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23.Republic of the Philippines

SUPREME COURTManila

SECOND DIVISIONG.R. No. 149237 June 11, 2006CHINA BANKING CORPORATION, petitioner,

vs.DYNE-SEM ELECTRONICS CORPORATION, respondent.

D E C I S I O NCORONA, J .:On June 19 and 26, 1985, Dynetics, Inc. (Dynetics) and Elpidio O. Lim borroweda total of P

8,939,000 from petitioner China Banking Corporation. The loan wasevidenced by six promissory notes.1

The borrowers failed to pay when the obligations became due. Petitioner consequently instituted a complaint for sum of money2 on June 25, 1987 againstthem. The complaint sought payment of the unpaid promissory notes plusinterest and penalties.Summons was not served on Dynetics, however, because it had already closeddown. Lim, on the other hand, filed his answer on December 15, 1987 denyingthat "he promised to pay [the obligations] jointly and severally to [petitioner]."3

On January 7, 1988, the case was scheduled for pre-trial with respect to Lim.

The case against Dynetics was archived.On September 23, 1988, an amended complaint 4 was filed by petitioner impleading respondent Dyne-Sem Electronics Corporation (Dyne-Sem) and itsstockholders Vicente Chuidian, Antonio Garcia and Jacob Ratinoff. According topetitioner, respondent was formed and organized to be Dynetics’ alter ego asestablished by the following circumstances:

· Dynetics, Inc. and respondent are both engaged in the same line of business of manufacturing, producing, assembling, processing,importing, exporting, buying, distributing, marketing and testingintegrated circuits and semiconductor devices;· [t]he principal office and factory site of Dynetics, Inc. located at

Avocado Road, FTI Complex, Taguig, Metro Manila, were used byrespondent as its principal office and factory site;· [r]espondent acquired some of the machineries and equipment of Dynetics, Inc. from banks which acquired the same through

foreclosure;· [r]espondent retained some of the officers of Dynetics, Inc.5

xxx xxx xxxOn December 28, 1988, respondent filed its answer, alleging that:

5.1 [t]he incorporators as well as present stockholders of [respondent]are totally different from those of Dynetics, Inc., and not one of themhas ever been a stockholder or officer of the latter;5.2 [n]ot one of the directors of [respondent] is, or has ever been, adirector, officer, or stockholder of Dynetics, Inc.;5.3 [t]he various facilities, machineries and equipment being used by[respondent] in its business operations were legitimately and validlyacquired, under arms-length transactions, from various corporationswhich had become absolute owners thereof at the time of said

transactions; these were not just "taken over" nor "acquired fromDynetics" by [respondent], contrary to what plaintiff falsely andmaliciously alleges;5.4 [respondent] acquired most of its present machineries andequipment as second-hand items to keep costs down;5.5 [t]he present plant site is under lease from Food Terminal, Inc., agovernment-controlled corporation, and is located inside the FTI

Complex in Taguig, Metro Manila, where a number of other firmsorganized in 1986 and also engaged in the same or similar businesshave likewise established their factories; practical convenience, andnothing else, was behind [respondent’s] choice of plant site;5.6 [respondent] operates its own bonded warehouse under authorityfrom the Bureau of Customs which has the sole and absoluteprerogative to authorize and assign customs bonded warehouses;again, practical convenience played its role here since the warehousein question was virtually lying idle and unused when said Bureaudecided to assign it to [respondent] in June 1986.6

On February 28, 1989, the trial court issued an order archiving the case as toChuidian, Garcia and Ratinoff since summons had remained unserved.

After hearing, the court a quo rendered a decision on December 27, 1991 whichread:

xxx [T]he Court rules that Dyne-Sem Electronics Corporation is not

an alter ego of Dynetics, Inc. Thus, Dyne-Sem Electronics Corporationis not liable under the promissory notes.

xxx xxx xxxWHEREFORE, judgment is hereby rendered ordering Dynetics, Inc.and Elpidio O. Lim, jointly and severally, to pay plaintiff.

xxx xxx xxx Anent the complaint against Dyne-Sem and the latter’s counterclaim,both are hereby dismissed, without costs.SO ORDERED.7

From this adverse decision, petitioner appealed to the Court of Appeals 8 but theappellate court dismissed the appeal and affirmed the trial court’s decision. 9 Itfound that respondent was indeed not an alter ego of Dynetics. The twocorporations had different articles of incorporation. Contrary to petitioner’s claim,no merger or absorption took place between the two. What transpired was amere sale of the assets of Dynetics to respondent. The appellate court denied

petitioner’s motion for reconsideration.10

Hence, this petition for review11 with the following assigned errors:VI.

IssuesWhat is the quantum of evidence needed for the trial court todetermine if the veil of corporat[e] fiction should be pierced?[W]hether or not the Regional Trial Court of Manila Branch 15 in itsDecision dated December 27, 1991 and the Court of Appeals in itsDecision dated February 28, 2001 and Resolution dated July 27, 2001,which affirmed en toto [Branch 15, Manila Regional Trial Court’sdecision,] have ruled in accordance with law and/or applicable[jurisprudence] to the extent that the Doctrine of Piercing the Veil of Corporat[e] Fiction is not applicable in the case at bar?12

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We find no merit in the petition.The question of whether one corporation is merely an alter ego of another ispurely one of fact. So is the question of whether a corporation is a paper company, a sham or subterfuge or whether petitioner adduced the requisitequantum of evidence warranting the piercing of the veil of respondent’s corporateentity. This Court is not a trier of facts. Findings of fact of the Court of Appeals,affirming those of the trial court, are final and conclusive. The jurisdiction of this

Court in a petition for review on certiorari is limited to reviewing only errors of law,not of fact, unless it is shown, inter alia, that: (a) the conclusion is groundedentirely on speculations, surmises and conjectures; (b) the inference is manifestlymistaken, absurd and impossible; (c) there is grave abuse of discretion; (d) the

judgment is based on a misapplication of facts; (e) the findings of fact of the trialcourt and the appellate court are contradicted by the evidence on record and (f)the Court of Appeals went beyond the issues of the case and its findings arecontrary to the admissions of both parties.13

We have reviewed the records and found that the factual findings of the trial andappellate courts and consequently their conclusions were supported by theevidence on record.The general rule is that a corporation has a personality separate and distinct fromthat of its stockholders and other corporations to which it may beconnected.14 This is a fiction created by law for convenience and to preventinjustice.15

Nevertheless, being a mere fiction of law, peculiar situations or valid groundsmay exist to warrant the disregard of its independent being and the piercing of the corporate veil.16 In Martinez v. Court of Appeals,17 we held:

The veil of separate corporate personality may be lifted when suchpersonality is used to defeat public convenience, justify wrong, protectfraud or defend crime; or used as a shield to confuse the legitimateissues; or when the corporation is merely an adjunct, a businessconduit or an alter ego of another corporation or where the corporationis so organized and controlled and its affairs are so conducted as tomake it merely an instrumentality, agency, conduit or adjunct of another corporation; or when the corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or where necessary toachieve equity or for the protection of the creditors. In such cases, thecorporation will be considered as a mere association of persons. Theliability will directly attach to the stockholders or to the other

corporation.To disregard the separate juridical personality of a corporation, the wrongdoingmust be proven clearly and convincingly.18

In this case, petitioner failed to prove that Dyne-Sem was organized andcontrolled, and its affairs conducted, in a manner that made it merely aninstrumentality, agency, conduit or adjunct of Dynetics, or that it was establishedto defraud Dynetics’ creditors, including petitioner.The similarity of business of the two corporations did not warrant a conclusionthat respondent was but a conduit of Dynetics. As we held in Umali v. Court of

Appeals,19 "the mere fact that the businesses of two or more corporations areinterrelated is not a justification for disregarding their separate personalities,absent sufficient showing that the corporate entity was purposely used as ashield to defraud creditors and third persons of their rights."

Likewise, respondent’s acquisition of some of the machineries and equipment of Dynetics was not proof that respondent was formed to defraud petitioner. As theCourt of Appeals found, no merger 20 took place between Dynetics andrespondent Dyne-Sem. What took place was a sale of the assets21 of the former to the latter. Merger is legally distinct from a sale of assets.22 Thus, where onecorporation sells or otherwise transfers all its assets to another corporation for value, the latter is not, by that fact alone, liable for the debts and liabilities of the

transferor.Petitioner itself admits that respondent acquired the machineries and equipmentnot directly from Dynetics but from the various corporations which successfullybidded for them in an auction sale. The contracts of sale executed between thewinning bidders and respondent showed that the assets were sold for considerable amounts.23 The Court of Appeals thus correctly ruled that the assetswere not "diverted" to respondent as an alter ego of Dynetics.24 The machineriesand equipment were transferred and disposed of by the winning bidders in their capacity as owners. The sales were therefore valid and the transfers of theproperties to respondent legal and not in any way in contravention of petitioner’srights as Dynetics’ creditor.Finally, it may be true that respondent later hired Dynetics’ former Vice-PresidentLuvinia Maglaya and Assistant Corporate Counsel Virgilio Gesmundo. From this,however, we cannot conclude that respondent was an alter ego of Dynetics. Infact, even the overlapping of incorporators and stockholders of two or more

corporations will not necessarily lead to such inference and justify the piercing of the veil of corporate fiction.25 Much more has to be proven.Premises considered, no factual and legal basis exists to hold respondent Dyne-Sem liable for the obligations of Dynetics to petitioner.WHEREFORE, the petition is hereby DENIED.The assailed Court of Appeals’decision and resolution in CA-G.R. CV No. 40672 are hereby AFFIRMED.Costs against petitioner.SO ORDERED.

24.

MEL V. VELARDE, petitioner, vs. LOPEZ, INC., respondent.

D E C I S I O N

CARPIO-MORALES, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court, whichseeks to review the decision[1] and resolution[2] of the Court of Appeals, raisesthe issue of whether the defendant in a complaint for collection of sum of moneycan raise a counterclaim for retirement benefits, unpaid salaries and incentives,











































and other benefits arising from services rendered by him in a subsidiary of theplaintiff corporation.

On January 6, 1997, Eugenio Lopez Jr., then President of respondent Lopez,

Inc., as LENDER, and petitioner Mel Velarde, then General Manager of SkyVision Corporation (Sky Vision), a subsidiary of respondent, as BORROWER,forged a notarized loan agreement covering the amount of ten million(P10,000,000.00) pesos. The agreement expressly provided for, among other things, the manner of payment and the circumstances constituting default whichwould give the lender the right to declare the loan together with accrued interestimmediately due and payable.[3]

Sec. 6 of the agreement detailed what constituted an “event of default” asfollows:

Section 6

Each of the following events and occurrences shall constitute an Event of Default(“Event of Default”) under this Agreement:

a) the BORROWER fails to make payment when due and payable of anyamount he is obligated to pay under this Agreement;

b) the BORROWER fails to mortgage in favor of the LENDER real propertysufficient to cover the amount o f the LOAN.[4]

As petitioner failed to pay the installments as they became due, respondent,apparently in answer to a proposal of petitioner respecting the settlement of theloan, advised him by letter dated July 15, 1998 that he may use his retirement

benefits in Sky Vision in partial settlement of his loan after he settles hisaccountabilities to the latter and gives his written instructions to it (Sky Vision).[5]

Petitioner protested the computation indicated in the July 15, 1998 letter, he

asserting that the imputed unliquidated advances from Sky Vision had alreadybeen properly liquidated.[6]

On August 18, 1998, respondent filed a complaint for collection of sum of moneywith damages at the Regional Trial Court (RTC) of Pasig City against petitioner,alleging that petitioner violated the above-quoted Section 6 of the loanagreement as he failed to put up the needed collateral for the loan and pay theinstallments as they became due, and that despite his receipt of letters of demand dated December 1, 1997[7] and January 13, 1998,[8] he refused to pay.

