Beruflich Dokumente
Kultur Dokumente
VILLANUEVA
CORPORATE LAW1
I. HISTORICAL BACKGROUND
1. The Philippine Corporate Law: 2 Sort of Codification of American Corporate Law
When the Philippines came under American sovereignty, attention was drawn to the fact
that there was no entity in Spanish law exactly corresponding to the notion "corporation" in
English and American law; the Philippine Commission enacted the Corporation Law (Act No.
1459), to introduce the American corporation into the Philippines as the standard commercial
entity and to hasten the day when the sociedad anónima of the Spanish law would be obsolete.
The statute is a sort of codification of American Corporate Law. xHarden v. Benguet
Consolidated Mining Co., 58 Phil. 141 (1933).
II. CONCEPTS
See opening paragraphs of VILLANUEVA, Corporate Contract Law, 38 ATENEO
L.J. 1 (No. 2, June 1994).
1. Definition (Section 2; Articles 44(3), 45, 46, and 1775, Civil Code).
2. Tri-Level Existence of Corporation
(a) Aggregation of Assets and Resources
(b) Business Enterprise or Economic Unit
(c) Juridical Entity
1
Unless otherwise indicated, all references to sections pertain to The Corporation Code of the Philippines.
2
The whole body of statutory and jurisprudential rules pertaining to corporations is referred to as "Corporate Law" to differentiate it
from the old statute known as "The Corporation Law," or Act No. 1459.
2
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 (x-cf. Ang Pue &
Co. v. Sec. of Commerce and Industry, 5 SCRA 645 [1962]).
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. The failure to comply with the statutory procedure and conditions does not
warrant a finding that such association achieved the acquisition of a separate juridical
personality, even when it adopts sets of constitution and by-laws. xInternational Express
Travel & Tour Services, Inc. v. Court of Appeals, 343 SCRA 674 (2000).
Since all corporations, big or small, must abide by the provisions of the Corporation
Code, then even a simple family corporation cannot claim an exemption nor can it have rules
and practices other than those established by law. xTorres v. Court of Appeals, 278 SCRA 793
(1997).
(b) Theory of Enterprise Entity (BERLE , Theory of Enterprise Entity, 47 COL. L. REV. 343 [1947])
Corporations are composed of natural persons and the legal fiction of a separate
corporate personality is not a shield for the commission of injustice and inequity, such as the
use of separate personality to avoid the execution of the property of a sister company. xTan
Boon Bee & Co., Inc. v. Jarencio, 163 SCRA 205 (1988).
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.
xPhilippine Stock Exchange, Inc. v. Court of Appeals, 281 SCRA 232 (1997).
The corporation was evolved to make possible the aggregation and assembling
of huge amounts of capital upon which big business depends; and has the advantage
of non-dependence on the lives of those who compose it even as it enjoys certain
rights and conducts activities of natural persons. Reynoso, IV v. Court of Appeals,
G.R. No. 116124-25, 22 November 2000.
(ii) Centralized Management.
(iii) Limited Liability to Investors
One advantage of a corporate business organization is the limitation of an
investor’s liability to the amount of the investment, which flows from the legal theory
that a corporate entity is separate and distinct from its stockholders. xSan Juan
Structural and Steel Fabricators, Inc. v. Court of Appeals, 296 SCRA 631, 645 (1998).
(iv) Free Transferability of Units of Ownership for Investors
(b) Disadvantages:
(i) Abuse of corporate management
(ii) Abuse of limited liability feature
(iii) Cost of maintenance
(iv) Double taxation
Dividends received by individuals from domestic corporations are subject to final
10% tax (Sec. 24(B)(2), NIRC of 1997) for income earned on or after 1 January 1998.
Inter-corporate dividends between domestic corporations, however, are not subject to
any income tax (Sec. 27(D)(4), NIRC of 1997).
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In addition, there has been a re-imposition of the “improperly accumulated
earnings tax,” under Section 29 of the NIRC of 1997 for corporations at the rate of
10% annually.
(b) Equal protection clause (xSmith Bell & Co. v. Natividad, 40 Phil. 136 [1920]).
(c) Unreasonable Searches and Seizure
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Corporations are protected by the constitutional guarantee against unreasonable
searches and seizures, but that the officers of a corporation from which documents, papers
and things were seized have no cause of action to assail the legality of the seizures,
regardless of the amount of shares of stock or of the interest of each of them in said
corporation, and whatever the offices they hold therein may be, because the corporation has
a personality distinct and separate from those of said officers. The legality of a seizure can be
contested only by the party whose rights have been impaired thereby; and the objection to
an unlawful search is purely personal and cannot be availed of by such officers of the
corporation who interpose it for their personal interests. xStonehill v. Diokno, 20 SCRA 383
(1967).
A corporation is but an association of individuals under an assumed name and with a
distinct legal entity. In organizing itself as a collective body it waives no constitutional
immunities appropriate for such body. Its property cannot be taken without compensation;
can only be proceeded against by due process of law; and is protected against unlawful
discrimination. xBache & Co. (Phil.), Inc. v. Ruiz, 37 SCRA 823, 837 (1971), quoting from
xHale v. Henkel, 201 U.S. 43, 50 L.Ed. 652.
(a) Exploitation of Natural Resources (Sec. 140; Sec. 2, Article XII, 1987 Constitution;
Roman Catholic Apostolic Administrator of Davao, Inc. v. The LRC and the Register of Deeds
of Davao, 102 Phil. 596 [1957]).
The donation of land to an unincorporated religious organization, whose trustees are
foreigners, cannot be allowed registration for being violation of the constitutional prohibition
and it would not be violation of the freedom of religion clause. The fact that the religious
association “has no capital stock does not suffice to escape the constitutional inhibition, since
it is admitted that its members are of foreign nationality. The purpose of the sixty per centum
requirement is obviously to ensure that corporations or associations allowed to acquire
agricultural land or to exploit natural resources shall be controlled by Filipinos; and the spirit
of the Constitution demands that in the absence of capital stock, the controlling membership
should be composed of Filipino citizens.” xRegister of Deeds of Rizal v. Ung Sui Si Temple, 97
Phil. 58 (1955)
(b) Public Utilities (Sec. 11, Article XII, 1987 Constitution; People v. Quasha, 93 Phil. 333
[1953]).
The primary franchise of a corporation, that is, the right to exist as such, is vested in the
individuals who compose the corporation and not in the corporation itself and cannot be
conveyed in the absence of a legislative authority so to do. But the special or secondary
franchises of a corporation are vested in the corporation and may ordinarily be conveyed or
mortgaged under a general power granted to a corporation to dispose of its property, except
such special or secondary franchises as are charged with a public use. xJ.R.S. Business Corp.
v. Imperial Insurance, 11 SCRA 634 (1964).
The Constitution, in no uncertain terms, requires a franchise for the operation of a
public utility; however, it does not requires a franchise before one can own the facilities
needed to operate a public utility so long as it does not operate them to serve the public. In
law there is a clear distinction between the "operation" of a public utility and the ownership of
the facilities and equipment used to serve the public. Tatad v. Garcia, Jr., 243 SCRA 436
(1995)
“A distinction should be made between shares of stock, which are owned by
stockholders, the sale of which requires only NTC approval, and the franchise itself which is
owned by the corporation as the grantee thereof, the sale or transfer of which requires
Congressional sanction. Since stockholders own the shares of stock, they may dispose of the
same as they see fit. They may not, however, transfer or assign the property of a corporation,
like its franchise. In other words, even if the original stockholders had transferred their shares
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to another group of shareholders, the franchise granted to the corporation subsists as
long as the corporation, as an entity, continues to exist. The franchise is not thereby
invalidated by the transfer of the shares. A corporation has a personality separate and
distinct from that of each stockholder. It has the right of continuity or perpetual succession
Corporation Code, Sec. 2).” Philippine Long Distance Telephone Co. v. National
Telecommunications Commission, 190 SCRA 717, 732 (1990).
