ALBERT VS UNIVERSITY PUBLISHING CO.
, Adelio Cruz vs Quiterio Dalisay
INC. (Jan. 30, 1965)
Mariano Albert entered into a contract
with University Publishing Co., Inc.
through Jose M. Aruego, its President,
whereby University would pay plaintiff
for the exclusive right to publish his
revised Commentaries on the Revised
Penal Code. The contract stipulated
that failure to pay one installment would
render the rest of the payments due.
When University failed to pay the
second installment, Albert sued for
collection and won. However, upon
execution, it was found that University
was not registered with the SEC. Albert
petitioned for a writ of execution
against Jose M. Aruego as the real
defendant. University opposed, on the
ground that Aruego was not a party to
the case.
The Supreme Court found that Aruego
represented a non-existent entity and
induced not only Albert but the court to
believe in such representation. Aruego,
acting as representative of such non-
existent principal, was the real party to
the contract sued upon, and thus
assumed such privileges and obligations
and became personally liable for the
contract entered into or for other acts
performed as such agent.
The Supreme Court likewise held that
the doctrine of corporation by estoppel
cannot be set up against Albert since it
was Aruego who had induced him to
act upon his (Aruego's) willful
representation that University had been
duly organized and was existing under
the law.
152 SCRA 482 - Business Organization
Corporation Law Piercing the Veil of
Corporate Fiction Exercised by the
Wrong Person
In 1984, the National Labor Relations
Commission issued an order against
Qualitrans Limousine Service, Inc. (QLSI)
ordering the latter to reinstate the
employees it terminated and to pay
them backwages. Quiterio Dalisay,
Deputy Sheriff of the court, to satisfy the
backwages, then garnished the bank
account of Adelio Cruz. Dalisay justified
his act by averring that Cruz was the
owner and president of QLSI. Further, he
claimed that the counsel for the
discharged employees advised him to
garnish the account of Cruz.
ISSUE: Whether or not the action of
Dalisay is correct.
HELD: No. What Dalisay did is
tantamount to piercing the veil of
corporate fiction. He actually usurped
the power of the court. He also
overstepped his duty as a deputy sheriff.
His duty is merely ministerial and it is
incumbent upon him to execute the
decision of the court according to its
tenor and only against the persons
obliged to comply. In this case, the
person judicially named to comply was
QLSI and not Cruz. It is a well-settled
doctrine both in law and in equity that
as a legal entity, a corporation has a
personality distinct and separate from its
individual stockholders or members. The
mere fact that one is president of a
corporation does not render the
property he owns or possesses the
property of the corporation, since the
president, as individual, and the
corporation are separate entities.
Simex International Inc. vs. CA [G.R. No.
88013 March 19, 1990]
Facts: Simex International is a private
corporation engaged in the exportation
of food products. It buys these products
from various local suppliers and then
sells them abroad, particularly in the
United States, Canada and the Middle
East. Most of its exports are purchased
by the petitioner on credit.
Simex is a depositor of TRB and
maintained a checking account in its
Cubao branch. Simex maintained an
account in the amount of P100,000.00,
thus increasing its balance as of that
date to P190,380.74. Subsequently, the
petitioner issued several (8) checks
against its deposit but was surprised to
learn later that they had been
dishonored for insufficient funds.
As a consequence, actions on the
pending orders of SIMEX with the other
suppliers (California Manufacturing
Comp., Malabon Longlife Trading Corp.,
etc.) whose checks were dishonored
was deferred. And thus made these
companies send demand letters to
SIMEX threatening prosecution if the
checks were not made good.
SIMEX complained to TRB and found out
that the sum of P100,000.00 deposited
had not been credited. The error was
rectified on June 17, 1981, and the
dishonored checks were paid after they
were re-deposited. SIMEX sent demand
letter for reparation against TRB, which
was not met, thus a complaint was filed
in CFI Rizal by SIMEX. The court denied
the moral & exemplary damages but
upheld and ordered TRB to pay for
nominal damages in the amount of
P20,000.00 plus attys fees & costs, which
was then affirmed by the CA. The CA
found with the trial court that the
private respondent was guilty of
negligence but agreed that the
petitioner was nevertheless not entitled
to moral damages. It said:
The essential ingredient of moral
damages is proof of bad faith (De
Aparicio vs. Parogurga, 150 SCRA 280).
Indeed, there was the omission by the
defendant-appellee bank to credit
appellant's deposit of P100,000.00 on
May 25, 1981. But the bank rectified its
records. It credited the said amount in
favor of plaintiff-appellant in less than a
month. The dishonored checks were
eventually paid. These circumstances
negate any imputation or insinuation of
malicious, fraudulent, wanton and gross
bad faith and negligence on the part of
the defendant-appellant.
It is this ruling that is faulted in the
petition now before us.
Issue: Whether or not TRB is guilty of
negligence which warrants SIMEX
reparation for damages.
Held: YES. Award SIMEX with moral
damages (P20,000) and exemplary
damages (P50,000).
The initial carelessness of the respondent
bank, aggravated by the lack of
promptitude in repairing its error, justifies
the grant of moral damages. This rather
lackadaisical attitude toward the
complaining depositor constituted the
gross negligence, if not wanton bad
faith, that the respondent court said
had not been established by the
petitioner.
There was also prejudice suffered by
SIMEX in the fact that the petitioner's
credit line was canceled and its orders
were not acted upon pending receipt
of actual payment by the suppliers. Its
business declined. Its reputation was
tarnished. Its standing was reduced in
the business community. All this was due
to the fault of the respondent bank
which was undeniably remiss in its duty
to the petitioner.
We shall recognize that the petitioner
did suffer injury because of the private
respondent's negligence that caused
the dishonor of the checks issued by it.
The immediate consequence was that
its prestige was impaired because of the
bouncing checks and confidence in it
as a reliable debtor was diminished.
In the case at bar, it is obvious that the
respondent bank was remiss in that duty
and violated that relationship. What is
especially deplorable is that, having
been informed of its error in not
crediting the deposit in question to the
petitioner, the respondent bank did not
immediately correct it but did so only
one week later or twenty-three days
after the deposit was made. It bears
repeating that the record does not
contain any satisfactory explanation of
why the error was made in the first
place and why it was not corrected
immediately after its discovery. Such
ineptness comes under the concept of
the wanton manner contemplated in
the Civil Code that calls for the
imposition of exemplary damages.
Jardine Davies Inc. vs. CA and Far East
Mills Supply Corporation; Pure Foods
Corporation vs CA (June 19, 2000)
Corporation entitled to Moral Damages
(reputation besmirched)
Facts: In 1992 Purefoods decided to
install 2 generators in its food processing
plant in San Roque, Marikina. A bidding
for the supply and installation was held
among the bidders was Far East Mills
Supply Corporation (FEMSCO).
Thereafter, in a letter addressed to
FEMSCO president, Purefoods confirmed
the award of the contract. Immediately
FEMSCO submitted the requirements
such as a performance bond and all risk
insurance policy as well as purchasing
the necessary materials. However, in
another letter, Purefoods unilaterally
cancelled the award citing significant
factors which were uncovered and
brought to their attention which
dictate the cancellation and warrant a
total review and re-bid of the project.
FEMSCO protested the cancellation but
before the matter could be resolve,
Purefoods awarded the project with
Jardine Nell, a division of Jardine Davies.
FEMSCO sued both Purefoods and
Jardine. The RTC granted Jardines
demurrer to evidence but found in favor
of FEMSCO against Purefoods and order
indemnification. FEMSCO appealed the
granting of the demurrer filed by Jardine
and Purefoods appealed the decision
of the court. The CA affirmed the
decision of the RTC but ordered Jardine
to pay FEMSCO damages for inducing
Purefoods to violate the contract as
such, Jardine must pay moral damages.
In addition, Purefoods was also directed
to pay FEMSCO moral damages and
exemplary damages Both Purefoods
and Jardine filed motions for
reconsideration which were denied.
Issue: Whether or not moral damages
may be granted to a corporation?
Held: The Court has awarded in the past
moral damages to a corporation whose
reputation has been besmirched. (Asset
Privatization Trust v. CA, 300 SCRA 379)
In this case, respondent FEMSCO has
sufficiently shown that its reputation was
tarnished after it immediately ordered
equipment from its suppliers on account
of the urgency of the project, only to be
canceled later. The Court thus,
sustained respondent appellate courts
award of moral damages. However, as
there is no showing whatsoever that
Jardine induced Purefoods, the decision
of the CA is modified. The order to
Jardine Davies to pay FEMSCO moral
damages is reversed and set aside.
ABS-CBN Broadcasting Corporation vs
Court of Appeals
301 SCRA 572 Business Organization
Corporation Law Delegation of
Corporate Powers Moral Damages
In 1992, ABS-CBN Broadcasting
Corporation, through its vice president
Charo Santos-Concio, requested Viva
Production, Inc. to allow ABS-CBN to air
at least 14 films produced by Viva.
Pursuant to this request, a meeting was
held between Vivas representative
(Vicente Del Rosario) and ABS-CBNs
Eugenio Lopez (General Manager) and
Santos-Concio was held on April 2, 1992.
During the meeting Del Rosario
proposed a film package which will
allow ABS-CBN to air 104 Viva films for
P60 million. Later, Santos-Concio, in a
letter to Del Rosario, proposed a
counterproposal of 53 films (including
the 14 films initially requested) for P35
million. Del Rosario presented the
counter offer to Vivas Board of
Directors but the Board rejected the
counter offer. Several negotiations were
subsequently made but on April 29,
1992, Viva made an agreement with
Republic Broadcasting Corporation
(referred to as RBS or GMA 7) which
gave exclusive rights to RBS to air 104
Viva films including the 14 films initially
requested by ABS-CBN.
