Chapter 1 Cases Chavez

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Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. 175352

DANTE V. LIBAN, REYNALDO M. BERNARDO, and SALVADOR M. VIARI, Petitioners,vs.RICHARD J. GORDON, Respondent.

D E C I S I O N

CARPIO, J .:

The Case

This is a petition to declare Senator Richard J. Gordon (respondent) as having forfeited his seat inthe Senate.

The Facts

Petitioners Dante V. Liban, Reynaldo M. Bernardo, and Salvador M. Viari (petitioners) filed with thisCourt a Petition to Declare Richard J. Gordon as Having Forfeited His Seat in the Senate.Petitioners are officers of the Board of Directors of the Quezon City Red Cross Chapter whilerespondent is Chairman of the Philippine National Red Cross (PNRC) Board of Governors.

During respondent’s incumbency as a member of the Senate of the Philippines,1 he was electedChairman of the PNRC during the 23 February 2006 meeting of the PNRC Board of Governors.

Petitioners allege that by accepting the chairmanship of the PNRC Board of Governors, respondenthas ceased to be a member of the Senate as provided in Section 13, Article VI of the Constitution,which reads:

SEC. 13. No Senator or Member of the House of Representatives may hold any other office or employment in the Government, or any subdivision, agency, or instrumentality thereof, includinggovernment-owned or controlled corporations or their subsidiaries, during his term without forfeitinghis seat. Neither shall he be appointed to any office which may have been created or theemoluments thereof increased during the term for which he was elected.

Petitioners cite Camporedondo v. NLRC,2 which held that the PNRC is a government-owned or controlled corporation. Petitioners claim that in accepting and holding the position of Chairman of the

PNRC Board of Governors, respondent has automatically forfeited his seat in the Senate, pursuantto Flores v. Drilon,3 which held that incumbent national legislators lose their elective posts upon their appointment to another government office.

In his Comment, respondent asserts that petitioners have no standing to file this petition whichappears to be an action for quo warranto, since the petition alleges that respondent committed anact which, by provision of law, constitutes a ground for forfeiture of his public office. Petitioners donot claim to be entitled to the Senate office of respondent. Under Section 5, Rule 66 of the Rules of Civil Procedure, only a person claiming to be entitled to a public office usurped or unlawfully held by

http://www.lawphil.net/judjuris/juri2009/jul2009/gr_175352_2009.html#fnt1














another may bring an action for quo warranto in his own name. If the petition is one for quo warranto,it is already barred by prescription since under Section 11, Rule 66 of the Rules of Civil Procedure,the action should be commenced within one year after the cause of the public officer’s forfeiture of office. In this case, respondent has been working as a Red Cross volunteer for the past 40 years.Respondent was already Chairman of the PNRC Board of Governors when he was elected Senator in May 2004, having been elected Chairman in 2003 and re-elected in 2005.

Respondent contends that even if the present petition is treated as a taxpayer’s suit, petitionerscannot be allowed to raise a constitutional question in the absence of any claim that they sufferedsome actual damage or threatened injury as a result of the allegedly illegal act of respondent.Furthermore, taxpayers are allowed to sue only when there is a claim of illegal disbursement of public funds, or that public money is being diverted to any improper purpose, or where petitionersseek to restrain respondent from enforcing an invalid law that results in wastage of public funds.

Respondent also maintains that if the petition is treated as one for declaratory relief, this Court wouldhave no jurisdiction since original jurisdiction for declaratory relief lies with the Regional Trial Court.

Respondent further insists that the PNRC is not a government-owned or controlled corporation and

that the prohibition under Section 13, Article VI of the Constitution does not apply in the present casesince volunteer service to the PNRC is neither an office nor an employment.

In their Reply, petitioners claim that their petition is neither an action for quo warranto nor an actionfor declaratory relief. Petitioners maintain that the present petition is a taxpayer’s suit questioning theunlawful disbursement of funds, considering that respondent has been drawing his salaries andother compensation as a Senator even if he is no longer entitled to his office. Petitioners point outthat this Court has jurisdiction over this petition since it involves a legal or constitutional issue whichis of transcendental importance.

The Issues

Petitioners raise the following issues:

1. Whether the Philippine National Red Cross (PNRC) is a government- owned or controlledcorporation;

2. Whether Section 13, Article VI of the Philippine Constitution applies to the case of respondent who is Chairman of the PNRC and at the same time a Member of the Senate;

3. Whether respondent should be automatically removed as a Senator pursuant to Section13, Article VI of the Philippine Constitution; and

4. Whether petitioners may legally institute this petition against respondent.4

The substantial issue boils down to whether the office of the PNRC Chairman is a government officeor an office in a government-owned or controlled corporation for purposes of the prohibition inSection 13, Article VI of the Constitution.

The Court’s Ruling

We find the petition without merit.







Petit ioners Have No Standing to File this Peti t ion

A careful reading of the petition reveals that it is an action for quo warranto. Section 1, Rule 66 of theRules of Court provides:

Section 1. Action by Government against individuals. – An action for the usurpation of a public office,

position or franchise may be commenced by a verified petition brought in the name of the Republicof the Philippines against:

(a) A person who usurps, intrudes into, or unlawfully holds or exercises a public office,position or franchise;

(b) A public officer who does or suffers an act which by provision of law, constitutes a groundfor the forfeiture of his office; or

(c) An association which acts as a corporation within the Philippines without being legallyincorporated or without lawful authority so to act. (Emphasis supplied)

Petitioners allege in their petition that:

4. Respondent became the Chairman of the PNRC when he was elected as such during theFirst Regular Luncheon-Meeting of the Board of Governors of the PNRC held on February23, 2006, the minutes of which is hereto attached and made integral part hereof as Annex"A."

5. Respondent was elected as Chairman of the PNRC Board of Governors, during hisincumbency as a Member of the House of Senate of the Congress of the Philippines, havingbeen elected as such during the national elections last May 2004.

6. Since his election as Chairman of the PNRC Board of Governors, which position he duly

accepted, respondent has been exercising the powers and discharging the functions andduties of said office, despite the fact that he is still a senator.

7. It is the respectful submission of the petitioner[s] that by accepting the chairmanship of theBoard of Governors of the PNRC, respondent has ceased to be a Member of the House of Senate as provided in Section 13, Article VI of the Philippine Constitution, x x x

x x x x

10. It is respectfully submitted that in accepting the position of Chairman of the Board of Governors of the PNRC on February 23, 2006, respondent has automatically forfeited hisseat in the House of Senate and, therefore, has long ceased to be a Senator, pursuant to the

ruling of this Honorable Court in the case of FLORES, ET AL. VS. DRILON AND GORDON,G.R. No. 104732, x x x

11. Despite the fact that he is no longer a senator, respondent continues to act as such andstill performs the powers, functions and duties of a senator, contrary to the constitution, lawand jurisprudence.

12. Unless restrained, therefore, respondent will continue to falsely act and represent himself as a senator or member of the House of Senate, collecting the salaries, emoluments and



other compensations, benefits and privileges appertaining and due only to the legitimatesenators, to the damage, great and irreparable injury of the Government and the Filipinopeople.5 (Emphasis supplied)

Thus, petitioners are alleging that by accepting the position of Chairman of the PNRC Board of Governors, respondent has automatically forfeited his seat in the Senate. In short, petitioners filed

an action for usurpation of public office against respondent, a public officer who allegedly committedan act which constitutes a ground for the forfeiture of his public office. Clearly, such an action is for quo warranto, specifically under Section 1(b), Rule 66 of the Rules of Court.

Quo warranto is generally commenced by the Government as the proper party plaintiff. However,under Section 5, Rule 66 of the Rules of Court, an individual may commence such an action if heclaims to be entitled to the public office allegedly usurped by another, in which case he can bring theaction in his own name. The person instituting quo warranto proceedings in his own behalf mustclaim and be able to show that he is entitled to the office in dispute, otherwise the action may bedismissed at any stage.6 In the present case, petitioners do not claim to be entitled to the Senateoffice of respondent. Clearly, petitioners have no standing to file the present petition.

Even if the Court disregards the infirmities of the petition and treats it as a taxpayer’s suit, thepetition would still fail on the merits.

PNRC is a Private Organization Performing Public Functions

On 22 March 1947, President Manuel A. Roxas signed Republic Act No. 95,7 otherwise known asthe PNRC Charter. The PNRC is a non-profit, donor-funded, voluntary, humanitarian organization,whose mission is to bring timely, effective, and compassionate humanitarian assistance for the mostvulnerable without consideration of nationality, race, religion, gender, social status, or politicalaffiliation.8 The PNRC provides six major services: Blood Services, Disaster Management, SafetyServices, Community Health and Nursing, Social Services and Voluntary Service.9

The Republic of the Philippines, adhering to the Geneva Conventions, established the PNRC as avoluntary organization for the purpose contemplated in the Geneva Convention of 27 July1929.10 The Whereas clauses of the PNRC Charter read:

WHEREAS, there was developed at Geneva, Switzerland, on August 22, 1864, a convention bywhich the nations of the world were invited to join together in diminishing, so far lies within their power, the evils inherent in war;

WHEREAS, more than sixty nations of the world have ratified or adhered to the subsequent revisionof said convention, namely the "Convention of Geneva of July 29 [sic], 1929 for the Amelioration of the Condition of the Wounded and Sick of Armies in the Field" (referred to in this Charter as theGeneva Red Cross Convention);

WHEREAS, the Geneva Red Cross Convention envisages the establishment in each country of avoluntary organization to assist in caring for the wounded and sick of the armed forces and to furnishsupplies for that purpose;

WHEREAS, the Republic of the Philippines became an independent nation on July 4, 1946 andproclaimed its adherence to the Geneva Red Cross Convention on February 14, 1947, and by thataction indicated its desire to participate with the nations of the world in mitigating the sufferingcaused by war and to establish in the Philippines a voluntary organization for that purpose ascontemplated by the Geneva Red Cross Convention;



























WHEREAS, there existed in the Philippines since 1917 a Charter of the American National RedCross which must be terminated in view of the independence of the Philippines; and

WHEREAS, the volunteer organizations established in the other countries which have ratified or adhered to the Geneva Red Cross Convention assist in promoting the health and welfare of their people in peace and in war, and through their mutual assistance and cooperation directly and

through their international organizations promote better understanding and sympathy among thepeoples of the world. (Emphasis supplied)

The PNRC is a member National Society of the International Red Cross and Red CrescentMovement (Movement), which is composed of the International Committee of the Red Cross (ICRC),the International Federation of Red Cross and Red Crescent Societies (International Federation),and the National Red Cross and Red Crescent Societies (National Societies). The Movement isunited and guided by its seven Fundamental Principles:

1. HUMANITY – The International Red Cross and Red Crescent Movement, born of a desireto bring assistance without discrimination to the wounded on the battlefield, endeavors, in itsinternational and national capacity, to prevent and alleviate human suffering wherever it may

be found. Its purpose is to protect life and health and to ensure respect for the human being.It promotes mutual understanding, friendship, cooperation and lasting peace amongst allpeoples.

2. IMPARTIALITY – It makes no discrimination as to nationality, race, religious beliefs, classor political opinions. It endeavors to relieve the suffering of individuals, being guided solelyby their needs, and to give priority to the most urgent cases of distress.

3. NEUTRALITY – In order to continue to enjoy the confidence of all, the Movement may nottake sides in hostilities or engage at any time in controversies of a political, racial, religious or ideological nature.

4. INDEPENDENCE – The Movement is independent. The National Societies, whileauxiliaries in the humanitarian services of their governments and subject to the laws of their respective countries, must always maintain their autonomy so that they may be able at alltimes to act in accordance with the principles of the Movement.

5. VOLUNTARY SERVICE – It is a voluntary relief movement not prompted in any manner by desire for gain.

6. UNITY – There can be only one Red Cross or one Red Crescent Society in any onecountry. It must be open to all. It must carry on its humanitarian work throughout its territory.

7. UNIVERSALITY – The International Red Cross and Red Crescent Movement, in which allSocieties have equal status and share equal responsibilities and duties in helping each

other, is worldwide. (Emphasis supplied)

The Fundamental Principles provide a universal standard of reference for all members of theMovement. The PNRC, as a member National Society of the Movement, has the duty to uphold theFundamental Principles and ideals of the Movement. In order to be recognized as a NationalSociety, the PNRC has to be autonomous and must operate in conformity with the FundamentalPrinciples of the Movement.11







The reason for this autonomy is fundamental. To be accepted by warring belligerents as neutralworkers during international or internal armed conflicts, the PNRC volunteers must not be seen asbelonging to any side of the armed conflict. In the Philippines where there is a communist insurgencyand a Muslim separatist rebellion, the PNRC cannot be seen as government-owned or controlled,and neither can the PNRC volunteers be identified as government personnel or as instruments of government policy. Otherwise, the insurgents or separatists will treat PNRC volunteers as enemies

when the volunteers tend to the wounded in the battlefield or the displaced civilians in conflict areas.

Thus, the PNRC must not only be, but must also be seen to be, autonomous, neutral andindependent in order to conduct its activities in accordance with the Fundamental Principles. ThePNRC must not appear to be an instrument or agency that implements government policy;otherwise, it cannot merit the trust of all and cannot effectively carry out its mission as a NationalRed Cross Society.12 It is imperative that the PNRC must be autonomous, neutral, and independentin relation to the State.

To ensure and maintain its autonomy, neutrality, and independence, the PNRC cannot be owned or controlled by the government. Indeed, the Philippine government does not own the PNRC. ThePNRC does not have government assets and does not receive any appropriation from the PhilippineCongress.13 The PNRC is financed primarily by contributions from private individuals and privateentities obtained through solicitation campaigns organized by its Board of Governors, as providedunder Section 11 of the PNRC Charter:

SECTION 11. As a national voluntary organization, the Philippine National Red Cross shall befinanced primarily by contributions obtained through solicitation campaigns throughout the year which shall be organized by the Board of Governors and conducted by the Chapters in their respective jurisdictions. These fund raising campaigns shall be conducted independently of other fund drives by other organizations. (Emphasis supplied)

The government does not control the PNRC. Under the PNRC Charter, as amended, only six of thethirty members of the PNRC Board of Governors are appointed by the President of the Philippines.Thus, twenty-four members, or four-fifths (4/5), of the PNRC Board of Governors are not appointed

by the President. Section 6 of the PNRC Charter, as amended, provides:

SECTION 6. The governing powers and authority shall be vested in a Board of Governors composedof thirty members, six of whom shall be appointed by the President of the Philippines, eighteen shallbe elected by chapter delegates in biennial conventions and the remaining six shall be selected bythe twenty-four members of the Board already chosen. x x x.

Thus, of the twenty-four members of the PNRC Board, eighteen are elected by the chapter delegates of the PNRC, and six are elected by the twenty-four members already chosen — a selectgroup where the private sector members have three-fourths majority. Clearly, an overwhelmingmajority of four-fifths of the PNRC Board are elected or chosen by the private sector members of thePNRC.

The PNRC Board of Governors, which exercises all corporate powers of the PNRC, elects thePNRC Chairman and all other officers of the PNRC. The incumbent Chairman of PNRC, respondentSenator Gordon, was elected, as all PNRC Chairmen are elected, by a private sector-controlledPNRC Board four-fifths of whom are private sector members of the PNRC. The PNRC Chairman isnot appointed by the President or by any subordinate government official.

Under Section 16, Article VII of the Constitution,14 the President appoints all officials and employeesin the Executive branch whose appointments are vested in the President by the Constitution or by















law. The President also appoints those whose appointments are not otherwise provided by law.Under this Section 16, the law may also authorize the "heads of departments, agencies,commissions, or boards" to appoint officers lower in rank than such heads of departments, agencies,commissions or boards.15 In Rufino v. Endriga,16 the Court explained appointments under Section 16in this wise:

Under Section 16, Article VII of the 1987 Constitution, the President appoints three groups of officers. The first group refers to the heads of the Executive departments, ambassadors, other publicministers and consuls, officers of the armed forces from the rank of colonel or naval captain, andother officers whose appointments are vested in the President by the Constitution. The secondgroup refers to those whom the President may be authorized by law to appoint. The third grouprefers to all other officers of the Government whose appointments are not otherwise provided by law.

Under the same Section 16, there is a fourth group of lower-ranked officers whose appointmentsCongress may by law vest in the heads of departments, agencies, commissions, or boards. x x x

x x x

In a department in the Executive branch, the head is the Secretary. The law may not authorize theUndersecretary, acting as such Undersecretary, to appoint lower-ranked officers in the Executivedepartment. In an agency, the power is vested in the head of the agency for it would bepreposterous to vest it in the agency itself. In a commission, the head is the chairperson of thecommission. In a board, the head is also the chairperson of the board. In the last three situations,the law may not also authorize officers other than the heads of the agency, commission, or board toappoint lower-ranked officers.

x x x

The Constitution authorizes Congress to vest the power to appoint lower-ranked officers specificallyin the "heads" of the specified offices, and in no other person. The word "heads" refers to thechairpersons of the commissions or boards and not to their members, for several reasons.

The President does not appoint the Chairman of the PNRC. Neither does the head of anydepartment, agency, commission or board appoint the PNRC Chairman. Thus, the PNRC Chairmanis not an official or employee of the Executive branch since his appointment does not fall under Section 16, Article VII of the Constitution. Certainly, the PNRC Chairman is not an official or employee of the Judiciary or Legislature. This leads us to the obvious conclusion that the PNRCChairman is not an official or employee of the Philippine Government. Not being a governmentofficial or employee, the PNRC Chairman, as such, does not hold a government office or employment.

Under Section 17, Article VII of the Constitution,17 the President exercises controlover all government offices in the Executive branch. If an office is legally not under the control of

the President, then such office is not part of the Executive branch. In Rufino v. Endriga,18 theCourt explained the President’s power of control over all government offices as follows:

Every government office, entity, or agency must fall under the Executive, Legislative, or Judicialbranches, or must belong to one of the independent constitutional bodies, or must be a quasi-judicialbody or local government unit. Otherwise, such government office, entity, or agency has no legaland constitutional basis for its existence.



















The CCP does not fall under the Legislative or Judicial branches of government. The CCP is alsonot one of the independent constitutional bodies. Neither is the CCP a quasi-judicial body nor a localgovernment unit. Thus, the CCP must fall under the Executive branch. Under the Revised

Administrative Code of 1987, any agency "not placed by law or order creating them under anyspecific department" falls "under the Office of the President."

Since the President exercises control over "all the executive departments, bureaus, and offices," thePresident necessarily exercises control over the CCP which is an office in the Executive branch. Inmandating that the President "shall have control of all executive . . . offices," Section 17, Article VII of the 1987 Constitution does not exempt any executive office — one performing executive functionsoutside of the independent constitutional bodies — from the President’s power of control. There is nodispute that the CCP performs executive, and not legislative, judicial, or quasi-judicial functions.

The President’s power of control applies to the acts or decisions of all officers in the Executivebranch. This is true whether such officers are appointed by the President or by heads of departments, agencies, commissions, or boards. The power of control means the power to revise or reverse the acts or decisions of a subordinate officer involving the exercise of discretion.

In short, the President sits at the apex of the Executive branch, and exercises "control of all theexecutive departments, bureaus, and offices." There can be no instance under the Constitutionwhere an officer of the Executive branch is outside the control of the President. The Executivebranch is unitary since there is only one President vested with executive power exercising controlover the entire Executive branch. Any office in the Executive branch that is not under the control of the President is a lost command whose existence is without any legal or constitutional basis.(Emphasis supplied)

An overwhelming four-fifths majority of the PNRC Board are private sector individuals elected to thePNRC Board by the private sector members of the PNRC. The PNRC Board exercises all corporatepowers of the PNRC. The PNRC is controlled by private sector individuals. Decisions or actions of the PNRC Board are not reviewable by the President. The President cannot reverse or modify thedecisions or actions of the PNRC Board. Neither can the President reverse or modify the decisions

or actions of the PNRC Chairman. It is the PNRC Board that can review, reverse or modify thedecisions or actions of the PNRC Chairman. This proves again that the office of the PNRC Chairmanis a private office, not a government office. 1avvphi1

Although the State is often represented in the governing bodies of a National Society, this can be justified by the need for proper coordination with the public authorities, and the governmentrepresentatives may take part in decision-making within a National Society. However, the freely-elected representatives of a National Society’s active members must remain in a large majority in aNational Society’s governing bodies.19

The PNRC is not government-owned but privately owned. The vast majority of the thousands of PNRC members are private individuals, including students. Under the PNRC Charter, those who

contribute to the annual fund campaign of the PNRC are entitled to membership in the PNRC for oneyear. Thus, any one between 6 and 65 years of age can be a PNRC member for one year uponcontributing P35, P100, P300, P500 or P1,000 for the year .20 Even foreigners, whether residents or not, can be members of the PNRC. Section 5 of the PNRC Charter, as amended by PresidentialDecree No. 1264,21 reads:

SEC. 5. Membership in the Philippine National Red Cross shall be open to the entire population inthe Philippines regardless of citizenship. Any contribution to the Philippine National Red Cross















Annual Fund Campaign shall entitle the contributor to membership for one year and said contributionshall be deductible in full for taxation purposes.

Thus, the PNRC is a privately owned, privately funded, and privately run charitable organization. ThePNRC is not a government-owned or controlled corporation.

Petitioners anchor their petition on the 1999 case of Camporedondo v. NLRC,22 which ruled that thePNRC is a government-owned or controlled corporation. In ruling that the PNRC is a government-owned or controlled corporation, the simple test used was whether the corporation was created byits own special charter for the exercise of a public function or by incorporation under the generalcorporation law. Since the PNRC was created under a special charter, the Court then ruled that it isa government corporation. However, the Camporedondoruling failed to consider the definition of agovernment-owned or controlled corporation as provided under Section 2(13) of the IntroductoryProvisions of the Administrative Code of 1987:

SEC. 2. General Terms Defined. – x x x

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-

stock corporation, vested with functions relating to public needs whether governmental or proprietaryin nature, and owned by the Government directly or through its instrumentalities either wholly, or where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percentof its capital stock: Provided, That government-owned or controlled corporations may be further categorized by the Department of the Budget, the Civil Service Commission, and the Commission on

Audit for purposes of the exercise and discharge of their respective powers, functions andresponsibilities with respect to such corporations.(Boldfacing and underscoring supplied)

A government-owned or controlled corporation must be owned by the government, and in the caseof a stock corporation, at least a majority of its capital stock must be owned by the government. Inthe case of a non-stock corporation, by analogy at least a majority of the members must begovernment officials holding such membership by appointment or designation by the government.Under this criterion, and as discussed earlier, the government does not own or control PNRC.

The PNRC Charter is Violative of the Constitutional Proscription against the Creation of PrivateCorporations by Special Law

The 1935 Constitution, as amended, was in force when the PNRC was created by special charter on22 March 1947. Section 7, Article XIV of the 1935 Constitution, as amended, reads:

SEC. 7. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations, unless such corporations are owned or controlled by theGovernment or any subdivision or instrumentality thereof.

The subsequent 1973 and 1987 Constitutions contain similar provisions prohibiting Congress from

creating private corporations except by general law. Section 1 of the PNRC Charter, as amended,creates the PNRC as a "body corporate and politic," thus:

SECTION 1. There is hereby created in the Republic of the Philippines a body corporate and politicto be the voluntary organization officially designated to assist the Republic of the Philippines indischarging the obligations set forth in the Geneva Conventions and to perform such other duties asare inherent upon a National Red Cross Society. The national headquarters of this Corporation shallbe located in Metropolitan Manila. (Emphasis supplied)







In Feliciano v. Commission on Audit,23 the Court explained the constitutional provision prohibitingCongress from creating private corporations in this wise:

We begin by explaining the general framework under the fundamental law. The Constitutionrecognizes two classes of corporations. The first refers to private corporations created under ageneral law. The second refers to government-owned or controlled corporations created by special

charters. Section 16, Article XII of the Constitution provides:

Sec. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability.

The Constitution emphatically prohibits the creation of private corporations except by general lawapplicable to all citizens. The purpose of this constitutional provision is to ban private corporationscreated by special charters, which historically gave certain individuals, families or groups specialprivileges denied to other citizens.

In short, Congress cannot enact a law creating a private corporation with a special charter. Suchlegislation would be unconstitutional. Private corporations may exist only under a general law. If thecorporation is private, it must necessarily exist under a general law. Stated differently, onlycorporations created under a general law can qualify as private corporations. Under existing laws,the general law is the Corporation Code, except that the Cooperative Code governs theincorporation of cooperatives.

The Constitution authorizes Congress to create government-owned or controlled corporationsthrough special charters. Since private corporations cannot have special charters, it follows thatCongress can create corporations with special charters only if such corporations are government-owned or controlled.24 (Emphasis supplied)

In Feliciano, the Court held that the Local Water Districts are government-owned or controlledcorporations since they exist by virtue of Presidential Decree No. 198, which constitutes their specialcharter. The seed capital assets of the Local Water Districts, such as waterworks and seweragefacilities, were public property which were managed, operated by or under the control of the city,municipality or province before the assets were transferred to the Local Water Districts. The LocalWater Districts also receive subsidies and loans from the Local Water Utilities Administration(LWUA). In fact, under the 2009 General Appropriations Act,25 the LWUA has a budget amountingto P400,000,000 for its subsidy requirements.26 There is no private capital invested in the LocalWater Districts. The capital assets and operating funds of the Local Water Districts all come fromthe government, either through transfer of assets, loans, subsidies or the income from such assetsor funds.

