6-9 PM Sunday First Meeting

1. Definition of corpo. (Memorize)

RA no. 11232
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 incidental to its existence.

2. 4 Corporate attributes

a. AN ARTIFICIAL BEING ("Capacity to Contract and Transact Business")

b. CREATED BY OPERATION OF LAW ("Creature of the Law")

c. WITH RIGHT OF SUCCESSION ("Strong Juridical Personality")

d. HAS POWERS, ATTRIBUTES AND PROPERTIES EXPRESSLY
AUTHORIZED BY LAW OR INCIDENT TO ITS EXISTENCE ("A
Creature of Limited Powers")

Attributes of a corporation.

An analysis of the definition in Section 2 reveals the following attributes

of a corporation:

(1) It is an artificial being;

(2) It is created by operation of law;

(3) It has the right of succession; and

(4) It has only the powers, attributes and properties expressly authorized by law
or incident to its existence
3. Formation of corporation
*tayag vs. Bengurt consolidated gr no. L 23145

FACTS: Idonah Slade Perkins died domiciled in New York on March 27, 1960;
because she has properties both in New York and in the Philippines, a
domiciliary administrator was appointed in New York by the New York courts,
and an ancillary administrator was appointed in the Philippines by the Philippine
courts. Now then, to satisfy the legitimate claims of local creditors, the Philippine
ancillary administrator asked the New York administrator to surrender to the
former two stock certificates owned by the deceased in a Philippine corporation,
the Benguet Consolidated, Inc. Although said New York administrator had the
stock certificates, he refused to surrender them despite the order of the
Philippine court, prompting the court to consider said certificates as LOST for all
purposes in connection with the administration of the deceased’s Philippine
estate. The court then ordered the Benguet Consolidated, Inc. to cancel said
certificates and to issue new certificates deliverable either to the ancillary
administrator or to the Philippine probate court. The company refused to issue
the new certificates on the ground firstly, that after all, the old certificates still
really exist, although in the possession of the New York administrator; and
secondly, that in the future, the Company may be held liable for damages because
of the presence of conflicting certificates.

ISSUE: Should the company issue the new certificates?

HELD: Yes, the company must issue the new certificates because of the following
reasons: (a) While factually the old certificates still exist, the same may by judicial
fiction be considered as LOST — in view of the refusal of the New York
administrator to surrender them, despite a lawful order of our courts. To deny
the remedy would be derogatory to the dignity of the Philippine judiciary. The
ancillary Philippine administrator is entitled to the possession of said certificates
so that he can perform his duty as such administrator. A contrary finding by any
foreign court or entity would be inimical to the honor of our country. After all,
an administrator appointed in one state has no power over property matters in
another state. (Leon and Ghessi v. Manufacturer’s Life Ins. Co., 99 Phil. 459
[1951]). (b) The Company has nothing to fear about contingent liability should
the new certificates be issued. Its obedience to a lawful court order certainly
constitutes a valid defense.

Corporate Law Case Digest: Tayag V. Benguet (1968)

G.R. No. L-23145 November 29, 1968

Lessons Applicable: Theory of Concession (Corporate Law)

FACTS:
§ March 27, 1960: Idonah Slade Perkins died in New York City
§ August 12, 1960: Prospero Sanidad instituted ancillary administration
proceedings appointing ancillary administrator Lazaro A. Marquez
later on substituted by Renato D. Tayag
§ On January 27, 1964: CFI ordered domiciliary administrator County
Trust Company of New York to surrender to the ancillary administrator
in the Philippines 33,002 shares of stock certificates owned by her in a
Philippine corporation, Benguet Consolidated, Inc., to satisfy the
legitimate claims of local creditors
§ When County Trust Company of New York refused the court
ordered Benguet Consolidated, Inc. to declare the stocks lost and
required it to issue new certificates in lieu thereof
§ Appeal was taken by Benguet Consolidated, Inc. alleging the failure to
comply with its by-laws setting forth the procedure to be followed in
case of a lost, stolen or destroyed so it cannot issue new stock certs.

ISSUE: W/N Benguet Consolidated, Inc. can ignore a court order because of its
by-laws

HELD: NO. CFI Affirmed

§ Fear of contingent liability - obedience to a lawful order = valid defense
§ Benguet Consolidated, Inc. is a Philippine corporation owing full
allegiance and subject to the unrestricted jurisdiction of local courts
§ Assuming that a contrariety exists between the above by-law and the
command of a court decree, the latter is to be followed.
 § corporation is an artificial being created by operation of law...."It owes
its life to the state, its birth being purely dependent on its will. Cannot
ignore the source of its very existence

*ang pue co vs sec. 5 scra 645 1962

ANG PUE v. SECRETARY OF COMMERCE

GR No. L-17295, 1962-07-30

Facts :

Ang Pue and Tan Siong, both Chinese citizen, organized a partnership for a term
of 5 years. Their agreement provides that they can extend the partnership for
another 5 years by mutual consent. In 1954, RA 1180 was enacted to regulate the
retail business. Said law provided that, after its enactment, a partnership not
wholly formed by Filipinos could continue to engage in the retail business until
the expiration of its term so registration of saidAng was refused on the ground
that the extension was in violation of the aforesaid Act.

Plaintiff Company filed a petition for declaratory relief contending their original
articles of partnership provided that they could extend the term of their
partnership; that it constitutes a property right of which the partners cannot be
deprived without due process or without their consent; and that the provisions
of RA 1180 cannot adversely affect them. Lower court dismissed their petition.
Plaintiff Co. interposed an appeal.

ISSUE:
Whether or not Ang Pue & Co. can extend its term of partnership

RULING:
NO. To organize a corporation or a partnership that could claim a juridical
personality of its own and transact business as such, is not a matter of absolute
right but a privilege which may be enjoyed only under such terms as the State
may deem necessary to impose. That the State, through Congress, and in the
manner provided by law, had the right to enact Republic Act No. 1180 and to
provide therein that only Filipinos and concerns wholly owned by Filipinos may
engage in the retail business cannot be seriously disputed. That this provision was
clearly intended to apply to partnership already existing at the time of the
enactment of the law is clearly showing by its provision giving them the right to
continue engaging in their retail business until the expiration of their term or
life.

