FOUR ATTRIBUTES

BIBIANO O. REYNOSO, IV vs. HON. COURT OF APPEALS and GENERAL CREDIT CORPORATION
GR No. 116124-25 22 November 2000
FACTS:
In the early 1960s, the Commercial Credit Corporation (CCC), a financing and investment firm, decided
to organize franchise companies in different parts of the country, wherein it would hold 30% equity.
Employees of the CCC were designated as resident managers of the franchise companies. Bibiano O.
Reynoso, IV (petitioner) was designated as the resident manager of the franchise company in Quezon
City, known as the Commercial Credit Corporation of Quezon City (CCC-QC).

CCC-QC entered into an exclusive management contract with CCC whereby the latter was granted
the management and full control of the business activities of the former. Under the contract, CCC-
QC shall sell, discount and/or assign its receivables to CCC. Subsequently, however, this
discounting arrangement was discontinued pursuant to the so-called "DOSRI Rule", prohibiting
the lending of funds by corporations to its directors, officers, stockholders and other persons
with related interests therein.

What is the DOSRI Rule?

The Dosri rule limits the loans and guarantees that can be granted by a bank to a single director, officer,
stockholder or related interest to an amount equivalent to his unencumbered deposits or the book value of his paid-
in capital contribution to the bank.

DOSRI stands for: directors, officers, stockholders, and their related interests

On account of the new restrictions imposed by the Central Bank policy by virtue of the DOSRI Rule,
CCC decided to form CCC Equity Corporation, a wholly-owned subsidiary, to which CCC
transferred its 30% equity in CCC-QC, together with two seats in the latter’s Board of Directors.

Under the new set-up, several officials of CCC, including Reynoso, became employees of CCC-
Equity. While Reynoso continued to be the Resident Manager of CCC-QC, he drew his salaries and
allowances from CCC-Equity. Furthermore, although an employee of CCC-Equity, Reynoso, as well as all
employees of CCC-QC, became qualified members of the CCC Employees Pension Plan.

As Resident Manager of CCC-QC, Reynoso oversaw the operations of CCC-QC and supervised its
employees. The business activities of CCC-QC pertain to the acceptance of funds from depositors who
are issued interest-bearing promissory notes. The amounts deposited are then loaned out to various
borrowers. Reynoso, in order to boost the business activities of CCC-QC, deposited his personal
funds in the company. In return, CCC-QC issued to him its interest-bearing promissory notes.

In 1980, a COMPLAINT FOR SUM OF MONEY WITH PRELIMINARY ATTACHMENT was instituted in
the CFI of Rizal by CCC-QC against Reynoso, who had in the meantime been dismissed from his
employment by CCC-Equity. The complaint was subsequently amended in order to include Hidelita Nuval,
petitioner’s wife, as a party defendant.
- The complaint alleged that he embezzled the funds of CCC-QC amounting to P1,300,593.11. Out of this
amount, at least P630,000 was used for the purchase of a house and lot in Pasig City. The property was
mortgaged to CCC, and was later foreclosed.
- Reynoso denied this in his answer and asserted that the sum of P1,300,593.11 represented his money
placements in CCC-QC, as shown by 23 checks which he issued to the said company.
RTC-QC: The case was subsequently transferred to RTC-QC. In 1985, the trial court dismissed the complaint for
lack of merit. By reason of the complaint, Reynoso suffered degradation, humiliation and mental anguish therefore
the Court ordered the corporation to pay the defendant the sum of P186,000 plus 14% interest per annum,
P3,639,470.82 plus interest at the rate of 14% per annum, and damages.
IAC: Both parties appealed to the Intermediate Appellate Court. The appeal of CCC of QC was dismissed for
failure to pay docket fees. Reynoso withdrew his appeal.

Execution: Hence the decision became final and a Writ of Execution was issued. However, the
judgment remained unsatisfied, prompting Reynoso to file a Motion for Alias Writ of Execution,
Examination of Judgment Debtor and to Bring Financial Records for Examination to Court. CCC-
QC filed an Opposition to Reynoso’s motion, alleging that the possession of its premises and records had
been taken over by CCC.

In 1983, CCC became known as General Credit Corporation (GCC).

In 1991, RTC of QC issued an Order directing GCC to file its comment on Reynoso’s motion for alias writ of
execution. GCC filed a Special Appearance and Opposition alleging that it was not a party to the case and the
claim should be directed against CCC-QC and not GCC. Reynoso filed his reply, stating that CCC-QC is an
adjunct instrumentality, conduit and agency of CCC. He invoked the decision of the SEC in SEC Case No. 2581
(Aveline G. Ramoso, et al. v. General Credit Corp) where it was declared that GCC, CCC-Equity and other franchised
companies including CCC-QC were declared as one corporation.
RTC-QC ordered the issuance of an alias writ of execution. GCC filed an Omnibus Motion, alleging that SEC Case
No. 2581 was still pending appeal, and maintaining that the levy on properties of the GCC by the deputy sheriff of the
court was erroneous. Reynoso insisted that GCC is the new name of CCC, hence they should be treated as one
entity. In 1992, RTC-QC denied the Omnibus Motion. It issued an Order directing the issuance of an alias writ of
execution.
GCC filed a complaint before RTC of Pasig against Reynoso and Tanangco, in his capacity as Deputy Sheriff of QC,
praying that the levy on its parcel of land located in Pasig, Metro Manila and covered by TCT No. 29940 be declared
null and void, and that defendant sheriff be enjoined from consolidating ownership over the land and from further
levying on other properties of GCC. RTC of Pasig did not issue a TRO. Thus, GCC instituted 2 petitions for certiorari
with the CA.

CA: In 1994, CA rendered the refusal to issue a TRO moot and enjoined Reynoso and the sheriff from
conducting an auction sale.

ISSUES: Whether GCC as a corporation is separate and distinct from CCC-QC can raise the defense of
corporate fiction. / Whether the judgment in favor of Reynoso may be executed against General Credit
Corporation.

GCC claims: it is a corporation separate and distinct from CCC-QC and therefore its properties may not
be levied upon to satisfy the monetary judgment in favor of Reynoso.

