CORPORATION

 LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    

 
adopt   corporate   principles   into   the   changing   concepts   and  
mechanism  of  the  commercial  world.  

 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
CONCEPTS   Partnerships   and   associations   for   private   interest   or   purpose   are  
  governed   by   the   provisions   of   this   Code   concerning   partnerships.   (36  
I.  Definition  (Section  2;  Articles  44(3),  45,  46,  and  1775,  Civil  Code)   and  37a)    
 
 
Article  46.    
Section  2.  Corporation  defined.  
Juridical  persons  may  acquire  and  possess  property  of  all  kinds,  as  well  
A  corporation  is  an  artificial  being  created  by  operation  of  law,  having  
as   incur   obligations   and   bring   civil   or   criminal   actions,   in   conformity  
the   right   of   succession   and   the   powers,   attributes   and   properties  
with  the  laws  and  regulations  of  their  organization.  (38a)    
expressly  authorized  by  law  or  incident  to  its  existence.  (2)  
 
 
Article  1775.    
CIVIL  CODE  
Associations  and  societies,  whose  articles  are  kept  secret  among  the  
Article  44.  The  following  are  juridical  persons:    
members,  and  wherein  any  one  of  the  members  may  contract  in  his  
1.  The  State  and  its  political  subdivisions;    
own  name  with  third  persons,  shall  have  no  juridical  personality,  and  
 
shall  be  governed  by  the  provisions  relating  to  co-­‐ownership.  (1669)  
2.   Other   corporations,   institutions   and   entities   for   public   interest   or  
 
purpose,   created   by   law;   their   personality   begins   as   soon   as   they   have  
• Juridical  persons  are  those  who  have  an  identity  granted  to  it  by  
been  constituted  according  to  law;    
law  with  powers  granted  and  subject  to  the  law.    
 
o As  such,  they  can  own  property  and  conduct  business  as  
3.   Corporations,   partnerships   and   associations   for   private   interest   or  
well  as  sue  and  be  sued.  
purpose   to   which   the   law   grants   a   juridical   personality,   separate   and  
o Juridical   capacity   à   the   capacity/ability   to   enter   into  
distinct  from  that  of  each  shareholder,  partner  or  member.  (35a)    
legal  relations  and  be  bound  by  them.  
 
Article  45.     • A  corporation  is  an:  
Juridical  persons  mentioned  in  Nos.  1  and  2  of  the  preceding  article  are   o Artificial   being   à   essentially   means   that   it   has   a  
governed  by  the  laws  creating  or  recognizing  them.     fictional  existence.  
  o Created   by   operation   of   law   à   absence   of   the   law  
Private   corporations   are   regulated   by   laws   of   general   application   on   would  mean  that  a  corporation  cannot  exist.  
the  subject.     o 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  

