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SECOND DIVISION

G.R. No. 160545 : March 9, 2010

PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION and ROGELIO S. PANTALEON, Petitioners, v. ARTHUR F. MENCHAVEZ, Respondent.

D E C I S I O N

BRION, J.:

We resolve in this Decision the petition for review on certiorari1cЃa filed by petitioners Prisma Construction & Development Corporation (PRISMA) and Rogelio S. Pantaleon (Pantaleon) (collectively, petitioners) who seek to reverse and set aside the Decision2cЃa dated May 5, 2003 and the Resolution3cЃa dated October 22, 2003 of the Former Ninth Division of the Court of Appeals (CA) in CA-G.R. CV No. 69627. The assailed CA Decision affirmed the Decision of the Regional Trial Court (RTC), Branch 73, Antipolo City in Civil Case No. 97-4552 that held the petitioners liable for payment of P3,526,117.00 to respondent Arthur F. Menchavez (respondent), but modified the interest rate from 4% per month to 12% per annum, computed from the filing of the complaint to full payment. The assailed CA Resolution denied the petitioners Motion for Reconsideration.

FACTUAL BACKGROUND

The facts of the case, gathered from the records, are briefly summarized below.chanroblesvirtua|awlibary

On December 8, 1993, Pantaleon, the President and Chairman of the Board of PRISMA, obtained a P1,000,000.004cЃa loan from the respondent, with a monthly interest of P40,000.00 payable for six months, or a total obligation of P1,240,000.00 to be paid within six (6) months,5cЃa under the following schedule of payments:

January 8, 1994 . P40,000.00
February 8, 1994 ... P40,000.00
March 8, 1994 ... P40,000.00
April 8, 1994 . P40,000.00
May 8, 1994 .. P40,000.00
June 8, 1994 P1,040,000.006cЃa
Total P1,240,000.00

cralawTo secure the payment of the loan, Pantaleon issued a promissory note7cЃa that states:

I, Rogelio S. Pantaleon, hereby acknowledge the receipt of ONE MILLION TWO HUNDRED FORTY THOUSAND PESOS (P1,240,000), Philippine Currency, from Mr. Arthur F. Menchavez, representing a six-month loan payable according to the following schedule:

January 8, 1994 . P40,000.00
February 8, 1994 ... P40,000.00
March 8, 1994 ... P40,000.00
April 8, 1994 . P40,000.00
May 8, 1994 .. P40,000.00
June 8, 1994 P1,040,000.00

cralawThe checks corresponding to the above amounts are hereby acknowledged.8cЃa

and six (6) postdated checks corresponding to the schedule of payments. Pantaleon signed the promissory note in his personal capacity,9cЃa and as duly authorized by the Board of Directors of PRISMA.10cЃa The petitioners failed to completely pay the loan within the stipulated six (6)-month period.

From September 8, 1994 to January 4, 1997, the petitioners paid the following amounts to the respondent:

September 8, 1994 P320,000.00
October 8, 1995.P600,000.00
November 8, 1995. P158,772.00
January 4, 1997 . P30,000.0011cЃa

cralawAs of January 4, 1997, the petitioners had already paid a total of P1,108,772.00. However, the respondent found that the petitioners still had an outstanding balance of P1,364,151.00 as of January 4, 1997, to which it applied a 4% monthly interest.12cЃa Thus, on August 28, 1997, the respondent filed a complaint for sum of money with the RTC to enforce the unpaid balance, plus 4% monthly interest, P30,000.00 in attorneys fees, P1,000.00 per court appearance and costs of suit.13cЃa

In their Answer dated October 6, 1998, the petitioners admitted the loan of P1,240,000.00, but denied the stipulation on the 4% monthly interest, arguing that the interest was not provided in the promissory note. Pantaleon also denied that he made himself personally liable and that he made representations that the loan would be repaid within six (6) months.14cЃa

THE RTC RULING

The RTC rendered a Decision on October 27, 2000 finding that the respondent issued a check for P1,000,000.00 in favor of the petitioners for a loan that would earn an interest of 4% or P40,000.00 per month, or a total of P240,000.00 for a 6-month period. It noted that the petitioners made several payments amounting to P1,228,772.00, but they were still indebted to the respondent for P3,526,117.00 as of February 11,15cЃa 1999 after considering the 4% monthly interest. The RTC observed that PRISMA was a one-man corporation of Pantaleon and used this circumstance to justify the piercing of the veil of corporate fiction. Thus, the RTC ordered the petitioners to jointly and severally pay the respondent the amount of P3,526,117.00 plus 4% per month interest from February 11, 1999 until fully paid.16cЃa

The petitioners elevated the case to the CA via an ordinary appeal under Rule 41 of the Rules of Court, insisting that there was no express stipulation on the 4% monthly interest.

