Prudential Bank vs.

Alviar
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court. Petitioner Prudential Bank seeks the
reversal of the Decision1 of the Court of Appeals dated 27 September 2001 in CA-G.R. CV No. 59543 affirming
the Decision of the Regional Trial Court (RTC) of Pasig City, Branch 160, in favor of respondents.
Respondents, spouses Don A. Alviar and Georgia B. Alviar, are the registered owners of a parcel of land in San Juan,
Metro Manila, covered by Transfer Certificate of Title (TCT) No. 438157 of the Register of Deeds of Rizal. On 10 July
1975, they executed a deed of real estate mortgage in favor of petitioner Prudential Bank to secure the payment of a loan
worth P250,000.00.2 This mortgage was annotated at the back of TCT No. 438157. On 4 August 1975, respondents
executed the corresponding promissory note, PN BD#75/C-252, covering the said loan, which provides that the loan
matured on 4 August 1976 at an interest rate of 12% per annum with a 2% service charge, and that the note is secured by
a real estate mortgage as aforementioned.3 Significantly, the real estate mortgage contained the following clause:
That for and in consideration of certain loans, overdraft and other credit accommodations obtained from the Mortgagee by
the Mortgagor and/or ________________ hereinafter referred to, irrespective of number, as DEBTOR, and to secure the
payment of the same and those that may hereafter be obtained, the principal or all of which is hereby fixed at Two
Hundred Fifty Thousand (P250,000.00) Pesos, Philippine Currency, as well as those that the Mortgagee may extend to
the Mortgagor and/or DEBTOR, including interest and expenses or any other obligation owing to the Mortgagee, whether
direct or indirect, principal or secondary as appears in the accounts, books and records of the Mortgagee, the Mortgagor
does hereby transfer and convey by way of mortgage unto the Mortgagee, its successors or assigns, the parcels of land
which are described in the list inserted on the back of this document, and/or appended hereto, together with all the
buildings and improvements now existing or which may hereafter be erected or constructed thereon, of which the
Mortgagor declares that he/it is the absolute owner free from all liens and incumbrances. . . .4
On 22 October 1976, Don Alviar executed another promissory note, PN BD#76/C-345 for P2,640,000.00, secured by D/A
SFDX #129, signifying that the loan was secured by a "hold-out" on the mortgagor's foreign currency savings account with
the bank under Account No. 129, and that the mortgagor's passbook is to be surrendered to the bank until the amount
secured by the "hold-out" is settled.5
On 27 December 1976, respondent spouses executed for Donalco Trading, Inc., of which the husband and wife were
President and Chairman of the Board and Vice President,6 respectively, PN BD#76/C-430 covering P545,000.000. As
provided in the note, the loan is secured by "Clean-Phase out TOD CA 3923," which means that the temporary overdraft
incurred by Donalco Trading, Inc. with petitioner is to be converted into an ordinary loan in compliance with a Central Bank
circular directing the discontinuance of overdrafts.7
On 16 March 1977, petitioner wrote Donalco Trading, Inc., informing the latter of its approval of a straight loan
of P545,000.00, the proceeds of which shall be used to liquidate the outstanding loan of P545,000.00 TOD. The letter
likewise mentioned that the securities for the loan were the deed of assignment on two promissory notes executed by
Bancom Realty Corporation with Deed of Guarantee in favor of A.U. Valencia and Co. and the chattel mortgage on
various heavy and transportation equipment.8
On 06 March 1979, respondents paid petitioner P2,000,000.00, to be applied to the obligations of G.B. Alviar Realty and
Development, Inc. and for the release of the real estate mortgage for the P450,000.00 loan covering the two (2) lots
located at Vam Buren and Madison Streets, North Greenhills, San Juan, Metro Manila. The payment was acknowledged
by petitioner who accordingly released the mortgage over the two properties.9
On 15 January 1980, petitioner moved for the extrajudicial foreclosure of the mortgage on the property covered by TCT
No. 438157. Per petitioner's computation, respondents had the total obligation of P1,608,256.68, covering the three (3)
promissory notes, to wit: PN BD#75/C-252 for P250,000.00, PN BD#76/C-345 for P382,680.83, and PN BD#76/C-340
for P545,000.00, plus assessed past due interests and penalty charges. The public auction sale of the mortgaged
property was set on 15 January 1980.10
Respondents filed a complaint for damages with a prayer for the issuance of a writ of preliminary injunction with the RTC
of Pasig,11 claiming that they have paid their principal loan secured by the mortgaged property, and thus the mortgage
should not be foreclosed. For its part, petitioner averred that the payment of P2,000,000.00 made on 6 March 1979 was
not a payment made by respondents, but by G.B. Alviar Realty and Development Inc., which has a separate loan with the
bank secured by a separate mortgage.12
On 15 March 1994, the trial court dismissed the complaint and ordered the Sheriff to proceed with the extra-judicial
foreclosure.13 Respondents sought reconsideration of the decision.14 On 24 August 1994, the trial court issued
an Order setting aside its earlier decision and awarded attorney's fees to respondents.15 It found that only
the P250,000.00 loan is secured by the mortgage on the land covered by TCT No. 438157. On the other hand,
the P382,680.83 loan is secured by the foreign currency deposit account of Don A. Alviar, while the P545,000.00
obligation was an unsecured loan, being a mere conversion of the temporary overdraft of Donalco Trading, Inc. in
compliance with a Central Bank circular. According to the trial court, the "blanket mortgage clause" relied upon by
petitioner applies only to future loans obtained by the mortgagors, and not by parties other than the said mortgagors, such
as Donalco Trading, Inc., for which respondents merely signed as officers thereof.