Reynoso: CCC-QC is an adjunct instrumentality, conduit and agency of CCC/GCC.

RULING: YES. According to the Supreme Court, this raises the application of DOCTRINE OF PIERCING
THE VEIL OF CORPORATE ENTITY.
"Piercing the corporate veil" refers to a situation in which courts put aside limited liability and hold a
corporation's shareholders or directors personally liable for the corporation's actions or debts.

There is NO LONGER any controversy over Reynoso’s claims against his former employer, CCC-QC
 as the decision of RTC-QC has long become final.

A corporation is an artificial being created by operation of law, having the right of succession and the
powers, attributes, and properties expressly authorized by law or incident to its existence. It is an
artificial being invested by law with a personality separate and distinct from those of the persons
composing it as well as from that of any other legal entity to which it may be related. It was evolved
to make possible the aggregation and assembling of huge amounts of capital upon which big business
depends. It also has the advantage of non-dependence on the lives of those who compose it even
as it enjoys certain rights and conducts activities of natural persons.

Any piercing of the corporate veil has to be done with caution. However, the court will not hesitate to use
its supervisory and adjudicative powers where the corporate fiction is used as an unfair device to achieve
an inequitable result, defraud creditors, evade contracts and obligations, or to shield it from the effects of
a court decision. The corporate fiction has to be disregarded when necessary in the interest of
justice.
First Philippine International Bank v. CA: When the fiction is urged as a means of perpetrating a fraud or an illegal
act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or
perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers
and isolates the corporation from the members or stockholders who compose it will be lifted to allow for
its consideration merely as an aggregation of individuals.
Cases for the Court to pierce the veil of corporate fiction:
a. To avoid a judgment credit
b. To avoid inclusion of corporate asset as part of the estate of a decedent
c. To avoid liability arising from debt
d. When made use of as a shield to perpetrate fraud and/or confuse legitimate issues; or
e. To promote unfair objectives or otherwise to shield them
Tomas Lao Construction v. NLRC: The legal fiction of a corporation being a judicial entity with 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 the law.

The defense of separateness will be disregarded when the business affairs of a subsidiary corporation
are so controlled by the mother corporation to the extent that it becomes an instrument or agent of its
parent. But even when there is dominance over the affairs of the subsidiary, the doctrine of piercing the
veil of corporate fiction applies ONLY when such fiction is used to defeat public convenience, justify
wrong, protect fraud or defend crime.

It is obvious that the use by CCC-QC of the same name of CCC was intended to publicly identify it as a
component of the CCC group of companies engaged in one and the same business (investment and
financing). The organization of subsidiary corporations as what was done here is usually resorted to for
aggrupation of capital, the ability to cover more territory and population, the decentralization of activities
best decentralized, and the securing of other legitimate advantages. But when the mother corporation
and its subsidiary cease to act in good faith and honest business judgment, when the corporate
device is used by the parent to avoid its liability for legitimate obligations of the subsidiary, and
when the corporate fiction is used to perpetrate fraud or promote injustice, the law steps in to
remedy the problem. When that happens, the corporate character is not necessarily abrogated. It
continues for legitimate objectives. However, it is pursued in order to remedy injustice, such as that
inflicted in this case.
Factually and legally, the CCC had dominant control of the business operations of CCC-QC. The
exclusive management contract insured that CCC-QC would be managed and controlled by CCC and
would not deviate from the commands of the mother corporation. In addition to the exclusive management
contract, CCC appointed its own employee, petitioner, as the resident manager of CCC-QC. Reynoso’s
designation as “resident manager” implies that he was placed in CCC-QC by a superior authority.

As narrated above, the discounting agreements through which CCC controlled the finances of its
subordinates became unlawful when Central Bank adopted the DOSRI prohibitions. Under this rule the
directors, officers, and stockholders are prohibited from borrowing from their company. Instead of
adhering to the letter and spirit of the regulations by avoiding DOSRI loans altogether, CCC used the
corporate device to continue the prohibited practice. CCC organized still another corporation, the CCC-
Equity Corporation. However, as a wholly owned subsidiary, CCC-Equity was in fact only another name
for CCC. Key officials of CCC, including the resident managers of subsidiary corporations, were
appointed to positions in CCC-Equity.

In order to circumvent the Central Bank’s disapproval of CCC-QC’s mode of reducing its DOSRI lender
accounts and its directive to follow Central Bank requirements, resident managers, including petitioner,
were told to observe a pseudo-compliance with the phasing out orders. For his unwillingness to
satisfactorily conform to these directives and his reluctance to resort to illegal practices, petitioner earned
the ire of his employers. Eventually, his services were terminated, and criminal and civil cases were filed
against him.

If the corporate fiction is sustained, it becomes a handy deception to avoid a judgment debt and work
an injustice. A court judgment becomes useless and ineffective if the employer, in this case CCC
as a mother corporation, is placed beyond the legal reach of the judgment creditor who, after
protracted litigation, has been found entitled to positive relief. Courts have been organized to put an
end to controversy. This purpose should not be negated by an inapplicable and wrong use of the
fiction of the corporate veil.

CONCLUSION: Decision of the CA is reversed and put aside. The injunction against the holding of an
auction sale of properties of GCC for the execution of the decision in the case, and the levying upon and
selling on execution of other properties of GCC, is lifted.

TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary

administrator-appellee vs. BENGUET CONSOLIDATED, INC.
GR No. L-23145 29 November 1968
FACTS:
Idonah Slade Perkins died while domiciled in New York on March 27, 1960. Because she has properties
both in New York and in the Philippines, a domiciliary administrator, the County Trust Company, was
appointed in New York by the New York courts, and an ancillary administrator, Lazaro Marquez,
substituted by Renato Tayag, was appointed in the Philippines by the Philippine courts.

A dispute arose between the domiciliary administrator in New York and the ancillary administrator in the
Philippines as to which of them was entitled to the possession of the two stock certificates covering
33,002 shares of stock standing in Perkin’s name, owned by the deceased in a Philippine
corporation, the Benguet Consolidated, Inc. Now then, to satisfy the legitimate claims of local
creditors, the Philippine ancillary administrator asked the New York administrator to “produce and
deposit” the two stock certificates. Although said New York administrator had the stock
certificates, he refused to surrender them despite the order of the Philippine court, prompting the
court to consider the stock certificates as LOST for all purposes in connection with the
administration of the deceased’s Philippine estate.

