Corporation Code Reviewer Villanueva

Corporation Code reviewer
(Villanueva)
Nursing (Holy Trinity University)
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OUTLINE ON PHILIPPINE Atty. CESAR L.
VILLANUEVA CORPORATE LAW1
I. HISTORICAL BACKGROUND
1. The Philippine Corporate Law:2 Sort of Codification of American Corporate
Law
When the Philippines came under American sovereignty, attention was drawn to
the fact that there was no entity in Spanish law exactly corresponding to the notion
"corporation" in English and American law; the Philippine Commission enacted the
Corporation Law (Act No. 1459), to introduce the American corporation into the
Philippines as the standard commercial entity and to hasten the day when the
sociedad anónima of the Spanish law would be obsolete. The statute is a sort of
codification of American Corporate Law. xHarden v. Benguet Consolidated Mining Co.,
58 Phil. 141 (1933).
2. The Corporation Law

The first corporate statute, the Corporation Law, or Act No. 1459, became
effective on 1 April 1906. It had various piece-meal amendments during its 74 year
history. It rapidly became antiquated and not adapted to the changing times.
3. The Corporation Code

The present Corporation Code, or Batas Pambansa Blg. 68, became effective on 1
May 1980. It adopted various corporate doctrines enunciated by the Supreme Court under
the old Corporation Law. It clarified the obligations of corporate directors and officers,
expressed in statutory language established principles and doctrines, and provided for a
chapter on close corporations.
4. Proper Treatment of Philippine Corporate Law

Philippine Corporate Law comes from the common law system of the United
States. Therefore, although we have a Corporation Code that provides for statutory
principles, Corporate Law is essentially, and continues to be, the product of commercial
developments. Much of this development can be expected to happen in the world of
commerce, and some expressed jurisprudential rules that try to apply and adopt
corporate principles into the changing concepts and mechanism of the commercial
world.
II. CONCEPTS
See opening paragraphs of VILLANUEVA, Corporate Contract Law,
38 ATENEO
L.J. 1 (No. 2, June 1994).
1. Definition (Section 2; Articles 44(3), 45, 46, and 1775, Civil Code).
2. Tri-Level Existence of Corporation
(a) Aggregation of Assets and Resources
(b) Business Enterprise or Economic Unit
(c) Juridical Entity
3. Relationships Involved in Corporate Setting

(a) Juridical Entity Level, which views the State-corporations relationship
(b) Contractual Relationship Level, which considers that the corporate setting is
at once a contractual relationship on four (4) levels:
- Between the corporation and its agents or representatives to act in the
real world, such as its directors and its officers, which is governed
also by the Law on Agency;
- Between the corporation and its shareholders or members;
- Between and among the shareholders in a common venture; and
- Between the corporation and third-parties or "outsiders", which is
essentially governed by Contract Law.
4. Theories on Formation of Corporation:

(a) Theory of Concession (Tayag v. Benguet Consolidated Inc., 26 SCRA 242 [1968])
1
Unless otherwise indicated, all references to sections pertain to The Corporation Code of the Philippines.
2
The whole body of statutory and jurisprudential rules pertaining to corporations is referred to as "Corporate Law"
to differentiate it from the old statute known as "The Corporation Law," or Act No. 1459.

2
To organize a corporation 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 (x-cf. Ang Pue & Co. v. Sec. of Commerce and Industry, 5 SCRA 645
[1962]).
Before a corporation may acquire juridical personality, the State must give its
consent either in the form of a special law or a general enabling act, and the
procedure and conditions provided under the law for the acquisition of such juridical
personality must be complied with. The failure to comply with the statutory procedure
and conditions does not warrant a finding that such association achieved the
acquisition of a separate juridical personality, even when it adopts sets of
constitution and by-laws. xInternational Express Travel & Tour Services, Inc. v.
Court of Appeals, 343 SCRA 674 (2000).
Since all corporations, big or small, must abide by the provisions of the
Corporation Code, then even a simple family corporation cannot claim an exemption
nor can it have rules and practices other than those established by law. xTorres v.
(b) Theory of Enterprise Entity (BERLE, Theory of Enterprise Entity, 47 COL. L. REV. 343
[1947])
Corporations are composed of natural persons and the legal fiction of a
separate corporate personality is not a shield for the commission of injustice and
inequity, such as the use of separate personality to avoid the execution of the
property of a sister company. xTan Boon Bee & Co., Inc. v. Jarencio, 163 SCRA 205
(1988).
A corporation is but an association of individuals, allowed to transact under an
assumed corporate name, and with a distinct legal personality. In organizing itself as
a collective body, it waives no constitutional immunities and perquisites appropriate
to such a body. xPhilippine Stock Exchange, Inc. v. Court of Appeals, 281 SCRA 232
(1997).
5. Four Attributes of Corporation from Statutory Definition:

(a) A corporation is an artificial being
(b) Created by operation of law
(c) With right of succession
(d) Only has powers, attributes and properties expressly authorized by law or
incident to its existence
6. Advantages and Disadvantages of Corporate Form:

(a) Four Basic Advantageous Characteristics of Corporate Organization:
(i) Strong Legal Personality
- Entity attributable powers
- Continuity of existence
- Purpose
The corporation was evolved to make possible the aggregation and

assembling of huge amounts of capital upon which big business depends;
and has the advantage of non-dependence on the lives of those who
compose it even as it enjoys certain rights and conducts activities of natural
persons. Reynoso, IV v. Court of Appeals,
G.R. No. 116124-25, 22 November 2000.
(ii) Centralized Management.
(iii) Limited Liability to Investors
One advantage of a corporate business organization is the limitation of
an investor’s liability to the amount of the investment, which flows from the legal
theory that a corporate entity is separate and distinct from its stockholders.
xSan Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, 296 SCRA
631, 645 (1998).
(iv) Free Transferability of Units of Ownership for Investors
(b) Disadvantages:
(i) Abuse of corporate management
(ii) Abuse of limited liability feature
(iii) Cost of maintenance
(iv) Double taxation

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Dividends received by individuals from domestic corporations are subject
to final 10% tax (Sec. 24(B)(2), NIRC of 1997) for income earned on or after 1
January 1998. Inter-corporate dividends between domestic corporations,
however, are not subject to any income tax (Sec. 27(D)(4), NIRC of 1997).

4
In addition, there has been a re-imposition of the “improperly
accumulated earnings tax,” under Section 29 of the NIRC of 1997 for
corporations at the rate of 10% annually.
7. Compared With Other Media of Business Endeavors

- Distribution of Risk, Profit and Control
(a) Sole Proprietorships
(b) Business Trusts (Article 1442, Civil Code)
(c) Partnerships and Other Associations (Arts. 1768 and 1775, Civil Code)
- Can a defective attempt o form a corporation result at least in the
formation of a partnership? Pioneer Insurance v. Court of Appeals, 175
SCRA 668 (1989).
(d) Joint Ventures
Joint venture is defined as an association of persons or companies jointly
undertaking some commercial enterprise; generally all contribute assets and share
risks. It requires a community of interest in the performance of the subject matter, a
right to direct and govern the policy in connection therewith, and duty, which may
be altered by agreement to share both in profit and losses. the acts of working together
in a joint project. xKilosbayan, Inc. v. Guingona, Jr., 232 SCRA 110, 143 (1994), citing
BLACK’S LAW DICTIONARY, Sixth ed., 839.
(e) Cooperatives (Art. 3, R.A. No. 6938)
(f) Sociedades Anónimas
A sociedad anónima was considered a commercial partnership, a sort of a
corporation, “where upon the execution of the public instrument in which its articles of
agreement appear, and the contribution of funds and personal property, becomes a
juridical person—an artificial being, invisible, intangible, and existing only in
contemplation of law—with power to hold, buy, and sell property, and to sue and
be sued—a corporation—not a general copartnership nor a limited copartnership . . .
The inscribing of its articles of agreement in the commercial register was not necessary
to make it a juridical person—a corporation. Such inscription only operated to show
that it partook of the form of a commercial corporation.” xMead v. McCullough, 21 Phil.
95,106 (1911).
The sociedades anónimas were introduced in Philippine jurisdiction on 1
December 1888 with the extension to Philippine territorial application of Articles
151 to 159 of the Spanish Code of Commerce. Those articles contained the features of
limited liability and centralized management granted to a juridical entity. But they
were more similar to the English joint stock companies than the modern
commercial corporations. xBenguet Consolidated Mining Co. v. Pineda, 98 Phil. 711
(1956)
Our Corporation Law recognizes the difference between sociedades anónimas and
corporations and will not apply legal provisions pertaining to the latter to the former
xPhil. Product Co. v. Primateria Societe Anonyme, 15 SCRA 301 (1965).
(g) Cuentas En Participacion

A cuentas en participacion as a sort of an accidental partnership constituted in
such a manner that its existence was only known to those who had an interest in
the same, there being no mutual agreement between the partners, and without a
corporate name indicating to the public in some way that there were other people
besides the one who ostensibly managed and conducted the business, governed
under article 239 of the Code of Commerce.
Those who contract with the person under whose name the business of such
partnership of cuentas en participacion is conducted, shall have only a right of
action against such person and not against the other persons interested, and the
latter, on the other hand, shall have no right of action against third person who
contracted with the manager unless such manager formally transfers his right to
them. xBourns v. Carman, 7 Phil. 117 (1906).
III. NATURE AND ATTRIBUTES OF A CORPORATION

1. Nature of Power to Create a Corporation (Sec. 16, Article XII, 1987 Constitution)
2. Corporation as a Person:
(a) Entitled to due process
The due process clause is universal in its application to all persons without
regard to any differences of race, color, or nationality. Private corporations,
likewise, are "persons" within the scope of the guaranty insofar as their property is
concerned." xSmith Bell & Co. v. Natividad, 40 Phil. 136, 144 (1920).
5
(b) Equal protection clause (xSmith Bell & Co. v. Natividad, 40 Phil. 136 [1920]).
(c) Unreasonable Searches and Seizure

6
Corporations are protected by the constitutional guarantee against
unreasonable searches and seizures, but that the officers of a corporation from
which documents, papers and things were seized have no cause of action to assail
the legality of the seizures, regardless of the amount of shares of stock or of the
interest of each of them in said corporation, and whatever the offices they hold
therein may be, because the corporation has a personality distinct and separate from
those of said officers. The legality of a seizure can be contested only by the party
whose rights have been impaired thereby; and the objection to an unlawful search
is purely personal and cannot be availed of by such officers of the corporation who
interpose it for their personal interests. xStonehill v. Diokno, 20 SCRA 383 (1967).
A corporation is but an association of individuals under an assumed name and
with a distinct legal entity. In organizing itself as a collective body it waives no
constitutional immunities appropriate for such body. Its property cannot be taken
without compensation; can only be proceeded against by due process of law; and is
protected against unlawful discrimination. xBache & Co. (Phil.), Inc. v. Ruiz, 37 SCRA
823, 837 (1971), quoting from xHale v. Henkel, 201 U.S. 43, 50 L.Ed. 652.
(d) But a corporation is not entitled to privilege against self incrimination

“It is elementary that the right against self-incrimination has no application to
juridical persons.” Bataan Shipyard & Engineering Co v. PCGG, 150 SCRA 181, 234-
235 (1987).
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 privilege. xHale v. Henkel, 201 U.S. 43 (1906); xWilson v. United
States, 221 U.S. 361 (1911);
xUnited States v. White, 322 U.S. 694 (1944).
3. Liability for Torts

A corporation is civilly liable in the same manner as natural persons for torts, because
generally speaking, the rules governing the liability of a principal or master for a tort
committed by an agent or servant are the same whether the principal or master be a
natural person or a corporation, and whether the servant or agent be a natural or
artificial person. That a principal or master is liable for every tort which he expressly
directs or authorizes, is just as true of a corporation as a natural person. PNB v. CA, 83
SCRA 237 (1978).
Our jurisprudence is wanting as to the definite scope of “corporate tort.” Essentially,
“tort” consists in the violation of a right given or the omission of a duty imposed by law.
Simply stated, tort is a breach of a legal duty. When it was found that Clark Field Taxi
failed to comply with the obligation imposed under Article 283 of the Labor Code which
mandates that the employer to grant separation pay to employees in case of closure
or cessation of operations of establishments or undertaking not due to serious
business losses or financial reverses; consequently, its stockholder who was actively
engaged in the management or operation of the business should be held personally
liable. xSergio F. Naguiat v. NLRC, 269 SCRA 564 (1997).
As a general rule, a banking corporation is liable for the wrongful or tortuous acts and
declarations of its officers or agents within the course and scope of their employment.
A bank will be held liable for the negligence of its officers or agents when acting within the
course and scope of their employment, even as regards that species of tort of which
malice is an essential element. In this case, we find a situation where the PCIBank appears
also to be the victim of the scheme hatched by a syndicate in which its own management
employees had participated. Philippine Commercial International Bank vs. Court of
Appeals, G.R. No. 121413, 29 January 2001.
4. Criminal Liability of a Corporation (West Coast Life Ins. Co. v. Hurd, 27 Phil. 401
(1914); People v. Tan Boon Kong, 54 Phil. 607 [1930]; Sia v. CA, 121 SCRA 655 [1983];
Articles 102 and 103, Revised Penal Code).
No criminal suit can lie against an accused who is a corporation. xTimes, Inc. v.
Reyes, 39 SCRA 303 (1971).
When a criminal statute forbids the corporation itself from doing an act, the
prohibition extends to the board of directors, and to each director separately and
individually. xPeople v. Concepcion, 44 Phil. 129 (1922).
5. Recovery of Moral Damages and Other Damages

A corporation, being an artificial person, cannot experience physical sufferings,
mental anguish, fright, serious anxiety, wounded feelings, moral shock or social
humiliation which are basis for moral damages under Art. 2217 of the Civil Code.
However, a corporation may have a good reputation which, if besmirched, may be a
ground for the award of moral damages. xMambulao Lumber Co. v. Philippine National
Bank, 22 SCRA 359 (1968).
7
Even when the corporation's reputation and goodwill have been prejudiced,
"there can be no award for moral damages under Article 2217 and succeeding articles
of Section 1 of Chapter

8
3 of Title XVIII of the Civil Code in favor of a corporation." xPrime White Cement Corp.
vo Intermediate Appellate Court, 220 SCRA 103, 113-114 (1993).
Moral damages are granted in recompense for physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. A corporation, being an artificial person and having
existence only in legal contemplation, has no feelings, no emotions, no senses; therefore,
it cannot experience physical suffering and mental anguish. Mental suffering can be
experienced only by one having a nervous system and it flows from real ills, sorrows, and
griefs of life—all of which cannot be suffered by respondent bank as an artificial person.
xLBC Express, Inc. v. Court of Appeals, 236 SCRA 602 (1994); xAcme Shoe, Rubber &
Plastic Corp. v. Court of Appeals, 260 SCRA 714 (1996); xSolid Homes, Inc. v. Court of
Appeals, 275 SCRA 267 (1997).
In Asset Privatization Trust v. Court of Appeals, 300 SCRA 579 (1998), the Supreme
Court seemed to have gone back to the original doctrine that “[u]nder Article 2217 of the
Civil Code, moral damages include besmirched reputation which a corporation may
possibly suffer.”
The award of moral damages cannot be granted in favor of a corporation
because, being an artificial person and having existence only in legal contemplation, it
has no feelings, no emotions, no senses. It cannot, therefore, experience physical
suffering and mental anguish, which can be experienced only by one having a nervous
system. The statement in People v. Manero [218 SCRA 85 (1993)] and Mambulao
Lumber Co. v. PNB [130 Phil. 366 (1968)], that a corporation may recover moral damages
if it “has a good reputation that is debased, resulting in social humiliation” is an obiter
dictum. . .” The possible basis of recovery of a corporation would be under Articles 19,
20 and 21 of the Civil Code, but which requires a clear proof of malice or bad faith.
xABS-CBN Broadcasting Corp. v. Court of Appeals, 301 SCRA 589 (1999).
While it is true that a criminal case can only be filed against the officers of a
corporation and not against the corporation itself, it does not follow from this, however,
that the corporation cannot be a real-party-in-interest for the purpose of bringing a
civil action for malicious prosecution for the damages incurred by the corporation for the
criminal proceedings brought against its officer. xCometa v. Court of Appeals, 301
SCRA 459 (1999).
6. Nationality of Corporation: COUNTRY UNDER WHOSE LAWS INCORPORATED (Sec. 123).