On appeal to the Court of Appeals, petitioner made the following assignment of errors:
I. The trial court erred in holding that the real estate mortgage covers only the promissory note BD#75/C-252 for the sum
of P250,000.00.
II. The trial court erred in holding that the promissory note BD#76/C-345 for P2,640,000.00 (P382,680.83 outstanding
principal balance) is not covered by the real estate mortgage by expressed agreement.
III. The trial court erred in holding that Promissory Note BD#76/C-430 for P545,000.00 is not covered by the real estate
mortgage.
IV. The trial court erred in holding that the real estate mortgage is a contract of adhesion.
V. The trial court erred in holding defendant-appellant liable to pay plaintiffs-appellees attorney's fees for P20,000.00.16
The Court of Appeals affirmed the Order of the trial court but deleted the award of attorney's fees.17 It ruled that while a
continuing loan or credit accommodation based on only one security or mortgage is a common practice in financial and
commercial institutions, such agreement must be clear and unequivocal. In the instant case, the parties executed different
promissory notes agreeing to a particular security for each loan. Thus, the appellate court ruled that the extrajudicial
foreclosure sale of the property for the three loans is improper.18
The Court of Appeals, however, found that respondents have not yet paid the P250,000.00 covered by PN BD#75/C-252
since the payment of P2,000,000.00 adverted to by respondents was issued for the obligations of G.B. Alviar Realty and
Development, Inc.19
Aggrieved, petitioner filed the instant petition, reiterating the assignment of errors raised in the Court of Appeals as
grounds herein.
Petitioner maintains that the "blanket mortgage clause" or the "dragnet clause" in the real estate mortgage expressly
covers not only the P250,000.00 under PN BD#75/C-252, but also the two other promissory notes included in the
application for extrajudicial foreclosure of real estate mortgage.20 Thus, it claims that it acted within the terms of the
mortgage contract when it filed its petition for extrajudicial foreclosure of real estate mortgage. Petitioner relies on the
cases of Lim Julian v. Lutero,21 Tad-Y v. Philippine National Bank,22 Quimson v. Philippine National Bank,23 C & C
Commercial v. Philippine National Bank,24 Mojica v. Court of Appeals,25 and China Banking Corporation v. Court of
Appeals,26 all of which upheld the validity of mortgage contracts securing future advancements.
Anent the Court of Appeals' conclusion that the parties did not intend to include PN BD#76/C-345 in the real estate
mortgage because the same was specifically secured by a foreign currency deposit account, petitioner states that there is
no law or rule which prohibits an obligation from being covered by more than one security.27 Besides, respondents even
continued to withdraw from the same foreign currency account even while the promissory note was still outstanding,
strengthening the belief that it was the real estate mortgage that principally secured all of respondents' promissory
notes.28 As for PN BD#76/C-345, which the Court of Appeals found to be exclusively secured by the Clean-Phase out
TOD 3923, petitioner posits that such security is not exclusive, as the "dragnet clause" of the real estate mortgage covers
all the obligations of the respondents.29
Moreover, petitioner insists that respondents attempt to evade foreclosure by the expediency of stating that the
promissory notes were executed by them not in their personal capacity but as corporate officers. It claims that PN
BD#76/C-430 was in fact for home construction and personal consumption of respondents. Thus, it states that there is a
need to pierce the veil of corporate fiction.30
Finally, petitioner alleges that the mortgage contract was executed by respondents with knowledge and understanding of
the "dragnet clause," being highly educated individuals, seasoned businesspersons, and political personalities.31 There
was no oppressive use of superior bargaining power in the execution of the promissory notes and the real estate
mortgage.32
For their part, respondents claim that the "dragnet clause" cannot be applied to the subsequent loans extended to Don
Alviar and Donalco Trading, Inc. since these loans are covered by separate promissory notes that expressly provide for a
different form of security.33 They reiterate the holding of the trial court that the "blanket mortgage clause" would apply only
to loans obtained jointly by respondents, and not to loans obtained by other parties.34 Respondents also place a premium
on the finding of the lower courts that the real estate mortgage clause is a contract of adhesion and must be strictly
construed against petitioner bank.35
The instant case thus poses the following issues pertaining to: (i) the validity of the "blanket mortgage clause" or the
"dragnet clause"; (ii) the coverage of the "blanket mortgage clause"; and consequently, (iii) the propriety of seeking
foreclosure of the mortgaged property for the non-payment of the three loans.
