Concept Builders v.

NLRC
Facts:
Petitioner concept, a construction company engaged the services of
the respondents as laborers, carpenters and riggers. In November
198, the respondents were served individual notice of termination of
employment stating that their employment contract has expired and
that the project for which they were hired had been completed. The
respondents filed a complaint of illegal dismissal with the NLRC
alleging that the project for which they were hired had not been
completed and that in fact the petitioner engaged the service of subcontractors for the said project. The NLRC decided in favour of the
respondents and a writ of execution was issued but was only partially
satisfied. When another writ was issued, the employees in the office
of the petitioner claimed that they are not employees of Concept but
HPPI. Filing a motion for Issuance of a break-open order, the
respondents alleged that the petitioner and HPPI are owned by the
same stockholders/incorporators. Petitioner contends that HPPI is
engaged in the manufacture and sale of steel, concrete and iron
pipes, a business which is distinct and separate from petitioners
construction business. Hence, it is of no consequence that petitioner
and HPPI shared the same premises, the same President and the
same set of officers and subscribers. However, the break open order
was granted hence this petition.
Issue: Whether the doctrine of piercing the corporate veil should not
have been applied in this case.
Held:
The test in determining the applicability of the doctrine of piercing the
veil of corporate fiction is as follows: 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 plaintiffs legal rights and
3. The aforesaid control and breach of duty must proximately cause
the injury or unjust loss complained of. The absence of any one of
these elements prevents piercing the corporate veil. In applying the
instrumentality or alter ego doctrine, the courts are concerned with
reality and not form, with how the corporation operated and the
individual defendants relationship to that operation.
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. 4. Methods of conducting the business.
In this case, the NLRC noted that, while petitioner claimed that it
ceased its business operations on April 29, 1986, it filed an
Information Sheet with the Securities and Exchange Commission on
May 15, 1987, stating that its office address is at 355 Maysan Road,
Valenzuela, Metro Manila. On the other hand, HPPI, the thirdparty
claimant, submitted on the same day, a similar information sheet
stating that its office address is at 355 Maysan Road, Valenzuela,
Metro Manila. Furthermore, the NLRC stated that: Both information
sheets were filed by the same Virgilio O. Casio as the corporate
secretary of both corporations. It would also not be amiss to note that
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 respondent (herein petitioner) and the thirdparty claimant shared
the same address and/or premises. Under this circumstances, (sic) it
cannot be said that the property levied upon by the sheriff were not of
respondents.16 Clearly, petitioner ceased its business operations in
order to evade the payment to private respondents of back wages and
to bar their reinstatement to their former positions. HPPI is obviously a
business conduit of petitioner corporation and its emergence was
skillfully orchestrated to avoid the financial liability that already
attached to petitioner corporation.

Enriquez v. Cabotaje
Facts:
Petitioner, ESSI engaged the service of Cabotaje as security guard
and continued to be so until after the incorporation of the petitioner
which became ESIA. When Cabotaje reached his retirement age, he
filed for retirement benefits which was acknowledged by the petitioner
but claimed that the computation of his benefit should not be reckoned
from when he started working with ESSI but from when he started
working with ESIA. Aggrieved, Cabotaje filed a complaint with the
NLRC and a favourable judgment was given to him.

Issue:
[w]hether or not the length of service of a retired employee in a
dissolved company (his former employer) should be included in his
length of service with his last employer for purposes of computing the
retirement pay.

Held:
Corporation Law Piercing the Veil of Corporate Fiction In appropriate
cases, the veil of corporate fiction may be pierced as when it is used
as a means to perpetrate a social injustice or as a vehicle to evade
obligations.
The consistent rulings of the labor arbiter, the NLRC and the appellate
court should be respected and petitioners veil of corporate fiction
should likewise be pierced. These are based on the following
uncontroverted facts: (1) respondent worked with ESIA and petitioner
ESSI (2) his employment with both security agencies was continuous
and uninterrupted (3) both agencies were owned by the Enriquez
family and (4) petitioner ESSI maintained its office in the same place
where ESIA previously held office.

The attempt to make the security agencies appear as two separate

entities, when in reality they were but one, was a devise to defeat the
law and should not be permitted. Although respect for corporate
personality is the general rule, there are exceptions. In appropriate
cases, the veil of corporate fiction may be pierced as when it is used
as a means to perpetrate a social injustice or as a vehicle to evade
obligations. Petitioner was thus correctly ordered to pay respondents
retirement under RA 7641, computed from January 1979 up to the
time he applied for retirement in July 1997.

Heirs of Pajarillo v. CA
Facts:
Private respondents were employed as drivers, conductors and
conductresses by Panfilo. In sum, each of the private respondents
earned an average daily commission of about P150.00 a day. They
were not given emergency cost of living allowance, 13th month pay,
legal holiday pay and service incentive leave pay. The respondents
and several co-employees formed a union called SAMAHAN NG
MGA MANGGAGAWA NG PANFILO V. PAJARILLO. Upon learning of
the formation of respondent union, Panfilo and his children ordered
some of the private respondents to sign a document affirming their
trust and confidence in Panfilo and denying any irregularities on his
part. Other private respondents were directed to sign a blank
document which turned out to be a resignation letter. Private
respondents refused to sign the said documents hence, they were
barred from working or were dismissed without hearing and notice.
Panfilo and his children and relatives also formed a company union
where they acted as its directors and officers.
On 25 August 1987, respondent union and several employees filed a
Complaint for unfair labor practice and illegal deduction before the
Labor Arbiter with Panfilo V. Pajarillo and PVP Liner as partyrespondents. A decision was made in favour of the respondents.
However, petitioners argued that P.V. PAJARILLO LINER has a
separate and distinct personality from Panfilo as the sole operator of
PVP Liner buses that, therefore, P.V. PAJARILLO LINER cannot be
made a party or impleaded in the present case that the amended
complaint in NLRC/NCR Case No. 00-08-03013-87 impleaded as
party-respondent PANFILO V. PAJARILLO LINER and PANFILO V.
PAJARILLO, as operator and responsible officer that PVP Liner Inc.
was not impleaded in the instant case and that no summons was
ever served on PVP Liner Inc. in NLRC/NCR Case No. 00-08-0301387.[25]
Issue:

