commrev case digests 072414

8/11/2019 CommRev Case Digests 072414

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Piercing the Corporate Veil:

Test in Determining Applicability

G.R. No. 98185 December 11, 1992

SIBAGAT TIMBER CORPORATION, petitioner, vs.ADOLFO B. GARCIA, USIPHIL, INC. and STRONGHOLD INSURANCE CO., INC., respondents.

On August 30, 1988, respondent Sheriff Garcia, levied on the following personal properties ( Machineries)of Del Rosar& Sons, which he scheduled for sale at public auction on September 7, 1988 at 10:00 o'clock in the morning. He alsolevied on a logging truck and tonner, which he scheduled for auction on Sept. 8.

On the same date that the levy was made by the sheriff, Sibagat, through Mariano Rana, filed a third-party claim alleginthat it is the lawful owner of the levied machinery and equipment, by virtue of deeds of sale executed in its favor by DeRosario & Sons Logging.

An indemnity bond was posted by the judgment creditor, USIPHIL, Inc., to indemnify the respondent sheriff against the

claim of the third-party claimant. Sibagat filed in the Regional Trial Court of Butuan City, a petition for "Certiorari,Prohibition and Injunction with Restraining Order & Writ of Preliminary Injunction and Damages.A temporaryrestraining order was issued on September 6, 1988 by the Executive Judge of that court.

On the day of auction the court employees who were deputized to serve the restraining order arrived at the place whethe auction sale was to be held. However, they were told by Sheriff Garcia that the auction sale was finished at 10:30 Ayet, and that a certificate of sale for each of the personal properties to be auctioned on that day had already been issueto USIPHIL, INC., the judgment creditor, as the only bidder and purchaser.

After the hearing on the application for preliminary injunction was held on September 15, 1988, the parties weredirected to submit simultaneous memoranda. Thereafter the case was deemed submitted for resolution. In the meantirespondent USIPHIL, INC., filed a formal motion to dismiss the petition which the trial court granted on February 28,1990.

On March 9, 1990, the petitioner appealed the order of dismissal to the Court of Appeals (CA G.R. No. 20799). OnFebruary 15, 1991, the Court of Appeals dismissed the appeal.

Petitioner's motion for reconsideration was denied by the Court of Appeals. Hence, this petition for review under Ruleof the Rules of Court.

The main issue raised by the petitioner is the supposed error of the CA in piercing the veil of corporate entity

and in holding that the 3rdparty claimant, Sibagat Corporation, is not a separate and distinct entity from the

judgment debtor, Del Rosario & Sons Logging Enterprises, Inc.

As pointed out by the Court of Appeals in its decision:

Gleaned from the records of this case, Mariano Rana, the third-party claimant for and in behalf ofpetitioner testified, among others:

a. That he is the office manager of Sibagat Timber Corporation;b. That he is the administrative manager of Del Rosario and Sons Logging Enterprises, Inc. in a

concurrent capacity;c. That the officers of the Sibagat Timber are: Mr. Policarpio C. Del Rosario, President and General

Manager; Miss Conchita C. Del Rosario, Vice-President and General Manager; and the Directors ar


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Policarpio Del Rosario, Jr., Cristina Del Rosario, Mrs. Jasmin Del Rosario, and Vicente C. Cel Rosari(pp. 61-63, id.).

d. On the part of Del Rosario and Sons Logging Enterprises, Inc., the officers of the company are: MrPolicarpio C. Cel Rosario, President; Miss Conchita Del Rosario, Vice-President/GeneralManager/Director and Treasurer; Mrs. Jasmin A. Del Rosario, Querubin Del Rosario, and Cristeta Rosario, respectively. (p. 29, Rollo.)

The circumstances that: (1) petitioner and Del Rosario & Sons Logging Enterprises, Inc. hold office in the same buildin(2) the officers and directors of both corporations are practically the same; and (3) the Del Rosarios assumedmanagement and control of Sibagat and have been acting for and managing its business (p. 30, Rollo), bolster theconclusion that petitioner is an alter ego of the Del Rosario & Sons Logging Enterprises, Inc.

The rule is that the veil of corporate fiction may be pierced when made as a shield to perpetrate fraud and/or confuselegitimate issues (Jacinto vs. CA, 198 SCRA 211). The theory of corporate entity was not meant to promote unfairobjectives or otherwise, to shield them (Villanueva vs. Adre, 172 SCRA 876). Likewise, where it appears that two businenterprises are owned, conducted, and controlled by the same parties, both law and equity will, when necessary toprotect the rights of third persons, disregard the legal fiction that two corporations are distinct entities, and treat themidentical (Phil. Veterans Investment Development Corp. vs. CA, 181 SCRA 669).

That allegation has no merit. The issue raised in that case was "whether or not an action for prohibition will prosper aremedy for acts already accomplished." It was a procedural question, not the ownership of the properties subject of thexecution.

Assuming arguendothat this Court in G.R. No. 84497 held that petitioner is the owner of the properties levied underexecution, that circumstance will not be a legal obstacle to the piercing of the corporate fiction. As found by both the trand appellate courts, petitioner is just a conduit, if not an adjunct of Del Rosario & Sons Logging Enterprises, Incsuch a case, the real ownership becomes unimportant and may be disregard for the two entities may/can be treated asonly one agency or instrumentality.

The corporate entity is disregarded where a corporation is the mere alter ego, or business conduit of a person

where the corporation is so organized and controlled and its affairs are so conducted, as to make it merely an

instrumentality, agency, conduit or adjunct of another corporation. ( Agbayani, Commercial Laws of the PhilippinVol. 3, 1984 Ed.)

WHEREFORE, the petition for review is DENIEDand the decision of the Court of Appeals is AFFIRMED.

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G.R. No. 89804 October 23, 1992

CALVIN S. ARCILLA, petitioner, vs.CA and EMILIO RODULFO, respondents.

This petition is a belated attempt to avoid the adverse amended decision of public respondent, promulgated on 31 May1989 in C.A.-G.R. No. 11389, 1on the ground that Arcilla is not personally liable for the amount adjudged since the samconstitutes a corporate liability which nevertheless cannot even bind or be enforced against the corporation because inot a party in the collection suit filed before the trial court.

Rodulfo filed with the RTC of Catanduanes a complaint for a sum of money against Arcilla. That from late 1981 up to ea1983, Arcilla, taking advantage of his close friendship with Rodulfo, succeeded in securing on credit from the plaintiff,various items, cash and checks which he encashed, in the total amount of P93,358.51, which Rodulfo willingly extendebecause of the representations of Arcilla that he was a successful financial consultant of local and internationalbusinessmen;


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That Arcilla's indebtedness is shown and described in thirty (30) "vales" signed by him or by persons authorized by hiall of which documents are in the possession of the plaintiff for being unredeemed or unpaid.

That commencing with the summer months of 1983 up to the time immediately before the filing of this complaint, theRodulfo had made numerous demands for payment but Arcilla acted in gross and evident bad faith in refusing to pay.

In his Answer, Arcilla does not deny having had business transactions with the private respondent but alleges that theprofessional relationship began only in August of 1982 when he "was looking for a "pro-forma"invoice to support hisloan with the Kilusang Kabuhayan at Kaunlaran (KKK for short) under the Ministry of Human Settlement. He explicitlyadmits that "his loan was in the same of his family corporation, CSAR Marine Resources, Inc.;"however, the "vales", morespecifically Annexes "A" to "DD" of the complaint, "were liquidated in the bank loan releases." It is thus clear that hismain defense is payment; he did not interpose any other affirmative defense.

In his Pre-Trial Brief, Arcilla reiterated the earlier claim that his first business dealing with Rondulfo was in August of1982. This time, however, he alleges that "as President of CSAR Marine Resources, Inc., he requested for apro-formaInvoice for said corporation to support the loan application with the Kilusang Kabuhayan at Kaunlaran (KKK forshort), with the Ministry of Human Settlement.

Trial Court Ruling: Arcilla admitted the genuineness and due execution of the vales but alleged paying P56,098.00 thruPNB Virac Branch, per Cash Voucher dated September 28, 1982, and then P42,363.75 also thru PNB Virac Branch, perPNB check No. 628861K dated December 16, 1982.

It ruled that since Cash Voucher is dated 28 September 1982 and the "vales,with the exception of Exhibits "K" in theamount of P1,730.00 and "Q" in the amount of P10,765.00, were issued after said date, it could not have been in paymeof the "vales" other than that evidenced by Exhibits "K" and "Q"

Considering, however, that the "vales" remained in the possession of the private respondent, they are presumed toremain unpaid, the court therefore ordered Arcilla to pay private respondent:

(a) the total amount of P92,358.43 covered by the "vales", plus interest thereon at the rate of twelve (12%) per centpeannumfrom June 4, 1985 when the complaint was filed, attorneys fees and cost of suit.

