Corporation

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.

ATTRIBUTES:
1. Artificial Being - it has juridical personality, separate and distinct from the
persons composing it.
a. Implications:
i. It may be held liable for fines for corporate crimes, but cannot be
held criminally liable particularly the penalty of imprisonment. The
corporate officers who approve the particular corporate crime will be
the ones to be held criminally liable.
1. Section 117: if the offender is a corporation, the penalty
may be directly imposed such corporation and/or upon
directors/stockholders/members/officers/employees
responsible for the violation or indispensable to its
commission.
ii. Generally, 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 except when a corporation has a reputation that is debased,
resulting in its humiliation in the business realm such in the case of
civil action for damages on the ground of libel or defamation.
iii. Not entitled to constitutional right against self-incrimination.
1. Bataan Shipyard & Engineering Co. Inc. vs. PCGG (1987);
While an individual may lawfully refuse to answer incriminating
questions unless protected by an immunity statute, it does not
follow that a corporation, vested with special privileges and
franchises may refuse to show its hand when charged with an
abuse of such privileges. The corporation is a creature of the
state. It is presumed to be incorporated for the benefit of the
public. There is a reserve right in the legislature to investigate
its contracts and find out whether it has exceeded its powers. It
would be a strange anomaly to hold that a state, having
chartered a corporation to make use of certain franchises, could
not, in the exercise of sovereignty, inquire how these franchises
had been employed, and whether they had been abused, and
demand the production of the corporate books and papers for
that purpose.
b. Corporate Entity Theory/Doctrine of Separate Personality
i. The corporation has a juridical personality separate and distinct from
the stockholders or members. If the corporation is one person
corporation, does it still have a juridical personality, separate
and distinct to that of its individual stockholder? YES. Section
130 provides that the principle of piercing the corporate veil
applies with equal force to OPC. However, a sole shareholder
claiming limited liability has the burden of affirmatively
showing that the corporation was adequately financed.
Otherwise, the corporate veil shall be pierced and the single
shareholder shall be held jointly and severally liable for the
debts.
1. It can sue and be sued in its own name
2. Can possess properties belonging to it to the exclusion of the
stockholders and their personal creditors. The stockholders
are not the owners of the corporate properties or assets
and vice versa. The interest of the stockholders over the
properties of the corporation is merely inchoate. Hence,
 stockholders have no personality themselves to interfere
in a collection case covering the loans of the corporation.
They cannot enforce the rights of the corporation,
because the corporation can enforce that through
authorized representatives.
3. Cannot be made to answer the personal obligations of the
individual stockholders, and vice versa
4. Limited Liability Doctrine/Rule. Liabilities of the
corporations are generally its own and cannot extend to the
stockholders in their personal capacities
ii. Piercing the veil of corporate entity/fiction - the separate
juridical personality shall be set aside. Rationale: assurance to
the dealing public that in cases of mischief by the actors
behind the corporation, the piercing allows them to remedy
against the actors themselves.
-The piercing applies equally to non-stock corporations and
even to natural persons. There is such thing that you pierce the
individual first, then you go after the corporation properties.
-If you pierce the veil, it does not mean that the personality
ceases to exist, or that the corporation is dissolved when your
pierce the veil. They are just treated as one and the same entity
in reference only to a particular transactions involved.
1. Being used to defeat public convenience
2. Justify wrong, protect fraud, or defend crime or confuse
legitimate issues
3. Mere alter ego or business conduit of a person or when the
corporation is so organized and controlled and its affairs are so
conducted to make it merely an instrumentality, agency, conduit
or adjunct of another corporation.
iii. Example: Calingasan, the employer of Carillo, was held subsidiarily
liable when Carillo, driving the jeepney of Calingasan, ran over a
child. Later on, Calingasan transferred said jeep to Fely Transport
Corporation, where the incorporators are Calingasan, his wife, and his
son, and the only asset was the same jeepney. When Carillo was not
able to pay, the subsidiary liability of Calingasan was invoked and the
jeepney was sought to be sold to pay the civil liability. Calingasan
argued that the jeepney is owned by the Corporation with a separate
and distinct personality from him. Is calingasan correct?

No. The main purpose in forming the corporation was to evade his
subsidiary civil liability resulting from the conviction of his driver-
employee.

2. Created by Operation of Law - Private corporations are created under the

authority of the State through a general law, the revised corporation code, while
certain corporations are created by special laws enacted by the Congress.
a. Concession Theory. The corporation owes its existence to the law and the
state and the extent of its existence powers and liberties is fixed by its
charter. This means that corporations cannot come into existence by
mere agreement of the parties. There must be a law granting it,
either general or special law or charter.
i. The Constitution prohibits the passing of a special law
specifically forming a private corporation. Laws such as those
are unconstitutional. They can only create GOCCs.
b. Commencement of Corporate Existence. From the time of the issuance of
Certificate of Incorporation or Registration
i. Except:
1. Corporation by Estoppel
 2. Created by Special Laws
3. Sole Corporation - from the filing of verified articles
3. Right of Succession - unlike in partnership, the death, insolvency, incapacity, or
civil interdiction of one or more or even all of its stockholder does not result in its
dissolution. Its capacity to continue existence is not affected by the
changes of its membership or its composition of corporators or
stockholders.