The government also controls the Local Water Districts because the municipal or city mayor, or the

provincial governor, appoints all the board directors of the Local Water Districts. Furthermore, theboard directors and other personnel of the Local Water Districts are government employees subjectto civil service laws and anti-graft laws. Clearly, the Local Water Districts are consideredgovernment-owned or controlled corporations not only because of their creation by special charter but also because the government in fact owns and controls the Local Water Districts.

Just like the Local Water Districts, the PNRC was created through a special charter. However, unlikethe Local Water Districts, the elements of government ownership and control are clearly lacking inthe PNRC. Thus, although the PNRC is created by a special charter, it cannot be considered a



















government-owned or controlled corporation in the absence of the essential elements of ownershipand control by the government. In creating the PNRC as a corporate entity, Congress was in factcreating a private corporation. However, the constitutional prohibition against the creation of privatecorporations by special charters provides no exception even for non-profit or charitable corporations.Consequently, the PNRC Charter, insofar as it creates the PNRC as a private corporation and grantsit corporate powers,27 is void for being unconstitutional. Thus, Sections

1,28

2,29

3,30

4(a),31

5,32

6,33

7,34

8,35

9,36

10,37

11,38

12,39

and 1340

of the PNRC Charter, as amended,are void.

The other provisions41 of the PNRC Charter remain valid as they can be considered as a recognitionby the State that the unincorporated PNRC is the local National Society of the International RedCross and Red Crescent Movement, and thus entitled to the benefits, exemptions and privileges setforth in the PNRC Charter. The other provisions of the PNRC Charter implement the PhilippineGovernment’s treaty obligations under Article 4(5) of the Statutes of the International Red Cross andRed Crescent Movement, which provides that to be recognized as a National Society, the Societymust be "duly recognized by the legal government of its country on the basis of the GenevaConventions and of the national legislation as a voluntary aid society, auxiliary to the publicauthorities in the humanitarian field."

In sum, we hold that the office of the PNRC Chairman is not a government office or an office in agovernment-owned or controlled corporation for purposes of the prohibition in Section 13, Article VIof the 1987 Constitution. However, since the PNRC Charter is void insofar as it creates the PNRC asa private corporation, the PNRC should incorporate under the Corporation Code and register withthe Securities and Exchange Commission if it wants to be a private corporation.

WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross isnot a government office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution. We also declare that Sections 1, 2,

3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of the Charter of the Philippine National Red Cross, or Republic Act No. 95, as amended by Presidential Decree Nos. 1264 and 1643, are VOID because

they create the PNRC as a private corporation or grant it corporate powers.

SO ORDERED.






























































Manila

EN BANC

G.R. No. 141735 June 8, 2005

SAPPARI K. SAWADJAAN, petitioner ,vs.THE HONORABLE COURT OF APPEALS, THE CIVIL SERVICE COMMISSION and AL-AMANAHINVESTMENT BANK OF THE PHILIPPINES, respondents.

D E C I S I O N

CHICO-NAZARIO, J.:

This is a petition for certiorari under Rule 65 of the Rules of Court of the Decision1 of the Court of

Appeals of 30 March 1999 affirming Resolutions No. 94-4483 and No. 95-2754 of the Civil ServiceCommission (CSC) dated 11 August 1994 and 11 April 1995, respectively, which in turn affirmedResolution No. 2309 of the Board of Directors of the Al-Amanah Islamic Investment Bank of thePhilippines (AIIBP) dated 13 December 1993, finding petitioner guilty of Dishonesty in thePerformance of Official Duties and/or Conduct Prejudicial to the Best Interest of the Service anddismissing him from the service, and its Resolution2 of 15 December 1999 dismissing petitioner’sMotion for Reconsideration.

The records show that petitioner Sappari K. Sawadjaan was among the first employees of thePhilippine Amanah Bank (PAB) when it was created by virtue of Presidential Decree No. 264 on 02

August 1973. He rose through the ranks, working his way up from his initial designation as securityguard, to settling clerk, bookkeeper, credit investigator, project analyst, appraiser/ inspector, and

eventually, loans analyst.

3

In February 1988, while still designated as appraiser/investigator, Sawadjaan was assigned toinspect the properties offered as collaterals by Compressed Air Machineries and EquipmentCorporation (CAMEC) for a credit line of Five Million Pesos (P5,000,000.00). The propertiesconsisted of two parcels of land covered by Transfer Certificates of Title (TCTs) No. N-130671 andNo. C-52576. On the basis of his Inspection and Appraisal Report,4the PAB granted the loanapplication. When the loan matured on 17 May 1989, CAMEC requested an extension of 180 days,but was granted only 120 days to repay the loan.5

In the meantime, Sawadjaan was promoted to Loans Analyst I on 01 July 1989.6

In January 1990, Congress passed Republic Act 6848 creating the AIIBP and repealing P.D. No.264 (which created the PAB). All assets, liabilities and capital accounts of the PAB were transferredto the AIIBP,7 and the existing personnel of the PAB were to continue to discharge their functionsunless discharged.8 In the ensuing reorganization, Sawadjaan was among the personnel retained bythe AIIBP.

When CAMEC failed to pay despite the given extension, the bank, now referred to as the AIIBP,discovered that TCT No. N-130671 was spurious, the property described therein non-existent, and

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that the property covered by TCT No. C-52576 had a prior existing mortgage in favor of one DivinaPablico.

On 08 June 1993, the Board of Directors of the AIIBP created an Investigating Committee to lookinto the CAMEC transaction, which had cost the bank Six Million Pesos (P6,000,000.00) inlosses.9 The subsequent events, as found and decided upon by the Court of Appeals,10 are as

follows:

On 18 June 1993, petitioner received a memorandum from Islamic Bank [AIIBP] Chairman RobertoF. De Ocampo charging him with Dishonesty in the Performance of Official Duties and/or ConductPrejudicial to the Best Interest of the Service and preventively suspending him.

In his memorandum dated 8 September 1993, petitioner informed the Investigating Committee thathe could not submit himself to the jurisdiction of the Committee because of its alleged partiality. For his failure to appear before the hearing set on 17 September 1993, after the hearing of 13September 1993 was postponed due to the Manifestation of even date filed by petitioner, theInvestigating Committee declared petitioner in default and the prosecution was allowed to present itsevidence ex parte.

On 08 December 1993, the Investigating Committee rendered a decision, the pertinent portions of which reads as follows:

In view of respondent SAWADJAAN’S abject failure to perform his duties and assigned tasks asappraiser/inspector, which resulted to the prejudice and substantial damage to the Bank, respondentshould be held liable therefore. At this juncture, however, the Investigating Committee is of theconsidered opinion that he could not be held liable for the administrative offense of dishonestyconsidering the fact that no evidence was adduced to show that he profited or benefited from beingremiss in the performance of his duties. The record is bereft of any evidence which would show thathe received any amount in consideration for his non-performance of his official duties.

This notwithstanding, respondent cannot escape liability. As adverted to earlier, his failure to performhis official duties resulted to the prejudice and substantial damage to the Islamic Bank for which heshould be held liable for the administrative offense of CONDUCT PREJUDICIAL TO THE BESTINTEREST OF THE SERVICE.

Premises considered, the Investigating Committee recommends that respondent SAPPARISAWADJAAN be meted the penalty of SIX (6) MONTHS and ONE (1) DAY SUSPENSION fromoffice in accordance with the Civil Service Commission’s Memorandum Circular No. 30, Series of 1989.

On 13 December 1993, the Board of Directors of the Islamic Bank [AIIBP] adopted Resolution No.2309 finding petitioner guilty of Dishonesty in the Performance of Official Duties and/or ConductPrejudicial to the Best Interest of the Service and imposing the penalty of Dismissal from the

Service.

On reconsideration, the Board of Directors of the Islamic Bank [AIIBP] adopted the Resolution No.2332 on 20 February 1994 reducing the penalty imposed on petitioner from dismissal to suspensionfor a period of six (6) months and one (1) day.

On 29 March 1994, petitioner filed a notice of appeal to the Merit System Protection Board (MSPB).











On 11 August 1994, the CSC adopted Resolution No. 94-4483 dismissing the appeal for lack of merit and affirming Resolution No. 2309 dated 13 December 1993 of the Board of Directors of Islamic Bank.

On 11 April 1995, the CSC adopted Resolution No. 95-2574 denying petitioner’s Motion for Reconsideration.

On 16 June 1995, the instant petition was filed with the Honorable Supreme Court on the followingassignment of errors:

I. Public respondent Al-Amanah Islamic Investment Bank of the Philippines has committed agrave abuse of discretion amounting to excess or lack of jurisdiction when it initiated andconducted administrative investigation without a validly promulgated rules of procedure in theadjudication of administrative cases at the Islamic Bank.

II. Public respondent Civil Service Commission has committed a grave abuse of discretionamounting to lack of jurisdiction when it prematurely and falsely assumed jurisdiction of thecase not appealed to it, but to the Merit System Protection Board.

III. Both the Islamic Bank and the Civil Service Commission erred in finding petitioner Sawadjaan of having deliberately reporting false information and therefore guilty of Dishonesty and Conduct Prejudicial to the Best Interest of the Service and penalized withdismissal from the service.

On 04 July 1995, the Honorable Supreme Court En Banc referred this petition to this HonorableCourt pursuant to Revised Administrative Circular No. 1-95, which took effect on 01 June 1995.

We do not find merit [in] the petition.

Anent the first assignment of error, a reading of the records would reveal that petitioner raises for the

first time the alleged failure of the Islamic Bank [AIIBP] to promulgate rules of procedure governingthe adjudication and disposition of administrative cases involving its personnel. It is a rule that issuesnot properly brought and ventilated below may not be raised for the first time on appeal, save inexceptional circumstances (Casolita, Sr. v. Court of Appeals, 275 SCRA 257) none of which,however, obtain in this case. Granting arguendo that the issue is of such exceptional character thatthe Court may take cognizance of the same, still, it must fail. Section 26 of Republic Act No. 6848(1990) provides:

Section 26. Powers of the Board. The Board of Directors shall have the broadest powers to managethe Islamic Bank , x x x The Board shall adopt policy guidelines necessary to carry out effectively theprovisions of this Charter as well as internal rules and regulations necessary for the conduct of itsIslamic banking business and all matters related to personnel organization, office functions and salary administration. (Italics ours)

On the other hand, Item No. 2 of Executive Order No. 26 (1992) entitled "Prescribing Procedure andSanctions to Ensure Speedy Disposition of Administrative Cases" directs, "all administrativeagencies" to "adopt and include in their respective Rules of Procedure" provisions designed toabbreviate administrative proceedings.

The above two (2) provisions relied upon by petitioner does not require the Islamic Bank [AIIBP] topromulgate rules of procedure before administrative discipline may be imposed upon its employees.



The internal rules of procedures ordained to be adopted by the Board refers to that necessary for theconduct of its Islamic banking business and all matters related to "personnel organization, officefunctions and salary administration." On the contrary, Section 26 of RA 6848 gives the Board of Directors of the Islamic Bank the "broadest powers to manage the Islamic Bank." This grant of broadpowers would be an idle ceremony if it would be powerless to discipline its employees.

The second assignment of error must likewise fail. The issue is raised for the first time via thispetition for certiorari. Petitioner submitted himself to the jurisdiction of the CSC. Although he couldhave raised the alleged lack of jurisdiction in his Motion for Reconsideration of Resolution No. 94-4483 of the CSC, he did not do so. By filing the Motion for Reconsideration, he is estopped fromdenying the CSC’s jurisdiction over him, as it is settled rule that a party who asks for an affirmativerelief cannot later on impugn the action of the tribunal as without jurisdiction after an adverse resultwas meted to him. Although jurisdiction over the subject matter of a case may be objected to at anystage of the proceedings even on appeal, this particular rule, however, means that jurisdictionalissues in a case can be raised only during the proceedings in said case and during the appeal of said case ( Aragon v. Court of Appeals, 270 SCRA 603). The case at bar is a petition[for] certiorari and not an appeal.

But even on the merits the argument must falter. Item No. 1 of CSC Resolution No. 93-2387 dated29 June 1993, provides:

Decisions in administrative cases involving officials and employees of the civil service appealable tothe Commission pursuant to Section 47 of Book V of the Code (i.e., Administrative Code of 1987)including personnel actions such as contested appointments shall now be appealed directly to theCommission and not to the MSPB.

In Rubenecia v. Civil Service Commission, 244 SCRA 640, 651, it was categorically held:

. . . The functions of the MSPB relating to the determination of administrative disciplinary caseswere, in other words, re-allocated to the Commission itself.

Be that as it may, "(i)t is hornbook doctrine that in order `(t)o ascertain whether a court (in this case,administrative agency) has jurisdiction or not, the provisions of the law should be inquired into.’Furthermore, `the jurisdiction of the court must appear clearly from the statute law or it will not beheld to exist.’"( Azarcon v. Sandiganbayan, 268 SCRA 747, 757) From the provision of lawabovecited, the Civil Service Commission clearly has jurisdiction over the Administrative Caseagainst petitioner.

Anent the third assignment of error, we likewise do not find merit in petitioner’s proposition that heshould not be liable, as in the first place, he was not qualified to perform the functions of appraiser/investigator because he lacked the necessary training and expertise, and therefore, shouldnot have been found dishonest by the Board of Directors of Islamic Bank [AIIBP] and the CSC.Petitioner himself admits that the position of appraiser/inspector is "one of the most serious [and]

sensitive job in the banking operations." He should have been aware that accepting such adesignation, he is obliged to perform the task at hand by the exercise of more than ordinaryprudence. As appraiser/investigator, he is expected, among others, to check the authenticity of thedocuments presented by the borrower by comparing them with the originals on file with the proper government office. He should have made it sure that the technical descriptions in the location planon file with the Bureau of Lands of Marikina, jibe with that indicated in the TCT of the collateraloffered by CAMEC, and that the mortgage in favor of the Islamic Bank was duly annotated at theback of the copy of the TCT kept by the Register of Deeds of Marikina. This, petitioner failed to do,for which he must be held liable. That he did not profit from his false report is of no moment. Neither



the fact that it was not deliberate or willful, detracts from the nature of the act as dishonest. What isapparent is he stated something to be a fact, when he really was not sure that it was so.

Wherefore, above premises considered, the instant Petition is DISMISSED, and the assailedResolutions of the Civil Service Commission are hereby AFFIRMED.

On 24 March 1999, Sawadjaan’s counsel notif ied the court a quo of his change of address,11 butapparently neglected to notify his client of this fact. Thus, on 23 July 1999, Sawadjaan, by himself,filed a Motion for New Trial12 in the Court of Appeals based on the following grounds: fraud, accident,mistake or excusable negligence and newly discovered evidence. He claimed that he had recentlydiscovered that at the time his employment was terminated, the AIIBP had not yet adopted itscorporate by-laws. He attached a Certification13 by the Securities and Exchange Commission (SEC)that it was only on 27 May 1992 that the AIIBP submitted its draft by-laws to the SEC, and that itsregistration was being held in abeyance pending certain corrections being made thereon. Sawadjaanargued that since the AIIBP failed to file its by-laws within 60 days from the passage of Rep. Act No.6848, as required by Sec. 51 of the said law, the bank and its stockholders had "already forfeited itsfranchise or charter, including its license to exist and operate as a corporation,"14 and thus no longer have "the legal standing and personality to initiate an administrative case."

Sawadjaan’s counsel subsequently adopted his motion, but requested that it be treated as a motionfor reconsideration.15 This motion was denied by the court a quo in its Resolution of 15 December 1999.16

Still disheartened, Sawadjaan filed the present petition for certiorari under Rule 65 of the Rules of Court challenging the above Decision and Resolution of the Court of Appeals on the ground that thecourt a quo erred: i) in ignoring the facts and evidences that the alleged Islamic Bank has no validby-laws; ii) in ignoring the facts and evidences that the Islamic Bank lost its juridical personality as acorporation on 16 April 1990; iii) in ignoring the facts and evidences that the alleged Islamic Bankand its alleged Board of Directors have no jurisdiction to act in the manner they did in the absence of a valid by-laws; iv) in not correcting the acts of the Civil Service Commission who erroneouslyrendered the assailed Resolutions No. 94-4483 and No. 95-2754 as a result of fraud, falsification

and/or misrepresentations committed by Farouk A. Carpizo and his group, including Roberto F. deOcampo; v) in affirming an unconscionably harsh and/or excessive penalty; and vi) in failing toconsider newly discovered evidence and reverse its decision accordingly.

Subsequently, petitioner Sawadjaan filed an "Ex-parte Urgent Motion for Additional Extension of Time to File a Reply (to the Comments of Respondent Al-Amanah Investment Bank of thePhilippines),17 Reply (to Respondent’s Consolidated Comment,)18 and Reply (to the AllegedComments of Respondent Al-Amanah Islamic Bank of the Philippines)."19 On 13 October 2000, heinformed this Court that he had terminated his lawyer’s services, and, by himself, prepared and filedthe following: 1) Motion for New Trial;20 2) Motion to Declare Respondents in Default and/or HavingWaived their Rights to Interpose Objection to Petitioner’s Motion for New Trial ;21 3) Ex-Parte UrgentMotions to Punish Attorneys Amado D. Valdez, Elpidio J. Vega, Alda G. Reyes, Dominador R.

Isidoro, Jr., and Odilon A. Diaz for Being in Contempt of Court & to Inhibit them from Appearing inthis Case Until they Can Present Valid Evidence of Legal Authority;22 4) Opposition/Reply (toRespondent AIIBP’s Alleged Comment);23 5) Ex-ParteUrgent Motion to Punish Atty. Reynaldo A.Pineda for Contempt of Court and the Issuance of a Commitment Order/Warrant for His Arrest ;24 6)Reply/Opposition (To the Formal Notice of Withdrawal of Undersigned Counsel as Legal Counsel for the Respondent Islamic Bank with Opposition to Petitioner’s Motion to Punish Undersigned Counselfor Contempt of Court for the Issuance of a Warrant of Arrest) ;25 7) Memorandum for Petitioner ;26 8)Opposition to SolGen’s Motion for Clarification with Motion for Default and/or Waiver of Respondentsto File their Memorandum;27 9) Motion for Contempt of Court and Inhibition/Disqualification with






































































Opposition to OGCC’s Motion for Extension of Time to File Memorandum;28 10) Motion for Enforcement (In Defense of the Rule of Law);29 11) Motion and Opposition (Motion to PunishOGCC’s Attorneys Amado D. Valdez, Efren B. Gonzales, Alda G. Reyes, Odilon A. Diaz andDominador R. Isidoro, Jr., for Contempt of Court and the Issuance of a Warrant for their Arrest; andOpposition to their Alleged "Manifestation and Motion" Dated February 5, 2002);30 12) Motion for Reconsideration of Item (a) of Resolution dated 5 February 2002 with Supplemental Motion for

Contempt of Court;31

13) Motion for Reconsideration of Portion of Resolution Dated 12 March2002;32 14) Ex-Parte Urgent Motion for Extension of Time to File Reply Memorandum (To: CSC and

AIIBP’s Memorandum);33 15) Reply Memorandum (To: CSC’s Memorandum) With Ex-Parte UrgentMotion for Additional Extension of time to File Reply Memorandum (To: AIIBP’sMemorandum);34 and 16) Reply Memorandum (To: OGCC’s Memorandum for Respondent AIIBP).35

Petitioner’s efforts are unavailing, and we deny his petition for its procedural and substantive flaws.

The general rule is that the remedy to obtain reversal or modification of the judgment on the merits isappeal. This is true even if the error, or one of the errors, ascribed to the court rendering the

judgment is its lack of jurisdiction over the subject matter, or the exercise of power in excess thereof,or grave abuse of discretion in the findings of fact or of law set out in the decision.36

The records show that petitioner’s counsel received the Resolution of the Court of Appeals denyinghis motion for reconsideration on 27 December 1999. The fifteen day reglamentary period to appealunder Rule 45 of the Rules of Court therefore lapsed on 11 January 2000. On 23 February 2000,over a month after receipt of the resolution denying his motion for reconsideration, the petitioner filedhis petition for certiorari under Rule 65.

It is settled that a special civil action for certiorari will not lie as a substitute for the lost remedy of appeal,37 and though there are instances38 where the extraordinary remedy of certiorari may beresorted to despite the availability of an appeal,39 we find no special reasons for making out anexception in this case.

Even if we were to overlook this fact in the broader interests of justice and treat this as a special civil

action for certiorari under Rule 65,40 the petition would nevertheless be dismissed for failure of thepetitioner to show grave abuse of discretion. Petitioner’s recurrent argument, tenuous at its verybest, is premised on the fact that since respondent AIIBP failed to file its by-laws within thedesignated 60 days from the effectivity of Rep. Act No. 6848, all proceedings initiated by AIIBP andall actions resulting therefrom are a patent nullity. Or, in his words, the AIIBP and its officers andBoard of Directors,

. . . [H]ave no legal authority nor jurisdiction to manage much less operate the Islamic Bank, fileadministrative charges and investigate petitioner in the manner they did and allegedly passed BoardResolution No. 2309 on December 13, 1993 which is null and void for lack of an (sic) authorized andvalid by-laws. The CIVIL SERVICE COMMISSION was therefore affirming, erroneously, a null andvoid "Resolution No. 2309 dated December 13, 1993 of the Board of Directors of Al-Amanah Islamic

Investment Bank of the Philippines" in CSC Resolution No. 94-4483 dated August 11, 1994. Amotion for reconsideration thereof was denied by the CSC in its Resolution No. 95-2754 dated April11, 1995. Both acts/resolutions of the CSC are erroneous, resulting from fraud, falsifications andmisrepresentations of the alleged Chairman and CEO Roberto F. de Ocampo and the allegedDirector Farouk A. Carpizo and his group at the alleged Islamic Bank.41

Nowhere in petitioner’s voluminous pleadings is there a showing that the court a quo committedgrave abuse of discretion amounting to lack or excess of jurisdiction reversible by a petitionfor certiorari. Petitioner already raised the question of AIIBP’s corporate existence and lack of



























































jurisdiction in his Motion for New Trial/Motion for Reconsideration of 27 May 1997 and was deniedby the Court of Appeals. Despite the volume of pleadings he has submitted thus far, he has addednothing substantial to his arguments.

The AIIBP was created by Rep. Act No. 6848. It has a main office where it conducts business, hasshareholders, corporate officers, a board of directors, assets, and personnel. It is, in fact, here

represented by the Office of the Government Corporate Counsel, "the principal law office of government-owned corporations, one of which is respondent bank."42 At the very least, by its failureto submit its by-laws on time, the AIIBP may be considered ade facto corporation43 whose right toexercise corporate powers may not be inquired into collaterally in any private suit to which suchcorporations may be a party.44

Moreover, a corporation which has failed to file its by-laws within the prescribed period does not ipsofacto lose its powers as such. The SEC Rules on Suspension/Revocation of the Certificate of Registration of Corporations,45details the procedures and remedies that may be availed of before anorder of revocation can be issued. There is no showing that such a procedure has been initiated inthis case.

In any case, petitioner’s argument is irrelevant because this case is not a corporate controversy, buta labor dispute; and it is an employer’s basic right to freely select or dischar ge its employees, if onlyas a measure of self-protection against acts inimical to its interest.46 Regardless of whether AIIBP isa corporation, a partnership, a sole proprietorship, or a sari-sari store, it is an undisputed fact that

AIIBP is the petitioner’s employer. AIIBP chose to retain his services during its reorganization,controlled the means and methods by which his work was to be performed, paid his wages, and,eventually, terminated his services.47

And though he has had ample opportunity to do so, the petitioner has not alleged that he is anythingother than an employee of AIIBP. He has neither claimed, nor shown, that he is a stockholder or anofficer of the corporation. Having accepted employment from AIIBP, and rendered his services to thesaid bank, received his salary, and accepted the promotion given him, it is now too late in the day for petitioner to question its existence and its power to terminate his services. One who assumes an

obligation to an ostensible corporation as such, cannot resist performance thereof on the ground thatthere was in fact no corporation.48

1avvphi1

Even if we were to consider the facts behind petitioner Sawadjaan’s dismissal from service, wewould be hard pressed to find error in the decision of the AIIBP.

As appraiser/investigator, the petitioner was expected to conduct an ocular inspection of theproperties offered by CAMEC as collaterals and check the copies of the certificates of title againstthose on file with the Registry of Deeds. Not only did he fail to conduct these routine checks, but healso deliberately misrepresented in his appraisal report that after reviewing the documents andconducting a site inspection, he found the CAMEC loan application to be in order. Despite thenumber of pleadings he has filed, he has failed to offer an alternative explanation for his actions.

When he was informed of the charges against him and directed to appear and present his side onthe matter, the petitioner sent instead a memorandum questioning the fairness and impartiality of themembers of the investigating committee and refusing to recognize their jurisdiction over him.Nevertheless, the investigating committee rescheduled the hearing to give the petitioner another chance, but he still refused to appear before it.

Thereafter, witnesses were presented, and a decision was rendered finding him guilty of dishonestyand dismissing him from service. He sought a reconsideration of this decision and the same





























committee whose impartiality he questioned reduced their recommended penalty to suspension for six months and one day. The board of directors, however, opted to dismiss him from service.

On appeal to the CSC, the Commission found that Sawadjaan’s failure to perform his official dutiesgreatly prejudiced the AIIBP, for which he should be held accountable. It held that:

. . . (I)t is crystal clear that respondent SAPPARI SAWADJAAN was remiss in the performance of hisduties as appraiser/inspector. Had respondent performed his duties as appraiser/inspector, he couldhave easily noticed that the property located at Balintawak, Caloocan City covered by TCT No. C-52576 and which is one of the properties offered as collateral by CAMEC is encumbered to DivinaPablico. Had respondent reflected such fact in his appraisal/inspection report on said property theISLAMIC BANK would not have approved CAMEC’s loan of P500,000.00 in 1987 and CAMEC’s P5Million loan in 1988, respondent knowing fully well the Bank’s policy of not accepting encumberedproperties as collateral.

