Philippine Air Lines Employees' Association vs. The Court of First Instance of Rizal, Branch XI

For purposes of Commonwealth Act No. 186, PAL was not a government-controlled corporation from 1957 to September 7, 1964, notwithstanding the earlier ruling that it was government-controlled for purposes of Republic Act No. 1880; its employees were therefore SSS members and not entitled to GSIS sick and vacation leave benefits under Commonwealth Act No. 186.

The Philippine Air Lines Employees' Association brought the action as assignee of the rights and causes of action of PAL employees. PAL was originally organized under the Corporation Law as a private corporation formed for profit, but in 1949 the National Development Corporation, a government-owned and controlled corporation, acquired 55% of its capital stock. The dispute implicated the coverage of Commonwealth Act No. 186, which governs benefits for government employees through the GSIS, as against the Social Security System for private employees, and followed an earlier ruling in Philippine Air Lines Employees Association vs. Philippine Air Lines, Inc., 11 SCRA 387, that PAL was government-controlled for purposes of Republic Act No. 1880.

The Philippine Air Lines Employees' Association brought the action as assignee of the rights and causes of action of the employees of Philippine Air Lines, Inc. PAL 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 55% of PAL's capital stock. On October 25, 1955, the Department of Justice rendered an opinion declaring PAL not to be a government-controlled corporation within the purview of Commonwealth Act No. 186, and PAL was then ordered to be a member of the Social Security System.

From September 1957 to September 7, 1964, PAL paid its employer contributions to the SSS, and its employees likewise paid their contributions for the same period. All the while, PAL and its employees entered into collective bargaining agreements with each other. During this period, the PAL employees also enjoyed sickness, disability, retirement, and death benefits from the SSS, including salary, educational, and housing loans.

In 1968, PAL's employees demanded from PAL and the GSIS payment of sick and vacation leave benefits pursuant to Commonwealth Act No. 186, for benefits accruing from September 1957 to September 7, 1964, on the ground that PAL was covered by Commonwealth Act No. 186. Both PAL and the GSIS virtually refused to accede to the demand, prompting petitioner, as assignee of the PAL employees, to sue in the Court of First Instance.

The Court of First Instance rendered an adverse judgment against petitioner, and petitioner elevated the case to the Supreme Court. The Court's analysis turned on the undisputed facts that PAL was a member of the SSS during the covered years and that its employees were recipients of SSS benefits.

• Coverage under Commonwealth Act No. 186: Petitioner, as assignee of the PAL employees, maintained that PAL was covered by Commonwealth Act No. 186 and that its employees were entitled to sick and vacation leave benefits from PAL and the GSIS for the period September 1957 to September 7, 1964.

• Government-Controlled Corporation Status: Whether PAL was a government-controlled corporation from 1957 to September 7, 1964, such that its employees would be government employees and members of the Government Service Insurance System under Commonwealth Act No. 186.
• Entitlement to GSIS Benefits: Whether, consequently, petitioner as assignee of the PAL employees was entitled to payment of sick and vacation leave benefits from PAL and the GSIS under Commonwealth Act No. 186 for the period September 1957 to September 7, 1964.

• Government-Controlled Corporation Status: No. PAL was not a government-controlled corporation within the contemplation of Commonwealth Act No. 186 for the covered period, notwithstanding the earlier ruling that it was government-controlled for purposes of Republic Act No. 1880.
• Entitlement to GSIS Benefits: No. Because PAL was not covered by Commonwealth Act No. 186 and was instead an SSS member during the period, its employees could not claim GSIS sick and vacation leave benefits; granting them would be inequitable.

• Government-Controlled Corporation Status: The Court acknowledged its prior ruling in Philippine Air Lines Employees Association vs. Philippine Air Lines, Inc., 11 SCRA 387, 396-397, that PAL was a government-controlled corporation, but held that the ruling was limited to the purpose indicated in Republic Act No. 1880. For the present case, the Court looked to the circumstances: PAL was originally organized under the Corporation Law as a private corporation for profit; the National Development Corporation acquired 55% of its capital stock in 1949; the Department of Justice had opined on October 25, 1955 that PAL was not a government-controlled corporation within the purview of Commonwealth Act No. 186; PAL was ordered to be an SSS member; and from September 1957 to September 7, 1964, both PAL and its employees paid SSS contributions and the employees received SSS benefits. On these undisputed facts, PAL was not a government-controlled corporation within the contemplation of Commonwealth Act No. 186. The DOJ opinion reproduced in the decision reasoned that the term "corporation controlled by the Government" refers only to corporate bodies over which the Government exercises directly or indirectly almost absolute control through ownership of substantially all of their capital stock, and that a corporation like PAL, in which the Government owns a simple majority as an ordinary stockholder, is not embraced by that term. The opinion also noted that under the Corporation Law, a two-thirds vote of the voting stock is required for certain corporate acts, so the Government's interest in PAL fell short of the two-thirds voting requirement for those acts.

