CORPORATION LAW 2019-2020, 2nd Sem

Atty. Ruben Ladia PJA

CORPORATION
LAW
as lectured by Atty. Ruben Ladia,
with excerpts from his book
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA

DISCLAIMER

The following are the materials used for this work:

1. Lectures and syllabus of Atty. Ruben Ladia; and

2. “The Corporation Code of the Philippines (Annotated) with the Securities
Regulation Code (R.A. 8799) and Presidential Decree No. 902-A, 3rd Edition”
(2015) by Atty. Ruben Ladia

Some of the contents of the above have been paraphrased and questions propounded differently in
order to tailor the author’s learning method.

Answers to some questions are likewise tailored to the personal preference of the author (e.g.
answers to midterm examination questions and bar questions)

I do not guaranty the absolute correctness of this work due to human errors and failure to
understand the question or concept perfectly. I apologize in advance for any error you may
encounter in this work.

However, please see to it that the error is an opportunity to learn, as Dean Jose Sundiang puts it
“The beauty of an error is to correct it, and not to perpetuate it.”
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA

TABLE OF CONTENTS
CHAPTER I: INTRODUCTION ……………………………………………………. 14
GENERALLY …………………………………………………………………………….
HISTORICAL BACKGROUND ……………………………………………………….
What are the laws which governed corporations? ………………………………… ……..
What governs business organizations? …………………………………………… ……..
KINDS OF BUSINESS ORGANIZATION …………………………………………
Sole Proprietorship …………………………………………………………………..
Advantages ………………………………………………………………………………
Disadvantages ……………………………………………………………………………
Sole proprietorship v. Corporation ……………………………………………………….
Partnership …………………………………………………………………………….
Must a partnership be express in order to be considered as such? …………………………
What is the basis of the personal relationship in a contract of partnership? ……………….
Grounds for dissolution …………………………………………………………………..
Can a corporation enter into a partnership? ………………………………………………
Partnership v. Corporation ………………………………………………………………..
Joint Venture ………………………………………………………………………….
Example of a joint venture ………………………………………………………………
Joint venture v. Partnership ……………………………………………………………..

CHAPTER II: DEFINITION AND ATTRIBUTES ………………………………. 16

DEFINITION ………………………….…………………………………………………16
ATTRIBUTES ……………………….……………………………………………………16
Artificial being ………………………………………………………………………… 16
Created by operation of law …………………………………………………………..
Right of succession …………………………………………………………………..
Powers, attributes, and properties expressly authorized by law
or incident to its existence ……………………………………………………………….
Can corporations be awarded moral damages in cases of libel, slander, or defamation? …
ADVANTAGES AND DISADVANTAGES OF THE CORPORATE FORM ……..
Advantages ……………………………………………………………………………..
Example of advantage of feasibility of greater undertaking …………………………………
Can the incorporators be held liable for damages to creditors of the corporation? …………
How may the stockholders be made liable in the above problem? ………………………….
Disadvantages …………………………………………………………………………
GOVERNMENT POWERS IN RELATION TO CORPORATIONS …………….

CHAPTER III: CLASSIFICATION OF CORPORATION ………………………….. 22

STOCK CORPORATIONS ………………………………………………………………22
Definition ………………………………………………………………………………..
Requisites ………………………………………………………………………………..
Shares v. dividends/ allotments ………………………………………………………..
NON-STOCK CORPORATIONS ……………………………………………………… 22
Definition ………………………………………………………………………………… 22
Purpose ………………………………………………………………………………….
Is it absolute that they cannot engage to profit generating operations? …………………..
In the instance that there is profit, can they now distribute it? ……………………………
What if there is a capital divided into shares but no dividends are distributed? …………..
CIR v. Club Filipino, Inc. De Cebu ……………………………………………………..
CORPORATIONS CREATED BY SPECIAL LAW OR CHARTER ………………..
Manner of Creation ……………………………………………………………………..
Is registration with the SEC necessary in order for them
to be considered as a corporation? ……………………………………………………….
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What governs GOCCs? ………………………………………………………………….
Rule as to suitability ……………………………………………………………………..
Examples ……………………………………………………………………………..
Governing law as to officers and employees ……………………………………………
Test in determining governing law on employees ………………………………………
PNOC-EDC v. NLRC …………………………………………………………………
OTHER CLASSES OF CORPORATIONS ………………………………………….
Public and Private Corporations ……………………………………………………
Public corporations …………………………………………………………………….
Private corporations …………………………………………………………………….
True test to determine private or public corporation ………………………………….
Examples of purposes NOT political or governmental in nature …………………….
National Coal Corporation v. CIR ……………………………………………………..
Ecclesiastical and Lay Corporations …………………………………………………
Ecclesiastical or Religious corporations ………………………………………………
Lay corporation ………………………………………………………………………….
Eleemosynary ……………………………………………………………………………..
Civil ………………………………………………………………………………………
Aggregate and Sole Corporations …………………………………………………..
Aggregate corporations …………………………………………………………………..
Corporation sole …………………………………………………………………………
One Person Corporation (OPC) …………………………………………………………
Definition …………………………………………………………………………….
Who may organize an OPC? ………………………………………………………….
Can a juridical person form an OPC? …………………………………………………
What cannot be OPCs? ………………………………………………………………
Can exercise of profession be an OPC? ……………………………………………….
Close and Open Corporations ……………………………………………………….
Close corporations ………………………………………………………………………
Requisites ………………………………………………………………………………
In the AOI of X corporation, 19 stockholders were specified.
Y was then invited to be a stockholder. Can Y do so? …………………………………
Maximum number of stockholders ……………………………………………………
Are all shares of stocks required to be held
by not more than twenty (20) stockholders? ……………………………………………
Role of shareholders ……………………………………………………………………
Corporation NOT a close corporation holding at least two-thirds (2/3)
of close corporation’s voting stock/rights ……………………………………………..
What corporations may be close corporations? ………………………………………..
Domestic and Foreign Corporations …………………………………………………
Definition …………………………………………………………………………………
Misnomer as to foreign corporation’s definition ……………………………………………
When may a foreign corporation transact business in the Philippines? ……………………..
Parent or Holding Companies and Subsidiaries and Affiliates ………………………
Parent or holding company ………………………………………………………………
Controlling interest ………………………………………………………………………
Parent/holding companies v. investment companies …………………………………….
Subsidiaries ………………………………………………………………………………
Ayala Corp. owns shares of stock amounting to 56% in BPI, 52% in Globe,
and 58% in Ayala Land. What are the relationships of the above corporations? …………
Consider in the above problem, a cause of action arises against Ayala Land.
May the plaintiffs file against Ayala Corp.? ………………………………………………
Affiliates …………………………………………………………………………………..
Coca-Cola bottlers has shares of stock amounting to 48% in A, 32% in B,
and 25% in C. What is the relationship of the above corporations? ……………………
Quasi-public Corporations ……………………………………………………………
Quasi Corporations ……………………………………………………………………
Do they possess all general powers of the corporation? ……………………………………
De Jure Corporations ………………………………………………………………….
Defective Corporations ……………………………………………………………….
De Facto Corporations ………………………………………………………………..
Corporation by estoppel ………………………………………………………………..
What is the liability of those who represented themselves as a corporation?t ………….
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
CHAPTER IV: FORMATION AND
ORGANIZATION OF CORPORATION……………………………………………. 29
Stages in the life of a corporation …………………………………………………………....29
PROMOTIONAL STAGE ……………………………………………………………… 30
Who brings the persons to unite in forming a corporation? ………………………………… 30
Under whose name does the promoter enter into a contract with? ……………………….
If the corporation is subsequently organized,
who may be liable by virtue of said contracts? ……………………………………………
How then, may corporations make such contracts its own? ……………………………..
In case the corporation indeed made the contract its own by any of the above,
is the promoter not liable anymore? ………………………………………………………
Considering the above, what are the options available to the
promoter in order to avoid liability? ……………………………………………………….
PROCESS OF INCORPORATION …………………………………………………….
Things considered in drafting AOI ………………………………………………………
Considering the requirements of nationalization,
where a public utility corporation requires 60/40 ratio,
what would you advise? Can their intent be met? ………………………………………….
Contents of the AOI ……………………………………………………………………..
Contents in accordance to RCC ………………………………………………………….
According to the RCC, may an arbitration agreement be provided? ……………………..
Can the AOI or application for amendments be file via electronic document? …………..
Format of AOI …………………………………………………………………………..
THE PREFATORY PARAGRAPH ……………………………………………………..
THE CORPORATE NAME …………………………………………………………….
Purpose ………………………………………………………………………………….
After the corporation is formed, can it use another name
other than the name stated in the AOI? …………………………………………………
Verification slip …………………………………………………………………………
Guidelines ……………………………………………………………………………….
Why cannot a corporation assume a trade name? ……………………………………….
Red Line Transportation Co. v. Rural Transit Co. …………………………………..
Can the inclusion of two other words sufficient to
warrant a difference in corporate names? ……………………………………………….
Universal Mills Corp. v. Universal Textile Mills, Inc. ……………………………..
Will the addition of geographical locations result to avoiding confusion? ………………
Lyceum of the Philippines v. CA …………………………………………………….
Doctrine of Secondary Meaning ………………………………………………………….
Consider a foreign corporation, who NEVER did business in the Philippines
NOR registered a corporate name or its goodwill,
will the protection of Sec. 18 apply? ……………………………………………………..
Philips Export B.V., et al., v. CA …………………………………………………..
What if in the above case, Standard instead applied for the name of
Standard Philips Sausages, where the latter engages in food production,
would the SEC allow its registration? ……………………………………………………
What is issued if the name has been changed? ……………………………………………
Will a name change affect the rights and liabilities of the corporation? ……………………
PURPOSE CLAUSE ……………………………………………………………………..
Three-fold importance of the purpose clause …………………………………………….
Limitations ……………………………………………………………………………….
What if the corporate name contradicts the above limitations? …………………………..
Is there a limit the number of purposes? …………………………………………………
PRINCIPAL OFFICE ……………………………………………………………………
Is the statement of the province sufficient? ……………………………………………….
Is there a need to state the location of the business operations? …………………………
Clavecilla Radio System v. Antillon ……………………………………………………
Considering the provision of Sec. 51/50, CC/RCC on meetings
allowing to hold meetings in any city within Metro Manila, Cebu, or Davao,
may the filing of an action be instituted in any city in Manila? ……………………………
What is the basis actions being filed in the place of residence? …………………………...
TERM OF EXISTENCE ………………………………………………………………
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Atty. Ruben Ladia PJA
Rule as to term of existence ………………………………………………………………
THE INCORPORATORS ……………………………………………………………….
Who may be incorporators? ……………………………………………………………..
Is there a minimum count of incorporators required? ……………………………………
Can it be 1, 2, 3, or 4 incorporator/s? ……………………………………………………
Qualification ………………………………………………………………………………
Citizenship and residency requirement …………………………………………………….
Practice of profession ……………………………………………………………………
One Person Corporation (OPC) …………………………………………………………
Can OPCs be organized for an exercise of profession? ……………………………………..
THE DIRECTORS/TRUSTEES ……………………………………………………….
Rule as to number of directors or trustees ………………………………………………
Can the number of director/s be 1, 2, 3, 4, or 5? ………………………………………..
Exceptions ……………………………………………………………………………….
Minimum qualification and disqualification ………………………………………………
Can the corporation add any other qualification or disqualification? …………………….
Can aliens be directors? …………………………………………………………………
Rule as to corporations engaged in development and utilization of natural resources ……
What law is violated if more than 40% is owned by foreigners in a
corporation engaged in development and utilization of natural resources? ………………
Independent directors …………………………………………………………………
When is an independent director mandatory? ………………………………………………
How are independent directors elected? ……………………………………………………
Voting in absentia of independent director …………………………………………………
CAPITALIZATION …………………………………………………………………….
Authorized capital stock (ACS) …………………………………………………………
Is it required to indicated in the AOI? …………………………………………………..
Minimum required ……………………………………………………………………...
Subscribed capital stock (SCS) ………………………………………………………….
Is there a required minimum SCS? ………………………………………………………
Paid-up/in capital stock (PCS) ………………………………………………………….
Is there a required minimum PCS? ……………………………………………………..
Outstanding Capital Stock (OCS) ……………………………………………………….
Are treasury shares included in the OCS? ……………………………………………….
Considerations for Stocks ……………………………………………………………….
Can promissory notes be a consideration for a stock? …………………………………..
Can future service be a consideration for a stock?t …………………………………….
Must it be payment through only one of the permitted considerations? ………………..
Example …………………………………………………………………………………………..
SHARES OF STOCK AND THEIR CLASSIFICATION …………………………
Shares of stock (SoS) ……………………………………………………………………….
SoS v. Certificate of Stock (CoS) ……………………………………………………………
CLASSIFICATION OF SHARES ……………………………………………………..
Purpose of classification ………………………………………………………………..
Rule as to equality of shares …………………………………………………………..
Examples of presumption of equality ………………………………………………….
X owns 1m par value shares valued at Php100/share,
while Y owns 1m no par value shares valued at Php10/share.
Who among them has more advantage? …………………………………………………
COMMON STOCKS ………………………………………………………………….
Can common shares be denied voting rights? …………………………………………
PREFERRED STOCKS (PS > CS) …………………………………………………..
Requisites of PS ……………………………………………………………..
Kinds of preferred shares ………………………………………………………….
As to dividends …………………………………………………………
Is the preference absolute as to create
the relationship of debtor and creditor
between the corporation and the preferred stockholder? ……….
What if in the above situation, indeed, there are profits,
would your answer be the same? ………………………………
X, is a preferred stockholder as to Php100,000.
Assume that the BoD declared dividends amounting to
Php500,000. How much can X receive? ………………………..
X, is a preferred stockholder as to Php100,000.
Assume that the BoD declared dividends amounting
to Php100,000. How much can X receive? …………………….
In the above problem, how much may
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
the other stockholders receive? ………………………………..
That the other stockholders received nothing from the
dividends, what is their recourse? …………………………………
Reasonable implication in preferred shareholder as to dividends …
How then can the preferred shareholder may be distributed
with dividends aside from his preference? ………………………..
Participating preferred shares ………………………………..
X, is a participating preferred stockholder as to
Php100,000. Assume that the BoD declared
dividends amounting to Php500,000.
How much can X receive? …………………………….
Cumulative preferred shares ………………………………….
Do cumulative preferred shareholders lose their
right to claim dividends for years that they
were not declared or paid? ……………………………
How cumulative preferred shares paid ……………….
Presumption as to cumulative or
non-cumulative in case of no stipulation …………….
Non-cumulative preferred shares …………………………….
Advantage of non-cumulative preferred shares ……..
Principal types of non-cumulative preferred shares ….
Discretionary dividend …………………………….
Rule as to payment of dividends
to non-cumulative preferred shareholders
in subsequent years ……………………..
Mandatory if earned ……………………………….
Earned cumulative or dividend credit type …….
How payment made to earned cumulative
or dividend credit shareholders ………….
Definition as to kinds of preferred shares as to dividends ….
Definition as to kinds of non-cumulative preferred shares …
Example ………………………………………………………..
Cumulative v. earned cumulative share ……………………..
PAR AND NON-PAR VALUE SHARES ………………………………………………
Par value shares ……………………………………………………………………..
Primary function ………………………………………………………….
Is the par value stated in the AoI or the CoS the true value of the shares? ……
Is the par value stated in the AoI or the CoS the fair market value? ………….
True/Book value ……………………………………………………………..
Can par value shares be issued/sold at less than the par? …………………….
Watered stocks ………………………………………………………………
Liability of shareholders of watered stocks ……………………………………
No par value shares …………………………………………………………………….
Where may be fixed ………………………………………………………….
Does no par value shares represent stated proportionate
interest in the capital stock measured by value? ……………………………..
Limitations to issuance of no par value shares ……………………………….
Advantages of no par value shares …………………………………………..
VOTING AND NON-VOTING SHARES ……………………………………………..
Voting shares …………………………………………………………………………..
Non-voting shares …………………………………………………………………….
Which shares can be non-voting shares? ……………………………………..
Can all shares be non-voting? ………………………………………………
Exceptions to non-voting restrictions ……………………………………….
XYZ Corporation has an OCS of 1 million shares,
where 800k are voting while 200k are non-voting.
In case of voting for directors, what is the basis of majority? ………………
XYZ Corporation has an OCS of 1 million shares,
where 800k are voting while 200k are non-voting.
In case of voting for a merger with ZYX corporation,
what is the basis of majority? ……………………………………………….
FOUNDERS‟ SHARES ………………………………………………………………….
Right to elect and be elected as BoD …………………………………………………….
What happens after the lapse of five (5) years? …………………………………………..
Rule as to beginning of limited period as to right to elect or be elected …………………
Can the five (5) year period be extended? ………………………………………………
Instances when the right to elect and be elected cannot be given ……………………….
REDEEMABLE SHARES (RS) …………………………………………………………
Kinds of RS …………………………………………………………………………….
“Regardless of the existence of unrestricted earnings” …………………………………
TREASURY SHARES …………………………………………………………………..
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Can treasury shares be reissued? ………………………………………………………..
Can the treasury share be reissued for less than the issuance price? …………………….
In the above situation, will the purchaser be liable to the creditors
of the corporation for the difference between
the purchase price and the par value? ………………………………………………….
Effect of treasury shares in the hands of the corporation ……………………………..
Can treasury shares be declared as dividends? ………………………………………..
CIR v. Manning ……………………………………………………………………….
CAPITAL REQUIREMENT ……………………………………………………..
Rule as to minimum capital required ……………………………………………………….
“…subject to the provisions of the following section” under the Corporation Code ………
Amount of subscribed and paid-up capital ………………………………………………….
RESTRICTIONS AND PREFERENCES ON TRANSFER OF SHARES ……..
Importance of restrictions and preferences …………………………………………………
Example of importance …………………………………………………………………….
Rule as to providing restrictions and preferences ………………………………………….
Are they prohibited to provide restrictions and preferences? ……………………………….
Where should restrictions and preferences indicated? ………………………………………
What is the effect if it is only indicated in one, but not in both? ……………………………
What is the effect if it is indicated in both AoI and CoS? …………………………………..
In close corporations, where should the restrictions and preferences appear? ………………
What is the effect if the restriction and preference in a close corporation
does not appear in any one of the above? ………………………………………………….
THE NO TRANSFER CLAUSE ……………………………………………………
Rule as to inclusion of no transfer clause …………………………………………………..
THE TREASURER …………………………………………………………………..
Tenure of interim treasurer ………………………………………………………………..
Duty of interim treasurer ………………………………………………………………….
Authorities of interim treasurer ……………………………………………………………
THE EXECUTION CLAUSE ………………………………………………………
Purpose ……………………………………………………………………………………
ACKNOWLEDGMENT ……………………………………………………………..
GROUNDS FOR DISAPPROVAL ………………………………………………….
Kind of compliance required for approval of AoI ………………………………………….
Effect if substantial compliance is not met …………………………………………………
Grounds for disapproval …………………………………………………………………..
Are the above grounds exclusive? ………………………………………………………….
Examples of other grounds ………………………………………………………………..
What happens if the SEC found the AoI substantially compliant? ………………………..
Effect after issuance of CoI ……………………………………………………………….
COMMENCEMENT OF CORPORATE EXISTENCE …………………………….
When will a corporation commence to exist? …………………………………………..
Cagayan Fishing Development Co. v. Sandiko ………………………………………….
DEFECTIVELY FORMED CORPORATIONS ………………………………………
DE FACTO CORPORATIONS ………………………………………………………
Requisites …………………………………………………………………………………..
De facto v. de jure corporations …………………………………………………………….
Purpose of recognizing existence of de facto corporations …………………………………
Can a corporation organized by virtue of a statute
which was subsequently deemed void and unconstitutional
be deemed as within the ambit of an “apparently valid statute”? ……………………………
Municipality of Malabang v. Benito, et al. …………………………………
Pending the approval of the AoI, is quo warranto needed
to question the existence of a corporation? …………………………………………………
Hall v. Piccio …………………………………………………………………
CORPORATION BY ESTOPPEL …………………………………………………..
Requisites ………………………………………………………………………………….
Effect of acting as such ……………………………………………………………………
Practical application of the doctrine ……………………………………………………….
General partners …………………………………………………………………………..
By estoppel v. de facto …………………………………………………………………….
Basis ……………………………………………………………………………………….
Purpose ……………………………………………………………………………………
Who cannot deny corporate existence? ……………………………………………………..
Is it sufficient that the member or agent of the association is positioned as such
in order for the denial be unavailable? ……………………………………………………..
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Atty. Ruben Ladia PJA
Application against third parties ……………………………………………………………
When doctrine not available ……………………………………………………………….
Lozano v. De los Santos …………………………………………………………………
Albert v. University Publishing, Co. …………………………………………………….
Salvatierra v. Garlitos et al. ……………………………………………………………….
Chiang Kai Shek School v. CA ……………………………………………………………
Asia Banking Corp v. Standard Products Co., Inc………………………………………
International Travel and Tours Services, Inc. v. CA ……………………………………
Georg Grotjahn GMBH & Co. v. Isnani ……………………………………………….
Summary of rules as to applicability of doctrine of estoppel as to third parties …………….
Possible remedies available for 3rd parties who entered into a
contract with the ostensible corporation …………………………………………………….
Should all partners be held liable as general partners? ……………………………………….
ORGANIZATION AND COMMENCEMENT OF BUSINESS ……………………..
CORPORATE ORGANIZATION ……………………………………………………
What should the corporation do after the issuance
of the CoI or certificate of registration? ……………………………………………………..
What if the corporation did not do the above? ……………………………………………..
Automatic dissolution …………………………………………………………………….
XYZ corporation was issued its CoI on 27 January 2015.
However, it did not formally organized nor commenced
its business within five (5) years. When is the CoI deemed revoked? …………………….
Rule as to automatic dissolution …………………………………………………………
Delinquent corporation …………………………………………………………………..
Remedy of delinquent corporation ………………………………………………………
What happens if the delinquent corporation fails to resume operations
and/or comply with requirements within two (2) years? …………………………………
Requirement before suspension or revocation of CoI of corporations
under special regulatory jurisdictions ……………………………………………………
Summary of dissolutions …………………………………………………………………..
Formal organization ……………………………………………………………………….
What kind of compliance should be observed in formally organizing the corporation? ……
XYZ corporation, has already been issued its CoI.
Hence, it already elected the BoD, and the latter elected a treasurer and a clerk.
However, a president and secretary has not been elected. May the CoI be dissolved? ………
COMMENCEMENT OF BUSINESS/ TRANSACTION …………………………
Example of commencement of business ……………………………………………………
When should the corporation commence its business? ……………………………………..
Effect of non-commencement ……………………………………………………………..
Perez v. Paunlad ………………………………………………………………………….

CHAPTER V: THE CORPORATE CHARTER AND ITS AMENDMENTS ……. 35

CORPORATE CHARTER ……………………………………………………………… 35
Three-fold contract ……………………………………………………………………... 37
Charter v. franchise ……………………………………………………………………..
Kinds of franchise ………………………………………………………………………
Example of primary and secondary franchises …………………………………………..
CORPORATE ENTITY THEORY …………………………………………………….
Is the property of the corporation deemed the property of the president? ………………
Sulo ng Bayan, Inc. v. Gregorio Araneta, Inc. ………………………………………..
Fermin Caram, Jr. and Rosa De Caram v. CA and Alberto Arellano ……………….
Rustan Pulp and Paper Mills, Inc. v. IAC ……………………………………………
Cruz v. Dalisay …………………………………………………………………………
Palay, Inc. v. Clave …………………………………………………………………….
Soriano, et al. v. CA and Cu …………………………………………………………..
PIERCING THE VEIL OF CORPORATE FICTION ……………………………….
Applicability of corporate entity theory …………………………………………………..
Subject to equitable limitations …………………………………………………………..
Grounds …………………………………………………………………………………
Effect of any of the above ………………………………………………………………
International Academy of Management and Economics v. Litton and Co., Inc. …
Kinds of piercing ………………………………………………………………………….
Traditional v. Reverse piercing ……………………………………………………………
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Outsider v. insider reverse piercing ………………………………………………………….
What is the kind of piercing employed in IAME v. Litton? …………………………………
Palacio v. Fely Transportation, Co. ……………………………………………………
Marvel Building Corporation, et al. v. David …………………………………………
Yutivo and Sons, Co. v. CTAX …………………………………………………………
CIR v. Norton and Harrison, Co. ……………………………………………………..
La Campana Coffee Factory, Inc. v. Kaisahan Ng Mga Manggagawa
sa La Campana …………………………………………………………………………
Emilio Cano Enterprises, Inc. v. Court of Industrial Relations …………………….
Telephone Engineering, Co. v. Workmen‟s Compensation Commission …………..
Claparols v. Court of Industrial Relations ……………………………………………
National Federation of Labor Union v. Ople ………………………………………..
A.C. Ransom Labor Union-CCLU v. NLRC …………………………………………
Concept Builders Inc. v. NLRC ……………………………………………………….
Probative factors ……………………………………………………………………………
Test to determine the applicability of piercing ………………………………………………
What is the effect if one of the elements of the test is absent? …………………………..
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
CHAPTER 1: INTRODUCTION 2. Act 1459 or the Corporation Law
(1906)
GENERALLY 3. BP 68 or the Corporation Code of the
Philippines (1 May 1980)
Corporations play a large role in
economic development of nations, as Q: What governs business organizations?
it provides for a smooth framework of
economic transactions and 1. Constitution;
employment opportunities for the 2. Corporation Code;
masses. 3. Civil Code; and
4. Other special laws
HISTORICAL BACKGROUND
KINDS OF BUSINESS
In general, the concept of a ORGANIZATION
corporation started in England and
Rome 1. Sole proprietorship;
2. Partnership;
In the Philippines, the concept started 3. Joint venture; and
as the sociedad anonimas under the 4. Corporation
Spanish Law, specifically through the
Code of Commerce, which is similar Sole Proprietorship
to the concept of American
corporations akin to English joint It is a one-man form of business
stock companies with features entity, conducted for profit by a lone
resembling the partnership and or single individual who:
corporation of today.
1. Owns all assets;
During the American regime, the 2. Personally owes and answers
Philippine Commission passed the all liabilities or suffers all
Corporation Law (Act 1459), which losses; and
aimed to replace the sociedad anonimas, 3. Enjoys all profits to the
under the following choices: exclusion of others

1. To continue; or Advantages
2. Reorganize as corporations
1. Eliminates bureaucratic process (e.g.
In either case, the Corporation Law no need to obtain authority from the
shall govern. board of directors)
2. Can act without delay as proprietor
Finally, Batas Pambansa 68 was makes his own decision without any
approved, to be known as the need for formal requirements (e.g. no
Corporation Code of the Philippines need for board meetings
3. Owning profits, without anyone to
Q: What are the laws which governed share it with
corporations?
Disadvantages
1. Code of Commerce of Spain (1888)

1|Page
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
1. Unlimited personal liability (e.g. It is based on mutual trust and
personal properties are not exempt confidence.
from liability)
2. Limited capital, resources, or credit Grounds for dissolution
facility
As it is based on mutual confidence
SOLE PROPRIETORSHIP and trust, the following are grounds
Advantages Disadvantages for its dissolution:
Eliminates bureaucratic Unlimited personal
process liability
1. Death;
Can act without delay as Limited capital, resources, 2. Incapacity;
proprietor makes his own or credit facility 3. Insolvency;
decision 4. Civil interdiction; or
5. Withdrawal of one parties
Owning profits, without
anyone to share it with
Q: Can a corporation enter into a
Sole proprietorship v. Corporation partnership?

Sole Corporation As a general rule, no, as the identity

Proprietorship of the corporation is lost or merged in
Liability Unlimited Shared by all entering into a partnership, hence it
investors in may happen that the control of the
proportion to corporation ends up in the hands of
the subscription
or promised persons not authorized by law to
contribution manage such corporation.

Capital Limited Wide extent of However, as an exception, the

sources Securities and Exchange Commission
(SEC), allowed corporations to enter
Partnership if the following conditions are met:

Art. 1767. By the contract of partnership two 1. The articles of incorporation

or more persons bind themselves to (AOI) expressly authorized the
contribute money, property, or industry to a corporation to enter into
common fund, with the intention of dividing contracts of partnership;
the profits among themselves.
2. The agreement or articles of
Two or more persons may also form a partnership (AOP) must
partnership for the exercise of profession. provide that all the partners
will manage the partnership;
Q: Must a partnership be express in order and
to be considered as such?
3. The AOP must stipulate that
No, it may be implied as well all the partners are and shall be
jointly and severally liable for
Q: What is the basis of the personal all obligations of the
relationship in a contract of partnership? partnership.
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Partnership v. Corporation agreement ALLOWED, as
State’s consent is
necessary
Partnership Corporation
Creation Agreement of By law or
parties operation of law Joint Venture
Who may Two (2) or more GR: At least five
organize? natural persons. (5) incorporators
It is akin to a partnership, a one-time
grouping of two or more persons
ER: Corporation created for a particular business
sole
transaction.
Powers and ANYTHING not ONLY THOSE
functions contrary to law, expressly Example of a joint venture
morals, good authorized by law;
customs, public or
order, or public The LRT-MRT project
policy Incidental to its
existence
Joint venture v. Partnership
Transacting GR: Any one of GR: Through
business the partners, board of directors Joint venture Partnership
binds the Continuing NONE GR: HAS
partnership ER: Validly relationship
delegated ER: Particular or
ER: Agreement universal
to the contrary
Personality NOT distinct HAS personality
Right of NONE HAS such right from persons distinct from
succession composing it partners
As it based on
mutual confidence Object Particular GR: General
and trust undertaking business of
particular kind
Necessity of CANNOT CAN transfer
consent in transfer without without consent ER: Single
transfer of the consent of the of other transaction
shares/ rights/ other partners. stockholders
interests Corporations CAN GR: No
As in effect, the In effect, the entering into
transferee transferee is ER: If the
becomes a partner named as a following
if allowed shareholder conditions are
met:
Extent of GR: All partners Limited only to
liability are liable pro rata the extent of AOI allowed
with their own subscription or corporation;
property after promised
partnership contribution (AOP) provides
property has been that all partners
exhausted shall manage the
partnership; and
ER: Limited
partner AOP states that
all partners shall
Existence GR: Fifty (50) Indefinite period, be jointly and
years subject to grounds severally liable as
for dissolution to the partnership
ER: Extended by
amendment

Dissolution via NOT ALLOWED

CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
CHAPTER II: DEFINITION AND accordance to what the State has
ATTRIBUTES granted to it.

DEFINITION Q: Can corporations be awarded moral

damages in cases of libel, slander, or
Sec. 2. Corporation defined; defamation?
A corporation is an artificial being created by
operation of law, having the right of Yes, a corporation may be awarded
succession and the powers, attributes, and moral damages as Art. 2219 of the
properties, expressly authorized by law or Civil Code does not qualify the
incidental to its existence. persons who may claim, whether
natural or juridical.
ATTRIBUTES
In the case of Filipinas Broadcasting
1. Artificial being; Network v. Ago Medical and Educational
2. Created by operation of law; Center and MERALCO v. T.E.A.M.
3. Right of succession; and Electronics Corp., the Court held that
4. Powers, attributes, and properties moral damages may be awarded in
expressly authorized by law or case a corporation is humiliated.
incident/al to its existence
Hence, the rulings in the case of
Artificial being Tamayo and LBC, disallowing award of
moral damages to corporations, is no
A corporation has a personality longer the prevailing ruling.
distinct and separate from the persons
composing it ADVANTAGES AND
DISADVANTAGES OF THE
Created by operation of law CORPORATE FORM

The State’s consent is needed in order Advantages

for it to exist, after complying with the
requirements imposed 1. Capacity to act as a single unit
2. Limited shareholder’s liability
3. Continuity of existence
Right of succession 4. Feasibility of greater undertaking
5. Transferability of shares
It continues to exist as such despite 6. Centralized management
the change in the members thereof, be 7. Standardization method of
it death, retirement, etc. organization, management and finance

Powers, attributes, and properties Example of advantage of feasibility of

expressly authorized by law or incident to greater undertaking
its existence
Jollibee, without being incorporated
Corporations can only exercise or cannot undertake expansion to other
acquire such of the above in places within and outside the
Philippines
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Q: Henry Sy, Lucio Tan, John ownership, and inaccessibility of the
Gokongwei, Zobel de Ayala, and Rustan, place of meeting;
each contributed and fully paid 7. Double taxation on corporate income;
Php20,000,000 each, amounting to and
Php100,000,000 in a corporation which 8. Being subject to governmental
they incorporated. regulations, supervision, and control
(e.g. reportorial requirements NOT
The investment was used to lease a land imposed in other business form)
in BGC for the construction of a condo.
However, the Big Bang occurred. Can the GOVERNMENT POWERS IN
incorporators be held liable for damages RELATION TO CORPORATIONS
to creditors of the corporation?
Sec.184. Effect of amendment or Repeal of
No, as the corporation will be held This Code, or the Dissolution of a
liable for such, as the stockholders are Corporation;
only liable to the extent of their No right or remedy in favor of or against any
subscription. corporation, its stockholders, members,
directors, trustees, or officers, nor any liability
In this case, the incorporators have incurred by any such corporation,
already fully paid their subscription, stockholders, members, directors, trustees, or
hence the creditors have no action as officers, shall be removed or impaired either
against them. by the subsequent amendment or repeal of
this Code or of any part thereof.
Q: How may the stockholders be made
liable in the above problem? The above provision provides for the
protection accorded to Corporations,
If said stockholders guaranteed the in accordance to the Supreme Law of
obligations the Land, which includes:

Disadvantages a) Due process clause; and

b) Equal protection clause
1. Formal proceedings to have a valid
and corporate act (e.g. board
meetings)
2. Limited jurisdiction, as it can only act
within the State granting it authority;
3. Limit of credit available to the
corporation, due to limited liability of
shareholders;
4. Unity of incompatible and conflicting
interests, as the shares of stock are
personal properties which may be
transferred at will;
5. Minority stockholders has no say in
the conduct of corporate affairs;
6. Stockholder’s voting rights may
become merely fictitious because of
disinterest in management, wide-scale
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
CHAPTER III: CLASSIFICATION OF From the foregoing, the requisites to
CORPORATION be classified as such are as follows:

1. Stock corporations 1. Capital stock divided into

2. Non-stock corporations shares;
3. Created by special law/charter 2. Authority to distribute
4. Public corporations dividends or allotments as
5. Private corporations surplus profits to its
6. Ecclesiastical/religious corporation stockholders on the basis of
a. Religious societies the shares held by each
b. Corporation sole
7. Lay corporation Shares v. dividends/ allotments
a. Eleemosynary
b. Civil Shares, are the divided capital, that is
8. Aggregate corporation held by shareholders
9. Sole corporation
10. One Person Corporation Dividends/allotments are those
11. Close corporation which are distributed as surplus
12. Open corporation profits on the basis of the shares held
13. Domestic corporation by the holder.
14. Foreign corporation
15. Parent/holding companies NON-STOCK CORPORATIONS
16. Subsidiaries
17. Affiliates Definition
18. Quasi-public
19. Quasi corporation Sec.86. Definition;
20. De jure corporations For purposes of this Code and subject to its
21. De facto corporations provisions on dissolution, a non-stock
22. Corporation by estoppel corporation is one where no part of its
income is distributable as dividends to its
STOCK CORPORATIONS members, trustees, or officers: Provided, that
any profit which a non-stock corporation may
Definition obtain as an incidental to its operation shall,
whenever necessary or proper, be used for the
Sec.3. Classes of corporations; furtherance of the purpose or purposes for
Corporations formed or organized under this which the corporation was organized, subject
Code may be stock or non-stock to the provisions of this Title.
corporations. Stock corporations are those
which have capital stock divided into shares The provisions governing stock corporation,
and are authorized to distribute to the holders when pertinent, shall be applicable to non-
of such shares, dividends, or allotments of the stock corporations, except as may be covered
surplus profits on the basis of the shares held by specific provisions of this Title.
are stock corporations. All other corporations
are non-stock corporations. Hence, no part of their income is
distributable as dividends to its
Requisites members, trustees, or officers
CORPORATION LAW 2019-2020, 2nd Sem
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Purpose The Court held that in order for
liability to attach, it must be a business
Purposes other than profit as a bar keeper and restaurateur. As a
business, the profit must be the
Q: Considering the above, is it absolute purpose or livelihood is the motive.
that they cannot engage to profit
generating operations? While it is true that the capital is
divided, the authority to distribute is
No, as they may be allowed if it is nowhere to be found.
incident to its operations
Hence, absent the second requisite,
Q: That they are allowed to engage in the Club is only a non-stock corporation
above, in the instance that there is profit, (Collector of Internal Revenue v.
can they now distribute it? Club Filipino, Inc. De Cebu)

No, the profit can only be used for the CORPORATIONS CREATED BY
furtherance of their purpose or SPECIAL LAW OR CHARTER
purposes.
Sec.4. Corporations created by Special
Q: What if there is a capital divided into Laws or Charters;
shares but no dividends are distributed? Corporations created by special laws or
charters shall be governed primarily by the
Still a non-stock corporation. (See the provisions of the special law or charter
next case) creating them or applicable to them,
supplemented by the provisions of this Code,
Q: The Bureau of Internal Revenue (BIR) insofar as they are applicable.
discovered that Club Filipino, Inc. De
Cebu (Club), never paid percentage taxes They are also known as “government
on their gross receipts acquired in their owned or controlled corporations”
bar restaurant. (GOCCs)

In the AOI of Club, it has for its primary Manner of creation

purpose of “…developing and cultivating
sports for the healthful recreation and They are made through a legislative
entertainment of its stockholders and act
members.”
Q: Is registration with the SEC necessary
At one time, Club declared dividends in order for them to be considered as a
resulting from surplus of profit, but never corporation?
distributed such.
No, as it owes its existence by virtue
However, the BIR argued that they must of the special law creating them.
pay the percentage tax by engaging in a
bar and restaurant. Who is correct? They are NOT created by compliance
with the Corporation Code,
Club is correct.
Q: What governs GOCCs?
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Danilo is correct.
1. Special law (primary)
2. Corporation Code (supplementary) The Court held that the test is the
manner of creation.
Rule as to suitability
PNOC-EDC being a subsidiary
GR: NOT immune created under the Corporation Law, it
ER: Provided by law owes its existence to the latter.

Examples Hence, as no special law or charter

exists, it is governed by the Labor
1. Philippines National Oil Company Code. (Philippine National Oil
(PNOC); Company-Energy Development
2. National Development Company; Corporation v. National Labor
3. Philippine Export and Foreign Loan Relations Commission)
Guarantee Corporation;
4. Government Services and Insurance OTHER CLASSES OF
System CORPORATIONS

Governing law as to officers and Public and Private Corporations

employees
The above classes are now eliminated
1. Civil Service Law; if created by special in order to avoid the confusion due to
law the presence of majority of shares in a
2. Labor Code; if organized under the private corporation led to the
Corporation Code (e.g. subsidiaries) corporation being classified as public.

Test in determining governing law on As previously discussed, the test is the

employees manner of creation.

Manner of creation Hence, while the government may

own majority of the shares, the fact
Q: PNOC - Energy Development that a corporation existed by virtue of
Corporation (PNOC-EDC), a subsidiary the Corporation Code makes them a
of PNOC, hired Danilo Mercado, and private corporation, and not as a
subsequently dismissed him. public corporation or GOCC

Danilo now filed a case in the NLRC for Public corporations

illegal dismissal, unpaid wages, etc.
against PNOC-EDC. Formed or organized, for the
government or a portion of the State
PNOC-EDC argues that the case should or any of its political subdivisions for
be dismissed as it is governed by the Civil the purpose of general good and
Service Law. welfare, or for the accomplishment of
its own public purpose.
On the other hand, Danilo argues that he
correctly filed the same. Who is correct?
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
In sum, public corporations are Furthermore, mining coal is NOT
considered as such if the following governmental or political in nature.
purposes are present: (National Coal Corporation v. CIR)

a) Political; or Ecclesiastical and Lay Corporations

b) Governmental
Ecclesiastical or Religious corporations
Private corporation
Those organized for spiritual
Formed for some private purpose, purposes, or for administering
benefit, or aim or end, that will benefit properties held for religious ones
the individuals composing it
It has for its purpose to secure public
True test to determine private or public worship or perpetuating the right of a
corporation particular religion

Relation of the body (corporation) to It may be:

the State
1. Religious societies (Sec.116);
A public corporation has or
AUTHORITY to do a governmental 2. Corporation sole (Sec.110)
purpose, while a private corporation is
NOT. Lay corporation

Examples of purposes NOT political or Purposes other than religion, such as

governmental in nature secular or business purposes.

a) Banking; They may be:

b) Refining of oil (PNOC);
c) Coal industry (NCC) 1. Eleemosynary; or
2. Civil
Q: The National Coal Company (NCC)
was created by virtue of Act 257 to develop Eleemosynary
coal industry in the Philippines.
For charitable and benevolent
NCC filed a case for recovery of sum of purposes, such as for maintenance of
money against the CIR, claiming hospitals and houses for the sick,
exemption as the government owns aged, and poor
majority of the stocks. Is NCC correct?
Civil
No, the mere fact of government
owning majority of stocks is not For public purposes, but for the
enough to grant exemption. benefit, pecuniary or otherwise, of its
members
The Court held that NCC is a private
corporation, owing its existence to the Aggregate And Sole Corporations
Corporation Law.
Aggregate corporations
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
incorporate as One Person Corporations:
Those composed of a number of Provided, further, that a natural person who is
individuals vested with corporate licensed to exercise a profession may not
powers. organized as a One Person Corporation for
the purpose of exercising such profession
Almost all corporations under the except as otherwise provided under special
Corporation Code are aggregate laws.
corporations, composing not less than
five (5) but not more than fifteen (15) The RCC allowed for OPCs, which is
incorporators. another exception to the aggregate
corporations, therefore:
Note however, under the RCC, the
range of incorporators may be from GR: Aggregate (2 to 15
one (1) to fifteen (15). incorporators)
ER: Corporation sole; and
Corporation sole OPCs

As an exception to the aggregate Definition

requirement under the Corporation
Code, one person serves as the bodies OPC is a corporation with a single
corporate and politic in order to give stockholder.
them some capacity and advantage not
available as a natural person. Q: Who may organize an OPC?

It may be formed by: The following are the only persons

allowed by the RCC:
1. Chief archbishop
2. Bishop a) Natural persons;
3. Priest b) Trust; or
4. Minister c) Estate
5. Rabbi
6. Other presiding elder of Q: Can a juridical person form an OPC?
religious denominations, sects,
or churches. No, it must be a natural person, trust,
or estate.
One Person Corporation (OPC)
Q: What cannot be OPCs?
Sec.116. One Person Corporation
A One Person Corporation is a corporation a) Banks and quasi-banks;
with a single stockholder: Provided, that only a b) Preneed;
natural person, trust, or an estate may form a c) Trust;
One Person Corporation. d) Insurance;
e) Public and publicly listed companies;
Banks and quasi-banks, preneed, trust, f) Non-chartered government owned
insurance, public and publicly-listed and controlled corporations
companies, and non-chartered government- g) Natural person licensed to exercise a
owned and controlled corporations may not profession
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
The provisions of this Title shall primarily
Q: Can exercise of profession be an OPC? govern close corporations: Provided, that
other Titles in this Code shall apply
No, exercise of profession is reserved suppletorily except as otherwise provided
as professional partnerships, and under this Title.
NOT corporations
Share of stock are held by limited
Close and Open Corporations number of persons such as:

Close corporations a) Family; or

b) Other closely knit group
Sec.95. Definition and applicability of
Title; Hence, there is exclusivity of
A close corporation, within the meaning of stockholders
this Code, is one whose articles of
incorporation provides that: Requisites

a) All the corporation’s issued stock of a) All stocks, except treasury shares, shall
all classes, exclusive of treasury shares, be held by specified persons not
shall be held of record by not more exceeding twenty (20) persons;
than a specified number of persons,
not exceeding twenty (20); b) All issued stuck must be subject to
one (1) or more restrictions on
b) All the issued stock of all classes shall transfer; and
be subject to one (1) or more specified
restrictions on transfer permitted by c) Shares cannot be listed in any stock
this Title; and exchange or make any public offering

c) The corporation shall not list in any Q: In the AOI of X corporation, 19

stock exchange or make any public stockholders were specified. Y was then
offering of any of its stock of any class invited to be a stockholder. Can Y do so?

No, as there is a need to specify.

Notwithstanding the foregoing, a corporation
shall not be deemed a close corporation when
Maximum number of stockholders
at least two-thirds (2/3) of its voting stock or
voting rights is owned or controlled by
It should not exceed twenty (20)
another corporation which is not a close
corporation within the meaning of this Code.
Q: Are all shares of stocks required to be
held by not more than twenty (20)
Any corporation may be incorporated as a
stockholders?
close corporation, except mining or oil
companies, stock exchanges, banks, insurance
No, as an exception, treasury shares
companies, public utilities, educational
are not included
institutions and corporations declared to be
vested with public interest in accordance with
Role of shareholders
the provisions of this Code.
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Under the Code, each shareholder
shall be deemed as a director as well. Domestic corporations are those
organized or created under or by
Hence, each shareholder, as director, virtue of the Philippine laws, either by
are all active in the conduct of legislative act or under the provision
corporate affairs. of the General Corporation Law.

Corporation NOT a close corporation Sec.140. Definition and Rights of Foreign

holding at least two-thirds (2/3) of close Corporations
corporation‟s voting stock/rights For purposes of this Code, a foreign
corporation is one formed, organized, or
In such a case, the close corporation existing under any laws other than those of
cannot be considered as such. the Philippines’ and whose laws allow Filipino
citizens and corporations to do business in its
It seems that if the corporation own country or State. It shall have the right to
holding such amount of voting transact business in the Philippines after
rights/stocks is not a close obtaining a license for that purpose with
corporation as well, due to the fact this Code and a certificate of authority from
that the corporation holding majority the appropriate government agency.
of the shares is NOT itself close.
Foreign corporations, are those
Being a majority shareholder, the formed, organized, or existing under
existence of the close corporation any laws other than those of the
cannot be accepted, as the former Philippines and whose laws allow
represents itself otherwise. Filipino citizens and corporation to do
business in its own country or state.
Q: What corporations may be close
corporations? Misnomer as to foreign corporation‟s
definition
As a general rule, all lines of business
may be close corporations. The second phrase was added to
qualify a foreign corporation to secure
However, as exceptions, the a license and to do business in the
following cannot be deemed as such: Philippines.

a) Mining or oil companies; (NOTE: The second phrase, as

b) Stock exchanges; discussed in another subject, refers to
c) Banks; the reciprocity rule)
d) Insurance companies;
e) Public utilities; Q: When may a foreign corporation
f) Educational institutions; transact business in the Philippines?
and
g) Those declared vested In order to be deemed as a foreign
with public interest corporation doing or transacting
business in the Philippines, the
Domestic and Foreign Corporations following are required:

Definition
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
a) License for that purpose; and as to shares purposes of
b) Certificate of authority from of stock and control and
appropriate government securities management
agency
Subsidiaries
Parent or Holding Companies and
Subsidiaries And Affiliates Those which the parent owns at least
the majority of the shares.
Parent or holding company
Hence it is a corporation under the
Those which are confined their control of another
activities to owning stock in, and
supervising management of other Q: Ayala Corp. owns shares of stock
companies. amounting to 56% in BPI, 52% in Globe,
and 58% in Ayala Land. What are the
It is when one corporation relationships of the above corporations?
(parent/holding company):
Ayala Corp is the parent/holding
a) Controls another corporation; company.
or
b) Controls several other BPI, Globe, and Ayala Land, are
corporations (subsidiaries) considered as subsidiaries.

Controlling interest Q: Consider in the above problem, a cause

of action arises against Ayala Land. May
It owns more than fifty percent (50%) the plaintiffs file against Ayala Corp.?
of the voting stock in the
company/ies it hold/s. No, a subsidiary has an independent
and separate juridical personality.
Hence control refers to the power
and authority to elect management Affiliates

Parent/holding companies v. investment Also called as “sister companies”,

companies these are subject to common control
and operated as part of a system.
Parent/holding companies are
passive and holds the securites merely Hence, stockholdings of another
for purpose of control and corporation are not substantial
management. enough to control another.

Investment companies are active in Q: Coca-Cola bottlers has shares of stock

the sale or purchase of shares of stock amounting to 48% in A, 32% in B, and
or securities 25% in C. What is the relationship of the
above corporations?
PARENT/ INVESTMENT
HOLDING COMPANIES All corporations are deemed as
Nature Passive Active affiliates.
Engagement Holding for Sale or purchase
CORPORATION LAW 2019-2020, 2nd Sem
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Quasi-public Corporations The due incorporation of any corporation
claiming in good faith to be a corporation
Also known as public service under this Code, and its right to exercise
corporations, they are private corporate powers, shall not be inquired into
corporations which have accepted the collaterally in any private suit to which such
State’s grant of franchise or contract corporation may be a party. Such inquiry may
involving performance of public be made by the Solicitor General in a quo
duties warranto proceeding.

