A.

Attributes of a corporation
1. Reynoso IV v. CA 345 SCRA 335 (2000)
Facts: Sometime in early 1960s, the Commercial Credit Corporation (CCC), a financing company and
investment firm, decided to organize franchise companies indifferent parts of the country, wherein it
shall hold 30% equity. Employees of the CCC were designated as resident managers of the franchise
companies. Petitioner Bibiano O. Reynoso IV was designated as the resident manager of the franchise in
Quezon City, known as the Commercial Credit Corporation of Quezon City. CCC-QC entered into an
exclusive agreement management contract with CCC whereby the latter was granted the management
and full control of the business activities of the former. Under the contract, CCC-QC shall sell, discount
and/or assign its receivables to CCC. Subsequently, however, this discounting arrangement was
discontinued pursuant to the so called DOSRI rule, prohibiting the lending of funds by corporations to its
directors, officers, stockholders and other persons with related interest therein. On account of the new
restrictions imposed by the Central Bank policy by virtue of the DOSRI rule, CCC decided to form CCC
Equity Corporation, a wholly-owned subsidiary, to which CCC transferred its 30% equity in CCC-QC,
together with 2 seats in the latter’s Board of Directors. A complaint for sum of money with preliminary
attachment was filed by CCC-equity against petitioner and the latter was also dismissed from
employment to which the lower court’s decision was rendered in favor of the petitioner and the same
has become final and executory. CCC changed its name to General Credit Corporation (GCC).

Issue: Whether or not the judgement in favor of the petitioner may be executed against respondent
GCC.

Held: Yes. 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. It is
an artificial being invested by law with a personality separate and distinct from those of the persons
composing it as well as from that of any other legal entity to which it may be related. It was evolved to
make possible the aggregation and assembling of huge amounts of capital upon which big business
depends. It also has the advantage of non-dependence on the lives of those who compose it even as it
enjoys certain rights and conducts activities of natural persons.

Any piercing of the corporate veil has to be done with caution. However, the court will not hesitate to
use its supervisory and adjudicative powers where the corporate fiction is used as an unfair device to
achieve an inequitable result defraud creditors, evade contracts and obligations, or to shield it from the
effects of a court decision. The corporate fiction has to be disregarded when necessary in the interest of
justice.
2. Traders Royal Bank v. CA 180 SCRA 266 (1989)
Facts: On March 30,1982, the Philippine Blooming Mills, Inc. (PBM) and Alfredo Ching jointly submitted
to the Securities and Exchange Commission a petition for suspension of payments (SEC No. 2250) where
Alfredo Ching was joined as co-petitioner because under the law, he was allegedly entitled, as surety, to
avail of the defenses of PBM and he was expected to raise most of the stockholders' equity of Pl00
million being required under the plan for the rehabilitation of PBM. Traders Royal Bank was included
among PBM's creditors named in Schedule A accompanying PBM's petition for suspension of payments.

On May 13, 1983, the petitioner bank filed Civil Case No. 1028-P in the Regional Trial Court, Branch CXIII
in Pasay City, against PBM and Alfredo Ching, to collect P22,227,794.05 exclusive of interests, penalties
and other bank charges representing PBM's outstanding obligation to the bank. Alfredo Ching, a
stockholder of PBM, was impleaded as co-defendant for having signed as a surety for PBM's obligations
to the extent of ten million pesos (Pl0,000,000) under a Deed of Suretyship dated July 21, 1977.

In its en banc decision in SEC-EB No. 018 (Chung Ka Bio, et al. vs. Hon. Antonio R. Manabat, et al.), the
SEC declared that it had assumed jurisdiction over petitioner Alfredo Ching pursuant to Section 6, Rule 3
of the new Rules of Procedure of the SEC providing that "parties in interest without whom no final
determination can be had of an action shall be joined either as complainant, petitioner or respondent"
to prevent multiplicity of suits.

On July 9, 1982, the SEC issued an Order placing PBM's business, including its assets and liabilities, under
rehabilitation receivership, and ordered that "all actions for claims listed in Schedule A of the petition
pending before any court or tribunal are hereby suspended in whatever stage the same may be, until
further orders from the Commission" (p. 22, Rollo). As directed by the SEC, said order was published
once a week for three consecutive weeks in the Bulletin Today, Philippine Daily Express and Times
Journal at the expense of PBM and Alfredo Ching.

Issue: Whether or not the court a quo could acquire jurisdiction over Ching in his personal and individual
capacity as a surety of PBM in the collection suit filed by the bank, despite the fact that PBM's obligation
to the bank had been placed under receivership by the SEC?

Ruling: Yes. Although Ching was impleaded in SEC Case No. 2250, as a co-petitioner of PBM, the SEC
could not assume jurisdiction over his person and properties. The Securities and Exchange Commission
was empowered, as rehabilitation receiver, to take custody and control of the assets and properties of
PBM only, for the SEC has jurisdiction over corporations only not over private individuals, except
stockholders in an intra-corporate dispute (Sec. 5, P.D. 902-A and Sec. 2 of P.D. 1758). Being a nominal
party in SEC Case No. 2250, Ching's properties were not included in the rehabilitation receivership that
the SEC constituted to take custody of PBM's assets.

