PHILIPPINE AIR LINES EMPLOYEES’ ASSOCIATION, AS ASSIGNEE OF THE RIGHTS AND CAUSES OF ACTION OF THE EMPLOYEES OF THE PHILIPPINE AIR LINES, INC., PETITIONER, VS. THE COURT OF FIRS…

Philippine Air Lines Employees' Association versus Philippine Air Lines

The Case

This is a petition brought by the Philippine Air Lines Employees' Association, acting as assignee of the rights and causes of action of the employees of Philippine Air Lines, against the Court of First Instance that rendered the adverse judgment and against Philippine Air Lines and the Government Service Insurance System. The employees seek sick and vacation leave benefits under the Government Service Insurance System for the period from September 1957 to September 7, 1964, on the theory that Philippine Air Lines was then a government controlled corporation. The case matters because it fixes the test for when a corporation with government shareholdings is a government controlled corporation for purposes of a particular statute, and it teaches that the answer can differ from one law to another.

Procedural History

The employees, through their association as assignee, sued Philippine Air Lines and the Government Service Insurance System in the Court of First Instance after both refused their demand for the claimed leave benefits. The trial court rendered judgment against the employees. The association then elevated the case to the Supreme Court by petition, and the Court resolved it on the merits.

Facts

Philippine Air Lines was originally organized under the Corporation Law as a private corporation formed for profit. In 1949 the National Development Corporation, a government owned and controlled corporation, acquired fifty five percent of its capital stock. On October 25, 1955, the Department of Justice rendered an opinion declaring Philippine Air Lines not to be a government controlled corporation within the purview of Commonwealth Act Number 186, and Philippine Air Lines was then ordered to be a member of the Social Security System.

From September 1957 to September 7, 1964, Philippine Air Lines paid its contributions as employer to the Social Security System, and its employees paid theirs for the same period. All the while, the company and its employees entered into collective bargaining agreements with each other, and the employees enjoyed sickness, disability, retirement and death benefits from the Social Security System, including salary, educational and housing loans.

In 1968 the employees demanded from Philippine Air Lines and the Government Service Insurance System payment of sick and vacation leave benefits under Commonwealth Act Number 186 for the period from September 1957 to September 7, 1964, on the ground that Philippine Air Lines was covered by that law. Both refused, prompting the suit.

Issues

• Whether or not Philippine Air Lines was a government controlled corporation from 1957 to September 7, 1964, such that its employees were entitled to the rights of government employees as members of the Government Service Insurance System.
• Whether or not the employees may now claim from the Government Service Insurance System benefits similar to those they already received from the Social Security System for the same period.

Applicable Provisions

Commonwealth Act Number 186, the Government Service Insurance Act, is the law under which the employees claim leave benefits as government employees. The Court held that Philippine Air Lines was not a government controlled corporation within its contemplation, so the claimed benefits do not lie.

Corporations like the PAL, in which the Government owns a simple majority of their capital stock as an ordinary stockholder are not embraced by that term and therefore beyond the purview of the Act.

This passage, drawn from the Department of Justice opinion quoted in the decision, supplies the controlling test of control through ownership of substantially all of the capital stock.

Ruling

On the first issue, the Court held that Philippine Air Lines was not a government controlled corporation within the contemplation of Commonwealth Act Number 186. It acknowledged that in an earlier case it had ruled that Philippine Air Lines was a government controlled corporation, but explained that this was only for the purpose indicated in Republic Act Number 1880. The characterization therefore depends on the statute involved, and the government's fifty five percent holding, held as an ordinary stockholder, fell short of the control the law requires.

On the second issue, the Court found the petition devoid of merit. Philippine Air Lines was a member of the Social Security System during the covered years and its employees were recipients of its benefits, so to allow them to claim additional or similar benefits from the Government Service Insurance System for the same period would be inequitable.

Doctrine

A corporation is a government controlled corporation only when the government exercises, directly or indirectly, almost absolute control through the ownership of substantially all of its capital stock. A simple majority holding, held as an ordinary stockholder, does not make the corporation government controlled. The question is statute specific: a corporation may be government controlled for one law and private for another, so the test must be read from the law invoked. And one who has received the benefits of membership in one system cannot, for the same period, claim similar benefits from the other.

Disposition

The petition was dismissed for lack of merit and the appealed decision was affirmed, so Philippine Air Lines and the Government Service Insurance System prevailed.

Remember This

Memorize the line that a simple majority of the capital stock held as an ordinary stockholder does not make a corporation government controlled, for control means substantially all of the capital stock. Examiners use this case to test statute specific characterization of government controlled corporations and the bar against double recovery of similar benefits.