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G.R. No.

171626 August 6, 2014 shall be paid by the LWD an amount not exceeding three percent (3%) of the LWD’s
gross receipts from water sales in any year.12
OLONGAPO CITY, Petitioner,
vs. On October 24, 1990, petitioner filed a complaint for sum of money and damages
SUBIC WATER AND SEWERAGE CO., INC., Respondent. against OCWD. Among others, petitioner alleged that OCWD failed to pay its
electricity bills to petitioner and remit its payment under the contract to pay, pursuant
DECISION to OCWD’s acquisition of petitioner’s water system. In its complaint, petitioner prayed
for the following reliefs:
"WHEREOF, it is respectfully prayed of this Honorable Court that after due hearing
and notice, judgment be rendered in favor of plaintiff ordering the defendant to:
We resolve in this petition for certiorari1 under Rule 65 the challenge to the July 6,
2005 decision2 and the January 3, 2006 resolution3 (assailed CA rulings) of the
Court of Appeals (CA) in CAG.R. SP No. 80947. (a) pay the amount of ₱26,798,223.70 plus legal interests from the filing of
the Complaint to actual full payment;
These assailed CA rulings annulled and set aside: a) the July 29, 2003 order4 of the
Regional Trial Court of Olongapo, Br. 75 (RTC Olongapo ), which directed the (b) pay the amount of its in lieu share representing three percent of the
issuance of a writ of execution in Civil Case No. 582-0-90, against respondent Subic defendant’s gross receipts from water sales starting 1981 up to present;
Water and Sewerage Co., Inc. (Subic Water); b) the July 31, 2003 writ of
execution5subsequently issued by the same court; and c) the October 7, 2003 (c) pay the amount of ₱1,000,000 as moral damages; and
order6 of R TC Olongapo, denying Subic Water's special appearance with motion to
reconsider order dated July 29, 2003 and to quash writ of execution dated July 31, (d) pay the cost of suit and other litigation expenses."13
In its answer,14 OCWD posed a counterclaim against petitioner for unpaid water bills
Factual Antecedents amounting to ₱3,080,357.00.15

On May 25, 1973, Presidential Decree No. 1988 (PD 198) took effect. This law In the interim, OCWD entered into a Joint Venture Agreement16 (JVA) with Subic
authorized the creation of local water districts which may acquire, install, maintain Bay Metropolitan Authority (SBMA), Biwater International Limited (Biwater), and D.M.
and operate water supply and distribution systems for domestic, industrial, municipal Consunji, Inc. (DMCI) on November 24, 1996. Pursuant to this agreement, Subic
and agricultural uses.9 Water– a new corporate entity – was incorporated, withthe following equity
participation from its shareholders:
Pursuant to PD 198, petitioner Olongapo City (petitioner) passed Resolution No. 161,
which transferred all itsexisting water facilities and assets under the Olongapo City SBMA 19.99% or 20%
Public Utilities Department Waterworks Division, to the jurisdiction and ownership of
the Olongapo City Water District (OCWD).10
OCWD 9.99% or 10%

PD 198, as amended,11 allows local water districts (LWDs)which have acquired an

Biwater 29.99% or 30%
existing water system of a localgovernment unit (LGU) to enter into a contract to pay
the concerned LGU. In lieu of the LGU’s share in the acquired water utility plant, it
DMCI 39.99% or 40%17
On November 24, 1996, Subic Water was granted the franchise to operate and to claiming to be OCWD’s former counsel, filed a manifestation alleging that OCWD had
carry on the businessof providing water and sewerage services in the Subic BayFree already been dissolved and that Subic Water is now the former OCWD.29
Port Zone, as well as in Olongapo City.18 Hence, Subic Water took over OCWD’s
water operations in Olongapo City.19 Because of this assertion, Subic Water also filed a manifestation informing the trial
court that as borne out by the articles of incorporation and general information sheet
To finally settle their money claims against each other, petitioner and OCWD entered of Subic Water x x x defendant OCWD is not Subic Water.30The manifestation also
into a compromise agreement20 on June 4, 1997. In this agreement, petitioner and indicated that OCWD was only a ten percent (10%) shareholder of Subic Water; and
OCWD offset their respective claims and counterclaims. OCWD also undertook to that its 10% share was already inthe process of being transferred to petitioner
pay to petitioner its net obligation amounting to ₱135,909,467.09, to be amortized for pursuant to the Deed of Assignment dated November 24, 1997.31
a period of not exceeding twenty-five (25) years at twenty-fourpercent (24%) per
annum.21 The trial court granted the motion for execution and directed its issuance against
OCWD and/or Subic Water. Because of this unfavorable order, Subic Water filed a
The compromise agreement also contained a provision regarding the parties’ special appearance with motion to: (1) reconsider order dated July29, 2003; and (2)
requestthat Subic Water, Philippines,which took over the operations of the defendant quash writ of execution dated July 31, 2003.32
Olongapo City Water District be made the co-makerfor OCWD’s obligations. Mr. Noli
Aldip, then chairman of Subic Water, acted as its representative and signed the The trial court denied Subic Water’s special appearance, motion for reconsideration,
agreement on behalf of Subic Water. and its motion to quash. Subic Water then filed a petition for certiorari33 with the CA,
imputing grave abuse of discretion amounting to lack or excess of jurisdiction to RTC
Subsequently, the parties submitted the compromise agreement to RTC Olongapo Olongapo for issuing its July 29, 2003 and October 7, 2003 orders aswell as the writ
for approval. In its decision dated June 13, 1997,22 the trial court approved the of execution dated July 31, 2003. The CA’s Ruling
compromiseagreement and adopted it as its judgment in Civil Case No. 580-0-90.
In its decision dated July 6, 2005,34 the CA granted Subic Water’s petition for
Pursuant to the compromise agreement and in payment of OCWD’s obligations to certiorariand reversed the trial court’s rulings.
petitioner,petitioner and OCWD executed a Deed of Assignment onNovember 24,
1997.23 OCWD assigned all of its rights in the JVA in favor of the petitioner, including The CA found that the writ ofexecution dated July 31, 200335 did not comply with
but not limited to the assignment of its shares, lease payments, regulatory assistance Section 6, Rule 39 of the Rules of Court, to wit:
fees and other receivables arising out of or related to the Joint Venture Agreement
and the Lease Agreement.24 On December 15,1998, OCWD was judicially Section 6. Execution by motion orby independent action. — A final and executory
judgment or order may be executed on motion within five (5) years from the date of
its entry. After the lapse of such time, and before it is barred by the statute of
On May 7, 1999, to enforce the compromise agreement, the petitioner filed a motion limitations, a judgment may be enforced by action. The revived judgment may also be
for the issuance of a writ of execution26 with the trial court. In its July 23, 1999 enforced by motion within five (5) years from the date of its entry and thereafter by
order,27 the trial court granted the motion, but did not issue the corresponding writ of action before it is barred by the statute of limitations. (6a)[emphasis ours]
A judgment on a compromiseagreement is immediately executory and is considered
Almost four years later, on May 30, 2003, the petitioner, through its new counsel, filed to have been entered on the date it was approved by the trial court.36 Since the
a notice of appearance with urgent motion/manifestation28 and prayed again for the compromise agreement was approved and adoptedby the trial court on June 13,
issuance of a writ of execution against OCWD. A certain Atty. Segundo Mangohig, 1997, this should be the reckoning date for the counting of the period for the filing of
a valid motion for issuance of a writ of execution. Petitioner thus had until June 13, We DISMISSthe petition for being the wrong remedy and, in any case, for lack of
2002, to file its motion. merit; what we have before us is a final judgment that we can no longer touch unless
there is grave abuse of discretion.
The CA further remarked that whileit was true that a motion for execution was filed by
petitioner on May 7, 1999, and the same was granted by the trial court in its July 23, A. Procedural Law Aspect
1999 order,37 no writ of execution was actually issued.
Certiorari is not a substitute for a lost appeal.
As the CA looked at the case, petitioner, instead of following up with the trial court the
issuance ofthe writ of execution, did not do anything to secure its prompt issuance. It At the outset, we emphasize thatthe present petition, brought under Rule 65, merits
waitedanother four years to file a second motion for execution on May 30, outright dismissal for having availed an improper remedy.
2003.38 By this time, the allowed period for the filing of a motion for the issuance of
the writ had already lapsed. Hence, the trial court’s July 29, 2003 order granting the The instant petition should havebeen brought under Rule 45 in a petition for review
issuance of the writ was null and void for having been issued by a court without on certiorari. Section 1 of this Rule mandates:
Section 1. Filing of petition with Supreme Court. — A party desiring to appeal by
The CA denied petitioner’s subsequentmotion for reconsideration. Petitioner is now
certiorari from a judgment or final order or resolution of the Court of Appeals, the
before us on a petition for certiorari under Rule 65. Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law,
may file with the Supreme Court a verified petition for review on certiorari. The
The Petition petition shall raise only questions of law which must be distinctly set forth. (1a, 2a)
[emphasis supplied]
The petitioner acknowledged the rule that the execution of a judgment could no
longer be made by mere motion after the prescribed five-year period had already Supplementing Rule 45 are Sections 341 and 442 of Rule 56 which govern the
lapsed. However, it argued that the delay for the issuance of the writ of execution applicable procedure in the Supreme Court.
was caused by OCWD and Subic Water. The petitioner submitted that this Court had
allowed execution by mere motion even after the lapse ofthe five-year period, when
Appeals from judgmentsor final orders or resolutions of the CA should be made
the delay was caused or occasioned by the actions of the judgment debtor.39
through a verified petition for review on certiorari under Rule 45.43 In this case,
petitioner questioned the July 6, 2005 decision44 and the January 3, 2006
Also, the petitioner asserted that although Subic Water was not a party in the case, it resolution45 of the CA which declared as null and void the writ of execution issued by
could still be subjected to a writ of execution, since it was identified as OCWD’s co- the trial court. Since the CA’s pronouncement completely disposed of the case and
maker and successor-in-interest in the compromise agreement.40 the issues raised by the parties, it was the proper subject of a Rule 45 petition. It was
already a final order that resolved the subject matter in its entirety, leaving nothing
Lastly, the petitioner contended that the compromise agreement was signed by Mr. else to be done.
Noli R. Aldip,then Subic Water’s chairman, signifying Subic Water’s consent to the
agreement. A petition for certiorari under Rule 65 is appropriate only if there is no appeal, or any
plain, speedy, and adequate remedy in the ordinary course of law available tothe
The Court’s Ruling aggrieved party. As we have distinctly explained in the case of Pasiona v. Court of
The aggrieved party is proscribed from assailing a decision or final order of the CA These two modes of execution are available depending on the timing when the
viaRule 65 because such recourse is proper only if the party has no plain,speedy and judgmentcreditor invoked its right to enforce the court’s judgment. Execution by
adequate remedy in the course of law. In this case, petitioner had an adequate motion is only available if the enforcement of the judgment was sought within five (5)
remedy, namely, a petition for review on certiorari under Rule 45 ofthe Rules of years from the date of its entry. On the other hand, execution by independent action
Court.A petition for review on certiorari, not a special civil action for certiorari was, is mandatory if the five-year prescriptive period for execution by motion had already
therefore, the correct remedy. elapsed.51 However, for execution by independent action to prosper – the Rules
impose another limitation – the action must be filed before it is barred by the statute
xxxx of limitations which, under the Civil Code, is ten (10) years from the finality of the
Settled is the rule that where appeal is available to the aggrieved party, the special
civil actionfor certiorari will not be entertained – remedies of appealand certiorari are On May 7, 1999, within the five-year period from the trial court’s judgment, petitioner
mutually exclusive, not alternative or successive. Hence, certiorari is not and cannot filed its motion for the issuance of a writ of execution. However, despite the grant of
be a substitute for a lost appeal,especially if one's own negligence or error in one's the motion, the court did not issue an actual writ. It was only onMay 30, 2003 that
choice of remedy occasioned such loss or lapse.47 [emphasis ours] petitioner filed a second motion to ask again for the writ’s issuance. By this time, the
allowed five-year period for execution by motion had already lapsed.
The petitioner received the CA’s assailed resolution denying its motion for
reconsideration on January 9, 2006. Following Rule 45, Section 2 of the Rules of As will be discussed below, since the second motion was filed beyond the five-year
Court,48 the petitioner had until January 24, 2006 to file its petition for review. It could prescriptive period set by the Rules, then the writ of execution issued by the trial
have even filed a motion for a 30-day extension of time, a motion that this Court court on July 31, 2003 was null and void for having been issued by a court already
grants for justifiable reasons.49 But all of these, it failed to do. Thus, the assailed CA ousted ofits jurisdiction.
rulings became final and executory and could no longer be the subject of an appeal.
In Arambulo v. Court of First Instance of Laguna,53 we explained the rule that the
Apparently, to revive its lost appeal, petitioner filed the present petition for certiorari jurisdiction of a court to issue a writ of execution by motion is only effective within the
that – under Rule 65 – may be filed within sixty days from the promulgation of the five-year period from the entry of judgment. Outside this five-year period, any writ of
assailed CA resolution (on January 3, 2006). A Rule 65 petition for certiorari, execution issued pursuant to a motion filed by the judgment creditor, is null and void.
however, cannot be a substitute for a lost appeal. With the lapse of the prescribed If no writ of execution was issued by the court within the five-year period, even a
period for appeal without an action from the petitioner, the present petition for motion filed within such prescriptive period would not suffice. A writ issued by the
certiorari– a mere replacement –must be dismissed. court after the lapse of the five-year period is already null and void.54The judgment
creditor’s only recourse then is to file an independent action, which must also be
within the prescriptive period set by law for the enforcement of judgments.
But even without the procedural infirmity, the present recourse to us has no basis on
the merits and must be denied.
This Court subsequently reiterated its Arambuloruling in Ramos v.
Execution by motion is only available within the five-year period from entry of Garciano,55 where we said:
There seems to be no serious dispute that the 4th alias writ of execution was issued
eight (8) daysafter the lapse of the five (5) year period from the dateof the entry of
Under Rule 39, Section 6,50 a judgment creditor has two modes in enforcing the
judgment in Civil Case No. 367. As a general rule, after the lapse of such period a
court’s judgment. Execution may be either through motion or an independent action.
judgment may be enforced only by ordinary action, not by mere motion (Section 6,
Rule 39, Rules of Court).
xxxx In the present case, the compromise agreement, although signed by Mr. Noli Aldip,
did not carry the express conformity of Subic Water. Mr. Aldip was never given any
The limitation that a judgment beenforced by execution within five years, otherwise authorization to conform to or bind Subic Water in the compromiseagreement. Also,
itloses efficacy, goes tothe very jurisdiction of the Court.A writ issued after such the agreement merely labeled Subic Water as a co-maker. It did not contain any
period is void, and the failure to object thereto does notvalidate it, for the reason that provision where Subic Water acknowledged its solidary liability with OCWD.
jurisdiction of courts is solely conferred by law and not by express or implied will of
the parties.56 [emphasis supplied] Lastly, Subic Water did not voluntarily submit tothe court’s jurisdiction. In fact, the
motion it filed was only made as a special appearance, precisely toavoid the court’s
To clearly restate these rulings, for execution by motion to be valid, the judgment acquisition of jurisdiction over its person. Without any participation inthe proceedings
creditor mustensure the accomplishment of two acts within the five-year prescriptive below, it cannot be made liable on the writ ofexecution issuedby the court a quo.
period. These are:a) the filing of the motion for the issuance of the writ of execution;
and b) the court’s actual issuance of the writ.In the instanceswhen the Court allowed B. Substantive Law Aspect
execution by motion even after the lapse of five years, we only recognized one
exception, i.e., when the delay is caused or occasioned by actions of the judgment Solidary liability mustbe expressly stated.
debtor and/or is incurred for his benefit or advantage.57However, petitioner failed
toshow or cite circumstances showing how OCWD or Subic Water caused it to
The petitioner also argued that Subic Water could be held solidarily liable under the
belatedly file its second motion for execution.
writ of execution since it was identified as OCWD’s co-maker in the compromise
agreement.The petitioner’s basis for this is the following provision of the agreement:
Strictly speaking, the issuance of the writ should have been a ministerial duty on the
partof the trial court after it gave its July 23, 1999 order, approving the first motion
4. Both parties also requestthat Subic Water,Philippines which took over the
and directing the issuance of such writ. The petitioner could have easily compelled
operations of the defendant Olongapo City Water District be made as co-makerfor
the court to actually issue the writ by filing a manifestation onthe existence of the July
the obligation herein abovecited.59 [emphasis supplied]
23, 1999 order. However, petitioner idly sat and waited for the five-year period to
lapse before it filed its second motion. Having slept on its rights, petitioner had no
one to blame but itself. As the rule stands, solidary liability is not presumed. This stems from Art. 1207 of the
Civil Code, which provides:
A writ of execution cannot affect a non- party to a case.
Art. 1207. x x x There is a solidary liability only when the obligation expressly so
states, or when the law orthe nature of the obligation requiressolidarity. [emphasis
Strangers to a case are not bound by the judgment rendered in it. Thus, a writ of
execution can only beissued against a party and not against one who did not have
his day in court.58
In Palmares v. Court of Appeals,60 the Court did not hesitate to rule that although a
party to a promissory note was onlylabeled as a comaker, his liability was that ofa
Subic Water never participated in the proceedings in Civil Case No. 580-0-90, where
surety, since the instrument expressly provided for his joint and several liabilitywith
OCWD and petitioner were the contending parties. Subic Water only came into the
the principal.
picture when one Atty. Segundo Mangohig, claiming to beOCWD’s former counsel,
manifested before the trial court that OCWD had already been judicially dissolved
and thatSubic Water assumed OCWD’s personality. In the present case, the joint and several liability of Subic Water and OCWD was
nowhere clear in the agreement. The agreement simply and plainly stated that
petitioner and OCWD were only requestingSubic Water to be a co-maker, in view of
its assumption of OCWD’s water operations. No evidence was presented to show A corporate officer or agent may represent and bind the corporation in transactions
that such request was ever approved by Subic Water’s board of directors. with third persons to the extent that [the] authority to do so has been conferred upon
him, and this includes powers which have been intentionally conferred, and also such
Under these circumstances, petitioner cannot proceed after Subic Water for OCWD’s powers as, in the usual courseof the particular business, are incidental to, or may be
unpaid obligations. The law explicitly states that solidary liability is not presumed and implied from, the powers intentionally conferred, powers added bycustom and usage,
must be expressly provided for. Not being a surety, Subic Water is not an insurer of as usually pertaining to the particular officer or agent,and such apparent powers as
OCWD’s obligations under the compromise agreement. At best, Subic Water was the corporation has caused persons dealing with the officer oragent to believe that
merely a guarantor against whom petitioner can claim, provided it was first shown ithas conferred.64 [emphasis ours]
that: a) petitioner had already proceeded after the properties of OCWD, the principal
debtor; b) and despite this, the obligation under the compromise agreement, remains Mr. Noli Aldip signedthe compromise agreement purely in his own capacity.
to be not fully satisfied.61 But as will be discussed next, Subic Water could not also Moreover, the compromise agreement did not expressly provide that Subic Water
be recognized as a guarantorof OCWD’s obligations. consented to become OCWD’s co-maker. As worded, the compromise agreement
merely provided that both parties [also]requestSubic Water, Philippines, which took
An officer’s actions can only bind the corporation ifhe had been authorized to do so. over the operations of Olongapo City Water District be made asco-maker [for the
obligations above-cited].This request was never forwarded to Subic Water’s board of
directors. Even if due notification had been made (which does not appearin the
An examination of the compromise agreement reveals that it was not accompanied
records), Subic Water’s board does not appear to have given any approval tosuch
by any document showing a grant of authority to Mr. Noli Aldip to sign on behalf of
request. Nodocument such as the minutes of Subic Water’s board of directors’
Subic Water.
meeting or a secretary’s certificate, purporting to be an authorization to Mr. Aldip to
conform to the compromise agreement, was everpresented. In effect, Mr. Aldip’s act
Subic Water is a corporation. A corporation, as a juridical entity, primarily acts of signing the compromise agreement was outside of his authority to undertake.
through its board ofdirectors, which exercises its corporate powers. In this capacity,
the general rule is that, in the absence of authority from the board ofdirectors, no
Since Mr. Aldip was never authorized and there was no showing that Subic Water’s
person, not even its officers, can validly bind a corporation.62 Section 23 of the
Corporation Code provides: articles of incorporation or by-laws granted him such authority, then the compromise
agreement he signed cannot bind Subic Water. Subic Water cannot likewise be made
a surety or even a guarantor for OCWD’s obligations. OCWD’s debts under the
Section 23. The board of directors or trustees.– Unless otherwise provided in this compromise agreement are its own corporate obligations to petitioner.
Code, the corporate powers of all corporations formed under this Code shall be
exercised, all business conducted and all property of such corporations controlled
and held by the board of directors or trusteesto be elected from among the holders of OCWD and Subic Water are two separate and different entities.
stocks, or where there is no stock, from among the members of the corporation, who
shall hold office for one (1) year until their successors are elected and qualified. (28a) Petitioner practically suggests that since Subic Water took over OCWD’s water
[emphasis supplied] operations in OlongapoCity, it also acquired OCWD’s juridical personality, making the
two entities one and the same.
In People’s Aircargo and Warehousing Co., Inc. v. Court of Appeals,63 we held that
under Section 23 of the Corporation Code, the power and responsibility to decide This is an interpretation that we cannot make or adopt under the facts and the
whether a corporation can enter into a binding contract is lodged with the board of evidence of this case. Subic Water clearly demonstrated that it was a separate
directors, subject to the articles of incorporation, by-laws, or relevant provisions of corporate entity from OCWD. OCWD is just a ten percent (10%) shareholder of Subic
law. As we have clearly explained in another case: Water. As a mere shareholder, OCWD’s juridical personality cannot be equated nor
confused with that ofSubic Water. It is basic in corporation law that a corporation is a
juridical entity vested with a legal personality separate and distinct from those acting SO ORDERED.
for and in its behalf and, in general, from the people comprising it.65 Under this
corporate reality, Subic Water cannot be held liable for OCWD’s corporate obligations
in the same manner that OCWD cannot be held liable for the obligations incurred by
Subic Water as a separate entity. The corporate veilshould not and cannot be
pierced unless it is clearly established that the separate and distinct personality of the
corporation was used to justify a wrong, protect fraud, or perpetrate a deception.66 G.R. No. 187702 October 22, 2014

