CORPORATION CODE
election or letter of appointment of such chief archbishop, bishop, priest, minister, rabbi or presiding
II. DEFINITION / ATTRIBUTES OF A CORPORATION
A. Artificial Being - Sec. 2, Corp. Code; Art. 44 (3), Civil Code
Section 2. Corporation defined. – A corporation is an artificial being created by operation of law,
having the right of succession and the powers, attributes and properties expressly authorized by law or
incident to its existence. (2)
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or purpose, created by law; their
personality begins as soon as they have been constituted according to law;
(3) Corporations, partnerships and associations for private interest or purpose to which the law grants a
juridical personality, separate and distinct from that of each shareholder, partner or member.
a) Commencement of juridical personality (JP) for:
CORPORATION
 early defined by the Supreme Court of the United States as "an artificial being, invisible,
intangible, and existing only in contemplation of law."
 artificial intellectual being, the mere creature of the law, composed generally of natural persons
in their natural capacity, but which may also be composed of persons in their political capacity of
members of other corporations
 artificial being created by law, and composed of individuals who subsist as a body politic under
a special denomination, with the capacity of perpetual succession, and of acting, within the
scope of its charter, as a natural person
 collection of many individuals, united in one body under a special denomination, and vested by
the policy of the law with the capacity of acting in several respects as an individual
 legal institution devised to confer upon the individuals of which it is composed powers,
privileges, and immunities which they would not otherwise possess, the most important of which
are continuous legal identity and perpetual or indefinite succession under the corporate name,
notwithstanding successive changes by death or otherwise in the corporation or members of the
corporation.
 corporation is a legal or juridical person with a personality separate and apart from its individual
stockholders or members and from any other legal entity to which it may be connected
ATTRIBUTES OF A CORPORATION.
(1) It is an artificial being;
(2) It is created by operation of law;
(3) It has the right of succession; and
(4) It has only the powers, attributes and properties expressly authorized by law or incident to its
existence.
COMMENCEMENT OF JURIDICAL PERSONALITY.
1. Corporations
a. if created by special law/charter
b. if registered with SEC - It is only upon such issuance of certificate of incorporation by the
SEC that the corporation acquires juridical personality.
c. if a corporation sole – Sec. 112, Corp. Code – filing of application for incorporation
Section 112. Submission of the articles of incorporation. - The articles of incorporation must be
verified, before filing, by affidavit or affirmation of the chief archbishop, bishop, priest, minister, rabbi or
presiding elder, as the case may be, and accompanied by a copy of the commission, certificate of
elder, duly certified to be correct by any notary public.
From and after the filing with the Securities and Exchange Commission of the said articles of
incorporation, verified by affidavit or affirmation, and accompanied by the documents mentioned in the
preceding paragraph, such chief archbishop, bishop, priest, minister, rabbi or presiding elder shall
become a corporation sole and all temporalities, estate and properties of the religious denomination,
sect or church theretofore administered or managed by him as such chief archbishop, bishop, priest,
minister, rabbi or presiding elder shall be held in trust by him as a corporation sole, for the use,
purpose, behalf and sole benefit of his religious denomination, sect or church, including hospitals,
schools, colleges, orphan asylums, parsonages and cemeteries thereof.
Partnerships –
a. if registered with SEC – upon execution of the contract: Partnership with a capital of 3,000 and not
registered – still acquires juridical personality upon the execution of the contract
b.if not registered with SEC – upon execution of the contract unless otherwise provided
Note: Relate Article 1784 to Articles 1772 and 1768 of NCC
Art. 1784. A partnership begins from the moment of the execution of the contract, unless it is otherwise
stipulated.
Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or
property, shall appear in a public instrument, which must be recorded in the Office of the SEC
Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the
partners, even in case of failure to comply with the requirements of Art. 1772.
Associations –
Art. III, Sec. 8 of the Constitution. The right of the people, including those employed in the public and
private sectors, to form unions, associations, or societies for purposes not contrary to law shall not be
abridged.
Does not have a juridical personality, has not been issued a certificate by SEC, recognized by the
Constitution, liability is personal
Sole Proprietorships - never commences because it does not have a juridical personality separate
and distinct from its owner
4. Sole proprietorship
1. Mangila v. CA:
 A sole proprietorship does not have a separate juridical personality that could enable it to file
a suit in court—there is no law authorizing sole proprietorships to file a suit in court.—In the
instant case, it was established in the lower court that petitioner resides in San Fernando,
Pampanga while private respondent resides in Parañaque City. However, this case was
brought in Pasay City, where the business of private respondent is found. This would have
been permissible had private respondent’s business been a corporation, just like the case in
Sy v. Tyson Enterprises, Inc. However, as admitted by private respondent in her Complaint in
the lower court, her business is a sole proprietorship, and as such, does not have a separate
juridical personality that could enable it to file a suit in court. In fact, there is no law
authorizing sole proprietorships to file a suit in court. A sole proprietorship does not possess a
juridical personality separate and distinct from the personality of the owner of the enterprise.
The law merely recognizes the existence of a sole proprietorship as a form of business
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 organization conducted for profit by a single individual and requires its proprietor or owner to
secure licenses and permits, register its business name, and pay taxes to the national
government. The law does not vest a separate legal personality on the sole proprietorship or
empower it to file or defend an action in court.
 It is the residence of the proprietor which should be considered as one of the proper venues,
not the business address of the sole proprietorship.3
2. Excellent Quality Apparel v. Win Multiple Rich Builders
 A sole proprietorship is not vested with juridical personality to file or defend an action.—The
original petition was instituted by Win, which is a SEC-registered corporation. It filed a
collection of sum of money suit which involved a construction contract entered into by
petitioner and Multi-Rich, a sole proprietorship. The counsel of Win wanted to change the
name of the plaintiff in the suit to Multi-Rich. The change cannot be countenanced. The
plaintiff in the collection suit is a corporation. The name cannot be changed to that of a sole
proprietorship. Again, a sole proprietorship is not vested with juridical personality to file or
defend an action.
b) Rights of a juridical person.
Art. 46. Juridical persons may acquire and possess property of all kinds, as well as incur obligations
and bring civil or criminal actions, in conformity with the laws and regulations of their organization.
1987 Constitution Art III
SECTION 1. No person shall be deprived of life, liberty, or property without due process of law, nor
shall any person be denied the equal protection of the laws.
SECTION 2. The right of the people to be secure in their persons, houses, papers, and effects against
unreasonable searches and seizures of whatever nature and for any purpose shall be inviolable, and no
search warrant or warrant of arrest shall issue except upon probable cause to be determined personally
by the judge after examination under oath or affirmation of the complainant and the witnesses he may
produce, and particularly describing the place to be searched and the persons or things to be seized.
Right to Life: right to succession, cannot be denied, notice and hearing before a corporation can be
dissolved
Right to Liberty – does not apply to juridical persons
Right to Property: cannot be deprived of property without due process of law
Free Access Clause: applicable only to natural persons
3. Bache & Co. (Phils.), Inc. v. Ruiz
 Seizure of records pertaining to all business transactions not a particular description.—The
warrants authorized the search for and seizure of records pertaining to all business
transactions of petitioners herein, regardless of whether the transactions were legal or illegal.
The warrants sanctioned the seizure of all records of the petitioners and corporations,
whatever their nature, thus openly contravening the explicit command of the Bill of Rights—
that the things to be seized be particularly described —as well as tending to defeat its major
objective; the elimination of general warrants
4. Bataan Shipyard v. PCGG
 right against self-incrimination has no application to juridical persons and the constitutional
safeguard against unreasonable searches and seizures finds no application to the case at
bar either
 It is elementary that the right against self-incrimination has no application to juridical persons.
"While an individual may lawfully refuse to answer incriminating questions unless protected
by an immunity statute, it does not follow that a corporation, vested with special privileges
and franchises, may refuse to show its hand when charged with an abuse of such privileges.
Art 3 SECTION 11. Free access to the courts and quasi-judicial bodies and adequate legal assistance
shall not be denied to any person by reason of poverty.
5. Good Shepherd Foundation, Inc
 Civil Procedure; Parties; Pauper Litigants; Only a natural party litigant may be regarded as an
indigent litigant.—The clear intent and precise language of the aforequoted provisions of the
Rules of Court indicate that only a natural party litigant may be regarded as an indigent
litigant. The Good Shepherd Foundation, Inc., being a corporation invested by the State with
a juridical personality separate and distinct from that of its members, is a juridical person.
Among others, it has the power to acquire and possess property of all kinds as well as incur
obligations and bring civil or criminal actions, in conformity with the laws and regulations of
their organization. As a juridical person, therefore, it cannot be accorded the exemption from
legal and filing fees granted to indigent litigants.
