CORPORATION LAW

CORPORATION LAW ATTY. REYES Can be contested only by the party whose rights have been
impaired thereby; objection to an unlawful search is purely
Section 1. Title of the Code. This Code shall be known as "The personal and CANNOT be availed of by 3rd parties such as
Corporation Code of the Philippines." (n) officers who interpose in their personal interests

c. Not entitled to privilege against self-incrimination -

Section 2. Corporation defined. A corporation is an artificial being
personal one only applicable to natural persons
created by operation of law, having the right of succession and the
powers, attributes and properties expressly authorized by law or 2. As a property
incident to its existence. (2) 3. As an organization association

Section 3. Classes of corporations. Corporations formed or organized Characteristics:

under this Code may be stock or non-stock corporations. Corporations
which have capital stock divided into shares and are authorized to 1. It is an artificial being;
distribute to the holders of such shares dividends or allotments of the 2. Created by operation of law;
surplus profits on the basis of the shares held are stock corporations. 3. With right of succession;
All other corporations are non-stock corporations. (3a) 4. Has the powers, attributes, and properties as expressly
authorized by law or incident to its existence.
Section 4. Corporations created by special laws or charters.
Corporations created by special laws or charters shall be governed Advantages and Disadvantages:
primarily by the provisions of the special law or charter creating them
or applicable to them, supplemented by the provisions of this Code, Advantages
insofar as they are applicable. (n)
1. The capacity to act as a legal unit;
Section 5. Corporators and incorporators, stockholders and 2. Limitation of or exemption from, individual liability of
members. Corporators are those who compose a corporation, shareholders;
whether as stockholders or as members. Incorporators are those 3. Continuity of existence;
stockholders or members mentioned in the articles of incorporation as 4. Transferability of shares;
originally forming and composing the corporation and who are 5. Centralized management of board of directors;
signatories thereof. 6. Professional management;
7. Standardized method of organization, and finance; and
8. Easy capital generation.
Governing laws on Corporation Law:
Disadvantages:
1. B.P Blg. 68
2. 1987 Constitution 1. It is prone to double taxation;
3. Corporate Rehabilitation Law 2. They are subject to greater governmental regulation and
4. E.O. 292 control;
3. A corporation may be burdened with an inefficient
management if stockholders cannot organize to oppose
Meaning: management;
4. Limited liability of stockholders may at times translate into
1. Security - is the degree of resistance to, or protection from, limited ability to raise creditor capital;
harm. It applies to any vulnerable and valuable asset, such 5. It is harder to organize compared to other business
as a person, dwelling, community, item, nation, or organizations;
organization. 6. It is harder or more complicated to maintain; and
2. Corporation- is an artificial being created by operation of law, 7. The owners or stockholders do not participate in the day-
having the right of succession and the powers, attributes and to-day management.
properties expressly authorized by law or incident to its
existence. Classification:

Stock v. Non-Stock Corporations

Perspective:
Stock Non-Stock
1. As a person
Corporations which
All other private
Corporation as a person have capital stock
corporations (3)
divided into shares
a. Due process and equal protection and are authorized
One where no part of
b. Unreasonable searches and seizure to distribute to the
its income is
Definition holders of shares
BUT officers have NO cause of action to assail the legality distributable as
dividends or
of the seizures because the corp. has a personality distinct dividends to its
allotments of the
members, trustees or
and separate from those of said officers (Stonehill v. surplus profits on
officers. (87)
Diokno 1967) the basis of the
shares (3)

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 CORPORATION LAW
Board of Directors Board of Trustees,
May be formed or or Trustees, which may consist of
organized for consisting of 5-15 more than 15 trustees
charitable, religious, directors / trustees. unless otherwise
educational, provided by the AOI or
professional, cultural, by-laws. (Sec, 92)
fraternal, literary,
Primarily to make
scientific, social, civic Board classified in such
Purpose profits for its
service, or similar a way that the term of
shareholders
purposes like trade, office of 1/3 of their
industry, agricultural Directors / trustees number shall expire
and like chambers, or shall hold office for every year. Subsequent
any combination Term of directors 1 year and until elections of trustees
thereof. (88) or trustees their successors are comprising 1/3 of the
elected and board shall be held
Whatever incidental qualified (Sec. 23). annually, and trustees
profit made is not so elected shall have a
distributed among its term of 3 years. (Sec.
members but is used 92)
for furtherance of its
purpose. AOI or by- Officers are elected
Distribution of Profit is distributed
laws may provide for by the Board of
Profits to shareholders
the distribution of its Directors (Sec. 25), Officers may directly
assets among its except in close elected by the
Election of
members upon its corporations where members UNLESS the
officers
dissolution. Before the stockholders AOI or by-laws provide
then, no profit may be themselves may otherwise. (Sec. 92)
made by members. elect the
officers. (Sec. 97)
Composition Stockholders Members
Generally, the
Each stockholder meetings must be held
votes according to at the principal office
the proportion of of the corporation, if
Any place within the
his shares in the practicable. If not,
Each member, Philippines, if
corporation. No Place of meetings then anyplace in the
regardless of class, is provided for by the
shares may be city or municipality
entitled to one (1) vote by-laws (Sec. 93)
deprived of voting where the principal
Scope of right to UNLESS such right to office of the
rights except those
vote vote has been limited,
classified and issued corporation is
broadened, or denied located. (Sec. 51)
as "preferred" or
in the AOI or by-
"redeemable"
laws. (Sec. 89)
shares, and as Generally non-
otherwise provided transferable since
by the Code. (Sec. membership and all
6) Transferability of rights arising
interest or Transferable. therefrom are
May be denied by membership personal. However,
Cannot be
Voting by proxy the AOI or the by- the AOI or by-laws can
denied. (Sec. 58) provide
laws. (Sec. 89)
otherwise. (Sec. 90)
May be authorized
by the by-laws, with Distribution of
the approval of and assets in case of See Sec. 94.
Voting by mail under the Not possible. dissolution
conditions
prescribed by the
SEC. (Sec. 89) Classes of corporations:

1. Stock
Who exercises
Board of Directors Members of the
Corporate 2. Non-stock
or Trustees corporation
Powers 23
Requisites to be classified as a stock corporation:
Governing Board
1. That they have a capital stock divided into shares; and

