V.

CORPORATE CHARTER AND ITS Case Law:

AMENDMENTS. 1. Sulo ng Bayan, Inc., vs. Gregorio
Araneta, Inc. Et. AL.
1. The corporate charter – an instrument or - Reinvidicatory action for the recovery of
authority from the sovereign power, bestowing land was instituted by Sulo ng Bayan for
rights or power, and is often used convertibly with and in behalf of its members.
the term “act of incorporation”, where the - Issue: WON the corporation may institute
corporation was formed under a special act of the the action for recovery of property of its
legislature, and with the “articles of individual members?
incorporation”, when the corporation was formed - NO. It is a doctrine well-established and
under a general law. obtains both at law and in equity that a
corporation is a distinct legal entity to be
THREE-FOLD CONTRACT: considered as separate and apart from the
individual stockholders or members who
1. Between the corporation and the state compose it, and is not affected by the
insofar as it concerns its primary personal rights, obligations and
franchise to be and act as a corporation. transactions of its stockholders or
2. Between the corporation and the members.
stockholders or members insofar as it - Absent any showing of interest, therefore,
governs their respective rights and a corporation, has no personality to bring
obligations. an action for and in behalf of its
3. Between among the stockholders or stockholders or members for the purpose
members themselves as far as their of recovering which belongs to said
relationship with one another is stockholders or members in their personal
concerned. capacities.
FRANCHISE vs. CORPORATE CHARTER. 2. Caram vs CA
a. Franchise – appropriately applies to the - Herein petitioners were ordered jointly
right or privilege itself to be and act as a and severally to pay the plaintiff P50,000
corporation or to do certain act. for the preparation of the project study
- Franchise may be either be: (1) and his technical services that led to the
Primary- nothing more than the organization of the defendant corporation.
right or privilege of being a - Issue: WON petitioners can be held liable
corporation; or (2) Secondary – the for such expenses.
powers and privilige s vented in, and - NO. Petitioners were not involved in the
to be exercised by the corporate body initial stages of the organization of the
as such. airline, which were being directed by
Baretto, respondent, as the main
b. Charter – applies to the instrument which promoter. The petitioners were merely
the state vests such right or privilege. among the financiers whose interest was
to be invited and who were in fact
A. Corporate entity theory persuaded, on the strength of the project
study, to invest in the proposed airline.
- As a legal entity, the corporation is - Significantly, there was no showing that
possessed with a juridical personality separate the Filipinas Orient Airways was a
and distinct from the individual stockholders fictitious corporation and did not have a
or members and is not affected by the personal separate juridical personality, to justify
rights, obligations or transactions of the latter. making the petitioner, as principal
- The properties it possesses belongs to it stockholder thereof, responsible for its
exclusively as a separate juridical entity such obligations. As a bona fide corporation,
the personal creditors of its stockholders or the Filipinas Orient Airways should alone
members cannot attach corporate properties to be liable for its corporate acts as duly
satisfy their claims. authorized by its directors and officers.
- On the other hand, the corporation is not
likewise liable for the debts, obligations or 3. Rustan Pulp and Paper Mills, Inc vs.
liabilities of its stockholders. Neither may it IAC
properties be made answerable to satisfy the
claim of creditors against its stockholders or - Petitioner Rustan entered into a contract
member even if the stockholder concerned is of sale with respondent Lluch which was
its president. later on stopped by Rustan Through a
letter. Lluch sent letter of clarification.
Unanswered, respondent Lluch resumed
 deliveries and later on filed a complaint forfeiture of all installments paid.
for contractual breach which was Respondents failed to pay some
dismissed. installments and later offered to update
- Issue: WON individual petitioners may be all his overdue account but was informed
held liable. that the contract has already been
- NO. The president and manager of a rescinded. NHA hold Palay Inc and
