2nd Meeting - Corp and Bill of Rights

7/24/2019 2nd Meeting - Corp and Bill of Rights

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ENTITLEMENT OF THE CORPORATION TOCONSTITUTIONAL GUARANTEES

1. DUE PROCESS AND EQUALPROTECTION CLAUSE

- A corporation is entitled to due process

and equal protection of the law and

protection against unreasonable

searches and seizures.- In Smith, Bell & Co. v. Natividad, a

domestic corporation with the majority

of its shareholdings held by British

subjects, sought to have a law

reserving registration of vessels for

coast-wide shipping only to domestic

corporations wholly-owned by ilipinos

or American citizens as violation of due

process and equal protection clauses.

Although denying the stand of the

domestic corporation, the !upreme"ourt ac#nowledged that corporate

entities do have a right to claim

protection under such constitutional

rights, because $

“the guarantees of the %&th Amendment

and so the 'rst paragraph of the (hilippine

Bill of )ights, are universal in their

application to all persons within the

territorial jurisdiction, without regard to any

di*erences of race, color, or nationality.

+he word person includes aliens,.. (rivate

corporations, li#ewise, are persons withinthe scope of the guaranties in so far as

their property is concerned.

SMITH-BELL V. NATIVIDAD (DUE PROCESS)

FACTS: !mith, Bell "o. is a corporationorganized and e/isting under the laws of the(hilippine Islands0majority of the stoc#holders are British0 ownerof a motor vessel #nown as the Bato1broughtto "ebu for the purpose of transporting !mith,Bell "o.2s merchandise between ports in theislands. application for registration was made

at "ebu at the "ollector of "ustoms---denied.Because they were not citizens of the 3!4(hils.

- Act 567%, !ec. %%75. "erti'cateof(hilippine )egister.upon registrationof a vessel of domestic ownership, andof more than %8 tons gross, acerti'cate of (hilippine register shall beissued for it. If the vessel is of domesticownership and of %8 tons gross or less,

the ta#ing of the certi'cate of (hilippine register shall be optionalwith the owner.

- domestic ownership, as used in thissection, means ownership vested in the9a: citizens or native inhabitants of the

(hil Islands0 9b: citizens of the 3!residing in the (hil. Islands0 9c: anycorporation or company composedwholly of citizen of (hils.43! or both

- plainti*2s contention; Act <o. 567%deprives the corp. of its propertywithout due process of law because bythe passage of the law, the companywas automatically deprived of everybene'cial attribute of ownership of theBato and that they are left with a na#edtitle they could not use.

ISSUE; =>< !mith, Bell "o. were denied of

the due process of law by the (hil. ?egislaturein its enactment of Act 576%.

HELD: NO. 9judgment a@rmed1plainti* can2tbe granted registry.:

); Act <o. 576%, in denying to corporationssuch as !mith, Bell "o. ?td., the right toregister vessels in the (hils. "oastwide trade,falls within the authorized e/ceptions.!peci'cally within the purview of the policepower. ?iterally and absolutely, steamship linesare the arteries of the commerce in the (hils. If one be severed, the lifeblood of the nation is

lost. If these are protected, security of thecountry and general welfare is sustained.

2. UNREASONABLE SEARCHES ANDSEIZURES

- In Stonehill v. Diokno, recognized that

corporations are protected by the

constitutional guarantee against

unreasonable searches and seizures.

Ho!"!#$ the "ourt ruled that the

o@cers of a corporation from which

documents, papers and things were

seized have no cause of action to assail

the legality of the seizures, regardless

of the amount of shares of stoc# or of

the interest of each of them in said

corporation, and whatever the o@cers

they hold therein may be, %!&'!*+! &o#,o#'*o +' ' ,!#o'/*0!,'#'*! ' *&* #o3 *+o!o ' o4&!#.

eidi Cean I. Dontaos (age %



- It held that the legality of a seizure can

be contested only by the arty !hose

rights have been imaired thereby"

and the ob#ection to an unla!ful search

is urely ersonal and cannot be

availed of by third arties, such as

o$cers of the cororation !hointerose it for their ersonal interests.

- In Bache & Co. v. %uiz, *+! Co#* +!/*+'* ' &o#,o#'*o !**/! *o33*0 '5'* !'#&+! '!6#!$ *+:

“ cororation is, after all, but an

association of individuals under an

assumed name and !ith a distinct legal

entity. In organizing itself as a collective

body, it !aives no constitutional

immunities aroriate for such body. Its

roerty cannot be taken !ithout comensation. It can only be roceeded

against by due rocess of la!, and is

rotected, under the '(th amendment,

against unla!ful discrimination.

STONEHILL V. DIO7NO (UNREASONABLE S8S)

FACTS: 3pon application of the o@cers of thegovernment 9!pecial (rosecutors: Cudges of "Iand Dunicipal "ourts issued, on di*erent dates,a total of &5 search warrants against arry !.!tonehill et. Al and4or the corporations of whichthey were o@cers, directed to any peaceo@cer, to search the said persons and4or thepremises of their o@ces, warehouses and4orresidences, and to seize and ta#e possession of the following personal property to wit; Boo#sof accounts, 'nancial records, vouchers,correspondence, receipts, ledgers, journals,portfolios, credit journals, typewriters, andother documents and4or papers showing allbusiness transactions including disbursementsreceipts, balance sheets and pro't and lossstatements and Bobbins 9cigarette wrappers:as the subject of the o*ense0 stolen orembezzled and proceeds or fruits of the

o*ense, or used or intended to be used asthe means of committing the o*ense, which isdescribed in the applications adverted to aboveas violation of "entral Ban# ?aws, +ari* and"ustoms ?aws, Internal )evenue 9"ode: andthe )evised (enal "ode.

Alleging that the search warrants are null andvoid, as contravening the "onstitution 9a. nowarrant shall issue but upon probable cause to

be determined by the judge in the manner setforth in said provision0 and b. that the warrantshall particularly describe the things to beseized: and the )ules of "ourt 9a searchwarrant shall not issue but upon probablecause in connection with one speci'c o*ense: ,!tonehill, et. al. 'led with the !upreme "ourt

the original action for certiorari, prohibition,mandamus and injunction. >n 55 Darch %E65,the !upreme "ourt issued the writ of preliminary injunction prayed for in thepetition. owever, by resolution dated 5E Cune%E65, the writ was partially lifted or dissolved,insofar as the papers, documents and thingsseized from the o@ces of the corporations areconcerned0 but, the injunction was maintainedas regards the papers, documents and thingsfound and seized in the residences of !tonehill,et. al.

ISSUE: =>< the search warrants issued werevalid.

HELD: NO. +he "ourt held that the warrantsfor the search of F residences are null and voidsince it is in the nature of general warrant0 +herequisites provided by the )ules of "ourt wasnot met.

BACHE 8 CO. V. RUIZ (UNREASONABLE S8S)

FACTS: ; )espondent "ommissioner of theInternal )evenue wrote a request letter for theissuance of a search warrant by the)espondent Cudge against petitionercorporation for the alleged violation of !ec.

&69a: of the <I)", in relation to !ections 8F, 75,7F, 5GH and 5GE, and authorizing )evenue/aminer e ?eon to ma#e and 'le theapplication for search warrant.

In the following day, e ?eon and his witnesswent to court and brought with them anapplication for warrant of arrest but stillunsigned by him, an a@davit and deposition of the witness and a search warrant alreadyaccomplished but still not signed by the Cudge.At that time, respondent Cudge was still in ahearing, thus, he just instructed his eputy"ler# to ta#e the depositions of e ?eon andthe witness. After the hearing, the Cudge was

informed that the deposition had already beenta#en. +he Cudge requested that thestenographic notes be read aloud to him andthereafter he as#ed the witness to ta#e his oathand warned him that he can be held liable forperjury if his deposition was found to be falseand without legal basis. )espondent signed e?eon2s application and the witness deposition

eidi Cean I. Dontaos (age 5



and a corresponding !earch =arrant wasissued.

+hree days later, BI) agents served thewarrant on (etitioner2s o@ce. +he latter 'ledwith the issuing court a petition to quash saidwarrant but was denied. +hus, a petition to the

!upreme "ourt to declare null and void thesearch warrant issued against them by therespondent Cudge was 'led.

ISSUE: =hether or not the search warrant isvalid.

HELD: NO. +he search warrant is invalid.

+he Cudge failed to personally e/amine thecomplainant and the witness as required by the"onstitution. +he "onstitution provides;

!ection F. +he right of the people to be securein their persons, houses, papers, and e*ects

against unreasonable searches and seizures of whatever nature and whatever purpose shallnot be violated, and no search warrant orwarrant of arrest shall issue e/cept uponprobable cause to be determined by the judge,or such other responsible o@cer as maybeauthorized by law, after e/amination underoath or a@rmation of the complainant and thewitnesses he may produce, and particularlydescribing the place to be searched, and thepersons or things to be seized.

+he e/amination of the complainant andwitnesses should be conducted by the judge

himself and not by others. (ersonale/amination by the Cudge of the complainantand his witnesses is necessary to determinewhether or not probable cause e/ists. In thecase at bar, the participation of the Cudge waslimited only to listening to the stenographer2sreading of her notes and just giving a warningto the witness. +his cannot be consideredpersonal e/amination.

urthermore, the search warrant is invalidbecause it is a general warrant. It does notconform to the requirement that a searchwarrant shall particularly describe the personor things to be seized. !uch warrant should

have at least mentioned the dates, amounts,persons, etc. owever, such pertinent data wasnot issued in the challenged warrant.

9. RIGHT AGAINST SELF-INCRIMINATION

- In Bataan Shiyard & )ngineering Co.,

v *C++, where the "ourt held that

+/! ' "'/ 3'0 /'//0#!! *o '!# &#3'*5!*o /! ,#o*!&*! %0 '33*0 *'**!$ it does not

follow that a corporation, vested

with special privileges and

franchises, may refuse to show itshand when charged with an abuse

of such privilege.” +his was

e/tensively quoted from =ilson v

3nited !tates.- It seems that when it comes to the

constitutional rights of due process,

equal protection of law, and protection

against unreasonable searches and

seizures, the !upreme "ourt would be

willing to view the corporation merely

as a vehicle, by which individuals

transact their businesses and

therefore, by using such medium, theyare deemed not to have waived their

constitutional rights.- +he di*erence in the "ourt2s stance

may lie in the fact that the right

against self-incrimination does not

really result in physical intrusion into

the premises of the corporation,

because it would require only that the

corporation, through its agents,

produce records and boo#s before the

courts. he denial of the right against

self-incrimination from cororations

does not really invite state authoritiesinto the remises or hysical rivacy of

the stockholders or members !ho

comose the cororation" but would

deny acting individuals the right

to abuse the corporate medium as

a means to do folly.- +he constitutional protection against

self-incrimination is not meant to

prevent an actual !tate abuse but to

avoid pressuring the individuals from

having to tell a lie. T+! 3',#,o! o *+! ,#o"o.. *o

,#o+%* &o3,/o#0 o#'/!;'3'*o o ,#o!# %!o#!*+! *#'/$ o# ,o *#'/$ o# *+!,#,o! !;*o#*5 //5&o!o o# !&/'#'*o3,/&'*5 *+!3 *+!&o33o o ' &#3!.< A

corporation owes full allegiance and

eidi Cean I. Dontaos (age F



subject to the unrestricted jurisdiction

of the courts of the !tate under which

it has been organized. ?i#ewise, a

corporation has no soul that can be

damned by a lie.