Respondent SAWADJAAN’s reprehensible act is further aggravated when he failed to check andverify from the Registry of Deeds of Marikina the authenticity of the property located at Mayamot,

Antipolo, Rizal covered by TCT No. N-130671 and which is one of the properties offered as collateral

by CAMEC for its P5 Million loan in 1988. If he only visited and verified with the Register of Deeds of Marikina the authenticity of TCT No. N-130671 he could have easily discovered that TCT No. N-130671 is fake and the property described therein non-existent.

. . .

This notwithstanding, respondent cannot escape liability. As adverted to earlier, his failure to performhis official duties resulted to the prejudice and substantial damage to the ISLAMIC BANK for whichhe should be held liable for the administrative offense of CONDUCT PREJUDICIAL TO THE BESTINTEREST OF THE SERVICE.49

From the foregoing, we find that the CSC and the court a quo committed no grave abuse of discretion when they sustained Sawadjaan’s dismissal from service. Grave abuse of discretionimplies such capricious and whimsical exercise of judgment as equivalent to lack of jurisdiction, or,in other words, where the power is exercised in an arbitrary or despotic manner by reason of passionor personal hostility, and it must be so patent and gross as to amount to an evasion of positive dutyor to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law.50 Therecords show that the respondents did none of these; they acted in accordance with the law.

WHEREFORE, the petition is DISMISSED. The Decision of the Court of Appeals of 30 March 1999affirming Resolutions No. 94-4483 and No. 95-2754 of the Civil Service Commission, and itsResolution of 15 December 1999 are hereby affirmed. Costs against the petitioner.

SO ORDERED.











SECOND DIVISION

PRISMA CONSTRUCTION &

DEVELOPMENT

CORPORATION and ROGELIO

S. PANTALEON, Petitioners,

- versus -

ARTHUR F. MENCHAVEZ ,

Respondent.

G.R. No. 160545

Present:

NACHURA, J.,

BRION, Acting Chairperson, DEL CASTILLO,

ABAD, and

PEREZ, JJ .

Promulgated:

March 9, 2010

x------------------------------------------------------------------------------------------ x

D E C I S I O N

BRION, J .:

We resolve in this Decision the petition for review on certiorar i[1] filed by

petitioners Prisma Construction & Development Corporation ( PRISMA) and

Rogelio S. Pantaleon ( Pantaleon) (collectively, petitioners) who seek to reverse

and set aside the Decision[2] dated May 5, 2003 and the Resolution[3] dated October

22, 2003 of the Former Ninth Division of the Court of Appeals (CA) in CA-G.R.

CV No. 69627. The assailed CA Decision affirmed the Decision of the Regional

Trial Court ( RTC ), Branch 73, Antipolo City in Civil Case No. 97-4552 that heldthe petitioners liable for payment of P3,526,117.00 to respondent Arthur F.

Menchavez (respondent ), but modified the interest rate from 4% per month to 12%

per annum, computed from the filing of the complaint to full payment. The

assailed CA Resolution denied the petitioners’ Motion for Reconsideration.

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FACTUAL BACKGROUND

The facts of the case, gathered from the records, are briefly summarized

below.

On December 8, 1993, Pantaleon, the President and Chairman of the Board

of PRISMA, obtained a P1,000,000.00[4]

loan from the respondent, with a

monthly interest of P40,000.00 payable for six months, or a total obligation

of P1,240,000.00 to be paid within six (6) months,[5]

under the following schedule

of payments:

January 8, 1994 …………………. P40,000.00 February 8, 1994 ………………... P40,000.00 March 8, 1994 …………………... P40,000.00

April 8, 1994 ……………………. P40,000.00

May 8, 1994 …………………….. P40,000.00 June 8, 1994 ………………… P1,040,000.00

[6]

Total P1,240,000.00

To secure the payment of the loan, Pantaleon issued a promissory note[7] that

states:

I, Rogelio S. Pantaleon, hereby acknowledge the receipt of ONE

MILLION TWO HUNDRED FORTY THOUSAND PESOS (P1,240,000),

Philippine Currency, from Mr. Arthur F. Menchavez, representing a six-monthloan payable according to the following schedule:

January 8, 1994 …………………. P40,000.00

February 8, 1994 ………………... P40,000.00 March 8, 1994 …………………... P40,000.00

April 8, 1994 ……………………. P40,000.00

May 8, 1994 …………………….. P40,000.00

June 8, 1994 ………………… P1,040,000.00

The checks corresponding to the above amounts are hereby acknowledged.[8]

and six (6) postdated checks corresponding to the schedule of payments. Pantaleon

signed the promissory note in his personal capacity,[9] and as duly authorized by
























the Board of Directors of PRISMA.[10] The petitioners failed to completely pay the

loan within the stipulated six (6)-month period.

From September 8, 1994 to January 4, 1997, the petitioners paid thefollowing amounts to the respondent:

September 8, 1994 ………………P320,000.00 October 8, 1995………………….P600,000.00

November 8, 1995…………….....P158,772.00

January 4, 1997 ………………… P30,000.00[11]

As of January 4, 1997, the petitioners had already paid a total

of P1,108,772.00. However, the respondent found that the petitioners still had an

outstanding balance ofP1,364,151.00 as of January 4, 1997, to which it applied a

4% monthly interest.[12] Thus, on August 28, 1997, the respondent filed a

complaint for sum of money with the RTC to enforce the unpaid balance, plus 4%

monthly interest, P30,000.00 in attorney’s fees, P1,000.00 per court appearance

and costs of suit.[13]

In their Answer dated October 6, 1998, the petitioners admitted the loan

of P1,240,000.00, but denied the stipulation on the 4% monthly interest, arguing

that the interest was not provided in the promissory note. Pantaleon also denied that

he made himself personally liable and that he made representations that the loan

would be repaid within six (6) months.[14]

THE RTC RULING

The RTC rendered a Decision on October 27, 2000 finding that the

respondent issued a check for P1,000,000.00 in favor of the petitioners for a loan

that would earn an interest of 4% or P40,000.00 per month, or a total

of P240,000.00 for a 6-month period. It noted that the petitioners made several























payments amounting to P1,228,772.00, but they were still indebted to the

respondent for P3,526,117.00 as of February 11,[15] 1999 after considering the 4%

monthly interest. The RTC observed that PRISMA was a one-man corporation of

Pantaleon and used this circumstance to justify the piercing of the veil of corporatefiction. Thus, the RTC ordered the petitioners to jointly and severally pay the

respondent the amount of P3,526,117.00 plus 4% per month interest from February

11, 1999 until fully paid.[16]

The petitioners elevated the case to the CA via an ordinary appeal under

Rule 41 of the Rules of Court, insisting that there was no express stipulation on the

4% monthly interest.

THE CA RULING

The CA decided the appeal on May 5, 2003. The CA found that the parties

agreed to a 4% monthly interest principally based on the board resolution that

authorized Pantaleon to transact a loan with an approved interest of not more than

4% per month. The appellate court, however, noted that the interest of 4% per

month, or 48% per annum, was unreasonable and should be reduced to 12% per

annum. The CA affirmed the RTC’s finding that PRISMA was a mere

instrumentality of Pantaleon that justified the piercing of the veil of corporate

fiction. Thus, the CA modified the RTC Decision by imposing a 12% per annum

interest, computed from the filing of the complaint until finality of judgment, and

thereafter, 12% from finality until fully paid.[17]

After the CA's denial[18]

of their motion for reconsideration,[19]

the petitionersfiled the present petition for review on certiorari under Rule 45 of the Rules of

Court.

THE PETITION






















The petitioners submit that the CA mistakenly relied on their board

resolution to conclude that the parties agreed to a 4% monthly interest because the

board resolution was not an evidence of a loan or forbearance of money, butmerely an authorization for Pantaleon to perform certain acts, including the power

to enter into a contract of loan. The expressed mandate of Article 1956 of the Civil

Code is that interest due should be stipulated in writing, and no such stipulation

exists. Even assuming that the loan is subject to 4% monthly interest, the interest

covers the six (6)-month period only and cannot be interpreted to apply beyond it.

The petitioners also point out the glaring inconsistency in the CA Decision, which

reduced the interest from 4% per month or 48% per annum to 12% per annum, but

failed to consider that the amount of P3,526,117.00 that the RTC ordered them to

pay includes the compounded 4% monthly interest.

THE CASE FOR THE RESPONDENT

The respondent counters that the CA correctly ruled that the loan is subject

to a 4% monthly interest because the board resolution is attached to, and an integral

part of, the promissory note based on which the petitioners obtained the loan. The

respondent further contends that the petitioners are estopped from assailing the 4%

monthly interest, since they agreed to pay the 4% monthly interest on the principal

amount under the promissory note and the board resolution.

THE ISSUE

The core issue boils down to whether the parties agreed to the 4% monthlyinterest on the loan. If so, does the rate of interest apply to the 6-month payment

period only or until full payment of the loan?

OUR RULING



We find the petiti on meritor ious.

I nterest due should be stipulated in

writi ng; otherwise, 12% per annum

Obligations arising from contracts have the force of law between the

contracting parties and should be complied with in good faith.[20] When the terms

of a contract are clear and leave no doubt as to the intention of the contracting

parties, the literal meaning of its stipulations governs.[21] In such cases, courts have

no authority to alter the contract by construction or to make a new contract for the

parties; a court's duty is confined to the interpretation of the contract the partiesmade for themselves without regard to its wisdom or folly, as the court cannot

supply material stipulations or read into the contract words the contract does not

contain.[22] It is only when the contract is vague and ambiguous that courts are

permitted to resort to the interpretation of its terms to determine the parties’ intent.

In the present case, the respondent issued a check for P1,000,000.00.[23] In

turn, Pantaleon, in his personal capacity and as authorized by the Board, executed

the promissory note quoted above. Thus, the P1,000,000.00 loan shall be

payable within six (6) months, or from January 8, 1994 up to June 8, 1994. During

this period, the loan shall earn an interest of P40,000.00 per month, for a total

obligation of P1,240,000.00 for the six-month period. We note that this agreed

sum can be computed at 4% interest per month, but no such rate of interest

was stipulated in the promissory note; rather a fi xed sum equivalent to thi s

rate was agreed upon.

Article 1956 of the Civil Code specifically mandates that “no interest shall

be due unless it has been expressly stipulated in writing.” Under this provision, the

payment of interest in loans or forbearance of money is allowed only if: (1) there

was an express stipulation for the payment of interest; and (2) the agreement for the



















payment of interest was reduced in writing. The concurrence of the two conditions

is required for the payment of interest at a stipulated rate. Thus, we held in Tan v.

Valdehueza[24] and Ching v. Nicdao[25] that collection of interest without any

stipulation in writing is prohibited by law.

Applying this provision, we find that the interest of P40,000.00 per month

corresponds only to the six (6)-month period of the loan, or from January 8, 1994

to June 8, 1994, as agreed upon by the parties in the promissory note. Thereafter,

the interest on the loan should be at the legal interest rate of 12% per annum,

consistent with our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals:[26]

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that whichmay have been stipulated in writing. Furthermore, the interest due shall itself earn

legal interest from the time it is judicially demanded. In the absence of

stipulation, the rate of interest shall be 12% per annum to be computed from

default, i.e., from judicial or extrajudicial demand under and subject to the

provisions of Article 1169 of the Civil Code.” (Emphasis supplied)

We reiterated this ruling in Security Bank and Trust Co. v. RTC-Makati, Br.

61,[27] Sulit v. Court of Appeals,[28] Crismina Garments, Inc. v. Court of

Appeals ,[29] Eastern Assurance and Surety Corporation v. Court of

Appeals ,[30] Sps. Catungal v. Hao ,[31] Yong v. Tiu,[32] and Sps. Barrera v. Sps.

Lorenzo.[33] Thus, the RTC and the CA misappreciated the facts of the case; they

erred in finding that the parties agreed to a 4% interest, compounded by the

application of this interest beyond the promissory note’s six (6)-month period. The

facts show that the parties agreed to the payment of a specific sum of

money of P40,000.00 per month for six months, not to a 4% rate of interest payable

within a six (6)-month period.

Medel v. Cour t of Appeals not

applicable













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The CA misapplied Medel v. Court of Appeal s[34] in finding that a 4%

interest per month was unconscionable.

In Medel , the debtors in a P500,000.00 loan were required to pay an interestof 5.5% per month, a service charge of 2% per annum, and a penalty charge of 1%

per month, plus attorney’s fee equivalent to 25% of the amount due, until the loan

is fully paid. Taken in conjunction with the stipulated service charge and penalty,

we found the interest rate of 5.5% to be excessive, iniquitous, unconscionable,

exorbitant and hence, contrary to morals, thereby rendering the stipulation null and

void.

Applying Medel, we invalidated and reduced the stipulated interest

in Spouses Solangon v. Salazar [35] of 6% per month or 72% per annum interest on

a P60,000.00 loan; in Ruiz v. Court of Appeals ,[36] of 3% per month or 36% per

annum interest on a P3,000,000.00 loan; in Imperial v. Jaucian ,[37] of 16% per

month or 192% per annum interest on a P320,000.00 loan; in Arrofo v. Quiño ,[38] of

7% interest per month or 84% per annum interest on a P15,000.00 loan; in Bulos,

Jr. v. Yasuma ,[39] of 4% per month or 48% per annum interest on a P2,500,000.00

loan; and in Chua v. Timan,[40] of 7% and 5% per month for loans

totalling P964,000.00. We note that in all these cases, the terms of the loans were

open-ended; the stipulated interest rates were applied for an indefinite period.

Medel finds no application in the present case where no other stipulation

exists for the payment of any extra amount except a specif ic sum of P40,000.00

per month on the principal of a loan payable within six months. Additionally, no

issue on the excessiveness of the stipulated amount of P40,000.00 per month wasever put in issue by the petitioners;[41] they only assailed the application of a 4%

interest rate, since it was not agreed upon.


































It is a familiar doctrine in obligations and contracts that the parties are bound

by the stipulations, clauses, terms and conditions they have agreed to, which is the

law between them, the only limitation being that these stipulations, clauses, terms

and conditions are not contrary to law, morals, public order or public policy.

[42]

The payment of the specif ic sum of money of P40,000.00 per month was voluntarily

agreed upon by the petitioners and the respondent. There is nothing from the

records and, in fact, there is no allegation showing that petitioners were victims of

fraud when they entered into the agreement with the respondent.

Therefore, as agreed by the parties, the loan of P1,000,000.00 shall

earn P40,000.00 per month for a period of six (6) months, or from December 8,

1993 to June 8, 1994, for a total principal and interest amount of P1,240,000.00.

Thereafter, interest at the rate of 12% per annum shall apply. The amounts already

paid by the petitioners during the pendency of the suit, amounting to P1,228,772.00

as of February 12, 1999,[43] should be deducted from the total amount due,

computed as indicated above. We remand the case to the trial court for the actual

computation of the total amount due.

Doctri ne of Estoppel not applicable

The respondent submits that the petitioners are estopped from disputing the

4% monthly interest beyond the six-month stipulated period, since they agreed to

pay this interest on the principal amount under the promissory note and the board

resolution.

We disagree with the respondent’s contention.

We cannot apply the doctrine of estoppel in the present case since the facts

and circumstances, as established by the record, negate its application. Under the

promissory note,[44] what the petitioners agreed to was the payment of a specific

sum of P40,000.00 per month for six months – not a 4% rate of interest per

month for six (6) months – on a loan whose principal is P1,000,000.00, for the















total amount of P1,240,000.00. Thus, no reason exists to place the petitioners in

estoppel, barring them from raising their present defenses against a 4% per month

interest after the six-month period of the agreement. The board resolution,[45] on

the other hand, simply authorizes Pantaleon to contract for a loan with a monthlyinterest of not more than 4%. This resolution merely embodies the extent of

Pantaleon’s authority to contract and does not create any right or obligation except

as between Pantaleon and the board. Again, no cause exists to place the petitioners

in estoppel.

Piercing the corporate veil unfounded

We find it unfounded and unwarranted for the lower courts to pierce the

corporate veil of PRISMA.

The doctrine of piercing the corporate veil applies only in three (3) basic

instances, namely: a) when the separate and distinct corporate personality

defeats public convenience, as when the corporate fiction is used as a vehicle for

the evasion of an existing obligation; b) in fraud cases, or when the corporate entity

is used to justify a wrong, protect a fraud, or defend a crime; or c) is used in alter ego cases, i.e., where a corporation is essentially a farce, since it is a mere alter ego

or business conduit of a person, or where the corporation is so organized and

controlled and its affairs so conducted as to make it merely an instrumentality,

agency, conduit or adjunct of another corporation.[46] In the absence of malice, bad

faith, or a specific provision of law making a corporate officer liable, such

corporate officer cannot be made personally liable for corporate liabilities.[47]

In the present case, we see no competent and convincing evidence of any

wrongful, fraudulent or unlawful act on the part of PRISMA to justify piercing its

corporate veil. While Pantaleon denied personal liability in his Answer, he made

himself accountable in the promissory note “in his personal capacity and as

authorized by the Board Resolution” of PRISMA.[48] With this statement of


















personal liability and in the absence of any representation on the part of PRISMA

that the obligation is all its own because of its separate corporate identity, we see

no occasion to consider piercing the corporate veil as material to the case.

WHEREFORE, in light of all the foregoing, we

hereby REVERSE and SET ASIDE the Decision dated May 5, 2003 of the Court

of Appeals in CA-G.R. CV No. 69627. The petitioners’ loan of P1,000,000.00

shall bear interest of P40,000.00 per month for six (6) months from December 8,

1993 as indicated in the promissory note. Any portion of this loan, unpaid as of the

end of the six-month payment period, shall thereafter bear interest at 12% per

annum. The total amount due and unpaid, including accrued interests, shall bear

interest at 12% per annum from the finality of this Decision. Let this case

be REMANDED to the Regional Trial Court, Branch 73, Antipolo City for the

proper computation of the amount due as herein directed, with due regard to the

payments the petitioners have already remitted. Costs against the respondent.

SO ORDERED.



FIRST DIVISION

JOSE C. TUPAZ IV and G.R. No. 145578

PETRONILA C. TUPAZ,

Petitioners,

Present:

Davide, Jr., C.J.,

Chairman,

- versus - Quisumbing,

Ynares-Santiago,

Carpio, and

Azcuna, JJ.

THE COURT OF APPEALS and

BANK OF THE PHILIPPINE Promulgated:

ISLANDS,

Respondents. November 18, 2005

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION



CARPIO, J.:

The Case

This is a petition for review[1]

of the Decision[2]

of the Court of Appeals dated

7 September 2000 and its Resolution dated 18 October 2000. The 7

September 2000 Decision affirmed the ruling of the Regional Trial Court, Makati,

Branch 144 in a case for estafa under Section 13, Presidential Decree No. 115.

The Court of Appeals’ Resolution of 18 October 2000 denied petitioners’ motion

for reconsideration.

The Facts

Petitioners Jose C. Tupaz IV and Petronila C. Tupaz (“petitioners”) were Vice-

President for Operations and Vice-President/Treasurer, respectively, of El Oro

Engraver Corporation (“El Oro Corporation”). El Oro Corporation had a contract

with the Philippine Army to supply the latter with “survival bolos.”

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To finance the purchase of the raw materials for the survival bolos,

petitioners, on behalf of El Oro Corporation, applied with respondent Bank of the

Philippine Islands (“respondent bank”) for two commercial letters of credit. The

letters of credit were in favor of El Oro Corporation’s suppliers, Tanchaoco

Manufacturing Incorporated[3]

(“Tanchaoco Incorporated”) and Maresco Rubber

and Retreading Corporation[4]

(“Maresco Corporation”). Respondent bank granted

petitioners’ application and issued Letter of Credit No. 2-00896-3 for P564,871.05

to Tanchaoco Incorporated and Letter of Credit No. 2-00914-5 for P294,000 to

Maresco Corporation.

Simultaneous with the issuance of the letters of credit, petitioners signed

trust receipts in favor of respondent bank. On 30 September 1981, petitioner Jose

C. Tupaz IV (“petitioner Jose Tupaz”) signed, in his personal capacity, a trust

receipt corresponding to Letter of Credit No. 2-00896-3 (for P564,871.05).

Petitioner Jose Tupaz bound himself to sell the goods covered by the letter of

credit and to remit the proceeds to respondent bank, if sold, or to return the

goods, if not sold, on or before 29 December 1981.

On 9 October 1981, petitioners signed, in their capacities as officers of El

Oro Corporation, a trust receipt corresponding to Letter of Credit No. 2-00914-5

(for P294,000). Petitioners bound themselves to sell the goods covered by that

letter of credit and to remit the proceeds to respondent bank, if sold, or to return

the goods, if not sold, on or before 8 December 1981.









After Tanchaoco Incorporated and Maresco Corporation delivered the raw

materials to El Oro Corporation, respondent bank paid the former P564,871.05

and P294,000, respectively.

Petitioners did not comply with their undertaking under the trust receipts.

Respondent bank made several demands for payments but El Oro Corporation

made partial payments only. On 27 June 1983 and 28 June 1983, respondent

bank’s counsel[5]

and its representative[6]

respectively sent final demand letters to

El Oro Corporation. El Oro Corporation replied that it could not fully pay its debt

because the Armed Forces of the Philippines had delayed paying for the survival

bolos.

Respondent bank charged petitioners with estafa under Section 13,

Presidential Decree No. 115 (“Section 13”)[7]

or Trust Receipts Law (“PD 115”).

After preliminary investigation, the then Makati Fiscal’s Office found probable

cause to indict petitioners. The Makati Fiscal’s Office filed the corresponding

Informations (docketed as Criminal Case Nos. 8848 and 8849) with the Regional

Trial Court, Makati, on 17 January 1984 and the cases were raffled to Branch 144

(“trial court”) on 20 January 1984. Petitioners pleaded not guilty to the charges

and trial ensued. During the trial, respondent bank presented evidence on the

civil aspect of the cases.

The Ruling of the Trial Court














On 16 July 1992, the trial court rendered judgment acquitting petitioners of estafa on reasonable doubt. However, the trial court found petitioners solidarily

liable with El Oro Corporation for the balance of El Oro Corporation’s principal

debt under the trust receipts. The dispositive portion of the trial court’s Decision

provides:

WHEREFORE, judgment is hereby rendered ACQUITTING bothaccused Jose C. Tupaz, IV and Petronila Tupaz based upon reasonable

doubt.

However, El Oro Engraver Corporation, Jose C. Tupaz, IV and

Petronila Tupaz, are hereby ordered, jointly and solidarily, to pay the

Bank of the Philippine Islands the outstanding principal obligation

of P624,129.19 (as of January 23, 1992) with the stipulated interest atthe rate of 18% per annum; plus 10% of the total amount due as

attorney’s fees; P5,000.00 as expenses of litigation; and costs of the

suit.[8]

In holding petitioners civilly liable with El Oro Corporation, the trial court

held:







[S]ince the civil action for the recovery of the civil liability is

deemed impliedly instituted with the criminal action, as in fact the

prosecution thereof was actively handled by the private prosecutor, the

Court believes that the El Oro Engraver Corporation and both accused

Jose C. Tupaz and Petronila Tupaz, jointly and solidarily should be held

civilly liable to the Bank of the Philippine Islands. The mere fact that

they were unable to collect in full from the AFP and/or the Department

of National Defense the proceeds of the sale of the delivered survival

bolos manufactured from the raw materials covered by the trust receipt

agreements is no valid defense to the civil claim of the said complainant

and surely could not wipe out their civil obligation. After all, they are

free to institute an action to collect the same.[9]

Petitioners appealed to the Court of Appeals. Petitioners contended that:

(1) their acquittal “operates to extinguish *their+ civil liability” and (2) at any rate,

they are not personally liable for El Oro Corporation’s debts.

The Ruling of the Court of Appeals

In its Decision of 7 September 2000, the Court of Appeals affirmed the trialcourt’s ruling. The appellate court held:

It is clear from [Section 13, PD 115] that civil liability arising from

the violation of the trust receipt agreement is distinct from the criminal







liability imposed therein. In the case of Vintola vs. Insular Bank of Asia

and America, our Supreme Court held that acquittal in the estafa case

(P.D. 115) is no bar to the institution of a civil action for collection. This

is because in such cases, the civil liability of the accused does not

arise ex delicto but rather based ex contractu and as such is distinct and

independent from any criminal proceedings and may proceed

regardless of the result of the latter. Thus, an independent civil action

to enforce the civil liability may be filed against the corporation aside

from the criminal action against the responsible officers or employees.

xxx

[W]e hereby hold that the acquittal of the accused-appellants

from the criminal charge of estafa did not operate to extinguish their

civil liability under the letter of credit-trust receipt arrangement with

plaintiff-appellee, with which they dealt both in their personal capacity

and as officers of El Oro Engraver Corporation, the letter of credit

applicant and principal debtor.

Appellants argued that they cannot be held solidarily liable with

their corporation, El Oro Engraver Corporation, alleging that they

executed the subject documents including the trust receipt agreements

only in their capacity as such corporate officers. They said that these

instruments are mere pro-forma and that they executed these

instruments on the strength of a board resolution of said corporation

authorizing them to apply for the opening of a letter of credit in favor of

their suppliers as well as to execute the other documents necessary to

accomplish the same.