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 CORPORATION LAW
2. That they are authorized to distribute dividends or
allotments as surplus profits to its stockholders on the basis
of the shares held by them
Non-stock corporations no part of their income is distributable as
dividends to its members, trustees or officers subject to the provisions
on dissolution. (Sec. 87)
The plain and ordinary meaning of a business is restricted to
activities or affairs where profit is the purpose or livelihood is the
motive, and the term business when used without qualification, should
be construed in its plain and ordinary meaning, restricted to activities
for profit or livelihood. (CIR vs. Club Filipino, Inc.)
The test in determining whether a government owned or controlled
corporation 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. (PNOC-EDC
vs. NLRC)
Other classes of corporations:
1. Public and Private.
a. Public corporations those created, formed or organized
for political or governmental purposes with political powers
to be exercised for purposes connected with the public good
in the administration of civil government.
b. Private corporations those formed for some private
purpose, benefit, aim or end.
2. Ecclesiastical (religious societies or corporation sole) and Lay
(eleemosynary or civil).
a. Ecclesiastical or religious corporations those composed
exclusively of ecclesiastics organized for spiritual purposes
or for administering properties held for religious ones. They
are further classified as religious societies or corporation
sole.
b. Lay corporations those established for the purposes
other than religion. They are further classified as
eleemosynary or civil. Eleemosynary corporations are
created for charitable and benevolent purposes. Civil
corporations are organized not for the purpose of public
charity but for the benefit, pecuniary or otherwise, of its
members.
3. Aggregate and Sole.
a. Aggregate corporations those composed of a number of
individuals vested with corporate powers.
b. Corporations sole those that consist of one person or
individual only and who are made as bodies corporate and
politic in order to give them some legal capacity and
advantage which, as natural persons, they cannot have.
4. Close and Open.
a. Close corporations those whose shares of stock are held
by limited number of persons.
b. Open corporations those formed to openly accept
outsiders as stockholders or investors.
5. Domestic and Foreign.
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a. Domestic corporations those that are organized or
created under or by virtue of the Philippine laws.
Note: issues of intra-corporate nature are governed by
Philippine law.
b. Foreign corporations those formed, organized or
existing under any laws other than those of the Philippines
and whose laws allow Filipino citizens and corporations to
do business in its own country or state.
6. Parent or Holding Companies and Subsidiaries and Affiliates.
a. Holding corporations corporations that confine their
activities to owning stock in, and supervising management
of other companies.
b. Subsidiary corporations those which another
corporation owns at least a majority of the shares, and thus
have control.
c. Affiliates those corporations which are subject to
common control and operated as part of a system.
7. Quasi-public.
a. Quasi-public corporations private corporations which
have accepted from the State the grant of a franchise or
contract involving the performance of public duties (public
service corporations).
8. Quasi corporations.
a. Quasi corporations public bodies or municipal societies
such as townships, counties, school districts, road or
highway districts which, though not vested with the general
powers of corporations, are organized by statutes or
immemorial usage, as persons or aggregate corporations
with precise duties which may be enforced, and privileges
which may be maintained, by suits of law.
9. De jure corporations.
a. De jure corporations juridical entities created or
organized in strict or substantial compliance with the
statutory requirements of incorporation and whose right to
exist as such cannot be successfully attacked even by the
State in a quo warranto proceeding.
10. De facto corporations.
a. De facto corporations those which exist by virtue of an
irregularity or defect in the organization or constitution or
from some other omission to comply with the conditions
precedent by which corporations de jure are created, but
there was colorable compliance with the requirements of
the law under which they might be lawfully incorporated for
the purposes and powers assumed, and user of the rights
claimed to be conferred by law.
11. Corporations by estoppel.
a. Corporations by estoppel those which are so defectively
formed as not to be either de jure or de facto corporations
but which are considered as corporations in relation only to
those who cannot deny their corporate existence due to
their agreement, admission or conduct.

The mere fact that the government happens to be a majority
stockholder does not make it a public corporation. (National Coal vs.
CIR)
Comparison:
Distinctions between a corporation and a partnership
CORPORATION
Created by law or operation of
law
Generally there must be at least
5 incorporators
Can exercise only such powers
and functions expressly granted
to it by law and those necessary
or incident to its existence
Unless validly delegated
expressly or impliedly, must
transact its business through
the board of directors
Has the right of succession
which presupposes that it
continues to exist despite the
death, withdrawal, incapacity or
civil interdiction of the
stockholders or members
Any stockholder can ordinarily
transfer, sell or assign his shares
of stock without the consent of
the other stockholders
The liability of the stockholders
or members in is limited to the
extent of their subscription or
their promised contribution
Term of existence is limited only
to 50 years unless extended
Consent of the State is
necessary for its dissolution
CORPORATION LAW
1. To sue and be sued in its corporate name;
PARTNERSHIP
Created by mere agreement of
the parties
May be formed by 2 or more
natural persons
Can do anything by agreement
of the parties provided only that
it is not contrary to law, morals,
good customs, public policy and
public order
In absence of agreement to the
contrary, any one of the
partners may validly bind the
partnership
Based on mutual trust and
confidence such that the death,
incapacity, insolvency, civil
interdiction or mere withdrawal
of one partner would result in it
dissolution
A partner cannot transfer his
rights or interest in the
partnership so as to make the
transferee a partner without
the consent of the other
partners
All partners are liable pro rata
with all their property and after
all the partnership property has
been exhausted, for all
partnership liability
May exist for an indefinite
period
Partners may dissolve at will
2. Of succession by its corporate name for the period of time
stated in the articles of incorporation and the certificate of
incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with
the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or public
policy, and to amend or repeal the same in accordance with
this Code;
6. In case of stock corporations, to issue or sell stocks to
subscribers and to sell stocks to subscribers and to sell
treasury stocks in accordance with the provisions of this
Code; and to admit members to the corporation if it be a
non-stock corporation;
7. To purchase, receive, take or grant, hold, convey, sell,
lease, pledge, mortgage and otherwise deal with such real
and personal property, including securities and bonds of
other corporations, as the transaction of the lawful business
of the corporation may reasonably and necessarily require,
subject to the limitations prescribed by law and the
Constitution;
8. To enter into merger or consolidation with other
corporations as provided in this Code;
9. To make reasonable donations, including those for the
public welfare or for hospital, charitable, cultural, scientific,
civic, or similar purposes: Provided, That no corporation,
domestic or foreign, shall give donations in aid of any
political party or candidate or for purposes of partisan
political activity;
10. To establish pension, retirement, and other plans for the
benefit of its directors, trustees, officers and employees; and

11. To exercise such other powers as may be essential or

Applicability of Corporation Code
Section 148. Applicability to existing corporations. All corporations
lawfully existing and doing business in the Philippines on the date of
the effectivity of this Code and heretofore authorized, licensed or
registered by the Securities and Exchange Commission, shall be
deemed to have been authorized, licensed or registered under the
provisions of this Code, subject to the terms and conditions of its
license, and shall be governed by the provisions hereof: Provided, That
if any such corporation is affected by the new requirements of this
Code, said corporation shall, unless otherwise herein provided, be
given a period of not more than two (2) years from the effectivity of
this Code within which to comply with the same. (n)
Corporate Powers and Capacity
Section 36. Corporate powers and capacity. Every corporation
incorporated under this Code has the power and capacity:
necessary to carry out its purpose or purposes as stated in
the articles of incorporation. (13a)
Separate Corporate Personality- correlate with legal capacity, juridical
capacity and capacity to act
Separate Corporate Personality
Corporation; separate personality. A corporation is an artificial entity
created by operation of law. It possesses the right of succession and
such powers, attributes, and properties expressly authorized by law or
incident to its existence. It has a personality separate and distinct from
that of its stockholders and from that of other corporations to which it
may be connected. As a consequence of its status as a distinct legal
entity and as a result of a conscious policy decision to promote capital
formation, a corporation incurs its own liabilities and is legally
responsible for payment of its obligations. In other words, by virtue of
the separate juridical personality of a corporation, the corporate debt
or credit is not the debt or credit of the stockholder. This protection
from liability for shareholders is the principle of limited liability.

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 CORPORATION LAW
Legal Capacity Partnerships and associations for private interest or purpose are
governed by the provisions of this Code concerning partnerships. (36
Power provided under law to a natural person or a juridical person to and 37a)
enter into binding contracts, and to sue and be sued in its own name.
Article 46. Juridical persons may acquire and possess property of all
Juridical Capacity and Capacity to Act kinds, as well as incur obligations and bring civil or criminal actions, in
conformity with the laws and regulations of their organization.
Art. 37. Juridical capacity, which is the fitness to be the subject of legal
Article 51. When the law creating or recognizing them, or any other
relations, is inherent in every natural person and is lost only through
provision does not fix the domicile of juridical persons, the same shall
death. Capacity to act, which is the power to do acts with legal effect,
be understood to be the place where their legal representation is
is acquired and may be lost. (n)
established or where they exercise their principal functions.
Explanation:
Constitutional Rights Applicable to Corporation

1. Definition of Juridical Capacity - the fitness to be the subject ARTICLE II

of legal relations. DECLARATION OF PRINCIPLES AND STATE POLICIES PRINCIPLES
2. Definition of Capacity to Act - the power to do acts with legal
effect. Section 1. The Philippines is a democratic and republican State.
Sovereignty resides in the people and all government authority
Differences between Juridical Capacity and Capacity to Act. emanates from them.

