Concept Builders Inc. vs.

NLRC Case Digest

Concept Builders Inc. vs. National Labor Relations Commission

[GR 108734, 29 May 1996]

Facts: Concept Builders, Inc., (CBI) a domestic corporation, with principal office at
355 Maysan Road, Valenzuela, Metro Manila, is engaged in the construction
business while Norberto Marabe; Rodolfo Raquel, Cristobal Riego, Manuel Gillego,
Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogelio Salut, Emilio
Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo Albera, Paquito Salut, Domingo
Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno
Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos were employed by said
company as laborers, carpenters and riggers. On November 1981, Marabe, et. al.
were served individual written notices of termination of employment by CBI,
effective on 30 November 1981. It was stated in the individual notices that their
contracts of employment had expired and the project in which they were hired had
been completed. The National Labor Relations Commission (NLRC) found it to be,
the fact, however, that at the time of the termination of Marabe, et.al.'s
employment, the project in which they were hired had not yet been finished and
completed. CBI had to engage the services of sub-contractors whose workers
performed the functions of Marabe, et. al. Aggrieved, Marabe, et. al. filed a
complaint for illegal dismissal, unfair labor practice and non-payment of their legal
holiday pay, overtime pay and thirteenth-month pay against CBI. On 19 December
1984, the Labor Arbiter rendered judgment ordering CBI to reinstate Marabe et. al.
and to pay them back wages equivalent to 1 year or 300 working days. On 27
November 1985, the NLRC dismissed the motion for reconsideration filed by CBI on
the ground that the said decision had already become final and executory.

On 16 October 1986, the NLRC Research and Information Department made the
finding that Marabe, et. al.'s back wages amounted to P199,800.00. On 29 October
1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute
the Decision, dated 19 December 1984. The writ was partially satisfied through
garnishment of sums from CBI's debtor, the Metropolitan Waterworks and Sewerage
Authority, in the amount of P81,385.34. Said amount was turned over to the cashier
of the NLRC. On 1 February 1989, an Alias Writ of Execution was issued by the Labor
Arbiter directing the sheriff to collect from CBI the sum of P117,414.76, representing
the balance of the judgment award, and to reinstate Marabe, et. al. to their former
positions. On 13 July 1989, the sheriff issued a report stating that he tried to serve
the alias writ of execution on petitioner through the security guard on duty but the
service was refused on the ground that CBI no longer occupied the premises. On 26
September 1986, upon motion of Marabe, et. al., the Labor Arbiter issued a second
alias writ of execution. The said writ had not been enforced by the special sheriff
because, as stated in his progress report dated 2 November 1989, that all the
employees inside CBI's premises claimed that they were employees of Hydro Pipes
Philippines, Inc. (HPPI) and not by CBI; that levy was made upon personal properties
he found in the premises; and that security guards with high-powered guns
prevented him from removing the properties he had levied upon. The said special
sheriff recommended that a "break-open order" be issued to enable him to enter
CBI's premises so that he could proceed with the public auction sale of the aforesaid
personal properties on 7 November 1989. On 6 November 1989, a certain Dennis
Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the
properties sought to be levied upon by the sheriff were owned by HPPI, of which he
is the Vice-President. On 23 November 1989, Marabe, et. al. filed a "Motion for
Issuance of a Break-Open Order," alleging that HPPI and CBI were owned by the
same incorporator/stockholders. They also alleged that petitioner temporarily
suspended its business operations in order to evade its legal obligations to them
and that Marabe, et. al. were willing to post an indemnity bond to answer for any
damages which CBI and HPPI may suffer because of the issuance of the break-open
order. On 2 March 1990, the Labor Arbiter issued an Order which denied Marabe, et.
al.'s motion for break-open order.

Marabe, et. al. then appealed to the NLRC. On 23 April 1992, the NLRC set aside the
order of the Labor Arbiter, issued a break-open order and directed Marabe, et. al. to
file a bond. Thereafter, it directed the sheriff to proceed with the auction sale of the
properties already levied upon. It dismissed the third-party claim for lack of merit.
CBI moved for reconsideration but the motion was denied by the NLRC in a
Resolution, dated 3 December 1992. Hence, the petition.

Issue: Whether the NLRC was correct in issuing the break-open order to levy the
HPPI properties located at CBI amd/or HPPIs premises at 355 Maysan Road,
Valenzuela, Metro Manila.

Held: It is a fundamental principle of corporation law that a corporation is an entity

separate and distinct from its stockholders and from other corporations to which it
may be connected. But, this separate and distinct personality of a corporation is
merely a fiction created by law for convenience and to promote justice. So, when
the notion of separate juridical personality is used to defeat public convenience,
justify wrong, protect fraud or defend crime, or is used as a device to defeat the
labor laws, this separate personality of the corporation may be disregarded or the
veil of corporate fiction pierced. This is true likewise when the corporation is merely
an adjunct, a business conduit or an alter ego of another corporation. The
conditions under which the juridical entity may be disregarded vary according to the
peculiar facts and circumstances of each case. No hard and fast rule can be
accurately laid down, but certainly, there are some probative factors of identity that
will justify the application of the doctrine of piercing the corporate veil, to wit: (1)
Stock ownership by one or common ownership of both corporations; (2) Identity of
directors and officers; (3) The manner of keeping corporate books and records; and
(4) Methods of conducting the business. The SEC en banc explained the
"instrumentality rule" which the courts have applied in disregarding the separate
juridical personality of corporations as "Where one corporation is so organized and
controlled and its affairs are conducted so that it is, in fact, a mere instrumentality
or adjunct of the other, the fiction of the corporate entity of the "instrumentality"
may be disregarded. The control necessary to invoke the rule is not majority or even
complete stock control but such domination of instances, policies and practices that
the controlled corporation has, so to speak, no separate mind, will or existence of its
own, and is but a conduit for its principal. It must be kept in mind that the control
must be shown to have been exercised at the time the acts complained of took
place. Moreover, the control and breach of duty must proximately cause the injury
or unjust loss for which the complaint is made." The test in determining the
 applicability of the doctrine of piercing the veil of corporate fiction is as (1) Control,
not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked
so that the corporate entity as to this transaction had at the time no separate mind,
will or existence of its own; (2) Such control must have been used by the defendant
to commit fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty or dishonest and unjust act in contravention of plaintiff's legal
rights; and (3) The aforesaid control and breach of duty must proximately cause the
injury or unjust loss complained of. The absence of any one of these elements
prevents "piercing the corporate veil." In applying the "instrumentality" or "alter
ego" doctrine, the courts are concerned with reality and not form, with how the
corporation operated and the individual defendant's relationship to that operation.
Thus the question of whether a corporation is a mere alter ego, a mere sheet or
paper corporation, a sham or a subterfuge is purely one of fact. Here, while CBI
claimed that it ceased its business operations on 29 April 1986, it filed an
Information Sheet with the Securities and Exchange Commission on 15 May 1987,
stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. On
the other hand, HPPI, the third-party claimant, submitted on the same day, a similar
information sheet stating that its office address is at 355 Maysan Road, Valenzuela,
Metro Manila. Further, both information sheets were filed by the same Virgilio O.
Casio as the corporate secretary of both corporations. Both corporations had the
same president, the same board of directors, the same corporate officers, and
substantially the same subscribers. From the foregoing, it appears that, among
other things, the CBI and the HPPI shared the same address and/or premises. Under
these circumstances, it cannot be said that the property levied upon by the sheriff
were not of CBI's. Clearly, CBI ceased its business operations in order to evade the
payment to Marabe, et. al. of back wages and to bar their reinstatement to their
former positions. HPPI is obviously a business conduit of CBI and its emergence was
skillfully orchestrated to avoid the financial liability that already attached to CBI.

