G. R. No.

164317             February 6, 2006

1895 12-17-80 03-17-81 P67,652.04 Spare parts for
Spectrophotometer
ALFREDO CHING, Petitioner, 
vs.
1911 12-22-80 03-20-81 P91,497.85 50 pcs. Ingot moulds
THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR ECILYN BURGOS-
VILLAVERT, JUDGE EDGARDO SUDIAM of the Regional Trial Court, Manila, Branch 52;
RIZAL COMMERCIAL BANKING CORP. and THE PEOPLE OF THE 2041 01-30-81 04-30-81 P91,456.97 50 pcs. Ingot moulds
PHILIPPINES, Respondents.
2099 02-10-81 05-11-81 P66,162.26 8 pcs. Kubota Rolls for
rolling mills
Before the Court is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in
CA-G.R. SP No. 57169 dismissing the petition for certiorari, prohibition and mandamus filed by petitioner
Alfredo Ching, and its Resolution2 dated June 28, 2004 denying the motion for reconsideration thereof. 2100 02-10-81 05-12-81 P210,748.00 Spare parts for
Lacolaboratory
Equipment5
Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI). Sometime in
September to October 1980, PBMI, through petitioner, applied with the Rizal Commercial Banking
Corporation (respondent bank) for the issuance of commercial letters of credit to finance its importation of Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with authority to sell but
assorted goods.3 not by way of conditional sale, pledge or otherwise; and in case such goods were sold, to turn over the
proceeds thereof as soon as received, to apply against the relative acceptances and payment of other
Respondent bank approved the application, and irrevocable letters of credit were issued in favor of indebtedness to respondent bank. In case the goods remained unsold within the specified period, the goods
petitioner. The goods were purchased and delivered in trust to PBMI. Petitioner signed 13 trust receipts 4 as were to be returned to respondent bank without any need of demand. Thus, said "goods, manufactured
surety, acknowledging delivery of the following goods: products or proceeds thereof, whether in the form of money or bills, receivables, or accounts separate and
capable of identification" were respondent bank’s property.

T/R Date Granted Maturity Date Principal Description of Goods When the trust receipts matured, petitioner failed to return the goods to respondent bank, or to return their
Nos. value amounting to ₱6,940,280.66 despite demands. Thus, the bank filed a criminal complaint for
estafa6 against petitioner in the Office of the City Prosecutor of Manila.
1845 12-05-80 03-05-81 P1,596,470.05 79.9425 M/T "SDK"
Brand Synthetic Graphite
After the requisite preliminary investigation, the City Prosecutor found probable cause estafa under Article
Electrode
315, paragraph 1(b) of the Revised Penal Code, in relation to Presidential Decree (P.D.) No. 115,
otherwise known as the Trust Receipts Law. Thirteen (13) Informations were filed against the petitioner
1853 12-08-80 03-06-81 P198,150.67 3,000 pcs. (15 bundles) before the Regional Trial Court (RTC) of Manila. The cases were docketed as Criminal Cases No. 86-
Calorized Lance Pipes 42169 to 86-42181, raffled to Branch 31 of said court.

1824 11-28-80 02-26-81 P707,879.71 One Lot High Fired

Petitioner appealed the resolution of the City Prosecutor to the then Minister of Justice. The appeal was
Refractory Tundish
dismissed in a Resolution7 dated March 17, 1987, and petitioner moved for its reconsideration. On
Bricks
December 23, 1987, the Minister of Justice granted the motion, thus reversing the previous resolution
finding probable cause against petitioner.8 The City Prosecutor was ordered to move for the withdrawal of
1798 11-21-80 02-19-81 P835,526.25 5 cases spare parts for the Informations.
CCM

This time, respondent bank filed a motion for reconsideration, which, however, was denied on February
1808 11-21-80 02-19-81 P370,332.52 200 pcs. ingot moulds
24, 1988.9The RTC, for its part, granted the Motion to Quash the Informations filed by petitioner on the
ground that the material allegations therein did not amount to estafa.10
2042 01-30-81 04-30-81 P469,669.29 High Fired Refractory
Nozzle Bricks
In the meantime, the Court rendered judgment in Allied Banking Corporation v. Ordoñez, 11 holding that
the penal provision of P.D. No. 115 encompasses any act violative of an obligation covered by the trust
1801 11-21-80 02-19-81 P2,001,715.17 Synthetic Graphite
receipt; it is not limited to transactions involving goods which are to be sold (retailed), reshipped, stored or
Electrode [with] tapered
processed as a component of a product ultimately sold. The Court also ruled that "the non-payment of the
pitch filed nipples
amount covered by a trust receipt is an act violative of the obligation of the entrustee to pay."12
1857 12-09-80 03-09-81 P197,843.61 3,000 pcs. (15 bundles
calorized lance pipes [)] On February 27, 1995, respondent bank re-filed the criminal complaint for estafa against petitioner before
the Office of the City Prosecutor of Manila. The case was docketed as I.S. No. 95B-07614.

1
Preliminary investigation ensued. On December 8, 1995, the City Prosecutor ruled that there was no
probable cause to charge petitioner with violating P.D. No. 115, as petitioner’s liability was only civil, not
criminal, having signed the trust receipts as surety.13 Respondent bank appealed the resolution to the
Department of Justice (DOJ) via petition for review, alleging that the City Prosecutor erred in ruling:
1. That there is no evidence to show that respondent participated in the misappropriation of the
goods subject of the trust receipts;
2. That the respondent is a mere surety of the trust receipts; and
3. That the liability of the respondent is only civil in nature.14
On July 13, 1999, the Secretary of Justice issued Resolution No. 25015 granting the petition and reversing
the assailed resolution of the City Prosecutor. According to the Justice Secretary, the petitioner, as Senior
Vice-President of PBMI, executed the 13 trust receipts and as such, was the one responsible for the
offense. Thus, the execution of said receipts is enough to indict the petitioner as the official responsible for
violation of P.D. No. 115. The Justice Secretary also declared that petitioner could not contend that P.D.
No. 115 covers only goods ultimately destined for sale, as this issue had already been settled in Allied
Banking Corporation v. Ordoñez,16 where the Court ruled that P.D. No. 115 is "not limited to transactions
in goods which are to be sold (retailed), reshipped, stored or processed as a component of a product
ultimately sold but covers failure to turn over the proceeds of the sale of entrusted goods, or to return said
goods if unsold or not otherwise disposed of in accordance with the terms of the trust receipts."
The Justice Secretary further stated that the respondent bound himself under the terms of the trust receipts
not only as a corporate official of PBMI but also as its surety; hence, he could be proceeded against in two
(2) ways: first, as surety as determined by the Supreme Court in its decision in Rizal Commercial Banking
Corporation v. Court of Appeals;17 and second, as the corporate official responsible for the offense under
P.D. No. 115, via criminal prosecution. Moreover, P.D. No. 115 explicitly allows the prosecution of
corporate officers "without prejudice to the civil liabilities arising from the criminal offense." Thus,
according to the Justice Secretary, following Rizal Commercial Banking Corporation, the civil liability
imposed is clearly separate and distinct from the criminal liability of the accused under P.D. No. 115.
Conformably with the Resolution of the Secretary of Justice, the City Prosecutor filed 13 Informations
against petitioner for violation of P.D. No. 115 before the RTC of Manila. The cases were docketed as
Criminal Cases No. 99-178596 to 99-178608 and consolidated for trial before Branch 52 of said court.
Petitioner filed a motion for reconsideration, which the Secretary of Justice denied in a Resolution 18 dated
January 17, 2000.
Petitioner then filed a petition for certiorari, prohibition and mandamus with the CA, assailing the
resolutions of the Secretary of Justice on the following grounds:
1. THE RESPONDENTS ARE ACTING WITH AN UNEVEN HAND AND IN FACT, ARE
ACTING OPPRESSIVELY AGAINST ALFREDO CHING WHEN THEY ALLOWED HIS
PROSECUTION DESPITE THE FACT THAT NO EVIDENCE HAD BEEN PRESENTED
TO PROVE HIS PARTICIPATION IN THE ALLEGED TRANSACTIONS.
2. THE RESPONDENT SECRETARY OF JUSTICE COMMITTED AN ACT IN GRAVE
ABUSE OF DISCRETION AND IN EXCESS OF HIS JURISDICTION WHEN THEY
CONTINUED PROSECUTION OF THE PETITIONER DESPITE THE LENGTH OF TIME
INCURRED IN THE TERMINATION OF THE PRELIMINARY INVESTIGATION THAT
SHOULD JUSTIFY THE DISMISSAL OF THE INSTANT CASE.
3. THE RESPONDENT SECRETARY OF JUSTICE AND ASSISTANT CITY
PROSECUTOR ACTED IN GRAVE ABUSE OF DISCRETION AMOUNTING TO AN
EXCESS OF JURISDICTION WHEN THEY CONTINUED THE PROSECUTION OF THE
PETITIONER DESPITE LACK OF SUFFICIENT BASIS.19
In his petition, petitioner incorporated a certification stating that "as far as this Petition is concerned, no
action or proceeding in the Supreme Court, the Court of Appeals or different divisions thereof, or any
tribunal or agency. It is finally certified that if the affiant should learn that a similar action or proceeding
has been filed or is pending before the Supreme Court, the Court of Appeals, or different divisions thereof,
of any other tribunal or agency, it hereby undertakes to notify this Honorable Court within five (5) days
from such notice."20
In its Comment on the petition, the Office of the Solicitor General alleged that -
A.
THE HONORABLE SECRETARY OF JUSTICE CORRECTLY RULED THAT
PETITIONER ALFREDO CHING IS THE OFFICER RESPONSIBLE FOR THE OFFENSE
CHARGED AND THAT THE ACTS OF PETITIONER FALL WITHIN THE AMBIT OF
VIOLATION OF P.D. [No.] 115 IN RELATION TO ARTICLE 315, PAR. 1(B) OF THE
REVISED PENAL CODE.
B.
THERE IS NO MERIT IN PETITIONER’S CONTENTION THAT EXCESSIVE DELAY
HAS MARRED THE CONDUCT OF THE PRELIMINARY INVESTIGATION OF THE
CASE, JUSTIFYING ITS DISMISSAL.
C.
THE PRESENT SPECIAL CIVIL ACTION FOR CERTIORARI, PROHIBITION AND
MANDAMUS IS NOT THE PROPER MODE OF REVIEW FROM THE RESOLUTION OF
THE DEPARTMENT OF JUSTICE. THE PRESENT PETITION MUST THEREFORE BE
DISMISSED.21
On April 22, 2004, the CA rendered judgment dismissing the petition for lack of merit, and on procedural
grounds. On the procedural issue, it ruled that (a) the certification of non-forum shopping executed by
petitioner and incorporated in the petition was defective for failure to comply with the first two of the
three-fold undertakings prescribed in Rule 7, Section 5 of the Revised Rules of Civil Procedure; and (b)
the petition for certiorari, prohibition and mandamus was not the proper remedy of the petitioner.
On the merits of the petition, the CA ruled that the assailed resolutions of the Secretary of Justice were
correctly issued for the following reasons: (a) petitioner, being the Senior Vice-President of PBMI and the
signatory to the trust receipts, is criminally liable for violation of P.D. No. 115; (b) the issue raised by the
petitioner, on whether he violated P.D. No. 115 by his actuations, had already been resolved and laid to
rest in Allied Bank Corporation v. Ordoñez;22 and (c) petitioner was estopped from raising the
City Prosecutor’s delay in the final disposition of the preliminary investigation because he failed to do so
in the DOJ.
2
Thus, petitioner filed the instant petition, alleging that:
I
THE COURT OF APPEALS ERRED WHEN IT DISMISSED THE PETITION ON THE
GROUND THAT THE CERTIFICATION OF NON-FORUM SHOPPING INCORPORATED
THEREIN WAS DEFECTIVE.
II
THE COURT OF APPEALS ERRED WHEN IT RULED THAT NO GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WAS
COMMITTED BY THE SECRETARY OF JUSTICE IN COMING OUT WITH THE
ASSAILED RESOLUTIONS.23
The Court will delve into and resolve the issues seriatim.
The petitioner avers that the CA erred in dismissing his petition on a mere technicality. He claims that the
rules of procedure should be used to promote, not frustrate, substantial justice. He insists that the Rules of
Court should be construed liberally especially when, as in this case, his substantial rights are adversely
affected; hence, the deficiency in his certification of non-forum shopping should not result in the dismissal
of his petition.
The Office of the Solicitor General (OSG) takes the opposite view, and asserts that indubitably, the
certificate of non-forum shopping incorporated in the petition before the CA is defective because it failed
to disclose essential facts about pending actions concerning similar issues and parties. It asserts that
petitioner’s failure to comply with the Rules of Court is fatal to his petition. The OSG cited Section 2,
Rule 42, as well as the ruling of this Court in Melo v. Court of Appeals.24
We agree with the ruling of the CA that the certification of non-forum shopping petitioner incorporated in
his petition before the appellate court is defective. The certification reads:
It is further certified that as far as this Petition is concerned, no action or proceeding in the Supreme Court,
the Court of Appeals or different divisions thereof, or any tribunal or agency.
It is finally certified that if the affiant should learn that a similar action or proceeding has been filed or is
pending before the Supreme Court, the Court of Appeals, or different divisions thereof, of any other
tribunal or agency, it hereby undertakes to notify this Honorable Court within five (5) days from such
notice.25
Under Section 1, second paragraph of Rule 65 of the Revised Rules of Court, the petition should be
accompanied by a sworn certification of non-forum shopping, as provided in the third paragraph of
Section 3, Rule 46 of said Rules. The latter provision reads in part:
SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. — The petition shall
contain the full names and actual addresses of all the petitioners and respondents, a concise statement of
the matters involved, the factual background of the case and the grounds relied upon for the relief prayed
for.
The petitioner shall also submit together with the petition a sworn certification that he has not theretofore
commenced any other action involving the same issues in the Supreme Court, the Court of Appeals or
different divisions thereof, or any other tribunal or agency; if there is such other action or proceeding, he
must state the status of the same; and if he should thereafter learn that a similar action or proceeding has
been filed or is pending before the Supreme Court, the Court of Appeals, or different divisions thereof, or
any other tribunal or agency, he undertakes to promptly inform the aforesaid courts and other tribunal or
agency thereof within five (5) days therefrom. xxx
Compliance with the certification against forum shopping is separate from and independent of the
avoidance of forum shopping itself. The requirement is mandatory. The failure of the petitioner to comply
with the foregoing requirement shall be sufficient ground for the dismissal of the petition without
prejudice, unless otherwise provided.26
Indubitably, the first paragraph of petitioner’s certification is incomplete and unintelligible. Petitioner
failed to certify that he "had not heretofore commenced any other action involving the same issues in the
Supreme Court, the Court of Appeals or the different divisions thereof or any other tribunal or agency" as
required by paragraph 4, Section 3, Rule 46 of the Revised Rules of Court.
We agree with petitioner’s contention that the certification is designed to promote and facilitate the
orderly administration of justice, and therefore, should not be interpreted with absolute literalness. In his
works on the Revised Rules of Civil Procedure, former Supreme Court Justice Florenz Regalado states
that, with respect to the contents of the certification which the pleader may prepare, the rule of substantial
compliance may be availed of.27However, there must be a special circumstance or compelling reason
which makes the strict application of the requirement clearly unjustified. The instant petition has not
alleged any such extraneous circumstance. Moreover, as worded, the certification cannot even be regarded
as substantial compliance with the procedural requirement. Thus, the CA was not informed whether, aside
from the petition before it, petitioner had commenced any other action involving the same issues in other
tribunals.
On the merits of the petition, the CA ruled that the petitioner failed to establish that the Secretary of
Justice committed grave abuse of discretion in finding probable cause against the petitioner for violation
of estafa under Article 315, paragraph 1(b) of the Revised Penal Code, in relation to P.D. No. 115. Thus,
the appellate court ratiocinated:
Be that as it may, even on the merits, the arguments advanced in support of the petition are not persuasive
enough to justify the desired conclusion that respondent Secretary of Justice gravely abused its discretion
in coming out with his assailed Resolutions. Petitioner posits that, except for his being the Senior Vice-
President of the PBMI, there is no iota of evidence that he was a participes crimines in violating the trust
receipts sued upon; and that his liability, if at all, is purely civil because he signed the said trust receipts
merely as a xxx surety and not as the entrustee. These assertions are, however, too dull that they cannot
even just dent the findings of the respondent Secretary, viz:
"x x x it is apropos to quote section 13 of PD 115 which states in part, viz:
‘xxx If the violation or offense is committed by a corporation, partnership, association or other judicial
entities, the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or
other officials or persons therein responsible for the offense, without prejudice to the civil liabilities
arising from the criminal offense.’
"There is no dispute that it was the respondent, who as senior vice-president of PBM, executed the thirteen
(13) trust receipts. As such, the law points to him as the official responsible for the offense. Since a
corporation cannot be proceeded against criminally because it cannot commit crime in which personal
3
violence or malicious intent is required, criminal action is limited to the corporate agents guilty of an act officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from
amounting to a crime and never against the corporation itself (West Coast Life Ins. Co. vs. Hurd, 27 Phil. the criminal offense. (Emphasis supplied)
401; Times, [I]nc. v. Reyes, 39 SCRA 303). Thus, the execution by respondent of said receipts is enough
to indict him as the official responsible for violation of PD 115.
36. Petitioner having participated in the negotiations for the trust receipts and having received the goods
for PBM, it was inevitable that the petitioner is the proper corporate officer to be proceeded against by
"Parenthetically, respondent is estopped to still contend that PD 115 covers only goods which are virtue of the PBM’s violation of P.D. No. 115.29
ultimately destined for sale and not goods, like those imported by PBM, for use in manufacture. This issue
has already been settled in the Allied Banking Corporation case, supra, where he was also a party, when
The ruling of the CA is correct.
the Supreme Court ruled that PD 115 is ‘not limited to transactions in goods which are to be sold
(retailed), reshipped, stored or processed as a component or a product ultimately sold’ but ‘covers failure
to turn over the proceeds of the sale of entrusted goods, or to return said goods if unsold or disposed of in In Mendoza-Arce v. Office of the Ombudsman (Visayas),30 this Court held that the acts of a quasi-judicial
accordance with the terms of the trust receipts.’ officer may be assailed by the aggrieved party via a petition for certiorari and enjoined (a) when necessary
to afford adequate protection to the constitutional rights of the accused; (b) when necessary for the orderly
administration of justice; (c) when the acts of the officer are without or in excess of authority; (d) where
"In regard to the other assigned errors, we note that the respondent bound himself under the terms of the
the charges are manifestly false and motivated by the lust for vengeance; and (e) when there is clearly no
trust receipts not only as a corporate official of PBM but also as its surety. It is evident that these are two
prima facie case against the accused.31 The Court also declared that, if the officer conducting a preliminary
(2) capacities which do not exclude the other. Logically, he can be proceeded against in two (2) ways:
investigation (in that case, the Office of the Ombudsman) acts without or in excess of his authority and
first, as surety as determined by the Supreme Court in its decision in RCBC vs. Court of Appeals, 178
resolves to file an Information despite the absence of probable cause, such act may be nullified by a writ
SCRA 739; and, secondly, as the corporate official responsible for the offense under PD 115, the present
of certiorari.32
case is an appropriate remedy under our penal law.

