Velarde vs. Lopez, Inc.

A counterclaim for employment-related benefits arising from services rendered to a subsidiary corporation cannot be maintained against the parent corporation absent a showing of fraud, complete control, or other grounds justifying the piercing of the veil of corporate fiction. A subsidiary has an independent and separate juridical personality distinct from that of its parent company, and any claim or suit against the latter does not bind the former and vice versa.

Lopez, Inc. was the parent corporation of Sky Vision Corporation, a subsidiary engaged in the cable television business. Mel Velarde served as General Manager of Sky Vision and, in that capacity, was also a stockholder and duly elected member of its Board of Directors. On January 6, 1997, Velarde, as BORROWER, and Eugenio Lopez Jr., then President of Lopez, Inc., as LENDER, executed a notarized loan agreement covering P10,000,000. The agreement specified events of default, including failure to make payment when due and failure to mortgage real property sufficient to cover the loan. The dispute arose when Velarde defaulted on the loan and Lopez, Inc. filed a collection suit, prompting Velarde to assert counterclaims for employment benefits against Lopez, Inc. rather than against Sky Vision, his actual employer.

On January 6, 1997, Eugenio Lopez Jr., then President of respondent Lopez, Inc., as LENDER, and petitioner Mel Velarde, then General Manager of Sky Vision Corporation, a subsidiary of respondent, as BORROWER, executed a notarized loan agreement covering P10,000,000. The agreement specified the manner of payment and defined events of default, including the borrower's failure to make payment when due and failure to mortgage real property in favor of the lender sufficient to cover the loan. Petitioner later claimed that the loan agreement was merely a "cover document" evidencing a reward of P10,000,000 for his loyalty and excellent performance as General Manager of Sky Vision, with payment expected in the form of continued service, and that when he was compelled to retire, the agreed form of payment became impossible, prompting the late Eugenio Lopez Jr. to agree that his retirement benefits from Sky Vision would instead be applied to the loan.

As petitioner failed to pay the installments as they became due, respondent sent letters of demand dated December 1, 1997 and January 13, 1998, which petitioner refused to heed. Respondent then apparently responded to a proposal from petitioner regarding settlement of the loan. By letter dated July 15, 1998, Rommel Duran, Vice-President and General Manager of respondent, advised petitioner that he could use his retirement benefits from Sky Vision in partial settlement of his loan, provided he first settled his accountabilities to Sky Vision and gave written instructions to Sky Vision to that effect. The letter computed the outstanding loan at P11,850,000 without the set-off, and P7,585,912.86 after applying P4,077,077.13 in retirement benefits, with P422,922.87 in unliquidated advances deducted from the retirement pay of P4.5 million. Petitioner protested the computation, asserting that the unliquidated advances had already been properly liquidated.

On August 18, 1998, respondent filed a complaint for collection of sum of money with damages at the RTC of Pasig City against petitioner, alleging violation of Section 6 of the loan agreement. In his answer, petitioner alleged that the loan agreement did not reflect his true agreement with respondent and, by way of compulsory counterclaim, claimed entitlement to retirement benefits from Sky Vision in the amount of P98,280,000, unpaid salaries of P2,740,000, unpaid incentives of P500,000, unpaid share from the net income of the plaintiff corporation, equity in his service vehicle worth P1,500,000, reasonable return on the stock ownership plan, and moral damages and attorney's fees. Respondent moved to dismiss the counterclaim for want of jurisdiction, arguing the money claims arose from a labor relationship within the NLRC's exclusive competence, while petitioner asserted that the tortuous manner of his coerced retirement placed the matter within the RTC's jurisdiction. The trial court denied the motion to dismiss, finding the counterclaim compulsory and within its jurisdiction and finding identity of interest between respondent and Sky Vision sufficient to pierce the veil of corporate fiction. The Court of Appeals reversed, holding that respondent was not the real party-in-interest on the counterclaim and that no circumstances justified piercing the veil of corporate fiction.

