Corporation and Securities Law Notes PDF

**[CORPORATION AND SECURITIES LAW]** ATTY. FRANCES CYRILLE F. TANDOG 1ST Semester, AY 2024-2025 A. Definition -- What is Corporation? ===================================== ***SEC. 2, RCC, 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 incidental to its existence. A corporation, as a juridical person, has rights under the Bill of Rights of the Philippine Constitution. The Supreme Court, in *Stonehill v. Diokno*, affirmed that a corporation can invoke the right against unreasonable search and seizure, but not the right against self-incrimination. - Additionally, a corporation can sue for moral damages due to harm to its goodwill or reputation, despite not experiencing emotions like a natural person. - Lastly, a corporation can be criminally prosecuted if the penalty is something other than imprisonment (*[fine, license forfeiture, or franchise revocation.) ]* the law regards a corporation as a juridical person, with a legal personality separate and distinct from the persons composing it. As a juridical person, *it may own properties, exercise rights, and incur obligations independently of the persons comprising it*. [^1^](#fn1){#fnref1.footnote-ref} **Partnership v. Corporation:** [^2^](#fn2){#fnref2.footnote-ref} {#partnership-v.-corporation} ------------------------------------------------------------------ **Aspect** **Partnership** **Corporation** ------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------ **Definition** An agreement where two or more persons contribute to a common fund and share profits. An artificial being created by law with rights and powers as authorized by law. **Manner of Creation** Created by agreement. Created by the operation of law. **Composition** Requires at least two partners. Can be composed of one person. **Commencement of Juridical Personality** Acquires personality upon agreement. *[Registration with SEC is for convenience]*, not required for legal personality. Commences with the issuance of a Certificate of Incorporation by the SEC. **Liability** *[General partners]* are liable beyond their contribution if assets are insufficient. Liability of stockholders is limited to their subscription to capital stock. **Transfer of Shares/Rights** Partners *[cannot transfer interest without consent]* due to trust and confidence. Stockholders can sell fully-paid shares without the need for consent from the corporation or other stockholders. **Management** Managed by [a Managing Partner or general partners]. Managed by the [Board of Directors]. **Exercise of Powers** May perform [any act unless contrary to laws], good morals, custom, public order, and policy. Powers are [limited to those conferred by law,] articles of incorporation, or incidental to its existence. Doctrine of distinct and separate juridical personality (S.2, RCC) ================================================================== - The corporation is regarded as a person. **It may own properties, raise capital and deal, on its own or independently of its shareholders or members**, with 3^rd^ parties. What are the legal consequences of the doctrine of separate legal identity? --------------------------------------------------------------------------- +-----------------------------------+-----------------------------------+ | **Legal Consequence** | **Explanation** | +===================================+===================================+ | **Ownership of Property** | Properties registered in the | | | corporation\'s name are owned | | | solely by the corporation. | | | *[Shareholders do not have | | | co-ownership rights and cannot | | | claim possession of corporate | | | assets]*. | +-----------------------------------+-----------------------------------+ | **Right to Recover Property** | A corporation can *[sue to | | | recover property occupied by a | | | former president or significant | | | ]* | | | | | | *[stockholder]*, even | | | if they were previously allowed | | | possession. | +-----------------------------------+-----------------------------------+ | **Stockholders' Rights | Stockholders who grant loans for | | Subordinate to Mortgagee** | the acquisition of corporate | | | property have rights subordinate | | | to that of a mortgagee if the | | | property is used as collateral. | | | *[Stockholders are entitled to | | | repayment of their loan, but not | | | to the property | | | itself.]* | +-----------------------------------+-----------------------------------+ | **Acquisition of Controlling | *[Purchasing controlling shares | | Shares** | does not grant automatic | | | possession of corporate | | | property]*. | | | Shareholders must elect new | | | directors, who can then pass | | | resolutions allowing property | | | use. | +-----------------------------------+-----------------------------------+ | **Probate Court's Limitations** | A probate *[court cannot order | | | lessees of corporate property to | | | remit rentals to the estate of a | | | deceased | | | stockholder,]* as the | | | property is owned by the | | | corporation, not the individual. | +-----------------------------------+-----------------------------------+ What factors or circumstances, per se, are insufficient to disregard the doctrine of separate legal entity? (absence of fraud / policy considerations) ------------------------------------------------------------------------------------------------------------------------------------------------------ **Factors/Circumstances** **Explanation** ------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ **Ownership by a Single Stockholder or Parent Corporation** *[Mere ownership of all or nearly all shares by a single stockholder or another corporation]* is insufficient to disregard separate legal entity. Both parent and subsidiary corporations are considered separate and liable only for their own actions. **Claims Against Subsidiary Post-Merger** *[A claim against a subsidiary cannot be legally set off]* against a loan obtained by the investor from the parent corporation post-merger. Ownership of nearly all shares does not justify treating the two corporations as one entity. **Subsidiary\'s Liability for Parent Company Employees** *[A subsidiary is not liable for absorbing employees of its parent company after the parent closes its business]*, even if the parent transfers assets to the subsidiary. Selling assets alone does not make the subsidiary liable for the parent's debts. **Interlocking Directors, Officers, and Shareholders** *[The presence of interlocking directors, officers, or shareholders between two corporations is not sufficient to pierce the corporate veil]*. Corporations remain distinct, even if they are wholly owned by another and share leadership. **Related Business Activities** *[The fact that two corporations have related businesses]* (e.g., one manufactures a product and the other sells it) and share facilities, employees, or offices is not enough to disregard their separate legal entities. **Interrelated Corporations with Common Directors** A corporation cannot be made liable in *[a collection case against another corporation simply because their businesses are interrelated and they share common directors.]* Evidence of fraud or misuse of the corporate form must be shown. Who are Juridical Persons? -------------------------- **[A.44(3), 45, 46, NCC: ]** *Summary of Chapter 3: Juridical Persons* - **Article 44** defines juridical persons as: 1. **The State and its political subdivisions**. 2. **Other entities**, such as corporations or institutions, created by law for public interest, which gain juridical personality upon legally constituted according to law; 3. **Private entities**, including corporations, partnerships, and associations, given juridical personality by law, which is separate from their shareholders, partners, or members. - **Article 45**: 1. **Public juridical persons** (from Article 44(1) and (2)) are governed by the laws that created or recognized them. 2. **Private corporations** are governed by general laws on the subject. 3. **Partnerships and associations with private interests** follow the provisions of the Revised Corp. Code related to partnerships. - **Article 46** states that juridical persons can: 1. Acquire and possess property of all kinds; 2. Incur obligations; 3. Initiate civil or criminal actions, as per the laws and regulations of their organization. Who are not Juridical Persons? ------------------------------ **Article 1775, RCC:** - **Associations and societies** that keep their articles secret among members and allow any member to contract with third parties in their own name **do not have juridical personality**. - These are governed by provisions relating to **co-ownership**. B. **Four Distinguishing Characteristics of a Corporation** =========================================================== *1. A corporation is an artificial being* ----------------------------------------- ### CASE: Situs Dev. Corporation vs. Asiatrust Bank, Inc., G.R. No. 180036, January 16, 2013 **FACTS:** - Petitioners argue that the properties belonging to petitioner corporations\' majority stockholders may be included in the rehabilitation plan, because these properties were mortgaged to secure petitioners' loans. - They also argue that That Allied Bank and Metro Bank were not the owners of the mortgaged properties when the Stay Order was issued by the rehabilitation court. **ISSUE / HELD:** 1\. Whether subject properties should be included in the Stay Order by virtue of FRIA which should be given a retroactive effect. - NO. Trial Court erred. The FRIA states that it can apply to further proceedings in pending cases, unless its application would be impractical or unjust, as determined by the court. - However, **this provision assumes a prospective application, meaning it only applies to future proceedings. Therefore, it cannot be retroactively applied to the Stay Order issued by the rehabilitation court in 2002, which was governed by the 2000 Interim Rules of Procedure on Corporate Rehabilitation.** - These rules allowed a Stay Order to halt the enforcement of claims against the debtor and its guarantors. However, *[the rules did not authorize the suspension of foreclosure proceedings on properties owned by third-party mortgagors.]* 2\. Whether the properties belonging to petitioner corporations\' majority stockholders may be included in the rehabilitation plan - **NO. the court did not have the authority to include third-party properties in the Stay Order.