Quasi Corporations Those which exists in colourable

compliance with an irregularity or
They are primarily political defect in organization or omission as
subdivisions such as townships, to requirements.
counties, school districts, organized
by: It CAN ONLY be attacked via qua
warranto proceedings
a) Statute; or
b) Immemorial usage DE JURE DE FACTO
Compliance Strict or Colorable
Q: Do they possess all general powers of substantial
the corporation?
Availability of Not available Available
No, as they are only agencies in the Quo
administration of civil government. Warranto
Proceedings
As such, corporate functions are
granted only as to enable them to Corporation By Estoppel
perform their public duties.
Sec.210. Corporation by estoppel;
De Jure Corporations All persons who assume to act as a
corporation knowing it be without authority
Those which are organized in strict or to do so shall be liable as general partners for
substantial compliance with the al debts, liabilities, and damages incurred or
requirements of incorporation. arising as a result thereof: Provided, however,
that when any such ostensible corporation is
It CANNOT be attacked by quo sued on any transaction entered by it as a
warranto proceedings corporation or any tort committed by it as
such, it shall not be allowed to use its lack of
Defective Corporations corporate personality as a defense. Anyone
who assumes an obligation to an ostensible
a) De facto corporations; and corporation as such cannot resist performance
b) Corporations by estoppel thereof on the ground that there was in fact
no corporation.
De Facto Corporations
Those so defectively formed which
Sec.19. De facto corporations; cannot be considered as de jure or de
facto corporations.
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
They exist only as such to those
persons which they cannot deny their
existence by virtue agreement,
admission, or conduct.

Q: What is the liability of those who

represented themselves as a corporation?

They shall be liable as general partners

for all debts, liabilities, and damages.
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
CHAPTER IV: FORMATION AND In the same vein, an agent without a
ORGANIZATION OF CORPORATION principal is a principal.

Stages in the life of a corporation Hence, as an effect, the contracts

remain entered into by the promoter,
1. Creation and NOT by the corporation.
a. Promotional stage
b. Process of incorporation Q: How then, may corporations make
c. Organization and such contracts its own?
commencement of business
2. Re-organization/Quasi-reorganization A corporation, once granted legal
3. Dissolution and winding up personality, may be bound by the
contracts by:
PROMOTIONAL STAGE (Panliligaw)
1. Adopting;
It is the act of: 2. Ratifying;
3. Accepting benefits with
1. Getting a corporation knowledge of the terms
organized; and
2. Procurement of subscription Q: In case the corporation indeed made
to its capital the contract its own by any of the above, is
the promoter not liable anymore?
Q: Who brings the persons to unite in
forming a corporation? No, as a general rule, the promoter is
still liable as he was the one who
Promoter entered into the contract.

Q: Under whose name does the promoter As an exception, the promoter maybe
enter into a contract with? relieved from liability by:

A promoter enters into contracts 1. Novation; or

either: 2. Other agreement to release
him
1. In his own name/s; or
2. Name of proposed Q: Considering the above, what are the
corporation options available to the proper in order to
avoid liability?
Q: If the corporation is subsequently
organized, who may be liable by virtue of 1. Continuing offer on behalf of the
said contracts? corporation, as it is NOT a contract
unless and until the corporation is
No, as during the time that the formed (offer lang yan);
contracts were entered into no
corporation existed at the moment. 2. Binding himself at the time of
execution of the contract, with a
Those which had no legal existence stipulation or understanding that he
could not have an agent. shall be relieved of responsibility after
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
the corporation is formed, accepted Yes, the intent can be met in line with
and adopts the contract; or Gamboa v. Teves, to begin, consider the
following figure:
3. Binding himself personally and
assume the responsibility of looking to Fil. Shares 500k voting
the proposed corporation, when For. Shares 500k voting
formed, for reimbursement
In the above figure, it cannot be valid.
THE PROCESS OF INCORPORATION However, the Court ruled that the
nationality rule is concerned with the
It includes the following: voting rights, as to the 60% ratio.

1. Drafting of the AOI; Hence, it may be valid by doing the

2. Preparation and submission of following:
documents;
3. Filing with SEC; and Fil. Shares 500k voting
4. Issuance of Certificate of For. Shares 500k voting
Incorporation (COI) minus 100k voting

Things considered in drafting AOI Thus: 500k Filipino

voting shares
1. Corporate name limitation and 400k Foreign voting
restriction; shares
2. Minimum paid-up requirement 100k Foreign non-
3. Rules and regulations for such voting shares
undertaking;
4. Q and DQ Stock ownership in Contents of the AOI
nationalized or partly nationalized
industries; Sec.13. Contents of the Article of
5. Additional documentary requirements Incorporation;
in some industries; All corporations organized shall file with the
6. Q and DQ of directors; and Commission articles of incorporation in any
7. Limitation or prohibition on of the official languages, duly signed and
purposes/s acknowledged or authenticated, in such
form and manner as may be allowed by
Q: A and B, Filipino and American, wants the Commission, containing substantially the
to create a public utility corporation. They following matters, except as otherwise
want to divide the 1 million shares into prescribed by the Code or by special law:
50% Filipino owned and 50% Foreign
owned, hence 500k shares each. a) The name of the corporation;
Considering the requirements of b) The specific purpose or purposes for
nationalization, where a public utility which the corporation is being
corporation requires 60/40 ratio, what incorporated. Where a corporation
would you advise? Can their intent be shall state which is the primary
met? purpose and which is/are the
secondary purpose or purposes:
CORPORATION LAW 2019-2020, 2nd Sem
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Provided that a non-stock corporation j) Such other matters consistent with law
may not include a purpose which and which the incorporators may
would change or contradict its nature deem necessary and convenient.
as such;
An arbitration agreement may be
c) The place where the principal office provided in the articles of
of the corporation is to be located, incorporation pursuant to Section
which must be within the Philippines; 181 of this Code.

d) The term for which the corporation is The articles of incorporation and
to exist, if the corporation has not applications for amendments
elected perpetual existence; thereto may be filed with the
Commission in the form of an
e) The names, nationalities and electronic document, in
residences of the incorporators; accordance with the Commission‟s
rules and regulations on electronic
f) The number of directors, which shall filing.
not be more than fifteen (15) or the
number of trustees, which may be Contents in accordance to RCC
more than fifteen (15);
a) Corporation’s name;
g) The names, nationalities and b) Purpose/s;
residences of the persons who shall c) Principal office;
act as directors or trustees until the d) Term
first regular directors or trustees are a. Unless elected perpetual
duly elected and qualified in existence;
accordance with this Code; e) Incorporators’ names, nationalities,
and residences;
h) If it be a stock corporation, the f) Number of:
amount of its authorized capital stock, a. Directors (not more than 15);
number of shares into which it is b. Trustees (may be more than
divided, the par value of each, names, 15)
nationalities and residence addresses g) Interim directors/trustees names,
of the original subscribers, amount nationalities and residences;
subscribed and paid by each on the h) If stock corporation;
subscription, and a statement that a. Authorized capital stock;
some or all of the shares are without b. Number of shares;
par value, if applicable; c. Par value;
d. Original subscriber’s
i) It it be a non-stock corporation, the i. names, nationalities,
amount of its capital, the names, and residences;
nationalities and residences of the ii. amount subscribed;
contributors and the amount iii. paid by each on
contributed by each and; amount subscribed
e. Statement that some or all are
without par value, if applicable
i) If non-stock corporations
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
a. Capital; Second: That the purpose or purposes
b. Contributor’s for which such corporation is incorporated
i. Names, nationalities, are: (If there is more than one purpose,
and residence indicate primary and secondary purposes);
addresses;
ii. Amount contributed Third: That the principal office of the
j) Other matters corporation shall be located in the
a. Consistent with law City/Municipality of ___, Province of ___,
b. Deemed necessary and Philippines;
convenient
Fourth: That the corporation shall
Q: According to the RCC, may an have perpetual existence or a term of ___
arbitration agreement be provided? years from the date of issuance of the
certificate of incorporation;
Yes
Fifth: That names, nationalities and
Q: Can the AOI or application for residence addresses of the incorporators are
amendments be filed via electronic as follows:
document?
Names Nationalities Residences
Yes _______ __________ _________
_______ __________ _________
Format of AOI _______ __________ _________
_______ __________ _________
Sec.14. Form of Articles of Incorporation; _______ __________ _________
Unless otherwise prescribed by special law,
articles of incorporation of all domestic Sixth: That the number of directors or
corporations shall comply substantially with trustees of the corporation shall be ___; and
the following form: the names, nationalities and residences of the
first directors or trustees of the corporation
Articles of Incorporation are as follows:
Of
Names Nationalities Residences
___________________ _______ __________ _________
(Name of Corporation) _______ __________ _________
_______ __________ _________
The undersigned incorporators, all of _______ __________ _________
legal age, have this voluntarily agreed to form _______ __________ _________
a (stock) (non-stock) corporation under the
laws of the Republic of the Philippines and Seventh: That the authorized capital
certify the following: stock of the corporation is _____PESOS
(P_____) in lawful money of the Philippines
First: That the name of the said divided into ______ shares with the par value
corporation shall be “______, Inc, of _____ PESOS (P_____) per share.
Corporation or OPC”;
(In case all the shares are without par value):
That the capital stock of the corporation is
____ shares without par value.
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
corporation immediately upon receipt of
(In case some shares have par value and some notice from the Commission that another
are without par value): That the capital stock corporation, partnership, or person has
of said corporation consists of ___ shares of acquired a prior right to the use of such
which ___ shares of the par value name, that the name has been declared
____PESOS (P____) each, and of which not distinguishable from a name already
_____ shares are without par value. registered or reserved for the use of
another corporation, or that it is contrary
Eight: That the number of shares of to law, public morals, good customs, or
the authorized capital stock above stated has public policy.
been subscribed as follows:
Eleventh: (Corporations which will
Name of Nationality No. of Amount Amount engage in any business or activity reserved for
subscriber shares subscribed paid
subscribed
Filipino citizens shall provide the following):

“No transfer of stock or interest

which will reduce the ownership of Filipino
citizens to less than the required percentage of
the capital stock as provided by existing laws
(Modify No. 8 if shares are with no-par shall be allowed or permitted to be recorded
value. In case the corporation is nonstock, in the proper books of the corporation and
Nos. 7 and 8 of the above articles may be this restriction shall be indicated in all stock
modified accordingly, and it is sufficient if certificates issued by the corporation”
the articles state the amount of capital or
money contributed or donated by IN WITNESS WHEREOF, we have
specified persons, stating the names, hereunto signed these Articles of
nationalities, and residence addresses of Incorporation, this ___th day of _____, 20__
the contributors or donors and the in the City/Municipality of ___, Province of
respective amount given by each.) ____, Republic of the Philippines.

Ninth: That ____ has been elected by ___________ ___________

the subscribers as Treasurer of the ___________ ___________
Corporation to act as such until after the ___________ ___________
successor is duly elected and qualified in ___________ ___________
accordance with the by-laws, that as ___________ ___________
Treasurer, authority has been given to (Names and Signatures of the incorporators)
receive in the name and for the benefit of the
corporation, all subscriptions, contributions (Name and signature of Treasurer)
or donations paid or given by the subscribers
or members, who certifies the information THE PREFATORY PARAGRAPH
set forth in the seventh and eighth clauses
above, and that the paid-up portion of the Sec.14. Form of Articles of Incorporation
subscription in case and/or property for …
the benefit and credit of the corporation Articles of Incorporation
has been duly received. Of
Tenth: That the incorporators ___________________
undertake to change the name of the
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
(Name of Corporation) The Commission, upon determination
that the corporate name is:
The undersigned incorporators, all of
legal age, have this voluntarily agreed to form 1. Not distinguishable from a name
a (stock) (non-stock) corporation under the already reserved or registered for
laws of the Republic of the Philippines and the use of another corporation;
certify the following: 2. Already protected by law; or
3. Contrary to law, rules and
It specifies the nature of the regulations,
corporation, to prevent difficulties of
administration and supervision. Thus, may summarily order the corporation to
the following should be indicated: immediately cease and desist from using
such name and require the corporation to
a) Stock or non-stock; register a new one. The Commission shall
b) Close or open corporation; also cause the removal of all visible
c) Corporation sole; or signages, marks, advertisements, labels,
d) Religious corporation prints and other effects bearing such
corporate name. Upon the approval of the
THE CORPORATE NAME new corporate name, the Commission
shall issue a certificate of incorporation
Sec.14. Form of Articles of Incorporation; under the amended name.
…
First: That the name of the said corporation If the corporation fails to comply with the
shall be “______, Inc, Corporation or OPC”; Commission‟s order, the Commission may
hold the corporation and its responsible
Sec.17. Corporate name; directors or officers in contempt and/or
No corporate name shall be allowed by the hold them administratively, civilly and/or
Commission if it is not distinguishable criminally liable under this Code and
from that already reserved or registered for other applicable laws and/or revoke the
the use of another corporation, or if such registration of the corporation.
name is already protected by existing law,
rules and regulations. Purpose

A name is not distinguishable even if it To distinguish it from other firms and

contains one or more of the following: entities and it is through which it can:

a) The word “corporation”, a) Act and perform legal acts;

“company”, “incorporated”, and
“limited”, “limited liability”, or an b) To sue and be sued
abbreviation of one of such words;
and Q: After the corporation is formed, can it
b) Punctuations, articles, use another name other than the name
conjunctions, contractions, stated in the AOI?
prepositions, abbreviations,
different tenses, spacing, or As a general rule, no, as it cannot go
number of the same word or phrase beyond what the granting authority
has given to it.
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
a. Name of incorporator; or
However, as an exception, it may do b. Name of his child
so if amended in accordance with 4. If name of person NOT in
law, under the following grounds: accordance with the previous,
consent of the latter or heirs (if
a) Will result in confusion; deceased), must be secured and
b) May open the door to fraud submitted to SEC
and evasion; and a. ER: National heroes
c) Difficulties of administration 5. If in initials (ABC Corp), the
and supervision verification slip must contain:
a. Meaning indicated; or
Sec.18. Registration, Incorporation and b. Explanation that it has no
Commencement of Corporate Existence; meaning
A person or group of persons desiring to 6. Subsidiary of foreign entity must
incorporate shall submit the intended contain “Philippines” or “Phils.”
corporate name to the Commission for 7. Reserved:
verification. If the Commission finds that a. State, Maharlika, Barangay
the name is distinguishable from a name i. Government exclusive
already reserved or registered for the use b. Banks, Banking, Bankers,
of another corporation, not protected by Building and Loan
law and is not contrary to law, rules, and Associations, or other
regulations, the name shall be reserved in similar words
favor of the incorporation. The i. Banking laws
incorporators shall then submit their ii. UNLESS duly licensed
articles of incorporation and bylaws to the by Monetary Board of
Commission. BSP
… c. Rural Banks
i. Rural Bank Act
Verification slip ii. UNLESS entity is
authorized under said
The SEC requires such to be acquired Act
from the Records Division. d. National
i. CANNOT be used to
If said name is available, the SEC may those engaged in
allow reservation for a nominal fee banking, brokerage, or
until the filing of the AOI. saving institutions
e. United Nations or Bureau
Guidelines i. CANNOT be used for
commercial or
1. Append the word “corporation” or business purposes
“incorporated” in full or abbreviated f. Finance and Financing
(RCC: added “OPC” as allowable) i. RA 8556
2. Adding two (2) other different and ii. UNLESS organized as
distinct words, in case a name is such
already registered or protected by law g. Engineers and Architects
3. If name or surname of a person, i. Only for professional
there must be a basis: partnership
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
ii. UNLESS business of and the subsequent certificate are
the corporation fictitious. (Red Line Transportation
h. Design or Designers Co. v. Rural Transit Co.)
i. If it will result to
confusion that it is (NOTE: This case was cited in
engaged in technical Philippine First Insurance Co. v.
concern reserved for Hartigan, where the Court opined
professional that this case involves a use of a name
partnerships of another corporation which would
result into confusion.)
Q: Why cannot a corporation assume a
trade name? Q: Can the inclusion of two other words
sufficient to warrant a difference in
As it will result to confusion. (See next corporate names?
case)
No, as the addition of words may still
Q: Rural Transit Co. (Rural) applied for a result to confusion due to their being
certificate of public convenience with the similar. (See next case)
Public Service Commission (PSC) to
engage in transportation between Q: Universal Mills Corp (Mills). was
Tuguegarao and Ilagan. originally registered as Universal Hosiery
Mills, Corp. It changed its name to the
Red Line Transit Co. (Red Line) opposed former due to the expansion of their
the application as it is already engaged in business to include the manufacture of
said line, being granted with a certificate fabrics of all kinds.
prior to Rural‟s Application.
On the other hand, Universal Textile Mills
However, PSC issued the certificate in the (Textile), filed a petition to change the
name of Bachrach Motors Inc., as Rural is corporate name of Universal Mills, on the
only being used as a trade name. Is the ground that it is confusing and
certificate valid considering the deceptively similar, as there is a confusion
circumstances? as to property burned which resulted in
confusion among concerned members.
No, in order for the certificate to be
valid, the applicant must be a real As to their registration, Textile was
party in interest. registered on January 1954, while Mills
was registered on October 1954. Mills
A corporation cannot use a name claims that their name did not cause
other than what the law authorized confusion nor deceptively similar. Is Mills
them to use. It can only use another correct?
name if it change its name in
accordance with law. No, Mills is incorrect.

No law authorizes the corporation to While it is true that they are NOT
use or assume a trade name. identical, confusion is imminent due
to the engaging into the business to
As it is established that “Rural” is not which Textile was already engaged for
a real party in interest, the application almost a decade ago.
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Likewise, the invocation of the
It would seem that Mills wanted to doctrine of secondary meaning is
ride the well-earned patronage and misplaced as no evidence of
good will already established by exclusivity was posed by Lyceum.
Textile.
In fact, if anyone could assert the
Furthermore, Mills could have chosen doctrine, it is Western Pangasinan
another name to avoid confusion Lyceum, as it is in use of such name
(Universal Mills Corp. v. Universal seventeen (17) years prior to Lyceum’s
Textile Mills, Inc.) usage. (Lyceum of the Philippines
v. CA)
Q: Will the addition of geographical
locations result to avoiding confusion? Doctrine of Secondary Meaning

Yes. (See next case) “A word or phrase originally incapable

of exclusive appropriation (usually
Q: Lyceum of the Philippines (Lyceum), generic) with reference to an article in
registered on September 1950, petitioned the market, because of geographically
with the SEC to order the deletion of the or otherwise descriptive, might
word “Lyceum” from respondents nevertheless have been used so long
Western Pangasinan Lyceum, Lyceum of and so exclusively by one producer
Cabagan, Lyceum of Lallo, Lyceum of of with reference to his article that, in
Appari. that trade and to that branch of the
purchasing public, the word or phrase
Hearing officers of SEC ordered Lyceum has become to mean that the article
to have the exclusive use of such word. was his product”

However, upon appeal to the SEC en In sum, the requisites are:

banc, the order was reversed on the
ground that attachment of geographical 1. Word or phrase incapable of
names sufficiently distinguished the exclusive appropriation;
schools. CA affirmed the same. Is the CA 2. Producer used it for so long
correct? and so exclusively; and
3. The word or phrase has
Yes, the attachment of the become to mean that the
geographical locations resulting in the article was his product
distinguishability of Lyceum from the
others. Q: Consider a foreign corporation, who
NEVER did business in the Philippines
The intent of Sec. 18, CC, is: NOR registered a corporate name or its
1. to avoid fraud, goodwill, will the protection of Sec. 18
2. evasion of obligations and apply?
duties, and
3. reduction of difficulties of Yes, by virtue of the Paris
administration and Convention, which protects such
supervision over without the obligation to file or
corporations. register the same
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Q: Philips Export B.V. (Philips), is a Likewise, that two words are different
foreign corporation not doing business in cannot be appreciated, as the word
the Philippines, which registered the “Corporation” does not count due to
trademark “Philips” in the Phil. Patent the fact that it is made to distinguish it
Office. from other business entities, but NOT
to distinguish it from other
By virtue of which, the authorized users, corporations. (Philips Export B.V.,
Philips Electric Lamp Inc., and Philips et al., v. CA)
Industrial Development, Inc. were
incorporated on 1956. Q: What if in the above case, Standard
instead applied for the name of Standard
Standard Philips Corporation (Standard), Philips Sausages, where the latter engages
was registered on 1982. in food production, would the SEC allow
its registration?
Philips filed a case for infringement
against Standard. Yes, as in this case, the purpose for
which it is incorporated is different
SEC denied the same, ruling that Sec. 18 from the other corporation
applies only when there is identity in the
names and that at least two words distinct Q: What is issued if the name has been
from Philips name is present. changed?

CA affirmed the SEC. Is the CA correct? An amended certificate of

incorporation under the amended
No, Standard should have been name.
ordered to delete the word Philips.The
following requisites are needed in Sec. Q: Will a name change affect the rights
18: and liabilities of the corporation?

1. A prior right to use the name; No, it is NOT a new corporation

and NOR a successor of the original
2. Proposed name is either:
a. Identical; PURPOSE CLAUSE
b. Deceptively or
confusingly similar; or Sec.14. Form of Articles of Incorporation;
c. Patently deceptive, …
confusing, or contrary Second: That the purpose or purposes for
to existing law which such corporation is incorporated are:
(If there is more than one purpose, indicate
In accordance with the priority of primary and secondary purposes);
adoption, Philips was in use of such
word twenty six (26) years prior. It defines the scope of authority or
undertaking of the corporation
Furthermore, under the purpose of
Standard, they are engaged in the Three-fold importance of the purpose
production of electrical products, clause
which is the same line of Philips.
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
1. Stockholder; determine which No, the city or municipality must be
business lines to invest into; stated
2. Board of directors and management;
within what lines they are authorized Q: Is there a need to state the location of
to act; and the business operations?
3. Anyone; determine whether the
contract they are entering into is No, only the principal office
within the general authority of the
management. Q: New Cagayan Grocery (Grocery) filed a
complaint in the CDO court against CRS
Limitations due to an omission in a transmission
resulting to damages.
1. Must be lawful;
2. Specific or stated concisely; CRS has its principal office in Manila,
3. Secondary ones must be specified, if while the said transmission is channelled
more than one purpose; and through the CDO branch. CRS moved
4. Must be capable of being lawfully that the case be dismissed on the ground
combined of improper venue. Is CRS correct?

Q: What if the corporate name contradicts Yes, the principal office serves as the
the above limitations? residence of the corporation.

The application shall be dismissed by If filing in the branch offices were

the SEC allowed, confusion and
inconveniences may be resulted.
Q: Is there a limit the number of (Clavecilla Radio System v.
purposes? Antillon)

No Q: Considering the provision of Sec.

51/50, CC/RCC on meetings allowing to
PRINCIPAL OFFICE hold meetings in any city within Metro
Manila, Cebu, or Davao, may the filing of
Sec.14. Forms of Articles of Incorporation; an action be instituted in any city in
Third: That the principal office of the Manila?
corporation is located in the City/Municipality
of ___, Province of ___, Philippines; No, the provision is only with respect
to meeting, but NOT to the filing of
It establishes the residence of the an action in court.
corporation, to determine the
locations of: Hence, the case must be filed within
the jurisdiction of the corporation’s
1. Chattel mortgage; or place of residence
2. Venue for actions
Q: What is the basis actions being filed in
Q: Is the statement of the province the place of residence?
sufficient? Rules of Court

TERM OF EXISTENCE
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Q: Is there a minimum count of
Sec.14. Form of Articles of Incorporation; incorporators required?
…
Fourth: That the corporation shall have No, as long as NOT more than fifteen
perpetual existence or a term of ___ years (15)
from the date of issuance of the certificate
of incorporation; Q: Can it be 1, 2, 3, or 4 incorporator/s?

Rule as to term of existence Yes, under the RCC it may be done.

Under the RCC, perpetual existence is However, notice that a one person
deemed the presumption if nothing is incorporator shall be deemed as an
stated in the AoI, hence: OPC

GR: Perpetual existence Qualification

ER: Stated in AoI
a) At least one (1) share of capital
In the CC, the former rule is as stock; and
follows: b) Of legal age
a. ER: If represented by
GR: Period not exceeding legal guardian
50 years
ER: Extended by Citizenship and residency requirement
amendment not
exceeding 50 years Under the RCC, incorporators need
not be citizens or residents of the
THE INCORPORATORS Philippines.

Sec.14. Form of Articles of Incorporation; However, special laws may still

… provide for such requirement
Fifth: That names, nationalities and residence
addresses of the incorporators are as follows: Practice of profession

Names Nationalities Residences CANNOT be allowed to organize a

_______ __________ _________ corporation
_______ __________ _________
_______ __________ _________ They are reserved to organize as a
_______ __________ _________ professional partnership
_______ __________ _________
One Person Corporation (OPC)
Q: Who may be incorporators?
Sec.116. One Person Corporation;
Any person, partnership, association, A One Person Corporation is a corporation
or corporation with a single stockholder: Provided, that only
Under the CC, only natural persons natural person, trust, or an estate may form a
can One Person Corporation.
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Banks and quasi-banks, preneed, trust, and trustee shall hold office until the
insurance, public and publicly-listed successor is elected and qualified. A director
companies, and non-chartered government- who cases to own at least one (1) share of
owned and controlled corporations may not stock or a trustee who ceases to be a member
incorporate as One Person Corporations: of the corporation shall cease to be such.
Provided, further, that a natural person who is
licensed to exercise a profession may not The board of the following corporation
organize as a One Person Corporation for the vested with public interest shall have
purpose of exercising such profession except independent directors constituting at least
as otherwise provided under special laws. twenty percent (20%) of such board:

Corporation with a single stockholder a) Corporations covered by Section

17.2 of Republic Act No. 8799,
Q: Can OPCs be organized for an exercise otherwise known as “The
of profession? Securities Regulation Code”,
namely those whose securities are
No, as a general rule, a person registered with the Commission,
cannot organize a OPC for the corporations listed with an
exercise of profession. exchange or with assets of at least
Fifty million pesos (P50,000,000.00)
As an exception, it may be allowed if and having two hundred (200) or
provided for under special laws. more holders of shares, each
holding at least one hundred (100)
THE DIRECTORS/TRUSTEES shares of a class of its equity
shares;
Sec.13. Contents of the Articles of
Incorporation; b) Banks and quasi-banks, nonstock
… savings and loan associations,
f. The number of directors, which shall not pawnshops, corporations engaged
be more than fifteen (15) or the number of in money service business,
trustees, which may be more than fifteen preneed, trust and insurance
(15); companies, and other financial
intermediaries; and
Sec.22. The Board of Directorrs or
Trustees of a Corporation; Qualification c) Other corporations engaged in
and Term; businesses vested with public
Unless otherwise provided in this Code, the interest similar to the above, as
board of directors or trustees shall exercise may be determined by the
the corporate powers, conduct all business Commission, after taking into
and control all properties of the corporation. account relevant factors which are
germane to the objective and
Directors shall be elected for a term of one (1) purpose of requiring the election of
year from among the holders of stocks an independent director, such as
registered in the corporation’s books, while the extent of minority ownership,
trustees shall be elected for a term not type of financial products or
exceeding three (3) years from among the securities issued or offered to
members of the corporation. Each director investors, public interest involved
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
in the nature of business Notice that in case there is only 1
operations, and other analogous member of the board, it is deemed as
factors. an OPC

An independent director is a person who Exceptions

apart from shareholdings and fees
received from the corporation, is 1. Educational; not more than 15 and
independent of management and free in multiples of 5 (5, 10, 15)
from any business or other relationship 2. Close; all stockholders are deemed
which could, or could reasonably be directors, hence maximum of 20
perceived to materially interfere with the
exercise of independent judgment in Q: Are all corporations required to have a
carrying out the responsibilities as a board?
director.
No, as close corporations may opt not
Independent directors must be elected by to have one, as they may be deemed
the shareholders present or entitled to vote managed by the stockholders, hence:
in absentia during the election of
directors. Independent directors shall be “Sec.96. Articles of
subject to rules and regulations governing Incorporation;
their qualifications, disqualifications, The articles of incorporation
voting requirements, duration of term and may provide for:
term limit, maximum number of board
memberships and other requirements that xxx
the Commission will prescribe to
strengthen their independence and align The articles of incorporation
with international best practices. of a close corporation may
provide that the business of
Rule as to number of directors or trustees the corporation shall be
managed by the corporation
Under the RCC, has been revised as rather than by a board of
follows: directors. So long as this
provision continues in effect,
Directors; NOT more than 15 no meeting of stockholders
Trustees; MAY BE more than 15 need be called to elect
directors: Provided, That the
Under the CC, directors and stockholders of the
trustees; shall not be less than five (5) corporation shall be deemed
nor more than fifteen (15). to be directors for the purpose
of applying the provisions of
Q: Can the number of director/s be 1, 2, 3, this Code unless the context
4, or 5? clearly requires otherwise:
Provided, further, That the
Yes, under the RCC it is allowed. stockholders of the
corporation shall be subject to
all liabilities of the directors.
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
The articles of incorporation Yes, under the RCC, the residency and
may likewise provide that all citizenship requirement is not required
officers or employees or that anymore.
specified officers or employees
shall be elected or appointed However, there are corporations
by the stockholders, instead by which are reserved for Filipino
the board of directors.” citizens which must observe the
nationality rule.
Q: In case the close corporation did not
opt to make a board, is it correct to say Rule as to corporations engaged in
that there are no directors? development and utilization of natural
resources
No, in this case, the stockholders shall
be deemed as the directors. The ratio to be observed should be
60:40. Hence, if there are one million
Said directors shall be liable as such shares, 60% must be owned by
despite the absence of the board Filipinos, equivalent to six (6) seats,
while the 40% may be owned by
Minimum qualification and foreigners, equivalent to four (4)
disqualification seats.)

1. Directors; at least one (1) share of Q: What law is violated if more than 40%
stock is owned by foreigners in a corporation
2. Trustee; member of the corporation engaged in development and utilization of
3. To both, within five (5) years prior to natural resources?
election:
a. Final judgment Anti-Dummy Law
i. Imprisonment
exceeding six (6) years Independent directors
ii. Violation of RCC
iii. Violation of Securities Persons who:
Regulation Code;
b. Fraudulent acts, a) Is independent from management;
administratively liable for such and
c. Foreign court adjudication or b) Free from any business or other
authority similar to the above relationship:
a. Which could; or
Q: Can the corporation add any other b. Could reasonably be
qualification or disqualification? perceived to materially
interfere with the exercise
Yes, through by-laws (e.g. there must of independent judgment
be no substantial interest in in carrying out the
competitor corporation ) responsibilities as a
director;
Q: Can aliens be directors? c) Constituting at least twenty
percent (20%) of the board
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Q: When is an independent director
mandatory? Authorized capital stock (ACS)

1. Those covered by Sec. 17.2 of RA Sec.13. Contents of the Articles of

8799 of the Securities Regulation Incorporation;
Code (SRC): …
a. Securities registered with the h) If it be a stock corporation, the amount of
Commission; its authorized capital stock, number of
b. Corporations listed with an shares into which it is divided, the par
exchange or with assets of at value of each, names, nationalities and
least Fifty million pesos residence addresses of the original
(Php50,000,000); and subscribers, amount subscribed and paid
c. Having two hundred (200) or by each on the subscription, and a
more holders of shares, each statement that some or all of the shares
holding at least one hundred are without par value, if applicable
(100) shares of a class of its
equity shares; Sec.14. Form of Articles of Incorporation;
2. The following: …
a. Banks and quasi-banks; Seventh: That the authorized capital stock of
b. Non-stock savings and loan the corporation is _____PESOS (P_____) in
associations; lawful money of the Philippines divided into
c. Pawnshops; ______ shares with the par value of _____
d. Corporations engaged in PESOS (P_____) per share.
money service business;
e. Preneed; (In case all the shares are without par value):
f. Trust and insurance That the capital stock of the corporation is
companies; and ____ shares without par value.
g. Other financial intermediaries;
and (In case some shares have par value and some
3. Other corporations engaged in are without par value): That the capital stock
businesses vested with public interest of said corporation consists of ___ shares of
similar to the above, as may be which ___ shares of the par value
determined by the Commission. ____PESOS (P____) each, and of which
_____ shares are without par value.
Q: How are independent directors
elected? It refers to:
They are elected during the election of a) Maximum amount fixed in the
directors, voted by shareholders articles to be subscribed and pain-
present or those entitled to vote in in or secured to be paid by the
absentia subscribers; or
Voting in absentia of independent director b) Maximum number of shares that
the corporation can issue
GR: Cannot
ER: By-laws provide Q: Is it required to indicated in the AOI?
CAPITALIZATION
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Yes, as required under Secs. 13 and 14 Under the former Code, 25% of the
ACS must be subscribed to.
Minimum required
Paid-up/in capital stock (PCS)
Sec.12. Minimum Capital Stock Not
Required of Stock Corporations; It is the actual amount or value which
Stock corporations shall not be required to has been actually contributed or paid
have a minimum capital stock, except as to the corporation in consideration of
otherwise specifically provided by special law. the subscriptions made thereon.

Hence: Q: Is there a required minimum PCS?

GR: Not required; No, under the RCC, there is no more

ER: Special law provides requirement for the PCS.

Subscribed capital stock (SCS) Under the former Code, 25% of the
Sec.14. Form of Articles of Incorporation; SCS must have been paid
… Outstanding Capital Stock (OCS)
Eight: That the number of shares of the
authorized capital stock above stated has been Sec.173. Outstanding Capital Stock
subscribed as follows: Defined;
The term “outstanding capital stock”, as used
Name of Nationality No. of Amount Amount in this Code, shall mean the total shares of
subscriber shares subscribed paid stock issued under binding subscription
subscribed
contracts to subscribers or stockholders,
whether fully or partially paid, except treasury
shares.

Hence these are:

It is the total number of shares and its
total value for which there are a) Shares of stock;
contracts for their acquisition or b) Issued under binding subscriptions
subscription. contracts;
c) Whether fully paid or partially paid
It is, hence, the stockholder‟s equity
account showing part/portion of Q: Are treasury shares included in the
ACS: OCS?

a) Paid or promised to be paid; or No, as it is excluded by law

b) Subscribed by the
subscriber/stockholders Considerations for Stocks

Q: Is there a required minimum SCS? Sec.61. Consideration for stocks;

Stocks shall not be issued for a consideration
No, under the RCC, there is no more less than the par or issued price thereof.
minimum requirement for the SCS. Consideration for the issuance of stock may
be:
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
incorporation or the by-laws, or if not so
a) Actual cash paid to the corporation; fixed, by the stockholders representing at
least a majority of the outstanding capital
b) Property, tangible or intangible, stock at a meeting duly called for that
actually received by the corporation purposes.
and necessary or convenient for its
use and lawful purposes at a fair It may be any of the following:
valuation equal to the par or issued
value of the stock issued; a) Cash;
b) Property necessary or convenient
c) Labor performed for or services for its use and lawful purposes;
actually rendered to the corporation; c) Services actually rendered to the
corporation;
d) Previously incurred indebtedness of d) Previously incurred indebtedness
the corporation; of the corporation
e) Amounts from unrestricted
e) Amounts transferred from retained earnings to stated capital;
unrestricted retained earnings to stated and
capital; f) Outstanding shares exchanged for
stocks in the event of
f) Outstanding shares exchanged for reclassification or conversion
stocks in the event of reclassification g) Shares of stock in another
or conversion; corporation (RCC); and
h) Other generally accepted form of
g) Shares of stock in another consideration (RCC)
corporation; and/or
Q: Can promissory notes be a
h) Other generally accepted form of consideration for a stock?
consideration
No
Where the consideration is other than actual
Q: Can future service be a consideration
cash, or consists of intangible property such
for a stock?
as patents of copyrights, the valuation thereof
shall initially be determined by the
No
stockholders or the board of directors,
subject to approval by the Commission.
Q: Must it be payment through only one
of the permitted considerations?
Shares of stock shall not be issued in
exchange for promissory notes or future
No, it may be a combination of two
service.The same considerations provided in
or more forms, as long as they are:
this section, insofar as applicable, may be used
for the issuance of bonds by the corporation.
1. Capable of valuation; and
2. Fairly valued
The issued price of no-par value shares may
be fixed in the articles of incorporation or by
Q: Consider the following figure:
the board of directors pursuant to authority
conferred upon it by the articles of
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
ACS: Value:
1m 1/share If after the action, E still refused or failed
SCS: Subs. Paid Treasury to pay, what happens to the stocks?
500k up shares
A 100k 50k It becomes delinquent shares
B 100k 50k
C 100k 50k What may the corporation do to the
D 100k 50k delinquent share?
E 100k 50k
500k 250k 500k It may order for the sale thereof
(PCS)
If there is no buyer to said shares, what
Can the corporation issue more than 1m may the corporation do?
shares?
The corporation then may buy the
No, as it will result to over issuance shares themselves, and now be treated
as treasury shares.
How then can the corporation issue more
stocks? Considering that it now becomes a
treasury share, how much is the, OCS,
Through the amendment of the AoI SCS and the ACS?

What are outstanding capital shares? The OCS now becomes 400k, as E’s
100k share is now a treasury share,
They are deemed as with voting rights hence:

How many are outstanding capital shares? 250k (PCS)

+ 250k (Unpaid)
It is 500,000 shares. 500k
- 100k (E’s share, now treasury)
It includes even those which are 400k
unpaid. Hence:
The SCS and the ACS remains the
250k (PCS) same, as these are matters considered
+ 250k (Unpaid) as fait accompli in the AOI
500k
SHARES OF STOCK AND THEIR
The treasury shares of 500k are not CLASSIFICATION
included in the computation as it is
excluded from the OCS Shares of stock (SoS)

Assume that all incorporators, except for Designates the units into which the
E, paid their subscription. What is the proprietary interest in a corporation is
remedy of the corporation against E? divided.

File an action for specific The sum of all SoS constitutes the
performance corporation’s capital stock. (Sum of
SoS = Capital)
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA

It is likewise the interest or right of Sec.6. Classification of shares;

the shareholder/stockholder in The classification of shares, their
corporation’s: corresponding rights, privileges, or
restrictions, and their stated par value, if
1. Management; any, must be indicated in the articles of
2. Surplus profits; incorporation. Each share shall be equal
3. Assets remaining after in all respects, except as otherwise
payment of debts in case of provided in the articles of incorporation
dissolution (as liquidation and and in the certificate of stock
winding up follows)
The shares of stock corporations may be
SoS v. Certificate of Stock (CoS) divided into classes or series of shares, or
both. No share may be deprived of voting
CoS is a document or instrument rights except those classified and issued as
evidencing the interest of a “preferred” or “redeemable” shares, unless
stockholder in the corporation. otherwise provided in this Code: Provided,
that there shall always be a class or series of
It serves as a documentary evidence of shares which have complete voting rights.
the holder’s ownership of shares and a
convenient instrument for the transfer Holders of nonvoting shares shall
of shares. nevertheless be entitled to vote on the
following matters:
Classification of shares
a) Amendment of the articles of
a) Common; incorporation;
b) Preferred;
a. As to dividends; b) Adoption and amendment of by-laws;
i. Participating;
ii. Non-participating c) Sale, lease, exchange, mortgage,
iii. Cumulative; pledge, or other disposition of all or
iv. Non-cumulative substantially all of the corporate
1. Discretionary property;
dividend;
2. Mandatory if d) Incurring, creating, or increasing
earned; and bonded indebtedness;
3. Earned
cumulative or e) Increase or decrease of capital stock;
dividend credit
b. To voting rights; and f) Merger or consolidation of the
c. Upon liquidation corporation with another corporation
c) Par value; or other corporations;
d) Non-par value
e) Voting; g) Investment of corporate funds in
f) Non-voting another corporation or business in
g) Founder’s accordance with this Code; and
h) Redeemable
i) Treasury
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
h) Dissolution of the corporation
A corporation may further classify its shares
Except as provided in the immediately for the purpose of ensuring compliance with
preceding paragraph, the vote required constitutional or legal requirements.
under this Code to approve a particular
corporate act shall be deemed to refer only to The provision gives the corporation
stocks with voting rights. the authority to classify shares

The shares or series of shares may or may Purpose of classification

not have a par value: Provided, however, that
banks, trust companies, insurance and a) Stockholder’s rights and privileges;
preneed companies, public utilities, building b) Protection of purchases and
and loan associations, and other stockholders as to corporate securities’
corporations authorized to obtain or regulation and control of issuance of
access funds from the public, whether sale
publicly listed or not, shall not be permitted a. In close corporations as they
to issue no-par value shares of stock. provide for qualification in
owning shares;
Preferred shares of stock issued by any c) Management control device
corporation may be given preference in the a. Founder’s shares, voting, and
distribution of dividends and in the non-voting shares
distribution of corporate assets in case of d) Statutory requirements’ compliance
liquidation, or such other preferences: a. Limitations in foreign
Provided, that preferred shares of stock may be ownership of shares
issued only with a stated par value. The board e) Insure return on investment
of directors, where authorized in the articles a. Redeemable shares or
of incorporation, may fix the terms and preferred shares
conditions of preferred shares of stock or any f) Flexibility in price
series thereof: Provided, further, that such terms a. No-par value shares
and conditions shall be effective upon the
filing of a certificate thereof with the Rule as to equality of shares
Securities and Exchange Commission,
hereinafter referred to as the In case there are more than one (1)
“Commission”. kind of shares issued, irrespective of
classification, they are:
Shares of capital stock issued without par
value shall be deemed fully paid and non- GR: Equal in all respects
assessable and the holder of such shares shall ER: Except as stated in:
not be liable to the corporation or to its a) AOI; AND
creditors in respect thereto: Provided, that no- b) CoS
par value shares must be issued for a
consideration of at least Five persos (P5.00) Examples of presumption of equality
per share: Provided, further, that the entire
consideration received by the corporation for a) Right to vote
its no-par value shares shall be treated as b) Common
capital and shall not be available for c) Non-cumulative share
distribution as dividends. d) Non-participating
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
b) Preference stated in:
Q: X owns 1m par value shares valued at a. AOI; and
Php100/share, while Y owns 1m no par b. CoS
value shares valued at Php10/share. Who
among them has more advantage? Q: If the preference is not stated in AOI
but not in the CoS, will the preference
None, they are equal in all respects, in apply?
the absence of any stipulation
No, it must be stated in both the AOI
COMMON STOCKS and CoS.

One which entitles an owner to: Hence, as no statement as to

preference is made in the CoS, all
a) An equal pro rata division of shares shall be deemed equal in all
profits, if there are any; respects
b) Without any preference or
advantage in that respect over Kinds of preferred shares
any other stockholder or class
of stockholders a) As to dividends;
a. Participating;
It is however, a limited definition, b. Non-participating
which refers only to profit or c. Cumulative;
dividends, as it does not consider d. Non-cumulative
other privileges which ordinarily i. Discretionary
attach to such shares, such as: dividend;
ii. Mandatory if earned;
a) Participation in corporate and
affairs; and iii. Earned cumulative or
b) Control dividend credit
b) To voting rights; and
Q: Can common shares be denied voting c) Upon liquidation
rights?
As to dividends
No (Gamboa v. Teves)
Holders shall enjoy the privilege of
PREFERRED STOCKS (PS > CS) being paid dividend first before any
other stockholders are paid theirs.
Gives the holder a preference over the
holder of common stocks with respect It is usually on a:
to:
a) Fixed percentage; or
a) Payment of dividends; and/or b) Specified amount
b) Distribution of capital upon
liquidation Q: Is the preference absolute as to create
the relationship of debtor and creditor
Requisites of PS between the corporation and the preferred
stockholder?
a) Par value ONLY; and
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
No, as the board of directors (BoD) Reasonable implication in preferred
has the discretion to declare shareholder as to dividends
dividends.
Hence, the preferred shareholder
Q: What if in the above situation, indeed, agree his to his priority in dividends in
there are profits, would your answer be the lieu of future participation with
same? common stockholders.

Yes, as the discretion still remains Q: How then can the preferred
with the BoD shareholder may be distributed with
dividends aside from his preference?
Q: X, is a preferred stockholder as to
Php100,000. Assume that the BoD Only if he is a participating
declared dividends amounting to preferred stockholder
Php500,000. How much can X receive?
However, this kind of stock is
X can receive only Php100,000. unusual.

The remaining Php400,000 shall be Participating preferred shares

divided to the other stockholders.
Holders are still given the right to
In this situation, it may happen that participate with the common
the other stockholders may receive stockholders in dividends beyond
more than the preferred stockholder. their stated preference

Q: X, is a preferred stockholder as to Q: X, is a participating preferred

Php100,000. Assume that the BoD stockholder as to Php100,000. Assume that
declared dividends amounting to the BoD declared dividends amounting to
Php100,000. How much can X receive? Php500,000. How much can X receive?

X can receive Php100,000. X can receive Php100,000 plus a share

in the Php400,000
As a preferred stockholder, he is
entitled to a preference in the Cumulative preferred shares
distribution of dividends.
Entitle the owner to payment of:
Q: In the above problem, how much may
the other stockholders receive? a) Current dividends;
b) Back dividends not previously
None paid whether or not dividends
were declared or paid in the past
Q: That the other stockholders received years
nothing from the dividends, what is their
recourse? Q: Do cumulative preferred shareholders
lose their right to claim dividends for
None years that they were not declared or paid?

No
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA

How cumulative preferred shares paid Holder entitled to dividends on a

particular year depending on the
Arrears or back dividends must be judgment or discretion of the BoD
made in subsequent years to the
cumulative preferred shareholders. Rule as to payment of dividends to non-
cumulative preferred shareholders in
If any are left, then it is divided to subsequent years
other common shareholders.
As a rule, dividends must be paid in
Presumption as to cumulative or non- the particular year, and NOT in
cumulative in case of no stipulation subsequent years. Hence, it is still
upon the discretion of the BoD to
Stocks shall be presumed as non- declare such, upon which, the
cumulative. shareholder shall be entitled

Under Sec. 6, in the absence of As an exception, payment may be

statement in the AoI and the CoS, made in subsequent years if the failure
shares shall be deemed equal in all to declare is tainted with abuse of
respects. discretion which results to oppression,
Hence, in order for one be deemed as fraud, or unfair discrimination.
cumulative, in needs to be expressly
stated in the AoI and the CoS Mandatory if earned

Non-cumulative preferred shares Imposes a positive duty on directors

to declare dividends every year when
Holders are entitled only to current profits are earned.
dividends, but not back dividends.
It gives the preferred stockholders a
As a preferred share, payment to right to the annual profit. Their rights
holders of such are made before to will NOT be lost by the failure of the
the common stockholders. directors to declare dividends each
year when earned.
Advantage of non-cumulative preferred On the other hand, it leaves the
shares directors NO discretion to withhold
dividends.
It avoids undue accumulation of
arrears of dividends, particularly for Earned cumulative or dividend credit type
years where profits are not earned.
Holder has right to arrears if:
Principal types of non-cumulative
preferred shares a) Profits earned;
b) But NOT declared.
a) Discretionary dividend;
b) Mandatory if earned; and In effect, their right is merely
c) Earned cumulative or dividend credit postponed to a later date

Discretionary dividend
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
How payment to earned cumulative or dividends every year when
dividend credit shareholders profits are earned.

It gives the preferred

Payment to such shareholders are stockholders a right to the
made first before to common annual profit. Their rights
shareholders will NOT be lost by the
failure of the directors to
declare dividends each
Definition as to kinds of preferred shares year when earned.
as to dividends
On the other hand, it
PREFERRED SHARES AS TO DIVIDENDS leaves the directors NO
Holders shall enjoy the privilege of being paid dividend discretion to withhold
first before any other stockholders are paid theirs. dividends.
Earned cumulative or Holder has right to arrears
It is usually on a fixed percentage or specified amount Dividend credit if profits are earned, but
NOT declared.
KIND DEFINITION
Participating Holders are still given the In effect, their right is
right to participate with merely postponed to a
the common stockholders later date
in dividends beyond their
stated preference Q: Consider the figure below:
Non-participating Holders shall be entitled
only to their stated XYZ Corp. 2016 2017 2018 2019
preference and will not Unrestricted 200k 200k 0 400k
participate in the retained
dividends earnings
Cumulative Entitle the owner to
payment of current Stock- Share Value
dividends and back holder
dividends not previously A Cumulative 100k
paid whether or not
dividends were declared
B Non-cumulative 100k
or paid in the past years C Discretionary dividend 100k
D Mandatory if earned 100k
Non-cumulative Holders are entitled only E Earned cumulative or 100k
to current dividends, but dividend credit
not back dividends.

