G.R. No. 182397 September 14, 2011

ALERT SECURITY AND INVESTIGATION AGENCY, INC. AND/OR MANUEL D. DASIG, Petitioners, vs.SAIDALI PASAWILAN, WILFREDO VERCELES AND MELCHOR BULUSAN, Respondents.

D E C I S I O N

VILLARAMA, JR., J.:

This petition for review on certiorari assails the Decision1 dated February 1, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. 99861. The appellate court reversed and set aside the January 31, 2007 Decision2

and March 15, 2007 Resolution3 of the National Labor Relations Commission (NLRC) and reinstated the Labor Arbiter’s Decision4 finding petitioners guilty of illegal dismissal.

The facts follow.

Respondents Saidali Pasawilan, Wilfredo Verceles and Melchor Bulusan were all employed by petitioner Alert Security and Investigation Agency, Inc. (Alert Security) as security guards beginning March 31, 1996, January 14, 1997, and January 24, 1997, respectively. They were paid 165.00 pesos a day as regular employees, and assigned at the Department of Science and Technology (DOST) pursuant to a security service contract between the DOST and Alert Security.

Respondents aver that because they were underpaid, they filed a complaint for money claims against Alert Security and its president and general manager, petitioner Manuel D. Dasig, before Labor Arbiter Ariel C. Santos. As a result of their complaint, they were relieved from their posts in the DOST and were not given new assignments despite the lapse of six months. On January 26, 1999, they filed a joint complaint for illegal dismissal against petitioners.

Petitioners, on the other hand, deny that they dismissed the respondents. They claimed that from the DOST, respondents were merely detailed at the Metro Rail Transit, Inc. at the Light Rail Transit Authority (LRTA) Compound in Aurora Blvd. because the wages therein were already adjusted to the latest minimum wage. Petitioners presented "Duty Detail Orders"5 that Alert Security issued to show that respondents were in fact assigned to LRTA. Respondents, however, failed to report at the LRTA and instead kept loitering at the DOST and tried to convince other security guards to file complaints against Alert Security. Thus, on August 3, 1998, Alert Security filed a "termination report"6 with the Department of Labor and Employment relative to the termination of the respondents.

Upon motion of the respondents, the joint complaint for illegal dismissal was ordered consolidated with respondents’ earlier complaint for money claims. The records of the illegal dismissal case were sent to Labor Arbiter Ariel C. Santos, but later returned to the Office of the Labor Arbiter hearing the illegal dismissal complaint because a Decision7 has already been rendered in the complaint for money claims on July 14, 1999. In that decision, the complaint for money claims was dismissed for lack of merit but petitioners were ordered to pay respondents their latest salary differentials.

On July 28, 2000, Labor Arbiter Melquiades Sol D. Del Rosario rendered a Decision 8 on the complaint for illegal dismissal. The Labor Arbiter ruled:

CONFORMABLY WITH THE FOREGOING, judgment is hereby rendered finding complainants to have been illegally dismissed. Consequently, each complainant should be paid in solidum by the respondents the individual awards computed in the body of the decision, which is hereto adopted as part of this disposition.

SO ORDERED.9

Aggrieved, petitioners appealed the decision to the NLRC claiming that the Labor Arbiter erred in deciding a re-filed case when it was filed in violation of the prohibitions against litis pendencia and forum shopping. Further, petitioners argued that complainants were not illegally dismissed but were only transferred. They claimed that it was the respondents who refused to report for work in their new assignment.

On January 31, 2007, the NLRC rendered a Decision10 ruling that Labor Arbiter Del Rosario did not err in taking cognizance of respondents’ complaint for illegal dismissal because the July 14, 1999 Decision of Labor Arbiter Santos on the complaint for money claims did not at all pass upon the issue of illegal dismissal. The NLRC, however, dismissed the complaint for illegal dismissal after ruling that the fact of dismissal or termination of employment was not sufficiently established. According to the NLRC, "[the] sweeping generalization that the complainants were constructively dismissed is not sufficient to establish the existence of illegal dismissal."11 The dispositive portion of the NLRC decision reads:

WHEREFORE, premises considered, the respondents’ appeal is hereby given due course and the decision dated July 28, 2000 is hereby REVERSED and SET-ASIDE and a new one entered DISMISSING the complaint for illegal dismissal for lack of merit.

SO ORDERED.12

Unfazed, respondents filed a petition for certiorari with the CA questioning the NLRC decision and alleging grave abuse of discretion.

On February 1, 2008, the CA rendered the assailed Decision13 reversing and setting aside the NLRC decision and reinstating the July 28, 2000 Decision of Labor Arbiter Del Rosario. The CA ruled that Alert Security, as an employer, failed to discharge its burden to show that the employee’s separation from employment was not motivated by discrimination, made in bad faith, or effected as a form of punishment or demotion without sufficient cause. The CA also found that respondents were never informed of the "Duty Detail Orders" transferring them to a new post, thereby making the alleged transfer ineffective. The dispositive portion of the CA decision states:

WHEREFORE, premises considered, the January 31, 2007 decision of the NLRC is hereby REVERSED and SET ASIDE and the July 28, 2000 decision of the Labor Arbiter is hereby REVIVED.

SO ORDERED.14

Petitioners filed a motion for reconsideration, but the motion was denied in a Resolution15 dated March 31, 2008.

Petitioners are now before this Court to seek relief by way of a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended.

Petitioners argue that the CA erred when it held that the NLRC committed grave abuse of discretion. According to petitioners, the NLRC was correct when it ruled that there was no sufficient basis to rule that respondents were terminated from their employment while there was proof that they were merely transferred from DOST to LRTA as shown in the "Duty Detail Orders". Verily, petitioners claim that there was no termination at all; instead, respondents abandoned their employment by refusing to report for duty at the LRTA Compound.

Further, petitioners argue that the CA erred when it reinstated the July 28, 2000 Decision of Labor Arbiter Del Rosario in its entirety. The dispositive portion of said decision ruled that respondents should be paid their monetary awards in solidum by Alert Security and Manuel D. Dasig, its President and General Manager. They argue that Alert Security is a duly organized domestic corporation which has a legal personality separate and distinct from its members or owners. Hence, liability for whatever compensation or money claims owed to employees must be borne solely by Alert Security and not by any of its individual stockholders or officers.

On the other hand, respondents claim that the NLRC committed a serious error in ruling that they failed to provide factual substantiation of their claim of constructive dismissal. Respondents aver that their Complaint Form16 sufficiently constitutes the basis of their claim of illegal dismissal. Also, respondents aver that Alert Security itself admitted that respondents were relieved from their posts as security guards in DOST, albeit raising the defense that it was a mere transfer as shown by "Duty Detail Orders", which, however, were never received by respondents, as observed by the Labor Arbiter.

Essentially, the issue for resolution is whether respondents were illegally dismissed.

We rule in the affirmative.

As a rule, employment cannot be terminated by an employer without any just or authorized cause. No less than the 1987 Constitution in Section 3, Article 13 guarantees security of tenure for workers and because of this, an employee may only be terminated for just17 or authorized18 causes that

must comply with the due process requirements mandated19 by law. Hence, employers are barred from arbitrarily removing their workers whenever and however they want. The law sets the valid grounds for termination as well as the proper procedure to take when terminating the services of an employee.

In De Guzman, Jr. v. Commission on Elections,20 the Court, speaking of the Constitutional guarantee of security of tenure to all workers, ruled:

x x x It only means that an employee cannot be dismissed (or transferred) from the service for causes other than those provided by law and after due process is accorded the employee. What it seeks to prevent is capricious exercise of the power to dismiss. x x x (Emphasis supplied.)

Although we recognize the right of employers to shape their own work force, this management prerogative must not curtail the basic right of employees to security of tenure. There must be a valid

and lawful reason for terminating the employment of a worker. Otherwise, it is illegal and would be dealt with by the courts accordingly.

As stated in Bascon v. Court of Appeals:21

x x x The employer’s power to dismiss must be tempered with the employee’s right to security of tenure. Time and again we have said that the preservation of the lifeblood of the toiling laborer comes before concern for business profits. Employers must be reminded to exercise the power to dismiss with great caution, for the State will not hesitate to come to the succor of workers wrongly dismissed by capricious employers.

In the case at bar, respondents were relieved from their posts because they filed with the Labor Arbiter a complaint against their employer for money claims due to underpayment of wages. This reason is unacceptable and illegal. Nowhere in the law providing for the just and authorized causes of termination of employment is there any direct or indirect reference to filing a legitimate complaint for money claims against the employer as a valid ground for termination.

The Labor Code, as amended, enumerates several just and authorized causes for a valid termination of employment. An employee asserting his right and asking for minimum wage is not among those causes. Dismissing an employee on this ground amounts to retaliation by management for an employee’s legitimate grievance without due process. Such stroke of retribution has no place in Philippine Labor Laws.

Petitioners aver that respondents were merely transferred to a new post wherein the wages are adjusted to the current minimum wage standards. They maintain that the respondents voluntarily abandoned their jobs when they failed to report for duty in the new location.

Assuming this is true, we still cannot hold that the respondents abandoned their posts. For abandonment of work to fall under Article 282 (b) of the Labor Code, as amended, as gross and habitual neglect of duties there must be the concurrence of two elements. First, there should be a failure of the employee to report for work without a valid or justifiable reason, and second, there should be a showing that the employee intended to sever the employer-employee relationship, the second element being the more determinative factor as manifested by overt acts.22

As regards the second element of intent to sever the employer-employee relationship, the CA correctly ruled that:

x x x the fact that petitioners filed a complaint for illegal dismissal is indicative of their intention to remain employed with private respondent considering that one of their prayers in the complaint is for re-instatement. As declared by the Supreme Court, a complaint for illegal dismissal is inconsistent with the charge of abandonment, because when an employee takes steps to protect himself against a dismissal, this cannot, by logic, be said to be abandonment by him of his right to be able to work.23

Further, according to Alert Security itself, respondents continued to report for work and loiter in the DOST after the alleged transfer order was issued. Such circumstance makes it unlikely that respondents have clear intention of leaving their respective jobs. In any case, there is no dispute that in cases of

abandonment of work, notice shall be served at the worker’s last known address.24 This petitioners failed to do.

On the element of the failure of the employee to report for work, we also cannot accept the allegations of petitioners that respondents unjustifiably refused to report for duty in their new posts. A careful review of the records reveals that there is no showing that respondents were notified of their new assignments. Granting that the "Duty Detail Orders" were indeed issued, they served no purpose unless the intended recipients of the orders are informed of such.

The employer cannot simply conclude that an employee is ipso facto notified of a transfer when there is no evidence to indicate that the employee had knowledge of the transfer order. Hence, the failure of an employee to report for work at the new location cannot be taken against him as an element of abandonment.

We acknowledge and recognize the right of an employer to transfer employees in the interest of the service. This exercise is a management prerogative which is a lawful right of an employer. However, like all rights, there are limitations to the right to transfer employees. As ruled in the case of Blue Dairy Corporation v. NLRC:25

x x x The managerial prerogative to transfer personnel must be exercised without grave abuse of discretion, bearing in mind the basic elements of justice and fair play. Having the right should not be confused with the manner in which that right is exercised. Thus, it cannot be used as a subterfuge by the employer to rid himself of an undesirable worker. In particular, the employer must be able to show that the transfer is not unreasonable, inconvenient or prejudicial to the employee; nor does it involve a demotion in rank or a diminution of his salaries, privileges and other benefits. x x x

In addition to these tests for a valid transfer, there should be proper and effective notice to the employee concerned. It is the employer’s burden to show that the employee was duly notified of the transfer. Verily, an employer cannot reasonably expect an employee to report for work in a new location without first informing said employee of the transfer. Petitioners’ insistence on the sufficiency of mere issuance of the transfer order is indicative of bad faith on their part.