The agreement contain therein must be deemed subject to the law existing at the
time when the partners came to agree regarding the extension. In the present
case, as already stated, when the partners amended the articles of partnership,
the provisions of Republic Act 1180 were already in force, and there can be not
the slightest doubt that the right claimed by appellants to extend the original
term of their partnership to another five years would be in violation of the clear
intent and purpose of the law aforesaid.

4.Theory of concession

Theory of Concession - Philippine jurisprudence has formally adopted the

"theory of concession" as the underlying basis for the existence and powers
of corporate entities.

Tayag v. Benguet Consolidated, Inc. 26 SCRA 242 (1968)

A corporation being a creature of the law, "owes its life to the state, its
birth being purely dependent on its will;" it is "a creature without any
existence until it has received the imprimatur of the state acting according
to law." A corporation will have no rights and privileges of a higher priority
than that of its creator and cannot legitimately refuse to yield obedience to
acts of its state organs.

We formally reject the genossenchaft theory which recognizes the

corporate entity as "the reality of the group as a social and legal entity,
independent of state recognition and concession."
-It is a principle in the creation of corporations, under which a corporation is an
artificial creature without any existence until it has received the imprimatur of
the State acting according to law, through SEC.
- it states that the legal entity has been given a corporate personality or a legal
existence by the functions of the State. So as per this theory, only the State can
endow legal personalities, not the law.

5. Theory of enterprise

Theory of Corporate Business Enterprise or Economic Unit - Under this theory,

the Supreme Court has looked upon a corporation not merely as an artificial
being, but more as an aggregation of persons doing business, or an underlying
economic unit called the "business enterprise."

The doctrine recognizes that the existence of the business enteprise as the basis
of several contracts and transactions apart from the issue of whether there was
duly constituted a juridical person, requires that the members of the public who
dealt in good faith with the apparent corporation have a right to be protected in
their contractual expectations.

6. Creature of law

The corporation is a creature of law and all its rights, powers, and duties are
derived from legislation.

7. Consti sec 16 art xii

Section 16. The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations. Government-
owned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of economic
viability.

8. Ndc vs phil veterans

NDC v. Philippine Veterans Bank 192 SCRA 257 (1990)

Pres. Decree 1717, which created the "NEW AGRIX, INC." violated Sec. 4, Art.
XIV of 1973 Constitution which prohibits the formation of a private corporation
by special legislative act, since the new corporation was neither owned nor
controlled by the government, and that National Development Corporation
(NDC) was merely required to extend a loan to the new corporation, and the new
stocks of the corporation were to be issued to the old stockholders of the
insolvent Agrix upon proof of their claims against the abolished corporation.

Facts:

Agrix Marketing executed in favor of respondent a real estate mortgage over

three parcels of land. Agrix later on went bankrupt. In order to rehabilitate the
company, then President Marcos issued Presidential Decree 1717 which
mandated, among others, the extinguishing of all the mortgages and liens
attaching to the property of Agrix, and creating a Claims Committee to process
claims against the company to be administered mainly by NDC. Respondent
thereon filed a claim against the company before the Committee. Petitioners
however filed a petition with the RTC of Calamba, Laguna invoking the
provision of the law which cancels all mortgage liens against it. Respondent took
measures to extrajudicially foreclose which the petitioners opposed by filing
another case in the same court. These cases were consolidated. The RTC held in
favor of the respondent on the ground of unconstitutionality of the decree;
mainly violation of the separation of powers, impairment of obligation of
contracts, and violation of the equal protection clause. Hence this petition.

Issue:

• Is the respondent estopped from questioning the constitutionality of the

law since they first abided by it by filing a claim with the Committee?
• Is PD 1717 unconstitutional?

Ruling:
 On the issue of estoppel, the Court held that it could not apply in the
present case since when the respondent filed his claim, President Marcos was the
supreme ruler of the country and they could not question his acts even before
the courts because of his absolute power over all government institutions when
he was the President.
The creation of New Agrix as mandated by the decree was also ruled as
unconstitutional since it violated the prohibition that the Batasang Pambansa
(Congress) shall not provide for the formation, organization, or regulation of
private corporations unless such corporations are owned or controlled by the
government.
PD 1717 was held as unconstitutional on the other grounds that it was an
invalid exercise of police power, It had no lawful subject and no lawful method.
It violated due process by extinguishing all mortgages and liens and interests
which are property rights unjustly taken. It also violated the equal protection
clause by lumping together all secured and unsecured creditors. It also impaired
the obligation of contracts, even though it only involved purely private interests.

9. Corporate entity compare with other business

A corporation, sometimes called a C corp, is a legal entity that's separate from its
owners. Corporations can make a profit, be taxed, and can be held legally liable.
Corporations offer the strongest protection to its owners from personal liability,
but the cost to form a corporation is higher than other structures.

Advantages of a corporation include personal liability protection, business

security and continuity, and easier access to capital. Disadvantages of a
corporation include it being time-consuming and subject to double taxation, as
well as having rigid formalities and protocols to follow.

10. Jm tuazaon vs. Bolanos 95 phil 106 28 may 1954

Tuason & Co. v. Bolanos 95 Phil. 106 (1954)

Facts: Tuason & Co. as owner of large tracts of real estate, entered into a contract
with Araneta, Inc. for the development and subdivision of its real property. The
two corporations brought an action to oust Bolanos, a squatter on the land.
Bolanos asked for the dismissal of the case by questioning their capacity to sue
alleging that the two corporations have formed a partnership (otherwise, ultra
vires because only natural persons may be partners is partnerships).

Held: Bolano is correct. If two corporations try to form a partnership, none would
be created thereby. But when the arrangement is actually a joint venture, it
would be valid since corporations have legal capacity to form a joint venture, i.e.,
one with a limited purpose and duration.

