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Bus Org 2 – Corporation Code (Nov 8, 9, 14, 2007) : Fr.

Agustin Nazareno’s Lectures

Lectures: November – 8, 9, 14, 15, 16, 21, 22, 23, 28, 29 December – 5, 6, 7 November 8 Well, let us get a view of The Corporation Code of the Philippines, otherwise known as, Batas Pambansa Bilang 628. The old Corporation Law, known as Act 1459, took effect in April 1, 1906, one of the oldest laws in the country. It was effective for more than 70 years because BP 628, the Corporation Code of the Philippines, became effective on May 1, 1980. This was one of the first legal exports from the United States in the Philippines – the Corporation Law. Another, which is a legal export, is the Negotiable Instruments law. You have taken that up. That is the law with the only distinction as not having been amended by any Presidential Decree. You cannot improve the language of that law. You study it, you could memorize it. The old Corporation law underwent so many amendments. In fact, there are provisions such as Article 65-A inserted because of the evolution of corporate practice. Finally, in May 1, 1980, with the Batasang Pambansa, the old Corporation law was repealed by the Corporation Code of the Philippines. It was also around that time when Presidential Decree 902A was enacted, expanding the powers of the Securities and Exchange Commission, the oversight body of the juridicial personalities known as corporations. You know, do not make the mistake of thinking that all juridical personalities emanate from the Corporation Code. There are others. An example would be unions. They are registered with the Department of Labor and they become persons. They have juridical personalities. The HLURB also registers juridical persons – associations of those who want to acquire land for residential purposes and they still do not have land. They are normally called as “homeseekers”. However, if you are an ownership association, let us say Forbes Park Homeowner’s Association, you have to register it with the Securities and Exchange Commission. When you register with the HLURB, then, you are a juridical person. And you can enter into a contract with the government or for purposes of borrowing money as seed money to obtain land for residential purposes. So, there are many. But, the most prominent is the Securities and Exchange Commission. And during the time of President Marcos, the SEC was directly under the Office of the President. The SEC’s power was expanded. Certain adjudicatory powers were given to the SEC, which was subsequently taken away by RA 8799, the Securities Regulation Code, which was enacted not too long ago. It was enacted in 2000. Now, the adjudicatory powers of the SEC have been taken away. The SEC is now back to the supervision of the Department of Finance. It is now reporting to the Congress once a year. SECTION 1. Title of the Code. — This Code shall be known as "The Corporation Code of the Philippines." (n) If you read Section 1 of BP 628, Section 1 is the Title of the Code. Please take note that the article “the” is included in the name. It is part of the name of the name of the law – The Corporation Code of the Philippines. The name is very important. SECTION 2. Corporation Defined. — A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence. (2) Now, Section 2 gives you the definition. So, you should memorize the definition of a CORPORATION. It is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence. To understand corporation, you have to compare it with other business organizations. The standard business organizations, aside from the corporations, there are about 6. In business parlance, they are called business vehicles. They are as follows: 1. sole proprietorship 2. partnership 3. joint accounts 4. business trusts 5. joint venture 6. cooperative Let us go one by one.

1. SOLE PROPRIETORSHIP What is a sole proprietorship? It is a person who personally conducts business under his name or under a business name. So, the “business” is an organization composed of the proprietor himself and his employees but the business does not have a personality separate and distinct from the proprietor. A sole proprietorship does not possess a juridical personality and has no legal personality to file and defend an action in court. Single proprietorship ka, ngalan sa imong tindahan “Bohol Trading”. Unsa ngalan nimo? Juan dela Cruz. Karon wala ka na mubayad. Padad-an ka ug subpoena didto sa Bohol Trading. Mali. Single proprietorship man ka. You have to serve it in his residence. That is what happened in Anita Maguila vs. CA 387 SCRA 162 (2002). Just because a single proprietor has a different business name does not mean that his business is separate and distinct from the person of the sole proprietor. The business name gives you a license only to issue receipts under the business name. You have to register the business name with the Civil Business Registrar. But it is not a separate and distinct person. If you believe it as such, then, you will suffer the consequence of ignorance. So, the significance between the proprietor and the business and the name is as follows: 1. A proprietor’s true name is registered with the Civil Registrar upon birth. Pagtiyabaw niya kay nilusot na siya sa bilahan sa iyang inahan, mao na na. Ienter na iyang pangalan, ihatag sa Civil Registrar. 2. Now, he is in possession of his rights. He can now act with full legal effect. Then, he can, if he so desires, register his business name, other than his true name, with the Bureau of Trade Regulation and Industry. That is required by Section 1 Act 3383 (Business Names Law). Again, that is one of the oldest laws exported from the United States. Muingon ka “act”, kinsa man ang nag-act? It is the US sovereign, the US State that is acting. When it is a “Republic Act”, it is the Philippines already acting as a Republic. When you say PD, that is under the sovereign dominated by President Marcos. Why is it called “act”? It is called act because the state is a juridical person and the only way it can act is by legislation. If it needs money, it passes such legislation. If it wants to spend money, it passes an appropriation bill into law. Without the law, there is no act. Now, the country is divided in such a way that there is the law and, then, the president executes it, acts it for and behalf of the state because it is a juridical person. Hain man ang Republic? You and me are part of the Republic but we are not the Republic. If all of us, if God forbids, are struck by lightning and died, the Republic will still continue. Right now, we are part of it but we are not essential to it. Even if the State wants to declare a holiday, it has to pass a law. It has to go through legislation. It cannot do anything without passing a law. So, from the corporation point of view, that is the way by which a juridical person, like the state can act and that is the only way. A corporation is required to register a business name other than his true name. Juan dela Cruz – true name; Bohol Trading – business name. That would be called the firm name or the “style”. What is this style? This is not ang imong sinuotan. In business law, that is the name by which you are to be known to the public. Business name or style. That is technical. If a single proprietor, does not register his business name, what are the consequences? 1. A single proprietor cannot use or sign the business name to engage in any business or in any written or printed receipts of any evidence of agreement or any other document. Mupalit ka ug garab sa Bohol Trading. Kabalo ka unsang garab? (garab = sickle … hehe  Kanang sa sagbot. It is a sign of death. Jack the Ripper carries a garab.) Palit ka didto and ingon ka gai ko ug resibo. One of the employees there, nay papel didto, sulat and hatag nimo. Dili man to resibo. Ingon ka kanang official receipt. Ibalik ni nako sa akong amo, ihatag ni nakong resibo, dili siya mutuo na sakto ang presyo kay gibuhatan ra nako. That is the importance of an official receipt. For you issue that receipt, you have to print a receipt. And there are sequential numbers. Now, you go to the printing press, the printing press will not print official receipts for you unless you show your registration with the Business Trade Bureau. Hatag ka pud ug BIR registration, isulat na nila ug iphon. Padad-an pud nila ang BI Rug kopya ana. You take this for granted. You do not take this up in law school. If you have not registered as a sole proprietor, your business name you cannot put up. And you know that signage? That is subject to tax. The sign, the dimension of the signage, is subject to tax. Kinsa man ang mukolekta? The barangay. You take a look at your Local Tax Code. It is the barangay which can collect the tax on signage. They also tax on gaffers. You know what a gaffer is? Mananagat (?) .. kanang mag (?) sa higot sa tarip sa manok. (laluma oi .. hehe ) They are gaffers because kanang tarip is a gaff. The barangay can also collect tax from the gaffers.

