Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 160236               October 16, 2009

"G" HOLDINGS, INC., Petitioner,

vs.
NATIONAL MINES AND ALLIED WORKERS UNION Local 103 (NAMAWU);
SHERIFFS RICHARD H. APROSTA and ALBERTO MUNOZ, all acting Sheriffs;
DEPARTMENT OF LABOR AND EMPLOYMENT, Region VI, Bacolod District Office,
Bacolod City, Respondents.

DECISION

NACHURA, J.:

Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court
assailing the October 14, 2003 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No.
75322.

The Facts

The petitioner, "G" Holdings, Inc. (GHI), is a domestic corporation primarily engaged in
the business of owning and holding shares of stock of different companies. 2 It was
registered with the Securities and Exchange Commission on August 3, 1992. Private
respondent, National Mines and Allied Workers Union Local 103 (NAMAWU), was the
exclusive bargaining agent of the rank and file employees of Maricalum Mining
Corporation (MMC),3 an entity operating a copper mine and mill complex at Sipalay,
Negros Occidental.4

MMC was incorporated by the Development Bank of the Philippines (DBP) and the
Philippine National Bank (PNB) on October 19, 1984, on account of their foreclosure of
Marinduque Mining and Industrial Corporation’s assets. MMC started its commercial
operations in August 1985. Later, DBP and PNB transferred it to the National
Government for disposition or privatization because it had become a non-performing
asset.5

On October 2, 1992, pursuant to a Purchase and Sale Agreement 6 executed between

GHI and Asset Privatization Trust (APT), the former bought ninety percent (90%) of
MMC’s shares and financial claims. 7 These financial claims were converted into three
Promissory Notes8 issued by MMC in favor of GHI totaling ₱500M and secured by
mortgages over MMC’s properties. The notes, which were similarly worded except for
their amounts, read as follows:

PROMISSORY NOTE

[Php186,550,560.00 in the second

AMOUNT - Php114,715,360.00 note, and Php248,734,080.00 in the
third note.]

MAKATI, METRO MANILA, PHILIPPINES, October 2, 1992

For Value Received, MARICALUM MINING CORPORATION (MMC) with postal address
at 4th Floor, Manila Memorial Park Bldg., 2283 Pasong Tamo Extension, Makati, Metro
Manila, Philippines, hereby promises to pay "G" HOLDINGS, INC., at its office at Phimco
Compound, F. Manalo Street, Punta, Sta. Ana, Manila, the amount of PESOS ONE
HUNDRED FOURTEEN MILLION, SEVEN HUNDRED FIFTEEN THOUSAND AND
THREE HUNDRED SIXTY (Php114,715,360.00) ["PESOS ONE HUNDRED EIGHTY SIX
MILLION FIVE HUNDRED FIFTY THOUSAND FIFE HUNDRED AND SIXTY
(Php186,550,560.00)" in the second note, and "PESOS TWO HUNDRED FORTY EIGHT
MILLION, SEVEN HUNDRED THIRTY FOUR THOUSAND AND EIGHTY
(Php248,734,080.00)" in the third note], PHILIPPINE CURRENCY, on or before October
2, 2002. Interest shall accrue on the amount of this Note at a rate per annum equal to the
interest of 90-day Treasury Bills prevailing on the Friday preceding the maturity date of
every calendar quarter.

As collateral security, MMC hereby establishes and constitutes in favor of "G"

HOLDINGS, INC., its successors and/or assigns:

1. A mortgage over certain parcels of land, more particularly listed and described in the
Sheriff’s Certificate of Sale dated September 7, 1984 issued by the Ex-Officio Provincial
Sheriff of Negros Occidental, Rolando V. Ramirez, with office at Bacolod City following
the auction sale conducted pursuant to the provisions of Act 3135, a copy of which
certificate of sale is hereto attached as Annex "A" and made an integral part hereof;

2. A chattel mortgage over assets and personal properties more particularly listed and
described in the Sheriff’s Certificate of Sale dated September 7, 1984 issued by the Ex-
Officio Provincial Sheriff of Negros Occidental, Rolando V. Ramirez, with office at
Bacolod City following the auction conducted pursuant to the provisions of Act 1508, a
copy of which Certificate of Sale is hereto attached as Annex "B" and made an integral
part hereof.

3. Mortgages over assets listed in APT Specific Catalogue GC-031 for MMC, a copy of
which Catalogue is hereby made an integral part hereof by way of reference, as well as
assets presently in use by MMC but which are not listed or included in paragraphs 1 and
2 above and shall include all assets that may hereinafter be acquired by MMC.

MARICALUM MINING CORPORATION

(Maker)

x x x x9

Upon the signing of the Purchase and Sale Agreement and upon the full satisfaction of
the stipulated down payment, GHI immediately took physical possession of the mine site
and its facilities, and took full control of the management and operation of MMC. 10

Almost four years thereafter, or on August 23, 1996, a labor dispute (refusal to bargain
collectively and unfair labor practice) arose between MMC and NAMAWU, with the latter
eventually filing with the National Conciliation and Mediation Board of Bacolod City a
notice of strike.11 Then Labor Secretary, now Associate Justice of this Court, Leonardo A.
Quisumbing, later assumed jurisdiction over the dispute and ruled in favor of NAMAWU.
In his July 30, 1997 Order in OS-AJ-10-96-014 (Quisumbing Order), Secretary
Quisumbing declared that the lay-off (of workers) implemented on May 7, 1996 and
October 7, 1996 was illegal and that MMC committed unfair labor practice. He then
ordered the reinstatement of the laid-off workers, with payment of full backwages and
benefits, and directed the execution of a new collective bargaining agreement (CBA)
incorporating the terms and conditions of the previous CBA providing for an annual
increase in the workers’ daily wage. 12 In two separate cases─G.R. Nos. 133519 and
138996─filed with this Court, we sustained the validity of the Quisumbing Order, which
became final and executory on January 26, 2000. 13

On May 11, 2001, then Acting Department of Labor and Employment (DOLE) Secretary,
now also an Associate Justice of this Court, Arturo D. Brion, on motion of NAMAWU,
directed the issuance of a partial writ of execution (Brion Writ), and ordered the DOLE
sheriffs to proceed to the MMC premises for the execution of the same. 14 Much later, in
2006, this Court, in G.R. Nos. 157696-97, entitled Maricalum Mining Corporation v. Brion
and NAMAWU,15 affirmed the propriety of the issuance of the Brion Writ.

The Brion Writ was not fully satisfied because MMC’s resident manager resisted its
enforcement.16 On motion of NAMAWU, then DOLE Secretary Patricia A. Sto. Tomas
ordered the issuance of the July 18, 2002 Alias Writ of Execution and Break-Open Order
(Sto. Tomas Writ).17 On October 11, 2002, the respondent acting sheriffs, the members of
the union, and several armed men implemented the Sto. Tomas Writ, and levied on the
properties of MMC located at its compound in Sipalay, Negros Occidental. 18

On October 14, 2002, GHI filed with the Regional Trial Court (RTC) of Kabankalan City,
Negros Occidental, Special Civil Action (SCA) No. 1127 for Contempt with Prayer for the
Issuance of a Temporary Restraining Order (TRO) and Writ of Preliminary Injunction and
to Nullify the Sheriff’s Levy on Properties. 19 GHI contended that the levied properties were
the subject of a Deed of Real Estate and Chattel Mortgage, dated September 5,
199620 executed by MMC in favor of GHI to secure the aforesaid ₱550M promissory
notes; that this deed was registered on February 24, 2000; 21 and that the mortgaged
properties were already extrajudicially foreclosed in July 2001 and sold to GHI as the
highest bidder on December 3, 2001, as evidenced by the Certificate of Sale dated
December 4, 2001.22

The trial court issued ex parte a TRO effective for 72 hours, and set the hearing on the
application for a writ of injunction. 23 On October 17, 2002, the trial court ordered the
issuance of a Writ of Injunction (issued on October 18, 2002) 24 enjoining the DOLE
sheriffs from further enforcing the Sto. Tomas Writ and from conducting any public sale of
the levied-on properties, subject to GHI’s posting of a ₱5M bond. 25

Resolving, among others, NAMAWU’s separate motions for the reconsideration of the
injunction order and for the dismissal of the case, the RTC issued its December 4, 2002
Omnibus Order,26 the dispositive portion of which reads:

WHEREFORE, premises considered, respondent NAMAWU Local 103’s Motion for

Reconsideration dated October 23, 2002 for the reconsideration of the Order of this Court
directing the issuance of Writ of Injunction prayed for by petitioner and the Order dated
October 18, 2002 approving petitioner’s Injunction Bond in the amount of ₱5,000,000.00
is hereby DENIED.