Exceptions: The TEST OF CONTROLLING OWNERSHIP Applies In:
(a) Exploitation of Natural Resources (Sec. 140; Sec. 2, Article XII, 1987
Constitution; Roman Catholic Apostolic Administrator of Davao, Inc. v. The LRC and
the Register of Deeds of Davao, 102 Phil. 596 [1957]).
The donation of land to an unincorporated religious organization, whose trustees
are foreigners, cannot be allowed registration for being violation of the constitutional
prohibition and it would not be violation of the freedom of religion clause. The fact that
the religious association “has no capital stock does not suffice to escape the
constitutional inhibition, since it is admitted that its members are of foreign
nationality. The purpose of the sixty per centum requirement is obviously to ensure
that corporations or associations allowed to acquire agricultural land or to exploit
natural resources shall be controlled by Filipinos; and the spirit of the Constitution
demands that in the absence of capital stock, the controlling membership should be
composed of Filipino citizens.” xRegister of Deeds of Rizal v. Ung Sui Si Temple, 97 Phil.
58 (1955)
(b) Public Utilities (Sec. 11, Article XII, 1987 Constitution; People v. Quasha, 93
Phil. 333 [1953]).
The primary franchise of a corporation, that is, the right to exist as such, is vested
in the individuals who compose the corporation and not in the corporation itself and
cannot be conveyed in the absence of a legislative authority so to do. But the special or
secondary franchises of a corporation are vested in the corporation and may ordinarily
be conveyed or mortgaged under a general power granted to a corporation to dispose
of its property, except such special or secondary franchises as are charged with a
public use. xJ.R.S. Business Corp.
v. Imperial Insurance, 11 SCRA 634 (1964).
The Constitution, in no uncertain terms, requires a franchise for the operation
of a public utility; however, it does not requires a franchise before one can own the
facilities needed to operate a public utility so long as it does not operate them to
serve the public. In law there is a clear distinction between the "operation" of a public
utility and the ownership of the facilities and equipment used to serve the public.
Tatad v. Garcia, Jr., 243 SCRA 436 (1995)
“A distinction should be made between shares of stock, which are owned by
stockholders, the sale of which requires only NTC approval, and the franchise itself
9
which is owned by the corporation as the grantee thereof, the sale or transfer of which
requires Congressional sanction. Since stockholders own the shares of stock, they may
dispose of the same as they see fit. They may not, however, transfer or assign the
property of a corporation, like its franchise. In other words, even if the original
stockholders had transferred their shares

10
to another group of shareholders, the franchise granted to the corporation
subsists as long as the corporation, as an entity, continues to exist. The franchise
is not thereby invalidated by the transfer of the shares. A corporation has a
personality separate and distinct from that of each stockholder. It has the right of
continuity or perpetual succession Corporation Code, Sec. 2).” Philippine Long Distance
Telephone Co. v. National Telecommunications Commission, 190 SCRA 717, 732
(1990).
(c) Mass Media (Sec. 11(1), Art. XVI, 1987 Constitution)
Sources: P.D. 36, as amended by PDs 191 and 197; DOJ Opinion No. 120, s. of
1982; Section 2, P.D. 576; SEC Opinion dated 24 March 1983; DOJ Opinion 163,
s. 1973; SEC Opinion dated 15 July 1991, XXV SEC QUARTERLY BULLETIN, (No. 4
—December, 1991), at p. 31.
Cable Industry
The National Telecommunications Commission (NTC), which regulates and
supervises the cable television industry in the Philippines under Section 2 of Executive
Order No. 436, s. 1997, has provided under NTC Memorandum Circular No. 8-9-95,
under item 920(a) thereof provides that “Cable TV operations shall be governed by
E.L. No. 205, s. 1987. If CATV operators offer public telecommunications services,
they shall be treated just like a public telecommunications entity.”
Under DOJ Opinon No. 95, series of 1999, the Secretary of Justice, taking its cue
from Allied Broadcasting, Inc. v. Federal Communications Commission, 435 F. 2d
70, considered CATV as “a form of mass media which must, theefore, be owned and
managed by Filipino citizens, or corporations, cooperatives or associations, wholly-
owned and managed by Filipino citizens pursuant to the mandate of the Constitution.”
(d) Advertising Business (Sec. 11(2), Art. XVI, 1987 Constitution)
(e) War-Time Test (Filipinas Compania de Seguros v. Christern, Huenefeld & Co., Inc.,
89 Phil. 54 [1951]; xDavis Winship v. Philippine Trust Co., 90 Phil. 744 [1952];
xHaw Pia v. China
Banking Corp., 80 Phil. 604 [1948]).
(f) Investment Test as to "Philippine Nationals" (Sec. 3(a),(b), R.A. 7042, Foreign
Investment Act of 1992)
(g) The Grandfather Rule (Opinion of DOJ No. 18, s. 1989, dated 19 January 1989;
SEC Opinion, dated 6 November 1989, XXIV SEC QUARTERLY BULLETIN (No. 1- March
1990); SEC Opinion, dated 14 December 1989, XXIV SEC QUARTERLY BULLETIN (No. 2 -
June 1990)
Up to what level do you apply the grandfather rule? (Palting v. San Jose
Petroleum Inc., 18 SCRA 924 [1966]).
(h) Special Classifications (Sec. 140)
IV. SEPARATE JURIDICAL PERSONALITY AND DOCTRINE OF

PIERCING VEIL OF CORPORATE FICTION
See relevant portions of VILLANUEVA, Restatement of the Doctrine of
Piercing The Veil of Corporate Fiction, 37 ATENEO L.J. 19 (No. 2, June
1993).
A. Main Doctrine: A CORPORATION HAS A PERSONALITY SEPARATE AND DISTINCT FROM ITS
STOCKHOLDERS OR MEMBERS.
Rudimentary is the rule that a corporation is invested by law with a personality

distinct and separate from its stockholders or members—by legal fiction and
convenience it is shielded by a protective mantel and imbued by law with a character
alien to the persons comprising it. xLim v. Court of Appeals, 323 SCRA 102 (2000).
1. Sources: Sec. 2; Article 44, Civil Code
2. Importance of Protecting Main Doctrine:
The “separate juridical personality” includes: right of succession; limited liability;
centralized management; and generally free transferability of shares of stock. Therefore,
an undermining of the separate juridical personality of the corporation, such as the
application of the piercing doctrine, necessarily dilutes any or all of those attributes.
One of the advantages of a corporate form of business organization is the limitation
of an investor’s liability to the amount of the investment. This feature flows from the
legal theory that a corporate entity is separate and distinct from its stockholders.
However, the statutorily granted privilege of a corporate veil may be used only for
legitimate purposes. On equitable considerations, the veil can be disregarded when it is
utilized as a shield to commit fraud, illegality or inequity; defeat public convenience;

11
confuse legitimate issues; or serve as a mere alter ego or business conduit of a person or
an instrumentality, agency or adjunct of another corporation. xSan Juan Structural and
Steel Fabricators, Inc. v. Court of Appeals, 296 SCRA 631, 645 (1998).

12
3. Applications:
(a) Majority Ownership of or Dealings in Shareholdings: Ownership of a
majority of capital stock and the fact that majority of directors of a corporation are
the directors of another corporation creates no employer-employee relationship
with the latter's employees. DBP v. NLRC, 186 SCRA 841 (1990); Francisco, et
al. v. Mejia, G. R. No. 141617, 14 August 2001.
The mere fact that a stockholder sells his shares of stock in the corporation
during the pendency of a collection case against the corporation, does not
make such stockholder personally liable for the corporate debt, since the
disposing stockholder has no personal obligation to the creditor, and it is the
inherent right of the stockholder to dispose of his shares of stock anytime he so
desires. xRemo, Jr. v. Intermediate Appellate Court, 172 SCRA 405, 413-414 (1989).
Mere ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality. xSunio v. NLRC , 127 SCRA 390
(1984); xAsionics Philippines, Inc. v. National Labor Relations Commission, 290
SCRA 164 (1998); xLim v. Court of Appeals, 323 SCRA 102 (2000); xManila Hotel
Corp. v. NLRC, 343 SCRA 1 (2000); xFrancisco v. Mejia, G. R. No. 141617, 14 August
2001.
Mere substantial identity of the incorporators of the two corporations does not
necessarily imply fraud, nor warrant the piercing of the veil of corporate fiction. In
the absence of clear and convincing evidence to show that the corporate
personalities were used to perpetuate fraud, or circumvent the law, the
corporations are to be rightly treated as distinct and separate from each other.
xLaguio v. NLRC, 262 SCRA 715 (1996).
(b) Dealings Between the Corporation and Stockholders: The transfer of the
corporate assets to the stockholder is not in the nature of a partition but is a
conveyance from one party to another. Stockholders of F. Guanzon and Sons,
Inc. v. Register of Deeds of Manila, 6 SCRA 373 (1962).
As a general rule, a corporation may not be made to answer for acts or liabilities
of its stockholders or those of the legal entities which it may be connected and vice-
versa. xARB Constructions Co., Inc. v. Court of Appeals, 332 SCRA 427 (200)
(c) On Issues of Privileges Enjoyed: The tax privileges enjoyed by a corporation

do not extend to its stockholders. "A corporation has a personality distinct from that
of its stockholders, enabling the taxing power to reach the latter when they
receive dividends from the corporation. It must be considered as settled in this
jurisdiction that dividends of a domestic corporation which are paid and delivered
in cash to foreign corporations as stockholders are subject to the payment of the
income tax, the exemption clause to the charter [of the domestic corporation]
notwithstanding." xManila Gas Corp. v. Collector of Internal Revenue, 62 Phil. 895,
898 (1936).
(d) Being a Corporate Officer: Being an officer or stockholder of a corporation
does not by itself make one's property also of the corporation, and vice-versa,
for they are separate entities, and that shareholders are in no legal sense the
owners of corporate property which is owned by the corporation as a distinct
legal person. Good Earth Emporium, Inc.
v. CA, 194 SCRA 544 (1991)
The mere fact that one is president of the corporation does not render the
property he owns or possesses the property of the corporation, since that
president, as an individual, and the corporation are separate entities. xCruz v.
Dalisay, 152 SCRA 487 (1987).
(e) Properites, Obligations and Debts: Likewise, a corporation has no legal
standing to file a suit for recovery of certain parcels of land owned by its members
in their individual capacity, even when the corporation is organized for the benefit of
the members. Sulo ng Bayan v. Araneta, Inc., 72 SCRA 347 [1976]).
The corporate debt or credit is not the debt or credit of the stockholder nor is
the stockholder's debt or credit that of the corporation. xTraders Royal Bank v.
CA, 177 SCRA 789 (1989).
Stockholders have no personality to intervene in a collection case covering
the loans of the corporation on the ground that the interest of shareholders in
corporate property is purely inchoate. xSaw v. CA, 195 SCRA 740 [1991])
The interests of payees in promissory notes cannot be off-set against the
obligations between the corporations to which they are stockholders absent any
allegation, much less, even a scintilla of substantiation, that the parties interest in
the corporation are so considerable as to merit a declaration of unity of their civil
personalities. xIndustrial and Development Corp. v. Court of Appeals, 272 SCRA
13
333 (1997).
It is a basic postulate that a corporation has a personality separate and
distinct from its stockholders. Therefore, even when the foreclosure on the
assets of the corporation

14
was wrongful and done in bad faith, the stockholders of the corporation have
no standing to recover for themselves moral damages. Otherwise, it would amount
to the appropriation by, and the distribution to, such stockholders of part of the
corporation’s assets before the dissolution of the corporation and the liquidation
of its debts and liabilities. xAsset Privatization Trust v. Court of Appeals, 300 SCRA
579, 617 (1998).
Where real properties included in the inventory of the estate of a decedent are
in the possession of and are registered in the name of the corporations, in the
absence of any cogency to shred the veil of corporate fiction, the presumption of
conclusiveness of said titles in favor of said corporations should stand undisturbed.
xLim v. Court of Appeals, 323 SCRA 102 (2000).
(f) Third-Parties: The fact that respondents are not stockholders of the disputed
corporations does not make them non-parties to the case, since the jurisdiction
of a court or tribunal over the subject matter is determined by the allegations in
the Complaint. In this case, it is alleged that the aforementioned corporations are
mere alter egos of the directors-petitioners, and that the former acquired the
properties sought to be reconveyed to FGSRC in violation of directors-petitioners’
fiduciary duty to FGSRC. The notion of corporate entity will be pierced or
disregarded and the individuals composing it will be treated as identical if, as
alleged in the present case, the corporate entity is being used as a cloak or cover
for fraud or illegality; as a justification for a wrong; or as an alter ego, an adjunct, or
a business conduit for the sole benefit of the stockholders. Gochan v. Young,
G.R. No. 131889, 21 March 2001.
B. Piercing the Veil of Corporate Fiction:

1. Source of Incantation: xUnited States v. Milwaukee Refrigerator Transit Co., 142
Fed. 247 [1905]). xSee also Francisco v. Mejia, G. R. No. 141617, 14 August 2001.
2. Nature of the Piercing Doctrine (Traders Royal Bank v. Court of Appeals,
269 SCRA 15 [1997])
Piercing the veil of corporate entity requires the court to see through the
protective shroud which exempts its stockholders from liabilities that ordinarily,
they could be subject to, or distinguishes one corporation from a seemingly
separate one, were it not for the existing corporate fiction. xLim v. Court of
Appeals, 323 SCRA 102 (2000).
This Court has pierced the veil of corporate fiction in numerous cases where it was
used, among others, to avoid a judgment credit, to avoid inclusion of corporate
assets as part of the estate of a decedent, to avoid liability arising from debt; when
made use of as a shield to perpetrate fraud and/or confuse legitimate issues, or to
promote unfair objectives or otherwise to shield them. xReynoso, IV v. Court of
Appeals, G.R. No. 116124-25, 22 November 2000; also xRamoso v. Court of
Appeals, G.R. No. 117416, 8 December 2000.
3. When Piercing Doctrine Not Applicable:
(a) Piercing the veil of corporate fiction is remedy of last resort and is not
available when other remedies are still available. Umali v. CA, 189 SCRA 529
(1990).
(b) Piercing is not allowed unless the remedy sought is to make the officer or another
corporation pecuniarily liable for corporate debts. Umali v. CA, 189 SCRA 529
(1990); Indophil Textile Mill Workers Union-PTGWO v. Calica, 205 SCRA 697
(1992).
(c) Piercing is not available when the personal obligations of an individual are sought to
be enforced against the corporation. xRobledo v. NLRC, 238 SCRA 52 (1994)
“The rationale behind piercing a corporation’s identity in a given case is to
remove the barrier between the corporation from the persons comprising it to
thwart the fraudulent and illegal schemes of those who use the corporate
personality as a shield for undertaking certain proscribed activities. However, in the
case at bar, instead of holding certain individuals or person responsible for an
alleged corporate act, the situation has been reversed. It is the petitioner as a
corporation which is being ordered to answer for the personal liability of certain
individual directors, officers and incorporators concerned. Hence, it appears to us
that the doctrine has been turned upside down because of its erroneous
invocation.” Francisco Motors Corp. v Court of Appeals, 309 SCRA 72, 83
(1999).
(d) To disregard the separate juridical personality of a corporation, the wrongdoing
must be clearly and convincingly established. It cannot be presumed. This is
elementary. The organization of the corporation at the time when the relationship
between the landowner and the developer were still cordial cannot be used as a
basis to hold the corporation liable later on for the obligations of the landowner to

15
the developer under the mere allegation that the corporation is being used to
evade the performance of obligation by one of its major stockholders. xLuxuria
Homes, Inc. v. Court of Appeals, 302 SCRA 315 (1999); xDevelopment Bank of the
Philippines vs. Court of Appeals, G.R. No. 126200, 16 August 2001.

