I

CORPORATION LAW CASES (2ND SEMESTER)Assoc Dean ChavezSharla Louisse A. Castillo

I. Government Owned and Controlled Corporation

G.R. No. 129049. August 6, 1999

BALTAZAR G. CAMPOREDONDO, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION (NLRC), Fifth Division, Cagayan de Oro City, THE PHILIPPINE NATIONAL RED CROSS (PNRC)

PARDO, J.:

Issue: whether the Philippine National Red Cross (PNRC for short) is a government owned and controlled corporation or it has been impliedly converted to a private organization subject to the jurisdiction of labor tribunals

The case discusses a complaint filed by petitioner, a former PNRC chapter administrator in Surigao del Norte, for illegal dismissal and damages, as he was forced to "retire" after he was required to restitute shortages and unremitted collections in the total sum of P135,927.78.Facts:

1. Since 1980, petitioner was employed with the PNRC, and until his early "retirement" on December 15, 1995, he was administrator of the Surigao del Norte Chapter, Philippine National Red Cross.

2. In July, 1995, a field auditor of the PNRC conducted an audit of the books of account of the Surigao del Norte Chapter headed by petitioner and found him short in the total sum of P109,000.00.[3]

3. On November 21, 1995, Dr. Celso Samson, Secretary General of the PNRC wrote petitioner requiring him to restitute within seventy two (72) hours from notice, the total sum of P135,927.78 representing cash shortage, technical shortage and unremitted collections.[4]

4. On December 15, 1995, petitioner applied for early retirement from the service, and later wrote Dr. Samson requesting for a re-audit by an independent auditor of his accounts. However, Dr. Samson denied the request.[5

5. On May 28, 1996, petitioner filed with the National Labor Relations Commission, Sub-Regional Arbitration Branch X, Butuan City, a complaint for illegal dismissal, damages and underpayment of wages against the Philippine National Red Cross and its key officials.[6]

6. On June 14, 1996, respondent Philippine National Red Cross filed with the Surigao del Norte provincial office, Department of Labor and Employment, a motion to dismiss the complaint for lack of jurisdiction over the subject matter of the case because the PNRC is a government corporation whose employees are members of the Government Service Insurance System (GSIS), and embraced within the Civil Service Law and regulations.[7]

7. On July 25, 1996, petitioner filed an opposition to motion to dismiss arguing that there was between the PNRC and its duly appointed paid staff, an employer-employee relationship, governed by the Labor Code of the Philippines.[8]

8. On October 11, 1996, the Labor Arbiter issued an order dismissing the complaint for lack of jurisdiction, finding that the Philippine National Red Cross is a government corporation with an original charter, having been created by Republic Act No. 95.[9]

9. On November 12, 1996, the Labor Arbiter denied petitioner's motion for reconsideration

10. On November 20, 1996, petitioner filed a notice of appeal and appeal memorandum with the National Labor Relations Commission.

11. On March 21, 1997, the National Labor Relations Commission, Fifth Division, issued a resolution dismissing the appeal and confirming the decision of the Labor Arbiter that dismissed petitioner's complaint for lack of jurisdiction.[12]Ruling:

I. Clean Hands

All suitors must come to court with clean hands. This is especially true of paid staff of the Philippine National Red Cross. Like its unpaid volunteers, they must be men of unquestioned honesty and integrity serving in selfless manner .Paid staff of the PNRC are government employees who are members of the Government Service Insurance System and covered by the Civil Service Law. Unlike government service in other agencies, Red Cross service demands of its paid staff uberrima fides, the utmost good faith and dedication to work.II. Main issue on the PNRC being a private corporation

Philippine National Red Cross (PNRC) is a government owned and controlled corporation, with an original charter under Republic Act No. 95, as amended. The test to determine whether a corporation is government owned or controlled, or private in nature is simple. Is it created by its own charter for the exercise of a public function, or by incorporation under the general corporation law? Those with special charters are government corporations subject to its provisions, and its employees are under the jurisdiction of the Civil Service Commission, and are compulsory members of the Government Service Insurance System. The PNRC was not "impliedly converted to a private corporation" simply because its charter was amended to vest in it the authority to secure loans, be exempted from payment of all duties, taxes, fees and other charges of all kinds on all importations and purchases for its exclusive use, on donations for its disaster relief work and other services and in its benefits and fund raising drives, and be alloted one lottery draw a year by the Philippine Charity Sweepstakes Office for the support of its disaster relief operation in addition to its existing lottery draws for blood program.

Having served in the Philippine National Red Cross for a number of years since his initial employment, he must know that it is a government corporation with its own charter and that he was covered by compulsory membership in the Government Service Insurance System, which is why he could apply, as he did, for "early" retirement from the service under Presidential Decree No. 1146 or Republic Act No. 1616.WHEREFORE, the Court hereby DISMISSES the petition, and AFFIRMS the ruling of the National Labor Relations Commission.

SO ORDERED.Petitioner therein was the administrator of the Surigao del Norte chapter of the PNRC. An audit conducted by a field auditor revealed a shortage in the chapter funds in the sum of P109,000.00. When required to restitute the amount of P135,927.78, petitioner therein instead applied for early retirement, which was denied by the Secretary General of the PNRC. Subsequently, the petitioner filed a complaint for illegal dismissal and damages against PNRC before the National Labor Relations Commission. In turn, PNRC moved to dismiss the complaint on the ground of lack of jurisdiction, averring that PNRC was a government corporation whose employees are embraced by civil service regulation. The labor arbiter dismissed the complaint, and the Commission sustained his order. The petitioner assailed the dismissal of his complaint via a petition for certiorari, contending that the PNRC is a private organization and not a government-owned or controlled corporation.G.R. No. 136374 February 9, 2000

FRANCISCA S. BALUYOT, petitioner, vs. PAUL E. HOLGANZA and the OFFICE OF THE OMBUDSMAN

DE LEON, JR., J.:

A special civil action for certiorari, seeking the reversal of the Orders dated August 21, 1998 and October 28, 1998 issued by the Office of the Ombudsman, which denied petitioner's motion to dismiss and motion for reconsideration, respectively.

Facts: 1. During a spot audit conducted on March 21, 1977 by a team of auditors from the Philippine National Red Cross (PNRC) headquarters, a cash shortage of P154,350.13 was discovered in the funds of its Bohol chapter. The chapter administrator, petitioner Francisca S. Baluyot, was held accountable for the shortage.

2. on January 8, 1998, private respondent Paul E. Holganza, in his capacity as a member of the board of directors of the Bohol chapter, filed an affidavit-complaint before the Office of the Ombudsman charging petitioner of malversation under Article 217 of the Revised Penal Code.

3. However, upon recommendation by respondent Anna Marie P. Militante, Graft Investigation Officer I, an administrative docket for dishonesty was also opened against petitioner

4. On February 6, 1998, public respondent issued an Order requiring petitioner to file her counter-affidavit to the charges of malversation and dishonesty within ten days from notice, with a warning that her failure to comply would be construed as a waiver on her part to refute the charges, and that the case would be resolved based on the evidence on record.