 There are other reasons that warrant the rejection of the request for exemption in favor of a
juridical person. For one, extending the exemption to a juridical person on the ground that it
works for indigent and underprivileged people may be prone to abuse (even with the
imposition of rigid documentation requirements), particularly by corporations and entities bent
on circumventing the rule on payment of the fees. Also, the scrutiny of compliance with the
documentation requirements may prove too time-consuming and wasteful for the courts.
c) Criminal Liability of a Corporation
Anti Money Laundering Act RA 9160
SEC. 14. Penal Provisions. –
(a) Penalties for the Crime of Money Laundering. The penalty of imprisonment ranging from seven (7)
to fourteen (14) years and a fine of not less than Three million Philippine pesos (Php 3,000,000.00) but
not more than twice the value of the monetary instrument or property involved in the offense, shall be
imposed upon a person convicted under Section 4(a) of this Act.
The penalty of imprisonment from four (4) to seven (7) years and a fine of not less than One million five
hundred thousand Philippine pesos (Php1,500,000.00) but not more than Three million Philippine pesos
(Php3,000,000.00), shall be imposed upon a person convicted under Section 4(b) of this Act.
The penalty of imprisonment from six (6) months to four (4) years or a fine of not less than One hundred
thousand Philippine pesos (Php100,000.00) but not more than Five hundred thousand Philippine pesos
(Php500,000.00), or both, shall be imposed on a person convicted under Section 4(c) of this Act.
(b) Penalties for Failure to Keep Records. The penalty of imprisonment from six (6) months to one (1)
year or a fine of not less than One hundred thousand Philippine pesos (Php100,000.00) but not more
than Five hundred thousand Philippine pesos (Php500,000.00), or both, shall be imposed on a person
convicted under Section 9(b) of this Act.
(c) Malicious Reporting. Any person who, with malice, or in bad faith, reports or files a completely
unwarranted or false information relative to money laundering transaction against any person shall be
subject to a penalty of six (6) months to four (4) years imprisonment and a fine of not less than One
hundred thousand Philippine pesos (Php100, 000.00) but not more than Five hundred thousand
Philippine pesos (Php500, 000.00), at the discretion of the court: Provided, That the offender is not
entitled to avail the benefits of the Probation Law.
If the offender is a corporation, association, partnership or any juridical person, the penalty
shall be imposed upon the responsible officers, as the case may be, who participated in the
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commission of the crime or who shall have knowingly permitted or failed to prevent its
commission. If the offender is a juridical person, the court may suspend or revoke its license. If
the offender is an alien, he shall, in addition to the penalties herein prescribed, be deported
without further proceedings after serving the penalties herein prescribed. If the offender is a
public official or employee, he shall, in addition to the penalties prescribed herein, suffer
perpetual or temporary absolute disqualification from office, as the case may be.
Any public official or employee who is called upon to testify and refuses to do the same or purposely
fails to testify shall suffer the same penalties prescribed herein.
(d) Breach of Confidentiality. The punishment of imprisonment ranging from three (3) to eight (8) years
and a fine of not less than Five hundred thousand Philippine pesos (Php500,000.00) but not more than
One million Philippine pesos (Php1,000,000.00), shall be imposed on a person convicted for a violation
under Section 9(c).
TRUST RECEIPTS LAW PD115
Section 13. Penalty clause. The failure of an entrustee to turn over the proceeds of the sale of the
goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the
entruster or as appears in the trust receipt or to return said goods, documents or instruments if they
were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime
of estafa, punishable under the provisions of Article Three hundred and fifteen, paragraph one (b) of Act
Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the Revised
Penal Code. If the violation or offense is committed by a corporation, partnership, association or other
juridical entities, the penalty provided for in this Decree shall be imposed upon the directors, officers,
employees or other officials or persons therein responsible for the offense, without prejudice to the civil
liabilities arising from the criminal offense.
6.Ching v. Sec. of Justice
 Trust Receipt Law; An entrustee is one having or taking possession of goods, documents or
instruments under a trust receipt transaction, and any successor in interest of such person for the
purpose of payment specified in the trust receipt agreement; Obligations of an Entrustee.—An
entrustee is one having or taking possession of goods, documents or instruments under a trust
receipt transaction, and any successor in interest of such person for the purpose of payment
specified in the trust receipt agreement. The entrustee is obliged to: (1) hold the goods,
documents or instruments in trust for the entruster and shall dispose of them strictly in
accordance with the terms and conditions of the trust receipt; (2) receive the proceeds in trust for
the entruster and turn over the same to the entruster to the extent of the amount owing to the
entruster or as appears on the trust receipt; (3) insure the goods for their total value against loss
from fire, theft, pilferage or other casualties; (4) keep said goods or proceeds thereof whether in
money or whatever form, separate and capable of identification as property of the entruster; (5)
return the goods, documents or instruments in the event of non-sale or upon demand of the
entruster; and (6) observe all other terms and conditions of the trust receipt not contrary to the
provisions of the decree.
 Corporation Law; The law specifically makes the officers, employees or other officers or persons
responsible for the offense, without prejudice to the civil liabilities of such corporation and/or
board of directors, officers, or other officials or employees responsible for the offense.—Though
the entrustee is a corporation, nevertheless, the law specifically makes the officers, employees or
other officers or persons responsible for the offense, without prejudice to the civil liabilities of
such corporation and/or board of directors, officers, or other officials or employees responsible for
the offense. The rationale is that such officers or employees are vested with the authority and
responsibility to devise means necessary to ensure compliance with the law and, if they fail to do
so, are held criminally accountable; thus, they have a responsible share in the violations of the
law.
 If the crime is committed by a corporation or other juridical entity, the directors, officers,
employees or other officers thereof responsible for the offense shall be charged and penalized for
the crime; A corporation may be charged and prosecuted for a crime if the imposable penalty is
fine.—If the crime is committed by a corporation or other juridical entity, the directors, officers,
employees or other officers thereof responsible for the offense shall be charged and penalized for
the crime, precisely because of the nature of the crime and the penalty therefor. A corporation
cannot be arrested and imprisoned; hence, cannot be penalized for a crime punishable by
imprisonment. However, a corporation may be charged and prosecuted for a crime if the
imposable penalty is fine. Even if the statute prescribes both fine and imprisonment as penalty, a
corporation may be prosecuted and, if found guilty, may be fined.
 When a penal statute does not expressly apply to corporations, it does not create an offense for
which a corporation may be punished; Corporate officers or employees, through whose act,
default or omission the corporation commits a crime, are themselves individually guilty of the
crime.—When a criminal statute designates an act of a corporation or a crime and prescribes
punishment therefor, it creates a criminal offense which, otherwise, would not exist and such can
be committed only by the corporation. But when a penal statute does not expressly apply to
corporations, it does not create an offense for which a corporation may be punished. On the other
hand, if the State, by statute, defines a crime that may be committed by a corporation but
prescribes the penalty therefor to be suffered by the officers, directors, or employees of such
corporation or other persons responsible for the offense, only such individuals will suffer such
penalty. Corporate officers or employees, through whose act, default or omission the corporation
commits a crime, are themselves individually guilty of the crime.
7. Tupaz IV v. CA
 Civil Law; Commercial Law; Corporation Law; Trusts; A corporate representative signing as
a solidary guarantee as corporate representative did not undertake to guarantee personally
the payment of the corporation’s debts.—In the trust receipt dated 9 October 1981,
petitioners signed below this clause as officers of El Oro Corporation. Thus, under petitioner
Petronila Tupaz’s signature are the words “Vice-Pres–Treasurer” and under petitioner Jose
Tupaz’s signature are the words “Vice-Pres–Operations.” By so signing that trust receipt,
petitioners did not bind themselves personally liable for El Oro Corporation’s obligation. In
Ong v. Court of Appeals, a corporate representative signed a solidary guarantee clause in
two trust receipts in his capacity as corporate representative. There, the Court held that the
corporate representative did not undertake to guarantee personally the payment of the
corporation’s debts.
 Same; Same; Same; Same; Debts incurred by directors, officers and employees acting as
such corporate agents are not theirs but the direct liability of the corporation they represent
if they so contractually agree or stipulate.—A corporation, being a juridical entity, may act
only through its directors, officers, and employees. Debts incurred by these individuals,
acting as such corporate agents, are not theirs but the direct liability of the corporation they
represent. As an exception, directors or officers are personally liable for the corporation’s
debts only if they so contractually agree or stipulate.
D) LIABILITY FOR TORTS / NEGLIGENCE
Corporations have always been liable for the contracts and obligations that directors, officers, and
employees enter into on their behalf. Absent a severe abuse of this power to contract by an individual
employee or director, any contract in which the company receives a benefit will attach to the company.
It is worth noting that contracts entered into prior to the actual moment of a company’s incorporation
may also be the responsibility of the company. Such “pre-incorporation” contracts entered into by the
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company’s promoters or those people who eventually come to run or own the company, become the
obligation of the company the moment they are either adopted by the corporation or that the corporation
accepts the benefits attached to the contract.
