2014 corporate law outline

8/10/2019 2014 Corporate Law Outline

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ATENEO DE MANILA LAW SCHOOL2NDSEMESTER, SY 2014-2015

OUTLINEON PHILIPPINECORPORATELAW1

DEAN CESAR L. VILLANUEVAATTY. JOEY G. HOFILEAATTY. TERESA V. TIANSAY

I. HISTORICAL AC!GROUND1. P"#$#%%#&' C()%()*+' L*2A sort-of Codification of American Corporate Law

When attention was drawn to the fact that there was no entity in Spanish law corresponding to thenotion of the American corporation, the Philippine Commission enacted the Corporation Law (Act No!"#$%, to introd&ce the American corporation in the Philippines as the standard commercial entity and tohasten the day when the sociedad annimaof the Spanish law wo&ld 'e o'solete he stat&te is a sort ofcodification of American Corporate Law Harden v. Benguet Consolidated Mining,#) Phil !"! (!$**%

*. Sociedades Annimas

A sociedad annima was considered a commercial partnership where &pon the e+ec&tion of the p&'licinstr&ment in which its articles of agreement appear, and the contri'&tion of f&nds and personal property,'ecomes a &ridical person-an artificial 'eing, in.isi'le, intangi'le, and e+isting only in contemplation oflaw-with power to hold, '&y, and sell property, and to s&e and 'e s&ed-a corporation-not a general

partnership nor a limited partnership he inscri'ing of its articles of agreement in the commercialregister was not necessary to ma/e it a &ridical person0 s&ch inscription only operated to show that itpartoo/ of the form of a commercial corporation Mead v. McCullough, 2! Phil $# (!$!!%

he sociedades annimaswere introd&ced in Philippine &risdiction on 1! ecem'er !))) with thee+tension to Philippine territorial application of Articles !#! to !#$ of the Spanish Code of Commercehose articles contained the feat&res of limited lia'ility and centrali3ed management granted to a &ridicalentity 4&t they were more similar to the 5nglish oint stoc/ companies than the modern commercialcorporations Benguet Consolidated Mining Co. v. Pineda, $) Phil 6!! (!$#7%

he old Corporation Law recogni3ed the difference 'etween sociedades annimas and corporationsand the Co&rt will not apply legal pro.isions pertaining to the latter to the former Phil. Product Co. v.Primateria Societe Anonyme, !# SC8A *1! (!$7#%

2. T"' C()%()*+#(& L* A/+ N(. 145

he Corporation Law as the first corporate stat&te 'ecame effecti.e on 1! April !$17 9t had piece:mealamendments d&ring its 6":year history, '&t 'ecame anti;&ated and &n:adapted to the changing times

. T"' C()%()*+#(& C(3' *+* P*6*&* #$*&7 89he c&rrent Corporation Code of the Philippines too/ effect on 1!


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A corporation has no powers e+cept for those which are e+pressly conferred on it 'y the CorporationCode, and those fo&nd in its charter, and are implied 'y or are incidental to its e+istence 9t e+ercises itspowers thro&gh its 4oard of irectors and?or its d&ly a&thori3ed officers and agents Pascual and Santos%nc. v. -he Mem#ers of the -ramo a/as Neigh#orhood Assn. nc. , ""2 SC8A "*) (211"%#

. =TRI-LEVELE>ISTENCE? OFTHECORPORATION

* =ASSETS-ONLY? L'@'$ -he cor"oration is an aggregation of Assets and resources0

6 USINESSENTERPRISE? L'@'$ 1-he cor"oration2s "rimary "ur"ose is to "ursue #usiness.0

/ JURIDICALENTITY? L'@'$ -he cor"oration is a medium of "ursuing a #usiness enter"rise.0

4. =TRI-LEVELRELATIONSHIPS? INTHECORPORATESETTING

* =JURIDICALENTITYLEVEL, which treats of the aspects of the State:corporation relationship

6 =INTRA-CORPORATELEVEL, which considers that the corporate setting is a contract&al relationshipon fo&r ("% le.els@

4etween the corporation and its agents?representati.es to act in the real world, ie,

directors and officers, which is go.erned also 'y the Law on Agency

4etween the corporation and its shareholders or mem'ers

4etween the shareholders and the corporate directors, tr&stees and officers

4etween and among the shareholders in a common .ent&re/E>TRA-CORPORATELEVEL, which .iews the relationship 'etween the corporation and third:

parties or o&tsiders, essentially go.erned 'y Contract Law and La'or Law

4etween the corporation and its employees, go.erned 'y La'or Laws

4etween the corporation and those it contracts with, go.erned 'y Contract Laws

4etween the corporation and the p&'lic it affects with its enterprise, go.erned essentially

'y orts or 3uasi:elict Laws

5. THEORIESONTHEFORMATIONOFCORPORATION

*Theory of Concession: Tayag v. Benguet Consolidated, 28 SCRA 242 189

A corporationBs claim of a &ridical personality of its own and transact '&siness as s&ch, is not a

matter of a'sol&te right, #ut a "rivilegewhich may 'e enoyed only &nder s&ch terms as the State maydeem necessary to impose cf.Ang Pue & Co. v. Sec. of Commerce & ndustry%# SC8A 7"# (!$72%

9t is a 'asic post&late that 'efore a corporation may ac;&ire &ridical personality, the State m&st gi.eits consent either in the form of a special law or a general ena'ling act, and the "rocedure andconditions "rovided under the la$ for the ac4uisition of such !uridical "ersonality must #e com"lied $ith

Altho&gh the stat&tory grant to an association of the powers to p&rchase, sell, lease and enc&m'erproperty can only 'e constr&ed the grant of a &ridical personality to s&ch an associationDne.ertheless, the fail&re to comply with the stat&tory proced&re and conditions does not warrant afinding that s&ch association ac;&ired a &ridical personality, e.en when it adopts constit&tion and 'y:laws nt2l E"ress -ravel & -our Services% nc. v. CA% *"* SC8A 76" (2111%

All corporations, 'ig or small, m&st a'ide 'y the pro.isions of the Corporation Code0 e.en a simplefamily corporation cannot claim an e+emption nor can it ha.e r&les and practices other than thoseesta'lished 'y law -orres v. Court of A""eals, 26) SC8A 6$* (!$$6%

6Theory ofnterprise ntity ERLE, 4 COLUMIALAWREV. 4 14

A corporation is '&t an association of indi.id&als, allowed to transact &nder an ass&med corporatename, and with a distinct legal personality 9n organi3ing itself as a collecti.e 'ody, it wai.es noconstit&tional imm&nities and per;&isites appropriate to s&ch a 'ody PSE v. Court of A""eals% 2)!SC8A 2*2 (!$$6%

Corporations are composed of nat&ral persons and their separate corporate personality is not ashield for the commission of in&stice and ine;&ity, s&ch as to a.oid the e+ec&tion of the property of asister company -an Boon Bee & Co. v. 5arencio, !7* SC8A 21# (!$))%

8. ADVANTAGESANDDISADVANTAGESOFCORPORATEFORM

* F(;) A3@*&+*7'(; F'*+;)' (: +"' C()%()*+' M'3#;

# STRONGANDSOLEMNJURIDICALPERSONALITY(S'/. 2B A)+. 44, 45, 48, *&3 15, C#@#$ C(3'%While not in fact and in reality a person, the law treats the corporation as tho&gh it were a person 'y

process of fiction or 'y regarding it as an artificial person distinct and separate from its indi.id&alstoc/holders +emo% 5r. v. AC, !62 SC8A "1# (!$)$%

ransfer of corporate assets to the stoc/holders is an act of con.eyance and not in the nature of a"artition among co)o$ners Stoc/holders are not co:owners of corporate assets and propertiesStoc/holders of ,. 6uan'on and Sons% nc. v. +egister of (eeds of Manila , 7 SC8A *6* (!$72%

#(e *iano v. Court of A""eals, *61 SC8A *"$ (211!%0Monfort Hermanos Agricultural (ev. Cor". v. Monfort , "*" SC8A 26 (211"%0 7nited

Paragon Mining Cor". v. Court of A""eals, "$6 SC8A 7*) (2117%0 Ce#u Bionic Builders Su""ly% nc. v. (BP, 7*# SC8A !* (21!1%

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5+ec&tion pending appeal may 'e allowed $henthe pre.ailing party is already of ad.anced ageand in danger of e+tinction, '&t not in this case a corporation A &ridical entityBs e+istence cannot 'eli/ened to a nat&ral person-its precario&s financial condition is not 'y itself a compelling circ&mstancewarranting immediate e+ec&tion and does not o&tweigh the long standing general policy of enforcingonly final and e+ec&tory &dgment Manaco" v. E4uita#le PCBan/, "7) SC8A 2#7 (211#%

## CENTRALIEDMANAGEMENT(S'/. 2%As can 'e gleaned from Sec 2* of Corporation Code 9t is the 'oard of directors or tr&stees which

e+ercises almost all the corporate powers in a corporation ,irme v. Bu/al Enter"rises and (ev. Cor".,"!" SC8A !$1 (211*%

he e+ercise of corporate powers rest in the 4oard of irectors, sa.e in those instances where theCorporation Code re;&ires stoc/holdersB appro.al for certain specific acts 6reat Asian Sales CenterCor". v. Court of A""eals, *)! SC8A ##6 (2112%

### LIMITEDLIAILITYTOINVESTORSANDNON-LIAILITYTOOFFICERSEne of the ad.antages of the corporation is the limitation of an in.estorBs lia'ility to the amo&nt of

in.estment, which flows from the legal theory that a corporate entity is separate and distinct from itsstoc/holders San 5uan Structural and Steel ,a#ricators% nc. v. CA, 2$7 SC8A 7*! (!$$)%

9t is horn'oo/ law that corporate personality is a shield against personal lia'ility of its officers-acorporate officer and his spo&se cannot 'e made personally lia'le &nder a tr&st receipt where heentered into and signed the contract clearly in his official capacity Consolidated Ban/ and -rust Cor". v.