At this point, it is important to note that one of the loans sought to be included in the "blanket mortgage clause" was
obtained by respondents for Donalco Trading, Inc. Indeed, PN BD#76/C-430 was executed by respondents on behalf of
Donalco Trading, Inc. and not in their personal capacity. Petitioner asks the Court to pierce the veil of corporate fiction and
hold respondents liable even for obligations they incurred for the corporation. The mortgage contract states that the
mortgage covers "as well as those that the Mortgagee may extend to the Mortgagor and/or DEBTOR, including interest
and expenses or any other obligation owing to the Mortgagee, whether direct or indirect, principal or secondary." Well-
settled is the rule that a corporation has a personality separate and distinct from that of its officers and stockholders.
Officers of a corporation are not personally liable for their acts as such officers unless it is shown that they have exceeded
their authority.36 However, the legal fiction that a corporation has a personality separate and distinct from stockholders
and members may be disregarded if it is used as a means to perpetuate fraud or an illegal act or as a vehicle for the
evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues.37 PN BD#76/C-430, being
an obligation of Donalco Trading, Inc., and not of the respondents, is not within the contemplation of the "blanket
mortgage clause." Moreover, petitioner is unable to show that respondents are hiding behind the corporate structure to
evade payment of their obligations. Save for the notation in the promissory note that the loan was for house construction
and personal consumption, there is no proof showing that the loan was indeed for respondents' personal consumption.
Besides, petitioner agreed to the terms of the promissory note. If respondents were indeed the real parties to the loan,
petitioner, a big, well-established institution of long standing that it is, should have insisted that the note be made in the
name of respondents themselves, and not to Donalco Trading Inc., and that they sign the note in their personal capacity
and not as officers of the corporation.
Now on the main issues.
A "blanket mortgage clause," also known as a "dragnet clause" in American jurisprudence, is one which is specifically
phrased to subsume all debts of past or future origins. Such clauses are "carefully scrutinized and strictly
construed."38 Mortgages of this character enable the parties to provide continuous dealings, the nature or extent of which
may not be known or anticipated at the time, and they avoid the expense and inconvenience of executing a new security
on each new transaction.39 A "dragnet clause" operates as a convenience and accommodation to the borrowers as it
makes available additional funds without their having to execute additional security documents, thereby saving time,
travel, loan closing costs, costs of extra legal services, recording fees, et cetera.40 Indeed, it has been settled in a long
line of decisions that mortgages given to secure future advancements are valid and legal contracts,41 and the amounts
named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the
four corners of the instrument the intent to secure future and other indebtedness can be gathered.42
The "blanket mortgage clause" in the instant case states:
That for and in consideration of certain loans, overdraft and other credit accommodations obtained from the Mortgagee by
the Mortgagor and/or ________________ hereinafter referred to, irrespective of number, as DEBTOR, and to secure the
payment of the same and those that may hereafter be obtained, the principal or all of which is hereby fixed at Two
Hundred Fifty Thousand (P250,000.00) Pesos, Philippine Currency, as well as those that the Mortgagee may extend to
the Mortgagor and/or DEBTOR, including interest and expenses or any other obligation owing to the Mortgagee, whether
direct or indirect, principal or secondary as appears in the accounts, books and records of the Mortgagee, the Mortgagor
does hereby transfer and convey by way of mortgage unto the Mortgagee, its successors or assigns, the parcels of land
which are described in the list inserted on the back of this document, and/or appended hereto, together with all the
buildings and improvements now existing or which may hereafter be erected or constructed thereon, of which the
Mortgagor declares that he/it is the absolute owner free from all liens and incumbrances. . . .43 (Emphasis supplied.)
Thus, contrary to the finding of the Court of Appeals, petitioner and respondents intended the real estate mortgage to
secure not only the P250,000.00 loan from the petitioner, but also future credit facilities and advancements that may be
obtained by the respondents. The terms of the above provision being clear and unambiguous, there is neither need nor
excuse to construe it otherwise.
The cases cited by petitioner, while affirming the validity of "dragnet clauses" or "blanket mortgage clauses," are of a
different factual milieu from the instant case. There, the subsequent loans were not covered by any security other than
that for the mortgage deeds which uniformly contained the "dragnet clause."
In the case at bar, the subsequent loans obtained by respondents were secured by other securities, thus: PN BD#76/C-
345, executed by Don Alviar was secured by a "hold-out" on his foreign currency savings account, while PN BD#76/C-
430, executed by respondents for Donalco Trading, Inc., was secured by "Clean-Phase out TOD CA 3923" and eventually
by a deed of assignment on two promissory notes executed by Bancom Realty Corporation with Deed of Guarantee in
favor of A.U. Valencia and Co., and by a chattel mortgage on various heavy and transportation equipment. The matter of
PN BD#76/C-430 has already been discussed. Thus, the critical issue is whether the "blanket mortgage" clause applies
even to subsequent advancements for which other securities were intended, or particularly, to PN BD#76/C-345.
