CORPORATION LAWATTY. AMANTE A. LIBERATO

A. INTRODUCTION Legislative and Historical Background of Philippine Corporate Law

Corporation Law (Act No. 1459)- first general law on corporations in the Philippines-passed by the Philippine Commission in 1906 and took effect on April 1 , 1906-codification of the American law on corporations-repealed in1980 by Batas Pambansa Blg. 68 (Corporation Code of the Philippines) which took effect on May 1, 1980

Corporation Code- applies to all corporations already in existence at the time the Code took effect. It is consistent with the mandate under Sec. 1 Art. XII of the Constitution for Congress to prescribe all the criteria for the formation, organization, or regulation of private corporations in general law applicable to all without discrimination.

PURPOSE OF CORPORATE LAWa) Provide for the formation and organization of corporationsb) define their powersc) fix the duties of the directors and other officers thereof d) declare the rights and liabilities of shareholders and members e) prescribe the conditions under which corporations may transactf) seeks to regulate both relations between groups as well as their rights once they have joined the groupg) to lay down rules and regulations of the organization of corporations with a view to the protection of the public interest , but at the same time, promote the economic and social development of the country , through the development of the corporate vehicle as a means of doing business the Philippines.h) this would spread the benefits of prosperity among all the people ,especially the employees of the corporations and associations which may be organized under the aegis of the Corporation Code.GENERAL RULE: Corporation Code is a PRIMARY LAWEXCEPT: Becomes SUPPLETROY LAW in BANKS- governed by General Banking Law and the New Central Bank ActNOTE : As between general and special law , the latter shall prevail generalia specialibus non derogant

B. DEFINITION AND ATTRIBUTES OF A CORPORATION1. Statutory DefinitionSec. 2 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 incident to its existence

NOTES: CJ Marshall Corporations is an artificial being, invisible , intangible and existing only in contemplation of the law ATTRIBUTES: ( A-C-R-P)1. It is an ARTIFICIAL BEING2. It is created by operation of law3. It has the right of succession4. it has powers, attributes expressly authorized by law or incident of its existence.

2.1 Artificial Being Concession Theory- it owes its life to the State and its birth is purely dependent on the States will.

2.1.1 Doctrine of Corporate Entity( separate personality)A corporation has a personality separate and distinct from its members. It has a personality separate and distinct from the persons composing it as well as from that of any other entity to which it is related. This separate juridical personality is recognized under the NCC because its Art. 44 specifies corporations among those considered as juridical persons with juridical personality ,separate and distinct from that of each shareholder or member.

ART. 45 of NCC- Private Corporations are regulated by laws of general application on the subject

Art.46 of NCC- juridical persons may acquire and possess property of all kinds as well as incur obligations and bring civil or criminal actions in conformity with the laws and regulations of their organization.

Properties registered in the name of the corporation are owned by it as an entity separate and distinct from those who compose it.

CASES:a.) Secosa et.al. vs. Heirs of Erwin Suarez Francisco , G.R No. 160039, January 29, 2004A corporation has a personality separate and distinct from its members. It has a personality separate and distinct from the persons composing it as well as from that any other entity to which it may be related.

b.) PNB vs. Aznar , G.R No. 171805 , May 30,2011The interest of the shareholder in the corporation is indirect, contingent and inchoate. (PNB v. Aznar) The interest of the shareholder on a particular property becomes actual, direct and existing only upon liquidation of the assets of the corporation and the same property is assigned to the share holder concerned

2.1.1.1 Nationality GENERAL RULE: Corporation cannot be considered a citizen as the term "citizen" is understood in political law.

In political law, citizenship is membership in body politic, which carries with it the duty of allegiance to the State and the exercise of political rights, like the right of suffrage and right to hold public office, as well as the duty to render military service when required to by the State. In this sense, the term citizenship is limited to natural persons because by the very essence of the duty of allegiance to the state and the exercise of political rights, only natural persons are capable of performing said acts. Two principal tests for determining if a corporation is foreign or domestic, namely: Aggregate Test- which requires looking into the nationality, domicile, or residence of the individuals who control the corporation -aka Control Test Entity Test- which looks to the nation where the corporation was incorporated. -aka Place of Incorporation Test or Incorporation Test

a. Incorporation TestNOTES: The norm that is expressed in the Corporation Code is the Entity or Place of Incorporation Test.

