Concepts

CORPORATION
LAW REVIEWER (2013-2014)
ATTY. JOSE MARIA G. HOFILEA
CONCEPTS

I. Definition (Section 2; Articles 44(3), 45, 46, and 1775, Civil Code)

Section 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. (2)

CIVIL CODE
Article 44. The following are juridical persons:
1. The State and its political subdivisions;

2. Other corporations, institutions and entities for public interest or
purpose, created by law; their personality begins as soon as they have
Partnerships and associations for private interest or purpose are

governed by the provisions of this Code concerning partnerships. (36
and 37a)

Article 46.
Juridical persons may 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. (38a)

Article 1775.
Associations and societies, whose articles are kept secret among the
members, and wherein any one of the members may contract in his
own name with third persons, shall have no juridical personality, and
shall be governed by the provisions relating to co-ownership. (1669)

been constituted according to law;

3. Corporations, partnerships and associations for private interest or
purpose to which the law grants a juridical personality, separate and
distinct from that of each shareholder, partner or member. (35a)

Article 45.
Juridical persons mentioned in Nos. 1 and 2 of the preceding article are
governed by the laws creating or recognizing them.

Private corporations are regulated by laws of general application on
the subject.

NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)
Juridical persons are those who have an identity granted to it by

law with powers granted and subject to the law.
o As such, they can own property and conduct business as
well as sue and be sued.
o Juridical capacity the capacity/ability to enter into
legal relations and be bound by them.
A corporation is an:
o
o
o
Artificial being essentially means that it has a

fictional existence.
Created by operation of law absence of the law
would mean that a corporation cannot exist.
Invested by law upon coming into existence with a
personality separate and distinct from the persons
composing it, and from any other legal entity to which it
CORPORATION LAW REVIEWER (2013-2014)

may be related. PNB v. Andrada Electric & Engineering
Co., 381 SCRA 244 (2002).1
strong legal personality of the corporation is an

attribute that has made it most attractive to
businessmen when compared to other media.4
(d) Creature of Limited Powers: It has only such powers,
attributes and properties as are expressly authorized by law or
incident to its existence.

II. FOUR (4) CORPORATE ATTRIBUTES BASED ON SECTION 2:
(a) An Artificial Being: It has juridical capacity to contract and
enter into legal relationships.
It is a basic postulate that before a corporation may
acquire juridical personality, the State must give its
consent either in the form of a special aw or a general
enabling act.2
(b) Creature of the Law: It is created by operation of law and not
by mere agreement.
o There must first be an underlying contract among the
o
The corporation has the capacity for continuous

existence despite the death or replacement of its
shareholders or members, for it has a personality
separate and distinct from those who compose it. The
Construction & Dev. Corp. of the Phils. v. Cuenca, 466 SCRA 714 (2005); EDSA
Shangri-La Hotel and Resorts, Inc. v. BF Corp., 556 SCRA 25 (2008).
2
Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.
(2013 ed.). Manila, Philippines: Rex Book Store.
3
A corporation has no powers except for those which are:

o
o
o
individuals forming the corporation upon which the

state grant may be conferred. Therefore, you have an
inter-play of State grant and contractual relations
between the parties. Which principle has precedence in
resolving conflict would depend upon the public
interest or issue to be resolved.3
(c) Strong Juridical Personality: It has a right of succession.
As opposed to a natural person, who has the ability to

exercise any power and enter into any business activity
and the only limitation would be that an individual has
no right to enter into an act or transaction that is
contrary to law, morals and public policy.5
Expressly conferred on it by the Corporation Code
Found in its charter, and
Those that are implied by or are incidental to its
existence.
It exercises its powers through its Board of Directors and/or its

duly authorized officers and agents. Pascual and Santos, Inc. v.
The Members of the Tramo Wakas Neighborhood Assn. Inc.,
442 SCRA 438 (2004).6

5
6
De Liano v. Court of Appeals, 370 SCRA 349 (2001); Monfort Hermanos
Agricultural Dev. Corp. v. Monfort III, 434 SCRA 27 (2004); United Paragon
Mining Corp. v. Court of Appeals, 497 SCRA 638 (2006); Cebu Bionic Builders
Supply, Inc. v. DBP, 635 SCRA 13 (2010).


