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CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez

Sharla Louisse A. Castillo

I.

Government
Owned
Controlled Corporation

and

G.R. No. 129049. August 6, 1999


BALTAZAR G. CAMPOREDONDO,
petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION (NLRC),
Fifth Division, Cagayan de Oro City,
THE
PHILIPPINE
NATIONAL
RED
CROSS (PNRC)
PARDO, J.:
Issue: whether the Philippine National
Red Cross (PNRC for short) is a
government owned and controlled
corporation or it has been impliedly
converted to a private organization
subject to the jurisdiction of labor
tribunals
The case discusses a complaint filed
by petitioner, a former PNRC chapter
administrator in Surigao del Norte, for
illegal dismissal and damages, as he
was forced to "retire" after he was
required to restitute shortages and
unremitted collections in the total
sum of P135,927.78.

Facts:
1. Since 1980, petitioner was
employed with the PNRC, and until
his early "retirement" on December
15, 1995, he was administrator of the
Surigao del Norte Chapter, Philippine
National Red Cross.
2. In July, 1995, a field auditor of the
PNRC conducted an audit of the
books of account of the Surigao del
Norte Chapter headed by petitioner
and found him short in the total sum
of P109,000.00.[3]
3. On November 21, 1995, Dr. Celso
Samson, Secretary General of the
PNRC wrote petitioner requiring him
to restitute within seventy two (72)
hours from notice, the total sum of
P135,927.78
representing
cash
shortage, technical shortage and
unremitted collections.[4]
4. On December 15, 1995, petitioner
applied for early retirement from the
service, and later wrote Dr. Samson
requesting for a re-audit by an

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
independent auditor of his accounts.
staff,
an
employer-employee
However, Dr. Samson denied the
relationship, governed by the Labor
request.[5
Code of the Philippines.[8]
5. On May 28, 1996, petitioner filed
with the National Labor Relations
Commission, Sub-Regional Arbitration
Branch X, Butuan City, a complaint
for illegal dismissal, damages and
underpayment of wages against the
Philippine National Red Cross and its
key officials.[6]

8. On October 11, 1996, the Labor


Arbiter
issued
an
order
dismissing the complaint for lack
of jurisdiction, finding that the
Philippine National Red Cross is a
government corporation with an
original charter, having been created
by Republic Act No. 95.[9]

6. On June 14, 1996, respondent


Philippine National Red Cross filed
with the Surigao del Norte provincial
office, Department of Labor and
Employment, a motion to dismiss
the complaint for lack of jurisdiction
over the subject matter of the case
because the PNRC is a government
corporation whose employees are
members of the Government Service
Insurance
System
(GSIS),
and
embraced within the Civil Service Law
and regulations.[7]

9. On November 12, 1996, the Labor


Arbiter
denied
petitioner's
motion for reconsideration

7. On July 25, 1996, petitioner filed an


opposition to motion to dismiss
arguing that there was between the
PNRC and its duly appointed paid

10. On November 20, 1996, petitioner


filed a notice of appeal and appeal
memorandum with the National
Labor Relations Commission.
11. On March 21, 1997, the National
Labor Relations Commission, Fifth
Division,
issued
a
resolution
dismissing
the
appeal
and
confirming the decision of the
Labor
Arbiter
that
dismissed
petitioner's complaint for lack of
jurisdiction.[12]

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
Ruling:
The test to determine whether a
corporation is government owned or
I. Clean Hands
controlled, or private in nature is
simple.
Is it created by its own
All suitors must come to court with
charter for the exercise of a public
clean hands. This is especially true of
function, or by incorporation under
paid staff of the Philippine National
the general corporation law? Those
Red Cross. Like its unpaid volunteers,
with special charters are government
they must be men of unquestioned
corporations subject to its provisions,
honesty and integrity serving in
and its employees are under the
selfless manner .
jurisdiction of the Civil Service
Commission, and are compulsory
Paid
staff
of
the
PNRC
are
members of the Government Service
government employees who are
Insurance System.
members of the Government Service
Insurance System and covered by the
The PNRC was not "impliedly
Civil Service Law. Unlike government
converted to a private corporation"
service in other agencies, Red Cross
simply because its charter was
service demands of its paid staff
amended to vest in it the authority to
uberrima fides, the utmost good faith
secure loans, be exempted from
and dedication to work.
payment of all duties, taxes, fees and
other charges of all kinds on all
II. Main issue on the PNRC being a
importations and purchases for its
private corporation
exclusive use, on donations for its
disaster relief work and other
Philippine National Red Cross (PNRC)
services and in its benefits and fund
is
a
government
owned
and
raising drives, and be alloted one
controlled
corporation,
with
an
lottery draw a year by the Philippine
original charter under Republic Act
Charity Sweepstakes Office for the
No. 95, as amended.
support of its disaster relief operation

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
Secretary
General
of
the
PNRC.
in addition to its existing lottery
Subsequently, the petitioner filed a
draws for blood program.
Having served in the Philippine
National Red Cross for a number of
years since his initial employment, he
must know that it is a government
corporation with its own charter and
that he was covered by compulsory
membership in the Government
Service Insurance System, which is
why he could apply, as he did, for
"early" retirement from the service
under Presidential Decree No. 1146
or Republic Act No. 1616.
WHEREFORE,
the
Court
hereby
DISMISSES the petition, and AFFIRMS
the ruling of the National Labor
Relations Commission.
SO ORDERED.
Petitioner therein was the administrator
of the Surigao del Norte chapter of the
PNRC. An audit conducted by a field
auditor revealed a shortage in the
chapter
funds
in
the
sum
of
P109,000.00. When required to restitute
the amount of P135,927.78, petitioner
therein instead applied for early
retirement, which was denied by the

complaint for illegal dismissal and


damages against PNRC before the
National Labor Relations Commission. In
turn, PNRC moved to dismiss the
complaint on the ground of lack of
jurisdiction, averring that PNRC was a
government
corporation
whose
employees are embraced by civil service
regulation. The labor arbiter dismissed
the complaint, and the Commission
sustained his order. The petitioner
assailed the dismissal of his complaint
via a petition for certiorari, contending
that the PNRC is a private organization
and not a government-owned or
controlled corporation.

G.R. No. 136374


2000

February 9,

FRANCISCA
S.
BALUYOT,
petitioner, vs. PAUL E. HOLGANZA
and the OFFICE OF THE OMBUDSMAN
DE LEON, JR., J.:
A special civil action for certiorari,
seeking the reversal of the Orders
dated August 21, 1998 and October
28, 1998 issued by the Office of the
Ombudsman,
which
denied

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
petitioner's motion to dismiss and
4. On February 6, 1998, public
motion
for
reconsideration,
respondent
issued
an
Order
respectively.
requiring petitioner to file her
counter-affidavit to the charges
Facts: 1. During a spot audit
of malversation and dishonesty
conducted on March 21, 1977 by a
within ten days from notice, with
team of auditors from the Philippine
a warning that her failure to comply
National
Red
Cross
(PNRC)
would be construed as a waiver on
headquarters, a cash shortage of
her part to refute the charges, and
P154,350.13 was discovered in the
that the case would be resolved
funds of its Bohol chapter. The
based on the evidence on record.
chapter
administrator,
petitioner
Francisca S. Baluyot, was held
5. March 14, 1998, petitioner filed
accountable for the shortage.
her
counter-affidavit,
raising
principally the defense that public
2. on January 8, 1998, private
respondent had no jurisdiction
respondent Paul E. Holganza, in his
over the controversy. She argued
capacity as a member of the board of
that
the
Ombudsman
had
directors of the Bohol chapter, filed
authority only over governmentan affidavit-complaint before the
owned
or
controlled
Office of the Ombudsman charging
corporations, which the PNRC
petitioner of malversation under
was not, or so she claimed.
Article 217 of the Revised Penal Code.
6. On August 21, 1998, public
3. However, upon recommendation
respondent issued the first assailed
by
respondent
Anna
Marie
P.
Order denying petitioner's motion
Militante, Graft Investigation Officer I,
to dismiss.
an
administrative
docket
for
dishonesty was also opened against
7. Petitioner received the order on
petitioner
August 26, 1998 and she filed a

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
motion for reconsideration which was
b. PNRC falls under the International
also denied by the public respondent.
Federation
of
Red
Cross,
a
Switzerland-based organization, and
Issue: W/N the contention of the
that
the
power
to
discipline
petitioner is valid; W/N PNRC is a
employees accused of misconduct,
private corporation
malfeasance, or immorality belongs
to the PNRC Secretary General by
Petitioner contends:
virtue of Section "G", Article IX of its
by-laws.
a. the Ombudsman has no jurisdiction
over the subject matter of the
She threatens that "to classify the
controversy since the PNRC is
PNRC as a government-owned or
allegedly
a
private
voluntary
controlled corporation would create a
organization because:
dangerous precedent as it would lose
its neutrality, independence and
(1) the PNRC does not receive any
impartiality . . . .9
budgetary
support
from
the
government, and that all money
Ruling:
given to it by the latter and its
instrumentalities
become
private
I. Ombudsmans jurisdiction
funds of the organization;
Clearly then, public respondent has
(2) funds for the payment of
jurisdiction over the matter, pursuant
personnel's
salaries
and
other
to Section 13, of Republic Act No.
emoluments come from yearly fund
6770, otherwise known as "The
campaigns, private contributions and
Ombudsman Act of 1989", to wit:
rentals from its properties;
Sec.
13.
Mandate.