Section 2. The Philippines renounces war as an instrument of national

Juridical Capacity to Act policy, adopts the generally accepted principles of international law as
capacity
part of the law of the land and adheres to the policy of peace, equality,
Passive Active
justice, freedom, cooperation, and amity with all nations.
Inherent Merely Acquired
Lost only thru death Lost thru death and may be Section 3. Civilian authority is, at all times, supreme over the military.
restricted by other causes The Armed Forces of the Philippines is the protector of the people and
Can exist without capacity to act Exists always with juridical the State. Its goal is to secure the sovereignty of the State and the
capacity
integrity of the national territory.
3. Synonyms
Section 4. The prime duty of the Government is to serve and protect
a. Juridical Capacity; capacidad juridical the people. The Government may call upon the people to defend the
b. Capacity to Act; capacidad de obrar State and, in the fulfillment thereof, all citizens may be required, under
conditions provided by law, to render personal, military or civil service.
4. Definition of Full or Complete Civil Capacity- the union of
two kinds of capacity (plena capacidad civil). Section 5. The maintenance of peace and order, the protection of life,
liberty, and property, and promotion of the general welfare are
5. Example of the Use of term essential for the enjoyment by all the people of the blessings of
democracy.
A 1-year-old boy has juridical capacity but has no capacity
to act. When he becomes 21, he will have full civil capacity. Section 6. The separation of Church and State shall be inviolable.

Basic Civil Law Concepts
Article 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or
purpose, created by law; their personality begins as soon as they have
been constituted according to law;
(3) Corporations, partnerships and associations for private interest or
purpose to which the law grants a juridical personality, separate and
distinct from that of each shareholder, partner or member. (35a)
Article 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding
article are governed by the laws creating or recognizing them.
Private corporations are regulated by laws of general application on
the subject.
ARTICLE XII
NATIONAL ECONOMY AND PATRIMONY
xxx
Section 16. The Congress shall not, except by general law, provide for
the formation, organization, or regulation of private corporations.
Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good and
subject to the test of economic viability.
Xxx
E.O. 292
Relationships of Government-Owned or Controlled Corporations and
Regulatory Agencies to the Department
SECTION 42. Government-Owned or Controlled Corporations.
Government-owned or controlled corporations shall be attached to
the appropriate department with which they have allied functions, as
hereinafter provided, or as may be provided by executive order, for