"Moreover, PD 115 explicitly allows the prosecution of corporate officers ‘without prejudice to the civil
liabilities arising from the criminal offense’ thus, the civil liability imposed on respondent in RCBC vs.
Court of Appeals case is clearly separate and distinct from his criminal liability under PD 115.’"28
Petitioner asserts that the appellate court’s ruling is erroneous because (a) the transaction between PBMI
and respondent bank is not a trust receipt transaction; (b) he entered into the transaction and was sued in
his capacity as PBMI Senior Vice-President; (c) he never received the goods as an entrustee for PBMI,
hence, could not have committed any dishonesty or abused the confidence of respondent bank; and (d)
PBMI acquired the goods and used the same in operating its machineries and equipment and not for resale.
The OSG, for its part, submits a contrary view, to wit:
34. Petitioner further claims that he is not a person responsible for the offense allegedly because "[b]eing
charged as the Senior Vice-President of Philippine Blooming Mills (PBM), petitioner cannot be held
criminally liable as the transactions sued upon were clearly entered into in his capacity as an officer of the
corporation" and that [h]e never received the goods as an entrustee for PBM as he never had or took
possession of the goods nor did he commit dishonesty nor "abuse of confidence in transacting with
RCBC." Such argument is bereft of merit.
35. Petitioner’s being a Senior Vice-President of the Philippine Blooming Mills does not exculpate him
from any liability. Petitioner’s responsibility as the corporate official of PBM who received the goods in
trust is premised on Section 13 of P.D. No. 115, which provides:
Indeed, under Section 4, Rule 112 of the 2000 Rules of Criminal Procedure,33 the Information shall be
prepared by the Investigating Prosecutor against the respondent only if he or she finds probable cause to
hold such respondent for trial. The Investigating Prosecutor acts without or in excess of his authority
under the Rule if the Information is filed against the respondent despite absence of evidence showing
probable cause therefor.34 If the Secretary of Justice reverses the Resolution of the Investigating
Prosecutor who found no probable cause to hold the respondent for trial, and orders such prosecutor to file
the Information despite the absence of probable cause, the Secretary of Justice acts contrary to law,
without authority and/or in excess of authority. Such resolution may likewise be nullified in a petition for
certiorari under Rule 65 of the Revised Rules of Civil Procedure.35
A preliminary investigation, designed to secure the respondent against hasty, malicious and oppressive
prosecution, is an inquiry to determine whether (a) a crime has been committed; and (b) whether there is
probable cause to believe that the accused is guilty thereof. It is a means of discovering the person or
persons who may be reasonably charged with a crime. Probable cause need not be based on clear and
convincing evidence of guilt, as the investigating officer acts upon probable cause of reasonable belief.
Probable cause implies probability of guilt and requires more than bare suspicion but less than evidence
which would justify a conviction. A finding of probable cause needs only to rest on evidence showing that
more likely than not, a crime has been committed by the suspect.36
However, while probable cause should be determined in a summary manner, there is a need to examine
the evidence with care to prevent material damage to a potential accused’s constitutional right to liberty
and the guarantees of freedom and fair play37 and to protect the State from the burden of unnecessary
expenses in prosecuting alleged offenses and holding trials arising from false, fraudulent or groundless
charges.38

Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods,
In this case, petitioner failed to establish that the Secretary of Justice committed grave abuse of discretion
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or
in issuing the assailed resolutions. Indeed, he acted in accord with law and the evidence.
as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or
disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable
under the provisions of Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three Section 4 of P.D. No. 115 defines a trust receipt transaction, thus:
thousand eight hundred and fifteen, as amended, otherwise known as the Revised Penal Code. If the
violation or offense is committed by a corporation, partnership, association or other juridical entities, the
Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of
penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other
this Decree, is any transaction by and between a person referred to in this Decree as the entruster, and
another person referred to in this Decree as entrustee, whereby the entruster, who owns or holds absolute

4
title or security interests over certain specified goods, documents or instruments, releases the same to the
possession of the entrustee upon the latter’s execution and delivery to the entruster of a signed document
called a "trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or
instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or
instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the
amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments
themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions
specified in the trust receipt, or for other purposes substantially equivalent to any of the following:
1. In case of goods or documents, (a) to sell the goods or procure their sale; or (b) to
manufacture or process the goods with the purpose of ultimate sale; Provided, That, in the case
of goods delivered under trust receipt for the purpose of manufacturing or processing before its
ultimate sale, the entruster shall retain its title over the goods whether in its original or
processed form until the entrustee has complied fully with his obligation under the trust receipt;
or (c) to load, unload, ship or otherwise deal with them in a manner preliminary or necessary to
their sale; or
2. In the case of instruments a) to sell or procure their sale or exchange; or b) to deliver them to
a principal; or c) to effect the consummation of some transactions involving delivery to a
depository or register; or d) to effect their presentation, collection or renewal.
The sale of goods, documents or instruments by a person in the business of selling goods, documents or
instruments for profit who, at the outset of the transaction, has, as against the buyer, general property
rights in such goods, documents or instruments, or who sells the same to the buyer on credit, retaining title
or other interest as security for the payment of the purchase price, does not constitute a trust receipt
transaction and is outside the purview and coverage of this Decree.
An entrustee is one having or taking possession of goods, documents or instruments under a trust receipt
transaction, and any successor in interest of such person for the purpose of payment specified in the trust
receipt agreement.39 The entrustee is obliged to: (1) hold the goods, documents or instruments in trust for
the entruster and shall dispose of them strictly in accordance with the terms and conditions of the trust
receipt; (2) receive the proceeds in trust for the entruster and turn over the same to the entruster to the
extent of the amount owing to the entruster or as appears on the trust receipt; (3) insure the goods for their
total value against loss from fire, theft, pilferage or other casualties; (4) keep said goods or proceeds
thereof whether in money or whatever form, separate and capable of identification as property of the
entruster; (5) return the goods, documents or instruments in the event of non-sale or upon demand of the
entruster; and (6) observe all other terms and conditions of the trust receipt not contrary to the provisions
of the decree.40
The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments
released under a trust receipt to the entrustee to the extent of the amount owing to the entruster or as
appears in the trust receipt, or to the return of the goods, documents or instruments in case of non-sale, and
to the enforcement of all other rights conferred on him in the trust receipt; provided, such are not contrary
to the provisions of the document.41
In the case at bar, the transaction between petitioner and respondent bank falls under the trust receipt
transactions envisaged in P.D. No. 115. Respondent bank imported the goods and entrusted the same to
PBMI under the trust receipts signed by petitioner, as entrustee, with the bank as entruster. The agreement
was as follows:
And in consideration thereof, I/we hereby agree to hold said goods in trust for the said BANK as its
property with liberty to sell the same within ____days from the date of the execution of this Trust Receipt
and for the Bank’s account, but without authority to make any other disposition whatsoever of the said
goods or any part thereof (or the proceeds) either by way of conditional sale, pledge or otherwise.
I/we agree to keep the said goods insured to their full value against loss from fire, theft, pilferage or other
casualties as directed by the BANK, the sum insured to be payable in case of loss to the BANK, with the
understanding that the BANK is, not to be chargeable with the storage premium or insurance or any other
expenses incurred on said goods.
In case of sale, I/we further agree to turn over the proceeds thereof as soon as received to the BANK, to
apply against the relative acceptances (as described above) and for the payment of any other indebtedness
of mine/ours to the BANK. In case of non-sale within the period specified herein, I/we agree to return the
goods under this Trust Receipt to the BANK without any need of demand.
I/we agree to keep the said goods, manufactured products or proceeds thereof, whether in the form of
money or bills, receivables, or accounts separate and capable of identification as property of the BANK.42
It must be stressed that P.D. No. 115 is a declaration by legislative authority that, as a matter of public
policy, the failure of person to turn over the proceeds of the sale of the goods covered by a trust receipt or
to return said goods, if not sold, is a public nuisance to be abated by the imposition of penal sanctions.43
The Court likewise rules that the issue of whether P.D. No. 115 encompasses transactions involving goods
procured as a component of a product ultimately sold has been resolved in the affirmative in Allied
Banking Corporation v. Ordoñez.44 The law applies to goods used by the entrustee in the operation of its
machineries and equipment. The non-payment of the amount covered by the trust receipts or the non-
return of the goods covered by the receipts, if not sold or otherwise not disposed of, violate the entrustee’s
obligation to pay the amount or to return the goods to the entruster.
In Colinares v. Court of Appeals, 45 the Court declared that there are two possible situations in a trust
receipt transaction. The first is covered by the provision which refers to money received under the
obligation involving the duty to deliver it (entregarla) to the owner of the merchandise sold. The second is
covered by the provision which refers to merchandise received under the obligation to return it (devolvera)
to the owner.46 Thus, failure of the entrustee to turn over the proceeds of the sale of the goods covered by
the trust receipts to the entruster or to return said goods if they were not disposed of in accordance with the
terms of the trust receipt is a crime under P.D. No. 115, without need of proving intent to defraud. The law
punishes dishonesty and abuse of confidence in the handling of money or goods to the prejudice of the
entruster, regardless of whether the latter is the owner or not. A mere failure to deliver the proceeds of the
sale of the goods, if not sold, constitutes a criminal offense that causes prejudice, not only to another, but
more to the public interest.47
The Court rules that although petitioner signed the trust receipts merely as Senior Vice-President of PBMI
and had no physical possession of the goods, he cannot avoid prosecution for violation of P.D. No. 115.
The penalty clause of the law, Section 13 of P.D. No. 115 reads:
Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or
as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or
disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable
under the provisions of Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three
thousand eight hundred and fifteen, as amended, otherwise known as the Revised Penal Code.1âwphi1 If
the violation or offense is committed by a corporation, partnership, association or other juridical entities,
the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other
5
officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from
the criminal offense.
The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under paragraph 1(b),
Article 315 of the Revised Penal Code, or estafa with abuse of confidence. It may be committed by a
corporation or other juridical entity or by natural persons. However, the penalty for the crime is
imprisonment for the periods provided in said Article 315, which reads:
ARTICLE 315. Swindling (estafa). – Any person who shall defraud another by any of the means
mentioned hereinbelow shall be punished by:
1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum
period, if the amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos; and if
such amount exceeds the latter sum, the penalty provided in this paragraph shall be imposed in
its maximum period, adding one year for each additional 10,000 pesos; but the total penalty
which may be imposed shall not exceed twenty years. In such cases, and in connection with the
accessory penalties which may be imposed and for the purpose of the other provisions of this
Code, the penalty shall be termed prision mayor or reclusion temporal, as the case may be;
2nd. The penalty of prision correccional in its minimum and medium periods, if the amount of
the fraud is over 6,000 pesos but does not exceed 12,000 pesos;
3rd. The penalty of arresto mayor in its maximum period to prision correccional in its
minimum period, if such amount is over 200 pesos but does not exceed 6,000 pesos; and
4th. By arresto mayor in its medium and maximum periods, if such amount does not exceed 200 pesos,
provided that in the four cases mentioned, the fraud be committed by any of the following means; xxx
Though the entrustee is a corporation, nevertheless, the law specifically makes the officers, employees or
other officers or persons responsible for the offense, without prejudice to the civil liabilities of such
corporation and/or board of directors, officers, or other officials or employees responsible for the offense.
The rationale is that such officers or employees are vested with the authority and responsibility to devise
means necessary to ensure compliance with the law and, if they fail to do so, are held criminally
accountable; thus, they have a responsible share in the violations of the law.48
If the crime is committed by a corporation or other juridical entity, the directors, officers, employees or
other officers thereof responsible for the offense shall be charged and penalized for the crime, precisely
because of the nature of the crime and the penalty therefor. A corporation cannot be arrested and
imprisoned; hence, cannot be penalized for a crime punishable by imprisonment.49 However, a corporation
may be charged and prosecuted for a crime if the imposable penalty is fine. Even if the statute prescribes
both fine and imprisonment as penalty, a corporation may be prosecuted and, if found guilty, may be
fined.50
A crime is the doing of that which the penal code forbids to be done, or omitting to do what it commands.
A necessary part of the definition of every crime is the designation of the author of the crime upon whom
the penalty is to be inflicted. When a criminal statute designates an act of a corporation or a crime and
prescribes punishment therefor, it creates a criminal offense which, otherwise, would not exist and such
can be committed only by the corporation. But when a penal statute does not expressly apply to
corporations, it does not create an offense for which a corporation may be punished. On the other hand, if
the State, by statute, defines a crime that may be committed by a corporation but prescribes the penalty
therefor to be suffered by the officers, directors, or employees of such corporation or other persons
responsible for the offense, only such individuals will suffer such penalty.51Corporate officers or
employees, through whose act, default or omission the corporation commits a crime, are themselves
individually guilty of the crime.52
The principle applies whether or not the crime requires the consciousness of wrongdoing. It applies to
those corporate agents who themselves commit the crime and to those, who, by virtue of their managerial
positions or other similar relation to the corporation, could be deemed responsible for its commission, if
by virtue of their relationship to the corporation, they had the power to prevent the act. 53 Moreover, all
parties active in promoting a crime, whether agents or not, are principals. 54 Whether such officers or
employees are benefited by their delictual acts is not a touchstone of their criminal liability. Benefit is not
an operative fact.
In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind the cloak of the
separate corporate personality of PBMI. In the words of Chief Justice Earl Warren, a corporate officer
cannot protect himself behind a corporation where he is the actual, present and efficient actor.55
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the
petitioner.
FILIPINAS BROADCASTING NETWORK, INC., petitioner, 
vs.
AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF
MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO, respondents.
This petition for review1 assails the 4 January 1999 Decision2 and 26 January 2000 Resolution of the Court
of Appeals in CA-G.R. CV No. 40151. The Court of Appeals affirmed with modification the 14 December
1992 Decision3 of the Regional Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court
of Appeals held Filipinas Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre and
Carmelo Rima liable for libel and ordered them to solidarily pay Ago Medical and Educational Center-
Bicol Christian College of Medicine moral damages, attorney’s fees and costs of suit.
The Antecedents
"Exposé" is a radio documentary4 program hosted by Carmelo ‘Mel’ Rima ("Rima") and Hermogenes
‘Jun’ Alegre ("Alegre").5 Exposé is aired every morning over DZRC-AM which is owned by Filipinas
Broadcasting Network, Inc. ("FBNI"). "Exposé" is heard over Legazpi City, the Albay municipalities and
other Bicol areas.6
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from
students, teachers and parents against Ago Medical and Educational Center-Bicol Christian College of
Medicine ("AMEC") and its administrators. Claiming that the broadcasts were defamatory, AMEC and
Angelita Ago ("Ago"), as Dean of AMEC’s College of Medicine, filed a complaint for damages 7 against
FBNI, Rima and Alegre on 27 February 1990. Quoted are portions of the allegedly libelous broadcasts: 
JUN ALEGRE:
Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM,
advise them to pass all subjects because if they fail in any subject they will repeat their year level,
taking up all subjects including those they have passed already. Several students had approached me
stating that they had consulted with the DECS which told them that there is no such regulation. If [there] is
no such regulation why is AMEC doing the same?
6
xxx
Second: Earlier AMEC students in Physical Therapy had complained that the course is not
recognized by DECS. xxx
Third: Students are required to take and pay for the subject even if the subject does not have an
instructor - such greed for money on the part of AMEC’s administration. Take the subject Anatomy:
students would pay for the subject upon enrolment because it is offered by the school. However there
would be no instructor for such subject. Students would be informed that course would be moved to a later
date because the school is still searching for the appropriate instructor.
xxx
It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving
for the past few years since its inception because of funds support from foreign foundations. If you will
take a look at the AMEC premises you’ll find out that the names of the buildings there are foreign
soundings. There is a McDonald Hall. Why not Jose Rizal or Bonifacio Hall? That is a very concrete and
undeniable evidence that the support of foreign foundations for AMEC is substantial, isn’t it? With the
report which is the basis of the expose in DZRC today, it would be very easy for detractors and enemies of
the Ago family to stop the flow of support of foreign foundations who assist the medical school on the
basis of the latter’s purpose. But if the purpose of the institution (AMEC) is to deceive students at cross
purpose with its reason for being it is possible for these foreign foundations to lift or suspend their
donations temporarily.8
xxx
On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the
AMEC-Institute of Mass Communication in their effort to minimize expenses in terms of salary are
absorbing or continues to accept "rejects". For example how many teachers in AMEC are former
teachers of Aquinas University but were removed because of immorality? Does it mean that the present
administration of AMEC have the total definite moral foundation from catholic administrator of Aquinas
University. I will prove to you my friends, that AMEC is a dumping ground, garbage, not merely of
moral and physical misfits. Probably they only qualify in terms of intellect. The Dean of Student Affairs
of AMEC is Justita Lola, as the family name implies. She is too old to work, being an old woman. Is the
AMEC administration exploiting the very [e]nterprising or compromising and undemanding Lola? Could
it be that AMEC is just patiently making use of Dean Justita Lola were if she is very old. As in
atmospheric situation – zero visibility – the plane cannot land, meaning she is very old, low pay follows.
By the way, Dean Justita Lola is also the chairman of the committee on scholarship in AMEC. She had
retired from Bicol University a long time ago but AMEC has patiently made use of her.
xxx
MEL RIMA:
xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people.
What does this mean? Immoral and physically misfits as teachers.
May I say I’m sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit
to teach. You are too old. As an aviation, your case is zero visibility. Don’t insist.
xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at
that. The reason is practical cost saving in salaries, because an old person is not fastidious, so long as she
has money to buy the ingredient of beetle juice. The elderly can get by – that’s why she (Lola) was taken
in as Dean.
xxx
xxx On our end our task is to attend to the interests of students. It is likely that the students would be
influenced by evil. When they become members of society outside of campus will be liabilities rather
than assets. What do you expect from a doctor who while studying at AMEC is so much burdened with
unreasonable imposition? What do you expect from a student who aside from peculiar problems – because
not all students are rich – in their struggle to improve their social status are even more burdened with false
regulations. xxx9 (Emphasis supplied)
The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposés,
FBNI, Rima and Alegre "transmitted malicious imputations, and as such, destroyed plaintiffs’ (AMEC and
Ago) reputation." AMEC and Ago included FBNI as defendant for allegedly failing to exercise due
diligence in the selection and supervision of its employees, particularly Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer 10 alleging that
the broadcasts against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly
impelled by a sense of public duty to report the "goings-on in AMEC, [which is] an institution imbued
with public interest."
Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea,
collaborating counsel of Atty. Lozares, filed a Motion to Dismiss 11 on FBNI’s behalf. The trial court
denied the motion to dismiss. Consequently, FBNI filed a separate Answer claiming that it exercised due
diligence in the selection and supervision of Rima and Alegre. FBNI claimed that before hiring a
broadcaster, the broadcaster should (1) file an application; (2) be interviewed; and (3) undergo an
apprenticeship and training program after passing the interview. FBNI likewise claimed that it always
reminds its broadcasters to "observe truth, fairness and objectivity in their broadcasts and to refrain from
using libelous and indecent language." Moreover, FBNI requires all broadcasters to pass the Kapisanan ng
mga Brodkaster sa Pilipinas ("KBP") accreditation test and to secure a KBP permit.
On 14 December 1992, the trial court rendered a Decision12 finding FBNI and Alegre liable for libel
except Rima. The trial court held that the broadcasts are libelous per se. The trial court rejected the
broadcasters’ claim that their utterances were the result of straight reporting because it had no factual
basis. The broadcasters did not even verify their reports before airing them to show good faith. In holding
FBNI liable for libel, the trial court found that FBNI failed to exercise diligence in the selection and
supervision of its employees.
In absolving Rima from the charge, the trial court ruled that Rima’s only participation was when he agreed
with Alegre’s exposé. The trial court found Rima’s statement within the "bounds of freedom of speech,
expression, and of the press." The dispositive portion of the decision reads:
WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of
damages caused by the controversial utterances, which are not found by this court to be really very
serious and damaging, and there being no showing that indeed the enrollment of plaintiff school
dropped, defendants Hermogenes "Jun" Alegre, Jr. and Filipinas Broadcasting Network (owner of the
radio station DZRC), are hereby jointly and severally ordered to pay plaintiff Ago Medical and
Educational Center-Bicol Christian College of Medicine (AMEC-BCCM) the amount of ₱300,000.00
moral damages, plus ₱30,000.00 reimbursement of attorney’s fees, and to pay the costs of suit.
7
SO ORDERED. 13 (Emphasis supplied) II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;

Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed III. WHETHER THE AWARD OF ATTORNEY’S FEES IS PROPER; and
the decision to the Court of Appeals. The Court of Appeals affirmed the trial court’s judgment with
modification. The appellate court made Rima solidarily liable with FBNI and Alegre. The appellate court
IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR
denied Ago’s claim for damages and attorney’s fees because the broadcasts were directed against AMEC,
PAYMENT OF MORAL DAMAGES, ATTORNEY’S FEES AND COSTS OF SUIT.
and not against her. The dispositive portion of the Court of Appeals’ decision reads:

The Court’s Ruling

WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that
broadcaster Mel Rima is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre.
We deny the petition.
SO ORDERED.14
This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre
against AMEC.17 While AMEC did not point out clearly the legal basis for its complaint, a reading of the
FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26
complaint reveals that AMEC’s cause of action is based on Articles 30 and 33 of the Civil Code. Article
January 2000 Resolution.
3018 authorizes a separate civil action to recover civil liability arising from a criminal offense. On the other
hand, Article 3319 particularly provides that the injured party may bring a separate civil action for damages
Hence, FBNI filed this petition.15 in cases of defamation, fraud, and physical injuries. AMEC also invokes Article 19 20 of the Civil Code to
justify its claim for damages. AMEC cites Articles 2176 21 and 218022 of the Civil Code to hold FBNI
solidarily liable with Rima and Alegre.
The Ruling of the Court of Appeals

