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Republic of the Philippines SUPREME COURT Manila

FIRST DIVISION

G.R. No. L-67626 April 18, 1989

JOSE REMO, JR., petitioner, vs. THE HON. INTERMEDIATE APPELLATE COURT
and E.B. MARCHA TRANSPORT COMPANY, INC., represented by APIFANIO B.
MARCHA, respondents.

Orbos, Cabusora, Dumlao & Sta. Ana for petitioner.

GANCAYCO, J.:

A corporation is an entity separate and distinct from its stockholders. While not in fact
and in reality a person, the law treats a corporation as though it were a person by
process of fiction or by regarding it as an artificial person distinct and separate from its
individual stockholders. 1

However, the corporate fiction or the notion of legal entity may be disregarded
when it "is used to defeat public convenience, justify wrong, protect fraud, or
defend crime" in which instances "the law will regard the corporation as an
association of persons, or in case of two corporations, will merge them into one."
The corporate fiction may also be disregarded when it is the "mere alter ego or
business conduit of a person." 2 There are many occasions when this Court pierced
the corporate veil because of its use to protect fraud and to justify wrong. 3 The
herein petition for review of a. resolution of the Intermediate Appellate Court dated
February 8, 1984 seeking the reversal thereof and the reinstatement of its earlier
decision dated June 30, 1983 in AC-G.R. No. 68496-R 4 calls for the application of the
foregoing principles.

In the latter part of December, 1977 the board of directors of Akron Customs
Brokerage Corporation (hereinafter referred to as Akron), composed of petitioner
Jose Remo, Jr., Ernesto Baares, Feliciano Coprada, Jemina Coprada, and Dario
Punzalan with Lucia Lacaste as Secretary, adopted a resolution authorizing the
purchase of thirteen (13) trucks for use in its business to be paid out of a loan the
corporation may secure from any lending institution. 5

Feliciano Coprada, as President and Chairman of Akron, purchased thirteen trucks from
private respondent on January 25, 1978 for and in consideration of P525,000.00 as
evidenced by a deed of absolute sale. 6 In a side agreement of the same date, the
parties agreed on a downpayment in the amount of P50,000.00 and that the balance
of P475,000.00 shall be paid within sixty (60) days from the date of the execution
of the agreement. The parties also agreed that until said balance is fully paid, the
down payment of P50,000.00 shall accrue as rentals of the 13 trucks; and that if
Akron fails to pay the balance within the period of 60 days, then the balance shall
constitute as a chattel mortgage lien covering said cargo trucks and the parties
may allow an extension of 30 days and thereafter private respondent may ask for a
revocation of the contract and the reconveyance of all said trucks. 7

The obligation is further secured by a promissory note executed by Coprada in


favor of Akron. It is stated in the promissory note that the balance shall be paid from
the proceeds of a loan obtained from the Development Bank of the Philippines
(DBP) within sixty (60) days. 8 After the lapse of 90 days, private respondent tried
to collect from Coprada but the latter promised to pay only upon the release of the
DBP loan. Private respondent sent Coprada a letter of demand dated May 10, 1978.
9 In his reply to the said letter, Coprada reiterated that he was applying for a loan
from the DBP from the proceeds of which payment of the obligation shall be
made. 10

Meanwhile, two of the trucks were sold under a pacto de retro sale to a certain Mr.
Bais of the Perpetual Loans and Savings Bank at Baclaran. The sale was
authorized by a board resolution made in a meeting held on March 15, 1978. 11

Upon inquiry, private respondent found that no loan application was ever filed by
Akron with DBP. 12

In the meantime, Akron paid rentals of P500.00 a day pursuant to a subsequent


agreement, from April 27, 1978 (the end of the 90-day period to pay the balance) to May
31, 1978. Thereafter, no more rental payments were made.

On June 17, 1978, Coprada wrote private respondent begging for a grace period of
until the end of the month to pay the balance of the purchase price; that he will update
the rentals within the week; and in case he fails, then he will return the 13 units should
private respondent elect to get back the same. 13 Private respondent, through
counsel, wrote Akron on August 1, 1978 demanding the return of the 13 trucks
and the payment of P25,000.00 back rentals covering the period from June 1 to
August 1, 1978. 14

Again, Coprada wrote private respondent on August 8, 1978 asking for another
grace period of up to August 31, 1978 to pay the balance, stating as well that he is
expecting the approval of his loan application from a certain financing company, and that
ten (10) trucks have been returned to Bagbag, Novaliches. 15 On December 9, 1978,
Coprada informed private respondent anew that he had returned ten (10) trucks to
Bagbag and that a resolution was passed by the board of directors confirming the deed
of assignment to private respondent of P475,000 from the proceeds of a loan obtained
by Akron from the State Investment House, Inc. 16

In due time, private respondent filed a compliant for the recovery of P525,000.00 or
the return of the 13 trucks with damages against Akron and its officers and
directors, Feliciano Coprada, Dario D. Punzalan, Jemina Coprada, Lucia Lacaste,
Wilfredo Layug, Arcadio de la Cruz, Francisco Clave, Vicente Martinez, Pacifico Dollario
and petitioner with the then Court of First Instance of Rizal. Only petitioner answered
the complaint denying any participation in the transaction and alleging that Akron
has a distinct corporate personality. He was, however, declared in default for his
failure to attend the pre-trial.

In the meanwhile, petitioner sold all his shares in Akron to Coprada. It also appears
that Akron amended its articles of incorporation thereby changing its name to
Akron Transport International, Inc. which assumed the liability of Akron to private
respondent.

After an ex parte reception of the evidence of the private respondent, a decision was
rendered on October 28, 1980, the dispositive part of which reads as follows:

Finding the evidence sufficient to prove the case of the plaintiff, judgment is hereby
rendered in favor of the plaintiff and against the defendants, ordering them jointly
and severally to pay;

a the purchase price of the trucks in the amount of P525,000.00 with ... legal rate (of
interest) from the filing of the complaint until the full amount is paid;

b rentals of Bagbag property at P1,000.00 a month from August 1978 until the
premises is cleared of the said trucks;

c attorneys fees of P10,000.00, and

d costs of suit.

The P50,000.00 given as down payment shall pertain as rentals of the trucks from June
1 to August 1, 1978 which is P25,000.00 (see demand letter of Atty. Aniano Exhibit "T")
and the remaining P25,000.00 shall be from August 1, 1978 until the trucks are removed
totally from the place." 17

A motion for new trial filed by petitioner was denied so he appealed to the then
Intermediate Appellate Court (IAC) wherein in due course a decision was rendered on
June 30, 1983 setting aside the said decision as far as petitioner is concemed.
However, upon a motion for reconsideration filed by private respondent, the IAC, in
a resolution dated February 8,1984, set aside the decision dated June 30, 1983. The
appellate court entered another decision affirming the appealed decision of the trial
court, with costs against petitioner.

Hence, this petition for review wherein petitioner raises the following issues:

I. The Intermediate Appellate Court (IAC) erred in disregarding the corporate fiction and
in holding the petitioner personally liable for the obligation of the Corporation which
decision is patently contrary to law and the applicable decision thereon.

II. The Intermediate Appellate Court (IAC) committed grave error of law in its decision by
sanctioning the merger of the personality of the corporation with that of the petitioner
when the latter was held liable for the corporate debts. 18

We reverse.

The environmental facts of this case show that there is no cogent basis to pierce the
corporate veil of Akron and hold petitioner personally liable for its obligation to
private respondent. While it is true that in December, 1977 petitioner was still a
member of the board of directors of Akron and that he participated in the adoption
of a resolution authorizing the purchase of 13 trucks for the use in the brokerage
business of Akron to be paid out of a loan to be secured from a lending
institution, it does not appear that said resolution was intended to defraud anyone
and more particularly private respondent. It was Coprada, President and Chairman
of Akron, who negotiated with said respondent for the purchase of 13 cargo
trucks on January 25, 1978. It was Coprada who signed a promissory note to
guarantee the payment of the unpaid balance of the purchase price out of the
proceeds of a loan he supposedly sought from the DBP. The word "WE' in the said
promissory note must refer to the corporation which Coprada represented in the
execution of the note and not its stockholders or directors. Petitioner did not sign
the said promissory note so he cannot be personally bound thereby.

Thus, if there was any fraud or misrepresentation that was foisted on private
respondent in that there was a forthcoming loan from the DBP when it fact there
was none, it is Coprada who should account for the same and not petitioner.

As to the sale through pacto de retro of the two units to a third person by the
corporation by virtue of a board resolution, petitioner asserts that he never signed
said resolution. Be that as it may, the sale is not inherently fraudulent as the 13
units were sold through a deed of absolute sale to Akron so that the corporation
is free to dispose of the same. Of course, it was stipulated that in case of default
in payment to private respondent of the balance of the consideration, a chattel
mortgage lien shall be constituted on the 13 units. Nevertheless, said mortgage is
a prior lien as against the pacto de retro sale of the 2 units.

As to the amendment of the articles of incorporation of Akron thereby changing


its name to Akron Transport International, Inc., petitioner alleges that the change
of corporate name was in order to include trucking and container yard operations
in its customs brokerage of which private respondent was duly informed in a
letter. 19 Indeed, the new corporation confirmed and assumed the obligation of
the old corporation. There is no indication of an attempt on the part of Akron to
evade payment of its obligation to private respondent.

There is the fact that petitioner sold his shares in Akron to Coprada during the
pendency of the case. Since petitioner has no personal obligation to private
respondent, it is his inherent right as a stockholder to dispose of his shares of
stock anytime he so desires.

Mention is also made of the alleged "dumping" of 10 units in the premises of private
respondent at Bagbag, Novaliches which to the mind of the Court does not prove fraud
and instead appears to be an attempt on the part of Akron to attend to its obligations as
regards the said trucks. Again petitioner has no part in this.

If the private respondent is the victim of fraud in this transaction, it has not been clearly
shown that petitioner had any part or participation in the perpetration of the same. Fraud
must be established by clear and convincing evidence. If at all, the principal character on
whom fault should be attributed is Feliciano Coprada, the President of Akron, whom
private respondent dealt with personally all through out. Fortunately, private respondent
obtained a judgment against him from the trial court and the said judgment has long
been final and executory.

WHEREFORE, the petition is GRANTED. The questioned resolution of the Intermediate


Appellate Court dated February 8,1984 is hereby set aside and its decision dated June
30,1983 setting aside the decision of the trial court dated October 28, 1980 insofar as
petitioner is concemed is hereby reinstated and affirmed, without costs.

SO ORDERED.

[G.R. No. 129459. September 29, 1998]

SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC., petitioner, vs. COURT
OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE
GRUENBERG, ACL DEVELOPMENT CORP. and JNM REALTY AND
DEVELOPMENT CORP., respondents.

DECISION

PANGANIBAN, J.

May a corporate treasurer, by herself and without any authorization from the board
of directors, validly sell a parcel of land owned by the corporation? May the veil of
corporate fiction be pierced on the mere ground that almost all of the shares of stock of
the corporation are owned by said treasurer and her husband?

The Case

These questions are answered in the negative by this Court in resolving the
Petition for Review on Certiorari before us, assailing the March 18, 1997 Decision[1] of
the Court of Appeals[2] in CA GR CV No. 46801 which, in turn, modified the July 18,
1994 Decision of the Regional Trial Court of Makati, Metro Manila, Branch 63[3] in Civil
Case No. 89-3511. The RTC dismissed both the Complaint and the Counterclaim filed
by the parties. On the other hand, the Court of Appeals ruled:

WHEREFORE, premises considered, the appealed decision is AFFIRMED


WITH MODIFICATION ordering defendant-appellee Nenita Lee Gruenberg
to REFUND or return to plaintiff-appellant the downpayment of P100,000.00
which she received from plaintiff-appellant. There is no pronouncement as
to costs.[4]

The petition also challenges the June 10, 1997 CA Resolution denying
reconsideration.[5]

The Facts
The facts as found by the Court of Appeals are as follows:

Plaintiff-appellant San Juan Structural and Steel Fabricators, Inc. amended


complaint alleged that on 14 February 1989, plaintiff-appellant entered
into an agreement with defendant-appellee Motorich Sales Corporation
for the transfer to it of a parcel of land identified as Lot 30, Block 1 of the
Acropolis Greens Subdivision located in the District of Murphy, Quezon City,
Metro Manila, containing an area of Four Hundred Fourteen (414) square
meters, covered by TCT No. (362909) 2876; that as stipulated in the
Agreement of 14 February 1989, plaintiff-appellant paid the down
payment in the sum of One Hundred Thousand (P100,000.00) Pesos, the
balance to be paid on or before March 2, 1989; that on March 1, 1989,
Mr. Andres T. Co, president of plaintiff-appellant corporation, wrote a
letter to defendant-appellee Motorich Sales Corporation requesting for
a computation of the balance to be paid; that said letter was coursed
through defendant-appellees broker, Linda Aduca, who wrote the
computation of the balance; that on March 2, 1989, plaintiff-appellant
was ready with the amount corresponding to the balance, covered by
Metrobank Cashiers Check No. 004223, payable to defendant-appellee
Motorich Sales Corporation; that plaintiff-appellant and defendant-
appellee Motorich Sales Corporation were supposed to meet in the
office of plaintiff-appellant but defendant-appellees treasurer, Nenita
Lee Gruenberg, did not appear; that defendant-appellee Motorich Sales
Corporation despite repeated demands and in utter disregard of its
commitments had refused to execute the Transfer of Rights/Deed of
Assignment which is necessary to transfer the certificate of title; that
defendant ACL Development Corp. is impleaded as a necessary party
since Transfer Certificate of Title No. (362909) 2876 is still in the name
of said defendant; while defendant JNM Realty & Development Corp. is
likewise impleaded as a necessary party in view of the fact that it is the
transferor of right in favor of defendant-appellee Motorich Sales
Corporation; that on April 6, 1989, defendant ACL Development
Corporation and Motorich Sales Corporation entered into a Deed of
Absolute Sale whereby the former transferred to the latter the subject
property; that by reason of said transfer, the Registry of Deeds of Quezon
City issued a new title in the name of Motorich Sales Corporation,
represented by defendant-appellee Nenita Lee Gruenberg and Reynaldo L.
Gruenberg, under Transfer Certificate of Title No. 3571; that as a result of
defendants-appellees Nenita Lee Gruenberg and Motorich Sales
Corporations bad faith in refusing to execute a formal Transfer of
Rights/Deed of Assignment, plaintiff-appellant suffered moral and
nominal damages which may be assessed against defendants-appellees in
the sum of Five Hundred Thousand (500,000.00) Pesos; that as a result of
defendants-appellees Nenita Lee Gruenberg and Motorich Sales
Corporations unjustified and unwarranted failure to execute the required
Transfer of Rights/Deed of Assignment or formal deed of sale in favor of
plaintiff-appellant, defendants-appellees should be assessed exemplary
damages in the sum of One Hundred Thousand (P100,000.00) Pesos; that
by reason of defendants-appellees bad faith in refusing to execute a
Transfer of Rights/Deed of Assignment in favor of plaintiff-appellant,
the latter lost the opportunity to construct a residential building in the
sum of One Hundred Thousand (P100,000.00) Pesos; and that as a
consequence of defendants-appellees Nenita Lee Gruenberg and Motorich
Sales Corporations bad faith in refusing to execute a deed of sale in favor of
plaintiff-appellant, it has been constrained to obtain the services of counsel
at an agreed fee of One Hundred Thousand (P100,000.00) Pesos plus
appearance fee for every appearance in court hearings.

In its answer, defendants-appellees Motorich Sales Corporation and


Nenita Lee Gruenberg interposed as affirmative defense that the
President and Chairman of Motorich did not sign the agreement
adverted to in par. 3 of the amended complaint; that Mrs. Gruenbergs
signature on the agreement (ref: par. 3 of Amended Complaint) is
inadequate to bind Motorich. The other signature, that of Mr. Reynaldo
Gruenberg, President and Chairman of Motorich, is required; that
plaintiff knew this from the very beginning as it was presented a copy of the
Transfer of Rights (Annex B of amended complaint) at the time the
Agreement (Annex B of amended complaint) was signed; that plaintiff-
appellant itself drafted the Agreement and insisted that Mrs. Gruenberg
accept the P100,000.00 as earnest money; that granting, without admitting,
the enforceability of the agreement, plaintiff-appellant nonetheless failed
to pay in legal tender within the stipulated period (up to March 2,
1989); that it was the understanding between Mrs. Gruenberg and
plaintiff-appellant that the Transfer of Rights/Deed of Assignment will
be signed only upon receipt of cash payment; thus they agreed that if
the payment be in check, they will meet at a bank designated by
plaintiff-appellant where they will encash the check and sign the
Transfer of Rights/Deed. However, plaintiff-appellant informed Mrs.
Gruenberg of the alleged availability of the check, by phone, only after
banking hours.

On the basis of the evidence, the court a quo rendered the judgment
appealed from[,] dismissing plaintiff-appellants complaint, ruling that:

'The issue to be resolved is: whether plaintiff had the right to


compel defendants to execute a deed of absolute sale in
accordance with the agreement of February 14, 1989; and if so,
whether plaintiff is entitled to damages.

As to the first question, there is no evidence to show that


defendant Nenita Lee Gruenberg was indeed authorized by
defendant corporation, Motorich Sales, to dispose of that
property covered by T.C.T. No. (362909) 2876. Since the
property is clearly owned by the corporation, Motorich Sales,
then its disposition should be governed by the requirement
laid down in Sec. 40, of the Corporation Code of the
Philippines, to wit:

Sec. 40, Sale or other disposition of assets. Subject to


the provisions of existing laws on illegal combination and
monopolies, a corporation may by a majority vote of
its board of directors xxx sell, lease, exchange,
mortgage, pledge or otherwise dispose of all or
substantially all of its property and assets, including
its goodwill xxx when authorized by the vote of the
stockholders representing at least two third (2/3) of the
outstanding capital stock x x x.

No such vote was obtained by defendant Nenita Lee Gruenberg


for that proposed sale[;] neither was there evidence to show that
the supposed transaction was ratified by the corporation. Plaintiff
should have been on the look out under these circumstances.
More so, plaintiff himself [owns] several corporations (tsn dated
August 16, 1993, p. 3) which makes him knowledgeable on
corporation matters.

Regarding the question of damages, the Court likewise, does


not find substantial evidence to hold defendant Nenita Lee
Gruenberg liable considering that she did not in anyway
misrepresent herself to be authorized by the corporation to
sell the property to plaintiff (tsn dated September 27, 1991, p.
8).

In the light of the foregoing, the Court hereby renders judgment


DISMISSING the complaint at instance for lack of merit.

Defendants counterclaim is also DISMISSED for lack of basis.


(Decision, pp. 7-8; Rollo, pp. 34-35)

For clarity, the Agreement dated February 14, 1989 is reproduced hereunder:

AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This Agreement, made and entered into by and between:

MOTORICH SALES CORPORATION, a corporation duly organized and existing under


and by virtue of Philippine Laws, with principal office address at 5510 South Super Hi-
way cor. Balderama St., Pio del Pilar, Makati, Metro Manila, represented herein by its
Treasurer, NENITA LEE GRUENBERG, hereinafter referred to as the TRANSFEROR;

- and --

SAN JUAN STRUCTURAL & STEEL FABRICATORS, a corporation duly organized and
existing under and by virtue of the laws of the Philippines, with principal office address at
Sumulong Highway, Barrio Mambungan, Antipolo, Rizal, represented herein by its
President, ANDRES T. CO, hereinafter referred to as the TRANSFEREE.

WITNESSETH, That:

WHEREAS, the TRANSFEROR is the owner of a parcel of land identified as Lot 30


Block 1 of the ACROPOLIS GREENS SUBDIVISION located at the District of Murphy,
Quezon City, Metro Manila, containing an area of FOUR HUNDRED FOURTEEN (414)
SQUARE METERS, covered by a TRANSFER OF RIGHTS between JNM Realty & Dev.
Corp. as the Transferor and Motorich Sales Corp. as the Transferee;

NOW, THEREFORE, for and in consideration of the foregoing premises, the parties
have agreed as follows:

1. That the purchase price shall be at FIVE THOUSAND TWO


HUNDRED PESOS (P5,200.00) per square meter; subject to the
following terms:

a. Earnest money amounting to ONE HUNDRED THOUSAND


PESOS (P100,000.00), will be paid upon the execution of
this agreement and shall form part of the total purchase
price;

b. Balance shall be payable on or before March 2, 1989;

2. That the monthly amortization for the month of February 1989 shall
be for the account of the Transferor; and that the monthly
amortization starting March 21, 1989 shall be for the account of
the Transferee;

The transferor warrants that he [sic] is the lawful owner of the above-described property
and that there [are] no existing liens and/or encumbrances of whatsoever nature;

In case of failure by the Transferee to pay the balance on the date specified on 1. (b),
the earnest money shall be forfeited in favor of the Transferor.

That upon full payment of the balance, the TRANSFEROR agrees to execute a
TRANSFER OF RIGHTS/DEED OF ASSIGNMENT in favor of the TRANSFEREE.

IN WITNESS WHEREOF, the parties have hereunto set their hands this 14th day of
February, 1989 at Greenhills, San Juan, Metro Manila, Philippines.

MOTORICH SALES CORPORATION SAN STRUCTURAL &


TRANSFEROR STEEL FABRICATORS
TRANSFEREE

[SGD.] [SGD.]
By: NENITA LEE GRUENBERG By: ANDRES T. CO
Treasurer President

Signed in the presence of:

[SGD.] [SGD.]
_________________________ _____________________[6]
In its recourse before the Court of Appeals, petitioner insisted:

1. Appellant is entitled to compel the appellees to execute a Deed of


Absolute Sale in accordance with the Agreement of February 14, 1989,

2. Plaintiff is entitled to damages.[7]

As stated earlier, the Court of Appeals debunked petitioners arguments and


affirmed the Decision of the RTC with the modification that Respondent Nenita Lee
Gruenberg was ordered to refund P100,000 to petitioner, the amount remitted as
downpayment or earnest money. Hence, this petition before us.[8]

The Issues

Before this Court, petitioner raises the following issues:

I. Whether or not the doctrine of piercing the veil of corporate fiction is


applicable in the instant case

II. Whether or not the appellate court may consider matters which the
parties failed to raise in the lower court

III. Whether or not there is a valid and enforceable contract between


the petitioner and the respondent corporation

IV. Whether or not the Court of Appeals erred in holding that there is a
valid correction/substitution of answer in the transcript of
stenographic note[s]

V. Whether or not respondents are liable for damages and attorneys


fees[9]

The Court synthesized the foregoing and will thus discuss them seriatim as
follows:

1. Was there a valid contract of sale between petitioner and Motorich?

2. May the doctrine of piercing the veil of corporate fiction be applied


to Motorich?

3. Is the alleged alteration of Gruenbergs testimony as recorded in the


transcript of stenographic notes material to the disposition of this
case?

4. Are respondents liable for damages and attorneys fees?


The Courts Ruling

The petition is devoid of merit.


First Issue: Validity of Agreement
Petitioner San Juan Structural and Steel Fabricators, Inc. alleges that on February
14, 1989, it entered through its president, Andres Co, into the disputed Agreement with
Respondent Motorich Sales Corporation, which was in turn allegedly represented by its
treasurer, Nenita Lee Gruenberg. Petitioner insists that [w]hen Gruenberg and Co
affixed their signatures on the contract they both consented to be bound by the
terms thereof. Ergo, petitioner contends that the contract is binding on the two
corporations. We do not agree.

True, Gruenberg and Co signed on February 14, 1989, the Agreement according
to which a lot owned by Motorich Sales Corporation was purportedly sold. Such contract,
however, cannot bind Motorich, because it never authorized or ratified such sale.

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 corporations board of
directors.[10] 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 bylaws 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, bylaws, or relevant provisions of law.[11] Thus, this Court
has held that a corporate officer or agent may represent and bind the corporation
in transactions with third persons to the extent that the authority to do so has
been conferred upon him, and this includes powers which have been intentionally
conferred, and also such powers as, in the usual course of the particular
business, are incidental to, or may be implied from, the powers intentionally
conferred, powers added by custom and usage, as usually pertaining to the particular
officer or agent, and such apparent powers as the corporation has caused persons
dealing with the officer or agent to believe that it has conferred.[12]

Furthermore, the Court has also recognized the rule that persons dealing with an
assumed agent, 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 (Harry Keeler v. Rodriguez, 4 Phil. 19).[13] Unless
duly authorized, a treasurer, whose powers are limited, cannot bind the
corporation in a sale of its assets.[14]

In the case at bar, Respondent Motorich categorically denies that it ever


authorized Nenita Gruenberg, its treasurer, to sell the subject parcel of land.[15]
Consequently, petitioner had the burden of proving that Nenita Gruenberg was in
fact authorized to represent and bind Motorich in the transaction. Petitioner failed
to discharge this burden. Its offer of evidence before the trial court contained no
proof of such authority.[16] It has not shown any provision of said respondents
articles of incorporation, bylaws or board resolution to prove that Nenita
Gruenberg possessed such power.

That Nenita Gruenberg is the treasurer of Motorich does not free petitioner
from the responsibility of ascertaining the extent of her authority to represent the
corporation. Petitioner cannot assume that she, by virtue of her position, was
authorized to sell the property of the corporation. Selling is obviously foreign to a
corporate treasurers function, which generally has been described as to receive
and keep the funds of the corporation, and to disburse them in accordance with
the authority given him by the board or the properly authorized officers.[17]

Neither was such real estate sale shown to be a normal business activity of
Motorich. The primary purpose of Motorich is marketing, distribution, export and
import in relation to a general merchandising business.[18] Unmistakably, its
treasurer is not cloaked with actual or apparent authority to buy or sell real
property, an activity which falls way beyond the scope of her general authority.