NOTE: Corporations are products of relationships. They cannot come
into force unless persons agree to form one, and unless the State agrees
and allows them to form a corporation. Since a corporation is formed by
relationship, it does not have a body of its own and as such requires that
its actions be made through its agents. The officers of a corporation are
the ones who smell, touch and see for the corporation and it is through
them that the corporation reaches out to the real world.

III. TRI-LEVEL EXISTENCE OF THE CORPORATION:
(a) Assets-Only Level: The corporation is an aggregation of
Assets and Resources
(b) Business Enterprise Level: The corporations primary
purpose is to pursue business.
(c) Juridical Entity Level: The corporation is a medium of
pursuing a business enterprise.

IV. TRI-LEVEL RELATIONSHIPS IN THE CORPORATE SETTING:
(a) JURIDICAL ENTITY LEVEL, which treats of the aspects of the
State-corporation relationship.
(b) INTRA-CORPORATE LEVEL, which considers that the corporate
setting is at once a contractual relationship on four (4) levels:

Relationship
Governing
Law
Between the corporation and its agents/representatives to Law on

act in the real world, i.e., directors and officers
Agency
Between the corporation and its shareholders or members
Between the shareholders and the corporate directors,
trustees and officers
Between and among the shareholders in a common

venture

(c) EXTRA-CORPORATE LEVEL, which views the relationship
between the corporation and third-parties or outsiders,
essentially governed by Contract Law and Labor Law.

Relationship
Governing Law
Between the corporation and its employees
Labor Law
Between the corporation and those it contracts
Contract Laws
and transacts with

Between the corporation and the publics it
affects with its enterprise
Torts or Quasi-Delict
Laws

V. THEORIES ON THE FORMATION OF CORPORATION

A. Theory of Concession: Tayag v. Benguet Consolidated, 26 SCRA 242
(1968).

Tayag v. Benguet Consolidated

Facts: Idonah Slade Perkins owned two stocks certificates under
Benguet Consolidated Inc. (a Philippine corporation). Perkins died in
New York in 1960, and the stock certificates were held in trust by
County Trust Company [CTC] of New York, who was the domiciliary
administrator of her estate. On the other hand, Renato D. Tayag was
appointed ancillary administrator of Perkins properties in the
Philippines. A dispute arose between the domiciliary administrator in
New York and the ancillary administrator in the Philippines as to which


of them was entitled to the possession of the stock certificates.

The Court of First Instance of Manila ordered CTC to produce and
deposit the certificates with Tayag, but the former refused. Tayag was
able to have a court order issued declaring the certificates lost and new
creature without any existence until it has received the imprimatur of

the State acting according to law. It is logically inconceivable therefore
that it will have rights and privileges of a higher priority than that of its
creator. More than that, it cannot legitimately refuse to yield obedience
to acts of its state organs, specifically the judiciary. It is not immune
ones should be issued by Benguet Consolidated Inc. However, the latter

refused because as far as it was concerned, the certificates were not lost
being in the possession of CTC.

Issue: Whether or not the lower court erred in declaring the certificates
as lost.

from judicial control.

then its existence and actions concedes to the law.

o The theory of concession, therefore, looks at a
corporation simply as a creature of the State and of
limited powers and capabilities, completely within the
control of the State.1
Held: NO. Since there was a refusal by the domiciliary administrator in

New York to deliver the shares of stocks of Benguet to the ancillary
administrator in the Philippines, there was nothing unreasonable or
arbitrary in considering them as lost and requiring the appellant to issue
new certificates in lieu thereof. Moreover, the view adopted by Benguet
Consolidated that it cannot issue new certificates because doing so
under the circumstances would be a violation of its by-laws is fraught
To organize a corporation that could claim a juridical personality

of its own and transact business as such, is not a matter of
absolute right, but a privilege which may be enjoyed only under
such terms as the State may deem necessary to impose. cf. Ang
Pue & Co. v. Section of Commerce and Industry, 5 SCRA 645
(1962).
with implications at war with the basic postulates of corporate theory. A

corporation is an artificial being created by operation of law. To assert
that it can choose which court order to follow and which to disregard is
to confer upon it not autonomy which may be conceded but license
which cannot be tolerated. It is to argue that it may, when so minded,
overrule the state, the source of its very existence; it is to contend that
what any of its governmental organs may lawfully require could be
ignored at will. So extravagant a claim cannot possibly merit approval.