The
(3) it is not audited by the
Ombudsman and his Deputies, as
Commission on Audit.
protectors of the people, shall act
promptly on complaints filed in any

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
form or manner against officers or
This is a petition fore review on
employees of the Government, or of
certiorari under Rule 45 of the Rules
any
subdivision,
agency
or
of Court, seeking to set aside the
instrumentality
thereof,
including
Decision[1] of the Court of Appeals
government-owned
or
controlled
Facts: 1. Petitioner Anita Mangila,
corporations,
and
enforce
their
petitioner, is an exporter of sea foods
administrative, civil and criminal
and doing business under the name
liability in ever case where the
and style of Seafoods Products.
evidence warrants in order to
Private respondent Loreta Guina,
promote efficient service by the
private respondent, is the President
Government to the people.
and General Manager of Air Swift
**the case of Camporedondo was
International, a single registered
reiterated in the ruling of this case
proprietorship engaged in the freight
forwarding business.
WHEREFORE,
the
petition
for
certiorari is hereby DISMISSED. Costs
2. Sometime in January 1988,
against petitioner.
petitioner contracted the freight
forwarding
services
of
private
SO ORDERED.
respondent
for
shipment
of
petitioners products, such as crabs,
prawns and assorted fishes, to Guam
(USA) where petitioner maintains an
II.
Forms
of
Business
outlet..
Organization
G.R. No. 125027.
2002

August 12,

ANITA MANGILA, petitioner, vs.


COURT OF APPEALS and LORETA
GUINA, respondents.

3. Petitioner agreed to pay private


respondent cash on delivery. Private
respondents invoice stipulates a
charge of 18 percent interest per
annum on all overdue accounts. In
case of suit, the same invoice

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
stipulates attorneys fees equivalent
further that petitioner had left the
to 25 percent of the amount due plus
Philippines for Guam.
costs of suit.
8. Thus,, construing petitioners
4. On the first shipment, petitioner
departure from the Philippines as
requested for seven days within
done with intent to defraud her
which to pay private respondent.
creditors, private respondent filed
However,
for
the
next
three
a
Motion
for
Preliminary
shipments, March 17, 24 and 31,
Attachment.
1988, petitioner failed to pay private
9. On September 26, 1988, the trial
respondent
shipping
charges
court
issued
an
Order
of
amounting to P109, 376.95.
Preliminary Attachment against
5.
Despite
several
demands,
petitioner. The following day, the
petitioner
never
paid
private
trial court issued a Writ of Preliminary
respondent.
Attachment.
6. Thus, on June 10, 1988, private
respondent filed Civil Case No. 5875
before the Regional Trial Court of
Pasay City for collection of sum of
money.
7. On August 1, 1988, the sherif
filed his Sherifs Return showing
that summons was not served on
petitioner. A woman found at
petitioners house informed the
sheriff that petitioner transferred her
residence to Sto. Nio, Guagua,
Pampanga. The sheriff found out

10. The trial court granted the


request of its sheriff for assistance
from their counterparts in RTC,
Pampanga.
11. Thus, on October 28, 1988,
Sherif Alfredo San Miguel of RTC
Pampanga served on petitioners
household help in San Fernando,
Pampanga, the Notice of Levy with
the Order, Affidavit and Bond.[7]
12.
On
November
7,
1988,
petitioner filed an Urgent Motion

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
to
Discharge
Attachment[8]
summons, which the trial court
without submitting herself to the
issued on January 19, 1989.[11] It
jurisdiction of the trial court. She
was only on January 26, 1989 that
pointed out that up to then, she
summons was finally served on
had not been served a copy of
petitioner.
the Complaint and the summons.
16. On February 9, 1989, petitioner
Hence, petitioner claimed the
filed a Motion to Dismiss the
court
had
not
acquired
Complaint on the ground of
jurisdiction over her person.[9]
improper
venue.
Private
13. In the hearing of the Urgent
respondents invoice for the freight
Motion to Discharge Attachment on
forwarding service stipulates that
November
11,
1988,
private
if
court
litigation
becomes
respondent sought and was granted a
necessary to enforce collection xxx
re-setting to December 9, 1988. On
the agreed venue for such action
that date, private respondents
is Makati, Metro Manila.
counsel did not appear, so the Urgent
17. Private respondent filed an
Motion to Discharge Attachment was
Opposition
asserting
that
deemed submitted for resolution.
although Makati appears as
14. The trial court granted the
the stipulated venue, the same
Motion to Discharge Attachment
was merely an inadvertence by
on January 13, 1989 upon filing of
the printing press whose general
petitioners counter-bond. The
manager
executed
an
trial court, however, did not rule
affidavit[14]
admitting
such
on the question of jurisdiction
inadvertence.
Moreover,
private
and on the validity of the writ of
respondent
claimed
that
preliminary attachment.
petitioner knew that private
respondent was holding office in
15. On December 26, 1988, private
Pasay City and not in Makati.
respondent applied for an alias

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
18. The lower court, finding
21. On the day of the pre-trial, the
credence in private respondents
trial court issued an Order
assertion, denied the Motion to
terminating the pre-trial and
Dismiss and gave petitioner five
allowing the private respondent
days to file her Answer. Petitioner
to present evidence ex-parte The
filed
a
Motion
for
Order stated that when the case was
Reconsideration but this too was
called for pre-trial at 8:31 a.m., only
denied.
the counsel for private respondent
appeared. Upon the trial courts
Petitioner filed her Answer[16] on
second call 20 minutes later,
June 16, 1989, maintaining her
petitioners counsel was still nowhere
contention that the venue was
to be found. Thus, upon motion of
improperly laid.
private respondent, the pre-trial was
considered terminated.
On June 26, 1989, the trial court
issued an Order setting the pre-trial
22.
On
September
12,
1989,
for July 18, 1989 at 8:30 a.m. and
petitioner filed her Motion for
requiring the parties to submit their
Reconsideration of the Order
pre-trial briefs.
terminating
the
pre-trial.
19. Meanwhile, private respondent
filed a Motion to Sell Attached
Properties but the trial court
denied the motion.
20. On motion of petitioner, the trial
court issued an Order resetting
the pre-trial from July 18, 1989 to
August 24, 1989 at 8:30 a.m..

Petitioner explained that her counsel


arrived 5 minutes after the second
call, as shown by the transcript of
stenographic notes, and was late
because of heavy traffic. Petitioner
claims that the lower court erred in
allowing
private
respondent
to
present evidence ex-parte since there
was no Order considering the
petitioner as in default.

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
23. On October 6, 1989, the trial
trial court. The Court of Appeals
court denied the Motion for
upheld the validity of the issuance of
Reconsideration and scheduled
the writ of attachment and sustained
the
presentation
of
private
the filing of the action in the RTC of
respondents evidence ex-parte.
Pasay. The Court of Appeals also
affirmed the declaration of default on
24. On October 10, 1989, petitioner
petitioner and concluded that the trial
filed an Omnibus Motion stating
court did not commit any reversible
that the presentation of evidence
error.
ex-parte should be suspended
because there was no declaration of
Motion for Reconsideration denied.
petitioner
as
in
default
and
Issue: W/N there is an improper
petitioners counsel was not absent,
venue in the filing of the case
but merely late.
24. the trial court
Omnibus Motion.

denied

the

25. On November 20, 1989, the


petitioner received a copy of the
Decision of November 10, 1989,
ordering petitioner to pay respondent
P109,376.95 plus 18 percent interest
per annum, 25 percent attorneys
fees and costs of suit. Private
respondent filed a Motion for
Execution Pending Appeal but
the trial court denied the same.
CA: Court of Appeals rendered a
decision affirming the decision of the

Ruling:
I. Improper Venue
Petitioner assails the filing of this
case in the RTC of Pasay and points to
a provision in private respondents
invoice which contains the following:
3. If court litigation becomes
necessary to enforce collection, an
additional equivalent (sic) to 25% of
the principal amount will be charged.
The agreed venue for such action is
Makati, Metro Manila, Philippines.

