581 Phil. 62
VELASCO JR., J.:
WHEREFORE, defendant-[third]-party plaintiffs spouses Pedro F. Violago and Florencia R. Violago are ordered to deliver to plaintiff BA Finance Corporation, at its principal office the BAFC Building, Gamboa St., Legaspi Village, Makati, Metro Manila the Toyota Cressida car, model 1983, bearing Engine No. 21R-02854117, and with Serial No. RX60-804614, covered by the deed of chattel mortgage dated August 4, 1983; or if such delivery cannot be made, to pay, jointly and severally, to the plaintiff the sum of P198,003.06 together with the penalty [thereon] at three percent (3%) a month, from March 1, 1984, until the amount is fully paid.
In either case, the defendant-third-party plaintiffs are required to pay, jointly and severally, to the plaintiff a sum equivalent to twenty-five percent (25%) of P198,003.06 as attorney's fees, and another amount also equivalent to twenty five percent (25%) of the said unpaid balance, as liquidated damages. The defendant-third party-plaintiffs are also required to shoulder the litigation expenses and costs.
As indemnification, third-party defendant Avelino Violago is ordered to deliver to defendants-third-party plaintiffs spouses Pedro F. Violago and Florencia R. Violago the aforedescribed motor vehicle; or if such delivery is not possible, to pay to the said spouses the sum of P198,003.06, together with the penalty thereon at three (3%) a month from March 1, 1984, until the amount is entirely paid.
In either case, the third-party defendant should pay to the defendant-third-party plaintiffs spouses a sum equivalent to twenty-five percent (25%) of P198,003.06 as attorney's fees, and another sum equivalent also to twenty-five percent (25%) of the said unpaid balance, as liquidated damages.
Third-party defendant Avelino Violago is further ordered to return to the third-party plaintiffs the sum of P60,500.00 they paid to him as down payment for the car; and to pay them P15,000.00 as moral damages; P10,000.00 as exemplary damages; and reimburse them for all the expenses and costs of the suit.
The counterclaims of the defendants and third-party defendant, for lack of merit, are dismissed.[9]
IN THE LIGHT OF ALL THE FOREGOING, the appeal of the Plaintiffs-Appellants is DISMISSED. The appeal of the Third-Party-Defendant-Appellant is GRANTED. The Decision of the Court a quo is AFFIRMED, with the modification that the Third-Party Complaint against the Third-Party-Defendant-appellant is DISMISSED, without prejudice. The counterclaims of the Third-Party Defendant Appellant against the Defendants-Appellants are DISMISSED, also without prejudice.[13]The spouses Violago sought but were denied reconsideration by the CA per its Resolution of May 15, 2003.
WHETHER OR NOT THE HOLDER OF AN INVALID NEGOTIABLE PROMISSORY NOTE MAY BE CONSIDERED A HOLDER IN DUE COURSE
WHETHER OR NOT A CHATTEL MORTGAGE SHOULD BE CONSIDERED VALID DESPITE VITIATION OF CONSENT OF, AND THE FRAUD COMMITTED ON, THE MORTGAGORS BY AVELINO, AND THE CLEAR ABSENCE OF OBJECT CERTAIN
WHETHER OR NOT THE VEIL OF CORPORATE ENTITY MAY BE INVOKED AND SUSTAINED DESPITE THE FRAUD AND DECEPTION OF AVELINO
Section 1. Form of Negotiable Instruments. - An instrument to be negotiable must conform to the following requirements:The promissory note signed by petitioners reads:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.
209,601.00 Makati, Metro Manila, Philippines, August 4, 1983The promissory note clearly satisfies the requirements of a negotiable instrument under the NIL. It is in writing; signed by the Violago spouses; has an unconditional promise to pay a certain amount, i.e., PhP 209,601, on specific dates in the future which could be determined from the terms of the note; made payable to the order of VMSC; and names the drawees with certainty. The indorsement by VMSC to BA Finance appears likewise to be valid and regular.
For value received, I/we, jointly and severally, promise to pay to the order of VIOLAGO MOTOR SALES CORPORATION, its office, the principal sum of TWO HUNDRED NINE THOUSAND SIX HUNDRED ONE ONLY Pesos (P209,601.00), Philippines Currency, with interest at the rate stipulated herein below, in installments as follows:
Thirty Six (36) successive monthly installments of P5,822.25, the first installment to be paid on 9-16-83, and the succeeding monthly installments on the 16th day of each and every succeeding month thereafter until the account is fully paid, provided that the penalty charge of three (3%) per cent per month or a fraction thereof shall be added on each unpaid installment from maturity thereof until fully paid.
x x x x
Notice of demand, presentment, dishonor and protest are hereby waived.