CA affirmed the trial court's decision. Arcilla filed a motion to reconsider the aforesaid decision, alleging that the evideshowing payment of the "vales" is "uncontroverted", hence the presumption that they were not paid simply because thremain in the possession of the creditor cannot arise;

(b) the alleged non-payment of the "vales" could have been further explained if was given opportunity to present sur-rebuttal witness and documentary evidence; besides, he has newly discovered evidence invoked in a prayer for a netrial that was nevertheless denied by the lower court which consists of a letter, dated 7 February 1983, signed byRafael Rodulfo, General Manager of the private respondent and addressed to Brig. Gen. Clemente Racela, then KKKGeneral Action Officer, categorically stating that "the account of CSAR Marine Resources, Inc. c/o Atty. Calvin Arcilla" isonly P23,639.33; and

(c) the evidence presented by both parties disclosure that "the subject account are all in the name of CSAR MARINERESOURCES, INC., a corporation separate and distinct from the appellant.

Reacting to this motion, private respondent, in a Manifestation, informed the CA, that in the interest of justice and fairplay, he interposes no objection to the alternative prayer for a new trial. Hearing was thereafter conducted to receive petitioner's so-called newly discovered evidence consisting of the abovementioned letter of Rafael Rodulfo, dated 7February 1983, to General Clemente A. Racela, wherein Racela, as GM of Rodulfo's Universal Enterprises, informed thelatter that CSAR Marine Resources, Inc. c/o Atty. Calvin Arcilla has an outstanding obligation of TWENTY THREETHOUSAND SIX PESOS to Universal Enterprises as a result of various purchases of construction materials.


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CA promulgated an Amended Decision, where it reconsidered and ordered Arcilla to pay plaintiff-appellee in his capacas President of CSAR, the outstanding balance of P23,639.33 to Universal, plus interest at 12%per annumfrom June 4,1985 when the complaint was filed; attorney's fees of P1,000.00, P200.00 per court appearance of counsel and 25% ofthe amount awarded; plus the costs of the suit.

On 4 January 1989, Arcilla filed a Motion For Clarificatory Judgment 20alleging therein that:

It is very clear from the findings of this Honorable Court contained in the amended decision promulgated on May 31,1989 that defendant Arcilla never had any personal business transaction (sic) in the plaintiff; that CSAR MarineResources, Inc. has an outstanding balance out of the KKK loan transaction; and that CSAR Marine is not a party in thiscase;

It is rather confusing that he is ordered to pay in his capacity as President of CSAR the said amount when the corporatwas not impleaded.

He then prays that an order be issued clarifying the liability of defendant-appellant in his personal capacity as

regards the amount of P23,639.33, if any, otherwise, the case be dismissed against him.

CA denied the motion on these grounds: (a) the veil of corporate fiction should be pierced in this case; (b) since petitiodid not raise the issue of separate corporate identity in the pleadings in the trial court or in his Brief, he cannot raise itthe first time in a Motion for Clarificatory Judgment; in his answer to paragraphs 3 and 4 of the complaint, he admits thit was he and not his corporation who transacted business with the private respondent; and (c) the "vales" refer not onto construction materials for which the loan to CSAR Marine was supposed to be used, but also to consumables such assalt, rice, food seasoning, cigarettes, coffee, etc.; this indicates that the petitioner himself did not seriously treat thecorporate affairs of CSAR as separate and distinct from his own.

Not satisfied with the Resolution, petitioner filed this petition. He alleges therein that CA:

ERRED IN HOLDING CSAR AS LIABLE TO THE PRIVATE RESPONDENT IN THE AMOUNT WITHOUT BEING IMPLEADEAS A PARTY IN THE CASE IN VIOLATION OF LAW AND THE APPLICABLE DECISIONS OF THE SUPREME COURT; and INNOT DISMISSING THE CASE AGAINST THE PETITIONER.

On the contrary, the pleadings lead Us to the inescapable conclusion that the petitioner, who is himself a lawyer, ismerely taking advantage of the use of the innocuous phrase "in his capacity as President" found in the

dispositive portion of the challenged Amended Decision making the same a sanctuary for a defense which h

as hereinafter discussed, had long since abandoned or waived either deliberately or through his obliviscence.

sole purpose, of course, is to avoid complying with the liability adjudged against him by the CA; such avoidance ispremiered on the so-called newly discovered evidence offered after the public respondent had bent over backwards togrant him a new trial despite the availability of such evidence during pendency of the proceedings before the trial courIt is to be noted that he failed to assign as error in his Brief the denial by the said court of his motion for new trial on thbasis thereof.

The grant of affirmative relief based on the first assigned error would really redound to the benefit of an entirety whicwas not made a party in the main case and which did not seek to intervene therein. Therefore, it has no personality to

seek as review of the CAs Amended Decision under Rule 45. Only the original parties to the main case may doso. Moreover, by no stretch of even the most fertile imagination may one be able to conclude that the challengedAmended Decision directed the company to pay the amounts adjudge. By its clear and unequivocal language, it is thepetitioner who was declared liable therefor and consequently made to pay. That he was ordered to do so as Presidentwould not free him from the responsibility of paying the due amount simply because according to him, he had ceased tbe corporate president. Such conclusion stems from the fact that the public respondent, in resolving his motion forclarificatory judgment, pierced the veil of corporate fictional and cast aside the contention that both he and thecorporation have separate and distinct personalities. In short, even if We are to assume arguendo that the obligation wincurred in the name of the corporation, the petitioner would still be personally liable therefor because for all legal


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intents and purposes, he and the corporation are one and the same. Csar Marine Resources, Inc. is nothing more than hbusiness conduit and alter ego. The fiction of a separate juridical personality conferred upon such corporation by lawshould be disregarded. Significantly, petitioner does not seriously challenge the public respondent's application of thedoctrine which permits the piercing of the corporate veil and the disregarding of the fiction of a separate juridicalpersonality; this is because he knows only too well that from the very beginning, he merely used the corporation for hipersonal purposes.

In his answer to the complaint, petitioner volunteered the information that thepro-formainvoice which he obtained frthe private respondent and which became the source of the obligations reflected in the "vales" was to support his loanthe name of his family corporation, CSAR Marine Resources, Inc.That it was indeed his loanis further borne out by hisallegations therein part.

WHEREFORE, for utter lack of merit, the instant petition is DENIED with costs against petitioner.

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+G.R. No. L-33172 October 18, 1979

ERNESTO CEASE, CECILIA CEASE, MARION CEASE, TERESA CEASE-LACEBAL and the F.L. CEASE PLANTATION CO

INC. as Trustee of properties of the defunct TIAONG MILLING & PLANTATION CO.,petitioners,vs.HONORABLE COURT OF APPEALS, (Special Seventh Division), HON. MANOLO L. MADDELA, Presiding Judge, CFI

Quezon, BENJAMIN CEASE and FLORENCE CEASE, respondents.

Facts:

Sometime in June 1908, Forrest L. Cease, with 5 other American citizens organized the Tiaong Milling and PlantationCompany, and acquired various properties. He eventually brought out all his other incorporators together with hischildren namely: Ernest, Cecilia, Teresita, Benjamin, Florence and one Bonifacia Tirante also considered a member of tfamily. The companys charter lapsed in June 1958. On 13 August 1959, F.Cease died, and an extrajudicial partition of shares, among the children, was disposed of on 19 October 1959.

Benjamin and Florence wanted an actual division while the other children wanted reincorporation. So the othersincorporated themselves into the F.L. Cease Plantation Company and registered it with the SEC on 9 December, 1959;apparently in view of that, Benjamin and Florence for their part initiated for the settlement of the estate of Forest L.Cease on 21 April, 1960 and one month afterwards on 19 May 1960 they filed a case against Ernesto, Teresita and CeciCease together with Bonifacia Tirante asking that Tiaong Milling be declared Identical to F.L. Cease and that its properbe divided among his children as his intestate heirs.

Ernesto and Bonifacio set to have the properties placed under receivership. They were not able to succeed becausedefendants filed a bond to remain as they have remained in possession. During the pendency of Civil Case No. 6326,apparently on the eve of the expiry of the three (3) year period provided by the law for the liquidation of corporationsthe board of liquidators of Tiaong Milling executed an assignment and conveyance of properties and trust agreement ifavor of F.L. Cease Plantation Co. Inc. as trustee of the Tiaong Milling and Plantation Co. so that upon motion of theplaintiffs, the trial Judge ordered that this alleged trustee be also included as party defendant; now this being thesituation. CFI Quezon Ruling:

1) The assets or properties of the defunct Tiaong Milling now appearing under the name of F.L. Cease PlantationCompany as Trustee, is the estate also of the deceased Forrest L. Cease and ordered divided, share and share alike, amhis six children the plaintiffs and the defendants in accordance with Rule 69, Rules of Court;

2) The Resolution to Sell and the Transfer and Conveyance with Trust Agreement is hereby set aside as improper andillegal for the purposes and effect that it was intended and, therefore, null and void;


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3) That F.L. Cease Plantation Company is removed as 'Trustee for interest against the estate and essential to theprotection of plaintiffs' rights and is hereby ordered to deliver and convey all the properties and assets of the defunctTiaong Milling now under its name, custody and control to whomsoever be appointed as Receiver - disqualifying and othe parties herein - the latter to act accordingly upon proper assumption of office; and

4) Special Proceedings No. 3893 for administration is terminated and dismissed; the instant case to proceed but on iss

of damages only and for such action inherently essential for partition.