Respondent’s Motion to Dismiss as embodied in its Opposition to Extension of

Temporary Restraining Order and Issuance of Writ of Preliminary Injunction with Motion
to Dismiss and Suspend Period to File Answer dated October 15, 2002 is likewise
DENIED.

Petitioner’s Urgent Motion for the return of the levied firearms is GRANTED. Pursuant
thereto, respondent sheriffs are ordered to return the levied firearms and handguns to the
petitioner provided the latter puts [up] a bond in the amount of ₱332,200.00.

Respondent’s lawyer, Atty. Jose Lapak, is strictly warned not to resort again to
disrespectful and contemptuous language in his pleadings, otherwise, the same shall be
dealt with accordingly.
SO ORDERED.27

Aggrieved, NAMAWU filed with the CA a petition for certiorari under Rule 65, assailing
the October 17, 18 and December 4, 2002 orders of the RTC.28

After due proceedings, on October 14, 2003, the appellate court rendered a Decision
setting aside the RTC issuances and directing the immediate execution of the Sto.
Tomas Writ. The CA ruled, among others, that the circumstances surrounding the
execution of the September 5, 1996 Deed of Real Estate and Chattel Mortgage yielded
the conclusion that the deed was sham, fictitious and fraudulent; that it was executed two
weeks after the labor dispute arose in 1996, but surprisingly, it was registered only on
February 24, 2000, immediately after the Court affirmed with finality the Quisumbing
Order. The CA also found that the certificates of title to MMC’s real properties did not
contain any annotation of a mortgage lien, and, suspiciously, GHI did not intervene in the
long drawn-out labor proceedings to protect its right as a mortgagee of virtually all the
properties of MMC.29

The CA further ruled that the subsequent foreclosure of the mortgage was irregular,
effected precisely to prevent the satisfaction of the judgment against MMC. It noted that
the foreclosure proceedings were initiated in July 2001, shortly after the issuance of the
Brion Writ; and, more importantly, the basis for the extrajudicial foreclosure was not the
failure of MMC to pay the mortgage debt, but its failure "to satisfy any money judgment
against it rendered by a court or tribunal of competent jurisdiction, in favor of any person,
firm or entity, without any legal ground or reason." 30 Further, the CA pierced the veil of
corporate fiction of the two corporations. 31 The dispositive portion of the appellate court’s
decision reads:

WHEREFORE, in view of the foregoing considerations, the petition is GRANTED. The

October 17, 2002 and the December 4, 2002 Order of the RTC, Branch 61 of
Kabankalan City, Negros Occidental are hereby ANNULLED and SET ASIDE for having
been issued in excess or without authority. The Writ of Preliminary Injunction issued by
the said court is lifted, and the DOLE Sheriff is directed to immediately enforce the Writ of
Execution issued by the Department of Labor and Employment in the case "In re: Labor
Dispute in Maricalum Mining Corporation" docketed as OS-AJ-10-96-01 (NCMB-RB6-08-
96).32

The Issues

Dissatisfied, GHI elevated the case to this Court via the instant petition for review on
certiorari, raising the following issues:

WHETHER OR NOT GHI IS A PARTY TO THE LABOR DISPUTE

BETWEEN NAMAWU AND MMC.

II

WHETHER OR NOT, ASSUMING ARGUENDO THAT THE PERTINENT

DECISION OR ORDER IN THE SAID LABOR DISPUTE BETWEEN
MMC AND NAMAWU MAY BE ENFORCED AGAINST GHI, THERE IS
ALREADY A FINAL DEETERMINATION BY THE SUPREME COURT OF
THE RIGHTS OF THE PARTIES IN SAID LABOR DISPUTE
CONSIDERING THE PENDENCY OF G.R. NOS. 157696-97.
 III

WHETHER OR NOT GHI IS THE ABSOLUTE OWNER OF THE

PROPERTIES UNLAWFULLY GARNISHED BY RESPONDENTS
SHERIFFS.

IV

WHETHER OR NOT THE HONORABLE HENRY D. ARLES

CORRECTLY ISSUED A WRIT OF INJUNCTION AGAINST THE
UNLAWFUL EXECUTIOIN ON GHI’S PROPERTIES.

WHETHER OR NOT THE VALIDITY OF THE DEED OF REAL AND

CHATTEL MORTGAGE OVER THE SUBJECT PROPERTIES
BETWEEN MMC AND GHI MAY BE COLLATERALLY ATTACKED.

VI

WHETHER OR NOT, ASSUMING ARGUENDO THAT THE VALIDITY

OF THE SAID REAL AND CHATTEL MORTGAGE MAY BE
COLLATERALLY ATTACKED, THE SAID MORTGAGE IS SHAM,
FICTITIOUS AND FRAUDULENT.

VII

WHETHER OR NOT GHI IS A DISTINCT AND SEPARATE

CORPORATE ENTITY FROM MMC.

VIII

WHETHER OR NOT GHI CAN BE PREVENTED THROUGH THE

ISSUANCE OF A RESTRAINING ORDER OR INJUNCTION FROM
TAKING POSSESSION OR BE DISPOSSESSED OF ASSETS
PURCHASED BY IT FROM APT.33

Stripped of non-essentials, the core issue is whether, given the factual circumstances
obtaining, the RTC properly issued the writ of injunction to prevent the enforcement of the
Sto. Tomas Writ. The resolution of this principal issue, however, will necessitate a ruling
on the following key and interrelated questions:

1. Whether the mortgage of the MMC’s properties to GHI was a sham;

2. Whether there was an effective levy by the DOLE upon the MMC’s real and personal
properties; and

3. Whether it was proper for the CA to pierce the veil of corporate fiction between MMC
and GHI.

Our Ruling

Before we delve into an extended discussion of the foregoing issues, it is essential to

take judicial cognizance of cases intimately linked to the present controversy which had
earlier been elevated to and decided by this Court.
Judicial Notice.

