Corporation Law Reviewer
Name or the nature of business
Part 1- CORPORATIONS
Types of Business Organizations
1. Sole Proprietorship- form of business
organization with only one proprietary
owner
- A single person conducts under his
own name or business name.
- Neither a creature of statute nor
contract. The reportorial
requirements imposed on
corporations or partnerships do not
apply to sole proprietorship
- Unorganized business owned by a
person; only his or his agent’s acts
binds the corporation. The
individual proprietor is the only one
liable to his business debts; he is
the only one to share in the profits.
- No separate legal personality from
its proprietor or its owner.
- Only method of obtaining funds are
personal contributions from the
proprietor or loans from financial
institutions.
- Totally dependent upon the life of
the proprietor.
- A proprietor who does not register
his business name as required
under Act No. 3883 is subject to the
following prohibitions.
a. He cannot use or sign the
business name in connection
with his business on any written
or printed receipts or any
evidence of agreement or other
documents;
b. He cannot exhibit the business
name or sign thereof in plain
view
- The following names cannot be
used as business name
a.
itself is illegal, offensive,
scandalous or contrary to
propriety
b. Names which are identical or
resemble a BN already
registered with the DTI, SEC,
CDA, IPO, FDA, DOLE or any
other government office
authorized by law to register
names, as likely to cause
confusion or mistake in law to
register names, as likely to
cause confusion or mistake in
the minds of the public taking
into consideration the nature of
the business, product/service
handled, location/place of
business, dominant word, use
of descriptive words, and
spelling, sound and/or
meaning.
c. Names composed of purely
generic or geographic words
d. Names which by law or
regulation cannot be
appropriated
e. Names, words, or terms or
expressions used to designate
or distinguish or suggestive of
quality of any class of goods,
articles, merchandise, or service
f. Names or abbreviation of
names used by the government
in its governmental functions
g. Names or abbreviations of
names of any nation, inter-
governmental or international
organization
h. Names which are deceptive,
misleading or which
misrepresents the nature of the
business.
2. Partnership- when two or more persons
bind themselves to contribute money,
industry, or property to a common
fund, with the intention of dividing the
profits among themselves.
- Registration with the SEC is
necessary where the capital of the
partnership is P3,000 or more.
- Mere failure to register with the
SEC does not invalidate a contract
that has all the essential requisites
of a partnership.
- Purpose of registration is to give
notice to third persons.
- A partnership may be distinguished
form a corporation:
a. As to manner of creation-
partnership is created by mere
agreement while the existence
of the corporation commence
only from the issuance of a
Certificate of Registration of the
SEC or in proper cases, passage
of a special law
b. As to the number of organizers-
even two persons may form a
partnership while a corporation
needs at least five
incorporators
c. As to powers- a corporation is
more restricted in its powers
because of its limited
personality while partnership is
subject only to what may be
agreed upon by the partners.
d. Authority of those who
compose- there is mutual
agency in partnership and each
general partner can represent
and bind the partnership while
stockholders are not agents of
the corporation in the absence
of express authority
e. Transfer of interest- corporate
shares are freely transferable
without the consent of other
stockholders (unless there is a
stipulation) while interest in the
partnership cannot be
transferred without consent of
other persons.
f. As to liability of those who
compose- the liability of
stockholders and members for
corporate obligations is limited
to their investment while
partners may be liable beyond
their investment.
- Rights of succession- there is no
right of succession in partnership as
death of a general partner dissolves
the partnership
3. Joint Accounts (Sociedad de Cuentas en
Participacion)- is present when there is
an arrangement whereby merchants
may interest themselves in the
transaction of other merchants,
contributing thereto the amount of
capital they may agree upon, and
participating in the favorable and
unfavorable results thereof in the
proportion they may determine.
- Commonly called as “accidental
partnership”
- As distinguished from partnership
a. As to juridical personality- a
joint account has no juridical
personality while a partnership
has a personality separate and
distinct from the partners
b. As to business name- no
commercial name common to
all participants can be adopted
in joint accounts. A partnership
can adopt a partnership name.
c. As to management- the general
partners are all managers in a
 partnership while in a joint
account, only the ostensible
partner manages and transacts
business in his own name and
under his individual liability.
d. As to parties in cases- in a joint
account, only the ostensible
partner—the person carrying
on the joint business—can be
sued and is liable to persons
transacting with the former. In
partnership, all general
partners may be liable even up
to the extent of their personal
properties and may therefore
be sued by third persons.
- Duty to liquidate is imposed on the
manager. If the manager failed to
comply with his statutory duty to
account the proceeds of the
partners, the partners are entitled
to file an action to compel
accounting, and the payment of
their respective shares of the
capital invested, together with
damages.
- In case of the liquidation of a joint
account, the sale of the firm assets
is necessarily uncertain and
eventual because the selling price
that may be obtained from the
property and effects that comprise
such assets is uncertain. The price
received should be allotted in the
same proportion as that fixed in the
contract for the division off the
profits and losses
4. Business Trust- a legal relation whereby
one person called the trustor, conveys a
property to another for the benefit of a
person called the beneficiary. The
person whom confidence is reposed as
regards the property is called the
trustee.
- Either express or implied.
- The rights and obligations of the
parties are expressly provided for in
their agreement called a trust
agreement
- Trust business is an activity resulting
from a trustor-trustee relationship
(trusteeship) involving the
appointment of a trustee by a
trustor for the administration,
holding, management of funds
and/or properties of the trustor by
the trustee for the use, benefit or
advantage of the trustor or of
others called beneficiaries
5. Joint Venture- an association of persons
or companies jointly undertaking some
commercial enterprise
- Generally, all contribute assets and
share risks
- Requires a community of interest in
the performance of the subject, a
right to direct and govern the policy
connected therewith, and duty,
which may be altered by agreement
to share both in profit and losses.
- Formed for some temporary
purpose; governed by the law of
partnerships
- Corporations may enter into joint
venture agreements. The contract
or agreement need not be
registered with the SEC provided
that the joint venture will not result
in the formation of a partnership or
corporation.
6. Cooperatives- is an autonomous and
duly registered association of persons,
with a common bond of interest, who
have voluntarily joined together to
achieve their social, economic, and
cultural needs and aspirations by
making equitable contributions ot the
capital required, patronizing their
 products and services and accepting a
fair share of the risks and benefits of
the undertaking in accordance with
universally accepted cooperative
principles.
- Governing law- The Philippine
Cooperative Code of 2009 (RA No.
9520)
7. Syndicate- group of people who come
together to work for a common aim.
-commonly encountered among
insurance companies who may be
underwriting a large risk or banks that
are lending a huge amount.
- Syndication is the practice of dividing
investment risk between several
persons on order to minimize individual
risk
8. Corporations- to be discussed further
Other business organizations
1. Homeowner’s Associations- non-stock,
non-profit corporation registered with
the HLURB, or one previously with
theHome Guaranty Corporation, or the
SEC, organized by owners or purchasers
of a lot in a subdivision/village or other
residential real property located within
the jurisdiction of the association
- Includes awardees, usufructuaries,
legal occupants and/or lessees of a
housing unit and/or lot in a
government socialized economic
housing or relocation project and
other urban estate; or
underprivileged and homeless
citizens in the process of being
accredited as usufructuaries or
awardees of ownership rights.
2. Sociedad Anonima- approximation and
has an affinity with, but not exactly the
same as a corporation.
- Limited liability rule, was to a
certain extent applicable.
- Upon the passage of the
Corporation Law, those that were
already in existence were allowed
to continue as such.
- The purpose of the Philippine
Commission in repealing this part of
the Code of Commerce is to compel
commercial entities thereafter
organize and incorporate under the
Corporation Law, unless they
should prefer to adopt some other
form of partnership.
- Continued to be governed by the
laws that were in force prior to the
passage of the Corporation Law.
- No longer allowed to extend its
term because extension was not
allowed under the Corporation Law.
3. Unincorporated Associations-
organization of persons that do not
claim to be a part of a corporation
- By agreement, may perform acts
not contrary to law, morals, good
customs, public order or public
policy
- Applicable rule would depend on
the circumstances
- Entities without separate juridical
personality.
Advantages of a Corporation
1. The capacity to act as a legal unit
2. Limitation of or exemption from,
individual liability of shareholders
3. Continuity of existence
4. Transferability of shares
5. Centralized management of Board of
Directors
6. Professional management
7. Standardized method of organization
and finance
8. Easy capital generation.
 Disadvantages of a Corporation
1. Prone to double taxation
2. They are subject to greater
governmental regulation or control
3. A corporation may be burdened with an
inefficient management if stockholders
cannot organize to oppose
management
4. Limited liability of stockholders may at
times translate into limited ability to
raise creditor capital
5. It is harder or more complicated to
maintain
6. The owners or stockholders do not
participate in the day-to-day
management.
Cases:
1. HARDEN V. BENGUET CONSOLIDATED
MINING CO.
DOCTRINE: A sociedad anonima is something
very much like the English joint stock company,
with features resembling those of both the
partnership is shown in the fact that sociedad,
the generic component of its name in Spanish,
is the same word that is used in that language
to designate other forms of partnership, and in
its organization it is constructed along the same
general lines as the ordinary partnership.
In section 75 of the Corporation Law, a
provision is found making the sociedad anonima
subject to the provisions of the Corporation Law
"so far as such provisions may be applicable",
and giving to the sociedades anonimas
previously created in the Islands the option to
continue business as such or to reform and
organize under the provisions of the
Corporation Law.
FACTS:
Benguet Consolidated Mining Co. was organized
in June, 1903, as a sociedad anonima in
conformity with the provisions of the Spanish
Law. Balatoc Mining Co. was organized in
December 1925, as a corporation in conformity
with the provisions of the Corporation Law (Act
No. 1459). Both were organized for mining of
gold and their respective properties are located
only a few miles apart in Benguet. Balatoc
capital stock consists of one million shares of
the par value of one peso (P1) each.
When the Balatoc was first organized, its
properties were largely undeveloped. To
improve its operations, the company’s
committee approached A. W. Beam, then
president and general manager of the Benguet
Company, to secure the capital necessary to the
development of the Balatoc property. A
contract was entered into wherein Benguet will
(1) construct a milling plant for the Balatoc
mine, of a capacity of 100 tons of ore per day,
and with an extraction of at least 85 per cent of
the gold content; (2) erect an appropriate
power plant. In return, Benguet will receive
from Balatoc shares of a par value of P600,000.
The total cost incurred by Benguet in
developing Balatoc was P1,417,952.15. A
certificate for 600,000 shares of the stock of the
Balatoc Company was given to Benguet and the
excess value was paid to Benguet by Balatoc in
cash. Due to the improvements made by
Benguet, the value of shares of Balatoc
increased in the market (from P1 to more than
P11) and dividends enriched its stockholders.
Harden, the owner of thousands of shares of
Balatoc, questioned the transfer of 600,000
shares to Benguet with the success of the
development.

ISSUE:
W/N, assuming the first question to be
answered in the affirmative, the Benguet
Company, which was organized as a sociedad
anonima, is a corporation within the meaning of
the language used by the Congress of the
United States, and later by the Philippine
Legislature, prohibiting a mining corporation
from becoming interested in another mining
corporation?
HELD:
Having shown that the plaintiffs in this case
have no right of action against Benguet
Company for the infraction of the law supposed
to have been committed, we forego any
discussion of the further question whether a
socieda anonima created under Spanish Law,
such as the Benguet Company, is a corporation
within the meaning of the prohibitory provision
already so many times mentioned.
A sociedad anonima is something very much
like the English joint stock company, with
features resembling those of both the
partnership is shown in the fact that sociedad,
the generic component of its name in Spanish,
is the same word that is used in that language
to designate other forms of partnership, and in
its organization it is constructed along the same
general lines as the ordinary partnership.
In section 75 of the Corporation Law, a
provision is found making the sociedad anonima
subject to the provisions of the Corporation Law
"so far as such provisions may be applicable",
and giving to the sociedades anonimas
previously created in the Islands the option to
continue business as such or to reform and
organize under the provisions of the
Corporation Law.
The provision in Section 75 of the Act Congress
of July 1, 1902 (Philippine Bill), generally
prohibiting corporations engaged in mining and
members of such from being interested in any
other corporation engaged in mining, was
amended by section 7 of Act No. 3518 of the
Philippine Legislature, approved by Congress
March 1, 1929. The change in the law effected
by this amendment was in the direction of
liberalization. Thus, the inhibition contained in
the original provision against members of a
corporation engaged in agriculture or mining
from being interested in other corporations
engaged in agriculture or in mining was so
modified as merely to prohibit any such
member from holding more than fifteen per
centum of the outstanding capital stock of
another such corporation. Moreover, the
explicit prohibition against the holding by any
corporation (except for irrigation) of an interest
in any other corporation engaged in agriculture
or in mining was so modified as to limit the
restriction to corporations organized for the
purpose of engaging in agriculture or in mining.
2. BENGUET CONSOLIDATED MINING CO.
V. PINEDA
DOCTRINE: Benguet Mining has no vested right
to extend its life. It is a well-settled rule that no
person has a vested interest in any rule of law
entitling him to insist that it shall remain
unchanged for his benefit. Had Benguet Mining
agreed to extend its life prior to the passage of
the Corporation Code of 1906 such right would
have vested. But when the law was passed in
1906, Benguet Mining was already deprived of
such right.
FACTS:
Benguet Consolidated Mining Company was
organized in 1903 under the Spanish Code of
Commerce of 1886 as a sociedad anonima. It
was agreed by the incorporators that Benguet
Mining was to exist for 50 years.
