Corporation Code- De Leon

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THE CORPORATION CODE

OF THE

PHILIPPINES

(Batas Pambansa Big. 68.)

Introduction

Different f o r m s of b u s i n e s s organization.

With the development of business enterprise, there has been a gradual evolution in the form of business organization. Various influences and considerations enter into the selection of the busi-ness form for any particular busibusi-ness enterprise.

(1) Individual proprietorship. — The primitive form of business is, of course, that of the individual proprietor. The individual, as a rule, operates a small business, usually with the limited capital, and is responsible alone for its success or failure.

(2) Partnership. — The partnership is the first step towards a wider field of operation and a more complex organization. Often, it is a family affair. The business of the individual grows too large for his sole management and he takes his son or some other member of the family into partnership. In other cases, two men in the same business unite their capital in order to secure ad equate capital for the conduct of their business.

Whatever the motive and the circumstances, the partnership is almost invariably a larger business unit than the proprietor-ship. It is common in retail trade, in the professions, and to a limited extent, among manufacturing establishments. As a form of business organization, it is losing ground.

(3) Joint stock company. — The joint stock company is a form of business organization at one time frequent in connection with

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larger enterprises, which, so far as the United States is concerned, is now almost extinct. This form of company was highly popular in England during the seventeenth and early eighteenth centu-ries.

The joint stock company can be best considered as a com-bination of the partnership in that it is formed under a contract and requires no special sanction from the State. The members are liable, jointly and severally, for all the company's debts. It resem-bles the corporation in control and management. The members do not control the company but choose a board of directors who were the authorized agents and managers. Thus, while mem-bership in the company might change thru death or transfer of membership interest, the company is not dissolved.

(4) Cooperative association. — It represents another form of business organization which proved more popular in Europe than in America. This form of organization is not of sufficient interest or importance to the business world to require consider-ation in this text.

(5) Business trust. — Another form of business organization less widely known is the business trust, sometimes called the "Massachussets trust."1

The main feature of this form of organization is that it is formed by a contract and that the title to property and the conduct of business is in the hands of trustees who act for a large group of beneficiaries.

(6) Corporation. — It is now the dominant form of organiza-tion in modern business. The corporaorganiza-tion is a creature of law and all its rights, powers, and duties are derived from legislation. In some forms of business of a public or quasi-public nature like that of public utilities, railroads, insurance companies, and bank-ing institutions, it is almost the exclusive form of business orga-nization. In other fields of enterprise, the corporation competes with other forms of business organization.

'Membership depends entirely upon the ownership of shares rather than on the agreement of the associates as in the partnership. The death of a "partner" does not dis-solve the firm. The trustees (managers) have a legal title to its property and act as prin-cipals for the shareholders who have all the legal status of a cestui que trust (beneficiaries). It bears such a close resemblance to a corporation that it is or has been frequently con-sidered as a corporation. (Chester Rohlich, Organizing Corporate and Other Business Enterprises [1953], p. 155.) But it is not a corporation.

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INTRODUCTION ₃

(7) Other business forms. — They arise where different enter-prises, whether organized in the same form or different forms, unite for a common purpose. The purpose may be temporary in character, giving us the syndicate, or it may contemplate more permanent associations, giving us varying forms of combina-tions, "the trust," the holding company, and the like.

(a) The distinguishing characteristic of the syndicate is that it is a temporary alliance of individuals, firms, or corporations, usually for the purpose of financing an enterprise. After the purpose of organization has been accomplished, the syndicate is dissolved. It is a form of organization used largely by bankers for underwriting purposes. Syndicates reflect the general state of business — when business is at a standstill, there is obviously little need for them and few are formed.

(b) Combinations take varying forms. Their primary purpose is to secure the savings and other advantages which result from consolidation and large-scale operation. In the first phase, such combinations were really "trusts" in the sense above described, except that corporations formed the constituent elements and beneficiaries of the trust. This form of association having been in some instances declared to be illegal by the courts, resort has been had to other methods.

(c) The practice followed in some cases is to organize a new corporation which buys the individual plants it wishes to bring into the combination and which thus becomes a single owner of all the establishments. In the largest combinations, however, the stock of the constituent companies is all brought by a unifying company called a holding company. The constituent companies retain their organization intact. They are controlled by the central corporation as a stockholder which has power to elect directors and officers at will and thus have complete power over the management.

Though trusts as combinations of corporations have long ceased to have any existence, popular phraseology continues to use the word "trust" to designate any large aggregation of capi-tal under unified direction and control, (see C.W. Gestenberg,

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"Organization and Control," in 3 Modern Business [1919], pp. 3-8.)

In the Philippines, the only types of business organization provided by law are the partnership (Arts. 1767-1806, Civil Code.) and the corporation. No prohibition, however, exists for the other forms. As distinguished from corporations, the other types of business organization are unincorporated.

Theories as to origin of corporations.

(1) Ethnological theory. — There is authority for the statement that the concept of collective entity antedates that of the indivi-dual; that "groups of men united by the reality or fiction of blood relationship" into families, clans or tribes were recognized units of primitive society even before the individual was so regarded. Upon this assumed ethnological predicate has been erected the theory that the basic principle of corporate organization, the embodiment of which is now described as a fictitious, intangible person, created by law and existing only in contemplation there-of, is in reality but a manifestation of the gregarious instinct in man, existing inchoate from earliest times and before law itself became an effective social force. The law, it is argued, has done no more than to recognize the existence of this phase of human activity, guide its development, and define its functions and rela-tions.

In short, instead of the role of creator, assumed by the law for its own convenience, the relation would be more aptly described by assigning to the law the part of one who, having discovered a foundling upon his doorstep, clothes and feeds it and thereafter treats it as his own. Under this theory, the corporate idea, there-fore, is the product of no one people and no one country, but, on the contrary, developed more or less independently, in varying forms among the several ethnological units.

(2) Imitative theory. — The other theory as to the origin of corporations is the imitative theory of jural development. This theory traces the genesis of the modern corporation to the Greece of Solon (638-559 B.C.), citing the writings of Gaius on Roman Law and passages from the Pandects of Justinians, as authority for the assertion that laws fathered by the great Hellenic jurist

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INTRODUCTION ₅

permitted the formation of private corporations for certain purposes, upon condition that they do not operate in violation of the laws of the state.

Blackstone, however, ascribes the birth of the corporation to the political necessities of Numa Pompilius (715-672 B.C.) who, upon his accession to power in Rome, desiring to end the disrupting influence of the private war being waged between the Sabine and the Roman factions, "thought it a prudent and politic measure to subdivide these two into smaller ones by instituting separate societies of every manual trade and profession." (1 Fletcher, Cyclopedia of the Law of Private Corporations, Perm Ed., p. 3, footnote No. 3, quoting Blackstone, 1 BL Comm. 468, 469.)

