ARSENIO T. MENDIOLA v.
CA petitioner filed his complaint for illegal dismissal, recovery of separation pay, and payment of
Facts: Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a corporation
organized and existing under the laws of California, USA. It is a subsidiary of Cellulose
Marketing International, a corporation duly organized under the laws of Sweden, with principal
office in Gothenburg, Sweden.
Private respondent Pacfor entered into a "Side Agreement on Representative Office known as
Pacific Forest Resources (Phils.), Inc." with petitioner Arsenio T. Mendiola (ATM).
The Side Agreement outlines the business relationship of the parties with regard to the
Philippine operations of Pacfor. Private respondent will establish a Pacfor representative office
in the Philippines, to be known as Pacfor Phils, and petitioner ATM will be its President.
Petitioner's base salary and the overhead expenditures of the company shall be borne by the
representative office and funded by Pacfor/ATM, since Pacfor Phils. is equally owned on a 50-
50 equity by ATM and Pacfor-usa.
petitioner wrote Kevin Daley, Vice President for Asia of Pacfor, seeking confirmation of his
50% equity of Pacfor Phils.10 Private respondent Pacfor, through William Gleason, its President,
replied that petitioner is not a part-owner of Pacfor Phils. because the latter is merely Pacfor-
USA's representative office and not an entity separate and distinct from Pacfor-USA. "It's simply
a 'theoretical company' with the purpose of dividing the income 50-50."11Petitioner presumably
knew of this arrangement from the start, having been the one to propose to private respondent
Pacfor the setting up of a representative office, and "not a branch office" in the Philippines to
save on taxes.
Petitioner claimed that he was all along made to believe that he was in a joint venture with them.
He alleged he would have been better off remaining as an independent agent or representative
of Pacfor-USA as ATM Marketing Corp.13Had he known that no joint venture existed, he would
not have allowed Pacfor to take the profitable business of his own company, ATM Marketing
Corp.14 Petitioner raised other issues, such as the rentals of office furniture, salary of the
employees, company car, as well as commissions allegedly due him.
private respondent Pacfor, through counsel, ordered petitioner to turn over to it all papers,
documents, files, records, and other materials in his or ATM Marketing Corporation's possession
that belong to Pacfor or Pacfor Phils.
private respondent Pacfor, through counsel, ordered petitioner to turn over to it all papers,
documents, files, records, and other materials in his or ATM Marketing Corporation's possession
that belong to Pacfor or Pacfor Phils. private respondent Pacfor also required petitioner to remit
more than three hundred thousand-peso Christmas giveaway fund for clients of Pacfor
Phils.17 Lastly, private respondent Pacfor withdrew all its offers of settlement and ordered
petitioner to transfer title and turn over to it possession of the service car. 18
Private respondent Pacfor likewise sent letters to its clients in the Philippines, advising them not
to deal with Pacfor Phils.
Petitioner construed these directives as a severance of the "unregistered partnership" between
him and Pacfor, and the termination of his employment as resident manager of Pacfor Phils.
attorney's fees with the NLRC.
Issues:
W/N partnership or corporation exist between the parties
W/N petitioner is an employee of private respondent
Held: In a partnership, the members become co-owners of what is contributed to the firm capital
and of all property that may be acquired thereby and through the efforts of the members. The
property or stock of the partnership forms a community of goods, a common fund, in which
each party has a proprietary interest. In fact, the New Civil Code regards a partner as a co-owner
of specific partnership property. Each partner possesses a joint interest in the whole of
partnership property. If the relation does not have this feature, it is not one of partnership. This
essential element, the community of interest, or co-ownership of, or joint interest in partnership
property is absent in the relations between petitioner and private respondent Pacfor. Petitioner
is not a part-owner of Pacfor Phils. William Gleason, private respondent Pacfor's President
established this fact when he said that Pacfor Phils. is simply a "theoretical company" for the
purpose of dividing the income 50-50. He stressed that petitioner knew of this arrangement from
the very start, having been the one to propose to private respondent Pacfor the setting up of a