In 1906, Act 1459 (Corporation Law) was
enacted which superseded the Code of
Commerce of 1886. Act 1459 essentially
introduced the American concept of a
corporation. The purpose of the law, is to
eradicate the Spanish Code and make
sociedades anonimas obsolete.
In 1953, the board of directors of Benguet
Mining submitted to the Securities and
Exchange Commission (SEC) an application for
them to be allowed to extend the lifespan of
Benguet Mining. Then Commissioner Mario
Pineda denied the application as it ruled that
the extension requested is contrary to Section
18 of the Corporation Law of 1906 which
provides that the life of a corporation shall not
be extended by amendment beyond the time
fixed in their original articles.
Benguet Mining contends that they have a
vested right under the Code of Commerce of
1886 because they were organized under said
law; that under said law, Benguet Mining is
allowed to extend its life by simply amending its
articles of incorporation; that the prohibition in
Section 18 of the Corporation Code of 1906
does not apply to sociedades anonimas already
existing prior to the Law’s enactment; that even
assuming that the prohibition applies to
Benguet Mining, it should be allowed to be
reorganized as a corporation under the said
Corporation Law.
ISSUE:
Whether or not Benguet Mining is correct.
HELD:
No. Benguet Mining has no vested right to
extend its life. It is a well-settled rule that no
person has a vested interest in any rule of law
entitling him to insist that it shall remain
unchanged for his benefit. Had Benguet Mining
agreed to extend its life prior to the passage of
the Corporation Code of 1906 such right would
have vested. But when the law was passed in
1906, Benguet Mining was already deprived of
such right.
To allow Benguet Mining to extend its life will
be inimical to the purpose of the law which
sought to render obsolete sociedades
anonimas. If this is allowed, Benguet Mining will
unfairly do something which new corporations
organized under the new Corporation Law can’t
do – that is, exist beyond 50 years. Plus, it
would have reaped the benefits of being a
sociedad anonima and later on of being a
corporation. Further, under the Corporation
Code of 1906, existing sociedades anonimas
during the enactment of the law must choose
whether to continue as such or be organized as
a corporation under the new law. Once a
sociedad anonima chooses one of these, it is
already proscribed from choosing the other.
Evidently, Benguet Mining chose to exist as a
sociedad anonima hence it can no longer elect -
to become a corporation when its life is near its
end.
Trustees of Dartmouth Coll. v. Woodward, 17
U.S. 518 (1819)
in its application to business charters,
protecting businesses and corporations from a
great deal of government regulation.
Non-impairment clause

Facts of the case The non-impairment clause is contained in

Section 10, Article III of the Constitution, which
In 1816, the New Hampshire legislature
provides that no law impairing the obligation of
attempted to change Dartmouth College-- a
contracts shall be passed. The non-impairment
privately funded institution--into a state
clause is limited in application to laws that
university. The legislature changed the school's
derogate from prior acts or contracts by
corporate charter by transferring the control of
enlarging, abridging or in any manner changing
trustee appointments to the governor. In an
the intention of the parties.[29] There is
attempt to regain authority over the resources
impairment if a subsequent law changes the
of Dartmouth College, the old trustees filed suit
terms of a contract between the parties,
against William H. Woodward, who sided with
imposes new conditions, dispenses with those
the new appointees.
agreed upon or withdraws remedies for the
Question enforcement of the rights of the parties.

Did the New Hampshire legislature

unconstitutionally interfere with Dartmouth
International Express Travel And Tour Services
College's rights under the Contract Clause?
Inc. vs Court of Appeals
Conclusion
343 SCRA 674 [GR No. 119002 October 19,
The Contract Clause (Art 1, Section 10, Clause 1) 2000]
prohibits states from violating contracts with
Facts: On June 30, 1989, petitioner International
private or public corporations. In a 6-to-1
Express Travel and Tours Services Inc., through
decision, the Court concluded that the Contract
its managing director, wrote a letter to the
Clause applies to private as well as public
Philippine Football Federation through its
corporations. The Court held that the College's
President Henri Kahn, wherein the former
corporate charter qualified as a contract
offered its services as a travel agency to the
between private parties, with which the
latter. The offer was accepted. Petitioner
legislature could not interfere. The fact that the
secured the airline tickets for the trips of the
government had commissioned the charter did
athletes and officials of the Federation to the
not transform the school into a civil institution.
South East Asian Games in Kuala Lumpur as well
Chief Justice Marshall's opinion emphasized
as various other trips to the People’s Republic
that the term "contract" referred to
of China and Brisbane. The total cost of the
transactions involving individual property rights,
tickets amounted to Php449,654.83. For the
not to "the political relations between the
tickets received, the Federation made two
government and its citizens."
partial payments, both in September of 1989 in
The founders of Dartmouth, the court ruled, the total amount of Php176,467.50. On October
contracted with the trustees for the perpetual 4, 1989, petitioner wrote the Federation,
application of the funds provided by the through the private respondent a demand letter
founders. The decision had far-reaching impact requesting for the amount of Php265,844.33.
On October 30, 1989, the Federation, through
the project gintong alay, paid the amount of
Php31,603. On December 27, 1989, Henri Kahn
issued a personal check in the amount of
Php50,000 as partial payment for the
outstanding balance of the Federation.
Thereafter, no further payments were made
despite repeated demands. Hence, this petition.
Issue: Whether or not private respondent can
be made personally liable for the liabilities of
the Philippines Football Federation.
Held: Yes. A voluntary unincorporated
association, like defendant Federation has no
power to enter into, or to ratify a contract. The
contract entered into by its officers or agents on
behalf of such association is binding or, as
enforceable against it. The officers or agents are
themselves personally liable.
In attempting to prove the juridical existence of
the Federation, Henri Kahn attached to his
motion for reconsideration before the trial
court a copy of the constitution and by-laws of
the Philippine Football Federation.
Unfortunately, the same does not prove that
said Federation has indeed been recognized and
accredited by either the Philippine Amateur
Athletic Federation or the Department of Youth
and Sports Development. Accordingly, we rule
that the Philippine Football Federation is not a
national sports association within the purview
of the aforementioned laws and does not have
corporate existence of its own.
Thus being said, it follows that private
respondent Henri Kahn should be liable for the
unpaid obligations of the unincorporated
Philippine Football Federation. It is a settled
principle in corporation law that any person
acting or purporting to act on behalf of the
corporation which has no valid existence
assumed such privileges and becomes
personally liable for contract entered into or for
other acts performed as such agent.
R.A. 3135 and P.D. 604 recognized the juridical
existence of national sports associations. The
power to adopt a constitution, raise funds,
acquire property, etc. indicate that the
associations may acquire juridical personality.
However, such does not automatically take
place by the passage of the laws. Before a
corporation may acquire juridical personality,
the state must give its consent either in the
form of a special law or a general enabling act.
Before an entity may be considered as a
national sports association, such entity must
recognized by the accrediting organizations –
Phil. Amateur Athletic Federation (R.A. 3135)
and Dept. of Youth and Sports Development
(P.D. 604). Therefore, the federation is not a
national sports association within the purview
of the laws and that Kahn is personally
responsible for the obligation.
PHILIPPINE OVERSEAS TELECOMMUNICATIONS
CORPORATION v. SANDIGANBAYAN, GR No.
174462, 2016-02-10
Facts: POTC is a private corporation, which is a
main stockholder of PHILCOMSAT, a
government-owned and controlled corporation,
which was established in 1966 and was granted
a legislative telecommunications franchise by
virtue of Republic Act No. 5514, as amended by
Republic Act No. 7949, to establish and operate
international satellite communication in the
Philippines.
On 22 July 1987, the Office of the Solicitor
General (OSG), on behalf of the Republic of the
Philippines, filed a Complaint for Reconveyance,
Reversion, Accounting and Restitution, and
Damages, docketed as Civil Case No. 0009,
against Jose L. Africa, Manuel H. Nieto, Jr.,
Ferdinand E. Marcos, Imelda R. Marcos,
Ferdinand R. Marcos, Jr., Roberto S. Benedicto,
Juan Ponce Enrile, and Potenciano Ilusorio
(collectively hereinafter referred to as A perusal of the instant Complaint, docketed as
"defendants"). Civil Case No. 0009 dated 22 July 1987, reveals
that it was filed against private individuals,
From Civil Case No. 0009 sprung other cases: (1)
namely, Jose L. Africa, Manuel H. Nieto, Jr.,
Injunction; (2) Mandamus; and (3) Approval of
Ferdinand E. Marcos, Imelda R. Marcos,
the Compromise Agreement.
Ferdinand R. Marcos, Jr., Roberto S. Benedicto,
On 1 March 1991, POTC and PHILCOMSAT filed Juan Ponce Enrile, Potenciano Ilusorio.22
separate complaints for Injunction with the Nowhere was POTC and PHILCOMSAT
Sandiganbayan against the Republic to nullify impleaded in the Complaint.
and lift the sequestration order issued against
Failure to implead POTC and PHILCOMSAT is a
them for failure to file the necessary judicial
violation of the fundamental principle that a
action against them within the period
corporation has a legal personality distinct and
prescribed by the Constitution and to enjoin the
separate from its stockholders;24 that, the filing
PCGG from interfering with their management
of a complaint against a stockholder is not ipso
and operation, which the Sandiganbayan
facto a complaint against the corporation.
granted on 4 December 1991 through a
Resolution. The basic tenets of fair play and principles of
justice dictate that a corporation, as a legal
On 23 January 1995, however, this Court, in
entity distinct and separate from its
Republic v. Sandiganbayan (First Division), G.R.
stockholders, must be impleaded as
No. 96073, 240 SCRA 376, January 23, 1995,
defendants, giving it the opportunity to be
reversed the Sandiganbayan Resolution and
heard. The failure to properly implead POTC
ruled that the filing of Complaint for
and PHILCOMSAT not only violates the latters'
Reconveyance, Reversion, Accounting and
legal personality, but is repugnant on POTC's
Restitution, and Damages, docketed as Civil
and PHILCOMSAT's right to due process.
Case No. 0009, was filed within the required 6-
"[F]ailure to implead these corporations as
month period.
defendants and merely annexing a list of such
Issue: whether or not the failure to properly corporations to the complaints is a violation of
implead POTC and PHILCOMSAT as defendants their right to due process for it would in effect
in Civil Case No. 0009 is a fatal jurisdictional be disregarding their distinct and separate
error. personality without a hearing."25 As already
settled, a suit against individual stockholders is
Held: YES. Section 26, Article XVIII of the not a suit against the corporation.
Constitution mandates that if no judicial action
has been filed within six (6) months after the
ratification of the 1987 Constitution,21 the writ
Proceeding from the foregoing, as POTC and
of sequestration shall automatically be lifted. In
PHILCOMSAT were not impleaded, there is no
the case at bar, there was no judicial action filed
longer any existing sequestration on POTC and
against POTC and PHILCOMSAT. There has
PHILCOMSAT.26 The sequestration order over
never been any appropriate judicial action for
POTC and PHILCOMSAT was automatically lifted
reconveyance or recovery ever instituted by the
six (6) months after the ratification of the 1987
Republic against POTC and PHILCOMSAT.
Constitution on 2 February 1987 for failure to
implead POTC and PHILCOMSAT in Civil Case
No. 0009 before the Sandiganbayan or before
any court for that matter.27 To recite Section
26, Article XVIII of the Constitution, if no judicial
action has been filed within six (6) months after
the ratification of the 1987 Constitution, the
writ of sequestration shall automatically be
lifted. Note must be made of the fact that we
do not here touch our previous holding that
Civil Case No. 0009 was filed within the 6-
month period. We now say that such
notwithstanding, and as shown by the facts on
record, the POTC and PHILCOMSAT were not
impleaded in the Civil Case.
[ G. R. No. L-18216, October 30, 1962 ]
STOCKHOLDERS OF F. GUANZON AND SONS,
INC., PETITIONERS AND APPELLANTS, VS.
REGISTER OF DEEDS OF MANILA, RESPONDENT
AND APPELLEE.
Facts: On September 19, 1960, the five
stockholders of the F. Guanzon and Sons, Inc.
executed a certificate of liquidation of the
assets of the corporation reciting, among other
things, that by virtue of a resolution of the
stockholders adopted on September 17, 1960,
dissolving the corporation, they have
distributed among themselves in proportion to
their shareholdings, as liquidating dividends,
the assets of said corporation, including real
properties located in Manila. The certificate of
liquidation, when presented to the Register of
Deeds of Manila, was denied registration on
seven grounds, of which the following were
disputed by the stockholders:
"3. The number of parcels not certified to in the
acknowledgment;
"5. P430.50 Reg. fees need be paid;
"6. P940.45 documentary stamps need be
attached to the document;
Appellants contend that the certificate of
liquidation is not a conveyance or transfer but
merely a distribution of the assets of the
corporation which has ceased to exist for having
been dissolved. This is apparent in the minutes
of dissolution attached to the document. Not
being a conveyance the certificate need not
contain a statement of the numbers of parcels
of land involved in the distribution in the
acknowledgment appearing therein. Hence the
amount of documentary stamps to be affixed
thereon should only be P0.30 and not P940.45,
as required by the register of deeds. Neither is
it correct to require appellants to pay the
amount of P430.50 as registration fee.
The Commissioner of Land Registration,
however, entertained a different opinion. He
concurred in the view expressed by the register
of deeds to the effect that the certificate of
liquidation in question, tnough it involves a
distribution of the corporation's assets, in the
last analysis represents a transfer of said assets
from the corporation to the stockholders.
Hence, in substance it is a transfer or
conveyance.
Issue: whether or not that certificate merely
involves a distribution of the corporation assets
or should be considered a transfer or
conveyance.
Held: A corporation is a juridical person distinct
from the members composing it. 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. A share
of stock only typifies an aliquot part of the
corporation's 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.