Rise a n d d e v e l o p m e n t o f c o r p o r a t i o n s.

(1) In Roman times. — The corporations, like most other forms of business organization, take their rise in Roman times. Probably the earliest form is that of the Collegium or college of priests. This body had many of the rights and privileges which the law gives to the modem corporation. The Collegium could hold property; it could sue and be sued; the rights of the corpo-rate body were sepacorpo-rate from those of individual members; it existed in perpetuity, and it was autonomous.

Besides the Collegium, other Roman organizations such as municipalities, official societies engaged in state administration, military groups, and trade and societies took on corporate form. (2) In Medieval times. — In medieval times, something akin to the Roman Collegia appeared in the municipal and guild organizations which were often closely related. Like the non-stock corporations of the present day, they embodied the idea of the group working as a whole thru chosen representatives, and so exhibit one of the chief characteristics of a corporation from the legal standpoint.

Though the guilds are spoken of as trade and industrial cor-porations and were intimately concerned with business affairs, it would be a mistake to assume that they were like the present day corporations — business units operating in any given trade or

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industry for the joint profit of those who composed them. If you can imagine a voluntary association of retailers or manufacturers in any given line, clothed not only with the desire but full legal authority to regulate the business practices of its members, you have a much closer analogy to the real nature of the guild. It can be understood, too, how, under such circumstances, the guilds became so autocratic in their proceedings that as time went on, they became a hindrance rather than a help to progress.

(3) In England. — At a later period, the regulated company, such as The Plymouth Company, the Hudson Bay Company, and the East India Company, became a dominant factor in British trade, particularly in foreign trade. Chartered by the government and granted special privileges by their charters, these organizations were forerunners of modern corporations. In some instances, the trading company was hardly a company at all as we understand it. It consisted of a grant of the right to carry on a certain kind of business in a certain place conferred upon a group of persons. Any member of the group or a number of member jointly might exercise the right, and only those who participated in the particular venture would be entitled to its profits. This was a frequent form of the trading company.

Other companies conducted their operations as a unit and all the associates shared in the common profit. They became in effect and often in name joint stock companies and in the early part of the last century, this was the common form of organization for larger business units in Great Britain.

(4) In the United States. — In the American colonies before the Revolution, corporations were mostly educational, religious, or military. They had not been introduced into business affairs. The company as it was then known in the mother country smacked of exclusive privilege and carried the idea of a monopoly granted by the Crown. It was not until the beginning of the 19th century, with the growth of manufactures brought about by the Napoleonic wars and a consequent rise of an investing class, that the corporation really began to make strides. In 1800 up to 1815, many manufacturing companies and turnpike companies were incorporated and between the latter year and 1835, a large number of canal and railway companies. Within this period too,

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INTRODUCTION ₇

banking institutions spread rapidly over the country so that the corporate form of organization became thoroughly established.

While New York, in 1811, was the first state to provide for incorporation under general laws for business purposes, it was not until about the middle of the last century that the States in general made provision for it. At the same time, the principle of limited liability was generally recognized. This principle was not adopted in England until 1855 when Parliament passed a statute providing that only such companies which announce that their stockholders' liability is limited shall escape the common-law rule that stockholders shall be liable as partners. This is usually done by the use of the abbreviation "Ltd." after the name of the company. (C.W. Gesternberg, op. cit., pp. 94-97.)

(5) In the Philippines. — "During the Spanish regime and prior to the enactment of the former Corporation Law (Act No. 1459.), there existed in the Philippines several forms of commer-cial companies, associations, and partnerships. The concept of a corporation not having introduced yet, these named associations and partnerships were the most common entities by which busi-ness was generally conducted during that time. Among these were the sociedad en comandita (limited partnership) and the socie-dad regular colectiva (general partnership), which were governed by Articles 116 to 150 and 160 to 174 of the Code of Commerce which became effective in these Islands on December 1, 1888. Most known among these associations, however, was the socie-dad anonima then governed by Article 151 to Article 159 of the Code of Commerce. There was also a sociedad de cuentas en par-ticipacion (joint account participation) governed by Articles 239 to 243 of the same Code of Commerce.

Of these Spanish commercial entities, the one which could remarkably compare to the present day concept of corporate entity is the sociedad anonima. This is not to say, however, that the sociedad anonima exactly corresponded to the notion of corporation in English and American Law — particularly in matters concerning organization of the enterprise, the distribution of dividends, and those in which equity intervenes for the benefit of the stockholders (Harden vs. Benguet Consolidated Mining Co., 58 Phil. 145 [1933].) but that this, of all the then existing

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commercial entities, most nearly approached the concept of a corporation.2

With the passage of the former Corporation Law on March 1, 1906, and the later enactment of the new Civil Code, all these societies and associations were abolished with the sole exception of the sociedad de cuentas en participacion. The sociedad en comandita and sociedad regular colectiva were abolished when Articles 116 to 150 and 160 to 174 of the Code of Commerce were repealed by Article 2270 and superseded by the provisions on Partnership in Title IX, Book IV of the new Civil Code." (C.G. Alvendia, The Law of Private Corporations in the Philippines, 1967 ed., pp. 1-2.) In the Philippine Bill of 1902, which was approved on July 1, 1902 after the Philippine Islands passed to the sovereignty of the United States, the Congress of the United States inserted certain provisions intended to control the law-making power in the Phil-ippine Islands in the matter of granting of franchises, privileges and concessions. These provisions were found in Sections 74 and 75 of the Bill. The provisions of Section 74 were superseded by Section 28 of the Act of Congress of August 29, 1916, but in Section 75, there is a provision referring to mining corporations which then remained the law, as amended. The provision, in its original form, reads as follows: "x x x it shall be unlawful for any member of a corporation engaged in agriculture or mining and for any corporation organized for any purpose except irrigation, to be in any wise interested in any other corporation engaged in agriculture or in mining.''

Under the guidance of the Philippine Bill of 1902 and certain other Acts enacted by the U.S. Congress, including some Ameri-can state corporation laws, the Philippine Commission, then the law-making body in the Philippines, subsequently approved on March 1, 1906, Act No. 1459, the former Corporation Law, pro-viding for the organization of corporations in the Philippines. The Act took effect on April 1,1906.

Before the passage of the present Corporation Code of the Philippines on May 1, 1980, numerous statutes were

enact-'The partnerships and the sociedades anonimas, the business associations then exist-ing, were created by mere agreements.