Doctrine: A corporation as known to Philippine jurisprudence is a
Theory of Concession Since a corporation is created by law,
It is a basic postulate that before a corporation may acquire

juridical personality, the State must give its consent either in the
form of a special law or a general enabling act, and the
procedure and conditions provided under the law for the
acquisition of such juridical personality must be complied with.
Although the statutory grant to an association of the powers to
purchase, sell, lease and encumber property can only be
construed the grant of a juridical personality to such an



associationnevertheless, the failure to comply with the
statutory procedure and conditions does not warrant a finding
that such association acquired a juridical personality, even when
it adopts constitution and by-laws. Intl Express Travel & Tour
Services, Inc. v. CA, 343 SCRA 674 (2000).
enterprise, which by these very qualities and operations

acquires an entity of its own, recognized by law.2
fiction alone that creates a corporate entity. Any State grant

must presuppose the existence of consent or common venture
among those who will form the corporation.
o Although it is within the power of the State to give such
grant or to deny it, the corporate fiction cannot be
created unless there is an enterprise or group upon
whom it would be conferred.
All corporations, big or small, must abide by the provisions of

the Corporation Code; even a simple family corporation cannot
claim an exemption nor can it have rules and practices other
than those established by law. Torres v. Court of Appeals, 278
SCRA 793 (1997).

B. Theory of Enterprise Entity: BERLE, 47 COLUMBIA LAW REV. 343
(1947)
Theory of Enterprise Entity The enterprise theory hinges

itself on the fact that there can be no corporate existence
without persons to compose it; there can be no association
without associates.1
o The entity commonly known as "corporate entity" takes
its being from the reality of the underlying enterprise,
formed or in formation; that the state's approval of the
corporate form sets up a prima facie case that the

Arnold v. Willets & Patterson, Ltd. 45 Phil. 634 (1923).
But once granted, and the entity acquires juridical

personality, it does not mean that the group, as
distinguished from the juridical entity, becomes a
creature of the State, but actually becomes a creature
of its own volition and maintains either singly or
collectively their inherent rights under the law, which
may tend to project to their business dealings done
through the corporation.
assets, liabilities and operations of the corporation are

those of the enterprise. But that where the corporate
entity is defective, or otherwise challenged, its
existence, extent and consequences may be determined
by the actual existence and operations of the underlying
The theory draws its vitality from the fact that it is not legal
A corporation is a creation of law and a creation of a set of

relationships between individuals.
o It takes 5 people to form a corporation and it is formed
by the agreement of the individuals to establish the

corporation.
Even as a corporation has an identity separate from the
individuals, you cannot do away completely with the
notion that there are individuals behind the
corporation.
Berle, The Theory of Enterprise, 47 COL. L. REV. No. 3 (April, 1947).

As such, in cases where there is defect in the corporate

identity, your recourse is to the individuals. This is why
the Supreme Court has ruled that the corporation is
entitled to rights because individuals form the
corporation and these individuals have rights.
corporate assets and properties. Stockholders of F. Guanzon

and Sons, Inc. v. Register of Deeds of Manila, 6 SCRA 373
(1962).
party is already of advanced age and in danger of extinction,

but not in this case where the winning party is a corporation.
[A] juridical entitys existence cannot be likened to a natural
personits precarious financial condition is not by itself a
compelling circumstance warranting immediate execution and
does not outweigh the long standing general policy of enforcing
A corporation is but an association of individuals, allowed to

transact under an assumed corporate name, and with a distinct
legal personality. In organizing itself as a collective body, it
waives no constitutional immunities and perquisites appropriate
to such a body. PSE v. Court of Appeals, 281 SCRA 232 (1997).
only final and executory judgment. Manacop v. Equitable

