Notes Intro

8/13/2019 Notes Intro

1/15

Corporation Code of the Phils.

Batasang Pambansa Blg 68

Introduction:

Different forms of business organization:

1.) Individual proprietorship

o Primitive form of business

o Individual proprietor

Operates a small business

Usually with limited capital

Responsible alone for its success or failure

2.) Partnership

First step towards wider filed of operation

o More complex organizationo Ie a family affair

Business too large to manage alone, bring in

family members

At least two men

o Same business

o Unite their capital to secure adequate capital to conduct

business

Invariably larger business unit than proprietorship

Common in:

o Retail tradeo Professions

o (limited extent) manufacturing establishments

As business form, losing ground

3.) Joint stock company

o Frequent in connection with larger enterprises

Almost extinct (in US)

Highly popular in England during 17th

-early 18th

centuries

o Similarity to partnership:

Formed under a contract

Requires no special sanction for the state

Liability of members for all companys debts

Jointly and severally

o Similarity to corporation

In control and management

Members do not directly control the

company

Choose a board of directors who are

authorized agents and managers

Change in Membership thru death or transfer of

interest

Company no dissolved

4.) Cooperative Association

5.) Business trust

Business org less widely known

Aka Massachusets trust

Main feature

i. Formed by a contract

ii. Title to property and conduct of business is in the

hands of trustees

1. Who act for a large group of beneficiaries

6.) Corporation

Dominant form of organization in modern business

Creature of law Rights, powers and duties derived from legislation

Almost the exclusive form business organization

i. In businesses of a public or quasi-public such as:

1. Public utilities

2. Railroads

3. Insurance companies

4. Banking institutions

But competes with other business forms in other fields of

enterprise

7.) Other business forms


2/15

Arise where different enterprises unite for a common

purpose

i. Whether organized in the same form or different

forms

Purpose:

i. Maybe temporary in character = syndicate

1. A temporary alliance of individuals, firms or

corporations

2. Usually for the purpose of financing an

enterprise

3. After purpose has been accomplished,

a. It is dissolved

4. Used largely by bankers for underwriting

purposes

5. Reflects the general state of business

a. If business is at a standstill= little

need for them few are formed

ii. Permanent association = varying forms of

combinations

1. ie the trust, holding company

2. Combinations:

a. Purpose: secure savings and other

advantages which result from

consolidation and large scale

operation

3. 1st

phase, these combinations were really

trusts except that corporations formed the

constituent elements and beneficiaries of

the trust

a. This form of assoc, in some

instances have been declared

illegal by the courts

b. So other methods have been

resorted to

4. Other practices:

a. Organize a new corporation

i. Which buys the individual

plants it wishes to bring

into the combination

ii. And which becomes a

single owner of all the

establishments

b. Creation of a holding company

i. Used by the largestcombinations

ii. Wherein the stock of the

constituent companies is

bought by a unifying

company which is the

holding company

iii. Constituent companies

retain their organization

intact

iv. Controlled by the central

corp as a stockholder

1. With power to

elect directors

and officers at

will = have

complete power

over the

management

Trust= (by popular phraseolody) to designate any large

aggregation of capital under direction and control

In Phils, business organizations provided by law are only

1.) Partnershipart. 1767-1806 of civil code

2.) Corporation

But NO prohibition for other forms.


3/15

Theories as to origin of coporations

1.) ethnological theory

that the corporate idea is the product of no one people and

no one country but developed more or less independently in

varying forms among the several ethnological units

o because

concept of collective entity antedates thatof the individual

groups of men united by the reality

of fiction of blood relationship into

families, clans or tribes were

recognized units of primitive

society even before the individual

was so regarded

as such the corporation is in reality

a manifestation of the instinct of

man, existing inchoate from theearliest times and before law itself

became an effective social force.