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INTRODUCTION ₉

ed affecting corporations. Among them are laws creating government corporations, and those governing or relating to special types of corporations, such as the General Banking Act (R.A. No. 337.3

), Rural Banks Act (R.A. No. 7353.), Investment Company Act (R.A. No. 2629.), Savings and Loans Association Act (R.A. No. 3779.), Private Development Banks Act (R.A. No. 4093.), Financing Company Act (R.A. No. 5980.), the Investment Houses Law (Pres. Decree No. 129.), Pawnshop Regulation Act (Pres. Decree No. 114.), and the Insurance Code of the Philippines. (Pres. Decree No. 1460.)

(6) Corporations in modern business. — The merits of the cor-poration so far overshadow its drawbacks that today it is the representative type of modern business organization. Its growth within the past half century has been by leaps and bounds. In some fields particularly in public utilities, insurance, banking, and manufacturing, it has, practically, exclusive possession.

(a) In the first place, its form is flexible. By means of various kinds of stocks and bonds and thru the judicious drafting of charter and by-laws, the control of the corporation can be scientifically determined, the risk equitably apportioned, and the income distributed among the owners and creditors. (b) The corporation assembles huge quantities of capital gathered from many different quarters and then provides the means for efficiently administering it. It secures in this way all the advantages which are a part of large-scale production. (c) Moreover, it possesses a degree of permanence that carries on its business beyond the span of any one genera-tion. It usually outlives the men who make and manage it. (C.W. Gestemberg, op.cit., p. 14.)

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GENERAL PROVISIONS

DEFINITIONS AND CLASSIFICATIONS

Section 1. Title of the Code. — This Code shall be known as "The Corporation Code of the Philippines." (a)*

Historical b a c k g r o u n d of our Corporatio n C o d e .

(1) Business associations under the Code of Commerce. — Prior to 1906, the business associations existing were the partner-ships and the sociedades anonimas which were created by mere agreements. There was no entity in the Spanish Law exactly cor-responding to the notion of the corporation in American Law. Its attention drawn to this fact, the Philippine Commission, the legislative body of the Philippines during the American regime, enacted on March 1, 1906, Act No. 1459, a general law authoriz-ing the creation of corporations in the Philippine Islands.

With the enactment of Act No. 1459, popularly known as the Corporation Law, which took effect on April 1, 1906, providing for the organization of corporations in the Philippines,it became necessary to make certain adjustments in view of the existence of the Spanish sociedades anonimas previously organized and exist-ing in the Philippines.

(2) Business associations under the former Corporation Law. — Accordingly, Section 75 of the Act was inserted under which sociedades anonimas were made subject to the provisions of the Corporation Law "so far as such provisions may be applicable"

•Signifies that original provision in Act No. 1459 has been amended.

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Sec. 1 TITLE I. GENERAL PROVISIONS

Definitions and Classifications 11

and were given the "option to either continue business as such corporation or to form and organize under and by virtue of the provisions of this Act." Section 191 of the Act expressly repealed the pertinent provisions of the Code of Commerce (Sees. 151-159 thereof.) governing sociedades anonimas with the proviso that "those which elect to continue their business as such sociedades anonimas" instead of reforming and organizing "under the Corporation Law shall continue to be governed by the Code of Commerce" in relation to their organization and method of transacting business and to the rights of members thereof as among themselves." However, "their relations to the public and public officials shall be governed by the provisions of this Act."

Thus, the old Corporation Law recognized the difference between sociedades anonimas and corporations. (Phil. Products Co. vs. Primatera [Phils.], Inc., 15 SCRA301 [1965].)

The evident purpose of the Philippine Commission in enacting Act No. 1459 was to introduce into the Philippines the American corporation as the standard commercial entity and to hasten the day when the sociedad anonimas of the Spanish Law would become obsolete. This rather elaborate Philippine legislation is a sort of a codification of American corporate laws. (Harden vs. Benguet Consolidated Mining Co., 58 Phil. 141 [1933].) It remained practically intact except for some repeals or amendments until the enactment of Batas Pambansa Big. 68.

(3) Business corporations under the Corporation Code. — The law governing private corporations in the Philippines is now embod-ied in Batas Pambansa Big. 68, the present Corporation Code1 of the Philippines, which took effect on the date of its approval on May 1,1980. (see Sec. 149.) The new Code supplants Act No. 1459, as amended. It reproduced with amendments many provi-sions of the old Corporation Law. In its explanatory note, Cabi-net Bill No. 3 which became Batas Pambansa Big. 68, states:

'A code, in modern times, is a systematic, complete, written collection of laws ar-ranged logically with index and table of contents and covering fully one or more subject of law. It is a written compilation of statutory laws of general and permanent impor-tance, eliminating clerical errors and obsolete provisions, expressly repealing all prior laws inconsistent with the compilation and occasionally including amendments and new provisions, (see Webster's 3rd New International Dictionary, 1976 ed., p. 437; see note 2.)

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"This bill is intended to supplant the present Corporation Law, Act No. 1459, as amended, and to be hereafter known as the 'Corporation Code of the Philippines.'2

The proposed Code seeks to establish a new concept of business corporations so that they are not merely entities established for private gain but effective partners of the National Government in spreading the benefits of capitalism for the social and economic development of the nation.

Significant changes have been introduced in the proposed Code in order to update the provisions of our present Corpo-ration Law. Among the significant changes in this Code is the grant of ample powers to the Securities and Exchange Com-mission to enable it to exercise adequate supervision over the operations and activities of private corporations. The other innovative provisions constitute definite improvements to make the proposed Code more responsive to the plans and policies of the Government."

Section 16 of Article XII (National Economy and Patrimony) of the Constitution provides:

"The Congress shall not, except by general law, provide for the formation, organization, or regulation of private

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(l)The Corporation Code deleted the following sections of the old law: Sees. 8 (fees), 10 (articles of incorporation as prima facie evidence of facts therein stated), 12 (corporate power of eminent domain), 15 (liability of corporation for holding persons in involuntary servitude), 29 (time of holding election of directors except term of office), 32 (who may call meeting for election of directors where no such meeting is held), 48 (posting of no-tices of call, and delinquency and sale of stock), 53-55 (visitorial powers), 56-61 (forced sale of franchises), 70 (license of foreign corporations organized before Act No. 1459), 74-74-1/2 (miscellaneous provisions), 75 (sociedad anonima), 76 (1st sentence: legislative dis-solution), 79 (delegated power of eminent domain), 80 (application of provisions), 81-102 (railroad corporations), 165-167,170 (provisions on colleges and institutions of learning), and 161-164 (provisions on corporation sole).

(2) It amended the remaining provisions except Section 2. (now also Sec. 2.) In the case of Section 35 (now Sec. 63.), the amendment consists merely in the substitution in the first paragraph of "or clerk" by "or assistant secretary."

(3) It introduced title headings and rearranged accordingly the amended provisions. (4) It added new provisions many of which were taken from judicial rulings on the subject including principles in common law jurisdictions, rules and regulations of the S.E.C., and recognized modem corporate practices.

