SIEMENS vs. DOMINGO

THIRD DIVISION

[G.R. No. 150488, July 28, 2008]

SIEMENS PHILIPPINES, INC. AND MR. ERNST H. BEHRENS, PETITIONERS, VS. ENRICO A. DOMINGO, RESPONDENT.

DECISION

NACHURA, J.:

On appeal via petition for review on certiorari under Rule 45 of the Rules of Court are the Decision^[1] and Resolution^[2] of the Court of Appeals dated March 12, 2001 and October 18, 2001, respectively, in CA-G.R. SP No. 58512 entitled Enrico A. Domingo versus National Labor Relations Commission (First Division) and Siemens Philippines, Inc., and/or Mr. E. H. Behrens.

This is an offshoot of an illegal dismissal case filed by Enrico A. Domingo (Domingo) against Siemens Philippines, Inc., Manila (Siemens Philippines) in July 1995 wherein Domingo got a favorable decision from the Labor Arbiter (LA). On appeal, however, the National Labor Relations Commission (NLRC) reversed the decision of the LA and dismissed the case. Aggrieved, Domingo filed a petition for review on certiorari^[3] with the Court of Appeals (CA). Finding merit in his petition, the CA reversed the judgment of the NLRC and reinstated the decision of the LA.

The Facts

On March 16, 1987, Domingo signed an Employment Contract with Maschinen & Technik, Inc. (MATEC) as a consultant, with a compensation package of Php8,000.00/month salary and an allowance of Php400.00/month. MATEC is a subsidiary of Siemens Philippines.^[4] Thereafter, Domingo was given additional work by MATEC, in which he was paid DM1,800.00/month on top of his original salary. The extra work was the result of a contract entered into by MATEC and Siemens Aktiengesellschaft^[5] (Siemens Germany), whereby MATEC, at the request of Siemens Germany, hired Domingo to handle the operation of OEN OEV TD.^[6] Siemens Germany is a German company which has an investment in Siemens Philippines.^[7]

On January 28, 1992, Electronic Telephone System Industries, Inc. (ETSI) availed of Domingo's services as assistant manager. ETSI, like MATEC is a subsidiary of Siemens Philippines.^[8] The Contract of Employment^[9] of Domingo with ETSI provides that the latter shall have the right to assign the said contract in favor of Siemens Philippines, which is a corporation to be incorporated under the laws of the Philippines.^[10]

On March 16, 1992, while still an assistant manager of ETSI, Domingo was hired as a consultant by Siemens Germany in the field of text and data networks for a period of twelve (12) months.^[11] As compensation, he received DM20,000.00, payable once for every twelve-month period.^[12]

On March 31, 1992, Siemens Germany sent a letter to ETSI guaranteeing the consultancy agreement between Siemens Germany and Domingo. The pertinent portion of the letter reads:

Under Item 7.1, the consultancy agreement is valid for 12 months. To give Mr. R. Domingo the necessary security, we guarantee you that we will extend the Consultancy Agreement with Mr. R. Domingo for as long as he has an employment relationship with you.

Please tell him that you (ETSI) will ensure that the [sic] Siemens AG will extend the Consultancy Agreement for as long as an employment relationship exists between ETSI and Mr. R. Domingo.^[13]

On June 1, 1992, Domingo signed a Contract of Employment with Siemens Philippines. The relevant portions of the contract read:

WITNESSETH : That

WHEREAS, the COMPANY, is taking over the greater part of the business activities, of ELECTRONIC TELEPHONE SYSTEMS INDUSTRIES, INC. (ETSI),

WHEREAS, the COMPANY has offered to engage the services of the EMPLOYEE as Assistant Manager and the EMPLOYEE has agreed to accept such employment under the terms and conditions mutually acceptable to both parties.

NOW THEREFORE, for and in consideration of the foregoing premises and the mutual covenants hereinafter contained, the parties hereto have agreed as follows:

1. The COMPANY hereby engages the services of the EMPLOYEE as Assistant Manager - Public Communications Systemsand the EMPLOYEE hereby accepts such employment, as a regular employee of the COMPANY in accordance with the terms and conditions of this contract. The term of the EMPLOYEE's employment shall begin on 01 June 1992. The EMPLOYEE shall cease from this date to be an employee of ETSI and the EMPLOYEE's contract of employment with ETSI is thereby deemed terminated and superseded by this Contract.

x x x x

3. The EMPLOYEE shall suffer no diminution in salary, benefits and privileges that he enjoyed as a former employee of ETSI. It is hereby agreed that the EMPLOYEE's length of service with ETSI shall be credited and recognized by the COMPANY. For this purpose, the COMPANY acknowledges that the EMPLOYEE's hiring date with ETSI is 01 January 1992.

6. The COMPANY shall pay the EMPLOYEE a salary of Twenty-Four Thousand One Hundred Fifty Pesos (P24,150.00) per month. The payments will be made [during] the 15 and 30 of each month.
   
   
7. During the period of his employment, the EMPLOYEE shall not be connected in any other work capacity or employments, nor be otherwise involved, directly or indirectly, with any other business or concern whatsoever without first having obtained the written consent of the COMPANY. It is the COMPANY's intention that the EMPLOYEE devote[s] all of his efforts towards the fulfillment of his obligations under this contract.^[14]
   

On March 11, 1993, while Domingo was already in the employ of Siemens Philippines, Siemens Germany extended the consultancy agreement with Domingo for another twelve (12) months. Again, on March 16, 1994, Siemens Germany renewed the consultancy agreement with Domingo for another six (6) months.^[15] Domingo's consultancy contract expired in September 1994.^[16] Complacent that the consultancy agreement would be renewed in accordance with the guarantee letter, Domingo continued to render service as a consultant despite the absence of a formal notice of renewal.^[17] He had every reason to feel secure because, in January 1995, without his contract being renewed, he was even made to accompany to Hong Kong the General Manager of Siemens Germany and the Division Manager of Siemens Philippines to seal an agreement between Siemens Philippines and Philippine Long Distance Telephone Company involving a US$1.09M Packet Switching Contract.^[18]

Earlier, on October 31, 1994, Siemens Philippines sent a letter^[19] to Domingo proposing a new incentive scheme. The letter was signed by Sepp E. Tietze, General Manager, VS Regional Manager Singapore; and by Ernst H. Behrens (Behrens), President and Chief Operating Officer of Siemens Philippines Inc., Manila. The relevant portions of the letter read:

We refer to your special arrangement with VS Munich (formally OEN VD) which expired September 1994.

It is the VS policy to let all sales-related employees contribute on the success of the group.

Consequently, an incentive scheme will shortly be introduced for all VS Divisions in South East (sic) Asia. As already discussed with you and agreed upon[,] you will receive a new contract incorporating the incentive scheme adapted to the conditions within the Philippines.^[20]

The incentive scheme was, in effect, a replacement of his consultancy contract with Siemens Germany. Under the scheme, Domingo would receive a sales compensation package of 20% of his peso salary, or a maximum of about Php70,000.00 per annum, whereas under the consultancy agreement, he was receiving a fixed salary of Php370,000.00 (DM20,000.00) per annum. Feeling humiliated by the diminution of his salary, Domingo was forced to resign. On February 27, 1995, Domingo tendered his Resignation Letter^[21] to Siemens Philippines, the pertinent portion of which reads:

Under the present circumstances and with the result of our discussions with Mr. Tietze and Mr. Behrens, I am tendering my resignation effective close of office on March 31, 1995. I regret that I have to make this decision but I hope you will understand that I am forced to do it. I wish you good luck in the VS Division and hope to see you again in the future.

