2/4/2017 G.R. No.

89561

TodayisSaturday,February04,2017

RepublicofthePhilippines
SUPREMECOURT
Manila

SECONDDIVISION

G.R.No.89561September13,1990

BUENAFLORC.UMALI,MAURICIAM.VDA.DECASTILLO,VICTORIAM.CASTILLO,BERTILLAC.RADA,
MARIETTAC.ABAEZ,LEOVINAC.JALBUENAandSANTIAGOM.RIVERA,petitioners,
vs.
COURTOFAPPEALS,BORMAHECO,INC.andPHILIPPINEMACHINERYPARTSMANUFACTURINGCO.,
INC.,respondents.

EdmundoT.Zepedaforpetitioners.

MartinM.DeGuzmanforrespondentBORMAHECO,Inc.

RenatoJ.RoblesforP.M.PartsManufacturingCo.,Inc.

REGALADO,J.:

ThisisapetitiontoreviewthedecisionofrespondentCourtofAppeals,datedAugust3,1989,inCAGRCVNo.
15412,entitled"BuenaflorM.CastilloUmali,etal.vs.PhilippineMachineryPartsManufacturingCo.,Inc.,etal.," 1
thedispositiveportionwhereofprovides:

WHEREFORE, viewed in the light of the entire record, the judgment appealed from must be, as it is
herebyREVERSED.Inlieuthereof,ajudgmentisherebyrendered

1)Dismissingthecomplaint,withcostagainstplaintiffs

2)Orderingplaintiffsappelleestovacatethesubjectpropertiesand

3)Orderingplaintiffsappelleestopayupondefendants'counterclaims:

a)TodefendantappellantPMParts:(i)damagesconsistingofthevalueofthefruitsinthe
subject parcels of land of which they were deprived in the sum of P26,000.00 and (ii)
attorney'sfeesofP15,000.00

b) To defendantappellant Bormaheco: (i) expenses of litigation in the amount of

P5,000.00and(ii)attorney'sfeesofP15,000.00.

SOORDERED.

The original complaint for annulment of title filed in the court a quo by herein petitioners included as party
defendants the Philippine Machinery Parts Manufacturing Co., Inc. (PM Parts), Insurance Corporation of the
Philippines(ICP),Bormaheco,Inc.,(Bormaheco)andSantiagoM.Rivera(Rivera).ASecondAmendedComplaint
wasfiled,thistimeimpleadingSantiagoM.Riveraaspartyplaintiff.

Duringthepretrialconference,thepartiesenteredintothefollowingstipulationoffacts:

As between all parties: Plaintiff Buenaflor M. Castillo is the judicial administratrix of the
estateofFelipeCastilloinSpecialProceedingNo.4053,pendingbeforeBranchIX,CFIof
Quezon(perExhibitA)whichintestateproceedingswasinstitutedbyMauriciaMeerVda.
deCastillo,thepreviousadministratrixofthesaidproceedingspriorto1970(perexhibits
A1andA2)whichcasewasfiledinCourtwaybackin1964

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b)Thefour(4)parcelsoflanddescribedinparagraph3oftheComplaintwereoriginally
coveredbyTCTNo.T42104andTaxDec.No.14134withassessedvalueofP3,100.00
TCTNo.T32227andTaxDec.No.14132,withassessedvalueofP5,130,00TCTNo.T
31762andTaxDec.No.14135,withassessedvalueofP6,150.00andTCTNo.T42103
withTaxDec.No.14133,withassessedvalueofP3,580.00(perExhibitsA2andB,B1
toB3C,C1toC3

c) That the aboveenumerated four (4) parcels of land were the subject of the Deed of
ExtraJudicial Partition executed by the heirs of Felipe Castillo (per Exhibit D) and by
virtuethereofthetitlestheretohas(sic)beencancelledandinlieuthereof,newtitlesinthe
name of Mauricia Meer Vda. de Castillo and of her children, namely: Buenaflor, Bertilla,
Victoria,MariettaandLeovina,allsurnamedCastillohas(sic)beenissued,namely:TCT
No.T12113(ExhibitE)TCTNo.T13113(ExhibitF)TCTNo.T13116(ExhibitG)and
TCTNo.T13117(ExhibitH)

d) That mentioned parcels of land were submitted as guaranty in the Agreement of

CounterGuaranty with ChattelReal Estate Mortgage executed on 24 October 1970
between Insurance Corporation of the Philippines and Slobec Realty Corporation
representedbySantiagoRivera(Exhibit1)

e)ThatbasedontheCertificateofSaleissuedbytheSheriffoftheProvinceofQuezonin
favorofInsuranceCorporationofthePhilippinesitwasabletotransfertoitselfthetitles
overthelotsinquestion,namely:TCTNo.T23705(ExhibitM),TCTNo.T23706(Exhibit
N),TCTNo.T23707(Exhibit0)andTCTNo.T23708(ExhibitP)

f)Thaton10April1975,theInsuranceCorporationofthePhilippinessoldtoPMPartsthe
immovablesinquestion(perExhibit6forPMParts)andbyreasonthereof,succeededin
transferring unto itself the titles over the lots in dispute, namely: per TCT No. T24846
(Exhibit Q ), per TCT No. T24847 (Exhibit R ), TCT No. T24848 (Exhibit), TCT No. T
24849(ExhibitT)

g) On 26 August l976, Mauricia Meer Vda. de Castillo' genther letter to Modesto N.