In his answer, petitioner alleged that the loan agreement did not reflect his trueagreement with respondent, it being merely a “cover document” to evidence thereward to him of ten million pesos (P10,000,000.00) for his loyalty and excellentperformance as General Manager of Sky Vision and that the payment, if any wasexpected, was in the form of continued service; and that it was when he wascompelled by respondent to retire that the form of payment agreed upon wasrendered impossible, prompting the late Eugenio Lopez, Jr. to agree that hisretirement benefits from Sky Vision would instead be applied to the loan.[9]

By way of compulsory counterclaim, petitioner claimed that he was entitled toretirement benefits from Sky Vision in the amount of P98,280,000.00, unpaid

salaries in the amount of P2,740,000.00, unpaid incentives in the amount of P500,000, unpaid share from the “net income of Plaintiff corporation,” equity inhis service vehicle in the amount of P1,500,000, reasonable return on the stockownership plan for services rendered as General Manager, and moral damagesand attorney’s fees.[10]

Petitioner thus prayed for the dismissal of the complaint and the award of thefollowing sums of money in the form of compulsory counterclaims:



1. P103,020,000.00, PLUS the value of Defendant’s stock options and unpaidshare from the net income with Plaintiff corporation (to be computed) as actualdamages;

2. P15,000,000.00, as moral damages; and

3. P1,500,000.00, as attorney’s fees plus appearance fees and the costs of suit.[11]

Respondent filed a manifestation and a motion to dismiss the counterclaim for want of jurisdiction, which drew petitioner to assert in his comment andopposition thereto that the veil of corporate fiction must be pierced to holdrespondent liable for his counterclaims.

By Order of January 3, 2000, Branch 155 of the RTC of Pasig deniedrespondent’s motion to dismiss the counterclaim on the following premises: Acounterclaim being essentially a complaint, the principle that a motion to dismisshypothetically admits the allegations of the complaint is applicable; thecounterclaim is compulsory, hence, within its jurisdiction; and there is identity of interest between respondent and Sky Vision to merit the piercing of the veil of corporate fiction.[12]

Respondent’s motion for reconsideration of the trial court’s Order of January 3,2000 having been denied, it filed a Petition for Certiorari at the Court of Appealswhich held that respondent is not the real party-in-interest on the counterclaimand that there was failure to show the presence of any of the circumstances to

justify the application of the principle of “piercing the veil of corporate fiction.” TheOrders of the trial court were thus set aside and the counterclaims of petitioner were accordingly dismissed.[13]

The Court of Appeals having denied petitioner’s motion for reconsideration, theinstant Petition for Review was filed which assigns the following errors:

I.

THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE RTCBRANCH 155 ALLEGEDLY ACTED WITH GRAVE ABUSE OF DISCRETION INISSUING THE ORDERS DATED JANUARY 3, 2000 AND OCTOBER 9, 2000CONSIDERING THAT THE GROUNDS RAISED BY RESPONDENT LOPEZ,INC. IN ITS PETITION FOR CERTIORARI INVOLVED MERE ERRORS OFJUDGMENT AND NOT ERRORS OF JURISDICTION.

II.

THE COURT OF APPEALS GRAVELY ERRED IN RULING THATRESPONDENT LOPEZ, INC. IS NOT THE REAL PARTY-IN-INTEREST ASPARTY-DEFENDANT ON THE COUNTERCLAIMS OF PETITIONER VELARDECONSIDERING THAT THE FILING OF RESPONDENT LOPEZ, INC.’SMANIFESTATION AND MOTION TO DISMISS COUNTERCLAIM HAD THEEFFECT OF HYPOTHETICALLY ADMITTING THE TRUTH OF THE MATERIAL

AVERMENTS OF THE ANSWER, WHICH MATERIAL AVERMENTSSUFFICIENTLY ALLEGED THAT RESPONDENT LOPEZ, INC. COMMITTED

ACTS WHICH SHOW THAT ITS SUBSIDIARY, SKY VISION, WAS A MEREBUSINESS CONDUIT OR ALTER EGO OF THE FORMER, THUS, JUSTIFYINGTHE PIERCING OF THE VEIL OF CORPORATE FICTION.

III.

THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THECOUNTERCLAIMS OF PETITIONER VELARDE ARE NOT COMPULSORY.[14]

While petitioner correctly invokes the ruling in Atienza v. Court of Appeals[15] topostulate that not every denial of a motion to dismiss can be corrected by



certiorari under Rule 65 and that, as a general rule, the remedy from such denialis to appeal in due course after a decision has been rendered on the merits,there are exceptions thereto, as when the court in denying the motion to dismissacted without or in excess of jurisdiction or with patent grave abuse of discretion,[16] or when the assailed interlocutory order is patently erroneous and theremedy of appeal would not afford adequate and expeditious relief,[17] or whenthe ground for the motion to dismiss is improper venue,[18] res judicata,[19] or

lack of jurisdiction[20] as in the case at bar.

Early on, it bears noting, when the case was still with the trial court, respondentfiled a motion to dismiss the counterclaims to assail its jurisdiction, respondentasserting that the counterclaims, being money claims arising from a labor relationship, are within the exclusive competence of the National Labor RelationsCommission.[21] On the other hand, petitioner alleged that due to the tortuousmanner he was coerced into retirement, it is the Regional Trial Courts (RTCs)and not the National Labor Relations Commission which has exclusive

jurisdiction over his counterclaims.

In determining which has jurisdiction over a case, the averments of thecomplaint/counterclaim, taken as a whole, are considered.[22] In hiscounterclaim, petitioner alleged that:

x x x

29. It was only on July 15, 1998 that Lopez, Inc. submitted a computation

of the retirement benefit due to the Defendant. (Copy attached as ANNEX 4).Immediately after receiving this computation, Defendant immediately informedPlaintiff of the erroneous figure used as salary in the computation of benefits.This was done in a telephone conversation with a certain Atty. Amina Amado of Lopez, Inc.

29.1 The Defendant also informed her that the so called “unliquidated advancesamounting to P422,922.87 since 1995” had all been properly liquidated asreflected in all the reports of the company. The Defendant reminded Atty. Amadoof unpaid incentives and salaries for 1997.

29.2 Defendant likewise informed Plaintiff that the one month for every year of service as a basis for the computation of the Defendant’s retirement benefit iserroneous. This computation is even less than what the rank and file employeesget. That CEO’s, COO’s and senior executives of the level of ABS-CBN, SkyVision, Benpres, Meralco and other Lopez companies had and have received alot more than the regular rank and file employees. All these retired executivesand records can be summoned for verification.

29.3 The circumstances of the retirement of the Defendant are not those for asimple and ordinary rank and file employee. Mr. Lopez, III admitted that he andthe Defendant have had problems which accumulated through time and that theychose to part ways in a manner that was dignified for both of them. Treating theDefendant as a rank and file employee is hardly dignified not just to theDefendant but also to the Lopezes whose existing executives serving them willdraw lessons from the Defendant’s experience.

29.4 These circumstances hardly reflect a simple retirement. The Defendant,who is known in the local and international media community, is hardlyconsidered a rank and file employee. Defendant was a stockholder of theCorporation and a duly-elected member of the Board of Directors. Certaingovernment officials can attest to the sensitivity of issues and matters theDefendant had represented for the Lopezes that are hardly issues handled by asimple rank and file employee. Respectable individuals in government andindustry are willing to testify to this regard.x x x[23] (Underscoring and italicssupplied).

At the heart of petitioner’s counterclaim is his alleged forced retirement which isalso the basis of his claim for, among other things, unpaid salaries, unpaid

incentives, reasonable return on the stock ownership plan, and other benefitsfrom a subsidiary company of the respondent.

Section 5(c) of P.D. 902-A (as amended by R.A. 8799, the Securities RegulationCode) applies to a corporate officer’s dismissal. For a corporate officer’sdismissal is always a corporate act and/or an intra-corporate controversy andthat its nature is not altered by the reason or wisdom which the Board of Directors may have in taking such action.[24]



With regard to petitioner’s claim for unpaid salaries, unpaid share in net income,reasonable return on the stock ownership plan and other benefits for servicesrendered to Sky Vision, jurisdiction thereon pertains to the Securities ExchangeCommission even if the complaint by a corporate officer includes money claimssince such claims are actually part of the prerequisite of his position and,therefore, interlinked with his relations with the corporation.[25] The question of remuneration involving a person who is not a mere employee but a stockholder

and officer of the corporation is not a simple labor problem but a matter thatcomes within the area of corporate affairs and management, and is in fact acorporate controversy in contemplation of the Corporation Code.[26]

While petitioner’s counterclaims were filed on December 1, 1998, the secondchallenged order of the trial court denying respondent’s motion for reconsideration of the denial of its motion to dismiss was issued on October 9,2000 at which time P.D. 902-A had been amended by R.A. 8799 (approved onJuly 19, 2000) which mandated the transfer of jurisdiction over intra-corporatecontroversies, subject of the counterclaims, to RTCs.

But even if the subject matter of the counterclaims is now cognizable by RTCs,the filing thereof against respondent is improper, it not being the real party-in-interest, for it is petitioner’s employer Sky Vision, respondent’s subsidiary.

It cannot be gainsaid that a subsidiary has an independent and separate juridicalpersonality, distinct from that of its parent company, hence, any claim or suitagainst the latter does not bind the former and vice versa.

Petitioner argues nevertheless that jurisdiction over the subsidiary is justified bypiercing the veil of corporate fiction. Piercing the veil of corporate fiction iswarranted, however, only in cases when the separate legal entity is used todefeat public convenience, justify wrong, protect fraud, or defend crime, such thatin the case of two corporations, the law will regard the corporations as mergedinto one.[27] The rationale behind piercing a corporation’s identity is to removethe barrier between the corporation from the persons comprising it to thwart thefraudulent and illegal schemes of those who use the corporate personality as ashield for undertaking certain proscribed activities.[28]

In applying the doctrine of piercing the veil of corporate fiction, the followingrequisites must be established: (1) control, not merely majority or complete stockcontrol; (2) such control must have been used by the defendant to commit fraudor wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest acts in contravention of plaintiff’s legal rights; and (3) the aforesaidcontrol and breach of duty must proximately cause the injury or unjust losscomplained of.[29]

Nowhere, however, in the pleadings and other records of the case can it begathered that respondent has complete control over Sky Vision, not only of finances but of policy and business practice in respect to the transactionattacked, so that Sky Vision had at the time of the transaction no separate mind,will or existence of its own. The existence of interlocking directors, corporateofficers and shareholders is not enough justification to pierce the veil of corporatefiction in the absence of fraud or other public policy considerations.

This Court is thus not convinced that the real party-in-interest with regard to thecounterclaim for damages arising from the alleged tortuous manner by whichpetitioner was forced to retire as General Manager of Sky Vision is respondent.

Petitioner muddles the issues by arguing that respondent fraudulently tookadvantage of the control over the matter of compensation and benefits of anemployee of Sky Vision to deceive petitioner into signing the loan agreement onthe misleading assurance that it was merely for the purpose of documenting thereward to him of ten million pesos. This argument does not persuade. Petitioner,being a lawyer, is presumed to know the legal and binding effects of loanagreements.

It bears emphasis that Sky Vision’s involvement in the transaction subject of thecase sprang only after a proposal was apparently proffered by petitioner that hisretirement benefits from Sky Vision be used in partial payment of his loan fromrespondent as gathered from the July 15, 1998 letter[30] of Rommel Duran, Vice-President and General Manager of respondent, to petitioner reading:



Dear Mr. Velarde:

As requested, we have made computations on the outstanding amount of your loan with Lopez, Inc. should your retirement benefits from Sky Vision

Corporation/Central CATV, Inc. ““Sky/Central”) be applied to the partial paymentof your loan. Please note that in order to effect the application of your retirementbenefits to the partial payment of your loan, you will need to give Sky/Centralwritten instructions on the same in the soonest possible time.

As you will see in the attached computation, the amount of P4,077,077.13 will beapplied to the payment of your loan to retroact on January 1, 1998. The amountof P422,922.87, representing unliquidated advances made by Sky/Central to you(see attached listing), has been deducted from your retirement pay of P4.5million. Should you be able to liquidate the advances as requested bySky/Central, the said amount will be applied to the partial payment of your loanand we shall adjust the amount of principal and interest due from you

accordingly. After the application of the amount of P4,077,077.13 to the partialpayment of your loan, the amount of P7,585,912.86 will be immediately due anddemandable. The amount of P7,585,912.86 represents the outstanding principaland interest due as of July 15, 1998.

Without the application of your retirement benefits to the partial payment of your loan, the amount of P11,850,000.00 is due as of July 15, 1998. We reiterate our demand for full payment of your outstanding obligation immediately.(Underscoring supplied)

As for the trial court’s ruling that the agreement to set-off is an amendment of theloan agreement resulting to an identity of interest between respondent and SkyVision and, therefore, sufficient to pierce the veil of corporate fiction, it isuntenable. The abovequoted letter is clear that, to effect a set-off, it is a conditionsine qua non that the approval thereof by “Sky/Central” must be obtained, andthat petitioner liquidate his advances from Sky Vision. These conditions hardlymanifest that respondent possessed that degree of control over Sky Vision as tomake the latter its mere instrumentality, agency or adjunct.

