Sarona vs. NLRC, G.R. No.
185280, January 18, 2012 form, which was handed to him by Royales General
This is a petition for review under Rule 45 of the Rules of
Court from the May 29, 2008 Decision1 of the Twentieth
Division of the Court of Appeals (CA) in CA-G.R. SP No.
02127 entitled "Timoteo H. Sarona v. National Labor
Relations Commission, Royale Security Agency (formerly
Sceptre Security Agency) and Cesar S. Tan" (Assailed
Decision), which affirmed the National Labor Relations
Commissions (NLRC) November 30, 2005 Decision and
January 31, 2006 Resolution, finding the petitioner illegally
dismissed but limiting the amount of his backwages to three
(3) monthly salaries. The CA likewise affirmed the NLRCs
finding that the petitioners separation pay should be
computed only on the basis of his length of service with
respondent Royale Security Agency (Royale). The CA held
that absent any showing that Royale is a mere alter ego of
Sceptre Security Agency (Sceptre), Royale cannot be
compelled to recognize the petitioners tenure with Sceptre.
The dispositive portion of the CAs Assailed Decision states:
WHEREFORE, in view of the foregoing, the instant petition
is PARTLY GRANTED, though piercing of the corporate veil
is hereby denied for lack of merit. Accordingly, the assailed
Decision and Resolution of the NLRC respectively dated
November 30, 2005 and January 31, 2006 are
hereby AFFIRMED as to the monetary awards.
SO ORDERED. 2
Factual Antecedents
On June 20, 2003, the petitioner, who was hired by Sceptre
as a security guard sometime in April 1976, was asked by
Karen Therese Tan (Karen), Sceptres Operation Manager, to
submit a resignation letter as the same was supposedly
required for applying for a position at Royale. The petitioner
was also asked to fill up Royales employment application
Manager, respondent Cesar Antonio Tan II (Cesar).3
After several weeks of being in floating status, Royales
Security Officer, Martin Gono (Martin), assigned the
petitioner at Highlight Metal Craft, Inc. (Highlight Metal)
from July 29, 2003 to August 8, 2003. Thereafter, the
petitioner was transferred and assigned to Wide Wide World
Express, Inc. (WWWE, Inc.). During his assignment at
Highlight Metal, the petitioner used the patches and agency
cloths of Sceptre and it was only
when he was posted at WWWE, Inc. that he started using
those of Royale.4
On September 17, 2003, the petitioner was informed that
his assignment at WWWE, Inc. had been withdrawn because
Royale had allegedly been replaced by another security
agency. The petitioner, however, shortly discovered
thereafter that Royale was never replaced as WWWE, Inc.s
security agency. When he placed a call at WWWE, Inc., he
learned that his fellow security guard was not relieved from
his post.5
On September 21, 2003, the petitioner was once again
assigned at Highlight Metal, albeit for a short period from
September 22, 2003 to September 30, 2003. Subsequently,
when the petitioner reported at Royales office on October 1,
2003, Martin informed him that he would no longer be given
any assignment per the instructions of Aida Sabalones-Tan
(Aida), general manager of Sceptre. This prompted him to
file a complaint for illegal dismissal on October 4, 2003. 6
In his May 11, 2005 Decision, Labor Arbiter Jose Gutierrez
(LA Gutierrez) ruled in the petitioners favor and found him
illegally dismissed. For being unsubstantiated, LA Gutierrez
denied credence to the respondents claim that the
termination of the petitioners employment relationship with
Royale was on his accord following his alleged employment
in another company. That the petitioner was no longer
interested in being an employee of Royale cannot be
presumed from his request for a certificate of employment,
a claim which, to begin with, he vehemently denies.
Allegation of the petitioners abandonment is negated by his
filing of a complaint for illegal dismissal three (3) days after
he was informed that he would no longer be given any
assignments. LA Gutierrez ruled:
In short, respondent wanted to impress before us that
complainant abandoned his employment. We are not
however, convinced.
There is abandonment when there is a clear proof showing
that one has no more interest to return to work. In this
instant case, the record has no proof to such effect. In a long
line of decisions, the Supreme Court ruled:
"Abandonment of position is a matter of intention
expressed in clearly certain and unequivocal acts,
however, an interim employment does not mean
abandonment." (Jardine Davis, Inc. vs. NLRC, 225
SCRA 757).
"In abandonment, there must be a concurrence of the
intention to abandon and some overt acts from which
an employee may be declared as having no more
interest to work." (C. Alcontin & Sons, Inc. vs. NLRC,
229 SCRA 109).
"It is clear, deliberate and unjustified refusal to
severe employment and not mere absence that is
required to constitute abandonment." x x x" (De
Ysasi III vs. NLRC, 231 SCRA 173).
Aside from lack of proof showing that complainant has
abandoned his employment, the record would show that
immediate action was taken in order to protest his dismissal
from employment. He filed a complaint [for] illegal dismissal
on October 4, 2004 or three (3) days after he was dismissed.
This act, as declared by the Supreme Court is inconsistent
with abandonment, as held in the case of Pampanga Sugar
Development Co., Inc. vs. NLRC, 272 SCRA 737 where the
Supreme Court ruled:
"The immediate filing of a complaint for [i]llegal
[d]ismissal by an employee is inconsistent with
abandonment."7
The respondents were ordered to pay the petitioner
backwages, which LA Gutierrez computed from the day he
was dismissed, or on October 1, 2003, up to the
promulgation of his Decision on May 11, 2005. In lieu of
reinstatement, the respondents were ordered to pay the
petitioner separation pay equivalent to his one (1) month
salary in consideration of his tenure with Royale, which
lasted for only one (1) month and three (3) days. In this
regard, LA Gutierrez refused to pierce Royales corporate
veil for purposes of factoring the petitioners length of
service with Sceptre in the computation of his separation
pay. LA Gutierrez ruled that Royales corporate personality,
which is separate and distinct from that of Sceptre, a sole
proprietorship owned by the late Roso Sabalones (Roso) and
later, Aida, cannot be pierced absent clear and convincing
evidence that Sceptre and Royale share the same
stockholders and incorporators and that Sceptre has
complete control and dominion over the finances and
business affairs of Royale. Specifically:
To support its prayer of piercing the veil of corporate entity
of respondent Royale, complainant avers that respondent
Royal (sic) was using the very same office of SCEPTRE in C.
Padilla St., Cebu City. In addition, all officers and staff of
SCEPTRE are now the same officers and staff of ROYALE,
that all [the] properties of SCEPTRE are now being owned by
ROYALE and that ROYALE is now occupying the property of
SCEPTRE. We are not however, persuaded.
It should be pointed out at this juncture that SCEPTRE, is a employed by respondent Royale Security Agency were the
single proprietorship. Being so, it has no distinct and same officers and staff employed by "SCEPTRE." We find,
separate personality. It is owned by the late Roso T. however, that these facts are not sufficient to justify to
Sabalones. After the death of the owner, the property is require respondent Royale to answer for the liability of
supposed to be divided by the heirs and any claim against Sceptre, which was owned solely by the late Roso T.
the sole proprietorship is a claim against Roso T. Sabalones. Sabalones. As we have stated above, the remedy is to
After his death, the claims should be instituted against the address the claim on the estate of Roso T. Sabalones.8
estate of Roso T. Sabalones. In short, the estate of the late
Roso T. Sabalones should have been impleaded as The respondents appealed LA Gutierrezs May 11, 2005
respondent of this case. Decision to the NLRC, claiming that the finding of illegal
dismissal was attended with grave abuse of discretion. This
Complainant wanted to impress upon us that Sceptre was appeal was, however, dismissed by the NLRC in its
organized into another entity now called Royale Security November 30, 2005 Decision,9 the dispositive portion of
Agency. There is however, no proof to this assertion. which states:
Likewise, there is no proof that Roso T. Sabalones, organized
his single proprietorship business into a corporation, Royale WHEREFORE, premises considered, the Decision of the
Security Agency. On the contrary, the name of Roso T. Labor Arbiter declaring the illegal dismissal of complainant
Sabalones does not appear in the Articles of Incorporation. is hereby AFFIRMED.
The names therein as incorporators are:
However[,] We modify the monetary award by limiting the
Bruno M. Kuizon - [P]150,000.00 grant of backwages to only three (3) months in view of
complainants very limited service which lasted only for one
Wilfredo K. Tan - 100,000.00 month and three days.
Karen Therese S. Tan - 100,000.00
1. Backwages - [P]15,600.00
Cesar Antonio S. Tan - 100,000.00
2. Separation Pay - 5,200.00
Gabeth Maria K. Tan - 50,000.00
3. 13th Month Pay - 583.34
Complainant claims that two (2) of the incorporators are the [P]21,383.34 Attorney's Fees - 2,138.33
granddaughters of Roso T. Sabalones. This fact even give
(sic) us further reason to conclude that respondent Royal Total [P]23,521.67
(sic) Security Agency is not an alter ego or conduit of
SCEPTRE. It is obvious that respondent Royal (sic) Security The appeal of respondent Royal (sic) Security Agency is
Agency is not owned by the owner of "SCEPTRE". hereby DISMISSED for lack of merit.

It may be true that the place where respondent Royale hold SO ORDERED.10
(sic) office is the same office formerly used by "SCEPTRE."
Likewise, it may be true that the same officers and staff now
The NLRC partially affirmed LA Gutierrezs May 11, 2005
Decision. It concurred with the latters finding that the
petitioner was illegally dismissed and the manner by which
his separation pay was computed, but modified the
monetary award in the petitioners favor by reducing the
amount of his backwages from P95,600.00 to P15,600.00.
The NLRC determined the petitioners backwages as limited
to three (3) months of his last monthly salary, considering
that his employment with Royale was only for a period for
one (1) month and three (3) days, thus:11
On the other hand, while complainant is entitled to
backwages, We are aware that his stint with respondent
Royal (sic) lasted only for one (1) month and three (3) days
such that it is Our considered view that his backwages
should be limited to only three (3) months.
Backwages:
[P]5,200.00 x 3 months = [P]15,600.0012
The petitioner, on the other hand, did not appeal LA
Gutierrezs May 11, 2005 Decision but opted to raise the
validity of LA Gutierrezs adverse findings with respect to
piercing Royales corporate personality and computation of
his separation pay in his Reply to the respondents
Memorandum of Appeal. As the filing of an appeal is the
prescribed remedy and no aspect of the decision can be
overturned by a mere reply, the NLRC dismissed the
petitioners efforts to reverse LA Gutierrezs disposition of
these issues. Effectively, the petitioner had already waived
his right to question LA Gutierrezs Decision when he failed
to file an appeal within the reglementary period. The NLRC
held:
On the other hand, in complainants Reply to Respondents
Appeal Memorandum he prayed that the doctrine of piercing
the veil of corporate fiction of respondent be applied so that
his services with Sceptre since 1976 [will not] be deleted. If
complainant assails this particular finding in the Labor
Arbiters Decision, complainant should have filed an appeal
and not seek a relief by merely filing a Reply to
Respondents Appeal Memorandum.13
Consequently, the petitioner elevated the NLRCs November
30, 2005 Decision to the CA by way of a Petition
for Certiorari under Rule 65 of the Rules of Court. On the
other hand, the respondents filed no appeal from the NLRCs
finding that the petitioner was illegally dismissed.
The CA, in consideration of substantial justice and the
jurisprudential dictum that an appealed case is thrown open
for the appellate courts review, disagreed with the NLRC
and proceeded to review the evidence on record to
determine if Royale is Sceptres alter ego that would warrant
the piercing of its corporate veil.14 According to the CA,
errors not assigned on appeal may be reviewed as
technicalities should not serve as bar to the full adjudication
of cases. Thus:
In Cuyco v. Cuyco, which We find application in the instant
case, the Supreme Court held:
"In their Reply, petitioners alleged that their petition only
raised the sole issue of interest on the interest due, thus, by
not filing their own petition for review, respondents waived
their privilege to bring matters for the Courts review that
[does] not deal with the sole issue raised.
Procedurally, the appellate court in deciding the case shall
consider only the assigned errors, however, it is equally
settled that the Court is clothed with ample authority to
review matters not assigned as errors in an appeal, if it finds
that their consideration is necessary to arrive at a just
disposition of the case."
Therefore, for full adjudication of the case, We have to
primarily resolve the issue of whether the doctrine of
piercing the corporate veil be justly applied in order to
determine petitioners length of service with private
respondents.15 (citations omitted)
Nonetheless, the CA ruled against the petitioner and found
the evidence he submitted to support his allegation that
Royale and Sceptre are one and the same juridical entity to
be wanting. The CA refused to pierce Royales corporate
mask as one of the "probative factors that would justify the
application of the doctrine of piercing the corporate veil is
stock ownership by one or common ownership of both
corporations" and the petitioner failed to present clear and
convincing proof that Royale and Sceptre are commonly
owned or controlled. The relevant portions of the CAs
Decision state:
In the instant case, We find no evidence to show that Royale
Security Agency, Inc. (hereinafter "Royale"), a corporation
duly registered with the Securities and Exchange
Commission (SEC) and Sceptre Security Agency (hereinafter
"Sceptre"), a single proprietorship, are one and the same
entity.
Petitioner, who has been with Sceptre since 1976 and, as
ruled by both the Labor Arbiter and the NLRC, was illegally
dismissed by Royale on October 1, 2003, alleged that in
order to circumvent labor laws, especially to avoid payment
of money claims and the consideration on the length of
service of its employees, Royale was established as an alter
ego or business conduit of Sceptre. To prove his claim,
petitioner declared that Royale is conducting business in the
same office of Sceptre, the latter being owned by the late
retired Gen. Roso Sabalones, and was managed by the
latters daughter, Dr. Aida Sabalones-Tan; that two of
Royales incorporators are grandchildren [of] the late Gen.
Roso Sabalones; that all the properties of Sceptre are now
owned by Royale, and that the officers and staff of both
business establishments are the same; that the heirs of Gen.
Sabalones should have applied for dissolution of Sceptre
before the SEC before forming a new corporation.
On the other hand, private respondents declared that Royale
was incorporated only on March 10, 2003 as evidenced by
the Certificate of Incorporation issued by the SEC on the
same date; that Royales incorporators are Bruino M. Kuizon,
Wilfredo Gracia K. Tan, Karen Therese S. Tan, Cesar Antonio
S. Tan II and [Gabeth] Maria K. Tan.
Settled is the tenet that allegations in the complaint must
be duly proven by competent evidence and the burden of
proof is on the party making the allegation. Further, Section
1 of Rule 131 of the Revised Rules of Court provides:
"SECTION 1. Burden of proof. Burden of proof is the duty
of a party to present evidence on the facts in issue
necessary to establish his claim or defense by the amount
of evidence required by law."
We believe that petitioner did not discharge the required
burden of proof to establish his allegations. As We see it,
petitioners claim that Royale is an alter ego or business
conduit of Sceptre is without basis because aside from the
fact that there is no common ownership of both Royale and
Sceptre, no evidence on record would prove that Sceptre,
much less the late retired Gen. Roso Sabalones or his heirs,
has control or complete domination of Royales finances and
business transactions. Absence of this first element, coupled
by petitioners failure to present clear and convincing
evidence to substantiate his allegations, would prevent
piercing of the corporate veil. Allegations must be proven by
sufficient evidence. Simply stated, he who alleges a fact has
the burden of proving it; mere allegation is not
evidence.16 (citations omitted)
By way of this Petition, the petitioner would like this Court to
revisit the computation of his backwages, claiming that the
same should be computed from the time he was illegally
dismissed until the finality of this decision. 17 The petitioner
would likewise have this Court review and examine anew
the factual allegations and the supporting evidence to
determine if the CA erred in its refusal to pierce Royales
corporate mask and rule that it is but a mere continuation or
successor of Sceptre. According to the petitioner, the
erroneous computation of his separation pay was due to the
CAs failure, as well as the NLRC and LA Gutierrez, to
consider evidence conclusively demonstrating that Royale
and Sceptre are one and the same juridical entity. The
petitioner claims that since Royale is no more than Sceptres
alter ego, it should recognize and credit his length of service
with Sceptre.18
The petitioner claimed that Royale and Sceptre are not
separate legal persons for purposes of computing the
amount of his separation pay and other benefits under the
Labor Code. The piercing of Royales corporate personality is
justified by several indicators that Royale was incorporated
for the sole purpose of defeating his right to security of
tenure and circumvent payment of his benefits to which he
is entitled under the law: (i) Royale was holding office in the
same property used by Sceptre as its principal place of
business;19 (ii) Sceptre and Royal have the same officers and
employees;20 (iii) on October 14, 1994, Roso, the sole
proprietor of Sceptre, sold to Aida, and her husband,
Wilfredo Gracia K. Tan (Wilfredo),21 the property used by
Sceptre as its principal place of business;22 (iv) Wilfredo is
one of the incorporators of Royale;23 (v) on May 3, 1999,
Roso ceded the license to operate Sceptre issued by the
Philippine National Police to Aida; 24 (vi) on July 28, 1999, the
business name "Sceptre Security & Detective Agency" was
registered with the Department of Trade and Industry (DTI)
under the name of Aida;25 (vii) Aida exercised control over
the affairs of Sceptre and Royale, as she was, in fact, the
one who dismissed the petitioner from employment; 26 (viii)
Karen, the daughter of Aida, was Sceptres Operation
Manager and is one of the incorporators of Royale;27 and (ix)
Cesar Tan II, the son of Aida was one of Sceptres officers
and is one of the incorporators of Royale.28
In their Comment, the respondents claim that the petitioner
is barred from questioning the manner by which his
backwages and separation pay were computed. Earlier, the
petitioner moved for the execution of the NLRCs November
30, 2005 Decision29 and the respondents paid him the full
amount of the monetary award thereunder shortly after the
writ of execution was issued.30 The respondents likewise
maintain that Royales separate and distinct corporate
personality should be respected considering that the
evidence presented by the petitioner fell short of
establishing that Royale is a mere alter ego of Sceptre.