4. Powers, Attributes and Properties expressly authorized by law - anything

done outside such powers will be considered as ultra vires acts. The test is
whether the corporate act or transaction is related to or in furtherance of
the purposes of the corporation as stated in the AOI. A corporation
engaged in mining cannot acquire properties for urban development.
a. Powers of a corporation.
i. Express Powers - expressly authorized by the corporation code and
other laws, and its articles of incorporation. Those enumerated
under Section 35 to 45.
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time
stated in the articles of incorporation and the certificate of
incorporation;
3. To adopt and use a corporate seal;
4. To amend its AOI in accordance with the provision of this Code;
5. To adopt by-laws, not contrary to law, morals, or public policy,
and to amend or repeal the same in accordance with this Code;
6. Stock Corporations - to issue or sell stocks to subscribers and to
sell treasury stocks in accordance with the provisions of this
Code;
7. Non-Stock Corporation - to admit members to the corporation
8. To purchase, receive, take or grant, hold, convey, sell, lease,
pledge, mortgage, and otherwise deal with such real and
personal property, including securities and bonds of other
corporations, as the other transaction of the lawful business of
the corporation may reasonably and necessarily require, subject
to the limitations prescribed by law and the Constitution.
9. To enter into merger or consolidation with other corporations as
provided in this code. ˆ now, a corporation can also enter into a
partnership and joint venture.
10. To make reasonable donations, including those for the
public welfare or for hospital, charitable, cultural, scientific,
civil, or similar purposes; provided that no corporation, foreign
(now only foreign), shall give donations in aid of any political
party or candidate or for purposes of partisan political activity.
11. To establish pension, retirement, and other plans for the
benefit of its directors, trustees, officers and employees; and
ii. Implied Powers - inferred from or necessary for the exercise of
express powers.
1. To issue checks or promissory note or bill of exchange or
mercantile documents;
2. To establish local post office in case of a mining company;
3. To operate a power plant in case of a cement factory company;
4. To sell, supply or manage advertising materials in case of an
advertising company.
iii. Incidental Powers - incidental to the existence of the corporation.
They flow from the nature of the corporation as a juridical person.
Section 35. To exercise such other powers as may be essential
or necessary to carry out its purpose or purposes as stated in
the AOI. Ex: If the corporation is allowed in the AOI to obtain a
 loan, then it is impliedly authorized as well to sign, execute,
and deliver documents and perform necessary acts to carry out
the loan/transaction.
1. Right of Succession
2. Right to have a corporate name
3. Right to make by-laws for its governance
4. Right to sue and be sued
5. Right to acquire and hold properties for the purposes authorized
by the charter
b. S44. Ultra Vires Acts - not necessarily illegal. The corporation acting as
an accommodation party in a negotiable instrument is an ultra vires act
because it does not possess the power or authority to do so, but it is not
necessarily illegal.
If it is not in the RCCP nor AOI nor by-laws nor board resolution; it
is not implied nor inherent – then it ultra vires.
-Are all illegal acts, ultra vires? YES
-Are all ultra vires, illegal? NO.
-What is the remedy of a shareholder against ultra vires acts? Either
file an injunction to prevent the acts or file derivative suit on behalf
of the corporation to set aside the ultra vires act.
There are three types of ultra vires acts, done beyond the powers,
acts entered in behalf of the corporation who have no corporate
authority or exceeded the scope of their authority, acts which are
per se illegal.
i. Status of Ultra Vires Acts by the Corporation
1. Illegal per se- null and void. Cannot be ratified.
2. Failure to comply with voting formality required by law - Null
and void but the declaration of nullity may be barred by
estoppel; generally, does not bind the corporation except
when the contract is ratified by the BOD. There was no
evidence presented that the BOD repudiated the contract
with Aboitiz One for outsourcing mail deliveries. The
contract remained effective until a certain period.
3. Outside the primary and secondary purposes - voidable on the
part of the other party
ii. Status of Ultra Vires Acts by the Corporate Officers on behalf of the
Corporation
1. Illegal per se- null and void
2. Unauthorized or when the corporate officers exceed their
authority - unenforceable but may be enforced on the basis of:
a. Express or implied ratification by the corporation
b. Doctrine of Estoppel
c. Doctrine of Apparent Authority of the Corporate Officers