• Entitlement to GSIS Benefits: Because PAL was not a government-controlled corporation under Commonwealth Act No. 186, its employees were not government employees and were not members of the GSIS by reason of that law. During the covered period they were members of the SSS and received sickness, disability, retirement, and death benefits, including salary, educational, and housing loans. The Court held that allowing them to claim additional or similar benefits from the GSIS would be inequitable. The petition was therefore dismissed and the appealed decision affirmed.

• Government-Controlled Corporation under Commonwealth Act No. 186 — For purposes of Commonwealth Act No. 186, a corporation is not a government-controlled corporation where the Government owns only a simple majority of its capital stock as an ordinary stockholder; the term refers to corporate bodies over which the Government exercises directly or indirectly almost absolute control through ownership of substantially all of their capital stock. PAL fell outside this coverage for the period 1957 to September 7, 1964.

• Limited Scope of a Prior Government-Controlled Ruling — A prior declaration that a corporation is government-controlled for purposes of one statute does not necessarily make it government-controlled for purposes of another statute; the ruling is limited to the purpose indicated in that statute. The earlier ruling in Philippine Air Lines Employees Association vs. Philippine Air Lines, Inc., 11 SCRA 387, that PAL was government-controlled was limited to Republic Act No. 1880 and was not extended to Commonwealth Act No. 186.

• Equity Against Double Recovery of Similar Benefits — Employees who were members of the SSS and received SSS benefits during the covered period cannot later claim additional or similar benefits from the GSIS; it would be inequitable to allow such a claim. The Court applied this principle in denying the PAL employees' claim for sick and vacation leave benefits under Commonwealth Act No. 186.

• "The principal issue in this petition (submitted for decision in Our Resolution dated February 7, 1977) is whether or not the Philippine Air Lines (PAL) was a government controlled corporation from 1957 to September 7, 1964." — This frames the principal issue and the exact coverage period that determined whether the PAL employees belonged to the GSIS or the SSS.

• "While it is true that in the case of Philippine Air Lines Employees Association v. Philippine Air Lines, Inc., (11 SCRA 387, 396-397), We ruled that PAL is/was a government controlled corporation, this was only for the purpose indicated in R.A. 1880." — This states the ratio on the limited scope of the prior ruling, confining it to Republic Act No. 1880 and refusing to extend it to the present case.

• "For the instant case however, and considering the circumstances attendant thereto, it is clear that PAL is not a government controlled corporation within the contemplation of R.A. 186." — This is the Court's controlling holding on PAL's status under Commonwealth Act No. 186 for the covered period.

• "Be it noted that PAL during the covered years was a member of the SSS and its employees were recipients of SSS benefits. For petitioners to now claim additional or similar benefits from the GSIS would be rather inequitable." — This supplies the equity rationale for denying the claim to additional or similar GSIS benefits after the employees had already received SSS benefits.

• Philippine Air Lines Employees Association vs. Philippine Air Lines, Inc., 11 SCRA 387, 396-397 — Prior ruling cited by the Court; held PAL to be a government-controlled corporation, but the Court limited that ruling to the purpose indicated in Republic Act No. 1880 and declined to extend it to Commonwealth Act No. 186.

• Commonwealth Act No. 186 — The law invoked by the employees as basis for sick and vacation leave benefits from PAL and the GSIS. The Court held PAL was not a government-controlled corporation within its contemplation for the period September 1957 to September 7, 1964, so the claimed benefits did not lie.

• Republic Act No. 1880 — The statute for which the prior PALEA ruling declared PAL a government-controlled corporation. The Court limited that ruling to Republic Act No. 1880 and refused to extend it to Commonwealth Act No. 186.

• Republic Act No. 660 — Mentioned in the DOJ opinion reproduced in footnote 1; the opinion stated that the term "corporation controlled by the Government" refers only to corporate bodies over which the Government exercises directly or indirectly almost absolute control through ownership of substantially all of their capital stock. The Court cited this opinion in discussing PAL's status.

• Corporation Law (Act No. 1459, as amended), Sections 17-1/2, 18, 34, and 62 — Cited in the same DOJ opinion to show that a two-thirds vote of the voting stock is required for certain corporate acts, so the Government's interest in PAL fell short of the two-thirds voting requirement for those acts.

Feria (Chairman), Fernan, Alampay, and Gutierrez, Jr., JJ., concur.