Articles 1874 and 1878 of the Civil Code of the Philippines provides:

ART. 1874. When a sale of a piece of land or any interest therein is through
an agent, the authority of the latter shall be in writing; otherwise, the sale
shall be void.

ART. 1878 Special powers of attorney are necessary in the following case:

xxxxxxxxx

(5) To enter any contract by which the ownership of an immovable is


transmitted or acquired either gratuitously or for a valuable consideration;

x x x x x x x x x.

Petitioner further contends that Respondent Motorich has ratified said contract of
sale because of its acceptance of benefits, as evidenced by the receipt issued by
Respondent Gruenberg.[19] Petitioner is clutching at straws.

As a general rule, the acts of corporate officers within the scope of their
authority are binding on the corporation. But when these officers exceed their
authority, their actions cannot bind the corporation, unless it has ratified such
acts or is estopped from disclaiming them.[20]

In this case, there is a clear absence of proof that Motorich ever authorized
Nenita Gruenberg, or made it appear to any third person that she had the
authority, to sell its land or to receive the earnest money. Neither was there any
proof that Motorich ratified, expressly or impliedly, the contract. Petitioner rests
its argument on the receipt, which, however, does not prove the fact of
ratification. The document is a hand-written one, not a corporate receipt, and it
bears only Nenita Gruenbergs signature. Certainly, this document alone does not
prove that her acts were authorized or ratified by Motorich.

Article 1318 of the Civil Code lists the requisites of a valid and perfected contract:
(1) consent of the contracting parties; (2) object certain which is the subject matter of the
contract; (3) cause of the obligation which is established. As found by the trial court[21]
and affirmed by the Court of Appeals,[22] there is no evidence that Gruenberg was
authorized to enter into the contract of sale, or that the said contract was ratified by
Motorich. This factual finding of the two courts is binding on this Court.[23] As the
consent of the seller was not obtained, no contract to bind the obligor was perfected.
Therefore, there can be no valid contract of sale between petitioner and Motorich.

Because Motorich had never given a written authorization to Respondent


Gruenberg to sell its parcel of land, we hold that the February 14, 1989 Agreement
entered into by the latter with petitioner is void under Article 1874 of the Civil
Code. Being inexistent and void from the beginning, said contract cannot be
ratified.[24]

Second Issue:
Piercing the Corporate Veil Not Justified

Petitioner also argues that the veil of corporate fiction of Motorich should be
pierced, because the latter is a close corporation. Since Spouses Reynaldo L.
Gruenberg and Nenita R. Gruenberg owned all or almost all or 99.866% to be
accurate, of the subscribed capital stock[25] of Motorich, petitioner argues that
Gruenberg needed no authorization from the board to enter into the subject
contract.[26] It adds that, being solely owned by the Spouses Gruenberg, the
company can be treated as a close corporation which can be bound by the acts of
its principal stockholder who needs no specific authority. The Court is not
persuaded.
First, petitioner itself concedes having raised the issue belatedly,[27] not
having done so during the trial, but only when it filed its sur-rejoinder before the
Court of Appeals.[28] Thus, this Court cannot entertain said issue at this late
stage of the proceedings. It is well-settled that points of law, theories and
arguments not brought to the attention of the trial court need not be, and
ordinarily will not be, considered by a reviewing court, as they cannot be raised
for the first time on appeal.[29] Allowing petitioner to change horses in midstream,
as it were, is to run roughshod over the basic principles of fair play, justice and
due process.

Second, even if the above-mentioned argument were to be addressed at this time,


the Court still finds no reason to uphold it. True, one of the advantages of a corporate
form of business organization is the limitation of an investors liability to the
amount of the investment.[30] This feature flows from the legal theory that a
corporate entity is separate and distinct from its stockholders. However, the
statutorily granted privilege of a corporate veil may be used only for legitimate
purposes.[31] On equitable considerations, the veil can be disregarded when it is
utilized as a shield to commit fraud, illegality or inequity; defeat public
convenience; confuse legitimate issues; or serve as a mere alter ego or business
conduit of a person or an instrumentality, agency or adjunct of another
corporation.[32]

Thus, the Court has consistently ruled that [w]hen the fiction is used as a
means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an
existing obligation, the circumvention of statutes, the achievement or perfection
of a monopoly or generally the perpetration of knavery or crime, the veil with
which the law covers and isolates the corporation from the members or
stockholders who compose it will be lifted to allow for its consideration merely as
an aggregation of individuals.[33]

We stress that the corporate fiction should be set aside when it becomes a shield
against liability for fraud, illegality or inequity committed on third persons. The question
of piercing the veil of corporate fiction is essentially, then, a matter of proof. In the
present case, however, the Court finds no reason to pierce the corporate veil of
Respondent Motorich. Petitioner utterly failed to establish that said corporation
was formed, or that it is operated, for the purpose of shielding any alleged
fraudulent or illegal activities of its officers or stockholders; or that the said veil
was used to conceal fraud, illegality or inequity at the expense of third persons,
like petitioner.

Petitioner claims that Motorich is a close corporation. We rule that it is not. Section
96 of the Corporation Code defines a close corporation as follows:

SEC. 96. Definition and Applicability of Title. -- A close corporation, within


the meaning of this Code, is one whose articles of incorporation provide
that: (1) All of the corporations issued stock of all classes, exclusive of
treasury shares, shall be held of record by not more than a specified number
of persons, not exceeding twenty (20); (2) All of the issued stock of all
classes shall be subject to one or more specified restrictions on transfer
permitted by this Title; and (3) The corporation shall not list in any stock
exchange or make any public offering of any of its stock of any class.
Notwithstanding the foregoing, a corporation shall be deemed not a close
corporation when at least two-thirds (2/3) of its voting stock or voting rights
is owned or controlled by another corporation which is not a close
corporation within the meaning of this Code. xxx.

The articles of incorporation[34] of Motorich Sales Corporation does not contain


any provision stating that (1) the number of stockholders shall not exceed 20, or (2) a
preemption of shares is restricted in favor of any stockholder or of the corporation, or (3)
listing its stocks in any stock exchange or making a public offering of such stocks is
prohibited. From its articles, it is clear that Respondent Motorich is not a close
corporation.[35] Motorich does not become one either, just because Spouses Reynaldo
and Nenita Gruenberg owned 99.866% of its subscribed capital stock. The [m]ere
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 personalities.[36] So too, a narrow distribution of ownership does
not, by itself, make a close corporation.

Petitioner cites Manuel R. Dulay Enterprises, Inc. v. Court of Appeals[37] wherein


the Court ruled that xxx petitioner corporation is classified as a close corporation and,
consequently, a board resolution authorizing the sale or mortgage of the subject
property is not necessary to bind the corporation for the action of its
president.[38] But the factual milieu in Dulay is not on all fours with the present case. In
Dulay, the sale of real property was contracted by the president of a close
corporation with the knowledge and acquiescence of its board of directors.[39] In
the present case, Motorich is not a close corporation, as previously discussed, and
the agreement was entered into by the corporate treasurer without the knowledge
of the board of directors.

The Court is not unaware that there are exceptional cases where an action by a
director, who singly is the controlling stockholder, may be considered as a
binding corporate act and a board action as nothing more than a mere
formality.[40] The present case, however, is not one of them.

As stated by petitioner, Spouses Reynaldo and Nenita Gruenberg own almost


99.866% of Respondent Motorich.[41] Since Nenita is not the sole controlling
stockholder of Motorich, the aforementioned exception does not apply. Granting
arguendo that the corporate veil of Motorich is to be disregarded, the subject parcel
of land would then be treated as conjugal property of Spouses Gruenberg,
because the same was acquired during their marriage. There being no indication
that said spouses, who appear to have been married before the effectivity of the Family
Code, have agreed to a different property regime, their property relations would be
governed by conjugal partnership of gains.[42] As a consequence, Nenita Gruenberg
could not have effected a sale of the subject lot because [t]here is no co-ownership
between the spouses in the properties of the conjugal partnership of gains. Hence,
neither spouse can alienate in favor of another his or her interest in the partnership or in
any property belonging to it; neither spouse can ask for a partition of the properties
before the partnership has been legally dissolved.[43]

Assuming further, for the sake of argument, that the spouses property regime
is the absolute community of property, the sale would still be invalid. Under this
regime, alienation of community property must have the written consent of the
other spouse or the authority of the court without which the disposition or
encumbrance is void.[44] Both requirements are manifestly absent in the instant case.

Third Issue: Challenged Portion of TSN Immaterial

Petitioner calls our attention to the following excerpt of the transcript of


stenographic notes(TSN):

Q Did you ever represent to Mr. Co that you were authorized by the corporation to
sell the property?

A Yes, sir.[45]

Petitioner claims that the answer Yes was crossed out, and, in its place was
written a No with an initial scribbled above it.[46] This, however, is insufficient to prove
that Nenita Gruenberg was authorized to represent Respondent Motorich in the sale of
its immovable property. Said excerpt should be understood in the context of her whole
testimony. During her cross-examination, Respondent Gruenberg testified:

Q So, you signed in your capacity as the treasurer?

[A] Yes, sir.

Q Even then you kn[e]w all along that you [were] not authorized?
A Yes, sir.

Q You stated on direct examination that you did not represent that you were
authorized to sell the property?

A Yes, sir.

Q But you also did not say that you were not authorized to sell the property, you did
not tell that to Mr. Co, is that correct?

A That was not asked of me.

Q Yes, just answer it.

A I just told them that I was the treasurer of the corporation and it [was] also the
president who [was] also authorized to sign on behalf of the corporation.

Q You did not say that you were not authorized nor did you say that you were
authorized?

A Mr. Co was very interested to purchase the property and he offered to put up a
P100,000.00 earnest money at that time. That was our first meeting.[47]

Clearly then, Nenita Gruenberg did not testify that Motorich had authorized her to
sell its property. On the other hand, her testimony demonstrates that the president of
Petitioner Corporation, in his great desire to buy the property, threw caution to the wind
by offering and paying the earnest money without first verifying Gruenbergs authority to
sell the lot.

Fourth Issue:
Damages and Attorneys Fees

Finally, petitioner prays for damages and attorneys fees, alleging that [i]n an utter
display of malice and bad faith, [r]espondents attempted and succeeded in impressing
on the trial court and [the] Court of Appeals that Gruenberg did not represent herself as
authorized by Respondent Motorich despite the receipt issued by the former specifically
indicating that she was signing on behalf of Motorich Sales Corporation. Respondent
Motorich likewise acted in bad faith when it claimed it did not authorize Respondent
Gruenberg and that the contract [was] not binding, [insofar] as it [was] concerned,
despite receipt and enjoyment of the proceeds of Gruenbergs act.[48] Assuming that
Respondent Motorich was not a party to the alleged fraud, petitioner maintains that
Respondent Gruenberg should be held liable because she acted fraudulently and in bad
faith [in] representing herself as duly authorized by [R]espondent [C]orporation.[49]

As already stated, we sustain the findings of both the trial and the appellate courts
that the foregoing allegations lack factual bases. Hence, an award of damages or
attorneys fees cannot be justified. The amount paid as earnest money was not proven to
have redounded to the benefit of Respondent Motorich. Petitioner claims that said
amount was deposited to the account of Respondent Motorich, because it was deposited
with the account of Aren Commercial c/o Motorich Sales Corporation.[50] Respondent
Gruenberg, however, disputes the allegations of petitioner. She testified as follows:
Q You voluntarily accepted the P100,000.00, as a matter of fact, that was encashed,
the check was encashed.

A Yes, sir, the check was paid in my name and I deposit[ed] it . . .

Q In your account?

A Yes, sir. [51]

In any event, Gruenberg offered to return the amount to petitioner xxx since the sale did
not push through.[52]

Moreover, we note that Andres Co is not a neophyte in the world of corporate


business. He has been the president of Petitioner Corporation for more than ten years
and has also served as chief executive of two other corporate entities.[53] Co cannot
feign ignorance of the scope of the authority of a corporate treasurer such as Gruenberg.
Neither can he be oblivious to his duty to ascertain the scope of Gruenbergs
authorization to enter into a contract to sell a parcel of land belonging to Motorich.

Indeed, petitioners claim of fraud and bad faith is unsubstantiated and fails to
persuade the Court. Indubitably, petitioner appears to be the victim of its own officers
negligence in entering into a contract with and paying an unauthorized officer of another
corporation.

As correctly ruled by the Court of Appeals, however, Nenita Gruenberg should be


ordered to return to petitioner the amount she received as earnest money, as no one
shall enrich himself at the expense of another,[54] a principle embodied in Article 2154
of the Civil Code.[55] Although there was no binding relation between them, petitioner
paid Gruenberg on the mistaken belief that she had the authority to sell the property of
Motorich.[56] Article 2155 of the Civil Code provides that [p]ayment by reason of a
mistake in the construction or application of a difficult question of law may come within
the scope of the preceding article.
WHEREFORE, the petition is hereby DENIED and the assailed Decision is
AFFIRMED.

SO ORDERED.

[G.R. No. 114286. April 19, 2001]

THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK),


petitioner, vs. THE COURT OF APPEALS, CONTINENTAL CEMENT
CORPORATION, GREGORY T. LIM and SPOUSE, respondents.

DECISION

YNARES-SANTIAGO, J.:
The instant petition for review seeks to partially set aside the July 26, 1993
Decision[1] of respondent Court of Appeals in CA-G.R. CV No. 29950, insofar as it
orders petitioner to reimburse respondent Continental Cement Corporation the amount
of P490,228.90 with interest thereon at the legal rate from July 26, 1988 until fully paid.
The petition also seeks to set aside the March 8, 1994 Resolution[2] of respondent Court
of Appeals denying its Motion for Reconsideration.

The facts are as follows:

On July 13, 1982, respondents Continental Cement Corporation (hereinafter,


respondent Corporation) and Gregory T. Lim (hereinafter, respondent Lim) obtained
from petitioner Consolidated Bank and Trust Corporation Letter of Credit No. DOM-
23277 in the amount of P1,068,150.00 On the same date, respondent Corporation
paid a marginal deposit of P320,445.00 to petitioner. The letter of credit was used
to purchase around five hundred thousand liters of bunker fuel oil from Petrophil
Corporation, which the latter delivered directly to respondent Corporation in its
Bulacan plant. In relation to the same transaction, a trust receipt for the amount of
P1,001,520.93 was executed by respondent Corporation, with respondent Lim as
signatory.

Claiming that respondents failed to turn over the goods covered by the trust
receipt or the proceeds thereof, petitioner filed a complaint for sum of money with
application for preliminary attachment[3] before the Regional Trial Court of Manila. In
answer to the complaint, respondents averred that the transaction between them
was a simple loan and not a trust receipt transaction, and that the amount claimed
by petitioner did not take into account payments already made by them.
Respondent Lim also denied any personal liability in the subject transactions. In a
Supplemental Answer, respondents prayed for reimbursement of alleged
overpayment to petitioner of the amount of P490,228.90.

At the pre-trial conference, the parties agreed on the following issues:

1) Whether or not the transaction involved is a loan transaction or a trust receipt


transaction;

2) Whether or not the interest rates charged against the defendants by the plaintiff are
proper under the letter of credit, trust receipt and under existing rules or regulations of
the Central Bank;

3) Whether or not the plaintiff properly applied the previous payment of P300,456.27 by
the defendant corporation on July 13, 1982 as payment for the latters account; and

4) Whether or not the defendants are personally liable under the transaction sued for in
this case.[4]

On September 17, 1990, the trial court rendered its Decision,[5] dismissing
the Complaint and ordering petitioner to pay respondents the following amounts under
their counterclaim: P490,228.90 representing overpayment of respondent Corporation,
with interest thereon at the legal rate from July 26, 1988 until fully paid; P10,000.00 as
attorneys fees; and costs.
Both parties appealed to the Court of Appeals, which partially modified the
Decision by deleting the award of attorneys fees in favor of respondents and, instead,
ordering respondent Corporation to pay petitioner P37,469.22 as and for attorneys fees
and litigation expenses.

Hence, the instant petition raising the following issues:

1. WHETHER OR NOT THE RESPONDENT APPELLATE COURT ACTED


INCORRECTLY OR COMMITTED REVERSIBLE ERROR IN HOLDING THAT THERE
WAS OVERPAYMENT BY PRIVATE RESPONDENTS TO THE PETITIONER IN THE
AMOUNT OF P490,228.90 DESPITE THE ABSENCE OF ANY COMPUTATION MADE
IN THE DECISION AND THE ERRONEOUS APPLICATION OF PAYMENTS WHICH IS
IN VIOLATION OF THE NEW CIVIL CODE.

2. WHETHER OR NOT THE MANNER OF COMPUTATION OF THE MARGINAL


DEPOSIT BY THE RESPONDENT APPELLATE COURT IS IN ACCORDANCE WITH
BANKING PRACTICE.

3. WHETHER OR NOT THE AGREEMENT AMONG THE PARTIES AS TO THE


FLOATING OF INTEREST RATE IS VALID UNDER APPLICABLE JURISPRUDENCE
AND THE RULES AND REGULATIONS OF THE CENTRAL BANK.

4. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY


ERRED IN NOT CONSIDERING THE TRANSACTION AT BAR AS A TRUST RECEIPT
TRANSACTION ON THE BASIS OF THE JUDICIAL ADMISSIONS OF THE PRIVATE
RESPONDENTS AND FOR WHICH RESPONDENTS ARE LIABLE THEREFOR.

5. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY


ERRED IN NOT HOLDING PRIVATE RESPONDENT SPOUSES LIABLE UNDER THE
TRUST RECEIPT TRANSACTION.[6]

The petition must be denied.

On the first issue respecting the fact of overpayment found by both the lower
court and respondent Court of Appeals, we stress the time-honored rule that findings
of fact by the Court of Appeals especially if they affirm factual findings of the trial
court will not be disturbed by this Court, unless these findings are not supported by
evidence.[7]

Petitioner decries the lack of computation by the lower court as basis for its ruling
that there was an overpayment made. While such a computation may not have
appeared in the Decision itself, we note that the trial courts finding of overpayment
is supported by evidence presented before it. At any rate, we painstakingly reviewed
and computed the payments together with the interest and penalty charges due thereon
and found that the amount of overpayment made by respondent Bank to petitioner, i.e.,
P563,070.13, was more than what was ordered reimbursed by the lower court. However,
since respondents did not file an appeal in this case, the amount ordered reimbursed by
the lower court should stand.

Moreover, petitioners contention that the marginal deposit made by respondent


Corporation should not be deducted outright from the amount of the letter of credit is
untenable. Petitioner argues that the marginal deposit should be considered only after
computing the principal plus accrued interests and other charges. However, to sustain
petitioner on this score would be to countenance a clear case of unjust enrichment, for
while a marginal deposit earns no interest in favor of the debtor-depositor, the bank is
not only able to use the same for its own purposes, interest-free, but is also able to earn
interest on the money loaned to respondent Corporation. Indeed, it would be onerous to
compute interest and other charges on the face value of the letter of credit which the
petitioner issued, without first crediting or setting off the marginal deposit which the
respondent Corporation paid to it. Compensation is proper and should take effect by
operation of law because the requisites in Article 1279 of the Civil Code are present and
should extinguish both debts to the concurrent amount.[8]

Hence, the interests and other charges on the subject letter of credit should be
computed only on the balance of P681,075.93, which was the portion actually loaned by
the bank to respondent Corporation.

Neither do we find error when the lower court and the Court of Appeals set aside
as invalid the floating rate of interest exhorted by petitioner to be applicable. The
pertinent provision in the trust receipt agreement of the parties fixing the interest rate
states:

I, WE jointly and severally agree to any increase or decrease in the interest rate which
may occur after July 1, 1981, when the Central Bank floated the interest rate, and to pay
additionally the penalty of 1% per month until the amount/s or installment/s due and
unpaid under the trust receipt on the reverse side hereof is/are fully paid.[9]

We agree with respondent Court of Appeals that the foregoing stipulation is invalid,
there being no reference rate set either by it or by the Central Bank, leaving the
determination thereof at the sole will and control of petitioner.

While it may be acceptable, for practical reasons given the fluctuating economic
conditions, for banks to stipulate that interest rates on a loan not be fixed and instead be
made dependent upon prevailing market conditions, there should always be a reference
rate upon which to peg such variable interest rates. An example of such a valid variable
interest rate was found in Polotan, Sr. v. Court of Appeals.[10] In that case, the
contractual provision stating that if there occurs any change in the prevailing market
rates, the new interest rate shall be the guiding rate in computing the interest due on
the outstanding obligation without need of serving notice to the Cardholder other than
the required posting on the monthly statement served to the Cardholder[11] was
considered valid. The aforequoted provision was upheld notwithstanding that it may
partake of the nature of an escalation clause, because at the same time it provides for
the decrease in the interest rate in case the prevailing market rates dictate its reduction.
In other words, unlike the stipulation subject of the instant case, the interest rate involved
in the Polotan case is designed to be based on the prevailing market rate. On the other
hand, a stipulation ostensibly signifying an agreement to any increase or decrease in the
interest rate, without more, cannot be accepted by this Court as valid for it leaves solely
to the creditor the determination of what interest rate to charge against an outstanding
loan.

Petitioner has also failed to convince us that its transaction with respondent
Corporation is really a trust receipt transaction instead of merely a simple loan, as
found by the lower court and the Court of Appeals.
The recent case of Colinares v. Court of Appeals[12] appears to be foursquare
with the facts obtaining in the case at bar. There, we found that inasmuch as the debtor
received the goods subject of the trust receipt before the trust receipt itself was entered
into, the transaction in question was a simple loan and not a trust receipt agreement.
Prior to the date of execution of the trust receipt, ownership over the goods was already
transferred to the debtor. This situation is inconsistent with what normally obtains in a
pure trust receipt transaction, wherein the goods belong in ownership to the bank and
are only released to the importer in trust after the loan is granted.

In the case at bar, as in Colinares, the delivery to respondent Corporation of


the goods subject of the trust receipt occurred long before the trust receipt itself
was executed. More specifically, delivery of the bunker fuel oil to respondent
Corporations Bulacan plant commenced on July 7, 1982 and was completed by
July 19, 1982.[13] Further, the oil was used up by respondent Corporation in its
normal operations by August, 1982.[14] On the other hand, the subject trust
receipt was only executed nearly two months after full delivery of the oil was
made to respondent Corporation, or on September 2, 1982.

The danger in characterizing a simple loan as a trust receipt transaction was


explained in Colinares, to wit:

The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes
the dishonesty and abuse of confidence in the handling of money or goods to the
prejudice of another regardless of whether the latter is the owner. Here, it is crystal clear
that on the part of Petitioners there was neither dishonesty nor abuse of confidence in
the handling of money to the prejudice of PBC. Petitioners continually endeavored to
meet their obligations, as shown by several receipts issued by PBC acknowledging
payment of the loan.

The Information charges Petitioners with intent to defraud and misappropriating the
money for their personal use. The mala prohibita nature of the alleged offense
notwithstanding, intent as a state of mind was not proved to be present in Petitioners
situation. Petitioners employed no artifice in dealing with PBC and never did they evade
payment of their obligation nor attempt to abscond. Instead, Petitioners sought favorable
terms precisely to meet their obligation.

Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-
sale, contrary to the express provision embodied in the trust receipt. They are
contractors who obtained the fungible goods for their construction project. At no time did
title over the construction materials pass to the bank, but directly to the Petitioners from
CM Builders Centre. This impresses upon the trust receipt in question vagueness and
ambiguity, which should not be the basis for criminal prosecution in the event of violation
of its provisions.

The practice of banks of making borrowers sign trust receipts to facilitate


collection of loans and place them under the threats of criminal prosecution
should they be unable to pay it may be unjust and inequitable, if not
reprehensible. Such agreements are contracts of adhesion which borrowers have no
option but to sign lest their loan be disapproved. The resort to this scheme leaves poor
and hapless borrowers at the mercy of banks, and is prone to misinterpretation, as had
happened in this case. Eventually, PBC showed its true colors and admitted that it was
only after collection of the money, as manifested by its Affidavit of Desistance.

Similarly, respondent Corporation cannot be said to have been dishonest in


its dealings with petitioner. Neither has it been shown that it has evaded payment
of its obligations. Indeed, it continually endeavored to meet the same, as shown
by the various receipts issued by petitioner acknowledging payment on the loan.
Certainly, the payment of the sum of P1,832,158.38 on a loan with a principal amount of
only P681,075.93 negates any badge of dishonesty, abuse of confidence or mishandling
of funds on the part of respondent Corporation, which are the gravamen of a trust receipt
violation. Furthermore, respondent Corporation is not an importer which acquired
the bunker fuel oil for re-sale; it needed the oil for its own operations. More
importantly, at no time did title over the oil pass to petitioner, but directly to
respondent Corporation to which the oil was directly delivered long before the
trust receipt was executed. The fact that ownership of the oil belonged to
respondent Corporation, through its President, Gregory Lim, was acknowledged
by petitioners own account officer on the witness stand, to wit:

Q - After the bank opened a letter of credit in favor of Petrophil Corp. for the account
of the defendants thereby paying the value of the bunker fuel oil what
transpired next after that?

A - Upon purchase of the bunker fuel oil and upon the requests of the defendant
possession of the bunker fuel oil were transferred to them.

Q - You mentioned them to whom are you referring to?

A - To the Continental Cement Corp. upon the execution of the trust receipt
acknowledging the ownership of the bunker fuel oil this should be acceptable
for whatever disposition he may make.

Q - You mentioned about acknowledging ownership of the bunker fuel oil to whom
by whom?

A - By the Continental Cement Corp.

Q - So by your statement who really owns the bunker fuel oil?

