SECOND DIVISION

[G.R. No. 169438. January 21, 2010.]

ROMEO D. MARIANO , petitioner, vs . PETRON CORPORATION ,

respondent.

DECISION

CARPIO , J : p

The Case
For review 1 is the Decision 2 of the Court of Appeals upholding the lease
contract between petitioner Romeo D. Mariano and respondent Petron Corporation.
The Facts
On 5 November 1968, 3 Pacita V. Aure, Nicomedes Aure Bundac, and Zeny
Abundo (Aure Group), owners of a 2,064 square meter parcel of land in Tagaytay City 4
(Property), leased the Property to ESSO Standard Eastern, Inc., (ESSO Eastern), a
foreign corporation doing business in the country through its subsidiary ESSO Standard
Philippines, Inc. (ESSO Philippines). The lease period is 90 years 5 and the rent is
payable monthly for the first 10 years, and annually for the remaining period. 6 The lease
contract (Contract) contained an assignment veto clause barring the parties from
assigning the lease without prior consent of the other. 7 Excluded from the prohibition
were certain corporations to whom ESSO Eastern may unilaterally assign its leasehold
right. 8
On 23 December 1977, ESSO Eastern sold ESSO Philippines to the Philippine
National Oil Corporation (PNOC). 9 Apparently, the Aure Group was not informed of the
sale. ESSO Philippines, whose corporate name was successively changed to Petrophil
Corporation then to Petron Corporation (Petron), took possession of the Property. aITDAE

On 18 November 1993, petitioner Romeo D. Mariano (petitioner) bought the

Property from the Aure Group and obtained title to the Property issued in his name
bearing an annotation of ESSO Eastern's lease. 1 0
On 17 December 1998, petitioner sent to Petron a notice to vacate the Property.
Petitioner informed Petron that Presidential Decree No. 471 (PD 471), 1 1 dated 24 May
1974, reduced the Contract's duration from 90 to 25 years, ending on 13 November
1993. 1 2 Despite receiving the notice to vacate on 21 December 1998, Petron remained
on the Property.
On 18 March 1999, petitioner sued Petron in the Regional Trial Court of Tagaytay
City, Branch 18, (trial court) to rescind the Contract and recover possession of the
Property. Aside from invoking PD 471, petitioner alternatively theorized that the
Contract was terminated on 23 December 1977 when ESSO Eastern sold ESSO
Philippines to PNOC, thus assigning to PNOC its lease on the Property, without seeking
the Aure Group's prior consent.
In its Answer, Petron countered that the Contract was not breached because
PNOC merely acquired ESSO Eastern's shares in ESSO Philippines, a separate
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 corporate entity. Alternatively, Petron argued that petitioner's suit, led on 18 March
1999, was barred by prescription under Article 1389 and Article 1146 (1) of the Civil
Code as petitioner should have sought rescission within four years from PNOC's
purchase of ESSO Philippines on 23 December 1977 1 3 or before 23 December 1981.
14

To dispense with the presentation of evidence, the parties submitted a Joint

Motion for Judgment (Joint Motion) containing the following stipulation:
5. On December 23, 1977, the Philippine National Oil Co. (PNOC), a
corporation wholly owned by the Philippine Government, acquired ownership of
ESSO Standard Philippines, Inc., including its leasehold right over the land
in question, through the acquisition of its shares of stocks. 1 5 (Emphasis
supplied) aDCIHE

The Ruling of the Trial Court

In its Decision dated 30 May 2000, the trial court ruled for petitioner, rescinded
the Contract, ordered Petron to vacate the Property, and cancelled the annotation on
petitioner's title of Petron's lease. 1 6 The trial court ruled that ESSO Eastern's sale to
PNOC of its interest in ESSO Philippines included the assignment to PNOC of ESSO
Eastern's lease over the Property, which, for lack of the Aure Group's consent, breached
the Contract, resulting in its termination. However, because the Aure Group (and later
petitioner) tolerated ESSO Philippines' continued use of the Property by receiving rental
payments, the law on implied new lease governs the relationship of the Aure Group (and
later petitioner) and Petron, creating for them an implied new lease terminating on 21
December 1998 upon Petron's receipt of petitioner's notice to vacate. 1 7
Petron appealed to the Court of Appeals, distancing itself from its admission in
the Joint Motion that in buying ESSO Philippines from ESSO Eastern, PNOC also
acquired ESSO Eastern's leasehold right over the Property. Petron again invoked its
separate corporate personality to distinguish itself from PNOC.
The Ruling of the Court of Appeals
In its Decision dated 29 October 2004, the Court of Appeals found merit in
Petron's appeal, set aside the trial court's ruling, declared the Contract subsisting until
13 November 2058 1 8 and ordered petitioner to pay Petron P300,000 as attorney's
fees. The Court of Appeals found no reason to pierce ESSO Philippines' corporate veil,
treating PNOC's buy-out of ESSO Philippines as mere change in ESSO Philippines'
stockholding. Hence, the Court of Appeals rejected the trial court's conclusion that
PNOC acquired the leasehold right over the Property. Alternatively, the Court of Appeals
found petitioner's suit barred by the four-year prescriptive period under Article 1389
and Article 1146 (1) of the Civil Code, reckoned from PNOC's buy-out of ESSO
Philippines on 23 December 1977 (for Article 1389) or the execution of the Contract on
13 November 1968 1 9 (for Article 1146 [1]). 2 0
Petitioner sought reconsideration but the Court of Appeals denied his motion in
its Resolution of 26 August 2005. IDaCcS

