Nature and Attributes of A Corporation

CORPORATION
LAW REVIEWER (2013-2014)
ATTY. JOSE MARIA G. HOFILEA
NATURE AND ATTRIBUTES OF A CORPORATION

I. NATURE OF POWER TO CREATE A CORPORATION (Section 16, Article

B. Examples
prohibition on the formation of a private corporation by special

legislative act which is not a GOCC, since NDC was merely
required to extend a loan to the new corporation, and the new
stocks of the corporation were to be issued to the old investors
and stockholders of the insolvent Agrix upon proof of their
claims against the abolished corporation. NDC v. Philippine
Veterans Bank, 192 SCRA 257 (1990).
XII, 1987 Constitution)

1987 CONSTITUTION OF THE PHILIPPINES
Section 16 (Article XII)
The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations.
Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good and
subject to the test of economic viability.

A. Main Point
a special charter, and it follows that Congress can create

corporations with special charters only if such are GOCCs.
Feliciano v. Commission on Audit, 419 SCRA 363 (2004).
o When a government passes a charter for the creation of
a GOCC, implicit in that is that it has to remain as a
PNRC which was constituted under a special law, is not a GOCC

because it is not by its charter owned by the Government,
although it is intended to do public functions, it is owned by the
private sector. Consequently, the PNRC Charter, insofar as it
creates the PNRC as a private corporation and grants it
corporate powers, is void for being unconstitutional. The other
provisions of the PNRC Charter remain valid as they can be
considered as recognition by the State that the unincorporated
PNRC is the local National Society of the International Red Cross
and Red Crescent Movement, and thus entitled to the benefits,
exemptions and privileges set forth in the PNRC Charter. Liban
Congress cannot enact a law creating a private corporation with
GOCC. If it is transformed into a private corporation,

then it must divest itself of the special charter it holds.
Doubts whether the charter would be valid if the shares
of the GOCC are allowed to be sold, but it is allowed to
retain its charter.
P.D. 1717 creating New Agrix, Inc. violated the constitutional
v. Gordon, 593 SCRA 68 (2009).

II. CORPORATION AS A PERSON:
The Constitution explicitly prohibits the creation and regulation

by special laws of private corporations, except for government-
owned or controlled corporations (GOCCs). Veterans Federation
of the Philippines v. Reyes, 483 SCRA 526 (2006).

NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)
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
CORPORATION LAW REVIEWER (2013-2014)

law; and is protected against unlawful discrimination. Bache &
Co. (Phil.), Inc. v. Ruiz, 37 SCRA 823 (1971).

A. Entitled to Due Process and Equal Protection
follow that a corporation, vested with special privileges and

franchises, may refuse to show its hand when charged with an
abuse of such privilege. Hale v. Henkel, 201 U.S. 43 (1906).1
The due process clause is universal in its application to all

persons, and covers private corporations within the scope of the
guaranty insofar as their properties are concerned. Smith Bell &
Co. v. Natividad, 40 Phil. 136, 144 (1920).
A corporation is protected by the constitutional guarantee

against unreasonable searches and seizures, but its officers have
no cause of action to assail the legality of the seizures,
regardless of the amount of shares of stock or of the interest of
A warrant of arrest cannot be issued against a corporation

The agents of the corporation can question the validity of
searches and seizures in behalf of such corporation. In such
cases, the personality of the officers would be the personality of
the company.

C. Not Entitled to Privilege Against Self Incrimination
Atty. Hofilea Jurisprudence does indicate that corporations

are not entitled to a right against self-incrimination. My own
view is that the right against self-incrimination may ultimately
relate to the ultimate penalty of crimes i.e. imprisonment.
Perhaps this is the underlying reason of why corporations have
no right against self-incrimination.
because you cannot arrest a corporation.
Corporations may not be held criminally liable, but they may be

held civilly liable.
o Criminal liability will attach to a corporation only when
there is a law providing that such act constitutes
corporate criminal liability.
o They may be deprived of their corporate personality as
penalty, but they cannot be imprisoned.
each of them in said corporation because the corporation has a

personality distinct and separate from those of said officers.
Stonehill v. Diokno, 20 SCRA 383 (1967).
Since a corporation is made up of people, there is nothing its

agents may say that will constitute as incriminating for the
corporation. However, the members of the corporations (e.g.
corporate officers) may invoke this right.

B. Unreasonable Searches and Seizure
While an individual may lawfully refuse to answer incriminating

questions unless protected by an immunity statute, it does not
It is elementary that the right against self-incrimination has no

application to juridical persons. Bataan Shipyard &
Engineering v. PCGG, 150 SCRA 181 (1987).
Due Process and Equal Protection v. Self-Incrimination2

The denial of the right against self-incrimination from corporations does
Wilson v. United States, 221 U.S. 361 (1911); United States v. White, 322 U.S.
694 (1944).
2
Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.
(2013 ed.). Manila, Philippines: Rex Book Store.


not really invite state authorities into the premises or physical privacy of
the stockholders or members who compose the corporation; but would
deny acting individuals the right to abuse the corporate medium as a
means to do folly.

On the other hand, to deny the due process rights or right against
unreasonable searches and seizures to corporations would actually be
to invite state authorities to physically intrude into corporate premises,
and therefore also intrude into the personal and business privacy of the
stockholders or members who compose it.

Perhaps that is the basis for the difference in stance by the Supreme
Court between two sets of constitutional rights with respect to
corporations.