Under American jurisprudence, two schools of thought have emerged on this question. One school advocates that a
"dragnet clause" so worded as to be broad enough to cover all other debts in addition to the one specifically secured will
be construed to cover a different debt, although such other debt is secured by another mortgage.44 The contrary thinking
maintains that a mortgage with such a clause will not secure a note that expresses on its face that it is otherwise secured
as to its entirety, at least to anything other than a deficiency after exhausting the security specified therein,45 such
deficiency being an indebtedness within the meaning of the mortgage, in the absence of a special contract excluding it
from the arrangement.46
The latter school represents the better position. The parties having conformed to the "blanket mortgage clause" or
"dragnet clause," it is reasonable to conclude that they also agreed to an implied understanding that subsequent loans
need not be secured by other securities, as the subsequent loans will be secured by the first mortgage. In other words,
the sufficiency of the first security is a corollary component of the "dragnet clause." But of course, there is no prohibition,
as in the mortgage contract in issue, against contractually requiring other securities for the subsequent loans. Thus, when
the mortgagor takes another loan for which another security was given it could not be inferred that such loan was made in
reliance solely on the original security with the "dragnet clause," but rather, on the new security given. This is the "reliance
on the security test."
Hence, based on the "reliance on the security test," the California court in the cited case made an inquiry whether the
second loan was made in reliance on the original security containing a "dragnet clause." Accordingly, finding a different
security was taken for the second loan no intent that the parties relied on the security of the first loan could be inferred, so
it was held. The rationale involved, the court said, was that the "dragnet clause" in the first security instrument constituted
a continuing offer by the borrower to secure further loans under the security of the first security instrument, and that when
the lender accepted a different security he did not accept the offer.47
In another case, it was held that a mortgage with a "dragnet clause" is an "offer" by the mortgagor to the bank to provide
the security of the mortgage for advances of and when they were made. Thus, it was concluded that the "offer" was not
accepted by the bank when a subsequent advance was made because (1) the second note was secured by a chattel
mortgage on certain vehicles, and the clause therein stated that the note was secured by such chattel mortgage; (2) there
was no reference in the second note or chattel mortgage indicating a connection between the real estate mortgage and
the advance; (3) the mortgagor signed the real estate mortgage by her name alone, whereas the second note and chattel
mortgage were signed by the mortgagor doing business under an assumed name; and (4) there was no allegation by the
bank, and apparently no proof, that it relied on the security of the real estate mortgage in making the advance.48
Indeed, in some instances, it has been held that in the absence of clear, supportive evidence of a contrary intention, a
mortgage containing a "dragnet clause" will not be extended to cover future advances unless the document evidencing
the subsequent advance refers to the mortgage as providing security therefor.49
It was therefore improper for petitioner in this case to seek foreclosure of the mortgaged property because of non-
payment of all the three promissory notes. While the existence and validity of the "dragnet clause" cannot be denied, there
is a need to respect the existence of the other security given for PN BD#76/C-345. The foreclosure of the mortgaged
property should only be for the P250,000.00 loan covered by PN BD#75/C-252, and for any amount not covered by the
security for the second promissory note. As held in one case, where deeds absolute in form were executed to secure any
and all kinds of indebtedness that might subsequently become due, a balance due on a note, after exhausting the special
security given for the payment of such note, was in the absence of a special agreement to the contrary, within the
protection of the mortgage, notwithstanding the giving of the special security.50 This is recognition that while the "dragnet
clause" subsists, the security specifically executed for subsequent loans must first be exhausted before the mortgaged
property can be resorted to.
One other crucial point. The mortgage contract, as well as the promissory notes subject of this case, is a contract of
adhesion, to which respondents' only participation was the affixing of their signatures or "adhesion" thereto.51 A contract
of adhesion is one in which a party imposes a ready-made form of contract which the other party may accept or reject, but
which the latter cannot modify.52
The real estate mortgage in issue appears in a standard form, drafted and prepared solely by petitioner, and which,
according to jurisprudence must be strictly construed against the party responsible for its preparation.53 If the parties
intended that the "blanket mortgage clause" shall cover subsequent advancement secured by separate securities, then
the same should have been indicated in the mortgage contract. Consequently, any ambiguity is to be taken contra
proferentum, that is, construed against the party who caused the ambiguity which could have avoided it by the exercise of
a little more care.54 To be more emphatic, any ambiguity in a contract whose terms are susceptible of different
interpretations must be read against the party who drafted it,55 which is the petitioner in this case.
Even the promissory notes in issue were made on standard forms prepared by petitioner, and as such are likewise
contracts of adhesion. Being of such nature, the same should be interpreted strictly against petitioner and with even more
reason since having been accomplished by respondents in the presence of petitioner's personnel and approved by its
manager, they could not have been unaware of the import and extent of such contracts.
Petitioner, however, is not without recourse. Both the Court of Appeals and the trial court found that respondents have not
yet paid the P250,000.00, and gave no credence to their claim that they paid the said amount when they paid
petitioner P2,000,000.00. Thus, the mortgaged property could still be properly subjected to foreclosure proceedings for
the unpaid P250,000.00 loan, and as mentioned earlier, for any deficiency after D/A SFDX#129, security for PN BD#76/C-
345, has been exhausted, subject of course to defenses which are available to respondents.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 59543 is AFFIRMED.
Costs against petitioner.
SO ORDERED.