16
(e) Not Applicable to Theorizing: Piercing of the veil of corporate fiction is
not allowed when it is resorted to justify under a theory of co-ownership the
continued use and possession by stockholders of corporate properties. Boyer-
Roxas v. Court of Appeals, 211 SCRA 470 [1992]).
The piercing doctrine cannot be availed of in order to dislodge from the
jurisdiction of the SEC a the petition for suspension of payments filed under
Section 5(e) of Pres. Decree No. 902-A, on the ground that the petitioning
individuals should be treated as the real petitioners to the exclusion of the
petitioning corporate debtor. “The doctrine of piercing the veil of corporate fiction
heavily relied upon by the petitioner is entirely misplaced, as said doctrine only
applies when such corporate fiction is used to defeat public convenience, justify
wrong, protect fraud or defend crime.” xUnion Bank of the Philippines v. Court of
Appeals, 290 SCRA 198 (1998).
Changing of the petitioners’s subsidiary liabilities by converting them to
guarantors of bad debts cannot be done by piercing the veil of corporate identity.
xRamoso v. Court of Appeals, G.R. No. 117416, 8 December 2000.
(f) Piercing doctrine is meant to prevent fraud, and cannot be employed to
perpetrate fraud or a wrong. Gregorio Araneta, Inc. v. Tuason de Paterno and
Vidal, 91 Phil. 786 (1952).
The theory of corporate entity was not meant to promote unfair
objectives or otherwise, nor to shield them. xVillanueva v. Adre, 172 SCRA 876
(1989).
(g) Piercing is a power belonging to the court and cannot be assumed
improvidently
Cruz v.by
Dalisay,
a sheriff.
152 SCRA 482
(1987).
3. Consequences and Types of Piercing Umali Cases: v. CA, 189 SCRA 529
[1990])
(a) The application of the doctrine to a particular case does not deny the corporation of
legal personality for any and all purposes, but only for the particular transaction or
instance for which the doctrine was applied. Koppel (Phil.) Inc. v. Yatco, 77 Phil.
496 (1946); xTantoco
v. Kaisahan ng Mga Manggagawa sa La Campana, 106 Phil. 198 (1959).
(b) Classification of the Piercing Cases:

(i) When the corporate entity is used to commit fraud or to do a wrong
("fraud cases");
(ii) When the corporate entity is merely a farce since the corporation is
merely the alter ego, business conduit or instrumentality of a person
or another entity ("alter ego cases"); and
(iii) When the piercing the corporate fiction is necessary to achieve
justice or equity ("equity cases").
The three cases may appear together in one application. See R.F. Sugay &
Co., v.
Reyes, 12 SCRA 700 (1964).
4. Fraud Cases:
(a) Acts by the Controlling Shareholder: Where a stockholder, who has
absolute control over the business and affairs of the corporation, entered into a
contract with another corporation through fraud and false representations, such
stockholder shall be liable jointly and severally with his co-defendant corporation
even when the contract sued upon was entered into on behalf of the corporation.
Namarco v. Associated Finance Co., 19 SCRA 962 (1967).
The tests in determining whether the corporate veil may be pierced are: (1) the
defendant must have control or complete domination of the other corporation’s
finances, policy and business practices with regard to the transaction attached; (2)
control must be used by the defendant to commit fraud or wrong; and (3) the
aforesaid control or breach of duty must be the proximate cause of the injury or
loss complained of. Manila Hotel Corporation v. NLRC, 343 SCRA 1 (2000); xAlso
Lim v. Court of Appeals, 323 SCRA 102 (2000).
(b) One cannot evade civil liability by incorporating properties or the business.
Palacio v. Fely Transportation Co., 5 SCRA 1011 (1962).
(c) The veil of corporation fiction may be pierced when used to avoid a contractual
commitment against non-competition. Villa Rey Transit, Inc. v. Ferrer, 25 SCRA
845 (1968).
(d) The Supreme Court found the following facts to be legal basis to pierce: One
company was merely an adjunct of the other, by virtue of a contract for security
17
services, the former provided with security guards to safeguard the latter’s
premises; both companies have the same owners and business address; the
purported sale of the shares of the former stockholders to a new set of
stockholders who changed the name of the

18
corporation appears to be part of a scheme to terminate the services of the
security guards, and bust their newly-organized union which was then beginning
to become active in demanding the company’s compliance with Labor
Standards laws. De Leon v. NLRC,
G.R. No. 112661, 30 May 2001.
(e) Parent-Subsidiary Relations; Affiliates (Reynoso, IV v. Court of Appeals,
G.R. No. 116124-25, 22 November 2000; Commissioner of Internal Revenue v.
Norton and Harrison, 11 SCRA 704, [1954]; Tomas Lao Construction v. NLRC,
278 SCRA 716 [1997]).
- Why is there inordinate showing of alter-ego elements?
(e) Guiding Principles in Fraud Cases:
(i) There must have been fraud or an evil motive in the affected transaction,
and the mere proof of control of the corporation by itself would not
authorize piercing; and
(ii) The main action should seek for the enforcement of pecuniary claims
pertaining to the corporation against corporate officers or stockholders.
5. Alter-Ego Cases:
(a) Where the stock of a corporation is owned by one person whereby the
corporation functions only for the benefit of such individual owner, the corporation
and the individual should be deemed the same. Arnold v. Willets and Patterson,
Ltd., 44 Phil. 634 (1923).
(b) When the corporation is merely an adjunct, business conduit or alter ego of another
corporation, the fiction of separate and distinct corporation entities should be
disregarded. xTan Boon Bee & Co. v. Jarencio, 163 SCRA 205 (1988).
The corporation veil cannot be used to shield an otherwise blatant violation of
the prohibition against forum-shopping. Shareholders, whether suing as the
majority in direct actions or as the minority in a derivative suit, cannot be allowed to
trifle with court processes, particularly where, as in this case, the corporation itself
has not been remiss in vigorously prosecuting or defending corporate causes and in
using and applying remedies available to it. xFirst Philippine International Bank v.
(c) Employment of same workers; single place of business, etc. La Campana Coffee
Factory
v. Kaisahan ng Manggagawa, 93 Phil. 160 (1953).
The doctrine that a corporation is a legal entity or a person in law distinct from
the persons composing it is merely a legal fiction for purposes of convenience
and to subserve the ends of justice. This fiction cannot be extended to a point
beyond its reason and policy. Where, as in this case, the corporation fiction was
used as a means to perpetrate a social injustice or as a vehicle to evade
obligations or confuse the legitimate issues, it would be discarded and the two
(2) corporations would be merged as one, the first being merely considered as
the instrumentality, agency conduit or adjunct of the other. In this case,
because of the actions of management of the two corporations, there was much
confusion as to the proper employment of the claimant. xAzcor Manufacturing, Inc.
v. NLRC, 303 SCRA 26 (1999).
(d) Use of nominees. xMarvel Building v. David, 9 Phil. 376 (1951).

(e) Avoidance of tax. Yutivo Sons Hardware v. Court of Tax Appeals 1 SCRA 160
(1961); xLiddell & Co. v. Collector of Internal Revenue, 2 SCRA 632 (1961).
(f) Mixing of bank deposit accounts. xRamirez Telephone Corp. v. Bank of America,
29 SCRA 191 (1969).
(g) Where it appears that two business enterprises are owned, conducted, and
controlled by the same parties, both law and equity will, when necessary to protect
the rights of third persons, disregard the legal fiction that two corporations are
distinct entities and treat them as identical. xSibagat Timber Corp. v. Garcia,
216 SCRA 70 (1992).
(h) Thinly-capitalized corporations. McConnel v. Court of Appeals, 1 SCRA 722 (1961).
(i) Parent-subsidiary relationship. Koppel (Phil.), Inc. v. Yatco, 77 Phil. 97 (1946);
xPhilippine Veterans Investment Development Corporation v. CA, 181 SCRA 669
(1990).
(j) Affiliated companies. xGuatson International Travel and Tours, Inc. v. NLRC,
230 SCRA 815 (1990).
(k) Summary of Probative Factors: Philippine National Bank vs. Ritratto Group,
Inc., et al., G.R. No. 142616, 31 July 2001; xConcept Builders, Inc. v. NLRC, 257
19
SCRA 149 (1996).
Whether the existence of the corporation should be pierced depends on
questions of facts, appropriately pleaded. Mere allegation that a corporation is the
alter ego of the individual stockholders is insufficient. The presumption is that the
stockholders or officers and the corporation are distinct entities. The burden of
proving otherwise is on the party

20
seeking to have the court pierce the veil of corporate
entity. xRamoso v. Court of Appeals, G.R. No.
117416, 8 December 2000.
(l) Guiding Principles in Alter-Ego Cases:
(i) The doctrine applies in this case even in the absence of evil intent; it applies
because of the direct violation of a central corporate law principle of
separating ownership from management.
(ii) The doctrine in such cased is based on estoppel: if stockholders do not
respect the separate entity, others cannot also be expected to be bound by
the separate juridical entity.
(iii) Piercing in alter ego cases may prevail even when no monetary claims
are sought to be enforced against the stockholders or officers of the
corporation.
6. Equity Cases:
(a) When used to confuse legitimate issues. Telephone Engineering and Service Co.,
Inc. V. WCC, 104 SCRA 354 (1981).
(b) When used to raise technicalities. xEmilio Cano Ent. v. CIR, 13 SCRA 291 (1965).
7. Piercing Doctrine and Due Process Clause

(a) The need to bring a new case against the officer. McConnel v. Court of Appeals,
1 SCRA 723 (1961).
(b) When corporate officers are sued in their official capacity when the corporation was
not made a party, the corporation is not denied due process. Emilio Cano
Enterprises v. Court of Industrial Relations, 13 SCRA 291 (1965).
(c) Provided that evidential basis has been adduced during trial to apply the
piercing doctrine. Jacinto v. Court of Appeals, 198 SCRA 211 (1991); xArcilla v.
V. CLASSIFICATIONS OF CORPORATIONS
1. In Relation to the State:
(a) Public corporations (Sec. 3, Act No. 1459)
▪ Organized for the government of the portion of the state (e.g., barangay,
municipality, city and province)
▪ Majority shares by the Government does not make an entity a public
corporation.
xNational Coal Co., v. Collector of Internal Revenue, 46 Phil. 583 (1924).
(b) Quasi-public corporations xMarilao Water Consumers Associates v. IAC, 201 SCRA 437
(1991)
Although Boy Scouts of the Philippines does not receive any monetary or
financial subsidy from the Government, and that its funds and assets are not
considered government in nature and not subject to audit by the COA, the fact that it
received a special charter from the government, that its governing board are
appointed by the Government, and that its purpose are of public character, for they
pertain to the educational, civic and social development of the youth which
constitute a very substantial and important part of the nation, it is not a public
corporation in the same sense that municipal corporation or local governments are
public corporation since its does not govern a portion of the state, but it also does
not have proprietary functions in the same sense that the functions or activities of
government-owned or controlled corporations such as the National Development
Company or the National Steel Corporation, is may still be considered as such, or under
the 1987 Administrative Code as an instrumentality of the Government. Therefore, the
employees are subject to the Civil Service Law. xBoy Scouts of the Philippines v.
NLRC, 196 SCRA 176 (1991).
(c) Private Corporation (Sec. 3, Act 1459)

A government-owned or -controlled corporation when organized under the
Corporation Code is still a private corporation. But being a government-owned or -
controlled corporation makes it liable for laws and provisions applicable to the
Government or its entities and subject to the control of the Government. xCervantes
v. Auditor General, 91 Phil. 359 (1952).
A private corporation is created by operation of law under the Corporation while a
government corporation is normally created by special law referred to often as a
charter. xBliss Dev. Corp. Employees Union v. Calleja, 237 SCRA 271 (1994).

21
The doctrine that employees of government-owned and -controlled
corporations, whether created by special law or formed as subsidiaries under the
general corporation law are governed by the Civil Service Law and not by the Labor
Code, has been supplanted by the 1987 Constitution. The present doctrine in
determining whether a government-owned or
-controlled corporation is subject to the Civil Service Law is the manner of its creation,
such

22
that government corporations created by special charter are subject to the Civil
Service Law, while those incorporated under the general corporation law are governed
by the Labor Code. xPNOC-Energy Development Corp. v. NLRC, 201 SCRA 487 (1991);
xDavao City Water District v. Civil Service Commission, 201 SCRA 593 (1991).
The test to determine whether a corporation is government owned or
controlled, or private in nature is simple. Is it created by its own charter for the
exercise of a public function, or by incorporation under the general corporation
law? Those with special charters are government corporations subject to its
provisions, and its employees are under the jurisdiction of the Civil Service
Commission, and are compulsory members of the Government Service Insurance
System. xCamparedondo v. NLRC, 312 SCRA 47 (1999).
Section 31 of the Corporation Code (Liability of Directors and Officers) is
applicable to corporations which have been organized by special charters since Sec.
4 of the Corporation Code renders the provisions of thereof applicable in a
supplementary manner to all corporations, including those with special or individual
charters, such as cooperatives organized under Pres. Decree No. 269, so long as
those provisions are not inconsistent with such charters. xBenguet Electric
Cooperative, Inc. v. NLRC, 209 SCRA 55 (1992).
2. As to Place of Incorporation:
(a) Domestic Corporation
(b) Foreign Corporation (Sec. 123)
3. As to Purpose of Incorporation:
(a) Municipal or Public corporation
(b) Religious corporation (Secs. 109 and 116)
(c) Educational corporations (Secs. 106, 107 and 108; Sec. 25, B.P. Blg. 232)
(d) Charitable, Scientific or Vocational corporations
(e) Business corporation
4. As to Number of Members:
(a) Aggregate Corporation
(b) Corporation Sole (Secs. 110 to 115; xRoman Catholic Apostolic Administrator of
Davao, Inc. v. LRC and the Register of Deeds of Davao City, 102 Phil. 596 (1957).
xDirector of Land v. IAC, 146 SCRA 509 (1986), which held that a corporation
sole has no nationality, overturned the previous doctrine (xRepublic v. Villanueva,
114 SCRA 875 [1982] and Republic v. Iglesia Ni Cristo, 127 SCRA 687 [1984]) that a
corporation sole is disqualified to acquire or hold alienable lands of the public domain,
because of the constitutional prohibition qualifying only individuals to acquire land of
the public domain and the provision under the Public Land Act which applied only to
Filipino citizens or natural persons. xRepublic v. Iglesia ni Cristo, 127 SCRA 687
(1984); xRepublic v. IAC, 168 SCRA 165
(1988).
5. As to Legal Status:
(a) De Jure Corporation
(b) De Facto Corporation (Sec. 20)
(c) Corporation by Estoppel (Sec. 21)
6. As to Existence of Shares (Secs. 3 and 5)

(a) Stock Corporation
(b) Non-Stock Corporation
VI. CORPORATE CONTRACT LAW

See relevant portion of VILLANUEVA, Corporate Contract Law, 38 ATENEO L.J.
1 (No. 2, June 1994)
1. Pre-Incorporation Contracts
(a) Who Are Promoters?