BATAAN SHIP=ARD V. PCGG (SELF-INCRIMINATION)

FACTS: (ursuant to the /ecutive >rder <o. %and 5 promulgated by (resident Aquino, the("JJ was ordered to recover ill-gotten wealthamassed by former (resident Darcos, hisrelatives, cronies and associates, which wereobtained through the use of public funds."onsequently, the (residential "ommission onJood Jovernment issued a sequestration orderagainst petitioner BA!">. Incidental to this,the petitioner was ordered to produce itscorporate records from %E7F to %EH6. In

assailing this order, petitioner contended thatthis violates its constitutional right against self-incrimination.

ISSUE; Is a corporation entitled to the rightagainst self-incrimination a*orded toindividuals by the "onstitutionK

HELD: NO. +he "ourt held in the negative. +he"ourt found that BA!"> was owned by(resident Darcos through the use of dummiesand alter egos, most notable evidence beingthe recovery of the deed of assignments of shares in the company in the DalacaLang afterthe Might of the Darcoses. It was the ruling of the "ourt that the right against self-incrimination has no application to juridicalperson. In addition, an o@cer of a companycannot refuse the production of records on theground of it incriminating him or the company. +he "ourt quoted the ruling of =ilson vs. 3!, tothe e*ect that the corporation is a merecreature of the state. +his being so, there is areservation to the legislature to investigate itscontracts and 'nd out whether it has e/ceededits powers. +he "ourt also held that there wasno violation of its right against unlawful searchand seizure since no search or seizure too#place.

NATIONAL COAL CO. V. CIR (PRIVATECORP.)

FACTS: +he <ational "oal "o.9<"": wascreated by a special law and was enacted byvirtue of Act 57G8 in order to develop a coalindustry. It was engaged in coal mining onreserved lands belonging to the government.

+he <ational "oal "o.9<"": 'led a case againstthe "I) for the recovery of sum of money itpaid on protest as speci'c ta/ on 5&,GHE tonsof coals claiming e/emption to ta/ pursuant to!ec. %& and %8 of Act 57%E.

ISSUE: =hether <"" is a private corporationK

HELD: =ES. (lainti* is a private corporation. +he mere fact that the government is amajority stoc#holder of the corporation doesnot ma#e the corporation. Act 57G8 asamended by Act 5H55 ma#es it subject to allthe provision of the corporation law.

As a private corporation, it has nogreater rights, powers or privileges than anyother corporation which may be organized forthe same purpose under the corporation lawand certainly it was not the intention of thelegislature to give preference or right orprivilege over other legitimate private

corporation in the mining of coal.

<"" is required to pay ta/es

pursuant to !ection %&E6 of the Administrative

"ode. Doreover, Act 57%E is applicable only to

lessee or owner of coal bearing lands which

<"" is not.

CLASSIFICATION OFCORPORATIONS

A. IN RELATION TO THE STATE1. PUBLIC CORPORATIONS

- +hose formed or organized for thegovernment of a portion of the !tate

9sec. F of the old "orp. law:- Are those created for political purposes

connected with the public good in the

administration of the civil government.

(ublic corporations therefore are

essentially municipal corporation, or

those formed and organized by the

!tate for government, such as the

barangay, municipality, city and the

province. In essence, being a mini-

state, possesses all F great powers of

government; police power, power of eminent domain, and power of

ta/ation.2 o/ &+'#'&*!# o ' MUNICIPALCORP. (ublic or governmental character,

in which it acts as agent of the

state and e/ercises, by delegation

eidi Cean I. Dontaos (age &



a part of the sovereignty of the

state0 A private, corporate or proprietary

character, in which it acts as a

private or business corporation,

and stands for the community in

the administration of its locala*airs wholly beyond the sphere of

public purposes for which its

governmental powers are

conferred.

MUNICIPAL CORP. (5o"*>/ &+'#'&*!#)

- Are possessed of and can e/ercise the

so-called police power of the state, by

delegation of the legislature. +hey may

levy ta/es for certain purposes under

limitations imposed by the lawma#ing

body. +hey are organized for thepurpose of serving the communal

welfare of the inhabitants of a town or

a city.

MUNICIPAL CORP. (,#o,#!*'#0 &+'#'&*!#)

- Are empowered to mortgage their

property under certain limitations. +hey

can sue and be sued, enter into

contracts and may be held liable for

damages for torts committed by them

in the e/ercise of their corporate

functions as distinguished from publicand governmental functions.2. PRIVATE CORPORATIONS

- Are divided into stoc# corporations and

non-stoc# corporations. "orporations

which have a capital stoc# divided into

shares and are authorized to distribute

to the holders of such shares dividends

or allotments of the surplus pro't on

the basis of the shares held are *o&? &o#,o#'*o. All other private

corporations are non-stoc#

corporations. (rivate corporations may

be classi'ed according to theirpurposes; 9a: the business corporation,

or the pro't-see#ing corporation, 9b:

religious corporations, 9c:

eleemosynary corporations or those

organized for charitable, scienti'c or

vocational corporations.

DISTINCTIONS BET@EEN PUBLIC ANDPRIVATE CORPORATIONS

A. BASED ON CORPORATION>SCREATION

1. P%/& Co#,o#'*o is created by its

charter

2. P#"'*! Co#,o#'*o created by

incorporation law. owever, while this

is a general form, many private

corporations are granted special

charters by the ?egislature, because

they constitute government-owned or

controlled corporations, but still cannot

be considered as public corporation.

In National Coal Co. v. Collector of Internal

%evenue, <ational "oal was created by Act

57G8 for the purpose of developing the coal

industry, with the Jovernment owning almost

all of the shareholdings of the company. +he

company was created with the general powers

of a corporation and such other powers as may

be necessary to enable it to prosecute the

business for the development. +he ?egislature

subsequently passed a law providing for the

leasing and development of coal lands and

e/empted the same from speci'c ta/es. >n

that basis, N'*o'/ Co'/ too# possession of

coal lands belonging to the government, and

began to e/tract coal. +he "ollector levied

against the company speci'c ta/ on coal

e/tracted from coal land. National Cola claimedeemtion from seci/c taes stating that it is

the o!ner of the land from !hich it has mind

the coal in 0uestion, being a government

cororation.

The Court held that the National Coal is a

private corporation. he mere fact that the

government haens to be a ma#ority

stockholder does not make a cororation a

ublic cororation. +he "ourt too# into

consideration that the law creating <ational

"oal e/pressly made the company %!&* *o

'// *+! ,#o"o o *+! *+! Co#,o#'*oL'. As a private corporation, it had no

greater rights, powers, or privileges than any

other corporation which might be organized for

the same purpose under corporation law. I*' o* &!#*'/0 *+! *!*o o *+!/!5/'*#! *o 5"! * ' #5+* o# ,#"/!5!o"!# o*+!# /!5*3'*! ,#"'*! &o#,o#'*o.ven a majority stoc#holder is the government




or that the charter was a direct grant by

legislature or it was not incorporated for public

welfare, such matter did not ma#e the <ational

"oal a public corporation $ it is still a rivate

cororation esecially the act creating it, made

the comany sub#ect to the rovisions of the

Cororation 1a!.

In *hiliine Society for the *revention of

Cruelty to nimals v. Commission on udit, the

"ourt held that although the corporation had

its own charter 9".A. <o. %&H:, it was still a

private corporation and not an agency of the

government, since a reading of the charter

showed that it is not subject to control or

supervision by any agency of the !tate and

that fact that is employees are registered and

covered by !!! at the time latter2s initiative,

and not through the J!I! which should be the

case if the employees are consideredgovernment employees.

Based upon the cases above, there are F types

of private corporations; 9a: those organized

under the "orporation "ode for private ends0,

and 9b: those organized under the "orporation

"ode as J>"" to achieve certain purposes of

the government and 9c: those J>"" with their

owned charter. +herefore, it is possible for a

J>"" to have a private holdings and a private

corporation to have government holdings.

owever, it is not the public purpose alone, orthe complete or controlling ownership by the

!tate of its capital, or the fact that it has a

charter under a special law, that distinguishes

a public corporation from a private corporation.

+hus, certain corporations, wholly-owned by

the Jovernment, having a public purpose, and

organized under their own charter would still

continue to be private corporations, such as

the <ational evelopment "orporation, the

(hilippine <ational )ailways, etc.

?i#ewise, in *hiliine Society v. C2 held that

the fact that a juridical entity is impressed witha public interest does not, by the

circumstances alone, ma#e the entity a public

corporation, inasmuch as a corporation may be

private though its charter contains provisions

of a public character incorporated solely for the

public good.

I *+! !$ ' *#/0 ,%/& &o#,o#'*o +'' #&'/ !**0$ %* * !;* ,#3'#/0o# *+! 5o"!#3!* o ' ,o#*o o *+!*'*!$ ' *+!#!%0 !;!#&5 *'*!,o!# ' ,o/&! ,o!#$ *';5 ,o!# '*+! ,o!# o !3!* o3'.

No!*+!/!$ +! ' 5o"!#3!*!#*'?5 !* , *+o* !o5 **+ ' !,'#'*! #&'/ ,!#o'/*0$ *+!* !*+!# ' ,%/& o# ,#"'*!&o#,o#'*o.

9. QUASI PUBLIC CORPORATIONS- +here is a group of association that

seems to be cross between private and

public corporations, and they are

classi'ed as quasi-public corporations.

+hese usually cover school districts,

water districts and the li#e.

DAVAO @ATER DISTRICT V. CSC (QUASI-PUBLIC)

FACTS: (etitioners are among the more than've hundred 98GG: water districts e/istingthroughout the country formed pursuant to theprovisions of (residential ecree <o. %EH, asamended by (residential ecrees <os. 76H and%&7E, otherwise #nown as the N(rovincial =ater3tilities Act of %E7F.N

(residential ecree <o. %EH was issuedby the then (resident erdinand . Darcos by

virtue of his legislative power under

(roclamation <o. %GH%. It authorized the

di*erent local legislative bodies to form and

create their respective water districts through a

resolution they will pass subject to the

guidelines, rules and regulations therein laid

down. +he decree further created and formed

the N?ocal =ater 3tilities AdministrationN

9?=3A:, a national agency attached to the

<ational conomic and evelopment Authority

9<A:, and granted with regulatory power

necessary to optimize public service fromwater utilities operations.

ISSUE:

=+) >) <>+ + ?>"A? =A+)

I!+)I"+! >)D A< ")A+ (3)!3A<+

+> + PROVISIONS OF P.D. 1$ AS




AMENDED$ A) J>O)<D<+->=< >)

"><+)>?? ">)(>)A+I><! =I+ >)IJI<A?

"A)+) A??I<J 3<) + "IOI? !)OI"

?A= A<4>) ">O) BP + OI!I+>)IA?

(>=) > + ">DDI!!I>< >< A3I+K

HELD:

After a fair consideration of the partiesQ

arguments coupled with a careful study of the

applicable laws as well as the constitutional

provisions involved, =e rule against the

petitioners and reiterate >ur ruling in +anjay

case declaring water districts government-

owned or controlled corporations with original

charter.