On July 6, 1995, Domingo filed a complaint for illegal dismissal and prayed for the payment of salaries, 13^th month pay, backwages, damages, separation pay and attorney's fees.^[22] Domingo alleged that he was forced to resign because of the act of Siemens Philippines of not renewing the consultancy agreement.^[23] Siemens Philippines countered that Domingo's resignation was voluntary and that they were not privy to the consultancy agreement between Domingo and Siemens Germany.^[24]

On May 28, 1997, the Labor Arbiter rendered a Decision,^[25] disposing, as follows:

WHEREFORE, judgment is hereby rendered finding complainant [Domingo] to have been illegally dismissed and the respondent[s] are ordered, jointly and severally, to pay complainant his backwages and other benefits from April 1, 1995 up to October 5, 1995, consultancy fees of DM20,000.00 from October 1, 1994 to October 5, 1995 but rounded up to one year, or its peso equivalent at the time [of] payment, moral damages of Five Hundred Thousand Pesos (P500,000.00); exemplary damages of Five Hundred Thousand Pesos P500,000.00, separation pay equivalent to two months pay per year of service and attorney's fees of 10% of whatever amount complainant will recover in this case. Complainant's consultancy fee shall be included in the computation of his separation pay using the following formula: DM20,000.00 over 12 multiplied by 2 and the product multiplied by 3.

SO ORDERED.^[26]

On appeal, the NLRC reversed the ruling of the LA in a Decision^[27] dated August 25, 1999, and declared that Domingo was not illegally terminated. The fallo of the said Decision reads:

WHEREFORE, the appealed decision is set aside. The complaint below is dismissed for being without merit.

SO ORDERED.

Domingo filed a Motion for Reconsideration, but the same was denied by the NLRC in an Order^[28] dated January 26, 2000.

Hard pressed, Domingo filed a petition for certiorari^[29] before the CA assailing the NLRC for grave abuse of discretion in declaring that Domingo was not forced to resign, and for its erroneous appreciation of the evidence on record that resulted in the reversal of the Decision of the LA.^[30]

On March 12, 2001, the CA rendered a Decision^[31] declaring that Domingo was constructively dismissed. His resignation was adjudged to be involuntary, the substantial decrease in compensation having made Domingo's employment with Siemens Philippines unbearable. The decretal portion of the Decision reads:

WHEREFORE, premises considered, the petition is granted. The appealed decisions of the NLRC are hereby REVERSED and SET

ASIDE. In lieu thereof, the decision of the Labor Arbiter is hereby reinstated.

SO ORDERED.^[32]

A motion for reconsideration was filed by Siemens Philippines and Behrens, but the same was denied in a Resolution^[33] dated October 18, 2001.

On December 13, 2001, Siemens Philippines and Behrens filed the present petition for review on certiorari. They raise the following arguments:

Siemens, Inc. was not a party to the consultancy agreement, hence, it could not guarantee its extension/renewal.

The non-extension/renewal of respondent's consultancy agreement with Siemens AG may not be taken as a circumstance leaving respondent with no alternative but to resign.

Since respondent's resignation was purely voluntary, Siemens, Inc. did not commit illegal dismissal. Hence, there is absolutely no basis in holding petitioners liable to respondent for backwages, consultancy fee, separation pay, damages and attorney's fees.^[34]

The Issue

The crucial issue in this case is whether there was constructive dismissal that would entitle Domingo to his monetary claims.

The Ruling of the Court

I. On Illegal Dismissal

We believe, and so hold, that Domingo was constructively dismissed from employment.

A diminution of pay is prejudicial to the employee and amounts to constructive dismissal.^[35] The gauge for constructive dismissal is whether a reasonable person in the employee's position would feel compelled to give up his employment under the prevailing circumstances. Constructive dismissal is defined as quitting when continued employment is rendered impossible, unreasonable or unlikely as the offer of employment involves a demotion in rank or diminution in pay.^[36] It exists when the resignation on the part of the employee was involuntary due to the harsh, hostile and unfavorable conditions set by the employer. It is brought about by the clear discrimination, insensibility or disdain shown by an employer which becomes unbearable to the employee. An employee who is forced to surrender his position through the employer's unfair or unreasonable acts is deemed to have been illegally terminated and such termination is deemed to be involuntary.^[37]

We have, under the law's mandate, consistently resolved this situation in favor of the employee in order to protect his rights and interests from the coercive acts of the employer.

In the instant case, Domingo's resignation was brought about by the decision of the management of Siemens Philippines not to renew â€" or work for the renewal of â€" his consultancy contract with Siemens Germany which clearly resulted in the substantial diminution of his salary. The situation brought about the feeling of oppression which compelled Domingo to resign. The diminution in pay created an adverse working environment that rendered it impossible for Domingo to continue working for Siemens Philippines. His resignation from the company was in reality not his choice but a situation created by the company, thereby amounting to constructive dismissal.

The argument of Siemens Philippines that it is not privy to the consultancy agreement between Domingo and Siemens Germany is unacceptable. By virtue of its employment contract with Domingo, Siemens Philippines stepped into the shoes of ETSI as Domingo's employer. The stipulation in the contract that Domingo shall suffer no diminution in salary, benefits and privileges that he enjoyed as employee of ETSI is, in effect, assumption by Siemens Philippines of ETSI's obligations and commitments. This included the guarantee that Domingo's consultancy contract with Siemens Germany would be renewed. After all, there was a commitment by Siemens Germany that the consultancy contract would continue as long as Domingo remained an employee of ETSI; and Domingo's employment with Siemens Philippines was merely a continuation of his employment with ETSI.

While admittedly, Siemens Philippines is not a party to the arrangement between Siemens Germany, ETSI and Domingo, knowledge of and acquiescence to - if not actual concurrence in - the arrangement can be imputed to Siemens Philippines as to bind it to the arrangement. This conclusion finds support in the following:

First, based on the findings of facts of the LA, NLRC and CA ― MATEC, ETSI, Siemens Philippines and Siemens Germany are related companies, the first three being subsidiaries of the parent company, and the fourth, Siemens Germany, having an investment in Siemens Philippines. Short of piercing the veil of corporate fiction, we note the intimate corporate relationship of Siemens Germany and Siemens Philippines, including the practice of the two companies of integrating their workforce.

Second, in Domingo's contract of employment with Siemens Philippines, it is provided that Domingo shall not be connected in any other work capacity or employment or be otherwise involved, directly or indirectly, with any other business or concern without first having obtained the written consent of the company. Yet, Siemens Philippines never questioned the continued consultancy work of Domingo with Siemens Germany, not even when the consultancy agreement was renewed twice during the lifetime of Domingo's contract of employment with Siemens Philippines.

Third, the guarantee letter issued by Siemens Germany in favor of Domingo was never questioned, much less revoked by Siemens Philippines when it assumed the employment of Domingo. The Guarantee Letter was a security given to Domingo by Siemens Germany assuring Domingo that Siemens Philippines would ensure that Siemens Germany would extend the consultancy agreement as long as Domingo was under its employ.

Fourth, the consultancy agreement was a form of benefit or privilege given to Domingo by ETSI, a privilege that was allowed by Siemens Philippines to continue when it took over the majority of the business activities of ETSI and, consequently, became Domingo's employer. The outright removal of the privilege contravenes the law, because it resulted in the effective diminution of Domingo's salary.

