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Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No.

L-23145 November 29, 1968

TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary administrator-appellee, vs. BENGUET CONSOLIDATED, INC., oppositor-appellant. Cirilo F. Asperillo, Jr., for ancillary administrator-appellee. Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant. FERNANDO, J.: Confronted by an obstinate and adamant refusal of the domiciliary administrator, the County Trust Company of New York, United States of America, of the estate of the deceased Idonah Slade Perkins, who died in New York City on March 27, 1960, to surrender to the ancillary administrator in the Philippines the stock certificates owned by her in a Philippine corporation, Benguet Consolidated, Inc., to satisfy the legitimate claims of local creditors, the lower court, then presided by the Honorable Arsenio Santos, now retired, issued on May 18, 1964, an order of this tenor: "After considering the motion of the ancillary administrator, dated February 11, 1964, as well as the opposition filed by the Benguet Consolidated, Inc., the Court hereby (1) considers as lost for all purposes in connection with the administration and liquidation of the Philippine estate of Idonah Slade Perkins the stock certificates covering the 33,002 shares of stock standing in her name in the books of the Benguet Consolidated, Inc., (2) orders said certificates cancelled, and (3) directs said corporation to issue new certificates in lieu thereof, the same to be delivered by said corporation to either the incumbent ancillary administrator or to the Probate Division of this Court."1 From such an order, an appeal was taken to this Court not by the domiciliary administrator, the County Trust Company of New York, but by the Philippine corporation, the Benguet Consolidated, Inc. The appeal cannot possibly prosper. The challenged order represents a response and expresses a policy, to paraphrase Frankfurter, arising out of a specific problem, addressed to the attainment of specific ends by the use of specific remedies, with full and ample support from legal doctrines of weight and significance. The facts will explain why. As set forth in the brief of appellant Benguet Consolidated, Inc., Idonah Slade Perkins, who died on March 27, 1960 in New York City, left among others, two stock certificates covering 33,002 shares of appellant, the certificates being in the possession of the County Trust Company of New York, which as noted, is the domiciliary administrator of the estate of the deceased.2 Then came this portion of the appellant's brief: "On August 12, 1960, Prospero Sanidad instituted ancillary administration proceedings in the Court of First Instance of Manila; Lazaro A. Marquez was appointed ancillary administrator, and on January 22, 1963, he was substituted by the appellee Renato D. Tayag. A dispute arose between the domiciary administrator in New York and the ancillary administrator in the Philippines as to which of them was entitled to the possession of the stock certificates in question. On January 27, 1964, the Court of First Instance of Manila ordered the domiciliary administrator, County Trust Company, to "produce and deposit" them with the ancillary administrator or with the Clerk of Court. The domiciliary administrator did not comply with the order, and on February 11, 1964, the ancillary administrator petitioned the court to

"issue an order declaring the certificate or certificates of stocks covering the 33,002 shares issued in the name of Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or] considered as lost."3 It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is immaterial" as far as it is concerned as to "who is entitled to the possession of the stock certificates in question; appellant opposed the petition of the ancillary administrator because the said stock certificates are in existence, they are today in the possession of the domiciliary administrator, the County Trust Company, in New York, U.S.A...."4 It is its view, therefore, that under the circumstances, the stock certificates cannot be declared or considered as lost. Moreover, it would allege that there was a failure to observe certain requirements of its by-laws before new stock certificates could be issued. Hence, its appeal. As was made clear at the outset of this opinion, the appeal lacks merit. The challenged order constitutes an emphatic affirmation of judicial authority sought to be emasculated by the wilful conduct of the domiciliary administrator in refusing to accord obedience to a court decree. How, then, can this order be stigmatized as illegal? As is true of many problems confronting the judiciary, such a response was called for by the realities of the situation. What cannot be ignored is that conduct bordering on wilful defiance, if it had not actually reached it, cannot without undue loss of judicial prestige, be condoned or tolerated. For the law is not so lacking in flexibility and resourcefulness as to preclude such a solution, the more so as deeper reflection would make clear its being buttressed by indisputable principles and supported by the strongest policy considerations. It can truly be said then that the result arrived at upheld and vindicated the honor of the judiciary no less than that of the country. Through this challenged order, there is thus dispelled the atmosphere of contingent frustration brought about by the persistence of the domiciliary administrator to hold on to the stock certificates after it had, as admitted, voluntarily submitted itself to the jurisdiction of the lower court by entering its appearance through counsel on June 27, 1963, and filing a petition for relief from a previous order of March 15, 1963. Thus did the lower court, in the order now on appeal, impart vitality and effectiveness to what was decreed. For without it, what it had been decided would be set at naught and nullified. Unless such a blatant disregard by the domiciliary administrator, with residence abroad, of what was previously ordained by a court order could be thus remedied, it would have entailed, insofar as this matter was concerned, not a partial but a well-nigh complete paralysis of judicial authority. 1. Appellant Benguet Consolidated, Inc. did not dispute the power of the appellee ancillary administrator to gain control and possession of all assets of the decedent within the jurisdiction of the Philippines. Nor could it. Such a power is inherent in his duty to settle her estate and satisfy the claims of local creditors.5 As Justice Tuason speaking for this Court made clear, it is a "general rule universally recognized" that administration, whether principal or ancillary, certainly "extends to the assets of a decedent found within the state or country where it was granted," the corollary being "that an administrator appointed in one state or country has no power over property in another state or country."6 It is to be noted that the scope of the power of the ancillary administrator was, in an earlier case, set forth by Justice Malcolm. Thus: "It is often necessary to have more than one administration of an estate. When a person dies intestate owning property in the country of his domicile as well as in a foreign country, administration is had in both countries. That which is granted in the jurisdiction of

decedent's last domicile is termed the principal administration, while any other administration is termed the ancillary administration. The reason for the latter is because a grant of administration does not ex proprio vigore have any effect beyond the limits of the country in which it is granted. Hence, an administrator appointed in a foreign state has no authority in the [Philippines]. The ancillary administration is proper, whenever a person dies, leaving in a country other than that of his last domicile, property to be administered in the nature of assets of the deceased liable for his individual debts or to be distributed among his heirs."7 It would follow then that the authority of the probate court to require that ancillary administrator's right to "the stock certificates covering the 33,002 shares ... standing in her name in the books of [appellant] Benguet Consolidated, Inc...." be respected is equally beyond question. For appellant is a Philippine corporation owing full allegiance and subject to the unrestricted jurisdiction of local courts. Its shares of stock cannot therefore be considered in any wise as immune from lawful court orders. Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue8 finds application. "In the instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled [here]." To the force of the above undeniable proposition, not even appellant is insensible. It does not dispute it. Nor could it successfully do so even if it were so minded. 2. In the face of such incontrovertible doctrines that argue in a rather conclusive fashion for the legality of the challenged order, how does appellant, Benguet Consolidated, Inc. propose to carry the extremely heavy burden of persuasion of precisely demonstrating the contrary? It would assign as the basic error allegedly committed by the lower court its "considering as lost the stock certificates covering 33,002 shares of Benguet belonging to the deceased Idonah Slade Perkins, ..."9 More specifically, appellant would stress that the "lower court could not "consider as lost" the stock certificates in question when, as a matter of fact, his Honor the trial Judge knew, and does know, and it is admitted by the appellee, that the said stock certificates are in existence and are today in the possession of the domiciliary administrator in New York."10 There may be an element of fiction in the above view of the lower court. That certainly does not suffice to call for the reversal of the appealed order. Since there is a refusal, persistently adhered to by the domiciliary administrator in New York, to deliver the shares of stocks of appellant corporation owned by the decedent to the ancillary administrator in the Philippines, there was nothing unreasonable or arbitrary in considering them as lost and requiring the appellant to issue new certificates in lieu thereof. Thereby, the task incumbent under the law on the ancillary administrator could be discharged and his responsibility fulfilled. Any other view would result in the compliance to a valid judicial order being made to depend on the uncontrolled discretion of the party or entity, in this case domiciled abroad, which thus far has shown the utmost persistence in refusing to yield obedience. Certainly, appellant would not be heard to contend in all seriousness that a judicial decree could be treated as a mere scrap of paper, the court issuing it being powerless to remedy its flagrant disregard. It may be admitted of course that such alleged loss as found by the lower court did not correspond exactly with the facts. To be more blunt, the quality of truth may be lacking in such a conclusion arrived at. It is to be remembered however, again to borrow from Frankfurter, "that fictions which the law may rely upon in the pursuit of legitimate ends have played an important part in its development."11 Speaking of the common law in its earlier period, Cardozo could state fictions "were devices to advance the ends of justice, [even if] clumsy and at times offensive."12 Some of them have persisted even to the present, that eminent jurist, noting "the quasi contract, the adopted child, the constructive

trust, all of flourishing vitality, to attest the empire of "as if" today."13 He likewise noted "a class of fictions of another order, the fiction which is a working tool of thought, but which at times hides itself from view till reflection and analysis have brought it to the light."14 What cannot be disputed, therefore, is the at times indispensable role that fictions as such played in the law. There should be then on the part of the appellant a further refinement in the catholicity of its condemnation of such judicial technique. If ever an occasion did call for the employment of a legal fiction to put an end to the anomalous situation of a valid judicial order being disregarded with apparent impunity, this is it. What is thus most obvious is that this particular alleged error does not carry persuasion. 3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by its invoking one of the provisions of its by-laws which would set forth the procedure to be followed in case of a lost, stolen or destroyed stock certificate; it would stress that in the event of a contest or the pendency of an action regarding ownership of such certificate or certificates of stock allegedly lost, stolen or destroyed, the issuance of a new certificate or certificates would await the "final decision by [a] court regarding the ownership [thereof]."15 Such reliance is misplaced. In the first place, there is no such occasion to apply such by-law. It is admitted that the foreign domiciliary administrator did not appeal from the order now in question. Moreover, there is likewise the express admission of appellant that as far as it is concerned, "it is immaterial ... who is entitled to the possession of the stock certificates ..." Even if such were not the case, it would be a legal absurdity to impart to such a provision conclusiveness and finality. Assuming that a contrariety exists between the above by-law and the command of a court decree, the latter is to be followed. It is understandable, as Cardozo pointed out, that the Constitution overrides a statute, to which, however, the judiciary must yield deference, when appropriately invoked and deemed applicable. It would be most highly unorthodox, however, if a corporate by-law would be accorded such a high estate in the jural order that a court must not only take note of it but yield to its alleged controlling force. The fear of appellant of a contingent liability with which it could be saddled unless the appealed order be set aside for its inconsistency with one of its by-laws does not impress us. Its obedience to a lawful court order certainly constitutes a valid defense, assuming that such apprehension of a possible court action against it could possibly materialize. Thus far, nothing in the circumstances as they have developed gives substance to such a fear. Gossamer possibilities of a future prejudice to appellant do not suffice to nullify the lawful exercise of judicial authority. 4. What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with implications at war with the basic postulates of corporate theory. We start with the undeniable premise that, "a corporation is an artificial being created by operation of law...."16 It owes its life to the state, its birth being purely dependent on its will. As Berle so aptly stated: "Classically, a corporation was conceived as an artificial person, owing its existence through creation by a sovereign power."17 As a matter of fact, the statutory language employed owes much to Chief Justice Marshall, who in the Dartmouth College decision defined a corporation precisely as "an artificial being, invisible, intangible, and existing only in contemplation of law."18 The well-known authority Fletcher could summarize the matter thus: "A corporation is not in fact and in reality a person, but the law treats it as though it were a person by process of fiction, or by regarding it as an artificial person distinct and separate from its individual stockholders.... It owes its

existence to law. It is an artificial person created by law for certain specific purposes, the extent of whose existence, powers and liberties is fixed by its charter."19 Dean Pound's terse summary, a juristic person, resulting from an association of human beings granted legal personality by the state, puts the matter neatly.20 There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote from Friedmann, "is the reality of the group as a social and legal entity, independent of state recognition and concession."21 A corporation as known to Philippine jurisprudence is a creature without any existence until it has received the imprimatur of the state according to law. It is logically inconceivable therefore that it will have rights and privileges of a higher priority than that of its creator. More than that, it cannot legitimately refuse to yield obedience to acts of its state organs, certainly not excluding the judiciary, whenever called upon to do so. As a matter of fact, a corporation once it comes into being, following American law still of persuasive authority in our jurisdiction, comes more often within the ken of the judiciary than the other two coordinate branches. It institutes the appropriate court action to enforce its right. Correlatively, it is not immune from judicial control in those instances, where a duty under the law as ascertained in an appropriate legal proceeding is cast upon it. To assert that it can choose which court order to follow and which to disregard is to confer upon it not autonomy which may be conceded but license which cannot be tolerated. It is to argue that it may, when so minded, overrule the state, the source of its very existence; it is to contend that what any of its governmental organs may lawfully require could be ignored at will. So extravagant a claim cannot possibly merit approval. 5. One last point. In Viloria v. Administrator of Veterans Affairs,22 it was shown that in a guardianship proceedings then pending in a lower court, the United States Veterans Administration filed a motion for the refund of a certain sum of money paid to the minor under guardianship, alleging that the lower court had previously granted its petition to consider the deceased father as not entitled to guerilla benefits according to a determination arrived at by its main office in the United States. The motion was denied. In seeking a reconsideration of such order, the Administrator relied on an American federal statute making his decisions "final and conclusive on all questions of law or fact" precluding any other American official to examine the matter anew, "except a judge or judges of the United States court."23 Reconsideration was denied, and the Administrator appealed. In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of the opinion that the appeal should be rejected. The provisions of the U.S. Code, invoked by the appellant, make the decisions of the U.S. Veterans' Administrator final and conclusive when made on claims property submitted to him for resolution; but they are not applicable to the present case, where the Administrator is not acting as a judge but as a litigant. There is a great difference between actions against the Administrator (which must be filed strictly in accordance with the conditions that are imposed by the Veterans' Act, including the exclusive review by United States courts), and those actions where the Veterans' Administrator seeks a remedy from our courts and submits to their jurisdiction by filing actions therein. Our attention has not been called to any law or treaty that would make the findings of the Veterans' Administrator, in actions where he is a party, conclusive on our courts. That, in effect, would deprive our tribunals of judicial discretion and render them mere subordinate instrumentalities of the Veterans' Administrator." It is bad enough as the Viloria decision made patent for our judiciary to accept as final and conclusive, determinations made by foreign governmental agencies. It is infinitely worse if through the absence of any coercive power by our courts over juridical persons within our jurisdiction, the force and effectivity of their orders could be made to depend on the whim or caprice of alien entities.

It is difficult to imagine of a situation more offensive to the dignity of the bench or the honor of the country. Yet that would be the effect, even if unintended, of the proposition to which appellant Benguet Consolidated seems to be firmly committed as shown by its failure to accept the validity of the order complained of; it seeks its reversal. Certainly we must at all pains see to it that it does not succeed. The deplorable consequences attendant on appellant prevailing attest to the necessity of negative response from us. That is what appellant will get. That is all then that this case presents. It is obvious why the appeal cannot succeed. It is always easy to conjure extreme and even oppressive possibilities. That is not decisive. It does not settle the issue. What carries weight and conviction is the result arrived at, the just solution obtained, grounded in the soundest of legal doctrines and distinguished by its correspondence with what a sense of realism requires. For through the appealed order, the imperative requirement of justice according to law is satisfied and national dignity and honor maintained. WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the Court of First Instance, dated May 18, 1964, is affirmed. With costs against oppositor-appelant Benguet Consolidated, Inc. Makalintal, Zaldivar and Capistrano, JJ., concur. Concepcion, C.J., Reyes, J.B.L., Dizon, Sanchez and Castro, JJ., concur in the result.

Footnotes
1

Statement of the Case and Issues Involved, Brief for the Oppositor-Appellant, p. 2. Ibid, p. 3. Ibid, pp. 3 to 4. Ibid, p. 4.

Rule 84, Sec. 3, Rules of Court. Cf. Pavia v. De la Rosa, 8 Phil. 70 (1907); Suiliong and Co. v. Chio Taysan, 12 Phil. 13 (1908); Malahacan v. Ignacio, 19 Phil. 434 (1911); McMicking v. Sy Conbieng, 21 Phil. 211 (1912); In re Estate of De Dios, 24 Phil. 573 (1913); Santos v. Manarang, 27 Phil. 209 (1914); Jaucian v. Querol, 38 Phil. 707 (1918); Buenaventura v. Ramos, 43 Phil. 704 (1922); Roxas v. Pecson, 82 Phil. 407 (1948); De Borja v. De Boria, 83 Phil. 405 (1949); Barraca v. Zayco, 88 Phil. 774 (1951); Pabilonia v. Santiago, 93 Phil. 516 (1953); Sison v. Teodoro, 98 Phil. 680 (1956); Ozaeta v. Palanca, 101 Phil. 976 (1957); Natividad Castelvi de Raquiza v. Castelvi, et al, L-17630, Oct. 31, 1963; Habana v. Imbo, L-15598 & L15726, March 31, 1964; Gliceria Liwanag v. Hon. Luis Reyes, L-19159, Sept. 29, 1964; Ignacio v. Elchico, L-18937, May 16, 1967.
6

Leon and Ghezzi v. Manufacturers Life, Inc. Co., 990 Phil. 459 (1951). Johannes v. Harvey, 43 Phil. 175, 177-178 (1922).

70 Phil. 325 (1940). Cf. Perkins v. Dizon, 69 Phil. 186 (1939).

Brief for Oppositor-Appellant, p. 5. The Assignment of Error reads: "The lower court erred in entering its order of May 18, 1964, (1) considering as lost the stock certificates covering 33,002 shares of Benguet belonging to the deceased Idonah Slade Perkins, (2) ordering the said certificates cancelled, and (3) ordering appellant to issue new certificates in lieu thereof and to deliver them to the ancillary administrator of the estate of the deceased Idonah Slade Perkins or to the probate division of the lower court."
10

Ibid, pp. 5 to 6. Nashville C. St. Louis Ry v. Browning, 310 US 362 (1940). Cardozo, The Paradoxes of Legal Science, 34 (1928). Ibid, p. 34.

11

12

13

14

Ibid, p. 34. The late Professor Gray in his The Nature and Sources of the Law, distinguished, following Ihering, historic fictions from dogmatic fictions, the former being devices to allow the addition of new law to old without changing the form of the old law and the latter being intended to arrange recognized and established doctrines under the most convenient forms. pp. 30, 36 (1909) Speaking of historic fictions, Gray added: "Such fictions have had their field of operation largely in the domain of procedure, and have consisted in pretending that a person or thing was other than which he or it was in truth (or that an event had occurred which had not in fact occurred) for the purpose of thereby giving an action at law to or against a person who did not really come within the class to or against which the old section was confined." Ibid, pp. 30-31. See also Pound, The Philosophy of Law, pp. 179, 180, 274 (1922).
15

This is what the particular by-law provides: Section 10. Lost, Stolen or Destroyed Certificates. Any registered stockholder claiming a certificate or certificates of stock to be lost, stolen or destroyed shall file an affidavit in triplicate with the Secretary of the Company, or with one of its Transfer Agents, setting forth, if possible, the circumstances as to how, when and where said certificate or certificates was or were lost, stolen or destroyed, the number of shares represented by the certificate or by each of the certificates, the serial number or numbers of the certificate or certificates, and the name of this Company. The registered stockholder shall also submit such other information and evidence which he may deem necessary. xxx xxx xxx

If a contest is presented to the Company, or if an action is pending in court regarding the ownership of said certificate or certificates of stock which have been claimed to have been lost, stolen or destroyed, the issuance of the new certificate or certificates in lieu of that or those claimed to have been lost, stolen or destroyed, shall be suspended until final decision by the court regarding the ownership of said certificate or certificates. Brief for Oppositor-Appelant, pp. 8-10.
16

Sec. 2, Act No. 1459 (1906).

17

Berle, The Theory of Enterprise Entity, 47 Co. Law Rev. 343 (1907).

18

Dartmouth College v. Woodward, 4 Wheat, 518 (1819). Cook would trace such a concept to Lord Coke. See 1 Cook on Corporations, p. 2 (1923).
19

Fletcher, Cyclopedia Corporations, pp. 19-20 (1931). Chancellor Kent and Chief Justice Baldwin of Connecticut were likewise cited to the same effect. At pp. 12-13.
20

4 Pound on Jurisprudence, pp. 207-209 (1959).

21

Friedmann, Legal Theory, pp. 164-168 (1947). See also Holdsworth, English Corporation Law, 31 Yale Law Journal, 382 (1922).
22

101 Phil. 762 (1957). 38 USCA, Sec. 808.

23

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

KUKAN INTERNATIONAL CORPORATION, Petitioner, - versus -

G.R. No. 182729 Present: CORONA, C.J., Chairperson, CARPIO, VELASCO, JR., LEONARDO-DE CASTRO, and PEREZ, JJ.

HON. AMOR REYES, in her capacity as Presiding Judge of the Regional Trial Court of Manila, Branch 21, and ROMEO M. MORALES, doing business under Promulgated: the name and style RM Morales Trophies and Plaques, September 29, 2010 Respondents. x-----------------------------------------------------------------------------------------x DECISION VELASCO, JR., J.:

The Case

This Petition for Review on Certiorari under Rule 45 seeks to nullify and reverse the January 23, 2008 Decision1[1] and the April 16, 2008 Resolution2[2] rendered by the Court of Appeals (CA) in CA-G.R. SP No. 100152.

Additional member per September 22, 2010 raffle.

The assailed CA decision affirmed the March 12, 20073[3] and June 7, 20074[4] Orders of the Regional Trial Court (RTC) of Manila, Branch 21, in Civil Case No. 99-93173, entitled Romeo M. Morales, doing business under the name and style RM Morales Trophies and Plaques v. Kukan, Inc. In the said orders, the RTC disregarded the separate corporate identities of Kukan, Inc. and Kukan International Corporation and declared them to be one and the same entity. Accordingly, the RTC held Kukan International Corporation, albeit not impleaded in the underlying complaint of Romeo M. Morales, liable for the judgment award decreed in a Decision dated November 28, 20025[5] in favor of Morales and against Kukan, Inc.