23
“Promoter” is a person who, acting alone or with others, takes initiative in
founding and organizing the business or enterprise of the issuer and receives
consideration therefor. (Sec. 3.10, Securities Regulation Code [R.A. 8799])
(b) Nature of Pre-incorporation Agreements (Secs. 60 and 61; Bayla v. Silang
Traffic Co., Inc., 73 Phil. 557 [1942])
(c) Theories on Liabilities for Promoter's Contracts (Cagayan Fishing
Development Co., Inc. v. Teodoro Sandiko, 65 Phil. 223 [1937]; Rizal Light & Ice Co.,
Inc. v. Public Service Commission, 25 SCRA 285 [1968]; Caram, Jr. v. CA, 151 SCRA
372 [1987]).
2. De Facto Corporation (Sec. 20)

(a) Elements for Existence of De Facto Corporation:
(1) Valid law under which incorporated;
(2) Attempt in good faith to incorporate; “colorable compliance;”
(3) Assumption of corporate powers; and
(4) Issuance of certificate of incorporation. Arnold Hall v.
Piccio, 86 Phil. 634 (1950).
3. Corporation by Estoppel Doctrine (Sec. 21; Salvatierra v. Garlitos, 103 Phil. 757
[1958]; Albert v. University Publishing Co., 13 SCRA 84 [1965]; International Express
Travel & Tour Services, Inc. v. Court of Appeals, 343 SCRA 674 (2000); xAsia Banking
Corporation v. Standard Products, 46 Phil. 145 [1924]; xMadrigal Shipping Co., Inc. v.
Ogilvie, Supreme Court Advanced Decision, 55 O.G. No. 35, p. 7331).
An individual should be held personally liable for the unpaid obligations of the
unincorporated association in whose behalf he entered into such transactions, under
the principle that “any person acting or purporting to act on behalf of a corporation
which has no valid existence assumes such privileges and becomes personally liable
for contract entered into or for other acts performed as such agent.” International
Express Travel & Tour Services, Inc. v. Court of Appeals, 343 SCRA 674 (2000).
(a) Nature of Doctrine
Corporation by estoppel doctrine is founded on principles of equity and is designed
to prevent injustice and unfairness. It applies when persons assume to form a
corporation and exercise corporate functions and enter into business relations with
third persons. Where there is no third person involved and the conflict arises only
among those assuming the form of a corporation, who therefore know that it has not
been registered, there is no corporation by estoppel. Lozano v. De Los Santos, 274
SCRA 452 (1997)
A party cannot challenge the personality of the plaintiff as a duly organized
corporation after having acknowledged same when entering into the contract with the
plaintiff as such corporation for the transportation of its merchandise. (xOhta Dev.
Co. v. Steamship Pompey, 49 Phil. 117 [1926]); the same principle applied in
xCompania Agricole de Ultramar v. Reyes,
4 Phil. 1 [1911] but that case pertained to a commercial partnership which
required registration in the registry under the terms of the Code of Commerce.
(b) Two Levels: (i) With "fraud" and (ii) Without "fraud"
When incorporating individuals represent themselves to be officers of the
corporation never duly registered with SEC, and engages in the name of purported
corporation in illegal recruitment, they are estopped from claiming that they are not
liable as corporate officers, since Section 25 of Corporation Code provides that all
persons who assume to act as a corporation knowing it to be without authority to do
so shall be liable as general partners for all the debts, liabilities and damages
incurred or arising as a result thereof. xPeople v. Garcia, 271 SCRA 621 (1997).
An individual cannot avoid his liabilities to the public as an incorporator of a
corporation whose incorporation was not consummated, when he held himself out as
officer of the corporation and received money from applicants who availed of their
services. Such individual is estopped from claiming that they are not liable as
corporate officers for illegal recruitment under the corporation by estoppel doctrine
under Sec. 25 of the Corporation Code which provides that all persons who assume to
act as a corporation knowing it to be without authority to do so shall be liable as general
partners for all the debts, liabilities and damages incurred or arising as a result thereof.
xPeople v. Pineda, G.R. No. 117010, 18 April 1997 (Unpublished).
4. Trust Fund Doctrine

See VILLANUEVA, "The Trust Fund Doctrine Under Philippine Corporate
Setting," 31 ATENEO L.J. (No. 1, Feb. 1987).
(a) Commercial/Common Law Premise on Equity vis-a-vis Debts
24
(b) Nature of Doctrine

25
Under the trust fund doctrine, the capital stock, property and other assets of the
corporation are regarded as equity in trust for the payment of the corporate creditors.
xCommissioner of Internal Revenue v. Court of Appeals, 301 SCRA 152 (1999).
The requirement of unrestricted retained earnings to cover the shares is
based on the trust fund doctrine which means that the capital stock, property and
other assets of a corporation are regarded as equtiy in trust for the payment of
corporate creditors. The reason is that creditors of a corporation are preferred over
the stockholders in the distribution of corporate assets. There can be no distribution
of assets among the stockholders without first paying corporate creditors. Hence, any
disposition of corporate funds to the prejudice of creditors is null and void. xBoman
Environmental Dev. Corp. v. CA, 167 SCRA 540 (1988).
The “Trust Fund” doctrine considers the subscribed capital as a trust fund for
the payment of the debts of the corporation, to which the creditors may look for
satisfaction. Until the liquidation of the corporation, no part of the subscribed capital
stock may be turned over or released to the stockholder (except in the redemption of
the redeemable shares) without violating this principle. Thus dividends must never
impair the subscribed capital stock; subscription commitments cannot be condoned
or remitted; nor can the corporation buy its own shares using the subscribed capital
as the consideration therefore. NTC v. Court of Appeals, 311 SCRA 508, 514-515
(1999).
(c) Corporation Purchasing Own Shares (Secs. 8, 41, 43 and 122, last paragraph;
Phil. Trust Co. v. Rivera, 44 Phil. 469 [1923]; Steinberg v. Velasco, 52 Phil. 953
[1929])
VII. ARTICLES OF
INCORPORATION
See relevant portions of VILLANUEVA, Corporate Contract Law, 38 ATENEO L.J.
1 (No. 2, June 1994).
1. Nature of Charter - The charter is in the nature of a contract between the
corporation and the Government. Government of P.I. v. Manila Railroad Co., 52 Phil. 699
(1929).
2. Procedure and Documentary Requirements (Sec. 14 and 15)
(a) As to Number and Residency of Incorporators (Sec. 10)
(b) Corporate Name (Secs. 18, 14(1) and 42; Red Line Trans. v. Rural Transit, 60
Phil. 549 [1934]).
A corporation may change its name by the amendment of its articles of
incorporation, but the same is not effective until approved by the SEC. xPhilippine First
Insurance Co. v. Hartigan, 34 SCRA 252 (1970)
A change in the corporate name does not make a new corporation, and
whether affected by special act or under a general law, has no effect on the
identity of the corporation, or on its property, rights, or liabilities. xRepublic Planters
Bank v. CA, 216 SCRA 738 (1992).
Similarity in corporate names between two corporations would cause confusion to
the public especially when the purposes stated in their charter are also the same
type of business. xUniversal Mills Corp. v. Universal Textile Mills Inc., 78 SCRA 62
[1977]).
A corporation has not right to intervene in a suit using a name other than its
registered name; if a corporation legally and truly wants to intervene, it should have
used its corporate name as the law requires and not another name which it had not
registered. xLaureano Investment and Development Corporation v. Court of Appeals,
272 SCRA 253 (1997).
There would be no denial of due process when a corporation is sued and judgment
is rendered against it under its unregistered trade name, holding that a corporation
may be sued under the name by which it makes itself known to its workers. xPison-
Arceo Agricultural Development Corp. v. NLRC, 279 SCRA 312 (1997)
(c) Purpose Clause (Secs. 14(2) and 42; Uy Siuliong v. Director of Commerce and
Industry, 40 Phil. 541 [1919])
(d) Corporate Term (Sec. 11).
No extension can be effected once dissolution stage has been reached. xAlhambra
Cigar
v. SEC, 24 SCRA 269 (1968).
(e) Principal Place of Business

Place of residence of the corporation is the place of its principal office. xClavecilla

26
Radio System v. Antillon, 19 SCRA 379 (1967)
The residence of its president is not the residence of the corporation because
a corporation has a personality separate and distinct from that of its officers and
stockholders. xSy v. Tyson Enterprises, Inc., 119 SCRA 367 (1982).
(f) Minimum Capitalization (Sec. 12)

27
- Why is maximum capitalization required to be indicated?
(g) Subscription and Paid-up Requirements (Sec. 13)
(h) Steps and Documents Required in SEC
3. Grounds for Disapproval (Sec. 17)
When the proposed articles presented show that the object of incorporation is to
organize a barrio of a given municipality into a separate corporation for the purpose of
taking possession and having control of all municipal property within the barrio so
incorporated and administer it exclusively for the benefit of the residents, the object is
unlawful and the articles can be denied registration. xAsuncion v. De Yriarte, 28 Phil. 67
[1914]).
4. Amendments to Articles of Incorporation (Sec. 16)
5. Commencement of Corporate Existence (Sec. 19)
VIII. BY-LAWS
See relevant portions of VILLANUEVA, "Corporate Contract Law," 38 ATENEO
L.J. 1 (No. 2, June 1994).
1. Nature and Functions (Gokongwei v. SEC, 89 SCRA 337 [1979]; Peña v. CA,
193 SCRA 717 [1991])
As the “rules and regulations or private laws enacted by the corporation to regulate,
govern and control its own actions, affairs and concerns and its stockholders or
members and directors and officers with relation thereto and among themselves in their
relation to it,” by-laws are indispensable to corporations in this jurisdiction. These may
not be essential to corporate birth but certainly, these are required by law for an
orderly governance and management of corporations. Nonetheless, failure to file them
within the period required by law by no means tolls the automatic dissolution of a
corporation. Loyola Grand Villas Homeowners (South) Association, Inc. v. Court of
Appeals, 276 SCRA 681 (1997).
(a) Common Law Limitations on By-Laws

(i) By-Laws Cannot Be Contrary to Law and Articles of Incorporation
A by-law provision granting to a stockholder a permanent representation in
the Board of Directors is contrary to the Corporation Code requiring all members
of the Board to be elected by the stockholders or members. Even when the
members of the association may have formally adopted the provision, their action
would be of no avail because no provision of the by-laws can be adopted if it is
contrary to law. xGrace Christian High School v. Court of Appeals, 281 SCRA
133 (1997).
Although the right to amend by-laws lies solely in the discretion of the
employer, this being in the exercise of management prerogative or business
judgment, such right cannot impair the obligation of existing contracts or rights
or undermine the right to security of tenure of a regular employee. Otherwise, it
would enable an employer to remove any employee from employment by the
simple expediency of amending its by- laws and providing the position shall cease
to exist upon occurrence of a specified event. xSalafranca v. Philamlife (Pamplona)
Village Homeowners Association, Inc., 300 SCRA 469, 479 (1998).
(ii) By-Laws Cannot Be Unreasonable or Be Contrary to Nature of By-
laws. xGovernment of the Philippine Islands v. El Hogar Filipino, 50 Phil. 399
(1927).
Authority granted to a corporation to regulate the transfer of its stock does not
empower corporation to restrict the right of a stockholder to transfer his shares,
but merely authorizes the adoption of regulations as to the formalities and
procedure to be followed in effecting transfer. xThomson v. Court of Appeals, 298
SCRA 280 (1998).
By-laws are intended merely for the protection of the corporation, and
prescribe regulation, not restrictions; they are always subject to the charter of
the corporation. xRural Bank of Salinas, Inc. v. CA, 210 SCRA 510 (1992), quoting
from Thompson on Corporation Sec. 4137, cited in xFleischer v. Nolasco, 47 Phil.
583.
(iii) By-Laws Cannot Discriminate
(b) Binding Effects of By-laws (China Banking Corp. v. Court of Appeals, 270
SCRA 503 [1997]).
28
“Neither can we concede that such contract would be invalid just because
the signatory thereon was not the Chairman of the Board which allegedly violated
the corporation’s by-laws. Since by-laws operate merely as internal rules among
the stockholders, they cannot affect or prejudice third persons who deal with the
corporation, unless they have knowledge of the same.” PMI Colleges v. NLRC, 277
SCRA 462 (1997).
2. Adoption Procedure (Sec. 46)

Section 46 of the Corporation, which requires the filing of by-laws, does not
expressly provide for the consequence of their non-filing within the period provided
therein; however, Pres. Decree 902-A allows the SEC to suspend or revoke, after proper
notice and hearing, the franchise or certificate of registration of corporations which fail
to file their by-laws. Clearly, there can be no automatic corporate dissolution simply
because the incorporators failed to abide by the required filing of by-laws, and there is
no outright “demise” of corporate existence. Proper notice and hearing are cardinal
components of due process in any democratic institution, agency or society, which would
require that the incorporators must be given the chance to explain their neglect or
omission and remedy the same. xLoyola Grand Villas Homeowners (South) Association,
Inc. v. Court of Appeals, 276 SCRA 681 (1997).
3. Contents (Sec. 47)

4. Amendments (Sec. 48)
▪ Power to amend may be delegated to the board of directors
IX. CORPORATE POWERS, AUTHORITY AND ACTIVITIES

1. Corporate Power and Capacity (Art. 46, Civil Code; Secs. 36 and 45; Land
Bank of the Philippines v. COA, 190 SCRA 154 [1990])
A corporation has no power except those expressly conferred on it by the
Corporation Code and those that are implied or incidental to its existence. In turn, a
corporation exercises said powers through its board of directors and/or its duly authorized
officers and agents, since the physical acts of the corporation, like the signing of
documents, can be performed only by natural persons duly authorized for the purpose of by
corporate by-laws or by a specific act of the board of directors. xReynoso, IV v. Court of
Appeals, G.R. No. 116124-25, 22 November 2000.
Precisely because the corporation is such a prevalent and dominating factor in the
business life of the country, the law has to look carefully into the exercise of powers by
these artificial persons it has created. Reynoso, IV v. Court of Appeals, G.R. No. 116124-
25, 22 November 2000.
(a) Classification of Corporate Powers: Express; Implied; and Incidental
There is basis to rule that the act of issuing the checks on behalf of the corporation
was well within the ambit of a valid corporate act, for it was for securing a loan to
finance the activities of the corporation, hence, not an ultra vires act. Atrium
Management Corporation vs. Court of Appeals, G.R. No. 109491, 28 February 2001.
(b) Where Corporate Power is Lodged (Sec. 23)
Unless otherwise provided by the Corporation Code, corporate powers, such as
the power to enter into contracts, are exercised by the Board of Directors.
However, the Board may delegate such powers to either an executive committee or
officials or contracted managers, which delegation, except for the executive
committee, must be for specific purposes. The delegated officers makes the latter
agents of the corporation, and rules of agency as to the binding effects of their
acts would apply. For such officers to be deemed fully clothed by the corporation to
exercise a power of the Board, the latter must specially authorize them to do so.
xABS-CBN Broadcasting Corporation v. Court of Appeals, 301 SCRA 572 (1999).
2. Ultra Vires Acts

See relevant portions of VILLANUEVA, Corporate Contract Law, 38 ATENEO L.J.
1 (No. 2, June 1994).
(a) Concept and Types (Sec. 45)
An ultra vires act is one committed outside the object for which a corporation is
created as define by the law of its organization and therefore beyond the power
conferred upon it by law.” The term “ultra vire” is “distinguished from an illegal act
from the former is merely voidable which may be enforced by performance,
ratification, or estoppel, while the latter is void and cannot be validated. Atrium