Ascertained from a consideration of the

whole statute, ( %EH is a special law

applicable only to the di*erent water districts

created pursuant thereto. In all its essential

terms, it is obvious that it pertains to a special

purpose which is intended to meet a particular

set of conditions and cirmcumstances. +he fact

that said decree generally applies to all water

districts throughout the country does not

change the fact that ( %EH is a special law.

Accordingly, this "ourtQs resolution in Detro

Iloilo case declaring ( %EH as a general

legislation is hereby abandoned.

By Ngovernment-owned or controlledcorporation with original charter,N =e mean

government owned or controlled corporation

created by a special law and not under the

"orporation "ode of the (hilippines.

rom the foregoing pronouncement, it

is clear that what has been e/cluded from the

coverage of the "!" are those corporations

created pursuant to the "orporation "ode.

!igni'cantly, petitioners are not created under

the said code, but on the contrary, they were

created pursuant to a special law and are

governed primarily by its provision.

+he provisions of ( %EH, as amended,

are similar to those which are actually

contained in other corporate charters. +he

conclusion is inescapable that the said decree

is in truth and in fact the charter of the

di*erent water districts for it clearly de'nes the

latterQs primary purpose and its basic

organizational set-up. In other words, ( %EH,

as amended, is the very law which gives a

water district juridical personality. =hile it is

true that a resolution of a local sanggunian is

still necessary for the 'nal creation of a district,

this "ourt is of the opinion that said resolutioncannot be considered as its charter, the same

being intended only to implement the

provisions of said decree.

B. AS TO PLACE OF INCORPORATION1. DOMESTIC CORPORATIONS5. Is one incorporated under laws of the

(hilippines.9. FOREIGN CORPORATION- 3nder !ec. %5F of the "orp. "ode, a

foreign corporation is one formed,

organized or e/isting under any laws

other than those of the (hilippines and

whose laws allow ilipino citizens and

corporations to do business in its own

country or !tate. It shall have the right

to transact business in the (hilippines

after it shall have obtained a license to

transact business in the country in

accordance with this "ode and a

certi'cate of authority from the

appropriate government agency.

+he objectives of the statutory provision

prescribing conditions under which foreigncorporations are permitted to do business in a

stat other than that of their creation;

9a: +o place them on an equality with

domestic corporations09b: +o subject them to inspection so that

their condition may be #nown0 and9c: +o protect the residents of the state

doing business with them by subjecting

them to the courts of the state.

- In case of war, for reasons of national

security, in addition to the

incorporation test embodied in !ection

%5F of the "orporation "ode, the

control test is applied to determine

the nationality of a corporation.- A foreign corporation can have no legal

e/istence beyond the bounds of the

state or sovereignty by which it is

created. It e/ists only in contemplation




of law and by the force of law, and

where that law ceases to operate, the

corporation can have no e/istence.

+his principle, however does not

prevent a corporation from acting in

another state or country with the

latter2s e/press or implied consent.C. AS TO NATIONALIT= -serves as a legal basis for subjecting

the enterprise or its activities to the

laws, the economic and 'scal powers,

and the various social and 'nancial

policies, of the state to which it is

supposed to belong.TESTS: PLACE OF INCORPORATION

TEST that a corporation is a

national of the country under

whose laws it has been organized

and registered. +his is embodies in!ection %5F of the "orporation

"ode which provides that a

foreign corporation is one formed,

organized or e/isting under any

laws other than those of the

(hilippines and whose laws allow

ilipino citizens and corporations to

do business in its own country or

!tate. CONTROL TEST the nationality

of a corporation is determined by

the nationality of the majority of

the stoc#holders on whom equitycontrol is vested, on the theory

that they would be able to elect the

majority of the Board of irectors.

+he !" has con'rmed in an

opinion, that in the application of

the control test, all capital stoc# of

the corporation, whether common

or preferred shares, and whether

voting or non-voting, must be

included.

• T+! 5!!#'/ #/! *+'* *+! &o*#o/*!* &'o* o"!#&o3! *+! ,/'&! o

&o#,o#'*o *!* .!.$ ' o#!5&o#,o#'*o !"! +! 1 o *!*0 o! %0 F/,o &*6!&o*! *o %! &o!#! ' 'o#!5 &o#,o#'*o. *+! o/0!;&!,*o *o *+ #/! #!&o56!%0 *+! SEC ' o,o$ *+'*o *+! ,#o"o o *+!

Fo#!5 I"!*3!* A&* o 11*+'* “' &o#,o#'*o o#5'6!'%#o' ' #!5*!#! ' o5%! *+! P+/,,! !#*+! Co#,o#'*o Co! 1 o *+!&',*'/ *o&? o**'5 '

!**/! *o "o*! +o//0 o! %0F/,o. PLACE OF PRINCIPAL BUSINESS

also applied to determine

whether a state has jurisdiction

over the e/istence and legal

character of a corporation, its

capacity or powers, internal

organization, capital structure, the

rights and liabilities of directors,

o@cers, and shareholders towards

each other and to creditors and

third persons. 3nder that test, the

corporation is subject to the jurisdiction of the place where its

principal o@ce or center of

management is located.1. EPLOITATION OF NATURAL

RESOURCES !ection 5, Art. RII

"><!+. only ilipino "itizens or

"orporations whose capital stoc# are at

least 6GS owed by ilipinos can qualify

to e/ploit natural resources.- +he policy of the !tate is to ensure that

the e/ploitation of natural resources or

the pursuit of activites deemed to be of

public or national interest are in thecontrol of ilipinos. In addition, the

section authorizes the (resident to

enter into agreements with foreign-

owned corporation involving either

technical or 'nancial assistance for

large-scale e/ploration, development

and utilization of minerals, petroleum,

and other mineral oils according to

general terms and conditions provided

by law, based on real contributions to

the economic growth and general

welfare of the country.

- In %egister of Deeds of %izal v. 3ng Sui

Si emle, laid down the principle that

the purpose of the 6G per centum

requirement is obviously to ensure that

corporations or associations allowed to

acquire agricultural land or to e/ploit

natural resources shall be controlled by

ilipinos0 and that the spirit of the

eidi Cean I. Dontaos (age H



"onstitution demands that in the

absence of capital stoc#, the controlling

membership should be composed of

ilipino citizens. In that case, the "ourt

disquali'ed a non-incorporated

religious organization, whose trustees

and whose members were "hinesenationals, from acquiring by donation a

piece of land.

REGISTER OF DEEDS ". UNG SIU SITEMPLE (EPLOITATION OF NATURALRESOURCES)

FACTS: Cesus y, a ilipino citizen, donated a

parcel of residential land in "aloocan in favor of

the unregistered religious organization N3ng

!iu !i +empleN, operating through three

trustees all of "hinese nationality. +he donation

was duly accepted by Pu Cuan, of "hinese

nationality, founder and deaconess of the

+emple, acting in representation and in behalf

of the latter and its trustees. +he )egister of

eeds refused to record such donation.

ISSUE: =hether the act of the )egister of

eeds in refusing to register the donation of a

parcel of land e/ecuted in favor of a religious

organization whose founder, trustees and

administrator are "hinese citizens is proper.

HELD: =ES. +he act of the )egister of eeds

is proper.

+he "onstitution ma#es no e/ception in

favor of religious associations. <either is there

any such saving found in sections % and 5 of

Article RIII, restricting the acquisition of public

agricultural lands and other natural resources

to Ncorporations or associations at least si/ty

per centum of the capital of which is owned by

such citizensN 9of the (hilippines:.

+he fact that the appellant religious

organization has no capital stoc# does not

su@ce to escape the "onstitutional inhibition,

since it is admitted that its members are of

foreign nationality. +he purpose of the si/ty per

centum requirement is obviously to ensure that

corporations or associations allowed to acquire

agricultural land or to e/ploit natural resources

shall be controlled by ilipinos0 and the spirit of

the "onstitution demands that in the absence

of capital stoc#, the controlling membership

should be composed of ilipino citizens.

2. O@NING AND OPERATING PUBLIC

UTILITIES - !ec. %%, Art RII, "><!+./// no franchise, certi'cate or anyother form of authorization for theoperation of a public utility shall begranted e/cept to citizens of the(hilippines or to corporations orassociations organized under the lawsof the (hilippines at least 6GS of whose capital is owned by suchcitizens nor shall such franchise,certi'cate, or authorization bee/clusive in character or for a longerperiod than 'fty yearsT +he !tate shallencourage equity participation in publicutilities by the general public. +he

participation of foreign investors in thegoverning body of any public utilityenterprise shall be limited to theirproportionate share in its capital, andall the e/ecutive and managing o@cersof such corporation or association mustbe citizens of the (hilippines.

- 3nli#e the provisions on thee/ploitation of natural resources, theaforequoted provisions e/presslyincludes the place of incorporation testand requires that only domesticcorporations with at least 6GS of the

capital stoc# owned by ilipinos mayown and operate public utilities in the(hilippines.

- In *eole v. 4uasha, the "ourt heldthat the "onstitution does not prohibitthe mere formation of a public utilitycorporation without the requiredproportion of ilipino capital. @+'* *o! ,#o+%* *+! 5#'*5 o '#'&+! o# o*+!# o#3 o '*+o#6'*o o# *+! o,!#'*o o ' ,%/& */*0 *o ' &o#,o#'*oalready in existence %* *+o*

*+! #!*! ,#o,o#*o o F/,o&',*'/. Uuasha therefore draws thedistinction between primary franchiseof a corporate entity by virtue of whichit is constituted as a body politicendowed with separate juridicalpersonality, and the secondaryfranchise that it may receive during itslife for the e/ercise of a privilege

eidi Cean I. Dontaos (age E



granted by law, such as the operationof a public utility.

- +he ruling in Uuasha can be pointed toas the basis to show that theconstitutional provision prohibiting"ongress, e/cept by general law, to

provide for the formation, organization,or regulation of a private corporations,really serves no useful bene't, since allthat it covers is the primary franchise,which merely constitutes thecorporation into a juridical entity. It isthe secondary franchise by which thecorporation may be granted specialprivileges, licenses or bene'ts notenjoyed by other corporations, wherethe real abuse may be committed.

PEOPLE V. QUASHA (PUBLIC UTILITIES)

FACTS: =illiam . Uuasha is a lawyerrepresenting (aci'c Airways "orporation, a

corporation organized for the purpose of

engaging in business as a common carrier.

Uuasha was charged with the crime of

falsi'cation of a public and commercial

document for having been entrusted with the

preparation and registration of the article of

incorporation which he caused to appear in

said article of incorporation that one Arsenio

Baylon, a ilipino citizen, had subscribed to and

was the owner of 6G.GG8 per cent of the

subscribed capital stoc# of the corporation

when in reality such was not the case, the truth

being that the owner of the portion of the

capital stoc# subscribed to by Baylon and the

money paid thereon were American citizen

whose name did not appear in the article of

incorporation, and that the purpose for ma#ing

this false statement was to circumvent the

constitutional mandate that no corporation

shall be authorized to operate as a public utility

in the (hilippines unless 6G per cent of its

capital stoc# is owned by ilipinos. Baylon was

merely their trustee. +he lower court found him

guilty, hence this appeal.

ISSUE: =hether the accused can be charged

with having wrongfully intended to circumvent

that fundamental law by not revealing in the

articles of incorporation that Baylon was a

mere trustee of his American co-incorporation

and that for that reason the subscribed capital

stoc# of the corporation was wholly AmericanK

HELD: NO. +he court reversed the decision of

the lower court.

