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CORPORATION LAW | SET 1 | CASE DIGESTS

A. NATURE OF COPORATIONS
1. Corporate Attributes
a. Theories in the formation of a corporation
TAYAG v. BENGUET CONSOLIDATED
FACTS: Idonah Slade Perkins who died in 1960 left two stock certificates that she owned in a Philippine Corporation,
Benguet Consolidated. Said certificates were in the possession of Perkins domiciliary administrator, Country Trust
Company of New York.
Mr. Tayag, was appointed as the ancillary administrator of the estate of Perkins in the Philippines. A dispute arose
between the domiciliary administrator in New York and the ancillary administrator in the Philippines as to which of
them is entitled to the possession of the stock certificates in question.
In 1964, the CFI of Manila ordered the domiciliary administrator to produce and deposit the said certificates with the
ancillary administrator. The domiciliary administrator did not comply with said order so Tayag petitioned the court to
issue and order declaring the certificates lost. The trial court granted said petition.
Benguet Consolidated appealed from the trial courts decision arguing that the certificates cannot be declared lost
because the same are existing in the possession of the domiciliary administrator.
ISSUE: Whether or not the stock certificates of Benguet Consolidated may be declared as lost by the
court despite said corporations refusal.
RULING: Yes. For Benguet Consolidated is a Philippine Corporation owing full allegiance to the unrestricted jurisdiction
of the local courts. Its shares of stock cannot therefore be considered, in any wise, immune from lawful orders.
The basic postulates of Corporate Theory:
A corporation is an artificial being created by operation of law. It owes its life to the state, its birth being purely
dependent on its will. As Berle so aptly stated: "Classically, a corporation was conceived as an artificial person, owing
its existence through creation by a sovereign power." As a matter of fact, the statutory language employed owes much
to Chief Justice Marshall, who in the Dartmouth College decision defined a corporation precisely as "an artificial being,
invisible, intangible, and existing only in contemplation of law."
A corporation is not in fact and in reality a person, but the law treats it as though it were a person by process of fiction,
or by regarding it as an artificial person distinct and separate from its individual stockholders. It owes its existence to
law. It is an artificial person created by law for certain specific purposes, the extent of whose existence, powers and
liberties is fixed by its charter." Dean Pound's terse summary, a juristic person, resulting from an association of human
beings granted legal personality by the state, puts the matter neatly.
There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote from Friedmann, "is the
reality of the group as a social and legal entity, independent of state recognition and concession."
ANG PUE v. SECRETARY OF COMMERCE AND INDUSTRY
FACTS: Ang Pue and Tan Siong, both Chinese citizens, organized the partnership Ang Pue and Company for a term of 5
years, extendible by their mutual consent. Meanwhile, RA 1180 was enacted to regulate the retail business, providing
that a partnership not wholly formed by Filipinos could continue to engage in retail business until the expiration of its
term.
Ang Pue and Companys five year term expired and so the partners presented amended articles of partnership for
registration in the office of the SEC but the latter refused registration on the ground that the extension was in violation
of RA 1180.
ISSUE: Whether or not Ang Pue and Tan Sion may extend the term of their partnership without violating
RA 1180.
RULING: No. To organize a corporation or a partnership that could claim a juridical personality of its own and transact
business as such is not a matter of absolute right but a privilege which may be enjoyed only under such terms as the
State may deem necessary to impose.
In the present case, as already stated, when the partners amended the articles of partnership, the provisions of
Republic Act 1180 were already in force, and there can be not the slightest doubt that the right claimed by appellants
to extend the original term of their partnership to another five years would be in violation of the clear intent and
purpose of the law aforesaid.
b. Creature of the Law
1. Constitution Section 16, Article XII of the Constitution
NATIONAL DEVELOPMENT CORPORATION v. PHILIPPINE VETERANS BANK
FACTS: Agrix Marketing, Inc. executed a real estate mortgage in favor of Philippine Veterans Bank. Agrix went
bankrupt. Later on, President Marcos issued PD 1717 which ordered the rehabilitation of the Agrix Group of Companies
to be administered by National Development Corporation. Section 4(1) of the said decree provides that all mortages
and other liens attaching to any of the assets of the dissolved corporations are extinguished.
Philippine Veterans Bank filed a claim with the Agrix Claims Committee for the payment of its loan credit. Meanwhile,
New Agrix and NDC, invoking Section 4(1) of the decree filed a petition with the RTC for the cancellation of the
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mortgage lien. The RTC judge declared PD 1717 unconstitutional as it impaired the obligation of contracts and the
exercise of the legislative power was in violation of the principle of separation of powers.
ISSUE: Whether or not the New Arix may be created by the issuance of PD 1717.
RULING: No. Said new corporation, being neither owned nor controlled by the Government, should have been created
only by general and not by special law.
And insofar as the decree also interferes with purely private agreements without any demonstrated connection with
public interest, there is likewise an impairment of obligations of contract.
FELICIANO v. COMMISSION ON AUDIT
FACTS: A special audit team from COA audited the accounts of Leyte Metropolitan Water District (LMWD). As the
general manager of LMWD, Feliciano wrote to COA asking for refund of all the auditing fees of LWMD previously paid to
COA arguing that it is a private corporation not subject to COAs jurisdiction. COA denied petitioners request for COA
to stop charging auditing fees as well as petitioners request for COA to refund auditing fees already paid.
ISSUE: Whether a Local Water Disctrict (LWD) like Leyte Metropolitan Water District (LMWD) is a
government-owned or controlled corporation subject to the audit jurisdiction of COA.
RULING: Yes. Contrary to petitioners argument, LWDs are GOCCs.
The Constitution recognizes two classes of corporations. The first refers to private corporations created under a
general law. The second refers to government-owned or controlled corporations created by special charters. Section
16, Article XII of the Constitution provides:
Sec. 16. The Congress shall not, except by general law, provide for the formation, organization, or
regulation of private corporations. Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good and subject to the test of economic
viability.
The Constitution emphatically prohibits the creation of private corporations except by a general law applicable to all
citizens. The purpose of this constitutional provision is to ban private corporations created by special charters, which
historically gave certain individuals, families or groups special privileges denied to other citizens.
In short, Congress cannot enact a law creating a private corporation with a special charter. Such legislation would be
unconstitutional. Private corporations may exist only under a general law. If the corporation is private, it must
necessarily exist under a general law. Stated differently, only corporations created under a general law can qualify as
private corporations. Under existing laws, that general law is the Corporation Code, except that the Cooperative Code
governs the incorporation of cooperatives.
The Constitution authorizes Congress to create government-owned or controlled corporations through special charters.
Since private corporations cannot have special charters, it follows that Congress can create corporations with special
charters only if such corporations are government-owned or controlled.
Obviously, LWDs are not private corporations because they are not created under the Corporation Code. LWDs are not
registered with the Securities and Exchange Commission. Section 14 of the Corporation Code states that All
corporations organized under this code shall file with the Securities and Exchange Commission articles of incorporation
x x x. LWDs have no articles of incorporation, no incorporators and no stockholders or members. There are no
stockholders or members to elect the board directors of LWDs as in the case of all corporations registered with the
Securities and Exchange Commission. The local mayor or the provincial governor appoints the directors of LWDs for a
fixed term of office. This Court has ruled that LWDs are not created under the Corporation Code, thus:
From the foregoing pronouncement, it is clear that what has been excluded from the coverage of the
CSC are those corporations created pursuant to the Corporation Code. Significantly, petitioners are not created
under the said code, but on the contrary, they were created pursuant to a special law and are governed
primarily by its provision.[13] (Emphasis supplied)
LWDs exist by virtue of PD 198, which constitutes their special charter. Since under the Constitution only governmentowned or controlled corporations may have special charters, LWDs can validly exist only if they are government-owned
or controlled. To claim that LWDs are private corporations with a special charter is to admit that their existence is
constitutionally infirm.