THE CA RULING

The CA decided the appeal on May 5, 2003. The CA found that the parties agreed to a 4% monthly interest principally based on the board resolution that authorized Pantaleon to transact a loan with an approved interest of not more than 4% per month. The appellate court, however, noted that the interest of 4% per month, or 48% per annum, was unreasonable and should be reduced to 12% per annum. The CA affirmed the RTCs finding that PRISMA was a mere instrumentality of Pantaleon that justified the piercing of the veil of corporate fiction. Thus, the CA modified the RTC Decision by imposing a 12% per annum interest, computed from the filing of the complaint until finality of judgment, and thereafter, 12% from finality until fully paid.17cЃa

After the CA's denial18cЃa of their motion for reconsideration,19cЃa the petitioners filed the present petition for review on certiorari under Rule 45 of the Rules of Court.

THE PETITION

The petitioners submit that the CA mistakenly relied on their board resolution to conclude that the parties agreed to a 4% monthly interest because the board resolution was not an evidence of a loan or forbearance of money, but merely an authorization for Pantaleon to perform certain acts, including the power to enter into a contract of loan. The expressed mandate of Article 1956 of the Civil Code is that interest due should be stipulated in writing, and no such stipulation exists. Even assuming that the loan is subject to 4% monthly interest, the interest covers the six (6)-month period only and cannot be interpreted to apply beyond it. The petitioners also point out the glaring inconsistency in the CA Decision, which reduced the interest from 4% per month or 48% per annum to 12% per annum, but failed to consider that the amount of P3,526,117.00 that the RTC ordered them to pay includes the compounded 4% monthly interest.

THE CASE FOR THE RESPONDENT

The respondent counters that the CA correctly ruled that the loan is subject to a 4% monthly interest because the board resolution is attached to, and an integral part of, the promissory note based on which the petitioners obtained the loan. The respondent further contends that the petitioners are estopped from assailing the 4% monthly interest, since they agreed to pay the 4% monthly interest on the principal amount under the promissory note and the board resolution.

THE ISSUE

The core issue boils down to whether the parties agreed to the 4% monthly interest on the loan. If so, does the rate of interest apply to the 6-month payment period only or until full payment of the loan?

OUR RULING

We find the petition meritorious.

Interest due should be stipulated in writing; otherwise, 12% per annum

Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.20cЃa When the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations governs.21cЃa In such cases, courts have no authority to alter the contract by construction or to make a new contract for the parties; a court's duty is confined to the interpretation of the contract the parties made for themselves without regard to its wisdom or folly, as the court cannot supply material stipulations or read into the contract words the contract does not contain.22cЃa It is only when the contract is vague and ambiguous that courts are permitted to resort to the interpretation of its terms to determine the parties intent.chanroblesvirtua|awlibary

In the present case, the respondent issued a check for P1,000,000.00.23cЃa In turn, Pantaleon, in his personal capacity and as authorized by the Board, executed the promissory note quoted above. Thus, the P1,000,000.00 loan shall be payable within six (6) months, or from January 8, 1994 up to June 8, 1994. During this period, the loan shall earn an interest of P40,000.00 per month, for a total obligation of P1,240,000.00 for the six-month period. We note that this agreed sum can be computed at 4% interest per month, but no such rate of interest was stipulated in the promissory note; rather a fixed sum equivalent to this rate was agreed upon.

