I.

CORPORATION Defined
1. What is a Corporation?
Corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly
authorized by law or incident to its existence. [Sec. 2. BP 68] ( See also Section 2; Articles 44(3), 45, 46, and 1775, Civil Code. )

- A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and
properties expressly authorized by law or incident to its existence. (sec. 2, BP 68)
Note:
1. All corporations, big or small, must abide by the provisions of the Corporation Code. Being a simple family corporation is
not an exemption. Such corporations cannot have rules and practices other than those established by law. (Manuel Torres, Jr. v. CA)

2. A corporation is an artificial being created by operation of law…. “It owes its life to the State, its birth being purely
dependent on its will.” (Tayag v. Benguet)

3. A corporation is subject to SEC’s jurisdiction, regulation and control. The SEC has the authority to look into the rulings
issued by the corporation. The SEC is the entity with the primary say as to whether or not securities, including shares of stock of a
corporation, may be traded or not in the stock exchange. (PSE v. CA)

1.01. Explain the Concession Theory

It is a principle in the creation of corporations, under which a corporation is an artificial creature without any existence until it has received the
imprimatur of the State acting according to law, through SEC. The life of the Corporation is a concession made by the State.

Section 19 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines provides for the Commencement of
corporate existence, that—“A private corporation formed or organized under this Code commences to have corporate existence and juridical
personality and is deemed incorporated from the date the Securities and Exchange Corporation issues a certificate of incorporation under its
official seal x x x”.

Tayag V. Benguet (1968)

G.R. No. L-23145 November 29, 1968
Lessons Applicable: Theory of Concession (Corporate Law)
FACTS:
 March 27, 1960: Idonah Slade Perkins died in New York City
 August 12, 1960: Prospero Sanidad instituted ancillary administration proceedings appointing ancillary administrator Lazaro A.
Marquez later on substituted by Renato D. Tayag
 On January 27, 1964: CFI ordered domiciliary administrator County Trust Company of New York to surrender to the ancillary
administrator in the Philippines 33,002 shares of stock certificates owned by her in a Philippine corporation, Benguet Consolidated,
Inc., to satisfy the legitimate claims of local creditors
 When County Trust Company of New York refused the court ordered Benguet Consolidated, Inc. to declare the stocks lost and
required it to issue new certificates in lieu thereof
 Appeal was taken by Benguet Consolidated, Inc. alleging the failure to comply with its by-laws setting forth the procedure to be
followed in case of a lost, stolen or destroyed so it cannot issue new stock certs.

ISSUE: W/N Benguet Consolidated, Inc. can ignore a court order because of its by-laws

HELD: NO. CFI Affirmed

 Fear of contigent liability - obedience to a lawful order = valid defense
 Benguet Consolidated, Inc. is a Philippine corporation owing full allegiance and subject to the unrestricted jurisdiction of local courts
 Assuming that a contrariety exists between the above by-law and the command of a court decree, the latter is to be followed.
 corporation is an artificial being created by operation of law...."It owes its life to the state, its birth being purely dependent on its
will. Cannot ignore the source of its very existence.

1.02. What are the attributes of a corporation? (Sec 19)

Four Attributes of Corporation from Statutory Definition:

(a) A corporation is an artificial being

(b) Created by operation of law
(c) With right of succession
(d) Only has powers, attributes and properties expressly authorized by law or incident to its existence
A. Art. XII Section 16, 1987 Philippine Constitution
- Section 16. 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.

Note:
1. The Constitution recognizes two classes of corporations. The first refers to private corporations created under a general law. The
second refers to GOCCs created by special charters. Under existing laws, that general law is the Corporation Code.