representative office, and "not a branch office" in the Philippines to save on taxes. Thus, the
parties in this case, merely shared profits. This alone does not make a partnership.
Besides, a corporation cannot become a member of a partnership in the absence of express
authorization by statute or charter. This doctrine is based on the following considerations: (1)
that the mutual agency between the partners, whereby the corporation would be bound by the
acts of persons who are not its duly appointed and authorized agents and officers, would be
inconsistent with the policy of the law that the corporation shall manage its own affairs
separately and exclusively; and, (2) that such an arrangement would improperly allow corporate
property to become subject to risks not contemplated by the stockholders when they originally
invested in the corporation. No such authorization has been proved in the case at bar.
Petitoner is an employee of private respondent. First, it was private respondent Pacfor which
selected and engaged the services of petitioner as its resident agent in the Philippines. Second,
as stipulated in their Side Agreement, private respondent Pacfor pays petitioner his salary
amounting to $65,000 per annum which was later increased to $78,000. Third, private
respondent Pacfor holds the power of dismissal, as may be gleaned through the various
memoranda it issued against petitioner, placing the latter on preventive suspension while
charging him with various offenses, including willful disobedience, serious misconduct, and
gross neglect of duty, and ordering him to show cause why no disciplinary action should be
taken against him.
Lastly and most important, private respondent Pacfor has the power of control over the means
and method of petitioner in accomplishing his work.
J.M. TUASON & CO. v. BOLANOS
Facts:
Plaintiff’s complaint against defendant was to recover possession of a registered land. In the
complaint, the plaintiff is represented by its Managing Partner, Gregorio Araneta, Inc., another
corporation. Defendant, in his answer, sets up prescription and title in himself thru "open,
continuous, exclusive and public and notorious possession under claim of ownership, adverse
to the entire world by defendant and his predecessors in interest" from "time immemorial". After
trial, the lower court rendered judgment for plaintiff, declaring defendant to be without any right
to the land in question and ordering him to restore possession thereof to plaintiff and to pay the
latter a monthly rent. Defendant appealed directly to the Supreme Court and contended, among
others, that Gregorio Araneta, Inc. can not act as managing partner for plaintiff on the theory
that it is illegal for two corporations to enter into a partnership
Issue: W/N a corporation may enter into a joint venture with another corporation.
Held: It is true that the complaint states that the plaintiff is "represented herein by its Managing
Partner Gregorio Araneta, Inc.", another corporation, but there is nothing against one
corporation being represented by another person, natural or juridical, in a suit in court. The
contention that Gregorio Araneta, Inc. cannot act as managing partner for plaintiff on the theory
that it is illegal for two corporations to enter into a partnership is without merit, for the true rule
is that "though a corporation has no power to enter into a partnership, it may nevertheless enter
into a joint venture with another where the nature of that venture is in line with the business
authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043, citing
2. Fletcher Cyc. of Corp., 1082.). There is nothing in the record to indicate that the venture in
which plaintiff is represented by Gregorio Araneta, Inc. as "its managing partner" is not in line
with the corporate business of either of them.
AURBACH v. SANITARY WARES
Facts:
Saniwares was a domestic corporation which entered into an agreement w/ the ASI foreign
group in order to expand their business internationally. In the election of their board members,
they agreed that 3 of the 9 directors shall be designated by ASI while the other 6 shall be
designated by the Filipino stockholders. Dispute ensued when ASI invoked their right to
cumulative voting and nominated another candidate. In order to determine who the directors are,
the court discussed whether the business was a joint venture or a corporation.
 Case involves a dispute bet. 2 groups (ASI-foreign & Young-domestic) as to who
Saniwares’ duly elected board of directors are.
 1961: Sanitary Wares Mftg. Corp. (Saniware) is a domestic corp. incorporated for the