PCIBank, 468 SCRA 256 (2005).
Corporations are composed of natural persons and their

separate corporate personality is not a shield for the
commission of injustice and inequity, such as to avoid the
execution of the property of a sister company. Tan Boon Bee &
Co. v. Jarencio, 163 SCRA 205 (1988).
A corporation is an entity separate and distinct from its
partnership where the death of a partner dissolves the

partnership.
stockholders. While not in fact and in reality a person, the law

treats the corporation as though it were a person by process of
fiction or by regarding it as an artificial person distinct and
separate from its individual stockholders. Remo, Jr. v. IAC, 172
SCRA 405 (1989).
The transfer of the corporate assets to the stockholders is not in

the nature of a partition among co-owners but is a conveyance
from one party to another. Stockholders are not co-owners of
As distinguished from a partnership, it has a strong legal

personality having a separate and distinct personality from the
members composing it, unaffected by the death, resignation,
insolvency of any of its stockholders or members. Its credit-
worthiness and the certainty of long-term contractual dealings
with a stable person, are strengthened by such continuity of
existence.1
o A corporation can survive the death of its stockholders
or members (i.e. right of succession). In contrast to a

VI. ADVANTAGES AND DISADVANTAGES OF CORPORATE FORM:

A. Four Advantageous Characteristics of Corporate Medium:
1. STRONG AND SOLEMN JURIDICAL PERSONALITY (Section 2)
Execution pending appeal may be allowed when the prevailing
The shareholders cannot be held liable as an individual for the

liabilities of the corporation (see LIMITED LIABILITY TO
INVESTORS AND OFFICERS).
o The function of the corporation is to absorb the risk.



2. CENTRALIZED MANAGEMENT (Section 23)
stockholders approval for certain specific acts. Great Asian

Sales Center Corp. v. Court of Appeals, 381 SCRA 557 (2002).

Section 23. The board of directors or trustees.
Unless otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business
bind the corporations, unlike in a partnership setting, where

each partner may bind the partnership, even without the
knowledge of the other partners.1
o Therefore, in its legal relationship, a corporation
presents a more stable and efficient system of
governance and dealings with third parties, since
management prerogatives are centralized in its board of
conducted and all property of such corporations controlled and held

by the board of directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from among the
members of the corporation, who shall hold office for one (1) year
until their successors are elected and qualified. (28a)

Every director must own at least one (1) share of the capital stock of
directors.2
3. LIMITED LIABILITY TO INVESTORS AND OFFICERS
the corporation of which he is a director, which share shall stand in his

name on the books of the corporation. Any director who ceases to be
the owner of at least one (1) share of the capital stock of the
corporation of which he is a director shall thereby cease to be a
director. Trustees of non-stock corporations must be members
thereof. A majority of the directors or trustees of all corporations
organized under this Code must be residents of the Philippines.
The exercise of corporate powers rest in the Board of Directors,

save in those instances where the Corporation Code requires
It is hornbook law that corporate personality is a shield against

personal liability of its officersa corporate officer and his
spouse cannot be made personally liable under a trust receipt
where he entered into and signed the contract clearly in his
official capacity. Consolidated Bank and Trust Corp. v. Court of
Appeals, 356 SCRA 671 (2001).3
As can be gleaned from Section 23 of Corporation Code It is the

board of directors or trustees which exercises almost all the
corporate powers in a corporation. Firme v. Bukal Enterprises
and Dev. Corp., 414 SCRA 190 (2003).
o Management is lodged essentially with the board of
directors.
One of the advantages of the corporation is the limitation of an

investors liability to the amount of investment, which flows
from the legal theory that a corporate entity is separate and
distinct from its stockholders. San Juan Structural and Steel
Fabricators, Inc. v. CA, 296 SCRA 631 (1998).
Shareholders are not agents of the corporation, nor can they

2
3
Ever Electrical Manufacturing, Inc. (EEMI) v. Samahang Manggagawa ng Ever
Electrical/NAMAWU Local 224, 672 SCRA 562 (2012); Gotesco Properties, Inc. v.
Fajardo, 692 SCRA 319 (2013).

Obligations incurred by the corporation acting through its

directors, officers and employees, are its sole liabilities.
Malayang Samahan ng mga Manggagawa sa M. Greenfield v.
Ramos, 357 SCRA 77 (2001).
However, the statutorily granted privilege of a corporate veil

may be used only for legitimate purposes. On equitable
laws. Shares of stock so issued are personal property and may be

transferred by delivery of the certificate or certificates endorsed by
the owner or his attorney-in-fact or other person legally authorized to
make the transfer. No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in the books of the
considerations, the veil can be disregarded when it is utilized as

a shield to commit fraud, illegality or inequity; defeat public
convenience; confuse legitimate issues; or serve as a mere alter
ego or business conduit of a person or an instrumentality,
agency or adjunct of another corporation.1
corporation showing the names of the parties to the transaction, the

date of the transfer, the number of the certificate or certificates and
the number of shares transferred.