D. Bill of Rights
Note: The corporation as an artificial being is very close to a real person
as it is allowed to possess and exercise many human rights.
Freedom of Speech YES.

Right against double jeopardy YES.
To be protected from ex post facto laws YES.
Freedom of Religion YES. Where the corporation is

incorporated for religious purposes.
Right to information YES.
Protection of property from unjust taking YES.
Non-impairment of Contracts YES.
Right to be informed about cases YES.
Speedy disposition of cases YES.
Right to form associations YES.
Freedom of Assembly MAYBE. Example: can a corporation be
Right against Involuntary Servitude MAYBE. What can

corporations do that will constitute involuntary servitude?
Right to bail NO.
Write of Habeas Corpus NO.
Right against excessive fine or imprisonment for debt NO.
Right to Travel NO.

III. Practice of Profession
Corporations cannot engage in the practice of a profession since

they lack the moral and technical competence required by the
PRC. ULEP v. The Legal Clinic, 223 SCRA 378 (1993).
confidentiality of the communications of the corporations

agents may involve the interest of the corporate entity.
Access to Courts YES.
held liable where its employees take part in an illegal assembly

wearing the corporate shirt?
Confidentiality/Privacy of Communication YES. Because the
A corporation engaged in the selling of eyeglasses and which

hires optometrists is not engaged in the practice of optometry.
Samahan ng Optometrists v. Acebedo International Corp., 270
SCRA 298 (1997); Alfafara v. Acebedo Optical Company, 381
SCRA 293 (2002).
COUNTER-REVOLUTION: Architectural professional
corporations allowed under Rep. Act No. 9266.

IV. Liability for Torts
1. A corporation must be held liable for all the contracts and
default that arise from those entered into by its agent within


the scope of his authority, or even those outside the scope of
his authority, by which has been ratified by the corporation.
A corporation is civilly liable in the same manner as natural

persons for torts, because the rules governing the liability of a
principal for a tort committed by an agent are the same
whether the principal be a natural person or a corporation, and
whether the agent be a natural or artificial person. That a
principal is liable for every tort which he expressly directs or
authorizes, is just as true of a corporation as a natural person.
PNB v. Court of Appeals, 83 SCRA 237 (1978).
o
It seems clear from the ruling that not every tortuous

act committed by an officer can be ascribed to the
corporation as its liability, for it is reasonable to
presume that in the granting of authority by the
corporation to its agent, such a grant did not include a
direction to commit tortuous acts against third parties.
Only when the corporation has expressly directed the
commission of such tortuous act, would the damages
resulting therefrom be ascribable to the corporation.
And such a direction by the corporation, is manifested
either by its board adopting a resolution to such effect,
as in the Philippine National Bank case, or having taken
advantage of such an tortuous act the corporation,
through its board, expressly or impliedly ratifies such an
act or is estopped from impugning such an act.

Where your company driver came into an accident with
your car, will the company be held liable? In cases
where the natural person who committed the tort is an
employee of the corporation, the corporation can be

held liable on the principle of agency.
The liability of the corporation with regard to the acts of
its agents and employees is limited to instances where
they are negligent in the performance of their official
duties.
Atty. Hofilea the corporation as an artificial being

has contact with the world through its employees and
officials.
2. The acting officer is solidarily liable with the corporation for
the damages resulting from his negligence as a joint-tortfeasor
o
Corporate tort consists in the violation of a right given or

the omission of a duty imposed by law; a breach of a legal duty.
The failure of the corporate employer to comply with the duty
under the Labor Code to grant separation pay to employees in
case of cessation of operations constitutes tort and its
stockholder who was actively engaged in the management or
operation of the business should be held personally liable.
Sergio F. Naguiat v. NLRC, 269 SCRA 564 (1997).
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. Regardless of its
relationship with the doctor, the hospital may be held directly
liable to the patient for its own negligence or failure to follow


established standard of conduct to which it should conform as a
corporation. Professional Services, Inc. v. Court of Appeals, 611
SCRA 282 (2010).

Professional Services, Inc. v. Court of Appeals
committed within its premises. PSI committed a serious breach of its

corporate duty when it failed to conduct an immediate investigation
into the reported missing gauzes.

Doctrine: Regardless of its relationship with the doctor, the hospital

Facts: PSI together with Dr. Miguel Ampil and Dr. Juan Fuentes, was
impleaded by Enrique Agana and Natividad Agana (later substituted by
her heirs), in a complaint for damages for the injuries suffered by
Natividad when Dr. Ampil and Dr. Fuentes neglected to remove from
her body two gauzes which were used in the surgery they performed on
her on April 11, 1984 at the Medical City General Hospital. PSI was
may be held directly liable to the patient for its own negligence or
failure to follow established standard of conduct to which it should
conform as a corporation.
impleaded as owner, operator and manager of the hospital.

Issue: Whether or not PSI is liable for the negligence of Dr. Ampil.

Held: YES. For purposes of allocating responsibility in medical negligence
cases, an employer-employee relationship exists between hospitals and
their consultants. The Court denied the defense of PSI saying that the
REVISED PENAL CODE

Article 102. Subsidiary civil liability of innkeepers, tavernkeepers and
proprietors of establishments.
In default of the persons criminally liable, innkeepers, tavernkeepers,
and any other persons or corporations shall be civilly liable for crimes
committed in their establishments, in all cases where a violation of
defense raised by PSI consisted of a mere general denial of control or

responsibility over the actions of Dr. Ampil. Furthermore, the hospital
was projecting Dr. Ampil as their agent. As such, under the doctrine of
apparent authority PSI was liable for the negligence of Dr. Ampil.