I.
The Court of Appeals upheld the trial court’s ruling that the questioned broadcasts are libelous per se and
that FBNI, Rima and Alegre failed to overcome the legal presumption of malice. The Court of Appeals
found Rima and Alegre’s claim that they were actuated by their moral and social duty to inform the public Whether the broadcasts are libelous
of the students’ gripes as insufficient to justify the utterance of the defamatory remarks.
A libel23 is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any
Finding no factual basis for the imputations against AMEC’s administrators, the Court of Appeals ruled act or omission, condition, status, or circumstance tending to cause the dishonor, discredit, or contempt of
that the broadcasts were made "with reckless disregard as to whether they were true or false." The a natural or juridical person, or to blacken the memory of one who is dead.24
appellate court pointed out that FBNI, Rima and Alegre failed to present in court any of the students who
allegedly complained against AMEC. Rima and Alegre merely gave a single name when asked to identify
There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances
the students. According to the Court of Appeals, these circumstances cast doubt on the veracity of the
tending to cause it dishonor, discredit and contempt. Rima and Alegre’s remarks such as "greed for money
broadcasters’ claim that they were "impelled by their moral and social duty to inform the public about the
on the part of AMEC’s administrators"; "AMEC is a dumping ground, garbage of xxx moral and physical
students’ gripes."
misfits"; and AMEC students who graduate "will be liabilities rather than assets" of the society are
libelous per se. Taken as a whole, the broadcasts suggest that AMEC is a money-making institution where
The Court of Appeals found Rima also liable for libel since he remarked that "(1) AMEC-BCCM is a physically and morally unfit teachers abound.
dumping ground for morally and physically misfit teachers; (2) AMEC obtained the services of Dean
Justita Lola to minimize expenses on its employees’ salaries; and (3) AMEC burdened the students with
However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were
unreasonable imposition and false regulations."16
plainly impelled by their civic duty to air the students’ gripes. FBNI alleges that there is no evidence that
ill will or spite motivated Rima and Alegre in making the broadcasts. FBNI further points out that Rima
The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of its and Alegre exerted efforts to obtain AMEC’s side and gave Ago the opportunity to defend AMEC and its
employees for allowing Rima and Alegre to make the radio broadcasts without the proper KBP administrators. FBNI concludes that since there is no malice, there is no libel.
accreditation. The Court of Appeals denied Ago’s claim for damages and attorney’s fees because the
libelous remarks were directed against AMEC, and not against her. The Court of Appeals adjudged FBNI,
FBNI’s contentions are untenable.
Rima and Alegre solidarily liable to pay AMEC moral damages, attorney’s fees and costs of
suit.1awphi1.nét
Every defamatory imputation is presumed malicious.25 Rima and Alegre failed to show adequately their
good intention and justifiable motive in airing the supposed gripes of the students. As hosts of a
Issues
documentary or public affairs program, Rima and Alegre should have presented the public issues "free
from inaccurate and misleading information."26 Hearing the students’ alleged complaints a month before
FBNI raises the following issues for resolution: the exposé,27 they had sufficient time to verify their sources and information. However, Rima and Alegre
hardly made a thorough investigation of the students’ alleged gripes. Neither did they inquire about nor
confirm the purported irregularities in AMEC from the Department of Education, Culture and Sports.
I. WHETHER THE BROADCASTS ARE LIBELOUS;

8
Alegre testified that he merely went to AMEC to verify his report from an alleged AMEC official who Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy
refused to disclose any information. Alegre simply relied on the words of the students "because they were courses. Yet, plaintiff produced a certificate coming from DECS that as of Sept. 22, 1987 or more than 2
many and not because there is proof that what they are saying is true."28 This plainly shows Rima and years before the controversial broadcast, accreditation to offer Physical Therapy course had already been
Alegre’s reckless disregard of whether their report was true or not. given the plaintiff, which certificate is signed by no less than the Secretary of Education and Culture
herself, Lourdes R. Quisumbing (Exh. C-rebuttal). Defendants could have easily known this were they
careful enough to verify. And yet, defendants were very categorical and sounded too positive when they
Contrary to FBNI’s claim, the broadcasts were not "the result of straight reporting." Significantly, some
made the erroneous report that plaintiff had no permit to offer Physical Therapy courses which they were
courts in the United States apply the privilege of "neutral reportage" in libel cases involving matters of
offering.
public interest or public figures. Under this privilege, a republisher who accurately and disinterestedly
reports certain defamatory statements made against public figures is shielded from liability, regardless of
the republisher’s subjective awareness of the truth or falsity of the accusation.29 Rima and Alegre cannot The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald
invoke the privilege of neutral reportage because unfounded comments abound in the broadcasts. Foundation prove not to be true also. The truth is there is no Mcdonald Foundation existing. Although a
Moreover, there is no existing controversy involving AMEC when the broadcasts were made. The big building of plaintiff school was given the name Mcdonald building, that was only in order to honor the
privilege of neutral reportage applies where the defamed person is a public figure who is involved in an first missionary in Bicol of plaintiffs’ religion, as explained by Dr. Lita Ago. Contrary to the claim of
existing controversy, and a party to that controversy makes the defamatory statement.30 defendants over the air, not a single centavo appears to be received by plaintiff school from the
aforementioned McDonald Foundation which does not exist.
However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court of
Appeals,31 FBNI contends that the broadcasts "fall within the coverage of qualifiedly privileged Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical
communications" for being commentaries on matters of public interest. Such being the case, AMEC students fail in one subject, they are made to repeat all the other subject[s], even those they have already
should prove malice in fact or actual malice. Since AMEC allegedly failed to prove actual malice, there is passed, nor their claim that the school charges laboratory fees even if there are no laboratories in the
no libel.  school. No evidence was presented to prove the bases for these claims, at least in order to give semblance
of good faith.
FBNI’s reliance on Borjal is misplaced. In Borjal, the Court elucidated on the "doctrine of fair comment,"
thus: As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s]
singled out Dean Justita Lola who is said to be so old, with zero visibility already. Dean Lola testified in
court last Jan. 21, 1991, and was found to be 75 years old. xxx Even older people prove to be effective
[F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action
teachers like Supreme Court Justices who are still very much in demand as law professors in their late
for libel or slander. The doctrine of fair comment means that while in general every discreditable
years. Counsel for defendants is past 75 but is found by this court to be still very sharp and
imputation publicly made is deemed false, because every man is presumed innocent until his guilt is
effective.l^vvphi1.net So is plaintiffs’ counsel.
judicially proved, and every false imputation is deemed malicious, nevertheless, when the discreditable
imputation is directed against a public person in his public capacity, it is not necessarily actionable. In
order that such discreditable imputation to a public official may be actionable, it must either be a Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still
false allegation of fact or a comment based on a false supposition. If the comment is an expression of alert and docile.
opinion, based on established facts, then it is immaterial that the opinion happens to be mistaken, as long
as it might reasonably be inferred from the facts.32 (Emphasis supplied)
The contention that plaintiffs’ graduates become liabilities rather than assets of our society is a mere
conclusion. Being from the place himself, this court is aware that majority of the medical graduates of
True, AMEC is a private learning institution whose business of educating students is "genuinely imbued plaintiffs pass the board examination easily and become prosperous and responsible professionals.33
with public interest." The welfare of the youth in general and AMEC’s students in particular is a matter
which the public has the right to know. Thus, similar to the newspaper articles in Borjal, the subject
Had the comments been an expression of opinion based on established facts, it is immaterial that the
broadcasts dealt with matters of public interest. However, unlike in Borjal, the questioned broadcasts
opinion happens to be mistaken, as long as it might reasonably be inferred from the facts.34 However, the
are not based on established facts. The record supports the following findings of the trial court:
comments of Rima and Alegre were not backed up by facts. Therefore, the broadcasts are not privileged
and remain libelous per se.
xxx Although defendants claim that they were motivated by consistent reports of students and parents
against plaintiff, yet, defendants have not presented in court, nor even gave name of a single student who
The broadcasts also violate the Radio Code 35 of the Kapisanan ng mga Brodkaster sa Pilipinas,
made the complaint to them, much less present written complaint or petition to that effect. To accept this
Ink.  ("Radio Code"). Item I(B) of the Radio Code provides:
defense of defendants is too dangerous because it could easily give license to the media to malign people
and establishments based on flimsy excuses that there were reports to them although they could not
satisfactorily establish it. Such laxity would encourage careless and irresponsible broadcasting which is B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
inimical to public interests.
1. x x x
Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their
duties, did not verify and analyze the truth of the reports before they aired it, in order to prove that they are
4. Public affairs program shall present public issues free from personal bias, prejudice
in good faith.
and inaccurate and misleading information. x x x Furthermore, the station shall strive to
present balanced discussion of issues. x x x.

9
 x x x  III.
7. The station shall be responsible at all times in the supervision of public affairs, public issues
and commentary programs so that they conform to the provisions and standards of this code.
8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect
public interest, general welfare and good order in the presentation of public affairs and public
issues.36 (Emphasis supplied)
The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of
ethical conduct governing practitioners in the radio broadcast industry. The Radio Code is a voluntary
code of conduct imposed by the radio broadcast industry on its own members. The Radio Code is a public
warranty by the radio broadcast industry that radio broadcast practitioners are subject to a code by which
their conduct are measured for lapses, liability and sanctions.
The public has a right to expect and demand that radio broadcast practitioners live up to the code of
conduct of their profession, just like other professionals. A professional code of conduct provides the
standards for determining whether a person has acted justly, honestly and with good faith in the exercise
of his rights and performance of his duties as required by Article 19 37 of the Civil Code. A professional
code of conduct also provides the standards for determining whether a person who willfully causes loss or
injury to another has acted in a manner contrary to morals or good customs under Article 2138 of the Civil
Code.
II.
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral damages because it is a corporation.39
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or
moral shock.40 The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al.41 to justify the award of
moral damages. However, the Court’s statement in Mambulao that "a corporation may have a good
reputation which, if besmirched, may also be a ground for the award of moral damages" is an obiter
dictum.42
Nevertheless, AMEC’s claim for moral damages falls under item 7 of Article 2219 43 of the Civil Code.
This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other
form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person.
Therefore, a juridical person such as a corporation can validly complain for libel or any other form of
defamation and claim for moral damages.44
Moreover, where the broadcast is libelous per se, the law implies damages.45 In such a case, evidence of
an honest mistake or the want of character or reputation of the party libeled goes only in mitigation of
damages.46 Neither in such a case is the plaintiff required to introduce evidence of actual damages as a
condition precedent to the recovery of some damages.47 In this case, the broadcasts are libelous per se.
Thus, AMEC is entitled to moral damages.
However, we find the award of ₱300,000 moral damages unreasonable. The record shows that even
though the broadcasts were libelous per se, AMEC has not suffered any substantial or material damage to
its reputation. Therefore, we reduce the award of moral damages from ₱300,000 to ₱150,000.
Whether the award of attorney’s fees is proper
FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of
attorney’s fees. FBNI adds that the instant case does not fall under the enumeration in Article 2208 48 of the
Civil Code.
The award of attorney’s fees is not proper because AMEC failed to justify satisfactorily its claim for
attorney’s fees. AMEC did not adduce evidence to warrant the award of attorney’s fees. Moreover, both
the trial and appellate courts failed to explicitly state in their respective decisions the rationale for the
award of attorney’s fees.49 In Inter-Asia Investment Industries, Inc. v. Court of Appeals ,50 we held that:
[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the
rule, and counsel’s fees are not to be awarded every time a party wins a suit. The power of the court to
award attorney’s fees under Article 2208 of the Civil Code demands factual, legal and equitable
justification, without which the award is a conclusion without a premise, its basis being improperly
left to speculation and conjecture. In all events, the court must explicitly state in the text of the decision,
and not only in the decretal portion thereof, the legal reason for the award of attorney’s fees.51 (Emphasis
supplied)
While it mentioned about the award of attorney’s fees by stating that it "lies within the discretion of the
court and depends upon the circumstances of each case," the Court of Appeals failed to point out any
circumstance to justify the award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre for moral damages, attorney’s fees and costs of
suit
FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and
attorney’s fees because it exercised due diligence in the selection and supervision of its employees,
particularly Rima and Alegre. FBNI maintains that its broadcasters, including Rima and Alegre, undergo a
"very regimented process" before they are allowed to go on air. "Those who apply for broadcaster are
subjected to interviews, examinations and an apprenticeship program."
FBNI further argues that Alegre’s age and lack of training are irrelevant to his competence as a
broadcaster. FBNI points out that the "minor deficiencies in the KBP accreditation of Rima and Alegre do
not in any way prove that FBNI did not exercise the diligence of a good father of a family in selecting and
supervising them." Rima’s accreditation lapsed due to his non-payment of the KBP annual fees while
Alegre’s accreditation card was delayed allegedly for reasons attributable to the KBP Manila Office. FBNI
claims that membership in the KBP is merely voluntary and not required by any law or government
regulation.
FBNI’s arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which
they commit.52 Joint tort feasors are all the persons who command, instigate, promote, encourage, advise,
countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if
done for their benefit.53Thus, AMEC correctly anchored its cause of action against FBNI on Articles 2176
and 2180 of the Civil Code.1a\^/phi1.net
10
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages
arising from the libelous broadcasts. As stated by the Court of Appeals, "recovery for defamatory
statements published by radio or television may be had from the owner of the station, a
licensee, the operator of the station, or a person who procures, or participates in, the making of the
defamatory statements."54 An employer and employee are solidarily liable for a defamatory statement by
the employee within the course and scope of his or her employment, at least when the employer authorizes
or ratifies the defamation.55 In this case, Rima and Alegre were clearly performing their official duties as
hosts of FBNI’s radio program Exposé when they aired the broadcasts. FBNI neither alleged nor proved
that Rima and Alegre went beyond the scope of their work at that time. There was likewise no showing
that FBNI did not authorize and ratify the defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due diligence in
the selection andsupervision of its employees, particularly Rima and Alegre. FBNI merely showed that it
exercised diligence in the selection of its broadcasters without introducing any evidence to prove that it
observed the same diligence in the supervision of Rima and Alegre. FBNI did not show how it exercised
diligence in supervising its broadcasters. FBNI’s alleged constant reminder to its broadcasters to "observe
truth, fairness and objectivity and to refrain from using libelous and indecent language" is not enough to
prove due diligence in the supervision of its broadcasters. Adequate training of the broadcasters on the
industry’s code of conduct, sufficient information on libel laws, and continuous evaluation of the
broadcasters’ performance are but a few of the many ways of showing diligence in the supervision of
broadcasters.
FBNI claims that it "has taken all the precaution in the selection of Rima and Alegre as broadcasters,
bearing in mind their qualifications." However, no clear and convincing evidence shows that Rima and
Alegre underwent FBNI’s "regimented process" of application. Furthermore, FBNI admits that Rima and
Alegre had deficiencies in their KBP accreditation,56 which is one of FBNI’s requirements before it hires a
broadcaster. Significantly, membership in the KBP, while voluntary, indicates the broadcaster’s strong
commitment to observe the broadcast industry’s rules and regulations. Clearly, these circumstances show
FBNI’s lack of diligence in selecting andsupervising Rima and Alegre. Hence, FBNI is solidarily liable to
pay damages together with Rima and Alegre.
WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and
Resolution of 26 January 2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the
MODIFICATION that the award of moral damages is reduced from ₱300,000 to ₱150,000 and the award
of attorney’s fees is deleted. Costs against petitioner.
FRANCISCO MOTORS CORPORATION, Petitioner, v. COURT OF APPEALS and SPOUSES
GREGORIO and LIBRADA MANUEL, Respondents.
This petition for review on certiorari, under Rule 45 of the Rules of Court, seeks to annul the decision 1 of
the Court of Appeals in C.A. G.R. CV No. 10014 affirming the decision rendered by Branch 135,
Regional Trial Court of Makati, Metro Manila. The procedural antecedents of this petition are as
follows:chanrob1es virtual 1aw library
On January 23, 1985, petitioner filed a complaint 2 against private respondents to recover three thousand
four hundred twelve and six centavos (P3,412.06), representing the balance of the jeep body purchased by
the Manuels from petitioner; an additional sum of twenty thousand four hundred fifty-four and eighty
centavos (P20,454.80) representing the unpaid balance on the cost of repair of the vehicle; and six
thousand pesos (P6,000.00) for cost of suit and attorney’s fees. 3 To the original balance on the price of
jeep body were added the costs of repair. 4 In their answer, private respondents interposed a counterclaim
for unpaid legal services by Gregorio Manuel in the amount of fifty thousand pesos (P50,000) which was
not paid by the incorporators, directors and officers of the petitioner. The trial court decided the case on
June 26, 1985, in favor of petitioner in regard to the petitioner’s claim for money, but also allowed the
counter-claim of private respondents. Both parties appealed. On April 15, 1991, the Court of Appeals
sustained the trial court’s decision. 5 Hence, the present petition.chanrobles virtual lawlibrary
For our review in particular is the propriety of the permissive counterclaim which private respondents
filed together with their answer to petitioner’s complaint for a sum of money. Private respondent Gregorio
Manuel alleged as an affirmative defense that, while he was petitioner’s Assistant Legal Officer, he
represented members of the Francisco family in the intestate estate proceedings of the late Benita
Trinidad. However, even after the termination of the proceedings, his services were not paid. Said family
members, he said, were also incorporators, directors and officers of petitioner. Hence to counter
petitioner’s collection suit, he filed a permissive counterclaim for the unpaid attorney’s fees. 6 
For failure of petitioner to answer the counterclaim, the trial court declared petitioner in default on this
score, and evidence ex-parte was presented on the counterclaim. The trial court ruled in favor of private
respondents and found that Gregorio Manuel indeed rendered legal services to the Francisco family in
Special Proceedings Number 7803- "In the Matter of Intestate Estate of Benita Trinidad." Said court also
found that his legal services were not compensated despite repeated demands, and thus ordered petitioner
to pay him the amount of fifty thousand (P50,000.00) pesos. 7 
Dissatisfied with the trial court’s order, petitioner elevated the matter to the Court of Appeals, posing the
following issues:chanrobles virtual lawlibrary
"I.
WHETHER OR NOT THE DECISION RENDERED BY THE LOWER COURT IS NULL AND VOID
AS IT NEVER ACQUIRED JURISDICTION OVER THE PERSON OF THE DEFENDANT.
II.
WHETHER OR NOT PLAINTIFF-APPELLANT NOT BEING A REAL PARTY IN THE ALLEGED
PERMISSIVE COUNTERCLAIM SHOULD BE HELD LIABLE TO THE CLAIM OF DEFENDANT-
APPELLEES.
III.
WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFF-APPELLANT TO
ANSWER THE ALLEGED PERMISSIVE COUNTERCLAIM." 8 
Petitioner contended that the trial court did not acquire jurisdiction over it because no summons was
validly served on it together with the copy of the answer containing the permissive counterclaim. Further,
petitioner questions the propriety of its being made party to the case because it was not the real party in
interest but the individual members of the Francisco family concerned with the intestate case.
In its assailed decision now before us for review, respondent Court of Appeals held that a counterclaim
must be answered in ten (10) days, pursuant to Section 4, Rule 11, of the Rules of Court; and nowhere
does it state in the Rules that a party still needed to be summoned anew if a counterclaim was set up
against him. Failure to serve summons, said respondent court, did not effectively negate trial court’s
jurisdiction over petitioner in the matter of the counterclaim. It likewise pointed out that there was no
reason for petitioner to be excused from answering the counterclaim. Court records showed that its former
counsel, Nicanor G. Alvarez, received the copy of the answer with counterclaim two (2) days prior to his
withdrawal as counsel for petitioner. Moreover when petitioner’s new counsel, Jose N. Aquino, entered
his appearance, three (3) days still remained within the period to file an answer to the counterclaim.
Having failed to answer, petitioner was correctly considered in default by the trial court. 9 Even assuming
11
that the trial court acquired no jurisdiction over petitioner, respondent court also said, but having filed a
motion for reconsideration seeking relief from the said order of default, petitioner was estopped from
further questioning the trial court’s jurisdiction. 10  plaintiff and defendant with respect to the other, 15 requiring in each case separate summonses.
On the question of its liability for attorney’s fees owing to private respondent Gregorio Manuel, petitioner
argued that being a corporation, it should not be held liable therefor because these fees were owed by the
incorporators, directors and officers of the corporation in their personal capacity as heirs of Benita
Trinidad. Petitioner stressed that the personality of the corporation, vis-à-vis the individual persons who
hired the services of private respondent, is separate and distinct, 11 hence, the liability of said individuals
did not become an obligation chargeable against petitioner.chanroblesvirtual|awlibrary
Nevertheless, on the foregoing issue, the Court of Appeals ruled as follows:jgc:chanrobles.com.ph
"However, this distinct and separate personality is merely a fiction created by law for convenience and to
promote justice. Accordingly, this separate personality of the corporation may be disregarded, or the veil
of corporate fiction pierced, in cases where it is used as a cloak or cover for found (sic) illegality, or to
work an injustice, or where necessary to achieve equity or when necessary for the protection of creditors.
(Sulo ng Bayan, Inc. v. Araneta, Inc., 72 SCRA 347) Corporations are composed of natural persons and
the legal fiction of a separate corporate personality is not a shield for the commission of injustice and
inequity. (Chemplex Philippines, Inc. v. Pamatian, 57 SCRA 408)
"In the instant case, evidence shows that the plaintiff-appellant Francisco Motors Corporation is composed
of the heirs of the late Benita Trinidad as directors and incorporators for whom defendant Gregorio
Manuel rendered legal services in the intestate estate case of their deceased mother. Considering the
aforestated principles and circumstances established in this case, equity and justice demands plaintiff-
appellant’s veil of corporate identity should be pierced and the defendant be compensated for legal
services rendered to the heirs, who are directors of the plaintiff-appellant corporation." 12  necessary. Private respondents say they served a copy of their answer with affirmative defenses and
Now before us, petitioner assigns the following errors:chanrob1es virtual 1aw library
"I.
THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF PIERCING THE VEIL OF
CORPORATE ENTITY.chanrobles virtual lawlibrary
II.
THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE WAS JURISDICTION OVER
PETITIONER WITH RESPECT TO THE COUNTERCLAIM." 13  piercing the veil of corporate entity, the corporation’s separate juridical personality may be disregarded,
Petitioner submits that respondent court should not have resorted to piercing the veil of corporate fiction
because the transaction concerned only respondent Gregorio Manuel and the heirs of the late Benita
Trinidad. According to petitioner, there was no cause of action by said respondent against petitioner;
personal concerns of the heirs should be distinguished from those involving corporate affairs. Petitioner
further contends that the present case does not fall among the instances wherein the courts may look
beyond the distinct personality of a corporation. According to petitioner, the services for which respondent
Gregorio Manuel seeks to collect fees from petitioner are personal in nature. Hence, it avers the heirs
should have been sued in their personal capacity, and not involve the corporation. 14  In our view, however, given the facts and circumstances of this case, the doctrine of piercing the corporate
With regard to the permissive counterclaim, petitioner also insists that there was no proper service of the
answer containing the permissive counterclaim. It claims that the counterclaim is a separate case which
can only be properly served upon the opposing party through summons. Further petitioner states that by
nature, a permissive counterclaim is one which does not arise out of nor is necessarily connected with the
subject of the opposing party’s claim. Petitioner avers that since there was no service of summons upon it
with regard to the counterclaim, then the court did not acquire jurisdiction over petitioner. Since a
counterclaim is considered an action independent from the answer, according to petitioner, then in effect
there should be two simultaneous actions between the same parties: each party is at the same time both
 