Cervantesstatingthatsheandherchildrenrefusedtocomplywithhisdemands(Exhibit
V2)

h)ThatfromatleastthemonthsofOctober,NovemberandDecember1970andJanuary
1971, Modesto N. Cervantes was the VicePresident of Bormaheco, Inc. later President
thereof,andalsoheisoneoftheBoardofDirectorsofPMPartsontheotherhand,Atty.
Martin M. De Guzman was the legal counsel of Bormaheco, Inc., later Executive Vice
President thereof, and who also is the legal counsel of Insurance Corporation of the
PhilippinesandPMPartsthatModestoN.CervantesservedlateronasPresidentofPM
Parts,andthatAtty.deGuzmanwasretainedbyInsuranceCorporationofthePhilippines
specificallyforforeclosurepurposesonly

i) Defendant Bormaheco, Inc. on November 25, 1970 sold to Slobec Realty and
Development, Inc., represented by Santiago Rivera, President, one (1) unit Caterpillar
TractorD7withSerialNo.281114evidencedbyacontractmarkedExhibitJandExhibitI
forBormaheco,Inc.

j)ThattheSuretyBondNo.14010issuedbycodefendantICPwaslikewisesecuredby
an Agreement with CounterGuaranty with Real Estate Mortgage executed by Slobec
Realty & Development, Inc., Mauricia Castillo Meer, Buenaflor Castillo, Bertilla Castillo,
Victoria Castillo, Marietta Castillo and Leovina Castillo, as mortgagors in favor of ICP
which document was executed and ratified before notary public Alberto R. Navoa of the
CityofManilaonOctober24,1970

k) That the property mortgaged consisted of four (4) parcels of land situated in Lucena
CityandcoveredbyTCTNos.T13114,T13115,
T13116andT13117oftheRegisterofDeedsofLucenaCity

l) That the tractor sold by defendant Bormaheco, Inc. to Slobec Realty & Development,
Inc. was delivered to Bormaheco, Inc. on or about October 2,1973, by Mr. Menandro
Umaliforpurposesofrepair

m)ThatinAugust1976,PMPartsnotifiedMrs.MauriciaMeeraboutitsownershipandthe
assignmentofMr.PetroniloRoqueascaretakerofthesubjectproperty

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n) That plaintiff and other heirs are harvest fruits of the property (daranghita) which is
worthnolessthanPl,000.00perharvest.

Asbetweenplaintiffsand
defendantBormaheco,Inc

o) That on 25 November 1970, at Makati, Rizal, Same Rivera, in representation of the

Slobec Realty & Development Corporation executed in favor of Bormaheco, Inc.,
represented by its VicePresident Modesto N. Cervantes a Chattel Mortgage concerning
oneunitmodelCATD7CaterpillarCrawlerTractorasdescribedthereinassecurityforthe
payment in favor of the mortgagee of the amount of P180,000.00 (per Exhibit K) that Id
documentwassupersededbyanotherchattelmortgagedatedJanuary23,1971(Exhibit
15)

p)On18December1970,atMakati,Rizal,theBormaheco,Inc.,representedbyitsVice
President Modesto Cervantes and Slobec Realty Corporation represented by Santiago
Riveraexecutedthesalesagreementconcerningthesaleofone(1)unitModelCATD7
Caterpillar Crawler Tractor as described therein for the amount of P230,000.00 (per
Exhibit J) which document was superseded by the Sales Agreement dated January
23,1971(Exhibit16)

q) Although it appears on the document entitled Chattel Mortgage (per Exhibit K) that it
wasexecutedon25November1970,andinthedocumententitledSalesAgreement(per
ExhibitJ)thatitwasexecutedon18December1970,itappearsinthenotarialregisterof
the notary public who notarized them that those two documents were executed on 11
December 1970. The certified xerox copy of the notarial register of Notary Public
GuillermoAragonesissuedbytheBureauofRecordsManagementisheretosubmittedas
Exhibit BB That said chattel mortgage was superseded by another document dated
January23,1971

r) That on 23 January 1971, Slobec Realty Development Corporation, represented by

Santiago Rivera, received from Bormaheco, Inc. one (1) tractor Caterpillar Model D7
pursuanttoInvoiceNo.33234(Exhibits9and9A,Bormaheco,Inc.)anddeliveryreceipt
No.10368(perExhibits10and10AforBormaheco,Inc

s) That on 28 September 1973, Atty. Martin M. de Guzman, as counsel of Insurance

CorporationofthePhilippinespurchasedatpublicauctionforsaidcorporationthefour(4)
parcelsoflandsubjectoftillscase(perExhibitL),andwhichdocumentwaspresentedto
theRegisterofDeedson1October1973

t) Although it appears that the realties in issue has (sic) been sold by Insurance
Corporation of the Philippines in favor of PM Parts on 1 0 April 1975, Modesto N.
Cervantes,formerlyVicePresidentandnowPresidentofBormaheco,Inc.,senthisletter
dated 9 August 1976 to Mauricia Meer Vda. de Castillo (Exhibit V), demanding that she
andherchildrenshouldvacatethepremises

u) That the Caterpillar Crawler Tractor Model CAT D7 which was received by Slobec
RealtyDevelopmentCorporationwasactuallyreconditionedandrepainted."2

WecullthefollowingantecedentsfromthedecisionofrespondentCourtofAppeals:

