G.R. No. L-9687 June 30, 1961
Darras, Angel
LIDDELL & CO., INC., petitioner-appellant,
vs.
THE COLLECTOR OF INTERNAL REVENUE,
respondent-appellee.
Ozaeta, Lichauco and Picazo for petitioner-appellant.
Office of the Solicitor General for respondent-
appellee.
BENGZON, C.J.:
Statement. This is an appeal from the decision of the
Court of Tax Appeals imposing a tax deficiency
liability of P1,317,629.61 on Liddell & Co., Inc.
Said Company lists down several issues which may
be boiled to the following:
(a) Whether or not Judge Umali of the Tax
Court below could validly participate in the
making of the decision;
(b) Whether or not Liddell & Co. Inc., and
the Liddell Motors, Inc. are (practically)
identical corporations, the latter being
merely .the alter ego of the former;
(c) Whether or not, granting the identical
nature of the corporations, the assessment
of tax liability, including the surcharge
thereon by the Court of Tax Appeals, is
correct.
Undisputed Facts. The parties submitted a partial
stipulation of facts, each reserving the right to
present additional evidence.
Said undisputed facts are substantially as follows:
The petitioner, Liddell & Co. Inc., (Liddell &
Co. for short) is a domestic corporation
establish in the Philippines on February 1,
1946, with an authorized capital of
P100,000 divided into 1000 share at P100
each. Of this authorized capital, 196 shares
valued at P19,600 were subscribed and paid
by Frank Liddell while the other four shares
were in the name of Charles Kurz, E.J.
Darras, Angel Manzano and Julian Serrano at
one shares each. Its purpose was to engage
in the business of importing and retailing
Oldsmobile and Chevrolet passenger cars
and GMC and Chevrolet trucks..
On January 31, 1947, with the limited paid-
in capital of P20,000, Liddell & Co. was able
to declare a 90% stock dividend after which
declaration on, Frank Liddells holding in the
Company increased to 1,960 shares and the
employees, Charles Kurz E.J.
Manzano and Julian Serrano at 10 share
each. The declaration of stock dividend was
followed by a resolution increasing the
authorized capital of the company to
P1,000.000 which the Securities & Exchange
Commission approved on March 3, 1947.
Upon such approval, Frank Liddell
subscribed to 3,000 additional shares, for
which he paid into the corporation P300,000
so that he had in his own name 4,960
shares.
On May 24, 1957, Frank Liddell, on one hand
and Messrs. Kurz, Darras, Manzano and
Serrano on the other, executed an
agreement (Exhibit A) which was further
supplemented by two other agreements
(Exhibits B and C) dated May 24, 1947 and
June 3, 1948, wherein Frank Liddell
transferred (On June 7, 1948) to various
employees of Liddell & Co. shares of stock.
At the annual meeting of stockholders of
Liddell & Co. held on March 9, 1948, a 100%
stock dividend was declared, thereby
increasing the issued capital stock of aid
corporation from P1,000.000 to P 3,000,000
which increase was duly approved by the
Securities and Exchange Commission on
June 7, 1948. Frank Liddell subscribed to
and paid 20% of the increase of P400,000.
He paid 25% thereof in the amount of
P100,000 and the balance of P3,000,000
was merely debited to Frank Liddell-Drawing
Account and credited to Subscribed Capital
Stock on December 11, 1948.
On March 8, 1949, stock dividends were
again issued by Liddell & Co. and in
accordance with the agreements, Exhibits A,
B, and C, the stocks of said company stood
as follows:
No. of
Name Amount Per Cent
Shares
Frank Liddell 13,688 P1,368,800 72.00%
Irene Liddell 1 100 .01%
Mercedes Vecin 1 100 .01%
 Charles Kurz 1,225 122,500 Angel Manzano 1,810 181,000 6.031%

E.J. Darras 1,225 122,500 Julian Serrano 1,700 170,000 5.670%

Angel Manzano 1,150 115,000 E. Hasim 830 83,000 2.770%

Julian Serrano 710 71,000 G. W. Kernot 1,490 149,000 4.970%

E. Hasim 500 50,000 30,000 P3,000,000 100.000%

G. W. Kernot 500
19,000 P1,900,000
On November 15, 1948, in accordance with a
resolution of a special meeting of the Board of
Directors of Liddell & Co., stock dividends were again
declared. As a result of said declaration and in
accordance with the agreements, Exhibits, A, B, and
C, the stockholdings in the company appeared to be:
No. of
Name Amount
Shares
50,000 On the basis of the agreement Exhibit A, (May, 1947)
"40%" of the earnings available for dividends
accrued to Frank Liddell although at the time of the
execution of aid instrument, Frank Liddell owned all
of the shares in said corporation. 45% accrued to the
employees, parties thereto; Kurz 12-1/2%; Darras 12-
1/2%; A. Manzano 12-1/2% and Julian Serrano 7-
1/2%. The agreement Exhibit A was also made
retroactive to 1946. Frank Liddell reserved the right
to reapportion the 45% dividends pertaining to the
employees in the future for the purpose of including
such other faithful and efficient employees as he
may subsequently designate. (As a matter of fact,
Frank Liddell did so designate two additional
employees namely: E. Hasim and G. W. Kernot). It
was for such inclusion of future faithful employees
that Exhibits B-1 and C were executed. As per Exhibit
C, dated May 13, 1948, the 45% given by Frank
Liddell to his employees was reapportioned as
follows: C. Kurz 12,%; E. J. Darras 12%; A.
Manzano l2%; J. Serrano 3-1/2%; G. W. Kernot
2%.

Frank Liddell 19,738 P1,973,800 Exhibit B contains the employees' definition in detail
of the manner by which they sought to prevent their
share-holdings from being transferred to others who
may be complete strangers to the business on Liddell
& Co.
Irene Liddell 1 100

From 1946 until November 22, 1948 when the

purpose clause of the Articles of Incorporation of
Liddell & Co. Inc., was amended so as to limit its
Mercedes Vecin 1 100 business activities to importations of automobiles
and trucks, Liddell & Co. was engaged in business as
an importer and at the same time retailer of
Oldsmobile and Chevrolet passenger cars and GMC
Charles Kurz 2,215 221,500 and Chevrolet trucks.

On December 20, 1948, the Liddell Motors, Inc. was

organized and registered with the Securities and
E.J. Darras 2,215 221,500 Exchange Commission with an authorized capital
stock of P100,000 of which P20,000 was subscribed
and paid for as follows: Irene Liddell wife of Frank
Liddell 19,996 shares and Messrs. Marcial P.
Lichauco, E. K. Bromwell, V. E. del Rosario and
Esmenia Silva, 1 share each.
At about the end of the year 1948, Messrs. Manzano,
Kurz and Kernot resigned from their respective
positions in the Retail Dept. of Liddell & Co. and they
were taken in and employed by Liddell Motors, Inc.:
Kurz as Manager-Treasurer, Manzano as General Sales
Manager for cars and Kernot as General Sales
Manager for trucks.
Beginning January, 1949, Liddell & Co. stopped
retailing cars and trucks; it conveyed them instead to
Liddell Motors, Inc. which in turn sold the vehicles to
the public with a steep mark-up. Since then, Liddell &
Co. paid sales taxes on the basis of its sales to Liddell
Motors Inc. considering said sales as its original
sales.
Upon review of the transactions between Liddell &
Co. and Liddell Motors, Inc. the Collector of Internal
Revenue determined that the latter was but an alter
ego of Liddell & Co. Wherefore, he concluded, that for
sales tax purposes, those sales made by Liddell
Motors, Inc. to the public were considered as the
original sales of Liddell & Co. Accordingly, the
Collector of Internal Revenue assessed against
Liddell & Co. a sales tax deficiency, including
surcharges, in the amount of P1,317,629.61. In the
computation, the gross selling price of Liddell Motors,
Inc. to the general public from January 1, 1949 to
September 15, 1950, was made the basis without
deducting from the selling price, the taxes already
paid by Liddell & Co. in its sales to the Liddell Motors
Inc.
The Court of Tax Appeals upheld the position taken
by the Collector of Internal Revenue.
A. Judge Umali: Appellant urges the disqualification
on of Judge Roman M. Umali to participate in the
decision of the instant case because he was Chief of
the Law Division, then Acting Deputy Collector and
later Chief Counsel of the Bureau of Internal Revenue
during the time when the assessment in question
was made.1 In refusing to disqualify himself despite
admission that had held the aforementioned offices,
Judge Umali stated that he had not in any way
participated, nor expressed any definite opinion, on
any question raised by the parties when this case
was presented for resolution before the said bureau.
Furthermore, after careful inspection of the records of
the Bureau, he (Judge Umali as well as the other
members of the court below), had not found any
indication that he had expressed any opinion or
made any decision that would tend to disqualify him
from participating in the consideration of the case in
the Tax Court.
At this juncture, it is well to consider that petitioner
did not question the truth of Judge Umali's
statements. In view thereof, this Tribunal is not
inclined to disqualify said judge. Moreover, in
furtherance of the presumption of the judge's moral
sense of responsibility this Court has adopted, and
now here repeats, the ruling that the mere
participation of a judge in prior proceedings relating
to the subject in the capacity of an administrative
official does not necessarily disqualify him from
acting as judge.2
Appellant also contends that Judge Umali signed the
said decision contrary to the provision of Section 13,
Republic Act No. 1125;3 that whereas the case was
submitted for decision of the Court of Tax Appeals on
July 12, 1955, and the decision of Associate Judge
Luciano and Judge Nable were both signed on August
11, 1955 (that is, on the last day of the 30-day period
provided for in Section 13, Republic Act No. 1125),
Judge Umali signed the decision August 31, 1955 or
20 days after the lapse of the 30-day period allotted
by law.