Assume that XYZ Corp. declared

Definition as to kinds of non-cumulative
dividends in 2019, how much would each
preferred shares
preferred stockholder receive?
NON-CUMULATIVE PREFERRED SHARES
Holders are entitled only to current dividends, but not A would receive Php400,000,
back dividends. Php100,000 for each year (2016-2019),
Discretionary dividend Holder entitled to as he is entitled to his share even if
dividends on a particular dividends were declared or not.
year depending on the
judgment or discretion of
the BoD B would receive Php100,000 as he is
Mandatory if earned Imposes a positive duty entitled only to his dividends for the
on directors to declare present year (2019).
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
PAR AND NON-PAR VALUE SHARES
C would receive Php100,000 as the
BoD declared dividends only in the Par value shares
present year (2019).
Those whose value are fixed in the
D would receive Php300,000, AoI.
Php100,000 for years 2016, 2017, and
2019. He is NOT entitled in 2018 as Primary function
there are no earnings for that year
The following are the primary
E would receive Php300,000 as he is functions of par value shares:
entitled to dividends as long as earned,
hence for 2016, 2017, and 2019. His a) To fix a:
right to receive such were merely a. minimum subscription; or
postponed. b. original issue price; and
b) Indicates the amount which the
2016 2017 2018 2019 SH Note original subscribers are supposed
100k 100k 100k 100k C Receives to contribute to the capital
dividend no
matter what
0 0 0 100k nC Only Q: Is the par value stated in the AoI or the
entitled to CoS the true value of the shares?
present
arrear No, as the share may fluctuate
0 0 0 100k DD Only depending on the liability and the net
entitled to
when BoD worth of the enterprise.
declares
100k 100k 0 100k MIE As long as Q: Is the par value stated in the AoI or the
earned, CoS the fair market value?
even not
declared,
entitled
No, as it is not the true value
annually
100k 100k 0 100k EC/ Non- True/Book value
DC declaration
of dividends Net worth of the company divided by
will not
affect his
number of outstanding shares, hence:
entitlement
to dividends Company net worth
previously # of Outstanding Shares
earned
Q: Can par value shares be issued/sold at
Cumulative v. earned cumulative share less than the par?
In cumulative, SH is entitled to No, as it will result to watered stocks
dividend whether earned or not.
Watered stocks
In earned cumulative, SH is entitled
only if it is earned Shares issued at less than par
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Liability of shareholders of watered stocks capital and shall not be available for
distribution as dividends.
SH shall be liable for the difference
between what he paid, and the actual Hence, the limitations are as follows:
par value, hence:
a) Deemed fully paid and non-
Actual par value assessable;
- Value paid b) Consideration should not be less
Liability of SH than five pesos (Php5.00);
c) Entire consideration constitutes
No par value shares capital (NOT available for
dividend declaration;
Issued price are NOT stated in the d) CANNOT be preferred stock; and
CoS. e) CANNOT be issued by:
a. Banks;
Where may be fixed b. Trust companies;
c. Insurance companies;
a) In the AoI; or d. Public utilities; and
b) By BoD if authorized by: e. Building and loan
a. AoI; or associations
b. By-laws
c) In the absence of the above, by Advantages of no par value shares
majority vote of the stockholders
a) Flexibility in price:
Q: Does no par value shares represent a. as it may be issued from time
stated proportionate interest in the capital to time at different prices
stock measured by value? b. it may depend on the viability
of corporate undertaking or
No, only aliquot part of the whole net worth of the company;
number of such shares of the b) Evasion of danger of liability upon
corporation issuing it watered stocks; and
c) Disappearance of liability on part of
Limitations to issuance of no par value the holder for unpaid subscription:
shares a. As they are deemed fully paid
and non-assessable
Sec.6. Classification of Shares;
… VOTING AND NON-VOTING
Shares of capital stock issued without par SHARES
value shall be deemed fully paid and
nonassessable and the holder of such shares Voting shares
shall not be liable to the corporation or to its
creditors in respect thereto: Provided, That Gives the holder the right to:
no-par value shares must be issued for a
consideration of at least Five pesos (P5.00) a) Vote; and
per share: Provided, further, That the entire b) Participate in the management
consideration received by the corporation for through the exercise of the above
its no-par value shares shall be treated as
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
(e.g. election, matters requiring SH (a) Amendment of the articles of
approval) incorporation;
(b) Adoption and amendment of
Non-voting shares bylaws;
(c) Sale, lease, exchange, mortgage,
Holder DOES not have the right to pledge, or other disposition of all or
have a voice in the election of substantially all of the corporate
directors and SOME other matters property;
requiring SH vote. (d) Incurring, creating, or increasing
bonded indebtedness;
Q: Which shares can be non-voting (e) Increase or decrease of authorized
shares? capital stock;
(f) Merger or consolidation of the
Sec.6. Classification of Shares; corporation with another
… corporation or other corporations;
No share may be deprived of voting rights (g) Investment of corporate funds in
except those classified and issued as another corporation or business in
“preferred” or “redeemable” shares, unless accordance with this Code;
otherwise provided in this Code: Provided, (h) Dissolution of the corporation
That there shall always be a class or series of
shares with complete voting rights. Hence, the above matters may be voted
on despite one is a holder of non-voting
Only the following shares may be share.
non-voting:
Q: XYZ Corporation has an OCS of 1
a) Preferred; or million shares, where 800k are voting
b) Redeemable while 200k are non-voting. In case of
voting for directors, what is the basis of
(NOTE: The Code may provide for majority?
other shares which may be non-
voting, see discussion on Founder’s Majority vote shall be based on the
Shares) 800k, as the 200k non-voting shares
cannot vote for directors.
Q: Can all shares be non-voting?
Q: XYZ Corporation has an OCS of 1
No, the same provision provides that million shares, where 800k are voting
there should always be a class or series while 200k are non-voting. In case of
of shares with complete voting rights. voting for a merger with ZYX corporation,
what is the basis of majority?
Exceptions to non-voting restrictions
Majority vote shall be based on the 1
Sec.6. Classification of Shares; million shares, as it is a matter in
… which non-voting shares are
Holders of nonvoting shares shall nevertheless entitled to vote.
nevertheless be entitled to vote on the
following matters: FOUNDERS‟ SHARES
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Issued to founders of the corporation, granting the right to elect
which may be given certain rights and and be elected.
privileges not enjoyed by other
stockholders. Rule as to beginning of limited period as
to right to elect or be elected
Sec.7. Founder‟s Shares;
Founders’ shares may be given certain rights Under the RCC, the period of five (5)
and privileges not enjoyed by the owners of years shall commence from the date
other stocks. Where the exclusive right to of incorporation.
vote and be voted for in the election of
diretors is granted, it must be for a limited Under the CC, the date shall
eriod not to exceed five (5) years from the commence from the SEC’s approval
date of incorporation; Provided, that such of such.
exclusive right shall not be allowed if its Q: Can the five (5) year period be
exercise will violate Commonwealth Act extended?
No. 108, otherwise known as the “Anti-
Dummy Law”; Republic Act No. 7042, No, it shall be non-extendible
otherwise known as the “Foreign
Investments Act of 1991”; and other Instances when the right to elect and be
pertinent laws. elected cannot be given

Right to elect and be elected as BoD It shall not be allowed if it violates:

When a right to elect and be elected as a) Anti-Dummy Law (CA 108);

a BoD is provided in the founders’ b) Foreign Investments Act of 1991
share, it shall be for a limited period (RA 7042); and
of five (5) years. c) Other pertinent laws

Q: What happens after the lapse of five (5) REDEEMABLE SHARES (RS)
years?
Those issued subject to redemption as
It results to an almost perpetual may be provided by the terms of the
disqualification of the founder’s subscription contract.
shareholder to elect and be elected.
Hence, in effect, it becomes a non- It grants the corporation the right to
voting share. purchase or reacquire the shares at the
option of the:
Therefore, it results to an additional
kind of share which may be non- a) Corporation; or
voting: b) Holder, based on the face or
a) Preferred; issued value plus a specified
b) Redeemable; and premium.
c) Other shares if provided for by
this Code Sec.8. Redeemable Shares;
a. Founder’s shares, after the Redeemable shares may be issued by the
lapse of five (5) years corporation when expressly provided in the
articles of incorporation. They are shares
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
which may be purchased by the corporation 3. To pay dissenting or withdrawing
from the holders of such shares upon the stockholders entitled to payment for
expiration of a fixed period, regardless of the their shares under the provisions of
existence of unrestricted retained earnings in this Code.
the books of the corporation, and upon such
other terms and conditions stated in the Hence, redeemable shares may be
articles of incorporation and the certificate of acquired whether or not there are
stock representing said shares, subject to unrestricted retained earnings.
rules and regulations issued by the
Commission. Thus, the rule stands as follows:

Kinds of RS GR: There must be unrestricted

retained earnings (Sec.41 CC,
a) Optional; Sec.40 RCC)
b) Mandatory; ER: Redeemable shares (Sec.8, CC
c) Fixed date; or and RCC)
d) Future date
TREASURY SHARES
“Regardless of the existence of
unrestricted earnings” Shares which have been:

It operates as an exception under a) Issued and fully paid for;

Sec.41, CC or Sec.40, RCC to the b) Subsequently reacquired by the
rule that it may acquire its own shares issuing corporation, by
if it has unrestricted retained earnings. a. Purchase;
b. Redemption;
Sec.40. Power to Acquire Own Shares; c. Donation; or
Provided, that the corporation has d. Other lawful means
unrestricted retained earnings in its books
to cover the shares to be purchased or Sec.9. Treasury Shares;
acquired, a stock corporation shall have the Treasury shares are shares of stock which
power to purchase or acquire its own shares have been issued and fully paid for, but
for a legitimate corporate purpose or subsequently reacquired by the issuing
purposes, including but not limited to the corporation through purchase, redemption,
following cases: donation, or some other lawful means. Such
shares may again be disposed of for a
1. To eliminate fractional shares arising reasonable price fixed by the board of
out of stock dividends; directors.

2. To collect or compromise an Q: Can treasury shares be reissued?

indebtedness to the corporation,
arising out of unpaid subscription, in a Yes
delinquency sale, and to purchase
delinquent shares sold during said sale; Q: Can the treasury share be reissued for
and less than the issuance price?

Yes
CORPORATION LAW 2019-2020, 2nd Sem
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Q: In the above situation, will the Prior to this, a special meeting on 2

purchaser be liable to the creditors of the February 1958, MANTRASCO passed a
corporation for the difference between the resolution declaring the 24,700 shares as
purchase price and the par value? stock dividends to be distributed to
shareholders on 22 December 1958.
No, as its full value has been
previously paid before Sometime in between, on 14 September
1962, BIR conducted an examination on
Effect of treasury shares in the hands of MANTRASCO‟s books and found the
the corporation following:

It shall have no dividend or voting a) As of 31 December 1958, said

rights. shares are distributed to
Voting and dividend rights are granted respondents, amounting to an
ONLY TO OCS. acquisition cost of Php7,973,660;
b) Respondents failed to declare such
Treasury shares ARE NOT PART OF as taxable income; and
the OCS, as these shares are in the c) From 1956 to 1961, amounts were
hands of the corporation and not any paid by MATRASCO to Reese‟s
other person. estate by virtue of the trust
agreement.
Q: Can treasury shares be declared as
dividends? Hence, BIR assessed income deficiency
taxes against respondents. CTA, upon
Yes, they are properties of the appeal, absolved respondents from
corporation liability on the ground that their interest
remained the same despite the
Q: Julius Reese (Reese), John Manning, distribution, and only their shares was
WD McDonald, and E.E. Simmons increased. CIR now appeals to the SC on
(respondents), incorporated Manta the ground that said distribution to
Trading and Supply Co. (MANTRASCO), respondents is in effect a distribution of
whereby Reese owns 24,700 shares, while cash, hence taxable upon respondents.
the respondents own 100 shares or a total
of 300 shares. Both are contending that the disputed
shares are both treasury shares, CIR
Prior to Reese‟s death, the former holding that due to distribution, it should
executed a trust agreement where the law be taxable, on the other hand, respondents
firm of Ross, Carrasco, and Janda are were maintaining that only their numbers
appointed as trustees, with the intent that of shares were increased, but not their
the management of MANTRASCO and its interest. Who is correct?
two subsidiaries will remain with the
respondents. Both are incorrect as to the nature of
said shares being treasury shares.
However, the transfer was not effected
immediately for MANTRASCO‟s The Court enumerated the following
insufficiency of funds, and was fully paid characteristics of treasury shares:
on 25 November 1963.
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
a) Stock issued and fully paid;
b) Reacquired by the corporation Q: A and B are siblings, where the former
either by purchase, donation, lives in NCR, while the latter in
forfeiture, or other means. Pampanga. Their father, X, gave A the
c) Can be re-issued or sold again, amount of Php5,000,000 to incorporate a
as long as not retired by the financial lending company in NCR.
corporation;
d) Being in the treasury, they are: B, jealous for such, asked X for the same
a. NOT outstanding amount to incorporate his own financial
shares; lending company.
b. Does NOT participate
in: B submitted his AoI, and indicated as the
i. Dividends; and principal office his hometown for
ii. Voting convenience purposes. Will his articles be
In this case: approved?

a) The trustees voted thereupon No, the minimum paid-up capital for
on meetings financial lending company is provided
b) The trustees received for by special law.
dividends; and
c) The intention of the trust Under said law, financial lending
agreement is to retain said companies must have a minimum
shares in the outstanding paid-up capital of Php5,000,000 if in
shares of Reese’s estate until NCR, and Php10,000,000 if outside
fully paid. NCR.

Hence, as the declaration of dividends Hence, as the principal office stated in

was made on 1958, while full payment B’s AoI is in Pampanga, he needs
was made on 1962, the declaration Php10,000,000.
must be deemed as a nullity, on the
ground that dividends can only be “…subject to the provisions of the
declared from unrestricted retained following section” under the Corporation
earnings, and NOT from outstanding Code
shares. (CIR v. Manning)
The phrase does not exist anymore as
CAPITAL REQUIREMENT Sec. 13 of the CC has been deleted

Sec.12. Minimum Capital Stock Required Amount of subscribed and paid-up capital
of Stock Corporations;
Stock corporations shall not be required to Under the RCC, minimum for such
have a minimum capital stock, except as capital has been removed.
otherwise specifically provided by special law.
The provision on requiring the
Rule as to minimum capital required subscription of 25% of authorized
capital stock, and the pay up of at least
GR: No minimum capital required 25% thereof is no longer expressly
ER: Provided for by special law provided.
CORPORATION LAW 2019-2020, 2nd Sem
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Hence, it would seem that the Hence, the restrictions and
requirement does not exist anymore preferences would not apply to
purchasers in good faith.
RESTRICTIONS AND PREFERENCES
ON TRANSFER OF SHARES Q: What is the effect if it is indicated in
both AoI and CoS?
Importance of restrictions and preferences
The purchaser in good faith would be
It serves as a protection of bound by the restrictions and
corporation and stockholders; preferences.

a) From other persons; Q: In close corporations, where should the

b) By and among themselves restrictions and preferences appear?
Example of importance
In Close Corporations, as an
In family owned corporations, where additional requirement, it should
the intent is to run the business appear in the by-laws, hence:
between and among themselves, as the
entry of a stranger or third person a) AoI;
might prejudice the smooth flow of its b) CoS; and
business operation. c) By-Laws

Rule as to providing restrictions and Q: What is the effect if the restriction and
preferences preference in a close corporation does not
appear in any one of the above?
GR: NOT required
ER: Close corporations (Sec.96 The purchaser in good faith would not
CC) be bound by the restriction and
preferences
Q: Are they prohibited to provide
restrictions and preferences? THE NO TRANSFER CLAUSE

No Sec.14. Forms of Articles of Incorporation;

…
Q: Where should restrictions and Eleventh: (Corporations which will engage in
preferences indicated? any business or activity reserved for Filipino
citizens shall provide the following):
It should appear in:
“No transfer of stock or interest which shall
a) AoI; and reduce the ownership of Filipino citizens to
b) CoS less than the require percentage of the capital
stock as provided by existing laws shall be
Q: What is the effect if it is only indicated allowed or permitted to be recorded in the
in one, but not in both? proper books of the corporation and this
restriction shall be indicated in all stock
It would NOT bind purchasers in certificates issued by the corporation.”
good faith.
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Rule as to inclusion of no transfer clause Until after the successor is duly
elected and qualified in accordance
The Code requires only those with the by-laws
corporations which will engage in a
business activity reserved, fully or Duty of interim treasurer
partially, to citizens of the Philippines.
He shall certify:
However, as a matter of policy, the
SEC requires all stock corporations to a) Authorized capital stock;
include the same in the AoI. The b) Number of shares of authorized
purpose for this is to enable the State capital stock;
to determine whether such a c) Paid-up portion of the
corporation would contribute to the subscription
sound balanced development of the Authorities of interim treasurer
Philippine economy.
He is authorized to receive for and in
Hence: the name and for the benefit of the
corporation all:
CC/RCC: Corporations which
will engage in a a) Subscription or fees;
business activity b) Contributions or donations
reserved, fully or
partially, to citizens of THE EXECUTION CLAUSE
the Philippines
SEC: All stock corporations It is where:

THE TREASURER a) Incorporators sign the document;

b) With an indication:
Sec.14. Forms of Articles of Incorporation; a. Where it was signed; and
… b. When it was executed
Ninth: That ____ has been elected by the c) Witnessed by two (2) disinterested
subscribers as Treasurer of the Corporation to persons
act as such until after the successor is duly
elected and qualified in accordance with the Purpose
by-laws, that as Treasurer, authority has
been given to receive in the name and for the It is important as it serves as a
benefit of the corporation, all subscriptions, contract:
contributions or donations paid or given by
the subscribers or members, who certifies a) Between signatories themselves;
the information set forth in the seventh b) Signatories with the corporation;
and eighth clauses above, and that the and
paid-up portion of the subscription in case c) The corporation with the State
and/or property for the benefit and credit
of the corporation has been duly received. ACKNOWLEDGMENT

Tenure of interim treasurer Where signatories acknowledge before

a notary public that they have
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
executed and signed the same in their recommendation of the appropriate
own free, voluntary act and deed. government agency to the effect that such
articles or amendment is in accordance with
GROUNDS FOR DISAPPROVAL law.

Sec.17. Grounds When Articles of Kind of compliance required for approval

Incorporation or Amendment may be of AoI
Disapproved;
The Commission may disapprove the Only substantial compliance is
articles of incorporation or any amendment required
thereto if the same is not compliant with the
requirements of this Code: Provided, that the Effect if substantial compliance is not met
Commission shall give the incorporators,
directors, trustees, or officers a reasonable First, the Commission shall give the
time from receipt of the disapproval within corporation reasonable time to correct
which to modify the objectionable portions of or modify objectionable portions of
the articles or amendment. The following are the AoI.
grounds for such disapproval:
However, after failure to comply, the
1. The articles of incorporation or any SEC may then disapprove the
amendment thereto is not registration.
substantially in accordance with the
form prescribed herein; Grounds for disapproval

2. The purpose or purposes of the 1. If not substantially in accordance with

corporation are patently the form prescribed;
unconstitutional, illegal, immoral, or 2. If purpose patently:
contrary to government rules and a. Unconstitutional;
regulations; b. Illegal;
c. Immoral; or
3. The certification concerning the d. Contrary to government rules
amount of capital stock subscribed and regulations
and/or paid is false; and 3. False certification as to capital stock
subscribed;
4. The required percentage of Filipino 4. Required percentage of Filipino
ownership of the capital stock under ownership has not been complied
existing laws or the Constitution has with
not been complied with. 5. No favourable recommendation from
appropriate government agency in
case of specified corporations
No articles of incorporation or amendment to
articles of incorporation of banks, banking
Q: Are the above grounds exclusive?
and quasi-banking institutions, preneed,
insurance and trust companies, nonstock
No
savings and loan associations (NSSLAs),
pawnshop, and other financial intermediaries
Examples of other grounds
shall be approved by the Commission unless
accompanied by a favourable
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
1. Corporate name is not legally
permissible; A private corporation organized under this
2. Minimum capital requirement not Code commences its corporate existence and
sufficient juridical personality from the date the
Commission issues the certificate of
Q: What happens if the SEC found the incorporation under its official seal and
AoI substantially compliant? thereupon the incorporators,
stockholders/members and their successors
The SEC shall issue the certificate of shall constitute a body corporate under the
incorporation (CoI) name stated in the articles of incorporation
for the period of time mentioned therein,
Effect after issuance of CoI unless said period is extended or the
corporation is sooner dissolved in accordance
The corporation becomes: with law.
a) Vested with juridical personality Q: When will a corporation commence to
separate and distinct from the exist?
stockholders or members;
b) With the power to sue and be Upon the issuance of the CoI
sued; and
c) Perform all legal acts under its Q: Manuel Tabora (Tabora) sold four (4)
own name parcels of land under a Deed of Sale to
Cagayan Fishing Development Co.
COMMENCEMENT OF CORPORATE (Cagayan) on 31 May 1930.
EXISTENCE
During the time of the sale, Cagayan is
Sec.18. Registration, Incorporation and still in the process of incorporation and
Commencement of Corporate Existence; was only incorporated five (5) months
A person or group of persons desiring to after the sale, or on 22 October 1930.
incorporate shall submit the intended
corporate name to the Commission for Subsequently, Cagayan sold the said lands
verification. If the Commission finds that to Teodoro Sandiko (Sandiko) one (1) year
the name is distinguishable from a name later or on 28 October 1931. Is the sale to
already reserved or registered for the use Sandiko valid?
of another corporation, not protected by
law and is not contrary to law, rules, and No. A corporation is deemed to exist
regulations, the name shall be reserved in only after the issuance of the CoI.
favor of the incorporation. The
incorporators shall then submit their Before a corporation may validly
articles of incorporation and bylaws to the transact business, it must exist first.
Commission.
That the corporation did not exist at
If the Commission finds that the the time of the acquisition of Tabora’s
submitted documents and information are land, the sale is void.
fully compliant with the requirements of
this Code, other relevant laws, rules and Hence, as the corporation are not
regulations, the Commission shall issue owners of said lands, the subsequent
the certificate of incorporation. disposal is likewise void. (Cagayan
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Fishing Development Co. v. STATE warranto
Sandiko)
DIRECT
ATTACT BY NOT AVAILABLE
DEFECTIVELY FORMED PRIVATE
CORPORATIONS PERSONS

a) De facto; and COLLATERAL

b) By estoppel ATTACK BY NOT AVAILABLE
STATE

De Facto Corporations COLLATERAL

ATTACK BY NOT AVAILABLE
One that is: PRIVATE
PERSONS
a) Defectively created as not to
be a de jure corporation but Purpose of recognizing existence of de
nevertheless exists, for all facto corporations
practical purposes, as a
corporate body; It is necessary to promote the:
b) By virtue of its bona fide
attempt to incorporate under a) Security of business transactions;
existing statutory authority; and
c) Coupled with the exercise of b) Eliminate quibbling over
corporate powers irregularities

Requisites Q: Can a corporation organized by virtue

of a statute which was subsequently
a) Apparently valid statute; a valid deemed void and unconstitutional be
statute under which the corporation deemed as within the ambit of an
could have been created as a de jure “apparently valid statute”?
corporation;
b) Colorable compliance; attempt in No (See next case)
good faith to form a corporation;
c) Use of corporate powers; as if it Q: Amer Macario Balindong, as mayor
were a corporation; and and in behalf of Malabang, Lanao del Sur
d) Good faith; in claiming to be and (petitioners) filed an action for prohibition
doing business as a corporation to nullify EO 386 and to restrain Mayor
Pangandapun Benito and the councilors
De facto v. de jure corporations of Balabagan, Lanao del Sur
(respondents) from performing functions
DE JURE DE FACTO of respective offices.
COMPLIANCE Strict; or Colorable
Substantial Petitioners rely on the ruling in Pelaez v.
POWERS, Auditor General, where the Court ruled
ATTRIBUTES, SAME
that Sec. 68 of the Administrative Code,
and
LIABILITES which gives the President the power to
create municipalities is unconstitutional
DIRECT NOT AVAILABLE as:
ATTACK BY AVAILABLE through quo
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
a) It is an undue delegation of Q: Pending the approval of the AoI, is quo
legislative powers; warranto needed to question the existence
b) It violates the limitation on the of a corporation?
President‟s power over local
government is merely supervisory; No (See next case)
and
c) It shall be deemed repealed due to Q: Arnold Hall (petitioner), Emma and
the 1935 Constitution, as the Fred Brown, Hipolita Chapman, and
Administrative Code was approved Ceferino Abella (respondents)
on 1917 acknowledged and signed the AoI,
adopted by-laws, and elected officers of
Respondents on the other hand rely on its Far East Lumber and Commercial Co.
being a de facto corporation, being (FELC) on 28 May 1947. But they
granted existence due to a statute prior to submitted their AoI to the Sec after 7
its declaration of being unconstitutional, months, or on December 1947.
and that it cannot be collaterally attacked, Pending action on said articles,
and Balindong is merely an individual respondents filed against petitioner for the
who cannot attack its existence. Who is dissolution of the unregistered partnership
correct? with the CFI due to dissension,
mismanagement, financial losses and feud
Petitioners are correct. The ruling in among managers, which the CFI granted.
Pelaez correctly declared that EO 386
is unconstitutional, and as a similar Petitioner questioned the CFI decision, on
ruling in Municipality of San Jose and the ground that the entity is a de facto
Siva, Balabagan must be restrained corporation to which only a direct
from acting further. proceeding by the State may prosper. Is
petitioner correct?
An unconstitutional act is not a law,
hence confers no rights, no duties, no No, FELC cannot be considered as a
protection, no office. It is as if the law de facto corporation for two reasons:
had never been passed.
a) Issuance of CoI calls a
While it is true that the first corporation into being; and
consideration is to consider any other b) The suit is NOT against the
statute that may uphold the validity of corporation, but rather
the corporation, such is wanting in between stockholders.
this case as it is only through the
Administrative Code that it was On the first ground, de facto
created. corporations exist by virtue of errors
or irregularity, but NOT from total or
Furthermore, even considering other substantial disregard of the law.
aspects such as relationship, the
invalidity of Balabagan would not On the other hand, the State’s
result in the unsettling of many acts it intervention, whether de jure or de facto,
did. (Municipality of Malabang v. is not needed to acquire dissolution of
Benito, et al.) the corporation.
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Furthermore, the doctrine of estoppel b) Persons who assumed
would not apply as the stockholders obligations with the ostensible
are deemed to know regarding the corporations
existence of the corporation, and that i. Cannot resist performance
no third parties are damaged by
entering into transactions. (Hall v. Practical application of the doctrine
Piccio)
Members avoid liability by invoking
Corporation by Estoppel lack of personality to be sued

A corporation which is neither de facto General partners

nor de jure because of serious defects
in its incorporation or organization, As general partners, persons are liable
which may exist by virtue of an up to the extent of their own personal
agreement, admission, or conduct of property NOT contributed in the
the parties such that they will not be business.
permitted to deny its existence.
Hence, they are not protected by the
Sec.20. Corporation by Estoppel; limited shareholder’s liability
All persons who assume to act as a
corporation knowing it to be without By estoppel v. de facto
authority to do so shall be liable as general
partners for all debts, liabilities, and damages De facto corporations is deemed to
incurred or arising as a result thereof; Provided, have acquired corporate status
however, that when any such ostensible generally, while by estoppel applies
corporation is sued on any transaction entered only to particular transactions done in
by it as a corporation or on any tort the corporate name.
committed by it as such, it shall not be
allowed to use its lack of corporate personality Basis
as a defense. Anyone who assumes an
obligation to an ostensible corporation as Equity considerations, as it is a mere
such cannot resist performance thereof on the fiction and exists only for a particular
ground that there was in fact no corporation case

Requisites Purpose

a) Persons acted as a corporation; It is for convenience, avoidance of

b) Knowing it to be without injury, and fairness to all parties
authority concerned

Effect of acting as such Q: Who cannot deny corporate existence?

a) As to persons acting as such; 1. Persons who participated; and

i. Liable as general partners 2. Third parties who knowingly
ii. Defense of lack of transacted with the unregistered
corporate personality NOT corporation
available
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Q: Is it sufficient that the member or of jeepney driver‟s associations with
agent of the association is positioned as routes to and from Angeles and
such in order for the denial be Mabalacat.
unavailable?
Upon the request of the Sanggunian, they
No, the acts relied upon must be agreed to consolidate their associations as
equivalent to a representation or United Mabalacat-Angeles Jeepney
admission of corporate existence Operators and Driver‟s Association
(UMAJODA).
Application against third parties
In line with the agreement, set of officers
The doctrine would exist ONLY if the shall be elected, to which Lozano won.
3rd party: Anda protested, and kept collecting dues
from his members.
a) Tries to escape liability; and
b) Has benefitted Hence, Lozano filed a case with the trial
court to restrain Anda from such acts.
Hence, only if the 3rd party knowingly
transacted with an unregistered However, the trial court found that it is an
corporation may the doctrine apply. intra-corporate dispute, which is under
the jurisdiction of the SEC. Is the trial
Thus, the defense is STILL available court correct?
in case of fraud, where he does not
know that it is unregistered. No. At the moment, there is no
UMAJODA to speak of, as the
When doctrine not available certificate of consolidation has not
been submitted, hence nothing to
1. Member’s acts does not equate to a approve.
representation or admission of
corporate existence; As no corporate existence is present,
2. 3rd party they remain as two different entities.
a. did not treat the association as
a corporation; Likewise, the doctrine of estoppel will
b. does not know that it is a not apply as there is no third parties
corporation; involved. It will only apply as a matter
c. not chargeable with of equity to avoid injustice and
knowledge that it is a unfairness.
corporation;
d. there is fraud; As it is a case where it is only among
e. he is claiming from the those who incorporates, knowingly
contract that it has not been registered, there is
3. One who has not dealt with the no corporation by estoppel. (Lozano
unregistered association, nor v. De los Santos)
recognized it as a corporation, nor
participated in holding it out as such Q: Jose Aruego (Aruego) president of
University Publishing Co., Inc.
Q: Reynaldo Lozano (Lozano) and (University) entered into an agreement
Antonio Anda (Anda) are both presidents with Mariano Albert (Albert) whereby the
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
former shall have exclusive rights to
publish the latter‟s book on the Revised Refuerzo claims that the liability must be
Penal Code, in exchange for eight limited to the corporation, which
installments amounting to Php30,000. Salvatierra opposed. However, the court
granted Refuerzo‟s motion. Is the trial
However, Aruego failed to pay, which court correct?
prompted Albert to pay said amount.
No, Salvatierra is not estopped to
The CFI ruled in favor of Aruego, while deny its existence due to fraud.
the SC affirmed the order, and issued a
writ of execution against Aruego. When asked about its existence,
Refuerzo did not give a confirmation.
As a defense, Aruego claim the real party
defendant should be University. Is he Hence, Refuerzo is liable and NOT
correct? the corporation. (Salvatierra v.
No, in line with Hall v. Piccio, non- Garlitos et al.)
registration would mean no
corporation exists. Q: Faustina Oh (Oh), after 33 years of
service to Chiang Kai Shek School
Likewise, estoppel cannot apply as the (School) in Sorsogon, was surprised that
doctrine is not available against his she was not given any assignment for the
victim. following sem. Hence, Oh sued School for
such dismissal. However, this was
Hence, Aruego cannot claim that it is amended to implead school officials.
indeed University that is liable.
CFI dismissed the complaint, CA set
In reality, Aruego is the one aside the decision of CFI holding the
answerable, as he was the one who school suable while absolving school
contracted and reaped the benefits of officials. School petitioned for Review.
the transaction. (Albert v. University Will their petition prosper?
Publishing, Co.)
No, their failure to register is due to
Q: Manuel T Vda. De Salvatierra themselves not passing the required
(Salvatierra) entered into a contract of documents within 90 days to
lease with Philippine Fibers Process Co. incorporate.
(PFPC) represented by Segundina
Refuerzo, as to his parcel of land, for the They cannot now deny its existence to
planting of kenaf, ramie, or other crops. deprive Oh of her claims. (Chiang
Included in the agreement is the Kai Shek School v. CA)
entitlement to income.
Q: A promissory note in the amount of
Due to failure of PFPC to comply with the Php24,736.47 in favor of Asia Banking
agreement, an action for accounting, Corp (Asia) was issued by Standard
rescission, and damages is instituted in Products Co., Inc. (Standard)
the CFI
Due to non payment, Asia instituted an
CFI ruled in favor of Salvatierra as PFPC action, which the CFI granted.
defaulted.
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Standard appealed, on the ground that No, juridical capacity requires the
Asia failed to prove the corporate State’s consent, and both RA 3135
existence of both corporations. Will his and PD 604 merely:
appeal prosper?
1. Recognized the existence of
No, the issuance of the promissory national sports associations;
note amounts to a recognition of and
corporate existence. (Asia Banking 2. Provided the manner by which
Corp v. Standard Products Co., these entities may acquire
Inc.) juridical personality by
recognition of the accrediting
Q: International Express Travel & Tours organization:
Services, Inc. (International) and a. Philippine Amateur
Philippine Football Federation Athletic Federation
(Federation), through its President Henri (RA 3135); or
Kahn (Kahn), entered into a contract b. Department of Youth
whereby the former served as the travel and Sports
agent of the latter. Development (PD
604)
By virtue of the contract, International
secured tickets for Federation‟s trips to In this case, Kahn failed to prove any
SEA Games in Kuala Lumpur, China, and of these recognitions and merely
Brisbane, amounting to Php499,654.85. attached the by-laws of the
Federation.
However, Kahn only paid partial
payments and subsequently no more In order for a national sports
payments were made, which led to association to be given juridical
International‟s filing in the RTC for the capacity, the State must give its
balance of Php207,524.20 against Kahn consent, which must be done by
and International as the alternative compliance with the law, in this case,
defendant. by RA 3135 or PD 604.
(International Travel and Tours
Kahn answered, maintaining that he Services, Inc. v. CA)
should not be held personally liable as he
merely acted as an agent of Federation. Q: Georg Grotjahn GMBH & Co. (Georg)
is a multinational company organized and
RTC ruled in favor of International, and existing under the laws of Germany.
held Kahn personally liable.
By virtue of PD 218, Georg filed an
CA, upon appeal, reversed the RTC, application with the SEC for the
hence dismissing the complaint against establishment of a regional or area
Kahn, citing both RA 3135 (Revised headquarters in the Philippines, to which
Charter of the Philippine Amateur Athletic a Certificate of Registration and license
Federation) and PD 604, as the laws was issued.
which gave rise to Federation‟s existence.
Is the CA correct? Romana Lanchinebre (Romana), sales
representative of Georg, secured loans and
cash advances from the latter amounting
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
to Php35,000. However, Php12,170.37 was ER: Fraud (Salvatierra v. Garlitos
not paid, and no payment was made and Albert v. University
despite demand by Georg, which led to Publishing Co., Inc.); and
the filing of a case for collection of sum of 3rd party claiming from the
money. However, Romana filed a motion contract (International
to dismiss. Express Travel and Tours v.
CA and Georg Grotjahn v.
Respondent Judge Isnani (Isnani) granted Isnani)
Romana‟s motion to dismiss, grounded on
the failure of Georg to establish its Possible remedies available for 3rd parties
capacity to sue, nor alleging that it is who entered into a contract with the
filing under an isolated transaction, and ostensible corporation
that it was not licensed to do business but
rather only an authority to establish a He may file against:
headquarters herein. Is Isnani correct?
1. Ostensible corporation, to recover
No, while it is true that PD 218 from corporate properties;
precludes Georg to do business in the 2. Associates who held out the
Philippines, its continuous acting for association as a corporation; and
its primary purpose as headquarters 3. Both of the above, jointly and
and hiring employees such as Romana, severally
it is deemed as doing business in the
Philippines. However, the last two options are
available ONLY IF the 3rd party is
Furthermore, Romana is estopped NOT estopped from denying the
from challenging the personality of existence of the corporation.
Georg, as it entered into a contract
with the latter and has received Hence, if said 3rd party acted in such a
benefits. conduct recognizing the corporation,
the only option available is the first
In line with the ruling in Merill Lynch one, hence limited to corporate assets.
Futures, Inc. v. CA, the doctrine of
estoppel applies to foreign Q: A, B, and C, represented an association
corporations doing business although to be a corporation. X, a 3rd party,
not authorized to do so, as if it is not transacted with them. However, upon
allowed it would result to injustice on breach due to A and B‟s fault, X exercised
the part of the corporation. (Georg his remedy against the three of them.
Grotjahn GMBH & Co. v. Isnani)
In reality, the active persons are A and B,
Summary of rules as to applicability of and C was merely passive. Should all of
doctrine of estoppel as to third parties them be held liable as general partners?

GR: 3rd parties who dealt with No, it should only be A and B liable
corporation and treated it as up to their own properties.
such CANNOT deny its
existence (Asia Banking This view is in line with the provision
Corp. v. Standard Products); of Sec.21/22 of CC/RCC, stating
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
“…knowing it to be without authority of incorporation of companies under their
to do so”. special regulatory jurisdiction.

Hence, A and B are liable as general Q: What should the corporation do after
partners, while C will only be liable the issuance of the CoI or certificate of
limited to his own contribution. registration?

ORGANIZATION AND The corporation must:

COMMENCEMENT OF BUSINESS
1. Formally organize; and
CORPORATE ORGANIZATION 2. Commence its business

Sec.21. Effects of Non-Use of Corporate Q: What if the corporation did not do the
Charter and Continuous Inoperation; above?
If a corporation does not formally organize
and commence its business within five (5) It may lead to automatic dissolution of
years from the date of its incorporation, its CoI or be classified as a delinquent
certificate of incorporation shall be corporation.
deemed revoked as of the day following
the end of the five (5) year period. Automatic dissolution

However, if a corporation has commenced its If within five (5) years after the
business but subsequently becomes issuance of the CoI, the corporation
inoperative for a period of at least five (5) failed to formally organize and
consecutive years, the Commission may, commence business.
after due notice and hearing, place the
corporation under delinquent status. It is deemed revoked, the day after the
end of the five (5) year period.
A delinquent corporation shall have a
period of two (2) years to resume Q: XYZ corporation was issued its CoI on
operation and comply with all 27 January 2015. However, it did not
requirements that the Commission shall formally organized nor commenced its
prescribe. Upon compliance by the business within five (5) years. When is the
corporation, the Commission shall issue CoI deemed revoked?
an order lifting the delinquent status.
It shall be deemed revoked on 28
Failure to comply with the requirement January 2020
and resume operations within the period
given by the Commission shall cause the Rule as to automatic dissolution
revocation of the corporation‟s certificate
of incorporation. GR: Dissolved after five (5) years;
ER: Failure due to causes beyond
The Commission shall give reasonable its control
notice to, and coordinate with the
appropriate regulatory agency prior to the Delinquent corporation
suspension or revocation of the certificate
CORPORATION LAW 2019-2020, 2nd Sem
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If the corporation commenced its 2. Commenced but subsequently
business, but subsequently becomes became inoperative for five (5)
inoperative for AT LEAST five (5) years; the corporation is placed under
CONSECUTIVE years, the delinquent status, and given two (2)
Commission, after due notice and years to resume operations. Only
hearing MAY place the corporation failure to resume operations within
under delinquent status. the period will dissolution be allowed,
the failure to do so deemed as a
Hence, it is NOT automatic, but ground for dissolution.
rather requires due process.
Formal organization
The dissolution under this category is
NOT automatic, but merely a ground Process of structuring the corporation
for such. to enable it to effectively pursue the
Remedy of delinquent corporation purpose for which it was organized. It
includes the following:
After such placement as delinquent
corporation, the order lifting the 1. Organizational meeting of
delinquent status shall be issued if stockholders to elect BoD;
said corporation: 2. Adoption of by-laws, if not
simultaneously filed with the AoI
1. Within two (2) years a. In which case, it must be
2. Resume operation; and filed within one (1) month
3. Comply with the Requirements from issuance of CoI
prescribed by the corporation 3. Organizational meeting of BoD
to:
Q: What happens if the delinquent a. Elect corporate officers;
corporation fails to resume operations b. Adopt corporate seal;
and/or comply with requirements within c. Accept pre-incorporation
two (2) years? subscriptions;
d. Establish principal office;
Commission shall cause the and
revocation of CoI e. Other step necessary to
transact business for
Requirement before suspension or which corporation is
revocation of CoI of corporations under formed
special regulatory jurisdictions
Q: What kind of compliance should be
The Commission must provide the observed in formally organizing the
appropriate agency: corporation?

1. Reasonable notice; and Substantial compliance

2. Coordinate
Q: XYZ corporation, has already been
Summary of dissolutions issued its CoI. Hence, it already elected
the BoD, and the latter elected a treasurer
1. Failed to commence after CoI and a clerk. However, a president and
issued; automatic dissolution;
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
secretary has not been elected. May the commenced its business. May the SEC
CoI be dissolved? dismiss the CoI?

No. Only substantial compliance is No, the petition for annulment is a

required as to formal organizations. cause beyond the control of Paunlad.
(Perez v. Paunlad)
The fact that a president and secretary
has yet to be elected does not amount
to a ground for dissolution.

Due to the acts of XYZ, of electing

the BoD, treasurer, and clerk, it is
deemed as substantially complied with
formal organization. (Perez v.
Balmaceda)
COMMENCEMENT OF BUSINESS/
TRANSACTION

It means that the corporation:

1. Actually functioned; and

2. Engaged in the business for which
it was organized.

Example of commencement of business

Entering into contracts to pursue

business

Q: When should the corporation

commence its business?

It should be commenced within five

(5) years

Effect of non-commencement

It shall result to automatic dissolution,

UNLESS the cause is beyond its
control

Q: Paunlad sa Nayon ng Bilogo, Batangas

City, Inc. (Paunlad), has already been
issued its CoI. However, after securing its
water permit, the community sought for
the annulment of such permit. Five (5)
years has passed, but Paunlad has not
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
CHAPTER V: THE CORPORATE Example of primary and secondary
CHARTER AND ITS AMENDMENTS franchises

CORPORATE CHARTER An employment agency has been

issued a CoI by the SEC (Primary).
Signifies an instrument or authority
from the sovereign power, bestowing However, in order to legally act as an
rights or power, and is often used international or overseas employment
convertibly with the term: agency, it must secure a license or
authority from the Philippine
1. Act of incorporation; formed Overseas Employment Administration
under special act of legislature; or (Secondary).
2. AoI; formed under general law
Hence, to be a corporation, the SEC
Three-fold contract issues the CoI. On the other hand, to
operate as an employment agency, the
1. Between corporation and the State; POEA must issue an authority or
a. Primary franchise to act as license.
such
2. Between corporation and stockholders CORPORATE ENTITY THEORY
or members;
a. Respective rights and The corporation is possessed with a
obligations; and personality separate and distinct from
3. Between and among stockholders or the individual stockholders or
members members.
a. Relationship with one another
It is not affected by the personal
Charter v. franchise rights, obligations, or transactions of
the latter.
Charter applies to the instrument by
which the state vests such right or Q: Is the property of the corporation
privilege deemed the property of the president?

Franchise is the right or privilege No. (See Cruz v. Dalisay)

itself to be and act as a corporation or
do a certain act. Q: Sulo ng Bayan, Inc. (Sulo) filed an
accion de revindicacion with the CFI
Kinds of franchise Bulacan against Gregorio Araneta, Inc.
(GAI) to recover a parcel of for its
1. Primary; right or privilege of being a members, alleging that:
corporation which the state confers;
and 1. The latter cultivated the same
2. Secondary/special; powers and since the Spanish regime and
privileges vested in, and to be continuously possessed such; and
exercised by the corporate body as
such 2. GAI forced such members out of
said land. Hence, Sulo prays that
GAI‟s title be declared null and the
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
land be named in the names of To this order, petitioners petitioned to
such members as absolute owners. question their solidary liability. Should
petitioners be held liable?
CFI granted motion to dismiss filed by
GAI on the ground that the complaint No. Even if petitioners are the
stated no cause of action, which was principal stockholders, they cannot be
granted. The MR was likewise denied. held liable for the transactions of the
corporation.
CA now certifies the case for the SC to
resolve the issues. Is the CFI‟s dismissal FOA, as a bonafide corporation, must
correct? be held liable for its obligations.
Without any showing that it has no
Yes, as said land is not Sulo’s separate juridical personality,
property, it has no personality to bring petitioner cannot be made liable.
an action.
If liability is allowed to attach, it
A corporation has no interest in the would allow for a rule where
property of the stockholders, even in stockholders, even subsequent ones,
the case of a one-man corporation. may be held liable for transactions
Even if it is the president, said entered prior to their being as such.
property is still owned by the latter
and not by the corporation. Note however, that Barreto and
Garcia did not file their respective
As an exception, a corporation has an petitions, hence the liability remains to
interest if it is transferred to the attach as to them. (Fermin Caram,
corporation. In this case, there is no Jr. and Rosa De Caram v. CA and
showing that the members indeed Alberto Arellano)
made a transfer to the corporation.
Q: Rustan Pulp and Paper Mills, Inc.
Hence, as there is no legal right to (Rustan) through its general manager and
speak of, there cannot be a cause of president Bienvenido Tantoco (Tantoco),
action. There can be no wrong nor is a entered into a contract with Lluch, where
breach of duty, when there no right the latter shall supply raw materials to the
(Sulo ng Bayan, Inc. v. Gregorio former.
Araneta, Inc.)
However, few months into the contract, a
Q: Fermin Caram, Jr, and Rosa De Caram letter was sent by Rustan‟s resident
(petitioners) invested in Filipino Orient manager Romeo Vergara (Vergara) to
Airways (FOA). Petitioners were Lluch informing that “…we will not be
persuaded by the project study presented needing further delivery from you”, to
to them by Barreto and Garcia. which he clarified whether it was a
stoppage or termination of contract,
However, Alberto Arellano, who worked which however, was left unanswered.
on the said project study, filed for the Hence, deliveries continued
payment for his compensation. The court
held in his favor and made petitioners, Due to this, a complaint for breach of
FOA, Barreto and Garcia as jointly and contract was filed. CFI dismissed the
severally liable. complaint, but enjoined petitioners to
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
respect the contract. On appeal, the IAC Contract to Sell a land in Antipolo, Rizal
modified the judgment and held that in favor of Nazario Dumpit (Dumpit).
Tantoco and Vergara should be jointly
and solidary liable. Is the IAC correct? Said contract contains a clause where
default in payment results in automatic
No, the IAC is incorrect. rescission of the contract without need of
demand.
While it is true that the president and
manager entered into a contract, they Dumpit paid only for two (2) years or until
cannot be made liable due to the 1967. Six (6) years after, he offered to pay
corporation having its separate and his dues with interests, and sought the
distinct personality. They can only be assignment of his rights to Lourdes
made liable if there is a stipulation to Dizon.
that effect. (Rustan Pulp and Paper
Mills, Inc. v. IAC) However, Palay refused, on the ground
that the contract has already been
Q: By virtue of an NLRC case ordering rescinded and resold.
the reinstatement and full payment of
backwages against Qualitrans, a writ of Due to this, Dumpit complained with the
execution was issued. Deputy Sheriff National Housing Authority (NHA)
Quiterio Dalisay (Dalisay) executed the which ruled in his favor, on the ground
same by attaching the cash deposit of its that the rescission is void due to absence
president, Adelio Cruz (Cruz). of demand. Hence, ordered Palay and
Onstott to refund the amount paid. Is the
Cruz questioned the execution as a NHA correct in ruling Onstott liable?
malfeasance, corrupt practice, and
seriously irregular. As a defense, Dalisay No, the mere fact of presidency and
claims that he is acting upon a ministerial controlling stocks CANNOT by its
duty. Is Dalisay correct? own make Onstott liable.

