Cases III - List of Cases 1-17 Fulltext

8/10/2019 Cases III - List of Cases 1-17 Fulltext

1/28

Business Organization II

Case Assignments III

1. Magsaysay Labrador vs. Court of Appeals 180 SCRA 256

2. Booc vs. Bantuas 354 SCRA 279

3. Jardine Davies Inc vs. JRB Realty Inc. 463 SCRA 555

4. General Credit Corp vs. Alsons Development & Investment Corp. 513 SCRA 225

5. Kukan International Corp. vs. Reyes 631 SCRA 596

6. Secosa vs. Heirs of Erwin Suarez Francisco 433 SCRA 273

7. PNB vs. Ritratto Group Inc. 362 SCRA 216

8. Concept Builders Inc. vs. NLRC 257 SCRA 149

9. Koppel (Phil) Inc vs. Yatco 77 Phil 496

10. Land Bank of the Philippines vs. Court of Appeals 364 SCRA 375

11. Arnold vs. Willets & Patterson Ltd. 44 Phil 634

12. Yutivo Sons Hardware vs. CTA 94 Phil 376

13. Lidell & Co. vs. CIR 2 SCRA 632

14. Mariano vs. Petron Corp. 610 SCRA 487

15. PNB vs. Hydro Resources Contractors Corp G.R. No. 167530 March 31, 201316. Prisma Construction & Development Corp vs. Menchavez GR No. 160545 March

9, 2010

17. Livesey vs. Binswanger Philippines Inc et al GR. No 177493 March 19, 2014


2/28


3/28

Petitioners anchor their right to intervene on the purported assignment made by the late Senatorof a certain portion of his shareholdings to them as evidenced by a Deed of Sale dated June 20,1978.

2Such transfer, petitioners posit, clothes them with an interest, protected by law, in the matter of

litigation.

Invoking the principle enunciated in the case of PNB v. Phil. Veg. Oil Co., 49 Phil. 857,862 & 853(1927),

3petitioners strongly argue that their ownership of 41.66% of the entire outstanding capital stock of

SUBIC entitles them to a significant vote in the corporate affairs; that they are affected by the action of thewidow of their late brother for it concerns the only tangible asset of the corporation and that it appearsthat they are more vitally interested in the outcome of the case than SUBIC.

Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, this Court affirms therespondent court's holding that petitioners herein have no legal interest in the subject matter in litigationso as to entitle them to intervene in the proceedings below. In the case of Batama Farmers' CooperativeMarketing Association, Inc. v. Rosal,

4we held: "As clearly stated in Section 2 of Rule 12 of the Rules of

Court, to be permitted to intervene in a pending action, the party must have a legal interest in the matterin litigation, or in the success of either of the parties or an interest against both, or he must be so situatedas to be adversely affected by a distribution or other disposition of the property in the custody of the courtor an officer thereof ."

To allow intervention, [a] it must be shown that the movant has legal interest in the matter in

litigation, or otherwise qualified; and [b] consideration must be given as to whether the adjudication of therights of the original parties may be delayed or prejudiced, or whether the intervenor's rights may beprotected in a separate proceeding or not. Both requirements must concur as the first is not moreimportant than the second.

5

The interest which entitles a person to intervene in a suit between other parties must be in thematter in litigation and of such direct and immediate character that the intervenor will either gain or loseby the direct legal operation and effect of the judgment. Otherwise, if persons not parties of the actioncould be allowed to intervene, proceedings will become unnecessarily complicated, expensive andinterminable. And this is not the policy of the law.

6

The words "an interest in the subject" mean a direct interest in the cause of action as pleaded,and which would put the intervenor in a legal position to litigate a fact alleged in the complaint, without theestablishment of which plaintiff could not recover.

7

Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote,conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in sheerexpectancy of a right in the management of the corporation and to share in the profits thereof and in theproperties and assets thereof on dissolution, after payment of the corporate debts and obligations.

While a share of stock represents a proportionate or aliquot interest in the property of thecorporation, it does not vest the owner thereof with any legal right or title to any of the property, hisinterest in the corporate property being equitable or beneficial in nature. Shareholders are in no legalsense the owners of corporate property, which is owned by the corporation as a distinct legal person.

8

Petitioners further contend that the availability of other remedies, as declared by the Court ofappeals, is totally immaterial to the availability of the remedy of intervention.

We cannot give credit to such averment. As earlier stated, that the movant's interest may beprotected in a separate proceeding is a factor to be considered in allowing or disallowing a motion forintervention. It is significant to note at this juncture that as per records, there are four pending casesinvolving the parties herein, enumerated as follows: [1] Special Proceedings No. 122122 before the CFI ofManila, Branch XXII, entitled "Concepcion Magsaysay-Labrador, et al. v. Subic Land Corp., et al.",involving the validity of the transfer by the late Genaro Magsaysay of one-half of his shareholdings inSubic Land Corporation; [2] Civil Case No. 2577-0 before the CFI of Zambales, Branch III, "AdelaidaRodriguez-Magsaysay v. Panganiban, etc.; Concepcion Labrador, et al. Intervenors", seeking to annul thepurported Deed of Assignment in favor of SUBIC and its annotation at the back of TCT No. 3258 in thename of respondent's deceased husband; [3] SEC Case No. 001770, filed by respondent praying, amongother things that she be declared in her capacity as the surviving spouse and administratrix of the estate


4/28

of Genaro Magsaysay as the sole subscriber and stockholder of SUBIC. There, petitioners, by motion,sought to intervene. Their motion to reconsider the denial of their motion to intervene was granted; [4] SPNo. Q-26739 before the CFI of Rizal, Branch IV, petitioners herein filing a contingent claim pursuant toSection 5, Rule 86, Revised Rules of Court.

9Petitioners' interests are no doubt amply protected in these

cases.

Neither do we lend credence to petitioners' argument that they are more interested in the

outcome of the case than the corporation-assignee, owing to the fact that the latter is willing tocompromise with widow-respondent and since a compromise involves the giving of reciprocalconcessions, the only conceivable concession the corporation may give is a total or partial relinquishmentof the corporate assets.

10

Such claim all the more bolsters the contingent nature of petitioners' interest in the subject oflitigation.

The factual findings of the trial court are clear on this point. The petitioners cannot claim the rightto intervene on the strength of the transfer of shares allegedly executed by the late Senator. Thecorporation did not keep books and records.

11Perforce, no transfer was ever recorded, much less

effected as to prejudice third parties. The transfer must be registered in the books of the corporation toaffect third persons. The law on corporations is explicit. Section 63 of the Corporation Code provides,thus: "No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in

the books of the corporation showing the names of the parties to the transaction, the date of the transfer,the number of the certificate or certificates and the number of shares transferred."

And even assuming arguendo that there was a valid transfer, petitioners are nonetheless barredfrom intervening inasmuch as their rights can be ventilated and amply protected in another proceeding.

WHEREFORE, the instant petition is hereby DENIED. Costs against petitioners. SO ORDERED.


5/28

2. Booc vs. Bantuas 354 SCRA 279

SALVADOR O. BOOC,complainant, vs. MALAYO B. BANTUAS, SHERIFF IV, RTC, BRANCH 3,ILIGAN CITY,respondent.

R E S O L U T I O N

DE LEON, JR., J.:

An affidavit-complaint dated August 31, 1999 was filed before the Office of the CourtAdministrator (OCA) by Salvador Booc charging Malayo B. Bantuas, Sheriff IV of the Regional Trial Court(RTC), Branch 3, Iligan City with Gross Ignorance of the Law and Grave Abuse of Authority relative toCivil Case No. 1718 entitled, "Felipe G. Javier, Jr. vs. Rufino Booc."