NOTE: The reason behind the rule that corporations cannot validly enter into a
partnership is because in a partnership all the other partners can bind the
partners and partnership under the principle of "mutual agency," which would
be violative of the principle of "centralized management) under Sec. 23 of
Corporation Code which provides that only the Board of Directors can bind the
corporation.

11. Aurbanch vs sanitary 180 scra 130 1989

Aurbach VS Sanitary Wares Corp, 180 SCRA 130

Facts: Saniwares, a domestic corporation, was incorporated for the primary

purpose of manufacturing and marketing sanitary wares. One of the
incorporators, Mr. Young went abroad to look for foreign partners. ASI, a foreign
corporation domiciled in the US entered into an agreement with Saniwares and
some Filipino investors whereby ASI and the Filipino investors agreed to
participate in the ownership of an enterprise which would engage primarily in
the business of manufacturing in the Philippines and selling here and abroad
China and sanitarywares. The parties agreed that the business operations in the
Philippines shall be carried on by an incorporated enterprise which name shall
be Sanitary Wares Manufacturing Corporation. The agreement has the provision
that the management of the corporation shall be vested in the Board of Directors
(BOD) which shall consists of 9 individuals. And as long as ASI will own 30% of
the outstanding capital stock, 3 of the 9 directors shall be designated by ASI and
the other directors by the other stockholders. Veto power was also given to ASI
which is designed to protect it as a minority group. The joint enterprise
prospered. However, disagreements came up due to objection of ASI of the
desired expansion of the Filipino group. When the time came to elect the BOD,
instead of 9 nominees, 11 were nominated contrary to the usual practice. The
meeting was subsequently adjourned. ASI, other stockholders and Salazar, one of
the nominees as director continued the meeting at the elevator lobb of ASI
Building and consequently, 5 directors were elected as certified by the acting
secretary.

ISSUE: Whether or not the directors as nominated by the ASI group are valid
members of the BOD of Saniwares

HELD:
No. A corporation cannot enter into a partnership contract but may engage in a
joint venture with other. Since the relationship is a joint venture, the agreement
of the parties governs. 1. COMMERCIAL LAW; JOINT VENTURE; WHETHER
THERE EXISTS A JOINT VENTURE DEPENDS UPON THE PARTIES' ACTUAL
INTENTION WHICH IS DETERMINED IN ACCORDANCE WITH THE RULES
COVERING THE INTERPRETATION AND CONSTRUCTION OF
CONTRACTS. The rule is that whether the parties to a particular contract have
thereby established among themselves a joint venture or some other relation
depends upon their actual intention which is determined in accordance with the
rules governing the interpretation and construction of contracts. (Terminal
Shares, Inc. v. Chicago, B. and Q.R.

Corporation Law Notes Stella Mariz De Larna II.

A. 1. DEFINITION Sec 2. Corporation- 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. 2. Juridical person-not entitled to moral damages because, not
being a natural person, it cannot experience physical suffering or such
sentiments as wounded feelings, serious anxiety, mental anguish or moral
shock. Art. 44. The following are juridical persons: (1) The state and its
political subdivisions; (2) Other corporations, institutions and entities for
public interest or purpose, created by law; their personality begins as soon
as they have been constituted according to law; (3) Corporations,
partnerships, and associations for private interest or purpose to which the
law grants a juridical personality, separate and distinct from that of each
shareholder, partner or member. Art 45. Juridical persons mentioned in
nos. 1 and 2 of the preceding article are governed by the laws creating or
recognizing them. Art. 46. Juridical persons may acquire and possess
property of all kinds, as well as incur obligations and bring civil or criminal
actions, in conformity with the laws and regulations of their organization.
Art 1775. Associations and societies, whose articles are kept secret among
the members, and wherein any one of the members may contract in his
own name with third persons, shall have no juridical personality, and shall
be governed by the provisions relating to co- ownership. B. TRI-LEVEL
EXISTENCE OF CORPORATIONS 1. Aggregation of Assets and
Resources-assets only level 2. Business Enterprise/Economic Unit-"going
concern" 3. Juridical Entity-the business or endeavor pursued in the
medium of the corpo . defines the subj matter of contract • determines the
applicable law C. RELATIONSHIPS OF CORPORATION 1. Juridical
Entity Level- corporation-state relationship 2. Contractual Relationship
Level a. Between the corporation and its agents or representatives to act on
its behalf, governed by the Law on Agency b. Between the corporation and
its shareholders or members C. Between and among shareholders in a
common venture d. Between the corporation and third parties or
"outsiders", governed by the law on contracts.
D. FORMATION OF CORPORATIONS 1. THEORY OF CONCESSION -an
artificial creature without any existence until it has received the imprimatur of
the state acting, according to law, through SEC. TAYAG VS. BENGUET
CONSOLIDATED INC., 26 SCRA 242 a. Facts: On March 27, 1960, Idonah Slade
Perkins died in New York City. On August 12, 1960, Prospero Sanidad instituted
ancillary administration proceedings appointing ancillary administrator Lazaro
A. Marquez later on substituted by Renato D. Tayag. On January 27, 1964, CFI
ordered domiciliary administrator in the Philippines 33, 002 shares of stock
certificates owned by her in a Philippine corporation, Benguet Consolidated,
Inc., to satisfy the legitimate claims of local creditors. When Country Trust
Company of New York refused the court ordered Benguet Consolidated, Inc., to
declare the stocks lost and required it to issue certificates in lieu thereof. Appeal
was taken by Benguet Consolidated, Inc. alleging the failure to comply with its
by-laws setting forth the procedure to be followed in case of a lost, stolen or
destroyed so it cannot issue new stock certs. Issue: Held: courts. WON Benguet
Consolidated, Inc. can ignore a court order because of its by-laws No. CFI
affirmed. Fear of contingent liability - obedience to a lawful order = valid defense
Benguet Consolidated, Inc. is a Philippine corporation owing full allegiance and
subject to the unrestricted jurisdiction of local Assuming that a contrariety exists
between the above by-law and the command of a court decree, the latter is to be
followed. Corporation is an artificial being created by operation of law. "It owes
its life to the state, its birth being purely depend ent on its will. Cannot ignore
the source of its very existence. 2. THEORY OF ENTERPRISE ENTITY (by Adolf
Berle) • · . The corporation is not merely an artificial being, but more of an
aggregation of persons doing business, or an underlying business unit (Philippine
Corporate Law, Cesar Villanueva, 2001 ed.). The theory draws its vitality from
the fact that it is not legal fiction alone that creates a corporate entity but also
the consent of those who will form the corporation to engage in a common
venture or business for profit. Capable of application in many fields of
corporation law besides those here examined Corporate entity: takes it being
from the reality underlying enterprise, formed or in formation
• That the state's approval of the corporate form sets up a prima facie case that
the assets, liabilities and operations of the corporation are those of the enterprise
But that where the corporate entity is defective, or otherwise challenged, its
existence, extent and consequences may be determined by the actual existence
and extent and operations of the underlying enterprise, which by these very
qualities acquires an entity of its own, recognized by law. Application of this
theory can systematize the scattered rules of corporation law in a number of areas
Three (3) main fields: 1. De Facto Corporation -Simplest and most direct
disregard of the theory of state-created artificial entity occurred when courts
developed the doctrine of de facto corporations. Sequence: a. The enterprise
contracts with an outsider, who later brings action against the enterprise as
though it were a corporation; and the enterprise is held liable in corporate form;
Courts frequently invoke the doctrine of estoppel in pais b. The enterprise
contracts with an outsider, and subsequently brings action in corporate form
against the outsider. The outsider is held to be liable to the enterprise; C. The
enterprise contracts with an outsider, and the outsider brings action against the
component individuals. They are absolved from liability and the outsider held to
his remedy against the enterprise only; 2&3 involve court-law the set-up of
artificial entity despite that the state has not done so Use of word rather than a
rule (c) language of estoppel is discarded; GR: where the component individuals
have endeavored to form a corporation, have, in good faith, believed that they
were such a legal entity, and have colorably complied with the incorporation
law, they will be protected from liability d. The enterprise contracts with an
outsider, and the component individuals seek to hold the outsider liable on his
contract. It would seem to follow logically that the individuals are not allowed
to recover: recovery must be by the enterprise. ALL: they have lost their power
to enforce liabilities against outsiders in favor of themselves as individuals.
2. Disregard of the corporate fiction
3. Added liability of shareholders