ABS-CBN now filed a complaint for
specific performance against Viva as it
alleged that there is already a
perfected contract between Viva and
ABS-CBN in the April 2, 1992 meeting.
Lopez testified that Del Rosario agreed
to the counterproposal and he (Lopez)
even put the agreement in a napkin
which was signed and given to Del
Rosario. ABS-CBN also filed an injunction
against RBS to enjoin the latter from
airing the films. The injunction was
granted. RBS now filed a countersuit
with a prayer for moral damages as it
claimed that its reputation was
debased when they failed to air the
shows that they promised to their
viewers. RBS relied on the ruling in
People vs Manero and Mambulao
Lumber vs PNB which states that a
corporation may recover moral
damages if it has a good reputation
that is debased, resulting in social
humiliation. The trial court ruled in favor
of Viva and RBS. The Court of Appeals
affirmed the trial court.
ISSUE:
1. Whether or not a contract was
perfected in the April 2, 1992 meeting
between the representatives of the two
corporations.
2. Whether or not a corporation, like
RBS, is entitled to an award of moral
damages upon grounds of debased
reputation.
HELD:
1. No. There is no proof that a contract
was perfected in the said meeting.
Lopez testimony about the contract
being written in a napkin is not
corroborated because the napkin was
never produced in court. Further, there
is no meeting of the minds because Del
Rosarios offer was of 104 films for P60
million was not accepted. And that the
alleged counter-offer made by Lopez
on the same day was not also
accepted because theres no proof of
such. The counter offer can only be
deemed to have been made days after
the April 2 meeting when Santos-Concio
sent a letter to Del Rosario containing
the counter-offer. Regardless, there was
no showing that Del Rosario accepted.
But even if he did accept, such
acceptance will not bloom into a
perfected contract because Del Rosario
has no authority to do so.
As a rule, corporate powers, such as the
power; to enter into contracts; are
exercised by the Board of Directors. But
this power may be delegated to a
corporate committee, a corporate
officer or corporate manager. Such a
delegation must be clear and specific.
In the case at bar, there was no such
delegation to Del Rosario. The fact that
he has to present the counteroffer to
the Board of Directors of Viva is proof
that the contract must be accepted first
by the Vivas Board. Hence, even if Del
Rosario accepted the counter-offer, it
did not result to a contract because it
will not bind Viva sans authorization.
2. No. The award of moral damages
cannot be granted in favor of a
corporation because, being an artificial
person and having existence only in
legal contemplation, it has no feelings,
no emotions, no senses, It cannot,
therefore, experience physical suffering
and mental anguish, which call be
experienced only by one having a
nervous system. No moral damages can
be awarded to a juridical person. The
statement in the case of People vs
Manero and Mambulao Lumber vs PNB
is a mere obiter dictum hence it is not
binding as a jurisprudence.
Boyer-Roxas vs. CA
G.R. No. 100866; July 14, 1992
FACTS:
The corporation, Heirs of Eugenia
Roxas Inc, was established to engage in
agriculture to develop the properties
inherited from Eugenia Roxas and
Eufroncio Roxas, which includes the
land upon which the Hidden Valley
Springs Resort was put up, including
various improvements thereon, using
corporate funds. The AOI of Heirs Inc.
was amended for this purpose. Heirs Inc.
claims that Boyer-Roxas and Guillermo
Roxas had been in possession of the
various properties and improvements in
the resort and only upon the tolerance
of the corporation. It was alleged that
they committed acts that impeded the
corporations expansion and normal
operation of the resort. They also did not
comply with court and regulatory
orders, and thus the corporation
adopted a resolution authorizing the
ejectment of the defendants. TC grants.
CA affirms. Boyer and Roxas contend
that, being stockholders, their possession
of the properties of the corporation
must be respected in view of their
ownership of an aliquot portion of all
properties of the corporation.
ISSUE:
WON the possession of the
properties in question must be
respected in view of being a
stockholder.
HELD:
NO. Regarding properties owned
by the corporation, under the doctrine
of corporate entity properties
registered in the name of the
corporation are owned by it as an entity
separate and distinct from its members.
While shares of stock constitute personal
property, they do not represent property
of the corporation. A share of stock only
typifies an aliquot part of the
corporations property, or the right to
share in its proceeds to that extent
when distributed according to law and
equity, but its holder is not the owner of
any part of the capital of the
corporation, nor is he entitled to the
possession of any definite portion of its
property or assets. The stockholder is not
a co-owner or tenant in common of the
corporate property.
The corporation has a personality
distinct and separate from its members
and transacts business only through its
officers or agents. Whatever authority
these officers or agents may have is
derived from the board or other
governing body, unless conferred by the
charter of the corporation itself. An
officer's power as an agent of the
corporation must be sought from the
statute, charter, the by-laws or in a
delegation of authority to such officer,
from the acts of the board of directors,
formally expressed or implied from a
habit or custom of doing business.
In this case the elder Roxas who
then controlled the management of the
corporation, being the majority
stockholder, consented to the
petitioners use and stay within the
properties. The Board did not object
and were allowed to stay until it
adopted a resolution to the effect of
authorizing to eject them. Since their
stay was merely by tolerance, in
deference to the wishes of the majority
stockholder who controlled the
corporation, when Roxas died his
actions cannot bind the company
forever. There is no provision in the by-
laws or any other resolution authorizing
their continued stay.
Francisco Motors Corporation vs Court
of Appeals
309 SCRA 72 Business Organization
Corporation Law Piercing the Veil of
Corporate Fiction (Upside Down)
In 1985, Francisco Motors Corporation
(FMC) sued Atty. Gregorio Manuel to
recover from a him a sum of money in
the amount of P23,000.00+. Said amount
was allegedly owed to them by Manuel members of the Francisco Family in their
for the purchase of a jeep body plus individual capacity.
repairs thereto. Manuel filed a
counterclaim in the amount of
P50,000.00. In his counterclaim, Manuel
alleged that he was the Assistant Legal PNB v. Ritratto G.R. No. 142616 362
Officer for FMC; that the Francisco SCRA 216
Family, owners of FMC, engaged his
services for the intestate estate Facts:
proceedings of one Benita Trinidad; that
he was not paid for his legal services;
PNB-IFL, a subsidiary company of PNB
that he is filing the counterclaim against
extended credit to Ritratto and secured
FMC because said corporation was
by the real estate mortgages on four
merely a conduit of the Francisco
parcels of land. Since there was default,
Family. The trial court as well as the
PNB-IFL thru PNB, foreclosed the
Court of Appeals granted Manuels
property and were subject to public
counterclaim on the ground that the
auction. Ritratto Group filed a
legal fees were owed by the
complaint for injunction. PNB filed a
incorporators of FMC (an application of
motion to dismiss on the grounds of
the doctrine of piercing the veil of
failure to state a cause of action and
corporation fiction in a reversed
the absence of any privity between
manner).
respondents and petitioner.
ISSUE: Whether or not the doctrine of
Issue:
piercing the veil of corporate fiction was
properly used by the Court of Appeals.
Is PNB privy to the loan contracts
entered into by respondent & PNB-IFL
HELD: No. In the first place, the doctrine
being that PNB-IFL is owned by PNB?
is to be used in disregarding corporate
fiction and making the incorporators
Held:
liable in appropriate circumstances. In
the case at bar, the doctrine is applied
No. The contract questioned is one
upside down where the corporation is
entered into between Ritratto and PNB-
held liable for the personal obligations
IFL. PNB was admittedly an agent of the
of the incorporators such was uncalled
latter who acted as an agent with
for and erroneous. It must be noted that
limited authority and specific duties
that Atty. Manuels legal services were
under a special power of attorney
secured by the Francisco Family to
incorporated in the real estate
represent them in the intestate
mortgage.
proceedings over Benita Trinidads
estate. The indebtedness was incurred
The mere fact that a corporation owns
by the Francisco Family in their separate
all of the stocks of another corporation,
and personal capacity. These estate
taken alone is not sufficient to justify
proceedings did not involve any
their being treated as one entity. If used
business of FMC. The proper remedy is
to perform legitimate functions, a
for Manuel to sue the concerned
subsidiarys separate existence may be
respected, and the liability of the parent
corporation as well as the subsidiary will
be confined to those arising in their
respective business. The courts may, in
the exercise of judicial discretion, step in
to prevent the abuses of separate entity
privilege and pierce the veil of
corporate entity.
Traders Royal Bank vs Court of Appeals
269 SCRA 15 Business Organization
Corporation Law Piercing the Veil of
Corporate Fiction
Filriters Guaranty Assurance Corporation
(FGAC) is the owner of several Central
Bank Certificates of Indebtedness
(CBCI). These certificates are actually
proof that FGAC has the required
reserve investment with the Central
Bank to operate as an insurer and to
protect third persons from whatever
liabilities FGAC may incur. In 1979, FGAC
agreed to assign said CBCI to Philippine
Underwriters Finance Corporation
(PUFC). Later, PUFC sold said CBCI to
Traders Royal Bank (TRB). Said sale with
TRB comes with a right to repurchase on
a date certain. However, when the day
to repurchase arrived, PUFC failed to
repurchase said CBCI hence TRB
requested the Central Bank to have said
CBCI be registered in TRBs name.
Central Bank refused as it alleged that
the CBCI are not negotiable; that as
such, the transfer from FGAC to PUFC is
not valid; that since it was invalid, PUFC
acquired no valid title over the CBCI;
that the subsequent transfer from PUFC
to TRB is likewise invalid.
TRB then filed a petition for mandamus
to compel the Central Bank to register
said CBCI in TRBs name. TRB averred
that PUFC is the alter ego of FGAC; that
PUFC owns 90% of FGAC; that the two
corporations have identical sets of
directors; that payment of said CBCI to
PUFC is like a payment to FGAC hence
the sale between PUFC and TRB is valid.
