G.R. No. 153535. July 28, 2005 or Teresita R.

Cu, acting together with Jong-Won Hong, to secure an

omnibus line in the aggregate amount of ₱30,000,000.00 from the Solidbank
SOLIDBANK CORPORATION, Petitioners, x x x.
vs.
MINDANAO FERROALLOY CORPORATION, Spouses JONG-WON xxxxxxxxx
HONG and SOO-OK KIM HONG,* TERESITA CU, and RICARDO P.
GUEVARA and Spouse,** respondents. "In the meantime, the Corporation started its operations sometime in April,
1991. Its indebtedness ballooned to ₱200,453,686.69 compared to its assets
DECISION of only ₱65,476,000.00. On May 21, 1991, the Corporation secured an
ordinary time loan from the Solidbank in the amount of ₱3,200,000.00.
PANGANIBAN, J.: Another ordinary time loan was granted by the Bank to the Corporation on
May 28, 1991, in the amount of ₱1,800,000.00 or in the total amount of
To justify an award for moral and exemplary damages under Articles 19 to 21 ₱5,000,000.00, due on July 15 and 26, 1991, respectively.
of the Civil Code (on human relations), the claimants must establish the other
party’s malice or bad faith by clear and convincing evidence. "However, the Corporation and the Bank agreed to consolidate and, at the
same time, restructure the two (2) loan availments, the same payable on
The Case September 20, 1991. The Corporation executed ‘Promissory Note No. 96-91-
00865-6’ in favor of the Bank evidencing its loan in the amount of
₱5,160,000.00, payable on September 20, 1991. Teresita Cu and Jong-Won
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, Hong affixed their signatures on the note. To secure the payment of the said
assailing the December 21, 2001 Decision2 and the May 15, 2002 loan, the Corporation, through Jong-Won Hong and Teresita Cu, executed a
Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 67482. The CA ‘Deed of Assignment’ in favor of the Bank covering its rights, title and interest
disposed as follows: to the following:

"IN THE LIGHT OF ALL THE FOREGOING, the appeal is DISMISSED. The ‘The entire proceeds of drafts drawn under Irrevocable Letter of Credit No.
Decision appealed from is AFFIRMED."4 M-S-041-2002080 opened with The Mitsubishi Bank Ltd. – Tokyo dated June
13, 1991 for the account of Ssangyong Japan Corporation, 7F. Matsuoka-
The assailed Resolution, on the other hand, denied petitioner’s Motion for Tamura-Cho Bldg., 22-10, 5-Chome, Shimbashi, Minato-Ku, Tokyo, Japan
Reconsideration. up to the extent of US$197,679.00’

The Facts "The Corporation likewise executed a ‘Quedan’, by way of additional security,
under which the Corporation bound and obliged to keep and hold, in trust for
The CA narrated the antecedents as follows: the Bank or its Order, ‘Ferrosilicon for US$197,679.00’. Jong-Won Hong and
Teresita Cu affixed their signatures thereon for the Corporation. The
"The Maria Cristina Chemical Industries (MCCI) and three (3) Korean Corporation, also, through Jong-Won Hong and Teresita Cu, executed a
corporations, namely, the Ssangyong Corporation, the Pohang Iron and Steel ‘Trust Receipt Agreement’, by way of additional security for said loan, the
Company and the Dongil Industries Company, Ltd., decided to forge a joint Corporation undertaking to hold in trust, for the Bank, as its property, the
venture and establish a corporation, under the name of the Mindanao following:
Ferroalloy Corporation (Corporation for brevity) with principal offices in Iligan
City. Ricardo P. Guevara was the President and Chairman of the Board of ‘1. THE MITSUBISHI BANK LTD., Tokyo L/C No. M-S-041-2002080 for
Directors of the Corporation. Jong-Won Hong, the General Manager of account of Ssangyong Japan Corporation, Tokyo, Japan for US$197,679.00
Ssangyong Corporation, was the Vice-President of the Corporation for Ferrosilicon to expire September 20, 1991.
Finance, Marketing and Administration. So was Teresita R. Cu. On
November 26, 1990, the Board of Directors of the Corporation approved a ‘2. SEC QUEDAN NO. 91-476 dated June 26, 1991 covering the following:
‘Resolution’ authorizing its President and Chairman of the Board of Directors
Ferrosilicon for US$197,679.00’ ‘x x x the clean loan of ₱5.1 M obtained was a corporate undertaking of
defendant MINFACO executed through its duly authorized representatives,
"However, shortly after the execution of the said deeds, the Corporation Ms. Teresita R. Cu and Mr. Jong-Won Hong, both Vice Presidents then of
stopped its operations. The Corporation failed to pay its loan availments from MINFACO. x x x.’
the Bank inclusive of accrued interest. On February 11, 1992, the Bank sent
a letter to the Corporation demanding payment of its loan availments xxxxxxxxx
inclusive of interests due. The Corporation failed to comply with the demand
of the Bank. On November 23, 1992, the Bank sent another letter to the "[On their part, respondents] Teresita Cu and Ricardo Guevara alleged that
[Corporation] demanding payment of its account which, by November 23, [petitioner] had no cause of action against them because: (a) Ricardo
1992, had amounted to ₱7,283,913.33. The Corporation again failed to Guevara did not sign any of the documents in favor of [petitioner]; (b)
comply with the demand of the Bank. Teresita Cu signed the ‘Promissory Note’, ‘Deed of Assignment’, ‘Trust
Receipt’ and ‘Quedan’ in blank and merely as representative and, hence, for
"On January 6, 1993, the Bank filed a complaint against the Corporation with and in behalf of the Defendant Corporation and, hence, was not personally
the Regional Trial Court of Makati City, entitled and docketed as ‘Solidbank liable to [petitioner].
Corporation vs. Mindanao Ferroalloy Corporation, Sps. Jong-Won Hong and
the Sps. Teresita R. Cu, Civil Case No. 93-038’ for ‘Sum of Money’ with a "In the interim, the Corporation filed, on June 20, 1994, a ‘Petition’, with the
plea for the issuance of a writ of preliminary attachment. x x x Regional Trial Court of Iligan City, for ‘Voluntary Insolvency’ x x x.

xxxxxxxxx xxxxxxxxx

"Under its ‘Amended Complaint’, the Plaintiff alleged that it impleaded "Appended to the Petition was a list of its creditors, including [petitioner], for
Ricardo Guevara and his wife as Defendants because, [among others]: the amount of ₱8,144,916.05. The Court issued an Order, on July 12, 1994,
finding the Petition sufficient in form and substance x x x.
‘Defendants JONG-WON HONG and TERESITA CU, are the Vice-
Presidents of defendant corporation, and also members of the company’s xxxxxxxxx
Board of Directors. They are impleaded as joint and solidary debtors of
[petitioner] bank having signed the Promissory Note, Quedan, and Trust
"In view of said development, the Court issued an Order, in Civil Case No.
Receipt agreements with [petitioner], in this case.
93-038, suspending the proceedings as against the Defendant Corporation
but ordering the proceedings to proceed as against the individual defendants
x x x x x x x x x’ x x x.

"[Petitioner] likewise filed a criminal complaint x x x entitled and docketed as xxxxxxxxx

‘Solidbank Corporation vs. Ricardo Guevara, Teresita R. Cu and Jong Won
Hong x x x for ‘Violation of P.D. 115’. On April 14, 1993, the investigating
"On December 10, 1999, the Court rendered a Decision dismissing the
Prosecutor issued a ‘Resolution’ finding no probable cause for violation of complaint for lack of cause of action of [petitioner] against the Spouses Jong-
P.D. 115 against the Respondents as the goods covered by the quedan Won Hong, Teresita Cu and the Spouses Ricardo Guevara, x x x.
‘were nonexistent’:
xxxxxxxxx
xxxxxxxxx
"In dismissing the complaint against the individual [respondents], the Court a
"In their Answer to the complaint [in the civil case], the Spouses Jong-Won
quo found and declared that [petitioner] failed to adduce a morsel of
Hong and Soo-ok Kim Hong alleged, inter alia, that [petitioner] had no cause
evidence to prove the personal liability of the said [respondents] for the
of action against them as:
claims of [petitioner] and that the latter impleaded the [respondents], in its
complaint and amended complaint, solely to put more pressure on the Likewise, the CA held that the individual respondents were not liable to
Defendant Corporation to pay its obligations to [petitioner]. petitioner for damages, simply because (1) they had not received the
proceeds of the irrevocable Letter of Credit, which was the subject of the
"[Petitioner] x x x interposed an appeal, from the Decision of the Court a Deed of Assignment; and (2) the goods subject of the Trust Receipt
quo and posed, for x x x resolution, the issue of whether or not the individual Agreement had been found to be nonexistent. The appellate court took
[respondents], are jointly and severally liable to [petitioner] for the loan judicial notice of the practice of banks and financing institutions to
availments of the [respondent] Corporation, inclusive of accrued interests investigate, examine and assess all properties offered by borrowers as
and penalties. collaterals, in order to determine the feasibility and advisability of granting
loans. Before agreeing to the consolidation of Minfaco’s loans, it presumed
that petitioner had done its homework.
"In the meantime, on motion of [petitioner], the Court set aside its Order,
dated February 2, 1995, suspending the proceedings as against the
[respondent] Corporation. [Petitioner] filed a ‘Motion for Summary As to the award of damages to the individual respondents, the CA upheld the
Judgment’ against the [respondent] Corporation. On February 28, 2000, the trial court’s findings that it was clearly unfair on petitioner’s part to have
Court rendered a ‘Summary Judgment’ against the [respondent] Corporation, impleaded the wives of Guevara and Hong, because the women were not
the decretal portion of which reads as follows: privy to any of the transactions between petitioner and Minfaco. Under
Articles 19, 20 and 2229 of the Civil Code, such reckless and wanton act of
pressuring individual respondents to settle the corporation’s obligations is a
‘WHEREFORE, premises considered, this Court hereby resolves to give due
course to the motion for summary judgment filed by herein [petitioner]. ground to award moral and exemplary damages, as well as attorney’s fees.
Consequently, judgment is hereby rendered in favor of [Petitioner]
SOLIDBANK CORPORATION and against [Respondent] MINDANAO Hence this Petition.6
FERROALLOY CORPORATION, ordering the latter to pay the former the
amount of ₱7,086,686.70, representing the outstanding balance of the Issues
subject loan as of 24 September 1994, plus stipulated interest at the rate of
16% per annum to be computed from the aforesaid date until fully paid In its Memorandum, petitioner raises the following issues:
together with an amount equivalent to 12% of the total amount due each year
from 24 September 1994 until fully paid. Lastly, said [respondent] is hereby
"A. Whether or not there is ample evidence on record to support the joint and
ordered to pay [petitioner] the amount of ₱25,000.00 to [petitioner] as solidary liability of individual respondents with Mindanao Ferroalloy
reasonable attorney’s fees as well as cost of litigation."5 Corporation.

In its appeal, petitioner argued that (1) it had adduced the requisite evidence
"B. In the absence of joint and solidary liability[,] will the provision of Article
to prove the solidary liability of the individual respondents, and (2) it was not
1208 in relation to Article 1207 of the New Civil Code providing for joint
liable for their counterclaims for damages and attorney’s fees.
liability be applicable to the case at bar.

Ruling of the Court of Appeals

"C. May bank practices be the proper subject of judicial notice under Sec. 1
[of] Rule 129 of the Rules of Court.
Affirming the RTC, the appellate court ruled that the individual respondents
were not solidarily liable with the Mindanao Ferroalloy Corporation, because "D. Whether or not there is evidence to sustain the claim that respondents
they had acted merely as officers of the corporation, which was the real party
were impleaded to apply pressure upon them to pay the obligations in lieu of
in interest. Respondent Guevara was not even a signatory to the Promissory
MINFACO that is declared insolvent.
Note, the Trust Receipt Agreement, the Deed of Assignment or the Quedan;
he was merely authorized to represent Minfaco to negotiate with and secure
the loans from the bank. On the other hand, the CA noted that Respondents "E. Whether or not there are sufficient bases for the award of various kinds of
Cu and Hong had not signed the above documents as comakers, but as and substantial amounts in damages including payment for attorney’s fees.
signatories in their representative capacities as officers of Minfaco.
"F. Whether or not respondents committed fraud and misrepresentations and Basic is the principle that a corporation is vested by law with a personality
acted in bad faith. separate and distinct from that of each person composing9 or representing
it.10 Equally fundamental is the general rule that corporate officers cannot be
"G. Whether or not the inclusion of respondents spouses is proper under held personally liable for the consequences of their acts, for as long as these
certain circumstances and supported by prevailing jurisprudence."7 are for and on behalf of the corporation, within the scope of their authority
and in good faith.11 The separate corporate personality is a shield against the
In sum, there are two main questions: (1) whether the individual respondents personal liability of corporate officers, whose acts are properly attributed to
are liable, either jointly or solidarily, with the Mindanao Ferroalloy the corporation.12
Corporation; and (2) whether the award of damages to the individual
respondents is valid and legal. Tramat Mercantile v. Court of Appeals13 held thus:

The Court’s Ruling "Personal liability of a corporate director, trustee or officer along (although
not necessarily) with the corporation may so validly attach, as a rule, only
when —
The Petition is partly meritorious.

‘1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad
First Issue:
faith or gross negligence in directing its affairs, or (c) for conflict of interest,
resulting in damages to the corporation, its stockholders or other persons;
Liability of Individual Respondents
‘2. He consents to the issuance of watered stocks or who, having knowledge
Petitioner argues that the individual respondents were jointly or solidarily thereof, does not forthwith file with the corporate secretary his written
liable with Minfaco, either because their participation in the loan contract and objection thereto;
the loan documents made them comakers; or because they committed fraud
and deception, which justifies the piercing of the corporate veil.
‘3. He agrees to hold himself personally and solidarily liable with the
corporation; or
The first contention hinges on certain factual determinations made by the trial
and the appellate courts. These tribunals found that, although he had not
‘4. He is made, by a specific provision of law, to personally answer for his
signed any document in connection with the subject transaction, Respondent
corporate action.’"
Guevara was authorized to represent Minfaco in negotiating for a ₱30 million
loan from petitioner. As to Cu and Hong, it was determined, among others,
that their signatures on the loan documents other than the Deed of Consistent with the foregoing principles, we sustain the CA’s ruling that
Assignment were not prefaced with the word "by," and that there were no Respondent Guevara was not personally liable for the contracts. First, it is
other signatures to indicate who had signed for and on behalf of Minfaco, the beyond cavil that he was duly authorized to act on behalf of the corporation;
principal borrower. In the Promissory Note, they signed above the printed and that in negotiating the loans with petitioner, he did so in his official
name of the corporation -- on the space provided for "Maker/Borrower," not capacity. Second, no sufficient and specific evidence was presented to show
on that provided for "Co-maker." that he had acted in bad faith or gross negligence in that negotiation. Third,
he did not hold himself personally and solidarily liable with the corporation.
Neither is there any specific provision of law making him personally
Petitioner has not shown any exceptional circumstance that sanctions the
answerable for the subject corporate acts.
disregard of these findings of fact, which are thus deemed final and
conclusive upon this Court and may not be reviewed on appeal.8
On the other hand, Respondents Cu and Hong signed the Promissory Note
No Personal Liability without the word "by" preceding their signatures, atop the designation
"Maker/Borrower" and the printed name of the corporation, as follows:
for Corporate Deeds
__(Sgd) Cu/Hong__
(Maker/Borrower) behalf of a [disclosed] principal or in a representative capacity x x x is not
liable on the instrument if he was duly authorized."
MINDANAO FERROALLOY
The authority of Respondents Cu and Hong to sign for and on behalf of the
While their signatures appear without qualification, the inference that they corporation has been amply established by the Resolution of Minfaco’s
signed in their individual capacities is negated by the following facts: 1) the Board of Directors, stating that "Atty. Ricardo P. Guevara (President and
name and the address of the corporation appeared on the space provided for Chairman), or Ms. Teresita R. Cu (Vice President), acting together with Mr.
"Maker/Borrower"; 2) Respondents Cu and Hong had only one set of Jong Won Hong (Vice President), be as they are hereby authorized for and in
signatures on the instrument, when there should have been two, if indeed behalf of the Corporation to: 1. Negotiate with and obtain from (petitioner) the
they had intended to be bound solidarily -- the first as representatives of the extension of an omnibus line in the aggregate of ₱30 million x x x; and 2.
corporation, and the second as themselves in their individual capacities; 3) Execute and deliver all documentation necessary to implement all of the
they did not sign under the spaces provided for "Co-maker," and neither were foregoing."17
their addresses reflected there; and 4) at the back of the Promissory Note,
they signed above the words "Authorized Representative." Further, the agreement involved here is a "contract of adhesion," which was
prepared entirely by one party and offered to the other on a "take it or leave
Solidary Liability it" basis. Following the general rule, the contract must be read against
petitioner, because it was the party that prepared it,18 more so because a
Not Lightly Inferred bank is held to high standards of care in the conduct of its business. 19

In the totality of the circumstances, we hold that Respondents Cu and Hong

Moreover, it is axiomatic that solidary liability cannot be lightly
clearly signed the Note merely as representatives of Minfaco.
inferred.14 Under Article 1207 of the Civil Code, "there is a solidary liability
only when the obligation expressly so states, or when the law or the nature of
the obligation requires solidarity." Since solidary liability is not clearly No Reason to Pierce
expressed in the Promissory Note and is not required by law or the nature of
the obligation in this case, no conclusion of solidary liability can be made. the Corporate Veil

Furthermore, nothing supports the alleged joint liability of the individual Under certain circumstances, courts may treat a corporation as a mere
petitioners because, as correctly pointed out by the two lower courts, the aggroupment of persons, to whom liability will directly attach. The distinct and
evidence shows that there is only one debtor: the corporation. In a joint separate corporate personality may be disregarded, inter alia, when the
obligation, there must be at least two debtors, each of whom is liable only for corporate identity is used to defeat public convenience, justify a wrong,
a proportionate part of the debt; and the creditor is entitled only to a protect a fraud, or defend a crime. Likewise, the corporate veil may be
proportionate part of the credit.15 pierced when the corporation acts as a mere alter ego or business conduit of
a person, or when it is so organized and controlled and its affairs so
Moreover, it is rather late in the day to raise the alleged joint liability, as this conducted as to make it merely an instrumentality, agency, conduit or adjunct
matter has not been pleaded before the trial and the appellate courts. Before of another corporation.20 But to disregard the separate juridical personality of
the lower courts, petitioner anchored its claim solely on the alleged joint and a corporation, the wrongdoing must be clearly and convincingly established;
several (or solidary) liability of the individual respondents. Petitioner must be it cannot be presumed.21
reminded that an issue cannot be raised for the first time on appeal, but
seasonably in the proceedings before the trial court.16 Petitioner contends that the corporation was used to protect the fraud foisted
upon it by the individual respondents. It argues that the CA failed to consider
So too, the Promissory Note in question is a negotiable instrument. Under the following badges of fraud and evident bad faith: 1) the individual
Section 19 of the Negotiable Instruments Law, agents or representatives may respondents misrepresented the corporation as solvent and financially
sign for the principal. Their authority may be established, as in other cases of capable of paying its loan; 2) they knew that prices of ferrosilicon were
agency. Section 20 of the law provides that a person signing "for and on declining in the world market when they secured the loan in June 1991; 3)
not a single centavo was paid for the loan; and 4) the corporation suspended of Bank Practices
its operations shortly after the loan was granted.22
This point brings us to the alleged error of the appellate court in taking
Fraud refers to all kinds of deception -- whether through insidious judicial notice of the practice of banks in conducting background checks on
machination, manipulation, concealment or misrepresentation -- that would borrowers and sureties. While a court is not mandated to take judicial notice
lead an ordinarily prudent person into error after taking the circumstances of this practice under Section 1 of Rule 129 of the Rules of Court, it
into account.23 In contracts, a fraud known as dolo causante or causal nevertheless may do so under Section 2 of the same Rule. The latter Rule
fraud24 is basically a deception used by one party prior to or simultaneous provides that a court, in its discretion, may take judicial notice of "matters
with the contract, in order to secure the consent of the other.25 Needless to which are of public knowledge, or ought to be known to judges because of
say, the deceit employed must be serious. In contradistinction, only some their judicial functions."
particular or accident of the obligation is referred to by incidental fraud
or dolo incidente,26 or that which is not serious in character and without which Thus, the Court has taken judicial notice of the practices of banks and other
the other party would have entered into the contract anyway.27 financial institutions. Precisely, it has noted that it is their uniform practice,
before approving a loan, to investigate, examine and assess would-be
Fraud must be established by clear and convincing evidence; mere borrowers’ credit standing or real estate32 offered as security for the loan
preponderance of evidence is not adequate.28 Bad faith, on the other hand, applied for.
imports a dishonest purpose or some moral obliquity and conscious doing of
a wrong, not simply bad judgment or negligence.29 It is synonymous with Second Issue:
fraud, in that it involves a design to mislead or deceive another.30
Award of Damages
Unfortunately, petitioner was unable to establish clearly and precisely how
the alleged fraud was committed. It failed to establish that it was deceived The individual respondents were awarded moral and exemplary damages as
into granting the loans because of respondents’ misrepresentations and/or well as attorney’s fees under Articles 19 to 21 of the Civil Code, on the basic
insidious actions. Quite the contrary, circumstances indicate the weakness of
premise that the suit was clearly malicious and intended merely to harass.
its submission.
Article 19 of the Civil Code expresses the fundamental principle of law on
First, petitioner does not deny that the ₱5 million loan represented the human conduct that a person "must, in the exercise of his rights and in the
consolidation of two loans,31 granted long before the bank required the
performance of his duties, act with justice, give every one his due, and
individual respondents to execute the Promissory Note, Trust Receipt
observe honesty and good faith." Under this basic postulate, the exercise of
Agreement, Quedan or Deed of Assignment. Hence, no words, acts or
a right, though legal by itself, must nonetheless be done in accordance with
machinations arising from any of those instruments could have been used by
the proper norm. When the right is exercised arbitrarily, unjustly or
them prior to or simultaneous with the execution of the contract, or even as excessively and results in damage to another, a legal wrong is committed for
some accident or particular of the obligation. which the wrongdoer must be held responsible.33

Second, petitioner bank was in a position to verify for itself the solvency and
To be liable under the abuse-of-rights principle, three elements must concur:
trustworthiness of respondent corporation. In fact, ordinary business
a) a legal right or duty, b) its exercise in bad faith, and c) the sole intent of
prudence required it to do so before granting the multimillion loans. It is of prejudicing or injuring another.34 Needless to say, absence of good
common knowledge that, as a matter of practice, banks conduct exhaustive faith35 must be sufficiently established.
investigations of the financial standing of an applicant debtor, as well as
appraisals of collaterals offered as securities for loans to ensure their prompt
and satisfactory payment. To uphold petitioner’s cry of fraud when it failed to Article 20 makes "[e]very person who, contrary to law, willfully or negligently
verify the existence of the goods covered by the Trust Receipt Agreement causes damage to another" liable for damages. Upon the other hand, held
and the Quedan is to condone its negligence. liable for damages under Article 21 is one who "willfully causes loss or injury
to another in a manner that is contrary to morals, good customs or public
policy."
Judicial Notice
For damages to be properly awarded under the above provisions, it is "(8) In actions for indemnity under workmen’s compensation and employer’s
necessary to demonstrate by clear and convincing evidence36 that the action liability laws;
instituted by petitioner was clearly so unfounded and untenable as to amount
to gross and evident bad faith.37 To justify an award of damages for malicious "(9) In a separate civil action to recover civil liability arising from a crime;
prosecution, one must prove two elements: malice or sinister design to vex or
humiliate and want of probable cause.38
"(10) When at least double judicial costs are awarded;

Petitioner was proven wrong in impleading Spouses Guevara and Hong.