No, Dalisay is incorrect, as what is to The general rule stands, that

be executed is what is stated under the corporations has a separate and
dispositive portion, no more, no less. distinct personality, and its
stockholders can only be made liable
Dalisay “pierced the veil” of corporate in the following circumstances where
fiction, which is a function reserved to the veil of corporate fiction:
the courts.
1. Is used as a shield to further an
The president is not the owner of end subversive of justice;
corporate properties and vice versa, 2. Purposes that count not have been
the mere fact as such cannot make intended by the law that created it;
him liable up to his personal 3. To:
properties (Cruz v. Dalisay) a. Defeat public
convenience;
Q: Palay, Inc. (Palay), through its b. Justify wrong;
president and controlling stockholder c. Protect fraud; or
Albert Onstott (Albert) executed a d. Defend crime;
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
4. Perpetuate fraud or confuse Hence, the general rule should stand,
legitimate issues; absent any proof of intent to defraud
5. Circumvent the law or perpetuate or of using the corporate personality
confusion; or as a shield for a wrongdoing.
6. As an alter ego, adjunct or (Soriano, et al. v. CA and Cu)
business conduit for the sole
benefit of the stockholders PIERCING THE VEIL OF
CORPORATE FICTION
In this case, the above badges of fraud
are wanting. Palay and Onstott merely Applicability of corporate entity theory
relied, mistakenly, on the provision of
its contract. It is limited to legitimate
transactions
No proof of intent to defraud Dumpit
is present in this case. (Palay, Inc. v. Subject to equitable limitations
Clave)
Equitable limitations are imposed in
Q: Bacarra (I.N.) Facoma, Inc. (Bacarra), order to prevent its being used:
a farmer‟s cooperative marketing
association, entered into a contract 1. As a cloak/cover for fraud or
through their president, manager, illegality; or
treasurer, and director representative, with 2. To work an injustice
Mr. Geruacio Cu (Cu) where the latter
shall supply the former with Virginia Grounds
Tobacco.
While no hard and fast rule exists, the
However, that no payment was made, Cu following may be grounds for such
filed a complaint for collection of sum of piercing:
money, which was granted by the trial
court, ordering said corporate officers 1. Purpose of convenience/ to defeat
jointly and severally liable. They anchored public convenience;
on the ground that the “Association” 2. Subserve ends of justice;
refers only to the undersigned persons. 3. Justify wrong;
4. Protect fraud;
The CA affirmed the decision in toto, 5. Defend crime; or
grounded on the fact that the designations 6. Alter-ego or business conduit for
were meaningless as to the corporation‟s the sole benefit of the
liability, hence personal liability should be stockholders.
ordered. Is the CA correct?
Effect of any of the above
No, said designations were not
meaningless, as the parties themselves The juridical personality of the
placed the word “Association”. corporation shall be deemed as legal
fiction
If indeed they intended to be
personally bound, they should have Hence, the following are the further
wrote “…the undersigned”. effects to the corporation:
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
1. Mere association of persons; or years from after IAME was
2. Merged into one corporation, in incorporated
case of two corporations, where
one is deemed merely as an Due to this IAME claims the following:
instrumentality or part of the
other 1. That due process was denied as
IAME‟s jurisdiction was never
Q: A writ of execution was issued against acquired;
Atty. Emmanuel Santos (Santos) after
defaulting payments to a lease contract 2. That piercing only applies to stock
with Litton and Co., Inc. (Litton). Where corporations;
the real property in the name of
International Academy of Management 3. That piercing does not apply to
and Economics (IAME) was levied to natural persons.
satisfy the judgment against Santos, hence
annotated with “…only up to the extent of Is IAME correct?
the share of Emmanuel Santos.”
No, IAME is incorrect.
IAME filed with the MeTC to lift or
remove said annotations alleging its As the denial of due process, while as
separate personality from Santos. MeTC a general rule, jurisdiction must first
denied the motion. be acquired before it be subjected to
the trial and the writ of execution, it
However, upon MR, the MeTC reversed admits of exceptions, as to when the
itself and ordered the cancellation of the entity is used to evade a legitimate and
annotations and the writ. binding commitment and perpetuate a
fraud or wrongdoings.
RTC, upon Litton‟s appeal, reversed the
MeTC, and reinstated its original Order. As to its application to stock
corporations, the court and in US
CA affirmed the original Order, on the courts, in a plethora of cases never
ground that Santos merely utilized IAME placed the issue of whether the
for the following reasons: corporation is a stock or non-stock
corporation. It was held that control
1. The deed referring to the sale of of ownership does not pertain to
said land stated that Santos stock ownership. Hence, the concept
represented IAME as vendee, on 31 of equitable ownership was
August 1979, when the latter has considered, as one who is a non-
only been incorporated in 1985; shareholder defendant having control
of the entity.
2. That the said property was only
transferred to IAME during the As to its applicability to natural
appeal to CA on the revival of persons, the Court held that the veil
judgment; and may be pierced when the corporation
is a mere alter ego of the other, as to
3. TCT to said land was only issued reach the corporate assets in order to
on 17 November 1993, 14 years after satisfy the judgment. (International
the execution of the deed, and 8
 CORPORATION LAW 2019-2020, 2nd Sem
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Academy of Management and to take advantage of a benefit available
Economics v. Litton and Co., Inc.) to the corporation (e.g. interest in a
lawsuit or protection of personal
Kinds of piercing assets

1. Traditional BENEFIT
AVAILABLE TO
2. Reverse THE
a. Outsider Reverse CORPORATION X
b. Insider Reverse Y
Z
Traditional v. Reverse piercing CORPORATE DEFENDANT
INSIDER
Traditional piercing happens when a
court disregards the existence of the Q: What is the kind of piercing applied in
corporate entity so a claimant can IAME v. Litton?
reach assets of a corporate insider.
Outsider reverse piercing was applied.
X
Y In this case, the claimant, Litton, has a
Z CLAIM claim against Santos. However, in
order for the judgment to be satisfied,
CORPORATE CLAIMANT the corporate assets of Litton must be
INSIDER
affected, as Litton is the alter ego of
Reverse piercing happens when a Santos, and vise versa. Hence, they are
plaintiff seeks to reach the assets of a deemed as one and the same person.
corporation to satisfy claims against a
corporate insider. Q: CFI of QC convicted Alfredo Carillo
CLAIM (Alfredo) guilty for reckless imprudence as
he ran over Mario Palacio, son of Gregorio
Palacio (Palacio), which required the
X former to be hospitalized. Hence, Alfredo
C
OR O Y was sentenced for imprisonment and
R Z indemnity.
P

CORPORATE CLAIMANT Alfredo drives for Isabelo Calingasan

INSIDER VEIL
(Calingasan), while the latter is the
Outsider v. insider reverse piercing president and general manager of Fely
Transportation Company (FTC).
Outsider reverse occurs when a party Interestingly, the jeep drove by Alfredo
with a claim against an individual or was sold to FTC after the incident.
corporation attempts to be repaid with
assets of a corporation owned or Out of these facts, the civil case for the
substantially controlled by the above incident instituted in CFI Manila
defendant. (See above) against FTC, the latter court ruled that
Calingasan is subsidiarily liable as Alfredo
Insider reverse occurs when is insolvent, and NOT the defendant
controlling members will attempt to corporation.
ignore the corporate fiction in order
 CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Hence an appeal was filed by Palacio, were seized and to be publicly sold by the
stating that FTC should be held CIR. Thus, led to the filing of an action in
subsidiarily liable. Is Palacio correct? the trial court.

Yes, Calingasan and FTC are one and Plaintiffs, stockholders of Marvel, allege
the same person, and the latter had that the buildings are owned by Marvel
been used only as a shield to further and NOT Castro. CIR on the other hand
an end subversive of justice. claims that Castro is the sole and true
owner of said properties.
The following evidence had been
observed: The trial court ruled in favor of plaintiffs,
due to dual interpretation, no
1. The incorporators of FTC include: interpretation can be made to deprive one
a. Calingasan; of property without due process of law. Is
b. His wife; the trial court correct?
c. His son; and
d. His two (2) daughters; No, Castro should be deemed as the
2. No proof as to other properties of true owner, under the following
FTC other than the jeep evidence:

In this case, FTC was organized in 1. The incorporators include:

order for Calingasan to avoid a. Two (2) half-brothers;
subsidiary liability, as the latter has b. Half-sister; and
transferred the jeep to the former in c. Brother-in-law
order for the property be placed out 2. Endorsement in blank of shares to
of reach of claimants, which led to the the above;
Court piercing the veil of FTC. 3. Possession of said shares by
Castro
Further, establishing their identity as 4. That stockholders cannot have
one, Calingasan can be substituted as such income to enable them to
the real-party-in interest despite not buy said stocks;
being the party in the original case, to 5. That subscriptions were not
avoid multiplicity of suits. (Palacio v. receipted for;
Fely Transportation, Co.) 6. Said subscriptions held by Castro
7. Plaintiffs DID NOT took the
stand to deny being dummies;
8. Castro advancing big sums of
money
F
T Out of all the pieces of evidence, the
C endorsement in blank is the most
alarming, as it would seem that the
CALINGASAN PALACIO alleged incorporators were merely
made as such in order to comply with
Q: By virtue of assessment of war profits the minimum requirement, when in
taxes assessed against Maria Castro fact their shares of stock were not in
(Castro), three buildings in the name of their name and can be readily be made
Marvel Building Corporation (Marvel) available once there is a new
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
stockholder. (Marvel Building 1. The founders of SM are related to
Corporation, et al. v. David) the founders of Yutivo, as the
latter’s sons;
M 2. The subscriptions of SM were
A advances made by Yutivo
R (unilateral act);
V 3. SM under the management and
E control of Yutivo (management
L
contract);
CASTRO CIR 4. Controlling majority of BoD of
both are the same;
Q: Yutivo and Sons Co. (Yutivo) bought 5. Principal offices are the same;
from General Motors Overseas 6. Correspondence show that SM
Corporation (GM) cars and trucks, where treats Yutivo as the head office;
the former shall sell it to the public. GM 7. Remittances directy to Yutivo
shall pay importation taxes, while Yutivo 8. Hence, finances came from
will not be subject to taxes for its sales. Yutivo

From 1946 and until the time GM Hence, the creation of SM was merely
withdrew from the Philippines, Yutivo a scheme to avoid taxing the sale to
sold such cars and trucks to Southern the public, as under this setting, only
Motors (SM) for the latter to sell it to the the sale from Yutivo to SM will be
public. taxed, and NOT the public sale.
Rather, the sales to the public should
When GM withdrew from the Philippines, be taxed as original sale by Yutivo and
Yutivo was made as the importer by the NOT as SM’s taxes. (Yutivo and
US Manufacturer, and in its place, was Sons, Co. v. CTAX)
sold to SM, under the same arrangement
as to taxes.
Y
U
CIR, claiming that SM was merely T
organized to defraud the government, S
I
assessed deficiency taxes against Yutivo. M V
Is CIR correct? O
CORPORATION CIR
No, the CIR is incorrect as there is no
tax to evade from 1946 up to before 1 Q: Norton and Harrison Co. (Norton)
July 1947. entered into an agreement with Jackbilt,
whereby the latter shall deliver concrete
However, in order to arrive at the true blocks to customers upon orders made
tax liability of Yutivo, the Court from Norton, such sale being considered
observed that SM is a mere subsidiary as a sale to Norton.
and branch of the former, hence
should be taxable against him. The During the agreement, Norton bought all
following evidence must be outstanding stock of Jackbilt. Hence, the
considered: CIR ordered deficiency sales taxes against
Norton due to the transactions made
covering the time from said buying of
 CORPORATION LAW 2019-2020, 2nd Sem
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Jackbilt‟s outstanding stocks. (Thus, the as a family corporation involving Tan
sale made by Norton is deemed as the Tong, with its office in the same place
original sale) with LCGP.

Norton did not comply, and brought to The labor union, Kaisahan ng mga
the CTAX which relieved the former from Manggagawa sa La Campana (KKM),
liability. Is CTAX correct? consisting of 66 members, demanded
higher wages and privileges, directed
No. While it is true mere ownership of against La Campana and Starch Factory.
stocks does not result to disregarding
the separate personalities, this case As no resolution between them was
warrants the allowance thereof as an reached, the same was certified to the
alter ego, due to the following CIR.
circumstances:
La Campana Gaugau and Coffee Factory,
1. 14,993/15,000 shares were owned and PLOW as intervenor, moved to
by Norton; dismiss the case on the following grounds:
2. Norton constituted Jackbilt’s
BoD, making them the same for 1. It is against 2 different entitites;
both; 2. Workers of Coffee Factory less
3. Norton financed operations; than 31;
4. Employees treated as their own; 3. Union revoked, hence no legal
5. Compensation to Jackbilt’s BoD capacity;
shows that the latter is merely a 4. A contract between La Campana
department; and PLOW
6. Offices are in the same compound
The above was denied by the CIR. Hence
While it is true that mere ownership of this petition, grounded on the CIR‟s lack
stocks does not prove control over of jurisdiction as the members are not 30.
the other corporation, the pieces of Is petitioner correct?
evidence presented amounted to
proof that Norton and Jackbilt are No, both entities are working under a
one and the same. (CIR v. Norton single management, one business
and Harrison, Co.) through two different trade names,
hence an attempt to subserve the
ends of justice, under the following
N
O circumstances:
J
A R
C
K
B
T 1. La Campana intervened as “La
I O Campana Gaugau and Coffee
L
N
T
Factory”;
CORPORATION CIR 2. One office;
3. One management;
Q: Tan Tong, was engaged in the 4. One payroll; and
business of buying and selling gaugau 5. Laborers were interchangeable
under the trade name La Campana
Gaugau Packing. Subsequently, La Among the pieces of evidence, the
Campana Coffee Factory was established interchanging of workers is the most
 CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
significant, as this would prove that 2. Emilio and Rodolfo were indicted
the employees are available for both, as officers, NOT as private
hence operating only as one. persons, hence representing the
corporation;
Furthermore, that said workers were
interchangeable, Coffee and Starch’s It must be noted that the case was
workers are represented by one single filed against Emilio, Rodolfo, and
bargaining unit. (La Campana Ariston Cano (as field supervisor but
Coffee Factory, Inc. v. Kaisahan the latter was absolved due to
Ng Mga Manggagawa sa La insufficiency of evidence) in their
Campana) capacities as officers of ECE.

G Hence, considering the above facts,

A the Court pierced the veil of ECE and
C
O
U held that the order against Emilio an
F G Rodolfo, shall be an order against
F A ECE. (Emilio Cano Enterprises,
E
U
E
Inc. v. Court of Industrial
CORPORATION KKM Relations)

Q: An ex parte motion to quash the writ of

execution was filed by Emilio Cano
Enterprises, Inc. (ECE), a closed family E
C
corporation, against said writ directed E
towards their properties.

The said writ arose from the order to RODOLFO COURT OF

AND EMILIO INDUSTRIAL
reinstate and payment of backwages to RELATIONS
Honorata Cruz, against Emilio and
Rodolfo Cano, president and manager, Q: Telephone Engineering Service Co.
respectively. (TESCO), has a sister company named
Utilities Management Corporation
ECE contends that the the writ should be (UMACOR), both under the management
against Emilio and Rodolfo as the former of Jose Luis Santiago (Santiago).
was never made a party to the case. Is
ECE correct? Pacifico Gatus (Gatus), purchasing agent
of UMACOR, was detailed to TESCO.
No, the writ of execution may be Upon his return to UMACOR, he died of
effected against ECE, under the liver cirrhosis. Hence his widow, Leonila,
following circumstances: filed a claim for compensation in the
Workmen‟s Compensation Commission
1. Incorporators are from one single (WCC), claiming that Gatus is an
family: employee of TESCO.
a. Emilio Cano;
b. Wife WCC required an employer‟s report from
c. Sons (2) TESCO. However, the employer‟s report
d. Daughter in law submitted indicated UMACOR as Gatus‟
employer.
CORPORATION LAW 2019-2020, 2nd Sem
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Despite the employer‟s report, expenses Corporation was organized (1 July
were charged against TESCO‟s property 1957);
and scheduled for public auction, to 2. There was no break in the
which it contested as it was not the succession;
employer. Is TESCO correct? 3. 90% of share held by Mr.
Claparols
No. As it may lead to confuse
legitimate issues, TESCO and The Court observed that the Claparols
UMACOR are one and the same due Steel Corporation was designed to
to: evade financial obligations.

1. They are sister companies; The Court cited Liddel and Co., Inc. v.
2. One management; and CIR, that when a corporation is a
3. One building dummy, serves no business purpose,
and intended only as a blind, the
In this case, TESCO admitted the corporate fiction may be ignored.
above facts, and the Court observed (Claparols v. Court of Industrial
that the denial of the employer- Relations)
employee relationship at this stage is
merely an afterthought, a devise to Q: During the conciliation between
defeat the law and evade its National Federation of Labor Union
obligations. (Telephone (NAFLU) and Lawman Industrial
Engineering, Co. v. Workmen‟s (Lawman) in the Bureau of Labor
Compensation Commission) Relations, the latter ordered a temporary
shut down on 15 September 1982, and
Q: An unfair labor practice was filed by promised that operations will resume on
Allied Workers‟ Association against January 1983.
Claparols Steel and Nail Plant, for
dismissing its employees as the latter However, as no settlement was reached,
ceased its operations. NAFLU filed its notice of strike. On the
last conference on 6 January 1983,
CIR held that Eduardo Claparols operations still did not resume which led
(Claparols) is guilty of union busting, and to the complaint for unfair labor practice
ordered reinstatement and payment of against Lawman.
backwages.
It was found that the partial shutdown
As a defense, Claparols cited Sta. Cecilia started sometime in August 1982, where at
Sawmills, where the Court held that only night machines were dismantled and
three (3) months of backwages shall be installed on Araneta University
paid, in cases where there was economic Compound, Malabon, Metro Manila, with
business reverses. Is Claparols correct? Lawman changing its name to Libra
Garments (Libra), and when its employees
No, under the following found out about this, Libra changed its
circumstances: name to Dolphin Garments.

1. Upon Claparols Steel and Nail Lawman contends that Libra and Dolphin
Company ceased operations (30 are separate entities which the Court
June 1957), the Claparols Steel
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
cannot pierce in order to attach liability. Is No, the NLRC is incorrect.
Lawman correct?
The Court held that where the
No, Lawman is incorrect. incorporators and directors belong to
a single family, the corporation and
The Court held that Libra and its members can be considered as
Dolphin were mere alter egos of one in order to avoid its being used as
Lawman, which is engaged in the an instrument to commit injustice.
same business.
Furthermore, Rosario and Ransom
To allow Lawman’s argument would should be deemed as one and the
mean to confuse legitimate issues, as it same corporation, under the following
would disallow the reinstatement of its circumstances:
employees, when in fact it is still the
same corporation. 1. Rosario was organized in 1969, the
same year when the labor case was
Lawman’s contention that it ceased filed;
operations is hence false, as it is still 2. Rosario was organized by the
operating under an alter ego same persons, as officers and
corporation/s, which will bear the stockholders, of Ransom;
liability attached to Lawman being one 3. Both were engaged in the same
and the same corporation. (National business and produces the same
Federation of Labor Union v. products;
Ople) 4. Both were closed family
corporations, organized by the
Q: In 1969 A.C. Ransom Labor Union same family;
(Union) filed a complaint for unfair labor 5. Rosario occupies the same
practice where the Court of Industrial compound, uses the same
Relations (CIR) found A.C. Ransom Phil. equipment and facilities;
Corp. (Ransom) was found guilty and 6. Both have the sae sales and
ordered reinstatement and payment of account departments.
backwages for the twenty-two (22) Union
members. Hence, Rosario was organized in
order to avoid liabilities of
During the same year, Rosario Industrial reinstatement and payment of
Corporation (Rosario) was organized by backwages. (A.C. Ransom Labor
one family whom are the same persons Union-CCLU v. NLRC)
constituting Ransom.
Q: For illegally dismissing its employees
Due to the failure of Ransom to comply, while in fact the project was still going on
an ex-parte motion for writ of execution and hired others, Concept Builders Inc.
and garnishment was filed, to which the (Concept) was ordered by the Labor
Labor Arbiter (LA) granted, and held the Arbiter to reinstate and pay backwages.
officers and agents of Ransom as
subsidiarily liable. To satisfy said judgment, the Sheriff went
to its principal office in Valenzuela.
However, the NLRC reversed the LA‟s However, he was surprised that instead,
decision. Is the NLRC correct? Hydro Pipes Philippines (HPP) was
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
located there. However, he was prevented In this case, the following should be
from removing properties therein due to noted:
guards with high powered guns
preventing him from doing so. Hence said 1. Same corporate secretary
sheriff asked for a break-open order, 2. Same president;
which was granted. 3. Same BoD
4. Same subscribers
Dennis Cuyegkeng vice-president of HPP, 5. Same address
opposed the same, claiming that it is the 6. Information sheet filed on same
property of HPP, and that the latter is day by the corporate secretary
engaged in the manufacture and sale of
steel, which is different from the business The Court thus held, that HPP was
of Concept hence that it in the same organized in order to orchestrate an
premises and under the same officers and instrument to evade liability as to
subscribers cannot be given weight to backwages and reinstatement.
prove that HPP and Concept are the (Concept Builders Inc. v. NLRC)
same.
Q: What is the effect if one of the elements
NLRC denied the opposition. Is the of the test is absent?
denial correct?
The corporate veil CANNOT be
Yes. The Court highlighted probative pierced in the absence of any one of
factors: the elements.

1. Stock ownership of one or Q: On 15 April 1947, M. McConnel, W.P.

common ownership of both Cochrane, Ricardo Rodriquez, Benedicto
corporations; Dario, and Aurea Ordrecio as
2. Identity of directors and officers; incorporators organized Park Rite Co., Inc
3. Manner of keeping corporate (Park Rite), engaged in the parking
books and records; and business with an ACS of 1500 shares,
4. Methods of conducting the divided as follows:
business
McConnel 500 shares
On the other hand, the following is Cochrane 500 shares
the test to determine the Rodriguez 498 shares
applicability of piercing: Dario 1 share
Ordrecio 1 share
1. Control, not merely of stocks, but
complete domination of: Park Rite leased a land from Rafael
a. Finances Samanillo. on Juan Luna St. as a parking
b. Policy lot for a consideration.
c. Business practice
2. Control used by defendant to On 22 August, the following purchased
a. Commit fraud or wrong Park Rite‟s shares from the original
b. Perpetuate violation of incorporators:
legal duty
3. Control must proximately cause C. Paredes and
the injury or unjust loss. U. Tolentino 1496 shares
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
B. Claudio 1 share and U. Tolentino which justifies the
Q. Paredes 1 share piercing of the corporate veil.
S. Tarictican 1 share (McConnel v. CA)
P. Marquez 1 share
Q: Tan Boon Bee & Co., Inc., under the
On October, Padilla, owner of the name and style of Anchor Supply Co.
adjacent lot discovered that his land is (Anchor), and Graphic Publishing, Inc.
being used by Park Rite, despite no (Graphic), entered into an agreement were
contract to that effect, which to his filing the former shall supply paper products to
of a forcible entry case against the latter. the latter.

The Municipal Court held Park Rite As Graphic failed to pay its installments,
liable, however the latter had no assets to Anchor filed a complaint for sum of
satisfy the judgment whole. money in the CFI, which was granted by
the latter.
Padilla filed with the CFI to make Park
Rite and its stockholders liable to pay the Subsequently, an alias writ of execution
remaining balance. was issued by the CFI, where the sheriff
levied a printing machine identified as
The CFI denied recovery, but the CA “Original Heidelberg Cylinder Press”
reversed the denial, finding Park-Rite as a found in the premises of Graphic.
mere alter ego of the principal
stockholders. Is the CA correct? Philippine American Drug Co. (PADCO),
informed the sheriff that the printing
Yes, the Court held that the following machine is its property and not of Graphic
pieces of evidence clearly show that as PADCO merely leased it to Graphic,
the principal stockholders completely and advised against the sale of such.
dominated and controlled the
corporation: However, the sheriff proceeded with the
auction, and was sold to Anchor, being
1. The other stockholders merely the highest bidder.
held qualifying shares;
2. Office of C. Paredes and Park Rite This led to PADCO‟s filing of a Motion to
are housed in the same building, in Nullify Sale on Execution in the CFI,
the same floor, of the same room; where the latter ruled in the former‟s
3. C. Paredes held the funds in his favor. Is the CFI correct?
own name; and
4. Park Rite only had the toll house, No, the CFI is incorrect, due to the
wire fence around the lot, and the following circumstances:
signs, as visible assets
1. PADCO was never engaged in the
The Court highlighted the fact that printing business;
due to the funds being held by C. 2. Graphic and PADCO’s BoD and
Paredes, the judgment cannot be officers are the same;
satisfied by Park Rite. 3. PADCO holds 50% of the share
of Graphic’s stock;
In this case, there is an apparent 4. PADCO claims that it leased the
complete domination by C. Paredes printing machine to Graphic on
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
24 January 1966, when it is also 1. Cease bought out the shares of the
alleged that PADCO acquired title original incorporators, and slowly
to it on 11 July 1966, is distributed them to his children
unbelievable. and Bonifacia, hence at the time
of his death, he only had 190/300
Hence, the Court held that the shares;
respondent judge should have pierced 2. That the stocks were owned by
the veil of PADCO, as it is one and family members, it turned into a
the same with Graphic. (Tan Boon close family corporation, intended
Bee & Co., Inc. v. Jarencio) for their exclusive benefit;
3. Tiaong, nor FL, had any bank
Q: Forrest L. Cease (Cease), together with account, and all properties were
five (5) other American citizens indeed in the name and account of
incorporated Tiaong Milling and Cease;
Plantation Company (Tiaong). 4. No evidence has been shown on
the children purchasing or
As time went by, Cease bought out the subscribing to their own stocks;
other incorporators, and slowly distributed
his shares to his children, namely, The Court held that Tiaong, and
Benjamin, Florence, Ernest, Cecilia, and subsequently FL, were mere alter egos
Teresita, and to Bonifacia Tirante of Cease, and that its properties must
(Bonifacia) who is also considered as be held to be Cease’s properties.
family.
That it is his property, it must be
After the corporation‟s existence lapsed, included in the division of the estate
Cease died, and a disagreement between for the heirs (Cease v. CA)
the children happened, where Benjamin
and Florence wants an actual division, Summary of cases when veil may be
while the remaining children and pierced
Bonifacio wanted reincorporation.
1. A corporate insider represented
As such, the four reincorporated the that the company is leasing a
company as FL Cease Plantation (FL) property, while the latter was not
Company, and registered it with the SEC. yet incorporated, when in fact the
corporate insider merely made the
This led to Benjamin and Florence‟s filing corporation to evade liability
in the CFI for a settlement of Cease‟s (International Academy of
estate and a civil case praying that Tiaong Management and Economics v.
and FL be declared as one and the same, Litton and Co., Inc.);
and its properties be divided equally 2. A corporation was formed by an
among the heirs as said properties employer in order for the latter to
belonged to Cease. The court ruled in evade subsidiary liability (Palacio
their favor. Is the CFI correct? v. Fely Transportation
Company);
Yes, the CFI is correct under the 3. Where the certificate of stock of
following circumstances: the alleged incorporators are made
in blank (Marvel Building
Corporation, et al. v. David);
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
4. Where the corporation was built requirements or for the benefit of
to evade taxes via original sale by the family. (Marvel Building
another corporation (Yutivo & Corporation, et al. v. David and
Sons Co. v. CTA and CIR v. Cease v. CA)
Norton and Harrison, Co.)
5. Where the workers of alleged two WHEN PIERCING THE CORPORATE
separate entities are FICTION IS NOT JUSTIFIED
interchangeable and under one
single bargaining unit (La When piercing justified
Campana Coffee Factory, Inc.
v. Kaisahan Ng Mga The Court have held that the
Manggagawa sa La Campana); following must be present in order for
6. Where the corporation is a closed piercing be justified:
family corporation and the claims
were filed against the officers in 1. The corporation is used or being
their said capacities. (Emilio used to/as:
Cano Enterprises, Inc. v. Court a. Defeat public
of Industrial Relations, A.C. convenience;
Ransom Labor Union-CCLU v. b. Justify wrong;
NLRC, Cease v. CA); c. Protect fraud;
7. Where the corporation denies d. Defend crime;
being an employer in order to e. Confuse legitimate issues;
evade liability, and places another f. Circumvent the law;
corporation as its employer, when g. Perpetuate deception; or
in fact they admit that they are h. An alter-ego, adjunct, or
sister companies under one business conduit for the
management and building. benefit of a stockholder,
(Telephone Engineering, Co. v. group of stockholders, or
Workmen‟s Compensation another corporation
Commission) 2. Control, not merely of stock
8. Where a corporation organized a ownership, financial and
run-away corporation under a operational concerns, but there
different name when in fact it still must be:
uses the same equipment for the a. Perpetuation of fraud; or
same business or is organized by b. At least fraudulent or
the same persons. (Claparols v. illegal purpose behind the
Court of Industrial Relations, control;
National Federation of Labor 3. The corporation must be
Union v. Ople, and A.C. impleaded, otherwise there would
Ransom Labor Union-CCLU v. be lack of jurisdiction; and
NLRC) 4. There must be claim against the
9. When there is no showing that the stockholders or officers for
incorporators or stockholder corporate debt or obligation.
indeed bought stocks from their
own personal fund, but instead, When piercing NOT justified
the majority stockholder bought it
and merely distributed or gave it In line with the above, piercing cannot
to them in order to meet statutory be had if:
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
As ninety (90) days had passed and no full
1. The corporation was not used for payment has been made, Marcha
the above purposes; demanded the amount from Coprada who
2. The control was not used to stated that he will pay upon release of the
perpetuate fraud or there is no DBP loan. However, in reality no loan was
fraudulent or illegal purpose applied for.
behind the control;
3. The corporation was not The BoD issued a resolution allowing the
impleaded; and sale of two (2) trucks. As to the rentals, the
4. There is no claim being enforced payment was stopped.
against the stockholders or
officers Marcha filed a complaint for the return of
the thirteen (13) trucks or the recovery of
Quantum of evidence required to prove the sum of money with damages in the
fraud CFI against Akron and its BoD.

It must be prove by clear and As to this complaint, only Remo Jr.

convincing evidence. answered, but defaulted in pre-trial.
Furthermore, Remo sold his shares to
Hence it is more than preponderance, Coprada.
but less than proof beyond reasonable
doubt. The CFI ordered Akron and its BoD liable
jointly and severally, and the IAC affirmed
The fraud cannot be presumed and the CFI. Is the IAC correct?
cannot be by mere speculation.
No, the IAC is incorrect as no
Q: The BoD of Akron Customs Brokerage fraudulent intention is evident from
Corp. (Akron) passed a resolution to buy the circumstances:
thirteen (13) trucks from E.B. Marcha
Transport Co., Inc. (Marcha). 1. The resolution on the buying of
thirteen (13) trucks, while Remo
The BoD included Akron‟s president Jr. was one who authorized it, it is
Feliciano Coprada (Coprada), and Remo Coprada who negotiated with
Jr. Marcha;
2. The resolution to sell two (2)
Coprada negotiated with Marcha for the trucks, is by virtue of a deed of
sale of said trucks, terms of which allows absolute sale, which means that as
for payment of the balance within sixty there is ownership there is a right
(60) days, and an extension of thirty (30) to dispose;
days if left unpaid. During the period 3. The sale by Remo Jr. of his shares
where no full payment is made, the down to Coprada is allowed, as the
payment shall accrue as rentals. former has no personal obligation
to Marcha, and hence has the right
A deed of absolute sale was executed, to dispose of his shares.
while Coprada executed a promissory note
via a loan from the Development Bank of At most, solidary liability can attach
the Philippines (DBP) in favor of Akron. only to Coprada, due to the following:
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
1. He negotiated with Marcha; Del Rosario appealed to the NLRC, the
2. He guaranteed payment, but did latter however dismissed the appeal, and
not do steps to secure the DBP denied the MR as well.
loan; and
Years prior, in 1981, Philsa International
Furthermore, the Court observed that Placement and Services Corp. (Philsa
the promissory note’s inclusion of the International) was organized.
word “We” does not represent the
stockholders or officers, but rather It is the above fact that highlighted the
Akron. decision of the POEA and NLRC to hold
Del Rosario liable, claiming that it is a
It is thus held, that Remo Jr. cannot fraudulent act. Is the decision correct?
be held personally liable as Akron has
a separate personality. (Remo Jr. v. No, the veil of Philsa should not have
IAC) been pierced, as the following facts do
not amount to fraud:
Q: Leopoldo Atienza (Atienza) filed a
complaint for money claims in the POEA 1. Del Rosario cannot be held as the
against its foreign employer Arieb officer responsible for the
Enterprises (Arieb) and recruiter Philsa predicament;
Construction Trading and Co. (Philsa) in 2. Philsa’s allowing their license to
1985. expire on 1985, cannot be
fraudulent as the decision against
During the same year, Philsa‟s license has them was only on 1987;
expired and was delisted on 1986. 3. Philsa International cannot be
considered as a run-away
In 1986, POEA dismissed the complaint. corporation, as it was organized
However upon appeal to the NLRC, the on 1981, years prior to the
latter reversed the POEA dismissal and complaint being filed on 1985; and
held Philsa and Arieb jointly and severally 4. The identity of incorporators
liable. alone cannot justify piercing, as
there was no fraud done or
Subsequently, the SC dismissed Philsa‟s intended to be done.
petition and became final on 1987.
The Court highlighted the differences
As the writ of execution from the POEA of the circumstances in this case
directed towards Philsa was left against those cases where the Court
unsatisfied due to the latter being allowed piercing:
financially incapable and not operational
anymore, Atienza moved for an alias writ 1. In La Campana, the workers
of execution against the officers of Philsa, were interchangeable as to two
which ordered the attachment of the companies;
properties of its president and general 2. In Claparols, the second
manager Mr. Francisco del Rosario (Del corporation arose the next day
Rosario), and if insufficient, against the after the corporation ceased
surety bond of Philsa in the POEA. operations; and
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
3. In A.C. Ransom, the corporation Yes, Calica is correct in not piercing
ceased operations after the CIR’s the veil of Acrylic under the following
decision. circumstances:

The Court further noted that the 1. Employees of Acrylic were chosen
complaint was directed against Arieb, by their own criteria and
and Philsa was only included as the standards;
latter guaranteed the former’s liability, 2. While members of Union
as required by the POEA Rules and performed services for Acrylic, it
Regulations (POEA R&R). is merely auxiliary;
3. That both corporations are
Going further, the said POEA R&R situated in the same compound is
also requires payment of any kind of not sufficient to justify piercing.
liability to come from the bond given
by the Bonding Company, in this case, Furthermore, the Court reiterated
from Philsa. Hence, the order should their ruling in Umali v. CA, where
have been against the bond and not piercing is justified only if there is a
from Del Rosario. (Del Rosario v. claim against the stockholders or
NLRC) officers of the other corporation,
which is wanting in this case as no
Q: Indophil Textile Mills, Inc. (Indophil) claim is being imposed against
and its union Indophile Textile Mill Acrylic’s members.
Workers Union-PTGWO (Union)
executed a collective bargaining Thus, the creation of Acrylic is not a
agreement (CBA) effective 1 April 1987 to device to evade the application of the
31 March 1990. Union’s CBA. (Indophil Textile Mill
Workers Union v. Calica)
On 3 November 1987, Indophil Acryclic
Manufacturing Corp. (Acrylic) was Q: Considering that workers were situated
organized, and its own union executed a within the same compound of the two
CBA with the former on July 1989. Acrylic corporations in Indophil Textile Mill
was situated in the same compound with Workers Union v. Calica, why is the ruling
Indophil. different from La Campana Coffee
Factory, Inc. v. Kaisahan Ng Mga
In 1990, Union claimed that the workers of Manggagawa sa La Campana when
Acrylic should be deemed as the former‟s workers in the latter are also in the same
members and hence their CBA should compound?
extend to the latter, alleging that,
pursuant to their CBA with Indophil, In the Indophil case, workers were
Acrylic should be deemed as an merely providing auxiliary services.
“expansion” or “extension” of the Furthermore, Acrylic’s employees are
facilities of Indophil. chosen via Acrylic’s own criteria and
standards.
The Voluntary Arbitrator (VA), Calica,
declared that the CBA does not extend to On the other hand, in the La
Acrylic‟s union. Is Calica correct? Campana case, workers were
interchangeable.
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Q: Philippine National Bank International 3. Mere stock ownership cannot
Finance Ltd. (PNB-IFL), a wholly owned justify piercing the veil as there
subsidiary of Philippine National Bank was no fraud nor intent to do
(PNB), organized and doing business in such, nor PNB-IFL proven as a
Hongkong, extended a letter of credit to mere adjunct or alter-ego.
Ritratto Group, Inc., Ritratto, Int‟l Inc.,
and Dadason General Merchandise Furthermore, the Court held that, the
(Respondents), all of which are organized suit against the agent PNB, cannot
and doing business in the Philippines. mean a suit against the principal PNB-
IFL.
The letter of credit was secured by a real
estate mortgage (REM) over four (4) Hence, Respondents should have filed
parcels of land in Makati. against PNB-IFL, as the real party in
interest in order for final
As there was failure to pay the obligation, determination be had. (Philippine
PNB-IFL, through a special power of National Bank v. Ritratto Group,
attorney (SPA), authorized PNB, as its Inc. Et al.)
attorney-in-fact, to foreclose all the REM.
Q: EIB Securities Inc. (E-Securities), is a
Respondents filed a complaint for wholly owned and controlled subsidiary of
injunction with prayer for the issuance of Export and Industry Bank, Inc. (EIB),
a writ of preliminary injunction and/or having 499,995 out of 500,000 shares.
temporary restraining order against PNB
in the RTC, praying, among other things, Pacific Rehouse Corporation, Pacific
that PNB recomputed and reschedule the Concorde Corporation, Mizpah Holdings,
interest to be paid under the agreement. Inc., Forum Holdings Corporation, and
East Asia Oil Company, Inc. (Petitioners)
The RTC granted the prayer, relying on filed a complaint in the RTC against E-
their previous Order dated October 1994 Securities for the unauthorized sale of the
where a suit against PNB is a suit against latter‟s 32,180,000 DMCI shares.
PNB-IFL.
The RTC ruled in favor of Petitioners, and
Subsequently PNB‟s petition for certiorari subsequently a writ of execution was
and prohibition was dismissed by the CA. issued. However, as the writ was left
Is the dismissal correct? unsatisfied, Petitioners sought for an alias
writ of execution against EIB, alleging
No, the CA should not have dismissed that EIB and E-Securities are one and the
the petition under the following same person and the latter is merely an
circumstances: alter-ego.

1. Both parties did not contend that EIB opposed the issuance of the alias
PNB merely acts as an agent of writ, via a special appearance claiming
PNB-IFL; lack of jurisdiction over its person as it
2. That, as a mere agent, PNB is not was never impleaded in the main case.
authorized to recomputed or
reschedule interest, as it is not a The RTC granted the alias writ. In
party to the contract; granting the alias writ, the court cited the
cases of Sps. Violago v. BA Finance Corp.,
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
et al. and Arcilla v. CA, where, according acquired over the party, then no
to the court, judgment was rendered piercing can be had during trial.
despite the corporation not being
impleaded in the main case. As there was no trial regarding the
facts surrounding the relationship of
Subsequently, EIB filed a petition for EIB and E-Securities, facts presented
certiorari with prayer for the issuance of a during the motion for an alias writ of
TRO in the CA, which the CA granted execution shall be deemed as not
and hence reversed the RTC ruling. Is the properly pleaded, and hence no
CA correct in ruling so? piercing be had. (Pacific Rehouse
Corporation v. CA and Export and
Yes, the CA correctly ruled in favor of Industry Bank)
EIB, as the following circumstances
does not justify piercing: Q: When can piercing be done?

1. Mere ownership of stocks, which During trial

is 499,995 out of 500,000 is not
sufficient to justify piercing; Q: Can the courts pierce the veil of
2. In order for the ownership justify another corporation despite it being not
piercing, the control must be impleaded?
proven, as well as fraud and any
injury resulted; No, as piercing the veil does not
3. The above were not proven amount to a mode of acquisition of
during trial, but merely included in jurisdiction
the application for an alias writ of
execution. Violago and Arcilla case

The Court held that the RTC In the Violago case, Sps. Violago filed
misinterpreted the rulings in Violago a 3rd party complaint against Avelino
and Arcilla, as in said cases liability Violago (Avelino) the president of
attached to the person impleaded, Violago Motor Sales Corporation
while the corporations were left (VMSC). The judgment was rendered
untouched despite the latter being against Avelino.
ruled as alter-egos. It is to be noted,
that EIB was not impleaded in the In the Arcilla case, Arcilla obtained a
main case and yet it was made liable. loan in the name of Csar Marine
Resources, Inc (CMRI), from Emilio
Going further, the Court held in Rodulfo (Rodulfo). Rodulfo filed a
Kukan International Corporation v. case against Arcilla for non-payment.
Reyes, that piercing the veil of The judgment was rendered against
corporate fiction cannot be used as an Arcilla.
alternative mode of acquisition of
jurisdiction over the person. In both cases, both Avelino and
Arcilla were found guilty, despite
And finally, piercing the veil of raising the defense of corporate
corporate fiction is a question of fact, liability. However, the corporation’s
hence determined during trial. If in properties were never touched by the
the first place no jurisdiction was judgment.
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Hence, the above cases are different TD to reinstate the employees. Is the
with Pacific Rehouse as liability was NLRC correct?
found against E-Securities, as the one
impleaded, but not EIB, which was No, the NLRC is incorrect in holding
never impleaded. Therefore, the above TD, Yu, and Young liable in its
rulings have been misinterpreted by decision regarding the motion for
the RTC execution.

Q: Twenty-two (22) employees of The Court observed that Twin Ace

Tanduay Distillery, Inc. (TDI), were given assumed the business name TD in
notices of their termination due to order to capitalize on the goodwill of
retrenchment. the products previously produced by
TDI.
Two (2) days prior to the effectivity of the
termination, the employees filed with the However, assuming such business
labor arbiter (LA) an application for a name should not be considered as an
termporary restraining order (TRO) acquisition of TDI itself, as the nature
against TDI. of the sale between TDI and Twin
Ace is merely the sale of its assets, and
However, as the TRO only has a twenty no stock has been sold.
(20) day lifetime, and due to negotiations
for the sale of assets of TDI to First Thus, as it is merely the sale of assets,
Pacific Metro Corporation (FPMC), the TDI and Twin Ace or TD, are
retrenchment pushed through. separate entities, which entities cannot
be pierced in the absence of any of the
However, FPMC requested to be dropped elements allowing for such. (Yu v.
as a party to the case as it did not proceed NLRC)
with the sale. On the other hand, Twin
Ace Holdings, Inc. (Twin Ace), bought (NOTE: The NLRC’s first decision
the assets of TDI, and assumed the did not in any way order TD to
business name Tanduay Distillers (TD). reinstate employees. It is only after the
motion for execution where TD was
Finally, the LA promulgated her decision ordered to do so. The Court held that
ordering TDI to reinstate the employees a writ of execution cannot go beyond
or in case there is a change in the final judgment, which in this case
management, to pay employees their referred only TDI)
separation benefits.
AMENDMENT OF THE CORPORATE
TDI appealed the decision to the NLRC, CHARTER
where the latter affirmed the LA.
Subsequently, the employees filed a Sec.35. Corporate Powers and Capacity;
motion for execution. Every corporation incorporated under this
Code has the power and capacity:
To this, TD, through their representatives xxx
James Yu (Yu) and Wilson Young
(Young) opposed the motion. However, (d) To amend its articles of incorporation in
NLRC promulgated its decision directing accordance with the provisions of this Code;
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Amendment of the AoI is one of the Steps for an effective amendment
express powers granted to the
corporation. STOCK NON-STOCK
Resolution BoD BoT
by at least
Ordinary Amendments a majority

Vote or Stockholders 2/3 of the members

Amendment of AoI written representing at least
assent 2/3 of the OCS
Sec.15. Amendment of Articles of
Both the original and amended AOI shall
Incorporation; contain provisions required by law.
Unless otherwise prescribed by this Code or
by special law, and for legitimate purposes, The amended provisions shall underscore the
change/s made
any provision or matter stated in the articles
of incorporation may be amended by a A copy thereof, A copy thereof,
majority vote of the board of directors or certified under oath certified under oath
that the amendments that the amendments
trustees and the vote or written assent of the Submission had been approved had been approved
stockholders representing at least two-thirds and filing by the required vote by the required vote
(2/3) of the outstanding capital stock, without of the of SH or members, of SH or members, as
amendme as certified by the certified by the
prejudice to the appraisal right of dissenting nts with following: following:
stockholders in accordance with the the SEC
provisions of this Code. The articles of 1. Corporate 1. Corporate
secretary; secretary;
incorporation of a nonstock corporation may and and
be amended by the vote or written assent of 2. Majority of 2. Majority of
majority of the trustees and at least two-thirds the the trustees
directors
(2/3) of the members.
Favorable recommendation of the appropriate
The original and amended articles together government agency concerned in case of
supervised corporations (e.g. banking,
shall contain all provisions required by law to insurance, etc.)
be set out in the articles of incorporation.
Amendments to the articles shall be indicated Required votes
by underscoring the change or changes made,
and a copy thereof duly certified under oath The following votes are needed:
by the corporate secretary and a majority of
the directors or trustees, with a statement that 1. Resolution passed by the majority
the amendments have been duly approved by of BoD or BoT; and
the required vote of the stockholders or 2. Ratification by the stockholders or
members, shall be submitted to the members representing 2/3 of the
Commission. OCS or of the members,
respectively
The amendments shall take effect upon their
approval by the Commission or from the date Q: ABC Corporation is a stock corporation
of filing with the said Commission if not having 1,000,000 OCS, where 200,000 are
acted upon within six (6) months from the non-voting shares. In case of an
date of filing for a cause not attributable to amendment to the AoI, what would be the
the corporation. basis of the 2/3 of votes, 1,000,000 shares
or 800,000 shares representing only voting
shares?
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
The basis of the 2/3 vote should be Sec.16. Grounds When Articles of
the 1,000,000 shares, which includes Incorporation or Amendment may be
the non-voting shares as it is one of Disapproved;
the instances where non-voting The Commission may disapprove the articles
shareholders are nevertheless entitled of incorporation or any amendment thereto if
to vote. the same is not compliant with the
requirements of this Code: Provided, That the
Sec.6. Classification of Shares; Commission shall give the incorporators,
xxx directors, trustees, or officers a reasonable
time from receipt of the disapproval within
Holders of nonvoting shares shall which to modify the objectionable portions of
nevertheless be entitled to vote on the the articles or amendment. The following are
following matters: grounds for such disapproval:

(a) Amendment of the articles of xxx

incorporation
No articles of incorporation or amendment to
Additional requirements articles of incorporation of banks, banking
and quasi-banking institutions, preneed,
Under the provision, the following are insurance and trust companies, nonstock
required and submitted to the SEC: savings and loan associations (NSSLAs),
pawnshops, and other financial
1. That both original and amended intermediaries shall be approved by the
AoI contains provisions Commission unless accompanied by a
required by law favorable recommendation of the appropriate
a. Furthermore, the change/s government agency to the effect that such
made shall be articles or amendment is in accordance with
underscored in the law.
amended AoI;
2. A copy, certified under oath: Hence, the following supervised
a. That the amendment/s corporations require such favourable
has been approved with recommendation:
the required votes; and
b. Certified by the: 1. Banks;
i. Corporate 2. Banking and quasi-banking
secretary; and institutions;
ii. Majority of 3. Preneed;
BoD/BoT 4. Insurance and trust companies;
3. Favorable recommendation 5. Nonstock savings and loan
from the appropriate government associations (NSSLAs);
agency, in case of supervised 6. Pawnshops; and
corporations. 7. Other financial intermediaries

Requirement as to favourable When amendment approved

recommendation of the appropriate
government agency The amendment shall be deemed
approved:
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
1. Upon approval of the SEC; or i. Increase; or
2. Approval due to inaction; ii. Decrease;
a. From the date of filing, b. Dissolution by shortening
if not acted upon by the of corporate term
SEC within six (6) months
from such date, for a cause Rule as to approval due to inaction
not attributed to the
corporation. GR: Deemed approved from the
date of filing if not acted upon
Exceptions to approval due to inaction within six (6) months from
such date;
Sec.37. Power to Increase or Decrease
Capital Stock; Incur, Create or Increase ER: In case of the following
Bonded Indebtedness;
xxx 1. If the inaction is a cause
attributable to the corporation;
Any increase or decrease in the capital stock 2. Amendment as to:
or the incurring, creating or increasing of any a. Increase or decrease of
bonded indebtedness shall require prior capital stock;
approval of the Commission, and where b. Dissolution by
appropriate, of the Philippine Competition shortening of
Commission. The application with the corporate term
Commission shall be made within six (6)
months from the date of approval of the (NOTE: However, it can also be
board of directors and stockholders, which opined that the amendments under
period may be extended for justifiable item 2 are not exceptions per se, as they
reasons. require different requirements, they
must be considered as special
Sec.136. Dissolution by Shortening amendments)
Corporate Term;
xxx Special Amendments

Upon the expiration of the shortened The following powers are deemed
term, as stated in the approved amended special amendments:
articles of incorporation, the corporation
shall be deemed dissolved without any 1. Corporate term:
further proceedings, subject to the a. Extend; or
provisions of this Code on liquidation. b. Shorten
2. Capital stock:
a. Increase; or
Hence, the following are the
b. Decrease
exceptions to approval due to inaction
3. Bonded indebtedness:
and would require the SEC’s approval:
a. Incur;
b. Create; or
1. If the cause of inaction is
c. Increase
attributable to the corporation;
2. Amendment as to :
Ordinary v. special amendments
a. Capital stock
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
In ordinary amendments, the vote to each stockholder or member, at his
or written assent of the stockholders place of residence as shown in the
or members will suffice. books of the corporation, which shall
contain the following:
On the other hand, special
amendments cannot be done merely 1. The proposed action;
be vote or written assent, as the 2. The time of the meeting; and
following must be done: 3. The place of the meeting

1. Ratification via a meeting of the Power to extend or shorten corporate term

stockholders or members
representing at least two-thirds Sec.36. Power to Extend or Shorten
(2/3) of the OCS or of the Corporate Term;
members; and A private corporation may extend or shorten
2. Other formal requirements its term as stated in the articles of
incorporation when approved by a majority
Furthermore, mere inaction by the vote of the board of directors or trustees, and
SEC would not equate to approval in ratified at a meeting by the stockholders or
case of special amendments. members representing at least two-thirds
(2/3) of the outstanding capital stock or of its
Required votes members. Written notice of the proposed
action and the time and place of the meeting
The following votes are needed: shall be sent to stockholders or members at
their respective place of residence as shown in
3. Resolution passed by the majority the books of the corporation, and must be
of BoD or BoT; and deposited to the addressee in the post office
4. Ratification by the stockholders or with postage prepaid, served personally, or
members representing 2/3 of the when allowed in the bylaws or done with
OCS or of the members, the consent of the stockholder, sent
respectively electronically in accordance with the rules
and regulations of the Commission on the
Q: Where should the 2/3 vote be casted? use of electronic data messages. In case of
extension of corporate term, a dissenting
It should be casted in a meeting called stockholder may exercise the right of appraisal
for that purpose. under the conditions provided in this Code.