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
Pet: The action should have been
The stipulation does not limit the
instituted in the RTC of Makati and to
venue exclusively to Makati. There
do otherwise would be a ground for
are no qualifying or restrictive
the dismissal of the case.
words in the invoice that would
evince the intention of the
We resolve to dismiss the case on
parties that Makati is the only
the ground of improper venue but
or exclusive venue where the
not for the reason stated by
action could be instituted.
petitioner.
Nevertheless, we hold that Pasay is
The Rules of Court provide that
not the proper venue for this
parties to an action may agree in
case.
writing on the venue on which an
action should be brought. However, a
Under the 1997 Rules of Civil
mere stipulation on the venue of an
Procedure, the general rule is venue
action is not enough to preclude
in personal actions is where the
parties from bringing a case in other
defendant or any of the defendants
venues.The parties must be able to
resides or may be found, or where
show that such stipulation is
the plaintiff or any of the plaintiffs
exclusive.
resides, at the election of the
plaintiff.
Venue stipulations in a contract, while
considered valid and enforceable, do
The exception to this rule is when
not as a rule supersede the
the parties agree on an exclusive
general rule set forth in Rule 4 of
venue
other
than
the
places
the Revised Rules of Court. In the
mentioned in the rules.
absence of qualifying or restrictive
But, this exception is not applicable
words, they should be considered
in this case. Hence, following the
merely
as
an
agreement
on
general rule, the instant case may be
additional forum, not as limiting
brought in the place of residence of
venue to the specified place.

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
for purposes of venue. Furthermore, the
the plaintiff or defendant, at the
Court held that the residence of its president
election of the plaintiff (private
is not the residence of the corporation
respondent herein).
The residence of private respondent
(plaintiff in the lower court) was not
alleged in the complaint. Rather,
what was alleged was the postal
address of her sole proprietorship, Air
Swift International. It was only when
private respondent testified in court,
after petitioner was declared in
default, that she mentioned her
residence to be in Better Living
Subdivision, Paraaque City.
Sy v. Tyson Enterprises, Inc. The
plaintiff in that case was Tyson Enterprises,
Inc., a corporation owned and managed by
Dominador Ti. The complaint, however, did
not allege the office or place of business of
the corporation, which was in Binondo,
Manila. What was alleged was the residence
of Dominador Ti, who lived in San Juan, Rizal.
The case was filed in the Court of First
Instance of Rizal, Pasig. The Court there held
that the evident purpose of alleging the
address of the corporations president and
manager was to justify the filing of the suit in
Rizal, Pasig instead of in Manila. Thus, the
Court ruled that there was no question that
venue was improperly laid in that case and
held that the place of business of Tyson
Enterpises, Inc. is considered as its residence

because a corporation has a personality


separate and distinct from that of its officers
and stockholders.

In the instant case, it was established


in the lower court that petitioner
resides in San Fernando, Pampanga
while private respondent resides in
Paraaque City. However, this case
was brought in Pasay City, where the
business of private respondent is
found.
This would have been
permissible had private respondents
business been a corporation, just like
the case in Sy v. Tyson Enterprises,
Inc. However, as admitted by private
respondent in her Complaint in the
lower court, her business is a sole
proprietorship, and as such, does
not have a separate juridical
personality that could enable it
to file a suit in court. In fact, there
is
no
law
authorizing
sole
proprietorships to file a suit in
court.
II. Sole Proprietorship

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
A sole proprietorship does not
Pasay, we hold that the case should
possess
a
juridical
personality
be dismissed on the ground of
separate and distinct from the
improper venue.
personality of the owner of the
III.
Nature and Purpose of
enterprise.[40]
The
law
merely
Action Quo Warranto
recognizes the existence of a sole
proprietorship as a form of business
G.R. No. 161434. March 3, 2004
organization conducted for profit by a
single individual and requires its
MARIA JEANETTE C. TECSON and
proprietor or owner to secure licenses
FELIX B. DESIDERIO, JR., petitioners,
and permits, register its business
vs. The COMMISSION ON ELECTIONS,
name, and pay taxes to the national
RONALD ALLAN KELLY POE (a.k.a.
government.[41] The law does not
FERNANDO POE, JR.) and VICTORINO
vest a separate legal personality on
X. FORNIER, respondents.
the sole proprietorship or empower it
to file or defend an action in court.
G.R. No. 161634. March 3, 2004
[42]
ZOILO ANTONIO VELEZ, petitioner, vs.
Thus, not being vested with legal
RONALD ALLAN KELLEY POE, a.k.a.
personality to file this case, the sole
FERNANDO POE, JR., respondent.
proprietorship is not the plaintiff in
this case but rather Loreta Guina in
G. R. No. 161824. March 3, 2004
her personal capacity.
VICTORINO X. FORNIER, petitioner,
All
these
considered,
private
vs. HON. COMMISSION ON ELECTIONS
respondent should have filed this
and RONALD ALLAN KELLEY POE,
case
either
in
San
Fernando,
ALSO KNOWN AS FERNANDO POE JR.,
Pampanga (petitioners residence) or
respondents.
Paraaque
(private
respondents
VITUG, J.:
residence). Since private respondent
(complainant below) filed this case in

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
Citizenship is a treasured right
representing himself to be a naturalconferred on those whom the state
born citizen of the Philippines, stated
believes are deserving of the
his name to be "Fernando Jr.," or
privilege. It is a precious heritage,
"Ronald Allan" Poe, his date of birth
as
well
as
an
inestimable
to be 20 August 1939 and his place of
acquisition,[1] that cannot be taken
birth to be Manila.
lightly by anyone - either by those
2. Victorino X. Fornier, petitioner in
who enjoy it or by those who dispute
G.R. No. 161824, initiated, on 09
it.
January 2004, a petition before the
The issue of citizenship is brought up
Commission
on
Elections
to challenge the qualifications of a
("COMELEC") to disqualify FPJ and to
presidential candidate to hold the
deny due course or to cancel his
highest office of the land. Our people
certificate of candidacy upon the
are waiting for the judgment of the
thesis that FPJ made a material
Court with bated breath. Is Fernando
misrepresentation in his certificate of
Poe, Jr., the hero of silver screen, and
candidacy by claiming to be a
now one of the main contenders for
natural-born Filipino citizen when in
the presidency, a natural-born Filipino
truth, according to Fornier, his
or is he not?
parents were foreigners; his
mother, Bessie Kelley Poe, was an
Facts: 1. On 31 December 2003,
American, and his father, Allan Poe,
respondent Ronald Allan Kelly Poe,
was a Spanish national, being the son
also known as Fernando Poe, Jr.
of Lorenzo Pou, a Spanish subject.
(hereinafter "FPJ"), filed his certificate
of candidacy for the position of
Granting that Allan F. Poe was a
President of the Republic of the
Filipino citizen, he could not have
Philippines under the Koalisyon ng
transmitted his Filipino citizenship to
Nagkakaisang Pilipino (KNP) Party, in
FPJ,
the
latter
being
an
the forthcoming national elections. In
illegitimate child of an alien
his certificate of candidacy, FPJ,
mother.
Petitioner based the

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
allegation of the illegitimate birth of
5) a certification issued by the
respondent on two assertions - first,
Director of the Records Management
Allan F. Poe contracted a prior
and Archives Office, attesting to the
marriage to a certain Paulita Gomez
fact that there was no record in the
before his marriage to Bessie Kelley
National Archives that a Lorenzo Poe
and, second, even if no such prior
or Lorenzo Pou resided or entered the
marriage had existed, Allan F. Poe,
Philippines before 1907, and
married Bessie Kelly only a year after
6) a certification from the Officer-Inthe birth of respondent.
Charge of the Archives Division of the
3. Petitioner, in support of his claim,
National Archives to the effect that no
presented
several
documentary
available information could be found
exhibits
in the files of the National Archives
regarding the birth of Allan F. Poe.
1) a copy of the certificate of birth of
FPJ
4. Respondent, presented twenty-two
documentary pieces of evidence, the
2) a certified photocopy of an
more significant ones being
affidavit executed in Spanish by
Paulita Poe y Gomez attesting to her
a) a certification issued by Estrella M.
having filed a case for bigamy and
Domingo of the Archives Division of
concubinage against the father of
the National Archives that there
respondent, Allan F. Poe, after
appeared
to
be
no
available
discovering his bigamous relationship
information regarding the birth of
with Bessie Kelley,
Allan F. Poe in the registry of births
for San Carlos, Pangasinan
3) an English translation of the
affidavit aforesaid,
b) a certification issued by the
Officer-In-Charge of the Archives
4) a certified photocopy of the
Division of the National Archives that
certificate of birth of Allan F. Poe,
no available information about the