The court then ordered the Benguet Consolidated, Inc. to cancel said certificates and to issue new
certificates deliverable either to the ancillary administrator or to the Philippine probate court . The
company refused to issue the new certificates on the ground firstly, that after all, the old certificates still
really exist, although in the possession of the New York administrator; and secondly, that in the future, the
Company may be held liable for damages because of the presence of conflicting certificates.

Benguet Consolidated, Inc. filed an appeal challenging the order of the lower court.
- It contends that “it is immaterial” as far as it is concerned as to “who is entitled to the possession
of the stock certificates in question; appellant opposed the petition of the ancillary administrator
because the said stock certificates are in existence. It is its view that under the circumstances,
the stock certificates cannot be declared or considered as lost.
- Moreover, it would allege that there was a failure to observe certain requirements of its by-laws
before new stock certificates could be issued.

ISSUES: Should the company issue the new certificates?

RULING: YES.

The appeal lacks merit. The challenged order constitutes an emphatic affirmation of judicial authority
sought to be emasculated by the wilful conduct of the domiciliary administrator in refusing to accord
obedience to a court decree. How, then, can this order be stigmatized as illegal?

As is true of many problems confronting the judiciary, such a response was called for by the realities of
the situation. What cannot be ignored is that conduct bordering on wilful defiance, if it had not actually
reached it, cannot without undue loss of judicial prestige, be condoned or tolerated. For the law is not so
lacking in flexibility and resourcefulness as to preclude such a solution, the more so as deeper
reflection would make clear its being buttressed by indisputable principles and supported by the
strongest policy considerations.
- Thus did the lower court, in the order now on appeal, impart vitality and effectiveness to what was decreed.
For without it, what it had been decided would be set at naught and nullified. Unless such a blatant disregard
by the domiciliary administrator, with residence abroad, of what was previously ordained by a court order
could be thus remedied, it would have entailed, insofar as this matter was concerned, not a partial but a
well-nigh complete paralysis of judicial authority.

1. Benguet Consolidated, Inc. did not dispute the power of the appellee ancillary administrator to
gain control and possession of all assets of the decedent within the jurisdiction of the Philippines.
Nor could it. Such a power is inherent in his [ancillary administrator’s] duty to settle her
estate and satisfy the claims of local creditors.

2. Benguet Consolidated claims that the "lower court could not "consider as lost" the stock
certificates in question when, as a matter of fact, his Honor the trial Judge knew, and does know,
and it is admitted by the appellee, that the said stock certificates are in existence and are today in
the possession of the domiciliary administrator in New York."

There may be an element of fiction in the view of the lower court. That certainly does not
suffice to call for the reversal of the appealed order. Since there is a refusal, persistently
 adhered to by the domiciliary administrator in New York, to deliver the shares of stocks of
appellant corporation owned by the decedent to the ancillary administrator in the Philippines,
there was nothing unreasonable or arbitrary in considering them as lost and requiring the
appellant to issue new certificates in lieu thereof. Thereby, the task incumbent under the
law on the ancillary administrator could be discharged and his responsibility fulfilled.

It may be admitted of course that such alleged loss as found by the lower court did not
correspond exactly with the facts. To be more blunt, the quality of truth may be lacking in such a
conclusion arrived at. It is to be remembered however, again to borrow from Frankfurter, "that
fictions which the law may rely upon in the pursuit of legitimate ends have played an important
part in its development."

3. Benguet Consolidated’s invocation of one of the provisions of its by-laws to bolster its
contention is MISPLACED.
a. In the first place, there is no such occasion to apply such by-law. Assuming that a
contrariety exists between the above by-law and the command of a court decree,
the latter is to be followed.
b. Its fear of contingent liability with which it could be saddled unless the appealed order
be set aside for its inconsistency with one of its by-laws does not impress us. Its
obedience to a lawful court order certainly constitutes a valid defense, assuming that
such apprehension of a possible court action against it could possibly materialize. Thus
far, nothing in the circumstances as they have developed gives substance to such a fear.
Gossamer possibilities of a future prejudice to appellant do not suffice to nullify the lawful
exercise of judicial authority.

4. Benguet Consolidated’s view is fraught with implications at war with the basic postulates of
corporate theory. BUT we have to note that “a corporation is an artificial being created by
operation of law…” Thus a corporation “owes its existence to law”. (Fletcher).

A corporation as known to Philippine jurisprudence is a creature without any existence until it has
received the imprimatur of the state according to law. It is logically inconceivable therefore that it
will have rights and privileges of a higher priority than that of its creator. More than that, it cannot
legitimately refuse to yield obedience to acts of its state organs, certainly not excluding the
judiciary, whenever called upon to do so.

As a matter of fact, a corporation once it comes into being, comes more often within the ken of
the judiciary than the 2 coordinate branches. It institutes the appropriate court action to enforce its
right. Correlatively, it is not immune from judicial control in those instances, where a duty
under the law as ascertained in an appropriate legal proceeding is cast upon it.

5. The proposition of Benguet Consolidated of the reversal of the order must not succeed. It is
infinitely worse if through the absence of any coercive power by our courts over juridical
persons within our jurisdiction, the force and effectivity of their orders could be made to
depend on the whim or caprice of alien entities. It is difficult to imagine a situation more
offensive to the dignity of the bench or the honor of the country.

IN SHORT:
The company must issue the new certificates because of the following reasons:
 (a) While factually the old certificates still exist, the same may by judicial fiction be considered as
LOST — in view of the refusal of the New York administrator to surrender them, despite a lawful
order of our courts. To deny the remedy would be derogatory to the dignity of the Philippine
judiciary. The ancillary Philippine administrator is entitled to the possession of said certificates so
that he can perform his duty as such administrator. A contrary finding by any foreign court or
entity would be inimical to the honor of our country. After all, an administrator appointed in one
state has no power over property matters in another state. (Leon and Ghessi v. Manufacturer’s
Life Ins. Co., 99 Phil. 459 [1951]).
(b) The Company has nothing to fear about contingent liability should the new certificates be issued.
Its obedience to a lawful court order certainly constitutes a valid defense.