(c) Mass Media (Sec. 11(1), Art. XVI, 1987 Constitution)
Sources: P.D. 36, as amended by PDs 191 and 197; DOJ Opinion No. 120, s. of 1982; Section
2, P.D. 576; SEC Opinion dated 24 March 1983; DOJ Opinion 163, s. 1973; SEC Opinion
dated 15 July 1991, XXV SEC QUARTERLY BULLETIN, (No. 4—December, 1991), at p. 31.
Cable Industry
The National Telecommunications Commission (NTC), which regulates and supervises
the cable television industry in the Philippines under Section 2 of Executive Order No. 436, s.
1997, has provided under NTC Memorandum Circular No. 8-9-95, under item 920(a) thereof
provides that “Cable TV operations shall be governed by E.L. No. 205, s. 1987. If CATV
operators offer public telecommunications services, they shall be treated just like a public
telecommunications entity.”
Under DOJ Opinon No. 95, series of 1999, the Secretary of Justice, taking its cue from
Allied Broadcasting, Inc. v. Federal Communications Commission, 435 F. 2d 70, considered
CATV as “a form of mass media which must, theefore, be owned and managed by Filipino
citizens, or corporations, cooperatives or associations, wholly-owned and managed by Filipino
citizens pursuant to the mandate of the Constitution.”
(d) Advertising Business (Sec. 11(2), Art. XVI, 1987 Constitution)
(e) War-Time Test (Filipinas Compania de Seguros v. Christern, Huenefeld & Co., Inc., 89 Phil.
54 [1951]; xDavis Winship v. Philippine Trust Co., 90 Phil. 744 [1952]; xHaw Pia v. China
Banking Corp., 80 Phil. 604 [1948]).
(f) Investment Test as to "Philippine Nationals" (Sec. 3(a),(b), R.A. 7042, Foreign Investment
Act of 1992)
(g) The Grandfather Rule (Opinion of DOJ No. 18, s. 1989, dated 19 January 1989; SEC
Opinion, dated 6 November 1989, XXIV SEC QUARTERLY BULLETIN (No. 1- March 1990); SEC
Opinion, dated 14 December 1989, XXIV SEC QUARTERLY BULLETIN (No. 2 -June 1990)
Up to what level do you apply the grandfather rule? (Palting v. San Jose Petroleum Inc.,
18 SCRA 924 [1966]).
(h) Special Classifications (Sec. 140)
A. Main Doctrine: A CORPORATION HAS A PERSONALITY SEPARATE AND DISTINCT FROM ITS
STOCKHOLDERS OR MEMBERS .
Rudimentary is the rule that a corporation is invested by law with a personality distinct
and separate from its stockholders or members—by legal fiction and convenience it is shielded
by a protective mantel and imbued by law with a character alien to the persons comprising it.
xLim v. Court of Appeals, 323 SCRA 102 (2000).
1. Sources: Sec. 2; Article 44, Civil Code
2. Importance of Protecting Main Doctrine:
The “separate juridical personality” includes: right of succession; limited liability;
centralized management; and generally free transferability of shares of stock. Therefore, an
undermining of the separate juridical personality of the corporation, such as the application of
the piercing doctrine, necessarily dilutes any or all of those attributes.
One of the advantages of a corporate form of business organization is the limitation of an
investor’s liability to the amount of the investment. This feature flows from the legal theory
that a corporate entity is separate and distinct from its stockholders. However, the statutorily
granted privilege of a corporate veil may be used only for legitimate purposes. On equitable
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. xSan Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, 296 SCRA 631,
645 (1998).
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3. Applications:
(a) Majority Ownership of or Dealings in Shareholdings: Ownership of a majority of
capital stock and the fact that majority of directors of a corporation are the directors of
another corporation creates no employer-employee relationship with the latter's
employees. DBP v. NLRC, 186 SCRA 841 (1990); Francisco, et al. v. Mejia, G. R. No.
141617, 14 August 2001.
The mere fact that a stockholder sells his shares of stock in the corporation during
the pendency of a collection case against the corporation, does not make such
stockholder personally liable for the corporate debt, since the disposing stockholder has
no personal obligation to the creditor, and it is the inherent right of the stockholder to
dispose of his shares of stock anytime he so desires. xRemo, Jr. v. Intermediate Appellate
Court, 172 SCRA 405, 413-414 (1989).
Mere ownership by a single stockholder or by another corporation of all or nearly all
of the capital stock of a corporation is not of itself sufficient ground for disregarding the
separate corporate personality. xSunio v. NLRC , 127 SCRA 390 (1984); xAsionics
Philippines, Inc. v. National Labor Relations Commission, 290 SCRA 164 (1998); xLim v.
Court of Appeals, 323 SCRA 102 (2000); xManila Hotel Corp. v. NLRC, 343 SCRA 1 (2000);
xFrancisco v. Mejia, G. R. No. 141617, 14 August 2001.
Mere substantial identity of the incorporators of the two corporations does not
necessarily imply fraud, nor warrant the piercing of the veil of corporate fiction. In the
absence of clear and convincing evidence to show that the corporate personalities were
used to perpetuate fraud, or circumvent the law, the corporations are to be rightly treated
as distinct and separate from each other. xLaguio v. NLRC, 262 SCRA 715 (1996).
(b) Dealings Between the Corporation and Stockholders: The transfer of the corporate
assets to the stockholder is not in the nature of a partition but is a conveyance from one
party to another. Stockholders of F. Guanzon and Sons, Inc. v. Register of Deeds of
Manila, 6 SCRA 373 (1962).
As a general rule, a corporation may not be made to answer for acts or liabilities of its
stockholders or those of the legal entities which it may be connected and vice-versa. xARB
Constructions Co., Inc. v. Court of Appeals, 332 SCRA 427 (200)
(c) On Issues of Privileges Enjoyed: The tax privileges enjoyed by a corporation do not
extend to its stockholders. "A corporation has a personality distinct from that of its
stockholders, enabling the taxing power to reach the latter when they receive dividends
from the corporation. It must be considered as settled in this jurisdiction that dividends of
a domestic corporation which are paid and delivered in cash to foreign corporations as
stockholders are subject to the payment of the income tax, the exemption clause to the
charter [of the domestic corporation] notwithstanding." xManila Gas Corp. v. Collector of
Internal Revenue, 62 Phil. 895, 898 (1936).
(d) Being a Corporate Officer: Being an officer or stockholder of a corporation does not by
itself make one's property also of the corporation, and vice-versa, for they are separate
entities, and that shareholders are in no legal sense the owners of corporate property
which is owned by the corporation as a distinct legal person. Good Earth Emporium, Inc.
v. CA, 194 SCRA 544 (1991)
The mere fact that one is president of the corporation does not render the property
he owns or possesses the property of the corporation, since that president, as an
individual, and the corporation are separate entities. xCruz v. Dalisay, 152 SCRA 487
(1987).
(e) Properites, Obligations and Debts: Likewise, a corporation has no legal standing to
file a suit for recovery of certain parcels of land owned by its members in their individual
capacity, even when the corporation is organized for the benefit of the members. Sulo ng
Bayan v. Araneta, Inc., 72 SCRA 347 [1976]).