Court of A""eals% *#7 SC8A 76! (211!%7

E'ligations inc&rred 'y the corporation acting thro&gh its directors and officers, are its sole lia'ilitiesMalayang Samahan ng mga Manggaga$a sa M. 6reenfield v. +amos%*#6 SC8A 66 (211!%

Where the creditor of the corporation s&es not only the company '&t also all stoc/holders to reachtheir &npaid s&'scription which appear to 'e the only .isi'le assets of the company, then the controllingdoctrine is that a stoc/holder is personally lia'le for the financial o'ligations of the corporation to theetent of his un"aid su#scri"tion. Halley v. Print$ell% nc. 7"$ SC8A !!7 (21!!%

#@ FREE-TRANSFERAILITY OFUNITSOFOWNERSHIPSHARES FORINVESTORS S'/. 8%9t is the inherent right of the stoc/holder to dispose of his shares of stoc/ (which he owns as any

other property of his% anytime he so desires +emo% 5r. v. AC, !62 SC8A "1# (!$)$%0 PNB v. +itratto6rou"% nc., *72 SC8A 2!7 (211!%

A&thority granted to reg&late the transfer of its stoc/ does not empower the corporation to restrict the

right of a stoc/holder to transfer his shares, '&t merely a&thori3es the adoption of reg&lations as to theformalities and proced&re to 'e followed in effecting transfer -homson v. CA, 2$) SC8A 2)1 (!$$)%

6 D#*3@*&+*7' (: +"' C()%()*+' M'3#;

1 A6;' (: /()%()*+' *&*7''&+B 6)'*/" (: +);+

2 A6;' (: $##+'3 $#*6#$#+< :'*+;)'

H#7" /(+ (: *#&+'&*&/' (: +"' /()%()*+' '3#;

4 D(;6$' +**+#(& i.idends recei.ed 'y indi.id&als from domestic corporations are s&'ect to final !1F ta+ for income

earned on or after 1! Gan&ary !$$) Sec 2"(4%(2%, !$$6 N98C

9nter:corporate di.idends 'etween domestic corporations, howe.er, are not s&'ect to any income ta+,

Sec 26(%("%, !$$6 N98C here is re:imposition of the !1F improperly acc&m&lated earnings ta+ for holding companies Sec 2$,

!$$6 N98C

. COMPAREDWITHOTHERUSINESSMEDIA

* S($' P)(%)#'+()"#%A sole proprietorship is not .ested with &ridical personality to file or defend an action Ecellent

3uality A""arel% nc. v. in Multi"le)+ich Builders% nc. , #6) SC8A 262 (211$%0A*PS -rans"ortation v.+odrigue', 7$) SC8A "2* (21!*%

6 P*)+&')"#% *&3 O+"') A(/#*+#(&(A)+. 189 *&3 15, C#@#$ C(3'%@

/ J(#&+ V'&+;)'5oint venture is an association of persons or companies ointly &nderta/ing some commercial

enterprise0 generally all contri'&te assets and share ris/s 9t re;&ires a comm&nity of interest in theperformance of the s&'ect matter, a right to direct and go.ern the policy in connection therewith, andd&ty, which may 'e altered 'y agreement to share 'oth in profit and losses 8ilos#ayan% nc. v.6uingona% 5r., 2*2 SC8A !!1 (!$$"%

7Ever Electrical Manufacturing% nc. 9EEM: v. Samahang Manggaga$a ng Ever Electrical;NAMA7 *ocal


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3 C((%')*+#@' (Art *, 8A No 7$*)%Cooperati.es are esta'lished to pro.ide a strong social and economic organi3ation to ens&re that the

tenant:farmers will enoy on a lasting 'asis the 'enefits of agrarian reforms Cor"u' v. 6ros"e% ***SC8A "2# (2111%

' ;#&' T);+ (Art !""2, Ci.il Code%

: Cuentas n !articipacion A)+. 15, C#@#$ C(3'

A cuentas en "artici"acionis an accidental partnership constit&ted in a manner that its e+istence wasonly /nown to those who had an interest in the same, there 'eing no m&t&al agreement 'etween thepartners, and witho&t a corporate name indicating to the p&'lic in some way that there were otherpeople 'esides the one who ostensi'ly managed and cond&cted the '&siness, go.erned &nder Art 2*$of the Code of Commerce hose who contract with the person &nder whose name the '&siness of s&chpartnership of cuentas en "artici"acion is cond&cted, shall ha.e only a right of action against s&chperson and not against the other persons interested, and the latter, on the other hand, shall ha.e noright of action against third person who contracted with the manager &nless s&ch manager formallytransfers his right to them Bourns v. Carman,6 Phil !!6 (!$17%

III. NATURE AND ATTRIUTES OF A CORPORATION

1. P(') +( C)'*+' * C()%()*+#(& I L'7#$*+#@' #& C"*)*/+') (S'/. 18, A)+#/$' >II, 19 C(&+#+;+#(&%Congress cannot enact a law creating a pri.ate corporation with a special charter, and it follows that

Congress can create corporations with special charters only if s&ch are go.ernment:owned:or:controlledcorporations (HECCs% ,eliciano v. Commission on Audit, "!$ SC8A *7* (211"%0 >eterans ,ederation ofthe Phili""ines v. +eyes, ")* SC8A #27 (2117%

P !6!6 creating New Agri+, 9nc .iolated the constit&tional prohi'ition on the formation of a pri.atecorporation 'y special legislati.e act which is not a HECC, since NC was merely re;&ired to e+tend aloan to the new corporation, and the new stoc/s of the corporation were to 'e iss&ed to the old in.estorsand stoc/holders of the insol.ent Agri+ &pon proof of their claims against the a'olished corporation N(Cv. Phili""ine >eterans Ban/%!$2 SC8A 2#6 (!$$1%

PN8C which was constit&ted &nder a special law, is not a HECC 'eca&se it is not 'y its charter owned'y the Ho.ernment, altho&gh it is intended to do p&'lic f&nctions, it is owned 'y the pri.ate sectorConse;&ently, the PN8C Charter, insofar as it creates the PN8C as a pri.ate corporation and grants itcorporate powers, is .oid for 'eing &nconstit&tional he other pro.isions of the PN8C Charter remain .alidas they can 'e considered as a recognition 'y the State that the &nincorporated PN8C is the local NationalSociety of the 9nternational 8ed Cross and 8ed Crescent


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A corporation engaged in the selling of eyeglasses and which hires optometrists is not engaged in thepractice of optometry Samahan ng ?"tometrists v. Ace#edo nternational Cor".% 261 SC8A 2$) (!$$6%0

Alfafara v. Ace#edo ?"tical Com"any% *)! SC8A 2$* (2112%

COUNTER-REVOLUTION@ =A)/"#+'/+;)*$ %)(:'#(&*$ /()%()*+#(&? *$$('3 ;&3') R'%. A/+ N(. 288.

4. L#*6#$#+< :() T()+A corporation is ci.illy lia'le for torts in the same manner as nat&ral persons, 'eca&se the r&les

go.erning the lia'ility of a principal for a tort committed 'y an agent are the same whether the principal 'e

a nat&ral person or a corporation, and whether the agent 'e a nat&ral or artificial person PNB v. Court ofA""eals, )* SC8A 2*6 (!$6)%

Cor"orate tort consists in the .iolation of a right gi.en or the omission of a d&ty imposed 'y law0 a'reach of a legal d&ty he fail&re of the corporate employer to comply with the d&ty &nder the La'or Codeto grant separation pay to employees in case of cessation of operations constit&tes tort and its stoc/holderwho was acti.ely engaged in the management or operation of the '&siness sho&ld 'e held personallylia'le Sergio ,. Naguiat v. N*+C, 27$ SC8A #7" (!$$6%

Sta/eholders2 -heory@ While in theory a hospital as a &ridical entity cannot practice medicine, in reality it&tili3es doctors, s&rgeons and medical practitioners in the cond&ct of its '&siness of facilitating medical ands&rgical treatment Within that reality, three legal relationships crisscross@ (!% 'etween the hospital and thedoctor practicing within its premises0 "#$ %etween the hospital and the patient %eing treated ore&amined within its premises0 and (*% 'etween the patient and the doctor 8egardless of its relationshipwith the doctor, the hospital may 'e held directly lia'le to the patient for its own negligence or fail&re to

follow esta'lished standard of cond&ct to which it sho&ld conform as a corporation !rofessional

Services' (nc. v. Court of Appeals, 811 SCRA 292 2010

5. C()%()*+' C)##&*$ L#*6#$#+


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9f the crime is committed 'y a corporation, the directors, officers, employees or other officers thereofresponsi'le for the offense shall 'e charged and penali3ed for the crime, precisely 'eca&se of thenat&re of the crime and the penalty therefor A corporation cannot 'e arrested and imprisoned0 hence,cannot 'e penali3ed for a crime p&nisha'le 'y imprisonment Iowe.er, a corporation may 'e chargedand prosec&ted for a crime if the imposa'le penalty is fine 5.en if the stat&te prescri'es 'oth fine andimprisonment as penalty, a corporation may 'e prosec&ted and, if fo&nd g&ilty, may 'e fined Ching v.

Secretary of ustice, 491 SCRA 802 2008.

When a criminal stat&te designates an act of a corporation or a crime and prescri'es p&nishment

therefor, it creates a criminal offense which, otherwise, wo&ld not e+ist and s&ch can 'e committed only'y the corporation 4&t when a penal stat&te does not e+pressly apply to corporations, it does not createan offense for which a corporation may 'e p&nished En the other hand, if the stat&te, defines a crimethat may 'e committed 'y a corporation '&t prescri'es the penalty therefor to 'e s&ffered 'y theofficers, directors, or employees of s&ch corporation or other persons responsi'le for the offense, onlys&ch indi.id&als will s&ffer s&ch penalty Corporate officers or employees, thro&gh whose act, defa&lt oromission the corporation commits a crime, are themsel.es indi.id&ally g&ilty of the crime Ching v.

Secretary of ustice, 491 SCRA 802 2008.B,TS: Consolidated Ban v. Court of Appeals,58 SCRA 81 200.

8. R'/(@')< (: M()*$ *&3 O+"') D**7'A corporation, 'eing an artificial person, cannot e+perience physical s&fferings, mental ang&ish, fright,

serio&s an+iety, wo&nded feelings, moral shoc/ or social h&miliation which are 'asis for moral damages

&nder Art 22!6 of the Ci.il Code Ho$ever% a cor"oration may have a good re"utation $hich% if#esmirched% may #e a ground for the a$ard of moral damages Mam#ulao *um#er Co. v. Phili""ineNational Ban/% 22 SC8A *#$ (!$7)%0AP- v. Court of A""eals% *11 SC8A #6$ (!$$)%.

B,T: he statement in Maneroand Mam#ulao *um#er that a corporation may reco.er moral damages ifit has a good rep&tation that is de'ased, res&lting in social h&miliation is an o#iter dictum.+ecovery of acor"oration $ould #e under Articles %


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at least 71F of the ca"ital stoc/ outstanding and entitled to vote is o$nedand held 'y citi3ens ofthe Philippines, is considered a Philippine National 7nchuan v. *o'ada% #)# SC8A "2! (211$%

N' SEC C(&+)($ T'+As a res&lt of the 6am#oar&lings, SECM'()*&3; C#)/;$*) N(. 9, .201, was iss&ed and pro.ides that@ all co.ered corporations shall, at all times, o'ser.e theconstit&tional or stat&tory ownership re;&irement in that the re;&ired percentage of Jilipinoownership shall 'e applied to 4EI (a% the total n&m'er of o&tstanding shares of stoc/ entitled to.ote in the election of directors0 AN ('% the total n&m'er of o&tstanding shares of stoc/, whetheror not entitled to .ote in the election of directors

he !$)6 Constit&tion pro.ides for the Jilipini3ation of p&'lic &tilities 'y re;&iring that any fromof a&thori3ation for the operation of p&'lic &tilities sho&ld 'e granted only to citi3ens of thePhilippines or to corporation or associations organi3ed &nder the laws of the Philippines at leastsi+ty per cent&m of whose capital is owned 'y s&ch citi3ensB T"' %)(@##(& # *& '%)')'/(7+#(& (: +"' '+#@' *&3 @#+*$ %(#+#(& (: %;6$#/ ;+#$#+#' 6(+" #& +"' &*+#(&*$ '/(&(II, C(&+#+;+#(&%

he nationality test for p&'lic &tilities applies not at the time of the grant of the primary franchise thatma/es a corporation a &ridical person, '&t at the grant of the secondary franchise that a&thori3es thecorporation to engage in a nationali3ed ind&stry !eople v. 9uasha, P"#$. 15%

he primary franchise, that is, the right to e+ist as s&ch, is .ested in the indi.id&als who compose thecorporation and not in the corporation itself and cannot 'e con.eyed in the a'sence of a legislati.e

a&thority to do so he secondary franchises are .ested in the corporation and may ordinarily 'econ.eyed or mortgaged &nder a general power granted to a corporation to dispose of its property,e+cept s&ch special or secondary franchises as are charged with a p&'lic &se 5.+.S. Business Cor". v.m"erial nsurance, !! SC8A 7*" (!$7"%

When a Contract of Lease mandates contri'&tion into the .ent&re on the part of the p&rportedlessee, and ma/es the lessee participate not only in the re.en&es generated from the .ent&re, and infact a'sor' most of the ris/s in.ol.ed therein, then a oint .ent&re arrangement has really 'eenconstit&ted 'etween the p&rported lessor and lessee, since &nder the Law on Partnership, whene.erthere is an agreement to contri'&te money, property or ind&stry to a common f&nd, with an agreementto share the profits and losses therein, then a partnership arises +ilos%ayan' (nc. v. 3uingona' r.,22 SCRA 110 14.

he Constit&tion re;&ires a franchise for the operation of a p&'lic &tility0 howe.er, it does not re;&irea franchise 'efore one can own the facilities needed to operate a p&'lic &tility so long as it does notoperate them to ser.e the p&'lic here is a clear distinction 'etween operation of a p&'lic &tility andthe ownership of the facilities and e;&ipment &sed to ser.e the p&'lic Tatad v.3arcia' r., 24 SCRA48 15.

