Renato Tayag vs Benguet Consolidated, Inc.

Doctrine :

A corporation is an artificial being created by operation of law, and as such, it is

subject to judicial authority. Its by-laws cannot override valid court orders, especially
when public policy and estate administration are involved. Legal fictions may be
employed to uphold judicial authority and protect local interests.

Facts:

In March 1960, Idonah Perkins died in New York. She left behind properties here and
abroad. One property she left behind were two stock certificates covering 33,002 shares
of stocks of the Benguet Consolidated, Inc (BCI). Said stock certificates were in the
possession of the Country Trust Company of New York (CTC-NY). CTC-NY was the
domiciliary administrator of the estate of Perkins (obviously in the USA). Meanwhile, in
1963, Renato Tayag was appointed as the ancillary administrator (of the properties of
Perkins she left behind in the Philippines).

A dispute arose between CTC-NY and Tayag as to who between them is entitled to
possess the stock certificates. A case ensued and eventually, the trial court ordered
CTC-NY to turn over the stock certificates to Tayag. CTC-NY refused. Tayag then filed
with the court a petition to have said stock certificates be declared lost and to compel
BCI to issue new stock certificates in replacement thereof. The trial court granted
Tayag’s petition.

BCI assailed said order as it averred that it cannot possibly issue new stock certificates
because the two stock certificates declared lost are not actually lost; that the trial court
as well Tayag acknowledged that the stock certificates exist and that they are with CTC-
NY; that according to BCI’s by laws, it can only issue new stock certificates, in lieu of
lost, stolen, or destroyed certificates of stocks, only after court of law has issued a final
and executory order as to who really owns a certificate of stock

ISSUE: Whether or not the arguments of Benguet Consolidated, Inc. are correct.

HELD: No. Benguet Consolidated is a corporation who owes its existence to Philippine
laws. It has been given rights and privileges under the law. Corollary, it also has
obligations under the law and one of those is to follow valid legal court orders. It is not
immune from judicial control because it is domiciled here in the Philippines. BCI is a
Philippine corporation owing full allegiance and subject to the unrestricted jurisdiction of
local courts. Its shares of stock cannot therefore be considered in any wise as immune
from lawful court orders. Further, to allow BCI’s opposition is to render the court order
against CTC-NY a mere scrap of paper. It will leave Tayag without any remedy simply
because CTC-NY, a foreign entity refuses to comply with a valid court order. The final
recourse then is for our local courts to create a legal fiction such that the stock
certificates in issue be declared lost even though in reality they exist in the hands of
CTC-NY. This is valid. As held time and again, fictions which the law may rely upon in
the pursuit of legitimate ends have played an important part in its development.

Further still, the argument invoked by BCI that it can only issue new stock certificates in
accordance with its bylaws is misplaced. It is worth noting that CTC-NY did not appeal
the order of the court – it simply refused to turn over the stock certificates hence
ownership can be said to have been settled in favor of estate of Perkins here. Also,
assuming that there really is a conflict between BCI’s bylaws and the court order, what
should prevail is the lawful court order. It would be highly irregular if court orders would
yield to the bylaws of a corporation. Again, a corporation is not immune from judicial
orders.
 Manuel Torres, Jr. vs Court of Appeals

Doctrine :

In the absence of any provision to the contrary, the corporate secretary is the lawful
custodian of corporate records, including the stock and transfer book, and is
responsible for making proper and necessary entries therein.

Any assignment or transfer of shares of stock must comply with:

 The Corporation Code (particularly Section 74),

 The corporation’s by-laws, and
 Proper recording procedures in the stock and transfer book kept at the principal
office.

Failure to follow these procedures renders the transfer invalid, and any corporate
actions (like elections) based on such transfers are likewise null and void.

Facts:

Judge Manuel Torres, Jr. owns about 81% of the capital stocks of Tormil Realty &
Development Corporation (TRDC). TRDC is a small family owned corporation and other
stockholders thereof include Judge Torres’ nieces and nephews. However, even
though Judge Torres owns the majority of TRDC and was also the president thereof, he
is only entitled to one vote among the 9-seat Board of Directors, hence, his vote can be
easily overridden by minority stockholders. So in 1987, before the regular election of
TRDC officers, Judge Torres assigned one share (qualifying share) each to 5
“outsiders” for the purpose of qualifying them to be elected as directors in the board and
thereby strengthen Judge Torres’ power over other family members.