Complainant is the President of Five Star Marketing Corporation. On August 22, 1994 hereinrespondent Sheriff Malayo B. Bantuas, pursuant to a Writ of Execution issued in Civil Case No. 1718 fileda Notice of Levy with the Register of Deeds, Iligan City over a parcel of land covered by TCT No. T-19209and owned by Five Star Marketing Corporation. Complainant alleged that respondent sheriff, at theinstance of plaintiff, former Judge Felipe Javier, proceeded to file the Notice of Levy despite respondentsheriff's knowledge that the property is owned by the corporation which was not a party to the civil case.

On July 31, 1995, the corporation through the complainant reiterated to respondent sheriff that itwas the owner of the property and Rufino Booc had no share or interest in the corporation. Hence, thecorporation demanded that respondent sheriff cancel the notice of levy, otherwise the corporation wouldtake the appropriate legal steps to protect its interest.

Respondent sheriff, however, did not heed the corporation's demand inasmuch as on August 20,1999 the corporation received a "Notice of Sale on Execution of Real Property," dated August 11, 1999,covering the subject property. Respondent sheriff scheduled the public auction on August 31, 1999.Consequently, the corporation, to protect its rights and interests, was compelled to file an action forQuieting of Title with the RTC, Branch 4 of Iligan City.

Respondent sheriff, in his answer to the complaint filed against him before the OCA, said that he

filed a Notice of Levy with the Register of Deeds of Iligan City on the share, rights, interest andparticipation of Rufino Booc in the parcel of land owned by Five Star Marketing Corporation. Respondentsheriff claimed that Rufino Booc is the owner of around 200 shares of stock in said corporation accordingto a document issued by the Securities and Exchange Commission.

Respondent sheriff stressed that the levy was made on the share, rights and/or interest andparticipation which Rufino Booc, as President and stockholder, may have in the parcel of land owned byFive Star Marketing Corporation. Claiming that he was only acting pursuant to his duties as sheriff,respondent cited Section 15, Rule 39 of the Rules of Court which states that

x x x The officer must enforce an execution of a money judgment by levying on all the property,real and personal of every name and nature whatsoever, and which may be disposed of for valueof the judgment debtor not exempt from execution.

Real property stocks, shares, debts, credits, and other personal property, or any interest in either

real or personal property, may be levied upon in like manner and with like effect as under a writ ofexecution.

Respondent sheriff said that while complainant Salvador Booc made a demand for thecancellation of levy made, the former deemed it wise to have the judgment satisfied in accordance withSection 39 of the Rules of Court Respondent sheriff added that the trial court where the case for Quietingof Title filed by the corporation was pending ordered the auction sale of the shares of stock of RufinoBooc. The corporation allegedly never questioned said order of the RTC.

Finally, respondent sheriff averred that the corporation is merely a dummy of Rufino Booc and hisbrother Sheikding Booc. Respondent sheriff submitted as an exhibit an affidavit executed by Sheikding


6/28

Booc wherein the latter admitted that when Judge Felipe Javier won in the civil case against Rufino Booc,the latter simulated a transfer of his shares of stock in Five Star Marketing Corporation so that theproperty may not be levied upon.

1

Complainant, in his reply to respondent sheriffs comment belied the latter's allegation that thecorporation never questioned the auction sale. Complainant averred that contrary to the respondentsheriff's assertion, the trial court in fact issued a restraining order which was withdrawn after plaintiff's

counsel manifested that the respondent sheriff would only auction Rufino Booc's shares of stock in thecorporation and not the subject property.

The OCA found respondent sheriff liable for the charges filed against him, stating that respondentsheriff acted in bad faith when he auctioned the subject property inasmuch as Judge Mangotara hadalready warned him that the public auction should pertain only to shares of stock owned by Rufino Boocin Five Star Marketing Corporation. Respondent sheriff, however, in violation of the order issued by JudgeMangotara and in disregard of the manifestation filed by plaintiffs counsel that the sale should involveonly the shares of stock, proceeded to auction the subject property. The OCA, thus, made therecommendation that:

1) The instant case be RE-DOCKETED as a regular administrative matter; and

2) Respondent Sheriff Malayo B. Bantuas be FINED in the amount of Ten Thousand Pesos(P10,000.00) for conducting the auction sale in violation of the terms of the order issued by Acting

Presiding Judge Mamindiara P. Mangotara with a STERN WARNING that a commission of thesame or similar acts in the future shall be dealt with more severely.

A careful scrutiny of the records shows that respondent sheriff, in filing a notice of levy on thesubject property as well as in the certificate of sale, did not fail to mention that what was being leviedupon and sold was whatever shares, rights, interests and participation Rufino Booc, as president andstockholder in Five Star Marketing Corporation may have on subject property. Respondent sheriff,however, overstepped his authority when he disregarded the distinct and separate personality of thecorporation from that of Rufino Booc as stockholder of the corporation by levying on the property of thecorporation. Respondent sheriff should not have made the levy based on mere conjecture that sinceRufino Booc is a stockholder and officer of the corporation, then he might have an interest or share in thesubject property.

It is settled that a corporation is clothed with a personality separate and distinct from that of its

stockholders. It may not be held liable for the personal indebtedness of its stockholders. In the caseof Del Rosario vs. Bascar, Jr,

2we imposed the fine of P5,000.00 on respondent sheriff Bascar for

"allocating unto himself the power of the court to 'pierce the veil of corporate entity' and improvidentlyassuming that since complainant Esperanza del Rosario is the treasurer of Miradel DevelopmentCorporation, they are one and the same." In the said case we reiterated the principle that the mere factthat one is a president of the corporation does not render the property he owns or possesses the propertyof the corporation since the president, as an individual, and the corporation are separate entities.

Based on the foregoing, respondent Sheriff Bantuas has clearly acted beyond his authority whenhe levied the property of Five Star Marketing Corporation. The fact, however, that respondent sheriff, inlevying said property, had stated in the notice of levy as well as in the certificate of sale that what wasbeing levied upon and sold was whatever rights, shares interest and/or participation Rufino Booc, asstockholder and president in the corporation, may have on the subject property, shows that respondentsheriff's conduct was impelled partly by ignorance of Corporation Law and partly by mere

overzealousness to comply with his duties and not by bad faith or blatant disregard of the trial court'sorder. Hence, we deem that the penalty of a fine of Five Thousand Pesos (P5,000.00) to be imposed onrespondent sheriff would suffice.

WHEREFORE, respondent Malayo B. Bantuas, Sheriff IV of the RTC of Iligan City, Branch 3, ishereby FINED in the sum of Five Thousand Pesos (P5,000.00) with the STERN WARNING that arepetition of the same or similar acts in the future will be dealt with more severely. SO ORDERED.


7/28

3. Jardine Davies Inc vs. JRB Realty Inc. 463 SCRA 555

JARDINE DAVIES, INC.,Petitioner, versus JRB REALTY, INC., Respondent.

July 15, 2005 G.R. No. 151438

D E C I S I O N

Before us is a petition for review of the Decision[1]

of the Court of Appeals (CA) in CA-G.R. CVNo. 54201 affirming in toto that of the Regional Trial Court (RTC) in Civil Case No. 90-237 for specificperformance; and the Resolution dated January 11, 2002 denying the motion for reconsideration thereof.