Judicial notice must be taken by this Court of its Decision in Maricalum Mining
Corporation v. Hon. Arturo D. Brion and NAMAWU, 34 in which we upheld the right of
herein private respondent, NAMAWU, to its labor claims. Upon the same principle of
judicial notice, we acknowledge our Decision in Republic of the Philippines, through its
trustee, the Asset Privatization Trust v. "G" Holdings, Inc., 35 in which GHI was recognized
as the rightful purchaser of the shares of stocks of MMC, and thus, entitled to the delivery
of the company notes accompanying the said purchase. These company notes,
consisting of three (3) Promissory Notes, were part of the documents executed in 1992 in
the privatization sale of MMC by the Asset Privatization Trust (APT) to GHI. Each of
these notes uniformly contains stipulations "establishing and constituting in favor of GHI"
mortgages over MMC’s real and personal properties. The stipulations were subsequently
formalized in a separate document denominated Deed of Real Estate and Chattel
Mortgage on September 5, 1996. Thereafter, the Deed was registered on February 4,
2000.36

We find both decisions critically relevant to the instant dispute. In fact, they should have
guided the courts below in the disposition of the controversy at their respective levels. To
repeat, these decisions respectively confirm the right of NAMAWU to its labor
claims37 and affirm the right of GHI to its financial and mortgage claims over the real and
personal properties of MMC, as will be explained below. The assailed CA decision
apparently failed to consider the impact of these two decisions on the case at bar. Thus,
we find it timely to reiterate that: "courts have also taken judicial notice of previous cases
to determine whether or not the case pending is a moot one or whether or not a previous
ruling is applicable to the case under consideration." 38

However, the CA correctly assessed that the authority of the lower court to issue the
challenged writ of injunction depends on the validity of the third party’s (GHI’s) claim of
ownership over the property subject of the writ of execution issued by the labor
department. Accordingly, the main inquiry addressed by the CA decision was whether
GHI could be treated as a third party or a stranger to the labor dispute, whose properties
were beyond the reach of the Writ of Execution dated December 18, 2001. 39

In this light, all the more does it become imperative to take judicial notice of the two
cases aforesaid, as they provide the necessary perspective to determine whether GHI is
such a party with a valid ownership claim over the properties subject of the writ of
execution. In Juaban v. Espina, 40 we held that "in some instances, courts have also taken
judicial notice of proceedings in other cases that are closely connected to the matter in
controversy. These cases may be so closely interwoven, or so clearly interdependent, as
to invoke a rule of judicial notice." The two cases that we have taken judicial notice of are
of such character, and our review of the instant case cannot stray from the findings and
conclusions therein.

Having recognized these crucial Court rulings, situating the facts in proper perspective,
we now proceed to resolve the questions identified above.

The mortgage was not a sham.

Republic etc., v. "G" Holdings, Inc. acknowledged the existence of the Purchase and
Sale Agreement between the APT and the GHI, and recounts the facts attendant to that
transaction, as follows:

The series of negotiations between the petitioner Republic of the Philippines, through the
APT as its trustee, and "G" Holdings culminated in the execution of a purchase and sale
agreement on October 2, 1992. Under the agreement, the Republic undertook to sell and
deliver 90% of the entire issued and outstanding shares of MMC, as well as its company
notes, to "G" Holdings in consideration of the purchase price of ₱673,161,280. It also
provided for a down payment of ₱98,704,000 with the balance divided into four tranches
payable in installment over a period of ten years."41

The "company notes" mentioned therein were actually the very same three (3)
Promissory Notes amounting to ₱550M, issued by MMC in favor of GHI. As already
adverted to above, these notes uniformly contained stipulations "establishing and
constituting" mortgages over MMC’s real and personal properties.

It may be remembered that APT acquired the MMC from the PNB and the DBP. Then, in
compliance with its mandate to privatize government assets, APT sold the aforesaid
MMC shares and notes to GHI. To repeat, this Court has recognized this Purchase and
Sale Agreement in Republic, etc., v. "G" Holdings, Inc.

The participation of the Government, through APT, in this transaction is significant.

Because the Government had actively negotiated and, eventually, executed the
agreement, then the transaction is imbued with an aura of official authority, giving rise to
the presumption of regularity in its execution. This presumption would cover all related
transactional acts and documents needed to consummate the privatization sale, inclusive
of the Promissory Notes. It is obvious, then, that the Government, through APT,
consented to the "establishment and constitution" of the mortgages on the assets of
MMC in favor of GHI, as provided in the notes. Accordingly, the notes (and the
stipulations therein) enjoy the benefit of the same presumption of regularity accorded to
government actions. Given the Government consent thereto, and clothed with the
presumption of regularity, the mortgages cannot be characterized as sham, fictitious or
fraudulent.

Indeed, as mentioned above, the three (3) Promissory Notes, executed on October 2,
1992, "established and constituted" in favor of GHI the following mortgages:

1. A mortgage over certain parcels of land, more particularly listed and described in the
Sheriff’s Certificate of Sale dated September 7, 1984 issued by the Ex-Officio Provincial
Sheriff of Negros Occidental, Rolando V. Ramirez, with office at Bacolod City following
the auction sale conducted pursuant to the provisions of Act 3135, a copy of which
certificate of sale is hereto attached as Annex "A" and made an integral part hereof;

2. A chattel mortgage over assets and personal properties more particularly listed and
described in the Sheriff’s Certificate of Sale dated September 7, 1984 issued by the Ex-
Officio Provincial Sheriff of Negros Occidental, Rolando V. Ramirez, with office at
Bacolod City following the auction conducted pursuant to the provision of Act 1508, a
copy of which Certificate of Sale is hereto attached as Annex "B" and made an integral
part hereof.

3. Mortgages over assets listed in APT Specific catalogue GC-031 for MMC, a copy of
which Catalogue is hereby made an integral part hereof by way of reference, as well as
assets presently in use by MMC but which are not listed or included in paragraphs 1 and
2 above and shall include all assets that may hereinafter be acquired by MMC. 42

It is difficult to conceive that these mortgages, already existing in 1992, almost four (4)
years before NAMAWU filed its notice of strike, were a "fictitious" arrangement intended
to defraud NAMAWU. After all, they were agreed upon long before the seeds of the labor
dispute germinated.

While it is true that the Deed of Real Estate and Chattel Mortgage was executed only on
September 5, 1996, it is beyond cavil that this formal document of mortgage was merely
a derivative of the original mortgage stipulations contained in the Promissory Notes of
October 2, 1992. The execution of this Deed in 1996 does not detract from, but instead
reinforces, the manifest intention of the parties to "establish and constitute" the
mortgages on MMC’s real and personal properties.

Apparently, the move to execute a formal document denominated as the Deed of Real
Estate and Chattel Mortgage came about after the decision of the RTC of Manila in Civil
Case No. 95-76132 became final in mid-1996. This conclusion surfaces when we
consider the genesis of Civil Case No. 95-76132 and subsequent incidents thereto, as
narrated in Republic, etc. v. "G" Holdings, Inc., viz:

Subsequently, a disagreement on the matter of when installment payments should

commence arose between the parties. The Republic claimed that it should be on the
seventh month from the signing of the agreement while "G" Holdings insisted that it
should begin seven months after the fulfillment of the closing conditions.

Unable to settle the issue, "G" Holdings filed a complaint for specific performance and
damages with the Regional Trial Court of Manila, Branch 49, against the Republic to
compel it to close the sale in accordance with the purchase and sale agreement. The
complaint was docketed as Civil Case No. 95-76132.

During the pre-trial, the respective counsels of the parties manifested that the issue
involved in the case was one of law and submitted the case for decision. On June 11,
1996, the trial court rendered its decision. It ruled in favor of "G" Holdings and held:

"In line with the foregoing, this Court having been convinced that the Purchase and Sale
Agreement is indeed subject to the final closing conditions prescribed by Stipulation No.
5.02 and conformably to Rule 39, Section 10 of the Rules of Court, accordingly orders
that the Asset Privatization Trust execute the corresponding Document of Transfer
of the subject shares and financial notes and cause the actual delivery of subject
shares and notes to "G" Holdings, Inc., within a period of thirty (30) days from
receipt of this Decision, and after "G" Holdings Inc., shall have paid in full the entire
balance, at its present value of ₱241,702,122.86, computed pursuant to the prepayment
provisions of the Agreement. Plaintiff shall pay the balance simultaneously with the
delivery of the Deed of Transfer and actual delivery of the shares and notes.

