BENNY HUNG vs BPI FINANCE

CORPORATION, GR No. 182398. July

20. 2010
FACTS:
Guess? Footwear and BPI Express Card Corporation
entered into two merchant agreements, whereby
Guess? Footwear agreed to honor validly issued BPI
Express Credit Cards presented by cardholders in the
purchase of its goods and services.
In the first agreement, petitioner Benny Hung
signed as owner and manager of Guess?
Footwear. He signed the second agreement as
president of Guess? Footwear which he also
referred to as B & R Sportswear Enterprises.
From May 1997 to January 1999, respondent BPI
mistakenly
credited,
through
352
checks,
P3,480,427.23
to
the
account
of
Guess?
Footwear. When informed of the overpayments,
petitioner Benny Hung transferred P963,604.03 from
the bank account of B & R Sportswear Enterprises to
BPIs account as partial payment.
The letter dated 31 May 1999 was worded as follows:
Dear Sir/Madame
This is to authorize BPI Ortigas Branch
to transfer the amount of P963,604.03 from
the account of B & R Sportswear Enterprises
to the account of BPI Card Corporation.
The aforementioned amount shall
represent
partial
settlement
of
overpayments made
by
BPI
Card
Corporation to B & R Sportswear, pending
final reconciliation of exact amount of
overpayment.
Thank you for your usual kind
cooperation.
Very truly yours,
(Sgd.)
Benny Hung
BPI demanded the balance payment amounting to
P2,516,826.68, but Guess? Footwear failed to pay.
BPI filed a collection suit before the RTC of Makati
City naming as defendant B & R Sportswear
Distributor, Inc. Although the case was against B &
R Sportswear Distributor, Inc., it was B & R
Footwear Distributors, Inc., that filed an answer,
appeared and participated in the trial.

RTC rendered a decision ordering defendant B & R

Sportswear Distributor, Inc., to pay the plaintiff (BPI)
P2,516,826.68 with 6% interest. The RTC ruled that
the overpayment of P3,480,427.43 was proven by
checks credited to the account of Guess? Footwear
and the P963,604.03 partial payment proved that
defendant ought to pay P2,516,826.68 more.
During the execution of judgment, it was
discovered that B & R Sportswear Distributor, Inc.,
is a non-existing entity. Thus, the trial court failed to
execute the judgment
Consequently, respondent filed a Motion to pierce the
corporate veil of B & R Footwear Distributors, Inc. to
hold its stockholders and officers, including petitioner
Benny Hung, personally liable. RTC ruled that
petitioner is liable for the satisfaction of the judgment,
since he signed the merchant agreements in his
personal capacity.
The Court of Appeals affirmed the order and
dismissed petitioners appeal. It ruled that since B & R
Sportswear Distributor, Inc. is not a corporation, it
therefore has no personality separate from petitioner
Benny Hung who induced the respondent BPI and the
RTC to believe that it is a corporation.
ISSUE:
whether petitioner can be held liable
for the satisfaction of the RTCs Decision against B &
R Sportswear Distributor, Inc.?
HELD: When the corporation (BB Sportswear,
Inc.) which the plaintiff erroneously impleaded in
a collection case was not the party to the
actionable agreement and turned out to be not
registered with the Securities and Exchange
Commission, the judgment may still be enforced
against the corporation (BB Footwear, Inc.) which
filed the answer and participated in the
proceedings, as well as its controlling
shareholder
who
signed
the
actionable
agreement in his personal capacity and as a
single proprietorship doing business under the
trade name and style of BB Sportswear
Enterprises.
Petitioner has represented in his dealings with
respondent that Guess? Footwear or B & R Footwear
Distributors, Inc. is also B & R Sportswear

Enterprises. For this reason, the more complete

correction on the name of defendant should be from B
& R Sportswear Distributor, Inc. to B & R Footwear
Distributors, Inc. and Benny Hung. Petitioner is the
proper defendant because his sole proprietorship
B & R Sportswear Enterprises has no juridical
personality apart from him. Relatedly, petitioner
cannot complain of non-service of summons upon his
person. Suffice it to say that B & R Footwear
Distributors, Inc. or Guess? Footwear which is also B
& R Sportswear Enterprises had answered the
summons and the complaint and participated in the
trial.
Petitioner is liable to respondent because he
signed the second merchant agreement in his
personal capacity. Evidence showed that petitioner
treats B & R Footwear Distributors, Inc. and his single
proprietorship B & R Sportswear Enterprises as one
and the same entity. Petitioner ordered the partial
payment using the letterhead of B & R Footwear
Distributor, Inc. and yet the fund transferred belongs
to his single proprietorship B & R Sportswear
Enterprises. This fact, according to respondent,
justifies piercing the corporate veil of B & R Footwear
Distributor, Inc. to hold petitioner personally liable.

BOYER- ROXAS vs CA July 14, 1992

Eugenia Roxas originally owned the questioned
properties in this case which include among others
cottages, houses, buildings, swimming pools, tennis
court, restaurants, open pavilions inside the Hidden
Valley Springs Resort in Laguna.
When Eugenia died, her heirs among whom were
Rebecca Boyer-Roxas and Guillermo Roxas
decided to form the corporation, Heirs of Eugenia
V. Roxas, Inc. with the inherited properties as
capital of the corporation.
This was incorporated with the primary purpose of
engaging in agriculture to develop the inherited
properties. The Articles of Incorporation however was
amended to allow it to engage in the resort business.
Accordingly, the corporation put up a resort known as
Hidden Valley Spring Resort where the questioned
properties were located.