However, the said assignment of shares were not recorded by the corporate secretary,
Ma. Christina Carlos (niece) in the stock and transfer book of TRDC. When the validity
of said assignments were questioned, Judge Torres ratiocinated that it is impractical for
him to order Carlos to make the entries because Carlos is one of his opposition. So
what Judge Torres did was to make the entries himself because he was keeping
the stock and transfer book. He further ratiocinated that he can do what a mere
secretary can do because in the first place, he is the president.

Since the other family members were against the inclusion of the five outsiders, they
refused to take part in the election. Judge Torres and his five assignees then decided to
conduct the election among themselves considering that the 6 of them constitute a
quorum.

ISSUE: Whether or not the inclusion of the five outsiders are valid. Whether or not the
subsequent election is valid.

HELD:

No. Both the inclusion of the outsiders and the corporate election were invalid.

Under Section 74, Corporation Code: Stock and transfer books must be kept at
the principal office and managed by the secretary. All corporations must strictly comply
with statutory provisions, regardless of being family-owned.

The stock and transfer book was improperly kept by Judge Torres, violating
Section 74. No valid transfer was recorded, and the secretary was bypassed. Judicial
remedies (e.g., court order compelling entry) were available but not pursued. The
outsiders’ inclusion as stockholders was without legal basis. The election that followed
based on invalid stock assignment was void. The proper procedure is to order the
secretary to make the entry of said assignment in the book, and if she refuses, Judge
Torres can come to court and compel her to make the entry. There are judicial remedies
for this. Needless to say, the subsequent election is invalid because the assignment of
shares is invalid by reason of procedural infirmity. The Supreme Court also
emphasized: all corporations, big or small, must abide by the provisions of the
Corporation Code. Being a simple family corporation is not an exemption. Such
corporations cannot have rules and practices other than those established by law.
 Philippine Stock Exchange vs Court of Appeals and Puerto Azul Land, Inc.
G.R. No. 125469

Doctrine:

The Securities and Exchange Commission (SEC) has the authority to review and
reverse decisions of the Philippine Stock Exchange (PSE) regarding listing applications,
but only when such decisions are tainted with bad faith or abuse of discretion. Further,
stock exchanges have the right to protect their reputation and maintain
reasonable
standards for entities transacting through their facilities. Their corporate acts,
including listing decisions, are entitled to respect, barring any proof of abuse or
dishonest purpose.

Facts :

Puerto Azul Land, Inc. (PALI) is a corporation engaged in the real estate business. PALI
was granted permission by the Securities and Exchange Commission (SEC) to sell its
shares to the public in order for PALI to develop its properties.

PALI then asked the Philippine Stock Exchange (PSE) to list PALI’s stocks/shares to
facilitate exchange. The PSE Board of Governors denied PALI’s application on the
ground that there were multiple claims on the assets of PALI. Apparently, the Marcoses,
Rebecco Panlilio (trustee of the Marcoses), and some other corporations were claiming
assets if not ownership over PALI.

PALI then wrote a letter to the SEC asking the latter to review PSE’s decision. The SEC
reversed PSE’s decisions and ordered the latter to cause the listing of PALI shares in
the Exchange.

ISSUE: Whether or not it is within the power of the SEC to reverse actions done by the
PSE.

HELD: Yes. The SEC has both jurisdiction and authority to look into the decision of PSE
pursuant to the Revised Securities Act and for the purpose of ensuring fair
administration of the exchange. PSE, as a corporation itself and as a stock exchange is
subject to SEC’s jurisdiction, regulation, and control. In order to insure fair dealing of
securities and a fair administration of exchanges in the PSE, the SEC has the authority
to look into the rulings issued by the PSE. The SEC is the entity with the primary say as
to whether or not securities, including shares of stock of a corporation, may be traded or
not in the stock exchange.

HOWEVER, in the case at bar, the Supreme Court emphasized that the SEC may only
reverse decisions issued by the PSE if such are tainted with bad faith. In this case,
there was no showing that PSE acted with bad faith when it denied the application of
PALI. Based on the multiple adverse claims against the assets of PALI, PSE deemed
that granting PALI’s application will only be contrary to the best interest of the general
public. It was reasonable for the PSE to exercise its judgment in the manner it deems
appropriate for its business identity, as long as no rights are trampled upon, and public
welfare is safeguarded.
Related Law

Section 16

“The Congress shall not, except by general law, provide for the formation, organization,
or regulation of private corporations, unless such corporations are owned or controlled
by the government or any subdivision or instrumentality thereof.”

