G.R. No. 163981 - Construction and Development Corporation of the Philippines vs. Cuenca

Case Summary (G.R. No. 163981)

Petitioner

PNCC was not an original party to MICI’s complaint for indemnity. It was later impleaded by way of a third-party complaint filed by Rodolfo Cuenca, alleging that PNCC had assumed Cuenca’s personal liability under a board resolution (certified minutes) and therefore should answer in indemnity to whatever liability the trial court would impose on Cuenca.

Respondents

MICI sued UITC and the Cuencas for reimbursement of the P600,000 it paid under the surety bond, seeking interest, attorney’s fees (20%), and costs. Rodolfo Cuenca filed a third-party complaint against PNCC asserting PNCC’s assumption of his liability by board resolution; UITC also participated as the main defendant.

Key Dates

Last renewal of the surety bond: May 15, 1983.
MICI payment to Goodyear: April 25, 1983 (P600,000).
UITC partial payment to MICI: August 26, 1983 (P150,000).
RTC decision: January 6, 1994 (holding UITC and PNCC jointly and solidarily liable; dismissing the case against the Cuencas).
Court of Appeals decision: October 28, 2003 (affirmed RTC).
Supreme Court decision date: August 12, 2005 (basis: 1987 Constitution for decisions post-1990).

Applicable Law

1987 Constitution (applicable because the Supreme Court decision date is after 1990).
Rules of Court, Section 11, Rule 6 (definition and nature of a third-party complaint).
Civil Code provisions referenced by parties (including Article 2208 as argued by petitioner regarding attorney’s fees).
Established doctrines on corporate personality and piercing the corporate veil as expounded in Philippine jurisprudence cited by the Court.

Facts

UITC obtained a surety bond from MICI to guarantee its obligations to Goodyear. MICI required an indemnity agreement executed by UITC and two UITC officers (Edilberto signed in official and personal capacities; Rodolfo signed personally). UITC defaulted; Goodyear demanded payment from MICI, which eventually paid P600,000. MICI demanded reimbursement from UITC and the Cuencas; UITC remitted P150,000 as partial payment. MICI sued UITC and the Cuencas for indemnity. Rodolfo impleaded PNCC by third-party complaint, asserting PNCC had assumed his personal guarantee pursuant to a board resolution (certified excerpt from minutes). The RTC held UITC and PNCC jointly and solidarily liable and dismissed the complaint as to the Cuencas. The CA affirmed. MICI did not appeal the appealable judgment as to UITC or the dismissal vis-à-vis the Cuencas; PNCC alone brought the matter to the Supreme Court.

Procedural Posture

MICI initiated the main action against UITC and the Cuencas. Rodolfo filed a third-party complaint against PNCC seeking indemnity. The trial court ruled for MICI against UITC and PNCC and dismissed claims against the Cuencas. The CA affirmed in toto but noted that MICI’s failure to appeal as to the Cuencas effectively waived MICI’s right to pursue them. PNCC alone appealed to the Supreme Court; the Supreme Court considered the petition and the appellate and trial court findings.

Issues Presented

Whether PNCC can be held jointly and solidarily liable with UITC under the indemnity agreement (1) on the basis of its status as majority stockholder of UITC and (2) on the basis that PNCC allegedly assumed Rodolfo Cuenca’s personal liability; and whether PNCC is liable for attorney’s fees and costs under the indemnity agreement.

Court of Appeals Holding (as summarized)

The CA held that (a) UITC had impliedly authorized its officers to obtain the surety bond and the indemnity agreement, making UITC liable; (b) UITC was estopped from contesting officer authority given the partial payment of P150,000; (c) because Edilberto and Rodolfo had signed also in personal capacity, they would ordinarily be personally liable but MICI’s failure to appeal resulted in a waiver of claims against them; (d) PNCC was liable because it was UITC’s majority shareholder (holding ~78% stock) and had, by board resolution, assumed guarantees incurred by its representatives in affiliated companies; and (e) attorney’s fees were proper because the indemnity agreement provided for them.

