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I. HISTORICAL BACKGROUND
Atty. CESAR L. VILLANUEVA
1. The Philippine Corporate Law:2 Sort of Codification of American Corporate Law When the Philippines came under American sovereignty, attention was drawn to the fact that there was no entity in Spanish law exactly corresponding to the notion "corporation" in English and American law; the Philippine Commission enacted the Corporation Law (Act No. 1459), to introduce the American corporation into the Philippines as the standard commercial entity and to hasten the day when the sociedad anónima of the Spanish law would be obsolete. The statute is a sort of codification of American Corporate Law. xHarden v. Benguet Consolidated Mining Co., 58 Phil. 141 (1933). 2. The Corporation Law The first corporate statute, the Corporation Law, or Act No. 1459, became effective on 1 April 1906. It had various piece-meal amendments during its 74 year history. It rapidly became antiquated and not adapted to the changing times. 3. The Corporation Code The present Corporation Code, or Batas Pambansa Blg. 68, became effective on 1 May 1980. It adopted various corporate doctrines enunciated by the Supreme Court under the old Corporation Law. It clarified the obligations of corporate directors and officers, expressed in statutory language established principles and doctrines, and provided for a chapter on close corporations. 4. Proper Treatment of Philippine Corporate Law Philippine Corporate Law comes from the common law system of the United States. Therefore, although we have a Corporation Code that provides for statutory principles, Corporate Law is essentially, and continues to be, the product of commercial developments. Much of this development can be expected to happen in the world of commerce, and some expressed jurisprudential rules that try to apply and adopt corporate principles into the changing concepts and mechanism of the commercial world.
See opening paragraphs of VILLANUEVA , Corporate Contract Law, 38 ATENEO L.J. 1 (No. 2, June 1994). 1. Definition (Section 2; Articles 44(3), 45, 46, and 1775, Civil Code). 2. Tri-Level Existence of Corporation (a) Aggregation of Assets and Resources (b) Business Enterprise or Economic Unit (c) Juridical Entity 3. Relationships Involved in Corporate Setting (a) Juridical Entity Level, which views the State-corporations relationship (b) Contractual Relationship Level, which considers that the corporate setting is at once a contractual relationship on four (4) levels: - Between the corporation and its agents or representatives to act in the real world, such as its directors and its officers, which is governed also by the Law on Agency; - Between the corporation and its shareholders or members;
Unless otherwise indicated, all references to sections pertain to The Corporation Code of the Philippines. 2 The whole body of statutory and jurisprudential rules pertaining to corporations is referred to as "Corporate Law" to differentiate it from the old statute known as "The Corporation Law," or Act No. 1459.
2 - Between and among the shareholders in a common venture; and - Between the corporation and third-parties or "outsiders", which is essentially governed by Contract Law. 4. Theories on Formation of Corporation: (a) Theory of Concession (Tayag v. Benguet Consolidated Inc., 26 SCRA 242 ) To organize a corporation that could claim a juridical personality of its own and transact business as such, is not a matter of absolute right but a privilege which may be enjoyed only under such terms as the State may deem necessary to impose (x-cf. Ang Pue & Co. v. Sec. of Commerce and Industry, 5 SCRA 645 ). Before a corporation may acquire juridical personality, the State must give its consent either in the form of a special law or a general enabling act, and the procedure and conditions provided under the law for the acquisition of such juridical personality must be complied with. The failure to comply with the statutory procedure and conditions does not warrant a finding that such association achieved the acquisition of a separate juridical personality, even when it adopts sets of constitution and by-laws. xInternational Express Travel & Tour Services, Inc. v. Court of Appeals, 343 SCRA 674 (2000). Since all corporations, big or small, must abide by the provisions of the Corporation Code, then even a simple family corporation cannot claim an exemption nor can it have rules and practices other than those established by law. xTorres v. Court of Appeals, 278 SCRA 793 (1997). (b) Theory of Enterprise Entity (BERLE , Theory of Enterprise Entity, 47 COL . L. REV. 343 ) Corporations are composed of natural persons and the legal fiction of a separate corporate personality is not a shield for the commission of injustice and inequity, such as the use of separate personality to avoid the execution of the property of a sister company. xTan Boon Bee & Co., Inc. v. Jarencio, 163 SCRA 205 (1988). A corporation is but an association of individuals, allowed to transact under an assumed corporate name, and with a distinct legal personality. In organizing itself as a collective body, it waives no constitutional immunities and perquisites appropriate to such a body. xPhilippine Stock Exchange, Inc. v. Court of Appeals, 281 SCRA 232 (1997). 5. Four Attributes of Corporation from Statutory Definition: (a) A corporation is an artificial being (b) Created by operation of law (c) With right of succession (d) Only has powers, attributes and properties expressly authorized by law or incident to its existence 6. Advantages and Disadvantages of Corporate Form: (a) Four Basic Advantageous Characteristics of Corporate Organization: (i) Strong Legal Personality - Entity attributable powers - Continuity of existence - Purpose The corporation was evolved to make possible the aggregation and assembling of huge amounts of capital upon which big business depends; and has the advantage of non-dependence on the lives of those who compose it even as it enjoys certain rights and conducts activities of natural persons. Reynoso, IV v. Court of Appeals, G.R. No. 116124-25, 22 November 2000. (ii) Centralized Management. (iii) Limited Liability to Investors
3 One advantage of a corporate business organization is the limitation of an investor’s liability to the amount of the investment, which flows from the legal theory that a corporate entity is separate and distinct from its stockholders. xSan Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, 296 SCRA 631, 645 (1998). (iv) Free Transferability of Units of Ownership for Investors (b) Disadvantages: (i) Abuse of corporate management (ii) Abuse of limited liability feature (iii) Cost of maintenance (iv) Double taxation Dividends received by individuals from domestic corporations are subject to final 10% tax (Sec. 24(B)(2), NIRC of 1997) for income earned on or after 1 January 1998. Inter-corporate dividends between domestic corporations, however, are not subject to any income tax (Sec. 27(D)(4), NIRC of 1997). In addition, there has been a re-imposition of the “improperly accumulated earnings tax,” under Section 29 of the NIRC of 1997 for corporations at the rate of 10% annually. 7. Compared With Other Media of Business Endeavors - Distribution of Risk, Profit and Control (a) Sole Proprietorships (b) Business Trusts (Article 1442, Civil Code) (c) Partnerships and Other Associations (Arts. 1768 and 1775, Civil Code) - Can a defective attempt o form a corporation result at least in the formation of a partnership? Pioneer Insurance v. Court of Appeals, 175 SCRA 668 (1989). (d) Joint Ventures Joint venture is defined as an association of persons or companies jointly undertaking some commercial enterprise; generally all contribute assets and share risks. It requires a community of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith, and duty, which may be altered by agreement to share both in profit and losses. the acts of working together in a joint project. xKilosbayan, Inc. v. Guingona, Jr., 232 SCRA 110, 143 (1994), citing BLACK ’S LAW DICTIONARY , Sixth ed., 839. (e) Cooperatives (Art. 3, R.A. No. 6938) (f) Sociedades Anónimas A sociedad anónima was considered a commercial partnership, a sort of a corporation, “where upon the execution of the public instrument in which its articles of agreement appear, and the contribution of funds and personal property, becomes a juridical person—an artificial being, invisible, intangible, and existing only in contemplation of law—with power to hold, buy, and sell property, and to sue and be sued—a corporation—not a general copartnership nor a limited copartnership . . . The inscribing of its articles of agreement in the commercial register was not necessary to make it a juridical person—a corporation. Such inscription only operated to show that it partook of the form of a commercial corporation.” xMead v. McCullough, 21 Phil. 95,106 (1911). The sociedades anónimas were introduced in Philippine jurisdiction on 1 December 1888 with the extension to Philippine territorial application of Articles 151 to 159 of the Spanish Code of Commerce. Those articles contained the features of limited liability and centralized management granted to a juridical entity. But they were more similar to the English joint stock companies than the modern commercial corporations. xBenguet Consolidated Mining Co. v. Pineda, 98 Phil. 711 (1956) Our Corporation Law recognizes the difference between sociedades anónimas and corporations and will not apply legal provisions pertaining to the latter to the former xPhil. Product Co. v. Primateria Societe Anonyme, 15 SCRA 301 (1965).
4 (g) Cuentas En Participacion A cuentas en participacion as a sort of an accidental partnership constituted in such a manner that its existence was only known to those who had an interest in the same, there being no mutual agreement between the partners, and without a corporate name indicating to the public in some way that there were other people besides the one who ostensibly managed and conducted the business, governed under article 239 of the Code of Commerce. Those who contract with the person under whose name the business of such partnership of cuentas en participacion is conducted, shall have only a right of action against such person and not against the other persons interested, and the latter, on the other hand, shall have no right of action against third person who contracted with the manager unless such manager formally transfers his right to them. xBourns v. Carman, 7 Phil. 117 (1906).
III. NATURE AND ATTRIBUTES OF A CORPORATION
1. Nature of Power to Create a Corporation (Sec. 16, Article XII, 1987 Constitution) 2. Corporation as a Person: (a) Entitled to due process The due process clause is universal in its application to all persons without regard to any differences of race, color, or nationality. Private corporations, likewise, are "persons" within the scope of the guaranty insofar as their property is concerned." xSmith Bell & Co. v. Natividad, 40 Phil. 136, 144 (1920). (b) Equal protection clause (xSmith Bell & Co. v. Natividad, 40 Phil. 136 ). (c) Unreasonable Searches and Seizure Corporations are protected by the constitutional guarantee against unreasonable searches and seizures, but that the officers of a corporation from which documents, papers and things were seized have no cause of action to assail the legality of the seizures, regardless of the amount of shares of stock or of the interest of each of them in said corporation, and whatever the offices they hold therein may be, because the corporation has a personality distinct and separate from those of said officers. The legality of a seizure can be contested only by the party whose rights have been impaired thereby; and the objection to an unlawful search is purely personal and cannot be availed of by such officers of the corporation who interpose it for their personal interests. xStonehill v. Diokno, 20 SCRA 383 (1967). A corporation is but an association of individuals under an assumed name and with a distinct legal entity. In organizing itself as a collective body it waives no constitutional immunities appropriate for such body. Its property cannot be taken without compensation; can only be proceeded against by due process of law; and is protected against unlawful discrimination. xBache & Co. (Phil.), Inc. v. Ruiz, 37 SCRA 823, 837 (1971), quoting from xHale v. Henkel, 201 U.S. 43, 50 L.Ed. 652. (d) But a corporation is not entitled to privilege against self incrimination “It is elementary that the right against self-incrimination has no application to juridical persons.” Bataan Shipyard & Engineering Co v. PCGG, 150 SCRA 181, 234-235 (1987). While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises may refuse to show its hand when charged with an abuse of such privilege. xHale v. Henkel, 201 U.S. 43 (1906); xWilson v. United States, 221 U.S. 361 (1911); xUnited States v. White, 322 U.S. 694 (1944). 3. Liability for Torts A corporation is civilly liable in the same manner as natural persons for torts, because generally speaking, the rules governing the liability of a principal or master for a tort committed by an agent or servant are the same whether the principal or master be a natural person or a corporation, and whether the servant or agent be a natural or artificial person. That a principal or master is liable for every tort which he expressly directs or authorizes, is just as true of a corporation as a natural person. PNB v. CA, 83 SCRA 237 (1978).
113-114 (1993). Revised Penal Code). No. sorrows. mental anguish. 301 SCRA 589 (1999). no senses. 220 SCRA 103. PNB [130 Phil. vo Intermediate Appellate Court. we find a situation where the PCIBank appears also to be the victim of the scheme hatched by a syndicate in which its own management employees had participated. NLRC. v. 54 Phil. serious anxiety. While it is true that a criminal case can only be filed against the officers of a corporation and not against the corporation itself. xMambulao Lumber Co. Rubber & Plastic Corp. 121413. consequently. v. xSolid Homes. v. moral shock. the Supreme Court seemed to have gone back to the original doctrine that “[u]nder Article 2217 of the Civil Code. fright. In Asset Privatization Trust v. therefore. therefore. moral damages include besmirched reputation which a corporation may possibly suffer. xPeople v. . 401 (1914). . xAcme Shoe. . Criminal Liability of a Corporation (West Coast Life Ins.” Essentially. Naguiat v. xTimes. a corporation may have a good reputation which. 20 and 21 of the Civil Code. A bank will be held liable for the negligence of its officers or agents when acting within the course and scope of their employment. v. Moral damages are granted in recompense for physical suffering. Tan Boon Kong. being an artificial person. serious anxiety. that a corporation may recover moral damages if it “has a good reputation that is debased. Court of Appeals. xABS-CBN Broadcasting Corp.R. its stockholder who was actively engaged in the management or operation of the business should be held personally liable. and griefs of life—all of which cannot be suffered by respondent bank as an artificial person. 300 SCRA 579 (1998). Co. xSergio F. Mental suffering can be experienced only by one having a nervous system and it flows from real ills. Court of Appeals. v. 269 SCRA 564 (1997). v. being an artificial person and having existence only in legal contemplation. A corporation. People v. Court of Appeals. v. Simply stated. it does not follow from this. 44 Phil. 260 SCRA 714 (1996). Court of Appeals. mental anguish. Court of Appeals. Even when the corporation's reputation and goodwill have been prejudiced. In this case. It cannot. However. 121 SCRA 655 . 29 January 2001. Inc. 236 SCRA 602 (1994). however. 39 SCRA 303 (1971). the prohibition extends to the board of directors. being an artificial person and having existence only in legal contemplation. 5. As a general rule. CA. and to each director separately and individually. experience physical suffering and mental anguish.5 Our jurisprudence is wanting as to the definite scope of “corporate tort. besmirched reputation. xLBC Express. 27 Phil. a banking corporation is liable for the wrongful or tortuous acts and declarations of its officers or agents within the course and scope of their employment. Philippine Commercial International Bank vs. social humiliation. moral shock or social humiliation which are basis for moral damages under Art. wounded feelings. if besmirched. may be a ground for the award of moral damages. Sia v. 366 (1968)]. and similar injury. Recovery of Moral Damages and Other Damages A corporation. Manero [218 SCRA 85 (1993)] and Mambulao Lumber Co. which can be experienced only by one having a nervous system." xPrime White Cement Corp. Concepcion. 129 (1922). wounded feelings. no emotions. cannot experience physical sufferings. Hurd. Inc. has no feelings.” The award of moral damages cannot be granted in favor of a corporation because. 607 . Articles 102 and 103. "there can be no award for moral damages under Article 2217 and succeeding articles of Section 1 of Chapter 3 of Title XVIII of the Civil Code in favor of a corporation. When it was found that Clark Field Taxi failed to comply with the obligation imposed under Article 283 of the Labor Code which mandates that the employer to grant separation pay to employees in case of closure or cessation of operations of establishments or undertaking not due to serious business losses or financial reverses. The statement in People v. G. 4. but which requires a clear proof of malice or bad faith. Inc. even as regards that species of tort of which malice is an essential element. When a criminal statute forbids the corporation itself from doing an act. no emotions. 22 SCRA 359 (1968). Court of Appeals. no senses.” The possible basis of recovery of a corporation would be under Articles 19. resulting in social humiliation” is an obiter dictum. fright. tort is a breach of a legal duty. it has no feelings. No criminal suit can lie against an accused who is a corporation. v. “tort” consists in the violation of a right given or the omission of a duty imposed by law. Philippine National Bank. it cannot experience physical suffering and mental anguish. 275 SCRA 267 (1997). 2217 of the Civil Code. Reyes.
like its franchise. under item 920(a) thereof provides that “Cable TV operations shall be governed by E. In other words. as amended by PDs 191 and 197. 58 (1955) (b) Public Utilities (Sec. which are owned by stockholders. 31.” Philippine Long Distance Telephone Co. The LRC and the Register of Deeds of Davao.D. 1987. Article XII. Since stockholders own the shares of stock. s. s. 205. 1987 Constitution) Sources: P. 4—December. 596 ). 1987 Constitution. If CATV operators offer public telecommunications services. The donation of land to an unincorporated religious organization. 1997. since it is admitted that its members are of foreign nationality. The franchise is not thereby invalidated by the transfer of the shares. 8-9-95. SEC Opinion dated 24 March 1983. Section 2. 102 Phil. of 1982.R. Business Corp. they may dispose of the same as they see fit. at p.6 that the corporation cannot be a real-party-in-interest for the purpose of bringing a civil action for malicious prosecution for the damages incurred by the corporation for the criminal proceedings brought against its officer. 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. 301 SCRA 459 (1999). 11(1). v. Cable Industry The National Telecommunications Commission (NTC). Article XII. whose trustees are foreigners. 1987 Constitution. the right to exist as such. Garcia. however.L. It has the right of continuity or perpetual succession Corporation Code. even if the original stockholders had transferred their shares to another group of shareholders. In law there is a clear distinction between the "operation" of a public utility and the ownership of the facilities and equipment used to serve the public. Inc. P. Imperial Insurance. v. 36. Sec. 11 SCRA 634 (1964). 120. Sec. the sale of which requires only NTC approval. 333 ). xCometa v. Exceptions: The TEST OF CONTROLLING OWNERSHIP Applies In: (a) Exploitation of Natural Resources (Sec.. Roman Catholic Apostolic Administrator of Davao. 97 Phil. s. (No. 1991). No. 11. transfer or assign the property of a corporation. that is.” . requires a franchise for the operation of a public utility. Ung Sui Si Temple. they shall be treated just like a public telecommunications entity. which regulates and supervises the cable television industry in the Philippines under Section 2 of Executive Order No. and the spirit of the Constitution demands that in the absence of capital stock. People v. 2. the sale or transfer of which requires Congressional sanction. But the special or secondary franchises of a corporation are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power granted to a corporation to dispose of its property. 243 SCRA 436 (1995) “A distinction should be made between shares of stock. 190 SCRA 717. A corporation has a personality separate and distinct from that of each stockholder. as an entity. Tatad v. National Telecommunications Commission. v. 123). The Constitution. 732 (1990). Art. The primary franchise of a corporation. 2). and the franchise itself which is owned by the corporation as the grantee thereof. DOJ Opinion 163. is vested in the individuals who compose the corporation and not in the corporation itself and cannot be conveyed in the absence of a legislative authority so to do. except such special or secondary franchises as are charged with a public use. 93 Phil. has provided under NTC Memorandum Circular No. DOJ Opinion No.” xRegister of Deeds of Rizal v. 140. xJ. cannot be allowed registration for being violation of the constitutional prohibition and it would not be violation of the freedom of religion clause.S.D. the franchise granted to the corporation subsists as long as the corporation. The fact that the religious association “has no capital stock does not suffice to escape the constitutional inhibition. it does not requires a franchise before one can own the facilities needed to operate a public utility so long as it does not operate them to serve the public. Quasha. continues to exist. (c) Mass Media (Sec. Court of Appeals. 436. They may not. 6. the controlling membership should be composed of Filipino citizens. SEC Opinion dated 15 July 1991. in no uncertain terms. s. however. Jr. XVI. 1973. XXV SEC QUARTERLY BULLETIN. Nationality of Corporation: COUNTRY UNDER WHOSE LAWS INCORPORATED (Sec. 576.