In short, TRB avers that that the veil of
corporate fiction, between PUFC and
FGAC, should be pierced because the
two corporations allegedly used their
separate identity to defraud TRD into
buying said CBCI.
ISSUE: Whether or not Traders Royal Bank
is correct.
HELD: No. Traders Royal Bank failed to
show that the corporate fiction is used
by the two corporations to defeat
public convenience, justify wrong,
protect fraud or defend crime or where
a corporation is a mere alter ego or
business conduit of a person. TRB merely
showed that PUFC owns 90% of FGAC
and that their directors are the same.
The identity of PUFC cant be
maintained as that of FGAC because of
this mere fact; there is nothing else
which could lead the court under the
circumstance to disregard their
corporate personalities. Further, TRB
cant argue that it was defrauded into
buying those certificates. In the first
place, TRB as a banking institution is not
ignorant about these types of
transactions. It should know for a fact
that a certificate of indebtedness is not
negotiable because the payee therein
is inscribed specifically and that the
Central Bank is obliged to pay the
named payee only and no one else.
Magsaysay-Labrador, et. al. vs. Court of
Appeals
[GR 58168, 19 December 1989]
Facts: On 9 February 1979, Adelaida
Rodriguez-Magsaysay, widow and
special administratix of the estate of the
late Senator Genaro Magsaysay,
brought before the then Court of First
Instance of Olongapo an action against
Artemio Panganiban, Subic Land
Corporation (SUBIC), Filipinas
Manufacturer's Bank (FILMANBANK) and
the Register of Deeds of Zambales, for
the annulment of the Deed of
Assignment executed by the late
Senator in favor of SUBIC (as a result of
which TCT 3258 was cancelled and TCT
22431 issued in the name of SUBIC), for
the annulment of the Deed of
Mortgage executed by SUBIC in favor of
FILMANBANK (dated 28 April 1977 in the
amount of P 2,700,000.00), and
cancellation of TCT 22431 by the
Register of Deeds, and for the latter to
issue a new title in her favor. On 7 March
1979, Concepcion Magsaysay-
Labrador, Soledad Magsaysay-Cabrera,
Luisa Magsaysay-Corpuz, Felicidad
Magsaysay, and Mercedes Magsaysay-
Diaz, sisters of the late senator, filed a
motion for intervention on the ground
that on 20 June 1978, their brother
conveyed to them 1/2 of his
shareholdings in SUBIC or a total of
416,566.6 shares and as assignees of
around 41 % of the total outstanding
shares of such stocks of SUBIC, they
have a substantial and legal interest in
the subject matter of litigation and that
they have a legal interest in the success
of the suit with respect to SUBIC. On 26
July 1979, the trial court denied the
motion for intervention, and ruled that
petitioners have no legal interest
whatsoever in the matter in litigation
and their being alleged assignees or
transferees of certain shares in SUBIC
cannot legally entitle them to intervene
because SUBIC has a personality
separate and distinct from its
stockholders.
On appeal, the Court of Appeals found
no factual or legal justification to disturb
the findings of the lower court. The
appellate court further stated that
whatever claims the Magsaysay sisters
have against the late Senator or against
SUBIC for that matter can be ventilated
in a separate proceeding. The motion
for reconsideration of the Magsaysay
sisters was denied. Hence, the petition
for review on certiorari.
Issue: Whether the Magsaysay sister,
allegedly stockholders of SUBIC, are
interested parties in a case where
corporate properties are in dispute.
Held: Viewed in the light of Section 2,
Rule 12 of the Revised Rules of Court,
the Magsaysay sisters have no legal
interest in the subject matter in litigation
so as to entitle them to intervene in the
proceedings. To be permitted to
intervene in a pending action, the party
must have a legal interest in the matter
in litigation, or in the success of either of
the parties or an interest against both, or
he must be so situated as to be
adversely affected by a distribution or
other disposition of the property in the
custody of the court or an officer
thereof . Here, the interest, if it exists at
all, of the Magsaysay sisters is indirect,
contingent, remote, conjectural,
consequential and collateral. At the
very least, their interest is purely
inchoate, or in sheer expectancy of a
right in the management of the
corporation and to share in the profits
thereof and in the properties and assets
thereof on dissolution, after payment of
the corporate debts and obligations.
While a share of stock represents a
proportionate or aliquot interest in the
property of the corporation, it does not
vest the owner thereof with any legal
right or title to any of the property, his
interest in the corporate property being
equitable or beneficial in nature.
Shareholders are in no legal sense the
owners of corporate property, which is
owned by the corporation as a distinct employ the private respondent and so
legal person. they file a complaint for illegal dismissal
before the NLRC who ordered the
Sunio vs. NLRC. G.R. No. L-57767 January
reinstatement of the private respondent
31, 1984
and helt sunio its general manager
jointly and personally liable with the
Facts.
petitioner corp.
1. EMRACO-CIPI sold the plant to RDFC,
ISSUE.
CIPI had terminated the services of its
employees, including herein private
WHETHER OR NOT, Sunio will be held
respondents, giving them their
jointly and severally liable with the
separation pay which they had
petitioner.
accepted.

According to the supreme court, there is

2. When RDFC took over ownership and
management, It hired its own
employees, not the private respondents,
who were no longer there.
3. RDFC subsequently sold the property
to petitioners ICC on November 28, 1973
But by reason of their failure to pay the
balance of the purchase price,
EMRACO-CIPI foreclosed on the
mortgage over the ice plant; the
property was sold at public auction to
EMRACO-CIPI as the highest bidders,
and they eventually re-possessed the
plant on August 30, 1974 and sold again
the ice plant to Nilo velanueva who
rehired the private respondent.
4. RCFDC redeem latter the ice plant
and because of failure of emrako to
turn over the property to RCDFC, it file a
complaint for recovery before the CFI of
Ilocus who issued a mandatory
injunction and place the RDFC in
possession of the ice plant again.
5. RDFC and petitioner did not re-
no employer-employee relationship
between the private respondent and
the petitioner because they were
dismiss when Emrako sold the ice plant
to RDFC, and also Sunio cannot be hel
jointly and severally liable because he
did not act maliciously and in bad faith
when he terminate the private
respondent and Mere ownership by a
single stockholder or by another
corporation of all or nearly all of the
capital stock of a corporation is not of
itself sufficient ground for disregarding
the separate corporate personality.
G.R. No. 96490 February 3, 1992
INDOPHIL TEXTILE MILL WORKERS UNION-
PTGWO, petitioner, vs. VOLUNTARY
ARBITRATOR TEODORICO P. CALICA and
INDOPHIL TEXTILE MILLS,
INC., respondents.
Parties
Petitioner Indophil Textile Mill Workers
Union-PTGWO is a legitimate labor
organization duly registered with the
Department of Labor and Employment
and the exclusive bargaining agent of
all the rank-and-file employees of
Indophil Textile Mills, Incorporated.
Respondent Teodorico P. Calica is
impleaded in his official capacity as the
Voluntary Arbitrator of the National
Conciliation and Mediation Board of the
Department of Labor and Employment,
while private respondent Indophil Textile
Mills, Inc. is a corporation engaged in
the manufacture, sale and export of
yarns of various counts and kinds and of
materials of kindred character and has
its plants at Barrio Lambakin. Marilao,
Bulacan.
FACTS:
Petitioner Indophil Textile Mill Workers
Union-PTGWO and private respondent
Indophil Textile Mills, Inc. executed a
collective bargaining agreement.
Indophil Acrylic Manufacturing
Corporation was formed and registered
with the Securities and Exchange
Commission. Subsequently, Acrylic
applied for registration with the Board of
Investments for incentives under the
1987 Omnibus Investments Code. The
application was approved on a
preferred non-pioneer status.
Acrylic became operational and hired
workers according to its own criteria
and standards. The workers of Acrylic
unionized and a duly certified collective
bargaining agreement was executed.
A year after the workers of Acrylic have
been unionized and a CBA executed,
the petitioner Indophil Textile Mill
Workers Union-PTGWO claimed that the
plant facilities built and set up by Acrylic
should be considered as an extension or
expansion of the facilities of private
respondent Indophil Textile Mills, Inc.
pursuant to Section 1(c), Article I of the
CBA, to wit,.
c) This Agreement shall apply to the
Company's plant facilities and
installations and to any extension and
expansion thereat. (Rollo, p.4)
In other words, it is the petitioner
Indophil Textile Mill Workers Union-
PTGWO's contention that Acrylic is part
of the Indophil bargaining unit.
The petitioner Indophil Textile Mill
Workers Union-PTGWO's contention was
opposed by private respondent Indophil
Textile Mills, Inc. which submits that it is a
juridical entity separate and distinct
from Acrylic.
The existing impasse led the petitioner
Indophil Textile Mill Workers Union-
PTGWO and private respondent
Indophil Textile Mills, Inc. to enter into a
submission agreement.
The parties jointly requested the public
respondent Teodorico P. Calica to act
as voluntary arbitrator in the resolution
of the pending labor dispute pertaining
to the proper interpretation of the CBA
provision.
Decision of Voluntary Arbitrator
Teodorico P. Calica
Wherefore, an award is made to the
effect that the proper interpretation
and application of Sec. l, (c), Art. I, of
the 1987 CBA do (sic) not extend to the
employees of Acrylic as an extension or
expansion of Indophil Textile Mills, Inc.
The public respondent Teodorico P.