Jazzie Sarona (3-SR)


the corporation has certain variations but its basic intent. Amot-amot sa tambal. Magturno-turno mo ug pagpantay. Take note that it is for a particular activity. the Supreme Court said that the prohibition for judges and prosecutors for engaging in commerce within their jurisdiction is no longer effective because that was under the old Code of Commerce and it was overturned when there was a change of sovereign. then. under Article 1772. they form a “corpo”. Judges cannot sit by the sidewalk and sell lanzones. sa pagbantay. in JOSIE BERIN vs. nah! How long did it take to build the Suez Canal? Suez Canal was built at the turn of the century. they have deemed to be inadequate in certain cultures. As to juridical personality: A joint account has no juridical personality while a partnership has a personality separate and distinct from the partners. Inc. Dili nang canal na naa ra dira  The engineer of the Suez Canal died before it was finished. Justices of the Supreme Court And then. gaffers are usually known as chicken surgeons. Now and then. Where is Sycip now? He is still alive. 1. It is as if you have no partnership. Ang corporate name ana kay Clinica Hilario. When you look at the financial statements of the San Miguel. As to the original incorporators. It is as if you are a single proprietorship because you are assuming the obligations of the partnership. Rule 5. Panama Canal was built after that. he registers his corporate name as Clinica Hilario. It is a simple business. And the public is made aware that they are dealing with a separate person because the partnership is precisely named as a limited partnership. 6. The last I heard he was in the ICU. These 2 projects made multi-millionaires out of Mr. What happens if someone dies who is a constituent of the organization? Is there any reorganization? There are certain enterprises that cannot let go and they simply become a continuing concern. And. in cuentas en participacion. sayon ra na. So. Registration with the SEC is necessary where the capital of the partnership is P3. justices and prosecutors to engage in commerce but it is not. the partnership may need not register anew under the Business Trades Law. He is very old but he has retired. it is supposed to be dissolved. But their names still appear because it has become a trade name.000 or more. sa pagkahago. If you are like Cojuangco who has 300 hectares somewhere near Digos. It is cuentas en participacion because it is only for that single transaction. Jazzie Sarona (3-SR) 2 . 3. Part of the reason why there is a corporation is to answer precisely that contingency. Who is Hilario? He is a spinster doctor who is already dead. There are natural persons that cannot be incorporators. But if it uses a different name.. What is his business name? Davao Doctor’s Hospital. But the corporation does not have yet its juridical personality because a corporation. the judge is enjoined and refrained from financial and business dealings that tend to reflect adversely on the court’s impartiality. For business enterprises. if they will lend you. 2. dealing with London or France. but also with the Bureau of Patents. But the limited partners are only liable up to the extent of their contribution. In a corporation. A joint account is an entity described in the Code of Commerce and it is still valid to a certain extent. that the moment one of the partners dies. Gorres and Velayo by. When registered with the SEC. That is all the registration they need. It is not just a partnership. So. Remember that even without registration. If one of the partners dies. which were actually used to build these canalS. the partnership is deemed dissolved because the trust is no longer present among them. They have to constitute another partnership. JOINT ACCOUNT What is a joint account? Cuentas en participacion. It is a contract by which two persons bind themselves to contribute money. Gorres and Velayo. His assistant has to take over. the moment a stockholder dies. chances are. At the end of the transaction. interfere with the proper performance of judicial activities. you have the corporation. you register it with SEC and the partnership is called a limited partnership (pwede man din hindi limited partnership di ba?). said that judges are disqualified from engaging into commerce within their jurisdiction despite the abrogation of Article 14 of the Code of Commerce. How are joint accounts differentiated from partnerships? 1. Kinsay bangko magpahulam nimo ana? In fact.02 of the Code of Judicial Conduct supplies the void created by the abrogation. Under such rule. they deduct all expenses from the proceeds and they divide their earnings according to their participation. Nobel. judges and prosecutors – they cannot be single proprietors. 2. ASUNCION 144 SCRA 77 (1982). For instance. Members of the Constitutional Commission such as the Civil Service. the partnership is over. no one can spray that all alone. You may understand that it was alright for judges. that is when they registered it as a trade name with the Bureau of Patents. For practical purposes. they will require all the partners individually in their capacity to sign as co-makers. And the basis of partnership is “_____ fidei?”. there are 6 vehicles that precede a corporation: sole proprietorship partnership joint account business trust joint venture cooperative Then. then. durian and all these fruits because that is engaging in commerce. PARTNERSHIP A partnership is defined under Article 1767 of the Civil Code. Even if they put out a sign and order receipts out of that name. Agustin Nazareno’s Lectures By the way. Ngano pa man magpartnership na higtan ra man gihapon? The bank does not want to be caught up in a bind that’s why it requires all the partners to sign in their individual capacity as comaker. President and Vice-President 3. 1. 9. Members of the Cabinet and their Deputies and Assistants 4. you plan the business. the general partner is liable without limit.Bus Org 2 – Corporation Code (Nov 8. Can you register a partnership such that the partnership will have a separate and distinct personality? Yes. Now. our first exam covers up to Section 22. 5. longer than the life of one individual. Pagkahuman pagspray. his shares of stocks are inherited by his heirs and the corporation continues. or industry to a common fund with the intention of dividing the profits among themselves. reviewed by Sycip. 14. In MACARIOLA vs. there is a managing partner and there are other partners who do not do the managing. But if the partnership uses a different trade name. Senators and Congressmen 2. he comes out in the newspapers. COMELEC 5. the utmost trust. the Supreme Court. its basic structure has not been changed whereas sole propertiorship. we took up sole proprietorship and partnership yesterday. Look at the definition of a partnership because in a partnership. But his business name is different. building a tunnel. Why? Subsequently. They should not. But judges selling their books? That is engaging in commerce. partnership. or increase involvement with lawyers or persons likely to come before the court. Its business name or style is registered with the Business Bureau. Article 239 of the Code of Commerce described cuentas en participacion as a contract whereby merchants may have an interest in the transactions of other merchants. The most common here. You know that when you took up partnership. naa ba daw na incorporated. 3. partnerships are common in the practice of profession. Now. Now. Tan-awa ra nang Davao Doctor’s Hospital. in single proprietorship. But it is not a corporation. It is now a trade name. provided that if they use that name. there will be mistakes because you cannot judge yourself wrong. Also. He has to register that. The corporation is last because the corporation is deemed to be the most sophisticated vehicle of human enterprise. and participating in the favorable or unfavorable results thereof in the proportion that they may determine. November 9 Just so you can look forward. So. they are now memories. But Gorres and Velayo. 4. It is based on a single transaction. But if it is involved with dealing with others. contributing thereto the amount of capital they may agree upon. that name must be registered. It is for a particular transaction. And it ends the moment the results of the transaction are achieved. He invented dynamite. That is the trade name that is registered separately. foreigners are disqualified. 2007) : Fr. a partnership exists. property. If you are the one who executes the project and you are the one who infuse capital into the project. for over the years now. for purposes of practice of profession. files its articles with the Securities and Exchange Commission. kining mag-ispray sa mga mangga. There are certain projects that they a long time. usa na lang ang nahabilin. JUDGE FELIXBERTO BARTE 385 SCRA 527 (2002). not only with the City. As we said. the natural person is registered at birth with the Civil Registrar. Like Sycip. you execute the business and then you review your execution and you judge whether it is a successful business or not. justices. with 10 years to do it. siya ra mu-execute . These are called inhibitions or prohibitions. iharvest then ibaligya nila. and you have there the name of the partners. with its corporate name. human isa ra ka tawo mubahat anang tunnel. If durian ra na o lanzones. it is no longer considered to be practical because it is based on confidence and trust. which assumes the liability.