Whether the court ERRED IN PIERCING THE VEIL OF CORPORATE

ENTITY OF PVP PAJARILLO LINER INC.
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. However, this separate
and distinct personality of a corporation is merely a fiction created by
law for convenience and to promote justice. Hence, 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 labor laws, this separate personality of the corporation may be
disregarded or the veil of the 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 corporate mask
may be lifted and the corporate veil may be pierced when a
corporation is but the alter ego of a person or another corporation.[35]
It is apparent that Panfilo started his transportation business as the
sole owner and operator of passenger buses utilizing the name PVP
Liner for his buses. After being charged by respondent union of unfair
labor practice, illegal deductions, illegal dismissal and violation of
labor standard laws, Panfilo transformed his transportation business
into a family corporation, namely, P.V. Pajarillo Liner Inc. He and
petitioners were the incorporators, stockholders and officers therein.
P.V. Pajarillo Inc. and the sole proprietorship of Panfilo have the same
business address. P.V. Pajarillo Inc. also uses the name PVP Liner in
its buses. Further, the license to operate or franchise of the sole
proprietorship was merely transferred to P.V. Pajarillo Liner Inc.
It is clear from the foregoing that P.V. Pajarillo Liner Inc. was a mere
continuation and successor of the sole proprietorship of Panfilo. It is
also quite obvious that Panfilo transformed his sole proprietorship into
a family corporation in a surreptitious attempt to evade the charges of
respondent union. Given these considerations, Panfilo and P.V.
Pajarillo Liner Inc. should be treated as one and the same person for
purposes of liability.

Tomas Lao v. NLRC

Facts:
Respondents in this case were hired by the petitioner for various
periods as construction workers. Within the periods of their respective
employments, they alternately worked for petitioners Tomas Lao
Corporation (TLC), Thomas and James Developers (T&J) and LVM
Construction Corporation (LVM), altogether informally referred to as
the Lao Group of Companies, the three (3) entities comprising a
business conglomerate exclusively controlled and managed by
members of the Lao family. Soon after, however, TLC ceased its
operations while T&J and LVM stayed on. Sometime in 1989 Andres
Lao, Managing Director of LVM and President of T&J,3 issued a
memorandum requiring all workers and company personnel to sign
employment contract forms and clearances which were issued on 1
July 1989 but antedated 10 January 1989. All private respondents
refused to sign contending that this scheme was designed by their
employer to downgrade their status from regular employees to mere
project employees. Resultantly, their salaries were withheld so they
filed complaints for illegal dismissal. The NLRC ruled in favour of the
respondents. . In granting monetary awards to complainants, NLRC
disregarded the veil of corporate fiction and treated the three (3)
corporations as forming only one entity on the basis of the admission
of petitioners that the three (3) operated as one (1), intermingling and
commingling all its resources, including manpower facility.
Issue:
Whether NLRC erred when it pierced the veil of corporate personality
of petitionercorporations.
Held:
Public respondent NLRC did not err in disregarding the veil of
separate corporate personality and holding petitioners jointly and
severally liable for private respondents back wages and separation
pay. The records disclose that the three (3) corporations were in fact
substantially owned and controlled by members of the Lao family. A

majority of the outstanding shares of stock in LVM and T&J is owned

by the Lao family. T&J is 100% owned by the Laos as reflected in its
Articles of Incorporation. The Lao Group of Companies therefore is a
closed corporation where the incorporators and directors belong to a
single family. Lao Hian Beng is the same Tomas Lao who owns Tomas
Lao Corporation and is the majority stockholder of T&J. Andrew C.
Lao is the Managing Director of LVM Construction, and President and
Managing Director of the Lao Group of Companies. Petitioners are
engaged in the same line of business under one management and
use the same equipment including manpower services. Where it
appears that [three] business enterprises are owned, conducted and
controlled by the same parties, both law and equity will, when
necessary to protect the rights of third persons, disregard the legal
fiction that the [three] corporations are distinct entities, and treat them
as identical.
Same Same Same It should always be borne in mind that the fiction
of law that a corporation as a juridical entity has a distinct and
separate personality was envisaged for convenience and to serve
justicetherefore, it should not be used as a subterfuge to commit
injustice and circumvent labor laws.Consonant with our earlier
ruling, we hold that the liability of petitioners extends to the
responsible officers acting in the interest of the corporations. In view
of the peculiar circumstances of this case, we disregard the separate
personalities of the three (3) corporations and at the same time
declare the members of the corporations jointly and severally liable
with the corporations for the monetary awards due to private
respondents. It should always be borne in mind that the fiction of law
that a corporation as a juridical entity has a distinct and separate
personality was envisaged for convenience and to serve justice
therefore it should not be used as a subterfuge to commit injustice
and circumvent labor laws.

GENERAL CREDIT CORPORATION vs. ALSONS DEVELOPMENT

Facts:
Petitioner General Credit Corporation (GCC), then known as
Commercial Credit Corporation (CCC), established CCC franchise
companies in different urban centers of the country. In furtherance of
its business, GCC was able to secure license from Central Bank (CB)
and SEC to engage also in quasi-banking activities. On the other
hand, respondent CCC Equity Corporation (EQUITY) was organized
in by GCC for the purpose of, among other things, taking over the
operations and management of the various franchise companies. At a
time material hereto, respondent Alsons Development and Investment
Corporation (ALSONS) and the Alcantara family, each owned, just like
GCC, shares in the aforesaid GCC franchise companies, e.g., CCC
Davao and CCC Cebu.
ALSONS and the Alcantara family, for a consideration of P2M, sold
their shareholdings (101,953 shares), in the CCC franchise
companies to EQUITY. EQUITY issued ALSONS et al., a "bearer"
promissory note for P2M with a one-year maturity date.
4 years later, the Alcantara family assigned its rights and interests
over the bearer note to ALSONS which became the holder thereof.
But even before the execution of the assignment deal aforestated,
letters of demand for interest payment were already sent to EQUITY.
EQUITY no longer then having assets or property to settle its
obligation nor being extended financial support by GCC, pleaded
inability to pay.
ALSONS, having failed to collect on the bearer note aforementioned,
filed a complaint for a sum of money8 against EQUITY and GCC.
GCC is being impleaded as party-defendant for any judgment
ALSONS might secure against EQUITY and, under the doctrine of
piercing the veil of corporate fiction, against GCC, EQUITY having
been organized as a tool and mere conduit of GCC.