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Unlike private corporations, which derive their legal existence and power from the Corporation Code, LWDs derive their
legal existence and power from PD 198.
3. Franchise
JRS BUSINESS CORP V. IMPERIAL INSURANCE, INC
Facts: Petitioner is an establishment duly franchised by the Congress of the Philippines to conduct a messenger and
delivery express service. Respondent filed a Complaint against Petitioner for the collection of sum of money.
Thereafter, the parties entered into a Compromise Agreement where Petitioner promised to pay its debt amounting to
61, 172. 32 and failure to pay will entitle Imperial Insurance to move for the execution of the Decision to be rendered
based on the compromise agreement.
Upon Petitioners failure to pay, the Imperial Insurance then filed a Motion for issuance for a Writ of Execution. A
Notices of Sale were sent out to the Petitioner for the Auction of its Personal Properties together with the whole capital
stocks of the Corporation, the business name, right of operation, the whole assets, furnitures and equipments, the total
liabilities and Net Worth, books of accounts, etc.) Petitioner, thru its counsel, presented a Petition for the
postponement of the Auction Sale stating that it is in the process of obtaining a loan for the payment of debt and that
the judgment was for money only, therefore, Imperial Insurance was not authorized to take over the business name
and the right to operate under the franchise. Despite of the Petition, auction sale was conducted and the Imperial
Insurance was held as the highest bidder.
Issues: (1) WTF is Franchise. Hahaha!
(2) WON the franchise (right to operate) could be a subject of execution sale
Held: (1) A franchise is a special privilege conferred by governmental authority, and which does not belong to citizens
of the country generally as a matter of common right. ... Its meaning depends more or less upon the connection in
which the word is employed and the property and corporation to which it is applied. It may have different
significations.
For practical purposes, franchises, so far as relating to corporations, are divisible into (1) corporate or general
franchises; and (2) special or secondary franchises. The former is the franchise to exist as a corporation, while the
latter are certain rights and privileges conferred upon existing corporations, such as the right to use the streets of a
municipality to lay pipes or tracks, erect poles or string wires.
In the present case, the right to operate a messenger and express delivery service, by virtue of a legislative
enactment, is admittedly a secondary franchise (R.A. No. 3260, entitled "An Act granting the JRS Business Corporation
a franchise to conduct a messenger and express service)"
(2) NO. The Court ruled based on Sec 56 of the Corporation Law which states that
Any franchise granted to a Corporation may be levied upon and sold under execution Provided, That the
sale of the franchise or right of way and the property necessary for the enjoyment, the exercise of the powers,
and the receipt of the proceeds of said franchise or right of way is especially decreed and ordered in the
judgment.
In the present case, the compromise agreement and the judgment based thereon, do not contain any special decree or
order making the franchise answerable for the judgment debt. Thus, the inclusion of the franchise, the trade name
and/or business name and the capital stock of the petitioner corporation, in the sale of the properties of the JRS
Business Corporation, has no justification.
e. The Corporate entity compared with other business endeavors
1. Sole Proprietorship
MANGILA VS. COURT OF APPEALS
Facts: Petitioner Anita Manila is an exporter of sea foods and doing business under the name and style of Seafoods
Products. Private Respondent Loreta Guina is the President and General Manager of Air Swift International, a single
registered proprietorship engaged in the freight forwarding business. It was established that petitioner resides in San
Fernando, Pampanga while private respondent resides in Paranaque City.
The parties entered into a Contract where Respondent rendered its freight forwarding service for the shipment of
Petitioners products to Guam. However, Petitioner failed to pay Respondent for the latters service. A Civil Action was
filed by Respondent for the collection of money before the RTC of Pasay City. Petitioner filed a Motion to Dismiss the
Complaint on the ground that the venue was improperly laid, and the said Court did not acquire jurisdiction over her
for failure to serve summons.
Issue: WON a sole proprietorship has a separate juridical personality distinct from the personality of the owner of the
enterprise
Held: WALA. A sole proprietorship does not possess a juridical personality separate and distinct from the personality
of the owner of the enterprise. The law merely recognizes the existence of a sole proprietorship as a form of business
organization conducted for profit by a single individual and requires its proprietor or owner to secure licenses and
permits, register its business name, and pay taxes to the national government. The law does not vest a separate legal
personality on the sole proprietorship or empower it to file or defend an action in court. In fact, there is no law
authorizing sole proprietorships to file a suit in court.
Thus, not being vested with legal personality to file this case, the sole proprietorship is not the plaintiff in this case but
rather Respondent Loreta Guina in her personal capacity. Logically then, it is the residence of respondent Guina, the
proprietor with the juridical personality, which should be considered as one of the proper venues for this case.
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All these considered, private respondent should have filed this case either in San Fernando, Pampanga (petitioners
residence) or Paranaque (private respondents residence). Since private respondent filed this case in Pasay, the Court
hold that the case should be dismissed on the ground of improper venue.
2. Partnership (Article 1768, 1772 and 1775 of the Civil Code)
J. M. TUAZON & CO., INC., VS. BOLAOS
Facts: Petitioner J.M Tuazon & Co. Inc. filed a Complaint against Respondent for the recovery of possession of a parcel
of land situated in QC. The Petitioner is represented by its Managing Partner, Gregoria Araneta Inc., another
Corporation. Respondents Answer sets up prescription and title in himself thru open, continuous and exclusive
possession of land under claim of ownership. After trial, the lower court rendered judgment in favor of Petitioner,
ordering Respondent to restore possession and to pay a monthly rent. Respondent appealed directly to the SC alleging
that the Complaint was not filed by a real party in interest and that Petitioner Corporation cannot be represented by
another corporation, Gregoria Araneta Inc.
Issue: WON two different corporations may enter into a joint venture
Held: YESPOWS. It is true that the complaint also states that the plaintiff is "represented herein by its Managing
Partner Gregorio Araneta, Inc.", another corporation, but there is nothing against one corporation being represented by
another person, natural or juridical, in a suit in court. The contention that Gregorio Araneta, Inc. cannot act as
Managing Partner for plaintiff on the theory that it is illegal for two corporations to enter into a partnership is without
merit, for the true rule is that "Though a corporation has no power to enter into a partnership, it may
nevertheless enter into a joint venture with another where the nature of that venture is in line with the
business authorized by its charter." There is nothing in the record to indicate that the venture in which Petitioner
is represented by Gregorio Araneta, Inc. as "its managing partner" is not in line with the corporate business of either of
them.
3. Joint Venture
AURBACH VS. SANITARY WARES
Facts: Respondent Saniwares is a domestic corporation incorporated for the primary purpose of manufacturing and
marketing sanitary wares. In order to expand its business, it entered into an agreement with ASI, a foreign corporation
and some Filipino Inventors. Their intention is to enter into a Joint Venture enterprise and an Agreement was thereto. It
was likewise agreed that three out of nine Board of Directors shall be designated by ASI and the remaining six shall be
designated by the other stockholders of the Corporation.
On 1983, a dispute ensued during their annual meeting when ASI invoked their right to cumulative voting and
nominated another candidate. Said dispute led to filing of separate petitions which were consolidated and tried jointly.
Issue: Whether the nature of the business established by the parties is a Joint Venture or a Corporation
Held: JOINT VENTURE. The rule is that whether the parties to a particular contract have thereby established among
themselves a joint venture or some other relation depends upon their actual intention which is determined in
accordance with the rules governing the interpretation and construction of contracts. In the present case, the evident
intention of the Philippine Investors and ASI in entering into the Agreement is to enter into a joint venture enterprise,
and if some words in the Agreement appear to be contrary to the evident intention of the parties, the latter shall
prevail over the former (Art. 1370, New Civil Code).
ETO LANG RELATED SA TOPIC: The legal concept of a joint venture is of common law origin. It has no precise legal
definition but it has been generally understood to mean an organization formed for some temporary purpose. It is in
fact hardly distinguishable from the partnership, since their elements are similar community of interest in the business,
sharing of profits and losses, and a mutual right of control. The main distinction cited by most opinions in common law
jurisdictions is that the partnership contemplates a general business with some degree of continuity, while the joint
venture is formed for the execution of a single transaction, and is thus of a temporary nature.
This concept is not entirely accurate in our jurisdiction, since under the Civil Code, a partnership may be particular or
universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It would
seem therefore that under Philippine law, a joint venture is a form of partnership and should thus be governed by the
law of partnerships. The Supreme Court has however recognized a distinction between these two business
forms, and has held that although a corporation cannot enter into a partnership contract, it may however
engage in a joint venture with others. Yan lang importante, pagkahaba habang case (-_-)
PRIMELINK PROPERTIES VS LAZATIN ET AL
FACTS: Primelink Properties and Development Corporation is a domestic corporation engaged in real estate
development. Rafaelito W. Lopez is its President and Chief Executive Officer. The Lazatin siblings are co-owners of two
(2) adjoining parcels of land, with a combined area of 30,000 square meters, located in Tagaytay City.
The Lazatins and Primelink, entered into a Joint Venture Agreement for the development of the aforementioned
property into a residential subdivision to be known as "Tagaytay Garden Villas." Under the JVA, the Lazatins obliged
themselves to contribute the two parcels of land as their share in the joint venture. While the Primelink undertook to
contribute money, labor, personnel, machineries, equipment, contractors pool, marketing activities, managerial
expertise and other needed resources to develop the property and construct therein the units for sale to the public.
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Rhe Lazatins, through counsel, demanded that Primelink comply with its obligations under the JVA, otherwise the
appropriate action would be filed against it to protect their rights and interests. This impelled the officers of Primelink
to meet with the Lazatins and enabled the latter to review its business records/papers. In another Letter , the Lazatins
informed Primelink that they had decided to rescind the JVA effective upon its receipt of the said letter. The Lazatins
demanded that Primelink cease and desist from further developing the property.
Subsequently, the Lazatins filed, with the Regional Trial Courtof Tagaytay City, a complaint for rescission accounting
and damages, with prayer for temporary restraining order and/or preliminary injunction against Primelink and Lopez.
Plaintiffs alleged that despite the lapse of almost four (4) years from the execution of the JVA and the delivery of the
title and possession of the land to defendants, the land development aspect of the project had not yet been
completed, and the construction of the housing units had not yet made any headway. Plaintiffs also alleged that
defendants had, without justifiable reason, completely disregarded previously agreed accounting and auditing
procedures, checks and balances system installed for the mutual protection of both parties, and the scheduled regular
meetings were seldom held to the detriment and disadvantage of plaintiffs. They averred that they sent a letter
through counsel, demanding compliance of what was agreed upon under the agreement but defendants refused to
heed said demand. After a succession of letters with still no action from defendants, plaintiffs sent a letter formally
rescinding the JVA. In the said case, Primelink was declared in default or failing to file an answer and for asking
multiple motions for extension. The trial court eventually ruled in favor of the Lazatins and it ordered Primelink to
return the possession of said land to the Lazatins as well as some improvements which Primelink had so far over the
property without the Lazatins paying for said improvements. This decision was affirmed by the Court of Appeals.
Primelink is now assailing the order; that turning over improvements to the Lazatins without reimbursement is unjust;
that the Lazatins did not ask the properties to be placed under their possession but they merely asked for rescission.
ISSUES/HELD:
1. Whether respondents are entitled to the possession of the parcels of land covered by the JVA and the
improvements thereon introduced by petitioners as their contribution to the JVA
The respondents did not specifically pray in their complaint that possession of the improvements on the parcels of land
which they contributed to the JVA be transferred to them. Respondents made a specific prayer in their complaint that,
upon the rescission of the JVA, they be placed in possession of the parcels of land subject of the agreement, and for
other "reliefs and such other remedies as are just and equitable in the premises."
However, the trial court was not precluded from awarding possession of the improvements on the parcels of land to
respondents in its decision. Even without the prayer for a specific remedy, proper relief may be granted by the court if
the facts alleged in the complaint and the evidence introduced so warrant.
The trial court was not proscribed from placing respondents in possession of the parcels of land and the improvements
on the said parcels of land. It bears stressing that the parcels of land, as well as the improvements made thereon, were
contributed by the parties to the joint venture under the JVA, hence, formed part of the assets of the joint venture. The
trial court declared that respondents were entitled to the possession not only of the parcels of land but also of the
improvements thereon as a consequence of its finding that petitioners breached their agreement and defrauded
respondents of the net income under the JVA.
2. Whether petitioners are entitled to reimbursement for the value of the improvements on the parcels of
land.
The petitioner Primelink and respondents entered into a joint venture as evidenced by their JVA which, is a form of
partnership, and as such is to be governed by the laws on partnership.
When the RTC rescinded the JVA on complaint of respondents based on the evidence on record that petitioners willfully
and persistently committed a breach of the JVA, the court thereby dissolved/cancelled the partnership. With the
rescission of the JVA on account of petitioners fraudulent acts, all authority of any partner to act for the partnership is
terminated except so far as may be necessary to wind up the partnership affairs or to complete transactions begun but
not yet finished. On dissolution, the partnership is not terminated but continues until the winding up of partnership
affairs is completed. Winding up means the administration of the assets of the partnership for the purpose of
terminating the business and discharging the obligations of the partnership.
The transfer of the possession of the parcels of land and the improvements thereon to respondents was only for a
specific purpose: the winding up of partnership affairs, and the partition and distribution of the net partnership assets
as provided by law.
It must be stressed, too, that although the Lazatins acquired possession of the lands and the improvements thereon,
the said lands and improvements remained partnership property, subject to the rights and obligations of the
parties, inter se, of the creditors and of third parties and subject to the outcome of the settlement of the accounts
between the parties, absent any agreement of the parties in their JVA to the contrary (here no agreement in the JVA as
to winding up). Until the partnership accounts are determined, it cannot be ascertained how much any of the parties is
entitled to, if at all.
f. The Corporation and the Bill of Rights
1. Equal Protection
SMITH BELL VS. NATIVIDAD, 40 PHIL 136 (1919)

