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THIRD DIVISION
[G.R. No. 141617. August 14, 2001]
ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT CORPORATION,petitioners, vs. RITA C. MEJIA, as
Executrix of Testate Estate of ANDREA CORDOVA VDA. DE GUTIERREZ, respondent.
D E C I S I O N
GONZAGA-REYES,J.:
In this petition for review by certiorari, petitioners pray for the setting aside of the Decision of the
Court of Appeals promulgated on 13 April 1999 and its 15 December 1999 Resolution in CA-G.R. CV No.
19281.
As culled from the decisions of the lower courts and the pleadings of the parties, the factual
background of this case is as set out herein:
Andrea Cordova Vda. de Gutierrez (Gutierrez) was the registered owner of a parcel of land in Camarin,
Caloocan City known as Lot 861 of the Tala Estate. The land had an aggregate area of twenty-five (25)
hectares and was covered by Transfer Certificate of Title (TCT) No. 5779 of the Registry of Deeds of
Caloocan City. The property was later subdivided into five lots with an area of five hectares each and
pursuant thereto, TCT No. 5779 was cancelled and five new transfer certificates of title were issued in the
name of Gutierrez, namely TCT No. 7123 covering Lot 861-A, TCT No. 7124 covering Lot 861-B, TCT No.
7125 covering Lot 861-C, TCT No. 7126 covering Lot 861-D and TCT No. 7127 covering Lot 861-E.
On 21 December 1964, Gutierrez and Cardale Financing and Realty Corporation (Cardale) executed a
Deed of Sale with Mortgage relating to the lots covered by TCT Nos. 7124, 7125, 7126 and 7127, for the
consideration of P800,000.00. Upon the execution of the deed, Cardale paid Gutierrez P171,000.00. It was
agreed that the balance of P629,000.00 would be paid in several installments within five years from thedate of the deed, at an interest of nine percent per annum based on the successive unpaid principal
balances. Thereafter, the titles of Gutierrez were cancelled and in lieu thereof TCT Nos. 7531 to 7534 were
issued in favor of Cardale.
To secure payment of the balance of the purchase price, Cardale constituted a mortgage on three of
the four parcels of land covered by TCT Nos. 7531, 7532 and 7533, encompassing fifteen hectares of
land.[1]
The encumbrance was annotated upon the certificates of title and the owners duplicate
certificates. The owners duplicates were retained by Gutierrez.
On 26 August 1968, owing to Cardales failure to settle its mortgage obligation, Gutierrez filed a
complaint for rescission of the contract with the Quezon City Regional Trial Court (RTC), which wasdocketed as Civil Case No. Q-12366.
[2]On 20 October 1969, during the pendency of the rescission case,
Gutierrez died and was substituted by her executrix, respondent Rita C. Mejia (Mejia). In 1971, plaintiffs
presentation of evidence was terminated. However, Cardale, which was represented by petitioner Adalia
B. Francisco (Francisco) in her capacity as Vice-President and Treasurer of Cardale, lost interest in
proceeding with the presentation of its evidence and the case lapsed into inactive status for a period of
about fourteen years.
In the meantime, the mortgaged parcels of land covered by TCT Nos. 7532 and 7533 became
delinquent in the payment of real estate taxes in the amount of P102,300.00, while the other mortgaged
property covered by TCT No. 7531 became delinquent in the amount of P89,231.37, which culminated in
their levy and auction sale on 1 and 12 September 1983, in satisfaction of the tax arrears. The highestbidder for the three parcels of land was petitioner Merryland Development Corporation (Merryland),
whose President and majority stockholder is Francisco. A memorandum based upon the certificate of sale
was then made upon the original copies of TCT Nos. 7531 to 7533.
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On 13 August 1984, before the expiration of the one year redemption period, Mejia filed a Motion for
Decision with the trial court. The hearing of said motion was deferred, however, due to a Motion for
Postponement filed by Cardale through Francisco, who signed the motion in her capacity as officer-in-
charge, claiming that Cardale needed time to hire new counsel. However, Francisco did not mention the
tax delinquencies and sale in favor of Merryland. Subsequently, the redemption period expired and
Merryland, acting through Francisco, filed petitions for consolidation of title,[3]
which culminated in the
issuance of certain orders[4]
decreeing the cancellation of Cardales TCT Nos. 7531 to 7533 and the issuance
of new transfer certificates of title free from any encumbrance or third-party claim whatsoever in favor ofMerryland. Pursuant to such orders, the Register of Deeds of Caloocan City issued new transfer certificates
of title in the name of Merryland which did not bear a memorandum of the mortgage liens in favor of
Gutierrez.
Thereafter, sometime in June 1985, Francisco filed in Civil Case No. Q-12366 an undated Manifestation
to the effect that the properties subject of the mortgage and covered by TCT Nos. 7531 to 7533 had been
levied upon by the local government of Caloocan City and sold at a tax delinquency sale. Francisco further
claimed that the delinquency sale had rendered the issues in Civil Case No. Q-12366 moot and
academic. Agreeing with Francisco, the trial court dismissed the case, explaining that since the properties
mortgaged to Cardale had been transferred to Merryland which was not a party to the case for rescission,
it would be more appropriate for the parties to resolve their controversy in another action.
On 14 January 1987, Mejia, in her capacity as executrix of the Estate of Gutierrez, filed with the RTC of
Quezon City a complaint for damages with prayer for preliminary attachment against Francisco, Merryland
and the Register of Deeds of Caloocan City. The case was docketed as Civil Case No. Q-49766. On 15 April
1988, the trial court rendered a decision[5]
in favor of the defendants, dismissing the complaint for
damages filed by Mejia. It was held that plaintiff Mejia, as executrix of Gutierrezs estate, failed to establish
by clear and convincing evidence her allegations that Francisco controlled Cardale and Merryland and that
she had employed fraud by intentionally causing Cardale to default in its payment of real property taxes on
the mortgaged properties so that Merryland could purchase the same by means of a tax delinquency
sale. Moreover, according to the trial court, the failure to recover the property subject of the Deed of Sale
with Mortgage was due to Mejias failure to actively pursue the action for rescission (Civil Case No. 12366),
allowing the case to drag on for eighteen years. Thus, it ruled that -
xxx xxx xxx
The act of not paying or failing to pay taxes due the government by the defendant Adalia B. Francisco, as
treasurer of Cardale Financing and Realty Corporation do not, per se, constitute perpetration of fraud or an
illegal act. It do [sic] not also constitute an act of evasion of an existing obligation (to plaintiff) if there is no
clear showing that such an act of non-payment of taxes was deliberately made despite its (Cardales)
solvency and capability to pay. There is no evidence showing that Cardale Financing and Realty Corporation
was financially capable of paying said taxes at the time.