According to EQUITY (cross-claim against GCC): it acted merely as

intermediary or bridge for loan transactions and other dealings of
GCC to its franchises and the investing public and is solely
dependent upon GCC for its funding requirements. Hence, GCC is
solely and directly liable to ALSONS, the former having failed to
provide EQUITY the necessary funds to meet its obligations to
ALSONS.

GCC filed its ANSWER to Cross-claim, stressing that it is a distinct

and separate entity from EQUITY.

RTC, finding that EQUITY was but an instrumentality or adjunct of

GCC and considering the legal consequences and implications of
such relationship, rendered judgment for Alson. CA affirmed.

Issue: WON the doctrine of "Piercing the Veil of Corporate Fiction"

should be applied in the case at bar.

Held:

YES. The notion of separate personality, however, may be

disregarded under the doctrine "piercing the veil of corporate fiction"
as in fact the court will often look at the corporation as a mere
collection of individuals or an aggregation of persons undertaking
business as a group, disregarding the separate juridical personality of
the corporation unifying the group. Another formulation of this doctrine
is that when two (2) business enterprises are owned, conducted and
controlled by the same parties, both law and equity will, when
necessary to protect the rights of third parties, disregard the legal

fiction that two corporations are distinct entities and treat them as
identical or one and the same.

Authorities are agreed on at least three (3) basic areas where piercing
the veil, with which the law covers and isolates the corporation from
any other legal entity to which it may be related, is allowed. These
are: 1) defeat of public convenience, as when the corporate fiction is
used as vehicle for the evasion of an existing obligation 2) fraud
cases or when the corporate entity is used to justify a wrong, protect
fraud, or defend a crime or 3) alter ego cases, where a corporation is
merely a farce since it is a 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.

The Court agrees with the disposition of the CA on the application of

the piercing doctrine to the transaction subject of this case. Per the
Courts count, the trial court enumerated no less than 20 documented
circumstances and transactions, which, taken as a package, indeed
strongly supported the conclusion that respondent EQUITY was but
an adjunct, an instrumentality or business conduit of petitioner GCC.
This relation, in turn, provides a justifying ground to pierce petitioners
corporate existence as to ALSONS claim in question. Foremost of
what the trial court referred to as "certain circumstances" are the
commonality of directors, officers and stockholders and even sharing
of office between petitioner GCC and respondent EQUITY certain
financing and management arrangements between the two, allowing
the petitioner to handle the funds of the latter the virtual domination if
not control wielded by the petitioner over the finances, business
policies and practices of respondent EQUITY and the establishment
of respondent EQUITY by the petitioner to circumvent CB rules.

Verily, indeed, as the relationships binding herein [respondent

EQUITY and petitioner GCC] have been that of "parent-subsidiary
corporations" the foregoing principles and doctrines find suitable
applicability in the case at bar and, it having been satisfactorily and
indubitably shown that the said relationships had been used to
perform certain functions not characterized with legitimacy, this Court
feels amply justified to "pierce the veil of corporate entity" and
disregard the separate existence of the parent and subsidiary the
latter having been so controlled by the parent that its separate identity
is hardly discernible thus becoming a mere instrumentality or alter ego
of the former.

Telephone Engineering v. WCC

Facts:
TESCO and UMACOR are sister companies operating under one
management and housed in the same building. UMACOR employed
Gatus as purchasing agent. He was detailed with TESCO for some
time but reported back to UMACOR. A few years later, Gatus
contracted illness and eventually died so his wife filed a Notice of
Claim for Compensation with Workmens Compensation Section. In
line with the said claim, a letter was sent to TESCO requiring it to
submit an Employers Report which was subsequently done but with
UMACOR indicated as the employer. Death benefits and burial
expenses were awarded but was opposed by TESCO. And despite
TESCOs continuous opposition, some of their properties were levied
and attached to be sold at a public auction. TESCO then claimed that
the respondent Workmens Compensation Commission has no
jurisdiction nor authority to render the award against them there being
no employeremployee relationship between it and the deceased
Gatus.

Held:
Same Same Same Corporation Law Piercing the veil in
compensation cases.From the time it requested for an extension of
time to file MR petitioner represented and defended itself as the
employer of the deceased. Nowhere in said documents did it allege
that it was not the employer. Petitioner even admitted that TESCO
and UMACOR are sister companies operating under one single
management and housed in the same building. Although respect for
the corporate personality as such, is the general rule, there are
exceptions. In appropriate cases, the veil of corporate fiction may be
pierced as when the same is made as a shield to confuse the
legitimate issues. While, indeed, jurisdiction cannot be conferred by
acts or omission of the parties, TESCOs denial at this stage that it is

the employer of the deceased is obviously an afterthought, a devise to

defeat the law and evade its obligations.

Francisco Motors v. CA
Facts:

This case arose from the decision o the trial court granting the
counter claim of the herein private respondents. Such counterclaim is
based from the fact that Gregorio Manuel, while he was petitioners
Assistant Legal Officer, he represented members of the Francisco
family in the intestate estate proceedings of the late Benita Trinidad.
However, even after the termination of the proceedings, his services
were not paid. Said family members, he said, were also incorporators,
directors and officers of petitioner. Hence to counter petitioners
collection suit, he filed a permissive counterclaim for the unpaid
attorneys fees.

ISSUE:

Whether or not the petitioner corporation is liable for the

attorneys fee owing to the respondents.

RULING:

NO.

