CORPORATION & ALLIED LAWS. |. p. ignacio © BERSAMIN CASES Doctrine of Piercing the Corporate Veil - Although 2 corporation has a personality separate and distinct from those of its stockholders, directors, or officers, such separate and distinct personality is merely a fiction created by law for the sake of convenience and to promote the ends of justice. The corporate personality may be disregarded, and the individuals composing the corporation will be treated as individuals, ifthe corporate entity is being as a cloak or cover for fraud or illegality; as a justification for ‘a wrong; as an alter ego, an adjunct, or a business conduit for the sole benef ofthe stockholders (Halley vs Printwell Inc., 649 SCRA 116, G.R. No, 157549 May 30, 2011) Creation of Office - Conformably with Section 25, a position must be expressly mentioned in the By- Laws in order to be considered as a corporate office. Thus, the creation of an office pursuant to or under a By-Law enabling provision is not enough to make a position a corporate office (Mating Industrial and Commercial Corporation vs. Coras, 633 SCRA 12, G.R. No, 157802 October 13, 2010) Power to Elect Corporative Officers - The Board of Directors of Matting could not validly delegate the power to create a corporate office to the President, in light of Section 25 of the Corporation Code requiring the Board of Directors itself to elect the corporate officers. Verily, the power to elect the corporate officers was a discretionary power that the law exclusively vested in the Board of Directors, and Could not be delegated to subordinate officers or agents (Mating Industrial and Commercial Corporation vs. Coros, 633 SCRA 12, G.R. No. 157802 October 13, 2010) Stockholder — A person becomes a stockholder of a corporation by acquiring a share through either purchase or subscription. Here, the petitioners acquired their shares in Abra Valley: (1) by subscribing to 36 shares each from Abra Valley's authorized and unissued capital stock; and (2) by purchasing the shareholding of existing stockholders, as bore out by the latter's indorsement on the stock certificates (Insigne vs. Abra Valley Colleges, Inc., 764 SCRA 261, G.R. No. 204089 July 29, 2015) Intra-Corporate Controversy - There is an intra-corporate controversy when the dispute involves any of the following relationships, to wit: (a) between the corporation, partnership or association and the public, (b) between the corporation, partnership or association and the State in so far as its franchise, permit or license to operate is concemed; (c) between the corporation, partnership or association and its stockholders, partners, members or officers; and (d) among the stockholders, partners or associates themselves (Philippine Overseas Telecommunications Corporation (POTC) vs. Africa, 700 SCRA 453, GR. No. 184622 July 3, 2013) Intra-Corporate Controversy; Elements — In order to determine whether a dispute constitutes an intra- corporate controversy or not, the Court considers two elements instead, namely: (a) the status or relationship of the parties; and (b) the nature of the question that is the subject of their controversy (Mating industrial and Commercial Corporation vs. Coros, 633 SCRA 12, G.R. No. 157802 October 13, 2010) Propriety Right; Right to Inspect - The Corporation Code has granted to all stockholders the right to inspect the corporate books and records, and in so doing has not required any specific amount of interest for the exercise of the right to inspect. Ubi lex non distinguit nec nos distinguere debemos. When the law has made no distinction, we ought not to recognize any distinction. Neither could the petitioner arbitrarily deny the respondent's right to inspect the corporate books and records on the basis that her inspection ‘would be used for a doubtful or dubious reason. Under Section 74, third paragraph of the Corporation Code, the only time when the demand to examine and copy the corporation's records and minutes could be refused is when the corporation puts up as a defence to any action that “the person demanding” had “improperly used any information secured through any prior examination of the records or minutes of such corporation or of any other corporation, or was not acting in good faith or for a legitimate purpose in making his demand’ (Terelay Investment and Development Corporation vs. Yulo, 765 SCRA 7, G.R. No. 160924 August 5, 2015) Right of Appraisal; When Exercised - A stockholder who dissents from certain corporate actions has the right to demand payment of the fair value of his or her shares. This right, known as the right of appraisal, is expressly recognized in Section 81 of the Corporation Code. The right of appraisal may be exercised when there is a fundamental change in the charter or articles of incorporation substantially prejudicing the rights of the stockholders. It does not vest unless objectionable corporation action is taken. It serves the purpose of enabling the dissenting stockholder to have his interests purchased and to retire from the corporation (Turner vs, Lorenzo Shipping Corporation, 636 SCRA 13, G.R. No. 157479 November 24, 2010)Right of a Corporation Purchase its Own Shares - Now, however, a corporation can purchase its own shares, provided payment is made out of surplus profits and the acquisition is for a legitimate corporate purpose. In the Philippines, this new rule is embodied in Section 41 of the Corporation Code (Tumer vs. Lorenzo Shipping Corporation, 636 SCRA 13, G.R. No. 157479 November 24, 2010) Payment to a Dissenting Stockholder - No payment shall be made to any dissenting stockholder unless the corporation has unrestricted retained earnings in its books to cover the payment. In case the corporation has no available unrestricted retained charges in its books, Section 83 of the Corporation Code provides that ifthe dissenting stockholder is not paid the value of his shares within 30 days after the award, his voting and dividend rights shall immediately be restored (Tumer vs. Lorenzo Shipping Corporation, 636 SCRA 13, G.R. No. 157479 November 24, 2010) ‘Trust Fund Doctrine - The trust fund doctrine backstops the requirement of unrestricted retained ‘earings to fund the payment of the shares of stocks of the withdrawing stockholders. Under the doctrine, the capital stock, property, and other assets of a corporation are regarded as equity in trust for the Payment of corporate creditors, who are preferred in the distribution of corporate assets. The creditors of ‘@ corporation have the right to assume that the board of directors will not use the assets of the corporation to purchase its own stock for as long as the corporation has outstanding debts and liabilities. There can be no distribution of assents among the stockholders without first paying corporate debts. Thus, any disposition of corporate funds and assets to the prejudice of creditors is null and void (Turner vs. Lorenzo Shipping Corporation, 636 SCRA 13, G.R. No. 157479 November 24, 2010) Hold-Over Capacity — ineluctably, the petitioner, having assumed as President of AUP on January 23, 2001, could serve for only two years or until January 22, 2003. By the time of his removal for cause as President on January 27, 2003, he was already occupying the office in a hold-over capacity, and could be removed at any time, without cause, upon the election or appointment of his successor. His insistence on holding on to the office was untenable and with more reason when one considers that his was due to the loss of confidence on the part of the Board of Trustees (Barayuga vs. Adventist University of the Philippines, 655 SCRA 640, G.R. No. 168008 August 17, 2011) Corporate Rehabilitation Purpose — Under the Interim Rules, rehabilitation is the process of restoring “the debtor to a position of successful operation and solvency, if it is shown that its continuance of ‘operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan more if the corporation continues as a going concern that if it is immediately liquidated.” It contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency. In Asiatrust Development Bank v. First Aikka Development, Inc., 650 SCRA 172 (2011), the Supreme Court (SC) said that rehabilitation proceedings have a two-pronged purpose, namely: (a) to efficiently and equitably distribute the assets of the insolvent debtor to its creditors, and (b) to provide the debtor with a fresh start (Philippine Bank of Communications vs. Basic Polyprinters and Packaging Corporation, 738 SCRA 561, GR. No. 187581 October 20, 2014) ‘Stock Certificates — A stock certificate is prima facie evidence that the holder is a shareholder of the corporation, but the possession of the certificate is not the sole determining factor of one’s stock ‘ownership. A certificate of stock is merely: x x x the paper representative or tangible evidence of the stock Itself and of the various interests therein. The certificate is not stock in the corporation but is merely evidence of the holder's interest and status in the corporation, his ownership of the share represented thereby, but is not in law the equivalent of such ownership. It expresses the contract between the ‘corporation and the stockholder, but itis not essential to the existence of a share in stock or the creation Of the relation of shareholder to the corporation (Insigne vs. Abra Valley Colleges, inc., 764 SCRA 261, G.R. No. 204089 July 29, 2015) Board of Trustees; Educational Institutions; Term of Office - Trustees of educational institutions ‘organized as educational corporations shall not be less than five nor more than fifteen: Provided, however, that the number of trustees shall be in multiples of five. Unless otherwise provided in the articles of incorporation or the by-laws, the board of trustees of incorporated schools, colleges, or other institutions of learning