Therefore, the petitioner bank was not barred from filing a suit against Ching, as a surety for PBM. An
anomalous situation would arise if individual sureties for debtor corporations may escape liability by
simply co- filing with the corporation a petition for suspension of payments in the SEC whose jurisdiction
is limited only to corporations and their corporate assets.
3. Stonehill v. Diokno, G.R. No. L-19550, June 19, 1967/2)
Facts: Respondents herein secured a total of 42 search warrants against petitioners herein and/or the
corporations of which they were officers, to search “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 (cigarette wrappers),” as “the subject of the offense;
stolen or embezzled and proceeds or fruits of the offense,” or “used or intended to be used as the
means of committing the offense,” which is described in the applications adverted to above as “violation
of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code) and the Revised Penal Code.”

The petitioner contended that the search warrants are null and void as their issuance violated the
Constitution and the Rules of Court for being general warrants.

The documents, papers, and things seized under the alleged authority of the warrants in question may
be split into two (2) major groups, namely: (a) those found and seized in the offices of the
aforementioned corporations, and (b) those found and seized in the residences of petitioners herein.

Issue: Whether petitioners can validly assail the search warrant against the corporation.

Held: No. As regards the first group, we hold that petitioners herein have no cause of action to assail the
legality of the contested warrants and of the seizures made in pursuance thereof, for the simple reason
that said corporations have their respective personalities, separate and distinct from the personality of
herein petitioners, regardless of the amount of shares of stock or of the interest of each of them in said
corporations, and whatever the offices they hold therein may be. Indeed, it is well settled that the
legality of a seizure can be contested only by the party whose rights have been impaired thereby, and
that the objection to an unlawful search and seizure is purely personal and cannot be availed of by third
parties. Consequently, petitioners herein may not validly object to the use in evidence against them of
the documents, papers and things seized from the offices and premises of the corporations adverted to
above, since the right to object to the admission of said papers in evidence belongs exclusively to the
corporations, to whom the seized effects belong, and may not be invoked by the corporate officers in
proceedings against them in their individual capacity.
4. Bataan Shipyard & Engineering Co., Inc. (BASECO) v. PCGG, G.R. No. 75885, May 27, 1987
Facts: The corporation known as BASECO was owned or controlled by President Marcos during his
administration, through nominees, by taking undue advantage of his public office and/or using his
powers, authority, or influence, and that it was by and through the same means, that BASECO had taken
over the business and/or assets of the National Shipyard and Engineering Co., Inc., and other
government-owned or controlled entities.

As evidence found in Malacanang shortly after the sudden flight of President Marcos were certificates
corresponding to more than ninety-five percent (95%) of all the outstanding shares of stock of BASECO,
endorsed in blank, together with deeds of assignment of practically all the outstanding shares of stock of
the three (3) corporations above mentioned (which hold 95.82% of all BASECO stock), signed by the
owners thereof although not notarized. While the petitioner's counsel was quick to dispute this asserted
fact, assuring the Court that the BASECO stockholders were still in possession of their respective stock
certificates and had never endorsed them in blank or to anyone else, that denial is exposed by his own
prior and subsequent recorded statements as a mere gesture of defiance rather than a verifiable factual
declaration.

In accordance with Executive Orders Numbered 1 and 2 promulgated by President Corazon Aquino,
PCGG through its commissioners and agent ordered sequestration, takeover and other provisional
orders affecting BASECO.

BASECO argues that the order to produce corporate records from 1973 to 1986, which it has apparently
already complied with, was issued without court authority and infringed its constitutional right against
self-incrimination, and unreasonable search and seizure.

Issue: Whether or not there was a violation of the right against self-incrimination.

Held: No. It is elementary that the right against self-incrimination has no application to juridical persons.
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. Corporations are not
entitled to all of the constitutional protections which private individuals have. They are not at all within
the privilege against self-incrimination, although this court more than once has said that the privilege
runs very closely with the 4th Amendment's Search and Seizure provisions. It is also settled that an
officer of the company cannot refuse to produce its records in its possession, upon the plea that they
will either incriminate him or may incriminate it.
5. Acebedo Optical Company, Inc. v. CA, G.R. No. 100152, March 31, 2000
Facts: Petitioner applied with the Office of the City Mayor of Iligan for a business permit. After
consideration of petitioner's application and the opposition interposed thereto by local optometrists,
respondent City Mayor issued Business Permit No. 5342 subject to the following conditions: (1) Since it
is a corporation, Acebedo cannot put up an optical clinic but only a commercial store; (2) It cannot
examine and/or prescribe reading and similar optical glasses for patients, because these are functions of
optical clinics; (3) It cannot sell reading and similar eyeglasses without a prescription having first been
made by an independent optometrist or independent optical clinic. Acebedo can only sell directly to the
public, without need of a prescription, Ray-Ban and similar eyeglasses; (4) It cannot advertise optical
lenses and eyeglasses, but can advertise Ray-Ban and similar glasses and frames; (5) It is allowed to grind
lenses but only upon the prescription of an independent optometrist.