"(11) In any other case where the court deems it just and equitable that
Beyond that fact, however, respondents have not established that the suit
attorney’s fees and expenses of litigation should be recovered."
was so patently malicious as to warrant the award of damages under the
Civil Code’s Articles 19 to 21, which are grounded on malice or bad
faith.39 With the presumption of law on the side of good faith, and in the In the instant case, none of the enumerated grounds for recovery of
absence of adequate proof of malice, we find that petitioner impleaded the attorney’s fees are present.
spouses because it honestly believed that the conjugal partnerships had
benefited from the proceeds of the loan, as stated in their Complaint and WHEREFORE, this Petition is PARTIALLY GRANTED. The assailed
subsequent pleadings. Its act does not amount to evident bad faith or malice; Decision is AFFIRMED, but the award of moral and exemplary damages as
hence, an award for damages is not proper. The adverse result of an act per well as attorney’s fees is DELETED. No costs.
se neither makes the act wrongful nor subjects the actor to the payment of
damages, because the law could not have meant to impose a penalty on the SO ORDERED.
right to litigate.40

For the same reason, attorney’s fees cannot be granted. Article 2208 of the
Civil Code states that in the absence of a stipulation, attorney’s fees cannot
be recovered, except in any of the following circumstances:

"(1) When exemplary damages are awarded;

"(2) When the defendant’s act or omission has compelled the plaintiff to
litigate with third persons or to incur expenses to protect his interest;

"(3) In criminal cases of malicious prosecution against the plaintiff;

"(4) In case of a clearly unfounded civil action or proceeding against the

plaintiff;

"(5) Where the defendant acted in gross and evident bad faith in refusing to
satisfy the plaintiff’s plainly valid, just and demandable claim;

"(6) In actions for legal support;

"(7) In actions for the recovery of wages of household helpers, laborers and
skilled workers;
G.R. No. 158086 February 14, 2008 Date Set SR Number No. of eggs Date hatched/
delivered Pick-up date
ASJ CORPORATION and ANTONIO SAN JUAN, petitioners, 1/13/1993 SR 108 32,566 eggs February 3, 1
vs.
SPS. EFREN & MAURA EVANGELISTA, respondents. 1/20/1993 SR 109 21,485 eggs February 10, 1
1/22/1993 SR 110 7,213 eggs February 12, 1
DECISION 1/28/1993 SR 111 14,495 eggs February 18, 1
1/30/1993 SR 112 15,346 eggs February 20, 1
QUISUMBING, J.:
2/3/1993 SR 113 10,24[5]7 eggs February 24, 1
Decision1
For review on certiorari is the dated April 30, 2003 of the Court of TOTAL 101,350 eggs
Appeals in CA-G.R. CV No. 56082, which had affirmed the Decision2 dated
July 8, 1996 of the Regional Trial Court (RTC) of Malolos, Bulacan, Branch 9
On February 3, 1993, respondent Efren went to the hatchery to pick up the
in Civil Case No. 745-M-93. The Court of Appeals, after applying the doctrine
chicks and by-products covered by Setting Report No. 108, but San Juan
of piercing the veil of corporate fiction, held petitioners ASJ Corporation (ASJ
refused to release the same due to respondents’ failure to settle accrued
Corp.) and Antonio San Juan solidarily liable to respondents Efren and
service fees on several setting reports starting from Setting Report No. 90.
Maura Evangelista for the unjustified retention of the chicks and egg by-
Nevertheless, San Juan accepted from Efren 10,245 eggs covered by
products covered by Setting Report Nos. 108 to 113. 3
Setting Report No. 113 and P15,000.008 in cash as partial payment for the
accrued service fees.
The pertinent facts, as found by the RTC and the Court of Appeals, are as
follows:
On February 10, 1993, Efren returned to the hatchery to pick up the chicks
and by-products covered by Setting Report No. 109, but San Juan again
Respondents, under the name and style of R.M. Sy Chicks, are engaged in refused to release the same unless respondents fully settle their accounts. In
the large-scale business of buying broiler eggs, hatching them, and selling the afternoon of the same day, respondent Maura, with her son Anselmo,
their hatchlings (chicks) and egg by-products4 in Bulacan and Nueva Ecija. tendered P15,000.009 to San Juan, and tried to claim the chicks and by-
For the incubation and hatching of these eggs, respondents availed of the products. She explained that she was unable to pay their balance because
hatchery services of ASJ Corp., a corporation duly registered in the name of she was hospitalized for an undisclosed ailment. San Juan accepted
San Juan and his family. the P15,000.00, but insisted on the full settlement of respondents’ accounts
before releasing the chicks and by-products. Believing firmly that the total
Sometime in 1991, respondents delivered to petitioners various quantities of value of the eggs delivered was more than sufficient to cover the outstanding
eggs at an agreed service fee of 80 centavos per egg, whether successfully balance, Maura promised to settle their accounts only upon proper
hatched or not. Each delivery was reflected in a "Setting Report" indicating accounting by San Juan. San Juan disliked the idea and threatened to
the following: the number of eggs delivered; the date of setting or the date impound their vehicle and detain them at the hatchery compound if they
the eggs were delivered and laid out in the incubators; the date of candling or should come back unprepared to fully settle their accounts with him.
the date the eggs, through a lighting system, were inspected and determined
if viable or capable of being hatched into chicks; and the date of hatching, On February 11, 1993, respondents directed their errand boy, Allan Blanco,
which is also the date respondents would pick-up the chicks and by-products. to pick up the chicks and by-products covered by Setting Report No. 110 and
Initially, the service fees were paid upon release of the eggs and by-products also to ascertain if San Juan was still willing to settle amicably their
to respondents. But as their business went along, respondents’ delays on differences. Unfortunately, San Juan was firm in his refusal and reiterated his
their payments were tolerated by San Juan, who just carried over the threats on respondents. Fearing San Juan’s threats, respondents never went
balance, as there may be, into the next delivery, out of keeping goodwill with back to the hatchery.
respondents.
The parties tried to settle amicably their differences before police authorities,
From January 13 to February 3, 1993, respondents had delivered to San but to no avail. Thus, respondents filed with the RTC an action for damages
Juan a total of 101,3[50]5 eggs, detailed as follows:6
based on petitioners’ retention of the chicks and by-products covered by SO ORDERED.15
Setting Report Nos. 108 to 113.
Hence, the instant petition, assigning the following errors:
On July 8, 1996, the RTC ruled in favor of respondents and made the
following findings: (1) as of Setting Report No. 107, respondents owed I.
petitioners P102,336.80;10 (2) petitioners withheld the release of the chicks
and by-products covered by Setting Report Nos. 108-113;11 and (3) the THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED
retention of the chicks and by-products was unjustified and accompanied by
IN HOLDING, AS DID THE COURT A QUO, THAT PETITIONERS
threats and intimidations on respondents.12 The RTC disregarded the
WITHHELD/OR FAILED TO RELEASE THE CHICKS AND BY-
corporate fiction of ASJ Corp.,13 and held it and San Juan solidarily liable to
PRODUCTS COVERED BY SETTING REPORT NOS. 108 AND
respondents for P529,644.80 as actual damages, P100,000.00 as moral
109.
damages, P50,000.00 as attorney’s fees, plus interests and costs of suit. The
decretal portion of the decision reads:
II.
WHEREFORE, based on the evidence on record and the
laws/jurisprudence applicable thereon, judgment is hereby rendered THE HONORABLE COURT OF APPEALS ERRED IN ADMITTING
ordering the defendants to pay, jointly and severally, unto the THE HEARSAY TESTIMONY OF MAURA EVANGELISTA
plaintiffs the amounts of P529,644.80, representing the value of the SUPPORTIVE OF ITS FINDINGS THAT PETITIONERS
hatched chicks and by-products which the plaintiffs on the average WITHHELD/OR FAILED TO RELEASE THE CHICKS AND BY-
expected to derive under Setting Reports Nos. 108 to 113, inclusive, PRODUCTS COVERED BY SETTING REPORT NOS. 108 AND
with legal interest thereon from the date of this judgment until the 109.
same shall have been fully paid, P100,000.00 as moral damages
and P50,000.00 as attorney’s fees, plus the costs of suit. III.

SO ORDERED.14 THE HONORABLE COURT OF APPEALS, AS DID THE COURT A

QUO, ERRED IN NOT FINDING THAT RESPONDENTS FAILED
Both parties appealed to the Court of Appeals. Respondents prayed for an TO RETURN TO THE PLANT TO GET THE CHICKS AND BY-
additional award of P76,139.00 as actual damages for the cost of other PRODUCTS COVERED BY SETTING REPORT NOS. 110, 111,
unreturned by-products and P1,727,687.52 as unrealized profits, while 112 AND 113.
petitioners prayed for the reversal of the trial court’s entire decision.
IV.
On April 30, 2003, the Court of Appeals denied both appeals for lack of merit
and affirmed the trial court’s decision, with the slight modification of including THE HONORABLE COURT OF APPEALS ERRED IN HOLDING,
an award of exemplary damages of P10,000.00 in favor of respondents. The AS DID THE COURT A QUO, THAT THE PIERCING OF THE VEIL
Court of Appeals, applying the doctrine of piercing the veil of corporate OF CORPORATE ENTITY IS JUSTIFIED, AND CONSEQUENTLY
fiction, considered ASJ Corp. and San Juan as one entity, after finding that HOLDING PETITIONERS JOINTLY AND SEVERALLY LIABLE TO
there was no bona fide intention to treat the corporation as separate and PAY RESPONDENTS THE SUM OF P529,644.[80].
distinct from San Juan and his wife Iluminada. The fallo of the Court of
Appeals’ decision reads: V.

WHEREFORE, in view of the foregoing, the Decision appealed from THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
is hereby AFFIRMED, with the slight modification that exemplary THAT PETITIONERS HAVE VIOLATED THE PRINCIPLES
damages in the amount of P10,000.00 are awarded to plaintiffs. ENUNCIATED IN ART. 19 OF THE NEW CIVIL CODE AND
CONSEQUENTLY IN AWARDING MORAL DAMAGES,
Costs against defendants. EXEMPLARY DAMAGES AND ATTORNEY’S FEES.
 VI. had no other properties or assets, except for the hatchery plant and the lot
where it is located; (4) San Juan is in complete control of the corporation; (5)
THE HONORABLE COURT OF APPEALS ERRED IN NOT There is no bona fide intention to treat ASJ Corp. as a different entity from
AWARDING PETITIONERS’ COUNTERCLAIM.16 San Juan; and (6) The corporate fiction of ASJ Corp. was used by San Juan
to insulate himself from the legitimate claims of respondents, defeat public
convenience, justify wrong, defend crime, and evade a corporation’s
Plainly, the issues submitted for resolution are: First, did the Court of Appeals
err when (a) it ruled that petitioners withheld or failed to release the chicks subsidiary liability for damages.25 These findings, being purely one of
and by-products covered by Setting Report Nos. 108 and 109; (b) it admitted fact,26 should be respected. We need not assess and evaluate the evidence
the testimony of Maura; (c) it did not find that it was respondents who failed all over again where the findings of both courts on these matters coincide.
to return to the hatchery to pick up the chicks and by-products covered by
Setting Report Nos. 110 to 113; and (d) it pierced the veil of corporate fiction On the second set of issues, petitioners contend that the retention was
and held ASJ Corp. and Antonio San Juan as one entity? Second, was it justified and did not constitute an abuse of rights since it was respondents
proper to hold petitioners solidarily liable to respondents for the payment who failed to comply with their obligation. Respondents, for their part, aver
of P529,644.80 and other damages? that all the elements on abuse of rights were present. They further state that
despite their offer to partially satisfy the accrued service fees, and the fact
that the value of the chicks and by-products was more than sufficient to cover
In our view, there are two sets of issues that the petitioners have raised.
their unpaid obligations, petitioners still chose to withhold the delivery.
The first set is factual. Petitioners seek to establish a set of facts contrary to
The crux of the controversy, in our considered view, is simple enough. Was
the factual findings of the trial and appellate courts. However, as well
petitioners’ retention of the chicks and by-products on account of
established in our jurisprudence, only errors of law are reviewable by this
respondents’ failure to pay the corresponding service fees unjustified? While
Court in a petition for review under Rule 45.17 The trial court, having had the
the trial and appellate courts had the same decisions on the matter, suffice it
opportunity to personally observe and analyze the demeanor of the
witnesses while testifying, is in a better position to pass judgment on their to say that a modification is proper. Worth stressing, petitioners’ act of
withholding the chicks and by-products is entirely different from petitioners’
credibility.18 More importantly, factual findings of the trial court, when amply
unjustifiable acts of threatening respondents. The retention had legal basis;
supported by evidence on record and affirmed by the appellate court, are
the threats had none.
binding upon this Court and will not be disturbed on appeal.19 While there are
exceptional circumstances20 when these findings may be set aside, none of
them is present in this case. To begin with, petitioners’ obligation to deliver the chicks and by-products
corresponds to three dates: the date of hatching, the delivery/pick-up date
and the date of respondents’ payment. On several setting reports,
Based on the records, as well as the parties’ own admissions, the following
respondents made delays on their payments, but petitioners tolerated such
facts were uncontroverted: (1) As of Setting Report No. 107, respondents
delay. When respondents’ accounts accumulated because of their
were indebted to petitioners for P102,336.80 as accrued service fees for
Setting Report Nos. 90 to 107;21 (2) Petitioners, based on San Juan’s own successive failure to pay on several setting reports, petitioners opted to
admission,22 did not release the chicks and by-products covered by Setting demand the full settlement of respondents’ accounts as a condition
precedent to the delivery. However, respondents were unable to fully settle
Report Nos. 108 and 109 for failure of respondents to fully settle their
their accounts.
previous accounts; and (3) Due to San Juan’s threats, respondents never
returned to the hatchery to pick up those covered by Setting Report Nos. 110
to 113.23 Respondents’ offer to partially satisfy their accounts is not enough to
extinguish their obligation. Under Article 124827 of the Civil Code, the creditor
cannot be compelled to accept partial payments from the debtor, unless
Furthermore, although no hard and fast rule can be accurately laid down
there is an express stipulation to that effect. More so, respondents cannot
under which the juridical personality of a corporate entity may be
substitute or apply as their payment the value of the chicks and by-products
disregarded, the following probative factors of identity justify the application
they expect to derive because it is necessary that all the debts be for the
of the doctrine of piercing the veil of corporate fiction24 in this case: (1) San
Juan and his wife own the bulk of shares of ASJ Corp.; (2) The lot where the same kind, generally of a monetary character. Needless to say, there was no
hatchery plant is located is owned by the San Juan spouses; (3) ASJ Corp. valid application of payment in this case.
Furthermore, it was respondents who violated the very essence of reciprocity [b X (d X e) + c X (d X f)] = Temperate Damages
in contracts, consequently giving rise to petitioners’ right of retention. This
case is clearly one among the species of non-performance of a reciprocal 41% X (68,784 eggs X P14) = P394,820.16
obligation. Reciprocal obligations are those which arise from the same 17% X (68,784 eggs X P1.20) = P 14,031.94
cause, wherein each party is a debtor and a creditor of the other, such that
the performance of one is conditioned upon the simultaneous fulfillment of [P394,820.16 + P14,031.94] = P408,852.10
the other.28 From the moment one of the parties fulfills his obligation, delay
by the other party begins.29 At bottom, we agree that petitioners’ conduct flouts the norms of civil society
and justifies the award of moral and exemplary damages. As enshrined in
Since respondents are guilty of delay in the performance of their obligations, civil law jurisprudence: Honeste vivere, non alterum laedere et jus suum
they are liable to pay petitioners actual damages of P183,416.80, computed cuique tribuere. To live virtuously, not to injure others and to give everyone
as follows: From respondents’ outstanding balance of P102,336.80, as of his due.35 Since exemplary damages are awarded, attorney’s fees are also
Setting Report No. 107, we add the corresponding services fees proper. Article 2208 of the Civil Code provides that:
of P81,080.0030 for Setting Report Nos. 108 to 113 which had remain unpaid.
In the absence of stipulation, attorney’s fees and expenses of
Nonetheless, San Juan’s subsequent acts of threatening respondents should litigation, other than judicial costs, cannot be recovered, except:
not remain among those treated with impunity. Under Article 1931 of the Civil
Code, an act constitutes an abuse of right if the following elements are (1) When exemplary damages are awarded;
present: (a) the existence of a legal right or duty; (b) which is exercised in
bad faith; and (c) for the sole intent of prejudicing or injuring another. 32 Here,
xxxx
while petitioners had the right to withhold delivery, the high-handed and
oppressive acts of petitioners, as aptly found by the two courts below, had no
legal leg to stand on. We need not weigh the corresponding pieces of WHEREFORE, the petition is PARTLY GRANTED. The Decision dated April
evidence all over again because factual findings of the trial court, when 30, 2003 of the Court of Appeals in CA-G.R. CV No. 56082 is
adopted and confirmed by the appellate court, are binding and conclusive hereby MODIFIED as follows:
and will not be disturbed on appeal.33
a. Respondents are ORDERED to pay petitioners P183,416.80 as actual
Since it was established that respondents suffered some pecuniary loss damages, with interest of 6% from the date of filing of the complaint until fully
anchored on petitioners’ abuse of rights, although the exact amount of actual paid, plus legal interest of 12% from the finality of this decision until fully paid.
damages cannot be ascertained, temperate damages are recoverable. In
arriving at a reasonable level of temperate damages of P408,852.10, which b. The award of actual damages of P529,644.80 in favor of respondents is
is equivalent to the value of the chicks and by-products, which respondents, hereby REDUCED to P408,852.10, with legal interest of 12% from the date
on the average, are expected to derive, this Court was guided by the of finality of this judgment until fully paid.
following factors: (a) award of temperate damages will cover only Setting
Report Nos. 109 to 113 since the threats started only on February 10 and 11, c. The award of moral damages, exemplary damages and attorney’s fees
1993, which are the pick-up dates for Setting Report Nos. 109 and 110; the of P100,000.00, P10,000.00, P50,000.00, respectively, in favor of
rates of (b) 41% and (c) 17%, representing the average rates of conversion respondents is hereby AFFIRMED.
of broiler eggs into hatched chicks and egg by-products as tabulated by the
trial court based on available statistical data which was unrebutted by d. All other claims are hereby DENIED.
petitioners; (d) 68,784 eggs,34 or the total number of broiler eggs under
Setting Report Nos. 109 to 113; and (e) P14.00 and (f) P1.20, or the then
unit market price of the chicks and by-products, respectively. No pronouncement as to costs.

Thus, the temperate damages of P408,852.10 is computed as follows: SO ORDERED.

 GENUINO AGRO-INDUSTRIAL DEVELOPMENT CORPORATION, By reason of Genuino Ice's contention that respondents charged the wrong
PETITIONER, VS. ARMANDO G. ROMANO, JAY A. CABRERA AND party, they amended their complaint by impleading the petitioner, including
MOISES V. SARMIENTO, RESPONDENTS. the relief of reinstatement, and asking for attorney's fees.[8]

DECISION In his Decision[9] dated December 29, 2006, the Labor Arbiter held that
REYES, J. JR., J.: respondents were regular employees of the petitioner since they were
The Facts and The Case performing functions that were necessary and desirable to the operations of
the ice plant. The continuous work of the respondents as brine men in the
Before this Court is a Petition for Review on Certiorari[1] filed by petitioner plant for several years (since 1988 in the case of Romano and Sarmiento,
Genuino Agro-Industrial Development Corporation, seeking to annul and set and since 1992 in Cabrera's case) rendered dubious the proposition that
aside the May 31, 2012 Decision[2] and December 12, 2012 Resolution[3] of their respective employments were fixed for a specific period or that they
the Court of Appeals (CA) in CA-G.R. SP No. 103337 which found no grave were seasonal employees. The contention that petitioner did not exercise
abuse of discretion on the part of the National Labor Relations Commission any form of control over the work performance of the respondents was found
(NLRC) in affirming the ruling of the Labor Arbiter finding the respondents to by the Labor Arbiter hard to believe considering that they were suffered to
be the regular employees of the petitioner whom it had illegally dismissed; work at the ice plant. The Labor Arbiter also found Vicar to be without
and ordering the petitioner to reinstate them and Respondents Armando G. substantial capital and equipment to qualify as an independent contractor,
Romano (Romano), Jay A. Cabrera (Cabrera) and Moises V. Sarmiento and thus treated it as a labor-only contractor, and held accountable as such.
(Sarmiento) claimed that they work as brine men at Genuino Ice Company
Inc.'s (Genuino Ice) ice plant in Turbina, Calamba, Laguna branch. Romano While the Labor Arbiter recognized that the company has the prerogative to
was hired through the man power agency, Vicar General Contractor and close its department, the Labor Arbiter still found respondents' dismissal from
Management Services (Vicar), while Sarmiento and Cabrera were hired employment as illegal inasmuch as the petitioner failed to adduce any
through L.C. Moreno General Contractor and Management Services (L.C. evidence showing that the closure of its block ice production facility had
Moreno). Vicar was the last agency that supplied all the employees to some basis and that their dismissal was for an authorized cause. The Labor
Genuino Ice.[4] Arbiter disposed the case in this wise:

Respondents averred that sometime in September 2004, the workers were WHEREFORE, judgment is hereby rendered:
given a work schedule where one worker was not made to report for work for 1. Declaring that [respondents] were regular employees of
15 consecutive days while the six other workers report for work on their [petitioner];
regular schedules. In other words, each worker does not work for 15 days for
a period of 90 days. When Romano reported back to work on June 25, 2005 2. Declaring that [respondents] were illegally dismissed by
after his 15 days forced leave, he was told then and there that his [petitioner]; and as such should be immediately reinstated to their
employment was already terminated. Sarmiento and Cabrera also suffered former positions without loss of seniority rights. [Petitioner] should
the same fate. They were dismissed from work on July 10, 2005.[5] Thus, on report compliance with this directive within ten (10) days from
August 3, 2005, respondents filed a complaint for illegal dismissal with prayer receipt hereof;
for separation pay against Genuino Ice and Vicar before the Department of
Labor and Employment (DOLE).[6] 3. Adjudging [petitioner] and [Vicar] jointly and severally liable to pay
[respondents] the amount of [P] 133,395.51 each as backwages,
Genuino Ice, for its part, claimed that respondents charged the wrong party as of the date of this decision for a total amount of [P]400,186.53.
as they were never its employees but of petitioner, its affiliate company. They This is only partial payment, full satisfaction of which shall be
were contractual employees of Vicar and L.C. Moreno which deployed them reckoned to the date of the actual reinstatement of [respondents].
to work at petitioner's ice plant at Turbina, Calamba City. Due to the SO ORDERED.[10]
continuous and tremendous decline in the demand for ice products being
produced by the petitioner, it shut down its block ice production plant On appeal before the NLRC, petitioner stressed that respondents never
facilities. Its six workers were reduced to two. Among those affected were the questioned its prerogative to retrench them due to partial closure of its plant
respondents who were relieved from their posts by Vicar and L.C Moreno. [7] and reduction of its personnel, but only questioned the propriety of their
termination for non-compliance with the notice requirement laid down in
Article 283 (now Article 298) of the Labor Code. Considering that
respondents were laid-off for an authorized cause (the partial shut-down of Not accepting defeat, petitioner moved for the reconsideration of the NLRC
its ice plant), only that they were not properly notified thereof, petitioner Decision. Petitioner stressed that as it had explained in its Notice of
contended that respondents are not entitled to reinstatement, backwages Compliance, respondents could no longer be reinstated to their former
and separation pay, but only to nominal damages.[11] positions due to the closure of its block ice production facilities. There were
also no equivalent positions available at its other branch where the
Meanwhile, in compliance with the reinstatement aspect of the Labor respondents may be placed. As such, petitioner reiterated that in view of the
Arbiter's Decision, the petitioner served upon the respondents a Notice of situation, it could not be forced to reinstate the respondents to their former
Compliance informing them that they could no longer be reinstated to their positions or even in the payroll. The closure of its ice plants one after the
former posts at its ice plant in Turbina, Calamba City, due to the closure of its other must be treated as a supervening event that warrants the modification
block ice production facilities. Thus, they were directed to report at of the order of reinstatement with payment of full backwages, to the payment
petitioner's main office within five days from receipt of the said notice of of separation pay.[19]
compliance for their reinstatement/placement at petitioner's other branches
or affiliate companies, particularly at its ice plant in Navotas.[12] By virtue of Finding the motion for reconsideration filed by the petitioner to have raised
the said directive, respondents reported at petitioner's main office on March no new matters of substance, the NLRC denied the same in a
6, 2007. However, they were simply made to wait the whole day and were Resolution[20] dated February 26, 2008.
not given any job assignments. When respondents inquired on their work
assignments on March 8 and 12, 2007, they were told that there were still no Undaunted, the petitioner sought recourse before the CA via a Petition
available work assignments for them, prompting them to file a motion for the for Certiorari alleging grave abuse of discretion on the part of the NLRC in:
issuance of a writ of partial execution ordering their reinstatement in the (1) not finding that respondents were retrenched from employment and that
payroll effective March 6, 2007.[13] they are not entitled to reinstatement and backwages, but only to nominal
damages; (2) not modifying the Labor Arbiter's Decision which ordered
Petitioner opposed the motion for partial execution. It argued that it could not respondents' reinstatement and payment of full backwages to the payment of
be forced to reinstate the respondents whether in their previous positions or separation pay.[21]
in the payroll because the department where they used to work had already
closed and there were no other equivalent positions available in petitioner's In the interim, or on September 26, 2011, the Labor Arbiter issued a Writ of
only branch in Navotas.[14] Execution commanding the sheriff to proceed to the premises of the
petitioner and Vicar, and collect from them the amount of P1,392,579.93
In an Order dated July 5, 2007, the Labor Arbiter granted the motion and representing respondents' backwages, inclusive of 13th month pay and
issued a writ of partial execution. Since the writ of partial execution was service incentive leave pay, for the period of July 10, 2005 to April 30, 2010,
returned unsatisfied,[15] petitioner moved for the issuance of an alias writ of among others.[22]
partial execution reiterating their prayer to be reinstated in the
payroll.[16] After the petitioner filed its opposition to the motion, the Labor In a Decision[23] dated May 31, 2012, the CA found no grave abuse of
Arbiter issued an Order on September 28, 2007 granting the issuance of an discretion on the part of the NLRC in deciding the case as it did and denied
alias writ of partial execution. Petitioner appealed the said September 28, the petition. It held that while retrenchment is one of the recognized
2007 Order and prayed that the same be lifted and set aside pending authorized causes for the dismissal of an employee, petitioner failed to
resolution of the main case on appeal.[17] discharge its burden of proving that respondents' retrenchment was valid for
the reason that petitioner not only failed to notify them and the DOLE of the
On November 29, 2007, the NLRC rendered its Decision[18] finding that the retrenchment, it also failed to prove that it was losing financially. Thus,
Labor Arbiter did not err in holding the petitioner and Vicar guilty of illegal respondents' dismissal was clearly illegal. Petitioner cannot also claim that it
dismissal, and ordering respondents' reinstatement with full backwages. The is liable only for nominal damages considering that retrenchment was shown
NLRC held that they could not justify respondents' dismissal on the ground of not to be justified. The CA also found no reason to modify the award of
retrenchment considering that petitioner and Vicar totally disregarded the reinstatement and full backwages for failure of the petitioner to sufficiently
requirements laid down in Article 298 of the Labor Code and failed to adduce prove that the department where respondents' used to work had indeed
documentary proof, like an audited financial statement, to substantiate their closed, or that there were no other similar unfilled posts available at its other
claim. branch.
 of the Labor Code. Respondents also bewail that their termination was
Its motion for reconsideration having been denied,[24] petitioner is now before discriminatory since they were not informed why their services were
this Court via the present petition. Respondents filed their Comment with terminated instead of the other workers. Since respondents admitted that the
Motion[25] thereto, praying that Genuino Ice be declared solidarity liable with closure of petitioner's business was brought about by serious business
the petitioner to pay respondents the monetary awards granted to them by losses, respondents are considered to have been terminated for cause, but
the Labor Arbiter, to which the petitioner has filed its Opposition.[26] In a without according them due process, entitling them to the payment of
Resolution[27] dated January 14, 2015, the Court required the parties to nominal damages.[30]
submit their respective memoranda.[28]
Petitioner reiterates that the closure of its ice plants was a supervening event
The Issues Presented which rendered it impossible for it to reinstate the respondents to their former
positions or even in the payroll, since their former positions are no longer
Petitioner raised the following issues for this Court's consideration: existing and no equivalent positions are also available in its other branch.
Thus, instead of directing it to reinstate the respondents and pay them their
1. THE HONORABLE COURT OF APPEALS ERRED AND full backwages, petitioner must instead be ordered to pay respondents their
COMMITTED GRAVE ABUSE OF DISCRETION IN AFFIRMING separation pay.[31]
THE NLRC'S DECISION IN NOT RULING FOR THE
RETRENCHMENT OF THE RESPONDENTS WITHOUT Anent the motion of the respondents to declare Genuino Ice solidarity liable
PROPER NOTICE AND DUE PROCESS, THAT THEY ARE NOT with it, petitioner avers that the same has no factual and legal basis because
ENTITLED TO REINSTATEMENT AND PAYMENT OF Genuino Ice is not a party in this case. Moreover, the Decision of the Labor
BACKAWAGES, BUT TO NOMINAL DAMAGES PURSUANT TO Arbiter which held only the petitioner liable to the respondents, had already
RULING HELD IN "JAKA FOOD PROCESSING CORP. become final and immutable as to the respondents, they having not appealed
VERSUS PACOT," GR. No. 151378, March 28, 2005." the same. Thus, they cannot at this stage of the proceedings seek to alter the
Decision to make Genuino Ice solidarity liable.[32]
2. THE HONORABLE COURT OF APPEALS ERRED AND
COMMITTED GRAVE ABUSE OF DISCRETION IN NOT Respondents counter that the petitioner is raising the very same grounds it
MODIFYING THE NLRC'S DECISION AFFIRMING THE LABOR raised before the CA, and this Court in Genuino Ice Company, Inc. v.
ARBITER'S DECISION ORDERING REINSTATEMENT AND Lava[33] has resolved exactly the same issues and exactly the same facts
PAYMENT OF FULL BACKWAGES TO THE RESPONDENTS, involving co-employees of the respondents against Genuino Ice, where the
TO PAYMENT OF SEPARATION PAY RECKONED FROM latter was found guilty of illegal dismissal. Consistent with the Court's ruling
DATE OF THEIR INITIAL EMPLOYMENT, UP TO DECEMBER in the said case, the Court must likewise affirm the ruling of the CA finding
29, 2006, THE DATE OF THE LABOR ARBITER'S DECISION. the petitioner guilty of illegal dismissal and liable for the monetary awards
prayed for by the respondents.[34]
3. [RESPONDENTS'] MOTION PRAYING THAT GENUINO ICE
COMPANY, INC. BE HELD SOLIDARILY LIABLE WITH Respondents contend further that they could not be precluded from asking
PETITIONER GENUINO AGRO DEVELOPMENT the Court to pierce the veil of corporate fiction of Genuino Ice to make it
CORPORATION FOR THE PAYMENT OF MONETARY solidarity liable with the petitioner given that their actuations would lead one
AWARDS OF THE LABOR ARBITER IS OUT OF CONTEXT, to believe that they are one and the same company inasmuch as the
AND HAS NO FACTUAL AND LEGAL BASIS.[29] verification portion of the Memorandum of Appeal filed by the petitioner was
signed by Edgar A. Carriaga (Carriaga), Genuino Ice's authorized
The Arguments of the Parties representative, and it was Genuino Ice that posted the appeal bond on its
behalf. When respondents tried to collect from the surety bond the amount of
Echoing substantially the same arguments put forward before the Labor P401,000.00 by virtue of the writ of partial execution and notice of
Arbiter, the NLRC and the CA, petitioner avers that the respondents do not garnishment that were issued, they failed to get a single centavo as the same
question its right to lay off its workers on account of serious business losses, was opposed by Carriaga, claiming that the amount was intended as a
but only questions the propriety of their termination for non-compliance with collateral security for Genuino Ice and not for the petitioner (despite the
the notice requirement and non-payment of separation pay under Article 298
latter's representation that it had duly perfected its appeal before the administrative body that has expertise in its specialized field. Nor do we
NLRC).[35] substitute our "own judgment for that of the tribunal in determining where the
weight of evidence lies or what evidence is credible." The factual findings of
The Ruling of the Court the NLRC, when affirmed by the CA, are generally conclusive on this Court.