corporation, who entered into and signed Alberto Onstott, in his capacity as
a contract in his official capacity, cannot president, jointly and severally liable.
be made liable thereunder in his - Issue: WON the corporate president is
individual capacity in the absence of liable to refund the amount stated in the
stipulation to that effect due to the NHA ruling?
personality of a corporation being - NO. As a general rule, a corporation may
separate and distinct from the person not be made to answer for acts or
composing it. liabilities of its stockholders or those of
the legal entities to which it may be
4. Cruz vs. Dalisay connected and vice versa.
- No sufficient proof exists on record that
- Adello Cruz charged Quiterio Dalisay, said petitioner used the corporation to
Senior Deputy Sheriff of Manila, with defraud private respondent. He cannot,
malfeasance in office, corrupt practices therefore, be made personally liable just
and serious irregularities when the because he “appears to be the controlling
respondent sheriff attached and /or levied stockholder”. Mere ownership by a
the money belonging to complainant Cruz single stockholder or by another
when he was not himself the judgment corporation of all or nearly all of the
debtor in the final judgment of NLRC capital stock of a corporation is not,
sought to be enforced but rather the of itself , sufficient ground for
company known as Qualitrans Limousine disregarding the separate corporate
Service Inc., a duly registered corporation. personality.
- Issue: WON the charge against the
respondent should be upheld for attaching 6. Soriano vs. CA
personal property of the corporate
president? - It is the general rule that the protective
- YES. The title of the case that specifically mantle of a corporation’s separate and
names complaint as one of the respondent distinct personality could only be pierced
is of no moment as execution must and liability attached directly to its
conform to that directed in the dispositive officers and/or member-stockholders,
portion and not in the title of the case. when the same is used for fraudulent,
- Respondent in this case, however, chose unfair or illegal purpose.
to “pierce the veil of corporate entity”
usurping power belonging to the court B. Piercing the veil of Corporate Fiction
and assumed improvidently that since the
complainant is the owner/president, they - While no hard and fast rule exists as to
are one and the same. It is well-settled when the corporate fiction may pierced or
doctrine, both in law and in equity that as disregarded, it is fundamental principle in
a legal entity, a corporation has a Corporation law that a corporation is an entity
personality distinct and separate separate and distinct from its stockholders or
from its individual stockholders or member and from other corporations to which
members. The mere fact that one is it may be connected.
president of a corporation does not - But when the notion of legal entity is used
render the property he owns or to defeat public convenience, justify a wrong,
possesses the property of the protect fraud, defend crime, the law will
corporation, since the president, as regard the corporation as a mere association
individual, and the corporation are of persons, or in the case of two corporations,
separate entities. merge them into one, the one being merely
regarded as part or instrumentality of the
5. Soriano vs. CA other. The same is true where a corporation is
a mere dummy and serves no business
- Petitioner Palay, Inc. through its purpose and is intended only as a blind, or an
president Albert Onstott, executed in alter-ego or business conduit for the sole
favor of respondent Naario Dumpit a benefit of the stockholders.
Contract to Sell a parcel land which - In cases where the doctrine of piercing the
provided for automatic rescission upon veil of corporate fiction, liability will attach
default in payment of any monthly directly to the officers and stockholders, at
amortization without need of notice and
 least, in so far as that particular act is the CIR, when the person who was discharging
concerned. the office of the cashier for both branches of
the business began preparing separate payrolls
a. General Concept. for the two. And above all, it should not be
overlooked that, as also found by the industrial
Case law: court, the laborers of the Guagua factory and
the coffee factory were interchangeable.
1. Palacio vs. Fely Transportation
Company. 6. Emilio Cano vs. CIR