PlaintiffSantiagoRiveraisthenephewofplaintiffMauriciaMeerVda.deCastillo.TheCastillofamily
aretheownersofaparceloflandlocatedinLucenaCitywhichwasgivenassecurityforaloanfrom
the Development Bank of the Philippines. For their failure to pay the amortization, foreclosure of the
said property was about to be initiated. This problem was made known to Santiago Rivera, who
proposed to them the conversion into subdivision of the four (4) parcels of land adjacent to the
mortgagedpropertytoraisethenecessaryfund.TheIdeawasacceptedbytheCastillofamilyandto
carry out the project, a Memorandum of Agreement (Exh. U p. 127, Record) was executed by and
betweenSlobecRealtyandDevelopment,Inc.,representedbyitsPresidentSantiagoRiveraandthe
Castillofamily.Inthisagreement,SantiagoRiveraobligedhimselftopaytheCastillofamilythesumof
P70,000.00 immediately after the execution of the agreement and to pay the additional amount of
P400,000.00 after the property has been converted into a subdivision. Rivera, armed with the
agreement, Exhibit U , approached Mr. Modesto Cervantes, President of defendant Bormaheco, and
proposed to purchase from Bormaheco two (2) tractors Model D7 and D8 Subsequently, a Sales
AgreementwasexecutedonDecember28,1970(Exh.J,p.22,Record).

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OnJanuary23,1971,Bormaheco,Inc.andSlobecRealtyandDevelopment,Inc.,representedbyits
President,SantiagoRivera,executedaSalesAgreementoveroneunitofCaterpillarTractorD7with
Serial No. 281114, as evidenced by the contract marked Exhibit '16'. As shown by the contract, the
price was P230,000.00 of which P50,000.00 was to constitute a down payment, and the balance of
P180,000.00 payable in eighteen monthly installments. On the same date, Slobec, through Rivera,
executedinfavorofBormahecoaChattelMortgage(Exh.K,p.29,Record)overthesaidequipmentas
security for the payment of the aforesaid balance of P180,000.00. As further security of the
aforementioned unpaid balance, Slobec obtained from Insurance Corporation of the Phil. a Surety
Bond, with ICP (Insurance Corporation of the Phil.) as surety and Slobec as principal, in favor of
Bormaheco,asborneoutbyExhibit'8'(p.111,Record).Theaforesaidsuretybondwasinturnsecured
byanAgreementofCounterGuarantywithRealEstateMortgage(ExhibitI,p.24,Record)executed
byRiveraaspresidentofSlobecandMauriciaMeerVda.deCastillo,BuenaflorCastilloUmali,Bertilla
CastilloRada, Victoria Castillo, Marietta Castillo and Leovina Castillo Jalbuena, as mortgagors and
Insurance Corporation of the Philippines (ICP) as mortgagee. In this agreement, ICP guaranteed the
obligation of SlobecwithBormahecointheamountofP180,000.00.Ingivingthe bond, ICP required
thattheCastillosmortgagetothemthepropertiesinquestion,namely,fourparcelsoflandcoveredby
TCTs in the name of the aforementioned mortgagors, namely TCT Nos. 13114, 13115, 13116 and
13117alloftheRegisterofDeedsforLucenaCity.

On the occasion of the execution on January 23, 1971, of the Sales Agreement Exhibit '16', Slobec,
represented by Rivera received from Bormaheco the subject matter of the said Sales Agreement,
namely,theaforementionedtractorCaterpillarModelD7asevidencedbyInvoiceNo.33234(Exhs.9
and9A,p.112,Record)andDeliveryReceiptNo.10368(Exhs.10and10A,p.113).Thistractorwas
knownbyRiveratobeareconditionedandrepaintedone[StipulationofFacts,PretrialOrder,par.(u)].

Meanwhile,forviolationofthetermsandconditionsoftheCounterGuarantyAgreement(Exh.1),the
propertiesoftheCastilloswereforeclosedbyICPAsthehighestbidderwithabidofP285,212.00,a
CertificateofSalewasissuedbytheProvincialSheriffofLucenaCityandTransferCertificatesofTitle
overthesubjectparcelsoflandwereissuedbytheRegisterofDeedsofLucenaCityinfavorofICP
namely,TCTNos.T23705,T23706,T23707andT23708(Exhs.MtoP,pp.3845).Themortgagors
hadone(1)yearfromthedateoftheregistrationofthecertificateofsale,thatis,untilOctober1,1974,
toredeemtheproperty,buttheyfailedtodoso.Consequently,ICPconsolidateditsownershipoverthe
subjectparcelsoflandthroughtherequisiteaffidavitofconsolidationofownershipdatedOctober29,
1974,asshowninExh.'22'(p.138,Rec.).Pursuantthereto,aDeedofSaleofRealEstatecoveringthe
subjectpropertieswasissuedinfavorofICP(Exh.23,p.139,Rec.).

OnApril10,1975,InsuranceCorporationofthePhil.ICPsoldtoPhil.MachineryPartsManufacturing
Co.(PMParts)thefour(4)parcelsoflandandbyvirtueofsaidconveyance,PMPartstransferredunto
itself the titles over the lots in dispute so that said parcels of land are now covered by TCT Nos. T
24846,T24847,T24848andT24849(Exhs.QT,pp.4649,Rec.).

Thereafter,PMParts,throughitsPresident,Mr.ModestoCervantes,sentaletterdatedAugust9,1976
addressedtoplaintiffMrs.MauriciaMeerCastillorequestingherandherchildrentovacatethesubject
property,who(Mrs.Castillo)inturnsentherreplyexpressingherrefusaltocomplywithhisdemands.

