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1. Corporation
Sec 2.: an artificial being created by operations of law having the right of succession and
the powers, attributes and properties expressly
authorized by law or incident to its existence.
Tri-level Existence in the Corporate Setting
First, the corporation as a juridical entity or a juridical fiction, which views the relationship
between the State and the corporation.
Second, the corporate setting provides for contractual relationships on four (4) sub-levels,
namely:
(a)Between the corporation and its agents or representatives to act in the real world, such
as its directors and its officers, governed
suppletorily by the Law on Agency.
(b)Between the corporation and its shareholders or members;
(c)Between and among the shareholders in a common venture; and
(d)Between the corporation and third parties or outsiders, which is essentially governed
by Contract Law, and Labor Law when it comes to
relationship with officers and employees.
Third, the corporation becomes in its operation a business economic unit, a business
enterprise, or what is called in Accounting as a going concern.
2. NATURE OF CORPORATIONS
1.Corporate Attributes
a.Theories in the formation of a corporation
1)Theory of Concession
-Looks at a corporation simply as a creature of the State and of limited powers and
capabilities, completely within the control of the State.
-Applies within the juridical entity level, and the issues to be resolved arise between the
State and its instrumentalities and the corporation.
-Tayag v. Benguet Consolidated, Inc., characterized a corporation as an artificial being,
created by operation of law, and that it owes its life
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to the state, its birth purely dependent on its will.
-Ang Pue & Co. v. Secretary of Commerce and Industry, would hold that 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.
(2)Theory of Enterprise Entity
-The corporate entity is viewed as taking its significant primarily from the reality of the
underlying enterprise, formed or in formation; that the
States approval of the corporate form sets up a prima facie case that the assets,
liabilities and operations of the corporation are those of
the enterprise.
-Is meant to cover the situations where the courts have either: (a) erected corporate
personality which the State had not granted; or (b)
disregarded corporate personality where the State had granted it; both for the purpose of
giving legal effect to factual relationships set up
between an economic entity and an outsider.
-The corporation is not merely an artificial being, but more of an aggregation of persons
doing business, or an underlying business unit.
-The enterprise entity theory hinges itself on the fact that there can be no corporate
existence without persons to compose it; there can be
no association without its associates.
b.Creature of the Law
1.Constitution
-Sec. 16, Article XII of the Constitution states that The Congress shall not, except by
general law, provides for formation, organization or
regulation of private corporation. GOCC may be created or established by special charters
in the interest of the common good & subject to
the test of economic viability. Consequently, it has been held that a private corporation
created pursuant to a special law is a nullity, and
such special law is void for being in violation of the Constitution.
2.Civil Code
-Under Article 44 of the Civil Code of the Philippines, other than the State and its political
subdivisions, and other corporations, institutions
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and entities for public interest or purposes, the law recognizes corporations, partnerships Free transferability of units of investment
and associations for private interest or purpose to Advantages over unregistered association
which are granted a juridical personality, separate and distinct from that of each
shareholder, partner or member.
-Under Article 45, the juridical persons organized as public corporations are governed by DISADVANTAGES
the laws creating or recognizing them, while Complicated and costly formation and maintenance
private corporations are regulated by laws of general application on the subject. Lack of personal element and abuse of corporate management
Limited liab. Hits innocent victims
3.Franchise Double taxation
-J.R.S. Business Corp v. Imperial Insurance, Inc., recognized the differences between the
primary franchise and secondary franchise of a
The Corporate entity compared with other business endeavors
corporation, thus:
(1)Sole Proprietorships
For practical purposes, franchises, so far as relating to corporations, are divisible into a (a)
- Represents the highest form of unlimited liability when it comes to the sole proprietor
corporate or general franchises; and (b) special or
because he has in his person not only the
secondary franchises. The former is the franchise to exist as a corporation, while the latter
prerogatives of management but also the benefits of ownership, and the flow of
are certain rights and privileges conferred upon existing
transactions and income is not limited within the confines
corporations, such as the right to use the streets of a municipality to lay pipes or tracks,
of the business enterprise
erect poles or string wires... The primary franchise of a
corporation, that is, the right to exist as such, is vested in the individuals who compose the
corporation and not in the corporation itself and cannot (2)
be conveyed in the absence of a legislative authority so to do. But the special or secondary Partnership (1768, 1772, and 1775 of the Civil Code)
franchises of a corporation are vested in the -Article 1768 of the Civil Code provides that the partnership has a juridical personality
corporation and may ordinarily be conveyed or mortgaged under a general power granted separate and distinct from that of each of the
to a corporation to dispose of its property, except such partners, even in case of failure to comply with the registrations requirements of the said
special or secondary franchises as are charged with public use. Code.
-The most important distinction between the corporation and the partnership is in their legal
capacities. With the right of succession, a
FOUR ATTRIBUTES OF A CORPORATION:
corporation has a stronger legal personality, enabling it to continue despite the death,
Creted by law incapacity, withdrawal or insolvency of any of its
Enjoys rights of succession stockholders or members. In a partnership, the withdrawal, death, incapacity or insolvency
has the powers, attributes and properties expressly authorized by law or incident to its of any partner would automatically bring about
existence the dissolution of the partnership.
-Limited liability is a main feature in a corporate setting, whereas partners are liable
personally for partnership debts not only to what they
ADVANTAGES OF CORP MEDIUM: have invested in the partnership but even as to their other properties.
Strong Juridical Personality -Generally, every partner is an agent of the partnership and by his sole act, he can bind the
Centralized management partnership, whereas in a corporation, only the
Limited liability of investors Board of Directors or its agents can bind the corporation.

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-In a partnership setting, although a partner has the power to sell or dispose of his capital
interest or proprietary interest, the buyer or
transferee does not assume transferors position as partner, but merely has a right to
demand for accounting or distribution of the profits
pertaining thereto. The principle of delectus personae prevails in the partnership setting. In
a corporate setting, every stockholder has the
right to transfer his shares in the corporation, and the buyer or transferee assumes the role
of stockholder of said shares when the transfer
has been duly registered in the corporate books. Free transferability of the units of
ownership is a hallmark feature in the corporate setting
(3)
Joint Venture
-The concept of a joint venture is of common law origin, and has no precise legal definition.
Under Philippine Law, a joint venture is a form
of partnership and should thus be governed by the Law on Partnerships, which would then
include the features of separate juridical
personality, mutual agency among the co-venturers, and unlimited liability.
-Defined as an association of persons or companies jointly undertaking some commercial
enterprise; generally all contribute assets and
share risks. It requires a community of interest in the performance of the subject matter, a
right to direct and govern the policy in
connection therewith, and duty, which may be altered by agreement to share both in profit
and losses. The acts of working together in a
joint project.
ENTITLEMENT OF THE CORPORATION TO CONSTITUTIONAL GUARANTEES
1.DUE PROCESS AND EQUAL PROTECTION CLAUSE
-A corporation is entitled to due process and equal protection of the law and protection
against unreasonable searches and seizures.
-In Smith, Bell & Co. v. Natividad, a domestic corporation with the majority of its
shareholdings held by British subjects, sought to have a law
reserving registration of vessels for coast-wide shipping only to domestic corporations
wholly-owned by Filipinos or American citizens as
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violation of due process and equal protection clauses. Although denying the stand of the
domestic corporation, the Supreme Court
acknowledged that corporate entities do have a right to claim protection under such
constitutional rights, because
the guarantees of the 14th Amendment and so the first paragraph of the Philippine Bill of
Rights, are universal in their application to all persons
within the territorial jurisdiction, without regard to any differences of race, color, or
nationality. The word person includes aliens,.. Private
corporations, likewise, are persons within the scope of the guaranties in so far as their
property is concerned
2.UNREASONABLE SEARCHES AND SEIZURES
-In Stonehill v. Diokno, recognized that corporations are protected by the constitutional
guarantee against unreasonable searches and
seizures. However, the Court ruled that the officers of a corporation from which documents,
papers and things were seized have no cause
of action to assail the legality of the seizures, regardless of the amount of shares of stock or
of the interest of each of them in said
corporation, and whatever the officers they hold therein may be, because the corporation
has a personality separate and distinct from
those of said officers.
-It held that the legality of a seizure can be contested only by the party whose rights have
been impaired thereby; and the objection to an
unlawful search is purely personal and cannot be availed of by third parties, such as
officers of the corporation who interpose it for their
personal interests.
-In Bache & Co. v. Ruiz, the Court held that a corporation is entitled to immunity against
searches and seizures, thus:
A corporation is, after all, but an association of individuals under an assumed name and
with a distinct legal entity. In organizing itself as a
collective body, it waives no constitutional immunities appropriate for such body. Its
property cannot be taken without compensation. It can only
be proceeded against by due process of law, and is protected, under the 14th
amendment, against unlawful discrimination.
3.RIGHT AGAINST SELF-INCRIMINATION
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-In Bataan Shipyard & Engineering Co., v PCGG, where the Court held that while an -Those formed or organized for the government of a portion of the State (sec. 3 of the old
individual may lawfully refuse to answer Corp. law)
incriminating questions unless protected by an immunity statute, it does not follow that a
corporation, vested with special -Are those created for political purposes connected with the public good in the
privileges and franchises, may refuse to show its hand when charged with an abuse of administration of the civil government. Public corporations
such privilege. This was extensively therefore are essentially municipal corporation, or those formed and organized by the State
quoted from Wilson v United States. for government, such as the barangay,
-It seems that when it comes to the constitutional rights of due process, equal protection of municipality, city and the province. In essence, being a mini-state, possesses all 3 great
law, and protection against unreasonable powers of government: police power, power of
searches and seizures, the Supreme Court would be willing to view the corporation merely eminent domain, and power of taxation.
as a vehicle, by which individuals transact their
businesses and therefore, by using such medium, they are deemed not to have waived
2 fold character of a MUNICIPAL CORP.
their constitutional rights.
Public or governmental character, in which it acts as agent of the state and exercises, by
delegation a part of the sovereignty of the
-The difference in the Courts stance may lie in the fact that the right against self- state;
incrimination does not really result in physical intrusion into
the premises of the corporation, because it would require only that the corporation, through
A private, corporate or proprietary character, in which it acts as a private or business
its agents, produce records and books before
corporation, and stands for the community in the
the courts. The denial of the right against self-incrimination from corporations does not
administration of its local affairs wholly beyond the sphere of public purposes for which its
really invite state authorities into the premises or
governmental powers are conferred.
physical privacy of the stockholders or members who compose the corporation; but would
deny acting individuals the right to abuse
the corporate medium as a means to do folly. MUNICIPAL CORP. (govtl character)
-Are possessed of and can exercise the so-called police power of the state, by delegation
of the legislature. They may levy taxes for certain
-The constitutional protection against self-incrimination is not meant to prevent an actual
purposes under limitations imposed by the lawmaking body. They are organized for the
State abuse but to avoid pressuring the individuals
purpose of serving the communal welfare of the
from having to tell a lie. The main purpose of the provision.. is to prohibit compulsory oral
inhabitants of a town or a city.
examination of prisoners before the
trial, or upon trial, for the purpose extorting unwilling confessions or declarations implicating
them in the commission of a MUNICIPAL CORP. (proprietary character)
crime. A corporation owes full allegiance and subject to the unrestricted jurisdiction of the -Are empowered to mortgage their property under certain limitations. They can sue and be
courts of the State under which it has been sued, enter into contracts and may be held liable
organized. Likewise, a corporation has no soul that can be damned by a lie for damages for torts committed by them in the exercise of their corporate functions as
distinguished from public and governmental
functions.
CLASSIFICATION OF CORPORATIONS
A.IN RELATION TO THE STATE
1.PUBLIC CORPORATIONS 2.PRIVATE CORPORATIONS

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-Are divided into stock corporations and non-stock corporations. Corporations which have a
capital stock divided into shares and are
authorized to distribute to the holders of such shares dividends or allotments of the surplus
profit on the basis of the shares held are stock
corporations. All other private corporations are non-stock corporations. Private corporations
may be classified according to their
purposes: (a) the business corporation, or the profit-seeking corporation, (b) religious
corporations, (c) eleemosynary corporations or those
organized for charitable, scientific or vocational corporations.
DISTINCTIONS BETWEEN PUBLIC AND PRIVATE CORPORATIONS
A.BASED ON CORPORATIONS CREATION
1.Public Corporation is created by its charter
2.Private Corporation created by incorporation law. However, while this is a general form,
many private corporations are granted special
charters by the Legislature, because they constitute government-owned or controlled
corporations, but still cannot be considered as public
corporation.
In National Coal Co. v. Collector of Internal Revenue, National Coal was created by Act
2705 for the purpose of developing the coal industry, with the
Government owning almost all of the shareholdings of the company. The company was
created with the general powers of a corporation and such
other powers as may be necessary to enable it to prosecute the business for the
development. The Legislature subsequently passed a law providing
for the leasing and development of coal lands and exempted the same from specific taxes.
On that basis, National Coal took possession of coal
lands belonging to the government, and began to extract coal. The Collector levied against
the company specific tax on coal extracted from coal
land. National Cola claimed exemption from specific taxes stating that it is the owner of the
land from which it has mind the coal in question, being a
government corporation.
The Court held that the National Coal is a private corporation. The mere fact that the
government happens to be a majority stockholder does not
make a corporation a public corporation. The Court took into consideration that the law
creating National Coal expressly made the company subject
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to all the provision of the then Corporation Law. As a private corporation, it had no greater
rights, powers, or privileges than any other corporation
which might be organized for the same purpose under corporation law. It was not
certainly the intention of the legislature to give it a right or
privilege over other legitimate private corporation. Even a majority stockholder is the
government or that the charter was a direct grant by
legislature or it was not incorporated for public welfare, such matter did not make the
National Coal a public corporation it is still a private
corporation especially the act creating it, made the company subject to the provisions of the
Corporation Law.
In Philippine Society for the Prevention of Cruelty to Animals v. Commission on Audit, the
Court held that although the corporation had its own charter
(C.A. No. 148), it was still a private corporation and not an agency of the government, since
a reading of the charter showed that it is not subject to
control or supervision by any agency of the State and that fact that is employees are
registered and covered by SSS at the time latters initiative, and
not through the GSIS which should be the case if the employees are considered
government employees.
Based upon the cases above, there are 3 types of private corporations: (a) those organized
under the Corporation Code for private ends;, and (b)
those organized under the Corporation Code as GOCC to achieve certain purposes of the
government and (c) those GOCC with their owned charter.
Therefore, it is possible for a GOCC to have a private holdings and a private corporation to
have government holdings.
However, it is not the public purpose alone, or the complete or controlling ownership by the
State of its capital, or the fact that it has a charter under a
special law, that distinguishes a public corporation from a private corporation. Thus, certain
corporations, wholly-owned by the Government, having a
public purpose, and organized under their own charter would still continue to be private
corporations, such as the National Development Corporation,
the Philippine National Railways, etc.
Likewise, in Philippine Society v. COA held that the fact that a juridical entity is impressed
with a public interest does not, by the circumstances alone,