WHEREFORE, the instant petition for review on certiorari is hereby DENIED.

SO ORDERED.

25.Republic of the Philippines

SUPREME COURTManila

FIRST DIVISION

G.R. No. 119292 July 31, 1998REPUBLIC OF THE PHILIPPINES represented by the PRESIDENTIALCOMMISSION ON GOOD GOVERNMENT, petitioner,vs.SANDIGANBAYAN, IMELDA COJUANGCO, THE ESTATE OF RAMONCOJUANGCO represented by IMELDA COJUANGCO, and PRIMEHOLDINGS, INC., respondents.PANGANIBAN, J.:Should a sequestration order be deemed invalid and "automatically lifted" on thegrounds that (1) it was signed by only one PCGG Commissioner in contraventionof the Presidential Commission on Good Government Rules and Regulations("PCGG Rules" or simply "Rules") requiring the authority of at least twocommissioners; and in any event, (2) the PCGG failed, within the prescribedperiod, to institute or to implead or include private respondents in the proper

judicial action, as required by the 1987 Constitution?



The CaseThe Sandiganbayan answered the foregoing question in the affirmative in twoResolutions 1 dated December 17, 1993, 2 and August 29, 1994. 3 Declared"automatically lifted" in the earlier Resolution were the writs of sequestration thatthe PCGG had issued (a) against Prime Holdings, Inc. (PHI) and (b) over 111,415 shares of stock of the Philippine Telecommunications InvestmentCorporation (PTIC) registered in the name of PHI. The later Resolution denied

the motion for reconsideration filed by the PCGG.Disagreeing with the above rulings, the PCGG filed the instant petitionfor certiorari before us, imputing grave abuse of discretion on the part of the anti-graft court.

The FactsThe petition alleges that the PCGG issued the following communications, alldated May 9, 1986: (1) an Order of Sequestration 4 directed against allproperties, assets, records and documents of PHI; (2) another Order 5sequestering 111,415 shares of stock of PTIC registered in the books of PTIC in the name of PHI; and (3) a letter 6 addressed to Siguion Reyna Montecillo& Ongsiako, advising the said law firm that the PCGG, in its session on May 2,1986, resolved inter alia "[t]o order the sequestration of all the shareholdings of PRIME HOLDINGS, INC. (PHI), which owns approximately 46% of PHILIPPINETELECOMMUNICATIONS INVESTMENT CORPORATION (PTIC), which in turnowns approximately 26% of PLDT [Philippine Long Distance Telephone

Company]." The two Orders were signed solely by the late PCGG Commissioner Mary Concepcion Bautista, while the letter was signed by both Commissioner Bautista and then PCGG Commissioner Raul Daza.On July 16, 1987, petitioner filed before the Sandiganbayan a Complaint for reconveyance, reversion, accounting restitution and damages against SpousesFerdinand and Imelda Marcos, Spouses Imelda (Imee) and Tomas Manotoc,Spouses Irene and Gregorio Ma. Araneta III, Ferdinand R. Marcos Jr., ConstanteRubio, Nemesio G. Co, Yeung Chun Kam, Yeung Chun Ho and Yeung ChunFan. Said Complaint, docketed as Civil Case No. 0002, principally sought torecover from defendants their alleged ill-gotten wealth, consisting of funds andproperty which were manifestly out of proportion to their salaries and other lawfulincome, having been allegedly acquired during the incumbency of the SpousesMarcos as public officers. Among such properties mentioned in the Complaintwere shares of stock in various corporation, including PTIC and PLDT, a list of which was annexed to the Complaint.

An amended Complaint7

filed on April 23, 1990 , included in Civil Case No. 0002as additional parties-defendants herein Private Respondents Imelda Cojuangco,the estate of Ramon Cojuangco represented by its administratrix ImeldaCojuangco, and Prime Holdings, Inc. The amended complaint further alleged inter alia that these new defendants held shares of stock in PLDT, which"in truth and in fact belong to defendants Ferdinand Marcos and his family."Three years later, on May 4, 1993, private respondents filed in Civil Case No.0002 a Motion 8 seeking to declare the order of sequestration against PHIautomatically lifted. In support of their Motion, private respondents cited (1) thenon-observance by PCGG of its own rules and regulations requiring the authorityof at least two commissioners for the issuance of sequestration orders; and (2)the failure of PCGG to file the appropriate judicial action within the periodprescribed under Section 26, 9 Article XVIII of the 1987 Constitution, or "not later

than 2 August 1987," since the sequestration order was issued on May 9, 1986,which was "a date before the ratification of the Philippine Constitution on 2February 1987."On December 20, 1993, the first assailed Resolution of public respondent, whichgranted the above-mentioned Motion, was promulgated. The sequestrationorders against PHI and its shares of stock in PTIC were declared "automaticallylifted" by the Sandiganbayan, which upheld the movants' contentions in this wise:

WHEREFORE, the Order of Sequestration dated May 9,1986 directed (against) defendant Prime Holdings, Inc. andthe Order dated May 9, 1986 sequestering 111,415 sharesof stock of Philippine Telecommunications InvestmentCorporation registered in the name of Prime Holdings, Inc.are hereby declared automatically lifted pursuant to Section26 of Article XVIII of the 1987 Philippines Constitution. 10

Expectedly, PCGG filed a Motion for Reconsideration. 11 Noting that petitioner raised no new issue or matter that might materially affect its findings in itsprevious Resolution, public respondent denied said Motion "for lack of merit." 12 Hence, the present recourse. 13

The IssuesPetitioner PCGG charges Respondent Sandiganbayan with "grave abuse of discretion and act[ing] without jurisdiction," viz .:

I. In declaring the writs of sequestration

as defective for not being authorized byat least two commissioners pursuant toSection 3 of the PCGG Rules andRegulations.II. In declaring the writs of sequestrationto have been automatically lifted for alleged failure of petitioner to file theproper judicial action against privaterespondent corporation within the periodfixed in Section 26 of Article XVIII of the1987 Constitution.III. In applying the rulings in PCGG vs.International Copra Export Corp. (G.R.No. 92755, July 26, 1991) and Republic vs. Sandiganbayan (200 SCRA 530

[1991]) that the filing by petitioner of the judicial action against a stockholder isnot the judicial action contemplated bythe Constitution.IV. By misinterpreting or misapplying theruling in Filmerco vs. IAC (149 SCRA193 [1987]) as said ruling, being amere obiter dictum, had not overturnedthe application of the doctrine of "piercing the veil of corporate fiction" asheld in a long line of decisions by thisHonorable Court.14



Simply stated, the principal issues being raised by petitioner are: (1) the validityof the sequestration orders against PHI and PHI-held shares in PTIC; and (2) thealleged failure of PCGG to file the proper judicial action as contemplated under Section 26, Article XVIII of the 1987 Constitution.Before this Court, private respondents initially filed a motion 15 to dismiss thepetition on the ground of laches, the petition having been filed only after six and ahalf months from petitioner's receipt of the public respondent's denial of its

Motion for Reconsideration. They assert that this interval of time was clearlybeyond the "reasonable period" allowed under Rule 65 for filing a petitionfor certiorari . 16 Prior to the amendment of the Rules of Court on July 1, 1997, wehad ruled in several cases that three (3) months from receipt of the challengeddecision, order or resolution was a reasonable period within which to institutea certiorari proceeding. 17 Thus, in People vs. Magallanes, 18 the lapse of nine toten months before assailing a denial of bail was no longer consideredreasonable. Furthermore, in Cruz vs. Court of Appeals, 19 where certiorari wassought after more than two years, we held that there was unreasonable delay inthe filing of the petition. We also ruled that laches sets in after an interval of seven months 20 or of ninety-nine days 21 has passed since the rendition of theorder sought to be set aside.Indeed, if "three months" is to be used as the yardstick for filing an actionfor certiorari , the present petition should have been dismissed long ago. In view,however, of this Court's past pronouncements 22 that cases involving

sequestered corporations are "endowed with public interest and involve a matter of public policy"; and in order to dispose, once and for all, the recurring issuesherein raised, we (1) resolved on May 22, 1995, to note without action privaterespondents' Motion to Dismiss and (2) reiterated the March 25, 1995 Resolutionrequiring them to comment on the petition. In effect, the "three-month rule" wassuspended, but only in regard to this case.

The Court's Ruling After a careful study and analysis of both parties' arguments, as well as theapplicable law and jurisprudence, we find the petition to be without merit.

First Issue: Validity of Sequestration OrdersSigned by Only One Commissioner

Sec. 3 of the PCGG Rules and Regula tions, which took effect immediately after its promulgation on April 11, 1986, explicitly provides:

Sec. 3. Who may issue. A writ of sequestration or a freeze or hold order may be issued by the Commission upon the

authority of at least two Commissioners, based on theaffirmation or complaint of an interested party or motu

proprio when the Commission has reasonable grounds tobelieve that the issuance thereof is warranted.

Undisputed is the fact that only one commissioner, the late Mary ConcepcionBautista, signed the two sequestration orders subject of this petition. To supportits contention that there is no need for the signatures of two commissionersauthorizing said orders, petitioner submits this excerpt 23 from the minutes of aPCGG meeting held on October 15, 1987 :

The authority of at least two commissioners which isrequired under Sec. 3 of the PCGG Rules and Regulationsmay be written or verbal authority. Such authority may bereflected in the Minutes of the Commission Meeting held en

banc covering the pertinent recommendation/approval on theissuance of the order; or the Commissioner-in-chargeintending to issue the Order may simply obtain theconcurrence of another Commissioner after explaining theevidence supporting such order.It is sufficient for only one Commissioner to sign the Order "FOR THE COMMISSION". After April 11, 1986, the

Commission has encouraged the practice of twoCommissioners signing the Order.

Generally, the interpretation of an administrative government agency, which istasked to implement a statute, is accorded great respect and ordinarily controlsthe construction of the courts. 24 The reason behind this rule was explainedin Nestle Philippines, Inc vs. Court of Appeals 25 in this wise:

The rationale for this rule relates not only to the emergenceof the multifarious needs of a modern or modernizing societyand the establishment of diverse administrative agencies for addressing and satisfying those needs; it also relates to theaccumulation of experience and growth of specialized by theadministrative agency charged with implementing aparticular statute. In Asturias Sugar Central, Inc. vs.Commissioner of Customs 26 the Court stressed thatexecutive officials are presumed to have familiarized

themselves with all the considerations pertinent to themeaning and purpose of the law, and to have formed anindependent, conscientious and competent expert opinionthereon. The courts give much weight to the governmentagency or officials charged with the implementation of thelaw, their competence expertness, experience and informed

judgment, and the fact that they frequently are the drafters of the law they interpret.

As a general rule, contemporaneous construction is resorted to for certainty andpredictability in the laws, 27especially those involving specific terms havingtechnical meanings.However, courts will not hesitate to set aside such executive interpretation whenit is clearly erroneous, or when there is no ambiguity in the rule, 28 or when thelanguage or words used are clear and plain or readily understandable to anyordinary reader 29 without need for interpretation or construction.