Limits of review under Rule 45 from There are, however, recognized exceptions to this general rule where the
the CA's Decision in a labor case Court, in the exercise of its discretionary appellate jurisdiction, may look into
factual issues raised in Rule 45 petition. These exceptions are enumerated
A perusal of the present petition inevitably shows that the petitioner reiterated in Sia Tio v. Abayata[42] To wit:
substantially the same arguments and assailed congruent factual findings of
the Labor Arbiter, the NLRC and the CA. A petition for review (1) when the findings are grounded entirely on speculation, surmises or
on certiorari under Rule 45 is a mode of appeal where the issue is limited conjectures;
only to questions of law.[36] In labor cases, a Rule 45 petition is limited to
reviewing whether the CA correctly determined the presence or absence of
grave abuse of discretion and deciding other jurisdictional errors of the (2) when the inference made is manifestly mistaken, absurd or impossible;
NLRC,[37] and not on the basis of whether the latter's decision on the merits
of the case was strictly correct.[38]

By grave abuse of discretion is meant such capricious and whimsical (3) when there is grave abuse of discretion;
exercise of judgment as is equivalent to lack of jurisdiction.[39] The abuse of
discretion must be grave, as when the power is exercised in an arbitrary or
despotic manner by reason of passion or personal hostility. The abuse must
also be so patent and gross as would amount to an evasion of a positive duty (4) when the judgment is based on a misapprehension of facts;
or to a virtual refusal to perform the duty required, or to act at all in
contemplation of law, as to be equivalent to having acted without
jurisdiction.[40]
(5) when the findings of fact are conflicting;
In Career Philippines Shipmanagement, Inc. v. Serna,[41]
this Court laid down
the parameters of an appeal taken under Rule 45 from the CA's Rule 65
Decision in a labor case, viz:
(6) when in making its findings the Court of Appeals went beyond the issues
of the case, or its findings are contrary to the admissions of both the
In a Rule 45 review, we consider the correctness of the assailed CA decision,
appellant and the appellee;
in contrast with the review for jurisdictional error that we undertake under
Rule 65. Furthermore, Rule 45 limits us to the review of questions of law
raised against the assailed CA decision. In ruling for legal correctness, we
(7) when the findings are contrary to the trial court;
have to view the CA decision in the same context that the petition
for certiorari it ruled upon was presented to it; we have to examine the CA
decision from the prism of whether it correctly determined the presence
or absence of grave abuse of discretion in the NLRC decision before it, (8) when the findings are conclusions without citation of specific evidence on
not on the basis of whether the NLRC decision on the merits of the
which they are based;
case was correct. In other words, we have to be keenly aware that the CA
undertook a Rule 65 review, not a review on appeal, of the NLRC decision
challenged before it. x x x (9) when the facts set forth in the petition as well as in the petitioner's main
and reply briefs are not disputed by the respondent;
Accordingly, we do not re-examine conflicting evidence, re-evaluate the
credibility of witnesses, or substitute the findings of fact of the NLRC, an
(10)when the findings of fact are premised on the supposed absence of The complete designation of this authorized cause is retrenchment to
evidence and contradicted by the evidence on record; and prevent losses precisely to save a financially ailing business
establishment from eventually collapsing. Without the purpose to prevent
losses, the termination becomes illegal. However, the employer or the
(11)when the Court of Appeals manifestly overlooked certain relevant facts company need not be incurring losses already; the requirement is that there
not disputed by the parties, which, if properly considered, would justify a may be impending losses hence the resort to retrenchment:
different conclusion.
[T]he three (3) basic requirements are: (a) proof that the retrenchment is
necessary to prevent losses or impending losses; (b) service of written
None of the exceptions enumerated above are obtaining in this case. notices to the employees and to the Department of Labor and Employment at
least one (1) month prior to the intended date of retrenchment; and (c)
Respondents were illegally payment of separation pay equivalent to one (1) month pay, or at least one-
dismissed from employment, half (1/2) month pay for every year of service, whichever is higher. In
retrenchment not being duly addition, jurisprudence has set the standards for losses which may justify
proved retrenchment, thus: (1) the losses incurred are substantial and not de
minimis; (2) the losses are actual or reasonably imminent; (3) the
Article 298 of the Labor Code laid down the authorized causes where the retrenchment is reasonably necessary and is likely to be effective in
employer may validly terminate the employment of its employees. It provides: preventing the expected losses; and (4) the alleged losses, if already
incurred, or the expected imminent losses sought to be forestalled, are
ART. 298. Closure of Establishment and Reduction of Personnel. – The proven by sufficient and convincing evidence.
employer may also terminate the employment of any employee due to the
installation of labor-saving devices, redundancy, retrenchment to prevent To justify retrenchment, petitioner claims serious business losses leading to
losses or the closing or cessation of operation of the establishment or the shutdown of its block ice plant facilities to which respondents belong.
undertaking unless the closing is for the purpose of circumventing the There is, however, dearth of evidence showing that the petitioner was indeed
provisions of this Title, by serving a written notice on the workers and the suffering from business losses or financial reverses as it staunchly claimed.
Ministry of Labor and Employment at least one (1) month before the intended Petitioner could have easily proved its dire financial state by submitting its
date thereof. In case of termination due to the installation of labor-saving financial statements duly audited by independent external auditors, but it did
devices or redundancy, the worker affected thereby shall be entitled to not.[45] Its failure to prove these reverses or losses necessarily means that
separation pay equivalent to at least his one (1) month pay or to at least one respondents' dismissal was not justified.[46] In addition, records would bear
(1) month pay for every year of service, whichever is higher. In case of out, as in fact petitioner never denied, that it failed to satisfy the notice
retrenchment to prevent losses and in cases of closures or cessation of requirement under Article 298 of the Labor Code. Neither was the required
operations of establishment or undertaking not due to serious business separation pay to effect a valid retrenchment given to the respondents. For
losses or financial reverses, the separation pay shall be equivalent to one (1) these reasons, the Court must uphold the ruling of the CA that there was
month pay or at least one-half (1/2) month pay for every year of service, absence of grave abuse of discretion on the part of the NLRC when it upheld
whichever is higher. A fraction of at least six (6) months shall be considered the ruling of Labor Arbiter finding the respondents to have been illegally
one (1) whole year. dismissed by the petitioner inasmuch as retrenchment was not duly proven
by the latter.
Petitioner is correct in saying that retrenchment is a management prerogative
to downsize its work force to avert business losses, which could either be Respondents are entitled to backwages
already incurred or impending. Where appropriate and where conditions are and separation pay
in accord with law and jurisprudence, the Court has authorized valid
reductions in the work force to forestall business losses, the hemorrhaging of Article 294 of the Labor Code provides for the reliefs of an illegally dismissed
capital, or even to recognize an obvious reduction in the volume of business employee. The provision states:
which has rendered certain employees redundant.[43] However, for
retrenchment to be valid, certain requisites must first be satisfied. In Perez v. ART. 294. Security of Tenure. – In cases of regular employment, the
Comparts Industries, Inc.[44] this Court held: employer shall not terminate the services of an employee except for a just
cause or when authorized by this Title. An employee who is unjustly did not abuse its discretion when it ordered respondents' reinstatement, the
dismissed from work shall be entitled to reinstatement without loss of Court, in the exercise of its equity jurisdiction may still modify the affirmed
seniority rights and other privileges and to his full backwages, inclusive of judgment in order to conform to law and justice.
allowances, and to his other benefits or their monetary equivalent computed
from the time his compensation was withheld from him up to the time of his Equity jurisdiction aims to do complete justice in cases where a court of law
actual reinstatement. is unable to adapt its judgments to the special circumstances of a case
because of the inflexibility of its statutory or legal jurisdiction.[49] Since it has
In Advan Motor, Inc. v. Veneration,[47] the Court explained the reliefs of been 14 years since the time respondents were removed from work, it is
reinstatement and backwages. Thus: unlikely that the former positions held by them or their equivalent are still
existing or are presently unoccupied; thus, making their reinstatement no
The two reliefs of reinstatement and backwages have been discussed longer viable. On this score, the CA decision must accordingly be modified in
in Reyes v. RP Guardians Security Agency, Inc. in the following manner: this respect. In lieu of reinstatement and full backwages, an award of
separation pay, equivalent to one (1) month salary for every year of service,
Backwages and reinstatement are separate and distinct reliefs given to an and full backwages is ordered instead.[50]
illegally dismissed employee in order to alleviate the economic damage
brought about by the employee's dismissal. "Reinstatement is a restoration to Bases for computation of backwages
a state from which one has been removed or separated" while "the payment and separation pay
of backwages is a form of relief that restores the income that was lost by
reason of the unlawful dismissal." Therefore, the award of one does not bar The basis for computing separation pay is usually the length of the
the other. employee's past service, while that for backwages is the actual period when
the employee was unlawfully prevented from working.[51] Backwages
In the case of Aliling v. Feliciano, citing Golden Ace Builders v. Talde, the represent compensation that should have been earned but were not
Court explained: collected because of the unjust dismissal.[52] Separation pay, on the other
Thus, an illegally dismissed employee is entitled to two reliefs: backwages hand, is that amount which an employee receives at the time of his
and reinstatement. The two reliefs provided are separate and distinct. In severance from employment, designed to provide the employee with the
instances where reinstatement is no longer feasible because of strained wherewithal during the period that he is looking for another
relations between the employee and the employer, separation pay is granted. employment,[53] and is a proper substitute for reinstatement.[54]
In effect, an illegally dismissed employee is entitled to either reinstatement, if
viable, or separation pay if reinstatement is no longer viable, and backwages. Under Article 279 (now Article 294) of the Labor Code, backwages is
computed from the time of dismissal until the employee's reinstatement.
The normal consequences of respondents' illegal dismissal, then, are However, when separation pay is ordered in lieu of reinstatement,
reinstatement without loss of seniority rights, and payment of backwages backwages is computed from the time of dismissal until the finality of the
computed from the time compensation was withheld up to the date of actual decision ordering separation pay.[55] Anent the computation of separation
reinstatement. Where reinstatement is no longer viable as an option, pay, the same shall be equivalent to one month salary for every year of
separation pay equivalent to one (1) month salary for every year of service service[56] and should not go beyond the date an employee was deemed to
should be awarded as an alternative. The payment of separation pay is in have been actually separated from employment, or beyond the date when
addition to payment of backwages. reinstatement was rendered impossible.[57] In the present case, in allowing
separation pay, the final decision effectively declares that the employment
Since respondents' termination was illegal, they are entitled to reinstatement relationship ended so that separation pay and backwages are to be
without loss of seniority rights and to their full backwages pursuant to the computed up to that point.[58]
said article.
Applied here, Romano's backwages shall be computed from June 25, 2005,
However, reinstatement presupposes that the previous position from which while the backwages of Sarmiento and Cabrera shall be reckoned from July
the employee has been removed is still in existence or there is an unfilled 10, 2005, the time they were illegally dismissed until finality of this Decision.
position of a nature, more or less, similar to the one previously occupied by As regards their separation pay, the same shall be computed from their first
said employee.[48] While the CA was correct in its assessment that the NLRC day of employment until the finality of this decision, at the rate of one month
pay per year of service. dishonest purpose or some moral obliquity and conscious doing of wrong; it
means breach of a known duty through some motive or interest or ill will; it
Genuino Ice should be held solidarity partakes of the nature of fraud.
liable with petitioner Genuino Agro
Thus, for purposes of determining whether to pierce Genuino Ice's separate
It is an elementary and fundamental principle of corporation law that a corporate personality and hold it solidarily liable with the petitioner to pay the
corporation is an artificial being invested by law with a personality separate monetary claims due to the respondents, the following factual circumstances
and distinct from its stockholders and from other corporations to which it may have to be considered:
be connected.[59] However, the corporate mask may be lifted and the
corporate veil may be pierced when a corporation is just but the alter ego of a (1) Petitioner and its supposed affiliate Genuino Ice have the same address,
person or of another corporation.[60] Moreover, piercing the corporate veil sets of officers, and representative to this suit.[65]
may also be resorted to by the courts or quasi-judicial bodies when "[the
separate personality of a corporation] is used as a means to perpetrate fraud
or an illegal act, or as a vehicle for the evasion of an existing obligation, the (2) The Calamba City ice plant where respondents used to work appears to
circumvention of statutes, or to confuse legitimate issues." [61] Furthermore, be owned and operated by both the petitioner and Genuino Ice.[66]
the veil of corporate fiction may also be pierced as when the same is made
as a shield to confuse legitimate issues.[62] As such, in Zambrano v.
Philippine Carpet Manufacturing Corporation,[63] the Court held: (3) Genuino Ice, after being sued for illegal dismissal before the Labor
Arbiter, claimed that the respondents were actually employees of its
The doctrine of piercing the corporate veil applies in three (3) basic areas, affiliate company, which is the petitioner.[67]
namely: (1) defeat of public convenience as when the corporate fiction
is used as a vehicle for the evasion of an existing obligation; (2) fraud cases
or when the corporate entity is used to justify a wrong, protect fraud, or (4) Genuino Ice, despite claiming that employer, manifested during the
defend a crime; or (3) alter ego cases, where a corporation is merely a farce proceedings that it is willing to re-hire the respondents.[68]
since it is a mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as
to make it merely an instrumentality, agency, conduit or adjunct of another (5) Respondents impleaded petitioner in the proceedings before the Labor
corporation. Arbiter.[69]

Furthermore, once the veil of corporate fiction is pierced, the separate but
related corporation becomes solidarity liable in labor cases. Thus, the Court (6) Genuino Ice filed all the pleadings in the proceedings before the Labor
in Symex Security Services, Inc. v. Rivera, Jr.,[64] pronounced: Arbiter while the petitioner stood idly by despite having been already
impleaded by the respondents.[70]
The common thread running among the aforementioned cases, however, is
that the veil of corporate fiction can be pierced, and responsible corporate
directors and officers or even a separate but related corporation, may be (7) The Labor Arbiter found the petitioner jointly liable with Vicar for illegally
impleaded and held answerable solidarily in a labor case, even after final dismissing the respondents.
judgment and on execution, so long as it is established that such persons
have deliberately used the corporate vehicle to unjustly evade the judgment
obligation, or have resorted to fraud, bad faith or malice in doing so. When (8) Petitioner, after the Labor Arbiter handed its verdict, filed the appeal
the shield of a separate corporate identity is used to commit wrongdoing and before the NLRC with Genuino Ice posting its appeal bond.[71]
opprobriously elude responsibility, the courts and the legal authorities in a
labor case have not hesitated to step in and shatter the said shield and deny
the usual protections to the offending party, even after final judgment. The (9) Genuino Ice, by virtue of the surety bond it posted, acknowledged its
key element is the presence of fraud, malice or bad faith. Bad faith, in this obligation to pay the monetary claims awarded to the respondents on
instance, does not connote bad judgment or negligence but imparts a account of the December 29, 2006 Decision of the Labor Arbiter, should
 the same not be reversed on appeal, despite the fact that the one monetary claims, the petitioner and not Genuino Ice would have posted a
adjudged liable therein was not Genuino Ice but the petitioner.[72] bond for its own appeal. The Court cannot allow its intelligence to be insulted
by Genuino Ice's representation that it has a corporate personality which is
separate and distinct from the petitioner because both companies have
(10)Respondents tried to collect from the appeal bond that was posted by pursued legal remedies and measures for the benefit of each other, and
Genuino Ice (and which the petitioner had previously assured was made representations that clearly defrauded the respondents. Hence, for
sufficient) but failed to do so due to the opposition of Genuino Ice where purposes of this litigation and for the satisfaction of the respondents'
it invoked its separate corporate personality.[73] monetary claims, both Genuino Ice and the petitioner shall be treated as one
and the same entity, and held liable solidarity for the same.

(11)Petitioner insists before this Court that, since the Labor Arbiter's Decision WHEREFORE, premises considered, the petition is partially GRANTED. The
adjudged it liable to pay the respondents' monetary claims, its affiliate, assailed May 31, 2012 Decision and December 12, 2012 Resolution of the
Genuino Ice, cannot be declared as solidarily liable to pay the same Court of Appeals in CA-G.R. SP No. 103337
claims for lack of factual and legal basis.[74] are AFFIRMED with MODIFICATION in that, Genuino Ice Company, Inc. is
adjudged solidarity liable with petitioner Genuino Agro-Industrial
Development Corporation and Vicar General Contractor and Management
A deep scrutiny of the aforementioned circumstances necessitates the Services to pay the monetary claims due to the respondents as follows:
application of the doctrine of piercing the veil of corporate fiction. The
circumstances indubitably establish that both Genuino Ice and the petitioner (1) Backwages computed from June 25, 2005 with respect to respondent
are using their respective distinct corporate personalities in bad faith and to Armando G. Romano, and July 10, 2005 with respect to respondents
confuse legitimate issues in the hope of evading its obligation to the Moises V. Sarmiento and Jay A. Cabrera, the time they were illegally
respondents. dismissed, until the finality of this Decision; and

The aforementioned circumstances show that both Genuino Ice and the
petitioner have taken turns in representing each other's common cause and (2) In lieu of reinstatement, separation pay computed from respondents' first
in pursuing remedies to protect its common interest in repelling the day of employment until the finality of this Decision, at the rate of one
respondents' monetary claims. Whenever a claim is directed against one of month pay per year of service.
them, the other admits the monetary liability so that the former may be
shielded and vice versa. This was demonstrated, for example, when Genuino
Ice posted a bond for the appeal filed by the petitioner with the NLRC. In the The monetary awards granted shall earn legal interest at the rate of six
said surety bond, Genuino Ice acknowledged its obligation to satisfy the percent per annum from the date of the finality of this Decision until fully paid.
monetary awards granted to the respondents notwithstanding the fact that it
was not the one found liable for illegal dismissal, but the petitioner. Petitioner, The case is REMANDED to the Labor Arbiter for the proper computation of
for its part, assured the respondents that the bond it posted was sufficient to the monetary benefits awarded.
answer for their monetary claims in the event that the decision rendered in
their favor becomes final and executory. However, despite their assurances, SO ORDERED.
when the respondents went for the appeal bond to satisfy their claims,
Genuino Ice opposed the move and through Carriaga, its manager and who
also happened to be the personnel manager of the petitioner, argued that the
funds cannot be pursued for it belongs to Genuino Ice. Such evasive
maneuver clearly demonstrates bad faith on the part of the petitioner and
Genuino Ice, and is clearly indicative of using the veil of corporate fiction to
unjustly elude the monetary obligation due to respondents as adjudged.

As observed, when an "affiliate company" takes the cudgels for another, it

means that both have a common interest. If indeed there was no
commonality or intertwining of an interest in frustrating the respondents'
 G.R. No. 217787, September 18, 2019 issued by petitioners. A formal demand letter dated March 5, 2002 was
delivered to Socorro's office, but no payment was made. Thus, Sugiyama
SOCORRO F. ONGKINGCO AND MARIE PAZ B. ONGKINGCO, filed a complaint against petitioners for four (4) counts of violation of Batas
PETITIONERS, v. KAZUHIRO SUGIYAMA AND PEOPLE OF THE Pambansa Bilang (B.P.) 22.
PHILIPPINES, RESPONDENTS.
Save for the check numbers, check dates and amounts, the accusatory
DECISION portions ofthe four (4) separate Informations docketed as Criminal Case No.
318339,7 318340,8 3183419 and 318342,10 similarly read as
follows:cralawred
PERALTA, J.:

Petitioners Socorro F. Ongkingco and Marie Paz B. Ongkingco filed a petition That on or about the 10th day of December 2001 or prior thereto, in the City
for review on certiorari, assailing the Decision1 of the Court of Appeals (CA), of Makati Philippines and within the jurisdiction of this Honorable Court, the
above-named accused, being then the officers and authorized signatories of
dated October 24, 2014 in CA-G.R. CR No. 35356, which affirmed in toto the
New Rhia Car Services, [Inc.] did then and there willfully, unlawfully and
Order2 of the Regional Trial Court (RTC). The RTC affirmed in toto the
feloniously make out, draw and issue to Kasuhiro Sugiyama, to apply on
Decision3 of the Metropolitan Trial Court (MeTC) which found petitioners
account or for value the check described below:cralawred
guilty of four (4) counts of violation of Batas Pambansa Bilang 22 in Criminal
Cases Nos. 318339 to 318342. The MeTC ordered petitioners to pay a fine
of P100,000.00 each for Criminal Case Nos. 318339 to 318341, and Check No. : 0000122834
P200,000.00 for Criminal Case No. 318342, and to jointly and severally pay Drawn Against: Allied Bank
complainant Kazuhiro Sugiyama the face amount of the 4 dishonored checks In the Amount of: [P]90,675.00
in the total amount of P797,025.00, with interest at 12% per annum from the Dated/Postdated: December 10, 2001
filing of the complaint on April 11, 2002 until the amount is fully paid, and cost Payable to: Kasuhiro Sugiyama
of suits.
[S]aid accused well knowing that at the time of the issue thereof, said
The facts are as follows:cralawred account did not have sufficient funds in or credit with the drawee bank for the
payment in full of the face amount of such check upon its presentment, which
On April 6, 2001, respondent Kasuhiro4 Sugiyama entered into a "Contract check when presented for payment within ninety (90) days from the date
thereof was subsequently dishonored by the drawee bank for the reason
Agreement"5 with New Rhia Car Services, Inc. where petitioner Socorro is
''Draw Against Insufficient Funds" and despite receipt of notice of such
the President and Chairperson of the Board of Directors, and petitioner Maria
dishonor, the accused failed to pay the payee the amount of the said check
Paz B. Ongkingco is a Board Director. Under the Agreement, Sugiyama
or to make arrangement for full payment thereof within five (5) banking days
would receive a monthly dividend of P90,675.00 for five years in exchange
for his investment of P2,200,000.00 in New Rhia Car Services, Inc. To cover after receiving notice.
Sugiyama's monthly dividends, petitioners issued six (6) checks. The first
three (3) checks, dated September 10, 2011, October 10, 2001 and CONTRARY TO LAW.
November 10, 2001, were good checks, but the remaining 3 checks bounced Makati, 7 August 2002.
for having been draw against insufficient funds.
[Signed]
In a Memorandum of Agreement6 dated October 2001, Socorro, President EDGARDO G. HIRANO
and General Manager of New Rhia Car Service, Inc., obtained a loan from Prosecutor II
Sugiyama, a Director of the same company, amounting to P500,000.00 with
a five percent (5%) interest for a period of one (1) month. As a guarantee and
payment for the said obligation, Socorro issued an Allied Bank Check with I hereby certify that a preliminary investigation has been conducted in this
No. 0000127109 dated November 30, 2001, amounting to P525,000.00. case; that there is reasonable ground to believe that a crime has been
When the check was presented for payment, it was dishonored for having committed and that the accused are probably guilty thereof; that the accused
been drawn against insufficient funds, just like the 3 other checks initially were given a chance to be informed of the complaint and of the evidence
submitted against them; that they were given an opportunity to submit insufficiency of funds or credit. The MeTC found that the subject 4 checks
controverting evidence; and that this Information is filed with the approval of were issued by the accused Socorro and Marie Paz as guarantee payment
the 1st Assistant City Prosecutor having been first obtained. for the principal loan of P525,000.00 and its interest obtained from
Sugiyama. The MeTC noted that the accused admitted the issuance of the
said checks to Sugiyama in consideration of the loan to New Rhia Car
[Signed] Services, Inc.; thus, the subject checks were issued on account or for value.
EDGARDO G. HIRANO The MeTC added that when the 4 checks were presented for payment on
Prosecutor II their respective due dates, they were dishonored by the drawee bank for the
reason "Drawn Against Insufficient Funds (DAIF)" as shown on the dorsal
portion of the said checks.
Both petitioners pleaded not guilty to the four (4) charges. On February 4,
2003, Socorro and Sugiyama executed an "Addendum to Contract
As regards the second element which requires that the prosecution must
Agreement,"11 agreeing on a new schedule of payment with interests, but the
prove the knowledge of the maker, drawer or issuer that at the time of the
obligation remain unpaid.
issue, he or she does not have sufficient funds in, or credit with, the drawee
bank for the payment of such check in full upon presentment, the MeTC
On May 20, 2011, the MeTC rendered a Decision12 finding petitioners guilty held:cralawred
of four (4) counts of violation of B.P. 22, the dispositive portion of which
reads:cralawred
Prosecution, in the case at bar, had presented witness [Marilou) La Serna [a
staff of Sugiyama's private counsel/private prosecutor] who testified that the
WHEREFORE, in view of the foregoing, the prosecution having proven the demand letter dated March 5, 2002 demanding for the payment of the
guilt of the accused beyond reasonable doubt, the Court renders judgment dishonored checks was received by the secretary of accused Socorro as
finding accused Socorro F. Ongkingco and Marie Paz B. Ongkingco GUILTY shown by the handwritten signature on the face of the said letter. Said letter
of the offense of Violation of B.P. 22 on four (4) counts and hereby sentences was personally delivered to the office of accused Socorro at Amorsolo
them to pay the respective FINE of:cralawred Mansion, Adelantado Street, Legaspi Village, Makati City. While witness La
Serna did not met (sic) personally Socorro at the office, the secretary
1. P100.000.00 for Criminal Case No. 318339; acknowledged the receipt of the latter upon asking permission from accused
2. P100.000.00 for Criminal Case No. 318340; Socorro who was inside the room (TSN dated March 09, 2010, page 7).
3. P100.000.00 for Criminal Case No. 318341; and Accused Marie Paz, on the other hand, failed to refute the same absent any
4. P200.000.00 for Criminal Case No. 318342 controverting evidence on her part. Prosecution, thus, was able to prove the
receipt of the demand letter/notice of dishonor. Despite receipt of the same,
with subsidiary imprisonment in case of insolvency. both accused failed to pay the face amount of the dishonored checks or to
make arrangement for the full settlement of the same.14
Further, both accused are jointly and severally ORDERED to PAY
complainant Kazuhiro Sugiyama the respective face amount of the four (4) chanRoblesvirtualLaw1ibrary
dishonored checks under Criminal Case Nos. 318339 to 318341 or a total
amount ofP797,025.00 with interest of 12.0% per annum from the filing of the The MeTC further ruled that the prosecution was able to prove by
complaint on April 11, 2002 until the amount is fully paid and cost of suits. preponderance of evidence the civil liability of both Socorro and Marie Paz,
thus:cralawred
SO ORDERED.13
x x x Accused Socorro did not deny the issuance of the subject checks in
chanRoblesvirtualLaw1ibrary which she is one of the signatories in favor of the complainant
Sugiyama. (TSN dated September 06, 2010, page 16). Accused Marie, for
The MeTC ruled that the first and third elements of violation of B.P. 22 are her part, failed to controvert the same. This was supported by the subject
present, namely: the making, drawing and issuance of any check to apply on checks together with the Contract of Agreement marked as (Exhibit "B to B-
account or for value, and the subsequent dishonor by the drawee bank for 1") and Addendum to Contract Agreement marked as (Exhibit "C to C-4").
However, upon presentment with the drawee bank for payment on their because, generally, only natural persons may commit a crime, and a criminal
respective due dates, it was dishonored for the reason "DAIF." Despite case can only be filed against the officers of a corporation and not against
verbal demands by complainant Sugiyama and receipt of the written demand the corporation itself, which can only act through its officers.
letter made by its counsel, accused still failed to pay or make arrangement
for the full settlement of the face value of the dishonored checks. Both The CA also ruled that the prosecution was able to adduce evidence that
accused should be held civilly answerable for the face amount of the subject petitioners issued the subject dishonored checks. The CA pointed out that all
four (4) dishonored checks under Criminal Case Nos. 318339 to 318342 petitioner Marie had to offer by way of defense was her mere denial that she
covering a total amount of P797,025.00.15 was not a signatory thereto, and that she neither testified nor participated in
the trial. The CA added that she could not invoke her lack of involvement in
chanRoblesvirtualLaw1ibrary the negotiation for the transaction as a defense, as B.P. 22 punishes the
mere issuance of a bouncing check, and not the purpose for which the check
Aggrieved, petitioners appealed to the RTC, which affirmed in toto the was issued or in consideration of the terms and conditions relating to its
judgment of the MeTC in an Order16 dated June 28, 2012. issuance.