The act of liquidation made by the stockholders
of the F. Guanzon and Sons, Inc. of the latter's
assets is not and cannot be considered a
partition of community property, but rather a
transfer or conveyance of the title of its assets
to the individual stockholders, since the
purpose of the liquidation, as well as the
distribution of the assets of the corporation, is
to transfer their title from the corporation to
the stockholders in proportion to their
shareholdings.
Eduardo Litonjua, Jr. and Antonio Litonjua v.
Eternit Corp. (now Eterton Multi-Resources
Corp.), Eteroutremer, S.A. and Far East Bank &
Trust Co.
G.R. No. 144805 June 8, 2006
FACTS:
 Eternit Corp. is engaged in the
manufacture of roofing materials and pipe
products. Its manufacturing operations were
conducted on 8 parcels of land located in
Mandaluyong City, covered by TCTs with Far
East Bank & Trust Company, as trustee. 90% of
the shares of stocks of Eternit Corp. were
owned by Eteroutremer S.A. Corporation
(ESAC), a corporation organized and registered
under the laws of Belgium. Jack Glanville, an
Australian citizen, was the General Manager
and President of Eternit Corp., while Claude
Frederick Delsaux was the Regional Director for
Asia of ESAC.
 In 1986, the management of ESAC grew
concerned about the political situation in the
Philippines and wanted to stop its operations in
the country. The Committee for Asia of ESAC
instructed Michael Adams, a member of Eternit
Corp.’s Board of Directors, to dispose of the
eight parcels of land. Adams engaged the
services of realtor/broker Lauro G. Marquez so
that the properties could be offered for sale to
prospective buyers.
 Marquez offered the parcels of land and
the improvements thereon to Eduardo B.
Litonjua, Jr. of the Litonjua & Company, Inc.
Marquez declared that he was authorized to sell
the properties for P27,000,000.00 and that the
terms of the sale were subject to negotiation.
 Eduardo Litonjua, Jr. responded to the
offer. Marquez showed the property to Eduardo
Litonjua, Jr., and his brother Antonio K. Litonjua.
The Litonjua siblings offered to buy the property
for P20,000,000.00 cash. Marquez apprised
Glanville of the Litonjua siblings’ offer and
relayed the same to Delsaux in Belgium, but the
latter did not respond. Glanville telexed Delsaux
in Belgium, inquiring on his position/
counterproposal to the offer of the Litonjua
siblings. Delsaux sent a telex to Glanville stating
that, based on the “Belgian/Swiss decision,” the
final offer was “US$1,000,000.00 and
P2,500,000.00 to cover all existing obligations
prior to final liquidation.
 Litonjua, Jr. accepted the
counterproposal of Delsaux. Marquez conferred
with Glanville, and confirmed that the Litonjua
siblings had accepted the counter-proposal of
Delsaux. He also stated that the Litonjua siblings
would confirm full payment within 90 days after
execution and preparation of all documents of
sale, together with the necessary governmental
clearances.
 The Litonjua brothers deposited the
amount of US$1,000,000.00 with the Security
Bank & Trust Company, Ermita Branch, and
drafted an Escrow Agreement to expedite the
sale.
 With the assumption of Corazon Aquino
as President of RP, the political situation in the
Philippines had improved. Marquez received a
telephone call from Glanville, advising that the
sale would no longer proceed. Glanville
followed it up with a letter, confirming that he
had been instructed by his principal to inform
Marquez that the decision has been taken at a
Board Meeting not to sell the properties on
which Eternit Corp. is situated.
 When apprised of this development,
the Litonjuas, through counsel, wrote Eternit
Corp., demanding payment for damages they
had suffered on account of the aborted sale. EC,
however, rejected their demand.
ISSUE: WON Marquez, Glanville, and Delsaux
were authorized by respondent Eternit Corp. to
act as its agents relative to the sale of the
properties of Eternit Corp., and if so, what are
the boundaries of their authority as agents
HELD: No.
 A corporation is a juridical person
separate and distinct from its members or
stockholders and is not affected by the personal
rights, obligations and transactions of the latter.
It may act only through its board of directors or,
when authorized either by its by-laws or by its
board resolution, through its officers or agents
in the normal course of business. The general
principles of agency govern the relation
between the corporation and its officers or
agents, subject to the articles of incorporation,
by-laws, or relevant provisions of law.
 The property of a corporation is not the
property of the stockholders or members, and
as such, may not be sold without express
authority from the board of directors. Physical
acts, like the offering of the properties of the
corporation for sale, or the acceptance of a
counter-offer of prospective buyers of such
properties and the execution of the deed of sale
covering such property, can be performed by
the corporation only by officers or agents duly
authorized for the purpose by corporate by-
laws or by specific acts of the board of
directors. Absent such valid
delegation/authorization, the rule is that the
declarations of an individual director relating to
the affairs of the corporation, but not in the
course of, or connected with, the performance
of authorized duties of such director, are not
binding on the corporation.
 While a corporation may appoint agents
to negotiate for the sale of its real properties,
the final say will have to be with the board of
directors through its officers and agents as
authorized by a board resolution or by its by-
laws.30 An unauthorized act of an officer of the
corporation is not binding on it unless the latter
ratifies the same expressly or impliedly by its
board of directors. Any sale of real property of a
corporation by a person purporting to be an
agent thereof but without written authority
from the corporation is null and void.
 An agency may be expressed or implied
from the act of the principal, from his silence or
lack of action, or his failure to repudiate the
agency knowing that another person is acting
on his behalf without authority. Acceptance by
the agent may be expressed, or implied from his
acts which carry out the agency, or from his
silence or inaction according to the
circumstances. Agency may be oral unless the
law requires a specific form. However, to create
or convey real rights over immovable property,
a special power of attorney is necessary.
 The Litonjuas failed to adduce in
evidence any resolution of the Board of
Directors of Eternit Corp. empowering Marquez,
Glanville or Delsaux as its agents, to sell, let
alone offer for sale, for and in its behalf, the 8
parcels of land owned by Eternit Corp. including
the improvements thereon. The bare fact that
Delsaux may have been authorized to sell to
Ruperto Tan the shares of stock of respondent
ESAC cannot be used as basis for Litonjua’s
claim that he had likewise been authorized by
Eternit Corp. to sell the parcels of land.
 While Glanville was the President and
General Manager of Eternit Corp., and Adams
and Delsaux were members of its Board of
Directors, the three acted for and in behalf of
respondent ESAC, and not as duly authorized
agents of Eternit Corp.; a board resolution
evincing the grant of such authority is needed
to bind Eternit Corp. to any agreement
regarding the sale of the subject properties.
Such board resolution is not a mere formality
but is a condition sine qua non to bind Eternit
Corp.
Requisites of an agency by estoppels: (1) the
principal manifested a representation of the
agent’s authority or knowingly allowed the
agent to assume such authority; (2) the third
person, in good faith, relied upon such
representation; (3) relying upon such
representation, such third person has changed
his position to his detriment.
Lim vs Court of Appeals
323 SCRA 102 [GR No. 124715 January 24,
2000]
Facts: Petitioner Rufina Luy Lim is the surviving
spouse of late Pastor Y. Lim whose estate is the
subject of probate proceedings in special
proceedings Q-95-23334 entitled, “In re:
Intestate Estate Of Pastor Y. Lim Rufina Luy Lim,
represented by George Luy, petitioner.” Private
respondents auto truck corporation, alliance
marketing corporation, speed distributing inc,
active distributing inc, and action company are
corporations formed, organized and existing
under Philippine laws and which owned real
properties covered under the Torrens system.
On June 11, 1994, Pastor Y. Lim died intestate.
Herein petitioner, as surviving spouse and duly
represented by her nephew, George Luy filed
on March 17, 1995, a joint petition for the
administration of the estate of Pastor Y. Lim
before the Regional Trial Court of Quezon City.
Private respondents corporations whose
properties were included in the inventory of the
estate of Pastor Y. Lim, then filed a motion for
the lifting of his pendens an motion for
exclusion of certain properties from the estate
of the decedent.
ISSUE: May a corporation, in its universality, be
the proper subject of and be included in the
inventory of the estate of a deceased person?
HELD: No. Inasmuch as the real properties
included in the inventory of the estate of the
late Pastor Y. Lim are in the possession of and
are registered in the name of private
respondent corporations, which under the law
possess a personality separate and distinct from
their stockholders, and in the absence of any
cogency to shred the veil of corporate fiction,
the presumption of conclusiveness of said titles
in favor of private respondents should stand
undisturbed.
It is settled that a corporation is clothed with
personality separate and distinct from that of
the persons composing it. It may not generally
be held liable for that of the persons composing
it. It may not be held liable for the personal
indebtedness of its stockholders or those of the
entities connected with it.
Piercing the veil of corporate entity requires the
court to see through the protective shroud
which exempts its stockholders from liabilities
that ordinarily, they could be subject to, or
distinguishes one corporation from a seemingly
separate one, were it not for the existing
corporate fiction. [30]
The corporate mask may be lifted and the
corporate veil may be pierced when a
corporation is just but the alter ego of a person
or of another corporation. Where badges of
fraud exist, where public convenience is
defeated; where a wrong is sought to be
justified thereby, the corporate fiction or the
notion of legal entity should come to naught.
[31]
Further, the test in determining the applicability
of the doctrine of piercing the veil of corporate
fiction is as follows: 1) Control, not mere
majority or complete stock control, but
complete domination, not only of finances but
of policy and business practice in respect to the
transaction attacked so that the corporate
entity as to this transaction had at the time no
separate mind, will or existence of its own; (2)
Such control must have been used by the
defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act
in contravention of plaintiffs legal right; and (3)
The aforesaid control and breach of duty must
proximately cause the injury or unjust loss
complained of. The absence of any of these
elements prevent "piercing the corporate veil".
[32]
Mere ownership by a single stockholder or by
another corporation of all or nearly all of the
capital stock of a corporation is not of itself a
sufficient reason for disregarding the fiction of
separate corporate personalities.
Petitioner failed to adduce competent evidence
that would have justified the court to impale
the veil of corporate fiction. Truly, the reliance
reposed by petitioner on the affidavits executed
by Teresa Lim and Lani Wenceslao is unavailing
considering that the aforementioned
documents possess no weighty probative value
pursuant to the hearsay rule. Besides it is
imperative for us to stress that such affidavits
are inadmissible in evidence inasmuch as the
affiants were not at all presented during the
course of the proceedings in the lower court.
G.R. No. 152347 June 21, 2006
UNION BANK OF THE PHILIPPINES, Petitioner,
vs.SPS. ALFREDO ONG AND SUSANA ONG and
JACKSON LEE, Respondents.
Facts: Spouses Alfredo Ong and Susana Ong
own the majority capital stock of Baliwag
Mahogany Corporation (BMC). On October 10,
1990, the spouses executed a Continuing Surety
Agreement in favor of Union Bank to secure a
P40,000,000.00-credit line facility made
available to BMC. The agreement expressly
stipulated a solidary liability undertaking.
On October 22, 1991, the spouses Ong, for
P12,500,000.00, sold their 974-square meter lot
located in Greenhills, San Juan, Metro Manila,
together with the house and other
improvements standing thereon, to their co-
respondent, Jackson Lee. The following day, Lee
registered the sale and was then issued Transfer
Certificate of Title (TCT) No. 4746-R. At about
this time, BMC had already availed itself of the
credit facilities, and had in fact executed a total
of twenty-two (22) promissory notes in favor of
Union Bank.
On November 22, 1991, BMC filed a Petition for
Rehabilitation and for Declaration of Suspension
of Payments with the Securities and Exchange
Commission (SEC). To protect its interest, Union
Bank lost no time in filing with the RTC of Pasig
City an action for rescission of the sale between
the spouses Ong and Jackson Lee for
purportedly being in fraud of creditors.
Issue: whether or not the Ong-Lee contract of
sale partakes of a conveyance to defraud Union
Bank.
Ruling: Contracts in fraud of creditors are those
executed with the intention to prejudice the
rights of creditors. They should not be confused
with those entered into without such mal-
intent, even if, as a direct consequence thereof,
the creditor may suffer some damage. In
determining whether or not a certain conveying
contract is fraudulent, what comes to mind first
is the question of whether the conveyance was
a bona fide transaction or a trick and
contrivance to defeat creditors.
In the present case, respondent spouses Ong, as
the CA had determined, had sufficiently
established the validity and legitimacy of the
sale in question. The conveying deed, a duly
notarized document, carries with it the
presumption of validity and regularity. Too, the
sale was duly recorded and annotated on the
title of the property owners, the spouses Ong.
As the transferee of said property, respondent
Lee caused the transfer of title to his name.
There can be no quibbling about the transaction
being supported by a valid and sufficient
consideration.
For a contract to be rescinded for being in fraud
of creditors, both contracting parties must be
shown to have acted maliciously so as to
prejudice the creditors who were prevented
from collecting their claims. Again, in this case,
there is no evidence tending to prove that the
spouses Ong and Lee were conniving cheats. It
cannot be overemphasized that rescission is
generally unavailing should a third person,
acting in good faith, is in lawful possession of
the property, that is to say, he is protected by
law against a suit for rescission by the
registration of the transfer to him in the
registry.
