Académique Documents
Professionnel Documents
Culture Documents
ORGANIZATION
2
CORPORATION
LAW
ATTY.
MIP
ROMERO
SY
2015-2016
OUTLINE
1
I.
DEFINITIONS/ATTRIBUTES
OF
A
CORPORATION
a. Artificial
Being
i. Section
2
of
The
Corporation
Code
Sec.
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.
ii. Article
44
(3)
of
The
New
Civil
Code
Mangila
vs
CA
(GR
no.
125027,
August
12,
2002)
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
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.
Thus,
not
being
vested
with
legal
personality
to
file
this
case,
the
sole
proprietorship
is
not
the
plaintiff
in
this
case
but
rather
Loreta
Guina
in
her
personal
capacity.
Excellent
Quality
Apparel
vs
Win
Multiple
Rich
Builders
(578
SCRA
272;
2009)
A
sole
proprietorship
is
the
oldest,
simplest,
and
most
prevalent
form
of
business
enterprise.
It
is
an
unorganized
business
owned
by
one
person.
The
sole
proprietor
is
personally
liable
for
all
the
debts
and
obligations
of
the
business.
A)
Rights
of
a
Juridical
Person
Constitutional
Rights
Corporations
are
entitled
to
certain
Constitutional
rights:
A. Due
Process
A
corporation
is
considered
a
person
under
the
due
process
clause
pursuant
to
Section
1
Article
III
of
the
1987
Constitution
(Sundiang
&
Aquino,
Commercial
Law
2006)
B. Equal
Protection
of
the
Law
(Smith,
Bell
&
Co.
vs
Natividad,
GR
no.
15574,
1919)
C. Equal
Protection
against
unreasonable
searches
and
seizures
(Stonehill
vs
Diokno,
GR
no.
L-19550,
1967)
Note:
It
is
not
entitled
to
certain
Constitutional
right
(e.g.
right
against
self
incrimination
particularly
production
of
corporate
documents)
Three
reasons
why
the
right
against
self
incrimination
is
not
given
to
a
corporation:
1. Right
against
self
incrimination
refers
only
to
testimonial
compulsion
2. A
corporate
cannot
testify
3. The
State
can
freely
open
the
books
of
the
corporation
to
ensure
it
does
not
exceed
its
powers
Bache
&
Co.
(Phils.)
Inc.
vs
Ruiz
(37
SCRA
823;
1971)
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
to
such
body.
In
Stonehill
vs.
Diokno,
this
Court
implied
recognized
the
right
of
a
corporation
to
object
against
unreasonable
searches
and
seizures.
It
is
well
settled
that
the
legality
of
a
seizure
can
be
contested
only
by
the
party
whose
rights
have
been
impaired
thereby,
and
that
the
objection
to
an
unlawful
search
and
seizure
is
purely
personal
and
cannot
be
availed
of
by
third
parties.
Consequently,
petitioners
herein
may
not
validly
object
to
the
use
in
evidence
against
them
of
the
documents,
papers
and
things
seized
from
the
offices
and
premises
of
the
corporations
adverted
to
above,
since
the
right
to
object
to
the
admission
of
said
papers
in
evidence
belongs
exclusively
to
the
corporations,
to
whom
the
seized
effects
belong,
and
may
not
be
invoked
by
the
corporate
officers
in
proceedings
against
them
in
their
individual
capacity.
In
the
case
at
bar,
the
corporation
to
whom
the
seized
documents
belong,
and
whose
rights
have
thereby
been
impaired,
is
itself
a
petitioner.
Bataan
Shipyard
vs
PCGG
(150
SCRA
181;
1987)
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.
Good
Shepherd
Foundation,
Inc.
(AM
No.
09-6-9
SC;
August
19,
2009)
The
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.
B)
Criminal
Liability
General
Rule:
The
Corporation
itself
cannot
be
held
liable
for
a
crime
committed
by
its
officers
since
it
does
not
have
malice.
Exception:
The
corporation
is
held
criminally
liable
by
express
provision
of
law
(e.g.
Anti-
Money
Laundering
Act,
Anti-Dummy
Law,
Trust
Receipts
Law).
In
such
case,
the
responsible
officers
would
be
criminally
liable.
Note:
Corporate
officers
or
employees,
through
whose
act,
default,
or
omission,
the
corporation
commits
a
crime,
are
themselves
individually
guilty
of
the
crime.
The
officers
of
the
corporation
may
be
held
liable.
It
is
settled
that
an
officer
of
a
corporation
can
be
held
criminally
liable
for
acts
or
omissions
done
in
behalf
of
the
corporation
only
where
the
law
directly
requires
the
corporation
to
do
an
act
in
a
given
manner
and
the
same
law
makes
the
person
who
fails
to
perform
thact
in
the
prescribed
manner
criminally
liable.
This
principle
applies
to
corporate
agents
who
themselves
commit
the
crime
to
those,
who,
by
virtue
of
their
managerial
positions
or
other
similar
relation
to
the
corporation,
could
not
be
deemed
responsible
for
its
commission,
if
by
virtue
of
their
relationship
to
the
corporation,
they
had
the
power
to
prevent
the
act.
Ching
vs
Sec.
of
Justice
(Feb.
6,
2006)
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.
In
this
case,
petitioner
signed
the
trust
receipts
in
question.
He
cannot,
thus,
hide
behind
the
cloak
of
the
separate
corporate
personality
of
PBMI.