+he court stated that such revelation was not

essential, and the "orporation ?aw does not

require it. efendant was, therefore, under no

obligation to ma#e it. In the absence of such

obligation and of the allege wrongful intent,

defendant cannot be legally convicted of the

crime with which he is charged.

or a corporation to be entitled to operate a

public utility it is not necessary that it be

organized with 6G per cent of its capital owned

by ilipinos from the start. A corporation

formed with capital that is entirely alien may

subsequently change the nationality of its

capital through transfer of shares to ilipino

citizens. conversely, a corporation originally

formed with ilipino capital may subsequentlychange the national status of said capital

through transfer of shares to foreigners.

V +he moment for determining whether a

corporation is entitled to operate as a public

utility is when it applies for a franchise,

certi'cate, or any other form of authorization

for that purpose. And that can be done after

the corporation has already come into being

and not while it is still being formed. And at

that moment, the corporation must show that it

has complied not only with the requirement of

the "onstitution as to the nationality of itscapital, but also with the requirements of the

"ivil Aviation ?aw if it is a common carrier by

air, the )evised Administrative "ode if it is a

common carrier by water, and the (ublic

!ervice ?aw if it is a common carrier by land or

other #ind of public service.

+he majority of the court, however, are also of

the opinion that, even supposing that the act

imputed to the defendant constituted

falsi'cation at the time it was perpetrated, still

with the approval of the (arty Amendment to

the "onstitution in Darch, %E&7, which placedAmericans on the same footing as ilipino

citizens with respect to the right to operate

public utilities in the (hilippines, thus doing

away with the prohibition in section H, Article

RIO of the "onstitution in so far as American

citizens are concerned, the said act has ceased

to be an o*ense within the meaning of the law,

eidi Cean I. Dontaos (age %G



so that defendant can no longer be held

criminally liable therefor.

9. MASS MEDIA !ec. %% Article ROI of the %EH7 "onstitution, +he ownershipand management of mass media shallbe limited to citizens of the (hilippines,or to corporations, cooperatives orassociations, wholly-owned andmanaged by such citizens. Dass mediaincludes radio, television, and printedmedia and does not includecommercial telecommunications, whichare considered as public utilities, northe advertising industry.

- +he term mass media shall mean thegathering, transmission of news,information, messages, signals andforms of written, oral and all visualcommunication and shall embrace the

print medium, radio, television, 'lms,movies, advertising in all its phases,and their business managerial.

- Although the constitutional provisiongoverning mass media does note/pressly include the place of incorporation test, the same shall bedeemed included under the sameprinciple governing e/ploitation of natural resources. In fact, the ancillarycontrol test for mass media under the"onstitution is actually more stringentthan in other de'ned areas, since it

requires not only %GGS ilipinoownership of the capital stoc# of thecorporation, but also %GGS ilipinomanagement of the entity.

J. ADVERTISING INDUSTR= - !ec. %%Article ROI of the %EH7 "onstitutionprovides that t he advertising industryis impressed with public interest, andshall be regulated by law for theprotection of consumers and thepromotion of the general welfare.

- >nly ilipino citizens or corporations or

associations at least 7GS of the capitalof which is owned by such citizens shallbe allowed to engage in the advertisingindustry. It also provides that theparticipation of foreign investors in thegoverning body of the entities in suchindustry shall be limited to theirproportionate share in the capitalthereof, and all the e/ecutive and

managing o@cers of such entities mustbe citizens of the (hilippines.

K. @AR-TIME TEST - If the controllingstoc#holders are enemies, then thenationality of the corporation will bebase on the citizenship of the majority

stoc#holders in times of war 56iliinasComania de Seguros v Christian7uenfeld, '89':. +he "ourt consideredthe juridical entity as an enemy basedon the fact that the majority of thestoc#holders of the respondentcorporation were Jerman subjects. Itruled that the control test wasapplicable only in war-time. It refusedthe sole application of the place of incorporation test during war-time todetermine the nationality of an enemycorporation.

FILIPINAS COMPAIA DE SEGUROS ".CHRISTERN$ HUENEFELD 8 CO. INC. (@AR-TIME TEST)

FACTS: >n >ct. %, %E&%, the respondentcorporation, "hristern uenefeld, "o., Inc.,after payment of corresponding premium,obtained from the petitioner, ilipinas "ia. de!eguros, 're policy in the sum of (%GGG,GGG,covering merchandise contained in a buildinglocated at )oman !treet, Binondo Danila.

uring the Capanese militaryoccupation, the building and insuredmerchandise were burned. In due time therespondent submitted to the petitioner its

claim under the policy. +he salvage goods weresold at public auction and, after deducting theirvalue, the total loss su*ered by the respondentwas '/ed at (E5,68G. +he petitioner refused topay the claim on the ground that the policy infavor of the respondent had ceased to be inforce on the date the 3nited !tates declaredwar against Jermany, the respondent"orporation 9though organized under and byvirtue of the laws of the (hilippines: beingcontrolled by the Jerman subjects and thepetitioner being a company under American jurisdiction when said policy was issued on >ct.%, %E&%.

In pursuance of the order of theirector of Bureau of inancing, (hilippine/ecutive "ommission, petitioner paidrespondent the sum of (E5,68G.

+he present action was 'led in the "I of Danila for the purpose of recovering from therespondent the sum of (E5,68G.

eidi Cean I. Dontaos (age %%



(+I+I><)! "><+<+I><, that theinsured merchandise were burned up after thepolicy issued in %E&% in favor of the respondentcorporation has ceased to be e*ective becauseof the outbrea# of the war between the 3nited!tates and Jermany on ec. %G, %E&%, andthat the payment made by the petitioner to the

respondent corporation during the Capanesemilitary occupation was under pressure.

"I of Danila dismissed the actionwithout pronouncement as to costs.

"A a@rmed the judgment of the lowercourt with costs. It overruled petitionerQscontention that the respondent corporationbecame an enemy when the 3nited !tatesdeclared war against Jermany, relying onnglish and American cases which held that acorporation is a citizen of the country or stateby and under the laws of which it was createdor organized. It rejected the theory that

nationality of private corporation is determineby the character or citizenship of its controllingstoc#holders.

ISSUE: =4< the 're policy became null andvoid upon the declaration of war between 3!and Jermany 9ec. %G, %E&%:.

HELD: !" reversed "AQs decision andrespondent corporation is ordered to pay to thepetitioner hte sum of (77,5GH.FF, (hil.currency, ?!! the amount of the premium,(hil. currency, that should be returned by thepetitioner for the une/pired term of the policy,

beginning ec. %%, %E&%.

+he (hilippine Insurance ?aw 9Act <o.5&57, as amended,: in !ec. H, provides thatNanyone e/cept a public enemy may beinsured.N It stands to reason that an insurancepolicy ceases to be allowable as soon as aninsured becomes a public enemy.

T+! #!,o!* +'"5 %!&o3! '!!30 &o#,o#'*o o D!&. 1$ 1J1$ *+!#'&! ,o/&0 ! * '"o# oO&*. 1$ 1J1$ %0 *+! ,!**o!# ('P+/,,! &o#,o#'*o) +' &!'! *o %!"'/ ' !o#&%/!$ ' &! *+!

#! 5oo !#! %#! '*!# D!&. 1$1J1$ ' #5 *+! '#$ *+! #!,o!*' o* !**/! *o '0 !3*0 !#' ,o/&0 #o3 *+! ,!**o!#. HO@EVER$!/!3!*'#0 #/! o *&! ( *+!'%!&! o ,!&& ,#o"o *+!I#'&! L') #!#! *+'* *+! ,#!33,' %0 *+! #!,o!* o# *+! ,!#o&o"!#! %0 * ,o/&0 #o3 D!&. 11$ 1J1$+o/ %! #!*#! %0 *+! ,!**o!#.

In the case of an ordinary 're policy,which grants insurance only from year, or forsome other speci'ed term it is plain that whenthe parties become alien enemies, thecontractual tie is bro#en and the contractualrights of the parties, so far as not vested. lost.

Wactually, there can be no doubt thatthe irector of the Bureau of inancing, inordering the petitioner to pay the claim of therespondent, merely obeyed the instruction of the Capanese Dilitary Administration, as may beseen from the following; NIn view of the 'ndingsand conclusion of this o@ce contained in itsdecision on Administrative "ase datedebruary E, %E&F copy of which was sent toyour o@ce and the concurrence therein of theinancial epartment of the Capanese DilitaryAdministration, and follo!ing the instruction of said authority, you are hereby ordered to paythe claim of Dessrs. "hristern, uenefeld

"o., Inc. +he payment of said claim, however,should be made by means of crossed chec#.N

It results that the petitioner is entitledto recover what paid to the respondent underthe circumstances on this case. owever, thepetitioner will be entitled to recover only theequivalent, in actual (hilippines currency of (E5,68G paid on April %E, %E&F, in accordancewith the rate '/ed in the Ballantyne scale.X

. GRANDFATHER RULE a sub-application under control test, wherethe various nationality tests shall 'rst

be applied on the shareholders of theholding companies, to determine thenationality of the equity in the targetcorporation, and thereby arrive at thenationality of such target corporation.

- It is a three-level relationship test thatgave it the name; the target companymay be termed to be the 5#'o<the holding company would beconsidered the '*+!#< and theperson or entity holding shares in theholding company would be consideredthe 5#''*+!#<.

- 3sed to determine the nationality of acorporation by which the percentage of ilipino equity in corporations engagedin nationalized and4or partlynationalized areas of activities,provided for under the constitution andother nationalization laws, is

eidi Cean I. Dontaos (age %5



computed, in cases where corporateshareholders are present in thesituation, by attributing the nationalityof the second or even subsequent tierof ownership to determine thenationality of the corporatestoc#holder. 5;illanueva, <==>:

- Dethod by which the percentage of ilipino is computed, in a corporationengaged fully or partly nationalizedareas of activities provided under the"onstitution and other nationalizationlaws, in cases where corporateshareholders are present in thesituation, by attributing the nationalityof the second or even subsequent tierof ownership to determine thenationality of the corporateshareholders.

SC formula: SEC L!**!# O,o!hares belonging to corporations orpartnerships at least 6GS of the capital of which is owned by ilipino citizens shall beconsidered as of (hilippine nationality, but if the percentage of ilipino ownership in thecorporation or partnership is less than 6GSonly the number of shares corresponding tosuch percentage shall be considered as of (hilippine nationality.

D. AS TO PURPOSE OFINCORPORATION

1. MUNICIPAL

2. RELIGIOUS !ection %GE. "lasses of religious corporations. - )eligiouscorporations may be incorporatedby one or more persons. !uchcorporations may be classi'ed intocorporations sole and religioussocieties.