By analogy it may be said that inasmuch as in
Republic Act No. 1125 (law creating the Court of Tax
Appeals) like the law governing the procedure in the
court of Industrial Relations, there is no provision
invalidating decisions rendered after the lapse of 30
days, the requirement of Section 13, Republic Act No.
1125 should be construed as directory.4
Besides as pointed out by appellee, the third
paragraph of Section 13 of Republic Act No. 1125
(quoted in the margin)5 confirms this view; because
in providing for two thirty-day periods, the law means
that decision may still be rendered within the second
period of thirty days (Judge Umali signed his decision
within that period).
B. Identity of the two corporations: On the question
whether or not Liddell Motors, Inc. is the alter ego of
Liddell & Co. Inc., we are fully convinced that Liddell
& Co. is wholly owned by Frank Liddell. As of the time
of its organization, 98% of the capital stock belonged
to Frank Liddell. The 20% paid-up subscription with
which the company began its business was paid by
him. The subsequent subscriptions to the capital
stock were made by him and paid with his own
money.
These stipulations and conditions appear in Exhibit A:
(1) that Frank Liddell had the authority to designate
in the future the employee who could receive
earnings of the corporation; to apportion among the
stock holders the share in the profits; (2) that all
certificates of stock in the names of the employees
should be deposited with Frank Liddell duly indorsed
in blank by the employees concerned; (3) that each
employee was required to sign an agreement with
the corporation to the effect that, upon his death or
upon his retirement or separation for any cause
whatsoever from the corporation, the said
corporation should, within a period of sixty days
therefor, have the absolute and exclusive option to
purchase and acquire the whole of the stock interest
of the employees so dying, resigning, retiring or
separating.
These stipulations in our opinion attest to the fact
that Frank Liddell also owned it. He supplied the
original his complete control over the corporation.
As to Liddell Motors, Inc. we are fully persuaded that
Frank Liddell also owned it. He supplied the original
capital funds.6 It is not proven that his wife Irene,
ostensibly the sole incorporator of Liddell Motors, Inc.
had money of her own to pay for her P20,000 initial
subscription.7 Her income in the United States in the
years 1943 and 1944 and the savings therefrom
could not be enough to cover the amount of
subscription, much less to operate an expensive
trade like the retail of motor vehicles. The alleged
sale of her property in Oregon might have been true,
but the money received therefrom was never shown
to have been saved or deposited so as to be still
available at the time of the organization of the Liddell
Motors, Inc.
The evidence at hand also shows that Irene Liddell
had scant participation in the affairs of Liddell
Motors, Inc. She could hardly be said to possess
business experience. The income tax forms record no
independent income of her own. As a matter of fact,
the checks that represented her salary and bonus
from Liddell Motors, Inc. found their way into the
personal account of Frank Liddell. Her frequent
absences from the country negate any active
participation in the affairs of the Motors company.
There are quite a series of conspicuous
circumstances that militate against the separate and
distinct personality of Liddell Motors, Inc. from Liddell
& Co.8 We notice that the bulk of the business of
Liddell & Co. was channeled through Liddell Motors,
Inc. On the other hand, Liddell Motors, Inc. pursued
no activities except to secure cars, trucks, and spare
parts from Liddell & Co. Inc. and then sell them to the
general public. These sales of vehicles by Liddell &
Co. to Liddell Motors, Inc. for the most part were
shown to have taken place on the same day that
Liddell Motors, Inc. sold such vehicles to the public.
We may even say that the cars and trucks merely
touched the hands of Liddell Motors, Inc. as a matter
of formality.
During the first six months of 1949, Liddell & Co.
issued ten (10) checks payable to Frank Liddell which
were deposited by Frank Liddell in his personal
account with the Philippine National Bank. During
this time also, he issued in favor of Liddell Motors,
Inc. six (6) checks drawn against his personal
account with the same bank. The checks issued by
Frank Liddell to the Liddell Motors, Inc. were
significantly for the most part issued on the same
day when Liddell & Co. Inc. issued the checks for
Frank Liddell9 and for the same amounts.
It is of course accepted that the mere fact that one or
more corporations are owned and controlled by a
single stockholder is not of itself sufficient ground for
disregarding separate corporate entities.
Authorities10 support the rule that it is lawful to
obtain a corporation charter, even with a single
substantial stockholder, to engage in a specific
activity, and such activity may co-exist with other
private activities of the stockholder. If the corporation
is a substantial one, conducted lawfully and without
fraud on another, its separate identity is to be
respected.
Accordingly, the mere fact that Liddell & Co. and
Liddell Motors, Inc. are corporations owned and
controlled by Frank Liddell directly or indirectly is not
by itself sufficient to justify the disregard of the
separate corporate identity of one from the other.
There is, however, in this instant case, a peculiar
consequence of the organization and activities of
Liddell Motors, Inc.
Under the law in force at the time of its incorporation
the sales tax on original sales of cars (sections 184,
185 and 186 of the National Internal Revenue Code),
was progressive, i.e. 10% of the selling price of the
car if it did not exceed P5000, and 15% of the price if
more than P5000 but not more than P7000, etc. This
progressive rate of the sales tax naturally would
tempt the taxpayer to employ a way of reducing the
price of the first sale. And Liddell Motors, Inc. was the
medium created by Liddell & Co. to reduce the price
and the tax liability.
Let us illustrate: a car with engine motor No. 212381
was sold by Liddell & Co. Inc. to Liddell Motors, Inc.
on January 17, 1948 for P4,546,000.00 including tax;
the price of the car was P4,133,000.23, the tax paid
being P413.22, at 10%. And when this car was later
sold (on the same day) by Liddell Motors, Inc. to P.V.
Luistro for P5500, no more sales tax was paid. 11 In
this price of P5500 was included the P413.32
representing taxes paid by Liddell & Co. Inc. in the
sale to Liddell Motors, Inc. Deducting P413.32
representing taxes paid by Liddell & Co., Inc. the
price of P5500, the balance of P5,087.68 would have
been the net selling price of Liddell & Co., Inc. to the
general public (had Liddell Motors, Inc. not
participated and intervened in the sale), and 15%
sales tax would have been due. In this transaction,
P349.68 in the form of taxes was evaded. All the
other transactions (numerous) examined in this light
will inevitably reveal that the Government coffers
had been deprived of a sizeable amount of taxes.
As opined in the case of Gregory v. Helvering, 12 "the
legal right of a taxpayer to decrease the amount of
what otherwise would be his taxes, or altogether
avoid them by means which the law permits, cannot
be doubted." But, as held in another case, 13 "where a
corporation is a dummy, is unreal or a sham and
serves no business purpose and is intended only as a
blind, the corporate form may be ignored for the law
cannot countenance a form that is bald and a
mischievous fiction."
Consistently with this view, the United States
Supreme Court14 held that "a taxpayer may gain
advantage of doing business thru a corporation if he
pleases, but the revenue officers in proper cases,
may disregard the separate corporate entity where it
serves but as a shield for tax evasion and treat the
person who actually may take the benefits of the
transactions as the person accordingly taxable."
Thus, we repeat: to allow a taxpayer to deny tax
liability on the ground that the sales were made
through an other and distinct corporation when it is
proved that the latter is virtually owned by the
former or that they are practically one and the same
is to sanction a circumvention of our tax laws. 15
C. Tax liability computation: In the Yutivo case16 the
same question involving the computation of the
alleged deficiency sales tax has been raised. In
accordance with our ruling in said case we hold as
correctly stated by Judge Nable in his concurring and
dissenting opinion on this case, that the deficiency
sales tax should be based on the selling price
obtained by Liddell Motors, Inc. to the public AFTER
DEDUCTING THE TAX ALREADY PAID BY LIDDELL &
CO., INC. in its sales to Liddell Motors, Inc.
On the imposition of the 50% surcharge by reason of
fraud, we see that the transactions between Liddell
Motors Inc. and Liddell & Co., Inc. have always been
embodied in proper documents, constantly subject to
inspection by the tax authorities. Liddell & Co., Inc.
have always made a full report of its income and
receipts in its income tax returns.
Paraphrasing our decision in the Yutivo case, we may
now say, in filing its return on the basis of its sales to
Liddell Motors, Inc. and not on those by the latter to
the public, it cannot be held that the Liddell & Co.,
Inc. deliberately made a false return for the purpose
of defrauding the government of its revenue, and
should suffer a 50% surcharge. But penalty for late
payment (25%) should be imposed.
In view of the foregoing, the decision appealed from
is hereby modified: Liddell & Co., Inc. is declared
liable only for the amount of P426,811.67 with 25%
surcharge for late payment and 6% interest thereon
from the time the judgment becomes final.
As it appears that, during the pendency of this
litigation appellant paid under protest to the
Government the total amount assessed by the
Collector, the latter is hereby required to return the
excess to the petitioner. No costs.
G.R. No. 167530 March 13, 2013
PHILIPPINE NATIONAL BANK, Petitioner,
vs.