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
marriage of Allan F. Poe and Paulita
5. On 23 January 2004, the
Gomez could be found,
COMELEC dismissed SPA No. 04003 for lack of merit.
c) a certificate of birth of Ronald Allan
Poe
Motion
for
reconsideration
was
denied.
d) Original Certificate of Title No. P2247 of the Registry of Deeds for the
6. On 10 February 2004, petitioner
Province of Pangasinan, in the name
assailed the decision of the COMELEC
of Lorenzo Pou
before this Court conformably with
Rule 64, in relation to Rule 65, of the
e) copies of Tax Declaration No.
Revised Rules of Civil Procedure. The
20844, No. 20643, No. 23477 and No.
petition, likewise prayed for a
23478 in the name of Lorenzo Pou,
temporary restraining order, a writ of
preliminary injunction or any other
f) a copy of the certificate of death of
resolution that would stay the finality
Lorenzo Pou,
and/or execution of the COMELEC
resolutions.
g) a copy of the purported marriage
contract between Fernando Pou and
The
other
petitions,
later
Bessie Kelley, and
consolidated with G. R. No. 161824,
would include G. R. No. 161434, both
h) a certification issued by the City
challenging the jurisdiction of the
Civil Registrar of San Carlos City,
COMELEC and asserting that, under
Pangasinan, stating that the records
Article VII, Section 4, paragraph 7, of
of birth in the said office during the
the 1987 Constitution, only the
period of from 1900 until May 1946
Supreme Court had original and
were totally destroyed during World
exclusive jurisdiction to resolve the
War II.
basic issue on the case.
(Case Digest)

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
Petitioners sought for respondent Poes
disqualification in the presidential elections
for having allegedly misrepresented material
facts in his (Poes) certificate of candidacy by
claiming that he is a natural Filipino citizen
despite his parents both being foreigners.
Comelec dismissed the petition, holding that
Poe was a Filipino Citizen. Petitioners assail
the jurisdiction of the Comelec, contending
that only the Supreme Court may resolve the
basic issue on the case under Article VII,
Section 4, paragraph 7, of the 1987
Constitution.
Issue:
Whether or not it is the Supreme Court which
had jurisdiction.
Whether or not Comelec committed grave
abuse of discretion in holding that Poe was a
Filipino citizen.
Ruling:
1.) The Supreme Court had no jurisdiction
on questions regarding qualification of a
candidate for the presidency or vicepresidency before the elections are held.
"Rules of the Presidential Electoral Tribunal"
in connection with Section 4, paragraph 7, of
the 1987 Constitution, refers to contests
relating to the election, returns and
qualifications of the "President" or "VicePresident", of the Philippines which the
Supreme Court may take cognizance, and

not of "candidates" for President or VicePresident before the elections.


2.) Comelec committed no grave abuse of
discretion in holding Poe as a Filipino Citizen.
The 1935 Constitution on Citizenship, the
prevailing fundamental law on respondents
birth, provided that among the citizens of the
Philippines are "those whose fathers are
citizens of the Philippines."
Tracing respondents paternal lineage, his
grandfather Lorenzo, as evidenced by the
latters death certificate was identified as a
Filipino Citizen. His citizenship was also
drawn from the presumption that having
died in 1954 at the age of 84, Lorenzo would
have been born in 1980. In the absence of
any other evidence, Lorenzos place of
residence upon his death in 1954 was
presumed to be the place of residence prior
his death, such that Lorenzo Pou would have
benefited from the "en masse Filipinization"
that the Philippine Bill had effected in 1902.
Being so, Lorenzos citizenship would have
extended to his son, Allan---respondents
father.
Respondent, having been acknowledged as
Allans son to Bessie, though an American
citizen, was a Filipino citizen by virtue of
paternal filiation as evidenced by the
respondents birth certificate. The 1935
Constitution on citizenship did not make a
distinction on the legitimacy or illegitimacy
of the child, thus, the allegation of bigamous

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
marriage and the allegation that respondent
Seguros, fire policy No. 29333 in the
was born only before the assailed marriage
sum
of
P1000,000
covering
had no bearing on respondents citizenship
merchandise contained in a building
in view of the established paternal filiation
located at No. 711 Roman Street,
evidenced
by
the
public
documents
Binondo Manila.
presented.
But while the totality of the evidence may
not establish conclusively that respondent
FPJ is a natural-born citizen of the
Philippines, the evidence on hand still would
preponderate in his favor enough to hold
that he cannot be held guilty of having made
a
material
misrepresentation
in
his
certificate of candidacy in violation of
Section 78, in relation to Section 74 of the
Omnibus Election Code.

IV.

Control Test

G.R. No. L-2294


1951
FILIPINAS
SEGUROS vs.

COMPAIA

May 25,

DE

CHRISTERN, HUENEFELD and CO.,


INC.
PARAS, C.J.:
Facts: 1. On October 1, 1941,
Christern Huenefeld, & Co., Inc., after
payment of corresponding premium,
obtained from Filipinas Cia. de

2. During the Japanese military


occupation,
the
building
and
insured
merchandise
were
burned.
In
due
time,
the
respondent submitted to the
petitioner its claim under the
policy.
3. The petitioner refused to pay
the claim on the ground that the
policy in favor of the respondent had
ceased to be in force on the date
the United States declared war
against Germany, the respondent
Corporation (though organized under
and by virtue of the laws of the
Philippines) being controlled by the
German subjects and the petitioner
being a company under American
jurisdiction when said policy was
issued on October 1, 1941.
4. The petitioner, however, in
pursuance of the order of the Director
of Bureau of Financing, Philippine

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
Executive Commission, dated April 9,
Issues:
1943, paid to the respondent the sum
1. W/N the petitioner may recover
of P92,650 on April 19, 1943.
the payment it made for
5. The present action was filed on
respondent by virtue of the
August 6, 1946, in the Court of First
latters fire policy
Instance of Manila for the purpose
2. W/N
the
respondent
is
of
recovering
from
the
considered a foreign corporation
respondent the sum of P92,650
under our laws
above mentioned. The theory of
8. The Court of Appeals overruled
the petitioner is that the insured
the contention of the petitioner that
merchandise were burned up after
the respondent corporation became
the policy issued in 1941 in favor of
an enemy when the United States
the respondent corporation has
declared war against Germany,
ceased to be effective because of the
relying on English and American
outbreak of the war between the
cases which held that a corporation is
United States and Germany on
a citizen of the country or state by
December 10, 1941, and that the
and under the laws of which it was
payment made by the petitioner to
created or organized. It rejected the
the respondent corporation during
theory that nationality of private
the Japanese military occupation was
corporation is determine by the
under pressure.
character or citizenship of its
6. After trial, the Court of First
controlling stockholders.
Instance of Manila dismissed the
There is no question that majority of
action without pronouncement as to
the stockholders of the respondent
costs.
corporation were German subjects.
7. Upon appeal, the judgment of
Ruling:
the Court of First Instance of
Manila was affirmed, with costs.