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FACTS: Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the Philippine Islands. A
majority of its stockholders are British subjects. It is the owner of a motor vessel known as the Bato built for it in the
Philippine Islands in 1916, of more than fifteen tons gross The Bato was brought to Cebu in the present year for the
purpose of transporting plaintiff's merchandise between ports in the Islands. Application was made at Cebu, the home
port of the vessel, to the Collector of Customs for a certificate of Philippine registry. The Collector refused to issue the
certificate, giving as his reason that all the stockholders of Smith, Bell & Co., Ltd., were not citizens either of the United
States or of the Philippine Islands. The instant action is the result.
Under Act No. 2761 which provides:
SEC. 1172. Certificate of Philippine register. Upon registration of a vessel of domestic ownership,
and of more than fifteen tons gross, a certificate of Philippine register shall be issued for it. If the vessel is of domestic
ownership and of fifteen tons gross or less, the taking of the certificate of Philippine register shall be optional with the
owner.
SEC. 1176. Investigation into character of vessel. No application for a certificate of Philippine register shall
be approved until the collector of customs is satisfied from an inspection of the vessel that it is engaged or destined to
be engaged in legitimate trade and
that it is of domestic ownership as such ownership is defined in section eleven
hundred and seventy-two of this Code.
domestic ownership, as used in this section, means ownership vested in the (a) citizens or native inhabitants
of the Phil Islands; (b) citizens of the US residing in the Phil. Islands; (c) any corporation or company
composed wholly of citizen of Phils./US or both
domestic ownership, as used in this section, means ownership vested in the (a) citizens or native inhabitants
of the Phil Islands; (b) citizens of the US residing in the Phil. Islands; (c) any corporation or company
composed wholly of citizen of Phils./US or both
Domestic ownership, as used in this section, means ownership vested in the (a) citizens or native inhabitants of the
Phil Islands; (b) citizens of the US residing in the Phil. Islands; (c) any corporation or company composed wholly of
citizen of Phils./US or both.
Counsel says that Act No. 2761 denies to Smith, Bell & Co., Ltd., the equal protection of the laws because it, in effect,
prohibits the corporation from owning vessels, and because classification of corporations based on the citizenship of
one or more of their stockholders is capricious, and that Act No. 2761 deprives the corporation of its properly without
due process of law because by the passage of the law company was automatically deprived of every beneficial
attribute of ownership in the Bato and left with the naked title to a boat it could not use
ISSUE: Whether the Government of the Philippine Islands, through its Legislature, can deny the registry of vessel in its
coastwise trade to corporations having alien stockholders
HELD: The first paragraph of the Philippine Bill of Rights, are universal in their application to all person within the
territorial jurisdiction, without regard to any differences of race, color, or nationality. The word "person" includes aliens.
Private corporations, likewise, are "persons" within the scope of the guaranties in so far as their property is concerned.
While Smith, Bell & Co. Ltd., a corporation having alien stockholders, is entitled to the protection afforded by the dueprocess of law and equal protection of the laws clause of the Philippine Bill of Rights. However, Act No. 2761 cannot be
considered unconstitutional by reason of its denial to a corporation, some of whole members are foreigners, of the
equal protection of the laws. Considering, One of the exceptions to the general rule, most persistent and far reaching
in influence is, that neither the Fourteenth Amendment to the United States Constitution, broad and comprehensive as
it is, nor any other amendment, "was designed to interfere with the power of the State, sometimes termed its `police
power,' to prescribe regulations to promote the health, peace, morals, education, and good order of the people, and
legislate so as to increase the industries of the State, develop its resources and add to its wealth and prosperity.
Nevertheless, Act No. 2761 of the Philippine Legislature, in denying to corporations such as Smith, Bell &. Co. Ltd., the
right to register vessels in the Philippines coastwise trade, does not belong to that vicious species of class legislation
which must always be condemned, but does fall within authorized exceptions, notably, within the purview of the police
power, and so does not offend against the constitutional provision.
2. Unreasonable search and seizure
STONEHILL VS. DIOKNO, 20 SCRA 283 (1967)
FACTS: Respondents-Judges issued, on different dates, a total of 42 search warrants against petitioners and/or the
corporations of which they were officers, directed to the any peace officer, to search the persons of petitioners and/or
the premises of their offices, warehouses and/or residences, and to seize and take possession of the following personal
property to wit:
Books of accounts, financial records, vouchers, correspondence, receipts, ledgers, journals, portfolios, credit journals,
typewriters, and other documents and/or papers showing all business transactions including disbursements receipts,
balance sheets and profit and loss statements and Bobbins (cigarette wrappers), as "the subject of the offense; stolen
or embezzled and proceeds or fruits of the offense," or "used or intended to be used as the means of committing the
offense," for "violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code) and the Revised Penal
Code."
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Alleging that the aforementioned search warrants are null and void, as contravening the Constitution and the Rules of
Court because, inter alia:
(1) they do not describe with particularity the documents, books and things to be seized;
(2) cash money, not mentioned in the warrants, were actually seized;
(3) the warrants were issued to fish evidence against the aforementioned petitioners in deportation cases filed against
them;
(4) the searches and seizures were made in an illegal manner; and
(5) the documents, papers and cash money seized were not delivered to the courts that issued the warrants, to be
disposed of in accordance with law
Petitioners filed with the Supreme Court a writ of preliminary injunction be issued restraining Respondents-Prosecutors,
their agents and /or representatives from using the effects seized as aforementioned or any copies thereof, and that,
decision be rendered quashing the contested search warrants and declaring the same null and void, and commanding
the respondents, their agents or representatives to return to petitioners herein, in accordance with Section 3, Rule 67,
of the Rules of Court, the documents, papers, things and cash moneys seized or confiscated under the search warrants
in question.
In their answer, respondents-prosecutors alleged,
(1) that the contested search warrants are valid and have been issued in accordance with law;
(2) that the defects of said warrants, if any, were cured by petitioners' consent; and
(3) that, in any event, the effects seized are admissible in evidence against herein petitioners, regardless of the
alleged illegality of the aforementioned searches and seizures.
Court issued the writ of preliminary injunction prayed for in the petition. However, by resolution, the writ was partially
lifted or dissolved, insofar as the papers, documents and things seized from the offices of the corporations above
mentioned are concerned; but, the injunction was maintained as regards the papers, documents and things found and
seized in the residences of petitioners herein.
ISSUE: Whether or not the petitioner can validly assail the legality of the search and seizure issued against the
corporation of which they were officers
HELD: The documents, papers, and things seized under the alleged authority of the warrants in question may be split
into two (2) major groups, namely: (a) those found and seized in the offices of the aforementioned corporations, and
(b) those found and seized in the residences of petitioners herein.
The petitioners can only assail the search conducted in the residences but not those done in the
corporation's premises. The petitioners herein have no cause of action to assail the legality of the contested
warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations have their
respective personalities, separate and distinct from the personality of herein petitioners, regardless of the amount of
shares of stock or of the interest of each of them in said corporations, and whatever the offices they hold therein may
be. Indeed, it is well settled that the legality of a seizure can be contested only by the party whose rights have been
impaired thereby, and that the objection to an unlawful search and seizure is purely personal and cannot be availed of
by third parties. Consequently, petitioners herein may not validly object to the use in evidence against them of the
documents, papers and things seized from the offices and premises of the corporations adverted to above, since the
right to object to the admission of said papers in evidence belongs exclusively to the corporations, to whom the seized
effects belong, and may not be invoked by the corporate officers in proceedings against them in their individual
capacity. The Government's action in gaining possession of papers belonging to the corporation did not relate to nor
did it affect the personal defendants. If these papers were unlawfully seized and thereby the constitutional rights of or
any one were invaded, they were the rights of the corporation and not the rights of the other defendants.
BACHE & CO. VS. RUIZ, 37 SCRA 823 (1971)
FACTS: Bache & Co. (Phil.), Inc., a corporation duly organized and existing under the laws of the Philippines, and its
President, Frederick E. Seggerman, pray this Court to declare null and void Search Warrant No. 2-M-70 issued by
respondent Judge on February 25, 1970; to order respondents to desist from enforcing the same and/or keeping the
documents, papers and effects seized by virtue thereof, as well as from enforcing the tax assessments on petitioner
corporation alleged by petitioners to have been made on the basis of the said documents, papers and effects, and to
order the return of the latter to petitioners.
The respondent Misael P. Vera, Commissioner of Internal Revenue, wrote a letter addressed to respondent Judge
Vivencio M. Ruiz requesting the issuance of a search warrant against petitioners for violation of Section 46(a) of the
National Internal Revenue Code, in relation to all other pertinent provisions thereof, particularly Sections 53, 72, 73,
208 and 209, and authorizing Revenue Examiner Rodolfo de Leon, one of herein respondents, to make and file the
application for search warrant which was attached to the letter.