HYDRO RESOURCES CONTRACTORS
CORPORATION, Respondent.
x-----------------------x
G.R. No. 167561
ASSET PRIVATIZATION TRUST, Petitioner,
vs.
HYDRO RESOURCES CONTRACTORS
CORPORATION, Respondent.
x-----------------------x
G.R. No. 167603
DEVELOPMENT BANK OF THE PHILIPPINES,
Petitioner,
vs.
HYDRO RESOURCES CONTRACTORS
CORPORATION, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
These petitions for review on certiorari1 assail the
Decision2 dated November 30, 2004 and the
Resolution3 dated March 22, 2005 of the Court of
Appeals in CA-G.R. CV No. 57553. The said Decision
affirmed the Decision4 dated November 6, 1995 of
the Regional Trial Court (RTC) of Makati City, Branch
62, granting a judgment award of P8,370,934.74,
plus legal interest, in favor of respondent Hydro
Resources Contractors Corporation (HRCC) with the
modification that the Privatization and Management
Office (PMO), successor of petitioner Asset
Privatization Trust (APT),5 has been held solidarily
liable with Nonoc Mining and Industrial Corporation
(NMIC)6 and petitioners Philippine National Bank
(PNB) and Development Bank of the Philippines
(DBP), while the Resolution denied reconsideration
separately prayed for by PNB, DBP, and APT.
Sometime in 1984, petitioners DBP and PNB
foreclosed on certain mortgages made on the
properties of Marinduque Mining and Industrial
Corporation (MMIC). As a result of the foreclosure,
DBP and PNB acquired substantially all the assets of
MMIC and resumed the business operations of the
defunct MMIC by organizing NMIC.7 DBP and PNB
owned 57% and 43% of the shares of NMIC,
respectively, except for five qualifying shares.8 As of
September 1984, the members of the Board of
Directors of NMIC, namely, Jose Tengco, Jr., Rolando
Zosa, Ruben Ancheta, Geraldo Agulto, and Faustino
Agbada, were either from DBP or PNB.9
Subsequently, NMIC engaged the services of Hercon,
Inc., for NMICs Mine Stripping and Road Construction
Program in 1985 for a total contract price of
P35,770,120. After computing the payments already
made by NMIC under the program and crediting the
NMICs receivables from
Hercon, Inc., the latter found that NMIC still has an
unpaid balance of P8,370,934.74.10 Hercon, Inc.
made several demands on NMIC, including a letter of
final demand dated August 12, 1986, and when these
were not heeded, a complaint for sum of money was
filed in the RTC of Makati, Branch 136 seeking to hold
petitioners NMIC, DBP, and PNB solidarily liable for
the amount owing Hercon, Inc.11 The case was
docketed as Civil Case No. 15375.
Subsequent to the filing of the complaint, Hercon,
Inc. was acquired by HRCC in a merger. This
prompted the amendment of the complaint to
substitute HRCC for Hercon, Inc.12
Thereafter, on December 8, 1986, then President
Corazon C. Aquino issued Proclamation No. 50
creating the APT for the expeditious disposition and
privatization of certain government corporations
and/or the assets thereof. Pursuant to the said
Proclamation, on February 27, 1987, DBP and PNB
executed their respective deeds of transfer in favor
of the National Government assigning, transferring
and conveying certain assets and liabilities, including
their respective stakes in NMIC.13 In turn and on even
date, the National Government transferred the said
assets and liabilities to the APT as trustee under a
Trust Agreement.14 Thus, the complaint was amended
for the second time to implead and include the APT
as a defendant.
In its answer,15 NMIC claimed that HRCC had no
cause of action. It also asserted that its contract with
HRCC was entered into by its then President without
any authority. Moreover, the said contract allegedly
failed to comply with laws, rules and regulations
concerning government contracts. NMIC further
claimed that the contract amount was manifestly
excessive and grossly disadvantageous to the
government. NMIC made counterclaims for the
amounts already paid to Hercon, Inc. and attorneys
fees, as well as payment for equipment rental for
four trucks, replacement of parts and other services,
and damage to some of NMICs properties. 16
17
For its part, DBPs answer raised the defense that
HRCC had no cause of action against it because DBP
was not privy to HRCCs contract with NMIC.
Moreover, NMICs juridical personality is separate
from that of DBP. DBP further interposed a
counterclaim for attorneys fees.18
PNBs answer19 also invoked lack of cause of action
against it. It also raised estoppel on HRCCs part and
laches as defenses, claiming that the inclusion of
PNB in the complaint was the first time a demand for
payment was made on it by HRCC. PNB also invoked
the separate juridical personality of NMIC and made
counterclaims for moral damages and attorneys
fees.20
APT set up the following defenses in its answer 21: lack
of cause of action against it, lack of privity between
Hercon, Inc. and APT, and the National Governments
preferred lien over the assets of NMIC.22
After trial, the RTC of Makati rendered a Decision
dated November 6, 1995 in favor of HRCC. It pierced
the corporate veil of NMIC and held DBP and PNB
solidarily liable with NMIC:
On the issue of whether or not there is sufficient
ground to pierce the veil of corporate fiction, this
Court likewise finds for the plaintiff.
From the documentary evidence adduced by the
plaintiff, some of which were even adopted by
defendants and DBP and PNB as their own evidence
(Exhibits "I", "I-1", "I-2", "I-3", "I-4", "I-5", "I5-A", "I-5-
B", "I-5-C", "I-5-D" and submarkings, inclusive), it had
been established that except for five (5) qualifying
shares, NMIC is owned by defendants DBP and PNB,
with the former owning 57% thereof, and the latter
43%. As of September 24, 1984, all the members of
NMICs Board of Directors, namely, Messrs. Jose
Tengco, Jr., Rolando M. Zosa, Ruben Ancheta, Geraldo
Agulto, and Faustino Agbada are either from DBP or
PNB (Exhibits "I-5", "I-5-C", "I-5-D").
The business of NMIC was then also being conducted
and controlled by both DBP and PNB. In fact, it was
Rolando M. Zosa, then Governor of DBP, who was
signing and entering into contracts with third
persons, on behalf of NMIC.
In this jurisdiction, it is well-settled that "where it
appears that the business enterprises are owned,
conducted and controlled by the same parties, both
law and equity will, when necessary to protect the
rights of third persons, disregard legal fiction that
two (2) corporations are distinct entities, and treat
them as identical." (Phil. Veterans Investment
Development Corp. vs. CA, 181 SCRA 669).
From all indications, it appears that NMIC is a mere
adjunct, business conduit or alter ego of both DBP
and PNB. Thus, the DBP and PNB are jointly and
severally liable with NMIC for the latters unpaid
obligations to plaintiff.23
Having found DBP and PNB solidarily liable with
NMIC, the dispositive portion of the Decision of the
trial court reads:
WHEREFORE, in view of the foregoing, judgment is
hereby rendered in favor of the plaintiff HYDRO
RESOURCES CONTRACTORS CORPORATION and
against the defendants NONOC
MINING AND INDUSTRIAL CORPORATION,
DEVELOPMENT BANK OF THE PHILIPPINES and
PHILIPPINE NATIONAL BANK, ordering the
aforenamed defendants, to pay the plaintiff jointly
and severally, the sum of P8,370,934.74 plus legal
interest thereon from date of demand, and attorneys
fees equivalent to 25% of the judgment award.
The complaint against APT is hereby dismissed.
However, APT, as trustee of NONOC MINING AND
INDUSTRIAL CORPORATION is directed to ensure
compliance with this Decision.24
DBP and PNB filed their respective appeals in the
Court of Appeals. Both insisted that it was wrong for
the RTC to pierce the veil of NMICs corporate
personality and hold DBP and PNB solidarily liable
with NMIC.25
The Court of Appeals rendered the Decision dated
November 30, 2004, affirmed the piercing of the veil
of the corporate personality of NMIC and held DBP,
PNB, and APT solidarily liable with NMIC. In particular,
the Court of Appeals made the following findings:
In the case before Us, it is indubitable that [NMIC]
was owned by appellants DBP and PNB to the extent
of 57% and 43% respectively; that said two (2)
appellants are the only stockholders, with the
qualifying stockholders of five (5) consisting of its
own officers and included in its charter merely to
comply with the requirement of the law as to number
of incorporators; and that the directorates of DBP,
PNB and [NMIC] are interlocked.
xxxx
We find it therefore correct for the lower court to
have ruled that:
"From all indications, it appears that NMIC is a mere
adjunct, business conduit or alter ego of both DBP
and PNB. Thus, the DBP and PNB are jointly and
severally liable with NMIC for the latters unpaid
obligation to plaintiff."26 (Citation omitted.)
The Court of Appeals then concluded that, "in
keeping with the concept of justice and fair play," the
corporate veil of NMIC should be pierced,
ratiocinating:
For to treat NMIC as a separate legal entity from DBP
and PNB for the purpose of securing beneficial
contracts, and then using such separate entity to
evade the payment of a just debt, would be the
height of injustice and iniquity. Surely that could not
have been the intendment of the law with respect to
corporations. x x x.27
The dispositive portion of the Decision of the Court of
Appeals reads:
WHEREFORE, premises considered, the Decision
appealed from is hereby MODIFIED. The judgment in
favor of appellee Hydro Resources Contractors
Corporation in the amount of P8,370,934.74 with
legal interest from date of demand is hereby
AFFIRMED, but the dismissal of the case as against
Assets Privatization Trust is REVERSED, and its
successor the Privatization and Management Office is
INCLUDED as one of those jointly and severally liable
for such indebtedness. The award of attorneys fees
is DELETED.