II. On Domingo's Monetary Claims

As stated above, Domingo's work as a consultant for Siemens Germany was a privilege or benefit, if not actually granted, at least acquiesced in by Siemens Philippines. However, this does not mean that the latter corporation also assumes the responsibility of compensating Domingo for his work as a consultant, even if, by stepping into the shoes of ETSI, it effectively sealed the guarantee of Siemens Germany for the renewal of Domingo's consultancy contract. In other words, what Siemens Philippines granted to Domingo was only the privilege to work in another corporation, but it did not undertake to compensate him for such work.

Before a corporation can be held accountable for the corporate liabilities of another, the veil of corporate fiction must first be pierced. Thus, before Siemens Philippines can be held answerable for the obligations of Siemens Germany to its employees, it must be sufficiently established that the two companies are actually a single corporate entity, such that the liability of one is the liability of the other. On this aspect, Domingo has failed to present the proof necessary to pierce the corporate veil between the two companies.

Ordinarily, when there is constructive dismissal, which is a form of illegal dismissal, the employer is liable for the full amount of backwages, if reinstatement is no longer possible, and separation pay. In the case at bar, we cannot hold Siemens Philippines liable for the monetary obligations of Siemens Germany. The circumstances surrounding this case necessitate a different treatment in the award of backwages and separation pay, since the companies involved are separate and distinct from each other. However, by Siemens Philippines' failure to work for the renewal of Domingo's consultancy contract with Siemens Germany, Siemens Philippines may be held answerable in damages to Domingo.

Consequently, Domingo's constructive dismissal entitles him to his monetary claims, subject to the following modifications:

First, we are not in accord with the Decision of the LA finding Behrens, the President and Chief Executive Officer of Siemens Philippines, solidarily liable with the company. A corporation, being a juridical entity, may act only through its directors, officers and employees. Obligations incurred by them, while acting as corporate agents, are not their personal liability but the direct accountability of the corporation they represent. As a rule, they are only solidarily liable with the corporation for the termination of employees if they acted with malice or bad faith.^[38] In the case at bar, malice or bad faith on the part of Behrens in the constructive dismissal of Domingo was not sufficiently proven to justify a ruling holding him solidarily liable with Siemens Philippines.

Second, an illegally or constructively dismissed employee is entitled to: (1) either reinstatement, if viable, or separation pay if reinstatement is no longer viable; and (2) backwages. These two reliefs are separate and distinct from each other and are awarded conjunctively.^[39]

As a rule, separation pay is awarded to an illegally dismissed employee, computed at the rate of one month pay per year of service. Accordingly, the LA decision granting separation pay equivalent to two months salary per year of service must be modified. There is nothing on record that even remotely suggests that it is the company policy of Siemens Philippines to grant its employees separation pay of two months' salary for every year of service. Thus, in consonance with our previous rulings,^[40] Domingo shall be awarded separation pay in the amount of one month pay for every year of service, but consultancy fees shall not be included in the computation of his separation pay. As discussed above, the evidence presented by Domingo is not sufficient to pierce the veil of corporate fiction between Siemens Philippines and Siemens AG, which would make Siemens Philippines liable for the monetary obligations of Siemens AG.

Third, the backwages that should be awarded to Domingo shall be reckoned from the time his constructive dismissal took effect until the finality of this decision. This is in conformity with Article 279 of the Labor Code which provides that an employee who is unjustly dismissed from work shall be entitled to full backwages, inclusive of allowances, and to his other benefits or their monetary equivalent, computed from the time his compensation was withheld from him up to the time of his actual reinstatement. Since reinstatement of Domingo is no longer possible due to his strained relations with the management of Siemens Philippines, and considering the position he held in the company, he is lawfully entitled to receive backwages. For the same reason cited above, consultancy fees shall be excluded in the computation of Domingo's backwages.

Finally, moral damages may be recovered when the dismissal of the employee was tainted by bad faith or fraud; or when it constituted an act oppressive to labor or done in a manner contrary to morals, good customs or public policy. Exemplary damages are recoverable if the dismissal was done in a wanton, oppressive, or malevolent manner.^[41] In this case, we have found that there was bad faith in the failure or refusal of Siemens Philippines to work for the renewal of Domingo's consultancy contract with Siemens Germany. But while we affirm Domingo's entitlement to these damages, they are not intended to enrich the dismissed employee. Consequently, we find the amount of P50,000.00 for moral damages and P50,000.00 for exemplary damages sufficient to allay the sufferings experienced by Domingo and by way of example or correction for public good, respectively.

WHEREFORE, the Decision of the Court of Appeals, dated March 12, 2001, is hereby AFFIRMED WITH THE MODIFICATION that petitioner Siemens Philippines, Inc. is hereby ordered to pay respondent Enrico A. Domingo the following:

(1) separation pay equivalent to one month pay per year of service;

(2) full backwages and other benefits from the date of his constructive dismissal up to the finality of this Decision;

(3) moral damages of fifty thousand pesos (P50,000.00);

(4) exemplary damages of fifty thousand pesos (P50,000.00); and

(5) attorney's fees.

This case is REMANDED to the Labor Arbiter for computation of the separation pay, backwages, and other monetary awards due respondent.

SO ORDERED.

Ynares-Santiago, (Chairperson), Austria-Martinez, Chico-Nazario, and Reyes, JJ., concur.

---

^[1] Penned by Associate Justice Rodrigo V. Cosico, with Associate Justices Ramon A. Barcelona and Alicia L. Santos, concurring; rollo, pp. 44-55.

^[2] Rollo, p. 57.

^[3] RULES OF COURT, Rule 65.

^[4] Rollo, p. 177.

^[5] Appears in some parts of the records as Aktiengeselsschaft.

^[6] Rollo, pp. 92-94.

^[7] Id. at 44.

^[8] Id. at 178.

^[9] Id. at 100-101.

^[10] Id.

^[11] Id. at 70.

^[12] Id. at 72.

^[13] Id. at 75.

^[14] Id. at 67-68.

^[15] Id. at 180.

^[16] Id. at 403.

^[17] Id. at 181, 403.

^[18] Id. at 181.

^[19] Id. at 119.

^[20] Id.

^[21] Id. at 77.

^[22] Id. at 46.

^[23] Id. at 200.

^[24] Id. at 183.

^[25] Penned by Labor Arbiter Vladimir P. L. Sampang; rollo, pp. 177-192.

^[26] Id. at 191-192.

^[27] Penned by Commissioner Vicente S.E. Veloso, with Presiding Commissioner Rogelio I. Rayala and Commissioner Alberto R. Quimpo, concurring; rollo, pp. 255-269.

^[28] Id. at 282-283.

^[29] RULES OF COURT, Rule 65.

^[30] Rollo, p. 47.

^[31] Penned by Associate Justice Rodrigo V. Cosico, with Associate Justices Ramon A. Barcelona and Alicia L. Santos, concurring; rollo, pp. 44-55.

^[32] Id. at 54.

^[33] Id. at 57.

^[34] Rollo, pp. 23-24.

^[35] Francisco v. NLRC, G.R. No. 170087, August 31, 2006, 500 SCRA 690, 702.

^[36] New Ever Marketing, Inc. v. Court of Appeals, G.R. No. 140555, July 14, 2005, 463 SCRA 284, 297.

^[37] Aguilar v. Burger Machine Holdings Corporation, G.R. No. 172062, October 30, 2006, 506 SCRA 266, 273.