Petitioner argued that being a corporation, it should not be

held liable therefore because these fees were owed by the
incorporators, directors and officers of the corporation in their
personal capacity as heirs of Benita Trinidad. Petitioner stressed that
the personality of the corporation, vis--vis the individual persons who

hired the services of private respondent, is separate and distinct,

hence, the liability of said individuals did not become an obligation
chargeable against petitioner.
In this case, the piercing of the corporate veil was not applied
because rationale behind piercing a corporations identity in a given
case is to remove the barrier between the corporation from the
persons comprising it to thwart the fraudulent and illegal schemes of
those who use the corporate personality as a shield for undertaking
certain proscribed activities. However, in the case at bar, instead of
holding certain individuals or persons responsible for an alleged
corporate act, the situation has been reversed. It is the petitioner as a
corporation which is being ordered to answer for the personal liability
of certain individual directors, officers and incorporators concerned.
Furthermore, according to private respondent Gregorio Manuel his
services were solicited as counsel for members of the Francisco
family to represent them in the intestate proceedings over Benita
Trinidads estate. These estate proceedings did not involve any
business of petitioner.
The personality of the corporation and those of its incorporators,
directors and officers in their personal capacities ought to be kept
separate in this case. The claim for legal fees against the concerned
individual incorporators, officers and directors could not be properly
directed against the corporation without violating basic principles
governing corporations.

Sarona v. NLRC
FACTS:
Petitioner, a security guard in Sceptre since April 1976, was asked by
Sceptres operations manager to submit a resignation letter as a
requirement for an application in Royale and to fill up an employment
application form for the said company. He was then assigned at
Highlight Metal Craft Inc. from July 29 to August 8, 2003 and was later
transferred to Wide Wide World Express Inc.
On September 2003, he was informed that his assignment at WWWE
Inc. was withdrawn because Royale has been allegedly replaced by
another security agency which he later discovered to be untrue.
Nevertheless, he was once again assigned at Highlight Metal
sometime in September 2003and when he reported at Royales office
on October 1, 2003, he was informed that he would no longer be
given any assignment as instructed by Sceptres general manager.
He thus filed a complaint for illegal dismissal. A judgment was
rendered in favour of him but the amount of his backwages was
computed based on the period he was employed with Royale and not
from when he started working with Sceptre. The court refused to
pierce the veil of corporate fiction the claim that Royale is an alter ego
or business conduit of Sceptre is without basis because aside from
the fact that there is no common ownership of both Royale and
Sceptre, no evidence on record would prove that Sceptre, has control
or complete domination of Royales finances and business
transactions and the Sceptre is a sole proprietorship.
Issue:
Whether corporate fiction should be pierced.
Held:
For the piercing doctrine to apply, it is of no consequence if Sceptre is
a sole proprietorship. Inc., et al. v. Garcia, et al.,55 it is the act of
hiding behind the separate and distinct personalities of juridical

entities to perpetuate fraud, commit illegal acts, evade ones

obligations that the equitable piercing doctrine was formulated to
address and prevent:
Evidence abound showing that Royale is a mere continuation or
successor of Sceptre and fraudulent objectives are behind Royales
incorporation and the petitioners subsequent employment therein. As
correctly pointed out by the petitioner, it was Aida who exercised
control and supervision over the affairs of both Sceptre and Royale.
The presence of actual common control coupled with the misuse of
the corporate form to perpetrate oppressive or manipulative conduct
or evade performance of legal obligations is patent Royale cannot
hide behind its corporate fiction.
Also, Sceptre and Royale have the same principal place of business.
As early as October 14, 1994, Aida and Wilfredo became the owners
of the property used by Sceptre as its principal place of business by
virtue of a Deed of Absolute Sale they executed with Roso. Royale,
shortly after its incorporation, started to hold office in the same
property. These, the respondents failed to dispute. Royale also
claimed a right to the cash bond which the petitioner posted when he
was still with Sceptre. If Sceptre and Royale are indeed separate
entities, Sceptre should have released the petitioners cash bond
when he resigned and Royale would have required the petitioner to
post a new cash bond in its favor.
The way on how petitioner was made to resign from Sceptre
then later on made an employee of Royale, reflects the use of the
legal fiction of the separate corporate personality and is an implication
of continued employment. Royale is a continuation or successor or
Sceptre since the employees of Sceptre and of Royale are the same
and said companies have the same principal place of business.

Wensha Spa v. Yung

Held:

Facts:

The Court finds merit in the argument of petitioner Xu that the CA

erred in ruling that he is solidarily liable with Wensha. Elementary is
the rule that a corporation is invested by law with a personality
separate and distinct from those of the persons composing it and from
that of any other legal entity to which it may be related. 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. Same

Loreta stated that she used to be employed by Manmen Services Co.,

Ltd. where Xu was a client. Xu was apparently impressed by Loreta's
performance. After he established Wensha, he convinced Loreta to
transfer and work at Wensha. Loreta was initially reluctant to accept
Xu's offer because her job at Manmen was stable and she had been
with Manmen for seven years. But Xu was persistent and offered her
a higher pay. Enticed, Loreta resigned from Manmen and transferred
to Wensha as Xu's personal assistant and interpreter. Loreta
introduced positive changes to Wensha which resulted in increased
business. This pleased Xu so that she was promoted to the position
of Administrative Manager.
Wensha and Xu denied illegally terminating Loreta's
employment. They claimed that two months after Loreta was hired,
they received various complaints against her from the employees so
that on August 10, 2004, they advised her to take a leave of absence
for one month while they conducted an investigation on the matter.
Based on the results of the investigation, they terminated Loreta's
employment on August 31, 2004 for loss of trust and confidence.
The Court ruled that indeed Loreta was illegally dismissed
because Wensha failed to substantially prove its claim that she
committed wrongdoings with Wenshas employees, and that Loretas
testimony as to her termination because her feng shui aura does not
match that of Xu is consistent. Xu failed to duly prove a valid ground
for the loss of trust and confidence with Loreta. Question lies if Xu
should be held liable together with Wensha.
Issue:
Whether the court committed grave abuse of discretion and serious
errors when it held that petitioner XU ZHI JIE to be solidarily liable
with WENSHA, assuming that respondent was illegally dismissed

In labor cases, corporate directors and officers may be held

solidarily liable with the corporation for the termination of employment
only if done with malice or in bad faith. Bad faith does not connote bad
judgment or negligence it imports a dishonest purpose or some moral
obliquity and conscious doing of wrong it means breach of a known
duty through some motive or interest or ill will it partakes of the nature
of fraud. In the subject decision, the CA concluded that petitioner Xu
and Wensha are jointly and severally liable to Loreta. We have read
the decision in its entirety but simply failed to come across any finding
of bad faith or malice on the part of Xu. There is, therefore, no
justification for such a ruling. To sustain such a finding, there should
be an evidence on record that an officer or director acted maliciously
or in bad faith in terminating the services of an employee. Moreover,
the finding or indication that the dismissal was effected with malice or
bad faith should be stated in the decision itself.