ATTY. RACHON:

Objection already answered.

COURT:

Give time to the other counsel to object.

ATTY. RACHON:

He has testified that ownership was acknowledged in favor of Continental Cement


Corp. so that question has already been answered.

ATTY. BAAGA:

That is why I made a follow up question asking ownership of the bunker fuel oil.
COURT:

Proceed.

ATTY. BAAGA:

Q - Who owns the bunker fuel oil after purchase from Petrophil Corp.?

A - Gregory Lim.[15]

By all indications, then, it is apparent that there was really no trust receipt
transaction that took place. Evidently, respondent Corporation was required to
sign the trust receipt simply to facilitate collection by petitioner of the loan it had
extended to the former.

Finally, we are not convinced that respondent Gregory T. Lim and his
spouse should be personally liable under the subject trust receipt. Petitioners
argument that respondent Corporation and respondent Lim and his spouse are
one and the same cannot be sustained. The transactions sued upon were clearly
entered into by respondent Lim in his capacity as Executive Vice President of
respondent Corporation. We stress the hornbook law that corporate personality is
a shield against personal liability of its officers. Thus, we agree that respondents
Gregory T. Lim and his spouse cannot be made personally liable since respondent
Lim entered into and signed the contract clearly in his official capacity as
Executive Vice President. The personality of the corporation is separate and
distinct from the persons composing it.

WHEREFORE, in view of all the foregoing, the instant Petition for Review is
DENIED. The Decision of the Court of Appeals dated July 26, 1993 in CA-G.R. CV No.
29950 is AFFIRMED.
SO ORDERED.

Republic of the Philippines SUPREME COURT Baguio City

THIRD DIVISION

G.R. No. 113907 April 20, 2001

MALAYANG SAMAHAN NG MGA MANGGAGAWA SA M. GREENFIELD (MSMG-


UWP), ITS PRESIDENT BEDA MAGDALENA VILLANUEVA, MARIO DAGANIO,
DONATO GUERRERO, BELLA P. SANCHEZ, ELENA TOBIS, RHODA TAMAYO,
LIWAYWAY MALLILIN, ELOISA SANTOS, DOMINADOR REBULLO, JOSE IRLAND,
TEOFILA QUEJADA, VICENTE SAMONTINA, FELICITAS DURIAN, ANTONIO
POLDO, ANGELINA TUGNA, SALVADOR PENALOSA, LUZVIMINDA TUBIG,
ILUMINADA RIVERA, ROMULO SUMILANG, NENITA BARBELONIA, LEVI BASILIA,
RICARDO PALAGA, MERCY ROBLES, LEODEGARIO GARIN, DOMINGO
ECLARINAL, MELCHOR GALLARDO, MARCELO GARIN, ROSALINA BAUTISTA,
MARY ANN TALIGATOS, ALEJANDRO SANTOS, ANTONIO FRAGA, LUZ
GAPULTOS, MAGDALENA URSUA, EUGENIO ORDAN, LIGAYA MANALO, PEPITO
DELA PAZ, PERLITA DIMAQUIAT, MYRNA VASQUEZ, FLORENTINA SAMPAGA,
ARACELI FRAGA, MAXIMINA FAUSTINO, MARINA TAN, OLIGARIO LOMO,
PRECILA EUSEBIO, SUSAN ABOGANO, CAROLINA MANINANG, GINA GLIFONIA,
OSCAR SOTTO, CELEDONA MALIGAYA, EFREN VELASQUEZ, DELIA ANOVER,
JOSEPHINE TALIMORO, MAGDALENA TABOR, NARCISA SARMIENTO, SUSAN
MACASIEB, FELICIDAD SISON, PRICELA CARTA, MILA MACAHILIG, CORAZON
NUNALA, VISITACION ELAMBRE, ELIZABETH INOFRE, VIOLETA BARTE,
LUZVIMINDA VILLOSA, NORMA SALVADOR, ELIZABETH BOGATE, MERLYN
BALBOA, EUFRECINA SARMIENTO, SIMPLICIA BORLEO, MATERNIDAD DAVID,
LAILA JOP, POTENCIANA CULALA, LUCIVITA NAVARRO, ROLANDO BOTIN,
AMELITA MAGALONA, AGNES CENA, NOLI BARTOLAY, DANTE AQUINO,
HERMINIA RILLON, CANDIDA APARIJADO, LYDIA JIMENEZ, ELIZABETH
ANOCHE, ALDA MURO, TERESA VILLANUEVA, TERESITA RECUENCO, ELIZA
SERRANO, ESTELLA POLINAR, GERTRUDES NUNEZ, FELIPE BADIOLA, ROSLYN
FERNANDEZ, OSCAR PAGUTA, NATIVIDAD BALIWAS, ELIZABETH BARCIBAL,
CYNTHIA ESTELLER, TEODORA SANTOS, ALICIA PILAR, MILA PATENO, GLORIA
CATRIZ, MILA MACAHILIG, ADELAIDA DE LEON, ROSENDO EDILO, ARSENIA
ESPIRITU, NUMERIANO CABRERA, CONCEPCION ARRIOLA, PAULINA
DIMAPASOK, ANGELA SANGCO, PRESILA ARIAS, ZENAIDA NUNES, EDITHA
IGNACIO, ROSA GUIRON, TERESITA CANETA, ALICIA ARRO, TEOFILO
RUWETAS, CARLING AGCAOILI, ROSA NOLASCO, GERLIE PALALON, CLAUDIO
DIRAS, LETICIA ALBOS, AURORA ALUBOG, LOLITA ACALEN, GREGORIO
ALIVIO, GUILLERMO ANICETA, ANGELIE ANDRADA, SUSAN ANGELES,
ISABELITA AURIN, MANUELA AVELINA, CARLING AGCAOILI, TERESITA ALANO,
LOLITA AURIN, EMMABETH ARCIAGA, CRESENCIA ACUNA, LUZVMINDA
ABINES, FLORENCIA ADALID, OLIVIA AGUSTIN, EVANGELINE ALCORAN,
ROSALINA ALFERES, LORNA AMANTE, FLORENTINA AMBITO, JULIETA
AMANONCO, CARMEN AMARILLO, JOSEFINA AMBAGAN, ZENAIDA ANALYA,
MARIA ANGLO, EDITHA ANTA ZO, MARY JANE ANTE, ANDREA AQUINO,
ROWENA ARABIT, MARIETA ARAGON, REBECCA ARCENA, LYDIA ARCIDO,
FERNANDO ARENAS, GREGORIO ARGUELLES, EDITHA ARRIOLA, EMMA
ATIENZA, EMMA ATIENZA, TEODY ATIENZA, ELIZABETH AUSTRIA, DIOSA
AZARES, SOLIDA AZAINA, MILAGROS BUAG, MARIA BANADERA, EDNALYN
BRAGA, OFELIA BITANGA, FREDISMINDA BUGUIS, VIOLETA BALLESTEROS,
ROSARIO BALLADJAY BETTY BORIO, ROMANA BAUTISTA, SUSARA BRAVO,
LILIA BAHINGTING, ENIETA BALDOZA, DAMIANA BANGCORE, HERMINIA BARIL,
PETRONA BARRIOS, MILAGROS BARRAMEDA, PERLA BAUTISTA, CLARITA
BAUTISTA, ROSALINA BAUTISTA, ADELINA BELGA, CONSOLACION BENAS,
MARIA BEREZO, MERCEDES BEREBER, VIOLETA BISCOCHO, ERNESTO
BRIONES, ALVINA BROSOTO, AGUSTINA BUNYI, CARMEN BUGNOT, ERLINDA
BUENAFLOR, LITA BAQUIN, CONSEJO BABOL, CRISANTA BACOLOD, CELIA DE
BACTAT, MAZIMA BAGA, ELENA BALADAD, ROSARIO BALADJAY, AMALIA
BALAGTAS, ANITA BALAGTAS, MARIA BALAKIT, RUFINA BALATAN, REBECCA
BALDERAMA, AMELIA BALLESTER, BELEN BARQUIO, BERNANDITA BASILIDES,
HELEN BATO, HELEN BAUTISTA, ROMANA BAUTISTA, ALMEDA BAYTA,
AVELINA BELAYON, NORMA DE BELEN, THELMA DE BELEN, JOCELYN
BELTRAN, ELENA BENITEZ, VIRGINIA BERNARDINO, MERLINA BINUYAG, LINA
BINUYA, BLESILDA BISNAR, SHIRLEY BOLIVAR, CRESENTACION MEDLO,
JOCELYN BONIFACIO, AMELIA BORBE, AMALIA BOROMEO, ZENAIDA BRAVO,
RODRIGO BEULDA, TERESITA MENDEZ, ELENA CAMAN, LALIANE CANDELARIA,
MARRY CARUJANO, REVELINA CORANES, MARITESS CABRERA, JUSTINA
CLAZADA, APOLONIA DELA CRUZ, VICTORIA CRUZ, JOSEFINA DELA CRUZ,
MARITESS CATANGHAL, EDNA CRUZ, LUCIA DE CASTRO, JOSIE CARIASO,
OFELIA CERVANTES, MEDITA CORTADO, AMALIA CASAJEROS, LUCINA
CASTILIO, EMMA CARPIO, ANACORITA CABALES, YOLANDA CAMO, MILA
CAMAZUELA, ANITA CANTO, ESTELA CANCERAN, FEMENCIA CANCIO,
CYNTHIA CAPALAD, MERLE CASTILLO, JESUSA CASTRO, CECILIA CASTILLO,
SILVERITA CASTRODES, VIVIAN CELLANO, NORMA CELINO, TERESITA CELSO,
GLORIA COLINA, EFIPANIA CONSTANTINO, SALVACION CONSULTA, MEDITA
CORTADO, AIDA CRUZ, MARISSA DELA CRUZ, EDITO CORCILLES, JELYNE
CRUZ, ROSA CORPOS, ROSITA CUGONA, ELSIE CABELLES, EMMA CADUT,
VICTORIA CALANZA, BARBARA CALATA, IMELDA CALDERON, CRISTINA
CALIDGUID, EMMALINDA CAMALON, MARIA CAMERINO, CARMENCITA CAMPO,
CONNIE CANEZO, LOURDES CAPANANG, MA. MILAGROS CAPILI, MYRNA T.
CAPIRAL, FLOR SAMPAGA, SUSAN B. CARINO, ROSARIO CARIZON, VIRGINIA
DEL CARMEN, EMMA CARPIO, PRESCILA CARTA, FE CASERO, LUZ DE CASTRO,
ANNA CATARONGAN, JOSEFINA CASTISIMO, JOY MANALO, EMMIE CAWALING,
JOVITA CARA, MARINA CERBITO, MARY CAREJANO, ESTELA R. CHAVEZ,
CONCEPCION PARAJA, GINA CLAUDIO, FLORDELIZA CORALES, EDITO
CORCIELER, ROSA C. CORROS, AMELIA CRUZ, JELYNE CRUZ, WILFREDO DELA
CRUZ, REINA CUEVAS, MARILOU DEJECES, JOSEPHINE DESACULA, EDITHA
DEE, EDITHA DIAZ, VIRGIE DOMONDON, CELSA DOROPAW, VIOLETA
DUMELINA, MARIBEL DIMATATAC, ELBERTO DAGANIO, LETECIA DAGOHOY,
DINDO DALUZ, ANGELITA DANTES, GLORIA DAYO, LUCIA DE CASTRO,
CARLITA DE GUZMAN, CARMEN DELA CRUZ, MERCY DE LEON, MARY DELOS
REYES, MARIETA DEPITO, MATILDE DIBLAS, JULIETA DIMAYUGA, TEODORA
DIMAYUGA, YOLANDA DOMDOM, LUCITA DONATO, NELMA DORADO, RITA
DORADO, SUSAN DUNTON, HERMINIA SAN ESTEBAN, AMALI EUGENIO, OLIVIA
EUSOYA, ERNESTO ESCOBIN, EVELYN ESCUREL, LYDIA ESCOBIN, VICENTE E.
ELOIDA, ELENA EGAR, GLORIA ERENO, NORMA ESPIRIDION, ARSENIA
ESPIRITU, AURORA ESTACIO, DEMETRIA ESTONELO, MILAGROS FONSEGA,
LYDIA FLORENTINO, JULIA FARABIER, TRINIDAD FATALLA, IMELDA FLORES,
JESSINA FRANCO, MA. CRISTINA FRIJAS, ESPECTACION FERRER, BERDENA
FLORES, LEONILA FRANCISCO, BERNARDA FAUSTINO, DOLORES FACUNDO,
CRESTITA FAMILARAN, EMELITA FIGUERAS, MA. VIRGINIA FLORENDO,
AURORA FRANCISCO, MA. JESUSA FRANCISCO, NENITA FUENTES, MARILOU
GOLINGAN, JUANITA GUERRERO, LYDIA GUEVARRA, SOCORRO GONZAGA,
PATRICIA GOMEO, ROSALINDA GALAPIN, CARMELITA GALVEZ, TERESA GLE,
SONIA GONZALES, PRIMITA GOMEZ, THERESA GALUA, JOSEFINA GELUA,
BRENDA GONZAGA, FLORA GALLARDO, LUCINDA GRACILLA, VICTORIA
GOZUM, NENITA GAMAO, EDNA GARCIA, DANILO GARCIA, ROSARIO GIRAY,
ARACELI GOMEZ, JOEMARIE GONZAGA, NELIA GONZAGA, MARY GRANCE
GOZON, CARMEN GONZALES, MERLITA GREGORIO, HERMINIA GONZALES,
CARLITA DE GUZMAN, MODESTA GABRENTINA, EDITHA GADDI, SALVACIO
GALIAS, MERLINDA GALIDO, MELINDA GAMIT, JULIETA GARCIA, EMELITA
GAVINO, CHARITO GILLIA, GENERA GONEDA, CRESTITA GONZALES, HERMINIA
GONZALES, FRANCISCA GUILING, JULIAN HERNANDEZ, GLECERIA
HERRADURA, SUSANA HIPOLITO, NERISSA HAZ, SUSAN HERNAEZ, APOLONIA
ISON, SUSAN IBARRA, LUDIVINA IGNACIO, CHOLITA INFANTE, JULIETA
ITURRIOS, ANITA IBO, MIRASOL INGALLA, JULIO JARDINIANO, MERLITA
JULAO, JULIETA JULIAN, MARIBETH DE JOSE, JOSEPHINE JENER, IMELDA
JATAP, JULIETA JAVIER, SALOME JAVIER, VICTORIA JAVIER, SALVACION
JOMOLO, EDNA JARNE, LYDIA JIMENEZ, TERESITA DE JUAN, MARILYN
LUARCA, ROSITA LOSITO, ROSALINA LUMAYAG, LORNA LARGA, CRESTETA DE
LEON, ZENAIDA LEGASPI, ADELAIDA LEON, IMELDA DE LEON, MELITINA
LUMABI, LYDIA LUMABI, ASUNCION LUMACANG, REGINA LAPIADRIO, MELANIA
LUBUGUAN, EVANGELINE LACAP, PELAGIA LACSI, LORNA LAGUI, VIRGIE
LAITAN, VIRGINIA LEE, CRESTELITA DE LEON, FELICISIMA LEONERO, DIOSA
LOPE, ANGELITA LOPEZ, TERESITA LORICA, JUANITA MENDIETA, JUANITA
MARANQUEZ, JANET MALIFERO, INAS MORADOS, MELANIE MANING, LUCENA
MABANGLO, CLARITA MEJIA, IRENE MENDOZA, LILIA MORTA, VIGINIA MARAY,
CHARITO MASINAHON, FILMA MALAYA, LILIA MORTA, VIRGINIA MARAY,
CHARITO MASINAHON, FILMA MALAYA, LILIA MORTA, ROSITA MATIBAG,
LORENZA MLINA, SABINA DEL MUNDO, EDITHA MUYCO, NARCISA MABEZA,
MA. FE MACATANGAY, CONCEPCION MAGDARAOG, IMELDA MAHIYA, ELSA
MALLARI, LIGAYA MANAHAN, SOLEDA MANLAPAS, VIRGINIA MAPA, JOSEI
MARCOS, LIBRADA MARQUEZ, VIRGINIA MAZA, JULIANITA MENDIETA,
EDILBERTA MENDOZA, IRENE MERCADO, HELEN MEROY, CRISTINA MEJARES,
CECILIA MILLET, EMELITA MINON, JOSEPHINE MIRANA, PERLITA MIRANO,
EVANGELINE MISBAL, ELEANOR MORALES, TERESITA MORILLA, LYDIA NUDO,
MYRIAM NAVAL, CAROLINA NOLIA, ALICIA NUNEZ, MAGDALENA NAGUIDA,
ELSA NICOL, LILIA NACIONALES, MA. LIZA MABO, REMEDIOS NIEVES,
MARGARITA NUYLAN, TERESITA NIEVES, PORFERIA NARAG, RHODORA
NUCASA, CORAZON OCRAY, LILIA OLIMPO, VERONA OVERENCIA, FERMIN
OSENA, FLORENCIA OLIVAROS, SOLEDAD OBEAS, NARISSA OLIVEROS,
PELAGIA ORTEGA, SUSAN ORTEGA, CRISTINA PRENCIPE, PURITA PENGSON,
REBECCA PACERAN, EDNA PARINA, MARIETA PINAT, EPIFANIA PAJERLAN,
ROSALINA PASIBE, CECILIA DELA PAZ, LORETA PENA, APOLONIA PALCONIT,
FRANCISCO PAGUIO, LYDIA PAMINTAHON, ELSIE PACALDO, TERESITA
PADILLA, MYRNA PINEDA, MERCEIDTA PEREZ, NOVENA PORLUCAS, TERESITA
PODPOD, ADORACION PORNOBI, ALICIA PERILLO, HELEN JOY PENDAL,
LOURDES PACHECO, LUZVIMINDA PAGALA, LORETA PAGAPULAN, FRANCISCO
PAGUIO, PRISCO PALACA, FLORA PAMINTUAN, NOEMI PARISALES, JOSEPHINE
PATRICIO, CRISTINA PE BENITO, ANGELA PECO, ANGELITA PENA, ESTER
PENONES, NORMA PEREZ, MAURA PERSEVERANCIA, MARINA PETILLA, JOSIE
PIA, ZULVILITA PIODO, REBECCA PACERAN, CLARITA POLICARPIO, MAXIMO
POTENTO, PORFIRIO POTENTO, FLORDELIZA PUMARAS, FERNANDO
QUEVEDO, JULIANA QUINDOZA, CHARITO QUIROZ, CARMELITA ROSINO,
RODELIA RAYONDOYON, FLORENCIA RAGOS, REBECCA ROSALES, ROSALYN
RIVERO, FRANCISCO RUIZ, FRANCIA ROSERO, EMELY RUBIO, EDILBERTO
RUIO, JUANA RUBY, RAQUEL REYES, MERCY ROBLES, ESTELA RELANO,
ROSITA REYES NIMFA RENDON, EPIFANIO RAMIRO, MURIEL REALCO,
BERNARDITA RED, LEONITA RODIL, BENITA REBOLA, DELMA REGALARIO,
LENY REDILLAS, JULIETA DELA ROSA, FELICITAS DELA ROSA, SUSAN
RAFALLO, ELENA RONDINA, NORMA RACELIS, JOSEPHINE RAGEL,
ESPERANZA RAMIREZ, LUZVIMINDA RANADA, CRISTINA RAPINSAN, JOCELYN
RED, ORLANDO REYES, TERESITA REYES, ANGELITA ROBERTO, DELIA
ROCHA, EDLTRUDES ROMERO, MELECIA ROSALES, ZENAIDA ROTAO, BELEN
RUBIS, FE RUEDA, SYLVIA SONGCAYAWON, CRISTINA SANANO, NERCISA
SARMIENTO, HELEN SIBAL, ESTELITA SANTOS, NORMA SILVESTRE, DARLITA
SINGSON, EUFROCINA SARMIENTO, MYRNA SAMSON, EMERLINA SADIA,
LORNA SALAZAR, AVELINA SALVADOR, NACIFORA SALAZAR, TITA SEUS,
MARIFE SANTOS, GRACIA SARMIENTO, ANGELITA SUMANGIL, ELIZABETH
SICAT, MA. VICTORIA SIDELA, ANALITA SALVADOR, MARITES SANTOS,
VIRGINIA SANTOS, THELMA SARONG, NILDA SAYAT, FANCITA SEGUNDO,
FYNAIDA SAGUI, EDITHA SALAZAR, EDNA SALZAR, EMMA SALENDARIO,
SOLEDAD SAMSON, EDNA SAN DIEGO, TERESITA SAN GABRIEL, GERTRUDES
SAN JOSE, EGLECERIA OSANCHEZ, ESTRELLA SANCHEZ, CECILIA DELOS
SANTOS, LUISA SEGOVIA, JOCELYN SENDING ELENA SONGALIA, FELICITAS
SORIANO, OFELIA TIBAYAN, AIDA TIRNIDA, MONICA TIBAYAN, CRISTETA
TAMBARAN, GLORIA TACDA, NENVINA, FELINA TEVES, ANTONINA DELA
TORRE, MAXIMA TANILON, NENA TABAT, ZOSIMA TOLOSA, MARITA TENOSO,
IMELDA TANIO, LUZ TANIO, EVANGELINE TAYO, JOSEFINA TINGTING, ARSENIA
TISOY, MAGDALENA TRAJANO, JOSEFINA UBALDE, GINA UMALI, IRMA
VALENZUELA, FELY VALDEZ, PAULINA VALEZ, ROSELITA VALLENTE,
LOURDES VELASCO, AIDA VILLA, FRANCISCA VILLARITO, ZENAIDA VISMONTE,
DELIA VILLAMIEL, NENITA VASQUEZ, JOCELYN VILLASIS, FERMARGARITA
VARGAS, CELIA VALLE, MILA CONCEPCION VIRAY, DOMINGA VALDEZ,
LUZVIMINDA VOCINA, MADELINE VIVERO, RUFINA VELASCO, AUREA
VIDALEON, GLORIA DEL VALLE, THELMA VALLOYAS, CYNTHIA DELA VEGA,
ADELA VILLAGOMEZ, TERESITA VINLUAN, EUFEMIA VITAN, GLORIA
VILLAFLORES, EDORACION VALDEZ, ANGELITA VALDEZ, ILUMINADA VALENCI,
MYRNA VASQUEZ, EVELYN VEJERAMO, TEODORA VELASQUEZ, EDAN
VILLANUEVA, PURITA VILLASENOR, SALVADOR WILSON, EMELINA YU, ADELFA
YU, ANA ABRIGUE, VIRGINIA ADOBAS, VICTORIA ANTIPUESTO, MERCEDITA
CASTILLO, JOCELYN CASTRO, CREMENIA DELA CRUZ, JOSEPHINE IGNACIO,
MELITA ILILANGOS, LIGAYA LUMAYAT, DELIA LUMBES, ROSITA LIBRADO,
DELIA LAGRAMADA, GEMMA MAGPANTAY, EMILY MENDOZA, FIDELA
PANGANIBAN, LEONOR RIZALDO, ILUMINDA RIVERA, DIVINA SAMBAYAN,
ELMERITA SOLAYAO, NANCY SAMALA, JOSIE SUMARAN, LUZVIMINDA ABINES,
ALMA ACOL, ROBERTO ADRIATICO, GLORIA AGUINALDO, ROSARIO ALEYO,
CRISTETA ALEJANDRO, LILIA ALMOGUERA, CARMEN AMARILLO, TRINIDAD
ARDANIEL, CERINA AVENTAJADO, ZENAIDA AVAYA, LOLITA ARABIS, MARIA
ARSENIA, SOFIA AGUINALDO, SALVE ABAD, JOSEFINA AMBANGAN EMILIA
AQUINO, JOSEFINA AQUINO, JULIANA AUSAN, AMERCIANA ACOSTA,
CONCEPCION ALEROZA, DIANA ADOVOS, FELY ADVINCULA, SEOMINTA ARIAS,
JOSEPHINE ARCEDE, NORMA AMISTOSO, PRESENTACION ALONOS, EMMA
ATIENZA, LEONIDA AQUINO, ANITA ARILLON, ADELAIDA ARELLANO, NORMA
AMISTOSO, JOSEPHINE ARCEDE, SEMIONITA ARIAS, JOSEFINA BANTUG,
LOLITA BARTE, HERMINIA BASCO, MARGARITA BOTARDO, RUFINO BUGNOT,
LOLITA BUSTILLO, ISABEL BALAKIT, ROSARIO BARRERO, TESSIE BALBOS,
NORMA BENISANO, GUILLERMA BRUGES, BERNADETTE BARTOLOME,
SHIRLEY BELMONTE, MERONA BELZA, AZUCENA BERNALES, JOSE BASCO,
NIMPHA BANTOG, BENILDA BUBAN, REGINA BUBAN, SALOME BARRAMEDA,
IRENE BISCO, FELICITAS BAUTISTA, VIOLETA BURA, LINA BINUYA, BIBIANA
BAARDE, ELSA BAES, ANASTACIA BELONZO, SONIA BENOYO, ELIZABETH
BACUNGAN, PATRICIA BARRAMEDA, ERLINDA BARCELONA, EMMA BANICO,
APOLONIA BUNAO, LUCITA BOLEA, PACIFICA BARCELONA, EDITHA BASIJAN,
RENITA BADAMA, ELENA BALADAD, CRESENCIA BAJO, BERNADITA BASILID,
MELINDA BEATO, YOLANDA BATANES, EDITHA BORILLA, ANITA BAS, ELSA
CALIPUNDAN, MARIA CAMERINO, VIRGINIA CAMPOSANO, MILAGROS CAPILI,
CARINA CARINO, EUFEMIA CASIHAN, NENITA CASTRO, FLORENCIA
CASUBUAN, GIRLIE CENTENO, MARIANITA CHIQUITO, IMELDA DELA CRUZ,
TEODOSIA CONG, TEOFILA CARACOL, TERESITA CANTA, IRENEA CUNANAN,
JULITA CANDILOSAS, VIOLETA CIERES, MILAGROS DELA CRUZ, FLOREPES
CAPULONG, CARMENCITA CAMPO, MARILYN CARILLO, RUTH DELA CRUZ, RITA
CIJAS, LYDIA CASTOR, VIRGIE CALUBAD, EMELITA CABERA, CRISTETA CRUZ,
ERLINDA COGADAS, IMELDA CALDERON, SUSIE LUZ CEZAR, ESTELA CHAVEZ,
NORMA CABRERA, ELDA DAGATAN, LEONISA DIMACUNA, ELDA DAGATAN,
LEONISA DIMACUNA, ERNA DUGTONG, FLORDELISA DIGMA, VIRGILIO DADIOS,
LOLITA DAGTA, ADELAIDA DORADO, CELSA DATUMANONG, VIRGINIA
DOCTOLERO, EDNA SAN DIEGO, JULIETA DANG, JULIETA DORANTINAO,
LOLITA DAGANO, JUDITH DIAZ, MARIA ENICANE, MARITA ESCARDE, ENRIMITA
ESMAYOR, ROSARIO EPIRITU, REMEDIOS EMBOLTORIO, IRENE ESTUITA,
TERESITA ERESE, ERMELINDA ELEZO, MARIA ESTAREJA, MERLITA
ESQUERRA, YOLANDA FELICITAS, FRUTO FRANCIA, MARTHA FRUTO, LILIA
FLORES, SALVACION FORTALESA, JUDITH FAJARDO, SUSANA FERNANDO,
EDWIN FRANCISCO, NENITA GREGORY, ROSA CAMILO, MARIVIC GERRARDO,
CHARITA GOREMBALEM, NORMA GRANDE, DOLORES GUTIERREZ, CHARLIE
GARCIA, LUZ GALVEZ, ADELAIDA GAMILLA, LUZ GAPULTOS, ERLINDA GARCIA,
HELEN GARCIA, ERLINDA GAUDIA, FRANCISCA GUILING, MINTA HERRERA,
ASUNCION HONOA, JUAN HERNANDEZ, LUCERIA ANNA MAE HERNANDEZ,
JULIANA HERNANDEZ, EDITHA IGNACIO, ANITA INOCENCIO, EULALIA INSORIO,
ESTELITA IRLANDA, MILAGROS IGNACIO, LINDA JABONILLO, ADELIMA JAEL,
ROWENA JARABJO, ROBERT JAVILINAR, CLARITA JOSE, CARMENCITA
JUNDEZ, SOFIA LALUCIS, GLORIA LABITORIA, ANGELITA LODES, ERLINDA
LATOGA, EVELYN LEGASPI, ROMEO LIMCHOCO, JESUS LARA, ESTRELLA DE
LUNA, LORETA LAREZA, JOSEPHINE ALSCO, MERCY DE LEON, CONSOLACION
LIBAO, MARILYN LIWAG, TERESITA LIZAZO, LILIA MACAPAGAL, SALVACION
MACAREZA, AMALIA MADO, TERESITA MADRIAGA, JOVITA MAGNAYE, JEAN
MALABAD, FRANCISCA MENDOZA, NELCITA MANGANTANG, TERESITA NELLA,
GENEROZA MERCADO, CRISTETA MOJANA, BERNARDA MONGADO, LYDIA
MIRANDA, ELISA MADRILEJOS, LOIDA MAGSINO, AMELIA MALTO, JULITA
MAHIBA, MYRNA MAYORES, LUISA MARAIG, FLORENCIA MARAIG, EMMA
MONZON, IMELDA MAGDANGAN, VICTORIA MARTIN, NOEMI MANGUILLO,
BASILIZA MEDINA, VICTORIO MERCADO, ESTELA MAYPA, EMILIA MENDOZA,
LINA MAGPANTAY, FELICIANA MANLOLO, ELENA MANACOP, WILMA MORENO,
JUANA MENDOZA, EVELYN DEL MUNDO, ROSIE MATUTINA, MATILDE MANALO,
TERESITA MENDEZ, FELIPINA MAGONCIA, MARIA MANZANO, LIGAYA MANALO,
LETICIA MARCHA, MARINA MANDIGMA, LETICIA MANDASOC, PRESCILLA
MARTINEZ, JULIA MENDOZA, PACITA MAGALLANES, ANGELINA MARJES,
SHIRLEY MELIGRITO, IRENE MERCADO, ELISA MAATUBANG, MARCELINA
NICOLAS, AGUSTINA NICOLAS, ROSA NOLASCO, WILMA NILAYE, VIOLETA
ORACION, ANGELA OSTAYA, JUANITA OSAYOS, MAGDALENA OCAMPO,
MARDIANA OCTA, ROSELA OPAO, LIBRADA OCAMPO, YOLANDA OLIVER,
MARCIA ORLANDA, PAGDUNAN, RITA PABILONA, MYRA PALACA, BETHLEHEM
PALINES, GINA PALIGAR, NORMA PALIGAR, DELMA PEREZ, CLAUDIA PRADO,
JULIE PUTONG, LUDIVINA PAGSALINGAN, MERLYN PANALIGAN, VIOLETA
PANAMBITAN, NOREN PAR, ERLINDA PARAGAS, MILA PARINO, REBECCA
PENAFLOR, IMELDA PENAMORA, JERMICILLIN PERALTA, REBECCA PIAPES,
EDITHA PILAR, MAROBETH PILLADO, DISCORO PIMENTEL, AURORA LAS
PINAS, EVANGELINA PINON, MA. NITA PONDOC, MA. MERCEDES PODPOD,
ANGELITO PANDEZ, LIGAYA PIGTAIN, LEONILA QUIAMBAO, ELENA QUINO,
MARITESS QUIJANO, CHOLITA REBUENO, LOLITA REYES, JOCELYN RAMOS,
ROSITA RAMIREZ, ELINORA RAMOS, ISABEL RAMOS, ANNABELLE
RESURRECCION, EMMA REYES, ALILY ROXAS, MARY GRACE DELOS REYES,
JOCELYN DEL ROSARIO, JOSEFINA RABUSA, ANGELITA ROTAIRO, SAMCETA
ROSETA, EDERLINA RUIZ, ZENAIDA ROSARIO, BENITA REBOLA, ROSITA
REVILLA, ROSITA SANTOS, ROWENA SALAZAR, EMILYN SARMIENTO, ANA
SENIS, ELOISA SANTOS, NARCISA SONGLIAD, ELMA SONGALIA, AMPARA
SABIO, JESSIE SANCHEZ, VIVIAN SAMILO, GLORIA SUMALINOG, ROSALINA
DELOS SANTOS, MARIETA SOMBRERO, HELEN SERRETARIO, TEODORO SULIT,
BELLA SONGUINES, LINDA SARANTAN, ESTELLA SALABAR, MILAGROS SISON,
GLORIA TALIDAGA, CECILIA TEODORO, ROMILLA TUAZON, AMELITA TABULAO,
MACARIA TORRES, LUTGARDA TUSI, ESTELLA TORREJOS, VICTORIA TAN,
MERLITA DELA VEGA, WEVINA ORENCIA, REMEDIOS BALECHA, TERESITA
TIBAR, LACHICA LEONORA, JULITA YBUT, JOSEFINA ZABALA, WINNIE
ZALDARIAGA, BENHUR ANTENERO, MARCELINA ANTENERO, ANTONINA
ALAPAN, EDITHA ANTOZO, ROWENA ARABIT, ANDRA AQUINO, TERESITA
ANGULO, MARIA ANGLO, MYRNA ALBOS, ELENITA AUSTRIA, ANNA ABRIGUE,
VIRGINIA ADOBAS, VICTORIA ANTIPUESTO, REMEDIOS BOLECHE, MACARIA
BARRIOS, THELMA BELEN, ESTELLA BARRETTO, JOCELYN CHAVEZ, VIRGINIA
CAPISTRANO, BENEDICTA CINCO, YOLLY CATPANG, REINA CUEVAS, VICTORIA
CALANZA, FE CASERO, ROBERTA CATALBAS, LOURDES CAPANANG,
CLEMENCIA CRUZ, JOCELYN COSTO, MERCEDITA CASTILLO, EDITHA DEE,
LUCITA DONATO, NORMA ESPIRIDION, LORETA FERNANDEZ, AURORA
FRANCISCO, VILMA FAJARDO, MODESTA GABRENTINA, TERESITA GABRIEL,
SALVACION GAMBOA, JOSEPHINE IGNACIO, SUSAN IBARRA, ESPERANZA
JABSON, OSCAR JAMBARO, ROSANNA JARDIN, CORAZON JALOCON, ZENAIDA
LEGASPI, DELLA LAGRAMADA, ROSITA LIBRANDO, LIGAYA LUMAYOT, DELIA
LUMBIS, LEONORA LANCHICA, RELAGIA LACSI, JOSEFINA LUMBO, VIOLETA
DE LUNA, EVELYN MADRID, TERESITA MORILLA, GEMMA MAGPANTAY, EMILY
MENDOZA IRENEA MEDINA, NARCISA MABEZA, ROSANNA MEDINA, DELIA
MARTINEZ, ROSARIO MAG-ISA, EDITHA MENDOZA, EDILBERTA MENDOZA,
FIDELA PANGANIBAN, OFELIA PANGANIBAN, AZUCENA POSTOO, LOURDES
PACHECO, LILIA PADILLA, MARISSA PEREZ, FLORDELIZA PUMARES, LUZ
REYES, NORMA RACELIS, LEONOR RIZALDO, JOSIE SUMASAR, NANCY
SAMALA, EMERLITA SOLAYAO, MERCEDITA SAMANIEGO, BLANDINA
SIMBULAN, JOCELYN SENDING, LUISITA TABERRERO, TERESITA TIBAR,
ESTERLINA VALDEZ, GLORIA VEJERANO, ILUMINADA VALENCIA, MERLITA
DELA VEGA, VIRGIE LAITAN, JULIET VILLARAMA, LUISISTA OCAMPO, NARIO
ANDRES, ANSELMA TULFO, GLORIA MATEO, FLANIA MENDOZA, CONNIE
CANGO, EDITHA SALAZAR, MYRNA DELOS SANTOS, TERESITA SERGIO,
CHARITO GILLA, FLORENTINA HERNAEZ, BERNARDINO VIRGINIA, AMPO
ANACORITA, SYLVIA POASADAS, ESTRELLA ESPIRITU, CONCORDIA
LUZURIAGA, MARINA CERBITO, EMMA REYES, NOEMI PENISALES, CLARITA
POLICARPIO, BELEN BANGUIO, HERMINIA ADVINCULA, LILIA MORTA, REGINA
LAPIDARIO, LORNA LARGA, TERESITA VINLUAN, MARITA TENOSO, NILDS
SAYAT, THELMA SARONG, DELMA REGALIS, SUSAN RAFAULO, ELENA
RONDINA, MYRNA PIENDA, VIOLETA DUMELINA, FLORENCIA ADALID, FILMA
MELAYA, ERLINDA DE BAUTISTA, MATILDE DE BLAS, DOLORES FACUNDO,
REBECCA LEDAMA, MA. FE MACATANGAY, EMELITA MINON, NORMA PAGUIO,
ELIZA VASQUEZ, GLORIA VILLARINO, MA. JESUS FRANCISCO, TERESITA
GURPIDO, LIGAYA MANALO, FE PINEDA, MIRIAM OCMAR, LUISA SEGOVIA,
TEODY ATIENZA, SOLEDA AZCURE, CARMEN DELA CRUZ, DMETRIA
ESTONELO, MA. FLORIDA LOAZNO, IMELDA MAHIYA, EDILBERTA MENDOZA,
SYLVIA POSADAS, SUSANA ORTEGA, JOSEPHINE D. TALIMORO, TERESITA
LORECA, ARSENIA TISOY, LIGAYA MANALO, TERESITA GURPIO, FE PINEDA,
and MARIA JESUS FRANCISCO, petitioners, vs. HON. CRESENCIO J. RAMOS,
NATIONAL LABOR RELATIONS COMMISSION, M. GREENFIELD (B), INC., SAUL
TAWIL, CARLOS T. JAVELOSA, RENATO C. PUANGCO, WINCEL LIGOT,
MARCIANO HALOG, GODOFREDO PACENO, SR., GERVACIO CASILLANO,
LORENZO ITAOC, ATTY. GODOFREDO PACENO, JR., MARGARITO CABRERA,
GAUDENCIO RACHO, SANTIAGO IBANEZ, AND RODRIGO AGUILING, respondents.