Upon receipt, defendants there filled a notice of appeal together with an appeal bond and a record on appeal but theplaintiffs moved to dismiss the appeal on the ground that the judgment was in fact interlocutory and not appealable. Tposition was sustained by the trial judge ruling that the appeal interposed by plaintiffs is hereby dismissed as prematu

Defendants brought the matter first to SC on mandamus to compel the appeal and certiorari and prohibition to annul torder on the ground that the decision was "patently erroneous" but the Supreme Court remanded the case to the CA. Cdismissed the petition so far as the mandamus was concerned taking the view that the decision sought to be appealedwas interlocutory and not appealable but on motion for reconsideration of petitioners and since there was possible meso far as its prayer for certiorari and prohibition was concerned, by resolution of the Court, the petition was permittedgo ahead in that capacity; and it is the position of petitioners that the decision of 27 December, 1969 as well as the ordof 27 April, 1970 suffered of certain fatal defects, which respondents deny and on their part raise the preliminary poin

that this Court of Appeals has no authority to give relief to petitioners because not in aid of its appellate jurisdiction, athat the questions presented cannot be raised for the first time before this Court of Appeals;

CA dismissed the petition with costs against petitioners, hence the present petition to this Court on the followingassignment of errors:

THE COURT OF APPEALS ERRED -

I. IN SANCTIONING THE WRONGFUL EXERCISE OF JURISDICTION BEYOND THE LIMITS OF AUTHORITY CONFERRED LAW UPON THE LOWER COURT, WHEN IT PROCEEDED TO HEAR, ADJUDGE AND ADJUDICATE -

(a) Special Proceedings No. 3893 for the settlement of the Estate of Forrest L. Cease, simultaneously and concurrently

with the Civil Case No. 6326, wherein the lower Court ordered Partition under Rule 69, Rules of Court.

THE ISSUE OF LEGAL OWNERSHIP OF THE PROPERTIES COMMONLY INVOLVED IN BOTH ACTIONS HAVING BEENRAISED AT THE OUTSET BY THE TIAONG MILLING AND PLANTATION COMPANY, AS THE REGISTERED OWNER OFSUCH PROPERTIES UNDER ACT 496.

II. IN AFFIRMING - UNSUPPORTED BY ANY EVIDENCE WHATSOEVER NOR CITATION OF ANY LAW TO JUSTIFY - THEUNWARRANTED CONCLUSION THAT SUBJECT PROPERTIES, FOUND BY THE LOWER COURT AND THE COURT OFAPPEALS AS ACTUALLY REGISTERED IN THE NAME OF PETITIONER CORPORATION AND/OR ITS PREDECESSOR ININTEREST, THE TIAONG MILLING AND PLANTATION COMPANY, DURING ALL THE 50 YEARS OF ITS CORPORATEEXISTENCE "ARE ALSO PROPERTIES OF THE ESTATE OF FOREST L. CEASE."

III. IN AFFIRMING THE ARBITRARY CONCLUSION OF THE LOWER COURT THAT ITS DECISION OF DECEMBER 27,196IS AN "INTERLUCUTORY DECISION." IN DISMISSED NG THE PETITION FOR WRIT OF MANDAMUS, AND IN AFFIRMINTHE MANIFESTLY UNJUST JUDGMENT RENDERED WHICH CONTRADICTS THE FINDINGS OF ULTIMATE FACTSTHEREIN CONTAINED.

During the period that ensued after the filing in this Court of the respective briefs and the subsequent submission of thcase for decision, some incidents had transpired, the summary of which may be stated as follows:


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1. Separate from this present appeal, petitioners filed a petition for certiorari and prohibition in this Court, docketed aG.R. No. L-35629 (Ernesto Cease, et al. vs. Hon. Manolo L. Maddela, et al.) which challenged the order of respondent juddated September 27, 1972 appointing his Branch Clerk of Court, Mr. Eleno M. Joyas, as receiver of the properties subjeof the appealed civil case, which order, petitioners saw as a virtual execution of the lower court's judgment (p. 92, rolloIn Our resolution of November 13, 1972, issued in G.R. No. L-35629, the petition was denied since respondent judgemerely appointed an auxilliary receiver for the preservation of the properties as well as for the protection of the intere

of all parties in Civil Case No. 6326; but at the same time, We expressed Our displeasure in the appointment of the branclerk of court or any other court personnel for that matter as receiver. (p. 102, rollo).

2. Meanwhile, sensing that the appointed receiver was making some attempts to take possession of the properties,petitioners filed in this present appeal an urgent petition to restrain proceedings in the lower court. We resolved thepetition on January 29, 1975 by issuing a corresponding temporary restraining order enjoining the court a quo fromimplementing its decision of December 27, 1969, more particularly, the taking over by a receiver of the propertiessubject of the litigation, and private respondents Benjamin and Florence Cease from proceeding or taking any action othe matter until further orders from this Court (pp. 99-100, rollo). Private respondents filed a motion for reconsideratof Our resolution of January 29, 1975. After weighing the arguments of the parties and taking note of Our resolution inG.R. No. L-35629 which upheld the appointment of a receiver, We issued another resolution dated April 11, 1975 liftineffective immediately Our previous temporary restraining order which enforced the earlier resolution of January 29,1975 (pp. 140-141, rollo).

3. On February 6, 1976, private respondents filed an urgent petition to restrain proceedings below in view of theprecipitate replacement of the court appointed receiver Mayor Francisco Escueta (vice Mr. Eleno M. Joyas) and theappointment of Mr. Guillermo Lagrosa on the eve of respondent Judge Maddela's retirement (p. 166, rollo). The urgentpetition was denied in Our resolution of February 18, 1976 (p. 176, rollo).

4. Several attempts at a compromise agreement failed to materialize. A Tentative Compromise Agreement dated July 31975 was presented to the Court on August 6, 1976 for the signature of the parties, but respondents "unceremoniouslyrepudiated the same by leaving the courtroom without the permission of the court (Court of First Instance of Quezon,Branch 11) as a result of which respondents and their counsel were cited for contempt (p. 195, 197, rollo) thatrespondents' reason for the repudiation appears to be petitioners' failure to render an audited account of theiradministration covering the period from May 31, 1961 up to January 29, 1974, plus the inclusion of a provision on waiand relinquishment by respondents of whatever rights that may have accrued to their favor by virtue of the lower cou

decision and the affirmative decision of the appellate court.

We go now to the alleged errors committed by the respondent Court of Appeals.

As can be gleaned from petitioners' brief and the petition itself, two contentions underlie the first assigned error. Firstpetitioners argue that there was an irregular and arbitrarte termination and dismissal of the special proceedings forjudicial administration simultaneously ordered in the lower courts decision in Civil Case No. 6326 adjudicating thepartition of the estate, without categorically, reasoning the opposition to the petition for administration Second, that thissue of ownership had been raised in the lower court when Tiaong Milling asserted title over the properties registereits corporate name adverse to Forrest L. Cease or his estate, and that the said issue was erroneously disposed of by thetrial court in the partition proceedings when it concluded that the assets or properties of the defunct company is also testate of the deceased proprietor.

The propriety of the dismissal and termination of the special proceedings for judicial administration must be affirmedspite of its rendition in another related case in view of the established jurisprudence which favors partition when judiadministration become, unnecessary. As observed by the Court of Appeals, the dismissal at first glance is wrong, for threason that what was actually heard was Civil Case No. 6326. The technical consistency, however, it is far less importathan the reason behind the doctrinal rule against placing an estate under administration. Judicial rulings consistentlyhold the view that where partition is possible, either judicial or extrajudicial, the estate should not be burdened with aadministration proceeding without good and compelling reason. When the estate has no creditors or pending obligatioto be paid, the beneficiaries in interest are not bound to submit the property to judicial administration which is always


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long and costly, or to apply for the appointment of an administrator by the court, especially when judicial administratiis unnecessary and superfluous. Thus -

When a person dies without leaving pending obligations to be paid, his heirs, whether of age or not, are bound to submthe property to a judicial administration, which is always long and costly, or to apply for the appointment of anadministrator by the court. It has been uniformly held that in such case the judicial administration and the appointmen

of an administrator are superfluous and unnecessary proceedings.

SC Ruling:

We find no indication of any indebtedness of the estate. No creditor has come up to charge the estate within the two-yperiod after the death of Forrest L. Cease, hence, the presumption under Section 1, Rule 74 that the estate is free fromcreditors must apply.

Neither has the status of the parties as legal heirs, much less that of respondents, been raised as an issue. Besides, extain the records is the stipulation of the parties to submit the pleadings and contents of the administration proceedings fthe cognizance of the trial judge in adjudicating the civil case for partition. As respondents observe, the parties in bothcases are the same, so are the properties involved; that actual division is the primary objective in both actions; the theand defense of the respective parties are likewise common; and that both cases have been assigned to the samerespondent judge.

We feel that the unifying effect of the foregoing circumstances invites the wholesome exception to the structures ofprocedural rule, thus allowing, instead, room for judicial flexibility. Respondent judge's dismissal of the administrationproceedings then, is a judicious move, appreciable in today's need for effective and speedy administration of justice.There being ample reason to support the dismissal of the special proceedings in this appealed case, We cannot see in threcords any compelling reason why it may not be dismissed just the same even if considered in a separate action. Thisinevitably certain especially when the subject property has already been found appropriate for partition, thus reducinthe petition for administration to a mere unnecessary solicitation.