Finally, as owner and operator of Medical City General Hospital, PSI was
bound by its duty to provide comprehensive medical services to
Natividad Agana, to exercise reasonable care to protect her from harm,
to oversee or supervise all persons who practiced medicine within its
walls, and to take active steps in fixing any form of negligence

V. Corporate Criminal Liability (Articles 102 and 103, Revised Penal
Code):

municipal ordinances or some general or special police regulation shall

have been committed by them or their employees.

Innkeepers are also subsidiarily liable for the restitution of goods
taken by robbery or theft within their houses from guests lodging
therein, or for the payment of the value thereof, provided that such
guests shall have notified in advance the innkeeper himself, or the
person representing him, of the deposit of such goods within the inn;
and shall furthermore have followed the directions which such
innkeeper or his representative may have given them with respect to
the care and vigilance over such goods. No liability shall attach in case


of robbery with violence against or intimidation of persons unless
committed by the innkeeper's employees.

Article 103. Subsidiary civil liability of other persons.
The subsidiary liability established in the next preceding article shall
insolvency.

Issue: Whether or not West Coast can be held liable for libel.

Held: NO. The courts here have no common law jurisdiction or powers.
also apply to employers, teachers, persons, and corporations engaged

in any kind of industry for felonies committed by their servants, pupils,
workmen, apprentices, or employees in the discharge of their duties.
If they have any powers not conferred by statute, expressly or impliedly,

they would naturally come from Spanish and not from common law
sources. Under the Spanish criminal law and procedure, a corporation
could not have been proceeded against criminally, and as such it could
not have committed a crime in which a willful purpose or a malicious
intent was required. Criminal actions would have been restricted or
limited, under that system, to the officials of such corporations and
Corporations cannot be held criminally liable within Philippine

jurisdiction since there is no law relating to the practice and
procedure in criminal actions whereby a corporation may be
brought to court to be proceeded against criminally. West Coast
Life Ins. Co. v. Hurd, 27 Phil. 401 (1914).
o Other reasons: (1) the impossibility of imposing penal
sanctions on a corporation and (2) lack of criminal
never would have been directed against the corporation itself.

Doctrine: Corporations cannot be indicted criminally because such acts
require malicious intent, which a corporation cannot possess.
intent or malice since a corporation has no mind of its

own.1

corporation cannot be held criminally liable for the crime of

estafa punished under the Revised Penal Code and prior to the
promulgation of the Trust Receipts Decree under the doctrine
that the corporation was [not] directly required by law to do an
act in a given manner, and the same law makes the person who
West Coast Life Ins. Co. v. Hurd

Facts: A complaint for libel was filed against West Coast Life Insurance
Co., alleging that its officers John Northcott and Manuel Grey caused to
be printed and distributed damaging circulars detrimental to the Insular
Life Insurance Company. The circulars represent that Insular Life was in
a dangerous financial condition and on the point of going into


A corporate officer who signs the trust receipt in behalf of the
fails to perform the act in the prescribed manner expressly

liable criminally. Sia v. Court of Appeals, 121 SCRA 655 (1983).
BUT: The Trust Receipts Law recognizes the impossibility of

imposing the penalty of imprisonment on a corporation, hence,
if the entrustee is a corporation, the law makes the officers or
employees or other persons responsible for the offense liable to

suffer the penalty of imprisonment. Ong v. Court of Appeals,
401 SCRA 6478 (2003).

Sia v. Court of Appeals

personally had committed any fraud or deceit in connection therewith

or that he had personally been responsible for or benefited from the
corporations failure to pay the bank the balance due under the trust
receipt.

Facts: Jose Sia is engaged in the manufacturing of Steel Office

Equipment. As president and general manager of Metal Manufacturing
of the Philippines, he obtained delivery of 150 M/T Cold Rolled Steel
Sheets under a Trust Receipt Agreement. According to the Agreement,
he was obliged to hold the said steel sheets in trust and sell them then
turn over the proceeds to the Continental bank. However, he failed to
perform such obligation, and instead refused to return the said cold
Note: If this case was decided today, Sia may be held liable because P.D.
115 punishes the officers of a corporation who violate the provisions of
the trust receipt.
rolled sheets or account for the proceeds thereof, causing damage to

Continental Bank. Sia was then charged of estafa.

Issue: Whether or not Sia may be held criminally liable as an officer of
the corporation.

Held: NO. Sia was never intended to be equally liable as 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. Cometa v. Court of
Appeals, 301 SCRA 459 (1999).
corporation. Without being made so liable personally as the corporation

is, there would then be no basis for holding him criminally liable for any
violation of the trust receipt. This is made clearly so upon consideration
of the fact that in the violation of the trust agreement, only the
corporation benefited and not Sia personally.

Doctrine: (Concurring Opinion of Justice Teehankee) All of the acts
involved were corporate acts with Sia representing the corporation as
its president and general manager. There is not the slightest evidence
that these corporate acts were unauthorized or that petitioner

No criminal suit can lie against a corporation: Times, Inc. v.