5 M* M'3#* (S'/. 111, A)+. >VI, 19 C(&+#+;+#(&%

Sources@ P *7, amended 'y Ps !$! and !$60 EG Epinion No !21, s of !$)20 Sec 2, P#670 S5C Epinion, 2"


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ed&cational, ci.ic and social de.elopment of the yo&th which constit&te a .ery s&'stantial and importantpart of the nation, it is not a p&'lic corporation in the same sense that m&nicipal corporation or localgo.ernments are p&'lic corporation since its does not go.ern a portion of the state, '&t it also does notha.e proprietary f&nctions in the same sense that the f&nctions or acti.ities of go.ernment:owned orcontrolled corporations, is may still 'e considered as s&ch, or &nder the !$)6 Administrati.e Code as aninstr&mentality of the Ho.ernment, and it employees are s&'ect to the Ci.il Ser.ice Law Boy Scouts ofthe Phili""ines v. N*+C, !$7 SC8A !67 (!$$!%

he doctrine that employees of HECCs, whether created 'y special law or formed as s&'sidiaries

&nder the general corporation law are go.erned 'y the Ci.il Ser.ice Law and not 'y the La'or Code,has 'een s&pplanted 'y the !$)6 Constit&tion he present doctrine in determining whether a HECC iss&'ect to the Ci.il Ser.ice Law is the manner of its creation, s&ch that go.ernment corporations created'y special charter are s&'ect the Ci.il Ser.ice Law, while those incorporated &nder the generalcorporation law are go.erned 'y the La'or Code PN?C)Energy (ev. Cor". v. N*+C, 21! SC8A ")6(!$$!%0 (avao City ater (istrict v. Civil Service Commission, 21! SC8A #$* (!$$!%

Sec *! of Corporation Code (*ia#ility of (irectors and ?fficers% is applica'le to corporations whichha.e 'een organi3ed 'y special charters since Sec " of Corporation Code renders the pro.isionss&pplementarily applica'le to all corporations, incl&ding those with special or indi.id&al charters, s&chas cooperati.es organi3ed &nder P 27$, so long as those pro.isions are not inconsistent with s&chcharters Benguet Electric Coo"erative% nc. v. N*+C, 21$ SC8A ## (!$$2%

A corporation is created 'y operation of law &nder the Corporation Code while a go.ernmentcorporation is normally created 'y special law referred to often as a charter Bliss (ev. Cor".

Em"loyees 7nion v. Calle!a% 2*6 SC8A 26! (!$$"%

he test to determine whether a corporation is go.ernment owned or controlled, or pri.ate in nat&reis simple 9s it created 'y its own charter for the e+ercise of a p&'lic f&nction, or 'y incorporation &nderthe general corporation lawQ hose with special charters are go.ernment corporations s&'ect to itspro.isions, and its employees are &nder the &risdiction of the Ci.il Ser.ice Commission, and arecomp&lsory mem'ers of the HS9S Cam"aredondo v. N*+C, *!2 SC8A "6 (!$$$%

While p&'lic 'enefit and p&'lic welfare may 'e attri'&ta'le to the operation of the 4ases Con.ersionand e.elopment A&thority (4CA%, yet it is certain that the f&nctions it performs are 'asicallyproprietary in nat&re-the promotion of economic and social de.elopment of Central L&3on, partic&larly,and the co&ntryBs goal for enhancement herefore, the r&le that prescription does not r&n against theState will not apply to 4CA, it 'eing said that when title of the 8ep&'lic has 'een di.ested, itsgrantees, altho&gh artificial 'odies of its own creation, are in the same category as ordinary personsShi"side nc. v. Court of A""eals% *#2 SC8A **" (211!%

4eyond ca.il, a HECC has a personality of its own, distinct and separate from that of thego.ernment, and the inter.ention in a transaction of the Effice of the President thro&gh the 5+ec&ti.eSecretary does not change the independent e+istence of a go.ernment entity as it deals with anothergo.ernment entity P7P v. Court of A""eals, *7) SC8A 7$! (211!%

Water districts can .alidly e+ists as corporate entities &nder P !$), and pro.ided they are HECCs,and their 'oard of directors and other personnel are go.ernment employees s&'ect to ci.il ser.ice lawsand anti:graft laws ,eliciano v. C?A, "!$ SC8A *7* (211"%

When the law .ests in a go.ernment instr&mentality corporate powers, it does not 'ecomenecessarily a corporation A go.ernment:owned or controlled corporation m&st 'e organi3ed as a stoc/or non:stoc/ corporation he


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4. A +( N;6') (: M'6')

* A77)'7*+' C()%()*+#(&

6 C()%()*+#(&Sole(S'/. 110 +( 115%

A corporation sole has no nationality 'eing an instit&tion that e+isted prior to the 8ep&'lic 4&t if anynationality is to 'e accorded to a corporation sole it is to 'e &dged from the nationality of the maority ofthe faithf&ls thereof +oman Catholic A"ostolic Administrator of (avao% nc. v. *+C and the +egister of(eeds of (avao City, !12 Phil #$7 !$#6%

he doctrine in +e"u#lic v. >illanueva, !!" SC8A )6# (!$)2% and +e"u#lic v. glesia ni Cristo, !26SC8A 7)6 (!$)"%, that a corporation sole is dis;&alified to ac;&ire?hold aliena'le lands of the p&'licdomain, 'eca&se of the constit&tional prohi'ition ;&alifying only indi.id&als to ac;&ire land and thepro.ision &nder the P&'lic Land Act which applied only to Jilipino citi3ens or nat&ral persons, has 'eene&pressly overturnedin (irector of *and v. AC, !"7 SC8A #1$ (!$)7%!

5. A +( L'7*$ S+*+;

* 4e ureC()%()*+#(&

6 4e actoC()%()*+#(&(S'/. 20%

/ C()%()*+#(& 6< E+(%%'$(S'/. 21%

8. A +( E#+'&/' (: S"*)'(S'/. *&3 5%@

* S+(/ C()%()*+#(&

6 N(&-S+(/ C()%()*+#(&

V. SEPARATE JURIDICAL PERSONALITY AND DOCTRINEOF PIERCING THE VEIL OF CORPORATE FICTION

A. MAIN DOCTRINE A Corporation *as a !ersonality Separate and 4istinct from its Stocholders or7em%ers. S'/. 2B A)+. 44, C#@#$ C(3'

1. I%()+*&/' (: M*#& D(/+)#&'A corporation, &pon coming into e+istence, is in.ested 'y law with a personality separate and distinct

from those persons composing it as well as from any other legal entity to which it may 'e related, with the

following conse;&ences@(i% he corporation may not 'e made to answer for acts and lia'ilities of its stoc/holders or those of

legal entities to which it may 'e connected or vice versa 6eneral Credit Cor". v. Alsons (ev. andnvestment Cor"., #!* SC8A 22# (2116%2

(ii% his separate and distinct personality is, howe.er, merely a fiction created 'y law for con.eyanceand to promote the ends of !ustice LB! v. Court of Appeals'84 SCRA 5 2001*

2. APPLICATIONS

* M*()#+< E;#+< O&')"#% *&3 I&+')$(/#&7 D#)'/+()"#%@


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4eing an officer or stoc/holder of a corporation does not 'y itself ma/e oneBs property also that of thecorporation, and vice)versa, for they are separate entities, and that shareholders who are officers are inno legal sense the owners of corporate property which is owned 'y the corporation as a distinct legalperson 6ood Earth Em"orium% nc. v. CA, !$" SC8A #"" (!$$!%6

9t is horn'oo/ law that corporate personality is a shield against personal lia'ility of its officers-acorporate officer and his spo&se cannot 'e made personally lia'le &nder a tr&st receipt where heentered into and signed the contract clearly in his official capacity ntestate Estate of Aleander -. -y v.Court of A""eals% *#7 SC8A 7! (211!%)

he mere fact that one is President does not render the property he owns the property of thecorporation, since the president, as an indi.id&al, and the corporation are separate entities Cru' v.(alisay, !#2 SC8A ")6 (!$)6%0 Booc v. Bantuas, *#" SC8A 26$ (211!%

he President of the corporation which 'ecomes lia'le for the accident ca&sed 'y its tr&c/ dri.ercannot 'e held solidarily lia'le for the &dgment o'ligation arising from 4uasi:delict, since the fact aloneof 'eing President is not s&fficient to hold him solidarily lia'le for the lia'ilities ad&dged against thecorporation Secosa v. Heirs of Er$in Suare' ,ancisco , "** SC8A 26* (211"%

Since a corporation has a distinct &ridical personality, when the comp&lsory co&nterclaim filedagainst corporate officers for their alleged fra&d&lent act indicate that s&ch corporate officers areindispensa'le parties in the litigation, the original incl&sion of the corporation in the s&it does not there'yallow the denial of a specific co&nter:claim 'eing filed to ma/e the corporate officers personally lia'le*afarge Cement Phils.,nc. v. Continental Cement Cor"., ""* SC8A #22 (211"%

/ O& P)#@#$'7' E&(


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corporation to 'e disregarded, the wrong:doing m&st 'e clearly and con.incingly esta'lished 9t cannot 'epres&med Suldao v. Cimech System Construction% nc. , #17 SC8A 2#7 (2117%

he legal fiction of separate corporate e+istence is not at all times in.inci'le and the same may 'epierced when employed as a means to perpetrate a fra&d, conf&se legitimate iss&es, or &sed as a .ehicleto promote &nfair o'ecti.es or to shield an otherwise 'latant .iolation of the prohi'ition against for&m:shopping While it is settled that the piercing of the corporate .eil has to 'e done with ca&tion, thiscorporate fiction may 'e disregarded when necessary in the interest of &stice +ovels Enter"rises% nc. v.?cam"o, *$! SC8A !67 (2112%