In their Comment, private respondents focus on the two questions raised by petitioner. They defend the
propriety of piercing the veil of corporate fiction, but deny the necessity of serving separate summonses
on petitioner in regard to their permissive counterclaim contained in the answer.
Private respondents maintain both trial and appellate courts found that respondent Gregorio Manuel was
employed as assistant legal officer of petitioner corporation, and that his services were solicited by the
incorporators, directors and members to handle and represent them in Special Proceedings No. 7803,
concerning the Intestate Estate of the late Benita Trinidad. They assert that the members of petitioner
corporation took advantage of their positions by not compensating respondent Gregorio Manuel after the
termination of the estate proceedings despite his repeated demands for payment of his services. They cite
findings of the appellate court that support piercing the veil of corporate identity in this particular case.
They assert that the corporate veil may be disregarded when it is used to defeat public convenience, justify
wrong, protect fraud, and defend crime. It may also be pierced, according to them, where the corporate
entity is being used as an alter ego, adjunct, or business conduit for the sole benefit of the stockholders or
of another corporate entity. In these instances, they aver, the corporation should be treated merely as an
association of individual persons. 16chanrobles law library : red
Private respondents dispute petitioner’s claim that its right to due process was violated when respondents’
counterclaim was granted due course, although no summons was served upon it. They claim that no
provision in the Rules of Court requires service of summons upon a defendant in a counterclaim. Private
respondents argue that when the petitioner filed its complaint before the trial court it voluntarily submitted
itself to the jurisdiction of the court. As a consequence, the issuance of summons on it was no longer
counterclaim on petitioner’s former counsel, Nicanor G. Alvarez. While petitioner would have the Court
believe that respondents served said copy upon Alvarez after he had withdrawn his appearance as counsel
for the petitioner, private respondents assert that this contention is utterly baseless. Records disclose that
the answer was received two (2) days before the former counsel for petitioner withdrew his appearance,
according to private respondents. They maintain that the present petition is but a form of dilatory appeal,
to set off petitioner’s obligations to the respondents by running up more interest it could recover from
them. Private respondents therefore claim damages against petitioner. 17 
To resolve the issues in this case, we must first determine the propriety of piercing the veil of corporate
fiction.
Basic in corporation law is the principle that a corporation has a separate personality distinct from its
stockholders and from other corporations to which it may be connected. 18 However, under the doctrine of
for example, when the corporate identity is used to defeat public convenience, justify wrong, protect fraud,
or defend crime. Also, where the corporation is a mere alter ego or business conduit of a person, or where
the corporation is so organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation, then its distinct personality may be
ignored. 19 In these circumstances, the courts will treat the corporation as a mere aggrupation of persons
and the liability will directly attach to them. The legal fiction of a separate corporate personality in those
cited instances, for reasons of public policy and in the interest of justice, will be justifiably set aside.
veil has no relevant application here. Respondent court erred in permitting the trial court’s resort to this
doctrine. The rationale behind piercing a corporation’s identity in a given case is to remove the barrier
between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of
those who use the corporate personality as a shield for undertaking certain proscribed activities. However,
in the case at bar, instead of holding certain individuals or persons responsible for an alleged corporate act,
the situation has been reversed. It is the petitioner as a corporation which is being ordered to answer for
the personal liability of certain individual directors, officers and incorporators concerned. Hence, it
12
appears to us that the doctrine has been turned upside down because of its erroneous invocation. Note that
according to private respondent Gregorio Manuel his services were solicited as counsel for members of
the Francisco family to represent them in the intestate proceedings over Benita Trinidad’s estate. These
estate proceedings did not involve any business of petitioner.
Note also that he sought to collect legal fees not just from certain Francisco family members but also from
petitioner corporation on the claims that its management had requested his services and he acceded thereto
as an employee of petitioner from whom it could be deduced he was also receiving a salary. His move to
recover unpaid legal fees through a counterclaim against Francisco Motors Corporation, to offset the
unpaid balance of the purchase and repair of a jeep body could only result from an obvious
misapprehension that petitioner’s corporate assets could be used to answer for the liabilities of its
individual directors, officers, and incorporators. Such result if permitted could easily prejudice the
corporation, its own creditors, and even other stockholders; hence, clearly iniquitous to petitioner.
Furthermore, considering the nature of the legal services involved, whatever obligation said incorporators,
directors and officers of the corporation had incurred, it was incurred in their personal capacity. When
directors and officers of a corporation are unable to compensate a party for a personal obligation, it is far-
fetched to allege that the corporation is perpetuating fraud or promoting injustice, and be thereby held
liable therefor by piercing its corporate veil. While there are no hard and fast rules on disregarding
separate corporate identity, we must always be mindful of its function and purpose. A court should be
careful in assessing the milieu where the doctrine of piercing the corporate veil may be applied. Otherwise
an injustice, although unintended, may result from its erroneous application.chanroblesvirtualawlibrary
The personality of the corporation and those of its incorporators, directors and officers in their personal
capacities ought to be kept separate in this case. The claim for legal fees against the concerned individual
incorporators, officers and directors could not be properly directed against the corporation without
violating basic principles governing corporations. Moreover, every action — including a counterclaim —
must be prosecuted or defended in the name of the real party in interest. 20 It is plainly an error to lay the
claim for legal fees of private respondent Gregorio Manuel at the door of petitioner (FMC) rather than
individual members of the Francisco family.
However, with regard to the procedural issue raised by petitioner’s allegation, that it needed to be
summoned anew in order for the court to acquire jurisdiction over it, we agree with respondent court’s
view to the contrary. Section 4, Rule 11 of the Rules of Court provides that a counterclaim or cross-claim
must be answered within ten (10) days from service. Nothing in the Rules of Court says that summons
should first be served on the defendant before an answer to counterclaim must be made. The purpose of a
summons is to enable the court to acquire jurisdiction over the person of the defendant. Although a
counterclaim is treated as an entirely distinct and independent action, the defendant in the counterclaim,
being the plaintiff in the original complaint, has already submitted to the jurisdiction of the court.
Following Rule 9, Section 3 of the 1997 Rules of Civil Procedure, 21 if a defendant (herein petitioner)
fails to answer the counterclaim, then upon motion of plaintiff, the defendant may be declared in default.
This is what happened to petitioner in this case, and this Court finds no procedural error in the disposition
of the appellate court on this particular issue. Moreover, as noted by the respondent court, when petitioner
filed its motion seeking to set aside the order of default, in effect it submitted itself to the jurisdiction of
the court. As well said by respondent court:jgc:chanrobles.com.ph
"Further on the lack of jurisdiction as raised by plaintiff-appellant[,] [t]he records show that upon its
request, plaintiff-appellant was granted time to file a motion for reconsideration of the disputed decision.
Plaintiff-appellant did file its motion for reconsideration to set aside the order of default and the judgment
rendered on the counterclaim.
"Thus, even if the court acquired no jurisdiction over plaintiff-appellant on the counterclaim, as it
vigorously insists, plaintiff-appellant is considered to have submitted to the court’s jurisdiction when it
filed the motion for reconsideration seeking relief from the court. (Soriano v. Palacio, 12 SCRA 447). A
party is estopped from assailing the jurisdiction of a court after voluntarily submitting himself to its
jurisdiction. (Tejones v. Gironella, 159 SCRA 100). Estoppel is a bar against any claims of lack of
jurisdiction. (Balais v. Balais, 159 SCRA 37)." 22chanrobles virtual lawlibrary
WHEREFORE, the petition is hereby GRANTED and the assailed decision is hereby REVERSED insofar
only as it held Francisco Motors Corporation liable for the legal obligation owing to private respondent
Gregorio Manuel; but this decision is without prejudice to his filing the proper suit against the concerned
members of the Francisco family in their personal capacity. No pronouncement as to costs.
BANK OF AMERICA NT&SA, BANK OF AMERICA INTERNATIONAL,
LTD., Petitioners, v. COURT OF APPEALS, HON. MANUEL PADOLINA, EDUARDO LITONJUA,
SR., and AURELIO K. LITONJUA, JR., respondents.
This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the November 29,
1994 decision of the Court of Appeals1 and the April 28, 1995 resolution denying petitioners motion for
reconsideration.
The factual background of the case is as follows:
On May 10, 1993, Eduardo K. Litonjua, Sr. and Aurelio J. Litonjua (Litonjuas, for brevity) filed a
Complaint2 before the Regional Trial Court of Pasig against the Bank of America NT&SA and Bank of
America International, Ltd. (defendant banks for brevity) alleging that: they were engaged in the shipping
business; they owned two vessels: Don Aurelio and El Champion, through their wholly-owned
corporations; they deposited their revenues from said business together with other funds with the branches
of said banks in the United Kingdom and Hongkong up to 1979; with their business doing well, the
defendant banks induced them to increase the number of their ships in operation, offering them easy loans
to acquire said vessels;3 thereafter, the defendant banks acquired, through their (Litonjuas) corporations as
the borrowers: (a) El Carrier 4; (b) El General5; (c) El Challenger6; and (d) El Conqueror 7; the vessels were
registered in the names of their corporations; the operation and the funds derived therefrom were placed
under the complete and exclusive control and disposition of the petitioners; 8 and the possession the vessels
was also placed by defendant banks in the hands of persons selected and designated by them (defendant
banks).9cräläwvirtualibräry
The Litonjuas claimed that defendant banks as trustees did not fully render an account of all the income
derived from the operation of the vessels as well as of the proceeds of the subsequent foreclosure
sale;10 because of the breach of their fiduciary duties and/or negligence of the petitioners and/or the
persons designated by them in the operation of private respondents six vessels, the revenues derived from
the operation of all the vessels declined drastically; the loans acquired for the purchase of the four
additional vessels then matured and remained unpaid, prompting defendant banks to have all the six
vessels, including the two vessels originally owned by the private respondents, foreclosed and sold at
public auction to answer for the obligations incurred for and in behalf of the operation of the vessels; they
(Litonjuas) lost sizeable amounts of their own personal funds equivalent to ten percent (10%) of the
acquisition cost of the four vessels and were left with the unpaid balance of their loans with defendant
banks.11 The Litonjuas prayed for the accounting of the revenues derived in the operation of the six vessels
and of the proceeds of the sale thereof at the foreclosure proceedings instituted by petitioners; damages for
breach of trust; exemplary damages and attorneys fees.12cräläwvirtualibräry
Defendant banks filed a Motion to Dismiss on grounds of forum non conveniens and lack of cause of
action against them.13cräläwvirtualibräry
On December 3, 1993, the trial court issued an Order denying the Motion to Dismiss, thus:
WHEREFORE, and in view of the foregoing consideration, the Motion to Dismiss is hereby DENIED.
The defendant is therefore, given a period of ten (10) days to file its Answer to the complaint.
13
SO ORDERED.14cräläwvirtualibräry In support of their claim that the local court is not the proper forum, petitioners allege the following:

Instead of filing an answer the defendant banks went to the Court of Appeals on a Petition for Review on i) The Bank of America Branches involved, as clearly mentioned in the Complaint, are based in Hongkong
Certiorari15which was aptly treated by the appellate court as a petition for certiorari. They assailed the and England. As such, the evidence and the witnesses are not readily available in the Philippines; 
above-quoted order as well as the subsequent denial of their Motion for Reconsideration.16 The appellate
court dismissed the petition and denied petitioners Motion for Reconsideration.17cräläwvirtualibräry
ii) The loan transactions were obtained, perfected, performed, consummated and partially paid outside the
Philippines;
Hence, herein petition anchored on the following grounds:
iii) The monies were advanced outside the Philippines. Furthermore, the mortgaged vessels were part
1. RESPONDENT COURT OF APPEALS FAILED TO CONSIDER THE FACT THAT THE of an offshore fleet, not based in the Philippines;
SEPARATE PERSONALITIES OF THE PRIVATE RESPONDENTS (MERE STOCKHOLDERS) AND
THE FOREIGN CORPORATIONS (THE REAL BORROWERS) CLEARLY SUPPORT, BEYOND
iv) All the loans involved were granted to the Private Respondents foreign CORPORATIONS;
ANY DOUBT, THE PROPOSITION THAT THE PRIVATE RESPONDENTS HAVE NO
PERSONALITIES TO SUE.
v) The Restructuring Agreements were ALL governed by the laws of England;
2. THE RESPONDENT COURT OF APPEALS FAILED TO REALIZE THAT WHILE THE
PRINCIPLE OF FORUM NON CONVENIENSIS NOT MANDATORY, THERE ARE, HOWEVER, vi) The subsequent sales of the mortgaged vessels and the application of the sales proceeds occurred and
SOME GUIDELINES TO FOLLOW IN DETERMINING WHETHER THE CHOICE OF FORUM transpired outside the Philippines, and the deliveries of the sold mortgaged vessels were likewise made
SHOULD BE DISTURBED. UNDER THE CIRCUMSTANCES SURROUNDING THE INSTANT outside the Philippines;
CASE, DISMISSAL OF THE COMPLAINT ON THE GROUND OF FORUM NON-CONVENIENS IS
MORE APPROPRIATE AND PROPER.
vii) The revenues of the vessels and the proceeds of the sales of these vessels were ALL deposited to the
Accounts of the foreign CORPORATIONS abroad; and
3. THE PRINCIPLE OF RES JUDICATA IS NOT LIMITED TO FINAL JUDGMENT IN THE
PHILIPPINES. IN FACT, THE PENDENCY OF FOREIGN ACTION MAY BE THE LEGAL BASIS
viii) Bank of America International Ltd. is not licensed nor engaged in trade or business in the
FOR THE DISMISSAL OF THE COMPLAINT FILED BY THE PRIVATE RESPONDENT.
Philippines.24cräläwvirtualibräry
COROLLARY TO THIS, THE RESPONDENT COURT OF APPEALS FAILED TO CONSIDER THE
FACT THAT PRIVATE RESPONDENTS ARE GUILTY OF FORUM SHOPPING. 18cräläwvirtualibräry
Petitioners argue further that the loan agreements, security documentation and all subsequent restructuring
agreements uniformly, unconditionally and expressly provided that they will be governed by the laws of
As to the first assigned error: Petitioners argue that the borrowers and the registered owners of the vessels
England;25 that Philippine Courts would then have to apply English law in resolving whatever issues may
are the foreign corporations and not private respondents Litonjuas who are mere stockholders; and that the
be presented to it in the event it recognizes and accepts herein case; that it would then be imposing a
revenues derived from the operations of all the vessels are deposited in the accounts of the corporations.
significant and unnecessary expense and burden not only upon the parties to the transaction but also to the
Hence, petitioners maintain that these foreign corporations are the legal entities that have the personalities
local court. Petitioners insist that the inconvenience and difficulty of applying English law with respect to
to sue and not herein private respondents; that private respondents, being mere shareholders, have no
a wholly foreign transaction in a case pending in the Philippines may be avoided by its dismissal on the
claim on the vessels as owners since they merely have an inchoate right to whatever may remain upon the
ground of forum non conveniens. 26cräläwvirtualibräry
dissolution of the said foreign corporations and after all creditors have been fully paid and satisfied; 19 and
that while private respondents may have allegedly spent amounts equal to 10% of the acquisition costs of
the vessels in question, their 10% however represents their investments as stockholders in the foreign Finally, petitioners claim that private respondents have already waived their alleged causes of action in the
corporations.20cräläwvirtualibräry case at bar for their refusal to contest the foreign civil cases earlier filed by the petitioners against them in
Hongkong and England, to wit:
Anent the second assigned error, petitioners posit that while the application of the principle of forum non
conveniens is discretionary on the part of the Court, said discretion is limited by the guidelines pertaining 1.) Civil action in England in its High Court of Justice, Queens Bench Division Commercial Court (1992-
to the private as well as public interest factors in determining whether plaintiffs choice of forum should be Folio No. 2098) against (a) LIBERIAN TRANSPORT NAVIGATION. SA.; (b) ESHLEY COMPANIA
disturbed, as elucidated in Gulf Oil Corp. vs. Gilbert21 and Piper Aircraft Co. vs. Reyno,22 to wit: NAVIERA SA., (c) EL CHALLENGER SA; (d) ESPRIONA SHIPPING CO. SA; (e) PACIFIC
NAVIGATOS CORP. SA; (f) EDDIE NAVIGATION CORP. SA; (g) EDUARDO K. LITONJUA & (h)
AURELIO K. LITONJUA.
Private interest factors include: (a) the relative ease of access to sources of proof; (b) the availability of
compulsory process for the attendance of unwilling witnesses; (c) the cost of obtaining attendance of
willing witnesses; or (d) all other practical problems that make trial of a case easy, expeditious and 2.) Civil action in England in its High Court of Justice, Queens Bench Division, Commercial Court (1992-
inexpensive. Public interest factors include: (a) the administrative difficulties flowing from court Folio No. 2245) against (a) EL CHALLENGER S.A., (b) ESPRIONA SHIPPING COMPANY S.A., (c)
congestion; (b) the local interest in having localized controversies decided at home; (c) the avoidance of EDUARDO KATIPUNAN LITONJUA and (d) AURELIO KATIPUNAN LITONJUA.
unnecessary problems in conflict of laws or in the application of foreign law; or (d) the unfairness of
burdening citizens in an unrelated forum with jury duty.23cräläwvirtualibräry
3.) Civil action in the Supreme Court of Hongkong High Court (Action No. 4039 of 1992), against (a)
ESHLEY COMPANIA NAVIERA S.A., (b) EL CHALLENGER S.A., (c) ESPRIONA SHIPPING