GOVERNMENT OWNED AND CONTROLLED CORPORATION (GOCC)

MANILA INTERNATIONAL AIRPORT AUTHORITY vs. CA, CITY OF PARANAQUE et al.

GR No. 155650 20 July 2006
FACTS:
Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA) Complex in
Parañaque City under Executive Order No. 903, otherwise known as the Revised Charter of the Manila
International Airport Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by then
President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 909 and 298 amended the MIAA Charter.

As operator of the Ninoy Aquino International Airport, MIAA administers the land, improvements and
equipment within the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600
hectares of land, including the runways and buildings then under the Bureau of Air Transportation.
The MIAA Charter further provides that no portion of the land transferred to MIAA shall be
disposed of through sale or any other mode unless specifically approved by the President of the
Philippines.

In 1997, the Office of the Government Corporate Counsel (OGCC) opined that the Local
Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA under
Section 21 of the MIAA Charter. MIAA negotiated with the CIty of Paranaque to pay the real estate
tax imposed by the City. MIAA then paid some of the real estate tax already due.

In 2001, the City of Paranaque sent Final Notices of Real Estate Tax Delinquency to MIAA for the
taxable years 1992 to 2001.
[Grand Total: P392,285,861.95 [tax due] + P232,0707,863.47 [penalty] = P624,506,725.42]

The City of Paranaque, through its City Treasurer, issued notices of levy and warrants of levy on the
Airport Lands and Buildings. The Mayor of the City of Parañaque threatened to sell at public
auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency.

MIAA sought clarification as to the opinion of OGCC, to which they pointed out that Section 206 of the
Local Government Code requires persons exempt from real estate tax to show proof of
exemption. The OGCC opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt
from real estate tax.
MIAA filed with CA an original petition for prohibition and injunction, with prayer for preliminary
injunction or TRO to restrain the City of Paranaque from imposing the real estate tax. However, CA
dismissed it for MIAA failed to file within the 60-day reglementary period. Motion for reconsideration was
also denied. Meanwhile, the City of Paranaque posted notices of auction sale.

A day before the auction, MIAA filed before the Supreme Court an Urgent Ex-Parte and Reiteratory
Motion for the Issuance of a TRO, which was then granted, but unfortunately the TRO was received by
the Paranaque City Officers 3 hours after the conclusion of the public auction. The SC issued a
Resolution confirming nunc pro tunc [now before then - applies retroactively] the TRO.

MIAA’s contention:
1. MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of
MIAA. HOWEVER, it points out that it cannot claim ownership over these properties since the real
owner of the Airport Lands and Buildings is the Republic of the Philippines. The MIAA Charter
mandates MIAA to devote the Airport Lands and Buildings for the benefit of the general public. Since the
Airport Lands and Buildings are devoted to public use and public service, the ownership of these properties
remains with the State. The Airport Lands and Buildings are thus inalienable and are not subject to real
estate tax by local governments.
2. Also, Section 21 of the MIAA Charter specifically exempts MIAA from the payment of real estate tax.
MIAA insists that it is also exempt from real estate tax under Section 234 of the Local Government Code
because the Airport Lands and Buildings are owned by the Republic.
3. Invokes the principle that the government cannot tax itself.

City of Paranaque’s contention:

1. They claim that MIAA is a GOCC (government owned and controlled corporation) therefore not exempt from
real estate tax, in accordance with Section 193 of the Local Government Code. Section 234(e) of the
LGC also withdrew the real estate tax exemption of GOCC.
2. A basic rule of statutory construction is that the express mention of one person, thing, or act excludes all
others. An international airport is not among the exceptions mentioned in Section 193 of the Local
Government Code. Thus, respondents assert that MIAA cannot claim that the Airport Lands and Buildings
are exempt from real estate tax.

ISSUE:
1. Whether the MIAA is an instrumentality of the government and not a government-owned and
controlled corporation and as such exempted from tax.
2. Whether the land and buildings of MIAA are part of the public dominion and thus cannot be the
subject of the levy and auction sale.

RULING: SC ruled that MIAA’s Airport Lands and Buildings are exempt from real estate tax imposed by
local governments.
1. Under the local government code, GOCCs are NOT exempted from real estate tax. However,
MIAA is not a GOCC, for to become one, MIAA should either be a stock or non-stock
corporation, according to Section 12(13) of the Introductory Provision of the Administrative
Code.
a. MIAA is not a stock corporation for it has no capital divided into shares . MIAA has no
stockholders or voting shares.
- A stock corporation is one whose "capital stock is divided into shares and x x x
authorized to distribute to the holders of such shares dividends x x x."
- MIAA has capital but not divided into shares of stock
b. It is not a non-stock corporation since it has no members .
 - Section 87 of the Corporation Code defines a non-stock corporation as "one where
no part of its income is distributable as dividends to its members, trustees or officers."
- A non-stock corporation must have members. Even if we assume that the
Government is considered as the sole member of MIAA, this will not make MIAA a
non-stock corporation. Non-stock corporations cannot distribute any part of their
income to their members.

MIAA is a government instrumentality vested with corporate powers and government

functions. MIAA is like any other government instrumentality, the only difference is that MIAA is
vested with corporate powers. Section 2(13) of the Introductory Provisions of the
Administrative Code of 1987 defines a government-owned or controlled corporation as follows:
SEC. 2. Of Introductory Provisions of the Administrative Code. General Terms Defined. –– x x x x
(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if not
all corporate powers, administering special funds, and enjoying operational autonomy, usually through
a charter. x x x

When the law vests in a government instrumentality corporate powers, the instrumentality does
not become a corporation. Unless the government instrumentality is organized as a stock or non-
stock corporation, it remains a government instrumentality exercising not only governmental but
also corporate powers. Thus, MIAA exercises the governmental powers of eminent domain,
police authority and the levying of fees and charges. At the same time, MIAA exercises “all the
powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent
with the provisions of this Executive Order.”