Hi-Cement v. Insular Bank

Facts:
Spouses Tan were the controlling stockholders of E.T. Henry, a
company engaged in the a company engaged in the business of
processing and distributing bunker fuel. Among E.T. Henrys
customers were petitioner HiCement, Riverside and Kanebo For their
purchases, these corporations issued to E.T. Henry postdated checks
which E.T. Henry re-discounted with Insular Bank. For two years, E.T.
Henry was able to rediscount its customer checks with Insular but in
1981, 20 checks of HiCement were dishonored. So were the checks
of Riverside and Kanebo. Respondent filed a complaint for sum of
money against E.T. Henry, the spouses Tan, HiCement, Riverside and
Kanebo. The court ruled in favour of Insular bank but opposed the
decision contending that the lower courts erred in applying the
doctrine of piercing the veil of the corporate entity to make the
spouses Tan solidarily liable with E.T. Henry
Issue:
Whether the doctrine of piercing the veil of the corporate entity should
be applied.

Held:
A careful study of the records shows that E.T. Henrys corporate veil
should not have been pierced at all. First, the trial court failed to
provide a clear ground why the doctrine was used. It merely stated
that it agreed with respondents arguments but did not explain why the
doctrine was relevant to petitioner E.T. Henrys and the spouses Tans
case. On the other hand, the CA held: It appears that spouses Tan
are controlling stockholders of E.T. Henry & Co., Inc. as well as its
authorized signatories. The business of the corporation was
conducted solely for the benefit of the spouses Tan who colluded with
[HiCement] in defrauding [respondent]. As the lower court cited[I]t is
a settled law in this and other jurisdictions that when the corporation is

a mere alter ego of a person, same being true when the corporation is
controlled, and its affairs are so conducted to make it merely an
instrumentality, agency or conduit of another.
Similarly, the CA left a gaping hole by failing to provide the basis for its
ruling that E.T. Henry and the spouses Tan defrauded respondent. It
did not also state what act constituted the fraud. Fraud is an allegation
of fact that demands clear and convincing evidence.36 It is never
presumed.37 Second, the 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. For this ground to stand in this case,
there must be proof that the spouses Tan: (1) had control or complete
domination of E.T. Henrys finances and that the latter had no
separate existence with respect to the act complained of (2) used
such control to commit fraud or wrong and (3) the control was the
proximate cause of the loss or injury complained of by respondent.
The records of this case do not show that these elements were
present.

SME Bank v. De Guzman

Facts:
SME was experiencing financial difficulties. To remedy the situation,
the bank officials offered its sale to Samson which accepted on
condition that the bank shall retire/terminate some of its employees
upon transfer of the shares to Samson. Agustin and De Guzman who
were the principal shareholders and directors of SME accepted the
condition and signed the letter of agreement. Employees were then
persuaded them to tender their resignations, with the promise that
they would be rehired upon reapplication. However, the employees
were not rehired except for Simeon who eventually resigned as he
was demoted and his benefits were reduced. Aggrieved, the
employees filed a complaint of illegal dismissal against SME,
Samson, Agustin and De Guzman. Finding that there was just a mere
transfer of shares, the change in management was not a valid ground
to terminate the said employees, hence, these employees were
indeed illegally dismissed, and that Agustin, De Guzman and Samson
Group were solidarily liable.
Issue:
Whether Agustin, De Guzman and Samson Group should be solidarily
liable.

Held:
In cases of illegal dismissal, corporate directors and officers are
solidarily liable with the corporation, where terminations of
employment are done with malice or in bad faith.
There is no question that both Agustin and De Guzman were
corporate directors of SME Bank. An analysis of the facts likewise
reveals that the dismissal of the employees was done in bad faith.
Motivated by their desire to dispose of their shares of stock to
Samson, they agreed to and later implemented the precondition in the

Letter Agreements as to the termination or retirement of SME Banks

employees. However, instead of going through the proper procedure,
the bank manager induced respondent employees to resign or retire
from their respective employments, while promising that they would
be rehired by the new management. Fully relying on that promise,
they tendered courtesy resignations or retirements and eventually
found themselves jobless. Clearly, this sequence of events constituted
a gross circumvention of our labor laws and a violation of the
employees constitutionally guaranteed right to security of tenure. We
therefore rule that, as Agustin and De Guzman are corporate directors
who have acted in bad faith, they may be held solidarily liable with
SME Bank for the satisfaction of the employees lawful claims. As to
spouses Samson, we find that nowhere in the records does it appear
that they were either corporate directors or officers of SME Bank at
the time the illegal ocurred, except that the Samson Group had
already taken over as new management when Simeon, Jr. was
constructively dismissed. Not being corporate directors or officers,
spouses Samson were not in legal control of the bank and
consequently had no power to dismiss its employees. even if spouses
Samson were already in control of the corporation at the time that
Simeon, Jr. was constructively dismissed, we refuse to pierce the
corporate veil and find them liable in their individual steads. There is
no showing that his constructive dismissal amounted to more than a
corporate act by SME Bank, or that spouses Samson acted
maliciously or in bad faith in bringing about his constructive dismissal.
Finally, as regards Aurelio Villaflor, while he may be considered as a
corporate officer, being the president of SME Bank, the records are
bereft of any evidence that indicates his actual participation in the
termination of respondent employees. Not having participated at all in
the illegal act, he may not be held individually liable for the satisfaction
of their claims.