Article 1956 of the Civil Code specifically mandates that "no interest shall be due unless it has been expressly stipulated in writing." Under this provision, the payment of interest in loans or forbearance of money is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of interest at a stipulated rate. Thus, we held in Tan v. Valdehueza24cЃa and Ching v. Nicdao25cЃa that collection of interest without any stipulation in writing is prohibited by law.chanroblesvirtua|awlibary

Applying this provision, we find that the interest of P40,000.00 per month corresponds only to the six (6)-month period of the loan, or from January 8, 1994 to June 8, 1994, as agreed upon by the parties in the promissory note. Thereafter, the interest on the loan should be at the legal interest rate of 12% per annum, consistent with our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals:26cЃa

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code." (Emphasis supplied)

We reiterated this ruling in Security Bank and Trust Co. v. RTC-Makati, Br. 61,27cЃa Sulit v. Court of Appeals,28cЃa Crismina Garments, Inc. v. Court of Appeals, 29cЃa Eastern Assurance and Surety Corporation v. Court of Appeals, 30cЃa Sps. Catungal v. Hao, 31cЃa Yong v. Tiu,32cЃa and Sps. Barrera v. Sps. Lorenzo.33cЃa Thus, the RTC and the CA misappreciated the facts of the case; they erred in finding that the parties agreed to a 4% interest, compounded by the application of this interest beyond the promissory notes six (6)-month period. The facts show that the parties agreed to the payment of a specific sum of money of P40,000.00 per month for six months, not to a 4% rate of interest payable within a six (6)-month period.

Medel v. Court of Appeals not applicable

The CA misapplied Medel v. Court of Appeals34cЃa in finding that a 4% interest per month was unconscionable.chanroblesvirtua|awlibary

In Medel, the debtors in a P500,000.00 loan were required to pay an interest of 5.5% per month, a service charge of 2% per annum, and a penalty charge of 1% per month, plus attorneys fee equivalent to 25% of the amount due, until the loan is fully paid. Taken in conjunction with the stipulated service charge and penalty, we found the interest rate of 5.5% to be excessive, iniquitous, unconscionable, exorbitant and hence, contrary to morals, thereby rendering the stipulation null and void.chanroblesvirtua|awlibary

Applying Medel, we invalidated and reduced the stipulated interest in Spouses Solangon v. Salazar35cЃa of 6% per month or 72% per annum interest on a P60,000.00 loan; in Ruiz v. Court of Appeals,36cЃa of 3% per month or 36% per annum interest on a P3,000,000.00 loan; in Imperial v. Jaucian,37cЃa of 16% per month or 192% per annum interest on a P320,000.00 loan; in Arrofo v. Quiño,38cЃa of 7% interest per month or 84% per annum interest on a P15,000.00 loan; in Bulos, Jr. v. Yasuma,39cЃa of 4% per month or 48% per annum interest on a P2,500,000.00 loan; and in Chua v. Timan,40cЃa of 7% and 5% per month for loans totalling P964,000.00. We note that in all these cases, the terms of the loans were open-ended; the stipulated interest rates were applied for an indefinite period.chanroblesvirtua|awlibary

Medel finds no application in the present case where no other stipulation exists for the payment of any extra amount except a specific sum of P40,000.00 per month on the principal of a loan payable within six months. Additionally, no issue on the excessiveness of the stipulated amount of P40,000.00 per month was ever put in issue by the petitioners;41cЃa they only assailed the application of a 4% interest rate, since it was not agreed upon.chanroblesvirtua|awlibary

It is a familiar doctrine in obligations and contracts that the parties are bound by the stipulations, clauses, terms and conditions they have agreed to, which is the law between them, the only limitation being that these stipulations, clauses, terms and conditions are not contrary to law, morals, public order or public policy.42cЃa The payment of the specific sum of money of P40,000.00 per month was voluntarily agreed upon by the petitioners and the respondent. There is nothing from the records and, in fact, there is no allegation showing that petitioners were victims of fraud when they entered into the agreement with the respondent.chanroblesvirtua|awlibary

Therefore, as agreed by the parties, the loan of P1,000,000.00 shall earn P40,000.00 per month for a period of six (6) months, or from December 8, 1993 to June 8, 1994, for a total principal and interest amount of P1,240,000.00. Thereafter, interest at the rate of 12% per annum shall apply. The amounts already paid by the petitioners during the pendency of the suit, amounting to P1,228,772.00 as of February 12, 1999,43cЃa should be deducted from the total amount due, computed as indicated above. We remand the case to the trial court for the actual computation of the total amount due.