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 CORPORATION LAW
policy and program coordination and for general supervision provided
in pertinent provisions of this Code.
In order to fully protect the interests of the government in
government-owned or controlled corporations, at least one-third (1/3)
of the members of the Boards of such corporations should either be a
Secretary, or Undersecretary, or Assistant Secretary.
CASES:
1. Tayag v Benguet
F: In March 1960, Idonah Perkins died in New York. She left behind
properties here and abroad. One property she left behind were two
stock certificates covering 33,002 shares of stocks of the Benguet
Consolidated, Inc (BCI). Said stock certificates were in the possession
of the Country Trust Company of New York (CTC-NY). CTC-NY was the
domiciliary administrator of the estate of Perkins (obviously in the
USA). Meanwhile, in 1963, Renato Tayag was appointed as the
ancillary administrator (of the properties of Perkins she left behind in
the Philippines).
A dispute arose between CTC-NY and Tayag as to who between them
is entitled to possess the stock certificates. A case ensued and
eventually, the trial court ordered CTC-NY to turn over the stock
certificates to Tayag. CTC-NY refused. Tayag then filed with the court
a petition to have said stock certificates be declared lost and to compel
BCI to issue new stock certificates in replacement thereof. The trial
court granted Tayags petition.
BCI assailed said order as it averred that it cannot possibly issue new
stock certificates because the two stock certificates declared lost are
not actually lost; that the trial court as well Tayag acknowledged that
the stock certificates exists and that they are with CTC-NY; that
according to BCIs by laws, it can only issue new stock certificates, in
lieu of lost, stolen, or destroyed certificates of stocks, only after court
of law has issued a final and executory order as to who really owns a
certificate of stock.
I: Whether or not the arguments of Benguet Consolidated, Inc. are
correct.
H: No. Benguet Consolidated is a corporation who owes its existence
to Philippine laws. It has been given rights and privileges under the law.
Corollary, it also has obligations under the law and one of those is to
follow valid legal court orders. It is not immune from judicial control
because it is domiciled here in the Philippines. BCI is a Philippine
corporation owing full allegiance and subject to the unrestricted
jurisdiction of local courts. Its shares of stock cannot therefore be
considered in any wise as immune from lawful court orders. Further,
to allow BCIs opposition is to render the court order against CTC-NY a
mere scrap of paper. It will leave Tayag without any remedy simply
because CTC-NY, a foreign entity refuses to comply with a valid court
order. The final recourse then is for our local courts to create a legal
fiction such that the stock certificates in issue be declared lost even
though in reality they exist in the hands of CTC-NY. This is valid. As held
time and again, fictions which the law may rely upon in the pursuit of
legitimate ends have played an important part in its development.
Further still, the argument invoked by BCI that it can only issue new
stock certificates in accordance with its bylaws is misplaced. It is worth
noting that CTC-NY did not appeal the order of the court it simply
refused to turn over the stock certificates hence ownership can be said
to have been settled in favor of estate of Perkins here. Also, assuming
that there really is a conflict between BCIs bylaws and the court order,
what should prevail is the lawful court order. It would be highly
irregular if court orders would yield to the bylaws of a corporation.
Again, a corporation is not immune from judicial orders.
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2. Recreation vs City of Manila
3. Boyer-Roxas vs, CA
F: Eugenia Roxas originally owned the questioned properties in this
case which include among others cottages, houses, buildings,
swimming pools, tennis court, restaurants, open pavilions inside the
Hidden Valley Springs Resort in Laguna. When Eugenia died, her heirs
among whom were Rebecca Boyer-Roxas and Guillermo Roxas decided
to form the corporation, Heirs of Eugenia V. Roxas, Inc. with the
inherited properties as capital of the corporation. This was
incorporated with the primary purpose of engaging in agriculture to
develop the inherited properties. The Articles of Incorporation
however was amended to allow it to engage in the resort business.
Accordingly, the corporation put up a resort known as Hidden Valley
Spring Resort where the questioned properties were located.
Eufrocino Roxas, (husband of Eugenia) during his lifetime together
with Eribito Roxas ( husband of Rebecca and father of Guillermo)
managed the corporation. Eriberto and Rebecca occupied the staff
house as their residence and converted the recreation hall into a
residential house with the blessings of Eufrocino, who was then the
majority stockholder of the corporation. The Board of directors did not
object to the actions of Eufrocino. Rebecca and Guillermo were
allowed to stay within the questioned properties until the Board of
Directors approved a resolution ejecting them. Despite demand
however, they refused to vacate. Hence, two separate complaints for
recovery of possession was filed. TC affirmed by CA, ordered Rebecca
and all persons claiming under her to vacate the premises. Hence, this
petition.
I: Whether or not the petitioner could be ejected? Yes.
H: Properties registered in the name of the corporation are owned by it
as an entity separate and distinct from its members. While shares of
stock constitute personal property, they do not represent property of
the corporation. The corporation has property of its own. A share of
stock only typifies an aliquot part of the corporations property or the
right to share in its proceeds to that extent when distributed according
to law and equity but its holder is not the owner of any part of the
capital of the corporation. Nor is he entitled to the possession of any
definite portion of its property or assets. The stockholder is not a co-
owner or tenant in common of the corporate property. A corporation
can therefore sue to recover real property being occupied by its former
president (who was also a significant stockholder) for it has a juridical
personality separate and distinct from its stockholders even though in
the past the corporation allowed the president to enjoy the possession
of the property.
There is nothing irregular in the adoption of the Resolution by the BOD
ejecting petitioners for Corporations expansion and improvement
program.
- Petitioners stay within the questioned properties was
merely by tolerance of the respondent corporation in
deference to the wishes of Eufrocino Roxas.
- Eufrocinos action can not bound the corporation forever.
The Corrporation may elect to eject petitioners at any time it wishes
for the benefit and interest of the respondent corporation.
 CORPORATION LAW
4. RP vs. Coalbrine
Short version: Neri, the managing director of the hotel, filed an action in
the RTC against PEZA and the Bataan Economic Zone. The SC held that
the case should be dismissed. The real party in interest was the hotel
because the damage was done to it and not to Neri. If the real party in
interest is a corporate body, an officr of the corporation can sign the
certification against forum shopping so long as he has been duly
authorized by a resolution of its board of directors. There was no such
authority in this case.
F: The Export Processing Zone Authority (EPZA), predecessor of the
Philippine Economic Zone Authority (PEZA), is the owner of the Bataan
Hilltop Hotel and Country Club, located at the Bataan Export
Processing Zone, Mariveles, Bataan. Dante M. Quindoza is the Zone
Administrator of the Bataan Economic Zone. The EPZA and Coalbrine
International Philippines, Inc. entered into a contract in which
Coalbrine would rehabilitate and lease the Bataan Hilltop Hotel, Golf
Course and Clubhouse for 25 years, which commenced on January 1,
1994, and renewable for another 25 years at the option of Coalbrine.
Sheila F. Neri was the Managing Director of the hotel. The PEZA Board
passed Resolution No. 96-231 rescinding the contract to rehabilitate
and lease, on the ground of Coalbrine's repeated violations and non-
performance of its obligations as provided in the contract. Coalbrine
filed with the RTC a Complaint for specific performance with prayer for
the issuance of a TRO and/or writ of preliminary injunction with
damages against PEZA and/or Bataan Economic Zone. While that first
complaint was pending, Coalbrine and Neri filed with the RTC a
Complaint for damages with prayer for the issuance of a TRO and/or
writ of preliminary prohibitory/mandatory injunction against Zone
Administrator Quindoza. Coalbrine alleged that Quindoza harassed the
hotel's operations by causing the excavation of the only road leading
to the hotel, by placing a big "ROAD CLOSED" sign near the hotel, etc.,
etc. Administrator Quindoza, through the Solicitor General, filed a
Motion to Dismiss, which was denied. The Republic of the Philippines,
represented by Dante Quindoza, in his capacity as Zone Administrator
of the Bataan Economic Zone, filed with the CA a petition for certiorari
under Rule 65 seeking to annul the RTC Orders..
The CA dismissed the petition for certiorari.
I: Did Neri have authority to file the complaint for damages in the RTC?
H:
a. The Republic claims that respondent Neri's signature in the
verification and certification against non-forum shopping
attached to the complaint filed by respondents in the RTC
was defective, since there was no proof of her authority to
institute the complaint on behalf of the corporation; and
that respondent Neri is not a real party-in-interest.
b. The SC agrees!!!
c. Neri is not a real party in interest. "Interest" means material
interest, an interest in issue and to be affected by the
decree, as distinguished from mere interest in the question
involved, or a mere incidental interest.
d. A reading of the allegations in the complaint shows that the
acts complained of and said to have been committed by the
Republic against respondents have solely affected the
hotel's operations where Neri was the hotel's Managing
Director and whose interest in the suit was incidental. Thus,
we find that respondent Neri has no cause of action.
JKYPGRGN
Consequently, the plaintiff in this case would only be
Coalbrine.
e. A corporation has no power, except those expressly
conferred on it by the Corporation Code and those that are
implied or incidental to its existence. In turn, a corporation
exercises said powers through its board of directors and/or
its duly authorized officers and agents.Thus, it has been
observed that the power of a corporation to sue and be sued
in any court is lodged with the board of directors that
exercises its corporate powers. In turn, physical acts of the
corporation, like the signing of documents, can be
performed only by natural persons duly authorized for the
purpose by corporate by-laws or by a specific act of the
board of directors.
f. Coalbrine is a corporation. However, when Neri filed the
complaint in the RTC, there was no proof that she was
authorized to sign the verification and the certification
against non-forum shopping.
g. Only individuals vested with authority by a valid board
resolution may sign the certificate of non-forum shopping on
behalf of a corporation. Proof of such authority must also be
attached. Failure to provide a certificate of non-forum
shopping is sufficient ground to dismiss the petition.
Likewise, the petition is subject to dismissal if a certification
was submitted unaccompanied by proof of signatory's
authority.
h. The authority of respondent Neri to file the complaint in the
RTC had not been proven. The certification against non-
forum shopping did not even contain a statement that she
was authorized by the corporate secretary to file the case on
behalf of Coalbrine as she claimed. More importantly, while
she testified that she was authorized by the corporate
secretary, there was no showing that there was a valid board
resolution authorizing the corporate secretary to file the
action, and to authorize respondent Neri to file the action.
In fact, such proof of authority had not been submitted even
belatedly to show subsequent compliance.
i. As to respondents' claim that petitioner Republic of the
Philippines was not a party to the civil case subject of this
petition since Administrator Quindoza was the sole
defendant therein and, thus, has no personality to file this
petition, their claim is not persuasive.
j. Thus, the RTC committed grave abuse of discretion
amounting to lack of jurisdiction when it failed to consider
the lack of proof of authority of respondent Neri to file the
action on behalf of the corporation as we have discussed
above.
Petition granted. CA decision reversed and case filed by Neri in the RTC
is dismissed.
5. Good Earth vs CA
This is a petition for review on certiorari of the decision CA reversing