Calica through the Solicitor General
argues that the Indophil Acrylic
Manufacturing Corporation is not an
alter ego or an adjunct or business
conduit of private respondent because
it has a separate legitimate business
purpose. In addition, the Solicitor
General alleges that the primary
purpose of private respondent is to
engage in the business of
manufacturing yarns of various counts
and kinds and textiles. On the other
hand, the primary purpose of Indophil
Acrylic is to manufacture, buy, sell at
wholesale basis, barter, import, export
and otherwise deal in yarns of various
counts and kinds. Hence, unlike private
respondent, Indophil Acrylic cannot
manufacture textiles while private
respondent cannot buy or import yarns.
Indophil Textile Mill Workers Union-
PTGWO's contention
Petitioner notes that the foregoing
evidence sufficiently establish that
Acrylic is but an extension or expansion
of private respondent, to wit:
(a) the two corporations have their
physical plants, offices and facilities
situated in the same compound, at
Barrio Lambakin, Marilao, Bulacan;
(b) many of private respondent's
own machineries, such as dyeing
machines, reeling, boiler, Kamitsus
among others, were transferred to and
are now installed and being used in the
Acrylic plant;
(c) the services of a number of units,
departments or sections of private
respondent are provided to Acrylic; and
(d) the employees of private
respondent are the same persons
manning and servicing the units of
Acrylic. (see Rollo, pp. 12-13)
Indophil Textile Mills, Inc.'s contention
Private respondent insists that the
existence of a bonafide business
relationship between Acrylic and
private respondent is not a proof of
being a single corporate entity because
the services which are supposedly
provided by it to Acrylic are auxiliary
services or activities which are not really
essential in the actual production of
Acrylic. It also pointed out that the
essential services are discharged
exclusively by Acrylic personnel under
the control and supervision of Acrylic
managers and supervisors.
In sum, petitioner Indophil Textile Mill
Workers Union-PTGWO insists that the
public respondent Teodorico P. Calica
committed grave abuse of discretion
amounting to lack or in excess of
jurisdiction in erroneously interpreting
the CBA provision and in failing to
disregard the corporate entity of
Acrylic.
ISSUE: WHETHER THE RESPONDENT
ARBITRATOR TEODORICO P. CALICA
ERRED IN INTERPRETING SECTION 1(c),
ART I OF THE CBA BETWEEN PETITIONER
UNION AND RESPONDENT COMPANY
HELD: No.
Time and again, We stress that the
decisions of voluntary arbitrators are to
be given the highest respect and a
certain measure of finality, but this is not
a hard and fast rule, it does not
preclude judicial review thereof where
want of jurisdiction, grave abuse of
discretion, violation of due process,
denial of substantial justice, or erroneous
interpretation of the law were brought
to our attention.
It should be emphasized that in
rendering the subject arbitral award, the
voluntary arbitrator Teodorico Calica, a
professor of the U.P. Asian Labor
Education Center, now the Institute for
Industrial Relations, found that the
existing law and jurisprudence on the
matter, supported the private
respondent's contentions. Contrary to
petitioner's assertion, public respondent
cited facts and the law upon which he
based the award. Hence, public
respondent Teodorico P. Calica did not
abuse his discretion.
Under the doctrine of piercing the veil of
corporate entity, when valid grounds
therefore exist, the legal fiction that a
corporation is an entity with a juridical
personality separate and distinct from its
members or stockholders may be
disregarded. In such cases, the
corporation will be considered as a
mere association of persons. The
members or stockholders of the
corporation will be considered as the
corporation, that is liability will attach
directly to the officers and stockholders.
The doctrine applies when the
corporate fiction is used to defeat
public convenience, justify wrong,
protect fraud, or defend crime, or when
it is made as a shield to confuse the
legitimate issues, or where a corporation
is the mere alter ego or business conduit
of a person, or where the corporation is
so organized and controlled and its
affairs are so conducted as to make it
merely an instrumentality, agency,
conduit or adjunct of another
corporation.
In the case at bar, petitioner seeks to
pierce the veil of corporate entity of
Acrylic, alleging that the creation of the
corporation is a devise to evade the
application of the CBA between
petitioner Union and private respondent
Company. While we do not discount the
possibility of the similarities of the
businesses of private respondent and
Acrylic, neither are we inclined to apply
the doctrine invoked by petitioner in
granting the relief sought. The fact that
the businesses of private respondent
Indophil Textile Mills, Inc. and Acrylic are
related, that some of the employees of
the private respondent Indophil Textile
Mills, Inc. are the same persons manning
and providing for auxilliary services to
the units of Acrylic, and that the
physical plants, offices and facilities are
situated in the same compound, it is our
considered opinion that these facts are
not sufficient to justify the piercing of the
corporate veil of Acrylic.
Hence, the Acrylic not being an
extension or expansion of private
respondent Indophil Textile Mills, Inc., the
rank-and-file employees working at
Acrylic should not be recognized as part
of, and/or within the scope of the
petitioner Indophil Textile Mill Workers
Union-PTGWO, as the bargaining
representative of private respondent
Indophil Textile Mills, Inc..
Benjamin Yu v. National Labor Relations
Commission & Jade Mountain
ProductsCo. Ltd., Willy Co, Rhodora
Bendal, Lea Bendal, Chiu Shian Jeng
and Chen Ho-Fu
G.R. No. 97212 June 30, 1993
Feliciano, J.
Facts:
Yu ex-Assistant General Manager of
the marble quarrying and export
business operated by a registered
partnership called Jade Mountain
Products Co. Ltd. partnership was
originally organized with Bendals as
general partners and Chin Shian Jeng,
Chen Ho-Fu and Yu Chang as limited
partners; partnership business consisted
of exploiting a marble deposit in
Bulacan
Yu, as Assistant General Manager,
had a monthly salary of 4000. Yu,
however, actually r ec ei v e d o nl y
h a l f o f h i s s ti pu l a te d s a l a r y , s i nc e
h e h a d ac c e p te d t h e p r o mi s e o f
t h e partners that the balance
would be paid when the firm shall
have secured additional operating
funds from abroad. Yu actually
managed the operations and
finances of the business; he had
overall supervision of the workers at the
marble quarry in Bulacan and took
charge of the preparation of papers
relating to the exportation of the firms
products.
General partners Bendals sold and
transferred their interests in the
partnership to Co andEmmanuel
Zapanta partnership was constituted
solely by Co and Zapanta; it
continued to use the old firm name
of Jade Mountain Yu dismissed by the No winding up of affairs in this
new partners c a se a s c o n te mp l a te d i n Ar t .
1 8 2 9 : o n d i s s ol u ti on t h e partnership
Issues: is not terminated, but continues until the
1 . WO N t h e p a r t n e r s hi p w h i c h winding up of partnership affairs is
h a d h i r e d Y u a s As s t . G e n . completed t h e n e w p a r t n e r s h i p
M a n a g er h a d b ee n extinguished simply took over the business
and replaced by a new partnership enterprise owned by the old
composed of Co and Zapanta; p a r t ne rs h i p , a n d c o n t i n u ed u s i n g
2. if indeed anew partnership had come t h e o l d n a me o f J a d e M o u n t ai n
into existence, WON Yu could P r o d u c ts C o m pa ny Limited, without
nonetheless assert his rights under his winding up the business affairs of the old
employment contract with the old partnership, paying off its debts,
partnership as against the new liquidating and distributing its net assets,
partnership and then re-assembling the said assets
or most of them and opening a new
Held: business enterprise
1. Yes. Changes in the membership of
the partnership resulted in the dissolution 2. Yes. the new partnership is liable for
of the old partnership which had hired the debts of the old partnership
Yu and the emergence of a new
partnership composed of Co and Legal basis: Art. 1840 (see codal)
Zapanta.
Yu is entitled to enforce his claim for
Legal bases: unpaid salaries, as well as other claims
relating to his employment with the
Art. 1828. The dissolution of previous partnership, against the new
a partnership is the change partnership
in the relation of the
partners caused by any But Yu is not entitled to reinstatement.
partner ceasing to be Reason: new partnership was entitled to
associated in the carrying on appoint and hire a new gen. or asst.
a s distinguished from the winding up of gen. manager to run the affairs of
the business. the business enterprise take over. An
asst. gen. manager belongs to the most
Art. 1830. Dissolution is caused:(1) senior ranks of management and anew
without violation of the agreement partnership is entitled to appoint a top
between the partners;(b) by the express manager of its own choice and
will of any partner, who must act in confidence. The non-retention of Yu did
good faith, when no definite termor not constitute unlawful termination.
particular undertaking is specified;(2) in
contravention of the agreement The new partnership had its own
between the partners, where the new General Manager, Co, the
circumstances do not permit a principal new owner himself. Yus
dissolution under any other provision of old position thus became superfluous
this article, by the express will of any or redundant.
partner at any time;
 Yu is entitled to separation pay at the
rate of one months pay for each year
of service that he had rendered to the
old partnership, a fraction of at least 6
months being considered as a whole
year.
Concept Builders Inc. vs. National Labor
Relations Commission
[GR 108734, 29 May 1996]
Facts: Concept Builders, Inc., (CBI) a
domestic corporation, with principal
office at 355 Maysan Road, Valenzuela,
Metro Manila, is engaged in the
construction business while Norberto
Marabe; Rodolfo Raquel, Cristobal
Riego, Manuel Gillego, Palcronio
Giducos, Pedro Aboigar, Norberto
Comendador, Rogelio Salut, Emilio
Garcia, Jr., Mariano Rio, Paulina Basea,
Alfredo Albera, Paquito Salut, Domingo
Guarino, Romeo Galve, Dominador
Sabina, Felipe Radiana, Gavino Sualibio,
Moreno Escares, Ferdinand Torres, Felipe
Basilan, and Ruben Robalos were
employed by said company as laborers,
carpenters and riggers. On November
1981, Marabe, et. al. were served
individual written notices of termination
of employment by CBI, effective on 30
November 1981. It was stated in the
individual notices that their contracts of
employment had expired and the
project in which they were hired had
been completed. The National Labor
Relations Commission (NLRC) found it to
be, the fact, however, that at the time
of the termination of Marabe, et.al.'s
employment, the project in which they
were hired had not yet been finished
and completed. CBI had to engage the
services of sub-contractors whose
workers performed the functions of
Marabe, et. al. Aggrieved, Marabe, et.
al. filed a complaint for illegal dismissal,
unfair labor practice and non-payment
of their legal holiday pay, overtime pay
and thirteenth-month pay against CBI.