EX: Jasmine, in setting up her new corporation for the sale of high-fashion hairclips, rented an office
and warehouse location and hired several people to operate her machines. However, Jasmine had not
yet finished incorporating the company. Ultimately, a corporate charter was denied to the company
because of Jasmine’s track record of embezzling funds from companies that she had previously worked
for and the fact that she also had failed to pay taxes on companies she had previously run. Jasmine is
now personally liable for the rental and employment contracts, even though the company does not
exist. In addition, the promoter who entered into the contract on behalf of the yet-to-be formed
corporation will generally be personally liable for any contracts entered into on behalf of the future
corporation. However, if the parties to the contract agreed to look only to the corporation, and not to the
incorporator, for such liability, then that can absolve the incorporator from personal liability.
As far as torts are concerned, generally, a company has some degree of liability for the torts committed
by its directors and/or employees during the course of their employment, depending on the nature and
effect of the tort. The general rule as to a company’s tort liability is that it will typically avoid liability for
intentional torts on the part of its directors/employees, but may be liable for unintentional torts
committed by an employee. However, if the intentional tort was foreseeable to the corporate directors or
if the corporation accepted the benefits of the commission of the tort, the corporation will generally be
liable even for a tort committed intentionally by an employee.
 A corporation cannot, in order to escape liability for damages for the wrongful acts of its
agents or employees, assert that such acts were beyond the scope of its corporate power or
that they occurred in connection with a transaction beyond the scope of such power. It is to
be kept in mind that all torts are necessarily ultra vires, since if an act is legally authorized, it
is for that reason lawful and not a tort.
 Torts and crimes are always ultra vires, and yet it is wellsettled that a corporation may commit
a tort and be liable in damages therefor, and it may be guilty of a misdemeanor, and be
indirectly convicted and fined therefor.
8.PNB v. CA 83 SCRA 238 (1978)
 Torts; Corporation Law; Corporations can be liable in same manner as natural persons, for
tort.—A corporation is civilly liable in the same manner as natural persons for torts, because
“generally speaking, the rules governing the liability of a principal or master for a tort
committed by an agent or servant are the same whether the principal or master be a natural
person or a corporation, and whether the servant or agent be a natural or artificial person. All
of the authorities agree that a principal or master is liable for every tort which he expressly
directs or authorizes, and this is just as true of a corporation as of a natural person.
9.Secosa v. Heirs of Francisco 433 SCRA 273(2004)
 Corporation Law; Veil of Corporate Fiction; Petitioner El Buenasenso Sy cannot be held
solidarily liable with his co-petitioners; A corporation is invested by law with a personality
separate from that of its stockholders or members; Mere ownership by a single stockholder or
by another corporation of all or nearly all of the capital stock of a corporation is not in itself
sufficient ground for disregarding the separate corporate personality.—We find that petitioner
El Buenasenso Sy cannot be held solidarily liable with his co-petitioners. While it may be true
that Sy is the president of petitioner Dassad Warehousing and Port Services, Inc., such fact
is not by itself sufficient to hold him solidarily liable for the liabilities adjudged against his co-
petitioners.
 For the separate juridical personality of a corporation to be disregarded, the wrongdoing must
be clearly and convincingly established.—The so-called veil of corporation fiction treats as
separate and distinct the affairs of a corporation and its officers and stockholders. As a
general rule, a corporation will be looked upon as a legal entity, unless and until sufficient
reason to the contrary appears. 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. Also, the corporate entity may be disregarded in the interest of
justice in such cases as fraud that may work inequities among members of the corporation
internally, involving no rights of the public or third persons. In both instances, there must have
been fraud and proof of it. For the separate juridical personality of a corporation to be
disregarded, the wrongdoing must be clearly and convincingly established. It cannot be
presumed.
10.Professional Services, Inc. v. CA 611 SCRA 282(2010)
 Medical Negligence; Corporate Negligence; Ostensible Agency; Court holds that Professional
Services, Inc. (PSI) is liable to the Aganas not under the principle of respondent superior for
lack of evidence of an employment relationship with Dr. Ampil but under the principle of
ostensible agency for the negligence of Dr. Ampil and pro hac vice under the principle of
corporate negligence for its failure to perform its duties as a hospital.—After gathering its
thoughts on the issues, this Court holds that PSI is liable to the Aganas, not under the
principle of respondeat superior for lack of evidence of an employment relationship with Dr.
Ampil but under the principle of ostensible agency for the negligence of Dr. Ampil and, pro
hac vice, under the principle of corporate negligence for its failure to perform its duties as a
hospital.
 While in theory a hospital as a juridical entity cannot practice medicine, in reality it utilizes
doctors, surgeons and medical practitioners in the conduct of its business of facilitating
medical and surgical treatment. Within that reality, three legal relationships crisscross: (1)
between the hospital and the doctor practicing within its premises; (2) between the hospital
and the patient being treated or examined within its premises and (3) between the patient and
the doctor. The exact nature of each relationship determines the basis and extent of the
liability of the hospital for the negligence of the doctor.
11.Calatagan Golf Club v. Clemente April 16, 2009
 Corporation Law; Actions; Prescription; Section 69 of the Code refers specifically to unpaid
subscriptions to capital stock, the sale of which is governed by Section 68.—Section 69 of the
Code provides that an action to recover delinquent stock sold must be commenced by the filing
of a complaint within six (6) months from the date of sale. As correctly pointed out by the Court
of Appeals, Section 69 is part of Title VIII of the Code entitled “Stocks and Stockholders” and
refers specifically to unpaid subscriptions to capital stock, the sale of which is governed by the
immediately preceding Section 68.
e) Entitlement to Moral Damages
d. Entitlement to Moral Damages
Moral damages are meant to compensate the claimant for any physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and
similar injuries unjustly caused.[30] Such damages, to be recoverable, must be the proximate result of a
wrongful act or omission the factual basis for which is satisfactorily established by the aggrieved party.
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish
or moral shock.
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MORAL DAMAGES
Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though
incapable of pecuniary computation, moral damages may be recovered if they are the proximate result
of the defendant's wrongful act for omission.
Art. 2218. In the adjudication of moral damages, the sentimental value of property, real or personal,
may be considered.
Art. 2219. Moral damages may be recovered in the following and analogous cases
1. A criminal offense resulting in physical injuries;
2. Quasi-delicts causing physical injuries;
3. Seduction, abduction, rape, or other lascivious acts;
4. Adultery or concubinage;
5. Illegal or arbitrary detention or arrest;
6. Illegal search;
7. Libel, slander or any other form of defamation;
8. Malicious prosecution;
9. Acts mentioned in Article 309;
10. Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
The parents of the female seduced, abducted, raped, or abused, referred to in No. 3 of this article, may
also recover moral damages.
The spouse, descendants, ascendants, and brothers and sisters may bring the action mentioned in No.
9 of this article, in the order named.
Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court
should find that, under the circumstances, such damages are justly due. The same rule applies to
breaches of contract where the defendant acted fraudulently or in bad faith.
12. ABS-CBN Corp. V. CA (361 Phil. 499; 1999)
 Commercial Law; Corporation Code; Board of Directors; Under the Corporation Code, unless
otherwise provided by said Code, corporate powers, such as the power to enter into contracts,
are exercised by the Board of Directors. However, the Board may delegate such powers to
either an executive committee or officials or contracted managers.— Under the Corporation
Code, unless otherwise provided by said Code, corporate powers, such as the power to enter
into contracts, are exercised by the Board of Directors. However, the Board may delegate such
powers to either an executive committee or officials or contracted managers. The delegation,
except for the executive committee, must be for specific purposes. Delegation to officers
makes the latter agents of the corporation; accordingly, the general rules of agency as to the
binding effects of their acts would apply. For such officers to be deemed fully clothed by the
corporation to exercise a power of the Board, the latter must specially authorize them to do so.
That Del Rosario did not have the authority to accept ABS-CBN’s counter-offer was best
evidenced by his submission of the draft contract to VIVA’s Board of Directors for the latter’s
approval. In any event, there was between Del Rosario and Lopez III no meeting of minds.
 Civil Law; Contracts; Damages; Except as provided by law or by stipulation, one is entitled to
compensation for actual damages only for such pecuniary loss suffered by him as he has duly
proved.— We find for ABS-CBN on the issue of damages. We shall first take up actual
damages. Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on actual or
compensatory damages. Except as provided by law or by stipulation, one is entitled to
compensation for actual damages only for such pecuniary loss suffered by him as he has duly
proved. The indemnification shall comprehend not only the value of the loss suffered, but also
that of the profits that the obligee failed to obtain. In contracts and quasi-contracts the
damages which may be awarded are dependent on whether the obligor acted with good faith
or otherwise. In case of good faith, the damages recoverable are those which are the natural
and probable consequences of the breach of the obligation and which the parties have
foreseen or could have reasonably foreseen at the time of the constitution of the obligation. If
the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible for all
damages which may be reasonably attributed to the non-performance of the obligation. In
crimes and quasi-delicts, the defendant shall be liable for all damages which are the natural
and probable consequences of the act or omission complained of, whether or not such
damages have been foreseen or could have reasonably been foreseen by the defendant.