All other claims and counter-claims are hereby
DISMISSED.
Costs against appellants.28
The respective motions for reconsideration of DBP,
PNB, and APT were denied.29
Hence, these consolidated petitions.30
All three petitioners assert that NMIC is a corporate
entity with a juridical personality separate and
distinct from both PNB and DBP. They insist that the
majority ownership by DBP and PNB of NMIC is not a
sufficient ground for disregarding the separate
corporate personality of NMIC because NMIC was not
a mere adjunct, business conduit or alter ego of DBP
and PNB. According to them, the application of the
doctrine of piercing the corporate veil is unwarranted
as nothing in the records would show that the
ownership and control of the shareholdings of NMIC
by DBP and PNB were used to commit fraud, illegality
or injustice. In the absence of evidence that the stock
control by DBP and PNB over NMIC was used to
commit some fraud or a wrong and that said control
was the proximate cause of the injury sustained by
HRCC, resort to the doctrine of "piercing the veil of
corporate entity" is misplaced.31
DBP and PNB further argue that, assuming they may
be held solidarily liable with NMIC to pay NMICs
exclusive and separate corporate indebtedness to
HRCC, such liability of the two banks was transferred
to and assumed by the National Government through
the APT, now the PMO, under the respective deeds of
transfer both dated February 27, 1997 executed by
DBP and PNB pursuant to Proclamation No. 50 dated
December 8, 1986 and Administrative Order No. 14
dated February 3, 1987.32
For its part, the APT contends that, in the absence of
an unqualified assumption by the National
Government of all liabilities incurred by NMIC, the
National Government through the APT could not be
held liable for NMICs contractual liability. The APT
asserts that HRCC had not sufficiently shown that the
APT is the successor-in-interest of all the liabilities of
NMIC, or of DBP and PNB as transferors, and that the
adjudged liability is included among the liabilities
assigned and transferred by DBP and PNB in favor of
the National Government.33
HRCC counters that both the RTC and the CA
correctly applied the doctrine of "piercing the veil of
corporate fiction." It claims that NMIC was the alter
ego of DBP and PNB which owned, conducted and
controlled the business of NMIC as shown by the
following circumstances: NMIC was owned by DBP
and PNB, the officers of DBP and PNB were also the
officers of NMIC, and DBP and PNB financed the
operations of NMIC. HRCC further argues that a
parent corporation may be held liable for the
contracts or obligations of its subsidiary corporation
where the latter is a mere agency, instrumentality or
adjunct of the parent corporation.34
Moreover, HRCC asserts that the APT was properly
held solidarily liable with DBP, PNB, and NMIC
because the APT assumed the obligations of DBP and
PNB as the successor-in-interest of the said banks
with respect to the assets and liabilities of NMIC.35 As
trustee of the Republic of the Philippines, the APT
also assumed the responsibility of the Republic
pursuant to the following provision of Section 2.02 of
the respective deeds of transfer executed by DBP
and PNB in favor of the Republic:
SECTION 2. TRANSFER OF BANKS LIABILITIES
xxxx
2.02 With respect to the Banks liabilities which are
contingent and those liabilities where the Banks
creditors consent to the transfer thereof is not
obtained, said liabilities shall remain in the books of
the BANK with the GOVERNMENT funding the
payment thereof.36
After a careful review of the case, this Court finds the
petitions impressed with merit.
A corporation is an artificial entity 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.37 It has
a personality separate and distinct from that of its
stockholders and from that of other corporations to
which it may be connected.38 As a consequence of its
status as a distinct legal entity and as a result of a
conscious policy decision to promote capital
formation,39 a corporation incurs its own liabilities
and is legally responsible for payment of its
obligations.40 In other words, by virtue of the
separate juridical personality of a corporation, the
corporate debt or credit is not the debt or credit of
the stockholder.41 This protection from liability for
shareholders is the principle of limited liability. 42
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.43
However, the rule is that a court should be careful in
assessing the milieu where the doctrine of the
corporate veil may be applied. Otherwise an
injustice, although unintended, may result from its
erroneous application.44 Thus, cutting through the
corporate cover requires an approach characterized
by due care and caution:
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. x x
x.45 (Emphases supplied; citations omitted.)
Sarona v. National Labor Relations Commission46 has
defined the scope of application of the doctrine of
piercing the corporate veil:
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. (Citation omitted.)
Here, HRCC has alleged from the inception of this
case that DBP and PNB (and the APT as assignee of
DBP and PNB) should be held solidarily liable for
using NMIC as alter ego.47 The RTC sustained the
allegation of HRCC and pierced the corporate veil of
NMIC pursuant to the alter ego theory when it
concluded that NMIC "is a mere adjunct, business
conduit or alter ego of both DBP and PNB."48 The
Court of Appeals upheld such conclusion of the trial
court.49 In other words, both the trial and appellate
courts relied on the alter ego theory when they
disregarded the separate corporate personality of
NMIC.
In this connection, case law lays down a three-
pronged test to determine the application of the alter
ego theory, which is also known as the
instrumentality theory, namely:
(1) Control, not mere majority or complete
stock control, but complete domination, not
only of finances but of policy and business
practice in respect to the transaction
attacked so that the corporate entity as to
this transaction had at the time no separate
mind, will or existence of its own;
 (2) Such control must have been used by
the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or
other positive legal duty, or dishonest and
unjust act in contravention of plaintiffs legal
right; and
(3) The aforesaid control and breach of duty
must have proximately caused the injury or
unjust loss complained of.50 (Emphases
omitted.)
The first prong is the "instrumentality" or "control"
test. This test requires that the subsidiary be
completely under the control and domination of the
parent.51 It examines the parent corporations
relationship with the subsidiary.52 It inquires whether
a subsidiary corporation is so organized and
controlled and its affairs are so conducted as to make
it a mere instrumentality or agent of the parent
corporation such that its separate existence as a
distinct corporate entity will be ignored.53 It seeks to
establish whether the subsidiary corporation has no
autonomy and the parent corporation, though acting
through the subsidiary in form and appearance, "is
operating the business directly for itself." 54
The second prong is the "fraud" test. This test
requires that the parent corporations conduct in
using the subsidiary corporation be unjust, fraudulent
or wrongful.55 It examines the relationship of the
plaintiff to the corporation.56 It recognizes that
piercing is appropriate only if the parent corporation
uses the subsidiary in a way that harms the plaintiff
creditor.57 As such, it requires a showing of "an
element of injustice or fundamental unfairness."58
The third prong is the "harm" test. This test requires
the plaintiff to show that the defendants control,
exerted in a fraudulent, illegal or otherwise unfair
manner toward it, caused the harm suffered.59 A
causal connection between the fraudulent conduct
committed through the instrumentality of the
subsidiary and the injury suffered or the damage
incurred by the plaintiff should be established. The
plaintiff must prove that, unless the corporate veil is
pierced, it will have been treated unjustly by the
defendants exercise of control and improper use of
the corporate form and, thereby, suffer damages. 60
To summarize, piercing the corporate veil based on
the alter ego theory requires the concurrence of
three elements: control of the corporation by the
stockholder or parent corporation, fraud or
fundamental unfairness imposed on the plaintiff, and
harm or damage caused to the plaintiff by the
fraudulent or unfair act of the corporation. The
absence of any of these elements prevents piercing
the corporate veil.61
This Court finds that none of the tests has been
satisfactorily met in this case.
In applying the alter ego doctrine, the courts are
concerned with reality and not form, with how the
corporation operated and the individual defendants
relationship to that operation.62 With respect to the
control element, it refers not to paper or formal
control by majority or even complete stock control
but actual control which amounts to "such
domination of finances, policies and practices that
the controlled corporation has, so to speak, no
separate mind, will or existence of its own, and is but
a conduit for its principal."63 In addition, the control
must be shown to have been exercised at the time
the acts complained of took place.64
Both the RTC and the Court of Appeals applied the
alter ego theory and penetrated the corporate cover
of NMIC based on two factors: (1) the ownership by
DBP and PNB of effectively all the stocks of NMIC,
and (2) the alleged interlocking directorates of DBP,
PNB and NMIC.65 Unfortunately, the conclusion of the
trial and appellate courts that the DBP and PNB fit
the alter ego theory with respect to NMICs
transaction with HRCC on the premise of complete
stock ownership and interlocking directorates
involved a quantum leap in logic and law exposing a
gap in reason and fact.
While ownership by one corporation of all or a great
majority of stocks of another corporation and their
interlocking directorates may serve as indicia of
control, by themselves and without more, however,
these circumstances are insufficient to establish an
alter ego relationship or connection between DBP
and PNB on the one hand and NMIC on the other
hand, that will justify the puncturing of the latters
corporate cover. This Court has declared that "mere
ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a
corporation is not of itself sufficient ground for
disregarding the separate corporate personality."66
This Court has likewise ruled that the "existence of
interlocking directors, corporate officers and
shareholders is not enough justification to pierce the
veil of corporate fiction in the absence of fraud or
other public policy considerations."67
True, the findings of fact of the Court of Appeals are
conclusive and cannot be reviewed on appeal to this
Court, provided they are borne out of the record or
are based on substantial evidence.68 It is equally true
that 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
requisite quantum of evidence has been adduced
warranting the piercing of the veil of corporate
personality.69 Nevertheless, it has been held in
Sarona v. National Labor Relations Commission70 that
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 the assailed decision are either not
supported by the evidence on record or based on a
misapprehension of facts.