Koppel vs Alfredo Yatco, Collector of Internal Revenue

G.R. No. L-47673 October 10, 1946
Facts:
Koppel Philippines Inc. (KPI) has a capital stock divided into thousand (1,000)
shares of P100 each.
The Koppel Industrial Car and Equipment Company (KICEC) owns 995 shares of
the total capital stock. KICEC is organized under US laws and not licensed to do
business in the Philippines. The remaining five (5) shares only were and are owned
one each by officers of the KPI.
They have the following business process:
o (1) "When a local buyer was interested in the purchase of railway materials,
machinery, and supplies, it asked for price quotations from KPI";
o (2) "KPI then cabled for the quotation desired from Koppel Industrial Car and
Equipment Company";
o (3) "KPI, however, quoted to the purchaser a selling price above the figures quoted
by Koppel Industrial Car and Equipment Company";
o (4) "On the basis of these quotations, orders were placed by the local purchasers
 KPI paid under protest the P64,122.51 demanded by the CIR.
Total profit Php
3,772,403,82
KPI Share Php
132,201.30
KPI paid commercial brokers tax Php 5,288.05
(4% of KPI Share)
CIR demanded (1% of Total Profit) + Php 64,122.51
25% surcharge for late payment
Paid tax
It appears that KICEC is the only foreign principal of KPI.
The KPI corporation bore alone incidental expenses - as, for instance, cable
expenses-not only those of its own cables but also those of its "principal" .
The KPI's "share in the profits" realized from the transactions in which it
intervened was left virtually in the hands of KICEC
Where drafts were not paid by the purchasers, the local banks were instructed
not to protest them but to refer them to KPI which was fully empowered by KICEC to
instruct the banks with regards to disposition of the drafts and documents
Where the goods were European origin, consular invoices, bill of lading, and, in
general, the documents necessary for clearance were sent directly to KPI
If the KPI had in stock the merchandise desired by local buyers, it immediately
filled the orders of such local buyers and made delivery in the Philippines
without the necessity of cabling its principal in America either for price
quotations or confirmation or rejection of that agreed upon between it and the
buyer
Whenever the deliveries made by KICEC were incomplete or insufficient to fill
the local buyer's orders, KPI used to make good the deficiencies by deliveries from
its own local stock, but in such cases it charged its principal only the actual cost
of the merchandise thus delivered by it from its stock and in such
transactionsKPI did not realize any profit #fluffypeaches
CFI:
o KPI is a mere dummy or branch ("hechura") of KICEC.
o did not deny legal personality to Koppel (Philippines), Inc. for any and all purposes,
but in effect its conclusion was that, in the transactions involved herein, the public
interest and convenience would be defeated and what would amount to a
tax evasion perpetrated, unless resort is had to the doctrine of "disregard
of the corporate fiction."
Issues/Ruling:
1. WON KPI is a domestic corporation distinct and separate from, and not a mere
branch of KICEC

KPI:
Its corporate existence as cannot be collaterally attacked and that the
Government is estopped from so doing.
SC:
Koppel (Philippines), Inc. was a mere branch or agency or dummy ("hechura") of
Koppel Industrial Car and Equipment Co. The lower court did not hold that the
corporate personality of KPI would also be disregarded in other cases or for other
purposes. It would have had no power to so hold. The courts' action in this regard
must be confined to the transactions involved in the case at bar "for the purpose of
 adjudging the rights and liabilities of the parties in the case. They have no
jurisdiction to do more." <3 peaches
United States vs. Milwaukee Refrigeration Transit
o General Rule: a corporation will be looked upon as a legal entity as a general rule,
and until sufficient reason to the contrary appears;
o Exception: Wthe notion of legal entity is used to defeat public convenience, justify
wrong, protect fraud, or defend crime, the law will regard the corporation as an
association of persons.
Manifestly, the principle is the same whether the "person" be natural or
artificial.
A very numerous and growing class of cases wherein the corporate entity is
disregarded is that (it 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)."
Where it appears that two business enterprises are owned, conducted and
controlled by the same parties, both law and equity will, when necessary to protect
the rights of third persons, disregard the legal fiction that two corporations are
distinct entities, and treat them as identical. (Abney vs. Belmont Peaches Country
Club Properties, Inc., 279 Pac., 829.) #bebegurrpeaches
The fact that KPI is a mere branch is conclusively borne out by the fact, among
others, that the amount of the so-called "share in the profits" of KPIwas
ultimately left to the sole, unbridled control of KICEC. If KPI was intended to
function as a bona fide separate corporation, we cannot conceive how this
arrangement could have been adopted.
No group of businessmen could be expected to organize a mercantile
corporation if the amount of that profit were to be subjected to such a unilateral
control of another corporation, unless indeed the former has previously been
designed by the incorporators to serve as a mere subsidiary, branch or agency of
the latter.

KPI charged the parent corporation no more than actual cost - without profit
whatsoever - for merchandise allegedly of its own to complete deficiencies of
shipments made by said parent corporation.