 The award of moral damages cannot be granted in favor of a corporation because, being an
artificial person and having existence only in legal contemplation, it has no feelings, no
emotions, no senses. It cannot, therefore, experience physical suffering and mental anguish,
which can be experienced only by one having a nervous system. The statement in People v.
Manero and Mambulao Lumber Co. v. PNB that a corporation may recover moral damages if it
“has a good reputation that is debased, resulting in social humiliation” is an obiter dictum. On
this score alone the award for damages must be set aside, since RBS is a corporation.
13. Jardine Davies v. CA (GR 128066; 6/19/2000)
 Damages; Moral damages may be awarded to a corporation whose reputation has been
besmirched.—This Court has awarded in the past moral damages to a corporation whose
reputation has been besmirched. In the instant case, respondent FEMSCO has sufficiently
shown that its reputation was tarnished after it immediately ordered equipment from its
suppliers on account of the urgency of the project, only to be canceled later. We thus sustain
respondent appellate court’s award of moral damages. We however reduce the award from
P2,000,000.00 to P1,000,000.00, as moral damages are never intended to enrich the
recipient. Likewise, the award of exemplary damages by way of example for the public good
is excessive and should be reduced to P100,000.00.
14. Crystal, et. al v. BPI (GR 172428; Nov. 2008)
 Moral Damages; Corporation Law; Statements in Manero and Mambulao are mere obiter
dicta; While the Court may allow the grant of moral damages to corporations, it is not
automatically granted; there must still be proof of the existence of the factual basis of the
damage and its causal relation to the defendant’s acts.—In the more recent cases of ABS-
CBN Corp. v. Court of Appeals, et al., 301 SCRA 572 (1999) and Filipinas Broadcasting
Network, Inc. v. Ago Medical and Educational Center-Bicol Christian College of Medicine
(AMEC-BCCM), 448 SCRA 413 (2005), the Court held that the statements in Manero and
Mambulao were mere obiter dicta, implying that the award of moral damages to corporations
is not a hard and fast rule. Indeed, while the Court may allow the grant of moral damages to
corporations, it is not automatically granted; there must still be proof of the existence of the
factual basis of the damage and its causal relation to the defendant’s acts. This is so because
moral damages, though incapable of pecuniary estimation, are in the category of an award
designed to compensate the claimant for actual injury suffered and not to impose a penalty
on the wrongdoer.
15. Filipinas Broadcasting Network v. AMEC-BCCM (GR 141994, Jan. 17, 2005)
 Libel; Damages; Corporations; Obiter Dictum; The Court’s statement in Mambulao Lumber
Co. v. PNB, 22 SCRA 359 (1968), that “a corporation may have a good reputation which, if
besmirched, may also be a ground for the award of moral damages” is an obiter dictum.—A
juridical person is generally not entitled to moral damages because, unlike a natural person, it
cannot experience physical suffering or such sentiments as wounded feelings, serious
5|CORPORATION CODE
 anxiety, mental anguish or moral shock. The Court of Appeals cites Mambulao Lumber Co. v.
PNB, et al. to justify the award of moral damages. However, the Court’s statement in 1. Private corporations
Mambulao that “a corporation may have a good reputation which, if besmirched, may also be PRIVATE PUBLIC
a ground for the award of moral damages” is an obiter dictum. With respect to governmental control.
Contract between the State and the being mere instrumentalities
 Since Article 2219(7) of the Civil Code does not qualify whether the plaintiff is a natural or corporation or incorporators, which, of the State, are subject to governmental
juridical person, a juridical person such as a corporation may validly complain for libel or any under the provision of the Constitution visitation and
other form of defamation and claim for moral damages.— AMEC’s claim for moral damages prohibiting laws impairing the obligation of control,
falls under item 7 of Article 2219 of the Civil Code. This provision expressly authorizes the contracts, renders such corporations not
subject to visitation, control, or change by
recovery of moral damages in cases of libel, slander or any other form of defamation. Article
the State, except in the exercise of the
2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a
police power.
juridical person such as a corporation can validly complain for libel or any other form of
defamation and claim for moral damages. consent of the incorporators is necessary may be created without the consent of the
to the creation of a locality to be affected,
Note: Mere obiter dictum --- private corporation.
16. Mambulao Lumber v. PNB; 130 Phil. 366 (1968)
 Damages; Moral damages; Award of damage to juridical persons.—An artificial person Article 44. The following are juridical persons:
cannot experience physical sufferingS; mental anguish, fright, serious anxiety, wounded
feelings, moral -shock or social humiliation which are the basis of moral damage. A (1) The State and its political subdivisions;
corporation may have a good reputation which, if besmirched, may also be a ground for the
award of moral damages. (2) Other corporations, institutions and entities for public interest or purpose, created by law;
their personality begins as soon as they have been constituted according to law;
17. Pp. v. Manero, Jr.; GR 86883-85, (1993)
 Civil liability arising from criminal acts; Moral damages; Juridical person not entitled to moral Classification of corporations under the Code.
damages.—The award of moral damages in the amount of P100,000.00 to the congregation, 1. A stock corporation is the ordinary business corporation created and operated for the
the Pontifical Institute of Foreign Mission (PIME) Brothers, is not proper. There is nothing on purpose of making a profit which may be distributed in the form of dividends to stockholders
record which indicates that the deceased effectively severed his civil relations with his family, on the basis of their invested capital. The two (2) elements mentioned in Section 3 must be
or that he disinherited any member thereof, when he joined his religious congregation. As a present to make a private corporation fall under the definition of a stock corporation.
matter of fact, Fr. Peter Geremias of the same congregation, who was then a parish priest of
Kidapawan, testified that "the religious family belongs to the natural family of origin." Besides, 2. Non-stock corporations do not issue stock and distribute dividends to their members; they
as We already held, a juridical person is not entitled to moral damages because, not being a are created not for profit but for the public good and welfare. Of this character are most of the
natural person, it cannot experience physical suffering or such sentiments as wounded charitable, religious, social, literary, scientific, civic, and political organizations and societies.
feelings, serious anxiety, mental anguish or moral shock. It is only when a juridical person Nonstock corporations are primarily governed by Title XI (SeCs. 87- 95.) of the Code.
has a good reputation that is debased, resulting in social humiliation, that moral damages  The provisions governing stock corporations, when pertinent, are applicable to non-stock
may be awarded. corporations except as may Be covered by specific provisions of Title XI. (Sec. 87.)
 Generally, a corporation may be organized either as a stock or non-stock such as educational
 Heirs must prove moral suffering; Award of exemplary damages proper.—It is elementary that corporations, (see Sees. 106-108.) But some kinds of corporations cannot be organized
in order that moral damages may be awarded there must be proof of moral suffering. except in the form of stock corporations, like banks (Sec. 7, R.A. No. 337.) and close
However, considering that the brutal slaying of Fr. Tulio Favali was attended with abuse of corporations, (see Sec. 96.) A religious corporation is always non-stock, (see Sec. 109.)
superior strength, cruelty and ignominy by deliberately and inhumanly augmenting the pain
and anguish of the victim, outraging or scoffing at his person or corpse, exemplary damages 1. As to number of persons who compose them:
may be awarded to the lawful heirs, even though not proved nor expressly pleaded in the a. Corporation corporation consisting of more than one member or corporator;
complaint, and the amount of P100.000.00 is considered reasonable. aggregate
b. Corporation sole a special form of corporation usually associated with the clergy
B. Created by Operation of Law – Art. XII, Sec. 16, Constitution : it is a religious corporation which consists of one member or
SECTION 16. The Congress shall not, except by general law, provide for the formation, organization, or corporator only and his successors, such as a bishop
regulation of private corporations. Government-owned or controlled corporations may be created or Corporation aggregate does not become a corporation sole by the mere fact that its shares of stock
established by special charters in the interest of the common good and subject to the test of economic become vested in one person because the shares may again be transferred or sold by the holder to
viability. others.

2. As to whether they are for religious purposes or not:

6|CORPORATION CODE
Ecclesiastical one organized for religious purposes.
corporation Under the Code, religious corporations are classified into corporations
sole and religious societies
Lay corporation or one organized for a purpose other than for religion. Lay
corporations, in turn, may be either eleemosynary or civil.
3. As to whether they are for charitable purposes or not:
Eleemosynary established for or devoted to charitable purposes or those supported
corporation by charity
Civil corporation established for business or profit, i.e., with a view toward realizing
gains to be distributed among its members.
4. As to State under or by whose laws they have been created:
Domestic corporation incorporated under the laws of the Philippines
Foreign corporation one formed, organized, or existing under any laws other than those of
the Philippines.
It includes multinational corporations created under the laws of
another State.