In Concept Builders, Inc. v. NLRC,67 the Court enumerated the possible probative SECURITIES AND EXCHANGE COMMISSION, Petitioner,
factors of identity which could justify the application of the doctrine of piercing the vs.
(1) Stock ownership by one or common ownership of both corporations;
(2) Identity of directors and officers;
G.R. No. 189014
(3) The manner of keeping corporate books and records; and
(4) Methods of conducting the business.68 vs.
The burden of proving the presence of any of these probative factors lies with the TIA, Respondents.
one alleging it. Unfortunately, petitioner simply claimed that Subic Water took over
OCWD's water operations in Olongapo City. Apart from this allegation, petitioner DECISION
failed to demonstrate any link to justify the construction that Subic Water and OCWD
are one and the same. SERENO, CJ:

Under this evidentiary situation, our duty is to respect the separate and distinct G.R. No. 187702 is a Petition for Certiorari under Rule 65 of the Rules of Court
personalities of these two juridical entities.1âwphi1 seeking to nullify the Court of Appeals (CA) Decision1 dated 18 March 2009 in CA-
G.R. SP No. 106006. G.R. No. 189014 is a Petition for Review on Certiorari under
We thus deny the present petition. The writ of execution issued by RTC Olongapo, Rule 45 of the Rules of Court assailing the same Decision, as well as the CA
Br. 75, in favor of Olongapo City, is hereby confirmed to be null and void. Resolution2 dated 9 July 2009. On 12 October 2009, the Court resolved to
Accordingly, respondent Subic Water cannot be made liable under this writ. consolidate the two cases.3

WHEREFORE, premises considered, we hereby DISMISS the petition. The Court of The CA Decision ruled that because controversies involving the validation of proxies
Appeals' decision dated July 6, 2005 and resolution dated January 3, 2006, annulling are considered election contests under the Interim Rules of Procedure Governing
and setting aside the orders of the Regional Trial Court of Olongapo, Branch 75 Intra-Corporate Controversies, they are properly cognizable by the regular courts, not
dated July 29, 2003 and October 7, 2003, and the writ of execution dated July 31, by the Securities and Exchange Commission. The CA Resolution denied the motion
2003, are hereby AFFIRMED. Costs against the City of Olongapo. for reconsideration filed by Astra Securities Corporation.
FACTS Attempts to serve the CDO on 3 November 2008 failed, and the stockholders’
meeting proceeded as scheduled with 52.3% of the outstanding capital stock of
Omico Corporation (Omico) is a company whose shares of stock arelisted and traded Omico present in person or by proxy.16 The nominees for the board of directors were
in the Philippine Stock Exchange, Inc.4 Astra Securities Corporation (Astra) is one of elected upon motion.17
the stockholders of Omico owning about 18% of the latter’s outstanding capital
stock.5 Astra instituted before the SEC a Complaint18 for indirect contempt against Omico
for disobedience of the CDO. On the other hand, Omico filed before the CA a Petition
Omico scheduled its annual stockholders’ meeting on 3 November 2008.6 It set the for Certiorari and Prohibition19 imputing grave abuse of discretion on the part of the
deadline for submission of proxies on 23 October 2008 and the validation of proxies SEC for issuing the CDO.
on 25 October 2008. Astra objected to the validation of the proxies issued in favor of
Tommy Kin Hing Tia (Tia), representing about 38% of the outstanding capital stock of RULING OF THE CA
Omico.7 Astra also objected to the inclusion of the proxies issued in favor of Tia
and/or Martin Buncio, representing about 2% of the outstanding capital stock of In the assailed Decision dated 18March 2009, the CA declared the CDO null and
Omico.8 void.20

Astra maintained that the proxy issuers, who were brokers, did not obtain the The CA held that the controversy was an intra-corporate dispute.21 The SRC
required express written authorization of their clients when they issued the proxies in expressly transferred the jurisdiction over actions involving intracorporate
favor of Tia. In so doing, the issuers were allegedly in violation of SRC Rule controversies from the SEC to the regional trial courts.22 Furthermore, Section 2,
20(11)(b)(xviii)9 of the Amended Securities Regulation Code (SRC or Republic Act Rule 623 of the Interim Rules of Procedure Governing Intra-Corporate
No. 8799) Rules.10 Furthermore, the proxies issued in favor of Tia exceeded 19, Disputes,24 provides that any controversy or dispute involving the validation of
thereby giving rise to the presumption of solicitation thereof under SRC Rule proxies is an election contest, the jurisdiction over which has also been transferred by
20(2)(B)(ii)(b)11 of the Amended SRC Rules. Tia did not comply with the rules on the SRC to the regular courts.25
proxy solicitation, in violation of Section 20.112 of the SRC.
Thus, according to the CA, the SEC committed grave abuse of discretion in taking
Despite the objections of Astra, Omico’s Board of Inspectors declared that the cognizance of Astra’s complaint.26 The CDO was a patent nullity, for an order issued
proxies issued in favor of Tia were valid.13 without jurisdiction is no order at all.

On 27 October 2008, Astra filed a Complaint14 before the Securities and Exchange Aggrieved by the CA Decision, the SEC filed before us the instant Petition for
Commission (SEC) praying for the invalidation of the proxies issued in favor of Tia. Certiorari docketed as G.R. No. 187702.27 Meanwhile, Astra filed a Motion for
Astra also prayed for the issuance of a cease and desist order (CDO) enjoining the Reconsideration before the CA,28 which subsequently denied the motion in the
holding of Omico’s annual stockholders’ meeting until the SEC had resolved the assailed Resolution dated 9 July 2009. On 14 September 2009, Astra filed the instant
issues pertaining to the validation of proxies. Petition for Review on Certiorari docketed as G.R. No. 189014.29 The Court
consolidated the two petitions on 12 October 2009.30
On 30 October 2008, SEC issuedthe CDO enjoining Omico from accepting and
including the questioned proxies in determining a quorum and in electing the ISSUE
members of the board of directors during the annual stockholders’ meeting on 3
November 2008.15 Whether the SEC has jurisdiction over controversies arising from the validation of
proxies for the election of the directors of a corporation.
OUR RULING raised the violation of the SEC rules on proxy solicitation, should be properly seen as
an election controversy within the original and exclusive jurisdiction of the trial courts
About a month after the CA issued the assailed Decision, this Court promulgated by virtue of Section 5.2 of the SRC in relation to Section 5 (c) of Presidential Decree
GSIS v. CA,31 which squarely answered the above issue in the negative. No. 902-A.

In that case, we observed that Section 632 (g) of Presidential Decree No. (P.D.) 902- The conferment of original and exclusive jurisdiction on the regular courts over such
A dated 11 March 1976 conferred on SEC the power "[t]o pass upon the validity of controversies in the election of corporate directors must be seen as intended to
the issuance and use of proxies and voting trust agreements for absent stockholders confine to one body the adjudication of all related claims and controversy arising from
ormembers." Section 6, however, opens thus: "In order to effectively exercise such the election of such directors. For that reason, the aforequoted Section 2, Rule 6 of
jurisdiction x x x." This opening clearly refers to the preceding Section 5.33 The Court the Interim Rules broadly defines the term "election contest" as encompassing all
pointed out therein that the power to pass upon the validity of proxies was merely plausible incidents arising from the election ofcorporate directors, including: (1) any
incidental or ancillary to the powers conferred on the SEC under Section 5 of the controversy or dispute involving title or claim to any elective office in a stock or
same decree. With the passage of the SRC, the powers granted to SEC under nonstock corporation, (2) the validation of proxies, (3) the manner and validity of
Section 5 were withdrawn, together withthe incidental and ancillary powers elections and (4) the qualifications of candidates, including the proclamation of
enumerated in Section 6. winners. If all matters anteceding the holding of such election which affectits manner
and conduct, such as the proxy solicitation process, are deemed within the original
and exclusive jurisdiction of the SEC, then the prospect of overlapping and
While the regular courts now had the power to hear and decide cases involving
competing jurisdictions between that body and the regular courts becomes
controversies in the election of directors, it was not clear whether the SRC also
transferred to these courtsthe incidental and ancillary powers of the SEC as frighteningly real. From the languageof Section 5 (c) of Presidential Decree No. 902-
enumerated in Section 6 of P.D. 902-A. Thus, in GSIS v. CA, it was necessary for the A, it is indubitable that controversies as to the qualification of voting shares, or the
validity of votes cast in favor of a candidate for election to the board of directors are
Court to determine whether the action to invalidate the proxies was intimately tied to
properly cognizable and adjudicable by the regular courts exercising original and
an election controversy. Hence, the Court pronounced:
exclusive jurisdiction over election cases.34 x x x.
Under Section 5(c) of PresidentialDecree No. 902-A, in relation to the SRC, the
The ruling harmonizes the seeming conflict between the Amended SRC Rules
jurisdiction of the regular trial courts with respect to election related controversies is
promulgated by the SEC and the Interim Rules of Procedure Governing Intra-
specifically confined to "controversies in the election or appointment of directors,
Corporate Disputes promulgated by the Court.
trustees, officers or managers of corporations, partnerships, or associations."
Evidently, the jurisdiction of the regular courts over so-called election contests or
controversies under Section 5 (c) does not extend toevery potential subject that may SRC Rule 20(11)(b)(xxi) of the Amended SRC Rules provides:
be voted on by shareholders, but only to the election of directors or trustees, in which
stockholders are authorized to participate under Section 24 of the Corporation Code. SRC RULE 20.

This qualification allows for a useful distinction that gives due effect to the statutory Disclosures to Stockholders Prior to Meeting
right of the SEC to regulate proxy solicitation, and the statutory jurisdiction of
regularcourts over election contests or controversies. The power of the SEC (formerly, SRC Rule 20 – The Proxy Rule)
toinvestigate violations of its rules on proxy solicitation is unquestioned whenproxies
are obtained to vote on matters unrelated to the cases enumerated under Section 5
of Presidential Decree No. 902-A. However, when proxies are solicited in relation to
the election of corporate directors, the resulting controversy, even if it ostensibly
11. Other Procedural Requirements d) Derivative suits; and

xxxx e) Inspection of corporate books.

b. Proxy xxxx

xxxx RULE 6
Election Contests
xxi. In the validation of proxies, a special committee of inspectors shall be designated
or appointed by the Board of Directors which shall be empoweredto pass on the xxxx
validity of proxies. Any dispute that may arise pertaining thereto, shall be resolved by
the Securities and Exchange Commission upon formal complaint filed by the SECTION 2. Definition. – An election contest refers to any controversy or dispute
aggrieved party, or by the SEC officer supervising the proxy validation process. involvingtitle or claim to any elective office in a stock or nonstock corporation, the
(Emphasis supplied) validation of proxies, the manner and validity of elections, and the qualifications of
candidates, including the proclamation of winners, to the office of director, trustee or
On the other hand, these are the provisions of Section 1, Rule 1; and Section 2, Rule other officer directly elected by the stockholders in a close corporation or by
6 of the Interim Rules of Procedure Governing IntraCorporate Disputes: members of a non-stock corporation where the articles of incorporation or by-laws so
provide. (Emphases supplied)
General Provisions The Court explained that the powerof the SEC to regulate proxies remains in place in
instances when stockholders vote on matters other than the election of
SECTION 1. (a) Cases Covered– These Rules shall govern the procedure to be directors.35 The test is whether the controversy relates to such election. All matters
observed in civil cases involving the following: affecting the manner and conduct of the election of directors are properly cognizable
by the regular courts. Otherwise, these matters may be brought before the SEC for
resolution based on the regulatory powers it exercises over corporations,
a) Devices or schemes employed by, or any act of, the board of directors,
business associates, officers or partners, amounting to fraud or partnerships and associations.
misrepresentation which may be detrimental to the interest of the public
and/or of the stockholders, partners, or members of any corporation, Astra endeavors to remove the instant case from the ambit of GSIS v. CAby arguing
partnership, or association; that 1) the validation of proxies in this case relates to the determination of the
existence of a quorum; and 2) no actual voting for the members of the board of
b) Controversies arising out of intra-corporate, partnership, or association directors was conducted, as the directors were merely elected by motion.
relations, between and among stockholders, members, or associates; and
between, any or all of them and the corporation, partnership, or association Indeed, the validation of proxies in this case relates to the determination of the
of which they are stockholders, members, or associates, respectively; existence of a quorum.1âwphi1Nonetheless, it is a quorum for the election of the
directors, and, assuch, which requires the presence – in person or by proxy – of the
c) Controversies in the election or appointment of directors, trustees, officers, owners of the majority of the outstanding capital stock of Omico.36 Also, the fact that
there was no actual voting did not make the election any less so, especially since
or managers of corporations, partnerships, or associations;
Astra had never denied that an election of directors took place.
We find no merit either in the proposal of Astra regarding the "two (2) viable, non- WHEREFORE, the petition in G.R. No. 187702 is EXPUNGED for lack of capacity of
exclusive and successive legal remedies to question the validity of proxies."37 It petitioner to file the suit.1âwphi1
suggests that the power to pass upon the validity of proxies to determine the
existence of a quorum prior to the conduct of the stockholders’ meeting should lie The petition in G.R. No. 189014 is DENIED. The Court of Appeals Decision dated 18
with the SEC; but, after the stockholders’ meeting, questions regarding the use of March 2009 and Resolution dated 9 July 2009 in CA-G.R. SP No. 106006 are
invalid proxies in the election of directors should be cognizable by the regular courts, AFFIRMED.
since there was already an election to speak of.
First, this interpretation is akin to the argument struck down by the Court in GSIS v.
CA. If the Court adopts the suggestion, "we would be perpetually confronted with the
spectacle of election controversies being heard and adjudicated by both the SEC and
the regular courts, made possible through a mere allegation that the anteceding x x x
process was errant, but the competing cases [were] filed with one objective in mind - SECOND DIVISION
to affect the outcome of the election of the board of directors."38
[ G.R. No. 182770, September 17, 2014 ]
Second, the validation of proxies serves a number of purposes, including determining
the existence of a quorum and ascertaining the authenticity of proxies to be used for WPM INTERNATIONAL TRADING, INC. AND WARLITO P. MANLAPAZ,
the election of directors at the stockholders' meeting. Section 2, Rule 6, of the Interim PETITIONERS, VS. FE CORAZON LABAYEN, RESPONDENT.
Rules of Procedure Governing Intra-Corporate Disputes provides that an election
contest covers any controversy or dispute involving the validation of proxies, in DECISION
general. Thus, it can only refer to all the beneficial purposes that validation of proxies
can bring about when made in connection with a forthcoming election of directors.
Thus, there is no point in making distinctions between who has jurisdiction before and BRION, J.:
who has jurisdiction after the election of directors, as all controversies related thereto We review in this petition for review on certiorari[1] the decision[2] dated September
- whether before, during or after - shall be passed upon by regular courts as provided 28, 2007 and the resolution[3] dated April 28, 2008 of the Court of Appeals (CA) in
by law. The Court closes with an observation. CA-G.R. CV No. 68289 that affirmed with modification the decision[4] of the Regional
Trial Court (RTC), Branch 77, Quezon City.
As in the instant cases, GSIS v. CA is a consolidation of two cases, one of which was
filed by a private party and the other by the SEC itself. In both cases, the parties were
aggrieved by the CA ruling, so they filed the cases seeking a pronouncement from The Factual Background
the Court that it recognizes the jurisdiction of the SEC over the controversy.
The respondent, Fe Corazon Labayen, is the owner of H.B.O. Systems Consultants,
Calling to mind established jurisprudential principles, the Court therein ruled that a management and consultant firm. The petitioner, WPM International Trading, Inc.
quasi-judicial agencies do not have the right to seek the review of an appellate court (WPM), is a domestic corporation engaged in the restaurant business, while Warlito
decision reversing any of their rulings.39 This is because they are not real parties-in- P. Manlapaz (Manlapaz) is its president.
interest. Thus, the Court expunged the petition filed by the SEC for the latter's lack of
capacity to file the suit. So it must be in the instant cases. Sometime in 1990, WPM entered into a management agreement with the
respondent, by virtue of which the respondent was authorized to operate, manage
and rehabilitate Quickbite, a restaurant owned and operated by WPM. As part of her
tasks, the respondent looked for a contractor who would renovate the two existing damages and P20,000.00 as attorney's fees be paid to her.
Quickbite outlets in Divisoria, Manila and Lepanto St., University Belt, Manila.
Pursuant to the agreement, the respondent engaged the services of CLN In his defense, Manlapaz claims that it was his fellow incorporator/director Edgar
Engineering Services (CLN) to renovate Quickbite-Divisoria at the cost of Alcansaje who was in-charge with the daily operations of the Quickbite outlets; that
P432,876.02. when Alcansaje left WPM, the remaining directors were compelled to hire the
respondent as manager; that the respondent had entered into the renovation
On June 13, 1990, Quickbite-Divisoria's renovation was finally completed, and its agreement with CLN in her own personal capacity; that when he found the amount
possession was delivered to the respondent. However, out of the P432,876.02 quoted by CLN too high, he instructed the respondent to either renegotiate for a
renovation cost, only the amount of P320,000.00 was paid to CLN, leaving a balance lower price or to look for another contractor; that since the respondent had exceeded
of P112,876.02. her authority as agent of WPM, the renovation agreement should only bind her; and
that since WPM has a separate and distinct personality, Manlapaz cannot be made
Complaint for Sum of Money (Civil Case No. Q-90-7013) liable for the respondent's claim.

