Corporation Law

Tri-Level Existence in the Corporate Setting

1. "Assets Only" Level; 2. "Business Enterprise" Level; and 3. "Juridical Entity" Level.

Disadvantages of Corporate Medium

1. Agency cost, abuse of management, breach of trust; 2. Abuse of limited liability feature; 3. High cost of maintenance of the corporate medium; 4. Double taxation.

Four Corporate Attributes Based on Section 2 Definition

1. An artificial being 2. Creature of the law 3. With a right of succession 4. Creature of limited powers

2 Types of GOCCS

1. Chartered GOCCs 2. Non-Chartered GOCCSs (Organized under the Revised Corporation Code)

With a right of succession

"A corporation has a juridical personality separate and distinct from its shareholder or members, officers and directors or trustees."

Creature of Limited Powers

"A corporation has only such powers, attributes and properties as are expressly authorized by law or incident to its existence."

An artificial being

"A corporation is granted a juridical capacity to own properties, to contract and to enter into legal relationships."

Creature of the Law

"Each corporation is created by operation of law pursuant to a covenant to pursue a business enterprise."

Shell or Fictitious Company

"Fictitious companies are by definition fraudulent and may also serve as fronts for government officials. The typical scheme involves corrupt government officials creating a fictitious company that will serve as a 'vehicle' to secure contract awards. Often, the fictitious—or ghost —company will subcontract work to lower cost and sometimes unqualified firms. The fictitious company may also utilize designated losers as subcontractors to deliver the work, thus indicating collusion." They have no significant assets, staff or operational capacity. They pose a serious red flag as a bidder on public contracts, because they often hide the interests of project or government officials, concealing a conflict of interest and opportunities for money laundering. Republic v. Mega Pacific eSolutions, Inc., 794 SCRA 414 (2016), citing VILLANUEVA & TIANSAY, PHILIPPINE CORPORATE LAW, p. 105 (2013 ed.)

Not Entitled to Invoke the Right Against Self Incrimination

"It is elementary that the right against self-incrimination has no application to juridical persons." Bataan Shipyard & Engineering v. PCGG, 150 SCRA 181 (1987). While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, a corporation, vested with special privileges and franchises by the State, may not refuse to comply when charged with an abuse of such privilege. Hale v. Henkel, 201 U.S. 43 (1906).4

"Assets Only" Level

"The corporation is an aggregation of property and assets."

"Juridical Entity" Level

"The corporation's juridical personality is primarily a medium through which to pursue a business enterprise."

"Business Enterprise" Level

"The corporation's primary purpose is to pursue business."

As to Number of Corporators:

(1) Aggregate Corporation—no limit of shareholders or members (2) Close Corporation—not more than 20 shareholders of records (Sec. 95) (3) One Person Corporation—available only for stock corporations (Sec. 115) (4) Corporation Sole—religious corporation (Secs. 108)

As to Purpose of Incorporation:

(1) Business (for-Profit) Corporations (2) Nonstock and Non-profit Corporations: Charitable, Scientific or Vocational Corporations (3) Educational Corporations (Secs. 105; Sec. 25, B.P. Blg. 232) (4) Religious Corporation (Sec. 107) (5) Other Special Corporations (Sec. 4)

As to the Nature of Its Business Enterprise:

(1) Corporation Whose Business Only Affects Private Interests (2) Corporation Whose Business Is Vested with Public Interests

As to Legal Status:

(1) De Jure Corporation (2) De Facto Corporation (Sec. 19) (3) Corporation by Estoppel (Sec. 20)

As to Place of Incorporation:

(1) Domestic Corporation (2) Foreign Corporation (Sec. 140)

Sub-Sets of the CONTROL TEST:

(1) Original DOJ-SEC Grandfather Rule; (2) Foreign Investment Act (FIA) Test of "Philippine National"; (3) New SEC Control Test; andForeign Investment Act (FIA) Test of "Philippine National" (4) Beneficial Test Through "Corporate Layering".

"Corporate Criminal" under the Revised Corporation Code:

(1) SEC.165: A corporation conducts its business through fraud. (2) SEC. 166: A corporation used for committing or concealing fraudulent, graft and corrupt practices. (3) SEC. 167: A corporation appoints an intermediary who engages in graft and corrupt practices. (4) SEC.170: A corporation that violates any provision of the RCC not specifically penalized.

As to Existence of Shares:

(1) Stock Corporation (Sec. 3) (2) Nonstock Corporation (Secs. 3, 86 and 87)

Authorities are agreed on at least three (3) basic areas where piercing the veil, with which the law covers and isolates the corporation from any other legal entity to which it may be related, is allowed:

(1) defeat of public convenience, as when the corporation is used as vehicle for the evasion of existing obligation; (2) fraud cases or when the corporate entity is used to justify wrong, protect fraud, or defend a crime; or (3) alter ego cases, where the corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the 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. General Credit Corp. v. Alsons Dev. and Investment Corp., 513 SCRA 225 (2007), citing VILLANUEVA, COMMERCIAL LAW REVIEW (2004 ed.), at p. 576.

Advertising Business

(Sec. 11(2), Art. XVI, 1987 Constitution)

Doctrines emanating from the primary attribute of separate juridical personality

1. Doctrine of Limited Liability 2. Agency Law Principle Corporate debt or credit is not the debt or credit of the shareholder nor is the shareholder's debt or credit that of the corporation. Traders Royal Bank v. Court of Appeals, 177 SCRA 789 (1989). Debts incurred by directors, officers, and employees acting as corporate agents are not their direct liability but of the corporation they represent. Crisologo v. People, 686 SCRA 782 (2012). The obligations of a shareholder in one corporation cannot be offset from the obligation of the shareholder in a second corporation, since the corporation has a separate juridical personality. CKH Industrial and Dev. Corp v. Court of Appeals, 272 SCRA 333 (1997). A consequence of a corporation's separate personality is that its consent made through its representatives is not consent of the representative, personally. Its obligations, incurred through official acts of its representatives, are its own. A director or officer does not become a party to a contract just because a corporation executed a contract through such individual. Hence, a corporation's representatives are generally not personally bound by the terms of the contract executed in behalf of the corporation. Lanuza, Jr. v. BF Corp., 737 SCRA 275 (2014).

Corporation as a person before the law (Arts. 44[3], 45 and 46, Civil Code)

1. Entitled to Invoke the Due Process and Equal Protection Clauses; 2. Protected under the Unreasonable Searches and Seizure Clause; and 3. Not Entitled to Invoke the Right Against Self Incrimination.

Classification of Piercing Cases

1. Fraud Piercing 2. Alter-Ego Piercing 3. Defeat of Public Convenience (Equity Piercing)

Corporate Criminal Liability

1. Generally: No Criminal Suit Can Lie Against a Corporation 2. Shareholders Per Se Cannot Be Held Liable for a Corporate Criminal Act 3. Directors/Trustees Per Se Not Personally Liable for a Corporate Criminal Act (Sec. 171) 4. Acting Officers or Employees Shall Be Criminally Liable for the Criminal Corporate Act

"Tri-Level Relationships" in the Corporate Setting

1. Juridical Entity Relationship; 2. Intra-corporate Relationships; and 3. Extra-corporate Relationships.

Corporate Nationality

1. Primary "Place of Incorporation Test " 2. Ancillary "Control Test ":

Classification of Corporations - In relation to the State

1. Private Corporations; 2. Public Corporations or Local Government Units; 3. Quasi-Public Corporations; 4. Government-owned or Controlled Corporations

Compared with other business media

1. Sole proprietorship; 2. Business trusts (Art. 1442, Civil Code); 3. Partnerships (Arts. 1768 and 1775, Civil Code); 4. Joint Ventures; 5. Joint Accounts or Cuentas en Participacion (Arts. 239-243, Code of Commerce) 6. Cooperatives (Art. 3, R.A. No. 6938)

Primary attributes of the corporation under the corporate law framework

1. Strong/Solemn Juridical Personality; 2. Centralized Management; 3. Limited liability to shareholders and non-liability to directors/trustees and officers for the liabilities of the corporation; and 4. Free transferability of "units of ownership"

Theories in the Formation of Corporations

1. Theory of Concession; 2. Theory of Enterprise Entity.

Guiding Principles in Fraud Cases: Why is there inordinate showing of alter-ego elements?

