Corpo Law Cases under Chapter IV (those not found in Campos)

PHILIPPINE JURISPRUDENCE – FULL TEXT
The Lawphil Project - Arellano Law Foundation
G.R. No. 124293             January 31, 2007
J.G. SUMMIT HOLDINGS, INC. VS. COURT OF APPEALS, ET AL.



Republic of the Philippines
SUPREME COURT
Manila
SPECIAL FIRST DIVISION
G.R. No. 124293             January 31, 2005
J.G. SUMMIT HOLDINGS, INC., petitioner,
vs.
COURT OF APPEALS; COMMITTEE ON PRIVATIZATION, its Chairman and Members; ASSET PRIVATIZATION TRUST; and PHILYARDS HOLDINGS, INC., respondents.
R E S O L U T I O N
PUNO, J.:
For resolution before this Court are two motions filed by the petitioner, J.G. Summit Holdings, Inc. for reconsideration of our Resolution dated September 24, 2003 and to elevate this case to the Court En Banc. The petitioner questions the Resolution which reversed our Decision of November 20, 2000, which in turn reversed and set aside a Decision of the Court of Appeals promulgated on July 18, 1995.
I. Facts
The undisputed facts of the case, as set forth in our Resolution of September 24, 2003, are as follows:
On January 27, 1997, the National Investment and Development Corporation (NIDC), a government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction, operation and management of the Subic National Shipyard, Inc. (SNS) which subsequently became the Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA, the NIDC and KAWASAKI will contribute P330 million for the capitalization of PHILSECO in the proportion of 60%-40% respectively. One of its salient features is the grant to the parties of the right of first refusal should either of them decide to sell, assign or transfer its interest in the joint venture, viz:
1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [PHILSECO] to any third party without giving the other under the same terms the right of first refusal. This provision shall not apply if the transferee is a corporation owned or controlled by the GOVERNMENT or by a KAWASAKI affiliate.
On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the Philippine National Bank (PNB). Such interests were subsequently transferred to the National Government pursuant to Administrative Order No. 14. On December 8, 1986, President Corazon C. Aquino issued Proclamation No. 50 establishing the Committee on Privatization (COP) and the Asset Privatization Trust (APT) to take title to, and possession of, conserve, manage and dispose of non-performing assets of the National Government. Thereafter, on February 27, 1987, a trust agreement was entered into between the National Government and the APT wherein the latter was named the trustee of the National Government's share in PHILSECO. In 1989, as a result of a quasi-reorganization of PHILSECO to settle its huge obligations to PNB, the National Government's shareholdings in PHILSECO increased to 97.41% thereby reducing KAWASAKI's shareholdings to 2.59%.
In the interest of the national economy and the government, the COP and the APT deemed it best to sell the National Government's share in PHILSECO to private entities. After a series of negotiations between the APT and KAWASAKI, they agreed that the latter's right of first refusal under the JVA be "exchanged" for the right to top by five percent (5%) the highest bid for the said shares. They further agreed that KAWASAKI would be entitled to name a company in which it was a stockholder, which could exercise the right to top. On September 7, 1990, KAWASAKI informed APT that Philyards Holdings, Inc. (PHI)1 would exercise its right to top.
At the pre-bidding conference held on September 18, 1993, interested bidders were given copies of the JVA between NIDC and KAWASAKI, and of the Asset Specific Bidding Rules (ASBR) drafted for the National Government's 87.6% equity share in PHILSECO. The provisions of the ASBR were explained to the interested bidders who were notified that the bidding would be held on December 2, 1993. A portion of the ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the National Government's equity in PHILSECO consisting of 896,869,942 shares of stock (representing 87.67% of PHILSECO's outstanding capital stock), which will be sold as a whole block in accordance with the rules herein enumerated.
xxx xxx xxx
2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the APT Board of Trustees and the Committee on Privatization (COP).
2.1 APT reserves the right in its sole discretion, to reject any or all bids.
3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set for the National Government's 87.67% equity in PHILSECO is PESOS: ONE BILLION THREE HUNDRED MILLION (P1,300,000,000.00).
xxx xxx xxx
6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular meeting following the bidding, for the purpose of determining whether or not it should be endorsed by the APT Board of Trustees to the COP, and the latter approves the same. The APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS] Holdings, Inc., that the highest bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. shall then have a period of thirty (30) calendar days from the date of receipt of such advice from APT within which to exercise their "Option to Top the Highest Bid" by offering a bid equivalent to the highest bid plus five (5%) percent thereof.
6.1 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. exercise their "Option to Top the Highest Bid," they shall so notify the APT about such exercise of their option and deposit with APT the amount equivalent to ten percent (10%) of the highest bid plus five percent (5%) thereof within the thirty (30)-day period mentioned in paragraph 6.0 above. APT will then serve notice upon Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. declaring them as the preferred bidder and they shall have a period of ninety (90) days from the receipt of the APT's notice within which to pay the balance of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. fail to exercise their "Option to Top the Highest Bid" within the thirty (30)-day period, APT will declare the highest bidder as the winning bidder.
xxx xxx xxx
12.0 The bidder shall be solely responsible for examining with appropriate care these rules, the official bid forms, including any addenda or amendments thereto issued during the bidding period. The bidder shall likewise be responsible for informing itself with respect to any and all conditions concerning the PHILSECO Shares which may, in any manner, affect the bidder's proposal. Failure on the part of the bidder to so examine and inform itself shall be its sole risk and no relief for error or omission will be given by APT or COP. . . .
At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc.2 submitted a bid of Two Billion and Thirty Million Pesos (P2,030,000,000.00) with an acknowledgment of KAWASAKI/[PHILYARDS'] right to top, viz:
4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to act on APT's recommendation based on the result of this bidding. Should the COP approve the highest bid, APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS] Holdings, Inc. that the highest bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. shall then have a period of thirty (30) calendar days from the date of receipt of such advice from APT within which to exercise their "Option to Top the Highest Bid" by offering a bid equivalent to the highest bid plus five (5%) percent thereof.
As petitioner was declared the highest bidder, the COP approved the sale on December 3, 1993 "subject to the right of Kawasaki Heavy Industries, Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's bid by 5% as specified in the bidding rules."
On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to top its bid on the grounds that: (a) the KAWASAKI/PHI consortium composed of KAWASAKI, [PHILYARDS], Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the ASBR because the last four (4) companies were the losing bidders thereby circumventing the law and prejudicing the weak winning bidder; (b) only KAWASAKI could exercise the right to top; (c) giving the same option to top to PHI constituted unwarranted benefit to a third party; (d) no right of first refusal can be exercised in a public bidding or auction sale; and (e) the JG Summit consortium was not estopped from questioning the proceedings.
On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the purchase price of the subject bidding. On February 7, 1994, the APT notified petitioner that PHI had exercised its option to top the highest bid and that the COP had approved the same on January 6, 1994. On February 24, 1994, the APT and PHI executed a Stock Purchase Agreement. Consequently, petitioner filed with this Court a Petition for Mandamus under G.R. No. 114057. On May 11, 1994, said petition was referred to the Court of Appeals. On July 18, 1995, the Court of Appeals denied the same for lack of merit. It ruled that the petition for mandamus was not the proper remedy to question the constitutionality or legality of the right of first refusal and the right to top that was exercised by KAWASAKI/PHI, and that the matter must be brought "by the proper party in the proper forum at the proper time and threshed out in a full blown trial." The Court of Appeals further ruled that the right of first refusal and the right to top are prima facie legal and that the petitioner, "by participating in the public bidding, with full knowledge of the right to top granted to KAWASAKI/[PHILYARDS] is…estopped from questioning the validity of the award given to [PHILYARDS] after the latter exercised the right to top and had paid in full the purchase price of the subject shares, pursuant to the ASBR." Petitioner filed a Motion for Reconsideration of said Decision which was denied on March 15, 1996. Petitioner thus filed a Petition for Certiorari with this Court alleging grave abuse of discretion on the part of the appellate court.
On November 20, 2000, this Court rendered x x x [a] Decision ruling among others that the Court of Appeals erred when it dismissed the petition on the sole ground of the impropriety of the special civil action of mandamus because the petition was also one of certiorari. It further ruled that a shipyard like PHILSECO is a public utility whose capitalization must be sixty percent (60%) Filipino-owned. Consequently, the right to top granted to KAWASAKI under the Asset Specific Bidding Rules (ASBR) drafted for the sale of the 87.67% equity of the National Government in PHILSECO is illegal — not only because it violates the rules on competitive bidding — but more so, because it allows foreign corporations to own more than 40% equity in the shipyard. It also held that "although the petitioner had the opportunity to examine the ASBR before it participated in the bidding, it cannot be estopped from questioning the unconstitutional, illegal and inequitable provisions thereof." Thus, this Court voided the transfer of the national government's 87.67% share in PHILSECO to Philyard[s] Holdings, Inc., and upheld the right of JG Summit, as the highest bidder, to take title to the said shares, viz:
WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed Decision and Resolution of the Court of Appeals are REVERSED and SET ASIDE. Petitioner is ordered to pay to APT its bid price of Two Billion Thirty Million Pesos (P2,030,000,000.00), less its bid deposit plus interests upon the finality of this Decision. In turn, APT is ordered to:
(a) accept the said amount of P2,030,000,000.00 less bid deposit and interests from petitioner;
(b) execute a Stock Purchase Agreement with petitioner;
(c) cause the issuance in favor of petitioner of the certificates of stocks representing 87.6% of PHILSECO's total capitalization;
(d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-One Million Five Hundred Thousand Pesos (P2,131,500,000.00); and
(e) cause the cancellation of the stock certificates issued to PHI.
SO ORDERED.
In separate Motions for Reconsideration, respondents submit[ted] three basic issues for x x x resolution: (1) Whether PHILSECO is a public utility; (2) Whether under the 1977 JVA, KAWASAKI can exercise its right of first refusal only up to 40% of the total capitalization of PHILSECO; and (3) Whether the right to top granted to KAWASAKI violates the principles of competitive bidding.3 (citations omitted)
In a Resolution dated September 24, 2003, this Court ruled in favor of the respondents. On the first issue, we held that Philippine Shipyard and Engineering Corporation (PHILSECO) is not a public utility, as by nature, a shipyard is not a public utility4 and that no law declares a shipyard to be a public utility.5 On the second issue, we found nothing in the 1977 Joint Venture Agreement (JVA) which prevents Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) from acquiring more than 40% of PHILSECO’s total capitalization.6 On the final issue, we held that the right to top granted to KAWASAKI in exchange for its right of first refusal did not violate the principles of competitive bidding.7
On October 20, 2003, the petitioner filed a Motion for Reconsideration8 and a Motion to Elevate This Case to the Court En Banc.9 Public respondents Committee on Privatization (COP) and Asset Privatization Trust (APT), and private respondent Philyards Holdings, Inc. (PHILYARDS) filed their Comments on J.G. Summit Holdings, Inc.’s (JG Summit’s) Motion for Reconsideration and Motion to Elevate This Case to the Court En Banc on January 29, 2004 and February 3, 2004, respectively.
II. Issues
Based on the foregoing, the relevant issues to resolve to end this litigation are the following:
1. Whether there are sufficient bases to elevate the case at bar to the Court en banc.
2. Whether the motion for reconsideration raises any new matter or cogent reason to warrant a reconsideration of this Court’s Resolution of September 24, 2003.
Motion to Elevate this Case to the
Court En Banc
The petitioner prays for the elevation of the case to the Court en banc on the following grounds:
1. The main issue of the propriety of the bidding process involved in the present case has been confused with the policy issue of the supposed fate of the shipping industry which has never been an issue that is determinative of this case.10
2. The present case may be considered under the Supreme Court Resolution dated February 23, 1984 which included among en banc cases those involving a novel question of law and those where a doctrine or principle laid down by the Court en banc or in division may be modified or reversed.11
3. There was clear executive interference in the judicial functions of the Court when the Honorable Jose Isidro Camacho, Secretary of Finance, forwarded to Chief Justice Davide, a memorandum dated November 5, 2001, attaching a copy of the Foreign Chambers Report dated October 17, 2001, which matter was placed in the agenda of the Court and noted by it in a formal resolution dated November 28, 2001.12
Opposing J.G. Summit’s motion to elevate the case en banc, PHILYARDS points out the petitioner’s inconsistency in previously opposing PHILYARDS’ Motion to Refer the Case to the Court En Banc. PHILYARDS contends that J.G. Summit should now be estopped from asking that the case be referred to the Court en banc. PHILYARDS further contends that the Supreme Court en banc is not an appellate court to which decisions or resolutions of its divisions may be appealed citing Supreme Court Circular No. 2-89 dated February 7, 1989.13 PHILYARDS also alleges that there is no novel question of law involved in the present case as the assailed Resolution was based on well-settled jurisprudence. Likewise, PHILYARDS stresses that the Resolution was merely an outcome of the motions for reconsideration filed by it and the COP and APT and is "consistent with the inherent power of courts to ‘amend and control its process and orders so as to make them conformable to law and justice.’ (Rule 135, sec. 5)"14 Private respondent belittles the petitioner’s allegations regarding the change in ponente and the alleged executive interference as shown by former Secretary of Finance Jose Isidro Camacho’s memorandum dated November 5, 2001 arguing that these do not justify a referral of the present case to the Court en banc.
In insisting that its Motion to Elevate This Case to the Court En Banc should be granted, J.G. Summit further argued that: its Opposition to the Office of the Solicitor General’s Motion to Refer is different from its own Motion to Elevate; different grounds are invoked by the two motions; there was unwarranted "executive interference"; and the change in ponente is merely noted in asserting that this case should be decided by the Court en banc.15
We find no merit in petitioner’s contention that the propriety of the bidding process involved in the present case has been confused with the policy issue of the fate of the shipping industry which, petitioner maintains, has never been an issue that is determinative of this case. The Court’s Resolution of September 24, 2003 reveals a clear and definitive ruling on the propriety of the bidding process. In discussing whether the right to top granted to KAWASAKI in exchange for its right of first refusal violates the principles of competitive bidding, we made an exhaustive discourse on the rules and principles of public bidding and whether they were complied with in the case at bar.16 This Court categorically ruled on the petitioner’s argument that PHILSECO, as a shipyard, is a public utility which should maintain a 60%-40% Filipino-foreign equity ratio, as it was a pivotal issue. In doing so, we recognized the impact of our ruling on the shipbuilding industry which was beyond avoidance.17
We reject petitioner’s argument that the present case may be considered under the Supreme Court Resolution dated February 23, 1984 which included among en banc cases those involving a novel question of law and those where a doctrine or principle laid down by the court en banc or in division may be modified or reversed. The case was resolved based on basic principles of the right of first refusal in commercial law and estoppel in civil law. Contractual obligations arising from rights of first refusal are not new in this jurisdiction and have been recognized in numerous cases.18 Estoppel is too known a civil law concept to require an elongated discussion. Fundamental principles on public bidding were likewise used to resolve the issues raised by the petitioner. To be sure, petitioner leans on the right to top in a public bidding in arguing that the case at bar involves a novel issue. We are not swayed. The right to top was merely a condition or a reservation made in the bidding rules which was fully disclosed to all bidding parties. In Bureau Veritas, represented by Theodor H. Hunermann v. Office of the President, et al., 19 we dealt with this conditionality, viz:
x x x It must be stressed, as held in the case of A.C. Esguerra & Sons v. Aytona, et al., (L-18751, 28 April 1962, 4 SCRA 1245), that in an "invitation to bid, there is a condition imposed upon the bidders to the effect that the bidding shall be subject to the right of the government to reject any and all bids subject to its discretion. In the case at bar, the government has made its choice and unless an unfairness or injustice is shown, the losing bidders have no cause to complain nor right to dispute that choice. This is a well-settled doctrine in this jurisdiction and elsewhere."
The discretion to accept or reject a bid and award contracts is vested in the Government agencies entrusted with that function. The discretion given to the authorities on this matter is of such wide latitude that the Courts will not interfere therewith, unless it is apparent that it is used as a shield to a fraudulent award (Jalandoni v. NARRA, 108 Phil. 486 [1960]). x x x The exercise of this discretion is a policy decision that necessitates prior inquiry, investigation, comparison, evaluation, and deliberation. This task can best be discharged by the Government agencies concerned, not by the Courts. The role of the Courts is to ascertain whether a branch or instrumentality of the Government has transgressed its constitutional boundaries. But the Courts will not interfere with executive or legislative discretion exercised within those boundaries. Otherwise, it strays into the realm of policy decision-making.
It is only upon a clear showing of grave abuse of discretion that the Courts will set aside the award of a contract made by a government entity. Grave abuse of discretion implies a capricious, arbitrary and whimsical exercise of power (Filinvest Credit Corp. v. Intermediate Appellate Court, No. 65935, 30 September 1988, 166 SCRA 155). The abuse of discretion must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform a duty enjoined by law, as to act at all in contemplation of law, where the power is exercised in an arbitrary and despotic manner by reason of passion or hostility (Litton Mills, Inc. v. Galleon Trader, Inc., et al[.], L-40867, 26 July 1988, 163 SCRA 489).
The facts in this case do not indicate any such grave abuse of discretion on the part of public respondents when they awarded the CISS contract to Respondent SGS. In the "Invitation to Prequalify and Bid" (Annex "C," supra), the CISS Committee made an express reservation of the right of the Government to "reject any or all bids or any part thereof or waive any defects contained thereon and accept an offer most advantageous to the Government." It is a well-settled rule that where such reservation is made in an Invitation to Bid, the highest or lowest bidder, as the case may be, is not entitled to an award as a matter of right (C & C Commercial Corp. v. Menor, L-28360, 27 January 1983, 120 SCRA 112). Even the lowest Bid or any Bid may be rejected or, in the exercise of sound discretion, the award may be made to another than the lowest bidder (A.C. Esguerra & Sons v. Aytona, supra, citing 43 Am. Jur., 788). (emphases supplied)1awphi1.nét
Like the condition in the Bureau Veritas case, the right to top was a condition imposed by the government in the bidding rules which was made known to all parties. It was a condition imposed on all bidders equally, based on the APT’s exercise of its discretion in deciding on how best to privatize the government’s shares in PHILSECO. It was not a whimsical or arbitrary condition plucked from the ether and inserted in the bidding rules but a condition which the APT approved as the best way the government could comply with its contractual obligations to KAWASAKI under the JVA and its mandate of getting the most advantageous deal for the government. The right to top had its history in the mutual right of first refusal in the JVA and was reached by agreement of the government and KAWASAKI.