primary purpose of manufacturing and marketing sanitary wares. Young, one of the
incorporators, went abroad to look for foreign partners for its expansion.
 Aug. 15, 1962: American Standard Inc. (ASI), a foreign corp., entered into an Agreement
with Saniwares & some Filipino investors
o To participate in the ownership of an enterprise w/c would engage primarily in
the business of manufacturing in RP and selling here and abroad vitreous china
and sanitary wares.
o Business operations in RP shall be thru an incorporated enterprise w/ initial
name of "Sanitary Wares Mftg. Corp."
 The joint enterprise prospered. However, the initial harmonious relations bet. the 2 groups
deteriorated.
 Accdg. to the Filipino group, they desired to expand the export operations of the company
but ASI objected as it had other subsidiaries of joint venture groups in countries where
Philippine exports were contemplated.
ELECTION OF MEMBERS OF THE BOARD OF DIRECTORS ON MAR. 8, 1983
 The annual stockholders' meeting was held and the stockholders proceeded to elect the
members of the board of directors.
 ASI group nominated 3 persons: Wolfgang Aurbach, John Griffin and David P.
Whittingham.
 Philippine investors nominated 6: Ernesto Lagdameo, Sr., Raul Boncan, Ernesto
Lagdameo, Jr., George Lee, and Baldwin Young.
 Eduardo Ceniza then nominated Luciano Salazar, who in turn nominated Charles Chamsay.
 Young, the chairman, ruled the last 2 nominations out of order on the basis of Sec. 5
(a) of the Agreement, and practice of the parties to nominate only 9 persons as
nominees for the 9-member board of directors.
 ASI representative appealed to the body of stockholders to vote on Chairman’s ruling but
this was overruled by Young.
 Young then instructed the Corporate Sec. to cast all the votes present and represented by
proxy equally for the 6 nominees of the Phil. Investors and the 3 nominees of ASI, thus
excluding the 2 additional persons nominated, Salazar & Chamsay.
 ASI representative protested the decision of the Chairman and announced that all
votes accruing to ASI shares were being cumulatively voted for the 3 ASI nominees
& Charles Chamsay, and instructed the Secretary to so vote.
 Salazar and other proxy holders announced that all the votes owned by them were being
voted cumulatively in favor of Salazar.
 Chairman Young still overruled them so the Secretary certified for election only those
designated by Philippine investors & ASI.
 ASI representative moved to recess the meeting which was seconded. However, there was
also a motion to adjourn, so meeting was adjourned by Young.
 Having been ignored, ASI representative declared that such was merely a recess and asked
for a meeting to be reconvened in the next room. ASI Group, Salazar and other
stockholders, allegedly representing 53 or 54% of Saniwares’ shares decided to continue
the meeting at the elevator lobby of the American Standard Building.
 On the basis of the cumulative votes cast earlier in the meeting, ASI Group nominated its
4 nominees. Salazar voted for himself.
 Thus the said 5 directors were certified as elected directors by the Acting Secretary with
the explanation that there was a tie among the other 6 nominees for the 4 remaining
positions of directors and that the body decided not to break the tie.
COMPLAINTS, PETITIONS
 These incidents triggered off the filing of separate petitions by the parties with the SEC.
 First petition. For preliminary injunction by Saniwares & Lagdameo group against Salazar
and Chamsay.
 Second petition. For quo warranto and application for receivership by ASI group w/ Salazar
& Chamsay against the group of Young and Lagdameo and Avelino Cruz.
Issue: Who were the duly elected directors of Saniwares for the year 1983 during its annual
stockholders' meeting held on March 8, 1983?
W/N the nature of the business established by the parties was a joint venture or a corporation
Held:
In the instant cases, our examination of important provisions of the Agreement as well as the
testimonial evidence presented by the Lagdameo and Young Group shows that the parties agreed
to establish a joint venture and not a corporation. The history of the organization of Saniwares
and the unusual arrangements which govern its policy making body are all consistent with a
joint venture and not with an ordinary corporation.
 While certain provisions of the Agreement would make it appear that the parties
thereto disclaim being partners or joint venturers such disclaimer is directed at third
parties and is not inconsistent with, and does not preclude, the existence of two distinct
