LAWS ON CORPORATION

Handout No. 1

1. Historical Background- the present law that governs private

corporation is the Batas Pambansa (BP) Bilang 68, otherwise known as
the Corporation Code of the Philippines, which took effect on May 1,
1980. It supplanted the Act 1459 as amended, also know as the
Corporation Law which took effect in 1906. BP 68 reproduced a lot of
provisions of Act 1459.

Intendment of the Corporation Code-to establish a new concept of

business corporations so that they are not merely entities established
for private gains but effective partners of the National Government in
spreading the benefits of capitalism for the social and economic
development of the nation.

2. Definition of the Corporation (See Section 2 of BP 68)

3. Attributes of a corporation

a. It is an artificial being – Corporation is a legal or juridical person

with a personality separate and distinct from members and
stockholders who may be natural person or individuals who merged as
a corporate body. Corporation is not in reality a man, a human being
or a person but the law has endowed it with the rights and privilege as
though it is a person.

i. Thus, liability of stockholders is not the debt of the corporation.

Conversely, the corporate debt is not the liability of the stockholder.

ii. The corporation being a person can acquire properties and have it
titled in his name. It ca sell and purchase properties.

iii. Can enter into contracts and memorandum of agreements (through

a duly authorized representative as evidenced by Board Resolution or
Corporate Secretary’s Certificate)

iv. Can sue and be sued in his own name.

Corporate Entity Theory (Fiction of Corporate Entity) – means

the corporation has the personality separate and distinct from the
members or the stockholders composing it.
Doctrine of Piercing the Veil of Corporate Entity. This means
that when the fiction of corporate entity is being used as a cloak or
cover or to defend fraud, illegality or crime, the fiction will be
disregarded and the individuals will be treated as identical. Thus, the
law will not recognize separate corporate personality. (Read notes and
instances in the text book where the fiction of corporate entity will be
disregarded)

SUPREME COURT CASES

PALACIO VS. FELY TRANSPORT CO. (5 SCRA 1011)

FACTS: Alfredo Carillo, a jeepney driver was convicted of a crime

due to a vehicular mishap. The operator of the jeepney was Isabelo
Calingasan. Under the law, in case of conviction of the driver, the
operator of a public utility vehicle is subsidiarily liable to the offended
party with respect to civil damages. After the conviction, Isabelo
Calingasan, his wife, and his three (3) children formed a corporation
named Fely Transport. Co. Thereupon, the jeepney was sold to Fely
Transport Co. Isabelo Calingasan refused to pay the civil damages
(subsidiary civil liability) on the ground that the jeepney was owned by
Fely Transport Co. which had a personality distinct and separate from
him. Fely Transport Co, likewise disowned subsidiary liability on the
ground that its personality was separate from that of Isabelo
Calingasan.

ISSUE: Whether or not the fiction of Corporate Entity of Fely

Transport Corp. should be disregarded so as to hold Fely Transport
Corp. subsidiarily liable?

HELD: Yes. It was found that an incorporator's main purpose in

forming the corporation was to do fraud and to evade subsidiary civil
liability. The corporation should be made liable for such subsidiary
liability. In determining the attempt to defraud, the Court took into
consideration the fact that the only property of the corporation was the
jeepney owned by the main stockholder Isabelo Calingasan, being held
accountable because of the accident.
LAND BANK OF THE PHILIPPINES, petitioner, VERSUS
THE COURT OF APPEALS, ECO MANAGEMENT CORPORATION and
EMMANUEL C. OÑATE, respondents. (G.R. No. 127181
September 4, 2001)

FACTS: In 1980, Land Bank of the Philippines (LBP) extended

loan to ECO Management Corporation (ECO), in the amount of
P26,109,000.00. The proceeds were received by Emanuel C. Oñate, a
representative and principal stockholder of ECO. On maturity date,
ECO failed to pay LBP due to economic distress. ECO through Oñate
proposed and submitted to LBP a "Plan of Payment". However, the
plan was rejected by LBP.

On June 28, 1982, Landbank filed a complaint for Collection of

Sum of Money against ECO and Emmanuel C. Oñate, before the
Regional Trial Court (RTC) of Manila. The RTC rendered judgment in
favor of LBP and against ECO, but Emmanuel C. Oñate was absolved
from any liability. Absolving Oñate from any liability was affirmed by
the Court of Appeals. Dissatisfied, LBP went to the Supreme Court.
According to LBP, the personality of ECO should not be considered as
separate from that of Emmanuel C. Oñate because (1) Oñate owns the
majority of the interest holdings in respondent corporation, (2) the
acronym ECO stands for the initials of Emmanuel C. Oñate.