Dissatisfied, petitioners filed a petition for review before the Court of Appeals. With the CA's denial of their motion for reconsideration, petitioners filed a
petition for review on certiorari, raising the following grounds: (1) the
On October 24, 2014, the CA rendered a Decision denying the petition for prosecution failed to prove beyond reasonable doubt that Socorro received
review, the fallo of which states:cralawred the notice of dishonor; (2) the prosecution failed to prove that Maria Paz is a
signatory to the checks involved in the case; and (3) the "Addendum to
Contract Agreement" executed by the parties obliterated the obligation
WHEREFORE, the Petition is hereby DENIED. The Order dated 28 June arising from the dishonored checks. Petitioners also raise for the first time
2012 of the Regional Trial Court of Makati City, Branch 59, in Criminal Case that the four (4) Informations filed before the MeTC, Makati City, do not bear
Nos. 11-2287 & 11-2290 is AFFIRMED. the approval of the city prosecutor.

SO ORDERED.17 The petition is partly meritorious.

chanRoblesvirtualLaw1ibrary The dissent seeks to grant the petition, reverse and set aside the Decision of
the CA, and acquit petitioners on the grounds (1) that the Informations are
The CA ruled that petitioners' stance that they cannot be made liable for the defective for having been filed without prior approval of the city prosecutor;
value of the dishonored checks as the same were issued without any and (2) that receipt of the notice of dishonor was not proven. The dissent
consideration begs the question. As aptly held by the MeTC and affirmed by adds that this is without prejudice to the right of private complainant
the RTC, the subject checks were issued to guarantee the payment or return Sugiyama to pursue an independent civil action against New Rhia Car
of the money which Sugiyama gave to petitioners as loan and the Services, Inc. for the amount of the dishonored checks.
corresponding interest. The CA added that jurisprudence abounds that upon
issuance of a check, in the absence of evidence to the contrary, it is The dissent found that there is no proof in the records that Prosecutor II
presumed that the same was issued for a valuable consideration which may Edgardo G. Hirang filed the Informations with prior authority from the 1st
consist either in some right, interest, profit or benefit accruing to the party Assistant City Prosecutor. Assuming that Prosecutor II Hirang was indeed
who makes the contract, or some forbearance, detriment, loss or some authorized to do so, the Informations would still be defective because an
responsibility, to act, or labor, or service given, suffered or undertaken by the Assistant City Prosecutor is not one of the authorized officers enumerated in
other side. Section 4, Rule 112 of the Revised Rules of Criminal Procedure, which
reads:cralawred
In rejecting petitioners' theory that they could not be held criminally liable as
they merely drew and signed the corporate check as officers of the No complaint or information may be filed or dismissed by an investigating
corporation, the CA pointed out that under paragraph 2, Section 1 of B.P. 22, prosecutor without the prior written authority or approval of the provincial or
where the check is drawn by a corporation, company or entity, the person/s
who actually signed the check in behalf of such drawer shall be liable. This is
city prosecutor or chief state prosecutor or the Ombudsman or his approval of the Information by the provincial or city prosecutor, the
deputy.18 Information filed before the trial court was filed by an officer without authority
to file the same. As the infirmity in the Information constitutes a jurisdictional
chanRoblesvirtualLaw1ibrary defect that cannot be cured, the judge did not err in dismissing the case for
lack of jurisdiction.
In support of his view, the dissent cites the following cases:cralawred
In Cudia, the City Prosecutor of Angeles City filed a motion to
dismiss/withdraw the Information, stating that through inadvertence and
1. People v. Judge Garfin,19where the Court held that where the
oversight, the Investigating Panel was misled into hastily filing the
Information was filed by an unauthorized officer, the infirmity therein
Information, despite the fact that the accused was apprehended for illegal
constitutes a jurisdictional defect that cannot be cured;
possession of unlicensed firearm and ammunition within the jurisdiction of
the Provincial Prosecutor of Pampanga. Despite the opposition of the
2. Cudia v. CA,20 where the Court ruled that: (a) when the law requires
accused, the trial court granted the motion to dismiss. The Court invalidated
an Information to be filed by a specified public officer, the same
the Information filed by the city prosecutor because he had no territorial
cannot be filed by another; if not, the court does not acquire
jurisdiction over the place where the said offense was committed, which is
jurisdiction over the accused and over the subject matter; and (b) the
within the jurisdiction of the Provincial Prosecutor. The Court held that an
defense of lack of jurisdiction may be raised at any stage of the
Information, when required by law to be filed by a public prosecuting officer,
proceeding; and
cannot be filed by another, otherwise, the court does not acquire jurisdiction.
The Court also stressed that questions relating to lack of jurisdiction may be
3. Maximo, et al. v. Villapando, Jr.,21 where the Court ruled that mere
raised at any stage of the proceeding, and that an infirmity in the Information,
certification in the Information that it was filed with approval of the
such as lack of authority of the officer signing it, cannot be cured by silence,
city prosecutor is not enough; there must be a demonstration that
acquiescence or even by express consent.
prior written delegation or authority was indeed given by the city
prosecutor to the assistant prosecutor to approve the filing of the
Information. In Maximo, an Information for perjury was filed against the accused before
the MeTC of Makati City. A motion to quash Information was filed, alleging
that the person who filed the Information had no authority to do so, because
The Court holds that the foregoing cases are not applicable. For one, as
the Resolution finding probable cause did not bear the approval of the city
aptly pointed out by the Office of the Solicitor General, petitioners are barred
prosecutor. It was contended that the Information bears a certification that
by estoppel by laches for their unjustified delay in raising the issue of lack of
the filing of the same had the prior authority or approval of the city
prior written authority or approval to file the Informations. For another, the
prosecutor, and that there is a presumption of regularity that prior written
supposed lack of written authority or approval to file the Informations is a
authority or approval was obtained in the filing of the Information, despite the
waivable ground for a motion to quash information.
non presentation of the Office Order, which was the alleged basis of the
authority. Stressing that there must be a demonstration that prior written
In Garfin, the Information for violation of the provisions of Republic Act No. delegation or authority was given by the city prosecutor to the assistant city
8282, or the "Social Security Law," was filed by a State Prosecutor with prior prosecutor to approve the filing of the Information, the Court affirmed the
authority and approval of the Regional State Prosecutor. The Court ruled, findings of the CA that: (1) the copy of the Office Order, allegedly authorizing
however, that nowhere in Presidential Decree (P.D.) No. 127522 is the the assistant city prosecutor to sign in behalf of the city prosecutor, was not
regional state prosecutor granted the power to appoint a special prosecutor found in the record; (2) said Office Order is not a matter of judicial notice, and
armed with the authority to file an Information without prior written authority a copy thereof must be presented in order for the court to have knowledge of
or approval of the city or provincial prosecutor or chief state prosecutor. No its contents; and (3) in the absence thereof, there was no valid delegation of
directive was issued by the Secretary of Justice to the Regional State authority by the city prosecutor to its assistant city prosecutor.
Prosecutor to investigate and/or prosecute Social Security System (SSS)
cases filed within his territorial jurisdiction, pursuant to Section 15 of P.D. No.
In Garfin and Maximo, a motion to dismiss and motion to quash, respectively,
1275 which governs the appointment of special prosecutors. The Court held
were filed by the accused on the ground that the Information was filed
that, in the absence of a directive from the Secretary of Justice designating
without prior written authority or approval of the city prosecutor. Meanwhile,
the State Prosecutor as Special Prosecutor for SSS cases or a prior written
in Cudia, a motion to dismiss or withdraw Information was also filed by the waivable grounds for a motion to quash the information are: (1) the facts
city prosecutor himself for lack of territorial jurisdiction over the offense. charged do not constitute an offense; (2) the criminal action or liability has
been extinguished; and (3) the accused has been previously convicted or
In stark contrast to Garfin, Cudia and Maximo, petitioners failed to raise the acquitted of the offense charged, or the case against him was dismissed or
lack of written authority or approval of the city prosecutor before the MeTC, otherwise terminated without his express consent.
the RTC, and the CA without any justifiable reason. No motion to dismiss or
motion to quash was filed by petitioners. From the filing of the Informations in To recall, the Information in Garfin was sought to be dismissed, as it was
2002, petitioners were silent on why they raised the said issue for the first filed by a special prosecutor with the prior authority and approval of the
time before the Court in 2015 via a petition for review on certiorari. regional state prosecutor, who was not authorized by the Secretary of Justice
to act as special counsel in SSS cases. On the other hand, the Information
Defined as the failure or neglect for an unreasonable and unexplained length in Cudia was sought to be dismissed or withdrawn, as it was inadvertently
of time to do that which, by exercising due diligence, could or should have filed by the city prosecutor who had no territorial jurisdiction over the place
been done earlier, laches is negligence or omission to assert a right within a where the offense of illegal possession of firearm was committed. In contrast
reasonable length of time, warranting a presumption that the party entitled to to Garfin and Cudia where the officers had no authority under the law to file
assert it either has abandoned it or declined to assert it.23Laches can be the Information, the Information for perjury in Maximo was filed by the
imputed against petitioners, because a considerable length of time had assistant city prosecutor with a certification that it was done so with prior
elapsed before they raised the said procedural issue, and reasonable authority or approval of the city prosecutor, but the written authority or
diligence should have prompted them to file a motion to dismiss or to quash delegation given by the city prosecutor to the former, to approve the filing of
the Information before the trial court. For the first time after almost 13 years the information, was not found on record, as pointed out in a motion to
after the filing of the Informations against them, petitioners are now before quash.
the Court decrying that the prosecutor who filed the Informations against
them had no authority to do so. As held in Villa v. Ibañez,26 jurisdiction over the subject matter is conferred by
law, while jurisdiction over the case is invested by the act of the plaintiff and
It is also not amiss to state that had petitioners questioned the authority of attaches upon the filing of the complaint or information. Hence, while a court
Prosecutor II Hirang before the trial court, the defect in the Informations could may have jurisdiction over the subject matter, like a violation of the Social
have been cured before the arraignment of the accused by a simple motion Security Law, it does not acquire jurisdiction over the case itself until its
of the prosecution to amend the Information; the amendment at this stage of jurisdiction is invoked with the filing of the Information.
the proceedings being a matter of right on the part of the prosecution, or for
the court to direct the amendment thereof to show the signature or approval Accordingly, in instances where the information is filed by an authorized
of the city prosecutor in filing the Information.24 Moreover, Section 4, Rule officer, like a public prosecutor, without the approval of the city prosecutor
117 of the Revised Rules of Criminal Procedure mandates that if the motion appearing in the information, but the resolution for filing of the information
to quash is based on the alleged defect of the complaint or Information which bears the approval of the city prosecutor, or his or her duly authorized
can be cured by an amendment, the court shall order that an amendment be deputy, and such lack of approval is timely objected to before arraignment,
made. Either of these two could have been done to address the issue of lack the court may require the public prosecutor to have the signature of the city
of written authority or approval of the officer who filed the Information. prosecutor affixed in the information to avoid undue delay. However, if the
objection is raised after arraignment, at any stage of the proceeding or even
It is significant to note that under the substantive law,25 a public prosecutor on appeal, the same should no longer be a ground to declare the information
has the authority to file an Information, but before he or she can do so, a as invalid, because it is no longer a question of jurisdiction over the case.
prior written authority or approval of the provincial or city prosecutor or chief After all, the resolution of the investigating prosecutor attached to the
state prosecutor or the Ombudsman, or his or her deputy, is required by a information carries with it the recommendation to file the information and the
procedural rule, i.e., Section 4, Rule 112 of the Revised Rules of Criminal approval to file the information by the prosecutor, or his or her duly
Procedure. It also bears emphasis that under Section 9, Rule 117 of the authorized deputy.
same Rule, the ground that the officer who filed the information had no
authority to do so, which prevents the court from acquiring jurisdiction over If the information is filed by the public prosecutor without the city prosecutor's
the case — referred to in Garfin and Cudia — pertains to lack of jurisdiction or his or her deputy's approval both in the information and, the resolution for
over the offense, which is a non-waivable ground. The three other non- the filing thereof, then the court should require the public prosecutor to seek
the approval of the city prosecutor before arraignment; otherwise, the case
may be dismissed on the ground of lack of authority to file the information
under Section 3(d), Rule 117. This ground may be raised at any stage of the
APPROVED:
proceedings, which may cause the dismissal of the case.
FOR THE CITY
If, however, the information is filed by an unauthorized official—not a public
PROSECUTOR
prosecutor, like a private complainant, or even public officers who are not
authorized by law or rule to file the information—then the information is
invalid from the very beginning, and the court should motu proprio dismiss
the case even without any motion to dismiss, because such kind of [Signed]
information cannot confer upon the court jurisdiction over the case. JAIME A. ADOC
1st Assistant
In this particular case, there is proof in the records that Prosecutor II Hirang City
filed the Informations with prior authority from the 1st Assistant City Prosecutor27
Prosecutor. The records—which include those of the preliminary
investigation accompanying the informations filed before the court, as
required under Rule 112—dearly show that 1st Assistant City Prosecutor Contrary to the dissent that the prior approval came from the 1st Assistant
(ACP) Jaime A. Adoc, signing in behalf of the City Prosecutor, approved the Prosecutor, who had no authority to file an Information on his own, the afore-
filing of four (4) counts of violation of B.P. 22, after it was recommended for quoted dispositive clearly indicates that ACP Adoc approved the filing of the
approval by the Investigating Prosecutor. case "FOR THE CITY PROSECUTOR" and not on his own. It would be too
late at this stage to task the prosecution, and it would amount to denial of
The dispositive portion of the Resolution dated August 7, 2002 of the City due process, to presume that ACP Adoc had no authority to approve the
Prosecution Office of Makati City says it all:cralawred filing of the subject Informations. Had petitioners questioned ACP Adoc's
authority or lack of approval by the city prosecutor before the MeTC, and not
WHEREFORE, premises considered, it is respectfully recommended that just for the first time before the Court, the prosecution could have easily
respondents be indicted with four (4) counts of violation of Batas presented such authority to approve the filing of the Information.
Pambansa Bilang 22 and that the attached Information for that purpose
be approved for filing in court. At any rate, the CA committed reversible error in affirming the conviction of
petitioner Marie Paz of violation of four (4) counts of B.P. 22, because the
Bail Recommended: P7,000.00 for each check for each accused. prosecution failed to prove that she received a notice of dishonor. As a rule,
only questions of law may be raised in a petition for review
on certiorari under Rule 45 of the Rules of Court. As an exception, questions
Makati City, August 7, 2002. of fact may be raised if any of the following is present: (1) When there is
grave abuse of discretion; (2) when the findings are grounded on
speculations; (3) when the inference made is manifestly mistaken; (4) when
[Signed]
the judgment of the Court of Appeals is based on misapprehension of facts;
EDGARDO G. HIRANO
(5) when the factual findings are conflicting; (6) when the Court of Appeals
Prosecutor II
went beyond the issues of the case and its findings are contrary to the
admission of the parties; (7) when the Court of Appeals overlooked
RECOMMENDING APPROVAL:cralawred undisputed facts which, if properly considered, would justify a different
conclusion; (8) when the findings of the Court of Appeals are contrary to
those of the trial court; (9) when the facts set forth by the petitioner are not
[Signed] disputed by the respondent; and (10) when the findings of the Court of
Review Appeals are premised on the absence of evidence and are contradicted
Prosecutor by the evidence on record.28 Here, the seventh and tenth exceptions are
present.
To sustain a conviction of violation of B.P. 22, the prosecution must prove qualifying proviso deliberately to make the enforcement of the act more
beyond reasonable doubt three (3) essential elements, namely:cralawred effective. It is, therefore, clear that the real intention of the framers of B.P. 22
is to make the mere act of issuing a worthless check malum prohibitum and,
1. The accused makes, draws or issues any check to apply to account thus, punishable under such law.32
or for value;
Inasmuch as the second element involves a state of mind of the person
2. The accused knows at the time of the issuance that he or she does making, drawing or issuing the check which is difficult to prove, Section 2 of
not have sufficient funds in, or credit with, drawee bank for payment B.P. 22 creates a prima facie presumption of such knowledge,
of the check in full upon its presentment; and thus:cralawred

3. The check is subsequently dishonored by the drawee bank for SEC. 2. Evidence of knowledge of insufficient funds. — The making, drawing
insufficiency of funds or credit; or it would have been dishonored for and issuance of a check payment of which is refused by the drawee because
the same reason had not the drawer, without any valid reasons, of insufficient funds in or credit with such bank, when presented within ninety
ordered the bank to stop payment. (90) days from the date of the check, shall be prima facie evidence of
knowledge of such insufficiency of funds or credit unless such maker or
The presence of the first and third elements is undisputed. However, while drawer pays the holder thereof the amount due thereon, or makes
the prosecution established the second element, i.e., receipt of the notice of arrangements for payment in full by the drawee of such check within five (5)
dishonor, with respect to petitioner Socorro, it failed to do so in the case of banking days after receiving notice that such check has not been paid by the
petitioner Marie Paz. drawee.

The prosecution identified and formally offered in evidence, and petitioners For this presumption to arise, the prosecution must prove the following: (a)
admitted29 to have issued the four (4) subject Allied Bank checks as guaranty the check is presented within ninety (90) days from the date of the check; (b)
checks, to wit: Check No. 0000122834 dated December 10, 2011 in the the drawer or maker of the check receives notice that such check has not
amount of P90,675.00 as Exhibits "D" to "D-2"; Check No. 0000122835 been paid by the drawee; and (c) the drawer or maker of the check fails to
dated January 10, 2002 in the amount of P90,675.00 as Exhibits "E" to "E-2"; pay the holder of the check the amount due thereon, or make arrangements
Check No. 0000122836 dated February 10, 2002 in the amount of for payment in full within five (5) banking days after receiving notice that such
P90,675.00 as Exhibits "F" to "F-2"; and Check No 0000127109 dated check has not been paid by the drawee.33 In other words, the presumption is
November 30, 2001 in the amount of P525,000.00 as Exhibits "H" to "H-2." brought into existence only after it is proved that the issuer had received a
When presented for payment, all said checks were dishonored for having notice of dishonor and that within five (5) days from receipt thereof, he failed
been drawn against insufficient funds. The MeTC admitted m evidence the to pay the amount of the check or to make arrangements for its
prosecution's said Exhibits with their sub-markings.30 payment.34 The presumption or prima facie evidence, as provided in this
Section, cannot arise if such notice of nonpayment by the drawee bank is not
It is of no moment that the subject checks were issued as a guarantee and sent to the maker or drawer, or if there is no proof as to when such notice
upon the insistence of private complainant Sugiyama. What is significant is was received by the drawer, since there would simply be no way of reckoning
that the accused had deliberately issued the checks in question to cover the crucial 5-day period.35
accounts and those same checks were dishonored upon presentment,
regardless of the purpose for such issuance.31 The legislative intent behind The prosecution was able to establish beyond reasonable doubt the
the enactment of B.P. 22, as may be gathered from the statement of the bill's presence of the second element with respect to petitioner Socorro, who
sponsor when then Cabinet Bill No. 9 was introduced before the Batasan received the notice of dishonor through her secretary. Prosecution witness
Pambansa, is to discourage the issuance of bouncing checks, to prevent Marilou La Serna, a legal staff of Sugiyama's private counsel, testified that
checks from becoming "useless scraps of paper" and to restore respectability the letter dated March 5, 2002 demanding payment of the dishonored checks
to checks, all without distinction as to the purpose of the issuance of the was received by the secretary of petitioner Socorro, as shown by the
checks. Said legislative intent is made all the more certain when it is handwritten signature on the face of the said letter.36 La Serna clarified on
considered that while the original text of the bill had contained a proviso direct examination that (1) it was petitioner Socorro's secretary who
excluding from the law's coverage a check issued as a mere guarantee, the acknowledged receipt of the said demand letter with the permission of
final version of the bill as approved and enacted deleted the aforementioned Socorro, who was in another room of her office; and (2) that there were
several calls in the office of Socorro, as well as a time when she went to the Q: Now Ms. Witness, other than the statement of the secretary of Ms.
law office of Sugiyama's counsel, to inform that she acknowledged receipt of Ongkingco, how else did you know that Ms. Socorro Ongkingco
that demand letter:cralawred actually received the demand letter?
A: There were a (sic) several calls in the office of Ms. Socorro
[Private prosecutor Atty. Abrenica] Ongkingco and there was also a time when she went to the office to
Q. How did you come to know the accused Socorro F. Ongkingco, Ms. informed (sic) that she acknowledged receipt of that demand letter.
Witness?
A. When I served a copy of the demand letter sometime in March 2002, a Q: Where was that office where Ms. Socorro Ongkingco went?
certain secretary who received my letter and informed me that I have to wait A: Colonade Building along C. Palanca Street.
for a while because she will go to the room of Ms. Socorro Ongkingco.
Q: Whose office is this?
Q. You mentioned earlier that you served a demand letter to Ms. Socorro A: That is the law office of Atty. Abrenica.
Ongkingco, I'm showing to you a demand letter previously marked as Exhibit
"J", what is the relationship of this letter to the demand letter that you Q: Did Ms. Socorro Ongkingco actually go to that office?
mentioned? A: Yes, Ma'am.
A: This is the demand letter I served to Ms. Socorro Ongkingco.
Q: How did you know that she was there at the law office?
Q: Now Ms. Witness, do you remember where is the office of this Ms. A: She was there because I met her for the first time [in] the law office to see
Socorro Ongkingco? our client Mr. Kasuhiro Sugiyama but unfortunately, during that time Mr.
A: The office of Ms. Socorro Ongkingco was just a few meters away from our Kasuhiro Sugiyama is out of the country, she was not able to meet Mr.
formerly (sic) office and it was located in Amorsolo Mansion along Kasuhiro Sugiyama and she met Atty. Percy Abrenica and I was the one who
Adelentado Street. assist (sic) her.

Q: Where is this Adelentado Street? x x x.37

A: It's just a few meters away from our formerly (sic) office in Palanca Street.
chanRoblesvirtualLaw1ibrary
Q: Now Ms. Witness, you mentioned that you personally served a copy
of the demand letter to the accused, can you go over this demand letter
On cross-examination and re-direct examination, La Serna confirmed that the
and show to the Honorable Court the proof of the receipt of this
demand letter was acknowledged receipt by the secretary with the
demand letter?
permission of Socorro herself:cralawred
A: It was signed by her secretary.
CROSS EXAMINATION BY THE
ATTY. ABRENICA:
DEFENSE COUNSEL ATTY. ACHAS
Your Honor, can I request for sub-markings, this signature, date and the
name of the office staff of Ms. Socorro Ongkingco who received the demand
letter as Exhibit "J-1", your Honor. xxxx

Q: Now, Ms. Witness, do you know if Ms. Socorro Ongkingco was able Q: Is this the demand letter Exhibit "J" served by you to Ms. Ongkingco?
to read this demand letter? A: Yes, Sir.
A: Yes, Ma'am because when I first served the demand letter, the
secretary who received that demand letter informed me that she will go Q: Where is the signature of Ms. Socorro Ongkingco?
to the room of Ms. Ongkingco and after a few minutes, she came back A: Actually Sir, this is the signature of the secretary.
and Ms. Socorro Ongkingco replied that the secretary has to signed
(sic) the receipt of the demand letter. Q: It was acknowledged only by the secretary?
A: Yes, Sir.
Q: Not personally by Mrs. Ongkingco? Socorro could have easily presented, but failed to proffer the testimony of her
A: Yes, Sir. secretary to dispute the testimony of La Serna. Socorro neither denied that
she permitted her secretary to receive the demand letter, nor explained why
Q: Actually, during that time when you go to the office of Ms. Ongkingco, the her secretary acknowledged receipt of the said letter while she was in the
service letter, she did not acknowledge the receipt of this letter? other room of her office. Socorro also failed to dispute La Serna's claim that
A: She was not the one who acknowledged the letter. there were several calls in the office of Socorro, as well as a time when she
went to the law office of Sugiyama's counsel, to inform that she
COURT: acknowledged receipt of that demand letter. Socorro did not, likewise,
Q: Question from the Court, you have not met personally the accused ascribe ill-motive on the part of La Serna to testify falsely against her.
at the time when you personally served the demand letter?
A: I have not met Your Honor, but then I was informed by the secretary In Chua v. People,40 the Court found that the element of knowledge of
that she's going to leave me for a while to go to the room of Ms. insufficiency of funds was not established, for failure to prove the petitioner's
Ongkingco if she's going to sign the demand letter. 38 receipt of a notice of dishonor. In that case, the private respondent testified
that the personal secretary of the petitioner received the demand letter, but
said secretary was never presented to testify whether she in fact handed the
xxxx
demand letter to petitioner who, from the onset, denies having received such
letter. The Court noted that it is not enough for the prosecution to prove that
RE-DIRECT EXAMINATION a notice of dishonor was sent to the accused, and that the prosecution must
prove actual receipt of said notice, because the fact of service provided for in
Q: Ms. Witness, why was the secretary who was (sic) the one who received the law is reckoned from the receipt of such notice of dishonor by the
and signed the receipt of this demand letter? accused. The factual circumstances in Chua differ from this case, because
petitioner Socorro was shown to have permitted her secretary to
A: It was the secretary who signed the receipt as per instruction of Ms. acknowledge receipt of the demand letter while she was in another room of
Socorro Ongkingco although I haven't met her when I served the her office. Socorro also failed to dispute La Serna's claim that she went to
demand but the secretary told me that she will just leave me for a while the law office of Sugiyama's counsel to inform that she acknowledged receipt
to ask the permission of Ms. Socorro Ongkingco.39 of that demand letter.

chanRoblesvirtualLaw1ibrary Meanwhile, Marie Paz cannot be faulted for failing to refute with evidence the
allegation against her, because Sugiyama and La Serna hardly testified as to
The testimony of La Serna shows that it was the secretary of petitioner the service of a notice of dishonor upon her. La Serna never mentioned that
Socorro who acknowledged receipt of the demand letter dated March 5, Marie Paz was, likewise, served with a notice of dishonor. There is also no
2002, with the permission of Socorro, who was just in another room of her proof that Socorro's secretary was duly authorized to receive the demand
office. Suffice it to state that when the secretary of Socorro left for a while, letter on behalf of Marie Paz.
came back shortly, and acknowledged receipt of the same demand letter, the
requisite receipt of the notice of dishonor was satisfied. When service of notice is an issue, the person alleging that notice was
served must prove the fact of service, and the burden of proving notice rests
Against the affirmative testimony of La Serna, Socorro merely denied upon the party asserting its existence.41 Failure of the prosecution to prove
knowledge and receipt of the demand letter dated March 5, 2002. It is well that the person who issued the check was given the requisite notice of
settled that the defense of denial is inherently weak and unreliable by virtue dishonor is a clear ground for acquittal. It bears emphasis that the giving of
of its being an excuse too easy and too convenient for the guilty to make. the written notice of dishonor does not only supply proof for the element
Denial should be substantiated by clear and convincing evidence, and the arising from the presumption of knowledge the law puts up, but also affords
accused cannot solely rely on her negative and self-serving negations, for the offender due process.42 The law thereby allows the offender to avoid
such defense carries no weight in law and has no greater evidentiary value prosecution if she pays the holder of the check the amount due thereon, or
than the testimony of credible witnesses who testify on affirmative matters. makes arrangements for the payment in full of the check by the drawee
within five banking days from receipt of the written notice that the check had
not been paid.43 Thus, the absence of a notice of dishonor is a deprivation of Check No. 0000122836 dated February 10, 2002 in the amount of
petitioner's statutory right.44 P90,675.00.