Likewise, when the law makes a government instrumentality operationally autonomous, the
instrumentality remains part of the National Government machinery although not integrated with
the department framework. The MIAA Charter expressly states that transforming MIAA into a
"separate and autonomous body" will make its operation more "financially viable."

Many government instrumentalities are vested with corporate powers but they do not become
stock or non-stock corporations, which is a necessary condition before an agency or
instrumentality is deemed a government-owned or controlled corporation.

Under the civil code, property may either be under public dominion or private ownership. Those
under public dominion are owned by the State and are utilized for public use, public service and
for the development of national wealth. When properties under public dominion cease to be for
public use and service, they form part of the patrimonial property of the State.

2. The court held that the land and buildings of MIAA are part of the public dominion. Since the
airport is devoted for public use, for domestic and international travel and transportation. Even if
MIAA charges fees, this is for support of its operation and for regulation and does not change the
character of the land and buildings of MIAA as part of the public dominion.

As part of the public dominion the land and buildings of MIAA are outside the commerce of man.
To subject them to levy and public auction is contrary to public policy. Unless the President
issues a proclamation withdrawing the airport land and buildings from public use, these properties
remain to be of public dominion and are inalienable. As long as the land and buildings are for
public use the ownership is with the Republic of the Philippines.
 ANTONIO M. CARANDANG vs. ANIANO A. DESIERTO
GR No. 148076 21 January 2011

FACTS:
Roberto S. Benedicto was a stockholder of Radio Philippines Network, Inc. (RPN), a private
corporation duly registered with the Securities and Exchange Commission (SEC).

In March 1986, the Government ordered the sequestration of RPN’s properties, assets, and business.

In November 1990, the Presidential Commission on Good Government (PCGG) entered into a
compromise agreement with Benedicto, whereby he ceded to the Government, through the PCGG, all his
shares of stock in RPN. Consequently, upon the motion of the PCGG, the Sandiganbayan directed the
president and corporate secretary of RPN to transfer to the PCGG Benedicto’s shares representing
72.4% of the total issued and outstanding capital stock of RPN.

In 1998, Antonio M. Carandang assumed office as general manager and chief operating officer of RPN .

In 1999, Carandang and other RPN officials were charged with grave misconduct before the
Ombudsman. The charge alleged that Carandang, in his capacity as the general manager of RPN, had
entered into a contract with AF Broadcasting Incorporated despite his being an incorporator, director, and
stockholder of that corporation;
- that he had thus held financial and material interest in a contract that had required the
approval of his office; and
- that the transaction was prohibited under Section 7(a) and Section 9 of Republic Act No. 6713
(Code of Conduct and Ethical Standards for Public Officials and Employees), thereby
rendering him administratively liable for grave misconduct.

Carandang sought the dismissal of the administrative charge on the ground that the Ombudsman had no
jurisdiction over him because RPN was not a government-owned or controlled corporation. The
Ombudsman suspended Carandang from his position in RPN.
- Carandang said he was no longer interested and had no further claim to his positions in RPN. He was
replaced by EDGAR SAN LUIS

In 2000, the Ombudsman found Carandang GUILTY of grave misconduct and ordered his
dismissal from service.

Carandang moved for reconsideration on 2 grounds:

a. The Ombudsman had no jurisdiction over him
b. He had no financial and material interest in the contract that required the approval of his office
The motion for reconsideration was DENIED. CA affirmed the decision of the Ombudsman.

ISSUE: Whether Carandang was a public official and Whether RPN was a government-owned or
controlled corporation.

RULING: NO.

Section 2 of Presidential Decree No. 2029 (Defining Government Owned or Controlled Corporations and
Identifying Their Role in National Development) states:
 Section 2. A government-owned or controlled corporation is a stock or a non-stock corporation,
whether performing governmental or proprietary functions, which is directly chartered by a special law
or it organized under the general corporation law is owned or…controlled by the government directly,
or indirectly through a parent corporation or subsidiary corporation, to the extent of at least a majority
of its outstanding capital stock or of its outstanding voting capital stock.

It is clear, therefore, that a corporation is considered a government-owned or controlled corporation

only when the Government directly or indirectly owns or controls at least a majority or 51% share
of the capital stock.

Consequently, RPN was neither a government owned nor controlled corporation because of the
Government’s total share in RPN’s capital stock being only 32.4%.

Parenthetically, although it is true that the Sandiganbayan (Second Division) ordered the transfer to the
PCGG of Benedicto’s shares that represented 72.4% of the total issued and outstanding capital stock of
RPN, such quantification of Benedicto’s shareholding cannot be…controlling in view of Benedicto’s timely
filing of a motion for reconsideration whereby he clarified and insisted that the shares ceded to the PCGG
had accounted for only 32.4%, not 72. 4% of RPN’s outstanding capital stock. With the extent of
Benedicto’s holdings in RPN…remaining unresolved with finality, concluding that the Government held
the majority of RPN’s capital stock as to make RPN a government-owned or controlled corporation would
be bereft of any factual and legal basis.

Even the PCGG and the Office of the President (OP) have recognized RPN’s status as being neither a
government-owned nor controlled corporation.

Lastly, the conclusion that Carandang was a public official by virtue of his having been appointed as
general manager and chief operating officer of RPN by Pres. Estrada deserves no consideration.
President Estrada’s intervention was merely to recommend Carandang’s designation as general manager
and chief operating officer of RPN to the PCGG, which then cast the vote in his favor vis-a-vis said
positions. Under the circumstances, it was RPN’s Board of Directors that appointed Carandang to his
positions pursuant to RPN’s By-Laws.

CENON S. CERVANTES vs. THE AUDITOR GENERAL

GR No. L-4043 26 May 1952

FACTS:
National Abaca and Other Fibers Corporation (NAFCO) was created by Commonwealth Act No. 332,
approved on June 18, 1939, with a capital stock of P20,000,000, 51% of which was to be able to be subscribed
by the National Government and the remainder to be offered to provincial, municipal, and the city
governments and to the general public. The management of the corporation was vested in a board of directors
of not more than 5 members appointed by the president of the Philippines with the consent of the Commission on
Appointments. But the corporation was made subject to the provisions of the corporation law in so far as
they were compatible with the provisions of its charter and the purposes of which it was created and was
to enjoy the general powers mentioned in the corporation law in addition to those granted in its charter .
The members of the board were to receive a per diem of not to exceed P30 for each day of meeting actually
attended, except the chairman of the board, who was to be at the same time the general manager of the
corporation and to receive a salary not to exceed P15,000 per annum.