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Sec. 2 TITLE i. GENERAL PROVISIONS

porations. Government-owned or -controlled corporations may be created or established by special charters in the inter-est of the common good and subject to the tinter-est of viability."

The Corporation Code of the Philippines, the new general law governing private corporations in the Philippines, implements the above provision of the Constitution.3

S c o p e o f the C o d e .

The Corporation Code of the Philippines law is an act which: (1) provides for the incorporation, organization, and regula-tion of private corporaregula-tions, both stock and non-stock, including educational and religious corporations;

(2) defines their powers and provides for their dissolution; (3) fixes the duties and liabilities of directors or trustees and other officers thereof;

(4) declares the rights and liabilities of stockholders and members;

(5) prescribes the conditions under which corporations including foreign corporations may transact business;

(6) provides penalties for violations of the Code; and

(7) repeals all laws and parts of laws in conflict and inconsis-tent with the Code.

Sec. 2. Corporation defined. — A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence. (2)*

Statutory definition of corporation.

Section 2 gives a definition of the "corporation." The above

T h e Corporation Code was enacted under the 1973 Constitution which provides a similar restriction with respect to private corporations.

'Signifies section number of original provision in Act No. 1459. This is the only pro-vision that has not been amended by the new Code.

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statutory definition refers only to private corporations or to cor-porations organized under the Corporation Code.4

Judicial definitions of corporation.

A corporation was early defined by the Supreme Court of the United States as "an artificial being, invisible, intangible, and existing only in contemplation of law." (Dartmouth College vs. Woodward, 4 Wheat [U.S.] 518, 4 L. ed. 629.)

Other judicial definitions of a corporation aggregate are: (1) An artificial intellectual being, the mere creature of the law, composed generally of natural persons in their natural capacity, but which may also be composed of persons in their political capacity of members of other corporations (Bank of United States vs. Deveaux, 5 Cranch [U.S.] 61, 3 L. ed. 38.);

(2) An artificial being created by law, and composed of individuals who subsist as a body politic under a special denomination, with the capacity of perpetual succession, and of acting, within the scope of its charter, as a natural person (Fietsam vs. Hay, 122 111. 293,13 N.E. 501.);

(3) A collection of many individuals, united in one body un-der a special denomination, and vested by the policy of the law with the capacity of acting in several respects as an individual (State vs. Standard Oil Co., 49 Ohio St. 137, 30 N.E. 279.); and

(4) A legal institution devised to confer upon the individu-als of which it is composed powers, privileges, and immunities which they would not otherwise possess, the most important of which are continuous legal identity and perpetual or indefinite succession under the corporate name, notwithstanding

succes-sor income tax purposes, "the term corporation" includes partnerships, no mat-ter how created or organized, joint stock companies, joint accounts (cuentas en

partici-pation), associations or insurance companies, but does not include general professional

partnerships and a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy opera-tions pursuant to an operating or consortium agreement under a service contract with the Government. General professional partnerships are partnerships formed by persons for the sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business. (Sec. 20[b], National Internal Revenue Code.)

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sive changes by death or otherwise in the corporation or mem-bers of the corporation. (Coyle vs. Mclntire, 7 Houst [Delll 4 30 A 728.)

But though the terminology varies, the elements are usually the same. (18 Am. Jur. 2d 548-549.)

Attributes of a c o r p o r a t i o n .

An analysis of the definition in Section 2 reveals the follow-ing attributes of a corporation:

(1) It is an artificial being;

(2) It is created by operation of law; (3) It has the right of succession; and

(4) It has only the powers, attributes and properties express-ly authorized by law or incident to its existence.

C o r p o r a t i o n as an artificial personality.

Doctrinally, a corporation is a legal or juridical person with a personality separate and apart from its individual stockhold-ers or membstockhold-ers and from any other legal entity to which it may be connected. It is not in fact and in reality a person but the law treats it as though it were a person by process of fiction. The stockholders or members who, as natural persons, are merged in the corporate body, compose the corporation but they are not the corporation.

As a consequence of this legal concept of a corporation: (1) Liability for acts or contracts. — The general rule is that obligations incurred by a corporation, acting through its authorized agents, are its sole liabilities. Similarly, a corporation may not, generally, be made to answer for acts or liabilities of its stockholders (or members) or those of the legal entities to which it may be connected and vice versa. (Creese vs. Court of Appeals, 93 SCRA 483 [1979]; Palay, Inc. vs. Clave, 124 SCRA 638 [1983]; ARB Construction Co., Inc. vs. Court of Appeals, 332 SCRA 427 [2000]; Tupaz IV vs. Court of Appeals, 475 SCRA 398 [2005].)

(a) A suit against certain stockholders of a corporation cannot ipso facto be a suit against the unpleaded corporation

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itself without violating the fundamental principle that a cor-poration has a legal personality distinct and separate from its stockholders. The failure to implead the corporations as defendants and merely annexing a list of such corporations to the complaint is a violation of their right to due process for it would in effect be disregarding their separate personality without a hearing. (Presidential Commission on Good Gov-ernment vs. Sandiganbayan, 290 SCRA 639 [1998]; Booc vs. Bantuas, 354 SCRA 279 [2000]; PCGG vs. Sandiganbayan, 365 SCRA 538 [2001].)

(b) A corporate officer is not personally and solidarily liable with the corporation for the money claims of discharged or retrenched employees unless he acted with evident malice or bad faith in terminating their employment.5

(Business Day vs. National Labor Relations Commission, 221 SCRA 9 [1993]; MAM Realty Development Corp. vs. National Labor Relations Commission, 244 SCRA 797 [1995]; Asionics Phils., Inc. vs. National Labor Relations Commission, 290 SCRA 164 [1998].) The act of the President of a corporation in dismissing an employee, done as such officer in good faith, cannot result in his private liability. (Cebu Filveneer Corp. vs. National Labor Relations Commission, 286 SCRA 556 [1998]; AMA Computer College vs. Ignacio, 590 SCRA 633 [2009].)

(c) All contracts entered into in its name by its regular appointed officers and agents are the contracts of the corporation and not those of the stockholders or members. A corporation cannot be held liable for the personal indebtedness of a stockholder even if he should be its president. {Smith & Co., Inc. vs. Ford, 63 Phil. 786 [1936].) The stockholder's debt or credit is not the debt or credit of the corporation, nor is the debt or credit of the latter that of the former. (Good Earth Emporium, Inc. vs. Court of Appeals, supra.; Mendoza vs. Banco Real Development Bank, 470 SCRA 86 [2005].)