Law itself has done no more than

to recognize

o the existence of this

phase of human activity

o guide its development

o define its functions and

relations

2.) Imitative theory Imitative theory of jural development

Traces the genesis of the modern corporation to the Greece

of Solon viting writings of Gaius on Roman law, passages

fromt eh Pandects of Justinians. As authority for the assertion

that laws fathered by the great Helenic jurist permitted the

formation of private corp for certain purposes, upon the

condition that they do not operate in violation of the laws of

the state

Blackstone, the English jurist and torist opf the 18th

century,

ascribes the brith of the corp to the political necessities of

Numa Pompilius, who upon his accession to power in Rome,

desiring to end the diruspting influence of the private war

being waged between the Sabine and Roman factions

thought it prudent and politic to measure and subdivide

these two into smaller ones by instituting separate societies

of every manual trade and profession

Rise and development of corporations

1.) Roman times

Earliest form: Collegium = college of priests

a)Had many rights and privileges which the law gives

to modern corp

Could hold property

Sue and be sued

Rights of the corp were separate from those

of the individual members

It existed in perpetuity

It was autonomous

Also has corporate form

a)municipalities

b)official societies engaged in state administration

c)military groups

d)trade and societies

2.) Medieval times

Like the roman collegia: municipal and guild corporations

a)Like non-stock corporations of the present day

b)Embodied the idea of group working as a whole thru

chosen representatives

Different from present day corporations

a)Though closely related to business

b)More of a voluntary assoc of retailers or

manufacturers in any given time

c)With full legal authority to regulate the business

practices of its members


4/15

d)Eventually became so autocratic in their proceedings

that they became a hindrance rather than a help to

progress

3.) In England

Regulated companioes

a)Ie Plymouth company, Hudson bay Company, East

india company

b)Dominant factor in british and foreing trade Chartered by the govt

Were granted special privelges by their

charters

c)Consisted of

A grant of a right to carry on

A Certain kind of business

In certain place conferred upon a group of

persons

d)Any group or a number of members jointly might

exercise the right and only those who participated in

the particular venture would be entitled to tis

profits.

Joint stock companies

a)Companies conducted their operations as a unit and

all the associated shared in the common profit.

b)Became in effect Joint stock companies

4.) In the United States

Before the revolution

a)Corporations were mostly

Educational

Religious

Military

b)Not introduced into business affairs

c)Entailed

Exclusive privilege

Carried the idea of monopoly granted by

the crown

19th

century- corps began to make strides

Growth of manufacturers brought by the Napoleonic

wars (manufacturing of arms/industrial revolution)

Consequent rise of the investing class

1800-1835

Manufacturing companies

Turnpike companies

Canal and railway companies were

incorporated

Also banking institutions spread

rapidly across the said country

=corporate form of organization

became thoroughly established

1811, New York

First state to provide for

incorporation under general laws

for business pruposes

1855

Principle of limited liability was

adopted in England

When parliament passed a statue

providing that only such

companies which announce that

their stockholders liability is

limited shall escape the common

law rule that stockholders shall be

liable as partners.

Abbrev of Ltd

5.) In the Philippines

During Spanish Regime and Before the enactment of the

former Corp Law

a)Most common forms of businesses

Governed by the Code of Commerce

Sociedad en comanditalimited

partnership

Sociedad regular colectiva- general

partnership

Most known


5/15

i. Sociedad anonima-

A sociedad annima was considered a commercial partnership, asort of a corporation, where upon the execution of the publicinstrument in which its articles of agreement appear, and thecontribution of funds and personal property, becomes a juridicalpersonan artificial being, invisible, intangible, and existing only incontemplation of lawwith power to hold, buy, and sell property, and

to sue and be sueda corporationnot a general copartnership nora limited copartnership . . . The inscribing of its articles of agreementin the commercial register was not necessary to make it a juridicalpersona corporation. Such inscription only operated to show that itpartook of the form of a commercial corporation. xMead v.McCullough, 21 Phil. 95,106 (1911).