)eligious corporations shall begoverned by this "hapter and by thegeneral provisions on non-stoc#corporations insofar as they may beapplicable. 9n:

!ection %%6. )eligioussocieties. - Any religious society orreligious order, or any diocese,synod, or district organization of any religious denomination, sect orchurch, unless forbidden by theconstitution, rules, regulations, ordiscipline of the religiousdenomination, sect or church of

which it is a part, or by competentauthority, may, upon writtenconsent and4or by an a@rmativevote at a meeting called for thepurpose of at least two-thirds 954F:of its membership, incorporate forthe administration of its

temporalities or for themanagement of its a*airs,properties and estate by 'ling withthe !ecurities and /change"ommission, articles of incorporation veri'ed by thea@davit of the presiding elder,secretary, or cler# or other memberof such religious society or religiousorder, or diocese, synod, or districtorganization of the religiousdenomination, sect or church,setting forth the following;

%. +hat the religious society or

religious order, or diocese, synod, ordistrict organization is a religiousorganization of a religiousdenomination, sect or church0

5. +hat at least two-thirds 954F: of its membership have given theirwritten consent or have voted toincorporate, at a duly convenedmeeting of the body0

F. +hat the incorporation of thereligious society or religious order, ordiocese, synod, or district organization

desiring to incorporate is not forbiddenby competent authority or by theconstitution, rules, regulations ordiscipline of the religiousdenomination, sect, or church of whichit forms a part0

&. +hat the religious society orreligious order, or diocese, synod, ordistrict organization desires toincorporate for the administration of itsa*airs, properties and estate0

&. +he place where the principal o@ce of the corporation is to be established and

located, which place must be within the(hilippines0 and +he names,nationalities, and residences of thetrustees elected by the religioussociety or religious order, or thediocese, synod, or district organizationto serve for the 'rst year or such otherperiod as may be prescribed by thelaws of the religious society or religiousorder, or of the diocese, synod, or

eidi Cean I. Dontaos (age %F



district organization, the board of trustees to be not less than 've 98: normore than 'fteen 9%8:.

9. EDUCATIONAL !ection %G6. Incorporation. -

ducational corporations shall be

governed by special laws and bythe general provisions of this "ode.9n:

!ection %G7. (re-requisitesto incorporation. - /cept uponfavorable recommendation of theDinistry of ducation and "ulture,the !ecurities and /change"ommission shall not accept orapprove the articles of incorporation and by-laws of anyeducational institution. 9%6Ha:

!ection %GH. Board of

trustees. - +rustees of educationalinstitutions organized as non-stoc#corporations shall not be less than've 98: nor more than 'fteen 9%8:;(rovided, however, +hat thenumber of trustees shall be inmultiples of 've 98:.

3nless otherwise provided in the articles of incorporation on the by-laws, the board of trustees of incorporated schools, colleges, orother institutions of learning shall, as soon asorganized, so classify themselves that the term

of o@ce of one-'fth 9%48: of their number shalle/pire every year. +rustees thereafter electedto 'll vacancies, occurring before the e/pirationof a particular term, shall hold o@ce only forthe une/pired period. +rustees electedthereafter to 'll vacancies caused by e/pirationof term shall hold o@ce for 've 98: years. Amajority of the trustees shall constitute aquorum for the transaction of business. +hepowers and authority of trustees shall bede'ned in the by-laws.

or institutions organized as stoc#corporations, the number and term of directorsshall be governed by the provisions on stoc#corporations.

BA+A! (ADBA<!A B?J. 5F5 A< A"+

()>OII<J >) +!+AB?I!D<+ A<DAI<+<A<" > A< I<+J)A+!P!+D > 3"A+I>< NducationAct of %EH5.N

!ection 58. stablishment of !chools - Allschools shall be established in accordance withlaw. +he establishment of new national schoolsand the conversion of e/isting schools fromelementary to national secondary or tertiaryschools shall be by law; (rovided, +hat anyprivate school proposed to be established must

incorporate as an non-stoc# educationalcorporation in accordance with the provisionsof the "orporation "ode of the (hilippines. +hisrequirement to incorporate may be waived inthe case of family-administered pre-schoolinstitutions.

Jovernment assistance to such schools foreducational programs shall be used e/clusivelyfor that purpose.

J. CHARITABLE$ SCIENTIFIC ORVOCATIONAL

K. BUSINESS CORPORATION

E. AS TO NUMBER OF MEMBERS1. AGGREGATE CORPORATION2. CORPORATION SOLE special form

of corporation, usually associated withthe clergy and consists of one persononly and his successor, who areincorporated by law to give some legalcapacities and advantages.

- +he corporation sole is an e/ception tothe general rule that at least 've 98:members are required for a corporationto e/ist. ere, there is only one 9%:incorporator. +his is applicable toreligious communities the regulations

of which provide that the community2sproperties are to be placed in the nameof the head and administered by him.

!ection %%G. "orporationsole. - or the purpose of administering and managing, astrustee, the a*airs, property andtemporalities of any religiousdenomination, sect or church, acorporation sole may be formed bythe chief archbishop, bishop, priest,minister, rabbi or other presidingelder of such religiousdenomination, sect or church.

9%8&a:

!ection %%%. Articles of incorporation. - In order to becomea corporation sole, the chief archbishop, bishop, priest, minister,rabbi or presiding elder of anyreligious denomination, sect orchurch must 'le with the !ecurities

eidi Cean I. Dontaos (age %&



and /change "ommission articlesof incorporation setting forth thefollowing;

%. +hat he is the chief archbishop, bishop,priest, minister, rabbi or presiding elder of hisreligious denomination, sect or church and that

he desires to become a corporation sole0

5. +hat the rules, regulations anddiscipline of his religious denomination, sect orchurch are not inconsistent with his becominga corporation sole and do not forbid it0

F. +hat as such chief archbishop, bishop,priest, minister, rabbi or presiding elder, he ischarged with the administration of thetemporalities and the management of thea*airs, estate and properties of his religiousdenomination, sect or church within histerritorial jurisdiction, describing such territorial jurisdiction0

&. +he manner in which any vacancyoccurring in the o@ce of chief archbishop,bishop, priest, minister, rabbi of presiding elderis required to be 'lled, according to the rules,regulations or discipline of the religiousdenomination, sect or church to which hebelongs0 and

8. +he place where the principal o@ce of the corporation sole is to be established andlocated, which place must be within the(hilippines.

+he articles of incorporation may include anyother provision not contrary to law for theregulation of the a*airs of the corporation. 9n:

!ection %%5. !ubmission of the articles of incorporation. - +hearticles of incorporation must beveri'ed, before 'ling, by a@davitor a@rmation of the chief archbishop, bishop, priest, minister,rabbi or presiding elder, as thecase may be, and accompanied bya copy of the commission,certi'cate of election or letter of appointment of such chief

archbishop, bishop, priest, minister,rabbi or presiding elder, dulycerti'ed to be correct by anynotary public.

rom and after the 'ling with the !ecurities and/change "ommission of the said articles of incorporation, veri'ed by a@davit ora@rmation, and accompanied by the

documents mentioned in the precedingparagraph, such chief archbishop, bishop,priest, minister, rabbi or presiding elder shallbecome a corporation sole and alltemporalities, estate and properties of thereligious denomination, sect or churchtheretofore administered or managed by him

as such chief archbishop, bishop, priest,minister, rabbi or presiding elder shall be heldin trust by him as a corporation sole, for theuse, purpose, behalf and sole bene't of hisreligious denomination, sect or church,including hospitals, schools, colleges, orphanasylums, parsonages and cemeteries thereof.9n:

!ection %%F. Acquisition andalienation of property. - Anycorporation sole may purchase andhold real estate and personalproperty for its church, charitable,benevolent or educationalpurposes, and may receivebequests or gifts for such purposes.!uch corporation may sell ormortgage real property held by itby obtaining an order for thatpurpose from the "ourt of irstInstance of the province where theproperty is situated upon proof made to the satisfaction of thecourt that notice of the applicationfor leave to sell or mortgage hasbeen given by publication orotherwise in such manner and forsuch time as said court may have

directed, and that it is to theinterest of the corporation thatleave to sell or mortgage should begranted. +he application for leaveto sell or mortgage must be madeby petition, duly veri'ed, by thechief archbishop, bishop, priest,minister, rabbi or presiding elderacting as corporation sole, and maybe opposed by any member of thereligious denomination, sect orchurch represented by thecorporation sole; (rovided, +hat incases where the rules, regulationsand discipline of the religious

denomination, sect or church,religious society or order concernedrepresented by such corporationsole regulate the method of acquiring, holding, selling andmortgaging real estate andpersonal property, such rules,regulations and discipline shallcontrol, and the intervention of the




courts shall not be necessary.9%8Ea:

!ection %%&. illing of vacancies. - +he successors ino@ce of any chief archbishop,bishop, priest, minister, rabbi or

presiding elder in a corporationsole shall become the corporationsole on their accession to o@ceand shall be permitted to transactbusiness as such on the 'ling withthe !ecurities and /change"ommission of a copy of theircommission, certi'cate of election,or letters of appointment, dulycerti'ed by any notary public.

uring any vacancy in the o@ce of chief archbishop, bishop, priest, minister, rabbi orpresiding elder of any religious denomination,sect or church incorporated as a corporationsole, the person or persons authorized andempowered by the rules, regulations ordiscipline of the religious denomination, sect orchurch represented by the corporation sole toadminister the temporalities and manage thea*airs, estate and properties of the corporationsole during the vacancy shall e/ercise all thepowers and authority of the corporation soleduring such vacancy. 9%8Ha:

!ection %%8. issolution. - Acorporation sole may be dissolvedand its a*airs settled voluntarily bysubmitting to the !ecurities and

/change "ommission a veri'eddeclaration of dissolution.

+he declaration of dissolution shall set forth;

%. +he name of the corporation0

5. +he reason for dissolution and windingup0

F. +he authorization for the dissolution of the corporation by the particular religiousdenomination, sect or church0

&. +he names and addresses of the

persons who are to supervise the winding up of the a*airs of the corporation.

3pon approval of such declaration of dissolution by the !ecurities and /change"ommission, the corporation shall cease tocarry on its operations e/cept for the purposeof winding up its a*airs. 9n:

ROMAN CATHOLIC ADM. OF DAVAO$ INC.VS LAND REG. COM. (CORPORATION SOLE)

FACTS: Deteo ?. )odis e/ecuted a deed of sale

of a parcel of land in favor of )oma "atholic

Administrator of avao, Inc. a corporation sole

organized in accordance with (hilippine laws,

with Dsgr. "lovis +hibault a "anadian national

as actual incumbent. +he land )egistration

"ommissioner and the )egistration of eeds of

avao deny the registration in the absence of

proof that at least 6GS of its capital is owned

by ilipino citizens in view of !ec. % and 8 of

Art. RIII of the "onstitution and !ec. %8E of the

"orporation ?aw. +he petitioner contends that a

corporation sole irrespective of the citizenship

of its incumbent, is not prohibited or

disquali'ed to acquired and hold real

properties. +he "orporation ?aw and the "anon

?aw are e/plicit in their provisions that acorporation sole or ordinary is not the owner of

the properties but merely the administrator

thereof. +he respondents averred that a

corporation actually e/ercising all rights of

ownership over the properties.

ISSUE: =hether the petitioner is quali'ed to

acquire agricultural lands in the (hlippinesK

HELD:

+he )oman "atholic Apostolic "hurch has no

nationality and that the framers of the"onstitution did not have in mind the religious

corporation sole when they provided that 6GS

of the capital thereof be owned by ilipino

citizens. +hus, if this constitutional provision

were not intended for corporation sole, it is

obvious that this could not be regulated or

restricted by said provision. In determining

whether the constitutional provision requiring

6GS ilipino capital is applicable in "orporation

sole, the nationality of the constituents of the

diocese and not the nationality of the actual

incumbent of the parish must be ta#en into

consideration. ven if the question of nationality is considered, the constitutional

requirement is fully met and satis'ed,

considering that the corporation sole in

question is composed of an overwhelming

majority of ilipinos.

