CORPORATION LAW 2016

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.
A corporations, being a creature of law, ows its life to the state, its birth being purely dependent on its will, it
is a creature without any existence until it has received the imprimatur of the state acting according to law. A
corporation will have no rights and privileges of a highest priority that that of its creator and cannot
legitimately reuse to yield obedience to acts of its state organs.
Tayag vs. Benguet
March 1960, Idonah Perkins died in New York. She left behind properties here and abroad. One property she
left behind were two stock certificates covering 33,002 shares of stocks of the Benguet Consolidated, Inc (BCI).
Said stock certificates were in the possession of the Country Trust Company of New York (CTC-NY). CTC-NY
was the domiciliary administrator of the estate of Perkins (obviously in the USA). Meanwhile, in 1963, Renato
Tayag was appointed as the ancillary administrator (of the properties of Perkins she left behind in the
Philippines). A dispute arose between CTC-NY and Tayag as to who between them is entitled to possess the
stock certificates. A case ensued and eventually, the trial court ordered CTC-NY to turn over the stock
certificates to Tayag. CTC-NY refused. Tayag then filed with the court a petition to have said stock certificates
be declared lost and to compel BCI to issue new stock certificates in replacement thereof. The trial court
granted Tayags petition.
ISSUE: Whether or not the arguments of Benguet Consolidated, Inc. are correct.
HELD: No. Benguet Consolidated is a corporation who owes its existence to Philippine laws. It has been given
rights and privileges under the law. Corollary, it also has obligations under the law and one of those is to
follow valid legal court orders. It is not immune from judicial control because it is domiciled here in the
Philippines. BCI is a Philippine corporation owing full allegiance and subject to the unrestricted jurisdiction of
local courts. Its shares of stock cannot therefore be considered in any wise as immune from lawful court
orders. Further, to allow BCIs opposition is to render the court order against CTC-NY a mere scrap of paper. It
will leave Tayag without any remedy simply because CTC-NY, a foreign entity refuses to comply with a valid
court order. The final recourse then is for our local courts to create a legal fiction such that the stock
certificates in issue be declared lost even though in reality they exist in the hands of CTC-NY. This is valid. As
held time and again, fictions which the law may rely upon in the pursuit of legitimate ends have played an
important part in its development. Further still, the argument invoked by BCI that it can only issue new stock
certificates in accordance with its bylaws is misplaced. It is worth noting that CTC-NY did not appeal the order
of the court it simply refused to turn over the stock certificates hence ownership can be said to have been
settled in favor of estate of Perkins here. Also, assuming that there really is a conflict between BCIs bylaws and
the court order, what should prevail is the lawful court order. It would be highly irregular if court orders would
yield to the bylaws of a corporation. Again, a corporation is not immune from judicial orders.
What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with implications at war
with the basic postulates of corporate theory. We start with the undeniable premise that, "a corporation is an
artificial being created by operation of law...."16 It owes its life to the state, its birth being purely dependent on
its will. As Berle so aptly stated: "Classically, a corporation was conceived as an artificial person, owing its
existence through creation by a sovereign power."17 As a matter of fact, the statutory language employed
owes much to Chief Justice Marshall, who in the Dartmouth College decision defined a corporation precisely
as "an artificial being, invisible, intangible, and existing only in contemplation of law."18
The well-known authority Fletcher could summarize the matter thus: "A corporation is not in fact and in reality
a person, but the law treats it 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.... It owes its existence to law. It is an artificial
person created by law for certain specific purposes, the extent of whose existence, powers and liberties is
fixed by its charter."A corporation as known to Philippine jurisprudence is a creature without any existence
until it has received the imprimatur of the state 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, certainly not excluding the judiciary, whenever called
upon to do so. As a matter of fact, a corporation once it comes into being, following American law still of

persuasive authority in our jurisdiction, comes more often within the ken of the judiciary than the other two
coordinate branches. It institutes the appropriate court action to enforce its right. Correlatively, it is not
immune from judicial control in those instances, where a duty under the law as ascertained in an appropriate
legal proceeding is cast upon it. 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.