On 19 December 1984, the Labor Arbiter
rendered judgment ordering CBI to
reinstate Marabe et. al. and to pay
them back wages equivalent to 1 year
or 300 working days. On 27 November
1985, the NLRC dismissed the motion for
reconsideration filed by CBI on the
ground that the said decision had
already become final and executory.
On 16 October 1986, the NLRC
Research and Information Department
made the finding that Marabe, et. al.'s
back wages amounted to P199,800.00.
On 29 October 1986, the Labor Arbiter
issued a writ of execution directing the
sheriff to execute the Decision, dated 19
December 1984. The writ was partially
satisfied through garnishment of sums
from CBI's debtor, the Metropolitan
Waterworks and Sewerage Authority, in
the amount of P81,385.34. Said amount
was turned over to the cashier of the
NLRC. On 1 February 1989, an Alias Writ
of Execution was issued by the Labor
Arbiter directing the sheriff to collect
from CBI the sum of P117,414.76,
representing the balance of the
judgment award, and to reinstate
Marabe, et. al. to their former positions.
On 13 July 1989, the sheriff issued a
report stating that he tried to serve the
alias writ of execution on petitioner
through the security guard on duty but
the service was refused on the ground
that CBI no longer occupied the
premises. On 26 September 1986, upon
motion of Marabe, et. al., the Labor
Arbiter issued a second alias writ of
execution. The said writ had not been
enforced by the special sheriff because,
as stated in his progress report dated 2
November 1989, that all the employees
inside CBI's premises claimed that they
were employees of Hydro Pipes
Philippines, Inc. (HPPI) and not by CBI;
that levy was made upon personal
properties he found in the premises; and
that security guards with high-powered
guns prevented him from removing the
properties he had levied upon. The said
special sheriff recommended that a
"break-open order" be issued to enable
him to enter CBI's premises so that he
could proceed with the public auction
sale of the aforesaid personal properties
on 7 November 1989. On 6 November
1989, a certain Dennis Cuyegkeng filed
a third-party claim with the Labor Arbiter
alleging that the properties sought to be
levied upon by the sheriff were owned
by HPPI, of which he is the Vice-
President. On 23 November 1989,
Marabe, et. al. filed a "Motion for
Issuance of a Break-Open Order,"
alleging that HPPI and CBI were owned
by the same incorporator/stockholders.
They also alleged that petitioner
temporarily suspended its business
operations in order to evade its legal
obligations to them and that Marabe,
et. al. were willing to post an indemnity
bond to answer for any damages which
CBI and HPPI may suffer because of the
issuance of the break-open order. On 2
March 1990, the Labor Arbiter issued an
Order which denied Marabe, et. al.'s
motion for break-open order.
Marabe, et. al. then appealed to the
NLRC. On 23 April 1992, the NLRC set
aside the order of the Labor Arbiter,
issued a break-open order and directed
Marabe, et. al. to file a bond.
Thereafter, it directed the sheriff to
proceed with the auction sale of the
properties already levied upon. It
dismissed the third-party claim for lack
of merit. CBI moved for reconsideration
but the motion was denied by the NLRC
in a Resolution, dated 3 December
1992. Hence, the petition.
Issue: Whether the NLRC was correct in
issuing the break-open order to levy the
HPPI properties located at CBI amd/or
HPPIs premises at 355 Maysan Road,
Valenzuela, Metro Manila.
Held: It is a fundamental principle of
corporation law that a corporation is an
entity separate and distinct from its
stockholders and from other
corporations to which it may be
connected. But, this separate and
distinct personality of a corporation is
merely a fiction created by law for
convenience and to promote justice.
So, when the notion of separate juridical
personality is used to defeat public
convenience, justify wrong, protect
fraud or defend crime, or is used as a
device to defeat the labor laws, this
separate personality of the corporation
may be disregarded or the veil of
corporate fiction pierced. This is true
likewise when the corporation is merely
an adjunct, a business conduit or an
alter ego of another corporation. The
conditions under which the juridical
entity may be disregarded vary
according to the peculiar facts and
circumstances of each case. No hard
and fast rule can be accurately laid
down, but certainly, there are some
probative factors of identity that will
justify the application of the doctrine of
piercing the corporate veil, to wit: (1)
Stock ownership by one or common
ownership of both corporations; (2)
Identity of directors and officers; (3) The
manner of keeping corporate books
and records; and (4) Methods of
conducting the business. The SEC en
banc explained the "instrumentality rule"
which the courts have applied in
disregarding the separate juridical
personality of corporations as "Where
one corporation is so organized and
controlled and its affairs are conducted
so that it is, in fact, a mere
instrumentality or adjunct of the other,
the fiction of the corporate entity of the
"instrumentality" may be disregarded.
The control necessary to invoke the rule
is not majority or even complete stock
control but such domination of
instances, policies and practices that
the controlled corporation has, so to
speak, no separate mind, will or
existence of its own, and is but a
conduit for its principal. It must be kept
in mind that the control must be shown
to have been exercised at the time the
acts complained of took place.
Moreover, the control and breach of
duty must proximately cause the injury
or unjust loss for which the complaint is
made." The test in determining the
applicability of the doctrine of piercing
the veil of corporate fiction is as (1)
Control, not mere majority or complete
stock control, but complete domination,
not only of finances but of policy and
business practice in respect to the
transaction attacked so that the
corporate entity as to this transaction
had at the time no separate mind, will
or existence of its own; (2) Such control
must have been used by the defendant
to commit fraud or wrong, to
perpetuate the violation of a statutory
or other positive legal duty or dishonest
and unjust act in contravention of
plaintiff's 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
that operation. Thus the question of
whether a corporation is a mere alter
ego, a mere sheet or paper
corporation, a sham or a subterfuge is
purely one of fact. Here, while CBI
claimed that it ceased its business
operations on 29 April 1986, it filed an
Information Sheet with the Securities
and Exchange Commission on 15 May
1987, stating that its office address is at
355 Maysan Road, Valenzuela, Metro
Manila. On the other hand, HPPI, the
third-party claimant, submitted on the
same day, a similar information sheet
stating that its office address is at 355
Maysan Road, Valenzuela, Metro
Manila. Further, both information sheets
were filed by the same Virgilio O. Casio
as the corporate secretary of both
corporations. Both corporations had the
same president, the same board of
directors, the same corporate officers,
and substantially the same subscribers.
From the foregoing, it appears that,
among other things, the CBI and the
HPPI shared the same address and/or
premises. Under these circumstances, it
cannot be said that the property levied
upon by the sheriff were not of CBI's.
Clearly, CBI ceased its business
operations in order to evade the
payment to Marabe, et. al. of back
wages and to bar their reinstatement to
their former positions. HPPI is obviously a
business conduit of CBI and its
emergence was skillfully orchestrated to
avoid the financial liability that already
attached to CBI.
AC Ransom Labor Union v. NLRC (1986)
Doctrines:
S i nc e a c o rp o ra t e e m pl o y e r i s a n
a r t i f i c i al p e rs o n , i t m u s t h a v e a n
o f f i c er w h o c an be p re s u me d t o
b e t h e employer, being the person
acting in the interest of the employer.
Facts: On June 6, 1961, employees of
AC Ransom, most being members of
the AC Ransom Labor Union, went
on strike. The said strike was lifted on
June 21 with most of the strikers
being allowed to resume their work.
However, twenty two strikers were
refused reinstatement. During 1969, the
Hernandez family (owners of AC
RANSOM) organized another
corporation under the name of Rosario
Industrial Corporation. The said
company dealt in the same type of
business as AC Ransom. The issue of
back wages was brought before the
Court of Industrial Relations which
rendered a decision on December
19, 1972 ordering the twenty two strikers
to be reinstated with back wages. On
April 2, 1973, RANSOM filed an
application for clearance to close or
cease operations. The same was
granted by the Ministry of Labor and
Employment. Although it has
stopped operations, RANSOM has
continued its personality as a RANSOM directly responsible for failure
corporation. For practical purposes,
reinstatement of the 22 strikers has been
precluded. As a matter of fact,
reinstatement is not an issue in this case.
A motion of execution was filed by the
Union against AC Ransom but the
former was unable to collect due to the
inability to find leviable assets of the
company.
The Union subsequently asked the
officers of Ransom to be personally
liable for payment of the back wages.
The motion was granted by the Labor
Arbiter but was subsequently reversed
by the NLRC.
Issue:
1.
W/N the officers of the corporation
should be held personally liable to pay
for the back wages.
Held:
1.
YES. Under Article 212 (c) of the
Labor Code, Employee includes
any person acting in the interest of
an e m pl o y e r , d i r ec tl y or
i n di r ec tl y . S i n c e R a n s o m i s a n
a r t i f i c i al p e rs o n , i t m u s t h a v e a n
o f f i c er w h o c a n b e presumed to be
the employer, being the person acting
in the interest of the employer
(Ransom).In PD 525, where a
corporation fails to pay the
emergency allowance therein
provided, the prescribed penalty
shall be imposed upon the guilty officer
or officers of the corporation. In the
instant case, RANSOM, in foreseeing
the possibility or probability of
payment of back wages to the
22strikers, organized ROSARIO to
replace RANSOM, with the latter to be
eventually phased out if the 22 strikers
win their case. The record does not
clearly identify the officer or officers of
to pay the back wages of the 22 strikers.
