I. HISTORICAL BACKGROUND 1.

Definition: Corporation is an artificial being created by operation of law, having the right
1. The Philippine Corporate Law of succession and the powers, attributes and properties expressly authorized by law or incident
When the Philippines came under American sovereignty, attention was drawn to the fact that to its existence. [Sec. 2. BP 68] ( See also Section 2; Articles 44(3), 45, 46, and 1775, Civil
there was no entity in Spanish law exactly corresponding to the notion “corporation” in English Code. )
and American law; the Philippine Commission enacted the Corporation Law (Act No. 1459), to 2. Tri-Level Existence of Corporation
introduce the American corporation into the Philippines as the standard commercial entity and (a) Aggregation of Assets and Resources
to hasten the day when the sociedad anónima of the Spanish law would be obsolete. The
statute is a sort of codification of American Corporate Law. Harden v. Benguet Consolidated (b) Business Enterprise or Economic Unit

Mining Co., 58 Phil. 141 (1933).

(c) Juridical Entity
2. The Corporation Law
The first corporate statute, the Corporation Law, or Act No. 1459, became effective on 1 April
3. Relationships Involved in Corporate Setting
1906. It had various piece-meal amendments during its 74 year history. It rapidly became
(a) Juridical Entity Level, which views the State-corporations relationship
antiquated and not adapted to the changing times.
(b) Contractual Relationship Level, which considers that the corporate setting is at once a
contractual relationship on four (4) levels:
3. The Corporation Code
- Between the corporation and its agents or representatives to act in the real world, such as its
The present Corporation Code, or Batas Pambansa Blg. 68, became effective on 1 May 1980. It
directors and its officers, which is governed also by the Law on Agency;
adopted various corporate doctrines enunciated by the Supreme Court under the old
Corporation Law. It clarified the obligations of corporate directors and officers, expressed in
- Between the corporation and its shareholders or members;
statutory language established principles and doctrines, and provided for a chapter on close
corporations. - Between and among the shareholders in a common venture; and
4. Proper Treatment of Philippine Corporate Law
Philippine Corporate Law comes from the common law system of the United States. Therefore, - Between the corporation and third-parties or “outsiders”, which is essentially governed by
although we have a Corporation Code that provides for statutory principles, Corporate Law is Contract Law.
essentially, and continues to be, the product of commercial developments. Much of this
development can be expected to happen in the world of commerce, and some expressed 4. Theories on Formation of Corporation:

jurisprudential rules that try to apply and adopt corporate principles into the changing concepts (a) Theory of Concession (Tayag v. Benguet Consolidated Inc., 26 SCRA 242 [1968])