Land Bank of the Philippines vs Court of Appeals

Commercial Law Corporation Law Veil of Corporate Fiction Corporate Name

In 1980, ECO Management Corporation (ECO) obtained loans amounting to about

P26 million from Land Bank. ECO defaulted in its payment but in 1981, ECO
submitted a Payment Plan with the hope of restructuring its loan. The plan was
rejected and Land Bank sued ECO. It impleaded Emmanuel C. Oate, the majority
stockholder of ECO who is serving as the Chairman and treasurer of ECO.

The trial court ruled in favor of Land Bank but Oate was absolved from liabilities.
The Court of Appeals affirmed the decision of the trial court.

Land Bank appealed as it wanted Oate to be personally liable on the following

grounds (among others): a) ECO stands for Emmanuel C. Oate, b) Oate is the
majority stockholder, c) ECO was formed ostensibly to allow Oate to acquire loans
from Land Bank which he used for his personal advantage, d) Oate holds two
positions in the corporation, and e) ECO never held any board meeting which just
shows only Oate was in control of the corporation.

ISSUE: Whether or not Oate should be held personally.

HELD: No. Land Bank was not able to produce sufficient evidence to prove its claim.
A corporation, upon coming into existence, is invested by law with a personality
separate and distinct from those persons composing it as well as from any other
legal entity to which it may be related. The corporate fiction is only disregarded
when 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 is likewise true where the corporate entity is
being used as an alter ego, adjunct, or business conduit for the sole benefit of the
stockholders or of another corporate entity. None of the foregoing was proved by
Land Bank.

The mere fact that Oate owned the majority of the shares of ECO is not a ground to
conclude that Oate and ECO is one and the same. Mere ownership by a single
stockholder of all or nearly all of the capital stock of a corporation is not by itself
sufficient reason for disregarding the fiction of separate corporate personalities.

Anent the issue of the corporate name, the fact that Oates initials coincide with
the corporate name ECO is not sufficient to disregard the corporate fiction. Even if
ECO does stand for Emmanuel C. Oate, it does not mean that the said
corporation is merely a dummy of Oate. A corporation may assume any name
provided it is lawful. There is nothing illegal in a corporation acquiring the name or
as in this case, the initials of one of its shareholders.

Arnold vs. Willits and Patterson

1916. The Firm Willits & Patterson in San Francisco entered into a contract
with Arnold whereby Arnold was to be employed for a period of five years as
the agent of the firm here in the PI to operate an oil mill for which he was to
receive a minimum salary of $200/mth, a 1% brokerage fee from all
purchases and sales of merchandise, and half of the profits of the oil business
and other businesses. provided if the business was at a loss, Arnold would
receive $400/mth.
Later, Patterson retired and Willits acquired all interests of the business.
Willits organized a new Corp in San Francisco which took over and acquired
all assets of the Firm Willits & Patterson. Willits was the owner of all the
capital stock. New corp had the same name.
 After, Willits, organized a new Corporation here in the PI to take over all the
business and assets of the firm here in the PI. Willits was the owner of all the
capital stock.
Later, there was dispute with regard to the construction of the contract as a
result, a new contract in the form of a letter was entered into. Willits signed
this.
The statements of account showed that 106K was due and owing to Arnold.
W&P Corp was in financial trouble and all assets were turned over to a
creditors committee.
1922. Arnold filed this complaint to recover 106K from W&P.
W&P argues that the 2nd contract was signed without authority. And as
counterclaim alleged that Arnold took 30K from the Corp but only 19.1K was
due to him thus he owed 10.1K to W&P.
CFI ordered Arnold to return the 10.1K.
SC reverses. Arnold entitled to 68K plus half of 75K, representing PNs.
Both Corps organized by Willits were a One Man Corporation. After the 2 nd
contract was signed it was recognized by Willits that Arnolds services were to
be performed by its terms and there never was any dispute between Arnold
and Willits.
Although a new corp was created, the new corp dealt with and treated Arnold
as its agent in the same manner as the previous corp had, thus the new corp
is bound by the contract which the old firm made.
In fact, the 2nd contract protected Willits from a larger claim, which the
accountant said, would be over 160K.
Where a stock of a corporation is owned by one person whereby the corp
functions only for the benefit of such individual owner, the corp and the
individual should be deemed to be the same.
Thus the corp is bound by the contract.

Hydro Resources Contractors Corporation v CTA

Facts:
National Irrigation Administration (NIA) entered into an agreement with Hydro
Resources for the construction of the Magat River Multipurpose Project in Isabela.
Under their contract, Hydro was allowed to procure new construction equipment,
the payment for which will be advanced by NIA. Hydro shall repay NIA the costs
incurred and the manner of repayment shall be through deductions from each
monthly payment due to Hydro. Hydro shall repay NIA the full value of the
construction before the eventual transfer of ownership.
Upon transfer, Hydro was assessed an additional 3% ad valorem duty which it paid
under protest. The Collector of Customs then ordered for the refund of the ad
valorem duty in the form of tax credit. This was then reversed by the Deputy
Minister of Finance.
Issue:
Whether or not the imposition of the 3% ad valorem tax on importations is valid.
Held:
No. EO 860 which was the basis for the imposition of the ad valorem duty took
effect December 1982. The importations were effected in 1978 and 1979 by NIA. It
is a cardinal rule that laws shall have no retroactive effect unless contrary is
provided. EO 860 does not provide for its retroactivity. The Deputy Minister of
Finance even clarified that letters of credit opened prior to the effectivity of EO 860
are not subject to its provisions.
In the case, the procurement of the equipment was not on a tax exempt basis as the
import liabilities have been secured to paid under a financial scheme. It is a matter
of implementing a pre-existing agreement, hence, the imported articles can only be
subject to the rates of import duties prevailing at the time of entry or withdrawal
from the customs custody.

PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION and ROGELIO S.

PANTALEON vs ARTHUR F. MENCHAVEZ
G.R. No. 160545; March 9, 2010
FACTS:
December 8, 1993, Pantaleon, President and Chairman of the Board of PRISMA,
obtained a P1M loan from the respondent, with monthly interest of P40,000.00
payable for 6 months, or a total obligation of P1,240,000.00 payable within 6 mos.
To secure the payment of the loan, Pantaleon issued a promissory. Pantaleon signed
the promissory note in his personal capacity and as duly authorized by the Board of
Directors of PRISMA. The petitioners failed to completely pay the loan within the 6-
month period.