On October 19, 1990, CLN filed a complaint for sum of money and damages before Manlapaz prayed for the dismissal of the complaint for lack of cause of action, and by
the RTC against the respondent and Manlapaz, which was docketed as Civil Case way of counterclaim, for the award of P350,000.00 as moral and exemplary damages
No. Q-90-7013. CLN later amended the complaint to exclude Manlapaz as and P50,000.00 attorney's fees.
defendant. The respondent was declared in default for her failure to file a responsive
pleading. The RTC, through an order dated March 2, 1993 declared WPM in default for its
failure to file a responsive pleading.
The RTC, in its January 28, 1991 decision, found the respondent liable to pay CLN
actual damages in the amount of P112,876.02 with 12% interest per annum from
June 18, 1990 (the date of first demand) and 20% of the amount recoverable as The Decision of the RTC
attorney's fees.
In its decision, the RTC held that the respondent is entitled to indemnity from
Complaint for Damages (Civil Case No. Q-92-13446) Manlapaz. The RTC found that based on the records, there is a clear indication that
WPM is a mere instrumentality or business conduit of Manlapaz and as such, WPM
Thereafter, the respondent instituted a complaint for damages against the petitioners, and Manlapaz are considered one and the same. The RTC also found that Manlapaz
WPM and Manlapaz. The respondent alleged that in Civil Case No. Q-90-7013, she had complete control over WPM considering that he is its chairman, president and
was adjudged liable for a contract that she entered into for and in behalf of the treasurer at the same time. The RTC thus concluded that Manlapaz is liable in his
petitioners, to which she should be entitled to reimbursement; that her participation in personal capacity to reimburse the respondent the amount she paid to CLN in
the management agreement was limited only to introducing Manlapaz to Engineer connection with the renovation agreement.
Carmelo Neri (Neri), CLN's general manager; that it was actually Manlapaz and Neri
who agreed on the terms and conditions of the agreement; that when the complaint The petitioners appealed the RTC decision with the CA. There, they argued that in
for damages was filed against her, she was abroad; and that she did not know of the view of the respondent's act of entering into a renovation agreement with CLN in
case until she returned to the Philippines and received a copy of the decision of the excess of her authority as WPM's agent, she is not entitled to indemnity for the
RTC. amount she paid. Manlapaz also contended that by virtue of WPM's separate and
distinct personality, he cannot be made solidarily liable with WPM.
In her prayer, the respondent sought indemnification in the amount of P112,876.60
plus interest at 12% per annum from June 18, 1990 until fully paid; and 20% of the
award as attorney's fees. She likewise prayed that an award of P100,000.00 as moral The Ruling of the Court of Appeals
On September 28, 2007, the CA affirmed, with modification on the award of The core issues are: (1) whether WPM is a mere instrumentality, alter-ego, and
attorney's fees, the decision of the RTC. The CA held that the petitioners are barred business conduit of Manlapaz; and (2) whether Manlapaz is jointly and severally
from raising as a defense the respondent's alleged lack of authority to enter into the liable with WPM to the respondent for reimbursement, damages and interest.
renovation agreement in view of their tacit ratification of the contract.

The CA likewise affirmed the RTC ruling that WPM and Manlapaz are one and the Our Ruling
same based on the following: (1) Manlapaz is the principal stockholder of WPM; (2)
Manlapaz had complete control over WPM because he concurrently held the We find merit in the petition.
positions of president, chairman of the board and treasurer, in violation of the
Corporation Code; (3) two of the four other stockholders of WPM are employed by We note, at the outset, that the question of whether a corporation is a mere
Manlapaz either directly or indirectly; (4) Manlapaz's residence is the registered instrumentality or alter-ego of another is purely one of fact.[5] This is also true with
principal office of WPM; and (5) the acronym "WPM" was derived from Manlapaz's respect to the question of whether the totality of the evidence adduced by the
initials. The CA applied the principle of piercing the veil of corporate fiction and respondent warrants the application of the piercing the veil of corporate fiction
agreed with the RTC that Manlapaz cannot evade his liability by simply invoking doctrine.[6]
WPM's separate and distinct personality.
Generally, factual findings of the lower courts are accorded the highest degree of
After the CA's denial of their motion for reconsideration, the petitioners filed the respect, if not finality. When adopted and confirmed by the CA, these findings are
present petition for review on certiorari under Rule 45 of the Rules of Court. final and conclusive and may not be reviewed on appeal,[7] save in some recognized
exceptions[8] among others, when the judgment is based on misapprehension of
The Petition
We have reviewed the records and found that the application of the principle of
The petitioners submit that the CA gravely erred in sustaining the RTC's application piercing the veil of corporate fiction is unwarranted in the present case.
of the principle of piercing the veil of corporate fiction. They argue that the legal
fiction of corporate personality could only be discarded upon clear and convincing On the Application of the Principle of
proof that the corporation is being used as a shield to avoid liability or to commit a Piercing the Veil of Corporate Fiction
fraud. Since the respondent failed to establish that any of the circumstances that
would warrant the piercing is present, Manlapaz claims that he cannot be made The rule is settled that a corporation has a personality separate and distinct from the
solidarily liable with WPM to answer for damages allegedly incurred by the persons acting for and in its behalf and, in general, from the people comprising
respondent. it.[9] Following this principle, the obligations incurred by the corporate officers, or
other persons acting as corporate agents, are the direct accountabilities of the
The petitioners further argue that, assuming they may be held liable to reimburse to corporation they represent, and not theirs. Thus, a director, officer or employee of a
the respondent the amount she paid in Civil Case No. Q-90-7013, such liability is only corporation is generally not held personally liable for obligations incurred by the
limited to the amount of P112,876.02, representing the balance of the obligation to corporation;[10] it is only in exceptional circumstances that solidary liability will attach
CLN, and should not include the twelve 12% percent interest, damages and to them.
attorney's fees.
Incidentally, the doctrine of piercing the corporate veil applies only in three (3) basic
instances, namely: a) when the separate and distinct corporate personality defeats
The Issues public convenience, as when the corporate fiction is used as a vehicle for the evasion
of an existing obligation; b) in fraud cases, or when the corporate entity is used to considerations to prove that he had exercised absolute control over WPM.
justify a wrong, protect a fraud, or defend a crime; or c) is used in alter ego
cases, i.e., where a corporation is essentially a farce, since it is a mere alter ego or In this connection, we stress that the control necessary to invoke the instrumentality
business conduit of a person, or where the corporation is so organized and controlled or alter ego rule is not majority or even complete stock control but such domination of
and its affairs so conducted as to make it merely an instrumentality, agency, conduit finances, policies and practices that the controlled corporation has, so to speak, no
or adjunct of another corporation.[11] separate mind, will or existence of its own, and is but a conduit for its principal. The
control must be shown to have been exercised at the time the acts complained of
Piercing the corporate veil based on the alter ego theory requires the concurrence of took place. Moreover, the control and breach of duty must proximately cause the
three elements, namely: injury or unjust loss for which the complaint is made.

(1) Control, not mere majority or complete stock control, but complete domination, not Here, the respondent failed to prove that Manlapaz, acting as president, had absolute
only of finances but of policy and business practice in respect to the transaction control over WPM. Even granting that he exercised a certain degree of control over
attacked so that the corporate entity as to this transaction had at the time no the finances, policies and practices of WPM, in view of his position as president,
separate mind, will or existence of its own; chairman and treasurer of the corporation, such control does not necessarily warrant
piercing the veil of corporate fiction since there was not a single proof that WPM was
(2) Such control must have been used by the defendant to commit fraud or wrong, to formed to defraud CLN or the respondent, or that Manlapaz was guilty of bad faith or
perpetuate the violation of a statutory or other positive legal duty, or dishonest and fraud.
unjust act in contravention of plaintiff's legal right; and
On the contrary, the evidence establishes that CLN and the respondent knew and
(3) The aforesaid control and breach of duty must have proximately caused the injury acted on the knowledge that they were dealing with WPM for the renovation of the
or unjust loss complained of. latter's restaurant, and not with Manlapaz. That WPM later reneged on its monetary
obligation to CLN, resulting to the filing of a civil case for sum of money against the
The absence of any of these elements prevents piercing the corporate veil.[12] respondent, does not automatically indicate fraud, in the absence of any proof to
support it.
In the present case, the attendant circumstances do not establish that WPM is a
mere alter ego of Manlapaz. This Court also observed that the CA failed to demonstrate how the separate and
distinct personality of WPM was used by Manlapaz to defeat the respondent's right
Aside from the fact that Manlapaz was the principal stockholder of WPM, records do for reimbursement. Neither was there any showing that WPM attempted to avoid
not show that WPM was organized and controlled, and its affairs conducted in a liability or had no property against which to proceed.
manner that made it merely an instrumentality, agency, conduit or adjunct of
Manlapaz. As held in Martinez v. Court of Appeals,[13] the mere ownership by a Since no harm could be said to have been proximately caused by Manlapaz for which
single stockholder of even all or nearly all of the capital stocks of a corporation is not the latter could be held solidarily liable with WPM, and considering that there was no
by itself a sufficient ground to disregard the separate corporate personality. To proof that WPM had insufficient funds, there was no sufficient justification for the RTC
disregard the separate juridical personality of a corporation, the wrongdoing must be and the CA to have ruled that Manlapaz should be held jointly and severally liable to
clearly and convincingly established.[14] the respondent for the amount she paid to CLN. Hence, only WPM is liable to
indemnify the respondent.
Likewise, the records of the case do not support the lower courts' finding that
Manlapaz had control or domination over WPM or its finances. That Manlapaz Finally, we emphasize that the piercing of the veil of corporate fiction is frowned upon
concurrently held the positions of president, chairman and treasurer, or that the and thus, must be done with caution.[15] It can only be done if it has been clearly
Manlapaz's residence is the registered principal office of WPM, are insufficient established that the separate and distinct personality of the corporation is used to
justify a wrong, protect fraud, or perpetrate a deception. The court must be certain Petitioner seeks to reverse the decision promulgated on October 30, 20021 and the
that the corporate fiction was misused to such an extent that injustice, fraud, or crime resolution promulgated on June 25, 2003,2 whereby the Court of Appeals (CA)
was committed against another, in disregard of its rights; it cannot be presumed. upheld the orders issued on August 2, 20013 and October 22, 20014 by the Regional
Trial Court (RTC), Branch 51, in Sorsogon in Civil Case No. 93-5917 entitled Heirs of
On the Award of Moral Damages Concepcion Lacsa, represented by Teodoro Lacsa v. Travel & Tours Advisers, Inc.,
et al. authorizing the implementation of the writ of execution against petitioner despite
On the award of moral damages, we find the same in order in view of WPM's its protestation of being a separate and different corporate personality from Travel &
unjustified refusal to pay a just debt. Under Article 2220 of the New Civil Tours Advisers, Inc. (defendant in Civil Case No. 93-5917).
Code,[16] moral damages may be awarded in cases of a breach of contract where
the defendant acted fraudulently or in bad faith or was guilty of gross negligence In the orders assailed in the CA, the RTC declared petitioner and Travel & Tours
amounting to bad faith. Advisers, Inc. to be one and the same entity, and ruled that the levy of petitioner’s
property to satisfy the final and executory decision rendered on June 30, 1997
In the present case, when payment for the balance of the renovation cost was against Travel & Tours Advisers, Inc. in Civil Case No. 93-59175 was valid even if
demanded, WPM, instead of complying with its obligation, denied having authorized petitioner had not been impleaded as a party.
the respondent to contract in its behalf and accordingly refused to pay. Such cold
refusal to pay a just debt amounts to a breach of contract in bad faith, as
contemplated by Article 2220. Hence, the CA's order to pay moral damages was in
On August 2, 1993, Ma. Concepcion Lacsa (Concepcion) and her sister, Miriam
WHEREFORE, in light of the foregoing, the decision dated September 28, 2007 of Lacsa (Miriam), boarded a Goldline passenger bus with Plate No. NXM-105 owned
the Court of Appeals in CA-G.R. CV No. 68289 is MODIFIED and that petitioner and operated by Travel &Tours Advisers, Inc. They were enroute from Sorsogon to
Warlito P. Manlapaz is ABSOLVED from any liability under the renovation Cubao, Quezon City.6 At the time, Concepcion, having just obtained her degree of
agreement. Bachelor of Science in Nursing at the Ago Medical and Educational Center, was
proceeding to Manila to take the nursing licensure board examination.7 Upon
SO ORDERED. reaching the highway at Barangay San Agustin in Pili, Camarines Sur, the Goldline
bus, driven by Rene Abania (Abania), collided with a passenger jeepney with Plate
No. EAV-313 coming from the opposite direction and driven by Alejandro Belbis.8 As
a result, a metal part of the jeepney was detached and struck Concepcion in the
G.R. No. 159108 June 18, 2012 chest, causing her instant death.9

GOLD LINE TOURS, INC., Petitioner, On August 23, 1993, Concepcion’s heirs, represented by Teodoro Lacsa, instituted in
vs. the RTC a suit against Travel & Tours Advisers Inc. and Abania to recover damages
HEIRS OF MARIA CONCEPCION LACSA, Respondents. arising from breach of contract of carriage.10 The complaint, docketed as Civil Case
No. 93-5917 and entitled Heirs of Concepcion Lacsa, represented by Teodoro Lacsa
DECISION v. Travel & Tours Advisers, Inc. (Goldline) and Rene Abania, alleged that the collision
was due to the reckless and imprudent manner by which Abania had driven the
BERSAMIN, J.: Goldline bus.11