The sociedades annimaswere introduced in Philippine jurisdictionon 1 December 1888 with the extension to Philippine territorialapplication of Articles 151 to 159 of the Spanish Code of Commerce.Those articles contained the features of limited liability andcentralized management granted to a juridical entity. But they were

more similar to the English joint stock companies than the moderncommercial corporations. xBenguet Consolidated Mining Co. v.Pineda, 98 Phil. 711 (1956)

Our Corporation Law recognizes the difference between sociedades

annimas and corporations and will not apply legal provisions

pertaining to the latter to the former

Sociedad de cuentas en

participacionjoint account

participation

A cuentas en participacionas a sort of an accidental partnershipconstituted in such a manner that its existence was only known tothose who had an interest in the same, there being no mutualagreement between the partners, and without a corporate nameindicating to the public in some way that there were other peoplebesides the one who ostensibly managed and conducted thebusiness, governed under article 239 of the Code of Commerce.

Those who contract with the person under whose name the business

of such partnership of cuentas en participacionis conducted, shall

have only a right of action against such person and not against theother 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.

b)Sociedad anonima most closely approaches the

present day concept of corps, amongst all the then

forms of commercial entities

but it differs from it particularly on matters

concerning organization of enterprise

distribution of dividends

and those in which equity

intervenes for the benefit of

stockholders

c)all such societies and associations were abolished

with the enactment of the former corp law and the

new civil code

save for sociedad de cuentas en

participacion ( joint account participation./joint venture?)

American Occupation

a)Phil Bill of 1902

Inserted provisions to control the law

making power in the Phils in granting

Of fracnhises

Privileges

And concessions

Esp as to mining and corporations

involved thereinb)Act no. 1459 former corporation code

Approved on 1906

Enacted under the guidance of

The Phil Bill of 1902

Other acts of the US Congress

Including some American state

corporation laws

Before the present Corp law (corporation code of the

Philippines; may 1, 1980)

the following laws were enacted affecting corporations:a)General Banking Act (RA 337)


6/15

b)Rural Banks Act (RA 7533)

c)Investment company act ra 2629

d)Savings and loans association act ra 3779

e)Private doevt banks act ra 4093

f)Financing company act ra 5980

g)Investment houses law pd 129

h)Pawnshop regulation act pd 114

i) Insurance code of the phil pd 1460

6.) In modern business

Growth in the past half century- leaps and bounds

Almost the exclusive form business organization

i. In businesses of a public or quasi-public such as:

1. Public utilities

2. Railroads

3. Insurance companies

4. Banking institutions

Merits overshadow its drawbacks

a)Form is flexible

Control can be scientifically determined

Risk is equitably apportioned

Income distributed among ownered and

creditors through the

Various kinds of stocks and bonds

And Judicious charting of charter

ans by laws

b)Assembles huge quantities of capital

Gathered from many different quarters and

provdes the means for efficiently

administering it

c)Possess a degree of permanence

Usually Outlives the men who make and

manage it


7/15

Section 1. Title of the Code. - This Code shall be known as "The

Corporation Code of the Philippines

Historical Background of our corp code

1.) Business associations under the Code of Commerce-

a. Prior to 1906

i. Business assoc were partnerships and

sociedades anonimas which were created by

mere agreements

ii. No entity in Spanish law which exactly

corresponds to the notion of the corp in

American law

iii. Which prompted the phil commission, then

legilastive body of the phils, to enact act no.