No shares of stock against which the corporation holds any unpaid
claim shall be transferable in the books of the corporation. (35)
Where the creditor of the corporation sues not only the
company but also all stockholders to reach their unpaid

subscription which appear to be the only visible assets of the
company, then the controlling doctrine is that a stockholder is
personally liable for the financial obligations of the corporation
to the extent of his unpaid subscription. Halley v. Printwell,
Inc. 649 SCRA 116 (2011).
4. FREE-TRANSFERABILITY OF UNITS OF OWNERSHIP (SHARES)
FOR INVESTORS (Section 63)

Section 63. Certificate of stock and transfer of shares.
The capital stock of stock corporations shall be divided into shares for
which certificates signed by the president or vice president,
countersigned by the secretary or assistant secretary, and sealed with
the seal of the corporation shall be issued in accordance with the by-


Transfer of shares is a matter of right of the holder. The

corporation cannot prevent such transfer. You need to have to
exit from the corporation.
o It is the inherent right of the stockholder to dispose of
his shares of stock (which he owns as any other
property of his) anytime he so desires. Remo, Jr. v. IAC,
172 SCRA 405 (1989); PNB v. Ritratto Group, Inc., 362
SCRA 216 (2001).
Authority granted to regulate the transfer of its stock does not

empower the corporation to restrict the right of a stockholder
to transfer his shares, but merely authorizes the adoption of
regulations as to the formalities and procedure to be followed
in effecting transfer. Thomson v. Court of Appeals, 298 SCRA
280 (1998).
o If the transfer would cause violations of the law (such as
the ratio requirement for local-foreign holdings), then

the corporation may restrict the right transfer of the
holders shares.
However, the system of free transferability of the units of
and wherein any one of the members may contract in his own
name with third persons, shall have no juridical personality, and
shall be governed by the provisions relating to co-ownership.
investments in the corporate setting presumes a well-developed

market for shares of stocks.1
By provision of law, while it is true that in so far as the buyer
and seller is concerned the sale (and transfer of the certificates)

is made by meeting of the minds, there is a provision in the law
that before such sale is binding to the whole word it must be
recorded in the books of the corporation.
5. Advantages Over Unregistered Associations

B. Disadvantages of the Corporate Medium:
Note on disadvantages: Anything can be abused. Anything can
be to a devious mind be used for wrongdoing.

o To a large extent, the corporate medium cannot be
used to solve all needs, but the disadvantages have a lot
to do with the manner in which it is being used.
o It is a tool to do business, but not to commit illegality.
1. ABUSE OF CORPORATE MANAGEMENT; BREACH OF TRUST
A corporation established in accordance with the Corporation

Code has benefits or advantages over that of an unregistered
association. These advantages are: It enjoys perpetual
succession under its corporate name and in an artificial form; it
has the capacity to take and grant property, and contract
obligations; it can sue and be sued in its corporate name as a
juridical person; it has the capacity to receive and enjoy
common grants of privileges and immunities; and its

stockholders or members have generally no personal liability
beyond the value of their shares. 2 The advantages of the
corporation over unregistered association is subject to the rules
pertaining to the corporation by estoppel doctrine.3
There is ordinarily lack of personal element in view of the

transferability of shares, and the vesting of management
powers in the Board of Directors who may be professional
managers. This has spawned corporate irresponsibility under
the theory that those vested with corporate powers have no

personal or proprietary stake in the corporate business
enterprise.4
2. ABUSE OF LIMITED LIABILITY FEATURE
The limited liability feature of the corporation has often been

abused by business in order to avoid having to provide
adequate protection and compensation for victims of the
business ventures they undertake.

