NAGA-PEMA vs NASECO DIGEST

NASECO GUARDS ASSOCIATION-PEMA (NAGA-PEMA), Petitioner vs NATIONAL SERVICE CORPORATION (NASECO), Respondent.   G.R. No. 165442;  August 25, 2010

FACTS:

Respondent National Service Corporation (NASECO) is a wholly-owned subsidiary of the PNB organized under the Corporation Code in 1975.  It supplies security and manpower services to different clients such as the SEC, PDIC, Food Terminal Incorporated, Forex Corporation and PNB.  Petitioner NASECO Guards Association-PEMA (NAGA-PEMA) is the collective bargaining representative of the regular rank and file security guards of respondent.  NASECO Employees Union-PEMA (NEMU-PEMA) is the collective bargaining representative of the regular rank and file (non-security) employees of respondent such as messengers, janitors, typists, clerks and radio-telephone operators.

On June 8, 1995, petitioner and respondent agreed to sign a CBA on non-economic terms. On September 24, 1996, petitioner filed a notice of strike because of respondent’s refusal to bargain for economic benefits in the CBA.  Following conciliation hearings, the parties again commenced CBA negotiations and started to resolve the issues on wage increase, productivity bonus, incentive bonus, allowances, and other benefits but failed to reach an agreement.

Meanwhile, respondent and NEMU-PEMA entered into a CBA on non-economic terms.  Unfortunately, a dispute among the leaders of NEMU-PEMA arose and at a certain point, leadership of the organization was unclear.  Hence, the negotiations concerning the economic terms of the CBA were put on hold until the internal dispute could be resolved.

On April 29, 1997, petitioner filed a notice of strike before the NCMB against respondent and PNB due to a bargaining deadlock.  The following day, NEMU-PEMA likewise filed a notice of strike against respondent and PNB on the ground of ULP.  Efforts by the NCMB to conciliate failed. DOLE Secretary assumed jurisdiction over the strike notices. DOLE Secretary issued a Resolution directing petitioner and respondent to execute a new CBA incorporating therein his dispositions regarding benefits of the employees. The charge of ULP against respondent and PNB was dismissed.

Respondent filed a petition for certiorari before the CA questioning the DOLE Secretary’s order. CA partly granted the petition and ruled that a recomputation and reevaluation of the benefits awarded was in order. Petitioner was not in favor with the result of the recomputation. Hence this petition.

ISSUE:

WON PNB, being the undisputed owner of and exercising control over respondent, should be made liable to pay the CBA benefits awarded to the petitioner.

RULING:

1. Petitioner argues that the CA erred in stating that respondent was a company operating at a loss and therefore cannot be expected to act generously and confer upon its employees additional benefits exceeding what is mandated by law.  It is the petitioner’s position that based on the “no loss, no profit” policy of respondent with PNB, respondent in truth has no “pocket” of its own and is, in effect, 1 and the same with PNB with regard to financial gains and/or liabilities.  Thus, petitioners contend that the CBA benefits should be shouldered by PNB considering the poor financial condition of respondent.

What the petitioner is asking this Court to do is to pierce the veil of corporate fiction of respondent and hold PNB (being the mother company) liable for the CBA benefits. In Concept Builders, Inc. v. NLRC, we explained the doctrine of piercing the corporate veil, as follows:

It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected. But, this separate and distinct personality of a corporation is merely a fiction created by law for convenience and to promote justice. So, when the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, this separate personality of the corporation may be disregarded or the veil of corporate fiction pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation.

Also in Pantranco Employees Association (PEA-PTGWO) v. NLRC, this Court ruled:

            Whether the separate personality of the corporation should be pierced hinges on obtaining facts appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with caution, albeit the Court will not hesitate to disregard the corporate veil when it is misused or when necessary in the interest of justice. After all, the concept of corporate entity was not meant to promote unfair objectives.

Applying the doctrine to the case at bar, we find no reason to pierce the corporate veil of respondent and go beyond its legal personality.  Control, by itself, does not mean that the controlled corporation is a mere instrumentality or a business conduit of the mother company. Even control over the financial and operational concerns of a subsidiary company does not by itself call for disregarding its corporate fiction. There must be a perpetuation of fraud behind the control or at least a fraudulent or illegal purpose behind the control in order to justify piercing the veil of corporate fiction.  Such fraudulent intent is lacking in this case.

There is no showing that such “no loss, no profit” scheme between respondent and PNB was implemented to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, nor does the scheme show that respondent is a mere business conduit or alter ego of PNB.  Absent proof of these circumstances, respondent’s corporate personality cannot be pierced.