SO ORDERED."

The Solicitor General filed a notice of appeal on behalf of the Republic on June 28, 1996.
Contrary to the rules of procedure, however, the notice of appeal was filed with the Court
of Appeals (CA), not with the trial court which rendered the judgment appealed from.

No other judicial remedy was resorted to until July 2, 1999 when the Republic, through
the APT, filed a petition for annulment of judgment with the CA. It claimed that the
decision should be annulled on the ground of abuse of discretion amounting to lack of
jurisdiction on the part of the trial court. x x x

Finding that the grounds necessary for the annulment of judgment were inexistent, the
appellate court dismissed the petition. x x x x43

With the RTC decision having become final owing to the failure of the Republic to perfect
an appeal, it may have become necessary to execute the Deed of Real Estate and
Chattel Mortgage on September 5, 1996, in order to enforce the trial court’s decision of
June 11, 1996. This appears to be the most plausible explanation for the execution of the
Deed of Real Estate and Chattel Mortgage only in September 1996. Even as the parties
had already validly constituted the mortgages in 1992, as explicitly provided in the
Promissory Notes, a specific deed of mortgage in a separate document may have been
deemed necessary for registration purposes. Obviously, this explanation is more logical
and more sensible than the strained conjecture that the mortgage was executed on
September 5, 1996 only for the purpose of defrauding NAMAWU.

It is undeniable that the Deed of Real Estate and Chattel Mortgage was formally
documented two weeks after NAMAWU filed its notice of strike against MMC on August
23, 1996. However, this fact alone cannot give rise to an adverse inference for two
reasons. First, as discussed above, the mortgages had already been "established and
constituted" as early as October 2, 1992 in the Promissory Notes, showing the clear
intent of the parties to impose a lien upon MMC’s properties. Second, the mere filing of a
notice of strike by NAMAWU did not, as yet, vest in NAMAWU any definitive right that
could be prejudiced by the execution of the mortgage deed.

The fact that MMC’s obligation to GHI is not reflected in the former’s financial
statements─a circumstance made capital of by NAMAWU in order to cast doubt on the
validity of the mortgage deed─is of no moment. By itself, it does not provide a sufficient
basis to invalidate this public document. To say otherwise, and to invalidate the mortgage
deed on this pretext, would furnish MMC a convenient excuse to absolve itself of its
mortgage obligations by adopting the simple strategy of not including the obligations in its
financial statements. It would ignore our ruling in Republic, etc. v. "G" Holdings,
Inc., which obliged APT to deliver the MMC shares and financial notes to GHI. Besides,
the failure of the mortgagor to record in its financial statements its loan obligations is
surely not an essential element for the validity of mortgage agreements, nor will it
independently affect the right of the mortgagee to foreclose.

Contrary to the CA decision, Tanongon v. Samson44 is not "on all fours" with the instant
case. There are material differences between the two cases. At issue in Tanongon was a
third-party claim arising from a Deed of Absolute Sale executed between Olizon and
Tanongon on July 29, 1997, after the NLRC decision became final and executory on April
29, 1997. In the case at bar, what is involved is a loan with mortgage agreement
executed on October 2, 1992, well ahead of the union’s notice of strike on August 23,
1996. No presumption of regularity inheres in the deed of sale in Tanongon, while the
participation of APT in this case clothes the transaction in 1992 with such a presumption
that has not been successfully rebutted. In Tanongon, the conduct of a full-blown trial led
to the finding─duly supported by evidence─that the voluntary sale of the assets of the
judgment debtor was made in bad faith. Here, no trial was held, owing to the motion to
dismiss filed by NAMAWU, and the CA failed to consider the factual findings made by
this Court in Republic, etc. v. "G" Holdings, Inc. Furthermore, in Tanongon, the claimant
did not exercise his option to file a separate action in court, thus allowing the NLRC
Sheriff to levy on execution and to determine the rights of third-party claimants. 45 In this
case, a separate action was filed in the regular courts by GHI, the third-party claimant.
Finally, the questioned transaction in Tanongon was a plain, voluntary transfer in the
form of a sale executed by the judgment debtor in favor of a dubious third-party, resulting
in the inability of the judgment creditor to satisfy the judgment. On the other hand, this
case involves an involuntary transfer (foreclosure of mortgage) arising from a loan
obligation that well-existed long before the commencement of the labor claims of the
private respondent.

Three other circumstances have been put forward by the CA to support its conclusion
that the mortgage contract is a sham. First, the CA considered it highly suspect that the
Deed of Real Estate and Chattel Mortgage was registered only on February 4, 2000,
"three years after its execution, and almost one month after the Supreme Court rendered
its decision in the labor dispute." 46 Equally suspicious, as far as the CA is concerned, is
the fact that the mortgages were foreclosed on July 31, 2001, after the DOLE had
already issued a Partial Writ of Execution on May 9, 2001. 47 To the appellate court, the
timing of the registration of the mortgage deed was too coincidental, while the date of the
foreclosure signified that it was "effected precisely to prevent the satisfaction of the
judgment awards."48 Furthermore, the CA found that the mortgage deed itself was
executed without any consideration, because at the time of its execution, all the assets of
MMC had already been transferred to GHI.49

These circumstances provided the CA with sufficient justification to apply Article 1387 of
the Civil Code on presumed fraudulent transactions, and to declare that the mortgage
deed was void for being simulated and fictitious.50

We do not agree. We find this Court’s ruling in MR Holdings, Ltd. v. Sheriff
Bajar51 pertinent and instructive:

Article 1387 of the Civil Code of the Philippines provides:

"Art. 1387. All contracts by virtue of which the debtor alienates property by gratuitous title
are presumed to have been entered into in fraud of creditors, when the donor did not
reserve sufficient property to pay all debts contracted before the donation.

Alienations by onerous title are also presumed fraudulent when made by persons against
whom some judgment has been rendered in any instance or some writ of attachment has
been issued. The decision or attachment need not refer to the property alienated, and
need not have been obtained by the party seeking rescission.

In addition to these presumptions, the design to defraud creditors may be proved in any
other manner recognized by law and of evidence."

This article presumes the existence of fraud made by a debtor. Thus, in the absence of
satisfactory evidence to the contrary, an alienation of a property will be held fraudulent if
it is made after a judgment has been rendered against the debtor making the alienation.
This presumption of fraud is not conclusive and may be rebutted by satisfactory and
convincing evidence. All that is necessary is to establish affirmatively that the
conveyance is made in good faith and for a sufficient and valuable consideration.

The "Assignment Agreement" and the "Deed of Assignment" were executed for valuable
considerations. Patent from the "Assignment Agreement" is the fact that petitioner
assumed the payment of US$18,453,450.12 to ADB in satisfaction of Marcopper’s
remaining debt as of March 20, 1997. Solidbank cannot deny this fact considering that a
substantial portion of the said payment, in the sum of US$13,886,791.06, was remitted in
favor of the Bank of Nova Scotia, its major stockholder.

The facts of the case so far show that the assignment contracts were executed in good
faith. The execution of the "Assignment Agreement" on March 20, 1997 and the "Deed of
Assignment" on December 8,1997 is not the alpha of this case. While the execution of
these assignment contracts almost coincided with the rendition on May 7, 1997 of the
Partial Judgment in Civil Case No. 96-80083 by the Manila RTC, however, there was no
intention on the part of petitioner to defeat Solidbank’s claim. It bears reiterating that as
early as November 4, 1992, Placer Dome had already bound itself under a "Support and
Standby Credit Agreement" to provide Marcopper with cash flow support for the payment
to ADB of its obligations. When Marcopper ceased operations on account of disastrous
mine tailings spill into the Boac River and ADB pressed for payment of the loan, Placer
Dome agreed to have its subsidiary, herein petitioner, pay ADB the amount of
US$18,453,450.12.

