CORPORATION LAW DIGEST Page 1 of 18

Reynoso vs Court of Appeals dependence on the lives of those who compose it

345 SCRA 335 [GR No. 116124-25 November 23, even as it enjoys certain rights and conducts activities
2000] of natural persons.
Facts:  Any piercing of the corporate veil has to be done with
caution. However, the court will not hesitate to use its
Sometime in early 1960s, the Commercial Credit
supervisory and adjudicative powers where the
Corporation (CCC), a financing company and
corporate fiction is used as an unfair device to
investment firm, decided to organize franchise
achieve an inequitable result defraud creditors, evade
companies indifferent parts of the country, wherein it
contracts and obligations, or to shield it from the
shall hold 30% equity. Employees of the CCC were
effects of a court decision. The corporate fiction has
designated as resident managers of the franchise
to be disregarded when necessary in the interest of
companies. Petitioner Bibiano O. Reynoso IV was
justice.
designated as the resident manager of the franchise
in Quezon City, known as the Commercial Credit The defense of separateness will be disregarded
Corporation of Quezon City. CCC-QC entered into an when the business affairs of a subsidiary corporation
exclusive agreement management contract with CCC are so controlled by the mother corporation to the
whereby the latter was granted the management and extent that it becomes an instrument or agent of its
full control of the business activities of the former. parent. But even when there is dominance over the
Under the contract, CCC-QC shall sell, discount affairs of the subsidiary, the doctrine of piercing the
and/or assign its receivables to CCC. Subsequently, veil of corporate fiction applies only when such fiction
however, this discounting arrangement was is used to defeat public convenience, justify wrong,
discontinued pursuant to the so called DOSRI rule, protect fraud or defend crime.
prohibiting the lending of funds by corporations to its
The organization of subsidiary corporations as what
directors, officers, stockholders and other persons
was done here is usually resorted to for aggrupation
with related interest therein. On account of the new
of capital the ability to cover more territory and
restrictions imposed by the Central Bank policy by
population, the decentralization of activities best
virtue of the DOSRI rule, CCC decided to form CCC
decentralized, and the securing of other legitimate
Equity Corporation, a wholly-owned subsidiary, to
advantages. But when the mother corporation and its
which CCC transferred its 30% equity in CCC-QC,
subsidiary cease to act in good faith and honest
together with 2 seats in the latter’s Board of Directors.
business judgement, when the corporate device is
A complaint for sum of money with preliminary
used by the parent to avoid its liability for legitimate
attachment was filed by CCC-equity against petitioner
obligations of the subsidiary, and when the corporate
and the latter was also dismissed from employment to
fiction is used to perpetrate fraud or promote injustice,
which the lower court’s decision was rendered in favor
the law steps in to remedy the problem. When that
of the petitioner and the same has become final and
happens, the corporate character is not necessarily
executory. CCC changed its name to General Credit
abrogated. It continuous for legitimate objectives.
Corporation (GCC).
However, it is pursued in order to remedy injustice,
such as that inflicted in this case.
Issue: 
Whether or not the judgement in favor of the petitioner
may be executed against respondent GCC.

Ruling: 
Yes. A corporation is an artificial being created by
operation of law, having the right of succession and
the powers, attributes, and properties expressly
authorized by law or incident to its existence. It is an
artificial being 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. It was evolved to
make possible the aggregation and assembling of
huge amounts of capital upon which big business
depends. It also has the advantage of non-
 CORPORATION LAW DIGEST Page 2 of 18

International Express Travel & Tour Services, Inc. Issue:

vs. Court of Appeals [GR 119002, 19 October
Whether the Philippine Football Federation has a
2000]
corporate existence of its own. . 
Facts: 
On 30 June 1989, the International Express Travel
Ruling:
and Tour Services, Inc. (IETTSI), through its
managing director, wrote a letter to the Philippine Both RA 3135 (the Revised Charter of the Philippine
Football Federation (Federation), through its Amateur Athletic Federation) and PD 604 recognized
president, Henri Kahn, wherein the former offered its the juridical existence of national sports associations.
services as a travel agency to the latter. The offer was This may be gleaned from the powers and functions
accepted. IETTSI secured the airline tickets for the granted to these associations (See Section 14 of RA
trips of the athletes and officials of the Federation to 3135 and Section 8 of PD 604). The powers and
the South East Asian Games in Kuala Lumpur as well functions granted to national sports associations
as various other trips to the People's Republic of indicate that these entities may acquire a juridical
China and Brisbane. The total cost of the tickets personality. The power to purchase, sell, lease and
amounted to P449,654.83. For the tickets received, encumber property are acts which may only be done
the Federation made two partial payments, both in by persons, whether natural or artificial, with juridical
September of 1989, in the total amount of capacity. However, while national sports associations
P176,467.50. On 4 October 1989, IETTSI wrote the may be accorded corporate status, such does not
Federation, through Kahn a demand letter requesting automatically take place by the mere passage of
for the amount of P265,894.33. On 30 October 1989, these laws. It is a basic postulate that before a
the Federation, through the Project Gintong Alay, paid corporation may acquire juridical personality, the
the amount of P31,603.00. On 27 December 1989, State must give its consent either in the form of a
Henri Kahn issued a personal check in the amount of special law or a general enabling act. The Philippine
P50,000 as partial payment for the outstanding Football Federation did not come into existence upon
balance of the Federation.  the passage of these laws. Nowhere can it be found
in RA 3135 or PD 604 any provision creating the
Thereafter, no further payments were made despite
Philippine Football Federation. These laws merely
repeated demands. This prompted IETTSI to file a
recognized the existence of national sports
civil case before the Regional Trial Court of Manila.
associations and provided the manner by which these
IETTSI sued Henri Kahn in his personal capacity and
entities may acquire juridical personality. Section 11
as President of the Federation and impleaded the
of RA 3135 and Section 8 of PD 604 require that
Federation as an alternative defendant. IETTSI
before an entity may be considered as a national
sought to hold Henri Kahn liable for the unpaid
sports association, such entity must be recognized by
balance for the tickets purchased by the Federation
the accrediting organization, the Philippine, Amateur
on the ground that Henri Kahn allegedly guaranteed
Athletic Federation under RA 3135, and the
the said obligation. Kahn filed his answer with
Department of Youth and Sports Development under
counterclaim, while the Federation failed to file its
PD 604. This fact of recognition, however, Henri Kahn
answer and was declared in default by the trial court.
failed to substantiate. A copy of the constitution and
In due course, the trial court rendered judgment and
by-laws of the Philippine Football Federation does not
ruled in favor of IETTSI and declared Henri Kahn
prove that said Federation has indeed been
personally liable for the unpaid obligation of the
recognized and accredited by either the Philippine
Federation. The complaint of IETTSI against the
Amateur Athletic Federation or the Department of
Philippine Football Federation and the counterclaims
Youth and Sports Development. Accordingly, the
of Henri Kahn were dismissed, with costs against
Philippine Football Federation is not a national sports
Kahn. Only Henri Kahn elevated the decision to the
association within the purview of the aforementioned
Court of Appeals. On 21 December 1994, the
laws and does not have corporate existence of its
appellate court rendered a decision reversing the trial
own.
court. IETTSI filed a motion for reconsideration and as
an alternative prayer pleaded that the Federation be
held liable for the unpaid obligation. The same was
denied by the appellate court in its resolution of 8
February 1995. IETTSI filed the petition with the
Supreme Court. 
 CORPORATION LAW DIGEST Page 3 of 18