- We believe that this one case were the - here is an instance where the corporation and
defendant corporation should not be heard to its members are considered one as one (the
say that it has a personality separate and corporation is a family corporation). And to
distinct from its members when to allow it to hold such entity liable for the acts of its
do so would be to sanction the use of the members is not to ignore the legal fiction
fiction of corporate entity as a shield to but merely to give meaning to the
further an end of subversive of justice. In this principle that such fiction cannot be
case, the failure of the defendant corporation invoked if its purpose is to use it as a
to prove that it has other property other than shield to further an end subversive of
the jeep strengthens the conviction that its justice. And so it has been held that while a
formation was for the purpose above corporation is a legal entity existing
indicated. separate and apart from the person
2. Marvel Building Corporation, et al. vs composing it, that concept cannot be
David extended to a point beyond it reason and
policy, and when invoked in support of
3. Yutivo & Sons Co. vs CTA. an end subversive of this policy it should
be disregarded by the courts.
4. Commissioner of Internal Revenue vs
Norton and Harrison - Emilio and Rodolfo Cano were indicted in the
case, not in their personal capacity, but as
- It has been settled that the ownership of all president and manager of the corporation.
the stocks of a corporation by another Having been sued officially, their connection
corporation does not necessarily breed with the case must be deemed to be impressed
an identity of corporate interest between with the representation of the corporation.
the two companies and be considered as
a sufficient ground for disregarding 7. Telephone Engineering Service vs. WCC
distinct personalities. However, in the case
at bar, we find sufficient grounds to support - although respect for the corporate personality as
the theory that the separate identities of the such, is the general rule, there are exceptions. In
two companies should be disregarded. appropriate cases, the veil of corporate fiction may
be pierced as when is made as shield to confuse
5. La Campana Coffee vs Kaisahan ng legitimate issue.
Manggagawa
8. Claparols vs. CIR
- La Campana Guagua Packing and la Campana
Coffee Factory Inc. are operating under one - It is very obvious that the second corporation
single management, that is, as one business seeks the protective shield of a corporate fiction
though with two trade names. True, the coffee whose veil in the present case could, and should
factory is a corporation and, by the legal be pierced as it was deliberately and maliciously
fiction, an entity existing separate and apart designed to evade its financial obligations to its
from the person composing it, that Tan Tong employees.
and his Family. But it is settled that this
fiction of law, which has been 9. National Federation of Labor Union
introduced as a matter of convenience (NAFLU) vs. OPLE
and to subserve the ends of justice
cannot be invoked as to further and end 10. AC Ransom Labor Union vs NLRC
subversive of that purpose.
- Where the incorporators belong to a single
- In the present case, Tan Tong appears to be family, the corporation and its members can be
the owner of the Guagua factory. And the considered as one in order to avoid it being used
factory, though an incorporated business, is in as an instrument to commit injustice, or to further
reality owned exclusively by Tan Tong and his and end subversive of justice. In the case of
family. As found by the CIR, one payroll, except Claparols vs CIR involving almost similar facts in
after July 17, the day the case was certified to this case, it was also held that the shield of
corporate fiction should be pierced when it is it is recognized and respected in all cases which
deliberately and maliciously designed to evade are within reason and the law.
financial obligations to employees. However, this separate and distinct personality is
merely a fiction created by law for convenience
11. Concept Builders vs. NLRC and to promote justice. Accordingly, this separate
personality of the corporation may be disregarded,
- No hard fast rule can be accurately laid down, or the veil of corporate fiction pierced, in cases
but certainly there are some probative factors where it is used as a cloak or cover for fraud or
of identity that will justify the application of the illegality, or to work an injustice, or where
doctrine of piercing the veil of corporate veil to necessary to achieve equity or when necessary for
wit: the protection of creditors. Corporations are
composed of natural persons and the legal fiction
a. Stock ownership by one or common of a separate corporate personality is not a shield
ownership of both corporations; for the commission of injustice and inequity.
b. Identity of directors and officers; Likewise, this is true when the corporation is
c. The manner of keeping corporate books merely an adjunct, business conduit or alter-ego
and records; of another corporation. In such case, the fiction of
d. Methods of conducting the business. separate and distinct of corporate entities should
be disregarded.
Instrumentality Rule or Alter-Ego Doctrine
– where a corporation is so organized and 14. Cease vs. CA
controlled and its affairs are conducted so that it
is, in fact a mere instrumentality or adjunct of the - In this case, the legal fiction of separate
other, the fiction of the corporate entity of the corporate personality shall have been used to
“instrumentality” may be disregarded. delay and ultimately deprive and defraud the
respondents of their successional right to the
The test in determining the applicability of estate of their deceased father.
piercing the veil of corporate fiction is as
follows: C. When piercing the corporate fiction is
not justified.
1. Control, not mere majority or complete
stock control, but complete domination, 1. Absent any of the following circumstances, the
not only in finances but of policy and courts will not be justified in disregarding the
business practice in respect to the corporate entity;
transaction attacked so that the corporate
entity as to this transaction had at the a. The corporation is used or being used to
time no separate mind, will or existence of defeat public convenience;
its own; b. Justify wrong;
2. Such control must have been used by the c. Protect fraud;
defendant to commit fraud or wrong, to d. Defend crime;
perpetuate the violation of statutory or e. Confuse legitimate issues;
other positive legal duty or dishonest and f. Circumvent the law;
unjust act in contravention of plaintiff’s g. Perpetuate deception; or
legal rights; and h. An alter-ego, adjunct or business for the
3. The aforesaid control and breach of duty sole benefit of a stockholder or a group of
must proximately cause the unjust or stockholders or another corporation.
unjust lost complained of. 2. The wrong doing must be clearly and
convincingly established. It cannot be justified
12. MC Connel vs CA by speculation and can never be presumed.