The petitioner does not deny that he has received the full
amount of backwages and separation pay as provided under
the NLRCs November 30, 2005 Decision.31 However, he
claims that this does not preclude this Court from modifying
a decision that is tainted with grave abuse of discretion or
issued without jurisdiction.32
ISSUES
Considering the conflicting submissions of the parties, a
judicious determination of their respective rights and
obligations requires this Court to resolve the following
substantive issues:
a. Whether Royales corporate fiction should be
pierced for the purpose of compelling it to recognize
the petitioners length of service with Sceptre and for
holding it liable for the benefits that have accrued to
him arising from his employment with Sceptre; and
b. Whether the petitioners backwages should be
limited to his salary for three (3) months.
 OUR RULING
Because his receipt of the proceeds of the award
under the NLRCs November 30, 2005 Decision is
qualified and without prejudice to the CAs resolution
of his petition for certiorari, the petitioner is not
barred from exercising his right to elevate the
decision of the CA to this Court.
Before this Court proceeds to decide this Petition on its
merits, it is imperative to resolve the respondents
contention that the full satisfaction of the award under the
NLRCs November 30, 2005 Decision bars the petitioner
from questioning the validity thereof. The respondents
submit that they had paid the petitioner the amount
of P21,521.67 as directed by the NLRC and this constitutes a
waiver of his right to file an appeal to this Court.
The respondents fail to convince.
The petitioners receipt of the monetary award adjudicated
by the NLRC is not absolute, unconditional and unqualified.
The petitioners May 3, 2007 Motion for Release contains a
reservation, stating in his prayer that: "it is respectfully
prayed that the respondents and/or Great Domestic
Insurance Co. be ordered to RELEASE/GIVE the amount
of P23,521.67 in favor of the complainant TIMOTEO H.
SARONA without prejudice to the outcome of the petition
with the CA."33
In Leonis Navigation Co., Inc., et al. v. Villamater, et al.,34 this
Court ruled that the prevailing partys receipt of the full
amount of the judgment award pursuant to a writ of
execution issued by the labor arbiter does not close or
terminate the case if such receipt is qualified as without
prejudice to the outcome of the petition
for certiorari pending with the CA.1avvphi1
Simply put, the execution of the final and executory decision
or resolution of the NLRC shall proceed despite the
pendency of a petition for certiorari, unless it is restrained
by the proper court. In the present case, petitioners already
paid Villamaters widow, Sonia, the amount
of P3,649,800.00, representing the total and permanent
disability award plus attorneys fees, pursuant to the Writ of
Execution issued by the Labor Arbiter. Thereafter, an Order
was issued declaring the case as "closed and terminated".
However, although there was no motion for reconsideration
of this last Order, Sonia was, nonetheless, estopped from
claiming that the controversy had already reached its end
with the issuance of the Order closing and terminating the
case. This is because the Acknowledgment Receipt she
signed when she received petitioners payment was without
prejudice to the final outcome of the petition
for certiorari pending before the CA.35
The finality of the NLRCs decision does not preclude the
filing of a petition for certiorari under Rule 65 of the Rules of
Court. That the NLRC issues an entry of judgment after the
lapse of ten (10) days from the parties receipt of its
decision36 will only give rise to the prevailing partys right to
move for the execution thereof but will not prevent the CA
from taking cognizance of a petition for certiorari on
jurisdictional and due process considerations.37 In turn, the
decision rendered by the CA on a petition for certiorari may
be appealed to this Court by way of a petition for review
on certiorari under Rule 45 of the Rules of Court. Under
Section 5, Article VIII of the Constitution, this Court has the
power to "review, revise, reverse, modify, or affirm on
appeal or certiorari as the law or the Rules of Court may
provide, final judgments and orders of lower courts in x x x
all cases in which only an error or question of law is
involved." Consistent with this constitutional mandate, Rule
45 of the Rules of Court provides the remedy of an appeal
by certiorari from decisions, final orders or resolutions of the
CA in any case, i.e., regardless of the nature of the action or
proceedings involved, which would be but a continuation of
the appellate process over the original case.38 Since an
appeal to this Court is not an original and independent
action but a continuation of the proceedings before the CA,
the filing of a petition for review under Rule 45 cannot be
barred by the finality of the NLRCs decision in the same way
that a petition for certiorari under Rule 65 with the CA
cannot.
Furthermore, if the NLRCs decision or resolution was
reversed and set aside for being issued with grave abuse of
discretion by way of a petition for certiorari to the CA or to
this Court by way of an appeal from the decision of the CA,
it is considered void ab initio and, thus, had never become
final and executory.39
A Rule 45 Petition should be confined to questions of
law. Nevertheless, this Court has the power to
resolve a question of fact, such as whether a
corporation is a mere alter ego of another entity or
whether the corporate fiction was invoked for
fraudulent or malevolent ends, if the findings in
assailed decision is not supported by the evidence on
record or based on a misapprehension of facts.
The question of whether one corporation is merely an alter
ego of another is purely one of fact. So is the question of
whether a corporation is a paper company, a sham or
subterfuge or whether the petitioner adduced the requisite
quantum of evidence warranting the piercing of the veil of
the respondents corporate personality.40
As a general rule, this Court is not a trier of facts and a
petition for review on certiorari under Rule 45 of the Rules of
Court must exclusively raise questions of law. Moreover, if
factual findings of the NLRC and the LA have been affirmed
by the CA, this Court accords them the respect and finality
they deserve. It is well-settled and oft-repeated that findings
of fact of administrative agencies and quasi-judicial bodies,
which have acquired expertise because their jurisdiction is
confined to specific matters, are generally accorded not only
respect, but finality when affirmed by the CA. 41
Nevertheless, this Court will not hesitate to deviate from
what are clearly procedural guidelines and disturb and strike
down the findings of the CA and those of the labor tribunals
if there is a showing that they are unsupported by the
evidence on record or there was a patent misappreciation of
facts. Indeed, that the impugned decision of the CA is
consistent with the findings of the labor tribunals does
not per se conclusively demonstrate the correctness thereof.
By way of exception to the general rule, this Court will
scrutinize the facts if only to rectify the prejudice and
injustice resulting from an incorrect assessment of the
evidence presented.
A resolution of an issue that has supposedly become
final and executory as the petitioner only raised it in
his reply to the respondents appeal may be revisited
by the appellate court if such is necessary for a just
disposition of the case.
As above-stated, the NLRC refused to disturb LA Gutierrezs
denial of the petitioners plea to pierce Royales corporate
veil as the petitioner did not appeal any portion of LA
Gutierrezs May 11, 2005 Decision.
In this respect, the NLRC cannot be accused of grave abuse
of discretion. Under Section 4(c), Rule VI of the NLRC
Rules,42 the NLRC shall limit itself to reviewing and deciding
only the issues that were elevated on appeal. The NLRC,
while not totally bound by technical rules of procedure, is
not licensed to disregard and violate the implementing rules
it implemented. 43
Nonetheless, technicalities should not be allowed to stand in
the way of equitably and completely resolving the rights and
obligations of the parties. Technical rules are not binding in
labor cases and are not to be applied strictly if the result
would be detrimental to the working man.44 This Court may
choose not to encumber itself with technicalities and
limitations consequent to procedural rules if such will only
serve as a hindrance to its duty to decide cases judiciously
and in a manner that would put an end with finality to all
existing conflicts between the parties.
Royale is a continuation or successor of Sceptre.
A corporation is an artificial being created by operation of
law. It possesses the right of succession and such powers,
attributes, and properties expressly authorized by law or
incident to its existence. It has a personality separate and
distinct from the persons composing it, as well as from any
other legal entity to which it may be related. This is basic. 45
Equally well-settled is the principle that the corporate mask
may be removed or the corporate veil pierced when the
corporation is just an alter ego of a person or of another
corporation. For reasons of public policy and in the interest
of justice, the corporate veil will justifiably be impaled only
when it becomes a shield for fraud, illegality or inequity
committed against third persons.46
Hence, any application of the doctrine of piercing the
corporate veil should be done with caution. A court should
be mindful of the milieu where it is to be applied. It must be
certain that the corporate fiction was misused to such an
extent that injustice, fraud, or crime was committed against
another, in disregard of rights. The wrongdoing must be
clearly and convincingly established; it cannot be presumed.
Otherwise, an injustice that was never unintended may
result from an erroneous application.47
Whether the separate personality of the corporation should
be pierced hinges on obtaining facts appropriately pleaded
or proved. However, any piercing of the corporate veil has to
be done with caution, albeit the Court will not hesitate to
disregard the corporate veil when it is misused or when
necessary in the interest of justice. After all, the concept of
corporate entity was not meant to promote unfair
objectives.48
The doctrine of piercing the corporate veil applies only in
three (3) basic areas, namely: 1) defeat of public
convenience as when the corporate fiction is used as a
vehicle for the evasion of an existing obligation; 2) fraud
cases or when the corporate entity is used to justify a
wrong, protect fraud, or defend a crime; or 3) alter ego
cases, where a corporation is merely a farce since it is a
mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are
so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation. 49
In this regard, this Court finds cogent reason to reverse the
CAs findings. Evidence abound showing that Royale is a
mere continuation or successor of Sceptre and fraudulent
objectives are behind Royales incorporation and the
petitioners subsequent employment therein. These are
plainly suggested by events that the respondents do not
dispute and which the CA, the NLRC and LA Gutierrez accept
as fully substantiated but misappreciated as insufficient to
warrant the use of the equitable weapon of piercing.
As correctly pointed out by the petitioner, it was Aida who
exercised control and supervision over the affairs of both
Sceptre and Royale. Contrary to the submissions of the
respondents that Roso had been the only one in sole control
of Sceptres finances and business affairs, Aida took over as
early as 1999 when Roso assigned his license to operate
Sceptre on May 3, 1999.50 As further proof of Aidas
acquisition of the rights as Sceptres sole proprietor, she
caused the registration of the business name "Sceptre
Security & Detective Agency" under her name with the DTI a
few months after Roso abdicated his rights to Sceptre in her
favor.51 As far as Royale is concerned, the respondents do
not deny that she has a hand in its management and
operation and possesses control and supervision of its
employees, including the petitioner. As the petitioner
correctly pointed out, that Aida was the one who decided to
stop giving any assignments to the petitioner and summarily
dismiss him is an eloquent testament of the power she
wields insofar as Royales affairs are concerned. The
presence of actual common control coupled with the misuse
of the corporate form to perpetrate oppressive or
manipulative conduct or evade performance of legal
obligations is patent; Royale cannot hide behind its
corporate fiction.
Aidas control over Sceptre and Royale does not, by itself,
call for a disregard of the corporate fiction. There must be a
showing that a fraudulent intent or illegal purpose is behind
the exercise of such control to warrant the piercing of the
corporate veil.52 However, the manner by which the
petitioner was made to resign from Sceptre and how he
became an employee of Royale suggest the perverted use
of the legal fiction of the separate corporate
personality.lavvphil It is undisputed that the petitioner
tendered his resignation and that he applied at Royale at the
instance of Karen and Cesar and on the impression they
created that these were necessary for his continued
employment. They orchestrated the petitioners resignation
from Sceptre and subsequent employment at Royale, taking
advantage of their ascendancy over the petitioner and the
latters lack of knowledge of his rights and the
consequences of his actions. Furthermore, that the
petitioner was made to resign from Sceptre and apply with
Royale only to be unceremoniously terminated shortly
thereafter leads to the ineluctable conclusion that there was
intent to violate the petitioners rights as an employee,
particularly his right to security of tenure. The respondents
scheme reeks of bad faith and fraud and compassionate
justice dictates that Royale and Sceptre be merged as a
single entity, compelling Royale to credit and recognize the
petitioners length of service with Sceptre. The respondents
cannot use the legal fiction of a separate corporate
personality for ends subversive of the policy and purpose
behind its creation53 or which could not have been intended
by law to which it owed its being.54
For the piercing doctrine to apply, it is of no consequence if
Sceptre is a sole proprietorship. As ruled in Prince Transport,
Inc., et al. v. Garcia, et al.,55 it is the act of hiding behind the
separate and distinct personalities of juridical entities to
perpetuate fraud, commit illegal acts, evade ones
obligations that the equitable piercing doctrine was
formulated to address and prevent:
A settled formulation of the doctrine of piercing the
corporate veil is that when two business enterprises are
owned, conducted and controlled by the same parties, both
law and equity will, when necessary to protect the rights of
third parties, disregard the legal fiction that these two
entities are distinct and treat them as identical or as one
and the same. In the present case, it may be true that Lubas
is a single proprietorship and not a corporation. However,
petitioners attempt to isolate themselves from and hide
behind the supposed separate and distinct personality of
Lubas so as to evade their liabilities is precisely what the
classical doctrine of piercing the veil of corporate entity
seeks to prevent and remedy.56
Also, Sceptre and Royale have the same principal place of
business. As early as October 14, 1994, Aida and Wilfredo
became the owners of the property used by Sceptre as its
principal place of business by virtue of a Deed of Absolute
Sale they executed with Roso.57 Royale, shortly after its
incorporation, started to hold office in the same property.
These, the respondents failed to dispute.
The respondents do not likewise deny that Royale and
Sceptre share the same officers and employees. Karen
assumed the dual role of Sceptres Operation Manager and
incorporator of Royale. With respect to the petitioner, even if
he has already resigned from Sceptre and has been
employed by Royale, he was still using the patches and
agency cloths of Sceptre during his assignment at Highlight
Metal.
Royale also claimed a right to the cash bond which the
petitioner posted when he was still with Sceptre. If Sceptre
and Royale are indeed separate entities, Sceptre should
have released the petitioners cash bond when he resigned
and Royale would have required the petitioner to post a new
cash bond in its favor.
Taking the foregoing in conjunction with Aidas control over
Sceptres and Royales business affairs, it is patent that
Royale was a mere subterfuge for Aida. Since a sole
proprietorship does not have a separate and distinct
personality from that of the owner of the enterprise, the
latter is personally liable. This is what she sought to avoid
but cannot prosper.
Effectively, the petitioner cannot be deemed to have
changed employers as Royale and Sceptre are one and the
same. His separation pay should, thus, be computed from
the date he was hired by Sceptre in April 1976 until the
finality of this decision. Based on this Courts ruling
in Masagana Concrete Products, et al. v. NLRC, et al.,58 the
intervening period between the day an employee was
illegally dismissed and the day the decision finding him
illegally dismissed becomes final and executory shall be
considered in the computation of his separation pay as a
period of "imputed" or "putative" service:
Separation pay, equivalent to one month's salary for every
year of service, is awarded as an alternative to
reinstatement when the latter is no longer an option.
Separation pay is computed from the commencement of
employment up to the time of termination, including the
imputed service for which the employee is entitled to
backwages, with the salary rate prevailing at the end of the
period of putative service being the basis for computation. 59
It is well-settled, even axiomatic, that if
reinstatement is not possible, the period covered in
the computation of backwages is from the time the
employee was unlawfully terminated until the finality
of the decision finding illegal dismissal.
With respect to the petitioners backwages, this Court
cannot subscribe to the view that it should be limited to an
amount equivalent to three (3) months of his salary.
Backwages is a remedy affording the employee a way to
recover what he has lost by reason of the unlawful
dismissal.60 In awarding backwages, the primordial
consideration is the income that should have accrued to the
employee from the time that he was dismissed up to his
reinstatement61 and the length of service prior to his
dismissal is definitely inconsequential.
As early as 1996, this Court, in Bustamante, et al. v. NLRC,
et al.,62 clarified in no uncertain terms that if reinstatement
is no longer possible, backwages should be computed from
the time the employee was terminated until the finality of
the decision, finding the dismissal unlawful.
Therefore, in accordance with R.A. No. 6715, petitioners are
entitled on their full backwages, inclusive of allowances and
other benefits or their monetary equivalent, from the time
their actual compensation was withheld on them up to the
time of their actual reinstatement.