the decision of respondent Judge RTC of Manila, which reversed the
resolution of the Metropolitan Trial Court Of Manila denying herein
GEEs motion to quash the alias writ of execution issued against them.
F: A lease contract was entered into between ROCES and GEE. A five-
storey building was the subject of which, upon failure of the latter to
pay its rentals, ROCES filed an ejectment case against the petitioner.
The MTC of Mla rendered a decision ordering GEE and all persons
under him to vacate the premises and surrender the same to ROCES
and pay the plaintiffs the rental.
 CORPORATION LAW
GEE filed a motion to quash the writ of execution but the same was
denied by the MTC for lack of merit. In 1987 the RTC of Manila
reversed the decision of the MTC finding that the amount of P1 million
evidenced by Exhibit "I" and another P1 million evidenced by the pacto
de retro sale instrument were in full satisfaction of the judgment
obligation.
On further appeal, the CA reversed the decision of the RTC and
reinstated the Resolution of the MTC of Manila. GEEs m/r was denied,
hence this petition.
I: Whether or not there was full satisfaction of the judgment debt in
favor of Respondent Corporation which would justify the quashing of
the Writ of Execution
H: The fact that at the time payment was made to the two Roces
brothers, GEE was also indebted to respondent corporation for a larger
amount, is not supportive of the Regional Trial Court's conclusions that
the payment was in favor of the latter, especially where the amount
was not receipted for by respondent corporation and there is
absolutely no indication in the receipt from which it can be reasonably
inferred, that said payment was in satisfaction of the judgment debt.
Likewise, no such inference can be made from the execution of the
pacto de retro sale which was not made in favor of respondent
corporation but in favor of the two Roces brothers in their individual
capacities without any reference to the judgment obligation in favor
of respondent corporation.
Respondent court was correct in stating that it "cannot go beyond
what appears in the documents submitted by petitioners themselves
in the absence of clear and convincing evidence" that would support
its claim that the judgment obligation has indeed been fully satisfied
which would warrant the quashal of the Alias Writ of Execution.
It has been an established rule that when the existence of a debt is
fully established by the evidence (which has been done in this case),
the burden of proving that it has been extinguished by payment
devolves upon the debtor who offers such a defense to the claim of
the plaintiff creditor.
6. Cruz vs. Dalisay
F: A case was filed in NLRC against Qualitrans Limousine Service, Inc.
Judgment was rendered and an implementing was issued, NLRC
directing Qualitrans to reinstate the discharged employees and pay
them full backwages. Upon advice from the counsel for the discharged
employees, Quiterio L. Dalisay, the Senior Deputy Sheriff of Manila
implementing the writ, attached and/or levied the money deposited at
the Philtrust Bank, which belonged to Adelio Cruz, the President of
Qualitrans. Because Cruz was not himself the judgment debtor in the
judgment of NLRC and despite that, the writ was enforced against him,
he charged Dalisay administratively with malfeasance in office, corrupt
practices and serious irregularitites. Prior to termination of
proceedings, Cruz desisted stating that he is no longer interested in
prosecuting the cas, there being only a misunderstanding.
I: Whether or not the corporate veil can be pierced? No.
H: It is a well-settled doctrine both in law and in equity that as a legal
entity, a corporation has a personality distinct and separate from its
individual stockholders or members. The mere fact that one is a
president of a corporation does not render the property he owns or
possesses the property of the corporation, since the president, as
JKYPGRGN
individual, and the corporation are separate entities. A sheriff who
enforced a judgment against the president of corporation when it is
directed against the corporation is liable administratively. By choosing
to pierce the veil of corporate entity, the sheriff usurped a power that
belongs to the court and assumed improvidently that since the
complainant is owner and president of the judgment creditor, they are
one and the same.
Cruz, president of Qualitrans has distinct personality from the
corporation.
Desistance of complainant does not preclude the taking of disciplinary
action against Sheriff.
- Being a public officer must at all times be free from
appearance of impropriety.
- Must be imposed appropriate corrective sanction.
7. Stonehill vs. Diokno
This is a petition for certiorari, prohibition, mandamus and injunction
to restrain the respondent-Prosecutors, their agents and/or
representatives from using the effects seized by the police officers
from the petitioners offices and residences by virtue of search
warrants.
F: Upon application of the Respondent-Prosecutors and Respondent-
Judges, a total of 42 search warrants were issued on different dates
against petitioners and/or the corporations of which they were
officers, directing any peace officer to search the petitioners and/or
the premises of their offices, warehouses and/or residences and to
seize and take possession of records to all business transactions.
Petitioners questioned the validity of the search warrants and alleged
that they are null and void, mainly, because they do not describe with
particularity the books and things to be seized.
Respondents alleged that the said search warrants are valid and issued
in accordance with law, that the defects, if any, were cured by
petitioners consent
I: Whether the petitioners can assail the legality of the search warrants
and of the seizures made in pursuance thereof
H: No. The petitioners herein and the corporations of which they are
officers have personalities separate and distinct from each other.
It is well settled that the legality of a seizure can be contested only by
the party whose rights have been impaired thereby, and that the
objection to an unlawful search and seizure is purely personal and
cannot be availed of by third parties. Consequently, petitioners herein
may not validly object to the use in evidence against them of the
documents, papers and things seized from the offices and premises of
the corporations adverted to above, since the right to object to the
admission of said papers in evidence belongs exclusively to the
corporations, to whom the seized effects belong, and may not be
invoked by the corporate officers in proceedings against them in their
individual capacity.
Moreover, the Government's action in gaining possession of papers
belonging to the corporation did not relate to nor did it affect the
personal defendants. If these papers were unlawfully seized and
thereby the constitutional rights of or any one were invaded, they
were the rights of the corporation and not the rights of the other
defendants.
8. Crystal vs. BPI
 CORPORATION LAW
F: On 28 March 1978, spouses Crystal obtained a P300, 000.00 loan in
behalf of the Cebu Contractors Consortium Co. (CCCC) from the BPI-
Butuan. The loan was secured by a chattel mortgage on heavy
equipment and machinery of CCCC. On the same date, the spouses
executed in favor of BPI-Butuan a Continuing Suretyship where they
bound themselves as surety of CCCC in the aggregate principal sum of
not exceeding P300, 000.00. Thereafter, or on 29 March 1979,
Raymundo Crystal executed a promissory note for the amount of P300,
000.00, also in favor of BPI-Butuan. Sometime in August 1979, CCCC
renewed a previous loan, this time from BPI, Cebu City branch (BPI-
Cebu City). However, CCCC had no real property to offer as security for
the loan; hence, the spouses executed a real estate mortgage over
their own real property. They executed another real estate mortgage
over the same lot in favor of BPI-Cebu City, to secure an additional loan
of P20,000.00 of CCCC. CCCC failed to pay its loans to both BPI-Butuan
and BPI-Cebu City when they became due. CCCC, as well as the
spouses, failed to pay their obligations despite demands. Thus, BPI
resorted to the foreclosure of the chattel mortgage and the real estate
mortgage. The foreclosure sale on the chattel mortgage was initially
stalled and done. BPI filed a complaint for sum of money against CCCC
and the spouses before the Regional Trial Court, seeking to recover the
deficiency of the loan of CCCC and the spouses with BPI-Butuan Before
the Court, petitioners who are the heirs of the spouses argue that the
failure of the spouses to pay the BPI-Cebu City loan of P120,000.00 was
due to BPIs illegal refusal to accept payment for the loan unless the
P300,000.00 loan from BPI-Butuan would also be paid. Consequently,
in view of BPIs unjust refusal to accept payment of the BPI-Cebu City
loan, the loan obligation of the spouses was extinguished, petitioners
contend.
I: Whether or not the obligation of the spouses is extinguished
Whether or not BPI is entitled to moral damages
H: No, the obligation is not yet extinguished. Under Art. 1236 of the
Civil Code, the creditor is not bound to accept payment or
performance by a third person who has no interest in the fulfillment of
the obligation, unless there is a stipulation to the contrary. The Court
sees no stipulation in the promissory note which states that a third
person may fulfill the spouses obligation. Thus, it is clear that the
spouses alone bear responsibility for the same. A solidary obligation is
one in which each of the debtors is liable for the entire obligation, and
each of the creditors is entitled to demand the satisfaction of the
whole obligation from any or all of the debtors. A liability is solidary
"only when the obligation expressly so states, when the law so
provides or when the nature of the obligation so requires."24 Thus,
when the obligor undertakes to be "jointly and severally" liable, it
means that the obligation is solidary. More importantly, the
promissory note, wherein the spouses undertook to be solidarily liable
for the principal loan, partakes the nature of a suretyship and
therefore is an additional security for the loan.
No, they are not entitled to moral damages. BPI is not entitled to moral
damages. A juridical person is generally not entitled to moral damages
because, unlike a natural person, it cannot experience physical
suffering or such sentiments as wounded feelings, serious anxiety,
mental anguish or moral shock. The Court of Appeals found BPI as
"being famous and having gained its familiarity and respect not only in
the Philippines but also in the whole world because of its good will and
good reputation must protect and defend the same against any
unwarranted suit such as the case at bench. Obviously, an artificial
person like herein appellant corporation cannot experience physical
sufferings, mental anguish, fright, serious anxiety, wounded feelings,
JKYPGRGN
moral shock or social humiliation which are basis of moral damages. A
corporation may have good reputation which, if besmirched may also
be a ground for the award of moral damages. Indeed, while the Court
may allow the grant of moral damages to corporations, it is not
automatically granted; there must still be proof of the existence of the
factual basis of the damage and its causal relation to the defendants
acts. This is so because moral damages, though incapable of pecuniary
estimation, are in the category of an award designed to compensate
the claimant for actual injury suffered and not to impose a penalty on
the wrongdoer.
9. White Light vs. City of Manila
10. Smith, Bell & Company vs. Natividad
This is a petition for a writ of mandamus filed by the petitioner to
compel Natividad to issue a certificate of Philippine registry in favor of
the former for its motor vessel Bato.
F: Smith, Bell & Co., (Ltd.), is a corporation organized and existing
under the laws of the Philippine Islands. A majority of its stockholders
are British subjects. It is the owner of a motor vessel known as the Bato
built for it in the Philippine Islands in 1916, of more than fifteen tons
gross The Bato was brought to Cebu in the present year for the
purpose of transporting plaintiff's merchandise between ports in the
Islands. Application was made at Cebu, the home port of the vessel, to
the Collector of Customs for a certificate of Philippine registry. The
Collector refused to issue the certificate, giving as his reason that all
the stockholders of Smith, Bell & Co., Ltd., were not citizens either of
the United States or of the Philippine Islands. The instant action is the
result.
Counsel argues that Act No. 2761 denies to Smith, Bell & Co., Ltd., the
equal protection of the laws because it, in effect, prohibits the
corporation from owning vessels, and because classification of
corporations based on the citizenship of one or more of their
stockholders is capricious, and that Act No. 2761 deprives the
corporation of its property without due process of law because by the
passage of the law company was automatically deprived of every