1. There must have been fraud or an evil motive in the affected transaction, and the mere proof of control of the corporation by itself would not authorize piercing; 2. Corporate fiction is used as a means to commit the fraud or avoid the consequences thereof; and 3. The main action should seek for the enforcement of pecuniary claims pertaining to the corporation against corporate officers or shareholders.

Acting Officers or Employees Shall Be Criminally Liable for the Criminal Corporate Act

A corporation can act only through its officers and agents, and where the business itself involves a violation of the law, the correct rule is that all who participate in it are liable. Thus, when the manager of a corporation made a false tax return of the total amount of sales made by said corporation in violation of law, it is such manager, as the author of the illegal act, who must necessarily answer for the criminal penalties for its consequences. People v. Tan Boon Kong, 54 Phil. 607 (1930). Although all corporate powers are vested in the Board of Directors, it does not mean that the officers other than directors cannot be made criminally liable for their criminal acts if it can be proven that they participated therein. Singian, Jr. v. Sandiganbayan, 478 SCRA 348 (2005). Apart from its sweeping allegation petitioner failed to establish the particular role or actual participation of directors in the criminal act; neither was it shown that they assented to its commission. Only officers shown to have participated in the alleged anomalous acts may be held criminally liable. Cruzvale, Inc. v. Eduque, 589 SCRA 534 (2009). Rule on Employees to Be Held Criminally Liable: The existence of the corporate entity does not shield from prosecution the corporate agent who knowingly and intentionally causes the corporation to commit a crime. The corporation obviously can act only by and through its human agents, and it is their conduct which the law must deter. The employee of a corporation engaged in unlawful business naturally aids and abets in the carrying on of such business and will be prosecuted as principal if, with knowledge of the business, its purpose and effect, he consciously contributes his efforts to its conduct and promotion, however slight his contribution may be. Where it is shown that the employee was merely acting under the direction of his superiors and was unaware that his acts constituted a crime, he may not be held criminally liable for an act done for and in behalf of his employer. People v. Chowdury, 325 SCRA 572 (2000). Under SSS Law, even when the employer is a corporation, it shall still be held liable for the non-remittance of SSS contributions; but it is, however, the head, directors or officers responsible for the non-remittance that shall suffer the personal criminal liability. Although a corporation is invested by law with a personality separate and distinct from that of the persons composing it, the corporate veil is pierced when a director, trustee or officer is made personally liable by specific provision of law. Thus, a corporation cannot invoke its separate judicial entity to escape its liability for non-payment of SSS contributions. Ambassador Hotel, Inc. v. Social Security System, 827 SCRA 641 (2017).

Application of the rules emanating from the primary doctrine: On Suits For or Against the Corporation

A corporation has no legal standing to file a suit for recovery of certain parcels of land owned by its members in their individual capacity, even when the corporation is organized for the benefit of the members. Sulo ng Bayan v. Araneta, Inc., 72 SCRA 347 (1976). Shareholders have no standing to intervene in a collection case covering the loans of the corporation since shareholders' interest in corporate property is purely inchoate. Saw v. CA, 195 SCRA 740 (1991); and vice-versa. Francisco Motors Corp. v. CA, 309 SCRA 72 (1999). A corporate defendant against whom a writ of possession has been issued, cannot use the fact that it has obtained controlling equities in the corporate plaintiffs to suspend enforcement of the writ, for they are separate juridical persons, and thus their separate business and proprietary interests remain. Silverio, Jr. v. Filipino Business Consultants, Inc., 466 SCRA 584 (2005). Shareholders have no standing to recover damages arising from the wrongful attachment of the corporation's assets. Stronghold Insurance Co. v. Cuenca, 692 SCRA 473 (2013).

MAIN DOCTRINE: A Corporation Has a Personality Separate and Distinct from Its Directors or Trustees, Officers, Its Shareholders or Members (Sec. 2; Art. 44, Civil Code)

A corporation is a juridical entity with a legal personality separate and distinct from the people comprising it, hence: Assets of the shareholders may not be considered as assets of the corporation, and vice-versa. Situs Dev. Corp. v. Asiatrust Bank, 677 SCRA 495 (2012). It may not be made to answer for personal acts and liabilities of its shareholders or those of legal entities to which it may be connected, and vice versa. General Credit Corp. v. Alsons Dev. and Investment Corp., 513 SCRA 225 (2007). Such legal fiction is only for purposes of convenience and to subserve the ends of justice—it cannot be extended to a point beyond its reason and policy. Where, as in this case, the corporate fiction was used as a means to perpetrate a social injustice or as a vehicle to evade obligations or confuse the legitimate issues, it would be discarded and the two (2) corporations would be merged as one, the first being merely considered as the instrumentality, agency, conduit or adjunct of the other. Azcor Manufacturing Inc. v. NLRC, 303 SCRA 26 (1999).

Definition and Essence of the "Corporation" (Sec. 2)

A corporation is an artificial being created by operation of law, invested by law upon coming into existence with a personality separate and distinct from the persons composing it, and from any other legal entity to which it may be related. PNB v. Andrada Electric & Engineering Co., 381 SCRA 244 (2002).

Theory of Enterprise Theory

A corporation is but an association of individuals, allowed to transact business under a corporate name with a distinct legal personality. In organizing itself as a collective body, the group or its members waives no constitutional immunities and perquisites appropriate to such a body. Philippine Stock Exchange (PSE) v. Court of Appeals, 281 SCRA 232 (1997). Corporations are composed of natural persons and their separate corporate personality is no shield for the commission of injustice and inequity, such as to avoid the execution of the property of a sister company. Tan Boon Bee & Co. v. Jarencio, 163 SCRA 205 (1988).

Corporations Can Be Held Liable for Torts/Quasi-Delicts

A corporation is civilly liable for torts in the same manner as natural persons, because the rules governing the liability of a principal for a tort committed by an agent are the same whether the principal be a natural person or a corporation, and whether the agent be a natural or artificial person. Philippine National Bank v. Court of Appeals, 83 SCRA 237 (1978). "Corporate tort" consists in the violation of a right given or the omission of a duty imposed by law; a breach of a legal duty. The failure of the corporate employer to comply with the duty under the Labor Code to grant separation pay to employees in case of cessation of operations constitutes tort and its shareholder who was actively engaged in the management or operation of the business should be held personally liable. Sergio F. Naguiat v. NLRC, 269 SCRA 564 (1997).

Protected under the Unreasonable Searches and Seizure Clause

A corporation is protected by the constitutional guarantee against unreasonable searches and seizures, but its officers have no cause of action to assail the legality of the seizures, regardless of the amount of shares of each in said corporation because the corporation has a personality distinct and separate from those of said officers. Stonehill v. Diokno, 20 SCRA 383 (1967). A corporation is but an association of individuals under an assumed name, with a distinct legal entity. In organizing itself as a collective it waives no constitutional immunities appropriate for such body. Its property cannot be taken without compensation; can only be proceeded against by due process of law; and is protected against unlawful discrimination. Bache & Co. (Phil.), Inc. v. Ruiz, 37 SCRA 823 (1971).

Corporation Sole—religious corporation (Secs. 108)

A corporation sole has no nationality being an institution that existed prior to the Republic; but if any nationality is to be accorded to it, it is to be judged from the nationality of the majority of the faithfuls thereof. Roman Catholic Apostolic Administrator of Davao, Inc. v. LRC and the Register of Deeds of Davao City, 102 Phil. 596 (1957). The doctrine in Republic v. Villanueva, 114 SCRA 875 (1982) and Republic v. Iglesia ni Cristo, 127 SCRA 687 (1984), that a corporation sole is disqualified to acquire/hold alienable lands of the public domain, because of the constitutional prohibition qualifying only individuals to acquire land and the provision under the Public Land Act which applied only to Filipino citizens or natural persons, has been expressly overturned in Director of Land v. IAC, 146 SCRA 509 (1986); Republic v. Iglesia ni Cristo, 127 SCRA 687 (1984); Republic v. IAC, 168 SCRA 165 (1988).