5. March 14, 1998, petitioner filed her counter-affidavit, raising principally the defense that public respondent had no jurisdiction over the controversy. She argued that the Ombudsman had authority only over government-owned or controlled corporations, which the PNRC was not, or so she claimed.

6. On August 21, 1998, public respondent issued the first assailed Order denying petitioner's motion to dismiss.

7. Petitioner received the order on August 26, 1998 and she filed a motion for reconsideration which was also denied by the public respondent.

Issue: W/N the contention of the petitioner is valid; W/N PNRC is a private corporation

Petitioner contends:

a. the Ombudsman has no jurisdiction over the subject matter of the controversy since the PNRC is allegedly a private voluntary organization because:

(1) the PNRC does not receive any budgetary support from the government, and that all money given to it by the latter and its instrumentalities become private funds of the organization;

(2) funds for the payment of personnel's salaries and other emoluments come from yearly fund campaigns, private contributions and rentals from its properties;

(3) it is not audited by the Commission on Audit.

b. PNRC falls under the International Federation of Red Cross, a Switzerland-based organization, and that the power to discipline employees accused of misconduct, malfeasance, or immorality belongs to the PNRC Secretary General by virtue of Section "G", Article IX of its by-laws.

She threatens that "to classify the PNRC as a government-owned or controlled corporation would create a dangerous precedent as it would lose its neutrality, independence and impartiality . . . .9

Ruling:

I. Ombudsmans jurisdiction

Clearly then, public respondent has jurisdiction over the matter, pursuant to Section 13, of Republic Act No. 6770, otherwise known as "The Ombudsman Act of 1989", to wit:

Sec. 13. Mandate. The Ombudsman and his Deputies, as protectors of the people, shall act promptly on complaints filed in any form or manner against officers or employees of the Government, or of any subdivision, agency or instrumentality thereof, including government-owned or controlled corporations, and enforce their administrative, civil and criminal liability in ever case where the evidence warrants in order to promote efficient service by the Government to the people.**the case of Camporedondo was reiterated in the ruling of this caseWHEREFORE, the petition for certiorari is hereby DISMISSED. Costs against petitioner.

SO ORDERED.II. Forms of Business Organization

G.R. No. 125027. August 12, 2002

ANITA MANGILA, petitioner, vs. COURT OF APPEALS and LORETA GUINA, respondents.This is a petition fore review on certiorari under Rule 45 of the Rules of Court, seeking to set aside the Decision[1] of the Court of Appeals

Facts: 1. Petitioner Anita Mangila, petitioner, is an exporter of sea foods and doing business under the name and style of Seafoods Products. Private respondent Loreta Guina, private respondent, is the President and General Manager of Air Swift International, a single registered proprietorship engaged in the freight forwarding business.

2. Sometime in January 1988, petitioner contracted the freight forwarding services of private respondent for shipment of petitioners products, such as crabs, prawns and assorted fishes, to Guam (USA) where petitioner maintains an outlet..

3. Petitioner agreed to pay private respondent cash on delivery. Private respondents invoice stipulates a charge of 18 percent interest per annum on all overdue accounts. In case of suit, the same invoice stipulates attorneys fees equivalent to 25 percent of the amount due plus costs of suit.

4. On the first shipment, petitioner requested for seven days within which to pay private respondent. However, for the next three shipments, March 17, 24 and 31, 1988, petitioner failed to pay private respondent shipping charges amounting to P109, 376.95.

5. Despite several demands, petitioner never paid private respondent.

6. Thus, on June 10, 1988, private respondent filed Civil Case No. 5875 before the Regional Trial Court of Pasay City for collection of sum of money.

7. On August 1, 1988, the sheriff filed his Sheriffs Return showing that summons was not served on petitioner. A woman found at petitioners house informed the sheriff that petitioner transferred her residence to Sto. Nio, Guagua, Pampanga. The sheriff found out further that petitioner had left the Philippines for Guam.

8. Thus,, construing petitioners departure from the Philippines as done with intent to defraud her creditors, private respondent filed a Motion for Preliminary Attachment.

9. On September 26, 1988, the trial court issued an Order of Preliminary Attachment against petitioner. The following day, the trial court issued a Writ of Preliminary Attachment.

10. The trial court granted the request of its sheriff for assistance from their counterparts in RTC, Pampanga.

11. Thus, on October 28, 1988, Sheriff Alfredo San Miguel of RTC Pampanga served on petitioners household help in San Fernando, Pampanga, the Notice of Levy with the Order, Affidavit and Bond.[7]

12. On November 7, 1988, petitioner filed an Urgent Motion to Discharge Attachment[8] 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, petitioner claimed the court had not acquired jurisdiction over her person.[9]

13. In the hearing of the Urgent Motion to Discharge Attachment on November 11, 1988, private respondent sought and was granted a re-setting to December 9, 1988. On that date, private respondents counsel did not appear, so the Urgent Motion to Discharge Attachment was deemed submitted for resolution.

14. The trial court granted the Motion to Discharge Attachment on January 13, 1989 upon filing of petitioners counter-bond. The trial court, however, did not rule on the question of jurisdiction and on the validity of the writ of preliminary attachment.15. On December 26, 1988, private respondent applied for an alias summons, which the trial court issued on January 19, 1989.[11] It was only on January 26, 1989 that summons was finally served on petitioner.

16. On February 9, 1989, petitioner filed a Motion to Dismiss the Complaint on the ground of improper venue. Private respondents invoice for the freight forwarding service stipulates that if court litigation becomes necessary to enforce collection xxx the agreed venue for such action is Makati, Metro Manila.

17. Private respondent filed an Opposition asserting that although Makati appears as the stipulated venue, the same was merely an inadvertence by the printing press whose general manager executed an affidavit[14] admitting such inadvertence. Moreover, private respondent claimed that petitioner knew that private respondent was holding office in Pasay City and not in Makati.18. The lower court, finding credence in private respondents assertion, denied the Motion to Dismiss and gave petitioner five days to file her Answer. Petitioner filed a Motion for Reconsideration but this too was denied.Petitioner filed her Answer[16] on June 16, 1989, maintaining her contention that the venue was improperly laid.

On June 26, 1989, the trial court issued an Order setting the pre-trial for July 18, 1989 at 8:30 a.m. and requiring the parties to submit their pre-trial briefs. 19. Meanwhile, private respondent filed a Motion to Sell Attached Properties but the trial court denied the motion.

20. On motion of petitioner, the trial court issued an Order resetting the pre-trial from July 18, 1989 to August 24, 1989 at 8:30 a.m..

21. On the day of the pre-trial, the trial court issued an Order terminating the pre-trial and allowing the private respondent to present evidence ex-parte The Order stated that when the case was called for pre-trial at 8:31 a.m., only the counsel for private respondent appeared. Upon the trial courts second call 20 minutes later, petitioners counsel was still nowhere to be found. Thus, upon motion of private respondent, the pre-trial was considered terminated.