The Facts

Sometime in March 1998, Kukan, Inc. conducted a bidding for the supply and installation of signages in a building being constructed in Makati City. Morales tendered the winning bid and was awarded the PhP 5 million contract. Some of the items in the project award were later excluded resulting in the corresponding reduction of the contract price to PhP 3,388,502. Despite his compliance with his contractual undertakings, Morales was only paid the amount of PhP 1,976,371.07, leaving a balance of PhP 1,412,130.93, which Kukan, Inc. refused to pay despite demands. Shortchanged, Morales filed a Complaint6[6] with the RTC against

Rollo, pp. 62-76. Penned by Associate Justice Mariano C. Del Castillo (now a member of this Court) and concurred in by Associate Justices Arcangelita Romilla-Lontok and Romeo F. Barza. 2[2] Id. at 78-79. 3[3] Id. at 171-173. 4[4] Id. at 216-217. 5[5] Id. at 89-91. 6[6] Id. at 80-88.

1[1]

Kukan, Inc. for a sum of money, the case docketed as Civil Case No. 99-93173 and eventually raffled to Branch 17 of the court.

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

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

WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil Procedure, and by preponderance of evidence, judgment is hereby rendered in favor of the plaintiff, ordering Kukan, Inc.: 1. to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND SEVEN HUNDRED TWENTY FOUR PESOS (P1,201,724.00) with legal interest at 12% per annum from February 17, 1999 until full payment; 2. to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages; 3. to pay the sum of TWENTY THOUSAND PESOS, (P20,000.00) as reasonable attorneys fees; and 4. to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY PESOS and SIX CENTAVOS (P7,960.06) as litigation expenses. For lack of factual foundation, the counterclaim is DISMISSED. IT IS SO ORDERED.7[7]

7[7]

Id. at 90-91.

After the above decision became final and executory, Morales moved for and secured a writ of execution8[8] against Kukan, Inc. The sheriff then levied upon various personal properties found at what was supposed to be Kukan, Inc.s office at Unit 2205, 88 Corporate Center, Salcedo Village, Makati City. Alleging that it owned the properties thus levied and that it was a different corporation from Kukan, Inc., Kukan International Corporation (KIC) filed an Affidavit of ThirdParty Claim. Notably, KIC was incorporated in August 2000, or shortly after Kukan, Inc. had stopped participating in Civil Case No. 99-93173.

In reaction to the third party claim, Morales interposed an Omnibus Motion dated April 30, 2003. In it, Morales prayed, applying the principle of piercing the veil of corporate fiction, that an order be issued for the satisfaction of the judgment debt of Kukan, Inc. with the properties under the name or in the possession of KIC, it being alleged that both corporations are but one and the same entity. KIC opposed Morales motion. By Order of May 29, 20039[9] as reiterated in a

subsequent order, the court denied the omnibus motion.

In a bid to establish the link between KIC and Kukan, Inc., and thus determine the true relationship between the two, Morales filed a Motion for Examination of Judgment Debtors dated May 4, 2005. In this motion Morales sought that subponae be issued against the primary stockholders of Kukan, Inc., among them Michael Chan, a.k.a. Chan Kai Kit. This too was denied by the trial court in an Order dated May 24, 2005.10[10]

8[8] 9[9]

Id. at 97, dated February 7, 2003. Id. at 127. 10[10] Id. at 141.

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

Before the Manila RTC, Branch 21, Morales filed a Motion to Pierce the Veil of Corporate Fiction to declare KIC as having no existence separate from Kukan, Inc. This time around, the RTC, by Order dated March 12, 2007, granted the motion, the dispositive portion of which reads:
WHEREFORE, premises considered, the motion is hereby GRANTED. The Court hereby declares as follows: 1. defendant Kukan, Inc. and newly created Kukan International Corp. as one and the same corporation; the levy made on the properties of Kukan International Corp. is hereby valid; Kukan International Corp. and Michael Chan are jointly and severally liable to pay the amount awarded to plaintiff pursuant to the decision of November [28], 2002 which has long been final and executory.

2.

3.

SO ORDERED.

From the above order, KIC moved but was denied reconsideration in another Order dated June 7, 2007.

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

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

WHEREFORE, premises considered, the petition is hereby DENIED and the assailed Orders dated March 12, 2007 and June 7, 2007 of the court a quo are both AFFIRMED. No costs. SO ORDERED.11[11]

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

Hence, the instant petition for review, with the following issues KIC raises for the Courts consideration:
1. There is no legal basis for the [CA] to resolve and declare that petitioners Constitutional Right to Due Process was not violated by the public respondent in rendering the Orders dated March 12, 2007 and June 7, 2007 and in declaring petitioner to be liable for the judgment obligations of the corporation Kukan, Inc. to private respondent as petitioner is a stranger to the case and was never made a party in the case before the trial court nor was it ever served a summons and a copy of the complaint. 2. There is no legal basis for the [CA] to resolve and declare that the Orders dated March 12, 2007 and June 7, 2007 rendered by public respondent declaring the petitioner liable to the judgment obligations of the corporation Kukan, Inc. to private respondent are valid as said orders of the public respondent modify and/or amend the trial courts final and executory decision rendered on November 28, 2002. 3. There is no legal basis for the [CA] to resolve and declare that the Orders dated March 12, 2007 and June 7, 2007 rendered by public respondent declaring the petitioner [KIC] and the corporation Kukan, Inc. as one and the same, and, therefore, the Veil of Corporate Fiction between them be pierced as the procedure undertaken by public respondent which the [CA] upheld is not sanctioned by the Rules of Court and/or established jurisprudence enunciated by this Honorable Supreme Court.12[12]

11[11] 12[12]

Id. at 75. Id. at 28-29. Original in upper case.

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

The Ruling of the Court

The petition is meritorious.

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

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

The poser must be answered in the negative. In Carpio v. Doroja,13[13] the Court ruled that the deciding court has supervisory control over the execution of its judgment:

A case in which an execution has been issued is regarded as still pending so that all proceedings on the execution are proceedings in the suit. There is no question that the court which rendered the judgment has a general supervisory control over its process of execution, and this power carries with it the right to determine every question of fact and law which may be involved in the execution.
13[13]

G.R. No. 84516, December 5, 1989, 180 SCRA 1, 7.

We reiterated the above holding in Javier v. Court of Appeals14[14] in this wise: The said branch has a general supervisory control over its processes in the execution of its judgment with a right to determine every question of fact and law which may be involved in the execution. The courts supervisory control does not, however, extend as to authorize the alteration or amendment of a final and executory decision, save for certain recognized exceptions, among which is the correction of clerical errors. Else, the court violates the principle of finality of judgment and its immutability, concepts which the Court, in Tan v. Timbal,15[15] defined:
As we held in Industrial Management International Development Corporation vs. NLRC: It is an elementary principle of procedure that the resolution of the court in a given issue as embodied in the dispositive part of a decision or order is the controlling factor as to settlement of rights of the parties. Once a decision or order becomes final and executory, it is removed from the power or jurisdiction of the court which rendered it to further alter or amend it. It thereby becomes immutable and unalterable and any amendment or alteration which substantially affects a final and executory judgment is null and void for lack of jurisdiction, including the entire proceedings held for that purpose. An order of execution which varies the tenor of the judgment or exceeds the terms thereof is a nullity. (Emphasis supplied.)

Republic v. Tango16[16] expounded on the same principle and its exceptions:


Deeply ingrained in our jurisprudence is the principle that a decision that has acquired finality becomes immutable and unalterable. As such, it may no
14[14] 15[15]

G.R. No. 97795, February 16, 2004, 423 SCRA 11, 33. G.R. No. 141926, July 14, 2004, 434 SCRA 381, 386. 16[16] G.R. No. 161062, July 31, 2009, 594 SCRA 560, 568.

longer be modified in any respect even if the modification is meant to correct erroneous conclusions of fact or law and whether it will be made by the court that rendered it or by the highest court of the land. x x x The doctrine of finality of judgment is grounded on the fundamental principle of public policy and sound practice that, at the risk of occasional error, the judgment of courts and the award of quasi-judicial agencies must become final on some definite date fixed by law. The only exceptions to the general rule are the correction of clerical errors, the so-called nunc pro tunc entries which cause no prejudice to any party, void judgments, and whenever circumstances transpire after the finality of the decision which render its execution unjust and inequitable. None of the exceptions obtains here to merit the review sought. (Emphasis added.)

So, did the RTC, in breach of the doctrine of immutability and inalterability of judgment, order the execution of its final decision in a manner as would amount to its prohibited alteration or modification?

We repair to the dispositive portion of the final and executory RTC decision. Pertinently, it provides:

WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil Procedure, and by preponderance of evidence, judgment is hereby rendered in favor of the plaintiff, ordering Kukan, Inc.: 1. to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND SEVEN HUNDRED TWENTY FOUR PESOS (P1,201,724.00) with legal interest at 12% per annum from February 17, 1999 until full payment; 2. to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages; 3. to pay the sum of TWENTY THOUSAND PESOS (P20,000.00) as reasonable attorneys fees; and 4. to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY PESOS and SIX CENTAVOS (P7,960.06) as litigation expenses. x x x x (Emphasis supplied.)

As may be noted, the above decision, in unequivocal terms, directed Kukan, Inc. to pay the aforementioned awards to Morales. Thus, making KIC, thru the medium of a writ of execution, answerable for the above judgment liability is a clear case of altering a decision, an instance of granting relief not contemplated in the decision sought to be executed. And the change does not fall under any of the recognized exceptions to the doctrine of finality and immutability of judgment. It is a settled rule that a writ of execution must conform to the fallo of the judgment; as an inevitable corollary, a writ beyond the terms of the judgment is a nullity. 17[17]

Thus, on this ground alone, the instant petition can already be granted. Nonetheless, an examination of the other issues raised by KIC would be proper.

Second Issue: Propriety of the RTC Assuming Jurisdiction over KIC

The next issue turns on the validity of the execution the trial court authorized against KIC and its property, given that it was neither made a party nor impleaded in Civil Case No. 99-93173, let alone served with summons. In other words, did the trial court acquire jurisdiction over KIC?

In the assailed decision, the appellate court deemed KIC to have voluntarily submitted itself to the jurisdiction of the trial court owing to its filing of four (4) pleadings adverted to earlier, namely: (a) the Affidavit of Third-Party Claim;18[18]

B.E. San Diego, Inc. v. Alzul, G.R. No. 169501, June 8, 2007, 524 SCRA 402, 433; citing Villoria v. Piccio, et al., 95 Phil. 802, 805-806 (1954). 18[18] Rollo, pp. 98-101.

17[17]

(b) the Comment and Opposition to Plaintiffs Omnibus Motion;19[19] (c) the Motion for Reconsideration of the RTC Order dated March 12, 2007;20[20] and (d) the Motion for Leave to Admit Reply.21[21] The CA, citing Section 20, Rule 14 of the Rules of Court, stated that the procedural rule on service of summons can be waived by voluntary submission to the courts jurisdiction through any form of appearance by the party or its counsel.22[22] We cannot give imprimatur to the appellate courts appreciation of the thrust of Sec. 20, Rule 14 of the Rules in concluding that the trial court acquired jurisdiction over KIC. Orion Security Corporation v. Kalfam Enterprises, Inc.23[23] explains how courts acquire jurisdiction over the parties in a civil case:
Courts acquire jurisdiction over the plaintiffs upon the filing of the complaint. On the other hand, jurisdiction over the defendants in a civil case is acquired either through the service of summons upon them or through their voluntary appearance in court and their submission to its authority. (Emphasis supplied.)

In the fairly recent Palma v. Galvez,24[24] the Court reiterated its holding in Orion Security Corporation, stating: [I]n civil cases, the trial court acquires jurisdiction over the person of the defendant either by the service of summons or by the latters voluntary appearance and submission to the authority of the former.

19[19] 20[20]

Id. at 117-126. Id. at 174-187. 21[21] Id. at 198-200. 22[22] Id. at 69-70. 23[23] G.R. No. 163287, April 27, 2007, 522 SCRA 617, 622. 24[24] G.R. No. 165273, March 10, 2010.

The courts jurisdiction over a party-defendant resulting from his voluntary submission to its authority is provided under Sec. 20, Rule 14 of the Rules, which states:
Section 20. Voluntary appearance. The defendants voluntary appearance in the actions shall be equivalent to service of summons. The inclusion in a motion to dismiss of other grounds aside from lack of jurisdiction over the person of the defendant shall not be deemed a voluntary appearance.

To be sure, the CAs ruling that any form of appearance by the party or its counsel is deemed as voluntary appearance finds support in the kindred Republic v. Ker & Co., Ltd.25[25] and De Midgely v. Ferandos.26[26]

Republic and De Midgely, however, have already been modified if not altogether superseded27[27] by La Naval Drug Corporation v. Court of Appeals,28[28]
No. L-21609, September 29, 1966, 18 SCRA 207, 213-214. The Court ruled: We observed that the motion to dismiss filed on April 14, 1962, aside from disputing the lower courts jurisdiction over defendants person, prayed for dismissal of the complaint on the ground that plaintiffs cause of action had prescribed. By interposing such second ground in its motion to dismiss, Ker & Co., Ltd. availed of an affirmative defense on the basis of which it prayed the court to resolve controversy in its favor. For the court to validly decide the said plea of defendant Ker & Co., Ltd., it necessarily had to acquire jurisdiction upon the latters person, who, being the proponent of the affirmative defense, should be deemed to have abandoned its special appearance and voluntarily submitted itself to the jurisdiction of the court. Voluntary appearance cures defects of summons, if any x x x. A defendant can not be permitted to speculate upon the judgment of the court by objecting to the courts jurisdiction over its person if the judgment is adverse to it, and acceding to jurisdiction over its person if and when the judgment sustains its defenses. 26[26] No. L-34313, May 13, 1975, 64 SCRA 23, 31. The Court also ruled: When the appearance is by motion for the purpose of objecting to the jurisdiction of the court over the person, it must be for the sole and separate purpose of objecting to the jurisdiction of the court. If his motion is for any other purpose than to object to the jurisdiction of the court over his person, he thereby submits himself to the jurisdiction of the court. A special appearance by motion made for the purpose of objecting to the jurisdiction of the court over the person will be held to be a general appearance, if the party in said motion should, for example, ask for a dismissal of the action upon the further ground that the court had no jurisdiction over the subject matter. 27[27] Perkin Elmer Singapore Pte Ltd. v. Dakila Trading Corporation, G.R. No. 172242, August 14, 2007, 530 SCRA 170. 28[28] G.R. No. 103200, August 31, 1994, 236 SCRA 78, 87-88. The Court held, thus: The doctrine of estoppel is predicated on, and has its origin in, equity which, broadly defined, is justice according to natural law and right. It is a principle intended to avoid a clear case of injustice. The term is hardly
25[25]

distinguishable from a waiver of right. Estoppel, like its said counterpart, must be unequivocal and intentional for, when misapplied, it can easily become a most convenient and effective means of injustice. Estoppel is not understood to be a principle that, as a rule, should prevalently apply but, such as it concededly is, as a mere exception from the standard legal norms of general application that can be invoked only in highly exceptional and justifiable cases. Tested by the above criteria, the Court sees it propitious to re-examine specifically the question of whether or not the submission of other issues in a motion to dismiss, or of an affirmative defense (as distinguished from an affirmative relief) in an answer, would necessarily foreclose, and have the effect of a waiver of, the right of a defendant to set up the courts lack of jurisdiction over the person of the defendant. Not inevitably. Section 1, Rule 16, of the Rules of Court, provides that a motion to dismiss may be made on the following grounds: (a) That the court has no jurisdiction over the person of the defendant or over the subject of the action or suit; (b) That the court has no jurisdiction over the nature of the action or suit; (c) The venue is improperly laid; (d) That the plaintiff has no legal capacity to sue; (e) That there is another action pending between the same parties for the same cause; (f) That the cause of action is barred by a prior judgment or by statute of limitations; (g) That the complaint states no cause of action; (h) That the claim or demand set forth in the plaintiff's pleading has been paid, waived, abandoned, or otherwise extinguished; (i) That the claim on which the action or suit is founded is unenforceable under the provisions of the statute of frauds; (j) That the suit is between members of the same family and no earnest efforts towards a compromise have been made. Any ground for dismissal in a motion to dismiss, except improper venue, may, as further set forth in Section 5 of the same rule, be pleaded as an affirmative defense and a preliminary hearing may be had thereon as if a motion to dismiss had been filed. An answer itself contains the negative, as well as affirmative, defenses upon which the defendant may rely (Section 4, Rule 6, Rules of Court). A negative defense denies the material facts averred in the complaint essential to establish the plaintiffs cause of action, while an affirmative defense in an allegation of a new matter which, while admitting the material allegations of the complaint, would, nevertheless, prevent or bar recovery by the plaintiff. Inclusive of these defenses are those mentioned in Rule 16 of the Rules of Court which would permit the filing of a motion to dismiss.

wherein the Court essentially ruled and elucidated on the current view in our jurisdiction, to wit: [A] special appearance before the courtchallenging its jurisdiction over the person through a motion to dismiss even if the movant invokes other groundsis not tantamount to estoppel or a waiver by the movant of his objection to jurisdiction over his person; and such is not constitutive of a voluntary submission to the jurisdiction of the court.29[29]

In the instant case, KIC was not made a party-defendant in Civil Case No. 99-93173. Even if it is conceded that it raised affirmative defenses through its aforementioned pleadings, KIC never abandoned its challenge, however implicit, to the RTCs jurisdiction over its person. The challenge was subsumed in KICs primary assertion that it was not the same entity as Kukan, Inc. Pertinently, in its Comment and Opposition to Plaintiffs Omnibus Motion dated May 20, 2003, KIC entered its special but not voluntary appearance alleging therein that it was a different entity and has a separate legal personality from Kukan, Inc. And KIC would consistently reiterate this assertion in all its pleadings, thus effectively resisting all along the RTCs jurisdiction of its person. It cannot be

overemphasized that KIC could not file before the RTC a motion to dismiss and its attachments in Civil Case No. 99-93173, precisely because KIC was neither impleaded nor served with summons. Consequently, KIC could only assert and

In the same manner that the plaintiff may assert two or more causes of action in a court suit, a defendant is likewise expressly allowed, under Section 2, Rule 8, of the Rules of Court, to put up his own defenses alternatively or even hypothetically. Indeed, under Section 2, Rule 9, of the Rules of Court, defenses and objections not pleaded either in a motion to dismiss or in an answer, except for the failure to state a cause of action, are deemed waived. We take this to mean that a defendant may, in fact, feel enjoined to set up, along with his objection to the courts jurisdiction over his person, all other possible defenses. It thus appears that it is not the invocation of any of such defenses, but the failure to so raise them, that can result in waiver or estoppel. By defenses, of course, we refer to the grounds provided for in Rule 16 of the Rules of Court that must be asserted in a motion to dismiss or by way of affirmative defenses in an answer. (Emphasis supplied.) 29[29] Garcia v. Sandiganbayan, G.R. Nos. 170122 & 171381, October 12, 2009, 603 SCRA 348, 367.

claim through its affidavits, comments, and motions filed by special appearance before the RTC that it is separate and distinct from Kukan, Inc. Following La Naval Drug Corporation,30[30] KIC cannot be deemed to have waived its objection to the courts lack of jurisdiction over its person. It would defy logic to say that KIC unequivocally submitted itself to the jurisdiction of the RTC when it strongly asserted that it and Kukan, Inc. are different entities. In the scheme of things obtaining, KIC had no other option but to insist on its separate identity and plead for relief consistent with that position.

Third Issue: Piercing the Veil of Corporate Fiction

The third and main issue in this case is whether or not the trial and appellate courts correctly applied the principle of piercing the veil of corporate entity called also as disregarding the fiction of a separate juridical personality of a corporationto support a conclusion that Kukan, Inc. and KIC are but one and the same corporation with respect to the contract award referred to at the outset. This principle finds its context on the postulate that a corporation is an artificial being invested with a personality separate and distinct from those of the stockholders and from other corporations to which it may be connected or related.31[31]

In Pantranco Employees Association (PEA-PTGWO) v. National Labor Relations Commission,32[32] the Court revisited the subject principle of piercing the veil of corporate fiction and wrote:
30[30] 31[31]

Supra note 28. Jardine Davies, Inc. v. JRB Realty, Inc., G.R. No. 151438, July 15, 2005, 463 SCRA 555, 563. 32[32] G.R. No. 170689, March 17, 2009, 581 SCRA 598, 613-614.

Under the doctrine of piercing the veil of corporate fiction, the court looks at the corporation as a mere collection of individuals or an aggregation of persons undertaking business as a group, disregarding the separate juridical personality of the corporation unifying the group. Another formulation of this doctrine is that when two business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that two corporations are distinct entities and treat them as identical or as one and the same. Whether the separate personality of the corporation should be pierced hinges on obtaining facts appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with caution, albeit the Court will not hesitate to disregard the corporate veil when it is misused or when necessary in the interest of justice. x x x (Emphasis supplied.)

The same principle was the subject and discussed in Rivera v. United Laboratories, Inc.:
While a corporation may exist for any lawful purpose, the law will regard it as an association of persons or, in case of two corporations, merge them into one, when its corporate legal entity is used as a cloak for fraud or illegality. This is the doctrine of piercing the veil of corporate fiction. The doctrine applies only when such 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. To disregard the separate juridical personality of a corporation, the wrongdoing must be established clearly and convincingly. It cannot be presumed.33[33] (Emphasis supplied.)

Now, as before the appellate court, petitioner KIC maintains that the RTC violated its right to due process when, in the execution of its November 28, 2002

33[33]

G.R. No. 155639, April 22, 2009, 586 SCRA 269, 300.

Decision, the court authorized the issuance of the writ against KIC for Kukan, Inc.s judgment debt, albeit KIC has never been a party to the underlying suit. As a counterpoint, Morales argues that KICs specific concern on due process and on the validity of the writ to execute the RTCs November 28, 2002 Decision would be mooted if it were established that KIC and Kukan, Inc. are indeed one and the same corporation. Morales contention is untenable.