Further, there is no "executive interference" in the functions of this Court by the mere filing of a memorandum by Secretary of Finance Jose Isidro Camacho. The memorandum was merely "noted" to acknowledge its filing. It had no further legal significance. Notably too, the assailed Resolution dated September 24, 2003 was decided unanimously by the Special First Division in favor of the respondents.
Again, we emphasize that a decision or resolution of a Division is that of the Supreme Court20 and the Court en banc is not an appellate court to which decisions or resolutions of a Division may be appealed.21
For all the foregoing reasons, we find no basis to elevate this case to the Court en banc.
Motion for Reconsideration
Three principal arguments were raised in the petitioner’s Motion for Reconsideration. First, that a fair resolution of the case should be based on contract law, not on policy considerations; the contracts do not authorize the right to top to be derived from the right of first refusal.22 Second, that neither the right of first refusal nor the right to top can be legally exercised by the consortium which is not the proper party granted such right under either the JVA or the Asset Specific Bidding Rules (ASBR).23 Third, that the maintenance of the 60%-40% relationship between the National Investment and Development Corporation (NIDC) and KAWASAKI arises from contract and from the Constitution because PHILSECO is a landholding corporation and need not be a public utility to be bound by the 60%-40% constitutional limitation.24
On the other hand, private respondent PHILYARDS asserts that J.G. Summit has not been able to show compelling reasons to warrant a reconsideration of the Decision of the Court.25 PHILYARDS denies that the Decision is based mainly on policy considerations and points out that it is premised on principles governing obligations and contracts and corporate law such as the rule requiring respect for contractual stipulations, upholding rights of first refusal, and recognizing the assignable nature of contracts rights.26 Also, the ruling that shipyards are not public utilities relies on established case law and fundamental rules of statutory construction. PHILYARDS stresses that KAWASAKI’s right of first refusal or even the right to top is not limited to the 40% equity of the latter.27 On the landholding issue raised by J.G. Summit, PHILYARDS emphasizes that this is a non-issue and even involves a question of fact. Even assuming that this Court can take cognizance of such question of fact even without the benefit of a trial, PHILYARDS opines that landholding by PHILSECO at the time of the bidding is irrelevant because what is essential is that ultimately a qualified entity would eventually hold PHILSECO’s real estate properties.28 Further, given the assignable nature of the right of first refusal, any applicable nationality restrictions, including landholding limitations, would not affect the right of first refusal itself, but only the manner of its exercise.29 Also, PHILYARDS argues that if this Court takes cognizance of J.G. Summit’s allegations of fact regarding PHILSECO’s landholding, it must also recognize PHILYARDS’ assertions that PHILSECO’s landholdings were sold to another corporation.30 As regards the right of first refusal, private respondent explains that KAWASAKI’s reduced shareholdings (from 40% to 2.59%) did not translate to a deprivation or loss of its contractually granted right of first refusal.31 Also, the bidding was valid because PHILYARDS exercised the right to top and it was of no moment that losing bidders later joined PHILYARDS in raising the purchase price.32
In cadence with the private respondent PHILYARDS, public respondents COP and APT contend:
1. The conversion of the right of first refusal into a right to top by 5% does not violate any provision in the JVA between NIDC and KAWASAKI.
2. PHILSECO is not a public utility and therefore not governed by the constitutional restriction on foreign ownership.
3. The petitioner is legally estopped from assailing the validity of the proceedings of the public bidding as it voluntarily submitted itself to the terms of the ASBR which included the provision on the right to top.
4. The right to top was exercised by PHILYARDS as the nominee of KAWASAKI and the fact that PHILYARDS formed a consortium to raise the required amount to exercise the right to top the highest bid by 5% does not violate the JVA or the ASBR.
5. The 60%-40% Filipino-foreign constitutional requirement for the acquisition of lands does not apply to PHILSECO because as admitted by petitioner itself, PHILSECO no longer owns real property.
6. Petitioner’s motion to elevate the case to the Court en banc is baseless and would only delay the termination of this case.33
In a Consolidated Comment dated March 8, 2004, J.G. Summit countered the arguments of the public and private respondents in this wise:
1. The award by the APT of 87.67% shares of PHILSECO to PHILYARDS with losing bidders through the exercise of a right to top, which is contrary to law and the constitution is null and void for being violative of substantive due process and the abuse of right provision in the Civil Code.
a. The bidders[’] right to top was actually exercised by losing bidders.
b. The right to top or the right of first refusal cannot co-exist with a genuine competitive bidding.
c. The benefits derived from the right to top were unwarranted.
2. The landholding issue has been a legitimate issue since the start of this case but is shamelessly ignored by the respondents.
a. The landholding issue is not a non-issue.
b. The landholding issue does not pose questions of fact.
c. That PHILSECO owned land at the time that the right of first refusal was agreed upon and at the time of the bidding are most relevant.
d. Whether a shipyard is a public utility is not the core issue in this case.
3. Fraud and bad faith attend the alleged conversion of an inexistent right of first refusal to the right to top.
a. The history behind the birth of the right to top shows fraud and bad faith.
b. The right of first refusal was, indeed, "effectively useless."
4. Petitioner is not legally estopped to challenge the right to top in this case.
a. Estoppel is unavailing as it would stamp validity to an act that is prohibited by law or against public policy.
b. Deception was patent; the right to top was an attractive nuisance.
c. The 10% bid deposit was placed in escrow.
J.G. Summit’s insistence that the right to top cannot be sourced from the right of first refusal is not new and we have already ruled on the issue in our Resolution of September 24, 2003. We upheld the mutual right of first refusal in the JVA.34 We also ruled that nothing in the JVA prevents KAWASAKI from acquiring more than 40% of PHILSECO’s total capitalization.35 Likewise, nothing in the JVA or ASBR bars the conversion of the right of first refusal to the right to top. In sum, nothing new and of significance in the petitioner’s pleading warrants a reconsideration of our ruling.
Likewise, we already disposed of the argument that neither the right of first refusal nor the right to top can legally be exercised by the consortium which is not the proper party granted such right under either the JVA or the ASBR. Thus, we held:
The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular Life Assurance, Mitsui and ICTSI), has joined PHILYARDS in the latter's effort to raise P2.131 billion necessary in exercising the right to top is not contrary to law, public policy or public morals. There is nothing in the ASBR that bars the losing bidders from joining either the winning bidder (should the right to top is not exercised) or KAWASAKI/PHI (should it exercise its right to top as it did), to raise the purchase price. The petitioner did not allege, nor was it shown by competent evidence, that the participation of the losing bidders in the public bidding was done with fraudulent intent. Absent any proof of fraud, the formation by [PHILYARDS] of a consortium is legitimate in a free enterprise system. The appellate court is thus correct in holding the petitioner estopped from questioning the validity of the transfer of the National Government's shares in PHILSECO to respondent.36
Further, we see no inherent illegality on PHILYARDS’ act in seeking funding from parties who were losing bidders. This is a purely commercial decision over which the State should not interfere absent any legal infirmity. It is emphasized that the case at bar involves the disposition of shares in a corporation which the government sought to privatize. As such, the persons with whom PHILYARDS desired to enter into business with in order to raise funds to purchase the shares are basically its business. This is in contrast to a case involving a contract for the operation of or construction of a government infrastructure where the identity of the buyer/bidder or financier constitutes an important consideration. In such cases, the government would have to take utmost precaution to protect public interest by ensuring that the parties with which it is contracting have the ability to satisfactorily construct or operate the infrastructure.
On the landholding issue, J.G. Summit submits that since PHILSECO is a landholding company, KAWASAKI could exercise its right of first refusal only up to 40% of the shares of PHILSECO due to the constitutional prohibition on landholding by corporations with more than 40% foreign-owned equity. It further argues that since KAWASAKI already held at least 40% equity in PHILSECO, the right of first refusal was inutile and as such, could not subsequently be converted into the right to top. 37 Petitioner also asserts that, at present, PHILSECO continues to violate the constitutional provision on landholdings as its shares are more than 40% foreign-owned.38 PHILYARDS admits that it may have previously held land but had already divested such landholdings.39 It contends, however, that even if PHILSECO owned land, this would not affect the right of first refusal but only the exercise thereof. If the land is retained, the right of first refusal, being a property right, could be assigned to a qualified party. In the alternative, the land could be divested before the exercise of the right of first refusal. In the case at bar, respondents assert that since the right of first refusal was validly converted into a right to top, which was exercised not by KAWASAKI, but by PHILYARDS which is a Filipino corporation (i.e., 60% of its shares are owned by Filipinos), then there is no violation of the Constitution.40 At first, it would seem that questions of fact beyond cognizance by this Court were involved in the issue. However, the records show that PHILYARDS admits it had owned land up until the time of the bidding.41 Hence, the only issue is whether KAWASAKI had a valid right of first refusal over PHILSECO shares under the JVA considering that PHILSECO owned land until the time of the bidding and KAWASAKI already held 40% of PHILSECO’s equity.
We uphold the validity of the mutual rights of first refusal under the JVA between KAWASAKI and NIDC. First of all, the right of first refusal is a property right of PHILSECO shareholders, KAWASAKI and NIDC, under the terms of their JVA. This right allows them to purchase the shares of their co-shareholder before they are offered to a third party. The agreement of co-shareholders to mutually grant this right to each other, by itself, does not constitute a violation of the provisions of the Constitution limiting land ownership to Filipinos and Filipino corporations. As PHILYARDS correctly puts it, if PHILSECO still owns land, the right of first refusal can be validly assigned to a qualified Filipino entity in order to maintain the 60%-40% ratio. This transfer, by itself, does not amount to a violation of the Anti-Dummy Laws, absent proof of any fraudulent intent. The transfer could be made either to a nominee or such other party which the holder of the right of first refusal feels it can comfortably do business with. Alternatively, PHILSECO may divest of its landholdings, in which case KAWASAKI, in exercising its right of first refusal, can exceed 40% of PHILSECO’s equity. In fact, it can even be said that if the foreign shareholdings of a landholding corporation exceeds 40%, it is not the foreign stockholders’ ownership of the shares which is adversely affected but the capacity of the corporation to own land – that is, the corporation becomes disqualified to own land. This finds support under the basic corporate law principle that the corporation and its stockholders are separate juridical entities. In this vein, the right of first refusal over shares pertains to the shareholders whereas the capacity to own land pertains to the corporation. Hence, the fact that PHILSECO owns land cannot deprive stockholders of their right of first refusal. No law disqualifies a person from purchasing shares in a landholding corporation even if the latter will exceed the allowed foreign equity, what the law disqualifies is the corporation from owning land. This is the clear import of the following provisions in the Constitution:
Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant.
xxx xxx xxx
Section 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain.42 (emphases supplied)
The petitioner further argues that "an option to buy land is void in itself (Philippine Banking Corporation v. Lui She, 21 SCRA 52 [1967]). The right of first refusal granted to KAWASAKI, a Japanese corporation, is similarly void. Hence, the right to top, sourced from the right of first refusal, is also void."43 Contrary to the contention of petitioner, the case of Lui She did not that say "an option to buy land is void in itself," for we ruled as follows:
x x x To be sure, a lease to an alien for a reasonable period is valid. So is an option giving an alien the right to buy real property on condition that he is granted Philippine citizenship. As this Court said in Krivenko vs. Register of Deeds:
[A]liens are not completely excluded by the Constitution from the use of lands for residential purposes. Since their residence in the Philippines is temporary, they may be granted temporary rights such as a lease contract which is not forbidden by the Constitution. Should they desire to remain here forever and share our fortunes and misfortunes, Filipino citizenship is not impossible to acquire.
But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue of which the Filipino owner cannot sell or otherwise dispose of his property, this to last for 50 years, then it becomes clear that the arrangement is a virtual transfer of ownership whereby the owner divests himself in stages not only of the right to enjoy the land (jus possidendi, jus utendi, jus fruendi and jus abutendi) but also of the right to dispose of it (jus disponendi) — rights the sum total of which make up ownership. It is just as if today the possession is transferred, tomorrow, the use, the next day, the disposition, and so on, until ultimately all the rights of which ownership is made up are consolidated in an alien. And yet this is just exactly what the parties in this case did within this pace of one year, with the result that Justina Santos'[s] ownership of her property was reduced to a hollow concept. If this can be done, then the Constitutional ban against alien landholding in the Philippines, as announced in Krivenko vs. Register of Deeds, is indeed in grave peril.44 (emphases supplied; Citations omitted)
In Lui She, the option to buy was invalidated because it amounted to a virtual transfer of ownership as the owner could not sell or dispose of his properties. The contract in Lui She prohibited the owner of the land from selling, donating, mortgaging, or encumbering the property during the 50-year period of the option to buy. This is not so in the case at bar where the mutual right of first refusal in favor of NIDC and KAWASAKI does not amount to a virtual transfer of land to a non-Filipino. In fact, the case at bar involves a right of first refusal over shares of stock while the Lui She case involves an option to buy the land itself. As discussed earlier, there is a distinction between the shareholder’s ownership of shares and the corporation’s ownership of land arising from the separate juridical personalities of the corporation and its shareholders.
We note that in its Motion for Reconsideration, J.G. Summit alleges that PHILSECO continues to violate the Constitution as its foreign equity is above 40% and yet owns long-term leasehold rights which are real rights.45 It cites Article 415 of the Civil Code which includes in the definition of immovable property, "contracts for public works, and servitudes and other real rights over immovable property."46 Any existing landholding, however, is denied by PHILYARDS citing its recent financial statements.47 First, these are questions of fact, the veracity of which would require introduction of evidence. The Court needs to validate these factual allegations based on competent and reliable evidence. As such, the Court cannot resolve the questions they pose. Second, J.G. Summit misreads the provisions of the Constitution cited in its own pleadings, to wit:
29.2 Petitioner has consistently pointed out in the past that private respondent is not a 60%-40% corporation, and this violates the Constitution x x x The violation continues to this day because under the law, it continues to own real property…
xxx xxx xxx
32. To review the constitutional provisions involved, Section 14, Article XIV of the 1973 Constitution (the JVA was signed in 1977), provided:
"Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain."
32.1 This provision is the same as Section 7, Article XII of the 1987 Constitution.
32.2 Under the Public Land Act, corporations qualified to acquire or hold lands of the public domain are corporations at least 60% of which is owned by Filipino citizens (Sec. 22, Commonwealth Act 141, as amended). (emphases supplied)
As correctly observed by the public respondents, the prohibition in the Constitution applies only to ownership of land.48 It does not extend to immovable or real property as defined under Article 415 of the Civil Code. Otherwise, we would have a strange situation where the ownership of immovable property such as trees, plants and growing fruit attached to the land49 would be limited to Filipinos and Filipino corporations only.
III.
WHEREFORE, in view of the foregoing, the petitioner’s Motion for Reconsideration is DENIED WITH FINALITY and the decision appealed from is AFFIRMED. The Motion to Elevate This Case to the Court En Banc is likewise DENIED for lack of merit.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Corona, and Tinga, JJ., concur.
Footnotes
1 Also referred to in this Resolution as "PHILYARDS."
2 Also referred to as J G Summit.
3 Resolution promulgated on September 24, 2003, pp. 2 – 10.
4 Id. at 10 – 13.
5 Id. at 14 – 22.
6 Id. at 22 – 25.
7 Id. at 26 – 32.
8 Rollo, p. 1854.
9 Rollo, p. 1876.
10 J.G. Summit’s Motion to Elevate this Case to the Court En Banc dated October 17, 2003, p. 3; Rollo, p. 1878.
11 Id.
12 Id.
13 2. A decision or resolution of a Division of the Court, when concurred in by a majority of its Members who actually took part in the deliberations on the issues in a case and voted thereon, and in no case without the concurrence of at least three of such Members, is a decision or resolution of the Supreme Court (Section 4[3], Article VIII, 1987 Constitution).
3. The Court en banc is not an Appellate Court to which decisions or resolutions of a Division may be appealed.
xxx xxx xxx
5. A resolution of the Division denying a party’s motion for referral to the Court en banc of any Division case, shall be final and not appealable to the Court en banc.
6. When a decision or resolution is referred by a Division to the Court en banc, the latter may, in the absence of sufficiently important reasons, decline to take cognizance of the same, in which case, the decision or resolution shall be returned to the referring Division.
7. No motion for reconsideration of the action of the Court en banc declining to take cognizance of a referral by a Division, shall be entertained.
14 PHILYARDS’ Comment dated February 3, 2004, pp. 26-27; Rollo, pp. 1996-1997.
15 J.G. Summit’s Consolidated Comment dated March 8, 2004.
16 Resolution dated September 24, 2003, pp. 26-32.
17 Id., pp. 10-22.
18 See Bastida and Ysmael & Co., Inc. v. Dy Buncio & Co., Inc., 93 Phil. 195 (1953); Garcia v. Burgos , 291 SCRA 546 (1998); Sadhwani v. CA , 281 SCRA 75 (1997); Parañaque Kings Enterprises, Incorporated v. CA , 268 SCRA 727 (1997); Polytechnic University of the Philippines v. CA , 368 SCRA 691 (2001); and Guzman, Bocaling & Co. v. Bonnevie, 206 SCRA 668 (1992).
19 G.R. No. 101678, February 3, 1992, 205 SCRA 705.
20 Sec. 4(3), Art. VIII, Constitution.
21 Supreme Court Circular No. 2-89, February 7, 1989.
22 J.G. Summit’s Motion for Reconsideration dated October 17, 2003, pp. 8-9; Rollo, pp. 1861-1862.
23 Id. at 10-13; Rollo, pp. 1863-1866.
24 Id. at 13-19; Rollo, pp. 1866-1872.
25 PHILYARDS’ Comment dated February 3, 2004, p. 1; Rollo, p. 1971.
26 Id. at 2; Rollo, p. 1972.
27 Id. at 5; Rollo, p. 1975.
28 Id. at 9; Rollo, p. 1979.
29 Id. at 12; Rollo, p. 1982.
30 Id.
31 Id. at 14; Rollo, p. 1984.
32 Id. at 19; Rollo, p. 1989.
33 COP and APT’s Comment dated January 14, 2004, pp. 14-15; Rollo, pp. 1927-1928.
34 Resolution dated September 24, 2003, pp. 23-24.
35 Id. at 22.
36 Resolution dated September 24, 2003, pp. 31-32.
37 J.G. Summit’s Consolidated Reply dated March 11, 2004, p. 14; Rollo, p. 2109.
38 Id.
39 PHILYARDS’ Manifestation and Comment dated June 26, 2002, p. 10; Rollo, p. 1334.
40 PHILYARDS’ Comment dated February 3, 2004, pp. 8-16; Rollo, pp. 1978-1986.
41 PHILYARDS’ Manifestation and Comment dated June 26, 2002, p. 10; Rollo, p. 1334.
42 Constitution, Article XII, National Economy and Patrimony.
43 J.G. Summit’s Consolidated Comment dated March 8, 2004, p. 17; Rollo, p. 2112.
44 Philippine Banking Corporation v. Lui She, No. L-17587, September 12, 1967, 21 SCRA 52.
45 J.G. Summit’s Motion for Reconsideration dated October 17, 2003, p. 14; Rollo, p. 1867.
46 Id. at 15; Rollo, p. 1868.
47 PHILYARDS’ Manifestation and Comment dated June 26, 2002, p. 10; Rollo, p. 1334.
48 COP and APT’s Comment dated January 14, 2004, p. 36; Rollo, p. 1949.
49 Art. 415(2), Civil Code.
The Lawphil Project - Arellano Law Foundation






