FRATERNAL ORDER

SCHOOL OF LAW

OF

ATENEO DE MANILA UNIVERSITY

UTOPIA
ARIS S. MANGUERA

PHILIPPINE CORPORATE LAW
Commercial Law Review

OUTLINE
(1) Nature of Corporations (2) Formation and Organization of Corporations (3) The Corporate Entity (4) Powers of Corporation (5) Stockholders (6) Board of Directors (7) Officers (8) Meetings (9) Books and Records (10) Mergers and Consolidations (11) Non-Stock Corporations (12) Close Corporations (13) Educational Corporations (14) Religious Corporations (15) Dissolution (16) Foreign Corporations

1.2 Advantages and disadvantages of the Corporate Form
CLV ADVANTAGES (1) Strong Personality (2) Centralized Management (3) Limited Liability to the investors (4) Free Transferability of Units of Investments
Sundiang (page 249)

DISADVANTAGES (1) Abuse of Corporate Management (2) Abuse of Limited liability feature (3) High cost of maintenance (4) Double Taxation (5) Lack of Personal Element

ADVANTAGES
(1) The capacity to act as a legal unit; (2) Limitation of, or exemption from, individual liability of shareholders; (3) Continuity of Existence (4) Transferability of Shares; (5) Centralized management of BoD; and (6) Standardized method of organization, and finance (Salonga, Phil. Law on Private Corps, 3rd ed., page 9.)

DISADVANTAGES
(1) More complicated in formation and management; (2) Higher cost of formation and operation; (3) Lack of personal element; (4) Greater governmental control and regulation; (5) Management and control are separate from ownership; Stockholders have little voice in the conduct of business

1. NATURE OF CORPORATIONS
1.1 Concept of the corporation
Sec. 2. Corporation defined. A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence.

Advantages:

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FRATERNAL ORDER
SCHOOL OF LAW

OF

ATENEO DE MANILA UNIVERSITY

UTOPIA
ARIS S. MANGUERA
CLV: There are ways to circumvent the law to make the shareholder liable for more than his actual share (ex. The chairman makes himself joint debtor for a loan) When a person invest its property in the corporation, he abdicates his “jus” of ownership One of the advantages of the corporation is the limitation of an investor’s liability to the amount of investment, which flows from the legal theory that a corporate entity is separate and distinct fro its stockholders. (San Juan vs. CA) It is hornbook law that corporate personality is a shield against personal liability of its officers- a coporate officer and his spouse cannot be personally liable under a trust receipt where he entered into and signed the contract clearly in his official capacity. (Consolidated Bank vs. CA) Obligations incurred by the corporation acting through its directors, officers and employees, are its sole liabilities. (Malayang Samahan vs. Ramos)

1) Strong Legal Personality - The corporation has a legal capacity to act and contract as a distinct unit in its own name; and it has continuity of existence. A corporation’s creation, organization, management and dissolution are standardized as they are governed by a general incorporation law. A corporation is an entity separate and distinct from its stockholder. While not in fact and in reality a person, the law treats the corporation as though it were a person by process of fiction or by regarding it as an artificial person distinct and separate from its individual stockholders. (Remo vs. IAC) Stockholders vs. Register of Deeds The transfer of corporate assets to the stockholder is not in the nature of a partition but is a conveyance from one party to another. 2) Centralized Management - A corporation’s management is centralized in the board of director’s. A corporation presents a more stable and efficient system of governance and dealings with third parties, since management prerogatives are centralized in its board of directors. As can be gleaned from Sec 23 of Corporation Code, it is the board of directors or trustees which exercises almost all the corporate powers in a corporation. (Firme vs. Bukal) - The exercise of the corporate powers of the corporation rest in the Board of Directors save in those instances where the Corporation Code requires stockholder’s approval for certain specific acts. (Great Asain Sales Center vs. CA) 3) Limited Liability to Investors- The liability in a corporation is limited to their shares. Provided by jurisprudence only Simple division between “naked title” and “beneficial title” gives rise to limited liability. Peculiar only between the shareholders and a corporation Underlying Principle: Principle of Relativity CLV’s formula: Strong Juridical Personality + Centralized Management= Limited Liability

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CLV Class Notes Q: Is a corporation in our jurisdiction given the feature of limited liability? A: No. The feature of limited liability is given to the stockholder and not to the corporation. Q: Is limited liability a normal run of things? A: No. It is only there because it comes with the separate juridical personality Q: If limited liability as shown in the corporation setting is good for the investors, does it mean that delectus personarum is a bad thing? A: No. It is good in a way, since person are bound by the contracts they enter into.

4) Free Transferability of Units of Investments - As a general rule, the shares of stocks can be transferred without the consent of other stockholders. This places more liquidity in the corporate setting and encourages investors to channel their investments through corporate vehicles. Authority granted to corporations to regulate the transfer of its stock does not empower the corporation to restrict the right of a stockholder to transfer his shares, but merely authorizes the adoption of regulations as to the formalities and procedure to be followed in effecting transfer (Thomson vs. CA) 5) Advantages as registered Entity-

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FRATERNAL ORDER
SCHOOL OF LAW

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ATENEO DE MANILA UNIVERSITY

UTOPIA
ARIS S. MANGUERA
2) PARTNERSHIPS- The most important distinction between a partnership and a corporation is their legal capacities. A corporation has a stronger legal capacity. Enabling it to continue despite death, insolvency or withdrawal of any of its stockholders or members. Limited Liability is a main feature in a corporate setting, whereas partners are liable personally foe partnership debts. Generally, every partner is an agent of the partnership and by his sole act, he can bind the partnership whereas in a corporation, only the Board of Directors or its agents can bind the corporation. Here are the features of a partnership: Delectus Personarum Selection of Partners; No outsider can come in without the consent of all partners Prevents the development of any market for units of ownership because of no assurance that buyers would be able to become partners Mutual Representation Power to Dissolve Mutual Agency Each partner can legally bind the business enterprise Business may be undermined by act of one foolish partner Unlimited Liability Community of Interest Co-ownership of capital or property
CLV Class Notes Q: How does contractual management of a corporation compare with the management of a partnership? A: Every partner, in the absence of a stipulation in the articles of partnership, binds the partnership as every partner is an agent of the others. In a corporation, only the Board of Directors and not the stockholders can bind the corporation. CLV: The principle in constitutional law that delegated power cannot be delegated further has no application in a corporate setting because a corporation is not a product of political text- it is a product of business. A corporate setting is best described as hierarchal and fiat. Just because the BoD are to be elected by the stockholders does not mean that the former derives its power from the latter. The powers of the BoD is original, said powers are not delegated by the stockholder. The powers are vested by law (and Articles of Incorporation). The BoD sit on the board not as representatives of the stockholders but because they are directors. Q: What are the 2 types of partnerships?

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Corporations enjoy perpetual succession under its corporate name and in an artificial form; it has the capacity to take and grant property, and contract obligations; it can sue and be sued in its corporate name as a juridical person; it has the capacity to receive and enjoy common grants of privileges and immunities; and its stockholders or members generally have no personal liability beyond their shares.

Disadvantages of Corporate Form 1) Abuse of Corporate Management- In a practical sense, investors have very little voice over the conduct of business of the corporation. 2) Abuse of limited liability feature- Limited liability feature has tended to increase transaction cost by the parties being forced to enter into contractual schemes skirting the limited liability of the corporation when it is a party to a transaction. Limited liability hits innocent people. 3) High cost of maintenance- Complicated and Costly Formation and Maintenance. There is a greater degree of governmental control and supervision. 4) Double Taxation- The profits if the corporation which are already subjected to corporate income tax when declared and distributed as dividends to the stockholders are again subjected to the further income tax. Dividends received by individuals from domestic corporations are subject to final 10% tax fro income earned on or after January 1, 1998 (Section 24(B)(2), 1997 NIRC). Inter-corporate dividends between domestic corporations, however, are not subject to any income tax (Sec. 27 (D)(4), 1997 NIRC). In addition, there is re-imposition of the 10% “improperly accumulated earnings tax” for holding companies (Sec 29, 1997 NIRC) 5) Lack of Personal Element- This has spawned corporate irresponsibility.

1.3 Differentiated from business organizations

partnerships

and

other

1) SOLE PROPRIETORSHIP- Here, it is the owner who controls the business while in a corporation, it is the Board of Directors.

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But if it were Cervantes or Bormacheco.e. Sacrifice. are not liable for action foe settlement of the alleged partnership contribution. it would be foolish to put all my eggs in one basket(if the basket falls. A: Regular and joint venture Q: Can a corporation be a partner in a regular partnership? A: No. then they are to be held liable as partners. Q: What is a corporation law all about? A: It is all about jurisprudence actually built around the 4 attributes of a corporation. there was no intent on the other parties to enter into a partnership but a corporation. Fishing Gear Industries Q: What is the difference between Pioneer and Lim Tong Lim? A: In Pioneer. If I have 100M. In PIONEER. do not become partners with other subscribers who engaged in the business under the name of pretended corporation. It is against public policy for corporation to be a partner in a regular partnership. he should have actively participated in the conduct of the business. (so. who entered into the contracts using the corporate name and actively participated in the activities of the corporation. I bleed. both corporate and partnership relationship are fundamentally contractual relationships created by the co-venturers. This is the concept of Leveraging. Q: Why did the legislature put such limited liability as an attribute of a corporation? If the feature of limited liability costs money then why not take it out? Why not leave it up to the investors who can decide if they want limited liability or not? A: Even though limited liability will cost a lot of money. Q: Why are we taking up Pioneer? Why were not they liable? A: Because Pioneer shows us that for a person to be liable as a partner. MANGUERA b) Parties who took no part except to subscribe for stock in a proposed corporation. since there was no intention to do so ans to be held liable as such. This is why borrowing is an integral part of corporate life and it is up to the creditors to make a diligent appraisal of the credit standing of the corp. you have to possess powers of management. In Lim. and is mainly governed by contractual doctrines and common law principles on trust. As to Cervantes and Bormacheco.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. they cannot be considered to have entered into a partnership inter se.(i. there are important differences between a corporation and the partnership. If the corporation fails. a partnership inter se is created or a corporation by estoppel? A: It depends wholly on the extent of the participation of the party who claim is being mind. because a partner must be a natural person. yung intention is controlling)Second. It does not have separate juridical personality. Q: Does a Defective Incorporation result into a Partnership? A: No. I retain the 10M plus profits acquired from the 90M paid up loan. Excellence A-4 . Q: In cases where there is a defective attempt to form a corporation. Lim Tong Lim vs. the contract is actually distinguished. So I merely out 10M in one corp and then borrow the 90M while the rest of my money I put somewhere else. Phil. But if the corps succeeds and I get to pay my creditor. I do not lose all my 100 M. the SC held in this case that to be able to be held liable the person should possess powers of management business. borrowing makes a lot more sense. the SC held in this case this case that to be able to be held liable the person should possess powers of management. then you are also liable as a partner CLV: Pioneer caseactors who knew of corporation’s nonexistence are liable as general partners while actors who did not know are liable as limited partners. 3) BUSINESS TRUST. Limited liability. the SC stopped when it declared that to be liable. and would be liable for partnership obligations. I soar… Service. centralized management. passive investors are not liable.It is simply a deed of trust which is easier and less expensive to constitute for it is not bound by any legal requirements. Trust relationship I sweat. using other people’s money to make a profit for yourself. Q: What is the main distinction between a corporation and a partnership? A: A corporation is intermingling of corporation law and contract law. easy transferability of units of ownership) Summary of the doctrinal pronouncement in PIONEER INSURANCE case: a) Parties who intended to participate or actually participate in the business affairs of the proposed corporation would be considered as partners under a de facto partnership. it continues its pronouncement by saying that you have beneficial ownership over the business. all eggs break). Partnership is purely contractual relationship and so every time a partner dies. Lim Even passive investors should be held liable provided they benefited from such transactions. First. which is the prevailing rule.