with a common bond of interest. Trustor . they form a corporation. they constitute themselves into a corporation for the long term transactions that will follow. It is either exempt from tax or pays tax. SANITARY WARES MANUFACTURING CORP 180 SCRA 130 (1989). It files report. called the trustor. the partnership is dissolved. it means that the articles can only contain 15 incorporators. Wa jud na na-privatize. The person in whom confidence is reposed as regard the property is called the trustee. you buy that electricity. But for that transaction. a joint venture is actually a form of partnership and shall be governed by the laws on partnership. But. Now. There will be false sense of security because we produce electricity in here in Mindanao. then. It creates this business trust for the benefit of their employees who will retire. the old NAPOCOR minus the generating companies that generate electricity. the San Miguel Retirement Fund just bought several chunks of shares of stocks of San Miguel. That was pronounced by the Supreme Court in JG SUMMIT vs. under AUR BACH vs. that is Transmission Corporation of the Philippines. you look for a licensed trustee. Corporations can enter into joint venture agreements. Muingon gani na not more than 15. For the bidding process. Dugay na na na istorya pero wala pa jud na bid. That is the basis of creation. they form a joint venture. the whole of Mindanao should buy our electricity. SANITARY WARES MANUFACTURING CORP. One of the several chunks of shares of stocks of San Miguel is the shares of stocks that were in question and held by the Coco Bank – the Coco Fund. pagsugod. So. That is over P 100 billion. So. Who will you sue if you have a problem with the business trust? You sue the trustor. in a cooperative. then. San Miguel Corporation makes contributions to the trust fund. The minimum bid will be US $ 2. The moment a partner dies.Bus Org 2 – Corporation Code (Nov 8. Who will oversee this fund? Under the Bureau of Internal Revenue. You are dealing with millions. with the government. Because there are certain people who can get money for as long as it is not privatize.5 billion. 1. (I am confused. The electricity now. You watch the bidding of TRANSCO because it has taken 25 years. renewable for periods not exceeding 50 years for each renewal. There is a local counterpart and there is a foreign counterpart because the money involved is rather considerable. It is still open to question whether or not the future beneficiaries of that retirement fund can question the fact that it is buying shares of its own employer because it may be compounding the risk of a retirement fund. They contact their source of credit. according to the Civil Code. 6. In a partnership. spun-off from the old NAPOCOR. all general partners may be liable even up to the extent of their personal properties. They contact banks. As to the liability of the constituents: General partners are liable as to their properties for the payment of the debts of the partnership while the stockholders are liable only to the extent of their unpaid subscription for the payment of corporate debts. you submit your bid. wagtang imong retirement! But know that a particular business trust is not a person and yet it acts like a person. GUINGONA 323 SCRA 110 (1994). In such case. the one who oversees the fund. the make the estimates and to how much they will bid. Unsa man mahitabo sa imong amo. 4. Remember. for the bidding. They do not want the same interest controlling and generating electricity. conveys property to another. The trustor is San Miguel Corporation. In the bidding. Again. JOINT VENTURE The fifth vehicle. They can be a trustee and hold the money in trust for the beneficiaries. As to management: The general partners are all managers in a partnership where only the ostensible partners manages under such business in his own name under his individual capacity for the purpose of cuentas en participacion. It is not according to your shares. 2. The beginning incorporators are only 15. Joint ventures may be sought in a formation of a joint venture corporation. As to basis of creation A partnership is formed by mere agreement of the parties whereas a corporation is created by operation of law and its existence begins from the date of issuance of its certificate of incorporation. That is a joint venture. it must be an independent third party. 4. But it is not a person. They constitute themselves as a corporation. while a corporation may be organized only for 50 years. It has obligations and it has benefits. I will give you in example. for the benefit of the person called the beneficiary. A corporation may be formed by not less than 5 or more than 15. called the trustee. if you are in Davao and you hear that there is electricity somewhere in Albay that is cheaper than electricity in Maria Christina. reportorial requirements. COOPERATIVE A cooperative is defined by Section 3. It requires a community of interest in the performance of the subject matter. It is a legal relation whereby one person. these different corporations. As to the effect of death: Jazzie Sarona (3-SR) 3 . as an association of persons or companies jointly undertaking some commercial enterprise. your vote depends on the number of shares that you hold. 3. they form into a joint venture. The NIRC provides that such employers set aside a certain amount of money for retiring employees. kanang dagko na mga poste and high tension wires. a right to direct and govern the policy in connection therewith. 9. who have voluntarily joined together to achieve a lawful common social or economic end. You have to marshal your bid and then. it basically owns the assets of the whole sale distribution of electricity throughout the Philippines. The consent of the State is manifested by the issuance of the certificate of incorporation. Trustee – China Bank di ba? Pero sabi kay “sue the trustor. Normally. BUSINESS TRUST This is the fourth vehicle. 2007) : Fr. Republic Act 6938 (The Cooperative Code of the Philippines. the trustee and the beneficiary. If naay daghan na mucontribute. 5. 14. As to parties in a case: Only the ostensible partners or the person carrying the business can be sued by and is liable to persons transacting with the former. Agustin Nazareno’s Lectures 2. Then. Partnership is by mere agreement. Let it thru the TRANSCO and you just pay TRANSCO for bringing it to Davao. Once the bid becomes successful. that they can go for a long-term business activity like transmitting electricity wholesale. Foreigners are now allowed to join cooperatives under Article 26 of the Republic Act 6938. apil mo. That is what the Supreme Court said in AUR BACH VS. Technically. 4. In the bidding. Corporation requires the consent of the State. That is the difference as to a corporation. Let us put flesh into these elements: the trustor. That’s why you can see China Bank and Trust Company. they are forming joint ventures. the one who oversees the fund” ) 5. But in a cooperative. 3. making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles. So. Only three have met. It pays taxes. just for the bidding and just for themselves. Let’s say the winning bid is a particular joint venture. and therefore. the term of the partnership is bounded by the lifespan of each partner. What are the distinctions between a partnership and a corporation? There are several distinctions. As to the composition upon formation A partnership may be formed by two or more persons. and duty. pero dili namo apil sa Articles of Incorporation. then. be sued by the other parties. This is composition at its inception. A partnership can adopt a partnership name. A joint venture. as defined by KILOSBAYAN VS. We should strive for efficiency. As to term or existence Partnerships may be organized for an indefinite period of time. generally all contribute assets and share risks. CA 345 SCRA 143 (2000).SMC. Do not laugh at this but in the papers. it is the person. which may be altered by agreement to share both in profit and losses. Actually. The requirements are very tough (?). They pass on electricity to distributors like MERALCO and Davao Light and the ownership of MERALCO and Davao Light are divided so that there would be no control of such very essential commodity such as electricity. That is Article 1440 of the Civil Code. it is one person-one vote. they come together. By December. all over the world. is being distributed. And so. electricity producers will be competing against each other. That is what TRANSCO owns and that is what TRANSCO is going to bid this coming December. The trust retirement fund votes according to what the management tells you to vote. they have their own staff and hire people to prepare the studies. That is the difference between a partnership and cuentas en participacion or a joint account. then. It should not be that way. In a corporation. it must comply with the applicable nationalization laws of the Philippines. As to the business name: No commercial name common to all participants can be adopted in a joint account. Cojuangco could not buy it. it is an institutional person like China Bank and Trust Company. A cooperative is a duly registered association of persons. The moment you win the bid. from this particular fund. you have a joint venture. That is where they will get their retirement benefit. It was bought by the retirement fund. it is a qualified trustor. It can be a trustor in a business trust.