Reyes, 39 SCRA 303 (1971).
BUT: A corporation can be a real-party-in-interest for the
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. People v.
Concepcion, 44 Phil. 129 (1922).
The existence of the corporate entity does not shield from

prosecution the corporate agent who knowingly and
intentionally causes the corporation to commit the crime. The
corporation obviously acts, and can act, only by and through its
human agents, and it is their conduct which the law must deter.
The employee or agent of a corporation engaged in unlawful
business naturally aids and abets in the carrying on of such
business and will be prosecuted as principal if, with knowledge
of the business, its purpose and effect, he consciously

contributes his efforts to its conduct and promotion [illegal
recruitment in this case], however slight his contribution may
be. The Executive Secretary v. Court of Appeals, 429 SCRA 81
(2004); People v. Tan Boon Kong, 54 Phil. 607 (1930).
and abets in the carrying on of such business and will be prosecuted as

principal if (with knowledge of the business, its purpose and effect) he
consciously contributes his efforts to its conduct and promotion,
however slight his contribution may be.

The Executive Secretary v. Court of Appeals

Facts: The Asian Recruitment Council Philippine Chapter, Inc. (ARCO-
Phil.) filed a petition for declaratory relief to declare as unconstitutional
Section 2, paragraph (g), Section 6, paragraphs (a) to (j), (l) and (m),
Section 7, paragraphs (a) and (b), and Sections 9 and 10 of Republic Act
No. 8042, otherwise known as the Migrant Workers and Overseas
Filipinos Act of 1995.

Issue: Whether or not Section 6 of R.A. No. 8042 which provides that
employees of recruitment agencies may be criminally liable for illegal
recruitment is valid.

Held: YES. An employee of a company or corporation engaged in illegal
recruitment may be held liable as principal, together with his employer,
if it is shown that he actively and consciously participated in illegal
recruitment.

Doctrine: It has been held that the existence of the corporate entity
does not shield from prosecution the corporate agent who knowingly
and intentionally causes the corporation to commit a crime. The
corporation obviously acts, and can act, only by and through its human
agents, and it is their conduct which the law must deter. The employee
or agent of a corporation engaged in unlawful business naturally aids
People v. Tan Boon Kong

Facts: Tan Boon Kong is the manager of the Visayan General Supply Co.
Inc. in Iloilo which was engaged in the purchase and sale of sugar,
bayon, copra and other native products. In 1924, he filed a false return
for the purpose of taxation thereby failing to declare the amount of
200k and voluntarily and illegally not paying the Government as internal
revenue percentage taxes the sum of P3k, corresponding to 112 % of
said undeclared sales.

Issue: Whether or not Tan Boon Kong, as manager of the company, may
be held criminally liable.

Held: YES. A corporation can act only through its officers and agents and
where the business itself involves a violation of law, that correct rule is
that all who participate in it are criminally liable. Tan Boon Kong, being
the author of the illegal act, must be held liable.

Doctrine: For crimes committed by a corporation, the responsible
officers thereof would be personally liable for the crime. Officer of the
corporation will be personally liable for the crime only if it is directly
prohibited by law, and not if the act was merely in violation of the
agreement of parties.

If the crime is committed by a corporation, 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. Ching v. Secretary
of Justice, 481 SCRA 602 (2006)
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 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.
Ching v. Secretary of Justice, 481 SCRA 602 (2006).
BUT SEE: Consolidated Bank v. Court of Appeals, 356 SCRA 671

(2003).

Consolidated Bank v. Court of Appeals

Facts: Continental Cement Corp obtained from Consolidated Bank letter
of credit used to purchase 500,000 liters of bunker fuel oil. Respondent
Corporation made a marginal deposit to petitioner. A trust receipt was
executed by respondent corporation, with respondent Gregory Lim as
signatory. Claiming that respondents failed to turn over the goods or
proceeds, petitioner filed a complaint for sum of money before the RTC
of Manila. In their answer, respondents aver that the transaction was a
simple loan and not a trust receipt one, and that the amount claimed by
petitioner did not take into account payments already made by them.

Issue: Whether or not Gregory Lim and his spouse can be held
personally liable.

Held: NO. Petitioner's argument that respondent Corporation and
respondent Lim and his spouse are one and the same cannot be
sustained. The transactions sued upon were clearly entered into by
respondent Lim in his capacity as Executive Vice President of the
corporation. We stress the hornbook law that corporate personality is a
shield against personal liability of its officers. Thus, we agree that
respondents Gregory T. Lim and his spouse cannot be made personally
liable since respondent Lim entered into and signed the contract clearly
in his official capacity as Executive Vice President. The personality of the
corporation is separate and distinct from the persons composing it

Doctrine: Hornbook law that corporate personality is a shield against
personal liability of its officers

The owners of a corporate organization are its stockholders

and they are to be distinguished from its directors and officers.
Stockholders, being basically investors in the corporation, and

with the management of its business generally vested in the
Board of Directors, cannot be held liable for the criminal offense
committed on behalf of the corporation, unless they personally
took part in the same. Espiritu v. Petron Corp., 605 SCRA 245
(2009).
damages if it has a good reputation that is debased, resulting in

social humiliation is an obiter dictum. 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.
ABS-CBN Broadcasting Corp. v. Court of Appeals, 301 SCRA 589
(1999).
Apart from its sweeping allegation that respondents
moral damages arising from libel falls under Article 2219(7) of

the Civil Code, which expressly authorizes the recovery of moral
damages in cases of libel, slander or any other form of
defamation, and does not qualify whether the plaintiff is a
natural or juridical person. Therefore, a juridical person can
acts may be held criminally liable. Cruzvale, Inc. v. Eduque, 589

SCRA 534, 546 (2009).
validly complain for libel or any other form of defamation and

claim for moral damages. Filipinas Broadcasting Network v.
Ago Medical and Educational Center, 448 SCRA 413 (2005).
A corporation may be sued for moral damages, but it cannot sue