OnSeptember29,1976,theheirsofthelateFelipeCastillo,particularlyplaintiffBuenaflorM.Castillo
Umaliastheappointedadministratrixofthepropertiesinquestionfiledanactionforannulmentoftitle
before the then Court of First Instance of Quezon and docketed thereat as Civil Case No. 8085.
Thereafter,theyfiledanAmendedComplaintonJanuary10,1980(p.444,Record).OnJuly20,1983,
plaintiffsfiledtheirSecondAmendedComplaint,impleadingSantiagoM.Riveraasapartyplaintiff(p.
706,Record).TheycontendedthatalltheaforementionedtransactionsstartingwiththeAgreementof
CounterGuaranty with Real Estate Mortgage (Exh. I), Certificate of Sale (Exh. L) and the Deeds of
AuthoritytoSell,SaleandtheAffidavitofConsolidationofOwnership(AnnexesF,G,H,I)aswellas
the Deed of Sale (Annexes J, K, L and M) are void for being entered into in fraud and without the
consent and approval of the Court of First Instance of Quezon, (Branch IX) before whom the
administration proceedings has been pending. Plaintiffs pray that the four (4) parcels of land subject
hereofbedeclaredasownedbytheestateofthelateFelipeCastilloandthatallTransferCertificatesof
Title Nos. 13114,13115,13116,13117, 23705, 23706, 23707, 23708, 24846, 24847, 24848 and 24849
as well as those appearing as encumbrances at the back of the certificates of title mentioned be
declaredasanullityanddefendantstopaydamagesandattorney'sfees(pp.710711,Record).

Intheiramendedanswer,thedefendantscontrovertedthecomplaintandalleged,bywayofaffirmative
andspecialdefensesthatthecomplaintdidnotstatefactssufficienttostateacauseofactionagainst
defendants that plaintiffs are not entitled to the reliefs demanded that plaintiffs are estopped or
precludedfromassertingthematterssetforthintheComplaintthatplaintiffsareguiltyoflachesinnot

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asserting their alleged right in due time that defendant PM Parts is an innocent purchaser for value
andreliedonthefaceofthetitlebeforeitboughtthesubjectproperty(p.744,Record).3

Aftertrial,thecourtaquorenderedjudgment,withthefollowingdecretalportion:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants,
declaringthefollowingdocuments:

Agreement of CounterGuaranty with ChattelReal Estate Mortgage dated October

24,1970(Exhibit1)

SalesAgreementdatedDecember28,1970(ExhibitJ)

ChattelMortgagedatedNovember25,1970(ExhibitK)

SalesAgreementdatedJanuary23,1971(Exhibit16)

ChattelMortgagedatedJanuary23,1971(Exhibit17)

Certificate of Sale dated September 28, 1973 executed by the Provincial Sheriff of
QuezoninfavorofInsuranceCorporationofthePhilippines(ExhibitL)

null and void for being fictitious, spurious and without consideration. Consequently, Transfer
CertificatesofTitleNos.T23705,T23706,T23707andT23708(ExhibitsM,N,OandP)issuedinthe
nameofInsuranceCorporationofthePhilippines,arelikewisenullandvoid.

ThesalebyInsuranceCorporationofthePhilippinesinfavorofdefendantPhilippineMachineryParts
ManufacturingCo.,Inc.,overIdfour(4)parcelsoflandandTransferCertificatesofTitleNos.T24846,
T24847, T24848 and T24849 subsequently issued by virtue of said sale in the name of Philippine
Machinery Parts Manufacturing Co., Inc., are similarly declared null and void, and the Register of
Deeds of Lucena City is hereby directed to issue, in lieu thereof, transfer certificates of title in the
namesoftheplaintiffs,exceptSantiagoRivera.

Orders the defendants jointly and severally to pay the plaintiffs moral damages in the sum of
P10,000.00,exemplarydamagesintheamountofP5,000.00,andactuallitigationexpensesinthesum
ofP6,500.00.

Defendants are likewiseorderedtopaytheplaintiffs,jointlyandseverally,thesum of P10,000.00 for

andasattomey'sfees.Withcostsagainstthedefendants.

SOORDERED.4

Asearlierstated,respondentcourtreversedtheaforequoteddecisionofthetrialcourtandrenderedthejudgment
subjectofthispetition

PetitionerscontendthatrespondentCourtofAppealserred:

1.InholdingandfindingthattheactionsenteredintobetweenpetitionerRiverawithCervantesareall
fairandregularandthereforebindingbetweenthepartiesthereto

2. In reversing the decision of the lower court, not only based on erroneous conclusions of facts,
erroneouspresumptionsnotsupportedbytheevidenceonrecordbutalso,holdingvalidandbinding
the supposed payment by ICP of its obligation to Bormaheco, despite the fact that the surety bond
issued it had already expired when it opted to foreclose extrajudically the mortgage executed by the
petitioners