In a last-ditch attempt to resuscitate a feeble
cause, petitioner cites Section 70 of the
Insolvency Law which, unlike the invoked Article
1381 of the Civil Code that deals with a valid but
rescissible contract, treats of a contractual
infirmity resulting in nullity no less of the
transaction in question. Insofar as pertinent,
Section 70 of the Insolvency Law provides:
Sec. 70. If any debtor, being insolvent, or in
contemplation of insolvency, within thirty days
before the filing of a petition by or against him,
with a view to giving a preference to any
creditor or person having a claim against him
xxx makes any xxx sale or conveyance of any
part of his property, xxx such xxx sale,
assignment or conveyance is void, and the
assignee, or the receiver, may recover the
property or the value thereof, as assets of such
insolvent debtor. xxx. Any payment, pledge,
mortgage, conveyance, sale, assignment, or
transfer of property of whatever character
made by the insolvent within one (1) month
before the filing of a petition in insolvency by or
against him, except for a valuable pecuniary
consideration made in good faith shall be void.
xxx. (Emphasis added)
Petitioner avers that the Ong-Lee sales contract
partakes of a fraudulent transfer and is null and
void in contemplation of the aforequoted
provision, the sale having occurred on October
22, 1991 or within thirty (30) days before BMC
filed a petition for suspension of payments on
November 22, 1991.
Petitioner's reliance on the afore-quoted
provision is misplaced for the following reasons:
First, Section 70, supra, of the Insolvency Law
specifically makes reference to conveyance of
properties made by a debtor or by an insolvent
who filed a petition, or against whom a petition
for insolvency has been filed. Respondent
spouses Ong have doubtlessly not filed a
petition for a declaration of their own
insolvency. Neither has one been filed against
them. And as the CA aptly observed, it was
never proven that respondent spouses are
likewise insolvent, petitioner having failed to
show that they were down to their Greenhills
property as their only asset.
 It may be that BMC had filed a petition for
rehabilitation and suspension of payments with
the SEC. The nagging fact, however is that BMC
is a different juridical person from the
respondent spouses. Their seventy percent
(70%) ownership of BMCs capital stock does not
change the legal situation. Accordingly, the
alleged insolvency of BMC cannot, as petitioner
postulates, extend to the respondent spouses
such that transaction of the latter comes within
the purview of Section 70 of the Insolvency Law.
Second, the real debtor of petitioner bank in
this case is BMC. The fact that the respondent
spouses bound themselves to answer for BMCs
indebtedness under the surety agreement
referred to at the outset is not reason enough
to conclude that the spouses are themselves
debtors of petitioner bank. We have already
passed upon the simple reason for this
proposition. We refer to the basic precept in
this jurisdiction that a corporation, upon coming
into existence, is invested by law with a
personality separate and distinct from those of
the persons composing it. [24] Mere ownership
by a single or small group of stockholders of
nearly all of the capital stock of the corporation
is not, without more, sufficient to disregard the
fiction of separate corporate personality. [25]
Third, Section 70 of the Insolvency Law
considers transfers made within a month after
the date of cleavage void, except those made in
good faith and for valuable pecuniary
consideration. The twin elements of good faith
and valuable and sufficient consideration have
been duly established. Given the validity and
the basic legitimacy of the sale in question,
there is simply no occasion to apply Section 70
of the Insolvency Law to nullify the transaction
subject of the instant case.
G.R. No. 178352 June 17, 2008
VIRGILIO S. DELIMA, petitioner, vs. SUSAN
MERCAIDA GOIS, respondent.
FACTS: A case for illegal dismissal was filed by
petitioner Virgilio S. Delima against Golden
Union Aquamarine Corporation (Golden),
Prospero Gois and herein respondent Susan
Mercaida Gois before the Regional Arbitration
Branch No. VIII of the National Labor Relations
Commission on October 29, 2004. Respondent
Gois filed an Affidavit of Third Party Claim
claiming that the attachment of the vehicle was
irregular because said vehicle was registered in
her name and not Golden’s; and that she was
not a party to the illegal dismissal case filed by
Delima against Golden.
On December 21, 2006, the appellate court
rendered a Decision in favor of respondent,
which reads in part:
In the decision dated April 29, 2005 rendered by
Labor Arbiter Montaces, the dispositive portion
confined itself in directing Golden Union
Aquamarine Corporation only, no more and no
less, to pay private respondent the award
stated therein, but did not mention that the
liability is joint and solidary with petitioner
Susan Gois although the complaint filed by the
private respondent included petitioner as
among the respondents therein.
ISSUE: Whether or not the CA is correct
HELD: YES. A corporation has a personality
distinct and separate from its individual
stockholders or members and from that of its
officers who manage and run its affairs. The rule
is that obligations incurred by the corporation,
acting through its directors, officers and
employees, are its sole liabilities. Thus, property
belonging to a corporation cannot be attached
to satisfy the debt of a stockholder and vice
versa, the latter having only an indirect interest
in the assets and business of the former.
Since the Decision of the Labor Arbiter dated
April 29, 2005 directed only Golden to pay the
petitioner the sum of P115,561.05 and the
same was not joint and solidary obligation with
Gois, then the latter could not be held
personally liable since Golden has a separate
and distinct personality of its own. It remains
undisputed that the subject vehicle was owned
by Gois, hence it should not be attached to
answer for the liabilities of the corporation.
Unless they have exceeded their authority,
corporate officers are, as a general rule, not
personally liable for their official acts, because a
corporation, by legal fiction, has a personality
separate and distinct from its officers,
stockholders and members. No evidence was
presented to show that the termination of the
petitioner was done with malice or in bad faith
for it to hold the corporate officers, such as
Gois, solidarily liable with the corporation.
ASIA'S EMERGING DRAGON CORPORATION,
petitioner, vs. DOTC, respondents.
Facts: For our resolution are the (1) "motion for
leave of court to intervene and to admit the
attached answer-in-intervention with prayer for
alternative compliance of the December 19,
2005 decision" and (2) "answer-in-intervention"
of Manila Hotel Corporation (MHC) filed on
February 22, 2008. MHC seeks to intervene in
the consolidated cases of G.R. Nos. 169914 and
174166 alleging that it has a legal interest in the
matter in litigation. It avers that it purchased
20% of PIATCO’s shares from the latter’s two
stockholders, namely, SB Airport Investments,
Inc. and Sojitz Corporation on August 23, 2005
and August 24, 2005, respectively. On August
26, 2005, it also entered into an agreement
with Fraport AG Frankfurt Airport Services
Worldwide to purchase the latter’s 30% direct
shareholdings and 31.44% indirect
shareholdings1 in PIATCO.
Issue: Whether or not MHC can intervene
Ruling: MHC asserts that because of its
substantial stockholdings in PIATCO, it has a
legal interest in the matter in litigation.
However, it conveniently fails to state its legal
basis for the intervention.
The interest contemplated by law must be
actual, substantial, material, direct and
immediate, and not simply contingent or
expectant. It must be of such direct and
immediate character that the intervenor will
either gain or lose by the direct legal operation
and effect of the judgment. While a share of
stock represents a proportionate or aliquot
interest in the property of the corporation, it
does not vest the owner thereof with any legal
right or title to any of the property, his interest
in the corporate property being equitable or
beneficial in nature. Shareholders are in no legal
sense the owners of corporate property, which
is owned by the corporation as a distinct legal
person.
In this case, the matter in controversy is the
NAIA IPT III. MHC has no connection at all to
this structure. It is merely a stockholder of
PIATCO, the builder of NAIA IPT III. Its interest, if
any, is indirect, contingent and inchoate.
PIATCO has a legal personality separate and
distinct from that of its stockholders, including
MHC. It has rights and obligations which pertain
solely to itself, not to any of its component
members (i.e., its stockholders).
Secosa vs. Heirs of Erwin Suarez Francisco
(433 SCRA 273 [2004])
Facts:
Francisco, an 18 year old 3rd year physical
therapy student was riding a motorcycle. A sand
and gravel truck was traveling behind the
motorcycle, which in turn was being tailed by
the Isuzu truck driven by Secosa. The Isuzu
cargo truck was owned by Dassad Warehousing
and Port Services, Inc..The three vehicles were
traversing the southbound lane at a fairly high
speed. When Secosa overtook the sand and
gravel truck, he bumped the motorcycle causing
Francisco to fall. The rear wheels of the Isuzu
truck then ran over Francisco, which resulted in
his instantaneous death. Secosa left his truck
and fled the scene of the collision.
The parents of Francisco, respondents herein,
filed an action for damages against Secosa,
Dassad Warehousing and Port Services, Inc. and
Dassad’s president, El BuenasucensoSy.
The court a quo rendered a decision in favor of
herein respondents; thus petitioners appealed
the decision to the Court of Appeals, which
unfortunately affirmed the appealed decision in
toto. Hence, the present petition.
Issues:
Whether or not Dassad’s president, El
BuenasucensoSy, can be held solidary liable
with co-petitioners.
Held:
No. Sy cannot be held solidarily liable with his
co-petitioners. While it may be true that Sy is
the president of Dassad Warehousing and Port
Services, Inc., such fact is not by itself sufficient
to hold him solidarily liable for the liabilities
adjudged against his co-petitioners.
A corporation has a personality separate from
that of its stockholders or members. The
doctrine of ‘veil of corporation’ treats as
separate and distinct the affairs of a corporation
and its officers and stockholders. As a rule, a
corporation will be looked upon as a legal
entity, unless and until sufficient reason to the
contrary appears. When the notion of legal
entity is used to defeat public convenience,
justify wrong, protect fraud, or defend crime,
the law will regard the corporation as an
association of persons. Also, the corporate
entity may be disregarded in the interest of
justice in such cases as fraud that may work
inequities among members of the corporation
internally, involving no rights of the public or
third persons. In both instances, there must
have been fraud and proof of it.
The records of the case does not point toward
the presence of any grounds enumerated above
that will justify the piercing of the veil of
corporate entity such as to hold Sy, the
president of Dassad Warehousing and Port
Services, Inc., solidarily liable with it.
Furthermore, the Isuzu cargo truck which ran
over Francisco was registered in the name of
Dassad and not in the name of Sy. Secosa is an
employee of Dassad and not of Sy. These facts
showed Sy’s exclusion from liability for damages
arising from the death of Francisco.
Keller & Co. Ltd vs COB Group Marketing Inc.
141 SCRA 86 [GR No. L-68097 January 16, 1986]
Facts: Edward A. Keller & Co. Ltd appointed COB
Group Marketing Inc. as exclusive distributor of
its household products, Brite and Nuvan in
Panay and Negros, as shown in the sales
agreement dated March 14, 1970. Under that
agreement sold by Keller on credit its products
to COB Group Marketing. As security for COB
Group Marketing’s credit, purchases up to
amount of Php35,000, one Asuncion Manahan
mortgaged her land to Keller. Manahan
assumed solidarity with COB Group the faithful
performance of all terms and conditions of the
sales agreement. In July 1970 the parties
executed a second sales agreement whereby
COB Group Marketing’s territory was extended
to Northern and Southern Luzon. As security for
the credit purchases up to Php25,000 of COB
Group Marketing for that area, Tomas C.
Lorenzo Jr. and his father executed a mortgage
on their land in Nueva Ecija. Like Manahan, the
Lorenzos were solidarily liable with COB Group
Marketing for its obligations under the sales
agreement. The credit purchases of COB Group
Marketing, which started on October 15, 1969,
limited up to January 22, 1971. On May 8, the
board of directors of COB Group Marketing
where apprised by Jose E. Bax, the firm’s
president and general manager, that the firm
owed Keller about Php179,000. Bax was
authorized to negotiate with Keller for the
settlement of his firm’s liability.
Issue: Whether or not the stockholders of COB
Group Marketing can be held personally liable
for the credit.
Held: As to the liability of the stockholders, it is
settled that a stockholder is personally liable for
the financial obligations of a corporation to the
extent of his unpaid subscription (Vda. de
Salvatierra vs. Garlitos, 103 Phil. 757, 763; 18
CJS 1311-2).
While the evidence shows that, the amount due
from COB Group Marketing is P184,509.60 as of
July 31, 1971 or P186,354.70 as of August 31,
1971 (Exh. JJ), the amount prayed for in Keller's
complaint is P182,994.60 as of July 31, 1971
(18-19 Record on Appeal). This latter amount
should be the one awarded to Keller because a
judgment entered against a party in default
cannot exceed the amount prayed for (Sec. 5,
Rule 18, Rules of Court).
COB Group Marketing, Inc. is ordered to pay
Edward A. Keller & Co., Ltd. the sum of
P182,994.60 with 12% interest per annum from
August 1, 1971 up to the date of payment plus
P20,000 as attorney's fees.
Asuncion Manahan and Tomas C. Lorenzo, Jr.
are ordered to pay solidarily with COB Group
Marketing the sums of P35,000 and P25,000,
respectively.
The following respondents are solidarily liable
with COB Group Marketing up to the amounts
of their unpaid subscription to be applied to the
company's liability herein: Jose E. Bax, P36,000;
Francisco C. de Castro, P36,000; Johnny de la
Fuente, P12,000; Sergio C. Ordoñez, P12,000;
Trinidad C. Ordoñez, P3,000; Magno C.
Ordoñez, P3,000; Adoracion C. Ordoñez,
P3,000; Tomas C. Lorenzo, Jr., P3,000 and Luz
M. Aguilar-Adao, P6,000.
G.R. No. 166282, 13 February 2013 (690 SCRA
519)
Heirs of Fe Tan Uy v. International Exchange
Bank
Mendoza, J.:
FACTS:
Respondent International Exchange Bank
(iBank), granted loans to Hammer Garments
Corporation (Hammer), covered by promissory
notes and deeds of assignment. The loans were
likewise secured by a P 9 Million-Peso Real
Estate Mortgage executed by Goldkey
Development Corporation (Goldkey) over
several of its properties and a P 25 Million-Peso
Surety Agreement signed by Chua and his wife,
Fe Tan Uy (Uy).