2. O6'/+#@' *&3 E::'/+ (: +"' A%%$#/*+#(& (: +"' P#')/#&7 D(/+)#&'=nder the doctrine of "iercing the veil of cor"orate fiction, the co&rts loo/ at the corporation as a mere

collection of indi.id&als or an aggregation of persons &nderta/ing '&siness as a gro&p, disregarding theseparate &ridical personality of the corporation &nifying the gro&p Traders 1oyal Ban v. Court of

Appeals, 28 SCRA 15 1!1

he rationale 'ehind piercing a corporationBs identity in a gi.en case is to remo.e the 'arrier 'etweenthe corporation from the persons comprising it to thwart the fra&d&lent and illegal schemes of those who&se the corporate personality as a shield for &nderta/ing certain proscri'ed acti.ities Iowe.er, in the caseat 'ar, instead of holding certain indi.id&als or person responsi'le for an alleged corporate act, the sit&ationhas 'een re.ersed 9t is the petitioner as a corporation which is 'eing ordered to answer for the personallia'ility of certain indi.id&al directors, officers and incorporators concerned Ience, it appears to &s that thedoctrine has 'een t&rned &pside down 'eca&se of its erroneo&s in.ocation (Q% rancisco 7otors

Corp. v CA, 0 SCRA 2 1Another form&lation of this doctrine is that when two (2% '&siness enterprises are owned, cond&cted and

controlled 'y the same parties, 'oth law and e;&ity will, when necessary to protect the rights of thirdparties, disregard the legal fiction that two corporations are distinct entitled and treat them as identical orone and the same 6eneral Credit Cor". v. Alsons (ev. and nvestment Cor". , #!* SC8A 22# (2116%!!

he attempt to ma/e the sec&rity agencies appear as two separate entities, when in reality they were'&t one, was a de.ise to defeat the law ie, in this case to a.oid lia'ilities &nder la'or laws and sho&ldnot 'e permitted Enri4ue' Security Services% nc. v. Ca#ota!e, "$7 SC8A !7$ (2117%

* 1ecent Attempts to /arrow theO6'/+#@' :() A@*#$#&7 (: P#')/#&7Piercing is not allowed &nlessthe remedy so&ght is to ma/e the officer or another corporation pec&niarily lia'le for corporate de'ts (Q%

(ndophil Te&tile 7ill )orers ,nion-!T3)0 v. Calica, 205 SCRA 8 12

B,TS: La Campana Coffee actory v. +aisahan ng 7anggagawa, P"#$. 180 15

6 A%%$#/*6$' +( =T"#)3-P*)+#'?hat respondents are not stoc/holders of the sister corporations doesnot ma/e them non:parties to this case, since it is alleged that the sister corporations are mere alteregos of the directors:petitioners, and that the sister corporations ac;&ired the properties so&ght to 'erecon.eyed to JHS8C in .iolation of directors:petitionersB fid&ciary d&ty to JHS8C he notion ofcorporate entity will 'e pierced and the indi.id&als composing it will 'e treated as identical if thecorporate entity is 'eing &sed as a cloa/ or co.er for fra&d or illegality0 as a &stification for a wrong0 oras an alter ego, an ad&nct, or a '&siness cond&it for the sole 'enefit of the stoc/holders 6ochan v.oung, *#" SC8A 216 (211!%

. N*+;)' (: +"' P#')/#&7 D(/+)#&' * *& E;#+*6$' R''3illanueva v. Adre, !62 SC8A )67 (!$)$%

he creation 'y 4P as the mother company of the three mining corporations to manage andoperate the assets ac;&ired in the foreclos&re sale lest they deteriorate from non:&se and lose their.al&e, does not indicate fra&d or wrongdoing and will not constit&te application of the piercing doctrine(BP v. Court of A""eals% *7* SC8A *16 (211!%

/ P#')/#&7 D(/+)#&' N(+ A%%$#/*6$' +( T"'()##&7 () +( A3@*&/'KC)'*+' N' R#7"+ () I&+')'+Piercing of the .eil of corporate fiction is not allowed when it is resorted &nder a theory of co:ownershipto &stify contin&ed &se and possession 'y stoc/holders of corporate properties Boyer-1o&as v.

Court of Appeals, 211 SCRA 40 12

B,TS: Where clear e.idence presented s&pport the fact that a corporationBs affiliates ha.e recei.edlarge amo&nts which 'ecame the consideration for the company e+ec&tion of a real estate mortgageo.er its properties, then the piercing doctrine shall 'e applied to s&pport the fact that the real estate

!1Pantranco Em"loyees Association 9PEA)P-6?: v. N*+C, #)! SC8A #$) (211$%

!!Mar4ues v. ,ar East Ban/ and -rust Co., 7*$ SC8A *!2 (21!!%0 Sarona v. N*+C, 77* SC8A *$" (21!2%0 PNB v. Hydro +esources

Contractors Cor"., 7$* SC8A 2$" (21!*%

!2


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mortgage was .alid and s&pported 'y proper consideration Siain Enter"rises% nc v. Cu"ertino +ealtyCor"., #$1 SC8A "*# (211$%

he piercing cannot 'e a.ailed of in order to dislodge from S5CBs &risdiction a petition fors&spension of payments filed &nder P $12:A, on the gro&nd that the petitioning indi.id&als sho&ld 'etreated as the real petitioners to the e+cl&sion of the petitioning corporate de'tor@ doctrine only applieswhen s&ch corporate fiction is &sed to defeat p&'lic con.enience, &stify wrong, protect fra&d or defendcrime 7nion Ban/ v. Court of A""eals%2$1 SC8A !$) (!$$)%

Application of the piercing of the s&'sidiary company to merge it with the holding company cannot 'e

allowed to s&pport a theory of set:off or compensation, there 'eing no allegation m&ch less any proof offra&d Nisce v. E4uita#le PC Ban/% nc., #!7 SC8A 2*! (2116%

An employee who has officially retired from the company and a.ailed of her retirement 'enefit, '&twho contin&ed to 'e employed as a cons&ltant with affiliate companies, cannot employ piercing in orderto treat her stint with the affiliate companies as part of her employment with the main company sheretired from-there is no fra&d or employment of &nfair shielding +ivera v. 7nited *a#oratories% nc.,#)7 SC8A 27$ (211$%

3*# M;+ ' C$'*) E@#3'&/'o disregard the separate &ridical personality of a corporation, it is elementary that the wrongdoing

cannot 'e pres&med and m&st 'e clearly and con.incingly esta'lished Application of the doctrine ofpiercing the corporate .eil sho&ld 'e done with ca&tion A co&rt sho&ld 'e mindf&l of the milie& where itis to 'e applied 9t m&st 'e certain that the corporate fiction was mis&sed to s&ch an e+tent that in&stice,

fra&d, or crime was committed against another, in disregard of its rights he wrongdoing m&st 'eclearly and con.incingly esta'lished0 it cannot 'e pres&med Etherwise, an in&stice that was ne.er&nintended may res&lt from an erroneo&s application PNB v. Andrada Electric & Engineering Co., *)!SC8A 2"" (2112%!2h&s@

he organi3ation of the corporation at the time when the relationship 'etween the landowner and the

de.eloper were still cordial cannot 'e &sed as a 'asis to hold the corporation lia'le later on for theo'ligations of the landowner to the de.eloper &nder the mere allegation that the corporation is 'eing&sed to e.ade the performance of o'ligation 'y one of its maor stoc/holders *uuria Homes% nc. v.Court of A""eals% *12 SC8A *!# (!$$$%

9n this case, the Co&rt finds that the 8emington failed to discharge its '&rden of pro.ing 'ad faith on the

part of


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ALTER-EGOPIERCING When corporate entity merely a farce since the corporation is merely the alterego, '&siness cond&it, or instr&mentality of a person or another entity

A&thorities are agreed on at least three (*% 'asic areas where piercing the .eil, with which the lawco.ers and isolates the corporation from any other legal entity to which it may 'e related, is allowed heseare@ !% defeat of p&'lic con.enience, as when the corporation is &sed as .ehicle for the e.asion of e+istingo'ligation0 2% fra&d cases or when the corporate entity is &sed to &stify wrong, protect fra&d, or defend acrime0 or *% alter ego cases, where the corporation is merely a farce since it is a mere alter ego or '&sinesscond&it of a person, or where the corporation is so organi3ed and controlled and its affairs are socond&cted as to ma/e it merely an instr&mentality, agency, cond&it or ad&nct of another corporation3eneral Credit Corp. v. Alsons 4ev. and (nvestment Corp., 51 SCRA 225 200!6citing9LLAN=5A,CE


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=se of nominees to constit&te the corporation for the 'enefit of the controlling stoc/holder who

so&ght to a.oid payment of ta+es Marvel Building v. (avid, $ Phil *67 (!$#!%

he plea to pierce the .eil of corporate fiction on the allegation that the corporations tr&e p&rpose isto a.oid payment 'y the incorporating spo&ses of the estate ta+es on the properties transferred to thecorporations@ With regard to their claim that the companies 5llice and


16/59


17/59

A s&'sidiary corporation has an independent and separate &ridical personality, distinct from that ofits parent company, hence, any claim or s&it against the latter does not 'ind the former and vice)versa5ardine (avies% nc. v. 5+B +ealty% nc., "7* SC8A ### (211#%26

9f &sed to perform legitimate f&nctions, a s&'sidiaryBs separate e+istence shall 'e respected, and thelia'ility of the parent corporation as well as the s&'sidiary will 'e confined to those arising in theirrespecti.e '&sinesses 5.en when the parent corporation agreed to the terms to s&pport a stand'ycredit agreement in fa.or of the s&'sidiary, does not mean that its personality has merged with that ofthe s&'sidiary M+. Holdings% *td. >. Ba!ar, *)1 SC8A 7!6 (2112%

. PIERCINGDOCTRINEANDTHEDUEPROCESSCLAUSE

*/eed to Bring a /ew Case Against the 0fficer McConnel v. CA, ! SC8A 62* (!$7!%

A s&it against indi.id&al shareholders is not a s&it against the corporation Jail&re to implead thecorporations as defendants and merely anne+ing a list of s&ch corporations to the complaints is a.iolation of d&e process for it wo&ld in effect 'e disregarding their distinct and separate personalitywitho&t a hearing PC66 v. Sandigan#ayan%*7# SC8A #*) (211!%

here is no denial of d&e process to hold officers lia'le &nder the piercing doctrine, pro.ided thate.idential 'asis has 'een add&ced d&ring trial to apply the piercing doctrine acinto v. Court of

Appeals, 19 SCRA 211 112)

6)hen Corporate 0fficers Are Sued in Their 0fficial Capacity, the corporation which was not made a

party, is not denied d&e process Emilio Cano Enter"rises v. C+, !* SC8A 2$! (!$7#%Altho&gh 'oth lower co&rts fo&nd s&fficient 'asis for the concl&sion that PTA and Phoeni+ Emega

were one and the same, and the former is merely a cond&it of the other the S&preme Co&rt held .oidthe application of a writ of e+ec&tion on a &dgment held only against PTA, since the 8C o'tained no