Thereupon, ADB and Marcopper executed, respectively, in favor of petitioner an

"Assignment Agreement" and a "Deed of Assignment." Obviously, the assignment
contracts were connected with transactions that happened long before the
rendition in 1997 of the Partial Judgment in Civil Case No. 96-80083 by the Manila
RTC. Those contracts cannot be viewed in isolation. If we may add, it is highly
inconceivable that ADB, a reputable international financial organization, will connive with
Marcopper to feign or simulate a contract in 1992 just to defraud Solidbank for its claim
four years thereafter. And it is equally incredible for petitioner to be paying the huge sum
of US$18,453,450.12 to ADB only for the purpose of defrauding Solidbank of the sum of
₱52,970,756.89.

It is said that the test as to whether or not a conveyance is fraudulent is ― does it

prejudice the rights of creditors? We cannot see how Solidbank’s right was prejudiced by
the assignment contracts considering that substantially all of Marcopper’s properties
were already covered by the registered "Deed of Real Estate and Chattel Mortgage"
executed by Marcopper in favor of ADB as early as November 11, 1992. As such,
Solidbank cannot assert a better right than ADB, the latter being a preferred creditor.  It is
basic that mortgaged properties answer primarily for the mortgaged credit, not for
the judgment credit of the mortgagor’s unsecured creditor. Considering that
petitioner assumed Marcopper’s debt to ADB, it follows that Solidbank’s right as
judgment creditor over the subject properties must give way to that of the former. 52

From this ruling in MR Holdings, we can draw parallel conclusions. The execution of the
subsequent Deed of Real Estate and Chattel Mortgage on September 5, 1996 was
simply the formal documentation of what had already been agreed in the seminal
transaction (the Purchase and Sale Agreement) between APT and GHI. It should not be
viewed in isolation, apart from the original agreement of October 2, 1992. And it cannot
be denied that this original agreement was supported by an adequate consideration. The
APT was even ordered by the court to deliver the shares and financial notes of MMC in
exchange for the payments that GHI had made.

It was also about this time, in 1996, that NAMAWU filed a notice of strike to protest non-
payment of its rightful labor claims.53 But, as already mentioned, the outcome of that labor
dispute was yet unascertainable at that time, and NAMAWU could only have hoped for,
or speculated about, a favorable ruling. To paraphrase MR Holdings, we cannot see how
NAMAWU’s right was prejudiced by the Deed of Real Estate and Chattel Mortgage, or by
its delayed registration, when substantially all of the properties of MMC were already
mortgaged to GHI as early as October 2, 1992. Given this reality, the Court of Appeals
had no basis to conclude that this Deed of Real Estate and Chattel Mortgage, by reason
of its late registration, was a simulated or fictitious contract.

The importance of registration and its binding effect is stated in Section 51 of the
Property Registration Decree or Presidential Decree (P.D.) No. 1529, 54 which reads:

SECTION 51. Conveyance and other dealings by registered owner.—An owner of

registered land may convey, mortgage, lease, charge or otherwise deal with the same in
accordance with existing laws. He may use such forms, deeds, mortgages, leases or
other voluntary instrument as are sufficient in law. But no deed, mortgage, lease or other
voluntary instrument, except a will purporting to convey or effect registered land, shall
take effect as a conveyance or bind the land, but shall operate only as a contract
between the parties and as evidence of authority to the Registry of Deeds to make
registration.

The act of registration shall be the operative act to convey or affect the land insofar as
third persons are concerned, and in all cases under this Decree, the registration shall be
made in the Office of the Register of Deeds for the province or the city where the land
lies.55
Under the Torrens system, registration is the operative act which gives validity to the
transfer or creates a lien upon the land. Further, entrenched in our jurisdiction is the
doctrine that registration in a public registry creates constructive notice to the whole
world.56 Thus, Section 51 of Act No. 496, as amended by Section 52 of P.D. No. 1529,
provides:

SECTION 52. Constructive notice upon registration.—Every conveyance, mortgage,

lease, lien, attachment, order, judgment, instrument or entry affecting registered land
shall, if registered, filed or entered in the Office of the Register of Deeds for the province
or city where the land to which it relates lies, be constructive notice to all persons from
the time of such registering, filing or entering.

But, there is nothing in Act No. 496, as amended by P.D. No. 1529, that imposes a period
within which to register annotations of "conveyance, mortgage, lease, lien, attachment,
order, judgment, instrument or entry affecting registered land." If liens were not so
registered, then it "shall operate only as a contract between the parties and as evidence
of authority to the Registry of Deeds to make registration." If registered, it "shall be the
operative act to convey or affect the land insofar as third persons are concerned." The
mere lapse of time from the execution of the mortgage document to the moment of its
registration does not affect the rights of a mortgagee.

Neither will the circumstance of GHI’s foreclosure of MMC’s properties on July 31, 2001,
or after the DOLE had already issued a Partial Writ of Execution on May 9, 2001 against
MMC, support the conclusion of the CA that GHI’s act of foreclosing on MMC’s properties
was "effected to prevent satisfaction of the judgment award." GHI’s mortgage rights,
constituted in 1992, antedated the Partial Writ of Execution by nearly ten (10) years.
GHI’s resort to foreclosure was a legitimate enforcement of a right to liquidate a bona fide
debt. It was a reasonable option open to a mortgagee which, not being a party to the
labor dispute between NAMAWU and MMC, stood to suffer a loss if it did not avail itself
of the remedy of foreclosure.

The well-settled rule is that a mortgage lien is inseparable from the property
mortgaged.57 While it is true that GHI’s foreclosure of MMC’s mortgaged properties may
have had the "effect to prevent satisfaction of the judgment award against the specific
mortgaged property that first answers for a mortgage obligation ahead of any subsequent
creditors," that same foreclosure does not necessarily translate to having been "effected
to prevent satisfaction of the judgment award" against MMC.

Likewise, we note the narration of subsequent facts contained in the Comment of the
Office of the Solicitor General. Therein, it is alleged that after the Partial Writ of Execution
was issued on May 9, 2001, a motion for reconsideration was filed by MMC; that the
denial of the motion was appealed to the CA; that when the appeal was dismissed by the
CA on January 24, 2002, it eventually became the subject of a review petition before this
Court, docketed as G.R. No. 157696; and that G.R. No. 157696 was decided by this
Court only on February 9, 2006.

This chronology of subsequent events shows that February 9, 2006 would have been the
earliest date for the unimpeded enforcement of the Partial Writ of Execution, as it was
only then that this Court resolved the issue. This happened four and a half years after
July 31, 2001, the date when GHI foreclosed on the mortgaged properties. Thus, it is not
accurate to say that the foreclosure made on July 31, 2001 was "effected [only] to
prevent satisfaction of the judgment award."

We also observe the error in the CA’s finding that the 1996 Deed of Real Estate and
Chattel Mortgage was not supported by any consideration since at the time the deed was
executed, "all the real and personal property of MMC had already been transferred in the
hands of G Holdings." 58 It should be remembered that the Purchase and Sale Agreement
between GHI and APT involved large amounts (₱550M) and even spawned a
subsequent court action (Civil Case No. 95-76132, RTC of Manila). Yet, nowhere in the
Agreement or in the RTC decision is there any mention of real and personal properties of
MMC being included in the sale to GHI in 1992. These properties simply served as
mortgaged collateral for the 1992 Promissory Notes. 59 The Purchase and Sale
Agreement and the Promissory Notes themselves are the best evidence that there was
ample consideration for the mortgage.