On October 4, 1946, Republic Act No. 51 was approved authorizing the President of the Philippines, among
other things, to effect such reforms and changes in government owned and controlled corporations for the
 purpose of promoting simplicity, economy and efficiency in their operation. Pursuant to this authority, the
President on October 4, 1947, promulgated Executive Order No. 93 creating the Government Enterprises
Council to be composed of the President of the Philippines as chairman, the Secretary of Commerce and
Industry as vice-chairman, the chairman of the board of directors and managing heads of all such
corporations as ex-officio members, and such additional members as the President might appoint from
time to time with the consent of the Commission on Appointments. The council was to advise the President in the
exercise of his power of supervision and control over these corporations and to formulate and adopt such policy
and measures as might be necessary to coordinate their functions and activities. The Executive Order also
provided that the council was to have a Control Committee composed of the Secretary of Commerce and Industry
as chairman, a member to be designated by the President from among the members of the council as vice-
chairman and the secretary as ex-officio member, and with the power, among others —
(1) To supervise, for and under the direction of the President, all the corporations owned or controlled by the
Government for the purpose of insuring efficiency and economy in their operations;
(2) To pass upon the program of activities and the yearly budget of expenditures approved by the respective
Boards of Directors of the said corporations; and
(3) To carry out the policies and measures formulated by the Government Enterprises Council with the
approval of the President. (Sec. 3, Executive Order No. 93.)

With its controlling stock owned by the Government and the power of appointing its directors vested in the
President of the Philippines, there can be no question that the NAFCO is Government controlled
corporation subject to the provisions of Republic Act No. 51 and the executive order (No. 93) promulgated
in accordance therewith. Consequently, it was also subject to the powers of the Control Committee created in
said executive order, among which is the power of supervision for the purpose of insuring efficiency and economy
in the operations of the corporation and also the power to pass upon the program of activities and the yearly
budget of expenditures approved by the board of directors. It can hardly be questioned that under these powers
the Control Committee had the right to pass upon, and consequently to approve or disapprove, the resolution of
the NAFCO board of directors granting quarters allowance to the petitioners as such allowance necessarily
constitute an item of expenditure in the corporation's budget. That the Control Committee had good grounds for
disapproving the resolution is also clear, for, as pointed out by the Auditor General and the NAFCO auditor, the
granting of the allowance amounted to an illegal increase of petitioner's salary beyond the limit fixed in the
corporate charter and was furthermore not justified by the precarious financial condition of the corporation.

In 1949, Cenon S. Cervantes was the manager of National Abaca and Other Fibers Corporation
(NAFCO) with an annual salary of P15,000. By a resolution of the Board of Directors of NAFCO, he was
granted a quarters allowance of not exceeding P400 a month effective on the first of that month.

This allowance was disapproved by the Control Committee of the Government Enterprise Council on
the strength of the recommendation of the NAFCO auditor, concurred by the Auditor General that:
1. Quarters allowance constituted additional compensation prohibited by the charter of NAFCO,
which fixes the salary of the general manager thereof at the sum not to exceed P15,000 a year,
and
2. The precarious financial condition of the corporation did not warrant the granting of such
allowance

Cervantes asked the committee to reconsider its action and approve his claim for allowance, but was still
denied, highlighting the fact that the corporation’s finances had not improved. He then questioned the
validity of RA 51 which created the office that supervises the offices that recommended and decided the
disapproval of his allowance.

ISSUE: Whether Republic Act 51 is unconstitutional. And that Executive Order No. 93 is also null and
void as it is based on RA 51 which Cervantes claims to be unconstitutional.
- Republic Act No. 51 in authorizing the President of the Philippines, among others, to make
reforms and changes in government-controlled corporations, lays down a standard and policy that
the purpose shall be to meet the exigencies attendant upon the establishment of the free and
 independent government of the Philippines and to promote simplicity, economy and efficiency in
their operations.

RULING: NO. RA 51 is constitutional.

It is not an illegal delegation of legislative power to the executive as argued by the petitioner. It is a
mandate for the President to streamline Government-Owned and Controlled Corporations.

1. The rule in computation of the time for doing an act, the first day is excluded and the last day is
INCLUDED (Sec. 13, Rev. Ad. Code.) As the act was approved on October 4, 1946, and the
President was given a period of one year within which to promulgate his executive order and that
the order was in fact promulgated on October 4, 1947, it is obvious that under the above rule the
said executive order was promulgated within the period given.
2. The rule is that so long as the Legislature "lays down a policy and a standard is established by
the statute" there is no undue delegation. Republic Act No. 51 in authorizing the President of the
Philippines, among others, to make reforms and changes in government-controlled corporations,
lays down a standard and policy that the purpose shall be to meet the exigencies attendant upon
the establishment of the free and independent government of the Philippines and to promote
simplicity, economy and efficiency in their operations. The standard was set and the policy fixed.
The President had to carry the mandate. This he did by promulgating the executive order in
question which, tested by the rule above cited, does not constitute an undue delegation of
legislative power.
3. It is also contended that the quarters allowance is not compensation and so the granting of it to
the petitioner by the NAFCO board of directors does not contravene the provisions of the NAFCO
charter that the salary of the chairman of said board who is also to be general manager shall not
exceed P15,000 per anum. But regardless of whether quarters allowance should be considered
as compensation or not, the resolution of the board of the directors authorizing payment thereof
to the petitioner cannot be given effect since it was disapproved by the Control Committee in the
exercise of powers granted to it by Executive Order No. 93. And in any event, petitioner's
contention that quarters allowance is not compensation, a proposition on which American
authorities appear divided, cannot be insisted on behalf of officers and employees working for the
Government of the Philippines and its Instrumentalities, including, naturally, government-
controlled corporations. This is so because Executive Order No. 332 of 1941, which prohibits the
payment of additional compensation to those working for the Government and its
Instrumentalities, including government-controlled corporations, was in 1945 amended by
Executive Order No. 77 by expressly exempting from the prohibition the payment of quarters
allowance "in favor of local government officials and employees entitled to this under existing
law." The amendment is a clear indication that quarters allowance was meant to be included in
the term "additional compensation", for otherwise the amendment would not have expressly
excepted it from the prohibition. This being so, we hold that, for the purpose of the executive
order just mentioned, quarters allowance is considered additional compensation and, therefore,
prohibited.