As to reinstatement of petitioners, this Court has already
ruled that reinstatement is no longer feasible, because the
company would be adjustly prejudiced by the continued
employment of petitioners who at present are overage, a
separation pay equal to one-month salary granted to them
in the Labor Arbiter's decision was in order and, therefore,
affirmed on the Court's decision of 15 March
1996. Furthermore, since reinstatement on this case
is no longer feasible, the amount of backwages shall
be computed from the time of their illegal
termination on 25 June 1990 up to the time of finality
of this decision.63 (emphasis supplied)
A further clarification was made in Javellana, Jr. v. Belen:64
Article 279 of the Labor Code, as amended by Section 34 of
Republic Act 6715 instructs:
Art. 279. Security of Tenure. - In cases of regular
employment, the employer shall not terminate the services
of an employee except for a just cause or when authorized
by this Title. An employee who is unjustly dismissed from
work shall be entitled to reinstatement without loss of
seniority rights and other privileges and to his full
backwages, inclusive of allowances, and to his other
benefits or their monetary equivalent computed from the
time his compensation was withheld from him up to the time
of his actual reinstatement.
Clearly, the law intends the award of backwages and similar
benefits to accumulate past the date of the Labor Arbiter's
decision until the dismissed employee is actually reinstated.
But if, as in this case, reinstatement is no longer possible,
this Court has consistently ruled that backwages shall be
computed from the time of illegal dismissal until the date
the decision becomes final.65 (citation omitted)
In case separation pay is awarded and reinstatement is no
longer feasible, backwages shall be computed from the time
of illegal dismissal up to the finality of the decision should
separation pay not be paid in the meantime. It is the
employees actual receipt of the full amount of his
separation pay that will effectively terminate the
employment of an illegally dismissed
employee.66 Otherwise, the employer-employee relationship
subsists and the illegally dismissed employee is entitled to
backwages, taking into account the increases and other
benefits, including the 13th month pay, that were received
by his co-employees who are not dismissed. 67 It is the
obligation of the employer to pay an illegally dismissed
employee or worker the whole amount of the salaries or
wages, plus all other benefits and
bonuses and general increases, to which he would have
been normally entitled had he not been dismissed and had
not stopped working.68
In fine, this Court holds Royale liable to pay the petitioner
backwages to be computed from his dismissal on October 1,
2003 until the finality of this decision. Nonetheless, the
amount received by the petitioner from the respondents in
satisfaction of the November 30, 2005 Decision shall be
deducted accordingly.
Finally, moral damages and exemplary damages
at P25,000.00 each as indemnity for the petitioners
dismissal, which was tainted by bad faith and fraud, are in
order. Moral damages may be recovered where the dismissal
of the employee was tainted by bad faith or fraud, or where
it constituted an act oppressive to labor, and done in a
manner contrary to morals, good customs or public policy
while exemplary damages are recoverable only if the
dismissal was done in a wanton, oppressive, or malevolent
manner.69
WHEREFORE, premises considered, the Petition is
hereby GRANTED. We REVERSE and SET ASIDE the CAs
May 29, 2008 Decision in C.A.-G.R. SP No. 02127 and order
the respondents to pay the petitioner the following minus
the amount of (P23,521.67) paid to the petitioner in
satisfaction of the NLRCs November 30, 2005 Decision in
NLRC Case No. V-000355-05:
a) full backwages and other benefits computed from
October 1, 2003 (the date Royale illegally dismissed
the petitioner) until the finality of this decision;
 b) separation pay computed from April 1976 until the
finality of this decision at the rate of one month pay
per year of service;
c) ten percent (10%) attorneys fees based on the
total amount of the awards under (a) and (b) above;
d) moral damages of Twenty-Five Thousand Pesos
(P25,000.00); and
e) exemplary damages of Twenty-Five Thousand
Pesos (P25,000.00).
This case is REMANDED to the labor arbiter for
computation of the separation pay, backwages, and other
monetary awards due the petitioner.
SO ORDERED.
Heirs of Fe Tan Uy vs. International Exchange Bank, G.R. No.
166282, February 13, 2013
Before the Court are two consolidated petitions for review
on certiorari under Rule 45 of the 1997 Revised Rules of Civil
Procedure, assailing the August 16, 2004 Decision 1 and the
December 2, 2004 Resolution2 of the Court of
Appeals (CA) in CA-G.R. CV No. 69817 entitled "International
Exchange Bank v. Hammer Garments Corp., et al."
The Facts
On several occasions, from June 23, 1997 to September 3,
1997, respondent International Exchange Bank (iBank),
granted loans to Hammer Garments Corporation (Hammer),
covered by promissory notes and deeds of assignment, in
the following amounts:3
Date of Promissory Note Amount
June 23, 1997 P 5,599,471.33
July 24, 1997 2,700,000.00
July 25, 1997 2,300,000.00
August 1, 1997 2,938,505.04
August 1, 1997 3,361,494.96
August 14, 1997 980,000.00
August 21, 1997 2,527,200.00
August 21, 1997 3,146,715.00
September 3, 1997 1,385,511.75
Total P24,938,898.08
These were made pursuant to the Letter-Agreement, 4 dated
March 23, 1996, between iBank and Hammer, represented
by its President and General Manager, Manuel
Chua (Chua) a.k.a. Manuel Chua Uy Po Tiong, granting
Hammer a P 25 Million-Peso Omnibus Line.5 The loans were
secured by a P 9 Million-Peso Real Estate
Mortgage6 executed on July 1, 1997 by Goldkey
Development Corporation (Goldkey) over several of its
properties and a P 25 Million-Peso Surety Agreement7 signed
by Chua and his wife, Fe Tan Uy (Uy), on April 15, 1996.
As of October 28, 1997, Hammer had an outstanding
obligation of P25,420,177.62 to iBank.8 Hammer defaulted in
the payment of its loans, prompting iBank to foreclose on
Goldkeys third-party Real Estate Mortgage. The mortgaged
properties were sold for P 12 million during the foreclosure
sale, leaving an unpaid balance of P 13,420,177.62. 9 For
failure of Hammer to pay the deficiency, iBank filed a
Complaint10 for sum of money on December 16, 1997
against Hammer, Chua, Uy, and Goldkey before the Regional
Trial Court, Makati City (RTC).11
Despite service of summons, Chua and Hammer did not file
their respective answers and were declared in default. In her
separate answer, Uy claimed that she was not liable to
iBank because she never executed a surety agreement in
favor of iBank. Goldkey, on the other hand, also denies
liability, averring that it acted only as a third-party
mortgagor and that it was a corporation separate and
distinct from Hammer.12
Meanwhile, iBank applied for the issuance of a writ of
preliminary attachment which was granted by the RTC in its
December 17, 1997 Order.13 The Notice of Levy on
Attachment of Real Properties, dated July 15, 1998, covering
the properties under the name of Goldkey, was sent by the
sheriff to the Registry of Deeds of Quezon City.14
The RTC, in its Decision,15 dated December 27, 2000, ruled
in favor of iBank. While it made the pronouncement that the
signature of Uy on the Surety Agreement was a forgery, it
nevertheless held her liable for the outstanding obligation of
Hammer because she was an officer and stockholder of the
said corporation. The RTC agreed with Goldkey that as a
third-party mortgagor, its liability was limited to the
properties mortgaged. It came to the conclusion, however,
that Goldkey and Hammer were one and the same entity for
the following reasons: (1) both were family corporations of
Chua and Uy, with Chua as the President and Chief
Operating Officer; (2) both corporations shared the same
office and transacted business from the same place, (3) the
assets of Hammer and Goldkey were co-mingled; and (4)
when Chua absconded, both Hammer and Goldkey ceased
to operate. As such, the piercing of the veil of corporate
fiction was warranted. Uy, as an officer and stockholder of
Hammer and Goldkey, was found liable to iBank together
with Chua, Hammer and Goldkey for the deficiency
of P13,420,177.62.
Aggrieved, the heirs of Uy and
Goldkey (petitioners) elevated the case to the CA. On
August 16, 2004, it promulgated its decision affirming the
findings of the RTC. The CA found that iBank was not
negligent in evaluating the financial stability of Hammer.
According to the appellate court, iBank was induced to grant
the loan because petitioners, with intent to defraud the
bank, submitted a falsified Financial Report for 1996 which
incorrectly declared the assets and cashflow of
Hammer.16 Because petitioners acted maliciously and in bad
faith and used the corporate fiction to defraud iBank, they
should be treated as one and the same as Hammer.17
Hence, these petitions filed separately by the heirs of Uy
and Goldkey. On February 9, 2005, this Court ordered the
consolidation of the two cases.18
The Issues
Petitioners raise the following issues:
Whether or not a trial court, under the facts of this
case, can go out of the issues raised by the
pleadings;19
Whether or not there is guilt by association in those
cases where the veil of corporate fiction may be
pierced;20 and
Whether or not the "alter ego" theory in disregarding
the corporate personality of a corporation is
applicable to Goldkey.21
Simplifying the issues in this case, the Court must resolve
the following: (1) whether Uy can be held liable to iBank for
the loan obligation of Hammer as an officer and stockholder
of the said corporation; and (2) whether Goldkey can be held
liable for the obligation of Hammer for being a mere alter
ego of the latter.
The Courts Ruling
The petitions are partly meritorious.
Uy is not liable; The piercing of the
veil of corporate fiction is not justified
The heirs of Uy argue that the latter could not be held liable
for being merely an officer of Hammer and Goldkey because
it was not shown that she had committed any actionable
wrong22 or that she had participated in the transaction
between Hammer and iBank. They further claim that she
had cut all ties with Hammer and her husband long before
the execution of the loan.23
The Court finds in favor of Uy.
Basic is the rule in corporation law that a corporation is a
juridical entity which is vested with a legal personality
separate and distinct from those acting for and in its behalf
and, in general, from the people comprising it. Following this
principle, obligations incurred by the corporation, acting
through its directors, officers and employees, are its sole
liabilities. A director, officer or employee of a corporation is
generally not held personally liable for obligations incurred
by the corporation.24 Nevertheless, this legal fiction may be
disregarded if it is used as a means to perpetrate fraud or
an illegal act, or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, or to confuse
legitimate issues.25 This is consistent with the provisions of
the Corporation Code of the Philippines, which states:
Sec. 31. Liability of directors, trustees or officers. Directors
or trustees who wilfully and knowingly vote for or assent to
patently unlawful acts of the corporation or who are guilty of
gross negligence or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary interest in
conflict with their duty as such directors or trustees shall be
liable jointly and severally for all damages resulting
therefrom suffered by the corporation, its stockholders or
members and other persons.
Solidary liability will then attach to the directors, officers or
employees of the corporation in certain circumstances, such
as:
1. When directors and trustees or, in appropriate
cases, the officers of a corporation: (a) vote for or
assent to patently unlawful acts of the corporation;
(b) act in bad faith or with gross negligence in
directing the corporate affairs; and (c) are guilty of
conflict of interest to the prejudice of the corporation,
its stockholders or members, and other persons;
2. When a director or officer has consented to the
issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the
corporate secretary his written objection thereto;
3. When a director, trustee or officer has
contractually agreed or stipulated to hold himself
personally and solidarily liable with the corporation;
or
4. When a director, trustee or officer is made, by
specific provision of law, personally liable for his
corporate action.26
Before a director or officer of a corporation can be held
personally liable for corporate obligations, however, the
following requisites must concur: (1) the complainant must
allege in the complaint that the director or officer assented
to patently unlawful acts of the corporation, or that the
officer was guilty of gross negligence or bad faith; and (2)
the complainant must clearly and convincingly prove such
unlawful acts, negligence or bad faith.27
While it is true that the determination of the existence of
any of the circumstances that would warrant the piercing of
the veil of corporate fiction is a question of fact which
cannot be the subject of a petition for review on certiorari
under Rule 45, this Court can take cognizance of factual
issues if the findings of the lower court are not supported by
the evidence on record or are based on a misapprehension
of facts.28
In this case, petitioners are correct to argue that it was not
alleged, much less proven, that Uy committed an act as an
officer of Hammer that would permit the piercing of the
corporate veil. A reading of the complaint reveals that with
regard to Uy, iBank did not demand that she be held liable
for the obligations of Hammer because she was a corporate
officer who committed bad faith or gross negligence in the
performance of her duties such that the lifting of the
corporate mask would be merited. What the complaint
simply stated is that she, together with her errant husband
Chua, acted as surety of Hammer, as evidenced by her
signature on the Surety Agreement which was later found by
the RTC to have been forged.29
Considering that the only basis for holding Uy liable for the
payment of the loan was proven to be a falsified document,
there was no sufficient justification for the RTC to have ruled
that Uy should be held jointly and severally liable to iBank
for the unpaid loan of Hammer. Neither did the CA explain
its affirmation of the RTCs ruling against Uy. The Court
cannot give credence to the simplistic declaration of the RTC
that liability would attach directly to Uy for the sole reason
that she was an officer and stockholder of Hammer.
At most, Uy could have been charged with negligence in the
performance of her duties as treasurer of Hammer by
allowing the company to contract a loan despite its
precarious financial position. Furthermore, if it was true, as
petitioners claim, that she no longer performed the
functions of a treasurer, then she should have formally
resigned as treasurer to isolate herself from any liability that
could result from her being an officer of the corporation.
Nonetheless, these shortcomings of Uy are not sufficient to
justify the piercing of the corporate veil which requires that
the negligence of the officer must be so gross that it could
amount to bad faith and must be established by clear and
convincing evidence. Gross negligence is one that is
characterized by the lack of the slightest care, acting or
failing to act in a situation where there is a duty to act,
wilfully and intentionally with a conscious indifference to the
consequences insofar as other persons may be affected.30
It behooves this Court to emphasize that the piercing of the
veil of corporate fiction is frowned upon and can only be
done if it has been clearly established that the separate and
distinct personality of the corporation is used to justify a
wrong, protect fraud, or perpetrate a deception.31 As aptly
explained in Philippine National Bank v. Andrada Electric &
Engineering Company:32
Hence, any application of the doctrine of piercing the
corporate veil should be done with caution. A court should
be mindful of the milieu where it is to be applied. It must be
certain that the corporate fiction was misused to such an
extent that injustice, fraud, or crime was committed against
another, in disregard of its rights. The wrongdoing must be
clearly and convincingly established; it cannot be presumed.
Otherwise, an injustice that was never unintended may
result from an erroneous application.33
Indeed, there is no showing that Uy committed gross
negligence. And in the absence of any of the
aforementioned requisites for making a corporate officer,
director or stockholder personally liable for the obligations
of a corporation, Uy, as a treasurer and stockholder of
Hammer, cannot be made to answer for the unpaid debts of
the corporation.
Goldkey is a mere alter ego of Hammer
Goldkey contends that it cannot be held responsible for the
obligations of its stockholder, Chua.34 Moreover, it theorizes
that iBank is estopped from expanding Goldkeys liability
beyond the real estate mortgage.35 It adds that it did not
authorize the execution of the said mortgage.36 Finally, it
passes the blame on to iBank for failing to exercise the
requisite due diligence in properly evaluating Hammers
creditworthiness before it was extended an omnibus line.37
The Court disagrees with Goldkey.
There is no reason to discount the findings of the CA that
iBank duly inspected the viability of Hammer and satisfied
itself that the latter was a good credit risk based on the
Financial Statement submitted. In addition, iBank required
that the loan be secured by Goldkeys Real Estate Mortgage
and the Surety Agreement with Chua and Uy. The records
support the factual conclusions made by the RTC and the
CA.
To the Courts mind, Goldkeys argument, that iBank is
barred from pursuing Goldkey for the satisfaction of the
unpaid obligation of Hammer because it had already limited
its liability to the real estate mortgage, is completely
absurd. Goldkey needs to be reminded that it is being sued
not as a consequence of the real estate mortgage, but
rather, because it acted as an alter ego of Hammer.
Accordingly, they must be treated as one and the same
entity, making Goldkey accountable for the debts of
Hammer.
In fact, it is Goldkey who is now precluded from denying the
validity of the Real Estate Mortgage. In its Answer with
Affirmative Defenses and Compulsory Counterclaim, dated
January 5, 1998, it already admitted that it acted as a third-
party mortgagor to secure the obligation of Hammer to
iBank.38 Thus, it cannot, at this late stage, question the due
execution of the third-party mortgage.
Similarly, Goldkey is undoubtedly mistaken in claiming that
iBank is seeking to enforce an obligation of Chua. The
records clearly show that it was Hammer, of which Chua was
the president and a stockholder, which contracted a loan
from iBank. What iBank sought was redress from Goldkey by
demanding that the veil of corporate fiction be lifted so that
it could not raise the defense of having a separate juridical
personality to evade liability for the obligations of Hammer.
Under a variation of the doctrine of piercing the veil of
corporate fiction, when two business enterprises are owned,
conducted and controlled by the same parties, both law and
equity will, when necessary to protect the rights of third
parties, disregard the legal fiction that two corporations are
distinct entities and treat them as identical or one and the
same.39
While the conditions for the disregard of the juridical entity
may vary, the following are some probative factors of
identity that will justify the application of the doctrine of
piercing the corporate veil, as laid down in Concept Builders,
Inc. v NLRC:40
(1) Stock ownership by one or common ownership of
both corporations;
(2) Identity of directors and officers;
(3) The manner of keeping corporate books and
records, and
(4) Methods of conducting the business.41
These factors are unquestionably present in the case of
Goldkey and Hammer, as observed by the RTC, as follows:
1. Both corporations are family corporations of defendants
Manuel Chua and his wife Fe Tan Uy. The other incorporators
and shareholders of the two corporations are the brother
and sister of Manuel Chua (Benito Ng Po Hing and Nenita
Chua Tan) and the sister of Fe Tan Uy, Milagros Revilla. The
other incorporator/share holder is Manling Uy, the daughter
of Manuel Chua Uy Po Tiong and Fe Tan Uy.