Besides, according to petitioners, the reason for the transfer to LRTA of the respondents was that the wages in LRTA were already adjusted to comply with the minimum wage rates. Now it is hard to believe that after being ordered to transfer to LRTA where the wages are better, the respondents would still refuse the transfer. That would mean that the respondents refused better wages and instead chose to remain in DOST, underpaid, and go through the lengthy process of claiming and asking for minimum wage. This proposed scenario of petitioners simply does not jibe with human logic and experience.

On the question of the propriety of holding petitioner Manuel D. Dasig, president and general manager of Alert Security, solidarily liable with Alert Security for the payment of the money awards in favor of respondents, we find petitioners’ arguments meritorious.

Basic is the rule that a corporation has a separate and distinct personality apart from its directors, officers, or owners. In exceptional cases, courts find it proper to breach this corporate personality in order to make directors, officers, or owners solidarily liable for the companies’ acts. Section 31, Paragraph 1 of the Corporation Code 26 provides:

Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors, or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.

x x x x

Jurisprudence has been consistent in defining the instances when the separate and distinct personality of a corporation may be disregarded in order to hold the directors, officers, or owners of the corporation liable for corporate debts. In McLeod v. National Labor Relations Commission,27 the Court ruled:

Thus, the rule is still that the doctrine of piercing the corporate veil applies only when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime. 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. x x x

Further, in Carag v. National Labor Relations Commission,28 the Court clarified the McLeod doctrine as regards labor laws, to wit:

We have already ruled in McLeod v. NLRC29 and Spouses Santos v. NLRC30 that Article 212(e)31 of the Labor Code, by itself, does not make a corporate officer personally liable for the debts of the corporation.1awphi1 The governing law on personal liability of directors for debts of the corporation is still Section 31 of the Corporation Code. x x x

In the present case, there is no evidence to indicate that Manuel D. Dasig, as president and general manager of Alert Security, is using the veil of corporate fiction to defeat public convenience, justify wrong, protect fraud, or defend crime. Further, there is no showing that Alert Security has folded up its business or is reneging in its obligations. In the final analysis, it is Alert Security that respondents are after and it is also Alert Security who should take responsibility for their illegal dismissal.

WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No. 99861 and the Decision dated July 28, 2000 of the Labor Arbiter are MODIFIED. Petitioner Manuel D. Dasig is held not solidarily liable with petitioner Alert Security and Investigation, Inc. for the payment of the monetary awards in favor of respondents. Said Decision of the Court of Appeals in all other aspects is AFFIRMED.

With costs against the petitioners.

SO ORDERED.

G.R. No. 157549 May 30, 2011

DONNINA C. HALLEY, Petitioner, vs.PRINTWELL, INC., Respondent.

D E C I S I O N

BERSAMIN, J:

Stockholders of a corporation are liable for the debts of the corporation up to the extent of their unpaid subscriptions. They cannot invoke the veil of corporate identity as a shield from liability, because the veil may be lifted to avoid defrauding corporate creditors.

Weaffirm with modification the decisionpromulgated on August 14, 2002,1whereby the Court of Appeals(CA) upheld thedecision of the Regional Trial Court, Branch 71, in Pasig City (RTC), 2ordering the defendants (including the petitioner)to pay to Printwell, Inc. (Printwell) the principal sum of P291,342.76 plus interest.

Antecedents

The petitioner wasan incorporator and original director of Business Media Philippines, Inc. (BMPI), which, at its incorporation on November 12, 1987,3had an authorized capital stock of P3,000,000.00 divided into 300,000 shares each with a par value of P10.00,of which 75,000 were initially subscribed, to wit:

Subscriber No. of shares

Total subscription

Amount paid

Donnina C. Halley 35,000 P 350,000.00 P87,500.00

Roberto V. Cabrera, Jr.

18,000 P 180,000.00 P45,000.00

Albert T. Yu 18,000 P 180,000.00 P45,000.00

Zenaida V. Yu 2,000 P 20,000.00 P5,000.00

Rizalino C. Vineza 2,000 P 20,000.00 P5,000.00

TOTAL 75,000 P750,000.00 P187,500.00

Printwellengaged in commercial and industrial printing.BMPI commissioned Printwell for the printing of the magazine Philippines, Inc. (together with wrappers and subscription cards) that BMPI published and sold. For that purpose, Printwell extended 30-day credit accommodations to BMPI.

In the period from October 11, 1988 until July 12, 1989, BMPI placedwith Printwell several orders on credit, evidenced byinvoices and delivery receipts totalingP316,342.76.Considering that BMPI paidonlyP25,000.00,Printwell suedBMPIon January 26, 1990 for the collection of the unpaid balance of P291,342.76 in the RTC.4

On February 8, 1990,Printwell amended thecomplaint in order to implead as defendants all the original stockholders and incorporators to recover on theirunpaid subscriptions, as follows:5

Name Unpaid Shares

Donnina C. Halley P 262,500.00

Roberto V. Cabrera, Jr. P135,000.00

Albert T. Yu P135,000.00

Zenaida V. Yu P15,000.00

Rizalino C. Viñeza P15,000.00

TOTAL P 562,500.00

The defendants filed a consolidated answer,6averring that they all had paid their subscriptions in full; that BMPI had a separate personality from those of its stockholders; thatRizalino C. Viñeza had assigned his fully-paid up sharesto a certain Gerardo R. Jacinto in 1989; andthat the directors and stockholders of BMPI had resolved to dissolve BMPI during the annual meetingheld on February 5, 1990.

To prove payment of their subscriptions, the defendantstockholderssubmitted in evidenceBMPI official receipt (OR) no. 217, OR no. 218, OR no. 220,OR no. 221, OR no. 222, OR no. 223, andOR no. 227,to wit:

Receipt No.

Date Name Amount

217 November 5, 1987

Albert T. Yu P 45,000.00

218 May 13, 1988 Albert T. Yu P 135,000.00

220 May 13, 1988 Roberto V. Cabrera, Jr.

P 135,000.00

221 November 5, 1987

Roberto V. Cabrera, Jr.

P 45,000.00

222 November 5, 1987

Zenaida V. Yu P 5,000.00

223 May 13, 1988 Zenaida V. Yu P 15,000.00

227 May 13, 1988 Donnina C. Halley P 262,500.00

In addition, the stockholderssubmitted other documentsin evidence, namely:(a) an audit report dated March 30, 1989 prepared by Ilagan, Cepillo & Associates (submitted to the SEC and the BIR); 7(b) BMPIbalance sheet8 and income statement9as of December 31, 1988; (c) BMPI income tax return for the year 1988 (stamped "received" by the BIR);10(d) journal vouchers;11(e) cash deposit slips;12 and(f)Bank of the Philippine Islands (BPI) savings account passbookin the name of BMPI.13

Ruling of the RTC

On November 3, 1993, the RTC rendereda decision in favor of Printwell, rejecting the allegation of payment in full of the subscriptions in view of an irregularity in the issuance of the ORs and observingthat the defendants had used BMPI’s corporate personality to evade payment and create injustice, viz:

The claim of individual defendants that they have fully paid their subscriptions to defend[a]nt corporation, is not worthy of consideration, because: —

a) in the case of defendants-spouses Albert and Zenaida Yu, it will be noted that the alleged payment made on May 13, 1988 amounting to P135,000.00, is covered by Official Receipt No. 218 (Exh. "2"), whereas the alleged payment made earlier on November 5, 1987, amounting to P5,000.00, is covered by Official Receipt No. 222 (Exh. "3"). This is cogent proof that said receipts were belatedly issued just to suit their theory since in the ordinary course of business, a receipt issued earlier must have serial numbers lower than those issued on a later date. But in the case at bar, the receipt issued on November 5, 1987 has serial numbers (222) higher than those issued on a later date (May 13, 1988).

b) The claim that since there was no call by the Board of Directors of defendant corporation for the payment of unpaid subscriptions will not be a valid excuse to free individual defendants from liability. Since the individual defendants are members of the Board of Directors of defendantcorporation, it was within their exclusive power to prevent the fulfillment of the condition, by simply not making a call for the payment of the unpaid subscriptions. Their inaction should not work to their benefit and unjust enrichment at the expense of plaintiff.

Assuming arguendo that the individual defendants have paid their unpaid subscriptions, still, it is very apparent that individual defendants merely used the corporate fiction as a cloak or cover to create an injustice; hence, the alleged separate personality of defendant corporation should be disregarded (Tan Boon Bee & Co., Inc. vs. Judge Jarencio, G.R. No. 41337, 30 June 1988).14

Applying the trust fund doctrine, the RTC declared the defendant stockholders liable to Printwell pro rata, thusly:

Defendant Business Media, Inc. is a registered corporation (Exhibits "A", "A-1" to "A-9"), and, as appearing from the Articles of Incorporation, individual defendants have the following unpaid subscriptions:

Names Unpaid Subscription

Donnina C. Halley P262,500.00

Roberto V. Cabrera, Jr. 135.000.00

Albert T. Yu 135,000.00

Zenaida V. Yu 15,000.00

Rizalino V. Vineza 15,000.00

--------------------------------

Total P562,500.00

and it is an established doctrine that subscriptions to the capital stock of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims (Philippine National Bank vs. Bitulok Sawmill, Inc., 23 SCRA 1366) and, in fact, a corporation has no legal capacity to release a subscriber to its capital stock from the obligation to pay for his shares, and any agreement to this effect is invalid (Velasco vs. Poizat, 37 Phil. 802).

The liability of the individual stockholders in the instant case shall be pro-rated as follows:

Names Amount

Donnina C. Halley P149,955.65

Roberto V. Cabrera, Jr. 77,144.55

Albert T. Yu 77,144.55

Zenaida V. Yu 8,579.00

Rizalino V. Vineza 8,579.00

--------------------------------

Total P321,342.7515

The RTC disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants, ordering defendants to pay to plaintiff the amount of P291,342.76, as principal, with interest thereon at 20% per annum, from date of default, until fully paid, plus P30,000.00 as attorney’s fees, plus costs of suit.

Defendants’ counterclaims are ordered dismissed for lack of merit.

SO ORDERED.16

Ruling of the CA

All the defendants, except BMPI, appealed.

Spouses Donnina and Simon Halley, andRizalinoViñeza defined the following errors committed by the RTC, as follows:

I.

THE TRIAL COURT ERRED IN HOLDING APPELLANTS-STOCKHOLDERS LIABLE FOR THE LIABILITIES OF THE DEFENDANT CORPORATION.

II.

ASSUMING ARGUENDO THAT APPELLANTS MAY BE LIABLE TO THE EXTENT OF THEIR UNPAID SUBSCRIPTION OF SHARES OF STOCK, IF ANY, THE TRIAL COURT NONETHELESS ERRED IN NOT FINDING THAT APPELLANTS-STOCKHOLDERS HAVE, AT THE TIME THE SUIT WAS FILED, NO SUCH UNPAID SUBSCRIPTIONS.

On their part, Spouses Albert and Zenaida Yu averred:

I.

THE RTC ERRED IN REFUSING TO GIVE CREDENCE AND WEIGHT TO DEFENDANTS-APPELLANTS SPOUSES ALBERT AND ZENAIDA YU’S EXHIBITS 2 AND 3 DESPITE THE UNREBUTTED TESTIMONY THEREON BY APPELLANT ALBERT YU AND THE ABSENCE OF PROOF CONTROVERTING THEM.

II.

THE RTC ERRED IN HOLDING DEFENDANTS-APPELLANTS SPOUSES ALBERT AND ZENAIDA YU PERSONALLY LIABLE FOR THE CONTRACTUAL OBLIGATION OF BUSINESS MEDIA PHILS., INC. DESPITE FULL PAYMENT BY SAID DEFENDANTS-APPELLANTS OF THEIR RESPECTIVE SUBSCRIPTIONS TO THE CAPITAL STOCK OF BUSINESS MEDIA PHILS., INC.

Roberto V. Cabrera, Jr. argued:

I.

IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO APPLY THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE PERSONALITY IN ABSENCE OF ANY SHOWING OF EXTRA-ORDINARY CIRCUMSTANCES THAT WOULD JUSTIFY RESORT THERETO.

II.

IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO RULE THAT INDIVIDUAL DEFENDANTS ARE LIABLE TO PAY THE PLAINTIFF-APPELLEE’S CLAIM BASED ON THEIR RESPECTIVE SUBSCRIPTION. NOTWITHSTANDING OVERWHELMING EVIDENCE SHOWING FULL SETTLEMENT OF SUBSCRIBED CAPITAL BY THE INDIVIDUAL DEFENDANTS.

On August 14, 2002, the CA affirmed the RTC, holding that the defendants’ resort to the corporate personality would createan injustice becausePrintwell would thereby be at a loss against whom it would assert the right to collect, viz:

Settled is the rule that when the veil of corporate fiction is used as a means of perpetrating fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievements or perfection of monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals (First Philippine International Bank vs. Court of Appeals, 252 SCRA 259). Moreover, under this doctrine, the corporate existence may be disregarded where the entity is formed or used for non-legitimate purposes, such as to evade a just and due obligations or to justify wrong (Claparols vs. CIR, 65 SCRA 613).

In the case at bench, it is undisputed that BMPI made several orders on credit from appellee PRINTWELL involving the printing of business magazines, wrappers and subscription cards, in the total amount of P291,342.76 (Record pp. 3-5, Annex "A") which facts were never denied by appellants’ stockholders that they owe appellee the amount of P291,342.76. The said goods were delivered to and received by BMPI but it failed to pay its overdue account to appellee as well as the interest thereon, at the rate of 20% per annum until fully paid. It was also during this time that appellants stockholders were in charge of the operation of BMPI despite the fact that they were not able to pay their unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view of the unpaid subscriptions, BMPI failed to pay appellee of its liability, hence appellee in order to protect its right can collect from the appellants’ stockholders regarding their unpaid subscriptions. To deny appellee from recovering from appellants would place appellee in a limbo on where to assert their right to collect from BMPI since the stockholders who are appellants herein are availing the defense of corporate fiction to evade payment of its obligations.17

Further, the CA concurred with the RTC on theapplicability of thetrust fund doctrine, under which corporate debtors might look to the unpaid subscriptions for the satisfaction of unpaid corporate debts, stating thus:

It is an established doctrine that subscription to the capital stock of a corporation constitute a fund to which creditors have a right to look up to for satisfaction of their claims, and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts (PNB vs. Bitulok Sawmill, 23 SCRA 1366).

Premised on the above-doctrine, an inference could be made that the funds, which consists of the payment of subscriptions of the stockholders, is where the creditors can claim monetary considerations for the satisfaction of their claims. If these funds which ought to be fully subscribed by the stockholders were not paid or remain an unpaid subscription of the corporation then the creditors have no other recourse to collect from the corporation of its liability. Such occurrence was evident in the case at bar wherein the appellants as stockholders failed to fully pay their unpaid subscriptions, which left the creditors helpless in collecting their claim due to insufficiency of funds of the corporation. Likewise, the claim of appellants that they already paid the unpaid subscriptions could not be given weight because said payment did not reflect in the Articles of Incorporations of BMPI that the unpaid subscriptions were fully paid by the appellants’ stockholders. For it is a rule that a stockholder may be sued directly by creditors to the extent of their unpaid subscriptions to the corporation (Keller vs. COB Marketing, 141 SCRA 86).

Moreover, a corporation has no power to release a subscription or its capital stock, without valuable consideration for such releases, and as against creditors, a reduction of the capital stock can take place only in the manner and under the conditions prescribed by the statute or the charter or the Articles of Incorporation. (PNB vs. Bitulok Sawmill, 23 SCRA 1366).18

The CAdeclared thatthe inconsistency in the issuance of the ORs rendered the claim of full payment of the subscriptions to the capital stock unworthy of consideration; andheld that the veil of corporate fiction could be pierced when it was used as a shield to perpetrate a fraud or to confuse legitimate issues, to wit:

Finally, appellants SPS YU, argued that the fact of full payment for the unpaid subscriptions was incontrovertibly established by competent testimonial and documentary evidence, namely – Exhibits

"1", "2", "3" & "4", which were never disputed by appellee, clearly shows that they should not be held liable for payment of the said unpaid subscriptions of BMPI.

The reliance is misplaced.

We are hereby reproducing the contents of the above-mentioned exhibits, to wit:

Exh: "1" – YU – Official Receipt No. 217 dated November 5, 1987 amounting to P45,000.00 allegedly representing the initial payment of subscriptions of stockholder Albert Yu.

Exh: "2" – YU – Official Receipt No. 218 dated May 13, 1988 amounting to P135,000.00 allegedly representing full payment of balance of subscriptions of stockholder Albert Yu. (Record p. 352).

Exh: "3" – YU – Official Receipt No. 222 dated November 5, 1987 amounting to P5,000.00 allegedly representing the initial payment of subscriptions of stockholder Zenaida Yu.

Exh: "4" – YU – Official Receipt No. 223 dated May 13, 1988 amounting to P15,000.00 allegedly representing the full payment of balance of subscriptions of stockholder Zenaida Yu. (Record p. 353).

Based on the above exhibits, we are in accord with the lower court’s findings that the claim of the individual appellants that they fully paid their subscription to the defendant BMPI is not worthy of consideration, because, in the case of appellants SPS. YU, there is an inconsistency regarding the issuance of the official receipt since the alleged payment made on May 13, 1988 amounting to P135,000.00 was covered by Official Receipt No. 218 (Record, p. 352), whereas the alleged payment made earlier on November 5, 1987 amounting to P5,000.00 is covered by Official Receipt No. 222 (Record, p. 353). Such issuance is a clear indication that said receipts were belatedly issued just to suit their claim that they have fully paid the unpaid subscriptions since in the ordinary course of business, a receipt is issued earlier must have serial numbers lower than those issued on a later date. But in the case at bar, the receipt issued on November 5, 1987 had a serial number (222) higher than those issued on May 13, 1988 (218). And even assuming arguendo that the individual appellants have paid their unpaid subscriptions, still, it is very apparent that the veil of corporate fiction may be pierced when made as a shield to perpetuate fraud and/or confuse legitimate issues. (Jacinto vs. Court of Appeals, 198 SCRA 211).19

Spouses Halley and Viñeza moved for a reconsideration, but the CA denied their motion for reconsideration.

Issues

Only Donnina Halley has come to the Court to seek a further review, positing the following for our consideration and resolution, to wit:

I.

THE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE DECISION THAT DID NOTSTATE THE FACTS AND THE LAW UPON WHICH THE JUDGMENT WAS BASED BUT MERELY COPIED THE

CONTENTS OF RESPONDENT’S MEMORANDUM ADOPTING THE SAME AS THE REASON FOR THE DECISION

II.

THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE REGIONAL TRIAL COURT WHICH ESSENTIALLY ALLOWED THE PIERCING OF THE VEIL OF CORPORATE FICTION

III.

THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE TRUST FUND DOCTRINE WHEN THE GROUNDS THEREFOR HAVE NOT BEEN SATISFIED.

On the first error, the petitioner contends that the RTC lifted verbatim from the memorandum of Printwell; and submits that the RTCthereby violatedthe requirement imposed in Section 14, Article VIII of the Constitution20 as well as in Section 1,Rule 36 of the Rules of Court,21to the effect that a judgment or final order of a court should state clearly and distinctly the facts and the law on which it is based. The petitioner claims that the RTC’s violation indicated that the RTC did not analyze the case before rendering its decision, thus denying her the opportunity to analyze the decision; andthat a suspicion of partiality arose from the fact that the RTC decision was but a replica of Printwell’s memorandum.She cites Francisco v. Permskul,22 in which the Court has stated that the reason underlying the constitutional requirement, that every decision should clearly and distinctly state the facts and the law on which it is based, is to inform the reader of how the court has reached its decision and thereby give the losing party an opportunity to study and analyze the decision and enable such party to appropriately assign the errors committed therein on appeal.

On the second and third errors, the petitioner maintains that the CA and the RTC erroneously pierced the veil of corporate fiction despite the absence of cogent proof showing that she, as stockholder of BMPI, had any hand in transacting with Printwell; thatthe CA and the RTC failed to appreciate the evidence that she had fully paid her subscriptions; and the CA and the RTCwrongly relied on the articles of incorporation in determining the current list of unpaid subscriptions despite the articles of incorporationbeing at best reflectiveonly of the pre-incorporation status of BMPI.

As her submissions indicate, the petitioner assails the decisions of the CA on: (a) the propriety of disregarding the separate personalities of BMPI and its stockholdersby piercing the thin veil that separated them; and (b) the application of the trust fund doctrine.

Ruling

The petition for review fails.

IThe RTC did not violatethe Constitution and the Rules of Court

The contention of the petitioner, that the RTC merely copied the memorandum of Printwell in writing its decision, and did not analyze the records on its own, thereby manifesting a bias in favor of Printwell, is unfounded.

It is noted that the petition for review merely generally alleges that starting from its page 5, the decision of the RTC "copied verbatim the allegations of herein Respondents in its Memorandum before the said court," as if "the Memorandum was the draft of the Decision of the Regional Trial Court of Pasig,"23but fails to specify either the portions allegedly lifted verbatim from the memorandum, or why she regards the decision as copied. The omission renders thepetition for review insufficient to support her contention, considering that the mere similarityin language or thought between Printwell’s memorandum and the trial court’s decisiondid not necessarily justify the conclusion that the RTC simply lifted verbatim or copied from thememorandum.

It is to be observed in this connection that a trial or appellate judge may occasionally viewa party’s memorandum or brief as worthy of due consideration either entirely or partly. When he does so, the judgemay adopt and incorporatein his adjudicationthe memorandum or the parts of it he deems suitable,and yet not be guilty of the accusation of lifting or copying from the memorandum. 24 This isbecause ofthe avowed objective of the memorandum to contribute in the proper illumination and correct determination of the controversy.Nor is there anything untoward in the congruence of ideas and views about the legal issues between himself and the party drafting the memorandum.The frequency of similarities in argumentation, phraseology, expression, and citation of authorities between the decisions of the courts and the memoranda of the parties, which may be great or small, can be fairly attributable tothe adherence by our courts of law and the legal profession to widely knownor universally accepted precedents set in earlier judicial actions with identical factual milieus or posing related judicial dilemmas.

We also do not agree with the petitioner that the RTC’s manner of writing the decisiondeprivedher ofthe opportunity to analyze its decisionas to be able to assign errors on appeal. The contrary appears, considering that she was able to impute and assignerrors to the RTCthat she extensively discussed in her appeal in the CA, indicating her thorough analysis ofthe decision of the RTC.

Our own readingof the trial court’s decision persuasively shows that the RTC did comply with the requirements regarding the content and the manner of writing a decision prescribed in the Constitution and the Rules of Court. The decision of the RTC contained clear and distinct findings of facts, and stated the applicablelaw and jurisprudence, fully explaining why the defendants were being held liable to the plaintiff. In short, the reader was at once informed of the factual and legal reasons for the ultimate result.

IICorporate personality not to be used to foster injustice

Printwell impleaded the petitioner and the other stockholders of BMPI for two reasons, namely: (a) to reach the unpaid subscriptions because it appeared that such subscriptions were the remaining visible assets of BMPI; and (b) to avoid multiplicity of suits.25

The petitionersubmits that she had no participation in the transaction between BMPI and Printwell;that BMPI acted on its own; and that shehad no hand in persuading BMPI to renege on its obligation to pay. Hence, she should not be personally liable.

We rule against the petitioner’s submission.