Key Points:

1. General Incorporation Law Principle: Private corporations must be formed and

regulated under a “general law,” preventing “special laws” that could grant
special or exclusive privileges to specific private entities.
2. Government-Owned or -Controlled Corporations (GOCCs): The exception is
if the corporations are government-owned or -controlled, in which case Congress
can enact special charters or laws (e.g., Government Service Insurance System,
Philippine National Railways, etc.).

Practical Application:

 The Revised Corporation Code of the Philippines (R.A. No. 11232) is the primary
statute for private corporation formation and regulation.
 GOCCs continue to be established or reorganized through specific charters (e.g.,
Bangko Sentral ng Pilipinas, Philippine Amusement and Gaming Corporation),
consistent with the constitutional exception.
 Feliciano vs. Commission on Audit
[GR 147402, 14 January 2004]

Doctrine:

Only government-owned or controlled corporations may be created by special

charters. Local Water Districts (LWDs), created under Presidential Decree No. 198,
are government-owned or controlled corporations (GOCCs)with special charters,
and therefore cannot be considered private corporations. Since private
corporations must be created under a general law, such as the Corporation Code,
and LWDs are not registered with the Securities and Exchange Commission
(SEC) nor organized under the Corporation Code, they cannot be classified as
private entities. To claim otherwise would render their existence constitutionally
infirm, as the Constitution prohibits the creation of private corporations by special law.

Facts:
A Special Audit Team from Commission on Audit (COA) Regional Office No. VIII
audited the accounts of the Leyte Metropolitan Water District (LMWD). Subsequently,
LMWD received a letter from COA dated 19 July 1999 requesting payment of auditing
fees. As Gen eral Manager of LMWD, Engr. Ranulfo C. Feliciano sent a reply dated 12
October 1999 informing COA‘s Regional Director that the water district could not pay
the auditing fees. Feliciano cited as basis for his action Sections 6 and 20 of PD
198, as well as S ection 18 of RA 6758. The Regional Director referred
Feliciano‘s reply to the COA Chairman on 18 October 1999. On 19 October 1999,
Feliciano wrote COA through the Regional Director asking for refund of all auditing fees
LMWD previously paid to COA. On 16 March 2000, Feliciano received COA Chairman
Celso D. Gangan‘s Resolution dated 3 January 2000 denying Feliciano‘s request for
COA to cease all audit services, and to stop charging auditing fees, to LMWD. The
COA also denied Feliciano‘s request for COA to re fund all auditing fees previously
paid by LMWD. Feliciano filed a motion for reconsideration on 31 March 2000, which
COA denied on 30 January 2001. On 13 March 2001, Felicaino filed the petition for
certiorari.

Issue:
Whether a Local Water District (―LWD‖) is a government -owned or controlled
corporation.

Held:

Yes, a Local Water District (LWD) is a government-owned or controlled corporation

(GOCC).
 Under Article XII, Section 16 of the 1987 Constitution: Only government-owned
or controlled corporations may be created by special charters. Private corporations
must be formed under a general law such as the Corporation Code.

PD 198 (Provincial Water Utilities Act of 1973): Serves as the special charter for
LWDs.

Section 14, Corporation Code: Requires corporations formed under it to

file articles of incorporation with the SEC, and to have incorporators, members or
stockholders, and elected directors.

Here, LWDs are not created under the Corporation Code, and thus do not
qualify as private corporations. They are not registered with the SEC, have no
articles of incorporation, and no stockholders or members. Their board of directors
is appointed by the local mayor or governor, not elected by stockholders or
members—a mark of GOCCs. LWDs derive their legal existence from PD 198,
a special charter, which is only constitutionally allowed for GOCCs. If LWDs were
considered private corporations with a special charter, it would be a constitutional
violation, since Congress is barred from creating private corporations by special laws.