[ GR No. 90580, Apr 08, 1991 ]
RUBEN SAW v. CA +
 
Facts:
A collection suit with preliminary attachment was filed
by Equitable Banking Corporation against Freeman,
Inc. and Saw Chiao Lian, its President and General
Manager.  The petitioners moved to intervene,
alleging that (1) the loan transactions between Saw
Chiao Lian and Equitable Banking Corp. were not
approved by the stockholders representing at least
2/3 of corporate capital; (2) Saw Chiao Lian had no
authority to contract such loans; and (3) there was
collusion between the officials of Freeman, Inc. and
Equitable Banking Corp. in securing the loans.  The
motion to intervene was denied, and the petitioners
appealed to the Court of Appeals.
Meanwhile, Equitable and Saw Chiao Lian entered
into a compromise agreement which they submitted to
and was approved by the lower court.  But because it
was not complied with, Equitable secured a writ of
execution, and two lots owned by Freeman, Inc. were
levied upon and sold at public auction to Freeman
Management and Development Corp.
The Court of Appeals[1] sustained the denial of the
petitioners' motion for intervention, holding that "the
compromise agreement between Freeman, Inc.,
through its President, and Equitable Banking Corp.
will not necessarily prejudice petitioners whose rights
to corporate assets are at most inchoate, prior to the
dissolution of Freeman, Inc.  x x x.  And intervention
under Sec. 2, Rule 12 of the Revised Rules of Court
is proper only when one's right is actual, material,
direct and immediate and not simply contingent or
expectant."
demand upon the Board of Directors to institute action
and prosecute the same effectively would have been
useless, and the law does not require litigants to
perform useless acts.
Equitable demurs, contending that the collection suit
against Freeman, Inc. and Saw Chiao Lian is
essentially in personam and, as an action against
defendants in their personal capacities, will not
prejudice the petitioners as stockholders of the
corporation.  The Everettcase is not applicable
because it involved an action filed by the minority
stockholders where the board of directors refused to
bring an action in behalf of the corporation.  In the
case at bar, it was Freeman, Inc. that was being sued
by the creditor bank.
Equitable also argues that the subject matter of the
intervention falls properly within the original and
exclusive jurisdiction of the Securities and Exchange
Commission under P.D. No. 902-A.  In fact, at the
time the motion for intervention was filed, there was
pending between Freeman, Inc. and the petitioners
SEC Case No. 03577 entitled "Dissolution,
Accounting, Cancellation of Certificate of Registration
with Restraining Order or Preliminary Injunction and
Appointment of Receiver." It also avers in its
Comment that the intervention of the petitioners could
have only caused delay and prejudice to the principal
parties
WHEREFORE, the petition is DENIED, with costs
against the petitioners.  It is so ordered.

It also ruled against the petitioners' argument that

because they had already filed a notice of appeal, the
trial judge had lost jurisdiction over the case and
could no longer issue the writ of execution.
. that was being sued by the creditor bank.

Issue:

Ruling:
The well-known rule that shareholders cannot
ordinarily sue in equity to redress wrongs done to the
corporation, but that the action must be brought by
the Board of Directors, x x x has its exceptions.  [If]
the corporation [were] under the complete control of
the principal defendants, x x x it is obvious that a

Philippine Long Distance Telephone Co. vs
National Telecommunications Commission
190 SCRA 717 [GR No. 88404 October 18, 1990]
Facts:
 On June 22, 1958, Republic Act No. 2090, was
enacted otherwise known as “An Act Granting Felix
Alberto and Company, Incorporated, a franchise to
establish radio stations for domestic and transoceanic
telecommunications.” Felix Alberto & Co. Inc. was the
original corporate name, which was changed to ETCI
with amendment of the articles of incorporation in
1964. Much later, “CELLCOM Inc.” was the name
sought to be adopted before the Securities and
Exchange Commission, but this was withdrawn and
abandoned.. On May 13, 1987, alleging urgent public
need, ETCI filed an application with public respondent
NTC for the issuance of a certificate of public
convenience and necessity to construct, install,
establish, operate, and maintain a cellular mobile
telephone system and an alpha numeric paging
system in Metro Manila and in the Southern Luzon
regions, with prayer for provisional authority to
operate phase A of its proposal within Metro Manila.
PLDT filed an opposition with motion to dismiss,
however NTC over ruled it. NTC granted ETC
provisional authority to install, operate, and maintain a
cellular mobile telephone system initially in Metro
Manila subject to terms and conditions, one of which
is that ETCI and PLDT shall enter into an
interconnection agreement for the provision of
adequate interconnection facilities between
applicant’s cellular mobile telephone switch and the
public switched telephone network and shall jointly
submit such interconnection agreement to the
commission for approval ETCI admits that in 1964,
the Albertos, as original owners of more than 40% of
the outstanding capital stock sold their holdings to
Orbes. In 1968, the Albertos reacquired the shares
they had sold to the Orbes. In 1987, the Albertos sold
more than 40% of their shares to Horacio Yalung.
Thereafter, the present stockholders acquired their
ETCI shares. Moreover, in 1964, ETCI had increased
its capital stock from Php40,000 to Php360,000; and
in 1987, from Php360,000 to Php40,000,000.
Issue:
 Whether or not the transfers in 1987 of the shares of
stock to the new stockholders amount to a transfer of
ETCI’s franchise which needs congressional approval
pursuant to RA 2090.
CORPORATION LAW DIGEST Page 4 of 18
Ruling: 
No. Section 10 of RA 2090 is directed to the grantee
of the franchise, which is the corporation itself and
refers to a sale, lease or assignment of that franchise.
It does not include the transfer or sale of shares of
stock of a corporation by the latter’s stockholders.
The sale of shares of stock of a public utility is
governed by another law, in section 20 (h) of the
Public Service Act (CA 146). Pursuant thereto, the
public service commission (now NTC) is the
government agency vested with the authority to
approve the transfer of more than 40% of the
subscribed capital stock of a telecommunications
company to a single transferee.
In other words, transfer of shares of a public utility
corporation need only NTC approval, not
congressional authorization. What transpired in ETCI
were a series of transfers of shares starting in 1964
until 1987. The approval of the NTC may be deemed
to have been met when it authorized the issuance of
the provisional authority to ETCI. There was full
disclosure before the NTC of the transfers. In fact, the
NTC order of November 12,1987 required ETCI to
submit its present capital and ownership structure.
Further, ETCI even filed a motion before the NTC,
dated November 8, 1987 or more than a year prior to
the grant of provisional authority, seeking approval of
the increase in its capital stock from Php360,000 to
Php40,000,000 and the stock transfers made by its
stockholders.
A distinction should be made between shares of
stock, which are owned by stockholders, the sale of
which requires only NTC approval, and the franchise
itself which is owned by the corporation as the
grantee thereof, the sale or transfer of which requires
congressional sanction. Since stockholders own the
shares of stock, they may dispose of the same as
they see fit. They may not, however, transfer or
assign the property of a corporation, like its franchise.
In other words, even if the original stockholders had
transferred their shares to another group of
shareholders, the franchise granted to the corporation
subsists as long as the corporation as an entity,
continues to exist. The franchise is not thereby
invalidated by the transfer of shares. A corporation
has a personality separate and distinct from that of
each stockholder. It has the right to continuity or
perpetual succession.
 CORPORATION LAW DIGEST Page 5 of 18