** Issuance of Stay Order cannot suspend the foreclosure of the 3^rd^ party mortgage So, whether the banks owned the properties at that time or not doesn\'t change the conclusion: those properties were not covered by the Stay Order. - At the time the Stay Order was issued, the rehabilitation court only had the authority to suspend claims against the debtor, its guarantors, and sureties not jointly liable with the debtor. Therefore, suspending foreclosure proceedings on third-party mortgagors\' properties was beyond the court\'s jurisdiction. ### CASE: Spouses Borromeo vs. CA and Equitable Savings Bank, G.R. No. 169846. March 28, 2008 **FACTS:** - [Equitable Savings Bank,] the respondent is a domestic savings bank with its main office at EPCIB Tower 2, Makati Avenue, Salcedo Village, Makati City. At the start of the dispute, it was a subsidiary of Equitable PCI Bank (EPCIB), a domestic universal bank located in the same area. Following the merger of EPCIB and Banco de Oro (BDO), the combined entity adopted the name \"Banco de Oro.\" - The petitioners, long-time clients of EPCIB, applied for a P4,000,000.00 loan in 1999 through the \"Own-a-Home Loan Program,\" which was approved in October. In early 2000, they signed blank loan documents, including a Loan Agreement and Real Estate Mortgage. - From April 2001 to September 2002, the respondent released a total of P3,600,000.00 to the petitioners in four installments, while the remaining P400,000.00 was not withdrawn. The petitioners began paying their monthly amortizations on April 21, 2001. - The petitioners argued that the interest rate of 14% to 17% charged by EPCIB was higher than the agreed-upon rate of 11% or 11.5%. They also claimed they intentionally did not withdraw the remaining P400,000.00 of the loan and stopped paying their amortizations to protest EPCIB\'s failure to provide copies of the loan documents and its imposition of a higher interest rate than agreed. - When the petitioners failed to pay for the loan in full by 30 September 2003, respondent sought to extra-judicially foreclose the Real Estate Mortgage (REM). RTC granted motion for recon. **ISSUE / HELD:** Whether EPCIB and Equitable Savings Bank has no separate legal identity. **NO. Although ESB, the respondent is a wholly-owned subsidiary of EPCIB, it has a separate legal identity from its parent company. Simply owning all the stock of another corporation does not make them one entity**. - Petitioners did not enter into a Loan Agreement and REM with respondent. [Respondent, therefore, has no right to foreclose the subject property even after default]. - as *proof-provided In the promissory notes, designated EPCIB as the lender. As well as the letters sent addressed to the latter. Clearly, it is not the respondent*. - A subsidiary\'s separate existence is respected if it performs legitimate functions, and each corporation\'s liability is limited to its own business activities. - A subsidiary cannot pursue claims or suits of the parent corporation just because it is fully owned by it. - In this case, the petitioners\' property rights are restricted by the Real Estate Mortgage (REM) they signed. If they default on the mortgage, the right to foreclose the property belongs to the creditor-mortgagee, or its assigns can exercise the right of foreclosure. - *[A. 1311, CC] -- Contracts takes effect only between the parties, their assigns and heirs*... ### CASE: Manila Electric Company vs. T.E.A.M. Electronics Corporation, et al., G.R. No. 131723, Dec. 13, 2007 **FACTS:** - T.E.A.M. Electronics Corporation (TEC), previously known as NS Electronics (Philippines), Inc. and National Semiconductors (Phils.), is wholly owned by Technology Electronics Assembly and Management Pacific Corporation (TPC). Petitioner Manila Electric Company (Meralco) is a utility company providing electricity in the Metro Manila area. - Petitioner agreed to supply electric power to TEC\'s building, Dyna Craft International Manila (DCIM), located in Taguig, Metro Manila. - September 1986, TEC, then known as National Semiconductors (Phils.), leased its DCIM building to Ultra Electronics Industries, Inc. for five years. *[Thern Ultra was ejected via court order because of repeated violations of the lease contract]*. - Then, during a surprise inspection, petitioners discovered that the electric meters at the DCIM building were allegedly tampered with and did not accurately measure power consumption. - Then, On November 25, 1987, petitioner informed TEC of the inspection results and demanded payment of P7,040,401.01 for the allegedly unregistered power consumption. - May 27, 1988, TEC filed a complaint with the Energy Regulatory Board (ERB) requesting that electric power be restored to the DCIM building. The ERB ordered reconnection, but, only after 5 mos, petitioner complied only on October 12, 1988, after TEC paid P1,000,000.00 under protest. - RTC ruled in favor of the respondents. **ISSUE / HELD:** Whether award of moral damages is not proper. - YES. The award of moral damages to TEC is deemed improper. **Generally, corporations are not entitled to moral damages as they cannot experience emotional suffering like individuals. The exception is if a corporation\'s reputation is significantly harmed, leading to humiliation**, but this requires proof of damage and its connection to the actions of the petitioner. - In this case, there is no evidence showing that TEC/TPC's reputation was harmed or that the damages were justified. - Additionally, the trial court awarded moral damages without providing a basis for the decision. - NO. Petitioner's action is no justified. - Petitioner has a duty to conduct reasonable and proper inspections of its equipment to prevent malfunctions and repair defects. Neglecting this duty constitutes negligence, which can lead to public utilities losing amounts that are otherwise due from their customers. - PD no. 401 allowed electric companies to inspect meters and prosecute consumers for tampering but did not explicitly authorize differential billing or immediate disconnection. - To *address this, electric companies included provisions for differential billing and disconnection in their service contracts*. The [Court has upheld these stipulations, provided that a 48-hour written notice] of disconnection is given before such measures are taken. - In this case, there was no prior-notice. *Doctrine of Piercing the Veil of Corporate Fiction* ---------------------------------------------------- - Happens when the state revokes the legal personality of the corporation. If the state ascertains that they do not comply with law and/or continuously inconsistent with the state objectives or prejudicial to public interest. - Shareholders and/or members will be liable if there is fraud or unfair and defeated claims of 3^rd^ parties. (Fraud cases). ### CASE: Hayden Kho, Sr. vs. Magbanua, G.R. No. 237246. July 29, 2019 **FACTS:** - Respondents filed a complaint for illegal dismissal against Holy Face Cell Corporation, Tres Pares Fast Food, and the Corporation\'s stockholders, including its alleged President/Manager, Kho, and his wife, Irene Kho. - The respondents, who worked as cooks, cashiers, or dishwashers at Tres Pares, claimed that Sheryl Kho, the daughter of Spouses Kho, posted a notice stating the restaurant would close. - the respondents filed a complaint seeking separation pay, salary differentials, damages, and other related compensation after the restaurant closed as scheduled. - Sps. Kho argued that they had no employee-employer relationship, as the latter as the latter\'s employer was the Corporation, and that they cannot be held liable for the acts of the Corporation, the same having been imbued with a personality separate and distinct from its stockholders, directors, and officers. - Labor Arbiter ruled in favor of herein respondents, and ordered the sps Kho to pay the aggregate amount of P3,254,466.60. NLRC reversed the ruling of LA, and said that sps. Kho's actions did not justify to pierce the veil of corporate fiction. Mere failure to comply with procedural due process does not constitute an unlawful act. - CA reversed NLRC ruling and agreed with LA in awarding separation pay and nominal damages. **ISSUE / HELD:** Whether CA erred in ruling that Kho is solidarily liable with the Corporation for the payment of the money claims. - **YES. The failure to give notice is not an unlawful act because the law does not define such failure as unlawful act that can pierce the veil of the corporate fiction. The key element Fraud, Malice & Bad Faith.** - [The *general rule is that a corporation is a juridical entity with legal personality separate and distinct* ]*from those acting for and in its-behalf and, in general, from the people comprising it*. - As a juridical entity, a corporation may act only through its directors, officers, and employees. - As such, obligations incurred by the corporation, acting through its directors, officers, and employees, are its sole liabilities. - **and these persons should not be held jointly and solidarily liable with the corporation.