The principle of piercing the veil of corporate fiction, and the resulting treatment of two related corporations as one and the same juridical person with respect to a given transaction, is basically applied only to determine established liability;34[34] it is not available to confer on the court a jurisdiction it has not acquired, in the first place, over a party not impleaded in a case. Elsewise put, a corporation not impleaded in a suit cannot be subject to the courts process of piercing the veil of its corporate fiction. In that situation, the court has not

acquired jurisdiction over the corporation and, hence, any proceedings taken against that corporation and its property would infringe on its right to due process. Aguedo Agbayani, a recognized authority on Commercial Law, stated as much:

23. Piercing the veil of corporate entity applies to determination of liability not of jurisdiction. x x x This is so because the doctrine of piercing the veil of corporate fiction comes to play only during the trial of the case after the court has already acquired jurisdiction over the corporation. Hence, before this doctrine can be

Heirs of the Late Panfilo V. Pajarillo v. Court of Appeals, G.R. Nos. 155056-57, October 19, 2007, 537 SCRA 96, 112.

34[34]

applied, based on the evidence presented, it is imperative that the court must first have jurisdiction over the corporation.35[35] x x x (Emphasis supplied.)

The implication of the above comment is twofold: (1) the court must first acquire jurisdiction over the corporation or corporations involved before its or their separate personalities are disregarded; and (2) the doctrine of piercing the veil of corporate entity can only be raised during a full-blown trial over a cause of action duly commenced involving parties duly brought under the authority of the court by way of service of summons or what passes as such service.

The issue of jurisdiction or the lack of it over KIC has already been discussed. Anent the matter of the time and manner of raising the principle in question, it is undisputed that no full-blown trial involving KIC was had when the RTC disregarded the corporate veil of KIC. The reason for this actuality is simple and undisputed: KIC was not impleaded in Civil Case No. 99-93173 and that the RTC did not acquire jurisdiction over it. It was dragged to the case after it reacted to the improper execution of its properties and veritably hauled to court, not thru the usual process of service of summons, but by mere motion of a party with whom it has no privity of contract and after the decision in the main case had already become final and executory. As to the propriety of a plea for the application of the principle by mere motion, the following excerpts are instructive:
Generally, a motion is appropriate only in the absence of remedies by regular pleadings, and is not available to settle important questions of law, or to dispose of the merits of the case. A motion is usually a proceeding incidental to an action, but it may be a wholly distinct or independent proceeding. A motion in this sense is not within this discussion even though the relief demanded is denominated an order.

3 A. Agbayani, COMMENTARIES AND JURISPRUDENCE ON THE COMMERCIAL LAWS OF THE PHILIPPINES 18 (1991).

35[35]

A motion generally relates to procedure and is often resorted to in order to correct errors which have crept in along the line of the principal actions progress. Generally, where there is a procedural defect in a proceeding and no method under statute or rule of court by which it may be called to the attention of the court, a motion is an appropriate remedy. In many jurisdictions, the motion has replaced the common-law pleas testing the sufficiency of the pleadings, and various common-law writs, such as writ of error coram nobis and audita querela. In some cases, a motion may be one of several remedies available. For example, in some jurisdictions, a motion to vacate an order is a remedy alternative to an appeal therefrom. Statutes governing motions are given a liberal construction.36[36] (Emphasis supplied.)

The bottom line issue of whether Morales can proceed against KIC for the judgment debt of Kukan, Inc.assuming hypothetically that he can, applying the piercing the corporate veil principleresolves itself into the question of whether a mere motion is the appropriate vehicle for such purpose.

Verily, Morales espouses the application of the principle of piercing the corporate veil to hold KIC liable on theory that Kukan, Inc. was out to defraud him through the use of the separate and distinct personality of another corporation, KIC. In net effect, Morales adverted motion to pierce the veil of corporate fiction dated January 3, 2007 stated a new cause of action, i.e., for the liability of judgment debtor Kukan, Inc. to be borne by KIC on the alleged identity of the two corporations. This new cause of action should be properly ventilated in another complaint and subsequent trial where the doctrine of piercing the corporate veil can, if appropriate, be applied, based on the evidence adduced. Establishing the claim of Morales and the corresponding liability of KIC for Kukan Inc.s indebtedness could hardly be the subject, under the premises, of a mere motion interposed after the principal action against Kukan, Inc. alone had peremptorily

36[36]

56 AmJur 2d, Motions, Rules, and Orders, 4, p. 5 (citations omitted).

been terminated. After all, a complaint is one where the plaintiff alleges causes of action.

In any event, the principle of piercing the veil of corporate fiction finds no application to the instant case.

As a general rule, courts should be wary of lifting the corporate veil between corporations, however related. Philippine National Bank v. Andrada Electric Engineering Company37[37] explains why:

A corporation is an artificial being created by operation of law. x x x It has a personality separate and distinct from the persons composing it, as well as from any other legal entity to which it may be related. This is basic. Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is just an alter ego of a person or of another corporation. For reasons of public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against third persons. Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court should be mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of its rights. The wrongdoing must be clearly and convincingly established; it cannot be presumed. Otherwise, an injustice that was never unintended may result from an erroneous application. This Court has pierced the corporate veil to ward off a judgment credit, to avoid inclusion of corporate assets as part of the estate of the decedent, to escape liability arising from a debt, or to perpetuate fraud and/or confuse legitimate issues either to promote or to shield unfair objectives or to cover up an otherwise blatant violation of the prohibition against forum-shopping. Only in these and similar instances may the veil be pierced and disregarded. (Emphasis supplied.)

37[37]

G.R. No. 142936, April 17, 2002, 381 SCRA 244, 254-255.

In fine, to justify the piercing of the veil of corporate fiction, it must be shown by clear and convincing proof that the separate and distinct personality of the corporation was purposefully employed to evade a legitimate and binding commitment and perpetuate a fraud or like wrongdoings. To be sure, the Court has, on numerous occasions,38[38] applied the principle where a corporation is dissolved and its assets are transferred to another to avoid a financial liability of the first corporation with the result that the second corporation should be considered a continuation and successor of the first entity.

In those instances when the Court pierced the veil of corporate fiction of two corporations, there was a confluence of the following factors:

1. 2.

A first corporation is dissolved; The assets of the first corporation is transferred to a second corporation to avoid a financial liability of the first corporation; and

3.

Both corporations are owned and controlled by the same persons such that the second corporation should be considered as a continuation and successor of the first corporation.

Concept Builders, Inc. v. National Labor Relations Commission, G.R. No. 108734, May 29, 1996, 257 SCRA 149; Avon Dale Garments, Inc. v. National Labor Relations Commission, G.R. No. 117932, July 20, 1995, 246 SCRA 733; Pepsi-Cola Bottling Co. v. National Labor Relations Commission, G.R. No. 101900, June 23, 1992, 210 SCRA 277; Philippine Bank of Communications v. Court of Appeals, G.R. No. 92067, March 22, 1991, 195 SCRA 567; Cagayan Valley Enterprises, Inc. v. Court of Appeals, G.R. No. 78413, November 8, 1989, 179 SCRA 218; A.C. Ransom Labor Union CCLU v. National Labor Relations Commission, G.R. No. 69494, May 29, 1987, 150 SCRA 498; National Federation of Labor Unions (NAFLU) v. Ople, G.R. No. 68661, July 22, 1986, 143 SCRA 128; Claparols v. Court of Industrial Relations, No. L-30822, July 31, 1975, 65 SCRA 613.

38[38]

In the instant case, however, the second and third factors are conspicuously absent. There is, therefore, no compelling justification for disregarding the fiction of corporate entity separating Kukan, Inc. from KIC. In applying the principle, both the RTC and the CA miserably failed to identify the presence of the abovementioned factors. Consider:

The RTC disregarded the separate corporate personalities of Kukan, Inc. and KIC based on the following premises and arguments:
While it is true that a corporation has a separate and distinct personality from its stockholder, director and officers, the law expressly provides for an exception. When Michael Chan, the Managing Director of defendant Kukan, Inc. (majority stockholder of the newly formed corporation [KIC]) confirmed the award to plaintiff to supply and install interior signages in the Enterprise Center he (Michael Chan, Managing Director of defendant Kukan, Inc.) knew that there was no sufficient corporate funds to pay its obligation/account, thus implying bad faith on his part and fraud in contracting the obligation. Michael Chan neither returned the interior signages nor tendered payment to the plaintiff. This circumstance may warrant the piercing of the veil of corporation fiction. Having been guilty of bad faith in the management of corporate matters the corporate trustee, director or officer may be held personally liable. x x x Since fraud is a state of mind, it need not be proved by direct evidence but may be inferred from the circumstances of the case. x x x [A]nd the circumstances are: the signature of Michael Chan, Managing Director of Kukan, Inc. appearing in the confirmation of the award sent to the plaintiff; signature of Chan Kai Kit, a British National appearing in the Articles of Incorporation and signature of Michael Chan also a British National appearing in the Articles of Incorporation [of] Kukan International Corp. give the impression that they are one and the same person, that Michael Chan and Chan Kai Kit are both majority stockholders of Kukan International Corp. and Kukan, Inc. holding 40% of the stocks; that Kukan International Corp. is practically doing the same kind of business as that of Kukan, Inc.39[39] (Emphasis supplied.)

As is apparent from its disquisition, the RTC brushed aside the separate corporate existence of Kukan, Inc. and KIC on the main argument that Michael
39[39]

Rollo, p. 173.

Chan owns 40% of the common shares of both corporations, obviously oblivious that overlapping stock ownership is a common business phenomenon. It must be remembered, however, that KICs properties were the ones seized upon levy on execution and not that of Kukan, Inc. or of Michael Chan for that matter. Mere ownership by a single stockholder or by another corporation of a substantial block of shares of a corporation does not, standing alone, provide sufficient justification for disregarding the separate corporate personality.40[40] For this ground to hold sway in this case, there must be proof that Chan had control or complete dominion of Kukan and KICs finances, policies, and business practices; he used such control to commit fraud; and the control was the proximate cause of the financial loss complained of by Morales. The absence of any of the elements prevents the piercing of the corporate veil.41[41] And indeed, the records do not show the presence of these elements.

On the other hand, the CA held:

In the present case, the facts disclose that Kukan, Inc. entered into a contractual obligation x x x worth more than three million pesos although it had only Php5,000.00 paid-up capital; [KIC] was incorporated shortly before Kukan, Inc. suddenly ceased to appear and participate in the trial; [KICs] purpose is related and somewhat akin to that of Kukan, Inc.; and in [KIC] Michael Chan, a.k.a., Chan Kai Kit, holds forty percent of the outstanding stocks, while he formerly held the same amount of stocks in Kukan Inc. These would lead to the inescapable conclusion that Kukan, Inc. committed fraudulent representation by awarding to the private respondent the contract with full knowledge that it was not in a position to comply with the obligation it had assumed because of inadequate paid-up capital. It bears stressing that shareholders should in good faith put at the risk of the business, unencumbered capital reasonably adequate for its prospective liabilities. The capital should not be illusory or trifling compared with the business to be done and the risk of loss.

Francisco v. Mejia, G.R. No. 141617, August 14, 2001, 362 SCRA 738. Manila Hotel Corp. v. National Labor Relations Commission, G.R. No. 120077, October 13, 2000, 343 SCRA 1, 15.
41[41]

40[40]

Further, it is clear that [KIC] is a continuation and successor of Kukan, Inc. Michael Chan, a.k.a. Chan Kai Kit has the largest block of shares in both business enterprises. The emergence of the former was cleverly timed with the hasty withdrawal of the latter during the trial to avoid the financial liability that was eventually suffered by the latter. The two companies have a related business purpose. Considering these circumstances, the obvious conclusion is that the creation of Kukan International Corporation served as a device to evade the obligation incurred by Kukan, Inc. and yet profit from the goodwill attained by the name Kukan by continuing to engage in the same line of business with the same list of clients.42[42] (Emphasis supplied.)

Evidently, the CA found the meager paid-up capitalization of Kukan, Inc. and the similarity of the business activities in which both corporations are engaged as a jumping board to its conclusion that the creation of KIC served as a device to evade the obligation incurred by Kukan, Inc. The appellate court, however, left a gaping hole by failing to demonstrate that Kukan, Inc. and its stockholders defrauded Morales. In fine, there is no showing that the incorporation, and the separate and distinct personality, of KIC was used to defeat Morales right to recover from Kukan, Inc. Judging from the records, no serious attempt was made to levy on the properties of Kukan, Inc. Morales could not, thus, validly argue that Kukan, Inc. tried to avoid liability or had no property against which to proceed. Morales further contends that Kukan, Inc.s closure is evidenced by its failure to file its 2001 General Information Sheet (GIS) with the Securities and Exchange Commission. However, such fact does not necessarily mean that Kukan, Inc. had altogether ceased operations, as Morales would have this Court believe, for it is stated on the face of the GIS that it is only upon a failure to file the corporate GIS for five (5) consecutive years that non-operation shall be presumed.

42[42]

Rollo, p. 74.

The fact that Kukan, Inc. entered into a PhP 3.3 million contract when it only had a paid-up capital of PhP 5,000 is not an indication of the intent on the part of its management to defraud creditors. Paid-up capital is merely seed money to start a corporation or a business entity. As in this case, it merely represented the capitalization upon incorporation in 1997 of Kukan, Inc. Paid-up capitalization of PhP 5,000 is not and should not be taken as a reflection of the firms capacity to meet its recurrent and long-term obligations. It must be borne in mind that the equity portion cannot be equated to the viability of a business concern, for the best test is the working capital which consists of the liquid assets of a given business relating to the nature of the business concern.

Neither should the level of paid-up capital of Kukan, Inc. upon its incorporation be viewed as a badge of fraud, for it is in compliance with Sec. 13 of the Corporation Code,43[43] which only requires a minimum paid-up capital of PhP 5,000.

The suggestion that KIC is but a continuation and successor of Kukan, Inc., owned and controlled as they are by the same stockholders, stands without factual basis. It is true that Michael Chan, a.k.a. Chan Kai Kit, owns 40% of the outstanding capital stock of both corporations. But such circumstance, standing alone, is insufficient to establish identity. There must be at least a substantial identity of stockholders for both corporations in order to consider this factor to be constitutive of corporate identity.
Sec. 13. Amount of capital stock to be subscribed and paid for the purposes of incorporation.At least twenty-five percent (25%) of the authorized capital stock as stated in the articles of incorporation must be subscribed at the time of incorporation, and at least twenty-five (25%) per cent of the total subscription must be paid upon subscription, the balance to be payable on a date or dates fixed in the contract of subscription without need of call, or in the absence of a fixed date or dates, upon call for payment by the board of directors: Provided, however, That in no case shall the paid-up capital be less than five thousand (P5,000.00) pesos. (Emphasis supplied.)
43[43]

It would not avail Morales any to rely44[44] on General Credit Corporation v. Alsons Development and Investment Corporation.45[45] General Credit

Corporation is factually not on all fours with the instant case. There, the common stockholders of the corporations represented 90% of the outstanding capital stock of the companies, unlike here where Michael Chan merely represents 40% of the outstanding capital stock of both KIC and Kukan, Inc., not even a majority of it. In that case, moreover, evidence was adduced to support the finding that the funds of the second corporation came from the first. Finally, there was proof in General Credit Corporation of complete control, such that one corporation was a mere dummy or alter ego of the other, which is absent in the instant case.

Evidently, the aforementioned case relied upon by Morales cannot justify the application of the principle of piercing the veil of corporate fiction to the instant case. As shown by the records, the name Michael Chan, the similarity of business activities engaged in, and incidentally the word Kukan appearing in the corporate names provide the nexus between Kukan, Inc. and KIC. As illustrated, these circumstances are insufficient to establish the identity of KIC as the alter ego or successor of Kukan, Inc.

It bears reiterating that piercing the veil of corporate fiction is frowned upon. Accordingly, those who seek to pierce the veil must clearly establish that the separate and distinct personalities of the corporations are set up to justify a wrong, protect fraud, or perpetrate a deception. In the concrete and on the assumption that the RTC has validly acquired jurisdiction over the party concerned, Morales ought to have proved by convincing evidence that Kukan, Inc. was collapsed and
44[44] 45[45]

Rollo, p. 305. G.R. No. 154975, January 29, 2007, 513 SCRA 225.

thereafter KIC purposely formed and operated to defraud him. Morales has not to us discharged his burden. WHEREFORE, the petition is hereby GRANTED. The CAs January 23, 2008 Decision and April 16, 2008 Resolution in CA-G.R. SP No. 100152 are hereby REVERSED and SET ASIDE. The levy placed upon the personal

properties of Kukan International Corporation is hereby ordered lifted and the personal properties ordered returned to Kukan International Corporation. The RTC of Manila, Branch 21 is hereby directed to execute the RTC Decision dated November 28, 2002 against Kukan, Inc. with reasonable dispatch.

No costs.

SO ORDERED.

PRESBITERO J. VELASCO, JR. Associate Justice

WE CONCUR:

RENATO C. CORONA Chief Justice Chairperson

ANTONIO T. CARPIO Associate Justice

TERESITA J. LEONARDO-DE CASTRO Associate Justice

JOSE PORTUGAL PEREZ Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA Chief Justice

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 146667 January 23, 2007

JOHN F. McLEOD, Petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION (First Division), FILIPINAS SYNTHETIC FIBER CORPORATION (FILSYN), FAR EASTERN TEXTILE MILLS, INC., STA. ROSA TEXTILES, INC., (PEGGY MILLS, INC.), PATRICIO L. LIM, and ERIC HU, Respondents. DECISION CARPIO, J.: The Case This is a petition for review1 to set aside the Decision2 dated 15 June 2000 and the Resolution3 dated 27 December 2000 of the Court of Appeals in CA-G.R. SP No. 55130. The Court of Appeals affirmed with modification the 29 December 1998 Decision4 of the National Labor Relations Commission (NLRC) in NLRC NCR 02-00949-95. The Facts The facts, as summarized by the Labor Arbiter and adopted by the NLRC and the Court of Appeals, are as follows: On February 2, 1995, John F. McLeod filed a complaint for retirement benefits, vacation and sick leave benefits, non-payment of unused airline tickets, holiday pay, underpayment of salary and 13th month pay, moral and exemplary damages, attorneys fees plus interest against Filipinas Synthetic Corporation (Filsyn), Far Eastern Textile Mills, Inc., Sta. Rosa Textiles, Inc., Patricio Lim and Eric Hu. In his Position Paper, complainant alleged that he is an expert in textile manufacturing process; that as early as 1956 he was hired as the Assistant Spinning Manager of Universal Textiles, Inc. (UTEX); that he was promoted to Senior Manager and worked for UTEX till 1980 under its President, respondent Patricio Lim; that in 1978 Patricio Lim formed Peggy Mills, Inc. with respondent Filsyn having controlling interest; that complainant was absorbed by Peggy Mills as its Vice President and Plant Manager of the plant at Sta. Rosa, Laguna; that at the time of his retirement complainant was receiving P60,000.00 monthly with vacation and sick leave benefits; 13th month pay, holiday pay and two round trip business class tickets on a Manila-London-Manila itinerary every three years which is convertible to cas[h] if unused; that in January 1986, respondents failed to pay vacation and leave credits and requested complainant to wait as it was short of funds but the same remain unpaid at present; that complainant is entitled to such benefit as per CBA provision (Annex "A"); that respondents likewise failed to pay complainants holiday pay up to the present; that complainant is entitled to such benefits as per CBA provision (Annex "B"); that in 1989 the plant union staged a strike and in 1993 was found guilty of staging an illegal strike; that from 1989 to 1992 complainant was entitled to 4 round trip business class plane tickets on a Manila-London-Manila itinerary but this

benefit not (sic) its monetary equivalent was not given; that on August 1990 the respondents reduced complainants monthly salary of P60,000.00 by P9,900.00 till November 1993 or a period of 39 months; that in 1991 Filsyn sold Peggy Mills, Inc. to Far Eastern Textile Mills, Inc. as per agreement (Annex "D") and this was renamed as Sta. Rosa Textile with Patricio Lim as Chairman and President; that complainant worked for Sta. Rosa until November 30 that from time to time the owners of Far Eastern consulted with complainant on technical aspects of reoperation of the plant as per correspondence (Annexes "D-1" and "D-2"); that when complainant reached and applied retirement age at the end of 1993, he was only given a reduced 13th month pay of P44,183.63, leaving a balance of P15,816.87; that thereafter the owners of Far Eastern Textiles decided for cessation of operations of Sta. Rosa Textiles; that on two occasions, complainant wrote letters (Annexes "E-1" to "E-2") to Patricio Lim requesting for his retirement and other benefits; that in the last quarter of 1994 respondents offered complainant compromise settlement of only P300,000.00 which complainant rejected; that again complainant wrote a letter (Annex "F") reiterating his demand for full payment of all benefits and to no avail, hence this complaint; and that he is entitled to all his money claims pursuant to law. On the other hand, respondents in their Position Paper alleged that complainant was the former Vice-President and Plant Manager of Peggy Mills, Inc.; that he was hired in June 1980 and Peggy Mills closed operations due to irreversible losses at the end of July 1992 but the corporation still exists at present; that its assets were acquired by Sta. Rosa Textile Corporation which was established in April 1992 but still remains non-operational at present; that complainant was hired as consultant by Sta. Rosa Textile in November 1992 but he resigned on November 30, 1993; that Filsyn and Far Eastern Textiles are separate legal entities and have no employer relationship with complainant; that respondent Patricio Lim is the President and Board Chairman of Sta. Rosa Textile Corporation; that respondent Eric Hu is a Taiwanese and is Director of Sta. Rosa Textiles, Inc.; that complainant has no cause of action against Filsyn, Far Eastern Textile Ltd., Sta. Rosa Textile Corporation and Eric Hu; that Sta. Rosa only acquired the assets and not the liabilities of Peggy Mills, Inc.; that Patricio Lim was only impleaded as Board Chairman of Sta. Rosa Textile and not as private individual; that while complainant was Vice President and Plant Manager of Peggy Mills, the union staged a strike up to July 1992 resulting in closure of operations due to irreversible losses as per Notice (Annex "1"); that complainant was relied upon to settle the labor problem but due to his lack of attention and absence the strike continued resulting in closure of the company; and losses to Sta. Rosa which acquired its assets as per their financial statements (Annexes "2" and "3"); that the attendance records of complainant from April 1992 to November 1993 (Annexes "4" and "5") show that he was either absent or worked at most two hours a day; that Sta. Rosa and Peggy Mills are interposing counterclaims for damages in the total amount of P36,757.00 against complainant; that complainants monthly salary at Peggy Mills was P50,495.00 and not P60,000.00; that Peggy Mills, does not have a retirement program; that whatever amount complainant is entitled should be offset with the counterclaims; that complainant worked only for 12 years from 1980 to 1992; that complainant was only hired as a consultant and not an employee by Sta. Rosa Textile; that complainants attendance record of absence and two hours daily work during the period of the strike wipes out any vacation/sick leave he may have accumulated; that there is no basis for complainants claim of two (2) business class airline tickets; that complainants pay already included the holiday pay; that he is entitled to holiday pay as consultant by Sta. Rosa; that he has waived this benefit in his 12 years of work with Peggy Mills; that he is not entitled to 13th month pay as consultant; and that he is not entitled to moral and exemplary damages and attorneys fees. In his Reply, complainant alleged that all respondents being one and the same entities are solidarily liable for all salaries and benefits and complainant is entitled to; that all respondents have the same address at 12/F B.A. Lepanto Building, Makati City; that their counsel holds office in the same address; that all respondents have the same offices and key personnel such as Patricio Lim and Eric Hu; that respondents Position Paper is verified by Marialen C. Corpuz who knows all the corporate officers of all respondents; that the veil of corporate fiction may be pierced if it is used as a shield to