beneficial attribute of ownership in the Bato and left with the naked
title to a boat it could not use .
I: Whether the Government of the Philippine Islands, through its
Legislature, can deny the registry of vessel in its coastwise trade to
corporations having alien stockholders
H: Yes. Act No. 2761 provides:
Investigation into character of vessel. No application for a certificate
of Philippine register shall be approved until the collector of customs
is satisfied from an inspection of the vessel that it is engaged or
destined to be engaged in legitimate trade and that it is of domestic
ownership as such ownership is defined in section eleven hundred and
seventy-two of this Code.
Certificate of Philippine register. Upon registration of a vessel of
domestic ownership, and of more than fifteen tons gross, a certificate
of Philippine register shall be issued for it. If the vessel is of domestic
ownership and of fifteen tons gross or less, the taking of the certificate
of Philippine register shall be optional with the owner.
While Smith, Bell & Co. Ltd., a corporation having alien stockholders, is
entitled to the protection afforded by the due-process of law and
equal protection of the laws clause of the Philippine Bill of Rights,
nevertheless, Act No. 2761 of the Philippine Legislature, in denying to
corporations such as Smith, Bell &. Co. Ltd., the right to register vessels
in the Philippines coastwise trade, does not belong to that vicious
species of class legislation which must always be condemned, but does
 CORPORATION LAW
fall within authorized exceptions, notably, within the purview of the
police power, and so does not offend against the constitutional
provision.
11. West Coast Life Insurance vs Geo hurd
No Criminal Actions Against A Corporation
F: In 1912, West Coast Life Insurance caused the distribution of printed
materials which impressed among the readers thereof that Insular Life
Insurance Company is in bad shape. Insular Life then filed a criminal
case for libel against West Coast Insurance. Judge Geo Hurd took
cognizance of the case. West Coast Insurance opposed the same as it
alleged that it the filing is against prevailing rules of criminal
procedure.
I: Whether or not West Coast Life Insurance is correct.
H: Yes. There is no provision in the prevailing rules of criminal
procedure to support the said criminal case filed against West Coast
Life Insurance. A corporation cannot be proceeded against criminally
in court primarily because a corporation cannot possibly commit a
crime absent the essential element of malicious intent. The rule is to
proceed against the officials of the corporation and not the
corporation itself.
12. Sia vs. People
Lessons Applicable: Corporate Criminal Liability (Criminal Procedure)
F: Sia was the President and General Manager of the Metal
Manufacturing of the Philippines Inc. (MEMAP)
He obtained 150 M/T Cold Rolled Sheets consigned to Continental
Bank and converted it into personal used instead of selling it and
turning over the proceeds
It resulted to a damage of 46,819 php, interest of 28,736.47 php and
forfeited deposit of 71,023.60 php
I: W/N Sia can be criminally charged.
H: NO. Acquit.
Sia did not act for and on behalf of MEMAP
For crimes committed by corp. officers criminally charged, existence of
criminal liability for which the petition is being prosecuted must be
clear and certain, here it may not be said to be beyond reasonable
doubt
Allegation v. evidence = strictly in harmony
The merchandise was manufactured before sold but although the bank
was aware of this, it was not in the trust agreement
13. People vs Chowdury
JKYPGRGN
Section 7. Founders shares. Founders shares classified as such in the
articles of incorporation may be given certain rights and privileges not
enjoyed by the owners of other stocks, provided that where the
exclusive right to vote and be voted for in the election of directors is
granted, it must be for a limited period not to exceed five (5) years
subject to the approval of the Securities and Exchange Commission.
The five-year period shall commence from the date of the aforesaid
approval by the Securities and Exchange Commission. (n)
TITLE II
INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS
Section 10. Number and qualifications of incorporators. Any number
of natural persons not less than five (5) but not more than fifteen (15),
all of legal age and a majority of whom are residents of the Philippines,
may form a private corporation for any lawful purpose or purposes.
Each of the incorporators of s stock corporation must own or be a
subscriber to at least one (1) share of the capital stock of the
corporation. (6a)
Section 11. Corporate term. A corporation shall exist for a period not
exceeding fifty (50) years from the date of incorporation unless sooner
dissolved or unless said period is extended. The corporate term as
originally stated in the articles of incorporation may be extended for
periods not exceeding fifty (50) years in any single instance by an
amendment of the articles of incorporation, in accordance with this
Code; Provided, That no extension can be made earlier than five (5)
years prior to the original or subsequent expiry date(s) unless there are
justifiable reasons for an earlier extension as may be determined by
the Securities and Exchange Commission. (6)
Section 12. Minimum capital stock required of stock corporations.
Stock corporations incorporated under this Code shall not be required
to have any minimum authorized capital stock except as otherwise
specifically provided for by special law, and subject to the provisions
of the following section.
Section 13. Amount of capital stock to be subscribed and paid for the
purposes of incorporation. At least twenty-five percent (25%) of the
authorized capital stock as stated in the articles of incorporation must
be subscribed at the time of incorporation, and at least twenty-five
(25%) per cent of the total subscription must be paid upon
subscription, the balance to be payable on a date or dates fixed in the
contract of subscription without need of call, or in the absence of a
fixed date or dates, upon call for payment by the board of directors:
Provided, however, That in no case shall the paid-up capital be less
than five Thousand (P5,000.00) pesos. (n)
Section 14. Contents of the articles of incorporation. All corporations
organized under this code shall file with the Securities and Exchange
Commission articles of incorporation in any of the official languages
duly signed and acknowledged by all of the incorporators, containing
substantially the following matters, except as otherwise prescribed by
this Code or by special law:
1. The name of the corporation;
2. The specific purpose or purposes for which the
corporation is being incorporated. Where a corporation has
more than one stated purpose, the articles of incorporation
shall state which is the primary purpose and which is/are the
secondary purpose or purposes: Provided, That a non-stock
 CORPORATION LAW
corporation may not include a purpose which would change
or contradict its nature as such;
3. The place where the principal office of the corporation is
to be located, which must be within the Philippines;
4. The term for which the corporation is to exist;
5. The names, nationalities and residences of the
incorporators;
6. The number of directors or trustees, which shall not be
less than five (5) nor more than fifteen (15);
7. The names, nationalities and residences of persons who
shall act as directors or trustees until the first regular
directors or trustees are duly elected and qualified in
accordance with this Code;
8. If it be a stock corporation, the amount of its authorized
capital stock in lawful money of the Philippines, the number
of shares into which it is divided, and in case the share are
par value shares, the par value of each, the names,
nationalities and residences of the original subscribers, and
the amount subscribed and paid by each on his subscription,
and if some or all of the shares are without par value, such
fact must be stated;
9. If it be a non-stock corporation, the amount of its capital,
the names, nationalities and residences of the contributors
and the amount contributed by each; and
10. Such other matters as are not inconsistent with law and
which the incorporators may deem necessary and
convenient.
The Securities and Exchange Commission shall not accept the articles
of incorporation of any stock corporation unless accompanied by a
sworn statement of the Treasurer elected by the subscribers showing
that at least twenty-five (25%) percent of the authorized capital stock
of the corporation has been subscribed, and at least twenty-five (25%)
of the total subscription has been fully paid to him in actual cash
and/or in property the fair valuation of which is equal to at least
twenty-five (25%) percent of the said subscription, such paid-up
capital being not less than five thousand (P5,000.00) pesos.
Section 15. Forms of Articles of Incorporation. Unless otherwise
prescribed by special law, articles of incorporation of all domestic
corporations shall comply substantially with the following form:
Section 16. Amendment of Articles of Incorporation. Unless
otherwise prescribed by this Code or by special law, and for legitimate
purposes, any provision or matter stated in the articles of
incorporation may be amended by a majority vote of the board of
directors or trustees and the vote or written assent of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock,
without prejudice to the appraisal right of dissenting stockholders in
accordance with the provisions of this Code, or the vote or written
assent of at least two-thirds (2/3) of the members if it be a non-stock
corporation.
JKYPGRGN
The original and amended articles together shall contain all provisions
required by law to be set out in the articles of incorporation. Such
articles, as amended shall be indicated by underscoring the change or
changes made, and a copy thereof duly certified under oath by the
corporate secretary and a majority of the directors or trustees stating
the fact that said amendment or amendments have been duly
approved by the required vote of the stockholders or members, shall
be submitted to the Securities and Exchange Commission.
The amendments shall take effect upon their approval by the
Securities and Exchange Commission or from the date of filing with the
said Commission if not acted upon within six (6) months from the date
of filing for a cause not attributable to the corporation.
Section 17. Grounds when articles of incorporation or amendment may
be rejected or disapproved. The Securities and Exchange Commission
may reject the articles of incorporation or disapprove any amendment
thereto if the same is not in compliance with the requirements of this
Code: Provided, That the Commission shall give the incorporators a
reasonable time within which to correct or modify the objectionable
portions of the articles or amendment. The following are grounds for
such rejection or disapproval:
1. That the articles of incorporation or any amendment
thereto is not substantially in accordance with the form
prescribed herein;
2. That the purpose or purposes of the corporation are
patently unconstitutional, illegal, immoral, or contrary to
government rules and regulations;
3. That the Treasurers Affidavit concerning the amount of
capital stock subscribed and/or paid is false;
4. That the percentage of ownership of the capital stock to
be owned by citizens of the Philippines has not been
complied with as required by existing laws or the
Constitution.
No articles of incorporation or amendment to articles of incorporation
of banks, banking and quasi-banking institutions, building and loan
associations, trust companies and other financial intermediaries,
insurance companies, public utilities, educational institutions, and
other corporations governed by special laws shall be accepted or
approved by the Commission unless accompanied by a favorable
recommendation of the appropriate government agency to the effect
that such articles or amendment is in accordance with law. (n)
Section 18. Corporate name. No corporate name may be allowed by
the Securities and Exchange Commission if the proposed name is
identical or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law or is
patently deceptive, confusing or contrary to existing laws. When a
change in the corporate name is approved, the Commission shall issue
an amended certificate of incorporation under the amended name. (n)
Section 19. Commencement of corporate existence. A private
corporation formed or organized under this Code commences to have
corporate existence and juridical personality and is deemed
incorporated from the date the Securities and Exchange Commission
issues a certificate of incorporation under its official seal; and
thereupon the incorporators, stockholders/members and their
successors shall constitute a body politic and corporate under the
 CORPORATION LAW
name stated in the articles of incorporation for the period of time
mentioned therein, unless said period is extended or the corporation
is sooner dissolved in accordance with law. (n)