E. STATUTORY ATTRIBUTES OF CORPORATION 1. ARTIFICIAL BEING

WITH SEPARATE PERSONALITY DOCTRINE OF SEPARATE PERSONALITY
-A corporation is a legal or juridical person with a personality separate and apart
from its individual stockholders or members and from any other legal entity to
which it may be connected (The Corporation Code of the Philippines, Hector S.
De Leon & Hector M. De Leon, Jr., 2006 ed.). Consequences: 1. Liability for acts
or contracts The general rule is that obligations incurred by a corporation, acting
through its authorized agents are its sole liabilities. Similarly, a corporation may
not generally, be made to answer for acts or liabilities of its stockholders or
members or those of the legal entities to which it may be connected and vice
versa (Creese vs. CA, 93 SCRA 483). 2. Right to bring actions It may bring civil
and criminal actions in its own name in the same manner as natural persons (Art.
46, NCC). 3. Right to acquire and possess property Property conveyed to or
acquired by the corporation is in law the property of the corporation itself as a
distinct legal entity and not that of the stockholders or members (Art. 44(3),
NCC). 4. Acquisition of court of jurisdiction Service of summons may be made
on the president, general manager, corporate secretary, treasurer or in-house
counsel (Sec. 11, Rule 14, Rules of Court). 5. Changes in individual membership
Corporation remains unchanged and unaffected in its identity by changes in its
individual membership (The Corporation Code of the Philippines Annotated,
Hector de Leon, 2002 ed.). 6. Entitlement to constitutional guaranties
Corporations are entitled to certain constitutional rights. a. Due process (Albert
v. University Publishing, Inc. 13 SCRA 84 (1965)) b. Equal Protection of the law
(Smith, Bell & Co. v. Natividad, 40 Phil. 136 [1919]) c. Protection against
unreasonable searches and seizures (Stonehill v. Diokno, 20 SCRA 383 [1967])
However, it is not entitled to certain constitutional rights such as political rights
or purely personal rights not only because it is an artificial being but also because
it is a mere creature of law (Reviewer in Commercial Law, Jose R. Sundiang &
Timoteo Aquino, 2005 ed.). a. Right against self-incrimination (Bataan Shipyard
v. PCGG, 150 SCRA (1987)). 7. Moral Damages • A corporation is not entitled to
moral damages because it has no feelings, no emotions, no senses (ABS-CBN vs.
Court of Appeals, G.R. No. 128690, Jan. 21, 1999). In Filipinas Broadcasting vs.
Ago Med., however, it was held that a juridical person such as a corporation can
validly complain for libel or any other form of defamation and claim for moral
damages. The SC had rationated that Art. 2219 (7) does not qualify whether the
plaintiff is a natural or a juridical person (Filipinas Broadcasting vs. Ago Medical
Center-Bicol, et. al., 448 SCRA 413). 8. Liability for torts A corporation is liable
whenever a tortuous act is committed by an officer or agent under the express
direction or authority of the stockholders or members acting as a body, or,
generally, from the directors as the governing body (PNB vs. CA, 83 SCRA 237
(1978)).
9. Liability for Crimes Since a corporation is a mere legal fiction, it cannot be
held liable for a crime committed by its officers since it does not have the
essential element of malice, except if by express provision of law, the corporation
is held criminally liable; In such case the responsible officers would be criminally
liable (People vs. Tan Boon Kong, 54 Phil. 607 [1930]). TESTS TO DETERMINE
NATIONALITY OF CORPORATIONS 1. Incorporation Test - determined by the
state of incorporation, regardless of the nationality of its stockholders. 2.
Domicile Test - determined by the state where it is domiciled. The domicile of a
corporation is the place fixed by the law creating or recognizing it; in the absence
thereof, it shall be understood to be the place where its legal representation is
established or where it exercise its principal functions (Art. 51, NCC). 4. Control
Test - determined by the nationality of the controlling stockholders or members.
This test is applied in times of war. Also known as the WARTIME TEST.
2.CREATED BY OPERATION OF LAW DOCTRINE OF CORPORATE ENTITY
-A corporation comes into existence upon the issuance of the certificate of
incorporation (Sec. 19). Then and only then will it acquire a juridical personality
to sue and be sued, enter into contracts, hold or convey property or perform any
legal act, in its own name (Corporation Code of the Philippines, Ruben C. Ladia,
2001 Ed.). -Corporations cannot come into existence by mere agreement of the
parties as in the case of business partnerships. They require special authority or
grant from the State. This power is exercised by the State through the legislature,
either by a special incorporation law or charter which directly creates the
corporation or by means of a general corporation law under which individuals
desiring to be and act as a corporation may incorporate (The Corporation Code
of the Philippines, Hector S. De Leon & Hector M. De Leon, Jr., 2006 ed.).
3.RIGHT OF SUCCESSION It is the capacity to have continuity of existence
despite the changes on the persons who compose it. Thus, the personality
continues despite the change of stockholder, members, board members or
officers (Reviewer in Commercial Law, Jose R. Sundiang & Timoteo Aquino,
2005 ed.). 4. POWERS, ATTRIBUTES, PROPERTIES THEORY OF SPECIAL
CAPACITIES/LIMITED CAPACITY DOCTRINE -No corporation under the
Code, shall possess or exercise any corporate power, except those conferred by
law, its Articles of Incorporation, those implied from express powers and those
as are necessary or incidental to the exercise of the powers so conferred. The
corporation's capacity is limited to such express, implied and incidental powers
(Reviewer in Commercial Law, Jose R. Sundiang & Timoteo Aquino, 2005 ed.). -
If the act of the corporation is not one of those express, implied or incidental
powers, the act is ultra vires. (Reviewer in Commercial Law, Jose R. Sundiang &
Timoteo Aquino, 2005 ed.).