Thus, we must reject the conclusion of the CA that the Deed of Real Estate and Chattel
Mortgage executed in 1996 was a simulated transaction.

On the issue of whether there had been an effective levy upon the properties of GHI.

The well-settled principle is that the rights of a mortgage creditor over the mortgaged
properties are superior to those of a subsequent attaching creditor. In Cabral v.
Evangelista,60 this Court declared that:

Defendants-appellants purchase of the mortgaged chattels at the public sheriff's sale and
the delivery of the chattels to them with a certificate of sale did not give them a superior
right to the chattels as against plaintiffs-mortgagees. Rule 39, Section 22 of the old Rules
of Court (now Rule 39, Section 25 of the Revised Rules), cited by appellants precisely
provides that "the sale conveys to the purchaser all the right which the debtor had in such
property on the day the execution or attachment was levied." It has long been settled by
this Court that "The right of those who so acquire said properties should not and can not
be superior to that of the creditor who has in his favor an instrument of mortgage
executed with the formalities of the law, in good faith, and without the least indication of
fraud. This is all the more true in the present case, because, when the plaintiff purchased
the automobile in question on August 22, 1933, he knew, or at least, it is presumed that
he knew, by the mere fact that the instrument of mortgage, Exhibit 2, was registered in
the office of the register of deeds of Manila, that said automobile was subject to a
mortgage lien. In purchasing it, with full knowledge that such circumstances existed, it
should be presumed that he did so, very much willing to respect the lien existing thereon,
since he should not have expected that with the purchase, he would acquire a better right
than that which the vendor then had." In another case between two mortgagees, we held
that "As between the first and second mortgagees, therefore, the second mortgagee has
at most only the right to redeem, and even when the second mortgagee goes through the
formality of an extrajudicial foreclosure, the purchaser acquires no more than the right of
redemption from the first mortgagee." The superiority of the mortgagee's lien over that of
a subsequent judgment creditor is now expressly provided in Rule 39, Section 16 of the
Revised Rules of Court, which states with regard to the effect of levy on execution as to
third persons that "The levy on execution shall create a lien in favor of the judgment
creditor over the right, title and interest of the judgment debtor in such property at the
time of the levy, subject to liens or encumbrances then existing."

Even in the matter of possession, mortgagees over chattel have superior, preferential
and paramount rights thereto, and the mortgagor has mere rights of redemption. 61

Similar rules apply to cases of mortgaged real properties that are registered. Since the
properties were already mortgaged to GHI, the only interest remaining in the mortgagor
was its right to redeem said properties from the mortgage. The right of redemption was
the only leviable or attachable property right of the mortgagor in the mortgaged real
properties. We have held that —

The main issue in this case is the nature of the lien of a judgment creditor, like the
petitioner, who has levied an attachment on the judgment debtor's (CMI) real properties
which had been mortgaged to a consortium of banks and were subsequently sold to a
third party, Top Rate.

xxxx

The sheriff's levy on CMI's properties, under the writ of attachment obtained by the
petitioner, was actually a levy on the interest only of the judgment debtor CMI on those
properties. Since the properties were already mortgaged to the consortium of banks, the
only interest remaining in the mortgagor CMI was its right to redeem said properties from
the mortgage. The right of redemption was the only leviable or attachable property right
of CMI in the mortgaged real properties. The sheriff could not have attached the
properties themselves, for they had already been conveyed to the consortium of banks
by mortgage (defined as a "conditional sale"), so his levy must be understood to have
attached only the mortgagor's remaining interest in the mortgaged property — the right to
redeem it from the mortgage.62

xxxx

There appears in the record a factual contradiction relating to whether the foreclosure by
GHI on July 13, 2001 63 over some of the contested properties came ahead of the levy
thereon, or the reverse. NAMAWU claims that the levy on two trucks was effected on
June 22, 2001,64 which GHI disputes as a misstatement because the levy was attempted
on July 18, 2002, and not 2001 65 What is undisputed though is that the mortgage of GHI
was registered on February 4, 2000, 66 well ahead of any levy by NAMAWU. Prior
registration of a lien creates a preference, as the act of registration is the operative act
that conveys and affects the land, 67 even against subsequent judgment creditors, such as
respondent herein. Its registration of the mortgage was not intended to defraud
NAMAWU of its judgment claims, since even the courts were already judicially aware of
its existence since 1992. Thus, at that moment in time, with the registration of the
mortgage, either NAMAWU had no properties of MMC to attach because the same had
been previously foreclosed by GHI as mortgagee thereof; or by virtue of the DOLE’s levy
to enforce NAMAWU’s claims, the latter’s rights are subject to the notice of the
foreclosure on the subject properties by a prior mortgagee’s right. GHI’s mortgage right
had already been registered by then, and "it is basic that mortgaged properties answer
primarily for the mortgaged credit, not for the judgment credit of the mortgagor’s
unsecured creditor."68

On the issue of piercing the veil of corporate fiction.

The CA found that:

"Ordinarily, the interlocking of directors and officers in two different corporations is not a
conclusive indication that the corporations are one and the same for purposes of applying
the doctrine of piercing the veil of corporate fiction. However, when the legal fiction of the
separate corporate personality is abused, such as when the same is used for fraudulent
or wrongful ends, the courts have not hesitated to pierce the corporate veil (Francisco vs.
Mejia, 362 SCRA 738). In the case at bar, the Deed of Real Estate and Chattel Mortgage
was entered into between MMC and G Holdings for the purpose of evading the
satisfaction of the legitimate claims of the petitioner against MMC. The notion of separate
personality is clearly being utilized by the two corporations to perpetuate the violation of a
positive legal duty arising from a final judgment to the prejudice of the petitioner’s right." 69

Settled jurisprudence70 has it that –

"(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. By this attribute, a stockholder may not, generally, be
made to answer for acts or liabilities of the said corporation, and vice versa. This
separate and distinct personality is, however, merely a fiction created by law for
convenience and to promote the ends of justice. For this reason, it may not be used or
invoked for ends subversive to the policy and purpose behind its creation or which could
not have been intended by law to which it owes its being. This is particularly true 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. In all these cases, the notion of corporate entity will be pierced
or disregarded with reference to the particular transaction involved.

Given this jurisprudential principle and the factual circumstances obtaining in this case,
we now ask: Was the CA correct in piercing the veil of corporate identity of GHI and
MMC?

In our disquisition above, we have shown that the CA’s finding that there was a
"simulated mortgage" between GHI and MMC to justify a wrong or protect a fraud has
struggled vainly to find a foothold when confronted with the ruling of this Court
in Republic v. "G" Holdings, Inc.

The negotiations between the GHI and the Government--through APT, dating back to
1992--culminating in the Purchase and Sale Agreement, cannot be depicted as a
contrived transaction. In fact, in the said Republic, etc., v. "G" Holdings, Inc., this Court
adjudged that GHI was entitled to its rightful claims─ not just to the shares of MMC itself,
or just to the financial notes that already contained the mortgage clauses over MMCs
disputed assets, but also to the delivery of those instruments. Certainly, we cannot
impute to this Court’s findings on the case any badge of fraud. Thus, we reject the CA’s
conclusion that it was right to pierce the veil of corporate fiction, because the foregoing
circumstances belie such an inference. Furthermore, we cannot ascribe to the
Government, or the APT in particular, any undue motive to participate in a transaction
designed to perpetrate fraud. Accordingly, we consider the CA interpretation
unwarranted.