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Respondent De Leon and his witness, respondent Arturo Logronio, went to the Court of First Instance of Rizal. They
brought with them the following papers:

respondent Veras aforesaid letter-request; an application for search warrant already filled up but still
unsigned by respondent De Leon;

an affidavit of respondent Logronio subscribed before respondent De Leon;

a deposition in printed form of respondent Logronio already accomplished and signed by him but not yet
subscribed; and

a search warrant already accomplished but still unsigned by respondent Judge.


At that time respondent Judge was hearing a certain case; so, by means of a note, he instructed his Deputy Clerk of
Court to take the depositions of respondents De Leon and Logronio. After the session had adjourned, respondent Judge
was informed that the depositions had already been taken.
The stenographer, upon request of respondent Judge, read to him her stenographic notes; and thereafter, respondent
Judge asked respondent Logronio to take the oath and warned him that if his deposition was found to be false and
without legal basis, he could be charged for perjury. Respondent Judge signed respondent de Leons application for
search warrant and respondent Logronios deposition, Search Warrant No. 2-M-70 was then sign by respondent Judge
and accordingly issued.
Three days later, the BIR agents served the search warrant petitioners at the offices of petitioner corporation on Ayala
Avenue, Makati, Rizal. Petitioners lawyers protested the search on the ground that no formal complaint or transcript of
testimony was attached to the warrant. The agents nevertheless proceeded with their search which yielded six boxes
of documents.
Petitioners filed a petition with the Court of First Instance of Rizal praying that the search warrant be quashed,
dissolved or recalled, that preliminary prohibitory and mandatory writs of injunction be issued, that the search warrant
be declared null and void, and that the respondents be ordered to pay petitioners, jointly and severally, damages and
attorneys fees.
The respondents, thru the Solicitor General, filed an answer to the petition. After hearing, the court, presided over by
respondent Judge, issued on an order dismissing the petition for dissolution of the search warrant. In the meantime,
the Bureau of Internal Revenue made tax assessments on petitioner corporation in the total sum of P2,594,729.97,
partly, if not entirely, based on the documents thus seized. Petitioners came to this Court.
ISSUE: Whether the corporation is entitled to protection against unreasonable search and seizure
HELD: The SC ruled that although an officer of a corporation cannot refuse to produce the books and papers of such
corporation, it does not mean however that a corporation is not entitled to immunity against unreasonable searches
and seizures.
A corporation is entitled to immunity against unreasonable searches and seizures. A corporation is, after all, 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 to such body. Its property cannot be taken without
compensation. It can only be proceeded against by due process of law, and is protected against unlawful
discrimination.
(NOTE: The Search Warrant is invalid for lack of personal examination by the issuing Judge.)
3. Self-incrimination
BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner,
vs. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO SALONGA, COMMISSIONER
MARY CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ, COMMISSIONER RAUL R. DAZA,
COMMISSIONER QUINTIN S. DOROMAL, CAPT. JORGE B. SIACUNCO, et al.,

FACTS: This case assails the executive orders issued by President Corazon Aquino which created Presidential
Commission on Good Government (PCGG) in order to recover ill gotten wealth allegedly acquired by former President
Marcos and his cronies. BASECO was among the companies sequestered. Documents of the company were to be
produced. BASECO prayed to declare unconstitutional and void Executive Orders 1 and 2.
BASECOs rguments:

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While BASECO concedes that "sequestration without resorting to judicial action, might be made within the context of
Executive Orders Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution was promulgated, under the
principle that the law promulgated by the ruler under a revolutionary regime is the law of the land, it ceased to be
acceptable when the same ruler opted to promulgate the Freedom Constitution on March 25, 1986 wherein under
Section I of the same, Article IV (Bill of Rights) of the 1973 Constitution was adopted providing, among others, that "No
person shall be deprived of life, liberty and property without due process of law." (Const., Art. I V, Sec. 1)." 12
It declares that its objection to the constitutionality of the Executive Orders "as well as the Sequestration Order * * and
Takeover Order * * issued purportedly under the authority of said Executive Orders, rests on four fundamental
considerations: First, no notice and hearing was accorded * * (it) before its properties and business were taken
over; Second, the PCGG is not a court, but a purely investigative agency and therefore not competent to act as
prosecutor and judge in the same cause; Third, there is nothing in the issuances which envisions any proceeding,
process or remedy by which petitioner may expeditiously challenge the validity of the takeover after the same has
been effected; and Fourthly, being directed against specified persons, and in disregard of the constitutional
presumption of innocence and general rules and procedures, they constitute a Bill of Attainder.

ISSUE: Whether sequestration is against BASECOs right against self incrimination and unreasonable
searches and seizures

HELD: Executive Orders Not a Bill of Attainder


Neither will this Court sustain the theory that the executive orders in question are a bill of attainder. 110 "A bill of
attainder is a legislative act which inflicts punishment without judicial trial." 111 "Its essence is the substitution of a
legislative for a judicial determination of guilt." 112
In the first place, nothing in the executive orders can be reasonably construed as a determination or declaration of
guilt. On the contrary, the executive orders, inclusive of Executive Order No. 14, make it perfectly clear that any
judgment of guilt in the amassing or acquisition of "ill-gotten wealth" is to be handed down by a judicial tribunal, in this
case, the Sandiganbayan, upon complaint filed and prosecuted by the PCGG. In the second place, no punishment is
inflicted by the executive orders, as the merest glance at their provisions will immediately make apparent. In no sense,
therefore, may the executive orders be regarded as a bill of attainder.
No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures
BASECO also contends that its right against self incrimination and unreasonable searches and seizures had been
transgressed by the Order of April 18, 1986 which required it "to produce corporate records from 1973 to 1986 under
pain of contempt of the Commission if it fails to do so." The order was issued upon the authority of Section 3 (e) of
Executive Order No. 1, treating of the PCGG's power to "issue subpoenas requiring * * the production of such books,
papers, contracts, records, statements of accounts and other documents as may be material to the investigation
conducted by the Commission, " and paragraph (3), Executive Order No. 2 dealing with its power to "require all
persons in the Philippines holding * * (alleged "ill-gotten") assets or properties, whether located in the Philippines or
abroad, in their names as nominees, agents or trustees, to make full disclosure of the same * *." The contention lacks
merit.
It is elementary that the right against self-incrimination has no application to juridical persons.
While an individual may lawfully refuse to answer incriminating questions unless protected by an
immunity statute, it does not follow that a corporation, vested with special privileges and franchises,
may refuse to show its hand when charged with an abuse ofsuchprivileges * * 113
Relevant jurisprudence is also cited by the Solicitor General. 114

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* * corporations are not entitled to all of the constitutional protections which private individuals have. *
* They are not at all within the privilege against self-incrimination, although this court more than once
has said that the privilege runs very closely with the 4th Amendment's Search and Seizure
provisions. It is also settled that an officer of the company cannot refuse to produce its records in its
possession upon the plea that they will either incriminate him or may incriminate it." (Oklahoma Press
Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's).
* * The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the
public. It received certain special privileges and franchises, and holds them subject to the laws of the
state and the limitations of its charter. Its powers are limited by law. It can make no contract not
authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it obeys
the laws of its creation. There is a reserve right in the legislature to investigate its contracts and find
out whether it has exceeded its powers. It would be a strange anomaly to hold that a state, having
chartered a corporation to make use of certain franchises, could not, in the exercise of sovereignty,
inquire how these franchises had been employed, and whether they had been abused, and demand
the production of the corporate books and papers for that purpose. The defense amounts to this, that
an officer of the corporation which is charged with a criminal violation of the statute may plead the
criminality of such corporation as a refusal to produce its books. To state this proposition is to answer
it. While an individual may lawfully refuse to answer incriminating questions unless protected by an
immunity statute, it does not follow that a corporation, vested with special privileges and franchises
may refuse to show its hand when charged with an abuse of such privileges. (Wilson v. United States,
55 Law Ed., 771, 780 [emphasis, the Solicitor General's])
At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures protection to individuals
required to produce evidence before the PCGG against any possible violation of his right against self-incrimination. It
gives them immunity from prosecution on the basis of testimony or information he is compelled to present. As
amended, said Section 4 now provides that
xxx xxx xxx
The witness may not refuse to comply with the order on the basis of his privilege against selfincrimination; but no testimony or other information compelled under the order (or any information
directly or indirectly derived from such testimony, or other information) may be used against the
witness in any criminal case, except a prosecution for perjury, giving a false statement, or otherwise
failing to comply with the order.
The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar either.
There has been no search undertaken by any agent or representative of the PCGG, and of course no seizure on the
occasion thereof.