make the entity a public corporation, inasmuch as a corporation may be private though its
charter contains provisions of a public character
incorporated solely for the public good.
In the end, a truly public corporation has a juridical entity, but it exists primarily for the
government of a portion of the state, and thereby
exercising state powers as police power, taxing power and the power of eminent domain.
Nonetheless, when a government undertaking is
set up without endowing it with a separate juridical personality, then it is neither a public nor
private corporation.
3.QUASI PUBLIC CORPORATIONS
-There is a group of association that seems to be cross between private and public
corporations, and they are classified as quasi-public
corporations. These usually cover school districts, water districts and the like.
B.AS TO PLACE OF INCORPORATION
1.DOMESTIC CORPORATIONS
Is one incorporated under laws of the Philippines.
2.FOREIGN CORPORATION
-Under Sec. 123 of the Corp. Code, a foreign corporation is one formed, organized or
existing under any laws other than those of the
Philippines and whose laws allow Filipino citizens and corporations to do business in its
own country or State. It shall have the right to
transact business in the Philippines after it shall have obtained a license to transact
business in the country in accordance with this Code
and a certificate of authority from the appropriate government agency.
The objectives of the statutory provision prescribing conditions under which foreign
corporations are permitted to do business in a stat other than that
of their creation:
(a)To place them on an equality with domestic corporations;
(b)To subject them to inspection so that their condition may be known; and
(c)To protect the residents of the state doing business with them by subjecting them to the
courts of the state.
-In case of war, for reasons of national security, in addition to the incorporation test
embodied in Section 123 of the Corporation Code, the
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control test is applied to determine the nationality of a corporation.
-A foreign corporation can have no legal existence beyond the bounds of the state or
sovereignty by which it is created. It exists only in
contemplation of law and by the force of law, and where that law ceases to operate, the
corporation can have no existence. This principle,
however does not prevent a corporation from acting in another state or country with the
latters express or implied consent.
C.AS TO NATIONALITY
-serves as a legal basis for subjecting the enterprise or its activities to the laws, the
economic and fiscal powers, and the various social and
financial policies, of the state to which it is supposed to belong.
TESTS:
PLACE OF INCORPORATION TEST that a corporation is a national of the country under
whose laws it has been organized and
registered. This is embodies in Section 123 of the Corporation Code which provides that a
foreign corporation is one formed,
organized or existing under any laws other than those of the Philippines and whose laws
allow Filipino citizens and corporations to do
business in its own country or State.
CONTROL TEST the nationality of a corporation is determined by the nationality of the
majority of the stockholders on whom equity
control is vested, on the theory that they would be able to elect the majority of the Board of
Directors. The SEC has confirmed in an
opinion, that in the application of the control test, all capital stock of the corporation,
whether common or preferred shares, and
whether voting or non-voting, must be included.
The general rule is that the control test cannot overcome the place of incorporation test
i.e., a foreign corporation even when
100% of its equity is owned by Filipino citizens continues to be considered as a foreign
corporation. the only exception to this

rules recognized by the SEC in an opinion, is that found in the provision of the Foreign
Investment Act of 1991 that a
corporation organized abroad and registered as doing business in the Philippines under the
Corporation Code 100% of the
capital stock outstanding and entitled to vote is wholly owned by Filipinos.
PLACE OF PRINCIPAL BUSINESS also applied to determine whether a state has
jurisdiction over the existence and legal
character of a corporation, its capacity or powers, internal organization, capital structure,
the rights and liabilities of directors, officers,
and shareholders towards each other and to creditors and third persons. Under that test,
the corporation is subject to the jurisdiction
of the place where its principal office or center of management is located.
1.EXPLOITATION OF NATURAL RESOURCES Section 2, Art. XII CONST. only Filipino
Citizens or Corporations whose capital stock are
at least 60% owed by Filipinos can qualify to exploit natural resources.
-The policy of the State is to ensure that the exploitation of natural resources or the pursuit
of activites deemed to be of public or national
interest are in the control of Filipinos. In addition, the section authorizes the President to
enter into agreements with foreign-owned
corporation involving either technical or financial assistance for large-scale exploration,
development and utilization of minerals, petroleum,
and other mineral oils according to general terms and conditions provided by law, based on
real contributions to the economic growth and
general welfare of the country.
-In Register of Deeds of Rizal v. Ung Sui Si Temple, laid down the principle that the
purpose of the 60 per centum requirement is obviously
to ensure that corporations or associations allowed to acquire agricultural land or to exploit
natural resources shall be controlled by
Filipinos; and that the spirit of the Constitution demands that in the absence of capital
stock, the controlling membership should be
composed of Filipino citizens. In that case, the Court disqualified a non-incorporated
religious organization, whose trustees and whose
members were Chinese nationals, from acquiring by donation a piece of land.
2.OWNING AND OPERATING PUBLIC UTILITIES - Sec. 11, Art XII, CONST. xxx no
franchise, certificate or any other form of authorization
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for the operation of a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under
the laws of the Philippines at least 60% of whose capital is owned by such citizens; / nor
shall such franchise, certificate, or authorization
be exclusive in character or for a longer period than fifty years...
The State shall encourage equity participation in public utilities by the
general public. The participation of foreign investors in the governing body of any public
utility enterprise shall be limited to their
proportionate share in its capital, and all the executive and managing officers of such
corporation or association must be citizens of the
Philippines.
-Unlike the provisions on the exploitation of natural resources, the aforequoted provisions
expressly includes the place of incorporation test
and requires that only domestic corporations with at least 60% of the capital stock owned
by Filipinos may own and operate public utilities
in the Philippines.
-In People v. Quasha, the Court held that the Constitution does not prohibit the mere
formation of a public utility corporation without the
required proportion of Filipino capital. What it does prohibit is the granting of a franchise or
other form of authorization for the
operation of a public utility to a corporation already in existence but without the requisite
proportion of Filipino capital. Quasha
therefore draws the distinction between primary franchise of a corporate entity by virtue of
which it is constituted as a body politic endowed
with separate juridical personality, and the secondary franchise that it may receive during
its life for the exercise of a privilege granted by
law, such as the operation of a public utility.
-The ruling in Quasha can be pointed to as the basis to show that the constitutional
provision prohibiting Congress, except by general law,
to provide for the formation, organization, or regulation of a private corporations, really
serves no useful benefit, since all that it covers is
the primary franchise, which merely constitutes the corporation into a juridical entity. It is
the secondary franchise by which the corporation

may be granted special privileges, licenses or benefits not enjoyed by other corporations,
where the real abuse may be committed
For a corporation to be entitled to operate a public utility it is not necessary that it be
organized with 60 per cent of its capital owned by Filipinos from
the start. A corporation formed with capital that is entirely alien may subsequently change
the nationality of its capital through transfer of shares to
Filipino citizens. conversely, a corporation originally formed with Filipino capital may
subsequently change the national status of said capital through
transfer of shares to foreigners.
> The moment for determining whether a corporation is entitled to operate as a public utility
is when it applies for a franchise, certificate, or any
other form of authorization for that purpose. And that can be done after the corporation has
already come into being and not while it is still being
formed. And at that moment, the corporation must show that it has complied not only with
the requirement of the Constitution as to the nationality of
its capital, but also with the requirements of the Civil Aviation Law if it is a common carrier
by air, the Revised Administrative Code if it is a common
carrier by water, and the Public Service Law if it is a common carrier by land or other kind
of public service.
The majority of the court, however, are also of the opinion that, even supposing that the act
imputed to the defendant constituted falsification at the
time it was perpetrated, still with the approval of the Party Amendment to the Constitution in
March, 1947, which placed Americans on the same
footing as Filipino citizens with respect to the right to operate public utilities in the
Philippines, thus doing away with the prohibition in section 8,
Article XIV of the Constitution in so far as American citizens are concerned, the said act has
ceased to be an offense within the meaning of the law,
so that defendant can no longer be held criminally liable therefor
3.MASS MEDIA Sec. 11 Article XVI of the 1987 Constitution, The ownership and
management of mass media shall be limited to citizens of
the Philippines, or to corporations, cooperatives or associations, wholly-owned and
managed by such citizens. Mass media includes radio,
television, and printed media and does not include commercial telecommunications, which
are considered as public utilities, nor the
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advertising industry.
-The term mass media shall mean the gathering, transmission of news, information,
messages, signals and forms of written, oral and all
visual communication and shall embrace the print medium, radio, television, films, movies,
advertising in all its phases, and their business
managerial.
-Although the constitutional provision governing mass media does not expressly include the
place of incorporation test, the same shall be
deemed included under the same principle governing exploitation of natural resources. In
fact, the ancillary control test for mass media
under the Constitution is actually more stringent than in other defined areas, since it
requires not only 100% Filipino ownership of the
capital stock of the corporation, but also 100% Filipino management of the entity.
4.ADVERTISING INDUSTRY - Sec. 11 Article XVI of the 1987 Constitution provides that t
he advertising industry is impressed with public
interest, and shall be regulated by law for the protection of consumers and the promotion of
the general welfare.
-Only Filipino citizens or corporations or associations at least 70% of the capital of which is
owned by such citizens shall be allowed to
engage in the advertising industry. It also provides that the participation of foreign investors
in the governing body of the entities in such
industry shall be limited to their proportionate share in the capital thereof, and all the
executive and managing officers of such entities must
be citizens of the Philippines.
5.WAR-TIME TEST - If the controlling stockholders are enemies, then the nationality of the
corporation will be base on the citizenship of the
majority stockholders in times of war (Filipinas Compania de Seguros v Christian Huenfeld,
1951). The Court considered the juridical entity
as an enemy based on the fact that the majority of the stockholders of the respondent
corporation were German subjects. It ruled that the
control test was applicable only in war-time. It refused the sole application of the place of
incorporation test during war-time to determine
the nationality of an enemy corporation

6.GRANDFATHER RULE a sub-application under control test, where the various
nationality tests shall first be applied on the shareholders
of the holding companies, to determine the nationality of the equity in the target
corporation, and thereby arrive at the nationality of such
target corporation.
-It is a three-level relationship test that gave it the name: the target company may be
termed to be the grandson; the holding company
would be considered the father; and the person or entity holding shares in the holding
company would be considered the grandfather.
-Used to determine the nationality of a corporation by which the percentage of Filipino
equity in corporations engaged in nationalized and/or
partly nationalized areas of activities, provided for under the constitution and other
nationalization laws, is computed, in cases where
corporate shareholders are present in the situation, by attributing the nationality of the
second or even subsequent tier of ownership to
determine the nationality of the corporate stockholder. (Villanueva, 2003)
-Method by which the percentage of Filipino is computed, in a corporation engaged fully or
partly nationalized areas of activities provided
under the Constitution and other nationalization laws, in cases where corporate
shareholders are present in the situation, by attributing the
nationality of the second or even subsequent tier of ownership to determine the nationality
of the corporate shareholders.
SEC formula: SEC Letter Opinion
Shares belonging to corporations or partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of
Philippine nationality, but if the percentage of Filipino ownership in the corporation or
partnership is less than 60% only the number of shares
corresponding to such percentage shall be considered as of Philippine nationality.
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CORPO LEC. 3
1. CORPORATION SOLE
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special form of corporation, usually associated with the clergy and consists of one person
only and his
successor, who are incorporated by law to give some legal capacities and advantages.
-The corporation sole is an exception to the general rule that at least five (5) members are
required for a corporation to exist.
Here, there isonly one (1) incorporator. This is applicable to religious communities the
regulations of which provide that the communitys properties are to
be placed in the name of the head and administered by him.
Section 110.
Corporation sole. - For the purpose of administering and managing, as trustee, the affairs,
property and temporalities of
any religious denomination, sect or church, a corporation sole may be formed by the chief
archbishop, bishop, priest, minister, rabbi or
other presiding elder of such religious denomination, sect or church. (154a)
Section 111.
Articles of incorporation. - In order to become a corporation sole, the chief archbishop,
bishop, priest, minister, rabbi or
presiding elder of any religious denomination, sect or church must file with the Securities
and Exchange Commission articles of
incorporation setting forth the following:
1.That he is the chief archbishop, bishop, priest, minister, rabbi or presiding elder of his
religious denomination, sect or church and that he
desires to become a corporation sole;
2.That the rules, regulations and discipline of his religious denomination, sect or church are
not inconsistent with his becoming a corporation
sole and do not forbid it;
3.That as such chief archbishop, bishop, priest, minister, rabbi or presiding elder, he is
charged with the administration of the temporalities
and the management of the affairs, estate and properties of his religious denomination,
sect or church within his territorial jurisdiction, describing
such territorial jurisdiction;
4.The manner in which any vacancy occurring in the office of chief archbishop, bishop,
priest, minister, rabbi of presiding elder is required to
be filled, according to the rules, regulations or discipline of the religious denomination, sect
or church to which he belongs; and
5.The place where the principal office of the corporation sole is to be established and
located, which place must be within the Philippines.
The articles of incorporation may include any other provision not contrary to law for the
regulation of the affairs of the corporation. (n)
Definition: manages, administer, temporalities of the church