We also cannot agree that the presumption of fraud in Article 1387 of the Civil Code
relative to property conveyances, when there was already a judgment rendered or a writ
of attachment issued, authorizes piercing the veil of corporate identity in this case. We
find that Article 1387 finds less application to an involuntary alienation such as the
foreclosure of mortgage made before any final judgment of a court. We thus hold that
when the alienation is involuntary, and the foreclosure is not fraudulent because the
mortgage deed has been previously executed in accordance with formalities of law, and
the foreclosure is resorted to in order to liquidate a bona fide debt, it is not the alienation
by onerous title contemplated in Article 1387 of the Civil Code wherein fraud is
presumed.

Since the factual antecedents of this case do not warrant a finding that the mortgage and
loan agreements between MMC and GHI were simulated, then their separate
personalities must be recognized. To pierce the veil of corporate fiction would require that
their personalities as creditor and debtor be conjoined, resulting in a merger of the
personalities of the creditor (GHI) and the debtor (MMC) in one person, such that the
debt of one to the other is thereby extinguished. But the debt embodied in the 1992
Financial Notes has been established, and even made subject of court litigation (Civil
Case No. 95-76132, RTC Manila). This can only mean that GHI and MMC have separate
corporate personalities.
Neither was MMC used merely as an alter ego, adjunct, or business conduit for the sole
benefit of GHI, to justify piercing the former’s veil of corporate fiction so that the latter
could be held liable to claims of third-party judgment creditors, like NAMAWU. In this
regard, we find American jurisprudence persuasive. In a decision by the Supreme Court
of New York71 bearing upon similar facts, the Court denied piercing the veil of corporate
fiction to favor a judgment creditor who sued the parent corporation of the debtor,
alleging fraudulent corporate asset-shifting effected after a prior final judgment. Under a
factual background largely resembling this case at bar, viz:

In this action, plaintiffs seek to recover the balance due under judgments they obtained
against Lake George Ventures Inc. (hereinafter LGV), a subsidiary of defendant that was
formed to develop the Top O’ the World resort community overlooking Lake George, by
piercing the corporate veil or upon the theory that LGV's transfer of certain assets
constituted fraudulent transfers under the Debtor and Creditor Law. We previously upheld
Supreme Court's denial of defendant's motion for summary judgment dismissing the
complaint (252 A.D.2d 609, 675 N.Y.S.2d 234) and the matter proceeded to a nonjury
trial. Supreme Court thereafter rendered judgment in favor of defendant upon its findings
that, although defendant dominated LGV, it did not use that domination to commit a fraud
or wrong on plaintiffs. Plaintiffs appealed.
1avvphi1

The trial evidence showed that LGV was incorporated in November 1985. Defendant's
principal, Francesco Galesi, initially held 90% of the stock and all of the stock was
ultimately transferred to defendant. Initial project funding was provided through a $2.5
million loan from Chemical Bank, secured by defendant's guarantee of repayment of the
loan and completion of the project. The loan proceeds were utilized to purchase the real
property upon which the project was to be established. Chemical Bank thereafter loaned
an additional $3.5 million to LGV, again guaranteed by defendant, and the two loans
were consolidated into a first mortgage loan of $6 million. In 1989, the loan was modified
by splitting the loan into a $1.9 term note on which defendant was primary obligor and a
$4.1 million project note on which LGV was the obligor and defendant was a guarantor.

Due to LGV's lack of success in marketing the project's townhouses and in order to

protect itself from the exercise of Chemical Bank's enforcement remedies,
defendant was forced to make monthly installments of principal and interest on LGV's
behalf. Ultimately, defendant purchased the project note from Chemical Bank for $3.1
million, paid the $1.5 million balance on the term note and took an assignment of the first
mortgage on the project's realty. After LGV failed to make payments on the indebtedness
over the course of the succeeding two years, defendant brought an action to foreclose its
mortgage. Ultimately, defendant obtained a judgment of foreclosure and sale in the
amount of $6,070,246.50. Defendant bid in the property at the foreclosure sale and
thereafter obtained a deficiency judgment in the amount of $3,070,246.50.

Following the foreclosure sale, LGV transferred to defendant all of the shares of Top of
the World Water Company, a separate entity that had been organized to construct and
operate the water supply and delivery system for the project, in exchange for a $950,000
reduction in the deficiency judgment.

the U.S. Supreme Court of New York held—

Based on the foregoing, and accepting that defendant exercised complete domination
and control over LGV, we are at a loss as to how plaintiffs perceive themselves to have
been inequitably affected by defendant's foreclosure action against LGV, by LGV's
divestiture of the water company stock or the sports complex property, or by defendant's
transfer to LGV of a third party's uncollectible note, accomplished solely for tax purposes.
It is undisputed that LGV was, and for some period of time had been, unable to meet its
obligations and, at the time of the foreclosure sale, liens against its property exceeded
the value of its assets by several million dollars, even including the water company and
sports complex at the values plaintiffs would assign to them. In fact, even if plaintiffs'
analysis were utilized to eliminate the entire $3 million deficiency judgment, the fact
remains that subordinate mortgages totaling nearly an additional $2 million have priority
over plaintiffs' judgments.

As properly concluded by Supreme Court, absent a finding of any inequitable

consequence to plaintiffs, both causes of action pleaded in the amended complaint must
fail. Fundamentally, a party seeking to pierce the corporate veil must show complete
domination and control of the subsidiary by the parent and also that such domination was
used to commit a fraud or wrong against the plaintiff that resulted in the plaintiff's injury
( 252 A.D.2d 609, 610, 675 N.Y.S.2d 234,  supra; see, Matter of Morris v. New York State
Dept. of Taxation & Fin.,  82 N.Y.2d 135, 141, 603 N.Y.S.2d 807, 623 N.E.2d
1157). Notably, "[e]vidence of domination alone does not suffice without an additional
showing that it led to inequity, fraud or malfeasance" (TNS Holdings v. MKI Sec. Corp.,  
92 N.Y.2d 335, 339, 680 N.Y.S.2d 891, 703 N.E.2d 749).

xxxx

In reaching that conclusion, we specifically reject a number of plaintiffs' assertions,

including the entirely erroneous claims that our determination on the prior appeal (252
A.D.2d 609, 675 N.Y.S.2d 234,  supra) set forth a "roadmap" for the proof required at trial
and mandated a verdict in favor of plaintiffs upon their production of evidence that
supported the decision's "listed facts". To the contrary, our decision was predicated upon
the existence of such evidence, absent which we would have granted summary judgment
in favor of defendant. We are equally unpersuaded by plaintiffs' continued reliance upon
defendant's December 1991 unilateral conversion of its intercompany loans with LGV
from debt to equity, which constituted nothing more than a "bookkeeping transaction" and
had no apparent effect on LGV's obligations to defendant or defendant's right to foreclose
on its mortgage.72

This doctrine is good law under Philippine jurisdiction.

In Concept Builders, Inc. v. National Labor Relations Commission,73 we laid down the test
in determining the applicability of the doctrine of piercing the veil of corporate fiction, to
wit:

1. Control, not mere majority or complete 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 plaintiffs legal rights; and,

3. The aforesaid control and breach of duty must proximately cause the injury or unjust
loss complained of.

xxxx

Time and again, we have reiterated that mere ownership by a single stockholder or by
another corporation of all or nearly all of the capital stock of a corporation is not, by itself,
a sufficient ground for disregarding a separate corporate personality. 74 It is basic that a
corporation has a personality separate and distinct from that composing it as well as from
that of any other legal entity to which it may be related. Clear and convincing evidence is
needed to pierce the veil of corporate fiction.75

In this case, the mere interlocking of directors and officers does not warrant piercing the
separate corporate personalities of MMC and GHI. Not only must there be a showing that
there was majority or complete 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. The mortgage deed transaction attacked as a basis for piercing the corporate
veil was a transaction that was an offshoot, a derivative, of the mortgages earlier
constituted in the Promissory Notes dated October 2, 1992. But these Promissory Notes
with mortgage were executed by GHI with APT in the name of MMC, in a full privatization
process. It appears that if there was any control or domination exercised over MMC, it
was APT, not GHI, that wielded it. Neither can we conclude that the constitution of the
loan nearly four (4) years prior to NAMAWU’s notice of strike could have been the
proximate cause of the injury of NAMAWU for having been deprived of MMC’s corporate
assets.