29
Management Corporation vs. Court of Appeals, G.R. No. 109491, 28 February 2001.

30
(b) Ratification of Ultra Vires Acts: (Pirovano v. De la Rama Steamship
Co., Inc., 96
Phil. 335 [1954];Carlos v. Mindoro Sugar Co., 57 Phil. 343 ; Republic v. Acoje Mining
Co., 3 SCRA 361[1932]
[1963]; Crisologo Jose v. CA, 177 SCRA 594 [1989];
(i) Theory of Estoppel or Ratification
In order to ratify the unauthorized act of an agent and make it binding on the
corporation, it must be shown that the governing body or officer authorized to
ratify had full and complete knowledge of all the material facts connected with the
transaction to which it relates. Ratification can never be made on the part of
the corporation by the same person who wrongfully assume the power to make the
contract, but the ratification must be by the officer or governing body having
authority to make such contract. The act or conduct for which the corporation
may be liable under the doctrine of estoppel must be by those of the corporation,
its governing body or authorized officers, and not those of the purported agent who
is himself responsible for the misrepresentation. xVicente v. Geraldez, 52 SCRA
210 (1973).
When the counsel representing the corporation in a collection suit admits
on behalf of the corporation that the latter admitted culpability for personal loans
obtained by its corporate officers, such admission cannot be given legal effect to the
detriment of the corporation. The admission made in the answer by the counsel for
the corporation was “without any enabling act or attendant ratification of
corporate act,” as would authorize or even ratify such admission. In the absence
of such ratification or authority, such admission does not bind the corporation.
Also, the letter issued by the corporate officers who obtained the loan “as
indicating the corporate liability of the corporation,” cannot also serve to make
the corporation liable. The documents and admissions cannot have the effect of
a ratification of an unauthorized act. Ratification can never be made on the part of
the corporation by the same persons who wrongfully assume the power to
make the contract, but the ratification must be by the officers as governing
body having authority to make such contract. xAguenza v. Metropolitan Bank
and Trust Co., 271 SCRA 1 (1997).
(ii) Doctrine of Apparent Authority (Prime White Cement Corp. v. Intermediate

Appellate Court, 220 SCRA 103, 113-114 [1993]; Francisco v. GSIS, 7 SCRA 577
[1963])
A contract signed by the President/Chairman without authority from the Board
of Directors is void. Although the by-laws grant authority to the President "to
execute and sign for and in behalf of the corporation all contracts and
agreements which the corporation may enter into," the same presupposes a
prior act of the corporation exercised through its Board of Directors. Yao Ka Sin
Trading v. CA, 209 SCRA 763 (1992).
Although an officer or agent acts without, or in excess of, his actual
authority if he acts within the scope of an apparent authority with which the
corporation has clothed him by holding him out or permitting him to appear as
having such authority, the corporation is bound thereby in favor of a person who
deals with him in good faith in reliance on such apparent authority, as where an
officer is allowed to exercise a particular authority with respect to the business, or a
particular branch of it, continuously and publicly, for a considerable time. Yao Ka
Sin Trading v. CA, 209 SCRA 763 (1992).
Persons who deal with corporate agents within circumstances showing that
the agents are acting in excess of corporate authority, may not hold the corporation
liable. xTraders Royal Bank v. Court of Appeals, 269 SCRA 601 (1997); also Art.
1883, Civil Code.
The authority of a corporate officer in dealing with third persons may be actual
or apparent. . . the principal is liable for the obligations contracted by the agent. The
agent's apparent representation yields to the principal's true representation and
the contract is considered as entered into between the principal and the third
person. xFirst Philipine International Bank v. Court of Appeals, 252 SCRA 259
(1996).
If a corporation knowingly permits one of its officers, or any other agent, to act
within the scope of an apparent authority, it holds him out to the public as
possessing the power to do those acts; and thus, the corporation will, as against
anyone who has in good faith dealt with it through such agent, be estopped from
denying the agent’s authority. xSoler v. Court of Appeals, G.R. No. 123892, 21 May
2001.
Under Article 1898 of the Civil Code, the acts of an agent beyond the scope of his
authority do no bind the principal unless the latter ratifies the same expressly or
implied. It also bears emphasizing that when the third person knows that the agent
was acting beyond his power or authority, the principal can not be held liable for
31
the acts of the agent. If the said third person is aware of such limits of authority, he
is to blame, and is not entitled to recover damages from the agent, unless the latter
undertook to secure the principal’s ratification. In the case of the corporation as the
principal, there was no such ratification. Therefore, when the officer entered into the
speculative contracts without securing the Board’s approval, nor did he submit the
contracts to the Board after their consummation nor were they recorded in the
books of the corporation, there was, in fact, no occasion at all

32
for ratification. xSafic Alcan & Cie. V. Imperial Vegetable Co., G.R. No. 126751, 28
March 2001.
(iii) Theory of No State Damage (Harden v. Benguet Consolidated Mining Co.,

58 Phil. 140 [1933]).
3. Specific (Express) Powers

(a) Enumerated Powers (Secs. 36)
Example of Poor Draftsmanship:
When the article of incorporation expressly provides that the purpose of the
corporation was to “engage in the transportation of person by water,” such
corporation cannot engage in the business of land transportation, which is an entirely
different line of business, and, for which reason, may not acquire any certificate of
public convenience to operate a taxicab service. xLuneta Motor Co. v. A.D. Santos,
Inc., 5 SCRA 809 [1962]).
Power to Sue
Under section 36 of the Corporation Code, in relation to Section 23, it is clear
that where a corporation is an injured party, its power to sue is lodged with its board of
directors or trustees. A minority stockholder and member of the Board, who fails to
show any proof that he was authorized by the Board of Directors, has no such power or
authority to sue on the corporation’s behalf. Nor can we uphold this as a derivative
suit. For a derivative suit to prosper, it is required that the minority stockholder suing
for and on behalf of the corporation must allege in his complaint that he is suing on a
derivative cause of action on behalf of the corporation and all other stockholders
similarly situated who may wish to join him in the suit. There is now showing that
petitioner has complied with the foregoing requisites. xTam Wing Tak v. Makasiar,
G.R. 122452, 29 January 2001.
(b) Power to Extend or Shorten Corporate Term (Secs. 37 and 81 [1])

(c) Power to Increase or Decrease Capital Stock (Sec. 38)
Prior to SEC approval of the increase in the authorized capital stock, and
despite the Board resolution approving the increase in capital stock, and the receipt of
payment on the future issues of the shares from the increased capital stock, such
funds do not constitute part of the capital stock of the corporation until approval of the
increase by SEC. xCentral Textile Mills, Inc. v. National Wages and Productivity
Commission, 260 SCRA368 (1996).
A reduction of capital to justify the mass layoff of employees, especially of union
members, amounts to nothing but a premature and plain distribution of corporate
assets to obviate a just hearing to labor of the vast profits obtained by its joint efforts
with capital through the years, and would constitute unfair labor practice.
xMadrigal & Co. v. Zamora, 151 SCRA 355 [1987]);
(d) Incur, Create or Increase Bonded Indebtedness (Sec. 38)
(e) Sell or Dispose of Assets (Sec. 40).

Sale by the Board of the only property of the corporation without compliance with
the provisions of Sec. 40 of the Corporation Code requiring the ratification of
members representing at least two-thirds of the membership, would make the sale
null and void. xIslamic Directorate of the Philippines v. Court of Appeals, 272 SCRA
454 (1997); also xPeña
v. CA, 193 SCRA 717 (1991).
(f) Invest Corporate Funds in Another Corporation or Business or For

Any Other Purpose (Sec. 42; De la Rama v. Ma-ao Sugar Central Co., 27 SCRA
247 [1969]).
(g) Declare Dividends (Sec. 43; Nielson & Co. v. Lepanto Consolidated Mining
Co., 26 SCRA 540 [1968]).
Stock dividend is the amount that the corporation transfers from its surplus
profit account to its capital account. It is the same amount that can loosely be terms as
the “trust fund” of the corporation. xNational Telecommunications Commission v.
Court of Appeals, 311 SCRA 508, 514-515 (1999).
Although the certificates of stock granted the stockholder the right to receive
quarterly dividends of 1%, cumulative and participating, the stockholders do not
become entitled to the payment thereof as a matter of right without necessity of a prior
declaration of dividends. . . Both Sec. 16 of the Corporation Law and Sec. 43 of the
present Corporation Code prohibit the issuance of any stock dividend without the
approval of stockholders, representing not less than two-thirds (2/3) of the
33
outstanding capital stock at a regular or special meeting duly called for the purpose.
These provisions underscore the fact that payment of dividends to a stockholder is not
a matter of right but a matter of consensus. Furthermore, “interest bearing stocks”, on
which the corporation agrees absolutely to pay interest before dividends are paid to
the common stockholders, is legal only when construed as requiring payment of
interest as

34
dividends from net earnings or surplus only. xRepublic Planters Bank v. Agana, 269
SCRA 1 (1997).
(i) Enter into Management Contracts (Sec. 44; Nielson & Co., Inc. v. Lepanto
Consolidated Mining, 26 SCRA 540 [1968]; Ricafort v. Moya, 195 SCRA 247, at pp.
266-267 [1991]). Why the difference in rule between entity and individual?
(j) Other Powers

- To Sell Land and Other Properties
A corporation whose primary purpose is to market, distribute, export and import
merchandise, the sale of land is not within the actual or apparent authority of
the corporation acting through its officers, much less when acting through the
treasurer. Likewise Article 1874 and 1878 of the Civil Code requires that when land is
sold through an agent, the agent’s authority must be in writing, otherwise the sale is
void. xSan Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, 296
SCRA 631, 645 (1998).
- To Borrow Funds
The power to borrow money is one of those cases where even a special
power of attorney is required under Art. 1878 of the New Civil Code. There is
invariably a need of an enabling act of the corporation to be approved by its Board
of Directors. The argument that the obtaining of loan was in accordance with the
ordinary course of business usages and practices of the corporation is devoid of merit
because the prevailing practice in the corporation was to explicitly authorize an
officer to contract loans in behalf of the corporation. xChina Banking Corp. v. Court
of Appeals, 270 SCRA 503 (1997).
- To Provide Gratuity Pay for Employees

Providing gratuity pay for its employees is one of the express powers of a
corporation under the Corporation Code, and cannot be considered to be ultra vires to
avoid any liability arising from the resolution granting such gratuity pay. xLopez
Realty v. Fontecha, 247 SCRA 183, 192 (1995).
- To Donate
- To Enter Into Partnership, Joint Venture. Tuason & Co. v. Bolanos, 95 Phil. 106
(1954).
X. DIRECTORS, TRUSTEES AND OFFICERS

1. Powers of Board of Directors or Trustees (Sec. 23; Gamboa v. Victoriano,
90 SCRA 40 [1979]).
(a) Two Theories on Source of Power of Board of Directors (Angeles v.
Santos, 64 Phil. 697 [1937]).
(b) Board Must Act As Body (Sec. 25; The Board of Liquidators v. Heirs of Maximo
M. Kalaw, 20 SCRA 987 [1967]; Ramirez v. Orientalist Co. and Fernandez, 38 Phil.
634 [1918]; Acuña
v. Batac Producers Cooperative Marketing Association, 20 SCRA 526 [1967]).
The general rule is that a corporation, through its broad of directors, should act in
the manner and within the formalities, if any, prescribed by its charter or by the
general law. Thus, directors must act as a body in a meeting called pursuant to the
law or the corporation's by-laws, otherwise, any action taken therein may be
questioned by any objecting director or shareholder. Be that as it may,
jurisprudence tells us that an action of the board of directors during a meeting, which
was illegal for lack of notice, may be ratified either expressly, by the action of the
directors in subsequent legal meeting, or impliedly, by the corporation's subseqeunt
course of conduct. xLopez Realty v. Fontecha, 247 SCRA 183, 192 (1995).
(c) Effects of a “Bogus” Board

The acts or contracts effected by a bogus board would be void pursuant to Art.
1318 of the Civil Code because of the lack of “consent”. Islamic Directorate of the
Philippines v. Court of Appeals, 272 SCRA 454 (1997).
(d) Executive Committee (Sec. 35)
2. BUSINESS JUDGMENT RULE (Montelibano v. Bacolod-Murcia Miling Co., Inc., 5 SCRA

36 [1962];
Philippine Stock Exchange, Inc. v. Court of Appeals, 281 SCRA 232 [1997])
35
Board members and officers who purport to act for and in behalf of the
corporation, keep within the lawful scope of their authority in so acting and act in
good faith, do not become liable, whether civilly or otherwise, for the consequences
of their acts. Those acts,

36
when they are such a nature and are done under such circumstances, are
properly attributed to the corporation alone and no personal liability is incurred by such
officers and Board members. xBenguet Electric Cooperative, Inc. v. NLRC, 209
SCRA 55 (1992)
3. Qualifications of Directors and Trustees (Secs. 23 and 27; Gokongwei, Jr. v.

SEC, 89 SCRA 336 [1979]).
(a) A director must own at least one share of stock (xPeña v. CA, 193 SCRA 717
[1991]; xDetective & Protective Bureau, Inc. v. Cloribel, 26 SCRA 255 [1969])
(b) Mere beneficial ownership in a voting trust arrangement no longer qualifies (Lee v.
CA, 205 SCRA 752 [1992]).
4. Election of Directors and Trustees

(a) Directors (Secs. 24 and 26; Premium Marble Resources v. Court of Appeals, 264
SCRA 11 [1996]).
(b) Trustee (Secs. 92 and 138)
(c) Cumulative Voting (Sec. 24; Cumulative Voting in Corporate Elections:

Introducing Strategy in the Equation, 35 SOUTH CAROLINA L. REV. 295)
5. Vacancy in Board (Sec. 29)

By-law provision or the practice giving a stockholder a permanent seat in the Board
of Directors would be against the provision of Sections 28 and 29 of the Corporation Code
which requires member of the board of corporations to be elected. In addition, Section 23
of the Corporation Code which provides for the powers of the Board of Directors or
Trustees expressly requires them “to be elected from among the holders of stock, or
where there is no stock, from among the members of the corporation. xGrace Christian
High School v. Court of Appeals, 281 SCRA 133 (1997).
6. Term of Office, Hold-over Principle

Directors may lawfully fill vacancies occurring in the board, and such officials, as
well as the original directors, hold until qualification of their successors. xGovernment v.
El Hogar Filipino, 50 Phil. 399 (1927).
The remedy is quo warranto to question the legality and proper qualification of
persons elected to the board. xPonce v. Encarnacion, 94 Phil. 81 (1953).
7. Removal of Directors or Trustees (Sec. 28; Roxas v. De la Rosa, 49 Phil. 609

[1926]).
8. Directors' or Trustees' Meetings (Secs. 49, 53, 54 and 92)

In a board meeting, an abstention is presumed to be counted as an affirmative
vote insofar as it may be construed as an acquiescence in the action of those who
voted affirmatively; but such presumption, being merely prima facie would not hold in the
face of clear evidence to the contrary. xLopez v. Ericta, 45 SCRA 539 [1972]).
9. Compensation of Directors (Sec. 30)

Directors and trustees are not entitled to salary or other compensation when they
perform nothing more than the usual and ordinary duties of their office, founded on the
presumption that directors and trustees render service gratuitously, and that the return
upon their shares adequately furnishes the motives for service, without compensation.
Western Institute of Technology, Inc. v. Salas, 278 SCRA 216, 223 (1997).
Under Section 30 of the Corporation Code, there are two (2) ways by which members
of the board can be granted compensation apart from reasonable per diems: (a) when
there is a provision in the by-laws fixing their compensation; and (b) when the
stockholders representing a majority of the outstanding capital stock at a regular or
special meeting agree to give them compensation. From the language of Section 30, it
may also be deduced that members of the board may also receive compensation,
when they render services to the corporation in a capacity other than as directors or
trustees of the corporation. Western Institute of Technology, Inc. v. Salas, 278 SCRA 216
(1997).
The position of being Chairman and Vice-Chairman, like that of Treasurer and
Secretary, were considered by the officers as not mere directorship position, but
officership position that would entitle the occupants to compensation. Likewise, the
limitation placed under Section 30 of the Corporation that directors cannot receive
compensation exceeding 10% of the net income of the corporation, would not apply to
the compensation given to such positions since it is being given in their capacity as
officers of the corporation and not as board members. Western Institute of
Technology, Inc. v. Salas, 278 SCRA 216 (1997).
37
10. Role of Directors

38
(a) Directors as Fiduciaries.
- Pre-Corporation Code. Palting v. San Jose Petroleum, Inc., 18 SCRA 924 (1966).
- Nature of Duties of Directors and Officers. Prime White Cement Corp. v. IAC, 220
SCRA 103 (1993).
(b) Duty of Obedience
A corporation, through its board of directors, should act in the manner and within
the formalities, if any, prescribed by its charter or by the general law. xLopez Realty,
Inc. v. Fontecha, 247 SCRA 183 (1995)
(c) Duty of Diligence (Sec. 31; Steinberg v. Velasco, 52 Phil. 953 [1929]; Bates v. Dresser,
251
U.S. 524, 64 L. Ed. 388, 40 S. Ct. 247 [1919]; Smith v. Van Gorkam, 488 A.2d 858, Supreme
Court of Delaware, 1985)..
(d) Duty of Loyalty (Secs. 31 to 34; Mead v. McCullough, 21 Phil. 95 [1911]).