Eufrocino Roxas, (husband of Eugenia) during his

lifetime together with Eribito Roxas ( husband of
Rebecca and father of Guillermo) managed the
corporation. Eriberto and Rebecca occupied the staff
house as their residence and converted the recreation
hall into a residential house with the blessings of
Eufrocino, who was then the majority stockholder of
the corporation.
The Board of directors did not object to the actions of
Eufrocino.
Rebecca and Guillermo were allowed to stay within
the questioned properties until the Board of Directors
approved a resolution ejecting them.
Despite demand however, they refused to vacate.
Hence, two separate complaints for recovery of
possession was filed. TC affirmed by CA, ordered
Rebecca and all persons claiming under her to vacate
the premises.
Issue: Whether or not the petitioner could be ejected?
Yes.
Held:
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. The
corporation has property of its own. 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. A corporation can
therefore sue to recover real property being occupied
by its former president (who was also a significant
stockholder) for it has a juridical personality separate
and distinct from its stockholders even though in the
past the corporation allowed the president to enjoy
the possession of the property.
There is nothing irregular in the adoption of the
Resolution by the BOD ejecting petitioners for
Corporations expansion and improvement program.
Petitioners stay within the questioned properties was
merely by tolerance of the respondent corporation in
deference to the wishes of Eufrocino Roxas.

The Corrporation may elect to eject petitioners at any

time it wishes for the benefit and interest of the
respondent corporation.

RYUICHI YAMAMOTO, vs. NISHINO

LEATHER INDUSTRIES, INC.
Facts:
Negotiations subsequently ensued in
light of a planned takeover by Nishino who would buyout the shares of stock of Yamamoto who was
advised through a letter that he may take all the
equipment/ machinery he had contributed to the
company (for his own use and sale) provided that
the value of such machines is deducted from the
capital contributions which will be paid to him.
However, the letter requested that he give his
comments on all the above, soonest. On the basis of
the said letter, Yamamoto attempted to recover the
machineries but Nishino hindered him to do so,
drawing him to file a Writ of Replevin.
The Trial Court issued the writ. However, on appeal,
Nishino claimed that the properties being
recovered were owned by the corporation and the
above-said letter was a mere proposal which was
not yet authorized by the Board of Directors.
Court of Appeals reversed the trial courts decision
despite Yamamotos contention that the company is
merely an instrumentality of the Nishinos.
ISSUE:
Whether or not Yamamoto can
recover the properties he contributed to the company
in view of the Doctrine of Piercing the Veil of
Corporate Fiction and Doctrine of Promissory
Estoppel.
HELD:
One of the elements determinative of
the applicability of the doctrine of piercing the veil of
corporate fiction is that 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 the plaintiffs legal rights. To
disregard the separate juridical personality of a
corporation, the
wrongdoing or unjust act in
contravention of a plaintiffs legal rights must be
clearly and convincingly established; it cannot be
presumed. Without a demonstration that any of the
evils sought to be prevented by the doctrine is
present, it does not apply. Estoppel may arise from
the making of a promise.
However, it bears noting that the letter was followed
by a request for Yamamoto to give his comments on
all the above, soonest. What was thus proffered to
Yamamoto was not a promise, but a mere offer,

subject to his acceptance. Without acceptance, a

mere offer produces no obligation. Thus, the
machineries and equipment, which comprised
Yamamotos investment, remained part of the
capital property of the corporation.

PIONEER INSURANCE V. CA (1989)

Jacob Lim was the owner of Southern Air Lines, a
single proprietorship. In 1965, Lim convinced
Constancio Maglana, Modesto Cervantes, Francisco
Cervantes, and Border Machinery and Heavy
Equipment Company (BORMAHECO) to contribute
funds and to buy two aircrafts which would form part
a corporation which will be the expansion of Southern
Air Lines. Maglana et al then contributed and
delivered money to Lim.
But instead of using the money given to him to
pay in full the aircrafts, Lim, without the
knowledge of Maglana et al, made an agreement
with Pioneer Insurance for the latter to insure the
two aircrafts which were brought in installment
from Japan Domestic Airlines (JDA) using said
aircrafts as security. So when Lim defaulted from
paying JDA, the two aircrafts were foreclosed by
Pioneer Insurance It was established that no
corporation was formally formed between Lim and
Maglana et al.
ISSUE: Whether or not Maglana et al must share in
the loss as general partners. (WON there was a de
facto corporation to speak of)
HELD:
No. There was no de facto
partnership. Ordinarily, when co-investors agreed
to do business through a corporation but failed to
incorporate, a de facto partnership would have
been formed, and as such, all must share in the
losses and/or gains of the venture in proportion to
their contribution.
But in this case, it was shown that Lim did not
have the intent to form a corporation with Maglana
et al. This can be inferred from acts of unilaterally
taking out a surety from Pioneer Insurance and
not using the funds he got from Maglana et al. The
record shows that Lim was acting on his own and not
in behalf of his other would-be incorporators in
transacting the sale of the airplanes and spare parts.