groups of stockholders in Saniwares one of which (the Philippine Investors) shall
constitute the majority, and the other ASI shall constitute the minority stockholder. In
any event, the evident intention of the Philippine Investors and ASI in entering into
the Agreement is to enter into a joint venture enterprise
 An examination of the Agreement shows that certain provisions were inccuded to
protect the interests of ASI as the minority. For example, the vote of 7 out of 9
directors is required in certain enumerated corporate acts. ASI is contractually entitled
to designate a member of the Executive Committee and the vote of this member is
required for certain transactions
 The Agreement also requires a 75% super-majority vote for the amendment of the
articles and by-laws of Saniwares. ASI is also given the right to designate the president
and plant manager .The Agreement further provides that the sales policy of Saniwares
shall be that which is normally followed by ASI and that Saniwares should not export
"Standard" products otherwise than through ASI's Export Marketing Services. Under
the Agreement, ASI agreed to provide technology and know-how to Saniwares and
the latter paid royalties for the same.
 The legal concept of a joint venture is of common law origin. It has no precise legal
definition but it has been generally understood to mean an organization formed for
some temporary purpose. It is in fact hardly distinguishable from the partnership,
since their elements are similar community of interest in the business, sharing of
profits and losses, and a mutual right of control.
 The main distinction cited by most opinions in common law jurisdictions is that the
partnership contemplates a general business with some degree of continuity,
while the joint venture is formed for the execution of a single transaction, and is
thus of a temporary nature.
LBC EXPRESS VS. CA
Facts:
Private respondent Adolfo Carloto, incumbent President-Manager of private respondent Rural
Bank of Labason, alleged that on November 12, 1984, he was in Cebu City transacting business
with the Central Bank Regional Office. He was instructed to proceed to Manila on or before
November 21, 1984 to follow-up the Rural Bank's plan of payment of rediscounting obligations
with Central Bank's main office in Manila. He then purchased a round trip plane ticket to
Manila. He also phoned his sister Elsie Carloto-Concha to send him ONE THOUSAND PESOS
(P1,000.00) for his pocket money in going to Manila and some rediscounting papers thru
petitioner's LBC Office at Dipolog City.
On November 16, 1984, Mrs. Concha thru her clerk, Adelina Antigo consigned thru LBC
Dipolog Branch the pertinent documents and the sum of ONE THOUSAND PESOS (P1,000.00)
to respondent Carloto at No. 2 Greyhound Subdivision, Kinasangan, Pardo, Cebu City. This was
evidenced by LBC Air Cargo, Inc., Cashpack Delivery Receipt No. 34805.
On November 17, 1984, the documents arrived without the cashpack. Respondent Carloto made
personal follow-ups on that same day, and also on November 19 and 20, 1984 at LBC's office
in Cebu but petitioner failed to deliver to him the cashpack.
Consequently, respondent Carloto said he was compelled to go to Dipolog City on November
24, 1984 to claim the money at LBC's office. His effort was once more in vain. On November
27, 1984, he went back to Cebu City at LBC's office. He was, however, advised that the money
has been returned to LBC's office in Dipolog City upon shipper's request. Again, he demanded
for the ONE THOUSAND PESOS (P1,000.00) and refund of FORTY-NINE PESOS (P49.00)
LBC revenue charges. He received the money only on December 15, 1984 less the revenue
charges.
Respondent Carloto claimed that because of the delay in the transmittal of the cashpack, he
failed to submit the rediscounting documents to Central Bank on time. As a consequence, his
rural bank was made to pay the Central Bank THIRTY-TWO THOUSAND PESOS
(P32,000.00) as penalty interest. 4 He allegedly suffered embarrassment and humiliation.
Petitioner LBC, on the other hand, alleged that the cashpack was forwarded via PAL to LBC
Cebu City branch on November 22, 1984. 5 On the same day, it was delivered at respondent
Carloto's residence at No. 2 Greyhound Subdivision, Kinasangan, Pardo, Cebu City. However,
he was not around to receive it. The delivery man served instead a claim notice to insure he
would personally receive the money. This was annotated on Cashpack Delivery Receipt No.
342805. Notwithstanding the said notice, respondent Carloto did not claim the cashpack at LBC
Cebu. On November 23, 1984, it was returned to the shipper, Elsie Carloto-Concha at Dipolog