The sociedades anonimas were introduced in the Philippine jurisdiction on 1 December 1888 with the extension to Philippine territorial application of Articles 151 to 159 of the Spanish Code of Commerce. Joint venture is an association of persons or companies jointly undertaking some commercial enterprise. The general assembly in full membership exercises all the rights and performs all the obligations of the cooperative.an artificial being. Those articles contained the features of limited liability and centralized management granted to a juridical entity. (Primary objective: SELF HELP) Cooperatives are established to provide a strong social and economic organization to ensure that the tenant-farmers will enjoy on a lasting basis the benefits of agrarian reforms. CLV Class Notes Q: What is the difference of a Business Trust and a corporation? A: The relationship in a business trust is essentially a trust relationship.A sociedad anonima was considered a commercial partnership where upon the execution of funds and personal property. Therefore. and sell property. every joint venture is a partnership. (Kilosbayan vs. and which places naked tile in the trustor and the beneficial title in the beneficiary. which may be altered by agreement to share both in profit and losses. and existing only in contemplation of law. buy. It is a form of partnership and should thus be governed by the law of partnerships. intangible. and to sue and be sueda corporation. Such inscription only operated to show that it partook of the form of a commercial corporation. (Mead vs. The distinction between the two is a joint venture is for a limited purpose only while a partnership involves an arrangement or an on-going concern. (Art 1772) - It is a duly registered association of persons. Guingona) CLV Class Notes Q: What is the difference between a joint venture and a partnership? A: A joint venture is by law a partnership because it follows the same definition as having two or more persons binding themselves together under a common fund with the intention of dividing the profits between themselves. (Benguet vs Pineda) I sweat. I bleed. who have voluntarily joined together to achieve lawful common social or economic end. Excellence A-5 . They are under the supervision and control of the Cooperative Development Authority. invisible. become a juridical person. a right to direct and govern policy in connection therewith. It has a juridical personality distinct from its members and has a limited liability feature. - 4) JOINT VENTURES Its legal concept is of common law origin. It requires a community of interest in the performance of the subject matter. all contribute assets and share risks. I soar… Service. when the joint venture forms a corporation.a corporation. with a common bond of interest. Q: Is the requirement of registration needed in a partnership required in a joint venture? A: No.not a general co-partnership nor a limited copartnership… The inscribing of its articles of agreement in the commercial register was not necessary to make it a juridical person. But they were more similar to the English joint stock companies than the modern commercial corporations. it hen becomes a joint venture corporation. Cooperatives are governed by principles of democratic control where the members in primary cooperatives have equal voting rights in a one-member-onevote principle. Sacrifice. making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles. Grospe) 5) COOPERATIVES 6) SOCIEDAD ANONIMAS . Q: Is it possible for a joint partnership not be a partnership? A: Yes. McCullough) . and duty. The business trust does not have a personality which is apart from the trustor of the trustee/beneficiary. (Corpuz vs. generally. The concept of a separate juridical personality is absent from a business trust. MANGUERA centered upon properties. Only in a partnership is registration required.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S.with power to hold.

the failure to comply with the statutory procedure and conditions does not warrant a finding that such association acquired a separate juridical personality. (Tayag v. A corporation is an artificial being created by operation of law. Torres v. 278 SCRA 793 (1997). where a duty under the law as ascertained in an appropriate legal proceeding is cast upon it. on the other hand. cf. Those who contract with the person under whose name the business of such partnership of cuentas en participacion is conducted. International Express Travel & Tour Services. . 5 SCRA 645 (1962) “It is a basic postulate that before a corporation may acquire juridical personality. nevertheless. Catindig Class Notes Q: How does government regulate corporations? A: From creation to dissolution xxx Homeowner’s HLURB Condos SEC Cooperative Bureau of Cooperative Development - Our corporation law recognizes the difference between sociedades anonimas and corporations and will not apply legal provisions pertaining to the latter to the former. This theory is essentially followed in the Philippines.5 Kinds of Corporations (a) Stock (b) Non-Stock (c) De Facto I sweat. comes more often within the ken of the judiciary than the other two coordinate branches. Benguet Consolidation) 1. sell.A cuentas en particiapacion as a sort of an accidental partnership constituted in such manner that its existence was only known to those who had an interest in the same. . As a matter of fact. (Bourns vs.(Phil Product vs. v. must abide by the provisions of the Corporation Code. shall have only a right of action against such person and not against the other person interested. shall have not right of action against third person who contracted with the manager unless such manager formally transfers his rights to them. even when it adopts sets of constitution and by-laws. 343 SCRA 674 (2000). a corporation. Correlatively. is not a matter of absolute right but a privilege which may be enjoyed only under such terms as the State may deem necessary to impose. MANGUERA To organize a corporation that could claim a juridical personality of its own and transact business as such. it is not immune from judicial control in those instances. there being no mutual agreement between the partners. big or small. Court of Appeals. Carman) 1. v. and the latter. It owes it life to the state its birth being purely dependent on its will. I soar… Service. Primateria Societe Anonyme) 7) CUENTAS EN PARTICIPACION . I bleed.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. Sacrifice. Ang Pue & Co. once it comes into being. then even a simple family corporation cannot claim an exemption nor can it have rules and practices other than those established by law. governed under Article 239 of the Code of Commerce. Corporate by-laws must yield to judicial orders. Sec. lease and encumber property can only be construed the grant of a juridical personality to such an association . of Commerce and Industry. Theory of Concession Theory of Concession: Looks at a corporation as a creature of the State within the control of the latter. Excellence A-6 . and without a corporate name indicating to the public in some way that there were other people besides the one who ostensibly managed and conducted the business. Although the statutory grant to an association of the powers to purchase. Inc. It institutes the appropriate court action to enforce its right.4 Government Regulation of Corporations Basis: Section 2 of Corp Code.” and the procedure and conditions provided under the law for the acquisition of such juridical personality must be complied with. the State must give its consent either in the form of a special law or a general enabling act. Since all corporations. Court of Appeals.

I bleed. In proceeding against such. except as may be covered by specific provisions of this Title. De facto corporations The due incorporation of any corporation claiming in good faith to be a corporation under this Code. a non-stock corporation is one where no part of its income is distributable as dividends to its members. 3. Nature of the Doctrine • De facto corporation is formed also in accordance with law. or officers. trustees. 20. and its right to exercise corporate powers. (a) Stock Sec. incorporators may sue but the corporation cannot sue) Only the actors will be held liable. MANGUERA taxation. it may sue and be sued. a corporation may be considered a non-stock corporation for purpose of • If the constitutionality of the statue is raised for the first time in an action wherein it is sought to prevent future incurring of I sweat. 87. UV) (d) Corporation by estoppel (e) Close (f) Educational (g) Religious. Corporations formed or organized under this Code may be stock or non-stock corporations. (n) • Elements: (Arnold v. shall be applicable to non-stock corporations. Sec. subject to the provisions of this Title. whenever necessary or proper.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. All other corporations are non-stock corporations. The doctrine of de facto corporation applies as to the first level relationship (as between the State and corporations) and also to the third level of relationship. I soar… Service. it may thus enter into contracts. compliance with due process must be had. For the purposes of this Code. Sacrifice. (b) Non-stock Sections 3 and 87. It falls short of the requirements provided by law. subject to the provisions of this Code on dissolution: Provided. Sole and Aggregate (h) Special Charter (i) Foreign (j) GOCC (k) Homeowner’s Association (c) De facto Sec. (note: third parties may sue the corporation. when pertinent. Such is awarded a separate juridical personality. The provisions governing stock corporation. In spite of the existence of capital stock. be used for the furtherance of the purpose or purposes for which the corporation was organized. That any profit which a non-stock corporation may obtain as an incident to its operations shall. Definition. Classes of corporations. Such inquiry may be made by the Solicitor General in a quo warranto proceeding. Corporations which have capital stock divided into shares and are authorized to distribute to the holders of such shares dividends or allotments of the surplus profits on the basis of the shares held are stock corporations. Excellence A-7 . (CIR v. shall not be inquired into collaterally in any private suit to which such corporation may be a party. Club Filipino) • Mere realization of profits does not make a corporation a stock corporation. Piccio) (1) Valid Law under which it is incorporated (2) Attempt in good faith to incorporate (3) Assumption of corporate powers (1) Valid Law under which it is incorporated • • See page 902 of CLV’s Commercial Law Reviewer (2007). (Collector v.

to allow the public to take at reasonable face value the authority of the corporation to enter into valid and binding contracts. will the de facto doctrine apply? A: Yes. liabilities and damages incurred or arising as a result thereof: Provided. Parties dealing with said corporation are secured by the fact that the transactions entered into with said corporations may be sued upon and they can recover. On who assumes an obligation to an ostensible corporation as such. That when any such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such. • The Corporation must have filed its Articles of Incorporation and the SEC duly issued a Certificate of Incorporation. That is why aside from the other two requisites there must be a set of officers or directors because the principle that a corporation can only act through its officers. (The incorporators must have been aware of the issuance of the certificate of incorporation by the SEC for such good faith to exist. Rationale • To prevent any party from raising the defect of authority as a means to avoid fulfillment of a contract or a transaction entered into. Courts. Catindig Class Notes Q: Is a corporation by estoppel a corporation? (3) Assumption of corporate powers: Minimum requirement: Election of BoD. Corporation by estoppel All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts. (2) Attempt in good faith to incorporate. 21. CLV Class Notes Q: What is minimum requirement for a corporation by estoppel to exist? A: There must be an innocent party who believes that a corporation exists (believes in good faith) because of representations. where there have been previous dealing between the parties on a corporate basis. The doctrine is meant to apply to extra –corporate dealings and not to intra-corporate relationship CLV Class Notes • • I sweat. Excellence A-8 . where the constitutionality of the statue is raised for the first time in litigation seeking enforcement of contracts or transaction which have been fully or partially consummated. rights and obligations.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. since the corporation should be treated as a de facto corporation. holding that a corporation organized under a statute subsequently declared unconstitutional may nevertheless be considered a corporation by estoppel. cannot resist performance thereof on the ground that there was in fact no corporation. however. it shall not be allowed to use as a defense its lack of corporate personality. collateral attack on the juridical personality of the corporation should not be permitted. I soar… Service. through jurisprudence. (d) Corporation by estoppel Sec.colorable compliance. however. To protect the enforceability of corporate dealings and contracts. So for me the concept is merely historical. no separate liability CLV: The de facto doctrine was formulated to safeguard the security of commercial transactions whenever they involve the corporation. MANGUERA Q: If a member of a public deals with a corporation knowing its defect.) (Mere intent is not sufficient) Catindig Class Notes Sir: Once there is a certificate issued. it will be proper to permit collateral attack. because (a) juridical personality cannot be subject to collateral attack (b) No juridical entity. I bleed. arrived at the same result as that upheld by such minority opinion. Sacrifice. there is no de facto corporation.

Q: How does government regulate corporations? A: From creation to dissolution xxx Homeowner’s HLURB Condos SEC Cooperative Bureau of Cooperative Development UP Class Notes COMMENT: The doctrine is founded on principles of equity and is applied n order to prevent injustice and unfairness to third persons visà-vis the corporation (or vice versa as in par. 2 Section 21). A failed consolidation therefore cannot result in a consolidated corporation by estoppel. Court of Appeals. Steamship Pompey. the doctrine applies when persons assume to form a corporation and exercise corporate functions and enter into business relations with third persons. De Los Santos. knowing it to be without valid existence. I soar… Service. I bleed. Lozano v. (See definition in Section 2) The parties are the one made liable-ASM. there is no corporation by estoppel.  Express Travel Int’l v. In this case the International Express Travel seeks to enforce a valid contract. In the last point. Under the law on estoppel including that under Sec. 1 [1911] but that case pertained to a commercial partnership which required registration in the registry under the terms of the Code of Commerce). 49 Phil. 25 of Corporation Code which provides that all persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all the debts. Excellence A-9 . One who deals with an organization which is not duly incorporated is not estopped to deny its corporate existence when his purpose is not to avoid liability. 117 (1926). • Founded on principles of equity and designed to prevent injustice and unfairness. 4 Phil. Ohta Dev. it is the Federation and Henri Kahn who wish to do it injustice by trying to evade responsibility thereon. the CA possibly tried to apply paragraph 2 Section 21. 21 of Corporation Code. Where no third person is involved in the conflict. 343 SCRA 674 (2000). those acting on behalf of an ostensible corporation and those benefited by it.1 A: No. and cannot be denied or disproved as against the person relying thereon. Sacrifice. MANGUERA corporation for the transportation of its merchandise. Philippine Fishing Gear Industries. v.. and engage in the name of the purported corporation in illegal recruitment. they are estopped from claiming that they are not liable as corporate officers under Sec. Inc. 274 SCRA 452 (1997) Two Levels (1) With Fraud (2) Without Fraud • • A party cannot challenge the personality of the plaintiff as a duly organized corporation after having acknowledged same when entering into the contract with the plaintiff as such When the incorporators represent themselves to be officers of the corporation which was never duly registered with the SEC. 1 I sweat. 174 SCRA 681 (1989). 317 SCRA 728 (1999). are held liable as general partners. • A person who accepts employment in an unincorporated charitable association is estopped from alleging its lack of juridical personality. • • Nature of Doctrine • An admission or representation is rendered conclusive upon the person making it. Christian Children’s Fund v. liabilities and damages incurred or arising as a result The same principle applied in Compania Agricole de Ultramar v.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. albeit mistakenly. NLRC. Co. Reyes. Lim Tong Lim v.