Pasted from

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
 
G.R. No. 111008 November 7, 1994
TRAMAT MERCANTILE, INC. AND DAVID ONG, petitioners,
vs.
HON. COURT OF APPEALS AND MELCHOR DE LA CUESTA, respondents.
Emilio G. Abrogena for petitioners.
Constante B. Albano for private respondent.
 
VITUG, J.:
This petition for review on certiorari challenges the 04th March 1993 decision of the Court of Appeals and its resolution of 01 July 1993 denying the motion for reconsideration.
On 09 April 1984, Melchor de la Cuesta, doing business under the name and style of "Farmers Machineries," sold to Tramat Mercantile, Inc. ("Tramat"), one (1) unit HINOMOTO TRACTOR Model MB 1100D powered by a 13 H.P. diesel engine. In payment, David Ong, Tramat's president and manager, issued a check for P33,500.00 (apparently replacing an earlier postdated check for P33,080.00). Tramat, in turn, sold the tractor, together with an attached lawn mower fabricated by it, to the Metropolitan Waterworks and Sewerage System ("NAWASA") for P67,000.00. David Ong caused a "stop payment" of the check when NAWASA refused to pay the tractor and lawn mower after discovering that, aside from some stated defects of the attached lawn mower, the engine (sold by de la Cuesta) was a reconditioned unit.
On 28 May 1985, de la Cuesta filed an action for the recovery of P33,500.00, as well as attorney's fees of P10,000.00, and the costs of suit. Ong, in his answer, averred, among other things, that de la Cuesta had no cause of action; that the questioned transaction was between plaintiff and Tramat Mercantile, Inc., and not with Ong in his personal capacity; and that the payment of the check was stopped because the subject tractor had been priced as a brand new, not as a reconditioned unit.
On 02 November 1989, after the reception of evidence, the trial court rendered a decision, the dispositive portions of which read:
WHEREFORE, in view of the foregoing consideration, judgment is hereby rendered:
1. Ordering the defendants, jointly and severally, to pay the plaintiff the sum of P33,500.00 with legal interest thereon at the rate of 12% per annum from July 7, 1984 until fully paid; and
2. Ordering the defendants, jointly and severally, to pay the plaintiff the sum of P10,000.00 as attorney's fees, and the costs of this suit.
SO ORDERED. 1
An appeal was timely interposed by the defendants. On 04 March 1993, the Court of Appeals affirmed in toto the decision of the trial court. Defendant-appellants' motion for reconsideration was denied.
Hence, the instant petition.
We could find no reason to reverse the factual findings of both the trial court and the appellate court, particularly in holding that the contract between de la Cuesta and TRAMAT was one of absolute, not conditional, sale of the tractor and that de la Cuesta did not violate any warranty on the sale of the tractor to TRAMAT. The appellate court, in its decision, adequately explained:
If the perfection of the sale was dependent upon acceptance by the MWSS of the subject tractor why did the appellants issue a check in payment of the item to the appellee? And long after MWSS had complained about the defective tractor engine, and after the appellee had failed to remedy the defect, why did the appellants still draw and deliver a replacement check to the appellee for the increased amount of P33,500.00?
These payments argue against the claim now made by the defendants that the sale was conditional.
According to the appellee, the additional amount covered the cost of replacing the oil gasket of the tractor engine when it was repaired in Soledad Cac's gasoline station in Quezon City. The appellants, on the other hand, claims the amount represented the freight charges for transporting the tractor from Cauayan, Isabela to Metro Manila.
The appellants should have explained why they failed to include the freight charges in the first check. The tractor was transported from Isabela to Metro Manila as early as April 1984, and the first check was drawn at about the same time. The freight charges cannot be said to have been incurred when the tractor engine was delivered back to the supplier for repairs. The appellants admitted that the engine was not brought back to Isabela. The repairs were done at Soledad Cac's gasoline station in Quezon City.
Anent the first assigned error, We sustain the trial court's finding that at the time of the purchase, the appellants did not reveal to the appellee the true purpose for which the tractor would be used. Granting that the appellants informed the appellee that they would be reselling the unit to the MWSS, an entity admittedly not engaged in farming, and that they ordered the tractor without the power tiller, an indispensable accessory if the tractor would be used in farming, these in themselves would not constitute the required implied notice to the appellee as seller.
xxx xxx xxx
In regard to the second assigned error, We do not agree that the appellee should have been held liable for the tractor's alleged hidden defects. . . .
It has to be noted in this regard that, to satisfy the requirements of the MWSS, the appellants borrowed a lawn mower from the MWSS so they could fabricate one such mower. The appellants' witness stated that the kind of mid-mounted lawn mower was being manufactured by their competitor, Alpha Machinery, which had by then stopped supplying the same (tsn,
Nov. 29, 1988, pp. 73-74). There is no showing that the appellants had had any previous experience in the fabrication of this lawn mower. In fact, as aforesaid, they had to borrow one from the MWSS which they could copy. But although they made a copy with the same specifications and design, there was no assurance that the copy would function as well as with the model.
xxx xxx xxx
Although the trial court discussed it in a different light, We view the matter in the same way the trial court did — that the lawn mower as fabricated by the appellants was the root of the parties' problems.
Having had no previous experience in the manufacture of lawn mowers of the same type as that in litigation, and in a possibly patent-infringing effort to undercut their competition, the appellants gathered enough daring to do the fabrication themselves. But the product might have proved too much for the subject tractor to power, and the tractor's engine was strained beyond its limits, causing it to overheat and damage its gaskets.
No wonder, then, it was a gasket Soledad Cac had to replace, at a cost chargeable to the appellants. No wonder, furthermore, the appellants' witness declared that even after the replacement of that one gasket, the engine still leaked oil after being torture-tested. The integrity of the other engine gaskets might have been impaired, too. Such was the burden placed on the engine. The engine malfunctioned not necessarily because the engine, as alleged by the appellants, had been a reconditioned, and not a brand new, one. It malfunctioned because it was made to do what it simply could not. 2
It was, nevertheless, an error to hold David Ong jointly and severally liable with TRAMAT to de la Cuesta under the questioned transaction. Ong had there so acted, not in his personal capacity, but as an officer of a corporation, TRAMAT, with a distinct and separate personality. As such, it should only be the corporation, not the person acting for and on its behalf, that properly could be made liable thereon. 3
Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule, only when —
1. He assents (a) to a patently unlawful act of the corporation, or
(b) for bad faith, or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; 4
2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; 5
3. He agrees to hold himself personally and solidarily liable with the corporation; 6 or
4. He is made, by a specific provision of law, to personally answer for his corporate action. 7
In the case at bench, there is no indication that petitioner David Ong could be held personally accountable under any of the abovementioned cases.
WHEREFORE, the petition is given DUE COURSE and the decision of the trial court, affirmed by the appellate court, is MODIFIED insofar as it holds petitioner David Ong jointly and severally liable with Tramat Mercantile, Inc., which portion of the questioned judgment is SET ASIDE. In all other respects, the decision appealed from is AFFIRMED. No costs.
SO ORDERED.
Bidin, Romero and Melo, JJ., concur.
Feliciano, J., is on leave.