perpetuate fraud and confuse legitimate issues; that complainant never accepted the change in his position from Vice-President and Plant Manger to consultant and it is incumbent upon respondents to prove that he was only a consultant; that the Deed of Dation in Payment with Lease (Annex "C") proves that Sta. Rosa took over the assets of Peggy Mills as early as June 15, 1992 and not 1995 as alleged by respondents; that complainant never resigned from his job but applied for retirement as per letters (Annexes "E-1", "E-2" and "F"); that documents "G", "H" and "I" show that Eric Hu is a top official of Peggy Mills that the closure of Peggy Mills cannot be the fault of complainant; that the strike was staged on the issue of CBA negotiations which is not part of the usual duties and responsibilities as Plant Manager; that complainant is a British national and is prohibited by law in engaging in union activities; that as per Resolution (Annex "3") of the NLRC in the proper case, complainant testified in favor of management; that the alleged attendance record of complainant was lifted from the logbook of a security agency and is hearsay evidence; that in the other attendance record it shows that complainant was reporting daily and even on Saturdays; that his limited hours was due to the strike and cessation of operations; that as plant manager complainant was on call 24 hours a day; that respondents must pay complainant the unpaid portion of his salaries and his retirement benefits that cash voucher No. 17015 (Annex "K") shows that complainant drew the monthly salary of P60,000.00 which was reduced to P50,495.00 in August 1990 and therefore without the consent of complainant; that complainant was assured that he will be paid the deduction as soon as the company improved its financial standing but this assurance was never fulfilled; that Patricio Lim promised complainant his retirement pay as per the latters letters (Annexes "E-1", "E-2" and "F"); that the law itself provides for retirement benefits; that Patricio Lim by way of Memorandum (Annex "M") approved vacation and sick leave benefits of 22 days per year effective 1986; that Peggy Mills required monthly paid employees to sign an acknowledgement that their monthly compensation includes holiday pay; that complainant was not made to sign this undertaking precisely because he is entitled to holiday pay over and above his monthly pay; that the company paid for complainants two (2) round trip tickets to London in 1983 and 1986 as reflected in the complainants passport (Annex "N"); that respondents claim that complainant is not entitled to 13th month pay but paid in 1993 and all the past 13 years; that complainant is entitled to moral and exemplary damages and attorneys fees; that all doubts must be resolved in favor of complainant; and that complainant reserved the right to file perjury cases against those concerned. In their Reply, respondents alleged that except for Peggy Mills, the other respondents are not proper persons in interest due to the lack of employer-employee relationship between them and complainant; that undersigned counsel does not represent Peggy Mills, Inc. In a separate Position Paper, respondent Peggy Mills alleged that complainant was hired on February 10, 1991 as per Board Minutes (Annex "A"); that on August 19, 1987, the workers staged an illegal strike causing cessation of operations on July 21, 1992; that respondent filed a Notice of Closure with the DOLE (Annex "B"); that all employees were given separation pay except for complainant whose task was extended to December 31, 1992 to wind up the affairs of the company as per vouchers (Annexes "C" and "C-1"); that respondent offered complainant his retirement benefits under RA 7641 but complainant refused; that the regular salaries of complainant from closure up to December 31, 1992 have offset whatever vacation and sick leaves he accumulated; that his claim for unused plane tickets from 1989 to 1992 has no policy basis, the companys formula of employees monthly rate x 314 days over 12 months already included holiday pay; that complainants unpaid portion of the 13th month pay in 1993 has no basis because he was only an employee up to December 31, 1992; that the 13th month pay was based on his last salary; and that complainant is not entitled to damages.5 On 3 April 1998, the Labor Arbiter rendered his decision with the following dispositive portion: WHEREFORE, premises considered, We hold all respondents as jointly and solidarily liable for complainants money claims as adjudicated above and computed below as follows:

Retirement Benefits (one month salary for every year of service) 6/80 - 11/30/93 = 14 years P60,000 x 14.0 mos. P840,000.00 Vacation and Sick Leave (3 yrs.) P2,000.00 x 22 days x 3 yrs. 132,000.00 Underpayment of Salaries (3 yrs.) P60,000 - P50,495 = P9,505 P 9,505 x 36.0 mos. ... 342,180.00 Holiday Pay (3 yrs.) P2,000 x 30 days . 60,000.00 Underpayment of 13th month pay (1993) ... 15,816.87 Moral Damages .. 3,000,000.00 Exemplary Damages .. 1,000,000.00 10% Attorneys Fees . 138,999.68 TOTAL P5,528,996.55 Unused Airline Tickets (3 yrs.) (To be converted in Peso upon payment) $2,450.00 x 3.0 [yrs.].. $7,350.00 SO ORDERED.6 Filipinas Synthetic Fiber Corporation (Filsyn), Far Eastern Textile Mills, Inc. (FETMI), Sta. Rosa Textiles, Inc. (SRTI), Patricio L. Lim (Patricio), and Eric Hu appealed to the NLRC. The NLRC rendered its decision on 29 December 1998, thus: WHEREFORE, the Decision dated 3 April 1998 is hereby REVERSED and SET ASIDE and a new one is entered ORDERING respondent Peggy Mills, Inc. to pay complainant his retirement pay equivalent to 22.5 days for every year of service for his twelve (12) years of service from 1980 to 1992 based on a salary rate of P50,495.00 a month. All other claims are DISMISSED for lack of merit. SO ORDERED.7

John F. McLeod (McLeod) filed a motion for reconsideration which the NLRC denied in its Resolution of 30 June 1999.8 McLeod thus filed a petition for certiorari before the Court of Appeals assailing the decision and resolution of the NLRC.9 The Ruling of the Court of Appeals On 15 June 2000, the Court of Appeals rendered judgment as follows: WHEREFORE, the decision dated December 29, 1998 of the NLRC is hereby AFFIRMED with the MODIFICATION that respondent Patricio Lim is jointly and solidarily liable with Peggy Mills, Inc., to pay the following amounts to petitioner John F. McLeod: 1. retirement pay equivalent to 22.5 days for every year of service for his twelve (12) years of service from 1980 to 1992 based on a salary rate of P50,495, a month; 2. moral damages in the amount of one hundred thousand (P100,000.00) Pesos; 3. exemplary damages in the amount of fifty thousand (P50,000.00) Pesos; and 4. attorneys fees equivalent to 10% of the total award. No costs is awarded. SO ORDERED.10 The Court of Appeals rejected McLeods theory that all respondent corporations are the same corporate entity which should be held solidarily liable for the payment of his monetary claims. The Court of Appeals ruled that the fact that (1) all respondent corporations have the same address; (2) all were represented by the same counsel, Atty. Isidro S. Escano; (3) Atty. Escano holds office at respondent corporations address; and (4) all respondent corporations have common officers and key personnel, would not justify the application of the doctrine of piercing the veil of corporate fiction. The Court of Appeals held that there should be clear and convincing evidence that SRTI, FETMI, and Filsyn were being used as alter ego, adjunct or business conduit for the sole benefit of Peggy Mills, Inc. (PMI), otherwise, said corporations should be treated as distinct and separate from each other. The Court of Appeals pointed out that the Articles of Incorporation of PMI show that it has six incorporators, namely, Patricio, Jose Yulo, Jr., Carlos Palanca, Jr., Cesar R. Concio, Jr., E. A. Picasso, and Walter Euyang. On the other hand, the Articles of Incorporation of Filsyn show that it has 10 incorporators, namely, Jesus Y. Yujuico, Carlos Palanca, Jr., Patricio, Ang Beng Uh, Ramon A. Yulo, Honorio Poblador, Jr., Cipriano Azada, Manuel Tomacruz, Ismael Maningas, and Benigno Zialcita, Jr. The Court of Appeals pointed out that PMI and Filsyn have only two interlocking incorporators and directors, namely, Patricio and Carlos Palanca, Jr. Reiterating the ruling of this Court in Laguio v. NLRC,11 the Court of Appeals held that mere substantial identity of the incorporators of two corporations does not necessarily imply fraud, nor warrant the piercing of the veil of corporate fiction.

The Court of Appeals also pointed out that when SRTI and PMI executed the Dation in Payment with Lease, it was clear that SRTI did not assume the liabilities PMI incurred before the execution of the contract. The Court of Appeals held that McLeod failed to substantiate his claim that all respondent corporations should be treated as one corporate entity. The Court of Appeals thus upheld the NLRCs finding that no employer-employee relationship existed between McLeod and respondent corporations except PMI. The Court of Appeals ruled that Eric Hu, as an officer of PMI, should be exonerated from any liability, there being no proof of malice or bad faith on his part. The Court of Appeals, however, ruled that McLeod was entitled to recover from PMI and Patricio, the companys Chairman and President. The Court of Appeals pointed out that Patricio deliberately and maliciously evaded PMIs financial obligation to McLeod. The Court of Appeals stated that, on several occasions, despite his approval, Patricio refused and ignored to pay McLeods retirement benefits. The Court of Appeals stated that the delay lasted for one year prompting McLeod to initiate legal action. The Court of Appeals stated that although PMI offered to pay McLeod his retirement benefits, this offer for P300,000 was still below the "floor limits" provided by law. The Court of Appeals held that an employee could demand payment of retirement benefits as a matter of right. The Court of Appeals stated that considering that PMI was no longer in operation, its "officer should be held liable for acting on behalf of the corporation." The Court of Appeals also ruled that since PMI did not have a retirement program providing for retirement benefits of its employees, Article 287 of the Labor Code must be followed. The Court of Appeals thus upheld the NLRCs finding that McLeod was entitled to retirement pay equivalent to 22.5 days for every year of service from 1980 to 1992 based on a salary rate of P50,495 a month. The Court of Appeals held that McLeod was not entitled to payment of vacation, sick leave and holiday pay because as Vice President and Plant Manager, McLeod is a managerial employee who, under Article 82 of the Labor Code, is not entitled to these benefits. The Court of Appeals stated that for McLeod to be entitled to payment of service incentive leave and holidays, there must be an agreement to that effect between him and his employer. Moreover, the Court of Appeals rejected McLeods argument that since PMI paid for his two roundtrip tickets Manila-London in 1983 and 1986, he was also "entitled to unused airline tickets." The Court of Appeals stated that the fact that PMI granted McLeod "free transport to and from Manila and London for the year 1983 and 1986 does not ipso facto characterize it as regular that would establish a prevailing company policy." The Court of Appeals also denied McLeods claims for underpayment of salaries and his 13th month pay for the year 1994. The Court of Appeals upheld the NLRCs ruling that it could be deduced from McLeods own narration of facts that he agreed to the reduction of his compensation from P60,000 to P50,495 in August 1990 to November 1993. The Court of Appeals found the award of moral damages for P50,000 in order because of the "stubborn refusal" of PMI and Patricio to respect McLeods valid claims.

The Court of Appeals also ruled that attorneys fees equivalent to 10% of the total award should be given to McLeod under Article 2208, paragraph 2 of the Civil Code.12 Hence, this petition. The Issues McLeod submits the following issues for our consideration: 1. Whether the challenged Decision and Resolution of the 14th Division of the Court of Appeals promulgated on 15 June 2000 and 27 December 2000, respectively, in CA-G.R. SP No. 55130 are in accord with law and jurisprudence; 2. Whether an employer-employee relationship exists between the private respondents and the petitioner for purposes of determining employer liability to the petitioner; 3. Whether the private respondents may avoid their financial obligations to the petitioner by invoking the veil of corporate fiction; 4. Whether petitioner is entitled to the relief he seeks against the private respondents; 5. Whether the ruling of [this] Court in Special Police and Watchman Association (PLUM) Federation v. National Labor Relations Commission cited by the Office of the Solicitor General is applicable to the case of petitioner; and 6. Whether the appeal taken by the private respondents from the Decision of the labor arbiter meets the mandatory requirements recited in the Labor Code of the Philippines, as amended.13 The Courts Ruling The petition must fail. McLeod asserts that the Court of Appeals should not have upheld the NLRCs findings that he was a managerial employee of PMI from 20 June 1980 to 31 December 1992, and then a consultant of SRTI up to 30 November 1993. McLeod asserts that if only for this "brazen assumption," the Court of Appeals should not have sustained the NLRCs ruling that his cause of action was only against PMI. These assertions do not deserve serious consideration. Records disclose that McLeod was an employee only of PMI.14 PMI hired McLeod as its acting Vice President and General Manager on 20 June 1980.15 PMI confirmed McLeods appointment as Vice President/Plant Manager in the Special Meeting of its Board of Directors on 10 February 1981.16 McLeod himself testified during the hearing before the Labor Arbiter that his "regular employment" was with PMI.17 When PMIs rank-and-file employees staged a strike on 19 August 1989 to July 1992, PMI incurred serious business losses.18 This prompted PMI to stop permanently plant operations and to send a notice of closure to the Department of Labor and Employment on 21 July 1992.19

PMI informed its employees, including McLeod, of the closure.20 PMI paid its employees, including managerial employees, except McLeod, their unpaid wages, sick leave, vacation leave, prorated 13th month pay, and separation pay. Under the compromise agreement between PMI and its employees, the employer-employee relationship between them ended on 25 November 1992.21 Records also disclose that PMI extended McLeods service up to 31 December 1992 "to wind up some affairs" of the company.22 McLeod testified on cross-examination that he received his last salary from PMI in December 1992.23 It is thus clear that McLeod was a managerial employee of PMI from 20 June 1980 to 31 December 1992. However, McLeod claims that after FETMI purchased PMI in January 1993, he "continued to work at the same plant with the same responsibilities" until 30 November 1993. McLeod claims that FETMI merely renamed PMI as SRTI. McLeod asserts that it was for this reason that when he reached the retirement age in 1993, he asked all the respondents for the payment of his benefits.24 These assertions deserve scant consideration. What took place between PMI and SRTI was dation in payment with lease. Pertinent portions of the contract that PMI and SRTI executed on 15 June 1992 read: WHEREAS, PMI is indebted to the Development Bank of the Philippines ("DBP") and as security for such debts (the "Obligations") has mortgaged its real properties covered by TCT Nos. T-38647, T37136, and T-37135, together with all machineries and improvements found thereat, a complete listing of which is hereto attached as Annex "A" (the "Assets"); WHEREAS, by virtue of an inter-governmental agency arrangement, DBP transferred the Obligations, including the Assets, to the Asset Privatization Trust ("APT") and the latter has received payment for the Obligations from PMI, under APTs Direct Debt Buy-Out ("DDBO") program thereby causing APT to completely discharge and cancel the mortgage in the Assets and to release the titles of the Assets back to PMI; WHEREAS, PMI obtained cash advances from SRTC in the total amount of TWO HUNDRED TEN MILLION PESOS (P210,000,000.00) (the "Advances") to enable PMI to consummate the DDBO with APT, with SRTC subrogating APT as PMIs creditor thereby; WHEREAS, in payment to SRTC for PMIs liability, PMI has agreed to transfer all its rights, title and interests in the Assets by way of a dation in payment to SRTC, provided that simultaneous with the dation in payment, SRTC shall grant unto PMI the right to lease the Assets under terms and conditions stated hereunder; xxxx NOW THEREFORE, for and in consideration of the foregoing premises, and of the terms and conditions hereinafter set forth, the parties hereby agree as follows: 1. CESSION. In consideration of the amount of TWO HUNDRED TEN MILLION PESOS (P210,000,000.00), PMI hereby cedes, conveys and transfers to SRTC all of its rights, title and interest in and to the Assets by way of a dation in payment.25 (Emphasis supplied)

As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling corporation, provided the former acted in good faith and paid adequate consideration for such assets, except when any of the following circumstances is present: (1) where the purchaser expressly or impliedly agrees to assume the debts, (2) where the transaction amounts to a consolidation or merger of the corporations, (3) where the purchasing corporation is merely a continuation of the selling corporation, and (4) where the selling corporation fraudulently enters into the transaction to escape liability for those debts.26 None of the foregoing exceptions is present in this case. Here, PMI transferred its assets to SRTI to settle its obligation to SRTI in the sum of P210,000,000. We are not convinced that PMI fraudulently transferred these assets to escape its liability for any of its debts. PMI had already paid its employees, except McLeod, their money claims. There was also no merger or consolidation of PMI and SRTI. Consolidation is the union of two or more existing corporations to form a new corporation called the consolidated corporation. It is a combination by agreement between two or more corporations by which their rights, franchises, and property are united and become those of a single, new corporation, composed generally, although not necessarily, of the stockholders of the original corporations. Merger, on the other hand, is a union whereby one corporation absorbs one or more existing corporations, and the absorbing corporation survives and continues the combined business. The parties to a merger or consolidation are called constituent corporations. In consolidation, all the constituents are dissolved and absorbed by the new consolidated enterprise. In merger, all constituents, except the surviving corporation, are dissolved. In both cases, however, there is no liquidation of the assets of the dissolved corporations, and the surviving or consolidated corporation acquires all their properties, rights and franchises and their stockholders usually become its stockholders. The surviving or consolidated corporation assumes automatically the liabilities of the dissolved corporations, regardless of whether the creditors have consented or not to such merger or consolidation.27 In the present case, there is no showing that the subject dation in payment involved any corporate merger or consolidation. Neither is there any showing of those indicative factors that SRTI is a mere instrumentality of PMI. Moreover, SRTI did not expressly or impliedly agree to assume any of PMIs debts. Pertinent portions of the subject Deed of Dation in Payment with Lease provide, thus: 2. WARRANTIES AND REPRESENTATIONS. PMI hereby warrants and represents the following: xxxx (e) PMI shall warrant that it will hold SRTC or its assigns, free and harmless from any liability for claims of PMIs creditors, laborers, and workers and for physical injury or injury to property arising from PMIs custody, possession, care, repairs, maintenance, use or operation of the Assets except ordinary wear and tear;28 (Emphasis supplied)

Also, McLeod did not present any evidence to show the alleged renaming of "Peggy Mills, Inc." to "Sta. Rosa Textiles, Inc." Hence, it is not correct for McLeod to treat PMI and SRTI as the same entity. Respondent corporations assert that SRTI hired McLeod as consultant after PMI stopped operations.29 On the other hand, McLeod asserts that he was respondent corporations employee from 1980 to 30 November 1993.30 However, McLeod failed to present any proof of employeremployee relationship between him and Filsyn, SRTI, or FETMI. McLeod testified, thus: ATTY. ESCANO: Do you have any employment contract with Far Eastern Textile? WITNESS: It is my belief up the present time. ATTY. AVECILLA: May I request that the witness be allowed to go through his Annexes, Your Honor. ATTY. ESCANO: Yes, but I want a precise answer to that question. If he has an employment contract with Far Eastern Textile? WITNESS: Can I answer it this way, sir? There is not a valid contract but I was under the impression taking into consideration that the closeness that I had at Far Eastern Textile is enough during that period of time of the development of Peggy Mills to reorganize a staff. I was under the basic impression that they might still retain my status as Vice President and Plant Manager of the company. ATTY. ESCANO: But the answer is still, there is no employment contract in your possession appointing you in any capacity by Far Eastern? WITNESS: There was no written contract, sir. xxxx ATTY. ESCANO: So, there is proof that you were in fact really employed by Peggy Mills? WITNESS:

Yes, sir. ATTY. ESCANO: Of course, my interest now is to whether or not there is a similar document to present that you were employed by the other respondents like Filsyn Corporation? WITNESS: I have no document, sir. ATTY. ESCANO: What about Far Eastern Textile Mills? WITNESS: I have no document, sir. ATTY. ESCANO: And Sta. Rosa Textile Mills? WITNESS: There is no document, sir.31 xxxx ATTY. ESCANO: Q Yes. Let me be more specific, Mr. McLeod. Do you have a contract of employment from Far Eastern Textiles, Inc.? A No, sir. Q What about Sta. Rosa Textile Mills, do you have an employment contract from this company? A No, sir. xxxx Q And what about respondent Eric Hu. Have you had any contract of employment from Mr. Eric Hu? A Not a direct contract but I was taken in and I told to take over this from Mr. Eric Hu. Automatically, it confirms that Mr. Eric Hu, in other words, was under the control of Mr. Patricio Lim at that period of time. Q No documents to show, Mr. McLeod?