RESOLUTION

GONZAGA-REYES, J.:

Before us is petitioners' motion for partial reconsideration of our decision dated February
28, 2000,1 the dispositive portion of which reads:2

"WHEREFORE, the petition is GRANTED; the decision of the National Labor


Relations Commission in Case No. NCR-00-09-04199-89 is REVERSED and SET
ASIDE; and the respondent company is hereby ordered to immediately reinstate
the petitioners to their respective positions. Should reinstatement be not feasible,
month salary for every year of service. Since petitioners least 30 days prior to their
termination, following the recent ruling in the case of Ruben Serrano vs. National Labor
Relations Commission and Isetann Department Store, the respondent company is
hereby ordered to pay full backwages to petitioner-employees while the Federation is
also ordered to pay full backwages to petitioner-union officers who were dismissed upon
its instigation. Since the dismissal of petitioners was without cause, backwages shall be
computed from the time the herein petitioner employees and union officers were
dismissed until their actual reinstatement. Should reinstatement be not feasible, their
backwages shall be computed from the time petitioners were terminated until the finality
of this decision. Costs against the respondent company.1wphi1.nt

SO ORDERED."

Petitioners allege that this Court committed patent and palpable error in holding
the "the respondent company officials cannot be held personally liable for
damages on account of employees' dismissal because the employer corporation
has a personality separate and distinct from its officers who merely acted as its
agents" whereas the records clearly established that respondent company officers
Saul Tawil, Carlos T. Javelosa and Renato C. Puangco have caused the hasty,
arbitrary and unlawful dismissal of petitioners from work; that as top officials of
the respondent company who handed down the decision dismissing the
petitioners, they are responsible for acts of unfair labor practice; that these
respondent corporate officers should not be considered as mere agents of the
company but the wrongdoers. Petitioners further contend that while the case was
pending before the public respondents, the respondent company, in the early part
of February 1990, began removing its machineries and equipment from its plant
located at Merville Park, Paranaque and began diverting jobs intended for the
regular employees to its sub-contractor/satellite branches;3 that the respondent
company officials are also the officers and incorporators of these satellite companies as
shown in their articles of incorporation and the general information sheet. They added
that during their ocular inspection of the plant site of the respondent company, they
found that the same is being used by other unnamed business entities also engaged in
the manufacture of garments. Petitioners further claim that the respondent company
no longer operates its plant site as M. Greenfield thus it will be very difficult for
them to fully enforce and implement the court's decision. In their subsequent motion
filed on the same day, petitioners also pray for the (A) inclusion of the names of
employees listed in Annex "D" of the petition which they inadvertently omitted in the
caption of the case, to wit: (1) Amores, Imelda (2) Andres, Josefina (3) Aragon, Felicidad
(4) Arias, Genevive (5) Arroyo, Salvacion (6) Arceo, Elizabeth (7) Anonuevo, Monica (8)
Abellada, Josefina (9) Advincula, Harmelina (10) Ajayo, Rosario (11) Alilay, Marilyn (12)
Almario, Anliza (13) Almario, Angelita (14) Almazan, Marilou (15) Almonte, Rosalina (16)
Alvaran, Marites (17) Alvarez, Edna (18) Ampo, Anacorita (19) Aquino, Leonisa (20)
Bactat, Celia (21) Carpio, Azucena G. (22) Cruz, Amelia (23) Glifonia, Eugenia (24)
Escurel, Evelyn F. (25) Hilario, Bonifacio G. (26) Payuan, Adoracion (27) Perez,
Mercedita (28) Rempis, Zenaida (29) Rosario, Margie del (30) Salvador, Norma (31)
Sambayanan, Olivia (32) Tiaga, Aida (33) Torbela, Maria (34) Trono, Nenevina (35)
Varona, Asuncion (36) Vasquez, Elisa M. (37) Villanueva, Milagros (38) Villapondo, Eva
C. (39) Villon, Adeliza T.; (B) correction of their own typographical errors of the names of
employees appearing in the caption, which should be as follows: Manuela Avelin, Belen
Barquio, Lita Buquid, Violeta C. Ciervo, Marilou Dejocos, Maximina Faustino, Primitiva
Gomez, Myrna Palaca, Mercedita Perez, Rebecca Poceran, Amorlita Rotairo, Emma
Saludario, Tita Senis, Salvacion Wilson,4 Anita Ahillon, Gregoria Arguelles, Tessie
Balbis, Betty Borja, Rodrigo Buella, Celsa Doropan, Maria Enicame, Josephine Lasco,
Julita Maniba, Juanita Osuyos, Juana Overencio, Azucena Postigo, Cristina Rapinan,
Roselyn Rivero, Edeltrudes Romero, Rodelia Royandoyon, Fausta Segundo, Teodora
Sulit, Elena Tebis, Paulina Valdez,5 Susan Abogona, Diana Adovas, Carmen Rosimo
Basco, Macaria Barrion, Maria Fe Berezo, Matilde de Blas, Rufina Bugnot, Aurora
Bravo, Jovita Cera, Precila Carta, Amalia Eugenio, Milagros Fonseca, Jose Irlanda,
Rowena Jarabejo, Regina Lapidario, Josie Marcos, Shirley Melegrito, Noemi Menguillo,
Teresita Nierves, Ricardo Paloga, Florenia Ragos, Leonila Rodil, Emma Saludario,
Narcisa Songuad, Josie Sumarsar, Evangeline Tayco;6 {C) inclusion of other employees
similarly situated whose names were not included in Annex "D" or in the caption of the
case, to wit: (1) Dionisa Aban, (2) Alicia Aragon, (3) Vicky Francia, (4) Nelita F.
Gelongos, (5) Erlinda San Juan, (6) Erlinda Baby Patungan Manalo, (7) Jenette
Patungan,7 (8) Blandina Simbahan,8 (9) Asuncion Varona,9 (10) Josefina Andres, (11)
Teresita Arales, (12) Alice Artikulo, (13) Esther Cometa, (14) Eliza Cabiting, (15) Erlinda
Dalut, (16) Edna Fernandez, (17) Emily Inocencio, (18) Esperanza Jalocon, (19) Imelda
Jarabe, (20) Mercedes Pabadora, (21) Venerado Pastoral, (22) Cristina Perlas, (23)
Margie del Rosario.10

In their Comment, the Solicitor General interposes no objection to petitioners' prayer for
the inclusion of omitted and similarly situated employees and the correction of
employees' names in the caption of the case.

On the other hand, private respondent company officials Carlos Javelosa arid
Remedios Caoleng, in their Comment, state that considering that petitioners
admitted having knowledge of the fact that private respondent officers are also
holding key positions in the alleged satellite companies, they should have
presented the pertinent evidence with the public respondents; thus it is too late
for petitioners to require this Court to admit and evaluate evidence not presented
during the trial; that the supposed proof of satellite companies hardly constitute newly
discovered evidence. Respondent officials interpose no objection to the inclusion of
employees inadvertently excluded in the caption of the case but object to the inclusion of
employees who were allegedly similarly situated for the reason that these employees
had not been parties to the case, hence should not be granted any relief from the court.
Respondent company failed to file its comment.11

Petitioners' contention that respondent company officials should be made


personally liable for damages on account of petitioners' dismissal is not
impressed with merit. 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.12 The rule is that obligations incurred by the corporation,
acting through its directors, officers and employees are its sole liabilities. 13 True,
solidary liabilities may at times be incurred but only when exceptional
circumstances warrant such as, generally, in the following cases:14

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;

(c) are guilty of conflict of interest to the prejudice of the corporation, its
stockholders or members, and other persons.15

(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.16

(3) When a director, trustee or officer as contractually agreed or stipulated to hold


himself personally and solidarily liable with the Corporation.17

(4) When a director, trustee or officer is made, by specific provision of law,


personally liable for his corporate action.18

In labor cases, particularly, the Court has held corporate directors and officers
solidarily liable with the corporation for the termination of employment of
corporate employees done with malice or in bad faith.19 Bad faith or negligence is
a question of fact and is evidentiary.20 It has been held that bad faith does not
connote bad judgement or negligence; it imports a dishonest purpose or some
moral obliquity and conscious doing of wrong; it means breach of known duty
thru some motive or interest or ill will; it partakes of the nature of fraud.21

In the instant case, there is nothing substantial on record to show that respondent
officers acted in patent bad faith or were guilty of gross negligence in terminating
the services of petitioners so as to warrant personal liability. As held in Sunio vs.
NLRC,22
"We now come to the personal liability of petitioner, Sunio, who was made jointly and
severally responsible with petitioner company and CIPI for the payment of the
backwages of private respondents. This is reversible error. The Assistant Regional
Director's Decision failed to disclose the reason why he was made personally liable.
Respondents, however, alleged as grounds thereof, his being the owner of one half (1/2)
interest of said corporation, and his alleged arbitrary dismissal of private respondents.

Petitioner Sunio was impleaded in the Complaint in his capacity as several


Manager of petitioner corporation. There appears to be no evidence on record that
he acted maliciously or in bad faith in terminating the services of private
respondents. His act, therefore, was within the scope of his authority and was a
corporate act.

It is basic that a corporation is invested by law with a personality separate and distinct
from those of the persons composing it as well as from that of any other legal entity to
which it may be related. 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. Petitioner Sunio, therefore,
should nor have been made personally answerable for the payment of private
respondents ' back salaries."

Petitioners' claim that the jobs intended for the respondent company's regular
employees were diverted, to its satellite companies where the respondent
company officers are holding key positions is not substantiated and was raised
for the first time in this motion for reconsideration. Even assuming that the
respondent company officials are also officers and incorporators of the satellite
companies, such circumstance does not in itself amount to fraud. The documents
attached to petitioners' motion for reconsideration show that these satellite
companies23 were established prior to the filing of petitioners' complaint against
private respondents with the Department of Labor and Employment on September 6,
1989 and that these corporations have different sets of incorporators aside from the
respondent officers and are holding their principal offices at different locations.
Substantial identity of incorporators between respondent company and these satellite
companies does not necessarily imply fraud.24 In such a case, respondent company's
corporate personality remains inviolable.25

Although there were earlier decisions of this Court in labor cases where corporate
officers were held to be personally liable for the payment of wages and other money
claims to its employees, we find those rulings inapplicable to this case. In La Campana
Coffee Factory, Inc. vs. Kaisahan ng Manggagawa sa La Campana (KKM}, 26 La
Campana Coffee Factory, Inc. and La Campana Gaugau Packing were substantially
owned by the same person. They had one office, one management, and a single payroll
for both businesses. The laborers of the gaugau factory and the coffee factory were also
interchangeable, i.e., the workers in one factory worked also in the other factory.

In Claparols vs. Court of Industrial Relations,27 , the Claparol Steel and Nail Plant which
was ordered to pay its workers backwages, ceased operations on June 30, 1957 and
was succeeded on the next day, July 1, 1957 by the Claparols Steel Corporation. Both
corporations were substantially owned and controlled by the same person and there was
no break or cessation in operations. Moreover, all the assets of the steel and nail pant
were transferred to the new corporation.

Notably, in the above-mentioned cases, a new corporation was created, owned by the
same family, engaged in the same business and operating in the same compound, a
situation which is not obtaining in the instant case.

In AC Ransom Labor Union-CCLU vs. NLRC,28 the Court ruled that under the Minimum
Wage Law, the responsible officer of an employer corporation can be held personally
liable for non-payment of backwages for "if the policy of the law were otherwise, the
corporation employer would have devious ways for evading of back wages." This Court
said:

"In the instant case, it would appear that RANSOM; in 1969, foreseeing the possibility or
probability of payment of backwages to the 22 strikers, organized ROSARIO to replace
RANSOM, with the latter to be eventually phased out if the 22 strikers win their case.
RANSOM actually ceased operations on May 1, 1973, after the December 19, 1972
Decision of the Court of Industrial Relations was promulgated against RANSOM."

Clearly, the situation in AC Ransom does not obtain in this case, where the alleged
satellite companies were established even prior to the filing of petitioners' complaint with
the Department of Labor.