1459, a general law authorizing the creation of

corporations in the phils

2.) Business associations under the former corp code

a. Recognized the difference between sociedades anonimas

and corporations

i. Under sec 75 of said act, sociedades anonimas

were made subject to the provisions of the

corporation law

1. As far as such provisions were

applicable

2. And were given the Option to either

continue business as such corporationor to form and organize under and by

virtue of the provisions of said act

ii. Sec. 191 of said act expressly repealed the

pertinent provisions of the Code of Commerce

governing sociedad anonimas

1. With the proviso that those which elect

to continue their business as such

instead of reforming and organizing

undetr the corporation law shall

continue to be governed by the Code ofCommerce as to:

a. their organization and

method of transacting

business and

b. Rights of members thereof as

among themselves

2. But was governed by the said code on

a. Their relations to the public

and public officialsb. Evident purpose of enacting the said law was

i. to introduce to the phils the American

corporation as the standard commercial entity

and

ii. hasten the process of making sociedad

anonimas, obsolete

iii. remained practically intact except for some

repeals or amendments until the enactment of

BP 68

3.) Business corporation under the corporation code-

a. BP 68; Corporation code of the Philippines; took effect on

the date of its approval May 1 1980

b. Supplants act 1459

c. Reproduced with amendments many provisions of theold

corporation law

d. Seeks to establish a new concept iof business

corporations so that they are not merely entities

established for private gain

i. But effective partners of the National govt in

spreading the benefits of capitalism for the

social and economic development of the nation

e. Significant changes one of which is the

i. Grant of ample powers to the Securities and

Exchange Commission

1. To enable it to exercise adequate

supervision over the operations and

activities of private corporations

Section 16. The Congress shall not, except by general law, provide for

the formation, organization, or regulation of private corporations.


8/15

Government-owned or controlled corporations may be created or

established by special charters in the interest of the common good and

subject to the test of economic viability.

Scope of the Code:

1.) Provides for the

a) Incorporation

b) Organization

c) Regulation

Of private corporations

Both stock and non-stock

Including religious and educational corporations

2.)

Defines their powers

And provide for their dissolution

3.) Fixes the

Duties &Liabilities

Of directors or trustees and other officers

4.) Declares the

rights and liabilities

of stockholders and members

5.) Prescribes the conditions under which corporations including

foreign corporations may transact business6.) Provides penalties for violations of the code

7.) Repeals all laws and parts of laws in conflict and inconsistent

with the Code

Sec. 2. Corporation defined. - A corporation is an artificial being

created by operation of law, having the right of succession and the

powers, attributes and properties expressly authorized by law or

incident to its existence

Statutory definition

Refers only to

Private corporations

Corporations organized under the Corporation Code

Judicial definitions

Though terminology varies, elements are the same

Most of which come American jurisprudence:

1.) an artificial being, invisible, intangible and existing only in

contemplation of law

2.) An artificial being created by law and composed of individuals

who subsist as a body politic under a special denomination with

the capacity of perpetual succession and of acting within the

scope of uits charter as a natural person

3.) A legal institution devised to confer upon the individuals of

which it is composed powers priveleges and immunities which

they would not otherwise possess, most important of which

are:

a. Continuous lega identity

b. Perpetual or indefinite succession under the corporate

name

i. Notwithstanding successive changes by death

or otherwise in the corporation or members

thereof

Attributes of a Corporation

(a) A corporation is an artificial being


9/15

(b) Created by operation of law

(c) With right of succession

(d) Only has powers, attributes and properties

expressly authorized by law

or incident to its existence

Corporation as an artificial personality

Corporation, doctrinally

a legal or juridical person

with a personality separate and apart from its individual

stockholders or members and from any other legal entity to

which it may be connected

NOT , in fact and reality, a person but by process of fiction, the

law treats it as though it were a person

The stockholders or members, who are natural persons are

absorbed in the corporate body, and compose the corporation

but are NOT the corporation

Consequences of such artificial personality

1.) Liability for acts or contracts

a) GR: obligations incurred by a corp, acting through its

authorized agents, are it sole liabilities

b) Thus it may not also be made to answer for acts or

liabilities of its stockholders/members or those of the

legal entities to which it may be connected

Suit against certain stockholders of a

corporation cannot ipso facto be a suit against

the unpleaded corporation

Violates the principle of the distinct and

separate personality of the corporation

from tis tockholders

Failure to implead is a violation of its

right to due process

A corporate officer is not personally and

solidarily liable with the corporation for the

money claims of discharged and dismissed

employees

Unless he acted with evident malice orbad faith in terminating their

employment

Such dismissal if done in good faith

cannot result in his personal liability

All contracts entered into in its name by its

regular appointed officers and agents are the

contracts of the corporation and not those of

the stockholders/members

Corporation cannot be held liable for thepersonal indebtedness of a stockholder

even if he should be its president

Stockholders credit/debt is not debt of

corporation and vice versa

Corporate officers cannot be held personally

liable for the consequences of their acts for as

long as

they are for and on behalf of the

corporation , Within the scope of their authority

And in good faith

President and manager of a corporation

who entered into and signed a contract

in his official capacity cannot be made

liable thereunder in his personal

capacity

In the absence of stipulation to that

effect


10/15

Property of the corporation is not the proeperty

of the stockholders/members and may not be

sold by the them without express authorization

of its board of directors or trustees

Their interest is only indirect, contingent

and inchoate

2.) Liability when exceptional circumstances warrant

Personal/solidary liability may be incurred by corporate agenst

acting in behalf o fhte corporation oonly when exceptional

circumstances warrant, such as:

Director/trustee acted maliciously and in bad faith

Agreed to hold himself personally and solidarily

liable with the corporation

o no law prohibiting a corporate officer from

binding himself personally to answer acorporate debt

Made by specific provision of law, personally liable

for corporate action

or it is proven that the officer has used the fiction of

separate corporate personality to defraud a 3rd

party or for wrongful ends

3.) Right to bring actions-

It may incur obligations and brign civil and criminal actions in its

own name Corporation has no personality to bring an action for

and in behalf of its stockholders/members for

recovering property which belongs to said

stockholders/members in their personal capacities

Right to object to seizure of paper and documents of

the corporation belongs to the corporation as a

separate entity and not to its stockholders

o Since legality of seizure can be contested only

by the party whose rights had been violated

A corporation, being an artificial person, cannot

experience physical sufferings, mental anguish, fright,

serious anxiety, wounded feelings, moral shock or social

humiliation which are basis for moral damages

Moral damages are granted in recompense for physical

suffering, mental anguish, fright, serious anxiety,

besmirched reputation, wounded feelings, moral shock,social humiliation, and similar injury.

o A corporation, being an artificial person and

having existence only in legal contemplation,

has no feelings, no emotions, no 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 lifeall of which cannotbe suffered by respondent bank as an artificial

person.

But moral damages due to a besmirched good

reputation resulting in social humiliation maybe a

ground for recovery of moral damages and attorneys

fees

o But a corporation whose credit reputation is not

exactly something to be considered sound and

wholesome cannot be entitle to a big amount fomoral damages

o To recover moral damages it must

Present Proof of existence of factual

basis of the damage

and establish its causal relation to the

defendants acts

this is so because MD are

incapable of pecuniary

estimation and is designed to


11/15

compensate the claimant for

actual injury

for purposes of venue, the place of business of the suing

corporation is considered its residence

o not the resident of its president

4.) Right to acquire and possess property-

Acquire an possess property of all kinds Property conveyed to or acquired by the corporation is , in

law, the property of the corporation itself and not its

stockholders/members

Where real properties included in the inventory of

the estate of the deceased are in the possession

and are registered under the name of the

corporation, in the absence of any cogency to

pierce the veil of corporate fiction, the presumption

of conclusiveness of the titles in favor of thecorporation should stand unditrubed.