2
SEC Opinion, 26 June 1989, XIII SEC QUARTERLY BULLETIN, 19-20 (No. 3, Sept.
1989)
3
See Chapter 5 on Corporate Contract Law.
Article 1775 of the Civil Code provides that associations and

societies, whose articles are kept secret among the members,


This has been countered by the development of jurisprudence

of the doctrine of piercing the veil of corporate fiction.
3. HIGH COST OF MAINTENANCE OF THE CORPORATE MEDIUM
Sole proprietorships are less saddled with the many

requirements and regulations which corporations are often
subjected to by law.
The corporation is relatively complicated in formation and

management. When compared to other media like the single
proprietorship or the partnership, the corporation entails
The owner is in command of his whole business and he stands

to lose as much as he puts in and even more to the extent of all
his personal holdings.
relatively high cost of formation and operation. There is a

greater degree of governmental control and supervision than in
other forms of business organization.1
4. DOUBLE TAXATION.
Sole proprietorships work well only for carrying-on simple or

small business endeavors, and do not function well in cases of
large enterprises which require huge capital investments and
specialized management skills.
Dividends received by individuals from domestic corporations

are subject to final 10% tax for income earned on or after 01
January 1998 (Section 24(B)(2), 1997 NIRC)
Inter-corporate dividends between domestic corporations,

however, are not subject to any income tax (Section 27(D)(4),

B. Partnerships and Other Associations (Arts. 1768 and 1775, Civil
Code)

Partnership
1997 NIRC)
There is re-imposition of the 10% improperly accumulated

earnings tax for holding companies (Section 29, 1997 NIRC).
Separate and distinct juridical personality

The withdrawal, death or
insolvency of any partner would
automatically bring about the
dissolution of the partnership.
A corporation has a stronger legal

personality, enabling it to continue
despite the death, insolvency or
withdrawal of any of its
stockholders or members.
Partners are liable even with their

personal properties
Limited liability of investors
A sole proprietorship is not vested with juridical personality to

file or defend an action. Excellent Quality Apparel, Inc. v. Win
Multiple-Rich Builders, Inc., 578 SCRA 272 (2009).
Every partner is an agent capable

of binding the partnership
Only the Board of Directors or

constituted agents can bind the
corporation

VII. COMPARED WITH OTHER BUSINESS MEDIA

A. Sole Proprietorships
Corporation


There is a flexibility that partnerships have over corporations.
The corporation is required to have a primary purpose

and this should be specified. In this sense, it is less
flexible than partnerships since deviation from the
primary purpose would make the act ultra vires.
"Can a Defective Attempt to Form a Corporation Result at Least

in a Partnership?
o Pioneer Insurance v. Court of Appeals, 175 SCRA 668
(1989).
o Lim Tong Lim v. Philippine Fishing Gear Industries, Inc.,
317 SCRA 728 (1999).

Pioneer Insurance v. Court of Appeals

Facts: Jacob S. Lim was engaged in the airline business as owner-
operator of Southern Air Lines [SAL]. He entered into a sales contract
with Japan Domestic Airlines [JDA] for the purchase of 2 DC-3A Type
aircrafts and necessary spare parts. Pioneer Insurance and Surety
Corporation became a surety in behalf of Lim. To pay for the aircrafts,
Lim used funds contributed by Bormaheco, Francisco and Modesto
Cervantes & Constancio Maglana to a new corporation proposed by Lim
to expand his airline business. The 3 contributors also executed 2
indemnity agreements in favor of Pioneer. The agreements stipulated
that the indemnitors principally bind themselves as surety in favor of
owners of the aircrafts and were not privy to the chattel mortgage and
so it cannot be foreclosed.

Issue: Whether or not Bormaheco, Maglana and the Cervanteses are
liable to share the obligations incurred by Lim, as de facto partners, in
view of the failed incorporation.

Held: NO. Lim never had the intention to form a corporation with the
respondents despite his representations to them. This gives credence to
the cross-claims of the respondents to the effect that they were induced
and lured by Petitioner to make contributions to a proposed corporation
which was never formed because the petitioner reneged on their
agreement when Lim executed the chattel mortgage on the aircrafts
without the knowledge nor consent of Bormaheco, et al. The record
shows that the petitioner was acting on his own and not in behalf of his
other would-be incorporators in transacting the sale of the airplanes
and spare parts. Therefore, Bormaheco et al cannot be held liable to
contribute and share the obligation with Lim.