For tax purposes, a foreign corporation is further classified into
resident or non-resident
5. As to their legal right to corporate existence:
De jure corporation existing in fact and in law
De facto corporation existing in fact but not in law
6. As to whether they are open to the public or not:
Close corporation limited to selected persons or members of a family
Open corporation open to any person who may wish to become a stockholder or
member thereto.
7. As to their relation to another corporation:
Parent or holding one which is so related to another corporation that it has the power,
corporation either directly or indirectly, to elect the majority of the directors of such
other corporation
Subsidiary corporation one which is so related to another corporation that the majority of its
directors can be elected either directly or indirectly by such other
corporation.
It is one in which another corporation17 owns at least a
majority of the shares and thus has control
Affiliated corporation one related to another by owning or being owned by common
management or by a long term lease of its properties or other control
device,
An affiliation exists between a holding or parent company and its
subsidiary, or between two corporations owned or controlled by a third
8. As to whether they are for public (government) or private purpose:
Public corporations formed or organized for the government of a portion of the State for
the general good and welfare;
: If the corporation is created by the State as its own agency or
instrumentality for political or public purpose connected with the
administration of government
: In the Philippines, the public corporations are the provinces, cities,
municipalities, and barangays. In addition, the Constitution mandates
the creation of autonomous regions in MuslimMindanao and the
Cordilleras
Private corporations
9. As to whether they are corporations in a true sense or only in a limited sense:
True corporation exists by statutory authority
Quasi-corporation exists without formal legislative grant
: exception to the general rule that a corporation can exist only by
authority of law
:These local units are also called municipal corporations or
local governments
those formed for some private purpose, benefit, or end; it may be
either a stock or non-stock
corporation, government-owned or -controlled corporation or quasi-
public corporation.
Private corporations include:
1) Government-owned or -controlled corporations or
those created or organized by the government or of which
the government is the majority stockholder
- they are not established for the government
of a portion of the State
Where the government engages in a particular business thru the
instrumentality of a corporation, it divests itself pro hac vice of its
sovereign character, so as to subject itself to the rules governing
private corporations.
Examples: Government Service Insurance System, National Power
Corporation, Philippine National Railways
2) Quasi-public corporations: private corporations
which have accepted from the State the grant of franchise or contract
involving the performance of public duties which are organized for
profit
:corporations private in ownership but having an appropriate franchise
from the State to provide for a necessity or convenience of the
general public, incapable of being furnished through the ordinary
channels of private competitive business and dependent for its
exercise upon eminent domain or some agency of the government.
They are private corporations that perform public service.
: also known as "public utilities"or "public service corporations
Examples of these corporations are those organized as electric,
water,telephone and transportation companies.
given certain powers of a public nature — such as
the power of eminent domain — in order to enable it to
discharge its duties for the public benefit, in which respect
it differs from an ordinary private corporation, the powers of which are
given and exercised exclusively for the profit and advantage of its
stockholders
It may be:
1) Corporation by prescription or one which has
exercised corporate powers for an indefinite period
without interference on the part of the sovereign power
and which by fiction of law is given the status of a
corporation.
: The Roman Catholic Church has been recognized
as a corporation by prescription, having acted as such
and assumed corporate powers for a long period of
7|CORPORATION CODE
 time.
2) Corporation by estoppel one which in reality is
not a corporation, either de jure or de facto, because it is
so defectively formed, but is considered a corporation
in relation to those only who, by reason of their acts or
admissions, are precluded from asserting that it is not a
corporation.
may arise only for purposes of
private litigation.
Corporation by estoppel is another instance whereby
a corporation may exist without formal statutory authority.
It has no real existence in law as has a de facto corporation but is a
mere fiction
Public Corporation - one formed and organized for the government or a particular state. Its purpose is
for the general good and welfare
Private Corporation – one formed for some private purpose, benefit, aim or end
created under a general law
GOCCs created under Corporation Code for special purpose
GOCCs created under special charter
2. GOCCs - distinguish from Govt. instrumentalities
– Give examples of GOCCs and Gis
18. Mla. Int’l Airport Authority v. CA (GR 155650; 7/20/ 2006)
 While there is no dispute that a government-owned or controlled corporation is not exempt
from real estate tax, MIAA is not a government-owned or controlled corporation; A
government-owned or controlled corporation must be “organized as a stock or non-stock
corporation,” of which MIAA is neither; MIAA is not a stock corporation because it has no
capital stock divided into shares.—There is no dispute that a government-owned or controlled
corporation is not exempt from real estate tax. However, MIAA is not a government-owned or
controlled corporation. Section 2(13) of the Introductory Provisions of the Administrative Code
of 1987 defines a government-owned or controlled corporation as follows: SEC. 2. General
Terms Defined.—x x x x (13) Government-owned or controlled corporation refers to any
agency organized as a stock or non-stock corporation, vested with functions relating to public
needs whether governmental or proprietary in nature, and owned by the Government directly
or through its instrumentalities either wholly, or, where applicable as in the case of stock
corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x.
(Emphasis supplied) A government-owned or controlled corporation must be “organized as a
stock or non-stock corporation.” MIAA is not organized as a stock or non-stock corporation.
MIAA is not a stock corporation because it has no capital stock divided into shares.
 Manila International Airport Authority (MIAA) is not a non-stock corporation because it has no
members; Section 11 of the MIAA Charter which mandates MIAA to remit 20% of its annual
gross operating income to the National Treasury prevents it from qualifying as a non-stock
corporation.—MIAA is also not a non-stock corporation because it has no members. Section
87 of the Corporation Code defines a non-stock corporation as “one where no part of its
income is distributable as dividends to its members, trustees or officers.” A non-stock
corporation must have members. Even if we assume that the Government is considered as
the sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock
corporations cannot distribute any part of their income to their members. Section 11 of the
MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the
National Treasury. This prevents MIAA from qualifying as a non-stock corporation.
 When the law vests in a government instrumentality corporate powers, the instrumentality
does not become a corporation—unless the government instrumentality is organized as a
stock or non-stock corporation, it remains a government instrumentality exercising not only
governmental but also corporate powers
19. Boy Scouts of the Phil. v. COA (GR 177131; 6/7/2011)
 Corporation Law; Commission on Audit; Boy Scouts of the Philippines; The Boy Scouts of the
Philippines (BSP) is a public corporation and its funds are subject to the Commission on
Audit’s (COA’s) audit jurisdiction.—After looking at the legislative history of its amended
charter and carefully studying the applicable laws and the arguments of both parties, we find
that the BSP is a public corporation and its funds are subject to the COA’s audit jurisdiction.
 Same; Same; Same; Boy Scouts of the Philippines (BSP) as presently constituted under
Republic Act No. 7278, falls under the second classification of juridical persons under Article
44 of the Civil Code.—There are three classes of juridical persons under Article 44 of the Civil
Code and the BSP, as presently constituted under Republic Act No. 7278, falls under the
second classification. Article 44 reads: Art. 44. The following are juridical persons: (1) The
State and its political subdivisions; (2) Other corporations, institutions and entities for public
interest or purpose created by law; their personality begins as soon as they have been
constituted according to law; (3) Corporations, partnerships and associations for private
interest or purpose to which the law grants a juridical personality, separate and distinct from
that of each shareholder, partner or member.
 Same; Same; Same; The Boy Scouts of the Philippines (BSP) which was created by a
special law to serve a public purpose in pursuit of a constitutional mandate, comes within the
class of “public corporations” defined by paragraph 2, Article 44 of the Civil Code.—Evidently,
the BSP, which was created by a special law to serve a public purpose in pursuit of a
constitutional mandate, comes within the class of “public corporations” defined by paragraph
2, Article 44 of the Civil Code and governed by the law which creates it, pursuant to Article 45
of the same Code.
 Same; Same; Same; The Boy Scouts of the Philippines (BSP) is a public corporation or a
government agency or instrumentality with judicial personality, which does not fall within the
constitutional prohibition in Article XII, Section 16, notwithstanding the amendments to its
charter; Not all corporations, which are not government owned or controlled, are ipso facto to
be considered private corporations, as there exists another distinct class of corporations or
chartered institutions which are otherwise known as “public corporations.”—The BSP is a
public corporation or a government agency or instrumentality with juridical personality, which
does not fall within the constitutional prohibition in Article XII, Section 16, notwith-standing the
amendments to its charter. Not all corporations, which are not government owned or
controlled, are ipso facto to be considered private corporations as there exists another
distinct class of corporations or chartered institutions which are otherwise known as “public
corporations.” These corporations are treated by law as agencies or instrumentalities of the
government which are not subject to the tests of ownership or control and economic viability
but to different criteria relating to their public purposes/interests or constitutional policies and
objectives and their administrative relationship to the government or any of its Departments
or Offices.
C. Right of Succession –
it is the capacity to have continuity of existence despite the changes on the persons who compose it.
