(14) Republic of the Philippines vs. Mega Pacific eSolutions Inc.

G.R. No. 184666, June 27, 2016.

By: Bautista, Cecille Loie G.

Topic: Piercing of the Veil Doctrine

Question:
Republic Act No. 8436 authorized the COMELEC to use an automated election system for the
May 1998 elections. However, the automated system failed to materialize and votes were
canvassed manually during the 1998 and the 2001 elections. For the 2004 elections, the
COMELEC again attempted to implement the automated election system. For this purpose, it
invited bidders to apply for the procurement of supplies, equipment, and services. Respondent
MPEI, as lead company, purportedly formed a joint venture – known as the Mega Pacific
Consortium (MPC) – together with We Solv, SK C & C, ePLDT, Election.com and Oracle.
Subsequently, MPEI, on behalf of MPC, submitted its bid proposal to COMELEC. After due
assessment, the Bids and Awards Committee (BAC) recommended that the project be awarded
to MPC. The COMELEC favorably acted on the recommendation and issued Resolution No. 6074,
which awarded the automation project to MPC. Despite the award to MPC, the COMELEC and
MPEI executed on 2 June 2003 the Automated Counting and Canvassing Project Contract
(automation contract) for the aggregate amount of P1,248,949,088. MPEI agreed to supply and
deliver 1,991 units of ACMs and such other equipment and materials necessary for the
computerized electoral system in the 2004 elections. Pursuant to the automation contract, MPEI
delivered 1,991 ACMs to the COMELEC. The latter, for its part, made partial payments to MPEI
in the aggregate amount of P1.05 billion. Then the Court in its 2004 Decision declared the contract
null and void.6 We held that the COMELEC committed a clear violation of law and jurisprudence,
as well as a reckless disregard of its own bidding rules and procedure. All in all, Comelec
subverted the essence of public bidding: to give the public an opportunity for fair competition and
a clear basis for a precise comparison of bids.
Complaint for Damages filed by respondents with the RTC Makati and petitioner’s Answer
with Counterclaim, with an application for a writ of preliminary attachment, from which the instant
case arose. Upon the finality of the declaration of nullity of the automation contract, respondent
MPEI filed a Complaint for Damages before the RTC Makati, arguing that, notwithstanding the
nullification of the automation contract, the COMELEC was still bound to pay the amount of
P200,165,681.89. This amount represented the difference between the value of the ACMs and
the support services delivered on one hand, and on the other, the payment previously made by
the COMELEC. By way of a counterclaim, petitioner demanded from respondents the return of
the payments made pursuant to the automation contract. It argued that individual respondents,
being the incorporators of MPEI, likewise ought to be impleaded and held accountable for MPEI’s
liabilities. The creation of MPC was, after all, merely an ingenious scheme to feign eligibility to
bid. Pursuant to Section 1(d) of Rule 57 of the Rules of Court, petitioner prayed for the issuance
of a writ of preliminary attachment against the properties of MPEI and individual respondents. The
application was grounded upon the fraudulent misrepresentation of respondents as to their
eligibility to participate in the bidding for the COMELEC automation project and the failure of the
ACMs to comply with mandatory technical requirements. The trial court denied the prayer for the
issuance of a writ of preliminary attachment, ruling that there was an absence of factual
allegations as to how the fraud was actually committed. The trial court further ruled that the
allegations of fraud on the part of MPEI were not supported by the COMELEC, the office in charge
of conducting the bidding for the election automation contract. It was likewise held that there was
no evidence that respondents harbored a preconceived plan not to comply with the obligation;
neither was there any evidence that MPEI’s corporate fiction was used to perpetrate fraud. Thus,
it found no sufficient basis to pierce the veil of corporate fiction or to cause the attachment of the
properties owned by individual respondents.
Did the Petitioner sufficiently establish fraud on the part of the respondent to justify the
issuance of preliminary attachment? May a writ of attachment be issued against the
properties of individual respondents considering that they were not proper parties to the
2004 case?