Torres vs. Court of Appeals
Judge Manuel Torres, Jr. owns about 81% of the capital stocks of Tormil Realty & Development Corporation
(TRDC). TRDC is a small family owned corporation and other stockholders thereof include Judge Torres nieces
and nephews. However, even though Judge Torres owns the majority of TRDC and was also the president
thereof, he is only entitled to one vote among the 9-seat Board of Directors, hence, his vote can be easily
overridden by minority stockholders. So in 1987, before the regular election of TRDC officers, Judge Torres
assigned one share (qualifying share) each to 5 outsiders for the purpose of qualifying them to be elected as
directors in the board and thereby strengthen Judge Torres power over other family members.
However, the said assignment of shares were not recorded by the corporate secretary, Ma. Christina Carlos
(niece) in the stock and transfer book of TRDC. When the validity of said assignments were questioned, Judge
Torres ratiocinated that it is impractical for him to order Carlos to make the entries because Carlos is one of
his opposition. So what Judge Torres did was to make the entries himself because he was keeping the stock
and transfer book. He further ratiocinated that he can do what a mere secretary can do because in the first
place, he is the president. Since the other family members were against the inclusion of the five outsiders,
they refused to take part in the election. Judge Torres and his five assignees then decided to conduct the
election among themselves considering that the 6 of them constitute a quorum.
ISSUE: Whether or not the inclusion of the five outsiders are valid. Whether or not the subsequent election is
valid.
HELD: No. The assignment of the shares of stocks did not comply with procedural requirements. It did not
comply with the by laws of TRDC nor did it comply with Section 74 of the Corporation Code. Section 74
provides that the stock and transfer book should be kept at the principal office of the corporation. Here, it was
Judge Torres who was keeping it and was bringing it with him. Further, his excuse of not ordering the
secretary to make the entries is flimsy. The proper procedure is to order the secretary to make the entry of
said assignment in the book, and if she refuses, Judge Torres can come to court and compel her to make the
entry. There are judicial remedies for this. Needless to say, the subsequent election is invalid because the
assignment of shares is invalid by reason of procedural infirmity. The Supreme Court also emphasized: all
corporations, big or small, must abide by the provisions of the Corporation Code. Being a simple family
corporation is not an exemption. Such corporations cannot have rules and practices other than those
established by law.
Philippine Stock Exchange, Inc. vs. Court of Appeals
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 body. As to its corporate and management decisions, therefore, the state
will generally not interfere with the same. Questions of policy and of management are left to the honest
decision of the officers and directors of a corporation, and the courts are without authority to substitute their
judgment for the judgment of the board of directors. The board is the business manager of the corporation,
and so long as it acts in good faith, its orders are not reviewable by the courts.
Puerto Azul Land, Inc. (PALI) is a corporation engaged in the real estate business. PALI was granted permission
by the Securities and Exchange Commission (SEC) to sell its shares to the public in order for PALI to develop
its properties. PALI then asked the Philippine Stock Exchange (PSE) to list PALIs stocks/shares to facilitate
exchange. The PSE Board of Governors denied PALIs application on the ground that there were multiple
claims on the assets of PALI. Apparently, the Marcoses, Rebecco Panlilio (trustee of the Marcoses), and some
other corporations were claiming assets if not ownership over PALI.
PALI then wrote a letter to the SEC asking the latter to review PSEs decision. The SEC reversed PSEs decisions

and ordered the latter to cause the listing of PALI shares in the Exchange.
ISSUE: Whether or not it is within the power of the SEC to reverse actions done by the PSE.
HELD: Yes. The SEC has both jurisdiction and authority to look into the decision of PSE pursuant to the Revised
Securities Act and for the purpose of ensuring fair administration of the exchange. PSE, as a corporation itself
and as a stock exchange is subject to SECs jurisdiction, regulation, and control. In order to insure fair dealing
of securities and a fair administration of exchanges in the PSE, the SEC has the authority to look into the
rulings issued by the PSE. The SEC is the entity with the primary say as to whether or not securities, including
shares of stock of a corporation, may be traded or not in the stock exchange.