A No. No documents, sir.32 McLeod could have presented evidence to support his allegation of employer-employee relationship between him and any of Filsyn, SRTI, and FETMI, but he did not. Appointment letters or employment contracts, payrolls, organization charts, SSS registration, personnel list, as well as testimony of coemployees, may serve as evidence of employee status.33 It is a basic rule in evidence that parties must prove their affirmative allegations. While technical rules are not strictly followed in the NLRC, this does not mean that the rules on proving allegations are entirely ignored. Bare allegations are not enough. They must be supported by substantial evidence at the very least.34 However, McLeod claims that "for purposes of determining employer liability, all private respondents are one and the same employer" because: (1) they have the same address; (2) they are all engaged in the same business; and (3) they have interlocking directors and officers.35 This assertion is untenable. A corporation is an artificial being invested by law with a personality separate and distinct from that of its stockholders and from that of other corporations to which it may be connected.36 While a corporation may exist for any lawful purpose, the law will regard it as an association of persons or, in case of two corporations, merge them into one, when its corporate legal entity is used as a cloak for fraud or illegality. This is the doctrine of piercing the veil of corporate fiction. The doctrine applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime,37 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.38 To disregard the separate juridical personality of a corporation, the wrongdoing must be established clearly and convincingly. It cannot be presumed.39 Here, we do not find any of the evils sought to be prevented by the doctrine of piercing the corporate veil. Respondent corporations may be engaged in the same business as that of PMI, but this fact alone is not enough reason to pierce the veil of corporate fiction.40 In Indophil Textile Mill Workers Union v. Calica,41 the Court ruled, thus: 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 auxiliary 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.42 (Emphasis supplied)

Also, the fact that SRTI and PMI shared the same address, i.e., 11/F BA-Lepanto Bldg., Paseo de Roxas, Makati City,43 can be explained by the two companies stipulation in their Deed of Dation in Payment with Lease that "simultaneous with the dation in payment, SRTC shall grant unto PMI the right to lease the Assets under terms and conditions stated hereunder."44 As for the addresses of Filsyn and FETMI, Filsyn held office at 12th Floor, BA-Lepanto Bldg., Paseo de Roxas, Makati City,45 while FETMI held office at 18F, Tun Nan Commercial Building, 333 Tun Hwa South Road, Sec. 2, Taipei, Taiwan, R.O.C.46 Hence, they did not have the same address as that of PMI. That respondent corporations have interlocking incorporators, directors, and officers is of no moment. The only interlocking incorporators of PMI and Filsyn were Patricio and Carlos Palanca, Jr.47 While Patricio was Director and Board Chairman of Filsyn, SRTI, and PMI,48 he was never an officer of FETMI. Eric Hu, on the other hand, was Director of Filsyn and SRTI.49 He was never an officer of PMI. Marialen C. Corpuz, Filsyns Finance Officer,50 testified on cross-examination that (1) among all of Filsyns officers, only she was the one involved in the management of PMI; (2) only she and Patricio were the common officers between Filsyn and PMI; and (3) Filsyn and PMI are "two separate companies."51 Apolinario L. Posio, PMIs Chief Accountant, testified that "SRTI is a different corporation from PMI."52 At any rate, the existence of interlocking incorporators, directors, and officers is not enough justification to pierce the veil of corporate fiction, in the absence of fraud or other public policy considerations.53 In Del Rosario v. NLRC,54 the Court ruled that substantial identity of the incorporators of corporations does not necessarily imply fraud. In light of the foregoing, and there being no proof of employer-employee relationship between McLeod and respondent corporations and Eric Hu, McLeods cause of action is only against his former employer, PMI. On Patricios personal liability, it is settled that in the absence of malice, bad faith, or specific provision of law, a stockholder or an officer of a corporation cannot be made personally liable for corporate liabilities.55 To reiterate, a corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. The rule is that obligations incurred by the corporation, acting through its directors, officers, and employees, are its sole liabilities.56 Personal liability of corporate directors, trustees or officers attaches only when (1) they assent to a patently unlawful act of the corporation, or when they are guilty of bad faith or gross negligence in directing its affairs, or when there is a conflict of interest resulting in damages to the corporation, its stockholders or other persons; (2) they consent to the issuance of watered down stocks or when,

having knowledge of such issuance, do not forthwith file with the corporate secretary their written objection; (3) they agree to hold themselves personally and solidarily liable with the corporation; or (4) they are made by specific provision of law personally answerable for their corporate action.57 Considering that McLeod failed to prove any of the foregoing exceptions in the present case, McLeod cannot hold Patricio solidarily liable with PMI. The records are bereft of any evidence that Patricio acted with malice or bad faith. Bad faith is a question of fact and is evidentiary. Bad faith does not connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious wrongdoing. It means breach of a known duty through some ill motive or interest. It partakes of the nature of fraud.58 In the present case, there is nothing substantial on record to show that Patricio acted in bad faith in terminating McLeods services to warrant Patricios personal liability. PMI had no other choice but to stop plant operations. The work stoppage therefore was by necessity. The company could no longer continue with its plant operations because of the serious business losses that it had suffered. The mere fact that Patricio was president and director of PMI is not a ground to conclude that he should be held solidarily liable with PMI for McLeods money claims. The ruling in A.C. Ransom Labor Union-CCLU v. NLRC,59 which the Court of Appeals cited, does not apply to this case. We quote pertinent portions of the ruling, thus: (a) Article 265 of the Labor Code, in part, expressly provides: "Any worker whose employment has been terminated as a consequence of an unlawful lockout shall be entitled to reinstatement with full backwages." Article 273 of the Code provides that: "Any person violating any of the provisions of Article 265 of this Code shall be punished by a fine of not exceeding five hundred pesos and/or imprisonment for not less than one (1) day nor more than six (6) months." (b) How can the foregoing provisions be implemented when the employer is a corporation? The answer is found in Article 212 (c) of the Labor Code which provides: "(c) Employer includes any person acting in the interest of an employer, directly or indirectly. The term shall not include any labor organization or any of its officers or agents except when acting as employer.". The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is an artificial person, it must have an officer who can be presumed to be the employer, being the "person acting in the interest of (the) employer" RANSOM. The corporation, only in the technical sense, is the employer. The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for non-payment of back wages. That is the policy of the law. xxxx

(c) If the policy of the law were otherwise, the corporation employer can have devious ways for evading payment of back wages. In the instant case, it would appear that RANSOM, in 1969, foreseeing the possibility or probability of payment of back wages to the 22 strikers, organized ROSARIO to replace RANSOM, with the latter to be eventually phased out if the 22 strikers win their case. RANSOM actually ceased operations on May 1, 1973, after the December 19, 1972 Decision of the Court of Industrial Relations was promulgated against RANSOM.60 (Emphasis supplied) Clearly, in A.C. Ransom, RANSOM, through its President, organized ROSARIO to evade payment of backwages to the 22 strikers. This situation, or anything similar showing malice or bad faith on the part of Patricio, does not obtain in the present case. In Santos v. NLRC,61 the Court held, thus: It is true, there were various cases when corporate officers were themselves held by the Court to be personally accountable for the payment of wages and money claims to its employees. In A.C. Ransom Labor Union-CCLU vs. NLRC, for instance, the Court ruled that under the Minimum Wage Law, the responsible officer of an employer corporation could be held personally liable for nonpayment of backwages for "(i)f the policy of the law were otherwise, the corporation employer (would) have devious ways for evading payment of backwages." In the absence of a clear identification of the officer directly responsible for failure to pay the backwages, the Court considered the President of the corporation as such officer. The case was cited in Chua vs. NLRC in holding personally liable the vice-president of the company, being the highest and most ranking official of the corporation next to the President who was dismissed for the latters claim for unpaid wages. A review of the above exceptional cases would readily disclose the attendance of facts and circumstances that could rightly sanction personal liability on the part of the company officer. In A.C. Ransom, the corporate entity was a family corporation and execution against it could not be implemented because of the disposition posthaste of its leviable assets evidently in order to evade its just and due obligations. The doctrine of "piercing the veil of corporate fiction" was thus clearly appropriate. Chua likewise involved another family corporation, and this time the conflict was between two brothers occupying the highest ranking positions in the company. There were incontrovertible facts which pointed to extreme personal animosity that resulted, evidently in bad faith, in the easing out from the company of one of the brothers by the other. The basic rule is still that which can be deduced from the Courts pronouncement in Sunio vs. National Labor Relations Commission; thus: We come now to the personal liability of petitioner, Sunio, who was made jointly and severally responsible with petitioner company and CIPI for the payment of the backwages of private respondents. This is reversible error. The Assistant Regional Directors Decision failed to disclose the reason why he was made personally liable. Respondents, however, alleged as grounds thereof, his being the owner of one-half () interest of said corporation, and his alleged arbitrary dismissal of private respondents. Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager of petitioner corporation. There appears to be no evidence on record that he acted maliciously or in bad faith in terminating the services of private respondents. His act, therefore, was within the scope of his authority and was a corporate act. It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal 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 of itself sufficient ground for disregarding the separate corporate

personality. Petitioner Sunio, therefore, should not have been made personally answerable for the payment of private respondents back salaries.62 (Emphasis supplied) Thus, the rule is still that the doctrine of piercing the corporate veil applies only when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime. In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities. Neither Article 212(c) nor Article 273 (now 272) of the Labor Code expressly makes any corporate officer personally liable for the debts of the corporation. As this Court ruled in H.L. Carlos Construction, Inc. v. Marina Properties Corporation:63 We concur with the CA that these two respondents are not liable. Section 31 of the Corporation Code (Batas Pambansa Blg. 68) provides: "Section 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith ... shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders and other persons." The personal liability of corporate officers validly attaches only when (a) they assent to a patently unlawful act of the corporation; or (b) they are guilty of bad faith or gross negligence in directing its affairs; or (c) they incur conflict of interest, resulting in damages to the corporation, its stockholders or other persons. The records are bereft of any evidence that Typoco acted in bad faith with gross or inexcusable negligence, or that he acted outside the scope of his authority as company president. The unilateral termination of the Contract during the existence of the TRO was indeed contemptible for which MPC should have merely been cited for contempt of court at the most and a preliminary injunction would have then stopped work by the second contractor. Besides, there is no showing that the unilateral termination of the Contract was null and void.64 McLeod is not entitled to payment of vacation leave and sick leave as well as to holiday pay. Article 82, Title I, Book Three of the Labor Code, on Working Conditions and Rest Periods, provides: Coverage. The provisions of this title shall apply to employees in all establishments and undertakings whether for profit or not, but not to government employees, managerial employees, field personnel, members of the family of the employer who are dependent on him for support, domestic helpers, persons in the personal service of another, and workers who are paid by results as determined by the Secretary of Labor in appropriate regulations. As used herein, "managerial employees" refer to those whose primary duty consists of the management of the establishment in which they are employed or of a department or subdivision thereof, and to other officers or members of the managerial staff. (Emphasis supplied) As Vice President/Plant Manager, McLeod is a managerial employee who is excluded from the coverage of Title I, Book Three of the Labor Code. McLeod is entitled to payment of vacation leave and sick leave only if he and PMI had agreed on it. The payment of vacation leave and sick leave depends on the policy of the employer or the agreement between the employer and employee.65 In the present case, there is no showing that McLeod and PMI had an agreement concerning payment of these benefits.

McLeods assertion of underpayment of his 13th month pay in December 1993 is unavailing.66 As already stated, PMI stopped plant operations in 1992. McLeod himself testified that he received his last salary from PMI in December 1992. After the termination of the employer-employee relationship between McLeod and PMI, SRTI hired McLeod as consultant and not as employee. Since McLeod was no longer an employee, he was not entitled to the 13th month pay.67 Besides, there is no evidence on record that McLeod indeed received his alleged "reduced 13th month pay of P44,183.63" in December 1993.68 Also unavailing is McLeods claim that he was entitled to the "unpaid monetary equivalent of unused plane tickets for the period covering 1989 to 1992 in the amount of P279,300.00."69 PMI has no company policy granting its officers and employees expenses for trips abroad.70 That at one time PMI reimbursed McLeod for his and his wifes plane tickets in a vacation to London71 could not be deemed as an established practice considering that it happened only once. To be considered a "regular practice," the giving of the benefits should have been done over a long period, and must be shown to have been consistent and deliberate.72 In American Wire and Cable Daily Rated Employees Union v. American Wire and Cable Co., Inc.,73 the Court held that for a bonus to be enforceable, the employer must have promised it, and the parties must have expressly agreed upon it, or it must have had a fixed amount and had been a long and regular practice on the part of the employer. In the present case, there is no showing that PMI ever promised McLeod that it would continue to grant him the benefit in question. Neither is there any proof that PMI and McLeod had expressly agreed upon the giving of that benefit. McLeods reliance on Annex M74 can hardly carry the day for him. Annex M, which is McLeods letter addressed to "Philip Lim, VP Administration," merely contains McLeods proposals for the grant of some benefits to supervisory and confidential employees. Contrary to McLeods allegation, Patricio did not sign the letter. Hence, the letter does not embody any agreement between McLeod and the management that would entitle McLeod to his money claims. Neither can McLeods assertions find support in Annex U.75 Annex U is the Agreement which McLeod and Universal Textile Mills, Inc. executed in 1959. The Agreement merely contains the renewal of the service agreement which the parties signed in 1956. McLeod cannot successfully pretend that his monthly salary of P60,000 was reduced without his consent. McLeod testified that in 1990, Philip Lim explained to him why his salary would have to be reduced. McLeod said that Philip told him that "they were short in finances; that it would be repaid."76 Were McLeod not amenable to that reduction in salary, he could have immediately resigned from his work in PMI. McLeod knew that PMI was then suffering from serious business losses. In fact, McLeod testified that PMI was not able to operate from August 1989 to 1992 because of the strike. Even before 1989, as Vice President of PMI, McLeod was aware that the company had incurred "huge loans from DBP."77 As it happened, McLeod continued to work with PMI. We find it pertinent to quote some portions of Apolinario Posios testimony, to wit: Q You also stated that before the period of the strike as shown by annex "K" of the reply filed by the complainant which was I think a voucher, the salary of Mr. McLeod was roughly P60,000.00 a month?

A Yes, sir. Q And as shown by their annex "L" to their reply, that this was reduced to roughly P50,000.00 a month? A Yes, sir. Q You stated that this was indeed upon the instruction by the Vice-President of Peggy Mills at that time and that was Mr. Philip Lim, would you not? A Yes, sir. Q Of your own personal knowledge, can you say if this was, in fact, by agreement between Mr. Philip Lim or any other officers of Peggy Mills and Mr. McLeod? A If I recall it correctly, I assume it was an agreement, verbal agreement with, between Mr. Philip Lim and Mr. McLeod, because the voucher that we prepared was actually acknowledged by Mr. McLeod, the reduced amount was acknowledged by Mr. McLeod thru the voucher that we prepared. Q In other words, Mr. Witness, you mean to tell us that Mr. McLeod continuously received the reduced amount of P50,000.00 by signing the voucher and receiving the amount in question? A Yes, sir. Q As far as you remember, Mr. Posio, was there any complaint by Mr. McLeod because of this reduced amount of his salary at that time? A I dont have any personal knowledge of any complaint, sir. Q At least, that is in so far as you were concerned, he said nothing when he signed the voucher in question? A Yes, sir. Q Now, you also stated that the reason for what appears to be an agreement between Peggy Mills and Mr. McLeod in so far as the reduction of his salary from P60,000.00 to P50,000.00 a month was because he would have a reduced number of working days in view of the strike at Peggy Mills, is that right? A Yes, sir. Q And that this was so because on account of the strike, there was no work to be done in the company? A Yes, sir.78 xxxx Q Now, you also stated if you remember during the first time that you testified that in the beginning, the monthly salary of the complainant was P60,000.00, is that correct?

A Yes, sir. Q And because of the long period of the strike, when there was no work to be done, by agreement with the complainant, his monthly salary was adjusted to only P50,495 because he would not have to report for work on Saturday. Do you remember having made that explanation? A Yes, sir. Q You also stated that the complainant continuously received his monthly salary in the adjusted amount of P50,495.00 monthly signing the necessary vouchers or pay slips for that without complaining, is that not right, Mr. Posio? A Yes, sir.79 Since the last salary that McLeod received from PMI was P50,495, that amount should be the basis in computing his retirement benefits. McLeod must be credited only with his service to PMI as it had a juridical personality separate and distinct from that of the other respondent corporations. Since PMI has no retirement plan,80 we apply Section 5, Rule II of the Rules Implementing the New Retirement Law which provides: 5.1 In the absence of an applicable agreement or retirement plan, an employee who retires pursuant to the Act shall be entitled to retirement pay equivalent to at least one-half (1/2) month salary for every year of service, a fraction of at least six (6) months being considered as one whole year. 5.2 Components of One-half (1/2) Month Salary. For the purpose of determining the minimum retirement pay due an employee under this Rule, the term "one-half month salary" shall include all of the following: (a) Fifteen (15) days salary of the employee based on his latest salary rate. x x x With McLeod having worked with PMI for 12 years, from 1980 to 1992, he is entitled to a retirement pay equivalent to month salary for every year of service based on his latest salary rate of P50,495 a month. There is no basis for the award of moral damages. Moral damages are recoverable only if the defendant has acted fraudulently or in bad faith, or is guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligations. The breach must be wanton, reckless, malicious, or in bad faith, oppressive or abusive.81 From the records of the case, the Court finds no ultimate facts to support a conclusion of bad faith on the part of PMI. Records disclose that PMI had long offered to pay McLeod his money claims. In their Comment, respondents assert that they offered to pay McLeod the sum of P840,000, as "separation benefits, and not P300,000, if only to buy peace and to forestall any complaint" that McLeod may initiate before the NLRC. McLeod admitted at the hearing before the Labor Arbiter that PMI has made this offer ATTY. ESCANO:

x x x According to your own statement in your Position Paper and I am referring to page 8, your unpaid retirement benefit for fourteen (14) years of service at P60,000.00 per year is P840,000.00, is that correct? WITNESS: That is correct, sir. ATTY. ESCANO: And this amount is correct P840,000.00, according to your Position Paper? WITNESS: That is correct, sir. ATTY. ESCANO: The question I want to ask is, are you aware that this amount was offered to you sometime last year through your own lawyer, my good friend, Atty. Avecilla, who is right here with us? WITNESS: I was aware, sir. ATTY. ESCANO: So this was offered to you, is that correct? WITNESS: I was told that a fixed sum of P840,000.00 was offered. ATTY. ESCANO: And , of course, the reason, if I may assume, that you declined this offer was that, according to you, there are other claims which you would like to raise against the Respondents which, by your impression, they were not willing to pay in addition to this particular amount? WITNESS: Yes, sir. ATTY. ESCANO: The question now is, if the same amount is offered to you by way of retirement which is exactly what you stated in your own Position Paper, would you accept it or not? WITNESS:

Not on the concept without all the basic benefits due me, I will refuse.82 xxxx ATTY. ROXAS: Q You mentioned in the cross-examination of Atty. Escano that you were offered the separation pay in 1994, is that correct, Mr. Witness? WITNESS: A I was offered a settlement of P300,000.00 for complete settlement and that was I think in January or February 1994, sir. ATTY. ESCANO: No. What was mentioned was the amount of P840,000.00. WITNESS: What did you say, Atty. Escano? ATTY. ESCANO: The amount that I mentioned was P840,000.00 corresponding to the . . . . . . . WITNESS: May I ask that the question be clarified, your Honor? ATTY. ROXAS: Q You mentioned that you were offered for the settlement of your claims in 1994 for P840,000.00, is that right, Mr. Witness? A During that period in time, while the petition in this case was ongoing, we already filed a case at that period of time, sir. There was a discussion. To the best of my knowledge, they are willing to settle for P840,000.00 and based on what the Attorney told me, I refused to accept because I believe that my position was not in anyway due to a compromise situation to the benefits I am entitled to.83 Hence, the awards for exemplary damages and attorneys fees are not proper in the present case.84 That respondent corporations, in their appeal to the NLRC, did not serve a copy of their memorandum of appeal upon PMI is of no moment. Section 3(a), Rule VI of the NLRC New Rules of Procedure provides: Requisites for Perfection of Appeal. (a) The appeal shall be filed within the reglementary period as provided in Section 1 of this Rule; shall be under oath with proof of payment of the required appeal fee and the posting of a cash or surety bond as provided in Section 5 of this Rule; shall be

accompanied by a memorandum of appeal x x x and proof of service on the other party of such appeal. (Emphasis supplied) The "other party" mentioned in the Rule obviously refers to the adverse party, in this case, McLeod. Besides, Section 3, Rule VI of the Rules which requires, among others, proof of service of the memorandum of appeal on the other party, is merely a rundown of the contents of the required memorandum of appeal to be submitted by the appellant. These are not jurisdictional requirements.85 WHEREFORE, we DENY the petition and AFFIRM the Decision of the Court of Appeals in CA-G.R. SP No. 55130, with the following MODIFICATIONS: (a) the retirement pay of John F. McLeod should be computed at month salary for every year of service for 12 years based on his salary rate of P50,495 a month; (b) Patricio L. Lim is absolved from personal liability; and (c) the awards for moral and exemplary damages and attorneys fees are deleted. No pronouncement as to costs. SO ORDERED. ANTONIO T. CARPIO Associate Justice WE CONCUR: LEONARDO A. QUISUMBING Associate Justice Chairperson CONCHITA CARPIO MORALES Associate Justice PRESBITERO J. VELASCO, JR. Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. LEONARDO A. QUISUMBING Associate Justice Chairperson CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Chief Justice DANTE O. TINGA Asscociate Justice

Footnotes
1

Under Rule 45 of the Rules of Court. Penned by Associate Justice Teodoro P. Regino, with