Such contention, however, is contradicted by the evidence on

record. The trust receipt agreement indicated in clear and

unmistakable terms that the accused signed the same as surety for thecorporation and that they bound themselves directly and immediately

liable in the event of default with respect to the obligation under the

letters of credit which were made part of the said agreement, without

need of demand. Even in the application for the letter of credit, it is

likewise clear that the undertaking of the accused is that of a surety as

indicated *in+ the following words: “In consideration of your

establishing the commercial letter of credit herein applied for

substantially in accordance with the foregoing, the undersignedApplicant and Surety hereby agree, jointly and severally, to each and all

stipulations, provisions and conditions on the reverse side hereof.”

xxx

Having contractually agreed to hold themselves solidarily liablewith El Oro Engraver Corporation under the subject trust receipt

agreements with appellee Bank of the Philippine Islands, herein

accused-appellants may not, therefore, invoke the separate legal

personality of the said corporation to evade their civil liability under the

letter of credit-trust receipt arrangement with said appellee,

notwithstanding their acquittal in the criminal cases filed against them.

The trial court thus did not err in holding the appellants solidarily liable

with El Oro Engraver Corporation for the outstanding principal

obligation of P624,129.19 (as of January 23, 1992) with the stipulated

interest at the rate of 18% per annum, plus 10% of the total amount

due as attorney’s fees, P5,000.00 as expenses of litigation and costs of

suit.[10]







Hence, this petition. Petitioners contend that:

1. A JUDGMENT OF ACQUITTAL OPERATE[S] TO EXTINGUISH THE

CIVIL LIABILITY OF PETITIONERS[;]

2. GRANTING WITHOUT ADMITTING THAT THE QUESTIONED

OBLIGATION WAS INCURRED BY THE CORPORATION, THE SAME IS

NOT YET DUE AND PAYABLE;

3. GRANTING THAT THE QUESTIONED OBLIGATION WAS ALREADY

DUE AND PAYABLE, xxx PETITIONERS ARE NOT PERSONALLY LIABLE

TO xxx RESPONDENT BANK, SINCE THEY SIGNED THE LETTER[S] OF

CREDIT AS ‘SURETY’ AS OFFICERS OF EL ORO, AND THEREFORE, AN

EXCLUSIVE LIABILITY OF EL ORO; [AND]

4. IN THE ALTERNATIVE, THE QUESTIONED TRANSACTIONS ARE

SIMULATED AND VOID.[11]

The Issues







The petition raises these issues:

(1) Whether petitioners bound themselves personally liable for El Oro

Corporation’s debts under the trust receipts;

(2) If so —

(a) whether petitioners’ liability is solidary with El Oro Corporation;and

(b) whether petitioners’ acquittal of estafa under Section 13, PD 115

extinguished their civil liability.

The Ruling of the Court

The petition is partly meritorious. We affirm the Court of Appeals’ ruling

with the modification that petitioner Jose Tupaz is liable as guarantor of El Oro

Corporation’s debt under the trust receipt dated 30 September 1981.



On Petitioners’ Undertaking Under the Trust Receipts

A corporation, being a juridical entity, may act only through its directors,

officers, and employees. Debts incurred by these individuals, acting as such

corporate agents, are not theirs but the direct liability of the corporation they

represent.[12]

As an exception, directors or officers are personally liable for the

corporation’s debts only if they so contractually agree or stipulate.[13]

Here, the dorsal side of the trust receipts contains the following stipulation:

To the Bank of the Philippine Islands

In consideration of your releasing to

………………………………… under the terms of this Trust Receipt

the goods described herein, I/We, jointly and severally, agree and

promise to pay to you, on demand, whatever sum or sums of money

which you may call upon me/us to pay to you, arising out of, pertaining

to, and/or in any way connected with, this Trust Receipt, in the event of

default and/or non-fulfillment in any respect of this undertaking on the

part of the said ……………………………………. I/we further agree

that my/our liability in this guarantee shall be DIRECT AND

IMMEDIATE, without any need whatsoever on your part to take any

steps or exhaust any legal remedies that you may have against the said

…………………………………. before making demand upon

me/us.[14](Capitalization in the original)















In the trust receipt dated 9 October 1981, petitioners signed below this

clause as officers of El Oro Corporation. Thus, under petitioner Petronila Tupaz’s

signature are the words “Vice-Pres –Treasurer” and under petitioner Jose Tupaz’s

signature are the words “Vice-Pres –Operations.” By so signing that trust receipt,

petitioners did not bind themselves personally liable for El Oro Corporation’s

obligation. In Ong v. Court of Appeals,[15]

a corporate representative signed a

solidary guarantee clause in two trust receipts in his capacity as corporate

representative. There, the Court held that the corporate representative did not

undertake to guarantee personally the payment of the corporation’s debts, thus:

[P]etitioner did not sign in his personal capacity the solidary

guarantee clause found on the dorsal portion of the trust receipts.

Petitioner placed his signature after the typewritten words “ARMCO

INDUSTRIAL CORPORATION” found at the end of the solidary guarantee

clause. Evidently, petitioner did not undertake to guaranty personally

the payment of the principal and interest of ARMAGRI’s debt under the

two trust receipts.

Hence, for the trust receipt dated 9 October 1981, we sustain petitioners’ claim

that they are not personally liable for El Oro Corporation’s obligation.







For the trust receipt dated 30 September 1981, the dorsal portion of which

petitioner Jose Tupaz signed alone, we find that he did so in his personal capacity.

Petitioner Jose Tupaz did not indicate that he was signing as El Oro Corporation’s

Vice-President for Operations. Hence, petitioner Jose Tupaz bound himself

personally liable for El Oro Corporation’s debts. Not being a party to the trust

receipt dated 30 September 1981, petitioner Petronila Tupaz is not liable under

such trust receipt.

The Nature of Petitioner Jose Tupaz’s Liability

Under the Trust Receipt Dated 30 September 1981

As stated, the dorsal side of the trust receipt dated 30 September 1981

provides:

To the Bank of the Philippine Islands

In consideration of your releasing to

………………………………… under the terms of this Trust Receiptthe goods described herein, I/We, jointly and severally, agree and

promise to pay to you, on demand, whatever sum or sums of money

which you may call upon me/us to pay to you, arising out of, pertaining

to, and/or in any way connected with, this Trust Receipt, in the event of

default and/or non-fulfillment in any respect of this undertaking on the

part of the said ……………………………………. I/we further agree



that my/our liability in this guarantee shall be DIRECT AND

IMMEDIATE,without any need whatsoever on your part to take any

steps or exhaust any legal remedies that you may have against the said

……………………………………………. Before making demand upon

me/us. (Underlining supplied; capitalization in the original)

The lower courts interpreted this to mean that petitioner Jose Tupaz bound

himself solidarily liable with El Oro Corporation for the latter’s debt under that

trust receipt.

This is error.

In Prudential Bank v. Intermediate Appellate Court ,[16]

the Court

interpreted a substantially identical clause[17]

in a trust receipt signed by a

corporate officer who bound himself personally liable for the corporation’s

obligation. The petitioner in that case contended that the stipulation “we jointly

and severally agree and undertake” rendered the corporate officer solidarily liable

with the corporation. We dismissed this claim and held the corporate officer

liable as guarantor only. The Court further ruled that had there been more than

one signatories to the trust receipt, the solidary liability would exist between the

guarantors. We held:

Petitioner [Prudential Bank] insists that by virtue of the clear

wording of the xxx clause “x x x we jointly and severally agree andundertake x x x,” and the concluding sentence on exhaustion,

*respondent+ Chi’s liability therein is solidary.

xxx










Our xxx reading of the questioned solidary guaranty clause yields

no other conclusion than that the obligation of Chi is only that of

a guarantor . This is further bolstered by the last sentence which speaksof waiver of exhaustion, which, nevertheless, is ineffective in this case

because the space therein for the party whose property may not be

exhausted was not filled up. Under Article 2058 of the Civil Code, the

defense of exhaustion (excussion) may be raised by a guarantor before

he may be held liable for the obligation. Petitioner likewise admits that

the questioned provision is a solidary guarantyclause, thereby clearly

distinguishing it from a contract of surety. It, however, described the

guaranty as solidary between the guarantors; this would have beencorrect if two (2) guarantors had signed it. The clause “we jointly and

severally agree and undertake” refers to the undertaking of the two (2)

parties who are to sign it or to the liability existing between themselves.

It does not refer to the undertaking between either one or both of

them on the one hand and the petitioner on the other with respect to

the liability described under the trust receipt. xxx

Furthermore, any doubt as to the import or true intent of the solidary guaranty

clause should be resolved against the petitioner. The trust receipt, together with the

questioned solidary guaranty clause, is on a form drafted and prepared solely by the

petitioner; Chi’s participation therein is limited to the affixing of his signature thereon. It

is, therefore, a contract of adhesion; as such, it must be strictly construed against the

party responsible for its preparation.[18] (Underlining supplied; italicization in the

original)

However, respondent bank’s suit against petitioner Jose Tupaz stands

despite the Court’s finding that he is liable as guarantor only. First, excussion is

not a pre-requisite to secure judgment against a guarantor. The guarantor can still







demand deferment of the execution of the judgment against him until after the

assets of the principal debtor shall have been exhausted.[19]

Second, the benefit of

excussion may be waived.[20]

Under the trust receipt dated 30 September 1981,

petitioner Jose Tupaz waived excussion when he agreed that his “liability in *the+

guaranty shall be DIRECT AND IMMEDIATE, without any need whatsoever on xxx

[the] part [of respondent bank] to take any steps or exhaust any legal remedies

xxx.” The clear import of this stipulation is that petitioner Jose Tupaz waived the

benefit of excussion under his guarantee.

As guarantor, petitioner Jose Tupaz is liable for El Oro Corporation’s

principal debt and other accessory liabilities (as stipulated in the trust receipt and

as provided by law) under the trust receipt dated 30 September 1981. That trust

receipt (and the trust receipt dated 9 October 1981) provided for payment of

attorney’s fees equivalent to 10% of the total amount due and an “interest at the

rate of 7% per annum, or at such other rate as the bank may fix, from the date

due until paid xxx.”[21]

In the applications for the letters of credit, the parties

stipulated that drafts drawn under the letters of credit are subject to interest at

the rate of 18% per annum.[22]

The lower courts correctly applied the 18% interest rate per

annum considering that the face value of each of the trust receipts is based on

the drafts drawn under the letters of credit. Based on the guidelines laid down in



















Eastern Shipping Lines, Inc. v. Court of Appeals,[23]

the accrued stipulated interest

earns 12% interest per annum from the time of the filing of the Informations in

the Makati Regional Trial Court on 17 January 1984. Further, the total amount

due as of the date of the finality of this Decision will earn interest at 18% per

annum until fully paid since this was the stipulated rate in the applications for the

letters of credit.[24]

The accounting of El Oro Corporation’s debts as of 23 January 1992, which

the trial court used, is no longer useful as it does not specify the amounts owing

under each of the trust receipts. Hence, in the execution of this Decision, the trial

court shall compute El Oro Corporation’s total liability under each of the trust

receipts dated 30 September 1981 and 9 October 1981 based on the following

formula:[25]

TOTAL AMOUNT DUE = [principal + interest + interest on interest]

– partial payments made[26]

Interest = principal x 18 % per annum x no. of years from due

date[27] until finality of judgment

Interest on interest = interest computed as of the filing of the

complaint (17 January 1984) x 12% x no. of years until finality of

judgment

Attorney’s fees is 10% of the total amount computed as of

finality of judgment





















Total amount due as of the date of finality of judgment will earn

an interest of 18% per annum until fully paid.

In so delegating this task, we reiterate what we said in Rizal Commercial Banking

Corporation v. Alfa RTW Manufacturing Corporation[28]

where we also ordered

the trial court to compute the amount of obligation due based on a formula

substantially similar to that indicated above:

The total amount due xxx [under] the xxx contract[] xxx may be

easily determined by the trial court through a simple mathematical

computation based on the formula specified above. Mathematics is an

exact science, the application of which needs no further proof from the

parties.

Petitioner Jose Tupaz’s Acquittal did not

Extinguish his Civil Liability

The rule is that where the civil action is impliedly instituted with the

criminal action, the civil liability is not extinguished by acquittal —






[w]here the acquittal is based on reasonable doubt xxx as only

preponderance of evidence is required in civil cases; where the court

expressly declares that the liability of the accused is not criminal butonly civil in nature xxx as, for instance, in the felonies of estafa, theft,

and malicious mischief committed by certain relatives who thereby

incur only civil liability (See Art. 332, Revised Penal Code); and, where

the civil liability does not arise from or is not based upon the criminal

act of which the accused was acquitted xxx.[29] (Emphasis supplied)

Here, respondent bank chose not to file a separate civil action[30]

to recover

payment under the trust receipts. Instead, respondent bank sought to recover

payment in Criminal Case Nos. 8848 and 8849. Although the trial court acquitted

petitioner Jose Tupaz, his acquittal did not extinguish his civil liability. As the

Court of Appeals correctly held, his liability arose not from the criminal act of

which he was acquitted (ex delito) but from the trust receipt contract (ex

contractu) of 30 September 1981. Petitioner Jose Tupaz signed the trust receipt

of 30 September 1981 in his personal capacity.

On the other Matters Petitioners Raise

Petitioners raise for the first time in this appeal the contention that El Oro

Corporation’s debts under the trust receipts are not yet due and demandable.










Alternatively, petitioners assail the trust receipts as simulated. These assertions

have no merit. Under the terms of the trust receipts dated 30 September 1981

and 9 October 1981, El Oro Corporation’s debts fell due on 29 December 1981

and 8 December 1981, respectively.

Neither is there merit to petitioners’ claim that the trust receipts were

simulated. During the trial, petitioners did not deny applying for the letters of

credit and subsequently executing the trust receipts to secure payment of the

drafts drawn under the letters of credit.

WHEREFORE, we GRANT the petition in part. We AFFIRM the Decision of

the Court of Appeals dated 7 September 2000 and its Resolution dated 18

October 2000 with the following MODIFICATIONS:

1) El Oro Engraver Corporation is principally liable for the total amount due

under the trust receipts dated 30 September 1981 and 9 October 1981,

as computed by the Regional Trial Court, Makati, Branch 144, upon

finality of this Decision, based on the formula provided above;

2) Petitioner Jose C. Tupaz IV is liable for El Oro Engraver Corporation’s

total debt under the trust receipt dated 30 September 1981 as thus

computed by the Regional Trial Court, Makati, Branch 144; and



3) Petitioners Jose C. Tupaz IV and Petronila C. Tupaz are not liable under

the trust receipt dated 9 October 1981.

SO ORDERED.



SECOND DIVISION

LYNVIL FISHING ENTERPRISES, INC. and/or

ROSENDO S. DE BORJA,

Petitioners,

-versus-

ANDRES G. ARIOLA, JESSIE D.

ALCOVENDAS, JIMMY B. CALINAO AND LEOPOLDOG. SEBULLEN,

Respondents.

G.R. No. 181974

Present:

CARPIO, J.,

Chairperson,

BRION,

PEREZ,

SERENO, and

REYES, JJ.

Promulgated:

February 1, 2012

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

PEREZ, J.:



Before the Court is a Petition for Review on Certiorari[1]

of the Decision[2]

of

the Fourteenth Division of the Court of Appeals in CA-G.R. SP No. 95094 dated 10

September 2007, granting the Writ of Certiorari prayed for under Rule 65 of the

1997 Revised Rules of Civil Procedure by herein respondents Andres G. Ariola,

Jessie D. Alcovendas, Jimmy B. Calinao and Leopoldo Sebullen thereby reversingthe Resolution of the National Labor Relations Commission (NLRC). The

dispositive portion of the assailed decision reads:

WHEREFORE, premises considered, the Decision dated March 31, 2004

rendered by the National Labor Relations Commission is

hereby REVERSED and SET ASIDE. In lieu thereof, the Decision of the Labor

Arbiter is hereby REINSTATED, except as to the award of attorney’s fees, whichis ordered DELETED.

[3]

The version of the petitioners follows:

1. Lynvil Fishing Enterprises, Inc. (Lynvil) is a company engaged in deep-

sea fishing, operating along the shores of Palawan and other outlying islands of thePhilippines.[4] It is operated and managed by Rosendo S. de Borja.

2. On 1 August 1998, Lynvil received a report from Romanito Clarido, one

of its employees, that on 31 July 1998, he witnessed that while on board thecompany vessel Analyn VIII, Lynvil employees, namely: Andres G. Ariola

(Ariola), the captain; Jessie D. Alcovendas (Alcovendas), Chief Mate; Jimmy B.Calinao (Calinao), Chief Engineer; Ismael G. Nubla (Nubla), cook; Elorde Bañez

(Bañez), oiler; and Leopoldo D. Sebullen (Sebullen), bodegero, conspired with oneanother and stole eight (8) tubs of “ pampano” and “tangigue” fish and delivered

them to another vessel, to the prejudice of Lynvil.[5]

3. The said employees were engaged on a per trip basis or “ por viaje”which terminates at the end of each trip. Ariola, Alcovendas and Calinao were

managerial field personnel while the rest of the crew were field personnel.[6]

4. By reason of the report and after initial investigation, Lynvil’s GeneralManager Rosendo S. De Borja (De Borja) summoned respondents to explain

within five (5) days why they should not be dismissed from service. However,except for Alcovendas and Bañez,[7] the respondents refused to sign the receipt of

the notice.

http://sc.judiciary.gov.ph/jurisprudence/2012/february2012/181974.htm#_ftn1





























5. Failing to explain as required, respondents’ employment was terminated.

6. Lynvil, through De Borja, filed a criminal complaint against the

dismissed employees for violation of P.D. 532, or the Anti-Piracy and Anti-

Highway Robbery Law of 1974 before the Office of the City Prosecutor of Malabon City.[8]

7. On 12 November 1998, First Assistant City Prosecutor Rosauro Silverio

found probable cause for the indictment of the dismissed employees for the crimeof qualified thef t[9] under the Revised Penal Code.

On the other hand, the story of the defense is:

1. The private respondents were crew members of Lynvil’s vessel named

Analyn VIII.[10]

2. On 31 July 1998, they arrived at the Navotas Fishport on board Analyn

VIII loaded with 1,241 bañeras of different kinds of fishes. These bañeras were

delivered to a consignee named SAS and Royale.[11]

The following day, the private respondents reported back to Lynvil office to

inquire about their new job assignment but were told to wait for further advice. They were not allowed to board any vessel.[12]

3. On 5 August 1998, only Alcovendas and Bañez received a memorandumfrom De Borja ordering them to explain the incident that happened on 31 July

1998. Upon being informed about this, Ariola, Calinao, Nubla and Sebullen wentto the Lynvil office. However, they were told that their employments were already

terminated.[13]

Aggrieved, the employees filed with the Arbitration Branch of the NationalLabor Relations Commission-National Capital Region on 25 August 1998 a

complaint for illegal dismissal with claims for backwages, salary differential

reinstatement, service incentive leave, holiday pay and its premium and 13th month pay from 1996 to1998. They also claimed for moral, exemplary damages and

attorney’s fees for their dismissal with bad faith.[14]

They added that the unwarranted accusation of theft stemmed from their oral

demand of increase of salaries three months earlier and their request that theyshould not be required to sign a blank payroll and vouchers.[15]



































On 5 June 2002, Labor Arbiter Ramon Valentin C. Reyes found merit incomplainants’ charge of illegal dismissal.[16] The dispositive portion reads:

WHEREFORE, premises considered, judgment is hereby rendered finding

that complainants were illegally dismissed, ordering respondents to jointly andseverally pay complainants (a) separation pay at one half month pay for everyyear of service; (b) backwages; (c) salary differential; (d) 13

thmonth pay; and (e)

attorney’s fees, as follows:

“1) Andres Ariola

Backwages P234,000.00

(P6,500.00 x 36 = P234,000.00)

Separation Pay – P74,650.00

13th

Month Pay – P6,500.00P325,250.00

“2) Jessie Alcovendas


(P5,148.00 x 36 = P195,328.00)


13th

Month Pay – 5,538.00

Salary Differential – 1,547.52

P246,717.52

“3) Jimmy Calinao


(P6,500.00 x 36 = P234,000.00)

Separation Pay – 55,250.00

13th

Month Pay –

P6,500.00P295,700.00

“4) Leopoldo Sebullen


(P4, 290.00 x 36 = P154,440.00)








13th


Salary Differential – 4,472.00

P208,455.12

“5) Ismael Nubla



13th


Salary Differential – P5,538.00

P265, 28.12

___________

TOTAL P 1, 341, 650.76

All other claims are dismissed for lack of merit.”[17]

The Labor Arbiter found that there was no evidence showing that the private

respondents received the 41 bañeras of “ pampano” as alleged by De Borja in hisreply-affidavit; and that no proof was presented that the

8 bañeras of pampano [and tangigue] were missing at the place of destination.[18]

The Labor Arbiter disregarded the Resolution of Assistant City Prosecutor Rosauro Silverio on the theft case. He reasoned out that the Labor Office is

governed by different rules for the determination of the validity of the dismissal of employees.[19]

The Labor Arbiter also ruled that the contractual provision that the

employment terminates upon the end of each trip does not make the respondents’

dismissal legal. He pointed out that respondents and Lynvil did not negotiate onequal terms because of the moral dominance of the employer .[20]

The Labor Arbiter found that the procedural due process was not complied

with and that the mere notice given to the private respondents fell short of the

requirement of “ample opportunity” to present the employees’ side.[21]























On appeal before the National Labor Relations Commission, petitioners

asserted that private respondents were only contractual employees; that they werenot illegally dismissed but were accorded procedural due process and that De Borja

did not commit bad faith in dismissing the employees so as to warrant his joint

liability with Lynvil.[22]

On 31 March 2004, the NLRC reversed and set aside the Decision of theLabor Arbiter. The dispositive portion reads:

WHEREFORE, judgment is hereby rendered REVERSING AND

SETTING ASIDE the Decision of the Labor Arbiter a quo and a new one entered

DISMISSING the present complaints for utter lack of merit;

However as above discussed, an administrative fine of PhP5,000.00 for each complainant, Andres Ariola, Jessie Alcovendas, Jimmy Canilao, Leopoldo

Sebullen and Ismael Nobla or a total of PhP25,000.00 is hereby awarded.[23]

The private respondents except Elorde Bañez filed a Petition

for Certiorar i[24]

before the Court of Appeals alleging grave abuse of discretion on

the part of NLRC.

The Court of Appeals found merit in the petition and reinstated the Decision

of the Labor Arbiter except as to the award of attorney’s fees. The appellate courtheld that the allegation of theft did not warrant the dismissal of the employees

since there was no evidence to prove the actual quantities of the missing kinds of

fish loaded to Analyn VIII.[25] It also reversed the finding of the NLRC that thedismissed employees were merely contractual employees and added that they were

regular ones performing activities which are usually necessary or desirable in the business and trade of Lynvil. Finally, it ruled that the two-notice rule provided by

law and jurisprudence is mandatory and non-compliance therewith rendered the

dismissal of the employees illegal.

The following are the assignment of errors presented before this Court by

Lynvil:

I

THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO

CONSIDER THE ESTABLISHED DOCTRINE LAID DOWN IN NASIPIT LUMBER COMPANY V. NLRC HOLDING THAT THE FILING OF A

CRIMINAL CASE BEFORE THE PROSECUTOR’S OFFICE CONSTITUTES

SUFFICIENT BASIS FOR A VALID TERMINATION OF EMPLOYMENT ON



















THE GROUNDS OF SERIOUS MISCONDUCT AND/OR LOSS OF TRUST

AND CONFIDENCE.

II

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THETERMINATION OF RESPONDENTS’ EMPLOYMENT WAS NOTSUPPORTED BY SUBSTANTIAL EVIDENCE.

III


CONSIDER THAT THE RESPONDENTS’ EMPLOYMENT, IN ANY EVENT,

WERE CONTRACTUAL IN NATURE BEING ON A PER VOYAGE BASIS.

THUS, THEIR RESPECTIVE EMPLOYMENT TERMINATED AFTER THEEND OF EACH VOYAGE

IV

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE

RESPONDENTS WERE NOT ACCORDED PROCEDURAL DUE PROCESS.

V

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THERESPONDENTS ARE ENTITLED TO THE PAYMENT OF THEIR MONEY

CLAIMS.

VI


CONSIDER THAT PETITIONER ROSENDO S. DE BORJA IS NOT JOINTLYAND SEVERALLY LIABLE FOR THE JUDGMENT WHEN THERE WAS NO

FINDING OF BAD FAITH.[26]

The Court’s Ruling

The Supreme Court is not a trier of facts. Under Rule 45,[27]

parties may

raise only questions of law. We are not duty-bound to analyze again and weigh

the evidence introduced in and considered by the tribunals below. Generally

when supported by substantial evidence, the findings of fact of the CA are

conclusive and binding on the parties and are not reviewable by this Court, unless

the case falls under any of the following recognized exceptions:











(1) When the conclusion is a finding grounded entirely on speculation, surmises and

conjectures;

(2) When the inference made is manifestly mistaken, absurd or impossible;

(3) Where there is a grave abuse of discretion;

(4) When the judgment is based on a misapprehension of facts;

(5) When the findings of fact are conflicting;

(6) When the Court of Appeals, in making its findings, went beyond the issues of the case

and the same is contrary to the admissions of both appellant and appellee;

(7) When the findings are contrary to those of the trial court;

(8) When the findings of fact are conclusions without citation of specific evidence on

which they are based;

(9) When the facts set forth in the petition as well as in the petitioners' main and reply

briefs are not disputed by the respondents; and

(10) When the findings of fact of the Court of Appeals are premised on the supposed

absence of evidence and contradicted by the evidence on record. (Emphasis

supplied)[28]

The contrariety of the findings of the Labor Arbiter and the NLRC preventsreliance on the principle of special administrative expertise and provides the reason

for judicial review, at first instance by the appellate court, and on final studythrough the present petition.