The second point raised by petitioners in their first assigned error is equally untenable. In effect, petitioners argue thathe action for partition should not have prospered in view of the repudiation of the co-ownership by Tiaong Milling an

Plantation Company when, as early in the trial court, it already asserted ownership and corporate title over theproperties adverse to the right of ownership of Forrest L. Cease or his estate. We are not unmindful of the doctrine reliupon by petitioners in Rodriguez vs. Ravilan,17 Phil. 63 wherein this Court held that in an action for partition, it isassumed that the parties by whom it is prosecuted are all co-owners or co-proprietors of the property to be divided, anthat the question of common ownership is not to be argued, not the fact as to whether the intended parties are or are nthe owners of the property in question, but only as to how and in what manner and proportion the said property ofcommon ownership shall be distributed among the interested parties by order of the Court. Consistent with this dictumit has been field that if any party to a suit for partition denies thepro-indivisocharacter of the estate whose partition issought, and claims instead, exclusive title thereto the action becomes one for recovery of property cognizable in thecourts of ordinary jurisdiction. 2

Petitioners' argument has only theoretical persuasion, to say the least, rather apparent than real. It must beremembered that when Tiaong Milling adduced its defense and raised the issue of ownership, its corporate

existence already terminated through the expiration of its charter. It is clear in Section 77 of Act No. 1459(Corporation Law) that upon the expiration of the charter period, the corporation ceases to exist and is dissolved ipsofactoexcept for purposes connected with the winding up and liquidation. The provision allows a three year, period froexpiration of the charter within which the entity gradually settles and closes its affairs, disposes and convey its properand to divide its capital stock, but not for the purpose of continuing the business for which it was established. At thisterminal stage of its existence, Tiaong Milling may no longer persist to maintain adverse title and ownership of thecorporate assets as against the prospective distributees when at this time it merely holds the property in trust, itsassertion of ownership is not only a legal contradiction, but more so, to allow it to maintain adverse interest wouldcertainly thwart the very purpose of liquidation and the final distribute loll of the assets to the proper, parties.


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We agree with the CA in its reasoning that substance is more important than form when it sustained the dismissal ofSpecial Proceedings No. 3893, thus -

a) As to the dismissal of Special Proceedings No. 3893, of course, at first glance, this was wrong, for the reason that thecase trial had been heard was Civil Case No. 6326; but what should not be overlooked either is that respondent Judge wthe same Judge that had before him in his own sala, and the parties to the present case had themselves asked responde

Judge to take judicial notice of the same and its contents. It is not difficult to see that when respondent Judge in par. 4 the dispositive part of his decision complained of, ordered that the Special Proceedings for administration is terminatand dismissed; the instant case to proceed but on issues of damages only and for such action inherently essential orpartition.

In truth and in fact, His Honor was issuing that order also within Civil Case No. 632 but in connection with SpecialProceedings No. 389:3: for substance is more important than form, the contending parties in both proceedings beingexactly the same, but not only this, let it not be forgotten that when His Honor dismissed Special Proceedings No. 3893that dismissal precisely was a dismissal that petitioners herein had themselves sought and solicited from him. r ThisCourt must find difficulty in reconciling petitioners' attack with the fact that it was they themselves that had insisted othat dismissal; on the principle that not he who is favored but he who is hurt by a judicial order is he only who should heard to complain and especially since extraordinary legal remedies are remedies in extremities granted to parties ' whave been the victims not merely of errors but of grave wrongs.

2ndError: Petitioners argue that no evidence has been found to support the conclusion that the registered properties oTiaong Milling are also properties of the estate of Forrest L. Cease; that on the contrary, said properties are registeredunder Act No. 496 in the name of Tiaong Milling as lawful owner and possessor for the last 50 years of its corporateexistence.

We do not agree. In reposing ownership to the estate of Forrest L. Cease, the trial court indeed found strong support, othat is based on a well-entrenched principle of law. In sustaining respondents' theory of "merger of Forrest L. Cease anThe Tiaong Milling as one personality", or that "the company is only the business conduit and alter ego of the deceasedForrest L. Cease and the registered properties of Tiaong Milling are actually properties of Forrest L. Cease and should bdivided equally, share and share alike among his six children. The trial court did aptly apply the familiar exception to tgeneral rule by disregarding the legal fiction of distinct and separate corporate personality and regarding the corporatand the individual member one and the same. In shredding the fictitious corporate veil, the trial judge narrated theundisputed factual premise.

While the records showed that originally its incorporators were aliens, friends or third-parties in relation of one toanother, in the course of its existence, it developed into a close family corporation. The Board of Directors andstockholders belong to one family the head of which Forrest L. Cease always retained the majority stocks and hence thcontrol and management of its affairs. Definitely, only the members of his family benefited from the Corporation.

A rich store of jurisprudence has established the rule known as the doctrine of disregarding or piercing the veil ofcorporate fiction. Generally, a corporation is invested by law with a personality separate and distinct from that of thepersons composing it as well as from that of any other legal entity to which it may be related. By virtue of this attributecorporation may not, generally, be made to answer for acts or liabilities of its stockholders or those of the legal entitiewhich it may be connected, and vice versa.This separate and distinct personality is, however, merely fiction created b

law for convenience and to promote the ends of justice. For this reason, it may not be used or invoked for endssubversive of the policy and purpose behind its creation,or which could not have been intended by law to which it oweits being. This is particularly true where the fiction is used to defeat public convenience, justify wrong, protect fraud,defend crime, confuse legitimate legal or judicial issues, perpetrate deception or otherwise circumvent the law. This islikewise true where the corporate entity is being used as an alter ego, adjunct, or business conduit for the sole benefit the stockholders or of another corporate entity.

In any of these cases, the notion of corporate entity will be pierced or disregarded, and the corporation will be treatedmerely as an association of persons or, where there are two corporations, they will be merged as one, the one being


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merely regarded as part or the instrumentality of the otter (Koppel [Phil.] Inc. vs. Yatco, 77 Phil. 496, Yutivo SonsHardware Company vs. Court of Tax Appeals, supra).

So must the case at bar add to this jurisprudence. An indubitable deduction from the findings of the trial court cannot blead to the conclusion that the business of the corporation is largely, if not wholly, the personal venture of Forrest L.Cease. There is not even a shadow of a showing that his children were subscribers or purchasers of the stocks they ow

Their participation as nominal shareholders emanated solely from Forrest L. Cease's gratuitous dole out of his ownshares to the benefit of his children and ultimately his family.

Were we to sustain the theory of petitioners that the trial court acted in excess of jurisdiction or abuse of discretionamounting to lack of jurisdiction in deciding Civil Case No. 6326 as a case for partition when the defendant therein,Tiaong Milling and Plantation Company, Inc. as registered owner asserted ownership of the assets and propertiesinvolved in the litigation, which theory must necessarily be based on the assumption that said assets and properties ofTiaong Milling and Plantation Company, Inc. now appearing under the name of F. L. Cease Plantation Company as Trusare distinct and separate from the estate of Forrest L. Cease to which petitioners and respondents as legal heirs of saidForrest L. Cease are equally entitled share and share alike, then that legal fiction of separate corporate personality shahave been used to delay and ultimately deprive and defraud the respondents of their successional rights to the estate otheir deceased father. For Tiaong Milling and Plantation Company shall have been able to extend its corporate existencbeyond the period of its charter which lapsed in June, 1958 under the guise and cover of F. L, Cease Plantation Compan

Inc. as Trustee which would be against the law, and as Trustee shall have been able to use the assets and properties fothe benefit of the petitioners, to the great prejudice and defraudation. of private respondents. Hence, it becomesnecessary and imperative to pierce that corporate veil.

Under the third assigned error, petitioners claim that the decision of the lower court in the partition case is notinterlocutory but rather final for it consists of final and determinative dispositions of the contentions of the parties. Wfind no merit in petitioners' stand.

Under the 1961 pronouncement and ruling of the Supreme Court, the lower court's dismissal of petitioners' proposedappeal from its judgment as affirmed by the Court of Appeals on the ground of prematurity in that the judgment was nfinal but interlocutory was in order. As was said in said case:

It is true that inAfrica vs. Africa, and other cases it was held - contrary to the rule laid down in Ron vs. Mojica, 8 Phil.328;Rodriguez vs. Ravilan, 17 Phil. 63 - that in a partition case where defendant relies on the defense of exclusiveownership, the action becomes one for title and the decision or order directing partition is final, but the ruling to thiseffect has been expressly reversed in the Fuentebella case which, in our opinion, expresses the correct view, considerithat a decision or order directing partition is not final because it leaves something more to be done in the trial court fothe complete disposition of the case, namely, the appointment of commissioners, the proceedings to be had before thethe submission of their report which, according to law, must be set for hearing. In fact, it is only after said hearing thatcourt may render a final judgment finally disposing of the action (Rule 71, section 7, Rules of Court).

