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  Commercial Law Reviewer- Midterms Title 1. General Provisions: Corporation as an Artificial Personality 1. Liability for Acts/ Contracts    GR: Obligations incurred by a corporation, acting through its authorized agents, are its sole liabilities.    May not, generally be made to answer for acts of its stockholders/members/legal entities to which it may be connected. o   Suit against certain SH’s cannot ipso facto be a suit against the unpleaded corporation.    Corporate officer not personally & solidarily liable w/ the corporation for the money claims of discharged employees unless he acted with evident BF and malice in terminating their employment. ( Business Day v. NLRC, 1993)    All contracts entered into in its name by its regular appointed officers/agents are contracts of corporation and not the SH’s or members.    Cannot be held liable for the personal indebtedness of a SH even if he should be its president.    In the absence of stipulation, officers cannot be made liable in their individual capacity for contracts entered into in their official capacity.    Distinct Personality: o   Manager, acting in GF and within scope of authority in terminating employees cannot be held liable for damages o   In cases of illegal dismissal, directors and officers are solidarily liable with the corporation. Veil may be pierced.    Property of corporation is not property of the stockholders and may not be sold by them w/o express authorization of BOD or trustees. 2. Liability when exceptional circumstances warrant: o   When D/T/O acted maliciously, in BF, or with gross negligence; o   Agreed to personal liability; o   Specific provision of the law; o   Used fiction of separate personality to defraud 3 rd  persons 3. Right to Bring Actions:    May incur obligations and bring civil and criminal actions. ( Art. 46, NCC)    Cannot perform certain actions that can only be done by natural persons ( practice of law/ medicine)    No personality to bring an action for and in behalf of its SH/ members to recover property belonging to said SH/members in their personal capacity    In cases of slander/libel, corporations whose good reputation has been besmirched may have ground for moral damages. (2217, NCC) 4. Right to Acquire and Possess Property:    May acquire & possess all kinds of property. (46, NCC)    Its property and not that of SH and members and vice-versa.    SH/members are in no legal sense the owners of corporate property or credits, which is owned by the corporation as a distinct person. (Traders Royal Bank v. CA, 1989)    Shares of stock represent a proportionate interest in the property of the corporation; does not vest the owner thereof with any legal right/title to any of the properties of the corporation owned by the latter as a distinct juridical person. ( Saw v. CA, 1991)    Interest of SH in corporate property is pu rely inchoate; doesn’t entitle them to intervene in a litigation involving corporate property.    Right of refusal over shares pertains to the SH’s whereas the capacity to own the land  pertains to the corporation. ( JG Summit v. CA, 2005) 5. Acquisition by Court of Jurisdiction:    Participation by GM of corporation in an action involving the corporation cannot equate to participation by another corporation in the same proceedings, merely because said GM is also the Chairman of the second corporation. ( Padilla v. CA, 2001) 6. Changes in Individual Membership:    Corporation’  identity remains unchanged and unaffected by changes in its individual membership. DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY: 1.   When legal fiction to be disregarded: a.   Where the fiction of corporate entity is being used to cloak or cover for fraud/ illegality, or to “ defeat public convenience, justify wrong, protect fraud or defend crime” (Yutivo v. CTA, 1961)  b.   Requires the court to see through the protective shroud which exempts its SH from liabilities that ordinarily they could be subject to, or distinguishes one corporation from a separate one, were it not for the existing corporate fiction. ( Lim v. CA, 2000) ( Marubeni v. Lirag, 2001)  c.   For the corporate legal entity to be disregarded the wrongdoing must be clearly and convincingly established; it cannot be presumed. ( Del Rosario v. NLRC, 1990)  2.   Effect as to Liability: a.   Corporation will be treated merely as an association of persons and the SH/ members will be considered as the corporation. Liability attaches personally or directly to them. b.   Where there are 2 corporations, they will be merged into one. The other merely regarded as the instrumentality, agency, or conduit of the other. (Cease v. CA, 1979)  c.   Transactions of the real parties shall be dealt with as if no corporation had been formed. (Republic v. Sandiganbayan, 1997)  d.   But corporation continues existence for other legitimate objectives. ( Pamplona Plantation v. Tingkil, 2005)  3.   