GR 98310; (October, 1996) (Digest)
G.R. No. 98310 October 24, 1996
MATUGUINA INTEGRATED WOOD PRODUCTS, INC., petitioner, vs. THE HON. COURT OF APPEALS, DAVAO ENTERPRISES CORPORATION, THE HON. MINISTER (NOW SECRETARY) OF NATURAL RESOURCES AND PHILLIP CO, respondents.
FACTS
Milagros Matuguina operated Matuguina Logging Enterprises (MLE), a sole proprietorship, under a Provisional Timber License (PTL). In 1974, she incorporated Matuguina Integrated Wood Products, Inc. (MIWPI) and later requested the Bureau of Forest Development to transfer the PTL from MLE to the new corporation. This transfer was approved in 1975. Meanwhile, in 1975, Davao Enterprises Corporation (DAVENCOR) complained that MLE had encroached on its concession area. The Director of Forest Development found MLE liable for illegal logging in a 1981 Order.
MLE appealed to the Minister of Natural Resources. During the appeal’s pendency, Milagros Matuguina sold all her shares in MIWPI, ceasing to be a stockholder by 1986. In 1986, the Minister affirmed the 1981 Order against MLE. DAVENCOR then sought execution, and the Minister issued an Order of Execution in 1987 against both MLE and MIWPI. MIWPI filed an action for Prohibition, arguing it was not a party to the administrative case and could not be held liable for MLE’s acts.
ISSUE
Whether the Minister of Natural Resources acted with grave abuse of discretion in issuing an Order of Execution against MIWPI for the encroachment liability of MLE.
RULING
Yes. The Supreme Court ruled that the Minister committed grave abuse of discretion. The administrative case was solely against MLE, and MIWPI was never impleaded as a respondent. Due process requires that a party be notified and given an opportunity to be heard before being adjudged liable. The Order of Execution effectively held MIWPI liable without it being a party to the proceedings, violating this fundamental right.
Furthermore, the Court found no legal basis to pierce MIWPI’s corporate veil to hold it liable as MLE’s alter ego. While Milagros Matuguina was initially a major stockholder, she had completely divested her ownership before the Minister’s final decision. MIWPI was a distinct corporate entity with its own juridical personality. The mere transfer of the PTL from the proprietorship to the corporation, by itself, does not justify disregarding corporate separateness, especially absent proof of fraud or misuse to evade the liability. The Minister’s act of extending liability to a non-party corporation was arbitrary and without legal foundation. The Court of Appeals decision was reversed, and the Order of Execution against MIWPI was declared null and void.