In
the
words
of
Chief
Justice
Earl
Warren,
a
corporate
officer
cannot
protect
himself
behind
a
corporation
where
he
is
the
actual,
present
and
efficient
actor.
Tupaz
IV
vs
CA
(475
SCRA
398;
2005)
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
corporations
debts
only
if
they
so
contractually
agree
or
stipulate.
C)
Civil
Liability
Liability
for
Torts
A
corporation
is
liable
whenever
a
tortious
act
is
committed
by
an
officer
or
agent
under
the
express
direction
or
authority
of
the
stockholders
or
members
acting
as
a
body
or
generally,
from
the
directors
as
the
governing
body.
The
corporation
without
prejudice
to
a
derivative
suit
being
filed
by
the
stockholders
to
recover
from
the
responsible
board
members
and
officers
the
damages
suffers
the
tort
liability
of
the
corporation.
Doctrine
of
Corporate
Negligence
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
PNB
vs
CA
(83
SCRA
238;
1978)
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
it
expressly
directs
or
authorizes,
and
this
is
just
as
true
of
a
corporation
as
of
a
natural
person,
a
corporation
is
liable,
therefore,
whenever
a
tortious
act
is
committed
by
an
officer
or
agent
under
express
direction
or
authority
from
the
stockholders
or
members
acting
as
a
body,
or,
generally,
from
the
directors
as
the
governing
body.
Secosa
vs
Heirs
of
Francisco
(433
SCRA
273;
2004)
The
President
of
the
corporation
which
becomes
liable
for
the
accident
caused
by
its
truck
driver
cannot
be
held
solidarily
liable
for
the
judgment
obligation
arising
from
quasi-delict,
since
the
fact
alone
of
being
President
is
not
sufficient
to
hold
him
solidarily
liable
for
the
liabilities
adjudged
against
the
corporation
and
its
employee.
Prof.
Services
Inc.
vs
CA
(611
SCRA
282;
2010)
There
was
insufficient
evidence
that
PSI
exercised
the
power
of
control
or
wielded
such
power
over
the
means
and
the
details
of
the
specific
process
by
which
Dr.
Ampil
applied
his
skills
in
the
treatment
of
Natividad.
Consequently,
PSI
cannot
be
held
vicariously
liable
for
the
negligence
of
Dr.
Ampil
under
the
principle
of
respondeat
superior.
However,
ample
evidence
was
presented
that
the
hospital
(PSI)
held
out
to
the
patient
(Natividad)
that
the
doctor
(Dr.
Ampil)
was
its
agent.
Present
are
the
two
factors
that
determine
apparent
authority:
first,
the
hospital's
implied
manifestation
to
the
patient
which
led
the
latter
to
conclude
that
the
doctor
was
the
hospital's
agent;
and
second,
the
patient's
reliance
upon
the
conduct
of
the
hospital
and
the
doctor,
consistent
with
ordinary
care
and
prudence.
D)
Moral
Damages
General
Rule:
A
corporation
is
not
entitled
to
moral
damages
because
it
has
no
feelings,
no
emotions,
no
senses
Exception:
When
a
corporation
has
a
good
reputation
that
is
debased,
resulting
in
its
humiliation
in
the
business
realm
Note:
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
defendants
acts.
A
judicial
person
such
as
a
corporation
can
validly
complain
for
libel
or
any
other
form
of
defamation
and
claim
for
moral
damages.
Article
2219
(7)
does
not
qualify
whether
the
plaintiff
is
a
natural
or
a
juridical
person.
ABS
CBN
Corp.
vs
CA
(361
Phil
499;
1999)
NO.
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.
Jardine
Davies
vs
CA
(GR
no.
128066;
2000)
A
perfected
contract
can
not
be
unilaterally
cancel
by
one
party.
FEMSCO,
a
juridical
person
or
an
artificial
person
or
a
corporation,
can
be
awarded
moral
damages
whose
reputation
has
been
besmirched.
Crystal,
et.
al.
vs
BPI
(GR
no.
172428;
2008)
BPI
is
not
entitled
to
moral
damages.
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.
A
corporation
may
have
good
reputation
which,
if
besmirched
may
also
be
a
ground
for
the
award
of
moral
damages.
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
defendants
acts.
Mambulao
Lumber
vs
PNB
(130
Phil
366;
1968)
Obviously,
an
artificial
person
like
herein
appellant
corporation
cannot
experience
physical
sufferings,
mental
anguish,
fright,
serious
anxiety,
wounded
feelings,
moral
shock
or
social
humiliation
which
are
basis
of
moral
damages.
A
corporation
may
have
a
good
reputation,
which,
if
besmirched,
may
also
be
a
ground
for
the
award
of
moral
damages.
PP
vs
Manero,
Jr.
(GR
no.
86883-85;
1993)
The
award
of
moral
damages
in
the
amount
of
P100,000.00
to
the
congregation,
the
Pontifical
Institute
of
Foreign
Mission
(PIME)
Brothers,
is
not
proper.
There
is
nothing
on
record
which
indicates
that
the
deceased
effectively
severed
his
civil
relations
with
his
family,
or
that
he
disinherited
any
member
thereof,
when
he
joined
his
religious
congregation.
Besides,
as
We
already
held,a
juridical
person
is
not
entitled
to
moral
damages
because,
not
being
a
natural
person,
it
cannot
experience
physical
suffering
or
such
sentiments
as
wounded
feelings,
serious
anxiety,
mental
anguish
or
moral
shock.