^ince a corporation is an artificial person it must have an officer who can be pre-sumed to be the employer, being the "person acting in the interest of the employer." In other words, the corporation, in the technical sense only, is the employer. The manager of a corporation falls within the meaning of an "employer" as contemplated by the Labor Code, who may be held solidarily liable for the obligations of the corporation to its dis-missed employees. (NYK International Knitwear Corporation vs. National Labor Rela-tions Commission, 397 SCRA 607 [2003].)

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(d) For the same reason, the President and manager of a corporation who entered into and signed a contract in his official capacity, cannot be made liable thereunder in his in-dividual capacity in the absence of stipulation to that effect. (Rustan Pulp Paper Mills, Inc. vs. Intermediate Appellate Court, 214 SCRA 665 [1992]; see Consolidated Bank and Trust Corporation vs. Court of Appeals, 356 SCRA 671 [2001].) Cor-porate officers cannot be held personally liable for the conse-quences of their acts, for as long as they are for and on behalf of the corporation, within the scope of their authority and in good faith. (Solidbank Corporation vs. Mindanao Ferroalloy Corporation, 463 SCRA 409 [2005]; Price v. Innodata Phils., Inc., 567 SCRA 269 [2008]; Dy-Dumalasa vs. Fernandez, 593 SCRA 656 [2009].)

(e) A corporation is vested by law with a personality separate and distinct from its stockholders, including its officers as well as from that of any other legal entity to which it may be related. Thus, a company manager acting in good faith within the scope of his authority in terminating the services of certain employees cannot be held liable for damages. (Sunio vs. National Labor Relations Commission, 127 SCRA 390 [1984]; Pabalan vs. National Labor Relations Commission, 184 SCRA 495 [1990]; Malayang Samahan ng Manggagawa vs. Ramos, 326 SCRA 428 [2000].) In cases of illegal dismissal, corporate directors and officers are solidarily liable with the corporation, where terminations of employment are done with malice or bad faith. The fictional veil of separate corporate entity may be pierced. (Acesite Corporation vs. National Labor Relations Commission, 449 SCRA 360 [2004]; Perron Corporation vs. National Labor Relations Commission, 505 SCRA 596 [2006].)

(f) The property of the corporation is not the property of the stockholders or members and may not be sold by the stockholders or members without express authorization of its board of directors or trustees. (Woodchild Holdings, Inc. vs. Roxas Election & Construction Company, 436 SCRA 235 [2004]; Sec. 23.) Their interest, if any, is indirect, contingent and inchoate. (Asia's Emerging Dragon Corp. vs. Dept. of Transportation and Communications, 579 SCRA 44 [2008].)

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The separate personality of a corporation is a shield against personal liability of its officers.

(2) Liability when exceptional circumstances warrant. — Personal or solidary liability may be incurred by corporate agents acting in behalf of the corporation only when exceptional circumstances warrant. Thus, it may validly attach when the director/trustee or officer acted maliciously or in bad faith, or with gross negligence (see Sees. 31, 65.), or agreed to hold himself personally and soli-darily liable with the corporation, or made, by specific provision of law, personally liable for corporate action, or it is proven that the officer has used the fiction of separate corporate personality to defraud a third party or for wrongful ends.

There is no law that prohibits a corporate officer from bind-ing himself personally to answer for a corporate debt. (Toh vs. Solid Bank Corporation, 408 SCRA 544 [2003].)

(3) Right to bring actions. — It may incur obligations and bring civil and criminal actions (Art. 46, Civil Code.) in its own name in the same manner as a natural person, although it may not perform certain actions that can be done only by natural per-sons, such as the practice of law or medicine.

(a) A corporation has no personality to bring an action for and in behalf of its stockholders or members for the purpose of recovering property which belongs to said stockholders or members in their personal capacities. (Sulo ng Bayan, Inc. vs. G. Araneta, Inc., 72 SCRA 347 [1976].)

(b) Since it is well-settled that the legality of a seizure can be contested only by the party whose rights had been violated, the right to object to the seizure of papers and documents of the corporation belongs to the corporation as a separate entity and not to its stockholders as such. (Stonehill vs. Diokno, 20 SCRA 383 [1967].)

(c) Whatever mental anguish, wounded feelings, etc. (see Art. 2217, Civil Code.) the stockholders and officers of a corporation may suffer cannot be considered to be equally felt by the corporation, for it is elementary that a corporation is a personality separate and distinct from that of its stockholders and officers. Besmirched reputation cannot cause mental

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anguish to a corporation unlike in the case of a natural person, for a corporation has no reputation in the sense that an individual has, and besides, it is inherently impossible for a corporation to suffer mental anguish, (see The Insular Life Assurance Co., Ltd. vs. Court of Appeals, 428 SCRA 79 [2004]; Rural Bank of Makati, Inc. vs. Municipality of Makati, 433 SCRA 362 [2004].)

(d) A juridical person is not entitled to moral damages because, not being a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish, or moral shock. Mental suffering can be experienced only by one having a nervous system. However, a corporation may have a good reputation which, if debased or besmirched resulting in social humi-liation, may be a ground for recovery of moral damages and attorney's fees. (Mambulao Lumber Co. vs. Phil. National Bank, 22 SCRA 359 [1968]; People vs. Manero, Jr., 218 SCRA 85 [1993]; LBC Express, Inc. vs. Court of Appeals, 236 SCRA 602 [1994]; Acme Shoe, Rubber & Plastic Corp. vs. Court of Appeals, 260 SCRA 714 [1996]; Solid Homes vs. Court of Appeals, 275 SCRA 267 [1997].)

Moral damages include besmirched reputation which a corporation may possibly suffer. (Art. 2217, Civil Code.) A corporation whose credit reputation is not exactly something to be considered sound and wholesome cannot be entitled to a big amount of moral damages. (Asset Privatization Trust vs. Court of Appeals, 300 SCRA 579 [1998].) While courts may allow the grant of moral damages to corporations, there must be proof of the existence of the factual basis of the damage and its causal relation to the defendant's acts. This is so because moral damages through incapable of pecuniary estimation, are in the category of an award designed to compensate the claimant for "actual injury" suffered and not to impose a penalty on the wrongdoer. (Crystal vs. Bank of the Phil. Islands, 572 SCRA 697 [2008].)

(e) For purposes of venue, the place of business of the suing corporation is considered as its residence. The residence of the president is not the residence of the corporation because

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a corporation has a personality separate and distinct from that of its officers and stockholders. (Sy vs. Tyson Enterprises, Inc., 119 SCRA 367 [1982].)

(4) Right to acquire and possess property. — It may acquire and possess property of all kinds. (Art. 46, Civil Code.) Property conveyed to or acquired by the corporation is in law the property of the corporation itself as a distinct legal entity (Art. 44[3], ibid.) and not that of the stockholders or members as such and vice-versa. Where real properties included in the inventory of the estate of a decedent are in the possession of and are registered in the name of the corporation, in the absence of any cogency to shed the veil of corporate fiction (infra.), the presumption of conclusiveness of the titles in favor of the corporation should stand undisturbed. (Lim vs. Court of Appeals, 323 SCRA 102 [2000].)