a) Property of the corporation may not be sold to

stockholders/members without the express

authorization from the corporations board of directors

or trustees

b) While ashare of stock represents a proportionate

interest in the prop of the corporation it does not vest

the owner thereof, even if is the controlling

shareholder, with any legal right or title to any of theproperties of the corporation because ownership of

that property is with the corporation not in the holders

of shares of stocks

c) Interest of shareholders in corporate property is purely

inchoate and does not entitle them to intervene in a

litigation involving corporate property

d) A sheriff does not have to authority to attach the

properties of the president of the judgment debtor

corporation in order to enforce a writ of execution; onthe ground that they are one and the same

Mere fact that one is president of a corporation

does not render his personal property, the

property of the corporation

Only the court has the power to pierce the veil

of corporate entity.

e) A tax exemption granted on a corporation cannot be

extended to include the dividends paid by suchcorporation to its stockholders

f) Agreement of co-shareholders to mutually grant the

right of first refusal to each other, by itself, does not

constitute a violation of the constitutional provision

limiting land ownership to Filipinos and Filipino

corporations.

If the foreign ownership exceeds 40%, such is

not adversely affected but the capacity of sadi

corporation to own landIt becomes disquilaified to own land

5.) Acquisition by court of jurisdiction

In the absence of summons on the corporation, a judgement against

it is void for lack of jurisdiction and lack of due process

Participation of a general manager of a corporation in

an action involving another corporation cannot equate

to participation of the corporation for which said person

is the general manager merely because said general

manager is also the chairman of the board of the othercorporation

6.) Changes in individual membership

By death or transfer of interest of such memberships, a

corporation remains unchanged and unaffected in its identity.

As an entity distinct form its members or stockholders and as an

artificial person, it continues to exist as such

The doctrine of corporate entity fills a useful pruppose in business life

Whether it be


12/15

To gain an advantage under the law of the state of

incorporation

To avoid or to comply with the demands of creditors

To serve the creators personal or undisclosed

convenience

So long as that purpose is equivalent ot business activity or is

followed by the carrying on of business of the corporation, thecorporation remains a separate entity.

Corporation as person, resident or citizen

Tendency is to regard , as far as their inherent nature

will permit, as on the same footing as ordinary

individuals

However, whether corporations are included within a

statute depends upon the subject and purpose of such

statutea.) As a person

person prima facie implies both

natural and artificial persons so GR

is corporations are included

Held as such in statutes concerning

Attachment

Taxation

Usury

Insolvency andbanckcruptcy

Limitations

Prior notice to bring suit

Right to appeal

Allowing action of trespass

Prohibiting banking

business

Conferring a cause of action

for wrongful death

Allowing suit against

usurpation of a public office

or franchise

Allowing a petition to quiet

title and offering public

lands for appropriation by

all persons who enterupon them

Used in statues providing suit

because of the wrongful exercise of

a franchise by a person

When used in a definition of libel

Within the meaning of section1

article 3 of the constitution No

person shall be deprived of life,

liberty and property without dueprocess of law

It is also entitled to t the

equal protection of the laws

in like manner as other

persons in the same

situation provided the

corporation is within the

jurisdiction of the state the

protection of which isdemanded

The protection of sec 3 of

bill of right sof the consti

also applies to

corporations, insuring the

right of the people to be

secured in their persons

against unreasonable

seizures and searches


13/15

o As a collective

body, it waives no

constitutional

immunities

appropriate to such

body

It is also protected againstunlawful discrimination

As to liberty, however, as

regards the constitutional

provision, it only applied to

natural persons so

corporations are not

included

The constitutional provision

on Self incrimination alsodoes not apply to it

o It beign granted

with special

privileges and

franchises, it may

not refuse to show

its hand when

charged with an

abuse of suchprivileges

b.) As a resident/ non resident

Depends upon the meaning of the

statute, if it is within the purpose

and intent of the statue

Ie statues defining

jurisdiction of the courts

Regarding taxation and

venue

c.) As a citizen-

Is a status of a citizen with its rights

and privileges and corresponding

duties and obligations.