22. On September 12, 1989, petitioner filed her Motion for Reconsideration of the Order terminating the pre-trial. Petitioner explained that her counsel arrived 5 minutes after the second call, as shown by the transcript of stenographic notes, and was late because of heavy traffic. Petitioner claims that the lower court erred in allowing private respondent to present evidence ex-parte since there was no Order considering the petitioner as in default.

23. On October 6, 1989, the trial court denied the Motion for Reconsideration and scheduled the presentation of private respondents evidence ex-parte.

24. On October 10, 1989, petitioner filed an Omnibus Motion stating that the presentation of evidence ex-parte should be suspended because there was no declaration of petitioner as in default and petitioners counsel was not absent, but merely late.

24. the trial court denied the Omnibus Motion.25. On November 20, 1989, the petitioner received a copy of the Decision of November 10, 1989, ordering petitioner to pay respondent P109,376.95 plus 18 percent interest per annum, 25 percent attorneys fees and costs of suit. Private respondent filed a Motion for Execution Pending Appeal but the trial court denied the same.

CA: Court of Appeals rendered a decision affirming the decision of the trial court. 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.

Motion for Reconsideration denied.

Issue: W/N there is an improper venue in the filing of the case

Ruling:

I. Improper Venue

Petitioner assails the filing of this case in the RTC of Pasay and points to a provision in private respondents invoice which contains the following:

3. If court litigation becomes necessary to enforce collection, an additional equivalent (sic) to 25% of the principal amount will be charged. The agreed venue for such action is Makati, Metro Manila, Philippines.

Pet: The action should have been instituted in the RTC of Makati and to do otherwise would be a ground for the dismissal of the case.

We resolve to dismiss the case on the ground of improper venue but not for the reason stated by petitioner.

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.

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.

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. Nevertheless, we hold that Pasay is not the proper venue for this case.

Under the 1997 Rules of Civil Procedure, the general rule is venue in personal actions is where the defendant or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff.The exception to this rule is when the parties agree on an exclusive venue other than the places mentioned in the rules.

But, this exception is not applicable in this case. Hence, following the general rule, the instant case may be brought in the place of residence of the plaintiff or defendant, at the election of the plaintiff (private respondent herein).

The residence of private respondent (plaintiff in the lower court) was not alleged in the complaint. Rather, what was alleged was the postal address of her sole proprietorship, Air Swift International. It was only when private respondent testified in court, after petitioner was declared in default, that she mentioned her residence to be in Better Living Subdivision, Paraaque City.

Sy v. Tyson Enterprises, Inc. The plaintiff in that case was Tyson Enterprises, Inc., a corporation owned and managed by Dominador Ti. The complaint, however, did not allege the office or place of business of the corporation, which was in Binondo, Manila. What was alleged was the residence of Dominador Ti, who lived in San Juan, Rizal. The case was filed in the Court of First Instance of Rizal, Pasig. The Court there held that the evident purpose of alleging the address of the corporations president and manager was to justify the filing of the suit in Rizal, Pasig instead of in Manila. Thus, the Court ruled that there was no question that venue was improperly laid in that case and held that the place of business of Tyson Enterpises, Inc. is considered as its residence for purposes of venue. Furthermore, the Court held that the residence of its president is not the residence of the corporation because a corporation has a personality separate and distinct from that of its officers and stockholders.

In the instant case, it was established in the lower court that petitioner resides in San Fernando, Pampanga while private respondent resides in Paraaque City. However, this case was brought in Pasay City, where the business of private respondent is found. This would have been permissible had private respondents business been a corporation, just like the case in Sy v. Tyson Enterprises, Inc. However, as admitted by private respondent in her Complaint in the lower court, her business is a sole proprietorship, and as such, does not have a separate juridical personality that could enable it to file a suit in court. In fact, there is no law authorizing sole proprietorships to file a suit in court.II. Sole ProprietorshipA sole proprietorship does not possess a juridical personality separate and distinct from the personality of the owner of the enterprise.[40] The law merely recognizes the existence of a sole proprietorship as a form of business organization conducted for profit by a single individual and requires its proprietor or owner to secure licenses and permits, register its business name, and pay taxes to the national government.[41] The law does not vest a separate legal personality on the sole proprietorship or empower it to file or defend an action in court.[42]

Thus, not being vested with legal personality to file this case, the sole proprietorship is not the plaintiff in this case but rather Loreta Guina in her personal capacity.All these considered, private respondent should have filed this case either in San Fernando, Pampanga (petitioners residence) or Paraaque (private respondents residence). Since private respondent (complainant below) filed this case in Pasay, we hold that the case should be dismissed on the ground of improper venue.

III. Nature and Purpose of Action Quo WarrantoG.R. No. 161434. March 3, 2004MARIA JEANETTE C. TECSON and FELIX B. DESIDERIO, JR., petitioners, vs. The COMMISSION ON ELECTIONS, RONALD ALLAN KELLY POE (a.k.a. FERNANDO POE, JR.) and VICTORINO X. FORNIER, respondents.G.R. No. 161634. March 3, 2004

ZOILO ANTONIO VELEZ, petitioner, vs. RONALD ALLAN KELLEY POE, a.k.a. FERNANDO POE, JR., respondent.

G. R. No. 161824. March 3, 2004

VICTORINO X. FORNIER, petitioner, vs. HON. COMMISSION ON ELECTIONS and RONALD ALLAN KELLEY POE, ALSO KNOWN AS FERNANDO POE JR., respondents.VITUG, J.:

Citizenship is a treasured right conferred on those whom the state believes are deserving of the privilege. It is a precious heritage, as well as an inestimable acquisition,[1] that cannot be taken lightly by anyone - either by those who enjoy it or by those who dispute it.

The issue of citizenship is brought up to challenge the qualifications of a presidential candidate to hold the highest office of the land. Our people are waiting for the judgment of the Court with bated breath. Is Fernando Poe, Jr., the hero of silver screen, and now one of the main contenders for the presidency, a natural-born Filipino or is he not?Facts: 1. On 31 December 2003, respondent Ronald Allan Kelly Poe, also known as Fernando Poe, Jr. (hereinafter "FPJ"), filed his certificate of candidacy for the position of President of the Republic of the Philippines under the Koalisyon ng Nagkakaisang Pilipino (KNP) Party, in the forthcoming national elections. In his certificate of candidacy, FPJ, representing himself to be a natural-born citizen of the Philippines, stated his name to be "Fernando Jr.," or "Ronald Allan" Poe, his date of birth to be 20 August 1939 and his place of birth to be Manila.