The corporate debt or credit is not the debt or credit of the stockholder nor is the
stockholder's debt or credit that of the corporation. xTraders Royal Bank v. CA, 177 SCRA
789 (1989).
Stockholders have no personality to intervene in a collection case covering the loans
of the corporation on the ground that the interest of shareholders in corporate property is
purely inchoate. xSaw v. CA, 195 SCRA 740 [1991])
The interests of payees in promissory notes cannot be off-set against the obligations
between the corporations to which they are stockholders absent any allegation, much
less, even a scintilla of substantiation, that the parties interest in the corporation are so
considerable as to merit a declaration of unity of their civil personalities. xIndustrial and
Development Corp. v. Court of Appeals, 272 SCRA 333 (1997).
It is a basic postulate that a corporation has a personality separate and distinct from
its stockholders. Therefore, even when the foreclosure on the assets of the corporation
8
was wrongful and done in bad faith, the stockholders of the corporation have no
standing to recover for themselves moral damages. Otherwise, it would amount to the
appropriation by, and the distribution to, such stockholders of part of the corporation’s
assets before the dissolution of the corporation and the liquidation of its debts and
liabilities. xAsset Privatization Trust v. Court of Appeals, 300 SCRA 579, 617 (1998).
Where real properties included in the inventory of the estate of a decedent are in the
possession of and are registered in the name of the corporations, in the absence of any
cogency to shred the veil of corporate fiction, the presumption of conclusiveness of said
titles in favor of said corporations should stand undisturbed. xLim v. Court of Appeals, 323
SCRA 102 (2000).
(f) Third-Parties: The fact that respondents are not stockholders of the disputed
corporations does not make them non-parties to the case, since the jurisdiction of a court
or tribunal over the subject matter is determined by the allegations in the Complaint. In
this case, it is alleged that the aforementioned corporations are mere alter egos of the
directors-petitioners, and that the former acquired the properties sought to be reconveyed
to FGSRC in violation of directors-petitioners’ fiduciary duty to FGSRC. The notion of
corporate entity will be pierced or disregarded and the individuals composing it will be
treated as identical if, as alleged in the present case, the corporate entity is being used as
a cloak or cover for fraud or illegality; as a justification for a wrong; or as an alter ego, an
adjunct, or a business conduit for the sole benefit of the stockholders. Gochan v. Young,
G.R. No. 131889, 21 March 2001.
3. Consequences and Types of Piercing Cases: Umali v. CA, 189 SCRA 529 [1990])
(a) The application of the doctrine to a particular case does not deny the corporation of legal
personality for any and all purposes, but only for the particular transaction or instance for
which the doctrine was applied. Koppel (Phil.) Inc. v. Yatco, 77 Phil. 496 (1946); xTantoco
v. Kaisahan ng Mga Manggagawa sa La Campana, 106 Phil. 198 (1959).
4. Fraud Cases:
(a) Acts by the Controlling Shareholder: Where a stockholder, who has absolute control
over the business and affairs of the corporation, entered into a contract with another
corporation through fraud and false representations, such stockholder shall be liable
jointly and severally with his co-defendant corporation even when the contract sued upon
was entered into on behalf of the corporation. Namarco v. Associated Finance Co., 19
SCRA 962 (1967).
The tests in determining whether the corporate veil may be pierced are: (1) the
defendant must have control or complete domination of the other corporation’s finances,
policy and business practices with regard to the transaction attached; (2) control must be
used by the defendant to commit fraud or wrong; and (3) the aforesaid control or breach
of duty must be the proximate cause of the injury or loss complained of. Manila Hotel
Corporation v. NLRC, 343 SCRA 1 (2000); xAlso Lim v. Court of Appeals, 323 SCRA 102
(2000).
(b) One cannot evade civil liability by incorporating properties or the business. Palacio v.
Fely Transportation Co., 5 SCRA 1011 (1962).
(c) The veil of corporation fiction may be pierced when used to avoid a contractual
commitment against non-competition. Villa Rey Transit, Inc. v. Ferrer, 25 SCRA 845
(1968).
(d) The Supreme Court found the following facts to be legal basis to pierce: One company
was merely an adjunct of the other, by virtue of a contract for security services, the
former provided with security guards to safeguard the latter’s premises; both companies
have the same owners and business address; the purported sale of the shares of the
former stockholders to a new set of stockholders who changed the name of the
10
corporation appears to be part of a scheme to terminate the services of the security
guards, and bust their newly-organized union which was then beginning to become active
in demanding the company’s compliance with Labor Standards laws. De Leon v. NLRC,
G.R. No. 112661, 30 May 2001.
(e) Parent-Subsidiary Relations; Affiliates (Reynoso, IV v. Court of Appeals, G.R. No.
116124-25, 22 November 2000; Commissioner of Internal Revenue v. Norton and
Harrison, 11 SCRA 704, [1954]; Tomas Lao Construction v. NLRC, 278 SCRA 716 [1997]).
- Why is there inordinate showing of alter-ego elements?
(e) Guiding Principles in Fraud Cases:
(i) There must have been fraud or an evil motive in the affected transaction, and the
mere proof of control of the corporation by itself would not authorize piercing;
and
(ii) The main action should seek for the enforcement of pecuniary claims pertaining
to the corporation against corporate officers or stockholders.
5. Alter-Ego Cases:
(a) Where the stock of a corporation is owned by one person whereby the corporation
functions only for the benefit of such individual owner, the corporation and the individual
should be deemed the same. Arnold v. Willets and Patterson, Ltd., 44 Phil. 634 (1923).
(b) When the corporation is merely an adjunct, business conduit or alter ego of another
corporation, the fiction of separate and distinct corporation entities should be
disregarded. xTan Boon Bee & Co. v. Jarencio, 163 SCRA 205 (1988).
The corporation veil cannot be used to shield an otherwise blatant violation of the
prohibition against forum-shopping. Shareholders, whether suing as the majority in direct
actions or as the minority in a derivative suit, cannot be allowed to trifle with court
processes, particularly where, as in this case, the corporation itself has not been remiss in
vigorously prosecuting or defending corporate causes and in using and applying remedies
available to it. xFirst Philippine International Bank v. Court of Appeals, 252 SCRA 259
(1996).
(c) Employment of same workers; single place of business, etc. La Campana Coffee Factory
v. Kaisahan ng Manggagawa, 93 Phil. 160 (1953).
The doctrine that a corporation is a legal entity or a person in law distinct from the
persons composing it is merely a legal fiction for purposes of convenience and to
subserve the ends of justice. This fiction cannot be extended to a point beyond its reason
and policy. Where, as in this case, the corporation fiction was used as a means to
perpetrate a social injustice or as a vehicle to evade obligations or confuse the legitimate
issues, it would be discarded and the two (2) corporations would be merged as one, the
first being merely considered as the instrumentality, agency conduit or adjunct of the
other. In this case, because of the actions of management of the two corporations, there
was much confusion as to the proper employment of the claimant. xAzcor Manufacturing,
Inc. v. NLRC, 303 SCRA 26 (1999).
6. Equity Cases:
(a) When used to confuse legitimate issues. Telephone Engineering and Service Co., Inc. V.
WCC, 104 SCRA 354 (1981).
(b) When used to raise technicalities. xEmilio Cano Ent. v. CIR, 13 SCRA 291 (1965).