On December 5, 1988, private respondent Samahan ng Optometrist Sa Pilipinas (SOPI lodged a

complaint against the petitioner alleging that Acebedo had violated the conditions set forth in its
business permit and requesting the cancellation and/or revocation of such permit. On July 19, 1989, the
City Mayor sent petitioner a Notice of Resolution and Cancellation of Business Permit effective as of said
date and giving petitioner three (3) months to wind up its affairs.

Issue: Whether or not the City Mayor has the authority to impose special conditions, as a valid exercise
of police power, in the grant of business permits.

Held: No. In the case under consideration, the business permit granted by respondent City Mayor to
petitioner was burdened with several conditions. Petitioner agrees with the holding by the Court of
Appeals that respondent City Mayor acted beyond his authority in imposing such special conditions in its
permit as the same have no basis in the law or ordinance. Public respondents and private respondent
SOPI are one in saying that the imposition of said special conditions is well within the authority of the
City Mayor as a valid exercise of police power.

What is sought by petitioner from respondent City Mayor is a permit to engage in the business of
running an optical shop. It does not purport to seek a license to engage in the practice of optometry.
The objective of the imposition of subject conditions on petitioner's business permit could be attained
by requiring the optometrists in petitioner's employ to produce a valid certificate of registration as
optometrist, from the Board of Examiners in Optometry. A business permit is issued primarily to
regulate the conduct of business and the City Mayor cannot, through the issuance of such permit,
regulate the practice of a profession.
A.1. Kinds of corporation
1. De Facto Corporation : Sawadjaan v. Court Of Appeals 459 SCRA 516, June 8, 2005)
Facts: Petitioner Sawadjaan was an appraiser/investigator in the Philippine Amanah Bank (PAB) when on
the basis of his report, a credit line was granted to Compressed Air Machineries and Equipment
Corporation (CAMEC) by virtue of the two parcels of land it offered as collaterals. Meanwhile, Congress
passed a law which created Al-Amanah Investment Bank of the Philippines (AIIBP) and repealed the law
creating PAB, transferring all its assets, liabilities and capital accounts to AIIBP. Later, AIIBP discovered
that the collaterals were spurious, thus conducted an investigation and found petitioner Sawadjaan at
fault. Petitioner appealed before the SC which ruled against him. Petitioner moved for a new trial
claiming he recently discovered that AIIBP had not yet adopted its corporate by-laws and since it failed
to file within 60 days from the passage of its law, it had forfeited its franchise or charter and thus has no
legal standing to initiate an administrative case. The motion was denied.

Issue: Whether or not the failure of AIIBP to file its by-laws within the period prescribed results to a
nullity of all actions and proceedings it has initiated.

Ruling: No. The AIIBP was created by Rep. Act No. 6848. It has a main office where it conducts business,
has shareholders, corporate officers, a board of directors, assets, and personnel. It is, in fact, here
represented by the Office of the Government Corporate Counsel, “the principal law office of
government-owned corporations, one of which is respondent bank.” At the very least, by its failure to
submit its by-laws on time, the AIIBP may be considered a de facto corporation whose right to exercise
corporate powers may not be inquired into collaterally in any private suit to which such corporations
may be a party.

Moreover, a corporation which has failed to file its by-laws within the prescribed period does not ipso
facto lose its powers as such. The SEC Rules on Suspension/Revocation of the Certificate of Registration
of Corporations, details the procedures and remedies that may be availed of before an order of
revocation can be issued. There is no showing that such a procedure has been initiated in this case.
2. Corporation by Estoppel : Macasaet v. Francisco, GR No. 156759, June 5, 2013;
Facts: On July 3, 2000, respondent, a retired police officer assigned at the Western Police District in
Manila, sued Abante Tonite, a daily tabloid of general circulation; its Publisher Allen A. Macasaet; its
Managing Director Nicolas V. Quijano; its Circulation Manager Isaias Albano; its Editors Janet Bay, Jesus
R. Galang and Randy Hagos; and its Columnist/Reporter Lily Reyes (petitioners), claiming damages
because of an allegedly libelous article petitioners published. The RTC, which in due course issued
summons to be served on each defendant, including Abante Tonite, at their business address at Monica
Publishing Corporation, 301-305 3rd Floor, BF Condominium Building, Solana Street corner A. Soriano
Street, Intramuros, Manila. RTC Sheriff Raul Medina proceeded to the stated address to effect the
personal service of the summons on the defendants. But his efforts to personally serve each defendant
in the address were futile because the defendants were then out of the office and unavailable. He
returned in the afternoon of that day to make a second attempt at serving the summons, but he was
informed that petitioners were still out of the office. He decided to resort to substituted service of the
summons.