In this case, nothing in the records shows that the
corporate finances, policies and practices of NMIC
were dominated by DBP and PNB in such a way that
NMIC could be considered to have no separate mind,
will or existence of its own but a mere conduit for
DBP and PNB. On the contrary, the evidence
establishes that HRCC knew and acted on the
knowledge that it was dealing with NMIC, not with
NMICs stockholders. The letter proposal of Hercon,
Inc., HRCCs predecessor-in-interest, regarding the
contract for NMICs mine stripping and road
construction program was addressed to and
accepted by NMIC.71 The various billing reports,
progress reports, statements of accounts and
communications of Hercon, Inc./HRCC regarding
NMICs mine stripping and road construction program
in 1985 concerned NMIC and NMICs officers, without
any indication of or reference to the control exercised
by DBP and/or PNB over NMICs affairs, policies and
practices.72
HRCC has presented nothing to show that DBP and
PNB had a hand in the act complained of, the alleged
undue disregard by NMIC of the demands of HRCC to
satisfy the unpaid claims for services rendered by
HRCC in connection with NMICs mine stripping and
road construction program in 1985. On the contrary,
the overall picture painted by the evidence offered
by HRCC is one where HRCC was dealing with NMIC
as a distinct juridical person acting through its own
corporate officers.73
Moreover, the finding that the respective boards of
directors of NMIC, DBP, and PNB were interlocking
has no basis. HRCCs Exhibit "I-5,"74 the initial
General Information Sheet submitted by NMIC to the
Securities and Exchange Commission, relied upon by
the trial court and the Court of Appeals may have
proven that DBP and PNB owned the stocks of NMIC
to the extent of 57% and 43%, respectively. However,
nothing in it supports a finding that NMIC, DBP, and
PNB had interlocking directors as it only indicates
that, of the five members of NMICs board of
directors, four were nominees of either DBP or PNB
and only one was a nominee of both DBP and PNB.75
Only two members of the board of directors of NMIC,
Jose Tengco, Jr. and Rolando Zosa, were established
to be members of the board of governors of DBP and
none was proved to be a member of the board of
directors of PNB.76 No director of NMIC was shown to
be also sitting simultaneously in the board of
governors/directors of both DBP and PNB.
In reaching its conclusion of an alter ego relationship
between DBP and PNB on the one hand and NMIC on
the other hand, the Court of Appeals invoked Sibagat
Timber Corporation v. Garcia,77 which it described as
"a case under a similar factual milieu."78 However, in
Sibagat Timber Corporation, this Court took care to
enumerate the circumstances which led to the
piercing of the corporate veil of Sibagat Timber
Corporation for being the alter ego of Del Rosario &
Sons Logging Enterprises, Inc. Those circumstances
were as follows: holding office in the same building,
practical identity of the officers and directors of the
two corporations and assumption of management
and control of Sibagat Timber Corporation by the
directors/officers of Del Rosario & Sons Logging
Enterprises, Inc.
Here, DBP and PNB maintain an address different
from that of NMIC.79 As already discussed, there was
insufficient proof of interlocking directorates. There
was not even an allegation of similarity of corporate
officers. Instead of evidence that DBP and PNB
assumed and controlled the management of NMIC,
HRCCs evidence shows that NMIC operated as a
distinct entity endowed with its own legal personality.
Thus, what obtains in this case is a factual backdrop
different from, not similar to, Sibagat Timber
Corporation.
In relation to the second element, to disregard the
separate juridical personality of a corporation, the
wrongdoing or unjust act in contravention of a
plaintiffs legal rights must be clearly and
convincingly established; it cannot be presumed.
Without a demonstration that any of the evils sought
to be prevented by the doctrine is present, it does
not apply.80
In this case, the Court of Appeals declared:
We are not saying that PNB and DBP are guilty of
fraud in forming NMIC, nor are we implying that NMIC
was used to conceal fraud. x x x.81
Such a declaration clearly negates the possibility that
DBP and PNB exercised control over NMIC which DBP
and PNB used "to commit fraud or wrong, to
perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in
contravention of plaintiffs legal rights." It is a
recognition that, even assuming that DBP and PNB
exercised control over NMIC, there is no evidence
that the juridical personality of NMIC was used by
DBP and PNB to commit a fraud or to do a wrong
against HRCC.
There being a total absence of evidence pointing to a
fraudulent, illegal or unfair act committed against
HRCC by DBP and PNB under the guise of NMIC, there
is no basis to hold that NMIC was a mere alter ego of
DBP and PNB. As this Court ruled in Ramoso v. Court
of Appeals82:
As a general rule, a corporation will be looked upon
as a legal entity, unless and until sufficient reason to
the contrary appears. When the notion of legal entity
is used to defeat public convenience, justify wrong,
protect fraud, or defend crime, the law will regard the
corporation as an association of persons. Also, the
corporate entity may be disregarded in the interest
of justice in such cases as fraud that may work
inequities among members of the corporation
internally, involving no rights of the public or third
persons. In both instances, there must have been
fraud, and proof of it. For the separate juridical
personality of a corporation to be disregarded, the
wrongdoing must be clearly and convincingly
established. It cannot be presumed.
As regards the third element, in the absence of both
control by DBP and PNB of NMIC and fraud or
fundamental unfairness perpetuated by DBP and PNB
through the corporate cover of NMIC, no harm could
be said to have been proximately caused by DBP and
PNB on HRCC for which HRCC could hold DBP and
PNB solidarily liable with NMIC.1wphi1
Considering that, under the deeds of transfer
executed by DBP and PNB, the liability of the APT as
transferee of the rights, titles and interests of DBP
and PNB in NMIC will attach only if DBP and PNB are
held liable, the APT incurs no liability for the
judgment indebtedness of NMIC. Even HRCC
recognizes that "as assignee of DBP and PNB 's loan
receivables," the APT simply "stepped into the shoes
of DBP and PNB with respect to the latter's rights and
obligations" in NMIC.83 As such assignee, therefore,
the APT incurs no liability with respect to NMIC other
than whatever liabilities may be imputable to its
assignors, DBP and PNB.
Even under Section 2.02 of the respective deeds of
transfer executed by DBP and PNB which HRCC
invokes, the APT cannot be held liable. The
contingent liability for which the National
Government, through the APT, may be held liable
under the said provision refers to contingent
liabilities of DBP and PNB. Since DBP and PNB may
not be held solidarily liable with NMIC, no contingent
liability may be imputed to the APT as well. Only
NMIC as a distinct and separate legal entity is liable
to pay its corporate obligation to HRCC in the amount
of P8,370,934.74, with legal interest thereon from
date of demand.
As trustee of the. assets of NMIC, however, the APT
should ensure compliance by NMIC of the judgment
against it. The APT itself acknowledges this.84
WHEREFORE, the petitions are hereby GRANTED.
The complaint as against Development Bank of the
Philippines, the Philippine National Bank, and the
Asset Privatization Trust, now the Privatization and
Management Office, is DISMISSED for lack of merit.
The Asset Privatization Trust, now the Privatization
and Management Office, as trustee of Nonoc Mining
and Industrial Corporation, now the Philnico
Processing Corporation, is DIRECTED to ensure
compliance by the Nonoc Mining and Industrial
Corporation, now the Philnico Processing Corporation,
with this Decision.
SO ORDERED.
G.R. No. 140667 August 12, 2004
WOODCHILD HOLDINGS, INC., petitioner,
vs.
ROXAS ELECTRIC AND CONSTRUCTION
COMPANY, INC., respondent.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the
Decision1 of the Court of Appeals in CA-G.R. CV No.
56125 reversing the Decision2 of the Regional Trial
Court of Makati, Branch 57, which ruled in favor of
the petitioner.
The Antecedents
The respondent Roxas Electric and Construction
Company, Inc. (RECCI), formerly the Roxas Electric
and Construction Company, was the
owner of two parcels of land, identified as Lot No.
491-A-3-B-1 covered by Transfer Certificate of Title
(TCT) No. 78085 and Lot No. 491-A-3-B-2 covered by
TCT No. 78086. A portion of Lot No. 491-A-3-B-1
which abutted Lot No. 491-A-3-B-2 was a dirt road
accessing to the Sumulong Highway, Antipolo, Rizal.
At a special meeting on May 17, 1991, the
respondent's Board of Directors approved a
resolution authorizing the corporation, through its
president, Roberto B. Roxas, to sell Lot No. 491-A-3-B-
2 covered by TCT No. 78086, with an area of 7,213
square meters, at a price and under such terms and
conditions which he deemed most reasonable and
advantageous to the corporation; and to execute,
sign and deliver the pertinent sales documents and
receive the proceeds of the sale for and on behalf of
the company.3
Petitioner Woodchild Holdings, Inc. (WHI) wanted to
buy Lot No. 491-A-3-B-2 covered by TCT No. 78086
on which it planned to construct its warehouse
building, and a portion of the adjoining lot, Lot No.