V. CLASSIFICATIONS OF CORPORATIONS
1. In Relation to the State:
(a) Public corporations (Sec. 3, Act No. 1459)
Organized for the government of the portion of the state (e.g., barangay, municipality,
city and province)
Majority shares by the Government does not make an entity a public corporation.
xNational Coal Co., v. Collector of Internal Revenue, 46 Phil. 583 (1924).
(b) Quasi-public corporations xMarilao Water Consumers Associates v. IAC, 201 SCRA 437 (1991)
Although Boy Scouts of the Philippines does not receive any monetary or financial
subsidy from the Government, and that its funds and assets are not considered government
in nature and not subject to audit by the COA, the fact that it received a special charter from
the government, that its governing board are appointed by the Government, and that its
purpose are of public character, for they pertain to the educational, civic and social
development of the youth which constitute a very substantial and important part of the
nation, it is not a public corporation in the same sense that municipal corporation or local
governments are public corporation since its does not govern a portion of the state, but it
also does not have proprietary functions in the same sense that the functions or activities of
government-owned or controlled corporations such as the National Development Company or
the National Steel Corporation, is may still be considered as such, or under the 1987
Administrative Code as an instrumentality of the Government. Therefore, the employees are
subject to the Civil Service Law. xBoy Scouts of the Philippines v. NLRC, 196 SCRA 176
(1991).
2. As to Place of Incorporation:
(a) Domestic Corporation
(b) Foreign Corporation (Sec. 123)
3. As to Purpose of Incorporation:
(a) Municipal or Public corporation
(b) Religious corporation (Secs. 109 and 116)
(c) Educational corporations (Secs. 106, 107 and 108; Sec. 25, B.P. Blg. 232)
(d) Charitable, Scientific or Vocational corporations
(e) Business corporation
4. As to Number of Members:
(a) Aggregate Corporation
(b) Corporation Sole (Secs. 110 to 115; xRoman Catholic Apostolic Administrator of Davao,
Inc. v. LRC and the Register of Deeds of Davao City, 102 Phil. 596 (1957).
xDirector of Land v. IAC, 146 SCRA 509 (1986), which held that a corporation sole has
no nationality, overturned the previous doctrine (xRepublic v. Villanueva, 114 SCRA 875
[1982] and Republic v. Iglesia Ni Cristo, 127 SCRA 687 [1984]) that a corporation sole is
disqualified to acquire or hold alienable lands of the public domain, because of the
constitutional prohibition qualifying only individuals to acquire land of the public domain and
the provision under the Public Land Act which applied only to Filipino citizens or natural
persons. xRepublic v. Iglesia ni Cristo, 127 SCRA 687 (1984); xRepublic v. IAC, 168 SCRA 165
(1988).
5. As to Legal Status:
(a) De Jure Corporation
(b) De Facto Corporation (Sec. 20)
(c) Corporation by Estoppel (Sec. 21)
3. Corporation by Estoppel Doctrine (Sec. 21; Salvatierra v. Garlitos, 103 Phil. 757 [1958];
Albert v. University Publishing Co., 13 SCRA 84 [1965]; International Express Travel & Tour
Services, Inc. v. Court of Appeals, 343 SCRA 674 (2000); xAsia Banking Corporation v. Standard
Products, 46 Phil. 145 [1924]; xMadrigal Shipping Co., Inc. v. Ogilvie, Supreme Court Advanced
Decision, 55 O.G. No. 35, p. 7331).
An individual should be held personally liable for the unpaid obligations of the
unincorporated association in whose behalf he entered into such transactions, under the
principle that “any person acting or purporting to act on behalf of a corporation which has no
valid existence assumes such privileges and becomes personally liable for contract entered into
or for other acts performed as such agent.” International Express Travel & Tour Services, Inc. v.
Court of Appeals, 343 SCRA 674 (2000).
(a) Nature of Doctrine
Corporation by estoppel doctrine is founded on principles of equity and is designed to
prevent injustice and unfairness. It applies when persons assume to form a corporation and
exercise corporate functions and enter into business relations with third persons. Where there
is no third person involved and the conflict arises only among those assuming the form of a
corporation, who therefore know that it has not been registered, there is no corporation by
estoppel. Lozano v. De Los Santos, 274 SCRA 452 (1997)
A party cannot challenge the personality of the plaintiff as a duly organized corporation
after having acknowledged same when entering into the contract with the plaintiff as such
corporation for the transportation of its merchandise. (xOhta Dev. Co. v. Steamship Pompey,
49 Phil. 117 [1926]); the same principle applied in xCompania Agricole de Ultramar v. Reyes,
4 Phil. 1 [1911] but that case pertained to a commercial partnership which required
registration in the registry under the terms of the Code of Commerce.
(b) Two Levels: (i) With "fraud" and (ii) Without "fraud"
When incorporating individuals represent themselves to be officers of the corporation
never duly registered with SEC, and engages in the name of purported corporation in illegal
recruitment, they are estopped from claiming that they are not liable as corporate officers,
since Section 25 of Corporation Code provides that all persons who assume to act as a
corporation knowing it to be without authority to do so shall be liable as general partners for
all the debts, liabilities and damages incurred or arising as a result thereof. xPeople v.
Garcia, 271 SCRA 621 (1997).
An individual cannot avoid his liabilities to the public as an incorporator of a corporation
whose incorporation was not consummated, when he held himself out as officer of the
corporation and received money from applicants who availed of their services. Such
individual is estopped from claiming that they are not liable as corporate officers for illegal
recruitment under the corporation by estoppel doctrine under Sec. 25 of the Corporation Code
which provides that all persons who assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for all the debts, liabilities and damages
incurred or arising as a result thereof. xPeople v. Pineda, G.R. No. 117010, 18 April 1997
(Unpublished).
(c) Purpose Clause (Secs. 14(2) and 42; Uy Siuliong v. Director of Commerce and Industry, 40
Phil. 541 [1919])
(d) Corporate Term (Sec. 11).
No extension can be effected once dissolution stage has been reached. xAlhambra Cigar
v. SEC, 24 SCRA 269 (1968).
VIII. BY-LAWS
See relevant portions of VILLANUEVA, "Corporate Contract Law," 38 ATENEO
L.J. 1 (No. 2, June 1994).
1. Nature and Functions (Gokongwei v. SEC, 89 SCRA 337 [1979]; Peña v. CA, 193 SCRA 717
[1991])
As the “rules and regulations or private laws enacted by the corporation to regulate, govern
and control its own actions, affairs and concerns and its stockholders or members and directors
and officers with relation thereto and among themselves in their relation to it,” by-laws are
indispensable to corporations in this jurisdiction. These may not be essential to corporate birth
but certainly, these are required by law for an orderly governance and management of
corporations. Nonetheless, failure to file them within the period required by law by no means tolls
the automatic dissolution of a corporation. Loyola Grand Villas Homeowners (South) Association,
Inc. v. Court of Appeals, 276 SCRA 681 (1997).
(b) Binding Effects of By-laws (China Banking Corp. v. Court of Appeals, 270 SCRA 503
[1997]).
16
“Neither can we concede that such contract would be invalid just because the
signatory thereon was not the Chairman of the Board which allegedly violated the
corporation’s by-laws. Since by-laws operate merely as internal rules among the
stockholders, they cannot affect or prejudice third persons who deal with the corporation,
unless they have knowledge of the same.” PMI Colleges v. NLRC, 277 SCRA 462 (1997).
(ii) Doctrine of Apparent Authority (Prime White Cement Corp. v. Intermediate Appellate
Court, 220 SCRA 103, 113-114 [1993]; Francisco v. GSIS, 7 SCRA 577 [1963])
A contract signed by the President/Chairman without authority from the Board of
Directors is void. Although the by-laws grant authority to the President "to execute and
sign for and in behalf of the corporation all contracts and agreements which the
corporation may enter into," the same presupposes a prior act of the corporation
exercised through its Board of Directors. Yao Ka Sin Trading v. CA, 209 SCRA 763 (1992).