In the first assignment of error, Lynvil contends that the filing of a criminal

case before the Office of the Prosecutor is sufficient basis for a valid termination of employment based on serious misconduct and/or loss of trust and confidence

relying on Nasipit Lumber Company v. NLRC .[29]

Nasipit is about a security guard who was charged with qualified theft whichcharge was dismissed by the Office of the Prosecutor. However, despite thedismissal of the complaint, he was still terminated from his employment on the

ground of loss of confidence. We ruled that proof beyond reasonable doubt of anemployee's misconduct is not required when loss of confidence is the ground for

dismissal. It is sufficient if the employer has "some basis" to lose confidence or

that the employer has reasonable ground to believe or to entertain the moral











conviction that the employee concerned is responsible for the misconduct and that

the nature of his participation therein rendered him absolutely unworthy of the trustand confidence demanded by his position.[30] It added that the dropping of the

qualified theft charges against the respondent is not binding upon a labor

tribunal.[31]

In Nicolas v. National Labor Relations Commission ,[32]

we held that acriminal conviction is not necessary to find just cause for employment termination.

Otherwise stated, an employee’s acquittal in a criminal case, especially one that isgrounded on the existence of reasonable doubt, will not preclude a determination in

a labor case that he is guilty of acts inimical to the employer’s interests.[33] In the

reverse, the finding of probable cause is not followed by automatic adoption of such finding by the labor tribunals.

In other words, whichever way the public prosecutor disposes of acomplaint, the finding does not bind the labor tribunal.

Thus, Lynvil cannot argue that since the Office of the Prosecutor found

probable cause for theft the Labor Arbiter must follow the finding as a valid reasonfor the termination of respondents’ employment. The proof required for purposes

that differ from one and the other are likewise different.

Nonetheless, even without reliance on the prosecutor’s finding, we find that

there was valid cause for respondents’ dismissal.

In illegal dismissal cases, the employer bears the burden of proving that the

termination was for a valid or authorized cause.[34]

Just cause is required for a valid dismissal. The Labor Code[35]

provides that

an employer may terminate an employment based on fraud or willful breach of

the trust reposed on the employee. Such breach is considered willful if it is done

intentionally, knowingly, and purposely, without justifiable excuse, asdistinguished from an act done carelessly, thoughtlessly, heedlessly or

inadvertently. It must also be based on substantial evidence and not on the

employer’s whims or caprices or suspicions otherwise, the employee would

eternally remain at the mercy of the employer. Loss of confidence must not be

indiscriminately used as a shield by the employer against a claim that the

dismissal of an employee was arbitrary. And, in order to constitute a just cause for


























dismissal, the act complained of must be work-related and shows that the

employee concerned is unfit to continue working for the employer. In addition,

loss of confidence as a just cause for termination of employment is premised on

the fact that the employee concerned holds a position of responsibility, trust and

confidence or that the employee concerned is entrusted with confidence withrespect to delicate matters, such as the handling or care and protection of the

property and assets of the employer. The betrayal of this trust is the essence of

the offense for which an employee is penalized.[36]

Breach of trust is present in this case.

We agree with the ruling of the Labor Arbiter and Court of Appeals that the

quantity of tubs expected to be received was the same as that which was

loaded. However, what is material is the kind of fish loaded and then

unloaded. Sameness is likewise needed.

We cannot close our eyes to the positive and clear narration of facts of the

three witnesses to the commission of qualified theft. Jonathan Distajo, a crew

member of the Analyn VIII, stated in his letter addressed to De Borja[37]

dated 8

August 1998, that while the vessel was traversing San Nicolas, Cavite, he saw a

small boat approach them. When the boat was next to their vessel, Alcovendas

went inside the stockroom while Sebullen pushed an estimated four tubs of fish

away from it. Ariola, on the other hand, served as the lookout and negotiator of

the transaction. Finally, Bañez and Calinao helped in putting the tubs in the smallboat. He further added that he received P800.00 as his share for the

transaction. Romanito Clarido, who was also on board the vessel, corroborated

the narration of Distajo on all accounts in his 25 August 1998 affidavit.[38]

He

added that Alcovendas told him to keep silent about what happened on that

day. Sealing tight the credibility of the narration of theft is the

affidavit[39]

executed by Elorde Bañez dated 3 May 1999. Bañez was one of the

dismissed employees who actively participated in the taking of the tubs. He

clarified in the affidavit that the four tubs taken out of the stockroom in fact

contained fish taken from the eight tubs. He further stated that Ariola toldeveryone in the vessel not to say anything and instead file a labor case against the

management. Clearly, we cannot fault Lynvil and De Borja when it dismissed the

employees.

The second to the fifth assignment of errors interconnect.


















The nature of employment is defined in the Labor Code, thus:

Art. 280. Regular and casual employment. The provisions of

written agreement to the contrary notwithstanding and regardless

of the oral agreement of the parties, an employment shall be

deemed to be regular where the employee has been engaged to perform activities which are usually necessary or desirable in the

usual business or trade of the employer, except where the

employment has been fixed for a specific project or undertaking

the completion or termination of which has been determined at the

time of the engagement of the employee or where the work or

service to be performed is seasonal in nature and the employment

is for the duration of the season.

An employment shall be deemed to be casual if it is not covered

by the preceding paragraph: Provided, That any employee who

has rendered at least one year of service, whether such service is

continuous or broken, shall be considered a regular employee with

respect to the activity in which he is employed and his

employment shall continue while such activity exists.

Lynvil contends that it cannot be guilty of illegal dismissal because the

private respondents were employed under a fixed-term contract which expired at

the end of the voyage. The pertinent provisions of the contract are:

xxxx

1. NA ako ay sumasang-ayon na maglingkod at gumawa ng mga gawain sang-

ayon sa patakarang “por viaje” na magmumula sa pagalis sa Navotas papuntasa pangisdaan at pagbabalik sa pondohan ng lantsa sa Navotas, Metro Manila;

xxxx

1. NA ako ay nakipagkasundo na babayaran ang aking paglilingkod sa paraang

“por viaje” sa halagang P__________ isang biyahe ng kabuuang araw

xxxx.[40]

Lynvil insists on the applicability of the case of Brent School ,[41]

to wit:

Accordingly, and since the entire purpose behind the development of legislation

culminating in the present Article 280 of the Labor Code clearly appears to have been,

as already observed, to prevent circumvention of the employee's right to be secure in











his tenure, the clause in said article indiscriminately and completely ruling out all

written or oral agreements conflicting with the concept of regular employment as

defined therein should be construed to refer to the substantive evil that the Code itself

has singled out: agreements entered into precisely to circumvent security of tenure. It

should have no application to instances where a fixed period of employment was agreed

upon knowingly and voluntarily by the parties, without any force, duress or improper

pressure being brought to bear upon the employee and absent any other circumstances

vitiating his consent, or where it satisfactorily appears that the employer and employee

dealt with each other on more or less equal terms with no moral dominance whatever

being exercised by the former over the latter. Unless thus limited in its purview, the law

would be made to apply to purposes other than those explicitly stated by its framers; it

thus becomes pointless and arbitrary, unjust in its effects and apt to lead to absurd and

unintended consequences.

Contrarily, the private respondents contend that they became regular

employees by reason of their continuous hiring and performance of tasks

necessary and desirable in the usual trade and business of Lynvil.

Jurisprudence,[42]

laid two conditions for the validity of a fixed-contract

agreement between the employer and employee:

First, the fixed period of employment was knowingly and voluntarily agreed

upon by the parties without any force, duress, or improper pressure being

brought to bear upon the employee and absent any other circumstances

vitiating his consent; or

Second, it satisfactorily appears that the employer and the employee dealt with

each other on more or less equal terms with no moral dominance exercised by

the former or the latter.[43]

Textually, the provision that: “NA ako ay sumasang -ayon na maglingkod at gumawa ng mga gawain sang-ayon sa patakarang “por viaje” na magmumula sa pagalis sa Navotas papunta sa pangisdaan at pagbabalik sa pondohan ng lantsa

sa Navotas, Metro Manila” is for a fixed period of employment. In the context,

however, of the facts that: (1) the respondents were doing tasks necessarily toLynvil’s fishing business with positions ranging from captain of the vessel

to bodegero; (2) after the end of a trip, they will again be hired for another trip











with new contracts; and (3) this arrangement continued for more than ten years, the

clear intention is to go around the security of tenure of the respondents as regular employees. And respondents are so by the express provisions of the second

paragraph of Article 280, thus:

xxx Provided, That any employee who has rendered at least one year of

service, whether such service is continuous or broken, shall be

considered a regular employee with respect to the activity in which he is

employed and his employment shall continue while such activity exists.

The same set of circumstances indicate clearly enough that it was the need

for a continued source of income that forced the employees’ acceptance of the “ por viaje” provision.

Having found that respondents are regular employees who may be,

however, dismissed for cause as we have so found in this case, there is a need to

look into the procedural requirement of due process in Section 2, Rule XXIII, Book

V of the Rules Implementing the Labor Code. It is required that the employer

furnish the employee with two written notices: (1) a written notice served on the

employee specifying the ground or grounds for termination, and giving to said

employee reasonable opportunity within which to explain his side; and (2) a

written notice of termination served on the employee indicating that upon due

consideration of all the circumstances, grounds have been established to justify

his termination.

From the records, there was only one written notice which required

respondents to explain within five (5) days why they should not be dismissed from

the service. Alcovendas was the only one who signed the receipt of the

notice. The others, as claimed by Lynvil, refused to sign. The other employees

argue that no notice was given to them. Despite the inconsistencies, what isclear is that no final written notice or notices of termination were sent to the

employees.

The twin requirements of notice and hearing constitute the elements of

[due] process in cases of employee's dismissal. The requirement of notice is



intended to inform the employee concerned of the employer's intent to dismiss

and the reason for the proposed dismissal. Upon the other hand, the requirement

of hearing affords the employee an opportunity to answer his employer's charges

against him and accordingly, to defend himself therefrom before dismissal is

effected.[44]

Obviously, the second written notice, as indispensable as the first, isintended to ensure the observance of due process.

Applying the rule to the facts at hand, we grant a monetary award

of P50,000.00 as nominal damages, this, pursuant to the fresh ruling of this Courtin Culili v. Eastern Communication Philippines, Inc.[45] Due to the failure of

Lynvil to follow the procedural requirement of two-notice rule, nominal damagesare due to respondents despite their dismissal for just cause.

Given the fact that their dismissal was for just cause, we cannot grant backwages and separation pay to respondents. However, following the findings of the Labor Arbiter who with the expertise presided over the proceedings below,

which findings were affirmed by the Court of Appeals, we grant the 13th month payand salary differential of the dismissed employees.

Whether De Borja is jointly and severally liable with Lynvil

As to the last issue, this Court has ruled that in labor cases, the corporate

directors and officers are solidarily liable with the corporation for the termination

of employment of employees done with malice or in bad faith.[46]

Indeed, moral

damages are recoverable when the dismissal of an employee is attended by bad

faith or fraud or constitutes an act oppressive to labor, or is done in a manner

contrary to good morals, good customs or public policy.

It has also been discussed in MAM Realty Development Corporation v.

NLRC

[47]

that:

x x x A corporation being a juridical entity, may act only through its directors, officers

and employees. Obligations incurred by them, acting as such corporate agents, are not

theirs but the direct accountabilities of the corporation they represent. True, solidary


















liabilities may at times be incurred but only when exceptional circumstances warrant

such as, generally, in the following cases:

1. When directors and trustees or, in appropriate cases, the officers of a corporation:

xxx

(b) act in bad faith or with gross negligence in directing the corporate affairs;

x x x [48]

The term "bad faith" contemplates a "state of mind affirmatively operating

with furtive design or with some motive of self-interest or will or for ulterior

purpose."[49]

We agree with the ruling of both the NLRC and the Court of Appeals whenthey pronounced that there was no evidence on record that indicates commission of

bad faith on the part of De Borja. He is the general manager of Lynvil, the onetasked with the supervision by the employees and the operation of the

business. However, there is no proof that he imposed on the respondents the “ por

viaje” provision for purpose of effecting their summary dismissal.

WHEREFORE, the petition is partially GRANTED. The 10 September

2007 Decision of the Court of Appeals in CA-G.R. SP No. 95094 reversing theResolution dated 31 March 2004 of the National Labor Relations Commission is

hereby MODIFIED. The Court hereby rules that the employees were dismissed

for just cause by Lynvil Fishing Enterprises, Inc. and Rosendo S. De Borja, hence,

the reversal of the award for backwages and separation pay. However, we affirmthe award for 13th month pay, salary differential and grant an additional P50,000.00

in favor of the employees representing nominal damages for petitioners’ non-

compliance with statutory due process. No cost.

SO ORDERED.












Manila

FIRST DIVISION

G. R. No. 164317 February 6, 2006

ALFREDO CHING, Petitioner,vs.THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR ECILYN BURGOS-VILLAVERT,JUDGE EDGARDO SUDIAM of the Regional Trial Court, Manila, Branch 52; RIZALCOMMERCIAL BANKING CORP. and THE PEOPLE OF THE PHILIPPINES, Respondents.

D E C I S I O N

CALLEJO, SR., J.:

Before the Court is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) inCA-G.R. SP No. 57169 dismissing the petition for certiorari, prohibition and mandamus filed bypetitioner Alfredo Ching, and its Resolution2 dated June 28, 2004 denying the motion for reconsideration thereof.

Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI). Sometime inSeptember to October 1980, PBMI, through petitioner, applied with the Rizal Commercial BankingCorporation (respondent bank) for the issuance of commercial letters of credit to finance itsimportation of assorted goods.3

Respondent bank approved the application, and irrevocable letters of credit were issued in favor of petitioner. The goods were purchased and delivered in trust to PBMI. Petitioner signed 13 trust

receipts4

as surety, acknowledging delivery of the following goods:

T/RNos.

Date Granted Maturity Date Principal Description of Goods

1845 12-05-80 03-05-81 P1,596,470.05 79.9425 M/T "SDK" BrandSynthetic GraphiteElectrode

1853 12-08-80 03-06-81 P198,150.67 3,000 pcs. (15 bundles)Calorized Lance Pipes

1824 11-28-80 02-26-81 P707,879.71 One Lot High FiredRefractory Tundish Bricks

1798 11-21-80 02-19-81 P835,526.25 5 cases spare parts for CCM

1808 11-21-80 02-19-81 P370,332.52 200 pcs. ingot moulds

2042 01-30-81 04-30-81 P469,669.29 High Fired Refractory

http://www.lawphil.net/judjuris/juri2006/feb2006/gr_164317_2006.html#fnt1


















Nozzle Bricks

1801 11-21-80 02-19-81 P2,001,715.17 Synthetic GraphiteElectrode [with] taperedpitch filed nipples

1857 12-09-80 03-09-81 P197,843.61 3,000 pcs. (15 bundlescalorized lance pipes [)]

1895 12-17-80 03-17-81 P67,652.04 Spare parts for Spectrophotometer

1911 12-22-80 03-20-81 P91,497.85 50 pcs. Ingot moulds

2041 01-30-81 04-30-81 P91,456.97 50 pcs. Ingot moulds

2099 02-10-81 05-11-81 P66,162.26 8 pcs. Kubota Rolls for rolling mills

2100 02-10-81 05-12-81 P210,748.00 Spare parts for LacolaboratoryEquipment5

Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with authority to sellbut not by way of conditional sale, pledge or otherwise; and in case such goods were sold, to turnover the proceeds thereof as soon as received, to apply against the relative acceptances andpayment of other indebtedness to respondent bank. In case the goods remained unsold within thespecified period, the goods were to be returned to respondent bank without any need of demand.Thus, said "goods, manufactured products or proceeds thereof, whether in the form of money or bills, receivables, or accounts separate and capable of identification" were respondent bank’sproperty.

When the trust receipts matured, petitioner failed to return the goods to respondent bank, or to returntheir value amounting to P6,940,280.66 despite demands. Thus, the bank filed a criminal complaintfor estafa6 against petitioner in the Office of the City Prosecutor of Manila.

After the requisite preliminary investigation, the City Prosecutor found probable cause estafa under Article 315, paragraph 1(b) of the Revised Penal Code, in relation to Presidential Decree (P.D.) No.115, otherwise known as the Trust Receipts Law. Thirteen (13) Informations were filed against thepetitioner before the Regional Trial Court (RTC) of Manila. The cases were docketed as CriminalCases No. 86-42169 to 86-42181, raffled to Branch 31 of said court.

Petitioner appealed the resolution of the City Prosecutor to the then Minister of Justice. The appeal

was dismissed in a Resolution

7

dated March 17, 1987, and petitioner moved for its reconsideration.On December 23, 1987, the Minister of Justice granted the motion, thus reversing the previousresolution finding probable cause against petitioner .8 The City Prosecutor was ordered to move for the withdrawal of the Informations.

This time, respondent bank filed a motion for reconsideration, which, however, was denied onFebruary 24, 1988.9The RTC, for its part, granted the Motion to Quash the Informations filed bypetitioner on the ground that the material allegations therein did not amount to estafa.10
























In the meantime, the Court rendered judgment in Allied Banking Corporation v. Ordoñez,11 holdingthat the penal provision of P.D. No. 115 encompasses any act violative of an obligation covered bythe trust receipt; it is not limited to transactions involving goods which are to be sold (retailed),reshipped, stored or processed as a component of a product ultimately sold. The Court also ruledthat "the non-payment of the amount covered by a trust receipt is an act violative of the obligation of the entrustee to pay."12

On February 27, 1995, respondent bank re-filed the criminal complaint for estafa against petitioner before the Office of the City Prosecutor of Manila. The case was docketed as I.S. No. 95B-07614.

Preliminary investigation ensued. On December 8, 1995, the City Prosecutor ruled that there was noprobable cause to charge petitioner with violating P.D. No. 115, as petitioner’s liability was only civil,not criminal, having signed the trust receipts as surety.13 Respondent bank appealed the resolutionto the Department of Justice (DOJ) via petition for review, alleging that the City Prosecutor erred inruling:

1. That there is no evidence to show that respondent participated in the misappropriation of the goods subject of the trust receipts;

2. That the respondent is a mere surety of the trust receipts; and

3. That the liability of the respondent is only civil in nature.14

On July 13, 1999, the Secretary of Justice issued Resolution No. 25015 granting the petition andreversing the assailed resolution of the City Prosecutor. According to the Justice Secretary, thepetitioner, as Senior Vice-President of PBMI, executed the 13 trust receipts and as such, was theone responsible for the offense. Thus, the execution of said receipts is enough to indict the petitioner as the official responsible for violation of P.D. No. 115. The Justice Secretary also declared thatpetitioner could not contend that P.D. No. 115 covers only goods ultimately destined for sale, as thisissue had already been settled in Allied Banking Corporation v. Ordoñez,16where the Court ruled thatP.D. No. 115 is "not limited to transactions in goods which are to be sold (retailed), reshipped, storedor processed as a component of a product ultimately sold but covers failure to turn over theproceeds of the sale of entrusted goods, or to return said goods if unsold or not otherwise disposedof in accordance with the terms of the trust receipts."

The Justice Secretary further stated that the respondent bound himself under the terms of the trustreceipts not only as a corporate official of PBMI but also as its surety; hence, he could be proceededagainst in two (2) ways: first, as surety as determined by the Supreme Court in its decision in RizalCommercial Banking Corporation v. Court of Appeals;17 and second, as the corporate officialresponsible for the offense under P.D. No. 115, via criminal prosecution. Moreover, P.D. No. 115explicitly allows the prosecution of corporate officers "without prejudice to the civil liabilities arisingfrom the criminal offense." Thus, according to the Justice Secretary, following Rizal CommercialBanking Corporation, the civil liability imposed is clearly separate and distinct from the criminal

liability of the accused under P.D. No. 115.

Conformably with the Resolution of the Secretary of Justice, the City Prosecutor filed 13Informations against petitioner for violation of P.D. No. 115 before the RTC of Manila. The caseswere docketed as Criminal Cases No. 99-178596 to 99-178608 and consolidated for trial beforeBranch 52 of said court. Petitioner filed a motion for reconsideration, which the Secretary of Justicedenied in a Resolution18 dated January 17, 2000.

































Petitioner then filed a petition for certiorari, prohibition and mandamus with the CA, assailing theresolutions of the Secretary of Justice on the following grounds:

1. THE RESPONDENTS ARE ACTING WITH AN UNEVEN HAND AND IN FACT, ARE ACTING OPPRESSIVELY AGAINST ALFREDO CHING WHEN THEY ALLOWED HISPROSECUTION DESPITE THE FACT THAT NO EVIDENCE HAD BEEN PRESENTED TO

PROVE HIS PARTICIPATION IN THE ALLEGED TRANSACTIONS.

2. THE RESPONDENT SECRETARY OF JUSTICE COMMITTED AN ACT IN GRAVE ABUSE OF DISCRETION AND IN EXCESS OF HIS JURISDICTION WHEN THEYCONTINUED PROSECUTION OF THE PETITIONER DESPITE THE LENGTH OF TIMEINCURRED IN THE TERMINATION OF THE PRELIMINARY INVESTIGATION THATSHOULD JUSTIFY THE DISMISSAL OF THE INSTANT CASE.

3. THE RESPONDENT SECRETARY OF JUSTICE AND ASSISTANT CITY PROSECUTOR ACTED IN GRAVE ABUSE OF DISCRETION AMOUNTING TO AN EXCESS OFJURISDICTION WHEN THEY CONTINUED THE PROSECUTION OF THE PETITIONERDESPITE LACK OF SUFFICIENT BASIS.19

In his petition, petitioner incorporated a certification stating that "as far as this Petition is concerned,no action or proceeding in the Supreme Court, the Court of Appeals or different divisions thereof, or any tribunal or agency. It is finally certified that if the affiant should learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or differentdivisions thereof, of any other tribunal or agency, it hereby undertakes to notify this Honorable Courtwithin five (5) days from such notice."20

In its Comment on the petition, the Office of the Solicitor General alleged that -

A.

THE HONORABLE SECRETARY OF JUSTICE CORRECTLY RULED THAT PETITIONER ALFREDO CHING IS THE OFFICER RESPONSIBLE FOR THE OFFENSE CHARGED ANDTHAT THE ACTS OF PETITIONER FALL WITHIN THE AMBIT OF VIOLATION OF P.D.[No.] 115 IN RELATION TO ARTICLE 315, PAR. 1(B) OF THE REVISED PENAL CODE.

B.

THERE IS NO MERIT IN PETITIONER’S CONTENTION THAT EXCESSIVE DELAY HASMARRED THE CONDUCT OF THE PRELIMINARY INVESTIGATION OF THE CASE,JUSTIFYING ITS DISMISSAL.

C.

THE PRESENT SPECIAL CIVIL ACTION FOR CERTIORARI, PROHIBITION ANDMANDAMUS IS NOT THE PROPER MODE OF REVIEW FROM THE RESOLUTION OFTHE DEPARTMENT OF JUSTICE. THE PRESENT PETITION MUST THEREFORE BEDISMISSED.21

On April 22, 2004, the CA rendered judgment dismissing the petition for lack of merit, and onprocedural grounds. On the procedural issue, it ruled that (a) the certification of non-forum shoppingexecuted by petitioner and incorporated in the petition was defective for failure to comply with the















first two of the three-fold undertakings prescribed in Rule 7, Section 5 of the Revised Rules of CivilProcedure; and (b) the petition for certiorari, prohibition and mandamus was not the proper remedyof the petitioner.

On the merits of the petition, the CA ruled that the assailed resolutions of the Secretary of Justicewere correctly issued for the following reasons: (a) petitioner, being the Senior Vice-President of

PBMI and the signatory to the trust receipts, is criminally liable for violation of P.D. No. 115; (b) theissue raised by the petitioner, on whether he violated P.D. No. 115 by his actuations, had alreadybeen resolved and laid to rest in Allied Bank Corporation v. Ordoñez;22 and (c) petitioner wasestopped from raising the

City Prosecutor’s delay in the final disposition of the preliminary investigation because he failed to doso in the DOJ.

Thus, petitioner filed the instant petition, alleging that:

I

THE COURT OF APPEALS ERRED WHEN IT DISMISSED THE PETITION ON THEGROUND THAT THE CERTIFICATION OF NON-FORUM SHOPPING INCORPORATEDTHEREIN WAS DEFECTIVE.

II

THE COURT OF APPEALS ERRED WHEN IT RULED THAT NO GRAVE ABUSE OFDISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WAS COMMITTEDBY THE SECRETARY OF JUSTICE IN COMING OUT WITH THE ASSAILEDRESOLUTIONS.23

The Court will delve into and resolve the issues seriatim.

The petitioner avers that the CA erred in dismissing his petition on a mere technicality. He claimsthat the rules of procedure should be used to promote, not frustrate, substantial justice. He insiststhat the Rules of Court should be construed liberally especially when, as in this case, his substantialrights are adversely affected; hence, the deficiency in his certification of non-forum shopping shouldnot result in the dismissal of his petition.

The Office of the Solicitor General (OSG) takes the opposite view, and asserts that indubitably, thecertificate of non-forum shopping incorporated in the petition before the CA is defective because itfailed to disclose essential facts about pending actions concerning similar issues and parties. Itasserts that petitioner’s failure to comply with the Rules of Court is fatal to his petition. The OSGcited Section 2, Rule 42, as well as the ruling of this Court in Melo v. Court of Appeals .24

We agree with the ruling of the CA that the certification of non-forum shopping petitioner incorporated in his petition before the appellate court is defective. The certification reads:

It is further certified that as far as this Petition is concerned, no action or proceeding in the SupremeCourt, the Court of Appeals or different divisions thereof, or any tribunal or agency.