It
is
only
when
a
juridical
person
has
a
good
reputation
that
is
debased,
resulting
in
social
humiliation,
that
moral
damages
may
be
awarded.
Filipinas
Broadcasting
Networl
vs
AMEC-BCCM
(GR
no.
141994;
2005)
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.
Nevertheless,
AMECs
claim,
or
moral
damages
fall
under
item
7
of
Art
2219
of
the
NCC.
This
provision
expressly
authorizes
the
recovery
of
moral
damages
in
cases
of
libel,
slander
or
any
other
form
of
defamation.
Art
2219
(7)
does
not
qualify
whether
the
plaintiff
is
a
natural
or
juridical
person.
Therefore,
a
juridical
person
such
as
a
corporation
can
validly
complain
for
libel
or
any
other
form
of
defamation
and
claim
for
moral
damages.
b.
Created
by
Operation
of
Law
Article
XII,
Section
16
of
The
1987
Constitution
Section
16.
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
corporation
is
created
by
law
or
by
operation
of
law.
This
means
that
corporations
cannot
come
into
existence
by
mere
agreement
of
the
parties
as
in
case
of
business
partnerships.
In
the
Philippines,
the
general
law,
which
governs
the
creation
of
private
corporations,
is
Batas
Pambansa
Bilang
68.
Special
laws,
often
referred
to
as
charters,
can
only
create
private
corporations
owned
and
controlled
by
the
government.
An
exception
to
the
rule
that
legislative
grant
or
authority
is
necessary
for
the
creation
of
a
corporation
obtains
with
respect
to
corporations
by
prescription.
1. Private
Corporations
vs
Public
Corporations
a. Private
Corporations
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.
b. Public
Corporations
Those
formed
or
organized
for
the
government
of
a
portion
of
the
State
for
the
general
good
and
welfare.
Distinctions
between
Public
and
Private
Corporations
Governmental
Control
Public
corporations,
being
mere
instrumentalities
of
the
State,
are
subject
to
governmental
visitation
and
control,
whereas
the
charter
of
a
private
corporation
is
a
contract
between
the
State
and
the
corporation
or
incorporators,
which,
under
the
provision
of
the
Constitution
prohibiting
laws
impairing
the
obligation
of
the
contracts,
renders
such
corporations
not
subject
to
visitation,
control
or
change
by
the
State,
except
in
the
exercise
of
the
police
power.
Consent
Public
corporation
may
be
created
without
the
consent
of
the
locality
to
be
affected,
whereas
the
consent
of
incorporators
is
necessary
to
the
creation
of
a
private
corporation.
Taxation,
Liability
for
the
torts
or
negligence
of
officers
and
agents,
and
to
various
other
questions
2.
Government
Owned
and
Controlled
Corporations
(GOCCs)
Those
created
or
organized
by
the
government
or
of
which
the
government
is
the
majority
stockholder
Examples:
Government
Service
Insurance
System,
National
Power
Corporation,
Philippine
National
Railways,
etc.
3.
Others
a. Government
Instrumentalities
b. Corporation
Sui
Generis
c. Corporation
by
Prescription
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
(e.g.
Roman
Catholic
Church)
Manila
International
Airport
vs
CA
(GR
no.
155650;
2006)
MIAA
is
not
a
government-owned
and
controlled
corporation
but
a
government
instrumentality.
MIAA
is
not
a
government-owned
or
controlled
corporation
under
Section
2(13)
of
the
Introductory
Provisions
of
the
Administrative
Code
because
it
is
not
organized
as
a
stock
or
non-stock
corporation.
Neither
is
MIAA
a
government-owned
or
controlled
corporation
under
Section
16,
Article
XII
of
the
1987
Constitution
because
MIAA
is
not
required
to
meet
the
test
of
economic
viability.
MIAA
is
a
government
instrumentality
vested
with
corporate
powers
and
performing
essential
public
services
pursuant
to
Section
2(10)
of
the
Introductory
Provisions
of
the
Administrative
Code.
c. Right
of
Succession
Rationale:
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.
It
is
the
capacity
to
have
continuity
of
existence
despite
the
change
of
stockholders,
members,
board
members
or
officers.
Corporations
created
by
special
laws
have
the
right
of
succession
for
the
term
provided
in
the
laws
creating
them.
Distinguish
from
Partnership
and
Sole
Proprietorship
Partnership
has
no
right
of
succession
Sole
Proprietorship
d. Express/Implied/Incidental
Powers
A
corporation,
being
purely
a
creation
of
law
may
exercise
only
such
powers
as
are
granted
by
the
law
of
its
creation.
An
express
grant
is
not
necessary.
All
powers,
which
may
be
implied,
grant
from
those
expressly
provided
law
and
those,
which
are,
may
also
exercise
incidental
or
essential
to
the
corporations
existence.
The
corporation
exercises
its
powers
through
its
board
of
directors
and
or
its
duly
authorized
officers
and
agents.
The
test
to
be
applied
is
whether
the
act
of
corporation
is
in
direct
and
immediate
furtherance
of
its
business,
fairly
incidental
to
the
express
powers
and
reasonably
necessary
to
their
exercise.
If
so,
the
corporation
has
the
power
to
do
it;
otherwise,
not.
Section
45
Sec.
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.
*It
refers
to
acts
done
by
a
corporation
outside
of
the
express
and
implied
powers
vested
in
it
by
its
charter
and
by
the
law
*Ultra
Vires
act
is
one
not
within
the
express,
implied
and
incidental
powers
of
the
corporation
conferred
by
the
Corporation
Code
or
articles
of
incorporation.
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.
Acts
or
transactions
within
the
legitimate
powers
of
a
corporation
or
are
related
to
its
purposes
are
said
to
be
intra
vires.
Sections
36-44
*check
Codal
Sec.
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
6.
In
case
of
stock
corporations,
to
issue
or
name;
sell
stocks
to
subscribers
and
to
sell
stocks
2.
Of
succession
by
its
corporate
name
for
to
subscribers
and
to
sell
treasury
stocks
in
the
period
of
time
stated
in
the
articles
of
accordance
with
the
provisions
of
this
incorporation
and
the
certificate
of
Code;
and
to
admit
members
to
the
incorporation;
corporation
if
it
be
a
non-stock
3.
To
adopt
and
use
a
corporate
seal;
corporation;
4.
To
amend
its
articles
of
incorporation
in
7.
To
purchase,
receive,
take
or
grant,
hold,
accordance
with
the
provisions
of
this
convey,
sell,
lease,
pledge,
mortgage
and
Code;
otherwise
deal
with
such
real
and
personal
5.
To
adopt
by-laws,
not
contrary
to
law,
property,
including
securities
and
bonds
of
morals,
or
public
policy,
and
to
amend
or
other
corporations,
as
the
transaction
of
repeal
the
same
in
accordance
with
this
the
lawful
business
of
the
corporation
may
Code;
reasonably
and
necessarily
require,
subject
II.
As
to
commencement
of
Register
through
juridical
personality
the
Bureau
of
Trade
Regulation
and
Consumer
Protection
of
the
Department
of
Trade
and
Industry
(DTI)
As
to
powers
Sole
proprietors
have
full
control
over
every
aspect
of
their
business
As to management
As
to
effect
management
of
As
to
right
of
succession
As
to
extent
of
liability
to
Owner
is
third
persons
personally
liable
for
its
debts,
unlimited
liability
As
to
transfer
of
interest
No
right
of
succession
Partners
are
liable
personally
and
subsidiarily
(sometimes
solidarily)
for
partnership
debts
to
third
persons
Partner
cannot
transfer
his
interest
in
the
partnership
so
as
to
make
the
transferee
a
partnership
without
the
unanimous
consent
of
all
the
existing
partners
because
the
partnership
is
based
on
the
principle
of
delectus
personarum
The
power
to
do
business
and
manage
its
affairs
is
vested
in
the
board
of
directors
or
trustees
The
suit
against
a
member
of
the
board
of
directors
or
trustees
who
mismanages
must
be
in
the
name
of
the
corporation
Has
right
of
succession
Stockholders
are
liable
only
to
the
extent
of
the
shares
subscribed
by
them
(limited
liability
feature)
Stockholder
has
generally
the
right
to
transfer
his
shares
without
prior
consent
of
the
other
stockholders
because
corporation
is
not
based
on
this
principle
10
As
to
term
of
existence
As to firm name
Limited
partnership
is
required
by
law
to
add
the
word
Ltd.
to
its
name
As to dissolution
As to governing law
DOCTRINE
OF
CORPORATE
ENTITY
(Doctrine
of
Separate
Personality)
A
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
Consequences:
1. Liability
for
acts
or
contracts
-Obligiations
incurred
by
a
corporation,
acting
through
its
authorized
agents
are
its
sole
liabilities.
Similarly,
a
corporation
may
not
generally,
be
made
to
answer
for
acts
or
liabilities
of
its
stockholders
or
membrs
or
those
of
legal
entities
which
it
may
be
connected
and
vice
versa
2. Right
to
bring
actions
-It
may
be
civil
and
criminal
actions
in
its
own
name
in
the
same
manner
as
natural
persons
3. Acquisition
by
court
of
Jurisdiction
-Service
of
Summons
may
be
made
on
the
President,
General
Manager,
Corporate
Secretary,
Treasurer
or
In-house
counsel
4. Changes
in
individual
membership
-Corporation
remains
unchanged
and
unaffected
in
its
identity
by
changes
in
its
individual
membership
5. Separate
Properties
-The
properties
of
the
corporation
are
not
the
properties
of
the
shareholders,
members
or
officers.
In
the
same
manner,
properties
of
its
shareholders,
members
or
officers
are
not
the
properties
of
the
corporation.
b. Doctrine/
Effects
III.
11
Gallagher
vs
Germania
Brewing
Co.
(54
NW
115;
1893)
The
right
of
equitable
set-off
is
not
derived
from
or
dependent
upon
statue,
but
rests
upon
a
distinctly
equitable
doctrine,
which
courts
of
equity
have
applied
on
certain
well-recognized
equitable
grounds,
the
object
being
to
effect
a
clear
equity
and
prevent
irremediable
injustice;
To
allow
the
set-off
here,
it
is
necessary
to
wholly
ignore
the
legal
doctrine
or
fiction
that
a
corporation
is
an
entity
separate
and
distinct
from
the
body
of
its
stockholders,
and
to
treat
it
as
a
mere
association
of
individuals
who
are
the
real
parties
in
interest.