On the propriety of injunction to prevent execution by the NLRC on

the properties of third-party claimants

It is settled that a Regional Trial Court can validly issue a Temporary Restraining Order
(TRO) and, later, a writ of preliminary injunction to prevent enforcement of a writ of
execution issued by a labor tribunal on the basis of a third-party’s claim of ownership
over the properties levied upon. 76 While, as a rule, no temporary or permanent injunction
or restraining order in any case involving or growing out of a labor dispute shall be issued
by any court--where the writ of execution issued by a labor tribunal is sought to be
enforced upon the property of a stranger to the labor dispute, even upon a mere prima
facie showing of ownership of such claimant--a separate action for injunctive relief
against such levy may be maintained in court, since said action neither involves nor
grows out of a labor dispute insofar as the third party is concerned. 77 Instructively,
National Mines and Allied Workers’ Union v. Vera78

Petitioners' reliance on the provision of Art. 254 of the New Labor Code (herein earlier
quoted) which prohibits injunctions or restraining orders in any case involving or growing
out of a 'labor dispute' is not well-taken. This has no application to the case at bar. Civil
Case No. 2749 is one which neither "involves" nor "grows out" of a labor dispute. What
'involves' or 'grows out' of a labor dispute is the NLRC case between petitioners and the
judgment debtor, Philippine Iron Mines. The private respondents are not parties to the
said NLRC case. Civil Case No. 2749 does not put in issue either the fact or validity of
the proceeding in theNLRC case nor the decision therein rendered, much less the writ of
execution issued thereunder. It does not seek to enjoin the execution of the decision
against the properties of the judgment debtor. What is sought to be tried in Civil Case No.
2749 is whether the NLRC's decision and writ of execution, above mentioned, shall be
permitted to be satisfied against properties of private respondents, and not of the
judgment debtor named in the NLRC decision and writ of execution. Such a recourse is
allowed under the provisions of Section 17, Rule 39 of the Rules of Court.

To sustain petitioners' theory will inevitably lead to disastrous consequences and lend
judicial imprimatur to deprivation of property without due process of law. Simply because
a writ of execution was issued by the NLRC does not authorize the sheriff implementing
the same to levy on anybody's property. To deny the victim of the wrongful levy, the
recourse such as that availed of by the herein private respondents, under the pretext that
no court of general jurisdiction can interfere with the writ of execution issued in a labor
dispute, will be sanctioning a greater evil than that sought to be avoided by the Labor
Code provision in question. Certainly, that could not have been the intendment of the law
creating the NLRC. For well-settled is the rule that the power of a court to execute its
judgment extends only over properties unquestionably belonging to the judgment debtor."

Likewise, since the third-party claimant is not one of the parties to the action, he cannot,
strictly speaking, appeal from the order denying his claim, but he should file a separate
reivindicatory action against the execution creditor or the purchaser of the property after
the sale at public auction, or a complaint for damages against the bond filed by the
judgment creditor in favor of the sheriff. 79

A separate civil action for recovery of ownership of the property would not constitute
interference with the powers or processes of the labor tribunal which rendered the
judgment to execute upon the levied properties. The property levied upon being that of a
stranger is not subject to levy. Thus, a separate action for recovery, upon a claim
and prima facie showing of ownership by the petitioner, cannot be considered as
interference.80

Upon the findings and conclusions we have reached above, petitioner is situated
squarely as such third-party claimant. The questioned restraining order of the lower court,
as well as the order granting preliminary injunction, does not constitute interference with
the powers or processes of the labor department. The registration of the mortgage
document operated as notice to all on the matter of the mortgagee’s prior claims. Official
proceedings relative to the foreclosure of the subject properties constituted a prima facie
showing of ownership of such claimant to support the issuance of injunctive reliefs.

As correctly held by the lower court:

The subject incidents for TRO and/or Writ of Injunction were summarily heard and in
resolving the same, the Court believes, that the petitioner has a clear and unmistakable
right over the levied properties. The existence of the subject Deed of Real Estate and
Chattel Mortgage, the fact that petitioner initiated a foreclosure of said properties before
the Clerk of Court and Ex-Officio Sheriff, RTC Branch 61, Kabankalan City on July 13,
2001, the fact that said Ex-Officio Sheriff and the Clerk of Court issue a Notice of
Foreclosure, Possession and Control over said mortgaged properties on July 19, 2001
and the fact that a Sheriff’s Certificate of Sale was issued on December 3, 2001 are the
basis of its conclusion. Unless said mortgage contract is annulled or declared null and
void, the presumption of regularity of transaction must be considered and said document
must be looked [upon] as valid.

Notably, the Office of the Solicitor General also aptly observed that when the respondent
maintained that the Deed of Real Estate and Chattel mortgage was entered into in fraud
of creditors, it thereby admitted that the mortgage was not void, but merely rescissible
under Article 1381(3) of the Civil Code; and, therefore, an independent action is needed
to rescind the contract of mortgage. 81 We, however, hold that such an independent action
cannot now be maintained, because the mortgage has been previously recognized to
exist, with a valid consideration, in Republic, etc., v. "G" Holdings, Inc.

A final word

The Court notes that the case filed with the lower court involves a principal action for
injunction to prohibit execution over properties belonging to a third party not impleaded in
the legal dispute between NAMAWU and MMC. We have observed, however, that the
lower court and the CA failed to take judicial notice of, or to consider, our Decisions in
Republic, etc., v. "G" Holdings, Inc., and Maricalum Mining Corporation v. Brion and
NAMAWU, in which we respectively recognized the entitlement of GHI to the shares and
the company notes of MMC (under the Purchase and Sale Agreement), and the rights of
NAMAWU to its labor claims. At this stage, therefore, neither the lower court nor the CA,
nor even this Court, can depart from our findings in those two cases because of the
doctrine of stare decisis.

From our discussion above, we now rule that the trial court, in issuing the questioned
orders, did not commit grave abuse of discretion, because its issuance was amply
supported by factual and legal bases.

We are not unmindful, however, of the fact that the labor claims of NAMAWU,
acknowledged by this Court in Maricalum, still awaits final execution. As success fades
from NAMAWU’s efforts to execute on the properties of MMC, which were validly
foreclosed by GHI, we see that NAMAWU always had, and may still have, ample
supplemental remedies found in Rule 39 of the Rules of Court in order to protect its rights
against MMC. These include the examination of the judgment obligor when judgment is
unsatisfied,82 the examination of the obligors of judgment obligors, 83 or even the resort to
receivership.841avvphi1

While, theoretically, this case is not ended by this decision, since the lower court is still to
try the case filed with it and decide it on the merits, the matter of whether the mortgage
and foreclosure of the assets that are the subject of said foreclosure is ended herein, for
the third and final time. So also is the consequential issue of the separate and distinct
personalities of GHI and MMC. Having resolved these principal issues with certainty, we
find no more need to remand the case to the lower court, only for the

purpose of resolving again the matter of whether GHI owns the properties that were the
subject of the latter’s foreclosure.

WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals dated
October 14, 2003 is SET ASIDE. The Omnibus Order dated December 4, 2002 of the
Regional Trial Court, Branch 61 of Kabankalan City, Negros Occidental is AFFIRMED.
No costs.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice