ATRTRIBUTES OF CORPORATION
An analysis of the statutory definition of a
Revised Corporation Code of the PH
Republic Act 11232, or the Act Providing attributes:
for the Revised Corporation Code of the 1. A corporation is an artificial being
Philippines, was signed into law by
President Rodrigo R. Duterte on 21
February 2019. It amends a 38-year-old
Corporation Code in an effort to improve
the ease of doing business in the
Philippines.
SIGNIFICANT CHANGES:
●Removal of the minimum number of
incorporators.
●Removal of the fifty (50)-year corporate 2. Created by operation of law
term. This means that unless there is a
provision in the Articles of
Incorporation with regard to the term
of corporate existence, the corporation
will exist perpetually unless sooner
dissolved.
●Empowering the Securities and
Exchange Commission (SEC) to remove
disqualified members of the Board of
Directors or Trustees.
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. (Section 2 of RA
11232, otherwise known as the Revised
Corporation Code of the Philippines)
corporation reveals the following
Article 44(3) of the Civil Code
provides that, just like a partnership,
corporation has a legal personality
distinct and separate from the
persons and entities owning it. And as
such – it may acquire or dispose
properties, it may acquire or dispose
properties, incur or pay obligations,
sue and be sued.
A It means that private corporations
can only exist if the government,
through the Securities and Exchange
Commission, subject to clearances by
appropriate government agencies,
will approve its formation. Thus, its
existence cannot and will never be
dependent on the consent or
agreement of its incorporators.
3. With right of succession
It means that corporations will exist
for a period provided in its articles
and shall continue until its term
expres or dissolves earlier for some
causes or even extended in
accordance with the law. Hence, its
capacity of continuous existence
cannot be dissolved by the death,
incapacity, or insolvency of a member
or shareholder.
 4. Only has powers, attributes, and
properties expressly authorized by
law or incident to its existence
It means that a corporation has no
powers except for those which are
expressly conferred on it by the
Corporation Code, found in its
charter, and those that are implied by
or are incidental to its existence. It
exercises its powers through its Board
of Directors and/or its duly authorized
officers and agents
ULTRA VIRES DOCTRINE
Even if the act is lawful, moral and
not even contrary to public order or
policy, but such act is not within the
express, implied and incidental
powers of the corporations – such act
shall be void for being ultra vires.
CONCEPT OF SEPARATE PERSONALITY
The corporation’s obligations, incurred
through official acts of its representatives,
are its own. Therefore, a stockholder,
director, or representative does not
become a party to a contract just because
a corporation executed a contract through
that stockholder, director or
representative. Hence, a corporation’s
representatives are generally not bound
by the terms of the contract executed by
the corporation. They are not personally
liable for corporate obligations and
liabilities.
DOCTRINE OF PIERCING THE VEIL OF
CORRATE FICTION
Doctrine of piercing the veil of corporate
fiction states that while a corporation may
exist for any lawful purpose, the law will
regard it as a mere collection of individuals
or, in case of two corporations, merge
them into one, when the separate
corporate personality is used as a mere
cloak for fraud or illegality. The doctrine
applies only when such corporate
personality is used to defeat public
convenience, justify wrong, protect fraud,
or defend crime.
Effect: When corporate veil is pierced, the
separate legal personality of a corporation
may be disregarded. The corporation and
persons who are normally treated as
distinct from the corporation are treated
as one person.
THREE CASES OF PIERCING THE VEIL:
1. Fraud Cases – when a corporation is
used as a cloak to cover fraud, or to do
wrong;
2. Alter Ego Cases – when the corporate
entity is merely a farce since the
corporation is an alter ego, business
conduit or instrumentality of a person
or another corporation;
3. Equity cases – when piercing the
corporate fiction is necessary to
achieve justice or equity
REQUISITES
Piercing the veil of corporate fiction may
be allowed only if the following elements
concur:
(1) control — not mere stock control, but
complete domination — not only of
finances, but of policy and business
practice in respect to the transaction
attacked, must have been such that
the corporate entity as to this
transaction had at the time no
separate mind, will or existence of its
own;
(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, or a dishonest and an unjust act
in contravention of plaintiff's legal
right; and
(3) the said control and breach of duty
must have proximately caused the
injury or unjust loss complained of.
POWER TO CREATE A CORPORATION IS
LEGISLATIVE IN CHARACTER
It must be remembered that to organize a
corporation that could claim a juridical
personality of its own, is not a matter of
absolute right but a privilege which may
be enjoyed only under such terms as the
State may deemed necessary to impose.
In order words, 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.
CONSEQUENCES OF SEPARATE
PERSONALITY
Entitled to Due Process and Equal
Protection
The 14 amendment and so of the first
th
paragraph of theour Bill of Rights, are
universal in their application to all person
within the territorial jurisdiction, w/o
regard to any differences of race, color, or
nationality.  And certainly, the word
“persons” includes aliens and that private
corporations, likewise, are “persons”
within the scope of these guaranties. It
was further discussed that classifications
with the end view of providing diversity of
treatment may be made among
corporations, however – it must be based
on reasonable ground.  (Smith v.
Natividad)
Entitled to Unreasonable Searches and NOT ENTITLED to privilege against self
Seizures incrimination
Corporations are protected by the
constitutional guarantee against
unreasonable searches and seizures, but
that the officers of a corporation from OTHER CONSEQUENCES
which documents, papers and things were
seized have no cause of action to assail the ● The penalty of imprisonment cannot
legality of the seizures, regardless of the be imposed. However, the
amount of shares of stock or of the corporation may be dissolved for
interest of each of them in said violation of the provisions of the
corporation, and whatever the offices they Corporation Code.
hold therein may be, because the ● It can incur obligations and its
corporation has a personality distinct and obligations are not the obligations of
separate from those of said officers. The its stockholders, directors and
legality of a seizure can be contested only officers.
by the party whose rights have been ● It is liable for tort. It is liable when the
impaired thereby; and the objection to an act was committed by the officer or
unlawful search is purely personal and agent under express direction or
cannot be availed of by such officers of the authority from the stockholders or
corporation who interpose it for their members acting as a body or
personal interests. (Stonehill v. Diokno) generally from the directors as the
governing body
A corporation is but an association of ● It can claim for moral damages that
individuals under an assumed name and falls under item 7 of Article 2219 of
with a distinct legal entity. In organizing the Civil Code. This provision
itself as a collective body it waives no expressly authorizes the recovery of
constitutional immunities appropriate for moral damages in cases of libel,
such body. Its property cannot be taken slander or any other form of
without compensation; can only be defamation.
proceeded against by due process of law;
and is protected against unlawful
discrimination. (Bache & Co.)
PRACTICE OF PROFESSION
ARCHITECTURAL PROFESSIONAL
CORPORATION (RA9266)
Sec. 37. Limitation to the Registration of a
Firm, Company, Partnership, Corporation
or Association.
The practice of architecture is a
professional service, admission to which
shall be determined upon the basis of
individual personal qualifications.
However, a firm, company, partnership,
corporation or association may be
registered or licensed as such for the
practice of architecture under the
following conditions:
● Only Filipino citizens properly
registered and licensed as architects
under this Act may, among themselves,
or together with allied technical
professionals, form and obtain
registration as a firm, company,
partnership, association or corporation
for the practice of architecture;
● Registered and licensed architects shall
compose at least seventy-five percent
(75%) of the owners, shareholders,
members incorporators, directors,
executive officers, as the case may be;
● Individual members of such firm,
partnership association or corporation
shall be responsible for their individual
and collective acts as an entity and as
provided by law;
● Such firm, partnership, association or
corporation shall be registered with the
Securities and Exchange Commission
and Board
LIABILITY FOR TORTS No Criminal Suit can Lie Against a
A corporation is civilly liable in the same Corporation
manner as natural persons for torts, There is no provision in the law relating to
because generally speaking, the rules practice and procedure in criminal actions
governing the liability of a principal for a whereby a corporation, as such, may be
tort committed by an agent are the same proceeded against criminally and brought
whether the principal be a natural person into court. (West Coast v. Hurd)
or a corporation, and whether the servant
or agent be a natural or artificial person.
Following this, a corporation is liable
whenever a tortious act is committed by
an officer or agent under express direction
or authority from the stockholders or
members acting as a body, or, generally,
from the directors as the governing body.
(PNB v. CA)
CORPORATE CRIMINAL LIABILITY
 DEPARTMENT OF LEGAL MANAGEMENT
College of Arts and Sciences
San Beda University

CORPORATION LAW – WEEK 3

ADMANA – ANDRINO – ASUELO – ALAFRO – BAGACAY – BALINAS – BARRETTO – BORROMEO – COLIS – DE GUIA

ADVANTAGEOUS FEATURES OF THE CORPORATE MEDIUM

1. Strong Juridical Personality

Under Article 44 of the Civil Code, a corporation is a juridical person. It has an identity
granted to it by law.

Two Classifications of Juridical Persons:

a) Public Juridical Persons

b) Private Juridical Persons

A Corporation may be classified as both:

a) Public Corporations are classified as Public Juridical Persons. It is formed and

organized for the Government of a portion of the State. Its purpose is the general
good and welfare.
b) Private Corporations are classified as Private Juridical Persons. Such are formed
for some private purpose, benefit, aim, or end.

A corporation is an entity separate and distinct from its stockholder. While not in fact and
in reality, a person, the law treats the corporation 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.
(Remo, Jr. v. IAC, G.R. No. L-67626, April 18, 1989)

The Corporation has a strong legal personality separate and distinct from the shareholders
or members composing it. (Art. 44 (3), Civil Code) The death, incapacity, withdrawal, or
insolvency of any of its shareholders or members does not affect its juridical personality. This
attribute guarantees business continuity and certainty of long-term contractual dealings.

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 DEPARTMENT OF LEGAL MANAGEMENT
College of Arts and Sciences
San Beda University

Having a separate legal personality, a corporation may: (1) contract and transact in its own
name; (2) acquire and possess property of all kinds; (3) incur obligations; and (4) bring civil or
criminal actions, in conformity with the laws and regulations of their organizations. (Art. 46, NCC)

Like solemn/formal contracts, certain formalities of the law must be complied with before
the creation of a corporation. Unlike in partnership which can be constituted in any form, a
Corporation begins to exist as a juridical person from the moment a certificate of incorporation is
granted to it by the Securities and Exchange Commission (SEC); and thereupon the incorporators,
stockholders, members and their successors shall constitute a body corporate under the name
stated in the articles of incorporation for the period of time mentioned therein, unless said period
is extended or the corporation is sooner dissolved in accordance with the law. (Sec 18, Revised
Corporation Code)

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. (Ang Pue and Co. v. Secretary of
Commerce and Industry, G.R. No. L-17295, July 30, 1962)

In addition, a corporation’s creation, organization, management, and dissolution are

standardized by being governed by a general incorporation law [RA 11232] pursuant to Article 45
(2) of Civil Code that private corporations are regulated by laws of general application on the
subject. This standardization makes the commercial practice and jurisprudential law governing the
corporation tend to be more established and reliable when compared to other media of doing
business.

Article 1775 of the Civil Code.

Art. 1775. Associations and societies, whose articles are kept secret among the members,
and wherein any one of the members may contract in his own name with third persons, shall
have no juridical personality, and shall be governed by the provisions relating to co-ownership.

Importance of Giving Publicity to Articles of Incorporation

It is essential that the partners are fully informed not only of the agreement but of all matters
affecting the corporation. It is necessary that the articles be given publicity for the protection not
only of the members themselves but also third persons from fraud and deceit.

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 DEPARTMENT OF LEGAL MANAGEMENT
College of Arts and Sciences
San Beda University

Jose Remo Jr. v. Intermediate Appellate Court and EB Marcha Transport Company Inc.
G.R. No. 67626. April 18, 1989

FACTS:

1. In the latter part of December, 1977 the board of directors of Akron Customs Brokerage
Corporation adopted a resolution authorizing the purchase of thirteen (13) trucks from EB
Marcha Transport Company to be paid out of a loan the corporation may secure from any
lending institution.

2. Feliciano Coprada, as President and Chairman of Akron, purchased the trucks from private
respondent for and in consideration of P525,000.00 as evidenced by a deed of absolute sale
with terms of payment as follows: P50,000 down payment, balance payable within the 60th
days from date of execution of agreement, and until said balance is fully paid, the down
payment shall accrue as rentals of the 13 trucks. Also, Akron’s failure to pay the balance
within 60 days, shall constitute as a chattel mortgage lien covering said cargo truck and the
parties may allow an extension of 30 days and thereafter private respondent may ask for a
revocation of the contract and the reconveyance of all said trucks.

3. The obligation is further secured by a promissory note executed by Coprada in favor of

Akron, noting that the balance shall be paid from the proceeds of a loan obtained from the
Development Bank of the Philippines (DBP) within sixty (60) days.

4. EB transport tried to collect from Coprada but the latter promised to pay only upon the
release of the Developmental Bank Loan. Meanwhile, two of the trucks were sold
authorized by a board resolution under a pacto de retro sale to Mr. Bais of the Perpetual
Loans and Savings Bank.

5. EB Transport found that no loan application was ever filed by Akron with DBP.

6. Coprada wrote to the EB Transport, begging for a grace period of until the end of the month
to pay the balance of the purchase price; that he will update the rentals within the week;
and in case he fails, then he will return the 13 units should the EB Transport elect to get
back the same.

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 DEPARTMENT OF LEGAL MANAGEMENT
College of Arts and Sciences
San Beda University

7. Private respondent demands the return of the trucks and the payment of back rentals.
Coprada asked for another grace period as he was expecting the approval of his loan
application from a certain financing company, and that ten trucks have been returned to
Bagbag, Novaliches

8. EB Transport filed a complaint for the recovery of the purchase price or the return of the
13 trucks with damages against Akron and its officers.

9. Remo denied any participation in the transaction and alleged that Akron has a distinct
corporate personality. He was, however, declared in default for his failure to attend the pre-
trial.

10. Meanwhile, Remo sold all his shares to Coprada. Subsequently, Akron changed its name
to Akron Transport International, Inc. which assumed the liability of Akron to private
respondent.

11. The lower courts held that Akron’s officers should pay jointly and severally. Hence, this
petition.

ISSUE: Whether the petitioner is personally liable for the obligation of the Corporation.

RULING:

NO. A corporation is an entity separate and distinct from its stockholder. While not in fact
and in reality, a person, the law treats the corporation as though it were a person through fiction
by the law or by regarding it as an artificial person distinct and separate from its individual
stockholders. However, the corporate fiction may be disregarded when it "is used to defeat public
convenience, justify wrong, protect fraud, or defend crime". There are many occasions when the
Supreme Court pierced the corporate veil because of its use to protect fraud and to justify wrong.
In the instant case, there is no strong basis to pierce the corporate veil of Akron and hold Remo
personally liable for its obligation to private respondents.

Even if petitioner Remo was still a member of the board of directors, then, and he
participated in authorizing the purchase of Akron to be paid out of a loan to be secured from a
lending institution, it does not appear that it was intended to defraud anyone and EB Transport.

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 DEPARTMENT OF LEGAL MANAGEMENT
College of Arts and Sciences
San Beda University

If there was any fraud or misrepresentation imposed on private respondent EB Transport,

it is Coprada who should account for the same and not Remo because it is Coprada who negotiated
with said respondent and signed a promissory note to guarantee the payment of the unpaid balance
of the purchase price out of the proceeds of a loan he supposedly sought from the DBP.
Furthermore, the word "WE' in the said promissory note refers to the corporation and Remo did
not sign the said promissory note so he cannot be personally bound thereby.

The sale through pacto de retro of the two units to a third person by the corporation does
not constitute fraud because the 13 units were sold through a deed of absolute sale hence Akron is
free to dispose of the same.

As to the amendment of the articles of incorporation of Akron thereby changing its name
to Akron Transport International, Inc., the new corporation confirmed and assumed the obligation
of the old corporation. There is no indication of an attempt on the part of Akron to evade payment
of its obligation to private respondents. Lastly, The sale of shares during the pendency of the case
does not constitute fraud since the petitioner as a stockholder has an inherent right to dispose of
his shares of stock anytime he so desires.

2. Centralized Management

Under Section 23 of the Revised Corporation Code, a corporation’s corporate powers, the
exercise of the attributes of ownership over its properties, and the management of its business
enterprise are all centralized in the Board of Directors Trustees. Following this, the corporate
attribute of “centralized management” presents a more stable and efficient system of governance
and dealings considering that the management prerogatives are centralized in its Board of
Directors.

The exercise of corporate power is usually embodied in board resolutions and confirmed
in the certificates issued by the corporate secretary. However, it bears great emphasis that the board
of directors may expressly delegate specific powers to any of its officers. Nonetheless the power
of the board is not without limitation. There are certain corporate acts which require the approval
of the stockholders. (Great Asian Sales Center Corp. v. Court of Appeals, G.R. No. 105774, April
25, 2002)

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 DEPARTMENT OF LEGAL MANAGEMENT
College of Arts and Sciences
San Beda University

In line with this, it is worth noting that these stockholders are not agents of the corporation,
nor can they bind the corporations, unlike in a partnership setting, where each partner may bind
the partnership, even without the knowledge of other partners.

Sec. 23, BP 68 v. Sec. 22, RA 11232

1. Provided for terms as to election of Directors and Trustees;

2. Included the rule that if a trustee who ceases to be a member of the corporation shall cease
to be such;
3. Provided a definition of independent directors and their subjectivities;
4. Required the mandatory presence of independent directors in the Board of Directors of
corporations vested with public interest constituting at least 20% of such board:

a. Corporations covered by the SRC, whose securities are registered with the
Commission, corporations listed with an exchange or asset of at least P 50M and
having 200 or more holders of shares, each holding at least 100 shares of a class of
its equity shares;
b. Banks and quasi-banks, NSSLs, pawnshops, corporations engaged in money
service business, pre-need, trust and insurance companies, and other financial
intermediaries;
c. Other corporations engaged in the business vested with public interest similar to
the above, as may be determined by the Commission, after taking into account
relevant factors which are germane to the objective and purpose of requiring the
election of an independent director.

Great Asian Sales Center Corp v. Court of Appeals

G.R. No. 105774, April 25, 2002

FACTS

1. The Board of Directors of Great Asian Sales Center Corporation approved a resolution
which authorizes Arsenio Lim Piat Jr., its General Manager and Treasure, to secure a loan
from Bancasia and to sign all the necessary documents to secure the loan.

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 DEPARTMENT OF LEGAL MANAGEMENT
College of Arts and Sciences
San Beda University

2. Thereafter, the Board of Directors of the said corporation approved another resolution
authorizing the latter to secure a discounting line with Bancasia and designated Arsenio
again as their authorized signatory to sign all the instruments, documents and checks.

3. To guarantee solidarily the debts of Great Asian to Bancasia, Tan Chong Lin signed a
Surety Agreement in favor of Bancasia. After sometime, Great Asia, through Arsenio,
signed four (4) Deeds of Assignment of Receivables assigning to Bancasia fifteen (15)
postdated checks which were subsequently dishonored by the drawee banks.
4. Subsequently, Great Asian filed a petition for insolvency and followed by Bacansia filing
a complaint for collection of a sum against Great Asian and Tan Cong Lin.

5. However, such claim was denied by Great Asian claiming that it was unfounded, malicious,
baseless and unlawfully instituted and even raised the alleged lack of authority of Arsenio
to sign the Deeds of Assignment.

6. The trial court decided in favor of the plaintiff. And on appeal, the Court of Appeals
sustained the decision of the lower court, deleting only the award of attorney’s fees. Hence,
this petition.

ISSUE: Whether Arsenio had authority to execute the Deeds of Assignment, and thus, bind Great
Asian

RULING:

YES. The Corporation Code of the Philippines vests in the board of directors the exercise
of the corporate powers of the corporation, save in those instances where the Code requires
stockholders’ approval for certain specific acts. Section 23 of the Code provides:

"SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this
Code, the corporate powers of all corporations formed under this Code shall be exercised,
all business conducted and all property of such corporations controlled and held by the
board of directors or trustees x x x."

The two board resolutions clearly show that Great Asian authorized Arsenio to secure a
loan or discounting line from Bancasia. It also categorized Arsenio as the authorized signatory to
sign and deliver all the implementing documents, including checks, for Great Asian. The second

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 DEPARTMENT OF LEGAL MANAGEMENT
College of Arts and Sciences
San Beda University

board resolution even gave Arsenio full authority to agree with Bancasia on the terms and
conditions of the discounting line.

The only issue to determine is whether the Deeds of Assignment are indeed the transactions
the board of directors of Great Asian authorized Arsenio to sign under the two board resolutions.

In the financing industry, the term "discounting line" means a credit facility with a
financing company or bank, which allows a business entity to sell, on a continuing basis, its
accounts receivable at a discount. The term "discount" means the sale of a receivable at less than
its face value. The purpose of a discounting line is to enable a business entity to generate instant
cash out of its receivables which are still to mature at future dates.

Through the Deeds of Assignment, the Great Asian generated instant cash from its fifteen
checks, which were still not due and demandable then. In short, instead of waiting for the maturity
dates of the fifteen postdated checks, Great Asian sold the checks to Bancasia at less than the total
face value of the checks. In exchange for receiving an amount less than the face value of the checks,
Great Asian obtained immediately much needed cash.

The foregoing facts show that the discounting arrangements entered into by Arsenio under
the Deeds of Assignment were the very transactions envisioned in the two board resolutions of
Great Asian to raise funds for its business. Arsenio did exactly what the board of directors of Great
Asian directed and authorized him to do. He acted completely within the limits of his authority
under the two board resolutions. Therefore, he had all the proper and necessary authority from the
board of directors of Great Asian to sign the Deed of Assignment.

3. Limited Liability to Investors and Non-Liability to Officers

Shareholders of a corporation in the Philippines have limited liability. As such, they will
not be personally liable for the corporation’s debts. Should the company fail, their personal assets
will be safe. The extent of their liability is the same as the value of their investment. Thus, there
are ways to circumvent the law to make the shareholder liable for more than his actual share. (ex.
The chairman makes himself joint debtor for a loan)

Generally, a corporate officer is not held personally liable, as long as his or her actions fall
within the scope of their position and the parameters of the law. An officer of a corporation may
serve on the board of directors or fulfill a managerial role.

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 DEPARTMENT OF LEGAL MANAGEMENT
College of Arts and Sciences
San Beda University

The liability in a corporation is limited to their shares as distinguished from partnerships

where even assets of the partnership are already exhausted, creditors can still go after the individual
properties of the partners. In a partnership, an investor can lose those assets that have not been
intended for the partnership venture, (ARTS. 1816, 1817, and 1824 NCC) while in a corporation,
every shareholder or member is assured limited liability.

However, the privilege of being considered as a separate and distinct entity is confined to
limited uses. Should this be exercised for fraudulent, unfair or illegal purposes (eg, to evade taxes,
escape liabilities to third parties, confuse legitimate issues of employer-employee relationship,
protect fraud), the veil of corporate entity may be pierced, and the stockholder may then be held
personally liable.

By virtue of the separate juridical personality of a corporation, the corporate debt or credit is not
the debt or credit of the stockholder. This protection from liability for shareholders is the principle
of limited liability. PNB v. Hydro Resources Contractors Corporation, 693 SCRA 631 (1998)

It is hornbook law that corporate personality is a shield against personal liability of its
officers — a corporate officer and his spouse cannot be made personally liable under a trust receipt
where he entered into and signed the contract clearly in his official capacity. Consolidated Bank
and Trust Corporation v, CA, 356 SCRA 761 (2001)

A corporation and its shareholders may choose whether or not to concede the advantage of
limited liability; while in a partnership, there is already an implied contract that if the partnership’s
assets are insufficient, the partners’ separate properties would be liable. Villanueva, C.L &
Villanueva-Tiansay, T.S. (2021). Philippine Corporate Law.

NON-LIABILITY OF OFFICERS

San Juan Structural and Steel Fabricators vs CA

G.R. No. 129459. September 29, 1998

FACTS:

San Juan Structural and Steel Fabricators, Inc. alleges that in February 14, 1989, it entered
through its president, Andres Co, into the disputed agreement with Respondent Motorich Sales
Corporation, which was in turn allegedly represented by its treasurer, Nenita Lee Gruenberg. San
Juan Structural insists that when Gruenberg and Co affixed their signatures on the contract, they

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 DEPARTMENT OF LEGAL MANAGEMENT
College of Arts and Sciences
San Beda University

both consented to be bound by the terms thereof. San Juan Structural contends that the contract is
binding on the 2 corporations.

On March 2, 1989, San Juan Structural was ready with the amount corresponding to the
balance, covered by Metrobank cashier’s check payable to Motorich Sales Corporation; that the
parties were supposed to meet in the office of San Juan Structural but Motorich’s treasurer, Nenita
Lee Gruenberg did not appear; That San Juan Structural despite repeated demands and in utter
disregard of its commitments had refused to execute the transfer of rights/deed of assignment
which is necessary to transfer the certificate of title.

In its answer, Motorich and Nenita Lee Gruenberg interposed as affirmative defense that
the President and Chairman of Motorich did not sign the adverted agreement to in the amended
complaint and that Mrs. Gruenberg’s signature on the agreement is inadequate to bind Motorich.
That the signature of the President and Chairman of Motorich is required.

ISSUE: Whether the act of the company’s treasurer can bind the corporation without its
authorization

RULING:

No. Such a contract cannot bind Motorich, because it never authorized or ratified such sale.

A corporation is a juridical person separate and distinct from its stockholders or members.
Accordingly, the property of the corporation is not the property of its stockholders or members
and may not be sold by the stockholders or members without express authorization from the
corporation’s board of directors.

In the case at bar, Respondent Motorich categorically denies that it ever authorized Nenita
Gruenberg, its treasurer, to sell the subject parcel of land. Consequently, San Juan Structural had
the burden of proving that Nenita Gruenberg was in fact authorized to represent and bind Motorich
in the transaction. Petitioner failed to discharge this burden. Its offer of evidence before the trial
court contained no proof of such authority.

A corporate officer or agent may represent and bind the corporation in transactions with
third persons to the extent that the authority to do so has been conferred upon him, and this includes
powers which have been intentionally conferred, and also such powers as, in the usual course of
the particular business, are incidental to, or may be implied from, the powers intentionally
conferred, powers added by custom and usage, as usually pertaining to the particular officer or

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 DEPARTMENT OF LEGAL MANAGEMENT
College of Arts and Sciences
San Beda University

agent, and such apparent powers as the corporation has caused person dealing with the officer or
agent to believe that it has conferred.

As a general rule, the acts of corporate officers within the scope of their authority are
binding on the corporation. But when these officers exceed their authority, their actions, cannot
bind the corporation, unless it has ratified such acts as is estopped from disclaiming them.

Because Motorich had never given a written authorization to respondent Gruenberg to sell
its parcel of land, we hold that the February 14, 1989, agreement entered into by the latter with
petitioner is void under Article 1874 of the Civil Code. Being inexistent and void from the
beginning, said contract cannot be ratified.

Clearly then, Nenita Gruenberg did not testify that Motorich had authorized her to sell its
property. On the other hand, her testimony demonstrates that the president of Petitioner
Corporation, in his great desire to buy the property, threw caution to the wind by offering and
paying the earnest money without first verifying Gruenberg’s authority to sell the lot.

One of the advantages of a corporation is the limitation of an investor’s liability to the

amount of investment. This feature flows from the legal theory that a corporate entity is separate
and distinct from its stockholders.

EXCEPTION TO NON-LIABILITY OF OFFICERS

B.P. 68, Sec. 31 & RA 11232, Section 30. Liability of directors, trustees or officers. –
Directors or trustees who wilfully and knowingly vote for or assent to patently unlawful acts of
the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary interest in conflict with their duty as such
directors or trustees shall be liable jointly and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or members and other persons.

Solidary liability will then attach to the directors, officers or employees of the corporation
in certain circumstances, such as (Heirs of Fe Tan Uy v. International Exchange Bank Bank,
L-166282, February 13, 2013) :

1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote for
or assent to patently unlawful acts of the corporation; (b) act in bad faith or with gross
negligence in directing the corporate affairs; and (c) are guilty of conflict of interest to the
prejudice of the corporation, its stockholders or members, and other persons;

11
 DEPARTMENT OF LEGAL MANAGEMENT
College of Arts and Sciences
San Beda University

2. When a director or officer has consented to the issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written objection
thereto;

3. When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the corporation; or

4. When a director, trustee or officer is made, by specific provision of law, personally liable for
his corporate action.

LIABILITY FOR CORPORATE TORTS OF STOCKHOLDERS IN A CLOSED

CORPORATION

Section 100. Agreements by stockholders -

5. To the extent that the stockholders are actively engaged in the business and affairs of a
close corporation, the stockholders shall be held to strict fiduciary duties to each other and
among themselves. Said stockholders shall be personally liable for corporate torts unless the
corporation has obtained reasonably adequate liability insurance

Stockholders who are actively engaged in the management or operation of the business and
affairs of a close corporation shall be personally liable for corporate torts unless the corporation
has obtained reasonable adequate liability insurance. Naguiat vs. NLRC, 269 SCRA 564 (1996)

4. Free-Transferability of Units of Ownership (Shares) for Investors

Section 62, RA 11232 (Section 63, B.P. 68)

Certificate of Stock and Transfer of Shares. – The capital stock of corporations shall be
divided into shares for which certificates signed by the president or vice president, countersigned
by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued
in accordance with the bylaws. Shares of stock so issued are personal property and may be
transferred by delivery of the certificate or certificates indorsed by the owner, his attorney in-fact,
or any other person legally authorized to make the transfer. No transfer, however, shall be valid,
except as between the parties, until the transfer is recorded in the books of the corporation showing
the names of the parties to the transaction, the date of the transfer, the number of the certificate or

12
 DEPARTMENT OF LEGAL MANAGEMENT
College of Arts and Sciences
San Beda University

certificates, and the number of shares transferred. The Commission may require corporations
whose securities are traded in trading markets and which can reasonably demonstrate their
capability to do so to issue their securities or shares of stocks in uncertificated or scripless form in
accordance with the rules of the Commission.

No shares of stock against which the corporation holds any unpaid claim shall be
transferable in the books of the corporation.

General Rule: The shares of stocks can be transferred without the consent of the other
stockholders. Transfer of shares is a matter of right if the stockholder. (inherent right)

Ø The Corporation cannot PREVENT such transfer.

Rationale: It places more liquidity in the corporate setting and encourages investors to channel
their investments through corporate vehicles. (refers to legal persons and legal arrangements)

Transfer of Shares is a Matter of Eight of the Holder

● It is the inherent right of the stockholder to dispose of his shares of stock which he owns
as any other property of his shares of stock (which he owns as any other property of his)
anytime he so desires. (PNB vs Ritratto Group, G.R. No. 142616, July 31, 2001)

● “Until registration is accomplished, the transfer, though valid between the parties, cannot
be effective as against the corporation.” Thus, the unrecorded transfer cannot enjoy the
status of a stockholder; he cannot vote nor be voted for, and he will not be entitled to
dividends. The corporation will be protected when it pays dividend to the registered owner
despite a previous transfer of which it had no knowledge. The purpose of registration
therefore is twofold: to enable the transferee to exercise all the rights of a stockholder and
to inform the corporation of any change in shares ownership so that it can ascertain the
persons entitled to the rights and subject to the liabilities of a stockholder.

Authority to Transfer Stock Does Not Empower The Corporation to Restrict

● Authority granted to regulate the transfer of a shareholder’s stock does not empower the
corporation to restrict the right of a stockholder to transfer his shares, but merely authorizes
the adoption of regulations as to formalities and procedure to be followed in effecting
transfer. (Thomson vs Court of Appeals, G.R. No. 116631, October 28, 1998)

13
 DEPARTMENT OF LEGAL MANAGEMENT
College of Arts and Sciences
San Beda University

Exception: Transfer would Cause Violations of the Law

● If the transfer would cause violations of the law (ex. Ratio requirement for local-foreign
holdings), then the corporation may restrict the right transfer of the holder’s shares.

Well-Developed Market

● The system of free transferability of the units of investments in the corporate setting
presumes a well-developed market for shares of stock.

To bind 3rd persons

● By provision of law, while it is true that in so far as the buyer and seller is concerned, the
sale (transfer of shares/certificate) is made by meeting of minds. However, there is a
provision in the law that before such sale is binding to 3rd persons, it must be recorded in
the Books of the Corporation - showing the names of the parties to the transaction, the date
of the transfer, the number of the certificate or certificates, and the number of shares
transferred.

● In order to be valid among 3rd persons, transfer must be registered in the books, if not, it
will only be binding among the parties.

14
Corporation Law: Atty. Grace Hicban
A.2. Disadvantages of Corporate Form
Avy Buyuccan, Fritze Ann Cristobal, Mary Ruth David, Kimsey Clyde Devoma, Carlston Brix Doddo, Monica Feril, Joseph Gamboa, Tristan
Lazo, Ezequiel Longui, Diazmean Sotelo

DISADVANTAGES OF CORPORATE FORM as provided in Philippine Corporate Law by

CLV

1. Abuse of Corporate Management;

2. Abuse of Limited Liability Feature;
3. High Cost of the Maintenance of the Corporate Medium; and
4. Double Taxation

I. Abuse or Corporate Management; Breach of Trust

Management and control are separated from ownership in large
corporations; there is a severance of control and ownership. The board of
directors has complete authority.1
In a practical sense therefore, investors have very little voice over the
conduct of business of the corporation.
Shareholders can elect and remove directors, vote to amend, adopt, or
repeal bylaws, and exercise a veto power over fundamental corporate
changes proposed by the corporation's board of directors, such as
charter amendments, mergers and consolidations, sales of substantially all
the corporation's assets, and liquidations. As a general rule, however, the
standard form does not permit shareholders to control corporate business
decisions.2
Abuse of corporate management committed by a member of the board
of directors is also countered by Section 33 of the Revised Corporation
Code which provides that where a director, by virtue of such office,
acquires a business opportunity which should belong to the corporation,

1
Sec. 23 of Revised Corporation Code
2
Shareholder Voice and the Market for Corporate Control (P. Letsou, 1992)

1
 thereby obtaining profits to the prejudice of such corporation, the director
must account for and refund to the latter all such profits, unless the act
has been ratified by a vote of the stockholders owning or representing at
least two-thirds (2/3) of the outstanding capital stock.3
“In a corporation, the management of its business is generally vested in its
board of directors, not its stockholders. Stockholders are basically investors
in a corporation. They do not have a hand in running the day-to-day
business operations of the corporation unless they are at the same time
directors or officers of the corporation.4”

II. Abuse of Limited Liability Feature

The limited liability feature of the corporation has often been abused by
businesses to avoid having adequate protection and compensation for
victims of the business ventures they undertake.
In addition, the limited liability feature has tended to increase transaction
cost by the parties being forced to enter contractual schemes skirting the
limited liability of the corporation when it is a party to a transaction.
Limited liability hits innocent people.

a) Separate Juridical Personality

The doctrine of separate juridical personality, which provides that a
corporation has a legal personality separate and distinct from that
of people comprising it. By virtue of that doctrine, stockholders of a
corporation enjoy the principle of limited liability: the corporate
debt is not the debt of the stockholder. Thus, being an officer or a
stockholder of a corporation does not make one's property the
property also of the corporation.5

b) Corporate Officers, personal liability for damages:

3
Sec. 33 of the Revised Corporation Code
4
Espiritu v. Petron Corp., G.R. No. 170891
5
Bustos vs. Register of Deeds Marikina City, G.R. No. 185024

2
 A corporate officer of a Philippine corporation becomes personally
liable for certain corporate acts under the following circumstances:
1. When he willfully and knowingly votes or assents to patently
unlawful acts.
2. When he is guilty of gross negligence or bad faith in the
conduct of the corporate affairs; or
3. When he acquires personal or pecuniary interest which
conflicts with his duty as such officer.6

c) Stockholders, limited liability:

The liability of stockholders in Philippine corporations is limited only to
the extent of their capital contribution thereto. Other properties,
holdings or assets of stockholders are not within the reach of corporate
creditors. To discourage abuse of this privilege, the Securities and
Exchange Commission [SEC] imposes certain reportorial requirements
which should be complied with on a regular basis.

III. High Cost of Maintenance of the Corporate Medium

The formation and maintenance of corporations are complicated and
costly. Furthermore, there is a greater degree of governmental control
and supervision to corporations.

a) Formation of Corporation
“Establishing a corporation in the Philippines can approximately
take 29 days for a total cost of PHP 7,630.00. Compared to sole
proprietorship or unregistered entities corporations entails a more
significant amount.”7

6
Sec. 30 of the Revised Corporation Code
7
Shield GEO (Global Employment Organization)

3
 The SEC filing fees for the incorporation of a domestic corporation
are as follows:
1. Basic Filing Fee for the Articles of Incorporation - ⅕ of 1% of
the authorized capital stock or the subscription price of the
subscribed capital stock, but not less than P2,000.00.
2. Legal Research - 1% of the filing fee.
3. Examining and Filing Fee for the By-Laws - P1,010.00.
4. Cost and registration of the Stock & Transfer Book - P470.00

More than P500M to less than P750M: P500,000.00 plus 0.075% of the
excess over P500M +LRF (1% of Filing Fee)

More than P750M to not more than P1B: P687,500.00 + 0.05% of the
excess over P750M + LRF (1% of Filing Fee)

More than P1B: P812,500.00 plus 0.025% of the excess over P1 Billion
+ LRF (1% of Filing Fee)

b) Maintenance of Corporate Medium

There is a greater degree of government control and supervision
than in other forms of business organizations such as being
subjected to more record-keeping and reportorial obligations under
the Money Laundering Act.8

Memorandum Circular No. 3, s. 2017 of the Securities and Exchange

Commission (Credit Rating Agencies has an Annual Monitoring Fee of PHP
15,000.00 paid yearly at least 45 days prior to the anniversary date of its
accreditation.) 9

8
Republic Act No. 10365
9
Memorandum Circular No. 3, s. 2017 of the Securities and Exchange Commission

4
IV. Double Taxation
The corporation has traditionally been subjected to heavier taxation as
compared to other business organizations.

The profits of the corporation which are already subjected to corporate

income tax when declared and distributed as dividends to the
stockholders are again subjected to the further income tax.

a) Section 24 (B)(2) of the National Internal Revenue Code (1997)

states that:
(B) Rate of Tax on Certain Passive Income
(2) Cash and/or Property Dividends - A final tax at the
following rates shall be imposed upon the cash and/or
property dividends actually or constructively received by an
individual from a domestic corporation or from a joint stock
company, insurance or mutual fund companies and regional
operating headquarters of multinational companies, or on
the share of an individual in the distributable net income after
tax of a partnership (except a general professional
partnership) of which he is a partner, or on the share of an
individual in the net income after tax of an association, a joint
account, or a joint venture or consortium taxable as a
corporation of which he is a member or co-venturer:
xxx
Ten percent (10%) beginning January 1, 2000.
xxx

b) According to Section 27 (D)(4), 1997 National Internal Revenue

Code:
(D) Rates of Tax on Certain Passive Incomes. -

5
 (4) Intercorporate Dividends. - Dividends received by a
domestic corporation from another domestic corporation
shall not be subject to tax.

● Section 28 (A)(7)(d). Intercorporate dividends received by a

resident foreign corporation from a domestic corporation
liable to tax under this Code shall not be subject to tax under
this Title.
● Section 28(B)(5)(b). Intercorporate dividends paid by a
domestic corporation to a nonresident foreign corporation
(NRFC) are subject to income tax of 15% provided that the
country of residence of the NRFC shall allow a credit against
taxes deemed to have been paid in the Philippines
equivalent to 15%, which represents the difference between
the regular tax of 30% on corporations and the reduced tax
of 15% on dividends.

c) ​Section 29 of the National Internal Revenue Code (NIRC) of 1997, as

amended, imposes Improperly Accumulated Earnings Tax (IAET) on
corporations for each taxable year on the improperly accumulated
taxable income of such corporations. It is a form of penalty tax
which is equal to 10 percent of the improperly accumulated
taxable income. The dividends must be declared and paid or
issued not later than one year following the close of the taxable
year, otherwise, the IAET, if any, should be paid within 15 days
thereafter.10

Rationale for the Imposition of the 10% IAET:

10
Section 6 of Revenue Regulations (RR) 2-2001

6
 The IAET is imposed to discourage tax avoidance through corporate
surplus accumulation. When corporations do not declare dividends,
income taxes are not paid on the undeclared dividends received
by the shareholders. The tax on improper accumulation of surplus is
essentially a penalty tax designed to compel corporations to
distribute earnings so that the said earnings by shareholders could,
in turn, be taxed.11

i) Exemptions from the 10% IAET:

If retention of the profits is justifiable, such as the use of
undistributed profits for the reasonable needs of the business,
such purpose would not generally make the retention
improper and subject to the penalty tax. The Bureau of
Internal Revenue (BIR) considered the accumulation of
earnings up to 100% of the paid-up capital of a corporation
as falling within the “reasonable needs of the business.”
Moreover, earnings that are reserved for a justified purpose
(e.g., definite corporate expansion, compliance with any
loan covenants, earnings reserve subject to the legal
prohibition against its distribution) were also considered within
the purview of “reasonable needs of the business.”
ii) The Tax Code also exempted from the imposition of the 10%
IAET, certain companies, including publicly-held
corporations. Publicly-held companies refer to those, where
the top 20 ultimate individual shareholders hold less than 50%
of the value of the outstanding capital stock or the voting
power of the corporation pursuant to Revenue Regulations
(RR) No. 2-2001. The IAET does not also apply to banks and
other nonbank financial intermediaries, and to insurance

11
Cyanamid Philippines, Inc. v. CTA, GR No. - 108067. January 20, 2000

7
 companies. RR 2-2001 likewise included taxable partnerships,
general professional partnerships, nontaxable joint ventures
and enterprises duly registered under special economic
zones as exempt from the coverage of IAET.
iii) Tax rate is 10% based on improperly accumulated earnings.
As a mechanism to recover lost revenue, the tax rate is
patterned after the rate that the government should have
earned. Since tax on dividends to resident individuals is 10%,
then, the tax rate imposed is the same. Thus, Section 29 of the
National Internal Revenue Code of the Philippines imposes a
10% improperly accumulated earnings tax.
iv) Imposition is not outright upon the mere improper
accumulation.
The mere fact that the retained earnings exceed 100% of the
paid up capitalization at the end of a taxable year does not
mean an outright tax liability for IAET. What is being taxed is
the improper accumulation and not the mere accumulation.

As a rule, the corporate taxpayer has within one (1) year or twelve
months from the end of the taxable year within which to dispose of
or remedy the excess retained earnings. Under the rules of the
Securities and Exchange Commission (SEC), such corporate
taxpayer must come up with a concrete plan as to the disposition
of such excess. It is the failure to dispose of such excess upon the
lapse of one (1) year that is being penalized and subjected to
improperly accumulated earnings tax in the Philippines.

8
CORPORATION LAW September 21, 2021
Group 3: Atty. Mary Grace R. Hicban
Estonido | Lecaroz
Manlapig | Marques
Orlino | Panlaqui
Piñera | Ramiento
Salut | Torralba
Villaranda

Corporation as Compared to Other Business Media

A. Sole Proprietorships

I. Definition
- A business structure owned by an individual who has full control/authority
of its own and owns all the assets, personally owes and answers all
liabilities or suffers all losses but enjoys all the profits to the exclusion of
others (Philippine Board of Investments (2018)1).
- The law merely recognizes the existence of a sole proprietorship as a form
of business organization conducted for profit by a single individual and
requires its proprietor or owner to secure licenses and permits, register its
business name, and pay taxes to the national government court (Rabuya,
The Law on Persons and Family Relations (2017)).
2

II. Comparison Between Sole Proprietorship and Corporation

As to Juridical Personality

A sole proprietorship is neither a natural person or a juridical person. It does not

possess a juridical personality separate and distinct from the personality of the
owner of the enterprise. The law does not vest a separate legal personality on
the sole proprietorship or empower it to file or defend an action in court (Rabuya,
The Law on Persons and Family Relations (2017)). However, in a corporation,
one of its attributes is that it is an artificial being, separate and distinct from each
of the members composing it. It may acquire and possess property of all kinds,
as well as incur obligations and bring civil or criminal actions (Art. 46, NCC).

1
Philippine Board of Investments (2018)
2
The Law on Persons and Family Relations (2017) by Elmer Rabuya
3

As to Liability

In a corporation, the law grants it a juridical personality that is separate and

distinct from that of each shareholder. 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 (San Juan Structural and Steel Fabricators, Inc.
v. Court of Appeals, 296 SCRA 631, 645 (1998)). However, in a sole
proprietorship, the law does not grant it a juridical personality hence not separate
and distinct from the owner of the business making the owner shoulder unlimited
liability in the sense that creditors of his business may proceed not only against
the assets and property of his business but after his own personal assets and
property.

As to Control and Ownership

In a corporation, it is the board of directors who possess all the powers and
control the corporation and the shareholders who possess ownership of the
corporation. It is the board of directors or trustees that shall exercise the corporate
powers, conduct all business, and control all properties of the corporation (Sec. 22,
R.A. 11232)4. In a sole proprietorship, it is the owner who has ownership and
control over the business.

As to Governing Law

A corporation is governed by the Revised Corporation Code of the Philippines

while a sole proprietor, not encumbered by the strict regulatory laws, is
governed/regulated by the Bureau of Trade Regulation and Consumer Protection
of the Department of Trade and Industry (DTI).

ALPS TRANSPORTATION AND/OR ALFREDO E. PEREZ v. ELPIDIO M.

RODRIGUEZ, G. R. No. 186732, June 13, 2013

3
Article 46 of the New Civil Code of The Philippines

4
San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, 296 SCRA 631, 645 (1998 )
FACTS

Elpidio Rodriguez was previously employed as a bus conductor. He entered into

an employment contract with Contact Tours Manpower and was assigned to work with
bus company ALPS Transportation, a sole proprietorship owned by Alfredo Perez.
During the course of his employment, Rodriguez was found to have committed
irregularities in April and October 2003, and January 2005. The latest irregularity report
dated January 26, 2005 stated that he had collected bus fares without issuing
corresponding tickets to passengers, annotated with the word “Terminate.” 5

Rodriguez alleged that he was dismissed from his employment on January 27,
2005, or the day after the issuance of the lastest irregularity report. However, no written
notice of termination was given to and received by him. When he went back to the bus
company a number of times, the latter refused to readmit him.

In response, petitioners stated that they did not have any prerogative to dismiss
Rodriguez, as he was not their employee, but of Contact Tours.

The labor arbiter dismissed the illegal dismissal complaint for lack of merit. No
evidence had been adduced to support the contention of Rodriguez that the latter had
been terminated on January 27, 2005. The labor arbiter concluded that Rodriguez had
not been illegally dismissed, and was actually an employee of Contact Tours, and not of
ALPS Transportation.

The NLRC set aside the decision of the labor arbiter and held that in case the
parties fail to prove either abandonment or termination, the employer should order the
employee to report back for work, accept the latter, and reinstate the employee to the
latter’s former position. However, an award for backwages is not warranted, as the
parties must bear the burden of their own loss.

The CA concluded that the NLRC acted with grave abuse of discretion in
rendering the assailed decision. The appellate court ruled that it is the employer who
bears the burden of proving that the employee was not illegally dismissed. The CA
found that ALPS Transportation failed to present convincing evidence that Rodriguez
had indeed collected bus fares without issuing corresponding tickets to passengers.
Before the illegal dismissal complaint was filed, more than six months had lapsed since
the respondent was last given a bus assignment. Thus, the CA concluded that the
argument of the bus company was only an excuse to cover up the latter’s mistake in

5
Section 22 of Republic Act 11232
terminating him without due process of law. The CA then ordered ALPS Transportation
to reinstate Rodriguez and to pay him full backwages.

ISSUES

1. Whether respondent Rodriguez was validly dismissed

2. Assuming that respondent was illegally dismissed, whether ALPS Transportation
and/or Alfredo Perez is liable for the dismissal

HELD

1. No.

For a dismissal to be valid, the rule is that the employer must comply with both
substantive and procedural due process requirements. Substantive due process
requires that the dismissal must be pursuant to either a just or an authorized cause
under the provisions of Labor Code. Procedural due process, on the other hand,
mandates that the employer must observe the twin requirements of notice and hearing
before a dismissal can be affected.

A mere accusation of wrongdoing or a mere pronouncement of lack of

confidence is not sufficient cause for a valid dismissal of an employee. Thus, the failure
of the petitioners to convincingly show that the respondent misappropriated the bus
fares renders the dismissal to be without a valid cause. If doubt exists between the
evidence presented by the employer and the employee, the scales of justice must be
tilted in favor of the latter.

On the issue of procedural due process, both parties are in agreement that
Rodriguez was not given a written notice specifying the grounds for his termination and
giving him a reasonable opportunity to explain his side; a hearing which would have
given him the opportunity to respond to the charge and present evidence in his favor;
and a written notice of termination indicating that after considering all the
circumstances, management has concluded that his dismissal is warranted.

2. Yes.

Since ALPS Transportation is a sole proprietorship owned by Alfredo Perez, it is

he who must be held liable for the payment of backwages to Rodriguez. A sole
proprietorship does not possess a juridical personality separate and distinct from that of
the owner of the enterprise. Thus, the owner has unlimited personal liability for all the
debts and obligations of the business, and it is against him that a decision for illegal
dismissal is to be enforced.

B. Partnerships and Other Associations

I. Definition

Partnerships - A contract where two or more persons bind themselves to

contribute money, property, or industry to a common fund, with the intention of dividing
the profits among themselves (Art. 1767).
“A partnership is a contract of two or more competent persons to place their
money, effects, labor and skill, or some or all of them, in lawful commerce or business
and to divide the profits and bear the losses in certain proportions.” (40 Am. Jur. 126,
474; 68 C.J.S. 398.)

II. Comparison Between Corporations and Partnerships

According to Article 1768, A partnership has a juridical personality separate and

distinct from that of each partner, even in case of failure to comply with the requirements
of Art. 1772, first paragraph.
The most important distinction between a partnership and a corporation is their
legal capacities. A corporation has a stronger legal capacity. Enabling it to continue
despite death, insolvency, or withdrawal of any of its stockholders or members. In
partnerships, the death of a partner can result in the dissolution of the partnership (Art.
1830[5]).
Limited Liability is a main feature in a corporate setting, whereas partners are
liable personally for partnership debts. Generally, every partner is an agent of the
partnership and by his sole act, he can bind the partnership whereas in a corporation,
only the Board of Directors or its agents can bind the corporation.

CORPORATION PARTNERSHIP

1. Creation

Created by law or operation of law Created by mere agreement of the parties

2. Number of Incorporators
Generally there must be at least 5 May be formed by 2 or more natural
incorporators persons

3. Powers

Can exercise only such powers and Can do anything by agreement of the
functions expressly granted to it by law parties provided only that it is not contrary
and those necessary or incident to its to law, morals, good customs, public
existence policy and public order

4. Commencement of Juridical Personality

Acquires juridical personality from the Acquires juridical personality from the
date of issuance of the certificate of moment of execution of the contract of
incorporation by the Securities and partnership
Exchange Commission

5. Management

Unless validly delegated expressly or In absence of agreement to the contrary,

impliedly, must transact its business any one of the partners may validly bind
through the board of directors the partnership

6. Right of Succession

Has the right of succession which
presupposes that it continues to exist
despite the death, withdrawal, incapacity
or civil interdiction of the stockholders or
members
Based on mutual trust and confidence
such that the death, incapacity,
insolvency, civil interdiction or more
withdrawal of one partner would result in
its dissolution

8. Transferability of Interest

Any stockholder can ordinarily transfer, A partner cannot transfer his rights or
sell or assign his shares of stock without interest in the partnership so as to make
the consent of the other stockholders or the transferee a partner without the
members consent of the other partners

9. Extent of Liability to Third Persons

The liability of the stockholders or All partners are liable pro rata with all
members in is limited to the extent of their their property and after all the partnership
subscription or their promised contribution property has been exhausted, for all
partnership liability

10. Term of Existence

 Term of existence is limited only to 50 May exist for an indefinite period
years unless extended

11. Dissolution

Consent of the State is necessary for its Partners may dissolve at will
dissolution

12. Governing Law

Governed by the Corporation Code Governed by the Civil Code

III. Other Associations Under Art. 1775

Under Art. 1775, Associations and societies, whose articles are kept secret
among the members, and wherein any one of the members may contract in his own
name with third persons, shall have no juridical personality, and shall be governed by
the provisions relating to co-ownership. An example of an association that fails to
comply with the statutory requirement in partnerships under Art. 1775 are
co-ownerships.

IV. Comparison Between a Corporation and Other Associations Under Art.

1775

Corporations have a strong juridical personality, which means that it has a right of
succession, as opposed to other associations under Article 1775 which states that,
associations whose articles or agreements are kept secret among the members (i.e.,
known to some members only but withheld from the rest) and wherein anyone of them
may contract in his own name with third persons are, by this article, deprived of juridical
personality for evidently such.
Does a defective corporation can at least result in a partnership? The answer
depends on whether or not there is a clear intent to participate in the management of
the business affairs on the part of the investor. Parties who intend to participate or have
actually participated in the business affairs of the proposed corporation would be
considered as partners under a de facto partnership. On the other hand, parties who
took no part notwithstanding their subscriptions do not become partners with other
subscribers. (Pioneer Insurance v. CA, G.R. No. 84197, July 28, 1989)
 C. Joint Ventures:

I. Definition

A Joint Venture: Is an association of persons or companies jointly undertaking

some commercial enterprise; generally, all contribute assets and share risks which
requires a community of interest in the performance of the subject matter, a right to
direct and govern the policy in connection therewith, and a duty, which may be altered
by agreement to share both in profit and losses.

II. Comparison between a Joint Venture and a Corporation:

A. As to the formation

Under the Philippine setting, a corporation is formed by operations of the law. While joint
ventures may be formed through any of the following schemes, among others: a)
incorporation of a new company; b) entering into a contractual joint ventures; or c)
acquiring shares in an existing joint ventures entity.

B. Laws/codes regulating it

A joint venture is regulated by the Joint Venture Guidelines (JV Guidelines) published by
Philippine Competition Commission (PCC). However, before the said guidelines, joint
ventures were regulated by general contract laws and partnership laws to determine the
rights and liabilities of the parties. (Aurbach v Sanitary Wares Manufacturing
Corporation, GR No. 75875, 15 December 1989)

Kilosbayan v. Guingona 232 SCRA (1994):

Facts:

Philippine Charity Sweepstakes Office (PCSO), pursuant to Section 1 of its

charter, (R.A. No. 1169, as amended by B.P. Blg. 42), has the authority to hold and
conduct "charity sweepstakes races, lotteries and other similar activities." The PCSO
decided to establish an on- line lottery system for the purpose of increasing its revenue
base and diversifying its sources of funds.
 The Berjaya Group Berhad- a multinational company became interested in
offering its services and resources to PCSO. With some Filipino investors, they created
the Philippine Gaming Management Corporation (PGMC) and entered into a contract of
lease with PCSO; which was intended to be the medium through which the technical
and management services required for the project would be offered and delivered to
PCSO.

On 4 November 1993, petitioner (KILOSBAYAN) sent an open letter to the

President opposing the setting up to the on-line lottery system because:

1. PCSO cannot validly enter into the assailed Contract of Lease with the PGMC
because it is an arrangement wherein the PCSO would hold and conduct the on-line
lottery system in "collaboration" or "association" with the PGMC.
This is in violation of Section 1(B) of R.A. No. 1169, as amended by B.P. Blg. 42,
which prohibits the PCSO from holding and conducting charity sweepstakes, races,
lotteries, and other similar activities "in collaboration, association or joint venture with
any person, association, company or entity, foreign or domestic."

Petitioner also added that:

2. PGMC does not meet the nationality requirement because it is 75% foreign
owned (Berjaya Group Berhad)

3. The Online-Lottery system is a telecommunications network. Under the law

(Act No. 3846), a franchise is needed to be granted by the Congress before any person
may be allowed to set up such;

4. PGMC’s articles of incorporation, as well as the Foreign Investments Act (R.A.

No. 7042) does not allow it to install, establish and operate the on-line lotto and
telecommunications systems.

PCSO alleged that PGMC is not a collaborator but merely a contractor for a piece of
work,( i.e., the building of the network;) and that PGMC is a mere lessor of the network
it will build as evidenced by the nature of the contract agreed upon, (i.e., Contract of
Lease.)

Issue:
Whether the Contract of Lease executed by respondent PCSO and PGMC is contrary to
law and invalid.
Held:

Yes.

A careful analysis of the provisions of the contracts of the PCSO and PGMC
disclose that the contract is not in reality a contract of lease under which the PGMC is
merely an independent contractor for a piece of work, but one where the statutorily
proscribed collaboration or association, in the least, or joint venture, at the most, exists
between the contracting parties.

Collaboration is defined as the acts of working together in a joint project.

Association means the act of a number of persons in uniting together for some special
purpose or business.

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 only thing PCSO has is its franchise or authority to operate the on-line lottery
system; with the rest, including the risks of the business, being borne by PGMC.
Undoubtedly, then, the Berjaya Group Berhad knew all along that in connection with an
on-line lottery system, the PCSO had nothing but its franchise. However, from the very
inception, the PCSO and the PGMC mutually understood that any arrangement
between them would necessarily leave to the PGMC the technical, operations,
and management aspects of the on-line lottery system while the PCSO would,
primarily, provide the franchise.

The Contract of Lease is not what it purports to be. Its denomination as such is a
crafty device, carefully conceived, to provide a built-in defense in the event that the
agreement is questioned as violative of the exception in Section 1 (B) of the PCSO’s
charter. The acuity or skill of its draftsmen to accomplish that purpose easily manifests
itself in the Contract of Lease. Yet, woven therein are provisions which negate its title
and betray the true intention of the parties to be in or to have a joint venture for a period
of eight years in the operation and maintenance of the on-line lottery system.
 So in Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, is indisputably
clear with respect to its franchise or privilege "to hold and conduct charity sweepstakes
races, lotteries and other similar activities." Meaning, the PCSO cannot exercise it "in
collaboration, association or joint venture" with any other party. Thus, the challenged
Contract of Lease violates the exception provided for in paragraph B, Section 1 of R.A.
No. 1169, as amended by B.P. Blg. 42, and is, therefore, invalid for being contrary to
law.

D. Cooperatives

I. Definition under Article 3 of R.A. 6938

A cooperative is a duly registered association of persons, with a common

bond of interest, who have voluntarily joined together to achieve a lawful
common social or economic end, 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.6

II. Juridical Personality and Limited Liability Feature

A cooperative, like an ordinary corporation, has a juridical personality

separate and distinct from its members, and has limited liability features.7

III. Principle of Democratic Control

Unlike ordinary corporations, cooperatives are governed by principles of

democratic control where the members in primary cooperatives shall have equal
voting rights on a one-member-one-vote principle;8 where the Board of Directors
manages the affairs of the cooperative, but it is the General Assembly of full
membership that exercise all the rights and performs all of the obligations of the
cooperative;9 and are under the supervision and control of the Cooperative
Development of Authority and not the SEC.

IV. Self-help: The Primary Objective of Every Cooperative

6
Article 3 of R.A. 6938 as amended by R.A. 9520, Philippine Cooperative Code
7
Arts. 12 and 13, Philippine Cooperative Code
8
Art. 4(2), Philippine Cooperative Code
9
Arts. 5(3) and 34, Philippine Cooperative Code
 Unlike an ordinary sock corporation which is organized for profit, and a
nonstock corporation which can be organized for any eleemosynary purpose and
no part of the net income is to be distributed to the officers and members thereof,
the primary objective of every cooperative is self-help: “The primary objective of
every cooperative is to help improve the quality of life of its members. Towards
this end, the cooperative shall aim to provide goods and services to its members
and thus enable them to attain increased income and savings, investments,
productivity, and purchasing power and promote among them equitable
distribution of net surplus through maximum utilization of economies of scale,
cost-sharing and risk-sharing; provide optimum social and economic benefits to
its member; teach them efficient ways of doing things in a cooperative manner.”10

COOPERATIVE CORPORATION

Separate and distinct juridical capacity

Limited Liability of investors

Primary Objective is self help to provide Organized for profit

goods and services to its members and thus
enable them to attain increased income and
savings

Governed by principles of democratic Centralized management

control where the members in primary
cooperatives shall have equal voting rights
on a one-member-one-vote-principle

E. Business Trusts

I. Definition of a Business Trust:

10
Art. 7, Philippine Cooperative Code
 - An unincorporated business organization created by a legal document, a
declaration of trust, and used in place of a corporation or partnership for
transaction of various kinds of business with limited liability. (Legal Dictionary).

- When certain persons entrust their property or money to others who will
manage the same for the former, a business trust is created. The investors
are called cestui que trust; the managers are the trustees.

- In a true business trust, the cestui que trust (beneficiaries) does not at all
participate in the management; hence, they are exempted from personal
liability, in that they can be bound only to the extent of their contribution.

II. Comparison between a Business Trust and a Corporation:

As to creation

- According to RA 11232 of the Revised Corporation Code, a corporation is

created by operation of law. A corporation is not created by mere
agreement of the parties. A corporation is a person created by fiction of
law and given a distinct and separate personality from its members.

- While a business trust is simply a deed of trust which is easier and less
expensive to constitute for it is not bound by any legal requirements. A
business trust is mainly governed by contractual doctrines and common
law principles on trust.

As to Juridical Personality

- Based on RA 11232, one of the four attributes of a corporation is it has a

strong juridical personality. A corporation has the right of succession. A
corporation has a separate and distinct personality from its members. A
business trust on the other hand does not have a separate juridical
personality.

As to what governs them

- Under the New Civil Code, Art 1442, The principles of the general law of
trusts, insofar as they are not in conflict with this Code, the Code of
commerce, the Rules of Court and Special Laws are hereby adopted.

- While a Corporation under the New Civil Code, Art 45, Juridical persons
mentioned in Nos. 1 and 2 of the preceding articles are governed by the
laws creating or recognizing them. (Those governed are other
corporations, institutions and entities for public interest or purpose,
created by law, their personality begins as soon as they have been
constituted according to law. Private corporations are regulated by laws of
general application on the subject.