Pasted from

PHILIPPINE JURISPRUDENCE - FULL TEXT
The Lawphil Project - Arellano Law Foundation
G.R. No. 58168 December 19, 1989
CONCEPCION MAGSAYSAY-LABRADOR vs. COURT OF APPEALS


Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 58168 December 19, 1989
CONCEPCION MAGSAYSAY-LABRADOR, SOLEDAD MAGSAYSAY-CABRERA, LUISA MAGSAYSAY-CORPUZ, assisted be her husband, Dr. Jose Corpuz, FELICIDAD P. MAGSAYSAY, and MERCEDES MAGSAYSAY-DIAZ, petitioners,
vs.
THE COURT OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY, Special Administratrix of the Estate of the late Genaro F. Magsaysay respondents.
 
FERNAN, C.J.:
In this petition for review on certiorari, petitioners seek to reverse and set aside [1] the decision of the Court of Appeals dated July l3, 1981, 1 affirming that of the Court of First Instance of Zambales and Olongapo City which denied petitioners' motion to intervene in an annulment suit filed by herein private respondent, and [2] its resolution dated September 7, 1981, denying their motion for reconsideration.
Petitioners are raising a purely legal question; whether or not respondent Court of Appeals correctly denied their motion for intervention.
The facts are not controverted.
On February 9, 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of the estate of the late Senator Genaro Magsaysay, brought before the then Court of First Instance of Olongapo an action against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales. In her complaint, she alleged that in 1958, she and her husband acquired, thru conjugal funds, a parcel of land with improvements, known as "Pequena Island", covered by TCT No. 3258; that after the death of her husband, she discovered [a] an annotation at the back of TCT No. 3258 that "the land was acquired by her husband from his separate capital;" [b] the registration of a Deed of Assignment dated June 25, 1976 purportedly executed by the late Senator in favor of SUBIC, as a result of which TCT No. 3258 was cancelled and TCT No. 22431 issued in the name of SUBIC; and [c] the registration of Deed of Mortgage dated April 28, 1977 in the amount of P 2,700,000.00 executed by SUBIC in favor of FILMANBANK; that the foregoing acts were void and done in an attempt to defraud the conjugal partnership considering that the land is conjugal, her marital consent to the annotation on TCT No. 3258 was not obtained, the change made by the Register of Deeds of the titleholders was effected without the approval of the Commissioner of Land Registration and that the late Senator did not execute the purported Deed of Assignment or his consent thereto, if obtained, was secured by mistake, violence and intimidation. She further alleged that the assignment in favor of SUBIC was without consideration and consequently null and void. She prayed that the Deed of Assignment and the Deed of Mortgage be annulled and that the Register of Deeds be ordered to cancel TCT No. 22431 and to issue a new title in her favor.
On March 7, 1979, herein petitioners, sisters of the late senator, filed a motion for intervention on the ground that on June 20, 1978, their brother conveyed to them one-half (1/2 ) of his shareholdings in SUBIC or a total of 416,566.6 shares and as assignees of around 41 % of the total outstanding shares of such stocks of SUBIC, they have a substantial and legal interest in the subject matter of litigation and that they have a legal interest in the success of the suit with respect to SUBIC.
On July 26, 1979, the court denied the motion for intervention, and ruled that petitioners have no legal interest whatsoever in the matter in litigation and their being alleged assignees or transferees of certain shares in SUBIC cannot legally entitle them to intervene because SUBIC has a personality separate and distinct from its stockholders.
On appeal, respondent Court of Appeals found no factual or legal justification to disturb the findings of the lower court. The appellate court further stated that whatever claims the petitioners have against the late Senator or against SUBIC for that matter can be ventilated in a separate proceeding, such that with the denial of the motion for intervention, they are not left without any remedy or judicial relief under existing law.
Petitioners' motion for reconsideration was denied. Hence, the instant recourse.
Petitioners anchor their right to intervene on the purported assignment made by the late Senator of a certain portion of his shareholdings to them as evidenced by a Deed of Sale dated June 20, 1978. 2 Such 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), 3 petitioners 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 the widow of their late brother for it concerns the only tangible asset of the corporation and that it appears that 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 the respondent court's holding that petitioners herein have no legal interest in the subject matter in litigation so as to entitle them to intervene in the proceedings below. In the case of Batama Farmers' Cooperative Marketing Association, Inc. v. Rosal, 4 we 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 matter in litigation, or in the success of either of the parties or an interest against both, or he must be so situated as to be adversely affected by a distribution or other disposition of the property in the custody of the court or 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 the rights of the original parties may be delayed or prejudiced, or whether the intervenor's rights may be protected in a separate proceeding or not. Both requirements must concur as the first is not more important than the second. 5
The interest which entitles a person to intervene in a suit between other parties must be in the matter in litigation and of such direct and immediate character that the intervenor will either gain or lose by the direct legal operation and effect of the judgment. Otherwise, if persons not parties of the action could be allowed to intervene, proceedings will become unnecessarily complicated, expensive and interminable. 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 the establishment 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 sheer expectancy of a right in the management of the corporation and to share in the profits thereof and in the properties 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 the corporation, it does not vest the owner thereof with any legal right or title to any of the property, his interest in the corporate property being equitable or beneficial in nature. Shareholders are in no legal sense 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 of appeals, 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 be protected in a separate proceeding is a factor to be considered in allowing or disallowing a motion for intervention. It is significant to note at this juncture that as per records, there are four pending cases involving the parties herein, enumerated as follows: [1] Special Proceedings No. 122122 before the CFI of Manila, 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 in Subic Land Corporation; [2] Civil Case No. 2577-0 before the CFI of Zambales, Branch III, "Adelaida Rodriguez-Magsaysay v. Panganiban, etc.; Concepcion Labrador, et al. Intervenors", seeking to annul the purported Deed of Assignment in favor of SUBIC and its annotation at the back of TCT No. 3258 in the name of respondent's deceased husband; [3] SEC Case No. 001770, filed by respondent praying, among other things that she be declared in her capacity as the surviving spouse and administratrix of the estate 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] SP No. Q-26739 before the CFI of Rizal, Branch IV, petitioners herein filing a contingent claim pursuant to Section 5, Rule 86, Revised Rules of Court. 9 Petitioners' 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 to compromise with widow-respondent and since a compromise involves the giving of reciprocal concessions, the only conceivable concession the corporation may give is a total or partial relinquishment of the corporate assets. 10
Such claim all the more bolsters the contingent nature of petitioners' interest in the subject of litigation.
The factual findings of the trial court are clear on this point. The petitioners cannot claim the right to intervene on the strength of the transfer of shares allegedly executed by the late Senator. The corporation did not keep books and records. 11 Perforce, no transfer was ever recorded, much less effected as to prejudice third parties. The transfer must be registered in the books of the corporation to affect 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 barred from 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.
Gutierrez, Jr., Bidin and Corte's, JJ., concur.
Feliciano, J., is on leave.
 
Footnotes
1 Penned by Associate Justice Porfirio V. Sison and concurred in by Associate Justices Elias B. Asuncion and Juan A. Sison.
2 Rollo, p. 14.
3 In this case, the appellee challenged the right of Phil. C. Whitaker as intervenor to ask that the mortgage contract executed by the Vegetable Oil Company be declared null and void. The court held: Appellee is right as to the premises. The Veg. Oil Co. is the defendant. The corporation has not appealed. At the same time, it is evident that Phil. C. Whitaker was one of the largest individual stockholders of the Veg. Oil Co., and was until the inauguration of the receivership, exercising control over and dictating the policy of the company. Out of twenty-eight thousand shares of the Veg. Oil Co., Mr. Whitaker was the owner of 5,893 fully paid shares of the par value of P100 each. It was he who asked for the appointment of the receiver. It was he who was the leading figure in the negotiations between the Veg. Oil Co., the Philippine National Bank, and the other creditors. It was he who pledged his own property to the extent of over P 4,000,000 in an endeavor to assist in the rehabilitation of the Veg. Oil Co. He is injuriously affected by the mortgage. In truth, Mr. Whitaker is more vitally interested in the outcome of this case than is the Veg. Oil Company. Conceivably if the mortgage had been the free act of the Veg. Oil Co., it could not be heard to allege its own fraud, and only a creditor could take advantage of the fraud to intervene to avoid the conveyance.
4 42 SCRA 408.
5 Gibson v. Hon. Revilla, G.R. No. L-41432, 30 July 1979,92 SCRA 219.
6 Garcia v. David, 67 Phil. 279; Hacienda Sapang Tayal Tenant's League v. Yatco, G.R. No. L-14651, Feb. 29, 1960.
7 Bulova v. E.L. Barrett, Inc., 194 App. Div. 418,185 NYS 424.
8 Ballantine, 288-289, Pascual v. Del Sanz Orozco, 19 Phil. 82, 86.
9 Rollo, pp. 112-120.
10 Rollo, pp. 119-120.
11 Rollo, p. 39.
 
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Today is Monday, November 23, 2009


Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
 
G.R. No. 96490 February 3, 1992
INDOPHIL TEXTILE MILL WORKERS UNION-PTGWO, petitioner,
vs.
VOLUNTARY ARBITRATOR TEODORICO P. CALICA and INDOPHIL TEXTILE MILLS, INC., respondents.
Romeo C. Lagman for petitioner.
Borreta, Gutierrez & Leogardo for respondent Indophil Textile Mills, Inc.
 
MEDIALDEA, J.:
This is a petition for certiorari seeking the nullification of the award issued by the respondent Voluntary Arbitrator Teodorico P. Calica dated December 8, 1990 finding that Section 1 (c), Article I of the Collective Bargaining Agreement between Indophil Textile Mills, Inc. and Indophil Textile Mill Workers Union-PTGWO does not extend to the employees of Indophil Acrylic Manufacturing Corporation as an extension or expansion of Indophil Textile Mills, Incorporated.
The antecedent facts are as follows:
Petitioner Indophil Textile Mill Workers Union-PTGWO is a legitimate labor organization duly registered with the Department of Labor and Employment and the exclusive bargaining agent of all the rank-and-file employees of Indophil Textile Mills, Incorporated. Respondent Teodorico P. Calica is impleaded in his official capacity as the Voluntary Arbitrator of the National Conciliation and Mediation Board of the Department of Labor and Employment, while private respondent Indophil Textile Mills, Inc. is a corporation engaged in the manufacture, sale and export of yarns of various counts and kinds and of materials of kindred character and has its plants at Barrio Lambakin. Marilao, Bulacan.
In April, 1987, petitioner Indophil Textile Mill Workers Union-PTGWO and private respondent Indophil Textile Mills, Inc. executed a collective bargaining agreement effective from April 1, 1987 to March 31, 1990.
On November 3, 1967 Indophil Acrylic Manufacturing Corporation was formed and registered with the Securities and Exchange Commission. Subsequently, Acrylic applied for registration with the Board of Investments for incentives under the 1987 Omnibus Investments Code. The application was approved on a preferred non-pioneer status.
In 1988, Acrylic became operational and hired workers according to its own criteria and standards. Sometime in July, 1989, the workers of Acrylic unionized and a duly certified collective bargaining agreement was executed.
In 1990 or a year after the workers of Acrylic have been unionized and a CBA executed, the petitioner union claimed that the plant facilities built and set up by Acrylic should be considered as an extension or expansion of the facilities of private respondent Company pursuant to Section 1(c), Article I of the CBA, to wit,.
c) This Agreement shall apply to the Company's plant facilities and installations and to any extension and expansion thereat. (Rollo, p.4)
In other words, it is the petitioner's contention that Acrylic is part of the Indophil bargaining unit.
The petitioner's contention was opposed by private respondent which submits that it is a juridical entity separate and distinct from Acrylic.
The existing impasse led the petitioner and private respondent to enter into a submission agreement on September 6, 1990. The parties jointly requested the public respondent to act as voluntary arbitrator in the resolution of the pending labor dispute pertaining to the proper interpretation of the CBA provision.
After the parties submitted their respective position papers and replies, the public respondent Voluntary Arbitrator rendered its award on December 8, 1990, the dispositive portion of which provides as follows:
PREMISES CONSIDERED, it would be a strained interpretation and application of the questioned CBA provision if we would extend to the employees of Acrylic the coverage clause of Indophil Textile Mills CBA. Wherefore, an award is made to the effect that the proper interpretation and application of Sec. l, (c), Art. I, of the 1987 CBA do (sic) not extend to the employees of Acrylic as an extension or expansion of Indophil Textile Mills, Inc. (Rollo, p.21)
Hence, this petition raising four (4) issues, to wit:
1. WHETHER OR NOT THE RESPONDENT ARBITRATOR ERRED IN INTERPRETING SECTION 1(c), ART I OF THE CBA BETWEEN PETITIONER UNION AND RESPONDENT COMPANY.
2. WHETHER OR NOT INDOPHIL ACRYLIC IS A SEPARATE AND DISTINCT ENTITY FROM RESPONDENT COMPANY FOR PURPOSES OF UNION REPRESENTATION.
3. WHETHER OR NOT THE RESPONDENT ARBITRATOR GRAVELY ABUSED HIS DISCRETION AMOUNTING TO LACK OR IN EXCESS OF HIS JURISDICTION.
4. WHETHER OR NOT THE RESPONDENT ARBITRATOR VIOLATED PETITIONER UNION'S CARDINAL PRIMARY RIGHT TO DUE PROCESS. (Rollo, pp. 6-7)
The central issue submitted for arbitration is whether or not the operations in Indophil Acrylic Corporation are an extension or expansion of private respondent Company. Corollary to the aforementioned issue is the question of whether or not the rank-and-file employees working at Indophil Acrylic should be recognized as part of, and/or within the scope of the bargaining unit.
Petitioner maintains that public respondent Arbitrator gravely erred in interpreting Section l(c), Article I of the CBA in its literal meaning without taking cognizance of the facts adduced that the creation of the aforesaid Indophil Acrylic is but a devise of respondent Company to evade the application of the CBA between petitioner Union and respondent Company.
Petitioner stresses that the articles of incorporation of the two corporations establish that the two entities are engaged in the same kind of business, which is the manufacture and sale of yarns of various counts and kinds and of other materials of kindred character or nature.
Contrary to petitioner's assertion, the public respondent through the Solicitor General argues that the Indophil Acrylic Manufacturing Corporation is not an alter ego or an adjunct or business conduit of private respondent because it has a separate legitimate business purpose. In addition, the Solicitor General alleges that the primary purpose of private respondent is to engage in the business of manufacturing yarns of various counts and kinds and textiles. On the other hand, the primary purpose of Indophil Acrylic is to manufacture, buy, sell at wholesale basis, barter, import, export and otherwise deal in yarns of various counts and kinds. Hence, unlike private respondent, Indophil Acrylic cannot manufacture textiles while private respondent cannot buy or import yarns.
Furthermore, petitioner emphasizes that the two corporations have practically the same incorporators, directors and officers. In fact, of the total stock subscription of Indophil Acrylic, P1,749,970.00 which represents seventy percent (70%) of the total subscription of P2,500,000.00 was subscribed to by respondent Company.
On this point, private respondent cited the case of Diatagon Labor Federation v. Ople, G.R. No. L-44493-94, December 3, 1980, 10l SCRA 534, which ruled that two corporations cannot be treated as a single bargaining unit even if their businesses are related. It submits that the fact that there are as many bargaining units as there are companies in a conglomeration of companies is a positive proof that a corporation is endowed with a legal personality distinctly its own, independent and separate from other corporations (see Rollo, pp. 160-161).
Petitioner notes that the foregoing evidence sufficiently establish that Acrylic is but an extension or expansion of private respondent, to wit:
(a) the two corporations have their physical plants, offices and facilities situated in the same compound, at Barrio Lambakin, Marilao, Bulacan;
(b) many of private respondent's own machineries, such as dyeing machines, reeling, boiler, Kamitsus among others, were transferred to and are now installed and being used in the Acrylic plant;
(c) the services of a number of units, departments or sections of private respondent are provided to Acrylic; and
(d) the employees of private respondent are the same persons manning and servicing the units of Acrylic. (see Rollo, pp. 12-13)
Private respondent insists that the existence of a bonafide business relationship between Acrylic and private respondent is not a proof of being a single corporate entity because the services which are supposedly provided by it to Acrylic are auxiliary services or activities which are not really essential in the actual production of Acrylic. It also pointed out that the essential services are discharged exclusively by Acrylic personnel under the control and supervision of Acrylic managers and supervisors.
In sum, petitioner insists that the public respondent committed grave abuse of discretion amounting to lack or in excess of jurisdiction in erroneously interpreting the CBA provision and in failing to disregard the corporate entity of Acrylic.
We find the petition devoid of merit.
Time and again, We stress that the decisions of voluntary arbitrators are to be given the highest respect and a certain measure of finality, but this is not a hard and fast rule, it does not preclude judicial review thereof where want of jurisdiction, grave abuse of discretion, violation of due process, denial of substantial justice, or erroneous interpretation of the law were brought to our attention. (see Ocampo, et al. v. National Labor Relations Commission, G.R. No. 81677, 25 July 1990, First Division Minute Resolution citing Oceanic Bic Division (FFW) v. Romero, G.R. No. L-43890, July 16, 1984, 130 SCRA 392)
It should be emphasized that in rendering the subject arbitral award, the voluntary arbitrator Teodorico Calica, a professor of the U.P. Asian Labor Education Center, now the Institute for Industrial Relations, found that the existing law and jurisprudence on the matter, supported the private respondent's contentions. Contrary to petitioner's assertion, public respondent cited facts and the law upon which he based the award. Hence, public respondent did not abuse his discretion.
Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the legal fiction that a corporation is an entity with a juridical personality separate and distinct from its members or stockholders may be disregarded. In such cases, the corporation will be considered as a mere association of persons. The members or stockholders of the corporation will be considered as the corporation, that is liability will attach directly to the officers and stockholders. The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. (Umali et al. v. Court of Appeals, G.R. No. 89561, September 13, 1990, 189 SCRA 529, 542)
In the case at bar, petitioner seeks to pierce the veil of corporate entity of Acrylic, alleging that the creation of the corporation is a devise to evade the application of the CBA between petitioner Union and private respondent Company. While we do not discount the possibility of the similarities of the businesses of private respondent and Acrylic, neither are we inclined to apply the doctrine invoked by petitioner in granting the relief sought. The fact that the businesses of private respondent and Acrylic are related, that some of the employees of the private respondent are the same persons manning and providing for auxilliary services to the units of Acrylic, and that the physical plants, offices and facilities are situated in the same compound, it is our considered opinion that these facts are not sufficient to justify the piercing of the corporate veil of Acrylic.
In the same case of Umali, et al. v. Court of Appeals (supra), We already emphasized that "the legal corporate entity is disregarded only if it is sought to hold the officers and stockholders directly liable for a corporate debt or obligation." In the instant case, petitioner does not seek to impose a claim against the members of the Acrylic.
Furthermore, We already ruled in the case of Diatagon Labor Federation Local 110 of the ULGWP v. Ople (supra) that it is grave abuse of discretion to treat two companies as a single bargaining unit when these companies are indubitably distinct entities with separate juridical personalities.
Hence, the Acrylic not being an extension or expansion of private respondent, the rank-and-file employees working at Acrylic should not be recognized as part of, and/or within the scope of the petitioner, as the bargaining representative of private respondent.
All premises considered, the Court is convinced that the public respondent Voluntary Arbitrator did not commit grave abuse of discretion in its interpretation of Section l(c), Article I of the CBA that the Acrylic is not an extension or expansion of private respondent.
ACCORDINGLY, the petition is DENIED and the award of the respondent Voluntary Arbitrator are hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., Cruz and Grino-Aquino, JJ., concur.
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Today is Monday, November 23, 2009


Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
 
G.R. No. 80043 June 6, 1991
ROBERTO A. JACINTO, petitioner,
vs.
HONORABLE COURT OF APPEALS and METROPOLITAN BANK AND TRUST COMPANY, respondents.
Romeo G. Carlos for petitioner.
Jorge, Perez & Associates for private respondents.
 
DAVIDE, JR., J.:p
This is an appeal by certiorari to partially set aside the Decision of the Court of Appeals in C.A-G.R. CV No. 08153 1.promulgated on 19 August 1987, which affirmed in toto the decision of the Regional Trial Court of Manila, Branch 11, in Civil Case No. 133164 entitled "Metropolitan Bank and Trust Co. vs. Inland Industries Inc. and Roberto Jacinto," the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered ordering defendants to pay, jointly and severally, the plaintiff, the principal obligation of P382,015.80 (Annex J-1 to J-3 of Stipulation), with interest/charges thereon at the rate of 16 % per annum from January 1, 1979 up to the time the said amount is fully paid, plus the sum of P20,000.00 as attorney's fees. Said defendants are further ordered to pay in solidum the costs of this suit.
SO ORDERED. 2
Petitioner's co-defendant in the courts below, Inland Industries Inc., just as in the case of petitioner's motion to reconsider the questioned decision, 3 chose not to join him in this appeal.
In Our resolution of 28 August 1988 We required the respondent to comment on the petition. Respondent Metropolitan Bank and Trust Co. filed its comment 4 on 12 October 1988. We required the petitioner to file a reply thereto, 5 which he comment plied with on 20 December 1988. 6
We gave due course to the petition on 8 May 1989 7 and required the parties to submit their respective memoranda.
Private respondent filed its memorandum on 29 June 1989 8 while petitioner asked leave to adopt his petition and reply as his memorandum, 9 which We granted on 14 June 1989. 10
Petitioner submits the following issues:
1. Whether or not the respondent Court of Appeals can validly pierce the fiction of corporate identity of the defendant corporation Inland Industries, Inc. even if there is no allegation in the complaint regarding the same, nor is there anything in the prayer demanding the piercing of the corporate veil of the corporation Inland Industries, Inc.;
2. Whether or not the Court of Appeals can validly pierce the fiction of corporate identity of the defendant Inland Industries, Inc. even if absolutely no proof was presented in court to serve as legal justification for the same.
We find this petition to be bereft of merit. The issues are basically factual and a careful scrutiny of the decisions of both courts below reveals that their findings and conclusions on the matter of piercing the veil of corporate fiction and on the liability of herein petitioner are overwhelmingly supported by the evidence.
Insofar as material and relevant to the issues raised, the trial court found and held: 11
As to [the] liability of [the] defendant Roberto A. Jacinto, it would appear that he is in factetum (sic), or, in fact, the corporation itself known as Inland Industries, Inc. Aside from the fact that he is admittedly the President and General Manager of the corporation and a substantial stockholders (sic) thereof, it was defendant Roberto A. Jacinto who dealt entirely with the plaintiff in those transactions. In the Trust Receipts that he signed supposedly in behalf of Inland Industries, Inc., it is not even mentioned that he did so in this official capacity.
xxx xxx xxx
In this case, the Court is satisfied that Roberto A. Jacinto was practically the corporation itself, the Inland industries, Inc.
In a detailed fashion, the respondent Court of Appeals brushed aside the posturing of petitioner as follows:
Defendant Roberto Jacinto, tried to escape liability and shift the entire blame under the trust receipts solely and exclusively on defendant-appellant corporation. He asserted that he cannot be held solidarily liable with the latter (defendant corporation) because he just signed said instruments in his official capacity as president of Inland Industries, Inc. and the latter (defendant corporation) has a juridical personality distinct and separate from its officers and stockholders. It is likewise asserted, citing an American case, that the principle of piercing the fiction of corporate entity should be applied with great caution and not precipitately, because a dual personality by a corporation and its stockholders would defeat the principal purpose for which a corporation is formed. Upon the other hand, plaintiff-appellee reiterated its allegation in the complaint that defendant corporation is just a mere alter ego of defendant Roberto Jacinto who is its President and General Manager, while the wife of the latter owns a majority of its shares of stock.
Defendants-appellants' assertion is plainly without legal basis. This is shown by the undisputed fact that Roberto Jacinto even admitted that he and his wife own 52% of the stocks of defendant corporation (TSN, April 22, 1985, p. 6). We cannot accept as true the assertion of defendant Jacinto that he only acted in his official capacity as President and General Manager of Inland Industries, Inc. when he signed the aforesaid trust receipts. To Our mind the same is just a clever ruse and a convenient ploy to thwart his personal liability therefor by taking refuge under the protective mantle of the separate corporate personality of defendant corporation.
As could be expected, Roberto Jacinto in his direct testimony presented a different corporate scenario regarding Inland Industries, Inc. and vehemently declared that it is Bienvenida Catabas who is its President, while Aurora Heresa is its Chairman of the Board. His assertion on this point, however, is not convincing in view of his admission in the same breath, that his wife, Hedy U. Jacinto, own (sic) with him 52% of the shares of stock of said corporation. Indeed, this circumstance –– even if standing alone –– cannot but engender in the most unprejudiced mind doubt and misgiving why Catabas and Heresa would be defendant corporation's President and Chairman of the Board, respectively. Pertinent portion of his testimony on this point is quoted hereunder:
Atty. Carlos Do you know the defendant Inland Industries, Inc.?
A Yes, sir. Because I am the General Manager of this corporation.
Q Aside from being the General Manager of the defendant corporation are you in any other way connected with the same?
A I am also a stockholder.
Q Does your corporation have a Board of Directors?
A Yes, sir.
Q By the way, who are the stockholders of this corporation?
A Bienvenida Catabas, Aurora Heresa, Paz Yulo, Hedy Y. Jacinto and myself.
Q Who is the President of the defendant corporation?
A Bienvenida Catabas.
Q Who is the Chairman of the Board?
A Aurora Heresa.
Q Do you have any relation with Hedy Y. Jacinto?
A She is my wife.
Q If you combine the stockholdings of your wife together with yours and percentage wise, how much is your equity?
Atty. Dizon raised some objections. However, the Court allowed the same.
A About 52 % (Ibid., pp. 3-6)
Furthermore, a cursory perusal of the Stipulation of facts clearly shows that defendant Roberto Jacinto acted in his capacity as President and General Manager of Inland Industries, Inc. when he signed said trust receipts. Pertinent portion of his testimony are quoted below:
(d) All the goods covered by the three (3) Letters of Credit (Annexes "A", "B" & "C") and paid for under the Bills of Exchange (Annexes "D", "E" & "F") were delivered to and received by defendant Inland Industries, Inc. through its co-defendant Roberto A. Jacinto, its President and General Manager, who signed for and in behalf of defendant Inland and agreed to the terms and conditions of three (3) separate trust receipts covering the same and herein identified as follows: . . . (p. 3 of Stipulations of Facts and Formulation of Issues [p. 95, Records]).
The conflicting statements by defendant Jacinto place in extreme doubt his credibility anent his alleged participation in said transactions and We are thus persuaded to agree with the findings of the lower court that the latter (Roberto Jacinto) was practically the corporation itself. Indeed, a painstaking examination of the records show that there is no clear-cut delimitation between the personality of Roberto Jacinto as an individual and the personality of Inland Industries, Inc. as a corporation.
The circumstances aforestated lead Us to conclude that the corporate veil that en-shrouds defendant Inland Industries, Inc. could be validly pierced, and a host of cases decided by our High Court is supportive of this view. Thus it held that "when the veil of corporate fiction is made as a shield to perpetuate fraud and/or confuse legitimate issues, the same should be pierced." (Republic vs. Razon, 20 SCRA 234; A.D. Santos, Inc. vs. Vasquez, 22 SCRA 1156; Emilio Cano Enterprises, Inc. vs. Court of Appeals, 13 SCRA 290). Almost in the same vein is the dictum enunciated by the same court in the case of Commissioner of Internal Revenue vs. Norton & Harrison Co., (11 SCRA 714), that "Where a corporation is merely an adjunct, business conduit or alter ego, the fiction of separate and distinct corporate entity should be disregarded."
In its resolution of 29 September 1987, the respondent Court of Appeals, on the contention again of petitioner that the finding that defendant corporation is his mere alter ego is not supported by the evidence and has no legal justification, ruled that:
The contention . . . is nothing but an empty assertion. A cursory perusal of the decision would at once readily show on pages 11-13 of the same that said factual findings of the court is well grounded as the same in fact even include a portion of the very testimony of said defendant-appellant admitting that he and his wife own 52% of the stocks of defendant corporation. The stipulation of facts also show (sic) that appellant Roberto Jacinto acted in his capacity as President/General Manager of defendant corporation and that "all the goods covered by the three (3) Letters of Credit (Annexes "A", "B" & "C") and paid for under the Bills of Exchange (Annexes "D", "E" & "F") were delivered to and received by defendant Inland Industries, Inc. through its co-defendant Roberto A. Jacinto, its President and General Manager, who signed for and in behalf of defendant Inland and agreed to the terms and conditions of three (3) separate trust receipts covering the same.
Petitioner, however, faults the courts below for piercing the veil of corporate fiction despite the absence of any allegation in the complaint questioning the separate identity and existence of Inland Industries, Inc. This is not accurate. While on the face of the complaint there is no specific allegation that the corporation is a mere alter ego of petitioner, subsequent developments, from the stipulation of facts up to the presentation of evidence and the examination of witnesses, unequivocally show that respondent Metropolitan Bank and Trust Company sought to prove that petitioner and the corporation are one or that he is the corporation. No serious objection was heard from petitioner. Section 5 of Rule 10 of the Rules of Court provides:
Sec. 5. Amendment to conform to or authorize presentation of evidence. –– When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects, as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure so to amend does not affect the trial of these issues. If the evidence is objected to at the time of trial on the ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be amended and shall do so freely when the presentation of the merits of the action will be subserved thereby and the objecting party fails to satisfy the court that the admission of such evidence would prejudice him in maintaining his action or defense upon the merits. The court may grant continuance to enable the objecting party to meet such evidence.
Pursuant thereto, "when evidence is presented by one party, with the express or implied consent of the adverse party, as to issues not alleged in the pleadings, judgment may be rendered validly as regards those issues, which shall be considered as if they have been raised in the pleadings. There is implied consent to the evidence thus presented when the adverse party fails to object thereto. 12
WHEREFORE, for lack of merit, the Petition is DISMISSED with costs against petitioner.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.
 