After reviewing the records and applying the foregoing principles to this case, In the Memorandum of Agreement53 dated October 2001, Socorro, President
the Court rules that the prosecution has proven beyond reasonable doubt and General Manager of New Rhia Car Services, Inc., obtained from
that petitioner Socorro received a notice of dishonor of the four (4) subject Sugiyama, a Director of New Rhia Car Services, Inc., a loan amounting to
checks, but failed to do so in the case of petitioner Marie Paz. Perforce, Five Hundred Thousand Pesos (P500,000.00), with five percent (5%) interest
petitioner Socorro should be convicted of the four (4) charges for violation of rate for one (1) month. As guarantee and payment for the said obligation,
B.P. 22, but petitioner Marie Paz should be acquitted of the said charges. Socorro issued Allied Bank Check No. 0000127109 dated November 30,
2001, amounting to P525,000.00.
As a general rule, when a corporate officer issues a worthless check in the
corporate's name, he or she may be held personally liable for violating a In the Addendum to Contract Agreement54 dated February 4, 2003, Socorro
penal statute,45i.e., Section 1 of B.P. 22.46 However, a corporate officer who admitted having incurred serious delay in the payment of the agreed monthly
issues a bouncing corporate check can only be held civilly liable when he or director's dividend stated in the Contract of Agreement dated April 6, 2001,
she is convicted.47 Conversely, once acquitted of the offense of violating B.P. and agreed to adopt a new payment schedule of the monthly director's
22, a corporate officer is discharged of any civil liability arising from the dividend, including penalty interest, as well as the P500,000.00 loan covered
issuance of the worthless check in the name of the corporation he or she by the Memorandum of Agreement dated October 2001.
represents.48 This is without regard as to whether his acquittal was based on
reasonable doubt or that there was a pronouncement by the trial court that Generally, the stockholders and officers are not personally liable for the
the act or omission from which the civil liability might arise did not exist. 49 obligations of the corporation except only when the veil of corporate fiction is
being used as a cloak or cover for fraud or illegality, or to work
Here, petitioner Socorro should be held civilly liable for the amounts covered injustice.55 Here, petitioner Socorro bound herself personally liable for the
by the dishonored checks, in light of her conviction of the four (4) charges for monthly director's dividends in the fixed amount of P90,675.00 for a period of
violation of B.P. 22 and because she made herself personally liable for the five (5) years and for the P500,000.00 loan, for which she issued the subject
fixed monthly director's dividends in the amount of P90,675.00 and the four (4) dishonored checks. She then admitted having incurred serious delay
P525,000.00 loan with interest, based on the Contract Agreement dated April in the payment of the said fixed monthly dividends and loan, and further
6, 2011, the Addendum to Contract Agreement dated February 4, 2003, and agreed to adopt a new payment schedule of payment therefor, but to no
the Memorandum of Agreement dated October 2001, which were all formally avail.
offered by the prosecution,50 and admitted in evidence by the trial court.51 To
be sure, petitioner Marie Paz was never shown to have been part of or privy Granted that Socorro is authorized to sign checks as corporate officer and
to any of the said agreements; thus, she cannot be held civilly liable for the authorized signatory of New Rhia Car Services, Inc., there is still no evidence
dishonored checks. on record that she was duly authorized, through a Board Resolution or
Secretary's Certificate, to guarantee a corporate director thereof [Sugiyama]
In the Contract of Agreement52 dated April 6, 2001, Socorro, President and fixed monthly dividends for 5 years, to enter into a loan, and to adopt a new
Chairman of the Board of New Rhia Car Services, Inc., undertook and bound schedule of payment with the same director, all in behalf of the corporation. It
herself as obligor, among other matters, to pay Sugiyama, as obligee, Ninety would be the height of injustice for the Court to allow Socorro to hide behind
Thousand Six Hundred Seventy-Five Pesos (P90,675.00) as monthly the separate and distinct corporate personality of New Rhia Car Services,
director's dividends for a period of five (5) years, in consideration of his Inc., just to evade the corporate obligation which she herself bound to
purchase of stock at New Rhia Car Services, Inc. amounting to Two Million personally undertake.
and Two Hundred Thousand Pesos (P2,200,000.00). To recall, the first three
(3) Allied Bank checks, dated September 10, 2011, October 10, 2001 and It is not amiss to stress that the power to declare dividends under Section 43
November 10, 2001, were good checks, but the remaining checks bounced of the Corporation Code of the Philippines lies in the hands of the board of
for having been draw against insufficient funds, i.e., Check No. 0000122834 directors of a stock corporation, and can be declared only out of its
dated December 10, 2011 in the amount of P90,675.00; Check No. unrestricted retained earnings. Assuming arguendo that Socorro was
0000122835 dated January 10, 2002 in the amount of P90,675.00; and authorized by the Board to fix the monthly dividends of Sugiyama as a
corporate director, it appears that she committed an ultra vires act because
dividends can be declared only out of unrestricted retained earnings of a
corporation, which earnings cannot obviously be fixed and pre-determined 5
years in advance.

In fine, since Socorro was convicted of four (4) charges of violation of B.P.
22, she must be held liable for the face value of the subject four (4)
dishonored checks which is P797,025.00, more so because she personally
bound herself liable for what appears to be unauthorized corporate
obligations. Moreover, the legal interest rate awarded by the MeTC, which
was affirmed by both the RTC and the CA, must be modified pursuant
to Nacar v. Gallery Frames,56 as follows: 12% per annum from the filing of
the complaint on April 11, 2002 until June 30, 2013, and 6% per annum from
July 1, 2013 until finality of this Decision, the legal interest rate is 6% per
annum; and (3) from finality of this Decision until fully paid, the legal interest
rate is 6% per annum.

As to the penalty, the Court finds no reason to disturb the fines (with
subsidiary imprisonment in case of insolvency) imposed by the MeTC57 and
affirmed by both the RTC and the CA, for being in accord with Section 1 of
B.P. 22, which provides for the penalty of "imprisonment of not less than
thirty (30) days but not more than one (1) year, or by a fine of not less than
but not more than double the amount of the check which fine shall in no case
exceed Two Hundred Thousand Pesos, or both such fine and imprisonment
at the discretion of the court."

WHEREFORE, the petition for review on certiorari is PARTLY GRANTED.

The Decision dated October 24, 2014 and the Resolution dated March 19,
2015 of the Court of Appeals in CA-G.R. CR No. 35356 are AFFIRMED with
MODIFICATION: the conviction of petitioner Socorro F. Ongkingco for four
(4) counts of violation of Batas Pambansa Bilang 22, is AFFIRMED and she
is ORDERED to PAY private complainant Kazuhiro Sugiyama the face value
of the four (4) dishonored checks in the amount of P797,025.00 with the
following legal interest rates: twelve percent (12%) per annum from the filing
of the complaint on April 11, 2002 until June 30, 2013, and six percent
(6%) per annum from July 1, 2013 until finality of this Decision; and from
finality of this Decision until fully paid, the legal interest rate is six percent
(6%) per annum, plus costs of suit. Petitioner Marie Paz B. Ongkingco
is ACQUITTED of the said charges for lack of proof that she received a
notice of dishonor.

SO ORDERED.
G.R. No. 220926 SIMEON CUA, VICENTE CUALOPING, HENRY CUALOPING, and
MANUEL ESTRELLA, Respondent.
LUIS JUAN L. VIRATA and UEMMARA PHILIPPINES CORPORATION
(now known as CAVITEXINFRASTRUCTURE RESOLUTION
CORPORATION), Petitioners
vs. VELASCO, JR, J.:
ALEJANDRO NG WEE, WESTMONT INVESTMENT CORP., ANTHONY T.
REYES, SIMEON CUA, VICENTE CUALOPING, HENRY CUALOPING,
Before this Court are the following recourses from Our July 5, 2017 Decision:
MARIZA SANTOSTAN, and MANUEL ESTRELLA, Respondents
a. Motion for Partial Reconsideration1 filed by Luis Juan L. Virata
x-----------------------x
(Virata);

G.R. No. 221058

b. Motion for Reconsideration2 of Mariza Santos-Tan (SantosTan );

WESTMONT INVESTMENT, CORPORATION, Petitioner,

c. Motion for Reconsideration3 of Manuel Estrella (Estrella);
vs.
ALEJANDRO NG WEE, Respondent.
d. Motion for Partial Reconsideration4 of Alejandro Ng Wee (Ng
Wee);
x-----------------------x
e. Motion for Reconsideration5 of Simeon Cua, Vicente Cualoping,
G.R. No. 221109 and Henry Cualoping (Cua and the Cualopings );

MANUEL ESTRELLA, Petitioner,

f. Motion for Reconsideration6 of Anthony T. Reyes (Reyes); and
vs.
ALEJANDRO NG WEE, Respondent.
g. Motion for Reconsideration7 of Westmont Investment Corporation
(Wincorp)
x-----------------------x
The Court notes that the grounds relied upon by the movants Virata, Estrella,
G.R. No. 221135 Ng Wee, Cua and the Cualopings, Reyes, and Wincorp are the same or
substantially similar to those raised in their respective petitions at bar. The
SIMEON CUA, VICENTE CUALOPING, and HENRY same have been amply discussed, thoroughly considered, exhaustively
CUALOPING, Petitioners, threshed out and resolved in Our July 5, 2017 Decision. Said motions for
vs. reconsideration, perforce, must suffer the same fate of denial. Meanwhile,
ALEJANDRO NG WEE, Respondent. the Court deems it necessary to discuss the issues raised by Santos-Tan,
who is only now participating in the proceedings, in her plea for
x-----------------------x reconsideration.

G.R. No. 221218 Respondent Santos-Tan never appealed the September 30, 2014 Decision
and October 14, 2015 Resolution of the Court of Appeals (CA) in CA-G.R
ANTHONY T. REYES, Petitioner, CV. No. 97817 holding her liable with her co-parties to Ng Wee. Hence, she
vs. maintains that the Court does not have jurisdiction over her person and that,
ALEJANDRO NG WEE, LUIS JUAN VIRATA, UEM-MARA PHILIPPINES insofar as she is concerned, the CA ruling had already attained finality and
CORP., WESTMONT INVESTMENT CORP., MARIZA SANTOS-TAN, can no longer be modified. And when the Court promulgated its July 5, 2017
Decision granting Virata’s cross-claim against her, the Court allegedly altered The perceived denial of due process right is therefore illusory. Santos-Tan
the CA’s final ruling as to her by increasing her exposure, in net effect. had all the opportunity to counter Virata’s allegations in his petition, but did
not avail of the same. She only has herself to blame, not only for failing to
Additionally, Santos-Tan was allegedly deprived of her right to due process appeal the appellate court's ruling, but also for her conscious refusal to even
since she was not afforded the opportunity to rebut the issue pertaining to file a comment on the petitions in the case at bar.
Virata's counterclaim, a claim that was allegedly not raised in Virata’s appeal
but was granted nonetheless. Furthermore, even though the cross-claim was not explicitly raised as an
issue in Virata’s petition, the request therefor is subsumed under the general
On the merits, Santos-Tan argues that the cross-claim should not have been prayer for equitable relief. Jurisprudence teaches that the Court's grant of
granted because the February 15 and March 15, 1999 Side Agreements that relief is limited to what has been prayed for in the Complaint or related
served as the basis thereof never got the imprimatur of the Board of thereto, supported by evidence, and covered by the party's cause of
Directors of Wincorp. Moreover, Santos-Tan points out that, as established, action.8 Here, the grant of the cross-claim is but the logical consequence of
Power Merge made a total of P2,183,755,253.11 of drawdowns from its the Court's finding that the Side Agreements, although not binding on Ng
Credit Line Facility. Considering Power Merge’s receipt of the said amount, it Wee and the other investors, are binding against the parties thereto. And
would be iniquitous and immoral to require Santos-Tan and her co-directors under the terms of the Side Agreements, the only liability of Power Merge is
in Wincorp to reimburse Virata of whatever the latter would be required to not to pay for the promissory notes it issued, but to return and deliver to
pay Ng Wee. Wincorp all the rights, titles and interests conveyed to it by Wincorp over the
Hottick obligations. It may be, as Santos-Tan argued, that Power Merge
The arguments do not persuade. made drawdowns from the credit line facility, and that its receipt of a
significant sum thereunder makes it liable to the investors. However, any
payment made by Virata for this liability would nevertheless still be subject to
It is at the height of error for respondent Santos-Tan to claim that the Court the right of reimbursement from Wincorp by virtue of the Side Agreements.
does not have jurisdiction over her person. Clear in the petitions is that Virata
and Reyes specifically imp leaded Santos-Tan as one of the party
In his Dissent, esteemed Associate Justice Noel G. Tijam (Justice Tijam)
respondents in their petitions, docketed as G.R. Nos. 220926 and 221218,
submits that the Wincorp directors-specifically Cua, the Cualopings, Santos-
respectively. Through her designation as a party respondent in the said
Tan and Estrella-should not be jointly and solidarily liable with Virata,
appeals, the Court validly acquired jurisdiction over her person, and
Wincorp, Ong, and Reyes to pay Ng Wee the amount of his investment.
prevented the assailed September 30, 2014 Decision and October 14, 2015
Resolution of the CA in CA-G.R CV. No. 97817 from attaining finality as to Justice Tijam stressed that there is lack of proof that the said directors
her. assented to the execution of the Side Agreements, barring the Court from
holding them personally accountable for fraud. Neither can they be held
liable for gross negligence since they exercised due diligence in conducting
Santos-Tan’s claim that she was denied of due process when the Court the affairs of Wincorp.
granted Virata’s cross-claim is likewise unavailing.
The court finds the submissions meritless.
Virata raised his claim against his co-parties as early as the filing of his
Answer to Ng Wee’s Complaint. The claim was then ventilated in trial where
Section 31 of the Corporation Code expressly states:
the extent of the liability of each party had been ascertained. V irata, Santos-
Tan, and their co-parties would contest the findings of the trial court to the
CA, but to no avail. Eventually, the controversy was elevated to this Court. Section 31. Liability of directors, trustees or officers. - Directors or trustees
who willfully and knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad faith in directing the
The implication of Virata’s persistent plea, up to this Court, to be absolved of
affairs of the corporation or acquire any personal or pecuniary interest in
civil liability is to shift the burden entirely to his co-parties. Otherwise stated,
conflict with their duty as such directors or trustees shall be liable jointly and
he was essentially re-asserting his cross-claim, as against Santos-Tan
included. However, Santos-Tan inexplicably waived her right to address the severally for all damages resulting therefrom suffered by the corporation, its
allegations in Virata's bid for exoneration in his petition, despite having been stockholders or members and other persons.
impleaded as party respondent.
When a director, trustee or officer attempts to acquire or acquire, in violation powers bestowed by the Corporation Code, including the control over its
of his duty, any interest adverse to the corporation in respect of any matter properties and the conduct of its business. Being stewards of the company,
which has been reposed in him in confidence, as to which equity imposes a the board is primarily charged with protecting the assets of the corporation in
disability upon him to deal in his own behalf, he shall be liable as a trustee for behalf of its stakeholders.
the corporation and must account for the profits which otherwise would have
accrued to the corporation. Cua and the Cualopings failed to observe this fiduciary duty when they
assented to extending a credit line facility to Power Merge. In PED Case No.
In Our July 5, 2017 Decision, the Court explicated the liabilities of the board 20-2378, the SEC discovered that Power Merge is actually Wincorp’s largest
directors, thus: borrower at about 30% of the total borrowings. It was then incumbent upon
the board of directors to have been more circumspect in approving its credit
G.R. No. 221135: The liabilities of line facility, and should have made an independent evaluation of Power
Cua and the Cualopings Merge’s application before agreeing to expose it to a ₱2,500,000,000.00 risk.

On the other hand, the liabilities of Cua and the Cualopings are more Had it fulfilled its fiduciary duty, the obvious warning signs would have
straightforward. They admit of approving the Credit Line Agreement and its cautioned it from approving the loan in haste. To recapitulate: (1) Power
subsequent Amendment during the special meetings of the Wincorp board of Merge has only been in existence for two years when it was granted a
directors, but interpose the defense that they did so because the screening credit facility; (2) Power Merge was thinly capitalized with only
committee found the application to be above board. They deny knowledge of ₱37,500,000.00 subscribed capital; (3) Power Merge was not an ongoing
the Side Agreements and of Power Merge's inability to pay. concern since it never secured the necessary permits and licenses to
conduct business, it never engaged in any lucrative business, and it did
not file the necessary reports with the SEC; and (4) no security other
We are not persuaded.
than its Promissory Notes was demanded by Wincorp or was furnished
by Power Merge in relation to the latter’s drawdowns.
Cua and the Cualopings cannot effectively distance themselves from liability
by raising the defenses they did. As ratiocinated by the CA:
It cannot also be ignored that prior to Power Merge’s application for a credit
facility, its controller Virata had already transacted with Wincorp. A perusal of
Such submission creates a loophole, especially in this age of his records with the company would have revealed that he was a surety for
compartmentalization, that would create a nearly fool-proof scheme whereby the Hettick obligations that were still unpaid at that time. This means that at
well-organized enterprises can evade liability for financial fraud. Behind the the time the Credit Line Agreement was executed on February 15, 1999,
veil of compartmentalized departments, such enterprise could induce the Virata still had direct obligations to Wincorp under the Hettick account. But
investing public to invest in a corporation which is financially unable to pay instead of impleading him in the collection suit against Hottick, Wincorp’s
with promises of definite returns on investment. If we follow the reasoning of board of directors effectively released Virata from liability, and, ironically,
defendants-appellants, we allow the masterminds and profiteers from the granted him a credit facility in the amount of ₱1,300,000,000.00 on the very
scheme to take the money and run without fear of liability from law simply same day.
because the defrauded investor would be hard-pressed to identify or pinpoint
from among the various departments of a corporation which directly enticed
This only goes to show that even if Cua and the Cualopings are not guilty of
him to part with his money.
fraud, they would nevertheless still be liable for gross negligence in
managing the affairs of the company, to the prejudice of its clients and
Petitioners Cua and the Cualopings bewail that the above-quoted statement stakeholders. Under such circumstances, it becomes immaterial whether or
is overarching, sweeping, and bereft of legal or factual basis. But as per the not they approved of the Side Agreements or authorized Reyes to sign the
records, the totality of circumstances in this case proves that they are either same since this could have all been avoided if they were vigilant enough to
complicit to the fraud, or at the very least guilty of gross negligence, as disapprove the Power Merge credit application. Neither can the business
regards the "sans recourse" transactions from the Power Merge account. judgment rule apply herein for it is elementary in corporation law that the
doctrine admits of exceptions: bad faith being one of them, gross negligence,
The board of directors is expected to be more than mere rubber stamps of another. The CA then correctly held petitioners Cua and the Cualopings
the corporation and its subordinate departments. It wields all corporate liable to respondent Ng Wee in their personal capacity.
G.R. No. 221109: The liability of physicians. Aside from his mere say-so, no other credible evidence was
Manuel Estrella presented to substantiate his claim. Thus, the Court is not inclined to lend
credence to Estrella’s self-serving denials.
To refresh, Estrella echoes the defense of Tankiansee, who was exempted
from liability by the trial court. He claims that just like Tankiansee, he was not Neither can petitioner Estrella be permitted to raise the defense that he is a
present during Wincorp’s special board meetings where Power Merge's mere nominee of John Anthony Espiritu, the then chairman of the Wincorp
credit line was approved and subsequently amended. Both also claimed that board of directors. It is of no moment that he only had one nominal share in
they protested and opposed the board's actions. But despite the parallels in the corporation, which he did not even pay for, just as it is inconsequential
their defenses, the trial court was unconvinced that Estrella should be whether or not Estrella had been receiving compensation or honoraria for
released from liability. Estrella appealed to the CA, but the adverse ruling attending the meetings of the board.
was sustained.
The practice of installing undiscerning directors cannot be tolerated, let alone
We agree with the findings of the courts a quo. allowed to perpetuate. This must be curbed by holding accountable those
who fraudulently and negligently perform their duties as corporate directors,
The minutes of the February 9, 1999 and March 11, 1999 Wincorp Special regardless of the accident by which they acquired their respective positions.
Board Meetings were considered as damning evidence against Estrella, just
as they were for Cua and the Cualopings. Although they were said to be In this case, the fact remains that petitioner Estrella accepted the directorship
unreliable insofar as Tankiansee is concerned, the trial court rightly in the Wincorp board, along with the obligations attached to the position,
distinguished between the circumstances of Estrella and Tankiansee to without question or qualification. The fiduciary duty of a company director
justify holding Estrella liable. cannot conveniently be separated from the position he occupies on the
trifling argument that no monetary benefit was being derived therefrom. The
For perspective, Tankiansee was exempted from liability upon establishing gratuitous performance of his duties and functions is not sufficient
that it was physically impossible for him to have participated in the said justification to do a poor job at steering the company away from foreseeable
meetings since his immigration records clearly show that he was outside the pitfalls and perils. The careless management of corporate affairs, in itself,
country during those specific dates. In contrast, no similar evidence of amounts to a betrayal of the trust reposed by the corporate investors, clients,
impossibility was ever offered by Estrella to support his position that he and and stakeholders, regardless of whether or not the board or its individual
Tankiansee are similarly situated. members are being paid. The RTC and the CA, therefore, correctly
disregarded the defense of Estrella that he is a mere nominee. (citations
Estrella submitted his departure records proving that he had left the country omitted, emphasis added)
in July 1999 and returned only in February of 2000. Be that as it may, this is
undoubtedly insufficient to establish his defense that he was not present As regards Santos-Tan, she would likewise be liable in her personal capacity
during the February 9, 1999 and March 11, 1999 board meetings. under Section 31 of the Corporation Code.9 Her liability is no different from
that of Cua and the Cualopings. She cannot utilize the separate juridical
personality of Wincorp as a shield when she, along with the other board
Instead, the minutes clearly state that Estrella was present during the
members, approved the credit line application of Power Merge in the amount
meetings when the body approved the grant of a credit line facility to Power
of ₱2,500,000,000.00 despite the glaring signs that it would be unable to
Merge. Estrella would even admit being present during the February 9, 1999
make good its obligation, to wit:
meeting, but attempted to evade responsibility by claiming that he left the
meeting before the "other matters," including Power Merge's application,
could have been discussed. (1) Power Merge has only been in existence for two years when it
was granted a credit facility;
Unfortunately, no concrete evidence was ever offered to confirm Estrella’s
alibi. In both special meetings scheduled, Estrella averred that he (2) Power Merge was thinly capitalized with only ₱37,500, 000. 00
accompanied his wife to a hospital for her cancer screening and for subscribed capital;
dialogues on possible treatments. However, this claim was never
corroborated by any evidence coming from the hospital or from his wife's
 (3)Power Merge was not an ongoing concern since it never secured benefits. However, silence, acquiescence, retention of benefits, and acts
the necessary permits and licenses to conduct business, it never that may be interpreted as approval of the act do not by themselves
engaged in any lucrative business, and it did not file the necessary constitute implied ratification. For an act to constitute an implied
reports with the SEC; and ratification, there must be no acceptable explanation for the act other
than that there is an intention to adopt the act as his or her own. x x x
(4)No security other than its Promissory Notes was demanded by (emphasis added)
Wincorp or was furnished by Power Merge in relation to the latter’s
drawdowns.1âwphi1 In the case at bar, it can be inferred from the attendant circumstances that
the Wincorp board ratified, if not approved, the Side
Had Santos-Tan and the members of the board fulfilled their fiduciary duty to Agreements.1âwphi1 Guilty of reiteration, Virata’s prior transactions with
protect the corporation for the sake of its stakeholders, the obvious warning Wincorp is recorded in the latter's books. The Wincorp directors are
signs would have cautioned them from approving Power Merge’s loan chargeable with knowledge of the surety agreement that Virata executed to
application and credit limit increase in haste. The failure to heed these secure the Hottick obligations to its investors. However, instead of enforcing
warning signs, to Our mind, constitutes gross negligence, if not fraud, for the surety agreement against Virata when Hottick defaulted, the Wincorp
which the members of the board could be held personally accountable. board approved a resolution excluding Virata as a party respondent in the
collection suit to be filed against Hottick and its proprietors. What is more,
this resolution was approved by the movant-directors on February 9, 1999,
The contention that the Side Agreements were without the imprimatur of its
board of directors cannot be given credence. The totality of circumstances the very same day Virata’s credit line application for Power Merge in the
supports the conclusion ·that the Wincorp directors impliedly ratified, if not maximum amount of ₱1,300,000,000.00 was given the green light.
furtively authorized, the signing of the Side Agreements in order to lay the
groundwork for the fraudulent scheme. Thus, even though it is quite As further noted in the assailed Decision:
understandable that there is no document traceable to said Wincorp directors
expressly authorizing the execution of the said documents, We are not It must be remembered that the special meeting of Wincorp’s board of
precluded from holding the same. directors was conducted on February 9 and March 11 of 1999, while the
Credit Line Agreement and its Amendment were entered into on February 15
The Court expounded on the concept of corporate ratification m Board of and March 15 of 1999, respectively. But as indicated in Power Merge's
Liquidators v. Heirs of Kalaw10 in the following wise: schedule of drawdowns, Wincorp already released to Power Merge the sum
of ₱1,133,399,958.45 as of February 12, 1999, before the Credit Line
Agreement was executed. And as of March 12, 1999, prior to the
Authorities, great in number, are one in the idea that "ratification by a
Amendment, ₱1,805,018,228.05 had already been released to Power Merge.
corporation of an unauthorized act or contract by its officers or others relates
back to the time of the act or contract ratified, and is equivalent to original
authority;" and that "[t]he corporation and the other party to the transaction The fact that the proceeds were released to Power Merge before the signing
are in precisely the same position as if the act or contract had been of the Credit Line Agreement and the Amendment thereto lends credence to
authorized at the time." The language of one case is expressive: "The Virata’s claim that Wincorp did not intend for Power Merge to be strictly
adoption or ratification of a contract by a corporation is nothing more bound by the terms of the credit facility; and that there had already been an
nor less than the making of an original contract. The theory of corporate understanding between the parties on what their respective obligations will
ratification is predicated on the right of a corporation to contract, and any be, although this agreement had not yet been reduced into writing. The
ratification or adoption is equivalent to a grant of prior authority." underlying transaction would later on be revealed in black and white through
(emphasis added) the Side Agreements, the tenor of which amounted to Wincorp’s intentional
cancellation of Power Merge and Virata’s obligation under their Promissory
11 Notes. In exchange, Virata and Power Merge assumed the obligation to
And in University of Mindanao, Inc. v. Bangko Sentral ng Pilipinas, We
transfer equity shares in UPDI and the tollway project in favor of Wincorp. An
have discussed that:
arm’s length transaction has indeed taken place, substituting Virata and
Power Merge's obligations under the Promissory Notes, in pursuance of the
Implied ratification may take the form of silence, acquiescence, acts Memorandum of Agreement and Waiver and Quitclaim executed by Virata
consistent with approval of the act, or acceptance or retention of
and Wincorp. Thus, as far as Wincorp, Power Merge, and Virata are g. Motion for Reconsideration of Westmont Investment Corporation.
concerned, the Promissory Notes had already been discharged.
No further pleadings or motions will be entertained.
To emphasize, there were clear warning signs that Power Merge would not
have been able to pay the almost ₱2.5 billion face value of its promissory Let entry of judgment be issued.
notes. To Our mind, the Wincorp board of directors' approval of the credit line
agreement, notwithstanding these telltale signs and the above outlined SO ORDERED.
circumstances, establishes the movant-directors' liability to Ng Wee. For if
these do not attest to their privity to Wincorp’s fraudulent scheme, they
would, at the very least, convincingly prove that the movantdirectors are
guilty of gross negligence in managing the company affairs. The movant-
board directors should not have allowed the exclusion of Virata from the
collection suit against Hottick knowing that he is a surety thereof. As revealed
by their subsequent actions, this was not a mere error in judgment but a
calculated maneuver to defraud its investors. Hence, the Court did not err
when it ruled that Sec. 31 of the Corporation Code must be applied, and the
separate juridical personality of Wincorp, pierced.