Sawadjaan v. CA
Facts:
Sawadjaan was among the first employees of PAB. He rose from
being a security guard to being a loan analyst. Before he got
promoted as a loan analyst, he was designated as an
inspector/appraiser and was tasked to inspect the properties offered
by CAMEC as collateral for a 5m loan which was approved by PAB
based on the report submitted by Sawadjaan. While PAB was being
reorganized and became AIIBP, Sawadjaan was promoted as a loan
analyst. It was then that it was discovered that the property used by
CAMEC as collateral was spurious and had a prior existing mortgage
in favour of another person. For this reason, Sawadjaan was
suspended and eventually terminated from work. He then filed a
motion for new trial based on his discovery that the bank at the time
his employment was terminated had not yet adopted its corporate bylaws and its registration is being held in abeyance as such the bank
lost its juridical personality as a corporation, and thus no longer have
the legal standing and personality to initiate an administrative case.
Held:
Corporation Law De Facto Corporation By its failure to submit its bylaws 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 corporations may be a
party.The AIIBP was created by Rep. Act No. 6848. It has a main
office where it conducts business, has shareholders, corporate
officers, a board of directors, assets, and personnel. It is, in fact, here
represented by the Office of the Government Corporate Counsel, the
principal law office of governmentowned corporations, one of which is
respondent bank. At the very least, by its failure to submit its bylaws
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 corporations may be a party.

Same Same A corporation which has failed to file its bylaws within
the prescribed period does not ipso facto lose its powers as such.A
corporation which has failed to file its bylaws 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.

Lim v. Philippine Fishing

Facts:
Lim Tong Lim requested Peter Yao and Antonio Chuato to engage in
commercial fishing with him. The three agreed to purchase two fishing
boats but since they do not have the money they borrowed from one
Jesus Lim the brother of Lim Tong Lim. Subsequently, they again
borrowed money for the purchase of fishing nets and other fishing
equipments. Yao and Chua represented themselves as acting in
behalf of Ocean Quest Fishing Corporation (OQFC) and they
contracted with Philippine Fishing Gear Industries (PFGI) for the
purchase of fishing nets amounting to more than P500k. However,
they were unable to pay PFGI and hence were sued in their own
names as Ocean Quest Fishing Corporation is a non-existent
corporation. Chua admitted his liability while Lim Tong Lim refused
such liability alleging that Chua and Yao acted without his knowledge
and consent in representing themselves as a corporation.
ISSUE: Whether Lim Tong Lim is liable as a partner
Held:
Even if the ostensible corporate entity is proven to be legally
nonexistent, a party may be estopped from denying its corporate
existence. The reason behind this doctrine is obvious an
unincorporated association has no personality and would be
incompetent to act and appropriate for itself the power and attributes
of a corporation as provided by law it cannot create agents or confer
authority on another to act in its behalf thus, those who act or purport
to act as its representatives or agents do so without authority and at
their own risk. And as it is an elementary principle of law that a person
who acts as an agent without authority or without a principal is himself
regarded as the principal, possessed of all the right and subject to all
the liabilities of a principal, a person acting or purporting to act on
behalf of a corporation which has no valid existence assumes
suchprivileges and obligations and becomes personally liable for
contracts entered into or for other acts performed as such agent.

The doctrine of corporation by estoppel may apply to the alleged

corporation and to a third party. 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.
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.
It is difficult to disagree with the RTC and the CA that Lim, Chua
and Yao decided to form a corporation. Although it was never legally
formed for unknown reasons, this fact alone does not preclude the
liabilities of the three as contracting parties in representation of it.
Clearly, 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.

International Express v. CA
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. The trial court ruled
against Kahn and held him personally liable for the said obligation
(PFF was declared in default for failing to file an answer). The trial
court ruled that Kahn failed to prove that PFF is a corporation. 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.

Republic v. City of Paranaque

Facts:
PRA which used to be PEA is a government corporation created
under presidential decree for the purpose of performing reclamation
activities. PRA was able to reclaim and obtain title of several portions
of the foreshore and offshore areas of Manila Bay, including those
located in Paraaque City. Sometime in 2003, Paranaque City
Treasurer issued a warrant of levy on some of these reclaimed
properties based on the assessment of delinquent real property taxes.
RTC rendered a decision that PRA is a GOCC and is therefore not
exempt from payment of real property taxes. Hence, PRA filed a
petition for certiorari. PRA alleged that they are not GOCC as they are
not stock corporation as they are not authorized to distribute dividends
and allotment of surplus and profits to its stockholders. They are
neither non-stock because it has no members and it is not organized
for charitable, religious, educational, and the like as provided in
Section 88 of the Corporation Code.

Furthermore, Section 16, Article XII of the Constitution states the

government-owned or controlled corporations created through special
charters are those that meet the twin requirement of common good
and economic viability which was lengthily discussed in the case of
Manila International Airport Authority v. Court of Appeals.
PRA was not organized either as a stock or a non-stock corporation.
Neither was it created by Congress to operate commercially and
compete in the private market. Instead, PRA is a government
instrumentality vested with corporate powers and performing an
essential public service pursuant to Section 2(10) of the Introductory
Provisions of the Administrative Code. Being an incorporated
government instrumentality, it is exempt from payment of real property
tax.

Issue:
Whether PRA is a GOCC and should pay real property taxes.
Held:
PRA is not a GOCC because it is neither a stock nor a non-stock
corporation. It cannot be considered as a stock corporation because
although it has a capital stock divided into no par value shares, it is
not authorized to distribute dividends, surplus allotments or profits to
stockholders.
PRA cannot be considered a non-stock corporation either because it
does not have members. A non-stock corporation must have
members. Moreover, it was not organized for any of the purposes
mentioned in Section 88 of the Corporation Code. Specifically, it was
created to manage all government reclamation projects.
Boy Scouts v. COA

Facts:
This case arose when the COA issued Resolution No. 99-011
"Defining the Commissions policy with respect to the audit of the Boy
Scouts of the Philippines." It was stated in the whereas clause of the
said resolution that BSP was created as a public corporation under
CA No. 111 as amended by PD 460 and RA 7278, that in the case
BSP vs NLRC it was constituted as government controlled
corporation, under the 1987 Administrative Code, it was regarded as
government instrumentality and as such it falls under COAs annual
financial audit.

Moreover, 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 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.

BSP opposed the said resolution contending that the ruling in the
case of BSP vs. NLRC classifying the BSP as a governmentcontrolled
corporation is anchored on the substantial Government participation
in the National Executive Board of the BSP but such was already
amended by RA 7278. Neither is BSP a government instrumentality
since it is not an entity administering funds and it is just an attached
agency.