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 Article 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.
Mambulao Lumber Co. v. Philippine National Bank, 22 SCRA
359 (1968); APT v. Court of Appeals, 300 SCRA 579 (1998).
PREVAILING RULE: A corporation, being an artificial person and

having existence only in legal contemplation, has no feelings,
emotions nor 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 lifeall of which cannot be
suffered by an artificial person. Prime White Cement Corp. v.
IAC, 220 SCRA 103 (1993).1
for moral damages (except for human relations)
NONETHELESS: Likewise, an educational corporations claim for
misappropriated or converted its money placements, petitioner

failed to establish the particular role or actual participation of
each respondent in the criminal act; neither was it shown that
they assented to its commission. It is basic that only corporate
officers shown to have participated in the alleged anomalous

VI. Recovery of Moral and Other Damages
BUT: The statement in People v. Manero and Mambulao

Lumber Co. v. PNB, that a corporation may recover moral
LBC Express, Inc. v. Court of Appeals, 236 SCRA 602 (1994); Acme Shoe,
Rubber & Plastic Corp. v. Court of Appeals, 260 SCRA 714 (1996); Solid Homes,
Inc. v. Court of Appeals, 275 SCRA 267 (1997); NPC v. Philipp Brothers Oceanic,
Inc., 369 SCRA 629 (2001); Flight Attendants and Stewards Association of the


VII. CORPORATE NATIONALITY: UNDER WHOSE LAWS INCORPORATED
(Section 123)

Section 123. Definition and rights of foreign corporations.

For the purposes of this Code, a foreign corporation is one formed,
organized or existing under any laws other than those of the

Philippines and whose laws allow Filipino citizens and corporations to
do business in its own country or state. It shall have the right to
transact business in the Philippines after it shall have obtained a
license to transact business in this country in accordance with this
Code and a certificate of authority from the appropriate government
agency. (n)
the citizenship requirement is to prevent aliens from assuming

control of public utilities, which may be inimical to the national
interest. This specific provision explicitly reserves to Filipino
citizens control of public utilities, pursuant to an overriding
economic goal of the 1987 Constitution: to conserve and
develop our patrimony and to ensure a a self- reliant and
independent national economy effectively controlled by
GENERAL RULE: The Incorporation Test

o If a corporation is formed under the laws of the
Philippines, then it is a domestic corporation regardless
o
of who owns the company at that point.

You look at the stockholding of the company when it
becomes necessary to comply with certain
requirements of the law.
The national of whoever owns the controlling
shares of a corporation is deemed to be either
foreign or domestic depending on the
The 1987 Constitution provides for the Filipinization of public

utilities by requiring that any form of authorization for the
operation of public utilities should be granted only to citizens of
the Philippines or to corporation or associations organized
under the laws of the Philippines at least sixty per centum of
whose capital is owned by such citizens. The evident purpose of
Domestic corporations which are under the control of

nationals of the enemy country are deemed foreign
enemy corporations. Haw Pia v. China Banking Corp.,
80 Phil. 604 (1948).1
Filipinos. We rule that the term capital in Section 11, Article

XII of the Constitution refers only to shares of stock entitled to
vote in the election of directors, and thus in the present case
only to common shares, and also preferred shares that are
entitled to vote, and not the total outstanding capital stock
comprising both common and non-voting preferred shares.
Gamboa v. Teves, 652 SCRA 690 (2011); affirmed in Heirs of
nationality of the controlling owner.

A corporation may be a Philippine corporation
BUT not a Philippine national.
Gamboa v. Teves, 682 SCRA 397 (2012).

EXCEPTION: Test Of Controlling Ownership
Philippines v. Philippine Airlines, 559 SCRA 252 (2008); Employees Union of

Bayer Phils. V. Bayer Philippines, Inc., 636 SCRA 473 (2010).
Filipinas Compania de Seguros v. Christern, Huenefeld & Co., Inc., 89 Phil. 54

(1951); Davis Winship v. Philippine Trust Co., 90 Phil. 744 (1952).

Rachelle Anne Gutie, 11/13/13 2:36 PM

Comment [1]: Landmark case

A. Exploitation of Natural Resources (Section 140; Section 2, Article XII,
1987 Constitution)

labor intensity of the activity, the export potential, as well as other

factors which are germane to the realization and promotion of
business and industry.
Section 140. Stock ownership in certain corporations.

Pursuant to the duties specified by Article XIV of the Constitution, the
National Economic and Development Authority shall, from time to

time, make a determination of whether the corporate vehicle has
been used by any corporation or by business or industry to frustrate
the provisions thereof or of applicable laws, and shall submit to the
Batasang Pambansa, whenever deemed necessary, a report of its
findings, including recommendations for their prevention or
correction.

Maximum limits may be set by the Batasang Pambansa for
stockholdings in corporations declared by it to be vested with a public
interest pursuant to the provisions of this section, belonging to
individuals or groups of individuals related to each other by
consanguinity or affinity or by close business interests, or whenever it
is necessary to achieve national objectives, prevent illegal monopolies
or combinations in restraint or trade, or to implement national
economic policies declared in laws, rules and regulations designed to
promote the general welfare and foster economic development.