Hence, this petition.

The Issue
The question is whether the Contract subsists between petitioner and Petron.
The Ruling of the Court
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 We hold in the affirmative and thus sustain the ruling of the Court of Appeals.
ESSO Eastern Assigned to PNOC its
Leasehold Right over the Property, Breaching the Contract
PNOC's buy-out of ESSO Philippines was total and unconditional, leaving no
residual rights to ESSO Eastern. Logically, this change of ownership carried with it the
transfer to PNOC of any proprietary interest ESSO Eastern may hold through ESSO
Philippines, including ESSO Eastern's lease over the Property. This is the import of
Petron's admission in the Joint Motion that by PNOC's buy-out of ESSO Philippines "
[PNOC], . . . acquired ownership of ESSO Standard Philippines, Inc., including its
leasehold right over the land in question, through the acquisition of its shares
of stocks. " As the Aure Group gave no prior consent to the transaction between ESSO
Eastern and PNOC, ESSO Eastern violated the Contract's assignment veto clause.
Petron's objection to this conclusion, sustained by the Court of Appeals, is
rooted on its reliance on its separate corporate personality and on the unstated
assumption that ESSO Philippines (not ESSO Eastern) initially held the leasehold right
over the Property. Petron is wrong on both counts.
Courts are loathe to pierce the ctive veil of corporate personality, cognizant of
the core doctrine in corporation law vesting on corporations legal personality distinct
from their shareholders (individual or corporate) thus facilitating the conduct of
corporate business. However, ction gives way to reality when the corporate
personality is foisted to justify wrong, protect fraud, or defend crime, thwarting the
ends of justice. 2 1 The ction even holds lesser sway for subsidiary corporations
whose shares are wholly if not almost wholly owned by its parent company. The
structural and systems overlap inherent in parent and subsidiary relations often render
the subsidiary as mere local branch, agency or adjunct of the foreign parent
corporation. 2 2 ATaDHC

Here, the facts compel the conclusion that ESSO Philippines was a mere branch
of ESSO Eastern in the execution and breach of the Contract. First, by ESSO Eastern's
admission in the Contract, it is "a foreign corporation organized under the laws of the
State of Delaware, U.S.A., duly licensed to transact business in the Philippines, and
doing business therein under the business name and style of 'Esso Standard
Philippines' . . .". In effect, ESSO Eastern was ESSO Philippines for all of ESSO
Eastern's Philippine business.
Second, the Contract was executed by ESSO Eastern, not ESSO Philippines, as
lessee, with the Aure Group as lessor. ESSO Eastern leased the Property for the use of
ESSO Philippines, acting as ESSO Eastern's Philippine branch. Consistent with such
status, ESSO Philippines took possession of the Property after the execution of the
Contract. Thus, for purposes of the Contract, ESSO Philippines was a mere alter ego of
ESSO Eastern.
The Lessor's Continued Acceptance of Lease Payments
Despite Breach of Contract Amounted to Waiver
The breach of contract notwithstanding, we hold that the Contract subsists.
Contrary to the trial court's conclusion that ESSO Eastern's violation of the assignment
veto clause extinguished the Contract, replaced by a new implied lease with a monthly
term, 2 3 we hold that the breach merely gave rise to a cause of action for the Aure
Group to seek the lessee's ejectment as provided under Article 1673, paragraph 3 of
the Civil Code. 2 4 Although the records do not show that the Aure Group was formally
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 noti ed of ESSO Philippines' sale to PNOC, the successive changes in the lessee's
name (from ESSO Philippines to Petrophil Corporation then to Petron) su ce to alert
the Aure Group of a likely change in the personality of the lessee, which, for lack of the
Aure Group's prior consent, was in obvious breach of the Contract. Thus, the continued
receipt of lease payments by the Aure Group (and later by petitioner) despite the
contractual breach amounted to a waiver of their option to eject the lessee.
Petitioner's Suit Barred by Prescription
Petitioner's waiver of Petron's contractual breach was compounded by his long
inaction to seek judicial redress. Petitioner led his complaint nearly 22 years after
PNOC acquired the leasehold rights to the Property and almost six years after
petitioner bought the Property from the Aure Group. The more than two decades lapse
puts this case well within the territory of the 10-year prescriptive bar to suits based
upon a written contract under Article 1144 (1) of the Civil Code. 2 5 cAHDES