As of January 4, 1997, respondent found that the petitioners still had an outstanding
balance of P1,364,151.00, to which respondent applied a 4% monthly interest.

On August 28, 1997, respondent filed a complaint for sum of money to enforce the
unpaid balance, plus 4% monthly interest. In their Answer, the petitioners admitted
the loan of P1,240,000.00, but denied the stipulation on the 4% monthly interest,
arguing that the interest was not provided in the promissory note. Pantaleon also
denied that he made himself personally liable and that he made representations
that the loan would be repaid within six (6) months.

RTC found that the respondent issued a check for P1M in favor of the petitioners for
a loan that would earn an interest of 4% or P40,000.00 per month, or a total of
P240,000.00 for a 6-month period. RTC ordered the petitioners to jointly and
severally pay the respondent the amount of P3,526,117.00 plus 4% per month
interest from February 11, 1999 until fully paid.

Petitioners appealed to CA insisting that there was no express stipulation on the 4%

monthly interest. CA favored respondent but noted that the interest of 4% per
month, or 48% per annum, was unreasonable and should be reduced to 12% per
annum. MR denied hence this petition.

ISSUE:
Whether the parties agreed to the 4% monthly interest on the loan. If so, does the
rate of interest apply to the 6-month payment period only or until full payment of
the loan?

RULING:
Petition is meritorious. Interest due should be stipulated in writing; otherwise, 12%
per annum

Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith. When the terms of a contract are
clear and leave no doubt as to the intention of the contracting parties, the literal
meaning of its stipulations governs. Courts have no authority to alter the contract
by construction or to make a new contract for the parties; a courts duty is confined
to the interpretation of the contract the parties made for themselves without regard
to its wisdom or folly, as the court cannot supply material stipulations or read into
the contract words the contract does not contain. It is only when the contract is
vague and ambiguous that courts are permitted to resort to the interpretation of its
terms to determine the parties intent.
In the present case, the respondent issued a check for P1M. In turn, Pantaleon, in his
personal capacity and as authorized by the Board, executed the promissory note.
Thus, the P1M loan shall be payable within 6 months. The loan shall earn an interest
of P40,000.00 per month, for a total obligation of P1,240,000.00 for the six-month
period. We note that this agreed sum can be computed at 4% interest per month,
but no such rate of interest was stipulated in the promissory note; rather a fixed
sum equivalent to this rate was agreed upon.

Article 1956 of the Civil Code specifically mandates that no interest shall be due
unless it has been expressly stipulated in writing. The payment of interest in loans
or forbearance of money is allowed only if: (1) there was an express stipulation for
the payment of interest; and (2) the agreement for the payment of interest was
reduced in writing. The concurrence of the two conditions is required for the
payment of interest at a stipulated rate. The collection of interest without any
stipulation in writing is prohibited by law.

The interest of P40,000.00 per month corresponds only to the six-month period of
the loan, or from January 8, 1994 to June 8, 1994, as agreed upon by the parties in
the promissory note. Thereafter, the interest on the loan should be at the legal
interest rate of 12% per annum.

When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may
have been stipulated in writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of stipulation, the
rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.

The facts show that the parties agreed to the payment of a specific sum of money
of P40,000.00 per month for six months, not to a 4% rate of interest payable within
a 6-month period.

No issue on the excessiveness of the stipulated amount of P40,000.00 per month

was ever put in issue by the petitioners; they only assailed the application of a 4%
interest rate, since it was not agreed upon.

It is a familiar doctrine in obligations and contracts that the parties are bound by the
stipulations, clauses, terms and conditions they have agreed to, which is the law
between them, the only limitation being that these stipulations, clauses, terms and
conditions are not contrary to law, morals, public order or public policy. The
payment of the specific sum of money of P40,000.00 per month was voluntarily
agreed upon by the petitioners and the respondent. There is nothing from the
records and, in fact, there is no allegation showing that petitioners were victims of
fraud when they entered into the agreement with the respondent.

Therefore, as agreed by the parties, the loan of P1M shall earn P40,000.00 per
month for a period of 6 months, for a total principal and interest amount of
P1,240,000.00. Thereafter, interest at the rate of 12% per annum shall apply. The
amounts already paid by the petitioners during the pendency of the suit, amounting
toP1,228,772.00 as of February 12, 1999, should be deducted from the total amount
due, computed as indicated above. We remand the case to the trial court for the
actual computation of the total amount due.

WHEREFORE, in light of all the foregoing, we hereby REVERSE and SET ASIDE the
Decision CA

Corporations; piercing the corporate veil. It has long been settled that the law
vests a corporation with a personality distinct and separate from its stockholders
or members. In the same vein, a corporation, by legal fiction and convenience, is
an entity shielded by a protective mantle and imbued by law with a character alien
to the persons comprising it. Nonetheless, the shield is not at all times
impenetrable and cannot be extended to a point beyond its reason and policy.
Circumstances might deny a claim for corporate personality, under the
doctrine of piercing the veil of corporate fiction.

Piercing the veil of corporate fiction is an equitable doctrine developed to

address situations where the separate corporate personality of a corporation is
abused or used for wrongful purposes. Under the doctrine, the corporate existence
may be disregarded where the entity is formed or used for non-legitimate purposes,
such as to evade a just and due obligation, or to justify a wrong, to shield or
perpetrate fraud or to carry out similar or inequitable considerations, other
unjustifiable aims or intentions, in which case, the fiction will be disregarded and
the individuals composing it and the two corporations will be treated as identical.

In the present case, we see an indubitable link between CBBs closure and
Binswangers incorporation. CBB ceased to exist only in name; it re-emerged in the
person of Binswanger for an urgent purpose to avoid payment by CBB of the last
two installments of its monetary obligation to Livesey, as well as its other financial
liabilities. Freed of CBBs liabilities, especially that owing to Livesey,
Binswanger can continue, as it did continue, CBBs real estate brokerage business.
Eric Godfrey Stanley Livesey v. Binswanger Philippines, Inc. and Keith Elliot, G.R. No.
177493, March 19, 2014.

ERIC GODFREY STANLEY LIVESEY, Petitioner, v. BINSWANGER PHILIPPINES,

INC. AND KEITH ELLIOT, Respondents.