** - Generally, **corporate veil can be \"pierced\" in situations where the corporate structure is used to**: a.) **D**efeat public convenience, or used to evade existing obligations; b.) **J**ustify wrongdoing; c.) **P**rotect or perpetuate fraud; d.) **D**efend criminal acts, or **U**se as a shield to confuse legitimate issues; or e.) **O**perate as a mere alter ego or conduit of an individual or another corporation. - The evidence on record does not support the findings of both the LA and the CA that Kho was the Corporation\'s President at the time of its closure. Additionally, there is no evidence that Kho agreed to any unlawful act that would make him personally liable along with the Corporation. - Kho did not commit any bad faith, fraud or negligence that warrants him for personal liability. Further, Case laws instruct that neither does bad faith arise automatically just because a corporation fails to comply with the notice requirement of labor laws on company closure or dismissal of employees. ### CASE: Hacienda Cataywa/Manuel Villanueva vs. Rosario Lorenzo, G.R. No. 179640, March 18, 2015 **FACTS:** - October 22, 2002, respondent Rosario Lorenzo received a letter from the Social Security System (SSS) Western Visayas Group stating that she could not receive retirement benefits. According to their records, she had only made 16 months of contributions, which was 104 months short of the minimum requirement of 120 months to qualify for the benefit. - Rosario Lorenzo filed a complaint with the Social Security Commission (SSC), claiming that she worked as a laborer at Hacienda Cataywa, managed by Jose Marie Villanueva, starting in 1970, and alleged that SSS contributions were deducted from her wages from 1970 to 1995, but not all of these contributions were remitted to the SSS, which ultimately led to the rejection of her retirement benefits claim. - She also requested that the corporate veil be pierced, claiming that Mancy and Sons Enterprises and Manuel and Jose Marie Villanueva were essentially the same entity. **ISSUE / HELD:** Whether petitioners are correct that there is no legal basis to pierce the veil of corporation entity. - **NO. The Court agrees with the petitioners that piercing the corporate veil is unnecessary**. [The respondent, Rosario Lorenzo, failed to provide sufficient evidence] to prove that Mancy and Sons Enterprises, Inc. and Manuel and Jose Marie Villanueva are effectively the same. - Her claim was based solely on an SSS form where Manuel Villanueva appeared as the employer. - **Doctrine of alter ego**- where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. - 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. - **This alone does not demonstrate that the corporation was being used to defeat public convenience, justify wrongdoing, protect fraud, or defend crime, nor that it served as a shield to confuse legitimate issues.** - Additionally, there was no evidence to show that Mancy and Sons Enterprises, Inc. operated solely for the benefit of Manuel Villanueva, which would justify treating one as the alter ego of the other. - To disregard the separate juridical personality of a corporation, the wrongdoing must be established clearly and convincingly. It cannot be presumed. ### CASE: Olongapo City vs Subic Water and Sewerage Company, GR No. 171626, August 6, 2014 **FACTS:** - In accordance with PD No. 198, petitioner Olongapo City passed Resolution No. 161, which transferred all its existing water facilities and assets, previously managed by the Olongapo City Public Utilities Department Waterworks Division, to the jurisdiction and ownership of the Olongapo City Water District (OCWD). - October 24, 1990- Olongapo City filed a complaint for the recovery of money and damages against OCWD, alleging that OCWD failed to pay its electricity bills and fulfill its payment obligations under their contract. - Then, eventually entered into a compromise agreement. The agreement included a provision requesting that Subic Water, Philippines, which had taken over OCWD\'s operations, be made a co-maker for OCWD\'s obligations. Mr. Noli Aldip, then the chairman of Subic Water, signed the agreement as Subic Water\'s representative. - November 24, 1997- pursuant to the compromise agreement and as payment for OCWD\'s obligations, Olongapo City and OCWD executed a Deed of Assignment, which OCWD assigned all of its rights in the Joint Venture Agreement (JVA) to Olongapo City. Subsequently, OCWD was judicially dissolved. - Herein petitioner argued that even though Subic Water was not originally a party in the case, it could still be subjected to a writ of execution because it was identified as OCWD\'s co-maker and successor-in-interest in the compromise agreement. **ISSUE / HELD:** Whether Respondent was liable because of the compromised agreement. - NO. OCWD holds only a ten percent (10%) share in Subic Water. As a mere shareholder, OCWD\'s juridical personality cannot be equated with or confused with that of Subic Water. - In ***Concept Builders, Inc. v. NLRC*, the Court listed probative factors that could justify piercing the corporate veil**: **(1) Common stock ownership; (2) Shared directors and officers; (3) Similar corporate records; and (4) Similar business practices.** - The *[burden of proving these factors rests with the party alleging them]*. In this case, there was no clear evidence to justify piercing the corporate veil. - Mr. Noli Aldip signed the compromise agreement solely in his personal capacity. Additionally, the compromise agreement did not explicitly state that Subic Water consented to become OCWD\'s co-maker. - According to Section 23 of the Corporation Code, the board of directors or trustees is responsible for exercising corporate powers, conducting business, and controlling property. **In the absence of authority from the board, neither officers nor any other individuals can validly bind the corporation.** - Therefore, the authority to decide whether a corporation can enter into a binding contract, rests with the board of directors. In this case, [Subic Water\'s board of directors did not appear to have approved] the request for Subic Water to become OCWD\'s co-maker. ### CASE: Parayday v. Shogun Shipping Co., Inc., G.R. No. 204555, July 6, 2020 -- (*Issue on Procedural. Piercing the Corporate veil should be raised during the trial)* **FACTS:** - The case involves a complaint for illegal dismissal and regularization, as well as claims for underpayment of wages, overtime pay, rest day pay, holiday pay, holiday premium, service incentive leave (SIL), 13th month pay, and night shift differential pay, *[filed by Parayday and Reboso against Shogun Shipping Co., Inc. (Shogun Ships).]* - In 2003, Oceanview changed its corporate name to Shogun Ships Inc., continuing its business and retaining former Oceanview employees, including the petitioners. The [petitioners alleged they were verbally dismissed on May 1, 2008, due to a lack of work]. - Shogun Ships denied that the petitioners were regular employees, claiming they were merely helpers brought in occasionally. - The Labor Arbiter ruled that the petitioners were regular employees and awarded back wages. The NLRC upheld this decision. However, the CA reversed the NLRC, finding no illegal dismissal. - The CA determined that the petitioners failed to prove that Oceanview and Shogun Ships were the same entity and stated that \"piercing the corporate veil\" was not necessary as it only applies during trials after a court has jurisdiction over a corporation, which was not the case here. **ISSUE / HELD:** Whether CA is correct in ruling that piercing the corporate veil is not necessary - **YES. The Court agrees with the CA that there was no full trial regarding the application of the doctrine of piercing the corporate veil** because [Oceanview was never properly included as a party in the illegal dismissal case.] - The doctrine can only be considered during a full trial where the court has jurisdiction over all relevant parties, which requires proper service of summons. - Hence, the above doctrine will only come into play once the court has already acquired jurisdiction over the corporation. - The Court also concurs with the CA\'s finding that Shogun Ships and Oceanview are separate and distinct entities. **Hence, general doctrine of separate judicial personality applies*.*** - The principle of piercing the corporate veil, which allows treating related corporations as one entity, is applied to determine liability but cannot be used to grant the court jurisdiction over a party that was not properly impleaded. - **Therefore: a corporation not included in a lawsuit cannot be subjected to piercing of its corporate veil**. ### CASE: Gesolgon v. CyberOne PH., Inc., G.R. No. 210741, October 14, 2020 *(Issue on the Jurisdiction of Foreign Corporation. There is no piercing of Corporate Veil)* **FACTS:** - Gesolgon and Santos were hired in 2008 as part-time, home-based remote Customer Service Representatives for CyberOne Pty. Ltd., an Australian company. Later, they became full-time employees and were promoted to Supervisors. - In October 2009, the CEO of CyberOne asked the petitioners to act as dummy directors for CyberOne PH. They agreed and were promoted with salary increases, which were made to appear as paid by CyberOne PH. - The petitioners filed a case against the respondents and CyberOne AU for illegal dismissal, non-payment or underpayment of salaries and 13th-month pay, as well as claims for moral and exemplary damages, and attorney\'s fees. - In response, CyberOne PH, Mikrut, and Juson denied the existence of an employer-employee relationship with the petitioners, arguing that they were incorporators or directors, not regular employees. - They also claimed that the petitioners were employees of CyberOne AU and that the NLRC lacked jurisdiction over CyberOne AU, as it was a foreign corporation not conducting business in the Philippines. - LA agreed and ruled in favor of respondent. NLRC found that CyberOne AU was conducting business in the Philippines through its involvement with CyberOne PH and applied the doctrine of piercing the corporate veil to hold it accountable. - CA ruled that the NLRC wrongly applied the doctrine of piercing the corporate veil, stating that ownership of most shares by Mikrut and CyberOne AU was not enough to disregard CyberOne PH\'s separate corporate identity. **ISSUE / HELD:** Whether CA erred in stating that ownership of most shares is not enough to pierce the corporate veil. - NO. **Although CyberOne AU owns the majority of CyberOne PH shares, this does not automatically mean that CyberOne PH is a mere conduit** (*pass-through entity to pass the will of another, rather than independent*) of CyberOne AU. - The **doctrine of piercing the corporate veil is applicable only in specific situations**: a.) when a corporate personality *[defeats public convenience is used to evade existing obligations]*; b.) *[justify a wrong, commit fraud or defend a crime]*; and c.) when a corporation is a *[sham and merely an alter ego or instrumentality of another entity]*. - The court emphasized that it had not acquired jurisdiction over CyberOne AU, an Australian corporation, due to the absence of valid service of summons, despite serving summons on CyberOne PH, Mikrut, and Juson. - *CyberOne AU is [not licensed to do business in the Philippines] and did not appoint CyberOne PH or Mikrut as its agents in the country*. ### CASE: Villanueva v. People, G.R. No. 218652, February 23, 2022 **FACTS:** - On December 19, 2000, the municipality of Janiuay, Iloilo, led by Mayor Franklin Locsin, signed a Memorandum of Agreement (MOA) with the Department of Health for a Rescue and Emergency Disaster Program initiated by then-Senator Vicente Sotto III. - Contracts were awarded to Europharma and Mallix Drug for medicine purchases worth over P13 million and P1.7 million, respectively. - Upon delivery, the Bureau of Food and