Case Summary (G.R. No. 153886)
Key Dates
January 6, 1997 — notarized loan agreement for P10,000,000 executed between Velarde (borrower) and Eugenio Lopez, Jr./Lopez, Inc. (lender); July 15, 1998 — letter from Lopez, Inc. offering application of Velarde’s retirement benefits from Sky Vision toward the loan upon certain conditions; August 18, 1998 — Lopez, Inc. filed complaint for collection in the RTC; December 1, 1998 — petitioner filed compulsory counterclaims; January 3 and October 9, 2000 — RTC orders denying respondent’s motion to dismiss and motion for reconsideration; July 19, 2000 — R.A. 8799 amending P.D. 902-A (transfer of certain intra-corporate controversies); December 21, 2001 and May 13, 2002 — Court of Appeals decisions; January 14, 2004 — Supreme Court decision (subject of review).
Applicable Law and Authorities
Constitutional basis: 1987 Philippine Constitution (applicable because decision date is after 1990). Rules and statutes: Rule 45 of the Rules of Court (petition for review on certiorari), Rule 65 principles relevant to certiorari remedies, P.D. 902-A (as amended by R.A. 8799 — Securities Regulation Code), Corporation Code principles on intra-corporate controversies, National Labor Relations Commission (NLRC) jurisdiction over labor claims, Securities and Exchange Commission (SEC) jurisdiction over corporate/officer controversies (historically), and the doctrine and requisites for piercing the corporate veil as articulated in the cited jurisprudence. Precedents and authorities cited in the decision include Atienza v. Court of Appeals; Ongkiko v. NLRC; Dy v. NLRC; and cases setting forth the three requisites for piercing the corporate veil.
Facts Relevant to the Dispute
Velarde and Lopez, Inc. executed a notarized loan agreement for P10,000,000 that specified payment terms and events of default (Section 6). Velarde allegedly failed to make installment payments and did not provide required collateral. Lopez, Inc. sent letters of demand and, on July 15, 1998, advised that Velarde could apply his Sky Vision retirement benefits in partial settlement of the loan provided he first settled his accountabilities to Sky Vision and gave written instructions to Sky Vision. Velarde protested the computation of benefits and asserted that advances had been liquidated. Velarde also asserted that the loan agreement was in substance a “cover document” representing a reward for his service and that he was coerced into retirement, giving rise to claims for retirement benefits, unpaid salaries and incentives, stock-related returns, and damages.
Procedural Posture
Lopez, Inc. filed a complaint for collection (RTC Pasig). Velarde answered and, by compulsory counterclaim, sought large sums for retirement benefits, unpaid salaries, incentives, equity in a service vehicle, stock option returns, and moral/attorney’s fees. Lopez, Inc. moved to dismiss the counterclaims for lack of jurisdiction, arguing that the counterclaims arose from a labor/corporate-officer relationship within the exclusive purview of the NLRC (and historically that remuneration/office-related controversies fall under SEC). The RTC denied the motion to dismiss (Jan 3, 2000) and denied reconsideration (Oct 9, 2000). The Court of Appeals granted certiorari, set aside the trial court orders, and dismissed Velarde’s counterclaims for failing to show Lopez, Inc. as the real party-in-interest and for failing to justify piercing the corporate veil. Velarde’s petition for review under Rule 45 followed.
Issues Presented and Framing
Primary issues: (1) Whether the trial court’s denial of respondent’s motion to dismiss (for lack of jurisdiction) could be reviewed by certiorari under Rule 45; (2) Whether Velarde’s counterclaims were compulsory and properly filed against Lopez, Inc.; (3) Whether Lopez, Inc. was the real party-in-interest on the counterclaims or whether the veil of corporate fiction should be pierced to treat Sky Vision’s liabilities as those of Lopez, Inc.; and (4) Which tribunal — NLRC, SEC, or RTC — had jurisdiction over the counterclaims (considering the nature of the claims and intervening statutory amendment, R.A. 8799).
Jurisdictional and Nature-of-Claim Analysis
The Court examined the nature of Velarde’s claims: they were rooted in his alleged forced retirement and asserted rights as a corporate officer/stockholder (retirement benefits, unpaid salaries/incentives, stock plan returns). The Court applied established distinctions: dismissals and remuneration disputes concerning corporate officers are corporate acts/intra-corporate controversies (P.D. 902-A and Corporation Code principles), not simple labor claims for rank-and-file employees. Historically, such matters were for the SEC even when they involved monetary claims because they derive from the officer’s position and corporate governance. The Court noted R.A. 8799 (effective July 19, 2000) transferred jurisdiction over certain intra-corporate controversies to the RTCs; however, even with that statutory change, jurisdictional correctness requires that the proper defendant (the real party-in-interest) be named. The decision emphasized that jurisdictional analysis must consider the averments of the pleadings as a whole.
Analysis of the Piercing the Corporate Veil Argument
The Court recited the three requisites to pierce the corporate veil: (1) control of the subsidiary by the parent beyond mere majority ownership; (2) use of that control to commit fraud, wrong, or breach of statutory duty; and (3) a proximate causal relationship between such misuse of control and the injury complained of. Applying these requisites to the record, the Court found no pleading or evidence that Lopez, Inc. exercised the requisite degree of control over Sky Vision such that Sky Vision lacked a separate mind, will, or existence in the transaction at issue. Interlocking directors/officers alone were insufficient. The July 15, 1998 letter on which Velarde relied expressly conditioned any set-off on Sky Vision’s approval and the liquidation of advances, indicating Sky Vision’s separate decision-making and negating the allegation that Lopez, Inc. unilaterally controlled Sky Vision’s compensation decisio
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Facts of the Case
- On January 6, 1997, Eugenio Lopez Jr., then President of Lopez, Inc. (respondent), as LENDER, and Mel Velarde (petitioner), then General Manager of Sky Vision Corporation (Sky Vision), a subsidiary of respondent, as BORROWER, executed a notarized loan agreement for Ten Million Pesos (P10,000,000.00).