Supreme Court Ruling — Disposition

The Supreme Court granted PNCC’s petition in part and modified the CA decision by absolving PNCC of any liability under the indemnity agreement. The Court dismissed the third-party complaint against PNCC for lack of merit.

Supreme Court Reasoning — Third-party Complaint Doctrine and Finality

The Court emphasized the procedural nature and independence of a third-party complaint under Section 11, Rule 6 of the Rules of Court and related jurisprudence (e.g., Firestone Tire and Rubber Co. v. Tempongko). A third-party complaint is separate from the main action and, when leave is properly granted, the court effectively renders two judgments: one on the plaintiff’s complaint and another on the third-party complaint. The Court noted controlling precedents establishing that when only the third-party defendant appeals, the main case’s judgment becomes final and executory; here, MICI did not appeal the CA’s affirmance of the RTC’s main-complaint disposition (which had dismissed the Cuencas), so the CA’s decision in the main action became final.

Supreme Court Reasoning — Corporate Separate Personality and Piercing the Veil

The Court rejected the CA’s approach of holding PNCC directly liable to MICI by virtue of majority shareholding and the delivery of materials to PNCC. It reiterated the fundamental doctrine that a corporation has a juridical personality distinct from its stockholders and that mere majority ownership does not justify disregarding corporate separateness. The corporate veil may be pierced only when the corporate form is used to defeat public convenience, perpetrate fraud, justify a wrong, or defend a crime; proof of such misuse must be clear and convincing. The C

Case Syllabus (G.R. No. 163981)

Case Caption, Court and Citation

G.R. No. 163981; Decision rendered August 12, 2005 by the Second Division of the Supreme Court of the Philippines.
Reported at 504 Phil. 259.
Petition for review on certiorari from the Decision of the Court of Appeals in CA-G.R. CV No. 44660 and its Resolution denying a motion for reconsideration.
Opinion penned by Justice Callejo, Sr.; concurrence by Justices Puno (Chairman), Austria‑Martinez, Tinga, and Chico‑Nazario.

Parties and Roles

Petitioner: Construction & Development Corporation of the Philippines (now Philippine National Construction Corporation) — referred to in the decision as PNCC or petitioner.
Respondents: Rodolfo M. Cuenca (one of the Cuencas) and Malayan Insurance Co., Inc. (MICI).
Ultra International Trading Corporation (UITC): original principal obligor and subsidiary of PNCC, brought into proceedings as defendant in the main action and as a principal in the events leading to suit; not a co‑appellant before the Supreme Court.
Other persons involved: Edilberto Cuenca (President of UITC and co‑signatory to the indemnity agreement).

Core Facts (chronological and evidentiary)