2. Classification Of Corporations
a. In relation to the State
Public
Private
G.R. No. L-22619

December 2, 1924

NATIONAL COAL COMPANY vs. THE COLLECTOR OF INTERNAL REVENUE


FACTS: This action was brought in the Court of First Instance of the City of Manila on the 17th day of July, 1923, for the
purpose of recovering the sum of P12,044.68, alleged to have been paid under protest by the plaintiff company to the
defendant, as specific tax on 24,089.3 tons of coal. Said company is a corporation created by Act No. 2705 of the
Philippine Legislature for the purpose of developing the coal industry in the Philippine Islands and is actually engaged
in coal mining on reserved lands belonging to the Government. It claimed exemption from taxes under the provision of
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sections 14 and 15 of Act No. 2719(passes two months after passage of Act No. 2705), and prayed for a judgment
ordering the defendant to refund to the plaintiff said sum of P12,044.68, with legal interest from the date of the
presentation of the complaint, and costs against the defendant.
The plaintiff corporation was created on the 10th day of March, 1917, by Act No. 2705, for the purpose of developing
the coal industry in the Philippine Island, in harmony with the general plan of the Government to encourage the
development of the natural resources of the country, and to provided facilities therefor. By said Act, the company was
granted the general powers of a corporation "and such other powers as may be necessary to enable it to prosecute the
business of developing coal deposits in the Philippine Island and of mining, extracting, transporting and selling the coal
contained in said deposits." (Sec. 2, Act No. 2705.) By the same law (Act No. 2705) the Government of the Philippine
Islands is made the majority stockholder(29,809 shares, that is, of 99 1/3 per centum of the whole capital stock.),
evidently in order to insure proper government supervision and control, and thus to place the Government in a position
to render all possible encouragement, assistance and help in the prosecution and furtherance of the company's
business.
Plaintiiff claims to be the owner hence subject to Act 2719 and not to the provisions of the section 1496 of the
Administrative Code.

ISSUE: Whether the company be classified as private of public given that the Philippine Island is a major
stockholder

HELD: The plaintiff is a private corporation. The mere fact that the Government happens to the majority stockholder
does not make it a public corporation. Act No. 2705, as amended by Act No. 2822, makes it subject to all of the
provisions of the Corporation Law, in so far as they are not inconsistent with said Act (No. 2705). No provisions of Act
No. 2705 are found to be inconsistent with the provisions of the Corporation Law. As a private corporation, it has no
greater rights, powers or privileges than any other corporation which might be organized for the same purpose under
the Corporation Law, and certainly it was not the intention of the Legislature to give it a preference or right or privilege
over other legitimate private corporations in the mining of coal. While it is true that said proclamation No. 39 withdrew
"from settlement, entry, sale, or other disposition of coal-bearing public lands within the Province of Zamboanga . . .
and the Island of Polillo," it made no provision for the occupation and operation by the plaintiff, to the exclusion of
other persons or corporations who might, under proper permission, enter upon the operate coal mines.
On the 14th day of May, 1917, and before the issuance of said proclamation, the Legislature of the Philippine Island in
"an Act for the leasing and development of coal lands in the Philippine Islands" (Act No. 2719), made liberal provision.
Section 1 of said Act provides: "Coal-bearing lands of the public domain in the Philippine Island shall not be disposed of
in any manner except as provided in this Act," thereby giving a clear indication that no "coal-bearing lands of the
public domain" had been disposed of by virtue of said proclamation.
Neither is there any provision in Act No. 2705 creating the National Coal Company, nor in the amendments thereof
found in Act No. 2822, which authorizes the National Coal Company to enter upon any of the reserved coal lands
without first having obtained permission from the Secretary of Agriculture and Natural Resources.

Phil Society for the Prevention of Cruelty to Animals Vs. COA


FACTS: Petitioner assails orders issued by the respondents which constituted the audit team, as well as Letter
informing the petitioner that respondents audit team shall conduct an audit survey on the petitioner for a detailed
audit of its accounts, operations, and financial transactions. The petitioner was incorporated as a juridical entity over
one hundred years ago by virtue of Act No. 1285, enacted on January 19, 1905, by the Philippine Commission. The
petitioner, at the time it was created, was composed of animal aficionados and animal propagandists. The objects of
the petitioner, as stated in Section 2 of its charter, shall be to enforce laws relating to cruelty inflicted upon animals or
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the protection of animals in the Philippine Islands, and generally, to do and perform all things which may tend in any
way to alleviate the suffering of animals and promote their welfare.
At the time of the enactment of Act No. 1285, the original Corporation Law, Act No. 1459, was not yet in existence. Act
No. 1285 antedated both the Corporation Law and the constitution of the Securities and Exchange
Commission. Important to note is that the nature of the petitioner as a corporate entity is distinguished from
the sociedad anonimas under the Spanish Code of Commerce. Petitioner was initially imbued under its charter with the
power to apprehend violators of animal welfare laws. In addition, the petitioner was to share one-half (1/2) of the fines
imposed and collected through its efforts for violations of the laws related thereto. It claims that it is a private entity
not under the jurisdiction of COA, citing Section 2(1) of Article IX of the Constitution which specifies the general
jurisdiction of the COA

ISSUE: Whether petitioner is a government agency that may be subject to audit by respondent COA.

HELD: Petitioner is DECLARED a private domestic corporation subject to the jurisdiction of the Securities and
Exchange Commission.
Charter test is not applicable. [T]he 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. xxx (Emphasis supplied)
During the formulation of the 1935 Constitution, the Committee on Franchises recommended the foregoing
proscription to prevent the pressure of special interests upon the lawmaking body in the creation of corporations or in
the regulation of the same. To permit the lawmaking body by special law to provide for the organization, formation, or
regulation of private corporations would be in effect to offer to it the temptation in many cases to favor certain groups,
to the prejudice of others or to the prejudice of the interests of the country. [15]
And since the underpinnings of the charter test had been introduced by the 1935 Constitution and not earlier, it follows
that the test cannot apply to the petitioner, which was incorporated by virtue of Act No. 1285, enacted on January 19,
1905. Settled is the rule that laws in general have no retroactive effect, unless the contrary is provided. [16] All statutes
are to be construed as having only a prospective operation, unless the purpose and intention of the legislature to give
them a retrospective effect is expressly declared or is necessarily implied from the language used. In case of doubt,
the doubt must be resolved against the retrospective effect. [17]
Quasi-Public

LIBAN v. GORDON(Philippine National Red Cross)


FACTS: This is a clarification case where the court declared that respondent did not forfeit his seat in the Senate when
he accepted the chairmanship of the PNRC Board of Governors, as the office of the PNRC Chairman is not a
government office or an office in a government-owned or controlled corporation for purposes of the prohibition in
Section 13, Article VI of the 1987 Constitution. [5] The Decision, however, further declared void the PNRC Charter insofar
as it creates the PNRC as a private corporation and consequently ruled that the PNRC should incorporate under the
Corporation Code and register with the Securities and Exchange Commission if it wants to be a private corporation.

ISSUE: Whether PNRC is private or public entity

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HELD: The passage of several laws relating to the PNRCs corporate existence notwithstanding the effectivity of the
constitutional proscription on the creation of private corporations by law, is a recognition that the PNRC is not strictly in
the nature of a private corporation contemplated by the aforesaid constitutional ban.

A closer look at the nature of the PNRC would show that there is none like it not just in terms of structure, but
also in terms of history, public service and official status accorded to it by the State and the international
community. There is merit in PNRCs contention that its structure is sui generis.

The PNRC succeeded the chapter of the American Red Cross which was in existence in the Philippines since
1917. It was created by an Act of Congress after the Republic of the Philippines became an independent nation on July
6, 1946 and proclaimed on February 14, 1947 its adherence to the Convention of Geneva of July 29, 1929 for the
Amelioration of the Condition of the Wounded and Sick of Armies in the Field (the Geneva Red Cross Convention). By
that action the Philippines indicated its desire to participate with the nations of the world in mitigating the suffering
caused by war and to establish in the Philippines a voluntary organization for that purpose and like other volunteer
organizations established in other countries which have ratified the Geneva Conventions, to promote the health and
welfare of the people in peace and in war

A National Society partakes of a sui generis character. It is a protected component of


the Red Cross movement under Articles 24 and 26 of the First Geneva Convention, especially in times
of armed conflict.These provisions require that the staff of a National Society shall be respected and
protected in all circumstances. Such protection is not ordinarily afforded by an international treaty to
ordinary private entities or even non-governmental organisations (NGOs). This sui generis character is
also emphasized by the Fourth Geneva Convention which holds that an Occupying Power cannot
require any change in the personnel or structure of a National Society. National societies are
therefore organizations that are directly regulated by international humanitarian law, in
contrast to other ordinary private entities, including NGOs.

By requiring the PNRC to organize under the Corporation Code just like any other private corporation, the Decision of
July 15, 2009 lost sight of the PNRCs special status under international humanitarian law and as an auxiliary of the
State, designated to assist it in discharging its obligations under the Geneva Conventions. Although the PNRC is called
to be independent under its Fundamental Principles, it interprets such independence as inclusive of its duty to be the
governments humanitarian partner. To be recognized in the International Committee, the PNRC must have an
autonomous status, and carry out its humanitarian mission in a neutral and impartial manner.