Doctrine of Estoppel not applicable

The respondent submits that the petitioners are estopped from disputing the 4% monthly interest beyond the six-month stipulated period, since they agreed to pay this interest on the principal amount under the promissory note and the board resolution.

We disagree with the respondents contention.chanroblesvirtua|awlibary

We cannot apply the doctrine of estoppel in the present case since the facts and circumstances, as established by the record, negate its application. Under the promissory note,44cЃa what the petitioners agreed to was the payment of a specific sum of P40,000.00 per month for six months not a 4% rate of interest per month for six (6) months on a loan whose principal is P1,000,000.00, for the total amount of P1,240,000.00. Thus, no reason exists to place the petitioners in estoppel, barring them from raising their present defenses against a 4% per month interest after the six-month period of the agreement. The board resolution,45cЃa on the other hand, simply authorizes Pantaleon to contract for a loan with a monthly interest of not more than 4%. This resolution merely embodies the extent of Pantaleons authority to contract and does not create any right or obligation except as between Pantaleon and the board. Again, no cause exists to place the petitioners in estoppel.

Piercing the corporate veil unfounded

We find it unfounded and unwarranted for the lower courts to pierce the corporate veil of PRISMA.chanroblesvirtua|awlibary

The doctrine of piercing the corporate veil applies only in three (3) basic instances, namely: a) when the separate and distinct corporate personality defeats public convenience, as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; b) in fraud cases, or when the corporate entity is used to justify a wrong, protect a fraud, or defend a crime; or c) is used in alter ego cases, i.e., where a corporation is essentially a farce, since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.46cЃa In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities.47cЃa

In the present case, we see no competent and convincing evidence of any wrongful, fraudulent or unlawful act on the part of PRISMA to justify piercing its corporate veil. While Pantaleon denied personal liability in his Answer, he made himself accountable in the promissory note "in his personal capacity and as authorized by the Board Resolution" of PRISMA.48cЃa With this statement of personal liability and in the absence of any representation on the part of PRISMA that the obligation is all its own because of its separate corporate identity, we see no occasion to consider piercing the corporate veil as material to the case.chanroblesvirtua|awlibary

WHEREFORE, in light of all the foregoing, we hereby REVERSE and SET ASIDE the Decision dated May 5, 2003 of the Court of Appeals in CA-G.R. CV No. 69627. The petitioners loan of P1,000,000.00 shall bear interest of P40,000.00 per month for six (6) months from December 8, 1993 as indicated in the promissory note. Any portion of this loan, unpaid as of the end of the six-month payment period, shall thereafter bear interest at 12% per annum. The total amount due and unpaid, including accrued interests, shall bear interest at 12% per annum from the finality of this Decision. Let this case be REMANDED to the Regional Trial Court, Branch 73, Antipolo City for the proper computation of the amount due as herein directed, with due regard to the payments the petitioners have already remitted. Costs against the respondent.

SO ORDERED.

ARTURO D. BRION
Associate Justice
Acting Chairperson

WE CONCUR:

ANTONIO EDUARDO B. NACHURA*
Associate Justice

MARIANO C. DEL CASTILLO
Associate Justice
ROBERTO A. ABAD
Associate Justice

JOSE PORTUGAL PEREZ
Associate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

ARTURO D. BRION
Associate Justice
Acting Chairperson

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice



cralaw Endnotes:

cralaw* Designated additional Member of the Second Division in lieu of Associate Justice Antonio T. Carpio per Raffle dated March 1, 2010.

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1cЃa Filed under Rule 45 of the 1997 RULES OF CIVIL PROCEDURE.chanroblesvirtua|awlibary

2cЃa Penned by Associate Justice Jose L. Sabio, Jr. (retired), with Associate Justice B.A. Adefuin-De La Cruz (retired) and Associate Justice Hakim S. Abdulwahid concurring. See rollo, pp. 29-38.

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3cЃa Id. at 52-53.chanroblesvirtua|awlibary

4cЃa Exhibit "A," Folder II, Exhibits "A" to "E" and Submarkings (for the Plaintiff), p. 1; TSN, Testimony of Arthur F. Menchavez, April 12, 1999, pp. 2-4.