Footnotes
1 Annex "A" of Petition; Rollo, 27-41; per Justice Fule, concurred in by Justices Mendoza and Bellosillo.
2 Rollo, 28.
3 Annex "B" of Petition; Id., 42-46. The motion was denied in the Resolution of 29 September 1987; Annex "C', of Petition; Id., 47-49.
4 Id., 92-97.
5 Resolution of 7 November 1988; Id., 101.
6 Id., 104-113.
7 Resolution of 8 May 1989 Id., 114.
8 Id., 121 et seq.
9 Id., 118.
10 Id., 120.
11 As quoted on pages 12-14 of private respondent's Memorandum; Rollo, 121 et seq. A copy of the decision of the RTC is not attached to the petition.
12 MORAN, Comments on the Rules of Court, vol. I, 1979 ed., p. 377, citing Roces vs. Jalandoni, 12 Phil, 599, 601; Valmilero vs. Kong Chang Seng, 33 Phil. 84; Lizarraga Hermanos vs. Yap Tico, 24 Phil. 504; Del Val vs. Del Val, 29 Phil. 534; Karagdag vs. Barado, 33 Phil. 529.
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lawphil
Today is Monday, November 23, 2009


Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
 
G.R. No. 108734 May 29, 1996
CONCEPT BUILDERS, INC., petitioner,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and Norberto Marabe; Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogelio Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos, respondents.
 
HERMOSISIMA, JR., J.:p
The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of a person or of another corporation. Where badges of fraud exist; where public convenience is defeated; where a wrong is sought to be justified thereby, the corporate fiction or the notion of legal entity should come to naught. The law in these instances will regard the corporation as a mere association of persons and, in case of two corporations, merge them into one.
Thus, where a sister corporation is used as a shield to evade a corporation's subsidiary liability for damages, the corporation may not be heard to say that it has a personality separate and distinct from the other corporation. The piercing of the corporate veil comes into play.
This special civil action ostensibly raises the question of whether the National Labor Relations Commission committed grave abuse of discretion when it issued a "break-open order" to the sheriff to be enforced against personal property found in the premises of petitioner's sister company.
Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road, Valenzuela, Metro Manila, is engaged in the construction business. Private respondents were employed by said company as laborers, carpenters and riggers.
On November, 1981, private respondents were served individual written notices of termination of employment by petitioner, effective on November 30, 1981. It was stated in the individual notices that their contracts of employment had expired and the project in which they were hired had been completed.
Public respondent found it to be, the fact, however, that at the time of the termination of private respondent's employment, the project in which they were hired had not yet been finished and completed. Petitioner had to engage the services of sub-contractors whose workers performed the functions of private respondents.
Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment of their legal holiday pay, overtime pay and thirteenth-month pay against petitioner.
On December 19, 1984, the Labor Arbiter rendered judgment 1 ordering petitioner to reinstate private respondents and to pay them back wages equivalent to one year or three hundred working days.
On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed the motion for reconsideration filed by petitioner on the ground that the said decision had already become final and executory. 2
On October 16, 1986, the NLRC Research and Information Department made the finding that private respondents' back wages amounted to P199,800.00. 3
On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute the Decision, dated December 19, 1984. The writ was partially satisfied through garnishment of sums from petitioner's debtor, the Metropolitan Waterworks and Sewerage Authority, in the amount of P81,385.34. Said amount was turned over to the cashier of the NLRC.
On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff to collect from herein petitioner the sum of P117,414.76, representing the balance of the judgment award, and to reinstate private respondents to their former positions.
On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of execution on petitioner through the security guard on duty but the service was refused on the ground that petitioner no longer occupied the premises.
On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a second alias writ of execution.
The said writ had not been enforced by the special sheriff because, as stated in his progress report, dated November 2, 1989:
1. All the employees inside petitioner's premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by respondent;
2. Levy was made upon personal properties he found in the premises;
3. Security guards with high-powered guns prevented him from removing the properties he had levied upon. 4
The said special sheriff recommended that a "break-open order" be issued to enable him to enter petitioner's premises so that he could proceed with the public auction sale of the aforesaid personal properties on November 7, 1989.
On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President.
On November 23, 1989, private respondents filed a "Motion for Issuance of a Break-Open Order," alleging that HPPI and petitioner corporation were owned by the same incorporator/stockholders. They also alleged that petitioner temporarily suspended its business operations in order to evade its legal obligations to them and that private respondents were willing to post an indemnity bond to answer for any damages which petitioner and HPPI may suffer because of the issuance of the break-open order.
In support of their claim against HPPI, private respondents presented duly certified copies of the General Informations Sheet, dated May 15, 1987, submitted by petitioner to the Securities Exchange Commission (SEC) and the General Information Sheet, dated May 25, 1987, submitted by HPPI to the Securities and Exchange Commission.
The General Information Sheet submitted by the petitioner revealed the following:
1. Breakdown of Subscribed Capital
Name of Stockholder Amount Subscribed
HPPI P 6,999,500.00
Antonio W. Lim 2,900,000.00
Dennis S. Cuyegkeng 300.00
Elisa C. Lim 100,000.00
Teodulo R. Dino 100.00
Virgilio O. Casino 100.00
2. Board of Directors
Antonio W. Lim Chairman
Dennis S. Cuyegkeng Member
Elisa C. Lim Member
Teodulo R. Dino Member
Virgilio O. Casino Member
3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the President
Elisa O. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road
Valenzuela, Metro Manila. 5
On the other hand, the General Information Sheet of HPPI revealed the following:
1. Breakdown of Subscribed Capital
Name of Stockholder Amount Subscribed
Antonio W. Lim P 400,000.00
Elisa C. Lim 57,700.00
AWL Trading 455,000.00
Dennis S. Cuyegkeng 40,100.00
Teodulo R. Dino 100.00
Virgilio O. Casino 100.00
2. Board of Directors
Antonio W. Lim Chairman
Elisa C. Lim Member
Dennis S. Cuyegkeng Member
Virgilio O. Casino Member
Teodulo R. Dino Member
3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the President
Elisa C. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road, Valenzuela, Metro Manila. 6
On February 1, 1990, HPPI filed an Opposition to private respondents' motion for issuance of a break-open order, contending that HPPI is a corporation which is separate and distinct from petitioner. HPPI also alleged that the two corporations are engaged in two different kinds of businesses, i.e., HPPI is a manufacturing firm while petitioner was then engaged in construction.
On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents' motion for break-open order.
Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside the order of the Labor Arbiter, issued a break-open order and directed private respondents to file a bond. Thereafter, it directed the sheriff to proceed with the auction sale of the properties already levied upon. It dismissed the third-party claim for lack of merit.
Petitioner moved for reconsideration but the motion was denied by the NLRC in a Resolution, dated December 3, 1992.
Hence, the resort to the present petition.
Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the execution of its decision despite a third-party claim on the levied property. Petitioner further contends, that the doctrine of piercing the corporate veil should not have been applied, in this case, in the absence of any showing that it created HPPI in order to evade its liability to private respondents. It also contends that HPPI is engaged in the manufacture and sale of steel, concrete and iron pipes, a business which is distinct and separate from petitioner's construction business. Hence, it is of no consequence that petitioner and HPPI shared the same premises, the same President and the same set of officers and subscribers. 7
We find petitioner's contention to be unmeritorious.
It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected. 8 But, this separate and distinct personality of a corporation is merely a fiction created by law for convenience and to promote justice. 9 So, when the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, 10 this separate personality of the corporation may be disregarded or the veil of corporate fiction pierced. 11 This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation. 12
The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and circumstances of each case. No hard and fast rule can be accurately laid down, but certainly, there are some probative factors of identity that will justify the application of the doctrine of piercing the corporate veil, to wit:
1. Stock ownership by one or common ownership of both corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business. 13
The SEC en banc explained the "instrumentality rule" which the courts have applied in disregarding the separate juridical personality of corporations as follows:
Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the "instrumentality" may be disregarded. The control necessary to invoke the rule is not majority or even complete stock control but such domination of instances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. It must be kept in mind that the control must be shown to have been exercised at the time the acts complained of took place. Moreover, the control and breach of duty must proximately cause the injury or unjust loss for which the complaint is made.
The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows:
1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty or dishonest and unjust act in contravention of plaintiff's legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
The absence of any one of these elements prevents "piercing the corporate veil." In applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant's relationship to that operation. 14
Thus the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a sham or a subterfuge is purely one of fact. 15
In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations on April 29, 1986, it filed an Information Sheet with the Securities and Exchange Commission on May 15, 1987, stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant, submitted on the same day, a similar information sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila.
Furthermore, the NLRC stated that:
Both information sheets were filed by the same Virgilio O. Casiño as the corporate secretary of both corporations. It would also not be amiss to note that both corporations had the same president, the same board of directors, the same corporate officers, and substantially the same subscribers.
From the foregoing, it appears that, among other things, the respondent (herein petitioner) and the third-party claimant shared the same address and/or premises. Under this circumstances, (sic) it cannot be said that the property levied upon by the sheriff were not of respondents. 16
Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of back wages and to bar their reinstatement to their former positions. HPPI is obviously a business conduit of petitioner corporation and its emergence was skillfully orchestrated to avoid the financial liability that already attached to petitioner corporation.
The facts in this case are analogous to Claparols v. Court of Industrial Relations, 17 where we had the occasion to rule:
Respondent court's findings that indeed the Claparols Steel and Nail Plant, which ceased operation of June 30, 1957, was SUCCEEDED by the Claparols Steel Corporation effective the next day, July 1, 1957, up to December 7, 1962, when the latter finally ceased to operate, were not disputed by petitioner. It is very clear that the latter corporation was a continuation and successor of the first entity . . . . Both predecessors and successor were owned and controlled by petitioner Eduardo Claparols and there was no break in the succession and continuity of the same business. This "avoiding-the-liability" scheme is very patent, considering that 90% of the subscribed shares of stock of the Claparols Steel Corporation (the second corporation) was owned by respondent . . . Claparols himself, and all the assets of the dissolved Claparols Steel and Nail plant were turned over to the emerging Claparols Steel Corporation.
It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose veil in the present case could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation to its employees.
In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject of the execution, private respondents had no other recourse but to apply for a break-open order after the third-party claim of HPPI was dismissed for lack of merit by the NLRC. This is in consonance with Section 3, Rule VII of the NLRC Manual of Execution of Judgment which provides that:
Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his representative entry to the place where the property subject of execution is located or kept, the judgment creditor may apply to the Commission or Labor Arbiter concerned for a break-open order.
Furthermore, our perusal of the records shows that the twin requirements of due notice and hearing were complied with. Petitioner and the third-party claimant were given the opportunity to submit evidence in support of their claim.
Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open order issued by the Labor Arbiter.
Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial agencies supported by substantial evidence are binding on this Court and are entitled to great respect, in the absence of showing of grave abuse of a discretion. 18
WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23, 1992 and December 3, 1992, are AFFIRMED.
SO ORDERED.
Padilla, Bellosillo, Vitug and Kapunan, JJ., concur.
Footnotes
1 Rollo, pp. 11-12.
2 Id., at 12.
3 Ibid.
4 Rollo, p. 14.
5 Rollo, pp. 16-17.
6 Id., at 17-18.
7 Rollo, pp. 7-8.
8 Emilio Cano Enterprises, Inc. v. Court of Industrial Relations, 13 SCRA 290 (1965); Yutivo Sons Hardware Company v. Court of Tax Appeals, 1 SCRA 160 (1961).
9 Laguna Transportation Company, Inc. v. Social Security System, 107 SCRA 833 (1960).
10 La Campana Coffee Factory, Inc. Kaisahan Ng Mga Manggagawa sa La Campana (KMM), 93 Phil. 160 (1953).
11 Sulo ng Bayan, Inc. v. Araneta, 72 SCRA 347 (1976).
12 Tan Boon Bee and Co. v. Jarencio, 263 SCRA 205 (1988).
13 4 Minn. L. Rev, pp. 219-227; cited in R. Lopez, The Corporation Code of the Philippines, Annotated p. 19 (1994).
14 1 Fletcher Cyc. Corp., p. 490; Avelina G. Ramoso, et al. v. General Credit Corporation et al., SEC AC No. 295, October 6, 1992.
15 Phoenix Safety Inc. Co. v. James, 28 Ariz 514, 237, p. 958.
16 Rollo, pp. 19-20.
17 65 SCRA 613 (1975).
18 Maya Farms Employees Organization v. National Labor Relations Commission, 239 SCRA 508 (1994); Capitol Industrial Construction Groups v. National Labor Relations Commission, 221 SCRA 469 (1993); Sunset View Condominium Corporation v. National Labor Relations Commission, 228 SCRA 466 (1993).
The Lawphil Project - Arellano Law Foundation