2. Victorino X. Fornier, petitioner in G.R. No. 161824, initiated, on 09 January 2004, a petition before the Commission on Elections ("COMELEC") to disqualify FPJ and to deny due course or to cancel his certificate of candidacy upon the thesis that FPJ made a material misrepresentation in his certificate of candidacy by claiming to be a natural-born Filipino citizen when in truth, according to Fornier, his parents were foreigners; his mother, Bessie Kelley Poe, was an American, and his father, Allan Poe, was a Spanish national, being the son of Lorenzo Pou, a Spanish subject. Granting that Allan F. Poe was a Filipino citizen, he could not have transmitted his Filipino citizenship to FPJ, the latter being an illegitimate child of an alien mother. Petitioner based the allegation of the illegitimate birth of respondent on two assertions - first, Allan F. Poe contracted a prior marriage to a certain Paulita Gomez before his marriage to Bessie Kelley and, second, even if no such prior marriage had existed, Allan F. Poe, married Bessie Kelly only a year after the birth of respondent.

3. Petitioner, in support of his claim, presented several documentary exhibits

1) a copy of the certificate of birth of FPJ

2) a certified photocopy of an affidavit executed in Spanish by Paulita Poe y Gomez attesting to her having filed a case for bigamy and concubinage against the father of respondent, Allan F. Poe, after discovering his bigamous relationship with Bessie Kelley, 3) an English translation of the affidavit aforesaid, 4) a certified photocopy of the certificate of birth of Allan F. Poe, 5) a certification issued by the Director of the Records Management and Archives Office, attesting to the fact that there was no record in the National Archives that a Lorenzo Poe or Lorenzo Pou resided or entered the Philippines before 1907, and 6) a certification from the Officer-In-Charge of the Archives Division of the National Archives to the effect that no available information could be found in the files of the National Archives regarding the birth of Allan F. Poe.

4. Respondent, presented twenty-two documentary pieces of evidence, the more significant ones being

a) a certification issued by Estrella M. Domingo of the Archives Division of the National Archives that there appeared to be no available information regarding the birth of Allan F. Poe in the registry of births for San Carlos, Pangasinan

b) a certification issued by the Officer-In-Charge of the Archives Division of the National Archives that no available information about the marriage of Allan F. Poe and Paulita Gomez could be found,

c) a certificate of birth of Ronald Allan Poe

d) Original Certificate of Title No. P-2247 of the Registry of Deeds for the Province of Pangasinan, in the name of Lorenzo Pou

e) copies of Tax Declaration No. 20844, No. 20643, No. 23477 and No. 23478 in the name of Lorenzo Pou, f) a copy of the certificate of death of Lorenzo Pou, g) a copy of the purported marriage contract between Fernando Pou and Bessie Kelley, and h) a certification issued by the City Civil Registrar of San Carlos City, Pangasinan, stating that the records of birth in the said office during the period of from 1900 until May 1946 were totally destroyed during World War II.

5. On 23 January 2004, the COMELEC dismissed SPA No. 04-003 for lack of merit. Motion for reconsideration was denied.

6. On 10 February 2004, petitioner assailed the decision of the COMELEC before this Court conformably with Rule 64, in relation to Rule 65, of the Revised Rules of Civil Procedure. The petition, likewise prayed for a temporary restraining order, a writ of preliminary injunction or any other resolution that would stay the finality and/or execution of the COMELEC resolutions.

The other petitions, later consolidated with G. R. No. 161824, would include G. R. No. 161434, both challenging the jurisdiction of the COMELEC and asserting that, under Article VII, Section 4, paragraph 7, of the 1987 Constitution, only the Supreme Court had original and exclusive jurisdiction to resolve the basic issue on the case.(Case Digest)

Petitioners sought for respondent Poes disqualification in the presidential elections for having allegedly misrepresented material facts in his (Poes) certificate of candidacy by claiming that he is a natural Filipino citizen despite his parents both being foreigners. Comelec dismissed the petition, holding that Poe was a Filipino Citizen. Petitioners assail the jurisdiction of the Comelec, contending that only the Supreme Court may resolve the basic issue on the case under Article VII, Section 4, paragraph 7, of the 1987 Constitution.Issue:Whether or not it is the Supreme Court which had jurisdiction.

Whether or not Comelec committed grave abuse of discretion in holding that Poe was a Filipino citizen.Ruling:

1.) The Supreme Court had no jurisdiction on questions regarding qualification of a candidate for the presidency or vice-presidency before the elections are held.

"Rules of the Presidential Electoral Tribunal" in connection with Section 4, paragraph 7, of the 1987 Constitution, refers to contests relating to the election, returns and qualifications of the "President" or "Vice-President", of the Philippines which the Supreme Court may take cognizance, and not of "candidates" for President or Vice-President before the elections.

2.) Comelec committed no grave abuse of discretion in holding Poe as a Filipino Citizen.

The 1935 Constitution on Citizenship, the prevailing fundamental law on respondents birth, provided that among the citizens of the Philippines are "those whose fathers are citizens of the Philippines." Tracing respondents paternal lineage, his grandfather Lorenzo, as evidenced by the latters death certificate was identified as a Filipino Citizen. His citizenship was also drawn from the presumption that having died in 1954 at the age of 84, Lorenzo would have been born in 1980. In the absence of any other evidence, Lorenzos place of residence upon his death in 1954 was presumed to be the place of residence prior his death, such that Lorenzo Pou would have benefited from the "en masse Filipinization" that the Philippine Bill had effected in 1902. Being so, Lorenzos citizenship would have extended to his son, Allan---respondents father.

Respondent, having been acknowledged as Allans son to Bessie, though an American citizen, was a Filipino citizen by virtue of paternal filiation as evidenced by the respondents birth certificate. The 1935 Constitution on citizenship did not make a distinction on the legitimacy or illegitimacy of the child, thus, the allegation of bigamous marriage and the allegation that respondent was born only before the assailed marriage had no bearing on respondents citizenship in view of the established paternal filiation evidenced by the public documents presented.But while the totality of the evidence may not establish conclusively that respondent FPJ is a natural-born citizen of the Philippines, the evidence on hand still would preponderate in his favor enough to hold that he cannot be held guilty of having made a material misrepresentation in his certificate of candidacy in violation of Section 78, in relation to Section 74 of the Omnibus Election Code.IV. Control TestG.R. No. L-2294 May 25, 1951FILIPINAS COMPAIA DE SEGUROS vs.CHRISTERN, HUENEFELD and CO., INC.