Delima vs. Gois
This Petition for Review under Rule 45 of the Rules of Court assails the December 21, 2006 Decision of the Court of
Appeals which annulled and set aside the May 31, 2006 and August 22, 2006 Resolutions of the National Labor Relations
Commission (NLRC) in NLRC Case No. V-000188-2006 and ordered herein petitioner to return the cash bond released to
him. Also assailed is the February 5, 2007 Resolution denying the Motion for Reconsideration.
The antecedent facts are as follows:
A case for illegal dismissal was filed by petitioner Virgilio S. Delima against Golden Union Aquamarine Corporation
(Golden), Prospero Gois and herein respondent Susan Mercaida Gois before the Regional Arbitration Branch No. VIII of
the National Labor Relations Commission on October 29, 2004, docketed as NLRC RAB VIII Case No. 10-0231-04.
On April 29, 2005, Labor Arbiter Philip B. Montaces rendered a decision, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered'
1. Finding illegality in the dismissal of complainant Virgilio Delima from his employment;
2. Ordering respondent Golden Union Aquamarine Corporation to pay complainant the following:

A. Backwages (July 30, 2004 to April 29,

2005 =
9 mos.; P5,350.50 x 9 months) - '. .'. . P 48,154.50

b. Separation Pay (P5,350.50 x 4 years) 21,402.00

c. Salary Differentials 32,679.00

d. Service Incentive Leave Pay 2,820.00

Sub-Total P105,055.50

e. Attorney's fee (10%) 10,505.55

TOTAL P115,561.05
=========

3. Dismissing all other claims for lack of merit.

SO ORDERED.
Golden failed to appeal the aforesaid decision; hence, it became final and executory. A writ of execution was issued and
an Isuzu Jeep with plate number PGE-531 was attached.
Thereafter, respondent Gois filed an Affidavit of Third Party Claim claiming that the attachment of the vehicle was irregular
because said vehicle was registered in her name and not Golden's; and that she was not a party to the illegal dismissal
case filed by Delima against Golden.
In an Order dated December 29, 2005, the Labor Arbiter denied respondent's third-party claim on grounds that
respondent was named in the complaint as one of the respondents; that summons were served upon her and Prospero
Gois; that both verified Golden's Position Paper and alleged therein that they are the respondents; and that respondent is
one of the incorporators/officers of the corporation.
Gois filed an appeal before the NLRC. At the same time, she filed a motion before the Labor Arbiter to release the motor
vehicle after substituting the same with a cash bond in the amount of P115,561.05.
On January 16, 2006, an Order was issued by the Labor Arbiter which states:
Filed by Third Party Claimant SUSAN M. GOIS is a Motion to Release Motor Vehicle after substituting same with a cash
bond of P115,561.05 under O.R. No. 8307036 which amount is equivalent to the judgment award in the instant case, in
the meantime that she has appealed the Order denying her Third Party Claim.
Finding said Motion in order and with merit, Sheriff Felicisimo T. Basilio is directed to release from his custody the Isuzu
jeep with Plate No. PGE-532 and return same to SUSAN M. GOIS.
SO ORDERED.
Meanwhile, on May 31, 2006, the NLRC issued a Resolution which dismissed respondent's appeal for lack of merit. A
Motion for Reconsideration was filed but it was denied on August 22, 2006. On September 12, 2006, the NLRC Resolution
became final and executory; subsequently, an Entry of Judgment was issued on September 29, 2006.
On October 13, 2006, Gois filed a petition for certiorari before the Court of Appeals as well as a Supplement to Petition on
October 27, 2006. Gois alleged that the NLRC committed grave abuse of discretion when it dismissed her appeal. She
claimed that by denying her third-party claim, she was in effect condemned to pay a judgment debt issued against a
corporation of which she is neither a president nor a majority owner but merely a stockholder. She further argued that her
personality is separate and distinct from that of Golden; thus, the judgment ordering the corporation to pay the petitioner
could not be satisfied out of her personal assets.
On December 21, 2006, the appellate court rendered a Decision in favor of respondent, which reads in part:
In the decision dated April 29, 2005 rendered by Labor Arbiter Montaces, the dispositive portion confined itself in directing
Golden Union Aquamarine Corporation only, no more and no less, to pay private respondent the award stated therein, but
did not mention that the liability is joint and solidary with petitioner Susan Gois although the complaint filed by the private
respondent included petitioner as among the respondents therein.
It bears stress also that corporate officers cannot be held liable for damages on account of the employee's dismissal
because the employer corporation has a personality separate and distinct from its officers who merely acted as its agents.
They are only solidarily liable with the corporation for the termination of employment of employees if the same was done
with malice or in bad faith. In the case at bench, it was not clearly shown and established that the termination of private
respondent from employment was tainted with evident malice and bad faith. As elucidated in the case of Reahs
Corporation v. NLRC, the main doctrine of separate personality of a corporation should remain as the guiding rule in
determining corporate liability to its employees, and that, at the very least, to justify solidary liability, "there must be an
allegation or showing that the officers of the corporation deliberately or maliciously designed to evade the financial
obligation of the corporation to its employees."