The construction advanced by petitioner creates rather than clears ambiguity.The fair and sensible interpretation of the PCGG Rule in question is that theauthority given by two commissioners for the issuance of a sequestration, freezeor hold order should be evident in the order itself. Simply stated, the writ mustbear the signatures of two commissioners, because their signatures are the bestevidence of their approval thereof. Otherwise, the validity of such order will beopen to question and the very evil sought to be avoided — the use of spurious or fictitious sequestration orders — will persist. The corporation or entity againstwhich such writ is directed will not be able to visually determine its validity, unlessthe required signatures of at least two commissioners authorizing its issuanceappear on the very document itself. The issuance of sequestration ordersrequires the existence of a prima faciecase. The two-commissioner rule is



obviously intended to assure a collegial determination of such fact. In this light, awrit bearing only one signature is an obvious transgression of the PCGG Rules.Inasmuch as sequestration tends to impede or limit the exercise of proprietaryrights by private citizens, 30 it should be construed strictly against the state,pursuant to the legal maxim that statutes in derogation of common rights are ingeneral strictly construed and rigidly confined to cases clearly within their scopeand purpose. 31 As Mme. Justice Ameurfina Melencio-Herrera aptly said:

Sequestration is an extraordinary, harsh, and even severeremedy. It should be confined to its lawful parameters andexercised, with due regard, in the words of its enabling laws,to the requirements of fairness, due process, and justice. 32

Concededly, even the exercise of the "inherent and plenary" policepower of the state to impose restrictions on property rights is subject tothe conditions of reasonableness, public welfare, and necessity. 33

Furthermore, petitioner's attempted clarification of Section 3 of the PCGG Ruleswas made only on October 15, 1987, or a full year and six months from thepromulgation 34 of said Rules. Such clarification by the then commissioners wasobviously self-serving and cannot be given much value. Apparently, thecommissioners were simply trying to save face over their mistaken issuance of sequestration orders contrary to the very Rules they themselves had crafted andpromulgated. Even conceding for the nonce that the adverted Rule is indeedambiguous, the dictum is that such ambiguity should be taken contra

proferentem; that is, it should be construed against the party who had caused theambiguity and who could have avoided it by the exercise of a little more care. 35

Significantly, in that same meeting where the strained clarification of the subjectRule was made, the commissioners also affirmed that the signing of sequestration orders by two commissioners had already been encouraged after

April 11, 1986 , 36 presumably pursuant to the PCGG Rules which took effect onsaid date. This affirmation plainly bolsters the proposition that the real intentbehind the Rule was to require two commissioners to sign such orders. But still,on May 9, 1986, or only four weeks after the Rules had been promulgated, theCommission failed to heed its own declaration as proven by the signing of thequestioned writs by only one commissioner.

Republic vs. Dio Island Resort and Republic vs. Provident International ResourcesNot Applicable to the Present Case

At this Point, the present case will be examined and compared with two othersinvolving the validity of sequestration orders issued by less than two PCGGcommissioners: Republic vs. Sandiganbayan, Romualdez and Dio Island Resort , 37 ("Republic vs. Dio Island"), which voided the writ issued against theresort; and Republic vs. Sandiganbayan (Third Division), Provident International Resources Corp., and Phil. Casino Operators Corp. 38("Republic vs. Provident"),which upheld the writs issued against the respondent corporations.In Republic vs. Dio Island , the sequestration order was issued on April 14, 1986,by the head of the PCGG Task Force in Region VIII. Ruling that such issuanceby a non-commissioner was not valid, the Court explained that Section 3 of thePCGG Rules and Regulations, which is "couched in clear and simple language,leaves no room for interpretation. On the basis thereof, it is indubitable that under no circumstances can a sequestration or freeze order be validly issued by one

not a Commissioner of the PCGG." 39 Furthermore, "PCGG may not delegate toits representatives and subordinates its authority to sequester, and any suchdelegation is invalid and ineffective." 40In sum, not only was the authority of theofficial who issued the order absent; no such authority legally existed.In Republic vs. Provident , on the other hand, the questioned writ bore thesignature of only one commissioner, as in this case. Yet, the Court upheld itsvalidity for the reason that the writ was issued on March 19, 1986, before the

promulgation of the PCGG Rules and Regulations. In refusing to lift the writ, wereasoned that "we cannot reasonably expect the Commission to abide by saidrules which were nonexistent at the time the subject writ was issued by thenCommissioner Mary Concepcion Bautista. Basic is the rule that no statute,decree, ordinance, rule or regulation (or even policy) shall be given retrospectiveeffect unless explicitly stated so. We find no provision in said Rules whichexpressly gives them retroactive effect, or implies the abrogation of previouswrits issued not in accordance with the same Rules." 41 Thus, the writ signed byonly one commissioner was held valid.The rationale in Provident has no relevance or application to the instant case,since the writ bearing the sole signature of the late Commissioner Bautista wasissued after the promulgation and effectivity of the PCGG Rule requiring theauthority of at least two commissioners for the issuance of a sequestration order.Obviously, Section 3 of the PCGG Rules was intended to protect the public fromimprovident, reckless and needless sequestrations of private property. And since

these Rules were issued by Respondent Commission, it should be the first entityto observe them.

Letter to Law FirmNot a Sequestration Writ

Nor can we accord probative value to the communication signed byCommissioners Data and Bautista and addressed to Siguion Reyna, Montecillo &Ongsiako. First , this letter is definitely not a writ of sequestration; it does not evenpurport to be one. It merely relays the information to the said law firm, and not toPHI (the company purported to be sequestered), that the Commission hasresolved "(t)o order the sequestration of all the shareholdings of PRIMEHOLDINGS, INC." Second , the letter makes no reference to the questioned writas one that embodies the Resolution of the Commission ordering thesequestration of the shareholdings of PHI. Third , nothing in the records showsthat on the date the letter was written (May 9, 1986), the law firm to which it wasaddressed was the legal counsel of PHI on the matter at hand. And fourth, there

is no proof that said letter was received by the law firm for and on behalf of PHI.With all the above considerations, private respondents cannot be presumed tohave had constructive knowledge of the alleged sequestration order against PHI.

EO 2 not a General Writ of Sequestration

Petitioner also argues that Executive Order No. 2 42 (EO 2), issued on March 12,1986 by then President Corazon C. Aquino by virtue of her revolutionary powersunder the Freedom Constitution, partakes of a general freeze and sequestrationorder which cannot be lifted by this Court without. altogether nullifying the law.This contention is utterly without merit.The PCGG was created 43 precisely "with the task of assisting the President inregard to . . . matters" among which was "[t]he recovery of all ill-gotten wealthaccumulated by former President Ferdinand E. Marcos, his immediate family,



relatives, subordinates and close associates, whether located in the Philippinesor abroad, including the takeover or sequestration of all business enterprises andentities owned or controlled by them, during his administration, directly or throughnominees, by taking undue advantage of their public office and/or using their powers, authority, influence, connections or relationship." 44 More specifically, thePCGG was granted this power and authority:

to sequester or place or cause to be placed under its control

or possession any building or office wherein any ill-gottenwealth or properties may be found, and any recordspertaining thereto, in order to prevent their destruction,concealment or disappearance which would frustrate or hamper the investigation or otherwise prevent theCommission from accomplishing its task. 45

It appears, therefore, that while then President Corazon C. Aquino, through EO2, froze all assets and properties in the Philippines in which former PresidentMarcos and his wife, their close relatives, subordinates, business associates,dummies, agents, or nominees had any interest or participation, EO 1 is morespecific in delegating to the PCGG the power to issue writs of sequestrationWhile EO 2 is a general policy statement affirming the right and duty of thegovernment to recover ill-gotten wealth, 46 as well as a general notice to thepublic that it is pursuing such right, EO 1 gives authority to the PCGG toundertake the details to enable it to achieve such purpose. This is but logical,

because sequestration presupposes the existence of a prima facie case, 47 thedetermination of which lies with the PCGG which is vested with investigatorypowers pursuant to its mandate. 48Furthermore, by virtue of the requirements of due process, EO 1, by itself, obviously cannot be equated with an all-encompassing writ of sequestration, since it names no particular person or property against whom or which it is directed.

Second Issue: Respondents Impleaded Beyond Prescribed Period

Petitioner contends that there is no need (1) to file a separate action or (2) toindependently implead PHI in Civil Case No. 0002, because PTIC has alreadybeen included in the list of alleged ill-gotten wealth of defendants in said case. Tobuttress its position, petitioner cites Republic vs. Sandiganbayan (FirstDivision), 49 in which the Court, through Mr. Chief Justice Andres R. Narvasa,held:

1) Sec. 26, Article XVIII of the Constitution does not, by its

terms or any fair interpretation thereof, require thatcorporations or business enterprises alleged to berepositories of "ill-gotten wealth," as the term is used in saidprovision, be actually and formally impleaded in the actionsfor the recovery thereof, in order to maintain in effect existingsequestrations thereof;2) complaints for the recovery of ill-gotten wealth whichmerely identify and/or allege said corporations or enterprisesto be the instruments, repositories or the fruits of ill-gottenwealth, without more, come within the meaning of the phrase"corresponding judicial action or proceeding" contemplatedby the constitutional provision referred to; the more so, thatnormally, said corporations, as distinguished from their

stockholders or members, are not generally suable for thelatter's illegal or criminal actuations in the acquisition of theassets invested by them in the former;3) even assuming the impleading of said corporations to benecessary and proper so that judgment maycomprehensively and effectively be rendered in the actions,amendment of the complaints to implead them as

defendants may, under existing rules of procedure, be doneat any time during the pendency of the actions therebyinitiated, and even during the pendency of an appeal to theSupreme Court — a procedure that, in any case, is notinconsistent with or proscribed by the constitutional timelimits to the filing of the corresponding complaints "for "— i .e., with regard or in relation to, in respect of, or inconnection wit, or concerning — orders of sequestration,freezing, or provisional takeover . 50

Petitioner misapplies our above-quoted pronouncements. The filing of an actiondirectly against a sequestered corporation, or its impleading in a complaint for recovery of ill-gotten wealth, is not necessary when (1) a formal complaint hasalready been filed against the persons alleged to have unlawfully amassedwealth; (2) such complaint, whether in its body or in an attachment or annex,refers to specific funds or properties, among which is the sequestered entity or

asset; and (3) such complaint was filed within the period prescribed in Section26, Article XVIII of the Constitution. These requisites do nor obtain in the case atbar.First , the original Complaint for the recovery of ill-gotten wealth filed on July 16,1987, did not implead any of private respondents as parties thereto. Neither werethey included in the annexed list of alleged ill-gotten wealth. It was only on April23, 1990, via an amended Complaint, that Imelda Cojuangco, the estate of Ramon Cojuangco, and Prime Holdings, Inc., were made parties-defendants. Bythen, three years — well beyond the six months prescribed by the Constitution —had passed since the issuance of the sequestration orders against the PHI andthe PTIC shares it owned.Second , even if PTIC was listed in the Annex to the Complaint, it must beunderstood that the case refers only to the extent of the shares in PTIC illegallyacquired by the original defendants. As we stated in the aforecitedRepublic vs.Sandiganbayan (First Division): 51

As regards actions in which the complaints seek recovery of defendants' shares of stock in existing corporations (e.g.,San Miguel Corporation, Benguet Corporation, Meralco, etc.)allegedly purchased with misappropriated public funds, inbreach of fiduciary duty, or otherwise under illicit or anomalous conditions, the impleading of said firms wouldclearly appear to be unnecessary. If warranted by theevidence, judgments may be handed against thecorresponding defendants divesting them of ownership of their stock , the acquisition thereof being illegal andconsequently burdened with a constructive trust, andimposing on them the obligation of surrendering them to theGovernment.



Thus, whether PHI itself — an entirely different corporate entity, thougha major investor in PTIC — has shareholdings unlawfully or anomalously acquired, or whether it was organized with ill-gottenwealth, is a different matter. Notably, the individual respondents arethe registered owners of PHI and, as earlier stated, they had not beenincluded as original defendants in Civil Case No. 0002. The judicialaction against them was belatedly instituted long after the lapse of the

constitutional time frame.In its Memorandum, 52 petitioner vehemently argues that "although PHI was notinitially included in the enumeration of the ill-gotten wealth of the Marcoses . . . in

Annex A of the original complaint," it is enough that "PTIC and PLDT wereincluded in said list of ill-gotten wealth of the principal defendants." Thisargument is absolutely in contravention of the due process guarantee. PHI is acorporation completely separate from PTIC and PLDT. Indeed, it has apersonality distinct from said entities. Petitioner has shown no commonality inshareholding, management or operation among them. Neither has it alleged,much less proven, any ground why the separate corporate personality of PHIshould be set aside or pierced. And definitely, the most basic considerations of due process prevent a suit against PTIC and PLDT from adversely affecting andprejudicing the proprietary rights of PHI and its likewise unimpleadedshareholders. 53

Third , the filing of the amended Complaint on April 23, 1990 for the purpose of

specifically impleading PHI, Imelda Cojuangco and the estate of RamonCojuangco represented by its administratrix, as defendants, cannot be deemedto date back to the filing of the original Complaint and to thereby implycompliance with the constitutional provision. The filing of an amended pleadingdoes not retroact to the date of the filing of the original; hence, the statute of limitations runs until the submission of the amendment. 54

While it has been held that "an amendment which merely supplements andamplifies facts originally alleged in the complaint relates back to the date of thecommencement of the action and is nor barred by the statute of limitations whichexpired after the service of the original complaint," 55 such rule does not apply toa party who is impleaded for the first time in the amended complaint that wasfiled beyond the prescriptive period. 56

Prescription is a legal defense accorded any person against whom a judicialaction is belatedly brought after the lapse of the time specified by law. Here, it isthe Constitution itself which defines the period within which judicial proceedings

may be brought against sequestered entities. From the foregoing, it is clear thatno judicial action was instituted against the private respondents within theprescribed period.