Although an officer or agent acts without, or in excess of, his actual authority if he
acts within the scope of an apparent authority with which the corporation has clothed him
by holding him out or permitting him to appear as having such authority, the corporation
is bound thereby in favor of a person who deals with him in good faith in reliance on such
apparent authority, as where an officer is allowed to exercise a particular authority with
respect to the business, or a particular branch of it, continuously and publicly, for a
considerable time. Yao Ka Sin Trading v. CA, 209 SCRA 763 (1992).
Persons who deal with corporate agents within circumstances showing that the
agents are acting in excess of corporate authority, may not hold the corporation liable.
xTraders Royal Bank v. Court of Appeals, 269 SCRA 601 (1997); also Art. 1883, Civil Code.
The authority of a corporate officer in dealing with third persons may be actual or
apparent. . . the principal is liable for the obligations contracted by the agent. The agent's
apparent representation yields to the principal's true representation and the contract is
considered as entered into between the principal and the third person. xFirst Philipine
International Bank v. Court of Appeals, 252 SCRA 259 (1996).
If a corporation knowingly permits one of its officers, or any other agent, to act within
the scope of an apparent authority, it holds him out to the public as possessing the power
to do those acts; and thus, the corporation will, as against anyone who has in good faith
dealt with it through such agent, be estopped from denying the agent’s authority. xSoler v.
Court of Appeals, G.R. No. 123892, 21 May 2001.
Under Article 1898 of the Civil Code, the acts of an agent beyond the scope of his
authority do no bind the principal unless the latter ratifies the same expressly or implied. It
also bears emphasizing that when the third person knows that the agent was acting beyond
his power or authority, the principal can not be held liable for the acts of the agent. If the
said third person is aware of such limits of authority, he is to blame, and is not entitled to
recover damages from the agent, unless the latter undertook to secure the principal’s
ratification. In the case of the corporation as the principal, there was no such ratification.
Therefore, when the officer entered into the speculative contracts without securing the
Board’s approval, nor did he submit the contracts to the Board after their consummation
nor were they recorded in the books of the corporation, there was, in fact, no occasion at all
18
for ratification. xSafic Alcan & Cie. V. Imperial Vegetable Co., G.R. No. 126751, 28 March
2001.
(iii) Theory of No State Damage (Harden v. Benguet Consolidated Mining Co., 58 Phil. 140
[1933]).
Power to Sue
Under section 36 of the Corporation Code, in relation to Section 23, it is clear that where
a corporation is an injured party, its power to sue is lodged with its board of directors or
trustees. A minority stockholder and member of the Board, who fails to show any proof that
he was authorized by the Board of Directors, has no such power or authority to sue on the
corporation’s behalf. Nor can we uphold this as a derivative suit. For a derivative suit to
prosper, it is required that the minority stockholder suing for and on behalf of the corporation
must allege in his complaint that he is suing on a derivative cause of action on behalf of the
corporation and all other stockholders similarly situated who may wish to join him in the suit.
There is now showing that petitioner has complied with the foregoing requisites. xTam Wing
Tak v. Makasiar, G.R. 122452, 29 January 2001.
(f) Invest Corporate Funds in Another Corporation or Business or For Any Other
Purpose (Sec. 42; De la Rama v. Ma-ao Sugar Central Co., 27 SCRA 247 [1969]).
(g) Declare Dividends (Sec. 43; Nielson & Co. v. Lepanto Consolidated Mining Co., 26 SCRA
540 [1968]).
Stock dividend is the amount that the corporation transfers from its surplus profit
account to its capital account. It is the same amount that can loosely be terms as the “trust
fund” of the corporation. xNational Telecommunications Commission v. Court of Appeals, 311
SCRA 508, 514-515 (1999).
Although the certificates of stock granted the stockholder the right to receive quarterly
dividends of 1%, cumulative and participating, the stockholders do not become entitled to the
payment thereof as a matter of right without necessity of a prior declaration of dividends. . .
Both Sec. 16 of the Corporation Law and Sec. 43 of the present Corporation Code prohibit the
issuance of any stock dividend without the approval of stockholders, representing not less
than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly
called for the purpose. These provisions underscore the fact that payment of dividends to a
stockholder is not a matter of right but a matter of consensus. Furthermore, “interest bearing
stocks”, on which the corporation agrees absolutely to pay interest before dividends are paid
to the common stockholders, is legal only when construed as requiring payment of interest as
19
dividends from net earnings or surplus only. xRepublic Planters Bank v. Agana, 269 SCRA
1 (1997).
(i) Enter into Management Contracts (Sec. 44; Nielson & Co., Inc. v. Lepanto Consolidated
Mining, 26 SCRA 540 [1968]; Ricafort v. Moya, 195 SCRA 247, at pp. 266-267 [1991]). Why
the difference in rule between entity and individual?
- To Borrow Funds
The power to borrow money is one of those cases where even a special power of
attorney is required under Art. 1878 of the New Civil Code. There is invariably a need of an
enabling act of the corporation to be approved by its Board of Directors. The argument that
the obtaining of loan was in accordance with the ordinary course of business usages and
practices of the corporation is devoid of merit because the prevailing practice in the
corporation was to explicitly authorize an officer to contract loans in behalf of the
corporation. xChina Banking Corp. v. Court of Appeals, 270 SCRA 503 (1997).
2. BUSINESS JUDGMENT RULE (Montelibano v. Bacolod-Murcia Miling Co., Inc., 5 SCRA 36 [1962];
Philippine Stock Exchange, Inc. v. Court of Appeals, 281 SCRA 232 [1997])
Board members and officers who purport to act for and in behalf of the corporation,
keep within the lawful scope of their authority in so acting and act in good faith, do not
become liable, whether civilly or otherwise, for the consequences of their acts. Those acts,
20
when they are such a nature and are done under such circumstances, are properly
attributed to the corporation alone and no personal liability is incurred by such officers and
Board members. xBenguet Electric Cooperative, Inc. v. NLRC, 209 SCRA 55 (1992)
3. Qualifications of Directors and Trustees (Secs. 23 and 27; Gokongwei, Jr. v. SEC, 89 SCRA
336 [1979]).
(a) A director must own at least one share of stock (xPeña v. CA, 193 SCRA 717 [1991];
xDetective & Protective Bureau, Inc. v. Cloribel, 26 SCRA 255 [1969])
(b) Mere beneficial ownership in a voting trust arrangement no longer qualifies (Lee v. CA, 205
SCRA 752 [1992]).
(c) Cumulative Voting (Sec. 24; Cumulative Voting in Corporate Elections: Introducing
Strategy in the Equation, 35 SOUTH CAROLINA L. REV. 295)
7. Removal of Directors or Trustees (Sec. 28; Roxas v. De la Rosa, 49 Phil. 609 [1926]).
11. Who Is an "Officer" of the Corporation (Sec. 25; Gurrea v. Lezama, 103 Phil. 553 [1958];
Mita Pardo de Tavera v. Tuberculosis Society, 112 SCRA 243 [1982]; PSBA v. Leaño, 127 SCRA
778 [1984]; Dy v. NLRC, 145 SCRA 211 [1986]; xVisayan v. NLRC, 196 SCRA 410 [1991]).