Unlike in ordinary amendments, EXTENSION SHORTENING

special amendments require a meeting Resolution by BoD or BoT
a majority
for that purpose in order for it to be vote
valid. Ratification In a meeting by the stockholders or
members representing at least two-thirds
(2/3) of the OCS or of the members
Hence, it cannot be done by mere Notice of Of the:
written assent. meeting 1. Proposed action;
2. Time of meeting; and
Notice of meeting 3. Place of meeting

Addressed to:
A notice of the meeting for the 1. Each stockholder or member;
purpose of the special shall be given 2. At his place of residence as
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
shown in the books of the only be allowed if the by-laws provide
corporation
Service of It may be served as follows:
despite the stockholder’s consent.)
notice
GR: Deposited to the Q: Is the appraisal right of the dissenting
addressee in the
post office with
stockholder available in both extension
postage prepaid; and shortening of corporate term?
Or
No, the provision only allows the
Personally exercise of the appraisal right in case
of extension the corporate term.
ER: Sent electronically,
under the following
circumstances: When can amendment of corporate term
be done
1. Done in accordance with the
rules and regulations of SEC;
and In case of extension of corporate
2. By-laws must provide or with term, it cannot be done earlier than
consent of the stock holder
When can GR: Not earlier During lifetime
three (3) years prior to the original or
amendment than three (3) years subsequent expiry date. However, the
be done ER: Justifiable period may be extended earlier than
reasons
the three (3) years if there are
Exercise of Dissenting Provision DOES
appraisal stockholder may NOT provide justifiable reasons, hence:
right by
dissenting GR: Not earlier than three
stockholder
(3) years prior to the
Modes of service of the notice of meeting original or subsequent
expiry date
The provision provides the following
modes of service allowed: ER: Justifiable reasons

1. Deposited to the addressee: In case of shortening of corporate

a. In the post office; and term, it must be done during the
b. With postage prepaid; lifetime of the corporation, for
2. Personally; or obvious reasons.
3. Electronically, if:
a. Done in accordance with Q: Alhambra Cigar & Cigarette Mfg. Co.,
the rules and regulations Inc (ACCMC) was incorporated on 15
of SEC; and January 1912, with its charter expiring on
b. Authorized if: 15 January 1962.
i. By-laws provide;
or On 15 July 1963, the BoD and its
ii. Stockholder stockholders garnered the required vote to
consented extend its corporate term.

(NOTE: While both Secs. 36 and 37 The SEC, however, refused to approve the
allow electronically sending the notice, extension on the ground that a
37 is stricter in the sense that it can corporation cannot extend its life after the
lapse of its original term. Is the SEC
correct?
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Yes, the SEC is correct. Power to increase or decrease capital
stock and to incur, create, or increase
The privilege of extension of a bonded indebtedness
corporate term is a purely statutory,
and must comply with conditions Sec.37. Power to Increase or Decrease
precedent. Capital Stock; Incur, Create or Increase
Bonded Indebtedness;
It must be done during the lifetime of No corporation shall increase or decrease its
the corporation, specifically not earlier capital stock or incur, create or increase any
than five (5) years prior to its expiry. bonded indebtedness unless approved by a
majority vote of the board of directors and by
After the lapse of its term, it is only two-thirds (2/3) of the outstanding capital
allowed to exist only for the sole stock at a stockholders’ meeting duly called
purpose of closing up its business. for the purpose. Written notice of the time
(Alhambra Cigar & Cigarette Mfg. and place of the stockholders’ meeting and
Co., Inc. v. SEC) the purpose for said meeting must be sent to
the stockholders at their places of residence as
(NOTE: At this time, the shown in the books of the corporation and
requirement is not earlier than five (5) served on the stockholders personally, or
years, compared to the RCC which through electronic means recognized in
requires not earlier than three (3) the corporation‟s bylaws and/or the
years) Commission‟s rules as a valid mode for
service of notices.
Q: Assume that the case is filed during
our era, what is the remedy of ACCMC A certificate must be signed by a majority of
under the RCC? the directors of the corporation and
countersigned by the chairperson and
ACCMC may file for a revival of its secretary of the stockholders’ meeting, setting
corporate existence forth:
a) That the requirements of this section
Sec.11. Corporate Term; have been complied with;
xxx
b) The amount of the increase or
A corporation whose term has expired may decrease of the capital stock;
apply for a revival of its corporate existence,
together with all the rights and privileges c) In case of an increase of the capital
under its certificate of incorporation and stock, the amount of capital stock or
subject to all of its duties, debts and liabilities number of shares of no-par stock
existing prior to its revival. Upon approval by thereof actually subscribed, the names,
the Commission, the corporation shall be nationalities, and addresses of the
deemed revived and a certificate of revival of persons subscribing, the amount of
corporate existence shall be issued, giving it capital stock or number of no-par
perpetual existence, unless its application for stock subscribed by each, and the
revival provides otherwise. amount paid by each on the
subscription in cash or property, or
the amount of capital stock or number
of shares of no-par stock allotted to
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
each stockholder if such increase is for cash to the corporation or that property, the
the purpose of making effective stock valuation of which is equal to twenty-five
dividend therefor authorized; percent (25%) of the subscription, has been
transferred to the corporation: Provided, further,
d) Any bonded indebtedness to be That no decrease in capital stock shall be
incurred, created or increased; approved by the Commission if its effect shall
prejudice the rights of corporate creditors.
e) The amount of stock represented at
the meeting; and Nonstock corporations may incur, create or
increase bonded indebtedness when approved
f) The vote authorizing the increase or by a majority of the board of trustees and of
decrease of the capital stock, or the at least two-thirds (2/3) of the members in a
incurring, creating or increasing of any meeting duly called for the purpose.
bonded indebtedness.
Bonds issued by a corporation shall be
Any increase or decrease in the capital stock registered with the Commission, which shall
or the incurring, creating or increasing of any have the authority to determine the
bonded indebtedness shall require prior sufficiency of the terms thereof.
approval of the Commission, and where
appropriate, of the Philippine Competition Modes of service of the notice of meeting
Commission. The application with the
Commission shall be made within six (6) The provision provides the following
months from the date of approval of the modes of service allowed:
board of directors and stockholders, which
period may be extended for justifiable 1. Deposited to the addressee:
reasons. a. In the post office; and
b. With postage prepaid;
Copies of the certificate shall be kept on file 2. Personally; or
in the office of the corporation and filed with 3. Electronically, if:
the Commission and attached to the original a. SEC’s rules recognizes it
articles of incorporation. After approval by as a valid mode of service;
the Commission and the issuance by the and
Commission of its certificate of filing, the b. By-laws provide
capital stock shall be deemed increased or
decreased and the incurring, creating or (NOTE: Compared to Sec. 36, the
increasing of any bonded indebtedness mere consent of the stockholder
authorized, as the certificate of filing may would not suffice)
declare: Provided, That the Commission shall
not accept for filing any certificate of increase Signatories to the certificate
of capital stock unless accompanied by a
sworn statement of the treasurer of the The certificate must be signed by:
corporation lawfully holding office at the time
of the filing of the certificate, showing that at 1. Majority of the directors; and
least twenty-five percent (25%) of the increase 2. Countersigned by stockholder’s
in capital stock has been subscribed and that meeting’s:
at least twenty-five percent (25%) of the a. Chairperson; and
amount subscribed has been paid in actual b. Secretary
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Note however, that this is not approval is needed in case of increase
required in case of non-stock or decrease of capital stock)
corporations incurring, creating, or
increasing bonded indebtedness. Q: Is the six (6) month period to file an
application absolute?
Q: Where should the copies of the
certificate be kept and/or filed? No, as an exception, it may be
extended in case of justifiable reasons,
Under the provision, the certificate hence:
must be:
1. Kept in the office of the GR: Within six (6) months;
corporation; and ER: Justifiable reasons
2. Filed with the SEC
a. Attached to the original Effectivity
AoI
The increase or decrease shall be
Note however, that this is not effective:
required in case of non-stock
corporations incurring, creating, or 1. After approval by the SEC; and
increasing bonded indebtedness. 2. Upon issuance of Certificate of
Filing
Prior approval
Note however, that this is not
Application with the SEC must be required in case of non-stock
made within six (6) months from the corporations incurring, creating, or
approval of the BoD and increasing bonded indebtedness.
stockholders.
(NOTE: Again, mere inaction by the
In addition, approval from the SEC would not suffice)
Philippine Competition Commission
(PCC) is likewise required where Increase or decrease of capital stock
appropriate.
INCREASE DECREASE
Resolution by BoD or BoT
Hence, the following prior approvals a majority
are necessary: vote
Ratification In a meeting by the stockholders or
members representing at least two-thirds
1. SEC; and (2/3) of the OCS or of the members
2. PCC, where appropriate Notice of Of the:
meeting 1. Proposed action;
Note however, that this is not 2. Time of meeting; and
3. Place of meeting
required in case of non-stock
corporations incurring, creating, or Addressed to:
increasing bonded indebtedness. 1. Each stockholder or member;
2. At his place of residence as
shown in the books of the
(NOTE: As previously discussed, this corporation
is an exception to the approval due to Service of It may be served as follows:
notice
inaction by the SEC, as the latter’s GR: Deposited to the
addressee in the
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
post office with The
postage prepaid; amount
paid by
Or each on
the
Personally subscription
in cash or
ER: Sent electronically, property;
under the following OR
circumstances: The
amount
1. By-laws provide; and/or of capital
2. SEC’s rules recognizes as a valid stock or
mode of service number
Certificate 1. Majority of the directors of shares
signed by 2. Countersigned by stockholder’s of no-par
meeting’s: stock
allotted
Chairperson; and to each
stockholder
Secretary
if such
Contents of That the That the
increase
certificate requirements of requirements of
is for the
Sec. 37 have been Sec. 37 have been
purpose
complied with complied with
of
making
The amount of The amount of
effective
increase of the decrease of the
stock
capital stock capital stock
dividend
therefor
The: Any bonded authorized
Amount indebtedness to be
of capital incurred, created or Any bonded
stock; increased indebtedness to be
OR incurred, created or
number The amount of increased
of shares stock represented at
of no-par the meeting; The amount of
stock stock represented at
thereof AND the meeting;
actually
subscribed The vote AND
authorizing the
The decrease of the The vote
names, capital stock
nationalities
authorizing the
, and increase of the
addresses capital stock
of the Prior Application must be made within six (6)
persons approval of months from approval of BoD and
subscribing SEC stockholders.

The As an exception, the period may be

amount extended for justifiable reasons
of capital Prior Where appropriate
stock; approval of
OR Philippine
number Competition
of no-par Commission
stock Where copies 1. Office of the corporation; and
subscribed of certificate 2. Filed with SEC, attached to
by each; kept original AoI
When After approval by the SEC; and
and effective Upon issuance of Certificate of Filing
Additional Sworn statement by That the decrease
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
requirements treasurer lawfully shall NOT i. Their names,
holding office at the prejudice the rights
time of the filing of of corporate
nationalities, and
the certificate, that: creditors addresses;
1. At least
twenty-
ii. The amount of
five capital stock;
percent OR
(25%) of
the
Number of no-par
increase stock subscribed
in capital by each; and
stock has
been
subscribed iii. The amount paid
; and by each on the
2. at least
twenty- subscription in
five cash or property;
percent OR
(25%) of
the The amount of
amount capital stock or
subscribed number of shares
has been
paid in of no-par stock
cash or allotted to each
property, stockholder if such
the
valuation increase is for the
of which purpose of making
is equal effective stock
to
twenty- dividend therefor
five authorized;
percent c. Any bonded indebtedness
(25%)
to be incurred, created, or
increased;
Certificate in case of increase in capital
d. The amount of stock
stock
represented at the meeting;
and
The said certificate shall contain the
e. The vote authorizing the
following:
capital stock
1. That the requirements of Sec. 37
Additional requirement
has been complied with;
2. The amount of increase of the
In case of increase in capital stock, a
capital stock;
sworn statement by the treasurer
3. The following:
lawfully holding office at the time of
a. The amount of capital
the filing of the application is
stock;
required, which must state the
OR
following:
Number of shares of no-
par stock thereof actually
1. At least twenty-five percent (25%)
subscribed,
of the increase in capital stock has
b. Persons subscribing:
been subscribed; and
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
2. At least twenty-five percent (25%) 2. Time of meeting; and
3. Place of meeting
of the amount subscribed has
been paid: Addressed to:
a. In cash, to the 1. Each stockholder or member;
2. At his place of residence as
corporation; or shown in the books of the
b. Property, the valuation of corporation
which is equal to twenty- Service of It may be served as follows:
notice
five percent (25%), has GR: Deposited to the
been transferred to the addressee in the
corporation post office with
postage prepaid;

Certificate in case of decrease in capital Or

stock Personally

ER: Sent electronically,

The said certificate shall contain the under the following
following: circumstances:

1. By-laws provide; and/or

1. That the requirements of Sec. 37 2. SEC’s rules recognizes as a valid
has been complied with; mode of service
Certificate 1. Majority of the NONE
2. The amount of decrease of the signed by directors required
capital stock; 2. Countersigned by
3. Any bonded indebtedness to be stockholder’s
meeting’s:
incurred, created, or increased;
4. The amount of stock represented Chairperson;
at the meeting; and and
Secretary
5. The vote authorizing the capital
stock Contents of That the requirements of Sec. NONE
certificate 37 have been complied with required
Additional requirement
Any bonded indebtedness to
be incurred, created or
In case of decrease in capital stock, increased
the decrease shall NOT prejudice The amount of stock
the rights of corporate creditors represented at the meeting;

Incur, create, or increase bonded AND

indebtedness The vote authorizing the
incurring, creating or
STOCK NON- increasing of any bonded
STOCK indebtedness
Resolution BoD BoT Prior Application must be made NONE
by a majority approval of within six (6) months from required
vote SEC approval of BoD and
Ratification In a meeting by the Two-thirds stockholders.
stockholders representing at (2/3) vote
least two-thirds (2/3) of the of members As an exception, the period
OCS in a meeting may be extended for
called for justifiable reasons
that
purpose Prior Where appropriate NONE
Notice of Of the: approval of required
meeting 1. Proposed action; Philippine
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Competition However, bonds issued by the non-
Commission
Where 1. Office of the NOT
stock corporation are nevertheless
copies of corporation; and applicable required to be registered with the SEC
certificate 2. Filed with SEC,
kept attached to original
AoI
PROVISIONS SUBJECT TO
When After approval by the SEC; NOT AMENDMENT
effective and applicable
Upon issuance of Certificate
of Filing
The following matters may be subject
Bonds Shall be registered with the SEC, which to amendment:
issued by the shall have the authority to determine the
corporation sufficiency of the terms thereof 1. Corporate name;
2. Purpose clause:
Registration of bonds issued a. Changing;
b. Altering; or
The corporation shall register with the c. Including other purpose/s
SEC the bonds issued, the latter 3. Principal office;
having the authority to determine the 4. Number of directors;
terms’ sufficiency. 5. Shares of stocks:
a. Classifications;
Certificate in case of incurring, creating, b. Restrictions; and
or increase of bonded indebtedness of c. Preferences
stock corporations 6. Authorized capital stock;
a. Increase; or
The certificate shall indicate: b. Decrease
7. Corporation term;
1. That the requirements of Sec. 37 a. Extend; or
have been complied with; b. Shorten
2. Any bonded indebtedness to be
incurred, created or increased; The first five items are subject to
3. The amount of stock represented procedures via ordinary amendment,
at the meeting; and while the last two items are subject to
4. The vote authorizing the special amendments.
incurring, creating or increasing of
any bonded indebtedness Change in corporate name
Incurring, creating, or increase of bonded Corporations, as a juridical person, are
indebtedness of non-stock corporations allowed to change its corporate name.
In case of non-stock corporations, The Court opined that as natural
only the required votes and the duly persons are allowed to do so, juridical
constituted meeting for that purpose persons may do so, and compared to
are necessary. the former, the latter has nothing
sacrosanct about its name.
Hence, the other requirements
necessary in stock corporations such Q: Would the change of corporate name
as the certificate and prior approvals change the identity of the corporation?
are not required.
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
No, it is in no sense a new provided any express provision
corporation, nor a successor of the restricting such.
original corporation.
The Court further observed that the
Q: Would the change of corporate name CFI’s reliance on Red Line
affect the rights, privileges, and Transport v. Rural Transit Co. is
obligations of the corporation? misplaced, as in that case. The Court
ruled that what is prevented is the use
No, the rights, privileges, and of another name of a corporation
obligations previously acquired or which would result in confusion.
incurred shall remain.
It is obvious that the facts of the Red
Q: Yek Tong Lin Fire and Marine Line case is different from the case at
Insurance Co.m Ltd. (Yek Tong), agreed hand, as the latter changed its name in
to be the co-maker in a promissory note in accordance with law, and did not use
the amount of Php5,000 with Maria any other name as to make confusion.
Carmen Hartigan (Hartigan) in favor of (Philippine First Insurance Co. v.
China Banking Corp. (CBC). Hartigan)

In line with this, an indemnity agreement Provisions NOT subject to amendment

in favor of Yek Tong was made by
Hartigan, to indemnify the former in case Matters which are fait accompli
of losses or expenses by virtue of said (accomplished fact), are beyond the
promissory note. powers of the corporation to change,
alter, or modify. This includes:
Meanwhile, Yek Tong changed its name
to Philippine First Incsurance Co., Inc. 1. Names of:
(PFIC). a. Incorporators;
b. Incorporating
Hartigan failed to pay the amount, and directors/trustees;
PFIC was made liable by the CBC. As c. Treasurer first elected
such, PFIC is now claiming against 2. Shares:
Hartigan by virtue of the indemnity a. Number;
agreement. b. Originally subscribed;
c. Paid;
As a defense, Hartigan claims that PFIC 3. Execution of AoI:
is not privy to the contract, as the former a. Date;
intended the agreement to be with Yek b. Place;
Tong. CFI of Manila dismissed PFIC‟s c. Signatiories;
action citing Red Line Transport v. Rural d. Acknowledgment
Transit Co. Is the CFI correct?
Q: At the time Bareta Inc. was
No, the CFI is incorrect. incorporated, one of its incorporators is
Maria Mabaho.
A corporation is allowed to change its
corporate name under the Now, Maria Mabaho got married with
Corporation Code, as the legislature Michael Mabango. Now known as Maria
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Mabango, can the AoI be amended in
order for her married name be included?

No, as this is a matter not subject to

amendment, being fait accompli.

(Atty. Ladia: Mabaho pa din sya)

Q: San Miguel Corporation (SMC), was

incorporated in 1890, and one of its
incorporators is Andres Soriano.

Considering that more than a century has

passed, will Andres Soriano‟s still exist in
the present AoI?

Yes, as this is a matter fait accompli

CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
CHAPTER VI: BOARD OF pawnshops, corporations engaged
DIRECTORS/TRUSTEES AND in money service business,
OFFICERS preneed, trust and insurance
companies, and other financial
POWERS OF THE BOARD intermediaries; and

Sec.22. The Board of Directors or Trustees c) Other corporations engaged in

of a Corporation; Qualification and Term; businesses vested with public
Unless otherwise provided in this Code, the interest similar to the above, as
board of directors or trustees shall exercise may be determined by the
the corporate powers, conduct all business Commission, after taking into
and control all properties of the corporation. account relevant factors which are
germane to the objective and
Directors shall be elected for a term of one (1) purpose of requiring the election of
year from among the holders of stocks an independent director, such as
registered in the corporation’s books, while the extent of minority ownership,
trustees shall be elected for a term not type of financial products or
exceeding three (3) years from among the securities issued or offered to
members of the corporation. Each director investors, public interest involved
and trustee shall hold office until the in the nature of business
successor is elected and qualified. A director operations, and other analogous
who cases to own at least one (1) share of factors.
stock or a trustee who ceases to be a member
of the corporation shall cease to be such. An independent director is a person who
apart from shareholdings and fees
The board of the following corporation received from the corporation, is
vested with public interest shall have independent of management and free
independent directors constituting at least from any business or other relationship
twenty percent (20%) of such board: which could, or could reasonably be
perceived to materially interfere with the
a) Corporations covered by Section exercise of independent judgment in
17.2 of Republic Act No. 8799, carrying out the responsibilities as a
otherwise known as “The director.
Securities Regulation Code”,
namely those whose securities are Independent directors must be elected by
registered with the Commission, the shareholders present or entitled to vote
corporations listed with an in absentia during the election of
exchange or with assets of at least directors. Independent directors shall be
Fifty million pesos (P50,000,000.00) subject to rules and regulations governing
and having two hundred (200) or their qualifications, disqualifications,
more holders of shares, each voting requirements, duration of term and
holding at least one hundred (100) term limit, maximum number of board
shares of a class of its equity memberships and other requirements that
shares; the Commission will prescribe to
strengthen their independence and align
b) Banks and quasi-banks, nonstock with international best practices.
savings and loan associations,
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Hence, the powers of responsibilities as a
directors/trustees include: director;
3. Constituting at least twenty
a) Authority to exercise corporate percent (20%) of the board
powers;
b) Conduct all business; and Q: When is an independent director
c) Control and hold all properties of mandatory?
the corporation
1. Those covered by Sec. 17.2 of RA
Q: Considering the above, is it correct to 8799 of the Securities Regulation
state that the Board has supreme authority Code (SRC):
over all matters? a. Securities registered with the
Commission;
No b. Corporations listed with an
exchange or with assets of at
Authority of the Board v. Stockholders least Fifty million pesos
(Php50,000,000); and
The board is the supreme authority in c. Having two hundred (200) or
matters of management of the regular more holders of shares, each
and ordinary business affairs of the holding at least one hundred
corporation. (100) shares of a class of its
equity shares;
On the other hand, stockholders 2. The following:
have authority over fundamental a. Banks and quasi-banks;
changes in the corporate charter. b. Non-stock savings and loan
associations;
Equitable principle c. Pawnshops;
d. Corporations engaged in
While stockholders may have ALL the money service business;
profits, they nevertheless shall TURN e. Preneed;
OVER the management of the f. Trust and insurance
enterprise to the Board of Directors. companies; and
g. Other financial intermediaries;
Independent director and
3. Other corporations engaged in
Person who: businesses vested with public interest
similar to the above, as may be
1. Is independent from management; determined by the Commission.
and
2. Free from any business or other Q: How are independent directors
relationship: elected?
a. Which could; or
b. Could reasonably be They are elected during the election of
perceived to materially directors, voted by shareholders
interfere with the exercise present or those entitled to vote in
of independent judgment absentia
in carrying out the
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
CLASSIFICATIONS OF POWERS OF 2. Incidental, or acts:
CORPORATE AGENTS/OFFICERS a. As naturally and ordinarily
done
Q: Is the exercise of corporate powers and b. Which are reasonable and
functions limited to the BoD? necessary
c. To carry out the corporate
No, as it may be delegated to: purpose or purposes
3. Inherent, or acts:
1. Individual director; a. That go with the office;
2. Other officers; or 4. Apparent, or acts:
3. Agents a. NOT actually granted
b. But principal
However, they cannot do so delegate KNOWINGLY allows or
if the law so provides. Hence, the rule permits it to be done; and
as to delegation stands as follows: 5. Powers arising out of:
a. Customs;
GR: May be delegated; b. Usage; or
ER: Law provides that it c. Emergency
cannot be delegated
Q: J.F. Ramirez (Ramirez), based in Paris
Basis for whether or not the acts of any of engaged in the marketing of films, offered
the above be binding to the corporation the supply of films from Milano and Éclair
Films, through his son Jose who is based
It depends on: in the Philippines, to RJ Fernandez
(Fernandez) a director and treasurer of
1. Nature of the agency created; The Orientalist Co. (Orientalist).
2. Powers conferred upon such
person, by: As the offer would only last until the end
a. Statute; of the month, Fernandez called an
b. Corporate charter; informal conference two (2) days prior to
c. By-laws; the expiry of the offer.
d. Corporate action by the
board or stockholder; or In the said conference, four out of five
e. Necessary or incidental to directors were present, and concurred to
one’s office the offer of Ramirez, and subsequently
sent letters of acceptance to the offer, with
General rule as to acts made by corporate Fernandez‟ signature appeared
officers
When the films arrived, drafts were made
The general rule is it is bound by the by B. Hernandez (Hernandez) president
acts of such officers, if it within any of of Orientalist, as the latter had insufficient
the classification of powers of funds.
corporate agents:
However, the drafts were dishonoured
1. Expressly conferred or granted by: which led Ramirez to file a case against
a. AoI; them.
b. By-laws; or
c. Official act of BoD
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
The trial court ruled in favor of Ramirez, Q: La Previsora Filipina (LPF) is a mutual
holding Orientalist as principally liable building and loan association where
while Fernandez subsidiarily liable as a plaintiffs Alberto Baretto, Jose de
guarantor. Amusategui, and Jose Barreto (Plaintiffs)
are directors.
Both are claiming that the other is solely
liable on the contract. Plaintiffs filed a case to recover 1% of the
1929 properties to certain directors after
Orientalist claims that they never ratified termination by virtue of a by-law
the contract as the letters lacks the amendment by the stockholders.
necessary signature of their president in
accordance with their rules, and that the However, the trial court upheld the
stockholders never issued a resolution validity of the by-law amendment. Is the
ratifying the same. trial court correct?

Fernandez claims that only the Orientalist No, the trial court is incorrect.
should be held liable, is he correct?
Contracts between a corporation and
Yes, the Orientalist should be held third persons must be made by or
solely liable. under the authority of its BoD and
NOT by its stockholders.
The Court observed that a formal vote
is not always necessary to incur In this case, that no action from the
liability, as, like individuals, it may be BoD has been taken, the stockholders
done through other means. action is merely advisory.

As such, the Board ratified the said Furthermore, the Court observed that
contract by adopting a resolution giving compensation to future
necessary for the utilization of the directors for past services rendered by
films. them is an obligation unknown to law.
(Barreto v. La Previsora Filipina)
In line with doctrine of apparent
authority, as there is a resolution QUALIFICATIONS AND
ratifying the contract, the Orientalist is DISQUALIFICATIONS
estopped from denying the authority
of Fernandez. (Ramirez v. Sec.22. The Board of Directors or Trustees
Orientalist Co.) of a Corporation; Qualification and Term;
…
(NOTE: As to the stockholder’s Each director and trustee shall hold office
resolution, the Court stated that such until the successor is elected and qualified. A
is merely advisory, as the powers are director who ceases to own at least one (1)
vested to the BoD. share of stock or a trustee who ceases to be a
member of the corporation shall cease to be
On the other hand, as to the lack of such.
the president’s signature, the Court
held that it is a mere formality, not Hence, as a minimum requirement:
necessary for the binding effect of the
contract)
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
1. Directors; must own at least one Q: Can a corporation dispense with the
(1) share of stock; and requirements under Secs. 24 and 26?
2. Trustees; must be a member
No, these are minimum requirements
Q: What happens if the director sold or and hence automatically required in
transferred all his shares? qualifications of directors

He ceases to be a director Minimum qualification and

disqualification
Q: What happens if the trustee ceases to
be a member? 1. Directors; at least one (1) share of
stock
He ceases to be a trustee 2. Trustee; member of the corporation
3. Disqualifications as to both: within
Sec.26. Disqualification of Directors, five (5) years prior to election or
Trustees or Officers; appointment
A person shall be disqualified from being a a. Final judgment
director, trustee or officer of any corporation i. Imprisonment
if, within five (5) years prior to the election or exceeding six (6) years
appointment as such, the person was: ii. Violation of RCC
iii. Violation of Securities
a) Convicted by final judgment: Regulation Code
b. Fraudulent acts,
1. Of an offense punishable by administratively liable for such
imprisonment for a period c. Foreign court adjudication
exceeding six (6) years; similar to the above
2. For violating this Code; and
3. For violating Republic Act Q: Is it correct to say that the corporation
No. 8799, otherwise known as cannot add to what is required in the
“The Securities Regulation RCC?
Code”;
b) Found administratively liable for any No, a corporation may add
offense involving fraudulent acts; and requirements.

c) By a foreign court or equivalent The requirements under Sec. 24 and

foreign regulatory authority for acts, 26 are merely minimum requirements
violations or misconduct similar to which must be present no matter
those enumerated in paragraphs (a) what.
and (b) above.
Hence, there can be other
The foregoing is without prejudice to requirements, as examples:
qualifications or other disqualifications, which
the Commission, the primary regulatory 1. El Hogar requires certain number
agency, or the Philippine Competition of shares, hence not merely 1
Commission may impose in its promotion of share;
good corporate governance or as a sanction in 2. San Miguel Corp., a director must
its administrative proceedings. have at least 10% of the OCS, and
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
must NOT own shares in other which has a penalty of arresto menor (1
competitor corporations. day to 30 days). Should X be disqualified?

Q: San Miguel Corporation required its Yes, the director should be

directors to not have any share in other disqualified
competitor corporations. It is now being
contested as an unlawful provision. Under the SEC’s Notice, directors and
Decide? officers of financing companies must
submit an NBI Clearance.
The provision is valid.
If it appears from the said clearance
Directors should be acting in the that there is a record of a crime
interest of the corporation. convicted against said director, he
shall be disqualified.
Hence, requirements to protect such
interest may be placed by the Hence, notwithstanding the penalty of
corporation. (Gokongwei v. SEC) slight physical injuries which is less
than the disqualification under the
Residency requirement RCC, or exceeds six (6) years, a
director is disqualified nevertheless as
There is NO residency requirement as there are additional requirements in
to the majority of the board under the other corporations.
RCC
Q: International Corporate Bank file a
Under the CC, majority of the board case for collection of sum of money
must be residents of the Philippines. against Sacoba Manufacturing Corp.
(Sacoba), the latter in turn filed a third
However, as an exception, certain party complaint against ALFA Integrated
corporations observes the residency Textile Mills (ALFA), serving the
requirement summons to Ramon Lee and Antonio
Lacdao (Petitioners), both directors and
Hence, under the present rule on the as president and vice president,
observance of the residency respectively, of ALFA.
requirement of the board:
Petitioners informed the trial court that
GR: Not required ALFA is now being managed by the
ER: When the law so Development Bank of the Philippines
provides (e.g. partly (DBP), which information caused the
nationalized) issuance of an alias writ of summons
against DBP.
Q: Can the board of directors or trustees
be made wholly with non-residents? The transfer of management resulted from
a voting trust agreement (VTA) between
Yes Petitioners and DBP, the latter being the
trustee. Hence, petitioners claim that as
Q: XYZ is a financing company in the they ceased to be officers due of ALFA
Philippines, one of its directors, X, has due to the VTA, the service is invalid
been convicted of slight physical injuries,
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Sacoba contests the issuance of the alias What is left to the previous
writ of summons, claiming that the service stockholder is mere equitable or
to the Petitioners is a valid service. Is beneficial ownership.
Sacoba correct?
Q: What kind of ownership is required to
No, Sacoba is incorrect. be a director?

A director is required to own at least It should be legal ownership

one (1) share in order to be deemed as
such. Q: X is a stockholder with 100,000 shares.
As his son, Y, is still a minor, he assigned
Under the old and new Corporation his shares to Z to hold such shares in
Code, a VTA has the effect of trust, and such transaction is recorded in
stripping the original owner of legal the books of the corporation. What is the
ownership, and is left with equitable status of X and Z‟s ownership over such
or beneficial ownership. shares?

Under the new Code, what is required X, as trustor, is left with beneficial
in order to be a director is legal ownership over said shares.
ownership.
On the other hand, Z, as trustee, is the
In this case, the VTA resulted in the legal owner.
legal ownership being owned by DBP,
and hence Petitioners ceased to be Q: In the above question, can Z be elected
officers of ALFA due to the stripping as a director?
of legal ownership of stocks they own,
hence the service to them is not a Yes, as he has legal ownership of said
service to ALFA. (Lee v. CA) shares

(NOTE: Under the old Corporation Q: In the above question, can X be elected
Code, the provision on qualifications as a director?
of directors include the words “…in
his own right”. No, as he has merely beneficial
ownership
Due to this, mere beneficial or
equitable ownership would suffice as Q: What if the transfer was not recorded in
qualification to be a director. the corporation‟s books, can Z be
nominated as a director?
However, the phrase has been deleted,
which results in the requirement of No, as the basis for nominating a
legal ownership to be a director.) stockholder is the presence of the
name in the books
Q: What is the effect of a VTA?
Q: What if the transfer was not recorded in
It strips the stockholder of legal the corporation‟s books, can X be
ownership, and transfers it to the nominated as a director?
transferee/trustee.
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Yes, as in the eyes of the corporation, successor has been elected.
he remain to be a stockholder with (Detective and Protective Bureau
legal ownership of his shares, and v. Cloribel)
hence can be elected.
Term
Q: Years have passed and Y became
emancipated, and eventually X‟s shares In case of stock corporations,
were transferred to him by Z, and such directors shall be elected for a term of
was recorded in the books of the one (1) year.
corporation. Who is the legal owner of
said stocks? For non-stock corporations, trustees
shall be elected for a term of three (3)
It is Y, as he already became the years
owner of said shares by virtue of the
transfer and the recording in the For close corporations, directors
books. shall serve for a period of five (5)
years, hence:
Q: Detective and Protective Bureau
(DPB), filed a case for accounting with Stock: 1 year
preliminary injunction and receivership Non-stock: 3 years
against then managing director Fausto Close: 5 years
Alberto (Alberto).
Term v. tenure
The case arose from Alberto‟s illegally
seizing assets of DPB including its books, Term is the time during which the
records, vouchers, and receipts, and officer may claim to hold office as a
allowed no one to view said assets. matter of right, and fixes the interval
after which the several incumbent
Due to this, the stockholders in a meeting shall succeed as one another.
removed Alberto as such, and elected Jose
de la Rosa (Jose) in his stead. Tenure, on the other hand, represents
the term/period during which the
However, Alberto refused to vacate on the incumbent actually holds office. It
ground that Jose does not appear to own may be for a shorter (e.g. resignation)
any shares of stock. Is Alberto correct? or longer (e.g. no qualified successor)
duration.
Yes, Alberto is correct.
Q: Is the „term‟ affected by the hold-over
A director needs to have one share of capacity?
stock in order to be such.
Furthermore, a director will serve a No, the term remains the same as
term of one (1) year and until their fixed by the statute
successors are elected and qualified.
Q: X, a stockholder of ABC Corp., has
In this case, as Jose has no share in been elected as director of the latter.
DPB, he is not qualified, and as such However, X decided to resign due to
Alberto remains a director, in a hold- health reasons. How long is his term and
over capacity, until a qualified tenure?
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
His term remains at one (1) year, as it In stock corporations, every stockholder
is fixed by the statute. entitled to vote shall have the right to vote the
number of shares of stock standing in their
On the other hand, his tenure is only own names in the stock books of the
six (6) months, representing the corporation at the time fixed in the bylaws or
period he actually held office. where the bylaws are silent, at the time of the
election.
ELECTION AND VOTING
The said stockholder may:
Election of Directors or Trustees
a) Vote such number of shares for as
Sec.23. Election of Directors or Trustees; many persons as there are directors to
Except when the exclusive right is be elected;
reserved for holders of founders‟ shares b) Cumulate said shares and give one (1)
under Section 7 of this Code, each candidate as many votes as the
stockholder or member shall have the number of directors to be elected
right to nominate any director or trustee multiplied by the number of the
who possesses all the qualifications and shares owned; or
none of the disqualifications set forth in c) Distribute them on the same principle
this Code. among as many candidates as may be
seen fit.
At all elections of directors or trustees, there
must be present, either in person or through Provided, That the total number of votes cast
a representative authorized to act by written shall not exceed the number of shares owned
proxy, the owners of a majority of the by the stockholders as shown in the books
outstanding capital stock, or if there be no of the corporation multiplied by the whole
capital stock, a majority of the members number of directors to be elected: Provided,
entitled to vote. When so authorized in the however, that no delinquent stock shall be
bylaws or by a majority of the board of voted.
directors, the stockholders or members
may also vote through remote Unless otherwise provided in the articles of
communication or in absentia. Provided, incorporation or in the by-laws, members of
that the right to vote through such modes non-stock corporations may cast as many
may be exercised in corporations vested votes as there are trustees to be elected but
with public interest, notwithstanding the may not cast more than one (1) vote for one
absence of a provision in the bylaws of (1) candidate. Nominees for directors or
such corporations. trustees receiving the highest number of
votes shall be declared elected.
A stockholder or member who participates
through remote communication of in If no election is held, or the owners of a
absentia, shall be deemed present for majority of the outstanding capital stock or
purposes of quorum majority of the members entitled to vote were
not present in person, by proxy or through
The election must be by ballot if requested by remote communication or not voting in
any voting stockholder or member. absentia at the meeting, such meeting may
be adjourned and the corporation shall
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
proceed in accordance to Section 25 of Requisite if present through remote
this Code communication or in absentia

The directors or trustees elected shall Any of the following must be present:
perform their duties as prescribed by law, 1. Authorized in the bylaws; OR
rules of good corporate governance, and 2. Authorized by majority of BoD
bylaws of the corporation.
However, as an exception, it is still
Q: Can a stockholder or member available despite no authority in the
nominate any director or trustee? bylaws or by the BoD in cases of
corporations vested with public
Yes, they may do so. interest, hence:

However, as an exception, they GR: Must be authorized in

cannot nominate any director or the bylaws or by the
trustee in case the exclusive right to BoD
vote or be voted for is given to
holders of Founder’s Shares, hence: ER: Corporations vested
with public interest
GR: Can nominate anyone;
ER: Founder’s shares given Q: What if the required quorum was not
the exclusive right to reached?
vote and be voted for
The meeting called for that purpose
Required quorum for election of directors may be adjourned

a) Stock; majority of the OCS Method

b) Non-stock; majority of members
entitled to vote Voting should be by ballot IF
requested by the stockholders, hence:
When stockholder/member deemed
present GR: Viva voce
ER: Ballot
It may be by any of the following:
Q: When may votes be casted?
1. In person;
2. Through a representative; and As a rule, it may be casted:
3. Through remote communication
or in absentia GR: At the time fixed in
the bylaws
Requisite if present through a ER: At the time of election,
representative if the bylaw are silent

He must be authorized to act by Q: What is the basis of the number of

written proxy votes of shareholders?

Each shareholder shall have the right

to vote:
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
a) The number of shares of stock Q: Can a stock corporation deny the
b) Standing in their own names; exercise of cumulative voting?
c) In the stock books of the
corporation; No. It is a right granted by law to
d) At the time fixed in the by-laws or stockholders to allow the minority to
of the election have a rightful representation

Cast of votes Q: X owns 1000 shares in ABC

corporation, how may he cast his votes if
In stock corporations: there are five (5) directors to be elected
among A,B,C,D,E, and F?
a) Vote such number of shares for as
many persons as there are X may opt to do any of the following:
directors to be elected;
a) Vote the 1000 shares to:
b) Cumulate said shares and give one a. One person; or
(1) candidate as many votes as the b. Two or more persons
number of directors to be elected
multiplied by the number of the CANDIDATE VOTES
shares owned; or A 1,000
A,B,C,D, and E 200 each
c) Distribute them on the same A,B,C, and D 250 each
principle among as many
candidates as may be seen fit. b) Cumulate said shares, the 1000
shares multiplied by 5 directors,
In non-stock corporations: giving him 5000 votes, and may
cast said vote to:
GR: No more than 1 vote a. One person; or
for 1 trustee; b. Distribute to two or more
persons, as he may see fit
ER: Cumulative, if
provided in its AoI or CANDIDATE VOTES
by-laws A 5,000
A,B,C,D, and E 1,000 each
Cumulative voting A,B,C, and D 1,250 each
It is the right of a stockholder to give Q: ABC corporation has an OCS of
a candidate as many votes as the 1,000,000, where 200,000 are non-voting
number of directors to be elected shares. What is the majority vote in this
multiplied by the number of his shares case?
(n of D to be elected x shares)
The majority vote shall be 400,001.
In stock corporations, it is a matter
of right In this case, non-voting shares are not
entitled to voting directors.
In non-stock corporations, it can
only be allowed if it is provided in the
AoI or by-laws.
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Hence, the 200,000 non-voting shares The winners shall be D,E,F,G, and I,
shall be deducted from the 1,000,000, being the five (5) directors who
leaving 800,000 shares who are received the highest votes.
entitled to vote
D,E,F,G, and I, casted their votes to
From this 800,000 shares, the majority themselves, which is 100,000, 100,000,
shall be 400,001 100,000, 50,000, and 10,000,
respectively.
Q: Consider the following figure:
As no votes were casted for A,B,C,
STOCKHOLDER VOTING SHARES and H, they cannot be said to have
OWNED been elected for they were not among
A 200,000 those who received the highest votes.
B 200,000
C 200,000 If B cumulates his votes for the election of
D 100,000 a five (5) man board, how many votes
E 100,000 does he have?
F 100,000
G 50,000 1,000,000 votes (200,000 x 5)
H 40,000
I 10,000 A,B,C,D, and E are siblings and are
1,000,000 OCS holding 800,000 shares as the majority
stockholders.
If A and B were absent at the time of
On the other hand, F,G,H, and I are not
election of directors, is there a quorum?
related to the above, and are holding
200,000 shares as minority stockholders.
Yes, as there is still 600,000 out of the
1,000,000 OCS.
In case the majority stockholders
cumulated their votes for a five (5) man
A and B merely represented 400,000
board, will the minority be denied of
of the OCS, which does not in any
representation?
way deprive the present stockholders
the quorum.
No, as cumulative is designed to
provide the minority stockholders
In this case, majority of the
representation no matter what.
stockholders, which is 600,000, has
been attained.
While it is true that the majority
stockholders will have 4,000,000
It has been decided that there are five (5)
votes, and the minority will have
directors to be elected.
1,000,000 votes, the latter will
nevertheless have someone to be
A and B were absent, C on the other hand
elected as a director considering that
did not nominate himself, and H opted
their votes given to a candidate/s will
not to vote.
belong to those having the highest
number of votes.
D,E,F,G, and I nominated themselves.
Who are the winners of the election?
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
For example, if the 4,000,000 was If the corporation is vested with public
used to vote themselves, the 1,000,000 interest, the board shall also elect a
shares will still defeat them, hence: compliance officer. The same person may
hold two (2) or more positions concurrently,
CANDIDATE VOTES except that no one shall act as president and
A 800,000 secretary or as president and treasurer at the
B 800,000 same time, unless otherwise allowed in this
C 800,000 Code.
D 800,000
E 800,000 The officers shall manage the corporation and
F, G, H, or I 1,000,000 perform such duties as may be provided in the
bylaws and/or as resolved by the board of
Even if the majority distributes it directors.
unevenly, the minority will still have
representation: Corporate officers

CANDIDATE VOTES The following are to be elected:

A 1,000,000
B 1,000,000 a) President
C 666,666 b) Treasurer
D 666,666 c) Secretary;
E 666,666 d) Other officers as provided in the
F, G, H, or I 1,000,000 bylaws; and
e) Compliance officer
Notice that in either case, the
minority’s 1,000,000 shares will Q: Who elects corporate officers?
guaranty representation as their
candidate shall receive among the As a general rule, they are elected by
highest votes. the BoD.

Election of Corporate Officers As exceptions, in close corporations

where the AoI may provide that
corporate officers are voted by the
Sec.24. Corporate Officers;
stockholders, and in case of non-stock
Immediately after their election, the directors
corporations where members directly
of a corporation must formally organize and
elect corporate officers in the absence
elect:
of a provision providing otherwise.
Hence:
a) a president, who must be a
director; GR: BoD;
b) a treasurer, who must be a ER: Stockholders in a close
resident; corporation if
c) a secretary, who must be a provided in the by-
citizen and resident of the laws; and
Philippines; and Members in a non-
d) such other officers as may be stock corporation if
provided in the bylaws.
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
there is no provision As a general rule, a person may hold
providing otherwise two (2) or more positions
concurrently.
(NOTE: Notice that in case of a close
corporation, there must be a provision As an exception, a president
in the AoI to that effect in order for CANNOT serve as a secretary or
the exception to apply. treasurer at the same time.

Hence, the general rule that the BoD As an exception to the exception,
shall elect its corporate officers stands the president may serve as the
if there is no provision to that effect.) secretary or treasurer at the same time
if the RCC allows the same. Hence:
Q: When must the BoD elect its corporate
officers? GR: A person may hold 2
or more positions
After the BoD election, they must
formally organize and elect its ER: The president cannot
corporate officers be the treasurer or
secretary at the same
Requirements time

A president must be a director. EER: The president may be

Consistent with the definition of allowed to be the
director, he does not necessarily need treasurer or secretary
to be a resident or citizen of the at the same time if the
Philippines. RCC allows

A treasurer on the other hand must Q: Can the president be the chairman of
be a resident of the Philippines. the board?
Hence, even if he is not a Filipino
citizen, he may serve as a treasurer. He Yes, he may serve as such as a person
need not be a director of a may hold two or more positions at the
corporation same time.

A secretary needs to be a resident In practice, corporations usually do

and citizen, hence living in and a this set-up where the chairman of the
citizen of the Philippines. He need not BoD is also the corporate president.
be a director.
Q: When is a compliance officer is
OFFICER Director Resident Citizen required?
President MUST
Treasurer MUST In case of corporations vested with
Secretary MUST MUST public interest.

Rule as to concurrence
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
VALIDITY AND BINDING EFFECT At least a majority of the directors or
OF ACTIONS OF CORPORATE trustees present at the meeting at
OFFICERS which there is a quorum, hence:

Sec.52. Regular and Special Meetings of a) There must be a majority vote

Directors or Trustees; Quorum ; among the directors or trustees;
Unless the articles of incorporation or the b) The majority vote will come from
bylaws provides for a greater majority, a those present;
majority of the directors or trustees as stated c) There must be a meeting; and
in the articles of incorporation shall constitute d) Those who are present must
a quorum to transact corporate business, and constitute a quorum
every decision reached by at least a majority of
the directors or trustees constituting a Q: Can all matters be decided by the
quorum, except for the election of officers majority of those constituting a quorum?
which shall require the vote of a majority of
all the members of the board, shall be valid as No, as an exception, election of
a corporate act. corporate officers requires the
xxx majority of all members of the board,
hence:
The above portion of the provision
was previously included in the last GR: Majority of the
paragraph of Sec.23 of the CC. Now it quorum
is inserted in the first paragraph of the ER: Majority of all board
above section. members, in cases of
election of corporate
Quorum required to transact corporate officers
business
Q: XYZ corporation has ten (10) directors.
GR: Majority of the directors or In the absence of any provision requiring
trustees; a greater majority for a quorum, what is
ER: Greater majority, if the AoI or the required quorum?
bylaws provides
The quorum shall be at least six (6)
Q: Can a corporation provide for a members.
quorum less than the majority, say
representing at least 1/3 of the directors or The required quorum shall be the
trustees? majority of the directors or trustees,
which in this case is six (6) out of the
No, the provision only allows a ten (10) members
corporation to require a greater
majority, but NOT less than the Q: If XYZ corporation is to vote on a
majority. corporate act, how many votes are
required to make it valid if there are 6
Vote required for a valid corporate act directors or trustees present?