Doctrine: When parties come together intending to form a corporation,
but no corporation is formed due to some legal cause, then:
Pioneer. Lim, in behalf of SAL, also then executed a registered deed of

chattel mortgage over the aircrafts in favor of Pioneer, as security for
the latters suretyship. Lim however defaulted on his subsequent
installment payments. JDA went after Pioneer, the latter paying 300k.
Pioneer then filed for extrajudicial foreclosure of the chattel mortgage.
The Cervanteses and Maglana however alleged that they were co-

General Rule: Parties who had intended to participate or

actually participated in the business affairs of the proposed
corporation would be considered as partners under a de facto
partnership, and would be liable as such in an action for
settlement of partnership obligations
Exception: Parties who took no part except to subscribed for

stock in a proposed corporation, do not become partners with
other subscribers who engaged in business under the name of

the pretended corporation, and are not liable for action for
settlement of the alleged partnership contribution.

Lim Tong Lim v. Philippine Fishing Gear Industries, Inc.

Facts: On behalf of "Ocean Quest Fishing Corporation," Antonio Chua
and Peter Yao entered into a contract for the purchase of fishing nets of
various sizes from the Philippine Fishing Gear Industries, Inc. They
claimed that they were engaged in a business venture with Petitioner
Lim Tong Lim, who however was not a signatory to the agreement. The
buyers, however, failed to pay for the fishing nets and the floats; hence,
private respondents filed a collection suit against Chua, Yao and
Petitioner Lim Tong Lim in their capacities as general partners. The
complaint alleged that "Ocean Quest Fishing Corporation" was a
nonexistent corporation and attachment was made on the fishing nets
on board F/B Lourdes.

Issue: Whether or not by their acts, Lim, Chua, and Yao could be
would have been inconceivable for Lim to involve himself so much in

buying the boat but not in the acquisition of the aforesaid equipment,
without which the business could not have proceeded. Also, under the
doctrine of corporation by estoppel, all those who benefited from the
transaction made by the ostensible corporation, despite knowledge of
its legal defects, may be held liable for contracts they impliedly assented
to or took advantage of.

Doctrine:
As far as Lim was concerned, there was a corporate entity and Lim was
allowing himself to be represented as part of the corporation. As such,
there is corporation by estoppel.

Harmonize: You can be held liable as a partner if you participated
heavily and there was some form of participation on your part.

C. Joint Ventures
deemed to have entered into a partnership.

Held: YES. From the factual findings of both lower courts, it is clear that
Chua, Yao and Lim are partners. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan with the proceeds
of the sale of the boats, and to divide equally among them the excess or
loss. That the parties agreed that any loss or profit from the sale and
operation of the boats would be divided equally among them also
shows that they had indeed formed a partnership. Moreover, it is clear
that the partnership extended not only to the purchase of the boat, but
also to that of the nets and the floats in furtherance of their business. It

Joint venture is an association of persons or companies jointly

undertaking some commercial enterprise;
Generally all contribute assets and share risks.
It requires a community of interest in the performance of the

subject matter, a right to direct and govern the policy in
connection therewith, and duty, which may be altered by
agreement to share both in profit and losses. Kilosbayan, Inc. v.
Guingona, Jr., 232 SCRA 110 (1994).
Under Philippine law, a joint venture is a form of partnership

and should thus be governed by the law of partnerships, which
would then include the features of separate juridical

personality, mutual agency among the co-venturers, and
unlimited liability.1

D. Cooperatives (Article 3, R.A. No. 6938)

Cooperative
Trust relationship is centered upon properties, and which places

naked titled in the trustee, and beneficial title in the
beneficiary.2

F. Sociedades Annimas
Corporation
where upon the execution of the public instrument in which its

articles of agreement appear, and the contribution of funds and
personal property, becomes a juridical person an artificial
being, invisible, intangible, and existing only in contemplation of
Separate and distinct juridical personality

Limited liability of investors
Primary objective of every cooperative is self-help: to
provide goods and services to its members and thus
Organized for
profit
law with power to hold, buy, and sell property, and to sue
and be sued a corporation not a general co-partnership
nor a limited co-partnership . . . The inscribing of its articles of
agreement in the commercial register was not necessary to
make it a juridical person; such inscription only operated to
show that it partook of the form of a commercial corporation.
Mead v. McCullough, 21 Phil. 95 (1911).
enable them to attain increased income and savings

Governed by principles of democratic control where
the members in primary cooperatives shall have equal
voting rights on a one-member-one-vote principle
Centralized
management
Cooperatives are established to provide a strong social and

economic organization to ensure that the tenant-farmers will
enjoy on a lasting basis the benefits of agrarian reforms. Corpuz
v. Grospe, 333 SCRA 425 (2000).