City.
Claiming that petitioner LBC wantonly and recklessly disregarded its obligation, respondent
Carloto instituted an action for Damages Arising from Non-performance of Obligation docketed
as Civil Case No. 3679 before the Regional Trial Court of Dipolog City on January 4, 1985. On
June 25, 1988, an amended complaint was filed where respondent rural bank joined as one of
the plaintiffs and prayed for the reimbursement of THIRTY-TWO THOUSAND PESOS
(P32,000.00).
Issue: W/N respondent Rural Bank of Labason Inc., being an artificial person should be awarded
moral damages.
Held: The respondent court erred in awarding moral damages to the Rural Bank of Labason,
Inc., an artificial person.
Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar
injury. A corporation, being an artificial person and having existence only in legal
contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience physical
suffering and mental anguish. 8 Mental suffering can be experienced only by one having a
nervous system and it flows from real ills, sorrows, and griefs of life — all of which cannot be
suffered by respondent bank as an artificial person.
We can neither sustain the award of moral damages in favor of the private respondents. The
right to recover moral damages is based on equity. Moral damages are recoverable only if the
case falls under Article 2219 of the Civil Code in relation to Article 21. 10 Part of conventional
wisdom is that he who comes to court to demand equity, must come with clean hands.
In the case at bench, respondent Carloto is not without fault. He was fully aware that his rural
bank's obligation would mature on November 21, 1984 and his bank has set aside cash for these
bills payable. 11 He was all set to go to Manila to settle this obligation. He has received the
documents necessary for the approval of their rediscounting application with the Central Bank.
He has also received the plane ticket to go to Manila. Nevertheless, he did not immediately
proceed to Manila but instead tarried for days allegedly claiming his ONE THOUSAND PESOS
(P1,000.00) pocket money. Due to his delayed trip, he failed to submit the rediscounting papers
to the Central Bank on time and his bank was penalized THIRTY-TWO THOUSAND PESOS
(P32,000.00) for failure to pay its obligation on its due date. The undue importance given by
respondent Carloto to his ONE THOUSAND PESOS (P1,000.00) pocket money is inexplicable
for it was not indispensable for him to follow up his bank's rediscounting application with
Central Bank. According to said respondent, he needed the money to "invite people for a snack
or dinner." 12 The attitude of said respondent speaks ill of his ways of business dealings and
cannot be countenanced by this Court. Verily, it will be revolting to our sense of ethics to use it
as basis for awarding damages in favor of private respondent Carloto and the Rural Bank of
Labason, Inc.
We also hold that respondents failed to show that petitioner LBC's late delivery of the cashpack
was motivated by personal malice or bad faith, whether intentional or thru gross negligence. In
fact, it was proved during the trial that the cashpack was consigned on November 16, 1984, a
Friday. It was sent to Cebu on November 19, 1984, the next business day. Considering this
circumstance, petitioner cannot be charged with gross neglect of duty. Bad faith under the law
can not be presumed; it must be established by clearer and convincing evidence. 13 Again, the
unbroken jurisprudence is that in breach of contract cases where the defendant is not shown to
have acted fraudulently or in bad faith, liability for damages is limited to the natural and probable
consequences of the branch of the obligation which the parties had foreseen or could reasonable
have foreseen. The damages, however, will not include liability for moral damages. Rescinding
from these premises, the award of exemplary damages made by the respondent court would have
no legal leg to support itself. Under Article 2232 of the Civil Code, in a contractual or quasi-
contractual relationship, exemplary damages may be awarded only if the defendant had acted in
"a wanton, fraudulent, reckless, oppressive, or malevolent manner." The established facts of not Alegre. The appellate court denied Ago’s claim for damages and attorney’s fees because the
so warrant the characterization of the action of petitioner LBC. broadcasts were directed against AMEC, and not against her. FBNI, Rima and Alegre filed a
motion for reconsideration which the Court of Appeals denied in its 26 January 2000 Resolution.
Hence, FBNI filed the petition for review.