3. In aside the finding of the lower court that there was necessity to pierce the veil of corporate
existenceand

4.Inreversingthedecisionofthelowercourtofaffirmingthesame5

I.PetitionersaverthatthetransactionsenteredintobetweenSantiagoM.Rivera,asPresidentofSlobecRealtyand
Development Company (Slobec) and Mode Cervantes, as VicePresident of Bormaheco, such as the Sales
Agreement, 6 Chattel Mortgage 7 and the Agreement of CounterGuaranty with Chattel/Real Estate Mortgage, 8 are all
fraudulentandsimulatedandshould,therefore,bedeclarednunandvoid.Suchallegationispremisedprimarilyonthefact
thatcontrarytothestipulationsagreeduponintheSalesAgreement(ExhibitJ),Riveranevermadeanyadvancepayment,in
theallegedamountofP50,000.00,toBormahecothatthetractorwasreceivedbyRiveraonlyonJanuary23,1971andnot
in1970asstatedintheChattelMortgage(ExhibitK)andthatwhentheAgreementofCounterGuarantywithChattel/Real
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Estate Mortgage was executed on October 24, 1970, to secure the obligation of ICP under its surety bond, the Sales
AgreementandChattelMortgagehadnotasyetbeenexecuted,asidefromthefactthatitwasBormaheco,andnotRivera,
whichpaidthepremiumforthesuretybondissuedbyICP

Attheoutset,itwillbenotedthatpetitionerssubmissionunderthefirstassignederrorhingespurelyonquestionsof
fact.RespondentCourtofAppealsmadeseveralfindingstotheeffectthatthequestioneddocumentsarevalidand
binding upon the parties, that there was no fraud employed by private respondents in the execution thereof, and
that, contrary to petitioners' allegation, the evidence on record reveals that petitioners had every intention to be
bound by their undertakings in the various transactions had with private respondents. It is a general rule in this
jurisdictionthatfindingsoffactofsaidappellatecourtarefinalandconclusiveand,thus,bindingonthisCourtinthe
absenceofsufficientandconvincingproof,interalia,thattheformeractedwithgraveabuseofdiscretion.Underthe
circumstances,wefindnocompellingreasontodeviatefromthislongstandingjurisprudentialpronouncement.

Inaddition,theallegedfailureofRiveratopaytheconsiderationagreeduponintheSalesAgreement,whichclearly
constitutesabreachofthecontract,cannotbeavailedofbytheguiltypartytojustifyandsupportanactionforthe
declarationofnullityofthecontract.Equityandfairplaydictatesthatonewhocommitsabreachofhiscontractmay
notseekrefugeundertheprotectivemantleofthelaw.

Theevidenceofrecord,onanoverallcalibration,doesnotconvinceusofthevalidityofpetitioners'contentionthat
thecontractsenteredintobythepartiesareeitherabsolutelysimulatedordownrightfraudulent.

Thereisabsolutesimulation,whichrendersthecontractnullandvoid,whenthepartiesdonotintendtobeboundat
allbythesame. 9Thebasiccharacteristicofthistypeofsimulationofcontractisthefactthattheapparentcontractisnot
really desired or intended to either produce legal effects or in any way alter the juridical situation of the parties. The
subsequent act of Rivera in receiving and making use of the tractor subject matter of the Sales Agreement and Chattel
Mortgage, and the simultaneous issuance of a surety bond in favor of Bormaheco, concomitant with the execution of the
Agreement of CounterGuaranty with Chattel/Real Estate Mortgage, conduce to the conclusion that petitioners had every
intention to be bound by these contracts. The occurrence of these series of transactions between petitioners and private
respondents is a strong indication that the parties actually intended, or at least expected, to exact fulfillment of their
respectiveobligationsfromoneanother.

Neither will an allegation of fraud prosper in this case where petitioners failed to show that they were induced to
enterintoacontractthroughtheinsidiouswordsandmachinationsofprivaterespondentswithoutwhichtheformer
wouldnothaveexecutedsuchcontract.Tosetasideadocumentsolemnlyexecutedandvoluntarilydelivered,the
proofoffraudmustbeclearandconvincing. 10Wearenotpersuadedthatsuchquantumofproofexistsinthecaseat
bar.

ThefactthatitwasBormahecowhichpaidthepremiumforthesuretybondissuedbyICPdoesnotperseaffectthe
validityofthebond.PetitionersthemselvesadmitintheirpresentpetitionthatRiveraexecutedaDeedofSalewith
RightofRepurchaseofhiscarinfavorofBormahecoandagreedthatapartoftheproceedsthereofshallbeused
topaythepremiumforthebond. 11Ineffect,BormahecoacceptedthepaymentofthepremiumasanagentofICPThe
execution of the deed of sale with a right of repurchase in favor of Bormaheco under such circumstances sufficiently
establishesthefactthatRiverarecognizedBormahecoasanagentofICPSuchpaymenttotheagentofICPis,therefore,
bindingonRivera.Heisnowestoppedfromquestioningthevalidityofthesuretyshipcontract.

II.Underthedoctrineofpiercingtheveilofcorporateentity,whenvalidgroundsthereforeexist,thelegalfictionthat
acorporationisanentitywithajuridicalpersonalityseparateanddistinctfromitsmembersorstockholdersmaybe
disregarded.Insuchcases,thecorporationwillbeconsideredasamereassociationofpersons.Themembersor
stockholdersofthecorporationwillbeconsideredasthecorporation,thatis,liabilitywillattachdirectlytotheofficers
andstockholders. 12 The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong,
protectfraud,ordefendcrime,13orwhenitismadeasashieldtoconfusethelegitimateissues14orwhereacorporationis
themerealteregoorbusinessconduitofaperson,orwherethecorporationissoorganizedandcontrolledanditsaffairsare
soconductedastomakeitmerelyaninstrumentality,agency,conduitoradjunctofanothercorporation.15

Inthecaseatbar,petitionersseektopiercetheV621OfcorporateentityofBormaheco,ICPandPMParts,alleging
that these corporations employed fraud in causing the foreclosure and subsequent sale of the real properties
belonging to petitioners While we do not discount the possibility of the existence of fraud in the foreclosure
proceeding,neitherareweinclinedtoapplythedoctrineinvokedbypetitionersingrantingthereliefsought.Itisour
considered opinion that piercing the veil of corporate entity is not the proper remedy in order that the foreclosure
proceedingmaybedeclaredanullityunderthecircumstancesobtaininginthelegalcaseatbar.