DECISION

BRION, J.:

We resolve this petition for review on certiorari1 assailing the decision2 dated August
18, 2006 and the resolution3 dated March 29, 2007 of the Court of Appeals (CA) in
CAG.R. SP No. 94461.
 The Antecedents

In December 2001, petitioner Eric Godfrey Stanley Livesey filed a complaint for
illegal dismissal with money claims4 against CBB Philippines Strategic Property
Services, Inc. (CBB) and Paul Dwyer. CBB was a domestic corporation engaged in
real estate brokerage and Dwyer was its President.

Livesey alleged that on April 12, 2001, CBB hired him as Director and Head of
Business Space Development, with a monthly salary of US$5,000.00; shareholdings
in CBBs offshore parent company; and other benefits. In August 2001, he was
appointed as Managing Director and his salary was increased to US$16,000.00 a
month. Allegedly, despite the several deals for CBB he drew up, CBB failed to pay
him a significant portion of his salary. For this reason, he was compelled to resign on
December 18, 2001. He claimed CBB owed him US$23,000.00 in unpaid salaries.

CBB denied liability. It alleged that it engaged Livesey as a corporate officer in April
2001: he was elected VicePresident (with a salary of P75,000.00/month), and
thereafter, he became President (at P1,200,000.00/year). It claimed that Livesey
was later designated as Managing Director when it became an extension office of its
principal in Hongkong.5

On December 17, 2001, Livesey demanded that CBB pay him US$25,000.00 in
unpaid salaries and, at the same time, tendered his resignation. CBB posited that
the labor arbiter (LA) had no jurisdiction as the complaint involved an intra
corporate dispute.

In his decision dated September 20, 2002, 6 LA Jaime M. Reyno found that Livesey
had been illegally dismissed. LA Reyno ordered CBB to reinstate Livesey to his
former position as Managing Director and to pay him US$23,000.00 in accrued
salaries (from July to December 2001), and US$5,000.00 a month in back salaries
from January 2002 until reinstatement; and 10% of the total award as attorneys
fees.

Thereafter, the parties entered into a compromise agreement 7 which LA Reyno

approved in an order dated November 6, 2002. 8 Under the agreement, Livesey was
to receive US$31,000.00 in full satisfaction of LA Reynos decision, broken down into
US$13,000.00 to be paid by CBB to Livesey or his authorized representative upon
the signing of the agreement; US$9,000.00 on or before June 30, 2003; and
US$9,000.00 on or before September 30, 2003. Further, the agreement provided
that unless and until the agreement is fully satisfied, CBB shall not: (1) sell, alienate,
or otherwise dispose of all or substantially all of its assets or business; (2) suspend,
discontinue, or cease its entire, or a substantial portion of its business operations;
(3) substantially change the nature of its business; and (4) declare bankruptcy or
insolvency.

CBB paid Livesey the initial amount of US$13,000.00, but not the next two
installments as the company ceased operations. In reaction, Livesey moved for the
issuance of a writ of execution. LA Eduardo G. Magno granted the writ, 9 but it was
not enforced. Livesey then filed a motion for the issuance of an alias writ of
execution,10 alleging that in the process of serving respondents the writ, he learned
that respondents, in a clear and willful attempt to avoid their liabilities to
complainant x x x have organized another corporation, [Binswanger] Philippines,
Inc.11 He claimed that there was evidence showing that CBB and Binswanger
Philippines, Inc. (Binswanger) are one and the same corporation, pointing out that
CBB stands for Chesterton Blumenauer Binswanger.12 Invoking the doctrine of
piercing the veil of corporate fiction, Livesey prayed that an alias writ of execution
be issued against respondents Binswanger and Keith Elliot, CBBs former President,
and now Binswangers President and Chief Executive Officer (CEO).

The Compulsory Arbitration Rulings

In an order13 dated March 22, 2004, LA Catalino R. Laderas denied Liveseys motion
for an alias writ of execution, holding that the doctrine of piercing the corporate veil
was inapplicable in the case. He explained that the stockholders of the two
corporations were not the same. Further, LA Laderas stressed that LA Reynos
decision had already become final and could no longer be altered or modified to
include additional respondents.

Livesey filed an appeal which the National Labor Relations Commission (NLRC)
granted in its decision14 dated September 7, 2005. It reversed LA Laderas March
22, 2004 order and declared the respondents jointly and severally liable with CBB
for LA Reynos decision15 of September 20, 2002 in favor of Livesey. The
respondents moved for reconsideration, filed by an Atty. Genaro S. Jacosalem, 16 not
by their counsel of record at the time, Corporate Counsels Philippines, Law Offices.
The NLRC denied the motion in its resolution of January 6, 2006. 17 The respondents
then sought relief from the CA through a petition for certiorari under Rule 65 of the
Rules of Court.

The respondents charged the NLRC with grave abuse of discretion for holding them
liable to Livesey and in exercising jurisdiction over an intracorporate dispute. They
maintained that Binswanger is a separate and distinct corporation from CBB and
that Elliot signed the compromise agreement in CBBs behalf, not in his personal
capacity. It was error for the NLRC, they argued, when it applied the doctrine of
piercing the veil of corporate fiction to the case, despite the absence of clear
evidence in that respect.

For his part, Livesey contended that the petition should be dismissed outright for
being filed out of time. He claimed that the respondents counsel of record received
a copy of the NLRC resolution denying their motion for reconsideration as early as
January 19, 2006, yet the petition was filed only on May 15, 2006. He insisted that
in any event, there was ample evidence supporting the application of the doctrine
of piercing the veil of corporate fiction to the case.

The CA Decision

The CA granted the petition, 18 reversed the NLRC decision19 of September 7, 2005
and reinstated LA Laderas order20 of March 22, 2004. The CA found untenable
Liveseys contention that the petition for certiorari was filed out of time, stressing
that while there was no valid substitution or withdrawal of the respondents former
counsel, the NLRC impliedly recognized Atty. Jacosalem as their new counsel when it
resolved the motion for reconsideration which he filed.

On the merits of the case, the CA disagreed with the NLRC finding that the
respondents are jointly and severally liable with CBB in the case. It emphasized that
the mere fact that Binswanger and CBB have the same President is not in itself
sufficient to pierce the veil of corporate fiction of the two entities, and that although
Elliot was formerly CBBs President, this circumstance alone does not make him
answerable for CBBs liabilities, there being no proof that he was motivated by
malice or bad faith when he signed the compromise agreement in CBBs behalf;
neither was there proof that Binswanger was formed, or that it was operated, for the
purpose of shielding fraudulent or illegal activities of its officers or stockholders or
that the corporate veil was used to conceal fraud, illegality or inequity at the
expense of third persons like Livesey.