Magsaysay-Labrador
vs
CA
(180
SCRA
266;
1989)
Shareholders
are
in
no
legal
sense
the
owners
of
corporate
property,
which
is
owned
by
the
corporation
as
a
distinct
legal
person.
San
Juan
Structural
vs
CA
(296
SCRA
631)
Corporate
fiction
should
be
set
aside
when
it
becomes
a
shield
against
liability
for
fraud,
illegality
or
inequity
committed
on
third
persons
Tramat
Mercantile
vs
CA
(238
SCRA
14;
1994)
Personal
liability
of
a
corporate
director,
trustee
or
officer
along
with
the
corporation
may
so
validly
attach,
as
a
rule,
only
when
1.
He
assents
(a)
to
a
patently
unlawful
act
of
the
corporation,
or
(b)
for
bad
faith,
or
gross
negligence
in
directing
its
affairs,
or
(c)
for
conflict
of
interest,
resulting
in
damages
to
the
corporation,
its
stockholders
or
other
persons;
4
2.
He
consents
to
the
issuance
of
watered
stocks
or
who,
having
knowledge
thereof,
does
not
forthwith
file
with
the
corporate
secretary
his
written
objection
thereto;
5
3.
He
agrees
to
hold
himself
personally
and
solidarily
liable
with
the
corporation;
6
or
4.
He
is
made,
by
a
specific
provision
of
law,
to
personally
answer
for
his
corporate
action
Palay,
Inc.
vs
Clave
(124
SCRA
640;
1983)
As
a
general
rule,
a
corporation
may
not
be
made
to
answer
for
acts
or
liabilities
of
its
stockholders
or
those
of
the
legal
entities
to
which
it
may
be
connected
and
vice
versa.
However,
the
veil
of
corporate
fiction
may
be
pierced
when
it
is
used
as
a
shield
to
further
an
end
subversive
of
justice;
or
for
purposes
that
could
not
have
been
intended
by
the
law
that
created
it;
or
to
defeat
public
convenience,
justify
wrong,
protect
fraud,
or
defend
crime;
or
to
perpetuate
fraud
or
confuse
legitimate
issues;
or
to
circumvent
the
law
or
perpetuate
deception;
or
as
an
alter
ego,
adjunct
or
business
conduit
for
the
sole
benefit
of
the
stockholders.
c. Piercing
the
Corporate
Veil
General
Rule:
A
corporation
has
a
separate
personality
distinct
from
its
stockholders
and
members
Exception:
The
court
will
not
hesitate
to
disregard
the
corporate
veil
when
it
is
misused
or
when
necessary
in
the
interest
of
justice.
The
concept
of
corporate
entity
was
not
meant
to
promote
unfair
objectives.
12
The
corporate
mask
may
be
removed
or
the
corporate
veil
pierced
when
the
corporation
is
just
an
alter
ego
of
a
person
or
of
another
corporation.
For
reasons
of
public
policy
and
the
interest
of
justice,
the
corporate
veil
will
justifiably
be
impaled
only
when
it
becomes
a
shield
for
fraud,
illegality
or
inequity
committed
against
third
persons.
Nature
of
Piercing
the
Corporate
Veil
Doctrine
a. It
has
no
res
judicata
effect
b. To
prevent
fraud
or
wrong
and
not
available
for
other
purposes
c. Essentially
a
judicial
prerogative
only
d. It
must
be
shown
to
be
necessary
and
with
factual
basis
Areas
where
Doctrine
of
Piercing
the
Veil
of
Corporate
Entity
may
be
applied:
i. Fraud
Cases
ii. Alter
Ego
Cases
iii. Equity
cases
*Check
memaid
or
book
for
discussion
Villa
Rey
Transit
vs
Ferrer
(25
SCRA
845;
1968)
These
circumstances
are
strong
persuasive
evidence
showing
that
Villarama
has
been
too
much
involved
in
the
affairs
of
the
Corporation
to
altogether
negative
the
claim
that
he
was
only
a
part-time
general
manager.
They
show
beyond
doubt
that
the
Corporation
is
his
alter
ego.
The
interference
of
Villarama
in
the
complex
affairs
of
the
corporation,
and
particularly
its
finances,
are
much
too
inconsistent
with
the
ends
and
purposes
of
the
Corporation
law,
which,
precisely,
seeks
to
separate
personal
responsibilities
from
corporate
undertakings.
Hence,
the
Villa
Rey
Transit,
Inc.
is
an
alter
ego
of
Jose
M.
Villarama,
and
that
the
restrictive
clause
in
the
contract
entered
into
by
the
latter
and
Pantranco
is
also
enforceable
and
binding
against
the
said
Corporation.
Marvel
Bldg.
vs
David
(94
Phil
376;
1954)
Yes.
The
CIR
presented
evidence
to
prove
his
claim
that
Maria
B.
Castro
the
sole
and
true
owner
of
the
share
of
stock
Marvel
Building
Corp.,
this
was
the
supposed
endorsement
in
blank
of
the
shares
of
stock
in
the
name
of
other
incorporators.
This
evidence
was
testified
by
Aquino,
Internal
Revenue
examiner,
Mariano,
examiner
and
Crispin
Llamado,
undersecretary
of
Finance.