The veil of corporate existence of a corporation is a fiction of law that should not In support of the complaint, Miriam testified that Abania had been occasionally
defeat the ends of justice. looking up at the video monitor installed in the front portion of the Goldline bus
despite driving his bus at a fast speed;12 that in Barangay San Agustin, the Goldline (1) Finding the plaintiffs entitled to damages for the death of Ma. Concepcion
bus had collided with a service jeepney coming from the opposite direction while in Lacsa in violation of the contract of carriage;
the process of overtaking another bus;13 that the impact had caused the angle bar of
the jeepney to detach and to go through the windshield of the bus directly into the (2) Ordering defendant Travel & Tours Advisers, Inc. (Goldline) to pay
chest of Concepcion who had then been seated behind the driver’s seat;14 that plaintiffs:
concerned bystanders had hailed another bus to rush Concepcion to the Ago
Foundation Hospital in Naga City because the Goldline bus employees and her co-
a. ₱30,000.00 – expenses for the wake;
passengers had ignored Miriam’s cries for help;15 and that Concepcion was
pronounced dead upon arrival at the hospital.16
b. ₱ 6,000.00 – funeral expenses;
To refute the plaintiffs’ allegations, the defendants presented SPO1 Pedro Corporal
of the Philippine National Police Station in Pili, Camarines Sur, and William Cheng, c. ₱50,000.00 – for the death of Ma. Concepcion Lacsa;
the operator of the Goldline bus.17 SPO1 Corporal opined that based on his
investigation report, the driver of the jeepney had been at fault for failing to observe d. ₱150,000.00 – for moral damages;
precautionary measures to avoid the collision;18 and suggested that criminal and civil
charges should be brought against the operator and driver of the jeepney.19 On his e. ₱20,000.00 – for exemplary damages;
part, Cheng attested that he had exercised the required diligence in the selection and
supervision of his employees; and that he had been engaged in the transportation f. ₱8,000.00 – for attorney’s fees;
business since 1980 with the use of a total of 60 units of Goldline buses, employing
about 100 employees (including drivers, conductors, maintenance personnel, and
g. ₱2,000.00 – for litigation expenses;
mechanics);20 that as a condition for regular employment, applicant drivers had
undergone a one-month training period and a six-month probationary period during
which they had gotten acquainted with Goldline’s driving practices and h. Costs of suit.
demeanor;21 that the employees had come under constant supervision, rendering
improbable the claim that Abania, who was a regular employee, had been glancing at (3) Ordering the dismissal of the case against Rene Abania;
the video monitor while driving the bus;22 that the incident causing Concepcion’s
death was the first serious incident his (Cheng) transportation business had (4) Ordering the dismissal of the third-party complaint.
encountered, because the rest had been only minor traffic accidents;23 and that
immediately upon being informed of the accident, he had instructed his personnel to SO ORDERED.27
contact the family of Concepcion.24
The RTC found that a contract of carriage had been forged between Travel & Tours
The defendants blamed the death of Concepcion to the recklessness of Bilbes as the Advisers, Inc. and Concepcion as soon as she had boarded the Goldline bus as a
driver of the jeepney, and of its operator, Salvador Romano;25 and that they had paying passenger; that Travel & Tours Advisers, Inc. had then become duty-bound to
consequently brought a third-party complaint against the latter.26 safely transport her as its passenger to her destination; that due to Travel & Tours
Advisers, Inc.’s inability to perform its duty, Article 1786 of the Civil Code created
After trial, the RTC rendered its decision dated June 30, 1997, disposing: against it the disputable presumption that it had been at fault or had been negligent in
the performance of its obligations towards the passenger; that Travel & Tours
ACCORDINGLY, judgment is hereby rendered: Advisers, Inc. failed to disprove the presumption of negligence; and that a rigid
selection of employees was not sufficient to exempt Travel & Tours Advisers, Inc.
from the obligation of exercising extraordinary diligence to ensure that its passenger required by Rule 15, Sections 4 and 5 of the Rules of Court; (b) Travel & Tours
was carried safely to her destination. Advisers, Inc. and petitioner were identical entities and were both operated and
managed by the same person, William Cheng; and (c) petitioner was attempting to
Aggrieved, the defendants appealed to the CA. defraud its creditors –respondents herein – hence, the doctrine of piercing the veil of
corporate entity was squarely applicable.39
On June 11, 1998,28 the CA dismissed the appeal for failure of the defendants to
pay the docket and other lawful fees within the required period as provided in Rule On August 2, 2001, the RTC dismissed petitioner’s verified third-party claim,
41, Section 4 of the Rules of Court (1997). The dismissal became final, and entry of observing that the identity of Travel & Tours Adivsers, Inc. could not be divorced from
judgment was made on July 17, 1998.29 that of petitioner considering that Cheng had claimed to be the operator as well as
the President/Manager/incorporator of both entities; and that Travel & Tours
Advisers, Inc. had been known in Sorsogon as Goldline.40
Thereafter, the plaintiffs moved for the issuance of a writ of execution to implement
the decision dated June 30, 1997.30 The RTC granted their motion on January 31,
2000,31 and issued the writ of execution on February 24, 2000.32 Petitioner moved for reconsideration,41 but the RTC denied the motion on October
22, 2001.42
On May 10, 2000, the sheriff implementing the writ of execution rendered a Sheriff’s
Partial Return,33 certifying that the writ of execution had been personally served and Thence, petitioner initiated a special civil action for certiorari in the CA,43 asserting:
a copy of it had been duly tendered to Travel & Tours Advisers, Inc. or William
Cheng, through his secretary, Grace Miranda, and that Cheng had failed to settle the THE RESPONDENT HONORABLE RTC JUDGE HAD ACTED WITHOUT
judgment amount despite promising to do so. Accordingly, a tourist bus bearing Plate JURISDICTION OR COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING
No. NWW-883 was levied pursuant to the writ of execution. TO LACK OF JURISDICTION IN ISSUING THE: (A) ORDER DATED 2 AUGUST
The plaintiffs moved to cite Cheng in contempt of court for failure to obey a lawful writ HEREIN PETITIONER’S THIRD PARTY CLAIM; AND (B) ORDER DATED 22
of the RTC.34 Cheng filed his opposition.35 Acting on the motion to cite Cheng in OCTOBER 2001, COPY OF WHICH IS HERETO ATTACHED AS ANNEX B
contempt of court, the RTC directed the plaintiffs to file a verified petition for indirect DENYING SAID PETITIONER’S MOTION FOR RECONSIDERATION; AND THAT
On April 20, 2001, petitioner submitted a so-called verified third party
claim,37 claiming that the tourist bus bearing Plate No. NWW-883 be returned to On October 30, 2002, the CA promulgated its decision dismissing the petition for
petitioner because it was the owner; that petitioner had not been made a party to certiorari,44 holding as follows:
Civil Case No. 93-5917; and that petitioner was a corporation entirely different from
Travel & Tours Advisers, Inc., the defendant in Civil Case No. 93-5917. The petition lacks merit.

It is notable that petitioner’s Articles of Incorporation was amended on November 8, As stated in the decision supra, William Ching disclosed during the trial of the case
1993,38 shortly after the filing of Civil Case No. 93-5917 against Travel & Tours that defendant Travel & Tours Advisers, Inc. (Goldline), of which he is an officer, is
Advisers, Inc. operating sixty (60) units of Goldline buses. That the Goldline buses are used in the
operations of defendant company is obvious from Mr. Cheng’s admission. The
Respondents opposed petitioner’s verified third-party claim on the following grounds, Amended Articles of Incorporation of Gold Line Tours, Inc. disclose that the following
namely: (a) the third-party claim did not comply with the required notice of hearing as persons are the original incorporators thereof: Antonio O. Ching, Maribel Lim Ching,
witness William Ching, Anita Dy Ching and Zosimo Ching. (Rollo, pp. 105-106) We
see no reason why defendant company would be using Goldline buses in its We find no reason to reverse the assailed CA decision.
operations unless the two companies are actually one and the same.
In the order dated August 2, 2001, the RTC rendered its justification for rejecting the
Moreover, the name Goldline was added to defendant’s name in the Complaint. third-party claim of petitioner in the following manner:
There was no objection from William Ching who could have raised the defense that
Gold Line Tours, Inc. was in no way liable or involved. Indeed, it appears to this Court xxx
that rather than Travel & Tours Advisers, Inc., it is Gold Line Tours, Inc., which
should have been named party defendant. The main contention of Third Party Claimant is that it is the owner of the Bus and
therefore, it should not be seized by the sheriff because the same does not belong to
Be that as it may, We concur in the trial court’s finding that the two companies are the defendant Travel & Tours Advises, Inc. (GOLDLINE) as the third party claimant
actually one and the same, hence the levy of the bus in question was proper. and defendant are two separate corporation with separate juridical personalities.
Upon the other hand, this Court had scrutinized the documents submitted by the
WHEREFORE, for lack of merit, the petition is DISMISSED and the assailed Orders Third party Claimant and found out that William Ching who claimed to be the operator
are AFFIRMED. of the Travel & Tours Advisers, Inc. (GOLDLINE) is also the President/Manager and
incorporator of the Third Party Claimant Goldline Tours Inc. and he is joined by his
SO ORDERED. co-incorporators who are "Ching" and "Dy" thereby this Court could only say that
these two corporations are one and the same corporations. This is of judicial
Petitioner filed a motion for reconsideration,45 which the CA denied on June 25, knowledge that since Travel & Tours Advisers, Inc. came to Sorsogon it has been
known as GOLDLINE.

This Court is not persuaded by the proposition of the third party claimant that a
Hence, this appeal, in which petitioner faults the CA for holding that the RTC did not
act without jurisdiction or grave abuse of discretion in finding that petitioner and corporation has an existence separate and/or distinct from its members insofar as
Travel & Tours Advisers, Inc., the defendant in Civil Case No. 5917, were one and this case at bar is concerned, for the reason that whenever necessary for the interest
of the public or for the protection of
same entity, and for sustaining the propriety of the levy of the tourist bus with Plate
No. NWW-883 in satisfaction of the writ of execution. 47
enforcement of their rights, the notion of legal entity should not and is not to be used
In the meantime, respondents filed in the RTC a motion to direct the sheriff to to defeat public convenience, justify wrong, protect fraud or defend crime.
implement the writ of execution in view of the non-issuance of any restraining order
either by this Court or the CA.48 On February 23, 2007, the RTC granted the motion Apposite to the case at bar is the case of Palacio vs. Fely Transportation Co., L-
and directed the sheriff to sell the Goldline tourist bus with Plate No. NWW-883 15121, May 31, 1962, 5 SCRA 1011 where the Supreme Court held:
through a public auction.49
"Where the main purpose in forming the corporation was to evade one’s subsidiary
Issue liability for damages in a criminal case, the corporation may not be heard to say that it
has a personality separate and distinct from its members, because to allow it to do so
would be to sanction the use of fiction of corporate entity as a shield to further an end
Did the CA rightly find and conclude that the RTC did not gravely abuse its discretion
in denying petitioner’s verified third-party claim? subversive of justice (La Campana Coffee Factory, et al. v. Kaisahan ng mga
Manggagawa, etc., et al., L-5677, May 25, 1953). The Supreme Court can even
substitute the real party in interest in place of the defendant corporation in order to
avoid multiplicity of suits and thereby save the parties unnecessary expenses and But petitioner continues to challenge the RTC orders by insisting that the evidence to
delay. (Alfonso vs. Villamor, 16 Phil. 315)." establish its identity with Travel and Tours Advisers, Inc. was insufficient.

This is what the third party claimant wants to do including the defendant in this case, We cannot agree with petitioner. As already stated, there was sufficient evidence that
to use the separate and distinct personality of the two corporation as a shield to petitioner and Travel and Tours Advisers, Inc.1âwphi1 were one and the same entity.
further an end subversive of justice by avoiding the execution of a final judgment of Moreover, we remind that a petition for the writ of certiorari neither deals with errors
the court.50 of judgment nor extends to a mistake in the appreciation of the contending parties’
evidence or in the evaluation of their relative weight.52 It is timely to remind that the
As we see it, the RTC had sufficient factual basis to find that petitioner and Travel petitioner in a special civil action for certiorari commenced against a trial court that
and Tours Advisers, Inc. were one and the same entity, specifically:– (a) documents has jurisdiction over the proceedings bears the burden to demonstrate not merely
submitted by petitioner in the RTC showing that William Cheng, who claimed to be reversible error, but grave abuse of discretion amounting to lack or excess of
the operator of Travel and Tours Advisers, Inc., was also the President/Manager and jurisdiction on the part of the respondent trial court in issuing the impugned
an incorporator of the petitioner; and (b) Travel and Tours Advisers, Inc. had been order.53 The term grave abuse of discretion is defined as a capricious and whimsical
known in Sorsogon as Goldline. On its part, the CA cogently observed: exercise of judgment so patent and gross as to amount to an evasion of a positive
duty or a virtual refusal to perform a duty enjoined by law, as where the power is
exercised in an arbitrary and despotic manner because of passion or
As stated in the (RTC) decision supra, William Ching disclosed during the trial of the
hostility.54 Mere abuse of discretion is not enough; it must be grave.55Yet, here,
case that defendant Travel & Tours Advisers, Inc. (Goldline), of which he is an officer,
petitioner did not discharge its burden because it failed to demonstrate that the CA
is operating sixty (60) units of Goldline buses. That the Goldline buses are used in
the operations of erred in holding that the RTC had not committed grave abuse of discretion. A review
of the records shows, indeed, that the RTC correctly rejected petitioner’s third-party
claim. Hence, the rejection did not come within the domain of the writ of certiorari’s
defendant company is obvious from Mr. Cheng’s admission. The Amended Articles of limiting requirement of excess or lack of jurisdiction.56
Incorporation of Gold Line Tours, Inc. disclose that the following persons are the
original incorporators thereof: Antonio O. Ching, Maribel Lim Ching, witness William
Ching, Anita Dy Ching and Zosimo Ching. (Rollo, pp. 105-108) We see no reason WHEREFORE, the Court DENIES the petition for review on certiorari, and AFFIRMS
the decision promulgated by the Court of Appeals on October 30, 2002. Costs of suit
why defendant company would be using Goldline buses in its operations unless the
to be paid by petitioner.
two companies are actually one and the same.

Moreover, the name Goldline was added to defendant’s name in the Complaint. SO ORDERED.
There was no objection from William Ching who could have raised the defense that
Gold Line Tours, Inc. was in no way liable or involved. Indeed it appears to this Court G.R. No. 157900 July 22, 2013
that rather than Travel & Tours Advisers, Inc. it is Gold Line Tours, Inc., which should
have been named party defendant. ZUELLIG FREIGHT AND CARGO SYSTEMS, Petitioner,
Be that as it may, We concur in the trial court’s finding that the two companies are NATIONAL LABOR RELATIONS COMMISSION AND RONALDO V. SAN
actually one and the same, hence the levy of the bus in question was proper.51 MIGUEL, Respondents.

The RTC thus rightly ruled that petitioner might not be shielded from liability under DECISION
the final judgment through the use of the doctrine of separate corporate identity.
Truly, this fiction of law could not be employed to defeat the ends of justice. BERSAMIN, J.:
The mere change in the corporate name is not considered under the law as the basis; and that when it decided to hire another employee instead of San Miguel, such
creation of a new corporation; hence, the renamed corporation remains liable for the decision was not arbitrary because of seniority considerations.4
illegal dismissal of its employee separated under that guise.
Decision of the Labor Arbiter
The Case
On November 15, 1999, Labor Arbiter Francisco A. Robles rendered a decision
Petitioner employer appeals the decision promulgated on November 6, holding that San Miguel had been illegally dismissed,5 to wit:
2001,1 whereby the Court of Appeals (CA) dismissed its petition for certiorari and
upheld the adverse decision of the National Labor Relations Commission (NLRC) Contrary to respondents’ claim that Zeta ceased operations and closed its business,
finding respondent Ronaldo V. San Miguel to have been illegally dismissed. we believe that there was merely a change of business name and primary purpose
and upgrading of stocks of the corporation. Zuellig and Zeta are therefore legally the
Antecedents same person and entity and this was admitted by Zuellig’s counsel in its letter to the
VAT Department of the Bureau of Internal Revenue on 08 June 1994 (Reply, Annex
San Miguel brought a complaint for unfair labor practice, illegal dismissal, non- "A"). As such, the termination of complainant’s services allegedly due to cessation of
payment of salaries and moral damages against petitioner, formerly known as Zeta business operations of Zeta is deemed illegal. Notwithstanding his receipt of
Brokerage Corporation (Zeta).2 He alleged that he had been a checker/customs separation benefits from respondents, complainant is not estopped from questioning
representative of Zeta since December 16, 1985; that in January 1994, he and other the legality of his dismissal.6
employees of Zeta were informed that Zeta would cease operations, and that all
affected employees, including him, would be separated; that by letter dated February xxxx
28, 1994, Zeta informed him of his termination effective March 31, 1994; that he
reluctantly accepted his separation pay subject to the standing offer to be hired to his WHEREFORE, in view of the foregoing, complainant is found to have been illegally
former position by petitioner; and that on April 15, 1994, he was summarily dismissed. Respondent Zuellig Freight and Cargo Systems, Inc. is hereby ordered to
terminated, without any valid cause and due process. pay complainant his backwages from April 1, 1994 up to November 15, 1999, in the
San Miguel contended that the amendments of the articles of incorporation of Zeta FIFTEEN PESOS (₱324,615.00).
were for the purpose of changing the corporate name, broadening the primary
functions, and increasing the capital stock; and that such amendments could not The same respondent is ordered to pay the complainant Ronaldo San Miguel
mean that Zeta had been thereby dissolved.3 attorney’s fees equivalent to ten percent (10%) of the total award.

On its part, petitioner countered that San Miguel’s termination from Zeta had been for All other claims are dismissed.
a cause authorized by the Labor Code; that its non-acceptance of him had not been
by any means irregular or discriminatory; that its predecessor-in-interest had SO ORDERED.7
complied with the requirements for termination due to the cessation of business
operations; that it had no obligation to employ San Miguel in the exercise of its valid
management prerogative; that all employees had been given sufficient time to make Decision of the NLRC
their decision whether to accept its offer of employment or not, but he had not
responded to its offer within the time set; that because of his failure to meet the Petitioner appealed, but the NLRC issued a resolution on April 4, 2001,8 affirming the
deadline, the offer had expired; that he had nonetheless been hired on a temporary decision of the Labor Arbiter.
The NLRC later on denied petitioner’s motion for reconsideration via its resolution shows that there was no closure to speak of. The termination of services allegedly
dated June 15, 2001.9 due to cessation of business operations of Zeta was illegal. Notwithstanding private
respondent San Miguel’s receipt of separation benefits from petitioner Zuellig, the
Decision of the CA former is not estopped from questioning the legality of his dismissal.