• Propriety of Certiorari: Petitioner argued that the Court of Appeals erred in ruling that the RTC acted with grave abuse of discretion, contending that the grounds raised by respondent in its Petition for Certiorari before the CA involved mere errors of judgment and not errors of jurisdiction.
• Real Party-in-Interest: Petitioner maintained that respondent Lopez, Inc. was the real party-in-interest as party-defendant on the counterclaims, arguing that respondent's filing of a motion to dismiss the counterclaim had the effect of hypothetically admitting the truth of the material averments of the answer, which sufficiently alleged that respondent committed acts showing that Sky Vision was a mere business conduit or alter ego of respondent, thus justifying the piercing of the veil of corporate fiction.
• Compulsory Nature of Counterclaims: Petitioner argued that the Court of Appeals erred in ruling that the counterclaims were not compulsory.
• Fraud in the Loan Agreement: Petitioner alleged that the loan agreement did not reflect his true agreement with respondent, it being merely a "cover document" to evidence a reward of P10,000,000 for his loyalty and excellent performance, and that respondent fraudulently took advantage of its control over compensation and benefits to deceive him into signing the loan agreement on the misleading assurance that it was merely for documentation purposes.

• Lack of Jurisdiction: Respondent argued that the counterclaims, being money claims arising from a labor relationship, were within the exclusive competence of the National Labor Relations Commission, not the RTC.
• Not Real Party-in-Interest: Respondent contended that it was not the real party-in-interest on the counterclaims because petitioner's employer was Sky Vision Corporation, a subsidiary with a separate and distinct juridical personality.
• No Basis for Piercing the Veil: Respondent maintained that there was no showing of fraud, complete control, or other circumstances justifying the piercing of the veil of corporate fiction, as the mere existence of interlocking directors, corporate officers, and shareholders was insufficient.

• Propriety of Certiorari: Whether the Court of Appeals erred in ruling that the RTC acted with grave abuse of discretion in issuing the orders denying the motion to dismiss, such that certiorari under Rule 65 was proper.
• Real Party-in-Interest: Whether respondent Lopez, Inc. is the real party-in-interest as party-defendant on the counterclaims, or whether the veil of corporate fiction should be pierced to hold respondent liable for claims arising from petitioner's employment with its subsidiary, Sky Vision.
• Compulsory Counterclaim: Whether the counterclaims of petitioner are compulsory in nature.

• Propriety of Certiorari: No error. Certiorari was proper because the ground raised by respondent was lack of jurisdiction, which is among the recognized exceptions to the general rule that denial of a motion to dismiss is not correctable by certiorari.
• Real Party-in-Interest: No. Respondent Lopez, Inc. is not the real party-in-interest on the counterclaims, Sky Vision being petitioner's employer with a separate and distinct juridical personality. Piercing the veil of corporate fiction was not warranted absent fraud, complete control, or other public policy considerations.
• Compulsory Counterclaim: No. The counterclaims, arising from petitioner's employment relationship with Sky Vision, could not be maintained as compulsory counterclaims against respondent, which was not the real party-in-interest. While the subject matter had become cognizable by RTCs after R.A. 8799, the counterclaims were improperly filed against respondent.

• Propriety of Certiorari: While the general rule, as articulated in Atienza vs. Court of Appeals, is that the remedy from a denial of a motion to dismiss is appeal in due course after a decision on the merits, recognized exceptions exist: when the court acted without or in excess of jurisdiction or with patent grave abuse of discretion; when the assailed interlocutory order is patently erroneous and appeal would not afford adequate and expeditious relief; or when the ground for the motion to dismiss is improper venue, res judicata, or lack of jurisdiction. In this case, respondent's motion to dismiss the counterclaim assailed the RTC's jurisdiction, placing it squarely within the exception. The Court of Appeals therefore did not err in taking cognizance of the petition for certiorari.