In the first place, the legal corporate entity is disregarded only if it is sought to hold the officers and stockholders
directlyliableforacorporatedebtorobligation.Intheinstantcase,petitionersdonotseektoimposeaclaimagainst
theindividualmembersofthethreecorporationsinvolvedonthecontrary,itisthesecorporationswhichdesireto
enforce an alleged right against petitioners. Assuming that petitioners were indeed defrauded by private
respondentsintheforeclosureofthemortgagedproperties,thisfactaloneisnot,underthecircumstances,sufficient
tojustifythepiercingofthecorporatefiction,sincepetitionersdonotintendtoholdtheofficersand/ormembersof
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respondentcorporationspersonallyliabletherefor.Petitionersaremerelyseekingthedeclarationofthenullityofthe
foreclosuresale,whichreliefmaybeobtainedwithouthavingtodisregardtheaforesaidcorporatefictionattachingto
respondent corporations. Secondly, petitioners failed to establish by clear and convincing evidence that private
respondentswerepurposelyformedandoperated,andthereaftertransactedwithpetitioners,withthesoleintention
ofdefraudingthelatter.

The mere fact, therefore, that the businesses of two or more corporations are interrelated is not a justification for
disregardingtheirseparatepersonalities, 16absentsufficientshowingthatthecorporateentitywaspurposelyusedasa
shieldtodefraudcreditorsandthirdpersonsoftheirrights.

III. The main issue for resolution is whether there was a valid foreclosure of the mortgaged properties by ICP
Petitioners argue that the foreclosure proceedings should be declared null and void for two reasons, viz.: (1) no
writtennoticewasfurnishedbyBormahecotoICPanentthefailureofSlobecinpayingitsobligationwiththeformer,
plusthefactthatnoreceiptwaspresentedtoshowtheamountallegedlypaidbyICPtoBormahecoand(b)atthe
timeoftheforeclosureofthemortgage,theliabilityofICPunderthesuretybondhadalreadyexpired.

Respondentcourt,infindingforthevalidityoftheforeclosuresale,declared:

NowtothequestionofwhetherornottheforeclosurebytheICPoftherealestatemortgagewasinthe
exerciseofalegalright,Weagreewiththeappellantsthattheforeclosureproceedingsinstitutedbythe
ICP was in the exercise of a legal right. First, ICP has in its favor the legal presumption that it had
indemnifiedBormahecobyreasonofSlobec'sdefaultinthepaymentofitsobligationundertheSales
Agreement, especially because Bormaheco consented to ICPs foreclosure of the mortgage. This
presumption is in consonance with pars. R and Q Section 5, Rule 5, * New Rules of Court which
providesthatitisdisputablypresumedthatprivatetransactionshavebeenfairandregular.likewise,it
isdisputablypresumedthattheordinarycourseofbusinesshasbeenfollowed:Second,ICPhadthe
righttoproceedatoncetotheforeclosureofthemortgageasmandatedbytheprovisionsofArt.2071
Civil Code for these further reasons: Slobec, the principal debtor, was admittedly insolvent Slobec's
obligation becomes demandable by reason of the expiration of the period of payment and its
authorization to foreclose the mortgage upon Slobec's default, which resulted in the accrual of ICPS
liabilitytoBormaheco.Third,theAgreementofCounterGuarantywithRealEstateMortgage(Exh.1)
expresslygrantstoICPtherighttoforeclosetherealestatemortgageintheeventof'nonpaymentor
nonliquidationoftheentireindebtednessorfractionthereofuponmaturityasstipulatedinthecontract'.
Thisisavalidandbindingstipulationintheabsenceofshowingthatitiscontrarytolaw,morals,good
customs,publicorderorpublicpolicy.(Art.1306,NewCivilCode).17

1.PetitionersasseveratethattherewasnonoticeofdefaultissuedbyBormahecotoICPwhichwouldhaveentitled
BormahecotodemandpaymentfromICPunderthesuretyshipcontract.

SuretyBondNo.B14010whichwasissuedbyICPinfavorofBormaheco,whereinICPandSlobecundertookto
guaranteethepaymentofthebalanceofP180,000.00payableineighteen(18)monthlyinstallmentsononeunitof
ModelCATD7CaterpillarCrawlerTractor,pertinentlyprovidesinpartasfollows:

1. The liability of INSURANCE CORPORATION OF THE PHILIPPINES, under this BOND will expire
Twelve (I 2) months from date hereof. Furthermore, it is hereby agreed and understood that the
INSURANCECORPORATIONOFTHEPHILIPPINESwillnotbeliableforanyclaimnotpresentedin
writing to the Corporation within THIRTY (30) DAYS from the expiration of this BOND, and that the
obligeeherebywaiveshisrighttobringclaimorfileanyactionagainstSuretyandafterthetermination
ofone(1)yearfromthetimehiscauseofactionaccrues.18