Theory of Concession

A corporation's claim of a juridical personality of its own and to transact business as such, is not a matter of absolute right, but a privilege which may be enjoyed only under such terms as the State may deem necessary to impose. Ang Pue & Co. v. Sec. of Commerce & Industry, 5 SCRA 645 (1962). "There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which ... 'is the reality of the group as a social and legal entity, independent of state recognition and concession.' A corporation as known to Philippine jurisprudence is a creature without any existence until it has received the imprimatur of the state acting according to law. It is logically inconceivable therefore that it will have rights and privileges of a higher priority than that of its creator. More than that, it cannot legitimately refuse to yield obedience to acts of its state organs, certainly not excluding the judiciary, whenever called upon to do so." Tayag v. Benguet Consolidated, 26 SCRA 242 (1968). All corporations, big or small, must abide by the provisions of the [Revised] Corporation Code; even a simple family corporation cannot claim an exemption nor can it have rules and practices other than those established by law. Torres v. Court of Appeals, 278 SCRA 793 (1997). "It is a basic postulate that before a corporation may acquire juridical personality, the State must give its consent either in the form of a special law or a general enabling act," and the procedure and conditions provided under the law for the acquisition of such juridical personality must be complied with. Although the statutory grant to an association of the powers to purchase, sell, lease and encumber property can only be construed the grant of a juridical personality to such an association," nevertheless, the failure to comply with the statutory procedure and conditions does not warrant a finding that such association acquired a juridical personality, even when it adopts a constitution and a set of bylaws. Int'l Express Travel & Tour Services v. Court of Appeals, 343 SCRA 674 (2000).

Directors/Trustees Per Se Not Personally Liable for a Corporate Criminal Act (Sec. 171)

A criminal statute that forbids the corporation from doing an act actually extends to the Board, and to each director individually. People v. Concepcion, 43 Phil. 653; 44 Phil. 129 (1922). GENERAL RULE: The Board being be generally a policy-making body, directors as such cannot be held liable under a criminal statute making those in charge of the management of the corporation liable for the criminal acts done in pursuit of corporate operations. Even if the corporate powers of a corporation are reposed in the Board under [Sec. 22 of RCC], it is of common knowledge and practice that the Board is not directly engaged or charged with the running of the recurring business affairs of the corporation. The members of the Board generally do not concern themselves with the day-to-day affairs of the corporation, except those corporate officers who are charged with the running of the business of the corporation and are concomitantly members of the Board, like the President. Federated Dealers Assn. v. Del Rosario, 808 SCRA 272 (2016). A corporation's personality is separate and distinct from its officers, directors, and shareholders. To be held criminally liable for the acts of a corporation, there must be a showing that its officers, directors, and shareholders actively participated in or had the power to prevent the wrongful act. In this case, there was no allegation of the specific acts of the corporate officers for which they could be indicted for violations of the Securities Regulation Code and the Revised Penal Code. SEC v. Price Richardson Corp., 832 SCRA 560 (2017) BUT SEE: Veritably, Board members, being in direct control and supervision in the management and conduct of the corporate affairs, must have known or were aware that the corporation is engaged in trademark infringement and unfair competition. The existence of the corporate entity does not shield from prosecution the corporate agent who knowingly and intentionally caused the corporation to commit a crime. Republic Gas Corp. v. Petron Corp., 698 SCRA 666 (2013).

Sole Proprietorships

A sole proprietorship, although regulated separately from its owner for purpose of taxation and regulation, is not vested with juridical personality to file or defend an action. Excellent Quality Apparel v. Win Multiple-Rich Builders, 578 SCRA 272 (2009).

Chartered GOCCs

Although Boy Scouts of the Philippines does not receive any government financial subsidy, and its funds and assets are not considered government in nature and not subject to COA audit, the fact that it received a special charter, its governing board are appointed by the Government, and that its purpose are of public character, for they pertain to the educational, civic and social development of the youth which constitute a very substantial and important part of the nation, it is not a public corporation in the same sense that local governments are public corporation since its does not govern a portion of the state, but it also does not have proprietary functions in the same sense that the functions or activities of GOCCs, is may still be considered as such, or under the 1987 Administrative Code as an instrumentality of the Government, and it employees are subject to the Civil Service Law. Boy Scouts of the Philippines v. NLRC, 196 SCRA 176 (1991). Although it has a special charter, the Chairman of the Philippine National Red Cross is not appointed by the President. Although Camporendodo v. NLRC had ruled that PNRC is GOCC because it is constituted under a special charter, it failed to consider the definition of a GOCC as provided under Sec. 2(13) of the 1987 Administrative Code, which requires that a GOCC to be such must be owned by the government, and in the case of a stock corporation, at least a majority of its capital stock must be owned by the government. Liban v. Gordon, 593 SCRA 68 (2009). When the law vests in a government instrumentality corporate powers, it does not become necessarily a corporation. A GOCC must be organized as a stock or nonstock corporation. The MIAA is not a GOCC because it is not constituted of capital divided into shares, and neither is it a nonstock corporation because it has no members. MIAA is a government instrumentality vested with corporate powers to perform efficiently its government functions. MIAA v. CA, 495 SCRA 591 (2006). [Section 30 of the RCC] is applicable to corporations which have been organized by special charters since Sec. 4 thereof renders the provisions supplementary to all corporations, including those with special or individual charters, such as cooperatives organized under P.D. 269. Benguet Electric Cooperative, Inc. v. NLRC, 209 SCRA 55 (1992). While public benefit and welfare may be attributable to the operation of the Bases Conversion and Development Authority (BCDA), yet it is certain that the functions it performs are basically proprietary in nature—the promotion of economic and social development and the country's goal for enhancement. Therefore, the rule that prescription does not run against the State will not apply to BCDA—when title of the Republic has been divested, its grantees, although artificial bodies of its own creation, are in the same category as ordinary persons. Shipside Inc. v. CA, 352 SCRA 334 (2001). In order to qualify as a GOCC, one must be organized either as a stock or nonstock corporation. [Section 3 of RCC] defines a stock corporation as one whose "capital stock is divided into shares and authorized to distribute to the holders of such shares dividends." Although BCDA has an authorized capital of P100 Billion, however, it is not divided into shares; it has no voting shares; and has no provision which authorizes the distribution of dividends and allotment of surplus and profits to BCDA's shareholders. It cannot qualify also as a nonstock corporation because its primary purpose do not fall within the purposes enumerated under Section 88. Nonetheless, BCDA is a government instrumentality vested with corporate powers. BCDA v. CIR, 867 SCRA 179 (2018).

Limited liability to shareholders and non-liability to directors/trustees and officers for the liabilities of the corporation

An important advantage of the corporation is the limitation of an investor's liability to the amount of investment, which flows from the legal theory that a corporate entity is separate and distinct from its shareholders. San Juan Structural and Steel, Inc. v. CA, 296 SCRA 631 (1998). By virtue of the principle separate juridical personality, the corporate debts or credits are not the those of the shareholders. This protection from corporate liability for shareholders is the principle of limited liability. PNB v. Hydro Resources Contractors Corp., 693 SCRA 294 (2013). Where the creditor sues not only the company but also all shareholders to reach their unpaid subscription which appear to be the only visible assets of the company, the controlling doctrine is that "a stockholder is personally liable for the financial obligations of the corporation to the extent of his unpaid subscription." Halley v. Printwell, Inc. 649 SCRA 116 (2011). It is hornbook law that corporate personality is a shield against personal liability of its officers—a corporate officer and his spouse cannot be made personally liable under a trust receipt where he entered into and signed the contract clearly in his official capacity. Consolidated Bank and Trust Corp. v. Court of Appeals, 356 SCRA 671 (2001). Obligations incurred by the corporation through its directors and officers, are its sole liabilities. Malayang Samahan ng mga Manggagawa sa M. Greenfield v. Ramos, 357 SCRA 77 (2001).

Piercing Has Only Res Judicata Effect

Application of the doctrine to a particular case does not deny the corporation of legal personality for any and all purposes, but only for the particular transaction or instance, or the particular obligation for which the doctrine was applied. Koppel (Phil.) Inc. v. Yatco, 77 Phil. 496 (1946).