It should be noted, however, that the said ruling in Zaldarriaga as based on Fuentebella vs. Carrascoso, XIV LawyersJournal 305 (May 27, 1942), has been expressly abandoned by the Court in Miranda vs. Court of Appeals, 71 SCRA 295;331-333 (June 18, 1976) wherein Mr. Justice Teehankee, speaking for the Court, laid down the following doctrine:

The Court, however, deems it proper for the guidance of the bench and bar to now declare as is clearly indicated from compelling reasons and considerations hereinabove stated:

- that the Court considers the better rule to be that stated in H. E. Heacock Co. vs. American Trading Co., to wit, that whethe primary purpose of a case is to ascertain and determine who between plaintiff and defendant is the true owner andentitled to the exclusive use of the disputed property, "the judgment . . . rendered by the lower court [is] a judgment onthe meritsas to those questions, and [that] the order of the court for an accountingwas based upon, and is incidental tthe judgment on the merits. That is to say, that the judgment . . . [is] a final judgment ... that in this kind of a case anaccounting is a mere incident to the judgment; that an appeal liesfrom the rendition of the judgment as rendered ... "(a


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widely held by a great number of judges and members of the bar, as shown by the cases so decided and filed and stillpending with the Court) for the fundamental reasons therein stated that "this is more in harmony with theadministratof justiceand the spirit and intent of the [Rules]. If on appeal the judgment of the lower court is affirmed, it would not ithe least work an injustice to any of the legal rights of [appellee]. On the other hand, if for any reason this court shouldreverse the judgment of the lower court, the accounting would be a waste of time and money, and might work a materinjury to the [appellant]; and

- that accordingly, the contrary ruling in Fuentebella vs. Carrascosowhich expressly reversed the Heacock case and a liof similar decisions and ruled that such a decision for recovery of property with accounting "is not final but merelyinterlocutory and therefore not appealable" and subsequent cases adhering to the same must be nowin turn abandoneand set aside.

Fuentebellaadopted instead the opposite line of conflicting decisions mostly in partition proceedings and exemplifiedby Ron vs. Mojica8 Phil. 928 (under the old Code of Civil Procedure) that an order for partition of real property is notfinal and appealable until after the actual partitionof the property as reported by the court appointed commissioners approved by the court in itsjudgmentaccepting the report. lt must be especially noted that such rule governing partitiois now so expressly provided and spelled out in Rule 69 of the Rules of Court, with special reference to Sections 1, 2, 3,7 and 11, to wit, that there must first be a preliminary order for partition of the real estate and where the parties-co-owners cannot agree, the court appointed commissioners make a plan of actual partition which must first be passed up

and accepted by the trial court and embodied in a judgment to be rendered by it (sections 6 and 11). In partition casesmust be further borne in mind that Rule 69, section 1 refers to "a person having the rightto compel thepartitionof reaestate," so that the general rule of partition that an appeal will not lie until the partition or distribution proceedings arterminated will not apply where appellant claims exclusive ownershipof the whole property and denies the adverseparty's right to any partition, as was the ruling inVillanueva vs. CapistranoandAfrica vs .Africa, supra, Fuentebellasexpress rehearsal of these cases must likewise be deemed now also abandoned in view of the Court's expressedpreference for the rationale of the Heacock case.

The Court's considered opinion is that imperativeconsiderations ofpublic policy and of sound practicthe courts and adherence to the constitutional mandate of simplified, just, speedy and inexpensivedetermination of every action call for considering such judgments for recovery of propertywith accounting as final judgments which are duly appealable (and would therefore become final andexecutory if not appealed within the reglementary period) with the accounting as a mere incident of th

judgment to be rendered during the course of the appeal as provided in Rule 39, section 4 or to beimplemented at the execution stage upon final affirmance on appeal of the judgment (as in Court ofIndustrial Relations unfair labor practice cases ordering the reinstatement of the worker withaccounting, computation and payment of his backwages less earnings elsewhere during his layoff) anthat the only reason given in Fuentebelia for the contrary ruling, viz, "the general harm that wouldfollow from throwing the door open to multiplicity of appeals in a single case" of lesser import andconsequence. (Emphasis copied).

The Miranda ruling has since then been applied as the new rule by a unanimous Court in Valdez vs. Bagasao, 82 SCRA 2(March 8, 1978).

If there were a valid genuine claim of Exclusive ownership of the inherited properties on the part of petitioners torespondents' action for partition, then under the Miranda ruling, petitioners would be sustained, for as expressly heldtherein " the general rule of partition that an appeal will not lie until the partition or distribution proceedings areterminated will not apply where appellant claims exclusive ownership of the whole property and denies the adverseparty's right to any partition."

But this question has now been rendered moot and academic for the very issue of exclusive ownership claimed bypetitioners to deny and defeat respondents' right to partition - which is the very core of their rejected appeal - has beesquarely resolved herein against them, as if the appeal had been given due course. The Court has herein expresslysustained the trial court's findings, as affirmed by the Court of Appeals, that the assets or properties of the defunctcompany constitute the estate of the deceased proprietor (supra at page 7) and the defunct company's assertion of


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ownership of the properties is a legal contradiction and would but thwart the liquidation and final distribution andpartition of the properties among the parties hereof as children of their deceased father Forrest L. Cease. There istherefore no further hindrance to effect the partition of the properties among the parties in implementation of theappealed judgment.

One last consideration. Parties are brothers and sisters, legal heirs of their deceased father, Forrest L. Cease. By all righ

in law and jurisprudence, each is entitled to share and share alike in the estate, which the trial court correctly ordainedand sustained by the appellate court.WHEREFORE, IN VIEW OF THE FOREGOING, the judgment appealed from is herebAFFIRMED with costs against the petitioners.

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G.R. No. 80863 April 27, 1989

ANTONIO M. VILLANUEVA and FULGENCIO B. LAVAREZ, petitioners,vs.HONORABLE ABEDNEGO O. ADRE, Presiding Judge, Regional Trial Court, Branch 22, 11th Judicial Region, and

LUCIO VELAYO, respondents.

FACTS:

The central question in the petition at bar is whether or not the regular courts may stay an execution decreed by thelabor arbiters and what the consequences are of such a recourse to the courts.

The case began from a complaint, dated January 6, 1977, for recovery of unpaid 13 month pay filed by the SaranganiMarine and General Workers Union-ALU with the Department of Labor against the South Cotabato Integrated PortServices, Inc. (SCIPSI), a Philippine corporation. Later, thirty-seven SCIPSI employees, non-union members apparentlyfiled their own complaint. The labor arbiter consolidated the twin complaints and after hearing, ordered a dismissal onDecember 29, 1977. On appeal, however, the National Labor Relations Commission, on June 9, 1981, reversed andaccordingly, ordered the private respondents, SCIPSI and its president and general, Lucio Velayo, to pay the thirteenthmonth pays demanded. The private respondents' motion for reconsideration was denied, and the decision has since

attained finality.

Thereafter, the parties, on orders of the labor arbiter, were made to appear before a corporate auditing examiner todetermine the private respondents' exact liability. On October 24, 1986, the corporate auditing examiner submitted anaccounting and found the private respondents liable in the total sum of Pl,134,000.00. Thereupon, the privaterespondents interposed an objection and prayed for a revision. It appears, however, that the private respondents nevepursued their exceptions.1

On January 16,1987, the union moved for execution and pursuant thereto, the labor arbiter issued a writ of execution.a result, the sheriff levied on two parcels of land, both registered in Lucio Velayo's name, with an area of 400 and 979square meters.

On February 14, 1987, both SCIPSI and Velayo petitioned this Court 2on certiorari with injunction on the ground,fundamentally that the Department of Labor's examiner erred in her determination of the private respondents pecuniliabilities.

On February 16,1987, Velayo alone filed a petition with the respondent court (Special Case No. 227) on a cause of actiobased on an alleged irregular execution, on the ground that he "was never a party to the labor case" 3and that "acorporation (that is, SCIPSI has a separate and distinct personality from this incorporators, stockholders and officers."


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On February 17, 1987, the respondent court issued a temporary restraining order enjoining execution of the judgmentthe aforementioned labor cases. On March 5, 1987, the petitioner moved for dismissal for lack of jurisdiction and litispendentia.

On the strength of this Court's decision in National Mines Allied Workers Union v. Vera,5the trial judge denied the motito dismiss. Reconsideration having been likewise denied, the union as well as the labor arbiter (Antonio Villanueva) an

the sheriff (Fulgencio Lavarez) themselves, on October 22, 1987, instituted these certiorari proceedings. 6

Meanwhile, on April 27,1988, the parties (in G.R. Nos. 7730001) submitted a Compromise Agreement whereby theprivate respondents agreed to pay, in installments, the reduced sum of P637,400.00 to the workers. On May 11, 1988, issued a Resolution approving the Compromise Agreement, and considering the cases (G.R. Nos. 77300-01) closed andterminated. 7

At the same time, we issued (in this petition) a Resolution requiring the private respondents and/or counsel, Atty. OscDinipol, to show cause why they should not be held in contempt for forum-shopping. On December 9,1988, Atty. Dinopfiled a manifestation praying for dismissal "not because it has become moot and academic in view of the compromiseagreement executed by the parties in G.R. Nos. 77300-01 (but because) the subject or cause of action (thereof) is totalldifferent from the cause of action in the above-entitled case." 8

On whether or not this case has become moot and academic in view of the compromise reached in G.R. Nos. 77300-01,the Court rules in the affirmative. It should be noted that the instant petition has been brought as a result of the executof the judgment rendered below, and since the parties, by virtue of the compromise, have spelled out the manner bywhich payment shall be made, execution by means of levy, the question confronting the court herein, may no longer becarried out. Nevertheless, because of the ethical implications of the acts of the private respondents, the Court isconstrained to render its judgment if only to forestall future similar acts and for the guidance of the bench and the bar

We likewise render judgment notwithstanding Atty. Oscar Dinopol's pending prayer for extension of time to file hiscomment to our show cause Resolution of November 7, 1988. We consider his manifestation, dated November 29,198urging us not to dismiss this case for having become moot and academic but because the petition lacks merit as hiscomment. We do so for one because it has been the position of the private respondents that Special Case No. 227 and GNos. 77300-01 could stand together and for another, because of the compelling need to dispose of labor cases with

utmost dispatch. We take this as his defense to that show-cause Resolution. Parenthetically, we find him mistaken forsupposing that our Resolution is based on the simultaneous commencement of Special Case No. 227 and G.R. Nos. 773001. This is not the act that forced suspicions on our part of efforts by the private respondents to "shop for a friendlyforum". Rather, it is the institution of Special Case No. 227, despite the pendency of the labor proceedings below, that lus to those suspicions. G.R. Nos. 77300-01, on the other hand, were brought primarily on the question of the exactamount SCIPSI is liable to pay. It is on its face, a legitimate ground for certiorari, and for this reason we accepted theparties compromise reached there, instead of dismissing it.