^[38] MAM Realty Development Corporation v. NLRC, 314 Phil. 838, 844 (1995).

^[39] Aurora Land Projects Corporation v. NLRC, 344 Phil. 44, 58 (1997); Torillo v. Leogardo, Jr., G.R. No. 77205, May 27, 1991, 197 SCRA 471, 477.

^[40] Rutaquio v. NLRC, 375 Phil. 405 (1999); Gaco v. NLRC, G.R. No. 104690, February 23, 1994, 230 SCRA 261, citing Pepsi-Cola Bottling Co v. NLRC, 210 SCRA 277 (1992); De Vera v. NLRC, G.R. No. 93212, November 22, 1990, 191 SCRA 632; Carandang v. Dulay, G.R. No. 90492, August 20, 1990, 188 SCRA 792; Quezon Electric Cooperative v. NLRC, G.R. Nos. 79718-22, April 12, 1989, 172 SCRA 89.

^[41] Norkis Trading Co., Inc. v. NLRC, G.R. No. 168159, August 19, 2005, 467 SCRA 461, 473; Garcia v. NLRC, G.R. No. 110518, August 1, 1994, 234 SCRA 632, 638.

E-Library Doc. ID: 12180017421451483464

--
Antonio L. Buensuceso Jr.

PIERCING THE VEIL RESEARCH-1

PIERCING THE VEIL RESEARCH-1
-

SYLLABI/SYNOPSIS

SECOND DIVISION

[G.R. No. 100812. June 25, 1999]

FRANCISCO MOTORS CORPORATION, petitioner, vs. COURT OF APPEALS and SPOUSES GREGORIO and LIBRADA MANUEL, respondents.

D E C I S I O N

QUISUMBING, J.:

This petition for review on certiorari, under Rule 45 of the Rules of Court, seeks to annul the decision[1] of the Court of Appeals in C.A. G.R. CV No. 10014 affirming the decision rendered by Branch 135, Regional Trial Court of Makati, Metro Manila. The procedural antecedents of this petition are as follows:

On January 23, 1985, petitioner filed a complaint[2] against private respondents to recover three thousand four hundred twelve and six centavos (P3,412.06), representing the balance of the jeep body purchased by the Manuels from petitioner; an additional sum of twenty thousand four hundred fifty-four and eighty centavos (P20,454.80) representing the unpaid balance on the cost of repair of the vehicle; and six thousand pesos (P6,000.00) for cost of suit and attorney's fees.[3] To the original balance on the price of jeep body were added the costs of repair.[4] In their answer, private respondents interposed a counterclaim for unpaid legal services by Gregorio Manuel in the amount of fifty thousand pesos (P50,000) which was not paid by the incorporators, directors and officers of the petitioner. The trial court decided the case on June 26, 1985, in favor of petitioner in regard to the petitioner's claim for money, but also allowed the counter-claim of private respondents. Both parties appealed. On April 15, 1991, the Court of Appeals sustained the trial court's decision.[5] Hence, the present petition.

For our review in particular is the propriety of the permissive counterclaim which private respondents filed together with their answer to petitioner's complaint for a sum of money. Private respondent Gregorio Manuel alleged as an affirmative defense that, while he was petitioner's Assistant Legal Officer, he represented members of the Francisco family in the intestate estate proceedings of the late Benita Trinidad. However, even after the termination of the proceedings, his services were not paid. Said family members, he said, were also incorporators, directors and officers of petitioner. Hence to counter petitioner's collection suit, he filed a permissive counterclaim for the unpaid attorney's fees.[6]

For failure of petitioner to answer the counterclaim, the trial court declared petitioner in default on this score, and evidence ex-parte was presented on the counterclaim. The trial court ruled in favor of private respondents and found that Gregorio Manuel indeed rendered legal services to the Francisco family in Special Proceedings Number 7803- "In the Matter of Intestate Estate of Benita Trinidad". Said court also found that his legal services were not compensated despite repeated demands, and thus ordered petitioner to pay him the amount of fifty thousand (P50,000.00) pesos.[7]

Dissatisfied with the trial court's order, petitioner elevated the matter to the Court of Appeals, posing the following issues:

"I.

WHETHER OR NOT THE DECISION RENDERED BY THE LOWER COURT IS NULL AND VOID AS IT NEVER ACQUIRED JURISDICTION OVER THE PERSON OF THE DEFENDANT.

II.

WHETHER OR NOT PLAINTIFF-APPELLANT NOT BEING A REAL PARTY IN THE ALLEGED PERMISSIVE COUNTERCLAIM SHOULD BE HELD LIABLE TO THE CLAIM OF DEFENDANT-APPELLEES.

III.

WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFF-APPELLANT TO ANSWER THE ALLEGED PERMISSIVE COUNTERCLAIM."[8]

Petitioner contended that the trial court did not acquire jurisdiction over it because no summons was validly served on it together with the copy of the answer containing the permissive counterclaim. Further, petitioner questions the propriety of its being made party to the case because it was not the real party in interest but the individual members of the Francisco family concerned with the intestate case.

In its assailed decision now before us for review, respondent Court of Appeals held that a counterclaim must be answered in ten (10) days, pursuant to Section 4, Rule 11, of the Rules of Court; and nowhere does it state in the Rules that a party still needed to be summoned anew if a counterclaim was set up against him. Failure to serve summons, said respondent court, did not effectively negate trial court's jurisdiction over petitioner in the matter of the counterclaim. It likewise pointed out that there was no reason for petitioner to be excused from answering the counterclaim. Court records showed that its former counsel, Nicanor G. Alvarez, received the copy of the answer with counterclaim two (2) days prior to his withdrawal as counsel for petitioner. Moreover when petitioner's new counsel, Jose N. Aquino, entered his appearance, three (3) days still remained within the period to file an answer to the counterclaim. Having failed to answer, petitioner was correctly considered in default by the trial court.[9] Even assuming that the trial court acquired no jurisdiction over petitioner, respondent court also said, but having filed a motion for reconsideration seeking relief from the said order of default, petitioner was estopped from further questioning the trial court's jurisdiction.[10]

On the question of its liability for attorney's fees owing to private respondent Gregorio Manuel, petitioner argued that being a corporation, it should not be held liable therefor because these fees were owed by the incorporators, directors and officers of the corporation in their personal capacity as heirs of Benita Trinidad. Petitioner stressed that the personality of the corporation, vis-à-vis the individual persons who hired the services of private respondent, is separate and distinct,[11] hence, the liability of said individuals did not become an obligation chargeable against petitioner.

Nevertheless, on the foregoing issue, the Court of Appeals ruled as follows:

"However, this distinct and separate personality is merely a fiction created by law for convenience and to promote justice. Accordingly, this separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak or cover for found (sic) illegality, or to work an injustice, or where necessary to achieve equity or when necessary for the protection of creditors. (Sulo ng Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347) Corporations are composed of natural persons and the legal fiction of a separate corporate personality is not a shield for the commission of injustice and inequity. (Chemplex Philippines, Inc. vs. Pamatian, 57 SCRA 408)

"In the instant case, evidence shows that the plaintiff-appellant Francisco Motors Corporation is composed of the heirs of the late Benita Trinidad as directors and incorporators for whom defendant Gregorio Manuel rendered legal services in the intestate estate case of their deceased mother. Considering the aforestated principles and circumstances established in this case, equity and justice demands plaintiff-appellant's veil of corporate identity should be pierced and the defendant be compensated for legal services rendered to the heirs, who are directors of the plaintiff-appellant corporation."[12]

Now before us, petitioner assigns the following errors:

"I.

THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY.

II.

THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE WAS JURISDICTION OVER PETITIONER WITH RESPECT TO THE COUNTERCLAIM."[13]

Petitioner submits that respondent court should not have resorted to piercing the veil of corporate fiction because the transaction concerned only respondent Gregorio Manuel and the heirs of the late Benita Trinidad. According to petitioner, there was no cause of action by said respondent against petitioner; personal concerns of the heirs should be distinguished from those involving corporate affairs. Petitioner further contends that the present case does not fall among the instances wherein the courts may look beyond the distinct personality of a corporation. According to petitioner, the services for which respondent Gregorio Manuel seeks to collect fees from petitioner are personal in nature. Hence, it avers the heirs should have been sued in their personal capacity, and not involve the corporation.[14]

With regard to the permissive counterclaim, petitioner also insists that there was no proper service of the answer containing the permissive counterclaim. It claims that the counterclaim is a separate case which can only be properly served upon the opposing party through summons. Further petitioner states that by nature, a permissive counterclaim is one which does not arise out of nor is necessarily connected with the subject of the opposing party's claim. Petitioner avers that since there was no service of summons upon it with regard to the counterclaim, then the court did not acquire jurisdiction over petitioner. Since a counterclaim is considered an action independent from the answer, according to petitioner, then in effect there should be two simultaneous actions between the same parties: each party is at the same time both plaintiff and defendant with respect to the other,[15] requiring in each case separate summonses.

In their Comment, private respondents focus on the two questions raised by petitioner. They defend the propriety of piercing the veil of corporate fiction, but deny the necessity of serving separate summonses on petitioner in regard to their permissive counterclaim contained in the answer.

Private respondents maintain both trial and appellate courts found that respondent Gregorio Manuel was employed as assistant legal officer of petitioner corporation, and that his services were solicited by the incorporators, directors and members to handle and represent them in Special Proceedings No. 7803, concerning the Intestate Estate of the late Benita Trinidad. They assert that the members of petitioner corporation took advantage of their positions by not compensating respondent Gregorio Manuel after the termination of the estate proceedings despite his repeated demands for payment of his services. They cite findings of the appellate court that support piercing the veil of corporate identity in this particular case. They assert that the corporate veil may be disregarded when it is used to defeat public convenience, justify wrong, protect fraud, and defend crime. It may also be pierced, according to them, where the corporate entity is being used as an alter ego, adjunct, or business conduit for the sole benefit of the stockholders or of another corporate entity. In these instances, they aver, the corporation should be treated merely as an association of individual persons.[16]

Private respondents dispute petitioner's claim that its right to due process was violated when respondents' counterclaim was granted due course, although no summons was served upon it. They claim that no provision in the Rules of Court requires service of summons upon a defendant in a counterclaim. Private respondents argue that when the petitioner filed its complaint before the trial court it voluntarily submitted itself to the jurisdiction of the court. As a consequence, the issuance of summons on it was no longer necessary. Private respondents say they served a copy of their answer with affirmative defenses and counterclaim on petitioner's former counsel, Nicanor G. Alvarez. While petitioner would have the Court believe that respondents served said copy upon Alvarez after he had withdrawn his appearance as counsel for the petitioner, private respondents assert that this contention is utterly baseless. Records disclose that the answer was received two (2) days before the former counsel for petitioner withdrew his appearance, according to private respondents. They maintain that the present petition is but a form of dilatory appeal, to set off petitioner's obligations to the respondents by running up more interest it could recover from them. Private respondents therefore claim damages against petitioner.[17]

To resolve the issues in this case, we must first determine the propriety of piercing the veil of corporate fiction.

Basic in corporation law is the principle that a corporation has a separate personality distinct from its stockholders and from other corporations to which it may be connected.[18] However, under the doctrine of piercing the veil of corporate entity, the corporation's separate juridical personality may be disregarded, for example, when the corporate identity is used to defeat public convenience, justify wrong, protect fraud, or defend crime. Also, where the corporation is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation, then its distinct personality may be ignored.[19] In these circumstances, the courts will treat the corporation as a mere aggrupation of persons and the liability will directly attach to them. The legal fiction of a separate corporate personality in those cited instances, for reasons of public policy and in the interest of justice, will be justifiably set aside.

In our view, however, given the facts and circumstances of this case, the doctrine of piercing the corporate veil has no relevant application here. Respondent court erred in permitting the trial court's resort to this doctrine. The rationale behind piercing a corporation's identity in a given case is to remove the barrier between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain proscribed activities. However, in the case at bar, instead of holding certain individuals or persons responsible for an alleged corporate act, the situation has been reversed. It is the petitioner as a corporation which is being ordered to answer for the personal liability of certain individual directors, officers and incorporators concerned. Hence, it appears to us that the doctrine has been turned upside down because of its erroneous invocation. Note that according to private respondent Gregorio Manuel his services were solicited as counsel for members of the Francisco family to represent them in the intestate proceedings over Benita Trinidad's estate. These estate proceedings did not involve any business of petitioner.

Note also that he sought to collect legal fees not just from certain Francisco family members but also from petitioner corporation on the claims that its management had requested his services and he acceded thereto as an employee of petitioner from whom it could be deduced he was also receiving a salary. His move to recover unpaid legal fees through a counterclaim against Francisco Motors Corporation, to offset the unpaid balance of the purchase and repair of a jeep body could only result from an obvious misapprehension that petitioner's corporate assets could be used to answer for the liabilities of its individual directors, officers, and incorporators. Such result if permitted could easily prejudice the corporation, its own creditors, and even other stockholders; hence, clearly inequitous to petitioner.

Furthermore, considering the nature of the legal services involved, whatever obligation said incorporators, directors and officers of the corporation had incurred, it was incurred in their personal capacity. When directors and officers of a corporation are unable to compensate a party for a personal obligation, it is far-fetched to allege that the corporation is perpetuating fraud or promoting injustice, and be thereby held liable therefor by piercing its corporate veil. While there are no hard and fast rules on disregarding separate corporate identity, we must always be mindful of its function and purpose. A court should be careful in assessing the milieu where the doctrine of piercing the corporate veil may be applied. Otherwise an injustice, although unintended, may result from its erroneous application.

The personality of the corporation and those of its incorporators, directors and officers in their personal capacities ought to be kept separate in this case. The claim for legal fees against the concerned individual incorporators, officers and directors could not be properly directed against the corporation without violating basic principles governing corporations. Moreover, every action —including a counterclaim — must be prosecuted or defended in the name of the real party in interest.[20] It is plainly an error to lay the claim for legal fees of private respondent Gregorio Manuel at the door of petitioner (FMC) rather than individual members of the Francisco family.