&risdiction o.er the person of Phoeni+ Emega which was ne.er s&mmoned as formal party to the casehe general principle is that no person shall 'e affected 'y any proceedings to which he is a stranger,and strangers to a case are not 'o&nd 'y the &dgment rendered 'y the co&rt !adilla v. Court of

Appeals, 0 SCRA 209 2001

We s&ggest as m&ch in Arcilla v. Court of A""eals% (2!# SC8A !21 !$$2%, an appellateproceedings in.ol.ing petitioner ArcillaBs 'id to a.oid the ad.erse CA decision on arg&ment that he is notpersonally lia'le for the amo&nt ad&dged since the same constit&tes a corporate lia'ility whichne.ertheless cannot 'e enforced against the corporation which has not 'een impleaded as a party'elow >iolago v. BA ,inance Cor".% ##$ SC8A 7$ (211)%

VI. CORPORATE CONTRACT LAW1 P)'-I&/()%()*+#(& C(&+)*/+

* )ho (s a !romoterPromoter is a person who, acting alone or with others, ta/es initiati.e in fo&nding and organi3ing

the '&siness or enterprise of the iss&er and recei.es consideration therefor (Sec *!1, Sec&rities8eg&lation Code 8A )6$$%

6 N*+;)' (: P)'-#&/()%()*+#(& A7)'''&+(S'/. 80 *&3 81%

/ T"'()#' (& L#*6#$#+#' :() P)((+') C(&+)*/+

Cagayan ishing 4ev. Co.' (nc. v. Teodoro Sandio, 85 P"#$. 22 1

1i8al Light = (ce Co.' (nc. v. !u%lic Service Comm., 25 SCRA 295 189

Caram' r. v. CA, 151 SCRA 2 19

2. 4e actoC()%()*+#(&(S'/. 20%

* E$''&+ Arnold *all v. !iccio, 98 P"#$. 84 150

4y its fail&re to s&'mit its 'y:laws on time, the A994P may 'e considered a de facto corporationwhose right to e+ercise corporate powers may not 'e in;&ired into collaterally in any pri.ate s&it towhich s&ch corporations may 'e a party Sa$ad!aan v. Court of A""eals, "#$ SC8A #!7 (211#%

. C()%()*+#(& 6< E+(%%'$ D(/+)#&' (SEC. 21 0 Salvatierra v. 3arlitos, 10 P"#$. 5 159> Al%ert v.,niversity !u%lishing Co., 1 SCRA 94 185B Asia Baning Corp. v. Standard !roducts, 48 P"#$.145 124%

* N*+;)' (: D(/+)#&'Jo&nded on principles of e;&ity and designed to pre.ent in&stice and &nfairness, the doctrine

applies when persons ass&me to form a corporation and e+ercise corporate f&nctions and enter into'&siness relations with third persons Where no third person is in.ol.ed in the conflict, there is nocorporation 'y estoppel A failed consolidation therefore cannot res&lt in a consolidated corporation 'yestoppel *o'ano v. (e *os Santos, 26" SC8A "#2 (!$$6%

26,ortune v. 3uinsayas, 7$1 SC8A **7 (21!*%

2)Arcilla v. Court of A""eals, 2!# SC8A !21 (!$$2%

!6


18/59

A party cannot challenge the personality of the plaintiff as a d&ly organi3ed corporation after ha.ingac/nowledged same when entering into the contract with the plaintiff as s&ch corporation for thetransportation of its merchandise ?hta (ev. Co. v. Steamshi" Pom"ey%"$ Phil !!6 (!$27%2$

A person who accepts employment in an &nincorporated charita'le association is estopped fromalleging its lac/ of &ridical personality Christian Children2s ,und v. N*+C%!6" SC8A 7)! (!$)$%

Ene who deals with an &nincorporated association which is not d&ly incorporated is not estopped todeny its corporate e+istence when his p&rpose is not to a.oid lia'ility, '&t precisely to enforce thecontract against the action for the p&rported corporation nt2l E"ress -ravel v. Court of A""eals% *"*SC8A 76" (2111%

6 T( L'@'$ # W#+" =F)*;3B? *&3 ## W#+"(;+ =F)*;3?When the incorporators represent themsel.es to 'e officers of the corporation which was ne.er d&ly

registered with S5C, and engage in the name of the p&rported corporation in illegal recr&itment, theyare estopped from claiming that they are not lia'le as corporate officers &nder Sec 2# of CorporationCode which pro.ides that all persons who ass&me to act as a corporation /nowing it to 'e witho&ta&thority to do so shall 'e lia'le as general partners for all the de'ts, lia'ilities and damages inc&rred orarising as a res&lt thereof Peo"le v. 6arcia, 26! SC8A 72! (!$$6%0 Peo"le v. Pineda, H8 No !!61!1,!) April !$$6

/ Can a 4efective Attempt to orm a Corporation 1esult at Least in a !artnership


19/59

de'ts All assets and property 'elonging to the corporation held in tr&st for the 'enefit of creditors thatwere distri'&ted or in the possession of the stoc/holders, regardless of f&ll payment of theirs&'scriptions may 'e reached 'y the creditors in satisfaction of its claim *alley v. !rintwell' (nc. 84SCRA 118 2011, citing 9LLAN=5A, PI9L9PP9N5CE8PE8A5LAW(211!%, p ##)

/ T( P;)/"*' O& S"*)'(S'/. 9, 41, 4 *&3 122, $*+ %*)*7)*%"%

=nder common law, there were originally conflicting .iews on whether a corporation had the power top&rchase its own stoc/s Enly a few American &risdictions adopted the strict 5nglish r&le for'idding a

corporation from p&rchasing its own shares 9n some American states where the 5nglish r&le &sed to 'eadopted, stat&tes granting a&thority to p&rchase o&t of s&rpl&s f&nds were enacted, while in others,shares might 'e p&rchased e.en o&t of capital pro.ided the rights of creditors were not pre&diced hereason &nderlying the limitation of share p&rchases sprang from the necessity of imposing safeg&ardsagainst the depletion 'y a corporation of its assets and against the impairment of its capital needed forthe protection of creditors -urner v. *oren'o Shi""ing Cor"., 7*7 SC8A !* (21!1%

3 R'/##(& (: S;6/)#%+#(& A7)'''&+

iolation of terms em'odied in a S&'scription Agreement, with are personal commitments, do notconstit&te legal gro&nd to rescind the s&ch agreement@ 9n the instant case, the rescission of the Pre:S&'scription Agreement will effecti.ely res&lt in the &na&thori3ed distri'&tion of the capital assets andproperty of the corporation, there'y .iolating the r&st J&nd octrine and the Corporation Code, sincethe rescission of a s&'scription agreement is not one of the instances when distri'&tion of capital assetsand property of the corporation is allowed istri'&tion of corporate assets among the stoc/holders

cannot e.en 'e resorted to achie.e corporate peace 0ng ;ong v. Tiu, 401 SCRA 1 200

VII. ARTICLES OF INCORPORATION1. N*+;)' (: C"*)+') he charter is in the nat&re of a contract 'etween the corporation and the State

6overnment of P.. v. Manila +ailroad Co, #2 Phil 7$$ (!$2$%

he articles of incorporation has 'een descri'ed as one that defines the charter of the corporation andthe contract&al relationships 'etween the state and the corporation, the stoc/holders and the State, and'etween the corporation and its stoc/holders *anu'a v. Court of A""eals, "#" SC8A #" (211#%

* C('&/''&+ (: C()%()*+' E#+'&/'(S'/. 1%

2. P)(/'3;)' *&3 D(/;'&+*)< R';#)''&+ (S'/. 14 *&3 15%

* A +( N;6') *&3 R'#3'&/< (: I&/()%()*+()(S'/. 10%9t is possi'le for a '&siness to 'e wholly owned 'y one indi.id&al, and the .alidity of its incorporation

is not affected when he gi.es nominal ownership of only one share of stoc/ to each of the other fo&rincorporators his arrangement is not necessarily illegal, '&t it .alid only 'etween and among theincorporators pri.y to the agreement 9t does not 'ind the corporation which will consider allstoc/holders of record as the lawf&l owners of their registered shares As 'etween the corporation onthe one hand, and its stoc/holders and third persons on the other, the corporation loo/s only to its'oo/s for the p&rpose of determining who its shareholders are Nautica Canny Cor". v. umul, "6*SC8A "!# (211#%

6 C()%()*+' N*'(S'/. 19, 141 *&3 42%he name of a corporation is essential not only for its e+istence as a &ridical person, '&t also in

manner of dealing with it, and in the e+ercise of its &ridical capacities0 it cannot 'e changed e+cept in

the manner pro.ided for 'y law +ed *ine -rans. v. +ural -ransit, 71 Phil #"$ (!$*"%A corporation may change its name 'y the amendment of its articles of incorporation, '&t the same is

not effecti.e &ntil appro.ed 'y the S5C Phil. ,irst nsurance Co. v. Hartigan, *" SC8A 2#2 (!$61%

Similarity in corporate names 'etween two corporations wo&ld ca&se conf&sion to the p&'licespecially when the p&rposes stated in their charter are also the same type of '&siness 7niversal MillsCor". v. 7niversal -etile Mills nc., 6) SC8A 72 (!$66%

o fall within the prohi'ition of the law 8e.ised H&idelines in the Appro.al of Corporate andPartnership Names, two re;&isites m&st 'e pro.en, to wit@ (a% hat the complainant corporationac;&ired a prior right o.er the &se of s&ch corporate name0 and ('% the proposed name is either@ (i%identical, or (ii% decepti.ely or conf&singly similar to that of any e+isting corporation or to any other namealready protected 'y law0 or (iii% patently decepti.e, conf&sing or contrary to e+isting laws Phili"s E"ortB.>. v. Court of A""eals%217 SC8A "#6 (!$$2%

A change in the corporate name does not ma/e a new corporation, and has no effect on the identityof the corporation, or on its property, rights, or lia'ilities +e"u#lic Planters Ban/ v. Court of A""eals,2!7 SC8A 6*) (!$$2%*1

A corporation has no right to inter.ene in a s&it &sing a name, not e.en its acronym, other than itsregistered name, as the law re;&ires and not another name which it had not registered *aureanonvestment and (ev. Cor". v. Court of A""eals, 262 SC8A 2#* (!$$6%

here wo&ld 'e no denial of d&e process when a corporation is s&ed and &dgment is renderedagainst it &nder its &nregistered trade name@ A corporation may 'e s&ed &nder the name 'y which itma/es itself /nown to its wor/ers Pison)Arceo Agri. (ev. Cor". v. N*+C% 26$ SC8A *!2 (!$$6%

*1P.C. 5avier & Sons% nc. v. Court of A""eals, "72 SC8A *7 (211#%0 U&ellig,reight and Cargo Systems v. N*+C% 61! SC8A #72 (21!*%

!$


20/59

9ncorporators m&st choose a name at their peril0 and the &se of a name similar to one adopted 'yanother corporation, $hether a #usiness or a non"rofit organi'ation , if misleading or li/ely to in&re thee+ercise of its corporate f&nctions, regardless of intent, may 'e pre.ented 'y the corporation ha.ing aprior right Ang Mga 8aani# sa glesia ng (ios 8ay 8risto Hesus v. glesia ng (ios 8ay 8risto 5esus ,*62 SC8A !6! (211!%

he policy 'ehind Sec !) of Corporation Code, which e+pressly prohi'its the &se of a corporatename which is identical or dece"tively or confusingly similar to that of any eisting cor"oration or to anyother name already "rotected #y la$ or is "atently dece"tive% confusing or contrary to eisting la$s%0is

to a.oid fra&d &pon the p&'lic that will occasion to deal with the entity concerned, the e.asion of legalo'ligations and d&ties, and the red&ction of diffic&lties of administration and s&per.ision o.ercorporations ndustrial +efractories Cor". v. Court of A""eals, *$1 SC8A 2#2 (2112%*!