491-A-3-B-1, so that its 45-foot container van would
be able to readily enter or leave the property. In a
Letter to Roxas dated June 21, 1991, WHI President
Jonathan Y. Dy offered to buy Lot No. 491-A-3-B-2
under stated terms and conditions for P1,000 per
square meter or at the price of P7,213,000. 4 One of
the terms incorporated in Dy's offer was the following
provision:
5. This Offer to Purchase is made on the
representation and warranty of the
OWNER/SELLER, that he holds a good and
registrable title to the property, which shall
be conveyed CLEAR and FREE of all liens
and encumbrances, and that the area of
7,213 square meters of the subject property
already includes the area on which the right
of way traverses from the main lot (area)
towards the exit to the Sumulong Highway
as shown in the location plan furnished by
the Owner/Seller to the buyer. Furthermore,
in the event that the right of way is
insufficient for the buyer's purposes
(example: entry of a 45-foot container), the
seller agrees to sell additional square meter
from his current adjacent property to allow
the buyer to full access and full use of the
property.5
Roxas indicated his acceptance of the offer on page 2
of the deed. Less than a month later or on July 1,
1991, Roxas, as President of RECCI, as vendor, and
Dy, as President of WHI, as vendee, executed a
contract to sell in which RECCI bound and obliged
itself to sell to Dy Lot No. 491-A-3-B-2 covered by TCT
No. 78086 for P7,213,000.6 On September 5, 1991, a
Deed of Absolute Sale7 in favor of WHI was issued,
under which Lot No. 491-A-3-B-2 covered by TCT No.
78086 was sold for P5,000,000, receipt of which was
acknowledged by Roxas under the following terms
and conditions:
The Vendor agree (sic), as it hereby agrees
and binds itself to give Vendee the
beneficial use of and a right of way from
Sumulong Highway to the property herein
conveyed consists of 25 square meters wide
to be used as the latter's egress from and
ingress to and an additional 25 square
meters in the corner of Lot No. 491-A-3-B-1,
as turning and/or maneuvering area for
Vendee's vehicles.
The Vendor agrees that in the event that the
right of way is insufficient for the Vendee's
use (ex entry of a 45-foot container) the
Vendor agrees to sell additional square
meters from its current adjacent property to
allow the Vendee full access and full use of
the property.
The Vendor hereby undertakes and agrees,
at its account, to defend the title of the
Vendee to the parcel of land and
improvements herein conveyed, against all
claims of any and all persons or entities, and
that the Vendor hereby warrants the right of
the Vendee to possess and own the said
parcel of land and improvements thereon
and will defend the Vendee against all
present and future claims and/or action in
relation thereto, judicial and/or
administrative. In particular, the Vendor
shall eject all existing squatters and
occupants of the premises within two (2)
weeks from the signing hereof. In case of
failure on the part of the Vendor to eject all
occupants and squatters within the two-
week period or breach of any of the
stipulations, covenants and terms and
conditions herein provided and that of
contract to sell dated 1 July 1991, the
Vendee shall have the right to cancel the
sale and demand reimbursement for all
payments made to the Vendor with interest
thereon at 36% per annum.8
On September 10, 1991, the Wimbeco Builder's, Inc.
(WBI) submitted its quotation for P8,649,000 to WHI
for the construction of the warehouse building on a
portion of the property with an area of 5,088 square
meters.9 WBI proposed to start the project on
October 1, 1991 and to turn over the building to WHI
on February 29, 1992.10
In a Letter dated September 16, 1991, Ponderosa
Leather Goods Company, Inc. confirmed its lease
agreement with WHI of a 5,000-square-meter portion
of the warehouse yet to be constructed at the rental
rate of P65 per square meter. Ponderosa emphasized
the need for the warehouse to be ready for
occupancy before April 1, 1992.11 WHI accepted the
offer. However, WBI failed to commence the
construction of the warehouse in October 1, 1991 as
planned because of the presence of squatters in the
property and suggested a renegotiation of the
contract after the squatters shall have been
evicted.12 Subsequently, the squatters were evicted
from the property.
On March 31, 1992, WHI and WBI executed a Letter-
Contract for the construction of the warehouse
building for P11,804,160.13 The contractor started
construction in April 1992 even before the building
officials of Antipolo City issued a building permit on
May 28, 1992. After the warehouse was finished, WHI
issued on March 21, 1993 a certificate of occupancy
by the building official. Earlier, or on March 18, 1993,
WHI, as lessor, and Ponderosa, as lessee, executed a
contract of lease over a portion of the property for a
monthly rental of P300,000 for a period of three
years from March 1, 1993 up to February 28, 1996.14
In the meantime, WHI complained to Roberto Roxas
that the vehicles of RECCI were parked on a portion
of the property over which WHI had been granted a
right of way. Roxas promised to look into the matter.
Dy and Roxas discussed the need of the WHI to buy a
500-square-meter portion of Lot No. 491-A-3-B-1
covered by TCT No. 78085 as provided for in the
deed of absolute sale. However, Roxas died soon
thereafter. On April 15, 1992, the WHI wrote the
RECCI, reiterating its verbal requests to purchase a
portion of the said lot as provided for in the deed of
absolute sale, and complained about the latter's
failure to eject the squatters within the three-month
period agreed upon in the said deed.
The WHI demanded that the RECCI sell a portion of
Lot No. 491-A-3-B-1 covered by TCT No. 78085 for its
beneficial use within 72 hours from notice thereof,
otherwise the appropriate action would be filed
against it. RECCI rejected the demand of WHI. WHI
reiterated its demand in a Letter dated May 29,
1992. There was no response from RECCI.
On June 17, 1992, the WHI filed a complaint against
the RECCI with the Regional Trial Court of Makati, for
specific performance and damages, and alleged,
inter alia, the following in its complaint:
5. The "current adjacent property" referred
to in the aforequoted paragraph of the Deed
of Absolute Sale pertains to the property
covered by Transfer Certificate of Title No.
N-78085 of the Registry of Deeds of
Antipolo, Rizal, registered in the name of
herein defendant Roxas Electric.
6. Defendant Roxas Electric in patent
violation of the express and valid terms of
the Deed of Absolute Sale unjustifiably
refused to deliver to Woodchild Holdings the
stipulated beneficial use and right of way
consisting of 25 square meters and 55
square meters to the prejudice of the
plaintiff.
7. Similarly, in as much as the 25 square
meters and 55 square meters alloted to
Woodchild Holdings for its beneficial use is
inadequate as turning and/or maneuvering
area of its 45-foot container van, Woodchild
Holdings manifested its intention pursuant
to para. 5 of the Deed of Sale to purchase
The WHI prayed that, after due proceedings,
additional square meters from Roxas Electric
judgment be rendered in its favor, thus:
to allow it full access and use of the
purchased property, however, Roxas Electric
refused and failed to merit Woodchild
Holdings' request contrary to defendant
Roxas Electric's obligation under the Deed of
Absolute Sale (Annex "A").
8. Moreover, defendant, likewise, failed to
eject all existing squatters and occupants of
the premises within the stipulated time
frame and as a consequence thereof,
plaintiff's planned construction has been
considerably delayed for seven (7) months
due to the squatters who continue to
trespass and obstruct the subject property,
thereby Woodchild Holdings incurred
substantial losses amounting to
P3,560,000.00 occasioned by the increased
cost of construction materials and labor.
9. Owing further to Roxas Electric's
deliberate refusal to comply with its
obligation under Annex "A," Woodchild
Holdings suffered unrealized income of
P300,000.00 a month or P2,100,000.00
supposed income from rentals of the subject
property for seven (7) months.
10. On April 15, 1992, Woodchild Holdings
made a final demand to Roxas Electric to
comply with its obligations and warranties
under the Deed of Absolute Sale but
notwithstanding such demand, defendant
Roxas Electric refused and failed and
continue to refuse and fail to heed plaintiff's
demand for compliance.
Copy of the demand letter dated April 15,
1992 is hereto attached as Annex "B" and
made an integral part hereof.
11. Finally, on 29 May 1991, Woodchild
Holdings made a letter request addressed to
Roxas Electric to particularly annotate on
Transfer Certificate of Title No. N-78085 the
agreement under Annex "A" with respect to
the beneficial use and right of way,
however, Roxas Electric unjustifiably ignored
and disregarded the same.
Copy of the letter request dated 29 May
1992 is hereto attached as Annex "C" and
made an integral part hereof.
12. By reason of Roxas Electric's continuous
refusal and failure to comply with Woodchild
Holdings' valid demand for compliance
under Annex "A," the latter was constrained
to litigate, thereby incurring damages as
and by way of attorney's fees in the amount
of P100,000.00 plus costs of suit and
expenses of litigation.15
WHEREFORE, it is respectfully prayed that
judgment be rendered in favor of Woodchild
Holdings and ordering Roxas Electric the
following:
a) to deliver to Woodchild Holdings the
beneficial use of the stipulated 25 square
meters and 55 square meters;
b) to sell to Woodchild Holdings additional
25 and 100 square meters to allow it full
access and use of the purchased property
pursuant to para. 5 of the Deed of Absolute
Sale;
c) to cause annotation on Transfer
Certificate of Title No. N-78085 the
beneficial use and right of way granted to
Woodchild Holdings under the Deed of
Absolute Sale;
 d) to pay Woodchild Holdings the amount of
P5,660,000.00, representing actual
damages and unrealized income;
e) to pay attorney's fees in the amount of
P100,000.00; and
f) to pay the costs of suit.