604 ). Mejia. However. 1987 Constitution) (e) War-Time Test (Filipinas Compania de Seguros v. Art. A. NLRC.. agency or adjunct of another corporation. This feature flows from the legal theory that a corporate entity is separate and distinct from its stockholders. Court of Appeals. be owned and managed by Filipino citizens. et al. Francisco. s. 37 ATENEO L. XXIV SEC QUARTERLY BULLETIN (No. xSan Juan Structural and Steel Fabricators. Importance of Protecting Main Doctrine: The “separate juridical personality” includes: right of succession. One of the advantages of a corporate form of business organization is the limitation of an investor’s liability to the amount of the investment. or corporations. 645 (1998). or serve as a mere alter ego or business conduit of a person or an instrumentality. 89 Phil. Main Doctrine: A CORPORATION HAS A PERSONALITY SEPARATE FROM ITS STOCKHOLDERS OR MEMBERS . theefore. Christern. xHaw Pia v. xDavis Winship v. necessarily dilutes any or all of those attributes. 186 SCRA 841 (1990). the veil can be disregarded when it is utilized as a shield to commit fraud. Foreign Investment Act of 1992) (g) The Grandfather Rule (Opinion of DOJ No. DBP v. 141617. confuse legitimate issues. 80 Phil. Inc. 435 F. centralized management. v. an undermining of the separate juridical personality of the corporation. xLim v. San Jose Petroleum Inc. XXIV SEC QUARTERLY BULLETIN (No. 14 August 2001. 19 (No. The mere fact that a stockholder sells his shares of stock in the corporation during the pendency of a collection case against the corporation. XVI. 2. No.. v. 95. 296 SCRA 631. June 1993). 1989. R. (f) Investment Test as to "Philippine Nationals" (Sec.7 Under DOJ Opinon No.” (d) Advertising Business (Sec. cooperatives or associations. 7042. Civil Code 2. Inc. 18. 1. 140) IV.. since . Court of Appeals. Federal Communications Commission. considered CATV as “a form of mass media which must. Philippine Trust Co. AND DISTINCT Rudimentary is the rule that a corporation is invested by law with a personality distinct and separate from its stockholders or members—by legal fiction and convenience it is shielded by a protective mantel and imbued by law with a character alien to the persons comprising it. 2. Therefore.. Article 44. and generally free transferability of shares of stock. R. does not make such stockholder personally liable for the corporate debt. 323 SCRA 102 (2000). taking its cue from Allied Broadcasting. Huenefeld & Co. 54 . 3(a). defeat public convenience. 744 .. 1March 1990). 2d 70. series of 1999. 3. dated 6 November 1989. (h) Special Classifications (Sec.J.(b). SEC Opinion. 18 SCRA 924 ). G. 90 Phil. China Banking Corp. Inc. dated 19 January 1989. dated 14 December 1989. limited liability. Applications: (a) Majority Ownership of or Dealings in Shareholdings: Ownership of a majority of capital stock and the fact that majority of directors of a corporation are the directors of another corporation creates no employer-employee relationship with the latter's employees. wholly-owned and managed by Filipino citizens pursuant to the mandate of the Constitution.A. 2 -June 1990) Up to what level do you apply the grandfather rule? (Palting v. SEC Opinion. On equitable considerations. 11(2). Restatement of the Doctrine of Piercing The Veil of Corporate Fiction. such as the application of the piercing doctrine. illegality or inequity. Sources: Sec. v. the statutorily granted privilege of a corporate veil may be used only for legitimate purposes. SEPARATE JURIDICAL PERSONALITY AND DOCTRINE OF PIERCING VEIL OF CORPORATE FICTION See relevant portions of VILLANUEVA . the Secretary of Justice.
v. v. xFrancisco v. xManila Hotel Corp." xManila Gas Corp. . as an individual.8 the disposing stockholder has no personal obligation to the creditor. Inc. National Labor Relations Commission. 177 SCRA 789 (1989). NLRC. Court of Appeals. 127 SCRA 390 (1984). "A corporation has a personality distinct from that of its stockholders. 413-414 (1989). NLRC . for they are separate entities. 14 August 2001. and it is the inherent right of the stockholder to dispose of his shares of stock anytime he so desires. a corporation has no legal standing to file a suit for recovery of certain parcels of land owned by its members in their individual capacity. NLRC. enabling the taxing power to reach the latter when they receive dividends from the corporation. xCruz v. Mere substantial identity of the incorporators of the two corporations does not necessarily imply fraud. Inc. xARB Constructions Co. 898 (1936). 290 SCRA 164 (1998). Intermediate Appellate Court. G. 62 Phil. v. even when the corporation is organized for the benefit of the members. Dalisay. Obligations and Debts: Likewise. 152 SCRA 487 (1987). the corporations are to be rightly treated as distinct and separate from each other. 332 SCRA 427 (200) (c) On Issues of Privileges Enjoyed: The tax privileges enjoyed by a corporation do not extend to its stockholders. and that shareholders are in no legal sense the owners of corporate property which is owned by the corporation as a distinct legal person. 141617. and the corporation are separate entities. xTraders Royal Bank v. Stockholders of F. No. Mejia. even a scintilla of substantiation. As a general rule. Court of Appeals. a corporation may not be made to answer for acts or liabilities of its stockholders or those of the legal entities which it may be connected and vice-versa. Collector of Internal Revenue. 262 SCRA 715 (1996). CA. v. v. since that president. nor warrant the piercing of the veil of corporate fiction. CA. Stockholders have no personality to intervene in a collection case covering the loans of the corporation on the ground that the interest of shareholders in corporate property is purely inchoate. the exemption clause to the charter [of the domestic corporation] notwithstanding. Good Earth Emporium. Inc. Guanzon and Sons. xAsionics Philippines. Inc. much less. In the absence of clear and convincing evidence to show that the corporate personalities were used to perpetuate fraud. R. 272 SCRA 333 (1997). 195 SCRA 740 ) The interests of payees in promissory notes cannot be off-set against the obligations between the corporations to which they are stockholders absent any allegation. Court of Appeals.. 343 SCRA 1 (2000). Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. xSaw v. 323 SCRA 102 (2000). Register of Deeds of Manila. v. Jr. (b) Dealings Between the Corporation and Stockholders: The transfer of the corporate assets to the stockholder is not in the nature of a partition but is a conveyance from one party to another. Sulo ng Bayan v. 194 SCRA 544 (1991) The mere fact that one is president of the corporation does not render the property he owns or possesses the property of the corporation. (d) Being a Corporate Officer: Being an officer or stockholder of a corporation does not by itself make one's property also of the corporation. v. v. 172 SCRA 405. Inc. CA. 72 SCRA 347 ). and vice-versa.. xLaguio v. The corporate debt or credit is not the debt or credit of the stockholder nor is the stockholder's debt or credit that of the corporation. 895. xIndustrial and Development Corp. It must be considered as settled in this jurisdiction that dividends of a domestic corporation which are paid and delivered in cash to foreign corporations as stockholders are subject to the payment of the income tax. or circumvent the law. 6 SCRA 373 (1962). xSunio v. xLim v. (e) Properites. Araneta. xRemo. that the parties interest in the corporation are so considerable as to merit a declaration of unity of their civil personalities.
to avoid liability arising from debt. as alleged in the present case. 323 SCRA 102 (2000). Court of Appeals. Hence. Court of Appeals. Court of Appeals. 21 March 2001. xLim v. 2. No. xLim v. It is the petitioner as a corporation which is being ordered to answer for the personal liability of certain individual directors. 14 August 2001. such stockholders of part of the corporation’s assets before the dissolution of the corporation and the liquidation of its debts and liabilities. the corporate entity is being used as a cloak or cover for fraud or illegality. R. Mejia. to avoid a judgment credit. xReynoso. xAsset Privatization Trust v. (f) Third-Parties: The fact that respondents are not stockholders of the disputed corporations does not make them non-parties to the case. (c) Piercing is not available when the personal obligations of an individual are sought to be enforced against the corporation. to avoid inclusion of corporate assets as part of the estate of a decedent. B. when made use of as a shield to perpetrate fraud and/or confuse legitimate issues. G. Calica. Source of Incantation: xUnited States v. G. were it not for the existing corporate fiction. CA. IV v. Umali v. Indophil Textile Mill Workers Union-PTGWO v. it is alleged that the aforementioned corporations are mere alter egos of the directors-petitioners. 189 SCRA 529 (1990). Court of Appeals. 238 SCRA 52 (1994) “The rationale behind piercing a corporation’s identity in a given case is to remove the barrier between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain proscribed activities. 617 (1998). it would amount to the appropriation by. or distinguishes one corporation from a seemingly separate one. No. Milwaukee Refrigerator Transit Co. In this case. they could be subject to. xSee also Francisco v. Court of Appeals. also xRamoso v. No.9 It is a basic postulate that a corporation has a personality separate and distinct from its stockholders. as a justification for a wrong. G. 300 SCRA 579. in the case at bar. and that the former acquired the properties sought to be reconveyed to FGSRC in violation of directorspetitioners’ fiduciary duty to FGSRC. 189 SCRA 529 (1990).R. the presumption of conclusiveness of said titles in favor of said corporations should stand undisturbed. officers and incorporators concerned. 247 ). 22 November 2000. 141617. even when the foreclosure on the assets of the corporation was wrongful and done in bad faith.R. No. 142 Fed. Piercing the Veil of Corporate Fiction: 1. 117416. in the absence of any cogency to shred the veil of corporate fiction. since the jurisdiction of a court or tribunal over the subject matter is determined by the allegations in the Complaint. 116124-25. G. Where real properties included in the inventory of the estate of a decedent are in the possession of and are registered in the name of the corporations. 131889. Otherwise. 269 SCRA 15 ) Piercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders from liabilities that ordinarily. Young. When Piercing Doctrine Not Applicable: (a) Piercing the veil of corporate fiction is remedy of last resort and is not available when other remedies are still available. or a business conduit for the sole benefit of the stockholders. 8 December 2000. Nature of the Piercing Doctrine (Traders Royal Bank v. among others. (b) Piercing is not allowed unless the remedy sought is to make the officer or another corporation pecuniarily liable for corporate debts. Court of Appeals. instead of holding certain individuals or person responsible for an alleged corporate act. 205 SCRA 697 (1992). NLRC. 3. or as an alter ego. 323 SCRA 102 (2000).R. This Court has pierced the veil of corporate fiction in numerous cases where it was used. CA. xRobledo v. it . Therefore. or to promote unfair objectives or otherwise to shield them.. Umali v. Gochan v. the situation has been reversed. However. the stockholders of the corporation have no standing to recover for themselves moral damages. and the distribution to. The notion of corporate entity will be pierced or disregarded and the individuals composing it will be treated as identical if. an adjunct.
on the ground that the petitioning individuals should be treated as the real petitioners to the exclusion of the petitioning corporate debtor. (d) To disregard the separate juridical personality of a corporation. (ii) When the corporate entity is merely a farce since the corporation is merely the alter ego. (g) Piercing is a power belonging to the court and cannot be assumed improvidently by a sheriff.R. The three cases may appear together in one application. 126200. Court of Appeals.” Francisco Motors Corp. Gregorio Araneta. Consequences and Types of Piercing Cases: Umali v. 496 (1946). G. who has absolute control over the business and affairs of the corporation. 172 SCRA 876 (1989). BoyerRoxas v. justify wrong. G. Kaisahan ng Mga Manggagawa sa La Campana. “The doctrine of piercing the veil of corporate fiction heavily relied upon by the petitioner is entirely misplaced. 152 SCRA 482 (1987). It cannot be presumed. 290 SCRA 198 (1998). The theory of corporate entity was not meant to promote unfair objectives or otherwise. 211 SCRA 470 ). and cannot be employed to perpetrate fraud or a wrong. (f) Piercing doctrine is meant to prevent fraud. No. v. 8 December 2000. Dalisay. This is elementary.10 appears to us that the doctrine has been turned upside down because of its erroneous invocation. See R. Yatco. the wrongdoing must be clearly and convincingly established. 83 (1999). 3. 309 SCRA 72. No. Inc. Court of Appeals. Reyes.R. Cruz v.) Inc. 12 SCRA 700 (1964). Court of Appeals. nor to shield them.F. 106 Phil. Adre. Court of Appeals. (b) Classification of the Piercing Cases: (i) When the corporate entity is used to commit fraud or to do a wrong ("fraud cases"). xRamoso v. The piercing doctrine cannot be availed of in order to dislodge from the jurisdiction of the SEC a the petition for suspension of payments filed under Section 5(e) of Pres. Fraud Cases: (a) Acts by the Controlling Shareholder: Where a stockholder. xTantoco v. 117416. 91 Phil. and (iii) When the piercing the corporate fiction is necessary to achieve justice or equity ("equity cases"). v. Koppel (Phil. 4. 302 SCRA 315 (1999). but only for the particular transaction or instance for which the doctrine was applied. Court of Appeals. 189 SCRA 529 ) (a) The application of the doctrine to a particular case does not deny the corporation of legal personality for any and all purposes. 198 (1959). Tuason de Paterno and Vidal. 786 (1952). as said doctrine only applies when such corporate fiction is used to defeat public convenience. business conduit or instrumentality of a person or another entity ("alter ego cases"). The organization of the corporation at the time when the relationship between the landowner and the developer were still cordial cannot be used as a basis to hold the corporation liable later on for the obligations of the landowner to the developer under the mere allegation that the corporation is being used to evade the performance of obligation by one of its major stockholders. CA. Sugay & Co. v.” xUnion Bank of the Philippines v. (e) Not Applicable to Theorizing: Piercing of the veil of corporate fiction is not allowed when it is resorted to justify under a theory of co-ownership the continued use and possession by stockholders of corporate properties. xDevelopment Bank of the Philippines vs. 902-A. 77 Phil. Changing of the petitioners’s subsidiary liabilities by converting them to guarantors of bad debts cannot be done by piercing the veil of corporate identity. entered into a contract with another corporation through fraud and false representations. such stockholder shall be liable jointly and severally with his co-defendant .. v Court of Appeals. xVillanueva v. xLuxuria Homes. Decree No. 16 August 2001. v. protect fraud or defend crime. Inc.
. particularly where. Norton and Harrison. cannot be allowed to trifle with court processes. (c) Employment of same workers. Where. Tomas Lao Construction v. whether suing as the majority in direct actions or as the minority in a derivative suit. by virtue of a contract for security services. Shareholders. 22 November 2000. and (3) the aforesaid control or breach of duty must be the proximate cause of the injury or loss complained of. G. the former provided with security guards to safeguard the latter’s premises. No. Affiliates (Reynoso. Associated Finance Co. Palacio v. Alter-Ego Cases: (a) Where the stock of a corporation is owned by one person whereby the corporation functions only for the benefit of such individual owner. 323 SCRA 102 (2000). 44 Phil. Court of Appeals. IV v. and (ii) The main action should seek for the enforcement of pecuniary claims pertaining to the corporation against corporate officers or stockholders. Ltd. (b) When the corporation is merely an adjunct. the corporation fiction was used as a means to perpetrate a social injustice or as a vehicle to evade obligations or confuse the legitimate issues. xTan Boon Bee & Co. 19 SCRA 962 (1967). NLRC. both companies have the same owners and business address. Inc. G. the corporation itself has not been remiss in vigorously prosecuting or defending corporate causes and in using and applying remedies available to it. Jarencio.Why is there inordinate showing of alter-ego elements? (e) Guiding Principles in Fraud Cases: (i) There must have been fraud or an evil motive in the affected transaction. business conduit or alter ego of another corporation.R. xFirst Philippine International Bank v. Ferrer. 163 SCRA 205 (1988). (e) Parent-Subsidiary Relations. The doctrine that a corporation is a legal entity or a person in law distinct from the persons composing it is merely a legal fiction for purposes of convenience and to subserve the ends of justice. the fiction of separate and distinct corporation entities should be disregarded. 116124-25. as in this case. The tests in determining whether the corporate veil may be pierced are: (1) the defendant must have control or complete domination of the other corporation’s finances. 343 SCRA 1 (2000). Willets and Patterson. 93 Phil. it would be . 634 (1923). Villa Rey Transit.R. De Leon v. Fely Transportation Co. (c) The veil of corporation fiction may be pierced when used to avoid a contractual commitment against non-competition.. 160 (1953). xAlso Lim v. policy and business practices with regard to the transaction attached. (2) control must be used by the defendant to commit fraud or wrong. and the mere proof of control of the corporation by itself would not authorize piercing. Namarco v. the purported sale of the shares of the former stockholders to a new set of stockholders who changed the name of the corporation appears to be part of a scheme to terminate the services of the security guards. . Court of Appeals. NLRC. v. the corporation and the individual should be deemed the same. (b) One cannot evade civil liability by incorporating properties or the business. single place of business. No.. The corporation veil cannot be used to shield an otherwise blatant violation of the prohibition against forum-shopping. Court of Appeals. Kaisahan ng Manggagawa. as in this case. Arnold v. . 112661. 5. v. Manila Hotel Corporation v. 30 May 2001. Commissioner of Internal Revenue v. etc. NLRC. 11 SCRA 704. 278 SCRA 716 ).11 corporation even when the contract sued upon was entered into on behalf of the corporation. 25 SCRA 845 (1968). 5 SCRA 1011 (1962). and bust their newlyorganized union which was then beginning to become active in demanding the company’s compliance with Labor Standards laws. La Campana Coffee Factory v. This fiction cannot be extended to a point beyond its reason and policy. (d) The Supreme Court found the following facts to be legal basis to pierce: One company was merely an adjunct of the other. 252 SCRA 259 (1996).
xLiddell & Co. when necessary to protect the rights of third persons. v. Court of Industrial Relations. WCC. xGuatson International Travel and Tours. Bank of America. NLRC. The burden of proving otherwise is on the party seeking to have the court pierce the veil of corporate entity. appropriately pleaded. 181 SCRA 669 (1990).12 discarded and the two (2) corporations would be merged as one. et al. Inc. Court of Appeals. (c) Provided that evidential basis has been adduced during trial to apply the piercing doctrine. CA. xMarvel Building v. (b) When used to raise technicalities. and controlled by the same parties. G. 303 SCRA 26 (1999). Equity Cases: (a) When used to confuse legitimate issues. Inc. Inc. (l) Guiding Principles in Alter-Ego Cases: (i) The doctrine applies in this case even in the absence of evil intent. 230 SCRA 815 (1990). Inc. No. (f) Mixing of bank deposit accounts. CIR. Court of Appeals. xSibagat Timber Corp. Collector of Internal Revenue. Court of Tax Appeals 1 SCRA 160 (1961).. 9 Phil. Mere allegation that a corporation is the alter ego of the individual stockholders is insufficient. 97 (1946). Yutivo Sons Hardware v. 142616. (ii) The doctrine in such cased is based on estoppel: if stockholders do not respect the separate entity. xArcilla v. 1 SCRA 722 (1961). v. v. (b) When corporate officers are sued in their official capacity when the corporation was not made a party. McConnel v. it applies because of the direct violation of a central corporate law principle of separating ownership from management. In this case. Emilio Cano Enterprises v. 13 SCRA 291 (1965). xPhilippine Veterans Investment Development Corporation v. Garcia. Court of Appeals. 104 SCRA 354 (1981).R. xAzcor Manufacturing. The presumption is that the stockholders or officers and the corporation are distinct entities. xConcept Builders. there was much confusion as to the proper employment of the claimant. Inc. 8 December 2000. v. the corporation is not denied due process.R. Inc. McConnel v. (k) Summary of Probative Factors: Philippine National Bank vs.). both law and equity will. 257 SCRA 149 (1996). v. (i) Parent-subsidiary relationship. (d) Use of nominees. G. No. NLRC. v. Piercing Doctrine and Due Process Clause (a) The need to bring a new case against the officer. (iii) Piercing in alter ego cases may prevail even when no monetary claims are sought to be enforced against the stockholders or officers of the corporation. Jacinto v. 6. because of the actions of management of the two corporations. 29 SCRA 191 (1969). Ritratto Group. disregard the legal fiction that two corporations are distinct entities and treat them as identical. Yatco. (j) Affiliated companies. 1 SCRA 723 (1961). 216 SCRA 70 (1992). Koppel (Phil. xEmilio Cano Ent. David. conducted. Court of Appeals. 7. (g) Where it appears that two business enterprises are owned. (e) Avoidance of tax. Court of Appeals. NLRC. v. others cannot also be expected to be bound by the separate juridical entity.. . V. 2 SCRA 632 (1961). the first being merely considered as the instrumentality. 376 (1951). 117416. 215 SCRA 120 (1992). 198 SCRA 211 (1991). v. (h) Thinly-capitalized corporations. Whether the existence of the corporation should be pierced depends on questions of facts.. Telephone Engineering and Service Co. xRamirez Telephone Corp. agency conduit or adjunct of the other. 77 Phil. xRamoso v. 13 SCRA 291 (1965). 31 July 2001.