Constituted not on the person but on the position.
-where in case of vacancy of the position, there will be no transfer as to the person, but it
will only be filled.
-can hold the property for many years despite the changes in the person in the position.
Roman Catholic Administration v Davao
The Roman Catholic Apostolic Church has no nationality and that the framers of the
Constitution did not have in mind the religious corporation sole
when they provided that 60% of the capital thereof be owned by Filipino citizens. Thus, if
this constitutional provision were not intended for
corporation sole, it is obvious that this could not be regulated or restricted by said provision.
In determining whether the constitutional provision
requiring 60% Filipino capital is applicable in Corporation sole, the nationality of the
constituents of the diocese and not the nationality of the actual
incumbent of the parish must be taken into consideration. Even if the question of nationality
is considered, the constitutional requirement is fully met
and satisfied, considering that the corporation sole in question is composed of an
overwhelming majority of Filipinos.
Both the Corporation Law and the Canon Law are explicit in their provisions that a
corporation sole or ordinary is not the owner of the properties that
he may acquire but merely the administrator thereof and holds the same in trust for the
church to which the corporation is an organized and
constituents part. Being mere administrator the constitutional provision of 60% Filipino
ownership is not applicable
Rep v VILLANUEVA (public domain) registration of imperfect title: only limited to Fil
citizens.
Corporate Sole has no citizenship.
As correctly contended by the Solicitor General, the Iglesia Ni Cristo, as a corporation sole
or a juridical person, is disqualified to acquire or hold
alienable lands of the public domain, like the two lots in question, because of the
constitutional prohibition already mentioned and because the said
church is not entitled to avail itself of the benefits of section 48(b) which applies only to
Filipino citizens or natural persons. A corporation sole (an
"unhappy freak of English law") has no nationality (Roman Catholic Apostolic Adm. of
Davao, Inc. vs. Land Registration Commission, 102 Phil. 596.
See Register of Deeds vs. Ung Siu Si Temple, 97 Phil. 58 and sec. 49 of the Public Land
Law)
2. STOCK
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1.STOCK CORPORATIONS corporations which have a capital stock divided into shares
and are authorized to distribute to the holders
dividends. If not authorized by the by-laws to distribute the dividends, but it is a stock
corporation, can a corporation distribute dividends to
is shareholders? The answer seems corporations affirmative since one of the expressed
powers granted to stock corporations under
Section 43 of the Corporation Code is the power to declare dividends.
To exist
1. Capital stock divided into shares
2. Dividends given/distributed to its members
2.NON-STOCK CORPORATIONS section 87 of the Corporation Code provides that a
non-stock corporation is one where no part of its
income is distributable as dividends to is members, trustees or officers, subject to the
provisions on dissolution, provided that any profit
which a non-stock corporation may obtain as an incident to its operations shall, whenever
necessary or proper be used for the furtherance
of the purpose or purposes for which the corporation was organized.
-Section 88 provides that non-stock corporations may be formed or organized for charities,
religious, educational professional, cultural,
recreational, fraternal, literary, scientific, social, civic service, or similar purposes, like trade,
industry, agriculture, and like chambers, or any
combination thereof, subject to the special provisions of this title governing particular
classes of non-stock corporations
CIR v Club
The Court found that the plain and ordinary meaning of business is restricted to activities
or affairs where profit is the purpose.
Having found that the club was organized to help develop and cultivate sports; that
whatever profits it derived are actually used to defray
its overhead expenses, it stood to reason that the club was not engaged in the business of
an operation of a bar and restaurant.
-It would seem therefore that for a stock corporation to exist, 2 requisites must be complied:
1. A capital stock divided into shares; and
2. Authority to distribute dividends.
However, it is to be noted that nowhere in its articles or by laws could be found an authority
for the distribution of its dividends or surplus profits.
= Thus, every time there is an express authorization in either the articles of incorporation or
by-laws of a corporation to declare dividends, it is
undoubtedly a stock corporation.

= When there is no express prohibition not to distribute dividends, it would seem that the
corporation is a non-stock corporation
3. CLOSE CORPORATION
Definition: A close corporation, within the meaning of this Code, is one whose articles of
incorporation provide that: (1) All the corporation's issued
stock of all classes, exclusive of treasury shares, shall be held of record by not more than a
specified number of persons, not exceeding
twenty (20); (2) all the issued stock of all classes shall be subject to one or more specified
restrictions on transfer permitted by this Title;
and (3) The corporation shall not list in any stock exchange or make any public offering of
any of its stock of any class. Notwithstanding the
foregoing, a corporation shall not be deemed a close corporation when at least two-thirds
(2/3) of its voting stock or voting rights is owned
or controlled by another corporation which is not a close corporation within the meaning of
this Code
Any corporation may be incorporated as a close corporation, except mining or oil
companies, stock exchanges, banks, insurance
companies, public utilities, educational institutions and corporations declared to be vested
with public interest in accordance with the
provisions of this Code
(essential reqs. Of close corp)
1. Shares Stock is not exceeding 20 person
2. Restrictions on transferability of stocks
3. Not listed on stock markets or any public offerings
4. At least of its voting stocks or voting rights is owned or controlled by
another corporation
***all should be complied
If not all complied: corp: is subject to majority votes, subj to the reso by the board
DULAY
Why board reso not necessary?
What validates the sale?
***because it is a close corp, a borad reso is not needed
The director of the corp can bind the corp
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Section 101 of the Corporation Code of the Philippines provides that "When board meeting
is unnecessary or improperly held. Unless the
by-laws provide otherwise, any action by the directors of a close corporation without a
meeting shall nevertheless be deemed valid if: (1)
Before or after such action is taken, written consent thereto is signed by all the directors; or
(2) All the stockholders have actual or implied
knowledge of the action and make no prompt objection thereto in writing; or (3) The
directors are accustomed to take informal action with
the express or implied acquiesce of all the stockholders; or (4) All the directors have
express or implied knowledge of the action in question
and none of them makes prompt objection thereto in writing. If a directors' meeting is held
without proper call or notice, an action taken
therein within the corporate powers is deemed ratified by a director who failed to attend,
unless he promptly files his written objection with
the secretary of the corporation after having knowledge thereof." Herein, the corporation is
classified as a close corporation and
consequently a board resolution authorizing the sale or mortgage of the subject property is
not necessary to bind the corporation for the
action of its president. At any rate, a corporate action taken at a board meeting without
proper call or notice in a close corporation is
deemed ratified by the absent director unless the latter promptly files his written objection
with the secretary of the corporation after having
knowledge of the meeting which, in this case, Virgilio Dulay failed to do.
Restrictions on free transferability Close Corporations:
Sec 99.
1. if stock of a close corporation is issued or transferred to any person who
is not entitled under any provision of the articles of incorporation to be a holder of
record of its stock, and if the certificate for such stock conspicuously shows the
qualifications of the persons entitled to be holders of record thereof, such person
is conclusively presumed to have notice of the fact of his ineligibility to be a
stockholder.
***found in partnership
-If unqualified, charged of knowledge, has the effect of being unable to transfer w\shares
which are legitimately bought
-If it is clear in the cert the restriction; even if paid, cannot register in the name of the
person who bought the stock
FINANCING CORP. v TEODORO
Principle of Delectus Personae---can be used to justify the request of dissolution by a
minority in a close corporation

As a rule: majority rules(normal corp)--minorities cannot file for the dissolution
Close corp: works as a partnership (with restriction on transferability)
-rules and principle of partnership should apply
- By ratification: the only time the corporation becomes liable when it ratifies the contract.
***family corp cannot always be a close corps
4. PROMOTER
person, who acting alone or with others, takes initiative in founding and organizing the
business or enterprise of
the issuer and receives consideration therefor.
-Promoters, as the visionaries or trailblazers in founding corporate enterprises, are certainly
not in the same category as carpetbaggers.
Their activities are deemed beneficial to society and therefore are regulated by law. No
formal recognition is accorded to promoters
contracts in the Corporation Code, except under Section 60 and 61 thereof, on pre-
incorporation subscriptions.
Definition: - takes initiative of founding and organizing the business or enterprise;
- the role of the promoter is to enter into contracts so
that when the person comes into being, everything has been laid down,
the only thing that the corp will do is to ratify the contracts.
- The need for a promoter, is for contracts to be entered
into, for a yet to be a corp, there is no juridical person
When promoter enters into a contract: he becomes liable, because the promoter acts as an
agent of the corp., a non-existing corp
But under the rules of agency if an agent without a principal, you are deemed the
principal; and the agent becomes liable.
Since there is no juridical person; no corporation yet; the rule is THE
PROMOTERs CONTRACT, IS THE PROMOTERs OWN. (because there was never a
consent yet, on the part of the corp, for a promoter to become an agent)
What promoters do:
Ex
1. Research and dev
2. Plant
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BERNARDO (CORPO MIDTERM)
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3. Employees
4. machineries
When does the principal become liable under the contracts entered by a promoter?
CAGAYAN FISHING:
There can be no promoter; their purpose is to defraud
It would seem that the ration in Cagayan Fishing s that ratification is the key element in
upholding the validity and enforceability of promoters
contacts. Without ratification by a corporation after it due incorporation, a contract entered
into in behalf of a corporation yet to be organized or still in
the process of incorporation is void as against the corporation. The Court found significant,
the fact that the transactions involving the properties
were not treated as corporate assets but as the personal assets of the Taboras, supported
by the fact that the titles of the parcels of land were not
even registered in the name of the corporation
RIZAL LIGHT:
The promoters offer to the contract is CONTINUOUS; once the corp comes into being, the
promoters offer is continuing; so long that the corp does not ratify, the rule is
PROMOTERs CONTRACT is the PROMOTERs OWN.
At any time, when the corp says YES or it RATIFIES, the obligations automatically shifts to
the corp./ juridical person.
The Court also clarified in Rizal Light that in deciding Cagayan Fishing this Court did not
say in that case that the rules is absolute and that under
no circumstances may the acts of promoters of a corporation be ratified or accepted by the
corporation if and when subsequently organized. Of
course, there are exceptions. It will be noted that American courts generally hold that a
contact made by the promoters of a corporation on its behalf
may be adopted, accepted or ratified by the corporation when organized.
DIFFERENCE BETWEEN CAGAYAN FISHING AND RIZAL LIGHT
In Rizal Lights, quoting from American Corporate authorities McQuillin, Fletcher and
Thompson, emphasized that a company is not completely
incorporated at the time a secondary franchise or a license is given, does not affect the
validity of the grant, but what is essential is that at the time of
the grant, the corporation is organized or that the companys organization is complete.
This emphasizs the principles under the business

enterprise doctrine that what is essential for commencement of a corporation is the
existence of the business organization upon which a license or
grant is pursued.
While in Cagayan Fishing, it seemed that event at the tim of litigation, the juridical entity
has not been formally organized into a business enterprise,
and even the third-party (Sandiko) was well aware that the subject titles to the parcels of
land were still not registered in the name of the corporate
entity
CARAM JR. V CA***
Differentiates who is a promoter and a promotee.
The above finding bolsters the conclusion that the petitioners were not involved in the initial
stages of the organization of the airline, which
were being directed by Barreto as the main promoter. It was he who was putting all the
pieces together, so to speak. The petitioners were merely
among the financiers whose interest was to be invited and who were in fact persuaded, on
the strength of the project study, to invest in the proposed
airline.
If indeed, the question of whether or not one is a promoter is irrelevant in determining ones
liability for the pre-organization expenses, then it would
have been unnecessary in Caram, Jr. to determine that the majority investing incorporators
were not promoters in order to absolve them from any
liability on the pre-organizational expenses.
Also significant in Caram, Jr. is the Courts finding that since there was no representation
that the corporation was fictitious, there was no justification
to hold the stockholders thereof personally liable. This is a doctrine that has an effect
similar to the doctrine of corporation by estoppels, thus:
Significantly, there was no showing that the Filipinas Orient Airways was a fictitious
corporation and did not have a separate juridical
personality, to justify making the petitioners, as principal stockholders thereof, responsible
for its obligations. As a bona fide corporation, the Flipinas
Orient Airways should alone be liable for its corporate acts as duly authorized by its officers
and directors
Under the principle of the SEPARATE JURIDICAL personality: a corp is different from its
shareholders;
***a promoter can be any person
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Personal liability of promoter on pre-incorporate contracts.
3 possible situations between the promoter and the other party to a pre-incorporation
contract:
1.promoter makes a continuing offer in behalf of corp. If accepted, contract perfected
a.promoter no personal liability
2.promoter makes contract binding himself. If accepted or adopted, he is relieved of liability
3.promoter binds himself personally, but seeks
reimbursement from corporation.
GR: promoter is personally liable for contracts made by him in behalf of the proposed
corporation.
Exception: express or implied agreement to the contrary Adoption or ratification of the
contract does not release him from responsibility, unless a
novation was intended
5. SUBSCRIPTION CONTRACT AND PURCHASE AGREEMENT
SC: unissued shares:: covered by corpo law
Section 60. Subscription contract. - Any contract for the acquisition of unissued stock in an
existing corporation or a corporation still to be formed
shall be deemed a subscription within the meaning of this Title, notwithstanding the fact that
the parties refer to it as a purchase or some other
contract. (n)
Section 72. Rights of unpaid shares. - Holders of subscribed shares not fully paid which are
not delinquent shall have all the rights of a stockholder.
the essence of the stock subscription is an agreement to take and pay for original unissued
shares of a corporation, formed or to be formed
3 rules under SC
1. obligation to pay becomes absolute
2. Obligation to pay can be suspended; (when payment becomes
installment)
3. Once the corp becomes insolvent;( even if suspended under the second
rule), makes the obligation to pay becomes due and demandable. WHY? Because
of TRUST FUND DOCTRINE
PA; acquisition of issued shares: covered by law on sales
AUTHORIZED capital stock: limit that the state granted the corp to capitalize