Thus, the personality continues despite the change of stockholder, members, board members or
officers
1. its continued existence during the term stated in its articles of incorp. cannot be affected by any
change in the members or stockholders
2. nor is it affected by the transfer of shares by a stockholder to a 3rd person
 A corporation has a capacity of continuous existence irrespective of the death, withdrawal,
insolvency, or incapacity of the individual stockholders or members and regardless of the
transfer of their interest or shares of stock
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  Under the Corporation Code, the life of the corporation is limited to the period of time stated
in the articles of incorporation not exceeding 50 years from the date of incorporation unless
sooner dissolved or unless said period is extended
 Corporations created by special laws have the right of succession for the term provided in the
laws creating them
1. Rationale : corporation has a juridical personality separate and distinct from that of its offices,
directors or employees, or members
2. Compare with:
- partnership (delectus personae)
Partnership (Delectus Personae): the relationship is personal hence when one
leaves the partnership, the relationship is extinguisehed. Partnership is based on mutual trust
and confidence (delectus personae) so that its existence is precarious because of the facility
w/ which it can be dissolved (i.e. through the death or unilateral act of a partner); choosing a
partner is personal.
A corp. has more stability as it enjoys the right of succession and is not affected
by the death or insolvency of a stockholder; also, dissolution before a corp.’s term requires
a 2/3rds vote of the stock (Secs. 118 and 119, Corp. Code), always subject to SEC
intervention. Shares can be sold freely and will not affect existence of corporation
- sole proprietorship
Unlike a sole proprietorship or partnership, a corporation does not expire upon the
death of its shareholders, directors or officers.
D. Express/Implied/Incidental Powers - Sec. 45, 36-44
Section 36. Corporate powers and capacity. - Every corporation incorporated under this Code has the
power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time stated in the articles of incorporation and
the certificate of incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the same in
accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to subscribers and to sell stocks to subscribers
and to sell treasury stocks in accordance with the provisions of this Code; and to admit members to
the corporation if it be a non-stock corporation;
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal
with such real and personal property, including securities and bonds of other corporations, as the
transaction of the lawful business of the corporation may reasonably and necessarily require,
subject to the limitations prescribed by law and the Constitution;
8. To enter into merger or consolidation with other corporations as provided in this Code;
9. To make reasonable donations, including those for the public welfare or for hospital, charitable,
cultural, scientific, civic, or similar purposes: Provided, That no corporation, domestic or foreign,
shall give donations in aid of any political party or candidate or for purposes of partisan political
activity;
10. To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers
and employees; and
11. To exercise such other powers as may be essential or necessary to carry out its purpose or
purposes as stated in the articles of incorporation. (13a)
Alternatively ----- General (Sec. 36) and Specific Powers ( Secs. 37-44)
Express – Sec.36-44; stated or written, expressly conferred by special law creating the corporation. If
corporation is created by general law –
Corporation Code, those provided by the Corpo Code and all the powers in the articles of incorporation.
Private corporation necessarily have articles of incorporation.
There are special law creating the corporation but still requires the corporation to file articles of
incorporation.
Articles of incorporation provides primary and secondary purposes (secondary need not be related to
primary) – they are express powers because expressly conferred. The powers can also be stated in the
by-laws.
Implied powers – means and methods of obtaining the purposes of the corporation, are deemed to
exist because of the following provisions:
1. except such as are necessary or incidental to the exercise of the powers so conferred (§36)
2. such powers as are essential or necessary to carry out its purpose or purposes as stated in the AOI
– catch-all phrase (§45)
Where can you find the implied powers? None.lol. invisible they are merely deduced or inferred from
express powers. What is essential is invisible to the eye.
Remember: (Coleman vs. Hotel de France Co., 29 Phil. 323, 1915)
1. A corporation is presumed to act within its powers.
2. When a contract, entered into by the corporation, is not on its face necessarily beyond its authority, it
will be presumed valid.
Inherent Powers – the mere fact that the corporation exists. Sec 36 1-10 aside from being express are
also inherent powers
SPECIFIC POWERS 37-44
Section 37. Power to extend or shorten corporate term. - A private corporation may extend or
shorten its term as stated in the articles of incorporation when approved by a majority vote of the board
of directors or trustees and ratified at a meeting by the stockholders representing at least two-thirds
(2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the members in case of non-stock
corporations. Written notice of the proposed action and of the time and place of the meeting shall be
addressed to each stockholder or member at his place of residence as shown on the books of the
corporation and deposited to the addressee in the post office with postage prepaid, or served
personally: Provided, That in case of extension of corporate term, any dissenting stockholder may
exercise his appraisal right under the conditions provided in this code. (n)
Section 38. Power to increase or decrease capital stock; incur, create or increase bonded
indebtedness. - No corporation shall increase or decrease its capital stock or incur, create or increase
any bonded indebtedness unless approved by a majority vote of the board of directors and, at a
stockholder's meeting duly called for the purpose, two-thirds (2/3) of the outstanding capital stock shall
favor the increase or diminution of the capital stock, or the incurring, creating or increasing of any
bonded indebtedness. Written notice of the proposed increase or diminution of the capital stock or of
the incurring, creating, or increasing of any bonded indebtedness and of the time and place of the
stockholder's meeting at which the proposed increase or diminution of the capital stock or the incurring
or increasing of any bonded indebtedness is to be considered, must be addressed to each stockholder
at his place of residence as shown on the books of the corporation and deposited to the addressee in
the post office with postage prepaid, or served personally.
A certificate in duplicate must be signed by a majority of the directors of the corporation and
countersigned by the chairman and the secretary of the stockholders' meeting, setting forth:
(1) That the requirements of this section have been complied with;
9|CORPORATION CODE
 (2) The amount of the increase or diminution of the capital stock;
(3) If an increase of the capital stock, the amount of capital stock or number of shares of no-par
stock thereof actually subscribed, the names, nationalities and residences of the persons
subscribing, the amount of capital stock or number of no-par stock subscribed by each, and
the amount paid by each on his subscription in cash or property, or the amount of capital
stock or number of shares of no-par stock allotted to each stock-holder if such increase is
for the purpose of making effective stock dividend therefor authorized;
(4) Any bonded indebtedness to be incurred, created or increased;
(5) The actual indebtedness of the corporation on the day of the meeting;
(6) The amount of stock represented at the meeting; and
(7) The vote authorizing the increase or diminution of the capital stock, or the incurring, creating
or increasing of any bonded indebtedness.
Any increase or decrease in the capital stock or the incurring, creating or increasing of any bonded
indebtedness shall require prior approval of the Securities and Exchange Commission.
One of the duplicate certificates shall be kept on file in the office of the corporation and the other shall
be filed with the Securities and Exchange Commission and attached to the original articles of
incorporation. From and after approval by the Securities and Exchange Commission and the issuance
by the Commission of its certificate of filing, the capital stock shall stand increased or decreased and
the incurring, creating or increasing of any bonded indebtedness authorized, as the certificate of filing
may declare: Provided, That the Securities and Exchange Commission shall not accept for filing any
certificate of increase of capital stock unless accompanied by the sworn statement of the treasurer of
the corporation lawfully holding office at the time of the filing of the certificate, showing that at least
twenty-five (25%) percent of such increased capital stock has been subscribed and that at least twenty-
five (25%) percent of the amount subscribed has been paid either in actual cash to the corporation or
that there has been transferred to the corporation property the valuation of which is equal to twenty-five
(25%) percent of the subscription: Provided, further, That no decrease of the capital stock shall be
approved by the Commission if its effect shall prejudice the rights of corporate creditors.
Non-stock corporations may incur or create bonded indebtedness, or increase the same, with the
approval by a majority vote of the board of trustees and of at least two-thirds (2/3) of the members in a
meeting duly called for the purpose.
Bonds issued by a corporation shall be registered with the Securities and Exchange Commission, which
shall have the authority to determine the sufficiency of the terms thereof. (17a)
Section 39. Power to deny pre-emptive right. - All stockholders of a stock corporation shall enjoy pre-
emptive right to subscribe to all issues or disposition of shares of any class, in proportion to their
respective shareholdings, unless such right is denied by the articles of incorporation or an amendment
thereto: Provided, That such pre-emptive right shall not extend to shares to be issued in compliance
with laws requiring stock offerings or minimum stock ownership by the public; or to shares to be issued
in good faith with the approval of the stockholders representing two-thirds (2/3) of the outstanding
capital stock, in exchange for property needed for corporate purposes or in payment of a previously
contracted debt.
Section 40. Sale or other disposition of assets. - Subject to the provisions of existing laws on illegal
combinations and monopolies, a corporation may, by a majority vote of its board of directors or
trustees, sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its
property and assets, including its goodwill, upon such terms and conditions and for such consideration,
which may be money, stocks, bonds or other instruments for the payment of money or other property or
consideration, as its board of directors or trustees may deem expedient, when authorized by the vote of
the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or in case of non-
stock corporation, by the vote of at least to two-thirds (2/3) of the members, in a stockholder's or
member's meeting duly called for the purpose. Written notice of the proposed action and of the time and
place of the meeting shall be addressed to each stockholder or member at his place of residence as
shown on the books of the corporation and deposited to the addressee in the post office with postage
prepaid, or served personally: Provided, That any dissenting stockholder may exercise his appraisal
right under the conditions provided in this Code.