In the absence of definite proof in that
regard, it should be presumed that the
responsible officer is the President of the
corporation who can be deemed the
chief operation officer thereof.
Buenaflor Umali vs Court of Appeals
189 SCRA 529 Business Organization
Corporation Law Piercing the Veil of
Corporate Fiction
Mauricia Castillo was the administratrix
in charge over a parcel of land left be
Felipe Castillo. Said land was
mortgaged to the Development Bank of
the Philippines and was about to be
foreclosed but then Mauricias nephew,
Santiago Rivera, proposed that they
convert the land into 4 subdivisions so
that they can raise the necessary
money to avoid foreclosure. Mauricia
agreed. Rivera sought to develop said
land through his company, Slobec
Realty Corporation (SRC), of which he
was also the president. SRC then
contracted with Bormaheco, Inc. for the
purchase of one tractor. Bormaheco
agreed to sell the tractor on an
installment basis. At the same time, SRC
mortgaged said tractor to Bormaheco
as security just in case SRC will default.
As additional security, Mauricia and
other family members executed a surety
agreement whereby in case of default
in paying said tractor, the Insurance
Corporation of the Philippines (ICP) shall
pay the balance. The surety bond
agreement between Mauricia and ICP
was secured by Mauricias parcel of
land (same land to be developed).
SRC defaulted in paying said tractor.
Bormaheco foreclosed the tractor but it
wasnt enough hence ICP paid the
deficiency. ICP then foreclosed the
property of Mauricia. ICP later sold said
property to Philippine Machinery Parts
Manufacturing Corporation (PMPMC).
PMPMC then demanded Mauricia et al
to vacate the premises of said property.
While all this was going on, Mauricia
died. Her successor-administratrix,
Buenaflor Umali, questioned the
foreclosure made by ICP. Umali alleged
that all the transactions are void and
simulated hence they were defrauded;
that through Bormahecos
machinations, Mauricia was fooled into
entering into a surety agreement with
ICP; that Bormaheco even made the
premium payments to ICP for said surety
bond; that the president of Bormaheco
is a director of PMPMC; that the counsel
who assisted in all the transactions, Atty.
Martin De Guzman, was the legal
counsel of ICP, Bormaheco, and
PMPMC.
ISSUE: Whether or not the veil of
corporate fiction should be pierced.
HELD: No. There is no clear showing of
fraud in this case. The mere fact that
Bormaheco paid said premium
payments to ICP does not constitute
fraud per se. As it turned out,
Bormaheco is an agent of ICP. SRC,
through Rivera, agreed that part of the
payment of the mortgage shall be paid
for the insurance. Naturally, when Rivera
was paying some portions of the
mortgage to Bormaheco, Bormaheco is
applying some parts thereof for the
payment of the premium and this was
agreed upon beforehand.
Further, piercing the veil of corporate
fiction is not the proper remedy in order
that the foreclosure conducted by ICP
be declared a nullity. The nullity may be
attacked directly without disregarding
the separate identity of the corporations
involved. Further still, Umali et al are not
enforcing a claim against the individual
members of the corporations. They are
not claiming said members to be liable.
Umali et al are merely questioning the
validity of the foreclosure.
The veil of corporate fiction cant be
pierced also by the simple reason that
the businesses of two or more
corporations are interrelated, absent
sufficient showing that the corporate
entity was purposely used as a shield to
defraud creditors and third persons of
their rights. In this case, there is no
justification for disregarding their
separate personalities.
Adelio Cruz vs Quiterio Dalisay
152 SCRA 482 - Business Organization
Corporation Law Piercing the Veil of
Corporate Fiction Exercised by the
Wrong Person
In 1984, the National Labor Relations
Commission issued an order against
Qualitrans Limousine Service, Inc. (QLSI)
ordering the latter to reinstate the
employees it terminated and to pay
them backwages. Quiterio Dalisay,
Deputy Sheriff of the court, to satisfy the
backwages, then garnished the bank
account of Adelio Cruz. Dalisay justified
his act by averring that Cruz was the
owner and president of QLSI. Further, he
claimed that the counsel for the
discharged employees advised him to
garnish the account of Cruz.
ISSUE: Whether or not the action of
Dalisay is correct.
HELD: No. What Dalisay did is
tantamount to piercing the veil of
corporate fiction. He actually usurped
the power of the court. He also
overstepped his duty as a deputy sheriff.
His duty is merely ministerial and it is
incumbent upon him to execute the
decision of the court according to its
tenor and only against the persons
obliged to comply. In this case, the
person judicially named to comply was
QLSI and not Cruz. It is a well-settled
doctrine both in law and in equity that
as a legal entity, a corporation has a
personality distinct and separate from its
individual stockholders or members. The
mere fact that one is president of a
corporation does not render the
property he owns or possesses the
property of the corporation, since the
president, as individual, and the
corporation are separate entities.
Pedro Palting vs San Jose Petroleum,
Inc.
18 SCRA 924 Business Organization
Corporation Law Parity Rights
Nationality Nationalized Areas of
Activity
In 1956, San Jose Petroleum, Inc. (SJP), a
mining corporation organized under the
laws of Panama, was allowed by the
Securities and Exchange Commission
(SEC) to sell its shares of stocks in the
Philippines. Apparently, the proceeds of
such sale shall be invested in San Jose
Oil Company, Inc. (SJO), a domestic
mining corporation. Pedro Palting
opposed the authorization granted to
SJP because said tie up between SJP
and SJO is violative of the constitution;
that SJO is 90% owned by SJP; that the
other 10% is owned by another foreign
corporation; that a mining corporation
cannot be interested in another mining
corporation. SJP on the other hand
invoked that under the parity rights
agreement (Laurel-Langley
Agreement), SJP, a foreign corporation,
is allowed to invest in a domestic
corporation.
ISSUE: Whether or not SJP is correct.
HELD: No. The parity rights agreement is
not applicable to SJP. The parity rights
are only granted to American business
enterprises or enterprises directly or
indirectly controlled by US citizens. SJP is
a Panamanian corporate citizen. The
other owners of SJO are Venezuelan
corporations, not Americans. SJP was
not able to show contrary evidence.
Further, the Supreme Court emphasized
that the stocks of these corporations are
being traded in stocks exchanges
abroad which renders their foreign
ownership subject to change from time
to time. This fact renders a practical
impossibility to meet the requirements
under the parity rights. Hence, the tie up
between SJP and SJO is illegal, SJP not
being a domestic corporation or an
American business enterprise
contemplated under the Laurel-Langley
Agreement.
Philippine National Bank vs Court of
Appeals et al
83 SCRA 237 Business Organization
Corporation Law Corporations Liability
for Negligence
Rita Tapnio owes PNB an amount of
P2,000.00. The amount is secured by her
sugar crops about to be harvested
including her export quota allocation
worth 1,000 piculs. The said export quota
was later dealt by Tapnio to a certain
Jacobo Tuazon at P2.50 per picul or a
total of P2,500. Since the subject of the
deal is mortgaged with PNB, the latter
has to approve it. The branch manager
of PNB recommended that the price
should be at P2.80 per picul which was
the prevailing minimum amount
allowable. Tapnio and Tuazon agreed
to the said amount. And so the bank
manager recommended the
agreement to the vice president of PNB.
The vice president in turn
recommended it to the board of
directors of PNB.
However, the Board of Directors wanted
to raise the price to P3.00 per picul. This
Tuazon does not want hence he
backed out from the agreement. This
resulted to Tapnio not being able to
realize profit and at the same time
rendered her unable to pay her
P2,000.00 crop loan which would have
been covered by her agreement with
Tuazon.
Eventually, Tapnio was sued by her
other creditors and Tapnio filed a third
party complaint against PNB where she
alleged that her failure to pay her debts
was because of PNBs negligence and
unreasonableness.
ISSUE: Whether or not Tapnio is correct.
HELD: Yes. In this type of transaction,
time is of the essence considering that
Tapnios sugar quota for said year
needs to be utilized ASAP otherwise her
allotment may be assigned to someone
else, and if she cant use it, she wont
be able to export her crops. It is
unreasonable for PNBs board of
directors to disallow the agreement
between Tapnio and Tuazon because
of the mere difference of 0.20 in the
agreed price rate. What makes it more
unreasonable is the fact that the P2.80
was recommended both by the bank
manager and PNBs VP yet it was
disapproved by the board. Further, the
P2.80 per picul rate is the minimum
allowable rate pursuant to prevailing
market trends that time. This
unreasonable stand reflects PNBs lack
of the reasonable degree of care and
vigilance in attending to the matter.
PNB is therefore negligent.
A corporation is civilly liable in the same
manner as natural persons for torts,
because generally speaking, the rules
governing the liability of a principal or
master for a tort committed by an
agent or servant are the same whether
the principal or master be a natural
person or a corporation, and whether
the servant or agent be a natural or
artificial person. All of the authorities
agree that a principal or master is liable
for every tort which it expressly directs or
authorizes, and this is just as true of a
corporation as of a natural person, a
corporation is liable, therefore,
whenever a tortious act is committed by
an officer or agent under express
direction or authority from the
stockholders or members acting as a
body, or, generally, from the directors as
the governing body.
Lee vs. Court of Appeals
[GR 93695, 4 February 1992]
Facts: On 15 November 1985, a
complainant for sum of money was filed
by the International Corporate Bank,
Inc. against Sacoba Manufacturing
Corp., Pablo Gonzales Jr., and Tomas
Gonzales who, in turn, filed a third party
complaint against Alfa Integrated
Textile Mills (ALFA), Ramon C. Lee
(ALFA's president) and Antonio DM.