4 of the Corporation Code renders the provisions of thereof applicable in a supplementary manner to all corporations. The doctrine that employees of government-owned and -controlled corporations. xBliss Dev. Collector of Internal Revenue. Civil Service Commission. v. 91 Phil. civic and social development of the youth which constitute a very substantial and important part of the nation. xBenguet Electric Cooperative. (c) Private Corporation (Sec. Act No. the employees are subject to the Civil Service Law. Inc. xBoy Scouts of the Philippines v. and are compulsory members of the Government Service Insurance System. Calleja. xCamparedondo v. is may still be considered as such. 209 SCRA 55 (1992). Is it created by its own charter for the exercise of a public function. 3. or private in nature is simple. 201 SCRA 437 (1991) Although Boy Scouts of the Philippines does not receive any monetary or financial subsidy from the Government. for they pertain to the educational. such as cooperatives organized under Pres. Employees Union v. 123) . v. 46 Phil.. the fact that it received a special charter from the government. Corp. 269. (b) Quasi-public corporations xMarilao Water Consumers Associates v. In Relation to the State: (a) Public corporations (Sec. and that its funds and assets are not considered government in nature and not subject to audit by the COA. 237 SCRA 271 (1994). including those with special or individual charters. CLASSIFICATIONS OF CORPORATIONS 1. city and province) Majority shares by the Government does not make an entity a public corporation. such that government corporations created by special charter are subject to the Civil Service Law. has been supplanted by the 1987 Constitution. xCervantes v. 3. Therefore.g. whether created by special law or formed as subsidiaries under the general corporation law are governed by the Civil Service Law and not by the Labor Code. 201 SCRA 593 (1991). municipality. while those incorporated under the general corporation law are governed by the Labor Code. 1459) Organized for the government of the portion of the state (e. NLRC. NLRC. it is not a public corporation in the same sense that municipal corporation or local governments are public corporation since its does not govern a portion of the state. 583 (1924). xDavao City Water District v. The test to determine whether a corporation is government owned or controlled. v. Section 31 of the Corporation Code (Liability of Directors and Officers) is applicable to corporations which have been organized by special charters since Sec. and its employees are under the jurisdiction of the Civil Service Commission. 201 SCRA 487 (1991). Decree No. that its governing board are appointed by the Government. The present doctrine in determining whether a government-owned or -controlled corporation is subject to the Civil Service Law is the manner of its creation. so long as those provisions are not inconsistent with such charters. NLRC. 359 (1952).13 V. or by incorporation under the general corporation law? Those with special charters are government corporations subject to its provisions. but it also does not have proprietary functions in the same sense that the functions or activities of government-owned or controlled corporations such as the National Development Company or the National Steel Corporation. NLRC. Act 1459) A government-owned or -controlled corporation when organized under the Corporation Code is still a private corporation. and that its purpose are of public character. 196 SCRA 176 (1991). IAC. A private corporation is created by operation of law under the Corporation while a government corporation is normally created by special law referred to often as a charter. 312 SCRA 47 (1999). xNational Coal Co. xPNOC-Energy Development Corp. As to Place of Incorporation: (a) Domestic Corporation (b) Foreign Corporation (Sec. or under the 1987 Administrative Code as an instrumentality of the Government. But being a government-owned or -controlled corporation makes it liable for laws and provisions applicable to the Government or its entities and subject to the control of the Government.. 2. Auditor General. barangay.
Jr. Pre-Incorporation Contracts (a) Who Are Promoters? “Promoter” is a person who. Public Service Commission. Teodoro Sandiko. 110 to 115. 65 Phil.. Arnold Hall v. “colorable compliance. xRoman Catholic Apostolic Administrator of Davao. 5. IAC.A. (2) Attempt in good faith to incorporate. and (4) Issuance of certificate of incorporation. v. 25 SCRA 285 . Securities Regulation Code [R. B. 107 and 108. 151 SCRA 372 ). 8799]) (b) Nature of Pre-incorporation Agreements (Secs. v. Inc. LRC and the Register of Deeds of Davao City. Inc. 1 (No. 114 SCRA 875  and Republic v. acting alone or with others. 634 (1950). As to Number of Members: (a) Aggregate Corporation (b) Corporation Sole (Secs. takes initiative in founding and organizing the business or enterprise of the issuer and receives consideration therefor. Corporate Contract Law..10.” (3) Assumption of corporate powers. overturned the previous doctrine (xRepublic v. As to Purpose of Incorporation: (a) Municipal or Public corporation (b) Religious corporation (Secs. Inc. As to Legal Status: (a) De Jure Corporation (b) De Facto Corporation (Sec. 73 Phil. (Sec. 3 and 5) (a) Stock Corporation (b) Non-Stock Corporation VI. Bayla v. 102 Phil. 127 SCRA 687 ) that a corporation sole is disqualified to acquire or hold alienable lands of the public domain. because of the constitutional prohibition qualifying only individuals to acquire land of the public domain and the provision under the Public Land Act which applied only to Filipino citizens or natural persons. . 146 SCRA 509 (1986). xDirector of Land v. 2.. 2. CORPORATE CONTRACT LAW See relevant portion of VILLANUEVA . 25. 38 ATENEO L. v. xRepublic v.J. xRepublic v. 127 SCRA 687 (1984). IAC. 20) (c) Corporation by Estoppel (Sec.. 106. 86 Phil. Inc. June 1994) 1. As to Existence of Shares (Secs. Caram. Scientific or Vocational corporations (e) Business corporation 4. Silang Traffic Co. which held that a corporation sole has no nationality. CA. v. De Facto Corporation (Sec.14 3. 109 and 116) (c) Educational corporations (Secs. Iglesia ni Cristo. 3. 60 and 61. 20) (a) Elements for Existence of De Facto Corporation: (1) Valid law under which incorporated. 596 (1957). 557 ) (c) Theories on Liabilities for Promoter's Contracts (Cagayan Fishing Development Co.P. Iglesia Ni Cristo. 21) 6. Villanueva. Rizal Light & Ice Co. 168 SCRA 165 (1988). Sec. Blg. 232) (d) Charitable. 223 . Piccio.
"The Trust Fund Doctrine Under Philippine Corporate Setting. No. 4 Phil. xPeople v. . 117010. xCommissioner of Internal Revenue v. and engages in the name of purported corporation in illegal recruitment. they are estopped from claiming that they are not liable as corporate officers. Salvatierra v. 7331). xMadrigal Shipping Co. An individual cannot avoid his liabilities to the public as an incorporator of a corporation whose incorporation was not consummated. there is no corporation by estoppel. Inc. 103 Phil. Where there is no third person involved and the conflict arises only among those assuming the form of a corporation. The requirement of unrestricted retained earnings to cover the shares is based on the trust fund doctrine which means that the capital stock. xPeople v. Reyes. International Express Travel & Tour Services. De Los Santos. Court of Appeals.” International Express Travel & Tour Services. Garlitos. 757 . since Section 25 of Corporation Code provides that all persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all the debts. liabilities and damages incurred or arising as a result thereof. Albert v. 1. Hence. xBoman Environmental Dev. Court of Appeals. 18 April 1997 (Unpublished). Court of Appeals. 25 of the Corporation Code which provides that all persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all the debts. 55 O. xAsia Banking Corporation v. (xOhta Dev. Inc.. Standard Products. v. 46 Phil. 167 SCRA 540 (1988). Corp.15 3.. University Publishing Co. p. 117 ). v. 21. (No. Lozano v. property and other assets of a corporation are regarded as equtiy in trust for the payment of corporate creditors. 343 SCRA 674 (2000). 343 SCRA 674 (2000). any disposition of corporate funds to the prejudice of creditors is null and void. (a) Nature of Doctrine Corporation by estoppel doctrine is founded on principles of equity and is designed to prevent injustice and unfairness. the capital stock. Supreme Court Advanced Decision. No.G. property and other assets of the corporation are regarded as equity in trust for the payment of the corporate creditors. when he held himself out as officer of the corporation and received money from applicants who availed of their services. It applies when persons assume to form a corporation and exercise corporate functions and enter into business relations with third persons. Feb. liabilities and damages incurred or arising as a result thereof. G. The reason is that creditors of a corporation are preferred over the stockholders in the distribution of corporate assets. 4. Steamship Pompey. the same principle applied in xCompania Agricole de Ultramar v.J. Garcia. Corporation by Estoppel Doctrine (Sec. CA. who therefore know that it has not been registered. Ogilvie. Co. 1  but that case pertained to a commercial partnership which required registration in the registry under the terms of the Code of Commerce. 35. 145 . under the principle that “any person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and becomes personally liable for contract entered into or for other acts performed as such agent. Such individual is estopped from claiming that they are not liable as corporate officers for illegal recruitment under the corporation by estoppel doctrine under Sec. 49 Phil. An individual should be held personally liable for the unpaid obligations of the unincorporated association in whose behalf he entered into such transactions. 271 SCRA 621 (1997). 13 SCRA 84 . There can be no distribution of assets among the stockholders without first paying corporate creditors. Pineda. 301 SCRA 152 (1999). v.R. Trust Fund Doctrine See VILLANUEVA . v." 31 ATENEO L. 274 SCRA 452 (1997) A party cannot challenge the personality of the plaintiff as a duly organized corporation after having acknowledged same when entering into the contract with the plaintiff as such corporation for the transportation of its merchandise. (a) Commercial/Common Law Premise on Equity vis-a-vis Debts (b) Nature of Doctrine Under the trust fund doctrine. 1987). Inc. (b) Two Levels: (i) With "fraud" and (ii) Without "fraud" When incorporating individuals represent themselves to be officers of the corporation never duly registered with SEC. v.
and whether affected by special act or under a general law. There would be no denial of due process when a corporation is sued and judgment is rendered against it under its unregistered trade name. 10) (b) Corporate Name (Secs. Universal Textile Mills Inc. v. 216 SCRA 738 (1992). (f) Minimum Capitalization (Sec. if a corporation legally and truly wants to intervene. 19 SCRA 379 (1967) The residence of its president is not the residence of the corporation because a corporation has a personality separate and distinct from that of its officers and stockholders. v. Antillon. No extension can be effected once dissolution stage has been reached. 52 Phil. Thus dividends must never impair the subscribed capital stock.16 The “Trust Fund” doctrine considers the subscribed capital as a trust fund for the payment of the debts of the corporation. Red Line Trans. 52 Phil. 24 SCRA 269 (1968).. 541 ) (d) Corporate Term (Sec. Rivera. Velasco. Procedure and Documentary Requirements (Sec. 549 ). xPison-Arceo Agricultural Development Corp. v. 60 Phil. xUniversal Mills Corp. xPhilippine First Insurance Co. v. 78 SCRA 62 ). NLRC. 119 SCRA 367 (1982). Nature of Charter . (c) Corporation Purchasing Own Shares (Secs. subscription commitments cannot be condoned or remitted. xSy v. 38 ATENEO L. last paragraph. 311 SCRA 508. 13) . 8.J. 953 ) VII. CA. or on its property. A corporation has not right to intervene in a suit using a name other than its registered name. xClavecilla Radio System v. 2. Tyson Enterprises. 699 (1929). Until the liquidation of the corporation. 272 SCRA 253 (1997). Corporate Contract Law.Why is maximum capitalization required to be indicated? (g) Subscription and Paid-up Requirements (Sec. 1 (No. A corporation may change its name by the amendment of its articles of incorporation. (e) Principal Place of Business Place of residence of the corporation is the place of its principal office. rights. June 1994).The charter is in the nature of a contract between the corporation and the Government. 14(2) and 42. 2. 514-515 (1999). to which the creditors may look for satisfaction. 34 SCRA 252 (1970) A change in the corporate name does not make a new corporation. 469 . NTC v. xRepublic Planters Bank v. 43 and 122. xAlhambra Cigar v.. ARTICLES OF INCORPORATION See relevant portions of VILLANUEVA . v. 40 Phil. v. it should have used its corporate name as the law requires and not another name which it had not registered. SEC. 14 and 15) (a) As to Number and Residency of Incorporators (Sec. Manila Railroad Co. has no effect on the identity of the corporation. Government of P. 279 SCRA 312 (1997) (c) Purpose Clause (Secs. xLaureano Investment and Development Corporation v. 11). 14(1) and 42. no part of the subscribed capital stock may be turned over or released to the stockholder (except in the redemption of the redeemable shares) without violating this principle. Similarity in corporate names between two corporations would cause confusion to the public especially when the purposes stated in their charter are also the same type of business. Director of Commerce and Industry. nor can the corporation buy its own shares using the subscribed capital as the consideration therefore. Steinberg v. Phil. 44 Phil. Court of Appeals. or liabilities. Rural Transit. but the same is not effective until approved by the SEC. 41. Hartigan. holding that a corporation may be sued under the name by which it makes itself known to its workers.. Uy Siuliong v. 1. Court of Appeals. 12) .I. 18. Inc. Trust Co.
Court of Appeals. xSalafranca v. "Corporate Contract Law. (a) Common Law Limitations on By-Laws (i) By-Laws Cannot Be Contrary to Law and Articles of Incorporation A by-law provision granting to a stockholder a permanent representation in the Board of Directors is contrary to the Corporation Code requiring all members of the Board to be elected by the stockholders or members. this being in the exercise of management prerogative or business judgment. Nolasco. Inc. affairs and concerns and its stockholders or members and directors and officers with relation thereto and among themselves in their relation to it.17 (h) Steps and Documents Required in SEC 3. June 1994). 479 (1998). 4137. Nature and Functions (Gokongwei v. Amendments to Articles of Incorporation (Sec. 17) When the proposed articles presented show that the object of incorporation is to organize a barrio of a given municipality into a separate corporation for the purpose of taking possession and having control of all municipal property within the barrio so incorporated and administer it exclusively for the benefit of the residents. CA. and prescribe regulation. Inc. 28 Phil. 16) 5. 210 SCRA 510 (1992). v. not restrictions.J. 19) VIII. 1.” by-laws are indispensable to corporations in this jurisdiction. Philamlife (Pamplona) Village Homeowners Association. xRural Bank of Salinas. Grounds for Disapproval (Sec. these are required by law for an orderly governance and management of corporations. xAsuncion v. 193 SCRA 717 ) As the “rules and regulations or private laws enacted by the corporation to regulate. (iii) By-Laws Cannot Discriminate . the object is unlawful and the articles can be denied registration. CA. Inc. 67 ). xGovernment of the Philippine Islands v. 2. Court of Appeals. Even when the members of the association may have formally adopted the provision. 281 SCRA 133 (1997). By-laws are intended merely for the protection of the corporation. Loyola Grand Villas Homeowners (South) Association.. v. 50 Phil. failure to file them within the period required by law by no means tolls the automatic dissolution of a corporation. xThomson v. 1 (No. 583." 38 ATENEO L. Otherwise. BY-LAWS See relevant portions of VILLANUEVA . Peña v. cited in xFleischer v. but merely authorizes the adoption of regulations as to the formalities and procedure to be followed in effecting transfer. Nonetheless. 399 (1927). Although the right to amend by-laws lies solely in the discretion of the employer. 47 Phil. Court of Appeals. quoting from Thompson on Corporation Sec. 4. SEC. 89 SCRA 337 . These may not be essential to corporate birth but certainly. 298 SCRA 280 (1998). El Hogar Filipino. they are always subject to the charter of the corporation. Commencement of Corporate Existence (Sec. it would enable an employer to remove any employee from employment by the simple expediency of amending its by-laws and providing the position shall cease to exist upon occurrence of a specified event. Authority granted to a corporation to regulate the transfer of its stock does not empower corporation to restrict the right of a stockholder to transfer his shares. their action would be of no avail because no provision of the by-laws can be adopted if it is contrary to law. such right cannot impair the obligation of existing contracts or rights or undermine the right to security of tenure of a regular employee. (ii) By-Laws Cannot Be Unreasonable or Be Contrary to Nature of By-laws. govern and control its own actions. 276 SCRA 681 (1997). 300 SCRA 469. xGrace Christian High School v. De Yriarte.
Court of Appeals. G. are exercised by the Board of Directors. and there is no outright “demise” of corporate existence. xLoyola Grand Villas Homeowners (South) Association. Court of Appeals. (b) Where Corporate Power is Lodged (Sec. In turn.R. for it was for securing a loan to finance the activities of the corporation. Land Bank of the Philippines v. 22 November 2000. and Incidental There is basis to rule that the act of issuing the checks on behalf of the corporation was well within the ambit of a valid corporate act. v. Civil Code. 28 February 2001. Court of Appeals. G. 46. For such officers to be deemed fully clothed by the corporation to exercise a power of the Board. must be for specific purposes. Ultra Vires Acts . the Board may delegate such powers to either an executive committee or officials or contracted managers. Reynoso. like the signing of documents. however. COA. a corporation exercises said powers through its board of directors and/or its duly authorized officers and agents. corporate powers. Adoption Procedure (Sec. which would require that the incorporators must be given the chance to explain their neglect or omission and remedy the same. However.” PMI Colleges v. AUTHORITY AND ACTIVITIES 1. 109491. The delegated officers makes the latter agents of the corporation. Inc. 277 SCRA 462 (1997). Proper notice and hearing are cardinal components of due process in any democratic institution. since the physical acts of the corporation. Court of Appeals. except for the executive committee. does not expressly provide for the consequence of their non-filing within the period provided therein. unless they have knowledge of the same. Implied. Court of Appeals. hence. Atrium Management Corporation vs. 2. No. 48) Power to amend may be delegated to the board of directors IX. they cannot affect or prejudice third persons who deal with the corporation. can be performed only by natural persons duly authorized for the purpose of by corporate by-laws or by a specific act of the board of directors. 2. 276 SCRA 681 (1997). and rules of agency as to the binding effects of their acts would apply. Pres. IV v. Decree 902-A allows the SEC to suspend or revoke. 116124-25. such as the power to enter into contracts. v. 46) Section 46 of the Corporation.R. “Neither can we concede that such contract would be invalid just because the signatory thereon was not the Chairman of the Board which allegedly violated the corporation’s by-laws. after proper notice and hearing. Corporate Power and Capacity (Art. No. agency or society. Amendments (Sec.18 (b) Binding Effects of By-laws (China Banking Corp. G. CORPORATE POWERS. the law has to look carefully into the exercise of powers by these artificial persons it has created. (a) Classification of Corporate Powers: Express. Clearly. the latter must specially authorize them to do so. 270 SCRA 503 ).R. 23) Unless otherwise provided by the Corporation Code. 36 and 45. NLRC. 190 SCRA 154 ) A corporation has no power except those expressly conferred on it by the Corporation Code and those that are implied or incidental to its existence. not an ultra vires act. the franchise or certificate of registration of corporations which fail to file their by-laws. Since by-laws operate merely as internal rules among the stockholders. Precisely because the corporation is such a prevalent and dominating factor in the business life of the country. Contents (Sec. 47) 4. 22 November 2000. xReynoso. which delegation. IV v. 116124-25. xABS-CBN Broadcasting Corporation v. Court of Appeals. 3. there can be no automatic corporate dissolution simply because the incorporators failed to abide by the required filing of by-laws. 301 SCRA 572 (1999). Secs. No. which requires the filing of by-laws.