B. Attributes of a Corporation
1. It is an artificial being with separate and distinct personality.
- It is entitled to own properties in its own name and its properties are not the properties of its stockholders, directors and officers
(Wise v. Man Sung Lung)
- The interest of the stockholders over the properties of the corporation is merely inchoate (Saw v. CA)
- It can incur obligations and its obligations are not the obligations of its stockholders, directors and officers (Vasquez v. De Borja)
- Rights belonging to the corporation cannot be invoked by the stockholders even if the latter owns substantial majority of the shares
in that corporation and rights of the stockholders, directors and officers cannot be invoked by the corporation (Stonehill v. Diokno)
- Tax exemptions in favor of the corporation cannot be invoked by its stockholders. (Manila Gas Corp v. Collector of Internal Revenue)
- Corporations are entitled to certain constitutional rights (e.g. right against unreasonable searches and seizure)
- However, it is not entitled to certain constitutional rights not only because it is an artificial being but also because it is a mere
creature of law (e.g. the right against self-incrimination particularly production of corporate documents)
- It is liable for tort (PNB v. CA)
- It is liable when the act was committed by the officer or agent under express direction or authority from the stockholders or
members acting as a body or generally from the directors as the governing body. (ibid)
- Generally, the corporation is considered a national of the country where it was incorporated (Place of incorporation test), except; (a)
in times of war, the nationality of a corporation is determined by the nationality of the controlling stockholders (control test); (b) a corporation
organized under Phil. Laws of which 60% of the capital stock outstanding and entitled to vote is owned and held by Filipino citizens, and a
corporation organized a broad as doing business in the Phil. Under the Corporation Code of which 100% of the capital stocks entitled to vote
belong to Filipinos.

* Artificial Being
- It exists by fiction/operation of law only, hence, it is subject to limitations that are inherent because of its nature.
- It can act only through its directors, officers and employees.
- Corporations are incapable of intent, hence, they cannot commit felonies that are punishable under the RPC and SPL because crimes
are personal in nature.
- A corporation may, however, be dissolved for violation of one Corporation Code (sec. 144)
- Moral damages cannot be awarded in favor of corporations because they do not have feelings and mental state.
- However, a corporation can recover moral damages under Art. 2219(7) of NCC if it was the victim of defamation (Filipinas
Broadcasting Network Inc v. Ago Medical and Educational Center)
- If the veil of corporate entity or fiction is used as a shield to perpetuate fraud, to defeat public convenience, justify wrong or defend
crime, this fiction shall be disregarded and the individuals composing it will be treated identically. (Doctrine of Piercing the Veil of Corporate
Fiction)
- The Doctrine, however, cannot be used to make the corporation liable for the personal obligations of directors, officers or
shareholders.
- The separate personality may be disregarded if such personality is:
i. Used to evade obligations to employees or used as a pretext to dismiss employees;
ii. Used to evade lawful obligations or a money judgment;
iii. Dominated by officers or stockholders or other person or entity to the extent that the corporation is a mere alter ego, adjunct or
business conduit;
iv. Used to defeat public convenience;
v. Used to justify wrong;
vi. Used to protect fraud;
vii. Used to defend crime;
viii. Used to confuse legitimate legal or judicial issues; or
ix. Used to perpetrate deception or otherwise circumvent the law (LBP v. CA)
- Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of the corporation does not
justify the application of the doctrine. There must be other circumstances that must be present. (Francisco v. Mejia)
- Note: The elements that must be present to justify the piercing the veil of corporate fiction on the ground that the corporation is a
mere alter ego are;
i. Control – not mere stock control but complete domination
ii. Such control must have been used by the defendant to commit a fraud or wrong to perpetuate the violation of a statutory or other
positive legal breach of duty, or a positive legal breach of duty, or a dishonest and unjust act in contravention of the plaintiff’s legal right.
iii. Said control and breach of duty must have proximately caused the injury or unjust loss complained of (PNB v. Andrada Electric &
Eng. CO)