It is finally certified that if the affiant should learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or different divisions thereof, of any















other tribunal or agency, it hereby undertakes to notify this Honorable Court within five (5) days fromsuch notice.25

Under Section 1, second paragraph of Rule 65 of the Revised Rules of Court, the petition should beaccompanied by a sworn certification of non-forum shopping, as provided in the third paragraph of Section 3, Rule 46 of said Rules. The latter provision reads in part:

SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. — The petitionshall contain the full names and actual addresses of all the petitioners and respondents, a concisestatement of the matters involved, the factual background of the case and the grounds relied uponfor the relief prayed for.

xxx

The petitioner shall also submit together with the petition a sworn certification that he has nottheretofore commenced any other action involving the same issues in the Supreme Court, the Courtof Appeals or different divisions thereof, or any other tribunal or agency; if there is such other actionor proceeding, he must state the status of the same; and if he should thereafter learn that a similar

action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or different divisions thereof, or any other tribunal or agency, he undertakes to promptly inform theaforesaid courts and other tribunal or agency thereof within five (5) days therefrom. xxx

Compliance with the certification against forum shopping is separate from and independent of theavoidance of forum shopping itself. The requirement is mandatory. The failure of the petitioner tocomply with the foregoing requirement shall be sufficient ground for the dismissal of the petitionwithout prejudice, unless otherwise provided.26

Indubitably, the first paragraph of petitioner’s certification is incomplete and unintelligible. Petitioner failed to certify that he "had not heretofore commenced any other action involving the same issues inthe Supreme Court, the Court of Appeals or the different divisions thereof or any other tribunal or agency" as required by paragraph 4, Section 3, Rule 46 of the Revised Rules of Court.

We agree with petitioner’s contention that the certification is designed to promote and facilitate theorderly administration of justice, and therefore, should not be interpreted with absolute literalness. Inhis works on the Revised Rules of Civil Procedure, former Supreme Court Justice Florenz Regaladostates that, with respect to the contents of the certification which the pleader may prepare, the rule of substantial compliance may be availed of .27 However, there must be a special circumstance or compelling reason which makes the strict application of the requirement clearly unjustified. Theinstant petition has not alleged any such extraneous circumstance. Moreover, as worded, thecertification cannot even be regarded as substantial compliance with the procedural requirement.Thus, the CA was not informed whether, aside from the petition before it, petitioner had commencedany other action involving the same issues in other tribunals.

On the merits of the petition, the CA ruled that the petitioner failed to establish that the Secretary of Justice committed grave abuse of discretion in finding probable cause against the petitioner for violation of estafa under Article 315, paragraph 1(b) of the Revised Penal Code, in relation to P.D.No. 115. Thus, the appellate court ratiocinated:

Be that as it may, even on the merits, the arguments advanced in support of the petition are notpersuasive enough to justify the desired conclusion that respondent Secretary of Justice gravelyabused its discretion in coming out with his assailed Resolutions. Petitioner posits that, except for hisbeing the Senior Vice-President of the PBMI, there is no iota of evidence that he was a participes















crimines in violating the trust receipts sued upon; and that his liability, if at all, is purely civil becausehe signed the said trust receipts merely as a xxx surety and not as the entrustee. These assertionsare, however, too dull that they cannot even just dent the findings of the respondent Secretary, viz:

"x x x it is apropos to quote section 13 of PD 115 which states in part, viz:

‘xxx If the violation or offense is committed by a corporation, partnership, association or other jud icialentities, the penalty provided for in this Decree shall be imposed upon the directors, officers,employees or other officials or persons therein responsible for the offense, without prejudice to thecivil liabilities arising from the criminal offense.’

"There is no dispute that it was the respondent, who as senior vice-president of PBM, executed thethirteen (13) trust receipts. As such, the law points to him as the official responsible for the offense.Since a corporation cannot be proceeded against criminally because it cannot commit crime in whichpersonal violence or malicious intent is required, criminal action is limited to the corporate agentsguilty of an act amounting to a crime and never against the corporation itself (West Coast Life Ins.Co. vs. Hurd, 27 Phil. 401; Times, [I]nc. v. Reyes, 39 SCRA 303). Thus, the execution by respondentof said receipts is enough to indict him as the official responsible for violation of PD 115.

"Parenthetically, respondent is estopped to still contend that PD 115 covers only goods which areultimately destined for sale and not goods, like those imported by PBM, for use in manufacture. Thisissue has already been settled in the Allied Banking Corporation case, supra, where he was also aparty, when the Supreme Court ruled that PD 115 is ‘not limited to transactions in goods which are tobe sold (retailed), reshipped, stored or processed as a component or a product ultimately sold’ but‘covers failure to turn over the proceeds of the sale of entrusted goods, or to return said goods if unsold or disposed of in accordance with the terms of the trust receipts.’

"In regard to the other assigned errors, we note that the respondent bound himself under the termsof the trust receipts not only as a corporate official of PBM but also as its surety. It is evident thatthese are two (2) capacities which do not exclude the other. Logically, he can be proceeded againstin two (2) ways: first, as surety as determined by the Supreme Court in its decision in RCBC vs.

Court of Appeals, 178 SCRA 739; and, secondly, as the corporate official responsible for the offenseunder PD 115, the present case is an appropriate remedy under our penal law.

"Moreover, PD 115 explicitly allows the prosecution of corporate officers ‘without prejudice to the civilliabilities arising from the criminal offense’ thus, the civil liability imposed on respondent in RCBC vs.Court of Appeals case is clearly separate and distinct from his criminal liability under PD 115.’ "28

Petitioner asserts that the appellate court’s ruling is erroneous because (a) the transaction betweenPBMI and respondent bank is not a trust receipt transaction; (b) he entered into the transaction andwas sued in his capacity as PBMI Senior Vice-President; (c) he never received the goods as anentrustee for PBMI, hence, could not have committed any dishonesty or abused the confidence of respondent bank; and (d) PBMI acquired the goods and used the same in operating its machineries

and equipment and not for resale.

The OSG, for its part, submits a contrary view, to wit:

34. Petitioner further claims that he is not a person responsible for the offense allegedly because"[b]eing charged as the Senior Vice-President of Philippine Blooming Mills (PBM), petitioner cannotbe held criminally liable as the transactions sued upon were clearly entered into in his capacity as anofficer of the corporation" and that [h]e never received the goods as an entrustee for PBM as he







never had or took possession of the goods nor did he commit dishonesty nor "abuse of confidence intransacting with RCBC." Such argument is bereft of merit.

35. Petitioner’s being a Senior Vice-President of the Philippine Blooming Mills does not exculpatehim from any liability. Petitioner’s responsibility as the corporate official of PBM who received thegoods in trust is premised on Section 13 of P.D. No. 115, which provides:

Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of thegoods, documents or instruments covered by a trust receipt to the extent of the amount owing to theentruster or as appears in the trust receipt or to return said goods, documents or instruments if theywere not sold or disposed of in accordance with the terms of the trust receipt shall constitute thecrime of estafa, punishable under the provisions of Article Three hundred and fifteen, paragraph one(b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known asthe Revised Penal Code. If the violation or offense is committed by a corporation, partnership,association or other juridical entities, the penalty provided for in this Decree shall be imposed uponthe directors, officers, employees or other officials or persons therein responsible for the offense,without prejudice to the civil liabilities arising from the criminal offense. (Emphasis supplied)

36. Petitioner having participated in the negotiations for the trust receipts and having received thegoods for PBM, it was inevitable that the petitioner is the proper corporate officer to be proceededagainst by virtue of the PBM’s violation of P.D. No. 115.29

The ruling of the CA is correct.

In Mendoza-Arce v. Office of the Ombudsman (Visayas),30 this Court held that the acts of a quasi- judicial officer may be assailed by the aggrieved party via a petition for certiorari and enjoined (a)when necessary to afford adequate protection to the constitutional rights of the accused; (b) whennecessary for the orderly administration of justice; (c) when the acts of the officer are without or inexcess of authority; (d) where the charges are manifestly false and motivated by the lust for vengeance; and (e) when there is clearly no prima facie case against the accused.31 The Court alsodeclared that, if the officer conducting a preliminary investigation (in that case, the Office of the

Ombudsman) acts without or in excess of his authority and resolves to file an Information despite theabsence of probable cause, such act may be nullified by a writ of certiorari.32

Indeed, under Section 4, Rule 112 of the 2000 Rules of Criminal Procedure ,33 the Information shallbe prepared by the Investigating Prosecutor against the respondent only if he or she finds probablecause to hold such respondent for trial. The Investigating Prosecutor acts without or in excess of hisauthority under the Rule if the Information is filed against the respondent despite absence of evidence showing probable cause therefor .34 If the Secretary of Justice reverses the Resolution of the Investigating Prosecutor who found no probable cause to hold the respondent for trial, andorders such prosecutor to file the Information despite the absence of probable cause, the Secretaryof Justice acts contrary to law, without authority and/or in excess of authority. Such resolution maylikewise be nullified in a petition for certiorari under Rule 65 of the Revised Rules of Civil

Procedure.35

A preliminary investigation, designed to secure the respondent against hasty, malicious andoppressive prosecution, is an inquiry to determine whether (a) a crime has been committed; and (b)whether there is probable cause to believe that the accused is guilty thereof. It is a means of discovering the person or persons who may be reasonably charged with a crime. Probable causeneed not be based on clear and convincing evidence of guilt, as the investigating officer acts uponprobable cause of reasonable belief. Probable cause implies probability of guilt and requires morethan bare suspicion but less than evidence which would justify a conviction. A finding of probable































cause needs only to rest on evidence showing that more likely than not, a crime has been committedby the suspect.36

However, while probable cause should be determined in a summary manner, there is a need toexamine the evidence with care to prevent material damage to a potential accused’s constitutionalright to liberty and the guarantees of freedom and fair play37 and to protect the State from the burden

of unnecessary expenses in prosecuting alleged offenses and holding trials arising from false,fraudulent or groundless charges.38

In this case, petitioner failed to establish that the Secretary of Justice committed grave abuse of discretion in issuing the assailed resolutions. Indeed, he acted in accord with law and the evidence.

Section 4 of P.D. No. 115 defines a trust receipt transaction, thus:

Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaningof this Decree, is any transaction by and between a person referred to in this Decree as theentruster, and another person referred to in this Decree as entrustee, whereby the entruster, whoowns or holds absolute title or security interests over certain specified goods, documents or

instruments, releases the same to the possession of the entrustee upon the latter’s execution anddelivery to the entruster of a signed document called a "trust receipt" wherein the entrustee bindshimself to hold the designated goods, documents or instruments in trust for the entruster and to sellor otherwise dispose of the goods, documents or instruments with the obligation to turn over to theentruster the proceeds thereof to the extent of the amount owing to the entruster or as appears inthe trust receipt or the goods, documents or instruments themselves if they are unsold or nototherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any of the following:

1. In case of goods or documents, (a) to sell the goods or procure their sale; or (b) tomanufacture or process the goods with the purpose of ultimate sale; Provided, That, in thecase of goods delivered under trust receipt for the purpose of manufacturing or processingbefore its ultimate sale, the entruster shall retain its title over the goods whether in its original

or processed form until the entrustee has complied fully with his obligation under the trustreceipt; or (c) to load, unload, ship or otherwise deal with them in a manner preliminary or necessary to their sale; or

2. In the case of instruments a) to sell or procure their sale or exchange; or b) to deliver themto a principal; or c) to effect the consummation of some transactions involving delivery to adepository or register; or d) to effect their presentation, collection or renewal.

The sale of goods, documents or instruments by a person in the business of selling goods,documents or instruments for profit who, at the outset of the transaction, has, as against the buyer,general property rights in such goods, documents or instruments, or who sells the same to the buyer on credit, retaining title or other interest as security for the payment of the purchase price, does not

constitute a trust receipt transaction and is outside the purview and coverage of this Decree.

An entrustee is one having or taking possession of goods, documents or instruments under a trustreceipt transaction, and any successor in interest of such person for the purpose of paymentspecified in the trust receipt agreement.39 The entrustee is obliged to: (1) hold the goods, documentsor instruments in trust for the entruster and shall dispose of them strictly in accordance with theterms and conditions of the trust receipt; (2) receive the proceeds in trust for the entruster and turnover the same to the entruster to the extent of the amount owing to the entruster or as appears onthe trust receipt; (3) insure the goods for their total value against loss from fire, theft, pilferage or



















other casualties; (4) keep said goods or proceeds thereof whether in money or whatever form,separate and capable of identification as property of the entruster; (5) return the goods, documentsor instruments in the event of non-sale or upon demand of the entruster; and (6) observe all other terms and conditions of the trust receipt not contrary to the provisions of the decree.40

The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments

released under a trust receipt to the entrustee to the extent of the amount owing to the entruster or as appears in the trust receipt, or to the return of the goods, documents or instruments in case of non-sale, and to the enforcement of all other rights conferred on him in the trust receipt; provided,such are not contrary to the provisions of the document.41

In the case at bar, the transaction between petitioner and respondent bank falls under the trustreceipt transactions envisaged in P.D. No. 115. Respondent bank imported the goods and entrustedthe same to PBMI under the trust receipts signed by petitioner, as entrustee, with the bank asentruster. The agreement was as follows:

And in consideration thereof, I/we hereby agree to hold said goods in trust for the said BANK as itsproperty with liberty to sell the same within ____days from the date of the execution of this Trust

Receipt and for the Bank’s account, but without authority to make any other disposition whatsoever of the said goods or any part thereof (or the proceeds) either by way of conditional sale, pledge or otherwise.

I/we agree to keep the said goods insured to their full value against loss from fire, theft, pilferage or other casualties as directed by the BANK, the sum insured to be payable in case of loss to theBANK, with the understanding that the BANK is, not to be chargeable with the storage premium or insurance or any other expenses incurred on said goods.

In case of sale, I/we further agree to turn over the proceeds thereof as soon as received to theBANK, to apply against the relative acceptances (as described above) and for the payment of anyother indebtedness of mine/ours to the BANK. In case of non-sale within the period specified herein,I/we agree to return the goods under this Trust Receipt to the BANK without any need of demand.

I/we agree to keep the said goods, manufactured products or proceeds thereof, whether in the formof money or bills, receivables, or accounts separate and capable of identification as property of theBANK.42

It must be stressed that P.D. No. 115 is a declaration by legislative authority that, as a matter of public policy, the failure of person to turn over the proceeds of the sale of the goods covered by atrust receipt or to return said goods, if not sold, is a public nuisance to be abated by the imposition of penal sanctions.43

The Court likewise rules that the issue of whether P.D. No. 115 encompasses transactions involvinggoods procured as a component of a product ultimately sold has been resolved in the affirmative in

Allied Banking Corporation v. Ordoñez.44 The law applies to goods used by the entrustee in theoperation of its machineries and equipment. The non-payment of the amount covered by the trustreceipts or the non-return of the goods covered by the receipts, if not sold or otherwise not disposedof, violate the entrustee’s obligation to pay the amount or to return the goods to the entruster.

In Colinares v. Court of Appeals,45 the Court declared that there are two possible situations in a trustreceipt transaction. The first is covered by the provision which refers to money received under theobligation involving the duty to deliver it (entregarla) to the owner of the merchandise sold. Thesecond is covered by the provision which refers to merchandise received under the obligation to



























return it (devolvera) to the owner .46 Thus, failure of the entrustee to turn over the proceeds of thesale of the goods covered by the trust receipts to the entruster or to return said goods if they werenot disposed of in accordance with the terms of the trust receipt is a crime under P.D. No. 115,without need of proving intent to defraud. The law punishes dishonesty and abuse of confidence inthe handling of money or goods to the prejudice of the entruster, regardless of whether the latter isthe owner or not. A mere failure to deliver the proceeds of the sale of the goods, if not sold,

constitutes a criminal offense that causes prejudice, not only to another, but more to the publicinterest.47

The Court rules that although petitioner signed the trust receipts merely as Senior Vice-President of PBMI and had no physical possession of the goods, he cannot avoid prosecution for violation of P.D.No. 115.

The penalty clause of the law, Section 13 of P.D. No. 115 reads:

Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of thegoods, documents or instruments covered by a trust receipt to the extent of the amount owing to theentruster or as appears in the trust receipt or to return said goods, documents or instruments if they

were not sold or disposed of in accordance with the terms of the trust receipt shall constitute thecrime of estafa, punishable under the provisions of Article Three hundred and fifteen, paragraph one(b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known asthe Revised Penal Code.1âwphi1 If the violation or offense is committed by a corporation, partnership,association or other juridical entities, the penalty provided for in this Decree shall be imposed uponthe directors, officers, employees or other officials or persons therein responsible for the offense,without prejudice to the civil liabilities arising from the criminal offense.

The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under paragraph1(b), Article 315 of the Revised Penal Code, or estafa with abuse of confidence. It may be committedby a corporation or other juridical entity or by natural persons. However, the penalty for the crime isimprisonment for the periods provided in said Article 315, which reads:

ARTICLE 315. Swindling (estafa). – Any person who shall defraud another by any of the meansmentioned hereinbelow shall be punished by:

1st. The penalty of prision correccional in its maximum period to prision mayor in itsminimum period, if the amount of the fraud is over 12,000 pesos but does not exceed 22,000pesos; and if such amount exceeds the latter sum, the penalty provided in this paragraphshall be imposed in its maximum period, adding one year for each additional 10,000 pesos;but the total penalty which may be imposed shall not exceed twenty years. In such cases,and in connection with the accessory penalties which may be imposed and for the purpose of the other provisions of this Code, the penalty shall be termed prision mayor or reclusiontemporal, as the case may be;

2nd. The penalty of prision correccional in its minimum and medium periods, if the amount of the fraud is over 6,000 pesos but does not exceed 12,000 pesos;

3rd. The penalty of arresto mayor in its maximum period to prision correccional in itsminimum period, if such amount is over 200 pesos but does not exceed 6,000 pesos; and

4th. By arresto mayor in its medium and maximum periods, if such amount does not exceed 200pesos, provided that in the four cases mentioned, the fraud be committed by any of the followingmeans; xxx











Though the entrustee is a corporation, nevertheless, the law specifically makes the officers,employees or other officers or persons responsible for the offense, without prejudice to the civilliabilities of such corporation and/or board of directors, officers, or other officials or employeesresponsible for the offense. The rationale is that such officers or employees are vested with theauthority and responsibility to devise means necessary to ensure compliance with the law and, if they fail to do so, are held criminally accountable; thus, they have a responsible share in the

violations of the law.48

If the crime is committed by a corporation or other juridical entity, the directors, officers, employeesor other officers thereof responsible for the offense shall be charged and penalized for the crime,precisely because of the nature of the crime and the penalty therefor. A corporation cannot bearrested and imprisoned; hence, cannot be penalized for a crime punishable byimprisonment.49 However, a corporation may be charged and prosecuted for a crime if the imposablepenalty is fine. Even if the statute prescribes both fine and imprisonment as penalty, a corporationmay be prosecuted and, if found guilty, may be fined.50

A crime is the doing of that which the penal code forbids to be done, or omitting to do what itcommands. A necessary part of the definition of every crime is the designation of the author of thecrime upon whom the penalty is to be inflicted. When a criminal statute designates an act of acorporation or a crime and prescribes punishment therefor, it creates a criminal offense which,otherwise, would not exist and such can be committed only by the corporation. But when a penalstatute does not expressly apply to corporations, it does not create an offense for which acorporation may be punished. On the other hand, if the State, by statute, defines a crime that maybe committed by a corporation but prescribes the penalty therefor to be suffered by the officers,directors, or employees of such corporation or other persons responsible for the offense, only suchindividuals will suffer such penalty.51 Corporate officers or employees, through whose act, default or omission the corporation commits a crime, are themselves individually guilty of the crime.52

The principle applies whether or not the crime requires the consciousness of wrongdoing. It appliesto those corporate agents who themselves commit the crime and to those, who, by virtue of their managerial positions or other similar relation to the corporation, could be deemed responsible for its

commission, if by virtue of their relationship to the corporation, they had the power to prevent theact.53 Moreover, all parties active in promoting a crime, whether agents or not, areprincipals.54 Whether such officers or employees are benefited by their delictual acts is not atouchstone of their criminal liability. Benefit is not an operative fact.

In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind the cloak of the separate corporate personality of PBMI. In the words of Chief Justice Earl Warren, a corporateofficer cannot protect himself behind a corporation where he is the actual, present and efficientactor .55

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against thepetitioner.

SO ORDERED.

ROMEO J. CALLEJO, SR. Associate Justice

WE CONCUR:



































ARTEMIO V. PANGANIBAN Chief JusticeChairperson

CONSUELO YNARES-SANTIAGO Associate Justice

MA. ALICIA AUSTRIA-MARTINEZ



THIRD DIVISION

ATTY. ANDREA UY and FELIX YUSAY,

Petitioners,

- versus -

ARLENE VILLANUEVA and NATIONAL

LABOR RELATIONS COMMISSION,

Respondents.

G.R. No. 157851

Present:

YNARES-SANTIAGO, J.,

Chairperson,

AUSTRIA-MARTINEZ,

CHICO-NAZARIO, and

NACHURA, JJ.

Promulgated:

June 29, 2007

x------------------------------------------------------------------------------------x

D E C I S I O N

NACHURA, J .:



This appeal on certiorari under Rule 45 of the Rules of Court seeks the

nullification of the February 28, 2002 Resolution and the February 27, 2003

Resolution denying the motion for reconsideration thereof of the Former Tenth

Division of the Court of Appeals (CA) in CA-G.R. SP No. 68680.

The antecedents of the case are as follows:

Countrywide Rural Bank of La Carlota, Inc. (Countrywide Bank) is a private

banking corporation engaged in rural banking and other allied services through its

branches nationwide.

Sometime in 1998, Countrywide Bank experienced liquidity problems andits treasury department was unable to comply with its branches’ demands for

fresh funds. Its various branches eventually experienced bank runs.[1]

Several of the bank’s depositors were alarmed at the prospect of losing

their deposits and investments. A group of depositors, holding about 70% of the

bank’s deposit accounts, met and agreed to organize themselves into a

“Committee of Depositors.” Petitioner Felix Yusay was elected by the Committee

as Chairman of the Interim Board of Directors, while petitioner Atty. Andrea Uy

was designated Secretary. According to petitioners, the Committee was formed

for the purpose of protecting their collective interests and to increase their

chances of recovering their deposits.[2]

http://sc.judiciary.gov.ph/jurisprudence/2007/june2007/157851.htm#_ftn1










With the consent and approval of the incumbent Board of Directors, the

Committee of Depositors assumed temporary administrative control of the

remaining operations of the bank.[3]

The incumbent Board of Directors informed

the Committee that some employees had tendered courtesy resignations, while

some had expressed their willingness to resign upon official request. TheCommittee then accepted some of the courtesy resignations.

[4]

The Bangko Sentral ng Pilipinas (BSP) subsequently placed the bank under

receivership and appointed a liquidator. Meanwhile, the Philippine Deposit

Insurance System (PDIC) commenced the processing of claims for return of

deposits.[5]

Realizing that their bid to rehabilitate the bank had failed, the Committee

of Depositors disbanded.[6]

Eventually, three cases for illegal dismissal were filed against Countrywide

Bank before the National Labor Relations Commission (NLRC). These were filed by

Amalia Bueno (NLRC Case No. RAB-XI-01-50037-99), Amelia Valdez and Lyn Villa

(NLRC Case No. RAB-XI-01-20039-99), and herein private respondent Arlene

Villanueva (NLRC Case No. RAB-XI-01-50043-99).[7]

Private respondent Villanueva avers that she was a regular employee of

Countrywide Bank’s Marbel, South Cotabato branch. On December 7, 1998, she

received a memorandum from the Interim Board of Directors accepting her

courtesy resignation. She, however, denies that she submitted a written courtesy

resignation.[8]

On November 16, 1999, Labor Arbiter Arturo P. Gamolo of NLRC Sub-

Regional Arbitration Branch No. XI, General Santos City rendered a Decision in

RAB-XI-01-50043-99, the dispositive portion of which reads:



























WHEREFORE, premises considered, respondent Country Wide

Rural Bank of La Carlota, Inc. and Individual Respondents Atty. Andrea

Uy and Felix Yusay are solidarily liable to pay complainant ArleneVillanueva the sum PESOS: ONE HUNDRED THIRTEEN THOUSAND



SIX HUNDRED FORTY (P113,640.00) ONLY representing her monetary

awards and attorney’s fees.[9]

On January 21, 2000, Villanueva filed a Motion for Execution of

Judgment[10]

to which Countrywide Bank, through the PDIC, filed an

Opposition.[11]

Thereafter, Labor Arbiter Gamolo rendered a Resolution and Order for all

three cases against Countrywide Bank, the dispositive portion of which reads:

Wherefore, finding the PDIC’s opposition to complainants’

motion for execution meritorious, complainants are hereby directed to

file their respective money claims as adjudged in the decisions rendered

in the above-entitled cases before the liquidation court for the latter’s

approval of inclusion in the Bank’s Distribution Plan.

SO ORDERED.[12]

Petitioners then filed a Notice of Appeal with Memorandum of Appeal with

the NLRC, 5th

Division, Cagayan de Oro City.[13]

On November 27, 2000, the NLRC

dismissed the appeal for being filed out of time.[14]

Petitioners filed a motion forreconsideration.