14
COMPANY S.A., (d) PACIFIC NAVIGATORS CORPORATION (e) EDDIE NAVIGATION
CORPORATION S.A., (f) LITONJUA CHARTERING (EDYSHIP) CO., INC., (g) AURELIO
KATIPUNAN LITONJUA, JR., and (h) EDUARDO KATIPUNAN LITONJUA.
4.) A civil action in the Supreme Court of Hong Kong High Court (Action No. 4040 of 1992), against (a)
ESHLEY COMPANIA NAVIERA S.A., (b) EL CHALLENGER S.A., (c) ESPRIONA SHIPPING
COMPANY S.A., (d) PACIFIC NAVIGATORS CORPORATION (e) EDDIE NAVIGATION
CORPORATION S.A., (f) LITONJUA CHARTERING (EDYSHIP) CO., INC., (g) AURELIO
KATIPUNAN LITONJUA, RJ., and (h) EDUARDO KATIPUNAN LITONJUA.
and that private respondents alleged cause of action is already barred by the pendency of another action or
by litis pendentia as shown above.27
On the other hand, private respondents contend that certain material facts and pleadings are omitted and/or
misrepresented in the present petition for certiorari; that the prefatory statement failed to state that part of
the security of the foreign loans were mortgages on a 39-hectare piece of real estate located in the
Philippines;28 that while the complaint was filed only by the stockholders of the corporate borrowers, the
latter are wholly-owned by the private respondents who are Filipinos and therefore under Philippine laws,
aside from the said corporate borrowers being but their alter-egos, they have interests of their own in the
vessels.29 Private respondents also argue that the dismissal by the Court of Appeals of the petition for
certiorari was justified because there was neither allegation nor any showing whatsoever by the petitioners
that they had no appeal, nor any plain, speedy, and adequate remedy in the ordinary course of law from the
Order of the trial judge denying their Motion to Dismiss; that the remedy available to the petitioners after
their Motion to Dismiss was denied was to file an Answer to the complaint;30 that as upheld by the Court
of Appeals, the decision of the trial court in not applying the principle of forum non conveniens is in the
lawful exercise of its discretion.31 Finally, private respondents aver that the statement of petitioners that
the doctrine of res judicata also applies to foreign judgment is merely an opinion advanced by them and
not based on a categorical ruling of this Court;32and that herein private respondents did not actually
participate in the proceedings in the foreign courts.33cräläwvirtualibräry
We deny the petition for lack of merit.
It is a well-settled rule that the order denying the motion to dismiss cannot be the subject of petition for
certiorari. Petitioners should have filed an answer to the complaint, proceed to trial and await judgment
before making an appeal. As repeatedly held by this Court: 
An order denying a motion to dismiss is interlocutory and cannot be the subject of the extraordinary
petition for certiorari or mandamus. The remedy of the aggrieved party is to file an answer and to
interpose as defenses the objections raised in his motion to dismiss, proceed to trial, and in case of an
adverse decision, to elevate the entire case by appeal in due course. xxx Under certain situations, recourse
to certiorari or mandamus is considered appropriate, i.e., (a) when the trial court issued the order without
or in excess of jurisdiction; (b) where there is patent grave abuse of discretion by the trial court; or (c)
appeal would not prove to be a speedy and adequate remedy as when an appeal would not promptly
relieve a defendant from the injurious effects of the patently mistaken order maintaining the plaintiffs
baseless action and compelling the defendant needlessly to go through a protracted trial and clogging the
court dockets by another futile case.34cräläwvirtualibräry
Records show that the trial court acted within its jurisdiction when it issued the assailed Order denying
petitioners motion to dismiss. Does the denial of the motion to dismiss constitute a patent grave abuse of
discretion? Would appeal, under the circumstances, not prove to be a speedy and adequate remedy? We
will resolve said questions in conjunction with the issues raised by the parties.
First issue. Did the trial court commit grave abuse of discretion in refusing to dismiss the complaint on the
ground that plaintiffs have no cause of action against defendants since plaintiffs are merely stockholders
of the corporations which are the registered owners of the vessels and the borrowers of petitioners?
No. Petitioners argument that private respondents, being mere stockholders of the foreign corporations,
have no personalities to sue, and therefore, the complaint should be dismissed, is untenable. A case is
dismissible for lack of personality to sue upon proof that the plaintiff is not the real party-in-interest. Lack
of personality to sue can be used as a ground for a Motion to Dismiss based on the fact that the complaint,
on the face thereof, evidently states no cause of action. 35 In San Lorenzo Village Association, Inc. vs.
Court of Appeals,36 this Court clarified that a complaint states a cause of action where it contains three
essential elements of a cause of action, namely: (1) the legal right of the plaintiff, (2) the correlative
obligation of the defendant, and (3) the act or omission of the defendant in violation of said legal right. If
these elements are absent, the complaint becomes vulnerable to a motion to dismiss on the ground of
failure to state a cause of action.37 To emphasize, it is not the lack or absence of cause of action that is a
ground for dismissal of the complaint but rather the fact that the complaint states no cause of
action.38 Failure to state a cause of action refers to the insufficiency of allegation in the pleading,
unlike lack of cause of action which refers to the insufficiency of factual basis for the action. Failure to
state a cause of action may be raised at the earliest stages of an action through a motion to dismiss the
complaint, while lack of cause of action may be raised any time after the questions of fact have been
resolved on the basis of stipulations, admissions or evidence presented.39
In the case at bar, the complaint contains the three elements of a cause of action. It alleges that: (1)
plaintiffs, herein private respondents, have the right to demand for an accounting from defendants (herein
petitioners), as trustees by reason of the fiduciary relationship that was created between the parties
involving the vessels in question; (2) petitioners have the obligation, as trustees, to render such an
accounting; and (3) petitioners failed to do the same.
Petitioners insist that they do not have any obligation to the private respondents as they are mere
stockholders of the corporation; that the corporate entities have juridical personalities separate and distinct
from those of the private respondents. Private respondents maintain that the corporations are wholly
owned by them and prior to the incorporation of such entities, they were clients of petitioners which
induced them to acquire loans from said petitioners to invest on the additional ships.
We agree with private respondents. As held in the San Lorenzo case,40cräläwvirtualibräry
xxx assuming that the allegation of facts constituting plaintiffs cause of action is not as clear and
categorical as would otherwise be desired, any uncertainty thereby arising should be so resolved as to
enable a full inquiry into the merits of the action.
As this Court has explained in the San Lorenzo case, such a course, would preclude multiplicity of suits
which the law abhors, and conduce to the definitive determination and termination of the dispute. To do
otherwise, that is, to abort the action on account of the alleged fatal flaws of the complaint would
obviously be indecisive and would not end the controversy, since the institution of another action upon a
revised complaint would not be foreclosed.41cräläwvirtualibräry
Second Issue. Should the complaint be dismissed on the ground of forum non-conveniens?
No. The doctrine of forum non-conveniens, literally meaning the forum is inconvenient, emerged in
private international law to deter the practice of global forum shopping, 42 that is to prevent non-resident
litigants from choosing the forum or place wherein to bring their suit for malicious reasons, such as to
secure procedural advantages, to annoy and harass the defendant, to avoid overcrowded dockets, or to
select a more friendly venue. Under this doctrine, a court, in conflicts of law cases, may refuse impositions
15
on its jurisdiction where it is not the most convenient or available forum and the parties are not precluded
from seeking remedies elsewhere.43cräläwvirtualibräry
Whether a suit should be entertained or dismissed on the basis of said doctrine depends largely upon the
facts of the particular case and is addressed to the sound discretion of the trial court. 44 In the case
of Communication Materials and Design, Inc. vs. Court of Appeals,45 this Court held that xxx [a]
Philippine Court may assume jurisdiction over the case if it chooses to do so; provided, that the following
requisites are met: (1) that the Philippine Court is one to which the parties may conveniently resort to; (2)
that the Philippine Court is in a position to make an intelligent decision as to the law and the facts; and, (3)
that the Philippine Court has or is likely to have power to enforce its decision. 46 Evidently, all these
requisites are present in the instant case.
Moreover, this Court enunciated in Philsec. Investment Corporation vs. Court of Appeals,47 that the
doctrine of forum non conveniens should not be used as a ground for a motion to dismiss because Sec. 1,
Rule 16 of the Rules of Court does not include said doctrine as a ground. This Court further ruled that
while it is within the discretion of the trial court to abstain from assuming jurisdiction on this ground, it
should do so only after vital facts are established, to determine whether special circumstances require the
courts desistance; and that the propriety of dismissing a case based on this principle of forum non
conveniens requires a factual determination, hence it is more properly considered a matter of
defense.48cräläwvirtualibräry
Third issue. Are private respondents guilty of forum shopping because of the pendency of foreign action?
No. Forum shopping exists where the elements of litis pendentia are present and where a final judgment in
one case will amount to res judicata in the other.49 Parenthetically, for litis pendentia to be a ground for
the dismissal of an action there must be: (a) identity of the parties or at least such as to represent the same
interest in both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on the
same acts; and (c) the identity in the two cases should be such that the judgment which may be rendered in
one would, regardless of which party is successful, amount to res judicata in the
other.50cräläwvirtualibräry
In case at bar, not all the requirements for litis pendentia are present. While there may be identity of
parties, notwithstanding the presence of other respondents,51 as well as the reversal in positions of
plaintiffs and defendants52, still the other requirements necessary for litis pendentia were not shown by
petitioner. It merely mentioned that civil cases were filed in Hongkong and England without however
showing the identity of rights asserted and the reliefs sought for as well as the presence of the elements
of res judicata should one of the cases be adjudged.
As the Court of Appeals aptly observed:
xxx [T]he petitioners, by simply enumerating the civil actions instituted abroad involving the parties
herein xxx, failed to provide this Court with relevant and clear specifications that would show the
presence of the above-quoted elements or requisites for res judicata. While it is true that the petitioners in
their motion for reconsideration (CA Rollo, p. 72), after enumerating the various civil actions instituted
abroad, did aver that Copies of the foreign judgments are hereto attached and made integral parts hereof as
Annexes B, C, D and E, they failed, wittingly or inadvertently, to include a single foreign judgment in
their pleadings submitted to this Court as annexes to their petition. How then could We have been
expected to rule on this issue even if We were to hold that foreign judgments could be the basis for the
application of the aforementioned principle of res judicata?53cräläwvirtualibräry
Consequently, both courts correctly denied the dismissal of herein subject complaint.
WHEREFORE, the petition is DENIED for lack of merit.
PHILIPPINE NATIONAL BANK, petitioner, 
vs.
RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN GENERAL
MERCHANDISE,respondents.
In a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner seeks to annul
and set aside the Court of Appeals' decision in C.A. CV G.R. S.P. No. 55374 dated March 27, 2000,
affirming the Order issuing a writ of preliminary injunction of the Regional Trial Court of Makati, Branch
147 dated June 30, 1999, and its Order dated October 4, 1999, which denied petitioner's motion to dismiss.
The antecedents of this case are as follows:
Petitioner Philippine National Bank is a domestic corporation organized and existing under Philippine law.
Meanwhile, respondents Ritratto Group, Inc., Riatto International, Inc. and Dadasan General Merchandise
are domestic corporations, likewise, organized and existing under Philippine law.
On May 29, 1996, PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB, organized
and doing business in Hong Kong, extended a letter of credit in favor of the respondents in the amount of
US$300,000.00 secured by real estate mortgages constituted over four (4) parcels of land in Makati City.
This credit facility was later increased successively to US$1,140,000.00 in September 1996; to
US$1,290,000.00 in November 1996; to US$1,425,000.00 in February 1997; and decreased to
US$1,421,316.18 in April 1998. Respondents made repayments of the loan incurred by remitting those
amounts to their loan account with PNB-IFL in Hong Kong.
However, as of April 30, 1998, their outstanding obligations stood at US$1,497,274.70. Pursuant to the
terms of the real estate mortgages, PNB-IFL, through its attorney-in-fact PNB, notified the respondents of
the foreclosure of all the real estate mortgages and that the properties subject thereof were to be sold at a
public auction on May 27, 1999 at the Makati City Hall. 
On May 25, 1999, respondents filed a complaint for injunction with prayer for the issuance of a writ of
preliminary injunction and/or temporary restraining order before the Regional Trial Court of Makati. The
Executive Judge of the Regional Trial Court of Makati issued a 72-hour temporary restraining order. On
May 28, 1999, the case was raffled to Branch 147 of the Regional Trial Court of Makati. The trial judge
then set a hearing on June 8, 1999. At the hearing of the application for preliminary injunction, petitioner
was given a period of seven days to file its written opposition to the application. On June 15, 1999,
petitioner filed an opposition to the application for a writ of preliminary injunction to which the
respondents filed a reply. On June 25, 1999, petitioner filed a motion to dismiss on the grounds of failure
to state a cause of action and the absence of any privity between the petitioner and respondents. On June
30, 1999, the trial court judge issued an Order for the issuance of a writ of preliminary injunction, which
writ was correspondingly issued on July 14, 1999. On October 4, 1999, the motion to dismiss was denied
by the trial court judge for lack of merit.
Petitioner, thereafter, in a petition for certiorari and prohibition assailed the issuance of the writ of
preliminary injunction before the Court of Appeals. In the impugned decision, 1 the appellate court
dismissed the petition. Petitioner thus seeks recourse to this Court and raises the following errors:
16
1.
THE COURT OF APPEALS PALPABLY ERRED IN NOT DISMISSING THE
COMPLAINT A QUO, CONSIDERING THAT BY THE ALLEGATIONS OF THE
COMPLAINT, NO CAUSE OF ACTION EXISTS AGAINST PETITIONER, WHICH IS
NOT A REAL PARTY IN INTEREST BEING A MERE ATTORNEY-IN-FACT
AUTHORIZED TO ENFORCE AN ANCILLARY CONTRACT.
2.
THE COURT OF APPEALS PALPABLY ERRED IN ALLOWING THE TRIAL COURT TO
ISSUE IN EXCESS OR LACK OF JURISDICTION A WRIT OF PRELIMINARY
INJUNCTION OVER AND BEYOND WHAT WAS PRAYED FOR IN THE COMPLAINT
A QUO CONTRARY TO CHIEF OF STAFF, AFP VS. GUADIZ JR., 101 SCRA 827.2
Petitioner prays, inter alia, that the Court of Appeals' Decision dated March 27, 2000 and the trial court's
Orders dated June 30, 1999 and October 4, 1999 be set aside and the dismissal of the complaint in the
instant case.3
In their Comment, respondents argue that even assuming arguendo that petitioner and PNB-IFL are two
separate entities, petitioner is still the party-in-interest in the application for preliminary injunction
because it is tasked to commit acts of foreclosing respondents' properties. 4 Respondents maintain that the
entire credit facility is void as it contains stipulations in violation of the principle of mutuality of
contracts.5 In addition, respondents justified the act of the court a quo in applying the doctrine of "Piercing
the Veil of Corporate Identity" by stating that petitioner is merely an alter ego or a business conduit of
PNB-IFL.6
The petition is impressed with merit.
Respondents, in their complaint, anchor their prayer for injunction on alleged invalid provisions of the
contract:
GROUNDS
I judicial discretion step in to prevent the abuses of separate entity privilege and pierce the veil of corporate
THE DETERMINATION OF THE INTEREST RATES BEING LEFT TO THE SOLE
DISCRETION OF THE DEFENDANT PNB CONTRAVENES THE PRINCIPAL OF
MUTUALITY OF CONTRACTS.  disregarded the separate existence of the parent and the subsidiary on the ground that the latter was formed
II
THERE BEING A STIPULATION IN THE LOAN AGREEMENT THAT THE RATE OF
INTEREST AGREED UPON MAY BE UNILATERALLY MODIFIED BY DEFENDANT,
THERE WAS NO STIPULATION THAT THE RATE OF INTEREST SHALL BE
REDUCED IN THE EVENT THAT THE APPLICABLE MAXIMUM RATE OF INTEREST
IS REDUCED BY LAW OR BY THE MONETARY BOARD.7
Based on the aforementioned grounds, respondents sought to enjoin and restrain PNB from the foreclosure
and eventual sale of the property in order to protect their rights to said property by reason of void credit
facilities as bases for the real estate mortgage over the said property.8
The contract questioned is one entered into between respondent and PNB-IFL, not PNB. In their
complaint, respondents admit that petitioner is a mere attorney-in-fact for the PNB-IFL with full power
and authority to, inter alia, foreclose on the properties mortgaged to secure their loan obligations with
PNB-IFL. In other words, herein petitioner is an agent with limited authority and specific duties under a
special power of attorney incorporated in the real estate mortgage. It is not privy to the loan contracts
entered into by respondents and PNB-IFL.
The issue of the validity of the loan contracts is a matter between PNB-IFL, the petitioner's principal and
the party to the loan contracts, and the respondents. Yet, despite the recognition that petitioner is a mere
agent, the respondents in their complaint prayed that the petitioner PNB be ordered to re-compute the
rescheduling of the interest to be paid by them in accordance with the terms and conditions in the
documents evidencing the credit facilities, and crediting the amount previously paid to PNB by herein
respondents.9
Clearly, petitioner not being a part to the contract has no power to re-compute the interest rates set forth in
the contract. Respondents, therefore, do not have any cause of action against petitioner.
The trial court, however, in its Order dated October 4, 1994, ruled that since PNB-IFL, is a wholly owned
subsidiary of defendant Philippine National Bank, the suit against the defendant PNB is a suit against
PNB-IFL.10 In justifying its ruling, the trial court, citing the case of Koppel Phil. Inc. vs. Yatco,11 reasoned
that the corporate entity may be disregarded where a corporation is the mere alter ego, or business conduit
of a person or where the corporation is so organized and controlled and its affairs are so conducted, as to
make it merely an instrumentality, agency, conduit or adjunct of another corporation.12
We disagree.
The general rule is that as a legal entity, a corporation has a personality distinct and separate from its
individual stockholders or members, and is not affected by the personal rights, obligations and transactions
of the latter.13 The mere fact that a corporation owns all of the stocks of another corporation, taken alone is
not sufficient to justify their being treated as one entity. If used to perform legitimate functions, a
subsidiary's separate existence may be respected, and the liability of the parent corporation as well as the
subsidiary will be confined to those arising in their respective business. The courts may in the exercise of
entity.
We find, however, that the ruling in Koppel finds no application in the case at bar. In said case, this Court
merely for the purpose of evading the payment of higher taxes. In the case at bar, respondents fail to show
any cogent reason why the separate entities of the PNB and PNB-IFL should be disregarded.
While there exists no definite test of general application in determining when a subsidiary may be treated
as a mere instrumentality of the parent corporation, some factors have been identified that will justify the
application of the treatment of the doctrine of the piercing of the corporate veil. The case of Garrett vs.
Southern Railway Co.14 is enlightening. The case involved a suit against the Southern Railway Company.
Plaintiff was employed by Lenoir Car Works and alleged that he sustained injuries while working for
Lenoir. He, however, filed a suit against Southern Railway Company on the ground that Southern had
acquired the entire capital stock of Lenoir Car Works, hence, the latter corporation was but a mere
instrumentality of the former. The Tennessee Supreme Court stated that as a general rule the stock
17
ownership alone by one corporation of the stock of another does not thereby render the dominant
corporation liable for the torts of the subsidiary unless the separate corporate existence of the subsidiary is
a mere sham, or unless the control of the subsidiary is such that it is but an instrumentality or adjunct of
the dominant corporation. Said Court then outlined the circumstances which may be useful in the
determination of whether the subsidiary is but a mere instrumentality of the parent-corporation:
The Circumstance rendering the subsidiary an instrumentality. It is manifestly impossible to
catalogue the infinite variations of fact that can arise but there are certain common
circumstances which are important and which, if present in the proper combination, are
controlling.
These are as follows:
(a) The parent corporation owns all or most of the capital stock of the subsidiary.
(b) The parent and subsidiary corporations have common directors or officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise
causes its incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.
(g) The subsidiary has substantially no business except with the parent corporation or no assets
except those conveyed to or by the parent corporation.
(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is
described as a department or division of the parent corporation, or its business or financial
responsibility is referred to as the parent corporation's own.
(i) The parent corporation uses the property of the subsidiary as its own.
(j) The directors or executives of the subsidiary do not act independently in the interest of the
subsidiary but take their orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are not observed.
The Tennessee Supreme Court thus ruled:
In the case at bar only two of the eleven listed indicia occur, namely, the ownership of most of
the capital stock of Lenoir by Southern, and possibly subscription to the capital stock of
Lenoir. . . The complaint must be dismissed.
Similarly, in this jurisdiction, we have held that the doctrine of piercing the corporate veil is an equitable
doctrine developed to address situations where the separate corporate personality of a corporation is
abused or used for wrongful purposes. The doctrine applies when the corporate fiction is used to defeat
public convenience, justify wrong, protect fraud or defend crime, or when it is made as a shield to confuse
the legitimate issues, or where a corporation is the mere alter ego or business conduit of a person, or
where the corporation is so organized and controlled and its affairs are so conducted as to make it merely
an instrumentality, agency, conduit or adjunct of another corporation.15
In Concept Builders, Inc. v. NLRC,16 we have laid the test in determining the applicability of the doctrine
of piercing the veil of corporate fiction, to wit:
1. Control, not mere majority or complete control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its
own.
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate
the violation of a statutory or other positive legal duty, or dishonest and, unjust act in
contravention of plaintiffs legal rights; and,
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of.
The absence of any one of these elements prevents "piercing the corporate veil." In applying
the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form,
with how the corporation operated and the individual defendant's relationship to the
operation.17
Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no showing of
the indicative factors that the former corporation is a mere instrumentality of the latter are present. Neither
is there a demonstration that any of the evils sought to be prevented by the doctrine of piercing the
corporate veil exists. Inescapably, therefore, the doctrine of piercing the corporate veil based on the alter
ego or instrumentality doctrine finds no application in the case at bar.
In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal
relationship involved in this case since the petitioner was not sued because it is the parent company of
PNB-IFL. Rather, the petitioner was sued because it acted as an attorney-in-fact of PNB-IFL in initiating
the foreclosure proceedings. A suit against an agent cannot without compelling reasons be considered a
suit against the principal. Under the Rules of Court, every action must be prosecuted or defended in the
name of the real party-in-interest, unless otherwise authorized by law or these Rules. 18 In mandatory
terms, the Rules require that "parties-in-interest without whom no final determination can be had, an
action shall be joined either as plaintiffs or defendants."19 In the case at bar, the injunction suit is directed
only against the agent, not the principal.
Anent the issuance of the preliminary injunction, the same must be lifted as it is a mere provisional
remedy but adjunct to the main suit.20 A writ of preliminary injunction is an ancillary or preventive
remedy that may only be resorted to by a litigant to protect or preserve his rights or interests and for no
other purpose during the pendency of the principal action. The dismissal of the principal action thus
results in the denial of the prayer for the issuance of the writ. Further, there is no showing that respondents
are entitled to the issuance of the writ. Section 3, Rule 58, of the 1997 Rules of Civil Procedure provides:
SECTION 3. Grounds for issuance of preliminary injunction. — A preliminary injunction may
be granted when it is established:
18
 (a) That the applicant is entitled to the relief demanded, and the whole or part of such relief
consists in restraining the commission or continuance of the act or acts complained of, or in
requiring the performance of an act or acts, either for a limited period or perpetually,
(b) That the commission, continuance or non-performance of the acts or acts complained of
during the litigation would probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is
procuring or suffering to be done, some act or acts probably in violation of the rights of the
applicant respecting the subject of the action or proceeding, and tending to render the judgment
ineffectual.
Thus, an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious
consequences which cannot be remedied under any standard compensation. 21 Respondents do not deny
their indebtedness. Their properties are by their own choice encumbered by real estate mortgages. Upon
the non-payment of the loans, which were secured by the mortgages sought to be foreclosed, the
mortgaged properties are properly subject to a foreclosure sale. Moreover, respondents questioned the
alleged void stipulations in the contract only when petitioner initiated the foreclosure proceedings.
Clearly, respondents have failed to prove that they have a right protected and that the acts against which
the writ is to be directed are violative of said right. 22 The Court is not unmindful of the findings of both the
trial court and the appellate court that there may be serious grounds to nullify the provisions of the loan
agreement. However, as earlier discussed, respondents committed the mistake of filing the case against the
wrong party, thus, they must suffer the consequences of their error.
All told, respondents do not have a cause of action against the petitioner as the latter is not privy to the
contract the provisions of which respondents seek to declare void. Accordingly, the case before the
Regional Trial Court must be dismissed and the preliminary injunction issued in connection therewith,
must be lifted.
IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The assailed decision of the Court
of Appeals is hereby REVERSED. The Orders dated June 30, 1999 and October 4, 1999 of the Regional
Trial Court of Makati, Branch 147 in Civil Case No. 99-1037 are hereby ANNULLED and SET ASIDE
and the complaint in said case DISMISSED.
SO ORDERED.
ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT CORPORATION, petitioners,
vs. RITA C. MEJIA, as Executrix of Testate Estate of ANDREA CORDOVA VDA. DE
GUTIERREZ, Respondent.
In this petition for review by certiorari, petitioners pray for the setting aside of the Decision of the Court
of Appeals promulgated on 13 April 1999 and its 15 December 1999 Resolution in CA-G.R. CV No.
19281.  favor of Gutierrez.
As culled from the decisions of the lower courts and the pleadings of the parties, the factual background of
this case is as set out herein:  to the effect that the properties subject of the mortgage and covered by TCT Nos. 7531 to 7533 had been
Andrea Cordova Vda. de Gutierrez (Gutierrez) was the registered owner of a parcel of land in Camarin,
Caloocan City known as Lot 861 of the Tala Estate. The land had an aggregate area of twenty-five (25)
hectares and was covered by Transfer Certificate of Title (TCT) No. 5779 of the Registry of Deeds of
Caloocan City. The property was later subdivided into five lots with an area of five hectares each and
pursuant thereto, TCT No. 5779 was cancelled and five new transfer certificates of title were issued in the
name of Gutierrez, namely TCT No. 7123 covering Lot 861-A, TCT No. 7124 covering Lot 861-B, TCT
No. 7125 covering Lot 861-C, TCT No. 7126 covering Lot 861-D and TCT No. 7127 covering Lot 861-
E. 
On 21 December 1964, Gutierrez and Cardale Financing and Realty Corporation (Cardale) executed a
Deed of Sale with Mortgage relating to the lots covered by TCT Nos. 7124, 7125, 7126 and 7127, for the
consideration of P800,000.00. Upon the execution of the deed, Cardale paid Gutierrez P171,000.00. It was
agreed that the balance of P629,000.00 would be paid in several installments within five years from the
date of the deed, at an interest of nine percent per annum based on the successive unpaid principal
balances. Thereafter, the titles of Gutierrez were cancelled and in lieu thereof TCT Nos. 7531 to 7534
were issued in favor of Cardale. 
To secure payment of the balance of the purchase price, Cardale constituted a mortgage on three of the
four parcels of land covered by TCT Nos. 7531, 7532 and 7533, encompassing fifteen hectares of
land. 1 The encumbrance was annotated upon the certificates of title and the owners duplicate certificates.
The owners duplicates were retained by Gutierrez. 
On 26 August 1968, owing to Cardales failure to settle its mortgage obligation, Gutierrez filed a complaint
for rescission of the contract with the Quezon City Regional Trial Court (RTC), which was docketed as
Civil Case No. Q-12366. 2 On 20 October 1969, during the pendency of the rescission case, Gutierrez died
and was substituted by her executrix, respondent Rita C. Mejia (Mejia). In 1971, plaintiffs presentation of
evidence was terminated. However, Cardale, which was represented by petitioner Adalia B. Francisco
(Francisco) in her capacity as Vice-President and Treasurer of Cardale, lost interest in proceeding with the
presentation of its evidence and the case lapsed into inactive status for a period of about fourteen years. 
In the meantime, the mortgaged parcels of land covered by TCT Nos. 7532 and 7533 became delinquent
in the payment of real estate taxes in the amount of P102,300.00, while the other mortgaged property
covered by TCT No. 7531 became delinquent in the amount of P89,231.37, which culminated in their levy
and auction sale on 1 and 12 September 1983, in satisfaction of the tax arrears. The highest bidder for the
three parcels of land was petitioner Merryland Development Corporation (Merryland), whose President
and majority stockholder is Francisco. A memorandum based upon the certificate of sale was then made
upon the original copies of TCT Nos. 7531 to 7533.
On 13 August 1984, before the expiration of the one year redemption period, Mejia filed a Motion for
Decision with the trial court. The hearing of said motion was deferred, however, due to a Motion for
Postponement filed by Cardale through Francisco, who signed the motion in her capacity as officer-in-
charge, claiming that Cardale needed time to hire new counsel. However, Francisco did not mention the
tax delinquencies and sale in favor of Merryland. Subsequently, the redemption period expired and
Merryland, acting through Francisco, filed petitions for consolidation of title, 3 which culminated in the
issuance of certain orders 4 decreeing the cancellation of Cardales TCT Nos. 7531 to 7533 and the
issuance of new transfer certificates of title free from any encumbrance or third-party claim whatsoever in
favor of Merryland. Pursuant to such orders, the Register of Deeds of Caloocan City issued new transfer
certificates of title in the name of Merryland which did not bear a memorandum of the mortgage liens in
 