The corporation requires at least five (5) incorporators
25% subscribed (of the ACS) CAPITAL STOCK
25% of the subscribed must be paid up
(25-25 rule)
***if one has fully paid its subscription; he may be given a cert issued on his name (he may
also sell it***concept of free transferability)
THE PAID UP: is the CAPITAL STOCK of the corp
TRUST FUND DOCTRINE: the capital stock of the corp is the fund upon which the
creditors can look into for satisfaction of their claims(***creditors of the corp may only look
at its capital stock, even if the cash on hand or paid up is lesser than the capital stock)
capital stock cannot be impaired (with exceptions)
LIMITED LIABILITY: covers what the stockholders promised to invest
-------------------------------------------------------------------
CORPO LEC 4
1. SUBSCRIPTION CONTRACTS
Section 60. Subscription contract. - Any contract for the acquisition of unissued stock in an
existing corporation or a corporation still to be formed
shall be deemed a subscription within the meaning of this Title, notwithstanding the fact that
the parties refer to it as a purchase or some other
contract. (n)
Section 72. Rights of unpaid shares. - Holders of subscribed shares not fully paid which are
not delinquent shall have all the rights of a stockholder.
the essence of the stock subscription is an agreement to take and pay for original unissued
shares of a corporation, formed or to be formed..
TRILLANA V QUEZON COLLEGE:
What law governs in subscription contract?
The Corpo Code applies: why ist enfoceable against the estate?
In the absence of acceptance what will a person not have? NO MEETING OF THE MIND
***the Subscription contract is still a CONTRACT; for a Corporate Law to apply it should
passed first that it is a contract.
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BERNARDO (CORPO MIDTERM)
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There is nothing in the record to show that the Quezon College, Inc. accepted the term of
payment suggested by Crisostomo, or that if there was any
acceptance the same came to her knowledge during her lifetime.
The relation between Crisostomo and the College had only thus reached the preliminary
stage whereby the latter offered its stock for
subscription on terms stated in the form letter, and Damasa applied for subscription fixing
her own plan of payment,-- a relation, in the absence as in
the present case of acceptance by the College of the counter offer of Crisostomo, that had
not ripened into an enforceable contract.
Indeed, the need for express acceptance on the part of the College becomes the more
imperative, in view of the proposal of Crisostomo to
pay the value of the subscription after she had harvested fish, a condition obviously
dependent upon her sole will and, therefore, facultative in nature,
rendering the obligation void under the Civil Code.
2. PURCHASE AGREEMENT
BAYLA V SILANG TRAFFIC: (corp was insolvent)
***why does purchase agreement not covered Trust Fund Doctrine?
SC held that the agreement between the parties is a contract of sale because of the ff.
reasons: 1.agreement is entitled Agreement for
Installment Sale of Shares; 2.contract was entered into before the incorporation and
organization of the corporation.
The contract did not expressly provide that failure of the purchaser to pay any installment
would give rise to forfeiture and cancellation without
necessity of demand from the seller. Further, Had it been the intention of the parties to
provide for automatic forfeiture/cancellation, the provision
regarding interest on deferred payments should not have been inserted. Since the contract
in question is one of sale, rescission can be done by
agreement of the parties. Respondent Corporation was ordered to refund the petitioners of
the amount they paid.
Note: Distinction between contract of sale and subscription.
Contract of sale/purchase-is an independent agreement between the individual and the
corporation to buy shares of stock from it at a stipulated
price.

Contract of subscription-is the mutual agreement of the subscribers to take and pay for the
stock of a corporation
Pre-incorporation-subscription contract VOID
Sec. 61 Pre-incorporation subscription. - A subscription for shares of stock of a corporation
still to be formed shall be irrevocable for a period of
at least six (6) months from the date of subscription, unless all of the other subscribers
consent to the revocation, or unless the incorporation of said
corporation fails to materialize within said period or within a longer period as may be
stipulated in the contract of subscription: Provided, That no pre-
incorporation subscription may be revoked after the submission of the articles of
incorporation to the Securities and Exchange Commission. (n)
a.
Offer Theory - construes subscription agreement as only a continuing offer to a proposed
corporation, which offer
does not ripen into a contract until accepted by the corporation when organized;
it allows withdrawal of subscriber at least before the corporation comes into existence and
accepts the offer
b.
Contract Theory a subscription agreement among several persons to take shares in a
proposed corporation
becomes a binding contract and is irrevocable from the time of subscription, unless
cancelled by all the parties before acceptance by the corporation.
3. RELEASE FROM SUBSCRIPTION OBLIGATION
VELASCO V POIZAT
***to be released must pay the unpaid obligations, in re; shares of stocks, on the basis of
the of the subscription contract
The Court held him to be liable. A stock subscription is a contract between the corporation
on one side, and the
subscriber on the other, and courts will enforce it for or against either. It is a rule, accepted
by the Supreme Court of the United States, that a
subscription for shares of stock does not require an express promise to pay the amount
subscribed, as the law implies a promise to pay on the part
of the subscriber. Section 36 of the Corporation Law clearly recognizes that a stock
subscription is subsisting liability from the time the subscription is
made, since it requires the subscriber to pay interest quarterly from that date unless he is
relieved from such liability by the by-laws of the
corporation. The subscriber is as much bound to pay the amount of the share subscribed
by him as he would be to pay any other debt, and the right
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BERNARDO (CORPO MIDTERM)
15
of the company to demand payment is no less incontestable. The provisions of the
Corporation Law (Act No. 1459) given recognition of two
remedies for the enforcement of stock subscriptions. The first and most special remedy
given by the statute consists in permitting the corporation to
put up the unpaid stock for sale and dispose of it for the account of the delinquent
subscriber. The other remedy is by action in court.
PNB V BITULOK
- People invested but the gov. did not comply
- The corporation must fulfill its obligation; so are the investors.
4. FORMALITIES IN ORGANIZING
GOV. OF THE PI V MANILA RAILROAD
For the state to impose an obligation or a duty upon the respondent company,
which is not expressly provided for in the charter (Act No. 1510), would amount to a
violation of said contract between the state and the
respondent company. The provisions of Act No. 1459 relating to the number of wires which
the Government may place upon the poles of the
company are different and more onerous than the provisions of the charter upon the same
question. Therefore, to allow the plaintiff to
require of the respondent company a compliance with said section 84 of Act No. 1459,
would be to require of the respondent company and
the performance of an obligation which is not imposed upon it by its charter.
The charter of a corporation is a contract between three parties: (a) it is a contract between
the state and the corporation to which the charter is
granted; (b) it is a contact between the stockholders and the state and (c) it is also a
contract between the corporation and its stockholders.
- Special Law (Charter) v General Law
- The articles of incorporation is a contract between:
1. State
2. Corporation
3. stockholder
RURAL BANK OF SALINAS V CA
Difference of the articles and the by laws:
- Artcles: contract between the state and the corp
- By laws: law governs the internal affairs of the corporation
The SC held that the SEC is correct in ordering the Bank to cancel the stocks under the
name of Clemente and to issue new stocks in favour

of the four persons. A corporation, either by its board, its by-laws, or the act of its officers,
cannot create restrictions in stock transfers, because:
. . . Restrictions in the traffic of stock must have their source in legislative enactment, as the
corporation itself cannot create
such impediment. By-laws are intended merely for the protection of the corporation, and
prescribe regulation, not restriction;
they are always subject to the charter of the corporation. The corporation, in the absence of
such power, cannot ordinarily
inquire into or pass upon the legality of the transactions by which its stock passes from one
person to another, nor can it
question the consideration upon which a sale is based. . . . (Tomson on Corporation Sec.
4137, cited in Fleisher vs. Nolasco,
Supra
A. ARTICLES OF INCORPORATION
AS TO CORPORATE NAME
Section 18. Corporate name. - No corporate name may be allowed by the Securities and
Exchange Commission if the proposed name is identical
or deceptively or confusingly similar to that of any existing corporation or to any other name
already protected by law or is patently deceptive,
confusing or contrary to existing laws. When a change in the corporate name is approved,
the Commission shall issue an amended certificate of
incorporation under the amended name.
RED LINE TRANSIT V RURAL TRANSIT
***A corporation cannot use the identity of another corporation
The law gives a corporation no express or implied authority to
assume another name that is unappropriated: still less that of another corporation, which is
expressly set apart for it and protected by the law. If any
corporation could assume at pleasure as an unregistered trade name the name of another
corporation, this practice would result in confusion and
open the door to frauds and evasions and difficulties of administration and supervision. The
policy of the law expressed in our corporation statute and
the Code of Commerce is clearly against such a practice.
PHIL. INSURANCE V HARTIGAN
***even if the corp changed its name its prior contract will not be affected.
***In contracts; the idenity is important not the name.
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BERNARDO (CORPO MIDTERM)
16
To be effective, Section 18 of the Corporation Law, earlier quoted, requires that "a copy of
the articles of incorporation as
amended, duly certified to be correct by the president and the secretary of the corporation
and a majority of the board of directors or trustees, shall
be filed with the Securities & Exchange Commissioner", and it is only from the time of such
filing, that "the corporation shall have the same powers
and it and the members and stockholders thereof shall thereafter be subject to the same
liabilities as if such amendment had been embraced in the
original articles of incorporation." It goes without saying then that appellant rightly acted in
its old name when on May 15, 1961, it entered into the
indemnity agreement, Annex A, with the defendant-appellees; for only after the filing of the
amended articles of incorporation with the Securities &
Exchange Commission on May 26, 1961, did appellant legally acquire its new name; and it
was perfectly right for it to file the present case In that
new name on December 6, 1961. Such is, but the logical effect of the change of name of
the corporation upon its actions
UNIVERSAL MILLS V UNIVERSAL TEXTILE
The corporate names in question are not Identical, but they are indisputably so similar that
even under the test of "reasonable care and
observation as the public generally are capable of using and may be expected to exercise"
invoked by appellant, We are apprehensive confusion will
usually arise, considering that under the second amendment of its articles of incorporation
on August 14, 1964, appellant included among its primary
purposes the "manufacturing, dyeing, finishing and selling of fabrics of all kinds" in which
respondent had been engaged for more than a decade
ahead of petitioner. Factually, the Commission found existence of such confusion, and
there is evidence to support its conclusion. Since respondent
is not claiming damages in this proceeding, it is, of course, immaterial whether or not
appellant has acted in good faith, but We cannot perceive why
of all names, it had to choose a name already being used by another firm engaged in
practically the same business for more than a decade enjoying
well earned patronage and goodwill, when there are so many other appropriate names it
could possibly adopt without arousing any suspicion as to
its motive and, more importantly, any degree of confusion in the mind of the public which
could mislead even its own customers, existing or
prospective. Premises considered, there is no warrant for our interference
Confusingly similar names are disallowed
***name is important; because it can attach identity of another;
- Confusingly similar names are disallowed: because one can benefit from
goodwill that one corp has generated

When is name equivalent to identity?
When does the use of the corp name is essential to corp existence?
***it is when the corp. Transacts with the state (when it asks for secondary franchise, when
it sues the corp)
Sec. 14 [2] The specific purpose or purposes for which the corporation is being
incorporated. Where a corporation has more than one stated
purpose, the articles of incorporation shall state which is the primary purpose and which
is/are the secondary purpose or purposes: Provided, That
a non-stock corporation may not include a purpose which would change or contradict its
nature as such;
confers as well as limits the powers which a corporation may exercise;
other reasons for indicating purpose in the charter of the corporation so that:
Prospective investors shall know the kind of business the corporation deals with
Management shall know the limits of its actions
A 3rd
party can know whether his dealings with the corporation are with corporate functions and
powers
-In Uy Siuliong v. Director of Commerce, it was held that statement of primary purpose is to
protect shareholders so they will know the main path
of business of the corporation and they may file derivative suits if the corporation deviates
from the primary purpose
CASES on the Corp Name:
1. When the use of corp name is essential to its existence; essential to its
application (when claim wads filed to the court: case will be dismissed when uses
diff name, not a party)
2. In contract law; when name is not material but identity is essential
(contractual obligation)
3. When name is synonymous to the idenity for purposes of benifiting to the
goodwill attached to the identity.
B. AS TO PURPOSE
UY SIULIONG V DIRECTOR
We are of the opinion and so decide that a corporation may be organized under the laws of
the Philippine Islands for mercantile purposes, and to
engage in such incidental business as may be necessary and advisable to give effect to,
and aid in, the successful operation and conduct of the
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BERNARDO (CORPO MIDTERM)
17
principal business.1awphi1.net
In the present case we are fully persuaded that all of the power and authority included in
the articles of incorporation of "Siuliong y Cia., Inc.,"
enumerated above in paragraph 4 (Exhibit A) are only incidental to the principal purpose of
said proposed incorporation, to wit: "mercantile
business."
While we have arrived at the conclusion that the proposed articles of incorporation do not
authorize the petitioners to engage in a business with more
than one purpose, we do not mean to be understood as having decided that corporations
under the laws of the Philippine Islands may not engage in
a business with more than one purpose. Such an interpretation might work a great injustice
to corporations organized under the Philippine laws.
Such an interpretation would give foreign corporations, which are permitted to be registered
under the laws here and which may be organized for
more than one purpose, a great advantage over domestic corporations. We do not believe
that it was the intention of the legislature to give foreign
corporations such an advantage over domestic corporations
How many purpose does the corp will have?
- There must be ONE primary purpose
- And incidental purpose(s)--- as long as it is incidental/necessary to the
primary purpose, advisable to give effect and aid in the successful conduct of the
principal business
- No requirement that the secondary purpose must be related to the
primary purpose
- What is required is only one primary purpose; there
might be incidental purposes
- If there will be a secondary purpose: any change of the Articles of
incorporation: a contract that must have the consent of the parties (state,
shareholders, corp)--must have boar apporval, votes, and SEC approval
Why only one primary purpose?
- To allow the shareholders to enter into a contract with a cop, to agree or
disagree with what the corp. is going to do.
- It allows the state to regulate.(POEA, BSP etc regulatory bodies)
C. AS TO PRINCIPAL OFFICE
Section 14 [3] The place where the principal office of the corporation is to be located, which
must be within the Philippines;
although the corporation may hold office in a place other than the place indicated in the
articles of incorporation, for jurisdictional purpose, the place
indicated in the articles of incorporation is binding.