Moreover, the Court finds it highly suspect that the movant-directors, aside
from Estrella, did not question why the case proceeded without the board
chairman, John Anthony B. Espiritu (Espiritu). There were seventeen (17)
named defendants in Civil Case No. 00-99006 with the Regional Trial Court,
Branch 39 in Manila, which included the entire composition of the Wincorp
board of directors. If the movant-directors truly believed that they are on par
with each other in terms of participation, then they should have instituted a
cross-claim against Espiritu, or at least objected against his being dropped
as a party defendant.

WHEREFORE, premises considered, the following motions are

hereby DENIED for lack of merit:

a. Motion for Partial Reconsideration filed by Luis Juan L. Virata;

b. Motion for Reconsideration of Mariza Santos-Tan;

c. Motion for Reconsideration of Manuel Estrella;

d. Motion for Partial Reconsideration of Alejandro Ng Wee;

e. Motion for Reconsideration of Simeon Cua, Vicente Cualoping,

and Henry Cualoping;

f. Motion for Reconsideration of Anthony T. Reyes; and

 G.R. No. 128690 January 21, 1999 For further enlightenment, this rejection letter dated January
06, 1992 (Exh "3" - Viva) is hereby quoted:
ABS-CBN BROADCASTING CORPORATION, petitioner,
vs. 6 January 1992
HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING
CORP, VIVA PRODUCTION, INC., and VICENTE DEL Dear Vic,
ROSARIO, respondents.
This is not a very formal business letter I am writing to you
as I would like to express my difficulty in recommending the
purchase of the three film packages you are offering ABS-
DAVIDE, JR., CJ.: CBN.

In this petition for review on certiorari, petitioner ABS-CBN Broadcasting From among the three packages I can only tick off 10 titles
Corp. (hereafter ABS-CBN) seeks to reverse and set aside the decision 1 of we can purchase. Please see attached. I hope you will
31 October 1996 and the resolution 2 of 10 March 1997 of the Court of understand my position. Most of the action pictures in the list
Appeals in CA-G.R. CV No. 44125. The former affirmed with modification the do not have big action stars in the cast. They are not for
decision 3 of 28 April 1993 of the Regional Trial Court (RTC) of Quezon City, primetime. In line with this I wish to mention that I have not
Branch 80, in Civil Case No. Q-92-12309. The latter denied the motion to scheduled for telecast several action pictures in out very first
reconsider the decision of 31 October 1996. contract because of the cheap production value of these
movies as well as the lack of big action stars. As a film
The antecedents, as found by the RTC and adopted by the Court of Appeals, producer, I am sure you understand what I am trying to say
are as follows: as Viva produces only big action pictures.

In 1990, ABS-CBN and Viva executed a Film Exhibition In fact, I would like to request two (2) additional runs for
Agreement (Exh. "A") whereby Viva gave ABS-CBN an these movies as I can only schedule them in our non-
exclusive right to exhibit some Viva films. Sometime in primetime slots. We have to cover the amount that was paid
December 1991, in accordance with paragraph 2.4 [sic] of for these movies because as you very well know that non-
said agreement stating that —. primetime advertising rates are very low. These are the
unaired titles in the first contract.
1.4 ABS-CBN shall have the right of first refusal to the next
twenty-four (24) Viva films for TV telecast under such terms 1. Kontra Persa [sic].
as may be agreed upon by the parties hereto, provided,
however, that such right shall be exercised by ABS-CBN 2. Raider Platoon.
from the actual offer in writing.
3. Underground guerillas
Viva, through defendant Del Rosario, offered ABS-CBN,
through its vice-president Charo Santos-Concio, a list of 4. Tiger Command
three(3) film packages (36 title) from which ABS-CBN may
exercise its right of first refusal under the afore-said
5. Boy de Sabog
agreement (Exhs. "1" par, 2, "2," "2-A'' and "2-B"-Viva). ABS-
CBN, however through Mrs. Concio, "can tick off only ten
(10) titles" (from the list) "we can purchase" (Exh. "3" - Viva) 6. Lady Commando
and therefore did not accept said list (TSN, June 8, 1992, pp.
9-10). The titles ticked off by Mrs. Concio are not the subject 7. Batang Matadero
of the case at bar except the film ''Maging Sino Ka Man."
8. Rebelyon contract Annex "C" of the complaint (Exh. "1"·- Viva; Exh.
"C" - ABS-CBN).
I hope you will consider this request of mine.
On April 06, 1992, Del Rosario and Mr. Graciano Gozon of
The other dramatic films have been offered to us before and RBS Senior vice-president for Finance discussed the terms
have been rejected because of the ruling of MTRCB to have and conditions of Viva's offer to sell the 104 films, after the
them aired at 9:00 p.m. due to their very adult themes. rejection of the same package by ABS-CBN.

As for the 10 titles I have choosen [sic] from the 3 packages On April 07, 1992, defendant Del Rosario received through
please consider including all the other Viva movies produced his secretary, a handwritten note from Ms. Concio, (Exh. "5"
last year. I have quite an attractive offer to make. - Viva), which reads: "Here's the draft of the contract. I hope
you find everything in order," to which was attached a draft
exhibition agreement (Exh. "C''- ABS-CBN; Exh. "9" - Viva,
Thanking you and with my warmest regards. (Signed)
p. 3) a counter-proposal covering 53 films, 52 of which came
Concio
from the list sent by defendant Del Rosario and one film was
added by Ms. Concio, for a consideration of P35 million.
On February 27, 1992, defendant Del Rosario approached Exhibit "C" provides that ABS-CBN is granted films right to
ABS-CBN's Ms. Concio, with a list consisting of 52 original 53 films and contains a right of first refusal to "1992 Viva
movie titles (i.e. not yet aired on television) including the 14 Films." The said counter proposal was however rejected by
titles subject of the present case, as well as 104 re-runs Viva's Board of Directors [in the] evening of the same day,
(previously aired on television) from which ABS-CBN may April 7, 1992, as Viva would not sell anything less than the
choose another 52 titles, as a total of 156 titles, proposing to package of 104 films for P60 million pesos (Exh. "9" - Viva),
sell to ABS-CBN airing rights over this package of 52 and such rejection was relayed to Ms. Concio.
originals and 52 re-runs for P60,000,000.00 of which
P30,000,000.00 will be in cash and P30,000,000.00 worth of
On April 29, 1992, after the rejection of ABS-CBN and
television spots (Exh. "4" to "4-C" Viva; "9" -Viva).
following several negotiations and meetings defendant Del
Rosario and Viva's President Teresita Cruz, in consideration
On April 2, 1992, defendant Del Rosario and ABS-CBN of P60 million, signed a letter of agreement dated April 24,
general manager, Eugenio Lopez III, met at the Tamarind 1992. granting RBS the exclusive right to air 104 Viva-
Grill Restaurant in Quezon City to discuss the package produced and/or acquired films (Exh. "7-A" - RBS; Exh. "4" -
proposal of Viva. What transpired in that lunch meeting is the RBS) including the fourteen (14) films subject of the present
subject of conflicting versions. Mr. Lopez testified that he case. 4
and Mr. Del Rosario allegedly agreed that ABS-CRN was
granted exclusive film rights to fourteen (14) films for a total
On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific
consideration of P36 million; that he allegedly put this
performance with a prayer for a writ of preliminary injunction and/or
agreement as to the price and number of films in a "napkin''
temporary restraining order against private respondents Republic
and signed it and gave it to Mr. Del Rosario (Exh. D; TSN,
Broadcasting Corporation 5 (hereafter RBS ), Viva Production (hereafter
pp. 24-26, 77-78, June 8, 1992). On the other hand, Del
Rosario denied having made any agreement with Lopez VIVA), and Vicente Del Rosario. The complaint was docketed as Civil Case
regarding the 14 Viva films; denied the existence of a napkin No. Q-92-12309.
in which Lopez wrote something; and insisted that what he
and Lopez discussed at the lunch meeting was Viva's film On 27 May 1992, RTC issued a temporary restraining order 6 enjoining
package offer of 104 films (52 originals and 52 re-runs) for a private respondents from proceeding with the airing, broadcasting, and
total price of P60 million. Mr. Lopez promising [sic]to make a televising of the fourteen VIVA films subject of the controversy, starting with
counter proposal which came in the form of a proposal the film Maging Sino Ka Man, which was scheduled to be shown on private
respondents RBS' channel 7 at seven o'clock in the evening of said date.
On 17 June 1992, after appropriate proceedings, the RTC issued an In the meantime the RTC received the evidence for the parties in Civil Case
order 7 directing the issuance of a writ of preliminary injunction upon ABS- No. Q-192-1209. Thereafter, on 28 April 1993, it rendered a decision 20 in
CBN's posting of P35 million bond. ABS-CBN moved for the reduction of the favor of RBS and VIVA and against ABS-CBN disposing as follows:
bond, 8 while private respondents moved for reconsideration of the order and
offered to put up a counterbound. 9 WHEREFORE, under cool reflection and prescinding from
the foregoing, judgments is rendered in favor of defendants
In the meantime, private respondents filed separate answers with and against the plaintiff.
counterclaim. 10 RBS also set up a cross-claim against VIVA..
(1) The complaint is hereby dismissed;
On 3 August 1992, the RTC issued an order 11 dissolving the writ of
preliminary injunction upon the posting by RBS of a P30 million counterbond (2) Plaintiff ABS-CBN is ordered to pay
to answer for whatever damages ABS-CBN might suffer by virtue of such defendant RBS the following:
dissolution. However, it reduced petitioner's injunction bond to P15 million as
a condition precedent for the reinstatement of the writ of preliminary
a) P107,727.00, the amount
injunction should private respondents be unable to post a counterbond.
of premium paid by RBS to
the surety which issued
At the pre-trial 12 on 6 August 1992, the parties, upon suggestion of the court, defendant RBS's bond to lift
agreed to explore the possibility of an amicable settlement. In the meantime, the injunction;
RBS prayed for and was granted reasonable time within which to put up a
P30 million counterbond in the event that no settlement would be reached.
b) P191,843.00 for the
amount of print
As the parties failed to enter into an amicable settlement RBS posted on 1 advertisement for "Maging
October 1992 a counterbond, which the RTC approved in its Order of 15 Sino Ka Man" in various
October 1992.13 newspapers;

On 19 October 1992, ABS-CBN filed a motion for reconsideration 14 of the 3 c) Attorney's fees in the
August and 15 October 1992 Orders, which RBS opposed. 15 amount of P1 million;

On 29 October 1992, the RTC conducted a pre-trial. 16 d) P5 million as and by way

of moral damages;
Pending resolution of its motion for reconsideration, ABS-CBN filed with the
Court of Appeals a petition17 challenging the RTC's Orders of 3 August and e) P5 million as and by way
15 October 1992 and praying for the issuance of a writ of preliminary of exemplary damages;
injunction to enjoin the RTC from enforcing said orders. The case was
docketed as CA-G.R. SP No. 29300. (3) For defendant VIVA, plaintiff ABS-CBN is
ordered to pay P212,000.00 by way of
On 3 November 1992, the Court of Appeals issued a temporary restraining reasonable attorney's fees.
order18 to enjoin the airing, broadcasting, and televising of any or all of the
films involved in the controversy.
(4) The cross-claim of defendant RBS
against defendant VIVA is dismissed.
On 18 December 1992, the Court of Appeals promulgated a
decision 19 dismissing the petition in CA -G.R. No. 29300 for being
(5) Plaintiff to pay the costs.
premature. ABS-CBN challenged the dismissal in a petition for review filed
with this Court on 19 January 1993, which was docketed as G.R. No.
108363.
According to the RTC, there was no meeting of minds on the price and terms [H]owever, it is very clear that said right of first refusal in
of the offer. The alleged agreement between Lopez III and Del Rosario was favor of ABS-CBN shall still be subject to such terms as may
subject to the approval of the VIVA Board of Directors, and said agreement be agreed upon by the parties thereto, and that the said right
was disapproved during the meeting of the Board on 7 April 1992. Hence, shall be exercised by ABS-CBN within fifteen (15) days from
there was no basis for ABS-CBN's demand that VIVA signed the 1992 Film the actual offer in writing.
Exhibition Agreement. Furthermore, the right of first refusal under the 1990
Film Exhibition Agreement had previously been exercised per Ms. Concio's Said parag. 1.4 of the agreement Exhibit "A" on the right of
letter to Del Rosario ticking off ten titles acceptable to them, which would first refusal did not fix the price of the film right to the twenty-
have made the 1992 agreement an entirely new contract. four (24) films, nor did it specify the terms thereof. The same
are still left to be agreed upon by the parties.
On 21 June 1993, this Court denied21 ABS-CBN's petition for review in G.R.
No. 108363, as no reversible error was committed by the Court of Appeals in In the instant case, ABS-CBN's letter of rejection Exhibit 3
its challenged decision and the case had "become moot and academic in (Records, p. 89) stated that it can only tick off ten (10) films,
view of the dismissal of the main action by the court a quo in its decision" of and the draft contract Exhibit "C" accepted only fourteen (14)
28 April 1993. films, while parag. 1.4 of Exhibit "A'' speaks of the next
twenty-four (24) films.
Aggrieved by the RTC's decision, ABS-CBN appealed to the Court of
Appeals claiming that there was a perfected contract between ABS-CBN and The offer of V1VA was sometime in December 1991
VIVA granting ABS-CBN the exclusive right to exhibit the subject films. (Exhibits 2, 2-A. 2-B; Records, pp. 86-88; Decision, p. 11,
Private respondents VIVA and Del Rosario also appealed seeking moral and Records, p. 1150), when the first list of VIVA films was sent
exemplary damages and additional attorney's fees. by Mr. Del Rosario to ABS-CBN. The Vice President of ABS-
CBN, Ms. Charo Santos-Concio, sent a letter dated January
In its decision of 31 October 1996, the Court of Appeals agreed with the RTC 6, 1992 (Exhibit 3, Records, p. 89) where ABS-CBN
that the contract between ABS-CBN and VIVA had not been perfected, exercised its right of refusal by rejecting the offer of VIVA..
absent the approval by the VIVA Board of Directors of whatever Del Rosario, As aptly observed by the trial court, with the said letter of
it's agent, might have agreed with Lopez III. The appellate court did not even Mrs. Concio of January 6, 1992, ABS-CBN had lost its right
believe ABS-CBN's evidence that Lopez III actually wrote down such an of first refusal. And even if We reckon the fifteen (15) day
agreement on a "napkin," as the same was never produced in court. It period from February 27, 1992 (Exhibit 4 to 4-C) when
likewise rejected ABS-CBN's insistence on its right of first refusal and another list was sent to ABS-CBN after the letter of Mrs.
ratiocinated as follows: Concio, still the fifteen (15) day period within which ABS-
CBN shall exercise its right of first refusal has already
As regards the matter of right of first refusal, it may be true expired.22
that a Film Exhibition Agreement was entered into between
Appellant ABS-CBN and appellant VIVA under Exhibit "A" in Accordingly, respondent court sustained the award of actual damages
1990, and that parag. 1.4 thereof provides: consisting in the cost of print advertisements and the premium payments for
the counterbond, there being adequate proof of the pecuniary loss which
1.4 ABS-CBN shall have the right of first RBS had suffered as a result of the filing of the complaint by ABS-CBN. As to
refusal to the next twenty-four (24) VIVA the award of moral damages, the Court of Appeals found reasonable basis
films for TV telecast under such terms as therefor, holding that RBS's reputation was debased by the filing of the
may be agreed upon by the parties hereto, complaint in Civil Case No. Q-92-12309 and by the non-showing of the film
provided, however, that such right shall be "Maging Sino Ka Man." Respondent court also held that exemplary damages
exercised by ABS-CBN within a period of were correctly imposed by way of example or correction for the public good
fifteen (15) days from the actual offer in in view of the filing of the complaint despite petitioner's knowledge that the
writing (Records, p. 14). contract with VIVA had not been perfected, It also upheld the award of
attorney's fees, reasoning that with ABS-CBN's act of instituting Civil Case
No, Q-92-1209, RBS was "unnecessarily forced to litigate." The appellate
court, however, reduced the awards of moral damages to P2 million, cited Toyota Shaw, Inc. v. Court of Appeals, 24 Ang Yu Asuncion v. Court of
exemplary damages to P2 million, and attorney's fees to P500, 000.00. Appeals, 25 and Villonco Realty Company v. Bormaheco. Inc.26

On the other hand, respondent Court of Appeals denied VIVA and Del Anent the actual damages awarded to RBS, ABS-CBN disavows liability
Rosario's appeal because it was "RBS and not VIVA which was actually therefor. RBS spent for the premium on the counterbond of its own volition in
prejudiced when the complaint was filed by ABS-CBN." order to negate the injunction issued by the trial court after the parties had
ventilated their respective positions during the hearings for the purpose. The
Its motion for reconsideration having been denied, ABS-CBN filed the petition filing of the counterbond was an option available to RBS, but it can hardly be
in this case, contending that the Court of Appeals gravely erred in argued that ABS-CBN compelled RBS to incur such expense. Besides, RBS
had another available option, i.e., move for the dissolution or the injunction;
or if it was determined to put up a counterbond, it could have presented a
I
cash bond. Furthermore under Article 2203 of the Civil Code, the party
suffering loss or injury is also required to exercise the diligence of a good
. . . RULING THAT THERE WAS NO PERFECTED father of a family to minimize the damages resulting from the act or omission.
CONTRACT BETWEEN PETITIONER AND PRIVATE As regards the cost of print advertisements, RBS had not convincingly
RESPONDENT VIVA NOTWITHSTANDING established that this was a loss attributable to the non showing "Maging Sino
PREPONDERANCE OF EVIDENCE ADDUCED BY Ka Man"; on the contrary, it was brought out during trial that with or without
PETITIONER TO THE CONTRARY. the case or the injunction, RBS would have spent such an amount to
generate interest in the film.
II
ABS-CBN further contends that there was no clear basis for the awards of
. . . IN AWARDING ACTUAL AND COMPENSATORY moral and exemplary damages. The controversy involving ABS-CBN and
DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS. RBS did not in any way originate from business transaction between them.
The claims for such damages did not arise from any contractual dealings or
III from specific acts committed by ABS-CBN against RBS that may be
characterized as wanton, fraudulent, or reckless; they arose by virtue only of
. . . IN AWARDING MORAL AND EXEMPLARY DAMAGES the filing of the complaint, An award of moral and exemplary damages is not
IN FAVOR OF PRIVATE RESPONDENT RBS. warranted where the record is bereft of any proof that a party acted
maliciously or in bad faith in filing an action. 27 In any case, free resort to
courts for redress of wrongs is a matter of public policy. The law recognizes
IV
the right of every one to sue for that which he honestly believes to be his
right without fear of standing trial for damages where by lack of sufficient
. . . IN AWARDING ATTORNEY'S FEES IN FAVOR OF evidence, legal technicalities, or a different interpretation of the laws on the
RBS. matter, the case would lose ground. 28 One who makes use of his own legal
right does no injury. 29 If damage results front the filing of the complaint, it
ABS-CBN claims that it had yet to fully exercise its right of first refusal over is damnum absque injuria. 30 Besides, moral damages are generally not
twenty-four titles under the 1990 Film Exhibition Agreement, as it had chosen awarded in favor of a juridical person, unless it enjoys a good reputation that
only ten titles from the first list. It insists that we give credence to Lopez's was debased by the offending party resulting in social humiliation.31
testimony that he and Del Rosario met at the Tamarind Grill Restaurant,
discussed the terms and conditions of the second list (the 1992 Film As regards the award of attorney's fees, ABS-CBN maintains that the same
Exhibition Agreement) and upon agreement thereon, wrote the same on a had no factual, legal, or equitable justification. In sustaining the trial court's
paper napkin. It also asserts that the contract has already been effective, as award, the Court of Appeals acted in clear disregard of the doctrines laid
the elements thereof, namely, consent, object, and consideration were down in Buan v. Camaganacan 32 that the text of the decision should state
established. It then concludes that the Court of Appeals' pronouncements the reason why attorney's fees are being awarded; otherwise, the award
were not supported by law and jurisprudence, as per our decision of 1 should be disallowed. Besides, no bad faith has been imputed on, much less
December 1995 in Limketkai Sons Milling, Inc. v. Court of Appeals, 23 which proved as having been committed by, ABS-CBN. It has been held that
"where no sufficient showing of bad faith would be reflected in a party' s times (and on two occasions that RBS advertised), it
persistence in a case other than an erroneous conviction of the suffered serious embarrassment and social humiliation.
righteousness of his cause, attorney's fees shall not be recovered as cost." 33 When the showing was canceled, late viewers called up
RBS' offices and subjected RBS to verbal abuse ("Announce
On the other hand, RBS asserts that there was no perfected contract kayo nang announce, hindi ninyo naman ilalabas,"
between ABS-CBN and VIVA absent any meeting of minds between them "nanloloko yata kayo") (Exh. 3-RBS, par. 3). This alone was
regarding the object and consideration of the alleged contract. It affirms that not something RBS brought upon itself. it was exactly what
the ABS-CBN's claim of a right of first refusal was correctly rejected by the ABS-CBN had planned to happen.
trial court. RBS insist the premium it had paid for the counterbond constituted
a pecuniary loss upon which it may recover. It was obliged to put up the The amount of moral and exemplary damages cannot be
counterbound due to the injunction procured by ABS-CBN. Since the trial said to be excessive. Two reasons justify the amount of the
court found that ABS-CBN had no cause of action or valid claim against RBS award.
and, therefore not entitled to the writ of injunction, RBS could recover from
ABS-CBN the premium paid on the counterbond. Contrary to the claim of The first is that the humiliation suffered by RBS is national
ABS-CBN, the cash bond would prove to be more expensive, as the loss extent. RBS operations as a broadcasting company is [sic]
would be equivalent to the cost of money RBS would forego in case the P30 nationwide. Its clientele, like that of ABS-CBN, consists of
million came from its funds or was borrowed from banks. those who own and watch television. It is not an
exaggeration to state, and it is a matter of judicial notice that
RBS likewise asserts that it was entitled to the cost of advertisements for the almost every other person in the country watches television.
cancelled showing of the film "Maging Sino Ka Man" because the print The humiliation suffered by RBS is multiplied by the number
advertisements were put out to announce the showing on a particular day of televiewers who had anticipated the showing of the film
and hour on Channel 7, i.e., in its entirety at one time, not a series to be "Maging Sino Ka Man" on May 28 and November 3, 1992
shown on a periodic basis. Hence, the print advertisement were good and but did not see it owing to the cancellation. Added to this are
relevant for the particular date showing, and since the film could not be the advertisers who had placed commercial spots for the
shown on that particular date and hour because of the injunction, the telecast and to whom RBS had a commitment in
expenses for the advertisements had gone to waste. consideration of the placement to show the film in the dates
and times specified.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed
the case and secured injunctions purely for the purpose of harassing and The second is that it is a competitor that caused RBS to
prejudicing RBS. Pursuant then to Article 19 and 21 of the Civil Code, ABS- suffer the humiliation. The humiliation and injury are far
CBN must be held liable for such damages. Citing Tolentino,34 damages may greater in degree when caused by an entity whose ultimate
be awarded in cases of abuse of rights even if the act done is not illicit and business objective is to lure customers (viewers in this case)
there is abuse of rights were plaintiff institutes and action purely for the away from the competition. 36
purpose of harassing or prejudicing the defendant.
For their part, VIVA and Vicente del Rosario contend that the findings of fact
In support of its stand that a juridical entity can recover moral and exemplary of the trial court and the Court of Appeals do not support ABS-CBN's claim
damages, private respondents RBS cited People v. Manero,35 where it was that there was a perfected contract. Such factual findings can no longer be
stated that such entity may recover moral and exemplary damages if it has a disturbed in this petition for review under Rule 45, as only questions of law
good reputation that is debased resulting in social humiliation. it then can be raised, not questions of fact. On the issue of damages and attorneys
ratiocinates; thus: fees, they adopted the arguments of RBS.