Also.. 271 SCRA 1 (1997).R. 343 .” The term “ultra vire” is “distinguished from an illegal act from the former is merely voidable which may be enforced by performance. such admission cannot be given legal effect to the detriment of the corporation. Intermediate Appellate Court.J. the letter issued by the corporate officers who obtained the loan “as indicating the corporate liability of the corporation. Francisco v. 96 Phil. Mindoro Sugar Co. Atrium Management Corporation vs. 109491.19 See relevant portions of VILLANUEVA . Metropolitan Bank and Trust Co.” cannot also serve to make the corporation liable. 1 (No... as where an officer is allowed to exercise a particular authority with respect to the business. Geraldez. Ratification can never be made on the part of the corporation by the same person who wrongfully assume the power to make the contract. Civil Code. (b) Ratification of Ultra Vires Acts: (Pirovano v. ratification. xAguenza v. 3 SCRA 361 . 269 SCRA 601 (1997). No. such admission does not bind the corporation. but the ratification must be by the officers as governing body having authority to make such contract. may not hold the corporation liable. Yao Ka Sin Trading v. Court of Appeals. Inc. De la Rama Steamship Co. Corporate Contract Law.” as would authorize or even ratify such admission. CA. Carlos v. 57 Phil. (a) Concept and Types (Sec. his actual authority if he acts within the scope of an apparent authority with which the corporation has clothed him by holding him out or permitting him to appear as having such authority. 177 SCRA 594 . GSIS. Although the by-laws grant authority to the President "to execute and sign for and in behalf of the corporation all contracts and agreements which the corporation may enter into. 2. 45) An ultra vires act is one committed outside the object for which a corporation is created as define by the law of its organization and therefore beyond the power conferred upon it by law. continuously and publicly. Acoje Mining Co. (ii) Doctrine of Apparent Authority (Prime White Cement Corp.. June 1994). When the counsel representing the corporation in a collection suit admits on behalf of the corporation that the latter admitted culpability for personal loans obtained by its corporate officers. or in excess of. Yao Ka Sin Trading v. 52 SCRA 210 (1973). The documents and admissions cannot have the effect of a ratification of an unauthorized act." the same presupposes a prior act of the corporation exercised through its Board of Directors. it must be shown that the governing body or officer authorized to ratify had full and complete knowledge of all the material facts connected with the transaction to which it relates. The admission made in the answer by the counsel for the corporation was “without any enabling act or attendant ratification of corporate act. Ratification can never be made on the part of the corporation by the same persons who wrongfully assume the power to make the contract. In the absence of such ratification or authority. Court of Appeals. or a particular branch of it. 38 ATENEO L. 220 SCRA 103. the corporation is bound thereby in favor of a person who deals with him in good faith in reliance on such apparent authority. its governing body or authorized officers. (i) Theory of Estoppel or Ratification In order to ratify the unauthorized act of an agent and make it binding on the corporation. Although an officer or agent acts without.. for a considerable time. 209 SCRA 763 (1992). . v. 113-114 . xVicente v. xTraders Royal Bank v. also Art. G. CA. Crisologo Jose v. but the ratification must be by the officer or governing body having authority to make such contract. or estoppel. 28 February 2001. 209 SCRA 763 (1992). 7 SCRA 577 ) A contract signed by the President/Chairman without authority from the Board of Directors is void. The act or conduct for which the corporation may be liable under the doctrine of estoppel must be by those of the corporation. and not those of the purported agent who is himself responsible for the misrepresentation. Persons who deal with corporate agents within circumstances showing that the agents are acting in excess of corporate authority. 1883. while the latter is void and cannot be validated. CA. 335 . Republic v.
xSoler v. If a corporation knowingly permits one of its officers. as against anyone who has in good faith dealt with it through such agent.” such corporation cannot engage in the business of land transportation. 140 ). its power to sue is lodged with its board of directors or trustees. xCentral Textile Mills. (b) Power to Extend or Shorten Corporate Term (Secs. Santos. who fails to show any proof that he was authorized by the Board of Directors. V. there was. Benguet Consolidated Mining Co. 151 SCRA 355 ). G. xFirst Philipine International Bank v. for which reason. For a derivative suit to prosper. (iii) Theory of No State Damage (Harden v. and the receipt of payment on the future issues of the shares from the increased capital stock. Imperial Vegetable Co. 252 SCRA 259 (1996). xLuneta Motor Co. when the officer entered into the speculative contracts without securing the Board’s approval. Nor can we uphold this as a derivative suit. the principal can not be held liable for the acts of the agent. 3. No. xTam Wing Tak v. Power to Sue Under section 36 of the Corporation Code. it is required that the minority stockholder suing for and on behalf of the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit. xMadrigal & Co. Court of Appeals. he is to blame. Inc.R. v. Zamora. especially of union members.. in fact. Makasiar.. Inc. and.R. Court of Appeals. such funds do not constitute part of the capital stock of the corporation until approval of the increase by SEC. A reduction of capital to justify the mass layoff of employees. to act within the scope of an apparent authority. The agent's apparent representation yields to the principal's true representation and the contract is considered as entered into between the principal and the third person. or any other agent. 29 January 2001. has no such power or authority to sue on the corporation’s behalf. 58 Phil. amounts to nothing but a premature and plain distribution of corporate assets to obviate a just hearing to labor of the vast profits obtained by its joint efforts with capital through the years. 28 March 2001. A. the principal is liable for the obligations contracted by the agent. the corporation will. it holds him out to the public as possessing the power to do those acts. and would constitute unfair labor practice. xSafic Alcan & Cie. Under Article 1898 of the Civil Code. Specific (Express) Powers (a) Enumerated Powers (Secs. 37 and 81 ) (c) Power to Increase or Decrease Capital Stock (Sec. If the said third person is aware of such limits of authority. and despite the Board resolution approving the increase in capital stock. v. v. unless the latter undertook to secure the principal’s ratification. National Wages and Productivity Commission. may not acquire any certificate of public convenience to operate a taxicab service. which is an entirely different line of business. . 123892.20 The authority of a corporate officer in dealing with third persons may be actual or apparent. A minority stockholder and member of the Board. 36) Example of Poor Draftsmanship: When the article of incorporation expressly provides that the purpose of the corporation was to “engage in the transportation of person by water.R. G. 122452. there was no such ratification. 21 May 2001. . 126751. nor did he submit the contracts to the Board after their consummation nor were they recorded in the books of the corporation. it is clear that where a corporation is an injured party.. and is not entitled to recover damages from the agent. be estopped from denying the agent’s authority. 38) Prior to SEC approval of the increase in the authorized capital stock. There is now showing that petitioner has complied with the foregoing requisites. 260 SCRA368 (1996). G.D. and thus. in relation to Section 23. Therefore. In the case of the corporation as the principal. . no occasion at all for ratification. No. 5 SCRA 809 ). It also bears emphasizing that when the third person knows that the agent was acting beyond his power or authority. the acts of an agent beyond the scope of his authority do no bind the principal unless the latter ratifies the same expressly or implied.
distribute.To Borrow Funds The power to borrow money is one of those cases where even a special power of attorney is required under Art. on which the corporation agrees absolutely to pay interest before dividends are paid to the common stockholders. v. Although the certificates of stock granted the stockholder the right to receive quarterly dividends of 1%. Why the difference in rule between entity and individual? (j) Other Powers .To Donate . 192 (1995). Both Sec. 40). v. 44. Inc. Inc. 26 SCRA 540 ). v. . Court of Appeals.. xSan Juan Structural and Steel Fabricators. 193 SCRA 717 (1991). v. 270 SCRA 503 (1997). . Court of Appeals. Tuason & Co. 514-515 (1999). otherwise the sale is void. much less when acting through the treasurer. Court of Appeals. There is invariably a need of an enabling act of the corporation to be approved by its Board of Directors. 26 SCRA 540 . 27 SCRA 247 ). De la Rama v. 296 SCRA 631. xLopez Realty v. cumulative and participating. xRepublic Planters Bank v. “interest bearing stocks”. 266-267 ). the stockholders do not become entitled to the payment thereof as a matter of right without necessity of a prior declaration of dividends. Agana. Sale by the Board of the only property of the corporation without compliance with the provisions of Sec. Moya. The argument that the obtaining of loan was in accordance with the ordinary course of business usages and practices of the corporation is devoid of merit because the prevailing practice in the corporation was to explicitly authorize an officer to contract loans in behalf of the corporation. 311 SCRA 508. xIslamic Directorate of the Philippines v. Nielson & Co. CA. Furthermore. Likewise Article 1874 and 1878 of the Civil Code requires that when land is sold through an agent. 272 SCRA 454 (1997). 269 SCRA 1 (1997). . 43. 95 Phil. xNational Telecommunications Commission v. Nielson & Co. Lepanto Consolidated Mining Co. Fontecha. (f) Invest Corporate Funds in Another Corporation or Business or For Any Other Purpose (Sec. Bolanos. Create or Increase Bonded Indebtedness (Sec.. v. 645 (1998).To Enter Into Partnership. Court of Appeals. These provisions underscore the fact that payment of dividends to a stockholder is not a matter of right but a matter of consensus. also xPeña v.. would make the sale null and void. (g) Declare Dividends (Sec. Joint Venture. the sale of land is not within the actual or apparent authority of the corporation acting through its officers. representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose. export and import merchandise.21 (d) Incur. 16 of the Corporation Law and Sec. Ricafort v. . 247 SCRA 183. 106 (1954). It is the same amount that can loosely be terms as the “trust fund” of the corporation. Lepanto Consolidated Mining. 42. 40 of the Corporation Code requiring the ratification of members representing at least two-thirds of the membership.To Provide Gratuity Pay for Employees Providing gratuity pay for its employees is one of the express powers of a corporation under the Corporation Code. 1878 of the New Civil Code. and cannot be considered to be ultra vires to avoid any liability arising from the resolution granting such gratuity pay.To Sell Land and Other Properties A corporation whose primary purpose is to market. 38) (e) Sell or Dispose of Assets (Sec. xChina Banking Corp. Stock dividend is the amount that the corporation transfers from its surplus profit account to its capital account. Ma-ao Sugar Central Co. at pp. the agent’s authority must be in writing. 43 of the present Corporation Code prohibit the issuance of any stock dividend without the approval of stockholders. is legal only when construed as requiring payment of interest as dividends from net earnings or surplus only. (i) Enter into Management Contracts (Sec. . 195 SCRA 247. .
The general rule is that a corporation. xGrace Christian High School v. 20 SCRA 987 . whether civilly or otherwise. (a) A director must own at least one share of stock (xPeña v. The Board of Liquidators v. 295) 5. 205 SCRA 752 ). should act in the manner and within the formalities. 89 SCRA 336 ). 25. (d) Executive Committee (Sec. and Fernandez. v. 264 SCRA 11 ). 24. if any. 193 SCRA 717 . Gokongwei. 634 . Court of Appeals.. otherwise. or impliedly. 192 (1995). REV . 92 and 138) (c) Cumulative Voting (Sec. Inc. xDetective & Protective Bureau. 281 SCRA 133 (1997). for the consequences of their acts. prescribed by its charter or by the general law. Court of Appeals. v. Those acts. Cumulative Voting in Corporate Elections: Introducing Strategy in the Equation. 5 SCRA 36 . TRUSTEES AND OFFICERS 1. Powers of Board of Directors or Trustees (Sec. or where there is no stock. Qualifications of Directors and Trustees (Secs. 23 and 27. BUSINESS JUDGMENT RULE (Montelibano v. Thus. 35 SOUTH CAROLINA L. 26 SCRA 255 ) (b) Mere beneficial ownership in a voting trust arrangement no longer qualifies (Lee v.. Vacancy in Board (Sec. (a) Two Theories on Source of Power of Board of Directors (Angeles v. directors must act as a body in a meeting called pursuant to the law or the corporation's by-laws. xLopez Realty v. 29) By-law provision or the practice giving a stockholder a permanent seat in the Board of Directors would be against the provision of Sections 28 and 29 of the Corporation Code which requires member of the board of corporations to be elected. Section 23 of the Corporation Code which provides for the powers of the Board of Directors or Trustees expressly requires them “to be elected from among the holders of stock. any action taken therein may be questioned by any objecting director or shareholder. (b) Trustee (Secs. In addition. Heirs of Maximo M. Gamboa v. DIRECTORS. Be that as it may. Victoriano. 281 SCRA 232 ) Board members and officers who purport to act for and in behalf of the corporation. 90 SCRA 40 ). through its broad of directors. Jr. Cloribel. Court of Appeals. may be ratified either expressly. v. Philippine Stock Exchange. (b) Board Must Act As Body (Sec. when they are such a nature and are done under such circumstances. 272 SCRA 454 (1997). jurisprudence tells us that an action of the board of directors during a meeting. 38 Phil. by the action of the directors in subsequent legal meeting. are properly attributed to the corporation alone and no personal liability is incurred by such officers and Board members. keep within the lawful scope of their authority in so acting and act in good faith. Inc. xBenguet Electric Cooperative. 64 Phil. Kalaw. NLRC. Orientalist Co. CA. Inc. 20 SCRA 526 ). 209 SCRA 55 (1992) 3. Islamic Directorate of the Philippines v. 1318 of the Civil Code because of the lack of “consent”. by the corporation's subseqeunt course of conduct. Court of Appeals. 697 ). Acuña v. 247 SCRA 183. 23. (c) Effects of a “Bogus” Board The acts or contracts effected by a bogus board would be void pursuant to Art. Premium Marble Resources v. from among the members of the corporation.22 X. do not become liable. Bacolod-Murcia Miling Co. Ramirez v. Fontecha. Election of Directors and Trustees (a) Directors (Secs. Santos. SEC. 24 and 26. 4. Inc. 35) 2. CA. . v. which was illegal for lack of notice. Batac Producers Cooperative Marketing Association.
founded on the presumption that directors and trustees render service gratuitously. 247 SCRA 183 (1995) (c) Duty of Diligence (Sec. 1985). should act in the manner and within the formalities. Directors' or Trustees' Meetings (Secs. From the language of Section 30. Roxas v.2d 858. 45 SCRA 539 ). Mead v. 278 SCRA 216 (1997). Fontecha. Encarnacion. 32 and 33) . 31 to 34. Salas. Likewise. 278 SCRA 216 (1997). Western Institute of Technology. See Annotations: Doctrine of Corporate Opportunity. being merely prima facie would not hold in the face of clear evidence to the contrary. Inc.23 6. El Hogar Filipino. 53. 399 (1927). Salas. as well as the original directors. Inc. 30) Directors and trustees are not entitled to salary or other compensation when they perform nothing more than the usual and ordinary duties of their office. xGovernment v. 488 A. 609 ). but officership position that would entitle the occupants to compensation. and that the return upon their shares adequately furnishes the motives for service.Doctrine of Corporate Opportunity (Gokongwei v. Role of Directors (a) Directors as Fiduciaries. Removal of Directors or Trustees (Sec. McCullough. IAC. 50 Phil. (d) Duty of Loyalty (Secs. Compensation of Directors (Sec. Supreme Court of Delaware. were considered by the officers as not mere directorship position. v. Prime White Cement Corp. De la Rosa. v. Western Institute of Technology. Under Section 30 of the Corporation Code. Palting v. would not apply to the compensation given to such positions since it is being given in their capacity as officers of the corporation and not as board members. 8. and who was directly negotiating the sale of the corporations large landholdings to the . 388. 7. Steinberg v. v. 247 . 95 ).. and such officials. it may also be deduced that members of the board may also receive compensation. Ed. 64 L. 49 Phil. Ct. 21 Phil. there are two (2) ways by which members of the board can be granted compensation apart from reasonable per diems: (a) when there is a provision in the by-laws fixing their compensation. 89 SCRA 336 ). Bates v. who has also been designated as the administrator of corporate affairs. Western Institute of Technology. The position of being Chairman and Vice-Chairman. prescribed by its charter or by the general law. 52 Phil. Inc. 278 SCRA 216. xLopez Realty. 81 (1953). 953 . SEC. 94 Phil. Velasco. when they render services to the corporation in a capacity other than as directors or trustees of the corporation. 54 and 92) In a board meeting. Salas. Term of Office. San Jose Petroleum. 223 (1997). the limitation placed under Section 30 of the Corporation that directors cannot receive compensation exceeding 10% of the net income of the corporation. 251 U. and (b) when the stockholders representing a majority of the outstanding capital stock at a regular or special meeting agree to give them compensation. v. 220 SCRA 103 (1993). The remedy is quo warranto to question the legality and proper qualification of persons elected to the board. Van Gorkam. (b) Duty of Obedience A corporation. Inc. who also owns ¾ of the equity of the corporation. Ericta. Dresser. xPonce v. through its board of directors.Using Inside Information (Gokongwei v. hold until qualification of their successors. but such presumption. 10. . 28. Hold-over Principle Directors may lawfully fill vacancies occurring in the board. xLopez v. Inc. 89 SCRA 336 . 31. an abstention is presumed to be counted as an affirmative vote insofar as it may be construed as an acquiescence in the action of those who voted affirmatively.Self-dealings (Secs. 524.S. . . v. 89 SCRA 412). like that of Treasurer and Secretary. 18 SCRA 924 (1966).Nature of Duties of Directors and Officers. When a director. SEC. Smith v. 9. without compensation.. 49. 40 S. if any. Pre-Corporation Code.
220 SCRA 103 ). xTabang v.Applies to confidential employees (cf. and modern corporation statutes usually designate them as the officers of the corporation. 25. with which the Board of Directors might have in taking such action. When petitioner. as Executive VicePresident allegedly diverted company funds for his personal use resulting in heavy financial losses in the company. II. . not the Labor Arbiter or the NLRC. NLRC. Corp. Mita Pardo de Tavera v. or statutory provisions. 33) 11. NLRC. this matter would amount to fraud. An “office” is created by the charter of the corporation and the officer is elected by the directors or stockholders (2 Fletcher Cyc. 103 Phil. The Fiduciary Duties of Directors and Officers Representing the Creditor Pursuant to a Loan Workout Arrangement: Parameters Under Philippine Corporate Setting. or the board of directors may be empowered under the by-laws of a corporation to create additional offices as may be necessary. 270 SCRA 613 (1997). Dy v. xSing Juco v. Prime White Cement Corp. Who Is an "Officer" of the Corporation (Sec. NLRC. . 947 . and the nature is not altered by the reason or wisdom with which the Board of Directors may have in taking such action. An “office” is created by the charter of the corporation and the officer is elected by the directors or stockholders. A corporate officer’s dismissal is always a corporate act. Comptroller/Administrator. Repide. its nature is not altered by the reason or wisdom. Feb. 145 SCRA 211 . Ch.24 Government at great prices. Gurrea v. xTabang v. . 32. . The determination of the rights and the concomitant liability arising from any ouster from such positions. except so far as limitations or restrictions imposed by special charter. the matter would come within the area of corporate affairs and management. When the by-laws of the condominium corporation specifically includes the position of “Superintendent/Administrator” in is roster of corporate officers. or lack thereof. On the other hand. Perforce. buy-laws. Leaño. 589 ) (e) Duty to Creditors and Outsiders [xVILLANUEVA . 196 SCRA 410 ). Lezama. secretary and treasurer are commonly regarded as the principal or executive officers of a corporation. 127 SCRA 778 . (g) Contracts Between Corporations with Interlocking Directors (Sec. vice-president. would be intra-corporate controversy subject to the jurisdiction of the SEC (now RTC). Llorente. 112 SCRA 243 . xBA Savings Bani v. Chiefs of Services and such other officers as it may deem necessary and prescribe their powers and duties. The president. Sec. NLRC. NLRC. xStrong v. This type of fraud encompasses controversies in a relationship within the corporation covered by the SEC jurisdiction [now with the regular courts]. purchases the shares of stock of a shareholder without informing the latter of the on-going negotiations. 89 SCRA 336 . such director is deemed to have fraudulently acquired the shareholdings by way of deceit practiced by means of concealing his knowledge of the state of the negotiations and their probable successful result. IAC. NLRC. Sia. or an intra-corporate controversy. xOngkingco v. Tuberculosis Society. an “employee” usually occupies no office and generally is employed not by action of the directors or stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee. 41 Phil. Such fraud would be detrimental to the interest not only of the corporation but also of its members. 314 SCRA 245 (1999). Note that a corporate officer’s removal from his office is a corporate act. 266). 35 ATENEO L. PSBA v. 266 SCRA 462 (1997). When the by-laws provide that one of the powers of the Board of Trustees is “[t]o appoint a Medical Director. then such position is clearly a corporate officer position and issues of reinstatement would be within the jurisdiction of the SEC and not the NLRC. v. Gokongwei v. other offices are sometimes created by the charter or by-laws of a corporation.” then such specifically designated positions should be considered “corporate officers” position. . 553 .” De Rossi v. 266 SCRA 462 (1997). and such a corporate controversy would call for the adjudicative expertise of the SEC. All acts within the powers of a corporation may be performed by agents of its selection. If such removal occasions an intra-corporate controversy. (No. SEC.J. 266 SCRA 462 (1997). Corporations act only through their officers and duly authorized agents. 43 Phil. However. 1. 1991)] (f) Corporate Dealings with Directors and Officers (Sec. (Ibid) . xVisayan v. NLRC. . 336 SCRA 484 (2000). xTabang v.