LOZANO V. DELOS SANTOS

Facts: Petitioner Reynaldo M. Lozano alleged that
he was the president of the Kapatirang MabalacatAngeles
Jeepney
Drivers'
Association,
Inc.
(KAMAJDA) while respondent Anda was the president
of the Samahang Angeles-Mabalacat Jeepney

Operators'
and
(SAMAJODA);

Drivers'

Association,

Inc.

neither can it be conferred by the acquiescence of the

court.

in August 1995, upon the request of the Sangguniang

Bayan of Mabalacat, Pampanga, petitioner and
private respondent agreed to consolidate their
respective associations and form the Unified
Mabalacat-Angeles Jeepney Operators' and
Drivers' Association, Inc. (UMAJODA);

Corporation by estoppel is founded on principles

of equity and is designed to prevent injustice and
unfairness. It applies when persons assume to
form a corporation and exercise corporate
functions and enter into business relations with
third persons. Where there is no third person
involved and the conflict arises only among those
assuming the form of a corporation, who therefore
know that it has not been registered, there is no
corporation by estoppel.

petitioner and private respondent also agreed to elect

one set of officers who shall be given the sole
authority to collect the daily dues from the members of
the consolidated association; elections were held on
October 29, 1995 and both petitioner and private
respondent ran for president; petitioner won;
private respondent protested and, alleging fraud,
refused to recognize the results of the election;
private respondent also refused to abide by their
agreement and continued collecting the dues from the
members of his association despite several demands
to desist. Petitioner was thus constrained to file the
complaint to restrain private respondent from
collecting the dues and to order him to pay damages.
Private respondent moved to dismiss the complaint
for lack of jurisdiction, claiming that jurisdiction was
lodged with the Securities and Exchange Commission
(SEC).
Issue: W/N the case is classified as an intracorporate controversy thus falling within the
jurisdiction of the SEC?
Held:
The SEC has no jurisdiction over the complaint.
There is no intracorporate nor partnership relation
between petitioner and private respondent. The
controversy between them arose out of their plan to
consolidate their respective jeepney drivers' and
operators' associations into a single common
association. This unified association was, however,
still a proposal.
The
KAMAJDA and SAMAJODA to which
petitioner and private respondent belong are duly
registered with the SEC, but these associations
are two separate entities. It is between members
of separate and distinct associations. Petitioner
and private respondent have no intracorporate
relation much less do they have an intracorporate
dispute. The SEC therefore has no jurisdiction
over the complaint.
The doctrine of corporation by estoppel advanced
by
private
respondent
cannot
override
jurisdictional requirements. Jurisdiction is fixed by
law and is not subject to the agreement of the parties.
It cannot be acquired through or waived, enlarged or
diminished by, any act or omission of the parties;

LIM TONG LIM V. PHILIPPINE

FISHING GEAR INDUSTRIES, INC.
Under the law on estoppel, those acting on behalf of a
corporation and those benefited by it, knowing it to be
without valid existence, are held liable as general
partners. Technically, it is true that petitioner did
not directly act on behalf of the corporation. However,
having reaped the benefits of the contract entered into
by persons with whom he previously had an existing
relationship, he is deemed to be part of said
association and is covered by the scope of the
doctrine of corporation by estoppel.
Facts: On behalf of "Ocean Quest Fishing
Corporation," Antonio Chua and Peter Yao entered
into a Contract dated 7 February 1990, for the
purchase of fishing nets of various sizes from the
Philippine Fishing Gear Industries, Inc. (PFGI).
They claimed that they were engaged in a
business venture with Lim Tong Lim, who
however was not a signatory to the agreement.
The total price of the nets amounted to P532,045. 400
pieces of floats worth P68,000 were also sold to the
Corporation. The buyers, however, failed to pay for
the fishing nets and the floats; hence, PFGI filed a
collection suit against Chua, Yao and Lim Tong Lim
with a prayer for a writ of preliminary attachment.
The suit was brought against the three in their
capacities as general partners, on the allegation that
"Ocean Quest Fishing Corporation" was a nonexistent
corporation as shown by a Certification from the
Securities and Exchange Commission.
On 20 September 1990, the lower court issued a Writ
of Preliminary Attachment, which the sheriff enforced
by attaching the fishing nets on board F/B Lourdes
which was then docked at the Fisheries Port,
Navotas, Metro Manila. Lim Tong Lim, on the other
hand, filed an Answer with Counterclaim and

Crossclaim and moved for the lifting of the Writ of

Attachment.

which he has benefited on the irrelevant ground of

defective incorporation.

Lim argues, among others, that under the doctrine

of corporation by estoppel, liability can be
imputed only to Chua and Yao, and not to him.

FACTS: In 1989, International Express Travel & Tour

Services, Inc. (IETTI), offered to the Philippine
Football Federation (PFF) its travel services for the
South East Asian Games. PFF, through Henri Kahn,
its president, agreed. IETTI then delivered the plane
tickets to PFF, PFF in turn made a down payment.
However, PFF was not able to complete the full
payment in subsequent installments despite repeated
demands from IETTI. IETTI then sued PFF and Kahn
was impleaded as a co-defendant. Kahn averred that
he should not be impleaded because he merely acted
as an agent of PFF which he averred is a corporation
with separate and distinct personality from him.