Philippine National Red Cross is not a government office or an office in a government-owned or controlled
corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution.
C. As to Nationality Tests
1. Exploitation of Natural Resources
THE REGISTER OF DEEDS OF RIZAL vs. UNG Siu Si TEMPLE
May 21, 1955
REYES, J.B.L., J.:

FACTS: On January 22, 1953, the Rizal Register of Deeds refused to accept a deed of donation by Jesus Dy (Filipino
Citizen) conveying a parcel of residential land in Caloocan Rizal in favour of an unregistered religious organization Ung
Siu Si Temple where all of the trustees are Chinese citizens.
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The respondents filed a complaint in the CFI and it upheld the decision of Rizal Register of Deeds since UNG
SIU SI TEMPLE is a religious organization whose deaconess, founder, trustees and administrator are all Chinese citizens
and that in view of the provisions of the sections 1 and 5 of Article XII of the 1935 Constitution 1 where it limits the
acquisition of land in the Philippines to its citizens, or to corporations or associations at least sixty per
centum of the capital stock of which is owned by such citizens as also adopted under Art 271 and
jurisprudence.
Respondents thereafter appealed claiming that:
(1) that the acquisition of the land in question, for religious purposes, is authorized and permitted by Act No.
271 (allowing religious organizations to acquire lands for religious purposes) and;
(2) the refusal violates the freedom of religion clause

ISSUE: WON UNG DIU TEMPLE shall be allowed to acquire land

RULING: NO. The Court ruled that the CFI correctly held that in view of the absolute terms of Section 5, Title XII, of
the Constitution, the provisions of Act No. 271 of the old Philippine Commission must be deemed repealed since the
Constitution was enacted, in so far as incompatible therewith. The Constitution makes no exception in favor of religious
associations. Neither is there any such saving found in sections 1 and 2 of Article XII, restricting the acquisition of
public agricultural lands and other natural resources to "corporations or associations at least sixty per centum of the
capital of which is owned by such citizens" (of the Philippines). The fact that the appellant religious organization
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.

To permit religious associations controlled by non-Filipinos to acquire agricultural lands would be to drive the opening
wedge to revive alien religious land holdings in this country. The refusal of the Register of Deeds to register said deed
of donation is not violative of the freedom of religion clause since land tenure is by no means indispensable to the free
exercise and enjoyment of religious profession or worship; or that one may not worship the Deity according to the
dictates of his own conscience unless upon land held in fee simple

2. Public Utilities

1 1935 Constitution: ARTICLE XII.CONSERVATION AND UTILIZATION OF NATURAL RESOURCESSECTION 1. All agricultural, timber, and
mineral lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces or potential energy, and other natural resources
of the Philippines belong to the State, and their disposition, exploitation, development, or utilization shall be limited to citizens of the Philippines, or to
corporations or associations at least sixty per centum of the capital of which is owned by such citizens, subject to any existing right, grant, lease, or
concession at the time of the inauguration of the Government established under this Constitution. Natural resources, with the exception of public
agricultural land, shall not be alienated, and no license, concession, or lease for the exploitation, development, or utilization of any of the natural
resources shall be granted for a period exceeding twenty-five years, except as to water rights for irrigation, water supply, fisheries, or industrial uses
other than the development of water power, in which cases beneficial use may be the measure and the limit of the grant.
SEC. 2. No private corporation or association may acquire, lease, or hold public agricultural lands in excess of one thousand and twenty-four hectares,
nor may any individual acquire such lands by purchase in excess of one hundred and forty-four hectares, or by lease in excess of one thousand and
twenty-four hectares, or by homestead in excess of twenty-four hectares. Lands adapted to grazing, not exceeding two thousand hectares, may be
leased to an individual, private corporation, or association.
XX
X
SEC. 5. Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned except to individuals,
corporations, or associations qualified to acquire or hold lands of the public domain in the Philippines.

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THE PEOPLE OF THE PHILIPPINES vs. WILLIAM H. QUASHA


REYES, J.:

FACTS: Pacific Airways Corporation registered its articles of incorporation with the SEC. The article was prepared and
the registration was effected by the Atty William Quasha, who was in fact the organizer of the corporation. The article
stated that the primary purpose of the corporation was to carry on the business of a common carrier by air, land or
water; that its capital stock was P1,000,000, represented by 9,000 preferred and 100,000 common shares, each
preferred share being of the par value of p100 and entitled to 1/3 vote and each common share, of the par value of P1
and entitled to one vote; that the amount capital stock actually subscribed was P200,000, and the names of the
subscribers were Arsenio Baylon and the other five Americans; that Baylon's subscription was for 1,145
preferred shares, of the total value of P114,500, and for 6,500 common shares, of the total par value of P6,500, while
the aggregate subscriptions of the American subscribers were for 200 preferred shares, of the total par value of
P20,000, and 59,000 common shares, of the total par value of P59,000; and that Baylon and the American subscribers
had already paid 25% of their respective subscriptions.
Baylon nevertheless did not have the controlling vote because of the difference in voting power between the
preferred shares and the common shares. Still, with the capital structure as it was, the article of incorporation was
accepted for registration and a certificate of incorporation was issued by the Securities and Exchange Commission.
There is no question that Baylon actually subscribed to 60.005 % of the subscribed capital stock of the corporation. But
it is admitted that the money paid on his subscription did not belong to him but to the Americans subscribers to the
corporate stock because they trusted Baylon.
Hence, for causing it to appear in said article of incorporation that Baylon, a Filipino citizen, had
subscribed to and was the owner of 60.005% of the subscribed capital stock of the corporation when in
reality, such was not the case, the truth being that the owner of the portion of the capital stock
subscribed to by Baylon and the money paid thereon were American citizen whose name did not appear
in the article of incorporation, and that the purpose for making this false statement was to circumvent the
constitutional mandate that no corporation shall be authorize to operate as a public utility in the
Philippines unless 60% of its capital stock is owned by Filipinos. Baylon is made liable to malicious
perversion of the truth made with the wrongful intent circumventing section 8, Article XIV of the Constitution 2.

ISSUE: WON the formation of a public utility corporation without a Filipino capital is a strict prohibition
under the law.

RULING: Constitution does not prohibit the mere formation of a public utility corporation without the
required proportion of Filipino capital. What it does prohibit is the granting of a franchise or other form of
authorization for the operation of a public utility to a corporation already in existence but without the requisite
proportion of Filipino capital (sec. 8, Art. XIV of the Constitution).

If the Constitution does not prohibit the mere formation of a public utility corporation with alien capital, then how could
the accused be charged with having wrongfully intended to circumvent that fundamental law by not disclosing in the
articles of incorporation that one of the incorporators, a Filipino, was a mere trustee of his American co-incorporators

" no franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines
or to corporation or other entities organized under the law of the Philippines, sixty per centum of the capital of which is owned by citizens of the
Philippines . . . ."
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and that for that reason the subscribed capital stock of the corporation was wholly American? For the mere formation
of the corporation such disclosure was not essential, and the Corporation Law does not require it. The accused was,
therefore, under no obligation to make it. In the absence of such obligation and of the alleged wrongful intent on the
part of the accused, he cannot legally be convicted of the crime of falsification for having allegedly perverted the truth
in a narration of facts.

5. War-Time test
FILIPINAS COMPAIA DE SEGUROS vs. CHRISTERN, HUENEFELD and CO., INC
PARAS, C.J.:

FACTS: On October 1, 1941, Christern, Huenefeld and Company a company where majority of its stockholders are
Germans, obtained a fire insurance policy from Filipinas Compaia (American controlled company) for the merchandise
contained in a building located in Binondo, Manila in the sum of P100,000. During the Japanese military occupation
(February 1942), the building and insured merchandise were burned. The respondent submitted to the petitioner its
claim under the policy. The total loss suffered by the respondent was fixed at P92,650. Filipinas Compaia refused to
pay stating that Christern is a German corporation and that, America declared war against Germany (on December 10,
1941) hence the insurance policy ceased to be effective because the insured subject has become a public enemy.

Christern filed an action for recovery of sum of money in the CFI but was dismissed. On appeal, the CA ruled in favour
of the Christern in view of Eng and American decided cases, it rejected the theory that nationality of private
corporation is determine by the character or citizenship of its controlling stockholders, so it made Filipinas pay the
corresponding insurance claim. Hence, this petition for certiorari.

ISSUE: WON the control test (war time test) shall be used to determine the nationality of the corporation.

RULING: YES. There is no question that majority of the stockholders of the respondent corporation were German
subjects. This being so, we have to rule that said respondent became an enemy corporation upon the outbreak of the
war between the United States and Germany. The English and American cases relied upon by the Court of Appeals
have lost their force in view of the latest decision of the Supreme Court of the United States in
Clark vs. Uebersee Finanz Korporation, decided on December 8, 1947, in which the controls test has been
adopted. In "Enemy Corporation" by Martin Domke, a paper presented to the Second International Conference of the
Legal Profession held at the Hague (Netherlands) in August. 1948 the following enlightening passages appear:
Since World War I, the determination of enemy nationality of corporations has been discussed in many
countries, belligerent and neutral. A corporation was subject to enemy legislation when it was controlled by
enemies, namely managed under the influence of individuals or corporations themselves considered as
enemies...
It was known that German and other enemy interests were cloaked by domestic corporation structure. It was
not only by legal ownership of shares that a material influence could be exercised on the management of the
corporation but also by long term loans and other factual situations. For that reason, legislation on enemy
property enacted in various countries during World War II adopted by statutory provisions to the control test
and determined, to various degrees, the incidents of control. Court decisions were rendered on the basis of
such newly enacted statutory provisions in determining enemy character of domestic corporation....

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. . . . The power of seizure and vesting was extended to all property of any foreign country or national so that
no innocent appearing device could become a Trojan horse."

Moreover, the Philippine Insurance Law (Act No 2427, as amended), in Section 8, provides that "anyone except a
public enemy may be insured". It stands to reason that an insurance policy ceases to be allowable as soon as an
insured becomes a public enemy.