Other reliefs just and equitable are prayed
for.16
In its answer to the complaint, the RECCI alleged that
it never authorized its former president, Roberto
Roxas, to grant the beneficial use of any portion of
Lot No. 491-A-3-B-1, nor agreed to sell any portion
thereof or create a lien or burden thereon. It alleged
that, under the Resolution approved on May 17,
1991, it merely authorized Roxas to sell Lot No. 491-
A-3-B-2 covered by TCT No. 78086. As such, the grant
of a right of way and the agreement to sell a portion
of Lot No. 491-A-3-B-1 covered by TCT No. 78085 in
the said deed are ultra vires. The RECCI further
alleged that the provision therein that it would sell a
portion of Lot No. 491-A-3-B-1 to the WHI lacked the
essential elements of a binding contract.17
In its amended answer to the complaint, the RECCI
alleged that the delay in the construction of its
warehouse building was due to the failure of the
WHI's contractor to secure a building permit
thereon.18
During the trial, Dy testified that he told Roxas that
the petitioner was buying a portion of Lot No. 491-A-
3-B-1 consisting of an area of 500 square meters, for
the price of P1,000 per square meter.
On November 11, 1996, the trial court rendered
judgment in favor of the WHI, the decretal portion of
which reads:
WHEREFORE, judgment is hereby rendered
directing defendant:
(1) To allow plaintiff the beneficial use of the
existing right of way plus the stipulated 25
sq. m. and 55 sq. m.;
(2) To sell to plaintiff an additional area of
500 sq. m. priced at P1,000 per sq. m. to
allow said plaintiff full access and use of the
purchased property pursuant to Par. 5 of
their Deed of Absolute Sale;
(3) To cause annotation on TCT No. N-78085
the beneficial use and right of way granted
by their Deed of Absolute Sale;
(4) To pay plaintiff the amount of P5,568,000
representing actual damages and plaintiff's
unrealized income;
(5) To pay plaintiff P100,000 representing
attorney's fees; and
To pay the costs of suit.
SO ORDERED.19
The trial court ruled that the RECCI was estopped
from disowning the apparent authority of Roxas
under the May 17, 1991 Resolution of its Board of
Directors. The court reasoned that to do so would
prejudice the WHI which transacted with Roxas in
good faith, believing that he had the authority to
bind the WHI relating to the easement of right of
way, as well as the right to purchase a portion of Lot
No. 491-A-3-B-1 covered by TCT No. 78085.
The RECCI appealed the decision to the CA, which
rendered a decision on November 9, 1999 reversing
that of the trial court, and ordering the dismissal of
the complaint. The CA ruled that, under the
resolution of the Board of Directors of the RECCI,
Roxas was merely authorized to sell Lot No. 491-A-3-
B-2 covered by TCT No. 78086, but not to grant right
of way in favor of the WHI over a portion of Lot No.
491-A-3-B-1, or to grant an option to the petitioner to
buy a portion thereof. The appellate court also ruled
that the grant of a right of way and an option to the
respondent were so lopsided in favor of the
respondent because the latter was authorized to fix
the location as well as the price of the portion of its
property to be sold to the respondent. Hence, such
provisions contained in the deed of absolute sale
were not binding on the RECCI. The appellate court
ruled that the delay in the construction of WHI's
warehouse was due to its fault.
The Present Petition
The petitioner now comes to this Court asserting
that:
I.
THE COURT OF APPEALS ERRED IN HOLDING
THAT THE DEED OF ABSOLUTE SALE (EXH.
"C") IS ULTRA VIRES.
II.
THE COURT OF APPEALS GRAVELY ERRED IN
REVERSING THE RULING OF THE COURT A
QUO ALLOWING THE PLAINTIFF-APPELLEE
THE BENEFICIAL USE OF THE EXISTING
RIGHT OF WAY PLUS THE STIPULATED 25
SQUARE METERS AND 55 SQUARE METERS
BECAUSE THESE ARE VALID STIPULATIONS
AGREED BY BOTH PARTIES TO THE DEED OF
ABSOLUTE SALE (EXH. "C").
III.
 THERE IS NO FACTUAL PROOF OR EVIDENCE
FOR THE COURT OF APPEALS TO RULE THAT
THE STIPULATIONS OF THE DEED OF
ABSOLUTE SALE (EXH. "C") WERE
DISADVANTAGEOUS TO THE APPELLEE, NOR
WAS APPELLEE DEPRIVED OF ITS PROPERTY
WITHOUT DUE PROCESS.
IV.
IN FACT, IT WAS WOODCHILD WHO WAS
DEPRIVED OF PROPERTY WITHOUT DUE
PROCESS BY THE ASSAILED DECISION.
V.
THE DELAY IN THE CONSTRUCTION WAS
DUE TO THE FAILURE OF THE APPELLANT TO
EVICT THE SQUATTERS ON THE LAND AS
AGREED IN THE DEED OF ABSOLUTE SALE
(EXH. "C").
VI.
THE COURT OF APPEALS GRAVELY ERRED IN
REVERSING THE RULING OF THE COURT A
QUO DIRECTING THE DEFENDANT TO PAY
THE PLAINTIFF THE AMOUNT OF
P5,568,000.00 REPRESENTING ACTUAL
DAMAGES AND PLAINTIFF'S UNREALIZED
INCOME AS WELL AS ATTORNEY'S FEES.20
The threshold issues for resolution are the following:
(a) whether the respondent is bound by the
provisions in the deed of absolute sale granting to
the petitioner beneficial use and a right of way over a
portion of Lot
No. 491-A-3-B-1 accessing to the Sumulong Highway
and granting the option to the petitioner to buy a
portion thereof, and, if so, whether such agreement
is enforceable against the respondent; (b) whether
the respondent failed to eject the squatters on its
property within two weeks from the execution of the
deed of absolute sale; and, (c) whether the
respondent is liable to the petitioner for damages.
On the first issue, the petitioner avers that, under its
Resolution of May 17, 1991, the respondent
authorized Roxas, then its president, to grant a right
of way over a portion of Lot No. 491-A-3-B-1 in favor
of the petitioner, and an option for the respondent to
buy a portion of the said property. The petitioner
contends that when the respondent sold Lot No. 491-
A-3-B-2 covered by TCT No. 78086, it (respondent)
was well aware of its obligation to provide the
petitioner with a means of ingress to or egress from
the property to the Sumulong Highway, since the
latter had no adequate outlet to the public highway.
The petitioner asserts that it agreed to buy the
property covered by TCT No. 78085 because of the
grant by the respondent of a right of way and an
option in its favor to buy a portion of the property
covered by TCT No. 78085. It contends that the
respondent never objected to Roxas' acceptance of
its offer to purchase the property and the terms and
conditions therein; the respondent even allowed
Roxas to execute the deed of absolute sale in its
behalf. The petitioner asserts that the respondent
even received the purchase price of the property
without any objection to the terms and conditions of
the said deed of sale. The petitioner claims that it
acted in good faith, and contends that after having
been benefited by the said sale, the respondent is
estopped from assailing its terms and conditions. The
petitioner notes that the respondent's Board of
Directors never approved any resolution rejecting the
deed of absolute sale executed by Roxas for and in
its behalf. As such, the respondent is obliged to sell a
portion of Lot No. 491-A-3-B-1 covered by TCT No.
78085 with an area of 500 square meters at the price
of P1,000 per square meter, based on its evidence
and Articles 649 and 651 of the New Civil Code.
For its part, the respondent posits that Roxas was not
so authorized under the May 17, 1991 Resolution of
its Board of Directors to impose a burden or to grant
a right of way in favor of the petitioner on Lot No.
491-A-3-B-1, much less convey a portion thereof to
the petitioner. Hence, the respondent was not bound
by such provisions contained in the deed of absolute
sale. Besides, the respondent contends, the
petitioner cannot enforce its right to buy a portion of
the said property since there was no agreement in
the deed of absolute sale on the price thereof as well
as the specific portion and area to be purchased by
the petitioner.
We agree with the respondent.
In San Juan Structural and Steel Fabricators, Inc. v.
Court of Appeals,21 we held that:
A corporation is a juridical person separate
and distinct from its stockholders or
members. Accordingly, the property of the
corporation is not the property of its
stockholders or members and may not be
sold by the stockholders or members
without express authorization from the
corporation's board of directors. Section 23
of BP 68, otherwise known as the
Corporation Code of the Philippines,
provides:
"SEC. 23. The Board of Directors or
Trustees. Unless otherwise
provided in this Code, the
corporate powers of all
corporations formed under this
Code shall be exercised, all
business conducted and all
property of such corporations
controlled and held by the board of
directors or trustees to be elected
from among the holders of stocks,
or where there is no stock, from
among the members of the
corporation, who shall hold office
for one (1) year and until their
 successors are elected and
qualified."
Indubitably, a corporation may act only
through its board of directors or, when
authorized either by its by-laws or by its
board resolution, through its officers or
agents in the normal course of business.
The general principles of agency govern the
relation between the corporation and its
officers or agents, subject to the articles of
incorporation, by-laws, or relevant
provisions of law. 22
Generally, the acts of the corporate officers within
the scope of their authority are binding on the
corporation. However, under Article 1910 of the New
Civil Code, acts done by such officers beyond the
scope of their authority cannot bind the corporation
unless it has ratified such acts expressly or tacitly, or
is estopped from denying them:
Art. 1910. The principal must comply with
all the obligations which the agent may
have contracted within the scope of his
authority.