/ P;)%(' C$*;'(S'/. 142 *&3 42%he statement of the primary p&rpose in the articles of incorporation is means to protect

shareholders so they will /now the main '&siness of the corporation and file deri.ati.e s&its if thecorporation de.iates from the primary p&rpose 7y Siuliong v. (irector of Commerce and ndustry, "1Phil #"! (!$!$%

he 'est proof of the p&rpose of a corporation is its articles of incorporation and 'y:laws hearticles of incorporation m&st state the primary and secondary p&rposes of the corporation, while the 'y:laws o&tline the administrati.e organi3ation of the corporation, which, in t&rn, is s&pposed to ins&re orfacilitate the accomplishment of said p&rpose herefore, the allegation that the corporations were

organi3ed to illegally a.oid the pro.isions on land reform and to a.oid the payment of estate ta+es,constit&te prohi'ited collateral attac/ 6ala v. Ellice Agro)ndustrial Cor"., "!) SC8A "*! (211*%

3 C()%()*+' T')(S'/. 11%No e+tension of term can 'e effected once dissol&tion stage has 'een reached, as it constit&tes new

'&sinessAlham#ra Cigar v. SEC, 2" SC8A 27$ (!$7)%

Article 71# of Ci.il Code clearly limits any &s&fr&ct constit&ted in fa.or of a corporation orassociation to #1 years A &s&fr&ct is meant only as a lifetime grant =nli/e a nat&ral person, acorporation or associationBs lifetime may 'e e+tended indefinitely he &s&fr&ct wo&ld then 'e perpet&alhis is especially in.idio&s in cases where the &s&fr&ct gi.en to a corporation or association co.ersp&'lic land NHA v. Court of A""eals, "#7 SC8A !6 (211#%

' P)#&/#%*$ P$*/' (: ;#&'(S'/. 51%Altho&gh the 8&les of Co&rt do not pro.ide that when the plaintiff is a corporation, the complaint

sho&ld 'e filed in the location of its principal office as indicated in its articles of incorporation,&rispr&dence has, howe.er, settled that the place where the principal office of a corporation is located,as stated in the articles, indeed esta'lishes its residence his r&ling is important in determining the.en&e of an action 'y or against a corporation, as in the present case Hyatt Elevators and EscalatorsCor". v. 6oldstar Elevators% Phils.% nc., "6* SC8A 61# (211#%, citing 9LLAN=5A, PI9L9PP9N5CE8PE8A5LAW(!$$)%, p !72

Place of residence of the corporation is the place of its principal office Clavecilla +adio System v.Antillon, !$ SC8A *6$ (!$76%

he residence of its president is not the residence of the corporation 'eca&se a corporation has apersonality separate and distinct from that of its officers and stoc/holders Sy v. -yson Enter"rises% nc.,!!$ SC8A *76 (!$)2%

: M# C*%#+*$#*+#(&(S'/. 12%@)hy is ma&imum capitali8ation re?uired to %e indicated


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he power to adopt 'y:laws is an inherent power on the part of those forming a corporation or any otherform of association 3oongwei v. SC, 9 SCRA 1

As the r&les and reg&lations or pri.ate laws enacted 'y the corporation to reg&late, go.ern and controlits own actions, affairs and concerns and its stoc/holders or mem'ers and directors and officers withrelation thereto and among themsel.es in their relation to it, 'y:laws are indispensa'le to corporationshese may not 'e essential to corporate 'irth '&t certainly, these are re;&ired for an orderly go.ernanceand management of corporations *oyola 6rand >illas Homeo$ners v. CA% 267 SC8A 7)! (!$$6%

4y:laws hare traditionally defined as reg&lations, ordinances, r&les or laws adopted 'y an association

or corporation or the li/e for its internal go.ernance, incl&ding r&les for ro&tine matters s&ch as callingmeetings and the li/e 9f those /ey 'y:law pro.isions on matters s&ch as ;&or&m re;&irements, meetings,or on the internal go.ernance of the local?chapter are themsel.es already pro.ided for in the constit&tion,then it wo&ld 'e feasi'le to o.erloo/ the re;&irements for 'y:laws 9ndeed in s&ch an e.ent, to insist on thes&'mission of a separate doc&ment denominated as 4y:Laws wo&ld 'e an &nd&e technicality, as well asa red&ndancy San Miguel Cor". v. Mandaue Pac/ing Products Plants 7nion),,, "76 SC8A !16 (211#%.

* C((& L* L##+*+#(& (& illage Homeo$ners%*11 SC8A "7$ (!$$)%

##By-Law !rovisions Cannot Be ,nreasona%le or Be Contrary to the /ature of By-laws.

4y:laws are intended merely for the protection of the corporation, and prescri'e reg&lation, notrestrictions on property rights of stoc/holders0 they are always s&'ect to the charter of the corporation

+ural Ban/ of Salinas% nc. v. Court of A""eals, 2!1 SC8A #!1 (!$$2%

A&thority granted to a corporation to reg&late the transfer of its stoc/ does not empower thecorporation to restrict the right of a stoc/holder to transfer his shares, '&t merely a&thori3es theadoption of reg&lations as to the formalities and proced&re to 'e followed in effecting transfer -homsonv. Court of A""eals% 2$) SC8A 2)1 (!$$)%

###By-Law !rovisions Cannot 4iscriminate Among (ts Stocholders or 7em%ers

6 #&3#&7 E::'/+ (&


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* C$*#:#/*+#(& (: C()%()*+' P(') &press, (mplied, *&3 (ncidental

A corporation has only s&ch powers as are e+pressly granted to it 'y law and 'y its articles ofincorporation (e"ress "o$ers:, those which may 'e incidental to s&ch conferred powers, thosereasona'ly necessary to accomplish its p&rposes ( im"lied "o$ers% and those which may 'e incident toits e+istence as a &ridical entity (incidental "o$ers% Pili"inas *oan Co. v. SEC% *#7 SC8A !$* (211!%

6 W"')' C()%()*+' P(') L(37'3 (*)3 (: D#)'/+()KT);+''A corporation has no power e+cept those e+pressly conferred on it 'y the Corporation Code and

those that are implied or incidental to its e+istence 9n t&rn, a corporation e+ercises said powers thro&ghits 'oard of directors and?or its d&ly a&thori3ed officers and agents 9n t&rn, physical acts of thecorporation, li/e the signing of doc&ments, can 'e performed only 'y nat&ral persons d&ly a&thori3ed forthe p&rpose 'y corporate 'y:laws or 'y a specific act of the 'oard of directors Shi"side nc. v. Court of

A""eals, *#2 SC8A **" (211!%*2

2. E%)' P(')

* E&;')*+'3 P(') S'/. 8

6 E+'&3 () S"()+'& C()%()*+' T') (S'/. *&3 911%

/ I&/)'*' () D'/)'*' C*%#+*$ S+(/(S'/. 9%espite the 'oard resol&tion appro.ing the increase in capital stoc/ and the receipt of payment on

the f&t&re iss&es of the shares from the increased capital stoc/, s&ch f&nds do not constit&te part of the

capital stoc/ of the corporation &ntil appro.al of the increase 'y S5C Central -etile Mills% nc. v.NPC, 271 SC8A*7) (!$$7%

A red&ction of capital to &stify the mass layoff of employees, especially of &nion mem'ers, amo&ntsto nothing '&t a premat&re and plain distri'&tion of corporate assets to o'.iate a &st sharing to la'or ofthe .ast profits o'tained 'y its oint efforts with capital thro&gh the years, and wo&ld constit&te &nfairla'or practice Madrigal & Co. v. Famora, !#! SC8A *## (!$)6%

3 I&/;), C)'*+' () I&/)'*' (&3'3 I&3'6+'3&'(S'/. 9%

' S'$$ () D#%(' (: A'+(S'/. 40%

he property of the corporation is not the property of the stoc/holders or mem'ers, and as s&ch,may not 'e sold witho&t e+press a&thority from the 4oard of irectors *iton!ua v. Eternit Cor"., "$1SC8A 21" (2117%

Sale 'y 4oard of r&stees of the only corporate property witho&t compliance with Sec "1 re;&iringratification of mem'ers representing at least two:thirds of the mem'ership, wo&ld ma/e the sale n&lland .oid slamic (irectorate v. CA%262 SC8A "#" (!$$6%0 PeGa v. CA, !$* SC8A 6!6 (!$$!%

he Corporation Code defines a sale or disposition of s&'stantially all assets and property of acorporation as one 'y which the corporation wo&ld 'e rendered incapa'le of contin&ing the '&siness oraccomplishing the p&rpose for which it was incorporated V any sale or disposition short of this will notneed stoc/holder ratification, and may 'e p&rs&ed 'y the maority .ote of the 4oard of irectorsStrategic Alliance (ev. Cor". v. +adstoc/ Securities *td., 716 SC8A "!* (211$%

: I&@'+ C()%()*+' F;&3 :() N(&-P)#*)< P;)%(' E&3'*@() (S'/. 42%

9n.estment 'y a s&gar central in the e;&ity of a &te:'ag man&fact&ring company &sed in pac/ings&gar, falls within the implied powers of the s&gar central as part of its primary p&rpose and does notneed ratification 'y the stoc/holders 4e la 1ama v. 7a-ao Sugar Central Co., 2 SCRA 24 18

7 D'/$*)' D#@#3'&3(S'/. 4%i.idends from retained earnings can only 'e declared to those who are stoc/holders of the

corporation0 di.idends cannot 'e declared to creditors as part of the settlement of de'ts Nielson & Co.v. *e"anto Consolidated Mining Co, 27 SC8A #"1 (!$7)%

Stoc/ di.idend is the amo&nt that the corporation transfers from its s&rpl&s profit acco&nt to itscapital acco&nt 9t is the same amo&nt that can loosely 'e termed as the tr&st f&nd of the corporationN-C v. CA% *!! SC8A #1) (!$$$%

" M*&*7''&+ C(&+)*/+(S'/. 44%@ )hy the difference in rule %etween entity and individual


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A corporation organi3ed to engage as a lending in.estor cannot engage in pawn'ro/er Phili"inas *oanCo. v. SEC, *#7 SC8A !$* (211!%

A mining company has not power to engage in real estate de.elopment Heirs of Antonio Pael v. Courtof A""eals%*62 SC8A #)6 (211!%

An officer who is a&thori3ed to p&rchase the stoc/ of another corporation has implied power to performall other o'ligations arising therefrom s&ch as payment of the shares of stoc/ nter)Asia nvestmentsndustries v. Court of A""eals, "1* SC8A "#2 (211*%