Edward J. Nell Co. v. Pacific Farms Inc. or impliedly agrees to assume such debts; (2) where
the transaction amounts to a consolidation or merger
G.R. No. L-20850, November 29, 1965
of the corporations; (3) where the purchasing
corporation is merely a continuation of the selling
corporation; and (4) where the transaction is entered
FACTS:
into fraudulently in order to escape liability for such
On October 9, 1958, appellant secured in Civil Case debts.
No. 58579 of the Municipal Court of Manila against
Neither is it claimed that these transactions have
Insular Farms, Inc. — hereinafter referred to as
resulted in the consolidation or merger of the Insular
Insular Farms a judgment for the sum of P1,853.80 —
Farms and appellee herein. On the contrary,
representing the unpaid balance of the price of a
appellant's theory to the effect that appellee is an alter
pump sold by appellant to Insular Farms — with
ego of the Insular Farms negates such consolidation
interest on said sum, plus P125.00 as attorney's fees
or merger, for a corporation cannot be its own alter
and P84.00 as costs. A writ of execution, issued after
ego.
the judgment had become final, was, on August 14,
1959, returned unsatisfied, stating that Insular Farms
had no leviable property. Soon thereafter, or on
November 13, 1959, appellant filed with said court the
present action against Pacific Farms, Inc. —
hereinafter referred to as appellee — for the collection
of the judgment aforementioned, upon the theory that
appellee is the alter ego of Insular Farms, which
appellee has denied. In due course, the municipal
court rendered judgment dismissing appellant's
complaint.

The record shows that, on March 21, 1958, appellee

purchased 1,000 shares of stock of Insular Farms for
P285,126.99; that, thereupon, appellee sold said
shares of stock to certain individuals, who forthwith
reorganized said corporation; and that the board of
directors thereof, as reorganized, then caused its
assets, including its leasehold rights over a public
land in Bolinao, Pangasinan, to be sold to herein
appellee for P10,000.00.  

ISSUE:
Whether or not that the appellee, Pacific Farms is an
alter ego of Insular Farms?

Ruling:

NO.
We agree with the Court of Appeals that these facts
do not prove that the appellee is an alter ego of
Insular Farms, or is liable for its debts. The rule is set
forth in Fletcher Cyclopedia Corporations, Vol. 15,
Sec. 7122, pp. 160-161, as follows:
Generally where one corporation sells or otherwise
transfers all of its assets to another corporation, the
latter is not liable for the debts and liabilities of the
transferor, except: (1) where the purchaser expressly

San Juan Structural and Steel Fabricators, Inc. vs
Court of Appeals
296 SCRA 631 [GR No. 129459 September 29,
1998]
Facts:
 Plaintiff-appellant San Juan structural and steel
fabricators Inc.’s amended complaint alleged that on
February 14, 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 414 sqm,
covered by TCT no. 362909; that as stipulated in the
agreement of February 14, 1i989, plaintiff-appellant
paid the down payment in the sum of P100,000, the
balance to be paid on or before March 2, 19889; that
on March 1, 1989,Mr. Andres T. Co, president of
Plaintiff-appellant corporation, wrote a letter to
defendant-appellee Motorich Sales Corporation
requesting a computation for the balance to be paid;
that said letter was coursed through the defendant-
appellee’s 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 cashier’s check no. 004223
payable to defendant-appellee Motorich Sales
Corporation; that plaintiff-appellant and defendant-
appellee were supposed to meet in the plaintiff-
appellant’s office but defendant-appellee’s treasurer,
Nenita Lee Gruenbeg did not appear; that defendant-
appelle 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 corporation is impleaded
as a necessary party since TCT no. 362909 is still in
the name of said defendant; while defendant VNM
Realty and Development Corporation is likewise
impleaded as a necessary party in view of the fact
that it is the transferor of the 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 Gruenbeg and
Reynaldo L. Gruenbeg, under TCT no. 3751; that as a
result of defendants-appellees Nenita and Motorich’s
bad faith in refusing to execute a formal transfer of
CORPORATION LAW DIGEST Page 6 of 18
rights/deed of assignment, plaintiff-appellant suffered
moral and nominal damages which may be assessed
against defendant-appellees in the sum of P500,000;
that as a result of an unjustified and unwarranted
failure to execute the required transfer or formal deed
of sale in favor of plaintiff-appellant, defendant-
appellees should be assessed exemplary damages in
the sum of P100,000; that by reason of the said bad
faith in refusing to execute a transfer in favor of
plaintiff-appellant the latter lost opportunity to
construct a residential building in the sum of
P100,000 and that as a consequence of such bad
faith, it has been constrained to obtain the services of
counsel at an agreed fee of P100,000 plus
appearance fee of for every appearance in court
hearings.
Issue: Whether or not the corporation’s treasurer act
can bind the corporation.
Whether or not the doctrine of piercing the veil of
corporate entity is applicable.
Ruling:
No. Such contract 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 the corporation is not the property of its
stockholders or members and may not be sold by the
stockholders or members without express
authorization from the corporation’s board of
directors.
Section 23 of BP 68 provides 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 stockholders of stocks, or where
there is no stock, from among the members of the
corporations, who shall hold office for 1 year and until
their successors are elected and qualified.
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 as is estopped from
disclaiming them.
Because Motorich had never given a written
authorization to respondent Gruenbeg to sell its
parcel of land, we hold that the February 14, 1989
 CORPORATION LAW DIGEST Page 7 of 18

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.
The statutorily granted privilege of a corporate veil
may be used only for legitimate purposes. On
equitable consideration,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.
We stress that the corporate fiction should be set
aside when it becomes a shield against liability for
fraud, or an illegal act on inequity committed on third
person. 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 the 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.’
 CORPORATION LAW DIGEST Page 8 of 18

theinstrument knew (the signatory) to be an

accommodation party.
G.R. No. 117660. December 18, 2000.*AGRO
CONGLOMERATES, INC. and MARIO SORIANO,
petitioners, vs. THE HON. COURT OF APPEALS
andREGENT SAVINGS and LOAN BANK, INC,
respondents.QUISUMBING, J.:

Facts:
Petitioner Agro-Conglomerates, Inc. as vendor, sold
two parcels of land to Wonderland Food
Industries,Inc. The vendor, the vendee, and
the respondent bank Regent Savings & Loan Bank,
executed anAddendum4 to the previous
Memorandum of Agreement. It provided, among
others, that the vendeeundertakes to pay the loan
procured in the name of the VENDOR, the VENDEE
will be the one liable topay the entire proceeds thereof
including interest and other charges. Consequently,
petitioner MarioSoriano signed as maker several
promissory notes,6 payable to the respondent bank.
Thereafter, thebank released the proceeds of the loan
to petitioners. However, petitioners failed to
meet theirobligations as they fell due Mario Soriano
manifested his intention to re-structure the loan, yet
did notshow up nor submit his formal written request

.Issue:
Whether or not petitioner is liable as an
accommodation party.