Further, as wisely put by the petitioner, while it may be true that the subject vehicle was used by the corporation in
transporting the products bought by the corporation from Eastern Samar to Manila, it does not necessarily follow that it is
owned by the corporation as in fact petitioner was able to duly establish that the said vehicle is hers and is registered
under her name. Nor does it imply that the corporation is free to dispose of the same and neither does it imply that the
said vehicle may and can be levied by respondent NLRC to satisfy a judgment against the corporation.
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us GRANTING the petition filed in this
case, ANNULLING and SETTING ASIDE the Resolutions dated May 31, 2006 and August 22, 2006, respectively, issued
by the respondent National Labor Relations Commission (NLRC), 4th Division in NLRC Case No. V-000188-2006 and
ORDERING private respondent to return to petitioner the cash bond earlier released to him.
SO ORDERED.
Petitioner filed a Motion for Reconsideration which was denied. Hence, the present petition raising the following issues:
WHETHER OR NOT THE HONORABLE COURT OF APPEALS, NINETEENTH (19th) DIVISION, ERRED:
1. WHEN IT OMMITED PRIVATE RESPONDENT AS ONE OF THE PRINCIPAL RESPONDENTS IN THE ORIGINAL
COMPLAINT AS ILLUSTRATED IN ITS BRIEF STATEMENT OF FACTS;
2. WHEN IT CONSIDERED THAT THE VEHICLE PRINCIPALLY USED IN THE BUSINESS OPERATIONS OF THE
CORPORATION, WHICH WAS REGISTERED UNDER THE NAME OF PRIVATE RESPONDENT WHO WAS ALSO THE
CORPORATION PRESIDENT, CANNOT BE SUBJECT OF GARNISHMENT;
3. WHEN IT ANNULLED AND SET ASIDE A FINAL AND EXECUTED ORDER/RESOLUTION OF THE NATIONAL
LABOR RELATIONS COMMISSION.
A corporation has a personality distinct and separate from its individual stockholders or members and from that of its
officers who manage and run its affairs. The rule is that obligations incurred by the corporation, acting through its
directors, officers and employees, are its sole liabilities. Thus, property belonging to a corporation cannot be attached to
satisfy the debt of a stockholder and vice versa, the latter having only an indirect interest in the assets and business of the
former.
Since the Decision of the Labor Arbiter dated April 29, 2005 directed only Golden to pay the petitioner the sum of
P115,561.05 and the same was not joint and solidary obligation with Gois, then the latter could not be held personally
liable since Golden has a separate and distinct personality of its own. It remains undisputed that the subject vehicle was
owned by Gois, hence it should not be attached to answer for the liabilities of the corporation. Unless they have exceeded
their authority, corporate officers are, as a general rule, not personally liable for their official acts, because a corporation,
by legal fiction, has a personality separate and distinct from its officers, stockholders and members. No evidence was
presented to show that the termination of the petitioner was done with malice or in bad faith for it to hold the corporate
officers, such as Gois, solidarily liable with the corporation.
We note that the Resolution of the NLRC dismissing respondent's appeal was entered in the Book of Entries of Judgment
on September 29, 2006 after it allegedly became final and executory on September 12, 2006.
It will be recalled, however, that the NLRC issued the Resolution dismissing the appeal of the respondent on May 31,
2006. A motion for reconsideration was filed on July 24, 2006 but it was denied by the NLRC on August 22, 2006. Copy of
the denial was received by the respondent on September 1, 2006.17 Thus, respondent has sixty (60) days from receipt of
the denial of the motion for reconsideration or until October 31, 2006, within which to file the petition for certiorari under
Section 4 of Rule 65 of the Rules of Court. Thus, the petition for certiorari filed by respondent before the Court of Appeals
on October 13, 2006 was timely. Consequently, the NLRC erred in declaring its May 31, 2006 Resolution final and
executory.
A decision issued by a court is final and executory when such decision disposes of the subject matter in its entirety or
terminates a particular proceeding or action, leaving nothing else to be done but to enforce by execution what has been
determined by the court, such as when after the lapse of the reglementary period to appeal, no appeal has been
perfected.
In the instant case, it is undisputed that when the entry of judgment was issued by the NLRC on September 12, 2006 and
entered in the Book of Entries of Judgment on September 29, 2006, the reglementary period to file a petition
for certiorari has not yet lapsed. In fact, when the petition for certiorari was filed on October 13, 2006, the same was still
within the reglementary period. It bears stressing that a petition for certiorari under Rule 65 must be filed "not later than 60
days from notice of the judgment, order or resolution" sought to be annulled.
The period or manner of "appeal" from the NLRC to the Court of Appeals is governed by Rule 65 pursuant to the ruling of
this Court in the case of St. Martin Funeral Home v. National Labor Relations Commission. Section 4 of Rule 65, as
amended, states that the "petition may be filed not later than sixty (60) days from notice of the judgment, or resolution
sought to be assailed."
Corollarily, Section 4, Rule III of the New Rules of Procedure of the NLRC expressly mandates that "(f)or the purpose(s) of
computing the period of appeal, the same shall be counted from receipt of such decisions, awards or orders by the
counsel of record." Although this rule explicitly contemplates an appeal before the Labor Arbiter and the NLRC, we do not
see any cogent reason why the same rule should not apply to petitions for certiorari filed with the Court of Appeals from
decisions of the NLRC.