It cannot act for and bind himself. in him or her was reposed the entirety of power and governance. we are talking about express. 2007) : Fr. When the main structure of governance was royalty (kings). that is the difference of a corporation. 2/3 vote of the stockholders and finally. But there is a real person who owns that San Miguel Beer and if you act as if he does not exist because you have not seen him and you have not touched him. it is Mr. Those are the 5 aspects of a corporation that have legal implications. As to transferability of interest: A partner cannot transfer his interest in a partnership without the consent of the other partner while in a corporation. In evidence. We are real. b. That is the crux because a corporation is artificial. That is the same with a corporation. the corporation is subject to many limitations. San Miguel? Sign man nang San Miguel Corporation? Ang botelya sa San Miguel? Hain man nang San Miguel? That is why a corporation is an artificial being. they can bind the corporation if they have the authority of the law. And finally. As to its agents: Unless otherwise agreed upon. a corporation cannot be imprisoned. A corporation may sue and be sued. insolvency. And yet. the Trust Receipts Law. Let us say it is the trustor who violates the trust. A substance is based on agreement. we are talking about powers by consensus or by consensual agreement. you are made to sign blank checks or pre-dated checks. The king or the crown made the law. a person cannot become a partner without the consent of the other partners whereas a person can become a stockholder of a corporation with or without the consent of the other stockholders. will not bear. 9. of the Articles and by-laws and it may be implied from their power. the object evidence is useless. it means that it exists by fiction of law only or by concession of the state. What does this teach us? The importance of formality. Cojuangco and San Miguel are two different entities. But to the extent that the Board of Directors are independent as to the execution. then. That is the executive. All you have to do is you are supposed to deposit those proceeds to cover your checks. Some of these officers may be part of the Board. The Corporation Code of the Philippines). only the officers or the persons authorized by the Board of Directors may act for and in behalf of the corporation and bind the corporation. they are separate. You are familiar with this if you are an agent of Avon because you sign trust receipts. It is the Board of Directors who will appoint the officers who will run the corporation. 8. which are the stockholders. Criminal Liability – Since it has no physical existence. it cannot commit felony punishable under the Revised Penal Code. You need a corporation. Why will I lose control if I am the owner? And yet. 5. the advantage of a corporation is the same advantage of modern governance as distinguished from the governance of kings. It is incapable of intent. That is why there will be object evidence but if there is no one to present them in testimonial evidence. Kapila man ka liable ana? Kaduha! Issuing bouncing checks and violation of the Trust Receipts Law. 9. then. We exist and occupy space. Kawaton na lang nako ang beer. That was the pronouncement of the Supreme Court in TIME. That it is an artificial being That it has legal personality or judicial capacity That it is created by operation of law That it is in possession of the right of succession That it has powers expressly authorized by law or incident to its existence 2. 7. the stockholders have nothing to do with the day to day operations. It sells make-up with lead in it na makadaot dili lang sa aping pati pud sa baga nimo! What will 1. With partnership. Among them are: a. You sell these products. Shares are transferable even without the consent of the stockholders. If you act as if there is no corporation because you have not seen and you do not believe because you have not seen. the consent of the State. The Board of Directors are elected by the owners. The Ability to Act – A corporation can only act through natural persons. That is evidence. Cojuangco who signs for San Miguel. each partner may act for and bind the partnership while in a corporation. There has to be a liquidation proceeding and the State oversees that proceeding. As such. its Articles of Incorporation or as may be implied therefrom or as may be incidental thereto. Inc. in reality. 5. The personality of a corporation is as real as yours and mine because it has consequences in law. You are the agent and the trustor is Avon. or civil interdiction of a stockholder does not affect the corporation’s existence. The collective actions of the incorporators can bring the action into existence. Consequently. vs REYES 39 SCRA 303 (1971). distancing yourself from the ownership is the only way that you can arrive at a good judgment. having the right of succession and the powers. Hain man ang atsa na gigamit? Dara. 4. 3. they are the most obvious: You cannot do it by partnership that can be dissolved the moment a partner dies or a sole proprietorship who is viable only as long as he is alive. 3. to make sure that you would give to Avon the proceeds. It needs natural persons. a natural person is not deemed a corporation. there can be a fair judgment as to whether or not there has been a successful kind of business. “Know all men by these presents. Look at this special law. What are the attributes of a corporation? The definition says that a corporation is an artificial being created by operation of law. That is when ownership is different from operational control. Maayo kung mangga-mangga lang na. then. But Mr. with corporations. insolvency. Hence. Then. then. the crown judges whether the law was broken or not. nor touch a corporation. insanity or civil interdiction of a general partner dissolves a partnership while the death. then. IT IS AN ARTIFICIAL BEING What are the consequences of this attribute that a corporation is an artificial being? If it is an artificial being. you are told about testimonial evidence and object evidence. the partnership can exercise such powers. the stockholder may transfer the shareholdings without the consent of the other stockholders. legislative and judiciary. In the end. that’s why they are called as “attorneys-in-fact”. 1. Management is clearly defined in a corporation and centralized. 4. Mr. That is all in the king. The stockholders of the corporation are not liable for the debts and the obligations of the corporation. who is not artificial? You and I. etc. And that is present in a corporation.. What happens if you are undertaking the building of the Sues Canal or the underground railway spanning from England to France? There. the crown executed the law. it relies on natural persons in order to act. you will suffer the consequences of your act. It may be fined but such fine is a consequence of the officers being prosecuted for violation of a law. 1. your atsa will not take the stand and say “I hit the man on the head. enter into contracts. The man in the street or a man who is fresh out from the jungle cannot understand it.” All other evidence are based on testimonial evidence. attributes and properties expressly authorized by law or incident to its existence (Section 2. Cojuangco” xxx So. Form is importance because substance. insanity. If there is no objection and everybody agrees. nor heard. A corporation can only enter into a contract if its attorney-in-fact signs for it. If it is artificial. There is no importance in formality because there is no real substance to speak of. a duly organized corporation with business address at Pasig City.Bus Org 2 – Corporation Code (Nov 8.. As to scope of powers: A partnership may decide by agreement among the partners while a corporation may exercise only such powers as may be granted by law. Jazzie Sarona (3-SR) 4 . In the end. INC. 14. A corporation? It is real in its effects because it has rights and prerogatives. And you are given products for women to use. represented hereunder by its President. acquire properties under its name and its own right. Now. So. you have the policy maker is essentially different from the executor. It is an artificial being. implied or incidental powers. the owners can realize returns. But during the trial. And such persons must observed the formalities required by law through it directors and officers. executive and judicial power. What are the advantages of a corporation over other business organizations? If you go over the list. 6. The corporation continues to exist despite changes in ownership of the stockholders. There is a legislature. San Miguel? Wala man koy nakit-an na San Miguel. Agustin Nazareno’s Lectures Death. In its very existence. Then. We are not artificial. Now. As to the power to dissolve: A partner may dissolve the partnership by his act of withdrawal while a corporation cannot be dissolved without the approval of the Board of Directors and. 2. The officers of the corporation. this contract of sale entered into by and between San Miguel Corporation.