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5cЃa TSN, Testimony of Arthur F. Menchavez, April 12, 1999, pp. 9-10.

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6cЃa Original Records, p. 8.chanroblesvirtua|awlibary

7cЃa Exhibit "C," Folder II, Exhibits "A" to "E" and Submarkings (for the Plaintiff), p. 5.

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8cЃa Original Records, p. 8.

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9cЃa Ibid.chanroblesvirtua|awlibary

10cЃa Exhibit "B," Folder II, Exhibits "A" to "E" and Submarkings (for the Plaintiff), p. 2.chanroblesvirtua|awlibary

11cЃa Exhibit "E," Folder II, Exhibits "A" to "E" and Submarkings (for the Plaintiff), p. 2.

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12cЃa Ibid.

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13cЃa Original Records, pp. 1-7.

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14cЃa Id. at 29-31.chanroblesvirtua|awlibary

15cЃa The date of the last payment made by the petitioners should be "February 12, 1999," per Exhibit "E," Folder II, Exhibits "A" to "E" and Submarkings (for the Plaintiff), p. 2.

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16cЃa Id. at 99-106.

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17cЃa Supra note 2.

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18cЃa Resolution of October 22, 2003; rollo, pp.52-53.

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19cЃa Id. at 43-60.chanroblesvirtua|awlibary

20cЃa Article 1159, CIVIL CODE; Dumlao v. Marlon Realty Corporation, G.R. 131491, August 17, 2007, 530 SCRA 427, 430.

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21cЃa Article 1370, CIVIL CODE.chanroblesvirtua|awlibary

22cЃa Cuison v. Court of Appeals, G.R. No. 102096, August 22, 1996, 260 SCRA 645, 667.chanroblesvirtua|awlibary

23cЃa Exhibit "A," Folder II, Exhibits "A" to "E" and Submarkings (for the Plaintiff), p. 1; TSN, Testimony of Arthur F. Menchavez, April 12, 1999, pp. 2-4.

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24cЃa 160 Phil. 760, 767 (1975).

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25cЃa G.R. No. 141181, April 27, 2007, 522 SCRA 316, 361.

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26cЃa G.R. No. 97412, July 12, 1994, 234 SCRA 78.

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27cЃa 331 Phil. 787 (1996).

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28cЃa 335 Phil. 914 (1997).

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29cЃa 363 Phil. 701 (1999).

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30cЃa 379 Phil. 84 (2000).

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31cЃa 407 Phil. 309 (2001).

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32cЃa 426 Phil. 331 (2002).

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33cЃa 438 Phil. 42 (2002).

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34cЃa 359 Phil. 820 (1998).

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35cЃa 412 Phil. 816 (2001).

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36cЃa 449 Phil. 419 (2003).

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37cЃa 471 Phil. 484 (2004).

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38cЃa 490 Phil. 179 (2005).

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39cЃa G.R. No. 139290, May 19, 2006, 490 SCRA 1.

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40cЃa G.R. No. 170452, August 13, 2008.

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41cЃa See Sps. Pascual v. Ramos, 433 Phil. 449 (2002).chanroblesvirtua|awlibary

42cЃa Barredo v. Leaño, G.R. No. 156627, June 4, 2004, 431 SCRA 106, 113-114; Odyssey Park, Inc. v. CA, 345 Phil. 475, 485 (2001).

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43cЃa Supra note 14.

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44cЃa Original Records, p. 8.chanroblesvirtua|awlibary

45cЃa Exhibit "B," Folder II, Exhibits "A" to "E" and Submarkings (for the Plaintiff), p. 2.chanroblesvirtua|awlibary

46cЃa General Credit Corporation v. Alsons Development and Investment Corporation, G.R. No. 154975, January 29, 2007, 513 SCRA 225, 235, 238, 239; PNB v. Ritratto Group, Inc., 414 Phil. 494, 505 (2001).chanroblesvirtua|awlibary

47cЃa McLeod v. National Labor Relations Commission, G.R. No. 146667, January 23, 2007, 512 SCRA 222, 253.chanroblesvirtua|awlibary

48cЃa Exhibit "C," Folder II, Exhibits "A" to "E" and Submarkings (for the Plaintiff), p. 5.





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