96. 117010. The corporation shall not be listed in any stock exchange. People v. within the meaning of this Code. No. Definition and applicability of Title. made in recognition of the fact that the overwhelming majority of the corporations are family corps. but it is the wife who is actually running the corp.. or the contract is recissible) (e) Close Sec. b) we will have nine (9) directors. public utilities. insurance companies. Only if they are not willing to buy can he offer it to an outsider. a corporation shall not be deemed a close corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation within the meaning of this Code. educational institutions and corporations declared to be vested with public interest in accordance with the provisions of this Code. People v. That the provisions of other Titles of this Code shall apply suppletorily except insofar as this Title otherwise provides. Because they're engaged in lines of business vested with public interest and so they should be subject to regulation and close scrutiny. A close corp. banks. he must first offer it to the other stockholders. But corps. damages and liabilities incurred.R. • Corporation by estoppel applies to save the contract but juridical entity is then broken down to make actors liable. I sweat. So they may provide: a) we will classify these shares into class a. In many family corporations here. Sacrifice. MANGUERA Any corporation may be incorporated as a close corporation.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. is controlled by another corp. like usually it will be provided that if a stockholder wants to sell his share. I soar… Service. oil companies. The law says that the mere fact that a corp. banks. Engaged in mining. the set-up is such that the husband is the president. public utilities. stock exchanges. and corps. schools. Has a technical meaning in the law. Only the members of the family of the first brother can own class a shares. exclusive of treasury shares. Pineda. A close corporation. vested with public interest are not allowed to be close corps. Ex. (2) Without Fraud • Actors are liable as limited partner. is one whose articles of incorporation provide that: (1) All the corporation's issued stock of all classes. (2) all the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title. (Pari Delicto Doctrine. insurance companies. Garcia. the wife is the treasurer. the articles must provide that it cannot have more than 20 stockholders. I bleed. Tesoro Handicraft. There should be restrictions on the transfer of the shares. The law says the articles may provide for classification of shares and qualifications for owning them. Note: Both in bad faith: Corporation by estoppel does not apply. G. The husband is just the nominal figurehead. does not make it a close corp. If corporation sues the other party. shall be held of record by not more than a specified number of persons. then he must offer it to the corporation before offering to an outsider. • • Veil will be pierced to make corporators liable. and 3 will be thereof. it cannot resist obligation by saying that no corp exist. Or it may also provide that if no stockholder is willing to buy the shares. The articles must contain the features mentioned in the law. you have three brothers who form a close corp. Jack’s Lecture CLOSE CORPORATIONS This is a new title. The provisions of this Title shall primarily govern close corporations: Provided. Notwithstanding the foregoing. For example. except mining or oil companies. stock exchanges. and class c shares can be owned only by members of the 3rd brother. and (3) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class. class b. class c. “Corporation” cannot set up as defense that corp actually does not exist. not exceeding twenty (20). Excellence A-10 . 271 SCRA 621 (1997). 18 April 1997 (unpub). For it to be a close corp. (1) With Fraud • Actor is liable as a general partner for debts. Only members of 2 nd brother can own class b shares.

sect or church. priest. bishop. (n) Sec. 106. the Securities and Exchange Commission shall not accept or approve the articles of incorporation and by-laws of any educational institution. That the number of trustees shall be in multiples of five (5). Sacrifice. like there would be two thirds. a corporation sole may be formed by the chief archbishop. regulations and discipline of his religious denomination. Corporation sole For the purpose of administering and managing. (169a) elected by holders of class a shares. Such corporations may be classified into corporations sole and religious societies. bishop. Unless otherwise provided in the articles of incorporation on the bylaws. the affairs. (168a) Sec. 2. colleges. (154a) Sec. d) the articles may provide that if it's the stockholders and not the board who will manage the affairs and that there is no need for formal meetings. For institutions organized as stock corporations. And so the third group would want to be protected. 111. Pre-requisites to incorporation Except upon favorable recommendation of the Ministry of Education and Culture. • See page 706-736 of CLV’s textbook or page 909 of CLV’s Commercial Law Reviewer (2007). as trustee. That the rules. however. I soar… Service. 110. sect or church and that he desires to become a corporation sole. or other institutions of learning shall. then they will be subject to the same liabilities as directors. the number and term of directors shall be governed by the provisions on stock corporations. (g) Religious: sole and aggregate Sec. if the stockholders will be the directors. minister. It can be provided that you will need three fourths (3/4) majority to approve any action by the board. Excellence A-11 . sect or church are not inconsistent with his becoming a corporation sole and (f) Educational Sec. Incorporation Educational corporations shall be governed by special laws and by the general provisions of this Code. occurring before the expiration of a particular term. (n) Sec. property and temporalities of any religious denomination. minister. Trustees elected thereafter to fill vacancies caused by expiration of term shall hold office for five (5) years. Why? Because each group would want to be protected for otherwise if the two groups combine they can get anything approved. the chief archbishop. Board of trustees Trustees of educational institutions organized as non-stock corporations shall not be less than five (5) nor more than fifteen (15): Provided. Classes of religious corporations Religious corporations may be incorporated by one or more persons. any action by the stockholder. • See page 917 of CLV’s Commercial Law Reviewer (2007). That he is the chief archbishop. sect or church. shall hold office only for the unexpired period. as soon as organized. The powers and authority of trustees shall be I sweat. c) can provide for a greater quorum or voting requirements. rabbi or other presiding elder of such religious denomination. priest. 107. minister. sect or church must file with the Securities and Exchange Commission articles of incorporation setting forth the following: 1. A majority of the trustees shall constitute a quorum for the transaction of business. rabbi or presiding elder of any religious denomination. Articles of incorporation In order to become a corporation sole. MANGUERA defined in the by-laws.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. so classify themselves that the term of office of one-fifth (1/5) of their number shall expire every year. I bleed. Trustees thereafter elected to fill vacancies. priest. 108. Religious corporations shall be governed by this Chapter and by the general provisions on non-stock corporations insofar as they may be applicable. bishop. rabbi or presiding elder of his religious denomination. the board of trustees of incorporated schools. 109.

MANGUERA Any corporation sole may purchase and hold real estate and personal property for its church. priest. priest. which place must be within the Philippines. (158a) Sec. Dissolution do not forbid it. rabbi or presiding elder. (n) Sec. minister. priest. charitable. duly certified by any notary public. for the use. bishop. 4. (n) Sec. sect or church within his territorial jurisdiction. purpose. describing such territorial jurisdiction. duly certified to be correct by any notary public. behalf and sole benefit of his religious denomination. and the intervention of the courts shall not be necessary. rabbi of presiding elder is required to be filled. bishop. certificate of election. and accompanied by a copy of the commission. rabbi or presiding elder of any religious denomination. as the case may be. including hospitals. benevolent or educational purposes. 115. schools. before filing. From and after the filing with the Securities and Exchange Commission of the said articles of incorporation. priest. priest. and may receive bequests or gifts for such purposes. duly verified. That as such chief archbishop. holding. estate and properties of the religious denomination. sect or church. 3. sect or church. such rules. The place where the principal office of the corporation sole is to be established and located. certificate of election or letter of appointment of such chief archbishop. The articles of incorporation may include any other provision not contrary to law for the regulation of the affairs of the corporation. regulations or discipline of the religious denomination. religious society or order concerned represented by such corporation sole regulate the method of acquiring. regulations or discipline of the religious denomination. rabbi or presiding elder. 114. I soar… Service. bishop. and that it is to the interest of the corporation that leave to sell or mortgage should be granted. (159a) Sec. Sacrifice. according to the rules. priest. rabbi or presiding elder in a corporation sole shall become the corporation sole on their accession to office and shall be permitted to transact business as such on the filing with the Securities and Exchange Commission of a copy of their commission. I bleed. Such corporation may sell or mortgage real property held by it by obtaining an order for that purpose from the Court of First Instance of the province where the property is situated upon proof made to the satisfaction of the court that notice of the application for leave to sell or mortgage has been given by publication or otherwise in such manner and for such time as said court may have directed. sect or church incorporated as a corporation sole. verified by affidavit or affirmation. sect or church represented by the corporation sole to administer the temporalities and manage the affairs. and 5. minister. priest. minister. The application for leave to sell or mortgage must be made by petition. minister. bishop. Submission of the articles of incorporation The articles of incorporation must be verified. Excellence A-12 . bishop. bishop. by affidavit or affirmation of the chief archbishop. sect or church theretofore administered or managed by him as such chief archbishop. selling and mortgaging real estate and personal property. colleges. or letters of appointment. orphan asylums. regulations and discipline shall control. minister. Acquisition and alienation of property I sweat. estate and properties of his religious denomination. rabbi or presiding elder shall be held in trust by him as a corporation sole. and may be opposed by any member of the religious denomination. the person or persons authorized and empowered by the rules. bishop. such chief archbishop. rabbi or presiding elder acting as corporation sole. minister. sect or church represented by the corporation sole: Provided. minister. regulations and discipline of the religious denomination. by the chief archbishop. The manner in which any vacancy occurring in the office of chief archbishop. rabbi or presiding elder shall become a corporation sole and all temporalities. bishop. 113. That in cases where the rules. parsonages and cemeteries thereof. rabbi or presiding elder. priest. During any vacancy in the office of chief archbishop.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. bishop. minister. Filling of vacancies The successors in office of any chief archbishop. priest. and accompanied by the documents mentioned in the preceding paragraph. sect or church to which he belongs. minister. estate and properties of the corporation sole during the vacancy shall exercise all the powers and authority of the corporation sole during such vacancy. he is charged with the administration of the temporalities and the management of the affairs. 112.

or discipline of the religious denomination. and residences of the trustees elected by the religious society or religious order. MANGUERA 3. sect or church. supplemented by the provisions of this Code. or diocese. or district organization desiring to incorporate is not forbidden by competent authority or by the constitution. Religious societies Any religious society or religious order. or district organization is a religious organization of a religious denomination. at a duly convened meeting of the body. sect or church. articles of incorporation verified by the affidavit of the presiding elder. The place where the principal office of the corporation is to be established and located. organized or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state. • See page 918 of CLV’ Commercial Law Reviewer (2007). Upon approval of such declaration of dissolution by the Securities and Exchange Commission. nationalities. Corporations created by special laws or charters Corporations created by special laws or charters shall be governed primarily by the provisions of the special law or charter creating them or applicable to them. 123. may. or district organization of the religious denomination. setting forth the following: 1. or diocese. That the religious society or religious order. 3. I soar… Service. regulations or discipline of the religious denomination. the board of trustees to be not less than five (5) nor more than fifteen (15). or the diocese. 2. rules. (h) Special charter Sec. or district organization to serve for the first year or such other period as may be prescribed by the laws of the religious society or religious order. properties and estate by filing with the Securities and Exchange Commission. or any diocese. I bleed. which place must be within the Philippines. Definition and rights of foreign corporations For the purposes of this Code. sect or church of which it is a part. properties and estate. or district organization. (n) Sec. (i) Foreign Sec. or of the diocese. regulations. insofar as they are applicable. unless forbidden by the constitution. or diocese. sect or church. 4.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. secretary. synod. Sacrifice. or diocese. (160a) A corporation sole may be dissolved and its affairs settled voluntarily by submitting to the Securities and Exchange Commission a verified declaration of dissolution. The names and addresses of the persons who are to supervise the winding up of the affairs of the corporation. synod. synod. The names. upon written consent and/or by an affirmative vote at a meeting called for the purpose of at least twothirds (2/3) of its membership. 116. or church of which it forms a part. The reason for dissolution and winding up. 4. synod. the corporation shall cease to carry on its operations except for the purpose of winding up its affairs. or district organization desires to incorporate for the administration of its affairs. incorporate for the administration of its temporalities or for the management of its affairs. or district organization of any religious denomination. The declaration of dissolution shall set forth: 1. Excellence A-13 . sect or church. It shall have the right to transact business in the Philippines after it shall have obtained a I sweat. synod. and 6. synod. or clerk or other member of such religious society or religious order. The name of the corporation. a foreign corporation is one formed. sect. That at least two-thirds (2/3) of its membership have given their written consent or have voted to incorporate. 4. 5. 2. That the religious society or religious order. rules. The authorization for the dissolution of the corporation by the particular religious denomination. or by competent authority. That the incorporation of the religious society or religious order. synod.