Generally, Corporations Not Entitled to Moral Damages

Being an artificial person, a corporation cannot experience physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which are bases for moral damages under Art. 2217 of Civil Code. However, a corporation may have a good reputation which, if besmirched, may be a ground for the award of moral damages. Mambulao Lumber Co. v. PNB, 22 SCRA 359 (1968); People v. Manero, 218 SCRA 85 (1993).6 BUT: The statements in Manero and Mambulao Lumber that a corporation may recover moral damages if it "has a good reputation that is debased, resulting in social humiliation" are obiter dictum. Recovery of a corporation would be under Articles 19, 20 and 21 of the Civil Code, which requires a clear proof of malice or bad faith. ABS-CBN Broadcasting Corp. v. Court of Appeals, 301 SCRA 589 (1999). NONETHELESS: An corporation's claim for moral damages arising from libel falls under Article 2219(7) of the Civil Code, which expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation, and does not qualify whether the plaintiff is a natural or juridical person. A juridical person can validly complain for libel or any other form of defamation and claim for moral damages. Filipinas Broadcasting Network v. Ago Medical and Educational Center, 448 SCRA 413 (2005). PREVAILING RULE: A corporation, being an artificial person has no feelings, emotions nor senses; therefore, it cannot experience physical suffering and mental anguish. Mental suffering can be experienced only by one having a nervous system and it flows from real ills, sorrows, and griefs of life—all of which cannot be suffered by an artificial person. Prime White Cement Corp. v. IAC, 220 SCRA 103 (1993); Manila Electric Co. v. Nordec Philippines, 861 SCRA 515 (2018).7

Application of the rules emanating from the primary doctrine: On Being a Corporate Officer and Shareholder

Being an officer or shareholder of a corporation does not by itself make one's property also that of the corporation, and vice-versa, for they are separate entities, and that shareholders who are officers are in no legal sense the owners of corporate property which is owned by the corporation as a distinct legal person. Good Earth Emporium, Inc. v. Court of Appeals, 194 SCRA 544 (1991). It is hornbook law that corporate personality is a shield against personal liability of its officers—a corporate officer and his spouse cannot be made personally (civilly) liable under a trust receipt where he entered into and signed the contract clearly in his official capacity. Intestate Estate of Alexander T. Ty v. Court of Appeals, 356 SCRA 61 (2001). The mere fact that one is President does not render the property he owns the property of the corporation, since the president, as an individual, and the corporation are separate entities. Cruz v. Dalisay, 152 SCRA 487 (1987); Booc v. Bantuas, 354 SCRA 279 (2001). The President of the corporation which is liable for the accident caused by its truck driver cannot be held solidarily liable for the judgment obligation arising from quasi-delict, since the fact alone of being President is not sufficient to hold him solidarily liable for the liabilities adjudged against the corporation. Secosa v. Heirs of Erwin Suarez Fancisco, 433 SCRA 273 (2004). When the compulsory counterclaim filed against corporate officers for their alleged fraudulent act indicate that such corporate officers are indispensable parties in the litigation, the original inclusion of the corporation in the suit does not thereby allow the denial of a specific counter-claim being filed to make the corporate officers personally liable. Lafarge Cement Phils., Inc. v. Continental Cement Corp., 443 SCRA 522 (2004).

Corporation Can Engage in Practice of Profession When Authorized by Law (Sec. 10)

Corporations cannot engage in the practice of a profession since they lack the moral and technical competence required by the PRC. ULEP v. The Legal Clinic, 223 SCRA 378 (1993). A corporation engaged in the selling of eyeglasses and which hires optometrists is not engaged in the practice of optometry. Samahan ng Optometrists v. Acebedo Int'l Corp., 270 SCRA 298 (1997). SEE: Section 37 of the ARCHITECTURE ACT OF 2004 (R.A. 9266), allows the registration with the SEC of "Architectural professional corporations".

Piercing Is a Power Belonging to the Courts and Cannot Be Assumed Improvidently by a Sheriff.

Cruz v. Dalisay, 152 SCRA 482 (1987).

Joint Accounts or Cuentas en Participacion

Cuentas en participacion is an accidental partnership constituted in a manner that its existence was only known to those who had an interest in the same, there being no mutual agreement between the partners, and without a corporate name indicating to the public in some way that there were other people besides the one who ostensibly managed and conducted the business, governed under Art. 239 of the Code of Commerce. Those who contract with the person under whose name the business of such partnership of cuentas en participacion is conducted, shall have only a right of action against such person and not against the other persons interested, and the latter, on the other hand, shall have no right of action against third person who contracted with the manager unless such manager formally transfers his right to them. Bourns v. Carman, 7 Phil. 117 (1906). A joint account is when a third person is financially interested in the business of a merchant but does not give rise to the creation of a juridical person. CIR v. Cojuangco, 109 Phil. 443 (1960).

Extra-corporate Relationships

Deals with legal consequences arising from the relationships of the corporation with the public it deals with or those affected by its business enterprise —

Religious Corporation (Sec. 107)

Decisions on purely ecclesiastical matters by proper church tribunals are conclusive upon civil tribunals—a church member who is expelled or a priest or minister who is deprived of his office by church authorities, is without remedy in the civil courts. Long v. Basa, 366 SCRA 113 (2001).

Agency Law Principle

Directors/Trustees, Officers and Other Corporate Agents Do Not Become Personally Liable for Corporate Contracts That They Enter Into in Behalf of the Corporation.

Double Taxation

Dividends received by individuals from domestic corporations are subject to final 10% tax for income earned on or after 01 January 1998. Sec. 24(B)(2), 1997 NIRC. However, inter-corporate dividends between domestic corporations are not subject to any income tax. Sec. 27(D)(4), 1997 NIRC. Re-imposition of the 10% "improperly accumulated earnings tax" for holding companies. Sec. 29, 1997 National Internal Revenue Code (NIRC).

Applications of Control Test: In Times of War

Domestic corporations under the control of nationals of the enemy country are deemed foreign enemy corporations. Haw Pia v. China Banking Corp., 80 Phil. 604 (1948).

Original DOJ-SEC Grandfather Rule

For purposes of investment holdings, shares belong to corporations at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality; but if the percentage of Filipino ownership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality.

Ancillary "Control Test "

In cases involving properties, business or industries reserved for Filipinos, in addition to the place of incorporation test, the nationality of a corporation is determined by the nationality of the "controlling shareholders"

Noncharterred GOCCs (Organized under the Revised Corporation Code)

Government's majority shares does not make an entity a public corporation, for it remains a "private corporation" having been organized under the Corporation Law. National Coal Co., v. Collector of Internal Revenue, 46 Phil. 583 (1924). Being a GOCC makes a private corporation liable for laws applicable to the Government and subject to the control of the Government. Cervantes v. Auditor General, 91 Phil. 359 (1952). A private corporation is created by operation of law under the [Revised] Corporation Code while a government corporation is normally created by special law referred to often as a charter. Bliss Dev. Corp. Employees Union v. Calleja, 237 SCRA 271 (1994). Whether a corporation is GOCC or private in nature is simple: Is it created by its own charter for the exercise of a public function, or by incorporation under the general corporation law? Those with special charters, are government corporations subject to its provisions, and its employees are under the jurisdiction of the Civil Service Commission, and are compulsory members of the GSIS. Camparedondo v. NLRC, 312 SCRA 47 (1999). On the other hand, we have no doubt that SEC has jurisdiction over GOCCs established or organized under the [Revised] Corporation Code. These GOCCs are regarded as private corporations despite common misconceptions, inn spite of the fact that the government may own the controlling shares in the corporation. PNCC v. Pabion, 320 SCRA 188 (1999). That Corregidor Foundation, Inc. was organized as nonstock corporation under the old Corporation Code, does not make it a private and non-government corporation. Firstly, R.A. 10143 includes within the statutory definition of GOCCs those that are nonstock corporations. Secondly, it is immaterial whether a government corporation is private or public for purposes of exercising COA's audit—so long as the government owns or controls the corporation, the COA may audit the corporation's accounts. Secondly, just because its employees are not under Civil Service jurisdiction, does not exempt it from COA jurisdiction. Oriondo v. COA, G.R. No. 211293, 04 June 2019.

Free-transferability of "Units of Ownership" (Shares) (Sec. 62)

It is the inherent right of the shareholder to dispose of his shares, which he owns as any other property, anytime he so desires. Remo, Jr. v. IAC, 172 SCRA 405 (1989). No corporation can restrict the right of a shareholder to transfer shares, but merely has authority to adopt regulations on the formalities and procedure to be followed in effecting such sale or transfer. Thomson v. Court of Appeals, 298 SCRA 280 (1998).

