as he did in
the Lease Contract at a time when he was President for
respondent corporation (Rollo, p. 20, MTC decision).
On the other hand, Jesus Marcos Roces testified that the
amount of P1 million evidenced by the receipt (Exhibit "1") is
the payment for a loan extended by him and Marcos Roces in
favor of Lim Ka Ping. The assertion is home by the receipt itself
whereby they acknowledged payment of the loan in their
names and in no other capacity.
A corporation has a personality distinct and separate from its
individual stockholders or members. Being an officer or
stockholder of a corporation does not make one's property also
of the corporation, and vice-versa, for they are separate
entities). Shareowners are in no legal sense the owners of
corporate property (or credits) which is owned by the
corporation as a distinct legal person. As a consequence of the
separate juridical personality of a corporation, the corporate
debt or credit is not the debt or credit of the stockholder, nor is
the stockholder's debt or credit that of the corporation
The absence of a note to evidence the loan is explained by
Jesus Marcos Roces who testified that the IOU was
subsequently delivered to private respondents (Rollo, pp. 9798). Contrary to the Regional Trial Court's premise that it was
incumbent upon respondent corporation to prove that the
amount was delivered to the Roces brothers in the payment of
the loan in the latter's favor, the delivery of the amount to and
the receipt thereof by the Roces brothers in their names raises
the presumption that the said amount was due to them. There
is a disputable presumption that money paid by one to the
other was due to the latter (Sec. 5(f) Rule 131, Rules of Court).
It is for GEE and Lim Ka Ping to prove otherwise. In other

23
words, it is for the latter to prove that the payments made
were for the satisfaction of their judgment debt and not vice
versa.
The fact that at the time payment was made to the two Roces
brothers, GEE was also indebted to respondent corporation for
a larger amount, is not supportive of the Regional Trial Court's
conclusions that the payment was in favor of the latter,
especially in the case at bar where the amount was not
receipted for by respondent corporation and there is
absolutely no indication in the receipt from which it can be
reasonably inferred, that said payment was in satisfaction of
the judgment debt. Likewise, no such inference can be made
from the execution of the pacto de retro sale which was not
made in favor of respondent corporation but in favor of the
two Roces brothers in their individual capacities without any
reference to the judgment obligation in favor of respondent
corporation.
In addition, the totality of the amount covered by the receipt
(Exhibit "1/A") and that of the sale with pacto de retro(Exhibit
"2/B") all in the sum of P2 million, far exceeds petitioners'
judgment obligation in favor of respondent corporation in the
sum of P1,560,000.00 by P440,000.00, which militates against
the claim of petitioner that the aforesaid amount (P2M) was in
full payment of the judgment obligation.
Petitioners' explanation that the excess is interest and advance
rentals for an extension of the lease contract (Rollo, pp. 25-28)
is belied by the absence of any interest awarded in the case
and of any agreement as to the extension of the lease nor was
there any such pretense in the Motion to Quash the Alias Writ
of Execution.
Petitioners' averments that the respondent court had gravely
abused its discretion in arriving at the assailed factual findings
as contrary to the evidence and applicable decisions of this
Honorable Court are therefore, patently unfounded.
Respondent court was correct in stating that it "cannot go
beyond what appears in the documents submitted by
petitioners themselves (Exhibits "1" and "2") in the absence of
clear and convincing evidence" that would support its claim
that the judgment obligation has indeed been fully satisfied
which would warrant the quashal of the Alias Writ of
Execution.
It has been an established rule that when the existence of a
debt is fully established by the evidence (which has been done
in this case), the burden of proving that it has been
extinguished by payment devolves upon the debtor who offers
such a defense to the claim of the plaintiff creditor (herein
respondent corporation)). For indeed, it is well-entrenched in
Our jurisprudence that each party in a case must prove his own
affirmative allegations by the degree of evidence required by
law
The appellate court cannot, therefore, be said to have gravely
abused its discretion in finding lack of convincing and reliable
evidence to establish payment of the judgment obligation as
claimed by petitioner. The burden of evidence resting on the