All in all, the sequestration orders issued against private respondents and the111,415 shares of PTIC registered under the name of PHI must perforce bedeemed automatically lifted due to (1) the invalidity of the alleged sequestrationwrits themselves, owing to the non-observance of the PCGG Rule requiring theauthority of at least two commissioners; and, in any event, (2) the failure of PCGG to commence the proper judicial action, or to implead private respondentstherein, within the period prescribed by Section 26, Article XVIII of the 1987Constitution.

Corollary Matter : Disclosuresof Jose Yao Campos

Petitioner, in a desperate final attempt to justify the continued sequestration of PHI and the subject shares it owns in PTIC, invokes an alleged deposition of Jose Yao Campos declaring that former President Marcos was the true owner of PHI. This argument is irrelevant and immaterial to the present petition.The focal issues of this case pertain only to the validity of the sequestration order signed by just one commissioner and the timeliness of the judicial action againstprivate respondents. The substantive issue on whether PHI or the PTIC shares

are ill-gotten wealth is another matter and should be litigated in the main case for recovery and reconveyance (Civil Case No. 0002).The lifting of the writs of sequestration will not necessarily be fatal to the maincase. It is in the latter proceeding that Campos' testimony may be properlyoffered and its value and credit-worthiness appreciated. Even with the lifting of the sequestration orders against PHI and the PTIC shares, these properties maystill be recovered by the government upon substantial proof, proffered in theproper suit, that they indeed constitute unlawfully amassed wealth of theMarcoses and/or their conduits. The lifting of the subject orders does not ipsofacto mean that the sequestered properties are not ill-gotten; neither does itpreempt a finding to that effect in the main action.The effect of the lifting of the sequestration against PHI and the subject PTICshares will merely be the termination of the role of the government asconservator thereof. In other words, the PCGG may no longer exerciseadministrative or housekeeping powers, 57 and its nominees may no longer vote

the heretofore sequestered shares to enable them to sit on the corporate boardof the subject firm.In brief, sequestration is not the be-all and end-all of the efforts of thegovernment to recover unlawfully amassed wealth. The PCGG may still proceedto prove in the main suit who the real owners of these assets are. Besides, as wereasserted in Republic vs. Sandiganbayan, 58 the PCGG may still avail itself of ancillary writs, since "Sandiganbayan's jurisdiction over the sequestration casesdemands that it should also have the authority to preserve the subject matter of the cases, the alleged ill-gotten wealth properties . . . ."With the use of proper remedies and upon substantial proof, properties inlitigation may, when necessary, be placed in custodia legis for the completedetermination of the controversy or for the effective enforcement of the judgment.However, for violating the Constitution and its own Rules, the PCGG may nolonger exercise dominion and custody over Respondent Corporation and theshares it owns in PTIC.

Epilogue As stated earlier, sequestration is simply a provisional remedy; an extraordinarymeasure intended to prevent the destruction, concealment or dissipation of sequestered properties and, thereby, to conserve and preserve them, pendingthe judicial determination in the appropriate proceeding of whether the propertywas in truth ill-gotten. 59Sequestration effectively deprives, to a considerableextent, the ostensible or apparent owners of administrative powers and votingrights. Essentially then, sequestration intrudes into private rights.In the stead of the ostensible PCGG nominees vote the shares and sit on theboards of private corporations supposedly for the purpose only of "safeguarding"or "preserving" the sequestered assets until they are finally adjudicated. 60 Butbeyond such custodial powers, the PCGG must hurdle its more important task:



that of proving the ill-gotten nature of the sequestered assets and of causing their reversion or reconveyance to the people. 61

About twelve years have now passed since most of the sequestration ordersagainst corporations and assets, alleged to be unlawfully amassed by theMarcoses and their cronies, were issued; and the so-called "ill-gotten wealthcases" filed in the Sandiganbayan. Sadly, however, the substantiation of theclaim that they are in fact ill-gotten most often remains pendent. In the instant

case alone, the questioned sequestration orders were issued more than twelveyears ago; and Civil Case No. 0002 has been pending before the Sandiganbayanfor about eleven years now. Yet, we are still discussing the validity of suchorders.Undoubtedly, the PCGG has, in the past, reportedly 62 shown some success in:preventing improper dispositions of alleged ill-gotten properties in the UnitedStates; securing a landmark judgment in the Swiss Supreme Court turning over,albeit conditionally, certain "criminally acquired" bank deposits; entering intocompromises with certain respondents in a number of cases; and transmittingrecovered ill-gotten funds to the national treasury. Petitioner Commission,however, has yet to show its firm determination to prosecute to final resolutionany of the cases it. has dauntlessly filed in Philippine courts over a decade ago.Time and again, 63 we have prodded the petitioner and the Sandiganbayan tospeedily proceed with the hearings and resolutions of the main cases for recovery and reconveyance. It is about time that the PCGG, created with the

primary and paramount task of recovering ill-gotten weal th, act with deliberatedispatch on its primordial work of substantiating its claims and, thereby, performits bounden duty to the Filipino people: to render justice to all.

WHEREFORE, the petition is hereby DENIED for failure of pe titioner to showgrave abuse of discretion on the part of Respondent Court. The assailedResolutions of Respondent Sandiganbayan are hereby AFFIRMED.

SO ORDERED.

26.

Republic of the PhilippinesSUPREME COURT

ManilaSECOND DIVISION

G.R. No. 91889 August 27, 1993

MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO E. DULAY ANDNEPOMUCENO REDOVAN, petitioners,vs.THE HONORABLE COURT OF APPEALS, EDGARDO D. PABALAN,MANUEL A. TORRES, JR., MARIA THERESA V. VELOSO AND CASTRENSEC. VELOSO, respondents.

Virgilio E. Dulay for petitioners.

Torres, Tobias, Azura & Jocson for private respondents.

NOCON, J.:

This is a petition for review on certiorari to annul and set aside the decision 1 of the Court of Appeals affirming the decision 2 of the Regional Trial Court of Pasay, Branch 114 Civil Cases Nos. 8198-P, and 2880-P, the dispositive portionof which reads, as follows:

Wherefore, in view of all the foregoing considerations, in this Court herebyrenders judgment, as follows:

In Civil Case No. 2880-P, the petition filed by Manuel R. Dulay Enterprises, Inc.and Virgilio E. Dulay for annulment or declaration of nullity of the decision of theMetropolitan Trial Court, Branch 46, Pasay City, in its Civil Case No. 38-81entitled "Edgardo D. Pabalan, et al., vs. Spouses Florentino Manalastas, et al.,"is dismissed for lack of merits;

In Civil Case No. 8278-P, the complaint filed by Manuel R. Dulay Enterprises,

Inc. for cancellation of title of Manuel A. Torres, Jr. (TCT No. 24799 of theRegister of Deeds of Pasay City) and reconveyance, is dismissed for lack or merit, and,

In Civil Case No. 8198-P, defendants Manuel R. Dulay Enterprises, Inc. andVirgilio E. Dulay are ordered to surrender and deliver possession of the parcel of land, together with all the improvements thereon, described in Transfer Certificate of Title No. 24799 of the Register of Deeds of Pasay Ci ty, in favor of therein plaintiffs Manuel A. Torres, Jr. as owner and Edgardo D. Pabalan as realestate administrator of said Manuel A. Torres, Jr.; to account for and return tosaid plaintiffs the rentals from dwelling unit No. 8-A of the apartment building(Dulay Apartment) from June 1980 up to the present, to indemnify plaintiffs,

jointly and severally, expenses of litigation in the amount of P4,000.00 and



attorney's fees in the sum of P6,000.00, for all the three (3) cases. Co-defendantNepomuceno Redovan is ordered to pay the current and subsequent rentals onthe premises leased by him to plaintiffs.

The counterclaim of defendants Virgilio E. Dulay and Manuel R. DulayEnterprises, Inc. and N. Redovan, dismissed for lack of merit. With costs againstthe three (3) aforenamed defendants. 3

The facts as found by the trial court are as follows:

Petitioner Manuel R. Dulay Enterprises, Inc, a domestic corporation with thefollowing as members of its Board of Directors: Manuel R. Dulay with 19,960shares and designated as president, treasurer and general manager, Atty.Virgilio E. Dulay with 10 shares and designated as vice-president; Linda E. Dulaywith 10 shares; Celia Dulay-Mendoza with 10 shares; and Atty. Plaridel C. Josewith 10 shares and designated as secretary, owned a property covered by TCTNo. 17880 4 and known as Dulay Apartment consisting of sixteen (16) apartmentunits on a six hundred eighty-nine (689) square meters lot, more or less, locatedat Seventh Street (now Buendia Extension) and F.B. Harrison Street, Pasay City.

Petitioner corporation through its president, Manuel Dulay, obtained variousloans for the construction of its hotel project, Dulay Continental Hotel (now

Frederick Hotel). It even had to borrow money from petitioner Virgilio Dulay to beable to continue the hotel project. As a result of said loan, petitioner Virgilio Dulayoccupied one of the unit apartments of the subject property since property since1973 while at the same time managing the Dulay Apartment at his shareholdingsin the corporation was subsequently increased by his father. 5

On December 23, 1976, Manuel Dulay by virtue of Board ResolutionNo 18 6 of petitioner corporation sold the subject property to private respondentsspouses Maria Theresa and Castrense Veloso in the amount of P300,000.00 asevidenced by the Deed of Absolute Sale. 7 Thereafter, TCT No. 17880 wascancelled and TCT No. 23225 was issued to private respondent Maria TheresaVeloso. 8 Subsequently, Manuel Dulay and private respondents spouses Velosoexecuted a Memorandum to the Deed of Absolute Sale of December 23, 1976 9dated December 9, 1977 giving Manuel Dulay within (2) years or until December 9, 1979 to repurchase the subject property for P200,000.00 which was, however,

not annotated either in TCT No. 17880 or TCT No. 23225.

On December 24, 1976, private respondent Maria Veloso, without the knowledgeof Manuel Dulay, mortgaged the subject property to private respondent Manuel

A. Torres for a loan of P250,000.00 which was duly annotated as Entry No.68139 in TCT No. 23225. 10

Upon the failure of private respondent Maria Veloso to pay private respondentTorres, the subject property was sold on April 5, 1978 to private respondentTorres as the highest bidder in an extrajudicial foreclosure sale as evidenced bythe Certificate of Sheriff's Sale 11 issued on April 20, 1978.

On July 20, 1978, private respondent Maria Veloso executed a Deed of Absolute Assignment of the Right to Redeem 12 in favor of Manuel Dulay assigning her right to repurchase the subject property from private respondent Torres as aresult of the extra sale held on April 25, 1978.

As neither private respondent Maria Veloso nor her assignee Manuel Dulay wasable to redeem the subject property within the one year statutory period for

redemption, private respondent Torres filed an Affidavit of Consolidation of Ownership 13 with the Registry of Deeds of Pasay City and TCT No. 24799 14was subsequently issued to private respondent Manuel Torres on April 23, 1979.

On October 1, 1979, private respondent Torres filed a petition for the issuance of a writ of possession against private respondents spouses Veloso and ManuelDulay in LRC Case No. 1742-P. However, when petitioner Virgilio Dulay wasnever authorized by the petitioner corporation to sell or mortgage the subjectproperty, the trial court ordered private respondent Torres to implead petitioner corporation as an indispensable party but the latter moved for the dismissal of hispetition which was granted in an Order dated April 8, 1980.

On June 20, 1980, private respondent Torres and Edgardo Pabalan, real estateadministrator of Torres, filed an action against petitioner corporation, VirgilioDulay and Nepomuceno Redovan, a tenant of Dulay Apartment Unit No. 8-A for

the recovery of possession, sum of money and damages with preliminaryinjunction in Civil Case, No. 8198-P with the then Court of First Instance of Rizal.

On July 21, 1980, petitioner corporation filed an action against privaterespondents spouses Veloso and Torres for the cancellation of the Certificate of Sheriff's Sale and TCT No. 24799 in Civil Case No. 8278-P with the then Court of First Instance of Rizal.