without prejudice to the civil liabilities arising from the criminal offense. e. or amusements that will serve to obviate the moral suffering he has undergone. A corporation has no right against self-incrimination. Self-incrimination is by testimonial evidence and can only be invoked by a natural person. So. A corporation may be held liable for tort for the commission of negligence of its agents. So. you are a Philippine Corporation. states that by way of exception a corporation can claim damages for besmirched reputation. This is 40% and this is 60%. In this test. in their individual capacity. If the controlling stockholders are enemies. The grandfather rule says. It is the Secretary of Justice opinion # 18 Series of 1989. then. d. Those who are controlling PLDT are technically Filipino. It is an exception to the general rule of the INCORPORATION TEST. Constitutional Protection of Artificial Persons – Just like natural persons. The Trust Receipts Law expressly provides that if the violation or the offense is committed by a corporation. 3. a corporation is protected against unreasonable searches and seizure. It is a juridical person. association or other juridical entities. the rules governing the liability of the principal for a tort committed are the same whether or not the principal is a natural person or a corporation. Why do we say that the “older” is Filipino? Because 60% of its ownership is owned by another corporation which is 60-40 Filipino. Where is its principal office? It is in another jurisdiction. The legal community in Manila is awaiting a rule because there is a stockholder who challenged PLDT. That is constitutionally protected. then. officers. as laid down in MAMBULAO LUMBER vs. only the number of shares constituting such percentage shall be counted as of Philippine nationality. its depository receipts are traded in New York. It is a corporation. That is an early ruling. But if the percentage of Filipino ownership in the corporation or partnership is less than 60%. BACHE AND CO. 2007) : Fr. As Amended). Be that as it may. So. vs. Generally speaking. Does the corporation have a nationality? The general rule established in the Corporation Code. This is called the grandfather rule. This is for purposes of investment. no senses. Now. The domicile test is where your principal office or place of business is situated. CA. The award of moral damages cannot be granted in favor of a corporation being an artificial person and having existence only in legal contemplation. it shall be considered as of Philippine nationality. does it have a nationality? Disassociate yourself from thinking that nationality has something to do with the color of your skin. MANERO and MAMBULAO LUMBER CO. Second. defines a Philippine national as (1) as a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines. employees or other officials or persons therein responsible for the offense. (INCORPORATION TEST) Under what laws were they incorporated? If under Philippine laws. the property of a corporation cannot be taken without just compensation. That old rule has been overturned. FILIPINAS COMPAÑEROS DE SEGUROS vs. 40% Foreign 60% Filipino 40% Foreign 60% Filipino 40% 60% Filipino Imagine that this is the entire capital stock of a corporation. then. What is the reason for this? The reason given is if this rule is not applied. the corporation must pass a resolution to object the use of such evidence obtained from the corporation’s premises in violation of the law. SMITH BELL vs. then it shares of stocks in another corporation shall be counted as 100% Filipino. the nationality of the corporation is determined by the state where it is domiciled. Now.Bus Org 2 – Corporation Code (Nov 8. 9. WAR TIME TEST – You took this up in Insurance. PNB. 14. That is why you penalize the natural persons that run the artificial person. which must be within the Philippines. The old rule is that a corporation since it has a name and you besmirch such name. Nationality is a legal right. The Foreign Investment Act of 1991 (RA 7042. suppose these shares of stock of 40% are owned directly by Filipino citizens. even if you are organized abroad and registered abroad but you are registered to do business here in the Philippines under our Corporation Code and your capital stocks are 100% owned by Filipinos. And this corporation is 40% foreign and then 60% Filipino. which is a British Virgin Island Corporation. partnership. if the majority of a corporation’s ownership is Filipino. STONEHILL vs DIOKNO 20 SCRA 383 (1967). Who will go to jail? The Trust Receipts Law says it will be the officers or employees or other persons responsible for the offense are liable to suffer the imprisonment. the veil of corporate fiction will be pierced and the nationality of the corporation will be based on the citizen of the majority of the stockholders in times of war. you are a Philippine corporation. this 60% Filipino will be considered as Filipino. CA 83 SCRA 237 (1978). it has no feelings. You cannot be made to sit on the stand and offer evidence against yourself. An officer of a corporation cannot refuse to produce corporate records on the ground that it may incriminate him or the corporation. It received a passing approval by the Supreme Court in PALTING vs. namely. The new rule is ABS-CBN BROADCASTING CORP vs. NATIVIDAD 40 PHIL 136. The 60% capital is owned by another corporation. there are exceptions to the general rule. You cannot imprison an artificial person. Natural person has a right against self-incrimination. during war time. That is what the Supreme Court said in ABS-CBN BROADCASTING CORP vs. then. Liability for Tort –A corporation is civilly liable in the same manner as natural persons for torts. Agustin Nazareno’s Lectures happen? Will Avon go to jail? But Avon is an artificial person. CONTROL TEST – This is the third corporation. However. where is it incorporated? It is incorporated in the British Virgin Islands. That is no longer the rule. So. Moral Damages – The old rule. That is the general rule. You may be incorporated in the British Virgin Islands but your principal office may be in Hong Kong and your shares of stocks may be traded in the Hong Kong Stock Exchange and your depository receipts may be traded in New York or it may be traded also in Zurich. INC 18 SCRA 924 (1966) What does the grandfather rule say? This is to determine control of corporation. c. (3) Grandfather Rule – You look it up in the Secretary of Justice website. What are these exceptions? There are at least 3: 1. establishments may not be considered as insurable interests. PCGG 150 SCRA 181 (1997). depleting the resources of the country.. RUIZ 37 SCRA 825. vs. it is possible for the enemy to send a representative inside the country and form corporations that will make so many insurance claims for destruction during the war. The statement in PEOPLE vs. That is the ruling of the court in PNB vs. 30 % is owned by First Pacific Corporation. which is in Hong Kong. SAN JOSE PETROLEUM. The grandfather rule has an indefinite reach. INC. no emotions. DOMICILE TEST – This is the second exception to the Incorporation Test. Section 14 of the Corporation Code (3) requires that the place of where the principal office of the corporation is to be located. at least 60% of the capital of which is owned by Filipinos. It cannot be invoked by a corporation. A corporation cannot claim moral damages at all. officers of a corporation cannot validly object to the use in evidence against them of documents. (2) a corporation organized abroad and registered as doing business in the Philippines under the Corporation Code in which 100% of the capital stock is entitled to vote belongs to the Filipinos. under what country or what laws were you incorporated. A corporation is entitled to equal protection. the penalty provided for in the said law shall be imposed upon the directors. it can ask moral damages. That is the ruling of the court in BATAAN SHIPYARD AND ENGINEERING. PNB is obiter dictum. Where are its shares traded? Shares are traded. a corporation is protected against unlawful discrimination and they can only be proceeded against by due process of law. diversion. vs. that it is considered a national of the country where it was incorporated. papers and things seized from the office and premises of the corporation since the right to object to their admission in evidence belongs exclusively to the corporation to which the seized effects belong and may not be invoked by the corporate officers in proceedings against them. Why do we say that it is 60%? Because it is owned by another corporation that is 40% foreign and 60% Filipino. Fourth. CHRISTIAN 89 PHIL 54 (1954). That is the DOMICILE TEST. Moral damages are awarded to enable the injured party to obtain means. read the case na lang siguro ) 2. The domicile of the corporation is where its principal office or place of business is situated. then. Shares belonging to corporations or partnerships. CA 301 SCRA 572 (1999). (hindi ko masyado gets ang concept na to . If a corporation is a person. It Jazzie Sarona (3-SR) 5 .