Thereafter, sometime in June 1985, Francisco filed in Civil Case No. Q-12366 an undated Manifestation
levied upon by the local government of Caloocan City and sold at a tax delinquency sale. Francisco further
claimed that the delinquency sale had rendered the issues in Civil Case No. Q-12366 moot and academic.
Agreeing with Francisco, the trial court dismissed the case, explaining that since the properties mortgaged
to Cardale had been transferred to Merryland which was not a party to the case for rescission, it would be
more appropriate for the parties to resolve their controversy in another action. 
19
On 14 January 1987, Mejia, in her capacity as executrix of the Estate of Gutierrez, filed with the RTC of
Quezon City a complaint for damages with prayer for preliminary attachment against Francisco,
Merryland and the Register of Deeds of Caloocan City. The case was docketed as Civil Case No. Q-
49766. On 15 April 1988, the trial court rendered a decision 5 in favor of the defendants, dismissing the
complaint for damages filed by Mejia. It was held that plaintiff Mejia, as executrix of Gutierrezs estate,
failed to establish by clear and convincing evidence her allegations that Francisco controlled Cardale and
Merryland and that she had employed fraud by intentionally causing Cardale to default in its payment of
real property taxes on the mortgaged properties so that Merryland could purchase the same by means of a
tax delinquency sale. Moreover, according to the trial court, the failure to recover the property subject of
the Deed of Sale with Mortgage was due to Mejias failure to actively pursue the action for rescission
(Civil Case No. 12366), allowing the case to drag on for eighteen years. Thus, it ruled that -  and from which she could have redeemed said properties within the one year period provided by law, or,
xxx xxx xxx
The act of not paying or failing to pay taxes due the government by the defendant Adalia B. Francisco, as
treasurer of Cardale Financing and Realty Corporation do not, per se, constitute perpetration of fraud or an
illegal act. It do [sic] not also constitute an act of evasion of an existing obligation (to plaintiff) if there is
no clear showing that such an act of non-payment of taxes was deliberately made despite its (Cardales)
solvency and capability to pay. There is no evidence showing that Cardale Financing and Realty
Corporation was financially capable of paying said taxes at the time.
There are times when the corporate fiction will be disregarded: (1) where all the members or stockholders
commit illegal act; (2) where the corporation is used as dummy to commit fraud or wrong; (3) where the
corporation is an agency for a parent corporation; and (4) where the stock of a corporation is owned by
one person. (I, Fletcher, 58, 59, 61 and 63). None of the foregoing reasons can be applied to the incidents
in this case: (1) there appears no illegal act committed by the stockholders of defendant Merryland
Development Corporation and Cardale Financing and Realty Corporation; (2) the incidents proven by
evidence of the plaintiff as well as that of the defendants do not show that either or both corporations were
used as dummies by defendant Adalia B. Francisco to commit fraud or wrong. To be used as [a] dummy,
there has to be a showing that the dummy corporation is controlled by the person using it. The evidence of
plaintiff failed to prove that defendant Adalia B. Francisco has controlling interest in either or both
corporations. On the other hand, the evidence of defendants clearly show that defendant Francisco has no
control over either of the two corporations; (3) none of the two corporations appears to be an agency for a
parent (the other) corporation; and (4) the stock of either of the two corporation [sic] is not owned by one
person (defendant Adalia B. Francisco). Except for defendant Adalia B. Francisco, the incorporators and
stockholders of one corporation are different from the other.
xxx xxx xxx
The said case (Civil Case No. 12366) remained pending for almost 18 years before the then Court of First
Instance, now the Regional Trial Court. Even if the trial of the said case became protracted on account of
the retirement and/or promotion of the presiding judge, as well as the transfer of the case from one sala to
another, and as claimed by the plaintiff that the defendant lost interest, (which allegation is unusual, so to
speak), the court believe [sic] that it would not have taken that long to dispose [of] said case had plaintiff
not slept on her rights, and her duty and obligation to see to it that the case is always set for hearing so that
it may be adjudicated [at] the earliest possible time. This duty pertains to both parties, but plaintiff should
have been more assertive, as it was her obligation, similar to the obligation of plaintiff relative to the
service of summons in other cases. The fact that Cardale Financing and Realty Corporation did not
perform its obligation as provided in the said Deed of Sale with Mortgage (Exhibit A) is very clear.
Likewise, the fact that Andrea Cordova, the contracting party, represented by the plaintiff in this case did
not also perform her duties and/or obligation provided in the said contract is also clear. This could have
been the reason why the plaintiff in said case (Exhibit E) slept on her rights and allowed the same to
remain pending for almost 18 years. However, and irrespective of any other reason behind the same, the
court believes that plaintiff, indeed, is the one to blame for the failure of the testate estate of the late
Andrea Cordova Vda. de Gutierrez to recover the money or property due it on the basis of Exhibit A.
xxx xxx xxx
xxx Had the plaintiff not slept on her rights and had it not been for her failure to perform her
commensurate duty to pursue vigorously her case against Cardale Financing and Realty Corporation in
said Civil Case No. 12366, she could have easily known said non-payment of realty taxes on the said
properties by said Cardale Financing and Realty Corporation, or, at least the auction sales that followed,
have availed of remedies at the time to protect the interest of the testate estate of the late Andrea Cordova
Vda. de Gutierrez.
xxx xxx xxx
The dispositive portion of the trial courts decision states - 
WHEREFORE, in view of all the foregoing consideration, the court hereby renders judgment in favor of
the defendants Register of Deeds of Caloocan City, Merryland Development Corporation and Adalia B.
Francisco, and against plaintiff Rita C. Mejia, as Executrix of the Testate Estate of Andrea Cordova Vda.
De Gutierrez, and hereby orders:
1. That this case for damages be dismissed, at the same time, plaintiffs motion for reconsideration
dated September 23, 1987 is denied;
2. Plaintiff pay the defendants Merryland Development Corporation and the Register of Deeds the
sum of P20,000.00, and another sum of P20,000.00 to the defendant Adalia B. Francisco, as and for
attorneys fees and litigation expenses, and pay the costs of the proceedings.
SO ORDERED.
The Court of Appeals, 6 in its decision 7 promulgated on 13 April 1999, reversed the trial court, holding
that the corporate veil of Cardale and Merryland must be pierced in order to hold Francisco and Merryland
solidarily liable since these two corporations were used as dummies by Francisco, who employed fraud in
allowing Cardale to default on the realty taxes for the properties mortgaged to Gutierrez so that Merryland
could acquire the same free from all liens and encumbrances in the tax delinquency sale and, as a
consequence thereof, frustrating Gutierrezs rights as a mortgagee over the subject properties. Thus, the
Court of Appeals premised its findings of fraud on the following circumstances 
xxx xxx xxx
xxx Appellee Francisco knew that Cardale of which she was vice-president and treasurer had an
outstanding obligation to Gutierrez for the unpaid balance of the real properties covered by TCT Nos.
7531 to 7533, which Cardale purchased from Gutierrez which account, as of December 1988, already
amounted to P4,414,271.43 (Exh. K, pp. 39-44, record); she also knew that Gutierrez had a mortgage lien
on the said properties to secure payment of the aforesaid obligation; she likewise knew that the said
mortgaged properties were under litigation in Civil Case No. Q-12366 which was an action filed by
Gutierrez against Cardale for rescission of the sale and/or recovery of said properties (Exh. E). Despite
such knowledge, appellee Francisco did not inform Gutierrezs Estate or the Executrix (herein appellant) as
well as the trial court that the mortgaged properties had incurred tax delinquencies, and that Final Notices
dated July 9, 1982 had been sent by the City Treasurer of Caloocan demanding payment of such tax
20
arrears within ten (10) days from receipt thereof (Exhs. J & J-1, pp. 37-38, record). Both notices which subject matter of the case had long been sold at a tax delinquency sale and acquired by her other
were addressed to  corporation Merryland.

Cardale Financing & Realty Corporation c/o Merryland Development Corporation
and sent to appellee Franciscos address at 83 Katipunan Road, White Plains, Quezon City, gave warning
that if the taxes were not paid within the aforesaid period, the properties would be sold at public auction to
satisfy the tax delinquencies.
And as if what she had already accomplished were not enough fraudulence, appellee Francisco, acting in
behalf of Merryland, caused the issuance of new transfer certificates of title in the name of Merryland,
which did not anymore bear the mortgage lien in favor of Gutierrez. In the meantime, to further avoid
payment of the mortgage indebtedness owing to Gutierrezs estate, Cardale corporation was dissolved.
Finally, to put the properties beyond the reach of the mortgagee, Gutierrezs estate, Merryland caused the
subdivision of such properties, which were subsequently sold on installment basis.