Answer:
A writ of preliminary attachment should issue in favor of petitioner over the properties of
respondents MPEI, Willy Yu (Willy) and the remaining individual respondents, namely: Bonnie S.
Yu (Bonnie), Enrique T. Tansipek (Enrique), Rosita Y. Tansipek (Rosita), Pedro O. Tan (Pedro),
Johnson W. Fong (Johnson), Bernard I. Fong (Bernard), and Lauriano Barrios (Lauriano). The
bases for the writ are the following:
Fraud on the part of respondent MPEI was sufficiently established by the factual findings of this
Court in its 2004 Decision and subsequent pronouncements.
A writ of preliminary attachment may issue over the properties of the individual respondents
using the doctrine of piercing the corporate veil. The factual findings of this Court that have
become final cannot be modified or altered, much less reversed, and are controlling in the instant
case. The delivery of 1,991 units of ACMs does not negate fraud on the part of respondents MPEI
and Willy. Estoppel does not lie against the state when it acts to rectify mistakes, errors or illegal
acts of its officials and agents. A writ of preliminary attachment is a provisional remedy issued
upon the order of the court where an action is pending. Through the writ, the property or properties
of the defendant may be levied upon and held thereafter by the sheriff as security for the
satisfaction of whatever judgment might be secured by the attaching creditor against the
defendant.61 The provisional remedy of attachment is available in order that the defendant may
not dispose of the property attached, and thus prevent the satisfaction of any judgment that may
be secured by the plaintiff from the former. The purpose and function of an attachment or
garnishment is twofold. First, it seizes upon property of an alleged debtor in advance of final
judgment and holds it subject to appropriation, thereby preventing the loss or dissipation of the
property through fraud or other means. Second, it subjects the property of the debtor to the
payment of a creditor’s claim, in those cases in which personal service upon the debtor cannot
be obtained.63 This remedy is meant to secure a contingent lien on the defendant’s property until
the plaintiff can, by appropriate proceedings, obtain a judgment and have the property applied to
its satisfaction, or to make some provision for unsecured debts in cases in which the means of
satisfaction thereof are liable to be removed beyond the jurisdiction, or improperly disposed of or
concealed, or otherwise placed beyond the reach of creditors. Section 1(d), Rule 57 of the Rules
of Court, Section 1. Grounds upon which attachment may issue. At the commencement of the
action or at any time before entry of judgment, a plaintiff or any proper party may have the property
of the adverse party attached as security for the satisfaction of any judgment that may be
recovered in the following cases: (d) In an action against a party who has been guilty of a fraud
in contracting the debt or incurring the obligation upon which the action is brought, or in the
performance thereof. (Emphasis supplied) For a writ of preliminary attachment to issue under the
above-quoted rule, the applicant must sufficiently show the factual circumstances of the alleged
fraud. Metro, Inc. v. Lara’s Gift and Decors, Inc., To sustain an attachment on this ground, it must
be shown that the debtor in contracting the debt or incurring the obligation intended to defraud
the creditor. The fraud must relate to the execution of the agreement and must have been the
reason which induced the other party into giving consent which he would not have otherwise
given. To constitute a ground for attachment in Section 1(d), Rule 57 of the Rules of Court, fraud
should be committed upon contracting the obligation sued upon. A debt is fraudulently contracted
if at the time of contracting it the debtor has a preconceived plan or intention not to pay, as it is in
this case. X xx. The applicant for a writ of preliminary attachment must sufficiently show the factual
circumstances of the alleged fraud because fraudulent intent cannot be inferred from the debtor’s
mere non-payment of the debt or failure to comply with his obligation. An amendment to the Rules
of Court added the phrase “in the performance thereof” to include within the scope of the grounds
for issuance of a writ of preliminary attachment those instances relating to fraud in the
performance of the obligation.
In the case at bar, petitioner has sufficiently discharged the burden of demonstrating the
commission of fraud by respondent MPEI in the execution of the automation contract in the two
ways: (a) Respondent MPEI had perpetrated a scheme against petitioner to secure the
automation contract by using MPC as supposed bidder and eventually succeeding in signing the
automation contract as MPEI alone, an entity which was ineligible to bid in the first place. (b)Fraud
on the part of respondent MPEI was further shown by the fact that despite the failure of its ACMs
to pass the tests conducted by the DOST, respondent still acceded to being awarded the
automation contract.
 (41) Ricafort vs. Hon. Isaias Dicdican,
G.R. No. 202647-50, March 9, 2016
By: Bautista, Cecille Loie G.