The ownership and control test is likewise irrelevant for a public

corporation like the BSP. To reiterate, the relationship of the BSP, an
attached agency, to the government, through the DECS, is defined in
the Revised Administrative Code of 1987. The BSP meets the
minimum statutory requirement of an attached government agency as
the DECS Secretary sits at the BSP Board ex officio, thus facilitating
the policy and program coordination between the BSP and the DECS.

ISSUE:
Whether BSP is a public corporation thus falls under COAs audit
jurisdiction.
RULING:
After looking at the legislative history of its amended charter and
carefully studying the applicable laws and the arguments of both
parties, we find that the BSP is a public corporation and its funds are
subject to the COAs audit jurisdiction.
There are three classes of juridical persons under Article 44 of the
Civil Code and the BSP, as presently constituted under Republic Act
No. 7278, falls under the second classification which states that
juridical persons are (2) Other corporations, institutions and entities
for public interest or purpose created by law their personality begins
as soon as they have been constituted according to law
Evidently, the BSP, which was created by a special law to serve a
public purpose in pursuit of a constitutional mandate, comes within the
class of public corporations defined by paragraph 2, Article 44 of the
Civil Code and governed by the law which creates it, pursuant to
Article 45 of the same Code.

Veterans v. Reyes
FACTS:

Veterans was created under RA 2640. Sometime in 2002, Veterans

received from DND Secretary a letter stating that RA 2640 provides
DND the control and supervision of the federation and that they are
under the obligation to transmit either to the President or the secretary
of national defense of its proceedings and expenditure and that RA
3518 provides the affairs and business of the Philippine Veterans
Bank shall be directed and its property managed, controlled and
preserved by the Philippine Veterans Administrator, the President of
the Veterans Federation of the Philippines and the Secretary of
National Defense. In line with the said letter, DND issued Circular No.
04 for the implementation of RA 2640. Subsequently, a letter stating
about the management audit and thorough study of organization will
be conducted by DND was sent to Veterans.
Veterans, then filed a petition and prohibition. Petitioner claims that it
is not a public nor a governmental entity but a private organization,
and advances this claim to prove that the issuance of DND
Department Circular No. 04 is an invalid exercise of respondent
Secretarys control and supervision. Petitioner claims that its funds
are not public funds because no budgetary appropriations or
government funds have been released to the VFP directly or indirectly
from the DBM, and because VFP funds come from membership dues
and lease rentals earned from administering government lands
reserved for the VFP.
ISSUE:
Whether or not the VFPA is a private corporation.
RULING:

having itself believed that the VFP is a private corporation. If the DBM,
however, is mistaken as to its conclusion regarding the nature of
VFPs incorporation, its previous assertions will not prevent future
budgetary appropriations to the VFP. The erroneous application of the
law by public officers does not bar a subsequent correct application of
the law.
It is crystal clear that our constitutions explicitly prohibit the regulation
by special laws of private corporations, with the exception of
governmentowned or controlled corporations (GOCCs). Hence, it
would be impermissible for the law to grant control of the VFP to a
public official if it were neither a public corporation, an unincorporated
governmental entity, nor a GOCC.
Before responding to petitioners allegations one by one, here are the
more evident reasons why the VFP is a public corporation: (1) Rep.
Act No. 2640 is entitled An Act to Create a Public Corporation to be
Known as the Veterans Federation of the Philippines, Defining its
Powers, and for Other Purposes. (2) Any action or decision of the
Federation or of the Supreme Council shall be subject to the approval
of the Secretary of Defense. (3) The VFP is required to submit annual
reports of its proceedings for the past year, including a full, complete
and itemized report of receipts and expenditures of whatever kind, to
the President of the Philippines or to the Secretary of National
Defense. (4) Under Executive Order No. 37 dated 2 December 1992,
the VFP was listed as among the governmentowned and controlled
corporations that will not be privatized. (5) In Ang Bagong Bayani
OFW Labor Party v. COMELEC, this Court held in a minute resolution
that the VFP [Veterans Federation Party] is an adjunct of the
government, as it is merely an incarnation of the Veterans Federation
of the Philippines.

NO. The functions of the VFP are executive functions, designed to

implement not just the provisions of Rep. Act No. 2640, but also, and
more importantly, the Constitutional mandate for the State to provide
immediate and adequate care, benefits and other forms of assistance
to war veterans and veterans of military campaigns, their surviving
spouses and orphans and this is a sovereign function.

Since petitioner VFP is a public corporation. As such, it can be placed

under the control and supervision of the Secretary of National
Defense, who consequently has the power to conduct an extensive
management audit of Petitioner Corporation.

The fact that no budgetary appropriations have been released to the

VFP does not prove that it is a private corporation. The DBM indeed
did not see it fit to propose budgetary appropriations to the VFP,

Leyson v. Office of Ombudsman

Facts:

IITC, engaged in a shipping business, entered into a one year

contract with Legaspi, Granexport and UCPB, the three of which
comprises the CIIF. Under the terms of the contract both parties could
terminate the agreement provided a 3-month notice is given.
However, the new president of CIIF Toralba terminated the contract
without the requisite of advance notice. Hence, Leyson filed with the
Ombudsman a complaint for violation of the anti-graft and corrupt
practices against Toralba but it was dismissed on the ground that the
it has no jurisdiction to determine the legality of the contract since the
parties involved are private corporations.

Obviously, the below 51% shares of stock in LEGASPI OIL removes

this firm from the definition of a government owned or controlled
corporation. Our concern has thus been limited to GRANEXPORT and
UNITED COCONUT as we go back to the second requisite.
Unfortunately, it is in this regard that Leyson failed to substantiate his
contentions. There is no showing that GRANEXPORT and/or UNITED
COCONUT was vested with functions relating to public needs whether
governmental or proprietary in nature. The Court thus concludes that
the CIIF companies are, as found by Ombudsman, private
corporations not within the scope of its jurisdiction.