Drugs (BFAD) found that some medicines failed quality tests, and replacements were delivered months later. - A post-audit revealed irregularities, including failure to notify the provincial auditor about the bidding, lack of a performance bond, and awarding contracts to companies, 99% of Europharma, owned by the petitioner, despite suspended accreditation, thus issuing a issued a Notice of Suspension and Notice of Disallowance. - The Sandiganbayan found that the accused, including Mayor Locsin, conspired to violate Section 3(e) of Republic Act 3019 (Anti-Graft and Corrupt Practices Act) by awarding the contracts to Europharma and Mallix Drug. **ISSUE / HELD:** Whether corporate veil can be pierced if it is demonstrated that juridical entities, such as corporations, are used by private individuals to commit illegal acts - **YES. When corporate fiction is used to commit fraud, evade existing obligations, circumvent laws, achieve monopolistic goals, or perpetuate illegal acts, the law permits piercing the corporate veil**. - In this case, petitioner is a doctor, and a businessman, and not a public officer, he is still convicted under S.3 (e) of RA 3019. - The controlling doctrine is laid down by the courts in *People v. Go*: "*[private individuals who conspire with public officers can be indicted and, if found guilty, held liable for offenses under Section 3 of Republic Act No. 3019 (R.A. 3019),]* which pertains to the Anti-Graft and Corrupt Practices Act." - Petitioner\'s actions demonstrated a joint purpose, concerted action, and shared intent with the co-accused public officials to conduct a flawed bidding process that unjustifiably favored his business entities. - *[petitioner was not only the general manager and the owner of the 99% capital stock of Europharma, but also the sole proprietor of Mallix]*. - **Mallix Drug, being a sole proprietorship with no separate juridical personality, is legally indistinguishable from petitioner.** - As such, both Mallix Drug and the other company owned by petitioner are considered \"alter egos\" of each other and of petitioner himself. *Liability for Torts and Crimes* -------------------------------- - **GR:** judgement rendered against the corporation may not be executed against the property of any of its shareholders or officers. [Liability of a corporation is not the liability of its shareholders]. - **EX:** a.) creditor may require a shareholder *[to pay his unpaid subscription]*; ### CASE: Alfredo Ching vs. Secretary of Justice, et al., G. R. No. 164317, February 6, 2006 **FACTS:** - In September to October 1980, petitioner, as Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI), applied to Rizal Commercial Banking Corporation (respondent bank) for commercial letters of credit to finance imports. The bank approved the application and issued irrevocable letters of credit in favor of petitioner. - Petitioner agreed to hold the goods in trust for the respondent bank, with the authority to sell them but not by conditional sale or pledge. Proceeds from any sale were to be used to settle debts with the bank, and unsold goods were to be returned to the bank without demand. The goods, their manufactured products, and any proceeds were considered the bank's property. - When the trust receipts matured, petitioner did not return the goods or their value of ₱6,940,280.66, leading the bank to file a criminal complaint for estafa against petitioner. - The City Prosecutor determined there was no probable cause to charge petitioner with violating P.D. No. 115, as petitioner's liability was deemed civil, not criminal, due to signing the trust receipts as surety. The respondent bank then appealed this decision to the Department of Justice (DOJ) via a petition for review. - Secretary of Justice reversed the ruling of the City Prosecutor, and granted the petition of respondent bank. - Justice Secretary ruled that the petitioner, as both a corporate official and surety under the trust receipts, could be pursued in two ways: *[first, as a surety]*, based on the Supreme Court\'s decision in *Rizal Commercial Banking Corporation v. Court of Appeals*; and *[second, as a corporate officer responsible for the offense under P.D. No. 115]*. - The Secretary noted that P.D. No. 115 allows for the prosecution of corporate officers while maintaining their civil liabilities, *thus separating civil from criminal liability.* **ISSUE / HELD:** Whether CA erred in upholding Justice Secretary in finding probable cause for Estafa under A. 315 1(b), RPC in relation to PD 115. - **NO. It was the Senior Vice-President of PBM who executed the 13 trust receipts, the petitioner is identified as the official responsible for the offense.** - *[Since a corporation itself cannot be criminally prosecuted, criminal actions are directed at the individuals responsible]*. Thus, the respondent's execution of the receipts is sufficient grounds for indicting him under P.D. No. 115. - **section 13 of PD 115** which states in part, viz: *'If the violation or [offense is committed by a corporation, partnership, association or other judicial entities, the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials] or persons therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense.*' - General Rule: **law holds corporate officers, employees, or other responsible persons accountable for criminal offenses committed by a corporation.** Although a corporation cannot be imprisoned, its responsible officers can be charged and penalized for crimes. - If a crime is committed by a corporation, the responsible directors, officers, or employees are prosecuted. A corporation may still be charged if the penalty is a fine. Even if both imprisonment and fines are prescribed, the corporation can only be fined if found guilty. - **Section 4 of P.D. No. 115** defines a trust receipt transaction as an *agreement where the entruster, who holds title or security interests in certain goods, documents, or instruments, releases these to the entrustee*. - The entrustee, by signing a trust receipt, *agrees to hold the items in trust, with obligations to sell or otherwise dispose of them*. - The entrustee must then turn over the proceeds or return the items if unsold, in accordance with the terms specified. - The trust *[receipt transaction can involve selling, manufacturing, processing, or handling the goods, or dealing with instruments in various ways such as selling, delivering, or collecting them]*. ### CASE: Singian, Jr. vs. Sandiganbayan G.R. Nos. 160577-94, December 16, 2005 *(Generally, Corporate Powers are vested with the board of directors, liability of other officers can be sustained if sufficiently proven)* **FACTS:** - Atty. Orlando L. Salvador, a consultant for the Presidential Commission on Good Government, was detailed to the Presidential Ad Hoc Committee on Behest Loans and coordinated a Technical Working Group. This group reviewed loan accounts from government financing institutions, including a loan granted by the Philippine National Bank (PNB) to Integrated Shoe, Inc. (ISI). - The Committee found that the loans extended to ISI exhibited characteristics of behest loans, including insufficient collateral and the loans being obtained with undue haste. - March 20, 1996- Atty. Orlando Salvador filed a sworn complaint with the Office of the Ombudsman for violations of Section 3, paragraphs (e) and (g) of Republic Act No. 3019. The complaint was against several individuals, including former PNB officials and ISI executives. - The eighteen Information relate to nine loan accommodations granted to ISI, with each loan being the subject of two Information alleging violations of both paragraphs of Section 3 of RA No. 3019. **ISSUE / HELD:** Whether Ombudsman erred in finding probable cause finding criminal liability against petitioner for ISI's failure to put up additional capitalization and collateral. - NO. - The nine indictments for violating Section 3 (e) of Republic Act No. 3019 are similarly phrased, *[alleging that the petitioner gave unwarranted benefits, advantage, and preference to ISI.] Each indictment claims that the petitioner approved and disbursed a loan amount to ISI, despite knowing that ISI lacked sufficient capitalization to secure the government\'s interests in case of non-payment, causing damage to the government and detriment to public service*. - The petitioner's reliance on the case of *Presidential Ad Hoc Fact-Finding Committee on Behest Loans v. Desierto* is misplaced. - In this case, as Executive Vice President of ISI, the petitioner signed and committed to the terms of the Deed of Undertaking imposed by PNB, which required ISI to provide additional capital and collaterals. *[Despite ISI\'s failure to meet these conditions for the first loan, PNB granted eight more loans to ISI. These factors differentiate this case from the one cited by the petitioner.]* - The court recognizes that while the authority to increase capitalization and provide collateral lies with the board of directors, *[the petitioner, as the executive vice president, he is to be held criminally liable if they are proven to have participated in any criminal activitie]s, even if these actions are not directly related to the board\'s powers*. ### CASE: The Executive Secretary, et al. vs. Court of Appeals, et al., G.R. No. 131719, May 25, 2004 **FACTS:** - *Republic Act No. 8042, also known as the Migrant Workers and Overseas Filipinos Act of 1995, became effective on July 15, 1995.* Following this, the Omnibus Rules and Regulations Implementing the Migrant Workers and Overseas Filipino Act of 1995 were published on April 7, 1996, in the Manila Bulletin. - ARCO-PHIL alleged that RA 8042 was self-executory so petitioner urged the court to issue a restraining order to stop the implementation of certain provisions of RA 8042, arguing that the law causes unjust and unconstitutional harm to recruitment agencies. With the law in effect, many licensed agencies have halted operations out of fear of prosecution, which has severely impacted the processing of overseas worker deployment papers at the POEA. - The respondent ARCO-Phil. challenged specific provisions of *RA 8042, namely Section 2(g) and (i), Section 6 subsections (a) to (m), Section 7(a) to (b), and Section 10 paragraphs (1) and (2).