Julio
Llamado
who
was
at
that
time
the
bookkeeper
of
Marvel
Building
Corp
also
testified
that
he
was
the
one
who
had
prepared
the
original
certificates
which
was
given
by
Maria
for
comparison
with
the
Articles
of
Incorporation
and
that
he
also
prepared
a
stock
certificates
which
was
copied
in
the
Photostat
presented
in
evidence.
Cease
vs
CA
(93
SCRA
483;
1979)
This
separate
and
distinct
personality
is,
however,
merely
a
fiction
created
by
law
for
convenience
and
to
promote
the
ends
of
justice.
This
is
particularly
true
where
the
fiction
is
used
to
defeat
public
convenience,
justify
wrong,
protect
fraud,
defend
crime,
confuse
legitimate
legal
or
judicial
issues,
perpetrate
deception
or
otherwise
circumvent
the
law.
This
is
likewise
true
where
the
corporate
entity
is
being
used
as
an
alter
ego,
adjunct,
or
business
conduit
for
the
sole
benefit
of
the
stockholders
or
of
another
corporate
entity.
Secosa
vs
Heirs
of
Francisco
(433
SCRA
273;
2004)
13
A
corporation
has
a
personality
separate
from
that
of
its
stockholders
or
members.
The
doctrine
of
veil
of
corporation
treats
as
separate
and
distinct
the
affairs
of
a
corporation
and
its
officers
and
stockholders.
As
a
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.
Concept
Builders
vs
NLRC
(257
SCRA
149;
1996)
This
separate
and
distinct
personality
of
a
corporation
is
merely
a
fiction
created
by
law
for
convenience
and
to
promote
justice.
So,
when
the
notion
of
separate
juridical
personality
is
used
to
defeat
public
convenience,
justify
wrong,
protect
fraud
or
defend
crime,
or
is
used
as
a
device
to
defeat
the
labor
laws,
this
separate
personality
of
the
corporation
may
be
disregarded
or
the
veil
of
corporate
fiction
pierced.
This
is
true
likewise
when
the
corporation
is
merely
an
adjunct,
a
business
conduit
or
an
alter
ego
of
another
corporation.
No
hard
and
fast
rule
can
be
accurately
laid
down,
but
certainly,
there
are
some
probative
factors
of
identity
that
will
justify
the
application
of
the
doctrine
of
piercing
the
corporate
veil,
to
wit:
(1)
Stock
ownership
by
one
or
common
ownership
of
both
corporations;
(2)
Identity
of
directors
and
officers;
(3)
The
manner
of
keeping
corporate
books
and
records;
and
(4)
Methods
of
conducting
the
business.
Claparols
vs
CIR
(65
SCRA
613;
1965)
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,
or
in
the
case
of
two
persons,
will
merge
them
into
one.
Thus,
where
a
corporation
is
a
dummy
and
serves
no
business
purpose
and
is
intended
only
as
a
blind,
the
corporate
fiction
may
be
ignored.
And
where
a
corporation
is
merely
an
adjunct,
business
conduct
or
alter
ego
of
another
corporation
the
fiction
of
separate
and
distinct
corporate
entities
should
be
disregarded.
La
Campana
Coffee
Factory
vs
Kaisahan
(93
Phil
160;
1953)
The
principle
requiring
the
piercing
of
the
corporate
veil
mandates
courts
to
see
through
the
protective
shroud
that
distinguishes
one
corporation
from
a
seemingly
separate
one.
The
corporate
mask
may
be
removed
and
the
corporate
veil
pierced
when
a
corporation
is
the
mere
alter
ego
of
another.
Where
badges
of
fraud
exist,
where
public
convenience
is
defeated,
where
a
wrong
is
sought
to
be
justified
thereby,
or
where
a
separate
corporate
identity
is
used
to
evade
financial
obligations
to
employees
or
to
third
parties,
the
notion
of
separate
legal
entity
should
be
set
aside
and
the
factual
truth
upheld.
When
that
happens,
the
corporate
character
is
not
necessarily
abrogated.
It
continues
for
other
legitimate
objectives.
However,
it
may
be
pierced
in
any
of
the
instances
cited
in
order
to
promote
substantial
justice.
Pamplona
Plantation
vs
Tinghil
(450
SCRA
421;
2005)
The
principle
requiring
the
piercing
of
the
corporate
veil
mandates
courts
to
see
through
the
protective
shroud
that
distinguishes
one
corporation
from
a
seemingly
separate
one.
The
corporate
mask
may
be
removed
and
the
corporate
veil
pierced
when
a
corporation
is
the
mere
alter
ego
of
another.
Where
badges
of
fraud
exist,
where
public
convenience
is
defeated,
where
a
wrong
is
sought
to
be
justified
thereby,
or
where
a
separate
corporate
identity
is
used
to
evade
financial
obligations
to
employees
or
to
third
parties,
14
the
notion
of
separate
legal
entity
should
be
set
aside
and
the
factual
truth
upheld.
When
that
happens,
the
corporate
character
is
not
necessarily
abrogated.
It
continues
for
other
legitimate
objectives.
However,
it
may
be
pierced
in
any
of
the
instances
cited
in
order
to
promote
substantial
justice.
Yu
vs
NLRC
(245
SCRA
134;
1995)
The
use
of
a
similar
sounding
or
almost
identical
name
is
an
obvious
device
to
capitalize
on
the
goodwill
which
Tanduay
Rum
has
built
over
the
years.
Twin
Ace
or
Tanduay
Distillers,
on
one
hand,
and
Tanduay
Distillery
Inc.