Section 123 of the Corporation Code provides that a foreign corporation is one formed, organized, or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state. As explained in one case, the sovereignty by which a corporation was created, under whose laws it was organized, determines its national character, and the fact that some of its incorporators were residents and citizens of a foreign country does not change this rule.

b. Control Test (Sec. 3(a), RA 7042, as amended )

NOTES: Contemplated by the SEC is said to have been adopted under Section 3 of Republic Act (RA.) No. 7042 as amended by R.A. 8179 otherwise known as the Foreign Investment Act of 1991 which provides that a corporation shall be considered a "Philippine National" if it is (1) a corporation organized under Philippine laws of which 60% of the capital stock outstanding and entitled to vote is owned and held by Filipino Citizens; or (2) a Corporation organized abroad and registered as doing business in the Philippines under the Corporation Code of which 100% of the capital stocks entitled to vote belong to Filipinos.

Section 1 (b) of the amendments to the Implementing Rules and Regulations of R.A. 7042 expressly provides that the control test shall be applied

*Where a corporation and its non-Filipino stockholders own stocks in an SEC registered enterprise, at least 60% of the capital stock outstanding and entitled to vote of each of both corporations must be owned and held by citizens of the Philippines and at least 60% of the members of the Board of Directors of each of both corporations must be citizens of the Philippines, in order that the corporation shall be considered a Philippine national. EXAMPLE: X Corporation owns 70% of the outstanding shares, entitled to vote in A corporation. The 70% shares outstanding entitled to vote in X corporation are owned by Mr. A, a Filipino and four (4) of its five (5) directors are also Filipinos. A corporation is a Philippine National in this example.

However, corporation A is not a Philippine National if 70% of the shares outstanding entitled to vote in X corporation (which owns 70% of A corporation) belong to Japanese nationals. Corporation A is also not a Philippine National even if only 40% of the shares outstanding entitled to vote in X Corporation belong to aliens but more than 60% of its directors are aliens (e.g. 4 of 5 directors are aliens). b. The test for compliance with the nationality requirement is based on the total outstanding capital stock irrespective of the amount of the par value of shares and whether or not the shares are fully or partially paid.

*Preferred shares, voting shares as well as non-voting shares are likewise considered in the computation because they all form part of the outstanding capital stock.

*Special laws may exceptionally limit the computatione to a certain type of shares. For example, Section 6 of RA No. 5980 as amended limits the computation to voting shares.

*The SEC likewise clarified that the test that should be applied is the Control Test and not the "Grandfather Rule."

c. Grandfather Rule (less than 60% Filipino ownership)NOTES: It is a method of determining the nationality of corporation which in turn is owned by another corporation by breaking down the equity structure of the shareholders of the corporation.

The SEC en banc voted and decided to do away with the strict computation the so-called Investment Test otherwise known as the "Grandfather Rule in determining the nationality of corporations with foreign equity in accordance with the Opinion of the Department of Justice No. 18 series of 1989 dated January 19, 1989.

However, the Department of Justice and the Securities and Exchange Commission still apply the "Grandfather Rule" in some cases because of the qualification in the opinion to the effect that if the percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine Nationality.

GRANDFATHER RULE

CONTROL TEST

The percentage of Filipino equity in the corporation is computed by attributing the nationality of the second or even subsequent tier of ownership to determine the nationality of the corporate shareholder

It involves the computation of Filipino ownership of a corporation in which corporation of partly Filipino and partly foreign equity owns capital stock. The percentage of shares held by the second corporation in the first is multiplied by the latter's own Filipino equity, and the product of these percentages is determined to be the ultimate Filipino ownership of the subsidiary corporationNo such computation is necessary and the total shareholdings in the subsidiary may, in proper cases, be considered as totally Filipino owned even if some of the shareholders in the shareholder corporation are not Filipinos. Under the Control Test, a corporation shall be considered a Filipino corporation if the Filipino ownership of its capital is at least 60% and where the 60-40 Filipino-alien shareholding is not in doubt