whose power are limited. xPabon v. Therefore. reiterated in xBoyer-Roxas v. from the acts of the board of directors formally expressed or implied from a habit or custom of doing business. Geraldez. limited and exclusive” following the rule on statutory construction expressio unios est exclusion alterius. Mangosing. 52 SCRA 210 . 296 SCRA 7 (1998). a treasurer. 645 (1998). 278 SCRA 793 (1997). cannot bind the corporation in a sale of its assets. Court of Appeals. v. otherwise business transactions of corporations would become tortuously slow and unnecessarily hampered. xVicente v. and to disburse them in accordance with the authority given him by the board or the properly authorized officers. Selling is obviously foreign to a corporate treasurer’s function.. Consequently. 297 SCRA 170 (1998) (c) Corporate Secretary In the absence of provisions to the contrary. reiterated in xR.” Unless duly authorized. Jr. and in the event he refuses to comply with such duty. Far East Motor Corp. And failing to discharge such burden. Rule 14 of the 1997 Rules of Civil Procedure uses the term “general manager” and unlike the old provision in the Rules of Court. . has been considered proper service to bind the corporation. the buyer had the burden of proving that the treasurer was in fact authorized to represent and bind the allegedly selling corporation in the transaction. 279 SCRA 337 (1997). Inc. xTorres. v. v. CA. 267 SCRA 380 (1997). the earlier cases that uphold service of summons upon a construction project manager. a bookkeeper can be considered as an agent of the corporation within the purview of the Rules of Court. 598 . 24a SCRA 77 ). by-laws or board resolution to prove that the treasurer possessed such power. xEsguerra v. the by-laws or in a delegation of authority to such officer. Section 11. 296 SCRA 631. In spite of provisions of the Rules of Court on service of process to bind corporate entities. (d) Corporate Treasurer A corporate treasurer’s function have generally been described as “to receive and keeps funds of the corporation. When the corporation categorically denies ever having authorized its treasurer to sell the subject parcel of land. 81 SCRA 298 . When a Secretary’s Certificate is regular on its face. People’s Aircargo v. it can be relied upon by a third party who does not have to investigate the truths of the facts contained in such certification. The rationale of all rules with respect to service of process on a corporation is that such service must be made to an agent or a representative so integrated with the corporation sued as to make it a priori supposable that he will realize his responsibilities and know what he should do with any legal papers served on him. Transport Corp. CA. the sale is void and not binding on the alleged selling corporation. Court of Appeals. xSan Juan Structural and Steel Fabricators. overturning xDelta Motor Sales Corp. Inc. It is the duty and obligation of the corporate secretary to register valid transfers of stock in the books of the corporation. v. it does not include the term “agent”. Court of Appeals. 211 SCRA 470 (1992). Powers of Corporate Officers: (a) The Rule on Corporate Officer’s Power to Bind Corporation An officer's power as an agent of the corporation must be sought from the statute. NLRC. v. and failing to show any provision of the articles of incorporation. NLRC.. the corporate secretary is the custodian of corporate records—he keeps the stock and transfer book and makes proper and necessary entries therein. the enumeration of persons to whom summons may be served is “restricted. charter. Court of Appeals. service made to a representative so integrated with the corporation sued as to make it a priori supposable that he will realize his responsibilities and know what he should do with any legal papers served on him. (e) Other “Officers” for Service of Summons on Corporation For purposes of determining proper service of summons to a corporation in a quasi-judicial proceeding before the NLRC. Inc. 1 a 1 Kanlaon Construction Enterprises Co. (b) When Corporation Bound by Act of Its President. v. the transferor-stockholder may rightfully bring suit to compel performance. 70 Phil.25 12. The bookkeeper’s task is one under consideration that his regular recording of the corporation’s “business accounts” and “essential facts about the transactions of a business or enterprise” safeguards the corporation from possible fraud being committed adverse to its own corporate interest. (xVilla Rey Transit.
trustee or officer along (although not necessarily) with the corporation may so validly attach. Borja. 310 SCRA 26 (1999).3 private secretary of corporate executives. v. Court of Industrial Relations. 124 SCRA 638 . as a rule. xSulo ng Bayan. Inc. Ltd.. Palay. LIABILITIES OF CORPORATE OFFICERS: (Sec. 13. like the assistant general manager. v. Inc. v. Court of Appeals. Inc. xARB Constructions Co. Inc.4 retained counsel. 6 SCRA 710 (1962). Araneta. 6 Villa Rey Transit. xPabon v. though this may include employees other than officers of a corporation. 18 SCRA 207 (1966). accept performance of. 74 Phil. Golden Country Farms.” To this extent. 311 SCRA 700 (1999).2 ordinary clerk of a corporation. Thus. 332 SCRA 427 (200) Jurisprudential Enumeration of Officer Liabilities . even though he may not have the power to enter into contracts. (e) He agrees to hold himself personally and solidarily liable with the corporation. Tramat Mercantile. 158 SCRA 466 (1988). Corp. 296 SCRA 7 (1998). or terminate contractual obligations between principal and third persons. 8 Filoil Marketing Corp. modify. v.5 officials who had charge or control of the operations of the corporation. affect. v. 177 SCRA 86 (1982).. only when: (a) He assents to a patently unlawful act of the corporation. Villarosa & Partners Co. NLRC. v. then such officer and his spouse cannot be made personally liable. NLRC. of the Philippines. v.26 corporation’s assistant manager. 244 SCRA 797. 273 SCRA 35 (1997).B. NLRC. Court of Appeals. Sanvar Development Corp. The hornbook law is that corporate personality is a shield against personal liability of its officers. However. 219 SCRA 561 (1993). when the trust receipt sued upon was clearly entered into in behalf of the corporation by its Executive Vice-President. v. v.. Corp.MAM Realty v. G. 146 SCRA 197 (1986). 238 SCRA 14 . Clave. Court of Appeals. Benito. Pabalan v. 31.. Ker & Co. Inc. reiterated in xNational Food Authority v. 7 Far Corporation v. (c) for conflict on interest resulting in damages to the corporation. 184 SCRA 495 . 81 SCRA 298 (1978). Inc.. As such. v.R. 5 Republic v. 214 SCRA 295 (1992). or Gesulgon v. Court of Appeals. (1995). (b) Guilty of bad faith or gross negligence in directing its affairs. Far East Motor Corp. (f) Coverage of Corporate “Agents” Black’s Law Dictionary defines an “agent” as “a business representative. xThe Consolidated Bank and Trust Corp. v. Inc. but is complied with even by a service upon an agent having limited authority to represent his principal. Ltd. also Vlason Enterprises Corp. Court of Appeals. No. Avendaño. 19 April 2001. 135 SCRA 397 (1985). 3 2 . v. xE. 72 SCRA 347 . having knowledge thereof. 4 Summit Trading and Dev. Francisco.. xUichico v. its stockholders or other persons. 560 (1944). NLRC. G & G Trading Corp. 312 SCRA 65 (1999). an “agent” may also be shown to represent his principal in some one or more of his relations to others. it does not necessarily connote an officer of the corporation. Marine Dev. whose function is to bring about. v. 114286. this does not include employees whose duties are not so integrated to the business that their absence or presence will not toll the entire operation of the business..7 no longer apply since they were decided under the old rule that allows service of summons upon an agent8 of the corporation. It does not in any way distinguish whether the “agent” be general or special. Vazquez v. 6 or the corporation’s Chief Finance and Administrative Officer. CA. Inc. The rules on service of process make service on “agent” sufficient. (d) He consents to the issuance of watered down stocks or who. Personal liability of a corporate director. The general rule is that corporate officers are not personally liable for their official acts unless it is shown that they have exceeded their authority. Inc. NLRC. does not forthwith file with the corporate secretary his written objection thereto. the personality of the corporation is separate and distinct from the persons composing it. xMindanao Motors Lines.
188 SCRA 709 (1990). or ill-motive in their personal dealings with third parties. In the case at bar. xNational Power Corp. Reyes. . 187 SCRA 777 (1990). An officer-stockholder who is a party signing in behalf of the corporation to a fraudulent contract cannot claim the benefit of separate juridical entity: "Thus. is nevertheless not a stockholder and much less a member of the . Generally. G. Maglutac v. if duly authorized. Adre. it is the president who responds personally for violation of the labor pay laws. 216 SCRA 738 (1992). v.F. 172 SCRA 876 (1989). A corporate officer cannot be held personally liable for a corporate debt simply because he had executed the contract for and in behalf of the corporation." xWestern Agro Industrial Corporation v. v. NLRC. A. making it necessary to enforce it against its former president. 109491. the petitioner while admittedly the highest ranking local representative of the corporation. For the separate juridical personality of a corporation to be disregarded. is "a corporate act for which only the corporation should be made liable for any obligations arising from them. the corporate officers cannot be held personally liable. 13 SCRA 291 (1965). Court of Appeals. When corporate officers and directors are sued merely as nominal parties in their official capacities as such. by a specific provisions of law. to personally answer for his corporate action. Court of Appeals.C. NLRC is not in point because there the debtor corporation actually ceased operations after the decision of the Court of Industrial Relations was promulgated against it. Sugay v. No. The aforecited cases will not apply to the instant case. and judgment may be enforced against corporate assets. 181 SCRA 719 (1990). 12 SCRA 700 (1961). Ng. however. xVillanueva v. reiterated in xGudez v. Sugay should not be allowed to confuse the facts. petitioner Uy cannot be permitted to escape liability under the said contract by using the corporate entity theory. NLRC. Under the Labor Code. 182 SCRA 353 (1990). finding or conclusion regarding particular acts committed by said officers and members of the Board of Directors that show them to have been individually guilty of unmistakable malice. xRepublic Planters Bank v. Only the responsible officer of a corporation who had a hand in illegally dismissing an employee should be held personally liable for the corporate obligations arising from such act. xEmilio Cano Enterprises. When corporate officers are sued in their official capacity.189 SCRA 767 (1990).R. they cannot be held liable personal for the judgment rendered against the corporation. 28 February 2001 The finding of solidary liability among the corporation and its officers and directors would patently be baseless when the decision contains no allegation. because the persons who were there made personally liable for the employees' claims were stockholders-officers of the respondent corporation. 171 SCRA 328 (1989). An attempt by the corporation to avoid liability by distancing itself from the acts of the its President was struck down with the Court holding that a corporation may not distance itself from the acts of a senior officer: "the dual roles of Romulo F. 183 SCRA 644 (1990) and xChua v. the wrongdoing must be clearly and convincingly established.27 (f) He is made. being a party to a simulated contract of management." xR. Inc. 142 SCRA 269 (1986). NLRC. CIR. being the "person acting in the interest of (the) employer" as provided in the Labor Code. NLRC." xParadise Sauna Massage Corporation v. It held that when a corporate officer acts in behalf of a corporation pursuant to his authority. (a) Special Provisions in Labor Laws. NLRC. Del Rosario v. officers or directors under the old corporate name bear no personal liability for acts done or contracts entered into by officers of the corporation. NLRC. it must have an officer who can be presumed to be the employer. bad faith. CA. the suit is equivalent to a suit against the corporation. Court of Appeals. Ransom Labor Union-CCLU v. This is one instance when the veil of corporate entity has to be pierced to avoid injustice and inequity.In the Labor Code since a corporate employer is an artificial person. xAtrium Management Corporation vs. When the corporation is still existing and able to satisfy the judgment in favor of the private respondent. Lim v. 273 SCRA 419 (1997). The case of Ransom v. in the case of corporations.
it is undisputed that the corporate officers have a direct hand in the illegal dismissal of the employees. acting as corporate agents. they cannot be held liable personal for the judgment rendered against the corporation. corporate directors and officers are solidarily liable with the corporation for the termination of employment of corporate employees done with malice or in bad faith. 164 (1949). 292 SCRA 304 (1998). In this case. NLRC. Gudez and Pabalan. A corporation. Ransom doctrine of imposing solidarily liability on the highest officers of the corporation for judgment on labor claims rendered against the corporation pursuant to Art.C. finding or conclusion regarding particular acts committed by said officers and members of the Board of Directors that show them to have been individually guilty of unmistakable malice. xEPG Constructions Co. xUichico v. 283 of the Labor Code. v. xRustan Pulp & Paper Mills. “there must be an allegation or showing that the officers of the corporation deliberately or maliciously designed to evade the financial obligation of the corporation to its employees. xBrent Hospital. to repeat. 211 SCRA 723 (1992) A president cannot be held solidarily liable personally with the corporation absent evidence of showing that he acted maliciously or in bad faith. In labor cases. They were the one. Reahs Corporation v. especially when he is neither a stockholder or a member of the board of the corporation. signed the Board Resolution retrenching the employees on the feigned ground of serious business losses that had no basis apart from an unsigned and unaudited Profit and Loss Statement which. A judgment rendered against a person "in his capacity as President" of the corporation was enforceable against the assets of such officer when the decision itself found that he merely used the corporation as his alter-ego or as his business conduit. When corporate officers and directors are sued merely as nominal parties in their official capacities as such. Walter Bull and Co. NLRC. are not theirs but the direct accountabilities of the corporation they represent. or ill-motive in their personal dealings with third parties. citing xBanque Generale Belge v. 84 Phil. as a vehicle for the evasion of existing obligations. who as high-ranking officers and directors of the corporation. xNational Power Corp. and to confuse legitimate issues. the manager cannot be held jointly and severally liable with the corporate employers. Chua. officers and employees and obligations incurred by them. and reviewed its application in subsequent cases of Maglutac. The finding of solidary liability among the corporation and its officers and directors would patently be baseless when the decision contains no allegation. Inc. xAHS/Philippines v. xDe Guzman v. xArcilla v. Court of Appeals. 215 SCRA 120 (1992). 211 SCRA 723 (1992) A mere general manager cannot be held solidarily liable with the corporation for unpaid labor claims.. Court of Appeals. It reiterated the main doctrine of separate personality of a corporation which should remain as the guiding rule in determining corporate liability to its employees. to justify solidary liability. and that at the very least. This is indicating of bad faith on the part of the corporate officers for which they can be held jointly and severally liable with the Corporation for all the money claims of the illegally terminated employees. v. NLRC. there appearing to be no evidence on record that the manager acted maliciously or deliberately in the nonpayment of benefits to the employee. in circumvention of statutes. The President and General Manager of a corporation who entered into and signed a contract in his official capacity cannot be made liable thereunder in his individual capacity in the absence of stipulation to that effect due to the personality of the corporation being separate and distinct from the persons composing it. may act only through its directors.” or a showing that the officers indiscriminately stopped its business to perpetuate an illegal act. 271 SCRA 247 (1997). bad faith. IAC. There is nothing on record to show that the manager deliberately and maliciously evaded the corporation’s financial obligation to the employee. The manager of a corporation are not personally liable for their official acts unless it is shown that they have exceeded their authority. reviewed the A. CA. 273 SCRA 35 (1997). Inc. Corporate officers are not personally liable for money claims of discharged employees unless they acted with evident malice and bad faith in terminating their employment. xDe Guzman v. hence. 257 SCRA 319 (1996). being a juridical entity. 210 SCRA 230 (1992). Court of Appeals. had no evidentiary value whatsoever. NLRC. v. v. 214 SCRA 665 (1992).28 board of directors or an officer thereof. NLRC. particularly. 273 SCRA 419 (1997). [CLV – Nothing was shown to .
67 Phil. in effect. 44 Phil.. xMiranda v. 51 Phil.. 70 and 71.29 determine whether the corporate employer had no assets with which to pay the claims of the employee].” The A. Lim Chu Sing. Ransom principle that “[a]lthough as a rule. v. In xRestuarante Las Conchas v. (a) Purchase Agreement (Bayla v. Court of Appeals. 68. 62). A stock certificate is merely evidence of a share of stock and not the share itself. 562 ). Bitulok Sawmill. Watered Stocks (Sec. (a) Who May Question a Delinquency Sale (Sec.” In that case. 295 SCRA 619 (1998). 469 . To require them to do so would render illusory the separation and 13tj month pay awarded to them by the NLRC. 7. XI. xLincoln Philippine Life v. Quezon Colegialla. NLRC. the employees can no longer claim their separation benefits and 13th month pay from the corporation because it had already ceased operation. 93 Phil. Lingayen Gulf Electric Power Co. 37 Phil. 577 . SEC. xNicario v. 186 SCRA 393 (1990). Trillana v. 404 ). 118043.. Baltazar.. v. Republic. 66 and 67. 2. Silang Traffic Co. 14 SCRA 1030 ). Payment of Balance of Subscription (Secs. 383 ). 6. 755 ). v. NLRC. 63) (a) Nature of Certificate (Tan v. 69. 60 and 72. De los Santos v. The Court held: “In the present case. G. xC. the restaurant business had to be closed down because possession of the premises had been lost through an adverse decision in an ejectment case. NLRC. 314 SCRA 24 (1999). Delinquency on Subscription (Secs. (b) Pre-Incorporation Subscription (Sec. Ransom doctrine has been reiterated in xCarmelcraft Corp. Rivera. Inc.C. PNB v. one of which is when the employer corporation is no longer existing and is unable to satisfy the judgment in favor of the employee. the officers should be held liable for acting on behalf of the corporation. Consideration (Sec. STOCKHOLDERS AND MEMBERS 1. the consideration for which is the amount of unrestricted retained earnings converted into equity in the corporation’s books. Llego. 256 SCRA 466 (1996). National Exchange Co. 23 SCRA 1968 . Shareholders Not Creditors of Corporation (Garcia v. 601 ) (d) When condition of payment provided for in the by-laws (De Silva v. 65) 5. the Supreme Court had apparently returned to the A. xLincoln Philippine Life v. Hodges v. this rule admits of exceptions. 61) (c) Release from Subscription Obligation (Velasco v. 23 July 1998. Poizat. 441). the officers and members of a corporation are not personally liable for acts done in the performance of their duties. Their only recourse is to satisfy their claim from the officers of the corporation who were. Subscription Contracts (Sec. . 206 SCRA 740 . Tarlac Rice Mill Co. Certificate of Stock (Sec. Lezama. Inc. xValderrama v. 93 Phil. v. xPhilippine Trust Co.R No. (a) Cash (b) Property (c) Service (d) Retained Earnings (e) Share Stock dividends are in the nature of shares of stock. Suarez. Dexter. 73 Phil. 293 SCRA 92 (1998).. 619 ) The prescriptive period to recover on unpaid subscription does not commence from the time of subscription but from the time of demand by the corporation through it board of directors for the stockholder to pay the balance of his subscription (xGarcia v. 68 and 69). 57 Phil. 59 Phil.C. acting in behalf of the corporation. 44 Phil. 4. Aboitiz & Co. Court of Appeals.N. 557 ). 3. 802 . 96 Phil.
is valid as against a subsequent lawful attachment of said shares. Bachrach Motors v. Cecilia Salazar-Santos). In Garcia v. IAC. Santamaria v. Court of Appeals.. v. 64 Phil. Indorsement of the certificate of stock is a mandatory requirement of law for an effective transfer of a certificate of stock. 58 Phil. 14 SCRA 522 ). (c) Right to Issuance (Sec. Escaño v. the requirements are as follows: (a) There must be delivery of the stock certificate. such that a corporation may voluntarily issue a new certificate in lieu of the original certificate of stock which has been lost without complying with the requirements under Section 73 of the Corporation Code. Nava v. 74 SCRA 65 ). 72 and 74. Uson v. the same admits exceptions. as the same still stood in the name of Dico.. 704 . 303 SCRA 295 ). Neugene Marketing. LacsonLedesma. Court of Appeals. The delivery of the stock certificate duly endorsed by the owner is the operative act of transfer of shares from the lawful owner to the new transferee. In addition. the Supreme Court directly resolved the issue “Whether a bona fide transfer of the shares of a corporation. 681 ). Baltazar v. (e) Forged and Unauthorized Transfers (J. It would be an internal matter for the corporation to find measures in ascertaining who are the real owners of stock for purposes of liquidation. Power Co. as correctly ruled by the CA. but because they are made so void by statute. Lacson Ledesma. (b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the transfer. 681 . 535 . . regardless of whether the attaching creditor had actual notice of said transfer or not.. the certificate must be properly indorsed and that title to such certificate of stock is vested in the transferee by the delivery of the duly indorsed certificate of stock. 89 Phil. It is well-settled that unless proven otherwise. except the parties to such transfers: “All transfers not so entered on the books of the corporation are absolutely void. Lingayen Gulf Elect. The Supreme Court held that “the transfer of the subject certificate made by Dico to petitioner was not valid as to the spouses Atinon. 44 Phil. 63 and 73) While Section 73 of the Corporation Code appears to be mandatory. 469 .. HongKong and Shanghai Banking Corp. the judgment creditors. the judgment debtor. Fua Cun v. The rule is that the endorsement of the certificate of stock by the owner or his attorney-in-fact or any other person legally authorized to make the transfer shall be sufficient to effect the transfer of shares only if the same is couple with delivery. 292 SCRA 503 (1998). Monserrat v. and (c) to be valid against third parties. Diosomito. 780 . not registered or noted in the books of the corporation. 323 SCRA 424 (2000). Ma. Razon v. (SEC Opinion. the entry in the minutes of the meeting of the Club’s board of directors noting the resignation of Dico as proprietary member does not constitute compliance with Section 63 of the Corporation Code. Ceran. Inc. 71 . Thus. Said provision of law . provided that the corporation is certain as to the real owner of the shares to whom the new certificate shall be issued.” The Court quoted from Uson v. Summers. (d) Lost or Destroyed Certificates (Sec.. the transfer must be recorded in the books of the corporation. addressed to Ms. Inc. Court of Appeals. Peers Marketing Corp. 74 Phil. 292 SCRA 503 (1998). dated 28 January 1999.30 A formal certificate of stock could not be considered issued in contemplation of law unless signed by the president or vice-president and countersigned by the secretary or assistance secretary. 472 . the “stock and transfer book” of the corporation is the best evidence to establish stock ownership. Diosomito. Jomouad. In order for a transfer of stock certificate to be effective. . Inc. bot because they are without notice or fraudulent in law or fact. Bitong v. 64 Phil. 8. (b) Quasi-negotiable Character of the Certificate of Stock (Bachrach Motor Co. at the time of the levy on execution. which held that all transfers of shares not entered in the stock and transfer book of the corporation are invalid as to attaching or execution creditors of the assignors. 207 SCRA 234 (1992). v. Stock and Transfer Book (Secs. for a valid transfer of stocks. as well as to the corporation and to subsequent purchasers in good faith and to all persons interested. Filipinas Mining Corporation. Bitong v. Samahang Magsasaka. 64. Chua Guan v. 62 Phil. . 61 Phil. 63.