Petitioners' prayer for the inclusion of employees listed in Annex "D" whose names were
admittedly inadvertently excluded in the caption of the case and for the correction of
typographical errors of the employees' names appearing in the caption, is well taken and
is hereby granted. However, petitioners' prayer for the inclusion of other employees
allegedly similarly situated but whose names were not included either in Annex "D" or in
the caption of the case must be denied. A judgment cannot bind persons who are not
parties to the action.29 It is elementary that strangers to a case are not bound by the
judgment rendered by the court and such judgment is not available as an adjudication
either against or in favor of such other person.30 Petitioners failed to explain why these
employees allegedly similarly situated were not included in the submitted list filed before
us. Such inclusion would be tantamount to a substantial amendment which cannot be
allowed at this late stage of the proceedings as it will definitely work to the prejudice and
disadvantage of the private respondents.31

WHEREFORE, petitioners' motion for reconsideration is partially granted so as to


include the names of employees listed in Annex "D" which petitioners inadvertently
omitted in the caption of this case, to wit: (1) Amores, Imelda (2) Andres, Josefina
(3)Aragon, Felicidad (4) Arias, Genevive (5) Arroyo, Salvacion (6) Arceo, Elizabeth (7)
Anonuevo, Monica (8) Abellada, Josefina (9) Advincula, Harmelina (10) Ajayo, Rosario
(11) Alilay, Marilyn (12) Almario, An1iza (13) A1mario, Angelita (14) Almazan, Marilou
(15) Almonte, Rosalina (16) Alvaran, Marites (17) Alvarez, Edna (18) Ampo, Anacorita
(19) Aquino , Leonisa (20) Bactat, Celia (21) Carpio, Azucena G. (22) Cruz, Amelia (23)
Glifonia, Eugenia (24) Escurel, Evelyn F. (25) Hilario, Bonifacio G. (26) Payuan,
Adoracion (27) Perez, Mercedita (28) Rempis, Zenaida (29) Rosario, Margie del (30)
Salvador, Norma (31) Sambayanan, Olivia (32) Tiaga, Aida (33) Torbela, Maria (34)
Trono, Nenevina (35) Varona, Asuncion (36) Vasquez, Elisa M. (37) Villanueva, Milagros
(38) Villapondo, Eva C. (39) Villon, Adeliza T.; and to correct the typographical errors of
the names of employees appearing in the caption, as follows: Manuela Avelin, Belen
Barquio, Lita Buquid, Violeta C. Ciervo, Marilou Dejocos, Maximina Faustino, Primitiva
Gomez, Myrna Palaca, Mercedita Perez, Rebecca Poceran, Amorlita Rotairo, Emma
Saludario, Tita Senis, Salvacion Wilson, Anita Ahillon, Gregoria Arguelles, Tessie Balbis,
Betty Borja, Rodrigo Buella, Celsa Doropan, Maria Enicame, Josephine Lasco, Julita
Maniba, Juanita Osuyos, Juana Overencio, Azucena Postigo, Cristina Rapinan, Roselyn
Rivero, Edeltrudes Romero, Rodelia Royandoyon, Fausta Segundo, Teodora Sulit,
Elena Tebis, Paulina Valdez, Susan Abogona, Diana Adovas, Carmen Rosimo Basco,
Macaria Barrion, Maria Fe Berezo, Matilde de Blas, Rufina Bugnot, Aurora Bravo, Jovita
Cera, Precila Carta, Amalia Eugenio, Milagros Fonseca, Jose Irlanda, Rowena Jarabejo,
Regina Lapidario, Josie Marcos, Shirley Melegrito, Noemi Menguillo, Teresita Nierves,
Ricardo Paloga, Florenia Ragos, Leonila Rodil, Emma Saludario, Narcisa Songuad,
Josie Sumarsar, Evangeline Tayco.

SO ORDERED.

Republic of the Philippines SUPREME COURT Manila

THIRD DIVISION

G.R. No. 84197 July 28, 1989

PIONEER INSURANCE & SURETY CORPORATION, petitioner, vs. THE HON.


COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC.,
(BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S. LIM, respondents.

G.R. No. 84157 July 28, 1989

JACOB S. LIM, petitioner, vs. COURT OF APPEALS, PIONEER INSURANCE AND


SURETY CORPORATION, BORDER MACHINERY and HEAVY EQUIPMENT CO.,
INC,, FRANCISCO and MODESTO CERVANTES and CONSTANCIO MAGLANA,
respondents.

Eriberto D. Ignacio for Pioneer Insurance & Surety Corporation.

Sycip, Salazar, Hernandez & Gatmaitan for Jacob S. Lim.

Renato J. Robles for BORMAHECO, Inc. and Cervanteses.

Leonardo B. Lucena for Constancio Maglana.

GUTIERREZ, JR., J.:

The subject matter of these consolidated petitions is the decision of the Court of Appeals
in CA-G.R. CV No. 66195 which modified the decision of the then Court of First Instance
of Manila in Civil Case No. 66135. The plaintiffs complaint (petitioner in G.R. No. 84197)
against all defendants (respondents in G.R. No. 84197) was dismissed but in all other
respects the trial court's decision was affirmed.

The dispositive portion of the trial court's decision reads as follows:

WHEREFORE, judgment is rendered against defendant Jacob S. Lim requiring Lim to


pay plaintiff the amount of P311,056.02, with interest at the rate of 12% per annum
compounded monthly; plus 15% of the amount awarded to plaintiff as attorney's fees
from July 2,1966, until full payment is made; plus P70,000.00 moral and exemplary
damages.

It is found in the records that the cross party plaintiffs incurred additional miscellaneous
expenses aside from Pl51,000.00,,making a total of P184,878.74. Defendant Jacob S.
Lim is further required to pay cross party plaintiff, Bormaheco, the Cervanteses one-half
and Maglana the other half, the amount of Pl84,878.74 with interest from the filing of the
cross-complaints until the amount is fully paid; plus moral and exemplary damages in the
amount of P184,878.84 with interest from the filing of the cross-complaints until the
amount is fully paid; plus moral and exemplary damages in the amount of P50,000.00 for
each of the two Cervanteses.

Furthermore, he is required to pay P20,000.00 to Bormaheco and the Cervanteses, and


another P20,000.00 to Constancio B. Maglana as attorney's fees.

xxx xxx xxx

WHEREFORE, in view of all above, the complaint of plaintiff Pioneer against


defendants Bormaheco, the Cervanteses and Constancio B. Maglana, is
dismissed. Instead, plaintiff is required to indemnify the defendants Bormaheco
and the Cervanteses the amount of P20,000.00 as attorney's fees and the amount of
P4,379.21, per year from 1966 with legal rate of interest up to the time it is paid.

Furthermore, the plaintiff is required to pay Constancio B. Maglana the amount of


P20,000.00 as attorney's fees and costs.

No moral or exemplary damages is awarded against plaintiff for this action was filed in
good faith. The fact that the properties of the Bormaheco and the Cervanteses were
attached and that they were required to file a counterbond in order to dissolve the
attachment, is not an act of bad faith. When a man tries to protect his rights, he should
not be saddled with moral or exemplary damages. Furthermore, the rights exercised
were provided for in the Rules of Court, and it was the court that ordered it, in the
exercise of its discretion.

No damage is decided against Malayan Insurance Company, Inc., the third-party


defendant, for it only secured the attachment prayed for by the plaintiff Pioneer. If an
insurance company would be liable for damages in performing an act which is clearly
within its power and which is the reason for its being, then nobody would engage in the
insurance business. No further claim or counter-claim for or against anybody is declared
by this Court. (Rollo - G.R. No. 24197, pp. 15-16)
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline
business as owner-operator of Southern Air Lines (SAL) a single proprietorship.

On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered
into and executed a sales contract (Exhibit A) for the sale and purchase of two (2)
DC-3A Type aircrafts and one (1) set of necessary spare parts for the total agreed
price of US $109,000.00 to be paid in installments. One DC-3 Aircraft with Registry No.
PIC-718, arrived in Manila on June 7,1965 while the other aircraft, arrived in Manila on
July 18,1965.

On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in
G.R. No. 84197) as surety executed and issued its Surety Bond No. 6639 (Exhibit C)
in favor of JDA, in behalf of its principal, Lim, for the balance price of the aircrafts
and spare parts.

It appears that Border Machinery and Heavy Equipment Company, Inc.


(Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and Constancio
Maglana (respondents in both petitions) contributed some funds used in the
purchase of the above aircrafts and spare parts. The funds were supposed to be
their contributions to a new corporation proposed by Lim to expand his airline
business. They executed two (2) separate indemnity agreements (Exhibits D-1 and
D-2) in favor of Pioneer, one signed by Maglana and the other jointly signed by Lim for
SAL, Bormaheco and the Cervanteses. The indemnity agreements stipulated that the
indemnitors principally agree and bind themselves jointly and severally to
indemnify and hold and save harmless Pioneer from and against any/all damages,
losses, costs, damages, taxes, penalties, charges and expenses of whatever kind and
nature which Pioneer may incur in consequence of having become surety upon the
bond/note and to pay, reimburse and make good to Pioneer, its successors and assigns,
all sums and amounts of money which it or its representatives should or may pay or
cause to be paid or become liable to pay on them of whatever kind and nature.

On June 10, 1965, Lim doing business under the name and style of SAL executed
in favor of Pioneer as deed of chattel mortgage as security for the latter's
suretyship in favor of the former. It was stipulated therein that Lim transfer and
convey to the surety the two aircrafts. The deed (Exhibit D) was duly registered with
the Office of the Register of Deeds of the City of Manila and with the Civil Aeronautics
Administration pursuant to the Chattel Mortgage Law and the Civil Aeronautics Law
(Republic Act No. 776), respectively.

Lim defaulted on his subsequent installment payments prompting JDA to request


payments from the surety. Pioneer paid a total sum of P298,626.12.

Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel
mortgage before the Sheriff of Davao City. The Cervanteses and Maglana, however,
filed a third party claim alleging that they are co-owners of the aircrafts,

On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application
for a writ of preliminary attachment against Lim and respondents, the
Cervanteses, Bormaheco and Maglana.
In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims
against Lim alleging that they were not privies to the contracts signed by Lim and,
by way of counterclaim, sought for damages for being exposed to litigation and
for recovery of the sums of money they advanced to Lim for the purchase of the
aircrafts in question.

After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer
but dismissed Pioneer's complaint against all other defendants.

As stated earlier, the appellate court modified the trial court's decision in that the
plaintiffs complaint against all the defendants was dismissed. In all other respects the
trial court's decision was affirmed.

We first resolve G.R. No. 84197.

Petitioner Pioneer Insurance and Surety Corporation avers that:

RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DISMISSED


THE APPEAL OF PETITIONER ON THE SOLE GROUND THAT PETITIONER HAD
ALREADY COLLECTED THE PROCEEDS OF THE REINSURANCE ON ITS BOND IN
FAVOR OF THE JDA AND THAT IT CANNOT REPRESENT A REINSURER TO
RECOVER THE AMOUNT FROM HEREIN PRIVATE RESPONDENTS AS
DEFENDANTS IN THE TRIAL COURT. (Rollo - G. R. No. 84197, p. 10)

The petitioner questions the following findings of the appellate court:

We find no merit in plaintiffs appeal. It is undisputed that plaintiff Pioneer had reinsured
its risk of liability under the surety bond in favor of JDA and subsequently collected the
proceeds of such reinsurance in the sum of P295,000.00. Defendants' alleged obligation
to Pioneer amounts to P295,000.00, hence, plaintiffs instant action for the recovery of
the amount of P298,666.28 from defendants will no longer prosper. Plaintiff Pioneer is
not the real party in interest to institute the instant action as it does not stand to be
benefited or injured by the judgment.

Plaintiff Pioneer's contention that it is representing the reinsurer to recover the amount
from defendants, hence, it instituted the action is utterly devoid of merit. Plaintiff did not
even present any evidence that it is the attorney-in-fact of the reinsurance company,
authorized to institute an action for and in behalf of the latter. To qualify a person to be a
real party in interest in whose name an action must be prosecuted, he must appear to be
the present real owner of the right sought to be enforced (Moran, Vol. I, Comments on
the Rules of Court, 1979 ed., p. 155). It has been held that the real party in interest is the
party who would be benefited or injured by the judgment or the party entitled to the
avails of the suit (Salonga v. Warner Barnes & Co., Ltd., 88 Phil. 125, 131). By real party
in interest is meant a present substantial interest as distinguished from a mere
expectancy or a future, contingent, subordinate or consequential interest (Garcia v.
David, 67 Phil. 27; Oglleaby v. Springfield Marine Bank, 52 N.E. 2d 1600, 385 III, 414;
Flowers v. Germans, 1 NW 2d 424; Weber v. City of Cheye, 97 P. 2d 667, 669, quoting
47 C.V. 35).

Based on the foregoing premises, plaintiff Pioneer cannot be considered as the


real party in interest as it has already been paid by the reinsurer the sum of
P295,000.00 the bulk of defendants' alleged obligation to Pioneer.

In addition to the said proceeds of the reinsurance received by plaintiff Pioneer


from its reinsurer, the former was able to foreclose extra-judicially one of the
subject airplanes and its spare engine, realizing the total amount of P37,050.00 from
the sale of the mortgaged chattels. Adding the sum of P37,050.00, to the proceeds of
the reinsurance amounting to P295,000.00, it is patent that plaintiff has been
overpaid in the amount of P33,383.72 considering that the total amount it had paid to
JDA totals to only P298,666.28. To allow plaintiff Pioneer to recover from
defendants the amount in excess of P298,666.28 would be tantamount to unjust
enrichment as it has already been paid by the reinsurance company of the amount
plaintiff has paid to JDA as surety of defendant Lim vis-a-vis defendant Lim's
liability to JDA. Well settled is the rule that no person should unjustly enrich
himself at the expense of another (Article 22, New Civil Code). (Rollo-84197, pp. 24-
25).

The petitioner contends that-(1) it is at a loss where respondent court based its finding
that petitioner was paid by its reinsurer in the aforesaid amount, as this matter has never
been raised by any of the parties herein both in their answers in the court below and in
their respective briefs with respondent court; (Rollo, p. 11) (2) even assuming
hypothetically that it was paid by its reinsurer, still none of the respondents had any
interest in the matter since the reinsurance is strictly between the petitioner and the re-
insurer pursuant to section 91 of the Insurance Code; (3) pursuant to the indemnity
agreements, the petitioner is entitled to recover from respondents Bormaheco and
Maglana; and (4) the principle of unjust enrichment is not applicable considering that
whatever amount he would recover from the co-indemnitor will be paid to the reinsurer.

The records belie the petitioner's contention that the issue on the reinsurance money
was never raised by the parties.

A cursory reading of the trial court's lengthy decision shows that two of the issues
threshed out were:

xxx xxx xxx

1. Has Pioneer a cause of action against defendants with respect to so much of its
obligations to JDA as has been paid with reinsurance money?

2. If the answer to the preceding question is in the negative, has Pioneer still any claim
against defendants, considering the amount it has realized from the sale of the
mortgaged properties? (Record on Appeal, p. 359, Annex B of G.R. No. 84157).

In resolving these issues, the trial court made the following findings:

It appearing that Pioneer reinsured its risk of liability under the surety bond it had
executed in favor of JDA, collected the proceeds of such reinsurance in the sum
of P295,000, and paid with the said amount the bulk of its alleged liability to JDA
under the said surety bond, it is plain that on this score it no longer has any right
to collect to the extent of the said amount.
On the question of why it is Pioneer, instead of the reinsurance (sic), that is suing
defendants for the amount paid to it by the reinsurers, notwithstanding that the
cause of action pertains to the latter, Pioneer says: The reinsurers opted instead
that the Pioneer Insurance & Surety Corporation shall pursue alone the case.. . . .
Pioneer Insurance & Surety Corporation is representing the reinsurers to recover
the amount.' In other words, insofar as the amount paid to it by the reinsurers
Pioneer is suing defendants as their attorney-in-fact.

But in the first place, there is not the slightest indication in the complaint that
Pioneer is suing as attorney-in- fact of the reinsurers for any amount. Lastly, and
most important of all, Pioneer has no right to institute and maintain in its own
name an action for the benefit of the reinsurers. It is well-settled that an action
brought by an attorney-in-fact in his own name instead of that of the principal will
not prosper, and this is so even where the name of the principal is disclosed in
the complaint.

Section 2 of Rule 3 of the Old Rules of Court provides that 'Every action must be
prosecuted in the name of the real party in interest.' This provision is mandatory. The
real party in interest is the party who would be benefitted or injured by the judgment or is
the party entitled to the avails of the suit.

This Court has held in various cases that an attorney-in-fact is not a real party in interest,
that there is no law permitting an action to be brought by an attorney-in-fact. Arroyo v.
Granada and Gentero, 18 Phil. Rep. 484; Luchauco v. Limjuco and Gonzalo, 19 Phil.
Rep. 12; Filipinos Industrial Corporation v. San Diego G.R. No. L- 22347,1968, 23 SCRA
706, 710-714.

The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has
collected P295,000.00 from the reinsurers, the uninsured portion of what it paid to
JDA is the difference between the two amounts, or P3,666.28. This is the amount
for which Pioneer may sue defendants, assuming that the indemnity agreement is
still valid and effective. But since the amount realized from the sale of the
mortgaged chattels are P35,000.00 for one of the airplanes and P2,050.00 for a
spare engine, or a total of P37,050.00, Pioneer is still overpaid by P33,383.72.
Therefore, Pioneer has no more claim against defendants. (Record on Appeal, pp.
360-363).

The payment to the petitioner made by the reinsurers was not disputed in the appellate
court. Considering this admitted payment, the only issue that cropped up was the effect
of payment made by the reinsurers to the petitioner. Therefore, the petitioner's argument
that the respondents had no interest in the reinsurance contract as this is strictly
between the petitioner as insured and the reinsuring company pursuant to Section 91
(should be Section 98) of the Insurance Code has no basis.

In general a reinsurer, on payment of a loss acquires the same rights by subrogation as


are acquired in similar cases where the original insurer pays a loss (Universal Ins. Co. v.
Old Time Molasses Co. C.C.A. La., 46 F 2nd 925).

The rules of practice in actions on original insurance policies are in general applicable to
actions or contracts of reinsurance. (Delaware, Ins. Co. v. Pennsylvania Fire Ins. Co., 55
S.E. 330,126 GA. 380, 7 Ann. Con. 1134).

Hence the applicable law is Article 2207 of the new Civil Code, to wit:

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from
the insurance company for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the contract. If the amount
paid by the insurance company does not fully cover the injury or loss, the aggrieved
party shall be entitled to recover the deficiency from the person causing the loss or
injury.

Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald
Lumber Co. (101 Phil. 1031 [1957]) which we subsequently applied in Manila Mahogany
Manufacturing Corporation v. Court of Appeals (154 SCRA 650 [1987]):

Note that if a property is insured and the owner receives the indemnity from the insurer,
it is provided in said article that the insurer is deemed subrogated to the rights of the
insured against the wrongdoer and if the amount paid by the insurer does not fully cover
the loss, then the aggrieved party is the one entitled to recover the deficiency. Evidently,
under this legal provision, the real party in interest with regard to the portion of the
indemnity paid is the insurer and not the insured. (Emphasis supplied).

It is clear from the records that Pioneer sued in its own name and not as an attorney-in-
fact of the reinsurer.

Accordingly, the appellate court did not commit a reversible error in dismissing the
petitioner's complaint as against the respondents for the reason that the petitioner was
not the real party in interest in the complaint and, therefore, has no cause of action
against the respondents.

Nevertheless, the petitioner argues that the appeal as regards the counter indemnitors
should not have been dismissed on the premise that the evidence on record shows that
it is entitled to recover from the counter indemnitors. It does not, however, cite any
grounds except its allegation that respondent "Maglanas defense and evidence are
certainly incredible" (p. 12, Rollo) to back up its contention.

On the other hand, we find the trial court's findings on the matter replete with evidence to
substantiate its finding that the counter-indemnitors are not liable to the petitioner. The
trial court stated:

Apart from the foregoing proposition, the indemnity agreement ceased to be valid and
effective after the execution of the chattel mortgage.

Testimonies of defendants Francisco Cervantes and Modesto Cervantes.

Pioneer Insurance, knowing the value of the aircrafts and the spare parts involved,
agreed to issue the bond provided that the same would be mortgaged to it, but this was
not possible because the planes were still in Japan and could not be mortgaged here in
the Philippines. As soon as the aircrafts were brought to the Philippines, they would be
mortgaged to Pioneer Insurance to cover the bond, and this indemnity agreement would
be cancelled.

The following is averred under oath by Pioneer in the original complaint:

The various conflicting claims over the mortgaged properties have impaired and
rendered insufficient the security under the chattel mortgage and there is thus no other
sufficient security for the claim sought to be enforced by this action.

This is judicial admission and aside from the chattel mortgage there is no other security
for the claim sought to be enforced by this action, which necessarily means that the
indemnity agreement had ceased to have any force and effect at the time this action was
instituted. Sec 2, Rule 129, Revised Rules of Court.

Prescinding from the foregoing, Pioneer, having foreclosed the chattel mortgage on the
planes and spare parts, no longer has any further action against the defendants as
indemnitors to recover any unpaid balance of the price. The indemnity agreement was
ipso jure extinguished upon the foreclosure of the chattel mortgage. These defendants,
as indemnitors, would be entitled to be subrogated to the right of Pioneer should they
make payments to the latter. Articles 2067 and 2080 of the New Civil Code of the
Philippines.

Independently of the preceding proposition Pioneer's election of the remedy of


foreclosure precludes any further action to recover any unpaid balance of the price.

SAL or Lim, having failed to pay the second to the eight and last installments to JDA and
Pioneer as surety having made of the payments to JDA, the alternative remedies open
to Pioneer were as provided in Article 1484 of the New Civil Code, known as the Recto
Law.

Pioneer exercised the remedy of foreclosure of the chattel mortgage both by extrajudicial
foreclosure and the instant suit. Such being the case, as provided by the aforementioned
provisions, Pioneer shall have no further action against the purchaser to recover any
unpaid balance and any agreement to the contrary is void.' Cruz, et al. v. Filipinas
Investment & Finance Corp. No. L- 24772, May 27,1968, 23 SCRA 791, 795-6.

The operation of the foregoing provision cannot be escaped from through the contention
that Pioneer is not the vendor but JDA. The reason is that Pioneer is actually exercising
the rights of JDA as vendor, having subrogated it in such rights. Nor may the application
of the provision be validly opposed on the ground that these defendants and defendant
Maglana are not the vendee but indemnitors. Pascual, et al. v. Universal Motors
Corporation, G.R. No. L- 27862, Nov. 20,1974, 61 SCRA 124.

The restructuring of the obligations of SAL or Lim, thru the change of their maturity dates
discharged these defendants from any liability as alleged indemnitors. The change of the
maturity dates of the obligations of Lim, or SAL extinguish the original obligations thru
novations thus discharging the indemnitors.

The principal hereof shall be paid in eight equal successive three months interval
installments, the first of which shall be due and payable 25 August 1965, the remainder
of which ... shall be due and payable on the 26th day x x x of each succeeding three
months and the last of which shall be due and payable 26th May 1967.

However, at the trial of this case, Pioneer produced a memorandum executed by SAL or
Lim and JDA, modifying the maturity dates of the obligations, as follows:

The principal hereof shall be paid in eight equal successive three month interval
installments the first of which shall be due and payable 4 September 1965, the
remainder of which ... shall be due and payable on the 4th day ... of each succeeding
months and the last of which shall be due and payable 4th June 1967.

Not only that, Pioneer also produced eight purported promissory notes bearing maturity
dates different from that fixed in the aforesaid memorandum; the due date of the first
installment appears as October 15, 1965, and those of the rest of the installments, the
15th of each succeeding three months, that of the last installment being July 15, 1967.

These restructuring of the obligations with regard to their maturity dates, effected twice,
were done without the knowledge, much less, would have it believed that these
defendants Maglana (sic). Pioneer's official Numeriano Carbonel would have it believed
that these defendants and defendant Maglana knew of and consented to the
modification of the obligations. But if that were so, there would have been the
corresponding documents in the form of a written notice to as well as written conformity
of these defendants, and there are no such document. The consequence of this was the
extinguishment of the obligations and of the surety bond secured by the indemnity
agreement which was thereby also extinguished. Applicable by analogy are the rulings
of the Supreme Court in the case of Kabankalan Sugar Co. v. Pacheco, 55 Phil. 553,
563, and the case of Asiatic Petroleum Co. v. Hizon David, 45 Phil. 532, 538.

Art. 2079. An extension granted to the debtor by the creditor without the consent of the
guarantor extinguishes the guaranty The mere failure on the part of the creditor to
demand payment after the debt has become due does not of itself constitute any
extension time referred to herein, (New Civil Code).'

Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F. Stevenson & Co.,
Ltd., v. Climacom et al. (C.A.) 36 O.G. 1571.

Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the same.
Consequently, Pioneer has no more cause of action to recover from these defendants,
as supposed indemnitors, what it has paid to JDA. By virtue of an express stipulation in
the surety bond, the failure of JDA to present its claim to Pioneer within ten days from
default of Lim or SAL on every installment, released Pioneer from liability from the claim.

Therefore, Pioneer is not entitled to exact reimbursement from these defendants thru the
indemnity.

Art. 1318. Payment by a solidary debtor shall not entitle him to reimbursement from his
co-debtors if such payment is made after the obligation has prescribed or became illegal.

These defendants are entitled to recover damages and attorney's fees from
Pioneer and its surety by reason of the filing of the instant case against them and
the attachment and garnishment of their properties. The instant action is clearly
unfounded insofar as plaintiff drags these defendants and defendant Maglana.'
(Record on Appeal, pp. 363-369, Rollo of G.R. No. 84157).

We find no cogent reason to reverse or modify these findings.

Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious.

We now discuss the merits of G.R. No. 84157.

Petitioner Jacob S. Lim poses the following issues:

l. What legal rules govern the relationship among co-investors whose agreement was to
do business through the corporate vehicle but who failed to incorporate the entity in
which they had chosen to invest? How are the losses to be treated in situations where
their contributions to the intended 'corporation' were invested not through the corporate
form? This Petition presents these fundamental questions which we believe were
resolved erroneously by the Court of Appeals ('CA'). (Rollo, p. 6).