Issue: Whether Lim should be held jointly liable with

Chua and Yao.
Held:
In the first instance, an unincorporated association,
which represented itself to be a corporation, will
be estopped from denying its corporate capacity
in a suit against it by a third person who relied in
good faith on such representation. It cannot allege
lack of personality to be sued to evade its
responsibility for a contract it entered into and by
virtue of which it received advantages and benefits.
On the other hand, a third party who, knowing an
association to be unincorporated, nonetheless
treated it as a corporation and received benefits
from it, may be barred from denying its corporate
existence in a suit brought against the alleged
corporation.
In such case, all those who benefited from the
transaction made by the ostensible corporation,
despite knowledge of its legal defects, may be held
liable for contracts they impliedly assented to or took
advantage of.
There is no dispute that PFGI is entitled to be paid for
the nets it sold. The only question here is whether
Lim should be held jointly liable with Chua and
Yao. Lim contests such liability, insisting that only
those who dealt in the name of the ostensible
corporation should be held liable. Although
technically it is true that Lim did not directly act
on behalf of the corporation; however, having
reaped the benefits of the contract entered into by
persons with whom he previously had an existing
relationship, he is deemed to be part of said
association and is covered by the scope of the
doctrine of corporation by estoppel.

INTERNATIONAL
EXPRESS
TRAVEL & TOURS V COURT OF
APPEALS (2000)
When the petitioner is not trying to escape liability
from the contract but rather the one claiming from the
contract, the doctrine of corporation by estoppel is not
applicable. This doctrine applies to a third party only
when he tries to escape liability on a contract from

The trial court ruled against Kahn and held

personally liable for the said obligation (PFF
declared in default for failing to file an answer).
trial court ruled that Kahn failed to prove
PFF is a corporation.

him
was
The
that

The Court of Appeals however reversed the decision

of the trial court. The Court of Appeals took judicial
notice of the existence of PFF as a national sports
association; that as such, PFF is empowered to
enter into contracts through its agents; that
PFF is therefore liable for the contract entered
into by its agent Kahn. The CA further ruled that
IETTI is in estoppel; that it cannot now deny the
corporate existence of PFF because it had contracted
and dealt with PFF in such a manner as to recognize
and in effect admit its existence.
ISSUE: Whether or not the Court of Appeals is
correct.
HELD: No.
PFF, upon its creation, is not automatically considered
a national sports association. It must first be
recognized and accredited by the Philippine Amateur
Athletic Federation and the Department of Youth and
Sports Development. This fact was never
substantiated by Kahn. As such, PFF is considered as
an unincorporated sports association. And under the
law, any person acting or purporting to act on behalf
of a corporation which has no valid existence
assumes such privileges and becomes personally
liable for contract entered into or for other acts
performed as such agent. Kahn is therefore
personally liable for the contract entered into by
PFF with IETTI.
There is also no merit on the finding of the CA that
IETTI is in estoppel. The application of the doctrine of
corporation by estoppel applies to a third party only
when he tries to escape liability on a contract from
which he has benefited on the irrelevant ground of
defective incorporation. In the case at bar, IETTI is not

trying to escape liability from the contract but rather is

the one claiming from the contract.

PEOPLE OF THE PHILIPPINES VS

CARLOS GARCIA Corporation By Estoppel
Ostensible Corporation
In 1993, Carlos Garcia, Patricio Botero, and Luisa
Miraples were accused of illegal recruitment. It was
alleged that they represented themselves as the
incorporators and officers of Ricorn Philippine
International Shipping Lines, Inc.; that Ricorn is a
recruitment agency for seamen; that Garcia is the
president, Botero is the vice-president, and Miraples
(now at large) is the treasurer. It was later discovered
that Ricorn was never registered with the Securities
and Exchange Commission (SEC) and that it was
never authorized to recruit by the Philippine Overseas
Employment Agency (POEA). Botero and Garcia were
convicted. Botero appealed.
In his defense, Botero averred that he was not an
incorporator; that he was merely an employee of
Ricorn in charge of following up on their documents.
ISSUE: Whether or not Botero is a mere employee of
Ricorn.
HELD:
No. It was proven by evidence that
he was introduced to the applicants as the vice
president of Ricorn. When he was receiving
applicants, he was receiving them behind a desk
which has a nameplate representing his name and his
position as VP of Ricorn.
But Ricorn was never incorporated. How will this
affect his liability in the crime illegal recruitment?
Under the law, if the offender is a corporation,
partnership, association or entity, the penalty
shall be imposed upon the officer or officers of
the corporation, partnership, association or entity
responsible for violation.
In this case, even if Ricorn was not incorporated,
Botero and his cohorts are estopped from denying
liability as corporate officers of Ricorn.
Section 25 of the Corporation Code provides that
All persons who assume to act as a corporation
knowing it to be without authority to do so shall
be liable as general partners for all the debts,
liabilities and damages incurred or arising as a
result thereof: Provided, however, That when any
such ostensible corporation is sued on any
transaction entered by it as a corporation or on
any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate
personality.