CASES:a.) Gamboa vs. Teves , G.R No. 176579, June 8,2011 and October 9, 2012The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipinos in accordance with the constitutional mandate. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is constitutionally required for the States grant of authority to operate a public utility. The undisputed fact that the PLDT preferred shares, 99.44% owned by Filipinos, are non-voting and earn only 1/70 of the dividends that PLDT common shares earn, grossly violates the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership of a public utility.In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the dividends, of PLDT.This directly contravenes the express command in Section 11, Article XII of the Constitution that [n]o franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to xxxcorporations xxxorganized under the laws of the Philippines,at least sixty per centum of whose capital is owned by such citizens

b.) Narra Nickel Mining Development Corp vs. Redmont Consolidated Mines Corp. , G.R No. 195580, April 21, 2014The "control test" is still the prevailing mode of determining whether or not a corporation is a Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled to undertake the exploration, development and utilization of the natural resources of the Philippines. When in the mind of the Court there is doubt, based on the attendant facts and circumstances of the case, in the 60-40 Filipino-equity ownership in the corporation, then it may apply the "grandfather rule."

2.1.1.2 Constitutional RightsNOTES: corporation is to person, is proper cases, within the due process and equal protection clause of the Constitution.

Just, like a natural person it cannot be deprived of its life and property without due process of law.

*As an artificial being and as a mere creature of law, a corporation cannot exercise Constitutional rights that are not consistent with its nature as a mere artificial being or rights that are not available because the corporations life is just a concession of the State.

Thus, corporation cannot claim that it, is entitled to protection &the due process clause for the protection of liberty.

A corporation is entitled to the right against unreasonable searches and seizure.

A corporation is but an association of individuals under an assumed name and with its legal entity. In organizing itself as a collective body, it waives no constitutional immunities appropriate to such body.

The right pertains to the corporation as a separate entity, hence, only the corporation,and not its officers in their personal capacity, is the real party in interest, and to question an alleged unreasonable search and seizure. Where properties of the corporation are unlawfully seized, the right that is invaded is the right of the corporation and not the right of its officers and stockholders

Right against self-incrimination has no application to juridical persons.

CASES: a.) Bache & Co., Inc. vs. Ruiz , G.R. No. L-32409, February 27, 1971Thus, the warrants authorized the search for and seizure of records pertaining to all business transactions of petitioners herein, regardless of whether the transactions were legal or illegal. The warrants sanctioned the seizure of all records of the petitioners and the aforementioned corporations, whatever their nature, thus openly contravening the explicit command of our Bill of Rights that the things to be seized be particularly described as well as tending to defeat its major objective: the elimination of general warrants."cralaw virtua1aw library

While the term "all business transactions" does not appear in Search Warrant No. 2-M-70, the said warrant nevertheless tends to defeat the major objective of the Bill of Rights, i.e., the elimination of general warrants, for the language used therein is so all-embracing as to include all conceivable records of petitioner corporation, which, if seized, could possibly render its business inoperative.

b.) Smith Bell & Co. vs. Natividad , G.R. No. 15574, September 17, 1912While Smith, Bell & Co. Ltd., a corporation having alien stockholders, is entitled to the protection afforded by the due-process of law and equal protection of the laws clause of the Philippine Bill of Rights, nevertheless, Act No. 2761 of the Philippine Legislature, in denying to corporations such as Smith, Bell &. Co. Ltd., the right to register vessels in the Philippines coastwise trade, does not belong to that vicious species of class legislation which must always be condemned, but does fall within authorized exceptions, notably, within the purview of the police power, and so does not offend against the constitutional provision.