Ruling:
By this time, we note a subsidiary contract of surety
ship had taken effect since petitioners signed the
promissory notes as maker and accommodation party
for the benefit of Wonderland. Petitioners became
liable as accommodation party. He has the right, after
paying the holder, to obtain reimbursement from the
party accommodated, since the relation between
them has in effect become
One of principal and surety, the accommodation party
being the surety. The surety’s liability to the Creditor
or promise of the principal is said to be direct, primary
and absolute; in other words, he is directly and
equally bound with the principal. And the creditor
may proceed against any one of thesolidary debtors.
An accommodation party is a person who has signed
the instrument as maker, acceptor, or indorser,
without receiving value therefor, and for the purpose
of lending his name to some other person and isliable
on the instrument to a holder for value,
notwithstanding such holder at the time of taking
 CORPORATION LAW DIGEST Page 9 of 18

at the time he received the money and signed the

sale with pacto de retro. He, in fact denied being in
possession of authority to receive payment for the
Good Earth Emporium Inc. vs Court of Appeals respondent corporation nor does the receipt show that
194 SCRA 544 [GR No. 82797 February 27, 1991] he signed in the same capacity as he did in the lease
contract at a time when he was President for
Facts: A lease contract, dated October 16, 1981, was
respondent corporation.
entered into by and between Roces-Reyes Realty Inc.
as lessor, and Good Earth Emporium Inc. (GEE) as A corporation has a personality distinct and separate
lessee for a term of three years beginning November from its individual stockholders or members. Being an
1, 1981 and ending October 31, 1984 at a monthly officer or stockholder of a corporation does not make
rental of Php65,000. The building which was the one’s property also of the corporation, and vice-versa,
subject of the contract of lease is a five story building for they are separate entities. Share owners are in no
located at the corner of Rizal Avenue and Bustos legal sense the owners corporate property which is
Street in Sta. Cruz, Manila. From March 1983 up to owned by the corporation as a distinct legal person.
the complaint was filed, the lessee had defaulted in As a consequence of the separate juridical personality
the payment of rentals, as a consequence of which, of a corporation, the corporate debt or credit is not the
private respondent Roces-Reyes Realty Inc. filed on debt or credit of the stockholder, nor is the
October 14, 1984 an ejectment case against herein stockholder’s debt or credit that of the corporation.
petitioners, Good Earth Emporium Inc. and Lim Ka
Ring. After the latter had tendered their responsive
pleading, the lower court on motion of Roces
rendered judgement on the pleadings dated April 17,
1984 to which petitioners were ordered to vacate the
premises and surrender the same to the plaintiffs. On
May 16, 1984, Roces filed a motion for execution
which was opposed by petitioners on May 28, 1984
simultaneous with the latter’s filing of a notice of
appeal. However, on August 15, 1984, GEE thru
counsel filed a motion to withdraw said appeal citing
as reason that they are satisfied with the decision of
the lower court.

Issue: 
Whether or not the payment made by GEE to the
Roces brothers constitute payment to private
respondent corporation which would result to the
extinguishment of the obligation.

Ruling:
 No. Under article 1240 of the civil code of the
Philippines – Payment shall be made to the person in
whose favor the obligation has been constituted, on
his successor in interest or any person authorized to
receive it.
In the case at bar, the supposed payments were not
made to Roces-Reyes Realty Inc. or to its successors
in interest nor is there positive evidence that payment
was made to a person authorized to receive it. No
such proof was submitted but merely inferred by the
RTC from Marcos Roces having signed the lease
contract as President which was witnessed by Jesus
Marcos Roces. The later, however, was no longer
President or even an officer of the Roces-Realty Inc
 CORPORATION LAW DIGEST Page 10 of 18

Qualitrans Limousine Service, Inc. in its judgment and

not the owner thereof.

Adelio C. Cruz vs Quiterio L. Dalisay

Respondent, however, choose to “pierce the veil of
Adm. Matter No. R-181-P July 31, 1987
corporate entity” usurping a power belonging to the
court and assumed improvidently that since the
complainant is the owner/president of Qualitrans
Facts:
Limousine Service, Inc., they are one and the same. It
A sworn complaint dated July 23, 1984 was filed by is a well settled doctrine both in law and equity that as
Adelio Cruz charging Quiterio Dalisay, Senior Deputy a legal entity, a corporation has a personality distinct
Sheriff of Manila, with malfeasance in office, corrupt and separate from its individual stockholders or
practices and serious irregularities allegedly members.
committed as follows:
a. Respondent attached and/or levied the money
The mere fact that one is president of the corporation
belonging to complainant Cruz when he was not
does not render the property he owns or possesses
himself   the judgment debtor in the final judgment of
the property of the corporation, since that president,
an NLRC case sought to be enforced but rather the
as an individual, and the corporation are separate
company known as “Qualitrans Limousine Service,
entities.
Inc.”; and
b. Respondent also caused the service of the alias
writ of execution upon complainant who is a resident
of Pasay City, despite knowledge that his territorial
jurisdiction covers Manila only and does not extend to
Pasay City.
Respondent in his reply explained that when he
garnished complainant’s cash deposit at the Philtrust
bank he was merely performing a ministerial duty.
And that while it is true that said writ was addressed
to Qualitrans Limousine Service, Inc., it is also a fact
that complainant had executed an affidavit before the
Pasay City assistant fiscal stating that he is the
owner/ president of Qualitrans. Because of that
declaration, the counsel for the plaintiff in the labor
case advised him to serve notice of garnishment on
the Philtrust bank.

Issue:
Whether or not the personal property of Cruz
(complainant) is properly levied or attached as owner
of   the corporation?

Ruling:
NO
Respondent’s actuation in enforcing a judgment
against complainant who is not a judgment debtor in
the case calls for disciplinary action. What is
incumbent upon respondent is to ensure that only the
portion of a decision ordained or decreed in the
dispositive part should be the subject of the
execution. The tenor of the NLRC judgment and the
implementing writ is clear enough. It directed