On January 29, 1981, private respondents Pabalan and Torres filed an actionagainst spouses Florentino and Elvira Manalastas, a tenant of Dulay ApartmentUnit No. 7-B, with petitioner corporation as intervenor for ejectment in Civil CaseNo. 38-81 with the Metropolitan Trial Court of Pasay City which rendered adecision on April 25, 1985, dispositive portion of which reads, as follows:

Wherefore, judgment is hereby rendered in favor of the plaintiff (herein private

respondents) and against the defendants:

1. Ordering the defendants and all persons claiming possession under them to vacate the premises.

2. Ordering the defendants to pay the rents in the sum of P500.000 amonth from May, 1979 until they shall have vacated the premises with interest atthe legal rate;

3. Ordering the defendants to pay attorney's fees in the sum of P2,000.00and P1,000.00 as other expenses of litigation and for them to pay the costs of thesuit. 15



Thereafter or on May 17, 1985, petitioner corporation and Virgilio Dulay filed anaction against the presiding judge of the Metropolitan Trial Court of Pasay City,private respondents Pabalan and Torres for the annulment of said decision withthe Regional Trial Court of Pasay in Civil Case No. 2880-P.

Thereafter, the three (3) cases were jointly tried and the trial court rendered adecision in favor of private respondents.

Not satisfied with said decision, petitioners appealed to the Court of Appealswhich rendered a decision on October 23, 1989, the dispositive portion of whichreads, as follows:

PREMISES CONSIDERED, the decision being appealed should be as it ishereby AFFIRMED in full. 16

On November 8, 1989, petitioners filed a Motion for Reconsideration which wasdenied on January 26, 1990.

Hence, this petition.

During the pendency of this petition, private respondent Torres died on April 3,1991 as shown in his death certificate 17 and named Torres-Pabalan Realty &

Development Corporation as his heir in his holographic will 18 dated October 31,1986.

Petitioners contend that the respondent court had acted with grave abuse of discretion when it applied the doctrine of piercing the veil of corporate entity inthe instant case considering that the sale of the subject property between privaterespondents spouses Veloso and Manuel Dulay has no binding effect onpetitioner corporation as Board Resolution No. 18 which authorized the sale of the subject property was resolved without the approval of all the members of theboard of directors and said Board Resolution was prepared by a person notdesignated by the corporation to be its secretary.

We do not agree.

Section 101 of the Corporation Code of the Philippines provides:

Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws provide otherwise, any action by the directors of a close corporation withouta meeting shall nevertheless be deemed valid if:

1. Before or after such action is taken, written consent thereto is signedby all the directors, or

2. All the stockholders have actual or implied knowledge of the action andmake no prompt objection thereto in writing; or

3. The directors are accustomed to take informal action with the expressor implied acquiese of all the stockholders, or

4. All the directors have express or implied knowledge of the action inquestion and none of them makes prompt objection thereto in writing.

If a directors' meeting is held without call or notice, an action taken therein withinthe corporate powers is deemed ratified by a director who failed to attend, unlesshe promptly files his written objection with the secretary of the corporation after

having knowledge thereof.

In the instant case, petitioner corporation is classified as a close corporation andconsequently a board resolution authorizing the sale or mortgage of the subjectproperty is not necessary to bind the corporation for the action of its president. Atany rate, corporate action taken at a board meeting without proper call or noticein a close corporation is deemed ratified by the absent director unless the latter promptly files his written objection with the secretary of the corporation after having knowledge of the meeting which, in his case, petitioner Virgilio Dulayfailed to do.

It is relevant to note that although a corporation is an entity which has apersonality distinct and separate from its individual stockholders or members, 19the veil of corporate fiction may be pierced when it is used to defeat publicconvenience justify wrong, protect fraud or defend crime. 20 The privilege of

being treated as an entity distinct and separate from its stockholder or membersis therefore confined to its legitimate uses and is subject to certain limitations toprevent the commission of fraud or other illegal or unfair act. When thecorporation is used merely as an alter ego or business conduit of a person, thelaw will regard the corporation as the act of that person. 21 The Supreme Courthad repeatedly disregarded the separate personality of the corporation where thecorporate entity was used to annul a valid contract executed by one of itsmembers.

Petitioners' claim that the sale of the subject property by its president, ManuelDulay, to private respondents spouses Veloso is null and void as the allegedBoard Resolution No. 18 was passed without the knowledge and consent of theother members of the board of directors cannot be sustained. As correctlypointed out by the respondent Court of Appeals:

Appellant Virgilio E. Dulay's protestations of complete innocence to the effect thathe never participated nor was even aware of any meeting or resolutionauthorizing the mortgage or sale of the subject premises (see par. 8, affidavit of Virgilio E. Dulay, dated May 31, 1984, p. 14, Exh. "21") is difficult to believe. Onthe contrary, he is very much privy to the transactions involved. To begin with, heis a incorporator and one of the board of directors designated at the time of theorganization of Manuel R. Dulay Enterprise, Inc. In ordinary parlance, the saidentity is loosely referred to as a "family corporation". The nomenclature, if imprecise, however, fairly reflects the cohesiveness of a group and the parochialinstincts of the individual members of such an aggrupation of which Manuel R.Dulay Enterprises, Inc. is typical: four-fifths of its incorporators being closerelatives namely, three (3) children and their father whose name identifies their



corporation (Articles of Incorporation of Manuel R. Dulay Enterprises, Inc. Exh."31-A"). 22

Besides, the fact that petitioner Virgilio Dulay on June 24, 1975 executed anaffidavit 23 that he was a signatory witness to the execution of the post-datedDeed of Absolute Sale of the subject property in favor of private respondentTorres indicates that he was aware of the transaction executed between his

father and private respondents and had, therefore, adequate knowledge aboutthe sale of the subject property to private respondents.

Consequently, petitioner corporation is liable for the act of Manuel Dulay and thesale of the subject property to private respondents by Manuel Dulay is valid andbinding. As stated by the trial court:

. . . the sale between Manuel R. Dulay Enterprises, Inc. and the spouses MariaTheresa V. Veloso and Castrense C. Veloso, was a corporate act of the former and not a personal transaction of Manuel R. Dulay. This is so because Manuel R.Dulay was not only president and treasurer but also the general manager of thecorporation. The corporation was a closed family corporation and the only non-relative in the board of directors was Atty. Plaridel C. Jose who appeared onpaper as the secretary. There is no denying the fact, however, that Maria SocorroR. Dulay at times acted as secretary. . . ., the Court can not lose sight of the fact

that the Manuel R. Dulay Enterprises, Inc. is a closed family corporation wherethe incorporators and directors belong to one single family. It cannot beconcealed that Manuel R. Dulay as president, treasurer and general manager almost had absolute control over the business and affairs of the corporation. 24

Moreover, the appellate courts will not disturb the findings of the trial judgeunless he has plainly overlooked certain facts of substance and value that, if considered, might affect the result of the case, 25 which is not present in theinstant case.

Petitioners' contention that private respondent Torres never acquired ownershipover the subject property since the latter was never in actual possession of thesubject property nor was the property ever delivered to him is also without merit.

Paragraph 1, Article 1498 of the New Civil Code provides:

When the sale is made through a public instrument, the execution thereof shallbe equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary do not appear or cannot clearly be inferred.

Under the aforementioned article, the mere execution of the deed of sale in apublic document is equivalent to the delivery of the property. Likewise, this Courthad held that:

It is settled that the buyer in a foreclosure sale becomes the absolute owner of the property purchased if it is not redeemed during the period of one year after the registration of the sale. As such, he is entitled to the possession of the saidproperty and can demand it at any time following the consolidation of ownership

in his name and the issuance to him of a new transfer certificate of title. Thebuyer can in fact demand possession of the land even during the redemptionperiod except that he has to post a bond in accordance with Section 7 of Act No.3133 as amended. No such bond is required after the redemption period if theproperty is not redeemed. Possession of the land then becomes an absolute rightof the purchaser as confirmed owner. 26

Therefore, prior physical delivery or possession is not legally required since theexecution of the Deed of Sale in deemed equivalent to delivery.

Finally, we hold that the respondent appellate court did not err in denyingpetitioner's motion for reconsideration despite the fact that private respondentsfailed to submit their comment to said motion as required by the respondentappellate court from resolving petitioners' motion for reconsideration without thecomment of the private respondent which was required merely to aid the court inthe disposition of the motion. The courts are as much interested as the parties inthe early disposition of cases before them. To require otherwise wouldunnecessarily clog the courts' dockets.

WHEREFORE, the petition is DENIED and the decision appealed from is hereby AFFIRMED.

SO ORDERED.

27.G.R. No. 89804 October 23, 1992

CALVIN S. ARCILLA, petitioner,vs.THE HONORABLE COURT OF APPEALS and EMILIO RODULFO, respondents.

DAVIDE, JR., J.:

This petition is a belated attempt to avoid the adverse amended decision of public respondent, promulgated on 31 May 1989 in C.A.-G.R. No. 11389, 1 on

the ground that petitioner is not personally liable for the amount adjudged sincethe same constitutes a corporate liability which nevertheless cannot even bind or be enforced against the corporation because it is not a party in the collection suitfiled before the trial court.

The procedural antecedents are not complicated.

On 4 June 1985, private respondent filed with the Regional Trial Court (RTC) of Catanduanes a complaint for a sum of money against petitioner. 2 The case wasdocketed as Civil Case No. 1992 and was assigned to Branch 42 thereof. It isalleged therein:

xxx xxx xxx



3. That from late 1981 up to early 1983, the defendant, taking advantageof his close friendship with the plaintiff, succeeded in securing on credit from theplaintiff, various items, cash and checks which the defendant encashed, in thetotal amount of P93,358.51, which the plaintiff willingly extended because of therepresentations of the defendant that he was a successful financial consultant of local and international businessmen;

4. That defendant's indebtedness referred to in the next precedingparagraph, is shown and described in thirty (30) "vales" signed by him or bypersons authorized by him, all of which documents are in the possession of theplaintiff for being unredeemed or unpaid, xerox copies attached as Annexes "A"to "Z" and "AA" to "DD" which are hereby made integral parts hereof;

5. That commencing with the summer months of 1983 up to the timeimmediately before the filing of this complaint, the plaintiff had made numerousdemands for payment but the respondent acted in gross and evident bad faith inrefusing to satisfy the plaintiff's plainly valid, just and demandable claim;

6. That the plaintiff is left without any recourse other than to enforce hisclaim in court and had to secure the services of the undersigned counsel whocharged the plaintiff with P1,000.00 for accepting the case, P200.00 appearance

fee for every appearance before this Court, and attorney's contingent fee of 25%of the award in favor of the plaintiff; plaintiff shall incur litigation expenses whichmay amount to no less than P5,000.00, all of which amounts are recoverablefrom the defendant.

In his Answer, 3 petitioner does not deny having had business transactions withthe private respondent but alleges that the professional relationship began only in

August of 1982 when he "was looking for a "pro-forma" invoice to suppor t hisloan with the Kilusang Kabuhayan at Kaunlaran (KKK for short) under theMinistry of Human Settlement (sic)." 4 He explicitly admits that "(H)is loan was inthe same of his family corporation, CSAR Marine Resources,Inc.;" 5 however, the "vales", more specifically Annexes "A" to "DD" of thecomplaint, "were liquidated in the bank loan releases." 6 It is thus clear that hismain defense is payment; he did not interpose any other affirmative defense.

In his Pre-Trial Brief, 7 petitioner reiterated the earlier claim that his first businessdealing with the plaintiff (private respondent herein) was in August of 1982. Thistime, however, he alleges that "as President of CSAR Marine Resources, Inc., herequested for a pro-forma Invoice for said corporation to support the loanapplication with the Kilusang Kabuhayan at Kaunlaran (KKK for short), with theMinistry of Human Settlement (sic)." 8

In its Decision of 1 August 1986, 9 the trial court made the following findings of fact:

Defendant admitted the genuineness (sic) and due execution of Exhibits "A" to"DD" but, according to him, he already paid plaintiff P56,098.00 thru PNB ViracBranch, per Cash Voucher dated September 28, 1982 (Exh. 3) and then

P42,363.75 also thru PNB Virac Branch, per PNB check No. 628861K datedDecember 16, 1982 (Exh. 1).