PARAS, C.J.:Facts: 1. On October 1, 1941, Christern Huenefeld, & Co., Inc., after payment of corresponding premium, obtained from Filipinas Cia. de Seguros, fire policy No. 29333 in the sum of P1000,000 covering merchandise contained in a building located at No. 711 Roman Street, Binondo Manila. 2. During the Japanese military occupation, the building and insured merchandise were burned. In due time, the respondent submitted to the petitioner its claim under the policy. 3. The petitioner refused to pay the claim on the ground that the policy in favor of the respondent had ceased to be in force on the date the United States declared war against Germany, the respondent Corporation (though organized under and by virtue of the laws of the Philippines) being controlled by the German subjects and the petitioner being a company under American jurisdiction when said policy was issued on October 1, 1941. 4. The petitioner, however, in pursuance of the order of the Director of Bureau of Financing, Philippine Executive Commission, dated April 9, 1943, paid to the respondent the sum of P92,650 on April 19, 1943.5. The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the purpose of recovering from the respondent the sum of P92,650 above mentioned. The theory of the petitioner is that the insured merchandise were burned up after the policy issued in 1941 in favor of the respondent corporation has ceased to be effective because of the outbreak of the war between the United States and Germany on December 10, 1941, and that the payment made by the petitioner to the respondent corporation during the Japanese military occupation was under pressure. 6. After trial, the Court of First Instance of Manila dismissed the action without pronouncement as to costs. 7. Upon appeal, the judgment of the Court of First Instance of Manila was affirmed, with costs. Issues:

1. W/N the petitioner may recover the payment it made for respondent by virtue of the latters fire policy

2. W/N the respondent is considered a foreign corporation under our laws

8. The Court of Appeals overruled the contention of the petitioner that the respondent corporation became an enemy when the United States declared war against Germany, relying on English and American cases which held that a corporation is a citizen of the country or state by and under the laws of which it was created or organized. It rejected the theory that nationality of private corporation is determine by the character or citizenship of its controlling stockholders.

There is no question that majority of the stockholders of the respondent corporation were German subjects. Ruling:The said respondent became an enemy corporation upon the outbreak of the war between the United States and Germany. The English and American cases relied upon by the Court of Appeals have lost their force in view of the latest decision of the Supreme Court of the United States in Clark vs. Uebersee Finanz Korporation, in which the controls test has been adopted. In "Enemy Corporation" by Martin Domke, a paper presented to the Second International Conference of the Legal Profession held at the Hague (Netherlands) in August. 1948 the following enlightening passages appear:

A corporation was subject to enemy legislation when it was controlled by enemies, namely managed under the influence of individuals or corporations, themselves considered as enemies. It was the English courts which first the Daimler case applied this new concept of "piercing the corporate veil," which was adopted by the peace of Treaties of 1919 and the Mixed Arbitral established after the First World

..

The United States did not, in the amendments of the Trading with the Enemy Act during the last war, include as did other legislations the applications of the control test and again, as in World War I, courts refused to apply this concept whereby the enemy character of an American or neutral-registered corporation is determined by the enemy nationality of the controlling stockholders..Court decisions sanctioned such administrative practice enacted under the First War Powers Act of 1941, and more recently, on December 8, 1947, the Supreme Court of the United States definitely approved of the control theory. In Clark vs. Uebersee Finanz Korporation, A. G., dealing with a Swiss corporation allegedly controlled by German interest, the Court: "The property of all foreign interest was placed within the reach of the vesting power (of the Alien Property Custodian) not to appropriate friendly or neutral assets but to reach enemy interest which masqueraded under those innocent fronts. . . . The power of seizure and vesting was extended to all property of any foreign country or national so that no innocent appearing device could become a Trojan horse."

It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the appealed decision. However, we may add that, in Haw Pia vs. China Banking Corporation,* 45 Off Gaz., (Supp. 9) 299, we already held that China Banking Corporation came within the meaning of the word "enemy" as used in the Trading with the Enemy Acts of civilized countries not only because it was incorporated under the laws of an enemy country but because it was controlled by enemies.The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone except a public enemy may be insured." It stands to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public enemy.Effect of war, generally. All intercourse between citizens of belligerent powers which is inconsistent with a state of war is prohibited by the law of nations. Such prohibition includes all negotiations, commerce, or trading with the enemy; all acts which will increase, or tend to increase, its income or resources; all acts of voluntary submission to it; or receiving its protection; also all acts concerning the transmission of money or goods; and all contracts relating thereto are thereby nullified. It further prohibits insurance upon trade with or by the enemy, upon the life or lives of aliens engaged in service with the enemy; this for the reason that the subjects of one country cannot be permitted to lend their assistance to protect by insurance the commerce or property of belligerent, alien subjects, or to do anything detrimental too their country's interest. The purpose of war is to cripple the power and exhaust the resources of the enemy, and it is inconsistent that one country should destroy its enemy's property and repay in insurance the value of what has been so destroyed, or that it should in such manner increase the resources of the enemy, or render it aid, and the commencement of war determines, for like reasons, all trading intercourse with the enemy, which prior thereto may have been lawful. All individuals therefore, who compose the belligerent powers, exist, as to each other, in a state of utter exclusion, and are public enemies. (6 Couch, Cyc. of Ins. Law, pp. 5352-5353.)

In the case of an ordinary fire policy, which grants insurance only from year, or for some other specified term it is plain that when the parties become alien enemies, the contractual tie is broken and the contractual rights of the parties, so far as not vested. lost. (Vance, the Law on Insurance, Sec. 44, p. 112.)

The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued in its favor on October 1, 1941, by the petitioner (a Philippine corporation) had ceased to be valid and enforcible, and since the insured goods were burned after December 10, 1941, and during the war, the respondent was not entitled to any indemnity under said policy from the petitioner. However, elementary rules of justice (in the absence of specific provision in the Insurance Law) require that the premium paid by the respondent for the period covered by its policy from December 11, 1941, should be returned by the petitioner.

The Court of Appeals, in deciding the case, stated that the main issue hinges on the question of whether the policy in question became null and void upon the declaration of war between the United States and Germany on December 10, 1941, and its judgment in favor of the respondent corporation was predicated on its conclusion that the policy did not cease to be in force. The Court of Appeals necessarily assumed that, even if the payment by the petitioner to the respondent was involuntary, its action is not tenable in view of the ruling on the validity of the policy. As a matter of fact, the Court of Appeals held that "any intimidation resorted to by the appellee was not unjust but the exercise of its lawful right to claim for and received the payment of the insurance policy," and that the ruling of the Bureau of Financing to the effect that "the appellee was entitled to payment from the appellant was, well founded." Factually, there can be no doubt that the Director of the Bureau of Financing, in ordering the petitioner to pay the claim of the respondent, merely obeyed the instruction of the Japanese Military Administration, as may be seen from the following: "In view of the findings and conclusion of this office contained in its decision on Administrative Case dated February 9, 1943 copy of which was sent to your office and the concurrence therein of the Financial Department of the Japanese Military Administration, and following the instruction of said authority, you are hereby ordered to pay the claim of Messrs. Christern, Huenefeld & Co., Inc. The payment of said claim, however, should be made by means of crossed check." (Emphasis supplied.)

It results that the petitioner is entitled to recover what paid to the respondent under the circumstances on this case. However, the petitioner will be entitled to recover only the equivalent, in actual Philippines currency of P92,650 paid on April 19, 1943, in accordance with the rate fixed in the Ballantyne scale.