Livesey moved for reconsideration, but the CA denied the motion in its resolution
dated March 29, 2007.21 Hence, the present petition.

The Petition

Livesey prays for a reversal of the CA rulings on the basis of the following
arguments:chanRoblesvirtualLawlibrary

1. The CA erred in not denying the respondents petition for certiorari dated May 12,
2006 for being filed out of time.

Livesey assails the CAs reliance on the Courts pronouncement in Rinconada

Telephone Co., Inc. v. Hon. Buenviaje 22 to justify its ruling that the receipt on March
17, 2006 by Atty. Jacosalem of the NLRCs denial of the respondents motion for
reconsideration was the reckoning date for the filing of the petition for certiorari, not
the receipt of a copy of the same resolution on January 19, 2006 by the
respondents counsel of record, the Corporate Counsels Philippines, Law Offices. The
cited Courts pronouncement reads:chanRoblesvirtualLawlibrary

In view of respondent judges recognition of Atty. Santos as new counsel for

petitioner without even a valid substitution or withdrawal of petitioners former
counsel, said new counsel logically awaited for service to him of any action taken on
his motion for reconsideration. Respondent judges sudden change of posture in
insisting that Atty. Maggay is the counsel of record is, therefore, a whimsical and
capricious exercise of discretion that prevented petitioner and Atty. Santos from
taking a timely appeal[.]23

With the above citation, Livesey points out, the CA opined that a copy of the NLRC
resolution denying the respondents motion for reconsideration should have been
served on Atty. Jacosalem and no longer on the counsel of record, so that the sixty
(60)day period for the filing of the petition should be reckoned from March 17,
2006 when Atty. Jacosalem secured a copy of the resolution from the NLRC (the
petition was filed by a Jeffrey Jacosalem on May 15, 2006). 24 Livesey submits that
the CAs reliance on Rinconada was misplaced. He argues that notwithstanding the
signing by Atty. Jacosalem of the motion for reconsideration, it was only proper that
the NLRC served a copy of the resolution on the Corporate Counsels Philippines, Law
Offices as it was still the respondents counsel at the time. 25 He adds that Atty.
Jacosalem never participated in the NLRC proceedings because he did not enter his
appearance as the respondents counsel before the labor agency; further, he did not
even indicate his office address on the motion for reconsideration he signed.

2. The CA erred in not applying the doctrine of piercing the veil of corporate fiction
to the case.

Livesey bewails the CAs refusal to pierce Binswangers corporate veil in his bid to
make the company and Elliot liable, together with CBB, for the judgment award to
him. He insists that CBB and Binswanger are one and the same corporation as
shown by the overwhelming evidence he presented to the LA, the NLRC and the
CA, as follows:chanRoblesvirtualLawlibrary

a. CBB stands for Chesterton Blumenauer Binswanger. 26

b. After executing the compromise agreement with him, through Elliot, CBB ceased
operations following a transaction where a substantial amount of CBB shares
changed hands. Almost simultaneously with CBBs closing (in July 2003),
Binswanger was established with its headquarters set up beside CBBs office at Unit
501, 5/F Peninsula Court Building in Makati City. 27

c. Key CBB officers and employees moved to Binswanger led by Elliot, former CBB
President who became Binswangers President and CEO; Ferdie Catral, former CBB
Director and Head of Operations; Evangeline Agcaoili and Janet Pei.

d. Summons served on Binswanger in an earlier labor case was received by

Binswanger using CBBs receiving stamp.28

e. A Leslie Young received on August 23, 2003 an online query on whether CBB was
the same as Blumaneuver Binswanger (BB). Signing as Web Editor,
Binswanger/CBB, Young replied via email:29

We are known as either CBB (Chesterton Blumenauer Binswanger) or as Chesterton

Petty Ltd. in the Philippines. Contact info for our office in Manila is as follows:
Manila Philippines
CBB Philippines
Unit 509, 5th Floor
Peninsula Court, Paseo de Roxas corner
Makati Avenue
1226 Makati City
Philippines
Contact: Keith Elliot
f. In a letter dated August 21, 2003,30 Elliot noted a Binswanger bid solicitation for a
project with the Philippine National Bank (PNB) which was actually a CBB project as
shown by a CBB draft proposal to PNB dated January 24, 2003. 31

g. The affidavit32 dated October 1, 2003 of Hazel de Guzman, another former CBB
employee who also filed an illegal dismissal case against the company, attested to
the existence of Liveseys documentary evidence in his own case and who deposed
that at one time, Elliot told her of CBBs plan to close the corporation and to
organize another for the purpose of evading CBBs liabilities.

h. The findings33 of facts of LA Veneranda C. Guerrero who ruled in De Guzmans

favor that bolstered his own evidence in the present case.

3. The CA erred in not holding Elliot liable for the judgment award.

Livesey questions the CAs reliance on Laperal Development Corporation v. Court of

Appeals,34 Sunio, et al. v. NLRC, et al.,35 and Palay, Inc., et al. v. Clave, etc., et al.,36
in support of its ruling that Elliot is not liable to him for the LAs award. He argues
that in these cases, the Court upheld the separate personalities of the corporations
and their officers/employees because there was no evidence that the individuals
sought to be held liable were in bad faith or that there were badges of fraud in their
actions against the aggrieved party or parties in said cases. He reiterates his
submission to the CA that the circumstances of the present case are different from
those of the cited cases. He posits that the closure of CBB and its immediate
replacement by Binswanger could not have been possible without Elliots guiding
hand, such that when CBB ceased operations, Elliot (CBBs President and CEO)
moved to Binswanger in the same position. More importantly, Livesey points out, as
signatory for CBB in the compromise agreement between him (Livesey) and CBB,
Elliot knew that it had not been and would never be fully satisfied.

Livesey thus laments Elliots devious scheme of leaving him an unsatisfied award,
stressing that Elliot was the chief orchestrator of CBB and Binswangers fraudulent
act of evading the full satisfaction of the compromise agreement. In this light, he
submits that the Courts ruling in A.C. Ransom Labor UnionCCLU v. NLRC,37 which
deals with the issue of who is liable for the workers backwages when a corporation
ceases operations, should apply to his situation.