Although a corporation has a personality separate and distinct from those of its stockholders, directors, or officers,26such separate and distinct personality is merely a fiction created by law for the sake of convenience and to promote the ends of justice.27The corporate personality may be disregarded, and the individuals composing the corporation will be treated as individuals, if the corporate entity is being used as a cloak or cover for fraud or illegality;as a justification for a wrong; as an alter ego, an adjunct, or a business conduit for the sole benefit of the stockholders.28 As a general rule, a corporation is looked upon as a legal entity, unless and until sufficient reason to the contrary appears. Thus,the courts always presume good faith, andfor that reason accord prime importance to the separate personality of the corporation, disregarding the corporate personality only after the wrongdoing is first clearly and convincingly established.29It thus behooves the courts to be careful in assessing the milieu where the piercing of the corporate veil shall be done.30

Although nowhere in Printwell’s amended complaint or in the testimonies Printwell offered can it be read or inferred from that the petitioner was instrumental in persuading BMPI to renege onits obligation to pay; or that sheinduced Printwell to extend the credit accommodation by misrepresenting the solvency of BMPI toPrintwell, her personal liability, together with that of her co-defendants, remainedbecause the CA found her and the other defendant stockholders to be in charge of the operations of BMPI at the time the unpaid obligation was transacted and incurred, to wit:

In the case at bench, it is undisputed that BMPI made several orders on credit from appellee PRINTWELL involving the printing of business magazines, wrappers and subscription cards, in the total amount of P291,342.76 (Record pp. 3-5, Annex "A") which facts were never denied by appellants’ stockholders that they owe(d) appellee the amount of P291,342.76. The said goods were delivered to and received by BMPI but it failed to pay its overdue account to appellee as well as the interest thereon, at the rate of 20% per annum until fully paid. It was also during this time that appellants stockholders were in charge of the operation of BMPI despite the fact that they were not able to pay their unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view of the unpaid subscriptions, BMPI failed to pay appellee of its liability, hence appellee in order to protect its right can collect from the appellants stockholders regarding their unpaid subscriptions. To deny appellee from recovering from appellants would place appellee in a limbo on where to assert their right to collect from BMPI since the stockholders who are appellants herein are availing the defense of corporate fiction to evade payment of its obligations.31

It follows, therefore, that whether or not the petitioner persuaded BMPI to renege on its obligations to pay, and whether or not she induced Printwell to transact with BMPI were not gooddefensesin the suit.1avvphi1

IIIUnpaid creditor may satisfy its claim fromunpaid subscriptions;stockholders mustprove full payment oftheir subscriptions

Both the RTC and the CA applied the trust fund doctrineagainst the defendant stockholders, including the petitioner.

The petitionerargues, however,that the trust fund doctrinewas inapplicablebecause she had already fully paid her subscriptions to the capital stock of BMPI. She thus insiststhat both lower courts erred in disregarding the evidence on the complete payment of the subscription, like receipts, income tax returns, and relevant financial statements.

The petitioner’s argumentis devoid of substance.

The trust fund doctrineenunciates a –

xxx rule that the property of a corporation is a trust fund for the payment of creditors, but such property can be called a trust fund ‘only by way of analogy or metaphor.’ As between the corporation itself and its creditors it is a simple debtor, and as between its creditors and stockholders its assets are in equity a fund for the payment of its debts.32

The trust fund doctrine, first enunciated in the American case of Wood v. Dummer, 33was adopted in our jurisdiction in Philippine Trust Co. v. Rivera,34where thisCourt declared that:

It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts. (Velasco vs. Poizat, 37 Phil., 802) xxx35

We clarify that the trust fund doctrineis not limited to reaching the stockholder’s unpaid subscriptions. The scope of the doctrine when the corporation is insolvent encompasses not only the capital stock, but also other property and assets generally regarded in equity as a trust fund for the payment of corporate debts.36All assets and property belonging to the corporation held in trust for the benefit of creditors thatwere distributed or in the possession of the stockholders, regardless of full paymentof their subscriptions, may be reached by the creditor in satisfaction of its claim.

Also, under the trust fund doctrine,a corporation has no legal capacity to release an original subscriber to its capital stock from the obligation of paying for his shares, in whole or in part,37 without a valuable consideration,38 or fraudulently, to the prejudice of creditors.39The creditor is allowed to maintain an action upon any unpaid subscriptions and thereby steps into the shoes of the corporation for the satisfaction of its debt.40To make out a prima facie case in a suit against stockholders of an insolvent corporation to compel them to contribute to the payment of its debts by making good unpaid balances upon their subscriptions, it is only necessary to establish that thestockholders have not in good faith paid the par value of the stocks of the corporation.41

The petitionerposits that the finding of irregularity attending the issuance of the receipts (ORs) issued to the other stockholders/subscribers should not affect her becauseher receipt did not suffer similar irregularity.

Notwithstanding that the RTC and the CA did not find any irregularity in the OR issued in her favor,we still cannot sustain the petitioner’s defense of full payment of her subscription.

In civil cases, theparty who pleads payment has the burden of proving it, that even where the plaintiff must allege nonpayment, the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove nonpayment. In other words, the debtor bears the burden of showing with legal certainty that the obligation has been discharged by payment.42

Apparently, the petitioner failed to discharge her burden.

A receipt is the written acknowledgment of the fact of payment in money or other settlement between the seller and the buyer of goods, thedebtor or thecreditor, or theperson rendering services, and theclient or thecustomer.43Althougha receipt is the best evidence of the fact of payment, it isnot conclusive, but merely presumptive;nor is it exclusive evidence,considering thatparole evidence may also establishthe fact of payment.44

The petitioner’s ORNo. 227,presentedto prove the payment of the balance of her subscription, indicated that her supposed payment had beenmade by means of a check. Thus, to discharge theburden to prove payment of her subscription, she had to adduce evidence satisfactorily proving that her payment by check wasregardedas payment under the law.

Paymentis defined as the delivery of money.45Yet, because a check is not money and only substitutes for money, the delivery of a check does not operate as payment and does not discharge the obligation under a judgment.46 The delivery of a bill of exchange only produces the fact of payment when the bill has been encashed.47The following passage fromBank of Philippine Islands v. Royeca48is enlightening:

Settled is the rule that payment must be made in legal tender. A check is not legal tender and, therefore, cannot constitute a valid tender of payment. Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized.

To establish their defense, the respondents therefore had to present proof, not only that they delivered the checks to the petitioner, but also that the checks were encashed. The respondents failed to do so. Had the checks been actually encashed, the respondents could have easily produced the cancelled checks as evidence to prove the same. Instead, they merely averred that they believed in good faith that the checks were encashed because they were not notified of the dishonor of the checks and three years had already lapsed since they issued the checks.

Because of this failure of the respondents to present sufficient proof of payment, it was no longer necessary for the petitioner to prove non-payment, particularly proof that the checks were dishonored. The burden of evidence is shifted only if the party upon whom it is lodged was able to adduce preponderant evidence to prove its claim.

Ostensibly, therefore, the petitioner’s mere submission of the receipt issued in exchange of the check did not satisfactorily establish her allegation of full payment of her subscription. Indeed, she could not even inform the trial court about the identity of her drawee bank,49and about whether the check was cleared and its amount paid to BMPI.50In fact, she did not present the check itself.

Theincome tax return (ITR) and statement of assets and liabilities of BMPI, albeit presented, had no bearing on the issue of payment of the subscription because they did not by themselves prove payment. ITRsestablish ataxpayer’s liability for taxes or a taxpayer’s claim for refund. In the same manner, the deposit slips and entries in the passbook issued in the name of BMPI were hardly relevant due to their not reflecting the alleged payments.

It is notable, too, that the petitioner and her co-stockholders did not support their allegation of complete payment of their respective subscriptions with the stock and transfer book of BMPI. Indeed, books and records of a corporation (including the stock and transfer book) are admissible in evidence in favor of or against the corporation and its members to prove the corporate acts, its financial status and other matters (like the status of the stockholders), and are ordinarily the best evidence of corporate acts and proceedings.51Specifically, a stock and transfer book is necessary as a measure of precaution, expediency, and convenience because it provides the only certain and accurate method of establishing the various corporate acts and transactions and of showing the ownership of stock and like matters.52That she tendered no explanation why the stock and transfer book was not presented warrants the inference that the book did not reflect the actual payment of her subscription.

Nor did the petitioner present any certificate of stock issued by BMPI to her. Such a certificate covering her subscription might have been a reliable evidence of full payment of the subscriptions, considering that under Section 65 of the Corporation Code a certificate of stock issues only to a subscriber who has fully paid his subscription. The lack of any explanation for the absence of a stock certificate in her favor likewise warrants an unfavorable inference on the issue of payment.

Lastly, the petitioner maintains that both lower courts erred in relying on the articles of incorporationas proof of the liabilities of the stockholders subscribing to BMPI’s stocks, averring that the articles of incorporationdid not reflect the latest subscription status of BMPI.

Although the articles of incorporation may possibly reflect only the pre-incorporation status of a corporation, the lower courts’ reliance on that document to determine whether the original subscribersalready fully paid their subscriptions or not was neither unwarranted nor erroneous. As earlier explained, the burden of establishing the fact of full payment belonged not to Printwell even if it was the plaintiff, but to the stockholders like the petitioner who, as the defendants, averredfull payment of their subscriptions as a defense. Their failure to substantiate their averment of full payment, as well as their failure to counter the reliance on the recitals found in the articles of incorporation simply meant their failure or inability to satisfactorily prove their defense of full payment of the subscriptions.

To reiterate, the petitionerwas liablepursuant to the trust fund doctrine for the corporate obligation of BMPI by virtue of her subscription being still unpaid. Printwell, as BMPI’s creditor,had a right to reachher unpaid subscription in satisfaction of its claim.

IVLiability of stockholders for corporate debts isupto the extentof their unpaid subscription

The RTC declared the stockholders pro rata liable for the debt(based on the proportion to their shares in the capital stock of BMPI); and held the petitionerpersonally liable onlyin the amount of P149,955.65.

We do not agree. The RTC lacked the legal and factual support for its prorating the liability. Hence, we need to modify the extent of the petitioner’s personal liability to Printwell. The prevailing rule is that a stockholder is personally liable for the financial obligations of the corporation to the extent of his unpaid subscription.53In view ofthe petitioner’s unpaid subscription being worth P262,500.00, shewas liable up to that amount.

Interest is also imposable on the unpaid obligation. Absent any stipulation, interest is fixed at 12% per annum from the date the amended complaint was filed on February 8, 1990 until the obligation (i.e., to the extent of the petitioner’s personal liability of P262,500.00) is fully paid.54

Lastly, we find no basis togrant attorney’s fees, the award for which must be supported by findings of fact and of law as provided under Article 2208 of the Civil Code55incorporated in the body of decision of the trial court. The absence of the requisite findings from the RTC decision warrants the deletion of the attorney’s fees.

ACCORDINGLY, we deny the petition for review on certiorari;and affirm with modification the decision promulgated on August 14, 2002by ordering the petitionerto pay to Printwell, Inc. the sum of P262,500.00, plus interest of 12% per annum to be computed from February 8, 1990 until full payment.

The petitioner shall paycost of suit in this appeal.

SO ORDERED.

G.R. No. 171660 October 17, 2011

CONTINENTAL CEMENT CORPORATION Petitioner, vs.ASEA BROWN BOVERI, INC., BBC BROWN BOVERI, CORP., AND TORD B. ERIKSON,** Respondents.

D E C I S I O N

DEL CASTILLO, J.:

"Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages."1

This Petition for Review on Certiorari2 under Rule 45 of the Rules of Court assails the Decision3 dated August 25, 2005 and the Resolution4 dated February 16, 2006 of the Court of Appeals (CA) in CA-G.R. CV No. 58551.