ISSUE: Whether or not the legal fiction of Corporate Entity of

ECO Management Corporation should be pierced or lifted so that
Emmanuel C. Oñate will be held solidarily liable with ECO, for the loan
incurred from LBP .

HELD: Supreme Court says, there should be no Piercing of the

Veil of Corporate Entity. LBP failed to prove that there were bad faith,
fraud and illegality being covered or cloaked by the separate
personality of Eco Management Corp. In fact Emmanuel Oñate
submitted Plan of Payment. Such plan or proposal to pay indebtedness
is a manifestation of good faith on the part of Oñate. If there was
intention to defraud LBP, Oñate could just easily abscond, instead of
offering the said Plan of Payment.

The mere fact that Oñate owned the majority of the shares of
ECO Management Corp is not a ground to conclude that Oñate and
ECO are one and the same. Mere ownership by a single stockholder of
all or nearly all of the capital stock of a corporation is not by itself
sufficient reason for disregarding the fiction of separate corporate
personalities. Neither is the fact that the name "ECO" represents the
first three letters of Oñate’s name sufficient reason to pierce that veil.
There is nothing illegal in a corporation acquiring the name or as in this
case, the initials of one of its shareholders.

b. Created by operation of the Law (Read comments in the text

book)

c. Right of succession of the corporation (Read comments in

the text book)

d. Power attributes and properties expressly authorized or

incident to its existence (Read comments in the text book)

4. Corporation and Partnership, distinguished (Please read/refer

to comments in the text book)

i. As to manner of creation
ii. As to number of incorporators
iii. As to commencement of juridical personality (Relate to
Section 19)
iv. As to powers
v. As to management (Relate to Sec. 23)
vi. As to right of succession
vii. As to the principle of Delectus Personarum

5. Advantages of the Corporation (Read comments in text book)

6. Different kinds of Corporation (Read Section 3 and comments)

Per Section 3 of BP 68

a. stock corporations – those which have capital stock divided into

shares. They are organized for profit and are authorized to
distribute the profits to the stockholders by way of dividends.
b. non-stock corporations are those which are created not for profit
but for public good and welfare such as religious, social,
scientific, civic and similar organizations. Since they have no
capital stock, the corporators in non-stock corporation are called
members.

As to number of persons composing it

a. Corporation aggregate-compose of more than one person

composing it
 b. Corporation sole-a religious corporation, composed of only
one corporator. Example : The Roman Catholic Archbishop
of Manila

As to the law of the country they have been created

a. Domestic Corporation-incorporated in accordance with the law

of the Philippines
b. Foreign Corporation-incorporated or organized in accordance
with the law of a foreign country

As to right to corporate existence

a. de jure corporation – corporation existing in fact and in law

b. de facto corporation- corporation existing in fact but not in law.

As to statutory authority

a. True corporation - which exist by statutory authority

b. Quasi Corporation-existing even withour corporate grant-
exception to common attribute of corporation that it must be
created by operation of the law.
i. Corporation by prescription- one which exercises
corporate powers since the time immemorial, without
interference on the part of the State. By fiction of law it
is given the status of a corporation. Example: The
Roman Catholic Church, the bishops and archbishops of
the Diocese of the Roman Catholic Church
ii. Corporation by estoppel, not in reality a corporation
because it is defectively formed but treated as a
corporation by reason of its acts and admissions. A such
it is estopped from denying that it is a corporation.

As to whether it is public or private

a. Public corporations- those organized for the purpose of

governing a portion of the territory of the state. Eg. The
provinces, the municipalities and the cities. They are also
known as local government or municipal government. They
include autonomous regions of Cordillera and Muslim Mindanao.
b. Private corporations – those which are organized for private
purpose such as profit, service, and other social and civic
purpose.
c. Quasi-public corporations- are those organized for profit but
carrying out business of a public nature, a such they have
accepted franchise from the government. Thus, they are
subjected to higher degree of government control. Example:
MERALCO, PLDT, BAYANTEL, water and transportation
companies.
d. Government owned and controlled corporations- owned or
controlled by the government, performing governmental
proprietary functions. Ex. GSIS, NAPOCOR, PNR, PCSO etc.