(Sgd.) (Sgd.) PEDRO F. VIOLAGO FLORENCIA R. VIOLAGO 763 Constancia St., Sampaloc, Manila same (Address) (Address) (Sgd.) (Sgd.) Marivic Avaria Jesus Tuazon (WITNESS) (WITNESS)PAY TO THE ORDER OF BA FINANCE CORPORATION WITHOUT RECOURSEVIOLAGO MOTOR SALES CORPORATION By: (Sgd.)AVELINO A. VIOLAGO, Pres. [15]
Section 52. What constitutes a holder in due course.--A holder in due course is a holder who has taken the instrument under the following conditions:The law presumes that a holder of a negotiable instrument is a holder thereof in due course. [16] In this case, the CA is correct in finding that BA Finance meets all the foregoing requisites:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.
In the present recourse, on its face, (a) the "Promissory Note", Exhibit "A", is complete and regular; (b) the "Promissory Note" was endorsed by the VMSC in favor of the Appellee; (c) the Appellee, when it accepted the Note, acted in good faith and for value; (d) the Appellee was never informed, before and at the time the "Promissory Note" was endorsed to the Appellee, that the vehicle sold to the Defendants-Appellants was not delivered to the latter and that VMSC had already previously sold the vehicle to Esmeraldo Violago. Although Jose Olvido mortgaged the vehicle to Generoso Lopez, who assigned his rights to the BA Finance Corporation (Cebu Branch), the same occurred only on May 8, 1987, much later than August 4, 1983, when VMSC assigned its rights over the "Chattel Mortgage" by the Defendants-Appellants to the Appellee. Hence, Appellee was a holder in due course.[17]In the hands of one other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable.[18] A holder in due course, however, holds the instrument free from any defect of title of prior parties and from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof.[19] Since BA Finance is a holder in due course, petitioners cannot raise the defense of non-delivery of the object and nullity of the sale against the corporation. The NIL considers every negotiable instrument prima facie to have been issued for a valuable consideration.[20] In Salas, we held that a party holding an instrument may enforce payment of the instrument for the full amount thereof. As such, the maker cannot set up the defense of nullity of the contract of sale.[21] Thus, petitioners are liable to respondent corporation for the payment of the amount stated in the instrument.
It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected. But, this separate and distinct personality of a corporation is merely a fiction created by law for convenience and to promote justice. So, when the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, this separate personality of the corporation may be disregarded or the veil of corporate fiction pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation.This case meets the foregoing test. VMSC is a family-owned corporation of which Avelino was president. Avelino committed fraud in selling the vehicle to petitioners, a vehicle that was previously sold to Avelino's other cousin, Esmeraldo. Nowhere in the pleadings did Avelino refute the fact that the vehicle in this case was already previously sold to Esmeraldo; he merely insisted that he cannot be held liable because he was not a party to the transaction. The fact that Avelino and Pedro are cousins, and that Avelino claimed to have a need to increase the sales quota, was likely among the factors which motivated the spouses to buy the car. Avelino, knowing fully well that the vehicle was already sold, and with abuse of his relationship with the spouses, still proceeded with the sale and collected the down payment from petitioners. The trial court found that the vehicle was not delivered to the spouses. Avelino clearly defrauded petitioners. His actions were the proximate cause of petitioners' loss. He cannot now hide behind the separate corporate personality of VMSC to escape from liability for the amount adjudged by the trial court in favor of petitioners.
x x x x
The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows:
- Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;
- 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 and unjust acts in contravention of plaintiffs legal rights; and
- The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.[22]
x x x In short, even if We are to assume arguendo that the obligation was incurred in the name of the corporation, the petitioner [Arcilla] would still be personally liable therefor because for all legal intents and purposes, he and the corporation are one and the same. Csar Marine Resources, Inc. is nothing more than his business conduit and alter ego. The fiction of separate juridical personality conferred upon such corporation by law should be disregarded. Significantly, petitioner does not seriously challenge the [CA's] application of the doctrine which permits the piercing of the corporate veil and the disregarding of the fiction of a separate juridical personality; this is because he knows only too well that from the beginning, he merely used the corporation for his personal purposes.[23]WHEREFORE, the CA's August 20, 2002 Decision and May 15, 2003 Resolution in CA-G.R. CV No. 48489 are SET ASIDE insofar as they dismissed without prejudice the third party complaint of petitioners-spouses Pedro and Florencia Violago against respondent Avelino Violago. The March 5, 1994 Decision of the RTC is REINSTATED and AFFIRMED. Costs against Avelino Violago.
(1) Consent of the contracting parties;[15] Rollo, p. 21.
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.