MACASAET VS. FRANCISCO, GR

NO. 156759, JUNE 5, 2013
Corporation by estoppel results when a corporation
represented itself to the public as such despite its not
being incorporated. A corporation by estoppel may be
impleaded as a party defendant considering that it
possesses attributes of a juridical person, otherwise, it
cannot be held liable for damages and injuries it may
inflict to other persons.
FACTS:
Respondent, a retired police officer assigned at the
Western Police District in Manila, sued Abante Tonite,
a daily tabloid of general circulation; its Publisher
Allen A. Macasaet; its Managing Director Nicolas V.
Quijano; its Circulation Manager Isaias Albano; its
Editors Janet Bay, Jesus R. Galang and Randy
Hagos; and its Columnist/Reporter Lily Reyes
(petitioners), claiming damages because of an
allegedly libelous article petitioners published in the
June 6, 2000 issue of Abante Tonite; summons to be
served on each defendant, including Abante Tonite, at
their business address at Monica Publishing
Corporation, 301-305 3rd Floor, BF Condominium
Building, Solana Street corner A. Soriano Street,
Intramuros, Manila
Regarding the impleading of Abante Tonite as
defendant, the RTC held, viz:
"Abante Tonite" is a daily tabloid of general circulation.
People all over the country could buy a copy of
"Abante Tonite" and read it, hence, it is for public
consumption.
RTC: All of these facts imply that "Abante Tonite"
falls within the provision of Art. 44 (2 or 3), New
Civil Code. Assuming arguendo that "Abante
Tonite" is not registered with the Securities and
Exchange Commission, it is deemed a corporation
by estoppels considering that it possesses
attributes of a juridical person, otherwise it cannot
be held liable for damages and injuries it may inflict
to other persons.

CA: Abante Tonites newspapers are circulated

nationwide, showing ostensibly its being a corporate
entity, thus the doctrine of corporation by estoppel
may appropriately apply.
An unincorporated association, which represents itself
to be a corporation, will be estopped from denying its
corporate capacity in a suit against it by a third person
who relies in good faith on such representation.
SC: Non-incorporation of Abante Tonite with the
Securities and Exchange Commission was of no
consequence, for, otherwise, whoever of the
public who would suffer any damage from the
publication of articles in the pages of its tabloids
would be left without recourse.

SAWADYAAN vs CA
141735, JUNE 8, 2005

G.R.

NO.

CHARTERED GOCC
NON- CHARTERED GOCC

By its failure to submit its by-laws on time, the

AIIBP may be considered a de facto corporation
whose right to exercise corporate powers may not
be inquired into collaterally in any private suit to
which such corporation may be a party. A
corporation which has failed to file its by-laws within
the prescribed period does not ipso facto lose its
powers
as
such.
The
SEC
Rules
on
Suspension/Revocation of the Certificate of
Registration of Corporations, details the procedures
and remedies that may be availed of before an order
of revocation can be issued. There is no showing that
such a procedure has been initiated in this case.

BALUYOT vs HOLGANZA

Failure to submit the by-laws within 30 days from

incorporation does not automatically dissolve the
corporation. It is merely a ground for suspension or
revocation of its charter after proper notice and
hearing. The corporation is, at the very least, a de
facto corporation whose existence may not be
collaterally attacked.

Upon recommendation of respondent Militante, an

administratiave docket of dishonesty was also opened
against Baluyot.

FACTS:
During a spot audit in 1977, the auditors from the
Philippine National Red Cross (PNRC) headquarters
discovered a case shortage in the funds of its Bohol
chapter. The chapter administrator, petitioner Baluyot,
was held accountable and thereafter, respondent
Holganza as member of the board Bohol chapter, filed
a complaint with the Ofc. of the Ombudsman for
malversation.

Baluyot raised the defense that the Ombudsman

had no jurisdiction as he had authority only over
government owned or controlled corporations
which the PNRC was not.
She gives as evidence of its private character 1) it
does not receive budgetary support from the
government and all money given to it by the latter and
its instrumentalities become private funds of the
organization. 2) funds for the payment of personnels
salaries and other emoluments come from yearly fund
campaigns, private contributions and rentals from its
properties. 3) it is not audited by COA. PNRC,
petitioner claims falls under the International
Federation of Red Cross, Swiss-based organization.
ISSUE:

Whether or not PNRC is a

government owned or controlled corporation.

RULING:

YES.

PNRC is a government owned and controlled

corporation, with an original charter under RA No. 95,
as amended.

The test to determine whether a corporation is

government owned or controlled or private in
nature is simple. Is it created by its own charter
for the exercise of a public function, or by
incorporation under the general corporation law?
Those with special charters are government
corporations subject to its provisions, and its
employees are under the jurisdiction of the Civil
Service Commission, and are compulsory
members of the GSIS.
The PNRC was not impliedly converted to a private
corporation simply because its charter was amended
to vest in it the authority to secure loans, be exempted
from payment of all duties, taxes, fees and other
charges of all kinds on all importations and purchases
for its exclusive use, on donations for its disaster relief
work and other services and in its benefits and fund
raising drives. Clearly then, public respondent has
jurisdiction over the matter.

FELICIANO VS. COA

G.R. NO. 147402, 14 JANUARY 2004
Congress can not enact a law creating a private
corporation with a special charter. Such legislation
would be unconstitutional. Private corporations may
exist only under a general law. If the corporation is
private, it must necessarily exist under a general law.