These questions are premised on the petitioner's theory that as a result of the failure of
respondents Bormaheco, Spouses Cervantes, Constancio Maglana and petitioner Lim to
incorporate, a de facto partnership among them was created, and that as a
consequence of such relationship all must share in the losses and/or gains of the
venture in proportion to their contribution. The petitioner, therefore, questions the
appellate court's findings ordering him to reimburse certain amounts given by the
respondents to the petitioner as their contributions to the intended corporation, to wit:

However, defendant Lim should be held liable to pay his co-defendants' cross-
claims in the total amount of P184,878.74 as correctly found by the trial court, with
interest from the filing of the cross-complaints until the amount is fully paid.
Defendant Lim should pay one-half of the said amount to Bormaheco and the
Cervanteses and the other one-half to defendant Maglana. It is established in the
records that defendant Lim had duly received the amount of Pl51,000.00 from
defendants Bormaheco and Maglana representing the latter's participation in the
ownership of the subject airplanes and spare parts (Exhibit 58). In addition, the
cross-party plaintiffs incurred additional expenses, hence, the total sum of P
184,878.74.

We first state the principles.

While it has been held that as between themselves the rights of the stockholders
in a defectively incorporated association should be governed by the supposed
charter and the laws of the state relating thereto and not by the rules governing
partners (Cannon v. Brush Electric Co., 54 A. 121, 96 Md. 446, 94 Am. S.R. 584), it is
ordinarily held that persons who attempt, but fail, to form a corporation and who
carry on business under the corporate name occupy the position of partners inter
se (Lynch v. Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065). Thus, where
persons associate themselves together under articles to purchase property to
carry on a business, and their organization is so defective as to come short of
creating a corporation within the statute, they become in legal effect partners inter
se, and their rights as members of the company to the property acquired by the
company will be recognized (Smith v. Schoodoc Pond Packing Co., 84 A. 268,109 Me.
555; Whipple v. Parker, 29 Mich. 369). So, where certain persons associated
themselves as a corporation for the development of land for irrigation purposes, and
each conveyed land to the corporation, and two of them contracted to pay a third the
difference in the proportionate value of the land conveyed by him, and no stock was ever
issued in the corporation, it was treated as a trustee for the associates in an action
between them for an accounting, and its capital stock was treated as partnership assets,
sold, and the proceeds distributed among them in proportion to the value of the property
contributed by each (Shorb v. Beaudry, 56 Cal. 446). However, such a relation does not
necessarily exist, for ordinarily persons cannot be made to assume the relation of
partners, as between themselves, when their purpose is that no partnership shall exist
(London Assur. Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed. 688),
and it should be implied only when necessary to do justice between the parties; thus,
one who takes no part except to subscribe for stock in a proposed corporation which is
never legally formed does not become a partner with other subscribers who engage in
business under the name of the pretended corporation, so as to be liable as such in an
action for settlement of the alleged partnership and contribution (Ward v. Brigham, 127
Mass. 24). A partnership relation between certain stockholders and other stockholders,
who were also directors, will not be implied in the absence of an agreement, so as to
make the former liable to contribute for payment of debts illegally contracted by the latter
(Heald v. Owen, 44 N.W. 210, 79 Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464).
(Italics supplied).

In the instant case, it is to be noted that the petitioner was declared non-suited for his
failure to appear during the pretrial despite notification. In his answer, the petitioner
denied having received any amount from respondents Bormaheco, the
Cervanteses and Maglana. The trial court and the appellate court, however, found
through Exhibit 58, that the petitioner received the amount of P151,000.00
representing the participation of Bormaheco and Atty. Constancio B. Maglana in
the ownership of the subject airplanes and spare parts. The record shows that
defendant Maglana gave P75,000.00 to petitioner Jacob Lim thru the Cervanteses.

It is therefore clear that the petitioner never had the intention to form a
corporation with the respondents despite his representations to them. This gives
credence to the cross-claims of the respondents to the effect that they were
induced and lured by the petitioner to make contributions to a proposed
corporation which was never formed because the petitioner reneged on their
agreement. Maglana alleged in his cross-claim:

... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and
Maglana to expand his airline business. Lim was to procure two DC-3's from Japan and
secure the necessary certificates of public convenience and necessity as well as the
required permits for the operation thereof. Maglana sometime in May 1965, gave
Cervantes his share of P75,000.00 for delivery to Lim which Cervantes did and Lim
acknowledged receipt thereof. Cervantes, likewise, delivered his share of the
undertaking. Lim in an undertaking sometime on or about August 9,1965, promised to
incorporate his airline in accordance with their agreement and proceeded to acquire the
planes on his own account. Since then up to the filing of this answer, Lim has refused,
failed and still refuses to set up the corporation or return the money of Maglana. (Record
on Appeal, pp. 337-338).

while respondents Bormaheco and the Cervanteses alleged in their answer,


counterclaim, cross-claim and third party complaint:

Sometime in April 1965, defendant Lim lured and induced the answering defendants
to purchase two airplanes and spare parts from Japan which the latter considered
as their lawful contribution and participation in the proposed corporation to be
known as SAL. Arrangements and negotiations were undertaken by defendant Lim.
Down payments were advanced by defendants Bormaheco and the Cervanteses and
Constancio Maglana (Exh. E- 1). Contrary to the agreement among the defendants,
defendant Lim in connivance with the plaintiff, signed and executed the alleged
chattel mortgage and surety bond agreement in his personal capacity as the
alleged proprietor of the SAL. The answering defendants learned for the first time
of this trickery and misrepresentation of the other, Jacob Lim, when the herein
plaintiff chattel mortgage (sic) allegedly executed by defendant Lim, thereby
forcing them to file an adverse claim in the form of third party claim.
Notwithstanding repeated oral demands made by defendants Bormaheco and
Cervanteses, to defendant Lim, to surrender the possession of the two planes and
their accessories and or return the amount advanced by the former amounting to
an aggregate sum of P 178,997.14 as evidenced by a statement of accounts, the
latter ignored, omitted and refused to comply with them. (Record on Appeal, pp.
341-342).

Applying therefore the principles of law earlier cited to the facts of the case,
necessarily, no de facto partnership was created among the parties which would
entitle the petitioner to a reimbursement of the supposed losses of the proposed
corporation. The record shows that the petitioner was acting on his own and not
in behalf of his other would-be incorporators in transacting the sale of the
airplanes and spare parts.

WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the
Court of Appeals is AFFIRMED.

SO ORDERED.

Republic of the Philippines SUPREME COURT Manila

EN BANC

G.R. No. 113375 May 5, 1994

KILOSBAYAN, INCORPORATED, JOVITO R. SALONGA, CIRILO A. RIGOS, ERME


CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO,
FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON,
RAFAEL G. FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S.
DOROMAL, SEN. FREDDIE WEBB, SEN. WIGBERTO TAADA, and REP. JOKER P.
ARROYO, petitioners, vs. TEOFISTO GUINGONA, JR., in his capacity as
Executive Secretary, Office of the President; RENATO CORONA, in his capacity as
Assistant Executive Secretary and Chairman of the Presidential review Committee
on the Lotto, Office of the President; PHILIPPINE CHARITY SWEEPSTAKES
OFFICE; and PHILIPPINE GAMING MANAGEMENT CORPORATION, respondents.

Jovito R. Salonga, Fernando Santiago, Emilio C. Capulong, Jr. and Felipe L. Gozon for
petitioners.

Renato L. Cayetano and Eleazar B. Reyes for PGMC.

Gamaliel G. Bongco, Oscar Karaan and Jedideoh Sincero for intervenors.

DAVIDE, JR., J.:

This is a special civil action for prohibition and injunction, with a prayer for a temporary
restraining order and preliminary injunction, which seeks to prohibit and restrain the
implementation of the "Contract of Lease" executed by the Philippine Charity
Sweepstakes Office (PCSO) and the Philippine Gaming Management Corporation
(PGMC) in connection with the on- line lottery system, also known as "lotto."

Petitioner Kilosbayan, Incorporated (KILOSBAYAN) avers that it is a non-stock


domestic corporation composed of civic-spirited citizens, pastors, priests, nuns, and
lay leaders who are committed to the cause of truth, justice, and national renewal. The
rest of the petitioners, except Senators Freddie Webb and Wigberto Taada and
Representative Joker P. Arroyo, are suing in their capacities as members of the
Board of Trustees of KILOSBAYAN and as taxpayers and concerned citizens.
Senators Webb and Taada and Representative Arroyo are suing in their capacities as
members of Congress and as taxpayers and concerned citizens of the Philippines.

The pleadings of the parties disclose the factual antecedents which triggered off the
filing of this petition.

Pursuant to Section 1 of the charter of the PCSO (R.A. No. 1169, as amended by
B.P. Blg. 42) which grants it the authority to hold and conduct "charity
sweepstakes races, lotteries and other similar activities," the PCSO decided to
establish an on- line lottery system for the purpose of increasing its revenue base
and diversifying its sources of funds. Sometime before March 1993, after learning
that the PCSO was interested in operating an on-line lottery system, the Berjaya Group
Berhad, "a multinational company and one of the ten largest public companies in
Malaysia," long "engaged in, among others, successful lottery operations in Asia,
running both Lotto and Digit games, thru its subsidiary, Sports Toto Malaysia," with its
"affiliate, the International Totalizator Systems, Inc., . . . an American public company
engaged in the international sale or provision of computer systems, softwares, terminals,
training and other technical services to the gaming industry," "became interested to
offer its services and resources to PCSO." As an initial step, Berjaya Group Berhad
(through its individual nominees) organized with some Filipino investors in March
1993 a Philippine corporation known as the Philippine Gaming Management
Corporation (PGMC), which "was intended to be the medium through which the
technical and management services required for the project would be offered and
delivered to PCSO." 1

Before August 1993, the PCSO formally issued a Request for Proposal (RFP) for the
Lease Contract of an on-line lottery system for the PCSO. 2 Relevant provisions of the
RFP are the following:

1. EXECUTIVE SUMMARY

xxx xxx xxx

1.2. PCSO is seeking a suitable contractor which shall build, at its own expense, all the
facilities ('Facilities') needed to operate and maintain a nationwide on-line lottery system.
PCSO shall lease the Facilities for a fixed percentage of quarterly gross receipts. All
receipts from ticket sales shall be turned over directly to PCSO. All capital, operating
expenses and expansion expenses and risks shall be for the exclusive account of the
Lessor.

xxx xxx xxx

1.4. The lease shall be for a period not exceeding fifteen (15) years.

1.5. The Lessor is expected to submit a comprehensive nationwide lottery development


plan ("Development Plan") which will include the game, the marketing of the games, and
the logistics to introduce the games to all the cities and municipalities of the country
within five (5) years.

xxx xxx xxx

1.7. The Lessor shall be selected based on its technical expertise, hardware and
software capability, maintenance support, and financial resources. The Development
Plan shall have a substantial bearing on the choice of the Lessor. The Lessor shall be a
domestic corporation, with at least sixty percent (60%) of its shares owned by Filipino
shareholders.

xxx xxx xxx

The Office of the President, the National Disaster Control Coordinating Council, the
Philippine National Police, and the National Bureau of Investigation shall be authorized
to use the nationwide telecommunications system of the Facilities Free of Charge.

1.8. Upon expiration of the lease, the Facilities shall be owned by PCSO without any
additional consideration. 3

xxx xxx xxx


2.2. OBJECTIVES

The objectives of PCSO in leasing the Facilities from a private entity are as follows:

xxx xxx xxx

2.2.2. Enable PCSO to operate a nationwide on-line Lottery system at no expense or


risk to the government.

xxx xxx xxx

2.4. DUTIES AND RESPONSIBILITIES OF THE LESSOR

xxx xxx xxx

2.4.2. THE LESSOR

The Proponent is expected to furnish and maintain the Facilities, including the personnel
needed to operate the computers, the communications network and sales offices under
a build-lease basis. The printing of tickets shall be undertaken under the supervision and
control of PCSO. The Facilities shall enable PCSO to computerize the entire gaming
system.

The Proponent is expected to formulate and design consumer-oriented Master Games


Plan suited to the marketplace, especially geared to Filipino gaming habits and
preferences. In addition, the Master Games Plan is expected to include a Product Plan
for each game and explain how each will be introduced into the market. This will be an
integral part of the Development Plan which PCSO will require from the Proponent.

xxx xxx xxx

The Proponent is expected to provide upgrades to modernize the entire gaming system
over the life ofthe lease contract.

The Proponent is expected to provide technology transfer to PCSO technical personnel.


4

7. GENERAL GUIDELINES FOR PROPONENTS

xxx xxx xxx

Finally, the Proponent must be able to stand the acid test of proving that it is an entity
able to take on the role of responsible maintainer of the on-line lottery system, and able
to achieve PSCO's goal of formalizing an on-line lottery system to achieve its mandated
objective. 5

xxx xxx xxx

16. DEFINITION OF TERMS


Facilities: All capital equipment, computers, terminals, software, nationwide
telecommunication network, ticket sales offices, furnishings, and fixtures; printing costs;
cost of salaries and wages; advertising and promotion expenses; maintenance costs;
expansion and replacement costs; security and insurance, and all other related
expenses needed to operate nationwide on-line lottery system. 6

Considering the above citizenship requirement, the PGMC claims that the Berjaya Group
"undertook to reduce its equity stakes in PGMC to 40%," by selling 35% out of the
original 75% foreign stockholdings to local investors.

On 15 August 1993, PGMC submitted its bid to the PCSO. 7

The bids were evaluated by the Special Pre-Qualification Bids and Awards Committee
(SPBAC) for the on-line lottery and its Bid Report was thereafter submitted to the Office
of the President. 8 The submission was preceded by complaints by the Committee's
Chairperson, Dr. Mita Pardo de Tavera. 9

On 21 October 1993, the Office of the President announced that it had given the
respondent PGMC the go-signal to operate the country's on-line lottery system
and that the corresponding implementing contract would be submitted not later than 8
November 1993 "for final clearance and approval by the Chief Executive." 10 This
announcement was published in the Manila Standard, Philippine Daily Inquirer, and the
Manila Times on 29 October 1993. 11

On 4 November 1993, KILOSBAYAN sent an open letter to Presidential Fidel V.


Ramos strongly opposing the setting up to the on-line lottery system on the basis
of serious moral and ethical considerations. 12

At the meeting of the Committee on Games and Amusements of the Senate on 12


November 1993, KILOSBAYAN reiterated its vigorous opposition to the on-line lottery on
account of its immorality and illegality. 13

On 19 November 1993, the media reported that despite the opposition, "Malacaang will
push through with the operation of an on-line lottery system nationwide" and that it is
actually the respondent PCSO which will operate the lottery while the winning corporate
bidders are merely "lessors." 14

On 1 December 1993, KILOSBAYAN requested copies of all documents pertaining to


the lottery award from Executive Secretary Teofisto Guingona, Jr. In his answer of 17
December 1993, the Executive Secretary informed KILOSBAYAN that the requested
documents would be duly transmitted before the end of the month. 15. However, on that
same date, an agreement denominated as "Contract of Lease" was finally executed by
respondent PCSO and respondent PGMC. 16 The President, per the press statement
issued by the Office of the President, approved it on 20 December 1993. 17

In view of their materiality and relevance, we quote the following salient provisions of the
Contract of Lease:

1. DEFINITIONS
The following words and terms shall have the following respective meanings:

1.1 Rental Fee Amount to be paid by PCSO to the LESSOR as compensation for the
fulfillment of the obligations of the LESSOR under this Contract, including, but not limited
to the lease of the Facilities.

xxx xxx xxx

1.3 Facilities All capital equipment, computers, terminals, software (including source
codes for the On-Line Lottery application software for the terminals, telecommunications
and central systems), technology, intellectual property rights, telecommunications
network, and furnishings and fixtures.

1.4 Maintenance and Other Costs All costs and expenses relating to printing,
manpower, salaries and wages, advertising and promotion, maintenance, expansion and
replacement, security and insurance, and all other related expenses needed to operate
an On-Line Lottery System, which shall be for the account of the LESSOR. All expenses
relating to the setting-up, operation and maintenance of ticket sales offices of dealers
and retailers shall be borne by PCSO's dealers and retailers.

1.5 Development Plan The detailed plan of all games, the marketing thereof, number
of players, value of winnings and the logistics required to introduce the games, including
the Master Games Plan as approved by PCSO, attached hereto as Annex "A", modified
as necessary by the provisions of this Contract.

xxx xxx xxx

1.8 Escrow Deposit The proposal deposit in the sum of Three Hundred Million Pesos
(P300,000,000.00) submitted by the LESSOR to PCSO pursuant to the requirements of
the Request for Proposals.

2. SUBJECT MATTER OF THE LEASE

The LESSOR shall build, furnish and maintain at its own expense and risk the Facilities
for the On-Line Lottery System of PCSO in the Territory on an exclusive basis. The
LESSOR shall bear all Maintenance and Other Costs as defined herein.

xxx xxx xxx

3. RENTAL FEE

For and in consideration of the performance by the LESSOR of its obligations herein,
PCSO shall pay LESSOR a fixed Rental Fee equal to four point nine percent (4.9%) of
gross receipts from ticket sales, payable net of taxes required by law to be withheld, on a
semi-monthly basis. Goodwill, franchise and similar fees shall belong to PCSO.

4. LEASE PERIOD

The period of the lease shall commence ninety (90) days from the date of effectivity of
this Contract and shall run for a period of eight (8) years thereafter, unless sooner
terminated in accordance with this Contract.

5. RIGHTS AND OBLIGATIONS OF PCSO AS OPERATOR OF THE ON-LINE


LOTTERY SYSTEM

PCSO shall be the sole and individual operator of the On-Line Lottery System.
Consequently:

5.1 PCSO shall have sole responsibility to decide whether to implement, fully or partially,
the Master Games Plan of the LESSOR. PCSO shall have the sole responsibility to
determine the time for introducing new games to the market. The Master Games Plan
included in Annex "A" hereof is hereby approved by PCSO.

5.2 PCSO shall have control over revenues and receipts of whatever nature from the
On-Line Lottery System. After paying the Rental Fee to the LESSOR, PCSO shall have
exclusive responsibility to determine the Revenue Allocation Plan; Provided, that the
same shall be consistent with the requirement of R.A. No. 1169, as amended, which
fixes a prize fund of fifty five percent (55%) on the average.

5.3 PCSO shall have exclusive control over the printing of tickets, including but not
limited to the design, text, and contents thereof.

5.4 PCSO shall have sole responsibility over the appointment of dealers or retailers
throughout the country. PCSO shall appoint the dealers and retailers in a timely manner
with due regard to the implementation timetable of the On-Line Lottery System. Nothing
herein shall preclude the LESSOR from recommending dealers or retailers for
appointment by PCSO, which shall act on said recommendation within forty-eight (48)
hours.

5.5 PCSO shall designate the necessary personnel to monitor and audit the daily
performance of the On-Line Lottery System. For this purpose, PCSO designees shall be
given, free of charge, suitable and adequate space, furniture and fixtures, in all offices of
the LESSOR, including but not limited to its headquarters, alternate site, regional and
area offices.

5.6 PCSO shall have the responsibility to resolve, and exclusive jurisdiction over, all
matters involving the operation of the On-Line Lottery System not otherwise provided in
this Contract.

5.7 PCSO shall promulgate procedural and coordinating rules governing all activities
relating to the On-Line Lottery System.

5.8 PCSO will be responsible for the payment of prize monies, commissions to agents
and dealers, and taxes and levies (if any) chargeable to the operator of the On-Line
Lottery System. The LESSOR will bear all other Maintenance and Other Costs, except
as provided in Section 1.4.

5.9 PCSO shall assist the LESSOR in the following:


5.9.1 Work permits for the LESSOR's staff;

5.9.2 Approvals for importation of the Facilities;

5.9.3 Approvals and consents for the On-Line Lottery System; and

5.9.4 Business and premises licenses for all offices of the LESSOR and licenses for the
telecommunications network.

5.10 In the event that PCSO shall pre-terminate this Contract or suspend the operation
of the On-Line Lottery System, in breach of this Contract and through no fault of the
LESSOR, PCSO shall promptly, and in any event not later than sixty (60) days,
reimburse the LESSOR the amount of its total investment cost associated with the On-
Line Lottery System, including but not limited to the cost of the Facilities, and further
compensate the LESSOR for loss of expected net profit after tax, computed over the
unexpired term of the lease.

6. DUTIES AND RESPONSIBILITIES OF THE LESSOR

The LESSOR is one of not more than three (3) lessors of similar facilities for the
nationwide On-Line Lottery System of PCSO. It is understood that the rights of the
LESSOR are primarily those of a lessor of the Facilities, and consequently, all rights
involving the business aspects of the use of the Facilities are within the jurisdiction of
PCSO. During the term of the lease, the LESSOR shall.

6.1 Maintain and preserve its corporate existence, rights and privileges, and conduct its
business in an orderly, efficient, and customary manner.

6.2 Maintain insurance coverage with insurers acceptable to PCSO on all Facilities.

6.3 Comply with all laws, statues, rules and regulations, orders and directives,
obligations and duties by which it is legally bound.

6.4 Duly pay and discharge all taxes, assessments and government charges now and
hereafter imposed of whatever nature that may be legally levied upon it.

6.5 Keep all the Facilities in fail safe condition and, if necessary, upgrade, replace and
improve the Facilities from time to time as new technology develops, in order to make
the On-Line Lottery System more cost-effective and/or competitive, and as may be
required by PCSO shall not impose such requirements unreasonably nor arbitrarily.

6.6 Provide PCSO with management terminals which will allow real-time monitoring of
the On-Line Lottery System.

6.7 Upon effectivity of this Contract, commence the training of PCSO and other local
personnel and the transfer of technology and expertise, such that at the end of the term
of this Contract, PCSO will be able to effectively take-over the Facilities and efficiently
operate the On-Line Lottery System.
6.8 Undertake a positive advertising and promotions campaign for both institutional and
product lines without engaging in negative advertising against other lessors.

6.9 Bear all expenses and risks relating to the Facilities including, but not limited to,
Maintenance and Other Costs and:

xxx xxx xxx

6.10 Bear all risks if the revenues from ticket sales, on an annualized basis, are
insufficient to pay the entire prize money.

6.11 Be, and is hereby, authorized to collect and retain for its own account, a security
deposit from dealers and retailers, in an amount determined with the approval of PCSO,
in respect of equipment supplied by the LESSOR. PCSO's approval shall not be
unreasonably withheld.

xxx xxx xxx

6.12 Comply with procedural and coordinating rules issued by PCSO.

7. REPRESENTATIONS AND WARRANTIES

The LESSOR represents and warrants that:

7.1 The LESSOR is corporation duly organized and existing under the laws of the
Republic of the Philippines, at least sixty percent (60%) of the outstanding capital stock
of which is owned by Filipino shareholders. The minimum required Filipino equity
participation shall not be impaired through voluntary or involuntary transfer, disposition,
or sale of shares of stock by the present stockholders.

7.2 The LESSOR and its Affiliates have the full corporate and legal power and authority
to own and operate their properties and to carry on their business in the place where
such properties are now or may be conducted. . . .

7.3 The LESSOR has or has access to all the financing and funding requirements to
promptly and effectively carry out the terms of this Contract. . . .

7.4 The LESSOR has or has access to all the managerial and technical expertise to
promptly and effectively carry out the terms of this Contract. . . .

xxx xxx xxx

10. TELECOMMUNICATIONS NETWORK

The LESSOR shall establish a telecommunications network that will connect all
municipalities and cities in the Territory in accordance with, at the LESSOR's option,
either of the LESSOR's proposals (or a combinations of both such proposals) attached
hereto as Annex "B," and under the following PCSO schedule:
xxx xxx xxx

PCSO may, at its option, require the LESSOR to establish the telecommunications
network in accordance with the above Timetable in provinces where the LESSOR has
not yet installed terminals. Provided, that such provinces have existing nodes. Once a
municipality or city is serviced by land lines of a licensed public telephone company, and
such lines are connected to Metro Manila, then the obligation of the LESSOR to connect
such municipality or city through a telecommunications network shall cease with respect
to such municipality or city. The voice facility will cover the four offices of the Office of
the President, National Disaster Control Coordinating Council, Philippine National Police
and the National Bureau of Investigation, and each city and municipality in the Territory
except Metro Manila, and those cities and municipalities which have easy telephone
access from these four offices. Voice calls from the four offices shall be transmitted via
radio or VSAT to the remote municipalities which will be connected to this voice facility
through wired network or by radio. The facility shall be designed to handle four private
conversations at any one time.

xxx xxx xxx

13. STOCK DISPERSAL PLAN

Within two (2) years from the effectivity of this Contract, the LESSOR shall cause itself to
be listed in the local stock exchange and offer at least twenty five percent (25%) of its
equity to the public.

14. NON-COMPETITION

The LESSOR shall not, directly or indirectly, undertake any activity or business in
competition with or adverse to the On-Line Lottery System of PCSO unless it obtains the
latter's prior written consent thereto.

15. HOLD HARMLESS CLAUSE

15.1 The LESSOR shall at all times protect and defend, at its cost and expense, PCSO
from and against any and all liabilities and claims for damages and/or suits for or by
reason of any deaths of, or any injury or injuries to any person or persons, or damages
to property of any kind whatsoever, caused by the LESSOR, its subcontractors, its
authorized agents or employees, from any cause or causes whatsoever.

15.2 The LESSOR hereby covenants and agrees to indemnify and hold PCSO harmless
from all liabilities, charges, expenses (including reasonable counsel fees) and costs on
account of or by reason of any such death or deaths, injury or injuries, liabilities, claims,
suits or losses caused by the LESSOR's fault or negligence.

15.3 The LESSOR shall at all times protect and defend, at its own cost and expense, its
title to the facilities and PCSO's interest therein from and against any and all claims for
the duration of the Contract until transfer to PCSO of ownership of the serviceable
Facilities.

16. SECURITY
16.1 To ensure faithful compliance by the LESSOR with the terms of the Contract, the
LESSOR shall secure a Performance Bond from a reputable insurance company or
companies acceptable to PCSO.