However, with regard to the procedural issue raised by petitioner's allegation, that it needed to be summoned anew in order for the court to acquire jurisdiction over it, we agree with respondent court's view to the contrary. Section 4, Rule 11 of the Rules of Court provides that a counterclaim or cross-claim must be answered within ten (10) days from service. Nothing in the Rules of Court says that summons should first be served on the defendant before an answer to counterclaim must be made. The purpose of a summons is to enable the court to acquire jurisdiction over the person of the defendant. Although a counterclaim is treated as an entirely distinct and independent action, the defendant in the counterclaim, being the plaintiff in the original complaint, has already submitted to the jurisdiction of the court. Following Rule 9, Section 3 of the 1997 Rules of Civil Procedure,[21] if a defendant (herein petitioner) fails to answer the counterclaim, then upon motion of plaintiff, the defendant may be declared in default. This is what happened to petitioner in this case, and this Court finds no procedural error in the disposition of the appellate court on this particular issue. Moreover, as noted by the respondent court, when petitioner filed its motion seeking to set aside the order of default, in effect it submitted itself to the jurisdiction of the court. As well said by respondent court:

"Further on the lack of jurisdiction as raised by plaintiff-appellant[,] [t]he records show that upon its request, plaintiff-appellant was granted time to file a motion for reconsideration of the disputed decision. Plaintiff-appellant did file its motion for reconsideration to set aside the order of default and the judgment rendered on the counterclaim.

"Thus, even if the court acquired no jurisdiction over plaintiff-appellant on the counterclaim, as it vigorously insists, plaintiff-appellant is considered to have submitted to the court's jurisdiction when it filed the motion for reconsideration seeking relief from the court. (Soriano vs. Palacio, 12 SCRA 447). A party is estopped from assailing the jurisdiction of a court after voluntarily submitting himself to its jurisdiction. (Tejones vs. Gironella, 159 SCRA 100). Estoppel is a bar against any claims of lack of jurisdiction. (Balais vs. Balais, 159 SCRA 37)."[22]

WHEREFORE, the petition is hereby GRANTED and the assailed decision is hereby REVERSED insofar only as it held Francisco Motors Corporation liable for the legal obligation owing to private respondent Gregorio Manuel; but this decision is without prejudice to his filing the proper suit against the concerned members of the Francisco family in their personal capacity. No pronouncement as to costs.

SO ORDERED.

Bellosillo, (Chairman), Puno, Mendoza, and Buena, JJ., concur.

---

[1] Dated April 15, 1991. Rollo, pp. 31 - 35. Reconsideration thereof was denied on July 1, 1991. Rollo, pp. 28-29.

[2] Civil Case No. 9542. Records, RTC, pp. 1-3.

[3] Rollo, p. 31.

[4] Id. at 9.

[5] Id. at 11.

[6] Supra, note 4.

[7] Supra note 5.

[8] Rollo, pp. 32-33.

[9] Id. at 32.

[10] Id. at 34.

[11] Ibid.

[12] Rollo, pp. 34-35.

[13] Id. at 12.

[14] Id. at 12 - 16.

[15] Id. at 18 - 21; See also Golden Ribbon Lumber Co., Inc. vs. Salvador S. Santos and Rafaela M. Santos, C.A. - G. R. No. 12935 November 15, 1955.

[16] Id. at 47 - 51.

[17] Id. at 52- 60.

[18] Concept Builders's Inc. vs. NLRC 257 SCRA 149, 157 (1996); See also Emilio Cano Enterprises, Inc. vs. CIR, 13 SCRA 290 (1965) and Yutivo Sons Hardware Co. vs. CTA, 1 SCRA 160 (1961).

[19] Indophil Textile Mill Workers Union vs. Calica, 205 SCRA 697, 704 (1992); See also Umali et al vs. C C.A, 189 SCRA 529,542 (1990).

[20] Section 2, Rule 3 of the RULES OF COURT; See also, De Leon vs. Court of Appeals, 277 SCRA 478, 486 (1997).

[21] In the Court of Appeals Decision, Section 3 of Rule 9 was still under Section 1 of Rule 18 of the Rules of Court.

[22] Rollo, p. 34.

-
Antonio L. Buensuceso Jr.

PIERCING THE VEIL

A somewhat related phrase is "piercing the veil," a legal term. The definition, courtesy of nolo.com:

: A judicial doctrine that allows a plaintiff to hold otherwise immune corporate officers and directors personally liable for damages caused by a corporation under their control. The veil is pierced when officers have acted intentionally and illegally, or when their actions exceeded the power given them by the company's articles of incorporation.

--
Antonio L. Buensuceso Jr.

CODE OF PROFESSIONAL RESPONSIBILITY

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CODE OF PROFESSIONAL RESPONSIBILITY
(Promulgated June 21, 1988)

CHAPTER I. THE LAWYER AND SOCIETY

CANON 1 - A LAWYER SHALL UPHOLD THE CONSTITUTION, OBEY THE LAWS OF THE LAND AND PROMOTE RESPECT FOR LAW OF AND LEGAL PROCESSES.

Rule 1.01 - A lawyer shall not engage in unlawful, dishonest, immoral or deceitful conduct.

Rule 1.02 - A lawyer shall not counsel or abet activities aimed at defiance of the law or at lessening confidence in the legal system.

Rule 1.03 - A lawyer shall not, for any corrupt motive or interest, encourage any suit or proceeding or delay any man's cause.

Rule 1.04 - A lawyer shall encourage his clients to avoid, end or settle a controversy if it will admit of a fair settlement.

CANON 2 - A LAWYER SHALL MAKE HIS LEGAL SERVICES AVAILABLE IN AN EFFICIENT AND CONVENIENT MANNER COMPATIBLE WITH THE INDEPENDENCE, INTEGRITY AND EFFECTIVENESS OF THE PROFESSION.

Rule 2.01 - A lawyer shall not reject, except for valid reasons, the cause of the defenseless or the oppressed.

Rule 2.02 - In such cases, even if the lawyer does not accept a case, he shall not refuse to render legal advice to the person concerned if only to the extent necessary to safeguard the latter's rights.

Rule 2.03 - A lawyer shall not do or permit to be done any act designed primarily to solicit legal business.

Rule 2.04 - A lawyer shall not charge rates lower than those customarily prescribed unless the circumstances so warrant.

CANON 3 - A LAWYER IN MAKING KNOWN HIS LEGAL SERVICES SHALL USE ONLY TRUE, HONEST, FAIR, DIGNIFIED AND OBJECTIVE INFORMATION OR STATEMENT OF FACTS.

Rule 3.01 - A lawyer shall not use or permit the use of any false, fraudulent, misleading, deceptive, undignified, self-laudatory or unfair statement or claim regarding his qualifications or legal services.

Rule 3.02 - In the choice of a firm name, no false, misleading or assumed name shall be used. The continued use of the name of a deceased partner is permissible provided that the firm indicates in all its communications that said partner is deceased.

Rule 3.03 - Where a partner accepts public office, he shall withdrawal from the firm and his name shall be dropped from the firm name unless the law allows him to practice law currently.

Rule 3.04 - A lawyer shall not pay or give anything of value to representatives of the mass media in anticipation of, or in return for, publicity to attract legal business.

CANON 4 - A LAWYER SHALL PARTICIPATE IN THE DEVELOPMENT OF THE LEGAL SYSTEM BY INITIATING OR SUPPORTING EFFORTS IN LAW REFORM AND IN THE IMPROVEMENT OF THE ADMINISTRATION OF JUSTICE.

CANON 5 - A LAWYER SHALL KEEP ABREAST OF LEGAL DEVELOPMENTS, PARTICIPATE IN CONTINUING LEGAL EDUCATION PROGRAMS, SUPPORT EFFORTS TO ACHIEVE HIGH STANDARDS IN LAW SCHOOLS AS WELL AS IN THE PRACTICAL TRAINING OF LAW STUDENTS AND ASSIST IN DISSEMINATING THE LAW AND JURISPRUDENCE.