Pasted from

FIRST DIVISION
[G.R. No. 160039.  June 29, 2004]
RAYMUNDO ODANI SECOSA, EL BUENASENSO SY and DASSAD WAREHOUSING and PORT SERVICES, INCORPORATED, petitioners, vs. HEIRS OF ERWIN SUAREZ FRANCISCO, respondents.
D E C I S I O N
YNARES-SANTIAGO, J.:
This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the decision[1] of the Court of Appeals dated February 27, 2003 in CA-G.R. CV No. 61868, which affirmed in toto the June 19, 1998 decision[2] of Branch 20 of the Regional Trial Court of Manila in Civil Case No. 96-79554.
The facts are as follows:
On June 27, 1996, at around 4:00 p.m., Erwin Suarez Francisco, an eighteen year old third year physical therapy student of the Manila Central University, was riding a motorcycle along Radial 10 Avenue, near the Veteran Shipyard Gate in the City of Manila.  At the same time, petitioner, Raymundo Odani Secosa, was driving an Isuzu cargo truck with plate number PCU-253 on the same road. The truck was owned by petitioner, Dassad Warehousing and Port Services, Inc.
Traveling behind the motorcycle driven by Francisco was a sand and gravel truck, which in turn was being tailed by the Isuzu truck driven by Secosa.  The three vehicles were traversing the southbound lane at a fairly high speed.  When Secosa overtook the sand and gravel truck, he bumped the motorcycle causing Francisco to fall.  The rear wheels of the Isuzu truck then ran over Francisco, which resulted in his instantaneous death.  Fearing for his life, petitioner Secosa left his truck and fled the scene of the collision.[3]
Respondents, the parents of Erwin Francisco, thus filed an action for damages against Raymond Odani Secosa, Dassad Warehousing and Port Services, Inc. and Dassad’s president, El Buenasucenso Sy.  The complaint was docketed as Civil Case No.  96-79554 of the RTC of Manila, Branch 20.
On June 19, 1998, after a full-blown trial, the court a quo rendered a decision in favor of herein respondents, the dispositive portion of which states:
WHEREFORE, premised on the foregoing, judgment is hereby rendered in favor of the plaintiffs ordering the defendants to pay plaintiffs jointly and severally:
1.       The sum of P55,000.00 as actual and compensatory damages;
2.       The sum of P20,000.00 for the repair of the motorcycle;
3.       The sum of P100,000.00 for the loss of earning capacity;
4.       The sum of P500,000.00 as moral damages;
5.       The sum of P50,000.00 as exemplary damages;
6.       The sum of P50,000.00 as attorney’s fees plus cost of suit.
SO ORDERED.
Petitioners appealed the decision to the Court of Appeals, which affirmed the appealed decision in toto.[4]
Hence the present petition, based on the following arguments:
I.
THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT THAT PETITIONER DASSAD DID NOT EXERCISE THE DILIGENCE OF A GOOD FATHER OF A FAMILY IN THE SELECTION AND SUPERVISION OF ITS EMPLOYEES WHICH IS NOT IN ACCORDANCE WITH ARTICLE 2180 OF THE NEW CIVIL CODE AND RELATED JURISPRUDENCE ON THE MATTER.
II.
THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT IN HOLDING PETITIONER EL BUENASENSO SY SOLIDARILY LIABLE WITH PETITIONERS DASSAD AND SECOSA IN VIOLATION OF THE CORPORATION LAW AND RELATED JURISPRUDENCE ON THE MATTER.
III.
THE JUDGMENT OF THE TRIAL COURT AS AFFIRMED BY THE COURT OF APPEALS AWARDING P500,000.00 AS MORAL DAMAGES IS MANIFESTLY ABSURD, MISTAKEN AND UNJUST.[5]
The petition is partly impressed with merit.
On the issue of whether petitioner Dassad Warehousing and Port Services, Inc. exercised the diligence of a good father of a family in the selection and supervision of its employees, we find the assailed decision to be in full accord with pertinent provisions of law and established jurisprudence.
Article 2176 of the Civil Code provides:
Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done.  Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.
On the other hand, Article 2180, in pertinent part, states:
The obligation imposed by article 2176 is demandable not only for one’s own acts or omissions, but also for those of persons for whom one is responsible x x x.
Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry x x x.
The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage.
Based on the foregoing provisions, when an injury is caused by the negligence of an employee, there instantly arises a presumption that there was negligence on the part of the employer either in the selection of his employee or in the supervision over him after such selection.  The presumption, however, may be rebutted by a clear showing on the part of the employer that it exercised the care and diligence of a good father of a family in the selection and supervision of his employee.  Hence, to evade solidary liability for quasi-delict committed by an employee, the employer must adduce sufficient proof that it exercised such degree of care.[6]
How does an employer prove that he indeed exercised the diligence of a good father of a family in the selection and supervision of his employee? The case of Metro Manila Transit Corporation v. Court of Appeals[7] is instructive:
In fine, the party, whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of presenting at the trial such amount of evidence required by law to obtain a favorable judgment[8] .   . . In making proof in its or his case, it is paramount that the best and most complete evidence is formally entered.[9]
Coming now to the case at bar, while there is no rule which requires that testimonial evidence, to hold sway, must be corroborated by documentary evidence, inasmuch as the witnesses’ testimonies dwelt on mere generalities, we cannot consider the same as sufficiently persuasive proof that there was observance of due diligence in the selection and supervision of employees. Petitioner’s attempt to prove its “deligentissimi patris familias” in the selection and supervision of employees through oral evidence must fail as it was unable to buttress the same with any other evidence, object or documentary, which might obviate the apparent biased nature of the testimony.[10]
Our view that the evidence for petitioner MMTC falls short of the required evidentiary quantum as would convincingly and undoubtedly prove its observance of the diligence of a good father of a family has its precursor in the underlying rationale pronounced in the earlier case of Central Taxicab Corp. vs. Ex-Meralco Employees Transportation Co., et al.,[11] set amidst an almost identical factual setting, where we held that:
“The failure of the defendant company to produce in court any ‘record’ or other documentary proof tending to establish that it had exercised all the diligence of a good father of a family in the selection and supervision of its drivers and buses, notwithstanding the calls therefor by both the trial court and the opposing counsel, argues strongly against its pretensions.
We are fully aware that there is no hard-and-fast rule on the quantum of evidence needed to prove due observance of all the diligence of a good father of a family as would constitute a valid defense to the legal presumption of negligence on the part of an employer or master whose employee has by his negligence, caused damage to another. x x x (R)educing the testimony of Albert to its proper proportion, we do not have enough trustworthy evidence left to go by. We are of the considered opinion, therefore, that the believable evidence on the degree of care and diligence that has been exercised in the selection and supervision of Roberto Leon y Salazar, is not legally sufficient to overcome the presumption of negligence against the defendant company.
The above-quoted ruling was reiterated in a recent case again involving the Metro Manila Transit Corporation,[12] thus:
In the selection of prospective employees, employers are required to examine them as to their qualifications, experience, and service records.[13] On the other hand, with respect to the supervision of employees, employers should formulate standard operating procedures, monitor their implementation, and impose disciplinary measures for breaches thereof. To establish these factors in a trial involving the issue of vicarious liability, employers must submit concrete proof, including documentary evidence.
In this case, MMTC sought to prove that it exercised the diligence of a good father of a family with respect to the selection of employees by presenting mainly testimonial evidence on its hiring procedure. According to MMTC, applicants are required to submit professional driving licenses, certifications of work experience, and clearances from the National Bureau of Investigation; to undergo tests of their driving skills, concentration, reflexes, and vision; and, to complete training programs on traffic rules, vehicle maintenance, and standard operating procedures during emergency cases.
x x x                          x x x                             x x x
Although testimonies were offered that in the case of Pedro Musa all these precautions were followed, the records of his interview, of the results of his examinations, and of his service were not presented. . . [T]here is no record that Musa attended such training programs and passed the said examinations before he was employed. No proof was presented that Musa did not have any record of traffic violations. Nor were records of daily inspections, allegedly conducted by supervisors, ever presented. . . The failure of MMTC to present such documentary proof puts in doubt the credibility of its witnesses.
Jurisprudentially, therefore, the employer must not merely present testimonial evidence to prove that he observed the diligence of a good father of a family in the selection and supervision of his employee, but he must also support such testimonial evidence with concrete or documentary evidence. The reason for this is to obviate the biased nature of the employer’s testimony or that of his witnesses.[14]
Applying the foregoing doctrines to the present case, we hold that petitioner Dassad Warehousing and Port Services, Inc. failed to conclusively prove that it had exercised the requisite diligence of a good father of a family in the selection and supervision of its employees.
Edilberto Duerme, the lone witness presented by Dassad Warehousing and Port Services, Inc. to support its position that it had exercised the diligence of a good father of a family in the selection and supervision of its employees, testified that he was the one who recommended petitioner Raymundo Secosa as a driver to Dassad Warehousing and Port Services, Inc.; that it was his duty to scrutinize the capabilities of drivers; and that he believed petitioner to be physically and mentally fit for he had undergone rigid training and attended the PPA safety seminar.[15]
Petitioner Dassad Warehousing and Port Services, Inc. failed to support the testimony of its lone witness with documentary evidence which would have strengthened its claim of due diligence in the selection and supervision of its employees.  Such an omission is fatal to its position, on account of which, Dassad can be rightfully held solidarily liable with its co-petitioner Raymundo Secosa for the damages suffered by the heirs of Erwin Francisco.
However, we find that petitioner El Buenasenso Sy cannot be held solidarily liable with his co-petitioners. While it may be true that Sy is the president of petitioner Dassad Warehousing and Port Services, Inc., such fact is not by itself sufficient to hold him solidarily liable for the liabilities adjudged against his co-petitioners.
It is a settled precept in this jurisdiction that a corporation is invested by law with a personality separate from that of its stockholders or members.[16] It has a personality separate and distinct from those of the persons composing it as well as from that of any other entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not in itself sufficient ground for disregarding the separate corporate personality.[17] A corporation’s authority to act and its liability for its actions are separate and apart from the individuals who own it.[18]
The so-called veil of corporation fiction treats as separate and distinct the affairs of a corporation and its officers and stockholders. As a general rule, a corporation will be looked upon as a legal entity, unless and until sufficient reason to the contrary appears.  When the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons.[19] Also, the corporate entity may be disregarded in the interest of justice in such cases as fraud that may work inequities among members of the corporation internally, involving no rights of the public or third persons.  In both instances, there must have been fraud and proof of it. For the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established.[20] It cannot be presumed.[21]
The records of this case are bereft of any evidence tending to show the presence of any grounds enumerated above that will justify the piercing of the veil of corporate fiction such as to hold the president of Dassad Warehousing and Port Services, Inc. solidarily liable with it.
The Isuzu cargo truck which ran over Erwin Francisco was registered in the name of Dassad Warehousing and Port Services, Inc., and not in the name of El Buenasenso Sy.  Raymundo Secosa is an employee of Dassad Warehousing and Port Services, Inc. and not of El Buenasenso Sy.  All these things, when taken collectively, point toward El Buenasenso Sy’s exclusion from liability for damages arising from the death of Erwin Francisco.
Having both found Raymundo Secosa and Dassad Warehousing and Port Services, Inc. liable for negligence for the death of Erwin Francisco on June 27, 1996, we now consider the question of moral damages which his parents, herein respondents, are entitled to recover.  Petitioners assail the award of moral damages of P500,000.00 for being manifestly absurd, mistaken and unjust.  We are not persuaded.
Under Article 2206, the “spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral damages for mental anguish for the death of the deceased.” The reason for the grant of moral damages has been explained in this wise:
. . . the award of moral damages is aimed at a restoration, within the limits possible, of the spiritual status quo ante; and therefore, it must be proportionate to the suffering inflicted. The intensity of the pain experienced by the relatives of the victim is proportionate to the intensity of affection for him and bears no relation whatsoever with the wealth or means of the offender.”[22]
In the instant case, the spouses Francisco presented evidence of the searing pain that they felt when the premature loss of their son was relayed to them. That pain was highly evident in the testimony of the father who was forever deprived of a son, a son whose untimely death came at that point when the latter was nearing the culmination of every parent’s wish to educate their children.  The death of Francis has indeed left a void in the lives of the respondents. Antonio Francisco testified on the effect of the death of his son, Francis, in this manner:
Q:   (Atty. Balanag):  What did you do when you learned that your son was killed on June 27, 1996?
A:    (ANTONIO FRANCISCO):  I boxed the door and pushed the image of St. Niño telling why this happened to us.
Q:   Mr. Witness, how did you feel when you learned of the untimely death of your son, Erwin Suares (sic)?
A:    Masakit po ang mawalan ng anak. It’s really hard for me, the thought that my son is dead.
x x x                                  x x x                             x x x
Q:   How did your family react to the death of Erwin Suarez Francisco?
A:    All of my family and relatives were felt (sic) sorrow because they knew that my son is (sic) good.
Q:   We know that it is impossible to put money terms(s) [on] the life of [a] human, but since you are now in court and if you were to ask this court how much would you and your family compensate? (sic)
A:    Even if they pay me millions, they cannot remove the anguish of my son (sic).[23]
Moral damages are emphatically not intended to enrich a plaintiff at the expense of the defendant. They are awarded to allow the former to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has undergone due to the defendant’s culpable action and must, perforce, be proportional to the suffering inflicted.[24] We have previously held as proper an award of P500,000.00 as moral damages to the heirs of a deceased family member who died in a vehicular accident. In our 2002 decision in Metro Manila Transit Corporation v. Court of Appeals, et al.,[25] we affirmed the award of moral damages of P500,000.00 to the heirs of the victim, a mother, who died from injuries she sustained when a bus driven by an employee of the petitioner hit her.  In the case at bar, we likewise affirm the portion of the assailed decision awarding the moral damages.
Since the petitioners did not question the other damages adjudged against them by the court a quo, we affirm the award of these damages to the respondents.
 WHEREFORE, the petition is DENIED.  The assailed decision is AFFIRMED with the MODIFICATION that petitioner El Buenasenso Sy is ABSOLVED from any liability adjudged against his co-petitioners in this case.
Costs against petitioners.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Panganiban, Carpio, and Azcuna, JJ., concur.