 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
may  be  related.  PNB  v.  Andrada  Electric  &  Engineering   strong   legal   personality   of   the   corporation   is   an  
Co.,  381  SCRA  244  (2002).1   attribute   that   has   made   it   most   attractive   to  
  businessmen  when  compared  to  other  media.4  
II.  FOUR  (4)  CORPORATE  ATTRIBUTES  BASED  ON  SECTION  2:   (d) Creature   of   Limited   Powers:   “It   has   only   such   powers,  
(a) An   Artificial   Being:   “It   has   juridical   capacity   to   contract   and   attributes  and  properties  as  are  expressly  authorized  by  law  or  
enter  into  legal  relationships.”   incident  to  its  existence.”  
It   is   a   basic   postulate   that   before   a   corporation   may  
o o As   opposed   to   a   natural   person,   who   has   the   ability   to  
acquire   juridical   personality,   the   State   must   give   its   exercise  any  power  and  enter  into  any  business  activity  
consent   either  in  the  form  of  a  special  aw  or  a  general   and  the  only  limitation  would  be  that  an  individual  has  
enabling  act.2   no   right   to   enter   into   an   act   or   transaction   that   is  
(b) Creature  of  the  Law:  “It  is  created  by  operation  of  law  and  not   contrary  to  law,  morals  and  public  policy.5  
by  mere  agreement.”   • A  corporation  has  no  powers  except  for  those  which  are:    
o There   must   first   be   an   underlying   contract   among   the   o Expressly  conferred  on  it  by  the  Corporation  Code    
individuals   forming   the   corporation   upon   which   the   o Found  in  its  charter,  and    
state   grant   may   be   conferred.   Therefore,   you   have   an   o Those   that   are   implied   by   or   are   incidental   to   its  
inter-­‐play   of   State   grant   and   contractual   relations   existence.    
between  the  parties.  Which  principle  has  precedence  in   • It  exercises  its  powers  through  its  Board  of  Directors  and/or  its  
resolving   conflict   would   depend   upon   the   public   duly  authorized  officers  and  agents.  Pascual  and  Santos,  Inc.  v.  
interest  or  issue  to  be  resolved.3   The   Members   of   the   Tramo   Wakas   Neighborhood   Assn.   Inc.,  
(c) Strong  Juridical  Personality:  “It  has  a  right  of  succession.”   442  SCRA  438  (2004).6  
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   4
 Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.  
                                                                                                                (2013  ed.).  Manila,  Philippines:  Rex  Book  Store.  
1 5
 Construction  &  Dev.  Corp.  of  the  Phils.  v.  Cuenca,  466  SCRA  714  (2005);  EDSA    Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.  
Shangri-­‐La  Hotel  and  Resorts,  Inc.  v.  BF  Corp.,  556  SCRA  25  (2008).   (2013  ed.).  Manila,  Philippines:  Rex  Book  Store.  
2 6
 Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.    De   Liano   v.   Court   of   Appeals,   370   SCRA   349   (2001);   Monfort   Hermanos  
(2013  ed.).  Manila,  Philippines:  Rex  Book  Store.   Agricultural   Dev.   Corp.   v.   Monfort   III,   434   SCRA   27   (2004);   United   Paragon  
3
 Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.   Mining   Corp.   v.   Court   of   Appeals,   497   SCRA   638   (2006);   Cebu   Bionic   Builders  
(2013  ed.).  Manila,  Philippines:  Rex  Book  Store.   Supply,  Inc.  v.  DBP,  635  SCRA  13  (2010).  
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
of  them  was  entitled  to  the  possession  of  the  stock  certificates.   creature   without   any   existence   until   it   has   received   the   imprimatur   of  
  the  State  acting  according  to  law.  It  is  logically  inconceivable  therefore  
The   Court   of   First   Instance   of   Manila   ordered   CTC   to   produce   and   that  it  will  have  rights  and  privileges  of  a  higher  priority  than  that  of  its  
deposit   the   certificates   with   Tayag,   but   the   former   refused.   Tayag   was   creator.  More  than  that,  it  cannot  legitimately  refuse  to  yield  obedience  
able   to   have   a   court   order   issued   declaring   the   certificates   lost   and   new   to   acts   of   its   state   organs,   specifically   the   judiciary.   It   is   not   immune  
ones   should   be   issued   by   Benguet   Consolidated   Inc.   However,   the   latter   from  judicial  control.  
refused  because  as  far  as  it  was  concerned,  the  certificates  were  not  lost    
being  in  the  possession  of  CTC.   • Theory   of   Concession   à   Since  a  corporation  is  created  by  law,  
  then  its  existence  and  actions  concedes  to  the  law.  
Issue:  Whether   or   not   the   lower   court   erred   in   declaring   the   certificates   o The   theory   of   concession,   therefore,   looks   at   a  
as  lost.     corporation   simply   as   a   creature   of   the   State   and   of  
  limited   powers   and   capabilities,   completely   within   the  
Held:   NO.  Since  there  was  a  refusal  by  the  domiciliary  administrator  in   control  of  the  State.1  
New   York   to   deliver   the   shares   of   stocks   of   Benguet   to   the   ancillary   • To  organize  a  corporation  that  could  claim  a  juridical  personality  
administrator   in   the   Philippines,   there   was   nothing   unreasonable   or   of   its   own   and   transact   business   as   such,   is   not   a   matter   of  
arbitrary  in  considering  them  as  lost  and  requiring  the  appellant  to  issue   absolute   right,   but   a   privilege   which   may   be   enjoyed   only   under  
new  certificates  in  lieu  thereof.  Moreover,  the  view  adopted  by  Benguet   such   terms   as   the   State   may   deem   necessary   to   impose.   cf.  Ang  
Consolidated   that   it   cannot   issue   new   certificates   because   doing   so   Pue   &   Co.   v.   Section   of   Commerce   and   Industry,   5   SCRA   645  
under   the   circumstances   would   be   a   violation   of   its   by-­‐laws   is   fraught   (1962).  
with  implications  at  war  with  the  basic  postulates  of  corporate  theory.  A   • “It   is   a   basic   postulate   that   before   a   corporation   may   acquire  
corporation  is  an  artificial  being  created  by  operation  of  law.  To  assert   juridical  personality,  the  State  must  give  its  consent  either  in  the  
that  it  can  choose  which  court  order  to  follow  and  which  to  disregard  is   form   of   a   special   law   or   a   general   enabling   act,”   and   the  
to   confer   upon   it   not   autonomy   which   may   be   conceded   but   license   procedure   and   conditions   provided   under   the   law   for   the  
which  cannot  be  tolerated.  It  is  to  argue  that  it  may,  when  so  minded,   acquisition  of  such  juridical  personality  must  be  complied  with.  
overrule  the  state,  the  source  of  its  very  existence;  it  is  to  contend  that   Although  the  statutory  grant  to  an  association  of  the  powers  to  
what   any   of   its   governmental   organs   may   lawfully   require   could   be   purchase,   sell,   lease   and   encumber   property   can   only   be  
ignored  at  will.  So  extravagant  a  claim  cannot  possibly  merit  approval.   construed   the   grant   of   a   juridical   personality   to   such   an  
                                                                                                                 