In Clavecilla v. Antillon, held that the residence of a corporation is the place where its
principal office is established; it can be sued in that place,
not in the place where its branch office is located
D. AS TO CORPORATE TERM
Section 11. Corporate term. - A corporation shall exist for a period not exceeding fifty (50)
years from the date of incorporation unless sooner
dissolved or unless said period is extended. The corporate term as originally stated in the
articles of incorporation may be extended for periods not
exceeding fifty (50) years in any single instance by an amendment of the articles of
incorporation, in accordance with this Code; Provided, That no
extension can be made earlier than five (5) years prior to the original or subsequent expiry
date(s) unless there are justifiable reasons for an earlier
extension as may be determined by the Securities and Exchange Commission.
-The corporation may virtually have a perpetual lifespan renewable every fifty years. The
limit of a fifty-year term emphasizes the contractual nature
of the corporation: people would be discouraged from investing it the period could last
forever. Likewise, management would theoretically be more
honest a renewal of the corporate term would be a vote of confidence by the stockholders
or members.
-Benguet Consolidated Mining Co. v. Pineda, discussed the importance of the corporate
term as it is co-terminous with its possession of an
independent legal personality, distinct from that of its component members: The State and
its officers also have an obvious interest in the term of
life of associations, since the conferment of juridical capacity upon them during such period
is a privilege that is derived from statute.. And the
State is naturally interested that this privilege be enjoyed only under the conditions and not
beyond the period that it sees fit to grant; and,
particularly, that it be not abused in fraud and to the detriment of other parties; and for this
reason it has been ruled that the limitation of
(corporate existence) to a definite period is an exercise of control in the interest of the
public.
D. GROUNDS FOR DISAPPROVAL
Section 17. Grounds when articles of incorporation or amendment may be rejected or
disapproved. - The Securities and Exchange
Commission may reject the articles of incorporation or disapprove any amendment thereto
if the same is not in compliance with the
requirements of this Code: Provided, That the Commission shall give the incorporators a
reasonable time within which to correct or modify the
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BERNARDO (CORPO MIDTERM)
18
objectionable portions of the articles or amendment. The following are grounds for such
rejection or disapproval:
1. That the articles of incorporation or any amendment thereto is not substantially in
accordance with the form prescribed herein;
2. That the purpose or purposes of the corporation are patently unconstitutional, illegal,
immoral, or contrary to government rules and
regulations;
3. That the Treasurer's Affidavit concerning the amount of capital stock subscribed and/or
paid is false;
4. That the percentage of ownership of the capital stock to be owned by citizens of the
Philippines has not been complied with as required by
existing laws or the Constitution.
No articles of incorporation or amendment to articles of incorporation of banks, banking and
quasi-banking institutions, building and loan
associations, trust companies and other financial intermediaries, insurance companies,
public utilities, educational institutions, and other
corporations governed by special laws shall be accepted or approved by the Commission
unless accompanied by a favorable recommendation of
the appropriate government agency to the effect that such articles or amendment is in
accordance with law. (n)
ASUNCION V DE YRIATE
***the purpose of the corp. was unlawful---
E. COMMENCEMENT OF CORP EXISTENCE
Section 19. Commencement of corporate existence. - A private corporation formed or
organized under this Code commences to have corporate
existence and juridical personality and is deemed incorporated from the date the Securities
and Exchange Commission issues a certificate of
incorporation under its official seal; and thereupon the incorporators,
stockholders/members and their successors shall constitute a body politic and
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 law. (n
c.By-Laws
it is recognized by all authorities that every corporation has the inherent power to adopt by-
laws for its internal government, and to regulate the
conduct and prescribe the rights and duties of its members towards itself and among
themselves.
Essentially, by-laws are intended merely for the protection of the corporation, and prescribe
regulation, not restrictions, they are always subject to
the charter of the corporation

under one theory, since by-law provisions are intramural in nature it is not meant to bind
parties outside the corporate family
REQUISITES OF VALID BY-LAWS:
1. It cannot contravene law
2. It cannot contravene the charter
3. it must be reasonable and cannot discriminate
LOYOLA GRAND VILLAS V CA
hat the failure to file by-laws is not provided for by the Corporation Code but in another law
is of no moment. PD
902-A, which took effect immediately after its promulgation on 11 March 1976, is very much
apposite to the Code. The Corporation Code and PD
902-A are statutes in pari materia. Every statute must be so construed and harmonized with
other statutes as to form a uniform system of
jurisprudence. As the "rules and regulations or private laws enacted by the corporation to
regulate, govern and control its own actions, affairs and
concerns and its stockholders or members and directors and officers with relation thereto
and among themselves in their relation to it," by-laws are
indispensable to corporations in this jurisdiction. These may not be essential to corporate
birth but certainly, these are required by law for an orderly
governance and management of corporations. Nonetheless, failure to file them within the
period required by law by no means tolls the automatic
dissolution of a corporation
PMI COLLEGES V NLRC
Such contract cannot be held as invalid just because the signatory thereon was not the
Chairman of the Board which allegedly violated the
Corporations by laws, since by-laws operate merely as internal rules among the
stockholders, they cannot affect or prejudice third persons who
deal with the corporation, unless they have knowledge of the same. In fact, petitioner itself
merely asserts the same without even bothering to attach
a copy or excerpt thereof to show that there is such a provision
PENA V CA
*** GR: by laws are internal government of the corporation
Does Pena negates the non-binding of the thrid parties to the by laws?
- no;Villanueva (Corpo Law Book author: counsel for the pet.)
5. RECOGNITION AND DISREGARD OF CORPORATENESS
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BERNARDO (CORPO MIDTERM)
19
A. SEPARATE AND JURIDICAL PERSONALITY
- from the definition as 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. It is the basis of the primary
doctrine that a corporation being a juridical person has a
personality separate and distinct from the stockholders or members who compose it.
- the granting to the corporate entity of a strong separate juridical personality has been
considered as the attribute or privilege most characteristic of
corporations. Unlike the cumbersome juridical personality of its nearest rival today, the
partnership, the separate juridical personality of the
corporation has features that have made it most attractive to businessmen: right of
succession, limited liability, centralized management, and
generally free-transferability of shares of stock. In addition, the strong separate juridical
personality of the corporation facilities and preserves the
going concern value of the underlying business enterprise, saves on transaction costs,
and prevents disruption of that value because of investors
who withdraw or who are deceased. Therefore, an undermining of the separate juridical
personality of the corporation, such as the abusive
application of the piercing doctrine, necessarily dilutes any or all of these attributes.
- the stability of the main doctrine of separate juridical personality is inextricably linked with
the attractiveness of the corporation as an efficient
medium by which businessmen can pursue and operate business enterprises. It would also
compel businessmen to have to enter into efficient and
costly contractual relations to fill the gaps created by a flawed main doctrine.
- Manila Gas Corp v. CIR, held that the tax exemptions granted to a corporation do not
pertain to its corporate stockholders due to their separate
corporate personalities: A corporation has a personality distinct from that of its
stockholders, enabling the taxing power to reach the latter when they
receive dividends from the corporation. it must be considered as settled in this jurisdiction
that dividends of a domestic corporation which are paid
and delivered in cash to foreign corporations as stockholders are subject to the payment of
the income tax, the exemption clause to the charter of the
domestic corporation notwithstanding.
- Stockholders of F.Guanzon and Sons, Inc. v. ROD, the distribution of the corporate
properties to the stockholders was deemed not in the nature
of a partition among co-owners, but rather a disposition by the corporation to the
stockholders, as opposite parties to a transaction. It held that a
corporation is a juridical person distinct from the members composing it and that properties
registered in the name of the corporation are owned by it
as an entity separate and distinct from its members. While shares of stock constitute
personal property, they do not represent property of the
corporation..A share of stock only typifies an aliquot part of the corporations property, or
the right to share in its proceeds to that extent when
distributed according to law and equity, but its holder is not the owner of any part of the
capital of the corporation, nor is he entitled to the possession

of any definite portion of its property or assets. The stockholder is not a co-owner or tenant
in common of the corporate property.
- Good Earth Emporium, Inc. v. CA, the Court, in refusing to allow execution of a corporate
judgment debt against the officer, held that being an
officer or stockholder of a corporation does not by itself make ones property also of the
corporation, and vice versa, for they are separate entities,
and that shareholders are in no legal sense the owners of corporate property which is
owned by the corporation as a distinct legal person
SANTOS V NLRC
A corporation is a juridical entity with legal personality separate and distinct from those
acting for and in its behalf and, in general, from the people
comprising it. The rule is that obligations incurred by the corporation, acting through its
directors, officers and employees, are its sole liabilities.
Nevertheless, being a mere fiction of law, peculiar situations or valid grounds can exist to
warrant, albeit done sparingly, the disregard of its
independent being and the lifting of the corporate veil.
25
As a rule, this situation might arise when a corporation is used to evade a just and due
obligation or to justify a wrong,
26
to shield or perpetrate fraud,
2 incorporate, colorable compliance with the statute and user of
7 to carry out similar other unjustifable aims or intentions, or as a subterfuge to
commit injustice and so circumvent the law.
28
In Tramat Mercantile, Inc., vs. Court of Appeals,
29
the Court has collated the settled instances when,
without necessarily piercing the veil of corporate fiction, personal civil liability can also be
said to lawfully attach to a corporate director, trustee or
officer; to wit: When
(1) He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross
negligence in directing its affairs, or (c) for
conflict of interest, resulting in damages to the corporation, its stockholders or other
persons;
(2) He consents to the issuance of watered stocks or who, having knowledge thereof, does
not forthwith file with the corporate secretary
his written objection thereto;
(3) He agrees to hold himself personally and solidarily liable with the corporation; or
(4) He is made, by a specific provision of law, to personally answer for his corporate action.
The case of petitioner is way off these exceptional instances. It is not even shown that
petitioner has had a direct hand in the dismissal of private
respondent enough to attribute to him (petitioner) a patently unlawful act while acting for the
corporation. Neither can Article 28930 of the Labor Code
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BERNARDO (CORPO MIDTERM)
20
be applied since this law specifically refers only to the imposition of penalties under the
Code. It is undisputed that the termination of petitioner's
employment has, instead, been due, collectively, to the need for a further mitigation of
losses, the onset of the rainy season, the insurgency problem
in Sorsogon and the lack of funds to further support the mining operation in Gatbo
-----------------------------------------------------------------
CORPO LEC 5
1. DEFECTIVE INCORPORATION
a. De Jure A corporation has de jure existence if there is a full or substantial compliance
with the requirements of an existing law permitting
organization of such corporation as by proper articles of incorporation duly executed and
filed. Generally, its juridical personality is not subject to
attack in the courts from any source.
- If a corporation is a de jure corporation, its due incorporation cannot be successfully
attacked even in a quo warranto proceeding by the State.
Therefore, if such proceeding is brought against a corporation and the State has a prima
facie case, the corporation must show that it is a de jure
corporation.
b. De facto A corporation has de facto existence where there is bona fide attempt to
corporate powers.
The main importance of the application of the de facto corporation doctrine is the ancillary
application of the rule that the defect or alleged
inexistence of the juridical personality of a corporation cannot be raised collaterally and can
only be pursued in a direct suit filed that seeks to
question such juridical personality i.e., a quo warranto proceeding. In essence, it promotes
the policy that a contracting party cannot avoid the legal
consequences of his contractual commitment by pointing to the technical defects in the
person of the contracting corporation
De Jure v De Facto
De Jure: complied with reqs of the law
De Facto: corp incorp with the collorable compliance required by the law
-Collorable compliance
Sec 20: De Facto Corps:The due incorporation of any corporation claiming in good faith to
be a corporation under this code, and its right
to exercise corporate powers, shall not be inquired into collaterally in any private suit to
which such corporation may be a party. Such inquiry may be
made by the Solicitor General in a quo warranto proceeding.
 21
Under section 20 of the Corporation Code, the due incorporation of any corporation -
claiming in good faith to be a corporation... and its Tayko v. Capistrano, which discussed the policy of the doctrine as applied to public officers,
right to exercise corporate powers, shall not be inquired into collaterally in any private suit held that the principle is one founded in
of which such corporation may b a party. Such inquiry policy and convenience, for the right of one claiming a title or interest under or through the
may be made by the Solicitor General in a quo warranto proceeding. proceedings of an officer having an apparent
The doctrine grew out of the necessity of promoting the security of business transactions authority to act would be safe, if it were necessary in every case to examine the legality of
and to eliminate quibbling over irregularities. It the title of such officer up to its original source,
would be a rare case where third persons dealing with a corporation is prejudiced by its and the title or interest of such person were held to be invalidated by some accidental
recognition as a separate entity despite some minor defects defect or flaw in the appointment, election or
in its corporation. it would be unfair to allow a claimant against the alleged corporation to qualification of such officer, or in the rights of those from whom his appointment or election
insist on the individual liability of innocent investors merely emanated; nor could the supremacy of the laws
because of some minor flaws in its corporation be maintained, or their execution enforce, if the acts of the judge having a colorable, but not
Rationale of the Doctrine a legal title, were to be deemed invalid.
-
It should be borne in mind that the de facto doctrine is not limited in its application to
Corporate Law; it is a well-developed concept in the
Laws on Public Corporations and on Public Officers. The common feature of the de facto TAYKO V CAPISTRANO
doctrine in those legal fields, is that tit prevents (De Facto Doctrine)
any party from raising the defect of authority as a means to avoid fulfillment of a contract or - Prevent as a means to avoid fulfillment of contract.
a transaction entered into good faith. The main (policy and convenience)
beneficiary of the de facto doctrine are members of the public who deal in good faith with - BASIS: Collorable compliance
one who seems to be properly authorized. - REASON: in order to protect the right of the third
Without the de facto doctrine, both private and public dealing would grind to a halt because person
of the burden imposed on the dealing public to - Reliance of the title
first verify the power and authority of the person or entity they deal with.
-
The de facto doctrines essence is to protect the sanctity of dealing by the public with De Facto Doctrine in Corporate Law
persons or entities whose authority emanates from - Requisites:
the State, to allow the public to take such authority at face value, provided nothing is clearly 1. Existence of a valid law---(claims juridical personality)
shown to be defective in such authority. Even if 2. An attempt in good faith to incorporate
it should be proven that such authority was indeed defective or even non-existent, such (min. Req. collorable compliance: cert. Of registration)
defect cannot be used as an excuse to set aside a 3. Assumption of corporate powers
relationship or transaction entered into in good faith.
(election of officers capacity to act)
-
In the field of Corporate Law, the de facto corporation doctrine is meant to protect the ***should be complied chronologically
enforceability of corporate dealings and contracts, to
allow the public to take at reasonable face value the authority of the corporation and its What is collorable title?
officers to enter into valid and binding contracts, Colorable Compliance with the law the general principle is that while substantial
thereby providing a healthy system by which to encourage the public to deal with corporate compliance is not necessary, colorable compliance with the
entities. It is therefore meant to apply to the requirement of the law must be shown. When there has been no attempt in good faith to
level of existence that pertains to the relationship of the corporation with the dealing public create a corporation in de jure there can be no de facto
(the level of corporate relations the author has corporation. Any other rule might well open the door to fraud upon the public. Mere intent is
referred to as extra-corporate relationship level, to distinguish it from the intra-corporate not sufficient; in addition, there must be a bona fide
relationship level); and is not meant to govern attempt to comply with the requirements of the law. The outward manifestation of the
nor be applicable to other levels of existence, such as those pertaining to intra-corporate existence of a corporate being is therefore necessary as the
relationships.