That is our stance now. The Supreme Court said that the agreement of the shareholders. If you allow foreign entities to come in and recruit. realty corporations and other corporations who own private lands (Article XII. The argument of the present management of PLDT is that the entirety of the shares. And then you have an intervening corporation and then. The following are allowed with 25% foreign equity: 1) Private Recruitment Agencies. according to this case. You can enter into an agreement with that somebody. therefore. YOU READ THAT CASE BECAUSE THAT IS VERY INTERESTING! Common sense will tell us but that is not how the law interprets it. 9. If the stockholders. That somebody is a Filipino citizen. you can assign it to somebody. Now. Very seldom does a holding corporation directly own shares of an operating corporation. 90% or a good 80% of the shares of stocks are preferred shares. So. You will not have BenPres Securities owning Meralco. If you are licensing the exporting of manpower. A tier is a step. The last category we talked about were corporations allowed up to 25% foreign equity. You have an intervening corporation. How about the 20%? Who owns it? Nippon Telegraph and Telephone Company in Tokyo. Why? Because Marcos wrote a decree that if you want a line to be installed. Section 2 of the Constitution). 2) Construction and repair of locally funded works (Section 1. Corporations are normally tiered. RA 7183) Those must be entirely Filipino. But the one who is running it is a Filipino. November 14 Last week. You can now own real property. What happens if the ownership is baliktad? 40% Filipino and 60% foreign? What will become of the 60% of the shares? It will be 40% x 60%. corporations with up to 40% of foreign equity. Section 7 of the 1987 Constitution). The controlling portion of stocks is actually foreign. You have the holding corporation. Jazzie Sarona (3-SR) 6 . The corporation at issue here is PHILSECO. In other words. common and preferred. it is part government). non-voting. Holding Corporation Intervening Corporation Operating Corporation This is what you call tiering. the retirement fund of PLDT owns another 4%. it put its block of shares for auction for the highest bidder to purchase. What are the fully and partially nationalized corporations? The following are corporations were no foreign stockholders are allowed: 1) Mass Media (Article XVI. But the Migrant Worker’s Act provides that 5 years from the enactment of the law. it is provided that it should be 75% Filipino. if PHILSECO still owns land. 2. shares were surrendered and it was finally under the PCGG. Section 11 of the Constitution) 2) Retail Trade Enterprises with paid-up capital of less than P 2. And trade should no longer be limited. SAN JOSE PETROLEUM. It is a Philippine shipyard in Subic. which used to be a subsidiary of Philippine National Bank. under Article 27 of the Labor Doce (PD 442) and construction and repair of government-funded roads under Section 1. the right of first refusal can be validly assigned to a qualified Filipino entity in order to maintain the 60%-40% ratio. that is 54%. The exploration. Agustin Nazareno’s Lectures shares of stocks are traded in Hong Kong. the whole system of licensing. The one who appears is a Filipino. No. they would file habeas corpus proceedings to free them because a criminal law repealed can be retrospectively applied in favor of the accused. according to the one who challenged. whether for local or overseas Employment Under the Labor Code. That is private recruitment and entities. this Filipino ownership must be determined on the voting shares and not the entirety of the shares. It is just that no president has implemented it. Repair. This is called the grandfather rule. you are a foreigner and you are granted by the law to bid and in so bidding. PD 449) 7) Manufacturing. to mutually grant this right to each other as one of the terms of the joint-venture agreement (JVE) by itself does not constitute a violation of the provisions of the Constitution limiting land ownership to Filipinos and Filipino corporations. Stockpiling and Distribution of Nuclear Weapons (Article II. If the Supreme Court will change its rule. 60% Filipino. all those prisoners who are serving illegal recruitments. Commonwealth Act 541. Corporations engaged in operation and management of public utilities (Article XII. You will need a corporation that will intervene that will exclusively own the holdings of the operating corporations. the entire ownership is considered Filipino shares of stock. So. That within 5 years from the effectivity of the law. So. it turns into a corporation into a foreign corporation. The smallest foreign equity allowed in an enterprise is by Republic Act 3846. Kawasaki says no need because we wanted to exercise our right of first refusal. That is how PLDT financed the expansion of their line. As PHILYARDS correctly puts it. NRDC. Although in that case. 2007) : Fr. A corporation is a Philippine corporation if the majority of the entirety of the shares. This is still a Filipino corporation that can engage in the exploitation of natural resources. Section 3) 5) Utilization of Natural Resources (Article XII. Gokongwei. Gokongwei lost and was not able to purchase the PHILSECO Shipyard. you sell Meralco Securities Corporation.5 M (Section 5. So. that is 64%. Section 8) That is a big joke  8) Manufacture of Firecrackers and Other Pyrotechnic Devices (Section 5. development and utilization of utilization of natural resources (Article XII. The original Articles of Incorporation provide that shareholder may only sell their shares to third parties after granting the right of first refusal to existing stockholders. by itself. PLDT is a Filipino corporation. Only 24% of the 60% shall be deemed to be Filipinos. Pangilinan. 40% foreign equity. is owned by the Filipinos because the preferred shares are owned by the subscribers. objected and said that you cannot exercise your right of first refusal because by doing Diwalwal (RA 7076. voting and non-voting. then. whether for local or overseas. then. Get it? Otherwise. Now. Is that using a dummy? According to the Supreme Court. all you have to do is sell these (Meralco Securities) and you would have sold these (Meralco). then. These corporations may engage in : 1. KAWASAKI and NRDC. is at least 60% owned by Filipinos. And yet. RA 8762) 3) Private Security Agencies (RA 5487) 4) Small Scale Mining . we talked about various corporations as to percentage of equity. Why? In case you sell these (Meralco). you must buy preferred shares from PLDT. common and preferred. you are in violation. the nationality of the shares of stocks is determined by the nationality of the controlling shares. Shares of stocks owned by a corporation. This is because 40% + 24%. 14. It is preferred. Section 11 of the 1987 Constitution). Commonwealth Act 541 and corporations engaged in construction and repair of defense-related structures under Section 1.Bus Org 2 – Corporation Code (Nov 8. placement and recruitment shall be abolished. 3. then. That is the wording of the law. both preferred and common because the law does not distinguish. is controlled by Filipinos. it would be voting shares and they will overturn PALTING vs. The issue now is. that is a form of trade. the entire PHILSECO will become foreign owned. Mr. you have to break this mother corporation and it is a legal process which is more cumbersome. there would be no more restraint because there is supposed to be free access to manpower. CA 450 SCRA 169 (2005). And then. This transfer. which is supposed to be the biggest telephone company in the world. therefore. who was one of the bidders. wanted to liquidate. the operating corporation. It was not really necessary to the case. Section 2 of the Const) 6) Cockpits (Section 5. So. Commonwealth Act 541) 3) And construction and repair of defense-related structures (Section 1. Now. Here is the case of JG SUMMIT HOLDINGS vs. Private Radio Communications Network allows 20% foreign equity. After the regime of Marcos. absent proof of any fraudulent intent on the part of KAWASAKI. When that this is applied. does not amount to a violation of the Anti-Dummy Laws. if you count the entirety of the capital stock. But it is the law – The Migrant Worker’s Act (RA 8042). the moment you want to sell Meralco (operating corporation). That is what Gokongwei raised when PCGG awarded the shares to Kawasaki. Commonwealth Act 541) But there is no violation if it is the foreign sovereignty who builds the facility like what the US Air Force did in Zamboanga. in other words. The original owners of PHILSECO were KAWASAKI and NRDC (National Development Corporation. which already made some money. So. We now know the grandfather rule. Its main office is in Hong Kong and it has depository receipts traded in the New York Stock Exchange. it was just an obiter dictum.