Facts
COA assessed Leyte Metropolitan Water District
(LMWD) auditing fees. Petitioner Feliciano, as
General Manager of LMWD, contended that the
water district could not pay the said fees on the
basis of Sections 6 and 20 of P.D. No. 198 as
well as Section 18 of R.A. No. 6758. He primarily
claimed that LMWD is a private corporation not
covered by COA's jurisdiction. Petitioner also
asked for refund of all auditing fees LMWD
previously paid to COA.COA Chairman denied
petitioners requests. Petitioner filed a motion for
reconsideration which COA denied. Hence, this
petition.
Issue: Whether a Local Water District (LWD)
created under PD 198, as amended, is a
government-owned or controlled corporation
subject to the audit jurisdiction of COA or a
private corporation which is outside of COAs
audit jurisdiction.
Held: Petition lacks merit. The Constitution under
Sec. 2(1), Article IX-D and existing laws mandate

COA to audit all government agencies, including

government-owned and controlled corporations
with original charters. An LWD is a GOCC with
an original charter.
The Constitution recognizes two classes of
corporations. The first refers to private
corporations created under a general law. The
second refers to government-owned or controlled
corporations created by special charters. Under
existing laws, that general law is the Corporation
Code.
Obviously, LWDs are not private corporations
because they are not created under the
Corporation Code. LWDs are not registered with
the Securities and Exchange Commission.
Section 14 of the Corporation Code states that
all corporations organized under this code shall
file with the SEC articles of incorporation x x x.
LWDs have no articles of incorporation, no
incorporators and no stockholders or members.
There are no stockholders or members to elect
the board directors of LWDs as in the case of all
corporations registered with the SEC. The local
mayor or the provincial governor appoints the
directors of LWDs for a fixed term of office. The
board directors of LWDs are not co-owners of the
LWDs. The board directors and other personnel
of LWDs are government employees subject to
civil service laws and anti-graft laws. Clearly, an
LWD is a public and not a private entity, hence,
subject to COAs audit jurisdiction.

BOY SCOUTS OF THE PHILIPPINES

VS. COMMISSION ON AUDIT
G.R. NO. 177131. JUNE 7, 2011
The issue was whether or not the Boy Scouts of
the Philippines (BSP) fall under the jurisdiction
of the Commission on Audit.
The BSP contends that it is not a governmentowned or controlled corporation; neither is it an
instrumentality, agency, or subdivision of the
government.
The Supreme Court, however, held that not all
corporations, which are not government
owned or controlled, are ipso facto to be
considered private corporations as there
exists another distinct class of corporations
or chartered institutions which are otherwise
known as public corporations.

These corporations are treated by law as

agencies or instrumentalities of the government
which are not subject to the tests of ownership or
control and economic viability but to a different
criteria relating to their public purposes/interests
or constitutional policies and objectives and their
administrative relationship to the government or
any of its departments or offices.
As presently constituted, the BSP is a public
corporation created by law for a public purpose,
attached to the Department of Education Culture
and Sports pursuant to its Charter and the
Administrative Code of 1987. It is not a private
corporation which is required to be owned or
controlled by the government and be
economically viable to justify its existence under
a special law. The economic viability test would
only apply if the corporation is engaged in some
economic activity or business function for the
government, which is not the case for BSP.
Therefore, being a public corporation, the funds
of the BSP fall under the jurisdiction of the
Commission on Audit.

LIBAN VS GORDON
G. R. NO. 175352, JANUARY 18, 2011
Although the Philippine National Red Cross
was created by a special charter, it can not be
considered
a
government-owned
and
controlled corporation in the absence of the
essential elements of ownership and control
by the government.
It does not have government assets and does
not receive any appropriation from the Philippine
Congress. It is a non-profit, donor-funded,
voluntary organization, whose mission is to bring
timely, effective and compassionate humanitarian
assistance for the most vulnerable without
consideration of nationality, race, religion,
gender, social status or political affiliation.
This does not mean however that the charter of
PNRC is unconstitutional. PNRC has a sui
generis status.
Although it is neither a subdivision, agency, or
instrumentality of the government, nor a
government-owned or -controlled corporation or
a subsidiary thereof, so much so that Gordon
was correctly allowed to hold his position as
Chairman thereof concurrently while he served

as a Senator, such a conclusion does not ipso

facto imply that the PNRC is a private
corporation within the contemplation of the
provision of the Constitution, that must be
organized under the Corporation Code.
The PNRC enjoys a special status as an
important ally and auxiliary of the government in
the humanitarian field in accordance with its
commitments under international law. This Court
cannot all of a sudden refuse to recognize its
existence, especially since the issue of the
constitutionality of the PNRC Charter was never
raised by the parties.