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
The said respondent became an
Mixed Arbitral established after the
enemy corporation upon the outbreak
First World
of the war between the United States
..
and Germany. The English and
American cases relied upon by the
Court of Appeals have lost their force
in view of the latest decision of the
Supreme Court of the United States in
Clark
vs.
Uebersee
Finanz
Korporation, in which the controls
test has been adopted. In "Enemy
Corporation" by Martin Domke, a
paper presented to the Second
International Conference of the Legal
Profession held at the Hague
(Netherlands) in August. 1948 the
following
enlightening
passages
appear:
A corporation was subject to
enemy legislation when it was
controlled
by
enemies,
namely
managed under the influence of
individuals
or
corporations,
themselves considered as enemies. It
was the English courts which first the
Daimler case applied this new
concept of "piercing the corporate
veil," which was adopted by the
peace of Treaties of 1919 and the

The United States did not, in the


amendments of the Trading with the
Enemy Act during the last war,
include as did other legislations the
applications of the control test and
again, as in World War I, courts
refused to apply this concept
whereby the enemy character of an
American
or
neutral-registered
corporation is determined by the
enemy nationality of the controlling
stockholders.
.
Court decisions sanctioned such
administrative
practice
enacted
under the First War Powers Act of
1941, and more recently, on
December 8, 1947, the Supreme
Court of the United States
definitely approved of the control
theory. In Clark vs. Uebersee Finanz
Korporation, A. G., dealing with a
Swiss corporation allegedly controlled
by German interest, the Court: "The

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
property of all foreign interest was
provides that "anyone except a
placed within the reach of the vesting
public enemy may be insured." It
power
(of
the
Alien
Property
stands to reason that an insurance
Custodian) not to appropriate friendly
policy ceases to be allowable as soon
or neutral assets but to reach enemy
as an insured becomes a public
interest which masqueraded under
enemy.
those innocent fronts. . . . The power
Efect of war, generally. All
of seizure and vesting was extended
intercourse between citizens of
to all property of any foreign country
belligerent
powers
which
is
or national so that no innocent
inconsistent with a state of war is
appearing device could become a
prohibited by the law of nations. Such
Trojan horse."
prohibition includes all negotiations,
It becomes unnecessary, therefore, to
commerce, or trading with the
dwell at length on the authorities
enemy; all acts which will increase, or
cited in support of the appealed
tend to increase, its income or
decision. However, we may add that,
resources; all acts of voluntary
in Haw Pia vs. China Banking
submission to it; or receiving its
Corporation,* 45 Off Gaz., (Supp. 9)
protection; also all acts concerning
299, we already held that China
the transmission of money or goods;
Banking Corporation came within the
and all contracts relating thereto are
meaning of the word "enemy" as
thereby
nullified.
It
further
used in the Trading with the Enemy
prohibits insurance upon trade
Acts of civilized countries not only
with or by the enemy, upon the
because it was incorporated under
life or lives of aliens engaged in
the laws of an enemy country but
service with the enemy; this for
because
it
was
controlled
by
the reason that the subjects of one
enemies.
country cannot be permitted to lend
their assistance to protect by
The Philippine Insurance Law (Act No.
insurance the commerce or property
2427, as amended,) in section 8,
of belligerent, alien subjects, or to do

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
anything
detrimental
too
their
The respondent having become an
country's interest. The purpose of war
enemy corporation on December 10,
is to cripple the power and exhaust
1941, the insurance policy issued in
the resources of the enemy, and it is
its favor on October 1, 1941, by the
inconsistent that one country should
petitioner (a Philippine corporation)
destroy its enemy's property and
had ceased to be valid and
repay in insurance the value of what
enforcible, and since the insured
has been so destroyed, or that it
goods were burned after December
should in such manner increase the
10, 1941, and during the war, the
resources of the enemy, or render it
respondent was not entitled to any
aid, and the commencement of war
indemnity under said policy from the
determines, for like reasons, all
petitioner. However, elementary
trading intercourse with the enemy,
rules of justice (in the absence of
which prior thereto may have been
specific provision in the Insurance
lawful. All individuals therefore, who
Law) require that the premium paid
compose the belligerent powers,
by the respondent for the period
exist, as to each other, in a state of
covered by its policy from
utter exclusion, and are public
December 11, 1941, should be
enemies. (6 Couch, Cyc. of Ins. Law,
returned by the petitioner.
pp. 5352-5353.)
The Court of Appeals, in deciding the
In the case of an ordinary fire
case, stated that the main issue
policy, which grants insurance
hinges on the question of whether
only from year, or for some other
the policy in question became
specified term it is plain that when
null
and
void
upon
the
the parties become alien enemies,
declaration of war between the
the contractual tie is broken and the
United States and Germany on
contractual rights of the parties, so
December 10, 1941, and its judgment
far as not vested. lost. (Vance, the
in
favor
of
the
respondent
Law on Insurance, Sec. 44, p. 112.)
corporation was predicated on its
conclusion that the policy did not

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
cease to be in force. The Court of
of
the
Japanese
Military
Appeals necessarily assumed that,
Administration, and following the
even if the payment by the petitioner
instruction of said authority, you are
to the respondent was involuntary, its
hereby ordered to pay the claim of
action is not tenable in view of the
Messrs. Christern, Huenefeld & Co.,
ruling on the validity of the policy. As
Inc. The payment of said claim,
a matter of fact, the Court of Appeals
however, should be made by means
held that "any intimidation resorted
of
crossed
check."
(Emphasis
to by the appellee was not unjust but
supplied.)
the exercise of its lawful right to
It results that the petitioner is entitled
claim for and received the payment
to recover what paid to the
of the insurance policy," and that the
respondent under the circumstances
ruling of the Bureau of Financing to
on
this
case.
However,
the
the effect that "the appellee was
petitioner will be entitled to
entitled to payment from the
recover only the equivalent, in
appellant
was,
well
founded."
actual Philippines currency of
Factually, there can be no doubt
P92,650 paid on April 19, 1943, in
that the Director of the Bureau of
accordance with the rate fixed in the
Financing,
in
ordering
the
Ballantyne scale.
petitioner to pay the claim of the
respondent, merely obeyed the
instruction
of
the
Japanese
Military Administration, as may be
seen from the following: "In view of
the findings and conclusion of this
office contained in its decision on
Administrative Case dated February
9, 1943 copy of which was sent to
your office and the concurrence
therein of the Financial Department

Wherefore, the appealed decision


is hereby reversed and the
respondent
corporation
is
ordered to pay to the petitioner
the sum of P77,208.33, Philippine
currency, less the amount of the
premium, in Philippine currency, that
should be returned by the
petitioner for the unexpired term
of
the
policy
in
question,

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
beginning December 11, 1941.
about 6.3 percent of the outstanding
Without costs. So ordered.
common shares) of PLDT owned by
PTIC to First Pacific. With the this sale,
First Pacifics common shareholdings
in PLDT increased from 30.7 percent
GR 176579
to 37 percent, thereby increasing the
total
common
shareholdings
of
GAMBOA v TEVES
foreigners in PLDT to about 81.47%.
This, according to the petitioner,
CARPIO, J.:
violates Section 11, Article XII of the
THE FACTS
1987 Philippine Constitution which
limits foreign ownership of the capital
This is a petition to nullify the sale of
of a public utility to not more than
shares
of
stock
of
Philippine
40%, thus:
Telecommunications
Investment
Corporation
(PTIC)
by
the
Section 11. No franchise, certificate,
government of the Republic of the
or any other form of authorization for
Philippines, acting through the Interthe operation of a public utility shall
Agency Privatization Council (IPC), to
be granted except to citizens of the
Metro Pacific Assets Holdings, Inc.
Philippines or to corporations or
(MPAH), an affiliate of First Pacific
associations organized under the
Company Limited (First Pacific), a
laws of the Philippines, at least sixty
Hong
Kong-based
investment
per centum of whose capital is owned
management and holding company
by such citizens; nor shall such
and a shareholder of the Philippine
franchise, certificate, or authorization
Long Distance Telephone Company
be exclusive in character or for a
(PLDT).
longer period than fifty years. Neither
shall any such franchise or right be
The petitioner questioned the sale on
granted except under the condition
the ground that it also involved an
that
it
shall
be
subject
to
indirect sale of 12 million shares (or
amendment, alteration, or repeal by

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
the Congress when the common good
stock entitled to vote in the election
so
requires.
The
State
shall
of directors of a public utility, i.e., to
encourage equity participation in
the total common shares in PLDT.]
public utilities by the general public.
Considering that common shares
The participation of foreign investors
have voting rights which translate to
in the governing body of any public
control, as opposed to preferred
utility enterprise shall be limited to
shares which usually have no voting
their proportionate share in its
rights, the term capital in Section
capital, and all the executive and
11, Article XII of the Constitution
managing officers of such corporation
refers only to common shares.
or association must be citizens of the
However, if the preferred shares also
Philippines. (Emphasis supplied)
have the right to vote in the election
of directors, then the term capital
shall include such preferred shares
II. THE ISSUE
because the right to participate in the
control or management of the
Does the term capital in Section 11,
corporation is exercised through the
Article XII of the Constitution refer to
right to vote in the election of
the total common shares only, or to
directors. In short, the term capital
the total outstanding capital stock
in Section 11, Article XII of the
(combined total of common and nonConstitution refers only to shares of
voting preferred shares) of PLDT, a
stock that can vote in the election of
public utility?
directors.
III. THE RULING
[The Court partly granted the petition
and held that the term capital in
Section 11, Article XII of the
Constitution refers only to shares of