There are times when the corporate fiction will be disregarded: (1) where all the members or stockholders
commit illegal act; (2) where the corporation is used as dummy to commit fraud or wrong; (3) where the
corporation is an agency for a parent corporation; and (4) where the stock of a corporation is owned by
one person. (I, Fletcher, 58, 59, 61 and 63). None of the foregoing reasons can be applied to the incidents
in this case: (1) there appears no illegal act committed by the stockholders of defendant Merryland
Development Corporation and Cardale Financing and Realty Corporation; (2) the incidents proven by
evidence of the plaintiff as well as that of the defendants do not show that either or both corporations
were used as dummies by defendant Adalia B. Francisco to commit fraud or wrong. To be used as [a]
dummy, there has to be a showing that the dummy corporation is controlled by the person using it. The
evidence of plaintiff failed to prove that defendant Adalia B. Francisco has controlling interest in either orboth corporations. On the other hand, the evidence of defendants clearly show that defendant Francisco
has no control over either of the two corporations; (3) none of the two corporations appears to be an
agency for a parent (the other) corporation; and (4) the stock of either of the two corporation [sic] is not
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owned by one person (defendant Adalia B. Francisco). Except for defendant Adalia B. Francisco, the
incorporators and stockholders of one corporation are different from the other.
xxx xxx xxx
The said case (Civil Case No. 12366) remained pending for almost 18 years before the then Court of First
Instance, now the Regional Trial Court. Even if the trial of the said case became protracted on account of
the retirement and/or promotion of the presiding judge, as well as the transfer of the case from one sala to
another, and as claimed by the plaintiff that the defendant lost interest, (which allegation is unusual, so to
speak), the court believe [sic] that it would not have taken that long to dispose [of] said case had plaintiff
not slept on her rights, and her duty and obligation to see to it that the case is always set for hearing so
that it may be adjudicated [at] the earliest possible time. This duty pertains to both parties, but plaintiff
should have been more assertive, as it was her obligation, similar to the obligation of plaintiff relative to
the service of summons in other cases. The fact that Cardale Financing and Realty Corporation did not
perform its obligation as provided in the said Deed of Sale with Mortgage (Exhibit A) is very clear. Likewise,
the fact that Andrea Cordova, the contracting party, represented by the plaintiff in this case did not also
perform her duties and/or obligation provided in the said contract is also clear. This could have been the
reason why the plaintiff in said case (Exhibit E) slept on her rights and allowed the same to remain pending
for almost 18 years. However, and irrespective of any other reason behind the same, the court believesthat plaintiff, indeed, is the one to blame for the failure of the testate estate of the late Andrea Cordova
Vda. de Gutierrez to recover the money or property due it on the basis of Exhibit A.
xxx xxx xxx
xxx Had the plaintiff not slept on her rights and had it not been for her failure to perform her
commensurate duty to pursue vigorously her case against Cardale Financing and Realty Corporation in said
Civil Case No. 12366, she could have easily known said non-payment of realty taxes on the said properties
by said Cardale Financing and Realty Corporation, or, at least the auction sales that followed, and from
which she could have redeemed said properties within the one year period provided by law, or, have
availed of remedies at the time to protect the interest of the testate estate of the late Andrea Cordova
Vda. de Gutierrez.
xxx xxx xxx
The dispositive portion of the trial courts decision states -
WHEREFORE, in view of all the foregoing consideration, the court hereby renders judgment in favor of the
defendants Register of Deeds of Caloocan City, Merryland Development Corporation and Adalia B.
Francisco, and against plaintiff Rita C. Mejia, as Executrix of the Testate Estate of Andrea Cordova Vda. De
Gutierrez, and hereby orders:
1. That this case for damages be dismissed, at the same time, plaintiffs motion for reconsideration
dated September 23, 1987 is denied;
2. Plaintiff pay the defendants Merryland Development Corporation and the Register of Deeds the sum
of P20,000.00, and another sum of P20,000.00 to the defendant Adalia B. Francisco, as and for
attorneys fees and litigation expenses, and pay the costs of the proceedings.
SO ORDERED.
The Court of Appeals,[6]
in its decision[7]
promulgated on 13 April 1999, reversed the trial court, holdingthat the corporate veil of Cardale and Merryland must be pierced in order to hold Francisco and Merryland
solidarily liable since these two corporations were used as dummies by Francisco, who employed fraud in
allowing Cardale to default on the realty taxes for the properties mortgaged to Gutierrez so that Merryland
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could acquire the same free from all liens and encumbrances in the tax delinquency sale and, as a
consequence thereof, frustrating Gutierrezs rights as a mortgagee over the subject properties. Thus, the
Court of Appeals premised its findings of fraud on the following circumstances
xxx xxx xxx
xxx Appellee Francisco knew that Cardale of which she was vice-president and treasurer had an
outstanding obligation to Gutierrez for the unpaid balance of the real properties covered by TCT Nos. 7531
to 7533, which Cardale purchased from Gutierrez which account, as of December 1988, already amountedto P4,414,271.43 (Exh. K, pp. 39-44, record); she also knew that Gutierrez had a mortgage lien on the said
properties to secure payment of the aforesaid obligation; she likewise knew that the said mortgaged
properties were under litigation in Civil Case No. Q-12366 which was an action filed by Gutierrez against
Cardale for rescission of the sale and/or recovery of said properties (Exh. E). Despite such knowledge,
appellee Francisco did not inform Gutierrezs Estate or the Executrix (herein appellant) as well as the trial
court that the mortgaged properties had incurred tax delinquencies, and that Final Notices dated July 9,
1982 had been sent by the City Treasurer of Caloocan demanding payment of such tax arrears within ten
(10) days from receipt thereof (Exhs. J & J-1, pp. 37-38, record). Both notices which were addressed to
Cardale Financing & Realty Corporation c/o Merryland Development Corporation
and sent to appellee Franciscos address at 83 Katipunan Road, White Plains, Quezon City, gave warning
that if the taxes were not paid within the aforesaid period, the properties would be sold at public auction
to satisfy the tax delinquencies.