However, Hammer defaulted in the payment of
its loans, prompting iBank to foreclose on
Goldkey’s third-party Real Estate Mortgage. The
mortgaged properties were sold for P 12 million
during the foreclosure sale, leaving an unpaid
balance of P 13,420,177.62.9. For failure of
Hammer to pay the deficiency, iBank filed a
Complaint for sum of money on December 16,
1997 against Hammer, Chua, Uy, and Goldkey
before the Regional Trial Court, Makati City
(RTC).
Hammer did not file any Answer, thus it was
held in default. On the other hand, Uy claimed
that she was not liable to iBank because she
never executed a surety agreement in favor of
iBank. Goldkey also denies liability, averring
that it acted only as a third-party mortgagor and
that it was a corporation separate and distinct
from Hammer.
RTC decision: ruled in favor of iBank. The lower
court said that while it made the
pronouncement that the signature of Uy on the
Surety Agreement was a forgery, it nevertheless
held her liable for the outstanding obligation of
Hammer because she was an officer and
stockholder of the said corporation. The RTC
agreed with Goldkey that as a third-party
mortgagor, its liability was limited to the
properties mortgaged. It came to the
conclusion, however, that Goldkey and Hammer
were one and the same entity.
Aggrieved, the heirs of Uy and Goldkey
(petitioners) elevated the case to the CA.
CA decision: affirming the findings of the RTC.
The CA found that iBank was not negligent in
evaluating the financial stability of Hammer.
According to the appellate court, iBank was
induced to grant the loan because petitioners,
with intent to defraud the bank, submitted a
falsified Financial Report for 1996 which
incorrectly declared the assets and cashflow of
Hammer. Because petitioners acted maliciously
and in bad faith and used the corporate fiction
to defraud iBank, they should be treated as one
and the same as Hammer.
Hence, the present petitions filed separately by
the heirs of Uy and Goldkey which later on
consolidated by this Court.
ISSUE: Whether or not the doctrine of piercing
the corporate veil should apply in this case?
RULING: NO. Basic is the rule in corporation law
that a corporation is a juridical entity which is
vested with a legal personality separate and
distinct from those acting for and in its behalf
and, in general, from the people comprising it.
Following this principle, obligations incurred by
the corporation, acting through its directors,
officers and employees, are its sole liabilities. A
director, officer or employee of a corporation is
generally not held personally liable for
obligations incurred by the corporation.
Nevertheless, this legal fiction may be
disregarded if it is used as a means to
perpetrate fraud or an illegal act, or as a vehicle
for the evasion of an existing obligation, the
circumvention of statutes, or to confuse
legitimate issues.
In this case, petitioners are correct to argue that
it was not alleged, much less proven, that Uy
committed an act as an officer of Hammer that
would permit the piercing of the corporate veil.
A reading of the complaint reveals that with
regard to Uy, iBank did not demand that she be
held liable for the obligations of Hammer
because she was a corporate officer who
committed bad faith or gross negligence in the
performance of her duties such that the lifting
of the corporate mask would be merited. What
the complaint simply stated is that she,
together with her errant husband Chua, acted
as surety of Hammer, as evidenced by her
signature on the Surety Agreement which was
later found by the RTC to have been forged.
The Court emphasized that the application of
the doctrine of piercing the corporate veil
should be done with caution. A court should be
mindful of the milieu where it is to be applied. It
must be certain that the corporate fiction was
misused to such an extent that injustice, fraud,
or crime was committed against another, in
disregard of its rights. The wrongdoing must be
clearly and convincingly established; it cannot
be presumed. Otherwise, an injustice that was
never unintended may result from an erroneous
application.
However, the Court finds Goldkey liable for it is
a mere alter ego of Hammer.
Goldkey contends, among others, that iBank is
estopped from expanding Goldkey’s liability
beyond the real estate mortgage. It adds that it
did not authorize the execution of the said
mortgage. Finally, it passes the blame on to
iBank for failing to exercise the requisite due
diligence in properly evaluating Hammer’s
creditworthiness before it was extended an
omnibus line.
The Court disagrees.
Goldkey’s argument, that iBank is barred from
pursuing Goldkey for the satisfaction of the
unpaid obligation of Hammer because it had
already limited its liability to the real estate
mortgage, is completely absurd. Goldkey needs
to be reminded that it is being sued not as a
consequence of the real estate mortgage, but
rather, because it acted as an alter ego of
Hammer. Accordingly, they must be treated as
one and the same entity, making Goldkey
accountable for the debts of Hammer.
Similarly, Goldkey is undoubtedly mistaken in
claiming that iBank is seeking to enforce an
obligation of Chua. The records clearly show
that it was Hammer, of which Chua was the
president and a stockholder, which contracted a
loan from iBank. What iBank sought was redress
from Goldkey by demanding that the veil of
corporate fiction be lifted so that it could not
raise the defense of having a separate juridical
personality to evade liability for the obligations
of Hammer.
Under a variation of the doctrine of piercing the
veil of corporate fiction, when two business
enterprises are owned, conducted and
controlled by the same parties, both law and
equity will, when necessary to protect the rights
of third parties, disregard the legal fiction that
two corporations are distinct entities and treat
them as identical or one and the same.
GENERAL CREDIT CORPORATION (now PENTA
CAPITAL FINANCE CORPORATION), petitioner,
vs.
ALSONS DEVELOPMENT and INVESTMENT
CORPORATION and CCC EQUITY
CORPORATION,
respondents.
Facts: Petitioner General Credit Corporation
(GCC), formerly known as Commercial Credit
Corporation (CCC), established CCC franchise
companies in urban areas around the country.
To further its business, it secured a license
before the Central Bank (CB) and the Securities
and Exchange Commission (SEC) to also engage
in quasi-banking activities. On the other hand,
respondent CCC Equity Corporation (Equity) was
established by GCC to take over the operations
of their franchises. Meanwhile, respondent
Alsons Development (Alsons) and the Alcantara
family owned a total of 101,953 shares of GCC
franchises. The Alcantara family assigned its
rights and interests of its shares to Alsons,
making the latter the sole owner of the total
shares.
Eventually, Alsons decided to sell these shares
to Equity, which the latter promised to pay.
Because of Equity’s failure to pay, Alsons then
filed a complaint for sums of
money against Equity and GCC. Equity claims
that GCC should be liable for the payment of
shares since it has always been dependent on
GCC on its business operations. However, GCC
claims that it has no liability on the payment of
stocks, being a separate entity from Equity.
Issue: The issue in this case is whether or not
the doctrine of piercing the veil of corporate
fiction be applied to Equity Corporation? Or in
other words, whether Equity and GCC should
both be regarded merely as an aggregate of
persons doing business enterprise?
Ruling: The Court held that the corporate veil of
Equity Corporation be pierced.
The Court cites three basic areas where piercing
the veil of corporate fiction is allowed. First,
when it is used to defeat public convenience to
evade existing operations or “equity piercing”;
second, in fraud cases where it is used to justify
a wrong or “fraud piercing” and third, in alter
ego cases where the corporation is organized as
to make it merely an instrumentality agency.
In this case, the Court has the right to pierce
GCC’s corporate veil because evidence point to
the following facts: first, Equity is but an
instrumentality of GCC and has always been
dependent on the latter for its operations,
second, the commonality of directors,
stockholders and sharing of office between the
two companies shows that they should clearly
be regarded merely as an aggregate of persons
in a business enterprise; third, the
establishment of Equity is primarily for GCC to
circumvent Central Bank rules specifically the
Anti-Usury Law, using it as a conduit to its non-
quasi bank affiliates; and lastly, the funds
invested by Equity to GCC franchises are from
GCC funds as well.
Applying the three basic areas of corporate veil
piercing, GCC clearly
defeated public convenience when it
established Equity to extend credit to its
investors which in turn is not allowed by the
law; it justified a wrong by
fraudulently evading the Anti-Usury Law
established by the Central Bank to
quasi-banking businesses, and lastly, Equity was
but a mere instrumentality of
GCC for it to get away with its obligations.
Manacop v Equitable PCI Bank
Facts: Respondent Lavine Loungewear
Manufacturing, Inc. (Lavine) insured its
buildings and supplies against fire with
Philippine Fire and Marine Insurance
Corporation (PhilFire), Rizal Surety and
Insurance Company (Rizal Surety), Tabacalera
Insurance Company (TICO), First Lepanto-Taisho
Insurance Corporation (First Lepanto), Equitable
Insurance Corporation (Equitable Insurance),
and Reliance Insurance Corporation (Reliance
Insurance). Except for Policy No. 13798 issued
by First Lepanto, all the policies provide that:
Loss, if any, under this policy is payable to
Equitable Banking Corporation-Greenhills
Branch, as their interest may appear subject to
the terms, conditions, clauses and warranties
under this policy. (Underscoring supplied)
On August 1, 1998, a fire gutted Lavines
buildings and their contents thus claims were
made against the policies. As found by the
Office of the Insurance Commission, the
insurance proceeds payable to Lavine is
P112,245,324.34.
On April 3, 2002, the intervenors filed a Motion
for Execution Pending Appeal on the following
grounds: (a) TICO was on the brink of
insolvency; (b) Lavine was in imminent danger
of extinction; and (c) any appeal from the trial
courts judgment would be merely dilatory.
Issue: Whether or not execution pending appeal
is proper
Ruling: The general rule is that only judgments
which have become final and executory may be
executed. However, discretionary execution of
appealed judgments may be allowed under
Section 2 (a) of Rule 39 of the Revised Rules of
Civil Procedure upon concurrence of the
following requisites: (a) there must be a motion
by the prevailing party with notice to the
adverse party; (b) there must be a good reason
for execution pending appeal; and (c) the good
reason must be stated in a special order. The
yardstick remains the presence or the absence
of good reasons consisting of exceptional
circumstances of such urgency as to outweigh
the injury or damage that the losing party may
suffer, should the appealed judgment be
reversed later. Since the execution of a
judgment pending appeal is an exception to the
general rule, the existence of good reasons is
essential.
Lastly, petitioners assert that Lavines financial
distress is sufficient reason to order execution
pending appeal. Citing Borja v. Court of Appeals,
they claim that execution pending appeal may
be granted if the prevailing party is already of
advanced age and in danger of extinction.
Borja is not applicable to the case at bar
because its factual milieu is different. In Borja,
the prevailing party was a natural person who,
at 76 years of age, may no longer enjoy the fruit
of the judgment before he finally passes away.
Lavine, on the other hand, is a juridical entity
whose existence cannot be likened to a natural
person. Its precarious financial condition is not
by itself a compelling circumstance warranting
immediate execution and does not outweigh
the long standing general policy of enforcing
only final and executory judgments.
Lanuza Jr and Obles v BF Corp, Shangri-La
Properties Inc, Ramos, Colayco, Licauco III and
Ramos
Doctrine: Corporate representatives may be
compelled to submit to arbitration proceedings
pursuant to a contract entered into by the
corporation they represent if there are
allegations of bad faith or malice in their acts
representing the corporation.
Facts: Controversy arose from agreements by
the two corporations where BF Corp undertook
to construct Shangri-La mall and a multilevel
parking structure along EDSA, 1989 and 1991
respectively. Shangri-La had been consistent in
paying but after a while, it defaulted.
1993, BF Corp filed a complaint against Shangri-
La and its board of directors members
(individual petitioners and respondents in case
style). BF Corp alleged that Shangri-La
misrepresented it had funds to pay and that it
was simply a matter of delayed processing of
BF’s progress billing statements.
Construction eventually was completed but
despite demands, Shangri-La refused to pay the
balance. BF also alleged that Shangri-La’s
directors were in bad faith so they should be
held jointly and severally liable with Shangri-La.
Shangri-La and respondent board members
filed a motion to suspend the proceedings in
view of BF’s failure to submit its dispute to
arbitration (in accordance with arbitration
clause provided in the contract).
RTC denied the motion, however. Petitioners
filed an answer saying they are resigned
members of the board since 1991. Shangri-La
and respondents then filed certiorari with CA
which granted their petition and ordered
submission to arbitration.
The two corporations failed to agree to what
law would apply but the trial court ordered that
it should be RA 876. Both corporations then
wanted to clarify the term “parties” and
whether Shangri-La’s directors should be
included in the arbitration proceedings. The
trial court then opined that the directors were
interested parties and thus should be served
with a demand for arbitration.
Petitioners filed a petition for certiorari with CA
but the latter dismissed it.
Issue: W/N petitioners should be made parties
to the arbitration proceedings pursuant to the
arbitration clause provided in the contract
between BF Corp and Shangri-La.
Ruling: Yes. Petitioners: they are third parties
to the contract between BF Corporation and
Shangri-La
- They say that provisions including
arbitration stipulations should bind only the
parties. Based on our arbitration laws, parties
who are strangers to an agreement cannot be
compelled to arbitrate;
BF Corp: while petitioners were not parties to
the agreement, they were still impleaded under
Section 31 of the Corporation Code.
- Section 31 makes directors solidarity
liable for fraud, gross negligence, and bad faith;
- Also, because petitioners were
impleaded for their solidary liability, they are
necessary parties to the arbitration
proceedings;
Petitioners may be compelled to submit to the
arbitration proceedings in accordance with
Shangri-La and BF Corporation's agreement, in
order to determine if the distinction between
Shangri-La's personality and their personalities
should be disregarded
General Rule: corporation's representative who
did not personally bind himself or herself to an
arbitration agreement cannot be forced to
participate in arbitration proceedings made
pursuant to an agreement entered into by the
corporation.
- He or she is generally not considered a
party to that agreement.
Exception: piercing the veil of corporate fiction.
- There are instances when the
distinction between personalities of directors,
officers, and representatives, and of the
corporation, are disregarded;
- Section 31 of the Corporation Code
provides the instances when directors, trustees,
or officers may become liable for corporate acts
- The courts or tribunals must first
determine whether circumstances exist to
warrant the courts or tribunals to disregard the
distinction between the corporation and the
persons representing it.