v. 583 (1924). Cervantes v. v. for they pertain to the educational. NLRC. (n) • See page 799 of CLV’s textbook or page 946 of CLV’s Commercial Law Reviewer. that its governing board are appointed by the Government. Bliss Dev. NLRC. 237 SCRA 271 (1994). PUP v. its grantees. The test to determine whether a corporation is government owned or controlled. yet it is certain that the functions it performs are basically proprietary in nature—the promotion of economic and social development of Central Luzon.. and its funds and assets are not considered government in nature and not subject to audit by the COA. a GOCC has a personality of its own.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. I bleed. Therefore. Is it created by its own charter for the exercise of a public function. the rule that prescription does not run against the State will not apply to BCDA. 196 SCRA 176 (1991). Boy Scouts of the Philippines v. Corp. license to transact business in this country in accordance with this Code and a certificate of authority from the appropriate government agency. • A corporation is created by operation of law under the Corporation Code while a government corporation is normally created by special law referred to often as a charter. Shipside Inc. MANGUERA artificial bodies of its own creation. Court of Appeals. but it also does not have proprietary functions in the same sense that the functions or activities of government-owned or controlled corporations. Collector of Internal Revenue. 91 Phil. The doctrine that employees of GOCCs. and are compulsory members of the GSIS. 359 (1952). or under the 1987 Administrative Code as an instrumentality of the Government. Employees Union v. Excellence A-14 . • (j) GOCC • Government’s majority shares does not make an entity a public corporation. the fact that it received a special charter from the government. particularly. civic and social development of the youth which constitute a very substantial and important part of the nation. 312 SCRA 47 (1999) While public benefit and public welfare may be attributable to the operation of the Bases Conversion and Development Authority (BCDA). 368 SCRA 691 (2001). or private in nature is simple. and the country’s goal for enhancement. although • Although Boy Scouts of the Philippines does not receive any monetary or financial subsidy from the Government. distinct and separate from that of the government. it being said that when title of the Republic has been divested. Court of Appeals. Camparedondo v. Auditor General. National Coal Co. 46 Phil. Calleja. Sacrifice. I soar… Service. is may still be considered as such. and it employees are subject to the Civil Service Law. Beyond cavil. and the intervention in a transaction of the Office of the President through the Executive Secretary does not change the independent existence of a government entity as it deals with another government entity. it is not a public corporation in the same sense that municipal corporation or local governments are public corporation since its does not govern a portion of the state. But being a GOCC makes it liable for laws and provisions applicable to the Government or its entities and subject to the control of the Government. are in the same category as ordinary persons. 352 SCRA 334 (2001). whether created by special law or formed as subsidiaries under the general • • • • I sweat. and its employees are under the jurisdiction of the Civil Service Commission. and that its purpose are of public character. or by incorporation under the general corporation law? Those with special charters are government corporations subject to its provisions.

who know that it has not been registered. • Section 31 of Corporation Code (Liability of Directors and Officers) is applicable to corporations which have been organized by special charters since Sec. 201 SCRA 593 (1991). subsidiaries. Feliciano v. v. authorities and responsibilities vested in the Corporation with respect to homeowners association under Republic Act No. 1. However. delos Angeles and Anda (June 19.6 Cases Lozano v. Home Guarantee Corporation. 209 SCRA 55 (1992). there is no corporation by estoppel. 201 SCRA 487 (1991). March 7. Subject to existing laws. and where there is no third person involved and the conflict arises only among those assuming the form of a corporation. and neither can it be conferred by the acquiescence of the court. has been supplanted by the 1987 Constitution. 580. Excellence A-15 . including those with special or individual charters. Water districts can validly exists as corporate entities under PD 198. Sacrifice. operational. the HLURB is hereby authorized to create additional positions and augment its present budget as may be needed for the operation and maintenance of the newly created unit or office as a consequence of the transfer of functions and powers. Pending the approval of the HLURB Revised Staffing Organizational Plan and release of budgetary allocations thereof. 269. Davao City Water District v. 2000. I bleed. such assistance shall not extend beyond a period of 1 year from the date of effectivity of this Act. Powers over Homeowners Associations. enlarged or diminished by. and administrative assistance to the HLURB as may be mutually deemed necessary to ensure smooth turnover of functions. Commission on Audit. NLRC. which shall have its principal office in Metropolitan Manila and shall exist for a period of 50 years from December 15. • Corporation by estoppel is founded on principles of equity and is designed to prevent injustice and unfairness. The present doctrine in determining whether a GOCC is subject to the Civil Service Law is the manner of its creation. Benguet Electric Cooperative. PNOC-Energy Development Corp. • • Registration is made before the HLURB.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. I soar… Service. such that government corporations created by special charter are subject the Civil Service Law. The powers. while those incorporated under the general corporation law are governed by the Labor Code. 1997) • The doctrine of corporation by estoppel cannot override jurisdictional requirements. 8763 (March 7. 4 of Corporation Code renders the provisions supplementarily applicable to all corporations. NLRC. v. 419 SCRA 363 (2004). MANGUERA establish such offices. any act or omission of the parties. corporation law are governed by the Civil Service Law and not by the Labor Code.jurisdiction is fixed by law and cannot be acquired through or waived. or branches anywhere in the Philippines as its operations would require and its Board of Directors would determine. the Corporation shall extend technical. The Home Insurance and Guarantee Corporation is hereby renamed as the Home Guarantee Corporation. Civil Service Commission. and provided they are government-owned or controlled.D. and their board of directors and other personnel are government employees subject to civil service laws and anti-graft laws. 2000) Republic Act No. 535 is hereby transferred to the Housing and Land Use Regulatory Board (HLURB). agencies. so long as those provisions are not inconsistent with such charters. such as cooperatives organized under P. 2000) Section 4. Inc. as amended by Executive Order No. hereinafter refereed to as the Corporation. Section 26. The Corporation may I sweat. (k) Homeowner’s Associations (Section 4 and 26 of RA 8763.

I soar… Service. Sacrifice. These laws actually requires that before an entity be considered as a national sports association such must recognized by the accrediting organization (i. No. 3135 and P. however the President of the Federation failed to substantiate. the petitioner is not trying to escape liability but rather is the one claiming it.e. PAAF). 604 recognized the juridical existence of national sports association.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. It is only applied to a third party when he tries to escape liability on a contract from which he has benefited. (3) The doctrine of corporate estoppel is not applicable. However. 2000) (1) The Federation has no juridical personality. I bleed. In the case at bar. Excellence A-16 .D. Indeed. The corporate status of these associations does not automatically take place. R. This fact of recognition. This may even be gleaned from the powers and functions granted to these association.A. (2) The President must be held liable in accordance with the principle that any person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and become personally liable for contracts entered into or for other acts performed as such agent. MANGUERA International Express Travel v. CA (October 19. these laws only provided the manner by which these entities may acquire juridical personality. I sweat.

Excellence A-17 . it is voidable. 8799]) CLV Class Notes Q: Differentiate a promoter from an incorporator.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. Q: At the promoter’s stage there is no juridical personality until SEC issues the certificate of Incorporation.a mere board resolution making the corporation liable by accepting the contract and (2) implied ratification. It is not binding upon the corporation because it has not given consent to the authority of the person or agent who had undertaken the transaction. 2. Before you can make a promoter liable. Number and qualifications of incorporators Any number of natural persons not less than five (5) but not more than fifteen (15). may form a private corporation for any lawful purpose or purposes. He must be the one who takes initiative on the founding and organization of the business venture which eventually ends up as the corporation being organized. the stage of the de facto corporation has not yet been reached. what then is the status of the contract entered into by a promoter for and in behalf of the person or agent who had undertaken the transaction? A: Unenforceable. Nature of Pre-incorporation Agreements • Under Sec 60 any contract for the acquisition of unissued stock in a corporation still to be formed shall be deemed a subscription within the meaning of the Corporation Code. FORMATION AND ORGANIZATION OF CORPORATIONS (Page 617 of CLV’s Commercial Law Reviewer) 2. or unless the incorporation of said corporation fails to materialize within said period or within a longer period as may be stipulated in the contract of subscription. A: A promoter begins or initiates the formation of a corporation while an incorporator is one of the initial members of the SH’s CLV: The definition of promoter is important to determine the liability for promoter’s contract. what is the essential ingredient of such doctrine? A: Where there is a representation that a corporation exists when in fact there is none and at least one party thought there was a corporation. Sacrifice. from the date of subscription. MANGUERA must be able to determine who is the promoter. a subscription for shares of stock of a corporation still to be formed shall be irrevocable for a period of 6 mos. Q: What is the effect of promoter’s contract on the corp and other contracting parties? A: As to the corp. • Under Sec 61. Prior to the de facto corporation stage. (Sec. you I sweat. no pre-incorporation subscription may be revoked after the submission of the articles of incorporation to SEC. Until the certificate is issued.by accepting of benefits. However. Each of the incorporators of a stock corporation must own or be a subscriber to at least one (1) share of the capital stock of the corporation. it is valid and enforceable Catindig: Promotion is not a necessary stage! 2. 3.10. Q: How can ratification be done? A: Ratification can be done in two ways: (1)express ratification.A. all of legal age and a majority of whom are residents of the Philippines. Who are promoters? • “Promoter” is a person who. as to other contracting parties. unless all of the other subscriber consent to the revocation.2 Steps in formation of a corporation (a) Promotion CLV Class Notes PROMOTER’S CONTRACT CORP BY ESTOPPELDE FACTO or DE JUREDISSOLUTION Q: In order to reach the level of corporation by estoppel. Securities Regulation Code [R. acting alone or with others. I soar… Service. I bleed. 10.1 Who may form a corporation? Sec. takes initiative in founding and organizing the business or enterprise of the issuer and receives consideration therefor.

Corporate name No corporate name may be allowed by the Securities and Exchange Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive.”. I bleed. • Subscription agreements are “special contracts” in the sense that they go beyond what we would term as ordinary contracts. MANGUERA (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) Corporate Name Primary Purpose Secondary Purpose or purposes Principal Office Term Incorporators Incorporating directors Capital Classification of shares Subscribers Treasurer-in-trust Special provisions • Secs 60 and 61 have effectively adopted in our jurisdiction a fused version of both “contract theory” and the “offer theory” in defining the nature of pre-incorporation subscription agreements.. the Commission shall issue an amended certificate of incorporation under the amended name. Inc. I soar… Service. Co.” The partnership name shall contain the word “Company” or “Co.construes subscription agreement as only continuing offers to proposed corporations. The corporation name shall contain the word “Corporation” or its abbreviation “Corp. Teodoro Sandiko. the word “Limited” or “Ltd. a contract entered into in behalf of a corporation yet to be organized or still in the process of incorporation is void as against the corporation (Cagayan Fishing Dev. Sacrifice. The obvious result of the offer theory is that it allows withdrawal of subscriber at least before the corporation comes into existence and accepts the offer. SEC MEMO CIRCULAR NO. Although subscription agreements are contracts between the subscriber and the corporation. (a) Corporate Name Sec. 65 Phil. o Contract Theory. 223 [1937]) Subject: Revised Guidelines in the Approval of Corporate and Partnership Names In implementing Section 18 of the Corporation Code of the Philippines (BP 68). o Offer Theory. Excellence A-18 .FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. they are at the same time deemed to be contracts among the stockholders of the corporation. When a change in the corporate name is approved. v. which offer does not ripen into a contract until accepted by the corporation when organized.A subscription agreement among several persons to take shares in a proposed corporation becomes a binding contract and is irrevocable from time of subscription. 18. unless cancelled by all parties before acceptance by the corporation. confusing or contrary to existing laws. the following revised guidelines in the approval of corporate and partnership names are hereby adopted for the information and guidelines of all concerned: 1.” shall be (b) Drafting of Articles of Incorporation What should be contained in the Articles of Incorporation? I sweat.” or “Incorporated” or “Inc. For limited partnerships. 14-2000 To: All Concerned Theories on Liabilities for Promoter’s Contracts • Without ratification by a corporation after its due incorporation.