The required vote shall be four (4)

CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Q: If the quorum is 6, but there are 7,8,9, As another exception, acts of
or 10 who are present, what is the required individual directors, while generally
vote? will not bind the corporation, it may
bind the corporation if:
It shall be the majority of the directors
or trustees constituting a quorum. a) There is delegation of authority;
b) If expressly conferred; or
Hence, 4 for 7, 5 for 8, 5 for 9, and 6 c) Where the officer or agent is
for 10. clothed with actual or apparent
authority
Q: After the election of XYZ‟s directors,
they went on to elect their corporate Hence, the rule is as follows:
officers. At the election, 6 were present
and the 4 votes were reached in order to GR: Will NOT bind the
elect its officers. Are the votes sufficient to corporation
elect its corporate officers? ER: Will bind the
corporation:
No, as in cases of election of
corporate officers, the majority vote a) If subsequently
of ALL directors or trustees is ratified; or
required. b) Acts of Individual
director if:
It is hence an exception to the general a. There is
rule that a majority vote of those who delegation of
were present in a meeting where there authority;
is a quorum is sufficient. b. Expressly
conferred;
Effect if the quorum was not met, or there c. Clothed with
is no meeting for such corporate act, or actual or
the required vote was not reached apparent
authority
Hence the act would NOT bind the
corporation. Q: Yao Ka Sin Trading (YKS) accepted
the offer of Constancio Maglana
However, as an exception, it will be (Maglana), president and chairman of
binding to the corporation if Prime White Cement Corporation
subsequently it was ratified, expressly (PWCC), as to the latter‟s supplying of
or impliedly. cement to the former.

(NOTE: As an example, go back to However, twenty-three (23) days after the

the case of Ramirez v. Orientalist signing of said offer, the BoD of PWCC
Co. where the corporation deny the disapproved and rejected the contract
validity of the transaction with entered into by YKS and Maglana, and
Ramirez, but did acts which are sent a letter to YKS that in case YKS
consistent with the use with the continued on withdrawing cement from
subject of the transaction.) them, the check amounting to Php243,000
shall be deposited by PWCC. YKS never
replied, and nevertheless accepted the
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
10,000 bags together with the official
receipt for the deposited check.

YKS argues that PWCC is bound by the

transaction entered into by Maglana, the
latter being its officer, and anchored on
the following grounds:

a) That Maglana was delegated

with authority due to a by-law
provision allowing his power to
enter into contracts;
b) That Maglana‟s power to sign
contracts is expressly conferred
in order to expedite the
execution of contracts; or
c) In case the above are
unavailing, that Maglana is
clothed with actual or apparent
authority

Is YKS correct?

No, YKS is incorrect, hence PWCC is

not bound by the transaction entered
into by the former with Maglana.

As to Maglana’s being delegated with

authority, it was held that it is only the
BoD as the one with the authority to
enter into contracts.

As to his power to sign, it

presupposes a prior act of the
corporation through the BoD. Hence,
the signature would only apply if there
is a prior act. There is therefore, only a
limited delegated authority

And finally, as to his actual or

apparent authority, there was no
evidence presented as to his previous
transactions allowing for such (Yao
Ka Sin Trading v. CA)
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
POWER TO DENY PRE-EMPTIVE Q: What if his preemptive right was not
RIGHT granted?

Sec.38. Power to Deny Preemptive Right; It thereby results to dilution of his

All stockholders of a stock corporation shall shares, as he will only own 5% or
enjoy preemptive right to subscribe to all specifically 100k shares out of the 2m
issues or disposition of shares of any class, in shares
proportion to their respective shareholdings,
unless such right is denied by the articles of Q: Can preemptive right be denied?
incorporation or an amendment thereto:
Provided, That such preemptive right shall Yes, by the AOI or an amendment
not extend to shares issued in compliance thereto as corporations are granted
with laws requiring stock offerings or with the powers to deny such.
minimum stock ownership by the public; or
to shares issued in good faith with the Q: Is exercise of the denial restricted via
approval of the stockholders representing the AOI or any amendment of the AOI
two- thirds (2/3) of the outstanding capital only?
stock, in exchange for property needed for
corporate purposes or in payment of a No, as despite the absence of a
previously contracted debt. provision in the AOI or in its
amendment, pre-emptive right is
It is a right granted by law to ALL denied in the following instances:
corporations
1. Shares issued in compliance with
Preemptive right laws requiring
a. Stock offerings; or
SH allowed to subscribe to all issues b. Minimum stock ownership
or dispositions of shares of any class, by the public; or
in proportion to their respective 2. Shares issued
shareholdings a. In good faith;
b. Approved by 2/3 of OCS
Purpose c. In exchange for property:
i. Needed for
It is to preserve proprietary interest in corporate purpose;
stock corporations or
ii. In payment of
Q: A has 10% or 100k shares out of the 1 previously
million OCS of X Corporation. X issued contracted debt
additional 1 million shares. What is the
right A? (NOTE: The above stated
circumstances does not apply to a
A may subscribe to 10% of 1m shares close corporation, thereby only denial
to retain his right through AoI is available)

In such a case, he will own a total of Summary of cases where pre-emptive

200k shares thereby retaining his 10% right is denied
proprietary interest
1. AoI or amendment thereto;
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
2. Shares issued in compliance with laws purposes, which was further approved
requiring by 2/3 of the OCS.
a. Stock offerings; or
b. Minimum stock ownership by Thus, all the requisites were met in
the public; or order to deny pre-emptive right.
3. Shares issued
a. In good faith; Q: Can the pre-emptive right of the SH be
b. Approved by 2/3 of OCS waived?
c. In exchange for property:
i. Needed for corporate Yes, as it is merely a right
purpose; or
ii. In payment of Common practice upon issuance of
previously contracted additional shares
debt
Advise SH that they can subscribe
Q: X corporation, engaged in such additional shares, and the period
telecommunications, has 1b shares, 400m when they can do so.
of which is owned by the public. In case it
issued another 1b shares, may the 400m of After such period, it shall be deemed
the shares be subscribed by the existing that the SH waived his pre-emptive
stockholders to retain their interest? right

No, in telecommunications Q: What types of shares are covered by the

corporations, 40% must be owned by pre-emptive right?
the public.
All types of shares are covered by the
Thus, 40% or 400m shares of the pre-emptive right.
additional 1b shares must be offered
to the general public. During the deliberation of the
Corporation Code, it has been stated
Existing stockholders cannot exercise that it now covers all types of shares
their pre-emptive right over the 400m
shares to retain his interest as it must The previous ruling in Mendoza v. SEC
be offered to the general public. that only newly issued shares, and
NOT previously unsubscribed shares,
Q: X Corporation, engaged in are covered by the pre-emptive right.
manufacturing, wants to establish
facilities for furtherance of their In ruling so, the 1st offer is deemed
corporation purpose. offer of all of the shares, thus the
unsubscribed shares is deemed as
Y offered property to corporation in waiver
exchange of shares, which was approved
by 2/3 of the OCS. May SH exercise his Under the present rule, Sec. 38, now
pre-emptive right considering that there categorically states that ALL ISSUES
are newly issued shares? OR DISPOSITIONS OF ANY
CLASS, even treasures, when they are
No, as the newly issued shares are for reissued, or founder’s shares, when
acquisition of property for corporate
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
the period has passed, SH are entitled bonds, or other instruments for the payment
to subscribe thereto of money or other property or consideration,
as its board of directors or trustees may deem
Close corporation expedient.

Sec.101. Preemptive Right in Close A sale of all or substantially all of the

Corporations; corporation’s properties and assets, including
The preemptive right of stockholders in close its goodwill, must be authorized by the vote
corporations shall extend to all stock to be of the stockholders representing at least two-
issued, including reissuance of treasury shares, thirds (2/3) of the outstanding capital stock,
whether for money, property or personal or at least two-thirds (2/3) of the members, in
services, or in payment of corporate debts, a stockholders’ or members’ meeting duly
unless the articles of incorporation provide called for the purpose.
otherwise.
In nonstock corporations where there are no
In the case of a close corporation, the members with voting rights, the vote of at
sole denial would be through the AoI least a majority of the trustees in office will be
sufficient authorization for the corporation to
This is so, because close corporation enter into any transaction authorized by this
cannot make public offerings. section.

Likewise, payment of corporate debts The determination of whether or not the

cannot deny pre-emptive rights in a sale involves all or substantially all of the
close corporation. corporation‟s properties and assets must
be computed based on its net asset value,
As such, the rule as to a SHs exercise as shown in its latest financial statements.
of pre-emptive right is as follows: A sale or other disposition shall be deemed to
cover substantially all the corporate property
GR: Absolute; and assets if thereby the corporation would be
ER: Denied through AoI rendered incapable of continuing the business
or accomplishing the purpose for which it was
incorporated.
POWER OF SALE OR DISPOSITION
OF ALL OR SUBSTANTIALLY ALL Written notice of the proposed action and of
CORPORATE PRORTIES the time and place for the meeting shall be
addressed to stockholders or members at their
Sec.39. Sale or Other Disposition of places of residence as shown in the books of
Assets; the corporation and deposited to the
Subject to the provisions of Republic Act addressee in the post office with postage
No. 10667, otherwise known as the prepaid, served personally, or when
“Philippine Competition Act”, and other allowed by the bylaws or done with the
related laws, a corporation may, by a majority consent of the stockholder, sent
vote of its board of directors or trustees, sell, electronically: Provided, That any
lease, exchange, mortgage, pledge, or dissenting stockholder may exercise the
otherwise dispose of its property and assets, right of appraisal under the conditions
upon such terms and conditions and for such provided in this Code.
consideration, which may be money, stocks,
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
After such authorization or approval by the the majority vote of the BoT shall
stockholders or members, the board of suffice
directors or trustees may, nevertheless, in its
discretion, abandon such sale, lease, exchange, Summary
mortgage, pledge, or other disposition of
property and assets, subject to the rights of GR: 51% of BoD/T (NOT all or
third parties under any contract relating substantially all)
thereto, without further action or approval by ER: 51% of BoD/T + 2/3 of
the stockholders or members. OCS/M (All or substantially
all)
Nothing in this section is intended to restrict EER: 51% of BoT (All or
the power of any corporation, without the substantially all, where M have
authorization by the stockholders or no voting rights)
members, to sell, lease, exchange, mortgage,
pledge, or otherwise dispose of any of its Substantially all
property and assets if the same is necessary in
the usual and regular course of business of the A corporation will be rendered as such
corporation or if the proceeds of the sale or if the corporation will be rendered
other disposition of such property and assets incapable of continuing the business
shall be appropriated for the conduct of its for which it was organized or
remaining business. accomplishing its purpose

General rule Q: X Corporation is engaged in realty

business, specifically the buy and sell of
A corporation may sell, lease, real property. Their sole property is in
exchange, mortgage, pledge or dispose BGC, and they have decided to sell such
its corporate property or assets property, is the 2/3 vote of the OCS
through a majority vote of the BoD or required?
BoT
No, the majority vote of BoD shall be
Exception to the general rule sufficient

In case of a disposition of all or In this case, the property at hand is

substantially all corporation’s assets not necessary to the business of X, as
and properties, the following are to render it incapable of continuing its
required: business.

1. Majority vote of the BoD or BoT; In fact, such sale is in line with their
and, purpose, which is the buying and
2. At least 2/3 vote of the OCS or selling real property
members in a meeting duly called
for that purpose must be had: Q: Y Corporation is engaged in
manufacturing. Its sole property is a
Exception to the exception compound with warehouse, plant, and
housing its corporate offices. Y decided tp
In case of a non-stock corporation, sell the property, is the 2/3 vote needed?
where members have no voting rights,
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Yes, as the sale of such property No, as the sale was done against the
would render Y incapable of purpose for its donation, without
continuing its business. having the consent of the donor.

The property in question holds the Furthermore, the majority vote of the
plant where its products are being BoD is without effect, considering
made. that they are not the legitimate board.

Its sale would mean that no goods can Even assuming that they are the
then be made. legitimate board, the 2/3 vote of the
M is still required, as the purpose for
Q: What if Y corporation used the which it was organized was not in line
proceeds are to be used to create a with the sale of the said properties.
modern facility, would the 2/3 vote be (Islamic Directorate of the Phil. v.
required? CA)

No, as the proceeds of the sale are to Q: In case of a sale of all or substantially
be used for the conduct of its all to another corporation, would the
remaining business purchaser be liable for debts and liabilities
of selling corporation?
Summary of when 2/3 vote not required
As a general rule, no, in line with the
In the following cases, the 2/3 vote is corporate entity theory where the
not required: corporation shall have its own
separate entity from other
1. When the sale is not all or corporations, as highlighted by the
substantially all of corporate following cases:
properties or assets;
2. Sale of all or substantially all: 1. Yu v. NLRC;
a. Non-stock corporations 2. Edward Nell & Co. v. Pacific Farms
where members have no (Nell Doctrine); and
voting rights; 3. Y1 Leisure v. CA
b. Sale is necessary in the
usual and regular course of However, as an exception, still under
business; and the Nell Doctrine, liability will attach
c. Proceeds appropriated for to the seller in the following cases:
conduct of remaining
business 1. Purchaser expressly or impliedly
agreed to assume;
Q: After contesting the election of its 2. Transaction amounts to merger or
directors, which was declared null and consolidation;
void, the said directors issued a resolution 3. Purchaser mere continuation of
for the sale of a lot donated by the Libyan seller;
government, for the purpose of putting up 4. Fraudulent sale, as only to escape
a learning institution in Manila. Will the liability
board resolution suffice to make the sale
valid? POWER TO ACQUIRE OWN SHARES
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Sec.40. Power to Acquire Own Shares; A is the owner of 10 shares. Thus, he is
Provided that the corporation has unrestricted entitled to 3.33. How many stock
retained earnings in its books to cover the dividends will he get?
shares to be purchased or acquired, a stock
corporation shall have the power to purchase Only 3 shares, as fractional shares are
or acquire its own shares for a legitimate not allowed anymore.
corporate purpose or purposes, including the
following cases: Q: What will happen to the .33?

a) To eliminate fractional shares arising out It will be paid in cash or property,

of stock dividends;
Hence, it effectively dilutes number of
b) To collect or compromise an shares to the extent of .333
indebtedness to the corporation, arising
out of unpaid subscription, in a Collect or Compromise an Indebtedness
delinquency sale, and to purchase to the Corporation
delinquent shares sold during said sale;
and In these cases, specifically through a
delinquency sale, the corporation is
c) To pay dissenting or withdrawing allowed to acquire the shares subject
stockholders entitled to payment for their of delinquency
shares under the provisions of this Code.
Q: X corporation has its SHs A, B, C, D,
Minimum requirement and E with 100k shares each. E paid only
50k out of the 100k, thereby leaving an
In order for a stock corporation may unpaid portion of 50k. What is the
purchase or acquire its own shares, the corporation‟s remedy?
following must be present:
The corporation will call for payment,
a) Must have URE (surplus profits); at a specific date
and
b) Must be for legitimate purpose/s Q: After calling for payment, at the end of
the month, E failed to pay. What is the
Elimination of fractional shares next remedy?

Fractional shares resulting from stock The whole share (100k) shall be
dividends is NO LONGER declared as delinquent shares.
ALLOWED, thus it must be removed
by the corporation by acquiring such After such declaration, the
fraction corporation may now move to sell
such shares at a public auction.
Q: X corporation declared stock dividends
where 1 stock dividend shall be given to 3 Q: During the auction, there were no
shares each. bidders. Is the corporation left without
any remedy?
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
No, as in this case, it may now but its b. Withdrawal of stockholder
own shares, provided that the or dissolution of
minimum requirement was met. corporation (Sec.104)

Q: As no bidders came, the corporation Q: X Corp made 1m this year Its debts
sought to bid. However, it has no profits amount to 500k thus paid from the 1m.
as there are numerous losses. Can it still The remaining 500k was resolved by the
reacquire such shares? BoD to be a reserve for possible
contingencies. How much is the URE?
No, as there is no URE.
None. The entire 1m shall be deemed
Effect after corporation acquired as restricted, considering that half was
delinquent shares used to pay the debts while the other
half was reserved.
Such delinquent shares shall now be
treasury shares Redeemable shares

Options of corporation after delinquent …They are shares which may be purchased by
shares became treasury shares the corporation from the holders of such
shares upon the expiration of a fixed period,
In this case, the corporation may opt regardless of the existence of unrestricted
to do any of the following: retained earnings in the books of the
corporation…
a) Reissue for reasonable price; or
b) Cancel such shares (take them out Deadlocks
of issue)
In this case, the close corporation may
Effect of reissuance compel the SH to sell his share
REGARDLESS of URE
It regains its status as part of the OCS
Withdrawal of stockholder or dissolution
To pay dissenting or withdrawing of corporation
stockholders
…any stockholder of a close corporation may,
In these cases, a SH shall be entitled for any reason, compel the corporation to
to the payment of the fair value of his purchase shares held at fair value, which shall
shares not be less than the par or issued value, when
the corporation has sufficient assets in its
Exceptions to requirement of URE books to cover its debts and liabilities
exclusive of capital stock…
While the general rule is that there
must be a URE, the shares maybe Its requisites are as follows:
reacquired despite absence of URE:
a) Compel close corporation to
a) Redeemable shares purchase his shares, for any
b) Appraisal right; reason; and
c) Close corporations: b) Sufficient assets in books:
a. Deadlocks (Sec.103); and
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
a. To cover debts and and the time and place of the meeting shall be
liabilities; and addressed to each stockholder or member at
b. Exclusive of capital stock the place of residence as shown in the books
of the corporation and deposited to the
Q: C Corporation is a close corporation addressee in the post office with postage
with 1m OCS. This year, it made 1m in prepaid, served personally, or sent
profits. The board resolved that 500k electronically in accordance with the rules
would be for payment of debts, while the and regulations of the Commission on the
other 500k is reserved for contingency use of electronic data message, when
purposes. A, is an SH holding 200k shares allowed by the bylaws or done with the
at Php1/share. A demands to be paid fair consent of the stockholders: Provided, That
value of shares 200k, can C pay A? any dissenting stockholder shall have appraisal
right as provided in this Code: Provided,
Yes, the reserve to be used as payment however, That where the investment by the
to A. corporation is reasonably necessary to
accomplish its primary purpose as stated in
In this case, C has sufficient assets the articles of incorporation, the approval of
aside from the capital stock to pay its the stockholders or members shall not be
debts. necessary.

Thus, the 500k reserve will be used to General rule

pay C’s 200k shares.
In case that the investment is for the
Q: What if C is a stock corporation, can it primary purpose, the majority vote of
pay A? the BoD/T shall suffice

No, as the whole 1m will be Exception

considered restricted
In case the investment is other than
POWER TO INVEST CORPORATE the primary purpose, the following
FUND must be present:

Sec.41. Power to Invest Corporate Funds a) Majority vote of BoD/T;

in Another Corporation or Business or for b) Ratified by at least 2/3 of the
Any Other Purpose; OCS/M
Subject to the provisions of this Code, a
private corporation may invest its funds in any Q: A realty corporation invested in
other corporation, business, or for any general construction. is the approval of
purpose other than the primary purpose for the SH needed?
which it was organized, when approved by a
majority of the board of directors or trustees Yes, as it is other than primary
and ratified by the stockholders representing purpose
at least two-thirds (2/3) of the outstanding
capital stock, or by at least two-thirds (2/3) of De La Rama v. Ma Ao sugar central:
the members in the case of non-stock
corporations, at a meeting duly called for the
purpose. Notice of the proposed investment
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Q: Sugar Central Corporation subscribed Q: Assume that the Court ruled that the
to stocks Phil. Fibers, which produces 2/3 vote of the OCS is required, as
sugar bags, authorized by a majority vote counsel for SMC what would be your
of the directors. The SHs oppose the defense?
same, stating that their 2/3 concurrence
must be had before they can invest. Is the I would argue that it has been ratified
SH correct? subsequently.

No,SH approval not required, In fact, SMC usually poses the 2nd
acquisition in Phil. Fibers, is necessary agenda of the annual meeting as
to carry out purpose of Sugar Central “Approval or Confirmation of
as Phil. Fibers produce sugar bags. Previous Acts”, which usually reaches
(De la Rama v. Ma-ao Sugar a unanimous vote.
Central)
The SC in the same case held that
Rationale for sufficiency of BoD majority such practice is a sound corporate
practice and/or policy.
Logical relation between act done and
primary purpose, SH approval not POWER TO DECLARE DIVIDENDS
needed, as it is deemed as the power
of BoD alone in the exercise of their Sec.42. Power to Declare Dividends;
management discretion The board of directors of a stock corporation
(Montelibano v. Murcia) may declare dividends out of the unrestricted
retained earnings which shall be payable in
Q: San Miguel Corporation (SMC), cash, property, or in stock to all stockholders
engaged in the brewery business on the basis of outstanding stock held by
purchased a brewery in Hong Kong, them: Provided, That any cash dividends due
authorized by the majority vote of the on delinquent stock shall first be applied to
BoD. the unpaid balance on the subscription plus
costs and expenses, while stock dividends
SH Gokongwei questioned the validity of shall be withheld from the delinquent
the investment as it did not sought the stockholders until their unpaid subscription is
ratification by 2/3 of the OCS, is he fully paid: Provided, further, That no stock
correct? dividend shall be issued without the approval
of stockholders representing at least two-
No, the 2/3 vote is not required in thirds (2/3) of the outstanding capital stock at
this case. a regular or special meeting duly called for the
purpose.
The purchase of the brewery in Hong
Kong is in line with the SMC’s Stock corporations are prohibited from
primary purpose, as a brewery retaining surplus profits in excess of one
business. hundred percent (100%) of their paid-in
capital stock, except:
Thus, the BoD’s majority vote is
sufficient as it is deemed as an exercise a) when justified by definite corporate
of its powers. (Gokongwei v. SEC) expansion projects or programs
approved by the board of directors; or
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
b) when the corporation is prohibited Required votes
under any loan agreement with
financial institutions or creditors, 1. Cash/property:
whether local or foreign, from a. Majority vote of BoD;
declaring dividends without their 2. Stock:
consent, and such consent has not yet a. Majority vote of BoD; and
been secured; or b. 2/3 of OCS

c) when it can be clearly shown that such Rationale for requiring 2/3 OCS in case of
retention is necessary under special stock dividends
circumstances obtaining in the
corporation, such as when there is Stock dividends are otherwise called
need for special reserve for probable capitalization of URE.
contingencies.
It is in the nature of forced
Q: Are all corporations capable to declare subscription to the capital stock of the
dividends? Corporation.

No, as a non-stock cannot declare, as Thus, it requires SH approval for

no part of its income shall be validity. (PLDT v. NTC)
distributed to its members.
Q: X corporation has an ACS of 10m. A, B,
Dividends C, D, and E subscribed to 1m each (OCS).
However, subscribers only paid 50% of
These are corporate profits that are set their subscription. What is the total asset
aside and declared by BoD either on of the corporation?
demand or at a fixed date
5m, as unpaid subscription considered
Types: as collectibles due to the corporation.

1. Cash; Q: Assume that X made 5m as URE, and

a. In lawful money has no debts. BoD decides to declare
2. Property; whole 5m as dividends, can they do so?
a. Instead of cash, where there is
surplus (e.g. shares in other Yes, even any part thereof, as cash,
corp, bonds, notes) property, or stock dividends
3. Stock;
a. Additional shares of stock Q: How much is each SH‟s share would
4. Or any combination thereof be?

Who declares type? Proportionate share (pro rata) to their

interest in the corporation, to the
BoD extent of their subscriptions

Where declared from? Q: Assume that the total asset of the

corporation is 10m, consisting of 5m
URE subscribed shares and 5m URE If the
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
corporation declared dividends of 5m, will
it result decrease in total assets? No, as there is only 10m ACS.

It depends on the type of dividend: Declaration of 6m URE as stock

dividends, being capitalization, will
1. Cash/property: result to the ACS becoming 11m.
a. Decreases assets
i. 1m for each SH for As the AoI stated only a 10m of
their 1m shares (25%) shares, it cannot be allowed to go
b. Stock: beyond such ACS.
i. Does not decrease Thus, the requirements before a stock
assets dividend may validly be declared is as
1. Stocks will be follows:
deemed as
capitalization 1. Votes:
a. Majority of BoD; and
Q: X corporation has 1m shares at b. 2/3 vote of OCS
Php1/share in SMC. Subsequently, X 2. Free portion of the ACS that will
acquired 500k more shares, thus accommodate the stock dividends
amounting to 1.5m shares in SMC. declared

BoD declares 500k SMC shares as Q: What happens then to the 1m excess
dividends to the SHs of X. The SHs URE?
oppose as their approval was not acquired
arguing that it is a stock dividend. Are the It will be declared as cash or property
SHs correct? dividends

No, as it is a property dividend. Shares Q: If despite the knowledge of such, X

of stock of another corporation are still pursued the 1m be declared as stocks,
within the ambit of a property what is the effect?
dividend.
It is a violation of contract with the
In this case, there is a surplus in state, as it is only limited to the
property in the form of SMC shares issuance of ACS

(NOTE: Chairs, notebooks, tablets, Q: What would be the proper remedy if it

bond papers NOT property, as this intends to push through with the 6m stock
does not make surplusage) dividends?

Q: X Corp. has 10m ACS. It made 6m Increase capital stock of corporation

URE, may Corp declare 6m as cash or through amendment of the AoI
property dividends to SH?
Q: E only paid 50% of his subscribed
Yes, as there is a URE. share, hence a total of only 4.5m PUC.

Q: What if in the above example, X‟ BoD, If the corporation declared 5m URE as

with the approval of 2/3 of the OCS, cash dividends, how much will E be
declare the entire 6m as stock dividends?
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
entitled thereto, 1m or 500k cash Yes, as the corporation cannot
dividends? accumulate URE of more than 100%
of the PUC
E shall be entitled to the entire 1m
cash dividends, as Sec. 71 provides: That it only has a PUC of 4.5m, it
cannot go beyond 9m considering that
“Sec.71. Rights of Unpaid Shares, an amount greater than that is
Non – delinquent; considered more than 100% of the
Holders of subscribed shares PUC.
not fully paid which are not
delinquent shall have all the It this instance the corporation cannot
rights of a stockholder.” be allowed to retain such URE, and it
thus may be compelled to declare
The only instance where he shall be dividends
deprived of the entire 1m cash
dividends is if he is to be declared as a Q: Still on the same facts, except the
delinquent stockholder corporation only made 5m as URE, can
SH compel BOD to declare dividends?
Q: What if E is declared as a delinquent
stockholder, what will happen to the As a general rule, no, as it is not
Php1m cash dividends? more than 100%

Any cash will be FIRST applied to However, as an exception, the BoD

delinquency cost, expenses. may be compelled if the shareholder
holds a mandatory if earned type.
Thus, the 500k will be used to pay his
unpaid shares. In the second instance, the
shareholder will be entitled to
In such a case the unpaid portion now dividends despite the non-declaration
fully paid, hence ceases to be of such by the BoD, as long as the
delinquent shares corporation earned such URE.

If any remains, it will be paid to him Q: Assuming that the corporation has
in cash. Thus the 500k will be given to more than 100% of URE, is the right to
him as cash compel dividends absolute?

Q: What if stock dividends, would E be No, as it may be properly denied in

entitled to it? the following cases:

Not immediately, as it is withheld 1. Definite corporate expansion

from him until payment of projects or programs approved by
delinquency the BoD;
2. Corporation is prohibited under
Q: Assume that the corporation made 10m any loan agreement:
URE, and has a PUC of 4.5m, may the BoD a. With financial institutions or
be compelled to declare dividends? creditors,
i. whether local or
foreign,
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
b. from declaring dividends 2020 as recorded in the books of the
without their consent; corporation.
c. and such consent has not yet
been secured; Q: In this situation is A left with no
3. Retention is necessary under recourse?
special circumstances such as
reserve for possible contingency No, as A can go against Z for
recovery of dividends from the
Q: Can a non-SH be entitled to dividends Corporation.
declared by a corporation?
Q: Is the above remedy always available?
No, dividends are fruits of investment,
no investment, no fruits. No, as it may be stipulated that Z will
be entitled to such.
Whoever owns the tree, also owns the
fruit, in whatever form it may be Considering the amount paid by Z, it
(cash, property, stock) (Neilson & may be possible that A granted such
Co. v. Lepanto Consolidated stipulation as he earned 800k from his
Mining) 1m shares that he bought for 1m.

Q: X Corporation declared cash dividends Rule as to revocability of declaration of

of 5m URE on 2 May 2020 to be paid on dividends
30 May 2020.
As a general rule, the declaration of
A is a SH holding 1m shares. dividends cannot be revoked, as it is
to be treated as debt of the
On 10 May 2020, A transferred his shares corporation owing to its SHs
Z, for Php1.8m
However, as an exception, such
On 20 May 2020, asked for cancellation of declaration can be revoked in the
A‟s certificate, and on the same day X following instances:
Corp cancelled A‟s stock certificate, thus
issued a new certificate in favor of Z. 1. Declaration has not yet been
announced;
Come 30 May 2020, X Corp pays Z cash 2. Declaration has not yet been
dividends as stockholder on record on communicated to SH; or
payment date. 3. Stock dividend, as it is not
revocable prior to actual issuance
As between A and Z, who has a better
right to the dividends? Rationale for revocability of stock
dividends
A, as whoever own the shares on the
day of declaration, presumably is the For reasons of policy as to prevent
owner of dividends. misleading investors in the stability of
transactions of such corporations
Corp is correct however in giving to Z
as he owns the stock as of 30 May Liability of BoD in case dividends are
illegally paid or declared
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
acquire any interest adverse to
As a general rule, the BoD is not the corporation in respect of
personally liable for declaring any matter which has been
dividends in violation of law reposed in them in confidence,
and upon which, equity
However, as an exception, the BoD imposes a disability upon
shall be personally liable if they acted themselves to deal in their
wilfully, or with negligence or bad own behalf; otherwise, the said
faith director, trustee or officer shall
be liable as a trustee for the
This is in line with the principle that corporation and must account
courts will not interfere with the for the profits which
business judgment of the directors otherwise would have accrued
UNLESS it is attended by negligence to the corporation.”
or bad faith.
Q: Assume that the SH received dividends
Q: If the BoD relied merely on the in good faith and due diligence, may
representation of a dishonest employee or creditors pursue such dividends of the SH
the legal advise of a negligent practitioner, for their own payment?
can they be held liable?
No, as a majority view, an innocent
No, as it is not tainted with malice. SH should not liable to return
dividends received by him,
It is in line with Sec.30:
As an exception, he may be
“Sec.30. Liability of compelled to do so if the corporation
Directors, Trustees or already insolvent.
Officers;
Directors or trustees who It is unfair and unreasonable burden
willfully and knowingly vote to repay creditors when he received
for or assent to patently them in good faith and in the regular
unlawful acts of the course of business.
corporation or who are guilty
of gross negligence or bad POWER TO ENTER INTO
faith in directing the affairs of MANAGEMENT CONTRACTS
the corporation or acquire any
personal or pecuniary interest Sec.43. Power to Enter into Management
in conflict with their duty as Contract;
such directors or trustees shall No corporation shall conclude a management
be liable jointly and severally contract with another corporation unless such
for all damages resulting contract is approved by the board of directors
therefrom suffered by the and by stockholders owning at least the
corporation, its stockholders majority of the outstanding capital stock, or
or members and other by at least a majority of the members in the
persons. case of a nonstock corporation, of both the
managing and the managed corporation, at a
A Director, Trustee or Officer
shall not attempt to acquire, or
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
meeting duly called for the purpose: Provided, Management contract
That
It refers to any contract where a
a) where a stockholder or stockholders corporation undertakes to manage or
representing the same interest of both operate all or substantially all of the
the managing and the managed business of the corporation
corporations own or control more
than one-third (1/3) of the total Thus, if it is NOT all or substantially
outstanding capital stock entitled to all, it shall not be deemed as a
vote of the managing corporation; or management contract

b) where a majority of the members of Required votes

the board of directors of the managing
corporation also constitute a majority MANAGED MANAGING
CORP CORP
of the members of the board of BoD/T SH/M BoD/T SH/M
directors of the managed corporation, General Majority
Rule
then the management contract must be
SH Majority 2/3 Majority
approved by the stockholders of the managed represents
corporation owning at least two-thirds (2/3) same
of the total outstanding capital stock entitled interest of
to vote, or by at least two-thirds (2/3) of the both
members in the case of a nonstock corporation
owns/
corporation. controls
more than
These shall apply to any contract whereby a 1/3 of the
corporation undertakes to manage or operate OCS of the
all or substantially all of the business of managing
corporation
another corporation, whether such contracts
are called service contracts, operating Majority of
agreements or otherwise: Provided, however, BoD of
That such service contracts or operating managing
agreements which relate to the exploration, corporation
also
development, exploitation or utilization of constitutes
natural resources may be entered into for such majority of
periods as may be provided by pertinent laws BoD of
or regulations. managed
corporation
No management contract shall be entered
into for a period longer than five (5) years Existence of contract
for any one (1) term.
GR: No more than 5 years per 1
Under the old notion, management term
contracts should be prohibited
ER: Exploration, development,
However, such notion no longer holds exploitation, or utilization of
through natural resources
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
ULTRA VIRES It cannot be ratified, as those contrary
to law cannot be validated,
Sec.44. Ultra Vires Acts of Corporations;
No corporation shall possess or exercise It shall be deemed void ab initio
corporate powers other than those conferred
by this Code or by its articles of incorporation Rationale for ratificability of ultra vires
and except as necessary or incidental to the acts not illegal perse
exercise of the powers conferred.
Ultra vires acts beyond corporate
These are those that cannot be powers can be validated, as it merely
undertaken or performed went beyond its powers

Q: Does the law expressly enumerated It can be likened to a contract of

such prohibited acts? agency, where the agent went beyond
his authority is merely voidable
No
Consequences;
Basis
The SEC may order the ultimate
It is prohibited as it is not within the dissolution of the corporation
express, inherent, or implied powers
However, courts are reluctant in
In line with the doctrine of limited deciding dissolution, merely enjoins
capacity in corporate form or furtherance of ultra vires act.
business only those conferred by law,
in the AOI, and incidental to existence Remedies of SH
may be done by the corporation
SH may institute a derivative suit to
Q: What if the act went beyond the enjoin act
authority of the law?
However, if already performed, the
It is deemed as ultra vires SH may file a Derivative suit for
damages against BoD
Effect if act is ultra vires
Effect on contracts
In this case, a collateral attack is
allowed against corporation, as the 3rd PARTY 1 PARTY 2 EFFECT
party can interpose defense of ultra Fully executed Courts will not
vires. interfere
Executory Neither may
As to the contracts, they are generally maintain an action
voidable, subject to ratification or for enforcement
validation, express or implied and Fully Executory Beneficiary
even by estoppel executed estopped to raise
ultra vires, due to
Q: What is the effect if the ultra vires act is unjust enrichment
illegal per se?
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Privano v. Dela Rama steamship; illegal act v. JW within implied powers as
ultra vires merely beyond authorized to work for and to make
due representation to US and Jap
Minor children of Pres. Of DLS, government for redemption for future
seeking to enforce resolution giving payment, to do any and all acts which
them proceeds of insurance policy on are naturally incidental or arising out
life of father of…

Defendant; Board Resolution is ultra SC: NO, ultra vires, not engaged in
vires business of registereing and accepting
war notes (purpose only for fees and
SC: No, courts look into AoI services)

If within, not ultra vires Cannot distribute surplus profits

AoI: corp may invest not immediately Crisologo Jose

required. “Deal” broad enough to
include any manner of disposition SC: Who is liable? Officer who signed
the check personally liable
Donation within the scope
No authority, no liability to corp.
Assuming arguendo ultra vires, act
validated BoD resolution, SH Traditional: Corporations can only act…
ratification Modern: Rationale, if acting w/in general law

Carlos v. Mindoro Sugar Sec. 10 of Corporation Code, 1-15

persons,
Trust company full powers to
…stocks bonds securities and other Sec. 35 (k) power to exercise other
evidence of indebtedness powers

Mindoro executed… to Phil Trust, in Corporate powers depend on

exchange of Phil trust bonds its purposes
Phil trust guaranteed payment Any number of purpose/s
depends largely on agreement
Phil trust stopped payment, claiming not any direct ground from
the guaranty was null and void for the State (Carlos)
being ultra vires
Contract not on its face beyond, presumed
SC: No, Phil trust authorized, implied valid. Corporations are presumed to contract
power to guaranty to be more within its powers. Ultra vires doctrine should
attractive to purchasers not be allowed to prevail over…

Japanese Warnotes v. SEC Doubts will arise… due to poor

draftsmanship, lack of foresight, not could
Warnotes non stock, cease and desist not have been foreseen
from SEC, as not authorized to do so.
Purpose clause can reasonably be stretched
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA

e.g. PLDT, telecom When will be valid and effective? Only upon
can it engage in service provider of approval of SEC, certification not contrary to
soc med? Yes law

If cannot? Amendment necessary If under supervision of government

agency? Favourable reccomendation
If no amendment? Ultra vires
Where kept? Principal office
Can it sell gadgets? No, must be
amended Subject to inspection during office
hours
It wont do it anyway, sister
company Smart Enumeration of gov’t agencies
(BSP,IC,LTFRB, MARINA, CAAP, Security
Sec. 45 to 47 By laws Agencies under PNP), NOT exclusive

Rules of action adopted by corp for Provisions in law runs counter to

own government bylaws

Internal rules 46; content of valid by laws

Function; regulate conduct, define Provides for arbitration agreement (Sec.181)

duties
Elements:
Part of organization of Sec.21
Not inconsistent with existing laws
45; prior to INC or after INC nor contrary to public order policy of
morals (Pliser? Govt v. El Hogar)
Requirements
Not inc with AoI (Loyola grand villas)
Prior; signed by all incorp submitted
to SEC together with the AoI General and uniform in effect, NOT
discriminatory,
After; majority vote of OCS…duly
certified Affecting all alike…

Easier? Prior Must not impair obligations

(Gokongwei)
E.g. national corp, 50000 members,
signature of 25,001 Reasonable (Gokongwei)

Adoption? Within 5 years from day of SH/M conclusively presumed to know

incorporation provisions of by-laws

If not adopted w/in 5y? Revoked the Binding upon all SH or M

day following the end of 5 year period
(sec.21) Ignorance not a defense
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
controlling interest in a competitor
3rd persons, conclusively presumed? corporation, is valid

GR: No To prevent director from promoting

individual interest, to the prejudice of
ER: Actual or constructive notice the other.
of by law provision (Flyser v.
Botica Nolaso) Gokongwei has family corporations
directly has corps against SMC.
Flyser v. Botica Nolasco (poultry, coffee, etc)

Gonzales sold to Flyser 5 shares of Reasonableness of by-law provision is

Botica Nolasco a purely question of law.

Secretary offered to Flyser to buy the However, subject to limitation

5 shares due to preferential right of mere matter of judgment,
under by-law provision, Flyser reasonable minds may differ,
refused, and proceeded to register court cannot be warranted to
such. substitute its judgment

Secretary refused registration. AMENDMENT OF BY-LAWS (Sec.47)

SC: By law provision is without any Modes

force and effect as contrary to law
Majority vote of BoD,
Sec. 62, holders of shares… Majority vote of SH; or
Even to competitor, even to
insolvent BoD alone, when delegated by 2/3 of
SH (OCS)
Assuming it is valid, by law does not
bind the appellee, as no notice… for 2nd mode revocable
value and good faith
Gokongwei v. SEC When valid?

By laws of SMC amended, Only upon approval of SEC

disqualifying John Gokongwei from
being elected as BoD (Compare with amendment of
AOI, due to inaction)
(70s, when Gokongwei
acquired SMC shares, casting MEETINGS (Sec. 48-50
such he may elect himself)
Types
Gokongwei questioned by-law
provision SH/M meetings
Directors/Trustees meetings
SC: By law provision valid, an
amendment which renders a director 2 kinds of above
ineligible if he is a director or holds
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Regular required in by laws, it was posted 2
Special days prior

Regular SH; annually: SC: By law controls, election null and

as stated in by laws; or void due to lack of notice requirement
any date after 15 April, as
determined by BoD Held at proper venue Sec.50

Special; at any time necessary; or Principal office;

As may be provided for in by-laws
If not practicable any place where…
5 essential requisites for both meetings
NOT applicable in non-stock
SH: Held on proper day
Prior notice Can meet beyond territorial
Held in proper place; boundaries
Called by proper party;
Voting and quorum requirements Sec. 92, may be made
anywhere in the Philippines,
If cannot be held due to valid reasons? cannot be done in Stock
corporations
May be postponed to a reasonable
future date NOTE: M/SH may now vote
electronically if by-laws allows,
Prior notice UNLESS it is a corp vested with
public interest even w/out by law
Written notice shall be send to all
SH/M at least 21 days prior to the Effect, deemed to be present at
meeting (regular), 1 week (special) meeting
UNLESS otherwise provided in by
law Metro…(3) considered one single city
or municipality
May be dispensed with? e.g. SMC, principal office
Mandaluyong
Yes:
1981-___, holds at PICC,
Waiver, expressly or impliedly; valid?

(e.g. SH not notified but Yes, part and parcel of

attended UNLESS for Metro Manila FOR
purpose of objection, NOT A PURPOSES OF
WAIVER) MEETINGS

BoD v. TAN (Old corpo law) Called by proper person

Action to annul election of BoD of By-laws may provide who is the

SMB to compel BoD to hold another proper person (Pres, Sec, whatever)
on the ground that 5 days notice is
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
If no person authorized or person Assume that A is non-voting, all are
authorized unjustly refuses? present, vote required? Basis, 1m or
800k?
Sec. 49(5), SEC upon petition
by SH/M to call a meeting AoI – 1m
may issue an order directing BL – 1m
the SH/M to call the MC – 800k
meeting…presiding officer
What if SH meeting improperly held
(6) unless by laws provide for or called?
longer period…
e.g. 1st Monday of May, by-laws,
Persons listed in stock instead 1st Sunday of April
and transfer book/
members book can Manila, but Baguio
attend meeting
President, but Treasurer, what
Books will be closed happens to resolution?
20 days…7 days…
GR: No valid force and
Quorum and voting Sec. 51 effect

Stock: Majority of OCS ER: Sec. 50, any meeting

Non: Majority of members improperly held or
called IF within the
JUST A GENERAL RULE powers of the
corporation shall
ER: Law requires greater voting nonetheless be valid
percentage PROVIDED that all
SH/M are present or
e.g. 1m shares (OCS), 5 SH 200k each, duly represented, none
of them at the
Board passed resolution to amend beginning that
AoI and By-laws , management attendance is for
contract objection

AoI – 2/3 Directors/Trustees meetings

BL – Majority
Management Contract – Majority Types: Regular (Sec. 52
Special 53
A, B, and C, are present (600k), more
than majority are present, quorum? Regular:

AoI – No, Monthly; or

BL – Yes As provided in BL
MC – Yes
Special meeting
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Anytime upon call of president; or
As provided in BL Can they vote by proxy? No, in
director’s meeting
Place
e.g. Stockholder’s meeting was called
Anywhere within or without the to elect BoD as their term will expire
Philippines in 2 weeks.

UNLESS BL provides otherwise A, a BoD, cannot attend, he sent his

brother, is the proxy valid? Yes, as it is
Notice requirement a stockholder’s meeting, as it is the SH
who will elect BoD.
2 days before scheduled meeting
UNLESS BL provides LONGER Right to vote; inherent and incidental right to
time stock ownership

May be waived (4) Property right

Quorum and voting requirement (1) SH may vote the way he pleases

Quorum: Majority of their number as EXCEPT, restricted by law, AoI, or

stated in AOI BL

Voting: Majority vote of those ER: Non-voting shares;

constituting a quorum
Preferred
Still the same with old Redeemable
Common, in case of
e.g. 5 man member board, issuance of Founder’s
shares, NOT by AoI
may 2 votes pass? Yes, if there are 3 or BL
directors present, there is a quorum,
hence 2 is a majority Treasury shares in
Is this absolute? No, provision is treasury (NOT
specific, the reissued, as it becomes
part of OCS and
AOI or BL may provide for regains former status
greater majority; and
Election of corporate officers Delinquent shares
(Majority of entire number)
Sec. 62, unregistered
Should BoD be physically present? transferees of shares
No, may be by tele or video (as those only in books
conference, or remote communication may participate)

Also available to SH if Legal owner can vote

provided in BL, (compare with
public interest)
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
e.g. shares used as security for
loan, who can vote on the There is a fraction
shares? (.333), fractional shares
are no longer allowed,
GR: Shareholder hence the .333 are
ER: Expressly spoiled, thus 333,333
authorized in shares voted only
writing AND
recorded in the If Cumulated, 1m x 15
books of the number of directors,
corporation 5m each.

Shares of deceased/ VOTING by proxy and other means 57 and

incapacitated persons? 58
Executor, administrator,
receiver, and other legal Proxy authority given by SH/M to
representative DULY vote for him in a meeting
appointed by the court
Can also be remote communication or
No appointment, nobody can in absentia
vote on the shares
Requisites
Shares held in common
(Sec.55.)? In writing
Signed by SH/M
GR: By all owners Filed with corp sec
ER: Written proxy Within reasonable time prior
signed by all to the meeting
co-owners Validity is specific or up until
the max of 5 years only
Shares held in an and/or
capacity? Kinds

e.g. A and/or B and/or C, 1m General; That may

SMC shares of stock, come before
the meeting
Any one of the joint owners
or their proxy Limited; Specific

3 of them attends the SH Cannot be denied, BUT not matter of

regular meeting for election of right in non-stock corporation, as may
BoD, they cannot agree as to be disallowed (sec. 88) if no
whom to elect? provision? May be exercised

Co-ownership (Civil Sec. 179 (o)

law) presumed to have
equal rights, divide the SEC Rule 20, validating
1m shares into three committee of listed
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
companies, the management
will be soliciting proxies, and Stock certs delivered to Z, cancelled,
submit a proxy statement, and new stock cert issued to Z, pursuant
proxy form to VTA, Z shall deliver and execute a
VTC
Failure: Impose
sanctions May A B C transfer beneficial ownership in
favor of other persons as there is no longer a
SEC proxies, generally stock certificate?
revocable, as such when the
SH attended, proxy deemed Yes, by virtue of endorsing the VTC,
revoked Sec. 58

Voting trust agreement (Sec. 58) NIBC v. Appeal; Corp has right to enforce
VTA executed by SH to trustee?
One or more SH, confer upon a
trustee/s the right to control, vote, or No, not privy to the transaction
other rights, for a certain period of
time. Distinction between VTA and proxy

Voting trustee – sham owner, with a VTA; beneficial owner ceases to be a

colarable or fictitious title to vote SH on record; trustee an vote as legal
owner; beneficial owner dq to be a
Effect to the rights of voting trustee director (no legal title); purpose voting
(Lee v. CA) control; gr irrevocable; trustee can
vote at any meeting; trustee may vote
Creates a dichotomy between in person or proxy; can exceed more
the equitable ownership and than 5 years; in writing and notarized;
the legal title thereto certified copy must be filed with SEC

Stockholders remains Proxy; title remains to SH executing it;

beneficial owner, legal proxy votes as an agent; SH qualified
ownership transferred to to be a director; only to secure vote or
voting trustee represent an absentee; revocable at
any time; can only vote for the
Real ownership is separated meeting it is intended; proxy must
from voting rights, vote in person (agency, agent cannot
have an agent unless authorized by
Nature irrevocable; unless principal; can never exceed 5 years; in
fraud… writing unless BL requires otherwise;
gr ctc not required, only prior to
Payment of loan schedule of meeting

e.g. A, B, C, executed a VTA in favor of Z Voting Pool Agreement

Requisites, in writing NOTARIZED, A 200k

5 years unless condition to payment of B 200k
loan C 200k
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
D 100k v. purchase of shares
E 100k
F 100k HOWEVER, now, as it stands, in both cases,
G 50k liable, as whatever form it may be, deemed a
H 25k subscription contract
I 25k
Acquisition of treasury shares
ABCDE Majority
A subscriber of 100k shares
FGHI, this year, it shall be cast in favor of F,
so and so forth governed by Oblicon Paid 50%

STOCK AND STOCKHOLDERS (TITLE Corp called payment

VII)
Shared sold delinquency sales
Three ways to be SH
Corp bough shares, became treasury
Contract of subscription shares
Acquisition or transfer from existing
SH, even stock exchange Z acquired treasury shares
Purchase or acquisition of treasury
shares reissued by corporation Is Z liable to pay? No, as it is deemed
issued stocks, NOT unissued stocks
Subscription
Subscription need to be in writing? No, oral
To take and pay shares of stock contract is valid and enforceable under Statute
(Sec.59) any contract…unissued of Frauds (Salvattiera v. Garlitos)
shares from corp or yet to exist
Definition does not fall within
e.g. 1m ACS definition of sale
500k subscribed
500k unissued Can be conditional? Yes, as long as no
Z wants 100k, 50% paid at the end of prohibition, and condition not beyond powers
the year. of corporation, violation of law and public
policy
Stipulation, not a SH until full
payment Not SH, condition, contrary to law

Is Z liable to pay? Yes, as it is a How bout payment of unpaid? Liable

subscription, it is a debt owing to the
corporation. Sec. 71, all rights and Trillana v. Quezon College
obligations
Subscription form with blanks, down
If sale? CANNOT be compelled, as payment was not disclosed, instead
no consideration, a scrap of paper counster-proposal:

Basta unissued, subscription (sale of unissued) “Babayaran ko pagkatapos ko

makapagpahuli ng isda”
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Property actually received necessary or
Subscriber died. convenient for use at fair valuation
equal to the par or issued value;
SC: No advance payment, counter Labor or service rendered;
proposal, facultative in nature, void Previously incurred indebtedness;
obligation Amounts transferred from URE to
stated capital (stock dividends,
Types of Subscription capitalization of URE)
Outstanding shares exchanged in case
Pre-incorporation (Sec.60); of reclassification or conversion
corporation still to be born (Founders shares, after 5 years may be
converted to common shares, amount
Irrevocable for at least 6 of founders shares used to new
months from subscription shares)
UNLESS all subscribers Shares of stock in another
consent to revocation, corporations
corporation failed to Other generally accepted form of
materialize within period, or consideration
longer period as stipulated
therein If other than actual cash?