Lacdao (ALFA's vice president) on 17
March 1986. On 17 September 1987, Lee
and Lacdao filed a motion to dismiss
the third party complaint which the
Regional Trial Court of Makati, Branch 58
denied in an Order dated 27 June 1988.
On 18 July 1988, Lee and Lacdao filed
their answer to the third party
complaint. Meanwhile, on 12 July 1988,
the trial issued an order requiring the
issuance of an alias summons upon
ALFA through the DBP as a
consequence of Lee and Lacdao's
letter informing the court that the
summons for ALFA was erroneously
served upon them considering that the
management of ALFA had been
transferred to the DBP. In a
manifestation dated 22 July 1988, the
DBP claimed that it was not authorized
to receive summons on behalf of ALFA
since the DBP had not taken over the
company which has a separate and
distinct corporate personality and
existence. On 4 August 1988, the trial
court issued an order advising Sacoba
Manufacturing, et. al. to take the
appropriate steps to serve the summons
to ALFA. On 16 August 1988, Sacoba
Manufacturing, et. al. filed a moved for a reconsideration of the
Manifestation and Motion for the
Declaration of Proper Service of
Summons which the trial court granted
on 17 August 1988.
On 12 September 1988, Lee and
Lacdao filed a motion for
reconsideration submitting that the Rule
14, section 13 of the Revised Rules of
Court is not applicable since they were
no longer officers of ALFA and Sacoba
Manufacturing, et. al. should have
availed of another mode of service
under Rule 14, Section 16 of the said
Rules, i.e., through publication to effect
proper service upon ALFA. On 2 January
1989, the trial court upheld the validity
of the service of summons on ALFA
through Lee and Lacdao, thus, denying
the latter's motion for reconsideration
and requiring ALFA to file its answer
through Lee and Lacdao as its
corporate officers. On 19 January 1989,
a second motion for reconsideration
was filed by Lee and Lacdao reiterating
their stand that by virtue of the voting
trust agreement they ceased to be
officers and directors of ALFA, hence,
they could no longer receive summons
or any court processes for or on behalf
of ALFA. In support of their second
motion for reconsideration, Lee and
Lacdao attached thereto a copy of the
voting trust agreement between all the
stockholders of ALFA (Lee and Lacdao
included), on the one hand, and the
DBP, on the other hand, whereby the
management and control of ALFA
became vested upon the DBP. On 25
April 1989, the trial court reversed itself
by setting aside its previous Order dated
2 January 1989 and declared that
service upon Lee and Lacdao who
were no longer corporate officers of
ALFA cannot be considered as proper
service of summons on ALFA. On 15 May
1989, Sacoba Manufacturing, et. al.
Order which was affirmed by the court
in is Order dated 14 August 1989
denying Sacoba Manufacturing, et. al.'s
motion for reconsideration.
On 18 September 1989, a petition for
certiorari was belatedly submitted by
Sacoba Manufacturing, et. al. before
the Court of Appeals which,
nonetheless, resolved to give due
course thereto on 21 September 1989.
On 17 October 1989, the trial court, not
having been notified of the pending
petition for certiorari with the appellate
court issued an Order declaring as final
the Order dated 25 April 1989. Sacoba
Manufacturing, et. al. in the said Order
were required to take positive steps in
prosecuting the third party complaint in
order that the court would not be
constrained to dismiss the same for
failure to prosecute. Subsequently, on 25
October 1989 Sacoba Manufacturing,
et. al. filed a motion for reconsideration
on which the trial court took no further
action. On 19 March 1990, after Lee and
Lacdao filed their answer to Sacoba
Manufacturing, et. al.'s petition for
certiorari, the appellate court rendered
its decision, setting aside the orders of
trial court judge dated 25 April 1989 and
14 August 1989. On 11 April 1990, Lee
and Lacdao moved for a
reconsideration of the decision of the
appellate court which resolved to deny
the same on 10 May 1990. Lee and
Lacdao filed the petition for certiorari. In
the meantime, the appellate court
inadvertently made an entry of
judgment on 16 July 1990 erroneously
applying the rule that the period during
which a motion for reconsideration has
been pending must be deducted from
the 15-day period to appeal. However,
in its Resolution dated 3 January 1991,
the appellate court set aside the
aforestated entry of judgment after
further considering that the rule it relied
on applies to appeals from decisions of
the Regional Trial Courts to the Court of
Appeals, not to appeals from its
decision to the Supreme Court pursuant
to the Supreme Court's ruling in the case
of Refractories Corporation of the
Philippines v. Intermediate Appellate
Court, 176 SCRA 539 [1989].
Issue:
1. Whether the execution of the
voting trust agreement by Lee
and Lacdao whereby all their
shares to the corporation have
been transferred to the trustee
deprives the stockholder of their
positions as directors of the
corporation.
2. Whether the five-year period of
the voting trust agreement in
question had lapsed in 1986 so
that the legal title to the stocks
covered by the said voting trust
agreement ipso facto reverted to
Lee and Lacdao as beneficial
owners pursuant to the 6th
paragraph of section 59 of the
new Corporation Code.
3. Whether there was proper service
of summons on ALFA through Lee
and Lacdao, to bind ALFA.
Held:
1. Lee and Lacdao, by virtue of the
voting trust agreement executed in 1981
disposed of all their shares through
assignment and delivery in favor of the
DBP, as trustee. Consequently, Lee and
Lacdao ceased to own at least one
share standing in their names on the
books of ALFA as required under Section
23 of the new Corporation Code. They
also ceased to have anything to do with
the management of the enterprise. Lee
and Lacdao ceased to be directors.
Hence, the transfer of their shares to the
DBP created vacancies in their
respective positions as directors of ALFA.
The transfer of shares from the
stockholders of ALFA to the DBP is the
essence of the subject voting trust
agreement. Considering that the voting
trust agreement between ALFA and the
DBP transferred legal ownership of the
stocks covered by the agreement to the
DBP as trustee, the latter because the
stockholder of record with respect to
the said shares of stocks. In the absence
of a showing that the DBP had caused
to be transferred in their names one
share of stock for the purpose of
qualifying as directors of ALFA, Lee and
Lacdao can no longer be deemed to
have retained their status as officers of
ALFA which was the case before the
execution of the subject voting trust
agreement. There is no dispute from the
records that DBP has taken over full
control and management of the firm.
2. The 6th paragraph of section 59 of
the new Corporation Code reads that
"Unless expressly renewed, all rights
granted in a voting trust agreement
shall automatically expire at the end of
the agreed period, and the voting trust
certificates as well as the certificates of
stock in the name of the trustee or
trustees shall thereby be deemed
cancelled and new certificates of stock
shall be reissued in the name of the
transferors." However, it is manifestly
clear from the terms of the voting trust
agreement between ALFA and the DBP
that the duration of the agreement is
contingent upon the fulfillment of
certain obligations of ALFA with the DBP.
Had the five-year period of the voting
trust agreement expired in 1986, the DBP
would not have transferred an its rights,
titles and interests in ALFA "effective
June 30, 1986" to the national
government through the Asset
Privatization Trust (APT) as attested to in
a Certification dated 24 January 1989 of
the Vice President of the DBP's Special
Accounts Department II. In the same
certification, it is stated that the DBP,
from 1987 until 1989, had handled s
account which included ALFA's assets
pursuant to a management agreement
by and between the DBP and APT.
Hence, there is evidence on record that
at the time of the service of summons
on ALFA through Lee and Lacdao on 21
August 1987, the voting trust agreement
in question was not yet terminated so
that the legal title to the stocks of ALFA,
then, still belonged to the DBP.
3. It is a basic principle in Corporation
Law that a corporation has a personality
separate and distinct from the officers
or members who compose it. Thus, the
role on service of processes on a
corporation enumerates the
representatives of a corporation who
can validly receive court processes on
its behalf. Not every stockholder or
officer can bind the corporation
considering the existence of a
corporate entity separate from those
who compose it. The rationale of the
rule is that service must be made on a
representative so integrated with the
corporation sued as to make it a priori
supposable that he will realize his
responsibilities and know what he should
do with any legal papers served on him.
Herein, Lee and Lacdao do not fall
under any of the enumerated officers.
The service of summons upon ALFA,
through Lee and Lacdao, therefore, is
not valid. To rule otherwise will
contravene the general principle that a
corporation can only be bound by such
acts which are within the scope of the
officer's or agent's authority.
Benguet Electric Cooperative, Inc. vs
National Labor Relations Commission
209 SCRA 55 Business Organization
Corporation Law Cooperatives are
Treated as Corporations Ultra Vires
Acts of the Board Members
In 1982, Peter Cosalan, then general
manager of the Benguet Electric
Cooperative (BENECO), received an
audit report from the National
Electrification Administration (NEA). The
said audit advised Cosalan of certain
irregularities in the management of the
funds of BENECO. Cosalan then sought
to address the issue by introducing
reforms recommended by the NEA as
well as by the auditing body,
Commission on Audit. However, the
Board Members of BENECO reacted to
these reforms by issuing a series of
resolutions which first reduced Cosalans
salary and allowances, then he was
excluded from his work, and eventually,
he was suspended indefinitely.
Cosalan then filed a complaint for
illegal dismissal against the BENECO
Board Members, he later impleaded
BENECO itself. The Labor Arbiter (LA)
ruled in favor of Cosalan. The National
Labor Relations Commission (NLRC)
affirmed the decision of the LA but
modified it so as to absolve the Board
Members from liability as it held that the
Board Members merely acted in their
official capacity. BENECO, being the
only party adjudged to be liable, then
appealed said decision.
ISSUE: Whether or not the National Labor
Relations Commission is correct.