Leyson imputes grave abuse of discretion on Ombudsman in

dismissing the complaint alleging that coconut levy funds are public
funds and corporations formed and organized from those funds or
whose controlling stocks are from those funds should be regarded as
government owned and/or controlled corporations.
Issue:
Whether CIIF is a GOCC
Held:
Government Owned and Controlled Corporations (GOCC)
Requisites Any agency organized as a stock or nonstock corporation
vested with functions relating to public needs whether governmental
or proprietary in nature, and 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 fiftyone (51%)
percent of its capital stock.
The definition mentions three (3) requisites, namely, first, any agency
organized as a stock or nonstock 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 fiftyone (51) percent of its
capital stock.
In the present case, all three (3) corporations comprising the CIIF
companies were organized as stock corporations. The UCPBCIIF
owns 44.10% of the shares of LEGASPI OIL, 91.24% of the shares of
GRANEXPORT, and 92.85% of the shares of UNITED COCONUT.15

Dante v. Gordon
FACTS:

This case is an offshoot of a petition filed to Declare Richard J.

Gordon as Having Forfeited His Seat in the Senate since he accepted
the chairmanhip of PNRC board of directors as provided in Section
13, Article VI of the Constitution, which reads: No Senator or Member
of the House of Representatives may hold any other office or
employment in the Government, or any subdivision, agency, or
instrumentality thereof, including government-owned or controlled
corporations or their subsidiaries xxxx. The Court held that
respondent did not forfeit his seat in the Senate when he accepted the
chairmanship of the PNRC Board of Governors, as the office of the
PNRC Chairman is not a government office or an office in a
governmentowned or controlled corporation for purposes of the
prohibition in the said article of the constitution.
ISSUE:
Whether or not the office of the PNRC Chairman is a government
office or an office in a government-owned or controlled corporation for
purposes of the prohibition in Section 13, Article VI of the Constitution.
RULING:
NO. PNRC is a Private Organization Performing Public Functions.
The Republic of the Philippines, adhering to the Geneva Conventions,
established the PNRC as a voluntary organization for the purpose
contemplated in the Geneva Convention of 27 July 1929. The PNRC
must not appear to be an instrument or agency that implements
government policy otherwise, it cannot merit the trust of all and
cannot effectively carry out its mission as a National Red Cross
Society. It is imperative that the PNRC must be autonomous, neutral,
and independent in relation to the State.To ensure and maintain its
autonomy, neutrality, and independence, the PNRC cannot be owned
or controlled by the government. Indeed, the Philippine government
does not own the PNRC. The PNRC does not have government
assets and does not receive any appropriation from the Philippine
Congress. The PNRC is financed primarily by contributions from
private individuals and private entities obtained through solicitation
campaigns organized by its Board of Governors.The government
does not control the PNRC. Under the PNRC Charter, as amended,
only six of the thirty members of the PNRC Board of Governors are
appointed by the President of the Philippines.

The PNRC is not government-owned but privately owned. The vast

majority of the thousands of PNRC members are private individuals,
including students. Under the PNRC Charter, those who contribute to
the annual fund campaign of the PNRC are entitled to membership in
the PNRC for one year. Thus, the PNRC is a privately owned,
privately funded, and privately run charitable organization. Hence, the
office of the PNRC Chairman is not a government office or an office in
a government-owned or controlled corporation for purposes of the
prohibition in Section 13, Article VI of the 1987 Constitution. However,
since the PNRC Charter is void insofar as it creates the PNRC as a
private corporation, the PNRC should incorporate under the
Corporation Code and register with the Securities and Exchange
Commission if it wants to be a private corporation.
The passage of several laws relating to the PNRCs corporate
existence notwithstanding the effectivity of the constitutional
proscription on the creation of private corporations by law, is a
recognition that the PNRC is not strictly in the nature of a private
corporation contemplated by the aforesaid constitutional ban. A closer
look at the nature of the PNRC would show that there is none like it
not just in terms of structure, but also in terms of history, public
service and official status accorded to it by the State and the
international community. There is merit in PNRCs contention that its
structure is sui generis. Same Same The sui generis character of
Philippine National Red Cross (PNRC) requires us to approach
controversies involving the PNRC on a casetocase basis.Although it
is neither a subdivision, agency, or instrumentality of the government,
nor a governmentowned or controlled corporation or a subsidiary
thereof, as succinctly explained in the Decision of July 15, 2009, so
much so that respondent, under the Decision, 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.
As correctly mentioned by Justice Roberto A. Abad, the sui generis
character of PNRC requires us to approach controversies involving
the PNRC on a casetocase basis.
Feliciano v. COA
Facts:

COA audited the account of LMW. Thereafter, LMW was asked to pay
by COA for the auditing fees but LMW but refused to do and even
asked for the refund of the previous auditing payment it has made
with COA. It maintained that LWDs are not governmentowned and
controlled corporations with original charters. Petitioner even argues
that LWDs are private corporations. Petitioner theorizes that what PD
198 created was the Local Waters Utilities Administration (LWUA)
and not the LWDs. Petitioner claims that LWDs are created pursuant
to and not created directly by PD 198. Thus, petitioner concludes that
PD 198 is not an original charter that would place LWDs within the
audit jurisdiction of COA.
Issue:
Whether a Local Water District (LWD) created under PD 198, as
amended, is a governmentowned or controlled corporation subject to
the audit jurisdiction of COA
Held:
Congress cannot 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.
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 [A]ll corporations organized under this code shall file
with the Securities and Exchange Commission 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 Securities and
Exchange Commission. The local mayor or the provincial governor
appoints the directors of LWDs for a fixed term of office.

LWDs exist by virtue of PD 198, which constitutes their special

charter. Since under the Constitution only governmentowned or
controlled corporations may have special charters, LWDs can validly
exist only if they are governmentowned or controlled. To claim that
LWDs are private corporations with a special charter is to admit that
their existence is constitutionally infirm.

The Constitution and existing laws4 mandate COA to audit all

government agencies, including governmentowned and controlled
corporations (GOCCs) with original charters. An LWD is a GOCC
with an original charter. Section 2(1), Article IXD of the Constitution
provides for COAs audit jurisdiction,
The COAs audit jurisdiction extends not only to government agencies
or instrumentalities, but also to governmentowned and controlled
corporations with original charters as well as other governmentowned or controlled corporations without original charters.