There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable opinion(other than by appeal or certiorari) in another. The principle applies not only with respect to suits filed in the courts balso in connection with litigations commenced in the courts while an administrative proceeding is pending, as in thiscase, in order to defeat administrative processes and in anticipation of an unfavorable administrative ruling and afavorable court ruling. This is specially so, as in this case, where the court in which the second suit was brought, has no

jurisdiction.

Accordingly, the respondent court must be held to be in error assuming jurisdiction over Special Case No. 227. It is weestablished that the courts cannot enjoin execution of judgment rendered by the National Labor Relations Commission

The respondent Lucio Velayo's reliance upon National Mines and Allied Workers Union v. Vera10is not well-taken. In thcase, the properties involved belonged to third persons, a development that provided a civil dimension to the labor casand a development that gave the courts the jurisdiction. In the case at bar, however, Velayo cannot be said to be astranger to the proceedings for a number of reasons. First, and as pointed out by the Solicitor General, and as the recor


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will amply show, he, Velayo, was a party to the proceedings below where he took part actively in defense of his case. Wquote:

It is not true that Lucio Velayo was not a party in the labor cases. The caption of the labor cases shows he was arespondent. The records of the labor cases show that he participated in the proceedings therein, without raising the isthat he was not a party nor the employer of the complainants. Thus, the Motion for Reconsideration dated August 7, 19

attached to the Petition as Annex B was filed by both SCIPS and Lucio Velayo. SCIPS and Velayo discussed the merits ofthe cases in said motion and there was nary a mention of the allegation of Velayo now that he not not a party in the casnor an employer of the complainants. Likewise, the Exception and/or Opposition to Report of Examiner dated Novemb13, 1986, attached to the Petition as Annex F, was also filed by both SCIPS and Velayo and, like the Motion forReconsideration aforementioned, it does not mention anything about Velayo not being a party and not being an emploof complainants. 11

Certainly, he cannot now be heard to say that he was no party to the controversy.

The fact that he was never mentioned in the pleadings before the petitioner-labor arbiter is of no moment.The fact is the himself had questioned the findings of the corporate auditor (in G.R. Nos. 77300-01) and this is enough evidence thhe admits personal liability, although he does not agree with the amount supposedly due from him. His remonstrancescame too late in the day.

But other than estoppel, the law itself stands as a formidable obstacle to Velayo's claims. In A.C. Ransom Labor Union-CCLU v. NLRC 12we held that in case of corporations. It is the president who responds personally for violation of the lapay laws. We quote Article 273 of the Code provides that:

Any person violating any of the provisions of Article 265 of this Code shall be punished by a fine of not exceeding fivehundred pesos and/or imprisonment for not less than one (1) day nor more than six (6) months.

(b) How can the foregoing provisions be implemented when the employer is a corporation? The answer is found inArticle 212 (c) of the Labor Code which provides:

(c) 'Employer' of the Labor Code which provides: which 'Employer' includes any person acting in the interest of an

employer, directly or indirectly. The term shall not include any labor organization or any of its officers or agents excepwhen acting as employer.

The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is an artificial person, it mhave an officer who can be presumed to be the employer, being "the person acting in the interest of (the) employer"RANSOM. The corporation, only in the technical sense, is the employer.

The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for non-payment of back wages. That is the policy of the law. In the Minimum Wage Law, Section 15(b) provided:

(b) If any violation of this Act is committed by a corporation, trust, partnership or association, the manager or in hisdefault, the person acting as such when the violation took place, shall be responsible. In the case of a governmentcorporation, the managing head shall be made responsible, except when shown that the violation was due to an act orcommission of some other person, over whom he has no control, in which case the latter shall be held responsible.

In PD 525, where a corporation fails to pay the emergency allowance therein provided, the prescribed penalty shall beimposed upon the guilty officer or officers of the corporation.

Accordingly, Velayo cannot be excused from payment of SCIPSI's liability by mere reason of SCIPSI's separate corporatexistence. The theory of corporate entity, in the first place, was not meant to promote unfair objectives or otherwise, to


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shield them. This Court has not hesitated in penetrating the veil of corporate fiction when it would defeat the endsenvisaged by law, 14not to mention the clear decree of the Labor Code.

And if Velayo truly had a valid objection (to the levy on his properties), he could have raised it at the earliest hour, andthe course of the labor proceedings themselves. But, as we earlier indicated, he raised nary a finger there, and he cannraise it now, much less in a separate proceeding. He is not only estopped, litis pendencia is a bar to such a separate

action.While the instant case has been rendered moot and academic by reason of the out-of-court settlement betweenthe parties, that development will not absolve Velayo and/or his counsel, Atty. Oscar Dinopol 16from charges of forumshopping. In Buan v. Lopez, Jr., supra, we declared that forum- shopping is an act of malpractice that constitutes contemof court.

In this connection, we reject Atty. Dinopol's pretense that no Identity exists between Special Case No. 227 and the labocase that had precipitated it. The fact remains that in Special Case No. 227, he assails the execution of the judgment of tNational Labor Relations Commission, the same relief he could have asked for in the very labor proceeding. The fact thhe likewise prayed for damages therein will not alter the essence of the petition- to stay execution-and in which the clafor damages is but an incidental relief.

Clearly, both Velayo and Atty. Dinopol must account for forum-shopping.

WHEREFORE, judgment is rendered: (1) DISMISSING the petition for having become moot and academic; (2) ORDERINthe respondent judge to dismiss Special Case No. 227; (3) DECLARING the respondent, Lucio Velayo and Atty. OscarDinopol IN CONTEMPT and ORDERING them to pay a fine of Pl,000.00 each within five (5) days from notice; and (4)SUSPENDING Atty. Oscar Dinopol, for a period of three (3) months effective from notice, from the practice of law. Let acopy of this Decision be entered in his record.

INCORPORATION AND ORGANIZATION

COMMENCEMENT

1. Who Are Promoters?

Promoter is a person who, acting alone or with others, takes initiative in founding and organizing the business orenterprise of the issuer and receives consideration therefor.(Sec. 3.10, Securities Regulation Code [R.A. 8799])

2, Liability of Promoters: 3 possible situations intended by the promoter and the other party in pre-incorp.contracts:

a. Promoter takes a continuing OFFER on behalf of the corp, which if accepted by the corp.becomes a contraPromoter does not assume any personal liability, whether or not the offer is accepted by the corp.

b. Promoter makes a contract at the time binding himself with the UNDERSTANDING that if the corp., onceformed, accepts or adopts the contract, the promoter will be relieved of all responsibilities.

c. Promoter binds himself PERSONALLY & assumes the responsibility of looking to the proposed corp. forreimbursement.

*In the absence of any express or implied agreement to the contrary, the 3rd situation will be presumed and thpromoter will be considered personally liable for the contracts. Thus, the corp.sadoption or ratification of thecontract will not release the promoter from personal liability unless a novation was intended. (Wells vs. Fay &Egan Co., 143 Ga. 732, 87 S.E 873, 1915)Exception:Quaker v Hill case. In this case, Quaker looked tothe uincorporated entity when making the contract.Thus, the promoter was not liable.

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G.R. No. 84197 July 28, 1989


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PIONEER INSURANCE & SURETY CORPORATION, petitioner, vs.THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC., (BORMAHECO), CONSTANCIO

M. MAGLANA and JACOB S. LIM, respondents.

G.R. No. 84157 July 28, 1989

JACOB S. LIM, petitioner, vs.COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION, BORDERMACHINERY and HEAVY EQUIPMENT CO., INC,, FRANCISCO and MODESTO CERVANTES and CONSTANCIO

MAGLANA,respondents.

FACTS:

In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owner-operator of SouthernAir Lines (SAL) a single proprietorship.

Japan Domestic Airlines (JDA) and Lim entered into and executed a sales contract for the sale and purchase of two (2) 3A Type aircrafts and one (1) set of necessary spare parts for the total agreed price of US $109,000.00 to be paid ininstallment. 1st aircraft arrived in Manila on June 7,1965 while the other aircraft, arrived in Manila on July 18.