Irrevocable after submission SH, or BoD, subject to approval of

of AoI SEC shall determine their value

There must be a consideration SEC; real estate = tax

declaration or zonal value, no
How much? appraisal report necessary

Not less than If more than zonal value,

par or issued appraisal report necessary
price
Promissory notes? Cannot be used, expressly
e.g. 10 par; or prohibited, REALIZATION not certain
issued price in no-par
Future services? No, realization not certain
Determination of no par
e.g. Corp hires corp. secretary, sec has
AoI; absent any 500k shares for services, namatay after
BoD authority from AoI; 1 month, realization not certain
absent
Majority of OCS Issuance, stock certificate? No, valid
subscription = issuance
Effect if issued lower? Watered stocks
National Exchange Company v. Dexter
Consideration, any or combination:
Subscriber stipulated he shall not pay
Actual cash paid any subscription except those applied
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
in virtue of declaration of dividends,
valid? Transferred by endorsement and
delivery
SC: No, discriminatory against other
SHs therefore unlawful, illegal and Non-negotiable, as holder takes it
void, as in fraud of creditors (trust w/out prejudice to all the rights and
fund doctrine), not a defense as to defences which true or lawful owner
unpaid subscription may have, EXCEPT estoppel may
apply
Transfer; Stock cert issued only upon full
payment Bachrach v. Ledesma

By endorsement and delivery A SC is non-negotiable.

Requisites of valid SC Endorsed in blank? Transferee

justified that it belongs to the
Signed by pres transferor
Countersigned by Sec
Sealed by corporate seal Estoppel
Full payment
And delivery to SH Bonafide purchaser under forged or
Transfer, original SC surrendered to unauthorized transfer, does not
Corp Sec acquire title against true or lawful
owner, EXCEPT estoppel
Holders of Subscribed shares of not fully
paid, not entitled to SC; hence not Hence, if one is apparently vested
requirement to be deemed as SH with authority, cannot deny his
authority as to 3rd party
Sec. 71. Subscribers…all the rights of
SH e.g. endorsed by A, kept SC in safe,
was stolen by Z.
Transfer; operative act
Endorsement by owner or attorney in Z forged, will person acquiring in
fact; and good faith acquire title against true
Delivery to transferee and lawful owner (A)?

Back of SC; endorsement form No, not endorsed and

delivered by A
I owner of SC number and amount…
hereby transfers the same to __ (Take any of them away, no
valid transfer)
(SGD) by A
A asks his brother B, as the former
Effect of operative act: valid transfer insofar will go abroad, itago mo muna,
as contracting parties endorsed and delivered, valid? Yes.

Are they negotiable instruments? No, only

quasi-negotiable
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
B transfers to C, will the latter acquire
title? Yes, as valid between A and B. B Mortgage valid, sale at public
being the owner, now can transfer auction is valid

A is now in estoppel, as B is now Chui v. Samahang Magsasaka

clothed with authority to dispose of
the same Toto, owner of shares, mortgaged to
Chui, registered to RD in Manila
Valid endorsement and delivery, valid where former resides
transfer
Chui assigned to Guan, shares were
If endorsement in blank? Street certificate, sold to the latter being the highest
anyone who holds deemed presumably legal bidder. Shares refused to register
owner of shares transfer by Corp.

Registration in books, will not affect its SC; lack of registration in books will
validity as far as the contracting parties not affect validity

A endorsed and delivered to Z, valid There was defectively registered

between them mortgage, if SHS to be mortgaged, to
be valid against the world must be
To be valid against corp and 3rd registered in RD residence of owner,
persons? Must be registered to the in addition, the corporation’s
books residence must also be registered

Transfer; absolute dominion and ownership Does not bind subsequent… (?)
of shares of stock
Purpose of registration of transfers in book
Monserat v. Ceron
Enable corp who SH/M are
Assigned in usufruct of shares to Corp would not go beyond
Ceron, the right to enjoy the profits books
but cannot dispose or mortgage them Enable transferee to exercise SH
rights
Ceron mortgaged to Matote for Not listed as SH, no exercise
Php30,000, obligation matured, Afford Corp to object or refuse
Matote highest beeder. Is mortgage registration in cases allowed by law
required to be recorded in books in (Sec. 62. Last paragraph, unpaid
order to be valid? claims)

No, mortgage not transfer Chinabanking v. CA

contemplated by the Court
Unpaid claims = unpaid portion of
Mortgage is conditional subscription, NOT other obligations
transfer, not absolute
Avoid fictitious and fraudulent
Non recording will not affect transfers
validity
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Protect creditors to look into books in 60:40, 1 Fil transferred to
cases of non-payment or watered Foreign SH, transfer valid
stocks to protect their claim between contracting parties,
but not recorded in books
Uson v. Gesom(?)
Padgett v. Babcock
Sale to Barcelon not valid, as against
the corporation for not having Padgett 44%, SC has non transferrable
registered, will not be valid as to clause; offered selling, 85/share then
attaching and even subsequent to 80/share by President
purchasers
100/share par value of shares, hence
rd
In order to be valid to corp and 3 Padgett sold to another.
parties, must be recorded
Transferee wants to record, Corp
Right to transfer shares may be regulated or refused
restricted, by law or agreement of the parties,
AoI, SC; there is a valid transfer, any
restriction to dispose must be
Right may not be unreasonably construed strictly, any attempt to
restricted restrain transfer construed as restraint
of trade, in the absence of a valid lien
Flyser; upon its shares

Right to transfer may be regulated, Null and void restriction

sufficient protection against
colourable transfers As personal property may be disposed

Preferential right; 1st option Lambert v.

Other restrictions Between SH agreement not to sell

shares within 2 years
Valid only between parties until
registration (Sec. 62) SC; agreement between 2 major SH, is
Shares with unpaid claim is not legal and valid.
subject to transfer in the books Gen. Rule as to valid transfer Sec. 62
Restrictions in close corp (Sec. 95)
Special law Embassy Farms v. CA

General banking act; transfer Asuncion MOA with Evangelista, the

making holder more than 20% latter to transfer agricultural properties
of OCS, requires approval of of Embassy Farms, 90% owned by
Central Bank Evangelista to Asuncion, for
8.6million
Sale to aliens, in violation of
nationalization laws Evangelista endorsed in blank,
retained possession
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Pursuant to MOA, Asuncion granted Tay v. CA
management of Embassy
SC; No, mandamus cannot lie.
Asuncion transferred to other for
purpose of control Mandamus may issue, if petitioner has
legal right to the thing demanded;
Evangelista wants to regain, due to
violation of MOA Petitioner has failed to establish clear
legal right, legal ownership without leg
SC; No, there is no valid transfer, no to stand on.
delivery of certificate
Pledge did not vest ownership unto
Razon v. IAC him (valid transfer, must be by public
or private auction), no showing that
Delivery but NOT endorsed = no petitioner attempted to do such.
valid transfer Pledgor remains owner from
pendency of up to prior foreclosure
Is there other mode of transfer? Yes, Sec. 62 sale.
(…may be transferred), formal contract of
sale set in notarial document equates to Rural Bank of Lipa v. CA
delivery, thus notarized deed may be a mode
Villanueva Sr., 10057 shares
Rural Bank of Salinas v. CA transferred to SH of RBL

Guerrero executed SPA in favor of At election, Sr did not appear,

wife to sell or dispose 473 shares of questioned validity of meeting
RBS
SH contests that Sr not entitled
Wife assigned by deeds of assignment anymore to notices
to Andico et al.
SC; Notarized deed not sufficient,
Deeds shown to corporation, refused must be delivered
registration
To avoid double sale,
SC; there is a valid transfer, notarized Thus while notarized deed is allowed under
deeds of assignment RBS, valid only if no stock certificate issued.

Duty of corp to register = ministerial If issued, must be delivered

If corporate officer refuses registration, what GR Endorsed and delivered (62)

is the remedy for transferee? Mandamus, if ER Notarized deed prior to issuance of
refusal without good cause stock certificate (RBS)
EER Notarized deed with delivery after
e.g. with good cause (valid refusal); stock cert issued (RBL)
due to unpaid claims, restriction on EEER Estoppel (Tan v. SEC)
closed corporations (95), in violation
of nationalization laws,
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Endorsement and delivery always Is there a timeframe for registration? None,
required if cert of stock already been kung ayaw mo pa maging SH, sino
issued makakapilit sayo

Tan incorporator, Won v. Wack Wack

Two incorporator assigned their Won transferee, 11 years after,

shares to Corp in exchange of stock, mandamus case filed by Won to
there were only 3 directors then. register him

To complete board, Tan assigned Wack Wack refused on ground of

50/400 shares to Angel (SC2-SC8), prescription (5 yrs, NCC)
Oy 50/400 another incorporator
assigned to another person (SC6). CFI dismissed.

SC2 certs cancelled known to Tan, SC; There is no fixed period to

being then the president, assignee register, ownership accrues upon
attended when Tan dislodged as transfer
president, Tan withdrew if 33.3%
given to him Assuming there is a limit, Statute of
Limitations cannot apply
BOD resolution cancels SC 2 and 8
Assuming it can apply, reckoned upon
Tan questions after 5 years, as no demand and is refused.
endorsement
Mandamus 1955 after registration is
SC; Delivery and endorsement not denied by corp (No harm, no foul)
essential, if person is officer, has
custody of stock book Hence, Marcoses having in possession
stocks, they are not barred to register
Earlier recorded in the book. In fact (HEHEHE)
Angel, exercised rights and
prerogatives as SH elected with full De Los Santos v. McGraff
knowledge and acquiescence of Tan
being then President WoN SC are negotiable instruments

Transferor estopped DLS alleged buying 500k Lepanto

shares as transferee from Carl S. and
Mode and manner by beneficial owner in Campus
VTA
Sol Gen Before the war, Madrigal
NOT by notarized deed bought said shares in trust for Mitsui

Must endorse and deliver VTC, just Mitsui said that it was stolen during
like any other SC the war

Transfer of Lost/Destroyed Certificates Transferors already dead

CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
SC; No valid transfer in favor DLS, kapatid…drug lord
unauthorized transferee acquires no story na naman,
title even by innocent purchaser for tinransfer, C acquires
value title

Madrigal to Mitsui valid…to DLS no Issuance of unauthorized, of new CS

valid transfer
If C goes to the Corporation
Forged v. unauthorized issuance of CS with the forged SC1

Forged, transfer of CS from real Corporation cancelled SC1,

owner to another issued SC11 in favor of C

Original owner cannot be SC11 endorsed and delivered

deprived of right by forger to D, is D with title? Yes,
unauthorized issuance of CS
Remedy: action for
Conversion or issuance of new Bonafide purchaser acquires
CS and listed in books title thereto (C), takes title
from representation of
Purchaser? No as it Corporation. Relied on
took title upon the genuiness of SC11, not on
forger forged SC1

e.g. A owns SC1, stolen by B, Effect to A, deprived of title?

forged signature of A, transfer No, non-negotiable as
it to purchaser for value C, will defences still available
C acquire title? No, as it is a
non-negotiable instrument, Corporation can
subject to defences of A, repudiate compel its
defences? surrender or file action
for damages
Hindi ko yan dineliver,
it was stolen from me A can compel corp to
issue CS of shares to
Hindi ko yan sinign his name due to
If C transfers to D? doctrine of non-
Not valid, still subject negotiability
to defences of A
D can also compel
(If negotiable, C registration, as he took
becomes holder in due faith in the
course) corporation’s
genuineness of SC11
ER: Estoppel
What will happen if both
Di ninakaw ni A, recognized, results in
rather binigay sa overissuance .
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
known as fictitiously paid-up shares to
e.g.100m shares all the extent that they have not been
subscribed and paid up paid or will not be paid for

To recognize both A Sec. 61; shares shall not be issued less

and D results in than its par or issued price
overissuance
e.g. par; 1/share, cannot be issued for
Who will corp less
recognize as SH issued price (no-par); maybe provided
for in AoI, in the absence, by the
Citizen’s Bank; only the original and true SH BoD, in the absence, majority of OCS
shall be recognized.
Assume issued price 10/share,
D has the right to recover to the cannot be issued lower
amount he acquired the stocks, as he
relied on representation If higher? Allowed

Corp acted in good faith, 3rd party Manner of issuance

claim against C, C represented that it’s
title is good but unauthorized Monetary consideration less than
par/issued price
C acted in good faith, 4th party claim
against B, source of the evil Property value in excess of FMV; or

Issuance of Stock Cert (Sec. 63) Gratuitously; or

No issuance until fully paid In the guise of stock dividends when

there is no URE/surplus profits
Indivisible
Effect; prohibited;
e.g. A – 1m share
Paid 500k shares corporation deprived of capital
No CS may be issued covering the hurting its business, capability, and
500k paid responsibility;
Existing SH prejudiced by the
Effect; paid share applied to entire reduction of proportionate interest in
1m, hence each 1 share, he has paid corporation;
only 50 cents/share, applied pro rata Creditors are deprived of corporate
to entire number of shares assets (trust fund doctrine)

Nava v. Piers Marketing; no certificate issued If issued, what are the extent of liabilities of
until full amount has been paid BoD and officers?

Sec. 64; Watered stocks Solidarily liable with SH concerned

Issued as fully paid when in fact full

amount has not been paid, otherwise
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
e.g. Proceeding from above example
Corp issued 1m par shares at As to creditors; can enforce payment
80cents/share = 800,000 of difference

1m no par 8/share = 800k, watered Theories on liabilities on solidarily liability

stocks
Trust fund doctrine;
Will the holder of 1m no par value shares be
liable? No, only par value shares are liable. Wood v. Domer (1824) capital stock,
Limitations on no-par deemed fully paid and including unpaid, as trust fund, for payment
non-assessable of debts, creditors has right to look up such
fund, and has thus right to file actions
Thus, only the directors and officers
shall be the only ones liable Fraud/misrepresentation theory

If par? Holder shall be solidarily liable Liability is based upon false representation
that the true or par issued price has been paid
Will all directors and officers be liable? No, or promised to be paid
only those CONSENTING or those having
KNOWLEDGE thereof but did not e.g. Corp par value 1 share
interpose written OBJECTION, thus even
passive ones may be held liable FMV is 10/share

Effect of issuance of watered stock X subscribed 1m shares valued at

8/share, watered? No, basis is par
Corporation; issuance is prohibited value or issued price
under 61, Corp may be dissolved by
proper forum (extreme remedy, court Sec. 65
will only enjoin the questioned act)
Subscribers to shares are not
As to subscriber; subscription GENERALLY liable to pay interest
prohibited, to be valid must fully pay on their unpaid subscriptions
or assume to pay full value (IF PAR)
EXCEPT if provided in by-laws or
As to consenting SH; estopped from contract of subscription
raising any objections
Interest in BL or CoS; if none
As to dissenting SH; may compel full Prevailing legal rate
payment against directors and officers
and SH (IF PAR) Sec. 66 to 69 Enforcement and payment of
subscriptions
As to subsequent transferees; right
same as transferor When paid? Provisions of contract
If none? At any time upon call of
Good faith; not liable at all BoD

Bad faith; solidarily liable Two possible remedies to enforce payment

(EXCEPT NO PAR)
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Board action (66 to 67) Y – 980k
Collection case (69) Z – 975k

If there is date in contract, demand necessary? highest bidder winner? No, the smallest Z
No, as it is subscriber’s duty
Effect, 500k to Z, 500k to A now deemed as
Effect if not paid on date? Delinquency fully paid up

If no fixed period, call necessary? Yes, before Assume, no bidders appeared, may the
it becomes due or payable Corporation bid? Yes, (last paragraph) subject
to the provisions of the Code
Effect if call not heeded? Delinquency
Sec. 40; corporate power to acquire its
Options after delinquency own shares
Limitation, it must have URE
Delinquency sale; or
Collection case in court Considering the example, insolvent, may it
bid? No, no URE
e.g. A subscribed to 1 million shares, 500k
shares unpaid. Corp liable 5m, board decided Corporation left with no remedy considering
to call for payment no bidders? No, as it may still avail Sec. 69,
Collection Case in court.
A did not pay, shares became delinquent
Collection case in court
BoD shall issue resolution for sale of shares,
shall not be less than 30 days, not more than Velasco v. poizant
60 days from delinquency
SC held two remedies; delinquency
Notice with copy of board resolution to SH, sale or direct collection case in court
publication 1/2 consecutive weeks
Assume A’s share sold at delinquency sale,
No payment until date of sale, public auction once a week for 2 consecutive weeks not
shall proceed. Winning bidder, who offers to complied with, as published only once, may
pay full amount plus cost/expenses if any for the sale be assailed on ground of irregularity
the lowest number of shares. Registration in or lack of notice? Yes, 2 conditions:
the name of winning bidder.
Pays/tenders payment to party
Remaining shares? Credited to delinquent holding stocks for sum it was sold;
stock holder AND
Action filed within 6 months from
A’s share did not pay, how many shares are sale
delinquent? Entire 1m (Indivisible),
Non-compliance with 2 conditions;
500k + 2k costs and expenses lips forever sealed

X Y Z, bidders, De Silva v. Aboitiz;

X – 990k
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
DS subscribed to shares in Aboitioz,
paid 200k/660k PNB v. Bitoloc Summit

Aboitiz called for payment Never believe the promises of Rep. of

Philippines
DS complaint, BL all shares paid or
not paid shall be paid out of 70% of Recovery of balance of unpaid shares
profits obtained by Aboitiz, the latter of Phil. Lumber
then cannot declare DS stock as
delinquent Defendant subscribers would not have
subscribed if not assured by the RP
SC; May be declared delinquent, BoD Pres. That the gov’t would back it up
has discretion to do whatever by investing, never happened.
provided for in the BL, if the BoD
does not use provision of BL, may use Defendants sought extension
the 2 remedies
SC; Corp has no power to release
Afocada v. NLRC subscriber from obligation without
valuable consideration for such release
Petitioner subscribed to 1500 shares
of Introphil, Inc. Paid 37.5k/15000k Reduction of capital stock can only
take place in manner prescribed by
Petitioner appointed as President and law (Sec. 37)
GM in January 1985, resigned one
year later Decrease would not have been
allowed by SEC, as it prejudices the
Dec 19 1986, Petitioner filed for right of creditors
unpaid wages, bonus…
Edward Keller v. COB Group
Responded said amount due was
applied to unpaid balance, set off Reiterates Lumanlan v. Cora

Petitioner said no call, hence no COB owes EK 179k, latter sued COB,
demand may SH be held liable for obligations
of Corp? Yes, as SH personally liable
SC; set off premature, no leg to stand to the extent of unpaid subscriptions
on, as no call made, hence not yet due
and demandable Garcia v. Suarez

Lumanlan v. Cora WoN there is a prescriptive period for

demand of unpaid subscriptions
Trust fund doctrine
1924 Defendant subscribed
An assignee in insolvency or creditor
can enforce action against unpaid 1931 Plaintiff receiver
funds. Demand for payment of unpaid
subscription
Thus, also creditors may use action
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
1935 Action for recovery publication (1/3 consecutive
weeks)
Defense, prescription, 10 years have
elapsed After 1 year, no contest, lost
or destroyed certificate
SC; Not prescribed, determined from cancelled, new one issued
time of demand (1931), not upon (replacement)
subscription (1924)
Absolute 1 year? No, when SH
Effect of delinquency Sec. 70 concerned a bond satisfactory
to BoD, effective for 1 year,
Subscriber do not have the right to earlier than 1 year issued
vote or to be voted upon EXCEPT replacement
right to receive dividends
There is contest in court;
Dividend rights (Sec.42); cash issuance shall be suspended
dividends will first be applied to until final decision of the
amount of unpaid subscriptions court;
including cost expenses interest, if
there is more, paid to him e.g. Pending issuance of CS, may the owner of
lost or destroyed certificate, may he transfer
Stock dividends, it will be withheld by notarized deed? No, (RBL v. CA),
from him until full payment notarized deed not sufficient as there is
already stock certificate issued
If director; does not lose his right as a
director until shares are sold in May corporate officers be held liable for
delinquency sale unauthorized issuance of replacement
certificate? No (72 last paragraph, reiteration
Even if delinquency sale, all of 30) except in cases of fraud…
shares subscribed by him
remains, except those sold by Rationale; to avoid duplication of CS,
public auction, thus may still avoidance of fictitious and fraudulent
be director transfers, protection from damages
from issuance.
If not delinquent, rights of holders (Sec. 71) 73 and 74 Corporate Books and Records

Subscribers shall have ALL the rights Every corporation must keep certain
of SH, EXCEPT issuance of stock books and records
certificacte
AoI, BL and their amendments,
Lost or destroyed CS (72)
Books and records may be subject to
Lost stolen or destroyed; inspection by SH and or directors,
cannot be inspected by outsiders
SH must execute triplicate without consent of Corporation.
affidavit how lost or
destroyed, number of shares Basis; beneficial interest through
covered by SC, SC number, ownership of shares and the necessity
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
of self-protection and preservation. Directors, supervisors, directs and
Management may be guilty of… manages business, necessary to be
equipped with all data and
May copy? Yes, at the expense of information of the company to
requesting party manage and direct diligently (Vegaroth
v. Bella Sugar; Gokongwei v. SEC)
If refused to inspect or copy?
Mandamus will lie to compel Corp Right of SH is personal
Damages (161; 10k to 200k)
If injurious to public May it be exercised through another?
(200k to 400k) Yes (WG Phil Parts v. Phil. Mftrng)

Paragraph (6); may report to SEC; summary May be exercised by agent or

investigation; issue order directing inspection duly authorized representative
or reproduction; bound by confidentiality (Attorney in fact)
rules
With or without the SH
Stockholder abused (158; 5k – 2m)
What a man can do, can do in
Absolute right to inspect the books and person or through another
records? No, Directors and officers may
advance defences: As unavailing as many
instances
Improper use of information secured
through previous examination; (2) In person or by a
Not acting in good faith and for representative
legitimate purpose
Lawyers may not understand FS, so
SEC; Corps are required to submit 2 CPA may be recruited
repertorial requirements
When exercised? Reasonable hours in any
FS received by BIR within 120 days business day
from end of fiscal year
Pardo v. Hercules Lumber
GIS submitted within 30 days from
date of meeting as indicated in the BL Pardo filed mandamus to permit him
or actual meeting thereof to examine books of Corp

GIS; data of top 10 SH, executive officers, Corp defense, BL provision, SH may
directors examine on days the BoD may
annually fix (15-25 March ONLY)
There is a distinction between inspection of
SH v. D/T SC; BL provision is without force and
effect (contrary to law), deemed not
D/T right to inspect; ABSOLUTE AND written at all
UNQUALIFIED
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Corp may deny inspection if sought
on unusual hours or improper Unanimous vote daw, pero di
conditions pala

It does not however has the power to Directors, monthly, next month pa
deny all together CTC

(Doctrine of limited capacity; the corp Q: May a SH of holding company inspect the
can only do so much as the law allows books and records of subsidiary, isn’t he a SH
it) of subsidiary? IT DEPENDS

Vegaroth v. Bella Sugar; Gokongwei v. SEC; Yes, he may

inspect book and records of
Mandamus to place at petitioners WHOLLY owned subsidiary
disposal in reasonable hours the
minutes SM Intl, wholly owned by
SMC, all shares are held by
Certified copies cannot be yet SMC, in accord with equity
furnished as not yet signed good faith and fair dealing

SC; Directors have unqualified right to Thus, right extends to wholly

inspect, at all reasonable hours owned subsidiary

HOWEVER, certified copies cannot If separate entities, no such right of

acquire CTC of minutes until it is inspection, (Rogers v. Sherman Oil)
signed by responsible officer Sh not deemed SH of subsidiary

Meetings; after meeting, minutes are prepared e.g. Ayala Corp holding company, BPI Globe
by sec, minutes must be approved in the next Ayala, 52 58 58 respectively
SH/D meeting.
A SH of Ayala, can he inspect any or all of
If meeting was held 6 months ago subsidiaries? No, not wholly owned
through SH meeting, cannot be subsidiaries, all these 3 are treated as
acquired, another 6 months must pass separately and independent, even treated as
to allow the signing thereof independent listed companies under the SRC

In the meeting 1st agenda Gonzales v. PNB

determination of quorum
WoN the corporation may validly
nd
2 reading of minutes and approval refuse SH from inspection of books
and records of PNB
If approved, then and only then
finalized and signed. Gonzales filed a petition for
mandamus to examine books and
Prior thereto no CTC may be issued records of PNB

All that may be issued is an excerpt,

not the same as signed minutes CTC,
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Previously, Gonzales instituted In some cases, a reorganization
questions against the bank as to notwithstanding solvency. Equitable
transactions prior to SH, total stranger and PCI merged

Subsequently Gonzales acquired 1 BPI and FEBTC, in both cases top 10

share, denied inspection and filed
mandamus. To be able to be more competitive
against foreign banking came in 1980s
SC; 1907 Corp law provision
unqualified, no defences available as Purchase of assets another form
to refusal by Corporation
Thus. It may be a method of recapitalization
73 and 74 as it stands now, condition
precedent to examination, must not Direct lending institutions then
have been guilty…in good faith and
for legitimate purpose Minimum paid up 100k pesos

Acquisition of 1 share cannot be Financing companies 10m in metro

admitted as good faith manila, 5m in outside subsequently

Even assuming in good faith, PNB Many companies were affected

has own charter, inspection subject to
inspection only by the Central Bank Moratorium to lending institutions to
itself, and investigation can only be come up with paid up for 3 years, OR
divulged to President of Phil, to merge or consolidate with other
Secretary of Finance, members of lending companies
BoD. Any person who violates PNB
charter may be subjected to fine and Some merged, other folded up
or imprisonment
Merger
Mergers and Consolidation 75 to 79
Union affected by absorbing one or
Previously an elective subject, Ladia more corporation by another, which
declined to teach survives, which continues the
combined business
Most common types of corporate
reorganization Uniting of two or more corporations
(pwede 3 or 4) by the transfer of
Reasons not always same properties assets and rights to one of
them which continues in existence,
Mostly due to weak financial the others being dissolved and merged
conditions therewith

Aim to put in a sound financial e.g. A and B existing companies, B

standing transfers all assets, rights and
properties to A
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
A issues shares to B, B is dissolved, A AoM/C filed and submitted to SEC
continues combined business subject to 78, involving gov’t agency’s
favourable recommendation
Consolidation
Issuance of Certificate of
Uniting or amalgamation of 2 or more Merger/Conslidation
corporation to form a new one
Contrary to law? SEC shall set a
Results in new corporation, hearing, and proceed as provided for
termination of the old ones in the Code

e.g. A and B are existing corporation, Restrictions and Limitation

they transferred all their rap to C, a
corporation still to be born Act 3518, proscribes illegal
combinations
C issues shares of stock to A and B.
The latter dissolves Purpose lessen competition, or
restrain commerce or tend to
Parties in merger or consolidation create monopoly

Constituent corporations Art.186, RPC, imprisonment

and or fine, to create
Merger; are not all dissolved, there is a monopolies or combinations
surviving corporation, which in restraint of trade
continues combined business
Effects of mergers/consolidations (79)
Consolidation; all dissolved
There will only be one single
Requirements and procedures (75 to 78) corporation

The BoD of each constitutent Merger; surviving/absorbing

corporations shall approve a plan of corporation
merger/consolidation setting forth 75
Consolidation; consolidated
Plan approved by 2/3 of SH/M corporation

Prior notice (49) There will be a termination of

corporate existence of the constituent
Copy of summary of plan given to corporations EXCEPT the surviving
SH/M stating the purpose and consolidated corporations
S and C corp shall possess ALL the
If approved? Execution of Articles of rights, privileges, immunities, powers,
Merger/Consolidation BY EACH and shall be subjected to all duties and
CONSTITUENT CORPORATION liabilities of a corporation

To be signed by Pres/VP and certified S and C corp shall possess all the rpi
by Secretary setting forth 77 and franchises of the constituents and
all the properties receivables and every
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
interest due to the constituents are services for lawful purpose or cause,
transferred to and vested to them or the right Ee to resign, retire, or
WITHOUT FURTHER ACT AND otherwise severe his employment,
DEED (It is automatic) whether before or after the merger

The rights of creditors; any lien on the Ong v. BPI Family Saving’s Bank
property of constituents shall not
thereby be impaired Bank of SEA, merged with BPI, the
former being absorbed by the latter
Associated Bank v. CA
Ong had a loan with SEA prior to the
1975, Associated Bank and Citizens merger, agreement; granted credit
Bank merged facility and 5m cash advance. Only
2.5m cash loan was given to Ong and
1977, defendant executed PN in favor letter of credit approved
of AB for 25m, being enforced by
surviving bank Ong did not pay when they became
due
CA absorbed AB, may the surviving
bank enforce the note executed by BPI intended to enforce the law
absorbed corporation? (79(5))

Yes, because of the merger agreement, SC; Surviving corporation shall be

upon effectivity, all references to responsible and liable for liabilities of
absorbed corporation, as to like direct constituent corporation
reference to surviving bank
As if surviving incurred such liabilities
BPI v. BPI Employees Union or corporation

Original decision, employees of BPI acquired liabilities of Bank of

absorbed corporation are NOT SEA, as if BPI incurred
automatically absorbed by surviving
corporation, as it refers to chattel (not As additional cash loan has not been
rights, assets, liabilities) released, no delay can be attributed to
Ong, foreclosure cannot be had
One Justice dissented, in that they
must be absorbed DPB v. Guarina Agriicultural

MR; more in keeping in dictates of Debtor cannot delay unless creditor

social justice and state policy of has fully performed reciprocal
according full protection to labor to obligations
deem employment contracts as
automatically assumed by surviving There is no liquidation or winding up of
corporation even in the absence of absorbed or dissolved corporation
provision in AoM/C
Ultimate distribution to creditors
Nothing in this resolution, shall impair
the right of employer to terminate
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
No, no liabilities to pay, no assets to e.g. Amendment of AoI, QC to Manila, BoD
collect, as merely transferred passes resolution

Validity; only upon approval of SEC (78(1)) SH lives side by side in QC, amputated in
both legs.
Lozano v. De Los Santos
SH objected to amendment of principal
APPRAISAL RIGHT (Sec.80-85) office, as it will restrict and change my right as
SH, from day 1 attending SH meeting, if
v. pre-emptive right Manila can no longer attend.

For the past 26 years, whenever Ladia Corporation, it will not change your right as
asks questions, students are confused SH. May SH exercise appraisal right?

PRE; to subscribe to all issue or No, flimsy excuse

disposition of shares of any class
Meetings may be held anywhere in
APP; to dissenting SH on certain Metro Manila
corporate acts and transactions, and
demand fair value of his shares If principal office QC to Tawi Tawi, if reason
due to fear, appraisal right may be exercised as
NOT AT ALL TIMES AVAILABLE sound basis (girlfriend story)
when SH may dissent and outvoted
How right exercised (81)
Instances allowed
SH must vote against particular act or
Amendment of AoI changing or transaction and is outvoted
restricting rights of any SH
e.g. Primary Purpose construction, to realty, 5
Any sh; To some may change SH and directors, A B C D E, 5m each (25m
or restrict, while others do not total OCS)

Sale, lease, exchange, transfer, A objects, but outvoted

mortgage, pledge and other
disposition of all or substantially all of Exercise, written demand of appraisal right,
corporate properties that he be paid fair value of shares within 30
days from interposing objection thereto
Merger/Consolidation
Must surrender the CS for notation of
Investment of corporate funds in any dissenting and for purpose of payment of
business or purpose, other than the shares,
primary purpose
Payment how made? Only if there is URE,
NOTE: 104, to compel corporation for ANY
reason (Close corporation), SH can do so After payment of shares, it will become
even if the above instances are not present Corp’s treasury shares
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Bar Q on MCQ; At what point in time should payment of FV of dissenting SH will
the fair market value of the shares be cease):
determined?
If he withdraws his demand
1. Date of meeting interposed objection for payment, with the consent
2. Date of written demand of the corporation (Belat mo
3. Date of payment of fair value of shares kami naghirap, even if A
withdrew his demand, A never
Answer; on the day prior to the withdrew)
meeting when objection interposed
May SH with unpaid subscription exercise
e.g. proceeding from example, B C D E are appraisal right (he must surrender stock
from La Union, amendment of purpose certificate for notation that dissenting shares)
because they know properties in La Union
where TPLEX will pass through. Yes, surrender of stock certificate is at
the option of corporation
A objected, as managing director, being a civil
engineer, outvoted. 30th day went to office With the fact that non yet issued, the
with written demand. Agreed that FMV of Corporation well knows that, it is at
shares is 5m. its option

However, there is no URE, as it use all its Basis of FMV of shares? 5m shares x
cash to acquire said properties, what will FV = 5m pesos, if 2.5 million shares
happen? paid, 2.5 paid to him

If he has not been paid within 30 days When the proposed action is abandoned or
from agreement, his voting and rescinded or is disapproved by the SEC, or
dividend rights will be restored SEC determines that he is not entitled thereto
(Exercise results in suspension of said (like sa Tawi Tawi)
rights until payment of FMV)
When SH fails to deliver CS 10 days from
1 yr later, the Corporation sold the real demand for the annotation of dissenting
properties they acquired to the project shares, at the option of the Corporation, if the
manager of TPLEX extension, and shares are transferred, and new ones issued to
Corporation made 105m in 1 ½ year. May the transferee
Corporation now after acquiring URE, pay A
FV of shares, and later declare 100m as cash A exercised, 6 months di pa bayad,
dividends to A’s exclusion? binenta na lang nya shares kay F,
endorsed and delivered.
Yes, Corp may now pay A fair value
of shares F goes to corporation for notation
and recording
100m shares as dividends to A’s
exclusion (83) Corporation cancelled CS of A and
issued new CS. The right of A FV of
once exercised, remains forever, shares thereby ceases
unless (instances where right to
Disagreement as to FV of shares
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Mettings of SH/M, shall be held at
Determination 81(2) principal office of corporation, if not
practicable…
SH or Corp who will bear cost of
appraisal (83) Title XI; meetings of
members, may be held
Corp if price offered by it is anywhere within the
lower than FV as determined Philippines if there is a BL
by appraisers; or action to provision requiring the same
recover such fair value, SH
refused, Court found justified; No provision, GR (Principal
office) shall apply
SH if price offered by the
Corp, is approximately the Purpose/s of non stock (Sec.87)
same as ascertained by
appraiser; or Court finds There may also be other purposes,
refusal of SH is not justified civic, fraternal, sports etc etc

TITLE XI; Non-stock corporations (86-94) How is the right to vote exercised in NS corp
as may be compared to S corporations
Non stock corporation reiteration of
stock corporations (3) Each member in a NS corporation,
entitled to 1 vote per candidate
A stock corporation is one with
capital stock, divided into shares, and GR, cumulative voting NOT allowed
authorized to distribute allotment of ER; BL may broaden, limit, or deny
surplus profits to SH in proportion to voting rights of members
respective stock holdings
Stock, cannot be denied (Doctrine of
Non-stock corporation, one where no Limited Capacity)
part of its income is distributed as
dividends to the members (Binaligtad Proxy voting; can be denied in a NS
lang) corporation (same provision)

May make profits (income) Voting through remote

communication/ in absentia; if there
Club Filipino De Cebu v. is a BL provision EXCEPT public
Director interest as it may in the absence of
provision
But cannot distribute
Corporations who may have shares of stock,
Only for furtherance for club shares, Manila Golf Club, Wack Wack
business or purpose Golf Club

86(2); provisions governing stock when Ownership of shares in NSC,

pertinent, will also apply, UNLESS specifically equivalent to being a member in the
covered by TITLE XI NSC? No. One may be a SH, but not
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
a member in a NSC, one may be a M, There is a valid transfer (Rules of SC
but not SH to NSC )

Club shares types Is he now a member? No, it is subject

to admission by the corporation in
Individual; for 1 person accordance to AoI, BL, R and R,
Partnership; 2 or 3 prescribed by or the BoD
Corporate; 5 or more,
Thus, application still needed to be a
Holder normally corporation, member
entitled to nominate 5 persons
to be members. BUT NOT Cebu Country Club v. Elizagake
SH
E is a SH of CCC, he applied for
Member v. SH; different things membership (September 1966)

Ladia member of Celebrity Sports 1977, action of the application was

Club, BUT NOT SH, nominated by deferred, after 1 year, acted upon,
client corporation as member disapproved

Some may have bought shares only for Letter of Reconsideration, still club
investment kept silent.

Wack Wack, 20k to 30m shares, 20k SC; NSC has right to approve or
mo 30m na ngayon disapprove proprietary membership

Membership may be acquired by following The right should not be exercised

provisions of NSC arbitrarily (ER)

Personal in nature Application form is old one, did not

have any number of votes required in
GR: Non transferable order to be admitted. Presumption,
Majority. Amended, almost 20 years
ER: AoI or BL provides before application, requires
otherwise unanimous vote of members.

e.g. MP SH of Manila Polo Club, but Amendment not printed on

NOT a M, as he is not qualified, baka application form, due to economic
kailangan matangkad purpose.

Assume club shares are transferrable, SC held that it is flimsy, considering a

A has been playing for past 35 years, well funded corporation
tumanda na, endorse and delivered CS
to driver, latter wants registration, may Applied Sec. 19 of the Civil Code,
the club refuse? No, a transferee, has every person must in the exercise of
the same right to compel corporation his rights…
that transfer be recorded to his name.
Board of Trustees
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
If no plan, may be voted upon
Only trustees? No any other majority vote of BoT, and 2/3 of
appropriate name members with voting rights

Nothing to bar NSC to use directors TITLE XII; Close corporations (95-104)

Trustee, must be a member of NSC Entirety retained in RCC

Except independent directors/trustees
Advantages; to keep business organization
Term of office; may be 3 years but not more exclusively
than 3 yrs, (If that be the case, at least 1/3 of
their number shall expire every year) Limiting liability to business traverses to
amount of subscriptions
Corporate officers; directly elected by the
members UNLESS AoI/BL provides
otherwise Sec.91, not more than 20

Place of meeting; may be held anywhere in the Specified persons

Philippines BL provision
Now requires all SoS shall be subjected to one
If no BL provision, may they do so? or more specified restrictions
No, GR, principal office must apply
Sec.95, defines
Dissolution; there may be properties held by it
AoI provides for 3 mandatory
Dissolution, corporation dissolved, provisions
collection of all rights, assets,
properties, ultimate distribution to SH All issued stocks exclusive of
in proportion treasury shares shall be held by
not more than 20 specified
If NSC, same as SC? 93 and 94, if persons
there remains assets after debts and
liabilities. It must return assets held by All of the issued stocks of any
it upon condition requiring return. classes shall be subjected to
Assets held per meeting used only for one or more specified
charitable relgiius, not held, on restrictions
condition requiring return, must be
transferred to corporation with same Shall not list in any stock
or related purpose and others in exchange, or make any public
accordance to AOi and BL to the offering of any stock of any
extent that it provides for distributive class
rights to members Absent any one? Not closed corporation, not
governed by Title XII
To such persons as may be specified
as may be specified in a plan of Identity of Stock ownership and active
distribution pursuant to 94 management;
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Most, if not all, take active Banks; not more than 20% of voting
participation either as directors, stocks may be owned or held by
officers, or partners in management relatives within 3rd degree of
consanguinity GBankingL
In other corps, SH no voice in
management 176; authorizng NEDA to
recommend to legislature the setting
Ultimate effect; is to furnish another type of of maximum limits in vested with
business organization (de facto partnership public interest, detrminnation as well
with the corporate shell) in its domain

Hybrid of both, corp and partnership 96; Permissive provision; AoI may provide for
classification of shares or rights, restrictions…
Incorporated partnership
e.g. Common A; Incorporators and
rd
De facto; features both of corp and relatives within 3 degree of
partnership consanguinity
Common B; relatives within 3rd
Sec. 96; can do away with BoD, vesting degree
management to SH themselves, any one of Common C; Common A business
them may bind the corporation just like any associates
other form of business
Must be subjected to restrictions on transfers
99(3); SH as partners between and among (No restrictions, not close)
themselves
A; Offer to A share before Corp
Close corp v. stock corp B; Existing B before Corp
C; Existing C before Corp
SH of CC, takes active part, personally
liable UNLESS adequate liability Corp no, other persons
insurance (99(e))
Clasiffication of directors; who to vote or may
Still limited liability, in sofar as other be voted for
corporate obligations are concerned
3 directors from A, voted by A
It is not a CC, when at least 2/3 of voting SH 1 from B, voted by B
are owned and controlled by another 1 from C, voted by C
corporation
In each class, cumulative voting may be
Even if another corporation owns, exercised
non-voting shares, 2/3, still possible
100 A
CC if holder of 2/3 also a CC 50 B
20 C
Mining oil companies, public utilities, etc
cannot however be formed as CC (95(2)) X, A share, 20 shares x 2 = 60 votes
Only to one candidate
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
BUT to the extent that each class can Cannot be more onerous than
elect its directors, cumulative voting is granting existing SH and/or
thus limited. corporation itself the preferential right
to purchase the shares within
IF FULL EXTENT, 3 seats to A, 2 reasonable period of time, conditions
seats to B, no seats to C or terms

Thus, it is a restriction After expiration of period,

option not exercised, SH may
Quorum and voting transfer to any other party

May provide for greater requirement e.g. what if the transfer breaches restrictions,
in director’s meeting v. Sec. 52 remedy? (98) GO THROUGH
(ordinary SC)
A holds 20 A shares, 20 SH, A wants to sell,
ONLY in director’s meeting offered to A SH, no one, Corporation, not
willing, transfers it to X and Y 10 each.
NOT in SH meeting cannot be altered
or increased X and Y are not incorporators nor relatives.
Will X and Y have the same right to compel
Effect; increases veto power of the registration?
minority SH
No, the CC can validly refuse its
e.g. investment in another corporation registration, because it violates the
other than primary purpose conditions provided in AoI, BL, and
CS
SC 2/3 (66.66%)
CC May be greater Transferee conclusively presumed to
e.g. ¾ (75%) know ineligibility UNLESS ALL SH
CONSENTS THERETO
AoI may provide that business may be (Subsequently must be amendment of
managed by the SH rather than BoD AoI)

SH deemed directors, subject to all Effect if allowed, no longer CC, as 21

rights and liabilities of directors SH

However, more extensive, as Remedy of transferee? 98, rescission

personally liable UNLESS insurance results to mutual restitution

v. stock corporations, directors liable Same must appear in AoI and all CS AND BL
only if fraudulent bad faith, gross
negligence v. SC, sufficient if AoI and all CS

Officers and employees likewise allowed to be Agreements (99)

elected by SH (instead of BoD in SC)
SH agreement in other corporations
Restrictions on transfers cannot limit BoD
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
(99(c)) may agree between and among Appraisal right can only be
themselves to make them partners exercised in specific instances

Directors may validly act without a meeting 104 does not require URE, only
sufficient assets to cover debts and
Condition (100) liabilities. Cannot use capital stock to
pay shares of withdrawing SH
v. SC; directors must sit and act as a
body at a duly constituted meeting e.g. Assume CC has capital stock of 10m
(cannot be used to pay withdrawing SH shares
Pre-emptive right (38) in SC , except redeemable shares or deadlock
or if SH compels CC payment of fair value of
Exceptions in 38 CC; DOES NOT shares )
APPLY
1m profits
Nothing in provisions of Title XII bars 500k liabilities
foreign corp from denying pre-emptive right 500k reserve (for rise of gasoline)

GR: SC will apply to CC Effect to 1m, restrited

AoI may deny SC; cannot acquire shares whether

preemptive right appraisal or whatever

If no denial; instances in 38 does not CC; can still pay FMV because it
apply can use the reserve (Not
capital)
Effect; no denial, right of pre-emption
in CC would be absolute Amendment of AoI

101; even for money, property, or 102; special provision

payment of debts, may exercise his
pre-emptive rights 96; to provide for greater quorum and
requirements in both SH or D meeting
Shares issued in
compliance…not apply (95(3)) Balance of control oftentimes precarious due
there’s no such thing as public to provision results in deadlock (103)
issuance in CC
e.g. ¾ required, tall order, deadlock
In addition to all other rights, any SH of CC remedy? 103
may for any reason compel corp to buy his
shares which would not be less than par or Grants proper forum a very wide
issued value, PROVIDED CC has sufficient discretion in the management of CC
assets exclusive of capital stock (104)
Prohibits D/SH performing, or
v. SC, SH cannot get back his cancelling any provision, or bar
investment except appraisal right or implementation of any resolution, or
sale of shares even require SH to sell his shares to
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
corporation IRRESPECTIVE of Cases applying and misapplying Title XII
URE, or even dissolve or kill the CC
San Juan Structural Steel and Design v. CA
Also, provisional director that may be
appointed may break deadlock by SC; Husband and wife own 99.8% of
casting deciding vote OCS does not make it a CC

Provisional director; extension of the court, In order to be a CC, all the 3

appointed by the court qualifying provisions must be present

Isn’t it that the court cannot interfere Manuel Dulay v. CA

(business judgment rule)?
Counsel for Dulay is Ladia’s
BJR may not apply, because classmate, asked him if they can argue
court has wide discretion that Dulay is a CC, because SH
belongs to one single family except
Dissolution of CC; grounds are more corporate secretary good friend of
extensive than any other stock corporation patriarch, Manuel Dulay

Any act prejudicial to any SH, He asked to bring files

wastage, misapplication of funds, or
mere dishonesty He checked, no one single provision
required to be indicated is present in
Petition of any one single SH AoI, not a CC

Republic v. Visayan Sale of property was made by

President, manager, general manager,
Misuse and misapplication of and treasurer.
corporate funds
Executed, Virgilio Dulay was a witness
Minority SH petitioned Dissolution to the deed of sale, and also
questioned the validity of the sale.
SC; Dissolution not warranted, there However, no written objection thereto
is still legal remedy, to go against after acquiring knowledge thereof
corporate officers or directors (30)
SC; applied 100, any resolution passed
This is an SC by the board may nonetheless be valid
if the absent director does not
If CC? Granted, any act. formally file objection to corp
secretary after having knowledge
CC v. SC (16 differences) thereof.