In recommending to the Batasang Pambansa corporations, business or
industries to be declared vested with a public interest and in
formulating proposals for limitations on stock ownership, the National
Economic and Development Authority shall consider the type and
nature of the industry, the size of the enterprise, the economies of
scale, the geographic location, the extent of Filipino ownership, the

Section 2. (Article XII)
All lands of the public domain, waters, minerals, coal, petroleum, and
other mineral oils, all forces of potential energy, fisheries, forests or
timber, wildlife, flora and fauna, and other natural resources are
owned by the State. With the exception of agricultural lands, all other
natural resources shall not be alienated. The exploration,
development, and utilization of natural resources shall be under the
full control and supervision of the State. The State may directly
undertake such activities, or it may enter into co-production, joint
venture, or production-sharing agreements with Filipino citizens, or
corporations or associations at least 60 per centum of whose capital is
owned by such citizens. Such agreements may be for a period not
exceeding twenty-five years, renewable for not more than twenty-five
years, and under such terms and conditions as may provided by law. In
cases of water rights for irrigation, water supply, fisheries, or industrial
uses other than the development of waterpower, beneficial use may
be the measure and limit of the grant.

The State shall protect the nations marine wealth in its archipelagic
waters, territorial sea, and exclusive economic zone, and reserve its
use and enjoyment exclusively to Filipino citizens.

The Congress may, by law, allow small-scale utilization of natural
resources by Filipino citizens, as well as cooperative fish farming, with


priority to subsistence fishermen and fish workers in rivers, lakes,
bays, and lagoons.

The President may enter into agreements with foreign-owned
corporations involving either technical or financial assistance for large-
scale exploration, development, and utilization of minerals,
petroleum, and other mineral oils according to the general terms and
conditions provided by law, based on real contributions to the
economic growth and general welfare of the country. In such
agreements, the State shall promote the development and use of local
scientific and technical resources.

The President shall notify the Congress of every contract entered into
in accordance with this provision, within thirty days from its
execution.
including non-voting shares, would be entitled to vote.

Therefore, in those eight case enumerated in Section 6, even
foreigners who hold non-voting shares would be entitled to
vote.1

B. Ownership of Private Land (Section 7, Article XII, 1987 Constitution)

Save in cases of hereditary succession, no private lands shall be
transferred or conveyed except to individuals, corporations, or
associations qualified to acquire or hold lands of the public domain.

In order to exploit natural resources, the corporations must be
to ownership of lands in the Philippinesit is basic that an

assignor or seller cannot assign or sell something he does not
own at the time the ownership, or the rights to the ownership,
are to be transferred to the assignee or buyer. The assignment
by PNCC of the real properties to a nominee to be designated by
Radstock is a circumvention of the constitutional prohibition
against a private foreign corporation owning lands in the
of Philippine nationality.
The constitutional provision does not distinguish between

voting shares and non-voting shares. So that, even if the voting
shares are controlled by Filipinos, if the total shareholdings of
the company (both voting and non-voting) does not meet the
minimum 60% Filipino ownership requirement of the
Constitution, such corporation would still not be qualified to
engage in activities that seek to exploit our natural resources.
The broadness of the constitutional language by not
distinguishing voting from non-voting shares seems to square
with Section 6 of the Corporation Code, where in eight
fundamental corporate restructuring or transactions, all shares,
Radstock, a foreign corporation with unknown owners whose

nationalities are also unknown, is not qualified to own land in
the Philippines, and therefore also disqualified to own the rights
Philippines. Strategic Alliance Dev. Corp. v. Radstock Securities

Ltd., 607 SCRA 413 (2009).




Note: Atty. Hofilea the parties probably knew from the beginning
that Radstock could not own property, and that is why they resorted to
an assignment set-up whereby Radstock has rights of ownership over
the property assigned.

which is adversely affected by the capacity of the corporation to

own landthat is, the corporation becomes disqualified to own
land. J.G. Summit Holdings, Inc. v. Court of Appeals, 450 SCRA
169 (2005).
The registration of the donation of land to an unincorporated

religious organization, whose trustees are foreigners, would
violate constitutional prohibition and the refusal would not be
in 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 nationalityand the spirit of the
Constitution demands that in the absence of capital stock, the
controlling membership should be composed of Filipino
citizens. Register of Deeds of Rizal v. Ung Sui Si Temple, 97
Phil. 58 (1955).
BUT: A corporation sole being a creature prior to the

constitution, has no nationality. If a nationality is sought to be
determined, the same depends of the nationality of the majority
of the lay members and not on the nationality of the sole
corporator. Roman Catholic Apostolic Administrator of Davao,
Inc. v. LRC and the Register of Deeds of Davao, 102 Phil. 596
(1957).

Note: Atty. Hofilea if 5 years from now, the population of the lay
members of the church is mostly Koreans, would that mean that the
corporation sole can no longer own real property?

If the foreign shareholdings in a landholding corporation exceed

40%, it is not the foreign stockholders ownership of the shares
The prohibition in the Constitution applies only to ownership of

land; it does not extend to immovable or real property as
defined under Article 415 of the Civil Code. Otherwise, we
would have a strange situation where the ownership of
immovable property such as trees, plants and growing fruit
attached to the land would be limited to Filipinos and Filipino
corporations only. J.G. Summit Holdings, Inc. v. Court of
Appeals, 450 SCRA 169 (2005).