To reiterate, notwithstanding receipt of the aforesaid notices, appellee Francisco did not inform the Estate
of Gutierrez or her executrix about the tax delinquencies and of the impending auction sale of the said
properties. Even a modicum of good faith and fair play should have encouraged appellee Francisco to at
least advise Gutierrezs Estate through her executrix (herein appellant) and the trial court which was
hearing the complaint for rescission and recovery of said properties of such fact, so that the Estate of
Gutierrez, which had a real interest on the properties as mortgagee and as plaintiff in the rescission and
recovery suit, could at least take steps to forestall the auction sale and thereby preserve the properties and
protect its interests thereon. And not only did appellee Francisco allow the auction sale to take place, but
she used her other corporation (Merryland) in participating in the auction sale and in acquiring the very
properties which her first corporation (Cardale) had mortgaged to Gutierrez. Again, appellee Francisco did
not thereafter inform the Estate of Gutierrez or its executrix (herein appellant) about the auction sale, thus
precluding the Estate from exercising its right of redemption. And it was only after the expiration of the
redemption period that appellee Francisco filed a Manifestation in Civil Case No. Q-12366 (Exh. I, p. 36,
record), in which she disclosed for the first time to the trial court and appellant that the properties subject
of the case and on which Gutierrez or her Estate had a mortgage lien, had been sold in a tax delinquency
sale. And in order to further conceal her deceptive maneuver, appellee Francisco did not divulge in heraforesaid Manifestation that it was her other corporation (Merryland) that acquired the properties in the
auction sale.
We are not impressed by appellees submission that no evidence was adduced to prove that Cardale had
the capacity to pay the tax arrears and therefore she or Cardale may not be faulted for the tax delinquency
sale of the properties in question. Appellee Franciscos bad faith or deception did not necessarily lie in
Cardales or her failure to settle the tax deliquencies in question, but in not disclosing to Gutierrezs estate
or its executrix (herein appellant) which had a mortgage lien on said properties the tax delinquencies and
the impending auction sale of the encumbered properties.
Appellee Franciscos deception is further shown by her concealment of the tax delinquency sale of the
properties from the estate or its executrix, thus preventing the latter from availing of the right of
redemption of said properties. That appellee Francisco divulged the auction sale of the properties only
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after such redemption period had lapsed clearly betrays her intention to keep Gutierrezs Estate or its
Executrix from availing of such right. And as the evidence would further show, appellee Francisco had a
hand in securing for Merryland consolidation of its ownership of the properties and in seeing to it that
Merrylands torrens certificates for the properties were free from liens and encumbrances. All these
appellee Francisco did even as she was fully aware that Gutierrez or her estate had a valid and subsisting
mortgage lien on the said properties.
It is likewise worthy of note that early on appellee Francisco had testified in the action for rescission of saleand recovery of possession and ownership of the properties which Gutierrez filed against Cardale (Civil
Case No. Q-12366) in her capacity as defendant Cardales vice-president and treasurer. But then, for no
plausible reason whatsoever, she lost interest in continuing with the presentation of evidence for
defendant Cardale. And then, when appellant Mejia as executrix of Gutierrezs Estate filed on August 13,
1984 a Motion for Decision in the aforesaid case, appellee Francisco moved to defer consideration of
appellants Motion on the pretext that defendant Cardale needed time to employ another
counsel. Significantly, in her aforesaid Motion for Postponement dated August 16, 1984 which appellee
Francisco personally signed as Officer-in-Charge of Cardale, she also did not disclose the fact that the
properties subject matter of the case had long been sold at a tax delinquency sale and acquired by her
other corporation Merryland.
And as if what she had already accomplished were not enough fraudulence, appellee Francisco, acting in
behalf of Merryland, caused the issuance of new transfer certificates of title in the name of Merryland,
which did not anymore bear the mortgage lien in favor of Gutierrez. In the meantime, to further avoid
payment of the mortgage indebtedness owing to Gutierrezs estate, Cardale corporation was
dissolved. Finally, to put the properties beyond the reach of the mortgagee, Gutierrezs estate, Merryland
caused the subdivision of such properties, which were subsequently sold on installment basis.
In its petition for certiorari, petitioners argue that there is no law requiring the mortgagor to inform
the mortgagee of the tax delinquencies, if any, of the mortgaged properties. Moreover, petitioners claim
that Cardales failure to pay the realty taxes,per se, does not constitute fraud since it was not proven that
Cardale was capable of paying the taxes. Petitioners also contend that if Mejia, as executrix of Gutierrezs
estate, was not remiss in her duty to pursue Civil Case No. 12366, she could have easily learned of the non-
payment of realty taxes on the subject properties and of the auction sale that followed and thus, have
redeemed the properties or availed of some other remedy to conserve the estate of Gutierrez. In addition,
Mejia could have annotated a notice oflis pendenson the titles of the mortgaged properties, but she failed
to do so. It is the stand of petitioners that respondent has not adduced any proof that Francisco controlled
both Cardale and Merryland and that she used these two corporations to perpetuate a fraud upon
Gutierrez or her estate. Petitioners maintain that the evidence shows that, apart form the meager share of
petitioner Francisco, the stockholdings of both corporations comprise other shareholders, and the
stockholders of either of them, aside from petitioner Francisco, are composed of different persons. As to
Civil Case No. 12366, petitioners insist that the decision of the trial court in that case constitutes res
judicatato the instant case.[8]
It is dicta in corporation law that a corporation is a juridical person with a separate and distinct
personality from that of the stockholders or members who compose it.[9]
However, when the legal fiction
of the separate corporate personality is abused, such as when the same is used for fraudulent or wrongful
ends, the courts have not hesitated to pierce the corporate veil. One of the earliest formulations of this
doctrine of piercing the corporate veil was made in the American case of United States v. Milwaukee
Refrigerator Transit Co.[10]
-
If any general rule can be laid down, in the present state of authority, it is that a corporation will be lookedupon as a legal entity as a general rule, and until sufficient reason to the contrary appears; but, when the
notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime,
the law will regard the corporation as an association of persons.