* - **Section 6: Definition of Illegal Recruitment:** *[Illegal recruitment] refers to activities such as canvassing, enlisting, contracting, transporting, utilizing, hiring, or procuring workers for employment abroad*. This also includes acts of referral, contract services, and advertising for jobs overseas. It is considered illegal when done by individuals or entities without a proper license or authority as specified under Article 13(f) of Presidential Decree No. 442 (the Labor Code of the Philippines). - In case of juridical persons, the officers having control, management or direction of their business shall be liable. - If the recruitment or placement agency is a juridical entity (such as a corporation or partnership), its corporate officers, directors, or partners will be jointly and solidarily liable with the corporation or partnership for any claims and damages arising from illegal recruitment activities. - The petitioners argue that the respondent lacks *locus standi* (legal standing) because it is a non-stock, non-profit organization and, therefore, not the real party-in-interest in the case. **ISSUE / HELD:** Whether S.6 of RA 8042 is valid as it penalizes juridical persons and its officials if they are involved in illegal recruitment activities. - YES. **Employees who actively participate in illegal recruitment can be prosecuted as principals alongside their employers**. - In *People v. Chowdury*, Section 6 of R.A. No. 8042 was upheld, stating that employees of recruitment agencies can be held criminally liable for illegal recruitment. - **The law does not shield corporate agents from prosecution, as a corporation acts through its human agents.** Therefore, any employee knowingly aiding illegal recruitment, even minimally, can be held liable. - Corporation can still be sued if proven having criminal activities. ### CASE: Naguiat vs. NLRC, G.R. No. 116123, March 13, 1997 **FACTS:** - The petitioner, CFTI, had a concessionaire\'s contract with the Army Air Force Exchange Services (AAFES) to operate taxi services within Clark Air Base. Sergio F. Naguiat served as CFTI\'s president, while Antolin T. Naguiat was its vice-president. CFTI, like Naguiat Enterprises, a trading firm, was a family-owned corporation. - Due to the phase-out of U.S. military bases in the Philippines, including Clark Air Base, the *Army Air Force Exchange Services (AAFES) was dissolved, and the services of the respondents (taxi drivers) were officially terminated* on November 26, 1991. - CFTI negotiated severance benefits with the drivers, agreeing to pay P500.00 per year of service as severance pay. Respondents filed a case against Sergio F. Naguiat and others. - They demanded separation pay based on their latest earnings of US\$15.00 per day for 16 days a month. The National Labor Relations Commission (NLRC) modified the labor arbiter\'s decision and granted the respondents separation pay. - Petitioners argue that *[Sergio F. Naguiat Enterprises, Inc. is a separate and distinct legal entity and therefore cannot be held jointly and severally liable]* for CFTI\'s obligations. - They also contend that Sergio F. Naguiat and Antolin T. Naguiat, being only officers and stockholders of CFTI, should not be held personally accountable for the corporation\'s debts. **ISSUE / HELD:** 1\. Whether petitioners as only officers and stockholders should not be personally accountable for the corporations debts. - NO. The court ruled that Sergio F. Naguiat, as president of CFTI and employer, is jointly and several liable for the payment of \$120 for every year of service as separation pay to the individual respondents. - Petitioners acknowledged that both CFTI and Naguiat Enterprises were \"close family corporations\" owned by the Naguiat family. - **S.100, paragraph 5 of the Corporation Code, which addresses close corporations:** *stockholders who are actively involved in managing the business have strict fiduciary duties to each other. These stockholders can be personally liable for corporate torts if the corporation does not have adequate liability insurance.* - **the Court determined that a stockholder can be personally held liable for corporate tort if they actively engage in the management or operation of the business,** particularly when the corporation fails to meet its legal obligations such as paying back-wages sufficiently. - In this case, Sergio Naguiat, a stockholder actively involved in managing the corporation**, [was held solidarily liable due to corporate tort, regardless of the typical rule that corporate officers are only personally liable] when acting in bad faith or with malice**. 2.) Whether Antolin T. Naguiat is liable. - *[NO. Antolin T. Naguiat, while serving as vice president of CFTI and holding the title of \"general manager,\" did not participate in managing or operating the business, therefore he cannot be held solidarily liable]* for the obligations of CFTI or for any claims against Sergio F. Naguiat by the private respondents. 3.) Whether Naguiat Enterprises is a separate corporation therefore not liable. - YES. Naguiat Enterprises is not liable*[. Respondents wrongly assumed that Sergio F. Naguiat, also a stockholder and director of Naguiat Enterprises, was managing the taxi business on behalf of that company]*. ***Recovery of Moral Damages*** ------------------------------- **GR:** *[Moral damages are not awarded to corporations because they cannot experience physical suffering, wounded feelings, anxiety, mental anguish, or moral shock]*, which are the grounds for such damages under the Civil Code. **EX:** *[if a corporation\'s goodwill or reputation is besmirched]*, it may be entitled to recover moral damages to compensate for the damage to its reputation. [^4^](#fn4){#fnref4.footnote-ref} ### CASE: Herman C. Crystal, et al. vs. Bank of the Philippine Islands, G.R. No. 172428, November 28, 2008 **FACTS:** - In March 1978, spouses Raymundo and Desamparados Crystal secured a P300,000 loan for Cebu Contractors Consortium Co. (CCCC) from BPI-Butuan, backed by a chattel mortgage on CCCC\'s equipment. - In August 1979, they renewed the loan with BPI-Cebu City instead in BPI Butuan, signing a promissory note making them personally liable. To secure the renewed loan, they mortgaged their own property. - When CCCC defaulted on both loans, *[BPI foreclosed on the chattel and real estate mortgages. BPI filed a complaint to recover the loan deficiency.]* - The spouses contested the foreclosure, arguing that BPI should have pursued CCCC's assets first and sought moral, exemplary damages. RTC-Butuan dismissed their complaint. - Petitioner argued that failure to pay the P120,000 loan from BPI-Cebu City was due to BPI\'s illegal refusal to accept payment unless the P300,000 loan from BPI-Butuan was also paid. They contend that BPI\'s unjust refusal to accept payment on the BPI-Cebu City loan resulted in the extinguishment of the spouses\' loan obligation. - RTC ordered petitioners to pay moral and exemplary damages to BPI. CA upheld RTC decision and dismissed the petition. **ISSUE / HELD:** Whether CA erred in awarding Moral Damages to BPI - Yes. Moral damages are deleted. **BPI is not entitled to moral damages as a juridical person because it cannot experience physical suffering or emotional distress, such as wounded feelings or mental anguish**. - We disagree with CA. *[People v. Manero]* which notes that while a corporation cannot experience physical suffering or emotional distress, **it can still be awarded moral damages if its reputation is besmirched. The basis for such damages is the damage to the corporation\'s reputation rather than personal suffering.** - *[In ABS-CBN Corp. v. Court of Appeals and Filipinas Broadcasting Network, Inc. v. Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM),]* the Court clarified that the statements in *People v. Manero* and *Mambulao* about awarding moral damages to corporations were obiter dicta (non-binding remarks). - **The award of moral damages to corporations is not automatic; it requires proof of actual harm and a causal link to the defendant\'s actions. Moral damages aim to compensate for actual injury [rather than to penalize the wrongdoer]**. - BPI may have been inconvenienced by the suit, but, *the [court do not see how it could have possibly suffered besmirched reputation on account of the single suit alone]*. ### CASE: Filipinas Broadcasting Network, Inc. vs. AGO Medical and Educational Center-Bicol Christian College of Medicine, (AMEC-BCCM) and Angelita F. Ago, G.R. No. 141994, January 17, 2005 **FACTS:** - *[\"Exposé\" is a radio documentary program hosted by Carmelo \'Mel\' Rima and Hermogenes \'Jun\' Alegre]*. It airs every morning on DZRC-AM, a station owned by Filipinas Broadcasting Network, Inc. (FBNI), and is heard across Legazpi City, the Albay municipalities, and other parts of the Bicol region. - December 14 and 15, 1989- Rima and Alegre broadcasted various alleged complaints from students, teachers, and parents against Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC) and its administrators. - , AMEC and its Dean, Angelita Ago, filed a case for defamatory complaint, and for damages against Filipinas Broadcasting Network, Inc. (FBNI), Rima, and Alegre on February 27, 1990. - It claimed that the broadcasts by FBNI, Rima, and Alegre contained malicious imputations that [damaged the reputations of both AMEC and Dean Angelita Ago, thereby harming their standing ] - in saying that the teachers there are "rejects" and "immoral". Therefore, AMEC it is a dumping ground of moral and physically misfit people. - RTC issued a decision finding Filipinas Broadcasting Network, Inc. (FBNI) and Alegre liable for libel, but not Rima. The court ruled that FBNI was liable for libel and to pay respondent P30,000 moral damages. **ISSUE / HELD:** Whether FBNI is solidarily liable with Rima and Alegre for the libelous comments, to which therefore, AMEC is entitled to moral damages - **YES. Their comments were not backed up with facts, therefore not privileged and libelous per se.** - *[Libel]* is a public and malicious accusation of a crime, vice, defect (whether real or imaginary), or any act, omission, condition, status, or circumstance that tends to dishonor, discredit, or bring contempt to a natural or juridical person, or tarnish the memory of a deceased person. - *[Every defamatory imputation is presumed malicious.]* Rima and Alegre failed to adequately demonstrate their good intention and justifiable motive in airing the students\' supposed grievances. - **Legal basis for moral damages from libelous statements** - AMEC\'s claim for **moral damages falls under [Article 2219(7) of the Civil Code, which explicitly authorizes the recovery of moral damages] in cases of *libel, slander, or other forms of defamation****.