Factual Antecedents

Sometime in July 1990, petitioner Continental Cement Corporation (CCC),

a corporation engaged in the business of producing cement,5 obtained the services of respondents6 Asea Brown Boveri, Inc. (ABB) and BBC Brown Boveri, Corp. to repair its 160 KW Kiln DC Drive Motor (Kiln Drive Motor).7

On October 23, 1991, due to the repeated failure of respondents to repair the Kiln Drive Motor, petitioner filed with Branch 101 of the Regional Trial Court (RTC) of Quezon City a Complaint 8 for sum of money and damages, docketed as Civil Case No. Q-91-10419, against respondent corporations and respondent Tord B. Eriksson (Eriksson), Vice-President of the Service Division of the respondent ABB.9

Petitioner alleged that:

4. On July 11, 1990, the plaintiff delivered the 160 KW Kiln DC Drive Motor to the defendants to be repaired under PO No. 17136-17137, x x x

The defendant, Tord B. Eriksson, was personally directing the repair of the said Kiln Drive Motor. He has direction and control of the business of the defendant corporations. Apparently, the defendant Asea Brown Boveri, Inc. has no separate personality because of the 4,000 shares of stock, 3996 shares were subscribed by Honorio Poblador, Jr. The four other stockholders subscribed for one share of stock each only.

5. After the first repair by the defendants, the 160 KW Kiln Drive Motor was installed for testing on October 3, 1990. On October 4, 1990 the test failed. The plaintiff removed the DC Drive Motor and replaced it with its old motor. It was only on October 9, 1990 that the plaintiff resumed operation. The plaintiff lost 1,040 MTD per day from October 5 to October 9, 1990.

6. On November 14, 1990, after the defendants had undertaken the second repair of the motor in question, it was installed in the kiln. The test failed again. The plaintiff resumed operation with its old motor on November 19, 1990. The plaintiff suffered production losses for five days at the rate of 1,040 MTD daily.

7. The defendants were given a third chance to repair the 160 KW Kiln DC Drive Motor.1avvphi1 On March 13, 1991, the motor was installed and tested. Again, the test failed. The plaintiff resumed operation on March 15, 1991. The plaintiff sustained production losses at the rate of 1,040 MTD for two days.

8. As a consequence of the failure of the defendants to comply with their contractual obligation to repair the 160 KW Kiln DC Drive Motor, the plaintiff sustained the following losses:

(a) Production and opportunity losses - P10,600,000.00

This amount represents only about 25% of the production losses at the rate of P72.00 per bag of cement.

(b) Labor Cost and Rental of Crane - 26,965.78

(c) Penalties (at P987.25 a day) forfailure to deliver the motor fromAug. 29, 1990 to July 31, 1991. - 331,716.00

(d) Cost of money interest of theP987.25 a day from July 18, 1990to April 5, 1991 at 34% for 261 days - 24,335.59

Total Damages 10,983,017.42

9. The plaintiff has made several demands on the defendants for the payment of the above-enumerated damages, but the latter refused to do so without valid justification.

10. The plaintiff was constrained to file this action and has undertaken to pay its counsel Twenty Percentum (20%) of the amount sought to be recovered as attorney’s fees.10

Respondents, however, claimed that under Clause 7 of the General Conditions,11 attached to the letter of offer12 dated July 4, 1990 issued by respondent ABB to petitioner, the liability of respondent ABB "does not extend to consequential damages either direct or indirect."13 Moreover, as to respondent Eriksson, there is no lawful and tenable reason for petitioner to sue him in his personal capacity because he did not personally direct the repair of the Kiln Drive Motor.14

Ruling of the Regional Trial Court

On August 30, 1995, the RTC rendered a Decision15 in favor of petitioner. The RTC rejected the defense of limited liability interposed by respondents since they failed to prove that petitioner received a copy of the General Conditions.16 Consequently, the RTC granted petitioner’s claims for production loss, labor cost and rental of crane, and attorney’s fees.17 Thus:

WHEREFORE, premises above considered, finding the complaint substantiated by plaintiff, judgment is hereby rendered in favor of plaintiff and against defendants, hereby ordering the latter to pay jointly and severally the former, the following sums:

P10,600,00.00 for loss of production;

P 26,965.78 labor cost and rental of crane;

P 100,000.00 attorney’s fees and cost.

SO ORDERED.18

Ruling of the Court of Appeals

On appeal, the CA reversed the ruling of the RTC. The CA applied the exculpatory clause in the General Conditions and ruled that there is no implied warranty on repair work; thus, the repairman cannot be made to pay for loss of production as a result of the unsuccessful repair.19 The fallo of the CA Decision20

reads:

WHEREFORE, premises considered, the assailed August 30, 1995 Decision of the Regional Trial Court of Quezon City, Branch 101 is hereby REVERSED and SET ASIDE. The October 23, 1991 Complaint is hereby DISMISSED.

SO ORDERED.21

Petitioner moved for reconsideration22 but the CA denied the same in its Resolution23 dated February 16, 2006.

Issues

Hence, the present recourse where petitioner interposes the following issues:

1. Whether x x x the [CA] gravely erred in applying the terms of the "General Conditions" of Purchase Orders Nos. 17136 and 17137 to exculpate the respondents x x x from liability in this case.

2. Whether x x x the [CA] seriously erred in applying the concepts of ‘implied warranty’ and ‘warranty against hidden defects’ of the New Civil Code in order to exculpate the respondents x x x from its contractual obligation.24

Petitioner’s Arguments

Petitioner reiterates that the General Conditions cannot exculpate respondents because petitioner never agreed to be bound by it nor did petitioner receive a copy of it. 25 Petitioner also imputes error on the part of the CA in applying the concepts of warranty against hidden defects and implied warranty. 26

Petitioner contends that these concepts are not applicable because the instant case does not involve a contract of sale.27 What applies are Articles 1170 and 2201 of

the Civil Code.28

Respondents’ Arguments

Conversely, respondents insist that petitioner is bound by the General Conditions.29 By issuing Purchase Order Nos. 17136-37, petitioner in effect accepted the General Conditions appended to respondent ABB’s letter of offer.30 Respondents likewise defend the ruling of the CA that there could be no implied warranty on the repair made by respondent ABB as the warranty of the fitness of the equipment should be enforced directly against the manufacturer of the Kiln Drive Motor. 31 Respondents also deny liability for damages claiming that they performed their obligation in good faith.32

Our Ruling

The petition has merit.

Petitioner and respondent ABB entered into a contract for the repair of petitioner’s Kiln Drive Motor, evidenced by Purchase Order Nos. 17136-37,33 with the following terms and conditions:

a) Total Price: P197,450.00

b) Delivery Date: August 29, 1990 or six (6) weeks from receipt of order and down payment34

c) Penalty: One half of one percent of the total cost or Nine Hundred Eighty Seven Pesos and Twenty five centavos (P987.25) per day of delay.

Respondent ABB, however, not only incurred delay in performing its obligation but likewise failed to repair the Kiln Drive Motor; thus, prompting petitioner to sue for damages.

Clause 7 of the General Conditions is not binding on petitioner

Respondents contend that under Clause 7 of the General Conditions their liability "does not extend to consequential damages either direct or indirect."35 This contention, however, is unavailing because respondents failed to show that petitioner was duly furnished with a copy of said General Conditions. Hence, it is not binding on petitioner.

Having breached the contract it entered with petitioner, respondent ABB is liable for damages pursuant to Articles 1167, 1170, and 2201 of the Civil Code, which state:

Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone.

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.

Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation.

Based on the foregoing, a repairman who fails to perform his obligation is liable to pay for the cost of the execution of the obligation plus damages. Though entitled, petitioner in this case is not claiming reimbursement for the repair allegedly done by Newton Contractor,36 but is instead asking for damages for the delay caused by respondent ABB.

Petitioner is entitled to penalties under Purchase Order Nos. 17136-37

As per Purchase Order Nos. 17136-37, petitioner is entitled to penalties in the amount of P987.25 per day from the time of delay, August 30, 1990, up to the time the Kiln Drive Motor was finally returned to petitioner. Records show that although the testing of Kiln Drive Motor was done on March 13, 1991, the said motor was actually delivered to petitioner as early as January 7, 1991.37 The installation and testing was done only on March 13, 1991 upon the request of petitioner because the Kiln was under repair at the time the motor was delivered; hence, the load testing had to be postponed.38

Under Article 122639 of the Civil Code, the penalty clause takes the place of indemnity for damages and the payment of interests in case of non-compliance with the obligation, unless there is a stipulation to the contrary. In this case, since there is no stipulation to the contrary, the penalty in the amount of P987.25 per day of delay covers all other damages (i.e. production loss, labor cost, and rental of the crane) claimed by petitioner.

Petitioner is not entitled to recover production loss, labor cost and the rental of crane

Article 1226 of the Civil Code further provides that if the obligor refuses to pay the penalty, such as in the instant case, 40 damages and interests may still be recovered on top of the penalty. Damages claimed must be the natural and probable consequences of the breach, which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted.41

Thus, in addition to the penalties, petitioner seeks to recover as damages production loss, labor cost and the rental of the crane.

Petitioner avers that every time the Kiln Drive Motor is tested, petitioner had to rent a crane and pay for labor to install the motor.42 But except for the Summary of Claims for Damages,43 no other evidence was presented by petitioner to show that it had indeed rented a crane or that it incurred labor cost to install the motor.

Petitioner likewise claims that as a result of the delay in the repair of the Kiln Drive Motor, its production from August 29, 1990 to March 15, 1991 decreased since it had to use its old motor which was not able to produce cement as much as the one under repair;44 and that every time the said motor was installed and tested, petitioner had to stop its operations; thereby, incurring more production losses.45 To support its claim, petitioner presented its monthly production reports46 for the months of April to June 1990 showing that on the average it was able to produce 1040 MT of cement per day. However, the production reports for the months of August 1990 to March 1991 were not presented. Without these production reports, it cannot be determined with reasonable certainty whether petitioner indeed incurred production losses during the said period. It may not be amiss to say that competent proof and a reasonable degree of certainty are needed to justify a grant of actual or compensatory damages; speculations, conjectures, assertions or guesswork are not sufficient.47

Besides, consequential damages, such as loss of profits on account of delay or failure of delivery, may be recovered only if such damages were reasonably foreseen or have been brought within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting. 48

Considering the nature of the obligation in the instant case, respondent ABB, at the time it agreed to repair petitioner’s Kiln Drive Motor, could not have reasonably foreseen that it would be made liable for production loss, labor cost and rental of the crane in case it fails to repair the motor or incurs delay in delivering the same, especially since the motor under repair was a spare motor.49

For the foregoing reasons, petitioner is not entitled to recover production loss, labor cost and the rental of the crane.

Petitioner is not entitled to attorney’s fees

Neither is petitioner entitled to the award of attorney’s fees. Jurisprudence requires that the factual basis for the award of attorney’s fees must be set forth in the body of the decision and not in the dispositive portion only.50 In this case, no explanation was given by the RTC in awarding attorney’s fees in favor of petitioner. In fact, the award of attorney’s fees was mentioned only in the dispositive portion of the decision.

Respondent Eriksson cannot be made jointly and severally liable for the penalties

Respondent Eriksson, however, cannot be made jointly and severally liable for the penalties. There is no showing that respondent Eriksson directed or participated in the repair of the Kiln Drive Motor or that he is guilty of bad faith or gross negligence in directing the affairs of respondent ABB. It is a basic principle that a corporation has a personality separate and distinct from the persons composing or representing it; hence, personal liability attaches only in exceptional cases, such as when the director, trustee, or officer is guilty of bad faith or gross negligence in directing the affairs of the corporation.51

In sum, we find petitioner entitled to penalties in the amount of P987.25 per day from August 30, 1990 up to January 7, 1991 (131 days) or a total amount of P129,329.75 for the delay caused by respondent ABB. Finally, we impose interest at the rate of six percent (6%) on the total amount due from the date of filing of the complaint until finality of this Decision. However, from the finality of judgment until full payment of the total award, the interest rate of twelve percent (12%) shall apply.52

WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated August 25, 2005 and the Resolution dated February 16, 2006 of the Court of Appeals in CA-G.R. CV No. 58551 are hereby REVERSED and SET ASIDE. Respondent ABB is ORDERED to pay petitioner the amount of P129,329.75, with interest at 6% per annum to be computed from the date of the filing of the complaint until finality of this Decision and 12% per annum thereafter until full payment.