As for any obligation wherein the agent has
exceeded his power, the principal is not
bound except when he ratifies it expressly
or tacitly.
Thus, contracts entered into by corporate
officers beyond the scope of authority are
unenforceable against the corporation
unless ratified by the corporation.23
In BA Finance Corporation v. Court of Appeals,24 we
also ruled that persons dealing with an assumed
agency, whether the assumed agency be a general
or special one, are bound at their peril, if they would
hold the principal liable, to ascertain not only the fact
of agency but also the nature and extent of authority,
and in case either is controverted, the burden of
proof is upon them to establish it.
In this case, the respondent denied authorizing its
then president Roberto B. Roxas to sell a portion of
Lot No. 491-A-3-B-1 covered by TCT No. 78085, and
to create a lien or burden thereon. The petitioner was
thus burdened to prove that the respondent so
authorized Roxas to sell the same and to create a
lien thereon.
Central to the issue at hand is the May 17, 1991
Resolution of the Board of Directors of the
respondent, which is worded as follows:
RESOLVED, as it is hereby resolved, that the
corporation, thru the President, sell to any
interested buyer, its 7,213-sq.-meter
property at the Sumulong Highway,
Antipolo, Rizal, covered by Transfer
Certificate of Title No. N-78086, at a price
and on terms and conditions which he
deems most reasonable and advantageous
to the corporation;
FURTHER RESOLVED, that Mr. ROBERTO B.
ROXAS, President of the corporation, be, as
he is hereby authorized to execute, sign and
deliver the pertinent sales documents and
receive the proceeds of sale for and on
behalf of the company.25
Evidently, Roxas was not specifically authorized
under the said resolution to grant a right of way in
favor of the petitioner on a portion of Lot No. 491-A-
3-B-1 or to agree to sell to the petitioner a portion
thereof. The authority of Roxas, under the resolution,
to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086
did not include the authority to sell a portion of the
adjacent lot, Lot No. 491-A-3-B-1, or to create or
convey real rights thereon. Neither may such
authority be implied from the authority granted to
Roxas to sell Lot No. 491-A-3-B-2 to the petitioner "on
such terms and conditions which he deems most
reasonable and advantageous." Under paragraph 12,
Article 1878 of the New Civil Code, a special power of
attorney is required to convey real rights over
immovable property.26 Article 1358 of the New Civil
Code requires that contracts which have for their
object the creation of real rights over immovable
property must appear in a public document.27 The
petitioner cannot feign ignorance of the need for
Roxas to have been specifically authorized in writing
by the Board of Directors to be able to validly grant a
right of way and agree to sell a portion of Lot No.
491-A-3-B-1. The rule is that if the act of the agent is
one which requires authority in writing, those dealing
with him are charged with notice of that fact. 28
Powers of attorney are generally construed strictly
and courts will not infer or presume broad powers
from deeds which do not sufficiently include property
or subject under which the agent is to deal. 29 The
general rule is that the power of attorney must be
pursued within legal strictures, and the agent can
neither go beyond it; nor beside it. The act done
must be legally identical with that authorized to be
done.30 In sum, then, the consent of the respondent
to the assailed provisions in the deed of absolute sale
was not obtained; hence, the assailed provisions are
not binding on it.
We reject the petitioner's submission that, in allowing
Roxas to execute the contract to sell and the deed of
absolute sale and failing to reject or disapprove the
same, the respondent thereby gave him apparent
authority to grant a right of way over Lot No. 491-A-
3-B-1 and to grant an option for the respondent to
sell a portion thereof to the petitioner. Absent
estoppel or ratification, apparent authority cannot
remedy the lack of the written power required under
the statement of frauds.31 In addition, the petitioner's
fallacy is its wrong assumption of the unproved
premise that the respondent had full knowledge of all
the terms and conditions contained in the deed of
absolute sale when Roxas executed it.
It bears stressing that apparent authority is based on
estoppel and can arise from two instances: first, the
principal may knowingly permit the agent to so hold
himself out as having such authority, and in this way,
the principal becomes estopped to claim that the
agent does not have such authority; second, the
principal may so clothe the agent with the indicia of
authority as to lead a reasonably prudent person to
believe that he actually has such authority. 32 There
can be no apparent authority of an agent without
acts or conduct on the part of the principal and such
acts or conduct of the principal must have been
known and relied upon in good faith and as a result
of the exercise of reasonable prudence by a third
person as claimant and such must have produced a
change of position to its detriment. The apparent
power of an agent is to be determined by the acts of
the principal and not by the acts of the agent. 33
For the principle of apparent authority to apply, the
petitioner was burdened to prove the following: (a)
the acts of the respondent justifying belief in the
agency by the petitioner; (b) knowledge thereof by
the respondent which is sought to be held; and, (c)
reliance thereon by the petitioner consistent with
ordinary care and prudence.34 In this case, there is no
evidence on record of specific acts made by the
respondent35 showing or indicating that it had full
knowledge of any representations made by Roxas to
the petitioner that the respondent had authorized
him to grant to the respondent an option to buy a
portion of Lot No. 491-A-3-B-1 covered by TCT No.
78085, or to create a burden or lien thereon, or that
the respondent allowed him to do so.
The petitioner's contention that by receiving and
retaining the P5,000,000 purchase price of Lot No.
491-A-3-B-2, the respondent effectively and impliedly
ratified the grant of a right of way on the adjacent
lot, Lot No. 491-A-3-B-1, and to grant to the petitioner
an option to sell a portion thereof, is barren of merit.
It bears stressing that the respondent sold Lot No.
491-A-3-B-2 to the petitioner, and the latter had
taken possession of the property. As such, the
respondent had the right to retain the P5,000,000,
the purchase price of the property it had sold to the
petitioner. For an act of the principal to be considered
as an implied ratification of an unauthorized act of an
agent, such act must be inconsistent with any other
hypothesis than that he approved and intended to
adopt what had been done in his name.36 Ratification
is based on waiver the intentional relinquishment of
a known right. Ratification cannot be inferred from
acts that a principal has a right to do independently
of the unauthorized act of the agent. Moreover, if a
writing is required to grant an authority to do a
particular act, ratification of that act must also be in
writing.37 Since the respondent had not ratified the
unauthorized acts of Roxas, the same are
unenforceable.38 Hence, by the respondent's
retention of the amount, it cannot thereby be implied
that it had ratified the unauthorized acts of its agent,
Roberto Roxas.
On the last issue, the petitioner contends that the CA
erred in dismissing its complaint for damages against
the respondent on its finding that the delay in the
construction of its warehouse was due to its
(petitioner's) fault. The petitioner asserts that the CA
should have affirmed the ruling of the trial court that
the respondent failed to cause the eviction of the
squatters from the property on or before September
29, 1991; hence, was liable for P5,660,000. The
respondent, for its part, asserts that the delay in the
construction of the petitioner's warehouse was due to
its late filing of an application for a building permit,
only on May 28, 1992.
The petitioner's contention is meritorious. The
respondent does not deny that it failed to cause the
eviction of the squatters on or before September 29,
1991. Indeed, the respondent does not deny the fact
that when the petitioner wrote the respondent
demanding that the latter cause the eviction of the
squatters on April 15, 1992, the latter were still in the
premises. It was only after receiving the said letter in
April 1992 that the respondent caused the eviction of
the squatters, which thus cleared the way for the
petitioner's contractor to commence the construction
of its warehouse and secure the appropriate building
permit therefor.
The petitioner could not be expected to file its
application for a building permit before April 1992
because the squatters were still occupying the
property. Because of the respondent's failure to
cause their eviction as agreed upon, the petitioner's
contractor failed to commence the construction of
the warehouse in October 1991 for the agreed price
of P8,649,000. In the meantime, costs of construction
materials spiraled. Under the construction contract
entered into between the petitioner and the
contractor, the petitioner was obliged to pay
P11,804,160,39 including the additional work costing
P1,441,500, or a net increase of P1,712,980. 40 The
respondent is liable for the difference between the
original cost of construction and the increase
thereon, conformably to Article 1170 of the New Civil
Code, which reads:
Art. 1170. Those who in the performance of
their obligations are guilty of fraud,
negligence, or delay and those who in any
manner contravene the tenor thereof, are
liable for damages.
The petitioner, likewise, lost the amount of
P3,900,000 by way of unearned income from the
lease of the property to the Ponderosa Leather Goods
Company. The respondent is, thus, liable to the
petitioner for the said amount, under Articles 2200
and 2201 of the New Civil Code:
Art. 2200. Indemnification for damages shall
comprehend not only the value of the loss
suffered, but also that of the profits which
the obligee failed to obtain.
Art. 2201. In contracts and quasi-contracts,
the damages for which the obligor who
acted in good faith is liable shall be those
that are the natural and probable
consequences of the breach of the
obligation, and which the parties have
foreseen or could have reasonably foreseen
at the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton
attitude, the obligor shall be responsible for
all damages which may be reasonably
attributed to the non-performance of the
obligation.
In sum, we affirm the trial court's award of damages
and attorney's fees to the petitioner.
IN LIGHT OF ALL THE FOREGOING, judgment is
hereby rendered AFFIRMING the assailed Decision
of the Court of Appeals WITH MODIFICATION. The
respondent is ordered to pay to the petitioner the
amount of P5,612,980 by way of actual damages and
P100,000 by way of attorney's fees. No costs.