[1] Penned by Justice Danilo B. Pine and concurred in by Justices Eugenio S. Labitoria and Renato C. Dacudao.  Rollo, pp. 25-31.
[2] Penned by Judge Virgilio D. Quijano, Presiding Judge.
[3] Rollo, pp. 25-26.
[4] Id., p. 31.
[5] Id., p. 15.
[6] Baliwag Transit, Inc. v. Court of Appeals, et al., G.R. No. 116624, 20 September 1996, 262 SCRA 230.  See also, Philippine Air Lines v. Court of Appeals, G.R. No. L-46036, 18 May 1990, 185 SCRA 449.
[7] G.R. No. 104408, 21 June 1993, 223 SCRA 521.
[8] Citing Republic v. Court of Appeals, G.R. No. 84966, 21 November 1991, 204 SCRA 160.
[9] U.S. v. Tria, 17 Phil. 303 (1910).
[10] Garcia v. Gonzales, G.R. No. 48184, 12 March 1990, 183 SCRA 72.
[11] 54 O.G., No. 31, 7415 (1958).
[12] Metro Manila Transit Corporation v. Court of Appeals, et al., G.R. No. 116617, 16 November 1998, 298 SCRA 495.
[13] Campo v. Camarote, 100 Phil. 459, 463 (1956).
[14] Ernesto Syki v. Salvador Begasa, G.R. No. 149149, 23 October 2003.
[15] Rollo, p. 27.
[16] Villanueva, Philippine Commercial Law Review, 1998 edition, p. 345.
[17] Sunio v. NLRC, G.R. No. L-57767, 31 January 1984, 127 SCRA 390.
[18] Jentz, Miller, Cross and Clarkson, West’s Business Law, 4th edition, p. 614.
[19] Volume 1, Fletcher Cyclopedia Corporations, Chapter 2, Section 41.7.
[20] Matuguina Integrated Wood Products, Inc. v. Court of Appeals, G.R. No. 98310, 24 October 1996, 263 SCRA 490, 509.
[21] Avelina G. Ramoso, et al. v. Court of Appeals, et al., G.R. No. 117416, 8 December 2000, 347 SCRA 463.
[22] Sangco, Torts and Damages, 986 [1994 ed.].
[23] TSN, March 20, 1997, pp. 4-6.
[24] Philtranco Service Enterprises v. Court of Appeals, et al., G.R. No. 120553, 17 June 1997, 273 SCRA 562.
[25] G.R. No. 141089, 1 August 2002.

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lawphil
Today is Monday, November 23, 2009


Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
 
G.R. No. 97212 June 30, 1993
BENJAMIN YU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHEN HO-FU, respondents.
Jose C. Guico for petitioner.
Wilfredo Cortez for private respondents.
 
FELICIANO, J.:
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble quarrying and export business operated by a registered partnership with the firm name of "Jade Mountain Products Company Limited" ("Jade Mountain"). The partnership was originally organized on 28 June 1984 with Lea Bendal and Rhodora Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the Republic of China (Taiwan), as limited partners. The partnership business consisted of exploiting a marble deposit found on land owned by the Sps. Ricardo and Guillerma Cruz, situated in Bulacan Province, under a Memorandum Agreement dated 26 June 1984 with the Cruz spouses. 1 The partnership had its main office in Makati, Metropolitan Manila.
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as Assistant General Manager with a monthly salary of P4,000.00. According to petitioner Yu, however, he actually received only half of his stipulated monthly salary, since he had accepted the promise of the partners that the balance would be paid when the firm shall have secured additional operating funds from abroad. Benjamin Yu actually managed the operations and finances of the business; he had overall supervision of the workers at the marble quarry in Bulacan and took charge of the preparation of papers relating to the exportation of the firm's products.
Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal and Rhodora Bendal sold and transferred their interests in the partnership to private respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold and transferred his interest in the partnership to Willy Co. Between Mr. Emmanuel Zapanta and himself, private respondent Willy Co acquired the great bulk of the partnership interest. The partnership now constituted solely by Willy Co and Emmanuel Zapanta continued to use the old firm name of Jade Mountain, though they moved the firm's main office from Makati to Mandaluyong, Metropolitan Manila. A Supplement to the Memorandum Agreement relating to the operation of the marble quarry was entered into with the Cruz spouses in February of 1988. 2 The actual operations of the business enterprise continued as before. All the employees of the partnership continued working in the business, all, save petitioner Benjamin Yu as it turned out.
On 16 November 1987, having learned of the transfer of the firm's main office from Makati to Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office for work and there met private respondent Willy Co for the first time. Petitioner was informed by Willy Co that the latter had bought the business from the original partners and that it was for him to decide whether or not he was responsible for the obligations of the old partnership, including petitioner's unpaid salaries. Petitioner was in fact not allowed to work anymore in the Jade Mountain business enterprise. His unpaid salaries remained unpaid. 3
On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid salaries accruing from November 1984 to October 1988, moral and exemplary damages and attorney's fees, against Jade Mountain, Mr. Willy Co and the other private respondents. The partnership and Willy Co denied petitioner's charges, contending in the main that Benjamin Yu was never hired as an employee by the present or new partnership. 4
In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that petitioner had been illegally dismissed. The Labor Arbiter decreed his reinstatement and awarded him his claim for unpaid salaries, backwages and attorney's fees. 5
On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of the Labor Arbiter and dismissed petitioner's complaint in a Resolution dated 29 November 1990. The NLRC held that a new partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had bought the Jade Mountain business, that the new partnership had not retained petitioner Yu in his original position as Assistant General Manager, and that there was no law requiring the new partnership to absorb the employees of the old partnership. Benjamin Yu, therefore, had not been illegally dismissed by the new partnership which had simply declined to retain him in his former managerial position or any other position. Finally, the NLRC held that Benjamin Yu's claim for unpaid wages should be asserted against the original members of the preceding partnership, but these though impleaded had, apparently, not been served with summons in the proceedings before the Labor Arbiter. 6
Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to set aside and annul the Resolution of the NLRC as a product of grave abuse of discretion amounting to lack or excess of jurisdiction.
The basic contention of petitioner is that the NLRC has overlooked the principle that a partnership has a juridical personality separate and distinct from that of each of its members. Such independent legal personality subsists, petitioner claims, notwithstanding changes in the identities of the partners. Consequently, the employment contract between Benjamin Yu and the partnership Jade Mountain could not have been affected by changes in the latter's membership. 7
Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether the partnership which had hired petitioner Yu as Assistant General Manager had been extinguished and replaced by a new partnerships composed of Willy Co and Emmanuel Zapanta; and (2) if indeed a new partnership had come into existence, whether petitioner Yu could nonetheless assert his rights under his employment contract as against the new partnership.
In respect of the first issue, we agree with the result reached by the NLRC, that is, that the legal effect of the changes in the membership of the partnership was the dissolution of the old partnership which had hired petitioner in 1984 and the emergence of a new firm composed of Willy Co and Emmanuel Zapanta in 1987.
The applicable law in this connection — of which the NLRC seemed quite unaware — is found in the Civil Code provisions relating to partnerships. Article 1828 of the Civil Code provides as follows:
Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business. (Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the partners;
xxx xxx xxx
(b) by the express will of any partner, who must act in good faith, when no definite term or particular undertaking is specified;
xxx xxx xxx
(2) in contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time;
xxx xxx xxx
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their partnership interests (amounting to 82% of the total partnership interest) to Mr. Willy Co and Emmanuel Zapanta. The record does not show what happened to the remaining 18% of the original partnership interest. The acquisition of 82% of the partnership interest by new partners, coupled with the retirement or withdrawal of the partners who had originally owned such 82% interest, was enough to constitute a new partnership.
The occurrence of events which precipitate the legal consequence of dissolution of a partnership do not, however, automatically result in the termination of the legal personality of the old partnership. Article 1829 of the Civil Code states that:
[o]n dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed.
In the ordinary course of events, the legal personality of the expiring partnership persists for the limited purpose of winding up and closing of the affairs of the partnership. In the case at bar, it is important to underscore the fact that the business of the old partnership was simply continued by the new partners, without the old partnership undergoing the procedures relating to dissolution and winding up of its business affairs. In other words, the new partnership simply took over the business enterprise owned by the preceeding partnership, and continued using the old name of Jade Mountain Products Company Limited, without winding up the business affairs of the old partnership, paying off its debts, liquidating and distributing its net assets, and then re-assembling the said assets or most of them and opening a new business enterprise. There were, no doubt, powerful tax considerations which underlay such an informal approach to business on the part of the retiring and the incoming partners. It is not, however, necessary to inquire into such matters.
What is important for present purposes is that, under the above described situation, not only the retiring partners (Rhodora Bendal, et al.) but also the new partnership itself which continued the business of the old, dissolved, one, are liable for the debts of the preceding partnership. In Singson, et al. v. Isabela Saw Mill, et al, 8 the Court held that under facts very similar to those in the case at bar, a withdrawing partner remains liable to a third party creditor of the old partnership. 9 The liability of the new partnership, upon the other hand, in the set of circumstances obtaining in the case at bar, is established in Article 1840 of the Civil Code which reads as follows:
Art. 1840. In the following cases creditors of the dissolved partnership are also creditors of the person or partnership continuing the business:
(1) When any new partner is admitted into an existing partnership, or when any partner retires and assigns (or the representative of the deceased partner assigns) his rights in partnership property to two or more of the partners, or to one or more of the partners and one or more third persons, if the business is continued without liquidation of the partnership affairs;
(2) When all but one partner retire and assign (or the representative of a deceased partner assigns) their rights in partnership property to the remaining partner, who continues the business without liquidation of partnership affairs, either alone or with others;
(3) When any Partner retires or dies and the business of the dissolved partnership is continued as set forth in Nos. 1 and 2 of this Article, with the consent of the retired partners or the representative of the deceased partner, but without any assignment of his right in partnership property;
(4) When all the partners or their representatives assign their rights in partnership property to one or more third persons who promise to pay the debts and who continue the business of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and remaining partners continue the business under the provisions of article 1837, second paragraph, No. 2, either alone or with others, and without liquidation of the partnership affairs;
(6) When a partner is expelled and the remaining partners continue the business either alone or with others without liquidation of the partnership affairs;
The liability of a third person becoming a partner in the partnership continuing the business, under this article, to the creditors of the dissolved partnership shall be satisfied out of the partnership property only, unless there is a stipulation to the contrary.
When the business of a partnership after dissolution is continued under any conditions set forth in this article the creditors of the retiring or deceased partner or the representative of the deceased partner, have a prior right to any claim of the retired partner or the representative of the deceased partner against the person or partnership continuing the business on account of the retired or deceased partner's interest in the dissolved partnership or on account of any consideration promised for such interest or for his right in partnership property.
Nothing in this article shall be held to modify any right of creditors to set assignment on the ground of fraud.
xxx xxx xxx
(Emphasis supplied)
Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new Jade Mountain which continued the business of the old one without liquidation of the partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for unpaid wages, is entitled to priority vis-a-vis any claim of any retired or previous partner insofar as such retired partner's interest in the dissolved partnership is concerned. It is not necessary for the Court to determine under which one or mare of the above six (6) paragraphs, the case at bar would fall, if only because the facts on record are not detailed with sufficient precision to permit such determination. It is, however, clear to the Court that under Article 1840 above, Benjamin Yu is entitled to enforce his claim for unpaid salaries, as well as other claims relating to his employment with the previous partnership, against the new Jade Mountain.
It is at the same time also evident to the Court that the new partnership was entitled to appoint and hire a new general or assistant general manager to run the affairs of the business enterprise take over. An assistant general manager belongs to the most senior ranks of management and a new partnership is entitled to appoint a top manager of its own choice and confidence. The non-retention of Benjamin Yu as Assistant General Manager did not therefore constitute unlawful termination, or termination without just or authorized cause. We think that the precise authorized cause for termination in the case at bar was redundancy. 10 The new partnership had its own new General Manager, apparently Mr. Willy Co, the principal new owner himself, who personally ran the business of Jade Mountain. Benjamin Yu's old position as Assistant General Manager thus became superfluous or redundant. 11 It follows that petitioner Benjamin Yu is entitled to separation pay at the rate of one month's pay for each year of service that he had rendered to the old partnership, a fraction of at least six (6) months being considered as a whole year.
While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in its employ, we consider that Benjamin Yu was very shabbily treated by the new partnership. The old partnership certainly benefitted from the services of Benjamin Yu who, as noted, previously ran the whole marble quarrying, processing and exporting enterprise. His work constituted value-added to the business itself and therefore, the new partnership similarly benefitted from the labors of Benjamin Yu. It is worthy of note that the new partnership did not try to suggest that there was any cause consisting of some blameworthy act or omission on the part of Mr. Yu which compelled the new partnership to terminate his services. Nonetheless, the new Jade Mountain did not notify him of the change in ownership of the business, the relocation of the main office of Jade Mountain from Makati to Mandaluyong and the assumption by Mr. Willy Co of control of operations. The treatment (including the refusal to honor his claim for unpaid wages) accorded to Assistant General Manager Benjamin Yu was so summary and cavalier as to amount to arbitrary, bad faith treatment, for which the new Jade Mountain may legitimately be required to respond by paying moral damages. This Court, exercising its discretion and in view of all the circumstances of this case, believes that an indemnity for moral damages in the amount of P20,000.00 is proper and reasonable.
In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal rate of six percent (6%) per annum on the amount of unpaid wages, and of his separation pay, computed from the date of promulgation of the award of the Labor Arbiter. Finally, because the new Jade Mountain compelled Benjamin Yu to resort to litigation to protect his rights in the premises, he is entitled to attorney's fees in the amount of ten percent (10%) of the total amount due from private respondent Jade Mountain.
WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE, the Comment filed by private respondents is treated as their Answer to the Petition for Certiorari, and the Decision of the NLRC dated 29 November 1990 is hereby NULLIFIED and SET ASIDE. A new Decision is hereby ENTERED requiring private respondent Jade Mountain Products Company Limited to pay to petitioner Benjamin Yu the following amounts:
(a) for unpaid wages which, as found by the Labor Arbiter, shall be computed at the rate of P2,000.00 per month multiplied by thirty-six (36) months (November 1984 to December 1987) in the total amount of P72,000.00;
(b) separation pay computed at the rate of P4,000.00 monthly pay multiplied by three (3) years of service or a total of P12,000.00;
(c) indemnity for moral damages in the amount of P20,000.00;
(d) six percent (6%) per annum legal interest computed on items (a) and (b) above, commencing on 26 December 1989 and until fully paid; and
(e) ten percent (10%) attorney's fees on the total amount due from private respondent Jade Mountain.
Costs against private respondents.
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ., concur.
 
# Footnotes
1 Rollo, pp. 11, 28, 31, 35 and 43.
2 Id., pp. 31, 43 and 68.
3 Id., pp. 36 and 44.
4 Id., pp. 40-41.
5 Id., pp. 36-38.
6 Id., pp. 45-46.
7 Id., pp. 9-10.
8 88 SCRA 623 (1979).
9 88 SCRA 642-643.
10 Art. 283. Closure of establishment and reduction of personnel. — The employer may also terminate the employment of any employee due to the installation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this title, by serving written notice on the workers and the Ministry of Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to the installation of labor-saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses or in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (½) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year. (This provision is identical with that existing in 1987, except that the provision was numerically designated in 1987 as "Article 284"), Labor Code.
11 See, in this connection, Wiltshire File Co., Inc. v. National Labor Relations Commission, et al., 193 SCRA 665 (1991).
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