The Respondents Position

Through their comment38 and memorandum,39 the respondents pray that the
petition be denied for the following reasons:chanRoblesvirtualLawlibrary

1. The NLRC had no jurisdiction over the dispute between Livesey and CBB/Dwyer as
it involved an intracorporate controversy; under Republic Act No. 8799, the
Regional Trial Court exercises jurisdiction over the case.

As shown by the records, Livesey was appointed as CBBs Managing Director during
the relevant period and was also a shareholder, making him a corporate officer.

2. There was no employeremployee relationship between Livesey and Binswanger.

Under Article 217 of the Labor Code, the labor arbiters and the NLRC have
jurisdiction only over disputes where there is an employeremployee relationship
between the parties.

3. The NLRC erred in applying the doctrine of piercing the veil of corporate fiction to
the case based only on mere assumptions. Point by point, they take exception to
Liveseys submissions as follows:chanRoblesvirtualLawlibrary
 a. The email statement in reply to an online query of Young (CBBs Web Editor)
that CBB is known as Chesterton Blumenauer Binswanger or Chesterton Petty.
Ltd. to establish a connection between CBB and Binswanger is inconclusive as
there was no mention in the statement of Binswanger Philippines, Inc.

b. The affidavit of De Guzman, former CBB Associate Director, who also resigned
from the company like Livesey, has no probative value as it was selfserving
and contained only misrepresentation of facts, conjectures and surmises.

c. When Binswanger was organized and incorporated, CBB had already been
abandoned by its Board of Directors and no longer subsidized by CBB
Hongkong; it had no business operations to work with.

d. The mere transfer of Elliot and Catral from CBB to Binswanger is not a ground
to pierce the corporate veil in the present case absent a clear evidence
supporting the application of the doctrine. The NLRC applied the doctrine on
the basis only of LA Guerreros decision in the De Guzman case.

e. The respondents petition for certiorari was filed on time. Atty. Jacosalem,
who was presumed to have been engaged as the respondents counsel, was
deemed to have received a copy of the NLRC resolution (denying the motion
for reconsideration) on March 17, 2006 when he requested and secured a
copy from the NLRC. The petition was filed on May 15, 2006 or fiftynine (59)
days from March 17, 2006. Atty. Jacosalem may have failed to indicate his
address on the motion for reconsideration he filed but that is not a reason for
him to be deprived of the notices and processes of the case.

The Courts Ruling

The procedural question

The respondents petition for certiorari before the CA was filed out of time. The sixty
(60)day filing period under Rule 65 of the Rules of Court should have been counted
from January 19, 2006, the date of receipt of a copy of the NLRC resolution denying
the respondents motion for reconsideration by the Corporate Counsels Philippines,
Law Offices which was the respondents counsel of record at the time. The
respondents cannot insist that Atty. Jacosalems receipt of a copy of the resolution
on March 17, 2006 as the reckoning date for the filing of the petition as we shall
discuss below.

The CA chided the NLRC for serving a copy of the resolution on the Corporate
Counsels Philippines, Law Offices, instead of on Atty. Jacosalem as it believed that
the labor tribunal impliedly recognized Atty. Jacosalem as the respondents counsel
when it acted on the motion for reconsideration that he signed. As we see it, the
fault was not on the NLRC but on Atty. Jacosalem himself as he left no forwarding
address with the NLRC, a serious lapse that even he admitted. 40 This is a matter that
cannot just be taken for granted as it betrays a careless legal representation that
can cause adverse consequences to the other party.
To our mind, Atty. Jacosalems nonobservance of a simple, but basic requirement in
the practice of law lends credence to Liveseys claim that the lawyer did not
formally enter his appearance before the NLRC as the respondents new counsel; if
it had been otherwise, he would have supplied his office address to the NLRC. Also,
had he exercised due diligence in the performance of his duty as counsel, he could
have inquired earlier with the NLRC and should not have waited as late as March 17,
2006 about the outcome of the respondents motion for reconsideration which was
filed as early as October 28, 2005.

To reiterate, the filing of the respondents petition for certiorari should have been
reckoned from January 19, 2006 when a copy of the subject NLRC resolution was
received by the Corporate Counsels Philippines, Law Offices, which, as of that date,
had not been discharged or had withdrawn and therefore remained to be the
respondents counsel of record. Clearly, the petition for certiorari was filed out of
time. Section 6(a), Rule III of the NLRC Revised Rules of Procedure provides that
[f]or purposes of appeal, the period shall be counted from receipt of such
decisions, resolutions, or orders by the counsel or representative of record.

We now come to the issue of whether the NLRC had jurisdiction over the
controversy between Livesey and CBB/Dwyer on the ground that it involved an
intracorporate dispute.

Based on the facts of the case, we find this issue to have been rendered academic
by the compromise agreement between Livesey and CBB and approved by LA
Reyno.41 That CBB reneged in the fulfillment of its obligation under the agreement is
no reason to revive the issue and further frustrate the full settlement of the
obligation as agreed upon.

The substantive aspect of the case

Even if we rule that the respondents appeal before the CA had been filed on time,
we believe and so hold that the appellate court committed a reversible error of
judgment in its challenged decision.

The NLRC committed no grave abuse of discretion in reversing LA Laderas ruling as

there is substantial evidence in the records that Livesey was prevented from fully
receiving his monetary entitlements under the compromise agreement between him
and CBB, with Elliot signing for CBB as its President and CEO. Substantial evidence
is more than a scintilla; it means such relevant evidence as a reasonable mind
might accept as adequate to support a conclusion. 42

Shortly after Elliot forged the compromise agreement with Livesey, CBB ceased
operations, a corporate event that was not disputed by the respondents. Then
Binswanger suddenly appeared. It was established almost simultaneously with
CBBs closure, with no less than Elliot as its President and CEO. Through the
confluence of events surrounding CBBs closure and Binswangers sudden
emergence, a reasonable mind would arrive at the conclusion that Binswanger is
CBBs alter ego or that CBB and Binswanger are one and the same corporation.
There are also indications of badges of fraud in Binswangers incorporation. It was a
business strategy to evade CBBs financial liabilities, including its outstanding
obligation to Livesey.

The respondents impugned the probative value of Liveseys documentary evidence

and insist that the NLRC erred in applying the doctrine of piercing the veil of
corporate fiction in the case to avoid liability. They consider the NLRC conclusions
as mere assumptions.

We disagree.