To reiterate, notwithstanding receipt of the aforesaid notices, appellee Francisco did not inform the Estate
In its petition for certiorari, petitioners argue that there is no law requiring the mortgagor to inform the
of Gutierrez or her executrix about the tax delinquencies and of the impending auction sale of the said
mortgagee of the tax delinquencies, if any, of the mortgaged properties. Moreover, petitioners claim that
properties. Even a modicum of good faith and fair play should have encouraged appellee Francisco to at
Cardales failure to pay the realty taxes, per se, does not constitute fraud since it was not proven that
least advise Gutierrezs Estate through her executrix (herein appellant) and the trial court which was
Cardale was capable of paying the taxes. Petitioners also contend that if Mejia, as executrix of Gutierrezs
hearing the complaint for rescission and recovery of said properties of such fact, so that the Estate of
estate, was not remiss in her duty to pursue Civil Case No. 12366, she could have easily learned of the
Gutierrez, which had a real interest on the properties as mortgagee and as plaintiff in the rescission and
non-payment of realty taxes on the subject properties and of the auction sale that followed and thus, have
recovery suit, could at least take steps to forestall the auction sale and thereby preserve the properties and
redeemed the properties or availed of some other remedy to conserve the estate of Gutierrez. In addition,
protect its interests thereon. And not only did appellee Francisco allow the auction sale to take place, but
Mejia could have annotated a notice of lis pendens on the titles of the mortgaged properties, but she failed
she used her other corporation (Merryland) in participating in the auction sale and in acquiring the very
to do so. It is the stand of petitioners that respondent has not adduced any proof that Francisco controlled
properties which her first corporation (Cardale) had mortgaged to Gutierrez. Again, appellee Francisco did
both Cardale and Merryland and that she used these two corporations to perpetuate a fraud upon Gutierrez
not thereafter inform the Estate of Gutierrez or its executrix (herein appellant) about the auction sale, thus
or her estate. Petitioners maintain that the evidence shows that, apart form the meager share of petitioner
precluding the Estate from exercising its right of redemption. And it was only after the expiration of the
Francisco, the stockholdings of both corporations comprise other shareholders, and the stockholders of
redemption period that appellee Francisco filed a Manifestation in Civil Case No. Q-12366 (Exh. I, p. 36,
either of them, aside from petitioner Francisco, are composed of different persons. As to Civil Case No.
record), in which she disclosed for the first time to the trial court and appellant that the properties subject
12366, petitioners insist that the decision of the trial court in that case constitutes res judicata to the
of the case and on which Gutierrez or her Estate had a mortgage lien, had been sold in a tax delinquency
instant case. 8cräläwvirtualibräry
sale. And in order to further conceal her deceptive maneuver, appellee Francisco did not divulge in her
aforesaid Manifestation that it was her other corporation (Merryland) that acquired the properties in the
auction sale. It is dicta in corporation law that a corporation is a juridical person with a separate and distinct personality
from that of the stockholders or members who compose it. 9 However, when the legal fiction of the
separate corporate personality is abused, such as when the same is used for fraudulent or wrongful ends,
We are not impressed by appellees submission that no evidence was adduced to prove that Cardale had the
the courts have not hesitated to pierce the corporate veil. One of the earliest formulations of this doctrine
capacity to pay the tax arrears and therefore she or Cardale may not be faulted for the tax delinquency sale
of piercing the corporate veil was made in the American case of United States v. Milwaukee Refrigerator
of the properties in question. Appellee Franciscos bad faith or deception did not necessarily lie in Cardales
Transit Co. 10 - 
or her failure to settle the tax deliquencies in question, but in not disclosing to Gutierrezs estate or its
executrix (herein appellant) which had a mortgage lien on said properties the tax delinquencies and the
impending auction sale of the encumbered properties.  If any general rule can be laid down, in the present state of authority, it is that a corporation will be looked
upon as a legal entity as a general rule, and until sufficient reason to the contrary appears; but, when the
notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime,
Appellee Franciscos deception is further shown by her concealment of the tax delinquency sale of the
the law will regard the corporation as an association of persons.
properties from the estate or its executrix, thus preventing the latter from availing of the right of
redemption of said properties. That appellee Francisco divulged the auction sale of the properties only
after such redemption period had lapsed clearly betrays her intention to keep Gutierrezs Estate or its Since then a good number of cases have firmly implanted this doctrine in Philippine jurisprudence. 11 One
Executrix from availing of such right. And as the evidence would further show, appellee Francisco had a such case is Umali v. Court of Appeals 12 wherein the Court declared that 
hand in securing for Merryland consolidation of its ownership of the properties and in seeing to it that
Merrylands torrens certificates for the properties were free from liens and encumbrances. All these
Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the legal
appellee Francisco did even as she was fully aware that Gutierrez or her estate had a valid and subsisting
fiction that a corporation is an entity with a juridical personality separate and distinct from its members or
mortgage lien on the said properties.
stockholders may be disregarded. In such cases, the corporation will be considered as a mere association
of persons. The members or stockholders of the corporation will be considered as the corporation, that is,
It is likewise worthy of note that early on appellee Francisco had testified in the action for rescission of liability will attach directly to the officers and stockholders. The doctrine applies when the corporate
sale and recovery of possession and ownership of the properties which Gutierrez filed against Cardale fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is
(Civil Case No. Q-12366) in her capacity as defendant Cardales vice-president and treasurer. But then, for made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business
no plausible reason whatsoever, she lost interest in continuing with the presentation of evidence for conduit of a person, or where the corporation is so organized and controlled and its affairs are so
defendant Cardale. And then, when appellant Mejia as executrix of Gutierrezs Estate filed on August 13, conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. 
1984 a Motion for Decision in the aforesaid case, appellee Francisco moved to defer consideration of
appellants Motion on the pretext that defendant Cardale needed time to employ another counsel.
With specific regard to corporate officers, the general rule is that the officer cannot be held personally
Significantly, in her aforesaid Motion for Postponement dated August 16, 1984 which appellee Francisco
liable with the corporation, whether civilly or otherwise, for the consequences of his acts, if he acted for
personally signed as Officer-in-Charge of Cardale, she also did not disclose the fact that the properties
21
and in behalf of the corporation, within the scope of his authority and in good faith. In such cases, the
officers acts are properly attributed to the corporation. 13 However, if it is proven that the officer has used
the corporate fiction to defraud a third party, 14 or that he has acted negligently, maliciously or in bad
faith, 15 then the corporate veil shall be lifted and he shall be held personally liable for the particular
corporate obligation involved.  the subject of both the sale and mortgage.
The Court, after an assiduous study of this case, is convinced that the totality of the circumstances
appertaining conduce to the inevitable conclusion that petitioner Francisco acted in bad faith. The events
leading up to the loss by the Gutierrez estate of its mortgage security attest to this. It has been established
that Cardale failed to comply with its obligation to pay the balance of the purchase price for the four
parcels of land it bought from Gutierrez covered by TCT Nos. 7531 to 7534, which obligation was secured
by a mortgage upon the lands covered by TCT Nos. 7531, 7532 and 7533. This prompted Gutierrez to file
an action for rescission of the Deed of Sale with Mortgage (Civil Case No. Q-12366), but the case dragged
on for about fourteen years when Cardale, as represented by Francisco, who was Vice-President and
Treasurer of the same, 16 lost interest in completing its presentation of evidence.
Even before 1984 when Mejia, in her capacity as executrix of Gutierrezs estate, filed a Motion for
Decision with the trial court, there is no question that Francisco knew that the properties subject of the
mortgage had become tax delinquent. In fact, as treasurer of Cardale, Francisco herself was the officer
charged with the responsibility of paying the realty taxes on the corporations properties. This was admitted
by the trial court in its decision. 17 In addition, notices dated 9 July 1982 from the City Treasurer of
Caloocan demanding payment of the tax arrears on the subject properties and giving warning that if the
realty taxes were not paid within the given period then such properties would be sold at public auction to
satisfy the tax delinquencies were sent directly to Franciscos address in White Plains, Quezon
City. 18 Thus, as early as 1982, Francisco could have informed the Gutierrez estate or the trial court in
Civil Case No. Q-12366 of the tax arrears and of the notice from the City Treasurer so that the estate could
have taken the necessary steps to prevent the auction sale and to protect its interests in the mortgaged
properties, but she did no such thing. Finally, in 1983, the properties were levied upon and sold at public
auction wherein Merryland - a corporation where Francisco is a stockholder 19 and concurrently acts as
President and director 20 - was the highest bidder.  balance of the purchase price (in the amount of P629,000.00) at the rate of nine percent (9%) per annum
When Mejia filed the Motion for Decision in Civil Case No. Q-12366, 21 the period for redeeming the
properties subject of the tax sale had not yet expired. 22 Under the Realty Property Tax Code, 23 pursuant to
which the tax levy and sale were prosecuted, 24 both the delinquent taxpayer and in his absence, any person
holding a lien or claim over the property shall have the right to redeem the property within one year from
the date of registration of the sale. 25 However, if these persons fail to redeem the property within the time
provided, then the purchaser acquires the property free from any encumbrance or third party claim
whatsoever. 26 Cardale made no attempts to redeem the mortgaged property during this time. Moreover,
instead of informing Mejia or the trial court in Q-12366 about the tax sale, the records show that Francisco
filed a Motion for Postponement 27 in behalf of Cardale - even signing the motion in her capacity as
officer-in-charge - which worked to defer the hearing of Mejias Motion for Decision. No mention was
made by Francisco of the tax sale in the motion for postponement. Only after the redemption period had
expired did Francisco decide to reveal what had transpired by filing a Manifestation stating that the
properties subject of the mortgage in favor of Gutierrez had been sold at a tax delinquency sale; however,
Francisco failed to mention that it was Merryland that acquired the properties since she was probably
afraid that if she did so the court would see behind her fraudulent scheme. In this regard, it is also
significant to note that it was Francisco herself who filed the petitions for consolidation of title and who
helped secure for Merryland titles over the subject properties free from any encumbrance or third-party
claim whatsoever.
It is exceedingly apparent to the Court that the totality of Francisos actions clearly betray an intention to
conceal the tax delinquencies, levy and public auction of the subject properties from the estate of
Gutierrez and the trial court in Civil Case No. Q-12366 until after the expiration of the redemption period
when the remotest possibility for the recovery of the properties would be extinguished. 28 Consequently,
Francisco had effectively deprived the estate of Gutierrez of its rights as mortgagee over the three parcels
of land which were sold to Cardale. If Francisco was acting in good faith, then she should have disclosed
the status of the mortgaged properties to the trial court in Civil Case No. Q-12366 - especially after Mejia
had filed a Motion for Decision, in response to which she filed a motion for postponement wherein she
could easily have mentioned the tax sale - since this action directly affected such properties which were
That Merryland acquired the property at the public auction only serves to shed more light upon Franciscos
fraudulent purposes. Based on the findings of the Court of Appeals, Francisco is the controlling
stockholder and President of Merryland. 29 Thus, aside from the instrumental role she played as an officer
of Cardale, in evading that corporations legitimate obligations to Gutierrez, it appears that Franciscos
actions were also oriented towards securing advantages for another corporation in which she had a
substantial interest. We cannot agree, however, with the Court of Appeals decision to hold Merryland
solidarily liable with Francisco. The only act imputable to Merryland in relation to the mortgaged
properties is that it purchased the same and this by itself is not a fraudulent or wrongful act. No evidence
has been adduced to establish that Merryland was a mere alter ego or business conduit of Francisco. Time
and again it has been reiterated that mere ownership by a single stockholder or by another corporation of
all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the
separate corporate personality. 30 Neither has it been alleged or proven that Merryland is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or
adjunct of Cardale. 31 Even assuming that the businesses of Cardale and Merryland are interrelated, this
alone is not justification for disregarding their separate personalities, absent any showing that Merryland
was purposely used as a shield to defraud creditors and third persons of their rights. 32 Thus, Merrylands
separate juridical personality must be upheld.
Based on a statement of account submitted by Mejia, the Court of Appeals awarded P4,314,271.43 in
favor of the estate of Gutierrez which represents the unpaid balance of the purchase price in the amount of
P629,000.00 with an interest rate of nine percent (9%) per annum, in accordance with the agreement of the
parties under the Deed of Sale with Mortgage, 33 as of December 1988. 34 Therefore, in addition to the
amount awarded by the appellate court, Francisco should pay the estate of Gutierrez interest on the unpaid
computed from January, 1989 until fully satisfied. 
Finally, contrary to petitioners assertions, we agree with the Court of Appeals that the decision of the trial
court in Civil Case No. Q-12366 does not constitute res judicata insofar as the present case is concerned
because the decision in the first case was not a judgment on the merits. Rather, it was merely based upon
the premise that since Cardale had been dissolved and the property acquired by another corporation, the
action for rescission would not prosper. As a matter of fact, it was even expressly stated by the trial court
that the parties should ventilate their issues in another action. 
WHEREFORE , the 13 April 1999 Decision of the Court of Appeals is hereby accordingly MODIFIED
so as to hold ADALIA FRANCISCO solely liable to the estate of Gutierrez for the amount of
P4,314,271.43 and for interest on the unpaid balance of the purchase price (in the amount of P629,000.00)
at the rate of nine percent (9%) per annum computed from January, 1989 until fully satisfied.
MERRYLAND is hereby absolved from all liability.
ESTELITA BURGOS LIPAT and ALFREDO LIPAT, petitioners, 
vs.
PACIFIC BANKING CORPORATION, REGISTER OF DEEDS, RTC EX-OFFICIO SHERIFF
OF QUEZON CITY and the Heirs of EUGENIO D. TRINIDAD, respondents.
QUISUMBING, J.:
22
This petition for review on certiorari seeks the reversal of the Decision1 dated October 21, 1999 of the
Court of Appeals in CA-G.R. CV No. 41536 which dismissed herein petitioners' appeal from the
Decision2 dated February 10, 1993 of the Regional Trial Court (RTC) of Quezon City, Branch 84, in Civil
Case No. Q-89-4152. The trial court had dismissed petitioners' complaint for annulment of real estate
mortgage and the extra-judicial foreclosure thereof. Likewise brought for our review is the
Resolution3 dated February 23, 2000 of the Court of Appeals which denied petitioners' motion for
reconsideration.
The facts, as culled from records, are as follows:
Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned "Bela's Export Trading" (BET), a
single proprietorship with principal office at No. 814 Aurora Boulevard, Cubao, Quezon City. BET was
engaged in the manufacture of garments for domestic and foreign consumption. The Lipats also owned the
"Mystical Fashions" in the United States, which sells goods imported from the Philippines through BET.
Mrs. Lipat designated her daughter, Teresita B. Lipat, to manage BET in the Philippines while she was
managing "Mystical Fashions" in the United States.
In order to facilitate the convenient operation of BET, Estelita Lipat executed on December 14, 1978, a
special power of attorney appointing Teresita Lipat as her attorney-in-fact to obtain loans and other credit
accommodations from respondent Pacific Banking Corporation (Pacific Bank). She likewise authorized
Teresita to execute mortgage contracts on properties owned or co-owned by her as security for the
obligations to be extended by Pacific Bank including any extension or renewal thereof.
Sometime in April 1979, Teresita, by virtue of the special power of attorney, was able to secure for and in
behalf of her mother, Mrs. Lipat and BET, a loan from Pacific Bank amounting to P583,854.00 to buy
fabrics to be manufactured by BET and exported to "Mystical Fashions" in the United States. As security
therefor, the Lipat spouses, as represented by Teresita, executed a Real Estate Mortgage over their
property located at No. 814 Aurora Blvd., Cubao, Quezon City. Said property was likewise made to secure
"other additional or new loans, discounting lines, overdrafts and credit accommodations, of whatever
amount, which the Mortgagor and/or Debtor may subsequently obtain from the Mortgagee as well as any
renewal or extension by the Mortgagor and/or Debtor of the whole or part of said original, additional or
new loans, discounting lines, overdrafts and other credit accommodations, including interest and expenses
or other obligations of the Mortgagor and/or Debtor owing to the Mortgagee, whether directly, or
indirectly, principal or secondary, as appears in the accounts, books and records of the Mortgagee."4
On September 5, 1979, BET was incorporated into a family corporation named Bela's Export Corporation
(BEC) in order to facilitate the management of the business. BEC was engaged in the business of
manufacturing and exportation of all kinds of garments of whatever kind and description 5 and utilized the
same machineries and equipment previously used by BET. Its incorporators and directors included the
Lipat spouses who owned a combined 300 shares out of the 420 shares subscribed, Teresita Lipat who
owned 20 shares, and other close relatives and friends of the Lipats.6 Estelita Lipat was named president of
BEC, while Teresita became the vice-president and general manager.
Eventually, the loan was later restructured in the name of BEC and subsequent loans were obtained by
BEC with the corresponding promissory notes duly executed by Teresita on behalf of the corporation. A
letter of credit was also opened by Pacific Bank in favor of A. O. Knitting Manufacturing Co., Inc., upon
the request of BEC after BEC executed the corresponding trust receipt therefor. Export bills were also
executed in favor of Pacific Bank for additional finances. These transactions were all secured by the real
estate mortgage over the Lipats' property.
The promissory notes, export bills, and trust receipt eventually became due and demandable.
Unfortunately, BEC defaulted in its payments. After receipt of Pacific Bank's demand letters, Estelita
Lipat went to the office of the bank's liquidator and asked for additional time to enable her to personally
settle BEC's obligations. The bank acceded to her request but Estelita failed to fulfill her promise.
Consequently, the real estate mortgage was foreclosed and after compliance with the requirements of the
law the mortgaged property was sold at public auction. On January 31, 1989, a certificate of sale was
issued to respondent Eugenio D. Trinidad as the highest bidder.
On November 28, 1989, the spouses Lipat filed before the Quezon City RTC a complaint for annulment of
the real estate mortgage, extrajudicial foreclosure and the certificate of sale issued over the property
against Pacific Bank and Eugenio D. Trinidad. The complaint, which was docketed as Civil Case No. Q-
89-4152, alleged, among others, that the promissory notes, trust receipt, and export bills were all ultra
vires acts of Teresita as they were executed without the requisite board resolution of the Board of
Directors of BEC. The Lipats also averred that assuming said acts were valid and binding on BEC, the
same were the corporation's sole obligation, it having a personality distinct and separate from spouses
Lipat. It was likewise pointed out that Teresita's authority to secure a loan from Pacific Bank was
specifically limited to Mrs. Lipat's sole use and benefit and that the real estate mortgage was executed to
secure the Lipats' and BET's P583,854.00 loan only.
In their respective answers, Pacific Bank and Trinidad alleged in common that petitioners Lipat cannot
evade payments of the value of the promissory notes, trust receipt, and export bills with their property
because they and the BEC are one and the same, the latter being a family corporation. Respondent
Trinidad further claimed that he was a buyer in good faith and for value and that petitioners are estopped
from denying BEC's existence after holding themselves out as a corporation.
After trial on the merits, the RTC dismissed the complaint, thus:
WHEREFORE, this Court holds that in view of the facts contained in the record, the complaint
filed in this case must be, as is hereby, dismissed. Plaintiffs however has five (5) months and
seventeen (17) days reckoned from the finality of this decision within which to exercise their
right of redemption. The writ of injunction issued is automatically dissolved if no redemption
is effected within that period.
The counterclaims and cross-claim are likewise dismissed for lack of legal and factual basis.
No costs.
IT IS SO ORDERED.7
The trial court ruled that there was convincing and conclusive evidence proving that BEC was a family
corporation of the Lipats. As such, it was a mere extension of petitioners' personality and business and a
mere alter ego or business conduit of the Lipats established for their own benefit. Hence, to allow
petitioners to invoke the theory of separate corporate personality would sanction its use as a shield to
further an end subversive of justice.8 Thus, the trial court pierced the veil of corporate fiction and held that
Bela's Export Corporation and petitioners (Lipats) are one and the same. Pacific Bank had transacted
business with both BET and BEC on the supposition that both are one and the same. Hence, the Lipats
were estopped from disclaiming any obligations on the theory of separate personality of corporations,
which is contrary to principles of reason and good faith.
The Lipats timely appealed the RTC decision to the Court of Appeals in CA-G.R. CV No. 41536. Said
appeal, however, was dismissed by the appellate court for lack of merit. The Court of Appeals found that
there was ample evidence on record to support the application of the doctrine of piercing the veil of
23
corporate fiction. In affirming the findings of the RTC, the appellate court noted that Mrs. Lipat had full
control over the activities of the corporation and used the same to further her business interests. 9 In fact,
she had benefited from the loans obtained by the corporation to finance her business. It also found
unnecessary a board resolution authorizing Teresita Lipat to secure loans from Pacific Bank on behalf of
BEC because the corporation's by-laws allowed such conduct even without a board resolution. Finally, the
Court of Appeals ruled that the mortgage property was not only liable for the original loan of P583,854.00
but likewise for the value of the promissory notes, trust receipt, and export bills as the mortgage contract
equally applies to additional or new loans, discounting lines, overdrafts, and credit accommodations which
petitioners subsequently obtained from Pacific Bank.
The Lipats then moved for reconsideration, but this was denied by the appellate court in its Resolution of
February 23, 2000.10
Hence, this petition, with petitioners submitting that the court a quo erred —
1) . . . IN HOLDING THAT THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE
FICTION APPLIES IN THIS CASE.
2) . . . IN HOLDING THAT PETITIONERS' PROPERTY CAN BE HELD LIABLE UNDER
THE REAL ESTATE MORTGAGE NOT ONLY FOR THE AMOUNT OF P583,854.00 BUT
ALSO FOR THE FULL VALUE OF PROMISSORY NOTES, TRUST RECEIPTS AND
EXPORT BILLS OF BELA'S EXPORT CORPORATION.
3) . . . IN HOLDING THAT "THE IMPOSITION OF 15% ATTORNEY'S FEES IN THE
EXTRA-JUDICIAL FORECLOSURE IS BEYOND THIS COURT'S JURISDICTION FOR
IT IS BEING RAISED FOR THE FIRST TIME IN THIS APPEAL."
4) . . . IN HOLDING PETITIONER ALFREDO LIPAT LIABLE TO PAY THE DISPUTED
PROMISSORY NOTES, THE DOLLAR ACCOMMODATIONS AND TRUST RECEIPTS
DESPITE THE EVIDENT FACT THAT THEY WERE NOT SIGNED BY HIM AND
THEREFORE ARE NOT VALID OR ARE NOT BINDING TO HIM.
5) . . . IN DENYING PETITIONERS' MOTION FOR RECONSIDERATION AND IN
HOLDING THAT SAID MOTION FOR RECONSIDERATION IS "AN UNAUTHORIZED
MOTION, A MERE SCRAP OF PAPER WHICH CAN NEITHER BIND NOR BE OF ANY
CONSEQUENCE TO APPELLANTS."11
In sum, the following are the relevant issues for our resolution:
1. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in this case;
2. Whether or not petitioners' property under the real estate mortgage is liable not only for the amount of
P583,854.00 but also for the value of the promissory notes, trust receipt, and export bills subsequently
incurred by BEC; and
3. Whether or not petitioners are liable to pay the 15% attorney's fees stipulated in the deed of real estate
mortgage.
On the first issue, petitioners contend that both the appellate and trial courts erred in holding them liable
for the obligations incurred by BEC through the application of the doctrine of piercing the veil of
corporate fiction absent any clear showing of fraud on their part.
Respondents counter that there is clear and convincing evidence to show fraud on part of petitioners given
the findings of the trial court, as affirmed by the Court of Appeals, that BEC was organized as a business
conduit for the benefit of petitioners.
Petitioners' contentions fail to persuade this Court. A careful reading of the judgment of the RTC and the
resolution of the appellate court show that in finding petitioners' mortgaged property liable for the
obligations of BEC, both courts below relied upon the alter ego doctrine or instrumentality rule, rather
than fraud in piercing the veil of corporate fiction. When the corporation is the mere alter ego or business
conduit of a person, the separate personality of the corporation may be disregarded. 12 This is commonly
referred to as the "instrumentality rule" or the alter ego doctrine, which the courts have applied in
disregarding the separate juridical personality of corporations. As held in one case,
Where one corporation is so organized and controlled and its affairs are conducted so that it is,
in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the
'instrumentality' may be disregarded. The control necessary to invoke the rule is not majority or
even complete stock control but such domination of finances, policies and practices that the
controlled corporation has, so to speak, no separate mind, will or existence of its own, and is
but a conduit for its principal. x x x .13
We find that the evidence on record demolishes, rather than buttresses, petitioners' contention that BET
and BEC are separate business entities. Note that Estelita Lipat admitted that she and her husband,
Alfredo, were the owners of BET14 and were two of the incorporators and majority stockholders of
BEC.15 It is also undisputed that Estelita Lipat executed a special power of attorney in favor of her
daughter, Teresita, to obtain loans and credit lines from Pacific Bank on her behalf. 16 Incidentally, Teresita
was designated as executive-vice president and general manager of both BET and BEC, respectively. 17 We
note further that: (1) Estelita and Alfredo Lipat are the owners and majority shareholders of BET and
BEC, respectively;18 (2) both firms were managed by their daughter, Teresita; 19 (3) both firms were
engaged in the garment business, supplying products to "Mystical Fashion," a U.S. firm established by
Estelita Lipat; (4) both firms held office in the same building owned by the Lipats; 20 (5) BEC is a family
corporation with the Lipats as its majority stockholders; (6) the business operations of the BEC were so
merged with those of Mrs. Lipat such that they were practically indistinguishable; (7) the corporate funds
were held by Estelita Lipat and the corporation itself had no visible assets; (8) the board of directors of
BEC was composed of the Burgos and Lipat family members; 21 (9) Estelita had full control over the
activities of and decided business matters of the corporation; 22 and that (10) Estelita Lipat had benefited
from the loans secured from Pacific Bank to finance her business abroad 23 and from the export bills
secured by BEC for the account of "Mystical Fashion."24 It could not have been coincidental that BET and
BEC are so intertwined with each other in terms of ownership, business purpose, and management.
Apparently, BET and BEC are one and the same and the latter is a conduit of and merely succeeded the
former. Petitioners' attempt to isolate themselves from and hide behind the corporate personality of BEC
so as to evade their liabilities to Pacific Bank is precisely what the classical doctrine of piercing the veil of
corporate entity seeks to prevent and remedy. In our view, BEC is a mere continuation and successor of
BET, and petitioners cannot evade their obligations in the mortgage contract secured under the name of
BEC on the pretext that it was signed for the benefit and under the name of BET. We are thus constrained
to rule that the Court of Appeals did not err when it applied the instrumentality doctrine in piercing the
corporate veil of BEC.
On the second issue, petitioners contend that their mortgaged property should not be made liable for the
subsequent credit lines and loans incurred by BEC because, first, it was not covered by the mortgage
contract of BET which only covered the loan of P583,854.00 and which allegedly had already been paid;
and, second, it was secured by Teresita Lipat without any authorization or board resolution of BEC.
24
We find petitioners' contention untenable. As found by the Court of Appeals, the mortgaged property is
not limited to answer for the loan of P583,854.00. Thus:
Finally, the extent to which the Lipats' property can be held liable under the real estate
mortgage is not limited to P583,854.00. It can be held liable for the value of the promissory
notes, trust receipt and export bills as well. For the mortgage was executed not only for the
purpose of securing the Bela's Export Trading's original loan of P583,854.00, but also for
"other additional or new loans, discounting lines, overdrafts and credit accommodations, of
whatever amount, which the Mortgagor and/or Debtor may subsequently obtain from the
mortgagee as well as any renewal or extension by the Mortgagor and/or Debtor of the whole or
part of said original, additional or new loans, discounting lines, overdrafts and other credit
accommodations, including interest and expenses or other obligations of the Mortgagor and/or
Debtor owing to the Mortgagee, whether directly, or indirectly principal or secondary, as
appears in the accounts, books and records of the mortgagee.25
As a general rule, findings of fact of the Court of Appeals are final and conclusive, and cannot be
reviewed on appeal by the Supreme Court, provided they are borne out by the record or based on
substantial evidence.26 As noted earlier, BEC merely succeeded BET as petitioners' alter ego; hence,
petitioners' mortgaged property must be held liable for the subsequent loans and credit lines of BEC.
Further, petitioners' contention that the original loan had already been paid, hence, the mortgaged property
should not be made liable to the loans of BEC, is unsupported by any substantial evidence other than
Estelita Lipat's self-serving testimony. Two disputable presumptions under the rules on evidence weigh
against petitioners, namely: (a) that a person takes ordinary care of his concerns;27 and (b) that things have
happened according to the ordinary course of nature and the ordinary habits of life. 28 Here, if the original
loan had indeed been paid, then logically, petitioners would have asked from Pacific Bank for the required
documents evidencing receipt and payment of the loans and, as owners of the mortgaged property, would
have immediately asked for the cancellation of the mortgage in the ordinary course of things. However,
the records are bereft of any evidence contradicting or overcoming said disputable presumptions.
Petitioners contend further that the mortgaged property should not bind the loans and credit lines obtained
by BEC as they were secured without any proper authorization or board resolution. They also blame the
bank for its laxity and complacency in not requiring a board resolution as a requisite for approving the
loans.
Such contentions deserve scant consideration.
Firstly, it could not have been possible for BEC to release a board resolution since per admissions by both
petitioner Estelita Lipat and Alice Burgos, petitioners' rebuttal witness, no business or stockholder's
meetings were conducted nor were there election of officers held since its incorporation. In fact, not a
single board resolution was passed by the corporate board29 and it was Estelita Lipat and/or Teresita Lipat
who decided business matters.30
Secondly, the principle of estoppel precludes petitioners from denying the validity of the transactions
entered into by Teresita Lipat with Pacific Bank, who in good faith, relied on the authority of the former
as manager to act on behalf of petitioner Estelita Lipat and both BET and BEC. While the power and
responsibility to decide whether the corporation should enter into a contract that will bind the corporation
is lodged in its board of directors, subject to the articles of incorporation, by-laws, or relevant provisions
of law, yet, just as a natural person may authorize another to do certain acts for and on his behalf, the
board of directors may validly delegate some of its functions and powers to officers, committees, or
agents. The authority of such individuals to bind the corporation is generally derived from law, corporate
by-laws, or authorization from the board, either expressly or impliedly by habit, custom, or acquiescence
in the general course of business.31 Apparent authority, is derived not merely from practice. Its existence
may be ascertained through (1) the general manner in which the corporation holds out an officer or agent
as having the power to act or, in other words, the apparent authority to act in general, with which it clothes
him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge
thereof, whether within or beyond the scope of his ordinary powers.32
In this case, Teresita Lipat had dealt with Pacific Bank on the mortgage contract by virtue of a special
power of attorney executed by Estelita Lipat. Recall that Teresita Lipat acted as the manager of both BEC
and BET and had been deciding business matters in the absence of Estelita Lipat. Further, the export bills
secured by BEC were for the benefit of "Mystical Fashion" owned by Estelita Lipat. 33 Hence, Pacific Bank
cannot be faulted for relying on the same authority granted to Teresita Lipat by Estelita Lipat by virtue of
a special power of attorney. It is a familiar doctrine that if a corporation knowingly permits one of its
officers or any other agent to act within the scope of an apparent authority, it holds him out to the public as
possessing the power to do those acts; thus, the corporation will, as against anyone who has in good faith
dealt with it through such agent, be estopped from denying the agent's authority.34
We find no necessity to extensively deal with the liability of Alfredo Lipat for the subsequent credit lines
of BEC. Suffice it to state that Alfredo Lipat never disputed the validity of the real estate mortgage of the
original loan; hence, he cannot now dispute the subsequent loans obtained using the same mortgage
contract since it is, by its very terms, a continuing mortgage contract.
On the third and final issue, petitioners assail the decision of the Court of Appeals for not taking
cognizance of the issue on attorney's fees on the ground that it was raised for the first time on appeal. We
find the conclusion of the Court of Appeals to be in accord with settled jurisprudence. Basic is the rule that
matters not raised in the complaint cannot be raised for the first time on appeal.35 A close perusal of the
complaint yields no allegations disputing the attorney's fees imposed under the real estate mortgage and
petitioners cannot now allege that they have impliedly disputed the same when they sought the annulment
of the contract.
In sum, we find no reversible error of law committed by the Court of Appeals in rendering the decision
and resolution herein assailed by petitioners.
WHEREFORE, the petition is DENIED. The Decision dated October 21, 1999 and the Resolution dated
February 23, 2000 of the Court of Appeals in CA-G.R. CV No. 41536 are AFFIRMED. Costs against
petitioners.
ANG MGA KAANIB SA IGLESIA NG DIOS KAY KRISTO HESUS, H.S.K. SA BANSANG
PILIPINAS, INC.,petitioner, 
vs.
IGLESIA NG DIOS KAY CRISTO JESUS, HALIGI AT SUHAY NG
KATOTOHANAN, respondent.
YNARES-SANTIAGO, J.:
This is a petition for review assailing the Decision dated October 7, 1997 1 and the Resolution dated
February 16, 19992 of the Court of Appeals in CA-G.R. SP No. 40933, which affirmed the Decision of the
Securities and Exchange and Commission (SEC) in SEC-AC No. 539.3
Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan (Church of God in Christ
Jesus, the Pillar and Ground of Truth),4 is a non-stock religious society or corporation registered in 1936.
Sometime in 1976, one Eliseo Soriano and several other members of respondent corporation disassociated
themselves from the latter and succeeded in registering on March 30, 1977 a new non-stock religious
society or corporation, named Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan.
25
On July 16, 1979, respondent corporation filed with the SEC a petition to compel the Iglesia ng Dios Kay
Kristo Hesus, Haligi at Saligan ng Katotohanan to change its corporate name, which petition was
docketed as SEC Case No. 1774. On May 4, 1988, the SEC rendered judgment in favor of respondent,
ordering the Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan to change its corporate
name to another name that is not similar or identical to any name already used by a corporation,
partnership or association registered with the Commission.5No appeal was taken from said decision.
THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONER HAS
NOT BEEN DEPRIVED OF ITS RIGHT TO PROCEDURAL DUE PROCESS, THE HONORABLE
COURT OF APPEALS DISREGARDED THE JURISPRUDENCE APPLICABLE TO THE CASE AT
BAR AND INSTEAD RELIED ON TOTALLY INAPPLICABLE JURISPRUDENCE.
II