Hence, the petition for review was dismissed by the Supreme Court.
 BASES CONVERSION AND DEVELOPMENT AUTHORITY vs. COMMISSIONER OF INTERNAL
REVENUE
GR No. 205925 20 June 2018

FACTS:
In 2010, Bases Conversion and Development Authority (BCDA) filed a petition for review with the
CTA in order to preserve its rights to claim its refund for Creditable Withholding Tax (CWT) in the amount
of P122,079,442.53, which was paid under protest from March 19, 2008 to October 8, 2008. The CWT
which BCDA paid under protest was in connection with its sale of the BCDA-allocated units as its share in
the Serendra Project pursuant to the Joint Development Agreement with Ayala Land, Inc.

The petition for review was filed with a Request for Exemption from the Payment of Filing Fees in the
amount of P1,209,457.90. The CTA denied BCDA’s Request for Exemption and ordered it to pay filing
fees.

BCDA filed a Petition for Review with CTA En Banc which petition was returned and not deemed filed
without the payment of the correct legal fees. The court emphasized that payment in full of docket fees
within the prescribed period is MANDATORY. It is an essential requirement without which the decision
appealed from would become final and executory as if no appeal had been filed. To repeat, in both
original and appellate cases, the court acquires jurisdiction over the case. Consequently, it is as if no
appeal was ever filed with the Supreme Court.

Undeterred, BCDA filed a Motion for Reconsideration but was likewise denied by the CTA En Banc in the
assailed Resolution.

ISSUE: Whether CTA erred in ruling that BCDA is not a government instrumentality, hence, not exempt
from payment of legal fees.

RULING: YES.

BCDA is a government instrumentality vested with corporate powers. As such, it is exempt from the
payment of docket fees required under Section 21, Rule 141 of the Rules of Court. Under Section 21,22
Rule 141 of the Rules of Court, agencies and instrumentalities of the Republic of the Philippines are
exempt from paying legal or docket fees. Hence, BCDA is exempt from the payment of docket fees.

BCDA is neither a stock nor a non-stock corporation. BCDA is a government instrumentality vested with
corporate powers.
 BOY SCOUTS OF THE PHILIPPINES vs. COMMISSION ON AUDIT
GR No. 177131 7 June 2011
FACTS:
The Commission on Audit issued COA Resolution No. 99-011 in which the said resolution state that the
BSP was created as a public corporation under Commonwealth Act No. 111, as amended by
Presidential Decree No. 460 and Republic Act No. 7278; that in Boy Scouts of the Philippines vs.
National Labor Relations Commission, the Supreme Court ruled that the BSP, as constituted under its
charter, was a “government-controlled corporation within the meaning of Article IX (B)(2)(1) of the
Constitution; and that “the BSP is appropriately regarded as a government instrumentality under the 1987
Administrative Code.”

The BSP sought reconsideration of the COA Resolution in a letter signed by the BSP National
President Jejomar Binay. He claimed that RA 7278 eliminated the “substantial government participation”
in the National Executive Board by removing: (i) the President of the Philippines and executive
secretaries, with the exception of the Secretary of Education, as members thereof; and (ii) the
appointment and confirmation power of the President of the Philippines, as Chief Scout, over the
members of the said Board.

The BSP further claimed that the 1987 Administrative Code itself, of which the BSP relied on for some
terms, defines government-owned and controlled corporations as agencies organized as stock or non-
stock corporations which the BSP, under its present charter, is not.

And finally, they claim that the Government, like in other GOCCs, does not have funds invested in the
BSP. The BSP is not an entity administering special funds. The BSP is neither a unit of the Government;
a department which refers to an executive department as created by law; nor a bureau which refers to
any principal subdivision or unit of any department.

ISSUE: Whether the BSP falls under the COA’s audit jurisdiction.

RULING: YES.

After considering the legislative history of the amended charter and the applicable laws and the
arguments of both parties, the Court found that the BSP is a public corporation and its funds are subject
to the COA’s audit jurisdiction.

The BSP Charter created the BSP as a “public corporation” to serve the following public interest or
purpose: xxx to promote through organization and cooperation with other agencies, the ability of boys to
do useful things for themselves and others, to train them in scout craft, and to inculcate in them
patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred virtues,
and moral values, using the method which are in common use by boy scouts.

The purpose of the BSP as stated in its amended charter shows that it was created in order to implement
a State policy declared in Article II, Section 13 of the Constitution. 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.

The Constitution emphatically prohibits the creation of private corporations except by a general law
applicable to all citizens. The purpose of this constitutional provision is to ban private corporations created
by special charters, which historically gave certain individuals, families or groups special privileges denied
to other citizens.

The BSP is a public corporation or a government agency or instrumentality with juridical

personality, which does not fall within the constitutional prohibition in Article XII, Section 16,
notwithstanding the amendments to its charter. Not all corporations, which are not government
owned or controlled, are ipso facto to be considered private corporations as there exist 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 test 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.

Since BSP, under its amended charter, continues to be a public corporation or a government
instrumentality, the Court concludes that it is subject to the exercise by the COA of its audit jurisdiction in
the manner consistent with the provisions of the BSP Charter.

SOLE PROPRIETORSHIP

ANITA MANGILA vs. COURT OF APPEALS and LORETA GUINA

GR No. 125027 12 August 2002
FACTS:
Anita Mangila is an exporter of seafoods and doing business under the name of Seafoods Products.
Loreta Guina is the President and General Manager of Air Swift International, a single registered
proprietorship engaged in the freight forwarding business.