Analyzing the evidence adduced by both parties, it ruled that since Exhibit "3" isdated 28 September 1982 and the "vales", Exhibits "A" to "DD", with theexception of Exhibits "K" in the amount of P1,730.00 and "Q" in the amount of P10,765.00, were issued after said date, it could not have been in payment of the

"vales" other than that evidenced by Exhibits "K" and "Q" Considering, however,that the "vales" remained in the possession of the private respondent, they arepresumed to remain unpaid; in fact, private respondent so testified that they werenot paid at all. The court therefore ordered petitioner to pay private respondent:

(a) the total amount of P92,358.43 covered by the "vales", plus interestthereon at the rate of twelve (12%) per cent per annum from June 4, 1985 whenthe complaint was filed;

(b) P9,000.00 for and as attorney's fees; and

(c) the cost of suit. 10

Petitioner appealed this decision to the public respondent which docketed thecase as C.A.-G.R. CV No. 11389.

The public respondent affirmed the trial court's decision in its Decision of 14January 1988. 11 As could be gleaned therefrom, petitioner's assigned errors areas follows:

. . . defendant raised as error of the court a quo in (sic) holding that the "vales"(Exhs. A to DD) have not been paid; that the presumption in favor of the plaintiff-appellee that since he was in possession of the "vales" the same have not beenpaid, remained undisputed; that the total transaction between the parties amountto more than P200,000.00; and in rendering a decision in favor of the plaintiff-appellee plus the award of attorney's fees in his favor. 12

On 5 February 1988, petitioner filed a motion to reconsider the aforesaid decision13 alleging therein, inter alia, that (a) the evidence showing payment of the"vales" is "uncontroverted", hence the presumption that they were not paid simply

because they remain in the possession of the creditor cannot arise; (b) thealleged non-payment of the "vales" could have been further explained if the trialcourt gave the appellant the opportunity to present sur-rebuttal witness anddocumentary evidence; besides, he has newly discovered evidence — invoked ina prayer for a new trial that was nevertheless denied by the lower court — whichconsists of a letter, dated 7 February 1983, signed by Rafael Rodulfo, GeneralManager of the private respondent and addressed to Brig. Gen. ClementeRacela, then KKK General Action Officer, categorically stating that "the accountof CSAR Marine Resources, Inc. c/o Atty. Calvin Arcilla" is only P23,639.33; and(c) the evidence presented by both parties disclosure that "the subject accountare (sic) all in the name of CSAR MARINE RESOURCES, INC., a corporationseparate and distinct from the appellant;" such fact remains "uncontroverted" as



shown by Exhibits "1", "3", "A" to "DD" adopted as Exhibits "7" to "25" for theappellant." 14 He then prays that:

. . . considering that appellees was not able to prove by preponderance of evidence the alleged unpaid account of appellant, the decision promulgated onJanuary 14, 1988 be RECONSIDERED and a new one be entered REVERSINGthe lower court decision and thereby ordering the DISMISSAL of plaintiff-

appellee's complaint, with damages and costs against appellee.

In the remote possibility, that the appellee's complaint cannot be dismissedoutrightly, it is further prayed that his Honorable Tribunal orders (sic) a new trialfor appellant to present additional evidence he wanted to present in his motionfor new trial. 15

xxx xxx xxx

Reacting to this motion, private respondent, in a "Manifestation dated 7 February1988, informed the public respondent that in the interest of justice and fair play,he interposes no objection to the alternative prayer for a new trial. 16 Hearingwas thereafter conducted to receive the petitioner's so-called newly discoveredevidence consisting of the abovementioned letter of Rafael Rodulfo, dated 7February 1983, to General Clemente A. Racela (Exh. "1"-Motion) wherein the

former, as General Manager of private respondent's Universal Enterprises,informed the latter that:

. . . Csar Marine Resources, Inc. c/o Atty. Calvin Arcilla has an outstandingobligation of TWENTY THREE THOUSAND SIX PESOS to Universal Enterprisesas a result of various purchases of construction materials. 17

Thereafter, on 31 May 1989, the public respondent promulgated an AmendedDecision, 18 the dispositive portion of which reads as follows:

WHEREFORE, the decision of this Court promulgated on January 14, 1988 ishereby reconsidered and a new one rendered, ordering defendant-appellant topay plaintiff-appellee in his capacity as President of Csar Marine Resources, Inc.the outstanding balance of P23,639.33 to Universal Enterprises, owned andoperated by plaintiff-appellee, plus interest at 12% per annum from June 4, 1985

when the complaint was filed; attorney's fees of P1,000.00, P200.00 per courtappearance of counsel and 25% of the amount awarded; plus the costs of thesuit. 19

On 4 January 1989, petitioner filed a Motion For Clarificatory Judgment 20alleging therein that:

3. It is very clear from the findings of this Honorable Court contained inthe amended decision promulgated on May 31, 1989 that:

3.1. Defendant Calvin S. Arcilla never had any personal businesstransaction (sic) in the plaintiff;

3.2. Csar Marine Resources, Inc. has an outstanding balance in theamount of P23,636.33 with plaintiff-appellee out of the KKK loan transaction;

3.3. Csar Marine Resources, Inc. is not a party in this case;

xxx xxx xxx

5. It is rather confusing (sic) that defendant-appellant is ordered to payplaintiff-appellee in his capacity as President of Csar Marine Resources, Inc. thesaid amount of P23,639.33, when plaintiff-appellee for ulterior motives choose(sic) not to implead said corporation. It need not be emphasized that thepersonality and liability of the defendant-appellant and that of Csar MarineResources, Inc., as a corporation, are separate and distinct from its (sic) other. . .. . 21

He then prays that:

. . . an order be issued clarifying the liability of defendant-appellant in hispersonal capacity as regards the amount of P23,639.33, if any, otherwise, thecase be dismissed against him. 22

Public respondent denied this motion in its Resolution of 17 August

1989 23 on these grounds: (a) the veil of corporate fiction should be pierced inthis case; (b) since petitioner did not raise the issue of separate corporate identityin the pleadings in the trial court or in his Brief, he cannot raise it for the first timein a Motion for Clarificatory Judgment; in his answer to paragraphs 3 and 4 of thecomplaint, he admits that it was he and not his corporation who transactedbusiness with the private respondent; and (c) the "vales" refer not only toconstruction materials for which the loan to Csar Marine Resources, Inc. wassupposed to be used, but also to consumables such as salt, rice, food seasoning,cigarettes, coffee, etc.; this indicates that the petitioner himself did not seriouslytreat the corporate affairs of Csar Marine Resources, Inc. as separate anddistinct from his own.

Not satisfied with the Resolution, petitioner filed this petition. He alleges thereinthat respondent Court of Appeals:

I

. . . ERRED IN HOLDING CSAR MARINE RESOURCES, INC., A DOMESTICCORPORATION DULY ORGANIZED ACCORDING TO LAW, WHEREPETITIONER THE PRESIDENT (sic), LIABLE TO THE PRIVATERESPONDENT IN THE AMOUNT AWARDED IN THE APPEALED DECISIONWITHOUT BEING IMPLEADED AS A PARTY IN THE CASE IN VIOLATION OFLAW AND THE APPLICABLE DECISIONS OF THE SUPREME COURT; and

II

. . . IN NOT DISMISSING THE CASE AGAINST THE PETITIONER. 24



After the filing of the Comment, the Reply thereto and the Rejoinder to the latter,this Court gave due course to the petition and required the parties to submit their respective Memoranda. 25

The records bear nothing to prop up the instant petition. The arguments adducedby the petitioner breathe no life to it.

On the contrary, the pleadings lead Us to the inescapable conclusion that thepetitioner, who is himself a lawyer, is merely taking advantage of the use of theinnocuous phrase "in his capacity as President" found in the dispositive portion of the challenged Amended Decision — making the same a sanctuary for a defensewhich he, as hereinafter discussed, had long since abandoned or waived either deliberately or through his obliviscence. His sole purpose, of course, is to avoidcomplying with the liability adjudged against him by the public respondent; suchavoidance is premiered on the so-called newly discovered evidence offered after the public respondent had bent over backwards to grant him a new trial despitethe availability of such evidence during pendency of the proceedings before thetrial court. It is to be noted that he failed to assign as error in his Brief the denialby the said court of his motion for new trial on the basis thereof.

The grant of affirmative relief based on the first assigned error would reallyredound to the benefit of an entirety which was not made a party in the main

case and which did not seek to intervene therein. Therefore, it has no personalityto seek as review of the public respondent's Amended Decision under Rule 45 of the Rules of Court. Only the original parties to the main case may do so. 26Moreover, by no stretch of even the most fertile imagination may one be able toconclude that the challenged Amended Decision directed Csar MarineResources, Inc. to pay the amounts adjudge. By its clear and unequivocallanguage, it is the petitioner who was declared liable therefor and consequentlymade to pay. That the latter was ordered to do so as president of the corporationwould not free him from the responsibility of paying the due amount simplybecause according to him, he had ceased to be corporate president; suchconclusion stems from the fact that the public respondent, in resolving his motionfor clarificatory judgment, pierced the veil of corporate fictional and cast aside thecontention that both he and the corporation have separate and distinctpersonalities. In short, even if We are to assume arguendo that the obligationwas incurred in the name of the corporation, the petitioner would still be

personally liable therefor because for all legal intents and purposes, he and thecorporation are one and the same. Csar Marine Resources, Inc. is nothing morethan his business conduit and alter ego. The fiction of a separate juridicalpersonality conferred upon such corporation by law should be disregarded. 27Significantly, petitioner does not seriously challenge the public respondent'sapplication of the doctrine which permits the piercing of the corporate veil and thedisregarding of the fiction of a separate juridical personality; this is because heknows only too well that from the very beginning, he merely used the corporationfor his personal purposes.

In his answer to the complaint, petitioner volunteered the information that the pro-forma invoice which he obtained from the private respondent and which became

the source of the obligations reflected in the "vales" was to support his loan. Hestates in part:

. . . when defendant was looking for a "pro-forma" invoice to support his loan withthe Kilusang Kabuhayan at Kaunlaran . . . His loan was in the name of his familycorporation, CSAR Marine Resources, Inc. . . . . 28

That it was indeed his loan is further borne out by his allegations therein part:

(a) The accounting between plaintiff and defendant, however, was notclosed because adjustments were needed in the following points: 29

(b) 5. While it is true tha t plain tiff made demands for payment of analleged balance of P23,000.00 in March 1983, which demand was even coursedthru the KKK Regional and Provincial Offices, after the demand of P23,000.00defendant paid additional P5,000.00 cash to plaintiff. 30

In his motion to reconsider the public respondent's original decision, petitioner becomes more candid in his admissions that indeed, the transaction with theprivate respondent and the loan obtained previously were for his personalaccount. Thus he asserts that:

(a) the first document made between appellee and appellant was the pro-forma invoice. 31

(b) [c]considering that appellant had already an approved loan and wasready for release . . . . 32

Moreover, petitioner neglected to set up in his Answer the defense that he is notpersonally liable to private respondent because the "vales" were corporateobligations of Csar Marine Resources, Inc.. Of course, that defense would havebeen inconsistent with his volunteered admission that the KKK loan — whichresulted in the procurement of the pro-forma invoice from the private respondent— was for his benefit. In any case, the failure to set it up as an affirmativedefense amounted to a waiver thereof. Section 2, Rule 9 of the Rules of Courtexpressly proved that defenses and objections, other than the failure to state acause of action and lack of jurisdiction, not pleaded either in a motion to dismiss

or in the answer are deemed waved. Petitioner, as a lawyer, knows or issupposed to know this rule. Since he prepared the Answer himself, We cannotthink of any possible reason why he failed to set up this defense other than hisrealization of its inherent weakness or his outright inexcusable negligence of forgetfulness. And even if it were due to inadvertence, he could still havesubsequently availed of Section 2, Rule 10 of the Rules of Court which allows aparty to amend his answer as a matter of right within the period therein stated.Failing that, he could have resorted to Section 3 thereof which allows the makingof amendments upon leave of court. On the other hand, if the lapse was due toforgetfulness, it is just unfortunate that he did not exercise due diligence in theconduct of his won affairs. He can expect no reward for it.



Then too, as correctly noted by the public respondent, petitioner, in his Brief, didnot assign as error the holding of the trial court that he is solely liable for theobligation.

Petitioner's volunteered admission that he procured the pro-forma invoice fromthe private respondent in connection with his loan from the KKK, using his familycorporation in the process, and his deliberate waiver of the aforementioned

defense provide an insurmountable obstacle to the viability of this petition.

WHEREFORE, for utter lack of merit, the instant petition is DENIED with costsagainst petitioner.

This decision is immediately executory.

SO ORDERED.