Application of Doctrine in 3 areas: a.   Defeat of public convenience; when used as vehicle to evade an existing obligation;  b.   Fraud cases; when used to justify a wrong, protect fraud or defend a crime;  c.   Alter Ego cases:      where a corporation is merely a farce since it is a mere alter ego or business conduit of a person;      So organized and controlled so as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.  4.   Test of Applicability of Doctrine:  a.   Control or complete dominion not only of finances but of policy and business in respect to the transaction attacked so that the corporate entity at the time had no separate mind, will or existence of its own;  b.   Such control must have been used to commit fraud or wrong; and  c.   The aforesaid control and breach of duty must  proximately cause  the injury or unjust loss complained of. PNB v. Andrada, 2002: The rule is that the veil of corporate fiction may be pierced when made as a shield to perpetrate fraud and/or confuse legitimate issues (Jacinto vs. CA, 198 SCRA 211). The theory of corporate entity was not meant to promote unfair objectives or otherwise, to shield them (Villanueva vs. Adre, 172 SCRA 876). Likewise, where it appears that two business enterprises 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 two corporations are distinct entities, and treat them as identical (Phil. Veterans Investment Development Corp. vs. CA, 181 SCRA 669).  Arcilla v. CA, 1992: By its clear and unequivocal language, it is the petitioner who was declared liable therefor and consequently made to pay. That he was ordered to do so as President would not free him from the responsibility of paying the due amount simply because according to him, he had ceased to be corporate president. Such conclusion stems from the fact that the public respondent, in resolving his motion for clarificatory judgment, pierced the veil of corporate fictional and cast aside the contention that both he and the corporation have separate and distinct personalities. In short, even if We are to assume arguendo that the obligation was incurred in the name of the corporation, the petitioner would still be personally liable therefor because for all legal intents and purposes, he and the corporation are one and the same. Csar Marine Resources, Inc. is nothing more than his business conduit and alter ego. Cease v. CA, 1979: Tiaong Milling and Plantation Company, Inc. as registered owner asserted ownership of the assets and properties involved in the litigation, which theory must necessarily be based on the assumption that said assets and properties of Tiaong Milling and Plantation Company, Inc. now appearing under the name of F. L. Cease Plantation Company as Trustee are distinct and separate from the estate of Forrest L. Cease to which petitioners and respondents as legal heirs of said Forrest L. Cease are equally entitled share and share alike, then that legal fiction of separate corporate personality shall have been used to delay and ultimately deprive and defraud the respondents of their successional rights to the estate of their deceased father. Villanueva v. Adre, 1989: Accordingly, Velayo cannot be excused from payment of SCIPSI's liability by mere reason of SCIPSI's separate corporate existence. The theory of corporate entity, in the first place, was not meant to promote unfair objectives or otherwise, to shield them. This Court has not hesitated in penetrating the veil of corporate fiction when it would defeat the ends envisaged by law, not to mention the clear decree of the Labor Code. Incorporation and Organization Commencement 1.   Promoter : a person who, acting alone or with others, takes initiative in founding and organizing the business or enterprise of the issuer and receives consideration therefor.(Sec. 3.10, Securities Regulation Code [R.A. 8799]) a.   Liability of Promoter Fiduciary or quasi-trust relation toward the corporation when it comes into existence and to the subscribers prior to its organization, as long as they are acting as promoters b.   Liability of Corporation for Promoter’s Contracts    Before incorporation & organization- not liable for any contracts attempted by promoter unless contract is expressly/impliedly ratified after organization is completed      After incorporation & organization- Deemed suspended and enforceable unless ratified since promoter contract was not made by corporation itself; may ratify it.  Pioneer Surety v. CA, 1989: No de facto partnership was created among the parties which would entitle Lim to a reimbursement of the supposed losses of the proposed corporation. The record shows that the petitioner was acting on his own and not in behalf of his other would-be incorporators in transacting the sale of the airplanes and spare parts. 2.   Number & Qualifications of Incorporators (Sec.10)  a.   