SO ORDERED.

G.R. No. 167291 January 12, 2011

PRINCE TRANSPORT, Inc. and Mr. RENATO CLAROS, Petitioners, vs.DIOSDADO GARCIA, LUISITO GARCIA, RODANTE ROMERO, REX BARTOLOME, FELICIANO GASCO, JR., DANILO ROJO, EDGAR SANFUEGO, AMADO GALANTO, EUTIQUIO LUGTU, JOEL GRAMATICA, MIEL CERVANTES, TERESITA CABANES, ROE DELA CRUZ, RICHELO BALIDOY, VILMA PORRAS, MIGUELITO SALCEDO, CRISTINA GARCIA, MARIO NAZARENO, DINDO TORRES, ESMAEL RAMBOYONG, ROBETO*

MANO, ROGELIO BAGAWISAN, ARIEL SNACHEZ, ESTAQULO VILLAREAL, NELSON MONTERO, GLORIA ORANTE, HARRY TOCA, PABLITO MACASAET and RONALD GARCITA Respondents.

D E C I S I O N

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court praying for the annulment of the Decision1 and Resolution2 of the Court of Appeals (CA) dated December 20, 2004 and February 24, 2005, respectively, in CA-G.R. SP No. 80953. The assailed Decision reversed and set aside the Resolutions dated May 30, 20033 and September 26, 20034 of the National Labor Relations Commission (NLRC) in CA No. 029059-01, while the disputed Resolution denied petitioners' Motion for Reconsideration.

The present petition arose from various complaints filed by herein respondents charging petitioners with illegal dismissal, unfair labor practice and illegal deductions and praying for the award of premium pay for holiday and rest day, holiday pay, service leave pay, 13th month pay, moral and exemplary damages and attorney's fees.

Respondents alleged in their respective position papers and other related pleadings that they were employees of Prince Transport, Inc. (PTI), a company engaged in the business of transporting passengers by land; respondents were hired either as drivers, conductors, mechanics or inspectors, except for respondent Diosdado Garcia (Garcia), who was assigned as Operations Manager; in addition to their regular monthly income, respondents also received commissions equivalent to 8 to 10% of their wages; sometime in October 1997, the said commissions were reduced to 7 to 9%; this led respondents and other employees of PTI to hold a series of meetings to discuss the protection of their interests as employees; these meetings led petitioner Renato Claros, who is the president of PTI, to suspect that respondents are about to form a union; he made known to Garcia his objection to the formation of a union; in December 1997, PTI employees requested for a cash advance, but the same was denied by management which resulted in demoralization on the employees' ranks; later, PTI acceded to the request of some, but not all, of the employees; the foregoing circumstances led respondents to form a union for their mutual aid and protection; in order to block the continued formation of the union, PTI caused the transfer of all union members and sympathizers to one of its sub-companies, Lubas Transport (Lubas); despite such transfer, the schedule of drivers and conductors, as well as their company identification cards, were issued by PTI; the daily time records, tickets and reports of the respondents were also filed at the PTI office; and, all claims for salaries were transacted at the same office; later, the business of Lubas deteriorated because of the refusal of PTI to maintain and repair the units being used therein, which resulted in the virtual stoppage of its operations and respondents' loss of employment.

Petitioners, on the other hand, denied the material allegations of the complaints contending that herein respondents were no longer their employees, since they all transferred to Lubas at their own request; petitioners have nothing to do with the management and operations of Lubas as well as the control and supervision of the latter's employees; petitioners were not aware of the existence of any union in their company and came to know of the same only in June 1998 when they were served a copy of the summons in the petition for certification election filed by the union; that before the union was registered on April 15, 1998, the complaint subject of the present petition was already filed; that the real motive in the filing of the complaints was because PTI asked respondents to vacate the bunkhouse where they (respondents) and their respective families were staying because PTI wanted to renovate the same.

Subsequently, the complaints filed by respondents were consolidated.

On October 25, 2000, the Labor Arbiter rendered a Decision,5 the dispositive portion of which reads as follows:

WHEREFORE, judgment is hereby rendered:

1. Dismissing the complaints for Unfair Labor Practice, non-payment of holiday pay and holiday premium, service incentive leave pay and 13th month pay;

Dismissing the complaint of Edgardo Belda for refund of boundary-hulog;

2. Dismissing the complaint for illegal dismissal against the respondents Prince Transport, Inc. and/or Prince Transport Phils. Corporation, Roberto Buenaventura, Rory Bayona, Ailee Avenue, Nerissa Uy, Mario Feranil and Peter Buentiempo;

3. Declaring that the complainants named below are illegally dismissed by Lubas Transport; ordering said Lubas Transport to pay backwages and separation pay in lieu of reinstatement in the following amount:

Complainants Backwages Separation Pay

(1) Diosdado Garcia P222,348.70 P79,456.00

(2) Feliciano Gasco, Jr. 203,350.00 54,600.00

(3) Pablito Macasaet 145,250.00 13,000.00

(4) Esmael Ramboyong 221,500.00 30,000.00

(5) Joel Gramatica 221,500.00 60,000.00

(6) Amado Galanto 130,725.00 29,250.00

(7) Miel Cervantes 265,800.00 60,000.00

(8) Roberto Mano 221,500.00 50,000.00

(9) Roe dela Cruz 265,800.00 60,000.00

(10) Richelo Balidoy 130,725.00 29,250.00

(11) Vilma Porras 221,500.00 70,000.00

(12) Miguelito Salcedo 265,800.00 60,000.00

(13) Cristina Garcia 130,725.00 35,100.00

(14) Luisito Garcia 145,250.00 19,500.00

(15) Rogelio Bagawisan 265,800.00 60,000.00

(16) Rodante H. Romero 221,500.00 60,000.00

(17) Dindo Torres 265,800.00 50,000.00

(18) Edgar Sanfuego 221,500.00 40,000.00

(19) Ronald Gacita 221,500.00 40,000.00

(20) Harry Toca 174,300.00 23,400.00

(21) Amado Galanto 130,725.00 17,550.00

(22) Teresita Cabañes 130,725.00 17,550.00

(23) Rex Bartolome 301,500.00 30,000.00

(24) Mario Nazareno 221,500.00 30,000.00

(25) Eustaquio Villareal 145,250.00 19,500.00

(26) Ariel Sanchez 265,800.00 60,000.00

(27) Gloria Orante 263,100.00 60,000.00

(28) Nelson Montero 264,600.00 60,000.00

(29) Rizal Beato 295,000.00 40,000.00

(30) Eutiquio Lugtu 354,000.00 48,000.00

(31) Warlito Dickensomn 295,000.00 40,000.00

(32) Edgardo Belda 354,000.00 84,000.00

(33) Tita Go 295,000.00 70,000.00

(34) Alex Lodor 295,000.00 50,000.00

(35) Glenda Arguilles 295,000.00 40,000.00

(36) Erwin Luces 354,000.00 48,000.00

(37) Jesse Celle 354,000.00 48,000.00

(38) Roy Adorable 295,000.00 40,000.00

(39) Marlon Bangcoro 295,000.00 40,000.00

(40)Edgardo Bangcoro 354,000.00 36,000.00

4. Ordering Lubas Transport to pay attorney's fees equivalent to ten (10%) of the total monetary award; and

6. Ordering the dismissal of the claim for moral and exemplary damages for lack merit.

SO ORDERED.6

The Labor Arbiter ruled that petitioners are not guilty of unfair labor practice in the absence of evidence to show that they violated respondents’ right to self-organization. The Labor Arbiter also held that Lubas is the respondents’ employer and that it (Lubas) is an entity which is separate, distinct and independent from PTI. Nonetheless, the Labor Arbiter found that Lubas is guilty of illegally dismissing respondents from their employment.

Respondents filed a Partial Appeal with the NLRC praying, among others, that PTI should also be held equally liable as Lubas.

In a Resolution dated May 30, 2003, the NLRC modified the Decision of the Labor Arbiter and disposed as follows:

WHEREFORE, premises considered, the appeal is hereby PARTIALLY GRANTED. Accordingly, the Decision appealed from is SUSTAINED subject to the modification that Complainant-Appellant Edgardo Belda deserves refund of his boundary-hulog in the amount of P446,862.00; and that Complainants-Appellants Danilo Rojo and Danilo Laurel should be included in the computation of Complainants-Appellants claim as follows:

Complainants Backwages Separation Pay

41. Danilo Rojo P355,560.00 P48,000.00

42. Danilo Laurel P357,960.00 P72,000.00

As regards all other aspects, the Decision appealed from is SUSTAINED.

SO ORDERED.7

Respondents filed a Motion for Reconsideration, but the NLRC denied it in its Resolution 8 dated September 26, 2003.

Respondents then filed a special civil action for certiorari with the CA assailing the Decision and Resolution of the NLRC.

On December 20, 2004, the CA rendered the herein assailed Decision which granted respondents' petition. The CA ruled that petitioners are guilty of unfair labor practice; that Lubas is a mere instrumentality, agent conduit or adjunct of PTI; and that petitioners’ act of transferring respondents’ employment to Lubas is indicative of their intent to frustrate the efforts of respondents to organize themselves into a union. Accordingly, the CA disposed of the case as follows:

WHEREFORE, the Petition for Certiorari is hereby GRANTED. Accordingly, the subject decision is hereby REVERSED and SET ASIDE and another one ENTERED finding the respondents guilty of unfair labor practice and ordering them to reinstate the petitioners to their former positions without loss of seniority rights and with full backwages.

With respect to the portion ordering the inclusion of Danilo Rojo and Danilo Laurel in the computation of petitioner's claim for backwages and with respect to the portion ordering the refund of Edgardo Belda's boundary-hulog in the amount of P446,862.00, the NLRC decision is affirmed and maintained.

SO ORDERED.9

Petitioners filed a Motion for Reconsideration, but the CA denied it via its Resolution 10 dated February 24, 2005.

Hence, the instant petition for review on certiorari based on the following grounds:

A

THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN GIVING DUE COURSE TO THE RESPONDENTS' PETITION FOR CERTIORARI

1. THE COURT OF APPEALS SHOULD HAVE RESPECTED THE FINDINGS OF THE LABOR ARBITER AND AFFIRMED BY THE NLRC

2. ONLY ONE PETITIONER EXECUTED AND VERIFIED THE PETITION

3. THE COURT OF APPEALS SHOULD NOT HAVE GIVEN DUE COURSE TO THE PETITION WITH RESPECT TO RESPONDENTS REX BARTOLOME, FELICIANO GASCO, DANILO ROJO, EUTIQUIO LUGTU, AND NELSON MONTERO AS THEY FAILED TO FILE AN APPEAL TO THE NLRC

B

THE COURT OF APPEALS SERIOUSLY ERRED IN DECLARING THAT PETITIONERS PRINCE TRANSPORT, INC. AND MR. RENATO CLAROS AND LUBAS TRANSPORT ARE ONE AND THE SAME CORPORATION AND THUS, LIABLE IN SOLIDUM TO RESPONDENTS.

C

THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN ORDERING THE REINSTATEMENT OF RESPONDENTS TO THEIR PREVIOUS POSITION WHEN IT IS NOT ONE OF THE ISSUES RAISED IN RESPONDENTS' PETITION FOR CERTIORARI.11

Petitioners assert that factual findings of agencies exercising quasi-judicial functions like the NLRC are accorded not only respect but even finality; that the CA should have outrightly dismissed the petition filed before it because in certiorari proceedings under Rule 65 of the Rules of Court it is not within the province of the CA to evaluate the sufficiency of evidence upon which the NLRC based its determination, the inquiry being limited essentially to whether or not said tribunal has acted without or in excess of its jurisdiction or with grave abuse of discretion. Petitioners assert that the CA can only pass upon the factual findings of the NLRC if they are not supported by evidence on record, or if the impugned judgment is based on misapprehension of facts — which circumstances are not present in this case. Petitioners also emphasize that the NLRC and the Labor Arbiter concurred in their factual findings which

were based on substantial evidence and, therefore, should have been accorded great weight and respect by the CA.