2. Created by Operation of Law

a. Concession Theory
- A principle under which a corporation is an artificial creature without any existence until it has received the imprimatur of the State
acting according to law, through the SEC.
b. Franchises of Corporation
i. Primary, corporate or general franchises
- The right to exist as such is vested in the individuals who compose the corporation and not in the corporation itself (JRS v. Imperial
Insurance)
ii. Special or secondary franchises
- These are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power granted to a corporation
to dispose of its property, except such special or secondary franchises as are charged, with a public use.
- Subject to levy and sale on execution together and including all the property necessary for the enjoyment thereof.
- Private corps. Are generally created under the provisions of the Corporation Code.
- Done by filing appropriate Articles of Incorporation with the SEC; the life of the corporation starts from the issuance of the
Certificate of Incorporation.
- Public corporations are created through special laws.
- Private corps. Cannot be created by special laws, except GOCC which are actually private corporations.
3. Right of Succession
- This is the capacity to have continuity of existence despite the changes on the persons who compose the corp. Thus, the personality
continues despite the change of stockholders, members, board members or officers.
4. Powers, Attributes, and Properties
- No corporation under the Code shall possess or exercise any corporate powers, except those conferred by law, its Articles of
Incorporation, those implied from express powers and those as are necessary or incidental to the exercise of the powers so conferred.

A. Art. XII Section 16, 1987 Philippine Constitution

- Section 16. 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.

Note:
1. The Constitution recognizes two classes of corporations. The first refers to private corporations created under a general
law. The second refers to GOCCs created by special charters. Under existing laws, that general law is the Corporation
Code.

B. Attributes of a Corporation
1. It is an artificial being with separate and distinct personality.
- It is entitled to own properties in its own name and its properties are not the properties of its stockholders, directors and
officers (Wise v. Man Sung Lung)
- The interest of the stockholders over the properties of the corporation is merely inchoate (Saw v. CA)
- It can incur obligations and its obligations are not the obligations of its stockholders, directors and officers (Vasquez v. De
Borja)
- Rights belonging to the corporation cannot be invoked by the stockholders even if the latter owns substantial majority of
the shares in that corporation and rights of the stockholders, directors and officers cannot be invoked by the corporation
(Stonehill v. Diokno)
- Tax exemptions in favor of the corporation cannot be invoked by its stockholders. (Manila Gas Corp v. Collector of
Internal Revenue)
- Corporations are entitled to certain constitutional rights (e.g. right against unreasonable searches and seizure)
- However, it is not entitled to certain constitutional rights not only because it is an artificial being but also because it is a
mere creature of law (e.g. the right against self-incrimination particularly production of corporate documents)
- It is liable for tort (PNB v. CA)
- It is liable when the act was committed by the officer or agent under express direction or authority from the stockholders
or members acting as a body or generally from the directors as the governing body. (ibid)
- Generally, the corporation is considered a national of the country where it was incorporated (Place of incorporation test),
except; (a) in times of war, the nationality of a corporation is determined by the nationality of the controlling
stockholders (control test); (b) a corporation organized under Phil. Laws of which 60% of the capital stock outstanding
and entitled to vote is owned and held by Filipino citizens, and a corporation organized a broad as doing business in the
Phil. Under the Corporation Code of which 100% of the capital stocks entitled to vote belong to Filipinos.

* Artificial Being
- It exists by fiction/operation of law only, hence, it is subject to limitations that are inherent because of its nature.
- It can act only through its directors, officers and employees.
- Corporations are incapable of intent, hence, they cannot commit felonies that are punishable under the RPC and SPL
because crimes are personal in nature.
- A corporation may, however, be dissolved for violation of one Corporation Code (sec. 144)
- Moral damages cannot be awarded in favor of corporations because they do not have feelings and mental state.
- However, a corporation can recover moral damages under Art. 2219(7) of NCC if it was the victim of defamation (Filipinas
Broadcasting Network Inc v. Ago Medical and Educational Center)
 - If the veil of corporate entity or fiction is used as a shield to perpetuate fraud, to defeat public convenience, justify wrong
or defend crime, this fiction shall be disregarded and the individuals composing it will be treated identically. (Doctrine of
Piercing the Veil of Corporate Fiction)
- The Doctrine, however, cannot be used to make the corporation liable for the personal obligations of directors, officers or
shareholders.
- The separate personality may be disregarded if such personality is:
i. Used to evade obligations to employees or used as a pretext to dismiss employees;
ii. Used to evade lawful obligations or a money judgment;
iii. Dominated by officers or stockholders or other person or entity to the extent that the corporation is a mere
alter ego, adjunct or business conduit;
iv. Used to defeat public convenience;
v. Used to justify wrong;
vi. Used to protect fraud;
vii. Used to defend crime;
viii. Used to confuse legitimate legal or judicial issues; or
ix. Used to perpetrate deception or otherwise circumvent the law (LBP v. CA)
- Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of the
corporation does not justify the application of the doctrine. There must be other circumstances that must be present.
(Francisco v. Mejia)
- Note: The elements that must be present to justify the piercing the veil of corporate fiction on the ground that the
corporation is a mere alter ego are;
i. Control – not mere stock control but complete domination
ii. Such control must have been used by the defendant to commit a fraud or wrong to perpetuate the violation of
a statutory or other positive legal breach of duty, or a positive legal breach of duty, or a dishonest and unjust
act in contravention of the plaintiff’s legal right.
iii. Said control and breach of duty must have proximately caused the injury or unjust loss complained of (PNB v.
Andrada Electric & Eng. CO)