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 154975 January 29, 2007

GENERAL CREDIT CORPORATION (now PENTA CAPITAL FINANCE CORPORATION), Petitioner, vs. ALSONS DEVELOPMENT and INVESTMENT CORPORATION and CCC EQUITY CORPORATION, Respondents. DECISION GARCIA, J.: In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner General Credit Corporation, now known as Penta Capital Finance Corporation, seeks to annul and set aside the Decision1 and Resolution2 dated April 11, 2002 and August 20, 2002, respectively, of the Court of Appeals (CA) in CA-G.R. CV No. 31801, affirming the November 8, 1990 decision of the Regional Trial Court (RTC) of Makati City in its Civil Case No. 12707, an action for a sum of money thereat instituted by the herein respondent Alsons Development and Investment Corporation against the petitioner and respondent CCC Equity Corporation. The facts: Shortly after its incorporation in 1957 as a finance and investment company, petitioner General Credit Corporation (GCC, for short), then known as Commercial Credit Corporation (CCC), established CCC franchise companies in different urban centers of the country.3 In furtherance of its business, GCC had, as early as 1974, applied for and was able to secure license from the then Central Bank (CB) of the Philippines and the Securities and Exchange Commission (SEC) to engage also in quasi-banking activities.4 On the other hand, respondent CCC Equity Corporation (EQUITY, for brevity) was organized in November 1994 by GCC for the purpose of, among other things, taking over the operations and management of the various franchise companies. At a time material hereto, respondent Alsons Development and Investment Corporation (ALSONS, hereinafter) and Conrado, Nicasio, Editha and Ladislawa, all surnamed Alcantara, and Alfredo de Borja (hereinafter the Alcantara family, for convenience), each owned, just like GCC, shares in the aforesaid GCC franchise companies, e.g., CCC Davao and CCC Cebu. In December 1980, ALSONS and the Alcantara family, for a consideration of Two Million (P2,000,000.00) Pesos, sold their shareholdings a total of 101,953 shares, more or less in the CCC franchise companies to EQUITY.[5] On January 2, 1981, EQUITY issued ALSONS et al., a "bearer" promissory note for P2,000,000.00 with a one-year maturity date, at 18% interest per annum, with provisions for damages and litigation costs in case of default.6 Some four years later, the Alcantara family assigned its rights and interests over the bearer note to ALSONS which thenceforth became the holder thereof.7 But even before the execution of the assignment deal aforestated, letters of demand for interest payment were already sent to EQUITY, through its President, Wilfredo Labayen, who pleaded inability to pay the stipulated interest, EQUITY

no longer then having assets or property to settle its obligation nor being extended financial support by GCC. What happened next, as narrated in the assailed Decision of the CA, may be summarized, as follows: 1. On January 14, 1986, before the RTC of Makati, ALSONS, having failed to collect on the bearer note aforementioned, filed a complaint for a sum of money8 against EQUITY and GCC. The case, docketed as Civil Case No. 12707, was eventually raffled to Branch 58 of the court. As stated in par. 4 of the complaint, GCC is being impleaded as party-defendant for any judgment ALSONS might secure against EQUITY and, under the doctrine of piercing the veil of corporate fiction, against GCC, EQUITY having been organized as a tool and mere conduit of GCC. 2. Answering with a cross-claim against GCC, EQUITY stated by way of special and affirmative defenses that it (EQUITY): a) was purposely organized by GCC for the latter to avoid CB Rules and Regulations on DOSRI (Directors, Officers, Stockholders and Related Interest) limitations, and that it acted merely as intermediary or bridge for loan transactions and other dealings of GCC to its franchises and the investing public; and b) is solely dependent upon GCC for its funding requirements, to settle, among others, equity purchases made by investors on the franchises; hence, GCC is solely and directly liable to ALSONS, the former having failed to provide EQUITY the necessary funds to meet its obligations to ALSONS. 3. GCC filed its ANSWER to Cross-claim, stressing that it is a distinct and separate entity from EQUITY and alleging, in essence that the business relationships with each other were always at arms length. And following the denial of its motion to dismiss ALSONS complaint, on the ground of lack of jurisdiction and want of cause of action, GCC filed its Answer thereto and set up affirmative defenses with counterclaim for exemplary damages and attorneys fees. Issues having been joined, trial ensued. Presented by ALSONS, but testifying as adverse witnesses, were CB and GCC officers. Among other things, ALSONS evidence, which included the EQUITYissued "bearer" promissory note marked as Exhibit "K" and over sixty (60) other marked and subsequently admitted documents,9 were to the effect that five (5) incorporators, each contributing P100,000.00 as the initial paid up capital of the company, organized EQUITY to manage, as it did manage, various GCC franchises through management contracts. Before EQUITYs incorporation, however, GCC was already into the financing business as it was in fact managing and operating various CCC franchises. Presented in evidence, too, was the September 29, 1982 letter-reply of one G. Villanueva, then GCC President, to EQUITY President Wilfredo Labayen, bearing on the sale of EQUITY shares to third parties, part of the proceeds of which the Alcantaras wanted applied to liquidate the promissory note in question. In said letter, Mr. Villanueva explained that the GCC Board denied the Alcantaras request to be paid out of such proceeds, but nonetheless authorized EQUITY to pay them interest out of EQUITYs operation income, in preference over what was due GCC.10 Albeit EQUITY presented its president, it opted to adopt the testimony of some of ALSONS witnesses, inclusive of the documentary exhibits testified to by each of them, as its evidence.

For its part, GCC called only Wilfredo Labayen to testify. It stuck to its underlying defense of separateness and presented documentary evidence detailing the organizational structures of both GCC and EQUITY. And in a bid to negate the notion that it was conducting its business illegally, GCC presented CB and SEC-issued licenses authoring it to engage in financing and quasi-banking activities. It also adduced evidence to prove that it was never a party to any of the actionable documents ALSONS and its predecessors-in-interest had in their possession and that the November 27, 1985 deed of assignment of rights over the promissory note was unenforceable. Eventually, the trial court, on its finding that EQUITY was but an instrumentality or adjunct of GCC and considering the legal consequences and implications of such relationship, came out with its decision on November 8, 1990, rendering judgment for ALSONS, to wit: WHEREFORE, the foregoing premises considered, judgment is hereby rendered in favor of plaintiff [ALSONS] and against the defendants [EQUITY and GCC] who are hereby ordered, jointly and severally, to pay plaintiff: 1. the principal sum of Two Million Pesos (P2,000,000.00) together with the interest due thereon at the rate of eighteen percent (18%) annually computed from Jan. 2, 1981 until the obligation is fully paid; 2. liquidated damages due thereon equivalent to three percent (3%) monthly computed from January 2, 1982 until the obligation is fully paid; 3. attorneys fees in an amount equivalent to twenty four percent (24%) of the total obligation due; and 4. the costs of suit. IT IS SO ORDERED. (Words in brackets added.) Therefrom, GCC went on appeal to the CA where its appellate recourse was docketed as CA-G.R. CV No. 31801, ascribing to the trial court the commission of the following errors: 1. In holding that there is a "Parent-Subsidiary" corporate relationship between EQUITY and GCC; 2. In not holding that EQUITY and GCC are distinct and separate corporate entities; 3. In applying the doctrine of "Piercing the Veil of Corporate Fiction" in the case at bar; and 4. In not holding ALSONS in estoppel to question the corporate personality of EQUITY. On April 11, 2002, the appellate court rendered the herein assailed Decision,11 affirming that of the trial court, thus: WHEREFORE, premises considered, the Decision of the Regional Trial Court, Branch 58, Makati in Civil Case No. 12707 is hereby AFFIRMED. SO ORDERED.

In time, GCC moved for reconsideration followed by a motion for oral argument, but both motions were denied by the CA in its equally assailed Resolution of August 20, 2002.12 Hence, GCCs present recourse anchored on the following arguments, issues and/or submissions: 1. The motion for oral argument with motion for reconsideration and its supplement were perfunctorily denied by the CA without justifiable basis; 2. There is absolutely no basis for piercing the veil of corporate fiction; 3. Respondent Alsons is not a real party-in-interest as the promissory note payable to bearer subject of the collection suit is but a simulated document and/or refers to another party. Moreover, the subject promissory note is not admissible in evidence because it has not been duly authenticated and it is an altered document; 4. The fact of full payment stated in the ten (10) deeds of sale of the shares of stock is conclusive on the sellers, and by the patrol evidence rule, the alleged fact of its non-payment cannot be introduced in evidenced; and 5. The counter-claim filed by GCC against Alsons should be granted in the interest of justice. The petition and the arguments and/or issues holding it together are without merit. The desired reversal of the assailed decision and resolution of the appellate court is accordingly DENIED. Instead of raising distinctly formulated questions of law, as is expected of one seeking a review under Rule 45 of the Rules of Court of a final CA judgment,13 petitioner GCC starts off by voicing disappointment over the "perfunctory" denial by the CA of its twin motions for reconsideration and oral argument. Petitioner, to be sure, cannot plausibly expect a reversal action premised on the cursory way its motions were denied, if such indeed were the case. Such manner of denial, while perhaps far from ideal, is not even a recognized ground for appeal by certiorari, unless a denial of due process ensues, which is not the case here. And lest it be overlooked, the CA prefaced its assailed denial resolution with the clause: "[F]inding no reversible error committed to warrant the modification and/or reversal of the April 11, 2002 Decision," suggesting that the appellate court gave the petitioners motion for reconsideration the attention it deserved. At the very least, the petitioner was duly apprised of the reasons why reconsideration could not be favorably considered. An extended resolution was not really necessary to dispose of the motion for reconsideration in question. Petitioners lament about being deprived of procedural due process owing to the denial of its motion for oral argument is simply specious. Under the CA Internal Rules, the appellate court may tap any of the three (3) alternatives therein provided to aid the court in resolving appealed cases before it. It may rely on available records alone, require the submission of memoranda or set the case for oral argument. The option the Internal Rules thus gives the CA necessarily suggests that the appellate court may, at its sound discretion, dispense with a tedious oral argument exercise. Rule VI, Section 6 of the 2002 Internal Rules of the CA, provides: SEC. 6 Judicial Action on Certain Petitions.- (a) In petitions for review, after the receipt of the respondents comment on the petition, the Court [of Appeals] may dismiss the petition if it finds the same to be patently without merit , otherwise, it shall give due course to it. xxx xxx xxx

If the petition is given due course, the Court may consider the case submitted for decision or require the parties to submit their memorandum or set the case for oral argument. xxx. After the oral argument or upon submission of the memoranda the case shall be deemed submitted for decision. In the case at bench, records reveal that the appellate court, in line with the prescription of its own rules, required the parties to just submit, as they did, their respective memoranda to properly ventilate their separate causes. Under this scenario, the petitioner cannot be validly heard, having been deprived of due process. Just like the first, the last three (3) arguments set forth in the petition will not carry the day for the petitioner. In relation therewith, the Court notes that these arguments and the issues behind them were not raised before the trial court. This appellate maneuver cannot be allowed. For, well-settled is the rule that issues or grounds not raised below cannot be resolved on review in higher courts.14 Springing surprises on the opposing party is antithetical to the sporting idea of fair play, justice and due process; hence, the proscription against a party shifting from one theory at the trial court to a new and different theory in the appellate level. On the same rationale, points of law, theories, issues not brought to the attention of the lower court or, in fine, not interposed during the trial cannot be raised for the first time on appeal.15 There are, to be sure, exceptions to the rule respecting what may be raised for the first time on appeal. Lack of jurisdiction over when the issues raised present a matter of public policy16 comes immediately to mind. None of the well-recognized exceptions obtain in this case, however. Lest it be overlooked vis--vis the same last three arguments thus pressed, both the trial court and the CA, based on the evidence adduced, adjudged the petitioner and respondent EQUITY jointly and severally liable to pay what respondent ALSONS is entitled to under the "bearer" promissory note. The judgment argues against the notion of the note being simulated or altered or that respondent ALSONS has no standing to sue on the note, not being the payee of the "bearer" note. For, the declaration of liability not only presupposes the duly established authenticity and due execution of the promissory note over which ALSONS, as the holder in due course thereof, has interest, but also the untenability of the petitioners counterclaim for attorneys fees and exemplary damages against ALSONS. At bottom, the petitioner predicated such counter-claim on the postulate that respondent ALSONS had no cause of action, the supposed promissory note being, according to the petitioner, either a simulated or an altered document. In net effect, the definitive conclusion of the appellate court affirmatory of that of the trial court was that the bearer promissory note (Exh. "K") was a genuine and authentic instrument payable to the holder thereof. This factual determination, as a matter of long and sound appellate practice, deserves great weight and shall not be disturbed on appeal, save for the most compelling reasons,17 such as when that determination is clearly without evidentiary support or when grave abuse of discretion has been committed.18 This is as it should be since the Court, in petitions for review of CA decisions under Rule 45 of the Rules of Court, usually limits its inquiry only to questions of law. Stated otherwise, it is not the function of the Court to analyze and weigh all over again the evidence or premises supportive of the factual holdings of lower courts.19 As nothing in the record indicates any of the exceptions adverted to above, the factual conclusion of the CA that the P2 Million promissory note in question was authentic and was issued at the first instance to respondent ALSONS and the Alcantara family for the amount stated on its face, must be affirmed. It should be stressed in this regard that even the issuing entity, i.e., respondent EQUITY, never challenged the genuineness and due execution of the note.

This brings us to the remaining but core issue tendered in this case and aptly raised by the petitioner, to wit: whether there is absolutely no basis for piercing GCCs veil of corporate identity. A corporation is an artificial being vested by law with a personality distinct and separate from those of the persons composing it20 as well as from that of any other entity to which it may be related.21 The first consequence of the doctrine of legal entity of the separate personality of the corporation is that a corporation may not be made to answer for acts and liabilities of its stockholders or those of legal entities to which it may be connected or vice versa.22 The notion of separate personality, however, may be disregarded under the doctrine "piercing the veil of corporate fiction" as in fact the court will often look at the corporation as a mere collection of individuals or an aggregation of persons undertaking business as a group, disregarding the separate juridical personality of the corporation unifying the group. Another formulation of this doctrine is that when two (2) business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that two corporations are distinct entities and treat them as identical or one and the same.23 Whether the separate personality of the corporation should be pierced hinges on obtaining facts, appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with caution, albeit the Court will not hesitate to disregard the corporate veil when it is misused or when necessary in the interest of justice.24 After all, the concept of corporate entity was not meant to promote unfair objectives. Authorities are agreed on at least three (3) basic areas where piercing the veil, with which the law covers and isolates the corporation from any other legal entity to which it may be related, is allowed.25 These are: 1) defeat of public convenience,26 as when the corporate fiction is used as vehicle for the evasion of an existing obligation;27 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime;28 or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.29 The CA found valid grounds to pierce the corporate veil of petitioner GCC, there being justifiable basis for such action. When the appellate court spoke of a justifying factor, the reference was to what the trial court said in its decision, namely: the existence of "certain circumstances [which], taken together, gave rise to the ineluctable conclusion that [respondent] EQUITY is but an instrumentality or adjunct of [petitioner] GCC." The Court agrees with the disposition of the appellate court on the application of the piercing doctrine to the transaction subject of this case. Per the Courts count, the trial court enumerated no less than 20 documented circumstances and transactions, which, taken as a package, indeed strongly supported the conclusion that respondent EQUITY was but an adjunct, an instrumentality or business conduit of petitioner GCC. This relation, in turn, provides a justifying ground to pierce petitioners corporate existence as to ALSONS claim in question. Foremost of what the trial court referred to as "certain circumstances" are the commonality of directors, officers and stockholders and even sharing of office between petitioner GCC and respondent EQUITY; certain financing and management arrangements between the two, allowing the petitioner to handle the funds of the latter; the virtual domination if not control wielded by the petitioner over the finances, business policies and practices of respondent EQUITY; and the establishment of respondent EQUITY by the petitioner to circumvent CB rules. For a perspective, the following are some relevant excerpts from the trial courts decision setting forth in some detail the tipping circumstances adverted to therein:

It must be noted that as characterized by their business relationship, [respondent] EQUITY and [petitioner] GCC had common directors and/or officers as well as stockholders. This is revealed by the proceedings recorded in SEC Case No. 25-81 entitled "Avelina Ramoso, et al., vs. GCC, et al., where it was established, thru the testimony of EQUITYs own President that more than 90% of the stockholders of EQUITY were also stockholders of GCC .. Disclosed likewise is the fact that when [EQUITYs President] Labayen sold the shareholdings of EQUITY in said franchise companies, practically the entire proceeds thereof were surrendered to GCC, and not received by EQUITY (EXHIBIT "RR") xxx. It was likewise shown by a preponderance of evidence that not only had GCC financed EQUITY and that the latter was heavily indebted to the former but EQUITY was, in fact, a wholly owned subsidiary of GCC. Thus, as affirmed by EQUITYs President, the funds invested by EQUITY in the CCC franchise companies actually came from CCC Phils. or GCC (Exhibit "Y-5"). that, as disclosed by the Auditors report for 1982, past due receivables alone of GCC exceeded P101,000,000.00 mostly to GCC affiliates especially CCC EQUITY. ; that [CBs] Report of Examination dated July 14, 1977 shows that EQUITY which has a paid-up capital of only P500,000.00 was the biggest borrower of GCC with a total loan of P6.70 Million . xxx xxx xxx It has likewise been amply substantiated by [respondent ALSONS] evidence that not only did GCC cause the incorporation of EQUITY, but, the latter had grossly inadequate capital for the pursuit of its line of business to the extent that its business affairs were considered as GCCs own business endeavors. xxx. xxx xxx xxx ALSONS has likewise shown that the bonuses of the officers and directors of EQUITY was based on its total financial performance together with all its affiliates both firms were sharing one and the same office when both were still operational and that the directors and executives of EQUITY never acted independently but took their orders from GCC. The evidence has also indubitably established that EQUITY was organized by GCC for the purpose of circumventing [CB] rules and regulations and the Anti-Usury Law. Thus, as disclosed by the Advance Report on the result of Central Banks Operations Examination conducted on GCC as of March 31, 1977 (EXHIBITS "FFF" etc.), the latter violated [CB] rules and regulations by : (a) using as a conduit its non-quasi bank affiliates . (b) issuing without recourse facilities to enable GCC to extend credit to affiliates like EQUITY which go beyond the single borrowers limit without the need of showing outstanding balance in the book of accounts. (Emphasis over words in brackets added.) It bears to stress at this point that the facts and the inferences drawn therefrom, upon which the two (2) courts below applied the piercing doctrine, stand, for the most part, undisputed. Among these is, to reiterate, the matter of EQUITY having been incorporated to serve, as it did serve, as an instrumentality or adjunct of GCC. With the view we take of this case, GCC did not adduce any evidence, let alone rebut the testimonies and documents presented by ALSONS, to establish the prevailing circumstances adverted to that provided the justifying occasion to pierce the veil of corporate fiction between GCC and EQUITY. We quote the trial court: Verily, indeed, as the relationships binding herein [respondent EQUITY and petitioner GCC] have been that of "parent-subsidiary corporations" the foregoing principles and doctrines find suitable applicability in the case at bar; and, it having been satisfactorily and indubitably shown that the said

relationships had been used to perform certain functions not characterized with legitimacy, this Court feels amply justified to "pierce the veil of corporate entity" and disregard the separate existence of the percent (sic) and subsidiary the latter having been so controlled by the parent that its separate identity is hardly discernible thus becoming a mere instrumentality or alter ego of the former. Consequently, as the parent corporation, [petitioner] GCC maybe (sic) held responsible for the acts and contracts of its subsidiary [respondent] EQUITY - most especially if the latter (who had anyhow acknowledged its liability to ALSONS) maybe (sic) without sufficient property with which to settle its obligations. For, after all, GCC was the entity which initiated and benefited immensely from the fraudulent scheme perpetrated in violation of the law. (Words in parenthesis in the original; emphasis and bracketed words added). Given the foregoing considerations, it behooves the petitioner, as a matter of law and equity, to assume the legitimate financial obligation of a cash-strapped subsidiary corporation which it virtually controlled to such a degree that the latter became its instrument or agent. The facts, as found by the courts a quo, and the applicable law call for this kind of disposition. Or else, the Court would be allowing the wrong use of the fiction of corporate veil. WHEREFORE, the instant petition is DENIED and the appealed Decision and Resolution of the Court of Appeals are accordingly AFFIRMED. Costs against the petitioner. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. 80887 September 30, 1994 BLISS DEVELOPMENT CORPORATION EMPLOYEES UNION (BDCEU)-SENTRO NG DEMOKRATIKONG MANGGAGAWA (SDM), petitioner, vs. HON. PURA FERRER CALLEJA and BLISS DEVELOPMENT CORPORATION, respondents. Capulong, Magpantay, Ladrido, Canilao and Malabanan for private respondent.

KAPUNAN, J.: The focal issue in the case at bench is whether or not Bliss Development Corporation (BDC) is a government-owned controlled corporation subject to Civil Service Laws, rules and regulations. Corollary to this issue is the question of whether or not petitioner is covered by Executive Order No. 180 and must register under Section 7 thereof as a precondition for filing a petition for certification election. The antecedents of the case are: On October 10, 1986, petitioner, a duly registered labor union, filed with the Department of Labor, National Capital Region, a petition for certification election of private respondent Bliss Development Corporation (BDC). Based on the position papers submitted by the parties, Med-Arbiter Napoleon V. Fernando, in an order dated January 26, 1987, dismissed the petition for lack of jurisdiction stating that the majority of BDC's stocks is owned by the Human Settlement Development Corporation (HSDC), a whollyowned government corporation. Therefore, BDC is subject to Civil Service law, rules and regulations. The pertinent portion of said Order reads: It may not be amised (sic) to further state that the Supreme Court in its Decision in the case of National Housing Corporation versus Benjamin Juco and the National Labor Relations Commission G-R 63313 promulgated on January 17, 1985 has pronounced that: There should no longer be any question at this time that employees of government owned or controlled corporations are governed by the Civil Service Rules and Regulations. Corollary to the issue of whether or not employees of BDC may form or join labor organizations therefore is the issue of whether or not BDC is a government owned corporation.