petitioners to establish the facts upon which their action is

premised has not been satisfactorily discharged and therefore,
they have to bear the consequences.
PREMISES CONSIDERED, the petition is hereby DENIED and the
Decision of the Respondent court is hereby AFFIRMED,
reinstating the April 8, 1985 Resolution of the Metropolitan
Trial Court of Manila.
SO ORDERED.
G.R. No. L-57767 January 31, 1984
ALBERTO S. SUNIO and ILOCOS COMMERCIAL
CORPORATION, petitioners, vs. NATIONAL LABOR RELATIONS
COMMISSION, NEMESIO VALENTON, SANTOS DEL ROSARIO,
VICENTE TAPUCOL, ANDRES SOLIS, CRESCENCIO SOLLER,
CECILIO LABUNI, SOTERO L. TUMANG, in his capacity as Asst.
Regional Director for Arbitration, Regional Office No. 1,
Ministry of Labor & Employment, and AMBROSIO B. SISON, in
his capacity as Acting Regional Sheriff, Regional Office No. 1,
Ministry of Labor & Employment, respondents.
EM Ramos & Company, Inc. (EMRACO for brevity) and Cabugao
Ice Plant, Inc. (CIPI for short), sister corporations, sold an ice
plant to Rizal Development and Finance Corporation RDFC with
a mortgage on the same properties constituted by the latter in
favor of the former to secure the payment of the balance of
the purchase price.
By virtue of that sale, EMRACO-CIPI terminated the services of
all their employees including private respondents herein, and
paid them their separation pay. RDFC hired its own employees
and operated the plant.
RDFC sold the ice plant to petitioner Ilocos Commercial
Corporation ICC headed by its President and General Manager,
petitioner Alberto S. Sunio. Petitioners also hired their own
employees as private respondents were no longer in the plant.
The sale was subject to the mortgage in favor of EMRACO-CIPI.
Both RDFC-ICC failed to pay the balance of the purchase price,
as a consequence of which, EMRACO-CIPI instituted
extrajudicial foreclosure proceedings. The properties were sold
at public auction, the highest bidders being EMRACO CIPI. On
the same date, EMRACO-CIPI sold the ice plant to Nilo
Villanueva, suspect to the right of redemption of RDFC. Nilo
Villanueva then re-hired private respondents.
RDFC redeemed the ice plant. Because of the gate to Nilo
Villanueva, EMRACO-CIPI were unable to turn over possession
to RDFC and/or petitioners, prompting the latter to file a
complaint for recovery of possession against EMRACO-CIPI with
the then Court of First Instance of Ilocos Sur (Civil Case No. 81KC). Nilo Villanueva intervened
They raise as lone issue:
That respondent National Labor Relations Commission and/or
Asst. Regional Director Sotero Tumang acted in excess of
jurisdiction and/or with grave abuse of discretion amounting to
lack of jurisdiction in rendering the decision and the resolution
in NLRC Case and in ordering the execution of said decision.

24
We issued a Temporary Restraining Order to maintain the
status quo, resolved to give due course to the Petition, and
required the parties to submit their respective Briefs. Only
petitioners have complied.
Did public respondents' act with grave abuse of on amounting
to lack of jurisdiction in ordering the reinstatement of private
respondents and the payment of their backwages?
Petitioners deny any employer-employee relationship with
private respondents arguing that no privity of contract exists
between them, the latter being the employees of Nilo
Villanueva who re-hired them when he took over the operation
of the ice plant from CIPI
We sustain petitioners.
It is true that the sale of a business of a going concern does
not ipso facto terminate the employer-employee relations
insofar as the successor-employer is concerned, and that
change of ownership or management of an establishment or
company is not one of the just causes provided by law for
termination of employment. The situation here, however, was
not one of simple change of ownership. Of note is the fact that
when EMRACO-CIPI sold the plant to RDFC, CIPI had
terminated the services of its employees, including herein
private respondents, giving them their separation pay which
they had accepted. When RDFC took over ownership and
management, therefore, it hired its own employees, not the
private respondents, who were no longer there. RDFC
subsequently sold the property to petitioners on. But by reason
of their failure to pay the balance of the purchase price,
EMRACO-CIPI foreclosed on the mortgage over the ice plant;
the property was sold at public auction to EMRACO-CIPI as the
highest bidders, and they eventually re-possessed the plant.
During all the period that RDFC and petitioners were operating
the plant, they had their own employees. CIPI-EMRACO then
sold the plant to Nilo Villanueva, subject to RDFC's right of
redemption. Nilo Villanueva then rehired private respondents
as employees of the plant, also in 1974.
In 1975, RDFC redeemed the property and demanded
possession but EMRACO-CIPI and Nilo Villanueva resisted so
that petitioners were compelled to sue for recovery of
possession, obtaining it, however, only in 1978.
Under those circumstances, it cannot be justifiably said that
the plant together with its staff and personnel moved from one
ownership to another. No succession of employment rights and
obligations can be said to have taken place between EMRACOCIPI-Nilo Villanueva, on the one hand, and petitioners on the
other. Petitioners eventually acquired possession by virtue of
the exercise of their right of redemption and of a Mandatory
Injunction in their favor which ordered Nilo Villanueva and
"any person found in the premises" to vacate. What is more,
when EMRACO-CIPI sold the ice plant to RDFC in 1973, private
respondents' employment was terminated by EMRACO-CIPI
and they were given their separation pay, which they accepted.
During the thirteen months, therefore, that RDFC and
petitioners were in possession and operating the plant, they