c.) Stonehill vs. Diokno , 20 SCRA 383 (1967)The Government's action in gaining possession of papers belonging to the corporation did not relate to nor did it affect the personal defendants. If these papers were unlawfully seized and thereby the constitutional rights of or any one were invaded, they were the rights of the corporation and not the rights of the other defendants. Next, it is clear that a question of the lawfulness of a seizure can be raised only by one whose rights have been invaded. Certainly, such a seizure, if unlawful, could not affect the constitutional rights of defendants whose property had not been seized or the privacy of whose homes had not been disturbed; nor could they claim for themselves the benefits of the Fourth Amendment, when its violation, if any, was with reference to the rights of another

d.) Bataan Shipyard & Engineering Co., PCGG, G.R. No. L- 75885, May 27, 1987PCGG issued an order requiring BASECO to produce corporate records in the exercise of its powers under Executive Order No. 2 to require all persons in the Philippines holding alleged ill gotten wealth of President Ferdinand Marcos and his alleged cronies to make full disclosure of the same. BASECO questioned the order alleging that there was violation of its right against unreasonable searches and seizure and self-incrimination. The Supreme Court rejected the argument because there was in fact no search and seizure in the case and BASECO as a corporation is not entitled to the right against self-incrimination

2.1.1.3 Civil and Criminal Liabilty NOTES:1.) Tort Liability- A corporation is civilly liable in the same manner as a natural person for torts, because generally speaking, the rules governing the liability of a principal or master for a tort committed by an agent or servant are the same whether the principal or master be a natural person or a corporation, and whether the servant or agent be a natural or artificial person.

All of the authorities agree that a principal or master is liable for every tort which he expressly directs or authorizes, and this is just as true of a corporation as of a natural person.

*A corporation is liable, therefore, whenever tortuous act is committed by an 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

* The liability of corporations may either be vicarious or direct personal obligation and may arise out of different sources of obligation.

Thus, the liability of a corporation may be based on contract. Under the liable based on contract if the breach primary rule of attribution, the corporation directors.

Direct corporate responsibility may be imposed under Article 2176 * *Vicarious liability may be based on quasi-delict under Article 2180 of the New Civil Code, delict under Article 102 Revised Penal Code and under Article 104 of the Revised Penal Code for innkeepers or hotelkeepers.

A single act or omission may give rise to different sources of obligations and may warrant the award of damages. Tort obligation may even concur with contractual obligation. This is subject to proscription against double recovery.

2..) Criminal Liability- No criminal action can lie against a corporation under the present rules. This is consistent the traditional view in Spanish law. Spanish laws from which the criminal law rules and principles in the Philippines were largely derived, does not allow a corporation to be proceeded against.

A corporation cannot commit felonies described under the Revised Penal Code because artificial beings are incapable of intent. Neither can a corporation perform any overt act.

The officers of the corporation may be held liable. It is settled that an officer of a corporation can be held criminally liable for acts or omissions done in behalf of the corporation only where the law directly requires the corporation to do an act in a given manner and the same law makes the person who fails to perform the act in the prescribed manner expressly liable criminally.

Although the performance of an act is an obligation directly imposed on a corporation, the responsible officer who actually performed the act must of necessity be the one to assume criminal liability; otherwise this liability as created by the law would be illusory, and the deterrent effect of the law.

The same rule applies to stockholders. Before a stockholder may be held criminally liable for acts committed by the corporation, it must be shown that he had knowledge of the criminal act committed in the name of the corporation and that he took part in the same or gave his consent to its commission, whether by action or inaction.

The criminal statute itself may expressly provide or may identify the persons who are criminally liable.

CASES:a.) PNB vs. CA, 83 SCRA 237, May 18, 1978

b.) Professional Services , Inc. vs. CA, G.R No. 126297, February 11,2008

Supreme Court sustained the liability of hospitals based on the doctrine of corporate responsibility.The duty of providing quality medical service is no longer the sole prerogative and responsibility of the physician. This is because the modern hospital now tends to organize a highly professional medical staff whose competence and performance need also to be monitored by the hospital commensurate with its inherent responsibility to provide quality medical care. Such responsibility includes the proper supervision of the members of its medical staff.

Accordingly, the hospital has the duty to make a reasonable effort to monitor and oversee the treatment prescribed and administered by the physicians practicing in its premises

The corporate negligence doctrine imposes sever 11 duties on a hospital: (i) to use reasonable care in the mainte-nance of safe and adequate facilities and equipment: (ii) to select and retain only competent physicians (iii)to oversee as to patient care all persons practice medicine within its walls. and (iv.) to formulate. adopt, and enforce adequate inks and policies to ensure quality care for its patient.