The pertinent law on the matter is P.D. No. 2029 which provides that: Section 2 Definition A government-owned or controlled corporation is a stock or non-stock corporation whether performing government or proprietary functions, which is directly chartered by special law or if organized under the general corporation law is owned or controlled by the government or subsidiary corporation, to the extent of at least a majority of its outstanding capital stock or of its outstanding voting stock. In the case at bar, it is not disputed that majority of the stocks of BDC are owned by Human Settlement Development Corporation, a wholly government owned corporation, hence, this Office cannot, but otherwise conclude that Bliss Development Corporation is a government owned corporation whose employees are governed not by the Labor Code but by the Civil Service law, rules, and regulations. Its employees therefore, are prohibited to join or form labor organization. Further, this Office is without authority to entertain the present petition for obvious lack of jurisdiction. Indeed, Opinion No. 94, series of 1985, the Minister of Justice has declared: In determining whether a corporation created under the Corporation Code is government owned or controlled or not, this ministry has consistently applied the ownership test whereby a corporation will be deemed owned by the government if the majority of its voting stocks are owned by the government. It appearing that Human Settlement Development Corporation (HSDC), which is a wholly-owned government corporation, owns a majority of the stocks of Bliss Development Corporation (BDC), our conclusion is that BDC is a government-owned corporation subject to the coverage of the Civil Service law, rules and regulations as pronounced by the Supreme Court in the case of NHA versus Juco. 1 Petitioner then filed an appeal with the Bureau of Labor Relations. In the meantime, or on June 1, 1987 Executive Order No. 180 was issued the then President Corazon C. Aquino extending to government employees the right to organize and bargain collectively. Sections 1 and 7 of said Order provide: Sec. 1. This Executive Order applies to all employees of all branches, subdivisions, instrumentalities, and agencies of the government, including government-owned or controlled corporations with original charters. . . . (Emphasis supplied) Sec. 7. Government employees' organizations shall register with the Civil Service Commission and the Department of Labor and Employment. The application shall be filed with the Bureau of Labor Relations of the Department which shall process the same in accordance with the provisions of the Labor Code of the Philippines, as amended. Applications may also be filed with the Regional Offices of the Department of Labor and Employment which shall immediately transmit the said applications to the Bureau of Labor Relations within three (3) days from receipt hereof.

On August 7, 1987, Director Pura Ferrer-Calleja of the Bureau of Labor Relations issued an Order dismissing the appeal. Said Order is reproduced hereunder: For disposition is an appeal of the Bliss Development Corporation Employees Union Sentro ng Demokratikong Manggagawa (BDCEU-SDM) from the Order of the MedArbiter dismissing its petition for direct certification/certification election dated January 26, 1987. On January 26, 1987, the Med-Arbiter issued an Order dismissing the petition filed by BDCEU-SDM. He ruled that the Bliss Development Corporation which is under the then Ministry of Human Settlement, is a government Corporation where the workers are prohibited from organizing and joining labor unions. The Med-Arbiter cited Opinion No. 94 series of 1985, of the Minister of Justice which is hereunder quoted as follows: In determining whether a corporation created under the Corporation Code is government-owned or a controlled or not, this Ministry has consistently applied the ownership test whereby a corporation will be deemed owned by the government if all or a majority of its stocks are owned by the government, and it will be deemed controlled by the government, if the majority of its voting stocks are owned by the government. It appearing that HSDC, which is a wholly-owned government corporation, owns a majority of the stocks of BDC, our conclusion is that BDC is a government-owned corporation subject to the coverage of the Civil Service Law and rules as pronounced by the Supreme Court in the case of NHA vs. Juco. But circumstances have changed. With the issuance of Executive Order No. 180 dated June 1, 1987, government employees are now given the right to organize and bargain collectively. This, therefore, renders academic the order subject of the appeal. xxx xxx xxx Consequently, this Bureau hereby enjoins the Petitioner to register in accordance with the aforecited provision. Meantime, the petition is dismissed without prejudice to its refiling after petitioner is granted registration to avoid legal complications. WHEREFORE, in view of the foregoing, the case is hereby dismissed without prejudice. SO ORDERED. 2 Taking exception to the Director's Order, petitioner brought the instant petition to annul the same on the following grounds: I

THE DIRECTOR GRAVELY ABUSED HER DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN SHE ORDERED PETITIONER TO REGISTER UNDER SECTION 7 OF EXECUTIVE ORDER NO. 180 WHICH DOES NOT COVER PETITIONER; II THE DIRECTOR GRAVELY ABUSED HER DISCRETION WHEN SHE INSISTED ON ENFORCING AN OPINION OF THE MINISTER OF JUSTICE WHICH RESPONDENT BDC ITSELF HAS CONSISTENTLY IGNORED AND CONTINUES TO IGNORE AND WHICH THE ENTIRE GOVERNMENT DOES NOT CARE TO ENFORCE. 3 In a resolution dated May 29, 1989 the Court gave due course to the petition and required the parties to file their respective memoranda which was complied with. The Solicitor General begged leave to be relieved from filing a comment on the petition and a memorandum, averring that he could not sustain the position of respondent Director. The petition is impressed with merit. Section 1 of Executive Order No. 180 expressly limits its application to only government-owned or controlled corporations with original charters. Hence, public respondent's order dated August 7, 1987 requiring petitioner to register in accordance with Section 7 of executive Order No. 180 is without legal basis. Without categorically saying so, public respondent sustained the Med-Arbiter's invocation of the case of National Housing Corporation v. Juco, 4 which rules that the inclusion of "government-owned or controlled corporations" within the embrace of the civil service shows a deliberate effort of the framers of the 1973 Constitution to plug an earlier loophole which allowed government-owned or controlled corporations to avoid the full consequences of the all encompassing coverage of the civil service system. In said case, we stressed that: Section 1 of Article XII-B, Constitution uses the word "every" to modify the phrase "government-owned or controlled corporation." Every means each one of a group, without exception. It means all possible and all, taken one by one. Of course, our decision in this case refers to a corporation created as a government-owned or controlled entity. . . . . 5 However, our ruling in NHC v. Juco 6 case, which was decided under the 1973 Constitution, lost its applicability with the advent of the 1987 Constitution. Thus, in National Service Corporation v. NLRC, 7 we held that: . . . (I)n the matter of coverage by the civil service of government-owned or controlled corporations, the 1987 Constitution starkly varies from the 1973 Constitution, upon which National Housing Corporation vs. Juco is based. Under the 1973 Constitution, it was provided that: The civil service embraces every branch, agency, subdivision, and instrumentality of the Government, including every government-

owned or controlled corporation. . . . [Constitution, 1973, Art. II-B, Sec. I(1)] On the other hand, the 1987 Constitution provides that: The civil service embraces all branches, subdivisions, instrumentalities, and agencies of the Government, including government-owned or controlled corporations with original charter. (Emphasis supplied) [Constitution (1987), Art. IX-B, Sec. 2(1). Thus the situations sought to be avoided by the 1973 Constitution and expressed by the Court in the National Housing Corporation case in the following manner The infirmity of the respondents' position lies in its permitting a circumvention or emasculation of Section 1, Article XII-B of the Constitution. It would be possible for a regulate ministry of government to create a host of subsidiary corporations under the Corporation Code funded by a willing legislature. A governmentowned corporation could create several subsidiary corporations. These subsidiary corporations would enjoy the best of two worlds. Their officials and employees would be privileged individuals, free from the strict accountability required by the Civil Service Decree and the regulations of the Commission on Audit. Their incomes would not be subject to the competitive restrains of the open market nor to the terms and conditions of civil service employment. Conceivably, all government-owned or controlled corporations could be created, no longer by special charters, but through incorporations under the general law. The Constitutional amendment including such corporations in the embrace of the civil service would cease to have application. Certainly, such a situation cannot be allowed to exist. [134 SCRA 182-183] appear relegated to relative insignificance by the 1987 Constitutional provision that the Civil Service embraces government-owned or controlled corporations with original charter; and, therefore, by clear implication, the Civil Service does not include government-owned or controlled corporations which are organized as subsidiaries of government-owned or controlled corporations under the general corporation law. 8 A corporation is created by operation of law. It acquires a judicial personality either by special law or a general law. The general law under which a private corporation may be formed or organized is the Corporation Code, the requirements of which must be complied with by those wishing to incorporate. Only upon such compliance will the corporation come into being and acquire a juridical personality, thus giving rise to is right to exist and act as a legal entity. On the other hand, a government corporation is normally created by special law, referred to often as a charter. 9 BDC is a government-owned corporation created under the Corporation Law. It is without a charter, governed by the Labor Code and not by the Civil Service Law hence, Executive Order No. 180 does not apply to it.

Consequently, public respondent committed grave abuse of discretion in ordering petition to register under Section 7, of Executive Order No. 180 as a precondition for filing a petition for certification election. WHEREFORE, the instant petition is hereby GRANTED. The order of public respondent dated August 7, 1987 is SET ASIDE and the Director of Labor Relations is hereby directed to give due course of petitioner's application for certification election. SO ORDERED. Cruz, Davide, Jr., Bellosillo and Quiason, JJ.,

Republic of the Philippines

Supreme Court Manila

SECOND DIVISION

TIMOTEO H. SARONA, Petitioner,

G.R. No. 185280

Present:

CARPIO, J., - versus Chairperson, PEREZ, SERENO, REYES, and NATIONAL LABOR RELATIONS COMMISSION, ROYALE SECURITY AGENCY (FORMERLY SCEPTRE SECURITY AGENCY) and CESAR S. TAN, Respondents. January 18, 2012 Promulgated: BERNABE, JJ.

x-----------------------------------------------------------------------------------------x

DECISION

REYES, J.:

This is a petition for review under Rule 45 of the Rules of Court from the May 29, 2008 Decision of the Twentieth Division of the Court of Appeals (CA) in CA1

G.R. SP No. 02127 entitled Timoteo H. Sarona v. National Labor Relations Commission, Royale Security Agency (formerly Sceptre Security Agency) and Cesar S. Tan (Assailed Decision), which affirmed the National Labor Relations Commissions (NLRC) November 30, 2005 Decision and January 31, 2006 Resolution, finding the petitioner illegally dismissed but limiting the amount of his backwages to three (3) monthly salaries. The CA likewise affirmed the NLRCs finding that the petitioners separation pay should be computed only on the basis of his length of service with respondent Royale Security Agency (Royale). The CA held that absent any showing that Royale is a mere alter ego of Sceptre Security Agency (Sceptre), Royale cannot be compelled to recognize the petitioners tenure with Sceptre. The dispositive portion of the CAs Assailed Decision states:

WHEREFORE, in view of the foregoing, the instant petition is PARTLY GRANTED, though piercing of the corporate veil is hereby denied for lack of merit. Accordingly, the assailed Decision and Resolution of the NLRC respectively dated November 30, 2005 and January 31, 2006 are hereby AFFIRMED as to the monetary awards.

SO ORDERED.

Factual Antecedents

On June 20, 2003, the petitioner, who was hired by Sceptre as a security guard sometime in April 1976, was asked by Karen Therese Tan (Karen), Sceptres Operation Manager, to submit a resignation letter as the same was supposedly required for applying for a position at Royale. The petitioner was also asked to fill up Royales employment application form, which was handed to him by Royales General Manager, respondent Cesar Antonio Tan II (Cesar).
3

After several weeks of being in floating status, Royales Security Officer, Martin Gono (Martin), assigned the petitioner at Highlight Metal Craft, Inc. (Highlight Metal) from July 29, 2003 to August 8, 2003. Thereafter, the petitioner was transferred and assigned to Wide Wide World Express, Inc. (WWWE, Inc.). During his assignment at Highlight Metal, the petitioner used the patches and agency cloths of Sceptre and it was only when he was posted at WWWE, Inc. that he started using those of Royale.
4

On September 17, 2003, the petitioner was informed that his assignment at WWWE, Inc. had been withdrawn because Royale had allegedly been replaced by another security agency. The petitioner, however, shortly discovered thereafter that Royale was never replaced as WWWE, Inc.s security agency. When he placed a call at WWWE, Inc., he learned that his fellow security guard was not relieved from his post.
5

On September 21, 2003, the petitioner was once again assigned at Highlight Metal, albeit for a short period from September 22, 2003 to September 30, 2003. Subsequently, when the petitioner reported at Royales office on October 1, 2003, Martin informed him that he would no longer be given any assignment per the instructions of Aida Sabalones-Tan (Aida), general manager of Sceptre. This prompted him to file a complaint for illegal dismissal on October 4, 2003.
6

In his May 11, 2005 Decision, Labor Arbiter Jose Gutierrez (LA Gutierrez) ruled in the petitioners favor and found him illegally dismissed. For being unsubstantiated, LA Gutierrez denied credence to the respondents claim that the termination of the petitioners employment relationship with Royale was on his accord following his alleged employment in another company. That the petitioner was no longer interested in being an employee of Royale cannot be presumed from his request for a certificate of employment, a claim which, to begin with, he vehemently denies. Allegation of the petitioners abandonment is negated by his filing of a complaint for illegal dismissal three (3) days after he was informed that he would no longer be given any assignments. LA Gutierrez ruled:

In short, respondent wanted to impress before us that complainant abandoned his employment. We are not however, convinced.

There is abandonment when there is a clear proof showing that one has no more interest to return to work. In this instant case, the record has no proof to such effect. In a long line of decisions, the Supreme Court ruled:

Abandonment of position is a matter of intention expressed in clearly certain and unequivocal acts, however, an interim employment does not mean abandonment. (Jardine Davis, Inc. vs. NLRC, 225 SCRA 757).

In abandonment, there must be a concurrence of the intention to abandon and some overt acts from which an employee may be declared as having no more interest to work. (C. Alcontin & Sons, Inc. vs. NLRC, 229 SCRA 109).

It is clear, deliberate and unjustified refusal to severe employment and not mere absence that is required to constitute abandonment. x x x (De Ysasi III vs. NLRC, 231 SCRA 173).

Aside from lack of proof showing that complainant has abandoned his employment, the record would show that immediate action was taken in order to protest his dismissal from employment. He filed a complaint [for] illegal dismissal on October 4, 2004 or three (3) days after he was dismissed. This act, as declared by the Supreme Court is inconsistent with abandonment, as held in the case of Pampanga Sugar Development Co., Inc. vs. NLRC, 272 SCRA 737 where the Supreme Court ruled:

The immediate filing of a complaint for [i]llegal [d]ismissal by an employee is inconsistent with abandonment.

The respondents were ordered to pay the petitioner backwages, which LA Gutierrez computed from the day he was dismissed, or on October 1, 2003, up to the promulgation of his Decision on May 11, 2005. In lieu of reinstatement, the respondents were ordered to pay the petitioner separation pay equivalent to his one (1) month salary in consideration of his tenure with Royale, which lasted for only one (1) month and three (3) days. In this regard, LA Gutierrez refused to pierce Royales corporate veil for purposes of factoring the petitioners length of service with Sceptre in the computation of his separation pay. LA Gutierrez ruled that Royales corporate personality, which is separate and distinct from that of Sceptre, a sole proprietorship owned by the late Roso Sabalones (Roso) and later, Aida, cannot be pierced absent clear and convincing evidence that Sceptre and Royale share the same stockholders and incorporators and that Sceptre has complete control and dominion over the finances and business affairs of Royale. Specifically:

To support its prayer of piercing the veil of corporate entity of respondent Royale, complainant avers that respondent Royal (sic) was using the very same office of SCEPTRE in C. Padilla St., Cebu City. In addition, all officers and staff of SCEPTRE are now the same officers and staff of ROYALE, that all [the] properties of SCEPTRE are now being owned by ROYALE and that ROYALE is now occupying the property of SCEPTRE. We are not however, persuaded.

It should be pointed out at this juncture that SCEPTRE, is a single proprietorship. Being so, it has no distinct and separate personality. It is owned by the late Roso T. Sabalones. After the death of the owner, the property is supposed to be divided by the heirs and any claim against the sole proprietorship is a claim against Roso T. Sabalones. After his death, the claims should be instituted against the estate of Roso T. Sabalones. In short, the estate of the late Roso T. Sabalones should have been impleaded as respondent of this case.

Complainant wanted to impress upon us that Sceptre was organized into another entity now called Royale Security Agency. There is however, no proof to this assertion. Likewise, there is no proof that Roso T. Sabalones, organized his single proprietorship business into a corporation, Royale Security Agency. On the contrary, the name of Roso T. Sabalones does not appear in the Articles of Incorporation. The names therein as incorporators are:

Bruno M. Kuizon [P]150,000.00 Wilfredo K. Tan 100,000.00 Karen Therese S. Tan 100,000.00 Cesar Antonio S. Tan 100,000.00 Gabeth Maria K. Tan 50,000.00

Complainant claims that two (2) of the incorporators are the granddaughters of Roso T. Sabalones. This fact even give (sic) us further reason to conclude that respondent Royal (sic) Security Agency is not an alter ego or conduit of SCEPTRE. It is obvious that respondent Royal (sic) Security Agency is not owned by the owner of SCEPTRE.

It may be true that the place where respondent Royale hold (sic) office is the same office formerly used by SCEPTRE. Likewise, it may be true that the same officers and staff now employed by respondent Royale Security Agency were the same officers and staff employed by SCEPTRE. We find, however, that these facts are not sufficient to justify to require respondent Royale to answer for the liability of Sceptre, which was owned solely by the late Roso T. Sabalones. As we have stated above, the remedy is to address the claim on the estate of Roso T. Sabalones.
8

The respondents appealed LA Gutierrezs May 11, 2005 Decision to the NLRC, claiming that the finding of illegal dismissal was attended with grave abuse of discretion. This appeal was, however, dismissed by the NLRC in its November 30, 2005 Decision, the dispositive portion of which states:
9

WHEREFORE, premises considered, the Decision of the Labor Arbiter declaring the illegal dismissal of complainant is hereby AFFIRMED.

However[,] We modify the monetary award by limiting the grant of backwages to only three (3) months in view of complainants very limited service which lasted only for one month and three days.

1. Backwages - [P]15,600.00 2. Separation Pay - 5,200.00 3. 13th Month Pay - 583.34 [P]21,383.34 Attorneys Fees- 2,138.33 Total [P]23,521.67

The appeal of respondent Royal (sic) Security Agency is hereby DISMISSED for lack of merit.

SO ORDERED.

10

The NLRC partially affirmed LA Gutierrezs May 11, 2005 Decision. It concurred with the latters finding that the petitioner was illegally dismissed and the manner by which his separation pay was computed, but modified the monetary award in the petitioners favor by reducing the amount of his backwages from P95,600.00 to P15,600.00. The NLRC determined the petitioners backwages as limited to three (3) months of his last monthly salary, considering that his employment with Royale was only for a period for one (1) month and three (3) days, thus:
11

On the other hand, while complainant is entitled to backwages, We are aware that his stint with respondent Royal (sic) lasted only for one (1) month and three (3) days such that it is Our considered view that his backwages should be limited to only three (3) months.

Backwages:

[P]5,200.00 x 3 months = [P]15,600.00

12

The petitioner, on the other hand, did not appeal LA Gutierrezs May 11, 2005 Decision but opted to raise the validity of LA Gutierrezs adverse findings with respect to piercing Royales corporate personality and computation of his separation pay in his Reply to the respondents Memorandum of Appeal. As the filing of an appeal is the prescribed remedy and no aspect of the decision can be overturned by a mere reply, the NLRC dismissed the petitioners efforts to reverse LA Gutierrezs disposition of these issues. Effectively, the petitioner had already waived his right to

question LA Gutierrezs Decision when he failed to file an appeal within the reglementary period. The NLRC held:

On the other hand, in complainants Reply to Respondents Appeal Memorandum he prayed that the doctrine of piercing the veil of corporate fiction of respondent be applied so that his services with Sceptre since 1976 [will not] be deleted. If complainant assails this particular finding in the Labor Arbiters Decision, complainant should have filed an appeal and not seek a relief by merely filing a Reply to Respondents Appeal Memorandum.
13

Consequently, the petitioner elevated the NLRCs November 30, 2005 Decision to the CA by way of a Petition for Certiorari under Rule 65 of the Rules of Court. On the other hand, the respondents filed no appeal from the NLRCs finding that the petitioner was illegally dismissed.

The CA, in consideration of substantial justice and the jurisprudential dictum that an appealed case is thrown open for the appellate courts review, disagreed with the NLRC and proceeded to review the evidence on record to determine if Royale is Sceptres alter ego that would warrant the piercing of its corporate veil. According to
14

the CA, errors not assigned on appeal may be reviewed as technicalities should not serve as bar to the full adjudication of cases. Thus:

In Cuyco v. Cuyco, which We find application in the instant case, the Supreme Court held:

In their Reply, petitioners alleged that their petition only raised the sole issue of interest on the interest due, thus, by not filing their own petition for review, respondents waived their privilege to bring matters for the Courts review that [does] not deal with the sole issue raised.

Procedurally, the appellate court in deciding the case shall consider only the assigned errors, however, it is equally settled that the Court is clothed with ample authority to review matters not assigned as errors in an appeal, if it finds that their consideration is necessary to arrive at a just disposition of the case.

Therefore, for full adjudication of the case, We have to primarily resolve the issue of whether the doctrine of piercing the corporate veil be justly applied in order to determine petitioners length of service with private respondents. (citations omitted)
15

Nonetheless, the CA ruled against the petitioner and found the evidence he submitted to support his allegation that Royale and Sceptre are one and the same juridical entity to be wanting. The CA refused to pierce Royales corporate mask as one of the probative factors that would justify the application of the doctrine of piercing the corporate veil is stock ownership by one or common ownership of both corporations and the petitioner failed to present clear and convincing proof that Royale and Sceptre are commonly owned or controlled. The relevant portions of the CAs Decision state:

In the instant case, We find no evidence to show that Royale Security Agency, Inc. (hereinafter Royale), a corporation duly registered with the Securities and Exchange Commission (SEC) and Sceptre Security Agency (hereinafter Sceptre), a single proprietorship, are one and the same entity.