HOWEVER, in the case at bar, the Supreme Court emphasized that the SEC may only reverse decisions issued
by the PSE if such are tainted with bad faith. In this case, there was no showing that PSE acted with bad faith
when it denied the application of PALI. Based on the multiple adverse claims against the assets of PALI, PSE
deemed that granting PALIs application will only be contrary to the best interest of the general public. It was
reasonable for the PSE to exercise its judgment in the manner it deems appropriate for its business identity, as
long as no rights are trampled upon, and public welfare is safeguarded.
Article 12, Section 16 (1987 Constitution)
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.
Feliciano vs. COA
Facts: COA assessed Leyte Metropolitan Water District (LMWD) auditing fees. Petitioner Feliciano, as General
Manager of LMWD, contended that the water district could not pay the said fees on the basis of Sections 6
and 20 of P.D. No. 198 as well as Section 18 of R.A. No. 6758. He primarily claimed that LMWD is a private
corporation not covered by COA's jurisdiction. Petitioner also asked for refund of all auditing fees LMWD
previously paid to COA. COA Chairman denied petitioners requests. Petitioner filed a motion for
reconsideration which COA denied. Hence, this petition.
Issue: Whether a Local Water District (LWD) created under PD 198, as amended, is a government-owned or
controlled corporation subject to the audit jurisdiction of COA or a private corporation which is outside of
COAs audit jurisdiction.
Held: Petition lacks merit. The Constitution under Sec. 2(1), Article IX-D and existing laws mandate COA to
audit all government agencies, including government-owned and controlled corporations with original
charters. An LWD is a GOCC with an original charter. The Constitution recognizes two classes of corporations.
The first refers to private corporations created under a general law. The second refers to government-owned
or controlled corporations created by special charters. Under existing laws, that general law is the Corporation
Code. Obviously, LWDs are not private corporations because they are not created under the Corporation
Code. LWDs are not registered with the Securities and Exchange Commission. Section 14 of the Corporation
Code states that all corporations organized under this code shall file with the SEC articles of incorporation x x
x. LWDs have no articles of incorporation, no incorporators and no stockholders or members. There are no
stockholders or members to elect the board directors of LWDs as in the case of all corporations registered
with the SEC. The local mayor or the provincial governor appoints the directors of LWDs for a fixed term of
office. The board directors of LWDs are not co-owners of the LWDs. The board directors and other personnel
of LWDs are government employees subject to civil service laws and anti-graft laws. Clearly, an LWD is a
public and not a private entity, hence, subject to COAs audit jurisdiction.
Attributes of a Corporation
1.
It is an artificial being - it has a juridical personality, distinct and separate for those persons composing
it;
2.
Created by operation of law - the formal req of the States consent through compliance with the req
imposed by law is necessary for its creation such that the mere agreement of the persons composing it
or intending to organize it does not warrant the grant of its independent existence as a juridical entity;
3.
With right of succession - unlike partnership, the death, incapacity or civil interdiction of one or more of
its stockholders does not result in its dissolution;
4.
Has the powers, attributes, and properties as expressly authorized by law or incidents to its existence - it

can exercise only such powers and can hold only such properties as are granted to it by enabling
statutes unlike natural persons who can do anything as they please.
Similarities and distinctions between contract of partnership and corporations
Corporation
Partnership
Created by operation of law (Sec 2 and 4 of the
Created by mere agreement of the parties (Article
corporation code)
1767, Civil Code)
There must be atleast 5 incorporations (Sec. 10),
May be formed by two or more natural persons
except corporation sole which is incorporated by one (Article 1767)
single individual (Sec. 110)
Can exercise only such powers and functions
Can do anything by agreement of the parties
expressly granted to it by law and those that are
provided only that it is not contrary to law, morals,
necessary or incidental to its existence
good customs or public order (Article 1306)
Unless validly delegated expressly or impliedly, a
In the absence of an agreement to the contrary, any
corporation must transact its business through the
one of the parties in the partnership form of business
board of directors (Sec 23, CC)
may validly bind the partnership (Article 1308,
paragraph 1)
Right to succession, it continues to exist despite the
Based on mutual trust and the death, incapacity,
death, withdrawal, incapacity or civil interdiction of
insolvency, civil interdiction or mere withdrawal of
the stockholders or members (Sec 3)
one of the parties would result in its dissolution
(Article 1830)
Transferability of shares - without the consent of the
A partner cannot transfer his rights or interest in the
other stockholders
partnership so as to make the transferee a partner
without the consent of all the partners
Limited liability - only to the extent of their
All partners, including industrial once (except a
subscription or their promised contribution.