CANON 6 - THESE CANONS SHALL APPLY TO LAWYERS IN GOVERNMENT SERVICES IN THE DISCHARGE OF THEIR TASKS.

Rule 6.01 - The primary duty of a lawyer engaged in public prosecution is not to convict but to see that justice is done. The suppression of facts or the concealment of witnesses capable of establishing the innocence of the accused is highly reprehensible and is cause for disciplinary action.

Rule 6.02 - A lawyer in the government service shall not use his public position to promote or advance his private interests, nor allow the latter to interfere with his public duties.

Rule 6.03 - A lawyer shall not, after leaving government service, accept engagement or employment in connection with any matter in which he had intervened while in said service.

CHAPTER II. THE LAWYER AND THE LEGAL PROFESSION

CANON 7 - A LAWYER SHALL AT ALL TIMES UPHOLD THE INTEGRITY AND DIGNITY OF THE LEGAL PROFESSION AND SUPPORT THE ACTIVITIES OF THE INTEGRATED BAR.

Rule 7.01 - A lawyer shall be answerable for knowingly making a false statement or suppressing a material fact in connection with his application for admission to the bar.

Rule 7.02 - A lawyer shall not support the application for admission to the bar of any person known by him to be unqualified in respect to character, education, or other relevant attribute.

Rule 7.03 - A lawyer shall not engage in conduct that adversely reflects on his fitness to practice law, nor shall he whether in public or private life, behave in a scandalous manner to the discredit of the legal profession.

CANON 8 - A LAWYER SHALL CONDUCT HIMSELF WITH COURTESY, FAIRNESS AND CANDOR TOWARDS HIS PROFESSIONAL COLLEAGUES, AND SHALL AVOID HARASSING TACTICS AGAINST OPPOSING COUNSEL.

Rule 8.01 - A lawyer shall not, in his professional dealings, use language which is abusive, offensive or otherwise improper.

Rule 8.02 - A lawyer shall not, directly or indirectly, encroach upon the professional employment of another lawyer, however, it is the right of any lawyer, without fear or favor, to give proper advice and assistance to those seeking relief against unfaithful or neglectful counsel.

CANON 9 - A LAWYER SHALL NOT, DIRECTLY OR INDIRECTLY, ASSIST IN THE UNAUTHORIZED PRACTICE OF LAW.

Rule 9.01 - A lawyer shall not delegate to any unqualified person the performance of any task which by law may only be performed by a member of the bar in good standing.

Rule 9.02 - A lawyer shall not divide or stipulate to divide a fee for legal services with persons not licensed to practice law, except:

(a) Where there is a pre-existing agreement with a partner or associate that, upon the latter's death, money shall be paid over a reasonable period of time to his estate or to persons specified in the agreement; or

(b) Where a lawyer undertakes to complete unfinished legal business of a deceased lawyer; or

(c) Where a lawyer or law firm includes non-lawyer employees in a retirement plan even if the plan is based in whole or in part, on a profit sharing agreement.

CHAPTER III. THE LAWYER AND THE COURTS

CANON 10 - A LAWYER OWES CANDOR, FAIRNESS AND GOOD FAITH TO THE COURT.

Rule 10.01 - A lawyer shall not do any falsehood, nor consent to the doing of any in Court; nor shall he mislead, or allow the Court to be misled by any artifice.

Rule 10.02 - A lawyer shall not knowingly misquote or misrepresent the contents of a paper, the language or the argument of opposing counsel, or the text of a decision or authority, or knowingly cite as law a provision already rendered inoperative by repeal or amendment, or assert as a fact that which has not been proved.

Rule 10.03 - A lawyer shall observe the rules of procedure and shall not misuse them to defeat the ends of justice.

CANON 11 - A LAWYER SHALL OBSERVE AND MAINTAIN THE RESPECT DUE TO THE COURTS AND TO JUDICIAL OFFICERS AND SHOULD INSIST ON SIMILAR CONDUCT BY OTHERS.

Rule 11.01 - A lawyer shall appear in court properly attired.

Rule 11.02 - A lawyer shall punctually appear at court hearings.

Rule 11.03 - A lawyer shall abstain from scandalous, offensive or menacing language or behavior before the Courts.

Rule 11.04 - A lawyer shall not attribute to a Judge motives not supported by the record or have no materiality to the case.

Rule 11.05 - A lawyer shall submit grievances against a Judge to the proper authorities only.

CANON 12 - A LAWYER SHALL EXERT EVERY EFFORT AND CONSIDER IT HIS DUTY TO ASSIST IN THE SPEEDY AND EFFICIENT ADMINISTRATION OF JUSTICE.

Rule 12.01 - A lawyer shall not appear for trial unless he has adequately prepared himself on the law and the facts of his case, the evidence he will adduce and the order of its proferrence. He should also be ready with the original documents for comparison with the copies.

Rule 12.02 - A lawyer shall not file multiple actions arising from the same cause.

Rule 12.03 - A lawyer shall not, after obtaining extensions of time to file pleadings, memoranda or briefs, let the period lapse without submitting the same or offering an explanation for his failure to do so.

Rule 12.04 - A lawyer shall not unduly delay a case, impede the execution of a judgment or misuse Court processes.

Rule 12.05 - A lawyer shall refrain from talking to his witness during a break or recess in the trial, while the witness is still under examination.

Rule 12.06 - A lawyer shall not knowingly assist a witness to misrepresent himself or to impersonate another.

Rule 12.07 - A lawyer shall not abuse, browbeat or harass a witness nor needlessly inconvenience him.

Rule 12.08 - A lawyer shall avoid testifying in behalf of his client, except:

(a) on formal matters, such as the mailing, authentication or custody of an instrument, and the like; or

(b) on substantial matters, in cases where his testimony is essential to the ends of justice, in which event he must, during his testimony, entrust the trial of the case to another counsel.

CANON 13 - A LAWYER SHALL RELY UPON THE MERITS OF HIS CAUSE AND REFRAIN FROM ANY IMPROPRIETY WHICH TENDS TO INFLUENCE, OR GIVES THE APPEARANCE OF INFLUENCING THE COURT.

Rule 13.01 - A lawyer shall not extend extraordinary attention or hospitality to, nor seek opportunity for cultivating familiarity with Judges.

Rule 13.02 - A lawyer shall not make public statements in the media regarding a pending case tending to arouse public opinion for or against a party.

Rule 13.03 - A lawyer shall not brook or invite interference by another branch or agency of the government in the normal course of judicial proceedings.

CHAPTER IV. THE LAWYER AND THE CLIENT

CANON 14 - A LAWYER SHALL NOT REFUSE HIS SERVICES TO THE NEEDY.

Rule 14.01 - A lawyer shall not decline to represent a person solely on account of the latter's race, sex. creed or status of life, or because of his own opinion regarding the guilt of said person.

Rule 14.02 - A lawyer shall not decline, except for serious and sufficient cause, an appointment as counsel de officio or as amicus curiae, or a request from the Integrated Bar of the Philippines or any of its chapters for rendition of free legal aid.

Rule 14.03 - A lawyer may not refuse to accept representation of an indigent client if:

(a) he is not in a position to carry out the work effectively or competently;

(b) he labors under a conflict of interest between him and the prospective client or between a present client and the prospective client.

Rule 14.04 - A lawyer who accepts the cause of a person unable to pay his professional fees shall observe the same standard of conduct governing his relations with paying clients.