1
Doctrine:   A   corporation   as   known   to   Philippine   jurisprudence   is   a    Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.  
(2013  ed.).  Manila,  Philippines:  Rex  Book  Store.  
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
association…nevertheless,   the   failure   to   comply   with   the   enterprise,  which  by  these  very  qualities  and  operations  
statutory   procedure   and   conditions   does   not   warrant   a   finding   acquires  an  entity  of  its  own,  recognized  by  law.2    
that  such  association  acquired  a  juridical  personality,  even  when   • The   theory   draws   its   vitality   from   the   fact   that   it   is   not   legal  
it   adopts   constitution   and   by-­‐laws.   Int’l   Express   Travel   &   Tour   fiction   alone   that   creates   a   corporate   entity.   Any   State   grant  
Services,  Inc.  v.  CA,  343  SCRA  674  (2000).   must  presuppose  the  existence  of  consent   or  common  venture  
• All   corporations,   big   or   small,   must   abide   by   the   provisions   of   among  those  who  will  form  the  corporation.    
the  Corporation  Code;  even  a  simple  family  corporation  cannot   o Although   it   is   within   the   power   of   the   State   to   give   such  
claim   an   exemption   nor   can   it   have   rules   and   practices   other   grant   or   to   deny   it,   the   corporate   fiction   cannot   be  
than  those  established  by  law.  Torres   v.   Court   of   Appeals,   278   created   unless   there   is   an   enterprise   or   group   upon  
SCRA  793  (1997).   whom  it  would  be  conferred.    
  o But   once   granted,   and   the   entity   acquires   juridical  
B.   Theory   of   Enterprise   Entity:   BERLE,   47   COLUMBIA   LAW   REV.   343   personality,   it   does   not   mean   that   the   group,   as  
(1947)   distinguished   from   the   juridical   entity,   becomes   a  
• Theory   of   Enterprise   Entity   à   The   enterprise   theory   hinges   creature   of   the   State,   but   actually   becomes   a   creature  
itself   on   the   fact   that   there   can   be   no   corporate   existence   of   its   own   volition   and   maintains   either   singly   or  
without   persons   to   compose   it;   there   can   be   no   association   collectively   their   inherent   rights   under   the   law,   which  
without  associates.1   may   tend   to   project   to   their   business   dealings   done  
o The   entity   commonly   known   as   "corporate   entity"   takes   through  the  corporation.  
its   being   from   the   reality   of   the   underlying   enterprise,   • A   corporation   is   a   creation   of   law   and   a   creation   of   a   set   of  
formed  or  in  formation;  that  the  state's  approval  of  the   relationships  between  individuals.  
corporate   form   sets   up   a   prima   facie   case   that   the   o It  takes  5  people  to  form  a  corporation  and  it  is  formed  
assets,   liabilities   and   operations   of   the   corporation   are   by   the   agreement   of   the   individuals   to   establish   the  
those   of   the   enterprise.   But   that   where   the   corporate   corporation.  
entity   is   defective,   or   otherwise   challenged,   its   o Even  as  a  corporation  has  an  identity  separate  from  the  
existence,  extent  and  consequences  may  be  determined   individuals,   you   cannot   do   away   completely   with   the  
by  the  actual  existence  and  operations  of  the  underlying   notion   that   there   are   individuals   behind   the  
corporation.  