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Since then a good number of cases have firmly implanted this doctrine in Philippine
jurisprudence.[11]
One such case is Umali v. Court of Appeals[12]
wherein the Court declared that
Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the legal
fiction that a corporation is an entity with a juridical personality separate and distinct from its members or
stockholders may be disregarded. In such cases, the corporation will be considered as a mere association
of persons. The members or stockholders of the corporation will be considered as the corporation, that is,
liability will attach directly to the officers and stockholders. The doctrine applies when the corporate fiction
is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a
shield to confuse the legitimate issues, or where a corporation is the 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.
With specific regard to corporate officers, the general rule is that the officer cannot be held personally
liable with the corporation, whether civilly or otherwise, for the consequences of his acts, if he acted for
and in behalf of the corporation, within the scope of his authority and in good faith. In such cases, the
officers acts are properly attributed to the corporation.[13]
However, if it is proven that the officer has used
the corporate fiction to defraud a third party,[14]
or that he has acted negligently, maliciously or in bad
faith,[15]then the corporate veil shall be lifted and he shall be held personally liable for the particularcorporate obligation involved.
The Court, after an assiduous study of this case, is convinced that the totality of the circumstances
appertaining conduce to the inevitable conclusion that petitioner Francisco acted in bad faith. The events
leading up to the loss by the Gutierrez estate of its mortgage security attest to this. It has been established
that Cardale failed to comply with its obligation to pay the balance of the purchase price for the four
parcels of land it bought from Gutierrez covered by TCT Nos. 7531 to 7534, which obligation was secured
by a mortgage upon the lands covered by TCT Nos. 7531, 7532 and 7533. This prompted Gutierrez to file
an action for rescission of the Deed of Sale with Mortgage (Civil Case No. Q-12366), but the case dragged
on for about fourteen years when Cardale, as represented by Francisco, who was Vice-President and
Treasurer of the same,[16]lost interest in completing its presentation of evidence.
Even before 1984 when Mejia, in her capacity as executrix of Gutierrezs estate, filed a Motion for
Decision with the trial court, there is no question that Francisco knew that the properties subject of the
mortgage had become tax delinquent. In fact, as treasurer of Cardale, Francisco herself was the officer
charged with the responsibility of paying the realty taxes on the corporations properties. This was
admitted by the trial court in its decision.[17]
In addition, notices dated 9 July 1982 from the City Treasurer
of Caloocan demanding payment of the tax arrears on the subject properties and giving warning that if the
realty taxes were not paid within the given period then such properties would be sold at public auction to
satisfy the tax delinquencies were sent directly to Franciscos address in White Plains, Quezon City.[18]
Thus,
as early as 1982, Francisco could have informed the Gutierrez estate or the trial court in Civil Case No. Q-12366 of the tax arrears and of the notice from the City Treasurer so that the estate could have taken the
necessary steps to prevent the auction sale and to protect its interests in the mortgaged properties, but
she did no such thing. Finally, in 1983, the properties were levied upon and sold at public auction wherein
Merryland - a corporation where Francisco is a stockholder[19]
and concurrently acts as President and
director[20]
- was the highest bidder.
When Mejia filed the Motion for Decision in Civil Case No. Q-12366,[21]
the period for redeeming the
properties subject of the tax sale had not yet expired.[22]
Under the Realty Property Tax Code,[23]
pursuant
to which the tax levy and sale were prosecuted,[24]
both the delinquent taxpayer and in his absence, any
person holding a lien or claim over the property shall have the right to redeem the property within one
year from the date of registration of the sale.[25]However, if these persons fail to redeem the propertywithin the time provided, then the purchaser acquires the property free from any encumbrance or third
party claim whatsoever.[26]
Cardale made no attempts to redeem the mortgaged property during this
time. Moreover, instead of informing Mejia or the trial court in Q-12366 about the tax sale, the records
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show that Francisco filed a Motion for Postponement[27]
in behalf of Cardale - even signing the motion in
her capacity as officer-in-charge - which worked to defer the hearing of Mejias Motion for Decision. No
mention was made by Francisco of the tax sale in the motion for postponement. Only after the redemption
period had expired did Francisco decide to reveal what had transpired by filing a Manifestation stating that
the properties subject of the mortgage in favor of Gutierrez had been sold at a tax delinquency sale;
however, Francisco failed to mention that it was Merryland that acquired the properties since she was
probably afraid that if she did so the court would see behind her fraudulent scheme. In this regard, it is
also significant to note that it was Francisco herself who filed the petitions for consolidation of title andwho helped secure for Merryland titles over the subject properties free from any encumbrance or third-
party claim whatsoever.
It is exceedingly apparent to the Court that the totality of Francisos actions clearly betray an intention
to conceal the tax delinquencies, levy and public auction of the subject properties from the estate of
Gutierrez and the trial court in Civil Case No. Q-12366 until after the expiration of the redemption period
when the remotest possibility for the recovery of the properties would be extinguished .[28]
Consequently,
Francisco had effectively deprived the estate of Gutierrez of its rights as mortgagee over the three parcels
of land which were sold to Cardale. If Francisco was acting in good faith, then she should have disclosed
the status of the mortgaged properties to the trial court in Civil Case No. Q-12366 - especially after Mejia
had filed a Motion for Decision, in response to which she filed a motion for postponement wherein shecould easily have mentioned the tax sale - since this action directly affected such properties which were
the subject of both the sale and mortgage.
That Merryland acquired the property at the public auction only serves to shed more light upon
Franciscos fraudulent purposes. Based on the findings of the Court of Appeals, Francisco is the controlling
stockholder and President of Merryland.[29]
Thus, aside from the instrumental role she played as an officer
of Cardale, in evading that corporations legitimate obligations to Gutierrez, it appears that Franciscos
actions were also oriented towards securing advantages for another corporation in which she had a
substantial interest. We cannot agree, however, with the Court of Appeals decision to hold Merryland
solidarily liable with Francisco. The only act imputable to Merryland in relation to the mortgaged
properties is that it purchased the same and this by itself is not a fraudulent or wrongful act. No evidence
has been adduced to establish that Merryland was a mere alter ego or business conduit of Francisco. Time
and again it has been reiterated that mere ownership by a single stockholder or by another corporation of
all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the
separate corporate personality.[30]
Neither has it been alleged or proven that Merryland is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or
adjunct of Cardale.[31]
Even assuming that the businesses of Cardale and Merryland are interrelated, this
alone is not justification for disregarding their separate personalities, absent any showing that Merryland
was purposely used as a shield to defraud creditors and third persons of their rights .[32]
Thus, Merrylands
separate juridical personality must be upheld.