A sale or other disposition shall be deemed to cover substantially all the corporate property and assets
if thereby the corporation would be rendered incapable of continuing the business or accomplishing
the purpose for which it was incorporated.
After such authorization or approval by the stockholders or members, the board of directors or trustees
may, nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage, pledge or other
disposition of property and assets, subject to the rights of third parties under any contract relating
thereto, without further action or approval by the stockholders or members.
Nothing in this section is intended to restrict the power of any corporation, without the authorization by
the stockholders or members, to sell, lease, exchange, mortgage, pledge or otherwise dispose of any of
its property and assets if the same is necessary in the usual and regular course of business of said
corporation or if the proceeds of the sale or other disposition of such property and assets be
appropriated for the conduct of its remaining business.
In non-stock corporations where there are no members with voting rights, the vote of at least a majority
of the trustees in office will be sufficient authorization for the corporation to enter into any transaction
authorized by this section.
**In non-stock corporations where there are no members with voting rights, the vote of at least a
majority of the trustees in office will be sufficient authorization for the corporation to enter into any
transaction authorized by this section.
*General Rule: Nell Doctrine - Transfer of shares or all asses of a corporation to another corporation
does not amount to transfer of liabilities
Transfer of assets ≠ Transfer of Liability
Exceptions:
1. purchaser agrees to assume debts
2. transaction amounts to consolidation/merger
3. purchasing corporation is merely a continuation of selling corporation [Business-Enterprise
Transfer]
4. transaction is entered fraudulently to escape liability of debtor
Business-Enterprise Transfer – transeferee purchases not only assets but also the business rendering
the transferor incapable of continuing its business. Thus, liabilities are also assigned. Fraud need not
be proved to protect the creditors.
Requisites:
1. transferor corporation sells all or substantially all the assets to another
2. transferee continues the business of transferor
3. Transferee is liable to creditor of transferor but can recover from the transferor
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Section 41. Power to acquire own shares. - A stock corporation shall have the power to purchase or
acquire its own shares for a legitimate corporate purpose or purposes, including but not limited to the
following cases: Provided, That the corporation has unrestricted retained earnings in its books to cover
the shares to be purchased or acquired:
1. To eliminate fractional shares arising out of stock dividends;
2. To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a
delinquency sale, and to purchase delinquent shares sold during said sale; and
3. To pay dissenting or withdrawing stockholders entitled to payment for their shares under the
provisions of this Code. (a)
Section 42. Power to invest corporate funds in another corporation or business or for any other
purpose. - Subject to the provisions of this Code, a private corporation may invest its funds in any other
corporation or business or for any purpose other than the primary purpose for which it was organized
when approved by a majority of the board of directors or trustees and ratified by the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock, or by at least two thirds (2/3) of
the members in the case of non-stock corporations, at a stockholder's or member's meeting duly called
for the purpose. Written notice of the proposed investment and the time and place of the meeting shall
be addressed to each stockholder or member at his place of residence as shown on the books of the
corporation and deposited to the addressee in the post office with postage prepaid, or served
personally: Provided, That any dissenting stockholder shall have appraisal right as provided in this
Code: Provided, however, That where the investment by the corporation is reasonably necessary to
accomplish its primary purpose as stated in the articles of incorporation, the approval of the
stockholders or members shall not be necessary. (17 1/2a)
Section 43. Power to declare dividends. - The board of directors of a stock corporation may declare
dividends out of the unrestricted retained earnings which shall be payable in cash, in property, or in
stock to all stockholders on the basis of outstanding stock held by them: Provided, That any cash
dividends due on delinquent stock shall first be applied to the unpaid balance on the subscription plus
costs and expenses, while stock dividends shall be withheld from the delinquent stockholder until his
unpaid subscription is fully paid: Provided, further, That no stock dividend shall be issued without the
approval of stockholders representing not less than two-thirds (2/3) of the outstanding capital stock at a
regular or special meeting duly called for the purpose. (16a)
Stock corporations are prohibited from retaining surplus profits in excess of one hundred
(100%) percent of their paid-in capital stock, except:
(1) when justified by definite corporate expansion projects or programs approved by the board of
directors; or
(2) when the corporation is prohibited under any loan agreement with any financial institution or
creditor, whether local or foreign, from declaring dividends without its/his consent, and such
consent has not yet been secured; or
(3) when it can be clearly shown that such retention is necessary under special circumstances
obtaining in the corporation, such as when there is need for special reserve for probable
contingencies. (n)
Section 44. Power to enter into management contract. - No corporation shall conclude a
management contract with another corporation unless such contract shall have been approved by the
board of directors and by stockholders owning at least the majority of the outstanding capital stock, or
by at least a majority of the members in the case of a non-stock corporation, of both the managing and
the managed corporation, at a meeting duly called for the purpose: Provided, That
(1) where a stockholder or stockholders representing the same interest of both the managing
and the managed corporations own or control more than one-third (1/3) of the total
outstanding capital stock entitled to vote of the managing corporation; or
(2) where a majority of the members of the board of directors of the managing corporation also
constitute a majority of the members of the board of directors of the managed corporation,
then the management contract must be approved by the stockholders of the managed
corporation owning at least two-thirds (2/3) of the total outstanding capital stock entitled to
vote, or by at least two-thirds (2/3) of the members in the case of a non-stock corporation.
No management contract shall be entered into for a period longer than five years for any
one term.
The provisions of the next preceding paragraph shall apply to any contract whereby a corporation
undertakes to manage or operate all or substantially all of the business of another corporation, whether
such contracts are called service contracts, operating agreements or otherwise: Provided, however,
That such service contracts or operating agreements which relate to the exploration, development,
exploitation or utilization of natural resources may be entered into for such periods as may be provided
by the pertinent laws or regulations. (n)
Section 45. Ultra vires acts of corporations. - No corporation under this Code shall possess or
exercise any corporate powers except those conferred by this Code or by its articles of incorporation
and except such as are necessary or incidental to the exercise of the powers so conferred.
Classification of corporate powers.
1. EXPRESS POWERS
i.e., those conferred by the Corporation Code and its articles of incorporation (Sec. 45.);
 powers expressly conferred upon the corporation by law.
 can be ascertained from the special law creating the corporation, or in case the corporation is
formed under the general incorporation law, from such law, the general laws of the land
applicable to corporations, and its articles of incorporation.
 Section 36 contains an enumeration of powers expressly given to corporations created under
the general incorporation law.
 may be exercised by the corporation whether or not any such powers are stated in the articles
of incorporation or by-laws, for they are deemed vested in any corporation organized under the
Code
 Unless otherwise provided by the Code, the general powers conferred by Section 36 are to be
exercised by the board of directors
1. IMPLIED POWERS
 These implied powers are expressly recognized by Section 36(11).
 are those powers which are reasonably necessary to execute the express powers and to
accomplish or carry out the purposes for which the corporation was formed.
 Powers merely convenient or useful (e.g., giving of interestfree loans) are not implied if they are
not essential, having in view the purposes or objects of the corporation.
 The purpose or purposes for which the corporation was created, as stated in its articles of
incorporation, by defining the scope of corporate business or enterprise, in effect, delimit its
implied powers. Implied powers classified.
 Sometimes it is difficult to determine whether a certain activity is an implied power or
not. However, the following rough classification embraces most of the implied powers:
1. Acts in the usual course of business. —
 This includes such acts as borrowing money; making ordinary contracts; executing promissory
notes, checks or bills of exchange; taking notes or other securities; acquiring personal property
for use in connection with the business; acquiring lands and buildings to be used as places of
business or in connection therewith; and selling, leasing, mortgaging or other transfers of
11 | C O R P O R A T I O N C O D E
 property of the corporation in connection with the mnning of the business. It is evident that all of 7. to make by-laws; etc.
such acts, under ordinary circumstances, are necessary in order to run a business;  Every corporation has the implied or incidental power to establish branch offices here or abroad
as the need or exigency of the business of the corporation may require. (SEC Opinion, May 17,
2. Acts to protect debts owing to a corporation. 1990.)
 If a corporation is a creditor, it may do such acts as may be necessary to protect its right as  If "fund raising activity" is not embodied among the corporation's authorized purposes in its
such creditor. Thus, a corporation may purchase property, act as a guarantor or sometimes articles of incorporation or is neither necessary nor incidental in the furtherance of its corporate
even run a business temporarily to collect a debt, where otherwise it would have no power to do objectives, the same cannot legally be undertaken by the corporation.
so;
Sec. 45. Ultra vires acts of corporations. — No corporation under this Code shall possess or
3. Embarking in different business. — exercise any corporate powers except those conferred by this Code or by its articles of incorporation
 A corporation may not engage in a business different from that for which it was created as a and except such as are necessary or incidental to the exercise of the powers so conferred.
regular and a permanent part of its business.