The stockholders of Hammer Garments as of March 23,
1987, aside from spouses Manuel and Fe Tan Uy are: Benito
Chua, brother Manuel Chua, Nenita Chua Tan, sister of
Manuel Chua and Tessie See Chua Tan. On March 8, 1988,
the shares of Tessie See Chua Uy were assigned to Milagros
T. Revilla, thereby consolidating the shares in the family of
Manuel Chua and Fe Tan Uy.
2. Hammer Garments and Goldkey share the same office
and practically transact their business from the same place.
3. Defendant Manuel Chua is the President and Chief
Operating Officer of both corporations. All business
transactions of Goldkey and Hammer are done at the
instance of defendant Manuel Chua who is authorized to do
so by the corporations.
The promissory notes subject of this complaint are signed by
him as Hammers President and General Manager. The third-
party real estate mortgage of defendant Goldkey is signed
by him for Goldkey to secure the loan obligation of Hammer
Garments with plaintiff "iBank". The other third-party real
estate mortgages which Goldkey executed in favor of the
other creditor banks of Hammer are also assigned by
Manuel Chua.
4. The assets of Goldkey and Hammer are co-mingled. The
real properties of Goldkey are mortgaged to secure
Hammers obligation with creditor banks.
The proceed of at least two loans which Hammer obtained
from plaintiff "iBank", purportedly to finance its export to
Wal-Mart are instead used to finance the purchase of a
managers check payable to Goldkey. The defendants claim
that Goldkey is a creditor of Hammer to justify its receipt of
the Managers check is not substantiated by evidence.
Despite subpoenas issued by this Court, Goldkey thru its
treasurer, defendant Fe Tan Uy and or its corporate
secretary Manling Uy failed to produce the Financial
Statement of Goldkey.
5. When defendant Manuel Chua "disappeared", the
defendant Goldkey ceased to operate despite the claim that
the other "officers" and stockholders like Benito Chua,
Nenita Chua Tan, Fe Tan Uy, Manling Uy and Milagros T.
Revilla are still around and may be able to continue the
business of Goldkey, if it were different or distinct from
Hammer which suffered financial set back.42
Based on the foregoing findings of the RTC, it was apparent
that Goldkey was merely an adjunct of Hammer and, as
such, the legal fiction that it has a separate personality from
that of Hammer should be brushed aside as they are,
undeniably, one and the same.
WHEREFORE, the petition are PARTLY GRANTED. The August
16, 2004 Decision and the December 2, 2004 Resolution of
the Court of Appeals in CA-G.R. CV No. 69817, are hereby
MODIFIED. Fe Tan Uy is released from any liability arising
from the debts incurred by Hammer from iBank. Hammer
Garments Corporation, Manuel Chua Uy Po Tiong and
Goldkey Development Corporation are jointly and severally
liable to pay International Exchange Bank the sum
of P13,420,177.62 representing the unpaid loan obligation of
Hammer as of December 12, 1997 plus interest. No costs.
SO ORDERED.
Stronghold vs. Cuenca, G.R. No. 173297, March 6, 2013
The personality of a corporation is distinct and separate
from the personalities of its stockholders. Hence, its
stockholders are not themselves the real parties in interest
to claim and recover compensation for the damages arising
from the wrongful attachment of its assets. Only the
corporation is the real party in interest for that purpose.
The Case
Stronghold Insurance Company, Inc. (Stronghold Insurance),
a domestic insurance company, assails the decision
promulgated on January 31, 2006,1 whereby the Court of
Appeals (CA) in CA-G.R. CV No. 79145 affirmed the judgment
rendered on April 28, 2003 by the Regional Trial Court in
Parafiaque City (RTC) holding Stronghold Insurance and
respondent Manuel D. Marafion, Jr. jointly and solidarily
liable for damages to respondents Tomas Cuenca, Marcelina
Cuenca, Milagros Cuenca (collectively referred to as
Cuencas), and Bramie Tayactac, upon the latters claims
against the surety bond issued by Stronghold Insurance for
the benefit of Maraon.2
Antecedents
On January 19, 1998, Maraon filed a complaint in the RTC
against the Cuencas for the collection of a sum of money
and damages. His complaint, docketed as Civil Case No. 98-
023, included an application for the issuance of a writ of
preliminary attachment.3 On January 26, 1998, the RTC
granted the application for the issuance of the writ of
preliminary attachment conditioned upon the posting of a
bond of P1,000,000.00 executed in favor of the Cuencas.
Less than a month later, Maraon amended the complaint to
implead Tayactac as a defendant.4
On February 11, 1998, Maraon posted SICI Bond No. 68427
JCL (4) No. 02370 in the amount of P1,000,000.00 issued by
Stronghold Insurance. Two days later, the RTC issued the
writ of preliminary attachment.5 The sheriff served the writ,
the summons and a copy of the complaint on the Cuencas
on the same day. The service of the writ, summons and copy
of the complaint were made on Tayactac on February 16,
1998.6
Enforcing the writ of preliminary attachment on February 16
and February 17, 1998, the sheriff levied upon the
equipment, supplies, materials and various other personal
property belonging to Arc Cuisine, Inc. that were found in
the leased corporate office-cum-commissary or kitchen of
the corporation.7 On February 19, 1998, the sheriff
submitted a report on his proceedings,8 and filed an ex parte
motion seeking the transfer of the levied properties to a safe
place. The RTC granted the ex parte motion on February 23,
1998.9
On February 25, 1998, the Cuencas and Tayactac presented
in the RTC a Motion to Dismiss and to Quash Writ of
Preliminary Attachment on the grounds that: (1) the action
involved intra-corporate matters that were within the
original and exclusive jurisdiction of the Securities and
Exchange Commission (SEC); and (2) there was another
action pending in the SEC as well as a criminal complaint in
the Office of the City Prosecutor of Paraaque City.10
On March 5, 1998, Maraon opposed the motion.11
On August 10, 1998, the RTC denied the Motion to Dismiss
and to Quash Writ of Preliminary Attachment, stating that
the action, being one for the recovery of a sum of money
and damages, was within its jurisdiction. 12
Under date of September 3, 1998, the Cuencas and Tayactac
moved for the reconsideration of the denial of their Motion
to Dismiss and to Quash Writ of Preliminary Attachment, but
the RTC denied their motion for reconsideration on
September 16, 1998.
Thus, on October 14, 1998, the Cuencas and Tayactac went
to the CA on certiorari and prohibition to challenge the
August 10, 1998 and September 16, 1998 orders of the RTC
on the basis of being issued with grave abuse of discretion
amounting to lack or excess of jurisdiction (C.A.-G.R. SP No.
49288).13
On June 16, 1999, the CA promulgated its assailed decision
in C.A.-G.R. SP No. 49288,14 granting the petition. It annulled
and set aside the challenged orders, and dismissed the
amended complaint in Civil Case No. 98-023 for lack of
jurisdiction, to wit:
WHEREFORE, the Orders herein assailed are hereby
ANNULLED AND SET ASIDE, and the judgment is hereby
rendered DISMISSING the Amended Complaint in Civil Case
No. 98-023 of the respondent court, for lack of jurisdiction.
SO ORDERED.
On December 27, 1999, the CA remanded to the RTC for
hearing and resolution of the Cuencas and Tayactacs claim
for the damages sustained from the enforcement of the writ
of preliminary attachment.15
On February 17, 2000,16 the sheriff reported to the RTC, as
follows:
On the scheduled inventory of the properties (February 17,
2000) and to comply with the Resolution of the Court of
Appeals dated December 24, 1999 ordering the delivery of
the attached properties to the defendants, the proceedings
thereon being:
1. With the assistance for (sic) the counsel of
Cuencas, Atty. Pulumbarit, Atty. Ayo, defendant
Marcelina Cuenca, and two Court Personnel,
Robertson Catorce and Danilo Abanto, went to the
warehouse where Mr. Maraon recommended for
safekeeping the properties in which he personally
assured its safety, at No. 14, Marian II Street, East
Service Road, Paraaque Metro Manila.
2. That to our surprise, said warehouse is now
tenanted by a new lessee and the properties were all
gone and missing.
3. That there are informations (sic) that the
properties are seen at Contis Pastry & Bake Shop
owned by Mr. Maraon, located at BF Homes in
Paraaque City.
On April 6, 2000, the Cuencas and Tayactac filed a Motion to
Require Sheriff to Deliver Attached Properties and to Set
Case for Hearing,17 praying that: (1) the Branch Sheriff be
ordered to immediately deliver the attached properties to
them; (2) Stronghold Insurance be directed to pay them the
damages being sought in accordance with its undertaking
under the surety bond for P1,000,0000.00; (3) Maraon be
held personally liable to them considering the insufficiency
of the amount of the surety bond; (4) they be paid the total
of P1,721,557.20 as actual damages representing the value
of the lost attached properties because they, being
accountable for the properties, would be turning that
amount over to Arc Cuisine, Inc.; and (5) Maraon be made
to pay P200,000.00 as moral damages, P100,000.00 as
exemplary damages, and P100,000.00 as attorneys fees.
Stronghold Insurance filed its answer and opposition on April
13, 2000. In turn, the Cuencas and Tayactac filed their reply
on May 5, 2000.
On May 25, 2000, Maraon filed his own
comment/opposition to the Motion to Require Sheriff to
Deliver Attached Properties and to Set Case for Hearing of
the Cuencas and Tayactac, arguing that because the
attached properties belonged to Arc Cuisine, Inc. 50% of the
stockholding of which he and his relatives owned, it should
follow that 50% of the value of the missing attached
properties constituted liquidating dividends that should
remain with and belong to him. Accordingly, he prayed that
he should be required to return only P100,000.00 to the
Cuencas and Tayactac.18
On June 5, 2000, the RTC commanded Maraon to surrender
all the attached properties to the RTC through the sheriff
within 10 days from notice; and directed the Cuencas and
Tayactac to submit the affidavits of their witnesses in
support of their claim for damages.19
On June 6, 2000, the Cuencas and Tayactac submitted their
Manifestation and Compliance.20
Ruling of the RTC
After trial, the RTC rendered its judgment on April 28, 2003,
holding Maraon and Stronghold Insurance jointly and
solidarily liable for damages to the Cuencas and
Tayactac,21 viz:
WHEREFORE, premises considered, as the defendants were
able to preponderantly prove their entitlement for damages
by reason of the unlawful and wrongful issuance of the writ
of attachment, MANUEL D. MARAON, JR., plaintiff and
defendant, Stronghold Insurance Company Inc., are found to
be jointly and solidarily liable to pay the defendants the
following amount to wit:
(1) PhP1,000,000.00 representing the amount of the
bond;
(2) PhP 100,000.00 as moral damages;
(3) PhP 50,000.00 as exemplary damages;
(4) Php 100,000.00 as attorneys fees; and
(5) To pay the cost of suit.
SO ORDERED.
Ruling of the CA
Only Stronghold Insurance appealed to the CA (C.A.-G.R. CV
No. 79145), assigning the following errors to the RTC, to wit:
I.
THE LOWER COURT ERRED IN ORDERING SURETY-
APPELLANT TO PAY THE AMOUNT OF P1,000,000.00
REPRESENTING THE AMOUNT OF THE BOND AND OTHER
DAMAGES TO THE DEFENDANTS.
II.
THE LOWER COURT ERRED IN NOT TAKING INTO ACCOUNT
THE INDEMNITY AGREEMENT (EXH. "2-SURETY") EXECUTED
BY MANUEL D. MARAON, JR. IN FAVOR OF STRONGHOLD
WHEREIN HE BOUND HIMSELF TO INDEMNIFY STRONGHOLD
OF WHATEVER AMOUNT IT MAY BE HELD LIABLE ON
ACCOUNT OF THE ISSUANCE OF THE ATTACHMENT BOND.22
On January 31, 2006, the CA, finding no reversible error,
promulgated its decision affirming the judgment of the
RTC.23
Stronghold Insurance moved for reconsideration, but the CA
denied its motion for reconsideration on June 22, 2006.
Issues
Hence, this appeal by petition for review on certiorari by
Stronghold Insurance, which submits that:
I.
THE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE
ERROR AND DECIDED QUESTIONS OF SUBSTANCE IN A WAY
NOT IN ACCORDANCE WITH LAW AND APPLICABLE
DECISIONS OF THE HONORABLE COURT CONSIDERING THAT
THE COURT OF APPEALS AFFIRMED THE ERRONEOUS
DECISION OF THE TRIAL COURT HOLDING RESPONDENT
MARA[]ON AND PETITIONER STRONGHOLD JOINTLY AND
SOLIDARILY LIABLE TO PAY THE RESPONDENTS CUENCA, et
al., FOR PURPORTED DAMAGES BY REASON OF THE ALLEGED
UNLAWFUL AND WRONGFUL ISSUANCE OF THE WRIT OF
ATTACHMENT, DESPITE THE FACT THAT:
A) RESPONDENT CUENCA et al., ARE NOT THE
OWNERS OF THE PROPERTIES ATTACHED AND THUS,
ARE NOT THE PROPER PARTIES TO CLAIM ANY
PURPORTED DAMAGES ARISING THEREFROM.
B) THE PURPORTED DAMAGES BY REASON OF THE
ALLEGED UNLAWFUL AND WRONGFUL ISSUANCE OF
THE WRIT OF ATTACHMENT WERE CAUSED BY THE
NEGLIGENCE OF THE BRANCH SHERIFF OF THE TRIAL
COURT AND HIS FAILURE TO COMPLY WITH THE
PROVISIONS OF THE RULES OF COURT PERTAINING
TO THE ATTACHMENT OF PROPERTIES.
C) THE TRIAL COURT GRAVELY ERRED WHEN IT HELD
PETITIONER STRONGHOLD TO BE SOLIDARILY LIABLE
WITH RESPONDENT MARA[]ON TO RESPONDENTS
CUENCA et al., FOR MORAL DAMAGES, EXEMPLARY
DAMAGES, ATTORNEYS FEES AND COST OF SUIT
DESPITE THE FACT THAT THE GUARANTY OF
PETITIONER STRONGHOLD PURSUANT TO ITS SURETY
BOND IS LIMITED ONLY TO THE AMOUNT
OF P1,000,000.00.
II
IN ANY EVENT, THE DECISION OF THE COURT APPEALS
SHOULD HAVE HELD RESPONDENT MARA[]ON TO BE
LIABLE TO INDEMNIFY PETITIONER STRONGHOLD FOR ALL
PAYMENTS, DAMAGES, COSTS, LOSSES, PENALTIES,
CHARGES AND EXPENSES IT SUSTAINED IN CONNECTION
WITH THE INSTANT CASE, PURSUANT TO THE INDEMNITY
AGREEMENT ENTERED INTO BY PETITIONER STRONGHOLD
AND RESPONDENT MARA[]ON.24
On their part, the Cuencas and Tayactac counter:
A. Having actively participated in the trial and
appellate proceedings of this case before the
Regional Trial Court and the Court of Appeals,
respectively, petitioner Stronghold is legally and
effectively BARRED by ESTOPPEL from raising for the
first time on appeal before this Honorable Court a
defense and/or issue not raised below.25
B. Even assuming arguendo without admitting that
the principle of estoppel is not applicable in this
instant case, the assailed Decision and Resolution
find firm basis in law considering that the writ of
attachment issued and enforced against herein
respondents has been declared ILLEGAL, NULL AND
VOID for having been issued beyond the jurisdiction
of the trial court.
C. There having been a factual and legal finding of
the illegality of the issuance and consequently, the
enforcement of the writ of attachment, Maranon and
his surety Stronghold, consistent with the facts and
the law, including the contract of suretyship they
entered into, are JOINTLY AND SEVERALLY liable for
the damages sustained by herein respondents by
reason thereof.
D. Contrary to the allegations of Stronghold, its
liability as surety under the attachment bond without
which the writ of attachment shall not issue and be
enforced against herein respondent if prescribed by
law. In like manner, the obligations and liability on
the attachment bond are also prescribed by law and
not left to the discretion or will of the contracting
parties to the prejudice of the persons against whom
the writ was issued.
E. Contrary to the allegations of Stronghold, its
liability for the damages sustained by herein
respondents is both a statutory and contractual
obligation and for which, it cannot escape
accountability and liability in favor of the person
against whom the illegal writ of attachment was
issued and enforced. To allow Stronghold to delay,
excuse or exempt itself from liability is
unconstitutional, unlawful, and contrary to the basic
tenets of equity and fair play.
F. While the liability of Stronghold as surety indeed
covers the principal amount of P1,000,000.00,
nothing in the law and the contract between the
parties limit or exempt Stronghold from liability for
other damages. Including costs of suit and
interest.26
In his own comment,27
Maraon insisted that he could not be personally held liable
under the attachment bond because the judgment of the
RTC was rendered without jurisdiction over the subject
matter of the action that involved an intra-corporate
controversy among the stockholders of Arc Cuisine, Inc.; and
that the jurisdiction properly pertained to the SEC, where
another action was already pending between the parties.