Corporations act only through their officers and duly authorized agents. All acts within the
powers of a corporation may be performed by agents of its selection; except so far as limitations
or restrictions imposed by special charter, buy-laws, or statutory provisions. xBA Savings Bani v.
Sia, 336 SCRA 484 (2000).
An “office” is created by the charter of the corporation and the officer is elected by the
directors or stockholders. . . Note that a corporate officer’s removal from his office is a corporate
act. If such removal occasions an intra-corporate controversy, its nature is not altered by the
reason or wisdom, or lack thereof, with which the Board of Directors might have in taking such
action. When petitioner, as Executive Vice-President allegedly diverted company funds for his
personal use resulting in heavy financial losses in the company, this matter would amount to
fraud. Such fraud would be detrimental to the interest not only of the corporation but also of its
members. This type of fraud encompasses controversies in a relationship within the corporation
covered by the SEC jurisdiction [now with the regular courts]. Perforce, the matter would come
within the area of corporate affairs and management, and such a corporate controversy would
call for the adjudicative expertise of the SEC, not the Labor Arbiter or the NLRC.” De Rossi v.
NLRC, 314 SCRA 245 (1999).
When the by-laws of the condominium corporation specifically includes the position of
“Superintendent/Administrator” in is roster of corporate officers, then such position is clearly a
corporate officer position and issues of reinstatement would be within the jurisdiction of the SEC
and not the NLRC. xOngkingco v. NLRC, 270 SCRA 613 (1997).
When the by-laws provide that one of the powers of the Board of Trustees is “[t]o appoint a
Medical Director, Comptroller/Administrator, Chiefs of Services and such other officers as it may
deem necessary and prescribe their powers and duties,” then such specifically designated
positions should be considered “corporate officers” position. The determination of the rights and
the concomitant liability arising from any ouster from such positions, would be intra-corporate
controversy subject to the jurisdiction of the SEC (now RTC). xTabang v. NLRC, 266 SCRA 462
(1997).
22
An “office” is created by the charter of the corporation and the officer is elected by the
directors or stockholders (2 Fletcher Cyc. Corp. Ch. II, Sec. 266). On the other hand, an
“employee” usually occupies no office and generally is employed not by action of the directors or
stockholders but by the managing officer of the corporation who also determines the
compensation to be paid to such employee. (Ibid) . . . A corporate officer’s dismissal is always a
corporate act, or an intra-corporate controversy, and the nature is not altered by the reason or
wisdom with which the Board of Directors may have in taking such action. xTabang v. NLRC, 266
SCRA 462 (1997).
The president, vice-president, secretary and treasurer are commonly regarded as the
principal or executive officers of a corporation, and modern corporation statutes usually
designate them as the officers of the corporation. However, other offices are sometimes created
by the charter or by-laws of a corporation, or the board of directors may be empowered under
the by-laws of a corporation to create additional offices as may be necessary. xTabang v. NLRC,
266 SCRA 462 (1997).
13. LIABILITIES OF CORPORATE OFFICERS : (Sec. 31; Vazquez v. Borja, 74 Phil. 560 (1944); Palay, Inc. v.
Clave, 124 SCRA 638 [1093]; Tramat Mercantile, Inc. v. CA, 238 SCRA 14 [1994]; Pabalan v.
NLRC, 184 SCRA 495 [1990]; xSulo ng Bayan, Inc. v. Araneta, Inc. Inc., 72 SCRA 347 [1976];
xMindanao Motors Lines, Inc. v. Court of Industrial Relations, 6 SCRA 710 (1962);
The general rule is that corporate officers are not personally liable for their official acts
unless it is shown that they have exceeded their authority. xARB Constructions Co., Inc. v. Court
of Appeals, 332 SCRA 427 (200)
1
Kanlaon Construction Enterprises Co., Inc. v. NLRC, 279 SCRA 337 (1997).
2
Gesulgon v. NLRC, 219 SCRA 561 (1993).
3
Golden Country Farms, Inc. v. Sanvar Development Corp., 214 SCRA 295 (1992); G & G Trading Corp. v. Court of Appeals, 158
SCRA 466 (1988).
4
Summit Trading and Dev. Corp. v. Avendaño, 135 SCRA 397 (1985); also Vlason Enterprises Corp. v. Court of Appeals, 310
SCRA 26 (1999).
5
Republic v. Ker & Co., Ltd., 18 SCRA 207 (1966).
6
Villa Rey Transit, Inc. v. Far East Motor Corp., 81 SCRA 298 (1978).
7
Far Corporation v. Francisco, 146 SCRA 197 (1986).
8
Filoil Marketing Corp. v. Marine Dev. Corp. of the Philippines, 177 SCRA 86 (1982).
24
The finding of solidary liability among the corporation and its officers and directors
would patently be baseless when the decision contains no allegation, finding or conclusion
regarding particular acts committed by said officers and members of the Board of Directors that
show them to have been individually guilty of unmistakable malice, bad faith, or ill-motive in
their personal dealings with third parties. When corporate officers and directors are sued merely
as nominal parties in their official capacities as such, they cannot be held liable personal for the
judgment rendered against the corporation. xNational Power Corp. v. Court of Appeals, 273 SCRA
419 (1997).
When corporate officers are sued in their official capacity, the suit is equivalent to a suit
against the corporation, and judgment may be enforced against corporate assets. xEmilio Cano
Enterprises, Inc. v. CIR, 13 SCRA 291 (1965).
An attempt by the corporation to avoid liability by distancing itself from the acts of the its
President was struck down with the Court holding that a corporation may not distance itself from
the acts of a senior officer: "the dual roles of Romulo F. Sugay should not be allowed to confuse
the facts." xR.F. Sugay v. Reyes, 12 SCRA 700 (1961).
Generally, officers or directors under the old corporate name bear no personal liability for
acts done or contracts entered into by officers of the corporation, if duly authorized. xRepublic
Planters Bank v. CA, 216 SCRA 738 (1992).
An officer-stockholder who is a party signing in behalf of the corporation to a fraudulent
contract cannot claim the benefit of separate juridical entity: "Thus, being a party to a simulated
contract of management, petitioner Uy cannot be permitted to escape liability under the said
contract by using the corporate entity theory. This is one instance when the veil of corporate
entity has to be pierced to avoid injustice and inequity." xParadise Sauna Massage Corporation v.
Ng, 181 SCRA 719 (1990).
(a) Special Provisions in Labor Laws. - In the Labor Code since a corporate employer is an
artificial person, it must have an officer who can be presumed to be the employer, being the
"person acting in the interest of (the) employer" as provided in the Labor Code. A.C. Ransom
Labor Union-CCLU v. NLRC, 142 SCRA 269 (1986).
Under the Labor Code, in the case of corporations, it is the president who responds
personally for violation of the labor pay laws. xVillanueva v. Adre, 172 SCRA 876 (1989).
For the separate juridical personality of a corporation to be disregarded, the wrongdoing
must be clearly and convincingly established. Del Rosario v. NLRC, 187 SCRA 777 (1990).
A corporate officer cannot be held personally liable for a corporate debt simply because
he had executed the contract for and in behalf of the corporation. It held that when a
corporate officer acts in behalf of a corporation pursuant to his authority, is "a corporate act
for which only the corporation should be made liable for any obligations arising from them."
xWestern Agro Industrial Corporation v. Court of Appeals, 188 SCRA 709 (1990).
Only the responsible officer of a corporation who had a hand in illegally dismissing an
employee should be held personally liable for the corporate obligations arising from such act.