Petitioners moved for the dismissal of the complaint through counsel’s special appearance in their
behalf, alleging lack of jurisdiction over their persons because of the invalid and ineffectual substituted
service of summons. The RTC denied the motion to dismiss.

Issue: Whether or not RTC acquired jurisdiction over the person of the defendants.

Ruling: Yes. Jurisdiction over the person, or jurisdiction in personam — the power of the court to render
a personal judgment or to subject the parties in a particular action to the judgment and other rulings
rendered in the action — is an element of due process that is essential in all actions, civil as well as
criminal, except in actions in rem or quasi in rem. Jurisdiction over the defendant in an action in rem or
quasi in rem is not required, and the court acquires jurisdiction over an action as long as it acquires
jurisdiction over the res that is the subject matter of the action. The purpose of summons in such action
is not the acquisition of jurisdiction over the defendant but mainly to satisfy the constitutional
requirement of due process.

Under the Rules of Court, the service of the summons should firstly be effected on the defendant
himself whenever practicable. Such personal service consists either in handing a copy of the summons
to the defendant in person, or, if the defendant refuses to receive and sign for it, in tendering it to him.
The rule on personal service is to be rigidly enforced in order to ensure the realization of the two
fundamental objectives earlier mentioned. If, for justifiable reasons, the defendant cannot be served in
person within a reasonable time, the service of the summons may then be effected either (a) by leaving
a copy of the summons at his residence with some person of suitable age and discretion then residing
therein, or (b) by leaving the copy at his office or regular place of business with some competent person
in charge thereof. The latter mode of service is known as substituted service because the service of the
summons on the defendant is made through his substitute. In reality, petitioners’ insistence on personal
service by the serving officer was demonstrably superfluous. They had actually received the summonses
served through their substitutes, as borne out by their filing of several pleadings in the RTC, including an
answer with compulsory counterclaim ad cautelam and a pre-trial brief ad cautelam. They had also
availed themselves of the modes of discovery available under the Rules of Court. Such acts evinced their
voluntary appearance in the action.
3. International Express Travel & Tour Services, Inc. v. Hon. Court of Appeals, Henri Kahn,
Philippine Football Federation, G.R. No. 119002, October 19, 2000
Facts: On 30 June 1989, the International Express Travel and Tour Services, Inc. (IETTSI), through its
managing director, wrote a letter to the Philippine Football Federation (Federation), through its
president, Henri Kahn, wherein the former offered its services as a travel agency to the latter. The offer
was accepted. IETTSI secured the airline tickets for the trips of the athletes and officials of the
Federation to the South East Asian Games in Kuala Lumpur as well as various other trips to the People's
Republic of China and Brisbane. The total cost of the tickets amounted to P449,654.83. For the tickets
received, the Federation made two partial payments, both in September of 1989, in the total amount of
P176,467.50. On 4 October 1989, IETTSI wrote the Federation, through Kahn a demand letter requesting
for the amount of P265,894.33. On 30 October 1989, the Federation, through the Project Gintong Alay,
paid the amount of P31,603.00. On 27 December 1989, Henri Kahn issued a personal check in the
amount of P50,000 as partial payment for the outstanding balance of the Federation.

Thereafter, no further payments were made despite repeated demands. This prompted IETTSI to file a
civil case before the Regional Trial Court of Manila. IETTSI sued Henri Kahn in his personal capacity and
as President of the Federation and impleaded the Federation as an alternative defendant. IETTSI sought
to hold Henri Kahn liable for the unpaid balance for the tickets purchased by the Federation on the
ground that Henri Kahn allegedly guaranteed the said obligation. Kahn filed his answer with
counterclaim, while the Federation failed to file its answer and was declared in default by the trial court.
In due course, the trial court rendered judgment and ruled in favor of IETTSI and declared Henri Kahn
personally liable for the unpaid obligation of the Federation. The complaint of IETTSI against the
Philippine Football Federation and the counterclaims of Henri Kahn were dismissed, with costs against
Kahn. Only Henri Kahn elevated the decision to the Court of Appeals. On 21 December 1994, the
appellate court rendered a decision reversing the trial court. IETTSI filed a motion for reconsideration
and as an alternative prayer pleaded that the Federation be held liable for the unpaid obligation. The
same was denied by the appellate court in its resolution of 8 February 1995. IETTSI filed the petition
with the Supreme Court.

Issue: Whether or not the appellate court properly applied the doctrine of corporation by estoppel.