Respondents, on the other hand, aver that the CA neither exceeded its jurisdiction nor committed error in re-evaluating the NLRC’s factual findings since such findings are not in accord with the evidence on record and the applicable law or jurisprudence.

The Court agrees with respondents.

The power of the CA to review NLRC decisions via a petition for certiorari under Rule 65 of the Rules of Court has been settled as early as this Court’s decision in St. Martin Funeral Homes v. NLRC. 12 In said case, the Court held that the proper vehicle for such review is a special civil action for certiorari under Rule 65 of the said Rules, and that the case should be filed with the CA in strict observance of the doctrine of hierarchy of courts. Moreover, it is already settled that under Section 9 of Batas Pambansa Blg. 129, as amended by Republic Act No. 7902, the CA — pursuant to the exercise of its original jurisdiction over petitions for certiorari — is specifically given the power to pass upon the evidence, if and when necessary, to resolve factual issues.13 Section 9 clearly states:

x x x x

The Court of Appeals shall have the power to try cases and conduct hearings, receive evidence and perform any and all acts necessary to resolve factual issues raised in cases falling within its original and appellate jurisdiction, including the power to grant and conduct new trials or further proceedings. x x x

However, equally settled is the rule that factual findings of labor officials, who are deemed to have acquired expertise in matters within their jurisdiction, are generally accorded not only respect but even finality by the courts when supported by substantial evidence, i.e., the amount of relevant evidence which a reasonable mind might accept as adequate to justify a conclusion.14 But these findings are not infallible. When there is a showing that they were arrived at arbitrarily or in disregard of the evidence on record, they may be examined by the courts.15 The CA can grant the petition for certiorari if it finds that the NLRC, in its assailed decision or resolution, made a factual finding not supported by substantial evidence.16 It is within the jurisdiction of the CA, whose jurisdiction over labor cases has been expanded to review the findings of the NLRC.17

In this case, the NLRC sustained the factual findings of the Labor Arbiter. Thus, these findings are generally binding on the appellate court, unless there was a showing that they were arrived at arbitrarily or in disregard of the evidence on record. In respondents' petition for certiorari with the CA, these factual findings were reexamined and reversed by the appellate court on the ground that they were not in accord with credible evidence presented in this case. To determine if the CA's reexamination of factual findings and reversal of the NLRC decision are proper and with sufficient basis, it is incumbent upon this Court to make its own evaluation of the evidence on record.18

After a thorough review of the records at hand, the Court finds that the CA did not commit error in arriving at its own findings and conclusions for reasons to be discussed hereunder.

Firstly, petitioners posit that the petition filed with the CA is fatally defective, because the attached verification and certificate against forum shopping was signed only by respondent Garcia.

The Court does not agree.

While the general rule is that the certificate of non-forum shopping must be signed by all the plaintiffs in a case and the signature of only one of them is insufficient, the Court has stressed that the rules on forum shopping, which were designed to promote and facilitate the orderly administration of justice, should not be interpreted with such absolute literalness as to subvert its own ultimate and legitimate objective.19 Strict compliance with the provision regarding the certificate of non-forum shopping underscores its mandatory nature in that the certification cannot be altogether dispensed with or its requirements completely disregarded.20 It does not, however, prohibit substantial compliance therewith under justifiable circumstances, considering especially that although it is obligatory, it is not jurisdictional.21

In a number of cases, the Court has consistently held that when all the petitioners share a common interest and invoke a common cause of action or defense, the signature of only one of them in the certification against forum shopping substantially complies with the rules.22 In the present case, there is no question that respondents share a common interest and invoke a common cause of action. Hence, the signature of respondent Garcia is a sufficient compliance with the rule governing certificates of non-forum shopping. In the first place, some of the respondents actually executed a Special Power of Attorney authorizing Garcia as their attorney-in-fact in filing a petition for certiorari with the CA.23

The Court, likewise, does not agree with petitioners' argument that the CA should not have given due course to the petition filed before it with respect to some of the respondents, considering that these respondents did not sign the verification attached to the Memorandum of Partial Appeal earlier filed with the NLRC. Petitioners assert that the decision of the Labor Arbiter has become final and executory with respect to these respondents and, as a consequence, they are barred from filing a petition for certiorari with the CA.

With respect to the absence of some of the workers’ signatures in the verification, the verification requirement is deemed substantially complied with when some of the parties who undoubtedly have sufficient knowledge and belief to swear to the truth of the allegations in the petition had signed the same. Such verification is deemed a sufficient assurance that the matters alleged in the petition have been made in good faith or are true and correct, and not merely speculative. Moreover, respondents' Partial Appeal shows that the appeal stipulated as complainants-appellants "Rizal Beato, et al.", meaning that there were more than one appellant who were all workers of petitioners.

In any case, the settled rule is that a pleading which is required by the Rules of Court to be verified, may be given due course even without a verification if the circumstances warrant the suspension of the rules in the interest of justice.24 Indeed, the absence of a verification is not jurisdictional, but only a formal defect, which does not of itself justify a court in refusing to allow and act on a case. 25 Hence, the failure of some of the respondents to sign the verification attached to their Memorandum of Appeal filed with the NLRC is not fatal to their cause of action.

Petitioners also contend that the CA erred in applying the doctrine of piercing the corporate veil with respect to Lubas, because the said doctrine is applicable only to corporations and Lubas is not a corporation but a single proprietorship; that Lubas had been found by the Labor Arbiter and the NLRC to have a personality which is separate and distinct from that of PTI; that PTI had no hand in the management and operation as well as control and supervision of the employees of Lubas.

The Court is not persuaded.

On the contrary, the Court agrees with the CA that Lubas is a mere agent, conduit or adjunct of PTI. A settled formulation of the doctrine of piercing the corporate veil is that when two business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that these two entities are distinct and treat them as identical or as one and the same.26 In the present case, it may be true that Lubas is a single proprietorship and not a corporation. However, petitioners’ attempt to isolate themselves from and hide behind the supposed separate and distinct personality of Lubas so as to evade their liabilities is precisely what the classical doctrine of piercing the veil of corporate entity seeks to prevent and remedy.

Thus, the Court agrees with the observations of the CA, to wit:

As correctly pointed out by petitioners, if Lubas were truly a separate entity, how come that it was Prince Transport who made the decision to transfer its employees to the former? Besides, Prince Transport never regarded Lubas Transport as a separate entity. In the aforesaid letter, it referred to said entity as "Lubas operations." Moreover, in said letter, it did not transfer the employees; it "assigned" them. Lastly, the existing funds and 201 file of the employees were turned over not to a new company but a "new management."27

The Court also agrees with respondents that if Lubas is indeed an entity separate and independent from PTI why is it that the latter decides which employees shall work in the former?

What is telling is the fact that in a memorandum issued by PTI, dated January 22, 1998, petitioner company admitted that Lubas is one of its sub-companies.28 In addition, PTI, in its letters to its employees who were transferred to Lubas, referred to the latter as its "New City Operations Bus."29

Moreover, petitioners failed to refute the contention of respondents that despite the latter’s transfer to Lubas of their daily time records, reports, daily income remittances of conductors, schedule of drivers and conductors were all made, performed, filed and kept at the office of PTI. In fact, respondents’ identification cards bear the name of PTI.

It may not be amiss to point out at this juncture that in two separate illegal dismissal cases involving different groups of employees transferred by PTI to other companies, the Labor Arbiter handling the cases found that these companies and PTI are one and the same entity; thus, making them solidarily liable for the payment of backwages and other money claims awarded to the complainants therein.30

Petitioners likewise aver that the CA erred and committed grave abuse of discretion when it ordered petitioners to reinstate respondents to their former positions, considering that the issue of reinstatement was never brought up before it and respondents never questioned the award of separation pay to them.

The Court is not persuaded.

It is clear from the complaints filed by respondents that they are seeking reinstatement.31

In any case, Section 2 (c), Rule 7 of the Rules of Court provides that a pleading shall specify the relief sought, but may add a general prayer for such further or other reliefs as may be deemed just and equitable. Under this rule, a court can grant the relief warranted by the allegation and the proof even if it is not specifically sought by the injured party; the inclusion of a general prayer may justify the grant of a remedy different from or together with the specific remedy sought, if the facts alleged in the complaint and the evidence introduced so warrant.321avvphi1

Moreover, in BPI Family Bank v. Buenaventura,33 this Court ruled that the general prayer is broad enough "to justify extension of a remedy different from or together with the specific remedy sought." Even without the prayer for a specific remedy, proper relief may be granted by the court if the facts alleged in the complaint and the evidence introduced so warrant. The court shall grant relief warranted by the allegations and the proof even if no such relief is prayed for. The prayer in the complaint for other reliefs equitable and just in the premises justifies the grant of a relief not otherwise specifically prayed for.34 In the instant case, aside from their specific prayer for reinstatement, respondents, in their separate complaints, prayed for such reliefs which are deemed just and equitable.

As to whether petitioners are guilty of unfair labor practice, the Court finds no cogent reason to depart from the findings of the CA that respondents’ transfer of work assignments to Lubas was designed by petitioners as a subterfuge to foil the former’s right to organize themselves into a union. Under Article 248 (a) and (e) of the Labor Code, an employer is guilty of unfair labor practice if it interferes with, restrains or coerces its employees in the exercise of their right to self-organization or if it discriminates in regard to wages, hours of work and other terms and conditions of employment in order to encourage or discourage membership in any labor organization.

Indeed, evidence of petitioners' unfair labor practice is shown by the established fact that, after respondents' transfer to Lubas, petitioners left them high and dry insofar as the operations of Lubas was concerned. The Court finds no error in the findings and conclusion of the CA that petitioners "withheld the necessary financial and logistic support such as spare parts, and repair and maintenance of the transferred buses until only two units remained in running condition." This left respondents virtually jobless.

WHEREFORE, the instant petition is denied. The assailed Decision and Resolution of the Court of Appeals, dated December 20, 2004 and February 24, 2005, respectively, in CA-G.R. SP No. 80953, are AFFIRMED.

SO ORDERED.

G.R. No. 147964 January 20, 2004

FAR EAST BANK & TRUST CO., Petitioner, vs.ARTURO L. MARQUEZ, Respondent.

D E C I S I O N

PANGANIBAN, J.:

Under PD 957, the mortgage of a subdivision lot or a condominium unit is void, if executed by a property developer without the prior written approval of the Housing and Land Use Regulatory Board (HLURB). That an encumbrance has been constituted over an entire property, of which the subject lot or unit is merely a part, does not affect the invalidity of the lien over the specific portion at issue.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the April 27, 2001 Decision2 of the Court of Appeals (CA) in CA-GR SP No. 56813. The decretal portion of the Decision reads as follows:

"WHEREFORE, the petition for review is DENIED, for lack of merit."3

The Facts

The undisputed facts of the case are summarized in the CA Decision as follows:

"1. On 13 March 1989, respondent [Arturo] Marquez entered into a Contract to Sell with Transamerican Sales and Exposition (‘TSE’), through the latter’s Owner/General Manager Engr. Jesus Garcia, involving a 52.5 sq. m. lot in Diliman, Quezon City with a three-storey townhouse unit denominated as Unit No. 10 to be constructed thereon for a total consideration of P800,000.00. The parcel of land in question is a portion of that property covered by TCT No. 156254 (now TCT No. 383697).

"2. On 22 May 1989, TSE obtained a loan from petitioner FEBTC in the amount of P7,650,000.00 and mortgaged the property covered by TCT No. 156254.