when the corporation’s affairs will be liquidated. You buy a piece of property and instead of putting it in your name. Register of Deeds Quitain refused because the bishop was a foreigner. the property will be under the name of Thibault. it is you who put everything there. So. 5. Sa panahon na pagtapos na. but in a personal capacity as a borrower because he signs as a borrower. This is one of the landmark cases in land title. he is the owner of FHM magazine (). RA 5980. he is the owner of Robina. The lawyers tried to convince her but Register of Deeds Quitain still refused. you make your children and your wife as stockholders in the formation of the corporation. Now. From then on. And the system adopted by the Catholic Church is highly radical. Let us say you set-up a corporation because you know the vagaries of life and the uncertainty of owning things. they get the approval of the President of the Republic. vs. There is a specific section in the Corporation Code where the elder.Bus Org 2 – Corporation Code (Nov 8. the corporation is able to liquidate its property. The Bishop wanted that land for a cemetery. that a corporation has a separate personality on its own. they raised the matter on consulta to the Land Registration Commission. That one person can be constituted as a corporation. when you see John Gokongwei walk down the street – he is the owner of Robinson’s. It is worth emphasizing because in common parlance. IT HAS A SEPARATE PERSONALITY The second attribute is known as the DOCTRINE OF LEGAL ENTITY. 2. Maybe the corporation was just capitalized at P 1M. This is also a landmark case with respect to corporations. SO vs. Financing companies (Section 6. he signs for and in his own behalf. there were already bishops then. Finally. Investment houses (Section 5. he or she is the corporation. The stockholder is a junior creditor compared to business transaction creditors of the corporation. What is important is the nationality of most. It means that a corporation is a juridical person with a personality separate and distinct from that of its shareholders. and Corporations engaged in sauna and steam bath houses. is just a focal point for purposes of handling the land so that it will not be taken over by any other Catholics or non-Catholics. kahubo ka sa imong karsones!  That is the meaning of inchoate. So. There is a peculiar ruling that the SC says that this kind of corporation does not have a nationality. 6. his interest is inchoate. There is a separate distinct personality between the corporation and you. This ruling has been reiterated in Republic vs. What are the consequences of this concept that a corporation is a separate legal personality from that of the stockholders? a. As to property – The stockholders are not the owners of corporate properties and assets. of rice. you do not have a direct interest in the corporation. mao na ang bahinbahinon sa stockholders. 14. P42 to $1. namely. Agustin Nazareno’s Lectures 4. CORP. b. corn and it s byproducts. you will get nothing. Hence. who by a Board Resolution is asked by the corporation to represent it? He signs for the corporation and he signs for his personal capacity. Jazzie Sarona (3-SR) 7 . When the Apostolic Administrator went to the Register of Deeds to register the transaction and be issued a title. 2007) : Fr. as amended by RA 8366). it gained acceptance in Europe. As to liability The stockholders are not personally liable for the debts of the corporation and vice-versa. RA 8762). Why is it? Actually. if not all. that the real owner is the congregation. and secondly. sell them. satisfy all its just and legal obligations and there would still be some money left to give to you in proportion to your holdings of shares of stocks. except retail. How about corporations where 60% foreign equity is allowed? What kind of corporations are these where 60% foreign equity is allowed? 1. Does it happen sometimes when borrowing. CA 195 SCRA 740 (1991) What do you mean by inchoate? The interest of the stockholders in the properties of the corporation is inchoate. The bishop is the ruler. And then. The stockholders are not liable for corporate acts unless otherwise provided for by law. get cash. How about me? I am the real owner. What if nothing is left? You hope that there is something left. not as a stockholder. It is not a democracy. He signs twice! He signs for and behalf of the corporation. pay all its debtors. if the corporation does not pay the debt or cannot pay the debt. It was then carried on in common law in England and the US. Should it happen that the liability far exceed your assets. Corporations engaged in the culture. you will see there the long discussion of why is there such a thing a corporation sole. So. It hangs upon a condition that (a) at the time of the dissolution of the corporation. created that entity known as a corporation sole. The Land Registration Commission said that the Register of Deeds is correct. What is the authority there? It is the landmark case of Roman Catholic Apostolic Administration vs. There are conditions that have to be met and because you are uncertain to the conditions. Can you not file yourself an eviction suit in your name because you. (Section 5. all the conditions must be met. Just to remind you that the Register of Deeds at that time was the mother of Judge Quitain. The RVM Sisters were given land by the Sorianos in Catalunan Grande. The corporation must pay its debts and whatever is left. In this case. the high priest is constituted by his office as the corporation and by himself or herself. we go to the second attribute of a corporation. Register of Deeds of Davao City 102 PHIL 596 (1957). maabot sa pila katuig. the corporation sole is resorted to in order to accommodate the Catholic Church. The sisters and the bishop agree to barter or exchange land. yourself. P55 to $1. The lawyers asked if the corporation sole the owner or is he not just the administrator? So. The corporation sole has no nationality. stand to be prejudiced because you are the number one contributor? What is the definition of real party in interest? He who stands to be benefited. But. the stockholders have no personality to intervene a collection case covering the loans of the corporation. Suppose he is also the officer of the corporation. This is because the real party in interest is the corporation. But that is ordinary language shorthand and it is full of legal loopholes because according to the Supreme Court. That is why your interest is inchoate. even if you are 99% stockholder. Your interest in the property of the corporation is inchoate. he is the owner of Cebu Pacific. So. you put it in the name of the corporation. PD 129. CA. But that it be the means of passing on. Let us say you have a big piece of property and suddenly. milling. PD 612). he is the owner of Esquire magazine. Why can’t you not be the real party and put your name there? That is the argument of the So Family in the SO vs. That is asserted by BERMAN ENVIRONMENTAL DEV’T. No foreigner can own land. Now. They drew out a Deed of Exchange. It’s good for you to go over the case. That corporation has no nationality. And the administrator. you can execute against his personal capacity because he is obligated to the bank to the extent of his personal capacity because he also signed.Section 15. You set-up a corporation for purposes of preserving your wealth. Subsequently. The interest of the stockholders over the properties of the corporation is merely inchoate. before lending to the corporation. the land. Why is it that one person can be called a corporation under corporation sole? It’s like a square circle! You incorporate but usa ra kabuok. That’s why Napoleon. massages and similar activities (RA 7042). they brought it as a question of law before the SC. require the corporation to make its biggest stockholder be a cosignatory of the loan? It happens. She was one of the earliest lawyer-graduate of the University of the Philippines. the bishop. It also means that the stockholders of the corporation are different from the corporation itself. Because even before the Republic came into being. Villanueva 114 SCRA 875 (1982). training. the value of the corporation grows. in his Napoleonic code. One year ago. Kung sigeg pangutang ana kay kusog ang piso. They were arguing that the nationality of the bishop or the elder or the chief priest is irrelevant. This biggest becomes liable thereof. processing. 2. It is the congregation. as amended by RA 8556) – They will be allowed up to 60% foreign equity if in excess of the 40%. production. CA 167 SCRA 514. She was a good Catholic and the Apostolic Administrator of Davao City was Monsignor Thibault. she refused. the corporation sole. mubalik na sad P 55. The assumption is there is something left. That is the history. of the Catholics or the congregation. paid-up capital. The corporation is the person who owns it. Corporations engaged in the adjustment business (Section 323. PD 194 . The corporation must see to it that you get nothing because its first obligation is to pay its more senior creditors. What is that corporation? It is a corporation sole. Property is contributed by you. But you keep getting properties. a corporation made up of only one person. indefinitely by succession. it is invaded by squatters. It is a contradiction of terms. 9. Father Thibault was French and you are a corporation sole. That was upheld by the Supreme Court.