limited partner) are liable pro rata with all their
property and after the partnership property has been
exhausted, for all partnership liability (Article 1813)
The term of corporate existence is limited only to fifty May exist for an indefinite period subject only to the
years and unless extended by amendment, it shall be causes of dissolution provided for by the law of its
considered non-existent except for the purpose of
creation (Article 1824)
liquidation.
Cannot be dissolved by mere agreement of the
Partners may dissolve their partnership at will ot any
stockholders. The consent of the State is necessary
time they deem fit (Article 1830)
for it to cease as a body corporate.
Corporations created by special laws or charter
Section 4. Corporations created by special laws or charter. Corporations created by special laws or charters
shall be governed primarily by the provisions of the special law or charter creating them or applicable to them,
supplemented by the provisions of this Code, insofar as they are applicable.
Among these corporations created by special law are the Philippine National Oil Company, the National
Development Company, the Philippine Export and Foreign Loan Guarantee Corporation and the GSIS. All
these are government owned or controlled, operating under a special law or a charter such that registration
with the SEC is not required for them to acquire legal and juridical personality. They owe their existence as
such by virtue of the law specially creating them.
National Coal Co. vs. Collector of Internal Revenue
Herein plaintiff brought an action for the purpose of recovering a sum of money allegedly paid by it under
protest to the herein defendant, a specific tax on some tons of coal. It claimed exemption from taxed under
Section 1469 of the Administrative Code which provides that an all coal and coke shall be collected per
metric ton, fifty centavos. Of the 30,000 shares issued by the corporation, the Philippine government is the
owner of 29,809 or substantially all of the shared of the company.

ISSUE: WON the plaintiff corporation is a public corporation?

HELD: No, the plaintiff is a private corporation. The mere fact that the government happens to be a majority
stockholder does not make it a public corporation. As a private corporation, it has no greater rights, powers
and privileges that any other corporation which might be organized for the same purpose under the
Corporation Law, it was not the intention of the legislature to give it a preference or right or privilege over
other legitimate private corporation in the mining of coal.
PRIVATE CORPORATIONS - those formed for some private purpose, or benefit, aim or end. They are created
for the immediate benefit and advantages of the individuals or members composing it and their franchise
may be considered as privileges conferred by the State to be exercise and enjoyed by them in the form of the
corporation.
Marilao Waters Consumers Association, Inc. vs. IAC
Classifications of Corporations
A. Under the Corporation Code
Sec. 3. Classes of corporations. - Corporations formed or organized under this Code may be stock or
non-stock corporations. Corporations which have capital stock divided into shares and are authorized to
distribute to the holders of such shares dividends or allotments of the surplus profits on the basis of the
shares held are stock corporations. All other corporations are non-stock corporations.
REQUISITES TO BE CLASSIFIED STOCK CORPORATIONS: (1) They have a capital stock dividend into shares; and
(2) That they are authorized to distribute dividends or allotments as surplus profits to its stockholders on the
basis of the shares held by each of them.
SIGNIFICANT DISTINCTION: Although a non-stock corporation exists for purposes other than for profit, it
does not follow that they cannot make profits as an incident to their operations. But a significant distinction is
that profits obtained by a non-stock corporation cannot be distributed as dividends but are used merely for
the furtherance of their purpose or purposes.
B.
Sole and Aggregate
AGGREGATE CORPORATIONS: are those composed of a number of individuals vested with corporate powers.
CORPORATION SOLE: those consist of one person or individual only and who are made as bodies corporate
and politic in order to give them some legal capacity and advantage which, as natural persons, they cannot
have. Under the Code, a corporation sole may be formed by the chief archbishop, bishop, priest, minister,
rabbi, or other presiding elder or religious denominations, sects or churches.
C.