The Constitution recognizes two classes of corporations. The first refers to

private corporations created under a general law. The second refers to government
-owned or controlled corporations created by special charters. The Constitution
emphatically prohibits the creation of private corporations except by a general law
applicable to all citizens. The purpose of this constitutional provision is to ban
private corporations created by special charters, which historically gave certain
individuals, families or groups special privileges denied to other citizens. In short,
Congress cannot enact a law creating a private corporation with a special charter. Such
legislation would be unconstitutional. Private corporations may exist only under a
general law. If the corporation is private, it must necessarily exist under a general law.
Stated differently, only corporations created under a general law can qualify as
private corporations. Under existing laws, that general law is the Corporation Code,
except that the Cooperative Code governs the incorporation of cooperatives. The
Constitution authorizes Congress to create government-owned or controlled
corporations through special charters. Since private corporations cannot have
special charters, it follows that Congress can create corporations with special charters
only if such corporations are government-owned or controlled. Obviously, LWDs
are not private corporations because they are not created under the Corporation
Code. LWDs are not registered with the Securities and Exchange Commission.
Section 14 of the Corporation Code states that ―[A]ll corporations organized under
this code shall file with the Securities and Exchange Commission articles of
incorporation x x x.‖ LWDs have no articles of incorporation, no incorporators and no
stockholders or members. There are no stockholders or members to elect the
board directors of LWDs as in the case of all corporations registered with the
Securities and Exchange Commission. The local mayor or the provincial governor
appoints the directors of LWDs for a fixed term of office. LWDs exist by virtue of PD
198, which constitutes their special charter. Since under the Constitution only
government-owned or controlled corporations mayhave special charters, LWDs
can validly exist only if they are government -owned or controlled. To claim that
LWDs are private corporations with a special charter is to admit that their
existence is constitutionally infirm. Unlike private corporations, which derive their legal
existence and power from the Corporation Code, LWDs derive their legal
existence and power from PD 198
I. BUSINESS ORGANIZATIONS: CORPORATIONS

A. Corporations

1. General Principles

a. Nature and Attributes of Corporations

In Philippine law, corporations are primarily governed by Republic Act No.

11232 or the Revised Corporation Code of the Philippines.
Understanding the nature and attributes of corporations involves analyzing
their key characteristics, which distinguish them from other business
entities, such as partnerships or sole proprietorships.

1. Definition and Legal Personality

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. This definition is derived from
Section 2 of the Revised Corporation Code. As an artificial person, a
corporation enjoys several rights and obligations akin to those of a natural
person, though it only exists in contemplation of law and through the act of
incorporation.

The key concept here is that a corporation is a legal entity separate and
distinct from its shareholders, directors, and officers. This principle
of separate legal personality allows the corporation to:

 Own property in its own name;

 Enter into contracts;
 Sue and be sued;
 Borrow and lend money;
 Pay taxes independently from its shareholders.

2. Limited Liability

One of the most important features of a corporation is limited liability.

Under this principle, the liability of the shareholders is limited only to
the extent of their capital contribution. They are generally not
personally liable for the obligations and debts of the corporation. This
protects personal assets from being seized to satisfy corporate debts, which
is a key advantage of doing business in corporate form.

Exceptions to limited liability, however, exist under the doctrine of piercing

the corporate veil. If the corporation is used for fraud, to defeat public
convenience, or is merely an alter ego of its owners, the courts may
disregard the separate personality of the corporation and hold its
shareholders or directors personally liable.

3. Right of Succession

A corporation has perpetual existence, unless otherwise provided in its

articles of incorporation or unless dissolved by law. This means that the
corporation's existence is not affected by the death, incapacity, or
withdrawal of any of its shareholders or directors. This attribute gives
stability and continuity to the corporate entity, making it an attractive
business vehicle.

With the enactment of the Revised Corporation Code, corporations are no

longer limited to a 50-year term. Unless a specific term is stipulated in
the articles of incorporation, corporations now enjoy perpetual
existence by default.

4. Centralized Management

A corporation’s business and affairs are generally managed by a Board of

Directors (or Trustees, in the case of non-stock corporations), which is
elected by the shareholders. The Board has the duty to set the overall
direction of the corporation and to make policy decisions.

The centralized nature of corporate management means that the shareholders

do not directly manage the day-to-day operations of the corporation. Instead,
they exercise control by voting for the Board of Directors during annual
meetings. This separation of ownership and management is one of the
defining characteristics of a corporation.