CANON 15 - A LAWYER SHALL OBSERVE CANDOR, FAIRNESS AND LOYALTY IN ALL HIS DEALINGS AND TRANSACTIONS WITH HIS CLIENTS.

Rule 15.01. - A lawyer, in conferring with a prospective client, shall ascertain as soon as practicable whether the matter would involve a conflict with another client or his own interest, and if so, shall forthwith inform the prospective client.

Rule 15.02.- A lawyer shall be bound by the rule on privilege communication in respect of matters disclosed to him by a prospective client.

Rule 15.03. - A lawyer shall not represent conflicting interests except by written consent of all concerned given after a full disclosure of the facts.

Rule 15.04. - A lawyer may, with the written consent of all concerned, act as mediator, conciliator or arbitrator in settling disputes.

Rule 15.05. - A lawyer when advising his client, shall give a candid and honest opinion on the merits and probable results of the client's case, neither overstating nor understating the prospects of the case.

Rule 15.06. - A lawyer shall not state or imply that he is able to influence any public official, tribunal or legislative body.

Rule 15.07. - A lawyer shall impress upon his client compliance with the laws and the principles of fairness.

Rule 15.08. - A lawyer who is engaged in another profession or occupation concurrently with the practice of law shall make clear to his client whether he is acting as a lawyer or in another capacity.

CANON 16 - A LAWYER SHALL HOLD IN TRUST ALL MONEYS AND PROPERTIES OF HIS CLIENT THAT MAY COME INTO HIS PROFESSION.

Rule 16.01 - A lawyer shall account for all money or property collected or received for or from the client.

Rule 16.02 - A lawyer shall keep the funds of each client separate and apart from his own and those of others kept by him.

Rule 16.03 - A lawyer shall deliver the funds and property of his client when due or upon demand. However, he shall have a lien over the funds and may apply so much thereof as may be necessary to satisfy his lawful fees and disbursements, giving notice promptly thereafter to his client. He shall also have a lien to the same extent on all judgments and executions he has secured for his client as provided for in the Rules of Court.

Rule 16.04 - A lawyer shall not borrow money from his client unless the client's interest are fully protected by the nature of the case or by independent advice. Neither shall a lawyer lend money to a client except, when in the interest of justice, he has to advance necessary expenses in a legal matter he is handling for the client.

CANON 17 - A LAWYER OWES FIDELITY TO THE CAUSE OF HIS CLIENT AND HE SHALL BE MINDFUL OF THE TRUST AND CONFIDENCE REPOSED IN HIM.

CANON 18 - A LAWYER SHALL SERVE HIS CLIENT WITH COMPETENCE AND DILIGENCE.

Rules 18.01 - A lawyer shall not undertake a legal service which he knows or should know that he is not qualified to render. However, he may render such service if, with the consent of his client, he can obtain as collaborating counsel a lawyer who is competent on the matter.

Rule 18.02 - A lawyer shall not handle any legal matter without adequate preparation.

Rule 18.03 - A lawyer shall not neglect a legal matter entrusted to him, and his negligence in connection therewith shall render him liable.

Rule 18.04 - A lawyer shall keep the client informed of the status of his case and shall respond within a reasonable time to the client's request for information.

CANON 19 - A LAWYER SHALL REPRESENT HIS CLIENT WITH ZEAL WITHIN THE BOUNDS OF THE LAW.

Rule 19.01 - A lawyer shall employ only fair and honest means to attain the lawful objectives of his client and shall not present, participate in presenting or threaten to present unfounded criminal charges to obtain an improper advantage in any case or proceeding.

Rule 19.02 - A lawyer who has received information that his client has, in the course of the representation, perpetrated a fraud upon a person or tribunal, shall promptly call upon the client to rectify the same, and failing which he shall terminate the relationship with such client in accordance with the Rules of Court.

Rule 19.03 - A lawyer shall not allow his client to dictate the procedure in handling the case.

CANON 20 - A LAWYER SHALL CHARGE ONLY FAIR AND REASONABLE FEES.

Rule 20.01 - A lawyer shall be guided by the following factors in determining his fees:

(a) the time spent and the extent of the service rendered or required;

(b) the novelty and difficulty of the questions involved;

(c) The importance of the subject matter;

(d) The skill demanded;

(e) The probability of losing other employment as a result of acceptance of the proffered case;

(f) The customary charges for similar services and the schedule of fees of the IBP chapter to which he belongs;

(g) The amount involved in the controversy and the benefits resulting to the client from the service;

(h) The contingency or certainty of compensation;

(i) The character of the employment, whether occasional or established; and

(j) The professional standing of the lawyer.

Rule 20.02 - A lawyer shall, in case of referral, with the consent of the client, be entitled to a division of fees in proportion to the work performed and responsibility assumed.

Rule 20.03 - A lawyer shall not, without the full knowledge and consent of the client, accept any fee, reward, costs, commission, interest, rebate or forwarding allowance or other compensation whatsoever related to his professional employment from anyone other than the client.

Rule 20.04 - A lawyer shall avoid controversies with clients concerning his compensation and shall resort to judicial action only to prevent imposition, injustice or fraud.

CANON 21 - A LAWYER SHALL PRESERVE THE CONFIDENCE AND SECRETS OF HIS CLIENT EVEN AFTER THE ATTORNEY-CLIENT RELATION IS TERMINATED.

Rule 21.01 - A lawyer shall not reveal the confidences or secrets of his client except;

(a) When authorized by the client after acquainting him of the consequences of the disclosure;

(b) When required by law;

(c) When necessary to collect his fees or to defend himself, his employees or associates or by judicial action.

Rule 21.02 - A lawyer shall not, to the disadvantage of his client, use information acquired in the course of employment, nor shall he use the same to his own advantage or that of a third person, unless the client with full knowledge of the circumstances consents thereto.

Rule 21.03 - A lawyer shall not, without the written consent of his client, give information from his files to an outside agency seeking such information for auditing, statistical, bookkeeping, accounting, data processing, or any similar purpose.

Rule 21.04 - A lawyer may disclose the affairs of a client of the firm to partners or associates thereof unless prohibited by the client.

Rule 21.05 - A lawyer shall adopt such measures as may be required to prevent those whose services are utilized by him, from disclosing or using confidences or secrets of the clients.

Rule 21.06 - A lawyer shall avoid indiscreet conversation about a client's affairs even with members of his family.

Rule 21.07 - A lawyer shall not reveal that he has been consulted about a particular case except to avoid possible conflict of interest.

CANON 22 - A LAWYER SHALL WITHDRAW HIS SERVICES ONLY FOR GOOD CAUSE AND UPON NOTICE APPROPRIATE IN THE CIRCUMSTANCES.

Rule 22.01 - A lawyer may withdraw his services in any of the following case:

(a) When the client pursues an illegal or immoral course of conduct in connection with the matter he is handling;

(b) When the client insists that the lawyer pursue conduct violative of these canons and rules;

(c) When his inability to work with co-counsel will not promote the best interest of the client;

(d) When the mental or physical condition of the lawyer renders it difficult for him to carry out the employment effectively;

(e) When the client deliberately fails to pay the fees for the services or fails to comply with the retainer agreement;

(f) When the lawyer is elected or appointed to public office; and
(g) Other similar cases.

Rule 22.02 - A lawyer who withdraws or is discharged shall, subject to a retainer lien, immediately turn over all papers and property to which the client is entitled, and shall cooperative with his successor in the orderly transfer of the matter, including all information necessary for the proper handling of the matter.

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Antonio L. Buensuceso Jr.