and mechanism of the commercial world. To organize a corporation that could claim a juridical personality of its own and transact
business as such, is not a matter of absolute right but a privilege which may be enjoyed only
II. CONCEPTS under such terms as the State may deem necessary to impose (x-cf.Ang Pue & Co. v. Sec. of
See opening paragraphs of Villanueva, Corporate Contract Law,38 Ateneo L.J. 1 (No. 2, June Commerce and Industry, 5 SCRA 645 [1962]).
1994). Before a corporation may acquire juridical personality, the State must give its consent either in
the form of a special law or a general enabling act, and the procedure and conditions provided
under the law for the acquisition of such juridical personality must be complied with. The failure
to comply with the statutory procedure and conditions does not warrant a finding that such
association achieved the acquisition of a separate juridical personality, even when it adopts sets
of constitution and by-laws. xInternational Express Travel & Tour Services, Inc. v. Court of
Appeals, 343 SCRA 674 (2000).
Since all corporations, big or small, must abide by the provisions of the Corporation Code, then
even a simple family corporation cannot claim an exemption nor can it have rules and practices
other than those established by law. xTorres v. Court of Appeals, 278 SCRA 793 (1997).
(b) Theory of Enterprise Entity (Berle, Theory of Enterprise Entity, 47 Col. L. Rev. 343
[1947])
Corporations are composed of natural persons and the legal fiction of a separate corporate
personality is not a shield for the commission of injustice and inequity, such as the use of
separate personality to avoid the execution of the property of a sister company. xTan Boon Bee
& Co., Inc. v. Jarencio, 163 SCRA 205 (1988).
A corporation is but an association of individuals, allowed to transact under an assumed
corporate name, and with a distinct legal personality. In organizing itself as a collective body, it
waives no constitutional immunities and perquisites appropriate to such a body. xPhilippine
Stock Exchange, Inc. v. Court of Appeals, 281 SCRA 232 (1997).
5. Four Attributes of Corporation from Statutory Definition:
(a) A corporation is an artificial being
(b) Created by operation of law
(c) With right of succession
(d) Only has powers, attributes and properties expressly authorized by law or incident to its
existence
6. Advantages and Disadvantages of Corporate Form:
(a) Four Basic Advantageous Characteristics of Corporate Organization:
(i) Strong Legal Personality
- Entity attributable powers
- Continuity of existence
- Purpose
The corporation was evolved to make possible the aggregation and assembling of huge amounts
of capital upon which big business depends; and has the advantage of non-dependence on the
lives of those who compose it even as it enjoys certain rights and conducts activities of natural
persons. Reynoso, IV v. Court of Appeals,G.R. No. 116124-25, 22 November 2000.
(ii) Centralized Management.
(iii) Limited Liability to Investors
One advantage of a corporate business organization is the limitation of an investor’s liability to
the amount of the investment, which flows from the legal theory that a corporate entity is
separate and distinct from its stockholders. xSan Juan Structural and Steel Fabricators, Inc. v.
Court of Appeals, 296 SCRA 631, 645 (1998).
(iv) Free Transferability of Units of Ownership for Investors
(b) Disadvantages:
(i) Abuse of corporate management
(ii) Abuse of limited liability feature
(iii) Cost of maintenance
(iv) Double taxation
Dividends received by individuals from domestic corporations are subject to final 10% tax (Sec.
24(B)(2), NIRC of 1997) for income earned on or after 1 January 1998. Inter-corporate
dividends between domestic corporations, however, are not subject to any income tax (Sec.
27(D)(4), NIRC of 1997).
In addition, there has been a re-imposition of the “improperly accumulated earnings tax,” under
Section 29 of the NIRC of 1997 for corporations at the rate of 10% annually.
7. Compared With Other Media of Business Endeavors management granted to a juridical entity. But they were more similar to the English joint stock
- Distribution of Risk, Profit and Control companies than the modern commercial corporations.xBenguet Consolidated Mining Co. v.
(a) Sole Proprietorships Pineda, 98 Phil. 711 (1956)
Our Corporation Law recognizes the difference between sociedades anónimas and corporations
(b) Business Trusts (Article 1442, Civil Code) and will not apply legal provisions pertaining to the latter to the former xPhil. Product Co. v.
Primateria Societe Anonyme, 15 SCRA 301 (1965).
(c) Partnerships and Other Associations (Arts. 1768 and 1775, Civil Code)
(g) Cuentas En Participacion
A cuentas en participacion as a sort of an accidental partnership constituted in such a manner
- Can a defective attempt o form a corporation result at least in the formation of a
that its existence was only known to those who had an interest in the same, there being no
partnership? Pioneer Insurance v. Court of Appeals, 175 SCRA 668 (1989).
mutual agreement between the partners, and without a corporate name indicating to the public
(d) Joint Ventures
in some way that there were other people besides the one who ostensibly managed and

Joint venture is defined as an association of persons or companies jointly undertaking some conducted the business, governed under article 239 of the Code of Commerce.

commercial enterprise; generally all contribute assets and share risks. It requires a community Those who contract with the person under whose name the business of such partnership

of interest in the performance of the subject matter, a right to direct and govern the policy in of cuentas en participacion is conducted, shall have only a right of action against such person

connection therewith, and duty, which may be altered by agreement to share both in profit and and not against the other persons interested, and the latter, on the other hand, shall have no

losses. the acts of working together in a joint project. xKilosbayan, Inc. v. Guingona, Jr., 232 right of action against third person who contracted with the manager unless such manager

SCRA 110, 143 (1994), citing Black’s Law Dictionary, Sixth ed., 839. formally transfers his right to them. xBourns v. Carman, 7 Phil. 117 (1906).