CARANDANG VS. DESIERTO

G.R. NO. 153161, JANUARY 12, 2011
A governmentowned or controlled corporation
refers to any agency organized as a stock or
non-stock corporation vested with functions
relating to public needs whether governmental or
proprietary in nature and owned by the
government through its instrumentalities either
wholly or where applicable as in the case of
stock corporation to the extent of at least 51% of
its capital stock.
When a stockholder ceded to the government
shares representing 72.4 % of the voting stock of
the corporation but subsequently clarified that it
should be reduced to 32.4%, the corporation
shall not be considered government-owned and
controlled until the quantification of shares is
resolved with finality.
FACTS
Petitioner Antonio M. Carandang (Carandang)
challenges the jurisdiction over him of the
Ombudsman and of the Sandiganbayan on the
ground that he was being held to account for acts
committed while he was serving as general manager
and chief operating officer of Radio Philippines
Network, Inc. (RPN), which was not a governmentowned or -controlled corporation; hence, he was not a
public official or employee.
Benedicto was a stockholder of RPN, a private
corporation duly registered with the Securities and
Exchange Commission (SEC). In March 1986, the
Government ordered the sequestration of RPNs
properties, assets, and business. On November 3,
1990, the Presidential Commission on Good
Government (PCGG) entered into a compromise
agreement with Benedicto, whereby he ceded to the
Government, through the PCGG, all his shares of
stock in RPN. Consequently, upon motion of the

PCGG, the Sandiganbayan (Second Division)

directed the president and corporate secretary of RPN
to transfer to the PCGG Benedictos shares
representing 72.4% of the total issued and
outstanding capital stock of RPN.
However, Benedicto moved for a reconsideration,
contending that his RPN shares ceded to the
Government, through the PCGG, represented only
32.4% of RPNs outstanding capital stock, not 72.4%.
Benedictos motion for reconsideration has remained
unresolved to this date.

It is clear, therefore, that a corporation is considered a

government-owned or -controlled corporation only
when the Government directly or indirectly owns or
controls at least a majority or 51% share of the capital
stock. Applying this statutory criterion, the Court ruled
in Leyson, Jr. v. Office of the Ombudsman:

Similarly, the law defines what are government-owned

or -controlled corporations. For one, Section 2 of
Presidential Decree No. 2029 (Defining Government
Owned or Controlled Corporations and Identifying
Their Role in National Development) states:

But these jurisprudential rules invoked by petitioner in

support of his claim that the CIIF companies are
government owned and/or controlled corporations are
incomplete without resorting to the definition of
government owned or controlled corporation
contained in par. (13), Sec.2, Introductory Provisions
of the Administrative Code of 1987, i.e., any agency
organized as a stock or non-stock corporation vested
with functions relating to public needs whether
governmental or proprietary in nature, and owned by
the government directly or indirectly through its
instrumentalities either wholly, or where applicable as
in the case of stock corporations to the extent of at
least fifty-one (51) percent of its capital stock. The
definition mentions three (3) requisites, namely, first,
any agency organized as a stock or non-stock
corporation; second, vested with functions relating to
public needs whether governmental or proprietary in
nature; and, third, owned by the Government directly
or through its instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to the
extent of at least fifty-one (51) of its capital stock.

Section 2. A government-owned or controlled

corporation is a stock or a non-stock corporation,
whether performing governmental or proprietary
functions, which is directly chartered by a special law
or if organized under the general corporation law is
owned or controlled by the government directly, or
indirectly through a parent corporation or subsidiary
corporation, to the extent of at least a majority of
its outstanding capital stock or of its outstanding
voting capital stock.

In the present case, all three (3) corporations

comprising the CIIF companies were organized as
stock corporations. The UCPB-CIIF owns 44.10% of
the shares of LEGASPI OIL, xxx. Obviously, the
below 51% shares of stock in LEGASPI OIL
removes this firm from the definition of a
government owned or controlled corporation. x x x
The Court thus concludes that the CIIF are, as found
by public respondent, private corporations not within
the scope of its jurisdiction.

It is not disputed that the Ombudsman has

jurisdiction over administrative cases involving grave
misconduct committed by the officials and employees
of government-owned or -controlled corporations; and
that the Sandiganbayan has jurisdiction to try and
decide criminal actions involving violations of R.A.
3019 committed by public officials and employees,
including presidents, directors and managers of
government-owned or -controlled corporations. The
respective jurisdictions of the respondents are
expressly defined and delineated by the law.

Section 2 (13) of Executive Order No. 292

(Administrative Code of 1987) renders a similar
definition of government-owned or -controlled
corporations:
Section 2. General Terms Defined. Unless the specific
words of the text or the context as a whole or a
particular statute, shall require a different meaning:
xxx
(13) government-owned or controlled corporations
refer to any agency organized as a stock or non-stock
corporation vested with functions relating to public
needs whether governmental or proprietary in nature,
and owned by the government directly or indirectly
through its instrumentalities either wholly, orwhere
applicable as in the case of stock corporations to
the extent of at least 51% of its capital stock.

Consequently, RPN was neither a government-owned

nor a controlled corporation because of the
Governments total share in RPNs capital stock being
only 32.4%.
Parenthetically, although it is true that the
Sandiganbayan (Second Division) ordered the
transfer to the PCGG of Benedictos shares that
represented 72.4% of the total issued and outstanding
capital stock of RPN, such quantification of
Benedictos shareholding cannot be controlling in view
of Benedictos timely filing of a motion for
reconsideration whereby he clarified and insisted that
the shares ceded to the PCGG had accounted for
only 32.4%, not 72.4%, of RPNs outstanding capital
stock. With the extent of Benedictos holdings in RPN
remaining unresolved with finality, concluding that the
Government held the majority of RPNs capital stock

as to make RPN a government-owned or -controlled

corporation would be bereft of any factual and legal
basis.