confusing. “Finance”. unless there is consent from the registered firm or this firm is one of the stockholders of partners of the entity to be registered 11. of “Finance and Investment” by corporations or partnerships not engaged in the financing business (R. “Engineering”. If there are two (2) descriptive terms. 337. Sacrifice. 6. “Building and Loan Association”. the consent of the said person or his heirs must be submitted. 4. I bleed. As a matter or policy: “Investments” by corporations or partnerships not organized as investment house company or holding company “National” by all stock corporations and partnerships “Asean”. No. ii. MANGUERA the different words in the proposed name. No. iii. the first shall refer to the primary purpose and the second shall refer to one of the secondary purposes.A. 5. As provided by special laws: i. 5980. No. 7. “Financing”. The name which contains a word identical to a word in a registered name shall not be allowed if such word is coined or has already been appropriated by a registered firm. 8. Excellence A-19 . the word “Company” need not be used. as amended) “Engineer”. b.A. In case of professional partnerships. No. No. or “Architects” as part of the corporate name (R. as amended) “United Nations” in its full or abbreviated form cannot be part of a corporate or partnership name (R.A. or contrary to existing laws 3. the proposed name must contain at least one distinctive word different from the name of the company already registered. 10. iii. The following names shall not be used as part of a corporate or partnership name: a. 546 and R. or words of similar import by corporations or associations not engaged in a banking business (R. 2. No. or partner of a declared national hero. The name shall not be identical. 1582) “Bank”.A. The name of an internationally known foreign corporation. except if that person is a stockholder. v. member. 226 “Bonded” for corporations or partnerships with unlicensed warehouse (R. or one similar to it may not be used by a domestic corporation without the consent of the former 12.e. I soar… Service. misleading or confusingly similar to one already registered by another corporation or partnership with the Commission or a sole proprietorship registered with the Department of Trade and Industry.)” 13. “Calabarzon”. “Trust Corporation”. 245) included. The name of a dissolved firm shall not be allowed to be used by other firms within three (3) years after the approval of the dissolution I sweat.A. “Banker”. “Banking”. iv. “(Philippines)” or “(Phil. “Trust Company”.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. and “Philippines 2000” 9. Business or trade name of any firm which is different from its corporate or partnership name shall be indicated in the articles of incorporation or partnership of the said firm Trade name or trademark duly registered with the Intellectual Property Office cannot be used as part of a corporate or partnership name without the consent of the owner of such trademark or trade name If the name or surname of a person is used as part of a corporate or partnership name. If such person cannot be identified or is non-existent. i.A. ii. regardless of the number of 14. an explanation for the use of such name shall be required The meaning of the initials in the name shall be disclosed in writing by the registrant The name containing a term descriptive of a business different from the business or a registered company whose name also bears similar terms(s) used by the former may be allowed The name should not be patently deceptive. Terms descriptive of a business in the name shall be indicative of the primary purpose. The term “Philippines” when used as part of the name of a subsidiary corporation shall be in parenthesis: i. If the proposed name is similar to the name of a registered firm.

FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. Registrant corporations or partnerships shall submit al letter of undertaking to change their corporate or partnership name in case another person of firm has acquired a prior right to the use of the said name or the name is deceptively or confusingly similar to the one already registered.) Parties organizing a corporation must choose a name at their peril. as the law requires and not another name which it had not registered. or on its property. holding that “[a] corporation may be sued under the name by which it makes itself known to its workers. A corporation may change its name by the amendment of its articles of incorporation. 34 SCRA 252 (1970).. for example. regardless of intent. and has no effect on the identity of the corporation. or liabilities. and the reduction of difficulties of administration and supervision over • • I sweat. Hartigan. Universal Mills Corp. Corp. A corporation has no right to intervene in a suit using a name. Excellence A-20 . Well. the Telephone Directory is not owned by PLDT. Jack’s Lecture CORPORATE NAME No corporation name may be allowed if it is identical or deceptively or confusingly similar to that of any existing corp. Similarity in corporate names between two corporations would cause confusion to the public especially when the purposes stated in their charter are also the same type of business. and they are engaged in the same line of business. v. Universal Textile Mills Inc. PLDT is the one which merely collects the payment from the advertisers of the corporation by the Commission. 14. A change in the corporate name does not make a new corporation. if misleading or likely to injure the exercise of its corporate functions. Philippine First Insurance Co. You know. but the same is not effective until approved by the SEC. 279 SCRA 312 (1997). Laureano Investment and Dev. 78 SCRA 62 (1977). other than its registered name.” Pison-Arceo Agricultural Dev. the evasion of legal obligations and duties. Court of Appeals. 615 (1993). Industrial Refractories Corp. v. may be prevented by the corporation having a prior right. Corp. Ang Mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus v. Lyceum of the Philippines v. Iglesia ng Dios Kay Dristo Jesus. v. Court of Appeals. There would be no denial of due process when a corporation is sued and judgment is rendered against it under its unregistered trade name. v. The dominant word is universal. confusing or contrary to existing laws. whether a business or a nonprofit organization. the name will not be allowed if it uses a dominant word in the name of another corporation. Court of Appeals. and the use of a name similar to one adopted by another corporation. unless his undertaking is already included as one of the provisions of the articles of incorporation or partnership of the registrant These guidelines hall take effect fifteen (15) days after publication in a newspaper of general circulation • • • • • • See page 293 of CLV’s book for Guidelines in Corporate Name (SEC Memorandum No. v. and they both engage in the same line of business. the case of UNIVERSAL TEXTILE MILLS and somebody formed another corporation: UNIVERSAL MILLS. 372 SCRA 171 (2001). Court of Appeals. NLRC. I soar… Service. you have. not even its acronym. 216 SCRA 738 (1992). That is prepared by the General Telephone Directory Corporation. rights. 219 SCRA 610. Republic Planters Bank v.” The policy behind the foregoing prohibition is to avoid fraud upon the public that will occasion to deal with the entity concerned. unless allowed by the last stockholders representing at least a majority of the outstanding capital stock of the dissolved firm 15. I bleed. 390 SCRA 252 (2002). And that the way the jurisprudence has developed. Section 18 of Corporation Code expressly prohibits the use of a corporate name which is “identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive. 272 SCRA 253 (1997). Sacrifice. MANGUERA corporations. series of 2000.

Like UNIVERSITY. Also you cannot use Philippines 2000 as part of your corporate name. It means a school. UE cannot prevent others from using university as part of their name because it's a generic name. There was this Philippine corporation that wanted the name "Standard Phillips Corporation". 14. issued by the SEC. Now. Now. and you add another word which signifies that you are engaged in a different line of business. we will collect the payment directly. you have this case of Carlos Valdes. Like for example. it was updated 2002. when you apply. a very controversial character (Jack's side-story omitted ). And your clients are sophisticated big men. That is when existence begins. your son set up a consultancy firm. you could be allowed to use that if you add your line of business. containing substantially the following matters. the articles of incorporation shall state which is the primary purpose and which is/are he secondary purpose or purposes: Provided. Phillips is the dominant word… and both of them manufacture electrical appliances. On the other hand. They know that the two are different. magkaiba naman kayo ng line of business… you are in accounting. And the law prohibits the use of United Nations as part of the business name of any company. and you have somebody running a restaurant… so. But they don't own/publish that directory. you cannot use bank as part of your name. and they'll say: "NO! We are printing or own directory. There are many limitations found in the law. We filed a complaint with the SEC and the SEC ordered them to change their name because it is confusingly similar with General Telephone Directory. Valdes objected to that. if you are not a bonded warehouse. because it was a confusingly similar name. The same way Ateneo is a spanish word which means school. Court said: that is part of the name of Phillips Electrical Lamps. you cannot use that as part of your name. His son left his company and formed the VALDES CONSULTANTS. the Court has said that Lyceum of the Phils. you are not a financing company. Where a corporation has more than one stated purpose. you are not a bank. You can prevent another school from using that. Or. Ngayon ho. they will check. So. which says. The specific purpose or purposes for which the corporation is being incorporated. we will send our collector…" You file a crim case against them for estafa. But I think what has happened is the reverse… it is a generic term that has acquired secondary meaning. I sweat. The general Bonded (b) Primary Purpose Sec." And they will show it… and it is a thin directory. the accountant. I soar… Service. 2. cannot have an exclusive right to use lyceum because it is a generic term for schools. Contents of the articles of incorporation All corporations organized under this code shall file with the Securities and Exchange Commission articles of incorporation in any of the official languages duly signed and acknowledged by all of the incorporators. The SEC issued a memo circular in 1987. you have a Golden Pawnshop Incorporated. it says there you cannot use calabarzon or national as part of your corporate name. cannot prevent other schools from using LYCEUM because lyceum is a generic name. Well. in the yellow pages. the existence of a corporation begins at the time when you get your certification. But the SEC said: "Eh. The SEC will allow that." So the SEC allowed that. there was this bunch of swindlers who formed a corporation: GENERAL DIRECTORY. binago na ho 'yung set-up. So Lyceum of the Phils. except as otherwise prescribed by this Code or by special law: 1. Golden Restaurants Incorporated. architecture… as part of the corporate name because you cannot practice a profession.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. Sacrifice. I bleed. you cannot use certain name as part of your… like engineering. The name of the corporation. They would start contacting advertisers in the yellow pages: "Ay. you cannot use financing. MANGUERA Warehouse Act says. Phillips export. As for example. Now. That a non-stock corporation may not include a purpose which would change or contradict its nature as such. Excellence A-21 . Or any which consists of similar words… 'coz you know the records are computerized. And the one who verifies will list down all the names which are similar to what you have.

Excellence A-22 . as being prohibited collateral attack. Number and qualifications of incorporators. Gala v. Contents of the articles of incorporation xxx The place where the principal office of the corporation is to be located. may be extended for period not exceeding 50 years by an indefinite number of amendments (meaning that the corporation can virtually live forever).” Therefore. 418 SCRA 431 (2003). 119 SCRA 367 (1982). nationalities and residences of persons who shall act as directors or trustees until the first regular directors or trustees are I sweat.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. is supposed to insure or facilitate the accomplishment of said purpose. Tyson Enterprises. UP Class Notes Must be within RP so that service of summons may be easily made. • Not exceeding 50 years No extension of term can be effected once dissolution stage has been reached. 2006) (f) Incorporators Sec. 10.. • Therefore. 3 dated February 16. The articles of incorporation must state the primary and secondary purposes of the corporation. I bleed. Clavecilla Radio System v. That no extension can be made earlier than five (5) years prior to the original or subsequent expiry date(s) unless there are justifiable reasons for an earlier extension as may be determined by the Securities and Exchange Commission. MANGUERA articles of incorporation may be extended for periods not exceeding fifty (50) years in any single instance by an amendment of the articles of incorporation. Provided. The names. in turn. the Court brushed aside the contention that the corporations were organized to illegally avoid the provisions on land reform and to avoid the payment of estate taxes. while the by-laws outline the administrative organization of the corporation. • The best proof of the purpose of a corporation is its articles of incorporation and by-laws. which must be within the Philippines. xxx • • Place of residence of the corporation is the place of its principal office. Sy v. 19 SCRA 379 (1967) The residence of its president is not the residence of the corporation because a corporation has a personality separate and distinct from that of its officers and stockholders. Contents of the articles of incorporation xxx 7.. Alhambra Cigar v. as it constitutes new business. UP Class Notes Shall exist for a period not exceeding 50 years from the date of incorporation. 14. I soar… Service. SEC. Each of the incorporators of a stock corporation must own or be a subscriber to at least one (1) share of the capital stock of the corporation. Inc. all of legal age and a majority of whom are residents of the Philippines. Any number of natural persons not less than five (5) but not more than fifteen (15). no extension can be made earlier than 5 years before the expiry date unless there are justifiable reasons for the earlier extension • (c) Secondary Purpose (d) Principal Office Sec. may form a private corporation for any lawful purpose or purposes. a member can no longer exist as incorporator in a stock corporation. 11. which. Ellice AgroIndustrial Corp. Antillon. 24 SCRA 269 (1968). The corporate term as originally stated in the (g) Incorporating Directors Sec. Sacrifice. in accordance with this Code. (e) Term Sec. 14. Corporate term A corporation shall exist for a period not exceeding fifty (50) years from the date of incorporation unless sooner dissolved or unless said period is extended. establishes the residence of the corporation which is important in determining the venue of actions by or against the corporation (SEC Circular No.