4. I&/#3'&+*$ P(')As a creat&re of the law, the powers and attri'&tes of a corporation are those set o&t, e+pressly or

implied, in the law Among the general powers granted 'y law to a corporation is the power to s&e in its ownname his power is granted to a d&ly:organi3ed corporation, &nless s"ecifically re.o/ed 'y another law7male v. ASB +ealty Cor"., 7#2 SC8A 2!# (21!!%

he act of iss&ing chec/s is within the am'it of a .alid corporate act, for it as for sec&ring a loan tofinance the acti.ities of the corporation, hence, not an ultra viresactAtrium Management Cor". v. Court of

A""eals, *#* SC8A 2* (211!%

5. O+"') P(') S'/. 8

* S'$$ L*&3 *&3 O+"') P)(%')+#'

When the corporationBs primary p&rpose is to mar/et, distri'&te, e+port and import merchandise, thesale of land is not within the act&al or apparent a&thority of the corporation acting thro&gh its officers,

m&ch less when acting thro&gh the treas&rer Articles !)6" and !)6) of Ci.il Code re;&ires that whenland is sold thro&gh an agent, the agentBs a&thority m&st 'e in writing, otherwise the sale is .oid San5uan Structural v. CA, 2$7 SC8A 7*! (!$$)%**

6 ())( F;&3he power to 'orrow money is one of those cases where e.en a special power of attorney is

re;&ired &nder Art !)6) of Ci.il Code here is in.aria'ly a need of an ena'ling act of the corporationto 'e appro.ed 'y its 4oard of irectors he arg&ment that the o'taining of loan was in accordancewith the ordinary co&rse of '&siness &sages and practices of the corporation is de.oid of merit 'eca&sethe pre.ailing practice in the corporation was to e+plicitly a&thori3e an officer to contract loans in 'ehalfof the corporation China Ban/ing Cor". v. Court of A""eals, 261 SC8A #1* (!$$6%

/ P(') +( S;' *&3 ' S;'3=nder Sec *7 in relation to Sec 2* of Corporation Code, where a corporation is an in&red party, its

power to s&e is lodged with its 4oard of irectors A minority stoc/holder who is a mem'er of the 4oardhas no s&ch power or a&thority to s&e on the corporationBs 'ehalf -am ing -a/ v. Ma/asiar, *#1SC8A "6# (211!%*"

# P(') +( #&3 +"' C()%()*+#(& #& * S;#+When the power to s&e is delegated 'y the 'y:laws to a partic&lar officer, s&ch officer may appoint

co&nsel to represent the corporation in a pre:trial hearing witho&t need of a formal 'oard resol&tionCiti#an/% N.A. v. Chua%221 SC8A 6# (!$$*%

Jor co&nsel to sign the certification for the corporation, he m&st specifically 'e a&thori3ed 'y the4oard of irectors BP *easing Cor". v. CA, "!7 SC8A " (211*%0 Mariveles Shi"yard Cor". v. CA, "!#SC8A #6* (211*%

## C')+#:#/*+' (: N(&-F(); S"(%%#&7

9f the petitioner is a corporation, a 'oard resol&tion a&thori3ing a corporate officer to e+ec&te thecertification against for&m shopping is necessary-a certification not signed 'y a d&ly a&thori3ed personrenders the petition s&'ect to dismissal 6on'ales v. Clima Mining *td., "#2 SC8A 716 (211#%0*#s&chas the administrator or proect manager, Este#an% 5r. v. >da. de ?norio% *71 SC8A 2*1 (211!%0 or theHeneral alley (rug Cor". v. Commissioner of nternal +evenue , #"# SC8A !1 (211)% Mediserv% nc. v. Court of A""eals, 7!6 SC8A 2)"(21!1%0 Cosco Phili""ines Shi""ing% nc. v. 8em"er nsurance Com"any, 761 SC8A *"* (21!2%

2*


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A President, among other en&merated corporate officers and employees, can sign the .erificationand certification against non:for&m shopping in 'ehalf of the corporation witho&t the 'enefit of a 'oardresol&tion South Cota#ato Communications Cor". v. Sto. -omas, 7*) SC8A #77 (21!!%

### S')@#/' (: S;(& (& C()%()*+#(&

Section !!, 8&le !" of the !$$6 8&les of Ci.il Proced&re &ses the term general manager and &nli/ethe old pro.ision in the 8&les of Co&rt, it does not incl&de the term agent Conse;&ently, theen&meration of persons to whom s&mmons may 'e ser.ed is restricted, limited and e+cl&si.e following

the r&le on stat&tory constr&ction e"ressio unios est eclusion alterius. herefore, the earlier cases that&phold ser.ice of s&mmons &pon a constr&ction proect manager0*7a corporationBs assistant manager0*6

ordinary cler/ of a corporation0*)pri.ate secretary of corporate e+ec&ti.es0*$retained co&nsel0"1officialswho had charge or control of the operations of the corporation, li/e the assistant general manager0 "!orthe corporationBs Chief Jinance and Administrati.e Efficer0"2 no longer apply since they were decided&nder the old r&le that allows ser.ice of s&mmons &pon an agent "*of the corporation E.B. >illarosa &Partners Co.% *td. v. Benito, *!2 SC8A 7# (!$$$%

3 H#)' E%$(lason Enter"rises Cor". v. Court of A""eals% *!1 SC8A 27 (!$$$%"1

+e"u#lic v. 8er & Co.% *td.% !) SC8A 216 (!$77%"!

>illa +ey -ransit% nc. v. ,ar East Motor Cor"., )! SC8A 2$) (!$6)%"2

,ar Cor"oration v. ,rancisco% !"7 SC8A !$6 (!$)7%"*

,iloil Mar/eting Cor". v. Marine (ev. Cor". of the Phili""ines, !66 SC8A )7 (!$)2%

2"


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on the contrary, will accomplish a legal wrong to the pre&dice of another who acted in good faith Fomer(ev. Cor". v. nt2l Echange Ban/, #)! SC8A !!# (211$%

/ R*+#:#/*+#(& (: ,ltra 2iresA/+

Acts done 'y the 4oard of irectors which are ultra virescannot 'e set:aside if the acts ha.e 'eenratified 'y the stoc/holders !irovano v. 4e la 1ama Steamship Co.' (nc., 8 P"#$. 5 154

5.en when a partic&lar corporate act does not fall within the e+press or implied powers of thecorporation, ne.ertheless it will not 'e set aside when, not 'eing malum "rohi#itum, the corporation,

thro&gh its senior officers or its 4oard of irectors, are estopped from ;&estioning the legality of s&chact, contract or transaction Carlos v. Mindoro Sugar Co., #6 Phil *"* (!$*2%""

Acts done in e+cess of corporate officersB scope of a&thority cannot 'ind the corporation Iowe.er,when s&'se;&ently a compromise agreement was on 'ehalf of the corporation 'eing represented 'y itsPresident acting p&rs&ant to a 4oard of irectorsB resol&tion, s&ch constit&ted as a confirmatory actsignifying ratification of all prior acts of its officers NPC v. Alon'o)*egasto, ""* SC8A *"2 (211"%

>. DIRECTORS, TRUSTEES AND OFFICERS4oard of irectors is the 'ody which (!% e+ercises all powers pro.ided for &nder the Corporation Code0

(2% cond&cts all '&siness of the corporation0 and (*% controls and holds all property of the corporation 9tsmem'ers ha.e 'een characteri3ed as tr&stees or directors clothed with a fid&ciary character 9t is clearlyseparate and distinct from the corporate entity itself Hornilla v. Salunat, "1# SC8A 221 (211*%

1. DOCTRINEOFCENTRALIEDMANAGEMENTP(') (: (*)3 (: D#)'/+() (S'/. 2%Section 2* e+pressly pro.ides that the corporate powers of all corporations shall 'e e+ercised 'y the

4oard of irectors G&st as a nat&ral person may a&thori3e another to do certain acts in his 'ehalf, so maythe 4oard of irectors .alidly delegate some of its f&nctions to indi.id&al officers or agents appointed 'y ith&s, contracts or acts of a corporation m&st 'e made either 'y the 4oard of irectors or 'y a corporateagent d&ly a&thori3ed 'y the 'oard A'sent s&ch .alid delegation?a&thori3ation, the r&le is that thedeclarations of an indi.id&al director relating to the affairs of the corporation, '&t not in the co&rse of, orconnected with the performance of a&thori3ed d&ties of s&ch director, are held not 'inding on thecorporation Manila Metal Container Cor". v. PNB, #!! SC8A """ (2117%"#

A .er'al promise gi.en 'y the Chairman and President of the company to the general manager andchief operating officer to gi.e the latter &nlimited sic/ lea.e and .acation lea.e 'enefits and its cashcon.ersion &pon his retirement or resignation, when not an integral part of the companyBs r&les andpolicies, is not 'inding on the company when it is witho&t the appro.al of the 4oard of irectors 8$o/ v.Phili""ine Car"et Manufacturing Cor"., "#6 SC8A "7# (211#%

* 1ationale for 5Centrali8ed 7anagement6 4octrine@

he raison d2etre 'ehind the conferment of corporate powers on the 4oard of irectors is not lost onthe Co&rt V indeed, the concentration in the 4oard of the powers of control of corporate '&siness andappointment of corporate officers and managers is necessary for efficiency in any large organi3ationStoc/holders are too n&mero&s, scattered and &nfamiliar with the '&siness of a corporation to cond&ctits '&siness directly And so the plan of corporate organi3ation is for the stoc/holders to choose thedirectors who shall control and s&per.ise the cond&ct of corporate '&siness ilipinas !ort Services

v. 3o, 519 SCRA 45 200A corporation is an artificial 'eing and can only e+ercise its powers and transact its '&siness thro&ghthe instr&mentalities of its 4oard of irectors, and thro&gh its officers and agents, when a&thori3ed 'yresol&tion or 'y its 'y:laws Conse;&ently, when legal co&nsel was clothed with a&thority thro&gh formal'oard resol&tion, his acts 'ind the corporation which m&st 'e held 'o&nd the act&ations of its co&nsel ofrecord (e *iano v. Court of A""eals, *61 SC8A *"$ (211!%

he physical acts of the corporation, li/e the signing of doc&ments, can 'e performed only 'ynat&ral persons d&ly a&thori3ed for the p&rpose 'y corporate 'y:laws or 'y a special act of the 'oard ofdirectors ,irme v. Bu/al Enter"rises and (ev. Cor"., "!" SC8A !$1 (211*%0 Shi"side nc. v. Court of

A""eals, *#2 SC8A **" (211!%

6 T"'()#' (& S(;)/' (: (*)3 P(') (elegated Po$ers Coming from the Stoc/holders@ he 4oard of irectors is a creation of the

stoc/holders and controls and directs the affairs of the corporation 'y delegation of the stoc/holders 4ydrawing themsel.es the powers of the corporation, they occ&py positions of tr&steeship in relation to thestoc/holders Angeles v. Santos, 84 P"#$. 8 1

Ene of the most important rights of a ;&alified shareholder or mem'er is the right to .ote for thedirectors or tr&stees who are to manage the corporate affairs he right to choose the persons who willdirect, manage and operate the corporation is significant, 'eca&se it is the main way in which astoc/holder can ha.e a .oice in the management of corporate affairs, or in which a mem'er in a

""+e"u#lic v. Aco!e Mining Co., * SC8A *7! (!$7*%0 Crisologo 5ose v. Court of A""eals, !66 SC8A #$" (!$)$%