Commonly implies membership in a

political body and does not

ordinarily include a corporation Unless the general purpose

and import of the statue in

which the term is found

seem to require it

No absolute and inflexible rule to

deem a certain corporation a citizen

for certain pruposes

A corporation is a citizen within the

meaning of a statue conferringrights, defining the jurisdiction of

courts, or otherwise relating to

citizens, if the purpose and intent of

the statute renders it applicable

GR, a corporation is a citizen of the

country or state under the laws of

which ti was created and exists

without regard to the citizenship of

its stockholders/members

Corporation as a collection of individuals

Notwithstanding the doctrine on the separate and distinct

personality of a corporation from its stockholders/members

A corporation is still, in fact a collection of individuals,.

It really is the individuals composing it who own its property and carry

on the corporate business, through the corporation and its agents, for

their own profit and benefit


14/15

the doctrine on the separate and distinct personality of a corporation

from its stockholders/members is merely a fiction of law introduced for

the convenience in conducting the business in this privileged way

recognized for many purpose

o as between the stockholders/members themselves

o

as between them and the corporation in order to enforce and protect their rights

entitled to benefits by way of dividends

entitled to insist that the corporation

shall keep within the powers and

purposes for which it was formed and

ay sue in equity , if necessary to compel

it do so

Doctrine of Piercing the Veil of Corporate Fiction

One of the advantages of a corporate form of businessorganization is the limitation of an investors liability to theamount of the investment.

o This feature flows from the legal theory that a corporateentity is separate and distinct from its stockholders.

However, the statutorily granted privilege of a corporate veil maybe used only for legitimate purposes.

On equitable considerations, the veil can be disregarded when itis

o utilized as a shield to commit fraud, illegality or inequity;o defeat public convenience;o confuse legitimate issues;o or serve as a mere alter ego or business conduit of a

person or an instrumentality, agency or adjunct ofanother corporation.

Piercing the veil of corporate entity requires the court to seethrough the protective shroud which exempts its stockholdersfrom liabilities that ordinarily, they could be subject to, or

distinguishes one corporation from a seemingly separate one,

were it not for the existing corporate fiction. xLim v. Court ofAppeals,323 SCRA 102 (2000).

.

Rationale: to remove the barrier between the corporation from

the persons comprising it to thwart the fraudulent and illegal

schemes of those who use the corporate personality as shieldfor undertaking certain proscribed activities

To disregard the separate juridical personality of a corporation,

the wrongdoing must be clearly and convincingly established. It

cannot be presumed.

o Presumption: stockholders and officers and the

corporation are distinct entities

Burden of proof lies upon the party seeking to pierce the veil

Effect as to liability-

Corporation will be treated as merely an association of personsand stockholders/members will be considered as the

corporation

Liability will attach personally and directly to the

stockholders/members

Or where there are 2 corporations, they will be merged into

one.

o The other being regarded merely as an instrumentality,

agency, conduit or adjunct of the other

The application of the doctrine to a particular case does not denythe corporation of legal personality for any and all purposes, but

only for the particular transaction or instance for which the

doctrine was applied

o Absent proof that the separate personality of the

corporation was used as shield for any wrongdoing,

general rule on corporate liability should apply

o Any piercing of the veil must be done with caution

Where it is not sought to hold the officers and stockholders

personally liable for corporate debt, even with if the fact of fraud

was established, it will not be sufficient to pierce the corporateveil


15/15

Classification of the Piercing Cases:

(i)When the corporate entity is used to commit fraud or to do awrong (fraud cases)

o Also used to justify a wrong, protect fraud or defend acrime

(ii)When the corporate entity is merely a farce since thecorporation is merely the alter ego, business conduit orinstrumentality of a person or another entity (alter ego cases);and

(iii)When the piercing the corporate fiction is necessary to

achieve justice or equity

o As when it was used as a vehicle for the evasion of an

existing obligation so as to defeat public convenience

o

Documents

Notes Intro