It has long been settled that the law vests a corporation with a personality distinct
and separate from its stockholders or members. In the same vein, a corporation, by
legal fiction and convenience, is an entity shielded by a protective mantle and
imbued by law with a character alien to the persons comprising it. 43 Nonetheless,
the shield is not at all times impenetrable and cannot be extended to a point
beyond its reason and policy. Circumstances might deny a claim for corporate
personality, under the doctrine of piercing the veil of corporate fiction.

Piercing the veil of corporate fiction is an equitable doctrine developed to address

situations where the separate corporate personality of a corporation is abused or
used for wrongful purposes.44 Under the doctrine, the corporate existence may be
disregarded where the entity is formed or used for nonlegitimate purposes, such as
to evade a just and due obligation, or to justify a wrong, to shield or perpetrate
fraud or to carry out similar or inequitable considerations, other unjustifiable aims or
intentions,45 in which case, the fiction will be disregarded and the individuals
composing it and the two corporations will be treated as identical. 46

In the present case, we see an indubitable link between CBBs closure and
Binswangers incorporation. CBB ceased to exist only in name; it re
emerged in the person of Binswanger for an urgent purpose to avoid
payment by CBB of the last two installments of its monetary obligation to
Livesey, as well as its other financial liabilities. Freed of CBBs liabilities,
especially that owing to Livesey, Binswanger can continue, as it did
continue, CBBs real estate brokerage business.

Liveseys evidence, whose existence the respondents never denied, converged to

show this continuity of business operations from CBB to Binswanger. It was not just
coincidence that Binswanger is engaged in the same line of business CBB embarked
on: (1) it even holds office in the very same building and on the very same floor
where CBB once stood; (2) CBBs key officers, Elliot, no less, and Catral moved over
to Binswanger, performing the tasks they were doing at CBB; (3) notwithstanding
CBBs closure, Binswangers Web Editor (Young), in an email correspondence,
supplied the information that Binswanger is now known as either CBB (Chesterton
Blumenauer Binswanger or as Chesterton Petty, Ltd., in the Philippines; (4) the use
of Binswanger of CBBs paraphernalia (receiving stamp) in connection with a labor
case where Binswanger was summoned by the authorities, although Elliot claimed
that he bought the item with his own money; and (5) Binswangers takeover of
CBBs project with the PNB.

While the ostensible reason for Binswangers establishment is to continue CBBs

business operations in the Philippines, which by itself is not illegal, the close
proximity between CBBs disestablishment and Binswangers coming into existence
points to an unstated but urgent consideration which, as we earlier noted, was to
evade CBBs unfulfilled financial obligation to Livesey under the compromise
agreement.47

This underhanded objective, it must be stressed, can only be attributed to Elliot as it

was apparent that Binswangers stockholders had nothing to do with Binswangers
operations as noted by the NLRC and which the respondents did not deny. 48 Elliot
was well aware of the compromise agreement between Livesey and CBB, as he
agreed and accepted the terms of the agreement 49 for CBB. He was also well
aware that the last two installments of CBBs obligation to Livesey were due on June
30, 2003 and September 30, 2003. These installments were not met and the reason
is that after the alleged sale of the majority of CBBs shares of stock, it closed down.

With CBBs closure, Livesey asked why people would buy into a corporation and
simply close it down immediately thereafter? 50 The answer to pave the way for
CBBs reappearance as Binswanger. Elliots guiding hand, as Livesey puts it, is
very much evident in CBBs demise and Binswangers creation. Elliot knew that CBB
had not fully complied with its financial obligation under the compromise
agreement. He made sure that it would not be fulfilled when he allowed CBBs
closure, despite the condition in the agreement that unless and until the
Compromise Amount has been fully settled and paid by the Company in favor of Mr.
Livesey, the Company shall not x x x suspend, discontinue, or cease its entire or a
substantial portion of its business operations[.] 51

What happened to CBB, we believe, supports Liveseys assertion that De Guzman,

CBBs former Associate Director, informed him that at one time Elliot told her of
CBBs plan to close the corporation and organize another for the purpose of evading
CBBs liabilities to Livesey and its other financial liabilities. 52 This wrongful intent we
cannot and must not condone, for it will give a premium to an iniquitous business
strategy where a corporation is formed or used for a nonlegitimate purpose, such
as to evade a just and due obligation.53 We, therefore, find Elliot as liable as
Binswanger for CBBs unfulfilled obligation to Livesey.

WHEREFORE, premises considered, we hereby GRANT the petition. The decision

dated August 18, 2006 and the Resolution dated March 29, 2007 of the Court of
Appeals are SET ASIDE. Binswanger Philippines, Inc. and Keith Elliot (its President
and CEO) are declared jointly and severally liable for the second and third
installments of CBBs liability to Eric Godfrey Stanley Livesey under the compromise
agreement dated October 14, 2002. Let the case record be remanded to the
National Labor Relations Commission for execution of this Decision.

Costs against the respondents.

SO ORDERED.
http://sc.judiciary.gov.ph/jurisprudence/2004/aug2004/140667.htm

Agency; apparent authority of an agent based on estoppel; concept. In Woodchild

Holdings, Inc. v. Roxas Electric and Construction Company, Inc. the Court stated that
persons dealing with an assumed agency, whether the assumed agency be a
general or special one, are bound at their peril, if they would hold the principal
liable, to ascertain not only the fact of agency but also the nature and extent of
authority, and in case either is controverted, the burden of proof is upon them to
establish it. In other words, when the petitioner relied only on the words of
respondent Alejandro without securing a copy of the SPA in favor of the latter, the
petitioner is bound by the risk accompanying such trust on the mere assurance of
Alejandro.

The same Woodchild case stressed that apparent authority based on estoppel can
arise from the principal who knowingly permit the agent to hold himself out with
authority and from the principal who clothe the agent with indicia of authority that
would lead a reasonably prudent person to believe that he actually has such
authority. Apparent authority of an agent arises only from acts or conduct on the
part of the principal and such acts or conduct of the principal must have been
known and relied upon in good faith and as a result of the exercise of reasonable
prudence by a third person as claimant and such must have produced a change of
position to its detriment. In the instant case, the sale to the Spouses Lajarca and
other transactions where Alejandro allegedly represented a considerable majority of
the co-owners transpired after the sale to the petitioner; thus, the petitioner cannot
rely upon these acts or conduct to believe that Alejandro had the same authority to
negotiate for the sale of the subject property to him. Reman Recio v. Heirs of
Spouses Aguego and Maria Altamirano, G.R. No.182349, July 24, 2013.