Wherefore, the appealed decision is hereby reversed and the respondent corporation is ordered to pay to the petitioner the sum of P77,208.33, Philippine currency, less the amount of the premium, in Philippine currency, that should be returned by the petitioner for the unexpired term of the policy in question, beginning December 11, 1941. Without costs. So ordered.GR 176579

GAMBOA v TEVESCARPIO, J.:

THE FACTSThis is a petition to nullify the sale of shares of stock of Philippine Telecommunications Investment Corporation (PTIC) by the government of the Republic of the Philippines, acting through the Inter-Agency Privatization Council (IPC), to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First Pacific), a Hong Kong-based investment management and holding company and a shareholder of the Philippine Long Distance Telephone Company (PLDT).The petitioner questioned the sale on the ground that it also involved an indirect sale of 12 million shares (or about 6.3 percent of the outstanding common shares) of PLDT owned by PTIC to First Pacific. With the this sale, First Pacifics common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the total common shareholdings of foreigners in PLDT to about 81.47%. This, according to the petitioner, violates Section 11, Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not more than 40%, thus:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines. (Emphasis supplied)II. THE ISSUEDoes the term capital in Section 11, Article XII of the Constitution refer to the total common shares only, or to the total outstanding capital stock (combined total of common and non-voting preferred shares) of PLDT, a public utility?

III. THE RULING[The Court partly granted the petition and held that the term capital in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in the election of directors of a public utility, i.e., to the total common shares in PLDT.]

Considering that common shares have voting rights which translate to control, as opposed to preferred shares which usually have no voting rights, the term capital in Section 11, Article XII of the Constitution refers only to common shares. However, if the preferred shares also have the right to vote in the election of directors, then the term capital shall include such preferred shares because the right to participate in the control or management of the corporation is exercised through the right to vote in the election of directors. In short, the term capital in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the election of directors.To construe broadly the term capital as the total outstanding capital stock, including both common and non-voting preferred shares, grossly contravenes the intent and letter of the Constitution that the State shall develop a self-reliant and independent national economy effectively controlled by Filipinos. A broad definition unjustifiably disregards who owns the all-important voting stock, which necessarily equates to control of the public utility.

Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDTs Articles of Incorporation expressly state that the holders of Serial Preferred Stock shall not be entitled to vote at any meeting of the stockholders for the election of directors or for any other purpose or otherwise participate in any action taken by the corporation or its stockholders, or to receive notice of any meeting of stockholders. On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors. PLDTs Articles of Incorporation state that each holder of Common Capital Stock shall have one vote in respect of each share of such stock held by him on all matters voted upon by the stockholders, and the holders of Common Capital Stock shall have the exclusive right to vote for the election of directors and for all other purposes.It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares of PLDT. In fact, based on PLDTs 2010 General Information Sheet (GIS), which is a document required to be submitted annually to the Securities and Exchange Commission, foreigners hold 120,046,690 common shares of PLDT whereas Filipinos hold only 66,750,622 common shares. In other words, foreigners hold 64.27% of the total number of PLDTs common shares, while Filipinos hold only 35.73%. Since holding a majority of the common shares equates to control, it is clear that foreigners exercise control over PLDT. Such amount of control unmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities expressly mandated in Section 11, Article XII of the Constitution.

As shown in PLDTs 2010 GIS, as submitted to the SEC, the par value of PLDT common shares is P5.00 per share, whereas the par value of preferred shares is P10.00 per share. In other words, preferred shares have twice the par value of common shares but cannot elect directors and have only 1/70 of the dividends of common shares. Moreover, 99.44% of the preferred shares are owned by Filipinos while foreigners own only a minuscule 0.56% of the preferred shares. Worse, preferred shares constitute 77.85% of the authorized capital stock of PLDT while common shares constitute only 22.15%. This undeniably shows that beneficial interest in PLDT is not with the non-voting preferred shares but with the common shares, blatantly violating the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership in a public utility.

In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the dividends, of PLDT. This directly contravenes the express command in Section 11, Article XII of the Constitution that [n]o franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to x x x corporations x x x organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens x x x.To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the sole right to vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDTs common shares, constituting a minority of the voting stock, and thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends that common shares earn; (5) preferred shares have twice the par value of common shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This kind of ownership and control of a public utility is a mockery of the Constitution.

[Thus, the Respondent Chairperson of the Securities and Exchange Commission was DIRECTED by the Court to apply the foregoing definition of the term capital in determining the extent of allowable foreign ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions under the law.]The term capital does not refer to both preferred and common stocks treated as the same class of shares regardless of differences in voting rights and privileges. Consistent with the constitutional mandate that the State shall develop a self-reliant and independent national economy effectively controlled by Filipinos, the term "capital" means the outstanding capital stock entitled to vote (voting stock), coupled with beneficial ownership, both of which results to "effective control."

"Mere legal title is insufficient to meet the 60 percent Filipino owned capital required in the Constitution for certain industries. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required." In this case, such twin requirements must apply uniformly and across the board to all classes of shares comprising the capital. Thus, "the 60-40 ownership requirement in favor of Filipino citizens must apply separately to each class of shares, whether common, preferred non-voting, preferred voting or any other class of shares." This guarantees that the controlling interest in public utilities always lies in the hands of Filipino citizens.

V. Corporate Juridical Personality

[G.R. No. 160039. June 29, 2004]

RAYMUNDO ODANI SECOSA, EL BUENASENSO SY and DASSAD WAREHOUSING and PORT SERVICES, INCORPORATED, petitioners, vs. HEIRS OF ERWIN SUAREZ FRANCISCO, respondents.YNARES-SANTIAGO, J.:

Facts: 1. On June 27, 1996, at around 4:00 p.m., Erwin Suarez Francisco, an eighteen year old third year physical therapy student of the Manila Central University, was riding a motorcycle along Radial 10 Avenue, near the Veteran Shipyard Gate in the City of Manila. At the same time, petitioner, Raymundo Odani Secosa, was driving an Isuzu cargo truck with plate number PCU-253 on the same road. The truck was owned by petitioner, Dassad Warehousing and Port Services, Inc.

2. Traveling behind the motorcycle driven by Francisco was a sand and gravel truck, which in turn was being tailed by the Isuzu truck driven by Secosa. The three vehicles were traversing the southbound lane at a fairly high speed. When Secosa overtook the sand and gravel truck, he bumped the motorcycle causing Francisco to fall. The rear wheels of the Isuzu truck then ran over Francisco, which resulted in his instantaneous death. Fearing for his life, petitioner Secosa left his truck and fled the scene of the collision.[3]

3. Respondents, the parents of Erwin Francisco, thus filed an action for damages against Raymond Odani Secosa, Dassad Warehousing and Port Services, Inc. and Dassads president, El Buenasucenso Sy.

4. On June 19, 1998, after a full-blown trial, the court a quo rendered a decision in favor of herein respondents, to pay plaintiffs jointly and severally:

1. The sum of P55,000.00 as actual and compensatory damages;2. The sum of P20,000.00 for the repair of the motorcycle;

3. The sum of P100,000.00 for the loss of earning capacity;4. The sum of P500,000.00 as moral damages;

5. The sum of P50,000.00 as exemplary damages;

6. The sum of P50,000.00 as attorneys fees plus cost of suit.

5. Petitioners appealed the decision to the Court of Appeals, which affirmed the appealed decision in toto.

ISSUE: W/N THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT IN HOLDING PETITIONER EL BUENASENSO SY SOLIDARILY LIABLE WITH PETITIONERS DASSAD AND SECOSA IN VIOLATION OF THE CORPORATION LAW AND RELATED JURISPRUDENCE ON THE MATTER.Ruling:

I. On the issue of whether petitioner Dassad Warehousing and Port Services, Inc. exercised the diligence of a good father of a family in the selection and supervision of its employees, we find the assailed decision to be in full accord.