Petitioner then filed a petition for certiorari in the CA, imputing to the NLRC grave Petitioner Zuellig’s allegation that the five employees who refused to receive the
abuse of discretion amounting to lack or excess of jurisdiction, as follows: termination letters were verbally informed that they had until 6:00 p.m. of March 1,
1994 to receive the termination letters and sign the employment contracts, otherwise
the former would be constrained to withdraw its offer of employment and seek for
1. In failing to consider the circumstances attendant to the cessation of
replacements in order to ensure the smooth operations of the new company from its
business of Zeta;
opening date, is of no moment in view of the foregoing circumstances. There being
no valid closure of business operations, the dismissal of private respondent San
2. In failing to consider that San Miguel failed to meet the deadline Zeta fixed Miguel on alleged authorized cause of cessation of business pursuant to Article 283
for its employees to accept the offer of petitioner for re-employment; of the Labor Code, was utterly illegal. Despite verbal notice that the employees had
until 6:00 p.m. of March 1, 1994 to receive the termination letters and sign the
3. In failing to consider that San Miguel’s employment with petitioner from employment contracts, the dismissal was still illegal for the said condition is null and
April 1 to 15, 1994 could in no way be interpreted as a continuation of void. In point of facts and law, private respondent San Miguel remained an employee
employment with Zeta; of petitioner Zuellig. If at all, the alleged closure of business operations merely
operates to suspend employment relation since it is not permanent in character.
4. In admitting in evidence the letter dated January 21, 1994 of petitioner’s
counsel to the Bureau of Internal Revenue; and Where there is no showing of a clear, valid, and legal cause for the termination of
employment, the law considers the matter a case of illegal dismissal and the burden
5. In awarding attorney’s fees to San Miguel based on Article 2208 of the is on the employer to prove that the termination was for a valid or authorized cause.
Civil Code and Article 111 of the Labor Code.
Findings of facts of the NLRC, particularly when both the NLRC and Labor Arbiter are
On November 6, 2002, the CA promulgated its assailed decision dismissing the in agreement, are deemed binding and conclusive upon the Supreme Court.
petition for certiorari,10 viz:
As regards the second and last argument advanced by petitioner Zuellig that private
A careful perusal of the records shows that the closure of business operation was not respondent San Miguel is not entitled to attorney’s fees, this Court finds no reason to
validly made. Consider the Certificate of Filing of the Amended Articles of disturb the ruling of the public respondent NLRC. Petitioner Zuellig maintains that the
Incorporation which clearly shows that petitioner Zuellig is actually the former Zeta as factual backdraft (sic) of this petition does not call for the application of Article 2208 of
per amendment dated January 21, 1994. The same observation can be deduced with the Civil Code and Article 111 of the Labor Code as private respondent’s wages were
respect to the Certificate of Filing of Amended By-Laws dated May 10, 1994. As aptly not withheld. On the other hand, public respondent NLRC argues that paragraphs 2
pointed out by private respondent San Miguel, the amendment of the articles of and 3, Article 2208 of the Civil Code and paragraph (a), Article 111 of the Labor
incorporation merely changed its corporate name, broadened its primary purpose and Code justify the award of attorney’s fees. NLRC was saying to the effect that by
increased its authorized capital stocks. The requirements contemplated in Article 283 petitioner Zuellig’s act of illegally dismissing private respondent San Miguel, the latter
were not satisfied in this case. Good faith was not established by mere registration was compelled to litigate and thus incurred expenses to protect his interest. In the
with the Securities and Exchange Commission (SEC) of the Amended Articles of same passion, private respondent San Miguel contends that petitioner Zuellig acted
Incorporation and ByLaws. The factual milleu of the case, considered in its totality,
in gross and evident bad faith in refusing to satisfy his plainly valid, just and that his acknowledgment of the validity of his separation from Zeta by signing a
demandable claim. quitclaim and waiver estopped him from claiming that it had subsequently employed
him; and that the award of attorney’s fees had no basis in fact and in law.
After careful and judicious evaluation of the arguments advanced to support the
propriety or impropriety of the award of attorney’s fees to private respondent San Ruling
Miguel, this Court finds the resolutions of public respondent NLRC supported by laws
and jurisprudence. It does not need much imagination to see that by reason of The petition for review on certiorari is denied for its lack of merit.
petitioner Zuellig’s feigned closure of business operations, private respondent San
Miguel incurred expenses to protect his rights and interests. Therefore, the award of
First of all, the outcome reached by the CA that the NLRC did not commit any grave
attorney’s fees is in order.
abuse of discretion was borne out by the records of the case. We cannot undo such
finding without petitioner making a clear demonstration to the Court now that the CA
WHEREFORE, in view of the foregoing, the resolutions dated April 4, 2001 and June gravely erred in passing upon the petition for certiorari of petitioner.
15, 2001 of the National Labor Relations Commission affirming the November 15,
1999 decision of the Labor
Indeed, in a special civil action for certiorari brought against a court or quasi-judicial
body with jurisdiction over a case, petitioner carries the burden of proving that the
Arbiter in NLRC NCR 05-03639-94 (CA No. 022861-00) are hereby AFFIRMED and court or quasi-judicial body committed not a merely reversible error but a grave
the instant petition for certiorari is hereby DENIED and ordered DISMISSED. abuse of discretion amounting to lack or excess of jurisdiction in issuing the
impugned order.14 Showing mere abuse of discretion is not enough, for it is
SO ORDERED. necessary to demonstrate that the abuse of discretion was grave. Grave abuse of
discretion means either that the judicial or quasi-judicial power was exercised in an
Hence, petitioner appeals. arbitrary or despotic manner by reason of passion or personal hostility, or that the
respondent judge, tribunal or board evaded a positive duty, or virtually refused to
Issues perform the duty enjoined or to act in contemplation of law, such as when such judge,
tribunal or board exercising judicial or quasi-judicial powers acted in a capricious or
whimsical manner as to be equivalent to lack of jurisdiction.15 Under the
Petitioner asserts that the CA erred in holding that the NLRC did not act with grave circumstances, the CA committed no abuse of discretion, least of all grave, because
abuse of discretion in ruling that the closure of the business operation of Zeta had not its justifications were supported by the records and by the applicable laws and
been bona fide, thereby resulting in the illegal dismissal of San Miguel; and in holding jurisprudence.
that the NLRC did not act with grave abuse of discretion in ordering it to pay San
Miguel attorney’s fees.11
Secondly, it is worthy to point out that the Labor Arbiter, the NLRC, and the CA were
united in concluding that the cessation of business by Zeta was not a bona fide
In his comment,12 San Miguel counters that the CA correctly found no grave abuse closure to be regarded as a valid ground for the termination of employment of San
of discretion on the part of the NLRC because the ample evidence on record showed Miguel within the ambit of Article 283 of the Labor Code. The provision pertinently
that he had been illegally terminated; that such finding accorded with applicable laws reads:
and jurisprudence; and that he was entitled to back wages and attorney’s fees.
Article 283. Closure of establishment and reduction of personnel. — The employer
In its reply,13 petitioner reiterates that the cessation of Zeta’s business, which may also terminate the employment of any employee due to the installation of labor-
resulted in the severance of San Miguel from his employment, was valid; that the CA saving devices, redundancy, retrenchment to prevent losses or the closing or
erred in upholding the NLRC’s finding that San Miguel had been illegally terminated; cessation of operation of the establishment or undertaking unless the closing is for
the purpose of circumventing the provisions of this Title, by serving a written notice had no obligation to rehire terminated employees of the latter.18 Petitioner, despite
on the workers and the Department of Labor and Employment at least one (1) month its new name, was the mere continuation of Zeta's corporate being, and still held the
before the intended date thereof. x x x. obligation to honor all of Zeta's obligations, one of which was to respect San Miguel's
security of tenure. The dismissal of San Miguel from employment on the pretext that
The unanimous conclusions of the CA, the NLRC and the Labor Arbiter, being in petitioner, being a different corporation, had no obligation to accept him as its
accord with law, were not tainted with any abuse of discretion, least of all grave, on employee, was illegal and ineffectual.
the part of the NLRC. Verily, the amendments of the articles of incorporation of Zeta
to change the corporate name to Zuellig Freight and Cargo Systems, Inc. did not And, lastly, the CA rightfully upheld the NLRC's affirmance of the grant of attorney's
produce the dissolution of the former as a corporation. For sure, the Corporation fees to San Miguel. Thereby, the NLRC did not commit any grave abuse of its
Code defined and delineated the different modes of dissolving a corporation, and discretion, considering that San Miguel had been compelled to litigate and to incur
amendment of the articles of incorporation was not one of such modes. The effect of expenses to protect his rights and interest. In Producers Bank of the Philippines v.
the change of name was not a change of the corporate being, for, as well stated in Court of Appeals,19 the Court ruled that attorney's fees could be awarded to a party
Philippine First Insurance Co., Inc. v. Hartigan:16 "The changing of the name of a whom an unjustified act of the other party compelled to litigate or to incur expenses to
corporation is no more the creation of a corporation than the changing of the name of protect his interest. It was plain that petitioner's refusal to reinstate San Miguel with
a natural person is begetting of a natural person. The act, in both cases, would seem backwages and other benefits to which he had been legally entitled was unjustified,
to be what the language which we use to designate it imports – a change of name, thereby entitling him to recover attorney's fees.
and not a change of being."
WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals promulgated
The consequences, legal and otherwise, of the change of name were similarly dealt on November 6, 2002; and ORDERS petitioner to pay the costs of suit.
with in P.C. Javier & Sons, Inc. v. Court of Appeals,17 with the Court holding thusly:
From the foregoing documents, it cannot be denied that petitioner corporation was
aware of First Summa Savings and Mortgage Bank’s change of corporate name to
PAIC Savings and Mortgage Bank, Inc. Knowing fully well of such change, petitioner
corporation has no valid reason not to pay because the IGLF loans were applied with
G.R. No. 160924, August 05, 2015
and obtained from First Summa Savings and Mortgage Bank. First Summa Savings
and Mortgage Bank and PAIC Savings and Mortgage Bank, Inc., are one and the
same bank to which petitioner corporation is indebted. A change in the corporate TERELAY INVESTMENT AND DEVELOPMENT
name does not make a new corporation, whether effected by a special act or under a CORPORATION, Petitioner, v. CECILIA TERESITA J. YULO, Respondent.
general law. It has no effect on the identity of the corporation, or on its property,
rights, or liabilities. The corporation, upon to change in its name, is in no sense a new DECISION
corporation, nor the successor of the original corporation. It is the same corporation
with a different name, and its character is in no respect changed. (Bold underscoring BERSAMIN, J.:
supplied for emphasis)
In its desire to block the inspection of its corporate books by a stockholder holding a
In short, Zeta and petitioner remained one and the same corporation. The change of very insignificant shareholding, the petitioner now seeks to set aside the judgment
name did not give petitioner the license to terminate employees of Zeta like San promulgated on September 12, 2003,1 whereby the Court of Appeals (CA) affirmed
Miguel without just or authorized cause. The situation was not similar to that of an the decision rendered on March 22, 2002 by the Regional Trial Court, Branch 142, in
enterprise buying the business of another company where the purchasing company Makati City (RTC) allowing the inspection, and ordering it to pay attorney's fees of
P50,000.00 to the stockholder.2cralawrednad 1. Whether or not petitioner has the right to inspect and examine TERELAY's
corporate records, books of account and other financial records pursuant to Section
With the CA having denied the petitioner's motion for reconsideration and motion for 74 of the Corporation Code of the Philippines;
oral argument through the resolution promulgated on November 28, 2003,3 such
denial is also the subject of this appeal. 2. Whether or not petitioner as stockholder and director of TERELAY has been
unduly deprived of her right to inspect and examine TERELAY's corporate records,
Antecedents books of accounts and other financial records in clear contravention of law, which
warrants her claim for damages;
The CA recited the following antecedents:cralawlawlibrary
Asserting her right as a stockholder, Cecilia Teresita Yulo wrote a letter, dated 3. Whether or not Atty. Reynaldo G. Geronimo and/or the principal officers, Ma.
September 14, 1999, addressed to Terelay Investment and Development Corporation Antonia Yulo Loyzaga and Teresa J. Yulo of respondent corporation are
(TERELAY) requesting that she be allowed to examine its books and records on indispensable parties and hence, should be impleaded as respondents;
September 17, 1999 at 1:30 o'clock in the afternoon at the latter's office on the 25th
floor, Citibank Tower, Makati City. In its reply-letter, dated September 15, 1999, 4. As a prejudicial question, whether or not petitioner is a stockholder of respondent
TERELAY denied the request for inspection and instead demanded that she show corporation and such being the issue, whether this issue should be threshed out in
proof that she was a bona fide stockholder. the probate of the will of the late Luis A. Yulo and settlement of estate now pending
with the Regional Trial Court of Manila;
On September 16, 1999, Cecilia Yulo again sent another letter clarifying that her
request for examination of the corporate records was for the purpose of inquiring into 5. Assuming petitioner is a stockholder, whether or not petitioner's mere desire to
the financial condition of TERELAY and the conduct of its affairs by the principal inquire into the financial condition of respondent corporation and conduct of the
officers. The following day, Cecilia Yulo received a faxed letter from TERELAY's affairs of the corporation is a just and sufficient ground for inspection of the corporate
counsel advising her not to continue with the inspection in order to avoid trouble. records.4
Following the enactment of Republic Act No. 8799 (The Securities Regulation Code),
On October 11, 1999, Cecilia Yulo filed with the Securities and Exchange the case was transferred from the Securities and Exchange Commission to the RTC.
Commission (SEC), a Petition for Issuance of a Writ of Mandamus with prayer for
Damages against TERELAY, docketed as SEC Case No. 10-99-6433. In her petition, On March 22, 2002, the RTC rendered its judgment,5 ruling thusly:cralawlawlibrary
she prayed that judgment be rendered ordering TERELAY to allow her to inspect its Accordingly, petitioner's application for inspection of corporate records is granted
corporate records, books of account and other financial records; to pay her actual pursuant to Rule 7 of the Interim Rules in relation to Section 74 and 75 of the
damages representing attorney's fees and litigation expenses of not less than One Corporation Code. Defendant, through its officers, is ordered to allow inspection of
Hundred Thousand Pesos (P100,000.00); to pay her exemplary damages; and to pay corporate books and records at reasonable hours on business days and/or furnish
the costs of the suit On May 16, 2000, in the preliminary conference held before the petitioner copies thereof all at her expense. In this connection, plaintiff is ordered to
SEC Hearing Officer, the parties agreed on the following:cralawlawlibrary deposit to the Court the amount of P1,000.00 to cover the estimated cost of the
1. Petitioner Cecilia Teresita Yulo is registered as a stockholder in the corporation's manpower necessary to produce the books and records and the cost of copying.
stock and transfer book subject to the qualification in the Answer, and
Respondent is further ordered to pay petitioner attorney's fees in the amount of
2. Petitioner had informed the respondent, through demand letter, of her desire to P50,000.00
inspect the records of the corporation, but the same was denied by the respondent.
Thereafter, the parties stipulated that the ISSUES to be resolved are the SO ORDERED.6
On September 12, 2003, the CA affirmed the RTC.7cralawrednad courts' determinations.

The petitioner sought reconsideration, and moved for the holding of oral arguments Even when the Court has to review the factual premises, it has consistently held that
thereon, but the CA denied the motion on November 28, 2003.8cralawrednad the findings of the appellate and the trial courts are accorded great weight, if not
binding effect, unless the most compelling and cogent reasons exist to revisit such
Issues findings.12 Among the compelling and cogent reasons are the following,13 namely:
(a) when the findings are grounded entirely on speculation, surmises, or conjectures;
In this appeal, the petitioner insists that the CA committed serious error: (a) in holding (b) when the inference made is manifestly mistaken, absurd, or impossible; (c) when
that the respondent was a stockholder entitled to inspect its books and records, and there is grave abuse of discretion; (d) when the judgment is based on a
allowing her to inspect its corporate records despite her shareholding being a measly misapprehension of facts; (e) when the findings of facts are conflicting; (f) when the
.001% interest; (b) in declaring that the RTC had the jurisdiction to determine whether CA, in making its findings, went beyond the issues of the case, or its findings are
or not she was a stockholder; (c) in ruling that it did not adduce sufficient proof contrary to the admissions of both the appellant and the appellee; (g) when the CA's
showing that she was in bad faith or had an ulterior motive in demanding inspection findings are contrary to those by the trial court; (h) when the findings are conclusions
of the records; (d) in finding that her purpose for the inspection, which was to inquire without citation of specific evidence on which they are based; (i) when the facts set
into its financial condition and into the conduct of its affairs by its principal officers, forth in the petition as well as in the petitioner's main and reply briefs are not disputed
was a valid ground to examine the corporate records; (e) in holding that her petition by the respondent; (j) when the findings of fact are premised on the supposed
for mandamus was not premature; (f) in not resolving whether or not its principal absence of evidence and contradicted by the evidence on record; or (k) when the CA
officers should be impleaded as indispensable parties; and (g) in not setting aside the manifestly overlooked certain relevant facts not disputed by the parties, which, if
award of attorney's fees in the amount of P50,000.00.9cralawrednad properly considered, would justify a different conclusion.