Based on a statement of account submitted by Mejia, the Court of Appeals awarded P4,314,271.43 in
favor of the estate of Gutierrez which represents the unpaid balance of the purchase price in the amount
of P629,000.00 with an interest rate of nine percent (9%) per annum, in accordance with the agreement of
the parties under the Deed of Sale with Mortgage,[33]
as of December 1988.[34]
Therefore, in addition to the
amount awarded by the appellate court, Francisco should pay the estate of Gutierrez interest on the
unpaid balance of the purchase price (in the amount of P629,000.00) at the rate of nine percent (9%) per
annum computed from January, 1989 until fully satisfied.
Finally, contrary to petitioners assertions, we agree with the Court of Appeals that the decision of the
trial court in Civil Case No. Q-12366 does not constitute res judicata insofar as the present case is
concerned because the decision in the first case was not a judgment on the merits. Rather, it was merelybased upon the premise that since Cardale had been dissolved and the property acquired by another
corporation, the action for rescission would not prosper. As a matter of fact, it was even expressly stated
by the trial court that the parties should ventilate their issues in another action.
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WHEREFORE, the 13 April 1999 Decision of the Court of Appeals is hereby accordingly MODIFIED so as
to hold ADALIA FRANCISCO solely liable to the estate of Gutierrez for the amount of P4,314,271.43 and for
interest on the unpaid balance of the purchase price (in the amount of P629,000.00) at the rate of nine
percent (9%) per annum computed from January, 1989 until fully satisfied. MERRYLAND is hereby absolved
from all liability.
SO ORDERED.
THIRD DIVISION
[A.C. No. 4218. July 20, 2000]
ROMEO H. SIBULO, complainant, vs. ATTY. STANLEY R. CABRERA, respondent.
D E C I S I O N
PURISIMA,J.:
At bar is an administrative complaint against the respondent, Atty. Stanley Cabrera, for unethical
practice/conduct.
The facts that matter are as follows:
In a case, entitled "Brenda Sucaldito[1]
versus Reynaldo Marcelo, et al.",docketed as Civil Case No.
90-55209 before Branch 53 of the Regional Trial Court of Manila, defendant Reynaldo Marcelo
retained the services of the herein respondent as his lawyer. Subsequently, however, therespondent also entered his appearance as counsel for plaintiff Brenda Sucaldito in the same case,
without withdrawing his appearance as counsel for defendant Reynaldo Marcelo. In view of such
development Atty. Reyes Geromo, former counsel of Brenda Sucaldito, filed with the Manila
Regional Trial Court a motion to disqualify the respondent on the ground of unethical
conduct.[2]
Finding merit in the said motion, the trial court ordered the disqualification of
respondent in the case.[3]
Complainant Romeo Sibulo, an intervenor in the aforementioned Civil Case No. 90-55209, brought
the present administrative complaint against respondent, praying for the latters removal from or
suspension in the practice of law, on the ground of unethical practice/conduct.
In his Answer[4]
to the Complaint, respondent denied the wrongdoing alluded to him; theorizing
that "xxx I merely accepted a case from a plaintiff and at the same time I was the counsel as
intervenor of one of the defendants xxx."
This case was referred to the Integrated Bar of the Philippines (IBP) for investigation, report and
recommendation.[5]
Acting thereupon on April 7, 2000, the IBP came out with its Resolution No. XIV-000-163, which
reads:
"RESOLUTION NO. XIV-000-163
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Adm. Case No. 4218
Romeo E. Sibulo vs. Atty. Stanly Cabrera
RESOLVED to ADOPT and APPROVE, as it is hereby ADOPTED and APPROVED, the Report and
Recommendation of the Investigating Commissioner of the above-entitled case, herein made part
of this Resolution/Decision as annex A; and, finding the recommendation fully supported by the
evidence on record and the applicable laws and rules, said recommendation is with
modificationthat Respondent be CENSUREDand FINEDOne Thousand Pesos (P1,000.00)."
[6]
The IBP Report,[7]
in part, found:
"The respondents answer is quite revealing. While he denies any unethical conduct on his
part, respondent seeks to justify what he did and of which he is charged by tongue-in-cheek
declaring that he did no wrong considering that I merely accepted a case from a plaintiff and
at the same time I was the counsel as intervenor of one of the defendants.
Nothing further need be said. For all his disclaimers and the affidavits of two (2) witnesses in
his favor, it is beyond cavil that Atty. Cabrera has violated Canon 15 and the subsequent
Rules of Code of Professional Responsibility. The complainants motives are not of
paramount interest. To our mind, Atty. Cabrera has lain himself open to the specifications
against him. Remarkably, he admits the same by his lame explanation.
From all the foregoing, we recommend that Atty. Stanley R. Cabrera be CENSURED by the
Honorable Supreme Court and ordered to fine a pay (sic) in such amount as the Honorable
Court may see fit."
Respondent has all but admitted the wrongdoing complained of, when he stated in his Answer that
he "merely accepted a case from a plaintiff and at the same time I [he] was the counsel as
intervenor of one of the defendants." Such a revelation is a categorical admission that he
(respondent) represented two conflicting interests, which representations or appearances are
prohibited by Rule 15.03 of Canon 15 of the Code of Professional Responsibility, which provides:
"CANON 15 - A LAWYER SHALL OBSERVE CANDOR, FAIRNESS, AND LOYALTY IN ALL HIS
DEALINGS AND TRANSACTIONS WITH HIS CLIENT.
xxx.....xxx.....xxx
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."