(a) Stockholders or members are in no legal sense the owners of corporate property (or credits) which is owned by the corporation as a distinct person. (Traders Royal Bank vs. Court of Appeals, 177 SCRA 788 [1989]; Magsaysay-Labrador vs. Court of Appeals, 180 SCRA 266 [1989]; Good Earth Emporium, Inc. vs. Court of Appeals, 194 SCRA 544 [1991].), and may not be sold by them without express authorization from the corporation's board of directors or trustees, (see Sec. 24.)

(b) While a share of stock represents a proportionate interest in the property of the corporation, it does not vest the owner thereof (even assuming that it / h e is the control-ling shareholder) with any legal right or title to any of the properties of the corporation owned by the latter as a distinct juridical person. (Saw vs. Court of Appeals, 195 SCRA 740 [1991]; Silverio, Jr. vs. Filipino Business Consultants, Inc., 466 SCRA 584 [2005].) The ownership of that property is in the corporation and not in the holders of shares of stocks. (Fisher vs. Trinidad, 43 Phil. 973 [1922]; Mobilia Products, Inc. vs. Umezaua, 452 SCRA 736 [2005].)

(c) The interest of shareholders in corporate property is purely inchoate and, therefore, does not entitle them to inter-vene in a litigation involving corporate property. (Ibid.)

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(d) The mere fact that one is president of a corporation does not render the property he owns or possesses the property of the corporation, since the president, as an individual, and the corporation, are separate entities. The power to "pierce the veil of corporate entity" belongs to the court and a sheriff usurps this power when he enforces a writ of execution, not against the property of the corporation, the judgment debtor, but against that of its president on the ground that they are one and the same. (Cruz vs. Dalisay, 152 SCRA 482 [1987]; see Rosario vs. Bascar, Jr., 206 SCRA 678 [1992]; Booc vs. Bantuas, 354 SCRA 279 [2001].)

(e) A tax exemption granted to a corporation cannot be extended to include the dividends paid by such corporation to its stockholders. (Manila Gas Corporation vs. Collector of Internal Revenue, 71 Phil. 513 [1941].)

(f) The agreement of co-shareholders to mutually grant the right of first refusal to each other, by itself does not constitute a violation of the constitutional provision limiting land ownership to Filipinos and Filipino corporations. If the foreign shareholders of a landholding corporation exceeds 40%, it is not the foreign stockholders' ownership which is adversely affected but the capacity of the corporation to own land, i.e., the corporation becomes disqualified to own land. The corporation and its shareholders being separate juridical entities, the right of first refusal over shares pertains to the shareholders whereas the capacity to own land pertains to the corporation. (J.G. Summit Holdings, Inc. vs. Court of Appeals, 450 SCRA 169 [2005].)

(4) Acquisition by court ofjurisdiction. — Where the appearance in court of the president of a corporation was in the capacity of counsel of another corporation and not as representative or counsel of the first corporation, such appearance cannot be construed as a voluntary submission of said corporation to the court's jurisdiction. The personality of the president of a corporation is distinct from that of the corporation itself. In the absence of summons on the corporation, a judgment against it is void for lack of jurisdiction and lack of due process. (Trimica, Inc. vs. Polaris Marketing Corp., 60 SCRA 321 [1974].)

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The participation by the general manager of a corporation in an action involving the corporation cannot equate to partici-pation by another corporation in the same proceedings, merely because the general manager of the first corporation is also the chairman of the board of the second corporation. (Padilla vs. Court of Appeals, 370 SCRA 208 [2001].)

(5) Changes in individual membership. — Likewise, as an entity distinct from its members or stockholders, a corporation remains unchanged and unaffected in its identity by changes in its individual membership. The corporation, as an artificial person, continues to exist as such "in like manner that the River Thames is still the same river though the parts which compose it are changing every instant." (1 Fletcher, pp. 18-19.)

The doctrine of "corporate entity" fills a useful purpose in business life, and whether the purpose be to gain an advantage under the law of the state of incorporation or to avoid, or to comply with the demands of creditors or to serve the creator's personal or undisclosed convenience so long as that purpose is the equivalent of business activity or is followed by the carrying on of business of the corporation, the corporation remains a separate entity. But the doctrine is one of substance and validity (9-A Words and Phrases 385 [1960 ed.].), and courts will, in proper cases, disregarding forms and looking to substance, ignore the legal fiction of corporate entity, (infra.)

Corporation as a p e r s o n , resident, or citizen.

A corporation is regarded as a "person," "resident," or "citi-zen" within the purview of those terms as used in constitutional or statutory provisions, whenever this becomes necessary in order to give full effect to the purpose or spirit of the Constitution or statute. The tendency is to regard corporations, as far as their inherent nature will permit, as on the same footing as ordinary individuals. Consequently, whether corporations are included within a statute depends largely upon its object. (1 Fletcher, Sec. 53.)

(1) As a person. — Persons are divided into natural and arti-ficial persons. The term "person" prima facie includes both and,

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therefore, as a general rule, includes corporations (18 Am. Jur. 2d 568.) but in a figurative sense only.

(a) A corporation has been held to be included by the word "person" in statutes concerning attachment, taxation, usury, insolvency and bankruptcy, limitations, prior notice to bring suit, right to appeal, allowing action of trespass, pro-hibiting the banking business, conferring a cause of action for wrongful death, allowing suit against usurpation of a public office or franchise, allowing a petition to quiet title, and offer-ing public lands for appropriation "by all persons" who enter upon them.

(b) The word "person" has also been deemed to apply to a corporation as used in statutes providing for suit because of the wrongful exercise of a franchise by a "person," punish-ing "any person" employpunish-ing a minor child, and providpunish-ing for a civil action against "any person" unlawfully holding a franchise. Where the word "person" is used in a definition of libel, corporations are included. (1 Fletcher, pp. 70-71.)

(c) A corporation is a "person" within the meaning of Section 1, Article III (Bill of Rights) of the Constitution that "no person shall be deprived of life, liberty or property with-out due process of law" and that it is entitled to the equal protection of the laws in like manner as other persons in the same situation, provided the corporation is "within the juris-diction" of the State the protection of which is demanded.