E. Business Trusts (Article 1442, Civil Code)
A sociedad annima was considered a commercial partnership
The sociedades annimas were introduced in Philippine

jurisdiction on 1 December 1888 with the extension to
Philippine territorial application of Articles 151 to 159 of the
Spanish Code of Commerce. Those articles contained the
features of limited liability and centralized management granted
to a juridical entity. But they were more similar to the English
joint stock companies than the modern commercial
corporations. Benguet Consolidated Mining Co. v. Pineda, 98
Phil. 711 (1956).
As compared to a corporation, a business trust is simply a deed

of trust which is easier and less expensive to constitute for it is
not bound by any legal requirements like the former. It does not
have a separate juridical personality, and is mainly governed by
contractual doctrines and the common law principles on trust.




The old Corporation Law recognized the difference between

sociedades annimas and corporations and the Court will not
apply legal provisions pertaining to the latter to the former.
Phil. Product Co. v. Primateria Societe Anonyme, 15 SCRA 301
(1965).

G. Cuentas En Participacion
A cuentas en participacion is an accidental partnership

constituted in a manner that its existence was only known to
those who had an interest in the same, there being no mutual
agreement between the partners, and without a corporate
name indicating to the public in some way that there were
other people besides the one who ostensibly managed and
conducted the business, governed under Article 239 of the Code
of Commerce.
Those who contract with the person under whose name the
business of such partnership of cuentas en participacion is
conducted, shall have only a right of action against such person
and not against the other persons interested, and the latter, on
the other hand, shall have no right of action against third person
who contracted with the manager unless such manager formally
transfers his right to them. Bourns v. Carman, 7 Phil. 117
(1906).


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CORPORATION

LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

Partnerships and associations for private interest or purpose are

been constituted according to law;

Juridical persons are those who have an identity granted to it by

Artificial being essentially means that it has a

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

strong legal personality of the corporation is an

The corporation has the capacity for continuous

A corporation has no powers except for those which are:

individuals forming the corporation upon which the

As opposed to a natural person, who has the ability to

It exercises its powers through its Board of Directors and/or its

Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

Between the corporation and its agents/representatives to Law on

Between and among the shareholders in a common

Between the corporation and its employees

Between the corporation and those it contracts

and transacts with

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

creature without any existence until it has received the imprimatur of

ones should be issued by Benguet Consolidated Inc. However, the latter

from judicial control.

then its existence and actions concedes to the law.

Held: NO. Since there was a refusal by the domiciliary administrator in

To organize a corporation that could claim a juridical personality

with implications at war with the basic postulates of corporate theory. A

Theory of Concession Since a corporation is created by law,

It is a basic postulate that before a corporation may acquire

Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

enterprise, which by these very qualities and operations

fiction alone that creates a corporate entity. Any State grant

All corporations, big or small, must abide by the provisions of

Theory of Enterprise Entity The enterprise theory hinges

But once granted, and the entity acquires juridical

assets, liabilities and operations of the corporation are

A corporation is a creation of law and a creation of a set of

by the agreement of the individuals to establish the

Berle, The Theory of Enterprise, 47 COL. L. REV. No. 3 (April, 1947).

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

As such, in cases where there is defect in the corporate

corporate assets and properties. Stockholders of F. Guanzon

party is already of advanced age and in danger of extinction,

A corporation is but an association of individuals, allowed to

only final and executory judgment. Manacop v. Equitable

Corporations are composed of natural persons and their

Co. v. Jarencio, 163 SCRA 205 (1988).

A corporation is an entity separate and distinct from its

partnership where the death of a partner dissolves the

stockholders. While not in fact and in reality a person, the law

SCRA 405 (1989).

The transfer of the corporate assets to the stockholders is not in

As distinguished from a partnership, it has a strong legal

Execution pending appeal may be allowed when the prevailing

The shareholders cannot be held liable as an individual for the