CONSOLIDATED BANK V CA
Facts:
L.C. Diaz and Company (LC Diaz), an accounting
firm, has a savings account with Consolidated Bank
and Trust Corporation (now called Solidbank
Corporation).
On August 14, 1991, the firm’s messenger, a certain
Ismael Calapre, deposited an amount with the bank
but due to a long line and the fact that he still needs to
deposit a certain amount in another bank, the
messenger left the firm’s passbook with a teller of
Solidbank. But when the messenger returned, the
passbook is already missing. Apparently, the teller
returned the passbook to someone else.
On August 15, 1991, LC Diaz made a formal request
ordering Solidbank not to honor any transaction
concerning their account with them until the firm is
able to acquire a new passbook. It appears however
that in the afternoon of August 14, 1991, the amount
of P300,000.00 was already withdrawn from the firm’s
account.
LC Diaz demanded Solidbank to refund the said
amount which the bank refused. LC Diaz then sued
Solidbank.
In its defense, Solidbank contends that under their
banking rules, they are authorized to honor
withdrawals if presented with the passbook; that when
the P300k was withdrawn, the passbook was
presented. Further, the withdrawer presented a
withdrawal slip which bore the signatures of the
representatives of LC Diaz.
The RTC ruled in favor of Solidbank. It found LC Diaz
to be negligent in handling its passbook. The loss of
the P300k was not the result of Solidbank’s
negligence.
On appeal, the Court of Appeals reversed the
decision of the RTC. The CA used the rules on quasi-
delict (Article 2176 of the Civil Code).
ISSUE:  simple loan, and not a breach of trust.
Whether or not the relations between Solidbank and
LC Diaz, the depositor, is governed by quasi-delict in
determining the liability of Solidbank.
Ruling:
 No. Solidbank is liable for the loss of the P300k but
it’s liability is grounded on culpa contractual.
CORPORATION LAW DIGEST Page 11 of 18
The contract between the bank and its depositor is
governed by the provisions of the Civil Code on
simple loan (Article 1980, Civil Code). There is a
debtor-creditor relationship between the bank and its
depositor.  The bank is the debtor and the depositor is
the creditor.  The depositor lends the bank money and
the bank agrees to pay the depositor on
demand.  The savings deposit agreement between
the bank and the depositor is the contract that
determines the rights and obligations of the parties.
Under their contract, it is the duty of LC Diaz to
secure its passbook. However, this duty is also
applicable to Solidbank when it gains possession of
said passbook which it did when the messenger left it
to the bank’s possession through the bank’s teller.
The act of the teller returning the passbook to
someone else other than Calapre, the firm’s
authorized messenger, is a clear breach of contract.
Such negligence binds the bank under the principle
of respondeat superior or command responsibility.
No contract of trust between bank and depositor
The Supreme Court emphasized that the contractual
relation between the bank and the depositor is that of
a simple loan. This is despite the wording of Section 2
of Republic Act 8791 (The General Banking Law of
2000) which states that the State recognizes the
“fiduciary nature of banking that requires high
standards of integrity and performance.” That “the
bank is under obligation to treat the accounts of its
depositors with  meticulous care, always having in
mind the fiduciary nature of their relationship.”
This fiduciary relationship means that the bank’s
obligation to observe “high standards of integrity and
performance” is deemed written into every deposit
agreement between a bank and its depositor. The
fiduciary nature of banking requires banks to assume
a degree of diligence higher than that of a good father
of a family.
However, the fiduciary nature of a bank-depositor
relationship does not convert the contract between
the bank and its depositors from a simple loan to a
trust agreement, whether express or implied.  Failure
by the bank to pay the depositor is failure to pay a
In short, the General Banking Act simply imposes on
the bank a higher standard of integrity and
performance in complying with its obligations under
the contract of simple loan, beyond those required of
non-bank debtors under a similar contract of simple
loan. The General Banking Law in no way modified
Article 1980 of the Civil Code.

Sunio vs. NLRC [GR no. L-57767, January 31,
1984]
Facts:
On July 30, 1973, EM Ramos & Company, Inc.
(EMRACO) and Cabugao Ice Plant, Inc. (CIPI), sold
an ice plant to Rizal Development and Finance
Corporation (RDFC). With a mortgage in favor of
EMRACO-CIPi to secure the payment of the balance
of the purchase price. By virtue of that sale,
EMRACO-CIPI terminated the services of all their
employees and paid them their separation pay. RDFC
hired its own employees and operated the plant. ·
Months thereafter, RDFC sold the ice plant to
petitioner, ILOCOS COMMERCIAL CORP. (ICC),
headed by its president and General manager,
Petitioner Alberto Sunio. Petitioner also hired their
own employees as private respondent were no longer
in the plant. The sale was subject to the mortgage in
favor of EMRACO-CIPI.
Both RDFC-ICC failed to pay the balance of the
purchase price. Subsequently, EMRACO-CIPI
instituted extra judicial foreclosure proceedings. ·
The properties were sold at public auction and the
highest bidder being EMRACO-CIPI. Then EMRACO-
CIPI sold the ice plant to NILO VILLANUEVA, subject
to right of redemption of RDFC. NILO rehired then
private respondents.
RDFC redeemed the ice plant and EMRACO-CIPI
unable to turn over possession to RDFC which made
the latter to file a recovery of possession against
EMRACO-CIPI with the CFI. · CFI ordered placing
RDFC in possession of the ice plant. EMRACO-CIPI
appealed to CA which denied the petition for lack of
merit.
RDFC and Petitioners finally obtained possession of
the ice plant. Which also ordered defendants or any
person found in the premises to vacate and surrender
the property in litigation. Petitioner did not re-employ
private respondent.
PRIVATE RESPONDENTs filed complaints against
petitioners for illegal dismissal with the Regional
Office, Ministry of Labor and Employment.
REGIONAL DIRECTOR’S DECISION: ICC and
alberto sunio are directed to reinstate the
complainants to their former positions without loss of
seniority privilege and to pay their backwages . Sunio
appealed to NLRC. NLRC’s Decision: affirmed
the Regional Director’s decision and dismissed
the appeal for lack of merit. Reason: when the RDFC
took possession of the property and private
respondents were terminated in 1973 the latter
CORPORATION LAW DIGEST Page 12 of 18
already had a vested right to their security of tenure
and when they were rehired those rights continued.
Hence this petition before SC.
ISSUE:
WHETHER PUBLIC RESPONDENT ACT WITH
GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OF JURISDICTION IN ORDERING THE
REINSTATEMENT OF PRIVATE RESPONDENTS
AND THE PAYMENT OF THEIR BACKWAGES?
RULING:
YES.
While a change of ownership or management is not a
valid cause for termination of employment this rule
does not apply where petitioner company took over
ownership of a business after the respondents had
already accepted their separation pay from erstwhile
owner of business without protest.
It cannot be justifiably said that the plant together with
its staff and personnel from one ownership to another.
No succession of employment rights and obligations
can be said to have taken place between EMRACO-
CIPI-VILLANUEVA, on one hand, and petitioners on
the other.
Petitioners eventually acquired possession by virtue
of the exercise of their right of redemption and of a
mandatory injunction in their favor which ordered
Villanueva and any person found in the premises to
vacate. What is more, when EMRACO-CIPI sold ice
plant to RDFC in 1973, private respondents’
employment was terminated by Emraco-Cipi and they
were given their separation pay.
During the 13 months, RDFC and petitioners were in
possession and operating the plant and hired their
own employees, not the private respondents. ·
Further, Villanueva rehired private respondents which
are subject to a resolutory condition. The condition
having arisen, the rights of private respondents who
claim under him must be deemed to have also
ceased.
Private respondents can neither successfully invoke
security of tenure in their favor. Their tenure should
not be reckoned from 1967 because they were
already terminated in 1973. · Private respondents
were only rehired in 1974 by Villanueva. ·
Petitioners took over by judicial process in 1978 so
that private respondents had actually only four years
of rehired employment with Villanueva, during which
period, petitioners fought hard against Villanueva to
recover possession of the plant. · Insofar as
petitioners are concerned, there was n tenurial
security to speak of that would entitle would entitle
private respondents to reinstatement and backwages.