"3. For failure of TSE to pay its obligation, petitioner FEBTC extrajudicially foreclosed the real estate mortgage and became the highest bidder (P15.7 million) in the auction sale conducted for the purpose.

"4. Respondent had already paid a total of P600,000.00 when he stopped payment because the construction of his townhouse unit slackened. He discovered later on that this was due to the foreclosure.

"5. Consequently, [respondent] instituted a case with the Office of Appeals, Adjudication and Legal Affairs (‘OAALA’) of the Housing and Land Use Regulatory Board (‘HLURB’) on 29 January 1991 entitled ‘Arturo Marquez vs. Transamerican Sales, et al’ docketed as HLRB Case No. REM-012991-4712 to compel TSE to complete the construction of the townhouse and to prevent the enforceability of the extra-judicial foreclosure made by petitioner FEBTC and to have the mortgage between TSE and petitioner FEBTC declared invalid, said mortgage having been entered into by the parties in violation of section 18 of P.D. 957.

"6. The OAALA ruled in favor of the respondent via a Decision dated 11 November 1991, the decretal portion of which reads as follows:

‘WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Declaring the mortgage executed by and between x x x Engr. Jesus Garcia/Transamerican Sales and Exposition and Far East Bank and Trust Company to be unenforceable against [respondent];

2. Ordering the x x x Far East Bank and Trust Company to compute and/or determine the loan value of the [respondent] who was not able to complete or make full payment and accept payment and/or receive the amortization from the [respondent] and upon full payment to deliver the title corresponding to Unit No. 10 of that Townhouse Project located at No. 10 Panay Ave., Quezon City;

3. Ordering the Register of Deeds of Quezon City to cancel the annotations of the mortgage indebtedness between x x x Engr. Jesus Garcia and Far East Bank and Trust Company;

4. Ordering, likewise, the Register of Deeds of Quezon City to cancel the annotation of the Certificate of Sale in favor of the Far East Bank and Trust Company on Transfer Certificate of Title No. 156254 to which the lot subject of this case is a part thereof, without prejudice to its right to require x x x Engr. Jesus Garcia/Transamerican Sales and Exposition to constitute new collateral in lieu of said title sufficient in value to cover the mortgage obligation.’

x x x x x x x x x’

"7. Petitioner FEBTC interposed a Petition for Review from the decision issued by the OAALA with the Board of Commissioners of the HLURB, docketed as HLRB Case No. REM-A-1126, which in a Decision dated 18 July 1994 affirmed in toto the OAALA decision.

"8. Hence, petitioner FEBTC appealed the Decision dated 18 July 1994 to the Office of the President xxx.

x x x x x x x x x’

"9. The Office of the President dismissed the appeal and affirmed the Decision dated 18 July 1994 x x x."4

(Citations omitted)

Petitioner then elevated the case to the CA through a Petition for review under Rule 43.

Ruling of the Court of Appeals

The CA found that petitioner had known that a "subdivision was forthcoming inasmuch as the loan was obtained by TSE to partially finance the construction of a 20-unit townhouse project, as stated in the ‘Whereas’ clause in the mortgage contract."5 Thus, the CA ruled that "petitioner should not have merely relied on the representation of TSE that it had obtained the approval and authorization of the proper government agencies but should have required the submission of said documents."6

Further, the appellate court found that the Certification against forum shopping attached to the Petition before it had not been made under oath, in violation of the Rules of Court.

Hence, this Petition.7

The Issues

Petitioner raises the following issues for our consideration:

"Whether or not the mortgage contract violated Section 18 of P.D. 957, hence, void insofar as third persons are concerned.

"Assuming arguendo that the mortgage contract violated Section 18 of P.D. 957, whether or not the remedy granted and imposed by the HLURB, as sustained by the Office of the President and the Court of Appeals, is proper.

"Whether or not the inadvertent failure of the notary public to affix his signature on the Certification against forum shopping executed by petitioner FEBTC in connection with the Petition for Review it filed with the Court of Appeals provided a sufficient basis for the dismissal of the appeal."8

The Court's Ruling

The Petition is partly meritorious.

First Issue:

Violation of Section 18 of PD 957

Section 18 of PD 9579 provides as follows:

"SEC. 18. Mortgages. - No mortgage on any unit or lot shall be made by the owner or developer without prior written approval of the Authority. Such approval shall not be granted unless it is shown that the proceeds of the mortgage loan shall be used for the development of the condominium or subdivision project and effective measures have been provided to ensure such utilization. The loan value of each lot or unit covered by the mortgage shall be determined and the buyer thereof, if any, shall be notified before the release of the loan. The buyer may, at his option, pay his installment for the lot or unit directly to the mortgagee who shall apply the payments to the corresponding mortgage indebtedness secured by the particular lot or unit being paid for, with a view to enabling said buyer to obtain title over the lot or unit promptly after full payment thereof."

Petitioner contends that the above-quoted provision does not apply to this case, because the land mortgaged to it was one whole parcel, not of a "subdivision lot," but of an unsubdivided one. It insists that the written approval of the National Housing Authority (now the Housing and Land Use Regulatory Board) was not a requirement for the constitution of a mortgage on the property.

We are not persuaded. It is undisputed that the subject 52.5-square-meter lot with a three-storey town house unit denominated as Unit No. 10 (the "lot") is part of the property mortgaged to petitioner and is covered by TCT No. 156254. The lot was technically described and segregated in a Contact to Sell that had been entered into before the mortgage loan was contracted. The fact that the lot had no separate TCT did not make it less of a "subdivision lot" entitled to the protection of PD 957.

That the subject of the mortgage loan was the entire land, not the individual subdivided lots, does not take the loan beyond the coverage of Section 18 of PD 957. Undeniably, the lot was also mortgaged when the entire parcel of land, of which it was a part, was encumbered.

Petitioner also contends that Section 18 of PD 957 is merely a directory provision, noncompliance with which does not render the mortgage transaction void.

In determining whether a law is mandatory, it is necessary to ascertain the legislative intent, as stated by Sen. Arturo M. Tolentino, an authority on civil law:

"There is no well-defined rule by which a mandatory or prohibitory law may, in all circumstances, be distinguished from one which is directory, suppletory, or permissive. In the determination of this question, the prime object is to ascertain the legislative intention. Generally speaking, those provisions which are mere matter of form, or which are not material, do not affect any substantial right, and do not relate to the essence of the thing to be done, so that compliance is a matter of convenience rather that substance, are considered to be directory. On the other hand, statutory provisions which relate to matters of substance, affect substantial rights and are the very essence of the thing required to be done, are regarded as mandatory."10

In Philippine National Bank v. Office of the President,11 we had occasion to mull over the intent of PD 957 thus:

"x x x [T]he unmistakable intent of the law [is] to protect innocent lot buyers from scheming subdivision developers. As between these small lot buyers and the gigantic financial institutions which the developers deal with, it is obvious that the law -- as an instrument of social justice -- must favor the weak. Indeed, the petitioner Bank had at its disposal vast resources with which it could adequately protect its loan activities, and therefore is presumed to have conducted the usual ‘due diligence’ checking and ascertaining (whether thru ocular inspection or other modes of investigation) the actual status, condition, utilization and occupancy of the property offered as collateral, x x x On the other hand, private respondents obviously were powerless to discover the attempt of the land developer to hypothecate the property being sold to them. It was precisely in order to deal with this kind of situation that P.D. 957 was enacted, its very essence and intendment being to provide a protective mantle over helpless citizens who may fall prey to the razzmatazz of what P.D. 957 termed ‘unscrupulous subdivision and condominium sellers.’"12

Concededly, PD 957 aims to protect innocent lot buyers. Section 18 of the decree directly addresses the problem of fraud committed against buyers when the lot they have contracted to purchase, and which they have religiously paid for, is mortgaged without their knowledge. The avowed purpose of PD 957 compels the reading of Section 18 as prohibitory -- acts committed contrary to it are void. 13 Such construal ensures the attainment of the purpose of the law: to protect lot buyers, so that they do not end up still homeless despite having fully paid for their home lots with their hard-earned cash.

Petitioner argues that it is an innocent mortgagee whose lien must be respected and protected, since the title offered as security was clean of any encumbrance or lien. We do not agree.

"x xx. As a general rule, where there is nothing on the certificate of title to indicate any cloud or vice in the ownership of the property, or any encumbrance thereon, the purchaser is not required to explore

further than what the Torrens Title upon its face indicates in quest for any hidden defect or inchoate right that may subsequently defeat his right thereto. This rule, however, admits of an exception as where the purchaser or mortgagee has knowledge of a defect or lack of title in the vendor, or that he was aware of sufficient facts to induce a reasonably prudent man to inquire into the status of the property in litigation."14

Petitioner bank should have considered that it was dealing with a town house project that was already in progress. A reasonable person should have been aware that, to finance the project, sources of funds could have been used other than the loan, which was intended to serve the purpose only partially. Hence, there was need to verify whether any part of the property was already the subject of any other contract involving buyers or potential buyers. In granting the loan, petitioner bank should not have been content merely with a clean title, considering the presence of circumstances indicating the need for a thorough investigation of the existence of buyers like respondent. Having been wanting in care and prudence, the latter cannot be deemed to be an innocent mortgagee.

Petitioner cannot claim to be a mortgagee in good faith. Indeed it was negligent, as found by the Office of the President and by the CA. Petitioner should not have relied only on the representation of the mortgagor that the latter had secured all requisite permits and licenses from the government agencies concerned. The former should have required the submission of certified true copies of those documents and verified their authenticity through its own independent effort.

Having been negligent in finding out what respondent’s rights were over the lot, petitioner must be deemed to possess constructive knowledge of those rights.15

Second Issue:

Remedy Granted

To retain possession of the lot, petitioner claims that its rights as the buyer in the foreclosure sale are superior to those of respondent.

We are not persuaded. Aside from being a buyer of the lot, petitioner was also the mortgagee, which, as previously discussed, was presumed to know the rights of respondent over that lot. The conversion of the status of the former from mortgagee to buyer-owner will not lessen the importance of such knowledge. Neither will the conversion set aside the consequences of its negligence as a mortgagee.

The lot was mortgaged in violation of Section 18 of PD 957. Respondent, who was the buyer of the property, was not notified of the mortgage before the release of the loan proceeds by petitioner. Acts executed against the provisions of mandatory or prohibitory laws shall be void.16 Hence, the mortgage over the lot is null and void insofar as private respondent is concerned.17

The remedy granted by the HLURB and sustained by the Office of the President is proper only insofar as it refers to the lot of respondent.1âwphi1 In short, the mortgage contract is void as against him. Since there is no law stating the specifics of what should be done under the circumstances, that which is in accord with equity should be ordered.1âwphi1 The remedy granted by the HLURB in the first and the second paragraphs of the dispositive portion of its Decision insofar as it referred to respondent's lot is in accord with equity.

The HLURB, however, went overboard in its disposition in paragraphs 3 and 4, which pertained not only to the lot but to the entire parcel of land mortgaged. Such ruling was improper. The subject of this litigation is limited only to the lot that respondent is buying, not to the entire parcel of land. He has no personality or standing to bring suit on the whole property, as he has actionable interest over the subject lot only.

Third Issue:

Certification Against Forum Shopping

We find no cogent reason to alter the ruling of the CA regarding the Certification against forum shopping that did not bear the notary public's signature. It is worth emphasizing that despite petitioner's noncompliance with the technical requirements regarding the Certification, the CA still ruled on the merits of the case.18 In fact, there is no more need to pass upon this issue inasmuch as, on the merits, we have already turned down petitioner’s plea against respondent.

WHEREFORE, the Petition is PARTLY GRANTED. The Decision of the HLURB is AFFIRMED, but it shall be applicable only to the 52.5-square-meter lot with a three-storey town house unit denominated as Unit No. 10. No costs.

SO ORDERED