Ruling: No. The Court cannot subscribe to the position taken by the appellate court that even assuming
that the Federation was defectively incorporated, IETTSI cannot deny the corporate existence of the
Federation because it had contracted and dealt with the Federation in such a manner as to recognize
and in effect admit its existence. The doctrine of corporation by estoppel is mistakenly applied by the
appellate court to IETTSI. The application of the doctrine applies to a third party only when he tries to
escape liabilities on a contract from which he has benefited on the irrelevant ground of defective
incorporation. Herein, IETTSI is not trying to escape liability from the contract but rather is the one
claiming from the contract.
4. When there is no corporation by estoppel: Lozano v. Delos Santos, 272 SCRA 452, June 19,
1997
Facts: On December 19, 1995, petitioner Reynaldo M. Lozano filed Civil Case No. 1214 for damages
against respondent Antonio Anda before the Municipal Circuit Trial Court (MCTC), Mabalacat and
Magalang, Pampanga. Petitioner alleged that he was the president of the Kapatirang Mabalacat-Angeles
Jeepney Drivers’ Association, Inc. (KAMAJDA) while respondent Anda was the president of the
Samahang Angeles-Mabalacat Jeepney Operators’ and Drivers’ Association, Inc. (SAMAJODA); in August
1995, upon the request of the Sangguniang Bayan of Mabalacat, Pampanga, petitioner and private
respondent agreed to consolidate their respective associations and form the Unified Mabalacat-Angeles
Jeepney Operators’ and Drivers Association, Inc. (UMAJODA); petitioner and private respondent also
agreed to elect one set of officers who shall be given the sole authority to collect the daily dues from the
members of the consolidated association; elections were held on October 29, 1995 and both petitioner
and private respondent ran for president; petitioner won; private respondent protested and, alleging
fraud, refused to recognize the results of the election; private respondent also refused to abide by their
agreement and continued collecting the dues from the members of his association despite several
demands to desist.

Issue: Whether or not the dispute falls under the jurisdiction of the SEC.

Ruling: No. There is no intracorporate nor partnership relation between petitioner and private
respondent. The controversy between them arose out of their plan to consolidate their respective
jeepney drivers’ and operators’ associations into a single common association. This unified association
was, however, still a proposal. It had not been approved by the SEC, neither had its officers and
members submitted their articles of consolidation is accordance with Sections 78 and 79 of the
Corporation Code. Consolidation becomes effective not upon mere agreement of the members but only
upon issuance of the certificate of consolidation by the SEC.

The doctrine of corporation by estoppel advanced by private respondent cannot override jurisdictional
requirements. Jurisdiction is fixed by law and is not subject to the agreement of the parties. It cannot be
acquired through or waived, enlarged or diminished by, any act or omission of the parties, neither can it
be conferred by the acquiescence of the court.

Corporation by estoppel is founded on principles of equity and is designed to prevent injustice and
unfairness. It applies when persons assume to form a corporation and exercise corporate functions and
enter into business relations with third person. Where there is no third person involved and the conflict
arises only among those assuming the form of a corporation, who therefore know that it has not been
registered, there is no corporation by estoppel.
B. Theory on Corporate Existence and Powers
1. Tayag v. Benguet Consolidated, Inc. 26 SCRA 242 (1968)
Facts: County Trust Company of New York, United States of America is the domiciliary administration of
the decedent, Idonah Slade Perkins who owned 33,002 shares of stocks in the appellant, domestic
corporation, Benguet Consolidated Inc. located in the Philippines. A dispute arose between the appellee,
Tayag who is the appointed ancillary of Perkins in the Philippines and the domiciliary administration as
to who is entitled to the possession of the certificate of shares, however, County Trust Company refuses
to transfer the said certificate to Tayag despite the order of the court. Hence, the appellee was
compelled to petition the court for the appellant to declare the subject certificates as lost to which
appellant allegeed that no new certificate can be issued and the same cannot be rendered as lost in
accordance with their by-laws.

Issue: Whether or not the Benguet Consolidated, Inc can ignore a court order because of its by-laws.

Ruling: No. Administration whether principal or ancillary certainly extends to the assets of a decedent
found within the state or country where it was granted. The ancillary administration is proper, whenever
a person dies, leaving in a country other than that of his last domicile, property to be administered in
the nature of the deceased’s liable for his individual debts or to be distributed among his heirs.

Since there is refusal, persistently adhered to by the domiciliary administration in New York, to deliver
the shares of stocks of appellant corporation owned by the decedent to the ancillary administration in
the Philippines, there was nothing unreasonable or arbitrary in considering them lost and requiring the
appellant to issue new certificates in lieu thereof. Thereby the task incumbent under the law on the
ancillary administration could be discharged and his responsibility fulfilled.

A corporation as known to Philippine jurisprudence is a creature without any existence until it has
received the imprimatur of state according to law. It is logically inconceivable therefore it will have
rights and privileges of a higher priority than that of its creator, more than that, it cannot legitimately
refuse to yield obedience to acts of its state organs, certainly not excluding the judiciary, whenever
called upon to do so.
2. Int’l Express Travel v. CA 343 SCRA 674 (2000)
Facts: On June 30, 1989, petitioner International Express Travel and Tours Services Inc., through its
managing director, wrote a letter to the Philippine Football Federation through its President Henri Kahn,
wherein the former offered its services as a travel agency to the latter. The offer was accepted.
Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation to the
South East Asian Games in Kuala Lumpur as well as various other trips to the People’s Republic of China
and Brisbane. The total cost of the tickets amounted to Php449,654.83. For the tickets received, the
Federation made two partial payments, both in September of 1989 in the total amount of
Php176,467.50. On October 4, 1989, petitioner wrote the Federation, through the private respondent a
demand letter 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.