55) The situs of shares of stock would be the place of domicile of the corporation to which they pertain to. v. Section 63 of the Corporation Code which provides that “no share of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation” cannot be utilized by the corporation to refuse to recognize ownership over pledged shares purchased at public auction. xTorres. xPerkins v. Obligations arising from unpaid monthly dues do not fall within the coverage of Section 63. delivery of the certificate is an essential element of its issuance.31 strictly requires the recording of the transfer in the books of the corporation. despite the claim of the alleged transferee. or the full subscription as to no par value shares. Hence. CA. Third. 278 SCRA 793 (1997). the transfer. Inc. XII. xTayag v. 180 SCRA 266 (1989) Section 63 of the Corporation Code envisions a formal certificate of stock which can be issued only upon compliance with certain requisites. What does “Share” represent? While shares of stock constitute personal property. 292 SCRA 503 (1998). Until registration is accomplished. Entries made on the stock and transfer book by any person other than the corporate secretary. A mere typewritten statement advising a stockholder of the extent of his ownership is a corporation without qualification and/or authentication cannot be considered as a formal certificate of stock. 9. 10 August 2001. Court of Appeals. Situs of Shares of Stocks (Sec.” Attachments of shares of stock are not included in the term "transfer" as provided in Section 63 of the Corporation Code. the certificate must be signed by the president or vice-president. 325 (1940). On the other hand. including the right to vote and to be voted for. Thus. countersigned by the secretary or assistant secretary. and to inform the corporation of any change in share ownership so that it can ascertain the persons entitled to the rights and subject to the liabilities of a stockholder. the transferee is not a stockholder but an outsider. to be valid as against third parties. v. Collector. The purpose of registration. 137934. 270 SCRA 503 (1997). The law on corporation is explicit on this under Sec. a person who has purchased stock. Jr.R. cannot be given any valid effect. the original certificate must be surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder. they do not represent property of the corporation [i. First.. is two-fold: to enable the transferee to exercise all the rights of a stockholder. Court of Appeals. Until the transfer is registered. and not to any indebtedness which a subscriber or stockholder may owe the corporation arising from any other transactions. Until challenged in a proper proceeding. . xWells Fargo Bank and Union v. Batangas Laguna Tayabas Bus Company. Second. A person cannot claim a right to intervene as a stockholder in corporate issue on the strength of the transfer of shares allegedly executed by a registered stockholder. 26 SCRA 242 (1968). cannot be effective as against the corporation. v. they are properties of the stockholders who own them]. a stockholder of record has a right to participate in any meeting. China Banking Corp. 63 of the Corporation Code. RIGHTS OF STOCKHOLDERS AND MEMBERS 1. 69 Phil. the par value. Both the Revised Rules of Court and the Corporation Code do not require annotation in the corporation's stock and transfer books for the attachment of shares to be valid and binding on the corporation and third parties. Benguet Consolidated. and who desires to be recognized as a stockholder for the purpose of voting. Bitanga. such as those made by the President and Chairman. 70 Phil. must first be fully paid. therefore.e. Inc. xMagsaysay-Labrador v. The term “unpaid claims” refers to “any unpaid claims arising from unpaid subscription. and not elsewhere. The transfer must be registered in the books of the corporation to affect third persons. Dizon. 251 SCRA 257 (1995). must secure such a standing by having the transfer recorded on the corporate books. G. as to par value shares. Court of Appeals. there is no issuance of a stock certificate where it is never detached from the stock books although blanks therein are properly filled up if the person whose name is inserted therein has no control over the books of the company.. the unrecorded transferee cannot vote nor be voted for. though valid between the parties. his vote can be properly counted to determine whether a stockholders’ resolution was approved. Chemphil Export & Import Corporation v Court of Appeals. 186 (1939). and sealed with the seal of the corporation. No. Fourth. Bitong v. cf.
63) Authority of a corporation to regulate the transfer of its stock does not empower the corporation to restrict the right of a stockholder to transfer his shares. representing not less than two-thirds (2/3) of the outstanding . 38 Phil. The only limitation imposed by Section 63 of the Corporation Code is when the corporation holds any unpaid claim against the shares intended to be transferred. CA. CA.Right of Refusal (Padgett v. xThomson v. 16 of the Corporation Law and Sec. A corporation. or the act of its officers. . 43) Although the certificates of stock granted the stockholder the right to receive 1% quarterly dividends. Babcock & Templeton. Rights to Dividends (Sec. 210 SCRA 510 (1992). Preemptive Rights (Sec. 588 ) . 232 ). 2. It does not suggest that any discrimination may be created by the corporation in favor of. 5. 59 Phil. either by its board. 26 Phil. without limitation in this respect. . (b) Restriction on Transfers (Lambert v. as the corporation itself cannot create such impediment. 123 SCRA 722 . 6 SCRA 373 (1962). 466 (1958). Datu Tagoranao Benito v. v. xWon v. the stockholders do not become entitled to the payment thereof as a matter of right without necessity of a prior declaration of dividends. Both Sec. Inc. its by-laws. is at liberty. would mean that the cause of action and the determination of the prescription period would begin only upon demand for registration is made and not at the time of the assignment of the certificate. 206 SCRA 740 ) 3. The stockholder is not a co-owner or tenant in common of the corporate property. Dee v. 4. 104 Phil. Restraint of Trade — An agreement by which a person obliges himself not to engage in competitive trade for five years is valid and reasonable and not an undue or unreasonable restraint of trade and is obligatory on the parties who voluntarily enter into such agreement. The claim for damages of what the shares could have sold had the demand been complied with is deemed to be speculative damage and non-recoverable xBatong Buhay Gold Mines v. (a) Non-transferability of Membership in Non-Stock Corporation (Secs. xStockholders of F. they are always subject to the charter of the corporation.32 Share of stock only typifies an aliquot part of the corporation’s property. or against a certain purchaser. under said section to dispose them in favor of whomever he pleases. Register of Deeds of Manila. or the right to share in its proceeds to that extent when distributed according to law and equity. but merely authorizes the adoption of regulations as to the formalities and procedure to be followed in effecting transfer.. 19 Phil. Right to Certificate of Stock for Fully Paid Shares (Sec. cumulative and participating. Rural Bank of Salinas v. Botica Nolasco. 138 ) A stipulation on stock certificate that assignment thereof would not be binding on the corporation unless such assignment is registered in the books of the club as required under the by-laws. 64. Bryan. SEC. SEC. 199 SCRA 238 ). and prescribe relation. Court of Appeals. Fleishcher v. cannot create restrictions in stock transfers. not restriction. 90 and 91). because "Restrictions in the traffic of stock must have their source in legislative enactment. Guanson and Sons. 583 (1925). By-laws are intended merely for the protection of the corporation. xOllendorf v. 43 of the present Corporation Code prohibit the issuance of any stock dividend without the approval of stockholders. Inc. Right to Transfer of Shareholdings (Sec. than the general provisions of law. (c) Remedy If Registration Is Refused (Hager v. Section 63 of the Corporation Code contemplates no restriction as to whom the stocks may be transferred. The owner of shares. 298 SCRA 280 (1998). 47 Phil. nor is he entitled to the possession of any definite portion of its property or assets. Tan v. Abrahamson. SEC. as owner of personal property. which does not provide when the registration should be made. 39. Wack Wack Golf & Country Club. but the holder is not the owner of any part of the capital [properties] of the corporation. 585 (1918). Fox. 147 SCRA 4 (1987).
without proper foreclosure. v. v. Co. 16) Investment in another business or corporation (Secs. v. a stockholder according to the books of the corporation has a right to participate in any meeting.33 capital stock at a regular or special meeting duly called for the purpose. consequently. Sec. A contract of pledge of shares does not make the pledgee the owners of the shares pledged. 57) (d) Pledgor. These provisions underscore the fact that payment of dividends to a stockholder is not a matter of right but a matter of consensus. 269 SCRA 1 (1997). xLim Tay v. Right to inspect covers controlled subsidiaries. 24) Amendment of articles of incorporation (Sec. 58 Phil. 49 and 50) Place and Time of Meeting (Secs. 707 (1933) Sequestration of shares does not entitle the government to exercise acts of ownership over the shares. is legal only when construed as requiring payment of interest as dividends from net earnings or surplus only. 48) Declaration of stock dividends (Sec. even if it be shown later on that the shares had been previously sold (but not recorded). xAfrica v. 62) (b) Joint Ownership (Sec. Furthermore. Martin. (e) Conduct of Stockholders' or Members' Meetings: Kinds and Requirements of Meetings (Secs. Agana. xGokongwei v. 205 SCRA 39 (1992). and in the absence of fraud the action of the stockholders’ meeting cannot be collaterally attacked on account of such participation. 44) Fixing of consideration of no par value shares (Sec. Roxas. Mortgagors and Administrators (Sec. 6. 89 SCRA 336 ). xCojuangco Jr. 89 SCRA 336 (1979). 56) (c) Treasury Share No Voting Rights (Sec. 52) 7. even sequestered shares may be voted upon by the registered stockholder of record. 36 and 42) Merger and consolidation (Sec. amendment and repeal of by-laws (Sec. Court of Appeals. xPrice and Sulu Dev. 43) Management contracts (Sec. (b) Limitations on Right The only express limitations on the right of inspection under Sec. Rights to Attend Meetings and Vote (Sec. 89) Until challenged successfully in the proper proceedings. 74 of the Corporation Code are: (a) the right of inspections should be exercised at reasonable hours on business days. SEC. . “interest bearing stocks” on which the corporation agrees absolutely to pay interest before dividends are paid to the common stockholders. (a) Instances When Stockholders Entitled to Vote: Election of directors and trustees (Sec. Jr. the lender cannot demand that the shares be registered in his name. Consequently. 72) Increase and Decrease of capital stock (Sec. the pledgee does not become the owner of the shares simply by the failure of the registered stockholder to pay his loan. 6. 195 SCRA 797 (1991). and (c) the demand is made in good faith or for a legitimate purpose. 55) When shares of stocks are pledged by means of endorsement in blank and delivery of the covering certificates to secure a mortgage loan. (b) the person demanding the right to examine and copy excerpts from the corporate records and minutes has not improperly used any information secured through any previous examination of records of the corporation. 38) Adoption. 293 SCRA 634 (1998). SEC. 51 and 93) Quorum (Sec. xRepublic Planters Bank v. PCGG. Rights to Inspect and Copy Corporate Records (a) Basis of Right (Gokongwei.
40 Phil. Asia Banking Corp. Hercules Lumber Co. Republic v.) Inc.. Court of Appeals. Isabela Sugar Co. Isabela Sugar Co. 19 Phil. A director has the unqualified right to inspect the books and records of the corporation at all reasonable times. Sanmtos. xBitong v. 697 ). 387 . xWestern Institute of Technology.G. 64 Phil. xW. it is required that the minority stockholder suing for and on behalf of the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit. (b) Exhaustion of Intra-Corporate Remedies (Everett v. 512 . 142) 8. 198 SCRA 73 ). G. xWestern Institute of Technology. The power to sue and be sued in any court by a corporation even as a stockholder is lodged in the board of directors that exercises its corporate powers and not in the president or officer thereof. and cannot be denied on the ground that the director or shareholder is on unfriendly terms with the officers of the corporation whose records are sought to be inspected. 489 . 18 SCRA 602 (1966). 49 Phil. 176 SCRA 447 )..R. (a) Who May Bring Suit ((Pascual v. Cuaderno. Derivative Suits (San Miguel Corp. Philippine Manufacturing Co. Tan. The allegations of injury to the spouses-relators can co-exist with those pertaining to the corporation. Salas. otherwise it would often be useless to the stockholder who does not know corporate intricacies. Philpotts v. For a derivative suit to prosper.. 74. Inc. 47 Phil. 266 (1932) The right to inspect does not include the right of access to minutes until such minutes have been written up and approved by the directors. Orozco. Appointment of receiver can be an ancillary remedy in a derivative suit xChase v. although it includes the right to make copies. PNB. v. 278 SCRA 216 (1997). 122452. Republic Bank v. 57 Phil. 3 SCRA 198 . It is a remedy designed by equity and has been the principal defense of the minority shareholders against abuses by the majority. (e) Confidential Nature of SEC Examinations (Sec.. 122 SCRA. 266 (1932) A board resolution limiting the right to inspect to a period of ten days shortly prior to the annual stockholders’ meeting is an unreasonable restriction and violates the legal provision granting the exercise of such right “at reasonable hours. Commart (Phils. 964 (1924) (c) Specified Records (Secs. For a derivative suit to prosper.. the president or managing director is disqualified by law to sue in her own name. Kahn. 199 SCRA 39 ). xVeraguth v. Sandiganbayan. A derivative suit is an action brought by minority shareholders in the name of the corporation to redress wrongs committed against the corporation. Reyes v. v. It merely gives rise to an additional cause of action for damages against the erring directors. (c) Nature of Relief (Evangelista v. 86 Phil. Angeles v. 57 Phil. xVeraguth v. There is now showing that petitioner has complied with the foregoing requisites.. Tam Wing Tak v. 75 and 141) (d) Remedies If Inspection Denied: Mandamus (Gonzales v. Salas. v. Appraisal Right (Secs. 292 SCRA 503 (1998). The personal injury suffered by the spouses cannot disqualify them from filing a derivative suit on behalf of the corporation. 471 (1919). v. SEC. 57 Phil. Isabela Sugar Co. 19 SCRA 671 . xVeraguth v. does not authorize bringing the books or records outside of the corporate premises. 29 January 2001. 266 (1932) The right to inspect. . for which the directors refuse to sue. 81 to 86 and 105) 9. it is required that the minority shareholder who is suing for and on behalf of the corporation must allege in his complaint before the proper forum that he is suing on a derivative cause of action on behalf of the corporation and all other shareholders similarly situated who wish to join.34 The right is exercisable through agents and representatives. In the absence of a special authority from the board of directors to institute a derivative suit for and in behalf of the corporation. CFI of Manila. Inc. Makasiar.” xPardo v. 278 SCRA 216 (1997). 83 ). Santos.
Lee v. Asia Banking Corporation. (c) Pooling Agreements or Shareholders’ Agreements (Sec. Aquino. subscribed and then actually paid up. Young. Classification of Shares (Sec. NIDC v. 205 SCRA 752 ). Voting trust agreement as part of a loan arrangement. Right to Proportionate Share of Remaining Assets Upon Dissolution (a) Different rules apply to non-stock corporations and foundations (Secs. for this term has a technical signification in Corporation Law. No.” xCommissioner of Internal Revenue v. in consideration of the original issuance of the shares. 269 SCRA 1 ). 94 and 95. Agana. 260 SCRA 368 ). is one which entitles the holder thereof to certain preferences over the holders of common stock. Section 34(H)(2)(c). the par value of the shares. By express provision of Section 13 [of the Corporation Code]. The most common forms may be classified into two: (1) preferred shares as to assets. 2. Contracts and Agreement Affecting Shareholdings (a) Proxy (Sec. Court of Appeals. The capital subscribed is the total amount of the capital that persons (subscribers or shareholders) have agreed to take and pay for. xNational Telecommunications Commission v. xMSCI-NACUSIP Local Chapter v. paid-up capital is that portion of the authorized capital stock which has been both subscribed and paid. The trustor has a right to terminate the VTA for breach thereof. and can be more than. The term “capital” and other terms used to describe the capital structure of a corporation are of universal acceptance. which need not necessarily be. and their usages have long been established in jurisprudence. 6) (a) Common Shares “A common stock represents the residual ownership interest in the corporation. xCommissioner of Internal Revenue v. the latter is a share the holder of which entitled to receive dividends on said shares to the extent agreed upon before any dividends at all are paid to the holders of common stock. 49 Phil. “A preferred share of stock. CA. 59. The former is a share which gives the holder thereof preference in the distribution of the assets of the corporation in case of liquidation. 131889.R. Preferred shares take a multiplicity of forms. 58) (b) Voting Trust Agreements (Sec. (b) Preferred Shares (Republic Planters Bank v. Gochan v. Such must form part of the authorized capital stock of the corporation. . It is a basic class of stock ordinarily and usually issued without extraordinary rights or privileges and entitles the shareholder to a pro rata division of profits. Court of Appeals. National Wages and Productivity Commission. National Wage and Productivity Commission. 514-515 (1999). 512 (1926). Briefly. 311 SCRA 508. The preferences are designed to induce persons to subscribe for shares of a corporation. xEverett v.35 This cause of action is also included in the Complaint filed before the SEC. 100) XIII. CAPITAL STRUCTURE: SHARES OF STOCK 2. G. In fine. capital refers to the value of the property or assets of a corporation. 163 SCRA 153 (1988). Not all funds or assets received by the corporation can be considered paid-up capital. There is no guaranty. and (2) preferred shares as to dividends. on one hand. it is the amount that the corporation receives. NIRC of 1997). Concept of "Capital Stock" (Central Textile Mills v. 11. inclusive of the premium if any. Participating and Non-participating Cumulative and Non-cumulative Preferred stocks are those which entitle the shareholder to some priority on dividends and asset distribution. 10. 269 SCRA 173 (1997). 301 SCRA 152 (1999). 301 SCRA 152 (1999). 12 March 2001. Court of Appeals.
as the case may be. 9. which by their terms are redeemable at a fixed date. do not give them a lien upon the property of the corporation nor make them creditors of the corporation. (e) Stock Warrants (f) Stock Options (g) Re-Classification of Shares “Reclassification of shares does not always bring any substantial alteration in the subscriber’s proportional interest. xCommissioner of Internal Revenue v. 8) Redeemable shares are shares usually preferred. Essentially. . it does not participate in dividends (since a corporation cannot pay dividends to itself) and cannot vote in stockholders’ meeting. without more. after such redemption. However. the board of directors has the discretion to determine whether or not dividends are to be declared. The present Code allows redemption of shares even if there are no unrestricted retained earnings on the books of the corporation. Similarly. Preferences granted to preferred stockholders. Manning. Shareholders. both common and preferred. Dividends are thus payable only when there are profits earned by the corporation and as a general rule. Republic Planters Bank v. the corporation gets back some of its stock. There is only a modification of the subscriber’s rights and privileges—which is not a flow of wealth for tax purposes. retired or held in the treasury. therefore. the right of the former being always subordinate to the latter. a repurchase of it for cancellation. assets in its books to cover debts and liabilities inclusive of capital stock. Agana. . substituted the phrase “unrestricted retained earnings. 340 SCRA 289 (2000). while redeemable shares may be redeemed regardless of the existence of unrestricted retained earnings. moreover. even if there are existing profits. this is subject to the condition that the corporation has. Sandiganbayan. 301 SCRA 152 (1999). the present Corporation Code provides that the board of directors of a stock corporation may declare dividends only out of unrestricted retained earnings. This is a new provision which in effect qualifies the general rule that the corporation cannot purchase its own shares except out of current retained earnings. distributes cash or property to the shareholder in payment for the stock. Agana. The redemption of stock dividends previously issued is used as a veil for the constructive distribution of cash dividends. The issue of taxable dividend may arise only once a subscriber disposes of his entire interests and not when there is still maintenance of proprietary interest. A redemption by the corporation of its stock is.36 however. Yet neither the reclassification nor exchange per se yields income for tax purposes. 66 SCRA 14 ). or both at a certain redemption price. Thus. 7) (d) Treasury Shares (Sec. . 269 SCRA 1 (1997). Republic Planters Bank v. (b) Redeemable shares (Sec. may not be made where the corporation is insolvent or if such redemption will cause insolvency or inability of the corporation to meet its debts as they mature. 301 SCRA 152 (1999). in Section 43.” xCommissioner of Internal Revenue v. in place of “surplus profits arising from its business” in the former law. whether or not the acquired stock is cancelled. In this case. and continues in business as before. or the stockholder. but so long as it remains a treasury share. Court of Appeals. 269 SCRA 1 (1997). . in a sense. The Code. . are considered risk takers who invest capital in the business and who can look only to what is left after corporate debts and liabilities are fully paid. (c) Founder Shares (Sec. San Miguel Corp. that the share will receive any dividends. But the exchange is different—there would be a shifting of the balance of stock features like priority in dividend declarations or absence of voting rights. the exchange of shares. Commissioner v. v. When a treasury share which has not been retired by the corporation may be sold again. adopting the change made in accounting terminology. produces no realized income to the subscriber. “Redemption is repurchase. Court of Appeals. a reacquisition of stock by a corporation which issued the stock in exchange for property. the declaration of dividends is dependent upon the availability of surplus profit or unrestricted retained earnings.” which may be a more precise term. Redemption. or at the option of either issuing corporation.