5. Transferability of Shares

Ownership in a corporation is represented by shares of stock. A key feature

of shares in a corporation is their transferability. Shares can generally be
sold or transferred without affecting the existence or operations of the
corporation. The Revised Corporation Code, however, allows corporations to
impose reasonable restrictions on share transfers, which may be stipulated
in the bylaws or stockholders' agreements.

The ease of transferability of shares increases liquidity and makes the

corporation an attractive option for investors. Stockholders are free to sell
their shares without needing the consent of the other shareholders or the
corporation, subject to applicable laws and regulations.

6. Capacity to Act and Enter into Contracts

A corporation, as a juridical entity, has the power to:

 Enter into contracts and obligations;

 Borrow or lend money;
 Issue bonds, debentures, and other securities;
 Purchase or hold real and personal property in its own name;
 Sell or otherwise dispose of property.

These powers must be exercised in accordance with the

corporation’s purpose as stated in its articles of incorporation. Any act
outside the corporation’s stated purpose is considered ultra vires, meaning
it is beyond the powers of the corporation, and such acts may be void or
unenforceable.

The Board of Directors exercises these powers, and acts within the scope of
its authority to bind the corporation in transactions with third parties.

7. Capital Structure

The capital structure of a corporation consists of its authorized capital

stock, subscribed capital, and paid-up capital:

 Authorized capital stock is the maximum amount of shares that a

corporation is authorized to issue, as stated in its articles of
incorporation.
 Subscribed capital refers to the portion of the authorized capital
stock that investors or shareholders have agreed to buy.
 Paid-up capital is the actual amount that has been paid by the
shareholders towards their subscriptions.

The corporation must follow strict formalities when raising capital and issuing
shares, in compliance with both the Revised Corporation Code and the
Securities Regulation Code, particularly for publicly-listed companies.

8. Doctrine of Corporate Opportunity

The doctrine of corporate opportunity provides that directors and

officers must not take for themselves business opportunities that should
belong to the corporation. They are under a fiduciary duty to act in the best
interest of the corporation, and any breach of this duty may result in
personal liability.

If a director or officer diverts a business opportunity that should have

belonged to the corporation for personal gain, the corporation can recover
the profits from the director, or it may compel the director to account for any
benefit derived.
9. Corporate Powers

Under Section 35 of the Revised Corporation Code, a corporation has

certain express powers, including:

 To sue and be sued in its corporate name;

 To adopt and use a corporate seal;
 To amend its articles of incorporation;
 To adopt bylaws and amend them;
 To make donations for public welfare or charitable purposes;
 To establish pension, retirement, and other employee benefit
plans;
 To exercise powers conferred by law or necessary for carrying
out its purposes.

10. Doctrine of Separate Juridical Personality

The doctrine of separate juridical personality allows the corporation to

maintain its own identity separate from that of its shareholders. This
separation means that the corporation can sue or be sued in its own name,
own assets in its own right, and bear responsibility for its own liabilities. The
shareholders are insulated from the direct consequences of corporate
activities.

The piercing of the corporate veil, as mentioned earlier, is an exception

to this doctrine, applied in cases where the corporation is being used to
evade legal obligations, commit fraud, or to act as an alter ego of the
shareholders.

Conclusion

Corporations under Philippine law are powerful business vehicles, endowed

with attributes such as separate legal personality, limited
liability, right of succession, and centralized management. The
Revised Corporation Code of the Philippines has modernized corporate
governance practices, enabling corporations to enjoy perpetual existence,
have flexible capital structures, and encourage more inclusive business
practices. At the same time, corporate officers and directors are held to high
fiduciary standards, and the doctrine of piercing the corporate
veil ensures that the corporate form is not abused for illegitimate purposes.
Partnership. Under the Civil Code, there is a partnership when two or more persons
bind themselves to contribute money,property, or industry to a common fund, with the
intention of_ dividing the profits among themselves. The partnership exists even if the
partners do not use the word "partnership" and "partners. "

The elements of the contract are as follows:

(1) Two or more persons bound themselves to contribute
money, property, or industry to a common fund; and

(2) They intend to divide the profits among themselves.

a. Registration with the Securities and Exchange Commission (SEC) is

necessary where the capital of the partnership 1s P3,000.00 or more.45 However, the
juridical personality still exists even if not registered with the SEC. Mere failure to
register with the
SEC does not invalidate a contract that has all essential requisites of a partnership. The
purpose of registration is to give notice to third parties. Failure to register the contract
does not affect the liability of the partnership and of the partners to third persons.46

b. The basic requirements for the registration of a partnership with the SEC are
as follows:
(1) Name verification slip;
_
(2) Articles of Partnership;

(3) Affidavit of a partner undertaking to change the partnership name if the name
already belongs to another person or entity.