In 1988, Mangila contracted the freight forwarding services of Guina for shipment of petitioner’s
products, such as crabs, prawns and assorted fishes, to Guam (USA) where Mangila maintained
an outlet. Mangila agreed to pay cash on delivery. Guina’s invoice stipulates a charge of 18% interest per
annum on all overdue accounts, and in case of suit, stipulates attorney’s fees equivalent to 25% of the
amount due plus costs of suit.

On the first shipment, Mangila requested 7 days within which to pay Guina. However, for the next three
shipments, March 17, 24 and 31, 1988, Mangila failed to pay Guina shipping charges amounting to
P109, 376.95.

Despite several demands, Mangila never paid. Thus, on June 10, 1988, Guina filed before the RTC
Pasay City an action for collection of a sum of money.

The Sheriff’s Return showed that summons was not served on Mangila. A woman found at Mangila’s
house informed the sheriff that Mangila transferred her residence to Sto. Nino, Guagua, Pampanga. The
sheriff found out further that Mangila had left the Philippines for Guam.

Thus, in 1988, construing Mangila’s departure from the Philippines as done with intent to defraud her
creditors, Guina filed a Motion for Preliminary Attachment, which the court subsequently granted. A Writ
of Preliminary Attachment was thereafter issued.
Through the assistance of the sheriff of RTC Pampanga, the Notice of Levy with the Order, Affidavit
and Bond was served on Mangila’s household help in San Fernando, Pampanga.

Mangila filed an Urgent Motion to Discharge Attachment without submitting herself to the jurisdiction of
the trial court. She pointed out that up to then, she had not been served a copy of the Complaint
and the summons. Hence, Mangila claimed the court had not acquired jurisdiction over her person.

After the hearing on the motion, RTC granted the same upon the filing of Mangila’s counter-bond. The
trial court, however, did not rule on the question of jurisdiction and on the validity of the writ of preliminary
attachment.

Thereafter, Guina applied for an alias summons and on January 26, 1989, summons was finally served
on Mangila.

Mangila’s Contetion: Mangila moved for the dismissal of the case on the ground of improper venue,
claiming that as stipulated in the invoice of Guina’s freight services, the venue in case a complaint
is filed would be in Makati and not Pasay.

Guina explained: that although “Makati” appears as the stipulated venue, the same was merely an
inadvertence by the printing press whose general manager executed an affidavit admitting such
inadvertence. Moreover, Guina claimed that Mangila knew that Guina was holding office in Pasay City
and not in Makati.

The RTC gave credence to Guina’s Opposition, denied the Motion to Dismiss, and gave Mangila 5 days
to file her Answer. Mangila filed an MR but this too was denied. Thus, she filed her Answer maintaining
her contention that the venue was improperly laid.

The case was set for pre-trial. Meanwhile, Guina filed a Motion to Sell Attached Properties but the trial court denied
the motion.

On motion of Mangila, the RTC reset the pre-trial but Mangila failed to appear on the rescheduled date. Without
declaring Mangila to be in default, the court allowed Guina to present evidence ex parte. Mangila filed an MR of the
order terminating the pre-trial, and argued that there was no order declaring him in default and that his attorney was
only late but not absent during the rescheduled pre-trial.

Nevertheless, the RTC ruled in favor of Guina and ordered petitioner to pay respondent P109,376.95 plus 18%
interest per annum, 25 percent attorney’s fees and costs of suit. Mangila appealed to the CA while Guina filed a
Motion for Execution Pending Appeal but the trial court denied the same.

The CA affirmed the RTC decision. The Court of Appeals upheld the validity of the issuance of the writ of attachment
and sustained the filing of the action in the RTC of Pasay. The Court of Appeals also affirmed the declaration of
default on petitioner and concluded that the trial court did not commit any reversible error.

ISSUE: Whether the Preliminary Attachment is valid.

RULING: YES.
1. There was no proper service of summons and the writ of attachment

In the case of Light & Power Co., Inc. v. Court of Appeals, this Court clarified the actual time
when jurisdiction should be had:
 “It goes without saying that whatever be the acts done by the Court prior to the acquisition of
jurisdiction over the person of defendant – issuance of summons, order of attachment and
writ of attachment – these do not and cannot bind and affect the defendant until and unless
jurisdiction over his person is eventually obtained by the court, either by service on him of
summons or other coercive process or his voluntary submission to the court’s authority.
Hence, when the sheriff or other proper officer commences implementation of the writ of
attachment, it is essential that he serve on the defendant not only a copy of the applicant’s
affidavit and attachment bond, and of the order of attachment, as explicitly required by
Section 5 of Rule 57, but also the summons addressed to said defendant as well as a copy of
the complaint xxx.”

Furthermore, we have held that the grant of the provisional remedy of attachment involves three
stages: first, the court issues the order granting the application; second, the writ of attachment
issues pursuant to the order granting the writ; and third, the writ is implemented. For the initial two
stages, it is not necessary that jurisdiction over the person of the defendant be first obtained.
However, once the implementation of the writ commences, the court must have acquired
jurisdiction over the defendant for without such jurisdiction, the court has no power and authority
to act in any manner against the defendant. Any order issued by the Court will not bind the
defendant.

2. The venue was improper.

The Rules of Court provide that parties to an action may agree in writing on the venue on which
an action should be brought. However, a mere stipulation on the venue of an action is not enough
to preclude parties from bringing a case in other venues. The parties must be able to show that
such stipulation is exclusive. Thus, absent words that show the parties’ intention to restrict the
filing of a suit in a particular place, courts will allow the filing of a case in any venue, as long as
jurisdictional requirements are followed. Venue stipulations in a contract, while considered valid
and enforceable, do not as a rule supersede the general rule set forth in Rule 4 of the Revised
Rules of Court. In the absence of qualifying or restrictive words, they should be considered
merely as an agreement on additional forum, not as limiting venue to the specified place.

In the instant case, the stipulation does not limit the venue exclusively to Makati. There are no
qualifying or restrictive words in the invoice that would evince the intention of the parties that
Makati is the “only or exclusive” venue where the action could be instituted. We therefore agree
with the private respondent that Makati is not the only venue where this could be filed.

The case was dismissed without prejudice.