Joint Ventures

Joint venture is an association of persons or companies jointly undertaking some commercial enterprise; generally all contribute assets and share risks. It requires a community of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith, and agreement to share both in profit and losses. Kilosbayan, Inc. v. Guingona, Jr., 232 SCRA 110 (1994).

Government-Owned or Controlled Corporations

Local water districts created under P.D. 198 by the different local legislative bodies, with the primary function to sell water to residents within their territory, under such schedules of rates and charges as may be determined by their boards are considered quasi-public corporations, performing public services and supplying public wants, Marilao Water Consumers Assn. v. IAC, 201 SCRA 437 (1991); they are clearly GOCCs, and their Board of Directors and personnel are government employees subject to civil service laws and anti-graft laws. Feliciano v. COA, 419 SCRA 363 (2004). The doctrine that employees of GOCCs, whether created by special law or formed as subsidiaries under the general corporation law are governed by the Civil Service Law and not by the Labor Code, has been supplanted by the 1987 Constitution. GOCCs created by special charter are subject the Civil Service Law, while those incorporated under the [Revised] Corporation Code are governed by the Labor Code. PNOC-EDC. v. NLRC, 201 SCRA 487 (1991). A GOCC has a personality of its own, distinct and separate from that of the government, and the intervention of the Executive Secretary does not change the independent existence of a government entity as it deals with another government entity. PUP v. Court of Appeals, 368 SCRA 691 (2001). The GOCC Governance Act (R.A. 10149), which governs compensation and position classification systems within the GOCC Sector, does not distinguish between chartered and nonchartered GOCCs, and its provisions apply equally to both. GSIS Family Bank Employees Union v. Villanueva, 891 SCRA 206 (2019). A GOCC is a government agency when it is organized as a stock or non-stock corporation, and must comply with three requisites: (a) it has a capital stock, (b) the capital stock is divided into shares, and (c) it is authorized to distribute dividends and allotments of surplus and profits to its stockholders. As for non-stock corporations, they must have members and must not distribute ay part of their income to said members. However, the is now formal administrative and statutory recognition of "government instrumentalities with corporate powers/government corporate entities," which may not fall within the definition of stock and non-stock corporations, but are government instrumentalities that are vested with corporate powers. LRTA v. Quezon City, G.R. No. 221626, 09 Oct. 2019. Under the Constitution, the COA has audit jurisdiction over both GOCCs with original charters (subject to COA pre-audit) and those without original charters (those organized under the Corporation Code—subject to post-audit). Alejandrino v. COA, G.R. No. 245400, 12 Nov. 2019.

Juridical Entity Relationship

Treats of the legal consequences arising from the relationship between the State as the creator, and the corporation as its creature.

Application of the rules emanating from the primary doctrine: Majority Equity Ownership and Interlocking Directorship, Officership or Shareholders

Mere ownership by a single shareholder or by another corporation of all or nearly all of the capital stocks is not, by itself, a sufficient ground for disregarding the separate corporate personality. Other circumstances showing that the corporation is being used to commit fraud or proof of existence of absolute control over the corporation have to be proven. In short, before the corporate fiction can be disregarded, alter-ego elements must first be sufficiently established. Pacific Rehouse Corp. v. Court of Appeals, 719 SCRA 665 (2014). Ownership of a majority of capital stock and the fact that majority of directors of a corporation are the directors of another corporation creates no employer-employee relationship with the latter's employees. DBP v. NLRC, 186 SCRA 841 (1990);19 nor would it justify the tacking of the years of services with both corporations to determine employment rights and benefits. Freyssinet Filipinas Corp. v. Lapuz, 897 SCRA 265 (2019). The majority shareholder cannot be held personality liable for the attorney's fees charged by a lawyer for representing the corporation. Laperal Dev. Corp. v. CA, 223 SCRA 261 (1993). Having interlocking directors, corporate officers and shareholders is not enough justification to pierce the veil of corporate fiction in the absence of fraud or other public policy considerations. Velarde v. Lopez, 419 SCRA 422 (2004).

Generally: No Criminal Suit Can Lie Against a Corporation

Philippines courts have no common law jurisdiction. Consequently, corporations cannot be held criminally liable under Philippine jurisdiction since at this time there is no law relating to the practice and procedure in criminal actions whereby a corporation may be brought to court to be proceeded against criminally. West Coast Life Ins. Co. v. Hurd, 27 Phil. 401 (1914). However, a corporation can be a real-party-in-interest for the purpose of bringing a civil action for malicious prosecution for the damages suffered by the corporation for the criminal proceedings brought against its officer. Cometa v. Court of Appeals, 301 SCRA 459 (1999). Prior to the Trust Receipts Law, a corporate officer who signs the trust receipt could not be held criminally liable for estafa punished under the Revised Penal Code, for his criminal liability could not be proven beyond reasonable doubt under the doctrine that "the corporation was [not] directly required by law 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." Sia v. CA, 121 SCRA 655 (1983). Now, the Trust Receipts Law recognizes the impossibility of imposing the penalty of imprisonment on a corporation, hence, the law makes the officers or employees responsible for the offense liable to suffer the penalty of imprisonment. Ong v. Court of Appeals, 401 SCRA 647 (2003). The Trust Receipts Law specifically makes the officers, employees or other officers or persons responsible for the offense, without prejudice to the civil liabilities of such corporation and/or board of directors, officers, or other officials or employees responsible for the offense. The rationale is that such officers or employees are vested with the authority and responsibility to devise means necessary to ensure compliance with the law and, if they fail to do so, are held criminally accountable. A corporation cannot be arrested and imprisoned; hence, cannot be penalized for a crime punishable by imprisonment; however, it may be charged and prosecuted for a crime if the imposable penalty is fine. Even if the statute prescribes both fine and imprisonment as penalty, a corporation may be prosecuted and, if found guilty, may be fined. Ching v. Secretary of Justice, 481 SCRA 602 (2006).

Available Only to Prevent Fraud or to Achieve an Equitable End:

Piercing doctrine is meant to prevent fraud, and cannot be employed when the net result would be to perpetrate fraud or a wrong. Gregorio Araneta, Inc. v. Tuason de Paterno, 91 Phil. 786 (1952). The theory of corporate entity was not meant to promote unfair objectives or otherwise, nor to shield them. Villanueva v. Adre, 172 SCRA 876 (1989). The creation by DBP as the mother company of the three mining corporations to manage and operate the assets acquired in the foreclosure sale lest they deteriorate from non-use and lose their value, does not indicate fraud or wrongdoing and will not constitute application of the piercing doctrine. DBP v. Court of Appeals, 363 SCRA 307 (2001).

Recent Attempts to Narrow the Objectives for Availing of Piercing:

Piercing is not allowed unless the remedy sought is to make the officer or another corporation pecuniarily liable for corporate debts, unlike here were it is resorted to determine proper jurisdiction of the court. Indophil Textile Mill Workers Union-PTGWO v. Calica, 205 SCRA 697 (1992).

Not Applicable to Theorize or to Advance/Create New Rights or Interest:

Piercing of the veil of corporate fiction cannot be resorted under a theory of co-ownership to justify continued use and possession by shareholders of corporate properties. Boyer-Roxas v. Court of Appeals, 211 SCRA 470 (1992). Piercing cannot be availed of to dislodge from SEC's jurisdiction a petition for suspension of payments filed under P.D. 902-A, on the ground that the petitioning individuals should be treated as the real petitioners to the exclusion of the petitioning corporate debtor: "doctrine only applies when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime." Union Bank v. Court of Appeals, 290 SCRA 198 (1998). Application of the piercing of the subsidiary company to merge it with the holding company cannot be allowed to support a theory of set-off or compensation, there being no allegation much less any proof of fraud. Nisce v. Equitable PCI Bank, Inc., 516 SCRA 231 (2007). An employee who retires and avails of her retirement benefits, but continued as a consultant with affiliate companies, cannot employ piercing in order to treat her stint with the affiliate companies as part of her employment with the main company she retired from—there is no fraud or employment of unfair shielding. Rivera v. United Laboratories, Inc., 586 SCRA 269 (2009). BUT SEE: Where clear evidence support the fact that a corporation's affiliates have received large amounts which became the consideration for the company's execution of a real estate mortgage over its properties, then the piercing doctrine shall be applied to support the fact that the real estate mortgage was valid and supported by proper consideration. Siain Enterprises v. Cupertino Realty Corp., 590 SCRA 435 (2009). Piercing of the veil of corporate fiction cannot be used to justify service of summons on the subsidiary to be binding on the parent company. A wholly-owned subsidiary is a distinct and separate entity from its mother company and the fact that the latter exercises control over the firm does not justify disregarding their separate personality. The complaint taken as a whole should be able to convey that the subsidiary is but a business conduit of the principal or that by reason of fraud, their separate and distinct and separate personalities should be disregarded. Luzon Iron Dev. Group Corp. v. Bridgestone Mining and Dev. Corp., 813 SCRA 583 (2016).