Petitioner, who has been with Sceptre since 1976 and, as ruled by both the Labor Arbiter and the NLRC, was illegally dismissed by Royale on October 1, 2003, alleged that in order to circumvent labor laws, especially to avoid payment of money claims and the consideration on the length of service of its employees, Royale was established as an alter ego or business conduit of Sceptre. To prove his claim, petitioner declared that Royale is conducting business in the same office of Sceptre, the latter being owned by the late retired Gen. Roso Sabalones, and was managed by the latters daughter, Dr. Aida Sabalones-Tan; that two of Royales incorporators are grandchildren [of] the late Gen. Roso Sabalones; that all the properties of Sceptre are now owned by Royale, and that the officers and staff of both business establishments are the same; that the heirs of Gen. Sabalones should have applied for dissolution of Sceptre before the SEC before forming a new corporation.

On the other hand, private respondents declared that Royale was incorporated only on March 10, 2003 as evidenced by the Certificate of Incorporation issued by the SEC on the same date; that Royales incorporators are Bruino M. Kuizon, Wilfredo Gracia K. Tan, Karen Therese S. Tan, Cesar Antonio S. Tan II and [Gabeth] Maria K. Tan.

Settled is the tenet that allegations in the complaint must be duly proven by competent evidence and the burden of proof is on the party making the allegation. Further, Section 1 of Rule 131 of the Revised Rules of Court provides:

SECTION 1. Burden of proof. Burden of proof is the duty of a party to present evidence on the facts in issue necessary to establish his claim or defense by the amount of evidence required by law.

We believe that petitioner did not discharge the required burden of proof to establish his allegations. As We see it, petitioners claim that Royale is an alter ego or business conduit of Sceptre is without basis because aside from the fact that there is no common ownership of both Royale and Sceptre, no evidence on record would prove that Sceptre, much less the late retired Gen. Roso Sabalones or his heirs, has control or complete domination of Royales finances and business transactions. Absence of this first element, coupled by petitioners failure to

present clear and convincing evidence to substantiate his allegations, would prevent piercing of the corporate veil. Allegations must be proven by sufficient evidence. Simply stated, he who alleges a fact has the burden of proving it; mere allegation is not evidence. (citations omitted)
16

By way of this Petition, the petitioner would like this Court to revisit the computation of his backwages, claiming that the same should be computed from the time he was illegally dismissed until the finality of this decision. The petitioner would likewise
17

have this Court review and examine anew the factual allegations and the supporting evidence to determine if the CA erred in its refusal to pierce Royales corporate mask and rule that it is but a mere continuation or successor of Sceptre. According to the petitioner, the erroneous computation of his separation pay was due to the CAs failure, as well as the NLRC and LA Gutierrez, to consider evidence conclusively demonstrating that Royale and Sceptre are one and the same juridical entity. The petitioner claims that since Royale is no more than Sceptres alter ego, it should recognize and credit his length of service with Sceptre.
18

The petitioner claimed that Royale and Sceptre are not separate legal persons for purposes of computing the amount of his separation pay and other benefits under the Labor Code. The piercing of Royales corporate personality is justified by several indicators that Royale was incorporated for the sole purpose of defeating his right to security of tenure and circumvent payment of his benefits to which he is entitled under the law: (i) Royale was holding office in the same property used by Sceptre as its principal place of business; (ii) Sceptre and Royal have the same officers and
19

employees; (iii) on October 14, 1994, Roso, the sole proprietor of Sceptre, sold to
20

Aida, and her husband, Wilfredo Gracia K. Tan (Wilfredo), the property used by
21

Sceptre as its principal place of business; (iv) Wilfredo is one of the incorporators of
22

Royale; (v) on May 3, 1999, Roso ceded the license to operate Sceptre issued by the
23

Philippine National Police to Aida; (vi) on July 28, 1999, the business name Sceptre
24

Security & Detective Agency was registered with the Department of Trade and Industry (DTI) under the name of Aida; (vii) Aida exercised control over the affairs
25

of Sceptre and Royale, as she was, in fact, the one who dismissed the petitioner from employment; (viii) Karen, the daughter of Aida, was Sceptres Operation Manager
26

and is one of the incorporators of Royale; and (ix) Cesar Tan II, the son of Aida was
27

one of Sceptres officers and is one of the incorporators of Royale.

28

In their Comment, the respondents claim that the petitioner is barred from questioning the manner by which his backwages and separation pay were computed. Earlier, the petitioner moved for the execution of the NLRCs November 30, 2005 Decision and the respondents paid him the full amount of the monetary award
29

thereunder shortly after the writ of execution was issued. The respondents likewise
30

maintain that Royales separate and distinct corporate personality should be respected considering that the evidence presented by the petitioner fell short of establishing that Royale is a mere alter ego of Sceptre.

The petitioner does not deny that he has received the full amount of backwages and separation pay as provided under the NLRCs November 30, 2005 Decision.
31

However, he claims that this does not preclude this Court from modifying a decision that is tainted with grave abuse of discretion or issued without jurisdiction.
32

ISSUES

Considering the conflicting submissions of the parties, a judicious determination of their respective rights and obligations requires this Court to resolve the following substantive issues:

a. Whether Royales corporate fiction should be pierced for the purpose of compelling it to recognize the petitioners length of service with Sceptre and for holding it liable for the benefits that have accrued to him arising from his employment with Sceptre; and

b. Whether the petitioners backwages should be limited to his salary for three (3) months.

OUR RULING

Because his receipt of the proceeds of the award under the NLRCs November 30, 2005 Decision is qualified and without prejudice to the CAs resolution of his petition for certiorari, the petitioner is not barred from exercising his right to elevate the decision of the CA to this Court.

Before this Court proceeds to decide this Petition on its merits, it is imperative to resolve the respondents contention that the full satisfaction of the award under the NLRCs November 30, 2005 Decision bars the petitioner from questioning the validity thereof. The respondents submit that they had paid the petitioner the amount of P21,521.67 as directed by the NLRC and this constitutes a waiver of his right to file an appeal to this Court.

The respondents fail to convince.

The petitioners receipt of the monetary award adjudicated by the NLRC is not absolute, unconditional and unqualified. The petitioners May 3, 2007 Motion for Release contains a reservation, stating in his prayer that: it is respectfully prayed that the respondents and/or Great Domestic Insurance Co. be ordered to RELEASE/GIVE the amount of P23,521.67 in favor of the complainant TIMOTEO H. SARONA without prejudice to the outcome of the petition with the CA.
33

In Leonis Navigation Co., Inc., et al. v. Villamater, et al., this Court ruled that
34

the prevailing partys receipt of the full amount of the judgment award pursuant to a writ of execution issued by the labor arbiter does not close or terminate the case if such receipt is qualified as without prejudice to the outcome of the petition for certiorari pending with the CA.

Simply put, the execution of the final and executory decision or resolution of the NLRC shall proceed despite the pendency of a petition for certiorari, unless it is restrained by the proper court. In the present case, petitioners already paid Villamaters widow, Sonia, the amount of P3,649,800.00, representing the total and permanent disability award plus attorneys fees, pursuant to the Writ of Execution issued by the Labor Arbiter. Thereafter, an Order was issued declaring the case as "closed and terminated". However, although there was no motion for reconsideration of this last Order, Sonia was, nonetheless, estopped from claiming that the controversy had already reached its end with the issuance of the Order closing and terminating the case. This is because the Acknowledgment Receipt she signed when she received petitioners payment was without prejudice to the final outcome of the petition for certiorari pending before the CA.
35

The finality of the NLRCs decision does not preclude the filing of a petition for certiorari under Rule 65 of the Rules of Court. That the NLRC issues an entry of judgment after the lapse of ten (10) days from the parties receipt of its decision will
36

only give rise to the prevailing partys right to move for the execution thereof but will not prevent the CA from taking cognizance of a petition for certiorari on jurisdictional and due process considerations. In turn, the decision rendered by the
37

CA on a petition for certiorari may be appealed to this Court by way of a petition for review on certiorari under Rule 45 of the Rules of Court. Under Section 5, Article VIII of the Constitution, this Court has the power to review, revise, reverse, modify, or affirm on appeal or certiorari as the law or the Rules of Court may provide, final judgments and orders of lower courts in x x x all cases in which only an error or question of law is involved. Consistent with this constitutional mandate, Rule 45 of the Rules of Court provides the remedy of an appeal by certiorari from decisions, final orders or resolutions of the CA in any case, i.e., regardless of the nature of the action or proceedings involved, which would be but a continuation of the appellate process over the original case. Since an appeal to this Court is not an original and independent action but a
38

continuation of the proceedings before the CA, the filing of a petition for review

under Rule 45 cannot be barred by the finality of the NLRCs decision in the same way that a petition for certiorari under Rule 65 with the CA cannot.

Furthermore, if the NLRCs decision or resolution was reversed and set aside for being issued with grave abuse of discretion by way of a petition for certiorari to the CA or to this Court by way of an appeal from the decision of the CA, it is considered void ab initio and, thus, had never become final and executory.
39

A Rule 45 Petition should be confined to questions of law. Nevertheless, this Court has the power to resolve a question of fact, such as whether a corporation is a mere alter ego of another entity or whether the corporate fiction was invoked for fraudulent or malevolent ends, if the findings in assailed decision is not supported by the evidence on record or based on a misapprehension of facts.

The question of whether one corporation is merely an alter ego of another is purely one of fact. So is the question of whether a corporation is a paper company, a sham or subterfuge or whether the petitioner adduced the requisite quantum of evidence warranting the piercing of the veil of the respondents corporate personality.
40

As a general rule, this Court is not a trier of facts and a petition for review on certiorari under Rule 45 of the Rules of Court must exclusively raise questions of law. Moreover, if factual findings of the NLRC and the LA have been affirmed by the CA, this Court accords them the respect and finality they deserve. It is well-settled and oft-repeated that findings of fact of administrative agencies and quasi-judicial bodies, which have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded not only respect, but finality when affirmed by the CA.
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Nevertheless, this Court will not hesitate to deviate from what are clearly procedural guidelines and disturb and strike down the findings of the CA and those of the labor tribunals if there is a showing that they are unsupported by the evidence on record or there was a patent misappreciation of facts. Indeed, that the impugned decision of the CA is consistent with the findings of the labor tribunals does not per se conclusively demonstrate the correctness thereof. By way of exception to the general rule, this Court will scrutinize the facts if only to rectify the prejudice and injustice resulting from an incorrect assessment of the evidence presented.

A resolution of an issue that has supposedly become final and executory as the petitioner only raised it in his reply to the respondents appeal may be revisited by the appellate court if such is necessary for a just disposition of the case.

As above-stated, the NLRC refused to disturb LA Gutierrezs denial of the petitioners plea to pierce Royales corporate veil as the petitioner did not appeal any portion of LA Gutierrezs May 11, 2005 Decision.

In this respect, the NLRC cannot be accused of grave abuse of discretion. Under Section 4(c), Rule VI of the NLRC Rules, the NLRC shall limit itself to reviewing
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and deciding only the issues that were elevated on appeal. The NLRC, while not totally bound by technical rules of procedure, is not licensed to disregard and violate the implementing rules it implemented.
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Nonetheless, technicalities should not be allowed to stand in the way of equitably and completely resolving the rights and obligations of the parties. Technical rules are not binding in labor cases and are not to be applied strictly if the result would be detrimental to the working man. This Court may choose not to encumber itself with
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technicalities and limitations consequent to procedural rules if such will only serve as a hindrance to its duty to decide cases judiciously and in a manner that would put an end with finality to all existing conflicts between the parties.

Royale is a continuation or successor of Sceptre.

A corporation is an artificial being created by operation of law. It possesses the right of succession and such powers, attributes, and properties expressly authorized by law

or incident to its existence. It has a personality separate and distinct from the persons composing it, as well as from any other legal entity to which it may be related. This is basic.
45

Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is just an alter ego of a person or of another corporation. For reasons of public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against third persons.
46

Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court should be mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of rights. The wrongdoing must be clearly and convincingly established; it cannot be presumed. Otherwise, an injustice that was never unintended may result from an erroneous application.
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Whether the separate personality of the corporation should be pierced hinges on obtaining facts appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with caution, albeit the Court will not hesitate to disregard the corporate veil when it is misused or when necessary in the interest of justice. After all, the concept of corporate entity was not meant to promote unfair objectives.
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The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.
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In this regard, this Court finds cogent reason to reverse the CAs findings. Evidence abound showing that Royale is a mere continuation or successor of Sceptre and fraudulent objectives are behind Royales incorporation and the petitioners subsequent employment therein. These are plainly suggested by events that the respondents do not dispute and which the CA, the NLRC and LA Gutierrez accept as fully substantiated but misappreciated as insufficient to warrant the use of the equitable weapon of piercing.

As correctly pointed out by the petitioner, it was Aida who exercised control and supervision over the affairs of both Sceptre and Royale. Contrary to the submissions of the respondents that Roso had been the only one in sole control of Sceptres finances and business affairs, Aida took over as early as 1999 when Roso assigned his license to operate Sceptre on May 3, 1999. As further proof of Aidas
50

acquisition of the rights as Sceptres sole proprietor, she caused the registration of the business name Sceptre Security & Detective Agency under her name with the DTI a

few months after Roso abdicated his rights to Sceptre in her favor. As far as Royale
51

is concerned, the respondents do not deny that she has a hand in its management and operation and possesses control and supervision of its employees, including the petitioner. As the petitioner correctly pointed out, that Aida was the one who decided to stop giving any assignments to the petitioner and summarily dismiss him is an eloquent testament of the power she wields insofar as Royales affairs are concerned. The presence of actual common control coupled with the misuse of the corporate form to perpetrate oppressive or manipulative conduct or evade performance of legal obligations is patent; Royale cannot hide behind its corporate fiction.

Aidas control over Sceptre and Royale does not, by itself, call for a disregard of the corporate fiction. There must be a showing that a fraudulent intent or illegal purpose is behind the exercise of such control to warrant the piercing of the corporate veil. However, the manner by which the petitioner was made to resign from Sceptre
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and how he became an employee of Royale suggest the perverted use of the legal fiction of the separate corporate personality. It is undisputed that the petitioner tendered his resignation and that he applied at Royale at the instance of Karen and Cesar and on the impression they created that these were necessary for his continued employment. They orchestrated the petitioners resignation from Sceptre and subsequent employment at Royale, taking advantage of their ascendancy over the petitioner and the latters lack of knowledge of his rights and the consequences of his actions. Furthermore, that the petitioner was made to resign from Sceptre and apply with Royale only to be unceremoniously terminated shortly thereafter leads to the ineluctable conclusion that there was intent to violate the petitioners rights as an employee, particularly his right to security of tenure. The respondents scheme reeks of bad faith and fraud and compassionate justice dictates that Royale and Sceptre be merged as a single entity, compelling Royale to credit and recognize the petitioners

length of service with Sceptre. The respondents cannot use the legal fiction of a separate corporate personality for ends subversive of the policy and purpose behind its creation or which could not have been intended by law to which it owed its being.
53 54

For the piercing doctrine to apply, it is of no consequence if Sceptre is a sole proprietorship. As ruled in Prince Transport, Inc., et al. v. Garcia, et al., it is the act
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of hiding behind the separate and distinct personalities of juridical entities to perpetuate fraud, commit illegal acts, evade ones obligations that the equitable piercing doctrine was formulated to address and prevent:

A settled formulation of the doctrine of piercing the corporate veil is that when two business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that these two entities are distinct and treat them as identical or as one and the same. In the present case, it may be true that Lubas is a single proprietorship and not a corporation. However, petitioners attempt to isolate themselves from and hide behind the supposed separate and distinct personality of Lubas so as to evade their liabilities is precisely what the classical doctrine of piercing the veil of corporate entity seeks to prevent and remedy.
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Also, Sceptre and Royale have the same principal place of business. As early as October 14, 1994, Aida and Wilfredo became the owners of the property used by Sceptre as its principal place of business by virtue of a Deed of Absolute Sale they executed with Roso. Royale, shortly after its incorporation, started to hold office in
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the same property. These, the respondents failed to dispute.

The respondents do not likewise deny that Royale and Sceptre share the same officers and employees. Karen assumed the dual role of Sceptres Operation Manager and incorporator of Royale. With respect to the petitioner, even if he has already resigned from Sceptre and has been employed by Royale, he was still using the patches and agency cloths of Sceptre during his assignment at Highlight Metal.

Royale also claimed a right to the cash bond which the petitioner posted when he was still with Sceptre. If Sceptre and Royale are indeed separate entities, Sceptre should have released the petitioners cash bond when he resigned and Royale would have required the petitioner to post a new cash bond in its favor.

Taking the foregoing in conjunction with Aidas control over Sceptres and Royales business affairs, it is patent that Royale was a mere subterfuge for Aida. Since a sole proprietorship does not have a separate and distinct personality from that of the owner of the enterprise, the latter is personally liable. This is what she sought to avoid but cannot prosper.

Effectively, the petitioner cannot be deemed to have changed employers as Royale and Sceptre are one and the same. His separation pay should, thus, be computed from the date he was hired by Sceptre in April 1976 until the finality of this decision. Based on this Courts ruling in Masagana Concrete Products, et al. v. NLRC, et al., the intervening period between the day an employee was illegally
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dismissed and the day the decision finding him illegally dismissed becomes final and

executory shall be considered in the computation of his separation pay as a period of imputed or putative service:

Separation pay, equivalent to one month's salary for every year of service, is awarded as an alternative to reinstatement when the latter is no longer an option. Separation pay is computed from the commencement of employment up to the time of termination, including the imputed service for which the employee is entitled to backwages, with the salary rate prevailing at the end of the period of putative service being the basis for computation.
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It is well-settled, even axiomatic, that if reinstatement is not possible, the period covered in the computation of backwages is from the time the employee was unlawfully terminated until the finality of the decision finding illegal dismissal.

With respect to the petitioners backwages, this Court cannot subscribe to the view that it should be limited to an amount equivalent to three (3) months of his salary. Backwages is a remedy affording the employee a way to recover what he has lost by reason of the unlawful dismissal. In awarding backwages, the primordial
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consideration is the income that should have accrued to the employee from the time that he was dismissed up to his reinstatement and the length of service prior to his
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dismissal is definitely inconsequential.

As early as 1996, this Court, in Bustamante, et al. v. NLRC, et al., clarified in


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no uncertain terms that if reinstatement is no longer possible, backwages should be computed from the time the employee was terminated until the finality of the decision, finding the dismissal unlawful.

Therefore, in accordance with R.A. No. 6715, petitioners are entitled on their full backwages, inclusive of allowances and other benefits or their monetary equivalent, from the time their actual compensation was withheld on them up to the time of their actual reinstatement.

As to reinstatement of petitioners, this Court has already ruled that reinstatement is no longer feasible, because the company would be adjustly prejudiced by the continued employment of petitioners who at present are overage, a separation pay equal to one-month salary granted to them in the Labor Arbiter's decision was in order and, therefore, affirmed on the Court's decision of 15 March 1996. Furthermore, since reinstatement on this case is no longer feasible, the amount of backwages shall be computed from the time of their illegal termination on 25 June 1990 up to the time of finality of this decision. (emphasis supplied)
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A further clarification was made in Javellana, Jr. v. Belen:

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Article 279 of the Labor Code, as amended by Section 34 of Republic Act 6715 instructs:

Art. 279. Security of Tenure. - In cases of regular employment, the employer shall not terminate the services of an employee except for a just cause or when authorized by this Title. An employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges and to his full backwages, inclusive of allowances, and to his other benefits or their

monetary equivalent computed from the time his compensation was withheld from him up to the time of his actual reinstatement.

Clearly, the law intends the award of backwages and similar benefits to accumulate past the date of the Labor Arbiter's decision until the dismissed employee is actually reinstated. But if, as in this case, reinstatement is no longer possible, this Court has consistently ruled that backwages shall be computed from the time of illegal dismissal until the date the decision becomes final.65 (citation omitted)

In case separation pay is awarded and reinstatement is no longer feasible, backwages shall be computed from the time of illegal dismissal up to the finality of the decision should separation pay not be paid in the meantime. It is the employees actual receipt of the full amount of his separation pay that will effectively terminate the employment of an illegally dismissed employee. Otherwise, the employer-employee relationship subsists and the illegally dismissed employee is entitled to backwages, taking into account the increases and other benefits, including the 13th month pay, that were received by his co-employees who are not dismissed. It is the obligation of the
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employer to pay an illegally dismissed employee or worker the whole amount of the salaries or wages, plus all other benefits and bonuses and general increases, to which he would have been normally entitled had he not been dismissed and had not stopped working.
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In fine, this Court holds Royale liable to pay the petitioner backwages to be computed from his dismissal on October 1, 2003 until the finality of this decision. Nonetheless, the amount received by the petitioner from the respondents in satisfaction of the November 30, 2005 Decision shall be deducted accordingly.

Finally, moral damages and exemplary damages at P25,000.00 each as indemnity for the petitioners dismissal, which was tainted by bad faith and fraud, are in order. Moral damages may be recovered where the dismissal of the employee was tainted by bad faith or fraud, or where it constituted an act oppressive to labor, and done in a manner contrary to morals, good customs or public policy while exemplary damages are recoverable only if the dismissal was done in a wanton, oppressive, or malevolent manner.
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WHEREFORE, premises considered, the Petition is hereby GRANTED. We REVERSE and SET ASIDE the CAs May 29, 2008 Decision in C.A.-G.R. SP No. 02127 and order the respondents to pay the petitioner the following minus the amount of (P23,521.67) paid to the petitioner in satisfaction of the NLRCs November 30, 2005 Decision in NLRC Case No. V-000355-05:

a) full backwages and other benefits computed from October 1, 2003 (the date Royale illegally dismissed the petitioner) until the finality of this decision;

b) separation pay computed from April 1976 until the finality of this decision at the rate of one month pay per year of service;

c) ten percent (10%) attorneys fees based on the total amount of the awards under (a) and (b) above;

d) moral damages of Twenty-Five Thousand Pesos (P25,000.00); and

5. exemplary damages of Twenty-Five Thousand Pesos (P25,000.00).

This case is REMANDED to the labor arbiter for computation of the separation pay, backwages, and other monetary awards due the petitioner.

SO ORDERED.