Ruling
Although the question of whether the Cuencas and Tayactac
could themselves recover damages arising from the
wrongful attachment of the assets of Arc Cuisine, Inc. by
claiming against the bond issued by Stronghold Insurance
was not raised in the CA, we do not brush it aside because
the actual legal interest of the parties in the subject of the
litigation is a matter of substance that has jurisdictional
impact, even on appeal before this Court.
The petition for review is meritorious.
There is no question that a litigation should be disallowed
immediately if it involves a person without any interest at
stake, for it would be futile and meaningless to still proceed
and render a judgment where there is no actual controversy
to be thereby determined. Courts of law in our judicial
system are not allowed to delve on academic issues or to
render advisory opinions. They only resolve actual
controversies, for that is what they are authorized to do by
the Fundamental Law itself, which forthrightly ordains that
the judicial power is wielded only to settle actual
controversies involving rights that are legally demandable
and enforceable.28
To ensure the observance of the mandate of the
Constitution, Section 2, Rule 3 of the Rules of Court requires
that unless otherwise authorized by law or the Rules of
Court every action must be prosecuted or defended in the
name of the real party in interest.29 Under the same rule, a
real party in interest is one who stands to be benefited or
injured by the judgment in the suit, or one who is entitled to
the avails of the suit. Accordingly, a person , to be a real
party in interest in whose name an action must be
prosecuted, should appear to be the present real owner of
the right sought to be enforced, that is, his interest must be
a present substantial interest, not a mere expectancy, or a
future, contingent, subordinate, or consequential interest.30
Where the plaintiff is not the real party in interest, the
ground for the motion to dismiss is lack of cause of
action.31The reason for this is that the courts ought not to
pass upon questions not derived from any actual
controversy. Truly, a person having no material interest to
protect cannot invoke the jurisdiction of the court as the
plaintiff in an action.32 Nor does a court acquire jurisdiction
over a case where the real party in interest is not present or
impleaded.
The purposes of the requirement for the real party in
interest prosecuting or defending an action at law are: (a) to
prevent the prosecution of actions by persons without any
right, title or interest in the case; (b) to require that the
actual party entitled to legal relief be the one to prosecute
the action; (c) to avoid a multiplicity of suits; and (d) to
discourage litigation and keep it within certain bounds,
pursuant to sound public policy.33 Indeed, considering that
all civil actions must be based on a cause of
action,34 defined as the act or omission by which a party
violates the right of another,35 the former as the defendant
must be allowed to insist upon being opposed by the real
party in interest so that he is protected from further suits
regarding the same claim.36 Under this rationale, the
requirement benefits the defendant because "the defendant
can insist upon a plaintiff who will afford him a setup
providing good res judicata protection if the struggle is
carried through on the merits to the end."37
The rule on real party in interest ensures, therefore, that the
party with the legal right to sue brings the action, and this
interest ends when a judgment involving the nominal
plaintiff will protect the defendant from a subsequent
identical action. Such a rule is intended to bring before the
court the party rightfully interested in the litigation so that
only real controversies will be presented and the judgment,
when entered, will be binding and conclusive and the
defendant will be saved from further harassment and
vexation at the hands of other claimants to the same
demand.38
But the real party in interest need not be the person who
ultimately will benefit from the successful prosecution of the
action. Hence, to aid itself in the proper identification of the
real party in interest, the court should first ascertain the
nature of the substantive right being asserted, and then
must determine whether the party asserting that right is
recognized as the real party in interest under the rules of
procedure. Truly, that a party stands to gain from the
litigation is not necessarily controlling.39
It is fundamental that the courts are established in order to
afford reliefs to persons whose rights or property interests
have been invaded or violated, or are threatened with
invasion by others conduct or acts, and to give relief only at
the instance of such persons. The jurisdiction of a court of
law or equity may not be invoked by or for an individual
whose rights have not been breached.40
The remedial right or the remedial obligation is the persons
interest in the controversy. The right of the plaintiff or other
claimant is alleged to be violated by the defendant, who has
the correlative obligation to respect the right of the former.
Otherwise put, without the right, a person may not become
a party plaintiff; without the obligation, a person may not be
sued as a party defendant; without the violation, there may
not be a suit. In such a situation, it is legally impossible for
any person or entity to be both plaintiff and defendant in the
same action, thereby ensuring that the controversy is actual
and exists between adversary parties. Where there are no
adversary parties before it, the court would be without
jurisdiction to render a judgment.41
There is no dispute that the properties subject to the levy on
attachment belonged to Arc Cuisine, Inc. alone, not to the
Cuencas and Tayactac in their own right. They were only
stockholders of Arc Cuisine, Inc., which had a personality
distinct and separate from that of any or all of them.42 The
damages occasioned to the properties by the levy on
attachment, wrongful or not, prejudiced Arc Cuisine, Inc.,
not them. As such, only Arc Cuisine, Inc. had the right under
the substantive law to claim and recover such damages.
This right could not also be asserted by the Cuencas and
Tayactac unless they did so in the name of the corporation
itself. But that did not happen herein, because Arc Cuisine,
Inc. was not even joined in the action either as an original
party or as an intervenor.
The Cuencas and Tayactac were clearly not vested with any
direct interest in the personal properties coming under the
levy on attachment by virtue alone of their being
stockholders in Arc Cuisine, Inc. Their stockholdings
represented only their proportionate or aliquot interest in
the properties of the corporation, but did not vest in them
any legal right or title to any specific properties of the
corporation. Without doubt, Arc Cuisine, Inc. remained the
owner as a distinct legal person.43
Given the separate and distinct legal personality of Arc
Cuisine, Inc., the Cuencas and Tayactac lacked the legal
personality to claim the damages sustained from the levy of
the formers properties. According to Asset Privatization
Trust v. Court of Appeals,44 even when the foreclosure on the
assets of the corporation was wrongful and done in bad faith
the stockholders had no standing to recover for themselves
moral damages; otherwise, they would be appropriating and
distributing part of the corporations assets prior to the
dissolution of the corporation and the liquidation of its debts
and liabilities. Moreover, in Evangelista v. Santos,45 the
Court, resolving whether or not the minority stockholders
had the right to bring an action for damages against the
principal officers of the corporation for their own benefit,
said:
As to the second question, the complaint shows that the
action is for damages resulting from mismanagement of the
affairs and assets of the corporation by its principal officer, it
being alleged that defendants maladministration has
brought about the ruin of the corporation and the
consequent loss of value of its stocks. The injury complained
of is thus primarily to the corporation, so that the suit for the
damages claimed should be by the corporation rather than
by the stockholders (3 Fletcher, Cyclopedia of Corporation
pp. 977-980). The stockholders may not directly claim those
damages for themselves for that would result in the
appropriation by, and the distribution among them of part of
the corporate assets before the dissolution of the
corporation and the liquidation of its debts and liabilities,
something which cannot be legally done in view of section
16 of the Corporation Law, which provides:
No shall corporation shall make or declare any stock or bond
dividend or any dividend whatsoever except from the
surplus profits arising from its business, or divide or
distribute its capital stock or property other than actual
profits among its members or stockholders until after the
payment of its debts and the termination of its existence by
limitation or lawful dissolution.
xxxx
In the present case, the plaintiff stockholders have brought
the action not for the benefit of the corporation but for their
own benefit, since they ask that the defendant make good
the losses occasioned by his mismanagement and pay to
them the value of their respective participation in the
corporate assets on the basis of their respective holdings.
Clearly, this cannot be done until all corporate debts, if
there be any, are paid and the existence of the corporation
terminated by the limitation of its charter or by lawful
dissolution in view of the provisions of section 16 of the
Corporation Law. (Emphasis ours)
It results that plaintiffs complaint shows no cause of action
in their favor so that the lower court did not err in dismissing
the complaint on that ground.
While plaintiffs ask for remedy to which they are not entitled
unless the requirement of section 16 of the Corporation Law
be first complied with, we note that the action stated in their
complaint is susceptible of being converted into a derivative
suit for the benefit of the corporation by a mere change in
the prayer. Such amendment, however, is not possible now,
since the complaint has been filed in the wrong court, so
that the same has to be dismissed.46
That Maraon knew that Arc Cuisine, Inc. owned the
properties levied on attachment but he still excluded Arc
Cuisine, Inc. from his complaint was of no consequence now.
The Cuencas and Tayactac still had no right of action even if
the affected properties were then under their custody at the
time of the attachment, considering that their custody was
only incidental to the operation of the corporation.
It is true, too, that the Cuencas and Tayactac could bring in
behalf of Arc Cuisine, Inc. a proper action to recover
damages resulting from the attachment. Such action would
be one directly brought in the name of the corporation. Yet,
that was not true here, for, instead, the Cuencas and
Tayactac presented the claim in their own names.
In view of the outcome just reached, the Court deems it
unnecessary to give any extensive consideration to the
remaining issues.
WHEREFORE, the Court GRANTS the petition for review; and
REVERSES and SETS ASIDE the decision of the Court of
Appeals in CA-G.R. CV No. 79145 promulgated on January
31,2006.
No pronouncements on costs of suit.
SO ORDERED.
Polymer rubber corp vs. Salamuding, G.R. No. 185160, July
24, 2013
The instant petition1 assails the Decision2 dated June 30,
2008 of the Court of Appeals (CA) in CA-G.R. SP No. 98387
directing the recall of the alias writ of execution and the
lifting of the notice of levy on the shares of stocks of
petitioner Joseph Ang (Ang). The Resolution3 dated
November 5, 2008 denied the motion for reconsideration
thereof.
The antecedent facts are as follows:
Herein respondent Bayolo Salamuding (Salamuding),
Mariano Gulanan and Rodolfo Raif (referred to as the
complainants) were employees of petitioner Polymer Rubber
Corporation (Polymer), who were dismissed after allegedly
committing certain irregularities against Polymer.
On July 24, 1990, the three employees filed a complaint
against Polymer and Ang (petitioners) for unfair labor
practice, illegal dismissal, non-payment of overtime
services, violation of Presidential Decree No. 851, with
prayer for reinstatement and payment of back wages,
attorneys fees, moral and exemplary damages.4
On November 21, 1990, the Labor Arbiter (LA) rendered a
decision, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered dismissing the
complainant unfair labor practice (sic) but directing the
respondent the following:
1. Reinstate complainants to their former position
with full back wages from the time they were illegally
dismissed up to the time of reinstatement.
 2. To pay individual complainants their 13th month
pay and for the year 1990 in the following amount:
a. Mariano Gulanan .. P3,194
b. Rodolfo Raif . P3,439 (SC) on a petition for certiorari. In a Resolution dated
c. Bayolo Salamuding P3,284 the NLRC with the further modification that the award of
3. To pay individual complainants overtime in the
amount of P1,335 each.
4. To pay individual complainants overtime in the
amount of P6,608.80 each.
5. To pay individual complainants moral and
exemplary damages in the amount of P10,000 each.
6. To pay attorneys fee equivalent to ten (10)
percent of the total monetary award of the
complainants.
SO ORDERED. 5 Recomputation and Issuance of Fifth (5th) Alias Writ of
A writ of execution was subsequently issued on April 18,
1991 to implement the aforesaid judgment.6
The petitioners appealed to the National Labor Relations
Commission (NLRC).
On April 7, 1992, the NLRC affirmed the decision of the LA
with modifications. The NLRC deleted the award of moral
and exemplary damages, service incentive pay, and
modified the computation of 13th month pay. 7 The
corresponding Entry of Judgment was made on September
25, 1992,8 and an alias writ of execution was issued on
October 29, 1992, based on the NLRC decision.9
The case was subsequently elevated to the Supreme Court
September 29, 1993, the Court affirmed the disposition of
overtime pay to the complainants was deleted. 10
On September 30, 1993, Polymer ceased its operations.11
Upon a motion dated November 11, 1994, the LA a quo
issued a writ of execution on November 16, 1994 based on
the SC resolution. Since the writ of execution was returned
unsatisfied, another alias writ of execution was issued on
June 4, 1997.12
In the latter part of 2004, Polymer with all its improvements
in the premises was gutted by fire.13
On December 2, 2004, the complainants filed a Motion for
Execution. The Research and Computation Unit of the NLRC
came up with the total amount of P2,962,737.65. Due to the
failure of the petitioners to comment/oppose the amount
despite notice, the LA approved said amount.14
Thus, on April 26, 2005, the LA issued a 5th Alias Writ of
Execution15 prayed for commanding the sheriff to collect the
amount.
In the implementation of this alias writ of execution dated
April 26, 2005, the shares of stocks of Ang at USA Resources
Corporation were levied.
On November 10, 2005, the petitioners moved to quash the
5th alias writ of execution, and to lift the notice of
garnishment.16 They alleged that: a) Ang should not be held
jointly and severally liable with Polymer since it was only the
latter which was held liable in the decision of the LA, NLRC
and the Supreme Court; b) the computation of the monetary
award in favor of the complainants in the amount
of P2,962,737.65 was misleading, anomalous and highly
erroneous; and c) the decision sought to be enforced by
mere motion is already barred by the statute of limitations.17
In an Order18 dated December 16, 2005, the LA granted the
motion. The LA ordered the quashal and recall of the writ of
execution, as well as the lifting of the notice of levy on Angs
shares of stocks.
The LA ruled that the Decision dated November 21, 1990 did
not contain any pronouncement that Ang was also liable. To
hold Ang liable at this stage when the decision had long
become final and executory will vary the tenor of the
judgment, or in excess of its terms. As to the extent of the
computation of the backwages, the same must only cover
the period during which the company was in actual
operation. Further, the LA found that the complainants
motion to execute the LAs decision was already barred by
the statute of limitations. The fallo of the decision reads:
WHEREFORE, premises all considered, an order is hereby
rendered quashing and recalling the Writ of Execution and
lifting the Notice of Levy on the Shares of Stocks of
respondent Joseph Ang.19
On appeal, the NLRC affirmed the findings of the LA in a
Decision20 dated September 27, 2006. It, however, made a
pronouncement that the complainants did not sleep on their
rights as they continued to file series of motions for the
execution of the monetary award and are, thus, not barred
by the statute of limitations. The appeal on the aspect of the
lifting of the notice of levy on the shares of stocks of Ang
was dismissed. The dispositive portion of the decision reads
as follows:
WHEREFORE, the assailed Order dated December 16, 2005
is hereby AFFIRMED with MODIFICATION declaring the rights
of the complainants to execute the Decision dated
November 21, 1990 not having barred by the statute of
limitations. The appeal is hereby, DISMISSED for lack of
merit.21
On January 12, 2007, the NLRC denied the motion for
reconsideration of the foregoing decision.22
Undeterred, Salamuding filed a Petition for
Certiorari23 before the CA.
On June 30, 2008, the CA found merit with the
petition.24 The CA stated that there has to be a responsible
person or persons working in the interest of Polymer who
may also be considered as the employer, invoking the cases
of NYK Intl. Knitwear Corp. Phils. v. NLRC 25 and A.C. Ransom
Labor Union-CCLU v. NLRC.26 Since Ang as the director of
Polymer was considered the highest ranking officer of
Polymer, he was therefore properly impleaded and may be
held jointly and severally liable for the obligations of
Polymer to its dismissed employees. Thus, the dispositive
portion of the assailed decision reads as follows:
WHEREFORE, the petition is granted in part. The Decision
dated September 27, 2006 and the Resolution dated January
12, 2007 of respondent NLRC are hereby annulled and set
aside insofar as they direct the recall and quashal of the Writ
of Execution and lifting of the Notice of Levy on the shares
of stock of respondent Joseph Ang. The Order dated
December 16, 2005 of the Honorable Labor Arbiter Ramon
Valentin C. Reyes is nullified.
Let the records of the case be remanded to the Labor Arbiter
for execution of the Decision dated November 21, 1990 as
modified by the NLRC against the respondents Polymer
Rubber Corporation and Joseph Ang.27
Aggrieved by the CA decision, the petitioners filed the
instant petition raising the following questions of law:
a. That upon the finality of the Decision, the same
can no longer be altered or modified;
b. That the Officer of the Corporation cannot be
personally held liable and be made to pay the liability
of the corporation;
c. That the losing party cannot be held liable to pay
the salaries and benefits of the employees beyond
the companies [sic] existence;
d. That the separation pay of employees of the
company which has closed its business permanently
is only half month salary for every year of service.28
There is merit in the petition.
"A corporation, as a juridical entity, may act only through its
directors, officers and employees. Obligations incurred as a
result of the directors and officers acts as corporate
agents, are not their personal liability but the direct
responsibility of the corporation they represent. As a rule,
they are only solidarily liable with the corporation for the
illegal termination of services of employees if they acted
with malice or bad faith."29
To hold a director or officer personally liable for corporate
obligations, two requisites must concur: (1) it must be
alleged in the complaint that the director or officer assented
to patently unlawful acts of the corporation or that the
officer was guilty of gross negligence or bad faith; and (2)
there must be proof that the officer acted in bad faith. 30
In the instant case, the CA imputed bad faith on the part of
the petitioners when Polymer ceased its operations the day
after the promulgation of the SC resolution in 1993 which
was allegedly meant to evade liability. The CA found it
necessary to pierce the corporate fiction and pointed at Ang
as the responsible person to pay for Salamudings money
claims. Except for this assertion, there is nothing in the
records that show that Ang was responsible for the acts
complained of. At any rate, we find that it will require a great
stretch of imagination to conclude that a corporation would
cease its operations if only to evade the payment of the
adjudged monetary awards in favor of three (3) of its
employees.