Topic: Annual Stockholder’s Meeting

Question:
NADECOR is a domestic corporation and a holder of Mining Production Sharing Agreement with
the DENER. Pursuant to Article I Sec 1 of the amended by-laws, its regular annual stockholders’
meeting (ASM) was held to elect BOD. More than two months after the ASM, petitioners, claiming
to be stockholders of record, filed compliant before the RTC to declare null and void “the ASM of
NADECOR, including all proceedings taken thereat, all the consequences thereof, and all acts
carried out pursuant thereto.” They alleged that they have no prior notice of, and wasn’t able to
attend the ASM. Defendants sought dismissal of the case on the grounds that the complaint
involved an election contest, since in effect it sought to nullify the election of the BOD.
(A) Is the petition an election contest?
(B) Are the petitioners duly represented in ASM through proxy?

Answer:
(A) Yes, to nullify the ASM would have had no practical effect except to void the election of the
Board of Directors. And no doubt, this was the trial court’s understanding of the petitioners’
intent when it voided the August 15, 2011 ASM and all matters taken up thereat. Thus, by
declaring as void all “acts, decisions, deeds, incidents, matters taken up arising from and
subsequent to the 2011 [ASM],” things which could only be performed by the newly-elected
Board, and then by directing the issuance of a three-day notice for the holding of a new ASM
corresponding to FY 2011-2012, the trial court clearly understood that a new election should
be held for Board of Directors of NADECOR for FY 2011-2012, notwithstanding its express
ruling that SEC Case No. 11-164 did not involve an election contest and therefore. But more
importantly, the defendants did not fail to point out to the trial court, as the appellate court has
made copiously clear in its decision, that contrary to the petitioners’ feigned lament that they
were unlawfully deprived of their right as stockholders to participate in the ASM due to late
notice, they were in fact represented by JG Ricafort under an irrevocable proxy which they
executed on April 26, 2010.
(B) Yes, as found by the CA, the petitioners did participate in the stockholders’ meeting through
their authorized representative and proxy, JG Ricafort. In his Affidavit dated November 21,
2011, Gatmaitan, NADECOR Corporate Secretary, categorically declared under oath that JG
Ricafort held a valid irrevocable proxy from the petitioners to attend and vote their shares at
all meetings of the stockholders, and that JG Ricafort signed the attendance sheet for and in
behalf of the plaintiffs as shown by his signatures in the rows in the said attendance sheet for
the names of the plaintiffs who had appointed him as his proxy. During the meeting no one
questioned the Irrevocable Proxy. Thus, JG Ricafort being the real and beneficial owner of
the petitioners’ shares, lack of notice to them is inconsequential because he attended and
represented them at the August 15, 2011 ASM. It defies reason, too, that he could not have
informed his wife and children, who live in the same house with him, of the scheduled ASM.
 (68) Reyes vs. Bancom Development Corp.,
G.R. No. 190286, January 11, 2018.
By: Bautista, Cecille Loie G.

Topic: Liability under continuing guaranty of loans executed by a corporation;

Abatement of suit following revocation of corporation’s certificate of registration by
the SEC

Question:
A continuing guaranty was executed in favour of Bancom by the Reyes Group. In the
instrument, the group agreed to guarantee the full and due payment of obligations incurred by
Marbella under an Underwriting Agreement with Bancom. These obligations included certain
promissory notes issued by Marbella in favor of Bancom with an aggregate amount of PhP
2,828,140.32. Marbella was unable to make payment at the time of the maturity of the notes.
Consequently, it issued a set of replacement promissory notes, this time for the increased
amount of PhP 2,901,466.48. Again, it defaulted on the notes, leading to the issuance of a
third set of promissory notes amounting to PhP 3,002,333.84, and eventually a fourth set for
the same amount. Due to Marbella’s continued failure to pay back the loan, despite repeated
demands, Bancom filed a complaint for sum of money. The case sought payment of a total
sum of PhP 4,300,247.35, and named Marbella as the principal debtor, and imploded the
Reyes Group as guarantors.
The RTC held that Marbella and the Reyes Group were solidarity liable to Bancom. During
the appeal to the CA, the lawyers for Bancom withdrew their appearance as counsel, citing
that it had “totally lost contact” with the client, and had “received reports that the client has
undergone a merger with another entity.” Nevertheless, the CA ruled in favor of Bancom.
On motion for reconsideration to the CA, Reyes and Pastor contended that the action must
be considered abated, pursuant to Section 122 of the Corporation Code, since the certificate
of registration of Bancom, issued by the SEC, had been revoked, and that no trustee or
receiver had been appointed to continue the suit. The CA nevertheless denied the motion.