We note that in the dispositive portion of its Decision, the appellate court ordered petitioner to return to respondent the
cash bond earlier released to him. However, petitioner admitted that the monies were spent to defray the medical
expenses of his ailing mother. Considering that petitioner is legally entitled to receive said amount, Golden must
reimburse respondent Gois the amount of P115,561.05. To rule otherwise would result in unjust enrichment of Golden.
The corporation has benefited from the payment made by Gois because it was relieved from its obligation to pay to
petitioner the judgment debt.
WHEREFORE, the petition is PARTLY GRANTED. The assailed Decision of the Court of Appeals dated December 21,
2006 annulling and setting aside the May 31, 2006 and August 22, 2006 Resolutions of the National Labor Relations
Commission; and its Resolution dated February 5, 2007 are AFFIRMED with the MODIFICATION that Golden Union
Aquamarine Corporation is ordered to REIMBURSE Respondent Susan M. Gois the amount of P115,561.05.
SO ORDERED.
Bautista vs Auto Parts Traders, Inc
This Petition for Review on Certiorari assails the Decision dated August 10, 2004 of the Court of Appeals in CA-G.R. CR
No. 28464 and the Resolution dated October 29, 2004, which denied petitioner's motion for reconsideration. The Court of
Appeals affirmed the February 24, 2004 Decision and May 11, 2004 Order of the Regional Trial Court (RTC), Davao City,
Branch 16, in Criminal Case Nos. 52633-03 and 52634-03.
The antecedent facts are as follows:
Petitioner Claude P. Bautista, in his capacity as President and Presiding Officer of Cruiser Bus Lines and Transport
Corporation, purchased various spare parts from private respondent Auto Plus Traders, Inc. and issued two postdated
checks to cover his purchases. The checks were subsequently dishonored. Private respondent then executed an affidavit-
complaint for violation of Batas Pambansa Blg. 22 against petitioner. Consequently, two Informations for violation of BP
Blg. 22 were filed with the Municipal Trial Court in Cities (MTCC) of Davao City against the petitioner. These were
docketed as Criminal Case Nos. 102,004-B-2001 and 102,005-B-2001. The Informations read:
Criminal Case No. 102,004-B-2001:
The undersigned accuses the above-named accused for violation of Batas Pambansa Bilang 22, committed as follows:
That on or about December 15, 2000, in the City of Davao, Philippines, and within the jurisdiction of this Honorable Court,
the above-mentioned accused, knowing fully well that he had no sufficient funds and/or credit with the drawee bank,
wilfully, unlawfully and feloniously issued and made out Rural Bank of Digos, Inc. Check No. 058832, dated December 15,
2000, in the amount of P151,200.00, in favor of Auto Plus Traders, Inc., but when said check was presented to the drawee
bank for encashment, the same was dishonored for the reason "DRAWN AGAINST INSUFFICIENT FUNDS" and despite
notice of dishonor and demands upon said accused to make good the check, accused failed and refused to make
payment to the damage and prejudice of herein complainant.
CONTRARY TO LAW.
Criminal Case No. 102,005-B-2001:
The undersigned accuses the above-named accused for violation of Batas Pambansa Bilang 22, committed as follows:
That on or about October 30, 2000, in the City of Davao, Philippines, and within the jurisdiction of this Honorable Court,
the above-mentioned accused, knowing fully well that he had no sufficient funds and/or credit with the drawee bank,
wilfully, unlawfully and feloniously issued and made out Rural Bank of Digos, Inc. Check No. 059049, dated October 30,
2000, in the amount of P97,500.00, in favor of Auto Plus Traders, [Inc.], but when said check was presented to the drawee
bank for encashment, the same was dishonored for the reason "DRAWN AGAINST INSUFFICIENT FUNDS" and despite
notice of dishonor and demands upon said accused to make good the check, accused failed and refused to make
payment, to the damage and prejudice of herein complainant.
CONTRARY TO LAW.
Petitioner pleaded not guilty. Trial on the merits ensued. After the presentation of the prosecution's evidence, petitioner
filed a demurrer to evidence. On April 21, 2003, the MTCC granted the demurrer, thus:
WHEREFORE, the demurrer to evidence is granted, premised on reasonable doubt as to the guilt of the accused. Cruiser
Bus Line[s] and Transport Corporation, through the accused is directed to pay the complainant the sum of P248,700.00
representing the value of the two checks, with interest at the rate of 12% per annum to be computed from the time of the
filing of these cases in Court, until the account is paid in full; ordering further Cruiser Bus Line[s] and Transport
Corporation, through the accused, to reimburse complainant the expense representing filing fees amounting to P1,780.00
and costs of litigation which this Court hereby fixed at P5,000.00.
SO ORDERED.
Petitioner moved for partial reconsideration but his motion was denied. Thereafter, both parties appealed to the RTC. On
February 24, 2004, the trial court ruled:
WHEREFORE, the assailed Order dated April 21, 2003 is hereby MODIFIED to read as follows: Accused is directed to
pay and/or reimburse the complainant the following sums: (1) P248,700.00 representing the value of the two checks, with
interest at the rate of 12% per annum to be computed from the time of the filing of these cases in Court, until the account
is paid in full; (2) P1,780.00 for filing fees and P5,000.00 as cost of litigation.