The facts are as follows:

In 1979-1980, respondent JRB Realty, Inc. built a nine-storey building, named Blanco Center, onits parcel of land located at 119 Alfaro St., Salcedo Village, Makati City. An air conditioning system wasneeded for the Blanco Law Firm housed at the second floor of the building. On March 13, 1980, therespondents Executive Vice-President, Jose R. Blanco, accepted the contract quotation of Mr. A.G.Morrison, President of Aircon and Refrigeration Industries, Inc. (Aircon), for two (2) sets of Fedders

Adaptomatic 30,000 kcal (Code: 10-TR) air conditioning equipment with a net total selling priceof P99,586.00.[2]

Thereafter, two (2) brand new packaged air conditioners of 10 tons capacity each todeliver 30,000 kcal or 120,000 BTUH

[3] were installed by Aircon. When the units with rotary compressors

were installed, they could not deliver the desired cooling temperature. Despite several adjustments andcorrective measures, the respondent conceded that Fedders Air Conditioning USAs technology for rotarycompressors for big capacity conditioners like those installed at the Blanco Center had not yet beenperfected. The parties thereby agreed to replace the units with reciprocating/semi-hermetic compressorsinstead. In a Letter dated March 26, 1981,

[4]Aircon stated that it would be replacing the units currently

installed with new ones using rotary compressors, at the earliest possible time. Regrettably, however, itcould not specify a date when delivery could be effected.

TempControl Systems, Inc. (a subsidiary of Aircon until 1987) undertook the maintenance of theunits, inclusive of parts and services. In October 1987, the respondent learned, through newspaperads,[5]that Maxim Industrial and Merchandising Corporation (Maxim, for short) was the new and exclusivelicensee of Fedders Air Conditioning USA in the Philippines for the manufacture, distribution, sale,installation and maintenance of Fedders air conditioners. The respondent requested that Maxim honorthe obligation of Aircon, but the latter refused. Considering that the ten-year period of prescription wasfast approaching, to expire on March 13, 1990, the respondent then instituted, on January 29, 1990, anaction for specific performance with damages against Aircon & Refrigeration Industries, Inc., Fedders AirConditioning USA, Inc., Maxim Industrial & Merchandising Corporation and petitioner Jardine Davies,Inc.

[6] The latter was impleaded as defendant, considering that Aircon was a subsidiary of the

petitioner. The respondent prayed that judgment be rendered, as follows:

1. Ordering the defendants to jointly and severally at their account and expense deliver, installand place in operation two brand new units of each 10-tons capacity Fedders unitary packaged airconditioners with Fedders USAs technology perfected rotary compressors to always de liver 30,000 kcal

or 120,000 BTUH to the second floor of the Blanco Center building at 119 Alfaro St., Salcedo Village,Makati, Metro Manila;

2. Ordering defendants to jointly and severally reimburse plaintiff not only thesums of P415,118.95 for unsaved electricity from 21

stOctober 1981 to 7

thJanuary

1990 andP99,287.77 for repair costs of the two service units from 7thMarch 1987 to

11thJanuary 1990, with legal interest thereon from the filing of this Complaint until fully

reimbursed, but also like unsaved electricity costs and like repair costs therefrom untilPrayer No. 1 above shall have been complied with;
http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn1http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn1http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn2http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn2http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn2http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn3http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn3http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn4http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn4http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn4http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn5http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn5http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn5http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn6http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn6http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn6http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn6http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn5http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn4http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn3http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn2http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn1


8/28

3. Ordering defendants to jointly and severally pay plaintiffs P150,000.00attorneys fees and other costs of litigation, as well as exemplary damages in anamount not less than or equal to Prayer 2 above; and

4. Granting plaintiff such other and further relief as shall be just and equitablein the premises.

[7]

Of the four defendants, only the petitioner filed its Answer. The court did not acquirejurisdiction over Aircon because the latter ceased operations, as its corporate lifeended on December 31, 1986.

[8] Upon motion, defendants Fedders Air Conditioning

USA and Maxim were declared in default.[9]

On May 17, 1996, the RTC rendered its Decision, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered ordering defendants JardineDavies, Inc., Fedders Air Conditioning USA, Inc. and Maxim Industrial andMerchandising Corporation, jointly and severally:

1. To deliver, install and place into operation the two (2) brand newunits of Fedders unitary packaged airconditioning units each of 10 tonscapacity with rotary compressors to deliver 30,000 kcal or 120,000BTUH to the second floor of the Blanco Center building, or to pay

plaintiff the current price for two such units;2. To reimburse plaintiff the amount of P556,551.55 as and for the

unsaved electricity bills from October 21, 1981 up to April 30, 1995;and another amount of P185,951.67 as and for repair costs;

3. To pay plaintiff P50,000.00 as and for attorneys fees; and

4. Cost of suit.[10]

The petitioner filed its notice of appeal with the CA, alleging that the trial court erred in holdingit liable because it was not a party to the contract between JRB Realty, Inc. and Aircon, andthat it had a personality separate and distinct from that of Aircon.

On March 23, 2000, the CA affirmed the trial courts rulingin toto; hence, this petition.

The petitioner raises the following assignment of errors:I. THE COURT OF APPEALS ERRED IN HOLDING JARDINE LIABLE FOR

THE ALLEGED CONTRACTUAL BREACH OF AIRCON SOLELY BECAUSETHE LATTER WAS FORMERLY JARDINES SUBSIDIARY.

II. ASSUMINGARGUENDOTHAT AIRCON MAY BE CONSIDERED ASJARDINES MERE ALTER EGO, THE COURT OF APPEALS ERRED IN NOTDECLARING AIRCONS OBLIGATION TO DELIVER THE TWO (2)AIRCONDITIONING UNITS TO JRB AS HAVING BEEN SUBSTANTIALLYCOMPLIED WITH IN GOOD FAITH.

III. ASSUMINGARGUENDOTHAT AIRCON MAY BE CONSIDERED ASJARDINES MERE ALTER EGO, THE COURT OF APPEALS ERRED IN NOTDECLARING JRBS CAUSES OF ACTION AS HAVING BEEN BARRED BYLACHES.

IV. ASSUMINGARGUENDOTHAT AIRCON MAY BE CONSIDERED ASJARDINES MERE ALTER EGO, THE COURT OF APPEALS ERRED INFINDING JRB ENTITLED TO RECOVER ALLEGED UNSAVED ELECTRICITYEXPENSES.

V. THE COURT OF APPEALS ERRED IN HOLDING JARDINE LIABLE TO PAYATTORNEYS FEES.

VI. THE COURT OF APPEALS ERRED IN NOT HOLDING JRB LIABLE TOJARDINE FOR DAMAGES.

[11]
http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn7http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn7http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn7http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn8http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn8http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn8http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn9http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn9http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn9http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn10http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn10http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn10http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn11http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn11http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn11http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn11http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn10http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn9http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn8http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn7


9/28

It is the well-settled rule that factual findings of the trial court, as affirmed by the CA, areaccorded high respect, even finality at times. However, considering that the factual findings of the CAand the RTC were based on speculation and conjectures, unsupported by substantial evidence, the Courtfinds that the instant case falls under one of the excepted instances. There is, thus, a need to correct theerror.

The trial court ruled that Aircon was a subsidiary of the petitioner, and concluded, thus:

Plaintiffs documentary evidence shows that at the time it contracted withAircon on March 13, 1980 (Exhibit D) and on the date the revised agreement wasreached on March 26, 1981, Aircon was a subsidiary of Jardine. The phrase Asubsidiary of Jardine Davies, Inc. was printed on Aircons letterhead of its March 13,1980 contract with plaintiff (Exhibit D-1), as well as the Aircons letterhead of JardinesDirector and Senior Vice-President A.G. Morrison and Aircons President in his March26, 1981 letter to plaintiff (Exhibit J-2) confirming the revised agreement. Airconsnewspaper ads of April 12 and 26, 1981 and a press release on August 30, 1982(Exhibits E, F and L) also show that defendant Jardine publicly represented Airconto be its subsidiary.

Records from the Securities and Exchange Commission (SEC) also reveal thatas per Jardines December 31, 1986 and 1985 Financial Statements that The

company acts as general manager of its subsidiaries (Exhibit P). JardinesConsolidated Balance Sheet as of December 31, 1979 filed with the SEC listed Airconas its subsidiary by owning 94.35% of Aircon (Exhibit P -1).Also, Aircons reportorialGeneral Information Sheet as of April 1980 and April 1981 filed with the SEC show thatJardine was 94.34% owner of Aircon (Exhibits Q and R) and that out of sevenmembers of the Board of Directors of Aircon, four (4) are also of Jardine.