It is apparent that petitioner wants the Court to disregard the corporate personality of respondent and directly go after PNB in order for it to collect the CBA benefits.  On the same breath, however, petitioner argues that ultimately it is PNB, by virtue of the “no loss, no profit” scheme, which shoulders and provides the funds for financial liabilities of respondent including wages and benefits of employees.  If such scheme was indeed true as the petitioner presents it, then there was absolutely no need to pierce the veil of corporate fiction of respondent.  

WHEREFORE, the petition is PARTLY GRANTED.

FROM ATTY. BALIMBING^^

PP vs. TAN BOON KONG DIGEST

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellant, vs. TAN BOON KONG, defendant-appellee., G.R. No. 32652, 1930 Mar 15

FACTS:

On and during the four quarters of the year 1924, in Municipality of Iloilo, Province of Iloilo, the defendant, as manager of the Visayan General Supply Co., Inc., a corporation organized under the laws of the Philippine Islands and engaged in the purchase and sale of sugar, `bayon,’ coprax, and other native products and as such subject to the payment of internal-revenue taxes upon its sales, declared in 1924 for purpose of taxation only the sum of P2,352,761.94, when in truth and in fact, and the accused knew that the total gross sales of said corporation during that year amounted to P2,543,303.44, thereby failing to declare P190,541.50, and voluntarily not paying the percentage taxes the sum of P2,960.12, corresponding to 1½ per cent of said undeclared sales.

ISSUE: WON the defendant, as manager of the corporation, is criminally liable for violation of the tax law for the benefit of said corporation.

RULING:

A corporation can act only through its officers and agents, and where the business itself involves a violation of the law, all who participate in it are liable

In case of State vs. Burnam (71 Wash., 199), the court hold that the manager of a dairy corporation was criminally liable for the violation of a statute by the corporation though he was not present when the offense was committed.

In the present case the information alleges that the defendant was the manager of a corporation which was engaged in business as a merchant, and as such manager, he made a false return, for purposes of taxation, of the total amount of sales made by said corporation during the year 1924. As the filing of such false return constitutes a violation of law, the defendant, as the author of the illegal act, must necessarily answer for its consequences, provided that the allegations are proven.

The ruling of the court below sustaining the demurrer to the complaint is therefore reversed, and the case will be returned to said court for further proceedings not inconsistent with our view as hereinbefore stated.

“G” HOLDINGS vs. NAMAWU ET AL DIGEST

G.R. No. 160236               October 16, 2009

“G” HOLDINGS, INC., Petitioner, 
vs.
NATIONAL MINES AND ALLIED WORKERS UNION Local 103 (NAMAWU); SHERIFFS RICHARD H. APROSTA and ALBERTO MUNOZ, all acting Sheriffs; DEPARTMENT OF LABOR AND EMPLOYMENT, Region VI, Bacolod District Office, Bacolod City, Respondents.

FACTS: The petitioner, “G” Holdings, Inc. (GHI), bought ninety percent (90%) of MMC’s shares and financial claims. These financial claims were converted into three Promissory Notes issued by MMC in favor of GHI totaling P500M and secured by mortgages over MMC’s properties. National Mines and Allied Workers Union Local 103 (NAMAWU), was the exclusive bargaining agent of the rank and file employees of Maricalum Mining Corporation (MMC).

GHI immediately took physical possession of the mine site and its facilities, and took full control of the management and operation of MMC.

Almost four years thereafter, or on August 23, 1996, a labor dispute (refusal to bargain collectively and unfair labor practice) arose between MMC and NAMAWU

ISSUE: WON the Deed of Real Estate and Chattel Mortgage was entered into between MMC and G Holdings for the purpose of evading the satisfaction of the legitimate claims of the petitioner against MMC.

HELD: No

Since the factual antecedents of this case do not warrant a finding that the mortgage and loan agreements between MMC and GHI were simulated, then their separate personalities must be recognized. To pierce the veil of corporate fiction would require that their personalities as creditor and debtor be conjoined, resulting in a merger of the personalities of the creditor (GHI) and the debtor (MMC) in one person, such that the debt of one to the other is thereby extinguished. But the debt embodied in the 1992 Financial Notes has been established, and even made subject of court litigation (Civil Case No. 95-76132, RTC Manila). This can only mean that GHI and MMC have separate corporate personalities.

Neither was MMC used merely as an alter ego, adjunct, or business conduit for the sole benefit of GHI, to justify piercing the former’s veil of corporate fiction so that the latter could be held liable to claims of third-party judgment creditors, like NAMAWU.

Time and again, we have reiterated that mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not, by itself, a sufficient ground for disregarding a separate corporate personality.

It is basic that a corporation has a personality separate and distinct from that composing it as well as from that of any other legal entity to which it may be related. Clear and convincing evidence is needed to pierce the veil of corporate fiction.