Respondent was bound to faithfully represent his client in all aspects of subject civil case. When he
agreed to represent the defendant and later on, also the plaintiff in the same case, he could no
longer serve either of his said clients faithfully, as his duty to the plaintiff did necessarily conflict
with his duty to the defendant. The relation of attorney and client is based on trust, so that double
dealing which could sometimes lead to treachery, should be avoided.[8]
Considering the attendant facts and circumstances, the Court is of the sense that the amount of
fine recommended below is not commensurate with the wrong done by the respondent.
WHEREFORE,respondent is found GUILTYof unethical conduct for representing two conflicting
interests and is hereby FINED in the amount of TEN THOUSAND (P10,000.00) Pesos, with a warning
that a repetition of the same or similar acts will be dealt with more severely.
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SO ORDERED.
Republic of the Philippines
Supreme Court
Manila
EN BANC
CLARITA J. SAMALA,
Complainant,
ADM. CASE NO. 5439
Present:
PUNO, C.J.,
QUISUMBING,
YNARES-SANTIAGO,
SANDOVAL-GUTIERREZ,
CARPIO,
AUSTRIA-MARTINEZ,
- versus - CORONA,
CARPIO MORALES,
CALLEJO, SR.,
AZCUNA,
TINGA,
CHICO-NAZARIO,
GARCIA, and
VELASCO, JR.,JJ.
ATTY. LUCIANO D. VALENCIA, Promulgated:
Respondent. _______________________
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
R E S O L U T I O N
AUSTRIA-MARTINEZ,J.
Before us is a complaint[1]
dated May 2, 2001 filed by Clarita J. Samala (complainant) against
Atty. Luciano D. Valencia (respondent) for Disbarment on the following grounds: (a) serving on two
separate occasions as counsel for contending parties; (b) knowingly misleading the court by submitting
false documentary evidence; (c) initiating numerous cases in exchange for nonpayment of rental fees; and
(d) having a reputation of being immoral by siring illegitimate children.
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After respondent filed his Comment, the Court, in its Resolution of October 24, 2001, referred the case to
the Integrated Bar of the Philippines (IBP) for investigation, report and recommendation.[2]
The investigation was conducted by Commissioner Demaree Jesus B. Raval. After a series of hearings, the
parties filed their respective memoranda[3]
and the case was deemed submitted for resolution.
Commissioner Wilfredo E.J.E. Reyes prepared the Report and Recommendation[4]
dated January 12,
2006. He found respondent guilty of violating Canons 15 and 21 of the Code of Professional Responsibilityand recommended the penalty of suspension for six months.
In a minute Resolution[5]
passed on May 26, 2006, the IBP Board of Governors adopted and
approved the report and recommendation of Commissioner Reyes but increased the penalty of suspension
from six months to one year.
We adopt the report of the IBP Board of Governors except as to the issue on immorality and as to the
recommended penalty.
On serving as counsel for contending parties.
Records show that in Civil Case No. 95-105-MK, filed in the Regional Trial Court (RTC), Branch
272, Marikina City, entitled Leonora M. Aville v. Editha Valdez for nonpayment of rentals, herein
respondent, while being the counsel for defendant Valdez, also acted as counsel for the tenants Lagmay,
Valencia, Bustamante andBayuga[6]
by filing an Explanation and Compliance before the RTC.[7]
In Civil Case No. 98-6804 filed in the Metropolitan Trial Court (MTC), Branch 75, Marikina City,
entitled Editha S. Valdez and Joseph J. Alba, Jr. v. SalveBustamante and her husband for ejectment,
respondent represented Valdez against Bustamante one of the tenants in the property subject of the
controversy.Defendants appealed to the RTC, Branch 272, Marikina City docketed as SCA Case No. 99-341-
MK. In his decision dated May 2, 2000,[8]
Presiding Judge Reuben P. dela Cruz[9]
warned respondent to
refrain from repeating the act of being counsel of record of both parties in Civil Case No. 95-105-MK.
But in Civil Case No. 2000-657-MK, filed in the RTC, Branch 273, Marikina City, entitled Editha S. Valdez v.
Joseph J. Alba, Jr. and Register of Deeds of MarikinaCity, respondent, as counsel for Valdez, filed a
Complaint for Rescission of Contract with Damages and Cancellation of Transfer Certificate of Title No.
275500 against Alba, respondent's former client in Civil Case No. 98-6804 and SCA Case No. 99-341-MK.
Records further reveal that at the hearing of November 14, 2003, respondent admitted that in Civil Case
No. 95-105-MK, he was the lawyer for Lagmay (one of the tenants) but not
for Bustamante and Bayuga[10]
albeit he filed the Explanation and Compliance for and in behalf of the
tenants.[11]
Respondent also admitted that he represented Valdez in Civil Case No. 98-6804 and SCA Case
No. 99-341-MK against Bustamante and her husband but denied being the counsel for Alba although the
case is entitled Valdez and Albav. Bustamante and her husband, because Valdez told him to include Alba
as the two were the owners of the property[12]
and it was only Valdez who signed the complaint
for ejectment.[13]
But, while claiming that respondent did not represent Alba, respondent, however, avers
that he already severed his representation for Alba when the latter charged
respondent with estafa.[14]
Thus, the filing of Civil Case No. 2000-657-MK against Alba.
Rule 15.03, Canon 15 of the Code of Professional Responsibility provides that a lawyer shall not represent
conflicting interests except by written consent of all concerned given after a full disclosure of the facts.
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A lawyer may not, without being guilty of professional misconduct, act as counsel for a person whose
interest conflicts with that of his present or former client.[15]
He may not also undertake to discharge
conflicting duties any more than he may represent antagonistic interests. This stern rule is founded on the
principles of public policy and good taste.[16]
It springs from the relation of attorney and client which is one
of trust and confidence. Lawyers are expected not only to keep inviolate the clients confidence, but also to
avoid the appearance of treachery and double-dealing for only then can litigants be encouraged to entrust
their secrets to their lawyers, which is of paramount importance in the administration of justice.[17]
One of the tests of inconsistency of interests is whether the acceptance of a new relation would preventthe full discharge of the lawyers duty of undivided fidelity and loyalty to the client or invite suspicion of
unfaithfulness or double-dealing in the performance of that duty.[18]
The stern rule against representation of conflicting interests is founded on principles of public policy and
good taste. It springs from the attorneys duty to represent his client with undivided fidelity and to maintain
inviolate the clients confidence as well as from the injunction forbidding the examination of an attorney as
to any of the privileged communications of his client.[19]
An attorney owes loyalty to his client not only in the case in which he has represented him but also after
the relation of attorney and client has terminated.