The surety bond was dated October 24, 1970. However, an annotation on the upper part thereof states:
"NOTE:EFFECTIVITYDATEOFTHISBONDSHALLBEONJANUARY22,1971."19

Ontheotherhand,theSalesAgreementdatedJanuary23,1971providesthatthebalanceofP180,000.00shallbe
payable in eighteen (18) monthly installments. 20 The Promissory Note executed by Slobec on even date in favor of
BormahecofurtherprovidesthattheobligationshallbepayableonorbeforeFebruary23,1971uptoJuly23,1972,andthat
nonpaymentofanyoftheinstallmentswhendueshallmaketheentireobligationimmediatelydueanddemandable.21

It is basic that liability on a bond is contractual in nature and is ordinarily restricted to the obligation expressly
assumedtherein.Wehaverepeatedlyheldthattheextentofasurety'sliabilityisdeterminedonlybytheclauseof
thecontractofsuretyshipaswellastheconditionsstatedinthebond.Itcannotbeextendedbyimplicationbeyond
thetermsthecontract.22

Fundamentallikewiseistherulethat,exceptwhererequiredbytheprovisionsofthecontract,ademandornoticeof
defaultisnotrequiredtofixthesurety'sliability. 23Hence,wherethecontractofsuretyshipstipulatesthatnoticeofthe
principal's default be given to the surety, generally the failure to comply with the condition will prevent recovery from the
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surety.Therearecertaininstances,however,whenfailuretocomplywiththeconditionwillnotextinguishthesurety'sliability,
suchasafailuretogivenoticeofslightdefaults,whicharewaivedbytheobligeeoronmeresuspicionofpossibledefaultor
where,ifadefaultexists,thereisexcuseorprovisioninthesuretyshipcontractexemptingthesuretyforliabilitytherefor,or
wherethesuretyalreadyhasknowledgeorischargeablewithknowledgeofthedefault.24

Inthecaseatbar,thesuretyshipcontractexpresslyprovidesthatICPshagnotbeliableforanyclaimnotfiledin
writing within thirty (30) days from the expiration of the bond. In its decision dated May 25 1987, the court a quo
categoricallystatedthat'(n)oevidencewaspresentedtoshowthatBormahecodemandedpaymentfromICPnor
was there any action taken by Bormaheco on the bond posted by ICP to guarantee the payment of plaintiffs
obligation.ThereisnothingintherecordsoftheproceedingstoshowthatICPindemnifiedBormahecoforthefailure
of the plaintiffs to pay their obligation. " 25 The failure, therefore, of Bormaheco to notify ICP in writing about Slobec's
supposed default released ICP from liability under its surety bond. Consequently, ICP could not validly foreclose that real
estatemortgageexecutedbypetitionersinitsfavorsinceitneverincurredanyliabilityunderthesuretybond.Itcannotclaim
exemptionfromtherequiredwrittennoticesinceitscasedoesnotfallunderanyoftheexceptionshereinbeforeenumerated.

Furthermore, the allegation of ICP that it has paid Bormaheco is not supported by any documentary evidence.
Section1,Rule131oftheRulesofCourtprovidesthattheburdenofevidencelieswiththepartywhoassertsan
affirmative allegation. Since ICP failed to duly prove the fact of payment, the disputable presumption that private
transactions have been fair and regular, as erroneously relied upon by respondent Court of Appeals, finds no
applicationtothecaseatbar.

2.Theliabilityofasuretyismeasuredbythetermsofhiscontract,and,whileheisliabletothefullextentthereof,
such liability is strictly limited to that assumed by its terms. 26 While ordinarily the termination of a surety's liability is
governedbytheprovisionsofthecontractofsuretyship,wheretheobligationofasuretyis,underthetermsofthebond,to
terminateataspecifiedtime,hisobligationcannotbeenlargedbyanunauthorizedextensionthereof.27Thisisanexception
tothegeneralrulethattheobligationofthesuretycontinuesforthesameperiodasthatoftheprincipaldebtor.28

Itispossiblethattheperiodofsuretyshipmaybeshorterthanthatoftheprincipalobligation,aswheretheprincipal
debtorisrequiredtomakepaymentbyinstallments. 29Inthecaseatbar,thesuretybondissuedbyICPwastoexpire
onJanuary22,1972,twelve(12)monthsfromitseffectivitydate,whereasSlobec'sinstallmentpaymentwastoendonJuly
23,1972.Therefore,whileICPguaranteedthepaymentbySlobecofthebalanceofP180,000.00,suchguarantywasvalid
onlyforandwithintwelve(12)monthsfromthedateofeffectivityofthesuretybond,oruntilJanuary22,1972.Thereafter,
from January 23, 1972 up to July 23, 1972, the liability of Slobec became an unsecured obligation. The default of Slobec
duringthisperiodcannotbeavalidbasisfortheexerciseoftherighttoforeclosebyICPsinceitssuretycontracthadalready
beenterminated.Besides,theliabilityofICPwasextinguishedwhenBormahecofailedtofileawrittenclaimagainstitwithin
thirty(30)daysfromtheexpirationofthesuretybond.Consequently,theforeclosureofthemortgage,aftertheexpirationof
thesuretybondunderwhichICPassuretyhasnotincurredanyliability,shouldbedeclarednullandvoid.