Defendant Jardines witness, Atty. Fe delos Santos-Quiaoit admitted thatdefendant Aircon, renamed Aircon & Refrigeration Industries, Inc. is one of thesubsidiaries of Jardine Davies (TSN, September 22, 1995, p. 12). She also testifiedthat Jardine nominated, elected, and appointed the controlling majority of the Board ofDirectors and the highest officers of Aircon (Ibid, pp. 10,13-14).

The foregoing circumstances provide justifiable basis for this Court to disregardthe fiction of corporate entity and treat defendant Aircon as part of the instrumentality ofco-defendant Jardine.

[12]

The respondent court arrived at the same conclusion basing its ruling on the followingdocuments, to wit:

(a) Contract/Quotation #78-No. 80-1639 dated March 03, 1980 (Exh. D-1);

(b) Newspaper Advertisements (Exhs. E-1 and F-1);

(c) Letter dated March 26, 1981 of A.G. Morrison, President of Aircon, to Atty.J.R. Blanco (Exh. J);

(d) News items of Bulletin Today dated August 30, 1982 (Exh. L);

(e) Balance Sheet of Jardine Davies, Inc. as of December 31, 1979 listingAircon as one of its subsidiaries (Exh. P);

(f) Financial Statement of Aircon as of December 31, 1982 and 1981 (Exh.S);

(g) Financial Statement of Aircon as of December 31, 1981 (Exh. S-1).[13]

Applying the doctrine of piercing the veil of corporate fiction, both the respondent andtrial courts conveniently held the petitioner liable for the alleged omissions of Aircon,considering that the latter was its instrumentality or corporate alter ego. The petitioner is nowbefore us, reiterating its defense of separateness, and the fact that it is not a party to thecontract.
http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn12http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn12http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn12http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn13http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn13http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn13http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn13http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn12


10/28

We find merit in the petition.

It is an elementary and fundamental principle of corporation law that a corporation is an artificialbeing invested by law with a personality separate and distinct from its stockholders and from othercorporations to which it may be connected. While a corporation is allowed to exist solely for a lawfulpurpose, the law will regard it as an association of persons or in case of two corporations, merge theminto one, when this corporate legal entity is used as a cloak for fraud or illegality .

[14] This is the doctrine of

piercing the veil of corporate fiction which applies only when such corporate fiction is used to defeatpublic convenience, justify wrong, protect fraud or defend crime.

[15]The rationale behind piercing a

corporations identity is to remove the barrier between the corporation from the persons comprising it tothwart the fraudulent and illegal schemes of those who use the corporate personality as a shield forundertaking certain proscribed activities.

[16]

While it is true that Aircon is a subsidiary of the petitioner, it does not necessarily follow thatAircons corporate legal existence can just be disregarded. InVelarde v. Lopez, Inc.,

[17]the Court

categorically held that a subsidiary has an independent and separate juridical personality, distinct fromthat of its parent company; hence, any claim or suit against the latter does not bind the former, and viceversa. In applying the doctrine, the following requisites must be established: (1) control, not merelymajority or complete stock control; (2) such control must have been used by the defendant to commitfraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest acts incontravention of plaintiffs legal rights; and (3) the aforesaid control and breach of duty must proximately

cause the injury or unjust loss complained of.[18]

The records bear out that Aircon is a subsidiary of the petitioner only because the latter acquired Airconsmajority of capital stock. It, however, does not exercise complete control over Aircon; nowhere can it begathered that the petitioner manages the business affairs of Aircon. Indeed, no management agreementexists between the petitioner and Aircon, and the latter is an entirely different entity from the petitioner.

[19]

Jardine Davies, Inc., incorporated as early as June 28, 1946,[20]

is primarily a financial and tradingcompany. Its Articles of Incorporation states among many others that the purposes for which the saidcorporation was formed, are as follows:

(a) To carry on the business of merchants, commission merchants, brokers,factors, manufacturers, and agents;

(b) Upon complying with the requirements of law applicable thereto, to act as

agents of companies and underwriters doing and engaging in any and all kinds ofinsurance business.

[21]

On the other hand, Aircon, incorporated on December 27, 1952,[22]

is a manufacturing firm. ItsArticles of Incorporation states that its purpose is mainly -

To carry on the business of manufacturers of commercial and household appliancesand accessories of any form, particularly to manufacture, purchase, sell or deal in airconditioning and refrigeration products of every class and description as well asaccessories and parts thereof, or other kindred articles; and to erect, or buy, lease,manage, or otherwise acquire manufactories, warehouses, and depots formanufacturing, assemblage, repair and storing, buying, selling, and dealing in theaforesaid appliances, accessories and products.

[23]

The existence of interlocking directors, corporate officers and shareholders, which therespondent court considered, is not enough justification to pierce the veil of corporatefiction, in the absence of fraud or other public policy considerations.

[24] But even when

there is dominance over the affairs of the subsidiary, the doctrine of piercing the veil ofcorporate fiction applies only when such fiction is used to defeat public convenience,justify wrong, protect fraud or defend crime.

[25] To warrant resort to this extraordinary

remedy, there must be proof that the corporation is being used as a cloak or cover forfraud or illegality, or to work injustice.

[26] Any piercing of the corporate veil has to be

done with caution.[27]

The wrongdoing must be clearly and convincingly established. Itcannot just be presumed.

[28]
http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn14http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn14http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn14http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn15http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn15http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn15http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn16http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn16http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn16http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn17http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn17http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn17http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn18http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn18http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn18http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn19http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn19http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn19http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn20http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn20http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn20http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn21http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn21http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn21http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn22http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn22http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn22http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn23http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn23http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn24http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn24http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn24http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn25http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn25http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn25http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn26http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn26http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn26http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn27http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn27http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn27http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn28http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn28http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn28http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn28http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn27http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn26http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn25http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn24http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn23http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn22http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn21http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn20http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn19http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn18http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn17http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn16http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn15http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn14


11/28

In the instant case, there is no evidence that Aircon was formed or utilized with the intention ofdefrauding its creditors or evading its contracts and obligations. There was nothing fraudulent in the actsof Aircon in this case. Aircon, as a manufacturing firm of air conditioners, complied with its obligation ofproviding two air conditioning units for the second floor of the Blanco Center in good faith, pursuant to itscontract with the respondent. Unfortunately, the performance of the air conditioning units did not satisfythe respondent despite several adjustments and corrective measures. In a Letter

[29]dated October 22,

1980, the respondent even conceded that Fedders Air Conditioning USA has not yet perhaps perfectedits technology of rotary compressors, and agreed to change the compressors with the semi-hermetic type.Thus, Aircon substituted the units with serviceable ones which delivered the cooling temperature neededfor the law office. After enjoying ten (10) years of its cooling power, respondent cannot now complainabout the performance of these units, nor can it demand a replacement thereof.

Moreover, it was reversible error to award the respondent the amount of P556,551.55representing the alleged 30% unsaved electricity costs and P185,951.67 as maintenance cost withoutshowing any basis for such award. To justify a grant of actual or compensatory damages, it is necessaryto prove with a reasonable degree of certainty, premised upon competent proof and on the best evidenceobtainable by the injured party, the actual amount of loss.

[30]The respondent merely based its cause of

action on Aircons alleged representation that Fedders air conditioners with rotary compressors can saveas much as 30% on electricity compared to other brands. Offered in evidence were newspaperadvertisements published on April 12 and 26, 1981. The respondent then recorded its electricity

consumption from October 21, 1981 up to April 3, 1995 and computed 30% thereof, which amountedto P556,551.55. The Court rules that this amount is highly speculative and merely hypothetical, and forwhich the petitioner can not be held accountable.

First. The respondent merely relied on the newspaper advertisements showing the Fedderswindow-type air conditioners, which are far different from the big capacity air conditioning units installed atBlanco Center.

Second. After such print advertisements, the respondent informed Aircon that it was going toinstall an electric meter to register its electric consumption so as to determine the electric costs not savedby the presently installed units with semi-hermetic compressors. Contrary to the allegations of therespondent that this was in pursuance to their Revised Agreement, no proof was adduced that Airconagreed to the respondents proposition. It was a unilateral act on the part of the respondent, which Aircondid not oblige or commit itself to pay.

Third. Needless to state, the amounts computed are mere estimates representing therespondents self-serving claim of unsaved electricity cost, which is too speculative and conjectural tomerit consideration. No other proofs, reports or bases of comparison showing that Fedders AirConditioning USA could indeed cut down electricity cost by 30% were adduced.

Likewise, there is no basis for the award of P185,951.67 representing maintenance cost. Therespondent merely submitted a schedule

[31]prepared by the respondents accountant, listing the alleged

repair costs from March 1987 up to June 1994. Such evidence is self-serving and can not also be givenprobative weight, considering that there are no proofs of receipts, vouchers, etc., which wouldsubstantiate the amounts paid for such services. Absent any more convincing proof, the Court finds thatthe respondents claims are withoutbasis, and cannot, therefore, be awarded.

We sustain the petitioners separateness from that of Aircon in this case. It bears stressing thatthe petitioner was never a party to the contract. Privity of contracts take effect only between parties, their

successors-in-interest, heirs and assigns.

[32]

The petitioner, which has a separate and distinct legalpersonality from that of Aircon, cannot, therefore, be held liable.

IN VIEW OF THE FOREGOING, the petition is GRANTED. The assailed decision of the Court ofAppeals, affirming the decision of the Regional Trial Court is REVERSEDand SET ASIDE. Thecomplaint of the respondent is DISMISSED. Costs against the respondent.

SO ORDERED.
http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn29http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn29http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn29http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn30http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn30http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn30http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn31http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn31http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn32http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn32http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn32http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn32http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn31http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn30http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/151438.htm#_ftn29


12/28

4. General Credit Corp vs. Alsons Development & Investment Corp. 513SCRA 225

GENERAL CREDIT CORPORATION (now PENTA CAPITAL FINANCE CORPORATION),Petitioner, vs. ALSONS DEVELOPMENT and INVESTMENT CORPORATION and CCC EQUITY

CORPORATION,Respondents.

D E C I S I O N

GARCIA, J .:

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner General CreditCorporation, now known as Penta Capital Finance Corporation, seeks to annul and set aside theDecision

1and Resolution

2dated April 11, 2002 and August 20, 2002, respectively, of the Court of Appeals

(CA) in CA-G.R. CV No. 31801,affirming the November 8, 1990 decision of the Regional Trial Court(RTC) of Makati City in its Civil Case No. 12707, an action for a sum of money thereat instituted by theherein respondent Alsons Development and Investment Corporation against the petitioner andrespondent CCC Equity Corporation.

The facts:

Shortly after its incorporation in 1957 as a finance and investment company, petitioner General CreditCorporation (GCC, for short), then known as Commercial Credit Corporation (CCC), established CCCfranchise companies in different urban centers of the country.

3In furtherance of its business, GCC had,

as early as 1974, applied for and was able to secure license from the then Central Bank (CB) of thePhilippines and the Securities and Exchange Commission (SEC) to engage also in quasi-bankingactivities.

4On the other hand, respondent CCC Equity Corporation (EQUITY, for brevity) was organized in

November 1994 by GCC for the purpose of, among other things, taking over the operations andmanagement of the various franchise companies. At a time material hereto, respondent AlsonsDevelopment and Investment Corporation (ALSONS, hereinafter) and Conrado, Nicasio, Editha andLadislawa, all surnamed Alcantara, and Alfredo de Borja (hereinafter the Alcantara family, forconvenience), each owned, just like GCC, shares in the aforesaid GCC franchise companies, e.g., CCCDavao and CCC Cebu.

In December 1980, ALSONS and the Alcantara family, for a consideration of Two Million (P2,000,000.00)Pesos, soldtheir shareholdings a total of 101,953 shares, more or less in the CCC franchisecompanies to EQUITY.[5]On January 2, 1981, EQUITY issued ALSONS et al., a "bearer" promissory notefor P2,000,000.00 with a one-year maturity date, at 18% interest per annum, with provisions for damagesand litigation costs in case of default.

6

Some four years later, the Alcantara family assigned its rights and interests over the bearer note toALSONS which thenceforth became the holder thereof.

7But even before the execution of the assignment

deal aforestated, letters of demand for interest payment were already sent to EQUITY, through itsPresident, Wilfredo Labayen, who pleaded inability to pay the stipulated interest, EQUITY no longer thenhaving assets or property to settle its obligation nor being extended financial support by GCC.

What happened next, as narrated in the assailed Decision of the CA, may be summarized, as follows:

1. On January 14, 1986, before the RTC of Makati, ALSONS, having failed to collect on the

bearer note aforementioned, filed a complaint for a sum of money8against EQUITY and GCC.The case, docketed as Civil Case No. 12707, was eventually raffled to Branch 58 of the court. Asstated in par. 4 of the complaint, GCC is being impleaded as party-defendant for any judgmentALSONS might secure against EQUITY and, under the doctrine of piercing the veil of corporatefiction, against GCC, EQUITY having been organized as a tool and mere conduit of GCC.

2. Answering with a cross-claim against GCC, EQUITY stated by way of special and affirmativedefenses that it (EQUITY):
http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt1http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt1http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt2http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt2http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt3http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt3http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt3http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt4http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt4http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt4http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt5http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt5http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt6http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt6http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt6http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt7http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt7http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt7http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt8http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt8http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt8http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt7http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt6http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt5http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt4http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt3http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt2http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt1


13/28


14/28

Therefrom, GCC went on appeal to the CA where its appellate recourse was docketed as CA-G.R. CVNo. 31801, ascribing to the trial court the commission of the following errors:

1. In holding that there is a "Parent-Subsidiary" corporate relationship between EQUITY andGCC;

2. In not holding that EQUITY and GCC are distinct and separate corporate entities;

3. In applying the doctrine of "Piercing the Veil of Corporate Fiction" in the case at bar; and

4. In not holding ALSONS in estoppel to question the corporate personality of EQUITY.

On April 11, 2002, the appellate court rendered the herein assailed Decision,11

affirming that of the trialcourt, thus:

WHEREFORE, premises considered, the Decision of the Regional Trial Court, Branch 58, Makati in CivilCase No. 12707 is hereby AFFIRMED.

SO ORDERED.

In time, GCC moved for reconsideration followed by a motion for oral argument, but both motions weredenied by the CA in its equally assailed Resolution of August 20, 2002.

12

Hence, GCCs present recourse anchored on the following arguments, issues and/or submissions:

1. The motion for oral argument with motion for reconsideration and its supplement wereperfunctorily denied by the CA without justifiable basis;

2. There is absolutely no basis for piercing the veil of corporate fiction;

3. Respondent Alsons is not a real party-in-interest as the promissory note payable to bearer subjectof the collection suit is but a simulated document and/or refers to another party. Moreover, thesubject promissory note is not admissible in evidence because it has not been duly authenticatedand it is an altered document;

4. The fact of full payment stated in the ten (10) deeds of sale of the shares of stock is conclusive onthe sellers, and by the patrol evidence rule, the alleged fact of its non-payment cannot be introducedin evidenced; and

5. The counter-claim filed by GCC against Alsons should be granted in the interest of justice.

The petition and the arguments and/or issues holding it together are without merit. The desired reversal ofthe assailed decision and resolution of the appellate court is accordingly DENIED.

Instead of raising distinctly formulated questions of law, as is expected of one seeking a review underRule 45 of the Rules of Court of a final CA judgment,

13petitioner GCC starts off by voicing

disappointment over the "perfunctory" denial by the CA of its twin motions for reconsideration and oralargument. Petitioner, to be sure, cannot plausibly expect a reversal action premised on the cursory wayits motions were denied, if such indeed were the case. Such manner of denial, while perhaps far fromideal, is not even a recognized ground for appeal by certiorari, unless a denial of due process ensues,which is not the case here. And lest it be overlooked, the CA prefaced its assailed denial resolution withthe clause: "[F]inding no reversible error committed to warrant the modification and/or reversal of the April11, 2002 Decision," suggesting that the appellate court gave the petitioners motion for reconsiderationthe attention it deserved. At the very least, the petitioner was duly apprised of the reasons why

reconsideration could not be favorably considered. An extended resolution was not really necessary todispose of the motion for reconsideration in question.

Petitioners lament about being deprived ofprocedural due process owing to the denial of its motion fororal argument is simply specious. Under the CA Internal Rules, the appellate court may tap any of thethree (3) alternatives therein provided to aid the court in resolving appealed cases before it. It may rely onavailable records alone, require the submission of memoranda or set the case for oral argument. Theoption the Internal Rules thus gives the CA necessarily suggests that the appellate court may, at itssound discretion, dispense with a tedious oral argument exercise. Rule VI, Section 6 of the 2002 InternalRules of the CA, provides:
http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt11http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt11http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt11http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt12http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt12http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt12http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt13http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt13http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt13http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt13http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt12http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt11


15/28

SEC. 6 Judicial Action on Certain Petitions.- (a) In petitions for review, after the receipt of therespondents comment on the petition, the Court [of Appeals] may dismiss the petition if it finds thesame to be patently without merit , otherwise, it shall give due course to it.

xxx xxx xxx

If the petition is given due course, the Court may consider the case submitted for decision or require theparties to submit their memorandum or set the case for oral argument. xxx. After the oral argument orupon submission of the memoranda the case shall be deemed submitted for decision.

In the case at bench, records reveal that the appellate court, in line with the prescription of its own rules,required the parties to just submit, as they did, their respective memoranda to properly ventilate theirseparate causes. Under this scenario, the petitioner cannot be validly heard, having been deprived of dueprocess.

Just like the first, the last three (3) arguments set forth in the petition will not carry the day for thepetitioner. In relation therewith, the Court notes that these arguments and the issues behind them werenot raised before the trial court. This appellate maneuver cannot be allowed. For, well-settled is the rulethat issues or grounds not raised below cannot be resolved on review in higher courts.

14Springing

surprises on the opposing party is antithetical to the sporting idea of fair play, justice and due process;hence, the proscription against a party shifting from one theory at the trial court to a new and differenttheory in the appellate level. On the same rationale, points of law, theories, issues not brought to the

attention of the lower court or, in fine, not interposed during the trial cannot be raised for the first time onappeal.

15

There are, to be sure, exceptions to the rule respecting what may be raised for the first time on appeal.Lack of jurisdiction over when the issues raised present a matter of public polic y

16comes immediately to

mind. None of the well-recognized exceptions obtain in this case, however.

Lest it be overlooked vis--vis the same last three arguments thus pressed, both the trial court and theCA, based on the evidence adduced, adjudged the petitioner and respondent EQUITY jointly andseverally liable to pay what respondent ALSONS is entitled to under the "bearer" promissory note. Thejudgment argues against the notion of the note being simulated or altered or that respondent ALSONShas no standing to sue on the note, not being the payee of the "bearer" note. For, the declaration ofliability not only presupposes the duly established authenticity and due execution of the promissory noteover which ALSONS, as the holder in due course thereof, has interest, but also the untenability of the

petitioners counterclaim for attorneys fees and exemplary damages against ALSONS. At bottom, thepetitioner predicated such counter-claim on the postulate that respondent ALSONS had no cause ofaction, the supposed promissory note being, according to the petitioner, either a simulated or an altereddocument.

In net effect, the definitive conclusion of the appellate court affirmatory of that of the trial court wasthat the bearer promissory note (Exh. "K") was a genuine and authentic instrument payable to the holderthereof. This factual determination, as a matter of long and sound appellate practice, deserves greatweight and shall not be disturbed on appeal, save for the most compelling reasons ,

17such as when that

determination is clearly without evidentiary support or when grave abuse of discretion has beencommitted.

18This is as it should be since the Court, in petitions for review of CA decisions under Rule 45

of the Rules of Court, usually limits its inquiry only to questions of law. Stated otherwise, it is not thefunction of the Court to analyze and weigh all over again the evidence or premises supportive of thefactual holdings of lower courts.

19

As nothing in the record indicates any of the exceptions adverted to above, the factual conclusion of theCA that the P2 Million promissory note in question was authentic and was issued at the first instance torespondent ALSONS and the Alcantara family for the amount stated on its face, must be affirmed. Itshould be stressed in this regard that even the issuing entity, i.e., respondent EQUITY, never challengedthe genuineness and due execution of the note.

This brings us to the remaining but core issue tendered in this case and aptly raised by the petitioner, towit: whether there is absolutely no basis for piercing GCCs veil of corporate identity.
http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt14http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt14http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt14http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt15http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt15http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt15http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt16http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt16http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt16http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt17http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt17http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt17http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt18http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt18http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt18http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt19http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt19http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt19http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt19http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt18http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt17http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt16http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt15http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt14


16/28

A corporation is an artificial being vested by law with a personality distinct and separate from those of thepersons composing it

20as well as from that of any other entity to which it may be related .

21The first

consequence of the doctrine of legal entity of the separate personality of the corporation is that acorporation may not be made to answer for acts and liabilities of its stockholders or those of legal entitiesto which it may be connected or vice versa.

22

The notion of separate personality, however, may be disregarded under the doctrine "piercing the veil of

corporate fiction"as in fact the court will often look at the corporation as a mere collection of individualsor an aggregation of persons undertaking business as a group, disregarding the separate juridicalpersonality of the corporation unifying the group. Another formulation of this doctrine is that when two (2)business enterprises are owned, conducted and controlled by the same parties, both law and equity will,when necessary to protect the rights of third parties, disregard the legal fiction that two corporations aredistinct entities and treat them as identical or one and the same.

23

Whether the separate personality of the corporation should be pierced hinges on obtaining facts,appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with caution,albeit the Court will not hesitate to disregard the corporate veil when it is misused or when necessary inthe interest of justice.

24After all, the concept of corporate entity was not meant to promote unfair

objectives.

Authorities are agreed on at least three (3) basic areas where piercing the veil, with which the law covers

and isolates the corporation from any other legal entity to which it may be related, is allowed.25

These are:1) defeat of public convenience,

26as when the corporate fiction is used as vehicle for the evasion of an

existing obligation;27

2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud,or defend a crime;

28or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter

ego or business conduit of a person, or where the corporation is so organized and controlled and itsaffairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of anothercorporation.

29

The CA found valid grounds to pierce the corporate veil of petitioner GCC, there being justifiable basis forsuch action. When the appellate court spoke of a justifying factor, the reference was to what the trial courtsaid in its decision, namely: the existence of "certain circumstances [which], taken together, gave rise tothe ineluctable conclusion that [respondent] EQUITY is but an instrumentality or adjunct of [petitioner]GCC."

The Court agrees with the disposition of the appellate court on the application of the piercing doctrine tothe transaction subject of this case. Per the Courts count, the trial court enumerated no less than 20documented circumstances and transactions, which, taken as a package, indeed strongly supported theconclusion that respondent EQUITY was but an adjunct, an instrumentality or business conduit ofpetitioner GCC. This relation, in turn, provides a justifying ground to pierce petitioners corporateexistence as to ALSONS claim in question. Foremost of what the trial court referred to as "certaincircumstances" are the commonality of directors, officers and stockholders and even sharing of officebetween petitioner GCC and respondent EQUITY; certain financing and management arrangementsbetween the two, allowing the petitioner to handle the funds of the latter; the virtual domination if notcontrol wielded by the petitioner over the finances, business policies and practices of respondentEQUITY; and the establishment of respondent EQUITY by the petitioner to circumvent CB rules. For aperspective, the following are some relevant excerpts from the trial courts decision setting forth in somedetail the tipping circumstances adverted to therein:

It must be noted that as characterized by their business relationship, [respondent] EQUITY and[petitioner] GCC had common directors and/or officers as well as stockholders. This is revealed by theproceedings recorded in SEC Case No. 25-81 entitled "Avelina Ramoso, et al., vs. GCC, et al., where itwas established, thru the testimony of EQUITYs own President that more than 90% of thestockholders of EQUITY were also stockholders of GCC .. Disclosed likewise is the fact that when[EQUITYs President] Labayen sold the shareholdings of EQUITY in said franchise companies, practicallythe entire proceeds thereof were surrendered to GCC, and not received by EQUITY (EXHIBIT "RR") xxx.

It was likewise shown by a preponderance of evidence that not only had GCC financed EQUITY andthat the latter was heavily indebted to the former but EQUITY was, in fact, a wholly owned subsidiary of
http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt20http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt20http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt20http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt21http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt21http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt21http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt22http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt22http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt22http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt23http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt23http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt23http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt24http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt24http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt24http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt25http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt25http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt25http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt26http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt26http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt26http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt27http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt27http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt27http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt28http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt28http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt28http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt29http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt29http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt29http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt29http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt28http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt27http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt26http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt25http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt24http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt23http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt22http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt21http://www.lawphil.net/judjuris/juri2007/jan2007/gr_154975_2007.html#fnt20


17/28

GCC. Thus, as affirmed by EQUITYs President, the funds invested by EQUITY in the CCCfranchise companies actually came from CCC Phils. or GCC (Exhibit "Y-5"). that, as disclosed by theAuditors report for 1982, past due receivables alone of GCC exceeded P101,000,000.00 mostly to GCCaffiliates especially CCC EQUITY. ; that [CBs] Report of Examination dated July 14, 1977 shows that EQUITY which has a paid-up capital of only P500,000.00 was the biggest borrower of GCC with a totalloan of P6.70 Million .

xxx xxx xxx

It has likewise been amply substantiated by [respondent ALSONS] evidence that not only did GCCcause the incorporation of EQUITY, but, the latter had grossly inadequate capital for the pursuit of itsline of business to the extent that its business affairs were considered as GCCs own businessendeavors. xxx.

xxx xxx xxx

ALSONS has likewise shown that the bonuses of the officers and directors of EQUITY was based onits total financial performance together with all its affiliates both firms were sharing one and the sameoffice when both were still operational and that the directors and executives of EQUITY never actedindependently but took their orders from GCC.

The evidence has also indubitably established that EQUITY was organized by GCC for the purpose

of circumventing [CB] rules and regulations and the Anti-Usury Law. Thus, as disclosed by the AdvanceReport on the result of Central Banks Operations Examination conducted on GCC as of March 31,1977 (EXHIBITS "FFF" etc.), the latter violated [CB] rules and regulations by : (a) using as a conduit itsnon-quasi bank affiliates . (b) issuing without recourse facilities to enable GCC to extend credit toaffiliates like EQUITY which go beyond the single borrowers limit without the need of showingoutstanding balance in the book of accounts. (Emphasis over words in brackets added.)

It bears to stress at this point that the facts and the inferences drawn therefrom, upon which the two (2)courts below applied the piercing doctrine, stand, for the most part, undisputed. Among these is, toreiterate, the matter of EQUITY having been incorporated to serve, as it did serve, as an instrumentalityor adjunct of GCC. With the view we take of this case, GCC did not adduce any evidence, let alone rebutthe testimonies and documents presented by ALSONS, to establish the prevailing circumstancesadverted to that provided the justifying occasion to pierce the veil of corporate fiction between GCC andEQUITY. We quote the trial court:

Verily, indeed, as the relationships binding herein [respondent EQUITY and petitioner GCC] have beenthat of "parent-subsidiary corporations" the foregoing principles and doctrines find suitable applicability inthe case at bar; and, it having been satisfactorily and indubitably shown that the said relationships hadbeen used to perform certain functions not characterized with legitimacy, this Court feels amplyjustified to "pierce the veil of corporate entity" and disregard the separate existence of the percent (sic)and subsidiary the latter having been so controlled by the parent that its separate identity is hardlydiscernible thus becoming a mere instrumentality or alter ego of the former. Consequently, as the parentcorporation, [petitioner] GCC maybe (sic) held responsible for the acts and contracts of its subsidiary [respondent] EQUITY - most especially if the latter (who had anyhow acknowledged its liability toALSONS) maybe (sic) without sufficient property with which to settle its obligations. For, after all, GCCwas the entity which initiated and benefited immensely from the fraudulent scheme perpetrated inviolation of the law. (Words in parenthesis in the original; emphasis and bracketed words added).

Given the foregoing considerations, it behooves the petitioner, as a matter of law and equity, to assumethe legitimate financial obligation of a cash-strapped subsidiary corporation which it virtually controlled tosuch a degree that the latter became its instrument or agent. The facts, as found by the courts a quo, andthe applicable law call for this kind of disposition. Or else, the Court would be allowing the wrong use ofthe fiction of corporate veil.

WHEREFORE, the instant petition is DENIED and the appealed Decision and Resolution of the Court ofAppeals are accordingly AFFIRMED.

Costs against the petitioner. SO ORDERED.


18/28

5. Kukan International Corp. vs. Reyes 631 SCRA 596

KUKAN INTERNATIONAL CORPORATION,Petitioner,

- versus -

HON. AMOR REYES,in her capacity as Presiding Judge ofthe Regional Trial Court of Manila, Branch 21, and ROMEO M.MORALES, doing business under the name and style RMMorales Trophies and Plaques,Respondents.

G.R. No. 182729

Promulgated:

September 29, 2010

D E C I S I O N

The Case

This Petition for Review on Certiorari under Rule 45 seeks to nullify and reverse the January 23,2008 Decision

[1]and the April 16, 2008 Resolution

[2]rendered by the Court of Appeals (CA) in CA-G.R.

SP No. 100152.

The assailed CA decision affirmed the March 12, 2007[3]

and June 7, 2007[4]

Orders of the Regional

Trial Court (RTC) of Manila, Branch 21, in Civil Case No. 99-93173, entitled Romeo M. Morales, doingbusiness under the name and style RM Morales Trophies and Plaques v. Kukan, Inc.In the said orders,the RTC disregarded the separate corporate identities of Kukan, Inc. and Kukan International Corporationand declared them to be one and the same entity. Accordingly, the RTC held Kukan InternationalCorporation, albeit not impleaded in the underlying complaint of Romeo M. Morales, liable for thejudgment award decreed in a Decision dated November 28, 2002

[5]in favor of Morales and against

Kukan, Inc.

The Facts

Sometime in March 1998, Kukan, Inc. conducted a bidding for the supply and installation ofsignages in a building being constructed in Makati City. Morales tendered the winning bid and wasawarded the PhP 5 million contract. Some of the items in the project award were later excluded resultingin the corresponding reduction of the contract price to PhP 3,388,502. Despite his compliance with his

contractual undertakings, Morales was only paid the amount of PhP 1,976,371.07, leaving a balance ofPhP 1,412,130.93, which Kukan, Inc. refused to pay despite demands. Shortchanged, Morales fileda Complaint

[6]with the RTC against Kukan, Inc. for a sum of money, the case docketed as Civil Case No.

99-93173 and eventually raffled to Branch 17 of the court.

Following the joinder of issues after Kukan, Inc. filed an answer with counterclaim, trial ensued.However, starting November 2000, Kukan, Inc. no longer appeared and participated in the proceedingsbefore the trial court, prompting the RTC to declare Kukan, Inc. in default and paving the way for Moralesto present his evidence ex parte.

On November 28, 2002, the RTC rendered a Decision finding for Morales and against Kukan,Inc., disposing as follows:

WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of CivilProcedure, and by preponderance of evidence, judgment is hereby rendered in favor of

the plaintiff, ordering Kukan, Inc.:

1. to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND SEVENHUNDRED TWENTY FOUR PESOS (P1,201,724.00) with legal interest at 12% perannum from February 17, 1999 until full payment;

2. to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages;

3. to pay the sum of TWENTY THOUSAND PESOS, (P20,000.00) as reasonableattorneys fees; and
http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn2http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn2http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn3http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn3http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn4http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn4http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn5http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn5http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn6http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn6http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn7http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn7http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn7http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn7http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn6http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn5http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn4http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn3http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn2


19/28

4. to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY PESOS and SIXCENTAVOS (P7,960.06) as litigation expenses.

For lack of factual foundation, the counterclaim is DISMISSED.

IT IS SO ORDERED.[7]

After the above decision became final and executory, Morales moved for and secured a writ ofexecution

[8]against Kukan, Inc. The sheriff then levied upon various personal properties found at what

was supposed to be Kukan, Inc.s office at Unit 2205,88 Corporate Center, Salcedo Village, Makati City. Alleging that it owned the properties thus levied andthat it was a different corporation from Kukan, Inc., Kukan International Corporation (KIC) filed an Affidavitof Third-Party Claim. Notably, KIC was incorporated in August 2000, or shortly after Kukan, Inc. hadstopped participating in Civil Case No. 99-93173.

In reaction to the third party claim, Morales interposed an Omnibus Motion dated April 30,2003. In it, Morales prayed, applying the principle of piercing the veil of corporate fiction, that an order beissued for the satisfaction of the judgment debt of Kukan, Inc. with the properties under the name or in thepossession of KIC, it being alleged that both corporations are but one and the same entity. KIC opposedMorales motion. By Order of May 29, 2003

[9]as reiterated in a subsequent order, the court denied the

omnibus motion.In a bid to establish the link between KIC and Kukan, Inc., and thus determine the true

relationship between the two, Morales filed a Motion for Examination of Judgment Debtors dated May 4,2005. In this motion Morales sought that subponae be issued against the primary stockholders of Kukan,Inc., among them Michael Chan, a.k.a. Chan Kai Kit. This too was denied by the trial court in an Orderdated May 24, 2005.

[10]

Morales then sought the inhibition of the presiding judge, Eduardo B. Peralta, Jr., who eventuallygranted the motion. The case was re-raffled to Branch 21, presided by public respondent Judge AmorReyes.

Before the Manila RTC, Branch 21, Morales filed a Motion to Pierce the Veil of CorporateFiction to declare KIC as having no existence separate from Kukan, Inc. This time around, the RTC, byOrder dated March 12, 2007, granted the motion, the dispositive portion of which reads:

WHEREFORE, premises considered, the motion is hereby GRANTED. The Court herebydeclares as follows:

1. defendant Kukan, Inc. and newly created Kukan International Corp.as one and the same corporation;

2. the levy made on the properties of Kukan International Corp. ishereby valid;

3. Kukan International Corp. and Michael Chan are jointly and severallyliable to pay the amount awarded to plaintiff pursuant to the decisionof November [28], 2002 which has long been final and executory.

SO ORDERED.

From the above order, KIC moved but was denied reconsideration in another Order dated June 7,

2007.

KIC went to the CA on a petition for certiorari to nullify the aforesaid March 12 and June 7, 2007RTC Orders.

On January 23, 2008, the CA rendered the assailed decision, the dispositive portion of whichstates:

WHEREFORE, premises considered, the petition is hereby DENIED and theassailed Orders dated March 12, 2007 and June 7, 2007 of the court a quoare bothAFFIRMED. No costs.
http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn8http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn8http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn8http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn9http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn9http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn10http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn10http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn11http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn11http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn11http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn11http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn10http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn9http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn8


20/28

SO ORDERED.[11]

The CA later denied KICs motion for reconsideration in the assailed resolution.

Hence, the instant petition for review, with the following issues KIC raises for the Courtsconsideration:

1. There is no legal basis for the [CA] to resolve and declare that petitioners

Constitutional Right to Due Process was not violated by the public respondent inrendering the Orders dated March 12, 2007 and June 7, 2007 and in declaringpetitioner to be liable for the judgment obligations of the corporation Kukan, Inc. toprivate respondentas petitioner is a stranger to the case and was never made aparty in the case before the trial court nor was it ever served a summons and a copyof the complaint.

2. There is no legal basis for the [CA] to resolve and declare that the Orders datedMarch 12, 2007 and June 7, 2007 rendered by public respondent declaring thepetitioner liable to the judgment obligations of the corporation Kukan, Inc. to privaterespondent are valid as said orders of the public respondent modify and/or amendthe trial courts final and executory decision renderedon November 28, 2002.

3. There is no legal basis for the [CA] to resolve and declare that the Orders dated

March 12, 2007 and June 7, 2007 rendered by public respondent declaring thepetitioner [KIC] and the corporation Kukan, Inc. as one and the same, and,therefore, the Veil of Corporate Fiction between them be piercedas the procedureundertaken by public respondent which the [CA] upheld is not sanctioned by theRules of Court and/or established jurisprudence enunciated by this HonorableSupreme Court.

[12]

In gist, the issues to be resolved boil down to the question of, first, whether the trial court can,after the judgment against Kukan, Inc. has attained finality, execute it against the property of KIC; second,whether the trial court acquired jurisdiction over KIC; and third, whether the trial and appellate courtscorrectly applied, under the premises, the principle of piercing the veil of corporate fiction.

The Ruling of the Court

The petition is meritorious.

First Issue: Against Whom Can a Final and Executory Judgment Be Executed

The preliminary question that must be answered is whether or not the trial court can, afteradjudging Kukan, Inc. liable for a sum of money in a final and executory judgment, execute suchjudgment debt against the property of KIC.

The poser must be answered in the negative.

In Carpio v. Doroja,[13]

the Court ruled that the deciding court has supervisory control over theexecution of its judgment:

A case in which an execution has been issued is regarded as stil l pending so thatall proceedings on the execution are proceedings in the suit. There is no question that

the court which rendered the judgment has a general supervisory control over its processof execution, and this power carries with it the right to determine every question of factand law which may be involved in the execution.

We reiterated the above holding in Javier v. Court of Appeals[14]

in this wise: The said branch has ageneral supervisory control over its processes in the execution of its judgment with a right to determineevery question of fact and law which may be involved in the execution.

The courts supervisory control does not, however, extend as to authorize the alteration oramendment of a final and executory decision, save for certain recognized exceptions, among which is the
http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn12http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn12http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn12http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn13http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn13http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn13http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn14http://sc.judiciary.gov.ph/jurisprudence/2010/september2010/182729.htm#_ftn14http://sc.judiciary.g

Cases III - List of Cases 1-17 Fulltext

Documents

Transcript of Cases III - List of Cases 1-17 Fulltext