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BERNARDO (CORPO MIDTERM)

basis upon which the dealing public may be led to believe that they are dealing with a
juridical person
Certificate of Registration--a third person relies in the collorable title
Collorable title: is from the act of the state
2. CORPORATION BY ESTOPPEL
Section 21. Corporation by estoppel. All persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as
general partners for all debts, liabilities and damages incurred or arising as a result thereof:
Provided, however, That when any such ostensible
corporation is sued on any transaction entered by it as a corporation or on any tort
committed by it as such, it shall not be allowed to use as a
defense its lack of corporate personality
The corporation by estoppels doctrine presents a clear exception to the general treatment
of unregistered associations. The application of
the doctrine seeks to enforce a contract where clearly the element of consent is lacking
because one of the parties thereto, a purported
corporation, does not in fact exist at the time of perfection.
-
The corporation by estoppels doctrine represents therefore an exemption to the principle
embodied in Section 2 of the Corporation Code,
that a corporation is a creature of the state, and cannot come into existence by mere
agreement of the parties of a contract.
i.
Rationale of the Doctrine
Estoppel is essentially a common law principle, and has been the source of many rules
which seek to work out justice or equity between the parties,
on the theory that an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against
the person relying thereon and having changed his position based on such reliance. The
doctrine of estoppel has its origins in equity, and is based
on moral right and natural justice, and is designed to prevent injustice and unfairness. The
doctrine therefore permeates and goes beyond Corporate
Law considerations.
The estoppels doctrine is meant to hold contractual parties to their representations or
expectations at the time the contract was perfected;
it does not allow parties to draws on a basic defect lack of one contracting party or defect
in the essential element of consent to avoid the
enforcement of the contract. The doctrine has evolved in Corporate Law primarily as a rule
to promote the integrity of commercial contracts; the
basic roles of the doctrine is to promote the publics underlying faith in contracts entered in
to with corporate entities, rather than to promote strictly
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BERNARDO (CORPO MIDTERM)
22
Corporate Law principles. For this reason, the doctrine as it has evolved in Section 21 of
the Corporation Code seems convoluted from a strictly
Corporate Law point of view; or at least, the basic elements of the doctrine as expressed in
Section 21 seem to be contradictory or antithetical
- When a person makes a REPRESENTATION of a corp (which turns out
that did not exist; denied cert of regis) to another (3rd person) who relied on such
representation
- The law mandates that such corporation by estoppel cannot deny its
existence
- ***determines liabilities: CORPORATION is liable (no cause of action if
the case is filed againt a natural person)*** CORPORATION is created for a third
person has a cause of action
BUT WHEN MISREPRESENTATION EXIST:
- A person who misrepresented(an agent) is LIABLE: no need for
corporation by estoppel
Theory of concession: no corp can exist except by a grant by the state
ASIA BANKING V STANDARD PRODUCTS
The Appellate Court affirmed the decision of the lower court. The defendant having
recognized the corporate existence of the plaintiff by
making a promissory note in its favor and making partial payments on the same is therefore
estopped to deny said plaintiff's corporate existence. It
is, of
course, also estopped from denying its own corporate existence. Under these
circumstances it was unnecessary for the plaintiff to present other
evidence of the corporate existence of either of the parties. There is no merit whatever in
the appellant's contention. The general rule is
that in the absence of fraud a person who has contracted or otherwise dealt with an
association in such a way as to recognize and in effect admit its
legal existence as a corporate body is thereby estopped to deny its corporate existence in
any action leading out of or involving such contract or
dealing, unless its existence is attacked for cause which have arisen since making the
contract or other dealing relied on as an estoppel and this
applies to foreign as well as to domestic corporations
VDA. DE SALVATIERRA V GARLITOS

While as a general rule a person who has contracted or dealt with an association in such a
way as to recognize its existence as a corporate body is
estopped from denying the same in an action arising out of such transaction or dealing,
(Asia Banking Corporation vs. Standard Products Co., 46
Phil., 114; Compania Agricola de Ultramar vs. Reyes, 4 Phil., 1; Ohta Development Co.; vs.
Steamship Pompey, 49 Phil., 117), yet this doctrine may
not be held to be applicable where fraud takes a part in the said transaction. In the instant
case, on plaintiff's charge that she was unaware of the fact
that the Philippine Fibers Producers Co., Inc., had no juridical personality, defendant
Refuerzo gave no confirmation or denial and the circumstances
surrounding the execution of the contract lead to the inescapable conclusion that plaintiff
Manuela T. Vda. de Salvatierra was really made to believe
that such corporation was duly organized in accordance with law
- Doctrine does not apply when fraud exists
WITHOUT FRAUD:
When one makes a representation---and a third person relies to it,
whereby such corp does not exist---makes corp liable (CORPORATION BY
ESTOPPEL) actors: limited liability
WITH FRAUD: (MISREPRESENTATION)
When one knows that a corp is non existent, which he still represents,
and a third person relies to it---fraud exists. The one who misrepresent is liable as
an agent of the corp.-liable up to the extent of his personal assets (AGENCY)
BEFORE THE CORPORATION CODE, VDA DE SALVATIERRA is the rule: law on agency
is applicable
LIM V PHIL FISHING GEAR
is clear that Chua, Yao and Lim decided to engage in a fishing business, their Compromise
Agreement revealed that their intention to pay the loan
with the proceeds of the sale of the boats and to divide among themselves the excess or
loss. The parties agreed that any loss or profit from the sale
and operation would be divided equally among them which shows that they had intended to
from a partnership.
***SEC 21: all persons who assumes to act as a corp. Knowing it without auth to
do so, shall be liable as general partners
MISREPRESENTATION:
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BERNARDO (CORPO MIDTERM)
23
liable as general partner(up to the extent of personal assets)(piercing the
veil of corp fiction); to hold the actor who made the misrep.liable
NO MISREPRESENTATION:
liable as limited partner: LIMITED LIABILITY (corp.created)
***same as the nature of liability under the VDA DE SALVATIERRA case.
***regardless of rep/misrep CORPORATION BY ESTOPPEL can apply: corp will be created
to pierce the veil of corp fiction, to hold the actor liable
3. PIERCING THE VEIL OF CORPORATE FICTION
- An extraordinary remedy; disregarding separate juridical personality; to
hold the actor liable.
- A doctrine of last resort remedy
- Only to a specific transaction.
Piercing the veil of corporate fiction the main doctrine of separate juridical personality is
to be tempered by the supporting doctrine of
piercing the veil of corporate fiction. Both theories were transported into Philippine
jurisdiction as part and parcel of the implantation of American
Corporation Law, the source of the piercing doctrine is also common law.
U.S. v. Milwaukee Refrigerator Transit Co., : if any general rule can be laid down, in the
present state of authority, it is that a corporation will be
looked upon as a legal entity as a general rule, and until sufficient reason to the contrary
appears; but, when the notion of legal entity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard
the corporation as an association of persons.
San Juan Structural and Steel Fabricators, Inc. v. CA: When the fiction is used as a means
of perpetrating a fraud or an illegal act or as a vehicle for
the evasion of an existing obligation, the circumvention of statutes, the achievement or
perfection of a monopoly or generally the perpetration of
knavery or crime, the veil with which the law covers and isolates the corporation from the
members or stockholders who compose it will be lifted to
allow for its consideration merely as an aggregation of individuals.
Grounds upon which piercing may be applied:
When it is used as a shield to confuse legitimate issues; or Whether lifting the veil is
necessary to achieve equity or For the protection of
the creditors
When the corporation is used to evade a just and due obligation, or to justify a wrong, to
shield or perpetuate fraud, to carry out other

similar unjustifiable aims or intentions, or as a subterfuge to commit injustice and so
circumvent the law
Where a corporation is the mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its
affairs are so conducted as to make it merely as an instrumentality, agency, conduit or
adjunct of another corporation.
The main treatment of the piercing doctrine for both corporate practitioner and their clients
has always been how to prevent its being applied by the
courts to their particular situation and avoid the dire consequences of piercing which is
mainly holding the associates in the venture personally liable
for corporate obligations
UMALI V CA
No. There is no clear showing of fraud in this case. The mere fact that Bormaheco paid said
premium payments to ICP does not constitute
fraud per se. As it turned out, Bormaheco is an agent of ICP. SRC, through Rivera, agreed
that part of the payment of the mortgage shall be paid for
the insurance. Naturally, when Rivera was paying some portions of the mortgage to
Bormaheco, Bormaheco is applying some parts thereof for the
payment of the premium and this was agreed upon beforehand.
Further, piercing the veil of corporate fiction is not the proper remedy in order that the
foreclosure conducted by ICP be declared a nullity. The nullity
may be attacked directly without disregarding the separate identity of the corporations
involved. Further still, Umali et al are not enforcing a claim
against the individual members of the corporations. They are not claiming said members to
be liable. Umali et al are merely questioning the validity
of the foreclosure.
The veil of corporate fiction cant be pierced also by the simple reason that the businesses
of two or more corporations are interrelated, absent
sufficient showing that the corporate entity was purposely used as a shield to defraud
creditors and third persons of their rights. In this case, there is
no justification for disregarding their separate personalities
KOPPEL PH V YATCO
O. Both companies are one and the same due to the fact that the amount of the so-called
share in the profits of KOPPEL (Phil.) was
ultimately left to the sole, unbridled control of KOPPEL (US).
No group of businessmen could be expected to organize a mercantile corporation if the
amount of profit were to be subjected to such a unilateral
control of another corporation. Evidently, KOPPEL (US) made use of its own ownership of
the overwhelming majority (99.5%) of the capital stock of
the local corporation to control the operations of the latter to such an extent that it had the
final say even as how much should be allotted to said local
entity in the so-called sharing of profits.
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BERNARDO (CORPO MIDTERM)
24
Furthermore, records show that the President and VP of KOPPEL (Phil.) were residents of
America, if indeed it had intended to operate as a regular
domestic corporation, why should it officers not reside and perform their functions in the
Philippines.
The corporate entity is disregarded where it is so organized and controlled, and its affairs
are so conducted, as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.
TANTONGCO V KAISAHAN
***a corp is sep and distinct juridical person; only time to pierce is when it used as a shield
the sep and distinct juridical person
ROBLEDO V NLRC
It would make the successor enterprise liable for debts of the previous enterprise on the
basis of piercing doctrine scenario.
The Court refused to make BASEC liable for the claims of the terminated employees since
the facts showed that BASEC already existed prior to
closure of Bacani of his operations; that Bacani was merely one of fie incorporators with the
lease number of shares in BASEC; and there was no
showing that the assets of the single proprietorship were even transferred to BASEC.
The doctrine of piercing the veil of corporate entity is used whenever a court finds that the
corporate fiction is being used to defeat public
convenience, justify wrong, protect fraud, or defend crime, or to confuse legitimate issues,
or that a corporation is a mere alter ego or business
conduit of a person or where the corporation is so organized and controlled and its affairs
are so conducted as to make it merely as an
instrumentality, agency, conduit or adjunct of another corporation.
It is apparent, therefore, that the doctrine has no application to this case where the purpose
is not to hold the individual stockholders liable for the
obligations of the corporation but, on the contrary, to hold the corporation liable for the
obligations of a stockholder/s
***the existence of the juridical personality: is being used by a person as a
shield for his fradulent act, using the corporation as a vehicle. PIERCE THE
VEIL OF CORPORATE FICTION; to hold the actor personally liable
CORPORATION BY ESTOPPEL V PIERCING
CS: no corporation: but corporation will created to hold the corporation liable( its
natural person whther limited/ general depending on the existence of fraud.
PCV: there is a corporation, there is a separate juridical personality; but to hold the actor
liable, piercing the corporate fiction is the remedy, and disregard the corporate personalilty