In this case, the mere interlocking of directors and officers does not warrant piercing the separate corporate personalities of MMC and GHI. Not only must there be a showing that there was majority or complete 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. The mortgage deed transaction attacked as a basis for piercing the corporate veil was a transaction that was an offshoot, a derivative, of the mortgages earlier constituted in the Promissory Notes dated October 2, 1992. But these Promissory Notes with mortgage were executed by GHI with APT in the name of MMC, in a full privatization process. It appears that if there was any control or domination exercised over MMC, it was APT, not GHI, that wielded it. Neither can we conclude that the constitution of the loan nearly four (4) years prior to NAMAWU’s notice of strike could have been the proximate cause of the injury of NAMAWU for having been deprived of MMC’s corporate assets.

JARDINE DAVIES INC. vs. CA and FAR EAST MILLS DIGEST

JARDINE DAVIES INC., petitioner, vs. COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.    GRN 128066  June 19, 2000

PURE FOODS CORPORATION, petitioner, vs. COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.   GRN  128069   June 19, 2000

FACTS:

In 1992, petitioner PUREFOODS decided to install two 1500 KW generators in its food processing plant in San Roque, Marikina City. A bidding for the supply and installation of the generators was held. Out of the 8 prospective bidders who attended the pre-bidding conference, only 3 bidders, namely, respondent FAR EAST MILLS SUPPLY CORPORATION (FEMSCO), MONARK and ADVANCE POWER submitted bid proposals and gave bid bonds.

In a letter dated 12 December 1992 addressed to FEMSCO President Alfonso Po, PUREFOODS confirmed the award of the contract to FEMSCO. FEMSCO submitted the required performance bond in the amount of P1,841,187.90 and contractor’s all-risk insurance policy in the amount of P6,137,293.00 which PUREFOODS through its VP Benedicto G. Tope acknowledged in a letter dated 18 December 1992.

However, in a letter dated 22 December 1992, PUREFOODS through its Senior VP Teodoro L. Dimayuga unilaterally canceled the award as “significant factors were uncovered and brought to their attention which dictate the cancellation and warrant a total review and re-bid of the project. FEMSCO protested the cancellation of the award. Before the matter could be resolved, PUREFOODS awarded the project and entered into a contract with JARDINE NELL, a division of Jardine Davies, Inc. (JARDINE), which was not one of the bidders.

FEMSCO sued PUREFOODS and JARDINE: PUREFOODS for reneging on its contract, and JARDINE for its unwarranted interference and inducement.

RTC- Pasig, granted JARDINE’s Demurrer to Evidence. The RTC ordered PUREFOODS to indemnify FEMSCO. FEMSCO and PUREFOODS appealed to CA. FEMSCO appealed the  Resolution of the trial court which granted the Demurrer to Evidence filed by JARDINE resulting in the dismissal of the complaint against it.

CA affirmed the Decision of the trial court. It also reversed the Resolution of the lower court and ordered JARDINE to pay FEMSCO moral damages for inducing PUREFOODS to violate the latter’s contract with FEMSCO. CA denied MR. Hence, these 2 petitions for review.

ISSUE: WON FEMSCO should be awarded with Moral Damages.

RULING:

YES. Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror. From that moment, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. The acceptance must not qualify the terms of the offer. However, the acceptance may be express or implied. For a contract to arise, the acceptance must be made known to the offeror. Acceptance can be withdrawn or revoked before it is made known to the offeror.

In the instant case, since PUREFOODS started the process of entering into the contract by conducting a bidding, Art. 1326 of the Civil Code, which provides that “advertisements for bidders are simply invitations to make proposals,” applies.  

The 12 December 1992 letter of petitioner PUREFOODS to FEMSCO constituted acceptance of respondent FEMSCO’s offer as contemplated by law. The tenor of the letter, i.e., “This will confirm that Pure Foods has awarded to your firm (FEMSCO) the project,” could not be more categorical. While the same letter enumerated certain “basic terms and conditions,” these conditions were imposed on the performance of the obligation rather than on the perfection of the contract.

But even granting arguendo that the 12 December 1992 letter of petitioner PUREFOODS constituted a “conditional counter-offer,” respondent FEMCO’s submission of the performance bond and contractor’s all-risk insurance was an implied acceptance, if not a clear indication of its acquiescence to, the “conditional counter-offer,”

Petitioner PUREFOODS also argues that it was never in bad faith. But by the unilateral cancellation of the contract, the defendant (petitioner PURE FOODS) has acted with bad faith and this was further aggravated by the subsequent inking of a contract between defendant Purefoods and erstwhile co-defendant Jardine. It is very evident that Purefoods thought that by the expedient means of merely writing a letter would automatically cancel or nullify the existing contract entered into by both parties after a process of bidding. This, to the Court’s mind, is a flagrant violation of the express provisions of the law and is contrary to fair and just dealings to which every man is due.