(1) The partnership name shall bear the word "Company" or "Co." and if it is a limited
partnership, the word "Limited" or "Ltd." A professional partnership name may bear
the word "Company," "Associates," or "Partners," or other similar descriptions.
(2) Additionally, partnerships may be required to secure an endorsement or clearance
from other government agencies like the Insurance Commission, if applicable. Foreign
partners must submit a bank certificate on the capital contribution of the partners.
Comparison: Partnership vs. Corporation
Aspect Partnership Corporation
Created by issuance of
Created by mere
1. Manner of Creation a Certificate of Incorporation by
agreement among parties
the SEC, or via special law
May be formed by one
2. Number of Organizers Requires at least two persons person (One Person Corporation
under RA 11232)
Powers are limited to
Broad powers as may be agreed
3. Powers those granted by law and the
upon by partners
articles of incorporation
Mutual agency: each general Stockholders are not agents unless
4. Authority of Members
partner may bind the partnership expressly authorized
Shares are freely transferable,
Requires consent of other
5. Transfer of Interest unless restricted by agreement or
partners
by-laws
Partners may be liable beyond Stockholders' liability is limited to
6. Liability of Members
their investment their capital contribution
No right of succession—death of
Right of succession—corporation
7. Right of Succession a general partner dissolves the
enjoys continuity
partnership
Partnership may be an Corporation may enter into
8. Capacity to Be
incorporator or stockholder of a a partnership or joint venture under
Partner/Stockholder
corporation Section 35 of RCCP

Similarities Between Partnership and Corporation

Feature Explanation
Juridical Personality Both are distinct legal entities from their owners
Composition Both are groups of persons, except for a One Person Corporation
Capital Structure Capital is contributed by partners or stockholders
Profit Distribution Profits are distributed among partners or shareholders
Acts Through Agents They act only via agents (partners or corporate officers)
Organized by Law Can be created only where authorized by statute
 G.R. No. 22619 December 2, 1924
NATIONAL COAL COMPANY, plaintiff-appellee,
vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellant.

DOCTRINE:
A corporation in which the government holds a majority of the stock remains a private
corporation and is subject to the same laws and liabilities as any other private
corporation,
unless expressly exempted by statute. Furthermore, a private corporation extracting
minerals from public lands without a lease or express governmental authority is not
entitled to preferential tax treatment reserved for landowners or lessees under special
laws.

FACTS:
The National Coal Company (NCC), a corporation created by Act No. 2705, sought to
recover P12,044.68, which it had paid under protest as specific tax on 24,089.3 tons of
coal extracted from public lands. NCC was established primarily to develop the coal
industry and was substantially government-owned (99 1/3% of the capital stock held by
the Government). Relying on sections 14 and 15 of Act No. 2719, the company claimed
it should be subject only to a reduced internal revenue tax (P0.04/ton) applicable to
owners of coal lands, not the specific tax of P0.50/ton under Section 1496 of the
Administrative Code. It based its possession of the coal lands on Proclamation No. 39
(1917) by the Governor-General, which reserved coal-bearing lands from private
disposition, but did not grant NCC any express authority to mine. The trial court ruled in
favor of NCC, interpreting the phrase “lands owned by any person” in Section 15 of Act
No. 2719 to include lands held under usufruct or lease.

ISSUE:
Whether the National Coal Company, being neither the owner nor the lessee of the coal
lands, is entitled to the tax benefits under Section 15 of Act No. 2719 or is liable for the
specific tax under Section 1496 of the Administrative Code.