Maglutac v. NLRC,189 SCRA 767 (1990); reiterated in xGudez v. NLRC, 183 SCRA 644 (1990)
and xChua v. NLRC, 182 SCRA 353 (1990).
The case of Ransom v. NLRC is not in point because there the debtor corporation
actually ceased operations after the decision of the Court of Industrial Relations was
promulgated against it, making it necessary to enforce it against its former president. When
the corporation is still existing and able to satisfy the judgment in favor of the private
respondent, the corporate officers cannot be held personally liable. Lim v. NLRC, 171 SCRA
328 (1989).
The aforecited cases will not apply to the instant case, however, because the persons
who were there made personally liable for the employees' claims were stockholders-officers
of the respondent corporation. In the case at bar, the petitioner while admittedly the highest
ranking local representative of the corporation, is nevertheless not a stockholder and much
less a member of the board of directors or an officer thereof. xDe Guzman v. NLRC, 211 SCRA
723 (1992)
A mere general manager cannot be held solidarily liable with the corporation for unpaid
labor claims, especially when he is neither a stockholder or a member of the board of the
corporation. xDe Guzman v. NLRC, 211 SCRA 723 (1992)
A president cannot be held solidarily liable personally with the corporation absent
evidence of showing that he acted maliciously or in bad faith. xEPG Constructions Co. v. CA,
210 SCRA 230 (1992).
A judgment rendered against a person "in his capacity as President" of the corporation
was enforceable against the assets of such officer when the decision itself found that he
merely used the corporation as his alter-ego or as his business conduit. xArcilla v. Court of
Appeals, 215 SCRA 120 (1992).
25
The President and General Manager of a corporation who entered into and signed a
contract in his official capacity cannot be made liable thereunder in his individual capacity in
the absence of stipulation to that effect due to the personality of the corporation being
separate and distinct from the persons composing it. xRustan Pulp & Paper Mills, Inc. v. IAC,
214 SCRA 665 (1992), citing xBanque Generale Belge v. Walter Bull and Co., 84 Phil. 164
(1949).
Reahs Corporation v. NLRC, 271 SCRA 247 (1997), reviewed the A.C. Ransom doctrine of
imposing solidarily liability on the highest officers of the corporation for judgment on labor
claims rendered against the corporation pursuant to Art. 283 of the Labor Code, and reviewed
its application in subsequent cases of Maglutac, Chua, Gudez and Pabalan. It reiterated the
main doctrine of separate personality of a corporation which should remain as the guiding
rule in determining corporate liability to its employees, and that at the very least, to justify
solidary liability, “there must be an allegation or showing that the officers of the corporation
deliberately or maliciously designed to evade the financial obligation of the corporation to its
employees,” or a showing that the officers indiscriminately stopped its business to
perpetuate an illegal act, as a vehicle for the evasion of existing obligations, in circumvention
of statutes, and to confuse legitimate issues.
Corporate officers are not personally liable for money claims of discharged employees
unless they acted with evident malice and bad faith in terminating their employment.
xAHS/Philippines v. Court of Appeals, 257 SCRA 319 (1996).
The finding of solidary liability among the corporation and its officers and directors
would patently be baseless when the decision contains no allegation, finding or conclusion
regarding particular acts committed by said officers and members of the Board of Directors
that show them to have been individually guilty of unmistakable malice, bad faith, or ill-
motive in their personal dealings with third parties. When corporate officers and directors are
sued merely as nominal parties in their official capacities as such, they cannot be held liable
personal for the judgment rendered against the corporation. xNational Power Corp. v. Court
of Appeals, 273 SCRA 419 (1997).
In labor cases, particularly, corporate directors and officers are solidarily liable with the
corporation for the termination of employment of corporate employees done with malice or in
bad faith. In this case, it is undisputed that the corporate officers have a direct hand in the
illegal dismissal of the employees. They were the one, who as high-ranking officers and
directors of the corporation, signed the Board Resolution retrenching the employees on the
feigned ground of serious business losses that had no basis apart from an unsigned and
unaudited Profit and Loss Statement which, to repeat, had no evidentiary value whatsoever.
This is indicating of bad faith on the part of the corporate officers for which they can be held
jointly and severally liable with the Corporation for all the money claims of the illegally
terminated employees. xUichico v. NLRC, 273 SCRA 35 (1997).
A corporation, being a juridical entity, may act only through its directors, officers and
employees and obligations incurred by them, acting as corporate agents, are not theirs but
the direct accountabilities of the corporation they represent. xBrent Hospital, Inc. v. NLRC,
292 SCRA 304 (1998).
The manager of a corporation are not personally liable for their official acts unless it is
shown that they have exceeded their authority. There is nothing on record to show that the
manager deliberately and maliciously evaded the corporation’s financial obligation to the
employee; hence, there appearing to be no evidence on record that the manager acted
maliciously or deliberately in the non-payment of benefits to the employee, the manager
cannot be held jointly and severally liable with the corporate employers. [CLV – Nothing was
shown to determine whether the corporate employer had no assets with which to pay the
claims of the employee]. xNicario v. NLRC, 295 SCRA 619 (1998).
In xRestuarante Las Conchas v. Llego, 314 SCRA 24 (1999), the Supreme Court had
apparently returned to the A.C. Ransom principle that “[a]lthough as a rule, the officers and
members of a corporation are not personally liable for acts done in the performance of their
duties, this rule admits of exceptions, one of which is when the employer corporation is no
longer existing and is unable to satisfy the judgment in favor of the employee, the officers
should be held liable for acting on behalf of the corporation.” In that case, the restaurant
business had to be closed down because possession of the premises had been lost through
an adverse decision in an ejectment case. The Court held: “In the present case, the
employees can no longer claim their separation benefits and 13th month pay from the
corporation because it had already ceased operation. To require them to do so would render
illusory the separation and 13tj month pay awarded to them by the NLRC. Their only recourse
is to satisfy their claim from the officers of the corporation who were, in effect, acting in
behalf of the corporation.”
The A.C. Ransom doctrine has been reiterated in xCarmelcraft Corp. v. NLRC, 186 SCRA
393 (1990), xValderrama v. NLRC, 256 SCRA 466 (1996).
26
XI. STOCKHOLDERS AND MEMBERS
1. Shareholders Not Creditors of Corporation (Garcia v. Lim Chu Sing, 59 Phil. 562 [1934]).
2. Subscription Contracts (Sec. 60 and 72; Trillana v. Quezon Colegialla, 93 Phil. 383 [1953]).
(a) Purchase Agreement (Bayla v. Silang Traffic Co., Inc., 73 Phil. 557 [1942]).
(b) Pre-Incorporation Subscription (Sec. 61)
(c) Release from Subscription Obligation (Velasco v. Poizat, 37 Phil. 802 [1918]; PNB v. Bitulok
Sawmill, Inc., 23 SCRA 1968 [1968]; National Exchange Co. v. Dexter, 51 Phil. 601 [1928])
(d) When condition of payment provided for in the by-laws (De Silva v. Aboitiz & Co., 44 Phil. 755
[1923]).
(b) Quasi-negotiable Character of the Certificate of Stock (Bachrach Motor Co. v. Lacson
Ledesma, 64 Phil. 681 [1937]).
In order for a transfer of stock certificate to be effective, the certificate must be properly
indorsed and that title to such certificate of stock is vested in the transferee by the delivery of
the duly indorsed certificate of stock. Indorsement of the certificate of stock is a mandatory
requirement of law for an effective transfer of a certificate of stock. Razon v. IAC, 207 SCRA
234 (1992).