This Court has awarded in the past moral damages to a corporation whose reputation has been besmirched. In the instant case, respondent FEMSCO has sufficiently shown that its reputation was tarnished after it immediately ordered equipment from its suppliers on account of the urgency of the project, only to be canceled later. We thus sustain respondent appellate court’s award of moral damages. We however reduce the award from P2Mto P1M, as moral damages are never intended to enrich the recipient. Likewise, the award of exemplary damages by way of example for the public good is excessive and should be reduced to P100,000.00.

Petitioner JARDINE maintains on the other hand that respondent appellate court erred in ordering it to pay moral damages to respondent FEMSCO as it supposedly induced PUREFOODS to violate the contract with FEMSCO. We agree. While it may seem that petitioners PUREFOODS and JARDINE connived to deceive respondent FEMSCO, we find no specific evidence on record to support such perception. There is no showing whatsoever that petitioner JARDINE induced petitioner PUREFOODS. The similarity in the design submitted to petitioner PUREFOODS by both petitioner JARDINE and respondent FEMSCO, and the tender of a lower offer by petitioner JARDINE are insufficient to show that petitioner JARDINE indeed induced petitioner PUREFOODS to violate its contract with respondent FEMSCO.

INTERNATIONAL EXPRESS TRAVEL vs. CA ET AL DIGEST

INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner, vs. HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION, respondents.,    

G.R. No. 119002

2000 Oct 19.

FACTS:

On June 30 1989, petitioner, through its managing director, wrote a letter to the Philippine Football Federation (Federation), through its president private respondent Henri Kahn, wherein the former offered its services as a travel agency to the latter. The offer was accepted.

Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation to the South East Asian Games in Kuala Lumpur as well as various other trips to China and Brisbane.  The total cost of the tickets amounted to P449,654.83.  The Federation made two partial payments, both in September of 1989, in the total amount of P176,467.50.

On 4 October 1989, petitioner wrote the Federation, through the private respondent a demand letter requesting for the amount of P265,894.33. On 30 October 1989, the Federation, through the Project Gintong Alay, paid the amount of P31,603.00.

On 27 December 1989, Henri Kahn issued a personal check in the amount of P50,000 as partial payment for the outstanding balance of the Federation. No further payments were made despite repeated demands.

Petitioner to filed a civil case before RTC- Manila.  Petitioner sued Henri Kahn in his personal capacity and as President of the Federation and impleaded the Federation as an alternative defendant.  Petitioner sought to hold Henri Kahn liable for the unpaid balance for the tickets purchased by the Federation on the ground that Henri Kahn allegedly guaranteed the said obligation.

Henri Kahn  averred that the petitioner has no cause of action against him either in his personal capacity or in his official capacity as president of the Federation because he did not guarantee payment but merely acted as an agent of the Federation which has a separate and distinct juridical personality. The Federation failed to file its answer, hence, was declared in default by the trial court.

The trial court ruled in favor of the petitioner and declared Henri Kahn  personally liable for the unpaid obligation of the Federation. CA reversed the trial court. Hence this Petition.

ISSUE: WON the doctrine of corporation by estoppel applies in this case.

RULING:

1. CA cited RA 3135 (Revised Charter of the Philippine Amateur Athletic Federation), and PD 604 as the laws from which said Federation derives its existence. Both R.A. 3135 and P.D. No. 604 recognized the juridical existence of national sports associations.  These laws granted to national sports associations certain powers and functions which clearly indicate that these entities may acquire a juridical personality.  Among these powers is the power to purchase, sell, lease and encumber property which are acts that may only be done by persons, whether natural or artificial, with juridical capacity.  

However, while we agree with the appellate court that national sports associations may be accorded corporate status, such does not automatically take place by the mere passage of these laws. It is a basic postulate that before a corporation may acquire juridical personality, the State must give its consent either in the form of a special law or a general enabling act.  

We cannot agree with the view of the CA and the private respondent that the Philippine Football Federation came into existence upon the passage of these laws.  Nowhere can it be found in R.A. 3135 or P.D. 604 any provision creating the Philippine Football Federation.  These laws merely recognized the existence of national sports associations and provided the manner by which these entities may acquire juridical personality.  

The said laws require that before an entity may be considered as a national sports association, such entity must be recognized by the accrediting organization, the Philippine Amateur Athletic Federation under R.A. 3135, and the Department of Youth and Sports Development under P.D. 604.  This fact of recognition, however, Henri Kahn failed to substantiate.  In attempting to prove the juridical existence of the Federation, Henri Kahn attached to his MR before the trial court a copy of the constitution and by-laws of the Philippine Football Federation.  Unfortunately, the same does not prove that said Federation has indeed been recognized and accredited by either the Philippine Amateur Athletic Federation or the Department of Youth and Sports Development.  We rule that the Philippine Football Federation is not a national sports association within the purview of the aforementioned laws and does not have corporate existence of its own.