Article 2176 of the Civil Code provides:

Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.

On the other hand, Article 2180, in pertinent part, states:

The obligation imposed by article 2176 is demandable not only for ones own acts or omissions, but also for those of persons for whom one is responsible.

Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry.

The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage.

Based on the foregoing provisions, when an injury is caused by the negligence of an employee, there instantly arises a presumption that there was negligence on the part of the employer either in the selection of his employee or in the supervision over him after such selection. The presumption, however, may be rebutted by a clear showing on the part of the employer that it exercised the care and diligence of a good father of a family in the selection and supervision of his employee. Hence, to evade solidary liability for quasi-delict committed by an employee, the employer must adduce sufficient proof that it exercised such degree of care.Jurisprudentially, therefore, the employer must not merely present testimonial evidence to prove that he observed the diligence of a good father of a family in the selection and supervision of his employee, but he must also support such testimonial evidence with concrete or documentary evidence. The reason for this is to obviate the biased nature of the employers testimony or that of his witnesses.Applying the foregoing doctrines to the present case, we hold that petitioner Dassad Warehousing and Port Services, Inc. failed to conclusively prove that it had exercised the requisite diligence of a good father of a family in the selection and supervision of its employees.

Edilberto Duerme, the lone witness presented by Dassad Warehousing and Port Services, Inc. to support its position that it had exercised the diligence of a good father of a family in the selection and supervision of its employees, testified that he was the one who recommended petitioner Raymundo Secosa as a driver to Dassad Warehousing and Port Services, Inc.; that it was his duty to scrutinize the capabilities of drivers; and that he believed petitioner to be physically and mentally fit for he had undergone rigid training and attended the PPA safety seminar.Petitioner Dassad Warehousing and Port Services, Inc. failed to support the testimony of its lone witness with documentary evidence which would have strengthened its claim of due diligence in the selection and supervision of its employees. Such an omission is fatal to its position, on account of which, Dassad can be rightfully held solidarily liable with its co-petitioner Raymundo Secosa for the damages suffered by the heirs of Erwin Francisco.

II. As to the solidary liability of El Buenasenso Sy

However, we find that petitioner El Buenasenso Sy cannot be held solidarily liable with his co-petitioners. While it may be true that Sy is the president of petitioner Dassad Warehousing and Port Services, Inc., such fact is not by itself sufficient to hold him solidarily liable for the liabilities adjudged against his co-petitioners.

It is a settled precept in this jurisdiction that a corporation is invested by law with a personality separate from that of its stockholders or members.[16] It has a personality separate and distinct from those of the persons composing it as well as from that of any other entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not in itself sufficient ground for disregarding the separate corporate personality.[17] A corporations authority to act and its liability for its actions are separate and apart from the individuals who own it.[18]

The so-called veil of corporation fiction treats as separate and distinct the affairs of a corporation and its officers and stockholders. As a general rule, a corporation will be looked upon as a legal entity, unless and until sufficient reason to the contrary appears. When the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons.[19] Also, the corporate entity may be disregarded in the interest of justice in such cases as fraud that may work inequities among members of the corporation internally, involving no rights of the public or third persons. In both instances, there must have been fraud and proof of it. For the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established.[20] It cannot be presumed.[21]

The records of this case are bereft of any evidence tending to show the presence of any grounds enumerated above that will justify the piercing of the veil of corporate fiction such as to hold the president of Dassad Warehousing and Port Services, Inc. solidarily liable with it.

The Isuzu cargo truck which ran over Erwin Francisco was registered in the name of Dassad Warehousing and Port Services, Inc., and not in the name of El Buenasenso Sy. Raymundo Secosa is an employee of Dassad Warehousing and Port Services, Inc. and not of El Buenasenso Sy. All these things, when taken collectively, point toward El Buenasenso Sys exclusion from liability for damages arising from the death of Erwin Francisco.

G.R. No. 142616 July 31, 2001

PHILIPPINE NATIONAL BANK vs.RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN GENERAL MERCHANDISEKAPUNAN, J.:

Facts: 1. Petitioner Philippine National Bank is a domestic corporation organized and existing under Philippine law. Meanwhile, respondents Ritratto Group, Inc., Riatto International, Inc. and Dadasan General Merchandise are domestic corporations, likewise, organized and existing under Philippine law.

2. On May 29, 1996, PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB, organized and doing business in Hong Kong, extended a letter of credit in favor of the respondents in the amount of US$300,000.00 secured by real estate mortgages constituted over four (4) parcels of land in Makati City. This credit facility was later increased successively and decreased to US$1,421,316.18 in April 1998. Respondents made repayments of the loan incurred by remitting those amounts to their loan account with PNB-IFL in Hong Kong.

3. However, as of April 30, 1998, their outstanding obligations stood at US$1,497,274.70. Pursuant to the terms of the real estate mortgages, PNB-IFL, through its attorney-in-fact PNB, notified the respondents of the foreclosure of all the real estate mortgages and that the properties subject thereof were to be sold at a public auction on May 27, 1999 at the Makati City Hall.

4. On May 25, 1999, respondents filed a complaint for injunction with prayer for the issuance of a writ of preliminary injunction and/or temporary restraining order before the Regional Trial Court of Makati. 5. The Executive Judge of the Regional Trial Court of Makati issued a 72-hour temporary restraining order. On May 28, 1999, the case was raffled to Branch 147 of the Regional Trial Court of Makati. The trial judge then set a hearing on June 8, 1999. At the hearing of the application for preliminary injunction, petitioner was given a period of seven days to file its written opposition to the application. 6. On June 15, 1999, petitioner filed an opposition to the application for a writ of preliminary injunction to which the respondents filed a reply. 7. On June 25, 1999, petitioner filed a motion to dismiss on the grounds of failure to state a cause of action and the absence of any privity between the petitioner and respondents. 8. On June 30, 1999, the trial court judge issued an Order for the issuance of a writ of preliminary injunction, which writ was correspondingly issued on July 14, 1999.9. On October 4, 1999, the motion to dismiss was denied by the trial court judge for lack of merit.

10. Petitioner, thereafter, in a petition for certiorari and prohibition assailed the issuance of the writ of preliminary injunction before the Court of Appeals.