- While the mere ownership of all or nearly all of 3. The petitioner must seek to impose a claim
the capital stock of a corporation does not against the stockholders or officers directly liable,
necessarily mean that it is a mere business conduit otherwise piercing the veil of corporate fiction
of the stockholder, that conclusion is amply would not be available nor justified.
unjustified where it is shown, as in this case before
us, that the operations of the corporation were so Case Law:
merged with the stockholders as to be practically
indistinguishable from them. 1. REMO, Jr. vs IAC

13. Tan Boon Bee vs Jarencio - The facts of the case show that there is no cogent
basis to pierce the corporate veil of akron and hold
- as a matter of fact, the doctrine that a petitioner personally liable for its obligation to
corporation is a legal entity distinct and separate private respondent. While it is true that he is a
from the members and stockholders who compose member of the board at the time the resolution to
purchase the trucks were adopted, it does not
appear that said resolution was intended to - While there exist no definite test of general
defraud anyone. It was Coprada who negotiated application in determining when a subsidiary may
with respondent and the one who signed the be treated as a mere instrumentality of the parent
promissory note. corporation some factors have been identified
- The word “we” in the said promissory note must that will justify the application of the treatment of
refer to the corporation and coprada and not of its the doctrine of piecing the corporate veil:
stockholders and directors.
1. As a general rule, the stock ownership
2. Del Rosario vs NLRC alone by one corporation of the stock of
another does not thereby render the
- Under the law, a corporation is bestowed dominant corporation liable for the torts
juridical personality, separate and distinct from its of the subsidiary unless the separate
stockholders. But when the juridical personality of corporate existence of the subsidiary is a
the corporation is used to defeat public mere sham, or unless the control of the
convenience, justify a wrong, protect fraud or subsidiary is such that it is by an
defend crime, the corporation shall be instrumentality or adjunct of the
considered as a mere association of dominant corporation.
persons, and it responsible officers and/or
stockholders shall be held individually 2. The doctrine of piercing the corporate veil
liable. For the same reasons, a corporation shall is an equitable doctrine developed to
be liable for the obligation of a stockholder of a address situation where the separate
stockholder or a corporation and its successor-in- corporate personality of a corporation is
interest shall be considered as one and the liability abused or used for wrongful purpose. The
of the former shall attach to the latter. doctrine applies when the corporate
fiction is used to defeat public
- But for the separate juridical personality of a convenience, justify wrong, protect fraud
corporation to be disregarded the wrong doing or defend crime, or when it is used as a
must be clearly and convincingly shield to confuse legitimate issues or
established. It cannot be presumed. where the corporation is so organized and
controlled and its affairs are so conducted
3. Indophil Textile Mill Workers Union vs as to make it merely an instrumentality,
CALICA agency, conduit or adjunct of another
corporation.
- Under the doctrine of piercing the veil of
corporate entity, when valid grounds therefore
exist, the legal fiction that a corporation is an 3. See test in determining the doctrine of
entity with juridical personality separate and piercing the veil of corporate fiction.
distinct from its members or stockholders may be
disregarded. In such cases, the corporation will be The absence of any one of these elements
considered as a mere association of persons. The prevents “piercing the corporate veil’. In
members or stockholders of a corporation will be applying the “instrumentality’ or “alter-
considered as the corporation, that is, liability will ego” doctrine, the courts are concerned
attach to the officers and stockholders. with the reality and not form, with
how the corporation operated and
Umali vs CA – “the legal corporate entity is the individual defendant’s
disregarded only if its sought to hold the relationship to the operation.
officers and stockholders directly liable for
(Concept builders, Inc. vs NLRC)
a corporate debt or obligations”. In the
instant case, petitioner does not seek to impose a
claim against the members of ACRILYC. 5. Yu vs NLRC
4. PNB vs. RITRATTO GROUP, INC. ET. AL. -
- The mere fact that a corporation owns all C. AMENDMENT OF THE CORPORTE
of the stocks of another corporation, taken CHARTER
alone is not sufficient to justify their being
treated as one entity. If used to perform Sec. 15 of the RCC
legitimate functions, a subsidiary’s
separate existence may be respected, and The steps to be followed for an effective
the liability of the parent corporation as amendment of the articles of incorporation would
well as the subsidiary will be confined to thus be:
those arising in their respective
businesses.
1. Resolution of the majority vote of the board of (d) The required percentage of Filipino
directors or trustees; and ownership of the capital stock under
2. The vote or written assent of the existing laws or the Constitution has not
stockholders representing at least 2/3 of the been complied with.
outstanding capital stocks or members in case of
Non-stock Corporation, without prejudice to the * No articles of incorporation or amendment
appraisal rights of dissenting stockholders. to articles of incorporation of banks, banking
and quasi-banking institutions, preneed,
* In case of non-stock corporation by the vote or insurance and trust companies, NSSLAS,
written assent of majority of the trustees and at pawnshops, and other financial
least two-thirds (2/3) of the members. intermediaries shall be approved by the
Commission unless accompanied by a
3. Submission and filing of the amendments favorable recommendation of the appropriate
with the SEC as follows: government agency to the effect that such
articles or amendment is in accordance with
a. The original and amended articles law.
together shall contain all the provision
required by law to set oy in the articles of Provisions not subject to amendment (fait
incorporation. Such articles, as amended, accompli)
shall indicated by underscoring the
change or changes made, and a copy 1. Names of the incorporators and the
thereof duly certified under oath by the incorporating directors or trustees;
corporate secretary and a majority of the 2. Name of the treasurer originally or first
directors or trustees; elected by the subscribers or members to
b. A statement that the amendments have act as such;
been duly approved by the required vote 3. Number of shares and the amount
of the stockholders or members, shall be originally subscribed and paid out of the
submitted to the Commission. original authorized capital stock of the
c. The amendments shall take effect upon corporation; and
their approval by the Commission or from 4. Date and place of execution of the articles
the date of filing with said Commission if of incorporation and the signatories and
not acted within six (60 months from the acknowledgement thereof.
date of filing for a cause not attributable
to the corporation. E. PROVISIONS SUBJECT TO
AMENDMENTS
D. SPECIAL AMENDMENTS
A) Change of Corporate Name
- Section 36 and 37 of the RCC Sec. 15 of the RCC