(A) Should the CA have declared the suit abated, in light of the fact that Bancom no
longer exists?
(B) Are the guarantors of the loans of Marbella liable to Bancom?

Answer:
(A) NO.
Sec. 122 of the Corporation Code provides that a corporation whose charter is annulled, or whose
corporate existence is otherwise terminated, may continue as a body corporate for a limited period
of three years, but only for certain specific purposes enumerated by law. These include the
prosecution and defense of suits by or against the corporation, and other objectives relating to
the settlement and closure of corporate affairs. Based on the provision, a defunct corporation
loses the right to sue and be sued in its name upon the expiration of the three-year period provided
by law. Jurisprudence has carved out an exception to the rule in cases where the Court has
appointed a receiver, assignee or trustee, such appointee may institute suits or continue pending
actions on behalf of the corporation, even after the winding up period. In subsequent cases, the
Court further clarified that a receiver or assignee need not even be appointed for the purpose of
bringing suits or continuing those that are pending. In Gelano vs. Court of Appeals, the Court held
that in the absence of a receiver or an assignee, suits may be instituted or continued by a trustee
specifically designated for a particular matter, such as a lawyer representing the corporation in a
certain case.
Here, it appears that the SEC revoked the Certificate of Registration issued to Bancom on 26
May 2003. Bancom does not seem to have conveyed its assets to trustees or to its stockholders
and creditors. The corporation has also failed to appoint a new counsel. The mere revocation of
the charter of a corporation does not result in the abatement of proceedings. Since its directors
are considered trustees by legal the fact that Bancom did not convey its assets to a receiver or
implication, assignee was of no consequence. It must also be emphasized that the dissolution of
a creditor-corporation does not extinguish any right or remedy in its favor. Sec. 145 of the
Corporation Code states that no right or remedy in favor of or against any corporation, its
stockholders, members, directors, trustees, or officers, nor any liability incurred by any such
corporation, stockholders, members, directors, trustees, or officers, shall be removed or impaired
either by the subsequent dissolution of said corporation or by any subsequent amendment or
repeal of this Code or of any part thereof. The corresponding liability of the debtors of a dissolved
corporation must also be deemed subsisting. To rule otherwise would be to sanction the unjust
enrichment of the debtor at the expense of the corporation.

(B) YES.

Having executed a continuing guaranty in favour of Bancom, Reyes and Pastor are solidarily
liable with Marbella for the payment of the amounts indicated on the promissory notes. Reyes and
Pastor did not challenge the genuineness and due execution of the promissory notes. Neither did
they deny their nonpayment of Marbella’s loans, or the fact that these obligations were covered
by their guaranty. Their sole defense was that the promissory notes were not binding, because
the funds released were not loans, but merely additional financing. The obligations of Marbella
and the Reyes Group under the Promissory Notes and the Continuing Guaranty, respectively, are
plain and unqualified. Under the notes, Marbella promised to pay Bancom the amounts stated on
the maturity dates indicated. The Reyes Group, on the other hand, agreed to become liable if any
of Marbella's guaranteed obligations were not duly paid on the due date. There is absolutely no
support for the assertion that these agreements were not meant to be binding. It is evident from
the provisions of the contract that Bancom extended additional financing to Marbella on the
condition that the loan would be paid upon maturity. It is equally clear that the latter obligated
itself to pay the stated amount to Bancom without any condition. The unconditional tenor of the
obligation of Marbella to pay Bancom for the loan amount, plus interest and penalties, is likewise
reflected in the Promissory Notes issued in favor of the latter. As to petitioners, the Continuing
Guaranty evidently binds them to pay Bancom the amounts indicated on the original set of
Promissory Notes, as well as any and all instruments issued upon the renewal, extension,
amendment or novation thereof.