"#u Chuc/ v. 18ong *i Po, "7 Phil 71), 7!" (!$2"%0 6am#oa v. >ictoriano, $1 SC8A "1 (!$6$%0 +eyes v. +CP Em"loyees Credit 7nion% nc. ,

"$$ SC8A *!$ (2117%0 asuma v. Heirs of Cecilio S. (e >illa , "$$ SC8A "77 (2117%0 +aniel v. 5ochico, #!6 SC8A 22! (2116%0 +e"u#lic v.Coal#rine nternational, 7!6 SC8A "$! (21!1%

2#


26/59

nonstoc/ corporation can ha.e a say on how the p&rposes and goals of the corporation may 'eachie.ed Ence the directors or tr&stees are elected, the stoc/holders or mem'ers relin;&ish corporatepowers to the 'oard in accordance with law Tan v. Sycip, 4 SCRA 218 2008

/ (*)3 M;+ A/+ A * (3


27/59

li/ewise necessary to show that the directors and?or officers acted in 'ad faith and with malice in doingthe assailed acts 4ad faith does not simply connote 'ad &dgment or negligence0 it imports a dishonestp&rpose or some moral o'li;&ity and conscio&s doing of a wrong, a 'reach of a /nown d&ty thro&ghsome moti.e or interest or ill:will parta/ing of the nat&re of fra&d ,ili"inas Port Services% nc. v. 6o, #!)SC8A "#* (2116%

. COUNTER-VEILINGDOCTRINESTOPROTECTCORPORATECONTRACTS

*. T"'()< (: stoppel() R*+#:#/*+#(&he principle of estoppel precl&des a corporation and its 4oard of irectors from denying the .alidity

of the transaction entered into 'y its officer with a third party who in good faith, relied on the a&thority ofthe former as manager to act on 'ehalf of the corporation Lipat v. !acific Baning Corp.' 402SCRA 200.

9n order to ratify the &na&thori3ed act of an agent and ma/e it 'inding on the corporation, it m&st 'eshown that the go.erning 'ody or officer a&thori3ed to ratify had f&ll and complete /nowledge of all thematerial facts connected with the transaction to which it relates 8atification can ne.er 'e made on thepart of the corporation 'y the same person who wrongf&lly ass&me the power to ma/e the contract, '&tthe ratification m&st 'e 'y the officer or go.erning 'ody ha.ing a&thority to ma/e s&ch contract >icentev. 6eralde', #2 SC8A 2!1 (!$6*%

he admission 'y co&nsel on 'ehalf of the corporation of the latterBs c&lpa'ility for personal loanso'tained 'y its corporate officers cannot 'e gi.en legal effect when the admission was witho&t any

ena'ling act or attendant ratification of corporate act, as wo&ld a&thori3e or e.en ratify s&ch admission9n the a'sence of s&ch ratification or a&thority, s&ch admission does not 'ind the corporation Aguen'av. Metro"olitan Ban/ and -rust Co.% 26! SC8A ! (!$$6%

Per its SecretaryBs Certificate, the fo&ndation had gi.en its President ostensi'le and apparenta&thority to inter aliadeal with the respondent 4an/, and therefore the fo&ndation is estopped from;&estioning the PresidentBs a&thority to o'tain the s&'ect loans from the respondent 4an/ *a"ula"u,oundation% nc.% v. Court of A""eals, "2! SC8A *2) (211"%

When an officer in a 'an/ing corporation arrange a credit line agreement and forwards the same tothe legal department at its head officer, and the 'an/ did no disaffirm the contract, then it is 'o&nd 'y itPremier (ev. Ban/ v. Court of A""eals, "26 SC8A 7)7 (211"%

he acceptance of the offer to p&rchase 'y the cler/ of the 'ranch of the 'an/, and therepresentation that the manager had already appro.ed the sale (which in fact was not tr&e%, cannot 'indthe 'an/ to the contract of sale, it 'eing o'.io&s that s&ch a cler/ is not among the 'an/ officers &pon

whom p&tati.e a&thority may 'e reposed 'y a third party here is, th&s, no legal 'asis to 'ind the 'an/into any .alid contract of sale with the '&yers, gi.en the a'sol&te a'sence of any appro.al or consent 'yany responsi'le officer of the 'an/ (BP v. ?ng, "71 SC8A !61 (211#%

=nder Article !$!1 of the New Ci.il Code, acts done 'y s&ch officers 'eyond the scope of theira&thority cannot 'ind the corporation &nless it has ratified s&ch acts e+pressly or tacitly, or is estoppedfrom denying them h&s, contracts entered into 'y corporate officers 'eyond the scope of a&thorityare &nenforcea'le against the corporation &nless ratified 'y the Corporation )oodchild *oldings'

(nc. v. 1o&as lectric Constructions Co.' (nc., 48 SCRA 25 2004

Acts done in e+cess of corporate officersB scope of a&thority cannot 'ind the corporation Iowe.er,when s&'se;&ently a compromise agreement was on 'ehalf of the corporation 'eing represented 'y itsPresident acting p&rs&ant to a 4oard of irectorsB resol&tion, s&ch constit&ted as a confirmatory actsignifying ratification of all prior acts of its officers National Po$er Cor". v. Alon'o)*egasto, ""* SC8A

*"2 (211"%6. D(/+)#&' (: L*/"' () =Stale 4emands?

he principle of laches or stale demands pro.ides that the fail&re or neglect, for an &nreasona'leand &ne+plained length of time, to do that which 'y e+ercising d&e diligence co&ld or sho&ld ha.e 'eendone earlier, or the negligence or omission to assert a right within a reasona'le time, warrants apres&mption that the party entitled to assert it either has a'andoned it or declined to assert it +ovelsEnter"rises% nc. v. ?cam"o, *$! SC8A !67 (2112%

/. D(/+)#&' (: A%%*)'&+ A;+"()#+


28/59

he a&thority of a corporate officer dealing with third persons may 'e act&al or apparent theprincipal is lia'le for the o'ligations contracted 'y the agent he agentB apparent representation yieldsto the principalRs tr&e representation and the contract is considered as entered into 'etween theprincipal and the third person ,irst Phili""ine nt2l Ban/ v. Court of A""eals, 2#2 SC8A 2#$ (!$$7%

Persons who deal with corporate agents within circ&mstances showing that the agents are acting ine+cess of corporate a&thority, may not hold the corporation lia'le -raders +oyal Ban/ v. Court of

A""eals, 27$ SC8A 71! (!$$6%

Apparent a&thority may 'e ascertained thro&gh (!% the general manner in which the corporation

holds o&t an officer or agent as ha.ing the power to act, or, in other words the apparent a&thority to actin general with which is clothes them0 or (2% the ac;&iescence in his acts of a partic&lar nat&re, withact&al or constr&cti.e /nowledge thereof, within or 'eyond the scope of his ordinary powers nter)Asianvestment ndustries v. Court of A""eals%"1* SC8A "#2 (211*%

he general r&le remains that, in the a'sence of a&thority from the 4oard of irectors, no person, note.en its officers, can .alidly 'ind a corporation 9f a corporation, howe.er, conscio&sly lets one of itsofficers, or any other agent, to act within the scope of an apparent a&thority, it will 'e estopped fromdenying s&ch officerBs a&thority =nmista/a'ly, the Co&rtBs directi.e in ao 8a Sin -rading is that acorporation sho&ld first pro.e 'y clear e.idence that its corporate officer is &(+ in fact a&thori3ed to acton its 'ehalf %eforethe '&rden of e.idence shifts to the other party to pro.e, 'y pre.io&s specific acts,that an officer was clothes 'y the corporation with apparent a&thority )estmont Ban v. (nland

Construction and 4ev. Corp., 592 SCRA 20 200

+ationale for the (octrine of A""arent Authority@ Nat&rally, the third person has little or noinformation as to what occ&rs in corporate meeting0 and he m&st necessarily rely &pon the e+ternalmanifestations of corporate consent he integrity of commercial transactions can only 'e maintained 'yholding the corporation strictly to the lia'ility fi+ed &pon it 'y its agents in accordance with law Whattranspires in the corporate 'oard room is entirely an internal matter Ience, petitioner may not imp&tenegligence on the part of the respondents in failing to find o&t the scope of Atty Sol&taBs a&thority9ndeed, the p&'lic has the right to rely on the tr&stworthiness of 'an/ officers and their acts

Associated Ban v. !ronstroller, 559 SCRA 11 2009

4. ;*$#:#/*+#(& (: D#)'/+()KT);+''(S'/. 2 *&3 2%

he ;&alifications pro.ided for in the law are only minim&m ;&alifications0 additional ;&alifications anddis;&alifications can 'e pro.ided for '&t only 'y proper pro.isions in the 'y:laws of the corporation

3oongwei' r. v. SC, 9 SCRA 8 1

A director m&st own at least one share of stoc/ PeGa v. CA, !$* SC8A 6!6 (!$$!%

"6

4eneficial ownership &nder A no longer ;&alifies as a director owning at least one share of stoc/ inhis name Lee v. CA, 205 SCRA 52 12

he law does not re;&ire that a ice:President 'e a stoc/holder Baguio v. Court of A""eals, 227 SC8A*77 (!$$*%

5. E$'/+#(& (: D#)'/+() *&3 T);+''

*. D#)'/+() S'/. 24 *&3 28%A 'y:law pro.ision or company practice of gi.ing a stoc/holder a permanent seat in the 4oard wo&ld

'e against the pro.isions of Corporation Code which re;&ires mem'er of the 'oard of corporations to 'eelected 6race Christian High School v. Court of A""eals% 2)! SC8A !** (!$$6%

Since &nder Sec 27 all corporations are mandated to s&'mit a formal report to the S5C on thechanges in their directors and officers, then only those directors and officers appearing in s&ch report(Heneral 9nformation Sheet% to the S5C are deemed legally constit&ted to 'ind the corporation,especially in the 'ringing of s&its in 'ehalf of the corporation Premium Mar#le +esources v. CA% 27"SC8A !! (!$$7%

Corporations are re;&ired &nder Section 27 to s&'mit to the S5C within thirty (*1% days after theelection the names, nationalities, and residences of the directors, tr&stees and officers of theCorporation 9n order to /eep stoc/holders and the p&'lic transacting '&siness with domesticcorporation properly informed of their organi3ation operational stat&s, the S5C has iss&ed the r&lere;&iring the filing of the Heneral 9nformation Sheet When the names of some of the directors whosigned the 'oard resol&tion does not appear in the Heneral 9nformation Sheet filed with the S5C, thenthere is do&'t whether they were indeed d&ly elected mem'ers of the 4oard legally constit&ted to 'rings&it in 'ehalf of the Corporation 7onfort *ermanos Agricultural 4ev. Corp. v. 7onfort (((, 44SCRA 2 2004

he &nderlying policy of the Corporation Code is that the '&siness and affairs of a corporation m&st'e go.erned 'y a 'oard of directors whose mem'ers ha.e stood for election, and who ha.e act&ally'een elected 'y the stoc/holders, on an ann&al 'asis Enly in that way can the directorsB contin&edacco&nta'ility to the shareholders, and the legitimacy of their decisions that 'ind the corporationBsstoc/holders, 'e ass&red he shareholder .ote is critical to the theory that legitimi3es the e+ercise ofpower 'y the directors or officers o.er properties that they do not own 2alle 2

2014 corporate law outline

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