- The loan agreement expressly set forth the manner of payment and circumstances constituting default; Section 6 defined specific events of default.
- Petitioner failed to pay the installments as they became due under the loan agreement.
- Respondent, by letter dated July 15, 1998, informed petitioner he could use his retirement benefits in Sky Vision in partial settlement of the loan provided he first settled his accountabilities to Sky Vision and gave written instructions to Sky Vision.
- Petitioner protested the computation in the July 15, 1998 letter, contending that certain imputed unliquidated advances from Sky Vision had already been properly liquidated.
- Respondent issued letters of demand dated December 1, 1997 and January 13, 1998, which petitioner allegedly refused to heed.
Loan Agreement Terms and Events of Default
- The loan agreement was a formal, notarized instrument documenting a P10,000,000 loan from Lopez, Inc. to petitioner.
- Section 6 of the agreement enumerated events constituting an "Event of Default," including:
- (a) failure of the BORROWER to make payment when due under the agreement; and
- (b) failure of the BORROWER to mortgage in favor of the LENDER real property sufficient to cover the loan amount.
- Respondent asserted petitioner violated Section 6 by failing to post collateral and by defaulting on installment payments.
Correspondence and Proposed Set-Off (July 15, 1998 Letter)
- The July 15, 1998 letter from Rommel Duran, Vice-President and General Manager of Lopez, Inc., informed petitioner of computations if his Sky/Central retirement benefits were applied to partial payment of his loan.
- The letter stated:
- Retirement pay of P4.5 million was the starting figure;
- An amount of P422,922.87, representing unliquidated advances from Sky/Central since 1995, had been deducted from the retirement pay;
- The amount of P4,077,077.13 would be applied retroactively on January 1, 1998 to the loan;
- If petitioner liquidated the advances, the P422,922.87 would be applied to partial payment and the principal and interest would be adjusted accordingly;
- After application of P4,077,077.13, the amount of P7,585,912.86 would immediately be due and demandable (representing outstanding principal and interest as of July 15, 1998);
- Without application of retirement benefits, the amount due as of July 15, 1998 would be P11,850,000.00;
- Conditions precedent to effecting a set-off included obtaining Sky/Central’s approval and petitioner’s liquidation of advances and giving Sky/Central written instructions.
Complaint by Respondent and Petitioner’s Answer and Counterclaims
- On August 18, 1998, respondent filed a complaint for collection of sum of money with damages against petitioner in the RTC of Pasig City, alleging default under the loan agreement and refusal to pay despite demands.
- In his answer, petitioner alleged the loan agreement did not reflect the true understanding: it was a "cover document" evidencing a reward of P10,000,000.00 for his loyalty and performance, with expected payment in the form of continued service; petitioner asserted that when he was compelled to retire, payment in service became impossible and Eugenio Lopez, Jr. agreed his retirement benefits from Sky Vision would be applied to the loan.
- By way of compulsory counterclaim, petitioner asserted entitlement to multiple monetary claims arising from his relationship with Sky Vision, including:
- Retirement benefits from Sky Vision amounting to P98,280,000.00;
- Unpaid salaries in the amount of P2,740,000.00;
- Unpaid incentives in the amount of P500,000.00;
- Unpaid share from the "net income of Plaintiff corporation" (to be computed);
- Equity in his service vehicle assessed at P1,500,000.00;
- Reasonable return on the stock ownership plan for services rendered as General Manager;
- Moral damages and attorney’s fees.
- Petitioner prayed for:
- Dismissal of respondent’s complaint;
- Award of P103,020,000.00 plus the value of defendant’s stock options and unpaid shares from net income as actual damages;
- P15,000,000.00 as moral damages;
- P1,500,000.00 as attorney’s fees plus appearance fees and costs of suit.
Trial Court Proceedings and Orders
- Respondent filed a manifestation and motion to dismiss the counterclaim for want of jurisdiction, arguing that the counterclaims, being money claims arising from a labor relationship, fell within the exclusive competence of the National Labor Relations Commission (NLRC).
- Petitioner opposed, asserting that the tortuous manner in which he was coerced into retirement vested jurisdiction in the RTCs and not the NLRC.
- By Order dated January 3, 2000, Branch 155 of the RTC of Pasig denied respondent’s motion to dismiss the counterclaim on grounds that:
- A motion to dismiss hypothetically admits the allegations of the complaint; a counterclaim is essentially a complaint;
- The counterclaim was compulsory and thus within the trial court’s jurisdiction; and
- There was an identity of interest between Lopez, Inc. and Sky Vision sufficient to warrant piercing the corporate veil.
- Respondent’s motion for reconsideration of the RTC’s Order was denied by the trial court on October 9, 2000.
Court of Appeals Proceedings and Ruling
- Respondent sought certiorari relief in the Court of Appeals; the CA concluded:
- Lopez, Inc. was not the real party-in-interest for the counterclaim;
- There was failure to demonstrate circumstances warranting pier