F. ADVANTAGES AND DISADVANTAGES OF CORPORATIONS

ADVANTAGES

Pp 55. deleon

Additional assignment:

1. Smith bell vs natividad 40 phil 136 1919

G.R. No. 15574 September 17, 1919 SMITH, BELL & COMPANY (LTD.), VS.
JOAQUIN NATIVIDAD

DOCTRINE: Equal Protection The first paragraph of the Philippine Bill of Rights
of the Philippine Bill, repeated again in the first paragraph of the Philippine Bill
of Rights as set forth in the Jones Law, provides "That no law shall be enacted in
said Islands which shall deprive any person of life, liberty, or property without
due process of law, or deny to any person therein the equal protection of the
laws."

FACTS:
Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws
of the Philippine Islands. A majority of stockholders are subjects. its British It is
the owner of a motor vessel known as the Bato built for it in the Philippine
Islands of more than 15 tons gross The Bato was brought to Cebu in the present
year for the purpose of transporting plaintiff's merchandise between ports in the
Islands. Application was made at Cebu, the home port of the vessel, to the
Collector of Customs for a certificate of Philippine registry. The Collector refused
to issue the certificate, giving as his reason that all the stockholders of Smith, Bell
& Co., Ltd., were not citizens either of the United States or of the Philippine
Islands. The instant action(A writ of mandamus) is the result. On February 23,
1918, the Philippine Legislature enacted Act No. 2761. The first section of this
law amended section 1172 of the Administrative Code to read as follows:

SEC. 1172. Certificate of Philippine register. - Upon registration of a vessel of

domestic ownership, and of more than fifteen tons gross, a certificate of
Philippine register shall be issued for it. If the vessel is of domestic ownership
and of fifteen tons gross or less, the taking of the certificate of Philippine register
shall be optional with the owner. "Domestic ownership," as used in this section,
means ownership vested in some one or more of the following classes of persons:
(a) Citizens or native inhabitants of the Philippine Islands; (b) citizens of the
United States residing in the Philippine Islands; (c) any corporation or company
composed wholly of citizens of the Philippine Islands or of the United States or
of both. created under the laws of the United States, or of any State thereof, or of
thereof, or the managing agent or master of the vessel resides in the Philippine
Islands Any vessel of more than fifteen gross tons which on February 8, 1918,
had a certificate of Philippine register under existing law, shall likewise be
deemed a vessel of domestic ownership so long as there shall not be any change
in the ownership thereof nor any transfer of stock of the companies or
corporations owning such vessel to person not included under the last preceding
paragraph. The first paragraph of the Philippine Bill of Rights of the Philippine
Bill, repeated again in the first paragraph of the Philippine Bill of Rights as set
forth in the Jones Law, provides "That no law shall be enacted in said Islands
which shall deprive any person of life, liberty, or property without due process
of law, or deny to any person therein the equal protection of the laws." Counsel
says that Act No. 2761 denies to Smith, Bell & Co., Ltd., the equal protection of
the laws because it, in effect, prohibits the corporation from owning vessels, and
because classification of corporations based on the citizenship of one or more of
their stockholders is capricious, and that Act No. 2761 deprives the corporation
of its properly without due process of law because by the passage of the law
company was automatically deprived of every beneficial attribute of ownership
in the Bato and left with the naked title to a boat it could not use.
ISSUE: Whether or not the Government of the Philippine Islands, through its
Legislature, can deny the registry of vessel in its coastwise trade to corporations
having alien stockholders.