CLASSIFICATION OF THE PIERCING CASES
(a)
when the corporate entity is used to commit fraud, or to justify a wrong, or to defend a
crime (fraud cases)
(b)
when the corporate entity is used as a mere alter ego, business conduit or instrumentality
of a person or another entity (alter ego cases)
(c)
when the corporate entity is used to defeat public convenience (defeat public convenience
cases)
(d)
when piercing of the corporate fiction is necessary to achieve justice or equity (equity
cases)
a. FRAUD
- Based on bad faith, intent and malice
GREGORIO ARANETA V TUAZON
nt
the law and the disregard of the technicality would pave the way for the evasion of a
legitimate and binding commitment, especially since defendant
was fully aware of the position of Jose Araneta in the corporation at the time of the sale.
Jose Araneta was not an agent within the meaning as provided for by Article 1459 of the
Civil Code. He was nothing more that a go between or
middleman between the defendant and the purchaser, bringing them together to make the
contract themselves. He had no power or discretion
whatsoever, which he could abuse to his advantage and to the owners prejudice.
The rule that the piercing doctrine cannot be applied in favor of a party who was not a
victim of any alleged fraud committed, being fully aware of
the circumstances that are being ventilated to show fraud.
Furthermore, the court opined that the sale to Gregorio Araneta, Inc. was not a sale to Jose
Araneta the agent or broker.
There was also no prohibition on the fact that Attys. Salvador Araneta and J. Antonio
Araneta participated in writing the letters addressed to the
tenants and the deed of sale. Attorneys were only prohibited from buying their clients
property which is the subject of the litigation. The questioned
sale was effected before the subject thereof became involved in the present action.
*** only acted as a middleman; still a separate juridical personality
PALACIO V FELY TRANSPORTATION
Isabelo Calingasan and defendant Fely Transportation may be regarded as one and the
same person. It is evident that Isabelo
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BERNARDO (CORPO MIDTERM)
25
Calingasan's main purpose in forming the corporation was to evade his subsidiary civil
liability resulting from the conviction of his driver, Alfredo
Carillo. This conclusion is borne out by the fact that the incorporators of the Fely
Transportation are Isabelo Calingasan, his wife, his son, Dr.
Calingasan, and his two daughters. We believe that this is one case where the defendant
corporation should not be heard to say that it has a
personality separate and distinct from its members when to allow it to do so would be to
sanction the use of the fiction of corporate entity
as a shield to further an end subversive of justice.
Furthermore, the failure of the defendant corporation to prove that it has other property than
the jeep (AC-687) strengthens the conviction that its
formation was for the purpose above indicated.
And while it is true that Isabelo Calingasan is not a party in this case, the Court can
substitute him in place of the defendant corporation as to the real
party in interest. This is so in order to avoid multiplicity of suits and thereby save the parties
unnecessary expenses and delay. (Sec. 2, Rule 17,
Rules of Court; Cuyugan v. Dizon. 79 Phil. 80; Quison v. Salud, 12 Phil. 109.
***the jeepney is the only prop of the corp
PALAY V CLAVE
here were no badges of fraud on petitioner Palays part. They had literally relied, albeit
mistakenly, on paragraph (6) of its contract with
private respondent when it rescinded the contract to sell extrajudicially and had sold it to a
third person.
Onstott cannot be held jointly and severally liable with Palay Inc for the refund of the
amount paid by private respondent since no sufficient proof
exists that Onstott used the corporation to defraud private respondent. He cannot be made
personally liable just because he appears to be the
controlling stockholder. Mere ownership by a single stockholder or by another corporation is
not of itself sufficient ground for disregarding the
separate corporate personality.
SC ruled the rescission of the contract was ineffective and inoperative for lack of notice of
resolution. The law provides that judicial action for the
rescission of a contract is not necessary where the contract provides that it may be revoked
and cancelled for violation of any of its terms and
conditions. However, the act of a party in treating a contract as cancelled should be made
know to the other
***no badges of fraud
PABALAN V NLRC
As a general rule, Corporation is vested by law with a personality separate and distinct from
the persons composing it, including its
officers as well as from that of any other legal entity to which it may be related. Thus, a
company manager acting in good faith within the scope of

his authority in terminating the services of certain employees cannot be held personally
liable for damages. Mere ownership by a single stockholder
or by another corporation of all or nearly all capital stocks of the corporation is not by itself
sufficient ground for disregarding the separate corporate
personality.
However, the legal fiction that a corporation has a personality separate and distinct from
stockholders and members may be disregarded on the
following instance: a) deliberately and maliciously designed to evade financial obligations to
employees; b) used as a means to perpetrate fraud or
an illegal act or c) circumvention of statutes.
In this case, the dismissed workers did not allege or show that petitioners, as officers of the
corporation, did the instances mentioned above.
Furthermore, A.C. Ransom Labor Union-CCLU vs. NLRC case is not applicable in this
case. A.C. Ransom was a family corporation and that during
the strike the members of the family organized another corporation which was the Rosario
Industrial Corporation to which all the assets of the A.C.
Ransom Corporation were transferred to continue its business which acts of such officers
and agents of A.C. Ransom Corporation were intended to
avoid payment of its obligations to its employees. Thus, Petitioners cannot be held jointly
and severally liable with the PIF Corporation
DEL ROSARIO V NLRC
Code, sec. 2]. But when the juridical personality of the corporation is used to defeat public
convenience, justify wrong, protect fraud or defend crime,
the corporation shall be considered as a mere association of persons and its responsible
officers and/or stockholders shall be held individually liable.
For the same reasons, a corporation shall be liable for the obligations of a stockholder, or a
corporation and its successor-in-interest shall be
considered as one and the liability of the former shall attach to the. But for the separate
juridical personality of a corporation to be disregarded, the
wrongdoing must be clearly and convincingly established. It cannot be presumed.
In this regard the NLRC's decision wanting. The conclusion that Philsa allowed its license
to expire so as to evade payment of private respondent's
claim is not supported by the facts. Philsa's corporate personality therefore remains
inviolable. Thus, at the time Philsa allowed its license to lapse in
1985 and even at the time it was delisted in 1986, there was yet no judgment in favor of
private respondent. An intent to evade payment of his claims
cannot therefore be implied from the expiration of Philsa's license and its delisting.
Neither will the organization of Philsa International Placement and Services Corp. and its
registration with the POEA as a private employment agency
imply fraud since it was organized and registered in 1981, several years before private
respondent filed his complaint with the POEA in 1985. The
creation of the second corporation could not therefore have been in anticipation of private
respondent's money claims and the consequent adverse
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BERNARDO (CORPO MIDTERM)
26
judgment against Philsa.
Likewise, substantial identity of the incorporators of the two corporations does not
necessarily imply fraud
***a corp officer acts on delegated auth: therefore a corp can never be liable of illegal
termination...because corp can never delegate an illegal act
***if a corp officer acts within his auth and in gf; the liab is with the corp.
When is a corporate officer liable?
1. Exceeds the scope of his authority
2. Guilty of bad faith
The corp becomes liable:
if corp officer:
1. Acts within the scope of his auth
2. And in good faith
VILLA REY TRANSIT V FERRER
***Preponderance of the evidence have shown that Villa Rey Transit, Inc. is itself the alter
ego of Villarama, that the said Corporation
should, until the expiration of the 10-year period abovementioned, be enjoined from
operating the line subject of the prohibition. For the rules is that a
seller or promissory may not make use of a corporate entity as a means of evading the
obligation of his covenant. Where the Corporation is
substantially the alter ego of the covenantor to the restrictive agreement, it can be enjoined
from competing with the covenantee.
The Court find that although it is in the nature of an agreement suppressing competition, it
is, however, merely ancillary or incidental to the main
agreement which is that of sale. The suppression or restraint is only partial or limited: first,
in scope, it refers only to application for TPU by the seller
in competition with the lines sold to the buyer; second, in duration, it is only for ten (10)
years. The disputed stipulation is only incidental to a main
agreement, the same is reasonable and it is not harmful nor obnoxious to public service. It
does not appear that the ultimate result of the clause or
stipulation would be to leave solely to Pantranco the right to operate along the lines in
question, thereby establishing monopoly or predominance
approximating thereto. We believe the main purpose of the restraint was to protect for a
limited time the business of the buyer.
Villa Rey TransitTaking account of the evidence, together with testimony, it would appear
that Villarama supplied the organization expenses and the
assets of the Corporation, such as trucks and equipment. Villarama himself admitted that
he mingled the corporate funds with his own money.

The rule is that when the legal fiction of the separate corporate personality is abused, such
as when the same is used for fraudulent or wrongful
ends. The courts would hesitate to pierce the corporate veil. It must be shown by clear and
convincing proof that the separate juridical personality
was purposefully employed to evade a legitimate and binding commitment, and perpetuate
a fraud or similar wrongdoing.
Since the piercing doctrine is meant to prevent the commission of fraud, it has no
application to allow persons or entities to allow them to gain
advantages, i.e., no wrong or fraud was really committed against them. In addition, the
application of the piercing doctrine is a remedy of last resort
and will not be applied, even in case of fraud, if other remedies are available to the parties.
(c) Tax Evasion Cases
In CIR v. Nortin and Harrison, where the parent corporation owned all the outstanding
stocks of the subsidiary corporation, and financed all the
operations of the subsidiary, and treated the subsidiarys employees as its own; where the
officers of both corporations were located in the same
compound; where the board of the subsidiary was constituted in such a way to enable the
parent to actually direct and mange subsidiarys affairs by
making them the same officers of the board for both corporations; and where the fiction of
corporate entity was being used as a shield for tax evasion
by making it appear that the original sale was made by the parent corporation to the
subsidiary corporation in order to gain tax advantage, the Court
did not hesitate to pierce the veil of corporate fiction and treated as void the sales between
the corporations.
Since Norton and Harrison is a fraud case, one begins to wonder why there was a need to
show that the subsidiary corporation was being used as
an instrumentality or conduit of the parent corporation, since even in the absence of such
evidence, piercing to prevent fraud would have been
warranted.
(d)
Alter Ego Elements in Fraud Piercing Cases
- act or as a vehicle for evasion of existing obligation, the circumvention of statutes, or to
Fraud piercing need not necessarily be accompanied by alter ego elements to make the
fraud case stick, because fraud is a matter of
proof, and often, it is a state of mind being found on malice. In order to establish the state
of mind of the stockholders or officers to make
them liable for corporate debts, or as in the case of Norton and Harrison, and in order to
consider two separate entities as one and the
same, there may be a need to detail the circumstances which show that the corporate
fiction is being used consciously as a means to
commit a fraud. In short, the alter ego circumstances may be needed to prove the malicious
intent of the parties.
(e)
Evasion of Lawful Obligations
-
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BERNARDO (CORPO MIDTERM)
27
When the corporate entity is set-up or used to escape liability to third parties, it is
considered to constitute fraud to warrant piercing of the
veil of corporate fiction. It is now referred to as a defeat of public convenience case.
PALACIO V. FELY TRANSPORTATION CO., where it was found that an incorporators main
purpose in forming the corporation was to evade his
subsidiary civil liability resulting from the conviction of his driver, the corporation was made
liable for such subsidiary liability by denial of the plea that
it had a separate juridical personality and could not be held liable for the personal liabilities
of its stockholder. The Court took into consideration as
part of the attempt to do fraud that the only property of the corporation was the jeep owned
by the main stockholder involved in the accident.
(f)
Liability of Officers
-
The general rule laid down in Palay, Inc. v. Clave , is that unless sufficient proof exists on
record that an officer (in that decision, a
President and controlling stockholder) has used the corporation to defraud private
respondent he cannot be made personally liable just
because he appears to be the controlling stockholder.
-
Pabalan v. NLRC, held that the settled rule is that the corporation is vested by law with a
personality separate and distinct from the
persons composing it, including its officers as well as from that of any other entity to which
it may be related... and an officer acting in good
faith within the scope of his authority...cannot be held personally liable for damages.
-
Pabalan refused to hold the officers of the corporation personally liable for corporate
obligations on employees wages, since in this
particular case complainants did not allege or show that petitioners, as officers of the
corporation deliberately and maliciously designed to
evade the financial obligation of the corporation to its employees, or used the transfer of the
employees as a means to perpetrate an illegal
confuse the legitimate issues.
(g)
In Summary
-
From all the foregoing, what clearly comes out as the guiding rule in fraud cases (and
defeat of public convenience cases also) is that
piercing is allowed only when the following elements are present:
There must have been fraud or an evil motive in the affected transaction, and the mere
proof of control of the corporation by itself would
not authorize piercing;
The corporate entity has been used in the perpetration of the fraud or in the justification of
wrong, or to escape personal liability; and

The main action should seek for the enforcement of pecuniary claims pertaining to the
corporation against corporate officers or
stockholders, or vice versa.
Fraud and defeat of public convenience cases requiring the application of piercing doctrine
should therefore be properly perceived as viewing the
corporate entity from outside from the position of those in the business community who
have to deal with corporations on the other side of the
bargaining table. If shady businessmen can hide behind the fortress of the separate
juridical personality, then it would make dealings with
corporations more tentative since the outside party must demand additional assurances
(such as joint and solidary undertaking by key officers and
stockholders on corporate liabilities) from the players behind the corporate faade.
Piercing in fraud cases therefore is an assurance to the dealing public that in cases of
mischief by the actors behind the corporation, the
piercing doctrine allows them remedy against the very actors themselves. This safety hatch
in fact makes the corporate entity attractive not only for
the businessmen who employ it, but also on the part of the parties who have to contract
with corporate entities
---------------------------------------------------------
CORPO LEC 6
1. ALTER EGO
The oft-repeated statement of the courts in the application of the piercing doctrine is that
the question of whether a corporation is a mere alter ego is
purely one of fact, and therefore it is not sufficient to allege that a corporate entity is being
used merely as an instrumentality of another person or
entity, but that the facts and circumstances be clearly shown to demonstrate such situation.
The probative factors enumerated in Concept Builders
present the critical areas where the underlying circumstances have to be demonstrated
- A second self/other self
- NO MIND, NO WILL OF ITS OWN; in such that there is a total
domination
X if it has its OWN MIND AND SEPARATE WILL not an alter ego
VILLA REY CASE is a FRAUD CASE (not an alter ego case)
Difference of FRAUD and ALTER EGO
FRAUD:
- Proved: Bad faith( show: badges of fraud)
- Corp is used to defraud
- Must show that one's intent to defraud
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BERNARDO (CORPO MIDTERM)
28
- One act is sufficient
- BADGE OF FRAUD linking INTENT
- Not necessary that there is control
ALTER EGO:
- The (series of) acts (of total domination) showing NO MIND NO WILL OF
ITS OWN
- Corporation is used as a second self/other self
- Only other self, not necessary to prove intention to defraud
- Necessary to identify the acts that will constitute NO MIND NO WILL OF
ITS OWN
- Series of acts must have something to do with the factual issue (shows
disregard to juridical personality);material to the fact
ARNOLD V WILLTS AND PATERSON
***series of acts
Arnold is still an employee, willits signed the contract
The Court held the validity of the contract and although the plaintiff was the president of
the local corporation, the testimony is conclusive that both
of them were what is known as a one man corporation, and Willits, as the owner of all the
stocks, was the force and dominant power which controlled
them.
Where the stock of a corporation is owned by one person whereby the corporation
functions only for the benefit of such individual owner, the
corporation and the individual should be deemed to be the same.
The Court found that there was no fraud or collusion between plaintiff and Willits, and it is
very apparent that the contract letter was to the mutual
interests of both parties.
It is elementary law that a contract that is binding to the corporation is equally binding to the
creditors committee.
LA CAMPANA V KAISAHAN
***as a separate juridical personality-should be treated diff
the two factories are operating under one management. In the present case, Tan Tong
appears to be the owner of the gaugau factory.
And the coffee factory, though an incorporated business, is in reality owned exclusively by
Tan Tong and his family. As found by the CIR, the two
factories have but one office, one management and one payroll, except after July 17, the
day the case was certified to the CIR, when they began
preparing separate payrolls for the two.
And above all, it should not be overlooked that, as also found by the CIR, the laborers of
the gaugau factory and the coffee factory were
interchangeable, that is, the laborers from the gaugau factory mere sometimes transferred
to the coffee factory and vice- versa. In view of all these,