shail, as soon as organized, so classify themselves that the term of office of one- fifth of their number shall expire every year. Trustees thereafter elected to fill vacancies, occurring before the expiration of a particular term, shail hold office only for the unexpired period. Trustees elected thereafter to fil vacancies caused by expiration of term shall hold office for five years. A majority of the trustees shall constitute a quorum for the transaction of business. The powers and authority of trustees shall be defined in the by-laws. For institutions organized as stock corporations, the number and term of directors shall be governed by the provisions on stock corporations. The second paragraph of the provision, although setting the term of the member of the Board of Trustees at five years, contains a proviso expressly subjecting the duration to what is otherwise provided in the articles of incorporation or by-laws of the educational corporation. That contrary provision controls on the term of office (Barayuga vs. Adventist University of the Philippines, 655 SCRA 640, G.R. No. 168008 August 17, 2011)REMINDERS, PRINCIPLES & POINTERS in CORPORATI Moral Damages & the Corporation +A comporation—being an artificial person which has no feelings, emotions or senses, and which ‘cannot experience physical suffering or mental anguish—is not entitled to moral damiages (Solid Homes, Inc. v. CA, 275 SCRA 267 (1997) * Being an artificial person and having an existence only in legal contemplation, it has no feelings, ‘no emotions, no senses. It cannot, therefore, experience physical suffering and mental anguish, wien can be experienced only by one having a nervous system (ABS-CBN v. CA, 304 + Accomporation has no reputation in the sense that an individual has, and besides, it is inherently imporable fora corporiion to suffer menial angush (NPC: v. Pupp Brother, S80 BCRA 829 Moral damages may be awarded to a corporation * _A.corporaton may have a good reputation which if besmirched, may also be a ground for moral damages (Aembuleo Lumber v. PNB, 22 SCRA 350 (1083): Jeng Davies WGA, 389 SCRA The statement in People v. Manero and Mambulao Lumber v. PNB that a corporation ‘may recover moral damages if it has a good reputation that is debased resulting in social humiliation is an OBITER DICTUM (ABS-CBN v. CA, 301 SCRA 572 (1999) + A.corporation may claim damages if it falls under item 7 of Article 2219 of the Civil Code. This Provision expressly authorizes the recovery of moral damages in cases of libel, slander or any ‘other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or Juric person. (Flpinas Broadcasting Network, Inc. v. Ago Medical, 448 SCRA 413, 17 January 5) Criminal liability of a corporation + Since a corporation is a mere legal fiction, no criminal action can lie against a corporation whaler such corporaion be a resent or neneakien (Time, ina v. Réye8, 39 SGRA 909 1 + The rule is only natural persons are criminally liable. Juridical persons like a corporation are not liable (West Coast Life, Ins. v. Hurd, 27 Phil. 404 (1914) + Accorporation is a mere legal fiction; it does not have the essential element of malice. (People v. Tan Boon Kong, §4 Phil 607(1930) + Acorporation itself cannot be criminally liable for felonies described in the Revised Penal Code or in special laws because it cannot perform physical overt acts of a crime. It cannot even be imprisoned. Nevertheless, the officers of the corporation may, in their individual capacities be liable for crimes done in behalf of the corporation. While the act of the officers may impose certain obiigations on the corporation because of the criminal act of is officers, the officer who performed. the criminal act must assume the criminal liability (Executive Secretary v. CA, 429 SCRA 81; Singian, Jr. v. Sandiganbayan, 478 SCRA 348). Criminal liability of corporate officers + Its basic that only corporate officers shown to have participated in the alleged anomalous acts may be held criminally iable (Cruzvale, Inc. v. Eduque, 589 SCRA 534, 18 June 2008) + There are instances where the law specifies the officers who shall be criminally iable/responsible for acts done in behalf of the corporation and violative of such law, ke PD 1612 (the Anti- Fencing Law) and BP 22 (Bouncing Checks Law), or that an office of the corporation can be held criminally liable for acts or omissions done in behalf of a corporation (Sia v. People, 121 SCRA 655 [1983), Criminal liability under the Corporation Code Inthe recent case of Ang-Abaya, et al. v. Ang, et al. (573 SCRA 128 [2008)), the Court had the occasion to enumerate the requisites before the penal provision under Section 144 of the Corporation Code may be applied in case of violation of a stockholder or member's right to inspect the corporate books/records as provided for under Section 74 of the Corporation Code (Sy Tiong Shiou v. Sy Chim, 582 ‘SCRA 517, 30 March 2009).