RULING:
The Supreme Court reversed the lower court’s decision and ruled in favor of the
Collector of Internal Revenue.
1. Nature of NCC as a Private Corporation:
2. The Court held that National Coal Company is a private corporation created under
Act No. 2705, and that the mere fact that the Government holds a majority of its stock
does not convert it into a public corporation. It remains subject to the Corporation Law,
and no special privileges or tax exemptions may be inferred unless clearly granted by
law.Lack of Ownership or Leasehold Rights: The Court emphasized that NCC was
neither the owner nor the lessee of the lands in
3. question. It operated without any formal authority, lease, or license from the
Secretary of Agriculture and Natural Resources, which was required under Act No.
2719. Inapplicability of Section 15, Act No. 2719:

4. Section 15 of Act No. 2719 applied only to owners of coal lands, not to possessors
without legal title. The Court rejected the trial court’s broad interpretation of "owned
lands" to include land held under usufruct or informal possession. Liability under Section
1496, Administrative Code: As NCC was merely a producer of coal from public lands
without ownership or lease, it fell within the purview of Section 1496 of the
Administrative Code, which imposes a specific tax of P0.50/ton on all coal produced in
the Philippines not otherwise exempt.

RELEVANCE TO CORPORATION LAW:

 Public vs. Private Corporation: The case distinguishes between public corporations
(created for governmental purposes) and private corporations (even if government-
owned), reinforcing that ownership by the State does not ipso facto confer public
character.
 Corporate Personality and Limitations: A corporation like NCC, although created by
special law, is bound by the general rules of the Corporation Code and cannot assume
powers or privileges not granted by law, particularly in matters affecting public
resources.
 Government-Owned or Controlled Corporations (GOCCs): The ruling provides early
jurisprudence on the nature of GOCCs, clarifying that they are not immune from
regulation or taxation unless explicitly exempted.

G.R. No. 72807 September 9, 1991

MARILAO WATER CONSUMERS ASSOCIATION, INC., petitioners,
vs.
INTERMEDIATE APPELLATE COURT, MUNICIPALITY OF MARILAO, BULACAN,
SANGGUNIANG BAYAN, MARILAO, BULACAN, and MARILAO WATER DISTRICT,
respondents.
FACTS:
The Marilao Water Consumers Association, Inc. (MWCAI), a non-stock, non-profit corporation, filed a
petition before the Regional Trial Court (RTC) of Malolos, Bulacan, seeking the dissolution of the
Marilao Water District (MWD). MWCAI alleged that the creation of the MWD was illegal and defective
due to a lack of genuine public consultation, and that MWD was mismanaged, rendering inadequate
water services despite full billing and threats of disconnection. MWCAI claimed that the waterworks
system was turned over without compensation and a subsidy was illegally authorized.
The RTC dismissed the petition, ruling that jurisdiction belonged to the Securities and
Exchange Commission (SEC) under P.D. 902-A, citing the latter’s jurisdiction over dissolution
proceedings and intra-corporate controversies.

MWCAI elevated the case to the Intermediate Appellate Court (IAC) via certiorari, which also
dismissed the case, reiterating the RTC's ruling and finding fault with the remedy used (certiorari
instead of appeal).
MWCAI then filed a petition for review on certiorari before the Supreme Court.
ISSUE:
Whether the Securities and Exchange Commission (SEC) has jurisdiction over the
dissolution of a water district created under Presidential Decree No. 198 (Provincial Water
Utilities Act of 1973), by virtue of the provisions of the Corporation Code and P.D. 902-A.
RULING:
NO. The Supreme Court ruled that the SEC has no jurisdiction over water districts created
under P.D. 198.
The Court reversed the decisions of the RTC and the IAC, and ruled that Regional Trial Courts
(RTCs), not the SEC, have jurisdiction over actions involving the dissolution of water districts.
The Court emphasized that water districts are not corporations formed under the Corporation
Code, but are quasi-public corporations created pursuant to P.D. 198.
“The juridical entities known as water districts created by P.D. 198... are entirely distinct from
corporations organized under the Corporation Code, P.D. 902-A, as amended.”Water districts do not
have incorporators, stockholders, or members who vote or act in accordance
with the Corporation Code. They are not required to file Articles of Incorporation with the SEC but are
instead created by resolution of the local Sanggunian, filed with the Local Water Utilities
Administration (LWUA).
As such, the SEC has no supervisory or adjudicatory authority over water districts, nor
jurisdiction over their dissolution, which is specifically governed by Section 45 of P.D. 198.
Furthermore, the Court clarified that the Consumers Association’s petition was in the nature of
mandamus — seeking to compel public officers to initiate dissolution proceedings.
“Although described as quasi-public corporations... water districts are not really corporations [within
the contemplation of the Corporation Code]... There can therefore be no such thing in a water district
as 'intra-corporate or partnership relations'... so as to bring controversies involving them within the
competence and cognizance of the SEC.”