- The determination of these
circumstances must be made by one tribunal or
court in a proceeding participated in by all
parties involved, including current
representatives of the corporation, and those
persons whose personalities are impliedly the
same as the corporation.
- Hence, when the directors, as in this
case, are impleaded in a case against a
corporation, alleging malice or bad faith on
their part in directing the affairs of the
corporation, complainants are effectively
alleging that the directors and the corporation
are not acting as separate entities
TRINIDAD J. FRANCISCO, vs. GOVERNMENT
SERVICE INSURANCE SYSTEM,
(Reyes J./ 1963)
Facts: On Oct. 10, 1956, Trinidad Francisco, in
consideration of a loan extended to it,
mortgaged to GSIS a parcel of land known as
VIC-MARI compound. On Jan. 6, 1959 the
mortgage was extrajudicially foreclosed. GSIS
acquired ownership of the land
Vicente Francisco, Trinidad’s father, sent a
letter dated Feb. 20, 1959 to GSIS proposing a
redemption of the property. He later received a
telegram from the General Manager Andal
saying that GSIS approved redemption. After
the redemption had already concluded and all
of the arrearages have been paid.
On Jan. 1960, Trinidad, thinking that she had
already redeemed the property suddenly
received letters from the GSIS the General
Manager Andal asking for the “proposal for the
payment of her indebtedness”. Francisco’s
father protested claiming that he had already
redeemed the property as per the letter he sent
GSIS.
Nevertheless, GSIS continued to demand
foreclosure. They claimed that the telegram
assenting to the proposal letter of Francisco’s
father should be disregarded as it failed to
express the contents of the board resolution
due to the error of its minor employees in
couching the correct wording of the telegram.
The board resolution approving the letter
contained the condition that Francisco’s father
should also pay the expenses in the foreclosure
of the mortgage. The remittances already made
by him were not sufficient to cover this.
Trindad thus instituted the present suit.
The trial court ruled in favor of Trinidad. It
found that the letter dated Feb. 20, 1959 had
been unqualifiedly accepted and was binding
and the plaintiff need not pay the extra charges
being demanded.
ISSUE: WON the offer by Vicente Francisco was
accepted by the corporation?
RULING: YES, a person who knows that the
officer or agent of the corporation habitually
transacts certain kinds of business for such
corporation under circumstances which
necessarily show knowledge on the part of
those charged with the conduct of the
corporate business assumes, as he has the right
to assume, that such agent or officer is acting
within the scope of his authority. If a private
corporation intentionally or negligently clothes
its officers or agents with apparent power to
perform acts for it, the corporation will be
estopped to deny that such apparent authority
is real, as to innocent third persons dealing in
good faith with such officers or agents.
In this case, the telegram was within Andal’s
apparent authority. Assuming that it was sent
by the Board Secretary in his name but without
his knowledge, third persons are not duty
bound to disbelieve the acts of a corporation’s
officers, especially when it appears regular on
its face.
Furthermore, the Civil Code provides for
ratification, wherein a party with knowledge of
the reason which renders the contract voidable
and such reason having ceased, the person who
has a right to invoke it executes an act which
necessarily implies an intention to waive his
right.
In this case, GSIS ratified its acceptance of
Vicente Francisco’s offer when it failed to refute
it in the letter sent by Trinidad Francisco to Mr.
Andal which quoted verbatim the telegram of
acceptance. This was in itself notice to the
corporation of the terms of the allegedly
unauthorized telegram.
Since a corporation cannot see, or know,
anything except through its officers, knowledge
of facts acquired or possessed by an officer or
agent of a corporation in the course of his
employment, and in relation to matters within
the scope of his authority, is notice to the
corporation, whether he communicates such
knowledge or not.
GSIS pocketed the amount and kept silent
about the telegram. This silence, taken together
with the unconditional acceptance of three
other subsequent remittances from plaintiff,
constitutes in itself a binding ratification of the
original agreement
Narra Nickel Mining vs Redmont
FACTS: Redmont is a domestic corporation
interested in the mining and exploration of
some areas in Palawan. Upon learning that
those areas were covered by MPSA applications
of other three (allegedly Filipino) corporations –
Narra, Tesoro, and MacArthur, it filed a petition
before the Panel of Arbitrators of DENR seeking
to deny their permits on the ground that these
corporations are in reality foreign-owned.
MBMI, a 100% Canadian corporation, owns 40%
of the shares of PLMC (which owns 5,997 shares
of Narra), 40% of the shares of MMC (which
owns 5,997 shares of McArthur) and 40% of the
shares of SLMC (which, in turn, owns 5,997
shares of Tesoro).
Aside from the MPSA, the three corporations
also applied for FTAA with the Office of the
President. In their answer, they countered that
(1) the liberal Control Test must be used in
determining the nationality of a corporation as
based on Sec 3 of the Foreign Investment Act –
which as they claimed admits of corporate
layering schemes, and that (2) the nationality
question is no longer material because of their
subsequent application for FTAA.
ISSUE:
The main issue in this case is centered on the
issue of petitioners’ nationality, whether
Filipino or foreign.
NOTE: The filing of the FTAA application is a
clear admission that the resps are not capable
of conducting a large scale mining operation
and that they need the financial and technical
assistance of a foreign entity in their operation
that is why they sought the participation of
MBMI Resources, Inc. The participation of
MBMI in the corporation only proves the fact
that it is the Canadian company that will
provide the finances and the resources to
operate the mining areas for the greater benefit
and interest of the same and not the Fil
stockholders who only have a less substantial
financial stake in the corporation.
The filing of the FTAA application on during the
pendency of the case only demonstrate the
violations and lack of qualification of the resp
corps to engage in mining. The filing of the FTAA
application conversion which is allowed foreign
corporation of the earlier MPSA is an admission
that indeed the resp is not Fil but rather of
foreign nationality who is disqualified under the
laws. Corporate docs of MBMI Resources, Inc.
furnished its stockholders in their head office in
Canada suggest that they are conducting
operation only through their local counterparts.
Grandfather test
In their previous petitions, they had been
adamant in insisting that they were Filipino
corporations, until they submitted their
Manifestation and Submission dated October
19, 2012 where they stated the alleged change
of corporate ownership to reflect their Filipino
ownership. Thus, there is a need to determine
the nationality of petitioner corporations.
Basically, there are two acknowledged tests in
determining the nationality of a corporation:
the control test and the grandfather rule.
Paragraph 7 of DOJ Opinion No. 020, Series of
2005, adopting the 1967 SEC Rules which
implemented the requirement of the
Constitution and other laws pertaining to the
controlling interests in enterprises engaged in
the exploitation of natural resources owned by
Filipino citizens, provides:
Shares belonging to corporations or
partnerships at least 60% of the capital of which
is owned by Filipino citizens shall be considered
as of Philippine nationality, but if the
percentage of Filipino ownership in the
corporation or partnership is less than 60%,
only the number of shares corresponding to
such percentage shall be counted as of
Philippine nationality.
Thus, if 100,000 shares are registered in the
name of a corporation or partnership at least
60% of the capital stock or capital, respectively,
of which belong to Filipino citizens, all of the
shares shall be recorded as owned by Filipinos.
But if less than 60%, or say, 50% of the capital
stock or capital of the corporation or
partnership, respectively, belongs to Filipino
citizens, only 50,000 shares shall be counted as
owned by Filipinos and the other 50,000 shall
be recorded as belonging to aliens.
Issue 1: W/N the Grandfather Rule must be
applied in this case
Yes. It is the intention of the framers of the
Constitution to apply the Grandfather Rule in
cases where corporate layering is present.
First, as a rule in statutory construction, when
there is conflict between the Constitution and a
statute, the Constitution will prevail. In this
instance, specifically pertaining to the
provisions under Art. XII of the Constitution on
National Economy and Patrimony, Sec. 3 of the
FIA will have no place of application. Corporate
layering is admittedly allowed by the FIA, but if
it is used to circumvent the Constitution and
other pertinent laws, then it becomes illegal.
Second, under the SEC Rule1 and DOJ
Opinion2 , the Grandfather Rule must be
applied when the 60-40 Filipino-foreign equity
ownership is in doubt. Doubt is present in the
Filipino equity ownership of Narra, Tesoro, and
MacArthur since their common investor, the
100% Canadian-owned corporation – MBMI,
funded them.
Under the Grandfather Rule, it is not enough
that the corporation does have the required
60% Filipino stockholdings at face value.
To determine the percentage of the ultimate
Filipino ownership, it must first be traced to the
level of the investing corporation and added to
the shares directly owned in the investee
corporation.
Applying this rule, it turns out that the Canadian
corporation owns more than 60% of the equity
interests of Narra, Tesoro and MacArthur.
Hence, the latter are disqualified to participate
in the exploration, development and utilization
of the Philippine’s natural resources.
1 DOJ Opinion No. 020 Series of 2005
(paragraph 7)
2 SEC Opinion May 13, 1990
NOTE:
the Court finds that this case calls for the
application of the grandfather rule since, as
ruled by the POA and affirmed by the OP, doubt
prevails and persists in the corporate ownership
of petitioners. Also, as found by the CA, doubt is
present in the 60-40 Filipino equity ownership
of petitioners Narra, McArthur and Tesoro,
since their common investor, the 100%
Canadian corporation––MBMI, funded them.
However, petitioners also claim that there is
"doubt" only when the stockholdings of
Filipinos are less than 60%.
Obviously, the instant case presents a situation
which exhibits a scheme employed by
stockholders to circumvent the law, creating a
cloud of doubt in the Court’s mind. To
determine, therefore, the actual participation,
direct or indirect, of MBMI, the grandfather rule
must be used.
Stonehill v Diokno
Facts: Forty-two (42) search warrants were
issued at different dates against petitioners and
the corporations of which they were officers.
Peace officers were directed to search the
persons of the petitioners and/or their premises
of their offices, warehouses and/or residences.
Books of accounts, financial records, vouchers,
correspondence, receipts, ledgers, journals,
portfolios, credit journals, typewriters, and
other documents and/or papers showing all
business transactions including disbursements
receipts, balance sheets, and profit and loss
statements and Bobbins were to be seized.
Petitioner contends that the issued search
warrants were null and void as having
contravened the Constitution and the Rules of
Court for, among others, it did not describe the
documents, books and things to be seized
PARTICULARLY.
Issue:
Whether or not the search warrant has been
validly issued.
Whether or not the seized articles may be
admitted in court.
Held: The authority of the warrants in question
may be split in two major groups: (a) those
found and seized in the offices of the
corporations; and (b) those found and seized in
the residences of the petitioners.
The petitioners have no cause of action against
the contested warrants on the first major
group. This is because corporations have their
respective personalities, separate and distinct
from the personality of their officers, directors
and stockholders. The legality of a seizure can
be contested only by the party whose rights
have been impaired, the objection to an
unlawful search and seizure purely being
personal cannot be availed by third parties. As
to the second major group, two important
questions need be settled: (1) whether the
search warrants in question, and the searches
and seizures made under authority thereof, are
valid or not; and (2) if the answer is no, whether
said documents, papers and things may be used
in evidence against petitioners.
The Constitution protects the rights of the
people from unreasonable searches and
seizure. Two points must be stressed in
connection to this constitutional mandate: (1)
no warrant shall be issued except if based upon
probable cause determined personally by the
judge by the manner set in the provision; and
(2) the warrant shall describe the things to be
seized with particularly. In the present case, no
specific offense has been alleged in the
warrant’s application. The averments of the
offenses committed were abstract and
therefore, would make it impossible for judges
to determine the existence of probable cause.
Such impossibility of such determination
naturally hinders the issuance of a valid search
warrant.
The Constitution also requires the things to be
seized described with particularity. This is to
eliminate general warrants.
The Court held that the warrants issued for the
search of three residences of petitioners are
null and void.
Bataan Shipyard Engineering Co., Inc. vs. PCGG
(G.R. No. 75885 May 27, 1987)
Re: Business Organization – Corporation Law – takeover order of July 14, 1986 and the
A Corporation Cannot Invoke the Right Against termination of the services of the BASECO
Self-Incrimination executives.

Facts: Challenged in this special civil action of Issue: Whether or not BASECO’s right against
certiorari and prohibition by a private self-incrimination and unreasonable searches
corporation known as the Bataan Shipyard and and seizures was violated.