RULING:
The petition for a writ of mandamus is denied, with costs against the petitioner.
So ordered. a YES, this is a valid exercise of police power. Common carriers
which in the Philippines as in the United States and other countries are, as Lord
Hale said, "affected with public interest," can only be permitted to use these
public waters as a privilege and under such conditions as to the representatives
of the people may seem wise. Act No. 2761 of the Philippine Legislature, in
denying to corporations such as Smith, Bell & Co. Ltd., the right to register vessels
in the Philippines coastwise trade, does not belong to that vicious species of class
legislation which must always be condemned, but does fall within authorized
exceptions, notably, within the purview of the police power, and so does not
offend against the constitutional provision. RATIONALE: The guaranties of the
Fourteenth Amendment and so of the first paragraph of the Philippine Bill of
Rights, are universal in their application to all person within the territorial
jurisdiction, without regard to any differences of race, color, or nationality. The
word "person" includes aliens. Private corporations, likewise. are "persons"
within the scope of the quaranties in so far as their property is concerned. be
Classification with the end in view of providing diversity of treatment may made
among corporations, but must be based upon some reasonable ground and not be
a mere arbitrary selection. Examples of laws held unconstitutional because of
unlawful discrimination against aliens could be cited. Generally, these decisions
relate to statutes which had attempted arbitrarily to forbid aliens to engage in
ordinary kinds of business to earn their living. One of the exceptions to the
general rule, most persistent and far reaching in influence is, that neither the
Fourteenth Amendment to the United States Constitution, broad and
comprehensive as it is, nor any other amendment, "was designed to interfere with
the power of the State, sometimes termed its 'pollice power, to prescribe
regulations to promote the health, peace, morals, education, and good order of
the people, and legislate so as to increase the industries of the State, develop its
resources and add to its wealth and prosperity. From the very necessities of
society, legislation of a special character, having these objects in view, must often
be had in certain districts." his is the same police power which the United States
Supreme Court say "extends to so dealing with the conditions which exist in the
state as to bring out of them the greatest welfare in of its people." For quite similar
reasons, none of the provision of the Philippine Organic Law could could have
had the effect of denying to the Government of the Philippine Islands, acting
through Legislature, the right to exercise that most essential, insistent, and
illimitable of powers, the sovereign police power, in the promotion of the general
welfare and the public interest. its Another notable exception permits of the
regulation or distribution of the public domain or the common property or
resources of the people of the State, so that use may be limited to its citizens.
Even as to classification, it is admitted that a State may classify with reference to
the evil to be prevented; the question is a practical one, dependent upon
experience.

2. Stonehill vs. Diokno 1967, 20 scra 283

Facts:

The petitioners challenged the validity of search warrants and the seizures. There
were 42 search warrants secured by the respondents from Regional Trial Court
to search and seize personal properties belonging to the petitioner and/or the
corporations of which they were officers. The search reads, in portion: 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 argued that null and void as it contravenes the Constitution
and the Rule of Court - inter alia, (1) they do not describe with particularity the
documents, books and things to be seized; (2) cash money, not mentioned in the
warrants, were actually seized; (3) the warrants were issued to fish evidence
against the aforementioned petitioners in deportation cases filed against them;
(4) the searches and seizures were made in an illegal manner; and (5) the
documents, papers and cash money seized were not delivered to the courts that
issued the warrants, to be disposed of in accordance with law The respondents,
in their part, countered (1) that the contested search warrants are valid and have
been issued in accordance with law; (2) that the defects of said warrants, if any,
were cured by petitioners' consent; and (3) that, in any event, the effects seized
are admissible in

Issues: Whether or not the petitioners can invoke their right insofar as those
documents found and seized in the offices of the corporation.

Ruling: No. The petitioners have no cause of action to assail the legality of
contested warrants and of the seizures made in the offices of the corporation 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. In the case of Guckenheimer
& Bros. Co. vs. United States, it has been held: ..that the Government's action in
gaining possession of papers belonging to the corporation did not relate to nor
did it affect the personal defendants. If these papers were unlawfully seized and
thereby the constitutional rights of or any one were invaded, they were the rights
of the corporation and not the rights of the other defendants. Next, it is clear that
a question of the lawfulness of a seizure can be raised only by one whose rights
have been invaded. Certainly, such a seizure, if unlawful, could not affect the
constitutional rights of defendants whose property had not been seized or the
privacy of whose homes had not been disturbed; nor could they claim for
themselves the benefits of the Fourth Amendment, when its violation, if any,
was with reference to the rights of another. Remus vs. United States (C.C.A.)291
F. 501, 511. It follows, therefore, that the question of the admissibility of the
evidence based on an alleged unlawful search and seizure does not extend to the
personal defendants but embraces only the corporation whose property was
taken.... Simply put 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. Here, the petitioners 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.

3. Bataan shipyard vs pcgg

Facts:

Challenged in this special civil action of certiorari and prohibition by a

private corporation known as the Bataan Shipyard and Engineering Co.,
Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by
President Corazon C. Aquino on February 28, 1986 and March 12, 1986,
respectively, and (2) the sequestration, takeover, and other orders issued,
and acts done, in accordance with said executive orders by the Presidential
Commission on Good Government and/or its Commissioners and agents,
affecting said corporation. The sequestration order issued on April 14, 1986
was addressed to three of the agents of the Commission, ordering them to
sequester several companies among which is Bataan Shipyard and
Engineering Co., Inc. On the strength of the above sequestration order,
several letters were sent to BASECO among which is that from Mr. Jose M.
Balde, acting for the PCGG, addressed a letter dated April 18, 1986 to the
President and other officers of petitioner firm, reiterating an earlier request
for the production of certain documents. The letter closed with the
warning that if the documents were not submitted within five days, the
officers would be cited for "contempt in pursuance with Presidential
Executive Order Nos. 1 and 2." BASECO contends that its right against self-
incrimination and unreasonable searches and seizures had been
transgressed by the Order of April 18, 1986 which required it "to produce
corporate records from 1973 to 1986 under pain of contempt of the
Commission if it fails to do so." BASECO prays that the Court 1) declare
unconstitutional and void Executive Orders Numbered 1 and 2; 2) annul
the sequestration order dated April- 14, 1986, and all other orders
subsequently issued and acts done on the basis thereof, inclusive of the
takeover order of July 14, 1986 and the termination of the services of the
BASECO executives.

