TAYAG v.

BENGUET CONSOLIDATED
FACTS: Idonah Slade Perkins who died in 1960 left two stock certificates that she owned in a
Philippine Corporation, Benguet Consolidated. Said certificates were in the possession of Perkins
domiciliary administrator, Country Trust Company of New York.
Mr. Tayag, was appointed as the ancillary administrator of the estate of Perkins in the Philippines.
A dispute arose between the domiciliary administrator in New York and the ancillary
administrator in the Philippines as to which of them is entitled to the possession of the stock
certificates in question.
In 1964, the CFI of Manila ordered the domiciliary administrator to produce and deposit the said
certificates with the ancillary administrator. The domiciliary administrator did not comply with
said order so Tayag petitioned the court to issue and order declaring the certificates lost. The
trial court granted said petition.
Benguet Consolidated appealed from the trial courts decision arguing that the certificates
cannot be declared lost because the same are existing in the possession of the domiciliary
administrator.
ISSUE: Whether or not the stock certificates of Benguet Consolidated may be declared as lost by
the court despite said corporations refusal.
RULING: Yes. For Benguet Consolidated is a Philippine Corporation owing full allegiance to the
unrestricted jurisdiction of the local courts. Its shares of stock cannot therefore be considered, in
any wise, immune from lawful orders.
The basic postulates of Corporate Theory:
A corporation is an artificial being created by operation of law. It owes its life to the state, its
birth being purely dependent on its will. As Berle so aptly stated: "Classically, a corporation was
conceived as an artificial person, owing its existence through creation by a sovereign power." As
a matter of fact, the statutory language employed owes much to Chief Justice Marshall, who in
the Dartmouth College decision defined a corporation precisely as "an artificial being, invisible,
intangible, and existing only in contemplation of law."
A corporation is not in fact and in reality a person, but the law treats it as though it were a
person by process of fiction, or by regarding it as an artificial person distinct and separate from
its individual stockholders. It owes its existence to law. It is an artificial person created by law for
certain specific purposes, the extent of whose existence, powers and liberties is fixed by its
charter." Dean Pound's terse summary, a juristic person, resulting from an association of human
beings granted legal personality by the state, puts the matter neatly.
There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote
from Friedmann, "is the reality of the group as a social and legal entity, independent of state
recognition and concession."

ANG PUE v. SECRETARY OF COMMERCE AND INDUSTRY

FACTS: Ang Pue and Tan Siong, both Chinese citizens, organized the partnership Ang Pue and
Company for a term of 5 years, extendible by their mutual consent. Meanwhile, RA 1180 was
enacted to regulate the retail business, providing that a partnership not wholly formed by
Filipinos could continue to engage in retail business until the expiration of its term.

Ang Pue and Companys five year term expired and so the partners presented amended articles
of partnership for registration in the office of the SEC but the latter refused registration on the
ground that the extension was in violation of RA 1180.
ISSUE: Whether or not Ang Pue and Tan Sion may extend the term of their partnership without
violating RA 1180.
RULING: No. To organize a corporation or a partnership that could claim a juridical personality of
its own and transact business as such is not a matter of absolute right but a privilege which may
be enjoyed only under such terms as the State may deem necessary to impose.
In the present case, as already stated, when the partners amended the articles of partnership,
the provisions of Republic Act 1180 were already in force, and there can be not the slightest
doubt that the right claimed by appellants to extend the original term of their partnership to
another five years would be in violation of the clear intent and purpose of the law aforesaid.

NATIONAL DEVELOPMENT CORPORATION v. PHILIPPINE VETERANS BANK

FACTS: Agrix Marketing, Inc. executed a real estate mortgage in favor of Philippine Veterans
Bank. Agrix went bankrupt. Later on, President Marcos issued PD 1717 which ordered the
rehabilitation of the Agrix Group of Companies to be administered by National Development
Corporation. Section 4(1) of the said decree provides that all mortages and other liens attaching
to any of the assets of the dissolved corporations are extinguished.
Philippine Veterans Bank filed a claim with the Agrix Claims Committee for the payment of its
loan credit. Meanwhile, New Agrix and NDC, invoking Section 4(1) of the decree filed a petition
with the RTC for the cancellation of the mortgage lien. The RTC judge declared PD 1717
unconstitutional as it impaired the obligation of contracts and the exercise of the legislative
power was in violation of the principle of separation of powers.
ISSUE: Whether or not the New Arix may be created by the issuance of PD 1717.
RULING: No. Said new corporation, being neither owned nor controlled by the Government,
should have been created only by general and not by special law.
And insofar as the decree also interferes with purely private agreements without any
demonstrated connection with public interest, there is likewise an impairment of obligations of
contract.

FELICIANO v. COMMISSION ON AUDIT

FACTS: A special audit team from COA audited the accounts of Leyte Metropolitan Water District
(LMWD). As the general manager of LMWD, Feliciano wrote to COA asking for refund of all the
auditing fees of LWMD previously paid to COA arguing that it is a private corporation not subject
to COAs jurisdiction. COA denied petitioners request for COA to stop charging auditing fees as
well as petitioners request for COA to refund auditing fees already paid.
ISSUE: Whether a Local Water Disctrict (LWD) like Leyte Metropolitan Water District (LMWD) is a
government-owned or controlled corporation subject to the audit jurisdiction of COA.
RULING: Yes. Contrary to petitioners argument, LWDs are GOCCs.

The Constitution recognizes two classes of corporations. The first refers to private corporations
created under a general law. The second refers to government-owned or controlled corporations
created by special charters. Section 16, Article XII of the Constitution provides:
Sec. 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled
corporations may be created or established by special charters in the interest of the
common good and subject to the test of economic viability.

The Constitution emphatically prohibits the creation of private corporations except by a general
law applicable to all citizens. The purpose of this constitutional provision is to ban private
corporations created by special charters, which historically gave certain individuals, families or
groups special privileges denied to other citizens.
In short, Congress cannot enact a law creating a private corporation with a special charter. Such
legislation would be unconstitutional. Private corporations may exist only under a general law. If
the corporation is private, it must necessarily exist under a general law. Stated differently, only
corporations created under a general law can qualify as private corporations. Under existing
laws, that general law is the Corporation Code, except that the Cooperative Code governs the
incorporation of cooperatives.
The Constitution authorizes Congress to create government-owned or controlled corporations
through special charters. Since private corporations cannot have special charters, it follows that
Congress can create corporations with special charters only if such corporations are governmentowned or controlled.
Obviously, LWDs are not private corporations because they are not created under the
Corporation Code. LWDs are not registered with the Securities and Exchange Commission.
Section 14 of the Corporation Code states that All corporations organized under this code shall
file with the Securities and Exchange Commission articles of incorporation x x x. LWDs have no
articles of incorporation, no incorporators and no stockholders or members. There are no
stockholders or members to elect the board directors of LWDs as in the case of all corporations
registered with the Securities and Exchange Commission. The local mayor or the provincial
governor appoints the directors of LWDs for a fixed term of office. This Court has ruled that LWDs
are not created under the Corporation Code, thus:
From the foregoing pronouncement, it is clear that what has been excluded from the
coverage of the CSC are those corporations created pursuant to the Corporation Code.
Significantly, petitioners are not created under the said code, but on the contrary, they
were created pursuant to a special law and are governed primarily by its provision.[13]
(Emphasis supplied)

LWDs exist by virtue of PD 198, which constitutes their special charter. Since under the
Constitution only government-owned or controlled corporations may have special charters, LWDs
can validly exist only if they are government-owned or controlled. To claim that LWDs are private
corporations with a special charter is to admit that their existence is constitutionally infirm.
Unlike private corporations, which derive their legal existence and power from the Corporation
Code, LWDs derive their legal existence and power from PD 198.