It appears that during the pendency of SEC Case No. 1774, Soriano, et al., caused the registration on April
THE HONORABLE COURT OF APPEALS ERRED IN ITS INTERPRETATION OF THE CIVIL
25, 1980 of petitioner corporation, Ang Mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K, sa
CODE PROVISIONS ON EXTINCTIVE PRESCRIPTION, THEREBY RESULTING IN ITS FAILURE
Bansang Pilipinas. The acronym "H.S.K." stands for Haligi at Saligan ng Katotohanan.6
TO FIND THAT THE RESPONDENT'S RIGHT OF ACTION TO INSTITUTE THE SEC CASE HAS
SINCE PRESCRIBED PRIOR TO ITS INSTITUTION.
On March 2, 1994, respondent corporation filed before the SEC a petition, docketed as SEC Case No. 03-
94-4704, praying that petitioner be compelled to change its corporate name and be barred from using the
III
same or similar name on the ground that the same causes confusion among their members as well as the
public.
THE HONORABLE COURT OF APPEALS FAILED TO CONSIDER AND PROPERLY APPLY THE
EXCEPTIONS ESTABLISHED BY JURISPRUDENCE IN THE APPLICATION OF SECTION 18 OF
Petitioner filed a motion to dismiss on the ground of lack of cause of action. The motion to dismiss was
THE CORPORATION CODE TO THE INSTANT CASE.
denied. Thereafter, for failure to file an answer, petitioner was declared in default and respondent was
allowed to present its evidence ex parte.
IV
On November 20, 1995, the SEC rendered a decision ordering petitioner to change its corporate name.
The dispositive portion thereof reads: THE HONORABLE COURT OF APPEALS FAILED TO PROPERLY APPRECIATE THE SCOPE OF
THE CONSTITUTIONAL GUARANTEE ON RELIGIOUS FREEDOM, THEREBY FAILING TO
APPLY THE SAME TO PROTECT PETITIONER'S RIGHTS.9
PREMISES CONSIDERED, judgment is hereby rendered in favor of the petitioner (respondent
herein).
Invoking the case of Legarda v. Court of Appeals,10 petitioner insists that the decision of the Court of
Appeals and the SEC should be set aside because the negligence of its former counsel of record, Atty.
Respondent Mga Kaanib sa Iglesia ng Dios Kay Kristo Jesus (sic), H.S.K. sa Bansang Pilipinas
Joaquin Garaygay, in failing to file an answer after its motion to dismiss was denied by the SEC, deprived
(petitioner herein) is hereby MANDATED to change its corporate name to another not
them of their day in court.
deceptively similar or identical to the same already used by the Petitioner, any corporation,
association, and/or partnership presently registered with the Commission.
The contention is without merit. As a general rule, the negligence of counsel binds the client. This is based
on the rule that any act performed by a lawyer within the scope of his general or implied authority is
Let a copy of this Decision be furnished the Records Division and the Corporate and Legal
regarded as an act of his client.11 An exception to the foregoing is where the reckless or gross negligence
Department [CLD] of this Commission for their records, reference and/or for whatever
of the counsel deprives the client of due process of law. 12 Said exception, however, does not obtain in the
requisite action, if any, to be undertaken at their end.
present case.

SO ORDERED.7
Petitioner appealed to the SEC En Banc, where its appeal was docketed as SEC-AC No. 539. In a decision
dated March 4, 1996, the SEC En Banc affirmed the above decision, upon a finding that petitioner's
corporate name was identical or confusingly or deceptively similar to that of respondent's corporate name.8
Petitioner filed a petition for review with the Court of Appeals. On October 7, 1997, the Court of Appeals
rendered the assailed decision affirming the decision of the SEC En Banc. Petitioner's motion for
reconsideration was denied by the Court of Appeals on February 16, 1992.
Hence, the instant petition for review, raising the following assignment of errors:
I
In Legarda v. Court of Appeals, the effort of the counsel in defending his client's cause consisted in filing
a motion for extension of time to file answer before the trial court. When his client was declared in
default, the counsel did nothing and allowed the judgment by default to become final and executory. Upon
the insistence of his client, the counsel filed a petition to annul the judgment with the Court of Appeals,
which denied the petition, and again the counsel allowed the denial to become final and executory. This
Court found the counsel grossly negligent and consequently declared as null and void the decision adverse
to his client. 
The factual antecedents of the case at bar are different. Atty. Garaygay filed before the SEC a motion to
dismiss on the ground of lack of cause of action. When his client was declared in default for failure to file
an answer, Atty. Garaygay moved for reconsideration and lifting of the order of default. 13 After judgment
by default was rendered against petitioner corporation, Atty. Garaygay filed a motion for extension of time
to appeal/motion for reconsideration, and thereafter a motion to set aside the decision.14

26
Evidently, Atty. Garaygay was only guilty of simple negligence. Although he failed to file an answer that Hence, this case is on all fours with Universal Mills Corporation v. Universal Textile Mills, Inc.,22 where
led to the rendition of a judgment by default against petitioner, his efforts were palpably real, albeit bereft the Court ruled that the corporate names Universal Mills Corporation and Universal Textile Mills, Inc., are
of zeal.15 undisputably so similar that even under the test of "reasonable care and observation" confusion may arise.

Likewise, the issue of prescription, which petitioner raised for the first time on appeal to the Court of
Appeals, is untenable. Its failure to raise prescription before the SEC can only be construed as a waiver of
that defense.16 At any rate, the SEC has the authority to de-register at all times and under all circumstances
corporate names which in its estimation are likely to spawn confusion. It is the duty of the SEC to prevent
confusion in the use of corporate names not only for the protection of the corporations involved but more
so for the protection of the public.17
Section 18 of the Corporation Code provides:
Corporate Name. — No corporate name may be allowed by the Securities and Exchange
Commission if the proposed name is identical or deceptively or confusingly similar to that of
any existing corporation or to any other name already protected by law or is patently deceptive,
confusing or is contrary to existing laws. When a change in the corporate name is approved, the
Commission shall issue an amended certificate of incorporation under the amended name.
Corollary thereto, the pertinent portion of the SEC Guidelines on Corporate Names states:
Furthermore, the wholesale appropriation by petitioner of respondent's corporate name cannot find
justification under the generic word rule. We agree with the Court of Appeals' conclusion that a contrary
ruling would encourage other corporations to adopt verbatim and register an existing and protected
corporate name, to the detriment of the public.
The fact that there are other non-stock religious societies or corporations using the names Church of the
Living God, Inc., Church of God Jesus Christ the Son of God the Head, Church of God in Christ & By the
Holy Spirit, and other similar names, is of no consequence. It does not authorize the use by petitioner of
the essential and distinguishing feature of respondent's registered and protected corporate name.23
We need not belabor the fourth issue raised by petitioner. Certainly, ordering petitioner to change its
corporate name is not a violation of its constitutionally guaranteed right to religious freedom. In so doing,
the SEC merely compelled petitioner to abide by one of the SEC guidelines in the approval of partnership
and corporate names, namely its undertaking to manifest its willingness to change its corporate name in
the event another person, firm, or entity has acquired a prior right to the use of the said firm name or one
deceptively or confusingly similar to it.

WHEREFORE, in view of all the foregoing, the instant petition for review is DENIED. The appealed
(d) If the proposed name contains a word similar to a word already used as part of the firm
decision of the Court of Appeals is AFFIRMED in toto.
name or style of a registered company, the proposed name must contain two other words
different from the name of the company already registered;

Parties organizing a corporation must choose a name at their peril; and the use of a name similar to one
adopted by another corporation, whether a business or a nonprofit organization, if misleading or likely to
injure in the exercise of its corporate functions, regardless of intent, may be prevented by the corporation
having a prior right, by a suit for injunction against the new corporation to prevent the use of the name.18

Petitioner claims that it complied with the aforecited SEC guideline by adding not only two but eight
words to their registered name, to wit: "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc.," which,
petitioner argues, effectively distinguished it from respondent corporation.

The additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc." in petitioner's name are, as
correctly observed by the SEC, merely descriptive of and also referring to the members, or kaanib, of
respondent who are likewise residing in the Philippines. These words can hardly serve as an effective
differentiating medium necessary to avoid confusion or difficulty in distinguishing petitioner from
respondent. This is especially so, since both petitioner and respondent corporations are using the same
acronym — H.S.K.;19 not to mention the fact that both are espousing religious beliefs and operating in the
same place. Parenthetically, it is well to mention that the acronym H.S.K. used by petitioner stands for
"Haligi at Saligan ng Katotohanan."20

Then, too, the records reveal that in holding out their corporate name to the public, petitioner highlights
the dominant words "IGLESIA NG DIOS KAY KRISTO HESUS, HALIGI AT SALIGAN NG
KATOTOHANAN," which is strikingly similar to respondent's corporate name, thus making it even more
evident that the additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc.", are merely
descriptive of and pertaining to the members of respondent corporation.21

Significantly, the only difference between the corporate names of petitioner and respondent are the
words SALIGAN and SUHAY. These words are synonymous — both mean ground, foundation or support.

27