These special tort duties arise from the special relationship existing between. a hospital or nursing home and its patients, which are based on the vulnerability of the physically or mentally ill persons and their inability to provide care for themselves.

c.) Child Learning Center., Inc.vs. Tagario , G.R. No. 150920, November 25,2005A pre-schooler was trapped inside a small toilet in the third floor of a school building. The child panicked and banged and kicked the door several times while shouting for help. When no help came, the child opened the window to call for help. Tragically, in the process of opening the window, the child went right through and fell down three stories.

The child suffered multiple serious injuries. The school was made directly and primarily liable under Article 2176. The liability is not vicarious because the obligation to provide safe facilities is imposed directly on the corporation (school).

d.) Sia vs. People , 121 SCRA 655, April 28, 1983Crime was estafa under the Revised Penal Code for the alleged failure to return the goods covered by a trust receipt or to account for the proceeds of the sale of the same goods. The Supreme Court acquitted the president who signed the trust receipt in question explaining that "in the absence of an express provision of law making the petitioner liable for the criminal offense committed by the corporation of which he is a president as in fact there is no such provision in the Revised Penal Code under which the petitioner is being prosecuted, the existence of criminal liability on his part may not be said to be beyond any doubt.e.) Espiritu Jr. vs. Petron Corporation , G.R. No.170891, November 28f.) Gosiaco vs. Ching ,G.R. No. 173807, April 16,2009

The third paragraph of Section 1 of BP Big. 22 or Anti-Bouncing Checks Law states: Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under this Act.

In other words, "when a corporate officer issues a worthless check in the corporate name he may be held personally liable for violating a penal statute. The statute imposes criminal penalties on anyone who with intent to defraud another of money or property, draws or issues a check on any bank with knowledge that he has no sufficient funds in such bank 'to meet the check on presentment. Moreover, the personal liability of the corporate officer is predicated on the principle that he cannot shield himself from liability from his own acts on the ground that it was a corporate act and not his personal act.

g.) Ching vs, Secretary of Justice, 481 SCRA, 626, February 6,2006The principle making corporate officers and employees criminally liable "applies whether or not the crime requires the consciousness of wrongdoing. It applies to those corporate agents who themselves commit the crime and to those, who, by virtue of their managerial positions or other similar relation to the corporation, could be deemed responsible for its commission, if by virtue of their relationship to the corporation, they had the power to prevent the act. Moreover, all parties active in promoting a crime, whether agents or not, are principals. Whether such officers or employees benefited by their delictual acts is not a touchstone of their In the criminal liability. Benefit is not an operative fact.

A corporate officer cannot protect himself behind a corporation where he is actual, present and efficient actor.

2.1.1.4 Recovery of Moral Damages NOTES: The award of moral damages cannot be granted in favor of a corporation because, being artificial person and having existence only in legal contemplation, it has no feelings, no emotions and no senses. It cannot, therefore experience physical suffering and material anguish, which can be experienced only by one having a nervous system.

It is believed that the better rule is to disallow award of moral damages to juridical entities like corporations even for besmirched reputation and defamation.

This rule is consistent with the very nature of moral damages. The award of moral damages aims the restoration within the limits possible of the spiritual status quo ante. It is predicated on the presence of injury that is incapable of pecuniary estimation like physical suffering, mental anguish and other similar injury.' The award of moral damages is justified only if there is moral suffering and physical suffering.

*all the cases when moral damages may be awarded under Article 2219 of the New Civil Code "immediately suggest physical or moral suffering. Hence,award of moral damages predicated on besmirched reputation or defamation is justified only if there is moral suffering on the part of the plaintiff. This is possible only in the case of natural persons. Consequently, an artificial being like a corporation cannot be awarded moral damages because it does not have a spiritual status quo; -J. CAPISTRANO

*besmirched reputation cannot cause mental anguish to a corporation unlike in the case of a natural person , for a corporation has no reputation in the sense that an individual has, and besides, it is inherently impossible for corporation to suffer moral anguish- Judge Sanco

*This is not to say that the commercial reputation of a corporation cannot be besmirched or defamed. Courts may still find that the reputation of a corporation was besmirched but they may not award moral damages in favor of the corporation. Damages must be limited to ACTUAL, NOMINAL, TEMPERATE, EXEMPLARY DAMAGES and ATTORNEYS FEES.