(e) Cooperatives (Art. 3, R.A. No. 6938) III. NATURE AND ATTRIBUTES OF A CORPORATION
1. Nature of Power to Create a Corporation (Sec. 16, Article XII, 1987 Constitution)

(f) Sociedades Anónimas 2. Corporation as a Person:

A sociedad anónima was considered a commercial partnership, a sort of a corporation, “where (a) Entitled to due process

upon the execution of the public instrument in which its articles of agreement appear, and the The due process clause is universal in its application to all persons without regard to any

contribution of funds and personal property, becomes a juridical person—an artificial being, differences of race, color, or nationality. Private corporations, likewise, are “persons” within the

invisible, intangible, and existing only in contemplation of law—with power to hold, buy, and sell scope of the guaranty insofar as their property is concerned.” xSmith Bell & Co. v. Natividad, 40

property, and to sue and be sued—a corporation—not a general copartnership nor a limited Phil. 136, 144 (1920).

copartnership . . . The inscribing of its articles of agreement in the commercial register was not (b) Equal protection clause (xSmith Bell & Co. v. Natividad, 40 Phil. 136 [1920]).

necessary to make it a juridical person—a corporation. Such inscription only operated to show (c) Unreasonable Searches and Seizure

that it partook of the form of a commercial corporation.” xMead v. McCullough, 21 Phil. 95,106 Corporations are protected by the constitutional guarantee against unreasonable searches and

(1911). seizures, but that the officers of a corporation from which documents, papers and things were

The sociedades anónimas were introduced in Philippine jurisdiction on 1 December 1888 with seized have no cause of action to assail the legality of the seizures, regardless of the amount of

the extension to Philippine territorial application of Articles 151 to 159 of the Spanish Code of shares of stock or of the interest of each of them in said corporation, and whatever the offices