Issue:
Whether or not BASECO’s right against self-incrimination and
unreasonable searches and seizures was violated.

Held:

No. The order to produce documents was issued upon the authority of
Section 3 (e) of Executive Order No. 1, treating of the PCGG's power to
"issue subpoenas requiring * * the production of such books, papers,
contracts, records, statements of accounts and other documents as may be
material to the investigation conducted by the Commission. 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." The corporation is a creature of
the state. It is presumed to be incorporated for the benefit of the public. It
received certain special privileges and franchises, and holds them subject
to the laws of the state and the limitations of its charter. It’s powers are
limited by law. It can make no contract not authorized by its charter. Its
rights to act as a corporation are only 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.

4. National coal co vs. Cira 1924 46 phil 583

Facts:

The plaintiff corporation was created on the 10th day of March 1917, by Act
No. 2705, for the purpose of developing the coal industry in the Philippine
Islands , in harmony with the general plan of the government to encourage
the development of natural resources of the country, and to provide facilities
therefore. By the said act, the company was granted the general powers of a
corporation and such other powers as may be necessary to enable it to
prosecute the business of developing coal deposits in the Philippine Islands of
mining, extracting, transporting, and selling the coal contained in said
deposits. By the same law, the government of the Philippine Islands is made
the majority stockholder, evidently in order to ensure proper government
supervision and control and thus to place the government in a position to
render all possible encouragement, assistance, and help in the prosecution and
furtherance of the company’s business. On May 14, 1917, two months after
the passage of Act no. 2705, creating the national coal company, the
Philippine legislature passed Act 2719, “to provide for the leasing and
 development of coal lands in the Philippine islands.” On October 18, 1917,
upon petition of the national coal company, the governor-general, by
proclamation no. 39, withdrew from settlement, entry, sale or other
deposition, all coal-bearing public lands within the province of Zamboanga,
Department of Mindanao and Sulu, and the island of Polillo, Province of
Tayabas. Almost immediately after the issuance of said proclamation the
national coal company took possession of the coal lands within the said
reservation with an area of about 400 hectares, without any further formality,
contract of lease. Of the 30,000 shares of stock issued by the company, the
government of the Philippine islands is the owner of 29,809 shares, that is, of
99 1/3 per centum of the whole capital stock.

Issue: Whether or not plaintiff is a private corporation.

Held: Yes. The plaintiff is a private corporation. The mere fact that the
government happens to the majority stockholder does not make it a public
corporation. Act 2705, as amended by Act 2822, makes it subject to all the
provisions of the corporation law, in so far as they are not inconsistent with said
act. No provisions of Act 2705 are found to be inconsistent with the provisions
of the corporation law. As a private corporation, it has no greater rights, powers
or privileges than any other corporation which might be organized for the same
purpose under the corporation law, and certainly it was not the intention of the
legislature to give it a preference or right or privilege over other legitimate
private corporations in the mining of coal. While it is true that said proclamation
no. 39 withdrew from settlement entry, sale or other disposition of coal-bearing
public lands within the province of Zamboanga, and the islands of Polillo, it made
no provision for the occupation and operation by the plaintiff, to the exclusion
of other persons or corporations who might under proper permission, enter upon
to operate the coal mines.

5. Ph society vs coa 2007 grr 169752

Facts:

The petitioner was incorporated as a juridical entity over one hundred years ago
by virtue of Act No. 1285, enacted on January 19, 1905, by the Philippine
Commission. The petitioner, at the time it was created, was composed of animal
aficionados and animal propagandists. The objects of the petitioner, as stated in
Section 2 of its charter, shall be to enforce laws relating to cruelty inflicted upon
animals or the protection of animals in the Philippine Islands, and generally, to
do and perform all things which may tend in any way to alleviate the suffering
of animals and promote their welfare. The petitioner was initially imbued under
its charter with the power to apprehend violators of animal welfare laws. In
addition, the petitioner was to share one-half (1/2) of the fines imposed and
collected through its efforts for violations of the laws related
thereto. Subsequently, however, the power to make arrests as well as the
privilege to retain a portion of the fines collected for violation of animal-related
laws were recalled by virtue of Commonwealth Act (C.A.) No. 148. An audit
team from COA wanted to conduct an audit survey but petitioner refused saying
that it is a private corporation and not a public one.

Issue:
Whether or not petitioner is a private corporation.

Held:

Yes. A reading of petitioner’s charter shows that it is not subject to control

or supervision by any agency of the State, unlike government-owned and
-controlled corporations. No government representative sits on the board
of trustees of the petitioner. Like all private corporations, the successors
of its members are determined voluntarily and solely by the petitioner in
accordance with its by-laws, and may exercise those powers generally
accorded to private corporations, such as the powers to hold property, to
sue and be sued, to use a common seal, and so forth. It may adopt by-laws
for its internal operations: the petitioner shall be managed or operated by
its officers “in accordance with its by-laws in force.”

The employees of the petitioner are registered and covered by the Social
Security System at the latter’s initiative, and not through the Government
Service Insurance System, which should be the case if the employees are
 considered government employees. This is another indication of
petitioner’s nature as a private entity.

The fact that a certain juridical entity is impressed with public interest does
not, by that circumstance alone, make the entity a public corporation,
inasmuch as a corporation may be private although its charter contains
provisions of a public character, incorporated solely for the public
good. This class of corporations may be considered quasi-public
corporations, which are private corporations that render public service,
supply public wants, or pursue other eleemosynary objectives. While
purposely organized for the gain or benefit of its members, they are
required by law to discharge functions for the public benefit.

