LEONARDO L. VILLALON, PETITIONER, VS. RENATO E. LIRIO, RESPONDENT.

Villalon versus Lirio

The Case

This is a petition for review on certiorari brought by Leonardo L. Villalon against Renato E. Lirio, arising from a complaint for sum of money with prayer for preliminary attachment that Lirio filed against Semicon Integrated Electronics Corporation and Villalon, who was then the corporation's president and chairman of the board. Lirio sued on a lease contract over his Pasig City properties, which Semicon pre-terminated, allegedly leaving unpaid rentals, damages, and interest. Villalon moved to dismiss on the ground that the complaint stated no cause of action against him, since he was a mere corporate officer and not a real party in interest. The case matters because it is the Supreme Court's clean statement of two rules every practitioner must hold: certiorari is not a substitute for a lost appeal, and fraud must be pleaded with particularity before the veil of corporate fiction may even be pierced.

Procedural History

Lirio filed his complaint for sum of money with prayer for preliminary attachment before the Regional Trial Court of Pasig City, Branch 157. Villalon moved to dismiss for failure to state a cause of action. The trial court granted the motion, holding that under the theory of separate corporate entity the action should be limited against Semicon, the lessee, and could not be expanded against Villalon, a mere corporate officer. The trial court denied Lirio's motion for reconsideration.

Instead of appealing, Lirio went to the Court of Appeals by petition for certiorari under Rule 65 of the Rules of Court. The Court of Appeals granted the petition, nullified the dismissal order, and ruled that the trial court gravely abused its discretion. It held that the trial court ignored the possibility that the doctrine of piercing the veil of corporate entity applied, and that Villalon played an active role in removing and transferring Semicon's merchandise, chattels, and equipment from the leased premises, depriving Lirio of his preferred lien. The Court of Appeals denied Villalon's motion for reconsideration.

Villalon then came to the Supreme Court by petition for review on certiorari under Rule 45, assailing the Decision of March 31, 2008 and the Resolution of July 21, 2008 of the Court of Appeals.

Facts

Lirio and Semicon entered into a contract of lease covering Lirio's properties in Pasig City. Villalon, then Semicon's president and chairman of the board, represented the lessee corporation in the lease contract.

Before the lease expired, Semicon terminated the contract and allegedly left unpaid rentals, damages, and interest. Lirio demanded payment, but Semicon and Villalon failed to pay.

On May 17, 2005, Lirio filed a complaint for sum of money with prayer for preliminary attachment against Semicon and Villalon. He alleged that both unjustly pre-terminated the lease and failed to pay despite demand, and that Villalon fraudulently and surreptitiously removed Semicon's equipment, merchandise, and other effects from the leased premises, preventing Lirio from taking inventories of them. Villalon moved to dismiss, insisting he was not a real party in interest and that no competent allegation of wrongdoing on his part appeared in the complaint.

Issues

• Whether or not Lirio's petition for certiorari before the Court of Appeals was the proper remedy against the trial court's order granting the motion to dismiss.
• Whether or not the complaint failed to state a cause of action against Villalon.

Applicable Provisions

Section 5 of Rule 8 of the Rules of Court provides:

Section 5. Fraud, mistake, condition of the mind. — In all averments of fraud or mistake the circumstances constituting fraud or mistake must be stated with particularity. Malice, intent, knowledge, or other condition of the mind of a person may be averred generally.

This is the provision the Court applies to test whether Lirio's allegation of fraud against Villalon was sufficient to justify piercing the veil of corporate entity.

Ruling

On the first issue, the Court ruled that Lirio's resort to certiorari was improper. A special civil action for certiorari under Rule 65 is proper only when there is neither appeal, nor plain, speedy, and adequate remedy in the ordinary course of law. The extraordinary remedy of certiorari is not a substitute for a lost appeal, and it is not allowed when a party fails to appeal a judgment to the proper forum, especially where one's own negligence or error in one's choice of remedy occasioned the loss. The remedies of appeal and certiorari are mutually exclusive, not alternative or successive; where an appeal is available, certiorari will not prosper even if the ground is grave abuse of discretion.

The Court found that Lirio admitted he could have appealed, and that an order granting a motion to dismiss is final and appealable. He received the final dismissal order on February 24, 2006, yet waited two months before filing his petition for certiorari on April 20, 2006. If speed had been his concern, he should have appealed within fifteen days from receipt of the order denying reconsideration. The more tenable explanation was that the period to appeal had simply lapsed. The Court distinguished the Luna case, where liberality was allowed only because rigid application of the rule would have resulted in injustice, and where the airline's liability was clearly shown. Here, no such explanation was offered and no liability was established.

On the second issue, the Court held that the complaint failed to state a cause of action against Villalon. Rule 8, Section 5 requires that the circumstances constituting fraud be stated with particularity. The only allegation of fraud in the complaint was that the defendants surreptitiously and fraudulently removed their merchandise, effects, and equipment from the lease premises and transferred them to another location. The Court held that the mere invocation of the words surreptitiously and fraudulently does not make the allegation particular, without specifying the circumstances of Villalon's commission and employment of fraud, and without delineating why it was fraudulent for him to remove Semicon's properties in the first place. The Court gave examples of particular averments: that Villalon removed the equipment under the false pretense that they needed repair but they were never returned, or that he removed the merchandise because Semicon needed to sell them in exchange for new supplies but no new supplies were bought. No such allegation was made.

Thus, the trial court could not have properly ruled on whether there was a need to pierce the veil of corporate entity, precisely because the complaint failed to state with particularity how Villalon committed and employed fraud. Finally, even granting that the allegations of fraud were particular, the trial court's finding that the complaint failed to state a cause of action was only an error of judgment, which is properly reviewed through an appeal and is not necessarily equivalent to grave abuse of discretion.

Doctrine

First, a petition for certiorari under Rule 65 is not a substitute for a lost appeal. It is proper only when there is neither appeal, nor plain, speedy, and adequate remedy in the ordinary course of law. Appeal and certiorari are mutually exclusive, not alternative or successive; where appeal is available, certiorari will not prosper even on a ground of grave abuse of discretion.

Second, under Section 5 of Rule 8 of the Rules of Court, fraud must be pleaded with particularity. A bare invocation of the words surreptitiously and fraudulently does not satisfy the rule; the pleader must specify the circumstances of the commission and employment of fraud.

Third, the doctrine of piercing the veil of corporate entity cannot be applied where the complaint fails to state with particularity how a corporate officer committed and employed fraud. Without particular averments of fraud, the trial court cannot be said to have gravely abused its discretion in dismissing the complaint against the officer.

Fourth, an error of judgment, properly reviewed through an appeal, is not necessarily equivalent to grave abuse of discretion.

Disposition

The Court granted Villalon's petition and reversed and set aside the Decision of March 31, 2008 and the Resolution of July 21, 2008 of the Court of Appeals.

Remember This

Memorize this line: certiorari is not a substitute for a lost appeal, and fraud must be stated with particularity before the corporate veil may be pierced. Examiners use this case to test the mutually exclusive character of appeal and certiorari, and the pleading requirement for fraud against a corporate officer.