* - This provision does not distinguish between natural or juridical persons, meaning that a juridical person, such as a corporation, can validly file a complaint for defamation and claim moral damages. - **Does "actual damages" needed as evidence?** - *[NO. In cases where the broadcast is libelous per se, the law automatically implies damages.]* Evidence of an honest mistake or the lack of character or reputation of the libeled party can only mitigate the damages**.** - **As the operator of DZRC-AM and the employer of Rima and Alegre, FBNI is solidarily liable for damages resulting from the defamatory broadcasts.** - An *[employer and employee are solidarily liable for defamatory statements made by the employee within the scope of employment]*, especially if the employer authorizes or ratifies the defamation. *2. It is created by operation of law* -------------------------------------- - A corporation is *[not established merely by the agreement]* of its incorporators or by executing the articles of incorporation. - **It must derive its legal existence from a law.** This could be a *[general law like the Revised Corporation Code (RCC)]* for *private corporations* or a *[special law]* enacted by Congress to create [a government-owned and controlled corporation (GOCC)]. - A law enacted by the legislature to create a private corporation [is unconstitutional]. [^5^](#fn5){#fnref5.footnote-ref} **Art. XII, Sec. 16, 1987 Constitution;** **Congress cannot make a law, except a general law regulating private corporations** \"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.\" **Article 44, CC**: defines juridical persons as: 4. **The State and its political subdivisions**. 5. 6. ### CASE: **International Express Travel & Tours vs. Court of Appeals,** 373 SCRA 474 (2002) / G.R. No. 119020, October 19, 2000 **FACTS:** - On June 30, 1989, International Express Travel and Tour Services, Inc. offered its travel agency services to the Philippine Football Federation through a letter from its managing director to the Federation\'s president, Henri Kahn. - The *petitioner arranged airline tickets for the Federation\'s trips to the Southeast Asian Games in Kuala Lumpur, China, and Brisbane, totaling P449,654.83*. The Federation made two partial payments in September 1989, amounting to P176,467.50. - Henri Kahn issued a personal check for P50,000 as partial payment for the Federation\'s outstanding balance. **However, no further payments were made despite repeated demands.** - This led the petitioner to file a civil case in the RTC of Manila, suing Henri Kahn both in his personal capacity and as President of the Federation, and including the Federation as an alternative defendant. - RTC declared **Henri Kahn personally liable for the Federation\'s unpaid obligation**. It held that a voluntary unincorporated association, such as the defendant Federation, cannot enter into or ratify contracts. *[Any contract made by its officers or agents on behalf of the association is not binding or enforceable against the association itself. Instead, the officers or agents who entered into the contract are personally liable]*. **ISSUE/HELD:** Whether PH Football Federation has a Juridical personality - **NO. Respondent failed to establish that they have a valid juridical entity.** - **RA 3135 and PD 604 grant national sports associations the ability to acquire juridical personality, allowing them to perform acts like purchasing, selling, leasing, and encumbering property. *[However, this does not automatically grant corporate status by merely passing these laws]****[.]* - For a corporation to acquire juridical personality, the State must provide consent through a special law or general enabling act. - **How is national sports association established?** Before an entity can be considered a national sports association under RA 3135 and PD 604, *[it must be recognized by the Philippine Amateur Athletic Federation or the Department of Youth and Sports Development. ]* - Henri Kahn failed to substantiate this recognition for the Philippine Football Federation (PFF). *[Although Kahn attached the PFF\'s constitution and by-laws in his motion for reconsideration, this did not prove the Federation\'s accreditation]*. - **What is the consequence of a non-existent corporation that made a contract?** Consequently, Henri Kahn is personally liable for the Federation\'s unpaid obligations. **It is a general rule in corporation law that as anyone acting on behalf of a non-existent corporation assumes personal liability for contracts and acts performed.** *3. A corporation has a right of succession* -------------------------------------------- - This means that a corporation has the *[power to exist continuously]*, either by choosing: 1.) **perpetual existence** or by extending its corporate life if a 2.) **fixed term** is specified in its articles of incorporation. - Its ability to continue existing is **not affected** by any changes in the composition of its **corporators** (members or shareholders). [^6^](#fn6){#fnref6.footnote-ref} ***Sec. 11, RCC -* Corporate term.** A corporation **shall have perpetual existence unless** its articles of incorporation provide otherwise. **Key Provision** **Details** -------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- **Perpetual Existence** Corporations have perpetual existence unless otherwise stated in the articles of incorporation. **Corporations Pre-Code Effectivity** Pre-existing corporations continue with perpetual existence unless stockholders opt to retain the specific term. **Appraisal Rights** Dissenting stockholders are entitled to *[appraisal rights (to demand payment for their value of their shares)]* in case of corporate term changes. **Corporate Term Amendment** Corporate term may be extended or shortened by amending articles of incorporation, with conditions. **Corporate Revival** Expired corporations can apply for revival, Upon approval by the Commission, *[it is deemed revived, then a certificate of revival shall be issued, and retaining previous rights and liabilities]*; granted perpetual existence unless specified. **Restrictions on Revival for Financial Institutions** *[Banks, Quasi banking institutions, insurance & Trust Companies, pawnshops, corporations engaged in money service business, and similar institutions]* need government agency approval for revival. ***SEC Memo. Circular No. 22, Series of 2020 on Guidelines on Corporate Term.*** Section 1. Corporations Incorporated under R.A. No. 11232 (Revised Corporation Code of the Philippines) **Perpetual Existence:** Corporations incorporated under the Revised Corporation Code (R.A. No. 11232) *[automatically have perpetual existence unless]* their Articles of Incorporation specify a different corporate term. Section 2. Corporations Incorporated under B.P. No. 68 (Corporation Code of the Philippines) and Act No. 1459 (The Corporation Law) **Key Provision** **Details** --------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------- **Automatic Perpetual Term** Corporations incorporated before the RCC are automatically granted perpetual existence upon its effectivity. **Amendment to Reflect Perpetual Term** Corporations can amend their Articles of Incorporation to reflect perpetual existence by a majority vote of the Board and stockholders. **Voting Requirement for Other Amendments** For other amendments, the required vote is a majority of the Board and two-thirds (2/3) of stockholders or members in non-stock corporations. ***Sec. 112, RCC** -* Filling of Vacancies in a corporation sole 1. **Succession of Office:** *[The successor of any chief archbishop, bishop, priest, minister, rabbi, or presiding elder automatically becomes the corporation sole upon assuming office]*. They can transact business as the corporation sole after filing a copy of their commission, certificate of election, letters of appointment, duly certified by any notary public with the Commission. 2. **Vacancy in Office:** During any vacancy in the office of chief archbishop, bishop, priest, minister, rabbi, or presiding elder of any religious denomination, sect or church incorporated as a corporation sole, *[the person or persons authorized by the rules, regulations or discipline of the religious denomination, sect or church represented by the corporation sole to manage the corporation sole\'s affairs, estate, and properties], exercising all its powers until the vacancy is filled.* *4. It has the powers, attributes and properties expressly authorized by law or incidental to its existence* ------------------------------------------------------------------------------------------------------------ **Sec. 35, RCC -- Corporate Powers and Capacity** **Key Corporate Power** **Details** ------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- **(a) Legal Capacity** Corporations can sue and be sued in their corporate name. **(b) Perpetual Existence** Corporations have perpetual existence unless otherwise stated. **(c) Corporate Seal** Corporations can adopt and use a corporate seal. **(d) Amend Articles of Incorporation** Corporations can amend their articles of incorporation as per the legal provisions. **(e) Adopt Bylaws** Corporations can adopt, amend, or repeal bylaws not contrary to law, morals, or public policy. **(f) Stock Issuance** (for Stock Corporations) Stock corporations can issue or sell stocks; non-stock corporations can admit members. **(g) Property Transactions** Corporations *[can engage in various property transactions]*, subject to legal and constitutional limitations. **(h) Partnerships and Joint Ventures** Corporations can enter into commercial agreements *[such as partnerships, joint ventures, mergers, etc]*. **(i) Reasonable Donations** Corporations can make reasonable donations for public welfare or charity, *[with restrictions on political donations (for partisan political activities) from foreign corporations.]