There can be no doubt that RBS' reputation has been The key issues for our consideration are (1) whether there was a perfected
debased by ABS-CBN's acts in this case. When RBS was contract between VIVA and ABS-CBN, and (2) whether RBS is entitled to
not able to fulfill its commitment to the viewing public to show damages and attorney's fees. It may be noted that the award of attorney's
the film "Maging Sino Ka Man" on the scheduled dates and fees of P212,000 in favor of VIVA is not assigned as another error.
 I. ABS-CBN's reliance in Limketkai Sons Milling, Inc. v. Court of
Appeals 41 and Villonco Realty Company v. Bormaheco, Inc., 42 is misplaced.
The first issue should be resolved against ABS-CBN. A contract is a meeting In these cases, it was held that an acceptance may contain a request for
of minds between two persons whereby one binds himself to give something certain changes in the terms of the offer and yet be a binding acceptance as
or to render some service to another 37 for a consideration. there is no long as "it is clear that the meaning of the acceptance is positively and
contract unless the following requisites concur: (1) consent of the contracting unequivocally to accept the offer, whether such request is granted or not."
parties; (2) object certain which is the subject of the contract; and (3) cause This ruling was, however, reversed in the resolution of 29 March
of the obligation, which is established.38 A contract undergoes three stages: 1996, 43 which ruled that the acceptance of all offer must be unqualified and
absolute, i.e., it "must be identical in all respects with that of the offer so as to
produce consent or meeting of the minds."
(a) preparation, conception, or generation, which is the
period of negotiation and bargaining, ending at the moment
of agreement of the parties; On the other hand, in Villonco, cited in Limketkai, the alleged changes in the
revised counter-offer were not material but merely clarificatory of what had
previously been agreed upon. It cited the statement in Stuart v. Franklin Life
(b) perfection or birth of the contract, which is the moment
Insurance Co.44 that "a vendor's change in a phrase of the offer to purchase,
when the parties come to agree on the terms of the contract;
which change does not essentially change the terms of the offer, does not
and
amount to a rejection of the offer and the tender of a counter-
offer." 45 However, when any of the elements of the contract is modified upon
(c) consummation or death, which is the fulfillment or acceptance, such alteration amounts to a counter-offer.
performance of the terms agreed upon in the contract. 39

In the case at bar, ABS-CBN made no unqualified acceptance of VIVA's

Contracts that are consensual in nature are perfected upon mere meeting of offer. Hence, they underwent a period of bargaining. ABS-CBN then
the minds, Once there is concurrence between the offer and the acceptance formalized its counter-proposals or counter-offer in a draft contract, VIVA
upon the subject matter, consideration, and terms of payment a contract is through its Board of Directors, rejected such counter-offer, Even if it be
produced. The offer must be certain. To convert the offer into a contract, the conceded arguendo that Del Rosario had accepted the counter-offer, the
acceptance must be absolute and must not qualify the terms of the offer; it acceptance did not bind VIVA, as there was no proof whatsoever that Del
must be plain, unequivocal, unconditional, and without variance of any sort Rosario had the specific authority to do so.
from the proposal. A qualified acceptance, or one that involves a new
proposal, constitutes a counter-offer and is a rejection of the original offer.
Under Corporation Code,46 unless otherwise provided by said Code,
Consequently, when something is desired which is not exactly what is
corporate powers, such as the power; to enter into contracts; are exercised
proposed in the offer, such acceptance is not sufficient to generate consent
by the Board of Directors. However, the Board may delegate such powers to
because any modification or variation from the terms of the offer annuls the
either an executive committee or officials or contracted managers. The
offer.40
delegation, except for the executive committee, must be for specific
purposes, 47 Delegation to officers makes the latter agents of the corporation;
When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-CBN at the accordingly, the general rules of agency as to the bindings effects of their
Tamarind Grill on 2 April 1992 to discuss the package of films, said package acts would
of 104 VIVA films was VIVA's offer to ABS-CBN to enter into a new Film apply. 48 For such officers to be deemed fully clothed by the corporation to
Exhibition Agreement. But ABS-CBN, sent, through Ms. Concio, a counter- exercise a power of the Board, the latter must specially authorize them to do
proposal in the form of a draft contract proposing exhibition of 53 films for a so. That Del Rosario did not have the authority to accept ABS-CBN's
consideration of P35 million. This counter-proposal could be nothing less counter-offer was best evidenced by his submission of the draft contract to
than the counter-offer of Mr. Lopez during his conference with Del Rosario at VIVA's Board of Directors for the latter's approval. In any event, there was
Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVA's offer, between Del Rosario and Lopez III no meeting of minds. The following
for it was met by a counter-offer which substantially varied the terms of the findings of the trial court are instructive:
offer.
A number of considerations militate against ABS-CBN's On cross-examination Mr. Lopez testified:
claim that a contract was perfected at that lunch meeting on
April 02, 1992 at the Tamarind Grill. Q. What was written in this napkin?

FIRST, Mr. Lopez claimed that what was agreed upon at the A. The total price, the breakdown the known
Tamarind Grill referred to the price and the number of films, Viva movies, the 7 blockbuster movies and
which he wrote on a napkin. However, Exhibit "C" the other 7 Viva movies because the price
contains numerous provisions which, were not discussed at was broken down accordingly. The none
the Tamarind Grill, if Lopez testimony was to be believed nor [sic] Viva and the seven other Viva movies
could they have been physically written on a napkin. There and the sharing between the cash portion
was even doubt as to whether it was a paper napkin or a and the concerned spot portion in the total
cloth napkin. In short what were written in Exhibit "C'' were amount of P35 million pesos.
not discussed, and therefore could not have been agreed
upon, by the parties. How then could this court compel the
Now, which is which? P36 million or P35 million? This
parties to sign Exhibit "C" when the provisions thereof were
weakens ABS-CBN's claim.
not previously agreed upon?
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that
SECOND, Mr. Lopez claimed that what was agreed upon as she transmitted Exhibit "C" to Mr. Del Rosario with a
the subject matter of the contract was 14 films. The
handwritten note, describing said Exhibit "C" as a "draft."
complaint in fact prays for delivery of 14 films. But Exhibit "C"
(Exh. "5" - Viva; tsn pp. 23-24 June 08, 1992). The said draft
mentions 53 films as its subject matter. Which is which If
has a well defined meaning.
Exhibits "C" reflected the true intent of the parties, then ABS-
CBN's claim for 14 films in its complaint is false or if what it
alleged in the complaint is true, then Exhibit "C" did not Since Exhibit "C" is only a draft, or a tentative, provisional or
reflect what was agreed upon by the parties. This preparatory writing prepared for discussion, the terms and
underscores the fact that there was no meeting of the minds conditions thereof could not have been previously agreed
as to the subject matter of the contracts, so as to preclude upon by ABS-CBN and Viva Exhibit "C'' could not therefore
perfection thereof. For settled is the rule that there can be no legally bind Viva, not having agreed thereto. In fact, Ms.
contract where there is no object which is its subject matter Concio admitted that the terms and conditions embodied in
(Art. 1318, NCC). Exhibit "C" were prepared by ABS-CBN's lawyers and there
was no discussion on said terms and conditions. . . .
THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit
testimony (Exh. "D") states: As the parties had not yet discussed the proposed terms and
conditions in Exhibit "C," and there was no evidence
whatsoever that Viva agreed to the terms and conditions
We were able to reach an agreement. VIVA
thereof, said document cannot be a binding contract. The
gave us the exclusive license to show these
fact that Viva refused to sign Exhibit "C" reveals only two
fourteen (14) films, and we agreed to pay
[sic] well that it did not agree on its terms and conditions,
Viva the amount of P16,050,000.00 as well and this court has no authority to compel Viva to agree
as grant Viva commercial slots worth thereto.
P19,950,000.00. We had already earmarked
this P16, 050,000.00.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del
Rosario agreed upon at the Tamarind Grill was only
which gives a total consideration of P36 million provisional, in the sense that it was subject to approval by
(P19,950,000.00 plus P16,050,000.00. equals the Board of Directors of Viva. He testified:
P36,000,000.00).
 Q. Now, Mr. Witness, and after that it should be because corporate power to enter into a contract
Tamarind meeting ... the second meeting is lodged in the Board of Directors. (Sec. 23, Corporation
wherein you claimed that you have the Code). Without such board approval by the Viva board,
meeting of the minds between you and Mr. whatever agreement Lopez and Del Rosario arrived at could
Vic del Rosario, what happened? not ripen into a valid contract binding upon Viva (Yao Ka Sin
Trading vs. Court of Appeals, 209 SCRA 763). The evidence
A. Vic Del Rosario was supposed to call us adduced shows that the Board of Directors of Viva rejected
up and tell us specifically the result of the Exhibit "C" and insisted that the film package for 140 films be
discussion with the Board of Directors. maintained (Exh. "7-1" - Viva ). 49

Q. And you are referring to the so-called The contention that ABS-CBN had yet to fully exercise its right of first refusal
agreement which you wrote in [sic] a piece over twenty-four films under the 1990 Film Exhibition Agreement and that the
of paper? meeting between Lopez and Del Rosario was a continuation of said previous
contract is untenable. As observed by the trial court, ABS-CBN right of first
refusal had already been exercised when Ms. Concio wrote to VIVA ticking
A. Yes, sir.
off ten films, Thus:
Q. So, he was going to forward that to the
board of Directors for approval? [T]he subsequent negotiation with ABS-CBN two (2) months
after this letter was sent, was for an entirely different
package. Ms. Concio herself admitted on cross-examination
A. Yes, sir. (Tsn, pp. 42-43, June 8, 1992) to having used or exercised the right of first refusal. She
stated that the list was not acceptable and was indeed not
Q. Did Mr. Del Rosario tell you that he will accepted by ABS-CBN, (TSN, June 8, 1992, pp. 8-10). Even
submit it to his Board for approval? Mr. Lopez himself admitted that the right of the first refusal
may have been already exercised by Ms. Concio (as she
A. Yes, sir. (Tsn, p. 69, June 8, 1992). had). (TSN, June 8, 1992, pp. 71-75). Del Rosario himself
knew and understand [sic] that ABS-CBN has lost its rights
The above testimony of Mr. Lopez shows beyond doubt that of the first refusal when his list of 36 titles were rejected
he knew Mr. Del Rosario had no authority to bind Viva to a (Tsn, June 9, 1992, pp. 10-11) 50
contract with ABS-CBN until and unless its Board of
Directors approved it. The complaint, in fact, alleges that Mr. II
Del Rosario "is the Executive Producer of defendant Viva"
which "is a corporation." (par. 2, complaint). As a mere agent However, we find for ABS-CBN on the issue of damages. We shall first take
of Viva, Del Rosario could not bind Viva unless what he did up actual damages. Chapter 2, Title XVIII, Book IV of the Civil Code is the
is ratified by its Board of Directors. (Vicente vs. Geraldez, 52 specific law on actual or compensatory damages. Except as provided by law
SCRA 210; Arnold vs. Willets and Paterson, 44 Phil. 634). or by stipulation, one is entitled to compensation for actual damages only for
As a mere agent, recognized as such by plaintiff, Del such pecuniary loss suffered by him as he has duly proved. 51 The
Rosario could not be held liable jointly and severally with indemnification shall comprehend not only the value of the loss suffered, but
Viva and his inclusion as party defendant has no legal basis. also that of the profits that the obligee failed to obtain. 52 In contracts and
(Salonga vs. Warner Barner [sic] , COLTA , 88 Phil. 125; quasi-contracts the damages which may be awarded are dependent on
Salmon vs. Tan, 36 Phil. 556). whether the obligor acted with good faith or otherwise, It case of good faith,
the damages recoverable are those which are the natural and probable
The testimony of Mr. Lopez and the allegations in the consequences of the breach of the obligation and which the parties have
complaint are clear admissions that what was supposed to foreseen or could have reasonably foreseen at the time of the constitution of
have been agreed upon at the Tamarind Grill between Mr. the obligation. If the obligor acted with fraud, bad faith, malice, or wanton
Lopez and Del Rosario was not a binding agreement. It is as attitude, he shall be responsible for all damages which may be reasonably
attributed to the non-performance of the obligation. 53 In crimes and quasi- Neither could ABS-CBN be liable for the print advertisements for "Maging
delicts, the defendant shall be liable for all damages which are the natural Sino Ka Man" for lack of sufficient legal basis. The RTC issued a temporary
and probable consequences of the act or omission complained of, whether or restraining order and later, a writ of preliminary injunction on the basis of its
not such damages has been foreseen or could have reasonably been determination that there existed sufficient ground for the issuance thereof.
foreseen by the defendant.54 Notably, the RTC did not dissolve the injunction on the ground of lack of legal
and factual basis, but because of the plea of RBS that it be allowed to put up
Actual damages may likewise be recovered for loss or impairment of earning a counterbond.
capacity in cases of temporary or permanent personal injury, or for injury to
the plaintiff's business standing or commercial credit.55 As regards attorney's fees, the law is clear that in the absence of stipulation,
attorney's fees may be recovered as actual or compensatory damages under
The claim of RBS for actual damages did not arise from contract, quasi- any of the circumstances provided for in Article 2208 of the Civil Code. 58
contract, delict, or quasi-delict. It arose from the fact of filing of the complaint
despite ABS-CBN's alleged knowledge of lack of cause of action. Thus The general rule is that attorney's fees cannot be recovered as part of
paragraph 12 of RBS's Answer with Counterclaim and Cross-claim under the damages because of the policy that no premium should be placed on the
heading COUNTERCLAIM specifically alleges: right to litigate.59 They are not to be awarded every time a party wins a suit.
The power of the court to award attorney's fees under Article 2208 demands
12. ABS-CBN filed the complaint knowing fully well that it factual, legal, and equitable justification.60 Even when claimant is compelled
has no cause of action RBS. As a result thereof, RBS to litigate with third persons or to incur expenses to protect his rights, still
suffered actual damages in the amount of P6,621,195.32. 56 attorney's fees may not be awarded where no sufficient showing of bad faith
could be reflected in a party's persistence in a case other than erroneous
conviction of the righteousness of his cause. 61
Needless to state the award of actual damages cannot be comprehended
under the above law on actual damages. RBS could only probably take
refuge under Articles 19, 20, and 21 of the Civil Code, which read as follows: As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of
the Civil Code. Article 2217 thereof defines what are included in moral
damages, while Article 2219 enumerates the cases where they may be
Art. 19. Every person must, in the exercise of his rights and
recovered, Article 2220 provides that moral damages may be recovered in
in the performance of his duties, act with justice, give
breaches of contract where the defendant acted fraudulently or in bad faith.
everyone his due, and observe honesty and good faith.
RBS's claim for moral damages could possibly fall only under item (10) of
Article 2219, thereof which reads:
Art. 20. Every person who, contrary to law, wilfully or
negligently causes damage to another, shall indemnify the
(10) Acts and actions referred to in Articles 21, 26, 27, 28,
latter for tile same.
29, 30, 32, 34, and 35.
Art. 21. Any person who wilfully causes loss or injury to
Moral damages are in the category of an award designed to compensate the
another in a manner that is contrary to morals, good customs
claimant for actual injury suffered. and not to impose a penalty on the
or public policy shall compensate the latter for the damage.
wrongdoer.62 The award is not meant to enrich the complainant at the
expense of the defendant, but to enable the injured party to obtain means,
It may further be observed that in cases where a writ of preliminary injunction diversion, or amusements that will serve to obviate then moral suffering he
is issued, the damages which the defendant may suffer by reason of the writ has undergone. It is aimed at the restoration, within the limits of the possible,
are recoverable from the injunctive bond. 57 In this case, ABS-CBN had not of the spiritual status quo ante, and should be proportionate to the suffering
yet filed the required bond; as a matter of fact, it asked for reduction of the inflicted.63 Trial courts must then guard against the award of exorbitant
bond and even went to the Court of Appeals to challenge the order on the damages; they should exercise balanced restrained and measured objectivity
matter, Clearly then, it was not necessary for RBS to file a counterbond. to avoid suspicion that it was due to passion, prejudice, or corruption on the
Hence, ABS-CBN cannot be held responsible for the premium RBS paid for part of the trial court. 64
the counterbond.
The award of moral damages cannot be granted in favor of a corporation WHEREFORE, the instant petition is GRANTED. The challenged decision of
because, being an artificial person and having existence only in legal the Court of Appeals in CA-G.R. CV No, 44125 is hereby REVERSED except
contemplation, it has no feelings, no emotions, no senses, It cannot, as to unappealed award of attorney's fees in favor of VIVA Productions,
therefore, experience physical suffering and mental anguish, which call be Inc.1âwphi1.nêt
experienced only by one having a nervous system. 65 The statement
in People v. Manero 66 and Mambulao Lumber Co. v. PNB 67 that a No pronouncement as to costs.
corporation may recover moral damages if it "has a good reputation that is
debased, resulting in social humiliation" is an obiter dictum. On this score SO ORDERED.
alone the award for damages must be set aside, since RBS is a corporation.

The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII,

Book IV of the Civil Code. These are imposed by way of example or
correction for the public good, in addition to moral, temperate, liquidated or
compensatory damages. 68 They are recoverable in criminal cases as part of
the civil liability when the crime was committed with one or more aggravating
circumstances; 69 in quasi-contracts, if the defendant acted with gross
negligence; 70 and in contracts and quasi-contracts, if the defendant acted in
a wanton, fraudulent, reckless, oppressive, or malevolent manner. 71

It may be reiterated that the claim of RBS against ABS-CBN is not based on
contract, quasi-contract, delict, or quasi-delict, Hence, the claims for moral
and exemplary damages can only be based on Articles 19, 20, and 21 of the
Civil Code.

The elements of abuse of right under Article 19 are the following: (1) the
existence of a legal right or duty, (2) which is exercised in bad faith, and (3)
for the sole intent of prejudicing or injuring another. Article 20 speaks of the
general sanction for all other provisions of law which do not especially
provide for their own sanction; while Article 21 deals with acts contra bonus
mores, and has the following elements; (1) there is an act which is legal, (2)
but which is contrary to morals, good custom, public order, or public policy,
and (3) and it is done with intent to injure. 72

Verily then, malice or bad faith is at the core of Articles 19, 20, and 21.
Malice or bad faith implies a conscious and intentional design to do a
wrongful act for a dishonest purpose or moral obliquity. 73 Such must be
substantiated by evidence. 74

There is no adequate proof that ABS-CBN was inspired by malice or bad

faith. It was honestly convinced of the merits of its cause after it had
undergone serious negotiations culminating in its formal submission of a draft
contract. Settled is the rule that the adverse result of an action does not per
se make the action wrongful and subject the actor to damages, for the law
could not have meant to impose a penalty on the right to litigate. If damages
result from a person's exercise of a right, it is damnum absque injuria.75
 FIRST DIVISION On December 11, 1961, VISCO obtained a loan from the Development Bank
of the Philippines (DBP) in the amount of P836,000. This loan was secured
[G.R. NO. 118692 : July 28, 2006] by a duly recorded Real Estate Mortgage over VISCO's three (3) parcels of
land, including all the machineries and equipment found there.8
COASTAL PACIFIC TRADING, INC., Petitioner, v. SOUTHERN ROLLING
MILLS, CO., INC. (now known as Visayan Integrated Steel Corporation), On August 15, 1963, VISCO entered into a Loan Agreement9 with
FAR EAST BANK & TRUST COMPANY, PHILIPPINE COMMERCIAL respondent banks (later referred to as "Consortium" 10 ) for the amount of
INDUSTRIAL1 BANK, EQUITABLE BANKING CORPORATION, US$5,776,186.71 or P21,745,707.36 (at the then prevailing exchange rate)
PRUDENTIAL BANK, BOARD OF TRUSTEES-CONSORTIUM OF BANKS- to finance its importation of various raw materials. To secure the full and
VISCO, UNITED COCONUT PLANTERS BANK, CITYTRUST BANKING faithful performance of its obligation, VISCO executed on August 3, 1965, a
CORPORATION, ASSOCIATED BANK, INSULAR BANK OF ASIA AND second mortgage11 over the same land, machineries and equipment in favor
AMERICA, INTERNATIONAL CORPORATE BANK, COMMER-CIAL BANK of respondent banks. This second mortgage remained unrecorded.12
OF MANILA, BANK OF THE PHILIPPINE ISLANDS, NATIONAL STEEL
CORPORA-TION, THE PROVINCIAL SHERIFF OF BOHOL, and DEPUTY VISCO eventually defaulted in the performance of its obligation to
SHERIFF JOVITO DIGAL,2 Respondents. respondent banks. This prompted the Consortium to file on January 26,
1966, Civil Case No. 1841, which was a Petition for Foreclosure of Mortgage
DECISION with Petition for Receivership.13 This case was eventually dismissed for
failure to prosecute.14
PANGANIBAN, C.J.:
Afterwards, negotiations were conducted between VISCO and respondent
banks for the conversion of the unpaid loan into equity in the
Directors owe loyalty and fidelity to the corporation they serve and to its
creditors. When these directors sit on the board as representatives of corporation.15 Vicente Garcia, vice-president of VISCO and of Far East Bank
shareholders who are also major creditors, they cannot be allowed to use and Trust Company (FEBTC),16 testified that sometime in 1966, the creditor
banks were given management of and control over VISCO.17 In time,18 in
their offices to secure undue advantage for those shareholders, in fraud of
order to reorganize it, its principal creditors agreed to group themselves into
other creditors who do not have a similar representation in the board of
a creditors' consortium.19 As a result of the reorganized corporate structure of
directors.
VISCO, respondent banks acquired more than 90 percent of its equity.
Notwithstanding this conversion, it remained indebted to the Consortium in
The Case the amount of P16,123,918.02.20

Before us is a Petition for Review3 under Rule 45 of the Rules of Court, Meanwhile from 1964 to 1965, VISCO also entered into a processing
assailing the September 27, 1994 Decision4 and the January 5, 1995 agreement with Petitioner Coastal Pacific Trading, Inc. ("Coastal"). Pursuant
Resolution5 of the Court of Appeals (CA) in CA-GR CV No. 39385. The to that agreement, petitioner delivered 3,000 metric tons of hot rolled steel
challenged Decision disposed as follows: coils to VISCO for processing into block iron sheets. Contrary to their
agreement, the latter was able to process and deliver to petitioner only 1,600
"WHEREFORE, the decision of the Regional Trial Court is hereby metric tons of those sheets. Hence, a total of 1,400 metric tons of hot rolled
AFFIRMED in toto."6 steel coils remained unaccounted for.21 The fact that petitioner was among
the major creditors of VISCO was recognized by the latter's vice-president,
The challenged Resolution denied reconsideration. Vicente Garcia.22 Indeed, on October 9, 1970, it forwarded to petitioner a
proposal for a Compromise Agreement.23 Subsequent developments
The Facts indicate, however, that the parties did not arrive at a compromise.