Issue: Whether AMEC is entitled to moral damages.

Filipinas Broadcasting Network Inc. vs. Ago Medical and Educational Center-Bicol Held: A juridical person is generally not entitled to moral damages because, unlike a natural
Christian College of Medicine person, it cannot experience physical suffering or such sentiments as wounded feelings, serious
anxiety, mental anguish or moral shock. The Court of Appeals cites Mambulao Lumber Co. v.
Facts: “Exposé” is a radio documentary program hosted by Carmelo ‘Mel’ Rima (“Rima”) and
PNB, et al. to justify the award of moral damages. However, the Court’s statement in Mambulao
Hermogenes ‘Jun’ Alegre (“Alegre”). Exposé is aired every morning over DZRC-AM which is
that “a corporation may have a good reputation which, if besmirched, may also be a ground for
owned by Filipinas Broadcasting Network, Inc. (“FBNI”). “Exposé” is heard over Legazpi City,
the award of moral damages” is an obiter dictum. Nevertheless, AMEC’s claim for moral
the Albay municipalities and
damages falls under item 7 of Article 2219 of the Civil Code. This provision expressly
other Bicol areas. In the morning of 14 and 15 December 1989, Rima and Alegre exposed authorizes the recovery of moral damages in cases of libel, slander or any other form of
various alleged complaints from students, teachers and parents against Ago Medical and defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person.
Educational Center-Bicol Christian College of Medicine (“AMEC”) and its administrators. Therefore, a juridical person such as a corporation can validly complain for libel or any other
Claiming that the broadcasts were defamatory, AMEC and Angelita Ago (“Ago”), as Dean of form of defamation and claim for moral damages. Moreover, where the broadcast is libelous per
AMEC’s College of Medicine, filed a complaint for damages against FBNI, Rima and Alegre se, the law implies damages. In such a case, evidence of an honest mistake or the want of
on 27 February 1990. The complaint further alleged that AMEC is a reputable learning character or reputation of the party libeled goes only in mitigation of damages. Neither in such
institution. With the supposed exposés, FBNI, Rima and Alegre “transmitted malicious a case is the plaintiff required to introduce evidence of actual damages as a condition precedent
imputations, and as such, destroyed plaintiffs’ (AMEC and Ago) reputation.” AMEC and Ago to the recovery of some damages. In this case, the broadcasts are libelous per se. Thus, AMEC
included FBNI as defendant for allegedly failing to exercise due diligence in the selection and is entitled to moral damages. However, the Court found the award of P300,000 moral damages
supervision of its employees, particularly Rima and Alegre. On 18 June 1990, FBNI, Rima and unreasonable. The record shows that even though the broadcasts were libelous per se, AMEC
Alegre, through Atty. Rozil Lozares, filed an Answer alleging that the broadcasts against AMEC has not suffered any substantial or material damage to its reputation. Therefore, the Court
were fair and true. FBNI, Rima and Alegre claimed that they were plainly impelled by a sense reduced the award of moral damages from P300,000 to P150,000.
of public duty to report the “goings-on in AMEC, [which is] an institution imbued with public
interest.” Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty.
Edmundo Cea, collaborating counsel of Atty. Lozares, filed a Motion to Dismiss on FBNI’s
behalf. The trial court denied the motion to dismiss. Consequently, FBNI filed a separate Answer
claiming that it exercised due diligence in the selection and supervision of Rima and Alegre.
FBNI claimed that before hiring a broadcaster, the broadcaster should (1) file an application; (2)
be interviewed; and (3) undergo an apprenticeship and training program after passing the
interview. FBNI likewise claimed that it always reminds its broadcasters to “observe truth,
fairness and objectivity in their broadcasts and to refrain from using libelous and indecent
language.” Moreover, FBNI requires all broadcasters to pass the Kapisanan ng mga Brodkaster
sa Pilipinas (“KBP”) accreditation test and to secure a KBP permit. On 14 December 1992, the
trial court rendered a Decision finding FBNI and Alegre liable for libel except Rima. The trial
court held that the broadcasts are libelous per se. The trial court rejected the broadcasters’ claim
that their utterances were the result of straight reporting because it had no factual basis. The
broadcasters did not even verify their reports before airing them to show good faith. In holding
FBNI liable for libel, the trial court found that FBNI failed to exercise diligence in the selection
and supervision of its employees. In absolving Rima from the charge, the trial court ruled that
Rima’s only participation was when he agreed with Alegre’s exposé. The trial court found
Rima’s statement within the “bounds of freedom of speech, expression, and of the press.” Both
parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other,
appealed the decision to the Court of Appeals. The Court of Appeals affirmed the trial court’s
judgment with modification. The appellate court made Rima solidarily liable with FBNI and
CIR vs. THE CLUB FILIPINO, INC. DE CEBU For a stock corporation to exist, two requisites must be complied with:

FACTS: The Club Filipino, is a civic corporation organized under the laws of the Philippines
with an original authorized capital stock of P22,000, which was subsequently increased to
P200,000 to operate and maintain a golf course, tennis, gymnasiums, bowling alleys, billiard
tables and pools, and all sorts of games not prohibited by general laws and general ordinances,
and develop and nurture sports of any kind and any denomination for recreation and healthy
training of its members and shareholders" (sec. 2, Escritura de Incorporacion (Deed of
Incorporation) del Club Filipino, Inc.). There is no provision either in the articles or in the by-
laws relative to dividends and their distribution, although it is covenanted that upon its
dissolution, the Club's remaining assets, after paying debts, shall be donated to a charitable Phil.
Institution in Cebu (Art. 27, Estatutos del (Statutes of the) Club).
The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from
the government), and a bar-restaurant where it sells wines and liquors, soft drinks, meals and
short orders to its members and their guests. The bar-restaurant was a necessary incident to the
operation of the club and its golf-course. The club is operated mainly with funds derived from
membership fees and dues. Whatever profits it had, were used to defray its overhead expenses
and to improve its golf-course. In 1951, as a result of a capital surplus, arising from the re-
valuation of its real properties, the value or price of which increased, the Club declared stock
dividends; but no actual cash dividends were distributed to the stockholders.
In 1952, a BIR agent discovered that the Club has never paid percentage tax on the gross receipts
of its bar and restaurant, although it secured licenses. In a letter, the Collector assessed against
and demanded from the Club P12,068.841 as fixed and percentage taxes, surcharge and
compromise penalty. Also, the Collector denied the Club’s request to cancel the assessment.
On appeal, the CTA reversed the Collector and ruled that the Club is not liable for the assessed
tax liabilities of P12,068.84 allegedly due from it as a keeper of bar and restaurant as it is a non-
stock corporation. Hence, the Collector filed the instant petition for review.
1. a capital stock divided into shares and
2. an authority to distribute to the holders of such shares, dividends or allotments of the
surplus profits on the basis of the shares held (sec. 3, Act No. 1459).
Nowhere in its articles of incorporation or by-laws could be found an authority for the
distribution of its dividends or surplus profits. Strictly speaking, it cannot, therefore, be
considered a stock corporation, within the contemplation of the corpo law.
ISSUE: WON the Club is liable for the payment of P12,068.84, as fixed and percentage taxes
and surcharges prescribed in sec. 1822, 1833 and 1914 of the Tax Code, in connection with the
operation of its bar and restaurant; and for P500 as compromise penalty.
HELD: NO. A tax is a burden, and, as such, it should not be deemed imposed upon fraternal,
civic, non-profit, nonstock organizations, unless the intent to the contrary is manifest and patent"
(Collector v. BPOE Elks Club, et al.), which is not the case here.
Having found as a fact that the Club was organized to develop and cultivate sports of all class
and denomination, for the healthful recreation and entertainment of its stockholders and
members; that upon its dissolution, its remaining assets, after paying debts, shall be donated to
a charitable Phil. Institution in Cebu; that it is operated mainly with funds derived from
membership fees and dues; that the Club's bar and restaurant catered only to its members and
their guests; that there was in fact no cash dividend distribution to its stockholders and that
whatever was derived on retail from its bar and restaurant was used to defray its overall overhead
expenses and to improve its golf-course (cost-plus-expenses-basis), it stands to reason that the
Club is not engaged in the business of an operator of bar and restaurant.