E. As to number of members
Corporation Sole
THE ROMAN CATHOLIC APOSTOLIC ADMINISTRATOR OF DAVAO, INC., vs. THE LAND REGISTRATION
COMMISSION and THE REGISTER OF DEEDS OF DAVAO CITY
December 20, 1957
FELIX, J.:

FACTS: Mateo Rodis, executed a deed of sale of a parcel of land in favor of the Roman Catholic Apostolic Administrator
of Davao Inc., a corporation sole organized and existing in accordance with Philippine Laws, with Msgr. Clovis
Thibault, a Canadian citizen, as actual incumbent. When the deed of sale was presented to Register of Deeds of Davao
for registration, the Register, having in mind a previous resolution of court wherein the Carmelite Nuns of Davao were
made to prepare an affidavit to the effect that 60% of the members of their corporation were Filipino citizens when
they sought to register in favor of their congregation of deed of donation of a parcel of landrequired said corporation
sole to submit a similar affidavit declaring that 60% of the members thereof were Filipino citizens.

The petitioner corporation averred that the two cases were not similar, the Carmelite Nuns had five incorporators, the
corporation sole has only one; that according to their articles of incorporation, the organization of the Carmelite Nuns
became the owner of properties donated to it, whereas the case at bar, the totality of the Catholic population of Davao
would become the owner of the property bought to be registered.

The matter was referred to the Land Registration Commissioner for resolution. It held that in view of the of Section 1
and 5 of Article XII of the Constitution, the vendee was not qualified to acquire private lands in the Philippines in the
absence of proof that at least 60 per centum of the capital, property, or assets of the Roman Catholic Apostolic
Administrator of Davao, Inc., was actually owned or controlled by Filipino citizens, there being no question that the
present incumbent of the corporation sole was a Canadian citizen. It was also the opinion of the Land Registration
Commissioner that section 159 of the corporation Law relied upon by the vendee was rendered operative by the
aforementioned provisions of the Constitution with respect to real estate, unless the precise condition set therein
that at least 60% of its capital is owned by Filipino citizens be present, and, therefore, ordered the
Registered Deeds of Davao to deny registration of the deed of sale in the absence of proof of compliance with such
condition.

An action for mandamus was instituted with this Court by said corporation sole, alleging that under the Corporation
Law as well as the settled jurisprudence on the matter, action for mandamus was instituted by Roman alleging the
land is held in true for the benefit of the Catholic population of a place. Petitioner also consistently maintained that a
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corporation sole, irrespective of the citizenship of its incumbent, is not prohibited or disqualified to acquire and hold
real properties.

ISSUE: What is the effect of the constitutional prohibition of the right of a religious corporation
recognized by our Corporation Law and registered as a corporation sole, to possess, acquire and register
real estates in its name when the Head, Manager, Administrator or actual incumbent is an alien?

RULING: The issue was answered by the court by first defining a CORPORATION SOLE.
A corporation sole consists of one person only, and his successors (who will always be one at a time), in some
particular station, who are incorporated by law in order to give them some legal capacities and advantages,
particularly that of perpetuity, which in their natural persons they could not have had. In this sense, the king is a sole
corporation; so is a bishop, or dens, distinct from their several chapters

Hence, a corporation sole is a special form of corporation usually associated with the clergy designed to facilitate the
exercise of the functions of ownership of the church which was regarded as the property owner. It consists of one
person only, and his successors (who will always be one at a time), in some particular station, who are incorporated by
law in order to give them some legal capacities and advantages particularly that of perpetuity which in their natural
persons they could not have. Through this legal fiction, church properties acquired by the incumbent of a corporation
sole pass, by operation of law, upon his death not to his personal heirs but to his successor in office. A corporation
sole, therefore, is created not only to administer the temporalities of the church or religious society where he belongs,
but also to hold and transmit the same to his successor in said office. Although a branch of the Universal Roman
Catholic Apostolic Church, every Roman Catholic Church in different countries, if it exercises its mission and is lawfully
incorporated in accordance with the laws of the country where it is located, is considered an entity or person with all
the rights and privileges granted to such artificial being under the laws of that country, separate and distinct from the
personality of the Roman Pontiff or the Holy See, without prejudice to its religious relations with the latter which are
governed by the Cannon Law or their rules and regulations.

Under the circumstances of the present case, it is safe to state that even before the establishment of the Philippine
Commonwealth and of the Republic of the Philippines every corporation sole then organized and registered had by
express provision of law the necessary power and qualification to purchase in its name private lands located in the
territory in which it exercised its functions or ministry and for which it was created, independently of the nationality of
its incumbent unique and single member and head, the bishop of the diocese. It can be also maintained without fear of
being gainsaid that the Roman Catholic Apostolic Church in the Philippines has no nationality and that the framers of
the Constitution did not have in mind the religious corporation sole when they provided that 60% of the capital thereof
be owned by Filipino citizens. Thus, if this constitutional provision were not intended for corporation sole, it
is obvious that this could not be regulated or restricted by said provision.

Both the Corporation Law and the Canon Law are explicit in their provisions that a corporation sole or "ordinary" is not
the owner of the properties that he may acquire but merely the administrator thereof and holds the same in trust for
the church to which the corporation is an organized and constituent part. Being mere administrator of the
temporalities or properties titled in his name, the constitutional provision requiring 60 per centum
Filipino ownership is not applicable. The said constitutional provision is limited by its terms to ownership alone
and does not extend to control unless the control over the property affected has been devised to circumvent the real
purpose of the constitution.

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The corporation sole by reason of their peculiar constitution and form of operation have no designed owner of its
temporalities, although by the terms of the law it can be safely implied that they ordinarily hold them in trust for the
benefit of the Roman Catholic faithful of their respective locality or diocese. They can not be considered as aliens
because they have no nationality at all. In determining, therefore, whether the constitutional provision
requiring 60 per centum Filipino capital is applicable to corporations sole, the nationality of the
constituents of the diocese, and not the nationality of the actual incumbent of the parish, must be taken
into consideration. In the present case, even if the question of nationality be considered, the aforesaid constitutional
requirement is fully met and satisfied, considering that the corporation sole in question is composed of an
overwhelming majority of Filipinos.

The resolution in the case of the Register of Deeds of Rizal vs. Ung Sui Si Temple cannot apply in this case because
Ung Sui Si Temple is a corporation aggregate and not a corporation sole.

Therefore, the constitutional prohibition of the right of a religious corporation recognized by our
Corporation Law is NOT APPLICABLE to CORPORATION SOLE.

**See also Sections 154, SEC. 155 p(3),SEC. 157. & SEC. 163 of the Corp Code.
REPUBLIC OF THE PHILIPPINES vs. JUDGE CANDIDO P. VILLANUEVA
FACTS: Two lots located at Plaridel, Bulacan were acquired by the Iglesia Ni Cristo on January 9, 1953 from Andres
Perez. The said lots were already possessed by Perez in 1933. They are not included in any military reservation, and
are inside an area which was certified as alienable or disposable by the Bureau of Forestry in 1927.
The Iglesia Ni Cristo, a corporation sole, filed with the Court of First Instance of Bulacan an application for the
registration of the said lots. It alleged that it and its predecessors-in-interest had possessed the land for more than
thirty years. It invoked section 48(b) of the Public Land Law which provides that citizens of the Philippines occupying
lands of the public domain or claiming to own any such lands or an interest therein, may apply to the Court for
confirmation of their claims and the issuance of a certificate of title. xxx (b) Those who by themselves or through their
predecessors-in-interest have been in open, continuous, exclusive, and notorious possession and occupation of
agricultural lands of the public domain.

The Republic opposed the application on the grounds that applicant, as a private corporation, is disqualified to hold
alienable lands of the public domain, that the land applied for is public land not susceptible of private appropriation
and that the applicant and its predecessors-in-interest have not been in the open, continuous, exclusive and notorious
possession of the land since June 12, 1945.
The trial court ordered the registration of the two lots in the name of the Iglesia Ni Cristo. From that decision, the
Republic of the Philippines appealed to the Supreme Court.

ISSUE: Whether or not the Iglesia Ni Cristo is qualified to acquire alienable lands of the public domain
RULING: NO
As correctly contended by the Solicitor General, the Iglesia Ni Cristo, as a corporation sole or a juridical person, is
disqualified to acquire or hold alienable lands of the public domain, like the two lots in question, because of the
constitutional prohibition already mentioned and because the said church is not entitled to avail itself of the benefits of
section 48(b) which applies only to Filipino citizens or natural persons. A corporation sole (an "unhappy freak of English
law") has no nationality. The lower court's judgment is reversed and set aside.