ACQUISITIONS. Ed. Ferrer. v. 299. v. 78).37 3. The fact that instead on foreclosing on the mortgaged assets. Restatement of the Doctrine of Piercing the Veil of Corporate Fiction. Merger and Consolidation 1. xSan Teodoro Dev. it does not necessarily follow that no one may now be held liable for illegal acts committed by the earlier firm.. 15 . Nell Co. June 1993) 1. Concept of "Enterprise" or "Economic unit" or "Going concern" (Villa Rey Transit. Phil. v. 521. 151 SCRA 355 ). Although a corporation may have ceased business operations and an entirely new company has been organized to take over the same type of operations.. v. John Keley Co. Equity Transfers (Philippine Veterans Investment Development Corp. Zamora. Vasquez. NLRC. the transferee is not liable for the debts and liabilities of the transferor. (b) In a “Business Enterprise” Transfer. 3. the transferee is not liable for the debts and liabilities of the transferor. v. CA. Sugar Estates. 66 S. the business enterprise is deemed to have been in operation for the required two-year period as to come under the coverage of the SSS Law. making it the controlling stockholder of a bank. 181 SCRA 669 ). Inc. 90 L. except where the transferee expressly or impliedly agrees to assume such debts. (b) Stockholders' or Members' Approval (Sec. Acquisitions and Transfers See relevant portion of VILLANUEVA . and although the majority of the members of the board of directors of the bank are from DBP. 186 SCRA 841 (1990). Pepsi-Cola Bottling Co. Ent. 15 SCRA 415 ): (a) In a pure "Assets only" Transfer. (d) Approval by SEC (Sec. 79). 326 U. Quasi-Reorganization (a) Reduction of Capital Stock (Sec. (b) Stock Splits (c) Stock Consolidations XIV.. of Internal Revenue. Ct. 22 SCRA 1156 . nor does it make DBP liable for the wage claims of the bank's employees. xDBP v. Comm. Business Enterprise Transfers (A. NLRC. 2. 8 SCRA 96 (1963). 833 ). xMadrigal & Co. Procedure: (a) Plan of Merger or Consolidation (Sec. 3. Laguna Transportation Co. DBP converted its loans to equity. Inc. 76). Inc. the transferee is liable for the debts and liabilities of the transferor. 25 SCRA 845 ). 80) . 37 ATENEO L. 77). v. except where the transferee expressly or impliedly agrees to assume such debts. Types of Acquisitions\Transfers (Edward J. 107 Phil. Concepts 2. Santos v. Effects of Merger or Consolidation (Sec.S. Hybrid Securities (Government v. SSS. the same does not make DBP an employer of the bank employees. Pacific. Although the business enterprise was held under a partnership scheme and latter the business was transferred to a corporation.J. 2. MERGERS AND CONSOLIDATIONS A. 210 SCRA 277 (1992). 4. v. and (c) In an Equity Transfer. 38 Phil.D. 38. SSS. v. (c) Articles of Merger or Consolidation (Sec. 278 ) 4. 19 (No.
does not become effective upon the mere agreement of the constituent corporations. NLRC. Sunio v. 291 SCRA 511 (1998) The merger. The procedure to be followed is prescribed under the Corporation Code. v. 26 January 2001. 177 SCRA 203 . one of the combining corporations survives and continues the combined business. 200 SCRA 773 . Ordinarily. Revisiting the Philippine “Laws” on Corporate Rehabilitation. v. properties and liabilities are acquired by the surviving corporation. 238 SCRA 52 . NLRC. xAssociated Bank v. v. 247 SCRA 386 (1995). xBabst v. 137 SCRA 295 . Inc. properties and liabilities are acquired by the surviving corporation. 156 SCRA 123 ). v. was to direct [the buyer] to give preference to the qualified separated employees of MDII in the filling up of vacancies in the facilities. 1999).R. As there is no such law. The effectivity date of the merger is crucial for determining when the merged or absorbed corporation ceases to exist: and when its rights. Pres. The same provision further states that the merger shall be effective only upon the issuance by the SEC of a certificate of merger. NLRC. Assets Only Transfers (Sundowner Dev. 246 SCRA 733 . Pepsi-Cola Bottling Co. because the surviving corporation automatically acquires all their rights. 79 SCRA 40 (1977). NLRC. must have been duly approved by a majority of the respective stockholders of the constituent corporations. NLRC. 245 SCRA 134 . No. there is no winding up of their affairs or liquidation of their assets. NLRC. NLRC. Assistance on Legal Affairs. Business-Enterprise Transfers (Yu v. 5. 201 SCRA 478 (1991). xAssociated Bank v. NLRC. xDevelopment Bank of the Philippines v. properties as well as liabilities pass on to the surviving corporation. 310 SCRA 403 ). Court of Appeals. PD 902-A. while the other is dissolved and all its rights. NLRC. and Securities Regulation Code [RA 8799]. 186 SCRA 841. Court of Appeals. however. Although there is dissolution of the absorbed corporations. one of the corporations survives and continues the business. privileges. v. xSan Felipe Neri School of Mandaluyong. 1. National Union Bank Employees v. xAvon Dale Garments. Pepsi Cola Distributors of the Philippines. Inc. Electronics Employees Association v. Confessor. Court of Appeals. V. Equity Transfers (Manlimos v. 1. while the rest are dissolved and all their rights. NLRC. xCoral v. for reasons of public policy and social justice. 3. Robledo v. 258 SCRA 704 . v. 242 SCRA 145 . Central Azucarera del Danao v. Mergers and Consolidations (Filipinas Port Services. in turn. Filipinas Port Services. NLRC. NLRC. 2 (May. Interim Rules of Procedure for Corporate Rehabilitation of 2000) (b) Types of bankruptcy proceedings in the Philippines . as well as their liabilities. Inc. Drilon. NLRC. 210 SCRA 277 (1992). v. privileges and powers. Employees Union-PTGWO v.38 It is settled that in the merger of two existing corporations. 310 SCRA 403 ). 4. Inc. 262 SCRA 81 ) XV. xMDII Supervisors & Confidential Employees Asso. NLRC. REHABILITATION AND INSOLVENCY See VILLANUEVA . in the merger of two or more existing corporations. Corporate Bankruptcy Laws in General (a) Governing Laws (The Insolvency Act. Inc. 99398. Section 79 of said Code requires the approval by the Securities and Exchange Commission (SEC) of the articles of merger which. 127 SCRA 390 . v. C. 2. Effects on Employees of Corporation (Complex Electronics Employees Association v. 223 SCRA 337 (1993). Spin-Offs (San Miguel Corp. Court of Appeals. G. 180 SCRA 14 ) There is no law requiring that the purchaser of MDII’s assets should absorb its employees. xFirst General Marketing Corp. NLRC. 291 SCRA 511 (1998). Corp. XLIII ATENEO LAW JOURNAL No. Lazaro. the most that the NLRC could do.
Effect on Individual Petitioners Joining the Petition (Union Bank of the Philippines v. v. 190 SCRA 262 ) . 172 SCRA 436 . 229 SCRA 223 ). Suspension of Payments (a) Insolvency Law (Secs.]. whose time.Nature of petition . v. Securities Regulation Code) (c) Appointment of Management Committee or a Rehabilitation Receiver (d) Automatic Stay and its Legal Effects. NLRC. G.B.10 of Securities Regulation Code. Decree 902-A (Sec. Liquidation.39 (c) Resolution on jurisdiction issues on bankruptcy proceedings (Ching v. Decree No. Court of Appeals. 28 June 2001.10. xRubberworld [Phils. 290 SCRA 198 (1998). It is crystal clear that the concept of liquidation is diametrically opposed or contrary to the concept of rehabilitation. 275 SCRA 497 . Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency. connotes a winding up or setting with creditors and debtors. When it becomes effective The appointment of a management committee or rehabilitation receiver may only take place after the filing with the SEC of an appropriate petition for suspension of payments.E. 5[d] and 6. Alemar’s Sibal & Sons. It is the winding up of a corporation so that assets are distributed to those entitled to receive them. 902-A. Inc. 286 SCRA 749 (1998). Inc. taken together with Sections 5(d) and (d). (c) Supreme Court Interim Rules of Procedure on Corporation Rehabilitation (2000). No. Elbinias. To allow such other actions for labor claims to continue would only add to the burden of the management committee or rehabilitation receiver. 26 July 2000. Court of Appeals. (b) Basis of RTC Power to Undertake Corporate Rehabilitation (Secs. and Section 5. Court of Appeals. 290 SCRA 198 ) . Court of Appeals. xBank of PI v. Land Bank of the Philippines. 163 SCRA 534 (1988)) . 3. Philippine Veterans Bank Employees Union – N. effort and resources would be wasted defending claims against the corporation instead of being directed toward its restructuring and rehabilitation. 186 SCRA 94 . 177 SCRA 788 . No. a court action is ipso jure suspended only upon the appointment of a management committee or a rehabilitation receiver. . The conclusion is inevitable that pursuant to Section 6(c). discharging liabilities and dividing surplus or loss.U. Corporate Rehabilitation (a) Nature of “Rehabilitation” (Ruby Industrial Corp. Court of Appeals. Court of Appeals. v. 237 SCRA 446 ) Labor claims are not exempted from the automatic stay under Pres. 5. xRizal Commercial Banking Corp. The justification for the automatic stay of all pending actions for claims is to enable the management committee or the rehabilitation receiver to effectively exercise its/his powers free from any judicial or extrajudicial interference that migh unduly hinder or prevent the “rescue” of the debtor company. G. such that both cannot be undertaken at the same time. v.Consequences of approval/non-approval (b) Pres.Duration (B. (Barotac Sugar Mills v. Decree 902-A. 201 SCRA 190 ). On the opposite end of the spectrum is rehabilitation which connotes a reopening or reorganization. v. xTraders Royal Bank v. 284 SCRA 445 (1998). Intermediate Appellate Court.Types of “claims” Covered (Finasia Investments v. Court of Appeals. Pres. Court of Appeals.Situation of the corporate debtor . 2 to 13) . IAC.R. xChung Ka Bio v. .Claims Covered by the Automatic Stay (xPCIB v. Court of Appeals. 213 SCRA 830 . in Corporation Law. Homes. It is the process of reducing assets to cash. v. reiterated in Union Bank v. 128003. 5[d]). Inc. 105364. 2.F. Court of Appeals. Inc. in relation to Sec.. To allow the liquidation proceedings to continue would seriously hinder the rehabilitation of the subject bank.R. xModern Paper Products.Required vote of creditors . 305 SCRA 721 (1999).
21). 34 and 35. 64. 52. 6.. Decree No. 20 to 33) (g) Qualifications of Petitioning Creditors A foreign corporation whichs shows that it is a resident of the Philippines has legal standing to petition for involuntary insolvency of a corporate debtor xState Investment House. 47 Phil. Hearing of petition (Sec. 119 and 122). Sugar Regulatory Administration. 63) (o) Discharge (Secs. 29 and 30) (k) Effects of Order of Insolvency and Appointment of Receiver (Secs. Security Credit & Acceptance Corp. 32. 199 SCRA 373 ) (l) Liquidation of assets and payment of debts (Sec.. Voluntary Dissolution (Sec. No Vested Rights to Corporation Fiction (Gonzales v. PD 902-A) (g) SEC Power to Liquidate Corporation (h) Basic Differences Between Suspension of Payments Proceedings under the Insolvency Law and Under Pres. Bisaya Land Transportation Co. (b) Expiration of Term (c) Shortening of Corporate Term (Sec. Sec. 81 SCRA 9 . and such other steps as are necessary to endow the legal . Citibank. 18. 902-A. the adoption of by-laws. De Amuzategui v. providing for the subscription and payment of the capital stock. xGovernment v. 121. (f) INVOLUNTARY INSOLVENCY (Sec. 118) (b) There Are Creditors Affected (Secs. 117) (a) No Creditors Affected (Sec. and 66) (p) Appeal in certain cases (Sec. 120) (d) Non-user of Corporate Charter and Continuous Inoperation of a Corporation (Sec.. El Hogar Filipino. NLRC. 82) XVI. 203 SCRA 9 (1991). P. 3. 19 SCRA 58 . (a) Governing Law and Jurisdiction (b) General Effect of Corporate Insolvency Proceedings (c) VOLUNTARY INSOLVENCY (d) Filing of Petition (Sec. applications for suspension of proceedings must be made in the various courts where actions in pending (xUnson v. 24) (i) Acts of Insolvency and Order of Adjudication (Sec. 399 ). 22) "Organize" when used in reference of a corporation involves the election of officers. Republic v. 43 and 59) (n) Composition (Sec. 50 Phil. Macleod. DISSOLUTION 1.D. N. 6(l). 33 Phil. 2. Rule 66. (h) Order to Show Cause (Sec. 14. Abeto. Section 18 on the automatic stay is no self-executory. 80 ). IAC. 190 SCRA 558 (1990).40 (e) Rationale for Suspensive Effect of Appointment on Existing Suits and Causes of Action (f) Powers of Management Committee or the Rehabilitation Receiver (Sec. xRadiola-Toshiba Phil. Sec. 33) (m) Remedies of Secured Creditors (Sec. 174 SCRA 377 ). 2. 20) (j) Meeting of Creditors to Elect Assignee (Secs. 42 ). Insolvency Proceedings A liquidation proceeding is a proceeding in rem so that all other interested persons whether known to the parties or not may be bound by such proceedings. v. v. Inc. xChua v.A. TIL) (e) Effect of Order of Insolvency (Sec. Rules of Court) (a) Quo Warranto (Republic v. 902-A 4. 29. Involuntary Dissolution (Sec.
58 Phil. Court of First Instance of Rizal. the violation of which will amount to its abuse. Buenaflor v. 209 SCRA 294 (1992). The term "organization" relates merely to the systematization and orderly arrangement of the internal and managerial affairs and organs of the corporation. the assessment aforementioned. xBenguet Consolidated Mining Co. however. SEC. and if a claim is disputed or unliquidated so that the receiver cannot safely allow the same. though there is the alternative method of assigning the property of the corporation to the trustees for the benefit of its creditors and shareholders. M. Board of Liquidators v. XXI. xChung Ka Bio v. 122. . V. xAlhambra Cigar & Cigarette Manufacturing Company. of collecting all that is due the corporation. 711 (1956). Inc. that is. Michelin & Cie. for at the very least. v. 93 Phil. 261 (1933).41 entity with the capacity to transact the legitimate business for which it was created. 4. Michelin & Cie. as the same would constitute new business. 24 SCRA 269 (1968). 20 SCRA 987 .” xChina Banking Ciorp. 67 Phil. v. 58 Phil. Camarines Industry. and the amount so allowed then presented to the receiver or trustee for payment. . always be exercised with caution and governed by legal and equitable principles. V. 472 ). 5. V. made within the three years. definitely established the Government as a creditor of the corporation for whom the liquidator is supposed to hold assets of the corporation. Intermediate Appellate Court. Sumera v.” xChina Banking Ciorp. M. 404 ). 108 Phil. obviously for the benefit of all the creditors thereof. When the period of corporate life expires. Pineda. “The appointment of a receiver by the court to wind up the affairs of the corporation upon petition for voluntary dissolution does not empower the court to hear and pass on the claims of the creditors of the corporation at first hand.” xChina Banking Corp. Legal Effects of Dissolution A corporation cannot extend its life by amendment of its articles of incorporation effected during the three-year statutory period for liquidation when its original term of existence had already expired. Michelin & Cie. There can be no doubt that under Sections 77 and 78 of the Corporation Law. Marsman Development Company. Methods of Liquidation (Sec. and assuming that judicial enforcement of taxes may not be initiated after said three years despite the fact that actual liquidation has not terminated and the one in charge thereof is still holding the assets of the corporation. “While the appointment of a receiver rests within the sound judicial discretion of the court.” xRepublic v. “Liquidation” is “the settlement of the affairs of a corporation [which] consists of adjusting the debts and claims. . 163 SCRA 534 (1988). 58 Phil. 98 Phil. The normal method of procedure is for the directors and executive officers to have charge of the winding up operations. and in making such appointment the court should take into consideration all the facts and weigh the relative advantages and disadvantages of appointing a receiver to wind up the corporate business. such discretion must. 261 (1933). it should be transferred to the proper court for trial and allowance. “It immaterial that the present action was filed after the expiration of the three years . (f) Demand of Minority Stockholders for Dissolution (Financing Corp. of the Phil. . after the lapse of the said three-year period. M. The failure to file the by-laws does not automatically operate to dissolve a corporation but is now considered only a ground for such dissolution. Pasig. v. While Section 77 of the Corporation Law [now section 122 of the Corporation Code] provides for a three year period for the continuation of the corporate existence of the corporation for purposes of liquidation. the Legislature intended to let the shareholders have the control of the assets of the corporation upon dissolution in winding up its affairs. Br. 44 SCRA 418 (1972). Teodoro. 721 . . The rulings of the receiver on the validity of claims submitted are subject to review by the court appointing such receiver though no appeal is taken to the latter’s ruling. 261 (1933). there is nothing in said provision which bars an action for the recovery of the debts of the corporation against the liquidator thereof. Kalaw. Valencia. the settlement and adjustment of claims against it and the payment of its just debts. the corporation ceases to be a body corporate for the purpose of continuing the business for which it was organized xPhilippine National Bank v. all claims must be presented for allowance to the receiver or trustee or other proper persons during the winding up proceedings which in this jurisdiction would be within the three years provided by sections 77 and 78 of the Corporation Law as the term for the corporate existence of the corporation.