Ruling: 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.
C. Theory of Business Enterprise
1. Arnold v Willits and Patterson, Ltd. 44 SCRA 634 (1923)
Facts: Arnold, the plaintiff and Willits & Patterson in San Francisco entered into a written contract by
which the plaintiff was employed as the agent of the firm in the Philippine Islands for the operation o an
oil mill for the period of five years at a minimum salary of $200 per month and traveling expenses. Also a
brokerage of 1 per cent upon all purchases and sales of merchandise, except for the account of the
coconut oil mill, fourth, one-half of the profits on any transaction in the name of the firm or himself not
provided for in the agreement. That the agreement also provided that if it be found that the business
was operated at a loss, Arnold should receive a monthly salary of $400 during such period.

Later Patterson retired from the firm, and Willits acquired all of his interests and thereafter continued
the business under the name and style of Willits & Patterson. Willits came of Manila and organized a
corporation here known as Willits & Patterson, Ltd., in and to which he again subscribed for all of the
capital stock except the nominal shares necessary to qualify the directors. In legal effect, the San
Francisco corporation took over and acquired all of the assets and liabilities of the Manila corporation.

Willits signed a new contract in form of a letter. The purpose of which was to more clearly define and
specify the compensation which the plaintiff was to receive for his services. The San Francisco
corporation became involved in financial trouble, and all of its assets were turned over to a “creditors”
committee. Arnold filed a complaint and contended that the signing of the second contract in the
manner and under the conditions in which it was signed, and through the subsequent acts and conduct
of the parties, was ratified and, in legal effect, became and is not binding upon the defendant.
Defendant contented that the second contract was signed but without authority. It also alleged that
Arnold owed them some money.

Issue: Whether or not the corporation is bound by the contracts.

Ruling: Yes. Where the stock of a corporation is owned by one person whereby the corporation
functions only for the benefit of such individual owner, the corporation and the individual should be
deemed to be the same. While of course a corporation cannot ratify a contract which is strictly ultra
vires, and which it in the first instance could not have made, it may it may by ratification render binding
on it a contract, entered into on its behalf by its officers or agents without authority. As a general rule
such ratification need not be manifested by any vote or formal resolution of the corporation or be
authenticated by the corporate seal; no higher degree of evidence is requisite in establishing ratification
on the part of a corporation, than is requisite in showing an antecedent authorization.
2. PSE V. CA 281 SCRA 232 (1997)
Facts: The Puerto Azul Land Inc. (PALI), a domestic real estate corporation, had sought to offer its shares
to the public in order to raise funds allegedly to develop its properties and pay its loans with several
banking institutions. In January, 1995, PALI was issued a permit to sell its shares to the public by the
Securities and Exchange Commission (SEC). To facilitate the trading of its shares among investors, PALI
sought to course the trading of its shares through the Philippine Stock Exchange Inc. (PSEi), for which
purpose it filed with the said stock exchange an application to list its shares, with supporting documents
attached pending the approval of the PALI’s listing application, a letter was received by PSE from the
heirs of Ferdinand Marcos to which the latter claims to be the legal and beneficial owner of some of the
properties forming part of PALI’s assets. As a result, PSE denied PALI’s application which caused the
latter to file a complaint before the SEC. The SEC issued an order to PSE to grant listing application of
PALI on the ground that PALI have certificate of title over its assets and properties and that PALI have
complied with all the requirements to enlist with PSE.

Issue: Whether or not the denial of PALI’s application is proper.

Held: Yes. This is in accord with the “Business Judgement Rule” whereby the SEC and the courts are
barred from intruding into business judgements of corporations, when the same are made in good faith.
The same rule precludes the reversal of the decision of the PSE, to which PALI had previously agreed to
comply, the PSE retains the discretion to accept of reject applications for listing. Thus, even if an issuer
has complied with the PSE listing rules and requirements, PSE retains the discretion to accept or reject
the issuer’s listing application if the PSE determines that the listing shall not serve the interests of the
investing public.

It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is clothed with
the markings of a corporate entity, it functions as the primary channel through which the vessels of
capital trade ply. The PSEi’s relevance to the continued operation and filtration of the securities
transaction in the country gives it a distinct color of importance such that government intervention in its
affairs becomes justified, if not necessarily. Indeed, as the only operational stock exchange in the
country today, the PSE enjoys monopoly of securities transactions, and as such it yields a monopoly of
securities transactions, and as such, it yields an immerse influence upon the country’s economy.