FUNA vs MECO (Manila Economic

and Cultural Office)
GR 193462, Feb 4, 2014
Because the Philippines subscribes to the One China
Policy of the Peoples Republic of China, it ended its
diplomatic relations with Taiwan.
However it continued to maintain an unofficial
relationship with Taiwan through the MECO. Funa
asked COA to furnish him with financial and audit
reports of COAs audit of MECO.
COA initially said that MECO was not under its audit
jurisdiction. This prompted Funa to file this petition for
mandamus. COA subsequently sent auditors to
Taiwan.
Funa argues that MECO is a GOCC or at least a
governmental entity subject to the audit jurisdiction of
COA. MECO argues that it is not a GOCC nor is it a
governmental instrumentality and to categorize it as
such would violate the one china policy of PROC.
COA concedes that MECO is under its audit
jurisdiction because of certain fees that MECO
handles which are receivables of DOLE but insists
that the case is moot because it already sent a team
to audit MECO.
SC ruled that the case was not moot since it falls
under the exceptions. That MECO is not a GOCC nor
is it a governmental entity. MECO is in fact a sui
generis entity. However certain transactions of MECO
are subject to the audit jurisdiction of COA particularly
its collection of Verification fees and Consular fees.
DOCTRINE. The MECO is not a GOCC or
government instrumentality. It is a sui generis private
entity especially entrusted by the government with the
facilitation of unofficial relations with the people in
Taiwan without jeopardizing the countrys faithful
commitment to the One China policy of the PROC.
However, despite its non-governmental character, the
MECO handles government funds in the form of the
"verification fees" it collects on behalf of the DOLE
and the "consular fees" it collects under Section 2(6)
of EO No. 15, s. 2001. Hence, under existing laws,
the accounts of the MECO pertaining to its collection
of such "verification fees" and "consular fees" should
be audited by the COA
SC: MECO is not a GOCC or Governmental
Instrumentality

Government instrumentalities are agencies of the

national government that, by reason of some "special
function or jurisdiction" they perform or exercise, are
allotted "operational autonomy" and are "not
integrated within the department framework. They
include:
1.regulatory agencies; 2.chartered institutions;
3.government corporate entities or government
instrumentalities with corporate powers (GCE/GICP);
and 4. GOCCs
GOCCs: "stock or non-stock" corporations "vested
with functions relating to public needs" that are
"owned by the Government directly or through its
instrumentalities."
By definition, three attributes thus make an entity a
GOCC: first, its organization as stock or nonstock corporation; second, the public character of
its function; and third, government ownership
over the same. Possession of all three attributes is
necessary to deem an entity a GOCC
MECO is a non-stock corporation based on
the records and based on the fact that its
earnings are not distributed as dividends to its
members
MECO performs functions with a Public
Aspect. MECO was "authorized" by the
Philippine government to perform certain
"consular and other functions" relating to the
promotion, protection and facilitation of
Philippine interests in Taiwan. The functions
of the MECO are of the kind that would
otherwise be performed by the Philippines
own diplomatic and consular organs, if not
only for the governments acquiescence that
they instead be exercised by the MECO.
The MECO Is Not Owned or Controlled by
the Government. The "desire letters" that the
President
transmits
are
merely
recommendatory and not binding on it. Under
its by-laws, the election of its directors are
done by the members themselves, its officers
are elected by the directors and members are
admitted through a unanimous board
resolution. None of the incorporators of
MECO were government officials and up to
this day, none of the members, directors or
officers are government appointees or public
officers designated by reason of their office.
SC: it is a sui generis entity
Since MECO is not a GOCC, it cannot also be either
of the other government instrumentalities primarily
because these instrumentalities are creatures of law
(meaning an actual law was passed for their creation)
while MECO was incorporated under the Corporation
code.

The reason behind it being under the supervision of

the DTI is because its functions may result in it
engaged in dealings or activities that can directly
contradict the Philippines commitment to the One
China Policy. This scenario can be avoided if
theExecutive exercises some sort of supervision over
it. But this aspect was not questioned by the
petitioner, so this was deemed irrelevant to the issue
by the SC.
Certain accounts may be audited by the COA
MECO should be subjected to the auditing of COA as
regards its collection of verification and consular fees.
Pertinent is the provision of the Administrative Code,
Section 14(1), Book V thereof, which authorizes the
COA to audit accounts of nongovernmental entities
required to pay xxx or have government share but
only with respect to funds xxx coming from or
through the government. The said fees collected by
MECO are receivables of DOLE.
As to the verification fees("service fee for the
verification of overseas employment contracts,
recruitment agreement or special powers of
attorney"): Under Section 7 of EO No. 1022, DOLE
has the authority to collect verification fees. But it
entered into a series of MoA with MECO authorizing

the latter to collect such fees since the PH does not

have an official post in Taiwan.
As to the consular fees: The authority behind
consular fees is Section 2(6) of EO No. 15, s. 2001.
The said section authorizes the MECO to collect
reasonable fees for its performance of consular
functions. Evidently, and just like the peculiarity that
attends the DOLE verification fees, there is no
consular office for the collection of the consular fees.
Thus, the authority for the MECO to collect the
reasonable fees, vested unto it by the executive
order (EO No. 15, s. 2001)
NOTES. Just in case sIr asks who Dennis AB FUNA is, Funa is the
chair of the Civil Service Commission appointed by then president
GMA. But this fact wasnt mentioned in this case. His request with
COA was not done in his capacity as the CSC chair. He just
appeared out of nowhere asking for the records.