Both the "orporation ?aw and the "anon ?aw

are e/plicit in their provisions that a




corporation sole or ordinary is not the owner of

the properties that he may acquire but merely

the administrator thereof and holds the same

in trust for the church to which the corporation

is an organized and constituents part. Being

mere administrator the constitutional provision

of 6GS ilipino ownership is not applicable.

+he )egister of eeds of the "ity of avao is

ordered to register the deed of sale in favor of

the petitioner.

REPUBLIC VS VILLANUEVA (CORPORATIONSOLE)

FACTS: +his case involves the prohibition insection %%, Article RIO of the "onstitution thatNno private corporation or association may holdalienable lands of the public domain e/cept bylease not to e/ceed one thousand hectares inareaN.

?ots <os. 86H and 86E, located at Barrioampol, (laridel, Bulacan, with an area of F%Fsquare meters and an assessed value of (%,F8G were acquired by the Iglesia <i "ristoon Canuary E, %E8F from Andres (erez ine/change for a lot with an area of 5&7 squaremeters owned by the said church 9/h. :.

+he said lots were already possessed by (erezin %EFF. +hey are not included in any militaryreservation. +hey are inside an area which wascerti'ed as alienable or disposable by theBureau of orestry in %E57. +he lots areplanted to santol and mango trees and bananaplants. A chapel e/ists on the said land. +heland had been declared for realty ta/ purposes.)ealty ta/es had been paid therefor 9/h. <:.

>n !eptember %F, %E77, the Iglesia <i "risto, acorporation sole, duly e/isting under (hilippinelaws, 'led with the "ourt of irst Instance of Bulacan an application for the registration of the two lots. It alleged that it and itspredecessors-in-interest had possessed theland for more than thirty years. It invo#edsection &H9b: of the (ublic ?and ?aw, which

provides;

"hapter OIII.1 ?udicialcon/rmation of imerfect or incomlete titles.

/// /// ///

!". &H. +he following-described citizens of the*hiliines, occupying lands of the public domain or claimingto own any such lands or aninterest therein, but whosetitles have not been perfected

or completed, may apply to the"ourt of irst Instance of theprovince where the land islocated for con'rmation of theirclaims and the issuance of acerti'cate of title therefore,under the ?and )egister Act, towit;

/// /// ///

9b: +hose who by themselvesor through their predecessors-in-interest have been in open,

continuous, e/clusive, andnotorious possession andoccupation of agricultural landsof the public domain, under abona /de claim of acquisitionof ownership, for at least thirtyyears immediately precedingthe 'ling of the application forcon'rmation of title e/ceptwhen prevented by war orforce majeure. +hese shall beconclusively presumed to haveperformed all the conditionsessential to a Jovernmentgrant and shall be entitled to acerti'cate of title under theprovisions of this chapter.N 9Asamended by )epublic Act <o.%E&5, approved on Cune 55,%E87.:

+he )epublic of the (hilippines, through theirect4r of ?ands, opposed the application onthe grounds that applicant, as a privatecorporation, is disquali'ed to hold alienablelands of the public domain, that the landapplied for is public land not susceptible of private appropriation and that the applicantand its predecessors-in-interest have not been

in the open, continuous, e/clusive andnotorious possession of the land since Cune %5,%E&8.

ISSUE: =hether Iglesia <i "risto, a corporationsole can acquire private landK

HELD: After hearing, the trial court ordered theregistration of the two lots, as described in (lan




Ap-G&-GG%F&& 9/h. :, in the name of theIglesia <i "risto, a corporation sole,represented by /ecutive Dinister raLo J.Danalo, with o@ce at the corner of "entral andon Dariano Darcos Avenues, Uuezon "ity,rom that decision, the )epublic of the(hilippines appealed to this "ourt under

)epublic Act <o. 8&&G. +he appeal should besustained.

As correctly contended by the !olicitor Jeneral,the Iglesia <i "risto, as a corporation sole or a juridical person, is disquali'ed to acquire orhold alienable lands of the public domain, li#ethe two lots in question, because of theconstitutional prohibition already mentionedand because the said church is not entitled toavail itself of the bene'ts of section &H9b:which applies only to ilipino citizens or naturalpersons. A corporation sole 9an Nunhappy frea#of nglish lawN: has no nationality 9)oman

"atholic Apostolic Adm. of avao, Inc. vs. ?and)egistration "ommission, %G5 (hil. 8E6. !ee)egister of eeds vs. 3ng !iu !i +emple, E7(hil. 8H and sec. &E of the (ublic ?and ?aw:.

F. AS TO EISTENCE OF SHARES

1. STOC7 CORPORATIONS corporations which have a capital stoc#divided into shares and are authorizedto distribute to the holders dividends. If not authorized by the by-laws todistribute the dividends, but it is astoc# corporation, can a corporationdistribute dividends to is shareholdersK +he answer seems corporationsa@rmative since one of the e/pressedpowers granted to stoc# corporationsunder !ection &F of the "orporation"ode is the power to declare dividends.

2. NON-STOC7 CORPORATIONS section H7 of the "orporation "odeprovides that a non-stoc# corporation isone where no part of its income isdistributable as dividends to ismembers, trustees or o@cers, subjectto the provisions on dissolution,provided that any pro't which a non-

stoc# corporation may obtain as anincident to its operations shall,whenever necessary or proper be usedfor the furtherance of the purpose orpurposes for which the corporation wasorganized.

- !ection HH provides that non-stoc#corporations may be formed ororganized for charities, religious,educational professional, cultural,

recreational, fraternal, literary,scienti'c, social, civic service, orsimilar purposes, li#e trade, industry,agriculture, and li#e chambers, or anycombination thereof, subject to thespecial provisions of this title governingparticular classes of non-stoc#

corporations.

- In CI% v. Club 6iliino, the "lub ilipinowas a civic organization created forrecreational purposes and neither inthe articles of incorporation nor in theby-laws was there a provision relativeto dividends and their distribution,although it was covenanted that uponits dissolution, the club2s remainingassets, after paying debs, shall bedonated to a charitable institution.=hatever pro'ts the club had wereused to defray its overhead e/pensesand to improve its golf course. T+!

! ' +!*+!# o# o* *+! &/% /'%/! *o ,'0 %! *';!. +he"ourt found that the plain and ordinarymeaning of business is restricted toactivities or a*airs where pro't is thepurpose. aving found that the clubwas organized to help develop andcultivate sports0 that whatever pro'ts itderived are actually used to defray itsoverhead e/penses, it stood to reasonthat *+! &/% ' o* !5'5! *+! %! o ' o,!#'*o o '%'# ' #!*'#'*.

- It would seem therefore that for a stoc#corporation to e/ist, 5 requisites mustbe complied;

A capital stoc# divided into shares0and

Authority to distribute dividends.owever, it is to be noted that nowhere in itsarticles or by laws could be found an authorityfor the distribution of its dividends or surpluspro'ts.

Y +hus, every time there is an e/pressauthorization in either the articles of incorporation or by-laws of a corporation todeclare dividends, it is undoubtedly a stock cororation.Y =hen there is no e/press prohibition not todistribute dividends, it would seem that thecorporation is a non-stock cororation.

eidi Cean I. Dontaos (age %H



A /?! *+! C/% F/,o &'!$ +!#!*+!#! o !;,#! '*+o#6'*o$ o!;,#! ,#o+%*o$ ' ,#'&*&! o *+!&o#,o#'*o +o *+'* * +' !"!#!&/'#! "! *+! ,'* ' *+!,#,o! o *+! &o#,o#'*o !/!!3o0'#0$ * ' !!3! ' NON-

STOC7 CORPORATION.

COLLECTOR OF INTERNAL REVENUE VS.CLUB FILIPINO INC. DE CEBU (NON-STOC7 CORP.)

FACTS: As found by the "ourt of +a/ Appeals,the N"lub ilipino, Inc. de "ebu,N 9"lub, forshort:, is a civic corporation organized underthe laws of the (hilippines with an originalauthorized capital stoc# of (55,GGG.GG, whichwas subsequently increased to (5GG,GGG.GG.

+he "lub owns and operates a clubhouse, a bowling alley, a golf course 9on a lotleased from the government:, and a bar-restaurant where it sells wines and liquors, softdrin#s, meals and short orders to its membersand their guests. +he bar-restaurant was anecessary incident to the operation of the cluband its golf-course. +he club is operated mainlywith funds derived from membership fees anddues.

In %E8%. as a result of a capital surplus,arising from the re-valuation of its realproperties, the value or price of which

increased, the "lub declared stoc# dividends0but no actual cash dividends were distributedto the stoc#holders.

In %E85, a BI) agent discovered thatthe "lub has never paid percentage ta/ on thegross receipts of its bar and restaurant,although it secured B-&, B-E9a: and B-7licenses. In a letter dated ecember 55, %H85,the "ollector of Internal )evenue assessedagainst and demanded from the "lub.

ISSUE: =hether or not the "lub is a stoc#-corporationK If so, can it be subject to ta/K

HELD: or a stoc# corporation to e/ist, tworequisites must be complied with, to wit; 9%: acapital stoc# divided into shares and 95: anauthority to distribute to the holders of suchshares, dividends or allotments of the surpluspro'ts on the basis of the shares held 9sec. F,

Act <o. %&8E:. In the case at bar, nowhere in itsarticles of incorporation or by-laws could befound an authority for the distribution of itsdividends or surplus pro'ts. !trictly spea#ing, itcannot, therefore, be considered a stoc#corporation, within the contemplation of thecorporation law.

+he bar and restaurant are necessaryadjuncts of the "lub to foster its purposes andthe pro'ts derived therefrom are necessarilyincidental to the primary object of developingand cultivating sports for the healthfulrecreation and entertainment of thestoc#holders and members.

aving arrived at the conclusion thatrespondent "lub is not engaged in the businessas an operator of a bar and restaurant, andtherefore, not liable for '/ed and percentageta/es, it follows that it is not liable for any

penalty, much less of a compromise penalty.

G. AS TO RELATIONSHIP OFMANAGEMENT AND CONTROL

1. HOLDING COMPAN= is one thatcontrols another subsidiary or a@liateby the power to elect itsmanagementT a holding company isone which holds stoc#s in othercompanies for purposes of controlrather than for mere investment.

2. AFFILIATE COMPAN= a companywhich is subject to common control of a

mother or holding company andoperated as part of a system. Asde'ned by !", as a person thatdirectly or indirectly, through one ormore intermediaries, controls or iscontrolled by, or is under commoncontrol with the person speci'ed,through the ownership of votingshares, by contract, or otherwise

9. PARENT AND SUBSIDIAR= COMPAN= when a corporation has acontrolling 'nancial interest in one ormore corporations, the one havingcontrol is #nown as the parentcompany and the others are #nown as

the subsidiary companies.- A !3B!IIA)P of a speci'ed person is

an a@liate controlled by such person,directly or indirectly, through one ormore intermediaries.