The dispositive portion of the LA Decision dated November
21, 1990 which Salamuding attempts to enforce does not
mention that Ang is jointly and severally liable with Polymer.
Ang is merely one of the incorporators of Polymer and to
single him out and require him to personally answer for the
liabilities of Polymer is without basis. In the absence of a
finding that he acted with malice or bad faith, it was error
for the CA to hold him responsible.
In Aliling v. Feliciano,31 the Court explained to wit:
The CA held the president of WWWEC, Jose B. Feliciano, San
Mateo and Lariosa jointly and severally liable for the
monetary awards of Aliling on the ground that the officers
are considered "employers" acting in the interest of the
corporation. The CA cited NYK International Knitwear
Corporation Philippines (NYK) v. National Labor Relations
Commission in support of its argument. Notably, NYK in turn
cited A.C. Ransom Labor Union-CCLU v. NLRC.
Such ruling has been reversed by the Court in Alba v.
Yupangco, where the Court ruled:
"By Order of September 5, 2007, the Labor Arbiter denied
respondents motion to quash the 3rd alias writ. Brushing
aside respondents contention that his liability is merely
joint, the Labor Arbiter ruled:
Such issue regarding the personal liability of the officers of a
corporation for the payment of wages and money claims to
its employees, as in the instant case, has long been resolved
by the Supreme Court in a long list of cases [A.C. Ransom
Labor Union-CLU vs. NLRC (142 SCRA 269) and reiterated in
the cases of Chua vs. NLRC (182 SCRA 353), Gudez vs. NLRC
(183 SCRA 644)]. In the aforementioned cases, the Supreme
Court has expressly held that the irresponsible officer of the
corporation (e.g., President) is liable for the corporations
obligations to its workers. Thus, respondent Yupangco, being
the president of the respondent YL Land and Ultra Motors
Corp., is properly jointly and severally liable with the
defendantcorporations for the labor claims of Complainants
Alba and De Guzman. x x x
xxxx
As reflected above, the Labor Arbiter held that respondents
liability is solidary.
There is solidary liability when the obligation expressly so
states, when the law so provides, or when the nature of the
obligation so requires. MAM Realty Development Corporation
v. NLRC, on solidary liability of corporate officers in labor
disputes, enlightens:
x x x A corporation being a juridical entity, may act only
through its directors, officers and
employees.1wphi1 Obligations incurred by them, acting as
such corporate agents are not theirs but the direct
accountabilities of the corporation they represent. True
solidary liabilities may at times be incurred but only when
exceptional circumstances warrant such as, generally, in the
following cases:
1. When directors and trustees or, in appropriate
cases, the officers of a corporation:
 (a) vote for or assent to patently unlawful acts
of the corporation;
(b) act in bad faith or with gross negligence in
directing the corporate affairs;
xxxx
In labor cases, for instance, the Court has held corporate
directors and officers solidarily liable with the corporation for
the termination of employment of employees done with
malice or in bad faith."32 (Citations omitted and
underscoring ours)
To hold Ang personally liable at this stage is quite unfair. The
judgment of the LA, as affirmed by the NLRC and later by
the SC had already long become final and executory. It has
been held that a final and executory judgment can no longer
be altered. The judgment may no longer be modified in any
respect, even if the modification is meant to correct what is
perceived to be an erroneous conclusion of fact or law, and
regardless of whether the modification is attempted to be
made by the court rendering it or by the highest Court of the
land.33 "Since the alias writ of execution did not conform, is
different from and thus went beyond or varied the tenor of
the judgment which gave it life, it is a nullity. To maintain
otherwise would be to ignore the constitutional provision
against depriving a person of his property without due
process of law."34
Anent the computation of their liability for the payment of
separation pay in lieu of reinstatement in favor of
Salamuding, the Court agrees with the ruling of the LA that
it must be computed only up to the time Polymer ceased
operations in September 1993. The computation must be
based on the number of days when Polymer was in actual
operation.35 It cannot be held liable to pay separation pay
beyond such closure of business because even if the illegally
dismissed employees would be reinstated, they could not
possibly work beyond the time of the cessation of its
operation.36 In the case of Chronicle Securities Corp. v.
NLRC,37 we ruled that even an employer who is "found guilty
of unfair labor practice in dismissing his employee may not
be ordered so to pay backwages beyond the date of closure
of business where such closure was due to legitimate
business reasons and not merely an attempt to defeat the
order of reinstatement."38
WHEREFORE, the petition is GRANTED. The Decision dated
June 30, 2008 and the Resolution dated November 5, 2008
of the Court of Appeals in CA-G.R. SP No. 98387 are SET
ASIDE. The Decision of the National Labor Relations
Commission dated September 27, 2006 is REINSTATED. Let
the records of the case be remanded to the Labor Arbiter for
proper computation of the award in accordance with this
decision.
SO ORDERED.
Kukan International Corp. vs. Amor Reyes, G.R. No. 182729,
September 29, 2010
This Petition for Review on Certiorari under Rule 45 seeks to
nullify and reverse the January 23, 2008 Decision1and the
April 16, 2008 Resolution2 rendered by the Court of Appeals
(CA) in CA-G.R. SP No. 100152.
The assailed CA decision affirmed the March 12, 2007 3 and
June 7, 20074 Orders of the Regional Trial Court (RTC) of
Manila, Branch 21, in Civil Case No. 99-93173,
entitled Romeo M. Morales, doing business under the name
and style RM Morales Trophies and Plaques v. Kukan, Inc. In
the said orders, the RTC disregarded the separate corporate
identities of Kukan, Inc. and Kukan International Corporation
and declared them to be one and the same entity.
Accordingly, the RTC held Kukan International Corporation,
albeit not impleaded in the underlying complaint of Romeo
M. Morales, liable for the judgment award decreed in a
Decision dated November 28, 20025 in favor of Morales and
against Kukan, Inc.
The Facts
Sometime in March 1998, Kukan, Inc. conducted a bidding
for the supply and installation of signages in a building
being constructed in Makati City. Morales tendered the
winning bid and was awarded the PhP 5 million contract.
Some of the items in the project award were later excluded
resulting in the corresponding reduction of the contract price
to PhP 3,388,502. Despite his compliance with his
contractual undertakings, Morales was only paid the amount
of PhP 1,976,371.07, leaving a balance of PhP 1,412,130.93,
which Kukan, Inc. refused to pay despite demands.
Shortchanged, Morales filed a Complaint6 with the RTC
against Kukan, Inc. for a sum of money, the case docketed
as Civil Case No. 99-93173 and eventually raffled to Branch
17 of the court.
Following the joinder of issues after Kukan, Inc. filed an
answer with counterclaim, trial ensued. However, starting
November 2000, Kukan, Inc. no longer appeared and
participated in the proceedings before the trial court,
prompting the RTC to declare Kukan, Inc. in default and
paving the way for Morales to present his evidence ex parte.
On November 28, 2002, the RTC rendered a Decision finding
for Morales and against Kukan, Inc., disposing as follows:
WHEREFORE, consistent with Section 5, Rule 18 of the 1997
Rules of Civil Procedure, and by preponderance of evidence,
judgment is hereby rendered in favor of the plaintiff,
ordering Kukan, Inc.:
1. to pay the sum of ONE MILLION TWO HUNDRED
ONE THOUSAND SEVEN HUNDRED TWENTY FOUR
PESOS (P1,201,724.00) with legal interest at 12% per
annum from February 17, 1999 until full payment;
2. to pay the sum of FIFTY THOUSAND PESOS
(P50,000.00) as moral damages;
3. to pay the sum of TWENTY THOUSAND PESOS,
(P20,000.00) as reasonable attorneys fees; and
4. to pay the sum of SEVEN THOUSAND NINE
HUNDRED SIXTY PESOS and SIX CENTAVOS
(P7,960.06) as litigation expenses.
For lack of factual foundation, the counterclaim is
DISMISSED.
IT IS SO ORDERED.7
After the above decision became final and executory,
Morales moved for and secured a writ of execution8 against
Kukan, Inc. The sheriff then levied upon various personal
properties found at what was supposed to be Kukan, Inc.s
office at Unit 2205, 88 Corporate Center, Salcedo Village,
Makati City. Alleging that it owned the properties thus levied
and that it was a different corporation from Kukan, Inc.,
Kukan International Corporation (KIC) filed an Affidavit of
Third-Party Claim. Notably, KIC was incorporated in August
2000, or shortly after Kukan, Inc. had stopped participating
in Civil Case No. 99-93173.
In reaction to the third party claim, Morales interposed an
Omnibus Motion dated April 30, 2003. In it, Morales prayed,
applying the principle of piercing the veil of corporate
fiction, that an order be issued for the satisfaction of the
judgment debt of Kukan, Inc. with the properties under the
name or in the possession of KIC, it being alleged that both
corporations are but one and the same entity. KIC opposed
Morales motion. By Order of May 29, 20039as reiterated in a
subsequent order, the court denied the omnibus motion.
In a bid to establish the link between KIC and Kukan, Inc.,
and thus determine the true relationship between the two,
Morales filed a Motion for Examination of Judgment Debtors
dated May 4, 2005. In this motion Morales sought that
subponae be issued against the primary stockholders of
Kukan, Inc., among them Michael Chan, a.k.a. Chan Kai Kit.
This too was denied by the trial court in an Order dated May
24, 2005.10
Morales then sought the inhibition of the presiding judge,
Eduardo B. Peralta, Jr., who eventually granted the motion.
The case was re-raffled to Branch 21, presided by public
respondent Judge Amor Reyes.
Before the Manila RTC, Branch 21, Morales filed a Motion to
Pierce the Veil of Corporate Fiction to declare KIC as having
no existence separate from Kukan, Inc. This time around, the
RTC, by Order dated March 12, 2007, granted the motion,
the dispositive portion of which reads:
WHEREFORE, premises considered, the motion is hereby
GRANTED. The Court hereby declares as follows:
1. defendant Kukan, Inc. and newly created Kukan
International Corp. as one and the same corporation;
2. the levy made on the properties of Kukan
International Corp. is hereby valid;
3. Kukan International Corp. and Michael Chan are
jointly and severally liable to pay the amount
awarded to plaintiff pursuant to the decision of
November [28], 2002 which has long been final and
executory.
SO ORDERED.
From the above order, KIC moved but was denied
reconsideration in another Order dated June 7, 2007.
KIC went to the CA on a petition for certiorari to nullify the
aforesaid March 12 and June 7, 2007 RTC Orders.
On January 23, 2008, the CA rendered the assailed decision,
the dispositive portion of which states:
WHEREFORE, premises considered, the petition is hereby
DENIED and the assailed Orders dated March 12, 2007 and
June 7, 2007 of the court a quo are both AFFIRMED. No
costs.
SO ORDERED.11
The CA later denied KICs motion for reconsideration in the
assailed resolution.
Hence, the instant petition for review, with the following
issues KIC raises for the Courts consideration:
1. There is no legal basis for the [CA] to resolve and
declare that petitioners Constitutional Right to Due
Process was not violated by the public respondent in
rendering the Orders dated March 12, 2007 and June
7, 2007 and in declaring petitioner to be liable for the
judgment obligations of the corporation "Kukan, Inc."
to private respondent as petitioner is a stranger to
the case and was never made a party in the case
before the trial court nor was it ever served a
summons and a copy of the complaint.
2. There is no legal basis for the [CA] to resolve and
declare that the Orders dated March 12, 2007 and
June 7, 2007 rendered by public respondent declaring
the petitioner liable to the judgment obligations of
the corporation "Kukan, Inc." to private respondent
are valid as said orders of the public respondent
modify and/or amend the trial courts final and
executory decision rendered on November 28, 2002.
3. There is no legal basis for the [CA] to resolve and
declare that the Orders dated March 12, 2007 and
June 7, 2007 rendered by public respondent declaring
the petitioner [KIC] and the corporation "Kukan, Inc."
as one and the same, and, therefore, the Veil of
Corporate Fiction between them be pierced as the
procedure undertaken by public respondent which
the [CA] upheld is not sanctioned by the Rules of
Court and/or established jurisprudence enunciated by
this Honorable Supreme Court.12
In gist, the issues to be resolved boil down to the question
of, first, whether the trial court can, after the judgment
against Kukan, Inc. has attained finality, execute it against
the property of KIC; second, whether the trial court acquired
jurisdiction over KIC; and third, whether the trial and
appellate courts correctly applied, under the premises, the
principle of piercing the veil of corporate fiction.
The Ruling of the Court
The petition is meritorious.
First Issue: Against Whom Can a Final and
Executory Judgment Be Executed
The preliminary question that must be answered is whether
or not the trial court can, after adjudging Kukan, Inc. liable
for a sum of money in a final and executory judgment,
execute such judgment debt against the property of KIC.
The poser must be answered in the negative.
In Carpio v. Doroja,13 the Court ruled that the deciding court
has supervisory control over the execution of its judgment:
A case in which an execution has been issued is regarded as
still pending so that all proceedings on the execution are
proceedings in the suit. There is no question that the court
which rendered the judgment has a general supervisory
control over its process of execution, and this power carries
with it the right to determine every question of fact and law
which may be involved in the execution.
We reiterated the above holding in Javier v. Court of
Appeals14 in this wise: "The said branch has a general
supervisory control over its processes in the execution of its
judgment with a right to determine every question of fact
and law which may be involved in the execution."
The courts supervisory control does not, however, extend
as to authorize the alteration or amendment of a final and
executory decision, save for certain recognized exceptions,
among which is the correction of clerical errors. Else, the
court violates the principle of finality of judgment and its
immutability, concepts which the Court, in Tan v.
Timbal,15 defined:
As we held in Industrial Management International
Development Corporation vs. NLRC:
It is an elementary principle of procedure that the resolution
of the court in a given issue as embodied in the dispositive
part of a decision or order is the controlling factor as to
settlement of rights of the parties. Once a decision or order
becomes final and executory, it is removed from the power
or jurisdiction of the court which rendered it to further alter
or amend it. It thereby becomes immutable and unalterable
and any amendment or alteration which substantially affects
a final and executory judgment is null and void for lack of
jurisdiction, including the entire proceedings held for that
purpose. An order of execution which varies the tenor of the
judgment or exceeds the terms thereof is a nullity.
(Emphasis supplied.)
Republic v. Tango16 expounded on the same principle and its
exceptions:
Deeply ingrained in our jurisprudence is the principle that a
decision that has acquired finality becomes
immutable and unalterable. As such, it may no longer
be modified in any respect even if the modification is
meant to correct erroneous conclusions of fact or law and
whether it will be made by the court that rendered it or by
the highest court of the land. x x x
The doctrine of finality of judgment is grounded on the
fundamental principle of public policy and sound practice
that, at the risk of occasional error, the judgment of courts
and the award of quasi-judicial agencies must become final
on some definite date fixed by law. The only exceptions to
the general rule are the correction of clerical errors, the so-
called nunc pro tunc entries which cause no prejudice to any
party, void judgments, and whenever circumstances
transpire after the finality of the decision which render its
execution unjust and inequitable. None of the exceptions
obtains here to merit the review sought. (Emphasis added.)
So, did the RTC, in breach of the doctrine of immutability
and inalterability of judgment, order the execution of its final
decision in a manner as would amount to its prohibited
alteration or modification?
We repair to the dispositive portion of the final and
executory RTC decision. Pertinently, it provides:
WHEREFORE, consistent with Section 5, Rule 18 of the 1997
Rules of Civil Procedure, and by preponderance of evidence,
judgment is hereby rendered in favor of the plaintiff,
ordering Kukan, Inc.:
1. to pay the sum of ONE MILLION TWO HUNDRED
ONE THOUSAND SEVEN HUNDRED TWENTY FOUR
PESOS (P1,201,724.00) with legal interest at 12% per
annum from February 17, 1999 until full payment;
2. to pay the sum of FIFTY THOUSAND PESOS
(P50,000.00) as moral damages;
3. to pay the sum of TWENTY THOUSAND PESOS
(P20,000.00) as reasonable attorneys fees; and
4. to pay the sum of SEVEN THOUSAND NINE
HUNDRED SIXTY PESOS and SIX CENTAVOS
(P7,960.06) as litigation expenses.
x x x x (Emphasis supplied.)
As may be noted, the above decision, in unequivocal terms,
directed Kukan, Inc. to pay the aforementioned awards to
Morales. Thus, making KIC, thru the medium of a writ of
execution, answerable for the above judgment liability is a
clear case of altering a decision, an instance of granting
relief not contemplated in the decision sought to be
executed. And the change does not fall under any of the
recognized exceptions to the doctrine of finality and
immutability of judgment. It is a settled rule that a writ of
execution must conform to the fallo of the judgment; as an
inevitable corollary, a writ beyond the terms of the
judgment is a nullity.17
Thus, on this ground alone, the instant petition can already
be granted. Nonetheless, an examination of the other issues
raised by KIC would be proper.