[20]
The bare attorney-client relationship with a clientprecludes an attorney from accepting professional employment from the clients adversary either in the
same case[21]
or in a different but related action.[22]
A lawyer is forbidden from representing a subsequent
client against a former client when the subject matter of the present controversy is related, directly or
indirectly, to the subject matter of the previous litigation in which he appeared for the former client.[23]
We held in Nombrado v. Hernandez[24]
that the termination of the relation of attorney and client provides
no justification for a lawyer to represent an interest adverse to or in conflict with that of the former
client. The reason for the rule is that the clients confidence once reposed cannot be divested by the
expiration of the professional employment.[25]
Consequently, a lawyer should not, even after the severance
of the relation with his client, do anything which will injuriously affect his former client in any matter in
which he previously represented him nor should he disclose or use any of the clients confidences acquired
in the previous relation.[26]
In this case, respondents averment that his relationship with Alba has long been severed by the act of the
latter of not turning over the proceeds collected in Civil Case No. 98-6804, in connivance with the
complainant, is unavailing. Termination of the attorney-client relationship precludes an attorney from
representing a new client whose interest is adverse to his former client. Alba may not be his original client
but the fact that he filed a case entitled Valdez and Albav. Bustamante and her husband, is a clear
indication that respondent is protecting the interests of both Valdez and Alba in the said case. Respondent
cannot just claim that the lawyer-client relationship between him and Alba has long been severed without
observing Section 26, Rule 138 of the Rules of Court wherein the written consent of his client is required.
In Gonzales v. Cabucana, Jr.,[27]
citing the case of Quiambao v. Bamba,[28]
we held that:
The proscription against representation of conflicting interests applies to a situation where
the opposing parties are present clients in the same action or in an unrelated action. It is of
no moment that the lawyer would not be called upon to contend for one client that which
the lawyer has to oppose for the other client, or that there would be no occasion to use the
confidential information acquired from one to the disadvantage of the other as the two
actions are wholly unrelated. It is enough that the opposing parties in one case, one of
whom would lose the suit, are present clients and the nature or conditions of the lawyersrespective retainers with each of them would affect the performance of the duty of
undivided fidelity to both clients.[29]
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Respondent is bound to comply with Canon 21 of the Code of Professional Responsibility which states that
a lawyer shall preserve the confidences and secrets of his client even after the attorney-client relation is
terminated.
The reason for the prohibition is found in the relation of attorney and client, which is one of trust and
confidence of the highest degree. A lawyer becomes familiar with all the facts connected with his clientscase. He learns from his client the weak points of the action as well as the strong ones. Such knowledge
must be considered sacred and guarded with care.[30]
From the foregoing, it is evident that respondents representation of Valdez and Alba
against Bustamante and her husband, in one case, and Valdez against Alba, in another case, is a clear case
of conflict of interests which merits a corresponding sanction from this Court. Respondent may have
withdrawn his representation in Civil Case No. 95-105-MK upon being warned by the court,[31]
but the
same will not exculpate him from the charge of representing conflicting interests in his representation in
Civil Case No. 2000-657-MK.
Respondent is reminded to be more cautious in accepting professional employments, to refrain from all
appearances and acts of impropriety including circumstances indicating conflict of interests, and to behave
at all times with circumspection and dedication befitting a member of the Bar, especially observing candor,
fairness and loyalty in all transactions with his clients.[32]
On knowingly misleading the court by submitting false documentary evidence.
Complainant alleges that in Civil Case No. 00-7137 filed before MTC, Branch 75 for ejectment, respondent
submitted TCT No. 273020 as evidence of Valdez's ownership despite the fact that a new TCT No. 275500
was already issued in the name of Alba on February 2, 1995.
Records reveal that respondent filed Civil Case No. 00-7137 on November 27, 2000 and presented TCT No.
273020 as evidence of Valdez's ownership of the subject property.[33]
During the hearing before
Commissioner Raval, respondent avers that when the Answer was filed in the said case, that was the time
that he came to know that the title was already in the name of Alba; so that when the court dismissed the
complaint, he did not do anything anymore.[34]
Respondent further avers that Valdez did not tell him the
truth and things were revealed to him only when the case for rescission was filed in 2002.
Upon examination of the record, it was noted that Civil Case No. 2000-657-MK for rescission of contract
and cancellation of TCT No. 275500 was also filed onNovember 27, 2000,[35]
before RTC, Branch
273, Marikina City, thus belying the averment of respondent that he came to know of Alba's title only in
2002 when the case for rescission was filed. It was revealed during the hearing before
Commissioner Raval that Civil Case Nos. 00-7137 and 2000-657-MK were filed on the same date, although
in different courts and at different times.
Hence, respondent cannot feign ignorance of the fact that the title he submitted was already cancelled in
lieu of a new title issued in the name of Alba in 1995 yet, as proof of the latter's ownership.
Respondent failed to comply with Canon 10 of the Code of Professional Responsibility which provides that
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 mislead by any artifice. It matters not that the trial court was not misled by respondent's
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submission of TCT No. 273020 in the name of Valdez, as shown by its decision dated January 8,
2002[36]
dismissing the complaint for ejectment. What is decisive in this case is respondent's intent in trying
to mislead the court by presenting TCT No. 273020 despite the fact that said title was already cancelled
and a new one, TCT No. 275500, was already issued in the name of Alba.
In Young v. Batuegas,[37]
we held that a lawyer must be a disciple of truth. He swore upon his admission to
the Bar that he will do no falsehood nor consent to the doing of any in court and he shall conduct himself
as a lawyer according to the best of his knowledge and discretion with all good fidelity as well to the courtsas to his clients.
[38]He should bear in mind that as an officer of the court his high vocation is to correctly
inform the court upon the law and the facts of the case and to aid it in doing justice and arriving at correct
conclusion.[39]
The courts, on the other hand, are entitled to expect only complete honesty from lawyers
appearing and pleading before them. While a lawyer has the solemn duty to defend his clients rights and is
expected to display the utmost zeal in defense of his clients cause, his conduct must never be at the
expense of truth.