- Doctrine of Corporate Opportunity (Gokongwei v. SEC, 89 SCRA 336
[1979]; See
Annotations: Doctrine of Corporate Opportunity, 89 SCRA 412).
- Self-dealings (Secs. 32 and 33)
- Using Inside Information (Gokongwei v. SEC, 89 SCRA 336 [1979]).
When a director, who also owns ¾ of the equity of the corporation, who has also
been designated as the administrator of corporate affairs, and who was directly
negotiating the sale of the corporations large landholdings to the Government at great
prices, purchases the shares of stock of a shareholder without informing the latter
of the on-going negotiations, such director is deemed to have fraudulently acquired
the shareholdings by way of deceit practiced by means of concealing his knowledge of
the state of the negotiations and their probable successful result. xStrong v. Repide,
41 Phil. 947 [1909];
- Applies to confidential employees (cf. xSing Juco v. Llorente, 43 Phil. 589 [1922])
(e) Duty to Creditors and Outsiders
[xVILLANUEVA, The Fiduciary Duties of Directors and Officers
Representing the Creditor Pursuant to a Loan Workout Arrangement:
Parameters Under Philippine Corporate Setting, 35 ATENEO L.J. (No. 1,
Feb. 1991)]
(f) Corporate Dealings with Directors and Officers (Sec. 32; Gokongwei v.
SEC, 89 SCRA 336 [1979]; Prime White Cement Corp. v. IAC, 220 SCRA 103
[1993]).
(g) Contracts Between Corporations with Interlocking Directors (Sec. 33)
11. Who Is an "Officer" of the Corporation (Sec. 25; Gurrea v. Lezama, 103 Phil.
553 [1958]; Mita Pardo de Tavera v. Tuberculosis Society, 112 SCRA 243 [1982];
PSBA v. Leaño, 127 SCRA 778 [1984]; Dy v. NLRC, 145 SCRA 211 [1986]; xVisayan v.
NLRC, 196 SCRA 410 [1991]).
Corporations act only through their officers and duly authorized agents. All acts
within the powers of a corporation may be performed by agents of its selection; except
so far as limitations or restrictions imposed by special charter, buy-laws, or statutory
provisions. xBA Savings Bani v. Sia, 336 SCRA 484 (2000).
An “office” is created by the charter of the corporation and the officer is elected by
the directors or stockholders. . . Note that a corporate officer’s removal from his office is a
corporate act. If such removal occasions an intra-corporate controversy, its nature is
not altered by the reason or wisdom, or lack thereof, with which the Board of Directors
might have in taking such action. When petitioner, as Executive Vice-President allegedly
diverted company funds for his personal use resulting in heavy financial losses in the
company, this matter would amount to fraud. Such fraud would be detrimental to the
interest not only of the corporation but also of its members. This type of fraud
encompasses controversies in a relationship within the corporation covered by the SEC
jurisdiction [now with the regular courts]. Perforce, the matter would come within the area
of corporate affairs and management, and such a corporate controversy would call for
the adjudicative expertise of the SEC, not the Labor Arbiter or the NLRC.” De Rossi v.
NLRC, 314 SCRA 245 (1999).
When the by-laws of the condominium corporation specifically includes the position of
“Superintendent/Administrator” in is roster of corporate officers, then such position is
clearly a corporate officer position and issues of reinstatement would be within the
jurisdiction of the SEC and not the NLRC. xOngkingco v. NLRC, 270 SCRA 613 (1997).
When the by-laws provide that one of the powers of the Board of Trustees is “[t]o
appoint a Medical Director, Comptroller/Administrator, Chiefs of Services and such other
39
officers as it may deem necessary and prescribe their powers and duties,” then such
specifically designated positions should be considered “corporate officers” position. The
determination of the rights and the concomitant liability arising from any ouster from such
positions, would be intra-corporate controversy subject to the jurisdiction of the SEC
(now RTC). xTabang v. NLRC, 266 SCRA 462 (1997).

40
An “office” is created by the charter of the corporation and the officer is elected by
the directors or stockholders (2 Fletcher Cyc. Corp. Ch. II, Sec. 266). On the other
hand, an “employee” usually occupies no office and generally is employed not by action of
the directors or stockholders but by the managing officer of the corporation who also
determines the compensation to be paid to such employee. (Ibid) . . . A corporate officer’s
dismissal is always a corporate act, or an intra-corporate controversy, and the nature is
not altered by the reason or wisdom with which the Board of Directors may have in taking
such action. xTabang v. NLRC, 266 SCRA 462 (1997).
The president, vice-president, secretary and treasurer are commonly regarded as
the principal or executive officers of a corporation, and modern corporation statutes
usually designate them as the officers of the corporation. However, other offices are
sometimes created by the charter or by-laws of a corporation, or the board of
directors may be empowered under the by-laws of a corporation to create additional
offices as may be necessary. xTabang v. NLRC, 266 SCRA 462 (1997).
12. Powers of Corporate Officers:

(a) The Rule on Corporate Officer’s Power to Bind Corporation
An officer's power as an agent of the corporation must be sought from the
statute, charter, the by-laws or in a delegation of authority to such officer, from the
acts of the board of directors formally expressed or implied from a habit or custom
of doing business. xVicente
v. Geraldez, 52 SCRA 210 [1973]; reiterated in xBoyer-Roxas v. CA, 211 SCRA 470
(1992).
(b) When Corporation Bound by Act of Its President. People’s Aircargo v.
Court of Appeals, 297 SCRA 170 (1998)
(c) Corporate Secretary
In the absence of provisions to the contrary, the corporate secretary is the
custodian of corporate records—he keeps the stock and transfer book and makes
proper and necessary entries therein. It is the duty and obligation of the corporate
secretary to register valid transfers of stock in the books of the corporation; and in the
event he refuses to comply with such duty, the transferor-stockholder may rightfully
bring suit to compel performance. xTorres, Jr. v. Court of Appeals, 278 SCRA 793
(1997).
When a Secretary’s Certificate is regular on its face, it can be relied upon by
a third party who does not have to investigate the truths of the facts contained in such
certification; otherwise business transactions of corporations would become
tortuously slow and unnecessarily hampered. xEsguerra v. Court of Appeals, 267
SCRA 380 (1997).
(d) Corporate Treasurer
A corporate treasurer’s function have generally been described as “to receive and
keeps funds of the corporation, and to disburse them in accordance with the
authority given him by the board or the properly authorized officers.” Unless duly
authorized, a treasurer, whose power are limited, cannot bind the corporation in a
sale of its assets. Selling is obviously foreign to a corporate treasurer’s function.
When the corporation categorically denies ever having authorized its treasurer to sell
the subject parcel of land, the buyer had the burden of proving that the treasurer was in
fact authorized to represent and bind the allegedly selling corporation in the
transaction. And failing to discharge such burden, and failing to show any provision of
the articles of incorporation, by-laws or board resolution to prove that the treasurer
possessed such power, the sale is void and not binding on the alleged selling
corporation. xSan Juan Structural and Steel Fabricators, Inc. v. Court of Appeals,
296 SCRA 631, 645 (1998).
(e) Other “Officers” for Service of Summons on Corporation
For purposes of determining proper service of summons to a corporation in a
quasi- judicial proceeding before the NLRC, a bookkeeper can be considered as an
agent of the corporation within the purview of the Rules of Court. The rationale of all
rules with respect to service of process on a corporation is that such service must be
made to an agent or a representative so integrated with the corporation sued as to
make it a priori supposable that he will realize his responsibilities and know what he
should do with any legal papers served on him. The bookkeeper’s task is one under
consideration that his regular recording of the corporation’s “business accounts” and
“essential facts about the transactions of a business or enterprise” safeguards the
corporation from possible fraud being committed adverse to its own corporate
interest. xPabon v. NLRC, 296 SCRA 7 (1998).
In spite of provisions of the Rules of Court on service of process to bind
corporate entities, service made to a representative so integrated with the
corporation sued as to make it a priori supposable that he will realize his
responsibilities and know what he should do with any legal papers served on him, has
41
been considered proper service to bind the corporation. (xVilla Rey Transit, Inc. v. Far
East Motor Corp., 81 SCRA 298 [1078], overturning xDelta Motor Sales Corp. v.
Mangosing, 70 Phil. 598 [1976]; reiterated in xR. Transport Corp. v. CA, 24a SCRA 77
[1995]).

42
Section 11, Rule 14 of the 1997 Rules of Civil Procedure uses the term
“general manager” and unlike the old provision in the Rules of Court, it does not
include the term “agent”. Consequently, the enumeration of persons to whom
summons may be served is “restricted, limited and exclusive” following the rule on
statutory construction expressio unios est exclusion alterius. Therefore, the earlier
cases that uphold service of summons upon a construction project manager;1 a
corporation’s assistant manager;2 ordinary clerk of a corporation;3 private secretary of
corporate executives;4 retained counsel;5 officials who had charge or control of the
operations of the corporation, like the assistant general manager;6 or the corporation’s
Chief Finance and Administrative Officer;7 no longer apply since they were decided
under the old rule that allows service of summons upon an agent8 of the corporation.
xE.B. Villarosa & Partners Co., Ltd. v. Benito, 312 SCRA 65 (1999).
(f) Coverage of Corporate “Agents”

Black’s Law Dictionary defines an “agent” as “a business representative,
whose function is to bring about, modify, affect, accept performance of, or terminate
contractual obligations between principal and third persons.” To this extent, an
“agent” may also be shown to represent his principal in some one or more of his
relations to others, even though he may not have the power to enter into
contracts. The rules on service of process make service on “agent” sufficient. It
does not in any way distinguish whether the “agent” be general or special, but is
complied with even by a service upon an agent having limited authority to
represent his principal. As such, it does not necessarily connote an officer of the
corporation. However, though this may include employees other than officers of a
corporation, this does not include employees whose duties are not so integrated to
the business that their absence or presence will not toll the entire operation of the
business. xPabon v. NLRC, 296 SCRA 7 (1998).
13. LIABILITIES OF CORPORATE OFFICERS: (Sec. 31; Vazquez v. Borja, 74 Phil. 560 (1944);
Palay, Inc. v.
Clave, 124 SCRA 638 [1093]; Tramat Mercantile, Inc. v. CA, 238 SCRA 14 [1994];
Pabalan v. NLRC, 184 SCRA 495 [1990]; xSulo ng Bayan, Inc. v. Araneta, Inc. Inc., 72 SCRA
347 [1976]; xMindanao Motors Lines, Inc. v. Court of Industrial Relations, 6 SCRA 710
(1962);
The general rule is that corporate officers are not personally liable for their official
acts unless it is shown that they have exceeded their authority. xARB Constructions
Co., Inc. v. Court of Appeals, 332 SCRA 427 (200)
Jurisprudential Enumeration of Officer Liabilities - MAM Realty v. NLRC,

244 SCRA 797, (1995); reiterated in xNational Food Authority v. Court of Appeals,
311 SCRA 700 (1999);
xUichico v. NLRC, 273 SCRA 35 (1997).
The hornbook law is that corporate personality is a shield against personal liability
of its officers. Thus, when the trust receipt sued upon was clearly entered into in behalf
of the corporation by its Executive Vice-President, then such officer and his spouse cannot
be made personally liable; the personality of the corporation is separate and distinct from
the persons composing it. xThe Consolidated Bank and Trust Corp. v. Court of Appeals,
G.R. No. 114286, 19 April 2001.
Personal liability of a corporate director, trustee or officer along (although not
necessarily) with the corporation may so validly attach, as a rule, only when:
(a) He assents to a patently unlawful act of the corporation;
(b) Guilty of bad faith or gross negligence in directing its affairs;
(c) for conflict on interest resulting in damages to the corporation, its stockholders
or other persons;
(d) He consents to the issuance of watered down stocks or who, having
knowledge thereof, does not forthwith file with the corporate secretary his
written objection thereto;
(e) He agrees to hold himself personally and solidarily liable with the corporation; or
(f) He is made, by a specific provisions of law, to personally answer for his
corporate action. xAtrium Management Corporation vs. Court of Appeals, G.R.
No. 109491, 28 February 2001
1
Kanlaon Construction Enterprises Co., Inc. v. NLRC, 279 SCRA 337 (1997).
2
Gesulgon v. NLRC, 219 SCRA 561 (1993).
3
Golden Country Farms, Inc. v. Sanvar Development Corp., 214 SCRA 295 (1992); G & G Trading Corp. v. Court of Appeals, 158
SCRA 466 (1988).
4
Summit Trading and Dev. Corp. v. Avendaño, 135 SCRA 397 (1985); also Vlason Enterprises Corp. v. Court of Appeals,
310 SCRA 26 (1999).
43
5
Republic v. Ker & Co., Ltd., 18 SCRA 207 (1966).
6
Villa Rey Transit, Inc. v. Far East Motor Corp., 81 SCRA 298 (1978).
7
Far Corporation v. Francisco, 146 SCRA 197 (1986).
8
Filoil Marketing Corp. v. Marine Dev. Corp. of the Philippines, 177 SCRA 86 (1982).