To construe broadly the term


capital as the total outstanding
capital stock, including both common
and non-voting preferred shares,
grossly contravenes the intent and
letter of the Constitution that the

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
State shall develop a self-reliant and
Common Capital Stock shall have the
independent
national
economy
exclusive right to vote for the election
effectively controlled by Filipinos. A
of directors and for all other
broad
definition
unjustifiably
purposes.
disregards
who
owns
the
allIt must be stressed, and respondents
important
voting
stock,
which
do not dispute, that foreigners hold a
necessarily equates to control of the
majority of the common shares of
public utility.
PLDT. In fact, based on PLDTs 2010
Holders of PLDT preferred shares are
General Information Sheet (GIS),
explicitly denied of the right to vote
which is a document required to be
in the election of directors. PLDTs
submitted annually to the Securities
Articles of Incorporation expressly
and
Exchange
Commission,
state that the holders of Serial
foreigners hold 120,046,690 common
Preferred Stock shall not be entitled
shares of PLDT whereas Filipinos hold
to vote at any meeting of the
only 66,750,622 common shares. In
stockholders for the election of
other words, foreigners hold 64.27%
directors or for any other purpose or
of the total number of PLDTs
otherwise participate in any action
common shares, while Filipinos hold
taken by the corporation or its
only 35.73%. Since holding a majority
stockholders, or to receive notice of
of the common shares equates to
any meeting of stockholders. On the
control, it is clear that foreigners
other hand, holders of common
exercise control over PLDT. Such
shares are granted the exclusive right
amount of control unmistakably
to vote in the election of directors.
exceeds the allowable 40 percent
PLDTs Articles of Incorporation state
limit on foreign ownership of public
that each holder of Common Capital
utilities
expressly
mandated
in
Stock shall have one vote in respect
Section 11, Article XII of the
of each share of such stock held by
Constitution.
him on all matters voted upon by the
stockholders, and the holders of

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
As shown in PLDTs 2010 GIS, as
Article XII of the Constitution that
submitted to the SEC, the par value
[n]o franchise, certificate, or any
of PLDT common shares is P5.00 per
other form of authorization for the
share, whereas the par value of
operation of a public utility shall be
preferred shares is P10.00 per share.
granted except to x x x corporations
In other words, preferred shares have
x x x organized under the laws of the
twice the par value of common
Philippines, at least sixty per centum
shares but cannot elect directors and
of whose capital is owned by such
have only 1/70 of the dividends of
citizens x x x.
common shares. Moreover, 99.44% of
To repeat, (1) foreigners own 64.27%
the preferred shares are owned by
of the common shares of PLDT, which
Filipinos while foreigners own only a
class of shares exercises the sole
minuscule 0.56% of the preferred
right to vote in the election of
shares. Worse, preferred shares
directors, and thus exercise control
constitute 77.85% of the authorized
over PLDT; (2) Filipinos own only
capital stock of PLDT while common
35.73% of PLDTs common shares,
shares constitute only 22.15%. This
constituting a minority of the voting
undeniably shows that beneficial
stock, and thus do not exercise
interest in PLDT is not with the noncontrol over PLDT; (3) preferred
voting preferred shares but with the
shares, 99.44% owned by Filipinos,
common shares, blatantly violating
have no voting rights; (4) preferred
the constitutional requirement of 60
shares earn only 1/70 of the
percent Filipino control and Filipino
dividends that common shares earn;
beneficial ownership in a public
(5) preferred shares have twice the
utility.
par value of common shares; and (6)
In short, Filipinos hold less than 60
preferred shares constitute 77.85% of
percent of the voting stock, and earn
the authorized capital stock of PLDT
less than 60 percent of the dividends,
and common shares only 22.15%.
of PLDT. This directly contravenes the
This kind of ownership and control of
express command in Section 11,

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
outstanding capital stock, coupled with 60
a public utility is a mockery of the
percent of the voting rights, is required." In
Constitution.
[Thus, the Respondent Chairperson of
the
Securities
and
Exchange
Commission was DIRECTED by the
Court
to
apply
the
foregoing
definition of the term capital in
determining the extent of allowable
foreign ownership in respondent
Philippine Long Distance Telephone
Company, and if there is a violation of
Section 11, Article XII of the
Constitution,
to
impose
the
appropriate sanctions under the law.]
The term capital does not refer to both
preferred and common stocks treated as the
same class of shares regardless of
differences in voting rights and privileges.
Consistent with the constitutional mandate
that the State shall develop a self-reliant
and
independent
national
economy
effectively controlled by Filipinos, the term
"capital" means the outstanding capital stock
entitled to vote (voting stock), coupled with
beneficial ownership, both of which results to
"effective control."
"Mere legal title is insufficient to meet the 60
percent Filipino owned capital required in
the Constitution for certain industries. Full
beneficial ownership of 60 percent of the

this case, such twin requirements must apply


uniformly and across the board to all classes
of shares comprising the capital. Thus, "the
60-40 ownership requirement in favor of
Filipino citizens must apply separately to
each class of shares, whether common,
preferred non-voting, preferred voting or any
other class of shares." This guarantees that
the controlling interest in public utilities
always lies in the hands of Filipino citizens.

V.
Corporate
Personality
[G.R. No. 160039.
2004]

Juridical

June 29,

RAYMUNDO ODANI SECOSA, EL


BUENASENSO
SY
and
DASSAD
WAREHOUSING and PORT SERVICES,
INCORPORATED,
petitioners,
vs.
HEIRS
OF
ERWIN
SUAREZ
FRANCISCO, respondents.
YNARES-SANTIAGO, J.:
Facts: 1. On June 27, 1996, at around
4:00 p.m., Erwin Suarez Francisco, an
eighteen year old third year physical
therapy student of the Manila Central
University, was riding a motorcycle
along Radial 10 Avenue, near the

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
Veteran Shipyard Gate in the City of
4. On June 19, 1998, after a full-blown
Manila. At the same time, petitioner,
trial, the court a quo rendered a
Raymundo Odani Secosa, was driving
decision
in
favor
of
herein
an Isuzu cargo truck with plate
respondents, to pay plaintiffs jointly
number PCU-253 on the same road.
and severally:
The truck was owned by petitioner,
1.
The sum of P55,000.00 as actual and
Dassad
Warehousing
and
Port
compensatory damages;
Services, Inc.
2. Traveling behind the motorcycle
driven by Francisco was a sand and
gravel truck, which in turn was being
tailed by the Isuzu truck driven by
Secosa.
The three vehicles were
traversing the southbound lane at a
fairly high speed.
When Secosa
overtook the sand and gravel truck,
he bumped the motorcycle causing
Francisco to fall. The rear wheels of
the Isuzu truck then ran over
Francisco, which resulted in his
instantaneous death. Fearing for his
life, petitioner Secosa left his truck
and fled the scene of the collision.[3]
3. Respondents, the parents of Erwin
Francisco, thus filed an action for
damages against Raymond Odani
Secosa, Dassad Warehousing and
Port Services, Inc. and Dassads
president, El Buenasucenso Sy.

2.
The sum of P20,000.00 for the repair
of the motorcycle;
3.
The sum of P100,000.00 for the loss of
earning capacity;
4.
The sum of P500,000.00 as moral
damages;
5.
The sum of P50,000.00 as exemplary
damages;
6. The sum of P50,000.00 as attorneys fees
plus cost of suit.

5. Petitioners appealed the decision


to the Court of Appeals, which
affirmed the appealed decision in
toto.
ISSUE: W/N THE COURT OF APPEALS
SERIOUSLY
ERRED
WHEN
IT
AFFIRMED THE DECISION OF THE
TRIAL
COURT
IN
HOLDING
PETITIONER EL BUENASENSO SY

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Sharla Louisse A. Castillo

SOLIDARILY
LIABLE
WITH
PETITIONERS DASSAD AND SECOSA
Employers shall be liable for the damages
IN VIOLATION OF THE CORPORATION
caused by their employees and household
LAW AND RELATED JURISPRUDENCE
helpers acting within the scope of their
ON THE MATTER.
assigned tasks, even though the former are
not engaged in any business or industry.

Ruling:

I. On the issue of whether petitioner


Dassad
Warehousing
and
Port
Services, Inc. exercised the diligence
of a good father of a family in the
selection and supervision of its
employees, we find the assailed
decision to be in full accord.
Article 2176
provides:

of

the

Civil

Code

Whoever by act or omission causes damage


to another, there being fault or negligence, is
obliged to pay for the damage done. Such
fault or negligence, if there is no pre-existing
contractual relation between the parties, is
called a quasi-delict and is governed by the
provisions of this Chapter.
On the other hand, Article 2180, in pertinent
part, states:
The obligation imposed by article 2176 is
demandable not only for ones own acts or
omissions, but also for those of persons for
whom one is responsible.