PIERCING DOCTRINE AS AN "EQUITABLE REMEDY":

Piercing the corporate veil is an equitable doctrine developed to address situations where the separate corporate personality of a corporation is abused or used for wrongful purposes. PNB v. Ritratto Group, Inc., 362 SCRA 216 (2001).

It Is a Remedy of Last Resort:

Piercing the corporate veil is remedy of last resort and is not available when other remedies are still available. Umali v. CA, 189 SCRA 529 (1990).

Exploitation of Natural Resources

Sec.2, Art.XII, 1987 Constitution

Foreign Investment Act (FIA) Test of "Philippine National"

Section 3 of R.A. 7042 considers for purpose of investment a "Philippine National " as a corporation organized under the laws of the Philippines of which at least 60% of the capital stock outstanding and entitled to vote is owned and held by Filipino citizens, or a trustee of funds for pension or other employee retirement/separation benefits, where the trustee is a Philippine National and at least 60% of the fund will accrue to the benefit of Philippine nationals.

Shareholders Per Se Cannot Be Held Liable for a Corporate Criminal Act

Shareholders, being "owners" of the corporation or being basically investors in the corporation, and with the management of its business generally vested in the Board of Directors, cannot be held liable for the criminal offense committed on behalf of the corporation, unless they personally took part in the same. Espiritu v. Petron Corp., 605 SCRA 245 (2009).

Doctrine of Limited Liability

Shareholders/Members Cannot be Held Liable for the Liabilities of the Corporation, Except to the Extent of Their Investments or Promised Investments.

Power to Create a Corporation Is Legislative in Character (Sec. 16, Art. XII, 1987 Constitution)

Since under the Constitution, Congress cannot enact a law creating a private corporation with a special charter, except when it is a GOCC, it follows then that Congress can create corporations with special charters only if such are GOCCs. Thus, all water districts which are not created under the Corporation Code but pursuant to P.D. 198, are GOCCs and within COA's jurisdiction. Feliciano v. COA, 419 SCRA 363 (2004). P.D. 1717 creating New Agrix, Inc. violated the constitutional prohibition on the formation of a private corporation by special legislative act, as it is not a GOCC, since NDC was merely required to extend a loan to the new corporation, and the new stocks of the corporation were to be issued to the old investors and shareholders of the insolvent Agrix upon proof of their claims against the abolished corporation. National Development Corporation v. Philippine Veterans Bank, 192 SCRA 257 (1990).

Applicable to "Third-Parties"

That respondents are not shareholders of record does not make them non-parties, since it is alleged that the corporations are mere alter egos of the directors- petitioners, and that the sister corporations acquired the properties sought to be reconveyed to FGSRC in violation of directors-petitioners' fiduciary duty to FGSRC. The notion of corporate entity will be pierced and the individuals composing it will be treated as identical if the corporate entity is being used as a cloak or cover for fraud or illegality; as a justification for a wrong; or as an alter ego, an adjunct, or a business conduit for the sole benefit of the shareholders. Gochan v. Young, 354 SCRA 207 (2001).

New SEC Control Test; and Foreign Investment Act (FIA) Test of "Philippine National"

The Constitution "provides for the Filipinization of public utilities by requiring that any form of authorization for the operation of public utilities should be granted only to 'citizens of the Philippines or to corporation or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens.' The provision is [an express] recognition of the sensitive and vital position of public utilities both in the national economy and for national security." The evident purpose of the citizenship requirement is to prevent aliens from assuming control of public utilities, which may be inimical to the national interest. The term "capital" in Sec. 11, Art. XII of the Constitution should (a) the control test that covers only shares entitled to vote in the election of directors, and (b) the beneficial interest test that shall apply to each and every class of shares, voting and non-voting. Gamboa v. Teves, 652 SCRA 690 (2011), expanded in 682 SCRA 397 (2012). As a result of the Gamboa rulings, SEC Memorandum Circular No. 8, s. 2013, was issued and provides that: All covered corporations shall, at all times, observe the constitutional or statutory ownership requirement in that "the required percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding shares of stock entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors." Affirmed in Roy III v. Herbosa, 810 SCRA 1 (2016). The definition of "beneficial owner or beneficial ownership in the SRC-IRR, which is in consonance with the concept of "full beneficial ownership" in the FIA-IRR, is relevant is resoling only the question of who is the beneficial owner or has beneficial ownership of each "specific stock" of the public utility whose stocks are under review. If the Filipino has the voting power of the "specific stock", i.e., he can vote the stock or direct another to vote for him, or the Filipino has the investment power over the "specific stock", i.e., he can dispose of that "specific stock" or direct another to vote or dispose it for him, then such Filipino is the "beneficial owner" of that "specific stock." Being considered Filipino, that "specific stock" is them to be counted as part of the 60% Filipino ownership requirement under the Constitution. The right to the dividents, jus fruendi—a right emanating from ownership of that "specific stock" necessary accrues to its Filipino "beneficial owner." Roy III v. Herbosa, 823 SCRA 133 (2017).

Party Invoking Piercing Doctrine Must Have a "Victim Standing":

The bank cannot successfully invoke the piercing doctrine when it was proven that the assignment of the securities by the subsidiary company was contrary to existing rules of the Central Bank of the Philippines, which were well-known to the officers of the lending bank. Being merely an equitable remedy, employment of the piercing doctrine can only be for the "protection of the interests of innocent third persons dealing with the corporate entity which the law aims to protect by this doctrine." Traders Royal Bank v. Court of Appeals, 269 SCRA 15 (1997).

Corporations Vested With Public Interests (Sec. 22)

The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have become an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, most of all, confidence. x x x The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. In the case at bar, it is obvious that the respondent bank was remiss in that duty and violated that relationship. What is especially deplorable is that, having been informed of its error in not crediting the deposit in question to the petitioner, the respondent bank did not immediately correct it but did so only one week later or twenty- three days after the deposit was made. Simex International, Inc. v. Court of Appeals, 183 SCRA 360 (1990). Since the banking business is impressed with public interest, of paramount importance is the trust and confidence of the public in general. The diligence required of banks is more than that of a good father of a family, but the highest degree of diligence, and high standards of integrity and performance are even required. The nature of bank's functions require it "to treat its depositors' accounts with meticulous care, always having in mind the fiduciary nature of their relationship."12 Here, even if withdrawals were effected before passage of GBL, nonetheless, its Sec. 2 categorical declaration of the "fiduciary nature of banking that requires high standards of integrity and performance," is only a statutory affirmation of Supreme Court decisions in esse at time of such withdrawals. PNB v. Pike, 470 SCRA 328 (2005). While in theory a hospital as a juridical entity cannot practice medicine, in reality it utilizes doctors, surgeons and medical practitioners in the conduct of its business of facilitating medical and surgical treatment. Within that reality, three legal relationships crisscross: (1) between the hospital and the doctor practicing within its premises; (2) between the hospital and the patient being treated or examined within its premises; and (3) between the patient and the doctor. Regardless of its relationship with the doctor, the hospital may be held directly liable to the patient for its own negligence or failure to follow established standard of conduct to which it should conform as a corporation. Professional Services, Inc. v. CA, 611 SCRA 282 (2010).