however. only that they can not be incorporators. any of which classes or series of shares may have such rights. subscriptions made by a corporation will be included. 12. That there shall always be a class or series of shares which have complete voting rights. I bleed. public I sweat. xxx (h) Capital (i) (ii) (iii) (iv) (v) (vi) Authorized (Sec. You can form a subsidiary where 5 individuals will subscribe to 1 share each to qualify for the board —you must own at least 1 share to be an incorporator. MANGUERA the subscription must be paid. 6) Founder’s shares (Sec. Excellence A-23 . In computing 25-25 rule. and subject to the provisions of the following section. Sec.00) pesos. That no share may be deprived of voting rights except those classified and issued as "preferred" or "redeemable" shares. further. it is synonymous with outstanding shares.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. upon call for payment by the board of directors: Provided. or in the absence of a fixed date or dates. unless otherwise provided in this Code: Provided. 7) Redeemable (Sec. Jack’s Lecture 25-25 RULE When you form a corporation. 6) Preferred (Sec. 13) Paid-in surplus Outstanding Issued (iii) (iv) (v) (vi) Paid-up (Sec. I soar… Service. insurance companies. the rest of the shares will be subscribed by the holding corporation and that will satisfy the 25-25 rule. Amount of capital stock to be subscribed and paid for the purposes of incorporation At least twenty-five percent (25%) of the authorized capital stock as stated in the articles of incorporation must be subscribed at the time of incorporation. 13) Paid-up (Sec. Sacrifice. trust companies. the balance to be payable on a date or dates fixed in the contract of subscription without need of call. at least 25% of the authorized capital stock must be subscribed and at least 25% of (i) Classification of Shares (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) Common (Sec. because that holding corporation paid for the subscription. privileges or restrictions as may be stated in the articles of incorporation: Provided. That banks. Corporations can be subscribers. That in no case shall the paid-up capital be less than five Thousand (P5. 12) Subscribed (Sec. 8) Treasury (Sec. • (ii) Subscribed Contractually enforceable. and at least twenty-five (25%) per cent of the total subscription must be paid upon subscription. Minimum capital stock required of stock corporations Stock corporations incorporated under this Code shall not be required to have any minimum authorized capital stock except as otherwise specifically provided for by special law. 9) Convertible Participating Sec. duly elected and qualified in accordance with this Code. or both. Classification of shares The shares of stock of stock corporations may be divided into classes or series of shares. 6) Par Value and No par value shares (Sec. however. Any or all of the shares or series of shares may have a par value or have no par value as may be provided for in the articles of incorporation: Provided. 13. 13) Paid-in surplus • Paid in excess of par value Outstanding • Owned by parties other than the corporation itself Issued • Legally.000. (i) Authorized Sec. 6.

and 8. classify its shares for the purpose of insuring compliance with constitutional or legal requirements. I sweat. the holders of preferred shares get a first crack before the holders of the common shares get anything. may fix the terms and conditions of preferred shares of stock or any series thereof: Provided. (Page 84 of De Leon (2006) Preferred (Sec. Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the holder of such shares shall not be liable to the corporation or to its creditors in respect thereto: Provided. Page 84 of De Leon (2006) UP Class Notes Shares that carry a preferential claim either to dividend or assets but usually carries no voting rights. Dissolution of the corporation. where authorized in the articles of incorporation. only shares that can be deprived of voting rights Jack’s Lecture PREFFERED SHARES Preferences given to preferred shares should not violate the law. further. Increase or decrease of capital stock. The preferred shares may be given preference in the distribution of dividends. Adoption and amendment of by-laws. Except as otherwise provided in the articles of incorporation and stated in the certificate of stock. utilities. lease. I soar… Service. That shares without par value may not be issued for a consideration less than the value of five (P5. 3. That preferred shares of stock may be issued only with a stated par value. Amendment of the articles of incorporation. the vote necessary to approve a particular corporate act as provided in this Code shall be deemed to refer only to stocks with voting rights. exchange. Except as provided in the immediately preceding paragraph. The board of directors. Sale. That the entire consideration received by the corporation for its no-par value shares shall be treated as capital and shall not be available for distribution as dividends. each share shall be equal in all respects to every other share. mortgage. Or they may have preference in the distribution of the assets in case of liquidation. 6) • One with a stated par value which entitles the holder to certain preferences over the holders of common stock. Sacrifice. creating or increasing bonded indebtedness. and building and loan associations shall not be permitted to issue no-par value shares of stock. without any preference or advantage in that respect over other stockholder or class of stockholders except preferred stockholders. If the profits are not enough to give everybody dividends. Excellence A-24 . (i) (ii) Common (Sec. Incurring. You can not provide that holder of preferred shares will be paid ahead of the creditors of the corporation. Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code. Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets of the corporation in case of liquidation and in the distribution of dividends. A corporation may. or such other preferences as may be stated in the articles of incorporation which are not violative of the provisions of this Code: Provided. It must be noted that preferred shares must have par value. and you can not issue preferred shares with no par value shares. furthermore. 2. Merger or consolidation of the corporation with another corporation or other corporations. and in its assets upon dissolution. pledge or other disposition of all or substantially all of the corporate property. 6) • One which entitles the holder thereof to a pro rata division of the profits.00) pesos per share: Provided. I bleed. 4. That such terms and conditions shall be effective upon the filing of a certificate thereof with the Securities and Exchange Commission. Investment of corporate funds in another corporation or business in accordance with this Code. 5. if there are any. the holders of such shares shall nevertheless be entitled to vote on the following matters: 1.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. 7. MANGUERA 6.

he forms a corporation where his children will subscribe to no par value with stated value of P5 each.) NO PAR VALUE SHARES There are limitations on the power to classify shares of stocks. The five-year period shall commence from the date of the aforesaid approval by the Securities and Exchange Commission.00 will get the same.000 will have one(1) vote.000 no par value shares---no amount is mentioned. they are raking in the money.000. if you have a corporation with no par value shares. building and loan associations are not allowed to issue no par value shares. They said we should broaden our membership in order to raise more money to improve the facilities and to expand. Here's a father. Sacrifice. no amount will be mentioned. Suppose you now dissolve the corporation and distribute the properties by way of liquidating dividends. so the director says. That's why these banks. for example. When a corporation has no par value shares. so the director decided to declare a stock dividend---`we will have a stock dividend with a stated value of P300.00. the authorized capital stock shall consist of.000 will get P100.000 shares with a stated value of P10. You could keep the properties there. trust companies.000 each with a stated value of P5. because if its shares have no par value .you cannot see if it has satisfied the required minimum paid-up capital. Now. In other words.say. the ACS of the corporation consists of 10. (iii) Par Value and No par value shares (Sec. They are all equal irrespective of the stated value. But this was the scheme: Each owner of 1 founder share subscribed to 20 shares. 7) Sec. So.000 no par value shares. So pwedeng magbago-bago ang stated value. Excellence A-25 . the one whose no par value share with stated value of P10. • No par value share is one without any stated value appearing on the face of the certificate of stock.000 common shares which were then sold to the public. it will simply be. `ok. Like this Baguio Country Club. This is the way the father could dilute his transfer of properties.000 each. they probably own P20. this time with a stated value of (iv) Founder’s shares (Sec. he transfers all the properties to the corporation the children who subscribed with a stated value of P5 each. it must be for a limited period not to exceed five (5) years subject to the approval of the Securities and Exchange Commission. 10. it is a stock which does not state how much money it represents. etc. Then . that will be valid for 5 years only. insurance companies. If the corporation declares a dividend and says. They created 2. MANGUERA P10.has it met the minimum paid-up capital. and I sweat. `we will pay P100. the articles of incorporation states.00. provided that where the exclusive right to vote and be voted for in the election of directors is granted. the business was good. The articles were amended and those 100 shares were converted to founder's shares. Banks. are not allowed to have no par value shares because these are enterprises which are required by law to have a minimum paid-up capital . Jack’s Lecture STATED VALUE (NO PAR VALUE SHARE) No par value shares must also have a stated value. after that. 6) • Par value share is one with a specific money value fixed in the articles of incorporation and appearing in the certificate stock. Business was again good---the director again declared stock dividend.000 shares with a par value of P100 each. and the one with P5.000 shares and that will be subscribed with a stated value of P5. When you form a corporation with no par value shares. (jack said this is useful for estate planning. The children will get the bulk of the properties. Those shares will also be given a stated value.. will be P5. 10. We will have 3. for ex. the Authorized Capital Stock (ACS) of the corporation shall be P1M consisting of 10. public utilities. if you hold a stockholder's meeting. they used to have only 100 shares. I bleed.00 each. Jack’s Lecture FOUNDER'S SHARES They may be given certain rights not enjoyed by the owner of other stocks but if they are given the exclusive right to vote.so that you can easily see right away . the father would transfer his properties there and get .FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. same as the one who has a stated value of P5. the stated value we will issue initially upon incorporation. And those shares would be equal irrespective of the difference in the stated value. Unlike corporations with par value shares. 7. 20 common shares at par value.00. I soar… Service.00 per share---the one with stated value of P10. trust companies.00 each. Founders' shares Founders' shares classified as such in the articles of incorporation may be given certain rights and privileges not enjoyed by the owners of other stocks.

at the end of exercise. may be given certain rights and privileges not enjoyed by owners of other classes of shares. donation.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. The price was computed in such a way that what you will get from selling 5 shares would be enough to pay for the 20 shares that you have subscribed. Terms and conditions affecting redeemable shares are required to be provided for in the articles of incorporation and (vi) Treasury (Sec. donation or through some other lawful means. Jack’s Lecture REDEEMABLE SHARES Redeemable shares may be issued by the corporation when it is expressly provided in the articles of incorporation. but subsequently reacquired by the issuing corporation by purchase. Such shares usually share in the profits only after a certain percentage has been paid upon the common stock. I soar… Service. I bleed. then he turned around and sold the 5 shares at P60. they should be paid by the corporation even if the latter has no unrestricted retained earnings. Tip: Always indicate conversion ratio. Juan has 1M. it can borrow for the purpose. Jack’s Lecture I sweat. (2)They should be paid by the corporation even if there is no unrestricted retained earnings. you will have 15 shares without shelling out any money because the price you will get from selling 5 shares will cover everything. Founders’ shares have been defined as “shares issued to the organizers and promoters of a corporation in consideration of some supposed right or property. such right to vote shall be for a limited period not exceeding 5 years subject to the SEC approval (v) Redeemable (Sec. 8. UP Class Notes Shares given to the original incorporators. forfeiture and other lawful means. Redeemable shares Redeemable shares may be issued by the corporation when expressly so provided in the articles of incorporation. they have exclusive voting rights. which by their terms are redeemable at a fixed date or at the option of either the issuing corporation or the stockholder or both at a certain redemption price. MANGUERA to be stated on the certificate o stock. regardless of the existence of unrestricted retained earnings in the books of the corporation. but are often given special privileges over other stocks as to voting and as to division of profits in excess of a minimum dividend on the common stock. which terms and conditions must also be stated in the certificate of stock representing said shares. Treasury shares Treasury shares are shares of stock which have been issued and fully paid for. 8) Sec. So. They may be purchased or taken up by the corporation upon the expiration of a fixed period. where the exclusive right to vote and be voted for in the election of directors is granted.(a) 5 year period (b) Dividends 10% annually What do you do? A: (a) Issue redeemable shares (b) Provide that it will be given at a rate 10% per annum Q: What if Juan wish to be a holder of common stock: A: Give him with convertability feature. After 5 years. • Treasury shares are share which have been lawfully issued by the corporation and fully paid for and later reacquired by either purchase. redemption. Excellence A-26 . Q: What are the special advantages of redeemable shares? A: (1) Redeemability. and upon such other terms and conditions as may be stated in the articles of incorporation. Upon maturity of redeemable shares. usually preferred. (3) If the corporation is not liquid. 9. Sacrifice.000 each. Catindig Class Notes Q: Pedro needs 1M. everybody has the same rights. • • Redeemable or callable shares. Juan wants to invest with conditions. Such shares may again be disposed of for a reasonable price fixed by the board of directors. for 5 years. These founder's shares. 9) Sec. redemption.