WHEREFORE , we DENY the petition. The Decision dated 29 October 2004 and
the Resolution dated 26 August 2005 of the Court of Appeals are AFFIRMED .
SO ORDERED .
Brion, Peralta, * Del Castillo and Perez, JJ., concur.

Footnotes

* Designated additional member per Raffle dated 18 January 2010.

1. Under Rule 45 of the 1997 Rules of Civil Procedure.
2. Penned by Associate Justice Eloy R. Bello, Jr., with Associate Justices Regalado P.
Maambong and Lucenito N. Tagle, concurring.
3. 13 November 1968 is the date the lower courts used to place the execution of the lease
contract. However, the contract shows that it was signed on 5 November 1968 but
notarized on 13 November 1968 (see Records, p. 14).

4. Covered by Transfer Certificate of Title No. T-6190.

5. Ending on 5 November 2058.

6. P740 monthly rent for the first 10 years and P1 annual rent for the succeeding years
(Records, p. 13-A).
7. This is a modification of the statutory ban on unconsented assignment of lease under
Article 1649 of the Civil Code which provides: "The lessee cannot assign the lease
without the consent of the lessor, unless there is a stipulation to the contrary.''

8. The stipulation provides (Records, p. 13-A):

This contract may not be assigned or transferred by either party without the prior
written consent of the other, provided, however, that the Lessee may assign and transfer
its rights and obligations under this contract to Standard Oil Company (a New Jersey
corporation) or any company 50% or more of whose capital stock is owned or controlled
directly or indirectly by Standard Oil Company, without need of obtaining the consent of
the Lessor.

9. Other parts of the record show the following alternative dates: 23 December 1979
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 (Records, p. 91); 23 December 1978 (id. at 92); and 23 December 1979 (Rollo, p. 27).
10. Transfer Certificate of Title No. T-29178.
11. Fixing a maximum period of 25 years for the lease of private lands to aliens.

12. This should be 5 November 1993, the 25th year after the Contract's signing.
13. Petron erroneously indicated this date as 23 December 1973 (see Records, p. 36).

14. Petron also argued that PD 471, which carried penal clauses, cannot be retroactively
applied to shorten the term of the Contract without violating the constitutional ban on ex
post facto laws and on impairment of contracts.
15. Records, p. 91.
16. The dispositive portion of the trial court's ruling provides (id. at 94):

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered declaring the

lease contract, subject matter of this case, be rescinded and ordering the defendant to
vacate and surrender possession of the leased premises to plaintiff.
It is likewise ordered that the annotation of said lease agreement at the back of TCT
No. T-29178 be cancelled. Defendant is also ordered to pay the cost of the suit.
17. Id. at 86-94.
18. See note 3.

19. But see note 3.

20. Rollo, pp. 19-33.
21. Koppel (Phils.), Inc. v. Yatco, 77 Phil. 496 (1946).
22. Id.
23. Records, pp. 91-93. The trial court gave no reason for its conclusion but deducing from
its finding that the Contract was replaced by an implied lease with a monthly term, it
could have only treated the unconsented assignment of lease as resulting in the
Contract's novation. However, novation takes place only in two instances (1) by express
agreement or (2) when the old and the new obligations are incompatible on every point
(Lim Tay v. Court of Appeals, 355 Phil. 381 [1998]). None of these obtain here as the
parties to the contract did not expressly novate it and except for the term of lease and
the personality of the lessee, all the other contractual stipulations remained unchanged.
24. This provides: "The lessor may judicially eject the lessee for any of the following
causes:
xxx xxx xxx
(3) Violation of any of the conditions agreed upon in the contract;"

25. This provides: "The following actions must be brought within ten years from the time
the right of action accrues:

(1) Upon a written contract;"

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