In her comment,10 the respondent counters that the law does not require substantial However, the Court has determined from its review in this appeal that the CA
shareholding before she can exercise her right of inspection as a stockholder; that correctly disposed of the legal and factual matters and issues presented by the
the issue of the nullity of the donation in her favor of the shareholding was irrelevant parties. This appeal is not, therefore, under any of the aforecited exceptions.
because it was the subscription to the shares that granted the statutory and common
rights to stockholders; that the RTC, sitting as a corporate court, was the proper court The Court now adopts with approval the cogent observations of the CA on the
to declare that she was a stockholder; that she has just and sufficient grounds to matters and issues raised by the petitioner, as follows:cralawlawlibrary
inspect its corporate records; that its officers are not indispensable parties; that her Regarding the issue of jurisdiction, TERELAY avers that it is not within the jurisdiction
petition for mandamus was not premature; and that the CA correctly upheld the of the trial court to determine whether or not petitioner-appellee is its stockholder. It
RTC's order to pay attorney's fees to her. contends that a petition for the probate of the will of Cecilia's father, the late Luis A.
Yulo, and the settlement of his estate was filed with the Regional Trial Court of
Ruling of the Court Manila. The inventory of the estate includes the five (5) shares which Cecilia is
claiming. Being a court of limited jurisdiction, the court a quo could not decide
We deny the petition for review on certiorari. whether or not Luis A. Yulo donated five (5) shares to Cecilia during his lifetime. The
position of TERELAY is untenable. As correctly pointed out by Cecilia Yulo, the main
To start with, it is fundamental that a petition for review on certiorari should raise only issue in this case is the question of whether or not she is a stockholder and therefore,
questions of law.11 In that regard, the findings of fact of the trial court, as affirmed by has the right to inspect the corporate books and records. We agree with the ruling of
the appellate court, are final and conclusive, and cannot be reviewed on appeal by the trial court that the determination of this issue is within the competence of the
the Court as long as such findings are supported by the records, or are based on Regional Trial Court, acting as a special court for intra-corporate controversies, and
substantial evidence. In other words, it is not the function of the Court to analyze or not in the proceeding for the settlement of the estate of the late Luis Yulo.
weigh all over again the evidence or the factual premises supportive of the lower
On the matter of exhaustion of administrative remedies, TERELAY asserts that the TERELAY's position has no merit. The records disclose that the corporate
petition for mandamus filed by Cecilia Yulo was premature because she failed to documents submitted, which include the Articles of Incorporation and the Amended
exhaust all available remedies before filing the instant petition. The Court disagrees. Articles of Incorporation, as well as the General Information Sheets and the Quarterly
A writ of mandamus is a remedy provided by law where despite the stockholder's Reports all bear the signatures of the proper parties and their authorized custodians.
request for record inspection, the corporation still refuses to allow the stockholder the The signature of appellee under the name Cecilia J. Yulo appears in the Articles of
right to inspect. In the instant case, Cecilia Yulo, through counsel, sent a letter Incorporation of TERELAY. Likewise, her signatures under the name Cecilia Y.
request, dated September 14, 1999, for inspection of corporate records, books of Blancaflor appear in the Amended Articles of Incorporation where she signed as
accounts and other financial records, but the same was denied by TERELAY through Director and Corporate Secretary of TERELAY. The General Information Sheets from
counsel, in its reply-letter, dated September 15, 1999. Appellee Yulo sent another December 31, 1977 up to February 20, 2002 all exhibited that she was recognized as
letter, dated September 16, 1999, reiterating the same request but the same was director and corporate secretary, and that she had subscribed to five (5) shares of
again denied by TERELAY in a reply-letter dated September 17, 1999. Clearly then, stock. The quarterly reports do not show otherwise.
appellee Yulo's right is not pre-mature and may be enforced by a writ of mandamus.
Verily, petitioner-appellee has presented enough evidence that she is a stockholder
On the contention that there was no stipulation that Cecilia Yulo was registered as a of TERELAY. The corporate documents presented support her claim that she is a
stockholder, TERELAY asserts that the trial court was misled into believing that there registered stockholder in TERELAY's stock and transfer book thus giving her the
was a stipulation or admission that Cecilia Yulo is a registered stockholder in its stock right, under Section 74 par. 2 and Section 75 of the Philippine Corporation Law, to
and transfer book. According to TERELAY, the admission or stipulation was that she inspect TERELAY's books, records, and financial statements. Section 74, par. 2 and
was registered in the Articles of Incorporation is separate and distinct from being so Section 75 of our Corporation Code reads as follows: x x x
in the stock and transfer book. TERELAY's argument cannot be sustained. A careful
review of the records would show that in the Preliminary Conference Order, dated Accordingly, Cecilia Yulo as the right to be fully informed of TERELAY's corporate
May 16, 2000, of the SEC Hearing Officer, both parties represented by their condition and the manner its affairs are being managed. It is well-settled that the
respective counsels, agreed on the fact that petitioner-appellee was "registered as a ownership of shares of stock gives stockholders the right under the law to be
stockholder in respondent-appellant's stock and transfer book subject to the protected from possible mismanagement by its officers. This right is predicated upon
qualifications in the Answer." The records failed to disclose any objection by selfpreservation. In any case, TERELAY did not adduce sufficient proof that Cecilia
TERELAY. Neither did TERELAY raise this matter in the SEC hearing held on August Yulo was in bad faith or had an ulterior motive in demanding her right under the law.
7, 2000 as one of the issues to be determined and resolved.
In view of the foregoing, the Court finds it unnecessary to discuss the other issues
TERELAY further points out that her name as incorporator, stockholder and director raised by TERELAY as they are incapable of defeating the established fact that
in the Articles of Incorporation and Amendments were unsigned; that she did not pay Cecilia Yulo is a registered stockholder of respondent-applicant.
for the five (5) shares appearing in the Amended Articles of Incorporation and
General Information Sheet of TERELAY; that she did not subscribe to the shares; Finally, the Court agrees with the ruling of the court a quo that the petitioner is
that she has neither been in possession of nor seen the certificate of stock covering entitled to the reasonable amount of P50,000.00 representing attorney's fees for
the five (5) shares of stock; that the donation of the five (5) shares claimed by her having been compelled to litigate in order to exercise her right of inspection.14
was null and void for failure to comply with the requisites of a donation under Art. 748
Secondly, the petitioner's submission that the respondent's "insignificant holding" of
of the Civil Code; and that there was no acceptance of the donation by her as donee.
only .001% of the petitioner's stockholding did not justify the granting of her
TERELAY further contends that Cecilia Yulo's purpose in inspecting the books was to
application for inspection of the corporate books and records is unwarranted.
inquire into its financial condition and the conduct of its affairs by the principal officers
which are not sufficient and valid reasons. Therefore, the presumption of good faith The Corporation Code has granted to all stockholders the right to inspect the
cannot be accorded her.
corporate books and records, and in so doing has not required any specific amount
of interest for the exercise of the right to inspect.15 Ubi lex non distinguit nee nos
distinguere debemos. When the law has made no distinction, we ought not to
recognize any distinction. Among the purposes held to justify a demand for inspection are the following: (1) To
ascertain the financial condition of the company or the propriety of dividends; (2) the
Neither could the petitioner arbitrarily deny the respondent's right to inspect the value of the shares of stock for sale or investment; (3) whether there has been
corporate books and records on the basis that her inspection would be used for a mismanagement; (4) in anticipation of shareholders' meetings to obtain a mailing list
doubtful or dubious reason. Under Section 74, third paragraph, of the Corporation of shareholders to solicit proxies or influence voting; (5) to obtain information in aid of
Code, the only time when the demand to examine and copy the corporation's records litigation with the corporation or its officers as to corporate transactions. Among the
and minutes could be refused is when the corporation puts up as a defense to any improper purposes which may justify denial of the right of inspection are: (1)
action that "the person demanding" had "improperly used any information secured Obtaining of information as to business secrets or to aid a competitor; (2) to secure
through any prior examination of the records or minutes of such corporation or of any business "prospects" or investment or advertising lists; (3) to find technical defects in
other corporation, or was not acting in good faith or for a legitimate purpose in corporate transactions in order to bring "strike suits" for purposes of blackmail or
making his demand." extortion.

The right of the shareholder to inspect the books and records of the petitioner should In general, however, officers and directors have no legal authority to close the office
not be made subject to the condition of a showing of any particular dispute or of doors against shareholders for whom they are only agents, and withhold from them
proving any mismanagement or other occasion rendering an examination proper, but the right to inspect the books which furnishes the most effective method of gaining
if the right is to be denied, the burden of proof is upon the corporation to show that information which the law has provided, on mere doubt or suspicion as to the motives
the purpose of the shareholder is improper, by way of defense. According to a of the shareholder. While there is some conflict of authority, when an inspection by a
recognized commentator:16 shareholder is contested, the burden is usually held to be upon the corporation to
By early English decisions it was formerly held that there must be something more establish a probability that the applicant is attempting to gain inspection for a purpose
than bare suspicion of mismanagement or fraud. There must be some particular not connected with his interests as a shareholder, or that his purpose is otherwise
controversy or question in which the party applying was interested, and inspection improper. The burden is not upon the petitioner to show the propriety of his
would be granted only so far as necessary for that particular occasion. By the general examination or that the refusal by the officers or directors was wrongful, except under
rule in the United States, however, shareholders have a right to inspect the books statutory provisions.
and papers of the corporation without first showing any particular dispute or proving WHEREFORE, the Court AFFIRMS the judgment promulgated on September 12,
any mismanagement or other occasion rendering an examination proper. The 2003; and ORDERSthe petitioner to pay the costs of suit.
privilege, however, is not absolute and the corporation may show in defense that the
applicant is acting from wrongful motives.
SO ORDERED.chanrobles virtuallawlibrary
In Guthrie v. Harkness, there was involved the right of a shareholder in a national
bank to inspect its books for the purpose of ascertaining whether the business affairs
of the bank had been conducted according to law, and whether, as suspected, the G.R. No. 154069, June 06, 2016
bank was guilty of irregularities. The court said: "The decisive weight of American
authority recognizes the right of the shareholder, for proper purposes and under INTERPORT RESOURCES CORPORATION, Petitioner, v. SECURITIES
reasonable regulations as to place and time, to inspect the books of the corporation SPECIALIST, INC., AND R.C. LEE SECURITIES INC., Respondents.
of which he is a member . . . In issuing the writ of mandamus the court will exercise a
sound discretion and grant the right under proper safeguards to protect the interest of DECISION
all concerned. The writ should not be granted for speculative purposes or to gratify
idle curiosity or to aid a blackmailer, but it may not be denied to the stockholder who BERSAMIN, J.:
seeks the information for legitimate purposes."
This appeal assails the decision promulgated on February 11, 2002,1 whereby the On February 8, 1989, Interport issued a call for the full payment of subscription
Court of Appeals (CA), in C.A.-G.R. SP No. 66600, affirmed the decision the receivables, setting March 15, 1989 as the deadline. SSI tendered payment prior to
Securities and Exchange Commission (SEC) rendered in SEC AC No. 501- the deadline through two stockbrokers of the Manila Stock Exchange. However, the
5022 ordering Interport Resources Corporation (Interport) to deliver 25% of the stockbrokers reported to SSI that Interport refused to honor the Oceanic
shares of stocks under Subscription Agreements Nos. 1805 and 1808-1811, or the subscriptions.9chanrobleslaw
value thereof, and to pay to respondent Securities Specialist, Inc. (SSI), jointly and
severally with R.C. Lee Securities, Inc. (R.C. Lee), exemplary damages and litigation Still on the date of the deadline, SSI directly tendered payment to Interport for the
expenses. balance of the 5,000,000 shares covered by the Oceanic subscription agreements,
some of which were in the name of R.C. Lee and indorsed in blank. Interport
Antecedents originally rejected the tender of payment for all unpaid subscriptions on the ground
that the Oceanic subscription agreements should have been previously converted to
In January 1977, Oceanic Oil & Mineral Resources, Inc. (Oceanic) entered into a shares in Interport.10chanrobleslaw
subscription agreement with R.C. Lee, a domestic corporation engaged in the trading
of stocks and other securities, covering 5,000,000 of its shares with par value of SSI then required Interport to furnish it with a copy of any notice requiring the
P0.01 per share, for a total of P50,000.00. Thereupon, R.C. Lee paid 25% of the conversion of Oceanic shares to Interport shares. However, Interport failed to show
subscription, leaving 75% unpaid. Consequently, Oceanic issued Subscription any proof of the notice. Thus, through a letter dated March 30, 1989, SSI asked the
Agreements Nos. 1805, 1808, 1809, 1810, and 1811 to R.C. Lee.3chanrobleslaw SEC for a copy of Interport's board resolution requiring said conversion. The SEC,
through Atty. Fe Eloisa C. Gloria, Director of Brokers and Exchange Department,
On July 28, 1978, Oceanic merged with Interport, with the latter as the surviving informed SSI that the SEC had no record of any such resolution.11chanrobleslaw
corporation. Interport was a publicly-listed domestic corporation whose shares of
stocks were traded in the stock exchange. Under the terms of the merger, each share Having confirmed the non-existence of the resolution, Francisco Villaroman,
of Oceanic was exchanged for a share of Interport.4chanrobleslaw President of SSI, met with Pablo Roman, President and Chairman of the Board of
Interport, and Atty. Pineda, Interport's Corporate Secretary, at which meeting
On April 16, 1979 and April 18, 1979, SSI, a domestic corporation registered as a Villaroman formally requested a copy of the resolution. However, Interport did not
dealer in securities, received in the ordinary course of business Oceanic Subscription produce a copy of the resolution.12chanrobleslaw
Agreements Nos. 1805, 1808 to 1811, all outstanding in the name of R.C. Lee, and
Oceanic official receipts showing that 25% of the subscriptions had been paid.5 The Despite that meeting, Interport still rejected SSI's tender of payment for the 5,000,000
Oceanic subscription agreements were duly delivered to SSI through stock shares covered by the Oceanic Subscription Agreements Nos. 1805, and 1808 to
assignments indorsed in blank by R.C. Lee.6chanrobleslaw 1811.13chanrobleslaw

Later on, R.C. Lee requested Interport for a list of subscription agreements and stock On March 31, 1989, or 16 days after its tender of payment, SSI learned that Interport
certificates issued in the name of R.C. Lee and other individuals named in the had issued the 5,000,000 shares to R.C. Lee, relying on the latter's registration as
request. In response, Atty. Rhodora B. Morales, Interport1 s Corporate Secretary, the owner of the subscription agreements in the books of the former, and on the
provided the requested list of all subscription agreements of Interport and Oceanic, affidavit executed by the President of R.C. Lee stating that no transfers or
as well as the requested stock certificates of Interport.7 Upon finding no record encumbrances of the shares had ever been made.14chanrobleslaw
showing any transfer or assignment of the Oceanic subscription agreements and
stock certificates of Interport as contained in the list, R.C. Lee paid its unpaid Thus, on April 27, 1989, SSI wrote R.C. Lee demanding the delivery of the 5,000,000
subscriptions and was accordingly issued stock certificates corresponding Interport shares on the basis of a purported assignment of the subscription
thereto.8chanrobleslaw agreements covering the shares made in 1979. R.C. Lee failed to return the subject
shares inasmuch as it had already sold the same to other parties. SSI thus
demanded that R.C. Lee pay not only the equivalent of the 25% it had paid on the As regards the portion awarding temperate damages, the same may not be awarded.
subscription but the whole 5,000,000 shares at current market All evidence presented by Securities Specialist, Inc. pertaining to its "lost opportunity"
value.15chanrobleslaw seeking for damages for its supposed failure to sell Interport's shares, when the
market was allegedly good, is merely speculative. Moreover, even if the alleged
SSI also made demands upon Interport and R.C. Lee for the cancellation of the pecuniary loss of SSI would be considered, the same is again purely speculative and
shares issued to R.C. Lee and for the delivery of the shares to SSI.16chanrobleslaw deserves scant consideration by the Commission. Hence, temperate damages may
not be justly awarded along with the other damages prayed for.
On October 6, 1989, after its demands were not met, SSI commenced this case in
the SEC to compel the respondents to deliver the 5,000,000 shares and to pay WHEREFORE, premises considered, judgment is hereby rendered, ordering
damages.17 It alleged fraud and collusion between Interport and R.C. Lee in respondent Interport to deliver the corresponding shares previously covered by
rejecting the tendered payment and the transfer of the shares covered by the Oceanic Oil Mineral Resources Inc. subscription agreements Nos. 1805-1811 to
subscription agreements. petitioner SSI, to the extent only of 25% thereof, as duly paid by petitioner SSI; and if
the same will not be possible, to deliver the value thereof at the market price as of the
On October 25, 1994, after due hearing, the Hearing Officer of the SEC's Securities date of this judgment and ordering both respondents jointly and severally, to
Investigation and Clearing Department (SICD) rendered a decision,18 disposing indemnify the complainant in the sum of five hundred thousand pesos (P500,000.00)
thusly:ChanRoblesVirtualawlibrary by way of exemplary damages, to pay for complainant's litigation expenses, including
WHEREFORE, judgment is hereby rendered ordering respondent Interport to deliver attorney's fees, reasonably in the sum of three hundred thousand pesos
the five (5) million shares covered by Oceanic Oil and Mineral Resources, Inc. (P300,000.00) and to pay the costs of the suit.20chanroblesvirtuallawlibrary
subscription agreement TNos. 1805, 1808-1811 to petitioner SSI; and if the same not
Interport appealed to the CA,21 which on February 11, 2002 affirmed the SEC's
be possible to deliver the value thereof, at the market price as of the date of this decision,22viz.:ChanRoblesVirtualawlibrary
judgment; and ordering both respondents, jointly and severally, to indemnify the WHEREFORE, premises considered the Petition is hereby DENIED DUE COURSE
complainant in the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00) by
and ordered DISMISSED and the challenged decision of the Securities and
way of temperate or moderate damages, to indemnify complainant in the sum of
Exchange Commission AFFIRMED, with costs to Petitioner.
FIVE HUNDRED THOUSAND PESOS (P500,000.00) by way of exemplary damages;
to pay for complainant's litigation expenses, including attorney's fees, reasonably in SO ORDERED.
the sum of THREE HUNDRED THOUSAND pesos (P300,000.00) and to pay the
costs of suit.19chanroblesvirtuallawlibrary On June 25, 2002, the CA denied Interport's motion for
Both Interport and R.C. Lee appealed to the SEC En Banc, which ultimately ruled as
After a careful review of the records of this case, we find basis in partially reversing
the decision dated October 25, 1994.
Interport assigns the following errors to the CA, namely:ChanRoblesVirtualawlibrary
It is undisputed from the facts presented and evidence adduced that the subject
matter of this case pertains to the subscription agreements for which complainant
paid only twenty five percent and the remaining balance of seventy five percent paid
for by respondent RCL. Accordingly, to order the return of the five million shares or
the payment of the entire value thereof to the complainant, without requiring the latter
to pay the balance of seventy five percent will be inequitable. Accordingly, the
pertinent portion of the decision is hereby revised to reflect this.
II Interport's arguments must fail.