• Real Party-in-Interest: The counterclaims centered on petitioner's alleged forced retirement from Sky Vision and his claims for unpaid salaries, incentives, retirement benefits, and other benefits arising from services rendered to Sky Vision. A subsidiary has an independent and separate juridical personality distinct from that of its parent company, so any claim or suit against the latter does not bind the former and vice versa. Petitioner's employer was Sky Vision, not respondent. While petitioner invoked the doctrine of piercing the veil of corporate fiction, the three requisites for its application were not established: (1) control—not merely majority or complete stock control, but control over finances, policy, and business practice such that the subsidiary had no separate mind, will, or existence of its own; (2) such control must have been used to commit fraud or wrong or to perpetuate a violation of a legal duty; and (3) the control and breach must proximately cause the injury complained of. Nowhere in the pleadings could it be gathered that respondent had complete control over Sky Vision. The existence of interlocking directors, corporate officers, and shareholders was not enough justification absent fraud or other public policy considerations. The July 15, 1998 letter from respondent to petitioner showed that a set-off of retirement benefits required Sky Vision's approval and petitioner's liquidation of his advances—conditions that negated any inference that respondent possessed the degree of control over Sky Vision necessary to make the latter its mere instrumentality. Petitioner's argument that respondent fraudulently deceived him into signing the loan agreement did not persuade, petitioner being a lawyer presumed to know the legal and binding effects of loan agreements.

• Compulsory Counterclaim: The counterclaims arose from petitioner's dismissal as a corporate officer of Sky Vision, which is always a corporate act and an intra-corporate controversy under Section 5(c) of P.D. 902-A. Claims for unpaid salaries, share in net income, return on stock ownership plan, and other benefits for services rendered to Sky Vision pertained to the SEC (now RTCs after R.A. 8799) because they were interlinked with petitioner's relations with the corporation. The question of remuneration involving a person who is not a mere employee but a stockholder and officer of the corporation is a matter within the area of corporate affairs and management, not a simple labor problem. While the counterclaims were filed on December 1, 1998, the second challenged RTC order was issued on October 9, 2000, by which time R.A. 8799 had transferred jurisdiction over intra-corporate controversies to RTCs. Even assuming RTCs now had jurisdiction over the subject matter, the counterclaims were improperly filed against respondent, which was not the real party-in-interest. The trial court's ruling that the agreement to set-off constituted an amendment of the loan agreement resulting in identity of interest was untenable, as the set-off letter clearly required Sky Vision's approval and petitioner's liquidation of advances—conditions demonstrating that respondent did not possess the control over Sky Vision necessary to justify piercing the veil of corporate fiction.

• Piercing the Veil of Corporate Fiction — The doctrine is warranted only when the separate legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, such that the law regards the corporations as merged into one. Its rationale is to remove the barrier between the corporation and the persons comprising it to thwart fraudulent and illegal schemes of those who use the corporate personality as a shield. The three requisites must be established: (1) control, not merely majority or complete stock control, but complete control over finances, policy, and business practice in respect to the transaction attacked, so that the subsidiary had 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 acts in contravention of plaintiff's legal rights; and (3) the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The existence of interlocking directors, corporate officers, and shareholders is not enough justification in the absence of fraud or other public policy considerations. In this case, the Court found none of the requisites established.

• Separate Juridical Personality of a Subsidiary — A subsidiary has an independent and separate juridical personality distinct from that of its parent company. Any claim or suit against the latter does not bind the former and vice versa. The Court applied this principle to hold that petitioner's counterclaims for employment benefits, arising from his services to Sky Vision, could not be maintained against respondent Lopez, Inc., the parent corporation.

• Intra-Corporate Controversy — Dismissal of a Corporate Officer — A corporate officer's dismissal is always a corporate act and/or an intra-corporate controversy, and its nature is not altered by the reason or wisdom the Board of Directors may have in taking such action. Claims for unpaid salaries, share in net income, and other benefits by a corporate officer who is also a stockholder are matters within the area of corporate affairs and management, not simple labor problems. Under P.D. 902-A, such controversies were under SEC jurisdiction; after R.A. 8799, jurisdiction was transferred to RTCs.

• Exceptions to the Rule Against Certiorari from Denial of a Motion to Dismiss — While the general rule is that the remedy from a denial of a motion to dismiss is appeal after a decision on the merits, certiorari lies when the court acted without or in excess of jurisdiction or with patent grave abuse of discretion; when the assailed interlocutory order is patently erroneous and appeal would not afford adequate and expeditious relief; or when the ground is improper venue, res judicata, or lack of jurisdiction.