[G.R. No. 163981. August 12, 2005]
CONSTRUCTION & DEVELOPMENT
CORPORATION OF THE PHILIPPINES (now
PHILIPPINE NATIONAL CONSTRUCTION
CORPORATION), petitioner, vs. RODOLFO M.
CUENCA and MALAYAN INSURANCE CO.,
INC., respondents.
DECISION
CALLEJO, SR., J.:
Before this Court is a petition for review
on certiorari of the Decision[1] of the Court of Appeals
(CA) in CA-G.R. CV No. 44660 and its Resolution
denying a motion for reconsideration thereof.
The Backdrop
Ultra International Trading Corporation (UITC) applied
for a surety bond from Malayan Insurance Co., Inc.
(MICI), to guarantee its credits, indebtedness,
obligations and liabilities of any kind to Goodyear Tire
and Rubber Company of the Philippines (Goodyear).
MICI approved the application and issued MICO Bond
No. 65734[2] for an amount not
exceeding P600,000.00. The surety bond was valid
for 12 months, and was renewed several times, the
last time being on May 15, 1983.[3]
To protect MICIs interests, UITC, Edilberto Cuenca,
and Rodolfo Cuenca, herein respondent, executed an
Indemnity Agreement[4] in favor of MICI. Edilberto was
then the President, while Rodolfo was a member of
the Board of Directors of UITC. Edilberto signed the
indemnity agreement in his official and personal
capacity, while Rodolfo signed in his personal
capacity only. In the said agreement, UITC, Edilberto
and Rodolfo bound themselves jointly and severally to
indemnify MICI of any payment it would make under
the surety bond.
On February 18, 1983, Goodyear sent a letter[5] to
MICI informing it of UITCs default on its obligation. In
the said letter, Goodyear requested MICI to
pay P600,000.00 under the surety bond. MICI sent
several demand letters to UITC, Edilberto and
Rodolfo, requiring them to immediately settle
Goodyears claim.[6] UITC, Edilberto and Rodolfo failed
to settle the account with Goodyear. Thus, on April
25, 1983, MICI paid Goodyear P600,000.00.[7]
On May 3, 1983, MICI sent a demand letter to UITC,
Edilberto and Rodolfo for reimbursement of the
payment it made to Goodyear, plus legal interest.
[8]
 UITC replied that Construction & Development
CORPORATION LAW DIGEST Page 13 of 18
Corporation of the Philippines (CDCP), now Philippine
National Construction Corporation (PNCC), had
initiated a complete review of UITCs financial plans to
enable it to pay its creditors, like MICI.[9] UITC was a
subsidiary of petitioner PNCC,[10] with the latter
owning around 78% of the formers shares of stock.
[11]
 UITC requested MICI to delay the filing of any suit
against it, to give it time to work out an acceptable
repayment plan.[12] MICI agreed and gave UITC until
May 20, 1983 to come up with an offer.[13]
However, UITC, Edilberto and Rodolfo still failed to
pay MICI. On July 1, 1983, MICI filed a
Complaint[14] for sum of money against UITC,
Edilberto and Rodolfo, praying for indemnity of the
amount it paid to Goodyear, plus interest per annum
compounded quarterly from April 25, 1983 until fully
paid, and 20% of the amount involved as attorneys
fees and costs of the suit.
On July 23, 1983, UITC wrote MICI proposing the
following:
a. Immediate payment of P150,000.00.
b. Balance payable P50,000.00 per month until the
obligation is fully liquidated.
c. Interest and penalty charges are to be waived.[15]
In the meantime, Rodolfo filed motion for leave to file
a third-party complaint which the trial court granted.
[16]
 The third-party complaint[17] against CDCP alleged
that it had assumed Rodolfos liability under the
indemnity agreement as indicated in a board
resolution. In support of this allegation, he presented
in evidence a certification of Antonio Roque, Assistant
Corporate Secretary of CDCP, attesting to the
correctness of an excerpt from the minutes of the
Board of Directors meeting of January 10, 1978,
which reads:
GUARANTEE MADE BY CDCP
REPRESENTATIVES IN OTHER CORPORATIONS
___________________________________________
____________________
In fairness to the CDCP Board Members and/or
Officers who represent the Corporation in other
affiliated corporations and who are made to sign
jointly and severally guarantees for and in support of
said affiliated corporations, the Board under Res. No.
BD-59-77/78 made of record CDCPs assumption of
all said guarantees and the liabilities and
responsibilities arising therefrom. In the same vein,
any guaranty fee that may be payable to said
representatives shall accrue to CDCP.[18]
On August 26, 1983, UITC remitted to
MICI P150,000.00 as partial payment of its obligation.

[19]
 Nonetheless, the parties failed to reach an
amicable settlement of their respective claims.
On January 6, 1994, the Regional Trial Court (RTC)
of Manila, Branch 51, rendered a decision holding
UITC and PNCC, jointly and solidarily liable to MICI
under the indemnity agreement. The trial court ruled
that UITC was bound by the indemnity agreement
entered into by its two officers, even though there was
no board resolution specifically authorizing them to do
so because it had, in effect, ratified the acts of the
said officers. Moreover, UITC has acknowledged its
obligation to MICI in the letters it sent to the latter, and
when it had remitted P150,000.00 as partial payment.
It also held PNCC solidarily liable with UITC on the
basis of the board resolution attesting to the fact that
PNCC had assumed all liabilities arising from the
guarantees made by its officers in other affiliated
corporations.[20] The trial court dismissed the
complaint as against the Cuencas. The dispositive
portion of the RTC decision reads:
WHEREFORE, in view of all the foregoing, judgment
is hereby rendered in favor of plaintiff Malayan
Insurance Co., Inc. and against defendant ULTRA
and Third-Party defendant PNCC, ordering the latter
to pay jointly and solidarily the former the following:
a) The sum of P600,000.00 but considering that
defendant ULTRA had already advanced the amount
of P150,000.00 to plaintiff, their liability has then
reduced to the sum of P450,000.00 with legal interest
from the date of the filing of the complaint until fully
paid;
b) The sum equivalent to 20% of all the amounts due
and demandable as and for attorneys fees; and
c) The costs of suit.
The complaint against defendants Edilberto Cuenca
and Rodolfo Cuenca and their counter-claims are
hereby dismissed for lack of merit.
SO ORDERED.[21]
UITC and PNCC appealed the decision to the CA, but
MICI did not. On October 28, 2003, the CA affirmed in
toto the appealed decision.[22] The appellate court held
that UITC had impliedly authorized Edilberto and
Rodolfo to procure the surety bond and the indemnity
agreement; hence, UITC was liable. Moreover, UITC
was estopped from questioning Edilberto and
Rodolfos authority to enter into the indemnity
agreement in its behalf, considering that it had
already partially paid P150,000.00 to MICI. The
appellate court added that Edilberto and Rodolfo,
having signed the indemnity agreement also in their
personal capacity, would ordinarily be personally
liable under the said agreement; but because MICI
CORPORATION LAW DIGEST Page 14 of 18
failed to appeal the decision, it had effectively waived
its right to hold them liable on its claim.[23]
The CA further affirmed the trial courts finding that
PNCC was liable under the indemnity agreement. The
appellate court noted that UITC was a subsidiary
company of PNCC because the latter holds almost
78% of UITCs stocks. As such, UITC would purchase
materials from suppliers such as Goodyear, in behalf
of PNCC. Finally, the CA held that the award of
attorneys fees was justified, considering that payment
of attorneys fees is specifically stated in the indemnity
agreement.
On June 3, 2004, the CA denied PNCCs motion for
reconsideration for lack of merit.[24] Hence, this petition
for review, where the petitioner assigns the following
errors:
I.
THE COURT OF APPEALS GRAVELY ERRED IN
FINDING PETITIONER PNCC, JOINTLY AND
SEVERALLY, LIABLE WITH ULTRA FOR THE
INDEMNIFICATION AMOUNT REIMBURSABLE TO
RESPONDENT MALAYAN AND IN EXEMPTING
RESPONDENT RODOLFO CUENCA FROM ANY
LIABILITY THEREFOR.
II.
THE COURT OF APPEALS GRAVELY ERRED IN
FINDING PETITIONER PNCC, JOINTLY AND
SEVERALLY, LIABLE WITH ULTRA FOR THE
PAYMENT OF ATTORNEYS FEES AND COSTS OF
SUIT.[25]
The sole issue in this petition is whether or not the
petitioner is jointly and solidarily liable with UITC, a
subsidiary corporation, to respondent MICI under the
indemnity agreement for reimbursement, attorneys
fees and costs.
The petitioner maintains that it cannot be held liable
under the indemnity agreement primarily because it
was not a party to it. Likewise, it cannot answer for
UITCs liability under the indemnity agreement merely
because it is the majority stockholder of UITC. It
maintains that it has a personality separate and
distinct from that of UITC; hence, it cannot be held
liable for the latters obligations. The mere fact that the
materials purchased from Goodyear were delivered to
it does not warrant the piercing of the corporate veil
so as to treat the two corporations as one entity,
absent sufficient and clear showing that it was
purposely used as a shield to defraud creditors.[26]
Further, the petitioner asserts that respondent
Cuencas claim that it has assumed his personal
liability under the indemnity agreement is unfounded.
It assails the reliability of Exhibit 5, the certification
attesting to the existence of the board resolution,