Sec. 36. Power to Extend or Shorten - Change in corporate name is included in the
Corporate Term general power to amend and maybe effected with
compliance to Sec. 15 of the RCC
Sec. 37. Power to Increase or Decrease
Capital Stock; Incur, Create or Increase - Any change in the corporate identity or name
Bonded Indebtedness. does not affect the rights and obligations of the
corporation. A mere change in the name of
the corporation does not affect the identity
of a corporation nor in any manner affect
Grounds for Disapproval of Amendment: the rights, privileges and obligations
previously acquired or incurred by it.
Sec. 16 of the RCC.
Case law:
(a) The articles of incorporation or any
amendment thereto is not substantially in 1. Phil. Insurance vs Hartigan
accordance with the form prescribe
herein; - No doubt, the name of the corporation is
(b) The purpose or purposes of the peculiarly important as necessary to the
corporation are patently unconstitutional, very existence of a corporation. The
illegal, immoral or contrary to general rule as to corporation is that each
government rules and regulations; corporation shall have a name by which it
(c) The certification concerning the amount is to sue and be sued and do all legal acts.
of capital stock subscribed and/or paid is The name of the corporation in this respect
false; and designates the corporation in the same manner as
the name of an individual designates the person.
Since and individual has the right to
change its name under certain conditions, Classes of shares in general
there is no compelling reason why a
coporation may not enjoy the same right. 1. Par value shares,
2. No par value shares
2. Red line Transport vs. Rural Transit Co. 3. Voting,
4. Non-voting
- The change of name of a corporation DOES 5. Common
NOT result in its dissolution. There is unanimity 6. Preferred (Convertible or Redeemable)
in authorities: “an authorized change in the a. Preferred as to assets in case of
name of a corporation has no more effect liquidation; or
upon its identity as a corporation than a b. Preferred as to dividends.
change of name of natural person has upon 1. Cumulative
his identity. It does not affect the rights of 2. Non-cumulative
the corporation or lessen or add to its 3. Participating
obligations. After a corporation has 4. Non-participating
effected a change in its name it should sue 7. Promotion stock
and be sued in its new name” 8. Shares in escrow
9. Convertible stock
A mere change in the name of a corporation, 10. Founders shares
either by the legislature or by the corporators or 11. Redeemable shares
stockholders under legislative authority, does not, 12. Treasury shares
generally speaking, affect the identity of the
corporation, nor in any way affect the rights,
privileges, or obligations previously acquired or
incurred by it.

The corporation, upon such change in its name, is

in no sense a new corporation, nor the successor
of the original one, but remains and continues to
be the original corporation. It is the same
corporation with a different name, and its
character is no respect changed.

2. Change of Corporate Term – Sec. 36 of

the RCC

Case law:

1. Alhambra Cigar vs SEC

- The privilege of extension is purely statutory. All

the statutory conditions precedent must be
complied with in order that the extension
may be effectuated. And, generally, these
conditions must be complied with, and the steps
necessary to effectuate an extension must be
taken, during the life of the corporation,
and before the expiration of the term of
existence as originally fixed by its charter or the
general law, since, as a rule, the corporation is
ipso facto dissolved as soon as the time
expires. So where the extension is by
amendment of the articles of incorporation, the
amendment must be adopted before that time.
Other matters subject to amendment

1. Purpose clause – by changing, altering or

including other purpose or purposes;
2. Principal office;
3. Number of directors;
4. Shares of stock and their classification;
5. Restrictions as well as preference.