• "A subsidiary has an independent and separate juridical personality, distinct from that of its parent company, hence, any claim or suit against the latter does not bind the former and vice versa." — This passage states the controlling principle on the separate personality of subsidiaries, which the Court applied to hold that counterclaims for employment benefits against Sky Vision could not be maintained against its parent, Lopez, Inc.

• "Piercing the veil of corporate fiction is warranted, however, only in cases when the separate legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, such that in the case of two corporations, the law will regard the corporations as merged into one." — This formulation defines the circumstances under which the doctrine of piercing the veil of corporate fiction applies, and the Court found none present in this case.

• "The question of remuneration involving a person who is not a mere employee but a stockholder and officer of the corporation is not a simple labor problem but a matter that comes within the area of corporate affairs and management, and is in fact a corporate controversy in contemplation of the Corporation Code." — This passage distinguishes intra-corporate controversies from ordinary labor disputes, establishing that claims by corporate officers who are also stockholders fall within the ambit of corporate law rather than labor law.

• "The existence of interlocking directors, corporate officers and shareholders is not enough justification to pierce the veil of corporate fiction in the absence of fraud or other public policy considerations." — This statement clarifies that interlocking relationships between parent and subsidiary, standing alone, do not suffice to justify disregarding the separate corporate personality.

• Atienza vs. Court of Appeals, 232 SCRA 737 (1994) — Cited for the proposition that not every denial of a motion to dismiss can be corrected by certiorari under Rule 65, the general rule being that the remedy is appeal in due course after a decision on the merits. The Court acknowledged this rule but found the case fell within recognized exceptions.
• Ongkiko vs. National Labor Relations Commission, 270 SCRA 613 (1997) — Cited for the principle that a corporate officer's dismissal is always a corporate act and an intra-corporate controversy, and that money claims by a corporate officer are interlinked with relations with the corporation and thus fall within SEC (now RTC) jurisdiction.
• Dy vs. National Labor Relations Commission, 145 SCRA 211 (1986) — Cited for the principle that the question of remuneration involving a stockholder and officer of a corporation is a corporate controversy, not a simple labor problem.
• Heirs of Ramon Durano Sr. vs. Uy, 344 SCRA 238 (2000) — Cited for the three-part test for piercing the veil of corporate fiction: control, use of control to commit fraud or wrong, and proximate causation of injury.
• Francisco Motors Corporation vs. Court of Appeals, 309 SCRA 72 (1999) — Cited for the rationale behind piercing a corporation's identity: to remove the barrier between the corporation and the persons comprising it to thwart fraudulent and illegal schemes.
• Tan Boon Bee & Co., Inc. vs. Jarencio, 163 SCRA 205 (1988) — Cited for the principle that piercing the veil of corporate fiction is warranted only when the separate legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime.
• De Jesus vs. Garcia, 19 SCRA 554 (1967) — Cited for the principle that in determining jurisdiction, the averments of the complaint or counterclaim, taken as a whole, are considered.

• Section 5(c), P.D. 902-A (as amended by R.A. 8799, the Securities Regulation Code) — Defines intra-corporate controversies, including the dismissal of corporate officers, as within the jurisdiction of the SEC (transferred to RTCs by R.A. 8799). The Court applied this provision to classify petitioner's counterclaims as intra-corporate in nature rather than ordinary labor disputes.
• R.A. 8799 (Securities Regulation Code), approved July 19, 2000 — Mandated the transfer of jurisdiction over intra-corporate controversies from the SEC to the RTCs. The Court noted that while the counterclaims were filed on December 1, 1998, the second challenged RTC order was issued on October 9, 2000, after R.A. 8799 had taken effect, making RTCs the proper venue for the subject matter—though not against respondent, which was not the real party-in-interest.
• Rule 65, Rules of Court — Governs petitions for certiorari. The Court found that the CA properly took cognizance of respondent's petition because the ground raised was lack of jurisdiction, a recognized exception to the general rule against certiorari from denial of a motion to dismiss.
• Rule 45, Rules of Court — Governs petitions for review on certiorari, under which the instant petition was filed to review the CA decision and resolution.

Vitug (Chairman), Sandoval-Gutierrez, and Corona, JJ., concurred.