Respondent Southern Rolling Mills Co., Inc. was organized in 1959 for the Two years later, on October 20, 1972, Garcia wrote Arturo P. Samonte,
purpose of engaging in a steel processing business. It was later renamed representative of FEBTC24 and director of VISCO,25 a letter that reads as
Visayan Integrated Steel Corporation (VISCO).7 follows:
"In the light of recent development on IISMI and Elirol which were taken over "RESOLVED, That the offer of Filmag (Philippines) Inc. in their letters of
by the government, I suggest that we take certain precautionary measures to December 14, 1973 and March 19, 1974 to purchase two (2) units of
protect the interests of the Consortium of Banks. One such step may be to generator sets, including standard accessories, of VISCO is hereby accepted
insure the safety of the unexpended funds of VISCO from any contingencies under the following terms and conditions:
in the future. As of now VISCO's account with the Far East Bank is in the
name of BOARD OF TRUSTEES VISCO CONSORTIUM OF BANKS. It may xxx xxx xxx
be better to eliminate the term VISCO and just call the account BOARD OF
TRUSTEES CONSORTIUM OF BANKS."26 "2. The price for the two (2) generator sets is PESOS: ONE MILLION FIVE
HUNDRED FIFTY THOUSAND FIVE HUNDRED SEVENTY TWO ONLY
According to a notation on this letter, an FEBTC assistant cashier named (P1,550,572) x x x and shall be payable upon signing of a letter-agreement
Silverio duly complied with the above request.27 Indeed, events would later and which shall be later formalized into a Deed of Sale. The amount,
reveal that the bank held a deposit account in the name of the "Board of however, shall be held by the depositary bank of VISCO, Far East Bank and
Trustees-Consortium of Banks."28 Trust Company, in escrow and shall be at VISCO's disposal upon the signing
of Filmag of the receipt/s of delivery of the said two (2) generator sets.
On September 20, 1974, respondent banks held a luncheon meeting29 in the
FEBTC Boardroom to discuss how they would address the insistent xxx xxx xxx
demands of the DBP for VISCO to settle its obligations. Jose B. Fernandez,
Jr., VISCO's then chairman and concurrent FEBTC President,30 expressed "FURTHER RESOLVED, That the sales proceeds of PESOS: ONE MILLION
his apprehension that either the DBP or the government would soon pursue
FIVE HUNDRED FIFTY THOUSAND FIVE HUNDRED SEVENTY TWO
extra-judicial foreclosure against VISCO.
ONLY (P1,550,572) shall be utilized to pay the liability of VISCO with the
Development Bank of the Philippines."37
In this regard, Fernandez informed the members of the Consortium that he
had received letter-offers from two corporations that were interested in The sale of the generator sets to Filmag took place and, according to the
purchasing VISCO's generator sets.31 After deliberating on the matter, the
testimony of Garcia, the proceeds were deposited with FEBTC in a special
members decided to approve the sale of these two generator sets to Filmag
account held in trust for the Consortium.38
(Phil.), Inc. It was also agreed that the proceeds of the sale would be used to
pay VISCO's indebtedness to DBP and to secure the release of the first
mortgage.32 The Consortium agreed with Filmag on the following payment A year after, on May 22, 1975, petitioner filed with the Pasig Regional Trial
procedure: Court (RTC) a Complaint39 for Recovery of Property and Damages with
Preliminary Injunction and Attachment.40 Petitioner's allegation was that
VISCO had fraudulently misapplied or converted the finished steel sheets
"The payment procedure will be as follows: Filmag pays to VISCO; VISCO
entrusted to it.41 On June 3, 1975, Judge Pedro A. Revilla issued a Writ of
pays the Consortium; and then the Consortium pays the DBP with the Preliminary Attachment over its properties that were not exempt from
arrangement that the Consortium subrogates to the rights of the DBP as first execution.42
mortgagee to the VISCO plant. The Consortium further agreed to call a
meeting of the VISCO board of directors for the purpose of considering and
formally approving the proposed sale of the 2 generators to Filmag." 33 In compliance with the Writ, Sheriff Andres R. Bonifacio attempted to garnish
the account of VISCO in FEBTC,43 which denied holding that account.
Instead, the bank admitted that what it had was a deposit account in the
Accordingly, on October 4, 1974, the VISCO board of directors had a name of the Board of Trustees-Consortium of Banks, particularly Account
meeting in the FEBTC Boardroom.34 The board was asked to decide how
No. 2479-1.44 FEBTC reported to Sheriff Bonifacio that it had instructed its
VISCO would settle its debt to DBP: whether by asking the Consortium to put
accounting department to hold the account, "subject to the prior liens or
up the necessary amount or by accepting Filmag's offer to purchase VISCO's
rights in favor of [FEBTC] and other entities."45
generator sets.35 The latter option was unanimously chosen36 in a Resolution
worded as follows:
While petitioner's case was pending, VISCO's vice-president (Garcia) and
director (Arturo Samonte) requested from FEBTC a cash advance
of P1,342,656.88 for the full settlement of VISCO's account with DBP.46 On
June 29, 1976, FEBTC complied by issuing Check No. FE239249 On June 27, 1985, VISCO executed through Vicente Garcia, a Deed of
for P1,342,656.88, payable to "[DBP] for [the] account of VISCO." 47 On even Assignment of Right of Redemption62 in favor of the National Steel
date, DBP executed a Deed of Assignment of Mortgage Rights Interest and Corporation (NSC), in consideration of P100,000.63 On the same day, the
Participation48 in favor of Respondent Consortium of Banks. The deed stated Consortium sold the foreclosed real and personal properties of VISCO to the
that, in consideration of the payment made, all of DBP's rights under the NSC.64
mortgage agreement with VISCO were being transferred and conveyed to
the Consortium.49 Thus did the latter obtain DBP's recorded primary lien over On August 16, 1985, petitioner filed against respondents Civil Case No.
the real and chattel properties of VISCO. 3929, which was a Complaint for Annulment or Rescission of Sale, Damages
with Preliminary Injunction.65 Coastal alleged that, despite the Writ of
On September 23, 1980, the Consortium filed a Petition for Extra-Judicial Attachment issued in its favor in the still pending Civil Case No. 21272, the
Foreclosure with the Office of the Provincial Sheriff of Bohol.50 The Notice of Consortium had sold the properties to NSC. Further, despite the attachment
Extrajudicial Foreclosure of Mortgage, published in the Bohol Newsweek on of the properties, the Consortium was allegedly able to sell and place them
October 10, 1980, announced that the auction sale was scheduled for beyond the reach of VISCO's other creditors.66 Thus imputing bad faith to
November 11, 1980.51 respondent banks' actions, petitioner said that the sale was intended to
defraud VISCO's other creditors.
On November 3, 1980, Southern Industrial Projects, Inc. (SIP), which was a
judgment creditor52 of VISCO, filed Civil Case No. 3383. It was a Petitioner further contended that the assignment in favor of the Consortium
Complaint53 for Declaration of Nullity of the Mortgage and Injunction to was fraudulent, because DBP had been paid with the proceeds from the sale
Restrain the Consortium from Proceeding with the Auction Sale. SIP argued of the generator sets owned by VISCO, and not with the Consortium's own
that DBP had actually been paid by VISCO with the proceeds from the sale funds.67 Petitioner offered as proof the minutes of the meeting68 in which the
of the generator sets. Hence, the mortgage in favor of that bank had been transaction was decided. Respondent Consortium countered that the minutes
extinguished by the payment and could not have been assigned to the would in fact readily disclose that the intention of its members was to apply
Consortium.54 A temporary restraining order against the latter was thus the proceeds to a partial payment to DBP.69 Respondent insisted that it used
successfully obtained; the provincial sheriff could not proceed with the its own funds to pay the bank.70
auction sale of the mortgaged assets.55 But SIP's victory was short-lived. On
March 2, 1984, Civil Case No. 3383 was decided in favor of the On August 20, 1985, a temporary restraining order (TRO) 71 was issued by
Consortium.56 Judge Andrew S. Namocatcat ruled thus: Judge Mercedes Gozo-Dadole against VISCO, enjoining it from proceeding
with the removal or disposal of its properties; the execution and/or
"The evidence of the plaintiff is only anchored on the fact that the deed of consummation of the foreclosure sale; and the sale of the foreclosed
assignment executed by the DBP in favor of the defendant banks is an act properties to NSC. On September 6, 1985, the trial court issued an Order
which would defraud creditors. It is the thinking of the court that the payment requiring the Consortium to post a bond of P25 million in favor of Coastal for
of defendant banks to DBP of VISCO's loan and the execution of the DBP of damages that petitioner may suffer from the lifting of the TRO. The bond filed
the deed of assignment of credit and rights to the defendant banks is in was then approved by the RTC in its Order of September 13, 1985.72
accordance with Article 1302 and 1303 of the New Civil Code, and said
transaction is not to defraud creditors because the defendant banks are also On December 15, 1986, Civil Case No. 21272 was finally decided by Judge
creditors of VISCO."57 Nicolas P. Lapena, Jr., in favor of Coastal.73 VISCO was ordered to pay
petitioner the sum of P851,316.19 with interest at the legal rate, plus
On June 14, 1985, this Decision was affirmed by the Intermediate Appellate attorney's fees of P50,000.00 and costs.74 Coastal filed a Motion for
Court in CA-GR No. 03719.58 Execution,75 but the judgment has remained unsatisfied to date.

The auction sale of VISCO's mortgaged properties took place on March 19, On January 5, 1992, a Decision76 on Civil Case No. 3929 was rendered as
1985 and the Consortium emerged as the highest bidder.59 The Certificate of follows:
Sale60 in its favor was registered on May 22, 1985.61
"WHEREFORE, this Court hereby renders judgment in favor of the petitioner as VISCO's creditor. Supposedly, the DBP mortgage had already
defendants and against the plaintiff Coastal Pacific Trading, Inc. BY WAY OF been extinguished by payment; thus, the bank could not have assigned the
THE MAIN COMPLAINT, to wit: contract to the Consortium.79

"1. Declaring the extrajudicial foreclosure sale conducted by the sheriff and Petitioner also prayed for the annulment of the sale in favor of NSC on the
the corresponding certificate of sale executed by the defendant sheriffs on ground that the latter was a party to the fraudulent foreclosure and, hence,
March 15, 1985 relative to the real properties of the defendant SRM/VISCO not a buyer in good faith.80
of Cortes, Bohol, Philippines, which were registered in the Register of Deeds
of Bohol, on May 22, 1985 and the Transfer of Assignment to the defendant Ruling of the Court of Appeals
National Steel Corporation of any or part of the foreclosed properties arising
from the extrajudicial foreclosure sale as valid and legal;
At the outset, the CA stressed that the validity of the Consortium's mortgage,
foreclosure, and assignments had already been upheld in CA-GR CV No.
"2. Ordering the plaintiff Coastal Pacific Trading Inc. to pay the defendant 03719, entitled Southern Industrial Projects v. United Coconut Planters
Consortium of Banks[,] Southern Rolling Mills, Co., Inc., Far East Bank & Bank81 Citing Valencia v. RTC of Quezon City, Br. 9082 and Vda. de Cruzo v.
Trust Company, Philippine Commercial Industrial Bank, Equitable Banking Carriaga,83 the CA explained that the absolute identity of parties was not
Corporation, Prudential Bank, Board of Trustees-Consortium of Banks - necessary for the application of res judicata. All that was required was a
[VISCO], United Coconut Planters Bank, City Trust Banking Corporation, shared identity of interests, as shown by the identity of reliefs sought by one
Associated Bank, Insular Bank of Asia and America, International Corporate person in a prior case and by another in a subsequent case.
Bank, Commercial Bank of Manila, Bank of the Philippine Islands and the
National Steel Corporation in the instant case the amount of FIVE
While Coastal was not a party to Southern Industrial Projects, it should
HUNDRED THOUSAND PESOS (P500,000.00) representing damages;
nevertheless be bound by that Decision, because it had raised substantially
the same claim and cause of action as SIP, according to the appellate court.
"3. Ordering the plaintiff The (sic) Coastal Pacific Trading Inc. to pay the The CA held that the basic reliefs sought by Coastal and SIP were
defendants the amount of FIFTEEN THOUSAND PESOS (P15,000.00) substantially the same: the nullification of the Deed of Assignment in favor of
representing attorney's fees; the Consortium, the foreclosure sale, and the subsequent sale to NSC.
Because this identity of reliefs sought showed an identity of interests, the CA
"4. Dismissing the Amended Complaint of the plaintiff; concluded that it need not rule on those issues.84

"5. Ordering the plaintiff to pay the cost; AND As to the issue that the DBP mortgage had been extinguished by payment,
the CA quoted its earlier Decision in Southern Industrial Projects:
"BY WAY OF CROSS CLAIM INTERPOSED
"The evidence shows that the proceeds of the sale of the two generating sets
"BY THE DEFENDANT National Steel Corporation against the Consortium of were applied by defendants-appellees in the payment of the outstanding
Banks and SRM/VISCO, the same is dismissed for lack of merit, without obligation of VISCO. It appears that said proceeds were deposited in the
pronouncement as to cost."77 bank account of the consortium of creditors to avoid it being garnished by the
creditors notwithstanding the set-off, VISCO was still indebted to the
Insisting that the trial court erred in holding that it had failed to prove its case defendants-appellees.
by preponderance of evidence, Coastal filed an appeal with the CA.
Allegedly, the purported insufficiency of proof was based on the sole ground "The evidence x x x shows that upon VISCO's request for [cash] advance,
that petitioner did not file an objection when the properties were sold on the Far East Banks (sic) and Trust Co., the manager of the consortium of
execution. It contended that the court a quo had arrived at this erroneous creditors, issued FEBTC check No. 239249 on June 29, 1976 in the amount
conclusion by relying on inapplicable jurisprudence.78 of P1,342,656.68 payable to the DBP to pay off its loan to the latter.

Additionally, Coastal argued that the trial court had erred in not annulling the xxx xxx xxx
foreclosure proceedings and sale for being fictitious and done to defraud
"x x x. A public document celebrated with all the legal formalities under the "Respondent Court of Appeals further erred in not annulling the Deed of
safeguard of notarial certificate is evidence against a party, and a high Assignment of the DBP mortgage x x x, the extrajudicial foreclosure
degree [of] proof is necessary to overcome the legal presumption that the proceedings of the two mortgages x x x, and the separate sale of the land
recital is true. The biased and interested testimony of one of the parties to and machineries as real and personal properties by the foreclosing banks to
such instrument who attempts to vary or repudiate what it purports to be, NSC, as well as the assignment or waiver of SRM/Visco's legal right of
cannot overcome the evidentiary force of what is recited in the document." 85 redemption over the foreclosed properties, for being fraudulently executed
through collusion among the [respondents] and in fraud of SRM/Visco's
The appellate court also rejected petitioner's contention that the Consortium's creditor, [Petitioner] Coastal, x x x;"92
Petition for Extrajudicial Foreclosure was already barred by the earlier resort
to a judicial foreclosure. The CA clarified that in filing a Petition for Judicial Stripped of nonessentials, the two issues may be restated as follows:
Foreclosure, the Consortium had pursued its right as junior encumbrancer.
On the other hand, the Consortium filed a Petition for Extrajudicial 1. Whether the present action is barred by res judicata
Foreclosure as a first encumbrancer by virtue of DBP's assignment in its
favor.86 2. Whether respondents disposed of VISCO's assets in fraud of the creditors

The CA also rejected petitioner's theory of extinguishment of obligation by

The Court's Ruling
merger. It observed that the merger could not have possibly taken place,
because respondent banks and VISCO were not creditors and debtors in
their own right.87 The Petition is meritorious.

Petitioner's Motion for Reconsideration,88 which was received by the CA on First Issue:
November 15, 1994,89 was denied for lack of merit. Res judicata

Hence, this Petition.90 The CA cited Valencia v. RTC of Quezon City93 to support the finding that
SIP and Coastal were substantially the same parties. We distinguish.
Issues
In Valencia, the plaintiff-intervenor in the first case, Cariño, claimed Lot 4
based on an alleged purchase of Valencia's "squatter's rights" over the
Petitioner raises the following issues for our consideration:
property. The trial court dismissed the claim and held that no such purchase
ever took place.94 It also held that, on the assumption that a sale had taken
"I place, the sale was null and void for being contrary to the pertinent housing
law. It also found that all current occupants of Lot 4 were illegal squatters;
"Respondent Court of Appeals, seemingly to avoid the irrefutable evidence of thus, it ordered their ejectment.
fraud and collusion practised by [respondents] against [Petitioner] Coastal,
erroneously sustained the trial court's holding that the present case is barred When this first case attained finality, Carino's daughter, Catbagan, filed
by res judicata because of the previous decision in the case of Southern another suit against Valencia. Catbagan challenged the applicability of the
Industrial Projects, Inc., v. United Coconut Planters Bank, CA-G.R. No. ejectment Order issued to her; as an occupant of the lot, she was allegedly
03719, considering that the elements that call for the application of this rule not a party to the first case. Her Petition was denied for lack of merit.95
are not present in the case at bar, and the exceptions allowed by this
Honorable Supreme Court are not applicable here for variance or distinction
The execution of the Decision in the first case was again forestalled when
in facts and issues, x x x:"91 Llanes, Cariño's sister-in-law who was another occupant of Lot 4, filed
another suit against the same respondent. Like Cariño, Llanes insisted on
"II having purchased the subject lot from Valencia.96 This Court ruled that the
suit was barred by res judicata. There was a substantial identity of parties,
because the right claimed by both Cariño and Llanes were based on each privity between the two parties or they are successors-in-interest by title
one's alleged purchase of Valencia's "squatter's rights."97 subsequent to the commencement of the action, litigating for the same thing,
under the same title, and in the same capacity.102 Petitioner was not acting in
In the first case, sales of "squatter's rights" were already categorically the same capacity as SIP when it filed Civil Case No. 3383, which eventually
declared null and void for being contrary to law. Thus, Llanes' admission that became AC-GR CV No. 03719. It brought this latter action as a creditor
she had purchased Valencia's "squatter's rights" placed her in the same under a processing agreement with VISCO; on the other hand, the latter was
category as Cariño. The purchase could not be treated differently, because sued by SIP, based on an alleged breach of their management contract. Very
the final and executory Decision held that all purchases of "squatter's rights" clearly, their rights were entirely distinct and separate from each other. In no
(regardless of who the purchasers were) were null and void.98 manner were these two creditors privies of each other.

Further, the earlier ruling held that "the present occupants are illegal The causes of action in the two Complaints were also different. Causes of
squatters." That ruling included Llanes, who was admittedly one of the action arise from violations of rights. A single right may be violated by several
occupants.99 Simply put, she and Valencia were considered identical parties acts or omissions, in which case the plaintiff has only one cause of action.
for purposes of res judicata, because they were obviously litigating under the Likewise, a single act or omission may violate several rights at the same
same void title and capacity as vendees of "squatter's rights" and as time, as when the act constitutes a violation of separate and distinct legal
occupants of Lot 4. obligations.103 The violation of each of these separate rights is a separate
cause of action in itself.104 Hence, although these causes of action arise from
Moreover, we held in Valencia that Llanes' suit was merely a clear attempt to the same state of facts, they are distinct and independent and may be
prevent or delay the execution of the judgment in the first case, which had litigated separately; recovery on one is not a bar to subsequent actions on
become final by reason of the three affirmances by this Court. The pattern to the others.105
obstruct the execution of the first judgment was obvious: after Cariño lost the
first case, her daughter filed a second one. When the daughter lost the In the present case, the right of SIP (arising from its management contract
second, the daughter-in-law filed a third case. It may be observed that the with VISCO) is totally distinct and separate from the right of Coastal (arising
three successive plaintiffs were all occupants of the same property and from its processing contract with VISCO). SIP and Coastal are asserting
belonged to the same family; this fact was also indicative of their privity. distinct rights arising from different legal obligations of the debtor corporation.
Thus, VISCO's violation of those separate rights has given rise to separate
causes of action.
Given this background, it becomes clear that the finding of a substantial
identity of parties in Valencia was based on its peculiar factual
circumstances, which are different from those in the present case. The confusion in the resolution of the issue of identity of parties occurred,
because the two creditors were assailing the same transactions of VISCO on
the same grounds. Since the two cases they filed presented similar legal
Unlike Llanes, Coastal is not asserting a right that has been categorically
issues, the appellate court held that its ruling in AC-GR CV No. 03719 was
declared null and void in a prior case. In fact, its right based on the
processing agreement was upheld in Civil Case No. 21272. Clearly, Coastal also applicable to the instant case.
cannot be treated in the same manner as Llanes.
Common but palpable is this misconception of the doctrine of res judicata.
Persons do not become privies by the mere fact that they are interested in
The CA erred in applying Southern Industrial Projects v. United Coconut
the same question or in proving the same set of facts, or that one person is
Planters Bank100 as a bar by res judicata with respect to the present case.
For this principle to apply, the following elements must concur: a) the former interested in the result of a litigation involving the other. Hence, several
judgment was final; b) the court that rendered it had jurisdiction over the creditors of one debtor cannot be considered as identical parties for the
purpose of assailing the acts of the debtor. They have distinct credits, rights,
subject matter and the parties; c) the judgment was based on the merits;
and interests, such that the failure of one to recover should not preclude the
and, d) between the first and the second actions, there is an identity of
other creditors from also pursuing their legal remedies.
parties, subject matters, and causes of action.101

It is axiomatic that res judicata does not require an absolute, but only a Further, petitioner, which was not a party to Southern Industrial
Projects (their causes of action being separate and distinct), did not have the
substantial, identity of parties. There is a substantial identity when there is
opportunity to be heard in that case, much less to present its own evidence. property.110 Their duty was more stringent when it became insolvent or
Thus, to bind petitioner to the Decision in that case would clearly violate its without sufficient assets to meet its outstanding obligations that arose.
rights to due process. As a separate party, it has the right to have its Because they were deemed trustees of the creditors in those instances, they
arguments and evidence evaluated on their own merits. should have managed the corporation's assets with strict regard for the
creditors' interests. When these directors became corporate creditors in their
Second Issue: own right, they should not have permitted themselves to secure any undue
Fraud of Creditors advantage over other creditors.111 In the instant case, the Consortium
miserably failed to observe its duty of fidelity towards VISCO and its
We now come to the heart of the Petition. Coastal alleges that the creditors.
assignment of mortgage, the extrajudicial foreclosure proceedings, and the
sale of the properties of VISCO should all be rescinded on the ground that Duty of the Consortium Banks
they were done to defraud the latter's creditors. to VISCO's Creditors

The CA found no merit in petitioner's arguments. It ruled that the assignment Recall that as early as 1966, the Consortium, through its directors on the
conformed to the requirements of law; that the consideration for the board of VISCO, had already assumed management and control over the
assignment had allegedly been given by FEBTC; and that, hence, the latter. Hence, when VISCO recognized its outstanding liability to petitioner in
Consortium had a right to foreclose on the mortgaged properties. 1970 and offered a Compromise Agreement,112 respondent banks were
already at the helm of the debtor corporation. The members of the
Consortium, therefore, cannot deny that they were aware of those claims
By focusing on the innate validity of these Contracts, the CA totally
against the corporation. Nonetheless, they did not adopt any measure to
overlooked the issue of fraud as a ground for rescission. Elementary is the
protect petitioner's credit.
principle that the validity of a contract does not preclude its rescission. Under
Articles 1380 and 1381 (3) of the Civil Code, contracts that are otherwise
valid between the contracting parties may nonetheless be subsequently Quite the opposite, they even took steps to hide VISCO's unexpended funds.
rescinded by reason of injury to third persons, like creditors.106 In fact, Garcia's 1972 letter to Samonte unmistakably reveals that they kept those
rescission implies that there is a contract that, while initially valid, produces a funds in an account named "Board of Trustees VISCO Consortium of Banks."
lesion or pecuniary damage to someone.107 Thus, when the CA confined This fact alone shows an effort to hide, with the evident intent to keep, those
itself to the issue of the validity of these contracts, it did not at all address the funds for themselves. The letter even says that, for the protection of the
heart of petitioner's cause of action: whether these transactions had been Consortium, the name "VISCO" should be eliminated entirely, so that the
undertaken by the Consortium to defraud VISCO's other creditors. account name would read "Board of Trustees Consortium of Banks." Clearly,
this particular move was found to be necessary to avoid a takeover by the
government, which was also a creditor of VISCO.113 This express intent of
There is more than a preponderance of evidence showing the Consortium's
the latter, under the direction and for the benefit of the Consortium,
deliberate plan to defraud VISCO's other creditors.
corroborated petitioner's contention that respondent banks had defrauded
VISCO's creditors.
Consortium Banks as Directors
Assignment of Mortgage
It will be recalled that Respondent Consortium took over management and in Favor of the Consortium Banks
control of VISCO by acquiring 90 percent of the latter's equity. Thus, 9 out of
the 10 directors of the corporation were all officials of the
The assignment of mortgage in favor of the Consortium also bears the
Consortium,108 which may thus be said to have effectively occupied and/or
earmarks of fraud. Initially, respondent banks had agreed that VISCO should
controlled the board. Significantly, nowhere in the records can we find any
sell two of its generator sets, so that the proceeds could be utilized to pay
denial by respondent of this allegation by petitioner. 109
DBP. This plan was direct, simple, and would extinguish the encumbrance in
favor of the bank.
As directors of VISCO, the officials of the Consortium were in a position of
trust; thus, they owed it a duty of loyalty. This trust relationship sprang from
the fact that they had control and guidance over its corporate affairs and
Then, quite surprisingly, the Consortium set down the following payment "Neither shall rescission take place when the things which are the object of
procedure: Filmag would pay VISCO; the latter would pay the Consortium, the contract are legally in the possession of third persons who did not act in
which would pay DBP; and the Consortium would then subrogate DBP to the bad faith.
latter's rights as first mortgagee. One is then led to ask: if the intention was to
pay DBP; from the sales proceeds of the generator sets, why did the money "In this case, indemnity for damages may be demanded from the person
have to pass through the Consortium?cralawlibrary causing the loss."

The answer lies in the nature of respondent's mortgage. It will be recalled Indeed, mutual restitution is required in all cases involving rescission. But
that this mortgage remained unrecorded and not legally binding on the other when it is no longer possible to return the object of the contract, an indemnity
creditors.114 Thus, if DBP had been directly paid by VISCO, the latter could for damages operates as restitution. The important consideration is that the
have freed up its properties to the satisfaction of all its other creditors. This indemnity for damages should restore to the injured party what was lost.
procedure would have been fair to all, but it was not followed by the
Consortium. In the case at bar, it is no longer possible to order the return of VISCO's
properties. They have already been sold to the NSC, which has not been
Instead, the proceeds from the sale of the generator sets were first paid to shown to have acted in bad faith. The party alleging bad faith must establish
respondent banks, which used the money to pay DBP. The last step in the it by competent proof. Sans that proof, purchasers are deemed to be in good
payment procedure explains the reason for this preferred though roundabout faith, and their interest in the subject property must not be disturbed.
manner of payment. This final step entitled the Consortium to obtain DBP's Purchasers in good faith are those who buy the property of another without
primary lien through an assignment by allowing it to pay VISCO's loan to the notice that some other person has a right to or interest in the property; and
bank, without incurring additional expenses. who pay the full and fair price for it at the time of the purchase, or before they
get notice of some other persons' claim of interest in the property.118
In the end, by collecting the money from VISCO, respondent banks
recovered what they had ostensibly remitted to DBP. Moreover, the primary In the present case, petitioner failed to discharge its burden of proving bad
lien that respondent banks acquired allowed them, as unsecured creditors of faith on the part of NSC. There is insufficient evidence on record that the
VISCO, to foreclose on the assets of the corporation without regard to its latter participated in the design to defraud VISCO's creditors. To NSC,
inferior claims. It was a clever ruse that would have worked, were it not done petitioner imputes fraud from the sole fact that the former was allegedly
by creditors who were duty-bound, as directors, not to take clever advantage aware that its vendor, the Consortium, had taken control over VISCO
of other creditors. including the corporation's assets.119 We cannot appreciate how knowledge
of the takeover would necessarily implicate anyone in the Consortium's
To be sure, there was undue advantage. The payment scheme devised by fraudulent designs. Besides, NSC was not shown to be privy to the
the Consortium continued the efficacy of the primary lien, this time in its information that VISCO had no other assets to satisfy other creditors'
favor, to the detriment of the other creditors. When one considers its respective claims.
knowledge that VISCO's assets might not be enough to meet its obligations
to several creditors,115 the intention to defraud the other creditors is even The right of an innocent purchaser for value must be respected and
more striking. Fraud is present when the debtor knows that its actions would protected, even if its vendors obtained their title through fraud. 120 Pursuant to
cause injury.116 this principle, the remedy of the defrauded creditor is to sue for damages
against those who caused or employed the fraud. Hence, petitioner is entitled
The assignment in favor of the Consortium was a rescissible contract for to damages from the Consortium.
having been undertaken in fraud of creditors.117 Article 1385 of the Civil Code
provides for the effect of rescission, as follows: Award of Damages

"Rescission creates the obligation to return the things which were the object It is essential that for damages to be awarded, a claimant must satisfactorily
of the contract, together with their fruits, and the price with its interest; prove during the trial that they have a factual basis, and that the defendant's
consequently, it can be carried out only when he who demands rescission acts have a causal connection to them.121 Thus, the question of damages
can return whatever he may be obliged to restore. should normally call for a remand of the case to the lower court for further
proceedings. Considering, however, the length of time that petitioner's just [C]omplaint, plus attorney's fees of P50,000 and x x x the costs." Respondent
claim has been thwarted, we find it in the best interest of substantial justice to Consortium of Banks is further ordered to pay petitioner exemplary damages
decide the issue of damages now on the basis of the available records. A in the amount of P250,000.
remand for further proceedings would only result in a needless delay.
SO ORDERED.
Going over the records of the case, we find that petitioner has a final and
executory judgment in its favor in Civil Case No. 21272. The judgment in that
case reads as follows:

"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs

ordering defendant VISCO/SRM to pay the plaintiffs the sum of P851,316.19
with interest thereon at the legal rate from the filing of this complaint, plus
attorney's fees of P50,000.00 and to pay the costs."122

The foregoing is the judgment credit that petitioner cannot enforce against
VISCO because of Respondent Consortium's fraudulent disposition of the
corporation's assets. In other words, the above amounts define the extent of
the actual damage suffered by Coastal and the amount that respondent has
to restore pursuant to Article 1385.

On the basis of the finding of fraud, the award of exemplary damages is in

order, to serve as a warning to other creditors not to abuse their rights. Under
Article 2229 of the Civil Code, exemplary or corrective damages are imposed
by way of example or correction for the public good. By their nature,
exemplary damages should be imposed in an amount sufficient and effective
to deter possible future similar acts by respondent banks. The court finds the
amount of P250,000 sufficient in the instant case.

As a rule, a corporation is not entitled to moral damages because, not being

a natural person, it cannot experience physical suffering or sentiments like
wounded feelings, serious anxiety, mental anguish and moral shock.123 The
only exception to this rule is when the corporation has a good reputation that
is debased, resulting in its humiliation in the business realm.124 In the present
case, the records do not show any evidence that the name or reputation of
petitioner has been sullied as a result of the Consortium's fraudulent acts.
Accordingly, moral damages are not warranted.

WHEREFORE, the Petition is GRANTED. The assailed Decision of the Court

of Appeals dated September 27, 1994, and its Resolution dated January 5,
1995, are hereby REVERSED and SET ASIDE. Respondent Consortium of
Banks is ordered to PAY Petitioner Coastal Pacific Trading, Inc., the sum
adjudged by the Regional Trial Court of Pasig, Branch 167, in Civil Case No.
21272 entitled Coastal Pacific Trading, Felix de la Costa, and Aurora del
Banco v. Visayan Integrated Corporation, to wit: "x x x the sum
of P851,316.19 with interest thereon at the legal rate from the filing of [the]