(TDI),
on
the
other,
are
distinct
and
separate
corporations.
There
is
nothing
to
suggest
that
the
owners
of
TDI,
have
any
common
relationship
as
to
identify
it
with
Allied
Bank
Group
which
runs
Tanduay
Distillers.
Indo-Phil
Textile
Mills
vs
Calica
(205
SCRA
598;
1992)
Under
the
doctrine
of
piercing
the
veil
of
corporate
entity,
when
valid
grounds
therefore
exist,
the
legal
fiction
that
a
corporation
is
an
entity
with
a
juridical
personality
separate
and
distinct
from
its
members
or
stockholders
may
be
disregarded.
In
such
cases,
the
corporation
will
be
considered
as
a
mere
association
of
persons.
The
members
or
stockholders
of
the
corporation
will
be
considered
as
the
corporation,
that
is
liability
will
attach
directly
to
the
officers
and
stockholders.
The
doctrine
applies
when
the
corporate
fiction
is
used
to
defeat
public
convenience,
justify
wrong,
protect
fraud,
or
defend
crime,
or
when
it
is
made
as
a
shield
to
confuse
the
legitimate
issues,
or
where
a
corporation
is
the
mere
alter
ego
or
business
conduit
of
a
person,
or
where
the
corporation
is
so
organized
and
controlled
and
its
affairs
are
so
conducted
as
to
make
it
merely
an
instrumentality,
agency,
conduit
or
adjunct
of
another
corporation.
Umali
vs
CA
(189
SCRA
529;
1990)
Piercing
the
veil
of
corporate
entity
is
not
the
proper
remedy
in
order
that
the
foreclosure
proceeding
may
be
declared
a
nullity.
The
legal
corporate
entity
is
disregarded
only
if
it
is
sought
to
hold
the
officers
and
stockholders
directly
liable
for
a
corporate
debt
or
obligation
First
Phil
International
Bank
(252
SCRA
259)
Yes.
There
is
a
perfected
contract
of
sale
because
the
bank
manager,
Rivera,
entered
into
the
agreement
with
apparent
authority.
This
apparent
authority
has
been
duly
proved
by
the
evidence
presented
which
showed
that
in
all
the
dealings
and
transactions,
Rivera
participated
actively
without
the
opposition
of
the
conservator.
In
fact,
in
the
advertisements
and
announcements
of
the
bank,
Rivera
was
designated
as
the
go-to
guy
in
relation
to
the
disposition
of
the
Banks
assets.
Almocera
vs
Ong
(546
SCRA
164;
2008)
This
issue
of
piercing
the
veil
of
corporate
fiction
was
never
raised
before
the
trial
court.
The
same
was
raised
for
the
first
time
before
the
Court
of
Appeals
which
ruled
that
it
was
too
late
in
the
day
to
raise
the
same.
To
allow
petitioner
to
pursue
such
a
defense
would
undermine
basic
considerations
of
due
process.
Points
of
law,
theories,
issues
and
arguments
not
brought
to
the
attention
of
the
trial
court
will
not
be
and
ought
not
to
be
considered
by
a
reviewing
court,
as
these
cannot
be
raised
for
the
first
time
on
appeal.
It
would
be
unfair
to
the
adverse
party
who
would
have
no
opportunity
to
present
further
evidence
material
to
the
new
theory
not
ventilated
before
the
trial
court.
Uy
vs
Villanueva
(526
SCRA
73;
2007)
15
The
doctrine
of
piercing
the
veil
of
corporate
fiction
finds
no
application
in
the
case.
Piercing
the
veil
of
corporate
fiction
may
only
be
done
when
the
notion
of
legal
entity
is
used
to
defeat
public
convenience,
justify
wrong,
protect
fraud,
or
defend
crime.
The
general
rule
is
that
a
corporation
will
be
looked
upon
as
a
separate
legal
entity,
unless
and
until
sufficient
reason
to
the
contrary
appears.
For
the
separate
juridical
personality
of
a
corporation
to
be
disregarded,
the
wrongdoing
must
be
clearly
and
convincingly
established.
It
cannot
be
presumed.
d. Parent-Subsisdiary
Relationship
Yutive
vs
CTA
(1
SCRA
160;
1961)
However,
SC
agreed
with
the
respondent
court
that
SM
was
actually
owned
and
controlled
by
petitioner.
Consideration
of
various
circumstances
indicate
that
Yutivo
treated
SM
merely
as
its
department
or
adjunct:
a.
The
founders
of
the
corporation
are
closely
related
to
each
other
by
blood
and
affinity.
b.
The
object
and
purpose
of
the
business
is
the
same;
both
are
engaged
in
sale
of
vehicles,
spare
parts,
hardware
supplies
and
equipment.
c.
The
accounting
system
maintained
by
Yutivo
shows
that
it
maintained
high
degree
of
control
over
SM
accounts.
d.
Several
correspondences
have
reference
to
Yutivo
as
the
head
office
of
SM.
SM
may
even
freely
use
forms
or
stationery
of
Yutivo.
e.
All
cash
collections
of
SMs
branches
are
remitted
directly
to
Yutivo.
f.
The
controlling
majority
of
the
Board
of
Directors
of
Yutivo
is
also
the
controlling
majority
of
SM.
g.
The
principal
officers
of
both
corporations
are
identical.
