San Beda College of Law

85
MEMORY AID IN COMMERCIAL LAW

CORPORATION CODE
(B.P. Blg. 68, effective May 1, 1980)
I. GENERAL PROVISIONS its sole liabilities. (Creese vs.
CORPORATION CA, 93 SCRA 483)
An artificial being created by 2. Right to
operation of law having the right of bring actions – may bring civil
succession, and the powers, attributes and criminal actions in its own
and properties expressly authorized by name in the same manner as
law and incident to its existence. (Sec. natural persons. (Art. 46, Civil
2) Code)
3. Right to acquire and possess
ATTRIBUTES OF A CORPORATION property – property conveyed to
1. It is an artificial being. or acquired by the corporation is
2. It is created by operation of law. in law the property of the
3. It enjoys the right of succession. corporation itself as a distinct
4. It has the powers, attributes and legal entity and not that of the
properties expressly authorized by stockholders or members. (Art.
law or incident to its existence. 44(3), Civil Code)

THEORIES ON THE FORMATION OF A 4. Acquisition of court of

CORPORATION: jurisdiction – service of summons
1. Concession Theory – espouses that a may be made on the president,
corporation is an artificial creature general manager, corporate
without any existence until it has secretary, treasurer or in-house
received the imprimatur of the state counsel. (Sec. 11, Rule 14, Rules
acting according to law, through the of Court).
SEC. (Tayag vs. Benguet 5. Changes in individual
Consolidated, Inc., 26 SCRA 242) membership – remains unchanged
2. Theory of corporate enterprise or and unaffected in its identity by
economic unit – espouses that the changes in its
corporation is not merely an individual membership. (The
artificial being, but more of an Corporation Code of the
aggregation of persons doing Philippines Annotated, Hector
business, or an underlying business de Leon, 2002 ed.)
unit. (Philippine Corporate Law, 6. Entitlement to constitutional
Cesar Villanueva, 2001 ed.) guaranties:
3. Genossenschaft Theory – treats a a. Due process (Albert vs.
corporation as “ the reality of the University Publishing, 13
group as a social and legal entity, SCRA 84)
independent of state recognition and b. Equal protection of the law
concession”. (Tayag vs. Benguet (Smith, Bell & Co. vs.
Consolidated, Inc., 26 SCRA 242) Natividad, 40 Phil. 136)
c. Protection against
DOCTRINE OF SEPARATE PERSONALITY unreasonable searches and
A corporation has a juridical seizures. (Stonehill vs.
personality separate and distinct from Diokno, 20 SCRA 383)
that of its stockholders or members. A corporation is not
Used for purposes of convenience and entitled to invoke the right
to subserve the ends of justice. against self-incrimination.
Consequences/significance: (Bataan Shipyard vs. PCGG)
1. Liability for acts or contracts – 7.Liability for torts – a corporation
obligations incurred by a is liable whenever a tortuous act
corporation, acting through its is committed by an officer or
authorized agents are agent under the express
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT HEADS: Marichelle De
Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation Laws);

Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula
(Banking Laws); Robespierre CU (Law on Intellectual Property)
86 2005 CENTRALIZED BAR OPERATIONS
 direction or authority of the Rules:
stockholders or members acting a. There must have been
as a body, or, generally, from fraud or evil motive in
the directors as the governing the affected transaction
body. (PNB vs. CA, 83 SCRA 237) and the mere proof of
8. A corporation is not entitled to control of the
moral damages because it has no corporation by itself
feelings, no emotions, no senses. would not authorize
(ABS-CBN vs. Court of Appeals) piercing.
9. Liability for Crimes – since a b. The main action should
corporation is a mere legal seek for the enforcement
fiction, it cannot be held liable of pecuniary claims
for a crime committed by its pertaining to the
officers, since it does not have corporation against
the essential element of malice; corporate officers or
in such case the responsible stockholders.
officers would be criminally
liable. (People vs. Tan Boon 2. Alter Ego Cases – when the
Kong, 54 Phil.607) corporate entity is merely a farce
since the corporation is an alter ego,
DOCTRINE OF PIERCING THE VEIL OF business conduit or instrumentality
CORPORATE ENTITY of a person or another corporation.
Requires the court to see through the Rules:
protective shroud which exempts its a. It applies because of the
stockholders from liabilities that they direct violation of a central
ordinarily would be subject to, or corporate law principle of
distinguishes a corporation from a separating ownership from
seemingly separate one, were it not for management.
the existing corporate fiction. (Lim vs. b. If the stockholders do not
CA, 323 SCRA 102) respect the separate entity,
Rules: (Philippine Corporate Law, others cannot also be
Cesar Villanueva, 2001 ed.) expected to be bound by the
1. has only a res judicata effect separate juridical entity.
2. to prevent wrong or fraud and c. Applies even when there are
not available for other purposes no monetary claims sought to
3. judicial prerogative only be enforced.
4. must be with necessary and with 3. Equity cases – when piercing the
factual basis corporate fiction is necessary to
When directors and officers are achieve justice or equity.
unable to compensate a party for a
personal obligation, it is far-fetched to INSTRUMENTALITY / ALTER EGO RULE
allege that a corporation is perpetuating Where one corporation is so organized
fraud or promoting injustice, and and controlled and its affairs are
thereby could be held liable therefor by conducted so that it is, in fact, a mere
piercing the corporate veil. (Francisco instrumentality or adjunct of the other,
Motors, Inc. vs. CA, G.R. No. 100812, the fiction of the corporate entity of the
June 25, 1999) “instrumentality” may be disregarded.
Requisites:
3 CLASSES OF PIERCING (Philippine 1. There must be control,
Corporate Law, Cesar Villanueva, 2001 not mere majority or complete
ed.) stock control, but complete
domination, not only of finances,
1. Fraud Cases – when a corporation is but of policy, and business
used as a cloak to cover fraud, or to practice in respect to the
do wrong. transaction attacked so that the
 2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT
CHAIRPERSONS
 Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda Tolentino(VC-Acads), J
ennifer Ang(VC- Secretariat), Joy Inductivo (VC-Finance), Elaine Masukat (VC-EDP), Anna Margarita Eres (VC-
Logistics) Jonathan
Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law), Romuald Padilla (Civil Law), Charmaine Torres
(Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy (Remedial Law),
Jackie Lou Bautista (Legal Ethics)
 San Beda College of Law
87
MEMORY AID IN COMMERCIAL LAW
 corporate entity as to this A partner as such can The suit against a
transaction had, at that time, no sue a co-partner who member of the
separate mind, will or existence mismanages board of directors
of its own (control); or trustees who
mismanages must
2. Such control must
be in the name of
have been used by the defendant the corporation
to commit fraud or wrong, to
perpetrate the violation of a 7. Right of succession
statutory or other positive duty, Partnership has no Corporation has
or dishonest and unjust act in right of succession right of succession
contravention of plaintiff’s legal
rights (breach of duty); and 8. Extent of liability to third persons
3. Such control and Partners are liable Stockholders are
breach of duty must proximately personally and liable only to the
cause the injury to the plaintiff. subsidiarily extent of the
(Concept Builders, Inc. vs. NLRC, (sometimes shares subscribed
solidarily) for by them
257 SCRA, 149)
partnership debts to
third persons
Partnership Corporation 9. Transferability of interest
1. Creation Partner cannot Stockholder has
Created by mere Created by law or transfer his interest generally the right
agreement of the by operation of law in the partnership so to transfer his
parties as to make the shares without
2. Number of incorporators transferee a partner prior consent of
May be organized by Requires at least without the the other
at least two persons five incorporators unanimous consent of stockholders
(except a all the existing because
corporation sole) partners because the corporation is not
partnership is based based on this
3. Commencement of juridical on the principle of principle
personality delectus personarum
Acquires juridical Acquires juridical
personality from the personality from 10. Term of existence
moment of execution the date of partnership may be corporation may
of the contract of issuance of the established for any not be formed for a
partnership certificate of period of time term in excess of
incorporation by stipulated by the 50 years extendible
the Securities and partners to not more than
Exchange 50 years in any one
Commission instance
4. Powers 11. Firm name
Partnership Corporation can Limited partnership corporation may
may exercise any exercise only the is required by law to adopt any name
power authorized by powers expressly add the word “Ltd.” provided it is not
the partners granted by law or To its name the same as or
(provided it is not implied from those similar to any
contrary to law, granted or incident registered firm
morals, good to its existence name
customs, public 12. Dissolution
order, public policy) may be dissolved at can only be
5. Management any time by any or all dissolved with the
When management is The power to do of the partners consent of the
not agreed upon, business and State
every partner is an manage its affairs
agent of the is vested in the 13. Governing Law
partnership board of directors governed by the Civil governed by the
or trustees Code Corporation Code

6. Effect of mismanagement
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT HEADS: Marichelle De
Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation Laws);

Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula
(Banking Laws); Robespierre CU (Law on Intellectual Property)
88 2005 CENTRALIZED BAR OPERATIONS
 The special right or privilege
conferred upon an existing corporation
to the business for which it was created.
Example, use of the streets of a
municipality to lay pipes or tracks, or
ADVANTAGES VIS-À-VIS DISADVANTAGES operation of a messenger and express
OF A BUSINESS CORPORATION (The delivery service.
Corporation Code of the Philippines
Annotated, Hector de Leon, 2002 ed.) PRIMARY SECONDARY
Refers to the Refers to the exercise
ADVANTAGES DISADVANTAGES franchise of being or of rights. Example:
1. has a legal 1. complica- existing as a right of eminent
capacity to ted in corporation domain
act and formation Vested in the Vested in the
contract as a and individuals who corporation after its
distinct unit manageme compose the incorporation and not
in its own nt corporation upon the individuals
name 2. high cost who compose the
2. continuity of of corporation.
existence formation Cannot be sold or May be sold or
3. its credit is and transferred because transferred; subject
strengthened operations it is inseparable to sale on execution,
by its 3. its credit is from the corporation subject to levy.
continuity of weakened itself.
existence by the
4. centralized limited
CLASSES OF CORPORATION
management liability
in the board feature 1. AS TO ORGANIZERS
of directors. 4. lack of a. public – by State only; and
5. its creation, personal b.private – by private persons alone
management, element. or with the State.
organization 5. greater 2. AS TO FUNCTIONS
and degree of a. public – government of a portion
dissolution governmen of the territory; and
are tal b. private – usually for profit-
standardized supervision
making
as they are 6. manage-
3. AS TO GOVERNING LAW
governed ment and
under one control are a.public – Special Laws;
general separated and
incorporation from b. private – Law on Private
law. ownership. Corporations
6. limited 7. Stockhol- 4. AS TO LEGAL STATUS
liability ders have a. De jure corporation – organized
7. shareholders little voice in accordance with the
are not the in the requirements of law.
general conduct of
agents of the the
b. De facto corporation – organized
business business. with a colorable compliance with
8. transferability of the requirements of a valid law.
shares Its existence cannot be inquired
collaterally. Such inquiry may be
FRANCHISES OF CORPORATION made by the Solicitor General in
1. Primary or corporate a quo warranto proceeding.
franchise/General Franchise (Sec. 20)
The right or privilege granted by the Requisites:
State to individuals to exist and act as a 1. The existence of a valid
corporation after its incorporation. law under which it may be
2. Secondary or special franchise incorporated;
 2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT
CHAIRPERSONS
 Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda Tolentino(VC-Acads), J
ennifer Ang(VC- Secretariat), Joy Inductivo (VC-Finance), Elaine Masukat (VC-EDP), Anna Margarita Eres (VC-
Logistics) Jonathan
Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law), Romuald Padilla (Civil Law), Charmaine Torres
(Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy (Remedial Law),
Jackie Lou Bautista (Legal Ethics)
 San Beda College of Law
89
MEMORY AID IN COMMERCIAL LAW
 2. A bona fide attempt in management. It is one that holds
good faith to incorporate stocks in other companies for
under such law; purposes of control rather than
3. Actual use or exercise in for mere investment.
good faith of corporate b. Subsidiary Corporation - one
powers; and which is so related to another
4. Issuance of a certificate corporation that the majority of
of incorporation by the SEC its directors can be elected
as a minimum requirement directly or indirectly by such
of continued good faith. other corporation. (The
The only difference Corporation Code of the
between a de facto Philippines Annotated, Hector
corporation and a de jure de Leon, 2002 ed.)
corporation is that a de jure c. Affiliates - company which is
corporation can successfully subject to common control of a
resist a suit by a state mother holding company and
brought to challenge its operated as part of the system.
existence; a de facto d. Parent and Subsidiary
corporation cannot sustain Corporation - separate entities
its right to exist. with power to contract with each
c. Corporation by estoppel – group other. The board of directors of
of persons that assumes to act as the parent company determines
a corporation knowing it to be its representatives to attend and
without authority to do so, and vote in the stockholder’s meeting
enters into a transaction with a of its subsidiary. The
third person on the strength of stockholders of the parent
such appearance. It cannot be company demand representation
permitted to deny its existence in the board meetings of its
in an action under said subsidiary.
transaction. (Sec. 21) It is 7. AS TO PLACE OF INCORPORATION
neither de jure nor de facto. a. Domestic corporation- a
d. Corporation by prescription – corporation formed, organized,
one which has exercised or existing under Philippine laws.
corporate powers for an b. Foreign corporation – a
indefinite period without corporation formed, organized,
interference on the part of the or existing under any laws other
sovereign power, e.g. Roman than those of the Philippines.
Catholic Church. (Sec. 123)
5. AS TO EXISTENCE OF SHARES OF
STOCK ONE-MAN CORPORATION
a. Stock corporation – a corporation A corporation wherein all or
(1) whose capital stock is divided substantially all of the stocks is held
into shares and (2) which is directly or indirectly by one person.
authorized to distribute to However, it should still follow the
shareholders dividends or formal requirements of a
allotments of the surplus profits corporation (e.g. number of
on the basis of the shares held. incorporators, board of directors
(Sec. 3) composed of stockholders owning
b. Non-stock corporation – does not shares in a nominal capacity) in
issue stocks nor distribute order to validly enjoy the attributes
dividends to their members. of the corporation, so as to avoid
6. ASTORELATIONSHIPOF the application of the doctrine of
MANAGEMENT AND CONTROL piercing the veil of corporate entity.
a. Holding Corporation - it is one
which controls another as a
subsidiary by the power to elect
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT HEADS: Marichelle De
Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation Laws);

Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula
(Banking Laws); Robespierre CU (Law on Intellectual Property)