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F. As to Existence of Shares
Non-Stock
THE COLLECTOR OF INTERNAL REVENUE vs. THE CLUB FILIPINO, INC. DE CEBU
FACTS: The "Club Filipino, Inc. de Cebu" is a civic corporation organized under the laws of the Philippines with an
original authorized capital stock of P22,000.00, which was subsequently increased to P200,000.00. Neither in the
articles nor by-laws is there a provision relative to dividends and their distribution, although it is covenanted that upon
its dissolution, the Club's remaining assets, after paying debts, shall be donated to a charitable Philippine Institution in
Cebu. It owns and operates a bar-restaurant where it sells wines and liquors, soft drinks, meals and short orders to its
members and their guests. Such was a necessary incident to the operation of the club and its golf-course. The club is
operated mainly with funds derived from membership fees and dues. In 1951. as a result of a capital surplus, the value
or price of its real properties increased, the Club declared stock dividends; but no actual cash dividends were
distributed to the stockholders. A BIR agent discovered that the Club has never paid percentage tax on the gross
receipts of its bar and restaurant. And so, the Collector of Internal Revenue assessed against and demanded from the
Club a certain amount of percentage taxes and surcharges.
ISSUE:
1. Whether or not the Club is liable to pay percentage taxes and surcharges. (Main Issue)
2. Whether or not the Club is a stock corporation. (Corporation Law-related issue)
RULING:
1. NO. The Tax Code provides that every person engaging in a business on which the percentage tax is imposed
shall pay in full a fixed annual tax of ten pesos for each calendar year or fraction thereof in which such person
shall engage in said business. It also provides that in Percentage tax . . . Keepers of restaurants, refreshment
parlors and other eating places shall pay a tax three per centum, and keepers of bar and cafes where wines or
liquors are served five per centum of their gross receipts . . . For the liability to attach, the operator thereof
must be engaged in the business as a barkeeper and restaurateur. The plain and ordinary meaning
of business is restricted to activities or affairs where profit is the purpose or livelihood is the motive, and the
term business when used without qualification, should be construed in its plain and ordinary meaning,
restricted to activities for profit or livelihood.
Having found as a fact that the Club was organized to develop and cultivate sports of all class and
denomination, for the healthful recreation and entertainment of its stockholders and members; that upon its
dissolution, its remaining assets, after paying debts, shall be donated to a charitable Philippine Institution in
Cebu; that it is operated mainly with funds derived from membership fees and dues; that the Club's bar and
restaurant catered only to its members and their guests; that there was in fact no cash dividend distribution to
its stockholders and that whatever was derived on retail from its bar and restaurant was used to defray its
overall overhead expenses and to improve its golf-course (cost-plus-expenses-basis), it stands to reason that
the Club is not engaged in the business of an operator of bar and restaurant (same authorities, cited above). It
is conceded that the Club derived profit from the operation of its bar and restaurant, but such fact does not
necessarily convert it into a profit-making enterprise.
2. NO. The facts that the capital stock of the respondent Club is divided into shares, does not detract from the
finding of the trial court that it is not engaged in the business of operator of bar and restaurant. What is
determinative of whether or not the Club is engaged in such business is its object or purpose, as stated in its
articles and by-laws. It is a familiar rule that the actual purpose is not controlled by the corporate form or by
the commercial aspect of the business prosecuted, but may be shown by extrinsic evidence, including the bylaws and the method of operation. From the extrinsic evidence adduced, the Tax Court concluded that the Club
is not engaged in the business as a barkeeper and restaurateur. Moreover, for a stock corporation to exist, two
requisites must be complied with, to wit: (1) a capital stock divided into shares and (2) an authority to
distribute to the holders of such shares, dividends or allotments of the surplus profits on the basis of the
shares held (sec. 3, Act No. 1459). In the case at bar, nowhere in its articles of incorporation or by-laws could
be found an authority for the distribution of its dividends or surplus profits. Strictly speaking, it cannot,
therefore, be considered a stock corporation, within the contemplation of the corporation law. A tax is a
burden, and, as such, it should not be deemed imposed upon fraternal, civic, non-profit, nonstock
organizations, unless the intent to the contrary is manifest and patent."
H. Close Corporations
No Necessity of Board
MANUEL R. DULAY ENTERPRISES, INC vs. THE HONORABLE COURT OF APPEALS
FACTS: Petitioner Manuel R. Dulay Enterprises, Inc is a domestic corporation. Through its president, Manuel Dulay, it
obtained various loans for the construction of its hotel project, Dulay Continental Hotel (now Frederick Hotel). It even
had to borrow money from petitioner Virgilio Dulay, the treasurer and general manager of the corporation, to be able
to continue the hotel project. As a result of said loan, petitioner Virgilio Dulay occupied one of the unit apartments of
the subject property while at the same time managing the Dulay Apartment at his shareholdings in the corporation
was subsequently increased by his father.
Later on, Manuel Dulay by virtue of Board Resolution No 18 6 of petitioner corporation sold the subject property to
private respondents spouses Maria Theresa and Castrense Veloso. Thereafter, a TCT was issued to private respondent
Maria Theresa Veloso. Subsequently, Manuel Dulay and private respondents spouses Veloso executed a Memorandum
to the Deed of Absolute Sale giving Manuel Dulay a right to repurchase the subject property. However, private
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respondent Maria Veloso, without the knowledge of Manuel Dulay, mortgaged the subject property to private
respondent Manuel A. Torres for a loan.Upon the failure of Maria Veloso to pay Torres, the subject property was sold on
April 5, 1978 to the latter as the highest bidder in an extrajudicial foreclosure sale.
Maria Veloso executed a Deed of Absolute Assignment of the Right to Redeem in favor of Manuel Dulay assigning her
right to repurchase the subject property from private respondent Torres. As neither private respondent Maria Veloso
nor her assignee Manuel Dulay was able to redeem the subject property, Torres filed an action against petitioner
corporation, Virgilio Dulay and Nepomuceno Redovan, a tenant of Dulay Apartment Unit No. 8-A for the recovery of
possession. The Metropolitan Trial Court of Pasay rendered a decision in favor of Torres and against Dulay. Upon appeal
to the CA, the decision was affirmed in full.
Hence, the Corporation filed a petition before the Supreme. It was contended that the CA had erroneously applied the
doctrine of piercing the veil of corporate entity considering that the sale of the subject property between the spouses
Veloso and Manuel Dulay has no binding effect on petitioner corporation as Board Resolution No. 18 which authorized
the sale of the subject property was resolved without the approval of all the members of the board of directors and
said Board Resolution was prepared by a person not designated by the corporation to be its secretary.

ISSUE: Whether or not the sale of the subject property between the spouses Veloso and Manuel Dulay has a binding
effect on petitioner corporation even though Board Resolution No. 18 which authorized the sale of the subject property
was resolved without the approval of all the members of the board of directors.

RULING: YES.
The Supreme Court ruled in the basis of Section 101 of the Corporation Code. It provides that unless the by-laws
provide otherwise, when board meeting is unnecessary or improperly held any action by the directors of a close
corporation without a meeting shall be valid if:
1. Before or after such action is taken, written consent thereto is signed by all the directors, or
2. All the stockholders have actual or implied knowledge of the action and make no prompt objection thereto in
writing; or
3. The directors are accustomed to take informal action with the express or implied acquiese of all the stockholders, or
4. All the directors have express or implied knowledge of the action in question and none of them makes prompt
objection thereto in writing.
If a directors' meeting is held without call or notice, an action taken therein within the corporate powers is deemed
ratified by a director who failed to attend, unless he promptly files his written objection with the secretary of the
corporation after having knowledge thereof.
The Supreme Court concluded that in the instant case, petitioner corporation is classified as a close corporation
pursuant to Section 101 of the Corporation Code and consequently a board resolution authorizing the sale or mortgage
of the subject property is not necessary to bind the corporation for the action of its president. At any rate, corporate
action taken at a board meeting without proper call or notice in a close corporation is deemed ratified by the absent
director unless the latter promptly files his written objection with the secretary of the corporation after having
knowledge of the meeting which, in his case, petitioner Virgilio Dulay failed to do.
Furthermore, although a corporation is an entity which has a personality distinct and separate from its individual
stockholders or members, the veil of corporate fiction may be pierced when it is used to defeat public convenience
justify wrong, protect fraud or defend crime. The privilege of being treated as an entity distinct and separate from its
stockholder or members is therefore confined to its legitimate uses and is subject to certain limitations to prevent the
commission of fraud or other illegal or unfair act. When the corporation is used merely as an alter ego or business
conduit of a person, the law will regard the corporation as the act of that person.

Withdrawal and Dissolution


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FINANCING CORPORATION OF THE PHILIPPINES vs. HON. JOSE TEODORO


FACTS: In behalf of the other minority stockholders of the Financing Corporation of the Philippines, Asuncion Lopez
Vda. de Lizares, Encarnacion Lizares Vda. de Panlilio and Efigenia Vda. de Paredes filed a complaint against the said
corporation and J. Amado Araneta, its president and general manager, claiming among other things alleged gross
mismanagement and fraudulent conduct of the corporate affairs of the defendant corporation by J. Amado Araneta,
and asking that the corporation be dissolved. They prayed that Araneta be held accountable for accountable for the
amounts of the unauthorized and fraudulent disbursements and disposition of assets made by him, and and that he be
required to account for said assets, and that pending trial and disposition of the case on its merits a receiver be
appointed to take possession of the books, records and assets of the defendant corporation preparatory to its
dissolution and liquidation and distribution of the assets. The trial court granted the petition for the appointment of a
receiver. Financing Corporation of the Philippines and J. Amado Araneta, as petitioners, then, filed the a petition to
revoke and set aside the order.
In opposing the appointment of a receiver, Financing Corporation and Araneta contented that such appointment was
merely an auxiliary remedy; that the principal remedy sought by the respondents was the dissolution of the Financing
Corporation of the Philippines. According to them, the dissolution of a corporation can be brought and maintained only
by the State through its legal counsel, and that respondents, much less the minority stockholders of said corporation,
have no right or personality to maintain the action for dissolution, and that inasmuch as said action cannot be
maintained legally by the respondents, then the auxiliary remedy for the appointment of a receiver has no basis.

ISSUE: Whether or not the minority stockholders in the present case may file a complaint against the
corporation for the latters dissolution.

RULING: YES. Although as a rule minority stock- holders of a corporation may not ask for its dissolution in a private
suit and such action should be brought by the Govern- ment through its legal officer in a quo warranto case at their
instance and request, there might be exceptional cases wherein the intervention of the State, for one reason or
another, cannot be obtained, as when the State, is not interested because the complaint is strictly a matter between
the stockholders and does not involve, in the opinion of the legal officer of the Government, any of the acts or
omissions warranting quo warranto proceedings in which minority stockholders are entitled to have such dissolution.
When such action or private suit is brought by them, the trial court has jurisdiction and may or may not grant the
prayer, depending upon the facts and circumstances attending it.

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