A corporation is but an association of individuals, allowed to transact under an assumed corporate

name, and with a distinct legal personality. In organizing itself as a collective body, it waives no
constitutional immunities and requisites appropriate to such a body as to its corporate and management
decisions, therefore, the state will generally not interfere with the same. Questions of policy and
management are left to the honest decision of the officers and directors of a corporation, and the courts
are without authority to substitute their judgements for the judgement of the board of directors. The
board is the business manager of the corporation and so long as it acts in good faith, its orders are not
reviewable by the courts.
3. Tan Boon Bee & Co. v. Jarencio 163 SCRA 205 (1988)
Facts: Petitioner herein, doing business under the name and style of Anchor Supply Co., sold on credit to
herein private respondent Graphic Publishing, Inc. (GRAPHIC) paper products. For failure of GRAPHIC to
pay any installment, as agreed on the contract of sale, petitioner filed with the then Court of First
Instance of Manila for sum of Money. The trial court ordered GRAPHIC to pay the petitioner.

On motion of petitioner, a writ of execution was issued and the executing sheriff levied upon one (1)
unit printing machine Identified as "Original Heidelberg Cylinder Press" Type H 222, NR 78048, found in
the premises of GRAPHIC but herein private respondent, Philippine American Drug Company (PADCO)
had informed the sheriff that the printing machine is its property and not that of GRAPHIC however the
sheriff proceeded with the scheduled auction sale, sold the property to the petitioner. PADCO filed an
"Affidavit of Third Party Claim" with the Office of the City Sheriff. Thereafter, PADCO filed with the Court
of First Instance of Manila, a Motion to Nullify Sale on Execution (With Injunction) which was opposed
by the petitioner. Respondent judge ruled in favor of PADCO hence the instant petition. Plaintiff
contends that the controlling stockholders of the Philippine American Drug Co. are also the same
controlling stockholders of the Graphic Publishing, Inc. and, therefore, the levy upon the said machinery
which was found in the premises occupied by the Graphic Publishing, Inc. should be upheld.

ISSUE: Whether or not the principles and the circumstances established in this case is reasonable to
pierce the corporate veil.

HELD: Yes. It is true that a corporation, upon coming into being, is invested by law with a personality
separate and distinct from that of the persons composing it as well as from any other legal entity to
which it may be related. As a matter of fact, the doctrine that a corporation is a legal entity distinct and
separate from the members and stockholders who compose it is recognized and respected in all cases
which are within reason and the law. However, this separate and distinct personality is merely a fiction
created by law for convenience and to promote justice. Accordingly, this separate personality of the
corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a
cloak or cover for fraud or illegality, or to work an injustice, or where necessary to achieve equity or
when necessary for the protection of creditors. Likewise, this is true when the corporation is merely an
adjunct, business conduit or alter ego of another corporation. In such case, the fiction of separate and
distinct corporation entities should be disregarded.

In the instant case, petitioner's evidence established that PADCO was never engaged in the printing
business; that the board of directors and the officers of GRAPHIC and PADCO were the same; and that
PADCO holds 50% share of stock of GRAPHIC. Petitioner likewise stressed that PADCO's own evidence
shows that the printing machine in question had been in the premises of GRAPHIC since May, 1965, long
before PADCO even acquired its alleged title on July 11, 1966 from Capitol Publishing. That the said
machine was allegedly leased by PADCO to GRAPHIC on January 24, 1966, even before PADCO
purchased it from Capital Publishing on July 11, 1966, only serves to show that PADCO's claim of
ownership over the printing machine is not only farce and sham but also unbelievable.
D. Special Legislative Acts and General Law
1. NDC v. Philippine Veterans Bank 192 S 257 (1990)
Facts: The particular enactment in question is Presidential Decree No. 1717, which ordered the
rehabilitation of the Agrix Group of Companies to be administered mainly by the National Development
Company. The law outlined the procedure for filling claims against the Agrix Companies and created a
claims committee to process these claims. Especially relevant to this case, and noted at the outset, is
section 4(1) thereof providing that “all mortgages and other liens presently attaching to any of the
assets of the dissolved corporations are hereby extinguished.”

Earlier, the Agrix Marketing Inc. had executed in favor of private respondent Philippine Veterans Bank a
real estate mortgage dated July 7, 1978 over three parcels of land situated in Los Baños, Laguna.
During the existence of the mortgage, Agrix went bankrupt. It was the expressed purpose of salvaging
this and the other Agrix companies that the aforementioned decree was issued by President Marcos.
Pursuant thereto, the private respondent filed a claim with the AGRIX Claims Committee for the
payment of its loan credit. In the meantime, the New Agrix, Inc. and the National Development
Company, petitioners herein, invoking Sec. 4 (1) of the decree, filed a petition with the Regional Trial
Court of Calamba, Laguna, for the cancellation of the mortgage lien in favor of the private respondent.
For its part, the private respondent took steps to extrajudicially foreclose the mortgage, prompting the
petitioners to file a second case with the same court to stop the foreclosure. The two cases were
consolidated

The Court, after noting that the petitioners had already filed their claims with the AGRIX Claims
Committee created by the decree, had simply dismissed the petition on the ground of estoppel.
The petitioner’s stress that in the case at bar the private respondent also invoked the provisions of Pres.
Decree No. 1717 by filing a claim with the AGRIX Claims Committee. Failing to get results, it sought to
foreclose the real estate mortgage executed by AGRIX in its favor, which had been extinguished by the
decree. It was only when the petitioners challenged the foreclosure on the basis of Sec. 4 (1) of the
decree, that the private respondent attacked the validity of the provision. At that stage, however,
consistent with Mendoza, the private respondent was already estopped from questioning the
constitutionality of the decree.

