Revised Corporation Code (R.A.
11232)
By: Judge Tambasacan
Corporation – A corporation is an artificial being created by operation of law, having the right of
succession and the powers, attributes and properties expressly authorized by law or incident to
its existence.
Attributes:
1. Is an artificial being
2. It is created by operation of law
3. It has the right of succession
4. It has the powers, attributes and properties expressly authorized by law or incident to
its existence
GOCC- Special law
Private corporation – Corporation Code
Powers:
Express powers:
Corporation as an artificial being (2013-2012 Bar)
1. The Doctrine of Separate Juridical Personality provides that a corporation has a legal
personality separate and distinct from that of people comprising it. Stockholders enjoy
the Principle of Limited Liability: the corporate debt is not the debt of the stockholder
2. As the corporation is considered separate from the stockholders, the stockholders
merely possess inchoate interest over corporate assets (inchoate or incomplete/partial:
will wait the dissolution of the corporation, debts of the corporation must be paid first,
before the assets of the corporation be distributed and divided among the
stockholders.)
3. Doctrine of Separate Juridical Personality admits of an exception – the Doctrine of
Piercing the veil of Corporate Fiction
4. Corporations are likewise entitled to constitutional guarantees such as the right to due
process; however, it cannot invoke the right against self-incrimination
5. Cannot be entitled to moral damages. Exceptions on award of damages, if any, only
apply pro hac vice. The grant is not automatic. The claimant must still prove the factual
basis of the damage and the causal relation to the defendant’s acts. (corporations
cannot feel anxiety, ill feelings, sleepless nights, etc)
Corporation being created by operation of law – 2008 Bar
- GOCCs may be created or established by special charters while the general law that
provides for the formation, organization, and regulation of private corporations refer
to the Revised Corporation Code.
- GOCCs are stock or non-stock corporations vested with functions relating to public
needs that are owned by the government directly or through its instrumentalities.
Three attributes make an entity a GOCC: 1. Its organization as stock or non-stock
corporation; 2. The public character of its function; and 3. Government ownership
over the same; Funa vs. Manila Economic and Cultural Office et al., GR No. 193462,
Feb. 4, 2014
- MECO is a sui generis
Corporation being created by operation of law – 2008 Bar
-Life of a corporation is not affected by the death of the stockholders comprising it. It can
continue to exist perpetually
-Since a corporation is a creature of the state, it has no power, except those expressly conferred
on it by the corporation code and those that are implied or incidental to its existence.
Piercing the veil of corporate fiction
-when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud,
or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a
corporation is the 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.
3 basic areas: when do you pierce the veil?
1. Defeat public convenience as when the corporate fiction is used as a vehicle for the
evasion of an existing obligation;
2. Fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or
defend a crime; or
3. Alter ego cases, where a 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.
How do you pierce the veil?
1. When you file a suit against the corporation impleading the stockholders or officers
concerned of the corporation
Piercing the veil of corporate fiction:
-mere ownership of a subsidiary does not justify the imposition of liability on the parent
company
-elements:
1. Control – not mere stock control, but complete domination – not only of finances, but of
policy and business practice in respect to the transaction attacked, must have been such that
the corporate entity as to this transaction had at the time no separate mind, will or existence of
its own.
2. Such control must have been used by the defendant to commit a fraud or a wrong, to
perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust
act in contravention of plaintiff’s legal right; and
3. The said control and breach of duty must have proximately caused the injury or unjust loss
complained of
-the first prong is the instrumentality or control test. This requires that the subsidiary be
completely under the control and domination of the parent.
-probative factors of identity that will justify the application of the doctrine of piercing the
corporate veil:
1. Stock ownership by one or common ownership of both corporations
2. Identity of directors and officers
3. The manner of keeping corporate books and records
4. Methods of conducting the business
Expanded factors:
1. The parent owns all or most of the capital stock of the subsidiary
2. The parent and subsidiary corporations have common directors or officers
3. The parent finances the subsidiary
4. The parent subscribes to all the capital stock of the subsidiary or otherwise causes its
incorporation
5. The subsidiary has grossly inadequate capital
6. The parent pays the salaries and other expenses or losses of the subsidiary
Fraud test:
Harm test:
Reverse piercing:
You want the corporation to be held liable for the liability of the stockholders
Two types:
1. Outsider reverse piercing – occurs when a party with a claim against an individual or
corporation attempts to be repaid with assets of a corporation owned or substantially
controlled by the defendant
2. Insider reverse piercing – the controlling members will attempt to ignore the corporate
fiction in order to take advantage of a benefit available to the corporations, such as an
interest in a lawful suit or protection of personal assets.