The true criterion, therefore, to determine whether a corporation is public

or private is found in the totality of the relation of the corporation to the
State. If the corporation is created by the State as the latter’s own agency
or instrumentality to help it in carrying out its governmental functions,
then that corporation is considered public; otherwise, it is
private. Applying the above test, provinces, chartered cities, and
barangays can best exemplify public corporations. They are created by the
State as its own device and agency for the accomplishment of parts of its
own public works.

6. Phil society vs coa g.r 16952

Facts:
The petitioner was incorporated as a juridical entity over one hundred years ago
by virtue of Act No. 1285, enacted on January 19, 1905, by the Philippine
Commission. The petitioner, at the time it was created, was composed of animal
aficionados and animal propagandists. The objects of the petitioner, as stated in
Section 2 of its charter, shall be to enforce laws relating to cruelty inflicted upon
animals or the protection of animals in the Philippine Islands, and generally, to
do and perform all things which may tend in any way to alleviate the suffering
of animals and promote their welfare. The petitioner was initially imbued under
its charter with the power to apprehend violators of animal welfare laws. In
addition, the petitioner was to share one-half (1/2) of the fines imposed and
collected through its efforts for violations of the laws related
thereto. Subsequently, however, the power to make arrests as well as the
privilege to retain a portion of the fines collected for violation of animal-related
laws were recalled by virtue of Commonwealth Act (C.A.) No. 148. An audit
team from COA wanted to conduct an audit survey but petitioner refused saying
that it is a private corporation and not a public one.

Issue:
Whether or not petitioner is a private corporation.

Held:
Yes. A reading of petitioner’s charter shows that it is not subject to control or
supervision by any agency of the State, unlike government-owned and -
controlled corporations. No government representative sits on the board of
trustees of the petitioner. Like all private corporations, the successors of its
members are determined voluntarily and solely by the petitioner in accordance
with its by-laws, and may exercise those powers generally accorded to private
corporations, such as the powers to hold property, to sue and be sued, to use a
common seal, and so forth. It may adopt by-laws for its internal operations: the
petitioner shall be managed or operated by its officers “in accordance with its by-
laws in force.”

The employees of the petitioner are registered and covered by the Social Security
System at the latter’s initiative, and not through the Government Service
Insurance System, which should be the case if the employees are considered
government employees. This is another indication of petitioner’s nature as a
private entity.

The fact that a certain juridical entity is impressed with public interest does not,
by that circumstance alone, make the entity a public corporation, inasmuch as a
corporation may be private although its charter contains provisions of a public
character, incorporated solely for the public good. This class of corporations may
be considered quasi-public corporations, which are private corporations that
render public service, supply public wants, or pursue other eleemosynary
objectives. While purposely organized for the gain or benefit of its members,
they are required by law to discharge functions for the public benefit.

The true criterion, therefore, to determine whether a corporation is public or

private is found in the totality of the relation of the corporation to the State. If
the corporation is created by the State as the latter’s own agency or
instrumentality to help it in carrying out its governmental functions, then that
corporation is considered public; otherwise, it is private. Applying the above
test, provinces, chartered cities, and barangays can best exemplify public
corporations. They are created by the State as its own device and agency for the
accomplishment of parts of its own public works.

7. Davao water district vs cac1991 201 scra 595

FACTS: Petitioners are among the more than five hundred (500) water districts
existing throughout the country formed pursuant to the provisions of
Presidential Decree No. 198, as amended by Presidential Decrees Nos. 768 and
1479, otherwise known as the "Provincial Water Utilities Act of 1973."

Presidential Decree No. 198 was issued by the then President Ferdinand E.
Marcos by virtue of his legislative power under Proclamation No. 1081. It
authorized the different local legislative bodies to form and create their
respective water districts through a resolution they will pass subject to the
guidelines, rules and regulations therein laid down. The decree further created
and formed the "Local Water Utilities Administration" (LWUA), a national
agency attached to the National Economic and Development Authority (NEDA),
and granted with regulatory power necessary to optimize public service from
water utilities operations.
ISSUE: WHETHER OR NOT THE LOCAL WATER DISTRICTS FORMED AND
CREATED PURSUANT TO THE PROVISIONS OF P.D. 198, AS AMENDED,
ARE GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS WITH
ORIGINAL CHARTER FALLING UNDER THE CIVIL SERVICE LAW AND/OR
COVERED BY THE VISITORIAL POWER OF THE COMMISSION ON AUDIT?

RULING: After a fair consideration of the parties' arguments coupled with a

careful study of the applicable laws as well as the constitutional provisions
involved, We rule against the petitioners and reiterate Our ruling in Tanjay case
declaring water districts government-owned or controlled corporations with
original charter. Ascertained from a consideration of the whole statute, PD 198
is a special law applicable only to the different water districts created pursuant
thereto. In all its essential terms, it is obvious that it pertains to a special purpose
which is intended to meet a particular set of conditions and cirmcumstances. The
fact that said decree generally applies to all water districts throughout the
country does not change the fact that PD 198 is a special law. Accordingly, this
Court's resolution in Metro Iloilo case declaring PD 198 as a general legislation
is hereby abandoned. By "government-owned or controlled corporation with
original charter,"

We mean government owned or controlled corporation created by a special law

and not under the Corporation Code of the Philippines. From the foregoing
pronouncement, it is clear that what has been excluded from the coverage of the
CSC are those corporations created pursuant to the Corporation Code.
Significantly, petitioners are not created under the said code, but on the contrary,
they were created pursuant to a special law and are governed primarily by its
provision. The provisions of PD 198, as amended, are similar to those which are
actually contained in other corporate charters.

The conclusion is inescapable that the said decree is in truth and in fact the
charter of the different water districts for it clearly defines the latter's primary
purpose and its basic organizational set-up. In other words, PD 198, as amended,
is the very law which gives a water district juridical personality. While it is true
that a resolution of a local sanggunian is still necessary for the final creation of a
district, this Court is of the opinion that said resolution cannot be considered as
its charter, the same being intended only to implement the provisions of said
decree.