CASES: a.) ABS-CBN Broadcasting vs. CA,301 SCRA 572, January 21,1999Observation in the said two (2) cases regarding the right of a corporation to moral damages is an obiter dictum

b.) Filipinas Broadcasting Network vs. Ago Medical and Educational center ,448 SCRA 413, January 17,2005A corporation can be an offended party in a defamation case and it can recover moral damages under Article 2219 (7) of the Civil Code

c.) Manila Electric Co. vs. TEAM Corp, 540 SCRA 62, December 13,2007The Supreme Court observed that as a rule, a corporation is not entitled to moral damages because, not being a natural person, it cannot experience physical suffering or sentiments like wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is when the corporation has a reputation that is debased, resulting in its humiliation in the business realm.d.) Crystal vs. Bank of PI , G.R. No. 172428, November 28,2008The Supreme Court reiterated that the ruling in Manero and Mambulao were mere obiter dicta. However, the Supreme Court did not eliminate the possibility that moral damages may be awarded to corporations observing that "(i)ndeed, while the Court may allow the grant of moral damages to corporations, it is not automatically granted; there must still be proof of then of the factual basic of the damage and its causal relation to the defendant's acts. This is so because moral damages, though incapable of pecuniary estimation, are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer

e.) UP vs. Dizon , G.R. No. 171182, August 23,2012

2.1.1.5 Practice of Profession A corporation cannot engage in the practice of a profession

CASES: a.) Samahan ng Optometrists vs. Acebedo International Corp., 270 SCRA 298 (1997)

b.) Alfafara vs. Acebedo Optical Company , 381 SCRA 293(2002)

2.1.2 Doctrine of piercing the veil of corporate fiction

NOTES: Basic in corporate law is the principle that a corporation has a separate personality distinct from its stockholders and from other corporations to which it may be connected. It is a fiction created by law with the intent that it should be treated as true.

The corporations separate juridical personality may be disregarded when there is an abuse of the corporate form. examples: when the corporate identity is used to defeat public convenience , justify wrong , protect fraud , or defend crime. where corporation is a mere alter ego or business conduit of a persons where a 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

*legal fiction of a separate corporate personality, for reasons of public policy and in the interest of justice , will be justifiably set aside.

2.1.2.1 Fraud Piercing Fraud there is a fraud if there is a deception that would lead an ordinarily prudent man into error after taking the circumstances into account.

CASES: a.) Concept Builders , Inc. vs. NLRC , 257 SCRA 149, May 29,1996

b.) Enriquez Security Services Inc. vs. Cabotaje , G.R. No. 147993, July 21,2006Security guard used to work for a dissolved corporation . After dissolution , the guard was transferred to a new corporation . when the guard retires , the time that he worked for the dissolved corp. was not included in the length of service which will be used for the purpose of determining his retirement pay .RULING: The attempt because to make the 2 security agencies as separate entities, when in reality they were one , was a devise to defeat the law. The veil of corporate fiction was disregarded because the same was used to perpetrate injustice or as a vehicle to evade obligations.

2.1.2.2 Alter ego piercingNOTES:Piercing the veil of corporate fiction is justified under the Alter Ego Doctrine if there is such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist. The interest of equity will be served if the separate personality of the corporation will be disregarded.

Thus, when the 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 to be the same.

CASES: a.) Heirs of Pajarillo vs. CA, GR Nos. 150056-57, October 19,2007Alter Ego doctrine was applied to make the controlling shareholder who is also operations manager and the corporation itself liable for the obligations of a sole proprietorship.

The sole proprietorship was transformed into a corporation and the franchise was transferred to the corporation. The corporation was established after the sole Proprietorship was charged by the union with unfair labor practice, illegal deductions , illegal dismissal an violation of labor standard laws.