Not less than 5, not more than 15; b.   Natural persons ;all of legal age; c.   Residency Requirement: Majority are residents of the Philippines; d.   Each must subscribe to at least one share of the capital stock General practice is for incorporators to serve as first directors of the corporation. Residency Requirement: Hyatt Elevators v. Goldstar,2005 : For practical purposes, a corporation is in a metaphysical sense a resident of the place where its principal office is located as stated in the articles of incorporation. Even before this ruling, it has already been established that the residence of a  corporation is the place where its principal office is established. 3.   Limitations on Use of Corporate Name: a.   A corporation may change its name by the amendment of its articles of incorporation, but the same is not effective until approved by the SEC.( Philippine First Insurance Co. v. Hartigan, 34 SCRA 252 (1970))  b.   A change in the corporate name does not make a new corporation, and whether affected by special act or under a general law, has no effect on the identity of the corporation, or on its property, rights, or liabilities. (Republic Planters Bank v. CA, 216 SCRA 738, 1992).  c.   Similarity in corporate names between two corporations would cause confusion to the public especially when the purposes stated in their charter are also the same type of business. (Universal Mills Corp. v. Universal Textile Mills Inc., 78 SCRA 62, 1977).  d.   A corporation has not right to intervene in a suit using a name other than its registered name; if a corporation legally and truly wants to intervene, it should have used its corporate name as the law requires and not another name which it had not registered. (Laureano Investment and Development Corporation v. CA, 1997).  e.   There would be no denial of due process when a corporation is sued and judgment is rendered against it under its unregistered trade name, holding that a corporation may be sued under the name by which it makes itself known to its workers. (Pison-Arceo Agricultural Development Corp. v. NLRC, 279 SCRA 312,1997)   4.   Corporate Term (Sec.11)      Shall exist for a period not exceeding 50 years, unless sooner dissolved or revoked upon any grounds provided by law;    Amendment to extend is effected before expiration of existence;    Amendment cannot be made earlier than 5 years prior to the expiration date unless there are justifiable reasons as determined by the SEC. Alhambra Cigar v. CA, 1989: The steps necessary to effect the extension must be taken during the life of the corporation, and before the expiration of the term of existence as srcinal fixed by its charter or the general law, since, as a rule, the corporation is ipso facto dissolved as soon as that time expires. NHA v. CA, 2005: The law clearly limits any usufruct constituted in favor of a corporation or association to 50 years. A usufruct is meant only as a lifetime grant. Unlike a natural person, a corporation or association’s lifetime may be extended indefinitely . 5.   Minimum Capital Stock and Subscription Requirements (Sec.12):    The Code does not set a minimum authorized capital stock requirement except as otherwise provided by special law as long as the paid up capital as required by Sec. 13 is not less than P5,000.    Special laws may require a higher paid-up capital, as in the case of commercial banks, insurance companies and investment houses. PLDT v. NTC, 2007:  The capital subscribed is the total amount of the capital that persons (subscribers or shareholders) have agreed to take and pay for, which need not necessarily by, and can be more than, the par value of the shares. In fine, it is the amount that the corporation receives, inclusive of the premiums if any, in consideration of the srcinal issuance of the shares. In the case of stock dividends, it is the amount that the corporation transfers from its surplus profit account to its capital account. Lanuza v. CA, 2005: Thus, quorum is based on the totality of the shares which have been subscribed and issued, whether it be the founders’ shares or common shares. In the instant case, two figures are being pitted against each other —  those contained in the articles of incorporation, and those listed in the stock and transfer book. 6.   Articles of Incorporation  a.   Nature & Functions of Articles      One that defines the charter of the corporation and the contractual relationships between the: (1)   State and the corporation; (2)   Stockholders and the State; (3)   Corporation and the stockholders.    Copy of AOI returned with the certificate of incorporation becomes its corporate charter enabling the corporation to exist and function as such.    A corporation created by special law has no AOI. b.   Contents ( Sec.14)  (1)   Name of the corporation

chap4

Jul 23, 2017

COB09-0978(1)

Jul 23, 2017
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