The responsibility treated of in this article


shall cease when the persons herein
mentioned prove that they observed all the
diligence of a good father of a family to
prevent damage.

Based on the foregoing provisions,


when an injury is caused by the
negligence of an employee, there
instantly arises a presumption that
there was negligence on the part of
the employer either in the selection
of his employee or in the supervision
over him after such selection. The
presumption, however, may be
rebutted by a clear showing on the
part of the employer that it exercised
the care and diligence of a good
father of a family in the selection and
supervision of his employee. Hence,
to evade solidary liability for quasidelict committed by an employee,
the employer must adduce sufficient

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
proof that it exercised such degree of
in the selection and supervision of its
care.
employees, testified that he was the
one who recommended petitioner
Jurisprudentially,
therefore,
the
Raymundo Secosa as a driver to
employer must not merely present
Dassad
Warehousing
and
Port
testimonial evidence to prove that he
Services, Inc.; that it was his duty to
observed the diligence of a good
scrutinize the capabilities of drivers;
father of a family in the selection and
and that he believed petitioner to be
supervision of his employee, but he
physically and mentally fit for he had
must also support such testimonial
undergone
rigid
training
and
evidence
with
concrete
or
attended the PPA safety seminar.
documentary evidence. The reason
for this is to obviate the biased
Petitioner Dassad Warehousing and
nature of the employers testimony or
Port Services, Inc. failed to support
that of his witnesses.
the testimony of its lone witness with
documentary evidence which would
Applying the foregoing doctrines to
have strengthened its claim of due
the present case, we hold that
diligence in the selection and
petitioner Dassad Warehousing and
supervision of its employees. Such
Port
Services,
Inc.
failed
to
an omission is fatal to its position, on
conclusively prove that it had
account of which, Dassad can be
exercised the requisite diligence of a
rightfully held solidarily liable with its
good father of a family in the
co-petitioner Raymundo Secosa for
selection and supervision of its
the damages suffered by the heirs of
employees.
Erwin Francisco.
Edilberto Duerme, the lone witness
presented by Dassad Warehousing
and Port Services, Inc. to support its
position that it had exercised the
diligence of a good father of a family

II. As to the solidary liability of El


Buenasenso Sy
However, we find that petitioner El
Buenasenso Sy cannot be held

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
solidarily liable with his coThe so-called veil of corporation
petitioners. While it may be true
fiction treats as separate and distinct
that Sy is the president of petitioner
the affairs of a corporation and its
Dassad
Warehousing
and
Port
officers and stockholders. As a
Services, Inc., such fact is not by
general rule, a corporation will
itself sufficient to hold him
be looked upon as a legal entity,
solidarily liable for the liabilities
unless and until sufficient reason
adjudged
against
his
coto the contrary appears. When
petitioners.
the notion of legal entity is used to
defeat public convenience, justify
It is a settled precept in this
wrong, protect fraud, or defend
jurisdiction that a corporation is
crime, the law will regard the
invested
by
law
with
a
corporation as an association of
personality separate from that of
persons.[19] Also, the corporate
its stockholders or members.[16]
entity may be disregarded in the
It has a personality separate and
interest of justice in such cases as
distinct
from
those
of
the
fraud that may work inequities
persons composing it as well as
among members of the corporation
from that of any other entity to
internally, involving no rights of the
which it may be related. Mere
public or third persons.
In both
ownership by a single stockholder or
instances, there must have been
by another corporation of all or nearly
fraud and proof of it. For the separate
all of the capital stock of a
juridical personality of a corporation
corporation is not in itself sufficient
to be disregarded, the wrongdoing
ground for disregarding the separate
must be clearly and convincingly
corporate
personality.[17]
A
established.[20] It cannot be
corporations authority to act
presumed.[21]
and its liability for its actions are
separate and apart from the
The records of this case are bereft of
individuals who own it.[18]
any evidence tending to show the
presence of any grounds enumerated

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
above that will justify the piercing of
RITRATTO GROUP INC., RIATTO
the veil of corporate fiction such as to
INTERNATIONAL, INC., and DADASAN
hold the president of Dassad
GENERAL MERCHANDISE
Warehousing and Port Services, Inc.
KAPUNAN, J.:
solidarily liable with it.
The Isuzu cargo truck which ran over
Erwin Francisco was registered in the
name of Dassad Warehousing and
Port Services, Inc., and not in the
name
of
El
Buenasenso
Sy.
Raymundo Secosa is an employee of
Dassad
Warehousing
and
Port
Services, Inc. and not of El
Buenasenso Sy.
All these things,
when taken collectively, point toward
El Buenasenso Sys exclusion from
liability for damages arising from the
death of Erwin Francisco.

G.R. No. 142616


2001

July 31,

PHILIPPINE NATIONAL BANK vs.

Facts: 1. Petitioner Philippine National


Bank is a domestic corporation
organized
and
existing
under
Philippine
law.
Meanwhile,
respondents Ritratto Group, Inc.,
Riatto International, Inc. and Dadasan
General Merchandise are domestic
corporations, likewise, organized and
existing under Philippine law.
2.
On
May
29,
1996,
PNB
International Finance Ltd. (PNB-IFL) a
subsidiary
company
of
PNB,
organized and doing business in Hong
Kong, extended a letter of credit in
favor of the respondents in the
amount of US$300,000.00 secured by
real estate mortgages constituted
over four (4) parcels of land in Makati
City. This credit facility was later
increased
successively
and
decreased to US$1,421,316.18 in
April
1998.
Respondents
made
repayments of the loan incurred by

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
remitting those amounts to their loan
given a period of seven days to file its
account with PNB-IFL in Hong Kong.
written opposition to the application.
3. However, as of April 30, 1998, their
outstanding obligations stood at
US$1,497,274.70. Pursuant to the
terms of the real estate mortgages,
PNB-IFL, through its attorney-in-fact
PNB, notified the respondents of the
foreclosure of all the real estate
mortgages and that the properties
subject thereof were to be sold at a
public auction on May 27, 1999 at the
Makati City Hall.
4. On May 25, 1999, respondents
filed a complaint for injunction with
prayer for the issuance of a writ of
preliminary
injunction
and/or
temporary restraining order before
the Regional Trial Court of Makati.
5. The Executive Judge of the
Regional Trial Court of Makati issued a
72-hour temporary restraining order.
On May 28, 1999, the case was
raffled to Branch 147 of the Regional
Trial Court of Makati. The trial judge
then set a hearing on June 8, 1999. At
the hearing of the application for
preliminary injunction, petitioner was

6. On June 15, 1999, petitioner filed


an opposition to the application for a
writ of preliminary injunction to which
the respondents filed a reply.
7. On June 25, 1999, petitioner filed a
motion to dismiss on the grounds of
failure to state a cause of action and
the absence of any privity between
the petitioner and respondents.
8. On June 30, 1999, the trial court
judge issued an Order for the
issuance of a writ of preliminary
injunction,
which
writ
was
correspondingly issued on July 14,
1999.
9. On October 4, 1999, the motion to
dismiss was denied by the trial court
judge for lack of merit.
10. Petitioner, thereafter, in a petition
for certiorari and prohibition assailed
the issuance of the writ of preliminary
injunction before the Court of
Appeals.

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
11. In the impugned decision the
Petitioner prays, inter alia, that the
appellate
court
dismissed
the
Court of Appeals' Decision dated
petition.
Petitioner
thus
seeks
March 27, 2000 and the trial court's
recourse to this Court and raises the
Orders dated June 30, 1999 and
following errors:
October 4, 1999 be set aside and the
dismissal of the complaint in the
instant case.
1. THE
COURT
OF
APPEALS
PALPABLY
ERRED
IN
NOT
DISMISSING THE COMPLAINT A
QUO, CONSIDERING THAT BY
THE ALLEGATIONS OF THE
COMPLAINT, NO CAUSE OF
ACTION
EXISTS
AGAINST
PETITIONER, WHICH IS NOT A
REAL PARTY IN INTEREST BEING
A
MERE
ATTORNEY-IN-FACT
AUTHORIZED TO ENFORCE AN
ANCILLARY CONTRACT.
2. THE
COURT
OF
APPEALS
PALPABLY ERRED IN ALLOWING
THE TRIAL COURT TO ISSUE IN
EXCESS
OR
LACK
OF
JURISDICTION
A
WRIT
OF
PRELIMINARY INJUNCTION OVER
AND
BEYOND
WHAT
WAS
PRAYED FOR IN THE COMPLAINT
A QUO CONTRARY TO CHIEF OF
STAFF, AFP VS. GUADIZ JR., 101
SCRA 827.2

In their Comment, respondents argue


that even assuming arguendo that
petitioner and PNB-IFL are two
separate entities, petitioner is still the
party-in-interest in the application for
preliminary injunction because it is
tasked to commit acts of foreclosing
respondents'
properties.4
Respondents maintain that the
entire credit facility is void as it
contains stipulations in violation
of the principle of mutuality of
contracts. In addition, respondents
justified the act of the court a
quo in applying the doctrine of
"Piercing the Veil of Corporate
Identity"
by
stating
that
petitioner is merely an alter ego
or a business conduit of PNB-IFL.
PETITION IS WITH MERIT.