28.G.R. No. L-42091 November 2, 1935

GONZALO CHUA GUAN, plaintiff-appellant,

vs.SAMAHANG MAGSASAKA, INC., and SIMPLICIO OCAMPO, ADRIANO G.SOTTO, and EMILIO VERGARA, as president, secretary and treasurer respectively of the same, defendants-appellees.

Buenaventura C. Lopez for appellant.Domingo L. Vergara for appellees.

BUTTE, J.:

This is an appeal from a judgment of the Court of First Instance of NuevaEcija in an action for a writ of mandamus. The case is remarkable for thefollowing reason: that the parties entered into a stipulation in which the

defendants admitted all of the allegations of the complaint and the plaintiff admitted all of the special defenses in the answer of the defendants, and on thisstipulation they submitted the case for decision.

The complaint alleges that the defendant Samahang Magsasaka, Inc., is acorporation duly organized under the laws of the Philippine Islands with principaloffice in Cabanatuan, Nueva Ecija, and that the individual defendants are thepresident, secretary and treasurer respectively of the same; that on June 18,1931, Gonzalo H. Co Toco was the owner of 5,894 shares of the capital stock of the said corporation represented by nine certificates having a par value of P5 per share; that on said date Gonzalo H. Co Toco, a resident of Manila, mortgagedsaid 5,894 shares to Chua Chiu to guarantee the payment of a debt of P20,000due on or before June 19, 1932. The said certificates of stock were delivered with

the mortgage to the mortgagee, Chua Chiu. The said mortgage was dulyregistered in the office of the register of deeds of Manila on June 23, 1931, and inthe office of the said corporation on September 30, 1931.

On November 28, 1931, Chua Chiu assigned all his right and interest inthe said mortgage to the plaintiff and the assignment was registered in the officeof the register of deeds in the City of Manila on December 28, 1931, and in the

office of the said corporation on January 4, 1932.

The debtor, Gonzalo H. Co Toco, having defaulted in the payment of saiddebt at maturity, the plaintiff foreclosed said mortgage and delivered thecertificates of stock and copies of the mortgage and assignment to the sheriff of the City of Manila in order to sell the said shares at public auction. The sheriff auctioned said 5,894 shares of stock on December 22, 1932, and the plaintiff having been the highest bidder for the sum of P14,390, the sheriff executed in hisfavor a certificate of sale of said shares.

The plaintiff tendered the certificates of stock standing in the name of Gonzalo H. Co Toco to the proper officers of the corporation for cancellation anddemanded that they issue new certificates in the name of the plaintiff. The saidofficers (the individual defendants) refused and still refuse to issue said newshares in the name of the plaintiff.

The prayer is that a writ of mandamus be issued requiring the defendantsto transfer the said 5,894 shares of stock to the plaintiff by cancelling the oldcertificates and issuing new ones in their stead.

The special defenses set up in the answer are as follows: that thedefendants refuse to cancel the said certificates standing in the name of GonzaloH. Co Toco on the books of the corporation and to issue new ones in the name of the plaintiff because prior to the date when the plaintiff made his demand, to wit,February 4, 1933, nine attachments had been issued and served and noted onthe books of the corporation against the shares of Gonzalo H. Co Toco and theplaintiff objected to having these attachments noted on the new certificates whichhe demanded. These attachments noted on the books of the corporation againstthe shares of Gonzalo H. Co Toco are as follows:

MISSING PAGES: 475-477.

It will be noted that the first eight of the said writs of attachment wereserved on the corporation and noted on its records before the corporationreceived notice from the mortgagee Chua Chiu of the mortgage of said sharesdated June 18, 1931. No question is raised as to the validity of said mortgage or of said writs of attachment and the sole question presented for decision iswhether the said mortgage takes priority over the said writs of attachment.

It is not alleged that the said attaching creditors had actual notice of thesaid mortgage and the question therefore narrows itself down to this: Did theregistration of said chattel mortgage in the registry of chattel mortgages in the



office of the register of deeds of Manila, under date of July 23, 1931, giveconstructive notice to the said attaching creditors?

In passing, let it be noted that the registration of the said chattel mortgagein the office of the corporation was not necessary and had no legal effect.(Monserrat vs. Ceron, 58 Phil., 469.) The long mooted question as to whether or not shares of a corporation could be hypothecated by placing a chattel mortgage

on the certificate representing such shares we now regard as settled by the caseof Monserrat vs. Ceron, supra. But that case did not deal with any questionrelating to the registration of such a mortgage or the effect of such registration.Nothing appears in the record of that case even tending to show that the chattelmortgage there involved was ever registered anywhere except in the office of thecorporation, and there was no question involved there as to the right of priorityamong conflicting claims of creditors of the owner of the shares.

The Chattel Mortgage Law, Act No. 1508, as amended by Act No. 2496,contains the following provision:

SEC. 4. A chattel mortgage shall not be valid against any person exceptthe mortgagor, his executors or administrators, unless the possession of theproperty is delivered to and retained by the mortgagee or unless the mortgage isrecorded in the office of the register of deeds of the province in which the

mortgagor resides at the time of making the same, or, if he resides the PhilippineIslands, in the province in which the property is situated: Provided, however, Thatif the property is situated in a different province from that in which the mortgagor resides, the mortgage shall be recorded in the office of the register of deeds of both the province in which the mortgagor resides and that in which the property issituated, and for the purposes of this Act the City of Manila Shall be deemed tobe a province.

The practical application of the Chattel Mortgage Law to shares of stock of a corporation presents considerable difficulty and we have obtained little aid fromthe decisions of other jurisdictions because that form of mortgage is ill suited tothe hypothecation of shares of stock and has been rarely used elsewhere. In fact,it has been doubted whether shares of stock in a corporation are chattels in thesense in which that word is used chattel mortgage statutes. This doubt isreflected in our own decision in the case of Fua Cun vs. Summers and China

Banking Corporation (44 Phil., 705), in which we said:

". . . an equity in shares of stock is of such an intangible character that it issomewhat difficult to see how it can be treated as a chattel and mortgaged insuch a manner that the recording of the mortgage will furnish constructive noticeto third parties. . . ."And we held that the chattel mortgage there involved: "atleast operated as a conditional equitable assignment." In that case we quoted thefollowing from Spalding vs. Paine's Adm'r. (81 Ky., 416), with regard to a chattelmortgage of shares of stock:

"These certificates of stock are in the pockets of the owner, and go withhim where he may happen to locate, as choses in action, or evidence of his right,without any means on the part of those with whom he proposes to deal on the

faith of such a security of ascertaining whether or not this stock is in pledge or mortgaged to others. He finds the name of the owner on the books of thecompany as a subscriber of paid-up stock, amounting to 180 shares, with thecertificates in his possession, pays for these certificates their full value, and hasthe transfer to him made on the books of the company, thereby obtaining aperfect title. What other inquiry is he to make, so as to make his investmentcertain and secure? Where is he to look, in order to ascertain whether or not this

stock has been mortgaged? The chief office of the company may be at one placetoday and at another tomorrow. The owner may have no fixed or permanentabode, and with his notes in one pocket and his certificates of stock in the other — the one evidencing the extent of his interest in the stock of the corporation, theother his right to money owing him by his debtor, we are asked to say that themortgage is effectual as to the one and inoperative as to the other."

But the case of Fua Cun vs. Summers and China Banking Corporation,supra, did not decide the question here presented and gave no light as to theregistration of a chattel mortgage of shares of stock of a corporation under theprovisions of section 4 of the Chattel Mortgage Law, supra.

Section 4 of Act No. 1508 provides two ways for executing a valid chattelmortgage which shall be effective against third persons. First, the possession of the property mortgage must be delivered to and retained by the mortgagee; and,

second, without such delivery the mortgage must be recorded in the proper officeor offices of the register or registers of deeds. If a chattel mortgage of shares of stock of a corporation may validly be made without the delivery of possession of the property to the mortgagee and the mere registration of the mortgage issufficient to constructive notice to third parties, we are confronted with thequestion as to the proper place of registration of such a mortgage. Section 4provides that in such a case the mortgage resides at the time of making thesame or, if he is a non-resident, in the province in which the property is situated;and it also provides that if the property is situated in a different province from thatin which the mortgagor resides the mortgage shall be recorded both in theprovince of the mortgagor's residence and in the province where the property issituated.

If with respect to a chattel mortgage of shares of stock of a corporation,registration in the province of the owner's domicile should be sufficient, those

who lend on such security would be confronted with the practical difficulty of being compelled not only to search the records of every province in which themortgagor might have been domiciled but also every province in which a chattelmortgage by any former owner of such shares might be registered. We cannotthink that it was the intention of the legislature to put this almost prohibitiveimpediment upon the hypothecation of shares of stock in view of the greatvolume of business that is done on the faith of the pledge of shares of stock ascollateral.

It is a common but not accurate generalization that the situs of shares of stock is at the domicile of the owner. The term situs is not one of fixed of invariable meaning or usage. Nor should we lose sight of the difference betweenthe situs of the shares and the situs of the certificates of shares. The situs of



shares of stock for some purposes may be at the domicile of the owner and for others at the domicile of the corporation; and even elsewhere. (Cf. Vidal vs.South American Securities Co., 276 Fed., 855; Black Eagle Min. Co. vs. Conroy,94 Okla., 199; 221 Pac,, 425 Norrie vs. Kansas City Southern Ry. Co., 7 Fed.[2d]. 158.) It is a general rule that for purposes of execution, attachment andgarnishment, it is not the domicile of the owner of a certificate but the domicile of the corporation which is decisive. (Fletcher, Cyclopedia of the Law of Private

Corporations, vol. 11, paragraph 5106. Cf. sections 430 and 450, Code of CivilProcedure.)

By analogy with the foregoing and considering the ownership of shares ina corporation as property distinct from the certificates which are merely theevidence of such ownership, it seems to us a reasonable construction of section4 of Act No. 1508 to hold that the property in the shares may be deemed to besituated in the province in which the corporation has its principal office or place of business. If this province is also the province of the owner's domicile, a singleregistration sufficient. If not, the chattel mortgage should be registered both at theowner's domicile and in the province where the corporation has its principal officeor place of business. In this sense the property mortgaged is not the certificatebut the participation and share of the owner in the assets of the corporation.

Apart from the cumbersome and unusual method of hypothecating shares

of stock by chattel mortgage, it appears that in the present state of our law, theonly safe way to accomplish the hypothecation of share of stock of a Philippinecorporation is for the creditor to insist on the assignment and delivery of thecertificate and to obtain the transfer of the legal title to him on the books of thecorporation by the cancellation of the certificate and the issuance of a new one tohim. From the standpoint of the debtor this may be unsatisfactory because itleaves the creditor as the ostensible owner of the shares and the debtor is forcedto rely upon the honesty and solvency of the creditor. Of course, the merepossession and retention of the debtor's certificate by the creditor gives somesecurity to the creditor against an attempted voluntary transfer by the debtor,provided the by-laws of the corporation expressly enact that transfers may bemade only upon the surrender of the certificate. It is to be noted, however, thatsection 35 of the Corporation Law (Act No. 1459) enacts that shares of stock"may be transferred by delivery of the certificate endorsed by the owner or hisattorney in fact or other person legally authorized to make the transfer." The use

of the verb "may" does not exclude the possibility that a transfer may be made ina different manner, thus leaving the creditor in an insecure position even thoughhe has the certificate in his possession. Moreover, the shares still standing in thename of the debtor on the books of the corporation will be liable to seizure byattachment or levy on execution at the instance of other creditors. (Cf. Uy Piaocovs. McMicking, 10 Phil., 286, and Uson vs. Diosomito, 61 Phil., 535.) Thisunsatisfactory state of our law is well known to the bench and bar. (Cf. Fisher,The Philippine Law of Stock Corporations, pages 163-168.) Loans upon stocksecurities should be facilitated in order to foster economic development. Thetransfer by endorsement and delivery of a certificate with intention to pledge theshares covered thereby should be sufficient to give legal effect to that intentionand to consummate the juristic act without necessity for registration.lawphil.net

We are fully conscious of the fact that our decisions in the case of Monserrat vs. Ceron, supra, and in the present case have done little perhaps toameliorate the present uncertain and unsatisfactory state of our law applicable topledges and chattel mortgages of shares of stock of Philippine corporations. Theremedy lies with the legislature.

In view of the premises, the attaching creditors are entitled to priority over

the defectively registered mortgage of the appellant and the judgment appealedfrom must be affirmed without special pronouncement as to costs in thisinstance.

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