Both
corporations
have
a
common
comptroller
in
the
person
of
Simeon
Sy,
who
is
a
brother-in-law
of
Yutivos
president,
Yu
Khe
Thai.
h.
Yutivo,
financed
principally
the
business
of
SM
and
actually
extended
all
the
credit
to
the
latter
not
only
in
the
form
of
starting
capital
but
also
in
the
form
of
credits
extended
for
the
cars
and
vehicles
allegedly
sold
by
Yutivo
to
SM.
Koppel
vs
Yatco
(77
Phil
496;
1946)
A
corporation
will
be
looked
upon
as
a
legal
entity
as
a
general
rule,
and
until
sufficient
reason
to
the
contrary
appears;
but,
when
the
notion
of
legal
entity
is
used
to
defeat
public
convenience,
justify
wrong,
protect
fraud,
or
defend
crime,
the
law
will
regard
the
corporation
as
an
association
of
persons.
The
corporate
entity
is
disregarded
where
it
is
so
organized
and
controlled,
and
its
affairs
are
so
conducted,
as
to
make
it
merely
an
instrumentality,
agency,
conduit
or
adjunct
of
another
corporation.
CIR
vs
Norton
and
Harrison
(11
SCRA
714)
Y
Corporation
may
be
held
liable
for
the
debts
of
X
Corporation.
The
doctrine
of
piercing
the
veil
of
corporation
fiction
applies
to
this
case.
The
two
corporations
have
the
same
board
of
directors
and
Y
Corporation
owned
substantially
all
of
the
stocks
of
X
Corporation,
which
facts
justify
the
conclusion
that
the
latter
is
merely
an
extension
of
the
personality
of
the
former,
and
that
the
former
controls
the
policies
16
of
the
latter.
Added
to
this
is
the
fact
that
Y
Corporation
controls
the
finances
of
X
Corporation
which
is
merely
an
adjunct,
business
conduit
or
alter
ego
of
Y
Corporation.
Jardine
Davis
Inc.
vs
JRD
Realty
(463
SCRRA
555;
2005)
Court
categorically
held
that
a
subsidiary
has
an
independent
and
separate
juridical
personality,
distinct
from
that
of
its
parent
company;
hence,
any
claim
or
suit
against
the
latter
does
not
bind
the
former,
andvice
versa.
In
applying
the
doctrine,
the
following
requisites
must
be
established:
(1)
control,
not
merely
majority
or
complete
stock
control;
(2)
such
control
must
have
been
used
by
the
defendant
to
commit
fraud
or
wrong,
to
perpetuate
the
violation
of
a
statutory
or
other
positive
legal
duty,
or
dishonest
acts
in
contravention
of
plaintiffs
legal
rights;
and
(3)
the
aforesaid
control
and
breach
of
duty
must
proximately
cause
the
injury
or
unjust
loss
complained
of.
PNB
vs
Ritratto
Group
(362
SCRA
216;
2001)
*
The
Circumstance
rendering
the
subsidiary
an
instrumentality
(common
circumstances)
(a)
The
parent
corporation
owns
all
or
most
of
the
capital
stock
of
the
subsidiary.
(b)
The
parent
and
subsidiary
corporations
have
common
directors
or
officers.
(c)
The
parent
corporation
finances
the
subsidiary.
(d)
The
parent
corporation
subscribes
to
all
the
capital
stock
of
the
subsidiary
or
otherwise
causes
its
incorporation.
(e)
The
subsidiary
has
grossly
inadequate
capital.
(f)
The
parent
corporation
pays
the
salaries
and
other
expenses
or
losses
of
the
subsidiary.
(g)
The
subsidiary
has
substantially
no
business
except
with
the
parent
corporation
or
no
assets
except
those
conveyed
to
or
by
the
parent
corporation.
(h)
In
the
papers
of
the
parent
corporation
or
in
the
statements
of
its
officers,
the
subsidiary
is
described
as
a
department
or
division
of
the
parent
corporation,
or
its
business
or
financial
responsibility
is
referred
to
as
the
parent
corporation's
own.
(i)
The
parent
corporation
uses
the
property
of
the
subsidiary
as
its
own.
(j)
The
directors
or
executives
of
the
subsidiary
do
not
act
independently
in
the
interest
of
the
subsidiary
but
take
their
orders
from
the
parent
corporation.
(k)
The
formal
legal
requirements
of
the
subsidiary
are
not
observed.
Pantranco
vs
NLRC
(GR
no.
170689;
March
17,
2009)
The
general
rule
remains
that
PNB-Madecor
(subsidiary)
has
a
personality
and
distinct
from
PNB
(parent).
The
mere
fact
that
a
corporation
owns
all
of
the
stocks
of
another
corporation,
taken
alone,
is
not
sufficient
to
justify
their
being
treated
as
one
entity.
If
used
to
perform
legitimate
functions,
a
subsidiarys
separate
existence
shall
be
respected.
Garrett
vs
Southern
Railways
(173
F.
Supplement
915)
The
general
rule
is
that
stock
ownership
alone
by
one
corporation
of
the
stock
of
another
does
not
thereby
render
the
dominant
corporation
liable
for
the
torts
of
the
subsidiary
unless
the
separate
corporate
existence
of
the
subsidiary
is
a
mere
sham,
or
unless
the
control
of
the
subsidiary
is
such
that
it
is
but
an
instrumentality
or
adjunct
of
the
dominant
corporation.
17