hired their own employees, not the private respondents. In

fact, it may even be said that private respondents had slept on
their rights when they failed to contest such termination at the
time of sale, if they believed they had rights to protect.
Further, Nilo Villanueva rehired private respondents in August,
1974, subject to a resolutory condition. That condition having
arisen, the rights of private respondents who claim under him
must be deemed to have also ceased.
Private respondents can neither successfully invoke security of
tenure in their favor. Their tenure should not be reckoned from
1967 because they were already terminated in 1973. Private
respondents were only rehired in 1974 by Nilo Villanueva.
Petitioners took over by judicial process in 1978 so that private
respondents had actually only four years of rehired
employment with Nilo Villanueva, during all of which period,
petitioners fought hard against Nilo Villanueva to recover
possession of the plant. Insofar as petitioners are concerned
therefore, there was no tenurial security to speak of that would
entitle private respondents to reinstatement and backwages.
We come now to the personal liability of petitioner, Sunio, who
was made jointly and severally responsible with petitioner
company and CIPI for the payment of the backwages of private
respondents. This is reversible error. The Assistant Regional
Director's Decision failed to disclose the reason why he was
made personally liable. Respondents, however, alleged as
grounds thereof, his being the owner of one-half (1/2) interest
of said corporation, and his alleged arbitrary dismissal of
private respondents. Petitioner Sunio was impleaded in the
Complaint his capacity as General Manager of petitioner
corporation. where appears to be no evidence on record that
he acted maliciously or in bad faith in terminating the services
of private respondents. His act, therefore, was within the scope
of his authority and was a corporate act.
It is basic that a corporation is invested by law with a
personality separate and distinct from those of the persons
composing it as well as from that of any other legal entity to
which it may be related. 4 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. 5 Petitioner Sunio, therefore, should not have been
made personally answerable for the payment of private
respondents' back salaries.
WHEREFORE, the assailed Decision and Resolution, dated
November 5, 1979 and March 24, 1981, respectively, and the
consequent Writ of Execution are hereby SET ASIDE and the
Temporary Restraining Order heretofore issued by this Court
hereby made permanent. Public respondents are hereby
ordered to return to petitioners the latter's levied properties in
their possession. No costs.
SO ORDERED.
G.R. No. L-36187 January 17, 1989