HELD: No. The act of the Board Members
is ultra vires. There was no legal basis for
them to suspend Cosalan indefinitely
for under the Implementing Rules of the
Labor Code the maximum period form
preventive suspension should not go
beyond 30 days. Further, it was found
that Cosalan was never informed of the
charges against him nor was he
afforded the opportunity to present his
case. He was deprived of due process.
Nor was Cosalans suspension approved
by the NEA, which is also required for
due process purposes.
These acts by the Board Members are
tainted with bad faith. A very strong
presumption arises that the Board
Members are acting in reprisal against
the reforms sought to be introduced by
Cosalan in order to address the
irregularities within BENECO. The Board
Members are therefore liable for
damages under Section 31 of the
Corporation Code. And even though
BENECO is a cooperative, it is still
covered by the Corporation Code
because under PD 269, cooperatives
are considered as corporations.
The Supreme Court ruled that BENECO
and the BENECO Board Members are
liable for the damages caused against
Cosalan. However BENECO can seek
reimbursement from the Board Members
so as not to unduly penalize the
innocent members of BENECO.
Gonzales vs. Philippine National Bank
[GR L-33320, 30 May 1983]
Facts: Ramon A. Gonzales initially
instituted several cases in the Supreme
Court questioning different transactions
entered into by the Bank with other
parties. First among them is Civil Case
69345 filed on 27 April 1967, by Gonzales
as a taxpayer versus Sec. Antonio
Raquiza of Public Works and
Communications, the Commissioner of
Public Highways, the Bank, Continental
Ore Phil., Inc., Continental Ore, Huber
Corporation, Allis Chalmers and General
Motors Corporation. In the course of the
hearing of said case on 3 August 1967,
the personality of Gonzales to sue the
bank and question the letters of credit it
has extended for the importation by the
Republic of the Philippines of public
works equipment intended for the
massive development program of the
President was raised. In view thereof, he
expressed and made known his
intention to acquire one share of stock
from Congressman Justiniano Montano
which, on the following day, 30 August
1967, was transferred in his name in the
books of the Bank. Subsequent to his
aforementioned acquisition of one
share of stock of the Bank, Gonzales, in
his dual capacity as a taxpayer and
stockholder, filed the following cases
involving the bank or the members of its
Board of Directors to wit: (1) On 18
October 1967, Civil Case 71044 versus
the Board of Directors of the Bank; the
National Investment and Development
Corp., Marubeni Iida Co., Ltd., and
Agro-Inc. Dev. Co. or Saravia; (2) On 11
May 1968, Civil Case 72936 versus
Roberto Benedicto and other Directors
of the Bank, Passi (Iloilo) Sugar Central,
Inc., Calinog-Lambunao Sugar Mill
Integrated Farming, Inc., Talog sugar
Milling Co., Inc., Safary Central, Inc., and
Batangas Sugar Central Inc.; and (3) On
8 May 1969, Civil Case 76427 versus
Alfredo Montelibano and the Directors
of both the PNB and DBP.
On 11 January 1969, however, Gonzales
addressed a letter to the President of
the Bank, requesting submission to look
into the records of its transactions
covering the purchase of a sugar
central by the Southern Negros
Development Corp. to be financed by
Japanese suppliers and financiers; its
financing of the Cebu-Mactan Bridge to
be constructed by V.C. Ponce, Inc. and
the construction of the Passi Sugar Mills
in Iloilo. On January 23, 1969, the Asst.
Vice President and Legal Counsel of the
Bank answered petitioner's letter
denying his request for being not
germane to his interest as a one share
stockholder and for the cloud of doubt
as to his real intention and purpose in
acquiring said share. In view of the
Bank's refusal, Gonzales instituted the
petition for mandamus. The Court of First
Instance of Manila denied the prayer of
Gonzales that he be allowed to
examine and inspect the books and
records of PNB regarding the
transactions mentioned on the grounds
that the right of a stockholder to inspect
the record of the business transactions
of a corporation granted under Section
51 of the former Corporation Law (Act
No. 1459, as amended) is not absolute,
but is limited to purposes reasonably
related to the interest of the
stockholder, must be asked for in good
faith for a specific and honest purpose
and not gratify curiosity or for
speculative or vicious purposes; that
such examination would violate the
confidentiality of the records of the
bank as provided in Section 16 of its
charter, RA 1300, as amended; and that
Gonzales has not exhausted his
administrative remedies. Gonzales filed
the petition for review.
Issue:
1. Whether Gonzales' can ask for an
examination of the books and
records of PNB, in light of his
ownership of one share in the
bank.
2. Whether the inspection sought to
be exercised by Gonzales would
be violative of the provisions of
PNB's charter.
Held:
1. The unqualified provision on the right
of inspection previously contained in
Section 51, Act No. 1459, as amended,
no longer holds true under the provisions
of the present law. The argument of
Gonzales that the right granted to him
under Section 51 of the former
Corporation Law should not be
dependent on the propriety of his
motive or purpose in asking for the
inspection of the books of PNB loses
whatever validity it might have had
before the amendment of the law. If
there is any doubt in the correctness of
the ruling of the trial court that the right
of inspection granted under Section 51
of the old Corporation Law must be
dependent on a showing of proper
motive on the part of the stockholder
demanding the same, it is now
dissipated by the clear language of the
pertinent provision contained in Section
74 of Batas Pambansa Bilang 68.
Although Gonzales has claimed that he
has justifiable motives in seeking the
inspection of the books of the PNB, he
has not set forth the reasons and the
purposes for which he desires such
inspection, except to satisfy himself as to
the truth of published reports regarding
certain transactions entered into by the
respondent bank and to inquire into
their validity. The circumstances under
which he acquired one share of stock in
the PNB purposely to exercise the right
of inspection do not argue in favor of his
good faith and proper motivation.
Admittedly he sought to be a
stockholder in order to pry into
transactions entered into by the PNB
even before he became a stockholder.
His obvious purpose was to arm himself
with materials which he can use against
the PNB for acts done by the latter
when Gonzales was a total stranger to
the same. He could have been impelled
by a laudable sense of civic
consciousness, but it could not be said
that his purpose is germane to his
interest as a stockholder.
2. Section 15 of the PNB's Charter (RA
1300, as amended) provides that
"Inspection by Department of
Supervision and Examination of the
Central Bank. The National Bank shall
be subject to inspection by the
Department of Supervision and
Examination of the Central Bank."
Section 16 thereof providest that
"Confidential information. The
Superintendent of Banks and the
Auditor General, or other officers
designated by law to inspect or
investigate the condition of the National
Bank, shall not reveal to any person
other than the President of the
Philippines, the Secretary of Finance,
and the Board of Directors the details of
the inspection or investigation, nor shall
they give any information relative to the
funds in its custody, its current accounts
or deposits belonging to private
individuals, corporations, or any other
entity, except by order of a Court of
competent jurisdiction." On the other
hand, Section 30 of the same provides
that "Penalties for violation of the
provisions of this Act. Any director,
officer, employee, or agent of the Bank,
who violates or permits the violation of
any of the provisions of this Act, or any
person aiding or abetting the violations
of any of the provisions of this Act, shall
be punished by a fine not to exceed ten
thousand pesos or by imprisonment of
not more than five years, or both such
fine and imprisonment." The Philippine
National Bank is not an ordinary
corporation. Having a charter of its own,
it is not governed, as a rule, by the
Corporation Code of the Philippines. The
provision of Section 74 of Batas
Pambansa Blg. 68 of the new
Corporation Code with respect to the
right of a stockholder to demand an
inspection or examination of the books fund campaigns, private contributions
of the corporation may not be and rentals from its properties. 3) it is not
reconciled with the above quoted audited by COA. PNRC, petitioner
provisions of the charter of the PNB. It is
claims falls under the International
not correct to claim, therefore, that the
right of inspection under Section 74 of Federation of Red Cross, Swiss-based
the new Corporation Code may apply organization.
in a supplementary capacity to the
charter of the PNB. Issue: Whether or not PNRC is a
government owned or controlled
corporation or a private corporation.
Francisca Baluyot vs. Paul Holganza and
the Office of the Ombudsman (Visayas) Held: The Court cited the case of
Camporedondo vs. NLRC. Resolving
Incorporation Test to determine Nature the issue set outwe rule that the PNRC
of Corporation ( Private/ Public) is a government owned and controlled
corporation, with an original charter
Facts: During a spot audit in 1977, the
under RA No. 95, as amended, The test
auditors from the Philippine National
to determine whether a corporation is
Red Cross (PNRC) headquarters
government owned or controlled or
discovered a case shortage in the funds
private in nature is simple. Is it created
of its Bohol chapter. The chapter
by its own charter for the exercise of a
administrator, petitioner Baluyot, was
public function, or by incorporation
held accountable and thereafter,
under the general corporation law?
respondent Holganza as member of the
Those with special charters are
board Bohol chapter, filed a complaint
government corporations subject to its
with the Ofc. of the Ombudsman for
provisions, and its employees are under
malversation. Upon recommendation
the jurisdiction of the Civil Service
of respondent Militante, an
Commission, and are compulsory
administratiave docket of dishonesty
members of the GSIS. The PNRC was
was also opened against Baluyot.
not impliedly converted to a private
Baluyot raised the defense that the
corporation simply because its charter
Ombudsman had no jurisdiction as he
was amended to vest in it the authority
had authority only over government
to secure loans, be exempted from
owned or controlled corporations which
payment of all duties, taxes, fees and
the PNRC was not. She gives as
other charges of all kinds on all
evidence of its private character 1) it
importations and purchases for its
does not receive budgetary support
exclusive use, on donations for its
from the government and all money
disaster relief work and other services
given to it by the latter and its
and in its benefits and fund raising
instrumentalities become private funds
drives Clearly then, public
of the organization. 2) funds for the
respondent has jurisdiction over the
payment of personnels salaries and
matter.
other emoluments come from yearly