It follows that private respondent Henry Kahn should be held liable for the unpaid obligations of the unincorporated Philippine Football Federation.  It is a settled principle in corporation law that 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. As president of the Federation, Henri Kahn  is presumed to have known about the corporate existence or non-existence of the Federation.  

We do not agree with the position taken by the CA that even assuming that the Federation was defectively incorporated, the petitioner cannot deny the corporate existence of the Federation because it had contracted and dealt with the Federation in such a manner as to recognize and in effect admit its existence. The doctrine of corporation by estoppel is mistakenly applied by the respondent court to the petitioner.  The application of the doctrine 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, the petitioner is not trying to escape liability from the contract but rather is the one claiming from the contract.

WHEREFORE, the decision appealed from is REVERSED and SET ASIDE.  

LOZANO vs. DE LOS SANTOS AND ANDA DIGEST

G.R. No. 125221 June 19, 1997

REYNALDO M. LOZANO, petitioner, 
vs.
HON. ELIEZER R. DE LOS SANTOS, Presiding Judge, RTC, Br. 58, Angeles City; and ANTONIO ANDA,respondents.

FACTS: On December 19, 1995, petitioner Reynaldo M. Lozano filed Civil Case No. 1214 for damages against respondent Antonio Anda before the Municipal Circuit Trial Court (MCTC), Mabalacat and Magalang, Pampanga. Petitioner alleged that he was the president of the Kapatirang Mabalacat-Angeles Jeepney Drivers’ Association, Inc. (KAMAJDA) while respondent Anda was the president of the Samahang Angeles-Mabalacat Jeepney Operators’ and Drivers’ Association, Inc. (SAMAJODA); 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); 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.

ISSUE: WON the issue is an intra-corporate dispute, properly falling under the jurisdiction of the SEC(now RTC)

HELD: NOT intra-corporate. 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 first element requires that the controversy must arise out of intracorporate or partnership relations between and among stockholders, members, or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the State in so far as it concerns their individual franchises. The second element requires that the dispute among the parties be intrinsically connected with the regulation of the corporation, partnership or association or deal with the internal affairs of the corporation, partnership or association.

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. It had not been approved by the SEC, neither had its officers and members submitted their articles of consolidation is accordance with Sections 78 and 79 of the Corporation Code. Consolidation becomes effective not upon mere agreement of the members but only upon issuance of the certificate of consolidation by the SEC. 

NOTE:

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, neither can it be conferred by the acquiescence of the court.

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 person. 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.

 

CIR VS. THE CLUB FILIPINO, INC. DE CEBU DIGEST

G.R. No. L-12719             May 31, 1962

THE COLLECTOR OF INTERNAL REVENUE, petitioner, 
vs.
THE CLUB FILIPINO, INC. DE CEBU, respondent.

FACTS: The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from the government), and a bar-restaurant where it sells wines and liquors, soft drinks, meals and short orders to its members and their guests. The bar-restaurant was a necessary incident to the operation of the club and its golf-course. The club is operated mainly with funds derived from membership fees and dues. Whatever profits it had, were used to defray its overhead expenses and to improve its golf-course. In 1951. as a result of a capital surplus, arising from the re-valuation of its real properties, the value or price of which increased, the Club declared stock dividends; but no actual cash dividends were distributed to the stockholders. In 1952, a BIR agent discovered that the Club has never paid percentage tax on the gross receipts of its bar and restaurant. CIR assessed against and demanded from the Club taxes allegedly due.

ISSUE: WON Club Filipino is liable for the taxes (WON it is a stock corporation)

HELD: No (it is non-stock)

The Club was organized to develop and cultivate sports of all class and denomination for the healthful recreation and entertainment of its stockholders and members.  There was in fact, no cash dividend distribution to its stockholders and whatever was derived on retail from its bar and restaurants used were to defray its overhead expenses and to improve its golf course.

For a stock corporation to exist, 2 requisites must be complied with:

(1) A capital stock divided into shares

(2) An authority to distribute to the holders of such shares, dividends or allotments of the surplus profits on the basis of shares held.

In the case at bar, nowhere in the AOI or by-laws of Club Filipino could be found an authority for the distribution of its dividends or surplus profits. Strictly speaking, it cannot, therefore, be considered a stock corporation, within the contemplation of the corporation law.

The fact that the capital stock of the respondent Club is divided into shares, does not detract from the finding of the trial court that it is not engaged in the business of operator of bar and restaurant. What is determinative of whether or not the Club is engaged in such business is its object or purpose, as stated in its articles and by-laws. It is a familiar rule that the actual purpose is not controlled by the corporate form or by the commercial aspect of the business prosecuted, but may be shown by extrinsic evidence, including the by-laws and the method of operation.