*BJR does not apply is not included in Court ruled that it was valid. Although
book not a CC, the SC believed him
Rights of transferees also not included Naguiat v. NLRC
(RBS v. CA) CC can deny if breaces
conditions and restriction
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Clarkfield taxi INC, family owned
corporations. CFTI was phased out She was in fact the very same person
and terminated taxi drivers who signed first 2 vouchers, paying
gratuity pay arising out of questioned
Complaint filed against Naguiat BR
Enterprises, arguing separate and
different from CFTI. She is in estoppel

SC; Naguiat not the employer, rather Naguiat v. NLRC

CFTI, and Naguiat separate
Uichico v. NLRC, when corporate
Conceded, both are CC, applied 99(e) directors or corporate officers liable
even if acting for and in behalf of
SH who take active participation in corporation
management of CC are personally
liable, thus Sergio can be held liable In labor cases, the person or officer
who terminates EEs done in bad faith
Ladia; supposed 2 corporations are is personally or solidarily liable with
not CC, organized in 50s, how could the corporation
they have known the requirements of
CC, Corporation Code became law 1 SPECIAL CORPORATIONS TITLE XIII
May 1980, and the AoI of both, not
having any one provision required is There are 2 types of special
present. corporations:

However, even if did not misapplied, Educational

same decision could have been raised Religious

In Dulay; could have cited Concept Sec.105; Educational

Builders v. NLRC, Dulay had absolute
control of Dulay Enterprises (Piercing Are governed by special and general
of the veil, shares of children arose provisions of this code
solely from ascendant)
Commonwealth Act 2076, now
Corps involved are not CC known as the Education Act

Lopez Realty v. Contentia Once formed or organized as such,

they must incorporate within period
Estoppel of 90 days from recognition as
institutions of learning
An actuation by the corp that was
improperly held or conducted may be Failure to do so; not immune
ratified expressly or impliedly or even from being sued as a
by way of estoppel corporation (Chiang Kai Shek
v. CA)
Asuncion not notified of meeting Favorable recommendation of agencies
knew of BR, granting gratuity pay to concerned must first be secured
EEs
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Dep Ed Culture and Sports; lower ed SLU organized by Belgian missionary
Dep of Higher Education; higher board
LEB; law education
Grace Christian HS of QC
Governing board
Organized by charitable organization
GR; Is not less than 5, but not more
than 15 Earlier, president and chairman,
naturalized American citizen
5, 10, 15
British School for
Term of office
Majority of them are British nationals
May exceed 1 year (106)
UST/ Beda
May serve for a term of 5
years, UNLESS BL requires Religious organization, have
otherwise foreigners sitting in board

However, classify themselves, Religious corporations

1/5 shall expire every year
Kinds
Stock educational corporations
Sole (107); and
Provisions of stock Religious societies
corporations shall apply
(22(2)) Sole

May a foreigner be a member of the 1 individual or person only

board of educational institution
NOT any person may form or
Art XIV of Constitution; organize, must be
educational institutions (other
than, established, religious Priest;
order, mission boards, Bishop
charitable organizations) Archbishop
owned solely by Fil citizens Rabbi
Minister; or
Exception to the rule Have religious denomination
that foreigners cannot sect or churh
be members of
governing board Formed and organized for
(RMC) administering and managing the
affairs, property, and temporalities of
SLU a particular religious organization,
President and chairman of BoD, sect, or church
Belgian Priest
When acquires juridical personality
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Will the registration of property unto
From and after filing of verified AoI corporation vest upon the owner the
with the SEC ownership? (107)

It is an exception to the rule of No, they will act as trustee

existence upon issuance of
CoR/I from SEC It devolves upon the church

(other corporations with Head merely acts as

juridical personality without trustee/administrator thereof
issuance of CoR/I
Roman Apostolic Church v. LRC
Created with own
charter (Congress); WoN the RCC has a nationality

Those issued by SC; a corporation sole has 1 person

HIBC, (Home owner’s only, and successors who will always
association) be 1 at a time in some particular
station, who are incorporated by law
Bureau of cooperatives in order to give them legal capacities
as to its cooperatives and advantage, particularly that of
perpetuity, which natural person
Corporation by cannot
estoppel (unregistered
corporation) Sole person, NOT owner of church
properties, but merely a guardian or
Same powers, rights, authority to own hold or administrator thereof
acquire properties, even sell, just like any
other corporation? RCC has no nationality, framers of
Constitution did not have in mind
Owning/holding; yes corporation sole, when they provided
Alienation/disposition of real that 60% of capital stock must be
properties; No, unless proper court owned by Filipino Citizens
authority (ONLY REAL
PROPERTIES) Director of Land v. CA

e.g. Corp sole has a van using for 10 yrs, head Right of corporation to register land
opts to sell the van and the proceeds will be in its own name
used to pay as dp for the new van, is a court
order required? Under old constitution can only hold
or lease
No, as it is not a real property
Historical right of corporation to
HOWEVER, if its R and R as to mode of register lands
disposition of real property is provided, court Meralco v. Bartolome to Republic v.
order is not required Villanueva; corporation cannot apply
for registration, alienable public land
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Decided 2 months after Villanueva e.g. being used as a front for
prostitution or manufacture of
Villanueva; Teehankee wrote drugs, the State may exercise
dissenting opinion, citing police powers
Public Land Law, alienable
public land is converted to Religious societies, read provisions
private property if the same is
held by the possessor or his One person (115-131) Title XIII Ch 3
predecessor in interest,
OCENPO for a period of 30 New provision, primarily governed by
years ipso jure title III supplemented by provisions of
code
Adopted Teehankee
OPC, must be appended in the
Republic v. IAC corporation name

Determination of character of land Lone or single individual or person,

must be made to determine only natural, trust, or estate, may form
registrability an OPC

Public domain; cannot It cannot be formed for any business

activity (banks, quasi banks, etc…)
Private land; prohibition
would not apply Practice of profession? No, EXCEPT
provided by special laws
Vacancy of head (112)
117; No minimum ACS
Person authorized or Rules of
Discipline Except otherwise provided for by
special law
In the meantime? Succerssor to
transact must file with SEC Election AoI (40) plus
or appointment assent of religious
denomination, sect, or church If single SH is trust or estate, the
name and nationality and residence of
May it be dissolved despite perpetuity? trustee, administrator, executor,
guardian, conservator, custodian or
Yes, ONLY through verified other person exercising fiduciary
declaration of dissolution (NOT duties with proof of such authority
judicial act or decree or involuntary
dissolution) Also, the NNR of the nominee or
alternate nominee in the extent or
Doctrine of separation of coverage of this authority
church and state
Exception; police powers, may 119; It is not required to adopt and submit BL
be by judicial Since sole SH, then sole Director, and at the
same time the President, as the latter must be
a director
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Piercing shall apply with equal force
GR: President cannot be corporate and effect to OPC
sec or treasurer at the same
time 131; Conversion from ordinary corporation to
OPC
ER; OPC, may be self appointed
treasurer When single SH acquires all the stocks
of an ordinary corporation, he MAY
Secretary? No, as special functions under 123 apply for conversion of ordinary to
OPC
124; Resignation of a nominee and alternate
nominee with written consent OPC converted to ordinary
corporation shall succeed the latter
To take the place of single SH in case
of death or incapacity Legally responsible for ordinary
corporation’s outstanding liabilities as
With the extent and limitation of their of date of conversion
authority to manage the corporate
affairs 132; Conversion of OPC to ordinary stock
corporation
Inclusive of the term of N or AN
After due notice to SEC and within 60
If temporary; until OPC days from occurrence of
retains capacity circumstances leading to conversion,
the State settled or legal heirs
If death or permanent; until determined, it shall be converted to
heirs of OPC have been ordinary stock corporations
determined and designated
one of them or agreed that DISSOLUTION, WINDING UP, and
State shall be the single SH of LIQUIDATION (TITLE XIV)
OPC
Dissolution
126; Change of N or AN at anytime
Extinguishment of corporate franchise
130; IMPORTANT; liability of single SH
Termination of corporate existence
SH has burden of affirmatively
showing that there is adequate Ways:
finances (There is no minimum
capital) Expiration of its corporate term
Voluntary surrender of franchise
If he can’t prove that property is Revocation of franchise (involuntary
independent of SH personal property, dissolution)
the SH shall be jointly and severally
liable for the debts and liabilities of 133;
the OPC Mentions only 2 methods, voluntary
and involuntary
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
This is probably true as expiration
may be considered voluntary mode, SC; when period expires, corporation
considering the intention of SH that it ceases to be a body corporate, for the
shall exist for such period purpose of continuing the business for
which it is organized.
In perpetuity
There is no need to institute a
Only a general rule, as it is not barred proceeding for quo warranto to
to provide term determine date and time of the
dissolution, as the period of corporate
If they so provide, they seize to exist, existence is provided for in the AoI
and deemed automatically dissolved
upon expiration of term, With the period expired without any
extension, it is deemed automatically
SUBJECT to extension (11 and 37) or dissolved in sofar as continuation of
amend its AoI to make it perpetual. business is concerned

In these cases, corporation continues (Parang tao din yan, “Lord 50 years
to be possessed with juridical masaya na ko”, 50 years ka na ngayon,
personality and may carry out its punta ka na kay Lord, pwede pa po ba
business upon period granted to it by 50 yrs pa. Pa extend ka na (SEC) kasi
virtue of extension bukas patay ka na. Eh sabado ngayon,
sarado SEC, paano ka ngayon? Patay
Extension should however be made ka na? Di namaaaan, pwede naman
prior to the expiration of the original amendment through electronic means)
term, otherwise, will be considered
ipso facto dissolved Failure to lessee to remove
improvements before lease terminated
PNB v. CFI amounts to waiver, it is the contract
between the parties, 1678 will not
PNB and the Phil Blooming Mills, apply where reimbursement is
entered into a contract of lease for 25 allowed, as there is a contract
years, extendible for another 20 years,
at the option of the lessee (PBM) Sec.11. Corporation whose term expires, may
apply for revival
January 1952, term of 25 years, expires
on 1977 Within 3 years from expiration
(liquidation period)
PBM introduced buildings,
machineries and other improvements After 3 years? Corporation cease to
with PBM granted the right to remove exist, for all purposes
them before the termination of the
lease. Voluntary dissolution

Modes;
The term of existence of PBM No creditors affected (134)
expired, and dissolved, without the Creditors affected (135)
improvements having been taken out
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Shortening of corporate term Publication 1/3
(136, equivalent to Posting intention to dissolve in 3
amendment) public conspicuous place

No creditors affected Petition sufficient in form and

substance, SEC set date when
Majority vote of BoD objections may be filed which shall
Majority of OCS/M not be more than 60 days nor less
Notice 20 days prior to the meeting, than 30 days after entry of…
Publication, once prior to date of
meeting Publication 1/3
Verified request for dissolution Posting intention to dissolve in 3
with copy of resolution authorizing public conspicuous place
the dissolution certified by majority of
BoD, countersigned by corporate Hearing, judgment directing
secretary disposition of assets as justice may
with proof of publication require, or may appont a receiver
Supervised corps; fave
recommendation Receiver not mandatory (China
Banking v. Michelin)
Within 15 days and in the absence of
withdrawal, certificate of dissolution Intent, no occasion for
issued, effects only upon issuance appointment except under
special circumstances and
Dagohoy Enterprises upon clear showing

Other steps administrative or judicial Shortening of corporate term

is required
e.g. 25 years ago registered, 50 years
Creditors are affected existence.

Petition filed with the SEC AoI amended, to shorten, shall exist
Verified by president or secretary or for a term of 25 years, effectively
any other director dissolving the corporation
setting forth all claims and demands
against it Upon expiration of shortened term,
Approval of at least 2/3 of OCS/M at deemed dissolved, without any further
a meeting called for that purpose proceeding
Reasons for dissolution
Form manner and time when notices Withdrawal of request of petition (137)
were given
Date place and time of the meeting In writing
Verified request for dissolution
with copy of resolution authorizing No later than 15 days from receipt of
the dissolution certified by majority of request for dissolution
BoD, countersigned by corporate After? No longer withdrawn
secretary
With the list of all creditors Form? Motion
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Administrative
138; Involuntary dissolution
Extreme remedy
Filing of a verified complaint by any
interested party Most cases, not given

Or motu proprio on grounds provided If natural persons, tantamount to

by law: death penalty

Non use of charter (21) Gov’t v. Phil. Sugar Estates

Continuous inoperation (21)
Upon finding in final Buying and selling of real properties,
judgment, incorporation selling to Manila Railroad (Gov’t)
through fraud,
Concealing or aiding the Not authorized AoI (Doctrine of
omission of securities limited capacity)
violation in the sale of shares
of stock SC; Court’s proceed with extreme
Smuggling caution in case of forfeiture of
Tax evasion corporate profits, only allowed in:
Money laundering
Graft and corrupt practices Express limitation;
Committed or aided in Plain abuse of…purpose
commission of any of the
above Violation of charter, dissolution will
be granted
If the corporation’s owner absolved
on the above grounds (b?e?) its assets In this case, purpose was to enrich
after payment of liabilities shall upon itself at the cost of taxpayers
petition of SEC in appropriate court
shall be forfeited to national YET the court did not order absolute,
government rather conditional dissolution, cease
and desist within 6 months, if not,
SEC reasonable notice and coordinate dissolved
prior to involuntary dissolution
Gov’t v. Abrogar
Refusal to comply to SEC, violation
of provisions (158), gross Quo warranto; Illegal holding of title
mismanagement in conduct of close of properties in excess of 5 years.
corporations, deadlocks dishonesty, After property bought in foreclosure
any act prejudicial to interest of any sale
SH, violations of special laws ground
for involuntary dissolution (Foreign Then law, Financial institutions
Investment Act, Insurance Code, acquire properties used as collateral
SRC) for a loan, shall be disposed 5 years
Ways after they bought it

Judicial
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
There is a showing interest by Phil. Deposits must be insured with the
Sugar in estate for speculative PDIC (Savings Bank)
purposes at the time action instituted
Rep v. Visayan
El Hogar
Transportation business
Disposed many months after
institution of case Falsely reconstituted AoI, included
new purposes lumber, agriculture, gen
SC; Corporation violated law, equally merchandise, mining
obvious, conduct is not in contempt
of law Misappropriated funds

NOT fault of El Hogar that it could Minor SH instituted dissolution

not dispose properties in time, as gov’t proceeding
attributable for failure to issue title
within reasonable period Lower court denied, affirmed by SC

Beyond powers of corporation, but SC; Corporate act or omission

not an abuse of power that constitutes complained of did not result to
or threatens substantial injury to the substantial injury
government
Misapplication of funds committed by
Dissolution not warranted, merely officers, that they may be held
enjoined personally liable, voting or
assenting…
Cancelling shares; patent nullity, cannot be
enforced even by directors. They are personal Dissolution awarded only if no
properties, may be disposed to whoever they adequate remedy is available to SH,
want
NOTE; if close corporations, decision
Rep v. Security Credit of court different, FOR ANY ACT
(broader), thus a single SH may suffice
Quo Warranto, SC engaging in
banking business without Central Any person in interest can institute
Bank’s authority dissolution proceeding before proper forum

Engaged in propaganda resulting in PD 902 SEC and RA 8799 special

opening of 59,000 commercial court involving
intracorporate disputes (between or
SC; dissolution, corporation violated among SH, Directors,..), corporation
by engaging in banking without and State insofar as the right to exist,
securing authority and all the grounds for dissolution is
strong or serious misrepresentation to
Continuance, substantial injury to the do what it is doing, to the damage of
public the investing public

Sec.5(m) RA 8799
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
e.g. Lease by or to a corporation,
SEC concurrect jurisdiction and or terms, terminate ceasure of
revoke after proper notice or hearing corporation, survives death of
the franchise or Certificate of contracting parties,
Registration upon any ground
provided for by law Personal services, deemed terminated, implied
condition such contract terminates upon
Hall v. Piccio (1950) eventuality

De jure corporation may be Body corporate for 3 years for purpose of

terminated in a private suit, between liquidation and winding up (139)
SH, without intervention of State
(intracorporate) Expiration of 3 year period, ceases to exist for
all purposes can no longer sue and be sued
Sec. 138
Buenaflor
By any interested party even creators
can institute against the corporation Filed application to operate cold
storage.
Dissolution not only terminates private
franchise to be a corporation, including Opposed by Camarines Industry, filed
exercising other transactions similar application

Terminates power to enter into contract Buenaflor, moved to dismiss, 4 years

earlier existence CI expired
e.g. Secondary franchise, recruitment,
50 years CI registered new AoI, and assigned
all its assets and rights to new CI
Dissolved 25 years, secondary
franchise still has a period. However it Certificate of Convenience issued to
is terminated as well CI

Contract executed prior to dissolution for SC; 1953, dissolved, CSI seized to
purpose of continuing business exist, could not lawfully continue its
business.
Even without state, equity, for the benefit of
SH and creditors Applied 1957, no longer personality to
sue or be sued
Termination of juridical entity, does not imply
extinction of obligations (Gonzales v. PSC directed to award certificate in
Administration) rights and liabilities not favor of Buenaflor
extinguished by dissolution (184)
Cebu Port Labor Union
No rights or remedies for or against
the corporation…shall be affected by CBLU filed for recognition of
the subsequent dissolution stevedoring
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Motion to dismiss, 1952 CBLU was
dissolved, no personality to enter into Corporation itself, through BoD;
a contract Trustee or assignor appointed by
corporation to undertake liquidation;
SC; Stevedoring contract cannot be Appointment of receiver or liquidator
enforced with CBLU, even within 3
year period as it does not include 1st mode
continuing business
No express provision or authority, or
Gonzales prohibiting BoD from undertaking the
liquidation of corporation
EO abolished Phil Sugar Comission,
and made Phil Sugar Regulatory, the Power of BoD to manage corporate
former transferred its assets and affairs, includes liquidation.
property to the latter
Period; 3 years to finish
Gonzales filed a complaint for sum of
money Claims for or against the corporation
NOT filed will become unenforceable,
SC; Dissolved corporation cannot as there is no more corporate entity.
deny substantive rights, after being
taken over by successor Actions pending for or against the
corporation after 3 years are
(If not consti, 184 will be sufficient to ABATED, as after period,
arrive at same conclusion, no rights or corporation ceases to exist for all
remedies for or against the intents and purposes
corporation… shall be affected by the
subsequent dissolution) 2nd mode

Corporation dissolved, liquidation and 3 year period will NOT apply,

winding up ensues (139) provided the designation is made
within that period
Collection of all corporate assets,
properties, GR: No time limit;
ER: Time limit under Deed of Trust
For payment of debts and liabilities
May still sue after period
If any remains, distribution of its
assets to its SH in accordance to Should the BoD use 1st mode, at any
proportionate interest them within period, use 2nd mode

(Preferred shares; before any 3rd mode

other SH)
Appointed by proper forum, via
Period; 3 years to effect liquidation petition or motu proprio upon
3 year period absolute? No dissolution

Modes:
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
3 year period does not apply, body corporate for another 3 years
substituted by receiver or liquidator from effectivity of the order…
who will sue or be sued even after
period. Appointed BoL to liquidate.

National Abaca v. Court Collection case never finished within 3

years.
WoN an action commenced within 3
year period may continuo after Motion to dismiss
expiration thereof
SC; No time frame for trustor or
SC; pending actions by or against the assignment to finish case, even
corporation in its corporate name, are beyond period
abated.
Elago v. CA
HOWEVER, the action may be
continued by the trustee, to whom the Collection of Sum of Money against
corporate properties are conveyed, Elago
even beyond the period.
Corporation dissolved 1960 by
Sec.139(2) effect of conveyance to shortening corporate torm.
make trustee the legal owner of
properties or rights, subject only to 1964 after dissolution lower court
beneficial right of SH and creditors rendered decision in favor of
Corporation
Somera v. Valencia
May Corp prosecute beyond
1922 corporation exist
SC; Trustee is understood in general
1927 dissolution granted, with terms, hence even including its
appointment of assignee to liquidate counsel, who prosecuted and
defended, may be considered as its
Somera assigned, 1936 file recovery of trustee.
sum against Valencia.
Tiokabio v. IAC
Valencia claims prescription
WoN Corporation dissolved may
SC; Assignee may bring action even during the 3 period transfer its assets
beyond the 3 year period. to other corporation that would
continue business
Board of Liquidators v. Kalaw
SC; Liquidation, should be the sole
Suit against Kalaw, instituted by activity.
NaCoCo
It is not however, unlawful to transfer
EO abolished NaCoCo, with a with the consent of 2/3 OCS to
provision that it will continue as a transfer all its assets to a new one
(Sec.39)
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
(Gonzales) Nor those of its owners or
Transfer of all or substantially of all… creditors

It is not unlawful for the BoD with If 3 year period without a trustee
the consent of 2/3 OCS to transfer its (Elago), may be permitted to do so to
assets within 3 year period continue as trustee by legal implication

Clemente v. CA Pecuniary interest in the corporate

assets not only SH also creditors, may
Sociedad Anonima, precursor of make proper presentation with the
corporation SEC, which is primary with matters of
this jurisdiction.
Engaged in cockfighting
No known creditors, directors, SH.
Acquired land in the fort.
It was allowed.
Higher court acknowledged its being
defunct (This is an absurd decision, 40 years
after, if this is the case then there
Right to exist, 50 years, in 1907 would be no escheat proceedings.
corporation law came into being, and Cited cases are misplaced
from then on no more sociedad
anonimas were registered and those Gonzales, there is a successor
existing were granted the right to corporation SRA, absorbed assets, no
convert as a corporation be governed successor here
by the corporation law or continue to
exist as such, be governed by Code of Elano, there was a lawyer who
Commerce. prosecuted, in this case no lawyer

Some converted to corporations What will the SEC do? Can only apply
provisions, hence escheat
In this case, did not convert,
registered 1905. It is more appropriate, to direct sitio
or municipality concerned to proceed
1955 supposed to be dissolved, to escheat proceedings)

Plaintiff, heirs of some SH, claim TITLE XV; Foreign Corporations

ownership of property left behind,
more than 40 years after dissolution. 140; FC

SC: Petitioners failed to substantiate One formed, organized, or existing

claim of ownership. under any laws other than those of the
Philippines
Termination of the right of juridical
entity does not by itself cause the And whose laws allow Filipino
extinction or diminution of the rights citizens and corporations to do
and liabilities of such entity business in its own country or state
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Not an accurate inclusion of
definition 60% owned by Filipino Citizens,
Philipinne National
Any corporation registered or
organized under laws of EXCEPTION
another State is necessarily a
FC Grandfather rule

To do business herein If percentage is less than 60%, only

number of shares corresponding to
If business is not allowed in such percentage shall be considered as
the other state, the Philippines Philippine Nationals
as well will not.
e.g. 100k shares
Any corporation owing its 60% belong to Filipino citizens = owned by
existence in another state is a Filipinos
foreign corporation If less than 60% = example 50%, only the
50% shall be recorded as belonging to
Test; 103 incorporation test, Filipinos
place of incorporation,
irrespective of nationalities of Narra Nickel Mining v. Redmont
the SH.
NNM , Tesoro Mining, and McArthur
e.g. Retail trade has Php2m or more, it can be Mining, is engaged in mining of coal
held by foreigner, FC?
MMDI, Canadian corporation,
No, as registered in the Philippines investor. SH as to 39.9% in each of
the three.
California registered, all incorporators and SH
are Filipino immigrants, status? SC; 60/40 shall be considered Filipino

In so far as Philippines is concerned, it If there is no doubt as to who is

is a FC beneficial ownership and control of
corporation
Filipinas v.
No more need to dissect nationality
In times of war, the control test is and ownership
applied
If doubt? Grandfather rule shall apply
Nationality of controlling SH
determines the nationality of Issue; X, Y, Z, corporations,
corporation invested in NNM, TN, and MM,
respectively.
For purposes of national security
Control test MMBI holds 39.9% of shares in each
of the investors
Shares belonging to a
corporation/partnership
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Control test? No, as there is now a
doubt. The Court held violation of Mentholatum v. Mangaliman
nationalization laws considering the
investments to X Y Z, thus amounting Mentholatum, based in Kansan, agent
to more than 60% PADCO, is doing business by selling
here, as exclusive distributing agent.
In toto, it has 62%, and thus a FC,
and thus cannot engage into mining. FC filed against Mangaliman for
infringement.
Corporations have no legal existence beyond
the boundaries of…by which it was created Mangaliman produced, same size.

Juridical existence of corporation Did the FC do business in the

confined to territories of State of Philippines?
incorporation
SC; True test, whether the FC
No legal existence beyond such continuing the body of substance of
territory. business.

The State therefore may restrict its Continuity of commercial dealings.

right of FC to engage in business
within its limits, and to sue in its Whatever PADCO executed as
courts distributor, has the effect of
Mentholatum doing it itself
But by virtue of State comity, a
corporation created by laws of one Thus it did so without a license.
State is usually allowed to transact
business in other states and to sue in Mentholatum thus is barred from…
its courts, subject to restrictions and (1945)
other requirements
(No longer applicable, due to
142,143,144; requirements amendment of trademark law and
Paris Convention (1965))
General Corporation Case
Marshall Wells
Service of summons (135)
Object of the law in preventing FC to
FC must agree and stipulate that it if has no access courts due to no license is
RA, service must be made to the SEC (135) NOT to prevent it from doing single
acts or isolated transaction.
If no license did business? It cannot sue or
intervene in any court or administrative What is prevented is acquiring
agency domicile without taking steps
necessary amenable to suits to local
But may be sued for valid cause courts.
Is it the fact of no license that prohibits? No, No FC shall be permitted to transact
the doing of business without a license without a license
(Universal Shipping v. IAC)
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
SC; Isolated transaction only, the
prohibition does not apply. Delivery tons of steel scraps

Transacting business is contuity of Nankai delivered and seller in Manila,

commercial dealings.
As there is an expiration of license,
Bulakhidas v. Navarro less than the agreed amount was
delivered
FC not engaged in business in
Philippines cannot sue Nankai claims lack of jurisdiction

License is not necessary in order for SC; FC barred, as the transaction is

FC may sue in Philippines if it is not incidental.
transacting business for a single
Continuity of business is evident.
Swedish East Asia v. Manila Court
Nankai sent its agent to look into
Erroneous discharge of cargo bound areas, thus looking for base of
for Hong Kong, SEA seeking to operations
return such
Facilities Management v. Dela Rosa
Manila Court did not allow
RA 5455, enumerates certain acts that
SC; FC performing single act/isolated would constitute doing or transacting
transaction business

Anta consolidated v. CA “Appointing a representative or

distributor domiciled in the
3 parties Philippines, unless… independent
status”
Due to failure to deliver, a 3rd contract
was made Thus mere appointment does not
necessarily be doing business.
Court ruled that 3rd contract is
continuity of business If it transacted business in its own
name (representative)
SC; FC may sue, as it does not amount
to commercial dealings. Opening of offices

3rd contract is due to failure not Any act that imply continuity of
attributable to it. dealings

Thus it is not to engage a continuing Communication Material and Design v. CA

transaction, but rather to…damages
suffered CMDI and domestic corporation
Far East v. Nankai Kogyo entered into an exclusive
representative agreement for the sale
1 contract, doing business
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
of Hi-Tec bags at stipulated property right, a right in rem, that it
commission. may assert in any courts of the world

Renewed with license agreement. Trademark acknowledges no territorial

boundaries
Developed similar products of CMDI
(Philips v. CA)
M2D filed
General Garments
Whether… is doing business in the
Philippines DC, registers Puritan

SC: In determining if FC doing Puritan corporation filed petition for

business or not, aside from activities, cancellation of the trademark, alleging
prior use
Contractual arrangement entered with
other entities WoN a FC who never transacted
business in the Philippines may
The agreement shows that there are enforce an action
provisions which are highly restrictive
in nature so as to reduce the other as SC; Trademark law allowing actions
merely an agent (no competing for infringement, whether licensed or
product clause, bind __ only in a not.
representative capacity)
Puma v. IAC
Petitioner is estopped to bar FC
access to our courts Puma filed a complaint for
infringement for using word Puma
Georg v. Isnani
Lower court ordered in its favor
Estopped to challenge personality of
corporation, after acknowledging the IAC reversed, lack of capacity to sue
same by entering into a contract
SC: It has capacity to sue, Paris
Art. 19, NCC Convention, Ph signatory in 1965

Western Equipment Lacoste

WE FC selling its products in Trademark Lacoste and crocodile

Philippines 1977

Defendant seeking registration 1982, French corporation Lacoste

filed cancellation
SC; WE does not seeks legal or
contractual obligation SC; Art. 189, RPC, violated, hence
Sole purpose is to protect its Sec. 21(a) of RA 166 is not applicable.
reputation, corp name, or good will, a In the 1st place, Lacoste is not doing
business in the Philippines.
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
transacting with it
While there is a exclusive distributor, (Communication Materials)
the latter has independent status Defending a suit filed against
(Rustan) it (Tan?)

It markets many other products Capacity to sue of FC must also be

affirmatively be pleaded in order to gain
Lacoste thus not doing business access courts

Assuming arguendo, that it is, If not? GR; case may be dismissed

violation of criminal statute, the
principal party is the State. ER; Violation of RPC (Lacoste);
Unnecessary or ineffectual (Olimpia)
No capacity to sue is too far fetched Defending a suit against it (Time v.
in criminal cases Reyes)

Paris convention, to avoid multiplicity Atlantic Mutual Insurance v. Cebu

of suits Stevedoring

To allow the local corporation to use, AMI, and Continental Insurance, FC

would be nugatory to trademark law.
Damages against Cebu
(v. Communication materials;
representative appointed has no Trial court, as failure to aver capacity
independent status)
Gave opportunity to amend the same,
GLEANED FROM ALL did not do so, hence dismissed

FC can sue in Philippine courts SC; Sustained lower court

Single transaction/isolated Averment is only FC

transaction (Marshall Wells,
Swedish) 2 possibilities, doing or not doing
Does not seek to enforce any
legal or contractual rights 1st duly licensed to maintain suit
arising out of business
transaction contracted in the 2nd no such license is required to
Philippines (Antam, Western maintain suit
Equipment)
Protection of corporate name, Olympia
trademark, trade name,
goodwill, or reputation (Capacity averment not necessary)
(Western Equipment, General
Garments) Ol Office, Hong Kong corporation,
Violation of RPC (Lacoste) shipped 300 portable typewriters to
Estopped to challenge Olympia Business, Philippines
personality of FC by merely California insured, FC
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Typewriters were lost in the storm Defendant insular life organized under
laws of New York, with license to do
California Insurance paid the value of business in the Philippines
the goods, and sued Razon
Plaintiff has 57 shares, less than 3% of
WoN California may be able to sue the OCS, sought to inspect and
examine books and records which was
SC; Yes, Olympia Business is local denied
corporation
SC; Plaintiff not entitled, New York
Capacity to sue no longer required law requires 3 percent or if it can be
shown that inspection is for specific
Time v. Reyes and honest purpose in good faith

Manila mayor and Enrile action (If Phil law, allowed, even if 1 share)
against Time Magazine, for article
corruption in asia 147; Amendment of FC licensed

Time filed for dismissal, as FC not File with SEC and appropriate…
doing business in the Philippines, authenticated copy of amendment
cannot be sued, for lack of jurisdiction
IF Amendment of corporate name or
Lower court, deferred motion to purpose must apply for amended
dismiss until after trial license (?)

Time filed certiorari, may Time Mere filing of authenticated

institute petition? copy not sufficient under 148

SC; Time is not here maintaining and Iba na pangalan o purpose,

suing, but merely defending one filed kaya dapat palitan
against it
149-153; Merger and Consolidation
FC may by writ of prohibition seek
relief wrongful assumption of Withdrawal of license
jurisdiction, on the ground of want of
jurisdiction will not be bound by the Petition subject to 3 conditions, all
ruling of the court, is it as if a M2Q must go hand in hand
service of summons
Conditions:
146; Laws governing FC
All claims accrued in the Philippines
All laws, rules, and regulations, had been paid and settled and/or
applicable to domestic corporations… compromised

Intracorporate governed by law of All taxes, interests, assessments, and

State of creation penalties due to Phil. Government had
MB (?) v. Insular Life been paid
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Publication for 1/3 Dissolution

All must go hand in hand Forfeiture of all assets (Title XIV

Revocation of license 159; Unauthorized name of corporate name

INVESTIGATIONS OFFENSES AND 10k to 200k

PENALTIES (154-172)
160;
154; SEC investigate violation of Code, R R
and order 10k to 200k at the discretion of the
court
155; Administer oaths, subpoena witnesses
and documents Permanently dq from being such

156; Cease and desist, reasonable belief, If injurious to public 20k to 400k
violate or is about to violate code r r o
Records
Order, desist from committing act
10k -200k 20k to 400k
Ex parte, enjoin person
Without prejudice to contempt
Max period of 20 days, permanent if powers
due notice and hearing OR
administratively (58), transmit Reports inaccurate false misleading statements
evidence to DOJ for investigation
criminal prosecution for violation of c 20 to 200, 40 to 40
rro
Contempt order 163; Independent Auditor

Fails to comply to any lawful order 80 to 500, 100 to 600

Fine not exceeding 30k Corporate registration thru fraud

Open defiance, daily fine 1k until 200k to 2m, 400k to 5m

complied with
Fraudulent conduct (165)
158; Administrative sanctions
200 to 2m, 400k to 5m
Fine 5k to 2m pesos
Acting as intermediaries (166)
Not more than 1000/day for
continuing violation Used for fraud in corruption

Permanent cease and desist 100k to 5m

Suspension or revocation of CoI Failure to install safeguards, prima

facie evidence
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA

Engaging in intermediaries 179 powers of SEC

100k to 1m No court below CA shall issue

restraining orders… in any case
500k to 1m dispute that interferes the exercise of
SEC powers
Retaliation from whistleblowers
180 electronic
100k to 1m
181 Arbitration agreement
170; Violation of any other provision of Code
Non arbitrable, criminal offense, 3rd
10k to 1m parties

Corporations; be dissolved before the Enforcement:

SEC
Number of arbitrators
Separate from civil and criminal liability under Procedure for appointment
code and other laws
Tribunal to rule on question
171; Liability of…
Intra corporate dispute
Corporation, upon discretion of court
Dismiss case prior to pre trial
Aiders and abettors conference if found to include the
same
Not exceeding imposed on principal Power to grant interim measures to
offender ensure enforcement

173-188 Miscellanous Final arbitral, executor after 15 days

173 definition OCS Stay? Only through bond or issuance

of appeate court of injuctive writ
174 designation of governing board of non-
stock and other corporation Jurisdiction over partylist

By any other appropriate name, Transferred to COMELEC

directors or others
Applicability of Code
175; Sec to collect and to retain…
Effect of amendment or repeal of Code
176; public interest
(Discussed inrelation to dissolution)
NEDA recommend legislature limit of
stock ownership Will not affect rights for or against

177 reportorial requirements 185-188 self explanatory

CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Took away original and exclusive
SPECIAL LAWS jurisdiction of SEC, under Sec. 5 and
some of 5 of PD 902 A transferred to
PD 902-A as amended appropriate RTC, designated by the
SC
Granted SEC broad and extensive
powers and authority Designation, November 2000, they are
now known as Special Commercial
Admin, regulatory, investigatory, Courts, 1 per region, or 1 in each city
adjudicatory (q-jud) in MM, except Makati, Manla, and
QC, they have 2 each
Only SEC functioning as q jud in the
world Only these courts can hear and decide
cases Sec. 5 and 6 is 902 A
Gained importance as q jud in
controversial cases Sec. 5(a)

Chem Phil; where control of Devises or schemes amounting to

corporate affairs between fraud… detrimental to public…
siblings, where one sought
military, the other pnp, tanks Orasa v. CA
facing each other Kingley v. CA
Aleje v. CA
BLTB case; death of at least 5
persons, including 2 SG, Even if collection of sum of
money, must be SCC
Ayala corp; decrease of
directors to disenfranchise Aleje v. CA
minorities, (10 members of the
Board, 10% to be a guaranteed Complainant allege Aleje as
a seat, if reduced to 5, 20% is officer…fraud in order to divert funds
needed) and assets to personal use, resulting to
financial losses
PAL Rehab case;
It is a NSC
Main task; promote capital market, minimize
market manipulation in the sale of securities Circumstances constituting fraud, must be
stated particularly, to come within ambit of
CA 83 SCC, otherwise, regular courts (Abad v. CFI)

Interport case Sec.5b; Intra corporate controversies

BW resorts scandal; bringing collapse
of SE, being more published one, Issue of conflicting opinions

RA 8799 enacted became effective Sunset view v. Campos (1981)

August 2000 Philex (1982)
Ubion Glass v. CA (1983)
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Then,Any and all controversies so Thus, if no valid transfer, RTC can
long as there is intra corporate have jurisdiction (Rivera)
relationship between parties, SH, M,
D, T, some or all of them and If valid transfer, CS released,
corporation, and the corporation and registration requirement waived,
the State, only transferee technically and legally
deemed SH, (Abejo)
1984; single tiered rule qualified
(PSBA v. Leano) for intra corporate to If conflict involves enforcement of Code,
exist, req: jurisdiction is within SCC

1. There must be intra If requires mere determination of

corporate relationship; and contractual… ordinary trial courts can acquire
2. Controversy must arise out jurisdiction
of that relationship
Sec. 5(c) election appointment and removal of
Peneira v. IAC 1990; petitioner was corporate directors…
awarded to operate canteen, arose out
of violation, not intra SCC, not NLRC

Contractual breach, separate and PSBA v. Leano

distinct from corporate relationship. Andaya
Luzon
Controversy did not arise out of Espino
intracorporate relationship, RTC may
have jurisdiction Any controversy in election…elected
or appointed, SCC
Right of a transferee of Shares to compel
transfer registration, assuming transferee is nt Even if officer concerned may not be
yet on records, hence 3rd person. Intra? a SH of corporation

It depends (endorsement and Payment of backwages, other

delivery): benefits…will not opearate to prevent
SCC from exercising its jurisdiction,
1986; Rivera v. Florendo, no, Rivera for so long as officer is elected or
as transferor refuse to endorse stock appointed by the BoD
certificate to alleged transferee
If main cause of action recovery of unpaid
No intracorporate, not yet SH, wages? No, does not assert the his right to the
3rd person office, purely labor dispute. Then NLRC
(Midland Construction v. Movilla)
Abejo v. Dela Cruz 1987, yes, CS
endorsed and delivered to transferee Main consideration to determine within SCC
with knowledge from corporation. or NLRC; whether officer…asserts his right
Valid transfer having been complied to such office, or questions proprietary of
with removal/ouster, SCC

Receivership and suspension of payments 5(d)

CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA

Now FRIA, 2010 Suspension of lending operations

Sec. 6(d) Appointment of management Limitation of operations to mere

committee receiver board or body collection of receivables, as well as
inability of FWCC of pressing
READ PROVISION obligations, supports conclusion that
imminent danger of dissipation, loss,
2 requisites that SCC may appoint a ManCom, wastage
board or body
SC; affirmed SEC of appointment of
Shichim v. CC Ho and Sons (2006) ManCom

1. Shown corporate property is danger Appointment warranted.

of being wasted or
destroyed…diverted for purpose; and PD 902 A governed by other rules
2. Serious paralysation of operations
to detriment of SH parties litigants or Interrim rules on intra
general public Supplemented by RoC, in sofar as
applicable
Absence showing of danger loss
wastage and paralysis, mere Venue (5 Rule 1) must be instituted before
apprehension of future SCC where principal office of corp located or
misconduct…will not authorize established
appointment of Man Com
NOT where the defenaant or
RJ Jacinto v. First Credit Women’s petitioner resies

Biggest lending then FWCC e.g. San Fernando Pampanga, SH residence.

Intra corporate controversy against BoD of
RJ Jacinto, mere disagreement among corporation.
SH, suffice as ground to appoint
ManCom, at least if there is no Where instituted?
imminent danger
Cabanatuan, as it is where Region III
Management should not be removed SCC
from Board, if Man Com appointed,
replace BoD, managerial powers Service of pleadings (Sec. 6 R. 1)

Where dissension cannot successfully Fax or email if authroized by the court

carry on corporate function,
appointment is imperable Prohibited pleadings Sec. 8 R.1

Finding of external auditors, not Motion for postponement

questioned by RJ Jacinto, support the Dismiss
petitioner continuos… FWCC funds Recon
transferred to RJ group of companies, Extension
there was a drastic reduction of…
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
EXCEPT; compelling reasons
Replaced the then Revised Securities
Service of summons Act (BP 178)

Villa rosa v. Benito Effective 8 August 2000

Only upon officers named in Aim, establishing a free securities

statute market that regulates itself, encourage
participation of ownership in
If other persons? Service enterprises, and promote development
insufficient of capital market, protect investors,
minimize fraudulent and other forms
Sec.5 R.2., deemed adequate if made of market manipulation in the sale of
at any statutory or corporate officers securities (State Policy, Sec.2)
as fixed in BL or RESPECTIVE
secretaries Deviation from as Marry Regulation

e.g. SF Pampanga, case filed in Nueva Ecija, Then, SEC determines by

summons served upon one of directors, itself if security is worth
neither president. Treasurer, in house… investing into

Service valid? Now, full disclosure rule, as

long as full and complete
Yes, statutory officer of corporation? disclosure relative to the issue
at hand, public will determine
If BL provide assistant finance manager worth risking into
elected by the board, served upon him?
Fraudulent and manipulative devices
Yes, or any as fixed in BL are more clear and spelled out

Secretary of finance manager? Old; penal, fine no less than 5

to 50k, and/or imprisonment
Yes, or their respective secretaries 7 to 21 at the discretion

Thus, EB Villarosa applies only if NOT intra Now, Sec. 73, 50k to 5m
corporate disputes Securities (Sec.3)

Sec. 4 R.1. Includes

SoS
Decisions or orders of SCC are Bonds
executory in nature Notes
Evidence of indebtedness
UNLESS; restrained by appellate …
court Certificates (club shares)

LAST PART Last enumeration, broad and

encompassing, to include any
Securities Regulation Code (RA 8799)
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
investment similarly situated with the Even if securities involved are registered
above pursuant to registration statement, cannot be
registered by any person
Securities cannot be sold offered for
sale or distributed to public without Coursed through duly licensed broker,
registration filed and approved by dealer or salesman (Sec.28), all
SEC registered under SEC (3. something

Offered for sale to public, e.g. You cannot go to Stock Exchange

more than 19 persons to sell, must be through private sale.

Violation of Sec. 8 3.3. Broker; person engaged in buying

and selling for account of others
Sec. 73 may be imposed
3.13 Salesman; natural person
Is registration always necessary? employed by issuer, dealer, or broker

No, if securities covered by Sec. 9 and 2002 bar q: Tender offer Sec.19
10
Point in time where 60% of bar is
Exempt securities commercial

9.2 (READ) Examiner former SEC chairman

Lopez
Exempt transactions
Any person, or group of persons who
10.2 (READ intends to acquire 15%... or of a
corporation with assets of 50m pesos
e.g. Hospitals then, selling shares to and having 200 or more SH with at
more than 19 persons, they sought least 100 shares each…
exemption from registration.
How will you know 50m
Made mention that it will be sold to assets or 200 or more SH or at
medical practitioners. least 200 of them holding 100
shares each so as not to violate
(SEC taking second look at this, as it tender offer rule (IF violated,
is no longer the case must make tender offer)?
Check records of SEC
Manny Pangilinan holds shares in
medical practitioners, Proxy solicitation (Sec.20)

SEC may add or remove any security Broker or dealer who holds or acquire
as exempt security or transaction if proxy for at least 10% shall submit
enforcement in the public interest and report to SEC the beneficial owners
protection of investors) within 10 days of acquisition

Contents: Proxy statement, form

CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Violation? Sec. 73 Will increase value of goods
Nag market nang good,
Sec. 30, independent director rule supervisor, area director each
has commission, will definitely
Copied and made part of RCC increase

Issue came as to ID 8 years ago, this Mid 80s

ID rule would be asked in the Bar
22 players employing investment
Equitable PCI contract scheme

Elected ID, whose qualification was Ladia issued CDO against them for
placed in issue selling a security without registration
statement filed and approved by SEC
Sec.38, at least 2 independent
directors e.g. Operator – A-BCD

ID; person not officer or employee of In a 7 level number of persons

corporation, parent, subsidiaries or involve, 1287, x 500 = 1.093k will
any individual SRC Rule 38, must not make
own or hold 2%
NOT allowed, investment contract,
ID elected was a director of a needs filing…
subsidiary of E PCI
Ogane Group of Companies
3rd day resigned
IOUs to more than 19 persons
Investment contract
Induced particular person to invest
Involves agreement for placement of money to them, with a promise rate of
money for profit return, 10-15% a month

(Pyrammiding/ Ponzi Scheme v. Multi e.g. Operator to Maria, 1m, in

level marketing under Consumer exchange of IOU, 10-15%/ month
Protection Act enforced by DTI)
Money not invested, how will they pay
Without any goods or services Maria?
involved, amounts to investment
contract. They will induce another person, cash
used to pay Maria
Cannot be issued or offered
for sale to the public without If more than 19 persons, investment
registration statement filed and contract)
approved by SEC
People v. Petralgo
If goods or services involved, DTI
(Avon Natasha 1st quadrant) Foreign exchange trading, which is
also an investment contract
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Except, if it is misused as a means to
SC; touchstone of investment, create a false or misleading appearance
presence of investment in common of active trading in the particular
venture premised on the reasonable security
expectation of profits to be derived
solely from entrepreneurial and In the above case, 1 buy 1 sell
managerial efforts of others order does not create false or
misleading appearance of
Such that an investor uninformed,… active trading, except.
transaction generally …
Painting the tape
Fraudulent and other forms of market
manipulation Buying and selling of security to
increase or decrease price of security
Wash sale 24(a)(i) during normal trading hours

Transaction of security, no change in Trading hours: 9am to 12 noon

beneficial ownership thereof
e.g. 7 brokers to engage in activity
e.g. (1997) X player in SE, holds 100m
shares of particular security 9:15, placed an order for sale of 1m
shares for 1.10
X calls his broker B1, sell 1m of Z
company at 1.10 each. B2, 9:18, to buy 1m shares at 1.10

After a minute, called broker 2, buy B3 9:45 To sell 1m shares at 1.30

1m shares of Z company for 1.10 each
B4 9:47 buy 1m for 1:30
Wash sale. A kinuha share sa right
pocket, nilipat sa kaliwa, no change in B5 ….
beneficial ownership of shares
B7 11:30 1.80
Matched order 24(a)(ii)
Intended to increase, and in fact
Placing an order for the sale or increased during regular trading hours
purchase of security with the
knowledge that a simultaneous order Marking the close
of substantially the same size, time,
and price, will be entered by or for the Is placing an order for the purchase of
same or different parties sale or security at or near the close of
trading hour
e.g. Alam ni X na may nag place nang
sell order, sya din ang bumili, minatch At the end of the day, after 19 orders,
lang nya yung sell order 11:59, 2.00 per share, nobody can
acquire those shares as 12 noon is end
Are they illegal? No, per se of time
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
He did that for 9 months, at the end What happens? Demand is great, the
of the day gone up to 119/ share, thus price is high, as to the 400.
119 million pesos (Fraudulent
manipulative in nature) Short sale (24.2.)

King of Macao Stanley Ho (prior to 1997); No definition

lone owner of all casinos in Macao before
foreign entities allowed Sale of security that no person shall
employ shall employ short sale
Ho invited to invest in particular EXCEPT
company in Philippines. Fear that
once China takes them back, will no Sale of security which the vendor does
longer allow gambling. not own hold or possess

Ho did come to the Philippines, but Can a person who does not own hold
never made any investment. possess sell? Yes, just like sale of
goods, you don’t own it but when the
Return to Macao, shares dropped. time comes to comply, you have it.
Brokerage firm called clients to sell
shares now, everybody followed. Old law; reverse, short sale is illegal if
not in accordance…
45 to 12 to 5 per share
Hence, not illegal per se, as
Squeezing the float SEC never had any R and R
on short sale
Holding on to security with intent and
in view of reselling them later for Now; no person shall employ short
profit sale EXCEPT in accordance…

e.g.ACS of corporation used to be 1b Hence, illegal now.

shares. Increased to 2b shares.
Today Ladia is not aware of
But, when it was increased they used any such R and R allowing for
underwriters for the sale of some of such
the increase in capital stock
T3/4 Rule
Underwriters undertook to sell
securities for and in behalf of the T3 used in Phil. Trade today, 3
issuer corporation, either on a best days later comply with your
effort method, or they themselves buy part of the obligation
the shares
e.g. nagbenta ka shares
Assume UW x 3, A B C, 200m each. mo today (27), 3 days
Thus 600m in the increase of 1b. later, deliver SHS.
Result? Squeeze in the flow, as only Wala ka today but on
400 is available for subscriptions by the day you have, there
the general public. is compliance
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
Rumors of 9/11
Bar Q: Manila Gas has shares being
American airlines shares being traded in the SE, engaged in discovery
traded to Germany stock of national gas, was able to discover
exchange one of commercial quantity. BoD did
not disclose to SEC and PSE, instead
Following day, no more called brokers to buy shares of MG
release was held before they undertook to a printer to
print the particular matter for its
To Ladia’s belief, it may have distribution to general public. Before
been banned by the FBI or printer did his job, also called his
CIA broker, to buy shares of MG for
particular issue.
Bin Laden’s friend, knew fact
of use of American airlines to Thereafter, disclosed matter to SEC.
smash building of New York What violation did the BoD and/or
9/10, X sold 10m shares of printer commit?
AAL, at 1.10/ share, sold it
for 1 dollar, sayang din 10 Insider trade, any person who
cents to A acquires information hence
even the printer
X walang 10m shares nang
AAL Civil liabilities in violation of the Code (58-61)

9/11, event 63; amount of damages to be awarded

9/12 drop in shares at 50 Not exceeding triple of the amount of

cents, due to possible liabilities transaction plus actual damages and
that may attach to AAL exemplary if any and atty fees not
exceeding 30% of the award
Hence, X earned more.
Ladia; bat mo papakialaman
Allowed before, but now, no atty’s fees, eh kung pumayag
more. client ano ngayon

Insider trading Sec. 27 Settlement offers (Sec. 55)

No person may trade in a particular Party or parties being investigated

security while in possession of a
material non-public information May propose settlement with SEC

If there is any matter would Limitation of actions (62)

effect of increasing or
decreasing particular security Similar to old law
must be disclosed with SEC
and PSE They must be brought within 2 years
after discovery of fact
Defines insiders (3.8.)
CORPORATION LAW 2019-2020, 2nd Sem
Atty. Ruben Ladia PJA
And within 5 years after CoA accrues