On May 22, 1965, Pioneer, as surety executed and issued its Surety Bond in favor of JDA, in behalf of its principal, Lim, the balance price of the aircrafts and spare parts.

It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and Modesto Cervante(Cervanteses) and Constancio Maglana (respondents in both petitions) contributed some funds used in the purchase othe above aircrafts and spare parts. The funds were supposed to be their contributions to a new corporation proposedLim to expand his airline business. They executed two 2 separate indemnity agreements in favor of Pioneer, one signeby Maglana and the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses. The indemnity agreementsstipulated that the indemnitors principally agree and bind themselves jointly and severally to indemnify and hold andsave harmless Pioneer from and against any/all damages, losses, costs, damages, taxes, penalties, charges and expenseof whatever kind and nature which Pioneer may incur in consequence of having become surety upon the bond/note anto pay, reimburse and make good to Pioneer, its successors and assigns, all sums and amounts of money which it or its

representatives should or may pay or cause to be paid or become liable to pay on them of whatever kind and nature.

On June 10, 1965, Lim doing business under the name and style of SAL executed in favor of Pioneer as deed of chattelmortgage as security for the latter's suretyship in favor of the former. It was stipulated there that Lim transfer andconvey to the Pioneer the two aircrafts. The deed was duly registered with the Office of the Register of Deeds of the Citof Manila and with the CAA.

Lim defaulted on his subsequent installment payments prompting JDA to request payments from the surety. Pioneer pa total sum of P298,626.12.

Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the Sheriff of Davao CiThe Cervanteses and Maglana, however, filed a third party claim alleging that they are co-owners of the aircrafts,

Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary attachment against Lim andrespondents, the Cervanteses, Bormaheco and Maglana.

In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that they were notprivies to the contracts signed by Lim and, by way of counterclaim, sought for damages for being exposed to litigationand for recovery of the sums of money they advanced to Lim for the purchase of the aircrafts in question.


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While it has been held that as between themselves the rights of the stockholders in a defectively incorporated associatshould be governed by the supposed charter and the laws of the state relating thereto and not by the rules governingpartners, it is ordinarily held that persons who attempt, but fail, to form a corporation and who carry on business undethe corporate name occupy the position of partners inter se. Thus, where persons associate themselves together underarticles to purchase property to carry on a business, and their organization is so defective as to come short of creatingcorporation within the statute, they become in legal effect partners inter se, and their rights as members of the

company to the property acquired by the company will be recognized (Smith v. Schoodoc Pond Packing Co., 84 A.268,109 Me. 555; Whipple v. Parker, 29 Mich. 369).

However, such a relation does not necessarily exist, for ordinarily persons cannot be made to assume the relation of partn

as between themselves, when their purpose is that no partnership shall exist(London Assur. Corp. v. Drennen, Minn., 6 S.442, 116 U.S. 461, 472, 29 L.Ed. 688), and it should be implied only when necessary to do justice between the parties; thuone who takes no part except to subscribe for stock in a proposed corporation which is never legally formed does not beco

a partner with other subscribers who engage in business under the name of the pretended corporation, so as to be liable a

such in an action for settlement of the alleged partnership and contribution(Ward v. Brigham, 127 Mass. 24).

A partnership relation between certain stockholders and other stockholders, who were also directors, will not be implin the absence of an agreement, so as to make the former liable to contribute for payment of debts illegally contracted the latter.

In the instant case, it is to be noted that the petitioner was declared non-suited for his failure to appear during the pre-trial despite notification. In his answer, the Lim denied having received any amount from respondents Bormaheco, theCervanteses and Maglana. The trial court and the appellate court, however, found that the petitioner received the amoof P151,000 representing the participation of Bormaheco and Atty. Constancio B. Maglana in the ownership of the subjairplanes and spare parts. The record shows that defendant Maglana gave P75,000.00 to petitioner Jacob Lim thru theCervanteses.

It is therefore clear that the petitioner never had the intention to form a corporation with the respondents despite hisrepresentations to them. This gives credence to the cross-claims of the respondents to the effect that they were induceand lured by the petitioner to make contributions to a proposed corporation which was never formed because thepetitioner reneged on their agreement

Applying therefore the principles of law earlier cited to the facts of the case, necessarily, no de facto partnership wascreated among the parties which would entitle Lim to a reimbursement of the supposed losses of the proposed

corporation. The record shows that the petitioner was acting on his ownand not in behalf of his other would-beincorporators in transacting the sale of the airplanes and spare parts.

WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the Court of Appeals is AFFIRMED.

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2. Number and Qualifications of Incorporatorsa. Residency Requirements

CASE:

G.R. No. 161026 October 24, 2005

HYATT ELEVATORS AND ESCALATORS CORPORATION,Petitioner,vs.GOLDSTAR ELEVATORS, PHILS., INC.,*Respondent.


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Well established in our jurisprudence is the rule that the residenceof a corporation is the place where its principal offiis located, as stated in its Articles of Incorporation.

FACTS:

The relevant facts of the case are summarized by the CA in this wise:

Respondent GOLDSTAR is a domestic corporation primarily engaged in the business of marketing, distributing, sellingimporting, installing, and maintaining elevators and escalators, with address at 6th Floor, Jacinta II Building, 64 EDSA,Guadalupe, Makati City.

Petitioner HYATT is a domestic corporation similarly engaged in the business of selling, installing andmaintaining/servicing elevators, escalators and parking equipment, with address at the 6th Floor, Dao I CondominiumSalcedo St., Legaspi Village, Makati, as stated in its Articles of Incorporation.

On February 23, 1999, HYATT filed a Complaint for unfair trade practices and damages under Articles 19, 20 and 21 ofthe Civil Code of the Philippines against LG Industrial Systems Co. Ltd. (LGISC) and LG International Corporation (LGICalleging among others, that:

In 1988, it was appointed by LGIC and LGISC as the exclusive distributor of LG elevators and escalators in the Philippinunder a Distributorship Agreement; LGISC, in the latter part of 1996, made a proposal to change the exclusivedistributorship agency to that of a JV partnership; while it looked forward to a healthy and fruitful negotiation for a joiventure, however, the various meetings it had with LGISC and LGIC, through the latters representatives, were conductin utmost bad faith and with malevolent intentions; in the middle of the negotiations, in order to put pressures upon itLGISC and LGIC terminated the Exclusive Distributorship Agreement and as a consequence, [HYATT]suffered P120,000,000.00 as actual damages, representing loss of earnings and business opportunities, P20,000,000.0as damages for its reputation and goodwill, P1,000,000.00 as and by way of exemplary damages, and P500,000.00 as aby way of attorneys fees.

LGISC and LGIC filed an MTD raising the following grounds: (1) lack of jurisdiction over the persons of defendants,summons not having been served on its resident agent; (2) improper venue; and (3) failure to state a cause of action. T

[trial] court denied the said motion in an Order dated January 7, 2000. They also filed an Answer with CompulsoryCounterclaim ex abundante cautela. Thereafter, they filed a Motion for Reconsideration and to Expunge Complaint whwas denied

HYATT filed a motion for leave of court to amend the complaint, alleging that subsequent to the filing of the complaintlearned that LGISC transferred all its organization, assets and goodwill, as a consequence of a JV agreement with OtisElevator Company of the USA, to LG OTIS. Thus, LGISC was to be substituted or changed to LG OTIS, its successor-in-interest. Likewise, the motion averred that GOLDSTAR was being utilized by LG OTIS and LGIC in perpetrating theirunlawful and unjustified acts against HYATT. Consequently, in order to afford complete relief, GOLDSTAR was to beadditionally impleaded as a party-defendant. Hence, in the Amended Complaint, HYATT impleaded GOLDSTAR as a padefendant, and all references to LGISC were correspondingly replaced with LG OTIS.

LG OTIS (LGISC) and LGIC filed their opposition to HYATTs motion to amend the complaint, arguing that: (1) the

inclusion of GOLDSTAR as party-defendant would lead to a change in the theory of the case since the latter took no parin the negotiations which led to the alleged unfair trade practices subject of the case; and (b) HYATTs move to amend complaint at that time was dilatory, considering that HYATT was aware of the existence of GOLDSTAR for almost twoyears before it sought its inclusion as party-defendant.

The Trial Court admitted the Amended Complaint. LG OTIS (LGISC) and LGIC filed a motion for reconsideration theretobut were denied.


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GOLDSTAR filed a Motion to Dismiss the amended complaint, raising the following grounds: (1) the venue wasimproperly laid, as neither HYATT nor defendants reside in Mandaluyong City, where the original case was filed; and (failure to state a cause of action against [respondent], since the amended complaint fails to allege with certainty whatspecific ultimate acts Goldstar performed in violation of Hyatts rights. The [trial] court denied the motion to dismiss.

Upon perusal of the factual and legal arguments raised by the movants-defendants, the court finds that these are

substantially the same issues posed by the then defendant LG Industrial System Co. particularly the matter dealing [withe issues of improper venue, failure to state cause of action as well as this courts lack of jurisdiction. Under the

circumstances obtaining, the court resolves to rule that the complaint sufficiently states a cause of action and that thevenue is properly laid. It is significant to note that in the amended complaint, the same allegations are adopted as in thoriginal complaint with respect to the Goldstar Philippines to enable this court to adjudicate a complete determinationsettlement of the claim subject of the action it appearing preliminarily as sufficiently alleged in the plaintiffs pleading

that said Goldstar Elevator Philippines Inc., is being managed and operated by the same Korean officers of defendants OTIS Elevator Company and LG International Corporation.