It is conceded that the Club derived profit from the operation of its bar and restaurant, but such fact does not necessarily convert it into a profit-making enterprise. The bar and restaurant are necessary adjuncts of the Club to foster its purposes and the profits derived therefrom are necessarily incidental to the primary object of developing and cultivating sports for the healthful recreation and entertainment of the stockholders and members. That a Club makes some profit, does not make it a profit-making Club. As has been remarked a club should always strive, whenever possible, to have surplus

Concept Builders vs NLRC DIGEST

Concept Builders vs NLRC

GR 108734; 29 May 1996

Facts:

Petitioner Concept Builders, Inc., a domestic corporation engaged in the construction business. Private respondents were employed by said company as laborers, carpenters and riggers. However, they were illegally dismissed.

Aggrieved, private respondents filed a complaint for illegal dismissal. The Labor Arbiter rendered judgment ordering petitioner to reinstate private respondents and to pay them back wages. It became final and executory.

The alias Writ of Execution cannot be enforced by the sheriff because all the employees inside petitioner’s premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by petitioner. Thus, NLRC issued a break-open order against Concept Builders and HPPI.

Issue:  Whether the piercing the veil of corporate entity is proper.

Held: Yes.

It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected. But, this separate and distinct personality of a corporation is merely a fiction created by law for convenience and to promote justice. So, when the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, this separate personality of the corporation may be disregarded or the veil of corporate fiction pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation.

The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and circumstances of each case. No hard and fast rule can be accurately laid down, but certainly, there are some probative factors of identity that will justify the application of the doctrine of piercing the corporate veil, to wit:

1. Stock ownership by one or common ownership of both corporations.

2. Identity of directors and officers.

3. The manner of keeping corporate books and records.

4. Methods of conducting the business.

The SEC en banc explained the “instrumentality rule” which the courts have applied in disregarding the separate juridical personality of corporations as follows:

Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the “instrumentality” may be disregarded. The control necessary to invoke the rule is not majority or even complete stock control but such domination of instances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. It must be kept in mind that the control must be shown to have been exercised at the time the acts complained of took place. Moreover, the control and breach of duty must proximately cause the injury or unjust loss for which the complaint is made.

The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as 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 plaintiff’s legal rights; and

3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

The absence of any one of these elements prevents “piercing the corporate veil.” In applying the “instrumentality” or “alter ego” doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant’s relationship to that operation. 

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.

PSPCA VS. COA DIGEST

PHILIPPINE SOCIETY FOR THE PREVENTION OF CRUELTY TO ANIMALS vs. COA. G.R. No. 169752 September 25, 2007

FACTS:

The petitioner was incorporated as a juridical entity over one hundred years ago by virtue of Act No. 1285, enacted on January 19, 1905, by the Philippine Commission.  The petitioner, at the time it was created, was composed of animal aficionados and animal propagandists.  The objects of the petitioner, as stated in Section 2 of its charter, shall be to enforce laws relating to cruelty inflicted upon animals or the protection of animals in the Philippine Islands, and generally, to do and perform all things which may tend in any way to alleviate the suffering of animals and promote their welfare.  

At the time of the enactment of Act No. 1285, the original Corporation Law, Act No. 1459, was not yet in existence.  Act No. 1285 antedated both the Corporation Law and the constitution of the SEC.

For the purpose of enhancing its powers in promoting animal welfare and enforcing laws for the protection of animals, the petitioner was initially imbued under its charter with the power to apprehend violators of animal welfare laws.  In addition, the petitioner was to share 1/2 of the fines imposed and collected through its efforts for violations of the laws related thereto.           

Subsequently, however, the power to make arrests as well as the privilege to retain a portion of the fines collected for violation of animal-related laws were recalled by virtue of C.A. No. 148. Whereas, the cruel treatment of animals is now an offense against the State, penalized under our statutes, which the Government is duty bound to enforce;

When the COA was to perform an audit on them they refuse to do so, by the reason that they are a private entity and not under the said commission. It argued that COA covers only government entities. On the other hand the COA decided that it is a government entity.

ISSUE: WON the said petitioner is a private entity.

RULING:

YES. First, the Court agrees with the petitioner that the “charter test” cannot be applied.   Essentially, the “charter test” provides that 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 CSC, and are compulsory members of the GSIS.

And since the “charter test” had been introduced by the 1935 Constitution and not earlier, it follows that the test cannot apply to the petitioner, which was incorporated by virtue of Act No. 1285, enacted on January 19, 1905.  Settled is the rule that laws in general have no retroactive effect, unless the contrary is provided.  All statutes are to be construed as having only a prospective operation, unless the purpose and intention of the legislature to give them a retrospective effect is expressly declared or is necessarily implied from the language used.  In case of doubt, the doubt must be resolved against the retrospective effect.  