It was established that sole corporation was a mere continuation and successor of the sole proprietorship. the sole proprietorship was transformed into a family corporation in a surreptitious attempt to evade the charges of the union.

b.) Tomas Lao Construction vs. NLRC , G.R.No. 116781, September 5,1997The High Court ruled that where it appears that the businesses of three corporations are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third persons, disregard the legal fiction that the three corporations are distinct entities and treat them as identical. It was established that the three corporations were in fact substantially owned and controlled by the members of one family; that the directors also belong to the same family; the corporations were engaged in the same line of business; there was only one management; the corporations use the same manpower services; and the corporations use the same equipment

c.) General Credit Corporation vs. Alsons Development , 513 SCRA 225, January 29,2007The Alter Ego doctrine was applied because of the presence of numerous circumstances that support the conclusion that the corporation was an adjunct of the subsidiary corporation.Thus, there was commonality of directors, officers and stockholders; there was sharing of office; there were financing and management arrangement between the two companies allowing a corporate officer of the first corporation to handle the other; there was virtual domination if not control wielded by the same officer over the finances, and business policies and practices of the subsidiary.

RULING: it behooves the corporation officer "as a matter of law and equity, to assume the legitimate financial obligation of a cash strapped subsidiary corporation which it virtually controlled to such a degree that the latter became its instrument or agent 2.1.1.3 Equity Piercing Piercing the corporate fiction is necessary to attain justice and equity

CASE: Telephone Engineering & Service Co. Inc vs. WCC, 104 SCRA 354 (1981) 2.1.1.4 Other Casesa.) Francisco Motors vs. CA, 309 SCRA 72, June 5,1999The SC likewise rued that there was no reason to pierce the veil of corporate fiction because there was no evidence that the corporation was perpetuating fraud or promoting.

The rationale behind piercing corporations identity in a given case is to remove the barrier between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain proscribed activities.

b.) Sarona vs. NLRC, et al., G.R. No. 185280 January 18,2012

c.) Wensha Spa Center , Inc. vs. Yung , G.R. No. 185122, August 16,2010d.) Hi- Cement & Holdings Corp. vs. Insular Bank of Asia and America, G.R. No. 132403e.) Enriquez Security Services Inc.vs. Cabotaje , G.R. No. 147993, July 21,2006

2.2 Created by Operation of Law

2.2.1 Created by Special law Sec. 4- Corporations created by special laws or charters. Corporations created by special laws or charters shall be governed primarily by the provisions of the special law or charter creating them or applicable to them, supplemented by the provisions of this Codes insofar as they are applicable.

2.2.2. Created under a general law Sec. 16 , Art.XII of the 1987 Constitution

2.3 Right of SuccessionNOTES: Among the most important are immortality, and, if the expression may be allowed, individuality; properties by which a perpetual succession of persons are considered the same, and may act as a single individual. They enable a corporation to manage its own affairs, and to hold property without the perplexing intricacies, the hazardous and endless necessity, of perpetual conveyances for the purpose of transmitting it from hand to hand.

It is chiefly for the purpose of clothing bodies of men in succession with these qualities and capacities that corporations were invented, and are in use.

By these means, a perpetual sucession of individuals are capable of acting for the promotion of the particular object, like one immortal being. Hence, one of the distinctive features of a corporation is the right of succession which is also known as perpetual succession.

*Perpetual succession -continuous existence which enables a corporation to manage its affairs, and hold property without the necessity of perpetual conveyances, for purposes of transmitting it. By reason of this quality, this ideal and artificial person remains, in its legal entity and personality, the same, though frequent changes may be made of its members. -

CASE: SME Bank Inc. vs. De Guzman , G.R. Nos. 184517 AND 186641 , October 8, 2013

2.4. Possess powers , attributes and properties 2.4.1. Theory of special capacities The fourth attribute of the corporation that it has the powers, attributes expressly authorized by law or incident to its existence is recognition of what is known as the Theory of Special Capacities. The powers of the corporation are given by law and it cannot exercise powers that are not so given. In fine, the powers of the corporation are only those that are expressly provided for, implied powers, and incidental powers.

The Theory of Special Capacities should be distinguished from the Theory of General Capacities under which a corporation may exercise any and all powers that may be exercised by natural persons.

2.4.2. Theory of general capacities