Engineering Co., Inc. are: (1) Executive Orders
Held: No. The order to produce documents was
Numbered 1 and 2, promulgated by President
issued upon the authority of Section 3 (e) of
Corazon C. Aquino on February 28, 1986 and
Executive Order No. 1, treating of the PCGG's
March 12, 1986, respectively, and (2) the
power to "issue subpoenas requiring * * the
sequestration, takeover, and other orders
production of such books, papers, contracts,
issued, and acts done, in accordance with said
records, statements of accounts and other
executive orders by the Presidential
documents as may be material to the
Commission on Good Government and/or its
investigation conducted by the Commission. It is
Commissioners and agents, affecting said
elementary that the right against self-
corporation. The sequestration order issued on
incrimination has no application to juridical
April 14, 1986 was addressed to three of the
persons. While an individual may lawfully refuse
agents of the Commission, ordering them to
to answer incriminating questions unless
sequester several companies among which is
protected by an immunity statute, it does not
Bataan Shipyard and Engineering Co., Inc. On
follow that a corporation, vested with special
the strength of the above sequestration order,
privileges and franchises, may refuse to show its
several letters were sent to BASECO among
hand when charged with an abuse of such
which is that from Mr. Jose M. Balde, acting for
privileges.
the PCGG, addressed a letter dated April 18,
1986 to the President and other officers of Corporations are not entitled to all of the
petitioner firm, reiterating an earlier request for constitutional protections, which private
the production of certain documents. individuals have. They are not at all within the
privilege against self-incrimination; although
The letter closed with the warning that if the
this court more than once has said that the
documents were not submitted within five days,
privilege runs very closely with the 4th
the officers would be cited for "contempt in
Amendment's Search and Seizure provisions. It
pursuance with Presidential Executive Order
is also settled that an officer of the company
Nos. 1 and 2." BASECO contends that its right
cannot refuse to produce its records in its
against self-incrimination and unreasonable
possession upon the plea that they will either
searches and seizures had been transgressed by
incriminate him or may incriminate it." The
the Order of April 18, 1986 which required it "to
corporation is a creature of the state. It is
produce corporate records from 1973 to 1986
presumed to be incorporated for the benefit of
under pain of contempt of the Commission if it
the public. It received certain special privileges
fails to do so." BASECO prays that the Court 1)
and franchises, and holds them subject to the
declare unconstitutional and void Executive
laws of the state and the limitations of its
Orders Numbered 1 and 2; 2) annul the
charter. It’s powers are limited by law. It can
sequestration order dated April- 14, 1986, and
make no contract not authorized by its charter.
all other orders subsequently issued and acts
Its rights to act as a corporation are only
done on the basis thereof, inclusive of the
preserved to it so long as it obeys the laws of its
creation. There is a reserve right in the
legislature to investigate its contracts and find
out whether it has exceeded its powers. It
would be a strange anomaly to hold that a
state, having chartered a corporation to make
use of certain franchises, could not, in the
exercise of sovereignty, inquire how these
franchises had been employed, and whether
they had been abused, and demand the
production of the corporate books and papers
for that purpose.
The defense amounts to this, that an officer of
the corporation which is charged with a criminal
violation of the statute may plead the
criminality of such corporation as a refusal to
produce its books. To state this proposition is to
answer it. While an individual may lawfully
refuse to answer incriminating questions unless
protected by an immunity statute, it does not
follow that a corporation, vested with special
privileges and franchises may refuse to show its
hand when charged with an abuse of such
privileges. (Wilson v. United States, 55 Law Ed.,
771, 780 [emphasis, the Solicitor General's])
The constitutional safeguard against
unreasonable searches and seizures finds no
application to the case at bar either. There has
been no search undertaken by any agent or
representative of the PCGG, and of course no
seizure on the occasion thereof.
TIME v. ANDRES REYES
FACTS: Petition for certiorari and
prohibition/with preliminary injunction, to
annul certain orders of the respondent Court of
First Instance of Rizal, issued in its Civil Case No.
10403, entitled "Antonio J. Villegas and Juan
Ponce Enrile vs. Time, Inc., and Time-Life
International, Publisher of 'Time' Magazine
(Asia Edition)," and to prohibit the said court
from further proceeding with the said civil case.
Upon petitioner's posting a bond of P1,000.00,
this Court, as prayed for, ordered, on 15 April
1968, the issuance of a writ of preliminary
injunction.
The petition alleges that petitioner Time, Inc.,
[1] is an American corporation with principal
offices at Rockefeller Center, New York City,
N.Y., and is the publisher of "Time," a weekly
news magazine; the petition, however, does not
allege the petitioner's legal capacity to sue in
the courts of the Philippines.[2]
In the aforesaid Civil Case No. 10403, therein
plaintiffs (herein respondents) Antonio J,
Villegas and Juan Ponce Enrile seek to recover
from the herein petitioner damages upon an
alleged libel arising from a publication of Time
(Asia Edition) magazine, in its issue of 18 August
1967, of an essay, entitled "Corruption in Asia,"
ISSUE: Whether the petition should be
dismissed
HELD: The dismissal of the present petition is
asked on the ground that the petitioner foreign
corporation failed to allege its capacity to sue in
the courts of the Philippines. Respondents rely
on Section 69 of the Corporation Law, which
provides:
"SEC. 69. No foreign corporation or
corporations formed, organized, or existing
under any laws other than those of the
Philippines shall be permitted to... maintain by
itself or assignee any suit for the recovery of
any debt, claim, or demand whatever, unless it
shall have the license prescribed in the section
immediately preceding...."...;
They also invoke the ruling in Marshall-Wells
Co. vs. Elser & Co., Inc.[7] that no foreign
corporation may be permitted to maintain any
suit in the local courts unless it shall have the
license required by the law, and the ruling in
Atlantic Mutual Ins. Co., Inc. vs. Cebu
Stevedoring Co., Inc.[8] that "where... the law
denies to a foreign corporation the right to
maintain suit unless it has previously complied
with a certain requirement, then such
compliance or the fact that the suing
corporation is exempt therefrom, becomes a
necessary averment in the complaint." We fail
to see how these doctrines can be a propos in
the case at bar, since the petitioner is not
"maintaining any suit" but is merely defending
one against itself; it did not file any complaint
but only a corollary defensive petition to
prohibit the lower court from further
proceeding with a suit that it had no jurisdiction
to entertain.
Petitioner's failure to aver its legal capacity to
institute the present petition is not fatal, for . . .
"A foreign corporation may, by writ of
prohibition, seek relief against the wrongful
assumption of jurisdiction. And a foreign
corporation seeking a writ of prohibition against
further maintenance of a suit, on the ground of
want of jurisdiction, is not bound by the ruling
of the court in which the suit was brought, on a
motion to quash service of summons, that it has
jurisdiction.
JOSE O. SIA v. PEOPLE
FACTS: Petitioner, Jose O. Sia, was the
president and general manager of Metal
Manufacturing of the Philippines (MEMAP). He
was convicted of estafa for his failure to return
the cold rolled steel sheets or account for the
proceeds of those which were sold, to
Continental Bank, herein complainant.
Petitioner contended that he cannot be made
liable for the crime charged as he only acted for
and in behalf of MEMAP as its president.
ISSUE: Whether petitioner could be held liable
for estafa.
RULING: The Court ruled in the negative.
The case of People vs. Tan Boon Kong
(54 Phil. 607) provides for the general principle
that for crimes committed by a corporation, the
responsible officers thereof would personally
bear the criminal liability as a corporation is an
artificial person, an abstract being. However,
the Court ruled that such principle is not
applicable in this case because the act alleged
to be a crime is not in the performance of an act
directly ordained by law to be performed by the
corporation. The act is imposed by agreement
of parties, as a practice observed in the usual
pursuit of a business or a commercial
transaction. The offense may arise, if at all, from
the peculiar terms and condition agreed upon
by the parties to the transaction, not by direct
provision of the law. In the absence of an
express provision of law making the petitioner
liable for the criminal offense committed by the
corporation of which he is a president as in fact
there is no such provisions in the Revised Penal
Code under which petitioner is being
prosecuted, the existence of a criminal liability
on his part may not be said to be beyond any
doubt. In all criminal prosecutions, the
existence of criminal liability for which the
accused is made answerable must be clear and
certain. Further, the civil liability imposed by
the trust receipt is exclusively on the Metal
Company. Speaking of such liability alone, the
petitioner was never intended to be equally
liable as the corporation. Without being made
so liable personally as the corporation is, there
would then be no basis for holding him
criminally liable, for any violation of the trust
receipt.
Corporation Code (BP Blg. 68)
Sec. 1. Title of the Code- This Code shall be
known as “The Corporation Code of the
Philippine”
 - Repealed Act No. 1459; took effect
on May 1, 1980
Purpose:
a. Defining the area within which the
parties are free to allocate risk, control,
and profit as they wish
b. Prescribe the allocation of these
elements in the absence of express
agreement.
Corporation Code Applies Suppletorily
General Rule: The Corporation Code is the
primary law that should be applied in the
regulation of corporations.
EXC:
1. General Banking Laws and the New
Central Bank Act are the primary laws
on Banks. The Corporation Code applies
suppletorily.
2. Insurance Code of the Philippines
applies to insurance corporations.
Sec. 2. Corporation defined- A corporation is
an artificial being created by operation of law,
having the right of succession and the powers,
attributes and properties expressly authorized
by law or incident to its existence.
Attributes:
1. It is an artificial being
2. It is created by operation of law
3. It has the right of succession
4. It has the powers, attributes and
properties expressly authorized by law
or incident to its existence.
Concession Theory – the corporation is an
artificial being created by operation of law,
it owes its life to the State and its birth is
purely dependent on the State’s will.
- A corporation as known to
Philippine Jurisprudence is a
creature without any existence until
it has received the imprimatur of
the State acting according to law.
Realist or Inherence Theory- a corporation
under this theory is the legal recognition of
group interests that, as a practical matter,
already exists.
- This theory tends to view the
corporation as a group whose
activities are such as to require
separate legal recognition, with
many of the attributes of a natural
person, and by its focus on the
voluntary associational activities of
individuals provides a basis for
invoking the usual constitutional
and other legal protection for
individuals.
Enterprise Theory- stresses the underlying
commercial enterprise without emphasis on
entity-aggregate distinctions of the components
Symbol Theory- Under this theory, a
corporation is a symbol for the aggregate of the
associates in their group personalities.
Franchise- A corporation is granted by the State
the right to exist by virtue of a primary franchise
- Special privilege conferred by
governmental authority, and which
does not belong to citizens of the
country generally as a matter of
common right.
Kinds of Franchise
1. Corporate or General Franchise- right to
exist as a corporation, vested in the
individuals who compose the
 corporation and not in the corporation
itself, and cannot be conveyed in the
absence of legislative authority to do
so.
2. Special or Secondary Franchise- certain
rights and privileges conferred upon
existing corporations, such as the right
to use the streets of a municipalities to
lay pipes of tracks, erect poles or string
wires.
Creation by Special Law- Only government-
owned and controlled corporations may be
created by special law.
Contract Theory- incorporation is deemed to
involve contracts among the members,
between the members and the corporation, and
between the members or the corporation and
the state. There is also a contract between the
corporation ant its stockholders or members
- Corporations are entitled to the
right against impairment of
contracts.
Doctrine of Separate Personality- a corporation
has a personality seperate and distinct from its
members. Because of the separate personality
of the corporation, the properties of the
corporation are not the properties of its
shareholders, members or officers and vice
versa. Properties registered in the name of the
corporation are owned by it as an entity
separate and distinct from those who compose
it.
Nature of Stockholders’ Interest in Corporate
Properties – indirect, contingent and inchoate.
The interest of the share holder on a particular
property becomes actual, direct and existing
only upon liquidation of the assets of the
corporation and the same property is assigned
to the shareholder concerned.
Separate Obligations – the obligations of the
corporation are not the obligations of its
shareholders and members and officers and
vice versa.
Limited Liability Rule – a stockholder is
personally liable for the financial obligations of
the corporation to the extent of his unpaid
subscription
- Reasons for limited liability
1. Investment in shares is
encouraged because the task of
evaluating equity investment is
greatly simplified considering
that the low-probability even of
insolvency and the financial
condition of other investors can
already be ignored
2. Investment in risky ventures is
encouraged
3. Banks and other financial
intermediaries who are
considered experts are
encouraged to monitor
corporate debtors more closely.
Remedy- a stockholder who are sought to be
made liable for their unpaid subscription should
be impleaded. If the stock holders are not
impleaded as defendants, a separate action
should be filed against them to enforce any
judgement obligation.
Doctrine of Piercing the Veil of Corporate
Fiction- the corporation’s separate personality
may be disregarded when the corporate
identity is used to defeat public convenience,
justify wrong, protect fraud, or defend crime.
Also, where the corporation is a mere alter ego
or business conduit of a natural person or
persons, or where the corporation is so
organized and controlled and its affairs are so
conducted as to make it merely an
instrumentality, agency, conduit or adjunct of
another corporation.
Theory of Enterprise Entity- the corporate
entity takes its being from the reality of the
underlying enterprise, formed or in formation.
That the state’s approval of the corporate form
sets up a prima facie case that assets, liabilities
and operations of the corporation are those of
the enterprise. But where the corporate entity
is defective or otherwise challenged, its
existence, extent and operations of the
underlying enterprise, which by these very
qualities acquires an entity of its own,
recognized by law.
Instrumentality Rule – the courts are called
upon to apply the “three-pronged control test”
that is to determine the presence of three
factors:
1. Control- not merely in the majority or
complete stock control, but complete
domination on policy and business
practice in respect to the transaction
attacked so that the corporate entity as
to this transaction had at the time no
separate mind, will or existence of its
own.
2. Such control must have been used by
the defendant to commit fraud or
wrong, to perpetuate the violation of a
statutory or other positive legal duty, or
dishonest and unjust act in
contravention of plaintiff’s legal right
3. The aforesaid control and breach of
duty must proximately cause the injury
or unjust loss complained of.
The absence of any of these elements will
prevent the application of the doctrine
piercing the corporate veil.
Identity Doctrine- if the plaintiff can show that
there was such a unity of interest and
ownership that the independence of the
corporations had in effect ceased or had never
begun, and adherence to the fiction of separate
identity would serve only defeat justice and
equity by permitting the economic entity to
escape liability arising out of an operation of
one corporation for the benefit of the whole
enterprise.
Alter Ego Doctrine- there is unity of interest
and ownership that the separate personalities
of the corporation and the individual no longer
exists and that if the acts are treated as those of
the corporation alone, an inequitable result will
follow.
Totality of Circumstances Test – the totality of
the circumstances and each case must be
decided on its own set of facts.
Reverse Piercing- a corporation can be made
liable for the obligations of the stockholders or
corporate insider in case the latter may have
incorporated the subject corporation to evade a
legal obligation of the stockholders.