So these shares of Reese which were acquired by the corporation had these 2 features: they could vote and they could receive stock dividends. They have already been issued. Now when the corporation reacquires them. That is the only thing you can do. they are in limbo.. when you're going to sell or offer for subscription. TREASURY SHARES Then you have these treasury shares. they are not cancelled. participating shares not usually issued. The remaining SH were the friends of Reese. The only thing you can do with it is to re-issue it. But in the case of treasury shares. These are inconsistent with the nature of treasury shares… because a treasury share is not outstanding although it is not cancelled for it can be re-issued. so the corporation already got the money equivalent to the par value. that has already been paid for by the original SH. These are shares which have been fully issued and fully paid for but subsequently re-acquired by the issuing corporation by purchase. suppose they offer it for sale. MANGUERA include stock dividends that may be declared. they can fix any price. Reese (I spell it as I hear it ) one of the controlling stockholders of the Manila Trading and Supply Company. He appointed the Law Office (RCA) as trustee and transferred to the law office his shares of stocks. and SH failed to pay… and so shares sold at public auction and the corporation acquired it. and they said: "treasury shares yan eh!" So the corporation now declared it as a stock dividend. Because that is property owned by the corporation you declare stock dividends from the authorized but unissued shares… but these are shares (treasury) which have already been issued but acquired by the corp. Now. because remember. I bleed. SMC. Caltex. it will be declared as property dividend. 2006) (viii) Participating Catindig Class Notes Participating shares impinges upon the rights of the common shares to the residual corporate assets—hence. Now if the corporation decides to declare that as dividend it will not be declared as stock dividend. Otherwise that would be watered stock. or some other lawful means. but in the meanwhile. Bank of America. not stock dividend. They cannot vote. So what happened? Reese died. The only thing you can do with them is to re-issue them. part of the authorized but unissued share. So they are properties belonging to the corporation. Citibank… Now. Like for instance if a stockholder (SH) defaulted when a call was made for SH to pay their unpaid subscription. So if the corporation distributes them. So the remaining SH. So what was the bright scheme concocted by this RCA? Reese executed a Trust Agreement (TA). If it be a stock corporation.. Now the SC has said that treasury shares are in limbo… they are not outstanding. It can even be less than par value. all friends of Reese would acquire the shares without paying a single centavo… because the corporation bought the shares. redemption. it is unissued… remember. let's say the book value is less than the par value. Upon the death of Reese the corporation was supposed to buy the shares.. when the Board re-issued it. they are frozen. I soar… Service. the trustees would have the right to vote the shares of stocks… and as I said stock dividends are also covered by that. the amount of its authorized I sweat. but they are not outstanding… so in the meantime. Well. as dividends. Contents of the articles of incorporation xxx 8. 14.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. they will be property dividend. and so the remaining SH got it — they got the shares of Reese without paying anything… Now the Court said: "NO! These are not treasury shares!" why? Because the TA provided that the trustees would vote the shares and that it also provided that the trust would (vii) Convertible • Convertible share is share which is convertible or changeable by the stockholder form one class to another class (such as from preferred to common) at a certain price and within a certain period. Excellence A-27 . (j) Subscribers Sec. they can sell it at any reasonable price… because you don't have to sell it for its par value as its minimum. they cannot receive dividends. The TA included stock dividends. (Page 86 of De Leon. the corporation must sell at least at par value. The corporation bought the shares. but neither are they cancelled. you have this case (sorry! can't understand the case title)… There is this law office: Rossell Carascosso Anda (RCA). Then the corporation now turns around and declares the shares as stock dividends of existing SH… stock dividends have no tax consequence…. donation. used to be the biggest law firm in Asia… it was the retained counsel of all the big companies like Shell. So when the corporation re-issues that. wanted to transfer the shares to his friends without any tax consequence. Sacrifice.

Forms of Articles of Incorporation Unless otherwise prescribed by special law. nationalities and residences of the original subscribers. • See page 832 of CLR (2007) Right of First Refusal • See page 673 of CLV’s Commercial Law Reviewer Old Edition Documents accompanying the Articles (See page 733 of CLV’s Commercial Law Review Book. 2007) Sec. I sweat. the number of shares into which it is divided. such fact must be stated. (UP Reviewer) • Not a regular treasurer • The treasurer who signs the treasurer’s affidavit in Section 15 (l) Special Provisions (i) Expanded pre-emptive rights • Pre-emptive right is the stockholder’s right to SUBSCRIBE to all issues or disposition of shares of any class in proportion of his stockholdings. and if some or all of the shares are without par value. articles of incorporation of all domestic corporations shall comply substantially with the following form: (ii) Catindig Class Notes Tip: Right to first refusal should be accompanied by: (1) time to get approval and (2) Right to assign.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. xxx (k) Treasurer in Trust • The person elected by the subscribers as Treasurer of the corporation at the time of the incorporation who is named as such in the AoI and who has been authorized to receive for and in the name of the corporation. and the amount subscribed and paid by each on his subscription. the names. I soar… Service. Excellence A-28 . I bleed. Sacrifice. 15. contributions or donations paid of given by the subscribers or members. fees. MANGUERA (iii) High quorum and/ or high voting requirements capital stock in lawful money of the Philippines. and in case the share are par value shares. • See Section 39 Pre-emptive right includes reissuance of TS. all subscriptions. the par value of each.

.................................................FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S..... and it is sufficient if the articles state the amount of capital or money contributed or donated by specified persons................) TENTH: That .............. In case the corporation is non-stock................................ indicate primary and secondary purposes). FOURTH: That the term for which said corporation is to exist is ............. Excellence A-29 ............... this .............................. (P.............. nationalities and residences of the first directors or trustees of the corporation are as follows: NAME xxx SEVENTH: That the authorized capital stock of the corporation is . Philippines................... AND WE HEREBY CERTIFY: FIRST: That the name of said corporation shall be "...... 19 .. Sacrifice................. shares of which ............... all of legal age and a majority of whom are residents of the Philippines...... (Names and signatures of the incorporators) SIGNED IN THE PRESENCE OF: . INC... he has been authorized to receive for and in the name and for the benefit of the corporation.................................................... shares with the par value of .... we have hereunto signed these Articles of Incorporation......... 7......... or CORPORATION"....... (In case some shares have par value and some are without par value): That the capital stock of said corporation consists of . ................................" IN WITNESS WHEREOF.................. (P.............. divided into ... ... shares are without par value.............. and the names............... Nos.......................................) PESOS each........................................... nationalities and residences of the incorporators of the corporation are as follows: NAME xxx SIXTH: That the number of directors or trustees of the corporation shall be ....................... MANGUERA xxx .. Province of .............. nationalities and residences of the contributors or donors and the respective amount given by each............ 8 and 9 if shares are with no par value. ........... shares without par value...... ................................) Pesos per share......... NINTH: That the above-named subscribers have paid at least twenty-five (25%) percent of the total subscription as follows: Name of Subscriber xxx (Modify Nos.. (In case all the share are without par value): That the capital stock of the corporation is ..... 8 and 9 of the above articles may be modified accordingly....... .. and that as such Treasurer. ..... THIRD: That the principal office of the corporation is located in the City/Municipality of .. all subscription (or fees) or contributions or donations paid or given by the subscribers or members..... shares are of the par value of ................... stating the names............................... EIGHTH: That at least twenty five (25%) per cent of the authorized capital stock above stated has been subscribed as follows: Name of Subscriber Nationality No of Shares Amount Subscribed Subscribed NATIONALITY RESIDENCE NATIONALITY RESIDENCE I sweat........ ELEVENTH: (Corporations which will engage in any business or activity reserved for Filipino citizens shall provide the following): "No transfer of stock or interest which shall reduce the ownership of Filipino citizens to less than the required percentage of the capital stock as provided by existing laws shall be allowed or permitted to recorded in the proper books of the corporation and this restriction shall be indicated in all stock certificates issued by the corporation.. day of .......... SECOND: That the purpose or purposes for which such corporation is incorporated are: (If there is more than one purpose............. (P.. I soar… Service...... has been elected by the subscribers as Treasurer of the Corporation to act as such until his successor is duly elected and qualified in accordance with the by-laws................. Province of ............. (Notarial Acknowledgment) Amount Subscribed Total Paid-In ARTICLES OF INCORPORATION OF __________________________ (Name of Corporation) KNOW ALL MEN BY THESE PRESENTS: The undersigned incorporators........................... have this day voluntarily agreed to form a (stock) (non-stock) corporation under the laws of the Republic of the Philippines............................................................... FIFTH: That the names.................... I bleed. years from and after the date of issuance of the certificate of incorporation...................... and of which .....) PESOS in lawful money of the Philippines...... Republic of the Philippines... in the City/Municipality of ............................

FRATERNAL ORDER
SCHOOL OF LAW

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UTOPIA
ARIS S. MANGUERA

TREASURER'S AFFIDAVIT
REPUBLIC OF THE PHILIPPINES ) CITY/MUNICIPALITY OF ) S.S. PROVINCE OF ) I, ...................................., being duly sworn, depose and say: That I have been elected by the subscribers of the corporation as Treasurer thereof, to act as such until my successor has been duly elected and qualified in accordance with the by-laws of the corporation, and that as such Treasurer, I hereby certify under oath that at least 25% of the authorized capital stock of the corporation has been subscribed and at least 25% of the total subscription has been paid, and received by me, in cash or property, in the amount of not less than P5,000.00, in accordance with the Corporation Code. ....................................... (Signature of Treasurer) SUBSCRIBED AND SWORN to before me, a Notary Public, for and in the City/Municipality of .................................. Province of .........................................., this ............. day of ........................., 19 ........; by ............................................ with Res. Cert. No. ..................... issued at ................. on ......................, 19 ..........

3. That the Treasurer's Affidavit concerning the amount of capital stock subscribed and/or paid if false; 4. That the percentage of ownership of the capital stock to be owned by citizens of the Philippines has not been complied with as required by existing laws or the Constitution. No articles of incorporation or amendment to articles of incorporation of banks, banking and quasi-banking institutions, building and loan associations, trust companies and other financial intermediaries, insurance companies, public utilities, educational institutions, and other corporations governed by special laws shall be accepted or approved by the Commission unless accompanied by a favorable recommendation of the appropriate government agency to the effect that such articles or amendment is in accordance with law.

NOTARY PUBLIC
My commission expires on ..........................., 19 ........ Doc. No. ...............; Page No. ...............; Book No. ..............; Series of 19..... (7a)

(c) Filing of Articles of Incorporation and payment of fees
UP Class Notes AOI and required attachments must be filed with the SEC; filing fees required here are 10% of 1% of the authorized capital stock

Sec. 17. Grounds when articles of incorporation or amendment may be rejected or disapproved The Securities and Exchange Commission may reject the articles of incorporation or disapprove any amendment thereto if the same is not in compliance with the requirements of this Code: Provided, That the Commission shall give the incorporators a reasonable time within which to correct or modify the objectionable portions of the articles or amendment. The following are grounds for such rejection or disapproval: 1. That the articles of incorporation or any amendment thereto is not substantially in accordance with the form prescribed herein; 2. That the purpose or purposes of the corporation are patently unconstitutional, illegal, immoral, or contrary to government rules and regulations;

(d) Examination and Approval or rejection of AoI by SEC (Sec. 17) • When the proposed articles show that the object is to
organize a barrio into a separate corporation for the purpose of taking possession and having control of all municipal property within the incorporated barrio and administer it exclusively for the benefit of the residents, the object is unlawful and the articles can be denied registration. Asuncion v. De Yriarte, 28 Phil. 67 (1914). It is well to note that, if a corporation’s purpose, as stated in the Articles of Incorporation, is lawful, then the SEC has no authority to inquire whether the corporation has purposes other than those stated, and mandamus will lie to compel it to

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FRATERNAL ORDER
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UTOPIA
ARIS S. MANGUERA

issue the certificate of incorporation.” Gala v. Ellice AgroIndustrial Corp., 418 SCRA 431 (2003).
UP Class Notes Rejection is not preferred; a defective AOI may be returned by the SEC which shall give the incorporators a reasonable time to correct or modify the objectionable portions without the necessity of filing the same again; Grounds for rejection or disapproval: --Not substantially in the form prescribed by the Code -- Purposes are patently unconstitutional or are contrary to law, morals, etc. --Treasurer’s affidavit is false --Percentage of ownership of capital stock has not been complied with -- AOI of banks and other financial institutions must be filed together with a recommendation of the appropriate government agency (i.e. BSP) to the effect that such AOI is in accordance with the law

J.G. Summit Holdings v. CA • The agreement of co-shareholders to mutually grant the right of first refusal to each other, by itself, does not constitute a violation of the provisions of the Constitution limiting land ownership to Filipinos and Filipino corporations; • If the foreign shareholdings of a landholding corporation exceeds 40%, it is not the foreign stockholder’s ownership of the shares which is adversely affected but the capacity of the corporation to own land—that is, the corporation becomes disqualified to own land. • See page 833 of CLV’s CLR, 2007 P.C. Javier & Sons v. CA • A change in the corporate name does not make a new corporation, whether effected by a special act or under a general law.
Catindig Class Notes Catindig: This case (PC Javier) is not entirely correct insofar as it says that there is no law or rule requiring notice for change of name. A change in corporate name is reflected in the General Information Sheet.