2. Created by Operation of Law

a. Concession Theory
- A principle under which a corporation is an artificial creature without any existence until it has received the
imprimatur of the State acting according to law, through the SEC.
b. Franchises of Corporation
i. Primary, corporate or general franchises
- The right to exist as such is vested in the individuals who compose the corporation and not in the corporation
itself (JRS v. Imperial Insurance)
ii. Special or secondary franchises
- These are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power
granted to a corporation to dispose of its property, except such special or secondary franchises as are charged, with a
public use.
- Subject to levy and sale on execution together and including all the property necessary for the enjoyment
thereof.
- Private corps. Are generally created under the provisions of the Corporation Code.
- Done by filing appropriate Articles of Incorporation with the SEC; the life of the corporation starts from the issuance of
the Certificate of Incorporation.
- Public corporations are created through special laws.
- Private corps. Cannot be created by special laws, except GOCC which are actually private corporations.
3. Right of Succession
- This is the capacity to have continuity of existence despite the changes on the persons who compose the corp. Thus, the
personality continues despite the change of stockholders, members, board members or officers.
4. Powers, Attributes, and Properties
- No corporation under the Code shall possess or exercise any corporate powers, except those conferred by law, its Articles
of Incorporation, those implied from express powers and those as are necessary or incidental to the exercise of the
powers so conferred.

1.03. Consequences of Separate Personality

Concept of separate personality
The corporation’s obligations, incurred through official acts of its representatives, are its own. Therefore, a stockholder, director, or
representative does not become a party to a contract just because a corporation executed a contract through that stockholder, director or
representative. Hence, a corporation’s representatives are generally not bound by the terms of the contract executed by the corporation. They
are not personally liable for corporate obligations and liabilities.
 a. as to property
.it is entitled to properties of its own
.properties it owns are not that of the stockholders, directors and officers
.the interest of the SDO’s over the corporations properties are merely inchoate

b. as to obligation
.the obligations of the corporation are not that of the SDO’s and vice versa

c. as to rights
.rights exercised by the corporation cannot be invoked by the SDO’s and vice versa e.g. the right of the SDO’s against
unreasonable searches and seizures cannot be invoked by the corporation since the right is personal with respect to the
individuals

d. as to constitutional rights
.corporations are still entitled to certain constitutional rights: the right against unreasonable searches and seizures (since it is
considered as a person by fiction of law), Due process. Some rights that cannot be invoked by the corporation e.g. the right
against self-incrimination

e. as to torts
.the corporation is liable for torts: when the act committed by the officer or agent is by the express direction or authority of
the stockholders or members acting as a body (Directors).

f. as to nationality
.The general rule a corporation is a national of the country where its was incorporated (Place of Incorporation Test)
_in the instance of war (public enemy)- the nationality of a corporation is determined by the nationality of the controlling
stockholders (Control Test)
_investment purposes- (foreign investment act of 1991)

1.04.