SO ORDERED.
Petitioner moved for reconsideration, but his motion was denied on May 11, 2004. Petitioner elevated the case to the
Court of Appeals, which affirmed the February 24, 2004 Decision and May 11, 2004 Order of the RTC:
WHEREFORE, premises considered, the instant petition is DENIED. The assailed Decision of the Regional Trial Court,
Branch 16, Davao City, dated February 24, 2004 and its Order dated May 11, 2004 are AFFIRMED.
SO ORDERED.
Petitioner now comes before us, raising the sole issue of whether the Court of Appeals erred in upholding the RTC's ruling
that petitioner, as an officer of the corporation, is personally and civilly liable to the private respondent for the value of the
two checks.
Petitioner asserts that BP Blg. 22 merely pertains to the criminal liability of the accused and that the corporation, which
has a separate personality from its officers, is solely liable for the value of the two checks.
Private respondent counters that petitioner should be held personally liable for both checks. Private respondent alleged
that petitioner issued two postdated checks: a personal check in his name for the amount of P151,200 and a corporation
check under the account of Cruiser Bus Lines and Transport Corporation for the amount of P97,500. According to private
respondent, petitioner, by issuing his check to cover the obligation of the corporation, became an accommodation party.
Under Section 29 of the Negotiable Instruments Law, an accommodation party is liable on the instrument to a holder for
value. Private respondent adds that petitioner should also be liable for the value of the corporation check because
instituting another civil action against the corporation would result in multiplicity of suits and delay.
At the outset, we note that private respondent's allegation that petitioner issued a personal check disputes the factual
findings of the MTCC. The MTCC found that the two checks belong to Cruiser Bus Lines and Transport Corporation while
the RTC found that one of the checks was a personal check of the petitioner. Generally this Court, in a Petition for Review
on Certiorari under Rule 45 of the Rules of Court, has no jurisdiction over questions of facts. But, considering that the
findings of the MTCC and the RTC are at variance, we are compelled to settle this issue.
A perusal of the two check return slips in conjunction with the Current Account Statements would show that the check
for P151,200 was drawn against the current account of Claude Bautista while the check for P97,500 was drawn against
the current account of Cruiser Bus Lines and Transport Corporation. Hence, we sustain the factual finding of the RTC.
Nonetheless, we find the appellate court in error for affirming the decision of the RTC holding petitioner liable for the value
of the checks considering that petitioner was acquitted of the crime charged and that the debts are clearly corporate debts
for which only Cruiser Bus Lines and Transport Corporation should be held liable.
Juridical entities have personalities separate and distinct from its officers and the persons composing it. Generally, the
stockholders and officers are not personally liable for the obligations of the corporation except only when the veil of
corporate fiction is being used as a cloak or cover for fraud or illegality, or to work injustice.These situations, however, do
not exist in this case. The evidence shows that it is Cruiser Bus Lines and Transport Corporation that has obligations to
Auto Plus Traders, Inc. for tires. There is no agreement that petitioner shall be held liable for the corporation's obligations
in his personal capacity. Hence, he cannot be held liable for the value of the two checks issued in payment for the
corporation's obligation in the total amount of P248,700.
Likewise, contrary to private respondent's contentions, petitioner cannot be considered liable as an accommodation party
for Check No. 58832. Section 29 of the Negotiable Instruments Law defines an accommodation party as a person "who
has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of
lending his name to some other person." As gleaned from the text, an accommodation party is one who meets all the
three requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must
not receive value therefor; and (3) he must sign for the purpose of lending his name or credit to some other person. An
accommodation party lends his name to enable the accommodated party to obtain credit or to raise money; he receives
no part of the consideration for the instrument but assumes liability to the other party/ies thereto. The first two elements
are present here, however there is insufficient evidence presented in the instant case to show the presence of the third
requisite. All that the evidence shows is that petitioner signed Check No. 58832, which is drawn against his personal
account. The said check, dated December 15, 2000, corresponds to the value of 24 sets of tires received by Cruiser Bus
Lines and Transport Corporation on August 29, 2000. There is no showing of when petitioner issued the check and in
what capacity. In the absence of concrete evidence it cannot just be assumed that petitioner intended to lend his name to
the corporation. Hence, petitioner cannot be considered as an accommodation party.
Cruiser Bus Lines and Transport Corporation, however, remains liable for the checks especially since there is no evidence
that the debts covered by the subject checks have been paid.
WHEREFORE, the petition is GRANTED. The Decision dated August 10, 2004 and the Resolution dated October 29,
2004 of the Court of Appeals in CA-G.R. CR No. 28464 are REVERSED and SET ASIDE.Criminal Case Nos. 52633-03
and 52634-03 are DISMISSED, without prejudice to the right of private respondent Auto Plus Traders, Inc., to file the
proper civil action against Cruiser Bus Lines and Transport Corporation for the value of the two checks.
No pronouncement as to costs.
SO ORDERED.