A lawyer is the servant of the law and belongs to a profession to which society has entrusted the
administration of law and the dispensation of justice.[40]
As such, he should make himself more an
exemplar for others to emulate.
[41]
On initiating numerous cases in exchange for nonpayment of rental fees.
Complainant alleges that respondent filed the following cases: (a) Civil Case No. 2000-657-MK at the RTC,
Branch 272; (b) Civil Case No. 00-7137 at the MTC, Branch 75; and (c) I.S. Nos. 00-4439 and 01-036162 both
entitled Valencia v. Samala for estafa and grave coercion, respectively, before the Marikina City
Prosecutor.Complainant claims that the two criminal cases were filed in retaliation for the cases she filed
against Lagmay docketed as I.S. No. 00-4306 for estafa and I.S. No. 00-4318 against Alvin Valencia (son of
respondent) for trespass to dwelling.
As culled from the records, Valdez entered into a retainer agreement with respondent. As payment for his
services, he was allowed to occupy the property for free and utilize the same as his office pursuant to their
retainer agreement.[42]
Respondent filed I.S. Nos. 00-4439[43]
and 01-036162[44]
both entitled Valencia v. Samala for estafa and
grave coercion, respectively, to protect his client's rights against complainant who filed I.S. No. 00-
4306[45]
for estafa against Lagmay, and I.S. No. 00-4318[46]
against Alvin Valencia[47]
for trespass to dwelling.
We find the charge to be without sufficient basis. The act of respondent of filing the aforecited cases to
protect the interest of his client, on one hand, and his own interest, on the other, cannot be made the
basis of an administrative charge unless it can be clearly shown that the same was being done to abuse
judicial processes to commit injustice.
The filing of an administrative case against respondent for protecting the interest of his client and his own
right would be putting a burden on a practicing lawyer who is obligated to defend and prosecute the right
of his client.
On having a reputation for being immoral by siring illegitimate children.
We find respondent liable for being immoral by siring illegitimate children.
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During the hearing, respondent admitted that he sired three children by Teresita Lagmay who are all over
20 years of age,[48]
while his first wife was still alive. He also admitted that he has eight children by his first
wife, the youngest of whom is over 20 years of age, and after his wife died in 1997, he married Lagmay in
1998.[49]
Respondent further admitted that Lagmay was staying in one of the apartments being claimed by
complainant. However, he does not consider his affair withLagmay as a relationship[50]
and does not
consider the latter as his second family.[51]
He reasoned that he was not staying with Lagmay because he
has two houses, one in Muntinlupa and another in Marikina.[52]
In this case, the admissions made by respondent are more than enough to hold him liable on the charge of
immorality. During the hearing, respondent did not show any remorse. He even justified his transgression
by saying that he does not have any relationship with Lagmay and despite the fact that he sired three
children by thelatter, he does not consider them as his second family. It is noted that during the hearing,
respondent boasts in telling the commissioner that he has two houses - inMuntinlupa, where his first wife
lived, and in Marikina, where Lagmay lives.[53]
It is of no moment that respondent eventually
married Lagmay after the death of his first wife. The fact still remains that respondent did not live up to the
exacting standard of morality and decorum required of the legal profession.
Under Canon 1, Rule 1.01 of the Code of Professional Responsibility, a lawyer shall not engage in unlawful,
dishonest, immoral or deceitful conduct. It may be difficult to specify the degree of moral delinquency that
may qualify an act as immoral, yet, for purposes of disciplining a lawyer, immoral conduct has been defined
as that conduct which is willful, flagrant, or shameless, and which shows a moral indifference to the
opinion of respectable members of the community.[54]
Thus, in several cases, the Court did not hesitate to
discipline a lawyer for keeping a mistress in defiance of the mores and sense of morality of the
community.[55]
That respondent subsequently married Lagmay in 1998 after the death of his wife and that
this is his first infraction as regards immorality serve to mitigate his liability.
ACCORDINGLY, the Court finds respondent Atty. Luciano D. Valencia GUILTYof misconduct and
violation of Canons 21, 10 and 1 of the Code of Professional Responsibility. He is SUSPENDED from the
practice of law for three (3) years, effective immediately upon receipt of herein Resolution.
Let copies of this Resolution be furnished all courts of the land, the Integrated Bar of the Philippines as well
as the Office of the Bar Confidant for their information and guidance, and let it be entered in respondents
personal records.
SO ORDERED.
SECOND DIVISION
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LYDIA CASTRO-JUSTO,
Complainant,
- versus -
ATTY. RODOLFO T. GALING,
Respondent.
A.C. No. 6174
Present:
CARPIO,
Chairperson,
BRION,
PEREZ,
SERENO, and
REYES,JJ.
Promulgated:
November 16, 2011
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
D E C I S I O N
PEREZ,J.:
Before us for consideration is Resolution No. XVIII-2007-196[1]
of the Board of Governors, Integrated Bar of
the Philippines (IBP), relative to the complaint[2]
for disbarment filed by Lydia Castro-Justo against Atty.
Rodolfo T. Galing.
Complainant Justo alleged that sometime in April 2003, she engaged the services of respondent Atty.
Galing in connection with dishonored checks issued by Manila City Councilor Arlene W. Koa (Ms.
Koa). After she paid his professional fees, the respondent drafted and sent a letter to Ms. Koa demanding
payment of the checks.[3]
Respondent advised complainant to wait for the lapse of the period indicated in
the demand letter before filing her complaint.
On 10 July 2003, complainant filed a criminal complaint against Ms. Koa for estafa and violation of Batas
Pambansa Blg. 22 before the Office of the City Prosecutor of Manila.[4]
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On 27 July 2003, she received a copy of a Motion for Consolidation[5]
filed by respondent for and on behalf
of Ms. Koa, the accused in the criminal cases, and the latters daughter Karen Torralba (Ms.
Torralba). Further, on 8 August 2003, respondent appeared as counsel for Ms. Koa before the prosecutor
of Manila.
Complainant submits that by representing conflicting interests, respondent violated the Code of
Professional Responsibility.
In his Comment,[6]
respondent