Issue: Whether or not the principle of estoppel is applicable.

Held: No. The Court does not agree that the principle of estoppel is applicable.

It is not denied that the private respondent did file a claim with the AGRIX Claims Committee pursuant
to this decree. It must be noted, however, that this was done in 1980, when President Marcos was the
absolute ruler of this country and his decrees were the absolute law. Any judicial challenge to them
would have been futile, not to say foolhardy. The private respondent, no less than the rest of the nation,
was aware of that reality and knew it had no choice under the circumstances but to conform.

It is true that there were a few venturesome souls who dared to question the dictator's decisions before
the courts of justice then. The record will show, however, that not a single act or issuance of President
Marcos was ever declared unconstitutional, not even by the highest court, as long as he was in power.
To rule now that the private respondent is estopped for having abided with the decree instead of boldly
assailing it is to close our eyes to a cynical fact of life during that repressive time.
2. Feliciano v. COA 419 S 363 (2004)
Facts: A Special Audit Team from Commission on Audit (COA) Regional Office No. VIII audited the
accounts of the Leyte Metropolitan Water District (LMWD). Subsequently, LMWD received a letter from
COA dated 19 July 1999 requesting payment of auditing fees. As General Manager of LMWD, Engr.
Ranulfo C. Feliciano sent a reply dated 12 October 1999 informing COA’s Regional Director that the
water district could not pay the auditing fees. Feliciano cited as basis for his action Sections 6 and 20 of
PD 198, as well as Section 18 of RA 6758. The Regional Director referred Feliciano’s reply to the COA
Chairman on 18 October 1999. On 19 October 1999, Feliciano wrote COA through the Regional Director
asking for refund of all auditing fees LMWD previously paid to COA. On 16 March 2000, Feliciano
received COA Chairman Celso D. Gangan’s Resolution dated 3 January 2000 denying Feliciano’s request
for COA to cease all audit services, and to stop charging auditing fees, to LMWD. The COA also denied
Feliciano’s request for COA to refund all auditing fees previously paid by LMWD. Feliciano filed a motion
for reconsideration on 31 March 2000, which COA denied on 30 January 2001. On 13 March 2001,
Felicaino filed the petition for certiorari.

Issue: Whether a Local Water District (“LWD”) is a government-owned or controlled corporation.

Held: The Constitution recognizes two classes of corporations. The first refers to private corporations
created under a general law. The second refers to government-owned or controlled corporations
created by special charters. The Constitution emphatically prohibits the creation of private corporations
except by a general law applicable to all citizens. The purpose of this constitutional provision is to ban
private corporations created by special charters, which historically gave certain individuals, families or
groups special privileges denied to other citizens.

In short, Congress cannot enact a law creating a private corporation with a special charter. Such
legislation would be unconstitutional. Private corporations may exist only under a general law. If the
corporation is private, it must necessarily exist under a general law. Stated differently, only corporations
created under a general law can qualify as private corporations. Under existing laws, that general law is
the Corporation Code, except that the Cooperative Code governs the incorporation of cooperatives. The
Constitution authorizes Congress to create government-owned or controlled corporations through
special charters. Since private corporations cannot have special charters, it follows that Congress can
create corporations with special charters only if such corporations are government-owned or controlled.

Obviously, LWDs are not private corporations because they are not created under the Corporation Code.
LWDs are not registered with the Securities and Exchange Commission. Section 14 of the Corporation
Code states that “[A]ll corporations organized under this code shall file with the Securities and Exchange
Commission articles of incorporation x x x.” LWDs have no articles of incorporation, no incorporators
and no stockholders or members. There are no stockholders or members to elect the board directors of
LWDs as in the case of all corporations registered with the Securities and Exchange Commission. The
local mayor or the provincial governor appoints the directors of LWDs for a fixed term of office. LWDs
exist by virtue of PD 198, which constitutes their special charter. Since under the Constitution only
government-owned or controlled corporations may have special charters, LWDs can validly exist only if
they are government-owned or controlled. To claim that LWDs are private corporations with a special
charter is to admit that their existence is constitutionally infirm. Unlike private corporations, which
derive their legal existence and power from the Corporation Code, LWDs derive their legal existence and
power from PD 198.
3. Liban v. Gordon, GR No. 175352, July 15, 2009