                                                                                                                                                                                                                               
1 2
 Arnold  v.  Willets  &  Patterson,  Ltd.  45  Phil.  634  (1923).    Berle,  The  Theory  of  Enterprise,  47  COL.  L.  REV.  No.  3  (April,  1947).    
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
o As  such,  in  cases  where  there  is  defect  in  the  corporate   corporate   assets   and   properties.   Stockholders   of   F.   Guanzon  
identity,  your  recourse  is  to  the  individuals.  This  is  why   and   Sons,   Inc.   v.   Register   of   Deeds   of   Manila,   6   SCRA   373  
the   Supreme   Court   has   ruled   that   the   corporation   is   (1962).  
entitled   to   rights   –   because   individuals   form   the   • Execution  pending  appeal  may  be  allowed  when  “the  prevailing  
corporation  and  these  individuals  have  rights.   party   is   already   of   advanced   age   and   in   danger   of   extinction,”  
• A   corporation   is   but   an   association   of   individuals,   allowed   to   but   not   in   this   case   where   the   winning   party   is   a   corporation.  
transact  under  an  assumed  corporate  name,  and  with  a  distinct   “[A]   juridical   entity’s   existence   cannot   be   likened   to   a   natural  
legal   personality.   In   organizing   itself   as   a   collective   body,   it   person—its   precarious   financial   condition   is   not   by   itself   a  
waives  no  constitutional  immunities  and  perquisites  appropriate   compelling   circumstance   warranting   immediate   execution   and  
to  such  a  body.  PSE  v.  Court  of  Appeals,  281  SCRA  232  (1997).   does   not   outweigh   the   long   standing   general   policy   of   enforcing  
• Corporations   are   composed   of   natural   persons   and   their   only   final   and   executory   judgment.”   Manacop   v.   Equitable  
separate   corporate   personality   is   not   a   shield   for   the   PCIBank,  468  SCRA  256  (2005).  
commission   of   injustice   and   inequity,   such   as   to   avoid   the   • As   distinguished   from   a   partnership,   it   has   a   strong   legal  
execution  of  the  property  of  a  sister  company.  Tan  Boon  Bee  &   personality   having   a   separate   and   distinct   personality   from   the  
Co.  v.  Jarencio,  163  SCRA  205  (1988).   members   composing   it,   unaffected   by   the   death,   resignation,  
  insolvency   of   any   of   its   stockholders   or   members.   Its   credit-­‐
VI.  ADVANTAGES  AND  DISADVANTAGES  OF  CORPORATE  FORM:   worthiness   and   the   certainty   of   long-­‐term   contractual   dealings  
  with   a   stable   person,   are   strengthened   by   such   continuity   of  
A.  Four  Advantageous  Characteristics  of  Corporate  Medium:   existence.1  
1. STRONG  AND  SOLEMN  JURIDICAL  PERSONALITY  (Section  2)   o A   corporation   can   survive   the   death   of   its   stockholders  
• “A   corporation   is   an   entity   separate   and   distinct   from   its   or   members   (i.e.   right   of   succession).   In   contrast   to   a  
stockholders.   While   not   in   fact   and   in   reality   a   person,   the   law   partnership   where   the   death   of   a   partner   dissolves   the  
treats  the  corporation  as  though  it  were  a  person  by  process  of   partnership.  
fiction   or   by   regarding   it   as   an   artificial   person   distinct   and   • The   shareholders   cannot   be   held   liable   as   an   individual   for   the  
separate   from   its   individual   stockholders.”   Remo,  Jr.  v.  IAC,  172   liabilities   of   the   corporation   (see   LIMITED   LIABILITY   TO  
SCRA  405  (1989).   INVESTORS  AND  OFFICERS).  
• The  transfer  of  the  corporate  assets  to  the  stockholders  is  not  in   o The  function  of  the  corporation  is  to  absorb  the  risk.    
the  nature  of  a  partition  among  co-­‐owners  but  is  a  conveyance                                                                                                                  
1
from   one   party   to   another.   Stockholders   are   not   co-­‐owners   of    Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.  
(2013  ed.).  Manila,  Philippines:  Rex  Book  Store.  
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)