3. Lastly, it has been held that where The guarantor holds property of the principal as collateral surety for his
personal indemnity, to which he may resort only after payment by himself, until he has paid something as such
guarantorneitherhenorthecreditorcanresorttosuchcollaterals.30

The Agreement of CounterGuaranty with Chattel/Real Estate Mortgage states that it is being issued for and in
considerationoftheobligationsassumedbytheMortgageeSuretyCompanyunderthetermsandconditionsofICP
BondNo.14010inbehalfofSlobecRealtyDevelopmentCorporationandinfavorofBormaheco,Inc. 31Thereisno
doubt that said Agreement of CounterGuaranty is issued for the personal indemnity of ICP Considering that the fact of
paymentbyICPhasneverbeenestablished,itfollows,pursuanttothedoctrineaboveadvertedto,thatICPcannotforeclose
onthesubjectproperties,

IV.PrivaterespondentPMPartspositsthatitisabuyeringoodfaithand,therefore,itacquiredavalidtitleoverthe
subjectproperties.Thesubmissioniswithoutmeritandtheconclusionisspecious

We have stated earlier that the doctrine of piercing the veil of corporate fiction is not applicable in this case.
However,itsinapplicabilityhasnobearingonthegoodfaithorbadfaithofprivaterespondentPMParts.Itmustbe
notedthatModestoN.CervantesservedasVicePresidentofBormahecoand,later,asPresidentofPMParts.On
this fact alone, it cannot be said that PM Parts had no knowledge of the aforesaid several transactions executed
between Bormaheco and petitioners. In addition, Atty. Martin de Guzman, who is the Executive VicePresident of
Bormaheco,wasalsothelegalcounselofICPandPMParts.Thesefactswereadmittedwithoutqualificationinthe
stipulation of facts submitted by the parties before the trial court. Hence, the defense of good faith may not be
resortedtobyprivaterespondentPMPartswhichischargedwithknowledgeofthetruerelationsexistingbetween
Bormaheco,ICPandhereinpetitioners.Accordingly,thetransfercertificatesoftitleissuedinitsname,aswellasthe
certificateofsale,mustbedeclarednullandvoidsincetheycannotbeconsideredaltogetherfreeofthetaintofbad
faith.

WHEREFORE,thedecisionofrespondentCourtofAppealsisherebyREVERSEDandSETASIDE,andjudgment
is hereby rendered declaring the following as null and void: (1) Certificate of Sale, dated September 28,1973,

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executedbytheProvincialSheriffofQuezoninfavoroftheInsuranceCorporationofthePhilippines(2)Transfer
CertificatesofTitleNos.T23705,T23706,T23707andT23708issuedinthenameoftheInsuranceCorporation
of the Philippines (3) the sale by Insurance Corporation of the Philippines in favor of Philippine Machinery Parts
ManufacturingCo.,Inc.ofthefour(4)parcelsoflandcoveredbytheaforesaidcertificatesoftitleand(4)Transfer
CertificatesofTitleNos.T24846,T24847,T24848andT24849subsequentlyissuedbyvirtueofsaidsaleinthe
nameofthelattercorporation.

The Register of Deeds of Lucena City is hereby directed to cancel Transfer Certificates of Title Nos. T24846, T
24847,T24848andT24849inthenameofPhilippineMachineryPartsManufacturingCo.,Inc.andtoissueinlieu
thereofthecorrespondingtransfercertificatesoftitleinthenameofhereinpetitioners,exceptSantiagoRivera.

The foregoing dispositions are without prejudice to such other and proper legal remedies as may be available to
respondentBormaheco,Inc.againsthereinpetitioners.

SOORDERED.

MelencioHerrera(Chairman),ParasandPadilla,JJ.,concur.

Sarmiento,J.,isonleave.

Footnotes

1AssociateJusticeBienvenidoC.Ejercito,ponenteAssociate

JusticesFelipeB.KalaloandLuisL.Victor,concurringPetition,AnnexBRollo,6074.

2Rollo,4549.

3Ibid.,6164.

4Ibid,5859.

5Ibid.,14.

6Exh.15BormahecoOriginalRecord,481.

7Exh.16BormahecoIbid.,482.

8Exh.1FolderofExhibits,24.

9Arts.1345and1346,CivilCode

10Arroyoetc.vs.Granada,etal.,18Phil.484(1911).

11Rollo,17.

12Agbayani,LawsofthePhilippines,Vol.3,1988Ed.,18.

13Koppel(Philippines),Inc.vs.Yatco,etc.,77Phil.496(1946).

14TelephoneEngineering&ServiceCo.,Inc.vs.Workmen'sCompensationCommission,etal.,104
SCRA354(1981).

15Koppel(Philippines),Inc.vs.Yatco,etc.,ante.

16DiatagonLaborFederationvs.Ople,etal.,101SCRA534(1980).

*ThisshouldbePars.(p)and(q),Sec.5(nowSec.3),Rule131.

17Rollo,7273.

18Exh.8BormahecoFolderofExhibits,111.

19Id.,Ibid.

20Exh.16BormahecoIbid.,482.

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21Id.,Ibid.,484.

22PhilippineCommercial&IndustrialBankvs.TheHon.CourtofAppeals,etal.,159SCRA24(1988).

2372C.J.S.577.

2472C.J.S.636.

25OriginalRecord,1016.

2672C.J.S.569.

27Opcit597.

28Opcit588.

29Tolentino,CivilCodeofthePhilippines,Vol.V,1959Ed.,436.

30Osbornvs.Noble,46Miss,449,citedin38C.J.S.1263.

31ExhIFolderofExhibits,2425.

TheLawphilProjectArellanoLawFoundation

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