Probative Factors for Fraud Piercing:

The corporate fiction must be the very means by which to commit fraud or avoid the consequences of ones unlawful or wrongful acts. Concept Builders, Inc. v. NLRC, 257 SCRA 149 (1996). The absence of these elements prevents piercing the corporate veil. Lim v. Court of Appeals, 323 SCRA 102 (2000). Two corporations may engage in the same business, share the same address, or have interlocking incorporators, directors or officers, but in the absence of fraud or other public policy consideration, does not warrant piercing the corporate veil. McLeod v. NLRC, 512 SCRA 222 (2007). Mere substantial identity of incorporators does not necessarily imply fraud, nor warrant the piercing of the corporate veil. In the absence of clear and convincing evidence to show that the corporate personalities were used to perpetuate fraud, or circumvent the law, the corporations are to be rightly treated as distinct and separate from each other. Laguio v. NLRC, 262 SCRA 715 (1996). That a corporation owns all of the stocks of another corporation does not amount to fraud per se, and does not justify their being treated as one entity. If used to perform legitimate functions, a subsidiary's separate existence shall be respected, and the liability of the parent corporation, as well as the subsidiary shall be confined to those arising in their respective business. Nisce v. Equitable PCI Bank, 516 SCRA 231 (2007).

Primary "Place of Incorporation Test "

The corporation is a national of the country under whose laws it is organized or incorporated.

Intra-corporate Relationship

Treat of the legal consequences arising from "corporate contractual relationships"

Ownership of Private Land (Sec.7, Art. XII, 1987 Constitution)

The donation of land to an unincorporated religious organization, whose trustees are foreigners, would violate constitutional prohibition and the refusal would not be in violation of the freedom of religion clause. The fact that the religious association "has no capital stock does not suffice to escape the constitutional inhibition, since it is admitted that its members are of foreign nationality ... and the spirit of the Constitution demands that in the absence of capital stock, the controlling membership should be composed of Filipino citizens." Register of Deeds of Rizal v. Ung Sui Si Temple, 97 Phil. 58 (1955). BUT: A corporation sole being a creature prior to the constitution, has no nationality. If a nationality is sought to be determined, the same depends of the nationality of the majority of the lay members and not on the nationality of the sole corporator. Roman Catholic Apostolic Administrator of Davao, Inc. v. LRC and the Register of Deeds of Davao, 102 Phil. 596 (1957). If foreign equity in a landholding corporation exceed 40%, it is not the foreign shareholders' ownership of the shares which is adversely affected by the capacity of the corporation to own land—that is, the corporation becomes disqualified to own land. The prohibition in the Constitution applies only to ownership of land; it does not extend to immovable or real property as defined under Article 415 of the Civil Code. Otherwise, we would have a strange situation where the ownership of immovable property such as trees, plants and growing fruit attached to the land would be limited to Filipinos and Filipino corporations only. J.G. Summit Holdings, Inc. v. CA, 450 SCRA 169 (2005). Radstock, a foreign corporation with unknown owners whose nationalities are also unknown, is not qualified to own land in the Philippines, and therefore also disqualified to own the rights to ownership of lands in the Philippines—it is basic that an assignor or seller cannot assign or sell something he does not own at the time the ownership, or the rights to the ownership, are to be transferred to the assignee or buyer. The assignment by PNCC of the real properties to a nominee to be designated by Radstock is a circumvention of the constitutional prohibition against a private foreign corporation owning lands in the Philippines. Strategic Alliance Dev. Corp. v. Radstock Securities Ltd., 607 SCRA 413 (2009). The nationality of a nonstock corporation in relation to land acquisition is computed not on membership contribution but that the 60-40 minimum Filipino requirement applies to both the nationality of the members, and their voting powers. SEC Opinion No. 16-15, 1 June 2016.

Entitled to Invoke the Due Process and Equal Protection Clauses

The due process clause has universal application and covers private corporations insofar as their properties are concerned. Smith Bell & Co. v. Natividad, 40 Phil. 136 (1920). The failure to formally implied a corporation in a suit for recovery of ill-gotten wealth against its shareholders cannot bind the corporation itself; otherwise, the corporation's fundamental right to due process will be violated. COCOFED v. Republic, 805 SCRA 1 (2016).

Beneficial Test Through "Corporate Layering"

The grandfather rule can only extend to such levels of corporate layering as to those who have actual control of the affairs of the corporation. Palting v. San Jose Petroleum Inc., 18 SCRA 924 (1966). Although the control test is the prevailing mode of determining whether a corporation is a Filipino corporation entitled under Sec. 2, Art. II of 1987 Constitution to undertake the exploration, development and utilization of the natural resources of the Philippines, when there is doubt in the minds of the courts, based on the attendant facts and circumstances of the case, in the 60%-40% Filipino-foreign equity of the corporation, they may apply the grandfather rule. Narra Nickel Mining Corp. v. Redmont Consolidated Mines, 722 SCRA 382 (2014). The "grandfather rule" does not eschew, but in fact supplements the "control test", as the latter implements Filipinization provisions of the Constitution. There should be a distinction between the "beneficial ownership" test from the "control test". As further defined by Dean Cesar Villanueva, the grandfather rule is 'the method by which the percentage of Filipino equity in a corporation engaged in nationalized and/or partly nationalized areas of activities, provided for under the Constitution and other nationalization laws, is computed, in cases where corporate shareholders are present, by attributing the nationality of the second or even subsequent tier of ownership to determine the nationality of the corporate shareholder.' Narra Nickel Mining Corp. v. Redmont Consolidated Mines Corp., (Resolution), 748 SCRA 455 (2015), citing VILLANUEVA, PHILIPPINE CORPORATE LAW (2011 ed.).

Objectives and Effects of the Application of the Piercing Doctrine

The main effect of disregarding the corporate fiction is that shareholders will be held personally liable for the acts and contracts of the corporation, whose existence, at least for the purpose of the particular situation involved, is ignored. Considering that We find it justified to pierce the corporate veil in this case, MPEI must, perforce, be treated as a mere association of persons whose assets are unshielded by corporate fiction. Such persons' individual liability shall now be determined with respect to the matter at hand. Republic v. Mega Pacific eSolutions, Inc., 794 SCRA 414 (2016). When 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 parties, disregard the legal fiction that two corporations are distinct entitled and treat them as identical or one and the same. General Credit Corp. v. Alsons Dev. and Investment Corp., 513 SCRA 225 (2007).26

Public Utilities (Sec.11, Art.XII, Constitution)

The nationality test for public utilities applies not at the time of the grant of the primary franchise that makes a corporation a juridical person, but at the grant of the secondary franchise that authorizes the corporation to engage in a nationalized industry. People v. Quasha, 93 Phil. 333 (1953). The primary franchise, that is, the right to exist as such, is vested in the shareholders or members and not in the corporation itself and cannot be conveyed in the absence of a legislative authority to do so. The secondary franchises 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. J.R.S. Business Corp. v. Imperial Insurance, 11 SCRA 634 (1964). The Constitution requires a franchise for operating a public utility; however, it does not require a franchise before one can own the facilities needed to operate a public utility so long as it does not operate them to serve the public. There is a clear distinction between "operation" of a public utility and ownership of the facilities used to serve the public. Tatad v. Garcia, Jr., 243 SCRA 436 (1995).

PIERCING THE VEIL OF CORPORATE FICTION - Source of Incantation: U.S. v. Milwaukee Refrigerator Transit Co., 142 Fed. 247 (1905).

The notion of corporate entity will be pierced or disregarded and the individuals composing it will be treated as identical, if the corporate entity is being used as a cloak or cover for fraud or illegality; as a justification for a wrong; or as an alter ego, an adjunct, or a business conduit for the sole benefit of the shareholders. Gochan v. Young, 354 SCRA 207 (2001). This Court has pierced the corporate veil to ward off a judgment credit, to avoid inclusion of corporate assets as part of the estate of the decedent, to escape liability arising for a debt, or to perpetuate fraud and/or confuse legitimate issues either to promote or to shield unfair objectives to cover up an otherwise blatant violation of the prohibition against forum shopping. Only is these and similar instances may the veil be pierced and disregarded. PNB v. Andrada Electric & Engineering Co., 381 SCRA 244 (2002). The legal fiction of separate corporate existence is not at all times invincible; it may be pierced when employed as a means to perpetrate a fraud, confuse legitimate issues, used as a means to promote unfair objectives, or to shield an otherwise blatant violation of the prohibition against forum-shopping. While piercing of the corporate veil has to be done with caution, the corporate fiction may be disregarded when necessary in the interest of justice. Rovels Enterprises, Inc. v. Ocampo, 391 SCRA 176 (2002). When the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons. The corporate entity may also be disregarded in the interest of justice in such cases as fraud that may work inequities among members internally, involving no rights of the public or third persons. In both instances, for the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established; it cannot be presumed. Suldao v. Cimech System Construction, Inc., 506 SCRA 256 (2006).