UITC applied to Malayan Insurance Co., Inc. (MICI) for a surety bond to guarantee its credits, indebtedness, obligations and liabilities to Goodyear Tire and Rubber Company of the Philippines (Goodyear).
MICI issued MICO Bond No. 65734 for an amount not exceeding P600,000.00; the bond was valid for 12 months and was renewed several times, last renewed May 15, 1983.
To protect MICI’s interests, UITC, Edilberto Cuenca and Rodolfo Cuenca executed an Indemnity Agreement in favor of MICI.
- Edilberto signed the indemnity agreement in both his official capacity (as UITC President) and his personal capacity.
- Rodolfo signed in his personal capacity only.
- UITC, Edilberto and Rodolfo bound themselves jointly and severally to indemnify MICI for any payment it would make under the surety bond.
On February 18, 1983, Goodyear notified MICI of UITC’s default and requested payment of P600,000.00 under the surety bond.
MICI sent multiple demand letters to UITC, Edilberto and Rodolfo to settle Goodyear’s claim; UITC, Edilberto and Rodolfo failed to do so.
MICI paid Goodyear P600,000.00 on April 25, 1983.
On May 3, 1983, MICI demanded reimbursement from UITC, Edilberto and Rodolfo for the payment plus legal interest.
UITC replied that PNCC (then CDCP) had initiated a complete review of UITC’s financial plans to enable it to pay creditors like MICI, and requested MICI to delay suit to allow UITC time to present a repayment plan. MICI granted UITC until May 20, 1983 to offer terms.
UITC, Edilberto and Rodolfo still failed to pay. MICI filed a Complaint for sum of money against UITC, Edilberto and Rodolfo on July 1, 1983, seeking indemnity of the amount paid, compounded legal interest from April 25, 1983, and 20% of the amount as attorney’s fees plus costs.
On July 23, 1983, UITC proposed partial and installment payment terms: immediate P150,000.00 with balance payable P50,000.00 monthly; waiver of interest and penalty.
Rodolfo filed, and the trial court granted, a motion for leave to file a third‑party complaint against CDCP (PNCC) alleging that PNCC had assumed his liability under the indemnity agreement, supported by a certification of an excerpt from the January 10, 1978 Board of Directors minutes (Res. No. BD‑59‑77/78) stating that CDCP had assumed guarantees made by its representatives in affiliated corporations and liabilities arising therefrom.
UITC remitted P150,000.00 to MICI on August 26, 1983 as partial payment; parties nonetheless failed to reach an amicable settlement.

Trial Court (Regional Trial Court, Manila, Branch 51) Decision

Judgment rendered January 6, 1994.
RTC held UITC and PNCC jointly and solidarily liable to MICI under the indemnity agreement.
- Reasoning: UITC was bound by the indemnity agreement entered into by its officers (Edilberto and Rodolfo) despite absence of a specific board resolution authorizing them because UITC had implicitly ratified their acts; UITC acknowledged the obligation through its letters and by remitting P150,000.00.
- PNCC held solidarily liable based on the board resolution certifying PNCC’s assumption of guarantees and liabilities of its representatives in other affiliated corporations (Res. No. BD‑59‑77/78).
Complaint dismissed as against Edilberto and Rodolfo Cuenca for lack of merit.
Dispositive relief ordered by RTC (as reported in the decision):
- P600,000.00 with a reduction to P450,000.00 due to UITC’s P150,000.00 partial payment, with legal interest from filing of the complaint until fully paid;
- Sum equivalent to 20% of amounts due as attorney’s fees; and
- Costs of suit.

Court of Appeals Decision and Posture

UITC and PNCC appealed RTC decision to the Court of Appeals (MICI did not appeal).
On October 28, 2003, the CA affirmed the RTC decision in toto.
- CA held UITC had impliedly authorized Edilberto and Rodolfo to procure the surety bond and the indemnity agreement; UITC therefore liable.
- UITC estopped from questioning its officers’ authority to enter into the indemnity agreement because UITC had partially paid P150,000.00 to MICI.
- Edilberto and Rodolfo, having signed also in their personal capacity, would ordinarily be personally liable, but MICI’s failure to appeal the dismissal against the Cuencas amounted to waiver of the right to hold them liable.
- CA affirmed PNCC’s liability: UITC was a PNCC subsidiary (PNCC owned almost 78% of UITC’s stock), and UITC purchased materials from suppliers such as Goodyear for PNCC’s behalf.
- Award of attorney’s fees justified because payment of attorney’s fees was expressly provided in the indemnity agreement.
PNCC’s motion for reconsideration before the CA was denied on June 3, 2004.

Issues Presented to the Supreme Court

The sole issue framed by the Supreme Court: whether PNCC (petitioner) is jointly and solidarily liable with UITC (a subsidiary corporation) to MICI under the indemnity agreement for reimbursement, attorney’s fees and costs.
Petitioner’s specific assigned errors before the Supreme Court:
- I. The CA erred in finding PNCC jointly and
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