Ecclesiastic and Lay
ECCLESIASTICAL OR RELIGIOUS CORPORATIONS: are composed exclusively of ecclesiastics organized for
spiritual purposes or for administering properties held for religious ones. They are organized to secure public
worship or perpetuating the right of a particular religion.
LAY CORPORATIONS: are those organized for purposes other than religion. They may further be classified
below.
D. Eleemosynary and Civil
Eleemosynary: are created for charitable and benevolent purposes such as those organized for the purpose of
maintaining hospitals and houses for the sich, aged or poor.
Civil: organized not for the purpose of public charity but for te benefit, pecuniary or otherwise, of its
members.
E.
Domestic and Foreign
DOMESTIC CORPORATIONS: are those organized or created under or by virtue of the Philippine laws, either
by legislative act or under the provisions of the General Corporation Law.
FOREIGN CORPORATIONS: are those formed, organized or existing under any laws other than those of the
Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state
(Sec. 123, Corporation Code). The second part of the definition is, however, somehow misplaced since any
corporation for that matter, which is not registered under Philippine laws is a foreign corporation. Such
second part was inserted only for the purpose of qualifying a foreign corporation to secure a license and to
do business in the Philippines.
F.
Dejure and Defacto corporations

DE JURE CORPORATIONS: are juridical entities created or organized in strict or substantial compliance with
statutory requirements of incorporation and whose rights to exist as such cannot be successfully attacked
even by the State in a quo warranto proceeding. They are, in effect, incorporated by strict
adherence to the provisions of the law of their creation.
DE FACTO CORPORATIONS: are those which exist by the virtue of an irregularity or defect in the organization
or constitution or from some omission to comply with the conditions precedent by which corporations de jure
are created, but there was colorable compliance with the requirements of the law under which they might be
lawfully incorporated for the purposes and powers assumed, and user of the rights claimed to be conferred by
law. Its existence can only be attacked by a direct action of quo warranto proceedings.
Requisites: (1) That there is an apparently valid statute under which the corporation with its purposes may
be formed; (2) That there has been colorable compliance with the legal requirements in good faith; and, (3)
That there has been use of corporate powers, i.e., the transaction of business in some way as if it were a
corporation.

Quo warranto: A legal proceeding during which an individual's right to hold an office or governmental
privilege is challenged. In old English practice, the writ of quo warrantoan order issued by authority of the
kingwas one of the most ancient and important writs. It has not, however, been used for centuries, since the
procedure and effect of the judgment were so impractical. Currently the former procedure has been replaced
by an information in the nature of a quo warranto, an extraordinary remedy by which a prosecuting attorney,
who represents the public at large, challenges someone who has usurped a public office or someone who,
through abuse or neglect, has forfeited an office to which she was entitled. In spite of the fact that the remedy
of quo warranto is pursued by a prosecuting attorney in a majority of jurisdictions, it is ordinarily regarded as
a civil rather than criminal action. Quo warranto is often the only proper legal remedy; however, the legislature
can enact legislation or provide other forms of relief.Statutes describing quo warranto usually indicate where
it is appropriate. Ordinarily it is proper to try the issue of whether a public office or authority is being abused.
For example, it might be used to challenge the Unauthorized Practice of a profession, such as law or medicine.
In such situations, the challenge is an assertion that the defendant is not qualified to hold the position she
claimsa medical doctor, for example. In some quo warranto proceedings, the issue is whether the defendant
is entitled to hold the office he claims, or to exercise the authority he presumes to have from the government.
In addition, proceedings have challenged the right to the position of county commissioner, treasurer, school
board member, district attorney, judge, or tax commissioner. In certain jurisdictions, quo warranto is a proper
proceeding to challenge individuals who are acting as officers or directors of business corporations. A
prosecuting attorney ordinarily commences quo warranto proceedings; however, a statute may authorize a
private person to do so without the consent of the prosecutor. Unless otherwise provided by statute, a court
permits the filing of an information in the nature of quo warranto after an exercise of sound discretion, since
quo warranto is an extraordinary exercise of power and is not to be invoked lightly. Quo warranto is not a
right available merely because the appropriate legal documents are filed. Valid reason must be indicated to
justify governmental interference with the individual holding the challenged office, privilege, or license.