wherein the petitioner allegedly assumed the personal
guarantee of respondent Cuenca. The petitioner
avers that the certification is a mere excerpt of the
alleged board resolution. It points out that even the
CA did not rely on this certification when it held that
the Cuencas should be liable, but were absolved of
their liabilities because MICI had waived the cause of
action against them.[27] Assuming that it has assumed
the liability of respondent Cuenca, such liability is now
extinguished after MICI waived its claim against the
said respondent.[28]
Finally, the petitioner asserts that there is no basis for
the payment of attorneys fees and costs of suit. It was
not a party to the indemnity agreement and the case
does not fall under the instances enumerated under
Article 2208 of the Civil Code when attorneys fees are
proper.[29]
For his part, respondent Cuenca reiterates that he is
not liable because the petitioner has already assumed
his personal liability under the indemnity agreement,
as evidenced by a certification issued by the Assistant
Corporate Secretary attesting that CDCP Board
Resolution No. BD-59-77/78 exists. He points out that
the petitioner has already admitted the due execution
and authenticity of the certification; hence, it cannot
now impugn the existence of the board resolution
referred to therein.
Respondent Cuenca further argues that PNCC should
be liable because it was the one which benefited from
the transaction, having received the materials
purchased from Goodyear; he did not derive any
benefit from it. He emphasizes that the petitioners
liability arose out of its voluntary assumption of the
liabilities of the guarantors under the indemnity
agreement, and not from the fact that it is the majority
stockholder of UITC. Finally, he asserts that the CAs
decision holding UITC and the petitioner solidarily
liable for the payment of attorneys fees had factual
and legal basis.[30]
On the other hand, respondent MICI avers that the
petition is fatally defective for failure to implead as co-
respondent, UITC, an indispensable party to the case.
It, likewise, asserts that the petition raises no new
issues of law, and that the CA and the trial court have
amply ruled upon the issues raised in the petition.
Further, MICI contends that, since the petitioner has
assumed the liability of the UITC officers, it cannot
now invoke the doctrine of separate personality.[31]
The petition is impressed with merit.
At the outset, we note that the petitioner became a
party to this case only when respondent Cuenca, as
defendant, filed a third-party complaint against it on
the allegation that it had assumed his liability. Section
CORPORATION LAW DIGEST Page 15 of 18
11, Rule 6 of the Rules of Court defines a third-party
complaint as follows:
SEC. 11. Third (fourth, etc.)-party complaint. A third
(fourth, etc.)-party complaint is a claim that a
defending party may, with leave of court, file against a
person not a party to the action, called the third
(fourth, etc.)-party defendant, for contribution,
indemnity, subrogation or any other relief, in respect
of his opponents claim.
In Firestone Tire and Rubber Company of the
Philippines v. Tempongko,[32] we emphasized the
nature of a third-party complaint, particularly its
independence from the main case:
The third-party complaint is, therefore, a procedural
device whereby a third party who is neither a party
nor privy to the act or deed complained of by the
plaintiff, may be brought into the case with leave of
court, by the defendant, who acts as third-party
plaintiff to enforce against such third-party defendant
a right for contribution, indemnity, subrogation or any
other relief, in respect of the plaintiffs claim. The third-
party complaint is actually independent of and
separate and distinct from the plaintiffs
complaint. Were it not for this provision of the Rules of
Court, it would have to be filed independently and
separately from the original complaint by the
defendant against the third-party. But the Rules
permit defendant to bring in a third-party defendant or
so to speak, to litigate his separate cause of action in
respect of plaintiffs claim against a third party in the
original and principal case with the object of avoiding
circuitry of action and unnecessary proliferation of
lawsuits and of disposing expeditiously in one
litigation the entire subject matter arising from one
particular set of facts. When leave to file the third-
party complaint is properly granted, the Court renders
in effect two judgments in the same case, one on the
plaintiffs complaint and the other on the third-party
complaint. When he finds favorably on both
complaints, as in this case, he renders judgment on
the principal complaint in favor of plaintiff against
defendant and renders another judgment on the third-
party complaint in favor of defendant as third-party
plaintiff, ordering the third-party defendant to
reimburse the defendant whatever amount said
defendant is ordered to pay plaintiff in the
case. Failure of any of said parties in such a case to
appeal the judgment as against him makes such
judgment final and executory.[33]
It follows then that the plaintiff in the main action may
not be regarded as a party to the third-party
complaint;[34] nor may the third-party defendant be
regarded as a party to the main action. As for the
defendant, he is party to both the main action and the
third-party complaint but in different capacities in the
 CORPORATION LAW DIGEST Page 16 of 18