Commerce. Those articles contained the features of limited liability and centralized they hold therein may be, because the corporation has a personality distinct and separate from
those of said officers. The legality of a seizure can be contested only by the party whose rights
have been impaired thereby; and the objection to an unlawful search is purely personal and
cannot be availed of by such officers of the corporation who interpose it for their personal
interests. xStonehill v. Diokno, 20 SCRA 383 (1967).
A corporation is but an association of individuals under an assumed name and with a distinct
legal entity. In organizing itself as a collective body it waives no constitutional immunities
appropriate for such body. Its property cannot be taken without compensation; can only be
proceeded against by due process of law; and is protected against unlawful
discrimination. xBache & Co. (Phil.), Inc. v. Ruiz, 37 SCRA 823, 837 (1971), quoting fromxHale
v. Henkel, 201 U.S. 43, 50 L.Ed. 652.
(d) But a corporation is not entitled to privilege against self incrimination
“It is elementary that the right against self-incrimination has no application to juridical
persons.” Bataan Shipyard & Engineering Co v. PCGG, 150 SCRA 181, 234-235 (1987).
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 privilege. xHale v.
Henkel, 201 U.S. 43 (1906); xWilson v. United States, 221 U.S. 361 (1911); xUnited States v.
White, 322 U.S. 694 (1944).
3. Liability for Torts
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. That a principal
or master is liable for every tort which he expressly directs or authorizes, is just as true of a
corporation as a natural person. PNB v. CA, 83 SCRA 237 (1978).
Our jurisprudence is wanting as to the definite scope of “corporate tort.” Essentially, “tort”
consists in the violation of a right given or the omission of a duty imposed by law. Simply
stated, tort is a breach of a legal duty. When it was found that Clark Field Taxi failed to comply
with the obligation imposed under Article 283 of the Labor Code which mandates that the
employer to grant separation pay to employees in case of closure or cessation of operations of
establishments or undertaking not due to serious business losses or financial reverses;
consequently, its stockholder who was actively engaged in the management or operation of the
business should be held personally liable. xSergio F. Naguiat v. NLRC, 269 SCRA 564 (1997).
As a general rule, a banking corporation is liable for the wrongful or tortuous acts and
declarations of its officers or agents within the course and scope of their employment. A bank
will be held liable for the negligence of its officers or agents when acting within the course and
scope of their employment, even as regards that species of tort of which malice is an essential
element. In this case, we find a situation where the PCIBank appears also to be the victim of
the scheme hatched by a syndicate in which its own management employees had
participated. Philippine Commercial International Bank vs. Court of Appeals, G.R. No. 121413,
29 January 2001.
4. Criminal Liability of a Corporation (West Coast Life Ins. Co. v. Hurd, 27 Phil. 401
(1914);People v. Tan Boon Kong, 54 Phil. 607 [1930]; Sia v. CA, 121 SCRA 655 [1983];
Articles 102 and 103, Revised Penal Code).
No criminal suit can lie against an accused who is a corporation. xTimes, Inc. v. Reyes, 39 SCRA
303 (1971).
When a criminal statute forbids the corporation itself from doing an act, the prohibition extends
to the board of directors, and to each director separately and individually.xPeople v.
Concepcion, 44 Phil. 129 (1922).
5. Recovery of Moral Damages and Other Damages
A corporation, being an artificial person, cannot experience physical sufferings, mental anguish,
fright, serious anxiety, wounded feelings, moral shock or social humiliation which are basis for
moral damages under Art. 2217 of the Civil Code. However, a corporation may have a good
reputation which, if besmirched, may be a ground for the award of moral damages.xMambulao
Lumber Co. v. Philippine National Bank, 22 SCRA 359 (1968).
Even when the corporation’s reputation and goodwill have been prejudiced, “there can be no
award for moral damages under Article 2217 and succeeding articles of Section 1 of Chapter 3
of Title XVIII of the Civil Code in favor of a corporation.” xPrime White Cement Corp. vo
Intermediate Appellate Court, 220 SCRA 103, 113-114 (1993).
Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar
injury. A corporation, being an artificial person and having existence only in legal
contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience
physical suffering and mental anguish. Mental suffering can be experienced only by one having
a nervous system and it flows from real ills, sorrows, and griefs of life—all of which cannot be
suffered by respondent bank as an artificial person. xLBC Express, Inc. v. Court of Appeals, 236
SCRA 602 (1994);xAcme Shoe, Rubber & Plastic Corp. v. Court of Appeals, 260 SCRA 714
(1996); xSolid Homes, Inc. v. Court of Appeals, 275 SCRA 267 (1997).
In Asset Privatization Trust v. Court of Appeals, 300 SCRA 579 (1998), the Supreme Court
seemed to have gone back to the original doctrine that “[u]nder Article 2217 of the Civil Code,
moral damages include besmirched reputation which a corporation may possibly suffer.”
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 [218 SCRA 85 (1993)] and Mambulao Lumber Co. v. PNB [130 Phil. 366 (1968)], that a
corporation may recover moral damages if it “has a good reputation that is debased, resulting
in social humiliation” is an obiter dictum. . .” The possible basis of recovery of a corporation
would be under Articles 19, 20 and 21 of the Civil Code, but which requires a clear proof of
malice or bad faith.xABS-CBN Broadcasting Corp. v. Court of Appeals, 301 SCRA 589 (1999).
While it is true that a criminal case can only be filed against the officers of a corporation and not
against the corporation itself, it does not follow from this, however, that the corporation cannot
be a real-party-in-interest for the purpose of bringing a civil action for malicious prosecution for
the damages incurred by the corporation for the criminal proceedings brought against its
officer. xCometa v. Court of Appeals, 301 SCRA 459 (1999).
6. Nationality of Corporation: Country Under Whose Laws Incorporated (Sec. 123).
Exceptions: The Test of Controlling Ownership Applies In:
(a) Exploitation of Natural Resources (Sec. 140; Sec. 2, Article XII, 1987
Constitution;Roman Catholic Apostolic Administrator of Davao, Inc. v. The LRC and the Register
of Deeds of Davao, 102 Phil. 596 [1957]).
The donation of land to an unincorporated religious organization, whose trustees are foreigners,
cannot be allowed registration for being violation of the constitutional prohibition and it would
not be violation of the freedom of religion clause. The fact that the religious association “has no
capital stock does not suffice to escape the constitutional inhibition, since it is admitted that its
members are of foreign nationality. The purpose of the sixty per centum requirement is
obviously to ensure that corporations or associations allowed to acquire agricultural land or to
exploit natural resources shall be controlled by Filipinos; and the spirit of the Constitution
demands that in the absence of capital stock, the controlling membership should be composed
of Filipino citizens.” xRegister of Deeds of Rizal v. Ung Sui Si Temple, 97 Phil. 58 (1955)
(b) Public Utilities (Sec. 11, Article XII, 1987 Constitution; People v. Quasha, 93 Phil. 333
[1953]).
The primary franchise of a corporation, that is, the right to exist as such, is vested in the
individuals who compose the corporation and not in the corporation itself and cannot be
conveyed in the absence of a legislative authority so to do. But the special or secondary
franchises of a corporation are vested in the corporation and may ordinarily be conveyed or
mortgaged under a general power granted to a corporation to dispose of its property, except
such special or secondary franchises as are charged with a public use. xJ.R.S. Business Corp. v.
Imperial Insurance, 11 SCRA 634 (1964).
The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility;
however, it does not requires a franchise before one can own the facilities needed to operate a
public utility so long as it does not operate them to serve the public. In law there is a clear
distinction between the “operation” of a public utility and the ownership of the facilities and
equipment used to serve the public. Tatad v. Garcia, Jr., 243 SCRA 436 (1995)
“A distinction should be made between shares of stock, which are owned by stockholders, the
sale of which requires only NTC approval, and the franchise itself which is owned by the
corporation as the grantee thereof, the sale or transfer of which requires Congressional
sanction. Since stockholders own the shares of stock, they may dispose of the same as they see
fit. They may not, however, transfer or assign the property of a corporation, like its franchise.
In other words, even if the original stockholders had transferred their shares to another group
of shareholders, the franchise granted to the corporation subsists as long as the corporation, as
an entity, continues to exist. The franchise is not thereby invalidated by the transfer of the
shares. A corporation has a personality separate and distinct from that of each stockholder. It
has the right of continuity or perpetual succession Corporation Code, Sec. 2).” Philippine Long
Distance Telephone Co. v. National Telecommunications Commission, 190 SCRA 717, 732
(1990).
(c) Mass Media (Sec. 11(1), Art. XVI, 1987 Constitution)
Sources: P.D. 36, as amended by PDs 191 and 197; DOJ Opinion No. 120, s. of 1982;Section
2, P.D. 576; SEC Opinion dated 24 March 1983; DOJ Opinion 163, s. 1973; SEC Opinion dated
15 July 1991, XXV SEC QUARTERLY BULLETIN, (No. 4—December, 1991), at p. 31.
Cable Industry
The National Telecommunications Commission (NTC), which regulates and supervises the cable
television industry in the Philippines under Section 2 of Executive Order No. 436, s. 1997, has
provided under NTC Memorandum Circular No. 8-9-95, under item 920(a) thereof provides that
“Cable TV operations shall be governed by E.L. No. 205, s. 1987. If CATV operators offer public
telecommunications services, they shall be treated just like a public telecommunications entity.”