THE COURT OF APPEALS ERRED IN RULING THAT PETITIONER IS LIABLE In holding Interport liable for the delivery of the Oceanic shares, the SEC
FOR EXEMPLARY DAMAGES IN THE AMOUNT OF P500 000.00 WITHOUT explained:ChanRoblesVirtualawlibrary
LEGAL BASIS, WHICH IS NOT IN ACCORD WITH LAW AND APPLICABLE x x x [T]he Oceanic subscriptions agreements were duly delivered to the Complainant
DECISIONS OF THE SUPREME COURT. SSI supported by stock assignments of respondent R.C. Lee (Exhibits "B" to "B-4" of
the petitioner) and by official receipts of Oceanic showing that twenty five percent of
III the subscription had been paid (Exhibits "C" to "C-4"). To this date, respondent R.C.
Lee does not deny having subscribed and delivered such stock assignments to the
THE COURT OF APPEALS ERRED IN RULING THAT PETITIONER IS LIABLE Oceanic subscription agreements. Therefore, having negotiated them by allowing to
FOR ATTORNEY'S FEES IN THE AMOUNT OF P300.000.00 AND COSTS THERE be in street certificates, respondent R.C. Lee, as a broker, cannot now legally and
BEING NO FACTUAL AND LEGAL BASIS, WHICH IS NOT IN ACCORD WITH LAW morally claim any further interests over such subscriptions or the shares of stock they
The issues are: (a) whether or not Interport was liable to deliver to SSI the Oceanic
shares of stock, or the value thereof, under Subscriptions Agreement No. 1805, and
Both respondents seek to be absolved of liability for their machinations by invoking
Nos. 1808 to 1811 to SSI; and (b) whether or not SSI was entitled to exemplary
both the rule on novation of the debtor without the creditor's consent; as well as the
damages and attorney's fees.
Corporation Code rule of nonregistration of transfers in the corporation's stock and
transfer book. Neither will avail in the case at bar. Art. 1293 of the New Civil Code
The appeal is partly meritorious.
chanRoblesvirtualLawlibrary"Art. 1293. Novation which consists in substituting a new
debtor in the place of the original one may be made even without the knowledge or
against the will of the latter but not without the consent of the creditor" x x x.
Interport was liable to deliver the Oceanic shares of stock, or the value thereof, under More importantly, the allusion by the respondents likening the subscription contracts
Subscription Agreements Nos. 1805, and 1808 to 1811 to SSI to the situation of debtor-creditor finds no basis in law. Indeed, as held by the
Supreme Court, shareholders are not creditors of the corporation with respect to the
Interport argues that R.C. Lee should be held liable for the delivery of 25% of the
shareholdings (Garcia vs. Lim Chu Sing, 59 Phil. 562).
shares under the subject subscription agreements inasmuch as R.C. Lee had already
received all the 5,000,000 shares upon its payment of the 75% balance on the
The Memorandum of R.C. Lee, likewise cites the Opinion of the SEC dated
subscription price to Interport; that it was only proper for R.C. Lee to deliver 25% of November 12, 1976, which states "that since an assignment will involve a substitution
the shares under the Oceanic subscription agreements because it had already of debtor or novation of contract, as such the consent of the creditor must be
received the corresponding payment therefor from SSI for the assignment of the
obtained" has the same effect. The opinion, however, merely restated the general
shares; that R.C. Lee would be unjustly enriched if it retained the 5,000,000 shares
rule already embodied in the Codal provision quoted above; it does not preclude
and the 25% payment of the subscription price made by SSI in favor of R.C. Lee as a
previously authorized transfers. According to Tolentino -
result of the assignment; and that it merely relied on its records, in accordance with
"When the original contract authorizes the debtor to transfer his obligations to a third
Section 74 of the Corporation Code, when it issued the stock certificates to R.C. Lee person, the novation by substitution of debtor is effected when the creditor
upon its full payment of the subscription price.
is notified that such transfer has been made" (IV Tolentino 392, 1991 ed, Emphasis novation is never presumed; there must be an express intention to novate; in cases
supplied) where it is implied, the acts of the parties must clearly demonstrate their intent to
But even following the argument of the respondents, when complainant SSI tendered dissolve the old obligation as the moving consideration for the emergence of the new
one. Implied novation necessitates that the incompatibility between the old and new
the balance of the unpaid subscription on the subject five (5) million shares on the
obligation be total on every point such that the old obligation is completely
basis of the existing subscription agreements covering the same, respondents
superseded by the new one. The test of incompatibility is whether they can stand
Interport was bound to accept payment even as the same were being tendered in the
together, each one having an independent existence; if they cannot and are
name of the registered subscriber, respondent R.C. Lee and once the payment is
fully accepted in the name of respondent R.C. Lee, respondent Interport was then irreconcilable, the subsequent obligation would also extinguish the first.
bound to recognize the stock assignment also tendered duly executed by respondent
An extinctive novation would thus have the twin effects of, first, extinguishing an
R.C. Lee in favor of complainant SSI.25cralawred (bold Emphasis supplied.)
existing obligation and, second, creating a new one in its stead. This kind of novation
The SEC correctly categorized the assignment of the subscription agreements as a presupposes a confluence of four essential requisites: (1) a previous valid obligation,
form of novation by substitution of a new debtor and which required the consent of or (2) an agreement of all parties concerned to a new contract, (3) the extinguishment of
notice to the creditor. We agree. Under the Civil Code, obligations may be modified the old obligation, and (4) the birth of a valid new obligation. Novation is merely
by: (1) changing their object or principal conditions; or (2) substituting the person of modificatory where the change brought about by any subsequent agreement is
the debtor; or (3) subrogating a third person in the rights of the creditor.26 Novation, merely incidental to the main obligation (e.g., a change in interest rates or an
which consists in substituting a new debtor in the place of the original one, may be extension of time to pay; in this instance, the new agreement will not have the effect
made even without the knowledge or against the will of the latter, but not without the of extinguishing the first but would merely supplement it or supplant some but not all
consent of the creditor.27 In this case, the change of debtor took place when R.C. of its provisions.29chanroblesvirtuallawlibrary
Lee assigned the Oceanic shares under Subscription Agreement Nos. 1805, and
Clearly, the effect of the assignment of the subscription agreements to SSI was to
1808 to 1811 to SSI so that the latter became obliged to settle the 75% unpaid
extinguish the obligation of R.C. Lee to Oceanic, now Interport, to settle the unpaid
balance on the subscription.
balance on the subscription. As a result of the assignment, Interport was no longer
The SEC likewise did not err in appreciating the fact that Interport was duly notified of obliged to accept any payment from R.C. Lee because the latter had ceased to be
the assignment when SSI tendered its payment for the 75% unpaid balance, and that privy to Subscription Agreements Nos. 1805, and 1808 to 1811 for having been
extinguished insofar as it was concerned. On the other hand, Interport was legally
it could not anymore refuse to recognize the transfer of the subscription that SSI
bound to accept SSI's tender of payment for the 75% balance on the subscription
sufficiently established by documentary evidence.
price because SSI had become the new debtor under Subscription Agreements Nos.
1805, and 1808 to 1811. As such, the issuance of the stock certificates in the name
Yet, Interport claims that SSI waived its rights over the 5,000,000 shares due to its
failure to register the assignment in the books of Interport; and that SSI was estopped of R.C. Lee had no legal basis in the absence of a contractual agreement between
from claiming the assigned shares, inasmuch as the assignor, R.C. Lee, had already R.C. Lee and Interport.
transferred the same to third parties.
Under Section 63 of the Corporation Code, no transfer of shares of stock shall be
valid, except as between the parties, until the transfer is recorded in the books of the
Interport's claim cannot be upheld. It should be stressed that novation extinguished
corporation so as to show the names of the parties to the transaction, the date of the
an obligation between two parties.28 We have stated in that respect
that:ChanRoblesVirtualawlibrary transfer, the number of the certificate or certificates and the number of shares
x x x Novation may: transferred. Hence:ChanRoblesVirtualawlibrary
[A] transfer of shares of stock not recorded in the stock and transfer book of the
corporation is non-existent as far as the corporation is concerned. As between the
chanRoblesvirtualLawlibrary[E]ither be extinctive or modificatory, much being
corporation on the one hand, and its shareholders and third persons on the other, the
dependent on the nature of the change and the intention of the parties. Extinctive
corporation looks only to its books for the purpose of determining who its
shareholders are. It is only when the transfer has been recorded in the stock and shares without respondent R.C. Lee having anything to show for the same. On the
transfer book that a corporation may rightfully regard the transferee as one of its other hand, respondent Interport refused to recognize complainant SSI's claim to five
stockholders. From this time, the consequent obligation on the part of the corporation (5) millions (sic) shares inspite of the fact that its claim was fully supported by duly
to recognize such rights as it is mandated by law to recognize issued subscription agreements, stock assignment and receipts of payment of the
arises.30chanroblesvirtuallawlibrary initial subscription. x x x31chanrobleslaw
This statutory rule cannot be strictly applied herein, however, because Interport had
Subscription Agreements Nos. 1805, and 1808 to 1811 were now binding between
unduly refused to recognize the assignment of the shares between R.C. Lee and
SSI. Accordingly, we adopt with approval the SEC's following conclusion that - Interport and SSI only, and only such parties were expected to comply with the terms
x x x To say that the ten years since the assignment had been made are a sufficient thereof. Hence, the CA did not err in relying on the findings of the SEC, which was in
a better position to pass judgment on whether or not Interport was liable to deliver to
lapse of time in order for respondent SSI to be considered to have abandoned its
SSI the Oceanic shares under Subscription Agreements Nos. 1805, and 1808 to
rights under the subscription agreements, is to ignore the rule -
"The right to have the transfer registered exists from the time of the transfers and it is
to the transferee's benefit that the right be exercised early. However, since the law 2.
does not prescribed (sic) any period within which the registration should be effected
the action to be enforced the right does not accrue until here has been a demand and Interport and R.C. Lee were not liable to pay exemplary damages and attorney's fees
a refusal to record the transfer." (11 Campus 310, 1990 ed., citing Won v. Wack
Wack Golf, 104 Phil. 466, Emphasis supplied). Article 2229 of the Civil Code provides that exemplary damages may be imposed by
Petitioner SSI was denied recognition of its subscription agreement on March 15, way of example or correction for the public good. While exemplary damages cannot
1989; the complaint against the respondents was filed before the SEC on October 6 be recovered as a matter of right, they need not be proved, although the plaintiff must
show that he is entitled to moral, temperate, or compensatory damages before the
of that same year. This is the period of time that is to be taken into account, not the
court may consider the question of whether or not exemplary damages should be
period between 1979 and 1989. The Commission thus finds that petitioner acted with
awarded. Exemplary damages are imposed not to enrich one party or impoverish
sufficient dispatch in seeking to enforce its rights under the subscription agreements,
and sought the intervention of this Commission within a reasonable period. another, but to serve as a deterrent against or as a negative incentive to curb socially
deleterious actions.32chanrobleslaw
In the affidavit of respondent R.C. Lee's president, Ramon C. Lee, dated February
SSI was not able to show that it was entitled to moral, temperate, or compensatory
22, 1989, there are several averments that need to be examined, in the light of
damages. In fact, the SEC pointed out that the award of temperate damages was not
respondent R.C. Lee's claim of having acted in good faith.
proper because SSI's alleged pecuniary loss was merely speculative in nature.
The first is the statement made in paragraph 3 thereof:ChanRoblesVirtualawlibrary Neither could SSI recover exemplary damages considering that there was no award
"That R.C. Lee Securities, Inc. has delivered to Interport its subscription Agreements of moral damages. Indeed, exemplary damages are to be allowed only in addition to
moral damages, and should not be awarded unless the claimant first establishes a
for Twenty Five Million (25,000,000) shares of Oceanic for conversion into Interport
clear right to moral damages.33chanrobleslaw
shares however, as of date, only twenty million (20,000,000) shares have been duly
covered by Interport Subscription Agreements and the Five million (5,000,000)
Nonetheless, the Court observes that exemplary damages were awarded in the past
shares still remains without Subscription Agreements".
despite the award of moral damages being deleted because the defendant party to a
No explanation is given for the failure of respondent Interport to convert the five (5) contract acted in a wanton, fraudulent, oppressive or malevolent
million shares. As can be seen from the letter of Interport to counsel of R.C. Lee, manner.34chanrobleslaw
dated January 27, 1989, already mentioned above, these five (5) million shares
purportedly belonging to respondent R.C. Lee do not seem to be covered by any In this case, the Court finds that Interport's act of refusing to accept SSI's tender of
properly identified subscription agreements. Yet respondent Interport issued the payment for the 75% balance of the subscription price was not performed in a
wanton, fraudulent, oppressive or malevolent manner. In doing so, Interport merely G.R. No. 180677 February 18, 2013
relied on its records which did not show that an assignment of the shares had already
been made between R.C. Lee and SSI as early as 1979. R.C. Lee, on the other VICTORIO P. DIAZ, Petitioner,
hand, persisted in paying the 75% balance on the subscription price simply on the vs.
basis of Interport's representation that no transfer has yet been made in connection PEOPLE OF THE PHILIPPINES AND LEVI STRAUSS [PHILS.],
with Subscription Agreement Nos. 1805, and 1808 to 1811. Although Interport and INC., Respondents.
R.C. Lee might have acted in bad faith35 in refusing to recognize the assignment of
the subscription agreements in favor of SSI, their acts certainly did not fall within the DECISION
ambit of being performed in a wanton, fraudulent, oppressive or malevolent manner
as to entitle SSI to an award for exemplary damages.
We delete the attorney's fees for lack of legal basis.36chanrobleslaw
It is the tendency of the allegedly infringing mark to be confused with the registered
WHEREFORE, the Court PARTIALLY GRANTS the petition for review on certiorari; trademark that is the gravamen of the offense of infringement of a registered
and AFFIRMS the decision promulgated on February 11, 2002 subject to the trademark. The acquittal of the accused should follow if the allegedly infringing mark
following MODIFICATIONS, namely: is not likely to cause confusion. Thereby, the evidence of the State does not satisfy
the quantum of proof beyond reasonable doubt.
chanRoblesvirtualLawlibrary1. ORDERING Interport Resources Corporation: (a) To
accept the tender of payment of Securities Specialist, Inc. corresponding to the 75% Accused Victorio P. Diaz (Diaz) appeals the resolutions promulgated on July 17,
unpaid balance of the total subscription price under Subscription Agreements Nos. 20071 and November 22, 2007,2whereby the Court of Appeals (CA), respectively,
1805, 1808, 1809, 1810 and 1811; (b) To deliver 5,000,000 shares of stock and to dismissed his appeal in C.A.-G.R. CR No. 30133 for the belated filing of the
issue the corresponding stock certificates to Securities Specialist, Inc. upon receipt of appellant's brief, and denied his motion for reconsideration. Thereby, the decision
the payment of the latter under Item No. (a); (c) To cancel the stock certificates rendered on February 13, 2006 in Criminal Case No. 00-0318 and Criminal Case No.
issued to R.C. Lee Securities, Inc. corresponding to the 5,000,000 shares of stock 00-0319 by the Regional Trial Court, Branch 255, in Las Pifias City (RTC) convicting
covered by Subscription Agreements Nos. 1805, 1808, 1809, 1810 and 1811; (d) To him for two counts of infringement of trademark were affirmed.3
reimburse R.C. Lee Securities, Inc. the amounts it paid representing the 75% unpaid
balance of the total subscription price of Subscription Agreements Nos. 1805, 1808, Antecedents
1809, 1810 and 1811; and (e) In the alternative, if the foregoing is no longer possible,
Interport Resources Corporation shall pay Securities Specialist, Inc. the market value
On February 10, 2000, the Department of Justice filed two informations in the RTC of
of the 5,000,000 shares of stock covered by Subscription Agreements Nos. 1805,
Las Piñas City, charging Diaz with violation of Section 155, in relation to Section 170,
1808, 1809, 1810 and 1811 at the time of the promulgation of this decision;
of Republic Act No. 8293, also known as the Intellectual Property Code of the
and cralawlawlibrary
Philippines (Intellectual Property Code), to wit:
2. DELETING the award for exemplary damages and attorney's fees for lack of merit.
Criminal Case No. 00-0318
No pronouncement on costs of suit.
That on or about August 28, 1998, and on dates prior thereto, in Las Pinas City, and
SO ORDERED.c within the jurisdiction of this Honorable Court, the abovenamed accused, with
criminal intent to defraud Levi’s Strauss (Phil.) Inc. (hereinafter referred to as LEVI’S),
did then and there, willfully, unlawfully, feloniously, knowingly and intentionally
engaged in commerce by reproducing, counterfeiting, copying and colorably imitating Evidence of the Prosecution
Levi’s registered trademarks or dominant features thereof such as the ARCUATE
DESIGN, TWO HORSE BRAND, TWO HORSE PATCH, TWO HORSE LABEL WITH Levi Strauss and Company (Levi’s), a foreign corporation based in the State of
PATTERNED ARCUATE DESIGN, TAB AND COMPOSITE ARCUATE/TAB/TWO Delaware, United States of America, had been engaged in the apparel business. It is
HORSE PATCH, and in connection thereto, sold, offered for sale, manufactured, the owner of trademarks and designs of Levi’s jeans like LEVI’S 501, the arcuate
distributed counterfeit patches and jeans, including other preparatory steps design, the two-horse brand, the two-horse patch, the two-horse patch with pattern
necessary to carry out the sale of said patches and jeans, which likely caused arcuate, and the composite tab arcuate. LEVI’S 501 has the following registered
confusion, mistake, and /or deceived the general consuming public, without the trademarks, to wit: (1) the leather patch showing two horses pulling a pair of pants;
consent, permit or authority of the registered owner, LEVI’S, thus depriving and (2) the arcuate pattern with the inscription "LEVI STRAUSS & CO;" (3) the arcuate
defrauding the latter of its right to the exclusive use of its trademarks and legitimate design that refers to "the two parallel stitching curving downward that are being sewn
trade, to the damage and prejudice of LEVI’S. on both back pockets of a Levi’s Jeans;" and (4) the tab or piece of cloth located on
the structural seam of the right back pocket, upper left side. All these trademarks
CONTRARY TO LAW.4 were registered in the Philippine Patent Office in the 1970’s, 1980’s and early part of
Criminal Case No. 00-0319
Levi Strauss Philippines, Inc. (Levi’s Philippines) is a licensee of Levi’s. After
That on or about August 28, 1998, and on dates prior thereto, in Las Pinas City, and receiving information that Diaz was selling counterfeit LEVI’S 501 jeans in his
within the jurisdiction of this Honorable Court, the abovenamed accused, with tailoring shops in Almanza and Talon, Las Piñas City, Levi’s Philippines hired a
criminal intent to defraud Levi’s Strauss (Phil.) Inc. (hereinafter referred to as LEVI’S), private investigation group to verify the information. Surveillance and the purchase of
did then and there, willfully, unlawfully, feloniously, knowingly and intentionally jeans from the tailoring shops of Diaz established that the jeans bought from the
engaged in commerce by reproducing, counterfeiting, copying and colorably imitating tailoring shops of Diaz were counterfeit or imitations of LEVI’S 501. Levi’s Philippines
Levi’s registered trademarks or dominant features thereof such as the ARCUATE then sought the assistance of the National Bureau of Investigation (NBI) for purposes
DESIGN, TWO HORSE BRAND, TWO HORSE PATCH, TWO HORSE LABEL WITH of applying for a search warrant against Diaz to be served at his tailoring shops. The
PATTERNED ARCUATE DESIGN, TAB AND COMPOSITE ARCUATE/TAB/TWO search warrants were issued in due course. Armed with the search warrants, NBI
HORSE PATCH, and in connection thereto, sold, offered for sale, manufactured, agents searched the tailoring shops of Diaz and seized several fake LEVI’S 501
distributed counterfeit patches and jeans, including other preparatory steps jeans from them. Levi’s Philippines claimed that it did not authorize the making and
necessary to carry out the sale of said patches and jeans, which likely caused selling of the seized jeans; that each of the jeans were mere imitations of genuine
confusion, mistake, and /or deceived the general consuming public, without the LEVI’S 501 jeans by each of them bearing the registered trademarks, like the arcuate
consent, permit or authority of the registered owner, LEVI’S, thus depriving and design, the tab, and the leather patch; and that the seized jeans could be mistaken
defrauding the latter of its right to the exclusive use of its trademarks and legitimate for original LEVI’S 501 jeans due to the placement of the arcuate, tab, and two-horse
trade, to the damage and prejudice of LEVI’S. leather patch.8