The rule is that the endorsement of the certificate of stock by the owner or his attorney-
in-fact or any other person legally authorized to make the transfer shall be sufficient to effect
the transfer of shares only if the same is couple with delivery. The delivery of the stock
certificate duly endorsed by the owner is the operative act of transfer of shares from the
lawful owner to the new transferee. Thus, for a valid transfer of stocks, the requirements are
as follows: (a) There must be delivery of the stock certificate; (b) The certificate must be
endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the
transfer; and (c) to be valid against third parties, the transfer must be recorded in the books
of the corporation. Bitong v. Court of Appeals, 292 SCRA 503 (1998).
(c) Right to Issuance (Sec. 64; Baltazar v. Lingayen Gulf Elect. Power Co., Inc., 14 SCRA 522
[1965]).
(e) Forged and Unauthorized Transfers (J. Santamaria v. HongKong and Shanghai Banking
Corp., 89 Phil. 780 [1951]; Neugene Marketing, Inc. v. Court of Appeals, 303 SCRA 295
[1999]).
8. Stock and Transfer Book (Secs. 63, 72 and 74; Fua Cun v. Summers, 44 Phil. 704 [1923];
Monserrat v. Ceran, 58 Phil. 469 [1933]; Chua Guan v. Samahang Magsasaka, Inc., 62 Phil. 472
[1935]; Uson v. Diosomito, 61 Phil. 535 [1935]; Escaño v. Filipinas Mining Corporation, 74 Phil.
71 [1944]; Bachrach Motors v. Lacson-Ledesma, 64 Phil. 681 [1937]; Nava v. Peers Marketing
Corp., 74 SCRA 65 [1976]).
In Garcia v. Jomouad, 323 SCRA 424 (2000), the Supreme Court directly resolved the issue
“Whether a bona fide transfer of the shares of a corporation, not registered or noted in the books
of the corporation, is valid as against a subsequent lawful attachment of said shares, regardless
of whether the attaching creditor had actual notice of said transfer or not.” The Court quoted
from Uson v. Diosomito, which held that all transfers of shares not entered in the stock and
transfer book of the corporation are invalid as to attaching or execution creditors of the
assignors, as well as to the corporation and to subsequent purchasers in good faith and to all
persons interested, except the parties to such transfers: “All transfers not so entered on the
books of the corporation are absolutely void; bot because they are without notice or fraudulent in
law or fact, but because they are made so void by statute. The Supreme Court held that “the
transfer of the subject certificate made by Dico to petitioner was not valid as to the spouses
Atinon, the judgment creditors, as the same still stood in the name of Dico, the judgment debtor,
at the time of the levy on execution. In addition, as correctly ruled by the CA, the entry in the
minutes of the meeting of the Club’s board of directors noting the resignation of Dico as
proprietary member does not constitute compliance with Section 63 of the Corporation Code.
Said provision of law strictly requires the recording of the transfer in the books of the
corporation, and not elsewhere, to be valid as against third parties.”
Attachments of shares of stock are not included in the term "transfer" as provided in
Section 63 of the Corporation Code. Both the Revised Rules of Court and the Corporation Code do
not require annotation in the corporation's stock and transfer books for the attachment of shares
to be valid and binding on the corporation and third parties. Chemphil Export & Import
Corporation v Court of Appeals, 251 SCRA 257 (1995).
Until registration is accomplished, the transfer, though valid between the parties, cannot be
effective as against the corporation. Thus, the unrecorded transferee cannot vote nor be voted
for. The purpose of registration, therefore, is two-fold: to enable the transferee to exercise all the
rights of a stockholder, including the right to vote and to be voted for, and to inform the
corporation of any change in share ownership so that it can ascertain the persons entitled to the
rights and subject to the liabilities of a stockholder. Until challenged in a proper proceeding, a
stockholder of record has a right to participate in any meeting; his vote can be properly counted
to determine whether a stockholders’ resolution was approved, despite the claim of the alleged
transferee. On the other hand, a person who has purchased stock, and who desires to be
recognized as a stockholder for the purpose of voting, must secure such a standing by having
the transfer recorded on the corporate books. Until the transfer is registered, the transferee is
not a stockholder but an outsider. Batangas Laguna Tayabas Bus Company, Inc. v. Bitanga, G.R.
No. 137934, 10 August 2001.
Section 63 of the Corporation Code which provides that “no share of stock against which
the corporation holds any unpaid claim shall be transferable in the books of the corporation”
cannot be utilized by the corporation to refuse to recognize ownership over pledged shares
purchased at public auction. The term “unpaid claims” refers to “any unpaid claims arising from
unpaid subscription, and not to any indebtedness which a subscriber or stockholder may owe the
corporation arising from any other transactions. Obligations arising from unpaid monthly dues
do not fall within the coverage of Section 63. China Banking Corp. v. Court of Appeals, 270 SCRA
503 (1997).
Entries made on the stock and transfer book by any person other than the corporate
secretary, such as those made by the President and Chairman, cannot be given any valid effect.
xTorres, Jr. v. Court of Appeals, 278 SCRA 793 (1997).
A person cannot claim a right to intervene as a stockholder in corporate issue on the
strength of the transfer of shares allegedly executed by a registered stockholder. The transfer
must be registered in the books of the corporation to affect third persons. The law on corporation
28
is explicit on this under Sec. 63 of the Corporation Code. xMagsaysay-Labrador v. CA,
180 SCRA 266 (1989)
Section 63 of the Corporation Code envisions a formal certificate of stock which can be
issued only upon compliance with certain requisites. First, the certificate must be signed by the
president or vice-president, countersigned by the secretary or assistant secretary, and sealed
with the seal of the corporation. A mere typewritten statement advising a stockholder of the
extent of his ownership is a corporation without qualification and/or authentication cannot be
considered as a formal certificate of stock. Second, delivery of the certificate is an essential
element of its issuance. Hence, there is no issuance of a stock certificate where it is never
detached from the stock books although blanks therein are properly filled up if the person whose
name is inserted therein has no control over the books of the company. Third, the par value, as
to par value shares, or the full subscription as to no par value shares, must first be fully paid.
Fourth, the original certificate must be surrendered where the person requesting the issuance of
a certificate is a transferee from a stockholder. Bitong v. Court of Appeals, 292 SCRA 503 (1998).
9. Situs of Shares of Stocks (Sec. 55)
The situs of shares of stock would be the place of domicile of the corporation to which they
pertain to. xWells Fargo Bank and Union v. Collector, 70 Phil. 325 (1940); xTayag v. Benguet
Consolidated, Inc., 26 SCRA 242 (1968); cf. xPerkins v. Dizon, 69 Phil. 186 (1939).
2. Right to Certificate of Stock for Fully Paid Shares (Sec. 64; Tan v. SEC, 206 SCRA 740
[1992])
3. Preemptive Rights (Sec. 39; Datu Tagoranao Benito v. SEC, 123 SCRA 722 [1983]; Dee v. SEC,
199 SCRA 238 [1991]).
(d) Remedies If Inspection Denied: Mandamus (Gonzales v. PNB, 122 SCRA, 489 [1983];
Republic v. Sandiganbayan, 199 SCRA 39 [1991]).
(e) Confidential Nature of SEC Examinations (Sec. 142)
The allegations of injury to the spouses-relators can co-exist with those pertaining to the
corporation. The personal injury suffered by the spouses cannot disqualify them from filing a
derivative suit on behalf of the corporation. It merely gives rise to an additional cause of action
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for damages against the erring directors. This cause of action is also included in the
Complaint filed before the SEC. Gochan v. Young, G.R. No. 131889, 12 March 2001.