25
REYNOLDS PHILIPPINE CORPORATION, petitioner, vs.HON.
COURT OF APPEALS and SERG'S PRODUCTS,
INC., respondents.
Petitioner sought to recover from the private respondent
Serg's Products, Inc. representing the unpaid price of aluminum
foils and cores sold and delivered by it to the latter.
The private respondent denied liability for payment of the
account on the ground that the aluminum foils and cores were
ordered or purchased by Serg's Chocolate Products, a
partnership of Antonio Goquiolay and Luis Sequia Mendoza,
not Serg's Products, Inc., a corporation managed and
controlled by Antonio Goquiolay and his wife Conchita
Goquiolay, as majority stockholders and principal officers.
Trial court rendered judgment finding the private respondent
liable.
Upon private respondent's appeal to the Court of Appeals, that
court reversed the trial court and dismissed the complaint on
the ground that petitioner had no cause of action against Serg's
Products, Inc. (
Issue: Who is the real debtor of the petitioner? Is it the
partnership of Goquiolay and Mendoza, doing business under
the trade name of "Serg's Chocolate Products,' or the
respondent corporation, Serg's Products, Inc.?
Based on the testimony of the witnesses, the trial court held
the corporation, "Serg's Products, Inc.," liable as the real buyer
and user of the aluminum foils and cores. However, the Court
of Appeals relied on the sales orders, delivery receipts,
statements of account and demand letters where the
purchaser named was "Serg's Chocolate Products," the
partnership.
In this case, the trial court which heard the witnesses testify,
hence was in a superior position to assess the probative worth
of their evidence, found that although the commercial
documents were indeed in the name of "Serg's Chocolate
Products," the following facts proved that the true purchaser of
the aluminum foils and cores from the petitioner, was "Serg's
Products, Inc." not the partnership denominated "Serg's
Chocolate Products:"
(1) The rolls of aluminum foil were ordered and signed for by
Antonio Goquiolay president of Serg's Products, Inc. They were
delivered to, accepted, and used by said corporation in its
chocolate factory at Cainta, Rizal (p. 47,Rollo; p. 8, Brief for
plaintiff-appellee);
(2) Antonio Goquiolay did not appear in court to shed light on
whether he signed the purchase orders and delivery receipts as
managing partner of "Serg's Chocolate Products," or as
president and general manager of "Serg's Products, Inc." Jesus
V. Toledo, the Chief Accountant of Serg's Products, Inc.,
admitted, however, that "we (Serg's products, Inc.) are buying
from them (Reynolds) the aluminum foil."
(3) The error in Identifying the customer as 'Serg's Chocolate
Products," instead of Serg's Products, Inc." in the sales orders,
delivery receipts and invoices was caused by Antonio
Goquiolay himself who placed the orders;

(4) The trial court noted that "Serg's Products, Inc." "acted in
such a manner that third persons dealing with it were led to
believe that 'Serg's Products, Inc.' and 'Serg's Chocolate
Products' were one and the same party. Serg's Products, Inc.
has its address at 109 Cordillera St., Quezon City, which is also
the address of Serg's Chocolate Products (see Exhibit 'NN'), and
the managing partner of the partnership doing business under
the name 'Serg's Chocolate Products is Antonio Goquiolay who
is also the manager of Serg's Products Inc." (p. 46, Rollo; p. 82,
Record on Appeal.)
(5) Serg's Chocolate Products ceased to exist in 1959 for under
the partnership Agreement between Goquiolay and Mendoza
(Exh. "2") the partnership which they formed on March 17,
1954 had a term of five (5) years, or up to 1959 only. While
that term was renewable for the same period upon agreement
of the parties, no evidence was adduced that it was renewed
after it expired in 1959. Having ceased to exist since 1959, the
partnership has no more juridical personality nor capacity to
sue and be sued. "Serg's Chocolate Products" is nothing but a
name now which the manager of Serg's Products, Inc. appears
to have used to confuse, deceive, and delay, if not completely
evade, the payment of the corporation's just debt to the
petitioner.
Those important facts were overlooked by the Court of
Appeals.
In La Campana Coffee Factory, Inc. vs. Kaisahan ng mga
Manggagawa sa La Campana, 93 Phil. 160, where a somewhat
similar situation existed as in this case, We ruled:
The attempt to make the two factories appear as two separate
businesses, when in reality they are but one, is but a devise to
defeat the ends of the law and should not be permitted to
prevail. Although the coffee factory is a corporation and, by
legal fiction, an entity existing separate and apart from persons
composing it, T and his family, it is settled that this fiction of
law, which had been introduced as a matter of convenience
and to subserve the ends of justice cannot be invoked to
further an end subversive of that purpose. Similarly, apropos is
the decision of this Court in Telephone Engineering & Service
Company, Inc. vs. Workmen's Compensation Commission, et
al., 104 SCRA 354, where We held:
Petitioner admitted that TESCO and UMACOR are sister
companies operating under one single management and based
in the same building. Although respect for corporate
personality as such, is the general rule, there are exceptions. In
appropriate cases, the veil of corporate fiction may be pierced
as when the same is made as a shield to confuse legitimate
issues.
WHEREFORE, the petition for review is granted. The decision of
the Court of Appeals is reversed and set aside and that of the
trial court is reinstated. Costs against the private respondent
Serg's Products, Inc.
SO ORDERED.