42 6. Sergio F. the counsel of the dissolved corporation was considered a trustee. 645 (1998). 269 SCRA 564 ). 101. Manuel R. 96. 100) 5. Naguiat v. Court of Appeals [242 SCRA 717 (1995)]. 32 ATENEO L. Although a corporate officer. such as claims for wages. If the three-year extended life has expired without a trustee or receiver having been expressly designated by the corporation within that period. 2. 301 SCRA 342 (1999). Withdrawal and Dissolution (Sec. xReburiano v. March. Clemente v. It may. 211 SCRA 723 (1992). 102). Court of Appeals. Who Are Liable After Dissolution and Winding-Up? (National Abaca Corp. 103 SCRA 90 ). In Gelano case. 1. 105) . court of Appeals (103 SCRA 90) may be permitted to so continue as "trustees" by legal implication to complete the corporate liquidation. which has primary and sufficient broad jurisdiction in matters of this nature. NLRC. Court of Appeals. 97) (a) Pre-Emptive Rights (Sec. The Philippine Close Corporation. Articles of Incorporation Requirements (Sec. during the three-year term. however. (b) Amendment (Sec. No Necessity of Board (Sec. CA. Gelano v. 2. The corporation continues to be a body corporate for three (3) years after its dissolution for purposes of prosecuting and defending suits by and against it and for enabling it to settle and close its affairs. including not only the shareholders but likewise the creditors of the corporation. NLRC. In the later case of Clemente v. (No. repeal of the law. Commissioner. for working out a final settlement of the corporate concerns. Since the law specifically allows a trustee to manage the affairs of the corporation in liquidation. shall be removed or impaired either by the subsequent dissolution of said corporation or by any subsequent amendment or repeal of this Code or of any part thereof. 163 SCRA 534 ). Tan Tiong Bio v. xDe Guzman v.” This provision safeguards the rights of a corporation which is dissolved pending litigation. culminating in the disposition and distribution of its remaining assets. 723 (1995). . 103) 3. CLOSE CORPORATION See VILLANUEVA . Court of Appeals. San Juan Structural and Steel Fabricators. 100 Phil. following the rationale of the Supreme Court's decision in Gelano v.J. Court of Appeals. might make proper representations with the Securities and Exchange Commission. the board of directors (or trustee) itself. 242 SCRA 717. any supervening fact. “No right of remedy in favor or against any corporation . he shall be liable to the extent thereof to corporate liabilities. when such corporate officer ceases corporate property to apply to his own claims against the corporation. 6. such as a general manager is not liable for corporate obligations. Deadlocks (Sec. 301 SCRA 342 (1999) 7. those having any pecuniary interest in the assets. Dulay Enterprises v. acting for and in its behalf. . such as the dissolution of the corporation. Under Section 145 of the Corporation Code. 104) 7. Restriction on Transfer of Shares (Secs. 1988). 2 SCRA 989 . 225 SCRA 678 . Inc. Definition (Sec. v. would not serve as an effective bar to the enforcement of such right. we held that the board of directors may be permitted to complete the corporate liquidation by continuing as “trustees” by legal implication. he took advantage of his position as general manager and applied the corporation's assets in payment exclusively to his own claims. Court of Appeals. or any other fact of similar nature. 296 SCRA 631. Agreements by Stockholder (Sec. appointing a trustee or a receiver who may act beyond that period. xReburiano v. Intermediate Appellate Court. XVII. Pore. 98 and 99) 4. Reincorporation (Chung Ka Bio v. 86 . v. The termination of the life of a juridical entity does not by itself cause the extinction or diminution of the rights and liabilities of such entity nor those of its owners and creditor. since knowing fully well that certain creditors had similarly valid claims. Still in the absence of a board of directors or trustees.
Distinguishing Foundations from Other Non-Stock Corporations. 7 SCRA 14 (1963). Art. Foreign Investment Act of 1991). Sec. 88 and 94(5). and the courts will consider whether dividends have been declared or its members or that is property. xTimes. 24. What is a Foundation? (Secs. and not for the purpose of carrying out the objectives of the enterprise. University of Visayas. NON-STOCK CORPORATIONS AND FOUNDATIONS See VILLANUEVA . 226. Theory on Non-Stock Corporation (Secs. 2. fraternal. Court of Appeals. of the Phil. Executive Order No. 1993). 3(d). has no legal existence within the state in which it is foreign. professional. Omnibus Investment Code.Vol. Club Filipino Inc. 5 SCRA 321 . Omnibus Investment Code) (c) Amendment of License (Sec. 94 and 95) XIX. 7042. The incurring of profit or losses does not determine whether an activity is for profit or non-profit. 30 and 34(H). 123). directly bind or affect property or persons beyond the limits of that state. (a) Application for License (Secs. 12 September 1999. 100 Phil. Philippine Doctrine of "Doing Business. XVIII. 93 Phil. effects or profit was ever used for personal or individual gain. 1-81. Menil. also Art.Vol. de Cebu. 115054-66. VII. 1993). educational. R. No. religious. 6 (June. G. Statutory Concept of "Doing Business" (Art. NIRC of 1997. Definition (Sec. Collector of Internal Revenue v. in the absence of compliance with such requirements. Gabuco.A.43 Even prior to the passage of the Corporation Code which recognized close corporation. otherwise. a foreign corporation illegally doing business here because of its refusal or neglect to obtain the required license and authority to do business may successfully though unfairly plead such neglect or illegal act so as to avoid service and thereby impugn the . 2 are not mandatory and that an entity may. cultural. Collector of Internal Revenue v. xAvon Insurance PLC v. VII. No. V. 3. it to subject the foreign corporations doing business in the Philippines to the jurisdiction of the courts. 1. can by its judgments and decrees. 131) (d) Rationale for Requiring License to Do Business The purpose of the law in requiring that foreign corporations doing business in the country be licensed to do so. Sec." THE LAWYERS REVIEW. 43. civic or other similar purposes. 127 (1956).R. literary. 44. A non-stock corporation may only be formed or organized for charitable. It may not engage in undertakings such as the investment business where profit is the main or underlying purpose. 404 (1953). Part II . 278 SCRA 312 (1997). scientific. the Supreme Court had on limited instances recognized the common law rights of minority stockholders to seek dissolution of the corporation. Although the non-stock corporation may obtain profits as an incident to its operation such profits are not to be distributed among its members but must be used for the furtherance of its purposes. xCollector v. A fundamental rule of international jurisdiction is that no state can by its laws. No. 124 and 125. Sinco Educational Corp. Reyes. Dissolution (Secs. as amended) The formal requirements of Revenue Regulations No. 1 SCRA 669 ). v. BIR-NEDA Regulations No. still show that it falls under the provisions of Section 26 of the NIRC. (Unpublished) 1. Inc. 87. People v. 39 SCRA 303 (1971). v. 126. 49. Omnibus Investment Code) (b) Issuance of License (Sec. 4. and no court which is only a creature of the state. 14(2).Part I . Revenue Regulations No. and generally. Teodoro. social. . A foreign corporation owes its existence to the laws of another state. 48. 2..G. 2. FOREIGN CORPORATION See VILLANUEVA . xManila Sanitarium and Hospital v. Financing Corp. (April.
Court of Appeals. 339 SCRA 434 (2000). 6 SCRA 725 (1962). xClaude Neon Lights v. xUniversal Rubber Products. 8 Phil. 1 . Navarro. xHutchison Philippines Ltd..44 jurisdiction of the local courts. Inc. 89 Phil. Nankai Kogyo. xFar East Int'l. 57 Phil. Where a single act or transaction. La Campañia Transatlantica. v. 143 SCRA 288 ). Antam Consolidated v. and . Inc. v. xAvon Insurance PLC v. Union Insurance Society of Canton. xManufacturing Life Ins. Mangaliman. 102 Phil. however. CA. As we observed. to subject such foreign corporation to the courts’ jurisdiction would violate the essence of sovereignty. Juan Ysmael and Co. v. if a foreign corporation does not do business here. v. Subic Bay Metropolitan Authority. • Recovery of damages sustained by cargo shipped to the Philippines (xBulakhidas v. Manila Port Service. Therefore. v. xGeneral Corp. 72 Phil. is not merely incidental or casual but indicates the foreign corporation's intention to do other business in the Philippines. A foreign corporation with a settling agent in the Philippines which issues twelve marine policies covering different shipments to the Philippines is doing business in the Philippines. 25 SCRA 633 ). The following were all held not to be engaged in business in the Philippines: • The collision of two vessels at the Manila Harbor (xDampfschieffs Rhederei Union v. such foreign corporation has no legal existence. A foreign corporation licensed to do business in the Philippines should be subjected to no harsher rules that is required of domestic corporation and should not generally be subject to attachment on the pretense that such foreign corporation is not residing in the Philippines. A foreign corporation which had been collecting premiums on outstanding policies was regarded as doing business in the Philippines. in so far as the State is concerned. (b) Unrelated or Isolated Transactions (Eastboard Navigation. Avon Insurance PLC v.V. v. Where a single act or transaction of a foreign corporation is not merely incidental or casual but is of such character as distinctly to indicate a purpose on the part of the foreign corporation to do other business in the state.. Director of Patens. Phil. Tensuan. Raquiza. • Infringement of trade name (xGeneral Garments Corp. 3. 256 SCRA 696 (1996). 766 ). Indeed. 87 Phil. of the Phil. Jurisprudential Concepts of "Doing Business": (a) "Doing business" implies a continuity of commercial dealings and arrangements and the performance of acts or works or the exercise of some of the functions normally incident to the purpose or object of its organization. The same danger does not exist among foreign corporations that are indubitably not doing business in the Philippines. xLitton Mills. v. 351 (1951) Solicitation of business contracts constitutes doing business in the Philippines. 142 SCRA 1 ). Inc. 525 (1941). Advertising Corp. 41 SCRA 50 . there would be no reason for it to be subject to the State’s regulation. v.. Ltd.. 190 SCRA 105 (1990). Meer. since other circumstances must be considered. Ltd.. Court of Appeals. 130 SCRA 104 ). • Loss of goods bound for Hongkong but erroneously discharged in Manila (xThe Swedish East Asia Co. 278 SCRA 312 (1997). • Sale to the Government of road construction equipment and spare parts with no intent of continuity of transaction (xGonzales v. Participating in bidding process shows an intention to engage in business in the Philippines. 313 (1950). Court of Appeals. 278 SCRA 312 (1997). xMarubeni Nederland B. v. Mentholatum v. v. said single act or transaction constitutes doing business. 607 (1932). 180 SCRA 254 ). such act will be considered as constituting business. It is not really the fact that there is only a single act done that is material for determining whether a corporation is engaged in business in the Philippines. Ltd. Court of Appeals.
Merrill Lynch Futures. Inc. Inc. IAC. v. 188 SCRA 170 ). In the case of foreign movie companies who have registered intellectual property rights over their movies in the Philippines. Universal Rubber. p. 70 (1924). xConverse Rubber v. Union Insurance Society of Canton. xLeviton Industries v." xColumbia Pictures Inc. v. General Corp. 123 SCRA 424 ). 260 SCRA 673 (1996). 80 SCRA 635 . 87 Phil. v. Isnani. v. Court of Appeals. Salvador. 71 ) (c) Criminal liability under Sect. Court of Appeals. v. Marshall-Wells Co. (e) Estoppel Doctrine: A foreign corporation doing business in the Philippines may sue in Philippine courts although it is without license to do business here against a Philippine citizen who had contracted with and been benefitted by said corporation and knew it to be without the necessary license to do business. La Chemise Lacoste. 114 SCRA 420 . v. Johnlo Trading Co. v. Eastern Shipping Lines. (d) Transactions with Agents and Brokers (Granger Associates v. 14. 4. xGeorg Grotjahn GMBH & C. under the principle of estoppel. Microwave Systems. v. Reyes.. 261 SCRA 144 (1996). . Home Insurance Company v. v. v. v Flores. v. Different Rules on Trademark and Tradenames (Western Equipment & Supply Co. Singson. 100-A. 123 SCRA 424 (1983). 115 . can be deemed by and of themselves to be doing business here. v. Advanced Decision Supreme Court. Marshall-Wells v. CA. Universal International Group of Taiwan. (d) Pari Delicto Doctrine: The local party to a contract with a foreign corporation that does business in the Philippines without license cannot maintain suit against the foreign corporation just as the foreign corporation cannot maintain suit. ECED. v. S. 313 .. 5. 46 Phil. 51 Phil. Court of Appeals. CA.45 • Recovery on a Hongkong judgment against a Manila resident (xHang Lung Bak v. under the principle of pari delicto. (f) Proper Doctrine: Ericks Ltd. Pacific Star Line. 211 SCRA 824 (1992). RJL. Saulog. Fernandez. v. xPhilips Export B. 158 SCRA 233 . But see lately: Subic Bay Metropolitan Authority v. (Top-Weld Mfg. 741 . 206 SCRA 457 ). Effects of Failure to Obtain License: (a) On the contract entered into by such foreign corporation (Home Insurance Company v. CA. v. April 1955 Vol. 166 SCRA 493 .. it was held that the appointment of local lawyer to protect such rights for piracy is not deemed to be doing business: "We fail to see how exercising one's legal and property rights and taking steps for the vigilant protection of said rights. 147 SCRA 154 . 267 SCRA 567 (1997). 130 SCRA 104 . xUniversal Rubber Products. Rule 14. xSchmid & Oberly v. 340 SCRA 359 (2000). 156 SCRA 44 . Universal Shipping Lines. Rules of Court. Section 69 of the then Corporation Law was intended to subject the foreign corporation doing business in the Philippines to the jurisdiction of our courts and not to prevent the foreign corporation from performing single acts.A. 201 SCRA 137 ). Eastern Shipping Lines. 144 of the Corporation Code. IAC. of the Phil. Inc.V. Inc. Elser.. Inc. 6. 235 SCRA 216 (1994). Inc. Elser. xWang Laboratories.. Aetna Casualty & Surety Co. Mendoza. 129 SCRA 373 . (b) Standing of such foreign corporation to sue in Philippine courts (Sec. 88 Phil. 46 Phil. xConverse Rubber Corp. 189 SCRA 631 [199 ]. 97 SCRA 158 . but to prevent it from acquiring domicile for the purpose of business without taking the necessary steps to render it amenable to suit in the local courts. 119 SCRA 118 ) But Now See Communication Materials and Design.G. Ltd. xPuma Sportschunhfabriken Rudolf Dassler. K. v. 133.. v. Suits Against Foreign Corporations: (a) Jurisdiction Over the "Person" of Foreign Corporations (Sec. (c) The "Contract Test" of Doing Business (Pacific Vegetable Oil Corp. v. particularly the appointment of an attorney-in-fact. Jacinto Rubber & Plastic Co.
xFar East International Import and Export Corp. or (c) any of its officers or agent within the Philippines. xPacific Micronisian Line. Section 14. Zosa.. yet it is necessary that there must be specific allegations in the complaint that establishes the connection between the principal foreign corporation and its alleged agent with respect to the transaction in question. xNew York Marine Managers. Court of Appeals. v. xHahn v. Del rosario.46 xJohnlo Trading Co. xFBA Aircraft v. It the appearance of a foreign corporation to a suit is precisely to question the jurisdiction of the said tribunal over the person of the defendant. K. CA. xAvon Insurance PLC v. 327 (1997). Inv.M. etc. (b) The Odd Doctrine (Facilities Management Corp. Court of Appeals. A complaint filed by a foreign corporation is fatally defective for failing to allege its duly authorized representative or resident agent in Philippine jurisdiction. nor does it constitute an acquiescence to the court’s jurisdiction. summons may be served on (a) its resident agent designated in accordance with law. v. Inc. 266 SCRA 537 (1997). Court of Appeals. Inc. xRoyal Crown International v. Nankai Kogyo Co. v. 182 SCRA 591 (1990). Court of Appeals.. 385 (1938). This overturned the previous doctrine in xMarshall-Wells (as well as in xIn re Liquidation of the Mercantile Bank of China. v. For the purpose of having summons served on a foreign corporation in accordance with Rule 14. 65 Phil. Co. Cebu Stevedoring Co. IAC. it is sufficient that it be alleged in the complaint that the foreign corporation is doing business in the Philippines. Contra: The sine qua non requirement for service of summons and other legal processes or any such agent or representative is that the foreign corporation is doing business in the Philippines. 266 SCRA 537 (1997). v. it is deemed a confirmation by the foreign corporation.K. Court of Appeals. v. 278 SCRA 312 (1997) (c) Stipulation on Venue When the contract sued upon has a venue clause within the Philippines. CA. Zulueta. Nowhere in the case of Signetics Corporation v. Inc.. Ltd. For the purpose of having summons served on a foreign corporation in accordance with Rule 14. to be sued in local courts.. Pleading "Doing" and "Not Doing" of Business The fact that a foreign corporation is not doing business in the Philippines must be alleged if a foreign corporation desires to sue in Philippines courts under the "isolated transactions rule. 165 SCRA 258 1988). Section 14. . v. summons can validly be served thereto even without prior evidence of the truth of such factual allegation. 203 SCRA 9 ). that the lack of authority of foreign corporation to sue in Philippine courts for failure to obtain the license is a matter of affirmative defense. 278 SCRA 312. 125 SCRA 522 (1983). even though not doing business in the Philippines. NLRC. 96 Phil. When it is shown that a foreign corporation is doing business in the Philippines. xCommissioner of Customs v. v. 295 SCRA 462 (1998). Signetics Corp. xWang Laboratories. c. Resident Agent (Sec. Court of Appeals. xHyopsung Maritime Co. But Now See Avon Insurance PLC v. Gani. 750 . 23 . xFrench Oil Mills Machinery Co. it is sufficient that it be alleged in the complaint that the foreign corporation is doing business in the Philippines. 88 Phil. xLinger & Fisher GMBH v. The mere allegation in the complaint that a local company is the agent of the foreign corporation is not sufficient to allow proper service to such alleged agent. 17 SCRA 1037 (1966). 7. xHahn v. Mendoza.. 178 SCRA 569 . 225 SCRA 737 (1993).. Ltd. Although there is no requirement to first substantiate the allegation of agency. (b) if there is no resident agent. 89 SCRA 131 . v. 249 SCRA 416 (1995)." Atlantic Mutual Inc. then this appearance is not equivalent to service of summons. 110 SCRA 1 . did the Court state that if the “complaint alleges that defendant has an agent in the Philippines. Citibank. 6 SCRA 725 ). the government official designated by law to that effect. Court of Appeals. 8. 127 and 128) (a) Concept of "residence" (State Investment House v. De la Osa. it is only in the headnote of the reporter which is not part of the decision. 156 SCRA 44 ).
136) XX. 2. 4. No. (Sec. 144 are applicable. Art. Omnibus Code) 12. Violation of Section 133 by Foreign Corporations Section 133 of the present Corporation Code. 134 and 135. 74). xH.. Special corporations (Sec. 2 (29 February 1996). 129. 4.. Penalty Clause for Violations of the Provisions of the Code (Sec. 132. Cross-reference (Sec. Vol. Historical Background of Sec.OTL\343SCRA\11-14-2001 . PD 902-A). But these proceedings can be maintained only by the Attorney-General in representation of the Government. 145 and 146). Strict Principles in Criminal Law. xGovernment of the Philippine Islands v. Home Insurance Company v. 6. which unlike its counterpart Section 69 of the Corporation Law provided specifically for penal sanctions for foreign corporations engaging in business in the Philippines without obtaining the requisite license. 1. 9. 50. XXI. Insular Lumber Co. 50 Phil. Grey v. 108 and 143. PENALTY PROVISIONS OF THE CODE See VILLANUEVA . Art. 148). 27). 144 of the Corporation Code. CA. 232 SCRA 329 (1994). 144 (Sec. Specific application (Sec. when the criminal penalties of Sec. X." xHarden v. 3. THE LAWYERS REVIEW. Home may therefore provides the second instance of violation of the Code (under Section 133). Zachry Company International v. 190 1/7 of the Corporation Law) Sec. 58 Phil. Benguet Consolidated Mining Co. 139 ) 10. 5. 3. 399 (1927). Omnibus Investment Code) 14. Merger and Consolidation (Sec. The penalties imposed in Sec. The Penal Provision Under Sec. Amendment of Articles of Incorporation (Sec. 67 Phil.47 (b) When a corporation has designated a person to receive service of summon pursuant to the Corporation Code.DIR\CORPLAW. Applicable Laws to Foreign Corporations (Sec. should be deemed to have a penal sanction by virtue of Section 144 of the Corporation Code. MISCELLANEOUS 1. 51. 190(A) of the Corporation Law for the violation of the prohibition in question are of such nature that they can be enforced only by a criminal prosecution or by an action of quo warranto. the issue of malice. 144). SEC power and supervision (Secs. 4). Applicability of other provision of the old Corporation Law.B. 130) 11. Withdrawal of Foreign Corporation (Sec. 190 was not intended to make every casual violation of one of the Corporation Law provisions ground for involuntary dissolution of the corporation and that the court was entitled to exercise discretion in such matters. 141 (1933). Eastern Shipping Lines. El Hogar Filipino. the designation is exclusive and service of summons on any other person is inefficacious. Revocation of License (Secs. 2. —oOo— CORPLAW. New requirements on existing corporations (Sec. 123 SCRA 424 (1983).
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