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
Respondents, in their complaint,
Issue: W/N
anchor their prayer for injunction on
Ruling:
alleged invalid provisions of the
contract: (grounds)
The contract questioned is one
entered into between respondent and
I. THE DETERMINATION OF THE
PNB-IFL, not PNB. In their complaint,
INTEREST RATES BEING LEFT TO THE
respondents admit that petitioner is a
SOLE
DISCRETION
OF
THE
mere attorney-in-fact for the PNB-IFL
DEFENDANT PNB CONTRAVENES THE
with full power and authority to, inter
PRINCIPAL
OF
MUTUALITY
OF
alia, foreclose on the properties
CONTRACTS.
mortgaged to secure their loan
II. THERE BEING A STIPULATION IN
obligations with PNB-IFL. In other
THE LOAN AGREEMENT THAT THE
words, herein petitioner is an agent
RATE OF INTEREST AGREED UPON
with limited authority and specific
MAY BE UNILATERALLY MODIFIED BY
duties under a special power of
DEFENDANT,
THERE
WAS
NO
attorney incorporated in the real
STIPULATION THAT THE RATE OF
estate mortgage. It is not privy to
INTEREST SHALL BE REDUCED IN THE
the loan contracts entered into by
EVENT
THAT
THE
APPLICABLE
respondents and PNB-IFL.
MAXIMUM RATE OF INTEREST IS
The issue of the validity of the
REDUCED BY LAW OR BY THE
loan contracts is a matter
MONETARY BOARD.
between PNB-IFL, the petitioner's
Respondents sought to enjoin and
principal and the party to the
restrain PNB from the foreclosure and
loan
contracts,
and
the
eventual sale of the property in order
respondents.
Yet,
despite
the
to protect their rights to said property
recognition that petitioner is a mere
by reason of void credit facilities as
agent, the respondents in their
bases for the real estate mortgage
complaint prayed that the petitioner
over the said property.
PNB be ordered to re-compute the

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
conducted, as to make it merely an
rescheduling of the interest to be
instrumentality, agency, conduit or
paid by them in accordance with the
adjunct of another corporation .
terms
and
conditions
in
the
documents evidencing the credit
We disagree.
facilities, and crediting the amount
previously paid to PNB by herein
The general rule is that as a legal
respondents.
entity,
a
corporation
has
a
personality distinct and separate
Clearly, petitioner not being a
from its individual stockholders or
part to the contract has no power
members, and is not affected by the
to re-compute the interest rates
personal rights, obligations and
set
forth
in
the
contract.
transactions of the latter. The mere
Respondents, therefore, do not have
fact that a corporation owns all
any
cause
of
action
against
of
the
stocks
of
another
petitioner.
corporation, taken alone is not
sufficient to justify their being
The trial court, however, in its Order
treated as one entity. If used to
dated October 4, 1994, ruled that
perform
legitimate
functions,
a
since PNB-IFL, is a wholly owned
subsidiary's separate existence may
subsidiary of defendant Philippine
be respected, and the liability of the
National Bank, the suit against the
parent corporation as well as the
defendant PNB is a suit against PNBsubsidiary will be confined to those
IFL.10
arising in their respective business.
In justifying its ruling, the trial court,
The courts may in the exercise of
citing the case of Koppel Phil. Inc. vs.
judicial discretion step in to prevent
Yatco, reasoned that the corporate
the abuses of separate entity
entity may be disregarded where a
privilege and pierce the veil of
corporation is the mere alter ego, or
corporate entity.
business conduit of a person or where
the corporation is so organized and
controlled and its affairs are so

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
instrumentality of the former. The Tennessee
We find, however, that the ruling in
Supreme Court stated that as a general rule
Koppel finds no application in the
the
stock
ownership
alone
by
one
case at bar. In said case, this Court
corporation of the stock of another does not
disregarded the separate existence of
thereby render the dominant corporation
the parent and the subsidiary on the
liable for the torts of the subsidiary unless
the separate corporate existence of the
ground that the latter was formed
subsidiary is a mere sham, or unless the
merely for the purpose of evading the
control of the subsidiary is such that it is but
payment of higher taxes. In the case
an instrumentality or adjunct of the
at bar, respondents fail to show
dominant corporation.
any cogent reason why the
Similarly, in this jurisdiction, we have
separate entities of the PNB and
held that the doctrine of piercing
PNB-IFL should be disregarded.
the corporate veil is an equitable
While there exists no definite test of
doctrine
developed
to
address
general application in determining
situations
where
the
separate
when a subsidiary may be treated as
corporate personality of a corporation
a mere instrumentality of the parent
is abused or used for wrongful
corporation, some factors have been
purposes. The doctrine applies when
identified
that
will
justify
the
the corporate fiction is used to defeat
application of the treatment of the
public convenience, justify wrong,
doctrine of the piercing of the
protect fraud or defend crime, or
corporate veil.
when it is made as a shield to
confuse the legitimate issues, or
The case of Garrett vs. Southern Railway
where a corporation is the mere alter
Co.14 is enlightening. The case involved a
ego or business conduit of a person,
suit against the Southern Railway Company.
or where the corporation is so
Plaintiff was employed by Lenoir Car Works
and alleged that he sustained injuries while
organized and controlled and its
working for Lenoir. He, however, filed a suit
affairs are so conducted as to make it
against Southern Railway Company on the
merely an instrumentality, agency,
ground that Southern had acquired the
conduit or adjunct of another
entire capital stock of Lenoir Car Works,
corporation.
hence, the latter corporation was but a mere

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
In Concept Builders, Inc. v. NLRC, we
Aside from the fact that PNB-IFL is a
have laid the test in determining the
wholly owned subsidiary of petitioner
applicability of the doctrine of
PNB, there is no showing of the
piercing the veil of corporate fiction,
indicative factors that the former
to wit:
corporation
is
a
mere
instrumentality of the latter are
1. Control, not mere majority or complete
present.
Neither
is
there
a
control, but complete domination, not only of
demonstration that any of the evils
finances but of policy and business practice
sought to be prevented by the
in respect to the transaction attacked so that
doctrine of piercing the corporate veil
the corporate entity as to this transaction
had at the time no separate mind, will or
exists. Inescapably, therefore, the
existence of its own.
doctrine of piercing the corporate veil
based
on
the
alter
ego
or
2. Such control must have been used by the
instrumentality doctrine finds no
defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or
application in the case at bar.
other positive legal duty, or dishonest and,
unjust act in contravention of plaintiffs legal
rights; and,
3. The aforesaid control and breach of duty
must proximately cause the injury or unjust
loss complained of.

The absence of any one of these


elements prevents "piercing the
corporate veil." In applying the
"instrumentality" or "alter ego"
doctrine, the courts are concerned
with reality and not form, with how
the corporation operated and the
individual defendant's relationship to
the operation.

In any case, the parent-subsidiary


relationship between PNB and PNBIFL is not the significant legal
relationship involved in this case
since the petitioner was not sued
because it is the parent company of
PNB-IFL. Rather, the petitioner was
sued because it acted as an
attorney-in-fact of PNB-IFL in
initiating
the
foreclosure
proceedings. A suit against an
agent cannot without compelling
reasons be considered a suit
against the principal. Under the
Rules of Court, every action must be

CORPORATION LAW CASES (2ND SEMESTER) Assoc Dean Chavez


Sharla Louisse A. Castillo
prosecuted or defended in the name
of the real party-in-interest, unless
otherwise authorized by law or these
Rules.18 In mandatory terms, the
Rules require that "parties-in-interest
without whom no final determination
can be had, an action shall be joined
either as plaintiffs or defendants."19
In the case at bar, the injunction
suit is directed only against the
agent, not the principal.

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