16.2 The Performance Bond shall be in the initial amount of Three Hundred Million
Pesos (P300,000,000.00), to its U.S. dollar equivalent, and shall be renewed to cover
the duration of the Contract. However, the Performance Bond shall be reduced
proportionately to the percentage of unencumbered terminals installed; Provided, that
the Performance Bond shall in no case be less than One Hundred Fifty Million Pesos
(P150,000,000.00).

16.3 The LESSOR may at its option maintain its Escrow Deposit as the Performance
Bond. . . .

17. PENALTIES

17.1 Except as may be provided in Section 17.2, should the LESSOR fail to take
remedial measures within seven (7) days, and rectify the breach within thirty (30) days,
from written notice by PCSO of any wilfull or grossly negligent violation of the material
terms and conditions of this Contract, all unencumbered Facilities shall automatically
become the property of PCSO without consideration and without need for further notice
or demand by PCSO. The Performance Bond shall likewise be forfeited in favor of
PCSO.

17.2 Should the LESSOR fail to comply with the terms of the Timetables provided in
Section 9 and 10, it shall be subject to an initial Penalty of Twenty Thousand Pesos
(P20,000.00), per city or municipality per every month of delay; Provided, that the
Penalty shall increase, every ninety (90) days, by the amount of Twenty Thousand
Pesos (P20,000.00) per city or municipality per month, whilst shall failure to comply
persists. The penalty shall be deducted by PCSO from the rental fee.

xxx xxx xxx

20. OWNERSHIP OF THE FACILITIES

After expiration of the term of the lease as provided in Section 4, the Facilities directly
required for the On-Line Lottery System mentioned in Section 1.3 shall automatically
belong in full ownership to PCSO without any further consideration other than the Rental
Fees already paid during the effectivity of the lease.

21. TERMINATION OF THE LEASE

PCSO may terminate this Contract for any breach of the material provisions of this
Contract, including the following:

21.1 The LESSOR is insolvent or bankrupt or unable to pay its debts, stops or suspends
or threatens to stop or suspend payment of all or a material part of its debts, or proposes
or makes a general assignment or an arrangement or compositions with or for the
benefit of its creditors; or
21.2 An order is made or an effective resolution passed for the winding up or dissolution
of the LESSOR or when it ceases or threatens to cease to carry on all or a material part
of its operations or business; or

21.3 Any material statement, representation or warranty made or furnished by the


LESSOR proved to be materially false or misleading;

said termination to take effect upon receipt of written notice of termination by the
LESSOR and failure to take remedial action within seven (7) days and cure or remedy
the same within thirty (30) days from notice.

Any suspension, cancellation or termination of this Contract shall not relieve the
LESSOR of any liability that may have already accrued hereunder.

xxx xxx xxx

Considering the denial by the Office of the President of its protest and the
statement of Assistant Executive Secretary Renato Corona that "only a court injunction
can stop Malacaang," and the imminent implementation of the Contract of Lease in
February 1994, KILOSBAYAN, with its co-petitioners, filed on 28 January 1994 this
petition.

In support of the petition, the petitioners claim that:

. . . X X THE OFFICE OF THE PRESIDENT, ACTING THROUGH RESPONDENTS


EXECUTIVE SECRETARY AND/OR ASSISTANT EXECUTIVE SECRETARY FOR
LEGAL AFFAIRS, AND THE PCSO GRAVELY ABUSE[D] THEIR DISCRETION
AND/OR FUNCTIONS TANTAMOUNT TO LACK OF JURISDICTION AND/OR
AUTHORITY IN RESPECTIVELY: (A) APPROVING THE AWARD OF THE CONTRACT
TO, AND (B) ENTERING INTO THE SO-CALLED "CONTRACT OF LEASE" WITH,
RESPONDENT PGMC FOR THE INSTALLATION, ESTABLISHMENT AND
OPERATION OF THE ON-LINE LOTTERY AND TELECOMMUNICATION SYSTEMS
REQUIRED AND/OR AUTHORIZED UNDER THE SAID CONTRACT, CONSIDERING
THAT:

a) Under Section 1 of the Charter of the PCSO, the PCSO is prohibited from holding and
conducting lotteries "in collaboration, association or joint venture with any person,
association, company or entity";

b) Under Act No. 3846 and established jurisprudence, a Congressional franchise is


required before any person may be allowed to establish and operate said
telecommunications system;

c) Under Section 11, Article XII of the Constitution, a less than 60% Filipino-owned
and/or controlled corporation, like the PGMC, is disqualified from operating a
public service, like the said telecommunications system; and

d) Respondent PGMC is not authorized by its charter and under the Foreign
Investment Act (R.A. No. 7042) to install, establish and operate the on-line lotto
and telecommunications systems. 18
Petitioners submit that the PCSO cannot validly enter into the assailed Contract of
Lease with the PGMC because it is an arrangement wherein the PCSO would hold
and conduct the on-line lottery system in "collaboration" or "association" with the
PGMC, in violation of Section 1(B) of R.A. No. 1169, as amended by B.P. Blg. 42, which
prohibits the PCSO from holding and conducting charity sweepstakes races, lotteries,
and other similar activities "in collaboration, association or joint venture with any person,
association, company or entity, foreign or domestic." Even granting arguendo that a
lease of facilities is not within the contemplation of "collaboration" or
"association," an analysis, however, of the Contract of Lease clearly shows that
there is a "collaboration, association, or joint venture between respondents PCSO
and PGMC in the holding of the On-Line Lottery System," and that there are terms
and conditions of the Contract "showing that respondent PGMC is the actual lotto
operator and not respondent PCSO." 19

The petitioners also point out that paragraph 10 of the Contract of Lease requires
or authorizes PGMC to establish a telecommunications network that will connect
all the municipalities and cities in the territory. However, PGMC cannot do that
because it has no franchise from Congress to construct, install, establish, or
operate the network pursuant to Section 1 of Act No. 3846, as amended. Moreover,
PGMC is a 75% foreign-owned or controlled corporation and cannot, therefore, be
granted a franchise for that purpose because of Section 11, Article XII of the 1987
Constitution. Furthermore, since "the subscribed foreign capital" of the PGMC "comes to
about 75%, as shown by paragraph EIGHT of its Articles of Incorporation," it cannot
lawfully enter into the contract in question because all forms of gambling and lottery is
one of them are included in the so-called foreign investments negative list under the
Foreign Investments Act (R.A. No. 7042) where only up to 40% foreign capital is
allowed. 20

Finally, the petitioners insist that the Articles of Incorporation of PGMC do not
authorize it to establish and operate an on-line lottery and telecommunications
systems. 21

Accordingly, the petitioners pray that we issue a temporary restraining order and a writ of
preliminary injunction commanding the respondents or any person acting in their places
or upon their instructions to cease and desist from implementing the challenged Contract
of Lease and, after hearing the merits of the petition, that we render judgment declaring
the Contract of Lease void and without effect and making the injunction permanent. 22

We required the respondents to comment on the petition.

In its Comment filed on 1 March 1994, private respondent PGMC asserts that "(1) [it]
is merely an independent contractor for a piece of work, (i.e., the building and
maintenance of a lottery system to be used by PCSO in the operation of its lottery
franchise); and (2) as such independent contractor, PGMC is not a co-operator of
the lottery franchise with PCSO, nor is PCSO sharing its franchise, 'in
collaboration, association or joint venture' with PGMC as such statutory limitation
is viewed from the context, intent, and spirit of Republic Act 1169, as amended by Batas
Pambansa 42." It further claims that as an independent contractor for a piece of work, it
is neither engaged in "gambling" nor in "public service" relative to the
telecommunications network, which the petitioners even consider as an "indispensable
requirement" of an on-line lottery system. Finally, it states that the execution and
implementation of the contract does not violate the Constitution and the laws; that the
issue on the "morality" of the lottery franchise granted to the PCSO is political and not
judicial or legal, which should be ventilated in another forum; and that the "petitioners do
not appear to have the legal standing or real interest in the subject contract and in
obtaining the reliefs sought." 23

In their Comment filed by the Office of the Solicitor General, public respondents
Executive Secretary Teofisto Guingona, Jr., Assistant Executive Secretary Renato
Corona, and the PCSO maintain that the contract of lease in question does not violate
Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, and that the petitioner's
interpretation of the phrase "in collaboration, association or joint venture" in
Section 1 is "much too narrow, strained and utterly devoid of logic" for it "ignores
the reality that PCSO, as a corporate entity, is vested with the basic and essential
prerogative to enter into all kinds of transactions or contracts as may be
necessary for the attainment of its purposes and objectives." What the PCSO
charter "seeks to prohibit is that arrangement akin to a "joint venture" or
partnership where there is "community of interest in the business, sharing of
profits and losses, and a mutual right of control," a characteristic which does not
obtain in a contract of lease." With respect to the challenged Contract of Lease,
the "role of PGMC is limited to that of a lessor of the facilities" for the on-line
lottery system; in "strict technical and legal sense," said contract "can be
categorized as a contract for a piece of work as defined in Articles 1467, 1713 and
1644 of the Civil Code."

They further claim that the establishment of the telecommunications system


stipulated in the Contract of Lease does not require a congressional franchise
because PGMC will not operate a public utility; moreover, PGMC's "establishment
of a telecommunications system is not intended to establish a
telecommunications business," and it has been held that where the facilities are
operated "not for business purposes but for its own use," a legislative franchise is
not required before a certificate of public convenience can be granted. 24 Even
granting arguendo that PGMC is a public utility, pursuant to Albano S. Reyes, 25 "it can
establish a telecommunications system even without a legislative franchise because not
every public utility is required to secure a legislative franchise before it could establish,
maintain, and operate the service"; and, in any case, "PGMC's establishment of the
telecommunications system stipulated in its contract of lease with PCSO falls within the
exceptions under Section 1 of Act No. 3846 where a legislative franchise is not
necessary for the establishment of radio stations."

They also argue that the contract does not violate the Foreign Investment Act of 1991;
that the Articles of Incorporation of PGMC authorize it to enter into the Contract of
Lease; and that the issues of "wisdom, morality and propriety of acts of the
executive department are beyond the ambit of judicial review."

Finally, the public respondents allege that the petitioners have no standing to maintain
the instant suit, citing our resolution in Valmonte vs. Philippine Charity Sweepstakes
Office. 26

27
Several parties filed motions to intervene as petitioners in this case, but only the
motion of Senators Alberto Romulo, Arturo Tolentino, Francisco Tatad, Gloria
Macapagal-Arroyo, Vicente Sotto III, John Osmea, Ramon Revilla, and Jose Lina 28
was granted, and the respondents were required to comment on their petition in
intervention, which the public respondents and PGMC did.

In the meantime, the petitioners filed with the Securities and Exchange Commission on
29 March 1994 a petition against PGMC for the nullification of the latter's General
Information Sheets. That case, however, has no bearing in this petition.

On 11 April 1994, we heard the parties in oral arguments. Thereafter, we resolved to


consider the matter submitted for resolution and pending resolution of the major issues
in this case, to issue a temporary restraining order commanding the respondents or any
person acting in their place or upon their instructions to cease and desist from
implementing the challenged Contract of Lease.

In the deliberation on this case on 26 April 1994, we resolved to consider only these
issues: (a) the locus standi of the petitioners, and (b) the legality and validity of the
Contract of Lease in the light of Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42,
which prohibits the PCSO from holding and conducting lotteries "in collaboration,
association or joint venture with any person, association, company or entity, whether
domestic or foreign." On the first issue, seven Justices voted to sustain the locus
standi of the petitioners, while six voted not to. On the second issue, the seven
Justices were of the opinion that the Contract of Lease violates the exception to
Section 1(B) of R.A. No. 1169, as amended by B.P. Blg. 42, and is, therefore,
invalid and contrary to law. The six Justices stated that they wished to express no
opinion thereon in view of their stand on the first issue. The Chief Justice took no part
because one of the Directors of the PCSO is his brother-in-law.

This case was then assigned to this ponente for the writing of the opinion of the Court.

The preliminary issue on the locus standi of the petitioners should, indeed, be
resolved in their favor. A party's standing before this Court is a procedural
technicality which it may, in the exercise of its discretion, set aside in view of the
importance of the issues raised. In the landmark Emergency Powers Cases, 29 this
Court brushed aside this technicality because "the transcendental importance to
the public of these cases demands that they be settled promptly and definitely,
brushing aside, if we must, technicalities of procedure. (Avelino vs. Cuenco, G.R.
No. L-2821)." Insofar as taxpayers' suits are concerned, this Court had declared that it
"is not devoid of discretion as to whether or not it should be entertained," 30 or that it
"enjoys an open discretion to entertain the same or not." 31 In De La Llana vs. Alba, 32
this Court declared:

1. The argument as to the lack of standing of petitioners is easily resolved. As far as


Judge de la Llana is concerned, he certainly falls within the principle set forth in Justice
Laurel's opinion in People vs. Vera [65 Phil. 56 (1937)]. Thus: "The unchallenged rule is
that the person who impugns the validity of a statute must have a personal and
substantial interest in the case such that he has sustained, or will sustain, direct injury as
a result of its enforcement [Ibid, 89]. The other petitioners as members of the bar and
officers of the court cannot be considered as devoid of "any personal and substantial
interest" on the matter. There is relevance to this excerpt from a separate opinion in
Aquino, Jr. v. Commission on Elections [L-40004, January 31, 1975, 62 SCRA 275]:
"Then there is the attack on the standing of petitioners, as vindicating at most what they
consider a public right and not protecting their rights as individuals. This is to conjure the
specter of the public right dogma as an inhibition to parties intent on keeping public
officials staying on the path of constitutionalism. As was so well put by Jaffe; "The
protection of private rights is an essential constituent of public interest and, conversely,
without a well-ordered state there could be no enforcement of private rights. Private and
public interests are, both in a substantive and procedural sense, aspects of the totality of
the legal order." Moreover, petitioners have convincingly shown that in their capacity as
taxpayers, their standing to sue has been amply demonstrated. There would be a retreat
from the liberal approach followed in Pascual v. Secretary of Public Works,
foreshadowed by the very decision of People v. Vera where the doctrine was first fully
discussed, if we act differently now. I do not think we are prepared to take that step.
Respondents, however, would hard back to the American Supreme Court doctrine in
Mellon v. Frothingham, with their claim that what petitioners possess "is an interest
which is shared in common by other people and is comparatively so minute and
indeterminate as to afford any basis and assurance that the judicial process can act on
it." That is to speak in the language of a bygone era, even in the United States. For as
Chief Justice Warren clearly pointed out in the later case of Flast v. Cohen, the barrier
thus set up if not breached has definitely been lowered.

In Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan, 33 reiterated


in Basco vs. Philippine Amusements and Gaming Corporation, 34 this Court stated:

Objections to taxpayers' suits for lack of sufficient personality standing or interest are,
however, in the main procedural matters. Considering the importance to the public of the
cases at bar, and in keeping with the Court's duty, under the 1987 Constitution, to
determine whether or not the other branches of government have kept themselves within
the limits of the Constitution and the laws and that they have not abused the discretion
given to them, this Court has brushed aside technicalities of procedure and has taken
cognizance of these petitions.

and in Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian
Reform, 35 it declared:

With particular regard to the requirement of proper party as applied in the cases before
us, we hold that the same is satisfied by the petitioners and intervenors because each of
them has sustained or is in danger of sustaining an immediate injury as a result of the
acts or measures complained of. [Ex Parte Levitt, 303 US 633]. And even if, strictly
speaking, they are not covered by the definition, it is still within the wide discretion of the
Court to waive the requirement and so remove the impediment to its addressing and
resolving the serious constitutional questions raised.

In the first Emergency Powers Cases, ordinary citizens and taxpayers were allowed to
question the constitutionality of several executive orders issued by President Quirino
although they were invoking only an indirect and general interest shared in common with
the public. The Court dismissed the objective that they were not proper parties and
ruled that the transcendental importance to the public of these cases demands
that they be settled promptly and definitely, brushing aside, if we must,
technicalities of procedure. We have since then applied this exception in many other
cases. (Emphasis supplied)

In Daza vs. Singson, 36 this Court once more said:

. . . For another, we have early as in the Emergency Powers Cases that where serious
constitutional questions are involved, "the transcendental importance to the public of
these cases demands that they be settled promptly and definitely, brushing aside, if we
must, technicalities of procedure." The same policy has since then been consistently
followed by the Court, as in Gonzales vs. Commission on Elections [21 SCRA 774] . . .

The Federal Supreme Court of the United States of America has also expressed its
discretionary power to liberalize the rule on locus standi. In United States vs. Federal
Power Commission and Virginia Rea Association vs. Federal Power Commission, 37 it
held:

We hold that petitioners have standing. Differences of view, however, preclude a single
opinion of the Court as to both petitioners. It would not further clarification of this
complicated specialty of federal jurisdiction, the solution of whose problems is in any
event more or less determined by the specific circumstances of individual situations, to
set out the divergent grounds in support of standing in these cases.

In line with the liberal policy of this Court on locus standi, ordinary taxpayers, members
of Congress, and even association of planters, and non-profit civic organizations were
allowed to initiate and prosecute actions before this Court to question the
constitutionality or validity of laws, acts, decisions, rulings, or orders of various
government agencies or instrumentalities. Among such cases were those assailing the
constitutionality of (a) R.A. No. 3836 insofar as it allows retirement gratuity and
commutation of vacation and sick leave to Senators and Representatives and to elective
officials of both Houses of Congress; 38 (b) Executive Order No. 284, issued by President
Corazon C. Aquino on 25 July 1987, which allowed members of the cabinet, their
undersecretaries, and assistant secretaries to hold other government offices or
positions; 39 (c) the automatic appropriation for debt service in the General
Appropriations Act; 40 (d) R.A. No. 7056 on the holding of desynchronized elections; 41
(d) R.A. No. 1869 (the charter of the Philippine Amusement and Gaming Corporation) on
the ground that it is contrary to morals, public policy, and order; 42 and (f) R.A. No. 6975,
establishing the Philippine National Police. 43

Other cases where we have followed a liberal policy regarding locus standi include those
attacking the validity or legality of (a) an order allowing the importation of rice in the light
of the prohibition imposed by R.A. No. 3452; 44 (b) P.D. Nos. 991 and 1033 insofar as
they proposed amendments to the Constitution and P.D. No. 1031 insofar as it directed
the COMELEC to supervise, control, hold, and conduct the referendum-plebiscite on 16
October 1976; 45 (c) the bidding for the sale of the 3,179 square meters of land at
Roppongi, Minato-ku, Tokyo, Japan; 46 (d) the approval without hearing by the Board of
Investments of the amended application of the Bataan Petrochemical Corporation to
transfer the site of its plant from Bataan to Batangas and the validity of such transfer and
the shift of feedstock from naphtha only to naphtha and/or liquefied petroleum gas; 47 (e)
the decisions, orders, rulings, and resolutions of the Executive Secretary, Secretary of
Finance, Commissioner of Internal Revenue, Commissioner of Customs, and the Fiscal
Incentives Review Board exempting the National Power Corporation from indirect tax
and duties; 48 (f) the orders of the Energy Regulatory Board of 5 and 6 December 1990
on the ground that the hearings conducted on the second provisional increase in oil
prices did not allow the petitioner substantial cross-examination; 49 (g) Executive Order
No. 478 which levied a special duty of P0.95 per liter or P151.05 per barrel of imported
crude oil and P1.00 per liter of imported oil products; 50 (h) resolutions of the
Commission on Elections concerning the apportionment, by district, of the number of
elective members of Sanggunians; 51 and (i) memorandum orders issued by a Mayor
affecting the Chief of Police of Pasay City. 52

In the 1975 case of Aquino vs. Commission on Elections, 53 this Court, despite its
unequivocal ruling that the petitioners therein had no personality to file the petition,
resolved nevertheless to pass upon the issues raised because of the far-reaching
implications of the petition. We did no less in De Guia vs. COMELEC 54 where, although
we declared that De Guia "does not appear to have locus standi, a standing in law, a
personal or substantial interest," we brushed aside the procedural infirmity "considering
the importance of the issue involved, concerning as it does the political exercise of
qualified voters affected by the apportionment, and petitioner alleging abuse of discretion
and violation of the Constitution by respondent."

We find the instant petition to be of transcendental importance to the public. The issues
it raised are of paramount public interest and of a category even higher than those
involved in many of the aforecited cases. The ramifications of such issues
immeasurably affect the social, economic, and moral well-being of the people
even in the remotest barangays of the country and the counter-productive and
retrogressive effects of the envisioned on-line lottery system are as staggering as
the billions in pesos it is expected to raise. The legal standing then of the petitioners
deserves recognition and, in the exercise of its sound discretion, this Court hereby
brushes aside the procedural barrier which the respondents tried to take advantage of.

And now on the substantive issue.

Section 1 of R.A. No. 1169, as amending by B.P. Blg. 42, prohibits the PCSO from
holding and conducting lotteries "in collaboration, association or joint venture with any
person, association, company or entity, whether domestic or foreign." Section 1
provides:

Sec. 1. The Philippine Charity Sweepstakes Office. The Philippine Charity


Sweepstakes Office, hereinafter designated the Office, shall be the principal government
agency for raising and providing for funds for health programs, medical assistance and
services and charities of national character, and as such shall have the general powers
conferred in section thirteen of Act Numbered One thousand four hundred fifty-nine, as
amended, and shall have the authority:

A. To hold and conduct charity sweepstakes races, lotteries and other similar
activities, in such frequency and manner, as shall be determined, and subject to such
rules and regulations as shall be promulgated by the Board of Directors.

B. Subject to the approval of the Minister of Human Settlements, to engage in health and
welfare-related investments, programs, projects and activities which may be profit-
oriented, by itself or in collaboration, association or joint venture with any person,
association, company or entity, whether domestic or foreign, except for the activities
mentioned in the preceding paragraph (A), for the purpose of providing for permanent
and continuing sources of funds for health programs, including the expansion of existing
ones, medical assistance and services, and/or charitable grants: Provided, That such
investment will not compete with the private sector in areas where investments are
adequate as may be determined by the National Economic and Development Authority.
(emphasis supplied)

The language of the section is indisputably clear that with respect to its franchise
or privilege "to hold and conduct charity sweepstakes races, lotteries and other
similar activities," the PCSO cannot exercise it "in collaboration, association or
joint venture" with any other party. This is the unequivocal meaning and import of
the phrase "except for the activities mentioned in the preceding paragraph (A),"
namely, "charity sweepstakes races, lotteries and other similar activities."

B.P. Blg. 42 originated from Parliamentary Bill No. 622, which was covered by
Committee Report No. 103 as reported out by the Committee on Socio-Economic
Planning and Development of the Interim Batasang Pambansa. The original text of
paragraph B, Section 1 of Parliamentary Bill No. 622 reads as follows:

To engage in any and all investments and related profit-oriented projects or programs
and activities by itself or in collaboration, association or joint venture with any person,
association, company or entity, whether domestic or foreign, for the main purpose of
raising funds for health and medical assistance and services and charitable grants. 55

During the period of committee amendments, the Committee on Socio-Economic


Planning and Development, through Assemblyman Ronaldo B. Zamora, introduced an
amendment by substitution to the said paragraph B such that, as amended, it should
read as follows:

Subject to the approval of the Minister of Human Settlements, to engage in health-


oriented investments, programs, projects and activities which may be profit- oriented, by
itself or in collaboration, association, or joint venture with any person, association,
company or entity, whether domestic or foreign, for the purpose of providing for
permanent and continuing sources of funds for health programs, including the expansion
of existing ones, medical assistance and services and/or charitable grants. 56

Before the motion of Assemblyman Zamora for the approval of the amendment could be
acted upon, Assemblyman Davide introduced an amendment to the amendment:

MR. DAVIDE.

Mr. Speaker.

THE SPEAKER.

The gentleman from Cebu is recognized.

MR. DAVIDE.
May I introduce an amendment to the committee amendment? The amendment would
be to insert after "foreign" in the amendment just read the following: EXCEPT FOR THE
ACTIVITY IN LETTER (A) ABOVE.

When it is joint venture or in collaboration with any entity such collaboration or joint
venture must not include activity activity letter (a) which is the holding and conducting of
sweepstakes races, lotteries and other similar acts.

MR. ZAMORA.

We accept the amendment, Mr. Speaker.

MR. DAVIDE.

Thank you, Mr. Speaker.

THE SPEAKER.

Is there any objection to the amendment? (Silence) The amendment, as amended, is


approved. 57

Further amendments to paragraph B were introduced and approved. When


Assemblyman Zamora read the final text of paragraph B as further amended, the earlier
approved amendment of Assemblyman Davide became "EXCEPT FOR THE
ACTIVITIES MENTIONED IN PARAGRAPH (A)"; and by virtue of the amendment
introduced by Assemblyman Emmanuel Pelaez, the word PRECEDING was inserted
before PARAGRAPH. Assemblyman Pelaez introduced other amendments. Thereafter,
the new paragraph B was approved. 58

This is now paragraph B, Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42.