 This is especially true with respect to those particular kinds of corporate activities which are Ultra vires and intra vires acts explained.
governed by special laws.  It is well-settled that a corporation is not restricted to the exercise of powers expressly
 Thus, a corporation not organized for that purpose cannot go into the banking or insurance conferred upon it but has the implied or incidental powers to do what is reasonably necessary to
business but it may do any isolated act of banking or insurance in connection with some carry out its express powers and to accomplish the purposes for which it was formed.
express power. So, it is generally held that a corporation may temporarily conduct an outside  Sections 36(11) and 45 give express recognition to these implied and incidental powers
business to collect a debt out of its profits; possessed by private corporations.
 According to the strict construction of the term, an ultra vires act is one not within the express,
4. Acts in part or wholly to protect or aid employees. — implied, and incidental powers of the corporation conferred by the Corporation Code or articles
 While the cases are divided, the better view favors such acts as building homes, places of of incorporation.
amusement, hospitals, etc. for employees, as within the corporate powers,  It is an act which is not positively forbidden, but impliedly forbidden because not expressly or
impliedly authorized or necessary or incidental in the exercise of the powers so conferred.
5. Acts to increase business. —  Acts or transactions within the legitimate powers of a corporation or are related to its purposes
 Thus, a corporation may conduct contests or sponsor radio or television programs, or promote are said to be intra vires.
fairs and other gatherings to advertise and increase its business,
ILLUSTRATIONS:
No fixed rules, however, can be laid down which could be applied mechanically in determining cases of  A corporation was organized for the purpose of engaging in the buying and selling of home
implied powers. The question must necessarily depend upon the facts and circumstances of each case. appliances. The act of buying and selling motor vehicles would be ultra vires although it is itself
lawful because it is outside the object for which the corporation is created and, therefore,
EXPRESS POWERS IMPLIED POWERS beyond its powers.
have to do largely with the main business, the implied powers, largely with the means and  The buying and selling of refrigerators would be intra vires.
objects and purposes of the corporation; methods of attaining those objects and  A corporation was organized to engage in the business of manufacturing a particular product.
purposes.  Marketing and selling the product may be logically necessary to the business of manufacturing,
determined once and for all by the language of may change according to time, place, and considering that there must be an end-user for the goods manufactured or produced.
the corporate charter and the applicable law; surrounding circumstances.  A seller, trader, dealer or importer of goods is not necessarily or indispensably the manufacturer
The test is whether they are found in the words the test is whether they are fairly incidental to of the goods.
of the charter or the law; the former and reasonably necessary to carry  Therefore, manufacturing cannot be treated as reasonably necessary to the business of the
them out in furtherance of the corporation's selling. (SEC Opinion No. 07-14, July 2007.)
business.  Contracts intra vires entered into by the board of directors are binding upon the corporation and
courts should not interfere unless such contracts are so unconscionable and oppressive as to
2. INCIDENTAL OR INHERENT POWER amount to wanton violation to the rights of the minority, as when a stockholder avers that the
 powers which a corporation can exercise by the mere fact of its being a corporation or powers board of directors has concluded a transaction that will result in serious injury to him.
which are necessary to corporate existence and are, therefore, impliedly granted. (Sec. 36[11].)
 As powers inherent in the corporation as a legal entity, they exist independently of the express
powers. ULTRA VIRES ACTS ILLEGAL ACT
 These incidental powers are expressly recognized by Sections 2 and 45. Some of the powers an act which is beyond the conferred powers of a is an act which is contrary to law, morals, good
enumerated in Section 36 are incidental powers which can be exercised by a corporation even corporation or the purposes or objects for which customs, public order, or public policy (Art. 1306,
in the absence of an express grant. it is created as defined by the law of its Civil Code.) and, therefore, per se illicit
 Examples of incidental powers are: organization.
1. the power of succession; an ultra vires act is not necessarily illegal
2. to sue and be sued; it may be lawful, moral, and even praiseworthy.
3. to have a corporate name;
merely voidable which may be enforced by void and cannot be validated.
4. to purchase and hold real and personal property;
performance, ratification or estoppel
5. to adopt and use a corporate seal;
6. to contract; The buying and selling of contraband goods would not only be illegal but also ultra vires.

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 5. POWERS
From act done without complying with certain conditions and formalities. as long as the parties have agreed to it, the a corporation has only such powers as are
 Another class of corporate contracts which are sometimes said to be ultra vires, although the partnership can perform any act as long as it expressly granted to it and such as are
phrase as applied to them is inaccurate, is where the power exists to do what was done, does not violate any law or right of others. necessary to the exercise of the powers so
provided the corporation does it in a certain prescribed way. granted or fro the accomplishment of its
 Thus, informalities in connection with the consent of stockholders (or members) to the contract purpose(sec.2, 36 (11), and 45);
are often incorrectly referred to as ultra vires, using the term in its strict sense. The fact that the
required consent of stockholders is not obtained does not make a contract ultra vires.
 The general rule is that a corporation must act in the manner and with the formalities, if any,
prescribed by its charter or by the general law. 6. Effect of mismanagement
 However, a corporate transaction or contract which is within the powers of the corporation, partner as such can sue a co-partner who the suit against a member of the board of
which is neither wrong in itself nor against public policy, but which is defective from a failure to mismanages directors or trustees who mismanages must be
observe in its execution a requirement of the law enacted for the benefit or protection of a in the name of the corporation
certain class, is voidable only and is valid until voided; the parties for whose benefit the 7. Right of succession.
requirement was enacted may ratify it or be estopped to assert its invalidity, and third persons no right of succession has right of succession
acting in good faith are not usually affected by an irregularity on the part of the corporation in the 8. Extent of liability to third persons
exercise of its granted powers The partners (except limited partners) are liable the stockholders are liable only
personally and subsidiarily to the extent of their investment as represented
From act beyond powers of particular officers. — (sometimes solidarily) for partnership debts to by the shares
 The expression ultra vires has also been applied to acts done by the directors (or trustees) or third persons, subscribed by them
other officers of a corporation in excess of the powers conferred upon them by the stockholders 9. Transferability of interest
(or members). Partner cannot transfer his interest in the a stockholder has the right to transfer his shares
 Such an act, however, is not necessarily ultra vires act of the corporation. partnership so as to make the transferee a without the prior consent of
 An act may be within the powers of a corporation and not within the powers of the directors, for partner without the consent of all the other the other stockholders because a corporation is
the powers of the latter are derived, not from the legislature, like the powers of the corporation, existing partners because the partnership is not based on this principle
but from the stockholders in their corporate capacity. based on the principle of delectus personarum
 A result of the above distinction is that the stockholders of a corporation, while they cannot, by 10. Term of existence.
ratification, render valid an act which is beyond the powers of the corporation, may ratify an act may be established for any period of time may not be formed for a term in excess of 50
which is within its powers, but beyond the powers of the directors. stipulated by the partners years extendible to not more than 50 years in
 The courts often refer to contracts as ultra vires where all that is meant is that a particular officer any one instance
had no power to make the contract. 11. Firm name.
 In this class of cases, the question is merely one of agency and, therefore, governed by old and limited partnership is required by the May adopt any firm name provided it is not
well-settled rules of law relating to agency. law to add the word "Ltd." to its name identical or deceptively similar to any registered
firm name or contrary to existing law
12. Dissolution
III. COMPARISONS/DISTINCTIONS --Corporations/Partnerships Sole proprietorships may be dissolved at any only be dissolved with the consent of the State,
PARTNERSHIP CORPORATION time by the will of any or all of the partners,
1. EXTENT OF LIABILITY 13. Laws which govern
partners are personally liable for the debts of the stockholders cannot be made to personally Civil Code Corporation Code
partnership answer to corporate creditors
2. CREATION
mere agreement of the parties, w/c can be w/ a minimum of 5 incorporators, derives its
composed of just 2 persons, gives rise to the juridical personality from the certificate issued by
1-5 ACCDG TO CORP LAW REV
juridical personality of the partnership, whether the SEC (§19)
or not registered w/ the SEC (Art. 1768, NCC) 6-13 DE LEON
3. MANAGEMENT
all the owners in a partnership actively management is centralized in the board of
participate in management, w/ capacity to bind it directors w/c has exclusive power to bind the
by any usual contract corp
4. Nature of Relationship
based on mutual trust and confidence (delectus has more stability as it enjoys the right of
personae) so that its existence is precarious succession and is not affected by the death
because of the facility w/ which it can be or insolvency of a stockholder; also, dissolution
dissolved (i.e. through the death or unilateral act before a corp.’s term requires a 2/3rds vote of
of a partner); the stock (Secs. 118 and 119, Corp. Code),
always subject to SEC intervention

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