        Second, a reading of petitioner’s charter shows that it is not subject to control or supervision by any agency of the State, unlike GOCCs.  No government representative sits on the board of trustees of the petitioner.  Like all private corporations, the successors of its members are determined voluntarily and solely by the petitioner in accordance with its by-laws, and may exercise those powers generally accorded to private corporations, such as the powers to hold property, to sue and be sued, to use a common seal, and so forth.  It may adopt by-laws for its internal operations: the petitioner shall be managed or operated by its officers “in accordance with its by-laws in force.”  

        Third.  The employees of the petitioner are registered and covered by the SSS at the latter’s initiative, and not through the GSIS, which should be the case if the employees are considered government employees.  This is another indication of petitioner’s nature as a private entity.  

        Fourth.  The respondents contend that the petitioner is a “body politic” because its primary purpose is to secure the protection and welfare of animals which, in turn, redounds to the public good. This argument, is not tenable.  The fact that a certain juridical entity is impressed with public interest does not, by that circumstance alone, make the entity a public corporation, inasmuch as a corporation may be private although its charter contains provisions of a public character, incorporated solely for the public good.  This class of corporations may be considered quasi-public corporations, which are private corporations that render public service, supply public wants, or pursue other eleemosynary objectives.  While purposely organized for the gain or benefit of its members, they are required by law to discharge functions for the public benefit.  Examples of these corporations are utility, railroad, warehouse, telegraph, telephone, water supply corporations and transportation companies.  It must be stressed that a quasi-public corporation is a species of private corporations, but the qualifying factor is the type of service the former renders to the public: if it performs a public service, then it becomes a quasi-public corporation.

Authorities are of the view that the purpose alone of the corporation cannot be taken as a safe guide, for the fact is that almost all corporations are nowadays created to promote the interest, good, or convenience of the public.  A bank, for example, is a private corporation; yet, it is created for a public benefit.  Private schools and universities are likewise private corporations; and yet, they are rendering public service.  Private hospitals and wards are charged with heavy social responsibilities.  More so with all common carriers.  On the other hand, there may exist a public corporation even if it is endowed with gifts or donations from private individuals.  

The true criterion, therefore, to determine whether a corporation is public or private is found in the totality of the relation of the corporation to the State.  If the corporation is created by the State as the latter’s own agency or instrumentality to help it in carrying out its governmental functions, then that corporation is considered public; otherwise, it is private.  Applying the above test, provinces, chartered cities, and barangays can best exemplify public corporations.  They are created by the State as its own device and agency for the accomplishment of parts of its own public works.

        Fifth.  The respondents argue that since the charter of the petitioner requires the latter to render periodic reports to the Civil Governor, whose functions have been inherited by the President, the petitioner is, therefore, a government instrumentality.  

        This contention is inconclusive.  By virtue of the fiction that all corporations owe their very existence and powers to the State, the reportorial requirement is applicable to all corporations of whatever nature, whether they are public, quasi-public, or private corporations—as creatures of the State, there is a reserved right in the legislature to investigate the activities of a corporation to determine whether it acted within its powers.  In other words, the reportorial requirement is the principal means by which the State may see to it that its creature acted according to the powers and functions conferred upon it.  

PALTING vs. SAN JOSE PETROLEUM INC DIGEST

G.R. No. L-14441      December 17, 1966

PEDRO R. PALTING, petitioner, 
vs.
SAN JOSE PETROLEUM INCORPORATED, respondent.

FACTS: On September 7, 1956, SAN JOSE PETROLEUM filed with the Philippine Securities and Exchange Commission a sworn registration statement, for the registration and licensing for sale in the Philippines Voting Trust Certificates representing 2,000,000 shares of its capital stock of a par value of $0.35 a share, at P1.00 per share.

It was alleged that the entire proceeds of the sale of said securities will be devoted or used exclusively to finance the operations of San Jose Oil Company, Inc. (a domestic mining corporation hereafter to be referred to as SAN JOSE OIL) which has 14 petroleum exploration concessions covering an area of a little less than 1,000,000 hectares, located in the provinces of Pangasinan, Tarlac, Nueva Ecija, La Union, Iloilo, Cotabato, Davao and Agusan.

SAN JOSE PETROLEUM filed an amended Statement on June 20, 1958, for registration of the sale in the Philippines of its shares of capital stock, which was increased from 2,000,000 to 5,000,000, at a reduced offering price of from P1.00 to P0.70 per share. At this time the par value of the shares has also been reduced from $.35 to $.01 per share.

Pedro R. Palting and others, allegedly prospective investors in the shares of SAN JOSE PETROLEUM, filed with the Securities and Exchange Commission an opposition to registration and licensing of the securities on the grounds that (1) the tie-up between the issuer, SAN JOSE PETROLEUM, a Panamanian corporation and SAN JOSE OIL, a domestic corporation, violates the Constitution of the Philippines, the Corporation Law and the Petroleum Act of 1949; (2) the issuer has not been licensed to transact business in the Philippines; (3) the sale of the shares of the issuer is fraudulent, and works or tends to work a fraud upon Philippine purchasers; and (4) the issuer as an enterprise, as well as its business, is based upon unsound business principles.