11. In the impugned decision the appellate court dismissed the petition. Petitioner thus seeks recourse to this Court and raises the following errors:

1. THE COURT OF APPEALS PALPABLY ERRED IN NOT DISMISSING THE COMPLAINT A QUO, CONSIDERING THAT BY THE ALLEGATIONS OF THE COMPLAINT, NO CAUSE OF ACTION EXISTS AGAINST PETITIONER, WHICH IS NOT A REAL PARTY IN INTEREST BEING A MERE ATTORNEY-IN-FACT AUTHORIZED TO ENFORCE AN ANCILLARY CONTRACT.2. THE COURT OF APPEALS PALPABLY ERRED IN ALLOWING THE TRIAL COURT TO ISSUE IN EXCESS OR LACK OF JURISDICTION A WRIT OF PRELIMINARY INJUNCTION OVER AND BEYOND WHAT WAS PRAYED FOR IN THE COMPLAINT A QUO CONTRARY TO CHIEF OF STAFF, AFP VS. GUADIZ JR., 101 SCRA 827.2

Petitioner prays, inter alia, that the Court of Appeals' Decision dated March 27, 2000 and the trial court's Orders dated June 30, 1999 and October 4, 1999 be set aside and the dismissal of the complaint in the instant case.In their Comment, respondents argue that even assuming arguendo that petitioner and PNB-IFL are two separate entities, petitioner is still the party-in-interest in the application for preliminary injunction because it is tasked to commit acts of foreclosing respondents' properties.4 Respondents maintain that the entire credit facility is void as it contains stipulations in violation of the principle of mutuality of contracts. In addition, respondents justified the act of the court a quo in applying the doctrine of "Piercing the Veil of Corporate Identity" by stating that petitioner is merely an alter ego or a business conduit of PNB-IFL.PETITION IS WITH MERIT.

Respondents, in their complaint, anchor their prayer for injunction on alleged invalid provisions of the contract: (grounds)I. THE DETERMINATION OF THE INTEREST RATES BEING LEFT TO THE SOLE DISCRETION OF THE DEFENDANT PNB CONTRAVENES THE PRINCIPAL OF MUTUALITY OF CONTRACTS.

II. THERE BEING A STIPULATION IN THE LOAN AGREEMENT THAT THE RATE OF INTEREST AGREED UPON MAY BE UNILATERALLY MODIFIED BY DEFENDANT, THERE WAS NO STIPULATION THAT THE RATE OF INTEREST SHALL BE REDUCED IN THE EVENT THAT THE APPLICABLE MAXIMUM RATE OF INTEREST IS REDUCED BY LAW OR BY THE MONETARY BOARD.Respondents sought to enjoin and restrain PNB from the foreclosure and eventual sale of the property in order to protect their rights to said property by reason of void credit facilities as bases for the real estate mortgage over the said property.

Issue: W/N Ruling:The contract questioned is one entered into between respondent and PNB-IFL, not PNB. In their complaint, respondents admit that petitioner is a mere attorney-in-fact for the PNB-IFL with full power and authority to, inter alia, foreclose on the properties mortgaged to secure their loan obligations with PNB-IFL. In other words, herein petitioner is an agent with limited authority and specific duties under a special power of attorney incorporated in the real estate mortgage. It is not privy to the loan contracts entered into by respondents and PNB-IFL.

The issue of the validity of the loan contracts is a matter between PNB-IFL, the petitioner's principal and the party to the loan contracts, and the respondents. Yet, despite the recognition that petitioner is a mere agent, the respondents in their complaint prayed that the petitioner PNB be ordered to re-compute the rescheduling of the interest to be paid by them in accordance with the terms and conditions in the documents evidencing the credit facilities, and crediting the amount previously paid to PNB by herein respondents.Clearly, petitioner not being a part to the contract has no power to re-compute the interest rates set forth in the contract. Respondents, therefore, do not have any cause of action against petitioner.

The trial court, however, in its Order dated October 4, 1994, ruled that since PNB-IFL, is a wholly owned subsidiary of defendant Philippine National Bank, the suit against the defendant PNB is a suit against PNB-IFL.10 In justifying its ruling, the trial court, citing the case of Koppel Phil. Inc. vs. Yatco, reasoned that the corporate entity may be disregarded where a corporation is the mere alter ego, or business conduit of a person or where the corporation is so organized and controlled and its affairs are so conducted, as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.We disagree.

The general rule is that as a legal entity, a corporation has a personality distinct and separate from its individual stockholders or members, and is not affected by the personal rights, obligations and transactions of the latter. The mere fact that a corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiary's separate existence may be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective business. The courts may in the exercise of judicial discretion step in to prevent the abuses of separate entity privilege and pierce the veil of corporate entity.

We find, however, that the ruling in Koppel finds no application in the case at bar. In said case, this Court disregarded the separate existence of the parent and the subsidiary on the ground that the latter was formed merely for the purpose of evading the payment of higher taxes. In the case at bar, respondents fail to show any cogent reason why the separate entities of the PNB and PNB-IFL should be disregarded.

While there exists no definite test of general application in determining when a subsidiary may be treated as a mere instrumentality of the parent corporation, some factors have been identified that will justify the application of the treatment of the doctrine of the piercing of the corporate veil. The case of Garrett vs. Southern Railway Co.14 is enlightening. The case involved a suit against the Southern Railway Company. Plaintiff was employed by Lenoir Car Works and alleged that he sustained injuries while working for Lenoir. He, however, filed a suit against Southern Railway Company on the ground that Southern had acquired the entire capital stock of Lenoir Car Works, hence, the latter corporation was but a mere instrumentality of the former. The Tennessee Supreme Court stated that as a general rule the stock ownership alone by one corporation of the stock of another does not thereby render the dominant corporation liable for the torts of the subsidiary unless the separate corporate existence of the subsidiary is a mere sham, or unless the control of the subsidiary is such that it is but an instrumentality or adjunct of the dominant corporation.Similarly, in this jurisdiction, we have held that the doctrine of piercing the corporate veil is an equitable doctrine developed to address situations where the separate corporate personality of a corporation is abused or used for wrongful purposes. The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.

In Concept Builders, Inc. v. NLRC, we have laid the test in determining the applicability of the doctrine of piercing the veil of corporate fiction, to wit:

1.Control, not mere 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.

2.Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and, unjust act in contravention of plaintiffs legal rights; and,

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

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

Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no showing of the indicative factors that the former corporation is a mere instrumentality of the latter are present. Neither is there a demonstration that any of the evils sought to be prevented by the doctrine of piercing the corporate veil exists. Inescapably, therefore, the doctrine of piercing the corporate veil based on the alter ego or instrumentality doctrine finds no application in the case at bar.

In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal relationship involved in this case since the petitioner was not sued because it is the parent company of PNB-IFL. Rather, the petitioner was sued because it acted as an attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings. A suit against an agent cannot without compelling reasons be considered a suit against the principal. Under the Rules of Court, every action must be prosecuted or defended in the name of the real party-in-interest, unless otherwise authorized by law or these Rules.18 In mandatory terms, the Rules require that "parties-in-interest without whom no final determination can be had, an action shall be joined either as plaintiffs or defendants."19 In the case at bar, the injunction suit is directed only against the agent, not the principal.