Under DOJ Opinon No. 95, series of 1999, the Secretary of Justice, taking its cue from Allied
Broadcasting, Inc. v. Federal Communications Commission, 435 F. 2d 70, considered CATV as
“a form of mass media which must, theefore, be owned and managed by Filipino citizens, or
corporations, cooperatives or associations, wholly-owned and managed by Filipino citizens
pursuant to the mandate of the Constitution.”
(d) Advertising Business (Sec. 11(2), Art. XVI, 1987 Constitution)
(e) War-Time Test (Filipinas Compania de Seguros v. Christern, Huenefeld & Co., Inc., 89
Phil. 54 [1951]; xDavis Winship v. Philippine Trust Co., 90 Phil. 744 [1952]; xHaw Pia v. China
Banking Corp., 80 Phil. 604 [1948]).
(f) Investment Test as to “Philippine Nationals” (Sec. 3(a),(b), R.A. 7042, Foreign Investment
Act of 1992)
(g) The Grandfather Rule (Opinion of DOJ No. 18, s. 1989, dated 19 January 1989; SEC
Opinion, dated 6 November 1989, XXIV SEC Quarterly Bulletin (No. 1- March 1990); SEC
Opinion, dated 14 December 1989, XXIV SEC Quarterly Bulletin (No. 2 -June 1990)
Up to what level do you apply the grandfather rule? (Palting v. San Jose Petroleum Inc., 18
SCRA 924 [1966]).
(h) Special Classifications (Sec. 140)

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