Section 20. De facto corporations. The due incorporation of any
corporation claiming in good faith to be a corporation under this Code,
and its right to exercise corporate powers, shall not be inquired into
collaterally in any private suit to which such corporation may be a
party. Such inquiry may be made by the Solicitor General in a quo
warranto proceeding. (n)
Section 21. Corporation by estoppel. All persons who assume to act
as a corporation knowing it to be without authority to do so shall be
liable as general partners for all debts, liabilities and damages incurred
or arising as a result thereof: Provided, however, That when any such
ostensible corporation is sued on any transaction entered by it as a
corporation or on any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate personality.
On who assumes an obligation to an ostensible corporation as such,
cannot resist performance thereof on the ground that there was in fact
no corporation. (n)
Section 22. Effects on non-use of corporate charter and continuous
inoperation of a corporation. If a corporation does not formally
organize and commence the transaction of its business or the
construction of its works within two (2) years from the date of its
incorporation, its corporate powers cease and the corporation shall be
deemed dissolved. However, if a corporation has commenced the
transaction of its business but subsequently becomes continuously
inoperative for a period of at least five (5) years, the same shall be a
ground for the suspension or revocation of its corporate franchise or
certificate of incorporation. (19a)
This provision shall not apply if the failure to organize, commence the
transaction of its businesses or the construction of its works, or to
continuously operate is due to causes beyond the control of the
corporation as may be determined by the Securities and Exchange
Commission.
14. Pioneer Insurance vs CA (1989)
Business Organization Corporation Law When De Facto Partnership
Does Not Exist
F: Jacob Lim was the owner of Southern Air Lines, a single
proprietorship. In 1965, Lim convinced Constancio Maglana, Modesto
Cervantes, Francisco Cervantes, and Border Machinery and Heavy
Equipment Company (BORMAHECO) to contribute funds and to buy
two aircrafts which would form part a corporation which will be the
expansion of Southern Air Lines. Maglana et al then contributed and
delivered money to Lim.
But instead of using the money given to him to pay in full the aircrafts,
Lim, without the knowledge of Maglana et al, made an agreement with
Pioneer Insurance for the latter to insure the two aircrafts which were
brought in installment from Japan Domestic Airlines (JDA) using said
aircrafts as security. So when Lim defaulted from paying JDA, the two
aircrafts were foreclosed by Pioneer Insurance.
It was established that no corporation was formally formed between
Lim and Maglana et al.
JKYPGRGN
I: Whether or not Maglana et al must share in the loss as general
partners.
H: No. There was no de facto partnership. Ordinarily, when co-
investors agreed to do business through a corporation but failed to
incorporate, a de facto partnership would have been formed, and as
such, all must share in the losses and/or gains of the venture in
proportion to their contribution. But in this case, it was shown that Lim
did not have the intent to form a corporation with Maglana et al. This
can be inferred from acts of unilaterally taking out a surety from
Pioneer Insurance and not using the funds he got from Maglana et al.
The record shows that Lim was acting on his own and not in behalf of
his other would-be incorporators in transacting the sale of the
airplanes and spare parts.
15. Cagayan Fishing Development vs Sandigo (1937)
DE FACTO CORPORATIONS
F: Manuel Tabora, the registered owner of four parcels of land,
executed in favour of the Philippine National Bank a first mortgage on
the four parcels of land to guarantee the payment of a loan in the sum
of P8,000. A second mortgage on the same lands were executed to
guarantee the payment of another loan amounting to P7,000. A third
mortgage was then executed on the same lands but this time in favour
of Severina Buzon to whom Tabora was indebted in the sum of P2,900.
Tabora sold to the Cagayan Fishing Development Co., Inc. under the
process of incorporation, in consideration of one peso (P1) the four
parcels of land subject to the mortgages in favor of the Philippine
National Bank and Severina Buzon and, to the condition that the
certificate of title to said lands shall not be transferred to the name of
the plaintiff company until the latter has fully and completely paid
Tabora's indebtedness to the Philippine National Bank.
A year after the plaintiff company filed its articles of incorporation with
the Bureau of Commerce and Industry, the board of directors adopted
a resolution authorizing its president to sell the four parcels of lands to
Teodoro Sandiko for P42,000 wherein Sandiko shall receive the rights,
titles, and interest in and to the four parcels of land and in turn shall
obligate himself to shoulder the three mortgages referred to.
The defendant having failed to pay the sum stated in the promissory
note, plaintiff company brought an action in the Court of First Instance
of Manila praying that judgment be rendered against the defendant
for the sum of P25,300.
The CFI rendered judgment absolving defendant. The trial court held
that deed of sale was invalid because of vice in consent and
repugnancy to law because at the time the land was transferred, the
plaintiff corporation have not yet been duly organized.
I: WON Cagayan Fishing Development Co., Inc. acquired the four
parcels of land.
H: No, Cagayan Fishing Development Co., Inc. did not acquire the four
parcels of land from Tabora since the actual transfer of the land was
effected five months before the incorporation of Cagayan fishing
Development Co., Inc and unquestionably, the plaintiff was not yet
incorporated when it entered into a contract of sale.
 CORPORATION LAW
The plaintiff company was not even a de facto corporation at the time.
Not being in legal existence then, it did not possess juridical capacity
to enter into the contract.
Corporations are creatures of the law, and can only come into
existence in the manner prescribed by law. As has already been stated,
general law authorizing the formation of corporations are general
offers to any persons who may bring themselves within their
provisions; and if conditions precedent are prescribed in the statute,
or certain acts are required to be done, they are terms of the offer,
and must be complied with substantially before legal corporate
existence can be acquired. (14 C. J., sec. 111, p. 118.)
That a corporation should have a full and complete organization and
existence as an entity before it can enter into any kind of a contract or
transact any business, would seem to be self evident. . . . A
corporation, until organized, has no being, franchises or faculties. Nor
do those engaged in bringing it into being have any power to bind it by
contract, unless so authorized by the charter there is not a corporation
nor does it possess franchise or faculties for it or others to exercise,
until it acquires a complete existence. (Gent vs. Manufacturers and
Merchant's Mutual Insurance Company, 107 Ill., 652, 658.)
The contract here was entered into not between Manuel Tabora and
a non-existent corporation but between the Manuel Tabora as owner
of the four parcels of lands on the one hand and the same Manuel
Tabora, his wife and others, as mere promoters of a corporations on
the other hand.
A corporation, until organized, has no life and therefore no faculties. It
is, as it were, a child in ventre sa mere. This is not saying that under no
circumstances may the acts of promoters of a corporation be ratified
by the corporation if and when subsequently organized.
Moreover, the defendant always regarded Tabora as the owner of the
lands and dealt with Tabora directly. Jose Ventura, president of the
plaintiff corporation, intervened only to sign the contract in behalf of
the plaintiff.
Tabora approached the defendant Sandiko and succeeded in the
making him purchase the four parcels of land and assume the payment
of indebtedness to the Philippine National Bank.
If the plaintiff corporation could not and did not acquire the four
parcels of land here involved, it follows that it did not possess any
resultant right to dispose of them by sale to the defendant, Teodoro
Sandiko.
16. International Express Travel and Tour Services vs CA, Oct. 19,
2000
Business Organization Corporation Law Corporation by Estoppel
When Applied
F: In 1989, International Express Travel & Tour Services, Inc. (IETTI),
offered to the Philippine Football Federation (PFF) its travel services
for the South East Asian Games. PFF, through Henri Kahn, its president,
agreed. IETTI then delivered the plane tickets to PFF, PFF in turn made
a down payment. However, PFF was not able to complete the full
payment in subsequent installments despite repeated demands from
IETTI. IETTI then sued PFF and Kahn was impleaded as a co-defendant.
JKYPGRGN
Kahn averred that he should not be impleaded because he merely
acted as an agent of PFF which he averred is a corporation with
separate and distinct personality from him. The trial court ruled
against Kahn and held him personally liable for the said obligation (PFF
was declared in default for failing to file an answer). The trial court
ruled that Kahn failed to prove that PFF is a corporation. The Court of
Appeals however reversed the decision of the trial court. The Court of
Appeals took judicial notice of the existence of PFF as a national sports
association; that as such, PFF is empowered to enter into contracts
through its agents; that PFF is therefore liable for the contract entered
into by its agent Kahn. The CA further ruled that IETTI is in estoppel;
that it cannot now deny the corporate existence of PFF because it had
contracted and dealt with PFF in such a manner as to recognize and in
effect admit its existence.
I: Whether or not the Court of Appeals is correct.
H: No. PFF, upon its creation, is not automatically considered a
national sports association. It must first be recognized and accredited
by the Philippine Amateur Athletic Federation and the Department of
Youth and Sports Development. This fact was never substantiated by
Kahn. As such, PFF is considered as an unincorporated sports
association. And under the law, any person acting or purporting to act
on behalf of a corporation which has no valid existence assumes such
privileges and becomes personally liable for contract entered into or
for other acts performed as such agent. Kahn is therefore personally
liable for the contract entered into by PFF with IETTI.
There is also no merit on the finding of the CA that IETTI is in estoppel.
The application of the doctrine of corporation by estoppel applies to
a third party only when he tries to escape liability on a contract from
which he has benefited on the irrelevant ground of defective
incorporation. In the case at bar, IETTI is not trying to escape liability
from the contract but rather is the one claiming from the contract.
17. Lim Tong Lim vs Philippine Fishing Gear Industries, Nov. 3,
1999
Business Organization Partnership, Agency, Trust Corporation by
Estoppel
F: It was established that Lim Tong Lim requested Peter Yao to engage
in commercial fishing with him and one Antonio Chua. The three
agreed to purchase two fishing boats but since they do not have the
money they borrowed from one Jesus Lim (brother of Lim Tong Lim).
They again borrowed money and they agreed to purchase fishing nets
and other fishing equipments. Now, Yao and Chua represented
themselves as acting in behalf of Ocean Quest Fishing Corporation
(OQFC) they contracted with Philippine Fishing Gear Industries (PFGI)
for the purchase of fishing nets amounting to more than P500k.
They were however unable to pay PFGI and so they were sued in their
own names because apparently OQFC is a non-existent corporation.
Chua admitted liability and asked for some time to pay. Yao waived his
rights. Lim Tong Lim however argued that hes not liable because he
was not aware that Chua and Yao represented themselves as a
corporation; that the two acted without his knowledge and consent.
I: Whether or not Lim Tong Lim is liable.
H: Yes. From the factual findings of both lower courts, it is clear that
Chua, Yao and Lim had decided to engage in a fishing business, which
 CORPORATION LAW
they started by buying boats worth P3.35 million, financed by a loan
secured from Jesus Lim. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally among them
the excess or loss. These boats, the purchase and the repair of which
were financed with borrowed money, fell under the term common
fund under Article 1767. The contribution to such fund need not be
cash or fixed assets; it could be an intangible like credit or industry.
That the parties agreed that any loss or profit from the sale and
operation of the boats would be divided equally among them also
shows that they had indeed formed a partnership.