ISSUE: (apat to, isa lang kinuha ko) Whether or not the “tie-up” between the respondent SAN JOSE PETROLEUM, a foreign corporation, and SAN JOSE OIL COMPANY, INC., a domestic mining corporation, is violative of the Constitution, the Laurel-Langley Agreement, the Petroleum Act of 1949, and the Corporation Law

HELD:

Established Facts:

• SAN JOSE OIL, is a domestic mining corporation, 90% of the outstanding capital stock of which is owned by respondent SAN JOSE PETROLEUM, a foreign (Panamanian) corporation, the majority interest of which is owned by OIL INVESTMENTS, Inc., another foreign (Panamanian) company. This latter corporation in turn is wholly (100%) owned by PANTEPEC OIL COMPANY, C.A., and PANCOASTAL PETROLEUM COMPANY, C.A., both organized and existing under the laws of Venezuela.
• As of September 30, 1956, there were 9,976 stockholders of PANCOASTAL PETROLEUM found in 49 American states and U.S. territories, holding 3,476,988 shares of stock; whereas, as of November 30, 1956, PANTEPEC OIL COMPANY was said to have 3,077,916 shares held by 12,373 stockholders scattered in 49 American state. In the two lists of stockholders, there is no indication of the citizenship of these stockholders,7 or of the total number of authorized stocks of each corporation, for the purpose of determining the corresponding percentage of these listed stockholders in relation to the respective capital stock of said corporation.

There could be no serious doubt as to the meaning of the word “citizens” used in the aforementioned provisions of the Constitution.

The right was granted to 2 types of persons: natural persons (Filipino or American citizens) and juridical persons (corporations 60% of which capital is owned by Filipinos and business enterprises owned or controlled directly or indirectly, by citizens of the United States).

These concepts clarified, is herein respondent SAN JOSE PETROLEUM an American business enterprise entitled to parity rights in the Philippines? The answer must be in the negative, for the following reasons:

Firstly — It is not owned or controlled directly by citizens of the United States, because it is owned and controlled by a corporation, the OIL INVESTMENTS, another foreign (Panamanian) corporation.

Secondly — Neither can it be said that it is indirectly owned and controlled by American citizens through the OIL INVESTMENTS, for this latter corporation is in turn owned and controlled, not by citizens of the United States, but still by two foreign (Venezuelan) corporations, the PANTEPEC OIL COMPANY and PANCOASTAL PETROLEUM.

Thirdly — Although it is claimed that these two last corporations are owned and controlled respectively by 12,373 and 9,979 stockholders residing in the different American states, there is no showing in the certification furnished by respondent that the stockholders of PANCOASTAL or those of them holding the controlling stock, are citizens of the United States.

Fourthly — Granting that these individual stockholders are American citizens, it is yet necessary to establish that the different states of which they are citizens, allow Filipino citizens or corporations or associations owned or controlled by Filipino citizens, to engage in the exploitation, etc. of the natural resources of these states (see paragraph 3, Article VI of the Laurel-Langley Agreement, supra). Respondent has presented no proof to this effect.

Fifthly — But even if the requirements mentioned in the two immediately preceding paragraphs are satisfied, nevertheless to hold that the set-up disclosed in this case, with a long chain of intervening foreign corporations, comes within the purview of the Parity Amendment regarding business enterprises indirectly owned or controlled by citizens of the United States, is to unduly stretch and strain the language and intent of the law. For, to what extent must the word “indirectly” be carried? Must we trace the ownership or control of these various corporations ad infinitum for the purpose of determining whether the American ownership-control-requirement is satisfied? Add to this the admitted fact that the shares of stock of the PANTEPEC and PANCOASTAL which are allegedly owned or controlled directly by citizens of the United States, are traded in the stock exchange in New York, and you have a situation where it becomes a practical impossibility to determine at any given time, the citizenship of the controlling stock required by the law. In the circumstances, we have to hold that the respondent SAN JOSE PETROLEUM, as presently constituted, is not a business enterprise that is authorized to exercise the parity privileges under the Parity Ordinance, the Laurel-Langley Agreement and the Petroleum Law. Its tie-up with SAN JOSE OIL is, consequently, illegal.

FOR ALL THE FOREGOING CONSIDERATIONS, the motion of respondent to dismiss this appeal, is denied and the orders of the Securities and Exchange Commissioner, allowing the registration of Respondent’s securities and licensing their sale in the Philippines are hereby set aside. The case is remanded to the Securities and Exchange Commission for appropriate action in consonance with this decision. With costs. Let a copy of this decision be furnished the Solicitor General for whatever action he may deem advisable to take in the premises. So ordered.