* **(j) Employee Benefits** Corporations can establish pension, retirement, and benefit plans for employees, directors, and officers. **(k) Other Powers** Corporations can exercise other powers *[necessary to fulfill their purposes as stated in their articles of incorporation]*. ### CASE: **Ryuichi Yamamoto vs. Nishino Leather Industries, Inc. and Ikuo Nishino,** G.R. No. 150283, April 16, 2008 **FACTS:** - In 1983, Ryuichi Yamamoto (petitioner), a Japanese national, organized Wako Enterprises Manila, Incorporated (WAKO) under Philippine laws. WAKO, which later became Nishino Leather Industries, Inc. (NLII), primarily operated in leather tanning. - Yoshinobu Nishino (respondents) and his brother acquired more than 70% of Wako Enterprises Manila, Inc. (WAKO), reducing Ryuichi Yamamoto\'s stake to about 10% or less. - Negotiations followed regarding a planned takeover of Nishino Leather Industries, Inc. (NLII) by Yoshinobu Nishino, who intended to buy out Ryuichi Yamamoto\'s shares. - There arose a conflict as to the ownership of the machines. **RTC ruled that the disputed ownership of the machines belonged to herein petitioner**. *[CA reversed RTC and held that the machineries and equipment are corporate property of NLII and may not thus be retrieved without the authority of the NLII Board of Directors;]* **ISSUE / HELD**: Whether the machines and equipment may be retrieved by the petitioner Yamamoto - NO. The machineries and equipment that constituted Yamamoto\'s investment shall remain part of the corporation\'s capital property. - It is *established as a **[GENERAL RULE that a corporation\'s property does not belong to its stockholders or members]***. - **[Trust fund Doctrine]- the corporation\'s assets are held in trust for the payment of its creditors, who have priority over stockholders in asset distribution**. - Therefore, corporate assets cannot be distributed based on the preferences of stockholders, officers, or directors unless the proper conditions and procedures to protect corporate creditors are followed. - Further, without a Board Resolution authorizing respondent Nishino to act for and in behalf of the corporation, he cannot bind the latter. **[The GENERAL RULE is that]:** **Under the Corporation Law, unless otherwise provided, corporate powers are exercised by the Board of Directors.** ### CASE: **Rebecca Boyer-Roxas and Guillermo Roxas vs. Hon. Court of Appeals and Heirs of Eugenia V. Roxas, Inc.,** G.R. No. 100866, July 14, 1992 **FACTS:** - This case originated from two separate complaints for recovery of possession filed with the Regional Trial Court of Laguna. - **The respondent corporation (Heirs of Eugenia V. Roxas, Inc.,) sought the ejectment petitioners Rebecca Boyer-Roxas and Guillermo Roxas from Hidden Valley Springs Resort, Calauan, Laguna for non-payment of rent and ignoring eviction notices.** - The *[petitioners countered by claiming to be heirs of Eugenia V. Roxas and co-owners of the resort, asserting their right to remain on the property]*. - The properties in question originally belonged to Eugenia V. Roxas. After her death, **her heirs, including the petitioners, formed a corporation, Heirs of Eugenia V. Roxas, Incorporated**, using the inherited properties as the corporation\'s capital. - The petitioners argue that their occupancy of the staff house (later used by Eriberto Roxas, Rebecca Boyer-Roxas\'s husband) and the recreation hall (converted into a residential house) was authorized by Eufrocino Roxas, the deceased husband of Eugenia V. Roxas and the majority stockholder of the corporation. - RTC ruled in favor of herein respondents. CA affirmed RTC. **ISSUE / HELD:** Whether petitioners are co-owners of aliquot part of the properties of respondents Corporation - NO. the occupation of petitioner was just a mere tolerance by respondent corporation. - Eufrocino V. Roxas, as the majority stockholder and manager of the corporation, consented to the petitioners\' use of the properties, including the conversion of the recreation hall into a residential house. - *[**This consent was not challenged by the Board of Directors until a resolution was passed** on August 27, 1983, authorizing the petitioners\' eviction.]* - **Regarding Properties Owned by a Corporation** --- As stated in *Stockholders of F. Guanzon and Sons, Inc. v. Register of Deeds of Manila* (6 SCRA 373 \[1962\]), properties registered in the name of a corporation are owned by the corporation itself, which is a separate and distinct entity from its members. - **Shares of stock, though representing personal property, do not equate to ownership of the corporation\'s property.** Instead, a share of stock signifies a portion of the corporation's equity or the right to a share of its proceeds, but does not confer ownership of any specific part of the corporation\'s assets. - **The GENERAL RULE: The stockholder is neither a co-owner nor a tenant in common of the corporate property**. - The respondent corporation has a distinct legal personality separate from its members. **It operates through its officers or agents, who act based on authority granted by the Board of Directors or the corporation's charter**. C. **Alternative Forms of Business Organizations (Differentiated from a Corporation)** ====================================================================================== *1. Single Proprietorships* --------------------------- **Sole Proprietorship** vs. **Corporation**: [^7^](#fn7){#fnref7.footnote-ref} **Aspect** **Sole Proprietorship** **Corporation** ------------------------------- -------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- **Legal Personality** *[Does not possess a juridical personality separate]* from the owner. Possesses a legal personality separate and distinct from its owners. **Business Recognition** Recognized as a form of business organization conducted for profit by an individual. Recognized as a distinct legal entity with its own rights and obligations. **Owner\'s Liability** *[Personal assets of the proprietor may be held liable]* for business obligations. Owners (shareholders) generally have limited liability; personal assets are protected. **Registration Requirements** Requires the proprietor to secure licenses, permits, register the business name, and pay taxes. Must comply with corporate registration requirements, including filing with appropriate government agencies. **Taxation** *[Profits are taxed as personal income of the proprietor]*. Subject to corporate taxation; profits are taxed separately from the shareholders\' personal income. **Continuity** Business continuity depends on the proprietor; *[the business may cease if the owner leaves or dies.]* Has perpetual existence; continuity is not affected by changes in ownership or the death of shareholders. ### CASE: **Benny Hung vs. BPI Finance Corporation,** G.R. No. 182398, July 20, 2010 **FACTS:** - Guess? Footwear and BPI Express Card Corporation entered into two merchant agreements on August 25, 1994, and November 16, 1994. Under these agreements, Guess? Footwear agreed to accept valid BPI Express Credit Cards for purchases of its goods and services. - *[Benny Hung signed the first agreement as the owner and manager]* of Guess? Footwear and the second agreement as the president of Guess? Footwear, which he also referred to as B & R Sportswear Enterprises. - From May 1997 to January 1999, BPI mistakenly credited a total of ₱3,480,427.23 to the account of Guess? Footwear through 352 checks. **Benny Hung, on behalf of Guess? Footwear, transferred ₱963,604.03 from the bank account of B & R Sportswear Enterprises to BPI\'s account as partial repayment**. - BPI filed a case for collection of money upon failure of petitioner to pay the remaining. Then, RTC rendered a decision ordering B & R Sportswear Distributor, Inc. to pay BPI the amount of ₱2,516,826.68 with 6% interest from 4 October 1999. - However, during the execution of the judgment, it was discovered that B & R Sportswear Distributor, Inc. was a [non-existent entity, which prevented the trial court from executing the judgment]. - CA ruled that since B & R Sportswear Distributor, Inc. is not a valid corporation, it has no legal personality separate from Benny Hung. - Petitioner argues that he never represented B & R Sportswear Distributor, Inc., the non-existent entity sued by BPI. He contends that it is unfair to equate his sole proprietorship, B & R Sportswear Enterprises, with the non-existent corporation. He asserts that the similarity in names should not be held against him. **ISSUE / HELD:** Whether Petitioner has no separate and distinct personality from B&R Sportswear Enterprises, therefore be held liable. - **YES. Petitioner is the proper defendant since he is the sole proprietorship of B & R Sportswear Enterprises, which has no separate juridical personality apart from him**. - Consequently, the court affirmed the RTC\'s decision, clarifying that the correct defendant is Benny Hung, and that *[he signed the second merchant agreement in his personal capacity]*. - **DID Petitioner mislead the respondent?** - NO. *[SC did not agree with the CA finding that petitioner Benny Hung represented a non-existing corporation and misled]* both the respondent BPI and the RTC. - **SC held that This certification indicated that the name was created due to an error rather than any deliberate misrepresentation**. Therefore, the court did not accept the argument that petitioner intentionally misled the parties involved. - SC ruled that it can make a formal correction on the name of the defendant, which the *[latter voluntarily corrected by B & R Footwear Distributors, Inc., which acknowledged itself as the defendant]*, which has no separate and distinct personality from the petitioner. - According to **Section 4, Rule 10 of the Rules of Court**, *[such a summary correction of a formal defect is permissible at any stage of the action,]* even if the case is already under review. *2. Partnerships* ----------------- **[A.1767, NCC]** *-- General Partnerships* \(1) By the contract of partnership *[two or more persons bind themselves to contribute money, property, or industry to a common ]* *[fund]*, with the [intention of dividing the profits among themselves]. \(2) Two or more persons may also form a partnership for the exercise of a profession. *[See table on Partnrships v. Coproration] ([click here](#partnership-v.-corporation))* **[A.1844, NCC]** *-- Limited Partnerships* +-----------------------------------+-----------------------------------+ | **Requirements for Forming a | **Details** | | Limited Partnership** | | +===================================+===================================+ | **(1) Sign and Swear to a | Two or more persons must sign and | | Certificate** | swear to a certificate. | +-----------------------------------+-----------------------------------+ | a. **Name of the Partnership** | Must include the word | | | \"Limited\". | +-----------------------------------+-----------------------------------+ | b. **Character of the Business** | Must describe the nature of the | | | business. | +-----------------------------------+-----------------------------------+ | c. **Location** | Principal place of business must | | | be specified. | +-----------------------------------+-----------------------------------+ | d. **Names and Residences** | Must include the names and | | | residences of all members, | | | designating general and limited | | | partners. | +-----------------------------------+-----------------------------------+ | e. **Term of Partnership** | Duration or term for which the | | | partnership is to exist must be | | | stated. | +-----------------------------------+-----------------------------------+ | f. **Contributions** | Must specify cash contributions | | | and describe other property | | | contributed by each limited | | | partner. | +-----------------------------------+-----------------------------------+ | g. **Additional Contributions** | Details of any additional | | | contributions and when they will | | | be made. | +-----------------------------------+-----------------------------------+ | h. **Return of Contributions** | Time agreed upon for the return | | | of each limited partner's | | | contribution. | +-----------------------------------+-----------------------------------+ | i. **Profits and Income** | Share of profits or compensation | | | by way of income for each limited | | | partner. | +-----------------------------------+-----------------------------------+ | j. **Substitution Rights** | If allowed, the right of a | | | limited partner to substitute an | | | assignee. | +-----------------------------------+-----------------------------------+ | k. **Admission of New Partners** | Right to admit additional limited | | | partners, if provided. | +-----------------------------------+-----------------------------------+ | l. **Priority Rights** | Priority rights of limited | | | partners concerning contributions | | | or compensation, if provided. | +-----------------------------------+-----------------------------------+ | m. **Continuation of Business** | Right for remaining general | | | partners to continue the business | | | upon events like death or | | | retirement of a general partner. | +-----------------------------------+-----------------------------------+ | n. **Return of Property** | Right of a limited partner to | | | demand property other than cash | | | in return for their contribution, | | | if provided. | +-----------------------------------+-----------------------------------+ | o. **Filing** | The certificate must be filed | | | with the Securities and Exchange | | | Commission. | +-----------------------------------+-----------------------------------+ | **(2) Substantial Compliance** | A limited partnership is formed | | | with substantial compliance in | | | good faith with these | | | requirements. | +-----------------------------------+-----------------------------------+ *3. Joint Ventures* [^8^](#fn8){#fnref8.footnote-ref} {#joint-ventures} ------------------------------------------------------ F Here's a table summarizing the information about joint ventures and their relation to the law on partnerships: **Aspect** **Joint Ventures** **Law on Partnerships** ---------------------------------- ------------------------------------------------------------------------------------------------------------------------------------------ --------------------------------------------------------------------- **Definition** Generally understood as an *[organization formed for a temporary purpose or specific undertaking]*. Governed by mutual agency and delectus personae. **Similarities to Partnerships** Likened to a particular partnership with specific objectives, such as using or managing determinable things, or exercising a profession. Joint ventures are governed by the same principles as partnerships. **Governing Law** Governed by the *[law on partnerships.]* Based on principles of mutual agency and delectus personae. ### CASE: **Auerbach et al. vs. Sanitary Wares Manufacturing Corporation,** G.R. No. 75875 \| December 15, 1989 **FACTS:** - In 1961, Saniwares, a domestic corporation focused on manufacturing and marketing sanitary wares, was established. One of its incorporators, Mr. Baldwin Young, sought international partners for expansion. - Then, ASI, a Delaware-based foreign corporation, entered into an agreement with Saniwares and Filipino investors. - The agreement involved joint ownership of a new enterprise in the Philippines that would manufacture and sell vitreous china and sanitary wares both locally and internationally. *[The new enterprise was to be incorporated under the name \"Sanitary Wares Manufacturing Corporation]*.\" - *[The joint venture between the Filipino investors and the American corporation initially thrived but eventually faced deteriorating relations.]* The dispute arose primarily from disagreements over expanding export operations. The Filipino group sought to increase exports, which ASI opposed due to its own subsidiaries in the target markets. - *[Tensions escalated with protests against Chairman Baldwin Young and heated arguments. The situation worsened when the Chairman threatened to eject stockholders who disagreed with his decisions]* regarding the vote casting of the election of members of the board of directors. These conflicts led both parties to file separate petitions with the Securities and Exchange Commission (SEC). **ISSUE / HELD:** Whether the nature of the business established by the parties --- whether it was a joint venture or a corporation, in relation to the newly elected directors - **SC held that the evidence indicates that the parties intended to establish a joint venture rather than a conventional corporation.** - Key provisions of the Agreement, along with the organizational practices of Saniwares, support this conclusion. - Testimonies, particularly from Baldwin Young, reveal that ASI agreed to be a minority partner with specific protections, as reflected in the Agreement\'s use of the term \"designated\" rather than \"nominated\" or \"elected\" for selecting directors, ensuring a fixed board ratio. Additionally, ASI referred to the enterprise as a joint venture in its communications. The Agreement's Section 16(c) further reinforcing the joint venture arrangement rather than a traditional corporate structure. - **Participants in a joint venture often deviate from traditional corporate management patterns**. - According to SEC, joint venture corporations, much like close corporations, may include shareholder agreements with [specific provisions.] - *[These may require a greater-than-majority vote for decisions, allow certain shareholders or groups to appoint a specified number of directors], grant shareholders control over employee selection and retention, and establish arbitration procedures for dispute resolution*. - [In **common law**] jurisdictions, the primary distinction between a joint venture and a partnership is that **a partnership [usually involves ongoing business with some continuity], while a joint venture is typically [formed for a single, specific transaction and is of a temporary nature]**. - **[IN PH law]:** However, this distinction is not entirely accurate in the Philippine context. *[Under the Civil Code, a partnership can be particular or universal]*, and a particular partnership can be established for a specific undertaking (Art. 1783, Civil Code). - *Thus, in Philippine law, a joint venture is essentially a form of partnership and should be governed by partnership laws*. - Despite this, the SC ruled that **while a corporation *[cannot enter into a partnership contract, it can engage in a joint venture with others]*.** - **In this case, the foreign group (ASI) was restricted to designating three out of nine directors on the board, reflecting their minority status in the joint venture.** This - arrangement is part of the agreed-upon terms to protect ASI\'s interests as a minority investor. - Therefore, this limitation of three board seats out of nine should be upheld in future dealings, *[as long as the joint venture agreement remains in effect.]* *4. Business Trusts* -------------------- **[A.1442, NCC]** *-- General Law of Trust* The principles of the general law of trusts, insofar as they are not in conflict with this Code, the Code of Commerce, the Rules of Court and *[special laws are hereby adopted]*. cd *5. Cooperatives* ----------------- **[R.A. No. 6938 -]** *(NB. Please read Chapter I -- General Concepts and Principles only)* +-----------------------------------------------------------------------+ | **Summary of the Cooperative Code of the Philippines:** | | | | 1. **Section 1: Title** | | | | - The Act is known as the \"Cooperative Code of the | | Philippines.\" | | | | 2. **Section 2: Declaration of Policy** | | | | - The *[State promotes cooperatives as a means to achieve | | economic development and social justice by fostering | | self-reliance and people power]*. | | | | - The State encourages the private sector to form and organize | | *[cooperatives, creating a supportive environment for their | | growth]*. | | | | - The government shall provide technical, financial, and other | | assistance to develop cooperatives while maintaining their | | autonomy. | | | | 3. **Section 3: General Concepts** | | | | - [A cooperative] is a registered association of | | individuals with a shared interest, voluntarily coming | | together to achieve a lawful social or economic goal. | | | | - Members contribute equitably to the capital and share in the | | risks and benefits according to universal accepted | | cooperative principles. | | | | 4. **Section 4: Cooperative Principles** | | | | Cooperatives must operate under the following principles: | | | | 1. **Open and Voluntary Membership**: Membership is voluntary and | | open to all, regardless of background or beliefs. | | | | 2. **Democratic Control**: Cooperatives are democratically governed, | | with primary cooperative members having equal voting rights | | (one-member-one-vote). | | | | 3. **Limited Interest in Capital**: Share capital earns a limited | | rate of interest. | | | | 4. **Division of Net Surplus**: Net surplus belongs to members and | | is distributed equitably for cooperative development, common | | services, reserve funds, and patronage refunds. | | | | 5. **Cooperative Education**: Cooperatives must educate their | | members, officers, employees, and the public about cooperation | | principles.

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