44
The finding of solidary liability among the corporation and its officers and
directors would patently be baseless when the decision contains no allegation, finding
or conclusion regarding particular acts committed by said officers and members of the
Board of Directors that show them to have been individually guilty of unmistakable
malice, bad faith, or ill-motive in their personal dealings with third parties. When
corporate officers and directors are sued merely as nominal parties in their official
capacities as such, they cannot be held liable personal for the judgment rendered against
the corporation. xNational Power Corp. v. Court of Appeals, 273 SCRA 419 (1997).
When corporate officers are sued in their official capacity, the suit is equivalent to a
suit against the corporation, and judgment may be enforced against corporate assets.
xEmilio Cano Enterprises, Inc. v. CIR, 13 SCRA 291 (1965).
An attempt by the corporation to avoid liability by distancing itself from the acts of
the its President was struck down with the Court holding that a corporation may not
distance itself from the acts of a senior officer: "the dual roles of Romulo F. Sugay
should not be allowed to confuse the facts." xR.F. Sugay v. Reyes, 12 SCRA 700
(1961).
Generally, officers or directors under the old corporate name bear no personal
liability for acts done or contracts entered into by officers of the corporation, if duly
authorized. xRepublic Planters Bank v. CA, 216 SCRA 738 (1992).
An officer-stockholder who is a party signing in behalf of the corporation to a
fraudulent contract cannot claim the benefit of separate juridical entity: "Thus, being a
party to a simulated contract of management, petitioner Uy cannot be permitted to escape
liability under the said contract by using the corporate entity theory. This is one
instance when the veil of corporate entity has to be pierced to avoid injustice and
inequity." xParadise Sauna Massage Corporation v. Ng, 181 SCRA 719 (1990).
(a) Special Provisions in Labor Laws. - In the Labor Code since a corporate
employer is an artificial person, it must have an officer who can be presumed to be
the employer, being the "person acting in the interest of (the) employer" as provided
in the Labor Code. A.C. Ransom Labor Union-CCLU v. NLRC, 142 SCRA 269 (1986).
Under the Labor Code, in the case of corporations, it is the president who responds
personally for violation of the labor pay laws. xVillanueva v. Adre, 172 SCRA 876
(1989).
For the separate juridical personality of a corporation to be disregarded, the
wrongdoing must be clearly and convincingly established. Del Rosario v. NLRC, 187
SCRA 777 (1990).
A corporate officer cannot be held personally liable for a corporate debt simply
because he had executed the contract for and in behalf of the corporation. It held
that when a corporate officer acts in behalf of a corporation pursuant to his
authority, is "a corporate act for which only the corporation should be made liable for
any obligations arising from them." xWestern Agro Industrial Corporation v. Court of
Appeals, 188 SCRA 709 (1990).
Only the responsible officer of a corporation who had a hand in illegally dismissing
an employee should be held personally liable for the corporate obligations arising from
such act. Maglutac v. NLRC,189 SCRA 767 (1990); reiterated in xGudez v. NLRC,
183 SCRA 644 (1990) and xChua v. NLRC, 182 SCRA 353 (1990).
The case of Ransom v. NLRC is not in point because there the debtor
corporation actually ceased operations after the decision of the Court of Industrial
Relations was promulgated against it, making it necessary to enforce it against its
former president. When the corporation is still existing and able to satisfy the
judgment in favor of the private respondent, the corporate officers cannot be held
personally liable. Lim v. NLRC, 171 SCRA 328 (1989).
The aforecited cases will not apply to the instant case, however, because the
persons who were there made personally liable for the employees' claims were
stockholders-officers of the respondent corporation. In the case at bar, the petitioner
while admittedly the highest ranking local representative of the corporation, is
nevertheless not a stockholder and much less a member of the board of directors or
an officer thereof. xDe Guzman v. NLRC, 211 SCRA 723 (1992)
A mere general manager cannot be held solidarily liable with the corporation for
unpaid labor claims, especially when he is neither a stockholder or a member of the
board of the corporation. xDe Guzman v. NLRC, 211 SCRA 723 (1992)
A president cannot be held solidarily liable personally with the corporation
absent evidence of showing that he acted maliciously or in bad faith. xEPG
Constructions Co. v. CA, 210 SCRA 230 (1992).
A judgment rendered against a person "in his capacity as President" of the
corporation was enforceable against the assets of such officer when the decision
itself found that he merely used the corporation as his alter-ego or as his business
45
conduit. xArcilla v. Court of Appeals, 215 SCRA 120 (1992).

46
The President and General Manager of a corporation who entered into and
signed a contract in his official capacity cannot be made liable thereunder in his
individual capacity in the absence of stipulation to that effect due to the
personality of the corporation being separate and distinct from the persons
composing it. xRustan Pulp & Paper Mills, Inc. v. IAC, 214 SCRA 665 (1992), citing
xBanque Generale Belge v. Walter Bull and Co., 84 Phil. 164
(1949).
Reahs Corporation v. NLRC, 271 SCRA 247 (1997), reviewed the A.C. Ransom
doctrine of imposing solidarily liability on the highest officers of the corporation for
judgment on labor claims rendered against the corporation pursuant to Art. 283 of
the Labor Code, and reviewed its application in subsequent cases of Maglutac, Chua,
Gudez and Pabalan. It reiterated the main doctrine of separate personality of a
corporation which should remain as the guiding rule in determining corporate liability
to its employees, and that at the very least, to justify solidary liability, “there must be
an allegation or showing that the officers of the corporation deliberately or maliciously
designed to evade the financial obligation of the corporation to its employees,” or a
showing that the officers indiscriminately stopped its business to perpetuate an
illegal act, as a vehicle for the evasion of existing obligations, in circumvention of
statutes, and to confuse legitimate issues.
Corporate officers are not personally liable for money claims of discharged
employees unless they acted with evident malice and bad faith in terminating their
employment. xAHS/Philippines v. Court of Appeals, 257 SCRA 319 (1996).
The finding of solidary liability among the corporation and its officers and
directors would patently be baseless when the decision contains no allegation, finding
or conclusion regarding particular acts committed by said officers and members of
the Board of Directors that show them to have been individually guilty of
unmistakable malice, bad faith, or ill- motive in their personal dealings with third
parties. When corporate officers and directors are sued merely as nominal parties in
their official capacities as such, they cannot be held liable personal for the judgment
rendered against the corporation. xNational Power Corp. v. Court of Appeals, 273
SCRA 419 (1997).
In labor cases, particularly, corporate directors and officers are solidarily liable
with the corporation for the termination of employment of corporate employees done
with malice or in bad faith. In this case, it is undisputed that the corporate officers have
a direct hand in the illegal dismissal of the employees. They were the one, who as
high-ranking officers and directors of the corporation, signed the Board Resolution
retrenching the employees on the feigned ground of serious business losses that had
no basis apart from an unsigned and unaudited Profit and Loss Statement which, to
repeat, had no evidentiary value whatsoever. This is indicating of bad faith on the part
of the corporate officers for which they can be held jointly and severally liable with the
Corporation for all the money claims of the illegally terminated employees. xUichico v.
NLRC, 273 SCRA 35 (1997).
A corporation, being a juridical entity, may act only through its directors, officers
and employees and obligations incurred by them, acting as corporate agents, are
not theirs but the direct accountabilities of the corporation they represent. xBrent
Hospital, Inc. v. NLRC, 292 SCRA 304 (1998).
The manager of a corporation are not personally liable for their official acts unless
it is shown that they have exceeded their authority. There is nothing on record to show
that the manager deliberately and maliciously evaded the corporation’s financial
obligation to the employee; hence, there appearing to be no evidence on record that
the manager acted maliciously or deliberately in the non-payment of benefits to the
employee, the manager cannot be held jointly and severally liable with the corporate
employers. [CLV – Nothing was shown to determine whether the corporate employer
had no assets with which to pay the claims of the employee]. xNicario v. NLRC,
295 SCRA 619 (1998).
In xRestuarante Las Conchas v. Llego, 314 SCRA 24 (1999), the Supreme Court
had apparently returned to the A.C. Ransom principle that “[a]lthough as a rule, the
officers and members of a corporation are not personally liable for acts done in the
performance of their duties, this rule admits of exceptions, one of which is when the
employer corporation is no longer existing and is unable to satisfy the judgment in
favor of the employee, the officers should be held liable for acting on behalf of the
corporation.” In that case, the restaurant business had to be closed down because
possession of the premises had been lost through an adverse decision in an
ejectment case. The Court held: “In the present case, the employees can no longer
claim their separation benefits and 13th month pay from the corporation because it
had already ceased operation. To require them to do so would render illusory the
separation and 13tj month pay awarded to them by the NLRC. Their only recourse is
to satisfy their claim from the officers of the corporation who were, in effect,
acting in behalf of the corporation.”
The A.C. Ransom doctrine has been reiterated in xCarmelcraft Corp. v. NLRC, 186
47
SCRA 393 (1990), xValderrama v. NLRC, 256 SCRA 466 (1996).

48
XI. STOCKHOLDERS AND MEMBERS
1. Shareholders Not Creditors of Corporation (Garcia v. Lim Chu Sing, 59 Phil. 562
[1934]).
2. Subscription Contracts (Sec. 60 and 72; Trillana v. Quezon Colegialla, 93 Phil. 383
[1953]).
(a) Purchase Agreement (Bayla v. Silang Traffic Co., Inc., 73 Phil. 557 [1942]).
(b) Pre-Incorporation Subscription (Sec. 61)
(c) Release from Subscription Obligation (Velasco v. Poizat, 37 Phil. 802 [1918]; PNB
v. Bitulok Sawmill, Inc., 23 SCRA 1968 [1968]; National Exchange Co. v. Dexter, 51
Phil. 601 [1928])
(d) When condition of payment provided for in the by-laws (De Silva v. Aboitiz & Co., 44
Phil. 755 [1923]).
3. Consideration (Sec. 62).

(a) Cash
(b) Property
(c) Service
(d) Retained Earnings
(e) Share
Stock dividends are in the nature of shares of stock, the consideration for which is
the amount of unrestricted retained earnings converted into equity in the corporation’s
books. xLincoln Philippine Life v. Court of Appeals, G.R No. 118043, 23 July 1998.
4. Watered Stocks (Sec. 65)
5. Payment of Balance of Subscription (Secs. 66 and 67; Lingayen Gulf Electric
Power Co. v. Baltazar, 93 Phil. 404 [1953]).
6. Delinquency on Subscription (Secs. 68, 69, 70 and 71; xPhilippine Trust Co. v.
Rivera, 44
Phil. 469 [1923]; xMiranda v. Tarlac Rice Mill Co., 57 Phil. 619 [1932])
The prescriptive period to recover on unpaid subscription does not commence
from the time of subscription but from the time of demand by the corporation through it
board of directors for the stockholder to pay the balance of his subscription (xGarcia v.
Suarez, 67 Phil. 441[1939]).
(a) Who May Question a Delinquency Sale (Sec. 68 and 69).
7. Certificate of Stock (Sec. 63)

(a) Nature of Certificate (Tan v. SEC, 206 SCRA 740 [1992]; De los Santos v.
Republic, 96 Phil. 577 [1955]; xC.N. Hodges v. Lezama, 14 SCRA 1030 [1965]).
A stock certificate is merely evidence of a share of stock and not the share
itself. xLincoln Philippine Life v. Court of Appeals, 293 SCRA 92 (1998).
A formal certificate of stock could not be considered issued in contemplation
of law unless signed by the president or vice-president and countersigned by the
secretary or assistance secretary. Bitong v. Court of Appeals, 292 SCRA 503
(1998).
(b) Quasi-negotiable Character of the Certificate of Stock (Bachrach Motor

Co. v. Lacson Ledesma, 64 Phil. 681 [1937]).
In order for a transfer of stock certificate to be effective, the certificate must be
properly indorsed and that title to such certificate of stock is vested in the transferee by
the delivery of the duly indorsed certificate of stock. Indorsement of the certificate of
stock is a mandatory requirement of law for an effective transfer of a certificate of
stock. Razon v. IAC, 207 SCRA 234 (1992).
The rule is that the endorsement of the certificate of stock by the owner or his
attorney- in-fact or any other person legally authorized to make the transfer shall be
sufficient to effect the transfer of shares only if the same is couple with delivery. The
delivery of the stock certificate duly endorsed by the owner is the operative act of
transfer of shares from the lawful owner to the new transferee. Thus, for a valid
transfer of stocks, the requirements are as follows: (a) There must be delivery of the
stock certificate; (b) The certificate must be endorsed by the owner or his attorney-in-
fact or other persons legally authorized to make the transfer; and (c) to be valid
against third parties, the transfer must be recorded in the books of the corporation.
Bitong v. Court of Appeals, 292 SCRA 503 (1998).

49
(c) Right to Issuance (Sec. 64; Baltazar v. Lingayen Gulf Elect. Power Co., Inc., 14
SCRA 522 [1965]).
(d) Lost or Destroyed Certificates (Sec. 63 and 73)

While Section 73 of the Corporation Code appears to be mandatory, the same
admits exceptions, such that a corporation may voluntarily issue a new
certificate in lieu of the

50
original certificate of stock which has been lost without complying with the
requirements under Section 73 of the Corporation Code, provided that the
corporation is certain as to the real owner of the shares to whom the new certificate
shall be issued. . . . It would be an internal matter for the corporation to find
measures in ascertaining who are the real owners of stock for purposes of liquidation.
It is well-settled that unless proven otherwise, the “stock and transfer book” of the
corporation is the best evidence to establish stock ownership. (SEC Opinion, dated 28
January 1999, addressed to Ms. Ma. Cecilia Salazar- Santos).
(e) Forged and Unauthorized Transfers (J. Santamaria v. HongKong and Shanghai
Banking Corp., 89 Phil. 780 [1951]; Neugene Marketing, Inc. v. Court of Appeals,
303 SCRA 295 [1999]).
8. Stock and Transfer Book (Secs. 63, 72 and 74; Fua Cun v. Summers, 44 Phil.
704 [1923];
Monserrat v. Ceran, 58 Phil. 469 [1933]; Chua Guan v. Samahang Magsasaka, Inc., 62
Phil. 472
[1935]; Uson v. Diosomito, 61 Phil. 535 [1935]; Escaño v. Filipinas Mining Corporation,
74 Phil.
71 [1944]; Bachrach Motors v. Lacson-Ledesma, 64 Phil. 681 [1937]; Nava v. Peers
Marketing
Corp., 74 SCRA 65 [1976]).
In Garcia v. Jomouad, 323 SCRA 424 (2000), the Supreme Court directly resolved the
issue “Whether a bona fide transfer of the shares of a corporation, not registered or
noted in the books of the corporation, is valid as against a subsequent lawful
attachment of said shares, regardless of whether the attaching creditor had actual
notice of said transfer or not.” The Court quoted from Uson v. Diosomito, which held
that all transfers of shares not entered in the stock and transfer book of the
corporation are invalid as to attaching or execution creditors of the assignors, as well
as to the corporation and to subsequent purchasers in good faith and to all persons
interested, except the parties to such transfers: “All transfers not so entered on the
books of the corporation are absolutely void; bot because they are without notice or
fraudulent in law or fact, but because they are made so void by statute. The Supreme
Court held that “the transfer of the subject certificate made by Dico to petitioner was
not valid as to the spouses Atinon, the judgment creditors, as the same still stood in
the name of Dico, the judgment debtor, at the time of the levy on execution. In addition,
as correctly ruled by the CA, the entry in the minutes of the meeting of the Club’s board
of directors noting the resignation of Dico as proprietary member does not constitute
compliance with Section 63 of the Corporation Code. Said provision of law strictly
requires the recording of the transfer in the books of the corporation, and not
elsewhere, to be valid as against third parties.”
Attachments of shares of stock are not included in the term "transfer" as
provided in Section 63 of the Corporation Code. Both the Revised Rules of Court and the
Corporation Code do not require annotation in the corporation's stock and transfer
books for the attachment of shares to be valid and binding on the corporation and
third parties. Chemphil Export & Import Corporation v Court of Appeals, 251 SCRA 257
(1995).
Until registration is accomplished, the transfer, though valid between the parties,
cannot be effective as against the corporation. Thus, the unrecorded transferee cannot
vote nor be voted for. The purpose of registration, therefore, is two-fold: to enable the
transferee to exercise all the rights of a stockholder, including the right to vote and to
be voted for, and to inform the corporation of any change in share ownership so that it
can ascertain the persons entitled to the rights and subject to the liabilities of a
stockholder. Until challenged in a proper proceeding, a stockholder of record has a right
to participate in any meeting; his vote can be properly counted to determine whether a
stockholders’ resolution was approved, despite the claim of the alleged transferee. On the
other hand, a person who has purchased stock, and who desires to be recognized as a
stockholder for the purpose of voting, must secure such a standing by having the
transfer recorded on the corporate books. Until the transfer is registered, the
transferee is not a stockholder but an outsider. Batangas Laguna Tayabas Bus
Company, Inc. v. Bitanga, G.R. No. 137934, 10 August 2001.
Section 63 of the Corporation Code which provides that “no share of stock
against which the corporation holds any unpaid claim shall be transferable in the
books of the corporation” cannot be utilized by the corporation to refuse to recognize
ownership over pledged shares purchased at public auction. The term “unpaid claims”
refers to “any unpaid claims arising from unpaid subscription, and not to any indebtedness
which a subscriber or stockholder may owe the corporation arising from any other
transactions. Obligations arising from unpaid monthly dues do not fall within the
coverage of Section 63. China Banking Corp. v. Court of Appeals, 270 SCRA 503 (1997).
Entries made on the stock and transfer book by any person other than the
corporate secretary, such as those made by the President and Chairman, cannot be given
51
any valid effect. xTorres, Jr. v. Court of Appeals, 278 SCRA 793 (1997).
A person cannot claim a right to intervene as a stockholder in corporate issue on
the strength of the transfer of shares allegedly executed by a registered stockholder.
The transfer must be registered in the books of the corporation to affect third persons.
The law on corporation