C. Public Utilities (Section 11, Article XII, Constitution)

No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the
Philippines or to corporations or associations organized under the laws
of the Philippines, at least sixty per centum of whose capital is owned
by such citizens; nor shall such franchise, certificate, or authorization
be exclusive in character or for a longer period than fifty years. Neither
shall any such franchise or right be granted except under the condition
that it shall be subject to amendment, alteration, or repeal by the
Congress when the common good so requires. The State shall
encourage equity participation in public utilities by the general public.


long as it does not operate them to serve the public. There is a
clear distinction between 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).
o Note: Atty. Hofilea The nationality requirement
applies to anyone who operates a public utility. The
The participation of foreign investors in the governing body of any

public utility enterprise shall be limited to their proportionate share in
its capital, and all the executive and managing officers of such
corporation or association must be citizens of the Philippines.

Unlike the provisions on the exploitation of natural resources,

the aforequoted provisions expressly includes the place of
incorporation test and requires that only domestic corporations
with at least 60% of the capital stock owned by Filipinos may
own and operate public utilities in the Philippines.1
The nationality test for public utilities applies not at the time of
the grant of the primary franchise that makes a corporation a
juridical person, but at the grant of the secondary franchise that
authorizes the corporation to engage in a nationalized industry.
People v. Quasha, 93 Phil. 333 (1953).
The primary franchise, 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 to do so. The secondary franchises 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. J.R.S. Business Corp.
v. Imperial Insurance, 11 SCRA 634 (1964).
The Constitution requires a franchise for the operation of a

public utility; however, it does not require a franchise before
one can own the facilities needed to operate a public utility so

nationality requirement does not need to be complied

with if it is merely setting up or owning facilities used to
deliver public utilities.

D. Mass Media (Section 11(1), Article XVI, 1987 Constitution)

Section 11. (Article XVI)
1. The ownership and management of mass media shall be limited to
citizens of the Philippines, or to corporations, cooperatives or
associations, wholly-owned and managed by such citizens.

The Congress shall regulate or prohibit monopolies in commercial
mass media when the public interest so requires. No combinations in
restraint of trade or unfair competition therein shall be allowed.

2. The advertising industry is impressed with public interest, and shall
be regulated by law for the protection of consumers and the
promotion of the general welfare.

Only Filipino citizens or corporations or associations at least seventy
per centum of the capital of which is owned by such citizens shall be
allowed to engage in the advertising industry.

Rachelle Anne Gutierrez 1/21/14 6:00 PM

Comment [2]:
Franchise of public utilities at least 60%
owned, proportional management

Mass Media 100% owned and managed

Advertising 70% owned, proportional
management
The term "mass media" shall mean the gathering, transmission

of news, information, messages, signals, and forms of written,
oral and all visual communication and shall embrace the print
medium, radio, television, films, movies, advertising in all its
phases, and their business managerial.1
only 100% Filipino ownership of the capital stock of the

corporation, but also 100%-Filipino management of the entity.6
The distinctive features of any mass media undertaking is the

dissemination of information and ideas to the public, or a
portion thereof.2
Pres. Decree 36, as amended by Pres. Decrees 191 and 197.

DOJ Opinion No. 120, series of 1982.
3
Section 2, Pres. Decree 576; SEC Opinion, 24 March 1983, addressed to Justice
Manuel Lazaro.
2
Cable Industry: Cable TV operations shall be governed by E.O.

No. 205 (s.1987). If CATV operators offer public
telecommunications services, they shall be treated just like a
public telecommunications entity. (NTC Memo Circular No. 8-9-
95)
It is divided into the print media and the broadcast media;

o The broadcast media includes radio and television
broadcasting in all their aspects and all other
cinematographic or radio promotion and advertising.3
The term covers any medium of communication, a
newspaper, radio, motion pictures, or television,
designed to reach the masses and that tends to set the
Although the constitutional provision governing mass media

does not expressly include the place of incorporation test, the
same shall be deemed included under the same principle
governing exploitation of natural resources. In fact, the ancillary
control test for mass medium under the Constitution is actually
more stringent than in other defined areas, since it requires not
standards, ideals and aims of the masses.4 The term has

also been opined to include cable television.5

The participation of foreign investors in the governing body of entities
in such industry shall be limited to their proportionate share in the
capital thereof, and all the executive and managing officers of such
entities must be citizens of the Philippines.
DOJ Opinion 163, s. 1973; SEC Opinion dated 15 July 1991, XXV SEC QUARTERLY
BULLETIN, 31 (No. 4, Dec. 1991).
5
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.O. No. 205, s. 1987. If CATV operators offer
public telecommunications services, they shall be treated just like a public
telecommunications entity. Under DOJ Opinion 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, therefore, 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.
6

Cable TV is a form of mass media which must,

therefore, 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. (DOJ Opinion No. 95, s.
1999, citing Allied Broadcasting, Inc. v. Federal
citizens of the Philippines, is considered a Philippine National

entirely. Unchuan v. Lozada, 585 SCRA 421 (2009).
o This espouses the Control Test

G. Grandfather Rule:
Communications Commission, 435 F.2d 70).
of Filipino equity in a corporation engaged in nationalized

and/or partly nationalized areas of activities, provided for under
the Constitution and other nationalization laws, is computed, in
cases where corporate shareholders are present in the
Atty. Hofilea What about foreign mass media bodies that

broadcast to the Philippines? Would it constitute a violation of
the Constitution? Point is, its hard to determine the boundaries
because of technology.

E. Advertising Business (Section 11(2), Article XVI, 1987 Constitution)1
situation, by attributing the nationality of the second or even

subsequent tier of ownership to determine the nationality of
the corporate shareholder.
Only Filipino citizens or corporations or associations at least
It also provides that the participation of foreign investors in the

governing body of the entities in such industry shall be limited
to their proportionate share in the capital thereof, and all the
executive and managing officers of such entities must be
citizens of the Philippines.