Lim Tong Lim cannot argue that the principle of corporation by

estoppels can only be imputed to Yao and Chua. Unquestionably, Lim
Tong Lim benefited from the use of the nets found in his boats, the
boat which has earlier been proven to be an asset of the partnership.
Lim, Chua and Yao decided to form a corporation. Although it was
never legally formed for unknown reasons, this fact alone does not
preclude the liabilities of the three as contracting parties in
representation of it. Clearly, under the law on estoppel, those acting
on behalf of a corporation and those benefited by it, knowing it to be
without valid existence, are held liable as general partners.

18. Lozano vs Delos Santos, June 19, 1997

Business Organization Corporation Law Jurisdiction of the SEC

F: Reynaldo Lozano was the president of KAMAJDA (Kapatirang

Mabalacat-Angeles Jeepney Drivers Association, Inc.). Antonio Anda
was the president of SAMAJODA (Samahang Angeles-Mabalacat
Jeepney Operators and Drivers Association, Inc.). In 1995, the two
agreed to consolidate the two corporations, thus, UMAJODA (Unified
Mabalacat-Angeles Jeepney Operators and Drivers Association, Inc.).
In the same year, elections for the officers of UMAJODA were held.
Lozano and Anda both ran for president. Lozano won but Anda alleged
fraud and the elections and thereafter he refused to participate with
UMAJODA. Anda continued to collect fees from members of
SAMAJODA and refused to recognize Lozano as president of
UMAJODA. Lozano then filed a complaint for damages against Anda
with the MCTC of Mabalacat (and Magalang), Pampanga. Anda moved
for the dismissal of the case for lack of jurisdiction. The MCTC judge
denied Andas motion. On certiorari, Judge Eliezer De Los Santos of
RTC Angeles City reversed and ordered the dismissal of the case on the
ground that what is involved is an intra-corporate dispute which
should be under the jurisdiction of the Securities and Exchange
Commission (SEC).

I: Whether or not the RTC Judge is correct.

H: No. The regular courts have jurisdiction over the case. The case
between Lozano and Anda is not an intra-corporate dispute.
UMAJODA is not yet incorporated. It is yet to submit its articles of
incorporation to the SEC. It is not even a dispute between KAMAJDA
or SAMAJODA. The controversy between Lozano and Anda does not
arise from intra-corporate relations but rather from a mere conflict
from their plan to merge the two associations.

NOTE: Regular courts can now hear intra-corporate disputes

(expanded jurisdiction).

JKYPGRGN