The corporation’s property will answer for him. In the original filing of the case. When you appeal. INC. where I am filing this case. Robinson’s. Now. the English is atrocious. Even if you signed there. The president signs in the appeal because he was authorized by the board to make the appeal. What is that exception? If he has unpaid subscription to the corporation. It is an unhappy(?) choice of idiom. As to forum shopping certification We are still in the consequence of separate legal personality. (k) observed. The party. when is piercing the veil applied to make a parent corporation liable for obligations of the subsidiary corporation? They are called subsidiary because JG Summit owns more than 50% of the outstanding capital stock. the law will regard the corporation as an association of persons. once you are a subsidiary. then. The exception is when the notion of legal entity is used to defeat public convenience. As to you personally. justify wrong. The one that was “skipped” was letter (f). And that begins only when you have more 50% of the outstanding capital stock of the corporation. Piercing the veil. the case has been final and executory since you did not appeal. (i) The parent corporation uses the property of the subsidiary as its own. The corporate veil cannot be used to shield an otherwise blatant violation of the prohibition against forum-shopping. the president was not noted (?). the subsidiary is described as a department or division of the parent corporation. JG Summit is John Gokongwei Summit. But he has not. we come to the exception to the rule that a corporation has a separate and distinct personality from that of its stockholders. the real one liable. there are allegations that the president is acting in bad faith. technically speaking. CA 252 SCRA 259 (1996). it is called a subsidiary. We are not talking about non-stock here when we are talking about parent and subsidiary corporations. against criminal liability. CA 443 SCRA 510 (2001). DIOKNO. (16:40) The general rule is a corporation will be looked upon as a legal entity separate and distinct from its stockholders. Now. Subsidiary Parent Corporation Subsidiary If the owning corporation (parent corporation) owns less than 50% of the outstanding capital stock of the subsidiary corporation. That is a landmark case. So. If the parent corporation owns 95% of the outstanding capital stock of the subsidiary. no one can really own 100% of the shares. (d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation. 362 SCRA 216 (2002). The Labor Arbiter hands down his decision and makes the corporation liable and also the president personally liable for whimsical and malicious acts in dismissing the employees. Jazzie Sarona (3-SR) 8 . e. (j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary. c. MILWAUKEE REFRIGERATOR TRANSIT CO 142 Federal Reports 247 (1905). 50% or less affiliate. you can remember it. So. (e) The subsidiary has grossly inadequate capital. (h) In the papers of the parent corporation or in the statements of its officers. as the same is amplified later on in MR HOLDINGS LIMITED vs. It is the complainant. the law will disregard the corporate entity.Bus Org 2 – Corporation Code (Nov 8. 2007) : Fr. Here is a case between a corporation and the union. What is the exception to that rule? The exception is the so-called DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY. But he forgot to sign in his personal capacity. you were not signing for your personal capacity but for the corporation. (c) The parent corporation finances the subsidiary. There is only one exception. you must at least have 5 stockholders. in the certification of non-forum shopping. The formal legal requirements of the subsidiary are not *Only 10 were mentioned in class but there were 11 instances mentioned in the cases. Who would ever pierce the veil? Nobody pierces the veil  Sometimes decisions have difficult formulations. The appeal of the corporation is perfected but your appeal personally is not perfected. in a verified statement. This is what the SC said: When the notion of the legal entity is used to defeat public convenience. COLLECTOR 62 PHIL 895 (1936). He must appeal to since a judgment against him was made. it is not called a subsidiary. unpaid subscription. protect fraud or defend crime. MANILA GAS vs. RITRATTO GROUP. As to tax exemptions Tax exemptions in favor of a corporation cannot be used by the stockholders. And the subsidiaries are Cebu Pacific. we go now to what we are considering – the doctrine of piercing the veil. (g) The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or by the parent corporation. his personal property cannot answer the debt for a corporation. That is the holding in STONEHILL vs. your financial statements will be consolidated with the holding or parent corporation. That is what the Supreme Court said. Now. but lacking the essential requirement of certification of non-forum shopping. This is taken from the 1905 case of US vs. but take their orders from the parent corporation. It is called an affiliate. 9. protect fraud or defend crime. That is what the SC said in the case of FIRST PHILIPPINE INT’L BANK vs. Why is it wholly-owned when it is 95%? The law recognizes that in order to organize a corporation. The English is overlooked. 14. (b) The parent and subsidiary corporations have common directors or officers. Agustin Nazareno’s Lectures Had he not done that (?). justify wrong. it has stuck. He does not have to file a certification of non-forum shopping. When can we disregard the subsidiary and go straight to the parent and say that the real party in interest. You know very well that any party who files a case in court must submit a certification of non-forum shopping. He has already been adjudged in the decision. You have to read the case of PNB vs. What is an example of a holding corporation? An example of a holding corporation is JG Summit. And the implication in accounting is. That is the case of PET PLANS INC vs. Read that so you can use that in Remedial Law. not Cebu Pacific? When can we do that? These rules apply when the issue is between the parent and the subsidiary. Universal Robina and all the different subsidiary corporations JG SUMMIT Cebu Pacific Robinson’s Universal Robina d. The only value of this is that because of its awkwardness. then. and they can execute from his personal property up to the extent of his unpaid subscription. (f) The parent corporation pays the salaries and other expenses or losses of the subsidiary. All or a combination of these will justify piercing the veil of the corporate entity of the subsidiary and going straight to the parent corporation. Now. But because they are hard-pressed for time. And the president is impleaded in his official capacity as the president and also. That’s why 95% wholly-owned. is JG Summit. you have to execute a certificate of non-forum shopping. As to rights Rights pertaining to the corporation cannot be invoked by the stockholders or officers. we are talking about stock corporations. it is called wholly-owned corporation. What does the SC say? That is a fatal error. BAJAR 380 SCRA 617 (2002) The SC says: You apply piercing the veil of a corporate entity between a parent corporation and its subsidiary when any or a combination or all of the following factors are present: (a) The parent corporation owns all or most of the capital stock of the subsidiary. your appeal has not been perfected. The creditors of the corporation can execute up to the extent of his subscription. etc. states that there is no other case pending between the same parties in any other court except here. If the parent corporation owns more than 50%. they appeal. or its business or financial responsibility is referred to as the parent corporation's own. Because there is the beginning of the formulation of that doctrine. You think you appealed. even if the latter owns substantial majority of the shares in that corporation.

by itself. Thou must sweep the cobwebs from thy mind before they imprison thee 8. Agustin Nazareno’s Lectures However. is not enough to justify the application of piercing the veil. The issue here is if the corporation an alter-ego of this natural person so that we will disregard the separate personality of this corporation and go straight to him. you have the burden of proof because the general rule is that the corporate has a personality separate and distinct from the parent corporation or from its majority stockholder. If you claim that. Thou must smile in the face of adversity until it surrenders 6. or a dishonest and an unjust act in contravention of plaintiff's legal right. When can we pierce the veil of corporate entity? There are several factors to be considered. 2007) : Fr. Thou must realize that plans are only dreams without action 7. that is not enough reason. they hold office in the same building. suppose we are in another situation. ANDRADA ELECTRIC AND ENG’G COMPANY 381 SCRA 244 (2004). but domination. Thou must never forget that it is always later than you think 10.Bus Org 2 – Corporation Code (Nov 8. We are in a corporation and person situation. 9. They have the same customers. that is the exception. MEJIA 326 SCRA 738 (2001) Now. will or existence of its own. 402 SCRA 339 (2003). That is the pronouncement of the court ESTELITA BURGOS LIPAT vs. but of policy and business practice in respect to the transaction attacked. Thou must prepare for darkness while traveling in the sunlight 5. but complete domination — not only of finances. Commandments of Success (Greatest Success in the World – Og Mandino) 1. So. in no case. Thou must chart thy course with care or ye will drift forever 4. (1) Control — not mere stock control. it is the proximate cause of the loss complained of. Thou must lighten thy load if ye would reach thy destination 9. Thus. domination must have resulted to a violation of the law. ET AL. Remember. opened by a majority stockholder and the business operations of the two corporations are merged. a corporation can be considered as a mere alterego or adjunct or instrumentality of the other because the stockholders are the same and the manager or the person who controls the corporation is the same and the daughter of the majority stockholder. to invoke validly the doctrine of piercing the veil of corporate entity. P owns 99% of the capital. We are not in a parentsubsidiary situation. by itself. That pronouncement of the SC is in FRANCISCO vs. Hence. Thou must never strive to be anything but thyself  Jazzie Sarona (3-SR) 9 . 14. And second. the adjunct corporation’s obligations are the obligations of the other corporation. Thou must learn that with patience ye can control thy destiny 3. (2) Such control must have been used by the defendant to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty. PACIFIC BANKING CORP. piercing the veil of corporate entity – when you disregard the separate and distinct personality of the corporation. And third. Thou must labor each day as if thy life hung in the balance 2. and (3) The said control and breach of duty must have proximately caused the injury or unjust loss complained of. fraud or perpetuation of a statutory violation. Just because the mother corporation owns 95% of the capital of the subsidiary. according to PNB vs. the SC says that ownership of substantial portion of the outstanding capital in a corporation. There must be not just control. must have been such that the corporate entity as to this transaction had at the time no separate mind.