No interpretation of the said provision to relax or circumvent the prohibition can be


allowed since the privilege to hold or conduct charity sweepstakes races, lotteries, or
other similar activities is a franchise granted by the legislature to the PCSO. It is a
settled rule that "in all grants by the government to individuals or corporations of rights,
privileges and franchises, the words are to be taken most strongly against the grantee
.... [o]ne who claims a franchise or privilege in derogation of the common rights of the
public must prove his title thereto by a grant which is clearly and definitely expressed,
and he cannot enlarge it by equivocal or doubtful provisions or by probable inferences.
Whatever is not unequivocally granted is withheld. Nothing passes by mere implication."
59

In short then, by the exception explicitly made in paragraph B, Section 1 of its


charter, the PCSO cannot share its franchise with another by way of collaboration,
association or joint venture. Neither can it assign, transfer, or lease such
franchise. It has been said that "the rights and privileges conferred under a
franchise may, without doubt, be assigned or transferred when the grant is to the
grantee and assigns, or is authorized by statute. On the other hand, the right of
transfer or assignment may be restricted by statute or the constitution, or be made
subject to the approval of the grantor or a governmental agency, such as a public utilities
commission, exception that an existing right of assignment cannot be impaired by
subsequent legislation." 60

It may also be pointed out that the franchise granted to the PCSO to hold and conduct
lotteries allows it to hold and conduct a species of gambling. It is settled that "a statute
which authorizes the carrying on of a gambling activity or business should be strictly
construed and every reasonable doubt so resolved as to limit the powers and rights
claimed under its authority." 61

Does the challenged Contract of Lease violate or contravene the exception in Section 1
of R.A. No. 1169, as amended by B.P. Blg. 42, which prohibits the PCSO from holding
and conducting lotteries "in collaboration, association or joint venture with" another?

We agree with the petitioners that it does, notwithstanding its denomination or


designation as a (Contract of Lease). We are neither convinced nor moved or fazed by
the insistence and forceful arguments of the PGMC that it does not because in reality it
is only an independent contractor for a piece of work, i.e., the building and maintenance
of a lottery system to be used by the PCSO in the operation of its lottery franchise.
Whether the contract in question is one of lease or whether the PGMC is merely
an independent contractor should not be decided on the basis of the title or
designation of the contract but by the intent of the parties, which may be gathered
from the provisions of the contract itself. Animus hominis est anima scripti. The
intention of the party is the soul of the instrument. In order to give life or effect to an
instrument, it is essential to look to the intention of the individual who executed it.
62
And, pursuant to Article 1371 of the Civil Code, "to determine the intention of
the contracting parties, their contemporaneous and subsequent acts shall be
principally considered." To put it more bluntly, no one should be deceived by the
title or designation of a contract.

A careful analysis and evaluation of the provisions of the contract and a


consideration of the contemporaneous acts of the PCSO and PGMC indubitably
disclose that the contract is not in reality a contract of lease under which the
PGMC is merely an independent contractor for a piece of work, but one where the
statutorily proscribed collaboration or association, in the least, or joint venture, at
the most, exists between the contracting parties. Collaboration is defined as the
acts of working together in a joint project. 63 Association means the act of a
number of persons in uniting together for some special purpose or business. 64
Joint venture is defined as an association of persons or companies jointly
undertaking some commercial enterprise; generally all contribute assets and
share risks. It requires a community of interest in the performance of the subject
matter, a right to direct and govern the policy in connection therewith, and duty,
which may be altered by agreement to share both in profit and losses. 65

The contemporaneous acts of the PCSO and the PGMC reveal that the PCSO had
neither funds of its own nor the expertise to operate and manage an on-line lottery
system, and that although it wished to have the system, it would have it "at no
expense or risks to the government." Because of these serious constraints and
unwillingness to bear expenses and assume risks, the PCSO was candid enough
to state in its RFP that it is seeking for "a suitable contractor which shall build, at
its own expense, all the facilities needed to operate and maintain" the system;
exclusively bear "all capital, operating expenses and expansion expenses and
risks"; and submit "a comprehensive nationwide lottery development plan . . .
which will include the game, the marketing of the games, and the logistics to
introduce the game to all the cities and municipalities of the country within five (5)
years"; and that the operation of the on-line lottery system should be "at no
expense or risk to the government" meaning itself, since it is a government-
owned and controlled agency. The facilities referred to means "all capital
equipment, computers, terminals, software, nationwide telecommunications
network, ticket sales offices, furnishings and fixtures, printing costs, costs of
salaries and wages, advertising and promotions expenses, maintenance costs,
expansion and replacement costs, security and insurance, and all other related
expenses needed to operate a nationwide on-line lottery system."

In short, the only contribution the PCSO would have is its franchise or authority to
operate the on-line lottery system; with the rest, including the risks of the
business, being borne by the proponent or bidder. It could be for this reason that
it warned that "the proponent must be able to stand to the acid test of proving that
it is an entity able to take on the role of responsible maintainer of the on-line
lottery system." The PCSO, however, makes it clear in its RFP that the proponent can
propose a period of the contract which shall not exceed fifteen years, during which time
it is assured of a "rental" which shall not exceed 12% of gross receipts. As admitted by
the PGMC, upon learning of the PCSO's decision, the Berjaya Group Berhad, with its
affiliates, wanted to offer its services and resources to the PCSO. Forthwith, it organized
the PGMC as "a medium through which the technical and management services
required for the project would be offered and delivered to PCSO." 66

Undoubtedly, then, the Berjaya Group Berhad knew all along that in connection
with an on-line lottery system, the PCSO had nothing but its franchise, which it
solemnly guaranteed it had in the General Information of the RFP. 67 Howsoever
viewed then, from the very inception, the PCSO and the PGMC mutually
understood that any arrangement between them would necessarily leave to the
PGMC the technical, operations, and management aspects of the on-line lottery
system while the PCSO would, primarily, provide the franchise. The words Gaming
and Management in the corporate name of respondent Philippine Gaming Management
Corporation could not have been conceived just for euphemistic purposes. Of course,
the RFP cannot substitute for the Contract of Lease which was subsequently executed
by the PCSO and the PGMC. Nevertheless, the Contract of Lease incorporates their
intention and understanding.

The so-called Contract of Lease is not, therefore, what it purports to be. Its denomination
as such is a crafty device, carefully conceived, to provide a built-in defense in the event
that the agreement is questioned as violative of the exception in Section 1 (B) of the
PCSO's charter. The acuity or skill of its draftsmen to accomplish that purpose easily
manifests itself in the Contract of Lease. It is outstanding for its careful and meticulous
drafting designed to give an immediate impression that it is a contract of lease. Yet,
woven therein are provisions which negate its title and betray the true intention of the
parties to be in or to have a joint venture for a period of eight years in the operation and
maintenance of the on-line lottery system.

Consistent with the above observations on the RFP, the PCSO has only its franchise
to offer, while the PGMC represents and warrants that it has access to all
managerial and technical expertise to promptly and effectively carry out the terms
of the contract. And, for a period of eight years, the PGMC is under obligation to
keep all the Facilities in safe condition and if necessary, upgrade, replace, and
improve them from time to time as new technology develops to make the on-line
lottery system more cost-effective and competitive; exclusively bear all costs and
expenses relating to the printing, manpower, salaries and wages, advertising and
promotion, maintenance, expansion and replacement, security and insurance, and
all other related expenses needed to operate the on-line lottery system; undertake
a positive advertising and promotions campaign for both institutional and product
lines without engaging in negative advertising against other lessors; bear the
salaries and related costs of skilled and qualified personnel for administrative and
technical operations; comply with procedural and coordinating rules issued by
the PCSO; and to train PCSO and other local personnel and to effect the transfer
of technology and other expertise, such that at the end of the term of the contract,
the PCSO will be able to effectively take over the Facilities and efficiently operate the on-
line lottery system. The latter simply means that, indeed, the managers, technicians
or employees who shall operate the on-line lottery system are not managers,
technicians or employees of the PCSO, but of the PGMC and that it is only after
the expiration of the contract that the PCSO will operate the system. After eight
years, the PCSO would automatically become the owner of the Facilities without any
other further consideration.

For these reasons, too, the PGMC has the initial prerogative to prepare the detailed plan
of all games and the marketing thereof, and determine the number of players, value of
winnings, and the logistics required to introduce the games, including the Master Games
Plan. Of course, the PCSO has the reserved authority to disapprove them. 68 And, while
the PCSO has the sole responsibility over the appointment of dealers and retailers
throughout the country, the PGMC may, nevertheless, recommend for appointment
dealers and retailers which shall be acted upon by the PCSO within forty-eight hours and
collect and retain, for its own account, a security deposit from dealers and retailers in
respect of equipment supplied by it.

This joint venture is further established by the following:

(a) Rent is defined in the lease contract as the amount to be paid to the PGMC as
compensation for the fulfillment of its obligations under the contract, including, but not
limited to the lease of the Facilities. However, this rent is not actually a fixed amount.
Although it is stated to be 4.9% of gross receipts from ticket sales, payable net of taxes
required by law to be withheld, it may be drastically reduced or, in extreme cases,
nothing may be due or demandable at all because the PGMC binds itself to "bear all
risks if the revenue from the ticket sales, on an annualized basis, are insufficient
to pay the entire prize money." This risk-bearing provision is unusual in a lessor-
lessee relationship, but inherent in a joint venture.

(b) In the event of pre-termination of the contract by the PCSO, or its suspension of
operation of the on-line lottery system in breach of the contract and through no fault of
the PGMC, the PCSO binds itself "to promptly, and in any event not later than sixty (60)
days, reimburse the Lessor the amount of its total investment cost associated with the
On-Line Lottery System, including but not limited to the cost of the Facilities, and further
compensate the LESSOR for loss of expected net profit after tax, computed over the
unexpired term of the lease." If the contract were indeed one of lease, the payment of
the expected profits or rentals for the unexpired portion of the term of the contract would
be enough.

(c) The PGMC cannot "directly or indirectly undertake any activity or business in
competition with or adverse to the On-Line Lottery System of PCSO unless it obtains the
latter's prior written consent." If the PGMC is engaged in the business of leasing
equipment and technology for an on-line lottery system, we fail to see any acceptable
reason why it should allow a restriction on the pursuit of such business.

(d) The PGMC shall provide the PCSO the audited Annual Report sent to its
stockholders, and within two years from the effectivity of the contract, cause itself to be
listed in the local stock exchange and offer at least 25% of its equity to the public. If the
PGMC is merely a lessor, this imposition is unreasonable and whimsical, and could only
be tied up to the fact that the PGMC will actually operate and manage the system;
hence, increasing public participation in the corporation would enhance public interest.

(e) The PGMC shall put up an Escrow Deposit of P300,000,000.00 pursuant to the
requirements of the RFP, which it may, at its option, maintain as its initial performance
bond required to ensure its faithful compliance with the terms of the contract.

(f) The PCSO shall designate the necessary personnel to monitor and audit the daily
performance of the on-line lottery system; and promulgate procedural and coordinating
rules governing all activities relating to the on-line lottery system. The first further
confirms that it is the PGMC which will operate the system and the PCSO may, for the
protection of its interest, monitor and audit the daily performance of the system. The
second admits the coordinating and cooperative powers and functions of the parties.

(g) The PCSO may validly terminate the contract if the PGMC becomes insolvent or
bankrupt or is unable to pay its debts, or if it stops or suspends or threatens to stop or
suspend payment of all or a material part of its debts.

All of the foregoing unmistakably confirm the indispensable role of the PGMC in the
pursuit, operation, conduct, and management of the On-Line Lottery System. They
exhibit and demonstrate the parties' indivisible community of interest in the conception,
birth and growth of the on-line lottery, and, above all, in its profits, with each having a
right in the formulation and implementation of policies related to the business and
sharing, as well, in the losses with the PGMC bearing the greatest burden
because of its assumption of expenses and risks, and the PCSO the least,
because of its confessed unwillingness to bear expenses and risks. In a manner of
speaking, each is wed to the other for better or for worse. In the final analysis, however,
in the light of the PCSO's RFP and the above highlighted provisions, as well as the "Hold
Harmless Clause" of the Contract of Lease, it is even safe to conclude that the actual
lessor in this case is the PCSO and the subject matter thereof is its franchise to hold and
conduct lotteries since it is, in reality, the PGMC which operates and manages the on-
line lottery system for a period of eight years.

We thus declare that the challenged Contract of Lease violates the exception
provided for in paragraph B, Section 1 of R.A. No. 1169, as amended by B.P. Blg.
42, and is, therefore, invalid for being contrary to law. This conclusion renders
unnecessary further discussion on the other issues raised by the petitioners.

WHEREFORE, the instant petition is hereby GRANTED and the challenged Contract of
Lease executed on 17 December 1993 by respondent Philippine Charity Sweepstakes
Office (PCSO) and respondent Philippine Gaming Management Corporation (PGMC) is
hereby DECLARED contrary to law and invalid.

The Temporary Restraining Order issued on 11 April 1994 is hereby MADE


PERMANENT.

No pronouncement as to costs.

SO ORDERED.

THIRD DIVISION

[G.R. No. 135297. June 8, 2000]

GAVINO CORPUZ, petitioner, vs. Spouses GERONIMO GROSPE and HILARIA


GROSPE, respondents.

DECISION

PANGANIBAN, J.:

The sale, transfer or conveyance of land reform rights are, as a rule, void in order to
prevent a circumvention of agrarian reform laws. However, in the present case, the
voluntary surrender or waiver of these rights in favor of the Samahang Nayon is
valid because such action is deemed a legally permissible conveyance in favor of
the government. After the surrender or waiver of said land reform rights, the
Department of Agrarian Reform, which took control of the property, validly
awarded it to private respondents.

The Case

Before the Court is a Petition for Review on Certiorari of the May 14, 1998 Decision[1]
and the August 19, 1998 Resolution[2] in CA-GR SP No. 47176, in which the Court of
Appeals (CA)[3] dismissed the petitioners appeal and denied reconsideration
respectively.

The decretal portion of the assailed Decision reads:[4]

"IN THE LIGHT OF ALL THE FOREGOING, the Petition is denied


due course and is hereby dismissed. The Decision appealed from is
AFFIRMED. With costs against the Petitioner."

The Facts

Petitioner Gavino Corpuz was a farmer-beneficiary under the Operation Land


Transfer (OLT) Program of the Department of Agrarian Reform (DAR). Pursuant to
Presidential Decree (PD) No. 27, he was issued a Certificate of Land Transfer (CLT)
over two parcels of agricultural land (Lot Nos. 3017 and 012) with a total area of 3.3
hectares situated in Salungat, Sto. Domingo, Nueva Ecija. The lots were formerly
owned by a certain Florentino Chioco and registered under Title No. 126638.

To pay for his wifes hospitalization, petitioner mortgaged the subject land on
January 20, 1982, in favor of Virginia de Leon. When the contract period expired,
he again mortgaged it to Respondent Hilaria Grospe, wife of Geronimo Grospe, for
a period of four years (December 5, 1986 to December 5, 1990) to guarantee a loan
of P32,500. The parties executed a contract denominated as "Kasunduan Sa
Pagpapahiram Ng Lupang Sakahan,"[5] which allowed the respondents to use or
cultivate the land during the duration of the mortgage.

Before the Department of Agrarian Reform Adjudication Board (DARAB) in Cabanatuan


City (Region III), petitioner instituted against the respondents an action for
recovery of possession.[6] In his Complaint, he alleged that they had entered the
disputed land by force and intimidation on January 10 and 11, 1991, and destroyed
the palay that he had planted on the land.

Respondents, in their Answer, claimed that the "Kasunduan" between them and
petitioner allowed the former to take over the possession and cultivation of the
property until the latter paid his loan. Instead of paying his loan, petitioner allegedly
executed on June 29, 1989, a "Waiver of Rights"[7] over the landholding in favor of
respondents in consideration of P54,394.

Petitioner denied waiving his rights and interest over the landholding and alleged
that his and his childrens signatures appearing on the Waiver were forgeries.

Provincial Agrarian Reform Adjudicator (PARAD) Ernesto P. Tabara ruled that


petitioner abandoned and surrendered the landholding to the Samahang Nayon of
Malaya, Sto. Domingo, Nueva Ecija, which had passed Resolution Nos. 16 and 27
recommending the reallocation of the said lots to the respondent spouses, who
were the "most qualified farmer[s]-beneficiaries."[8]

The Department of Agrarian Reform Adjudication Board (DARAB),[9] in a Decision


promulgated on October 8, 1997 in DARAB Case No. 1251, affirmed the provincial
adjudicators Decision.[10] Petitioners Motion for Reconsideration was denied in the
Resolution dated February 26, 1998.[11] As earlier stated, petitioners appeal was denied
by the Court of Appeals.

Ruling of the Court of Appeals


The appellate court ruled that petitioner had abandoned the landholding and
forfeited his right as a beneficiary. It rejected his contention that all deeds
relinquishing possession of the landholding by a beneficiary were unenforceable.
Section 9 of Republic Act (RA) 1199 and Section 28 of RA 6389 allow a tenant to
voluntarily sever his tenancy status by voluntary surrender. The waiver by petitioner of
his rights and his conformity to the Samahang Nayon Resolutions reallocating the
landholding to the respondents are immutable evidence of his abandonment and
voluntary surrender of his rights as beneficiary under the land reform laws.

Furthermore, petitioner failed to prove with clear and convincing evidence the
alleged forgery of his and his sons signatures.

Hence, this recourse.[12]

Issues

Feeling aggrieved, the petitioner alleges in his Memorandum that the appellate court
committed these reversible errors:[13]

"I

xxx [I]n relying on the findings of fact of the DARAB and PARAD as
conclusive when the judgment is based on a misapprehension of
facts and the inference taken is manifestly mistaken.

"II

xxx [I]n disregarding and/or ignoring the claim of petitioner that the
alleged waiver documents are all forgeries.

"III

xxx [I]n ruling that petitioner had forfeited his right to become a
beneficiary under PD No. 27.

"IV

xxx [I]n failing to rule on the legality and/or validity of the


waiver/transfer action."

In short, the focal issues are: (1) Was the appellate court correct in finding that the
signatures of petitioner and his sons on the Waiver were not forged? (2) Assuming
arguendo that the signatures in the Waiver were genuine, was it null and void for being
contrary to agrarian laws? (3) Did the petitioner abandon his rights as a beneficiary
under PD 27? (4) Did he, by voluntary surrender, forfeit his right as a beneficiary?

The Courts Ruling


The Petition is devoid of merit.

First Issue: Factual Findings

Alleging that an information for estafa through falsification was filed against the
respondents, petitioner insists that his signature on the Waiver was forged.

We are not persuaded. The filing of an information for estafa does not by itself prove that
the respondents forged his signature. It only means that the public prosecutor found
probable cause against the respondents, but such finding does not constitute binding
evidence of forgery or fraud.[14] We agree with the well-reasoned CA ruling on this
point:[15]

"xxx We are not swayed by Petitioners incantations that his signature


on the Waiver of Rights is a forgery. In the first place, forgery is
never presumed. The Petitioner is mandated to prove forgery with
clear and convincing evidence. The Petitioner failed to do so.
Indeed, the Waiver of Rights executed by the Petitioner was even
with the written conformity of his four (4) sons (at page 11, Rollo).
The Petitioner himself signed the Resolution of the Board of
Samahang Nayon of Malaya, Sto. Domingo, Nueva Ecija,
surrendering his possession of the landholding to the
Samahang Nayon, (idem, supra). Under Memorandum Circular No.
7, dated April 23, 1979 of the Secretary of Agrarian Reform,
transactions involving transfer of rights of possession and or
cultivation of agricultural lands are first investigated by a team leader
of the DAR District who then submits the results of his investigation
to the District Officer who, in turn, submits his report to the Regional
Director who, then, acts on said report. In the present recourse, the
requisite investigation was conducted and the report thereon was
submitted to and approved by the Regional Director. Under Section
3(m), Rule 131 of the Rules of Evidence, public officers are
presumed to have performed their duties regularly and in
accordance with law."

As a rule, if the factual findings of the Court of Appeals coincide with those of the
DARAB -- an administrative body which has acquired expertise on the matter such
findings are accorded respect and will not be disturbed on appeal.[16] The presence or
the absence of forgery was an issue of fact that was convincingly settled by the agrarian
and the appellate tribunals. Petitioner utterly failed to convince us that the appellate
court had misapprehended the facts. Quite the contrary, its findings were well-supported
by the evidence.

Second Issue: Validity of the "Waiver of Rights"

Petitioner insists that agreements purportedly relinquishing possession of


landholdings are invalid for being violative of the agrarian reform laws.

Private respondents contend that petitioner was no longer entitled to recognition as a


farmer-beneficiary because of the series of mortgages he had taken out over the land.
They also cite his "Waiver of Rights" and abandonment of the farm.

We have already ruled that the sale or transfer of rights over a property covered by
a Certificate of Land Transfer is void except when the alienation is made in favor
of the government or through hereditary succession. This ruling is intended to
prevent a reversion to the old feudal system in which the landowners reacquired vast
tracts of land, thus negating the governments program of freeing the tenant from the
bondage of the soil.[17] In Torres v. Ventura,[18] the Court clearly held:

"xxx As such [the farmer-beneficiary] gained the rights to possess,


cultivate and enjoy the landholding for himself. Those rights over that
particular property were granted by the government to him and to no
other. To insure his continued possession and enjoyment of the
property, he could not, under the law, make any valid form of transfer
except to the government or by hereditary succession, to his
successors.

"xxx [T]he then Ministry of Agrarian Reform issued the following


Memorandum Circular [No. 7, Series of 1979, April 23, 1979]:

"Despite the above prohibition, however, there are reports that many
farmer-beneficiaries of PD 27 have transferred the ownership, rights,
and/or possession of their farms/homelots to other persons or have
surrendered the same to their former landowners. All these
transactions/surrenders are violative of PD 27 and therefore, null and
void."

Third Issue: Abandonment

Based on the invalidity of the Waiver, petitioner concludes that the PARAD, the DARAB
and the CA erroneously ruled on the basis of the said document that he had abandoned
or voluntarily surrendered his landholding. Denying that he abandoned the land, he
contends that the transaction was a simple loan to enable him to pay the expenses
incurred for his wifes hospitalization.

We agree. Abandonment[19] requires (a) a clear and absolute intention to renounce a


right or claim or to desert a right or property; and (b) an external act by which that
intention is expressed or carried into effect.[20] The intention to abandon implies a
departure, with the avowed intent of never returning, resuming or claiming the right and
the interest that have been abandoned.[21]

The CA ruled that abandonment required (a) the tenants clear intention to sever the
agricultural tenancy relationship; and (b) his failure to work on the landholding for no
valid reason.[22] The CA also deemed the following as formidable evidence of his intent
to sever the tenancy relationship: (a) the mortgage and (b) his express approval and
conformity to the Samahang Nayon Resolution installing the private respondents as
tenants/farmers-beneficiaries of the landholding. We disagree.
As earlier shown, the Waiver was void. Furthermore, the mortgage expired after four
years. Thus, the private respondents were obligated to return possession of the
landholding to the petitioner. At bottom, we see on the part of the petitioner no clear,
absolute or irrevocable intent to abandon. His surrender of possession did not amount to
an abandonment because there was an obligation on the part of private respondents to
return possession upon full payment of the loan.

Fourth Issue: Voluntary Surrender

Contrary to the finding of the appellate court, the petitioner also denies that he voluntarily
surrendered his landholding.

His contention is untenable. The nullity of the Waiver does not save the case for him
because there is a clear showing that he voluntarily surrendered his landholding
to the Samahang Nayon which, under the present circumstances, may qualify as a
surrender or transfer, to the government, of his rights under the agrarian laws.

PD 27 provides that title to land acquired pursuant to the land reform program shall not
be transferable except through hereditary succession or to the government, in
accordance with the provisions of existing laws and regulations. Section 8 of RA 3844
also provides that "[t]he agricultural leasehold relation xxx shall be extinguished by: xxx
(2) [v]oluntary surrender of the landholding by the agricultural lessee, xxx."

In this case, petitioners intention to surrender the landholding was clear and
unequivocal. He signed his concurrence to the Samahang Nayon Resolutions
surrendering his possession of the landholding. The Samahan then recommended
to the team leader of the DAR District that the private respondent be designated
farmer-beneficiary of said landholding.

To repeat, the land was surrendered to the government, not transferred to another
private person. It was the government, through the DAR, which awarded the
landholding to the private respondents who were declared as qualified
beneficiaries under the agrarian laws. Voluntary surrender, as a mode of
extinguishment of tenancy relations, does not require court approval as long as it
is convincingly and sufficiently proved by competent evidence.[23]

Petitioners voluntary surrender to the Samahang Nayon qualifies as a surrender


or transfer to the government because such action forms part of the mechanism
for the disposition and the reallocation of farmholdings of tenant-farmers who
refuse to become beneficiaries of PD 27. Under Memorandum Circular No. 8-80 of
the then Ministry of Agrarian Reform, the Samahan shall, upon notice from the
agrarian reform team leader, recommend other tenant-farmers who shall be
substituted to all rights and obligations of the abandoning or surrendering tenant-
farmer. Besides, these cooperatives are established to provide a strong social and
economic organization to ensure that the tenant-farmers will enjoy on a lasting
basis the benefits of agrarian reform.

The cooperatives work in close coordination with DAR officers (regional directors,
district officers, team leaders and field personnel) to attain the goals of agrarian
reform (DAR Memorandum Circular No. 10, Series of 1977). The Department of
Local Government (now the Department of Interior and Local Government)
regulates them through the Bureau of Cooperative Development (Section 8, PD
175). They also have access to financial assistance through the Cooperative
Development Fund, which is administered by a management committee
composed of the representatives from the DILG, the Central Bank, the Philippine
National Bank, the DAR and the DENR (Section 6, PD 175).

Petitioner insists that his act of allowing another to possess and cultivate his land did not
amount to abandonment or voluntary surrender, as the rights of an OLT beneficiary are
preserved even in case of transfer of legal possession over the subject property, as held
in Coconut Cooperative Marketing Association (Cocoma) v. Court of Appeals.[24]

We disagree. Petitioner misconstrued the Cocoma ruling because what was prohibited
was the perpetration of the tenancy or leasehold relationship between the landlord and
the farmer-beneficiary. The case did not rule out abandonment or voluntary surrender by
the agricultural tenant or lessee in favor of the government.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision and Resolution
AFFIRMED insofar as it dismissed petitioners appeal. Costs against petitioner.

SO ORDERED.