F. Investment Test as to Philippine Nationals (Section 3[a] & [b], R.A.
7042, Foreign Investments Act of 1992)
Under Section 3 of the FIA 91, a corporation organized under

the laws of the Philippines of which at least 60% of the capital
stock outstanding and entitled to vote is owned and held by

In recognizing and applying the grandfather rule, the SEC has

adopted the formula of the Secretary of Justice2 to the effect
that:
o Shares belonging to corporations or partnerships at
least 60% of the capital of which is owned by Filipino
citizens shall be considered as of Philippine nationality,
but if the percentage of Filipino ownership in the
corporation or partnership is less than 60% only the
70% of the capital of which is owned by such citizens shall be

allowed to engage in the advertising industry.
The "grandfather rule" is the method by which the percentage
number of shares corresponding to such percentage

shall be counted as of Philippine nationality. . .3
DOJ Opinion No. 18, s. 1989.

SEC Opinion, 23 November 1993, XXVIII SEC QUARTERLY BULLETIN 39 (No. 1,
March 1994); SEC Opinion, 14 April 1993, XXVII SEC QUARTERLY BULLETIN 29 (No. 3,
Sept. 1993); SEC Opinion, 23 March 1993, XXVII SEC QUARTERLY BULLETIN 15 (No.
3, Sept. 1993); SEC Opinion, 6 August 1991, SEC QUARTERLY BULLETIN 44 (No. 4,
Dec. 1991); SEC Opinion, 30 May 1990, XXIV SEC QUARTERLY BULLETIN 52 (No. 3,
Sept. 1990); SEC Opinion, 14 December 1989, XXIV SEC QUARTERLY BULLETIN 7 (No.
3


BUT SEE: SEC-OGC Opinion No. 10-31, dated 09 December 2010,

addressed to Mr. Leonardo A. Civil, Chairman of the Board of
Co-O Small Scale Miners Association, Inc., penned by General
Counsel Vernette G. Umali-Paco.
The grandfather rule can only extend to such limited as to those

who have actual control of the affairs of the corporation.
Palting v. San Jose Petroleum Inc., 18 SCRA 924 (1966).
o You look at the individual shareholders. Its seeks a
purity-centric view.
CURRENT RULE: At least 60% of voting shares AND 60% of the

whole corporation shares (voting + non-voting) must be Filipino.
o Atty. Hofilea This current rule is being questioned
for its effect on economic viability of the company.

H. Special Classifications of Corporations (Section 140)

Section 140. Stock ownership in certain corporations.
Pursuant to the duties specified by Article XIV of the Constitution, the
National Economic and Development Authority shall, from time to
time, make a determination of whether the corporate vehicle has
been used by any corporation or by business or industry to frustrate
the provisions thereof or of applicable laws, and shall submit to the
Batasang Pambansa, whenever deemed necessary, a report of its
findings, including recommendations for their prevention or
correction.

2, June 1990); SEC Opinion, 6 November 1989, XXIV SEC QUARTERLY BULLETIN 56
(No. 1, March 1990.


Nature and Attributes of A Corporation - 7

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CORPORATION

LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

prohibition on the formation of a private corporation by special

XII, 1987 Constitution)

a special charter, and it follows that Congress can create

PNRC which was constituted under a special law, is not a GOCC

Congress cannot enact a law creating a private corporation with

GOCC. If it is transformed into a private corporation,

P.D. 1717 creating New Agrix, Inc. violated the constitutional

v. Gordon, 593 SCRA 68 (2009).

The Constitution explicitly prohibits the creation and regulation

A corporation is but an association of individuals under an

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

follow that a corporation, vested with special privileges and

The due process clause is universal in its application to all

A corporation is protected by the constitutional guarantee

A warrant of arrest cannot be issued against a corporation

Atty. Hofilea Jurisprudence does indicate that corporations

because you cannot arrest a corporation.

Corporations may not be held criminally liable, but they may be

each of them in said corporation because the corporation has a

Since a corporation is made up of people, there is nothing its

While an individual may lawfully refuse to answer incriminating

It is elementary that the right against self-incrimination has no

Due Process and Equal Protection v. Self-Incrimination2

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

Freedom of Speech YES.

To be protected from ex post facto laws YES.

Freedom of Religion YES. Where the corporation is

Right to information YES.

Protection of property from unjust taking YES.

Non-impairment of Contracts YES.

Right to be informed about cases YES.

Speedy disposition of cases YES.

Right to form associations YES.

Freedom of Assembly MAYBE. Example: can a corporation be

Right against Involuntary Servitude MAYBE. What can

Right to bail NO.

Write of Habeas Corpus NO.

Right against excessive fine or imprisonment for debt NO.

Right to Travel NO.

Corporations cannot engage in the practice of a profession since

confidentiality of the communications of the corporations

Access to Courts YES.

held liable where its employees take part in an illegal assembly

Confidentiality/Privacy of Communication YES. Because the

A corporation engaged in the selling of eyeglasses and which

COUNTER-REVOLUTION: Architectural professional

corporations allowed under Rep. Act No. 9266.

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

A corporation is civilly liable in the same manner as natural

It seems clear from the ruling that not every tortuous

act or is estopped from impugning such an act.

employee of the corporation, the corporation can be

Atty. Hofilea the corporation as an artificial being

Corporate tort consists in the violation of a right given or

While in theory a hospital as a juridical entity cannot practice

CORPORATION LAW REVIEWER (2013-2014)