Second Issue: Propriety of the RTC
Assuming Jurisdiction over KIC
The next issue turns on the validity of the execution the trial
court authorized against KIC and its property, given that it
was neither made a party nor impleaded in Civil Case No.
99-93173, let alone served with summons. In other words,
did the trial court acquire jurisdiction over KIC?
In the assailed decision, the appellate court deemed KIC to
have voluntarily submitted itself to the jurisdiction of the
trial court owing to its filing of four (4) pleadings adverted to
earlier, namely: (a) the Affidavit of Third-Party Claim;18 (b)
the Comment and Opposition to Plaintiffs Omnibus
Motion;19 (c) the Motion for Reconsideration of the RTC Order
dated March 12, 2007;20 and (d) the Motion for Leave to
Admit Reply.21 The CA, citing Section 20, Rule 14 of the Rules
of Court, stated that "the procedural rule on service of
summons can be waived by voluntary submission to the
courts jurisdiction through any form of appearance by the
party or its counsel."22
We cannot give imprimatur to the appellate courts
appreciation of the thrust of Sec. 20, Rule 14 of the Rules in
concluding that the trial court acquired jurisdiction over KIC.
Orion Security Corporation v. Kalfam Enterprises,
Inc.23 explains how courts acquire jurisdiction over the
parties in a civil case:
Courts acquire jurisdiction over the plaintiffs upon the filing
of the complaint. On the other hand, jurisdiction over the
defendants in a civil case is acquired either through the
service of summons upon them or through their voluntary
appearance in court and their submission to its authority.
(Emphasis supplied.)
In the fairly recent Palma v. Galvez,24 the Court reiterated its
holding in Orion Security Corporation, stating: "[I]n civil
cases, the trial court acquires jurisdiction over the person of
the defendant either by the service of summons or by the
latters voluntary appearance and submission to the
authority of the former."
The courts jurisdiction over a party-defendant resulting
from his voluntary submission to its authority is provided
under Sec. 20, Rule 14 of the Rules, which states:
Section 20. Voluntary appearance. The defendants
voluntary appearance in the actions shall be equivalent to
service of summons. The inclusion in a motion to dismiss of
other grounds aside from lack of jurisdiction over the person
of the defendant shall not be deemed a voluntary
appearance.
To be sure, the CAs ruling that any form of appearance by
the party or its counsel is deemed as voluntary appearance
finds support in the kindred Republic v. Ker & Co., Ltd. 25 and
De Midgely v. Ferandos.26
Republic and De Midgely, however, have already been
modified if not altogether superseded27 by La Naval Drug
Corporation v. Court of Appeals,28 wherein the Court
essentially ruled and elucidated on the current view in our
jurisdiction, to wit: "[A] special appearance before the
courtchallenging its jurisdiction over the person through a
motion to dismiss even if the movant invokes other
groundsis not tantamount to estoppel or a waiver by the
movant of his objection to jurisdiction over his person; and
such is not constitutive of a voluntary submission to the
jurisdiction of the court."29
In the instant case, KIC was not made a party-defendant in
Civil Case No. 99-93173. Even if it is conceded that it raised
affirmative defenses through its aforementioned pleadings,
KIC never abandoned its challenge, however implicit, to the
RTCs jurisdiction over its person. The challenge was
subsumed in KICs primary assertion that it was not the
same entity as Kukan, Inc. Pertinently, in its Comment and
Opposition to Plaintiffs Omnibus Motion dated May 20,
2003, KIC entered its "special but not voluntary
appearance" alleging therein that it was a different entity
and has a separate legal personality from Kukan, Inc. And
KIC would consistently reiterate this assertion in all its
pleadings, thus effectively resisting all along the RTCs
jurisdiction of its person. It cannot be overemphasized that
KIC could not file before the RTC a motion to dismiss and its
attachments in Civil Case No. 99-93173, precisely because
KIC was neither impleaded nor served with summons.
Consequently, KIC could only assert and claim through its
affidavits, comments, and motions filed by special
appearance before the RTC that it is separate and distinct
from Kukan, Inc.
Following La Naval Drug Corporation,30 KIC cannot be
deemed to have waived its objection to the courts lack of
jurisdiction over its person. It would defy logic to say that
KIC unequivocally submitted itself to the jurisdiction of the
RTC when it strongly asserted that it and Kukan, Inc. are
different entities. In the scheme of things obtaining, KIC had
no other option but to insist on its separate identity and
plead for relief consistent with that position.
Third Issue: Piercing the
Veil of Corporate Fiction
The third and main issue in this case is whether or not the
trial and appellate courts correctly applied the principle of
piercing the veil of corporate entitycalled also as
disregarding the fiction of a separate juridical personality of
a corporationto support a conclusion that Kukan, Inc. and
KIC are but one and the same corporation with respect to
the contract award referred to at the outset. This principle
finds its context on the postulate that a corporation is an
artificial being invested with a personality separate and
distinct from those of the stockholders and from other
corporations to which it may be connected or related.31
In Pantranco Employees Association (PEA-PTGWO) v.
National Labor Relations Commission,32 the Court revisited
the subject principle of piercing the veil of corporate fiction
and wrote:
Under the doctrine of "piercing the veil of corporate fiction,"
the court looks at the corporation as a mere collection of
individuals or an aggregation of persons undertaking
business as a group, disregarding the separate juridical
personality of the corporation unifying the group. Another
formulation of this doctrine is that when two business
enterprises are owned, conducted and controlled by the
same parties, both law and equity will, when necessary to
protect the rights of third parties, disregard the legal fiction
that two corporations are distinct entities and treat them as
identical or as one and the same.
Whether the separate personality of the corporation
should be pierced hinges on obtaining facts
appropriately pleaded or proved. However, any piercing
of the corporate veil has to be done with caution, albeit the
Court will not hesitate to disregard the corporate veil when
it is misused or when necessary in the interest of justice. x x
x (Emphasis supplied.)
The same principle was the subject and discussed
in Rivera v. United Laboratories, Inc.:
While a corporation may exist for any lawful purpose, the
law will regard it as an association of persons or, in case of
two corporations, merge them into one, when its corporate
legal entity is used as a cloak for fraud or illegality. This is
the doctrine of piercing the veil of corporate fiction. The
doctrine applies only when such corporate fiction is used to
defeat public convenience, justify wrong, protect fraud, or
defend crime, or when it is made as a shield to confuse the
legitimate issues, or where a corporation is the mere alter
ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are
so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.
To disregard the separate juridical personality of a
corporation, the wrongdoing must be established clearly and
convincingly. It cannot be presumed.33 (Emphasis supplied.)
Now, as before the appellate court, petitioner KIC maintains
that the RTC violated its right to due process when, in the
execution of its November 28, 2002 Decision, the court
authorized the issuance of the writ against KIC for Kukan,
Inc.s judgment debt, albeit KIC has never been a party to
the underlying suit. As a counterpoint, Morales argues that
KICs specific concern on due process and on the validity of
the writ to execute the RTCs November 28, 2002 Decision
would be mooted if it were established that KIC and Kukan,
Inc. are indeed one and the same corporation.
Morales contention is untenable.
The principle of piercing the veil of corporate fiction, and the
resulting treatment of two related corporations as one and
the same juridical person with respect to a given
transaction, is basically applied only to determine
established liability;34 it is not available to confer on the
court a jurisdiction it has not acquired, in the first place,
over a party not impleaded in a case. Elsewise put, a
corporation not impleaded in a suit cannot be subject to the
courts process of piercing the veil of its corporate fiction. In
that situation, the court has not acquired jurisdiction over
the corporation and, hence, any proceedings taken against
that corporation and its property would infringe on its right
to due process. Aguedo Agbayani, a recognized authority on
Commercial Law, stated as much:
23. Piercing the veil of corporate entity applies to
determination of liability not of jurisdiction. x x x
This is so because the doctrine of piercing the veil of
corporate fiction comes to play only during the trial of the
case after the court has already acquired jurisdiction over
the corporation. Hence, before this doctrine can be applied,
based on the evidence presented, it is imperative that the
court must first have jurisdiction over the corporation.35 x x
x (Emphasis supplied.)
The implication of the above comment is twofold: (1) the
court must first acquire jurisdiction over the corporation or
corporations involved before its or their separate
personalities are disregarded; and (2) the doctrine of
piercing the veil of corporate entity can only be raised
during a full-blown trial over a cause of action duly
commenced involving parties duly brought under the
authority of the court by way of service of summons or what
passes as such service.
The issue of jurisdiction or the lack of it over KIC has already
been discussed. Anent the matter of the time and manner of
raising the principle in question, it is undisputed that no full-
blown trial involving KIC was had when the RTC disregarded
the corporate veil of KIC. The reason for this actuality is
simple and undisputed: KIC was not impleaded in Civil Case
No. 99-93173 and that the RTC did not acquire jurisdiction
over it. It was dragged to the case after it reacted to the
improper execution of its properties and veritably hauled to
court, not thru the usual process of service of summons, but
by mere motion of a party with whom it has no privity of
contract and after the decision in the main case had already
become final and executory. As to the propriety of a plea for
the application of the principle by mere motion, the
following excerpts are instructive:
Generally, a motion is appropriate only in the absence of
remedies by regular pleadings, and is not available to settle
important questions of law, or to dispose of the merits of the
case. A motion is usually a proceeding incidental to an
action, but it may be a wholly distinct or independent
proceeding. A motion in this sense is not within this
discussion even though the relief demanded is denominated
an "order."
A motion generally relates to procedure and is often
resorted to in order to correct errors which have crept in
along the line of the principal actions progress. Generally,
where there is a procedural defect in a proceeding and no
method under statute or rule of court by which it may be
called to the attention of the court, a motion is an
appropriate remedy. In many jurisdictions, the motion has
replaced the common-law pleas testing the sufficiency of
the pleadings, and various common-law writs, such as writ
of error coram nobis and audita querela. In some cases, a
motion may be one of several remedies available. For
example, in some jurisdictions, a motion to vacate an order
is a remedy alternative to an appeal therefrom.
Statutes governing motions are given a liberal
construction.36 (Emphasis supplied.)
The bottom line issue of whether Morales can proceed
against KIC for the judgment debt of Kukan, Inc.assuming
hypothetically that he can, applying the piercing the
corporate veil principleresolves itself into the question of
whether a mere motion is the appropriate vehicle for such
purpose.
Verily, Morales espouses the application of the principle of
piercing the corporate veil to hold KIC liable on theory that
Kukan, Inc. was out to defraud him through the use of the
separate and distinct personality of another corporation,
KIC. In net effect, Morales adverted motion to pierce the
veil of corporate fiction dated January 3, 2007 stated a new
cause of action, i.e., for the liability of judgment debtor
Kukan, Inc. to be borne by KIC on the alleged identity of the
two corporations. This new cause of action should be
properly ventilated in another complaint and subsequent
trial where the doctrine of piercing the corporate veil can, if
appropriate, be applied, based on the evidence adduced.
Establishing the claim of Morales and the corresponding
liability of KIC for Kukan Inc.s indebtedness could hardly be
the subject, under the premises, of a mere motion
interposed after the principal action against Kukan, Inc.
alone had peremptorily been terminated. After all, a
complaint is one where the plaintiff alleges causes of action.
In any event, the principle of piercing the veil of corporate
fiction finds no application to the instant case.
As a general rule, courts should be wary of lifting the
corporate veil between corporations, however related.
Philippine National Bank v. Andrada Electric Engineering
Company37 explains why:
A corporation is an artificial being created by operation of
law. x x x It has a personality separate and distinct from the
persons composing it, as well as from any other legal entity
to which it may be related. This is basic.
Equally well-settled is the principle that the corporate mask
may be removed or the corporate veil pierced when the
corporation is just an alter ego of a person or of another
corporation. For reasons of public policy and in the interest
of justice, the corporate veil will justifiably be impaled only
when it becomes a shield for fraud, illegality or inequity
committed against third persons.
Hence, any application of the doctrine of piercing the
corporate veil should be done with caution. A court should
be mindful of the milieu where it is to be applied. It must be
certain that the corporate fiction was misused to such an
extent that injustice, fraud, or crime was committed against
another, in disregard of its rights. The wrongdoing must be
clearly and convincingly established; it cannot be presumed.
Otherwise, an injustice that was never unintended may
result from an erroneous application.
This Court has pierced the corporate veil to ward off a
judgment credit, to avoid inclusion of corporate assets as
part of the estate of the decedent, to escape liability arising
from a debt, or to perpetuate fraud and/or confuse
legitimate issues either to promote or to shield unfair
objectives or to cover up an otherwise blatant violation of
the prohibition against forum-shopping. Only in these and
similar instances may the veil be pierced and
disregarded. (Emphasis supplied.)
In fine, to justify the piercing of the veil of corporate fiction,
it must be shown by clear and convincing proof that the
separate and distinct personality of the corporation was
purposefully employed to evade a legitimate and binding
commitment and perpetuate a fraud or like wrongdoings. To
be sure, the Court has, on numerous occasions,38 applied the
principle where a corporation is dissolved and its assets are
transferred to another to avoid a financial liability of the first
corporation with the result that the second corporation
should be considered a continuation and successor of the
first entity.
In those instances when the Court pierced the veil of
corporate fiction of two corporations, there was a confluence
of the following factors:
1. A first corporation is dissolved;
2. The assets of the first corporation is transferred to
a second corporation to avoid a financial liability of
the first corporation; and
3. Both corporations are owned and controlled by the
same persons such that the second corporation
should be considered as a continuation and
successor of the first corporation.
In the instant case, however, the second and third factors
are conspicuously absent. There is, therefore, no compelling
justification for disregarding the fiction of corporate entity
separating Kukan, Inc. from KIC. In applying the principle,
both the RTC and the CA miserably failed to identify the
presence of the abovementioned factors. Consider:
The RTC disregarded the separate corporate personalities of
Kukan, Inc. and KIC based on the following premises and
arguments:
While it is true that a corporation has a separate and distinct
personality from its stockholder, director and officers, the
law expressly provides for an exception. When Michael
Chan, the Managing Director of defendant Kukan, Inc.
(majority stockholder of the newly formed corporation [KIC])
confirmed the award to plaintiff to supply and install interior
signages in the Enterprise Center he (Michael Chan,
Managing Director of defendant Kukan, Inc.) knew that there
was no sufficient corporate funds to pay its
obligation/account, thus implying bad faith on his part and
fraud in contracting the obligation. Michael Chan neither
returned the interior signages nor tendered payment to the
plaintiff. This circumstance may warrant the piercing of the
veil of corporation fiction. Having been guilty of bad faith in
the management of corporate matters the corporate
trustee, director or officer may be held personally liable. x x
x corporate veil.41 And indeed, the records do not show the
Since fraud is a state of mind, it need not be proved by
direct evidence but may be inferred from the circumstances
of the case. x x x [A]nd the circumstances are: the signature
of Michael Chan, Managing Director of Kukan, Inc. appearing
in the confirmation of the award sent to the plaintiff;
signature of Chan Kai Kit, a British National appearing in the
Articles of Incorporation and signature of Michael Chan also
a British National appearing in the Articles of Incorporation
[of] Kukan International Corp. give the impression that they
are one and the same person, that Michael Chan and Chan
Kai Kit are both majority stockholders of Kukan International
Corp. and Kukan, Inc. holding 40% of the stocks; that Kukan
International Corp. is practically doing the same kind of
business as that of Kukan, Inc.39 (Emphasis supplied.)
As is apparent from its disquisition, the RTC brushed aside
the separate corporate existence of Kukan, Inc. and KIC on
the main argument that Michael Chan owns 40% of the
common shares of both corporations, obviously oblivious
that overlapping stock ownership is a common business
phenomenon. It must be remembered, however, that KICs
properties were the ones seized upon levy on execution and
not that of Kukan, Inc. or of Michael Chan for that matter.
Mere ownership by a single stockholder or by another
corporation of a substantial block of shares of a corporation
does not, standing alone, provide sufficient justification for
disregarding the separate corporate personality.40 For this
ground to hold sway in this case, there must be proof that
Chan had control or complete dominion of Kukan and KICs
finances, policies, and business practices; he used such
control to commit fraud; and the control was the proximate
cause of the financial loss complained of by Morales. The
absence of any of the elements prevents the piercing of the
presence of these elements.
On the other hand, the CA held:
In the present case, the facts disclose that Kukan, Inc.
entered into a contractual obligation x x x worth more than
three million pesos although it had only Php5,000.00 paid-
up capital; [KIC] was incorporated shortly before Kukan, Inc.
suddenly ceased to appear and participate in the trial;
[KICs] purpose is related and somewhat akin to that of
Kukan, Inc.; and in [KIC] Michael Chan, a.k.a., Chan Kai Kit,
holds forty percent of the outstanding stocks, while he
formerly held the same amount of stocks in Kukan Inc.
These would lead to the inescapable conclusion that Kukan,
Inc. committed fraudulent representation by awarding to the
private respondent the contract with full knowledge that it
was not in a position to comply with the obligation it had
assumed because of inadequate paid-up capital. It bears
stressing that shareholders should in good faith put at the
risk of the business, unencumbered capital reasonably
adequate for its prospective liabilities. The capital should
not be illusory or trifling compared with the business to be
done and the risk of loss.