(d) Insofar as liberty is concerned, however, a private corporation is held not to be a person within the language of the constitutional provision; the liberty guaranteed is the liberty of natural, not artificial, persons. Neither is it a person within the protection of Section 17, Article III of the Consti-tution against self-mcrimination. (18 Am. Jur. 2d 570-571.) Thus, while an individual may lawfully refuse to answer in-criminating questions unless protected by an immunity sta-tute, it does not follow that a corporation, vested with special privileges and franchises, may refuse to show its hand when charged with an abuse of such privileges. (Bataan Shipyard & Engineering Co., Inc. vs. PCGG, 150 SCRA 181 [1987].)

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(e) But a corporation comes within the protection of Section 3 of the same Article insuring the right of the people to be secured in their persons against unreasonable seizures and searches. A corporation is, after all, but an association of individuals under an assumed name and with a distinct legal entity. In organizing itself as a collective body, it waives no constitutional immunities appropriate to such body. Its property cannot be taken without compensation. It can only be proceeded against by due process of law, and is protected against unlawful discrimination. (Bache & Co. [Phils.], Inc. vs. Ruiz, 37 SCRA 823 [1971].)

(2) As a resident or nonresident. — Since a corporation is a per-son in the law, it is also to be deemed a resident or a nonresident of a particular state or country within the meaning of a statute, if it is within the purpose and intent of the statute, as in the case of statutes defining the jurisdiction of the courts, or relating to venue, taxation, etc. (18 C.J.S. 388.)

(a) A corporation formed in one State may be, for certain purposes, domiciled or a resident in another State in which it has its offices and transacts business, notwithstanding the fiction of the law that a corporation dwells only in the State of its creation and cannot migrate therefrom. (18 Am. Jur. 2d 694.) Thus, in a case, it was held that a foreign corporation licensed to do business in the Philippines (see Sec. 123.) is not a nonresident within the meaning of Section 424 (par. 2.) of the Code of Civil Procedure (now Sec. l[f], Rule 57, Rules of Court.) which allows the attachment of the property of the defendant in an action where such defendant "resides out of the Philippines, or on whom summons may be served by publication" as to make its property subject to attachment under said section. (Claude Neon Lights, Inc. vs. Phil. Adver-tising Corp. and Santamaria, 57 Phil. 607 [1932].)

(b) For taxation purposes, a foreign corporation may be either a resident or nonresident, the former referring to a "foreign corporation engaged in trade or business within the Philippines," and the latter, to a "foreign corporation not engaged in trade or business in the Philippines and not

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hav-Sec. 2 TITLE I. GENERAL PROVISIONS

ing any office or place of business therein." (see Sec. 20[h, i], National Internal Revenue Code.)

(3) As a citizen. — "Citizenship" is the status of a citizen with its rights and privileges and corresponding duties and obliga-tions. The term "citizen," as it is commonly understood, implies membership in a political body and, therefore, does not ordinar-ily include a corporation, unless the general purpose and import of the statute in which the term is found seem to require it. (18 Am. Jur. 2d 569.)

(a) There is, however, no absolute and inflexible rule that a corporation cannot be deemed a citizen for certain purposes. (Ibid.) A corporation is a citizen within the meaning of a statute conferring rights, defining the jurisdiction of courts, or otherwise relating to citizens/if the purpose and intent of the statute renders it applicable, and for such purpose it is, as a general rule, a citizen of the State or country by or under the laws of which it was created and exists without regard to the citizenship of its stockholders or members. (18 C.J.S. 388.) (b) "Most often when the term 'citizenship' is used in connection with corporations, it is not used in the sense under Political Law, but more in the sense of indicating the country under whose laws the corporations were organized. In this respect, 'citizen,' as used in connection with corporations, is synonymous with domicile or residence. In fact, our Corporation Law requires that the principal office of the corporation must be located in the Philippines.

However, when the term 'citizenship' is used synony-mously with residence or domicile, said use is for jurisdic-tional purposes only, for a corporation is subject to the juris-diction of the country under whose laws it was organized. Therefore, the citizenship of a corporation is not looked into unless citizenship is an important factor in the determination or the enjoyment of a privilege, exercise of a right or even the legality of a contract entered into by the corporation." (C.G. Alvendia, op. cit., pp. 10-11.)

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Corporation as a collection of individuals.

(1) True in actual fact. — Although the doctrine that a corpo-ration is an artificial entity and a person in law, distinct from the members who compose it, will always be recognized and given effect, both at law and in equity, in cases which are within its reason and when there is no controlling reason against it, it is clear that a corporation is in fact a collection of individuals. In the case of modern private corporations, it is really the individuals composing it who own its property and carry on the corporate business, through the corporation and its officers and agents, for their own profit or benefit.

The idea of the corporation as a legal entity or person apart from its members is a mere fiction of the law introduced for con-venience in conducting the business in this privileged way. (14 C.J.S. 59.) Courts, as a general rule, disregard this theory of sepa-rate entity under certain circumstances, as when the privilege is misused by the corporation. (infra.)

(2) Recognized for many purposes. — This conception of a corporation as a collection of individuals owning the corporate property and doing business through the corporation and in the corporate name has always been recognized for many purposes as between the stockholders or members themselves and as between them and the corporation, in order to enforce and protect their rights. Thus, the stockholders of a corporation are entitled to the profits in the way of dividends and may enforce their rights in this respect. They are entitled to insist that the corporation shall keep within the powers and purposes for which it was formed, and may sue in equity, if necessary, to compel it to do so.

It is not only in cases like these that the law recognizes that a corporation is in reality a collection of individuals and the cor-porate entity a mere fiction, but the fiction also may be and often is disregarded even for the purpose of giving effect to the acts of the stockholders or members individually as the acts of the cor-poration. (18 C.J.S. 379-380.)

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Doctrine of piercing t h e veil of corporate entity.

The doctrine that a corporation is a legal entity or a person in law, distinct from the persons composing it or any other corporation to which it may be related, is merely a legal fiction for purposes of convenience and to subserve the ends of justice. This fiction, therefore, cannot be extended to a point beyond its reason and policy, (see 13 Am. Jur. 2d 559.) Peculiar situations or valid grounds may exist to warrant the disregard of its independent being and the piercing of the corporate veil. (China Banking Corp. vs. Dyne-Semi Electronics Corp., 494 SCRA 493 [2006].)

(1) When legal fiction to be disregarded. — Being a mere crea-ture of the law, a corporation may be allowed to exist solely for lawful purposes but where the fiction of corporate entity is being used as a cloak or cover for fraud or illegality, or "to defeat pub-lic convenience, justify wrong, protect fraud, or defend crime" (Yutivo Sons Hardware Co. vs. Court of Tax Appeals, 1 SCRA 160 [1961].), or for ends subversive of the policy and purpose behind its creation, especially where the corporation is a closed family corporation (Emiliano Cano Enterprises, Inc. vs. Court of Indus-trial Relations, 13 SCRA 290 [1965].), on equitable considerations, this fiction will be disregarded and the individuals composing it or two corporations will be treated as identical.