Rationale for Piercing

The rationale for piercing in a given case is to remove the barrier between the corporation and the persons comprising it to thwart the fraudulent schemes of those who use the corporate personality as a shield for undertaking proscribed activities. In the case at bar, however, instead of holding certain individuals or person responsible for an alleged corporate act, the situation has been reversed: it is the corporation that is being ordered to answer for the personal liability of certain directors and officers. Hence, it appears that the doctrine has been turned upside down because of its erroneous invocation. Francisco Motors Corp. v CA, 309 SCRA 72 (1999). BUT SEE: Reverse Piecing of the Corporate Veil: Int'l Academy of Management and Economics v. Litton and Co., Inc., 848 SCRA 437 (2017).

Application of the rules emanating from the primary doctrine: On Privileges Enjoyed

The tax exemption clause in the charter of a corporation cannot be extended to nor enjoyed even by the controlling shareholders. Manila Gas Corp. v. CIR, 62 Phil. 895 (1936).

Piercing Must Therefore Be Based on Clear Evidence:

To disregard the separate juridical personality, it is elementary that the wrongdoing cannot be presumed and must be clearly and convincingly established. Application of the doctrine of piercing should be done with caution. Otherwise, an injustice that was never intended may result from an erroneous application. PNB v. Andrada Electric & Engineering Co., 381 SCRA 244 (2002). CONSEQUENTLY: Organizing the corporation when relationship between landowner and developer were still cordial cannot be used as a basis to hold the corporation liable later on for landowner's obligations to the developer under the mere allegation that the corporation is being used to evade the performance of obligation by its major shareholders. Luxuria Homes, Inc. v. Court of Appeals, 302 SCRA 315 (1999). a. The Court finds that the Remington failed to discharge its burden of proving bad faith on the part of Marinduque Mining and its transferees in the mortgage and foreclosure of the subject properties to justify the piercing of the corporate veil. DBP v. Court of Appeals, 363 SCRA 307 (2001). b. Neither has it been alleged or proven that Merryland is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency conduit or adjunct of Cardale. Even assuming that the businesses of Cardale and Merryland are interrelated, this alone is not justification for disregarding their separate personalities, absent any showing that Merryland was purposely used as a shield to defraud creditors and third persons. Francisco v. Mejia, 362 SCRA 738 (2001). c. The mere assertion by a Filipino litigant against the existence of a "tandem" between two Japanese corporations cannot be the basis for piercing, which can only be applied by showing wrongdoing by clear and convincing evidence. Marubeni Corp. v. Lirag, 362 SCRA 620 (2001). d. Whether a corporation is a mere alter ego is a purely a question of fact, and the party seeking to pierce has the burden of presenting clear and convincing evidence to justify the setting aside of the separate corporate personality rule. Concept Builder, Inc. v. NLRC, 257 SCRA 149 (1996).32

Centralized Management (Section 22)

Under [Sec. 22 of RCC], save in those instances where the Code requires shareholders' approval for certain specific acts, it is the Board of Directors/Trustees which exercises all the corporate powers in a corporation. Great Asian Sales Center Corp. v. Court of Appeals, 381 SCRA 557 (2002).

Fraud Piercing

When corporate entity is used to commit a crime, to undertake fraud or do a wrong, or that the corporate veil is used as a means to evade the consequences of one's criminal or fraudulent acts

Defeat of Public Convenience (Equity Piercing)

When the application of the separate corporate personality would be inconsistent with the business purpose of the legal fiction or would merely confuse legitimate issues, or when piercing the corporate fiction is necessary to achieve justice or equity for those who deal in good faith with the corporation.

Alter-Ego Piercing

When the corporate entity merely a farce since the corporation is merely the alter ego, business conduit, or instrumentality of a person or another entity

Corporate Fiction Used to Do Wrong or Evade Consequences Thereof:

Where a shareholder, who has absolute control over the affairs of the corporation, entered into a contract with another corporation through fraud and false representations, such shareholder shall be liable solidarily with co-defendant corporation even when the contract sued upon was entered into on behalf of the corporation. NAMARCO v. Associated Finance Co., 19 SCRA 962 (1967). Piercing is allowed where the corporation is used as a means to appropriate a property by fraud which property was later resold to the controlling shareholders. Heirs of Ramon Durano, Sr. v. Uy, 344 SCRA 238 (2000). Fraud and bad faith on the part of certain corporate officers or shareholders may warrant the piercing of the veil of corporate fiction so that the said individual may not seek refuge therein, but may be held individually and personally liable for his or her actions, Lafarge Cement Phils., Inc. v. Continental Cement Corp., 443 SCRA 522 (2004);34 however, mere allegation of fraud or bad faith, without evidence supporting such claims cannot warrant the piercing of the corporate veil. DBP v. Court of Appeals, 357 SCRA 626; 358 SCRA 501; 363 SCRA 307 (2001). PThe attempt to make the security agencies appear as two separate entities, when in reality they were but one, was a devise to defeat the law [i.e., in this case to avoid liabilities under labor laws] and should not be permitted. Enriquez Security Services, Inc. v. Cabotaje, 496 SCRA 169 (2006). Piercing will be applied when there is an indubitable link between CBB's closure and Binswanger's incorporation: CBB ceased to exist only in name; it re-emerged in the person of Binswanger to avoid payment by CBB of the last two installments of its monetary obligation to Livesey, as well as its other financial liabilities. Livesey v. Binswanger Philippines, 719 SCRA 433 (2014). While courts have authority to wield the sword which pierces through the veil of corporate fiction, concomitant to the exercise of this power, is the responsibility to uphold the doctrine of separate entity, when rightly so; as it has for so long encouraged businessmen to enter into economic endeavors fraught with risks and where only a few dared to venture. Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court should be mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of its rights. The wrongdoing must be clearly and convincingly established; it cannot be presumed. Otherwise, an injustice that was never unintended may result from an erroneous application. Pacific Rehouse Corp. v. Court of Appeals, 719 SCRA 665 (2014).

Using the Corporation as a Mere Conduit or Alter Ego:

Where the capital stock is owned by one person and it functions only for the benefit of such individual owner [rather than the business interest for which the corporation was formed], the corporation and the individual should be deemed the same. Arnold v. Willets and Patterson, Ltd., 44 Phil. 634 (1923). When corporation is merely an adjunct, business conduit or alter ego of another corporation [i.e., operated for the benefit of the business enterprise of the other corporation, and not for its own benefit], the fiction of separate and distinct corporation entities should be disregarded. Tan Boon Bee & Co. v. Jarencio, 163 SCRA 205 (1988). Unlike in fraud piercing, alter ego piercing does not require establishing fraud or wrongdoing, but only that the corporate personality has been used as an instrumentality for the personal agenda of its controlling shareholder. Lipat v. Pacific Banking Corp., 402 SCRA 339 (2003).

Strong/Solemn Juridical Personality

While not in fact a person, the corporation is treated through fiction by the law as though it were a person—an artificial person distinct and separate from its shareholders. Remo, Jr. v. IAC, 172 SCRA 405 (1989). Shareholders are not co-owners of corporate assets; the transfer of corporate assets to the shareholders by way of dissolution is an act of conveyance and not a partition among co-owners. Stockholders of F. Guanzon and Sons, Inc. v. Register of Deeds of Manila, 6 SCRA 373 (1962). Execution pending appeal may be allowed when "the prevailing party is already of advanced age and in danger of extinction," but not in this case a corporation whose "juridical entity's existence cannot be likened to a natural person—its precarious financial condition is not by itself a compelling circumstance warranting immediate execution and does not outweigh the long standing general policy of enforcing only final and executory judgment." Manacop v. Equitable PCIBank, 468 SCRA 256 (2005).