the attempt to make the two factories appear as two separate businesses, when in reality
they are but one, is but a device to defeat the ends of the
law (the Act governing capital and labor relations) and should not be permitted to prevail
LIDELL CO V CIR
Tax evasion: pierce(fraud)--
he Court held that Lidell Motors, Inc. is an alter ego of Lidell & Co. hence making it liable for
tax deficiency based on the principle that
to allow a taxpayer to deny tax liability on the ground that the sales were made through
another and distinct corporation when it is proved that the
latter is virtually owned by the former or that they are practically one and the same is to
sanction a circumvention of our tax laws which is consistent
with the view of the US Supreme Court stating in one case that "a taxpayer may gain
advantage of doing business thru a corporation if he pleases,
but the revenue officers in proper cases, may disregard the separate corporate entity where
it serves but as a shield for tax evasion and treat the
person who actually may take the benefits of the transactions as the person accordingly
taxable."
Moreover, as of the time of organization of Lidell Motors, 98% of the capital stock belonged
to Frank Lidell. The 20% paid-up subscription with which
the company began its business was paid by him. The subsequent subscriptions to the
capital stock were made by him and paid with his own
money.
Thus, where a corporation is a dummy and serves no business purpose and is intended
only as a blind, the corporate form may be ignored. Liddell
Motors, Inc. was the medium created by Liddell & Co. to reduce the price and the tax
liability. Since Lidell Motors inc. was created to evade sales
taxes it was considered as an alter ego of Lidell & Co
YUTIVO SONS V CTA
Tax avoidance; pierce(based on alter ego)----if you dont respect jurid person; why would
the state respect juridical personality
The fact that SM is a mere department or adjunct of Yutivo is made more patent by the fact
that arrastre conveying, and charges paid for the
"operation of receiving, loading or unloading" of imported cars and trucks on piers and
wharves, were charged against SM by Yutivo. It plainly
appears that Yutivo had sole authority to allocate its expenses even as against SM.
Proceeding to another aspect of the relation of the parties, the management fees due from
SM to Yutivo were taken up as expenses of SM and
credited to the account of Yutivo.
Briefly stated, Yutivo financed principally, if not wholly, the business of SM and actually
extended all the credit to the latter not only in the form of
starting capital but also in the form of credits extended for the cars and vehicles allegedly
sold by Yutivo to SM as well as advances or loans for the
expenses of the latter when the capital had been exhausted.
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BERNARDO (CORPO MIDTERM)
29
RAMIREZ TELEPHONE V BANK OF AMERICA
Corporate personality may be disregarded where the defendant stockholder holds 75% of
the stock corporation together with his wife.
While respect for the corporate personality as such is the general rule, the veil of corporate
fiction may be pierced and the funds of the corporation
may be garnished to satisfy debts of a principal stockholder, to administer the ends of
justice.
Despite the fact that Ramirez himself was the tenant of Herbosas property, the company in
truth occupied the premises, Ramirez paid the rents with
the check of the telephone company
GUATSON V NLRC
The three companies are owned by one family, such that majority of the officers of the
companies are the same. The companies are
located in one building and use the same messengerial service. Moreover, there was no
showing that private respondent was paid separation pay
when he was absorbed by Philac upon closure of Merex; nor was there evidence that he
resigned from Philac when he transferred to Guatson
Travel. Under the doctrine of piercing the veil of corporate fiction, when valid ground exists,
the legal fiction that a corporation is an entity with a
juridical personality separate and distinct from its members or stockholders may be
disregarded. (Guatson is Alter Ego of Merex and Philac)
CONCEPT BUILDERS(DO NOT USE THIS TEST;in cases of ALTER EGO)
***test in determining the applicability of the piercing
1. Control and complete domination
2. Used to commit fraud
3. Caused injury
- The test is for both FRAUD AND ALTER EGO
2. EQUITY
- Cases are usually labor issues
- Cases that fraud and alter ego are not the issue
Equity cases applying the piercing doctrine are what are termed the dumping ground,
where no fraud or alter ego circumstances can be culled by
the Court to warrant piercing. The main feature of equity cases is the need to render justice
in the situation at hand or to brush aside merely technical
defenses. Often, equity cases of piercing appear in combination with other types of
piercing, especially the defeat of public convenience cases.
-
In Telephone Engineering and Service Co., Inc. v. Workmens Compensation Commission,
the veil of corporate fiction was not allowed to

be availed of, and piercing was allowed when the corporate fiction was made as a scheme
to confuse the legitimate issues, such when the
defense of separate juridical personality in interposed for the first time on appeal.
- for this reason that the judgment against it could not be
In A.D. Santos v. Vasquez, a suit for workmens compensation was filed by taxi driver
Vasquez against AD Santos, Inc. Vasquez testified
that Amador Santos was his employer. AS Santos, Inc. contended that Amador is the one
liable. The Court held that AD Santos, Inc. is
liable. Indeed, Amador was at one time, the sole owner and operator of the taxi business
that employed Vasquez, which was later
transferred to AD Santos, Inc. But such testimony should not be allowed to confuse the
facts relating to employer-employee relationship,
for when the veil of corporate fiction is used to confuse legitimate issues, the same should
be pierced.
3. DUE PROCESS
The established doctrine in Philippine jurisprudence is that a person not impleaded in the
case cannot be bound by the decision rendered therein,
since no individual or entity shall be affected by a proceeding to which he is a stranger, to
do otherwise would be a denial of due process.
Often the piercing doctrine is sought to be applied against the controlling stockholders or
officers after a judgment debt against the corporation could
not be enforced because the corporation is found to be without sufficient assets. It has
been rightly argued in several cases, that to enforce a writ of
execution to satisfy a judgment rendered against the corporation on the separate assets of
the stockholders or officers would be in violation of due
process clause in cases where such stockholders or officers were not even summoned as
parties to the case brought against the corporation.
MCCONELL V CA
- New officers were charged: due to the fact that they benefited from it
CA found that there is no question that a wrong has been committed by the so-called Park
Rite Co., Inc., upon the plaintiffs when it
occupied the lot of the latter without its prior knowledge and consent and without paying the
reasonable rentals for the occupation of said lot. There is
also no that the corporation was a mere alter ego or business conduit of the defendants
Cirilo Paredes and Ursula Tolentino, and before them the
defendants M. McConnel, W. P. Cochrane, and Ricardo Rodriguez. The evidence clearly
shows that these persons completely dominated and
controlled the corporation and that the functions of the corporation were solely for their
benefits.
That the corporation was a mere extension of their personality is shown by the fact that the
office of Cirilo Paredes and that of Park Rite Co., Inc.
were located in the same building, in the same floor and in the same room at 507 Wilson
Building. This is further shown by the fact that the funds
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BERNARDO (CORPO MIDTERM)
30
of the corporation were kept by Cirilo Paredes in his own name. The corporation itself had
no visible assets, as correctly found by the trial court,
except perhaps the toll house, the wire fence around the lot and the signs thereon. It was
fully satisfied.
CANO V CIR
- Filed a case against officers; but the corp was not impleded
While it is an undisputed rule that a corporation has a personality separate and distinct
from its members or stockholders because of a
fiction of the law, here we should not lose sight of the fact that the Emilio Cano Enterprises,
Inc. is a closed family corporation where the
incorporators and directors belong to one single family. Here is an instance where the
corporation and its members can be considered as one. And to
hold such entity liable for the acts of its members is not to ignore the legal fiction but merely
to give meaning to the principle that such fiction cannot
be invoked if its purpose is to use it as a shield to further an end subversive of justice.
And so it has been held that while a corporation is a legal entity existing separate and apart
from the persons composing it, that concept cannot be
extended to a point beyond its reason and policy, and when invoked in support of an end
subversive of this policy it should be disregarded by the
courts
NAMARCO v ASSTD FINANCE
The Court feels perfectly justified in piercing the veil of corporate fiction and in holding
Sycip personally liable, jointly and severally with his co-
defendant.
It is settled law in this and other jurisdictions that when the corporation is the mere alter ego
of a person, the corporate fiction may be disregarded;
the same being true when the corporation is controlled, and its affairs are so conducted as
to make it merely an instrumentality, agency or conduit of
another
JACINTO V CA
and we are thus persuaded to agree with the findings of the lower court that the latter
(Roberto Jacinto) was practically the corporation itself. Indeed,
a painstaking examination of the records show that there is no clear-cut delimitation
between the personality of Roberto Jacinto as an individual and
the personality of Inland Industries, Inc. as a corporation. The circumstance aforestated
lead us to conclude that the corporate veil that enshrouds
defendant Inland Industries, Inc. could be validly pierced, and a host of cases decided by
our High Court is supportive of this view.

Thus it held that when the veil of corporate fiction is made as a shield to perpetrate fraud
and/or confuse legitimate issues, the same should be
pierced. Where a corporation is merely an adjunct, business conduit or alter ego, the fiction
of separate and distinct corporate entity should be
disregarded
ARCILLA V CA
***the liability for back wages rests in the Pres for being in charge of the corp.
An entity which was not made a party in the main case and which did not seek to intervene
has no personality to seek a review of the
public respondents amended decision. Defenses and objections other than the failure to
state a cause of action and lack of jurisdiction not pleaded
either in a motion to dismiss or in the answer are deemed waived.
Furthermore, even if the obligation was incurred in the name of the corporation, the
petitioner would still be personally liable therefore because for all
legal intents and purposes, he and the corporation are one and the same.
The contention that the defendant had ceased to be the president is unavailing to free
himself from his responsibility because in resolving his Motion
for Clarificatorty Judgment, the court had already pierced the veil of corporate fiction and
disregarded the separate personalities
AC RANSOM V NLRC
Rosario Company is held liable because the organization of a "run-away corporation,"
ROSARIO, in 1969 at the time the unfair labor practice case
was pending before the CIR (Difference from PABALAN CASE) by the same persons who
were the officers and stockholders of RANSOM, engaged
in the same line of business as RANSOM, producing the same line of products, occupying
the same compound, using the same machineries,
buildings, laboratory, bodega and sales and accounts departments used by RANSOM, and
which is still in existence. Both corporations were closed
corporations owned and managed by members of the same family. Its organization proved
to be a convenient instrument to avoid payment of
backwages and the reinstatement of the 22 workers. This is another instance where the
fiction of separate and distinct corporate entities should be
disregarded.
It is very obvious that the second corporation seeks the protective shield of a corporate
fiction whose veil in the present case could, and should, be
pierced as it was deliberately and maliciously designed to evade its financial obligation to
its employees.... When a notion of legal entity is used to.
defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard
the corporation as an association or persons, or, in the
case of two corporations, will merge them into one.
DE GUZMAN V NLRC
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BERNARDO (CORPO MIDTERM)
31
In the case at bar, the petitioner, while admittedly the highest ranking local representative of
AMAL in the Philippines, is nevertheless not a
stockholder and much less a member of the board of directors or an officer thereof. He is at
most only a managerial employee under Art. 212 (m) of
the Labor Code. Therefore, he must not be held solidarily liable with the AMAL.
HOWEVER, the manner and the means by which he satisfied his
claims against AMAL are evidently characterized by BAD FAITH. For one, Respondent A.
de Guzman took advantage of his position as General
Manager and arrogated to himself the right to retain possession and ownership of all
properties owned and left by AMAL in the Philippines, even if he
knew that Complainants herein have similar valid claims for unpaid wages and other
employee benefits from the Respondent AMAL.
Another strong indication of bad faith on the part of Respondent A. de Guzman is his filing
of a separate complaint against AMAL before the NLRC
Arbitration Branch about four (4) months after the filing of the instant case without informing
this Office about the existence of said case during the
proceedings in the instant case.
4. ANTI TRUST ISSUES
- A trust was an arrangement by which stockholders in several companies
transferred their shares to a single set of trustees. In exchange, the stockholders
received a certificate entitling them to a specified share of the consolidated
earnings of the jointly managed companies. The trusts came to dominate a
number of major industries, and were, in effect, monopolies.
- A monopoly is a situation in which there is a single supplier or seller of a
good or service for which there are no close substitutes. Economists and others
have long known that unregulated monopolies tend to damage the economy by (1)
charging higher prices, (2) providing inferior goods and services and (3)
suppressing innovation, as compared with a competitive situation (i.e., the
existence of numerous, competing suppliers of the good or service).
- The most infamous of the trusts was the Standard Oil Trust, which was
formed in January, 1882. At that time, Standard Oil and its affiliates controlled
more than 90 percent of the oil refining capacity and most of the oil marketing
facilities in the U.S. Trusts were also established in numerous other industries,
some of the largest of which were sugar, tobacco, railroads, steel and
meatpacking.
- The idea of the trust was conceived by Samuel Dodd, an attorney for
Standard Oil. In the case of this company, a board of trustees was set up and it
was given control of all of the Standard Oil properties. Every stockholder received
20 trust certificates for each share of Standard Oil stock. All profits from the
component companies were sent to the nine trustees, who set the dividends. The
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nine trustees also selected the directors and officers of all the component
companies. This allowed Standard Oil to function as a monopoly.
- Trusts used a number of techniques to eliminate competitors, including
(1) buying them out, (2) temporarily undercutting their prices, (3) forcing
customers to sign long-term contracts (4) forcing customers to buy unwanted
products in order to receive the products they wanted and (5) dispatching thugs to
use intimidation and violence when all other means of persuasion failed.

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BERNARDO (CORPO MIDTERM)