Primary Rules of Attribution – Due to the
artificial nature of the existence of corporations,
corporations can perform physical acts or
commit omissions only through natural persons.
- The action of the Board of Directors
will be treated as the action of the
corporation.
Attribution of Knowledge - knowledge of facts
acquired or possessed by an officer or agent of
the corporation in the course of his
employment, in relation to matters within the
scope of his authority, is notice to the
corporation, whether he communicates such
knowledge o not since a corporation cannot
see, or know anything except through its
officers.
Test in determining Nationality of Corporation
1. Aggregate Test- requires looking into
the nationality, domicile, or residence
of the individuals who control the
corporation
2. Entity Test/Place of Incorporation Test-
looks into the nation where the
corporation was incorporated.
Wartime Control Test- The place of
incorporation may be disregarded in times of
war.
- The court will look into the
nationality of the controlling
stockholders in wartime. If the
controlling stockholders are citizens
of the enemy state, then the
corporation will also be deemed as
public enemy corporation.
Grandfather Test- the Grandfather test was
originally intended to look into the citizenship
of the individuals who ultimately own and
control the shares of stock of a corporation for
purposes of determining compliance with the
constitutional requirement of Filipino
ownership”.
The shareholdings should ideally be traced (i.e.
grandfathered) to the point where natural
persons hold the shares.
The Court further discussed that the
Grandfather Rule applies only when the 60-40
Filipino-foreign ownership is in doubt or where
there is reason to believe that there is non-
compliance with the provisions of the
Constitution on the nationality restriction.
Residence- a corporation in a metaphysical
sense a resident of the place where its principal
office is located as stated in the Articles of
Incorporation.
Tort Liability- the liability of a corporation may
either be vicarious or direct personal obligation
and may arise out of different sources of
obligation (see primary rules of attribution)
Doctrine of Corporate Responsibility- applied
in hospital liability. The hospital the duty to
make reasonable effort to monitor and oversee
the treatment prescribed ad administered by
the physicians practicing in its premises
Corporate Negligence Doctrine- imposes
several duties on a hospital
1. To use reasonable care in the
maintenance and adequate facilities
and equipment
2. To select and retain only competent
physicians
3. To oversee as to patient care all persons
who practice medicine within its walls
4. To formulate, adopt, and enforce
adequate rules and policies to ensure
quality care for its patients
Right to Moral Damages – generally, award for
moral damages cannot be granted in favor of a
corporation, being an artificial person and
having existence only in legal contemplation. It
cannot, therefore, experience physical suffering
and mental anguish. Courts may still award
damages in favor of a corporation if they found
that the reputation of the corporation was
besmirched however these damages cannot
include moral damages but must be limited to
actual, nominal, temperate, exemplary
damages and attorney’s fees.
Constitutional Right- as an artificial being and
as a mere creature of law, a corporation cannot
exercise Constitutional rights that are not
consistent with its nature as a mere artificial
being or rights that are not available because
the corporation’s life is just a concession of the
State
Criminal Liability – a corporation cannot
commit felonies described under the RPC
because artificial beings are incapable of intent.
Neither can it perform any overt act.
- Although the performance of an act
is an obligation directly imposed on
a corporation, the responsible
officer who actually performed the
act must of necessity be the one to
assume criminal liability, otherwise,
this liability as created by the law
 would be illusory and the deterrent
effect of the law will be negated.
Contempt- Corporations may be punished for
contempt. A corporation and those who are
officially responsible for the conduct of its
affairs may be punished for contempt in
disobeying judgements, decrees, or orders for a
court made in a case within its jurisdiction.
Theory of Special or Limited Capacities – the
powers of the corporation are only those that
expressly provided for, implied powers, and
incidental powers.
Sec. 3. Classes of corporations. - Corporations
formed or organized under this Code may be
stock or non-stock corporations. Corporations
which have capital stock divided into shares
and are authorized to distribute to the holders
of such shares dividends or allotments of the
surplus profits on the basis of the shares held
are stock corporations. All other corporations
are non-stock corporations.
Sec. 4. Corporations created by special laws or
charters. - Corporations created by special
laws or charters shall be governed primarily by
the provisions of the special law or charter
creating them or applicable to them,
supplemented by the provisions of this Code,
insofar as they are applicable.
Classifications of Corporations
a. As to number of components
1. Aggregate Corporation- a
corporation consisting of more than
one member.
2. Corporation sole- a corporation
consisting of only one person or
member
b. As to Function
1. Public Corporation – organized for
the government a portion of a
portion of a State for the purpose of
serving general good and welfare
2. Private Corporation – formed for
some private purpose, benefit, aim
or end. May be stock or non-stock
corporations
c. As to the manner of creation
1. Corporation created by special law
– a corporation directly created by
congress through a special law i.e.,
GOCCs
2. Corporation created under a
general law- A corporation created
under the Corporation Code or the
Old Corporation Law
3. Corporation by prescription- A
corporation that was not formally
organized as such byt has been duly
recognized by immemorial usage as
a corporation, with rights and
duties enforceable under the law
d. As to legal status
1. De jure corporation- a corporation
organized in accordance with
requirements of law
2. De facto corporation- a corporation
that is formed where there exists a
flaw in its incorporation but there is
colorable compliance with the
requirements of law
3. Corporation by estoppel – a group
of persons which holds itself out as
a corporation and enters into a
contract with a third person on the
strength of such appearance ancd
cannot be permitted to deny its
existence in an action under said
contract.
e. As to existence of stocks
1. Stock Corporation- a corporation
with capital stock is divided into
shares and is authorized to
distribute to holders thereof of such
share dividends or allotments of the
 surplus profits on the basis of the
shares held.
2. Non-stock Corporation- a
corporation that does not distribute
dividends to their members
f. As to laws of incorporation
1. Domestic corporation- corporation
formed, organized, and existing
under Philippine Laws
2. Foreign Corporations – corporation
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
g. Special Types of Corporations under
the Corporation Code
1. Close corporation- a corporation
whose articles of incorporation
provide that
a. All the corporation’s issued
stock of all classes, exclusive of
treasury shares shall be held of
record by not more than a
specified number of persons,
not exceeding 20
b. All issued stock of all classes
shall be subject to one or more
specified restrictions on
transfer permitted by Title XII of
the Corp Code
c. The corporation shall not list in
any stock exchange or make
any public offering of any of its
stock of any class.
2. Special Corporation – a type of
corporation that includes an
educational corporation and a
religious corporation.
Going Public – a corporation is deemed to be
h. Ecclesiastical and Lay Corporation
going public when it decides to list its shares in
1. Ecclesiastical Corporation –
the stock exchange including corporation that
corporations composing entirely of
will make initial public offering of its shares
spiritual persons like bishops,
deacons, and the like and are
established for the furtherance of
religion and for perpetuating the
rights of the church
2. Lay corporation- all corporations
other than ecclesiastical
corporations.
i. Eleemosynary and Civil Corporation
1. Eleemosynary or Charitable
Corporation – created not for
private gain or profit but for
charitable purposes for the
administration of charitable trust.
2. Civil Corporation – a corporation
not for the purpose of charity but
for the benefit, pecuniary or
otherwise
j. As to relationship
1. Subsidiary – aa corporation more
than 50% of the voting stock of
which is owned or controlled
directly or indirectly through one or
more intermediaries by another
corporation, which thereby become
a parent company
2. Affiliate – a corporation that
directly or indirectly, through one
or more intermediaries, is
controlled by, or is under control of
another corporation, which thereby
becomes its parent company
3. Parent Corporation- a corporation
that has control over another
corporation directly or indirectly
through one or more
intermediaries. It is the corporation
that owns all or substantially all or
the controlling shares in the
subsidiary.
 - Also, any corporation with assets in
excess of P50,000,000 and having
200 or more holders, at least 200 of
which are holding at least 100
shares of a class of its equity
securities are considered public
companies
Going Private- when a corporation restrict the
shareholders to a certain group. i.e., closed or
closely held corporations.
Sec. 5. Corporators and incorporators,
stockholders and members. - Corporators are
those who compose a corporation, whether as
stockholders or as members. Incorporators are
those stockholders or members mentioned in
the articles of incorporation as originally
forming and composing the corporation and
who are signatories thereof.
Corporators in a stock corporation are called
stockholders or shareholders. Corporators in a
non-stock corporation are called members.
Components
1. Shareholders or members
2. Directors or trustees
3. Officers
Incorporators- stockholders or members
mentioned in the Articles of Incorporation as
originally forming and composing the
corporation and who are signatories thereof
- There is only one set of
incorporators. They shall remain
incorporators up to the termination
of the life of the corporation.
Shareholders – holders of shares in a
corporation with interest over the management
(control), income (dividends) and assets (share
upon liquidation) of the corporation
Sec. 6. Classification of shares. - The shares of
stock of stock corporations may be divided
into classes or series of shares, or both, any of
which classes or series of shares may have
such rights, privileges or restrictions as may be
stated in the articles of incorporation:
Provided, That no share may be deprived of
voting rights except those classified and issued
as "preferred" or "redeemable" shares, unless
otherwise provided in this Code: Provided,
further, That there shall always be a class or
series of shares which have complete voting
rights. Any or all of the shares or series of
shares may have a par value or have no par
value as may be provided for in the articles of
incorporation: Provided, however, That banks,
trust companies, insurance companies, public
utilities, and building and loan associations
shall not be permitted to issue no-par value
shares of stock.
Preferred shares of stock issued by any
corporation may be given preference in the
distribution of the assets of the corporation in
case of liquidation and in the distribution of
dividends, or such other preferences as may be
stated in the articles of incorporation which
are not violative of the provisions of this Code:
Provided, That preferred shares of stock may
be issued only with a stated par value. The
board of directors, where authorized in the
articles of incorporation, may fix the terms and
conditions of preferred shares of stock or any
series thereof: Provided, That such terms and
conditions shall be effective upon the filing of a
certificate thereof with the Securities and
Exchange Commission.
Shares of capital stock issued without par
value shall be deemed fully paid and non-
assessable and the holder of such shares shall
not be liable to the corporation or to its
creditors in respect thereto: Provided; That
shares without par value may not be issued for
a consideration less than the value of five
(P5.00) pesos per share: Provided, further,
That the entire consideration received by the
corporation for its no-par value shares shall be
treated as capital and shall not be available for
distribution as dividends.
A corporation may, furthermore, classify its
shares for the purpose of insuring compliance
with constitutional or legal requirements.
Except as otherwise provided in the articles of
incorporation and stated in the certificate of
stock, each share shall be equal in all respects
to every other share.
Where the articles of incorporation provide for
non-voting shares in the cases allowed by this
Code, the holders of such shares shall
nevertheless be entitled to vote on the
following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or
other disposition of all or substantially all of
the corporate property;
4. Incurring, creating or increasing bonded
indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation
with another corporation or other
corporations;
7. Investment of corporate funds in another
corporation or business in accordance with this
Code; and
8. Dissolution of the corporation.
Except as provided in the immediately
preceding paragraph, the vote necessary to
approve a particular corporate act as provided
in this Code shall be deemed to refer only to
stocks with voting rights.
Concept of Shares- intangible interest or right
which an owner has in the management, profit
and assets of the corporation.
Capital stock- consists of all classes of shares
issued to stockholders, that is, common shares
as well as preferred shares, which may have
different rights, privileges or restrictions as
stated in the articles of incorporation.
Kinds of Shares- may be classified into:
1. Common or preferred shares
a. common – shares or stocks
represent the residual ownership
interest in the corporation. It is a
basic class of stock ordinarily issued
without extraordinary rights or
privilege
b. preferred – are shares that entitles
the shareholder to some priority on
dividends and/or asset distribution
2. voting or non-voting shares,
3. Par value or no par value shares,
4. Treasury shares,
5. Redeemable shares, and
6. Founder’s shares
Doctrine of Equality of Shares- all stocks issued
by the corporation are presumed to be equal
with the same privileges and liabilities, provided
that the AOI is silent on such differences
Values that are commonly associated with
shares
1. Market value- price at which the shares
of capital stock is bought and sold by
investors in the market.
2. Book value- amount per share that each
shareholder would receive if the
corporation were liquidated without
incurring any further expenses and if
 assets were sold and liabilities
liquidated at their recorded amounts
3. Liquidation value- the amount a
stockholder would receive upon the
dissolution and liquidation of the
corporation
4. Redemption value- the price per share
at which the corporation may redeem
its share
5. Issued value- the selling price of the
shares fixed by the Board or in the AOI
Holders of non-voting shares may still vote on
the following matter:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or
other disposition of all or substantially all of the
corporate property;
4. Incurring, creating or increasing bonded
indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation
with another corporation or other corporations;
7. Investment of corporate funds in another
corporation or business in accordance with this
Code; and
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.
Sec. 8. Redeemable shares. - Redeemable
shares may be issued by the corporation when
expressly so provided in the articles of
incorporation. They may be purchased or
taken up by the corporation upon the
expiration of a fixed period, regardless of the
existence of unrestricted retained earnings in
the books of the corporation, and upon such
other terms and conditions as may be stated in
the articles of incorporation, which terms and
conditions must also be stated in the
certificate of stock representing said shares
Sec. 9. Treasury shares. - Treasury shares are
shares of stock which have been issued and
fully paid for, but subsequently reacquired by
the issuing corporation by purchase,
redemption, donation or through some other
lawful means. Such shares may again be
disposed of for a reasonable price fixed by the
board of directors
CASES:

8. Dissolution of the corporation.

Escrow Shares- result by virtue of a transaction

to place shares in escrow until the happening of
an event or fulfillment of a specified condition
like payment of the subscription price to the
corporation or purchase price to a shareholder

Sec. 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