Further, it is clear that [KIC] is a continuation and successor
of Kukan, Inc. Michael Chan, a.k.a. Chan Kai Kit has the
largest block of shares in both business enterprises. The
emergence of the former was cleverly timed with the hasty
withdrawal of the latter during the trial to avoid the financial
liability that was eventually suffered by the latter. The two
companies have a related business purpose. Considering
these circumstances, the obvious conclusion is that the
creation of Kukan International Corporation served as a
device to evade the obligation incurred by Kukan, Inc. and
yet profit from the goodwill attained by the name "Kukan"
by continuing to engage in the same line of business with
the same list of clients.42 (Emphasis supplied.)
Evidently, the CA found the meager paid-up capitalization of
Kukan, Inc. and the similarity of the business activities in
which both corporations are engaged as a jumping board to
its conclusion that the creation of KIC "served as a device to
evade the obligation incurred by Kukan, Inc." The appellate
court, however, left a gaping hole by failing to demonstrate
that Kukan, Inc. and its stockholders defrauded Morales. In
fine, there is no showing that the incorporation, and the
separate and distinct personality, of KIC was used to defeat
Morales right to recover from Kukan, Inc. Judging from the
records, no serious attempt was made to levy on the
properties of Kukan, Inc. Morales could not, thus, validly
argue that Kukan, Inc. tried to avoid liability or had no
property against which to proceed.
Morales further contends that Kukan, Inc.s closure is
evidenced by its failure to file its 2001 General Information
Sheet (GIS) with the Securities and Exchange Commission.
However, such fact does not necessarily mean that Kukan,
Inc. had altogether ceased operations, as Morales would
have this Court believe, for it is stated on the face of the GIS
that it is only upon a failure to file the corporate GIS for five
(5) consecutive years that non-operation shall be presumed.
The fact that Kukan, Inc. entered into a PhP 3.3 million
contract when it only had a paid-up capital of PhP 5,000 is
not an indication of the intent on the part of its
management to defraud creditors. Paid-up capital is merely
seed money to start a corporation or a business entity. As in
this case, it merely represented the capitalization upon
incorporation in 1997 of Kukan, Inc. Paid-up capitalization of
PhP 5,000 is not and should not be taken as a reflection of
the firms capacity to meet its recurrent and long-term
obligations. It must be borne in mind that the equity portion
cannot be equated to the viability of a business concern, for
the best test is the working capital which consists of the
liquid assets of a given business relating to the nature of the
business concern.lawphil
Neither should the level of paid-up capital of Kukan, Inc.
upon its incorporation be viewed as a badge of fraud, for it
is in compliance with Sec. 13 of the Corporation
Code,43 which only requires a minimum paid-up capital of
PhP 5,000.1avvphi1
The suggestion that KIC is but a continuation and successor
of Kukan, Inc., owned and controlled as they are by the
same stockholders, stands without factual basis. It is true
that Michael Chan, a.k.a. Chan Kai Kit, owns 40% of the
outstanding capital stock of both corporations. But such
circumstance, standing alone, is insufficient to establish
identity. There must be at least a substantial identity of
stockholders for both corporations in order to consider this
factor to be constitutive of corporate identity.
It would not avail Morales any to rely44 on General Credit
Corporation v. Alsons Development and Investment
Corporation.45 General Credit Corporation is factually not on
all fours with the instant case. There, the common
stockholders of the corporations represented 90% of the
outstanding capital stock of the companies, unlike here
where Michael Chan merely represents 40% of the
outstanding capital stock of both KIC and Kukan, Inc., not
even a majority of it. In that case, moreover, evidence was
adduced to support the finding that the funds of the second
corporation came from the first. Finally, there was proof in
General Credit Corporation of complete control, such that
one corporation was a mere dummy or alter ego of the
other, which is absent in the instant case.
Evidently, the aforementioned case relied upon by Morales
cannot justify the application of the principle of piercing the
veil of corporate fiction to the instant case. As shown by the
records, the name Michael Chan, the similarity of business
activities engaged in, and incidentally the word "Kukan"
appearing in the corporate names provide the nexus
between Kukan, Inc. and KIC. As illustrated, these
circumstances are insufficient to establish the identity of KIC
as the alter ego or successor of Kukan, Inc.
It bears reiterating that piercing the veil of corporate fiction
is frowned upon. Accordingly, those who seek to pierce the
veil must clearly establish that the separate and distinct
personalities of the corporations are set up to justify a
wrong, protect fraud, or perpetrate a deception. In the
concrete and on the assumption that the RTC has validly
acquired jurisdiction over the party concerned, Morales
ought to have proved by convincing evidence that Kukan,
Inc. was collapsed and thereafter KIC purposely formed and
operated to defraud him. Morales has not to us discharged
his burden.
WHEREFORE, the petition is hereby GRANTED. The CAs
January 23, 2008 Decision and April 16, 2008 Resolution in
CA-G.R. SP No. 100152 are hereby REVERSED and SET
ASIDE. The levy placed upon the personal properties of
Kukan International Corporation is hereby ordered lifted and
the personal properties ordered returned to Kukan
International Corporation. The RTC of Manila, Branch 21 is
hereby directed to execute the RTC Decision dated
November 28, 2002 against Kukan, Inc. with reasonable
dispatch.
No costs.
SO ORDERED.
Francisco vs. Mallen, Jr., G.R. No. 173169, September 22,
2010
The Case
This petition for review1 assails the 16 September 2005
Decision2 of the Court of Appeals in CA-G.R. SP No. 72115.
The Court of Appeals set aside the 21 December 2001
Decision3 of the National Labor Relations Commission (NLRC)
in NLRC NCR CA No. 022641-00 and reinstated the 25
August 1999 Decision4 of the Labor Arbiter in NLRC-NCR
Case No. 00-07-05608-98.
The Facts
On 5 April 1994, respondent Numeriano Mallen, Jr. was hired
as a waiter for VIPS Coffee Shop and Restaurant, a fine
dining restaurant which used to operate at the Harrison
Plaza Commercial Complex in Manila.
On 30 January 1998 to 1 February 1998, respondent took an
approved sick leave. On 15 February 1998, respondent took
a vacation leave. Thereafter, he availed of his paternity
leave.
On 18 April 1998, respondent suffered from tonsillitis,
forcing him to take a three-day sick leave from 18 April 1998
to 20 April 1998. However, instead of his applied three-day
sick leave, respondent was given three months leave. The
memorandum dated 28 April 1998 reads:
TO : Mr. Numeriano Mallen, Jr.
FROM : VIPS Dining Head
DATE : 28 April 1998
RE : AS STATED
====================================
=================
After a thorough review of your performance and the series
of Vacation Leaves (8 days), Paternity Leave (7 days) and
Sick Leave (7 days) due to several illness within the first
quarter of the year, we have concluded that you are not
physically fit and needs to recharge to enable you to regain
your physical fitness.
As such, we are awarding to you the rest of your
Vacation/Sick Leave plus Two and a half (2 ) months
(without pay) to rest and regain your physical health within
the prescribed vacation.
During your vacation, you are not allowed to loiter within the
premises of VIPS RESTAURANT; but instead to rest and do
some health exercise and medical check-up for your
physical fitness recovery program.
Moreover, when you report back to work, you are to present
to the management a certificate indicating that you are fit
to work regularly.
Your vacation shall take effect on April 30, 1998 up to
August 1, 1998.
For your information and guidance.
Sgd.
Mr. Patty C. Bocar
Noted By:
Sgd.
Ms. Ma. Theresa Linaja5
On 5 May 1998, respondent filed before the Department of
Labor and Employment-National Capital Region (DOLE-NCR)
a complaint for underpayment of wages and non-payment of
holiday pay.
Sometime in June 1998, respondent reported back to work
with a medical certificate stating he was fit to work but he
was refused work.
On 22 June 1998, the DOLE-NCR endorsed respondents
complaint to the NLRC when it determined that the issue of
constructive dismissal was involved. On 23 July 1998,
respondent filed a complaint for illegal dismissal before the
NLRC-NCR. On 3 August 1998, respondent again attempted
to return to work but was refused again.
The Ruling of the Labor Arbiter
On 25 August 1999, Labor Arbiter Madjayran H. Ajan
rendered a decision in favor of respondent. The Labor
Arbiter found that "complainants dismissal was the price of
his having filed a case with DOLE-NCR against the
respondents, plus his perennial absences, which
nevertheless is not a just cause. We likewise agree that the
gesture of respondents to reinstate or re-employ
complainant unconditionally during the proceedings did not
cure the illegality of complainants dismissal."
The dispositive portion of the Labor Arbiters decision reads:
WHEREFORE, premises above considered a decision is
hereby issued declaring the dismissal of the complainant
illegal. Consequently, respondents VIPs Coffee Shop &
Restaurant and/or Irene Francisco are ordered to reinstate
complainant to his former or equivalent position without loss
of seniority rights, and to pay complainant jointly and
severally his backwages hereby fixed at P88,000.00 as of
August 31, 1999, plus his paternity pay, and attorneys fees
equivalent to the monetary award, all in the aggregate of
ninety nine thousand three hundred fifty pesos and 90/100
centavos (P99,350.90).
Respondents are likewise ordered to pay
complainant P50,000.00 for moral damages and P20,000.00
for exemplary damages.
SO ORDERED.6
The Ruling of the NLRC
The NLRC found respondents filing of a complaint for illegal
dismissal premature. The NLRC stated "[t]his conclusion is
supported by the fact that in respondents memorandum to
complainant directing him to avail of his vacation/sick leave,
the same is to last from April 30, 1998 to August 1, 1998.
The complaint therefore filed on May 5, 1998 has no legal
basis to support itself. When he filed his complaint on May 5,
1998, his cause of action based on illegal dismissal has not
yet accrued."
Nevertheless, the NLRC noted, "a supervening event
occurred during the pendency of the instant case which is
the closure of VIPS Coffee Shop and Restaurant effective 26
August 1999, as evidenced by the Notice and report to the
Department of Labor and Employment (Annexes "1" and "2"
of Appeal). x x x This being the case, and in the spirit of
compassion, respondents are directed to pay complainant
his separation pay equivalent to one half month pay for
every year of service x x x."
The dispositive portion of the NLRCs decision reads:
WHEREFORE, the Decision of the Labor Arbiter dated August
25, 1999 is hereby MODIFIED and respondents are instead
directed to pay the complainant separation pay in the
amount of P13,750.00 plus his paternity leave pay in the
amount of P1,519.00 (P217.00 x 7 days). The award for
moral and exemplary damages are deleted and set aside for
lack of merit.
SO ORDERED.7
The Ruling of the Court of Appeals
The Court of Appeals found respondent constructively
dismissed for having been granted an increased three
months leave instead of the three days leave he applied for.
The dispositive portion of the Court of Appeals decision
reads:
WHEREFORE, the petition is hereby GRANTED. The
decision of the NLRC, First Division, dated December 21,
2001, is hereby SET ASIDE and the decision of Labor
Arbiter Madjayran H. Ajan dated August 25, 1999 is
hereby REINSTATED.
SO ORDERED.8
The Issue
The main issue in this case is whether petitioner is
personally liable for the monetary awards granted in favor of
respondent arising from his alleged illegal termination.
The Ruling of this Court
The petition has merit.
In Santos v. National Labor Relations Commission,9 the Court
held that "A corporation is a juridical entity with legal
personality separate and distinct from those acting for and
in its behalf and, in general, from the people comprising it.
The rule is that obligations incurred by the corporation,
acting through its directors, officers and employees, are its
sole liabilities."10
To hold a director or officer personally liable for corporate
obligations, two requisites must concur: (1) complainant
must allege in the complaint that the director or
officer assented to patently unlawful acts of the
corporation, or that the officer was guilty of gross
negligence or bad faith;11 and (2) complainant must
clearly and convincingly prove such unlawful acts,
negligence or bad faith.12
In Carag v. National Labor Relations Commission,13 the Court
did not hold a director personally liable for corporate
obligations because the two requisites are lacking, to wit:
Complainants did not allege in their complaint that
Carag willfully and knowingly voted for or assented
to any patently unlawful act of MAC. Complainants
did not present any evidence showing that Carag
willfully and knowingly voted for or assented to any
patently unlawful act of MAC. Neither did Arbiter
Ortiguerra make any finding to this effect in her Decision.
Complainants did not also allege that Carag is guilty
of gross negligence or bad faith in directing the
affairs of MAC. Complainants did not present any
evidence showing that Carag is guilty of gross
negligence or bad faith in directing the affairs of MAC.
Neither did Arbiter Ortiguerra make any finding to this effect
in her Decision.
xxxx
To hold a director personally liable for debts of the
corporation, and thus pierce the veil of corporate
fiction, the bad faith or wrongdoing of the director
must be established clearly and convincingly. Bad faith
is never presumed. Bad faith does not connote bad
judgment or negligence. Bad faith imports a dishonest
purpose. Bad faith means breach of a known duty through
some ill motive or interest. Bad faith partakes of the nature
of fraud. In Businessday Information Systems and Services,
Inc. v. NLRC, we held:
There is merit in the contention of petitioner Raul Locsin that
the complaint against him should be dismissed. A
corporate officer is not personally liable for the
money claims of discharged corporate employees
unless he acted with evident malice and bad faith in
terminating their employment. There is no evidence
in this case that Locsin acted in bad faith or with
malice in carrying out the retrenchment and eventual
closure of the company (Garcia vs. NLRC, 153 SCRA 640),
hence, he may not be held personally and solidarily liable
with the company for the satisfaction of the judgment in
favor of the retrenched employees.14 (Emphasis
supplied)1avvphi1
In McLeod v. NLRC,15 the Court did not hold a director, an
officer, and other corporations personally liable for
corporate obligations of the employer because the second
requisite was lacking. The Court held:
A corporation is an artificial being invested by law with a
personality separate and distinct from that of its
stockholders and from that of other corporations to which it
may be connected.
While a corporation may exist for any lawful purpose, the
law will regard it as an association of persons or, in case of
two corporations, merge them into one, when its corporate
legal entity is used as a cloak for fraud or illegality. This is
the doctrine of piercing the veil of corporate fiction. The
doctrine applies only when such corporate fiction is used to
defeat public convenience, justify wrong, protect fraud, or
defend crime, or when it is made as a shield to confuse the
legitimate issues, or where a corporation is the mere alter
ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are
so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.
To disregard the separate juridical personality of a
corporation, the wrongdoing must be established
clearly and convincingly. It cannot be
presumed.16 (Emphasis supplied)
In Lowe, Inc. v. Court of Appeals,17 the Court did not hold the
officers personally liable for corporate obligations because
the second requisite was lacking, thus:
It is settled that in the absence of malice, bad faith, or
specific provision of law, a director or an officer of a
corporation cannot be made personally liable for corporate
liabilities.
xxxx
Gustilo and Castro, as corporate officers of Lowe, have
personalities which are distinct and separate from that of
Lowes. Hence, in the absence of any evidence
showing that they acted with malice or in bad faith in
declaring Mutucs position redundant, Gustilo and
Castro are not personally liable for the monetary
awards to Mutuc.18 (Emphasis supplied)
In David v. National Federation of Labor Unions,19 the Court
did not hold an officer liable for corporate obligations
because the second requisite was lacking. The Court held
that "There was no showing of David willingly and knowingly
voting for or assenting to patently unlawful acts of the
corporation, or that David was guilty of gross negligence or
bad faith."20
In this case, the Labor Arbiter, whose decision was
reinstated by the Court of Appeals, stated that petitioner
acted with malice and bad faith in constructively dismissing
respondent. Thus, the Labor Arbiter held petitioner
personally liable for the monetary awards to respondent.
This finding lacks basis. Based on the records, respondent
failed to allege either in his complaint or position paper that
petitioner, as Vice-President of VIPS Coffee Shop and
Restaurant, acted in bad faith.21 Neither did respondent
clearly and convincingly prove that petitioner, as Vice-
President of VIPS Coffee Shop and Restaurant, acted in bad
faith. In fact, there was no evidence whatsoever to
show petitioners participation in respondents
alleged illegal dismissal. Clearly, the twin requisites of
allegation and proof of bad faith, necessary to hold
petitioner personally liable for the monetary awards to
respondent, are lacking.
In view of the foregoing, the Court deems it unnecessary to
determine whether respondent was constructively
dismissed. Besides, it appears from the records that VIPS
Coffee Shop and Restaurant did not challenge the adverse
Court of Appeals decision in CA-G.R. SP No. 72115,
rendering such decision final insofar as VIPS Coffee Shop
and Restaurant is concerned.22
WHEREFORE, we GRANT the petition. We MODIFY the
Court of Appeals Decision, dated 16 September 2005, in
CA-G.R. SP No. 72115 by holding petitioner Irene Martel
Francisco not liable for the monetary awards specified in the
reinstated Labor Arbiters Decision, dated 25 August 1999,
in NLRC-NCR Case No. 00-07-05608-98.
SO ORDERED.
Lozada vs. Mendoza, GR 196134, October 12, 2016 (pdf)