The cases were consolidated for a joint trial. Diaz entered his pleas of not guilty to Evidence of the Defense
each information on June 21, 2000.6
On his part, Diaz admitted being the owner of the shops searched, but he denied any
1. criminal liability.
Diaz stated that he did not manufacture Levi’s jeans, and that he used the label "LS Diaz appealed, but the CA dismissed the appeal on July 17, 2007 on the ground that
Jeans Tailoring" in the jeans that he made and sold; that the label "LS Jeans Diaz had not filed his appellant’s brief on time despite being granted his requested
Tailoring" was registered with the Intellectual Property Office; that his shops received several extension periods.
clothes for sewing or repair; that his shops offered made-to-order jeans, whose styles
or designs were done in accordance with instructions of the customers; that since the Upon denial of his motion for reconsideration, Diaz is now before the Court to plead
time his shops began operating in 1992, he had received no notice or warning for his acquittal.
regarding his operations; that the jeans he produced were easily recognizable
because the label "LS Jeans Tailoring," and the names of the customers were placed Issue
inside the pockets, and each of the jeans had an "LSJT" red tab; that "LS" stood for
"Latest Style;" and that the leather patch on his jeans had two buffaloes, not two
horses.9 Diaz submits that:

On February 13, 2006, the RTC rendered its decision finding Diaz guilty as charged,
disposing thus:
WHEREFORE, premises considered, the Court finds accused Victorio P. Diaz, a.k.a.
Vic Diaz, GUILTY beyond reasonable doubt of twice violating Sec. 155, in relation to
Sec. 170, of RA No. 8293, as alleged in the Informations in Criminal Case Nos. 00- The Court first resolves whether the CA properly dismissed the appeal of Diaz due to
0318 & 00-0319, respectively, and hereby sentences him to suffer in each of the the late filing of his appellant’s brief.
cases the penalty of imprisonment of TWO (2) YEARS of prision correcional, as
minimum, up to FIVE (5) YEARS of prision correcional, as maximum, as well as pay Under Section 7, Rule 44 of the Rules of Court, the appellant is required to file the
a fine of ₱50,000.00 for each of the herein cases, with subsidiary imprisonment in appellant’s brief in the CA "within forty-five (45) days from receipt of the notice of the
case of insolvency, and to suffer the accessory penalties provided for by law. clerk that all the evidence, oral and documentary, are attached to the record, seven
(7) copies of his legibly typewritten, mimeographed or printed brief, with proof of
Also, accused Diaz is hereby ordered to pay to the private complainant Levi’s Strauss service of two (2) copies thereof upon the appellee." Section 1(e) of Rule 50 of
(Phils.), Inc. the following, thus: the Rules of Court grants to the CA the discretion to dismiss an appeal either motu
proprio or on motion of the appellee should the appellant fail to serve and file the
required number of copies of the appellant’s brief within the time provided by
1. ₱50,000.00 in exemplary damages; and
the Rules of Court.12

2. ₱222,000.00 as and by way of attorney’s fees. The usage of the word may in Section 1(e) of Rule 50 indicates that the dismissal of
the appeal upon failure to file the appellant’s brief is not mandatory, but discretionary.
Costs de officio. Verily, the failure to serve and file the required number of copies of the appellant’s
brief within the time provided by the Rules of Court does not have the immediate
SO ORDERED.10 effect of causing the outright dismissal of the appeal. This means that the discretion
to dismiss the appeal on that basis is lodged in the CA, by virtue of which the CA may
Ruling of the CA still allow the appeal to proceed despite the late filing of the appellant’s brief, when
the circumstances so warrant its liberality. In deciding to dismiss the appeal, then, the We feel that despite the CA being probably right in dismissing the excuses of
CA is bound to exercise its sound discretion upon taking all the pertinent oversight and excusable negligence tendered by Diaz’s counsel to justify the belated
circumstances into due consideration. filing of the appellant’s brief as unworthy of serious consideration, Diaz should not be
made to suffer the dire consequence. Any accused in his shoes, with his personal
The records reveal that Diaz’s counsel thrice sought an extension of the period to file liberty as well as his personal fortune at stake, expectedly but innocently put his
the appellant’s brief. The first time was on March 12, 2007, the request being for an fullest trust in his counsel’s abilities and professionalism in the handling of his appeal.
extension of 30 days to commence on March 11, 2007. The CA granted his motion He thereby delivered his fate to the hands of his counsel. Whether or not those
under its resolution of March 21, 2007. On April 10, 2007, the last day of the 30-day hands were efficient or trained enough for the job of handling the appeal was a
extension, the counsel filed another motion, seeking an additional 15 days. The CA learning that he would get only in the end. Likelier than not, he was probably even
allowed the counsel until April 25, 2007 to serve and file the appellant’s brief. On unaware of the three times that his counsel had requested the CA for extensions. If
April 25, 2007, the counsel went a third time to the CA with another request for 15 he were now to be left to his unwanted fate, he would surely suffer despite his
days. The CA still granted such third motion for extension, giving the counsel until innocence. How costly a learning it would be for him! That is where the Court comes
May 10, 2007. Notwithstanding the liberality of the CA, the counsel did not literally in. It is most important for us as dispensers of justice not to allow the inadvertence or
comply, filing the appellant’s brief only on May 28, 2007, which was the 18th day incompetence of any counsel to result in the outright deprivation of an appellant’s
beyond the third extension period granted. right to life, liberty or property.13

Under the circumstances, the failure to file the appellant’s brief on time rightly We do not mind if this softening of judicial attitudes be mislabeled as excessive
deserved the outright rejection of the appeal. The acts of his counsel bound Diaz like leniency. With so much on the line, the people whose futures hang in a balance
any other client. It was, of course, only the counsel who was well aware that should not be left to suffer from the incompetence, mindlessness or lack of
the Rules of Court fixed the periods to file pleadings and equally significant papers professionalism of any member of the Law Profession. They reasonably expect a just
like the appellant’s brief with the lofty objective of avoiding delays in the result in every litigation. The courts must give them that just result. That assurance is
administration of justice. the people’s birthright. Thus, we have to undo Diaz’s dire fate.

Yet, we have before us an appeal in two criminal cases in which the appellant lost his Even as we now set aside the CA’s rejection of the appeal of Diaz, we will not
chance to be heard by the CA on appeal because of the failure of his counsel to remand the records to the CA for its review. In an appeal of criminal convictions, the
serve and file the appellant’s brief on time despite the grant of several extensions the records are laid open for review. To avoid further delays, therefore, we take it upon
counsel requested. Diaz was convicted and sentenced to suffer two indeterminate ourselves to review the records and resolve the issue of guilt, considering that the
sentences that would require him to spend time in detention for each conviction records are already before us.
lasting two years, as minimum, to five years, as maximum, and to pay fines totaling
₱100,000.00 (with subsidiary imprisonment in case of his insolvency). His personal Section 155 of R.A. No. 8293 defines the acts that constitute infringement of
liberty is now no less at stake. This reality impels us to look beyond the technicality trademark, viz:
and delve into the merits of the case to see for ourselves if the appeal, had it not
been dismissed, would have been worth the time of the CA to pass upon. After all, Remedies; Infringement. — Any person who shall, without the consent of the owner
his appellant’s brief had been meanwhile submitted to the CA. While delving into the of the registered mark:
merits of the case, we have uncovered a weakness in the evidence of guilt that
cannot be simply ignored and glossed over if we were to be true to our oaths to do
155.1. Use in commerce any reproduction, counterfeit, copy, or colorable imitation of
justice to everyone.
a registered mark or the same container or a dominant feature thereof in connection
with the sale, offering for sale, distribution, advertising of any goods or services
including other preparatory steps necessary to carry out the sale of any goods or
services on or in connection with which such use is likely to cause confusion, or to As can be seen, the likelihood of confusion is the gravamen of the offense of
cause mistake, or to deceive; or trademark infringement.15 There are two tests to determine likelihood of confusion,
namely: the dominancy test, and the holistic test. The contrasting concept of these
155.2. Reproduce, counterfeit, copy or colorably imitate a registered mark or a tests was explained in Societes Des Produits Nestle, S.A. v. Dy, Jr., thus:
dominant feature thereof and apply such reproduction, counterfeit, copy or colorable
imitation to labels, signs, prints, packages, wrappers, receptacles or advertisements x x x. The dominancy test focuses on the similarity of the main, prevalent or essential
intended to be used in commerce upon or in connection with the sale, offering for features of the competing trademarks that might cause confusion. Infringement takes
sale, distribution, or advertising of goods or services on or in connection with which place when the competing trademark contains the essential features of another.
such use is likely to cause confusion, or to cause mistake, or to deceive, shall be Imitation or an effort to imitate is unnecessary. The question is whether the use of the
liable in a civil action for infringement by the registrant for the remedies hereinafter marks is likely to cause confusion or deceive purchasers.
set forth: Provided, That the infringement takes place at the moment any of the acts
stated in Subsection 155.1 or this subsection are committed regardless of whether The holistic test considers the entirety of the marks, including labels and packaging,
there is actual sale of goods or services using the infringing material. in determining confusing similarity. The focus is not only on the predominant words
but also on the other features appearing on the labels.16
The elements of the offense of trademark infringement under the Intellectual Property
Code are, therefore, the following: As to what test should be applied in a trademark infringement case, we said
in McDonald’s Corporation v. Macjoy Fastfood Corporation17 that:
1. The trademark being infringed is registered in the Intellectual Property
Office; In trademark cases, particularly in ascertaining whether one trademark is confusingly
similar to another, no set rules can be deduced because each case must be decided
2. The trademark is reproduced, counterfeited, copied, or colorably imitated on its merits. In such cases, even more than in any other litigation, precedent must
by the infringer; be studied in the light of the facts of the particular case. That is the reason why in
trademark cases, jurisprudential precedents should be applied only to a case if they
3. The infringing mark is used in connection with the sale, offering for sale, or are specifically in point.
advertising of any goods, business or services; or the infringing mark is
applied to labels, signs, prints, packages, wrappers, receptacles or The case of Emerald Garment Manufacturing Corporation v. Court of
advertisements intended to be used upon or in connection with such goods, Appeals,18 which involved an alleged trademark infringement of jeans products, is
business or services; worth referring to. There, H.D. Lee Co., Inc. (H.D. Lee), a corporation based in the
United States of America, claimed that Emerald Garment’s trademark of "STYLISTIC
4. The use or application of the infringing mark is likely to cause confusion or MR. LEE" that it used on its jeans products was confusingly similar to the "LEE"
mistake or to deceive purchasers or others as to the goods or services trademark that H.D. Lee used on its own jeans products. Applying the holistic test,
themselves or as to the source or origin of such goods or services or the the Court ruled that there was no infringement.
identity of such business; and
The holistic test is applicable here considering that the herein criminal cases also
5. The use or application of the infringing mark is without the consent of the involved trademark infringement in relation to jeans products. Accordingly, the jeans
trademark owner or the assignee thereof.14 trademarks of Levi’s Philippines and Diaz must be considered as a whole in
determining the likelihood of confusion between them. The maong pants or jeans
made and sold by Levi’s Philippines, which included LEVI’S 501, were very popular in
the Philippines. The consuming public knew that the original LEVI’S 501 jeans were
under a foreign brand and quite expensive. Such jeans could be purchased only in commodity with which that design has been associated. The test is not found in the
malls or boutiques as ready-to-wear items, and were not available in tailoring shops deception, or the possibility of deception, of the person who knows nothing about the
like those of Diaz’s as well as not acquired on a "made-to-order" basis. Under the design which has been counterfeited, and who must be indifferent between that and
circumstances, the consuming public could easily discern if the jeans were original or the other. The simulation, in order to be objectionable, must be such as appears
fake LEVI’S 501, or were manufactured by other brands of jeans. Confusion and likely to mislead the ordinary intelligent buyer who has a need to supply and is
deception were remote, for, as the Court has observed in Emerald Garments: familiar with the article that he seeks to purchase.19

First, the products involved in the case at bar are, in the main, various kinds of jeans. Diaz used the trademark "LS JEANS TAILORING" for the jeans he produced and
These are not your ordinary household items like catsup, soy sauce or soap which sold in his tailoring shops. His trademark was visually and aurally different from the
are of minimal cost. Maong pants or jeans are not inexpensive. Accordingly, the trademark "LEVI STRAUSS & CO" appearing on the patch of original jeans under the
casual buyer is predisposed to be more cautious and discriminating in and would trademark LEVI’S 501. The word "LS" could not be confused as a derivative from
prefer to mull over his purchase. Confusion and deception, then, is less likely. In Del "LEVI STRAUSS" by virtue of the "LS" being connected to the word "TAILORING",
Monte Corporation v. Court of Appeals, we noted that: thereby openly suggesting that the jeans bearing the trademark "LS JEANS
TAILORING" came or were bought from the tailoring shops of Diaz, not from the
.... Among these, what essentially determines the attitudes of the purchaser, malls or boutiques selling original LEVI’S 501 jeans to the consuming public.
specifically his inclination to be cautious, is the cost of the goods. To be sure, a
person who buys a box of candies will not exercise as much care as one who buys There were other remarkable differences between the two trademarks that the
an expensive watch. As a general rule, an ordinary buyer does not exercise as much consuming public would easily perceive. Diaz aptly noted such differences, as
prudence in buying an article for which he pays a few centavos as he does in follows:
purchasing a more valuable thing. Expensive and valuable items are normally bought
only after deliberate, comparative and analytical investigation. But mass products, The prosecution also alleged that the accused copied the "two horse design" of the
low priced articles in wide use, and matters of everyday purchase requiring frequent petitioner-private complainant but the evidence will show that there was no such
replacement are bought by the casual consumer without great care.... design in the seized jeans. Instead, what is shown is "buffalo design." Again, a horse
and a buffalo are two different animals which an ordinary customer can easily
Second, like his beer, the average Filipino consumer generally buys his jeans by distinguish. x x x.
brand. He does not ask the sales clerk for generic jeans but for, say, a Levis, Guess,
Wrangler or even an Armani. He is, therefore, more or less knowledgeable and The prosecution further alleged that the red tab was copied by the accused.
familiar with his preference and will not easily be distracted. However, evidence will show that the red tab used by the private complainant
indicates the word "LEVI’S" while that of the accused indicates the letters "LSJT"
Finally, in line with the foregoing discussions, more credit should be given to the which means LS JEANS TAILORING. Again, even an ordinary customer can
"ordinary purchaser." Cast in this particular controversy, the ordinary purchaser is not distinguish the word LEVI’S from the letters LSJT.
the "completely unwary consumer" but is the "ordinarily intelligent buyer" considering
the type of product involved. xxxx

The definition laid down in Dy Buncio v. Tan Tiao Bok is better suited to the present In terms of classes of customers and channels of trade, the jeans products of the
case. There, the "ordinary purchaser" was defined as one "accustomed to buy, and private complainant and the accused cater to different classes of customers and flow
therefore to some extent familiar with, the goods in question. The test of fraudulent through the different channels of trade. The customers of the private complainant are
simulation is to be found in the likelihood of the deception of some persons in some mall goers belonging to class A and B market group – while that of the accused are
measure acquainted with an established design and desirous of purchasing the
those who belong to class D and E market who can only afford Php 300 for a pair of
made-toorder pants.20 x x x.

Moreover, based on the certificate issued by the Intellectual Property Office, "LS
JEANS TAILORING" was a registered trademark of Diaz. He had registered his
trademark prior to the filing of the present cases.21 The Intellectual Property Office
would certainly not have allowed the registration had Diaz’s trademark been
confusingly similar with the registered trademark for LEVI’S 501 jeans.

Given the foregoing, it should be plain that there was no likelihood of confusion
between the trademarks involved. Thereby, the evidence of guilt did not satisfy the
quantum of proof required for a criminal conviction, which is proof beyond reasonable
doubt. According to Section 2, Rule 133 of the Rules of Court, proof beyond a
reasonable doubt does not mean such a degree of proof as, excluding possibility of
error, produces absolute certainty. Moral certainty only is required, or that degree of
proof which produces conviction in an unprejudiced mind. Consequently, Diaz should
be acquitted of the charges.

WHEREFORE, the Court ACQUITS petitioner VICTORIO P. DIAZ of the crimes of

infringement of trademark charged in Criminal Case No. 00-0318 and Criminal Case
No. 00-0319 for failure of the State to establish his guilt by proof beyond reasonable

No pronouncement on costs of suit.