- A parent a corporation which hascontrol over another corporationdirectly or indirectly through one ormore intermediaries.

eidi Cean I. Dontaos (age %E



H. CLOSE CORPORATIONS- A close corporation, within the meaning

of this "ode, is one whose articles of incorporation provide that; 9%: All thecorporationQs issued stoc# of allclasses, e/clusive of treasury shares,shall be held of record by not more

than a speci'ed number of persons,not e/ceeding twenty 95G:0 95: all theissued stoc# of all classes shall besubject to one or more speci'edrestrictions on transfer permitted bythis +itle0 and 9F: +he corporation shallnot list in any stoc# e/change or ma#eany public o*ering of any of its stoc# of any class. <otwithstanding theforegoing, a corporation shall not bedeemed a close corporation when atleast two-thirds 954F: of its voting stoc#or voting rights is owned or controlledby another corporation which is not aclose corporation within the meaning of

this "ode.

Any corporation may be incorporatedas a close corporation, e/cept miningor oil companies, stoc# e/changes,ban#s, insurance companies, publicutilities, educational institutions andcorporations declared to be vested withpublic interest in accordance with theprovisions of this "ode.

S!&*o . rticles of incororation. - +hearticles of incorporation of a close corporationmay provide;

%. or a classi'cation of shares or rightsand the quali'cations for owning orholding the same and restrictions ontheir transfers as may be statedtherein, subject to the provisions of thefollowing section0

5. or a classi'cation of directors intoone or more classes, each of whommay be voted for and elected solely bya particular class of stoc#0 and

F. or a greater quorum or votingrequirements in meetings of stoc#holders or directors than thoseprovided in this "ode.

+he articles of incorporation of a closecorporation may provide that the business of the corporation shall be managed by thestoc#holders of the corporation rather than by

a board of directors. !o long as this provisioncontinues in e*ect;

%. <o meeting of stoc#holders need becalled to elect directors0

5. 3nless the conte/t clearly requiresotherwise, the stoc#holders of thecorporation shall be deemed to bedirectors for the purpose of applyingthe provisions of this "ode0 and

F. +he stoc#holders of the corporationshall be subject to all liabilities of directors.

+he articles of incorporation mayli#ewise provide that all o@cers oremployees or that speci'ed o@cers oremployees shall be elected or

appointed by the stoc#holders, insteadof by the board of directors.

S!&*o 12. *re-emtive right in closecororations. - +he pre-emptive right of stoc#holders in close corporations shall e/tendto all stoc# to be issued, including reissuanceof treasury shares, whether for money,property or personal services, or in payment of corporate debts, unless the articles of incorporation provide otherwise.

S!&*o 19. mendment of articles of incororation. - Any amendment to the articlesof incorporation which see#s to delete orremove any provision required by this +itle tobe contained in the articles of incorporation orto reduce a quorum or voting requirementstated in said articles of incorporation shall notbe valid or e*ective unless approved by thea@rmative vote of at least two-thirds 954F: of the outstanding capital stoc#, whether with orwithout voting rights, or of such greaterproportion of shares as may be speci'callyprovided in the articles of incorporation foramending, deleting or removing any of theaforesaid provisions, at a meeting duly calledfor the purpose.

S!&*o . ;alidity of restrictions on transfer of shares. - )estrictions on the right to transfershares must appear in the articles of incorporation and in the by-laws as well as inthe certi'cate of stoc#0 otherwise, the sameshall not be binding on any purchaser thereof in good faith. !aid restrictions shall not bemore onerous than granting the e/istingstoc#holders or the corporation the option to

eidi Cean I. Dontaos (age 5G



purchase the shares of the transferringstoc#holder with such reasonable terms,conditions or period stated therein. If upon thee/piration of said period, the e/istingstoc#holders or the corporation fails to e/ercisethe option to purchase, the transferringstoc#holder may sell his shares to any third

person.

S!&*o . )@ects of issuance or transfer of stock in breach of 0ualifying conditions. -

%. If stoc# of a close corporation isissued or transferred to any personwho is not entitled under any provisionof the articles of incorporation to be aholder of record of its stoc#, and if thecerti'cate for such stoc# conspicuouslyshows the quali'cations of the personsentitled to be holders of record thereof,such person is conclusively presumed

to have notice of the fact of hisineligibility to be a stoc#holder.

5. If the articles of incorporation of aclose corporation states the number of persons, not e/ceeding twenty 95G:,who are entitled to be holders of recordof its stoc#, and if the certi'cate forsuch stoc# conspicuously states suchnumber, and if the issuance or transferof stoc# to any person would cause thestoc# to be held by more than suchnumber of persons, the person towhom such stoc# is issued or

transferred is conclusively presumed tohave notice of this fact.

F. If a stoc# certi'cate of any closecorporation conspicuously shows arestriction on transfer of stoc# of thecorporation, the transferee of the stoc#is conclusively presumed to havenotice of the fact that he has acquiredstoc# in violation of the restriction, if such acquisition violates the restriction.

&. =henever any person to whom stoc#of a close corporation has been issued

or transferred has, or is conclusivelypresumed under this section to have,notice either 9a: that he is a person noteligible to be a holder of stoc# of thecorporation, or 9b: that transfer of stoc# to him would cause the stoc# of the corporation to be held by morethan the number of persons permittedby its articles of incorporation to holdstoc# of the corporation, or 9c: that the

transfer of stoc# is in violation of arestriction on transfer of stoc#, thecorporation may, at its option, refuse toregister the transfer of stoc# in thename of the transferee.

8. +he provisions of subsection 9&: shall

not be applicable if the transfer of stoc#, though contrary to subsections9%:, 95: or 9F:, has been consented toby all the stoc#holders of the closecorporation, or if the close corporationhas amended its articles of incorporation in accordance with this +itle.

6. +he term NtransferN, as used in thissection, is not limited to a transfer forvalue.

7. +he provisions of this section shall

not impair any right which thetransferee may have to rescind thetransfer or to recover under anyapplicable warranty, e/press orimplied.

S!&*o 1. greements by stockholders. -

%. Agreements by and amongstoc#holders e/ecuted before theformation and organization of a closecorporation, signed by all stoc#holders,shall survive the incorporation of suchcorporation and shall continue to bevalid and binding between and amongsuch stoc#holders, if such be theirintent, to the e/tent that suchagreements are not inconsistent withthe articles of incorporation,irrespective of where the provisions of such agreements are contained, e/ceptthose required by this +itle to beembodied in said articles of incorporation.

5. An agreement between two or morestoc#holders, if in writing and signed bythe parties thereto, may provide that in

e/ercising any voting rights, the sharesheld by them shall be voted as thereinprovided, or as they may agree, or asdetermined in accordance with aprocedure agreed upon by them.

F. <o provision in any writtenagreement signed by the stoc#holders,relating to any phase of the corporate

eidi Cean I. Dontaos (age 5%



a*airs, shall be invalidated as betweenthe parties on the ground that its e*ectis to ma#e them partners amongthemselves.

&. A written agreement among some orall of the stoc#holders in a close

corporation shall not be invalidated onthe ground that it so relates to theconduct of the business and a*airs of the corporation as to restrict orinterfere with the discretion or powersof the board of directors; (rovided, +hat such agreement shall impose onthe stoc#holders who are partiesthereto the liabilities for managerialacts imposed by this "ode on directors.

8. +o the e/tent that the stoc#holdersare actively engaged in themanagement or operation of the

business and a*airs of a closecorporation, the stoc#holders shall beheld to strict 'duciary duties to eachother and among themselves. !aidstoc#holders shall be personally liablefor corporate torts unless thecorporation has obtained reasonablyadequate liability insurance.

S!&*o 11. Ahen board meeting isunnecessary or imroerly held. - 3nless theby-laws provide otherwise, any action by thedirectors of a close corporation without ameeting shall nevertheless be deemed valid if;

%. Before or after such action is ta#en,written consent thereto is signed by allthe directors0 or

5. All the stoc#holders have actual orimplied #nowledge of the action andma#e no prompt objection thereto inwriting0 or

F. +he directors are accustomed tota#e informal action with the e/press orimplied acquiescence of all thestoc#holders0 or

&. All the directors have e/press orimplied #nowledge of the action inquestion and none of them ma#esprompt objection thereto in writing.

If a directorQs meeting is held without propercall or notice, an action ta#en therein withinthe corporate powers is deemed rati'ed by a

director who failed to attend, unless hepromptly 'les his written objection with thesecretary of the corporation after having#nowledge thereof.

DULA= ENTERPRISES$ INC. ". COURT OFAPPEALS (NO NECESSIT= OF BOARD)

FACTS: ulay nterprises, Inc., adomestic corporation with the followingas members of its Board of irectors;Danuel ). ulay designated aspresident, treasurer and generalmanager0 Atty. Oirgilio . ulaydesignated as vice-president0 ?inda .ulay0 "elia ulay-Dendoza and Atty.(laridel ". Cose designated assecretary, owned a property #nown asulay Apartment located at !eventh!treet 9now Buendia /tension: and

.B. arrison !treet, (asay "ity. +hecorporation through its president,Danuel ulay, obtained various loansfor the construction of its hotel project,ulay "ontinental otel 9now rederic#otel:. It even had to borrow moneyfrom Oirgilio ulay to be able tocontinue the hotel project. As a resultof said loan, Oirgilio ulay occupiedone of the unit apartments of thesubject property since %E7F while atthe same time managing the ulayApartment as his shareholdings in thecorporation was subsequentlyincreased by his father. Danuel ulayby virtue of Board )esolution %H of thecorporation sold the subject property tospouses Daria +heresa and "astrenseOeloso. !ubsequently, Danuel ulayand the spouses Oeloso e/ecuted aDemorandum to the eed of Absolute!ale, giving Danuel ulay within 5years to repurchase the subjectproperty which was, however, notannotated. Daria Oeloso, without the#nowledge of Danuel ulay,mortgaged the subject property toDanuel A. +orres. 3pon the failure of Daria Oeloso to pay +orres, the subject

property was sold to +orres as thehighest bidder in an e/trajudicialforeclosure sale as evidenced by the"erti'cate of !heri*Qs !ale. DariaOeloso e/ecuted a eed of AbsoluteAssignment of the )ight to )edeem infavor of Danuel ulay assigning herright to repurchase the subjectproperty from +orres as a result of thee/trajudicial sale. As neither Daria




Oeloso nor her assignee Danuel ulaywas able to redeem the subjectproperty within the one year statutoryperiod for redemption, +orres 'led anA@davit of "onsolidation of >wnershipwith the )egistry of eeds of (asay"ity. +orres 'led a petition for the

issuance of a writ of possession againstspouses Oeloso and Danuel ulay in?)". owever, when Oirgilio ulayappeared in court to intervene in saidcase alleging that Danuel ulay wasnever authorized by the corporation tosell or mortgage the subject property,the trial court ordered +orres toimplead the corporation as anindispensable party but the lattermoved for the dismissal of his petitionwhich was granted. +orres and dgardo(abalan, real estate administrator of +orres, 'led an action against thecorporation, Oirgilio ulay and

<epomuceno )edovan, a tenant of ulay Apartment for the recovery of possession, sum of money anddamages with preliminary injunction. +he corporation 'led an action againstspouses Oeloso and +orres for thecancellation of the "erti'cate of !heri*Qs !ale. (abalan and +orres 'ledan action against spouses lorentinoand lvira Danalastas, a tenant of ulay Apartment, with the corporationas intervenor for ejectmentDetropolitan +rial "ourt of (asay "itywhich rendered a decision in favor of

(abalan, et al., ordering the spousesDanalastas and all persons claimingpossession under them to vacate thepremises0 and to pay the rents untilthey shall have vacated the premiseswith interest at the legal rate0 and topay attorneyQs fees as other e/pensesof litigation and for them to pay thecosts of the suit. +hereafter, thecorporation and Oirgilio ulay 'led anaction against the presiding judge of the Detropolitan +rial "ourt of (asay"ity, (abalan and +orres for theannulment of said decision with the)egional +rial "ourt of (asay.