(a) In other words, the law will not recognize separate corporate existence with reference to the particular transac-tion involved. This non-recognitransac-tion is sometimes referred to as the doctrine of piercing the veil of corporate entity or disregard-ing the fiction of corporate entity (see Claparols vs. Court of In-dustrial Relations, 65 SCRA 613 [1965]; Republic vs. Razon, 20 SCRA 234 [1967]; A.D. Santos, Inc. vs. Vasquez, 22 SCRA 1156 [1968]; Liddel & Co., Inc. vs. Collector, 2 SCRA 632 [1961].) or the doctrine of corporate alter ego. (9-A Words and Phrases 377.) The rationale is to remove the barrier between the corpora-tion from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personal-ity as a shield for undertaking certain proscribed activities. (Velarde vs. Lopez, Inc., 419 SCRA 422 [2003]; Francisco Mo-tors vs. Court of Appeals, 309 SCRA 72 [1999].)

NNU TA6BILARAN

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(b) The doctrine requires the court to see through the pro-tective shroud which exempts its stockholders from liabilities that ordinarily they could be subject to, or distinguishes one corporation from a seemingly separate one, were it not for the existing corporate fiction. (Lim vs. Court of Appeals, 323 SCRA 102 [2000]; Marubeni Corporation vs. Lirag, 362 SCRA 620 [2001].)

(c) Moreover, for the corporate legal entity to be dis-regarded, the wrongdoing must be clearly and convincingly established; it cannot be presumed, (see Del Rosario vs. National Labor Relations Commission, 187 SCRA 777 [1990]; Matuguina Integrated Wood Products, Inc. vs. Court of Appeals, 263 SCRA 490 [1996]; Complex Electronics Employees Assoc. vs. National Labor Relations Commission, 310 SCRA 403 [1999]; Solidbank Corporation vs. Mindanao Ferroalloy Corporation, 464 SCRA 409 [2005]; China Banking Corp. vs. Dyne-Sem Electronics Corp., supra.) The presumption is that the stockholders or officers and the corporation are distinct entities.

(d) The burden of proving otherwise is on the party seek-ing to have the court pierce the veil. (Ramoso vs. Court of Appeals, 347 SCRA 463 [2000]; Land Bank of the Phils, vs. Court of Appeals, 364 SCRA 375 [2001].)

(2) Effect as to liability.—In any of the cases where the separate corporate identity is disregarded, the corporation will be treated merely as an association of persons and the stockholders or members will be considered as the corporation, that is, liability will attach personally or directly to the officers and stockholders (Umali vs. Court of Appeals, 189 SCRA 529 [1990].) or, where there are two corporations, they will be merged into one, the one being merely regarded as the instrumentality, agency, conduit or adjunct of the other. (Koppel [Phils.], Inc. vs. Yatco, 77 Phil. 496 [1946]; Cease vs. Court of Appeals, 93 SCRA 483 [1979].)

(a) In other words, the transactions or acts of the real parties shall be dealt with as though no corporation had been formed. (Republic vs. Sandiganbayan, 266 SCRA 515 [1997].) The corporate character, however, is not necessarily abrogated. The corporation continues for other legitimate objectives. (Pamplona Plantation Co., Inc. vs. Tingkil,

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450 SCRA 421 [2005].) But in the absence of proof that the corporation's separate and distinct personality was used as a protective shield for any wrongdoing, the general rule on corporate liability, not the exception, should be applied. (Soriano vs. Court of Appeals, 174 SCRA 195 [1989]; Bayer-Roxas vs. Court of Appeals, 211 SCRA 470 [1992].) Any piercing of the corporate veil has to be done with caution. (Reynoso IV vs. Court of Appeals, 345 SCRA 335 [2005]; Jardine Davies, Inc. vs. JRB Realty, Inc., 463 SCRA 555 [2005].) (b) And even if fraud is established, this fact alone is not sufficient to justify the piercing of the corporate fiction where it is not sought to hold the officers and stockholders person-ally liable for corporate debt. Thus, where the petitioners are merely seeking the declaration of the nullity of a foreclosure sale, piercing the corporate veil is not the proper remedy, for such relief may be obtained without having to disregard the legal corporate entity, and this is true even if grounds exist to pierce it. (Umali vs. Court of Appeals, supra.)

(3) Application of doctrine in three areas. — The doctrine applies only in three (3) basic areas, namely: 1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.

In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer can-not be made personally liable for corporate liabilities. (Pantianco Employees Assoc. vs. National Labor Relations Commission, 581 SCRA 598 [2009].)

Instances w h e r e doctrine applied.

The question of piercing the corporate veil is essentially a matter of proof.

In the instances given below and in furtherance of the ends of justice to protect the rights of third persons, the courts have

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pierced the veil of corporate entity, considering the corporation and the individual or individuals owning all its stock and assets as identical, or, in the case of two corporations, merging them into one.

(1) Where a corporation functions for the benefit of a single person who has complete control over the funds and the said person is the sole owner thereof. In such case, the corporate entity is but an alter ego or the business conduit of the owner and the property of the corporation may be considered the property of the control-ling individual and may be seized in an action against the latter. (Marvel Bldg. Corp. vs. David, 94 Phil. 376 [1954]; Collector vs. University of Visayas, 12 SCRA 193 [1964]; National Marketing Corporation vs. Associated Finance Company, Inc., 19 SCRA 962 [1967]; Collector vs. Norton & Harrison Co., 11 SCRA 714 [1964]; see Valderrama vs. National Labor Relations Commission, 256 SCRA 466 [1996].)

(2) Similarly, where the transaction was entered into by the President who was also the treasurer and general manager of a close family corporation where the incorporators and directors belong to one single family, the corporation is liable for the contract and it cannot claim that it was entered into without the knowledge and consent of the other members of the board. (M.R. Dulay Enterprises, Inc. vs. Court of Appeals, 225 SCRA 678 [1993]; Camelcraft Corp. vs. National Labor Relations Commission, 186 SCRA 393 [1990].)

(a) The mere fact, however, that a corporation owns 50% of the capital stock of another corporation (Manila Hotel Corp. vs. National Labor Relations Commission, 343 SCRA 1 [2000].), or the mere majority ownership of the stocks of a corporation is not per se a cause for piercing the corporate veils (Republic vs. Sandiganbayan, 346 SCRA 760 [2000].), nor the mere fact that a corporation owns all of the stocks of another corporation, taken alone, sufficient to justify their being treated as one entity. (MR Holdings, Ltd. vs. Bojar, 380 SCRA 617 [2002]; Borromeo vs. Court of Appeals, 550 SCRA 269 [2008].)

(b) Indeed, the mere fact that all or nearly all of the capital stock of one or more corporations are owned and controlled