ISSUE: WON the Club is a stock corporation

HELD: NO. It is a non-stock corporation.

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

1P9, 599.07 as percentage tax on its gross receipts (tax years 1946-1951), P2,399.77 surcharge, P70 fixed
tax (tax years 1946-1952, and P500 compromise penalty.
2Sec. 182, of the Tax Code states, "Unless otherwise provided, every person engaging in a business on
which the percentage tax is imposed shall pay in full a fixed annual tax of ten pesos for each calendar year
or fraction thereof in which such person shall engage in said business."
3 Sec. 183 provides in general that "the percentage taxes on business shall be payable at the end of each
calendar quarter in the amount lawfully due on the business transacted during each quarter; etc."
4 Sec. 191, same Tax Code, provides "Percentage tax . . . Keepers of restaurants, refreshment parlors and
other eating places shall pay a tax three per centum, and keepers of bar and cafes where wines or liquors
are served five per centum of their gross receipts . . .".
PNOC-ENERGY DEVELOPMENT CORPORATION VS NATIONAL LABOR
RELATIONS COMMISSION

In June 1985, Danilo Mercado was dismissed by PNOC-Energy Development Corporation

(PNOC-EDC) due to serious acts of dishonesty allegedly committed by Mercado. Mercado then
filed a complaint for illegal dismissal against PNOC-EDC. PNOC-EDC filed a motion to
dismiss on the ground that the Labor arbiter and/or the National Labor Relations Commission
(NLRC) has no jurisdiction over PNOC-EDC because it is a subsidiary of the Philippine
National Oil Company (PNOC), a government owned or controlled corporation, and as a
subsidiary, it is also a GOCC and as such, the proper forum for Mercado’s suit is the Civil
Service Commission.

ISSUE: Whether or not PBOC-EDC is correct.

HELD: No. The issue in this case has been decided already in the case of PNOC-EDC vs
Leogardo. It is true that PNOC is a GOCC and that PNOC-EDC, being a subsidiary of PNOC,
is likewise a GOCC. It is also true that under the 1973 Constitution, all GOCCs are under the
jurisdiction of the CSC. However, the 1987 Constitution change all this as it now provides:

The Civil Service embraces all branches, subdivisions, instrumentalities and agencies of the
Government, including government-owned or controlled corporations with original
charters. (Article IX-B, Section 2 [1]) [emphasis supplied]

Hence, the above provision sets the rule that the mere fact that a corporation is a GOCC does
not automatically place it under the CSC. Under this provision, the test in determining whether
a GOCC is subject to the Civil Service Law is the manner of its creation such that government
corporations created by special charter are subject to its provisions while those incorporated
under the general Corporation Law are not within its coverage.

In the case at bar, PNOC-EDC, even though it is a GOCC, was incorporated under the general
Corporation Law – it does not have its own charter, hence, it is under the jurisdiction of the
MOLE.

Even though the facts of this case occurred while the 1973 Constitution was still in force, the
provisions of the 1987 Constitution regarding the legal matters [procedural aspect] are
applicable because it is the law in force at the time of the decision.