+hereafter, the F cases were jointlytried and the trial court rendered adecision in favor of (abalan and +orres. +he corporation, et al. 'led the petitionfor review on certiorari. uring thependency of the petition, +orres diedand named +orres-(abalan )ealty evelopment "orporation as his heir inhis holographic will.

ISSUE: =hether the sale of the subjectproperty between spouses Oeloso andDanuel ulay has no binding e*ect onthe corporation as Board )esolution %Hwhich authorized the sale of thesubject property was resolved withoutthe approval of all the members of the

board of directors and said Board)esolution was prepared by a personnot designated by the corporation to beits secretary.

HELD: !ection %G% of the "orporation "ode of the (hilippines provides that N=henboard meeting is unnecessary orimproperly held. 3nless the by-lawsprovide otherwise, any action by thedirectors of a close corporation withouta meeting shall nevertheless bedeemed valid if; 9%: Before or aftersuch action is ta#en, written consent

thereto is signed by all the directors0 or95: All the stoc#holders have actual orimplied #nowledge of the action andma#e no prompt objection thereto inwriting0 or 9F: +he directors areaccustomed to ta#e informal actionwith the e/press or implied acquiesceof all the stoc#holders0 or 9&: All thedirectors have e/press or implied#nowledge of the action in questionand none of them ma#es promptobjection thereto in writing. If adirectorsQ meeting is held withoutproper call or notice, an action ta#entherein within the corporate powers is

deemed rati'ed by a director whofailed to attend, unless he promptly'les his written objection with thesecretary of the corporation afterhaving #nowledge thereof.N erein, thecorporation is classi'ed as a closecorporation and consequently a boardresolution authorizing the sale ormortgage of the subject property is notnecessary to bind the corporation forthe action of its president. At any rate,a corporate action ta#en at a boardmeeting without proper call or notice ina close corporation is deemed rati'edby the absent director unless the latterpromptly 'les his written objection withthe secretary of the corporation afterhaving #nowledge of the meetingwhich, in this case, Oirgilio ulay failedto do. +he corporationQs claim that thesale of the subject property by itspresident, Danuel ulay, to spousesOeloso is null and void as the allegedBoard )esolution %H was passed

eidi Cean I. Dontaos (age 5F



without the #nowledge and consent of the other members of the board of directors cannot be sustained. Oirgilio. ulayQs protestations of completeinnocence to the e*ect that he neverparticipated nor was even aware of anymeeting or resolution authorizing the

mortgage or sale of the subjectpremises is di@cult to believe. >n thecontrary, he is very much privy to thetransactions involved. +o begin with, heis an incorporator and one of the boardof directors designated at the time of the organization of Danuel ). ulaynterprises, Inc. In ordinary parlance,the said entity is loosely referred to asa Nfamily corporation.N +henomenclature, if imprecise, however,fairly reMects the cohesiveness of agroup and the parochial instincts of theindividual members of such anaggrupation of which Danuel ). ulay

nterprises, Inc. is typical; four-'fths of its incorporators being close relativesnamely, F children and their fatherwhose name identi'es theircorporation. Besides, the fact thatOirgilio ulay on 5& Cune %E78e/ecuted an a@davit that he was asignatory witness to the e/ecution of the post-dated eed of Absolute !aleof the subject property in favor of +orres indicates that he was aware of the transaction e/ecuted between hisfather and +orres and had, therefore,adequate #nowledge about the sale of

the subject property to +orres."onsequently, the corporation is liablefor the act of Danuel ulay and thesale of the subject property to +orres byDanuel ulay is valid and binding.

S!&*o 12. *re-emtive right in closecororations. - +he pre-emptive right of stoc#holders in close corporations shall e/tendto all stoc# to be issued, including reissuanceof treasury shares, whether for money,property or personal services, or in payment of

corporate debts, unless the articles of incorporation provide otherwise.

S!&*o 1J. Deadlocks. - <otwithstandingany contrary provision in the articles of incorporation or by-laws or agreement of stoc#holders of a close corporation, if thedirectors or stoc#holders are so dividedrespecting the management of thecorporationQs business and a*airs that the

votes required for any corporate action cannotbe obtained, with the consequence that thebusiness and a*airs of the corporation can nolonger be conducted to the advantage of thestoc#holders generally, the !ecurities and/change "ommission, upon written petitionby any stoc#holder, shall have the power to

arbitrate the dispute. In the e/ercise of suchpower, the "ommission shall have authority toma#e such order as it deems appropriate,including an order; 9%: cancelling or alteringany provision contained in the articles of incorporation, by-laws, or any stoc#holderQsagreement0 95: cancelling, altering or enjoiningany resolution or act of the corporation or itsboard of directors, stoc#holders, or o@cers0 9F:directing or prohibiting any act of thecorporation or its board of directors,stoc#holders, o@cers, or other persons party tothe action0 9&: requiring the purchase at theirfair value of shares of any stoc#holder, eitherby the corporation regardless of the availability

of unrestricted retained earnings in its boo#s,or by the other stoc#holders0 98: appointing aprovisional director0 96: dissolving thecorporation0 or 97: granting such other relief asthe circumstances may warrant.

A provisional director shall be an impartialperson who is neither a stoc#holder nor acreditor of the corporation or of any subsidiaryor a@liate of the corporation, and whosefurther quali'cations, if any, may bedetermined by the "ommission. A provisionaldirector is not a receiver of the corporation anddoes not have the title and powers of a

custodian or receiver. A provisional directorshall have all the rights and powers of a dulyelected director of the corporation, includingthe right to notice of and to vote at meetings of directors, until such time as he shall beremoved by order of the "ommission or by allthe stoc#holders. is compensation shall bedetermined by agreement between him andthe corporation subject to approval of the"ommission, which may '/ his compensationin the absence of agreement or in the event of disagreement between the provisional directorand the corporation.

S!&*o 1K. Aithdra!al of stockholder or dissolution of cororation. - In addition andwithout prejudice to other rights and remediesavailable to a stoc#holder under this +itle, anystoc#holder of a close corporation may, for anyreason, compel the said corporation topurchase his shares at their fair value, whichshall not be less than their par or issued value,when the corporation has su@cient assets in itsboo#s to cover its debts and liabilities e/clusive

eidi Cean I. Dontaos (age 5&



of capital stoc#; (rovided, +hat any stoc#holderof a close corporation may, by written petitionto the !ecurities and /change "ommission,compel the dissolution of such corporationwhenever any of acts of the directors, o@cersor those in control of the corporation is illegal,or fraudulent, or dishonest, or oppressive or

unfairly prejudicial to the corporation or anystoc#holder, or whenever corporate assets arebeing misapplied or wasted.

FINANCING CORPORATION OF THEPHILIPPINES VS. TEODORO(@ITHDRA@AL AND DISSOLUTION)

FACTS: +he minority stoc#holders of theinancing "orporation of the(hilippines, 'led a complaint againstthe said corporation and C. AmadoAraneta, its president and generalmanager, claiming among other things

alleged gross mismanagement andfraudulent conduct of the corporatea*airs of the defendant corporation by C. Amado Araneta, and as#ing that thecorporation be dissolved0 that C. AmadoAraneta be declared personallyaccountable for the amounts of theunauthorized and fraudulentdisbursements and disposition of assets made by him, and that he berequired to account for said assets, andthat pending trial and disposition of thecase on its merits a receiver beappointed to ta#e possession of theboo#s, records and assets of thedefendant corporation preparatory toits dissolution and liquidation anddistribution of the assets. >ver thestrong objection of the defendants, thetrial court presided by respondent Cudge Cose +eodoro, granted thepetition for the appointment of areceiver and designated Dr. Alfredo Pulo as such receiver with a bond of (8G,GGG. ailing to secure areconsideration of the order appointinga receiver, the defendants in said case,inancing "orporation of the (hilippinesand C. Amado Araneta, as petitioners,

have 'led the present petition forcertiorari with preliminary injunction torevo#e and set aside the order.

ISSUES:

%. =+) >) <>+ theappointment of a receiver made bythe respondent judge has no basisK

5. =+) >) <>+ the suit for thedissolution of a corporation can bebrought and maintained only bythe !tate through its legal counsel,and that respondents, much lessthe minority stoc#holders of saidcorporation, have no right or

personality to maintain the actionfor dissolutionK

RULING:

+rue it is that the general rule is thatthe minority stoc#holders of acorporation cannot sue and demand itsdissolution. owever, there are casesthat hold that even minoritystoc#holders may as# for dissolution,this, under the theory that suchminority members, if unable to obtainredress and protection of their rights

within the corporation, must not andshould not be left without redress andremedy. +his was what probablyprompted this "ourt to state in thecase of all, et al. vs. Cudge (iccio,Z

J.). <o. ?-58EH 9&7 >*. Jaz. <o. %5!upp., p. 5GG: that even the e/istenceof a de #ure corporation may beterminated in a private suit for itsdissolution by the stoc#holders withoutthe intervention of the !tate. It wastherein further held that although theremight be some room for argument onthe right of minority stoc#holders toas# for dissolution,-that question doesnot a*ect the courtQs jurisdiction overthe case, and that the remedy by theparty dissatis'ed was to appeal fromthe decision of the trial court. =erepeat that although as a rule, minoritystoc#holders of a corporation may notas# for its dissolution in a private suit,and that such action should be broughtby the Jovernment through its legalo@cer in a quo warranto case, at theirinstance and request, there might bee/ceptional cases wherein theintervention of the !tate, for onereason or another, cannot be obtained,

as when the !tate is not interestedbecause the complaint is strictly amatter between the stoc#holders anddoes not involve, in the opinion of thelegal o@cer of the Jovernment, any of the acts or omissions warranting 0uo!arranto proceedings, in whichminority stoc#holders are entitled tohave such dissolution. =hen suchaction or private suit is brought by




them, the trial court had jurisdictionand may or may not grant the prayer,depending upon the facts andcircumstances attending it. +he trialcourtQs decision is of course subject toreview by the appellate tribunal.aving such jurisdiction, the

appointment of a receiver endentelite is left to the sound discretion of thetrial court. As was said in the case of ngeles vs. Santos 96& (hil., 6E7:, theaction having been properly broughtand the trial court having entertainedthe same, it was within the power of said court upon proper showing toappoint a receiver endente lite for thecorporation0 that although theappointment of a receiver uponapplication of the minority stoc#holdersis a power to be e/ercised with greatcaution, nevertheless, it should bee/ercised necessary in order not to

entirely ignore and disregard the rightsof said minority stoc#holders,especially when said minoritystoc#holders are unable to obtainredress and protection of their rightswithin the corporation itself.

In conclusion, we hold that the trialcourt through respondent Cudge +eodoro had jurisdiction and properlyentertained the original case0 that healso had jurisdiction to appoint areceiver endente lite, and consideringthe allegations made in connection

with the petition for the appointment of a receiver, he neither e/ceeded his jurisdiction nor abused his discretion inappointing a receiver. +he petition forcertiorari is hereby denied, with costs. +he writ of preliminary injunctionheretofore issued is hereby ordereddissolved.


Documents

2nd Meeting - Corp and Bill of Rights