Ruling of the Court of Appeals:

The CA ruled that the trial court had committed palpable error amounting to grave abuse of discretion when the latterdenied respondents Motion to Dismiss. The appellate court held that the venue was clearly improper, because none of

the litigants "resided" in Mandaluyong City, where the case was filed.

According to the appellate court, since Makati was the principal place of business of both respondent and petitioner, astated in the latters Articles of Incorporation, that place was controlling for purposes of determining the proper venue

The fact that petitioner had abandoned its principal office in Makati years prior to the filing of the original case did notaffect the venue where personal actions could be commenced and tried.

Issue:"WON the CA, in reversing the ruling of the RTC, erred as a matter of law and jurisprudence, as well as committegrave abuse of discretion, in holding that in the light of the peculiar facts of this case, venue was improper

This Courts Ruling

The Petition has no merit.

Sole Issue:

Venue

The resolution of this case rests upon a proper understanding of Section 2 of Rule 4 of the 1997 Revised Rules of Court

"Sec. 2. Venue of personal actions.All other actions may be commenced and tried where the plaintiff or any of theprincipal plaintiff resides, or where the defendant or any of the principal defendant resides, or in the case of a non-resident defendant where he may be found, at the election of the plaintiff."

Since both parties to this case are corporations, there is a need to clarify the meaning of "residence." The law recognizetwo types of persons: (1) natural and (2) juridical. Corporations come under the latter in accordance with Article 44(3the Civil Code.

A corporation, however, has no residence in the same sense in which this term is applied to a natural person. This isprecisely the reason why the Court in Young Auto Supply Company v. Court of Appealsruled that "for practical purposescorporation is in a metaphysical sense a resident of the place where its principal office is located as stated in the articlof incorporation.Even before this ruling, it has already been established that the residence of a corporation is the placewhere its principal office is established.


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For purposes of venue, the term "residence" is synonymous with "domicile.

"Art. 51,NCC: When the law creating or recognizing them, or any other provision does not fix the domicile of juridicalpersons, the same shall be understood to be the place where their legal representation is established or where theyexercise their principal functions."

It now becomes apparent that the residence or domicile of a juridical person is fixed by "the law creating or recognizinit. Under Section 14(3) of the Corporation Code, the place where the principal office of the corporation is to be locatedone of the required contents of the articles of incorporation, which shall be filed with the SEC.

In the present case, there is no question as to the residence of respondent. What needs to be examined is that ofpetitioner. Admittedly, the HYATTs principal place of business is Makati, as indicated in its Articles of Incorporation.Since the principal place of business of a corporation determines its residence or domicile, then the place indicated inpetitioners articles of incorporation becomes controlling in determining the venue for this case.

HYATT argues that the Rules of Court do not provide that when the plaintiff is a corporation, the complaint should befiled in the location of its principal office as indicated in its articles of incorporation. Jurisprudence has, however, settlethat the place where the principal office of a corporation is located, as stated in the articles, indeed establishes

its residence. This ruling is important in determining the venue of an action by or against a corporation, as in t

present case.

Without merit is the argument of petitioner that the locality stated in its Articles of Incorporation does not conclusivelindicate that its principal office is still in the same place. We agree with the appellate court in its observation that therequirement to state in the articles the place where the principal office of the corporation is to be located "is not ameaningless requirement. That proviso would be rendered nugatory if corporations were to be allowed to simplydisregard what is expressly stated in their Articles of Incorporation."20

Inconclusive are the bare allegations of HYATT that it had closed its Makati office and relocated to Mandaluyong City, athat GOLDSTAR was well aware of those circumstances. Assuming arguendothat they transacted business with eachother in the Mandaluyong office of petitioner, the fact remains that, in law, the latters residence was still the placeindicated in its Articles of Incorporation. Further unacceptable is its faulty reasoning that the ground for the CAs

dismissal of its Complaint was its failure to amend its Articles of Incorporation so as to reflect its actual and presentprincipal office. The appellate court was clear enough in its ruling that the Complaint was dismissed because the venuehad been improperly laid, not because of the failure of petitioner to amend the latters Articles of Incorporation.

Indeed, it is a legal truism that the rules on the venue of personal actions are fixed for the convenience of the plaintiffsand their witnesses. Equally settled, however, is the principle that choosing the venue of an action is not left to aplaintiffs caprice; the matter is regulated by the Rules of Court.21Allowing petitioners arguments may lead precisely twhat this Court was trying to avoid in Young Auto Supply Company v. CA:22the creation of confusion and untoldinconveniences to party litigants. Thus enunciated the CA:

"x x x. To insist that the proper venue is the actual principal office and not that stated in its Articles of Incorporationwould indeed create confusion and work untold inconvenience. Enterprising litigants may, out of some ulterior motiveeasily circumvent the rules on venue by the simple expedient of closing old offices and opening new ones in another pl

that they may find well to suit their needs."23

We find it necessary to remind party litigants, especially corporations, that "the rules on venue, like the other procedurules, are designed to insure a just and orderly administration of justice or the impartial and even-handed determinatiof every action and proceeding. Obviously, this objective will not be attained if the plaintiff is given unrestricted freedoto choose the court where he may file his complaint or petition.

"The choice of venue should not be left to the plaintiffs whim or caprice. He may be impelled by some ulterior motivatin choosing to file a case in a particular court even if not allowed by the rules on venue."24
http://www.lawphil.net/judjuris/juri2005/oct2005/gr_161026_2005.html#fnt20http://www.lawphil.net/judjuris/juri2005/oct2005/gr_161026_2005.html#fnt20http://www.lawphil.net/judjuris/juri2005/oct2005/gr_161026_2005.html#fnt20http://www.lawphil.net/judjuris/juri2005/oct2005/gr_161026_2005.html#fnt21http://www.lawphil.net/judjuris/juri2005/oct2005/gr_161026_2005.html#fnt21http://www.lawphil.net/judjuris/juri2005/oct2005/gr_161026_2005.html#fnt21http://www.lawphil.net/judjuris/juri2005/oct2005/gr_161026_2005.html#fnt22http://www.lawphil.net/judjuris/juri2005/oct2005/gr_161026_2005.html#fnt22http://www.lawphil.net/judjuris/juri2005/oct2005/gr_161026_2005.html#fnt22http://www.lawphil.net/judjuris/juri2005/oct2005/gr_161026_2005.html#fnt23http://www.lawphil.net/judjuris/juri2005/oct2005/gr_161026_2005.html#fnt23http://www.lawphil.net/judjuris/juri2005/oct2005/gr_161026_2005.html#fnt23http://www.lawphil.net/judjuris/juri2005/oct2005/gr_161026_2005.html#fnt24http://www.lawphil.net/judjuris/juri2005/oct2005/gr_161026_2005.html#fnt24http://www.lawphil.net/judjuris/juri2005/oct2005/gr_161026_2005.html#fnt24http://www.lawphil.net/judjuris/juri2005/oct2005/gr_161026_2005.html#fnt24http://www.lawphil.net/judjuris/juri2005/oct2005/gr_161026_2005.html#fnt23http://www.lawphil.net/judjuris/juri2005/oct2005/gr_161026_2005.html#fnt22http://www.lawphil.net/judjuris/juri2005/oct2005/gr_161026_2005.html#fnt21http://www.lawphil.net/judjuris/juri2005/oct2005/gr_161026_2005.html#fnt20


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WHEREFORE, the Petition is hereby DENIED,and the assailed Decision and ResolutionAFFIRMED.

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3. Corporate Name- Limitations on Use of Corporate Name:a. A corporation may change its name by the amendment of its articles of incorporation, but the same is not

effective until approved by the SEC. Philippine First Insurance Co. v. Hartigan, 34 SCRA 252 (1970)b. A change in the corporate name does not make a new corporation, and whether affected by special act or

under a general law, has no effect on the identity of the corporation, or on its property, rights, or liabilitieRepublic Planters Bank v. CA, 216 SCRA 738 (1992).

c. Similarity in corporate names between two corporations would cause confusion to the public especiallywhen the purposes stated in their charter are also the same type of business. Universal Mills Corp. v.Universal Textile Mills Inc., 78 SCRA 62 [1977]).

d. A corporation has not right to intervene in a suit using a name other than its registered name; if acorporation legally and truly wants to intervene, it should have used its corporate name as the law requirand not another name which it had not registered. Laureano Investment and Development Corporation v.Court of Appeals, 272 SCRA 253 (1997).

e. There would be no denial of due process when a corporation is sued and judgment is rendered against itunder its unregistered trade name, holding that a corporation may be sued under the name by which it

makes itself known to its workers. Pison-Arceo Agricultural Development Corp. v. NLRC, 279 SCRA 312 (199

4. Corporate Term

Case: G.R. No. L-23606 July 29, 1968

ALHAMBRA CIGAR & CIGARETTE MANUFACTURING COMPANY, INC.,vs. SEC

May a corporation extend its life by amendment of its article

commrev case digests 072414

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