main action, he is the defendant; in the third-party final and executory. The Court has, likewise, pointed
complaint, he is the plaintiff. out that respondent Cuenca impleaded the petitioner
as a remedy over, and not as one directly liable to
In the present case, the petitioner PNCC which was
MICI. Since the petitioners liability is grounded on that
the third-party defendant appealed before this Court
of respondent Cuencas, it is imperative that the latter
from the decision of the CA. Case law is that if only
be first adjudged liable to MICI before the petitioner
the third-party defendant files an appeal, the decision
may be held liable. Indeed, the Court ruled in Samala
in the main case becomes final.[35] Therefore, the CAs
v. Victor,[42] thus:
decision in the main action, holding UITC liable to
MICI and dismissing the case as against the It is not indispensable in the premises that the
Cuencas, became final and executory when none of defendant be first adjudged liable to the plaintiff
the said parties filed an appeal with this Court. before the third-party defendant may be held liable to
the plaintiff, as precisely, the theory of defendant is
We do not agree with the CA ruling that the petitioner
that it is the third party defendant, and not he, who is
is liable under the indemnity agreement. On this point,
directly liable to plaintiff. The situation contemplated
the CA ratiocinated that the petitioner is liable,
by appellants would properly pertain to situation (a)
considering that it is the majority stockholder of UITC
above wherein the third party defendant is being sued
and the materials from Goodyear were purchased by
for contribution, indemnity or subrogation, or simply
UITC for and in its behalf.
stated, for a defendants remedy over.[43]
This is clearly erroneous. The petitioner cannot be
WHEREFORE, premises considered, the petition is
made directly liable to MICI under the indemnity
GRANTED. The decision of the Court of Appeals is
agreement on the ground that it is UITCs majority
MODIFIED in that petitioner PNCC is absolved from
stockholder. It bears stressing that the petitioner was
any liability under the indemnity agreement. The third-
not a party defendant in the main action. MICI did not
party complaint against the petitioner is DISMISSED
assert any claim against the petitioner, nor was the
for lack of merit.
petitioner impleaded in the third-party complaint on
the ground of its direct liability to MICI. In the latter SO ORDERED.
case, it would be as if the third-party defendant was
itself directly impleaded by the plaintiff as a
defendant.[36] In the present case, petitioner PNCC
was brought into the action by respondent Cuenca
simply for a remedy over.[37] No cause of action was
asserted by MICI against it. The petitioners liability
could only be based on its alleged assumption of
respondent Cuencas liability under the indemnity
agreement.
In any case, petitioner PNCC, as majority stockholder,
may not be held liable for UITCs obligation. A
corporation, upon coming into existence, is invested
by law with a personality separate and distinct from
those persons composing it as well as from any other
legal entity to which it may be related. [38] The veil of
corporate fiction may only be disregarded in cases
where the corporate vehicle is being used to defeat
public convenience, justify a wrong, protect fraud, or
defend a crime.[39] 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.[40] To disregard the separate
juridical personality of a corporation, the wrongdoing
must be clearly and convincingly established.[41]
Neither can the petitioner be made liable under the
indemnity agreement on the ground that it had
assumed the personal liability of respondent Cuenca.
To reiterate, the decision of the CA dismissing the
case against respondent Cuenca has already become

G.R. No. 180036               January 16, 2013
SITUS DEV. CORPORATION, DAILY
SUPERMARKET, INC. and COLOR LITHOGRAPH
PRESS, INC.,Petitioners,  was made in the petition for rehabilitation in that case.
vs.
ASIATRUST BANK, ALLIED BANKING
CORPORATION, METROPOLITAN BANK AND
TRUST COMPANY and CAMERON GRANVILLE II
ASSET MANAGEMENT, INC.
("CAMERON"), Respondents.
RESOLUTION
SERENO, CJ.:
For resolution is the Motion for Reconsideration 1 of
our 25 July 2012 Decision2 in the case involving
petitioners herein, Situs Development Corporation,
Daily Supermarket, Inc. and Color Lithographic Press,
Inc.
Most of the arguments raised by petitioners are too
insubstantial to merit our consideration or are merely
rehashed from their previous pleadings and have
already been passed upon by this Court. However,
certain issues merit a brief discussion, to wit:
1. That the properties belonging to petitioner
corporations’ majority stockholders may be included
in the rehabilitation plan pursuant to Metropolitan
Bank and Trust Company v. ASB Holdings, Inc.3 (the
Metrobank Case);
2. That the subject properties should be included in
the ambit of the Stay Order by virtue of the provisions
of the Financial Rehabilitation and Insolvency Act of
2010 (FRIA), which should be given a retroactive
effect; and
3. That Allied Bank and Metro Bank were not the
owners of the mortgaged properties when the Stay
Order was issued by the rehabilitation court.
On the first issue, petitioners incorrectly argue that the
properties belonging to their majority stockholders
may be included in the rehabilitation plan, because
these properties were mortgaged to secure
petitioners’ loans. In support of their argument, they
cite a footnote appearing in the Metrobank Case,
which states:4
In their petition for rehabilitation, the corporations
comprising the ASB Group of Companies alleged that
their allied companies … have joined in the said
petition ‘because they executed mortgages and/or
CORPORATION LAW DIGEST Page 17 of 18
pledges over their real and personal properties to
secure the obligations of petitioner ASB Group of
Companies. Further, (they) agreed to contribute, to
the extent allowed by law, some of their specified
properties and assets to help rehabilitate petitioner
ASB Group of Companies.’ (Rollo, pp. 119-120)
A reading of the footnote shows that it is not a ruling
on the propriety of the joinder of parties; rather, it is a
statement of the fact that the afore-quoted allegation
On the second issue, petitioners argue that the trial
court was correct in including the subject properties in
the ambit of the Stay Order. Under the FRIA, the Stay
Order may now cover third-party or accommodation
mortgages, in which the "mortgage is necessary for
the rehabilitation of the debtor as determined by the
court upon recommendation by the rehabilitation
receiver."5 The FRIA likewise provides that its
provisions may be applicable to further proceedings in
pending cases, except to the extent that, in the
opinion of the court, their application would not be
feasible or would work injustice.6
Sec. 146 of the FRIA, which makes it applicable to "all
further proceedings in insolvency, suspension of
payments and rehabilitation cases x x x except to the
extent that in the opinion of the court their application
would not be feasible or would work injustice," still
presupposes a prospective application. The wording
of the law clearly shows that it is applicable to all
further proceedings. In no way could it be made
retrospectively applicable to the Stay Order issued by
the rehabilitation court back in 2002.
At the time of the issuance of the Stay Order, the
rules in force were the 2000 Interim Rules of
Procedure on Corporate Rehabilitation (the "Interim
Rules"). Under those rules, one of the effects of a
Stay Order is the stay of the "enforcement of all
claims, whether for money or otherwise and whether
such enforcement is by court action or otherwise,
against the debtor, its guarantors and sureties not
solidarily liable with the debtor."7 Nowhere in the
Interim Rules is the rehabilitation court authorized to
suspend foreclosure proceedings against properties
of third-party mortgagors. In fact, we have expressly
ruled in Pacific Wide Realty and Development Corp.
v. Puerto Azul Land, Inc.8 that the issuance of a Stay
Order cannot suspend the foreclosure of
accommodation mortgages. Whether or not the
properties subject of the third-party mortgage are
used by the debtor corporation or are necessary for
its operation is of no moment, as the Interim Rules do
not make a distinction. To repeat, when the Stay
Order was issued, the rehabilitation court was only
empowered to suspend claims against the debtor, its
guarantors, and sureties not solidarily liable with the
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debtor. Thus, it was beyond the jurisdiction of the

rehabilitation court to suspend foreclosure
proceedings against properties of third-party
mortgagors.
The third issue, therefore, is
immaterial.1âwphi1 Whether or not respondent banks
had acquired ownership of the subject properties at
the time of the issuance of the Stay Order, the same
conclusion will still be reached. The subject properties
will still fall outside the ambit of the Stay Order issued
by the rehabilitation court.
Since the subject properties are beyond the reach of
the Stay Order, and since foreclosure and
consolidation of title may no longer be stalled,
petitioners’ rehabilitation plan is no longer feasible.
We therefore affirm our earlier finding that the
dismissal of the Petition for the Declaration of State of
Suspension of Payments with Approval of Proposed
Rehabilitation Plan is in order.
WHEREFORE, the Court resolves to DENY WITH
FINALITY the instant Motion for Reconsideration for
lack of merit. No further pleadings shall be
entertained. Let entry of judgment be made in due
course.
SO ORDERED.