[15] The NLRC then recalled its November 27, 2000 Resolution and

set the case for clarificatory hearing.[16]


































Petitioners, however, received the Resolution five days after the scheduled

clarificatory hearing. They instead filed their memorandum in lieu of the

clarificatory hearing.

On October 10, 2001, the NLRC rendered another Resolution reinstating

its November 27, 2000 Resolution.[17]

Petitioners filed a petition for certiorari before the CA to nullify the

NLRC’s November 27, 2000 and October 10, 2001 Resolutions.

On February 28, 2002, the Tenth Division of the CA dismissed the petition

for certiorari on technical grounds. In particular, the CA cited the following

grounds for dismissal:

1. Failure to attach necessary pleadings and comments which are

material portion of the records in able [sic] for this to

[sic] judiciously evaluate the merit of the case such as:

a.) memorandum of appeal filed by the petitioner on May

18, 2000;

b.) Motion for Reconsideration of the petitioners

dated December 21, 2000;

in violation of Section 3, Rule 46 of the 1997 Rules of Civil Procedure

as amended;







2. Failure to attach certified photocopy copies [sic] of the assailed

resolutions and decisions of the original documents in violation of

the same rules; and

3. Failure to send copy of the resolution to the public respondent.[18]

Petitioners filed a Motion for Reconsideration[19]

arguing that the failure to

attach the abovementioned documents was merely a procedural lapse on their

part. They, likewise, attached the documents to the motion.

Their motion for reconsideration having been denied,[20]

petitioners filed

the present appeal on certiorari .

They argue that the CA’s dismissal of their petition for certiorari on

technical grounds deprived them of substantial justice. They assail the CA’s

Resolution dismissing their petition on technical grounds. They cite previous

decisions of this Court where it held that technicalities can be relaxed in order to

uphold the substantive rights of the parties.[21]

They likewise allege that the Labor Arbiter ruled in favor of respondent

Villanueva based only on the pleadings filed by the latter. They allege that they

were not properly served summons and notices which led to their failure to file

their position paper. They also argue that they cannot be held solidarily liable toprivate respondent because they were mere depositors of the bank and not

stockholders. Even assuming that they were stockholders, they still cannot be

held individually liable for the bank’s obligations.


















On the other hand, private respondent argues that the appeal

on certiorari merely reiterated arguments and issues on questions of facts that

have already been passed upon by competent authority.[22]

Having none of the

circumstances that will warrant exemption from the requirement that a petition

for review on certiorari under Rule 45 shall only raise questions of law, thepetition must be dismissed. Likewise, private respondent argues that the petition

has no other purpose than to delay the final execution of the decision.

While this case was pending, petitioners filed a Manifestation[23]

on

February 20, 2007, informing this Court that the case entitled Atty. Andrea Uy and

Felix Yusay v. Amalia Bueno,[24]

docketed as G.R. No. 159119 and involving the

same factual antecedents as the present case, was decided by this Court’s SecondDivision on March 14, 2006 in this wise:

IN VIEW WHEREOF, the petition is GRANTED. The Court of

Appeals Decision dated January 24, 2003 and Resolution dated May 26,

2003 in CA-G.R. SP No. 70672, which found petitioner Atty. Andrea

Uy[25] solidarily liable with Countrywide Rural Bank of [La] Carlota, Inc. in

Marbel, Koronadal City, South Cotabato, are REVERSED. No costs.

SO ORDERED.[26]

In the Bueno case, the Court found that, per the records of the case,

petitioner Uy was a “mere depositor,”[27] one of several depositors who formedthemselves into a group or association indicating their intention to help

rehabilitate Countrywide Rural Bank.[28]

It also found no evidence that the

Committee of Depositors that elected petitioner Uy as Interim President and

Corporate Secretary was recognized by the Bangko Sentral ng Pilipinas, hence,

had no legal authority to act for the bank.[29]

As such, the Court said:

































Lacking this evidence, the act of petitioner Uy in dismissing the

respondent cannot be deemed an act as an officer of the bank.

Consequently, it cannot be held that there existed an employer-employee relationship between petitioner Uy and respondent Bueno

when the former allegedly dismissed the latter. This requirement of

employer-employee relationship is jurisdictional for the provisions of

the Labor Code, specifically Book VI thereof, on Post-Employment, to

apply. Since the employer-employee relationship between petitioner Uy

and respondent Bueno was not established, the labor arbiter never

acquired jurisdiction over petitioner Uy. Consequently, whether

petitioner Uy was properly served summons is immaterial. Likewise,

that she terminated the services of respondent Bueno in bad faith and

with malice is of no moment. Her liability, if any, should be determined

in another forum.[30]

The Court noted the manifestation in a Resolution[31]

dated April 23, 2007.

We find the present petition meritorious.

At the outset, we note that Countrywide Bank did not appeal the NLRC’s

rulings. As to the bank, therefore, the NLRC Decision has become final and

executory.

Rule 45 of the Rules of Civil Procedure provides that only questions of law

shall be raised in an appeal by certiorari before this Court. This rule, however,

admits of certain exceptions, namely, (1) when the findings are grounded entirely

on speculations, surmises, or conjectures; (2) when the inference made is

manifestly mistaken, absurd, or impossible; (3) when there is a grave abuse of










discretion; (4) when the judgment is based on misappreciation of facts; (5) when

the findings of fact are conflicting; (6) when in making its findings, the same are

contrary to the admissions of both appellant and appellee; (7) when the findings are

contrary to those of the trial court; (8) when the findings are conclusions without

citation of specific evidence on which they are based; (9) when the facts set forthin the petition as well as in the petitioner’s main and reply briefs are not disputed

by the respondent; and (10) when the findings of fact are premised on the supposed

absence of evidence and contradicted by the evidence on record.[32]

In this case, the CA committed grave abuse of discretion in dismissing the

petition without first examining its merits. The policy of our judicial system is to

encourage full adjudication of the merits of an appeal. In the exercise of its equity

jurisdiction, this Court may reverse the dismissal of appeals that are grounded

merely on technicalities.[33]

In the past, the Court has held that technicalities should not be permitted

to stand in the way of equitably and completely resolving the rights and

obligations of the parties. Where the ends of substantial justice would be better

served, the application of technical rules of procedure may be relaxed.[34]

Rules of

procedure should indeed be viewed as mere tools designed to facilitate the

attainment of justice.[35]

Section 1, Rule 65 of the Rules of Court provides:

SECTION 1. Petition for certiorari. – When any tribunal, board

or officer exercising judicial or quasi-judicial functions has acted

without or in excess of its or his jurisdiction, or with grave abuse of

discretion amounting to lack or excess of jurisdiction, and there is no

appeal, or any plain, speedy, and adequate remedy in the ordinary courseof law, a person aggrieved thereby may file a verified petition in the

proper court, alleging the facts with certainty and praying that judgment

be rendered annulling or modifying the proceedings of such tribunal,

board or officer, and granting such incidental reliefs as law and justice

may require.



















The petition shall be accompanied by a certified true copy of the

judgment, order or resolution subject thereof, copies of all pleadings

and documents relevant and pertinent thereto, and a sworn

certification of non-forum shopping as provided in the third paragraph of

Section 3, Rule 46. (emphasis supplied)

Records show that in the petition for certiorari , filed before the CA, the

petitioners attached photocopies of the assailed October 10, 2001

NLRC Resolution,[36]

the NLRCResolution dated November 27, 2000,[37]

the Labor

Arbiter’s Decision dated November 16, 1999,[38]

and the Labor

Arbiter’s Resolution and Order dated April 17, 2000.[39]

Subsequently, when the CA

dismissed the petition on technical grounds, petitioners filed a motion for

reconsideration explaining the reason for the omission and attaching, in addition

to the abovementioned documents, the other documents referred to in the

CA Resolution.

The Court’s ruling in the case of Garcia v. Philippine Airline s[40] is most

instructive, to wit:

It is evident, therefore, that aside from the assailed decision, order

or resolution, not every pleading or document mentioned in the petition

is required to be submitted – only those that are pertinent and relevant to

the judgment, order or resolution subject of the petition. The initial

determination of what pleadings, documents or orders are relevant and

pertinent to the petition rests on the petitioner. If, upon its initial review

of the petition, the CA is of the view that additional pleadings,

documents or order should have been submitted and appended to the

petition, the following are its options: (a) dismiss the petition under the

last paragraph of Rule 46 of the Rules of Court; (b) order the petitioner

to submit the required additional pleadings, documents, or order within a

specific period of time; or (c) order the petitioner to file an amended

petition appending thereto the required pleadings, documents or order

within a fixed period.

If the CA opts to dismiss the petition outright and the

petitioner files a motion for the reconsideration of such dismissal,

appending thereto the requisite pleadings, documents or

order/resolution with an explanation for the failure to append the






















required documents to the original petition, this would constitute

substantial compliance with the Rules of Court. In such case, then,

the petition should be reinstated. As this Court emphasized in Cusi-

Hernandez v. Diaz :

x x x x

We must stress that “cases should be determined on the merits

after full opportunity to all parties for ventilation of their causes and

defenses, rather than on technicality or some procedural imperfections.

In that way, the ends of justice would be served better.” Moreover, the

Court has held:

“Dismissal of appeals purely on technical grounds is frowned

upon and the rules of procedure ought not to be applied in a very rigid,

technical sense, for they are adopted to help secure, not override,

substantial justice, and thereby defeat their very aims.”

Rules of procedure are mere tools designed to expedite the

decision or resolution of cases and other matters pending in court. A

strict and rigid application of rules that would result in technicalities that

tend to frustrate rather than promote substantial justice must be avoided.

(citations omitted)

In putting a premium on technical rules over the just resolution of the case,

therefore, the CA overlooked the right of petitioners to the full adjudication of their

petition on its merits. Indeed, while labor laws mandate the speedy administration

of justice with least attention to technicalities, this must be done without sacrificing

the fundamental requisites of due process.[41]

We now proceed to rule on the merits of the case.

In order to sustain a finding of illegal dismissal, we must first determine the

relationship between the petitioners and private respondent. Illegal dismissal

presupposes that there was an employer-employee relationship between the

dismissed employee and the persons complained of.







To determine whether there was an employer-employee relationship

between petitioners and private respondent, the Court has consistently used the

“four-fold” test. The test calls for the determination of (1) whether the alleged

employer has the power of selection and engagement of an employee; (2)

whether he has control of the employee with respect to the means and methods

by which work is to be accomplished; (3) whether he has the power to dismiss;

and (4) whether the employee was paid wages. Of the four, the control test is the

most important element.[42]

In the instant case, all these elements are attributable to the bank itself and

not to petitioners. There is no question that private respondent was an employee of the bank. As mentioned above, the NLRC Decision has become final and

executory as to the bank. Its liability for private respondent’s dismissal is no longer

in dispute.

The same cannot be said of petitioners. Petitioners assumed only limited

administrative control of the bank as part of the “Committee of Depositors.”

However, there is no showing that they took over the management and control of

the bank.

Given that there is in fact no employer-employee relationship between

petitioners and private respondents, the Labor Arbiter, and consequently, the

NLRC, is without jurisdiction to adjudicate the dispute between them. The cases a

Labor Arbiter can hear and decide are “employment-related.”[43]

Even assuming that an employer-employee relationship does exist between

petitioners and private respondent, the former still cannot be held liable with

Countrywide Bank for the illegal dismissal of private respondent. Corporateofficers are not personally liable for the money claims of discharged corporate

employees, unless they acted with evident malice and bad faith in terminating their

employment.[44]














First, we agree with petitioners that they are not corporate officers of the

bank.

It has been held that an “office” is created by the charter of the corporationand the officer is elected by the directors or stockholders. On the other hand, an

“employee” usually occupies no office and gener ally is employed not by action of

the directors or stockholders but by the managing officer of the corporation who

also determines the compensation to be paid to such employee.[45]

Given this distinction, petitioners are neither officers nor employees of the

bank. They are mere depositors who sought to manage the bank in order to save it.

Next, settled is the rule in this jurisdiction that a corporation is vested by lawwith a legal personality separate and distinct from those acting for and in its behalf

and, in general, from the people comprising it.[46]

The general rule is that obligations incurred by the corporation, acting

through its directors, officers, and employees, are its sole liabilities. However,

solidary liability may be incurred, but only under the following exceptional

circumstances:

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;

2. When a director or officer has consented to the issuance

of watered stocks or who, having knowledge thereof, did not forthwith

file with the corporate secretary his written objection thereto;

3. When a director, trustee or officer has contractually agreed or

stipulated to hold himself personally and solidarily liable with the

corporation; or

4. When a director, trustee or officer is made, by specific provision

of law, personally liable for his corporate action.[47]















Not one of these circumstances is present in this case.

Furthermore, the doctrine of piercing the veil of corporate fiction finds no

application in the case. Piercing the veil of corporate fiction may only be done

when “the notion of legal entity is used to defeat public convenience, justify

wrong, protect fraud, or defend crime.”[48]

The general rule is that a corporation will be looked upon as a separate legal

entity, unless and until sufficient reason to the contrary appears. For the separate

juridical personality of a corporation to be disregarded, the wrongdoing must be

clearly and convincingly established. It cannot be presumed.[49] Mere ownership

by a single stockholder or by another corporation of all or nearly all of the capital

stock of a corporation is not in itself sufficient ground for disregarding the separate

corporate personality.[50]

In the case at bar, petitioners are not even stockholders of the bank but

mere depositors. That they assumed temporary control of the bank’s

administration did not change the character of their relationship with the bank. In

fact, their bid to convert their interest in the bank to that of stockholders failed as

the BSP denied their plan to rehabilitate the bank.

Finally, we have noted petitioners’ Manifestation[51]

dated January 31,

2007 and this Court’s decision in Atty. Andrea Uy and Felix Yusay v. Amalia

Bueno.[52]

In previous cases, the Court has held, “When a court has laid down a

principle of law as applicable to a certain set of facts, it will adhere to that principle

and apply it to all future cases in which the facts are substantially the same. Stare

decisis et non quieta movere. Stand by the decision and disturb not what is settled.





















It simply means that a conclusion reached in one case should be applied to those

that follow if the facts are substantially the same, even though the parties may be

different. It comes from the basic principle of justice that like cases ought to be

decided alike. Thus, where the same question relating to the same event is brought

by parties similarly situated as in a previous case already litigated and decided by acompetent court, the rule of stare decisis is a bar to any attempt to relitigate the

same issue.”[53]

Petitioners’ liability, if there be any, must be determined in the proper

action and at the proper forum.

WHEREFORE, premises considered, the petition is GRANTED. The February

28, 2002 Resolution in CA-G.R. SP No. 68680 of the Court of Appeals

is REVERSEDand SET ASIDE. The Decision of the Labor Arbiter in RAB-XI-01-50037-

99, finding petitioners solidarily liable with Countrywide Rural Bank of La Carlota

is, likewise,REVERSED and SET ASIDE. No pronouncement as to costs.

SO ORDERED.







Manila

SECOND DIVISION

G.R. No. 149237 June 11, 2006

CHINA BANKING CORPORATION, petitioner,vs.DYNE-SEM ELECTRONICS CORPORATION, respondent.

D E C I S I O N

CORONA, J .:

On June 19 and 26, 1985, Dynetics, Inc. (Dynetics) and Elpidio O. Lim borrowed a totalof P8,939,000 from petitioner China Banking Corporation. The loan was evidenced by six promissory

notes.1

The borrowers failed to pay when the obligations became due. Petitioner consequently instituted acomplaint for sum of money2 on June 25, 1987 against them. The complaint sought payment of theunpaid promissory notes plus interest and penalties.

Summons was not served on Dynetics, however, because it had already closed down. Lim, on theother hand, filed his answer on December 15, 1987 denying that "he promised to pay [theobligations] jointly and severally to [petitioner]."3

On January 7, 1988, the case was scheduled for pre-trial with respect to Lim. The case againstDynetics was archived.

On September 23, 1988, an amended complaint4 was filed by petitioner impleading respondentDyne-Sem Electronics Corporation (Dyne-Sem) and its stockholders Vicente Chuidian, AntonioGarcia and Jacob Ratinoff. According to petitioner, respondent was formed and organized to beDynetics’ alter ego as established by the following circumstances:

· Dynetics, Inc. and respondent are both engaged in the same line of business of manufacturing, producing, assembling, processing, importing, exporting, buying, distributing,marketing and testing integrated circuits and semiconductor devices;

· [t]he principal office and factory site of Dynetics, Inc. located at Avocado Road, FTIComplex, Taguig, Metro Manila, were used by respondent as its principal office and factory

site;

· [r]espondent acquired some of the machineries and equipment of Dynetics, Inc. from bankswhich acquired the same through foreclosure;

· [r]espondent retained some of the officers of Dynetics, Inc.5

xxx xxx xxx























On December 28, 1988, respondent filed its answer, alleging that:

5.1 [t]he incorporators as well as present stockholders of [respondent] are totally differentfrom those of Dynetics, Inc., and not one of them has ever been a stockholder or officer of the latter;

5.2 [n]ot one of the directors of [respondent] is, or has ever been, a director, officer, or stockholder of Dynetics, Inc.;

5.3 [t]he various facilities, machineries and equipment being used by [respondent] in itsbusiness operations were legitimately and validly acquired, under arms-length transactions,from various corporations which had become absolute owners thereof at the time of saidtransactions; these were not just "taken over" nor "acquired from Dynetics" by [respondent],contrary to what plaintiff falsely and maliciously alleges;

5.4 [respondent] acquired most of its present machineries and equipment as second-handitems to keep costs down;

5.5 [t]he present plant site is under lease from Food Terminal, Inc., a government-controlledcorporation, and is located inside the FTI Complex in Taguig, Metro Manila, where a number of other firms organized in 1986 and also engaged in the same or similar business havelikewise established their factories; practical convenience, and nothing else, was behind[respondent’s] choice of plant site;

5.6 [respondent] operates its own bonded warehouse under authority from the Bureau of Customs which has the sole and absolute prerogative to authorize and assign customsbonded warehouses; again, practical convenience played its role here since the warehousein question was virtually lying idle and unused when said Bureau decided to assign it to[respondent] in June 1986.6

On February 28, 1989, the trial court issued an order archiving the case as to Chuidian, Garcia andRatinoff since summons had remained unserved.

After hearing, the court a quo rendered a decision on December 27, 1991 which read:

xxx [T]he Court rules that Dyne-Sem Electronics Corporation is not an alter ego of Dynetics,Inc. Thus, Dyne-Sem Electronics Corporation is not liable under the promissory notes.

xxx xxx xxx

WHEREFORE, judgment is hereby rendered ordering Dynetics, Inc. and Elpidio O. Lim, jointly and severally, to pay plaintiff.

xxx xxx xxx

Anent the complaint against Dyne-Sem and the latter’s counterclaim, both are herebydismissed, without costs.

SO ORDERED.7











From this adverse decision, petitioner appealed to the Court of Appeals8 but the appellate courtdismissed the appeal and affirmed the trial court’s decision.9 It found that respondent was indeed notan alter ego of Dynetics. The two corporations had different articles of incorporation. Contrary topetitioner’s claim, no merger or absorption took place between the two. What transpired was a meresale of the assets of Dynetics to respondent. The appellate court denied petitioner’s motion for reconsideration.10

Hence, this petition for review11 with the following assigned errors:

VI.

Issues

What is the quantum of evidence needed for the trial court to determine if the veil of corporat[e] fiction should be pierced?

[W]hether or not the Regional Trial Court of Manila Branch 15 in its Decision datedDecember 27, 1991 and the Court of Appeals in its Decision dated February 28, 2001 and

Resolution dated July 27, 2001, which affirmed en toto [Branch 15, Manila Regional TrialCourt’s decision,] have ruled in accordance with law and/or applicable [jurisprudence] to theextent that the Doctrine of Piercing the Veil of Corporat[e] Fiction is not applicable in the caseat bar?12

We find no merit in the petition.

The question of whether one corporation is merely an alter ego of another is purely one of fact. So isthe question of whether a corporation is a paper company, a sham or subterfuge or whether petitioner adduced the requisite quantum of evidence warranting the piercing of the veil of respondent’s corporate entity. This Court is not a trier of facts. Findings of fact of the Court of

Appeals, affirming those of the trial court, are final and conclusive. The jurisdiction of this Court in a

petition for review on certiorari is limited to reviewing only errors of law, not of fact, unless it isshown, inter alia, that: (a) the conclusion is grounded entirely on speculations, surmises andconjectures; (b) the inference is manifestly mistaken, absurd and impossible; (c) there is graveabuse of discretion; (d) the judgment is based on a misapplication of facts; (e) the findings of fact of the trial court and the appellate court are contradicted by the evidence on record and (f) the Court of

Appeals went beyond the issues of the case and its findings are contrary to the admissions of bothparties.13

We have reviewed the records and found that the factual findings of the trial and appellate courtsand consequently their conclusions were supported by the evidence on record.

The general rule is that a corporation has a personality separate and distinct from that of itsstockholders and other corporations to which it may be connected.14 This is a fiction created by law

for convenience and to prevent injustice.15

Nevertheless, being a mere fiction of law, peculiar situations or valid grounds may exist to warrantthe disregard of its independent being and the piercing of the corporate veil.16 In Martinez v. Court of

Appeals,17 we held:

The veil of separate corporate personality may be lifted when such personality is used todefeat public convenience, justify wrong, protect fraud or defend crime; or used as a shield to









































confuse the legitimate issues; or when the corporation is merely an adjunct, a businessconduit or an alter ego of another corporation or where the corporation is so organized andcontrolled and its affairs are so conducted as to make it merely an instrumentality, agency,conduit or adjunct of another corporation; or when the corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or where necessary to achieve equity or for theprotection of the creditors. In such cases, the corporation will be considered as a mere

association of persons. The liability will directly attach to the stockholders or to the other corporation.

To disregard the separate juridical personality of a corporation, the wrongdoing must be provenclearly and convincingly.18

In this case, petitioner failed to prove that Dyne-Sem was organized and controlled, and its affairsconducted, in a manner that made it merely an instrumentality, agency, conduit or adjunct of Dynetics, or that it was established to defraud Dynetics’ creditors, including petitioner.

The similarity of business of the two corporations did not warrant a conclusion that respondent wasbut a conduit of Dynetics. As we held in Umali v. Court of Appeals,19 "the mere fact that the

businesses of two or more corporations are interrelated is not a justification for disregarding their separate personalities, absent sufficient showing that the corporate entity was purposely used as ashield to defraud creditors and third persons of their rights."

Likewise, respondent’s acquisition of some of the machineries and equipment of Dynetics was notproof that respondent was formed to defraud petitioner. As the Court of Appeals found, nomerger 20 took place between Dynetics and respondent Dyne-Sem. What took place was a sale of theassets21 of the former to the latter. Merger is legally distinct from a sale of assets.22 Thus, where onecorporation sells or otherwise transfers all its assets to another corporation for value, the latter is not,by that fact alone, liable for the debts and liabilities of the transferor.

Petitioner itself admits that respondent acquired the machineries and equipment not directly fromDynetics but from the various corporations which successfully bidded for them in an auction sale.

The contracts of sale executed between the winning bidders and respondent showed that the assetswere sold for considerable amounts.23 The Court of Appeals thus correctly ruled that the assets werenot "diverted" to respondent as an alter ego of Dynetics.24 The machineries and equipment weretransferred and disposed of by the winning bidders in their capacity as owners. The sales weretherefore valid and the transfers of the properties to respondent legal and not in any way incontravention of petitioner’s rights as Dynetics’ creditor.

Finally, it may be true that respondent later hired Dynetics’ former Vice -President Luvinia Maglayaand Assistant Corporate Counsel Virgilio Gesmundo. From this, however, we cannot conclude thatrespondent was an alter ego of Dynetics. In fact, even the overlapping of incorporators andstockholders of two or more corporations will not necessarily lead to such inference and justify thepiercing of the veil of corporate fiction.25 Much more has to be proven.

Premises considered, no factual and legal basis exists to hold respondent Dyne-Sem liable for theobligations of Dynetics to petitioner.

WHEREFORE, the petition is hereby DENIED.The assailed Court of Appeals’ decision andresolution in CA-G.R. CV No. 40672 are hereby AFFIRMED.

Costs against petitioner.


































SO ORDERED.



THIRD DIVISION

PANTRANCO EMPLOYEES ASSOCIATION

(PEA-PTGWO) and PANTRANCO

RETRENCHED EMPLOYEES ASSOCIATION

(PANREA),

Petitioners,

- versus -

NATIONAL LABOR RELATIONS

COMMISSION (NLRC), PANTRANCO NORTH

EXPRESS, INC. (PNEI), PHILIPPINE

NATIONAL BANK (PNB), PHILIPPINE

NATIONAL BANK-MANAGEMENT AND

DEVELOPMENT CORPORATION (PNB-

MADECOR), and MEGA PRIME REALTY AND

HOLDINGS CORPORATION (MEGA PRIME),

Respondents.

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

PHILIPPINE NATIONAL BANK,

Petitioner,

- versus -

G.R. No. 170689



PANTRANCO EMPLOYEES ASSOCIATION,

INC. (PEA-PTGWO), PANTRANCO

RETRENCHED EMPLOYEES ASSOCIATION

(PANREA) AND PANTRANCO ASSOCIATION

OF CONCERNED EMPLOYEES (PACE), ET AL.,

PHILIPPINE NATIONAL BANK-

MANAGEMENT DEVELOPMENT

CORPORATION (PNB-MADECOR), and

MEGA PRIME REALTY HOLDINGS, INC.,

Respondents.

G.R. No. 170705

Present:

YNARES-SANTIAGO, J.,

Chairperson,

CARPIO,*

CHICO-NAZARIO,

NACHURA, and

PERALTA, JJ.