52
is explicit on this under Sec. 63 of the Corporation Code. xMagsaysay-Labrador v.
CA, 180 SCRA 266 (1989)
Section 63 of the Corporation Code envisions a formal certificate of stock which
can be issued only upon compliance with certain requisites. First, the certificate must be
signed by the president or vice-president, countersigned by the secretary or assistant
secretary, and sealed with the seal of the corporation. A mere typewritten statement
advising a stockholder of the extent of his ownership is a corporation without
qualification and/or authentication cannot be considered as a formal certificate of stock.
Second, delivery of the certificate is an essential element of its issuance. Hence, there
is no issuance of a stock certificate where it is never detached from the stock books
although blanks therein are properly filled up if the person whose name is inserted therein
has no control over the books of the company. Third, the par value, as to par value
shares, or the full subscription as to no par value shares, must first be fully paid. Fourth,
the original certificate must be surrendered where the person requesting the issuance
of a certificate is a transferee from a stockholder. Bitong v. Court of Appeals, 292 SCRA
503 (1998).
9. Situs of Shares of Stocks (Sec. 55)
The situs of shares of stock would be the place of domicile of the corporation to which
they pertain to. xWells Fargo Bank and Union v. Collector, 70 Phil. 325 (1940); xTayag v.
Benguet Consolidated, Inc., 26 SCRA 242 (1968); cf. xPerkins v. Dizon, 69 Phil. 186
(1939).
XII. RIGHTS OF STOCKHOLDERS AND MEMBERS

1. What does “Share” represent?
While shares of stock constitute personal property, they do not represent property of
the corporation [i.e., they are properties of the stockholders who own them]. Share of
stock only typifies an aliquot part of the corporation’s property, or the right to share in its
proceeds to that extent when distributed according to law and equity, but the holder is
not the owner of any part of the capital [properties] of the corporation, nor is he entitled
to the possession of any definite portion of its property or assets. The stockholder is not a
co-owner or tenant in common of the corporate property. xStockholders of F. Guanson and
Sons, Inc. v. Register of Deeds of Manila, 6 SCRA 373 (1962).
2. Right to Certificate of Stock for Fully Paid Shares (Sec. 64; Tan v. SEC,
206 SCRA 740 [1992])
3. Preemptive Rights (Sec. 39; Datu Tagoranao Benito v. SEC, 123 SCRA 722 [1983];
Dee v. SEC, 199 SCRA 238 [1991]).
4. Right to Transfer of Shareholdings (Sec. 63)

Authority of a corporation to regulate the transfer of its stock does not empower the
corporation to restrict the right of a stockholder to transfer his shares, but merely
authorizes the adoption of regulations as to the formalities and procedure to be followed in
effecting transfer. xThomson v. Court of Appeals, 298 SCRA 280 (1998).
(a) Non-transferability of Membership in Non-Stock Corporation (Secs. 90

and 91).
(b) Restriction on Transfers (Lambert v. Fox, 26 Phil. 588 [1914])
- Right of Refusal (Padgett v. Babcock & Templeton, Inc., 59 Phil. 232 [1933]).
Section 63 of the Corporation Code contemplates no restriction as to whom the
stocks may be transferred. It does not suggest that any discrimination may be
created by the corporation in favor of, or against a certain purchaser. The owner of
shares, as owner of personal property, is at liberty, under said section to dispose
them in favor of whomever he pleases, without limitation in this respect, than the
general provisions of law. Fleishcher v. Botica Nolasco, 47 Phil. 583 (1925).
The only limitation imposed by Section 63 of the Corporation Code is when the
corporation holds any unpaid claim against the shares intended to be transferred. A
corporation, either by its board, its by-laws, or the act of its officers, cannot create
restrictions in stock transfers, because "Restrictions in the traffic of stock must have
their source in legislative enactment, as the corporation itself cannot create such
impediment. By-laws are intended merely for the protection of the corporation,
and prescribe relation, not restriction; they are always subject to the charter of the
corporation. Rural Bank of Salinas v. CA, 210 SCRA 510 (1992).
Restraint of Trade — An agreement by which a person obliges himself not
to engage in competitive trade for five years is valid and reasonable and not an
undue or unreasonable restraint of trade and is obligatory on the parties who
voluntarily enter into such agreement. xOllendorf v. Abrahamson, 38 Phil. 585
53
(1918).
(c) Remedy If Registration Is Refused (Hager v. Bryan, 19 Phil. 138 [1911])

54
A stipulation on stock certificate that assignment thereof would not be
binding on the corporation unless such assignment is registered in the books of the
club as required under the by-laws, which does not provide when the registration
should be made, would mean that the cause of action and the determination of the
prescription period would begin only upon demand for registration is made and not at
the time of the assignment of the certificate. xWon v. Wack Wack Golf & Country
Club, 104 Phil. 466 (1958).
The claim for damages of what the shares could have sold had the demand
been complied with is deemed to be speculative damage and non-recoverable
xBatong Buhay Gold Mines v. CA, 147 SCRA 4 (1987).
5. Rights to Dividends (Sec. 43)

Although the certificates of stock granted the stockholder the right to receive 1%
quarterly dividends, cumulative and participating, the stockholders do not become
entitled to the payment thereof as a matter of right without necessity of a prior
declaration of dividends. . . Both Sec. 16 of the Corporation Law and Sec. 43 of the
present Corporation Code prohibit the issuance of any stock dividend without the approval
of stockholders, representing not less than two-thirds (2/3) of the outstanding capital stock
at a regular or special meeting duly called for the purpose. These provisions underscore
the fact that payment of dividends to a stockholder is not a matter of right but a matter
of consensus. Furthermore, “interest bearing stocks” on which the corporation agrees
absolutely to pay interest before dividends are paid to the common stockholders, is
legal only when construed as requiring payment of interest as dividends from net
earnings or surplus only. xRepublic Planters Bank v. Agana, 269 SCRA 1 (1997).
6. Rights to Attend Meetings and Vote (Sec. 6, Sec. 89)

Until challenged successfully in the proper proceedings, a stockholder according
to the books of the corporation has a right to participate in any meeting, and in the
absence of fraud the action of the stockholders’ meeting cannot be collaterally attacked
on account of such participation, even if it be shown later on that the shares had been
previously sold (but not recorded). xPrice and Sulu Dev. Co. v. Martin, 58 Phil. 707 (1933)
Sequestration of shares does not entitle the government to exercise acts of
ownership over the shares; consequently, even sequestered shares may be voted
upon by the registered stockholder of record. xCojuangco Jr. v. Roxas, 195 SCRA 797
(1991).
(a) Instances When Stockholders Entitled to Vote:
- Election of directors and trustees (Sec. 24)
- Amendment of articles of incorporation (Sec. 16)
- Investment in another business or corporation (Secs. 36 and 42)
- Merger and consolidation (Sec. 72)
- Increase and Decrease of capital stock (Sec. 38)
- Adoption, amendment and repeal of by-laws (Sec. 48)
- Declaration of stock dividends (Sec. 43)
- Management contracts (Sec. 44)
- Fixing of consideration of no par value shares (Sec. 62)
(b) Joint Ownership (Sec. 56)
(c) Treasury Share No Voting Rights (Sec. 57)
(d) Pledgor, Mortgagors and Administrators (Sec. 55)

When shares of stocks are pledged by means of endorsement in blank and
delivery of the covering certificates to secure a mortgage loan, the pledgee does
not become the owner of the shares simply by the failure of the registered
stockholder to pay his loan. Consequently, without proper foreclosure, the lender
cannot demand that the shares be registered in his name. A contract of pledge of
shares does not make the pledgee the owners of the shares pledged. xLim Tay v.
(e) Conduct of Stockholders' or Members' Meetings:

➢ Kinds and Requirements of Meetings (Secs. 49 and 50)
➢ Place and Time of Meeting (Secs. 51 and 93)
➢ Quorum (Sec. 52)
7. Rights to Inspect and Copy Corporate Records

(a) Basis of Right (Gokongwei, Jr. v. SEC, 89 SCRA 336 [1979]).
Right to inspect covers controlled subsidiaries. xGokongwei v. SEC, 89 SCRA 336
55
(1979).
(b) Limitations on Right

56
The only express limitations on the right of inspection under Sec. 74 of the
Corporation Code are: (a) the right of inspections should be exercised at reasonable
hours on business days; (b) the person demanding the right to examine and copy
excerpts from the corporate records and minutes has not improperly used any
information secured through any previous examination of records of the corporation;
and (c) the demand is made in good faith or for a legitimate purpose. xAfrica v.
PCGG, 205 SCRA 39 (1992).
The right is exercisable through agents and representatives, otherwise it would
often be useless to the stockholder who does not know corporate intricacies. xW.G.
Philpotts v. Philippine Manufacturing Co., 40 Phil. 471 (1919).
A director has the unqualified right to inspect the books and records of the
corporation at all reasonable times, and cannot be denied on the ground that the
director or shareholder is on unfriendly terms with the officers of the corporation
whose records are sought to be inspected. xVeraguth v. Isabela Sugar Co., 57 Phil.
266 (1932)
The right to inspect, although it includes the right to make copies, does not
authorize bringing the books or records outside of the corporate premises.
xVeraguth v. Isabela Sugar Co., 57 Phil. 266 (1932)
The right to inspect does not include the right of access to minutes until such
minutes have been written up and approved by the directors. xVeraguth v. Isabela
Sugar Co., 57 Phil. 266 (1932)
A board resolution limiting the right to inspect to a period of ten days shortly prior
to the annual stockholders’ meeting is an unreasonable restriction and violates the
legal provision granting the exercise of such right “at reasonable hours.” xPardo v.
Hercules Lumber Co., 47 Phil. 964 (1924)
(c) Specified Records (Secs. 74, 75 and 141)
(d) Remedies If Inspection Denied: Mandamus (Gonzales v. PNB, 122 SCRA,

489 [1983];
Republic v. Sandiganbayan, 199 SCRA 39 [1991]).
(e) Confidential Nature of SEC Examinations (Sec. 142)
8. Appraisal Right (Secs. 81 to 86 and 105)

9. Derivative Suits (San Miguel Corp. v. Kahn, 176 SCRA 447 [1989]).
(a) Who May Bring Suit ((Pascual v. Orozco, 19 Phil. 83 [1911]).

(b) Exhaustion of Intra-Corporate Remedies (Everett v. Asia Banking Corp., 49
Phil. 512 [1927]; Angeles v. Sanmtos, 64 Phil. 697 [1937]).
(c) Nature of Relief (Evangelista v. Santos, 86 Phil. 387 [1950]; Republic Bank v.
Cuaderno, 19 SCRA 671 [1967]; Reyes v. Tan, 3 SCRA 198 [1961]; Commart
(Phils.) Inc. v. SEC, 198 SCRA 73 [1991]).
Appointment of receiver can be an ancillary remedy in a derivative suit xChase v.
CFI of Manila, 18 SCRA 602 (1966).
A derivative suit is an action brought by minority shareholders in the name of the
corporation to redress wrongs committed against the corporation, for which the
directors refuse to sue. It is a remedy designed by equity and has been the principal
defense of the minority shareholders against abuses by the majority. xWestern
Institute of Technology, Inc.
v. Salas, 278 SCRA 216 (1997).
For a derivative suit to prosper, it is required that the minority shareholder who
is suing for and on behalf of the corporation must allege in his complaint before the
proper forum that he is suing on a derivative cause of action on behalf of the
corporation and all other shareholders similarly situated who wish to join. xWestern
Institute of Technology, Inc. v. Salas, 278 SCRA 216 (1997).
In the absence of a special authority from the board of directors to institute a
derivative suit for and in behalf of the corporation, the president or managing director
is disqualified by law to sue in her own name. The power to sue and be sued in any
court by a corporation even as a stockholder is lodged in the board of directors
that exercises its corporate powers and not in the president or officer thereof.
xBitong v. Court of Appeals, 292 SCRA 503 (1998).
For a derivative suit to prosper, it is required that the minority stockholder suing
for and on behalf of the corporation must allege in his complaint that he is suing
on a derivative cause of action on behalf of the corporation and all other stockholders
similarly situated who may wish to join him in the suit. There is now showing that
petitioner has complied with the foregoing requisites. Tam Wing Tak v. Makasiar,
G.R. 122452, 29 January 2001.
57
The allegations of injury to the spouses-relators can co-exist with those pertaining
to the corporation. The personal injury suffered by the spouses cannot disqualify them
from filing a derivative suit on behalf of the corporation. It merely gives rise to an
additional cause of action

58
for damages against the erring directors. This cause of action is also included in
the Complaint filed before the SEC. Gochan v. Young, G.R. No. 131889, 12 March
2001.
10. Right to Proportionate Share of Remaining Assets Upon Dissolution

(a) Different rules apply to non-stock corporations and foundations (Secs. 94 and 95;
Section 34(H)(2)(c), NIRC of 1997).
11. Contracts and Agreement Affecting Shareholdings

(a) Proxy (Sec. 58)
(b) Voting Trust Agreements (Sec. 59; Lee v. CA, 205 SCRA 752 [1992]).
The trustor has a right to terminate the VTA for breach thereof. xEverett v. Asia
Banking Corporation, 49 Phil. 512 (1926).
Voting trust agreement as part of a loan arrangement. NIDC v. Aquino, 163
SCRA 153 (1988).
(c) Pooling Agreements or Shareholders’ Agreements (Sec. 100)

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2. The Corporation Law

3. The Corporation Code

4. Proper Treatment of Philippine Corporate Law

3. Relationships Involved in Corporate Setting

4. Theories on Formation of Corporation:

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5. Four Attributes of Corporation from Statutory Definition:

6. Advantages and Disadvantages of Corporate Form:

The corporation was evolved to make possible the aggregation and

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7. Compared With Other Media of Business Endeavors

(g) Cuentas En Participacion

III. NATURE AND ATTRIBUTES OF A CORPORATION

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(d) But a corporation is not entitled to privilege against self incrimination

3. Liability for Torts

5. Recovery of Moral Damages and Other Damages

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6. Nationality of Corporation: COUNTRY UNDER WHOSE LAWS INCORPORATED (Sec. 123).

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IV. SEPARATE JURIDICAL PERSONALITY AND DOCTRINE OF

Rudimentary is the rule that a corporation is invested by law with a personality

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(c) On Issues of Privileges Enjoyed: The tax privileges enjoyed by a corporation

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B. Piercing the Veil of Corporate Fiction:

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(b) Classification of the Piercing Cases:

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(d) Use of nominees. xMarvel Building v. David, 9 Phil. 376 (1951).

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7. Piercing Doctrine and Due Process Clause

(c) Private Corporation (Sec. 3, Act 1459)

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6. As to Existence of Shares (Secs. 3 and 5)

VI. CORPORATE CONTRACT LAW

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2. De Facto Corporation (Sec. 20)

4. Trust Fund Doctrine

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(e) Principal Place of Business

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(a) Common Law Limitations on By-Laws

(iii) By-Laws Cannot Discriminate

2. Adoption Procedure (Sec. 46)

3. Contents (Sec. 47)

IX. CORPORATE POWERS, AUTHORITY AND ACTIVITIES

2. Ultra Vires Acts

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