Promulgated:

March 17, 2009

x------------------------------------------------------------------------------------x

DECISION







NACHURA, J .:

Before us are two consolidated petitions assailing the Court of Appeals

(CA) Decision[1] dated June 3, 2005 and its Resolution[2] dated December 7, 2005

in CA-G.R. SP No. 80599.

In G.R. No. 170689, the Pantranco Employees Association (PEA) and

Pantranco Retrenched Employees Association (PANREA) pray that the CA

decision be set aside and a new one be entered, declaring the Philippine National

Bank (PNB) and PNB Management and Development Corporation (PNB-

Madecor) jointly and solidarily liable for theP722,727,150.22 National Labor

Relations Commission (NLRC) judgment in favor of the Pantranco North Express,

Inc. (PNEI) employees;[3] while in G.R. No. 170705, PNB prays that the auction

sale of the Pantranco properties be declared null and void.[4]

The facts of the case, as found by the CA,[5] and established in Republic of

the Phils. v. NLRC ,[6] Pantranco North Express, Inc. v. NLRC ,[7] and PNB

MADECOR v. Uy ,[8] follow:

The Gonzales family owned two corporations, namely, the PNEI and Macris

Realty Corporation (Macris). PNEI provided transportation services to the public,

and had its bus terminal at the corner of Quezon and Roosevelt Avenues in Quezon

City. The terminal stood on four valuable pieces of real estate (known as

Pantranco properties) registered under the name of Macris.[9] The Gonzales family

later incurred huge financial losses despite attempts of rehabilitation and loan

infusion. In March 1975, their creditors took over the management of PNEI and

Macris. By 1978, full ownership was transferred to one of their creditors, the

National Investment Development Corporation (NIDC), a subsidiary of the PNB.





































Macris was later renamed as the National Realty Development Corporation

(Naredeco) and eventually merged with the National Warehousing Corporation

(Nawaco) to form the new PNB subsidiary, the PNB-Madecor.

In 1985, NIDC sold PNEI to North Express Transport, Inc. (NETI), a

company owned by Gregorio Araneta III. In 1986, PNEI was among the several

companies placed under sequestration by the Presidential Commission on Good

Government (PCGG) shortly after the historic events in EDSA. In January 1988,

PCGG lifted the sequestration order to pave the way for the sale of PNEI back to

the private sector through the Asset Privatization Trust (APT). APT thus took over

the management of PNEI.

In 1992, PNEI applied with the Securities and Exchange Commission (SEC)

for suspension of payments. A management committee was thereafter created

which recommended to the SEC the sale of the company through privatization. As

a cost-saving measure, the committee likewise suggested the retrenchment of

several PNEI employees. Eventually, PNEI ceased its operation. Along with the

cessation of business came the various labor claims commenced by the former

employees of PNEI where the latter obtained favorable decisions.

On July 5, 2002, the Labor Arbiter issued the Sixth Alias Writ of Execution[10] commanding the NLRC Sheriffs to levy on the assets of PNEI in

order to satisfy theP722,727,150.22 due its former employees, as full and final

satisfaction of the judgment awards in the labor cases. The sheriffs were likewise

instructed to proceed against PNB, PNB-Madecor and Mega Prime.[11] In

implementing the writ, the sheriffs levied upon the four valuable pieces of real

estate located at the corner of Quezon and Roosevelt Avenues, on which the

former Pantranco Bus Terminal stood. These properties were covered by Transfer

Certificate of Title (TCT) Nos. 87881-87884, registered under the name of PNB-Madecor .[12] Subsequently, Notice of Sale of the foregoing real properties was

published in the newspaper and the sale was set on July 31, 2002. Having been

notified of the auction sale, motions to quash the writ were separately filed by

PNB-Madecor and Mega Prime, and PNB. They likewise filed their Third-Party

Claims.[13] PNB-Madecor anchored its motion on its right as the registered owner

of the Pantranco properties, and Mega Prime as the successor-in-interest. For its


















part, PNB sought the nullification of the writ on the ground that it was not a party

to the labor case.[14] In its Third-Party Claim, PNB alleged that PNB-

Madecor was indebted to the former and that the Pantranco properties







would answer for such debt. As such, the scheduled auction sale of the aforesaid

properties was not legally in order .[15]

On September 10, 2002, the Labor Arbiter declared that the subject

Pantranco properties were owned by PNB-Madecor. It being a corporation with adistinct and separate personality, its assets could not answer for the liabilities of

PNEI. Considering, however, that PNB-Madecor executed a promissory note in

favor of PNEI for P7,884,000.00, the writ of execution to the extent of the said

amount was concerned was considered valid.[16]

PNB’s third-party claim – to nullify the writ on the ground that it has an

interest in the Pantranco properties being a creditor of PNB-Madecor, – on the

other hand, was denied because it only had an inchoate interest in the properties.[17]

The dispositive portion of the Labor Arbiter’s September 10, 2002

Resolution is quoted hereunder:

WHEREFORE, the Third Party Claim of PNB Madecor and/or

Mega Prime Holdings, Inc. is hereby GRANTED and concomitantly the

levies made by the sheriffs of the NLRC on the properties of PNB

Madecor should be as it (sic) is hereby LIFTED subject to the payment

by PNB Madecor to the complainants the amount of P7,884,000.00.

The Motion to Quash and Third Party Claim of PNB is hereby

DENIED.

The Motion to Quash of PNB Madecor and Mega Prime

Holdings, Inc. is hereby PARTIALLY GRANTED insofar as the amount

of the writ exceeds P7,884,000.00.

The Motion for Recomputation and Examination of Judgment

Awards is hereby DENIED for want of merit.















The Motion to Expunge from the Records

claimants/complainants Opposition dated August 3, 2002 is hereby

DENIED for lack of merit.

SO ORDERED.[18]

On appeal to the NLRC, the same was denied and the Labor Arbiter’s

disposition was affirmed.[19] Specifically, the NLRC concluded as follows:

(1) PNB-Madecor and Mega Prime contended that it would be

impossible for them to comply with the requirement of the labor arbiter

to pay to the PNEI employees the amount of P7.8 million as a condition

to the lifting of the levy on the properties, since the credit was already

garnished by Gerardo Uy and other creditors of PNEI. The NLRC foundno evidence that Uy had satisfied his judgment from the promissory

note, and opined that even if the credit was in custodia legis, the claim of

the PNEI employees should enjoy preference under the Labor Code.

(2) The PNEI employees contested the finding that PNB-

Madecor was indebted to the PNEI for only P7.8 million without

considering the accrual of interest. But the NLRC said that there was no

evidence that demand was made as a basis for reckoning interest.

(3) The PNEI employees further argued that the labor arbiter may not properly conclude from a decision of Judge Demetrio

Macapagal Jr. of the RTC of Quezon City that PNB-Madecor was the

owner of the properties as his decision was reconsidered by the next

presiding judge, nor from a decision of the Supreme Court that PNEI

was a mere lessee of the properties, the fact being that the transfer of the

properties to PNB-Madecor was done to avoid satisfaction of the claims

of the employees with the NLRC and that as a result of a civil case filed

by Mega Prime, the subsequent sale of the properties by PNB to Mega

Prime was rescinded. The NLRC pointed out that while the Macapagal

decision was set aside by Judge Bruselas and hence, his findings couldnot be invoked by the labor arbiter, the titles of PNB-Madecor are

conclusive and there is no evidence that PNEI had ever been an

owner. The Supreme Court had observed in its decision that PNEI owed

back rentals of P8.7 million to PNB-Madecor.











(4) The PNEI employees faulted the labor arbiter for not

finding that PNEI, PNB, PNB-Madecor and Mega Prime were all jointly

and severally liable for their claims. The NLRC underscored the fact

that PNEI and Macris were subsidiaries of NIDC and had passed through

and were under the Asset Privatization Trust (APT) when the labor

claims accrued. The labor arbiter was correct in not granting PNB’sthird-party claim because at the time the causes of action accrued, the

PNEI was managed by a management committee appointed by the PNB

as the new owner of PNRI (sic) and Macris through a deed of

assignment or transfer of ownership. The NLRC says at length that the

same is not true with PNB-Madecor which is now the registered owner

of the properties.[20]

The parties’ separate motions for reconsideration were likewisedenied.[21] Thereafter, the matter was elevated to the CA by PANREA, PEA-

PTGWO and the Pantranco Association of Concerned Employees. The latter

group, however, later withdrew its petition. The former employees’ petition was

docketed as CA-G.R. SP No. 80599.

PNB-Madecor and Mega Prime likewise filed their separate petition before

the CA which was docketed as CA-G.R. SP No. 80737, but the same was

dismissed.[22]

In view of the P7,884,000.00 debt of PNB-Madecor to PNEI, on June 23,

2004, an auction sale was conducted over the Pantranco properties to satisfy the

claim of the PNEI employees, wherein CPAR Realty was adjudged as the highest

bidder .[23]

On June 3, 2005, the CA rendered the assailed decision affirming the NLRC

resolutions.

The appellate court pointed out that PNB, PNB-Madecor and Mega Prime

are corporations with personalities separate and distinct from PNEI. As such, there

being no cogent reason to pierce the veil of corporate fiction, the separate

personalities of the above corporations should be maintained. The CA added that

the Pantranco properties were never owned by PNEI; rather, their titles were



















registered under the name of PNB-Madecor. If PNB and PNB-Madecor could not

answer for the liabilities of PNEI, with more reason should Mega Prime not be

held liable being a mere successor-in-interest of PNB-Madecor.

Unsatisfied, PEA-PTGWO and PANREA filed their motion for reconsideration;[24] while PNB filed its Partial Motion for Reconsideration.[25] PNB

pointed out that PNB-Madecor was made to answer for P7,884,000.00 to the PNEI

employees by virtue of the promissory note it (PNB-Madecor) earlier executed in

favor of PNEI. PNB, however, questioned the June 23, 2004 auction sale as

the P7.8 million debt had already been satisfied pursuant to this Court’s decision

in PNB MADECOR v. Uy.[26]

Both motions were denied by the appellate court.

[27]

In two separate petitions, PNB and the former PNEI employees come up to

this Court assailing the CA decision and resolution. The former PNEI employees

raise the lone error, thus:

The Honorable Court of Appeals palpably departed from the

established rules and jurisprudence in ruling that private respondents

Pantranco North Express, Inc. (PNEI), Philippine National Bank (PNB),

Philippine National Bank Management and Development Corporation

(PNB-MADECOR), Mega Prime Realty and Holdings, Inc. (Mega Prime)

are not jointly and severally answerable to theP722,727,150.22 Million

NLRC money judgment awards in favor of the 4,000 individual members

of the Petitioners.[28]

They claim that PNB, through PNB-Madecor, directly benefited from the

operation of PNEI and had complete control over the funds of PNEI. Hence, they

are solidarily answerable with PNEI for the unpaid money claims of the

employees.[29]

Citing A.C. Ransom Labor Union-CCLU v. NLRC ,[30]

the employees

insist that where the employer corporation ceases to exist and is no longer able to































satisfy the judgment awards in favor of its employees, the owner of the employer

corporation should be made jointly and severally liable.[31]

They added that

malice or bad faith need not be proven to make the owners liable.

On the other hand, PNB anchors its petition on this sole assignment of

error, viz.:

THE AUCTION SALE OF THE PROPERTY COVERED BY TCT NO. 87884

INTENDED TO PARTIALLY SATISFY THE CLAIMS OF FORMER WORKERS

OF PNEI IN THE AMOUNT OF P7,884,000.00 (THE AMOUNT OF PNB-

MADECOR’S PROMISSORY NOTE IN FAVOR OF PNEI) IS NOTIN ORDER AS THE SAID PROPERTY IS NOT OWNED BY PNEI. FURTHER,

THE SAID PROMISSORY NOTE HAD ALREADY BEEN GARNISHED IN

FAVOR OF GERARDO C. UY WHICH LED TO THREE (3) PROPERTIES

UNDER THE NAME OF PNB-MADECOR, NAMELY TCT NOS. 87881, 87882

AND 87883, BEING LEVIED AND SOLD ON EXECUTION IN THE “PNB-

MADECOR VS. UY” CASE (363 SCRA 128 *2001+) AND “GERARDO C. UY

VS. PNEI” (CIVIL CASE NO. 95-72685, RTC MANILA, BRANCH 38).[32]

PNB insists that the Pantranco properties could no longer be levied upon

because the promissory note for which the Labor Arbiter held PNB-Madecor liable

to PNEI, and in turn to the latter’s former employees, had already been satisfied

in favor of Gerardo C. Uy. It added that the properties were in fact awarded to

the highest bidder. Besides, says PNB, the subject properties were not owned by

PNEI, hence, the execution sale thereof was not validly effected.[33]

Both petitions must fail.















G.R. No. 170689

Stripped of the non-essentials, the sole issue for resolution raised by the

former PNEI employees is whether they can attach the properties (specifically thePantranco properties) of PNB, PNB-Madecor and Mega Prime to satisfy their

unpaid labor claims against PNEI.

We answer in the negative.

First, the subject property is not owned by the judgment debtor, that is,PNEI. Nowhere in the records was it shown that PNEI owned the Pantranco

properties. Petitioners, in fact, never alleged in any of their pleadings the fact of

such ownership. What was established, instead, in PNB MADECOR v.

Uy [34]

and PNB v. Mega Prime Realty and Holdings Corporation/Mega Prime Realty

and Holdings Corporation v. PNB[35]

was that the properties were owned by

Macris, the predecessor of PNB-Madecor. Hence, they cannot be pursued against

by the creditors of PNEI.

We would like to stress the settled rule that the power of the court in

executing judgments extends only to properties unquestionably belonging to the

judgment debtor alone.[36]

To be sure, one man’s goods shall not be sold for

another man’s debts.[37]

A sheriff is not authorized to attach or levy on property

not belonging to the judgment debtor, and even incurs liability if he wrongfully

levies upon the property of a third person.[38]

Second , PNB, PNB-Madecor and Mega Prime are corporations with

personalities separate and distinct from that of PNEI. PNB is sought to be held

liable because it acquired PNEI through NIDC at the time when PNEI was suffering

financial reverses. PNB-Madecor is being made to answer for petitioners’ labor

claims as the owner of the subject Pantranco properties and as a subsidiary of






















PNB. Mega Prime is also included for having acquired PNB’s shares over PNB-

Madecor.

The general rule is that a corporation has a personality separate anddistinct from those of its stockholders and other corporations to which it may be

connected.[39]

This is a fiction created by law for convenience and to prevent

injustice.[40]

Obviously, PNB, PNB-Madecor, Mega Prime, and PNEI are

corporations with their own personalities. The “separate personalities” of the

first three corporations had been recognized by this Court in PNB v. Mega Prime

Realty and Holdings Corporation/Mega Prime Realty and Holdings Corporation v.

PNB[41]

where we stated that PNB was only a stockholder of PNB-Madecor which

later sold its shares to Mega Prime; and that PNB-Madecor was the owner of thePantranco properties. Moreover, these corporations are registered as separate

entities and, absent any valid reason, we maintain their separate identities and

we cannot treat them as one.

Neither can we merge the personality of PNEI with PNB simply because the

latter acquired the former. Settled is the rule that where one corporation sells or

otherwise transfers all its assets to another corporation for value, the latter is not,

by that fact alone, liable for the debts and liabilities of the transferor.[42]

Lastly , while we recognize that there are peculiar circumstances or valid

grounds that may exist to warrant the piercing of the corporate veil, [43]

none

applies in the present case whether between PNB and PNEI; or PNB and PNB-

Madecor.

Under the doctrine of “piercing the veil of corporate fiction,” the court

looks at the corporation as a mere collection of individuals or an aggregation of

persons undertaking business as a group, disregarding the separate juridical

personality of the corporation unifying the group.[44]

Another formulation of this

doctrine is that when two business enterprises are owned, conducted and


























controlled by the same parties, both law and equity will, when necessary to

protect the rights of third parties, disregard the legal fiction that two corporations

are distinct entities and treat them as identical or as one and the same.[45]

Whether the separate personality of the corporation should be pierced

hinges on obtaining facts appropriately pleaded or proved. However, any piercing

of the corporate veil has to be done with caution, albeit the Court will not

hesitate to disregard the corporate veil when it is misused or when necessary in

the interest of justice. After all, the concept of corporate entity was not meant to

promote unfair objectives.[46]

As between PNB and PNEI, petitioners want us to disregard their separate

personalities, and insist that because the company, PNEI, has already ceased

operations and there is no other way by which the judgment in favor of the

employees can be satisfied, corporate officers can be held jointly and severally

liable with the company. Petitioners rely on the pronouncement of this Court

in A.C. Ransom Labor Union-CCLU v. NLRC [47]

and subsequent cases.[48]

This reliance fails to persuade. We find the aforesaid decisions inapplicable

to the instant case.

For one, in the said cases, the persons made liable after the company’s

cessation of operations were the officers and agents of the corporation. The

rationale is that, since the corporation is an artificial person, it must have an

officer who can be presumed to be the employer, being the person acting in the

interest of the employer. The corporation, only in the technical sense, is theemployer.

[49] In the instant case, what is being made liable is another corporation

(PNB) which acquired the debtor corporation (PNEI).






















Moreover, in the recent cases Carag v. National Labor Relations

Commission[50]

and McLeod v. National Labor Relations Commission ,[51]

the Court

explained the doctrine laid down in AC Ransom relative to the personal liability of

the officers and agents of the employer for the debts of the latter. In AC

Ransom, the Court imputed liability to the officers of the corporation on thestrength of the definition of an employer in Article 212(c) (now Article 212[e]) of

the Labor Code. Under the said provision,employer includes any person acting in

the interest of an employer, directly or indirectly, but does not include any labor

organization or any of its officers or agents except when acting as employer. It

was clarified in Carag and McLeod that Article 212(e) of the Labor Code, by itself,

does not make a corporate officer personally liable for the debts of the

corporation. It added that the governing law on personal liability of directors or

officers for debts of the corporation is still Section 31[52]

of the Corporation

Code.

More importantly, as aptly observed by this Court in AC Ransom, it appears

that Ransom, foreseeing the possibility or probability of payment of backwages to

its employees, organized Rosario to replace Ransom, with the latter to be

eventually phased out if the strikers win their case. The execution could not be

implemented against Ransom because of the disposition posthaste of its leviable

assets evidently in order to evade its just and due obligations.[53] Hence, the Court

sustained the piercing of the corporate veil and made the officers of Ransom

personally liable for the debts of the latter.

Clearly, what can be inferred from the earlier cases is that the doctrine of

piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat

of public convenience as when the corporate fiction is used as a vehicle for the

evasion of an existing obligation; 2) fraud cases or when the corporate entity isused to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases,

where a corporation is merely a farce since it is a mere alter ego or business

conduit of a person, or where the corporation is so organized and controlled and

its affairs are so conducted as to make it merely an instrumentality, agency,

conduit or adjunct of another corporation.[54]

In the absence of malice, bad faith,





















or a specific provision of law making a corporate officer liable, such corporate

officer cannot be made personally liable for corporate liabilities.[55]

Applying the foregoing doctrine to the instant case, we quote with approvalthe CA disposition in this wise:

It would not be enough, then, for the petitioners in this case, the

PNEI employees, to rest on their laurels with evidence that PNB was the

owner of PNEI. Apart from proving ownership, it is necessary to show

facts that will justify us to pierce the veil of corporate fiction and hold

PNB liable for the debts of PNEI. The burden undoubtedly falls on thepetitioners to prove their affirmative allegations. In line with the basic

jurisprudential principles we have explored, they must show that PNB

was using PNEI as a mere adjunct or instrumentality or has exploited or

misused the corporate privilege of PNEI.

We do not see how the burden has been met. Lacking proof of a

nexus apart from mere ownership, the petitioners have not provided uswith the legal basis to reach the assets of corporations separate and

distinct from PNEI.[56]

Assuming, for the sake of argument, that PNB may be held liable for the

debts of PNEI, petitioners still cannot proceed against the Pantranco properties,

the same being owned by PNB-Madecor, notwithstanding the fact that PNB-

Madecor was a subsidiary of PNB. The general rule remains that PNB-Madecor

has a personality separate and distinct from PNB. The mere fact that a

corporation owns all of the stocks of another corporation, taken alone, is not

sufficient to justify their being treated as one entity. If used to perform legitimate

functions, a subsidiary’s separate existence shall be respected, and the liability of











the parent corporation as well as the subsidiary will be confined to those arising

in their respective businesses.[57]

In PNB v. Ritratto Group, Inc. ,[58] we outlined the circumstances which areuseful in the determination of whether a subsidiary is but a mere instrumentality

of the parent-corporation, to wit:

1. The parent corporation owns all or most of the capital stock of

the subsidiary;

2. The parent and subsidiary corporations have common directors

or officers;

3. The parent corporation finances the subsidiary;

4. The parent corporation subscribes to all the capital stock of thesubsidiary or otherwise causes its incorporation;

5. The subsidiary has grossly inadequate capital;

6. The parent corporation pays the salaries and other expenses or

losses of the subsidiary;

7. The subsidiary has substantially no business except with the

parent corporation or no assets except those conveyed to or by

the parent corporation;











8. In the papers of the parent corporation or in the statements of

its officers, the subsidiary is described as a department or

division of the parent corporation, or its business or financialresponsibility is referred to as the parent corporation’s own;

9. The parent corporation uses the property of the subsidiary as its

own;

10. The directors or executives of the subsidiary do not actindependently in the interest of the subsidiary, but take their

orders from the parent corporation;

11. The formal legal requirements of the subsidiary are not

observed.

None of the foregoing circumstances is present in the instant case. Thus, piercing

of PNB-Madecor’s corporate veil is not warranted. Being a mere successor-in-

interest of PNB-Madecor, with more reason should no liability attach to Mega

Prime.

G.R. No. 170705

In its petition before this Court, PNB seeks the annulment of the June 23,

2004 execution sale of the Pantranco properties on the ground that the judgment

debtor (PNEI) never owned said lots. It likewise contends that the levy and the



eventual sale on execution of the subject properties was null and void as the

promissory note on which PNB-Madecor was made liable had already been

satisfied.

It has been repeatedly stated that the Pantranco properties which were the

subject of execution sale were owned by Macris and later, the PNB-

Madecor. They were never owned by PNEI or PNB. Following our earlier

discussion on the separate personalities of the different corporations involved in

the instant case, the only entity which has the right and interest to question the

execution sale and the eventual right to annul the same, if any, is PNB-Madecor or

its successor-in-interest. Settled is the rule that proceedings in court must be

instituted by the real party in interest.

A real party in interest is the party who stands to be benefited or injured by

the judgment in the suit, or the party entitled to the avails of the

suit.[59]

“Interest” within the meaning of the rule means material interest, an

interest in issue and to be affected by the decree, as distinguished from mere

interest in the question involved, or a mere incidental interest.[60]

The interest of

the party must also be personal and not one based on a desire to vindicate the

constitutional right of some third and unrelated party.[61] Real interest, on the

other hand, means a present substantial interest, as distinguished from a mere

expectancy or a future, contingent, subordinate, or consequential interest.[62]

Specifically, in proceedings to set aside an execution sale, the real party in

interest is the person who has an interest either in the property sold or the

proceeds thereof. Conversely, one who is not interested or is not injured by the

execution sale cannot question its validity.[63]

In justifying its claim against the Pantranco properties, PNB alleges that

Mega Prime, the buyer of its entire stockholdings in PNB-Madecor was indebted























to it (PNB). Considering that said indebtedness remains unpaid, PNB insists that it

has an interest over PNB-Madecor and Mega Prime’s assets.

Again, the contention is bereft of merit. While PNB has an apparent interestin Mega Prime’s assets being the creditor of the latter for a substantial amount,

its interest remains inchoate and has not yet ripened into a present substantial

interest, which would give it the standing to maintain an action involving the

subject properties. As aptly observed by the Labor Arbiter, PNB only has an

inchoate right to the properties of Mega Prime in case the latter would not be

able to pay its indebtedness. This is especially true in the instant case, as the debt

being claimed by PNB is secured by the accessory contract of pledge of the entire

stockholdings of Mega Prime to PNB-Madecor.

[64]

The Court further notes that the Pantranco properties (or a portion thereof )

were sold on execution to satisfy the unpaid obligation of PNB-Madecor to

PNEI. PNB-Madecor was thus made liable to the former PNEI employees as the

judgment debtor of PNEI. It has long been established in PNB-Madecor v. Uy and

other similar cases that PNB-Madecor had an unpaid obligation to PNEI

amounting to more or less P7 million which could be validly pursued by the

creditors of the latter. Again, this strengthens the proper parties’ right to

question the validity of the execution sale, definitely not PNB.

Besides, the issue of whether PNB has a substantial interest over the

Pantranco properties has already been laid to rest by the Labor Arbiter .[65] It is

noteworthy that in its Resolution dated September 10, 2002, the Labor Arbiter

denied PNB’s Third-Party Claim primarily because PNB only has an inchoate right

over the Pantranco properties.[66]

Such conclusion was later affirmed by the NLRCin its Resolution dated June 30, 2003.[67] Notwithstanding said conclusion, PNB

did not elevate the matter to the CA via a petition for review. Hence it is

presumed to be satisfied with the adjudication therein.[68] That decision of the

NLRC has become final as against PNB and can no longer be reviewed, much less

reversed, by this Court.[69] This is in accord with the doctrine that a party who has



























not appealed cannot obtain from the appellate court any affirmative relief other

than the ones granted in the appealed decision.[70]

WHEREFORE, premises considered, the petitions are hereby DENIED for lack

of merit.

SO ORDERED.





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