(e) Issuance of Certificate of Incorporation
When does corporate existence commence?
Sec. 19. Commencement of corporate existence A private corporation formed or organized under this Code commences to have corporate existence and juridical personality and is deemed incorporated from the date the Securities and Exchange Commission issues a certificate of incorporation under its official seal; and thereupon the incorporators, stockholders/members and their successors shall constitute a body politic and corporate under the name stated in the articles of incorporation for the period of time mentioned therein, unless said period is extended or the corporation is sooner dissolved in accordance with law.

Hyatt v. Goldstar • The residence or domicile of a juridical person is fixed by “law creating or recognizing” it.

2.4 Internal Organization of the corporation (a) Adoption and Approval of By-laws
Sec. 46. Adoption of by-laws Every corporation formed under this Code must, within one (1) month after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission, adopt a code of by-laws for its government not inconsistent with this Code. For the adoption of by-laws by the corporation the affirmative vote of the stockholders representing at least a majority of the outstanding

2.3 Cases
Castillo v. Balinghasay • Section 6 of the Corp Code expressly prohibits the deprivation of voting rights, except as to “preferred” and “redeemable” shares. • Section 148 of the Corp Code expressly provides that it shall apply to corporation in existence at the time of the effectivity of the Code.

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UTOPIA
ARIS S. MANGUERA
trustees, officers and employees; 6. The time for holding the annual election of directors of trustees and the mode or manner of giving notice thereof; 7. The manner of election or appointment and the term of office of all officers other than directors or trustees; 8. The penalties for violation of the by-laws; 9. In the case of stock corporations, the manner of issuing stock certificates; and 10. Such other matters as may be necessary for the proper or convenient transaction of its corporate business and affairs. (21a)

capital stock, or of at least a majority of the members in case of nonstock corporations, shall be necessary. The by-laws shall be signed by the stockholders or members voting for them and shall be kept in the principal office of the corporation, subject to the inspection of the stockholders or members during office hours. A copy thereof, duly certified to by a majority of the directors or trustees countersigned by the secretary of the corporation, shall be filed with the Securities and Exchange Commission which shall be attached to the original articles of incorporation. Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted and filed prior to incorporation; in such case, such by-laws shall be approved and signed by all the incorporators and submitted to the Securities and Exchange Commission, together with the articles of incorporation. In all cases, by-laws shall be effective only upon the issuance by the Securities and Exchange Commission of a certification that the bylaws are not inconsistent with this Code. The Securities and Exchange Commission shall not accept for filing the by-laws or any amendment thereto of any bank, banking institution, building and loan association, trust company, insurance company, public utility, educational institution or other special corporations governed by special laws, unless accompanied by a certificate of the appropriate government agency to the effect that such by-laws or amendments are in accordance with law. (20a) Sec. 47. Contents of by-laws Subject to the provisions of the Constitution, this Code, other special laws, and the articles of incorporation, a private corporation may provide in its by-laws for:
1. The time, place and manner of calling and conducting regular or special meetings of the directors or trustees; 2. The time and manner of calling and conducting regular or special meetings of the stockholders or members; 3. The required quorum in meetings of stockholders or members and the manner of voting therein; 4. The form for proxies of stockholders and members and the manner of voting them; 5. The qualifications, duties and compensation of directors or

Sec. 48. Amendments to by-laws The board of directors or trustees, by a majority vote thereof, and the owners of at least a majority of the outstanding capital stock, or at least a majority of the members of a non-stock corporation, at a regular or special meeting duly called for the purpose, may amend or repeal any by-laws or adopt new by-laws. The owners of two-thirds (2/3) of the outstanding capital stock or two-thirds (2/3) of the members in a non-stock corporation may delegate to the board of directors or trustees the power to amend or repeal any by-laws or adopt new by-laws: Provided, That any power delegated to the board of directors or trustees to amend or repeal any by-laws or adopt new by-laws shall be considered as revoked whenever stockholders owning or representing a majority of the outstanding capital stock or a majority of the members in non-stock corporations, shall so vote at a regular or special meeting. Whenever any amendment or new by-laws are adopted, such amendment or new by-laws shall be attached to the original by-laws in the office of the corporation, and a copy thereof, duly certified under oath by the corporate secretary and a majority of the directors or trustees, shall be filed with the Securities and Exchange Commission the same to be attached to the original articles of incorporation and original by-laws. The amended or new by-laws shall only be effective upon the issuance by the Securities and Exchange Commission of a certification that the same are not inconsistent with this Code. (22a and 23a)

I sweat, I bleed, I soar… Service, Sacrifice, Excellence

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Nature and Functions of By-Laws • As the “rules and regulations or private laws enacted by the corporation to regulate. 298 SCRA 280 (1998). Any meeting of the stockholders or members called for an election may adjourn from day to day or from I sweat. By-laws are intended merely for the protection of the corporation. or where the by-laws are silent. 281 SCRA 133 (1997). MANGUERA BY-LAWS • Intramural contract for intra-corporate relationship • Is not binding on extra-corporate parties (except if third parties have prior notice of the by laws) • Intended to regulate internal matters • Cannot contravene the charter or the laws • See page 745 of CLV’s CLR. a majority of the members entitled to vote. or if there be no capital stock. CA. Thomson v. at the time of the election. there must be present. however. govern and control its own actions. either in person or by representative authorized to act by written proxy. Election of directors or trustees At all elections of directors or trustees. That no delinquent stock shall be voted. 276 SCRA 681 (1997). Court of Appeals. Excellence A-33 . I soar… Service. In stock corporations.” by-laws are indispensable to corporations. Grace Christian High School v. Even when the members of the association may have formally adopted the provision. or he may distribute them on the same principle among as many candidates as he shall see fit: Provided. not restriction. and prescribe regulation. Court of Appeals. at the time fixed in the by-laws. By-Laws cannot be unreasonable or contrary to the nature of ByLaws • Authority granted to a corporation to regulate the transfer of its stock does not empower the corporation to restrict the right of a stockholder to transfer his shares. Rural Bank of Salinas. These may not be essential to corporate birth but certainly. I bleed. in his own name on the stock books of the corporation. every stockholder entitled to vote shall have the right to vote in person or by proxy the number of shares of stock standing. 2007. CA. 210 SCRA 510 (1992). Sacrifice. 24. and said stockholder may vote such number of shares for as many persons as there are directors to be elected or he may cumulate said shares and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal. Inc. Unless otherwise provided in the articles of incorporation or in the by-laws. That the total number of votes cast by him shall not exceed the number of shares owned by him as shown in the books of the corporation multiplied by the whole number of directors to be elected: Provided.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. • (b) Election of Directors Sec. Loyola Grand Villas Homeowners v. Candidates receiving the highest number of votes shall be declared elected. affairs and concerns and its stockholders or members and directors and officers with relation thereto and among themselves in their relation to it. but merely authorizes the adoption of regulations as to the formalities and procedure to be followed in effecting transfer. v. these are required by law for an orderly governance and management of corporations. their action would be of no avail because no provision of the bylaws can be adopted if it is contrary to law. Common law Limitations on By-Laws (1) By-Laws cannot be contrary to law and charter (2) By-Laws cannot be unreasonable or contrary to the nature of ByLaws (3) By-Laws cannot discriminate By-Laws cannot be contrary to law and charter • A by-law provision granting to a stockholder permanent seat in the Board of Directors is contrary to the provision in Corporation Code requiring all members of the Board to be elected by the stockholders. the owners of a majority of the outstanding capital stock. The election must be by ballot if requested by any voting stockholder or member. members of corporations which have no capital stock may cast as many votes as there are trustees to be elected but may not cast more than one vote for one candidate. they are always subject to the charter of the corporation.

no election is held. Sec. trustee or officer die. shall submit to the Securities and Exchange Commission. the adoption of by-laws. the owners of a majority of the outstanding capital stock. 2: Catindig: Deemed dissolved but can be revived if the parties (incorporators) in good faith ask the SEC to confirm the status of the corporation as not de-registered or in good standing. Corp v. I soar… Service. the names. its corporate powers cease and the corporation shall be deemed dissolved. I bleed. Sacrifice. Report of election of directors. 1 and par. the corporation must begin operation by holding organization meeting of the Board. the secretary. (Monfort Hermanos Agricultural Dev. commence the “Organize” involves the election of officers. then there is doubt whether they were indeed duly elected members of the Board legally constituted to bring suit in behalf of the Corporation. shall immediately report such fact to the Securities and Exchange Commission. at the meeting. I sweat.5 Cases Loyola Grand Villas Homeowners v. Pineda. v. providing for the subscription and payment of the capital stock. the secretary. Benguet Consolidated Mining Co. Monfort III) • When the names of some of the directors who signed the board resolution does not appear in the General Information Sheet filed with the SEC. Monfort III) Continuous operation General Information Sheet must be file to SEC continuously for five years and Audited Financial Statements Reconciling par. MANGUERA transaction of its businesses or the construction of its works. resign or in any manner cease to hold office. trustees. the same shall be a ground for the suspension or revocation of its corporate franchise or certificate of incorporation. and such other steps as are necessary to endow the legal entity with the capacity to transact the legitimate business for which the corporation was created. CA • By-laws may be necessary for the “government” of the corporation but these are subordinate to the Articles of Incorporation as well as the Corporation Code and related statutes. trustees and officers Within thirty (30) days after the election of the directors. Should a director. a majority of the member entitled to vote. • The SEC has issued the rule requiring the filing of the General Information Sheet. or to continuously operate is due to causes beyond the control of the corporation as may be determined by the Securities and Exchange Commission Catindig Class Notes Upon issuance of the certificate of incorporation. Effects on non-use of corporate charter and continuous inoperation of a corporation If a corporation does not formally organize and commence the transaction of its business or the construction of its works within two (2) years from the date of its incorporation. Corp v. 2. 26. or if there be no capital stock. and officers elected. (Monfort Hermanos Agricultural Dev. This provision shall not apply if the failure to organize. or if there not present or represented by proxy. “Organization” relates merely to the systematization and orderly arrangement of the internal and managerial affairs and organs of the corporation. 98 Phil. 711. if a corporation has commenced the transaction of its business but subsequently becomes continuously inoperative for a period of at least five (5) years. trustees and officers of the corporation. However. or any other officer of the corporation. or the director. 22. for any reason. The parties must have a good explanation. his heirs in case of his death. nationalities and residences of the directors. In such meeting the following will be done: (1) (2) (3) (4) Election of officers Adoption of resolution closing “the account” Adoption of resolution opening a new account Designating the authorized representative (signatories) time to time but not sine die or indefinitely if. trustee or officer himself. • (c) Commencement of businesss Sec. or any other officer of the corporation.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. Excellence A-34 .

The original and amended articles together shall contain all provisions required by law to be set out in the articles of incorporation. any provision or matter stated in the articles of incorporation may be amended by a majority vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock. immoral. insurance companies. or the vote or written assent of at least two-thirds (2/3) of the members if it be a non-stock corporation. at a regular or special meeting duly called for the purpose.6 Amendment of Articles of Incorporation and Bylaws Sec. Sacrifice. 4. may amend or • Failure to file the by-laws within the period required by law by no means tolls the automatic dissolution of a corporation. I bleed. Catindig Class Notes The remedy should have been the inclusion of the word “preferred” Sawadjaan v. Amendments to by-laws The board of directors or trustees. banking and quasi-banking institutions. by a majority vote thereof. the AIIBP may be considered a de facto corporation whose right to exercise corporate powers may not be inquired into collaterally in any private suit to which such corporations may be a party. and for legitimate purposes. and the owners of at least a majority of the outstanding capital stock. Grounds when articles of incorporation or amendment may be rejected or disapproved The Securities and Exchange Commission may reject the articles of incorporation or disapprove any amendment thereto if the same is not in compliance with the requirements of this Code: Provided. 2. trust companies and other financial intermediaries. and other corporations governed by special laws shall be accepted or approved by the Commission unless accompanied by a favorable recommendation of the appropriate government agency to the effect that such articles or amendment is in accordance with law. or contrary to government rules and regulations. illegal. 17. I soar… Service. as amended shall be indicated by underscoring the change or changes made. Amendment of Articles of Incorporation Unless otherwise prescribed by this Code or by special law. 48. 3. That the Treasurer's Affidavit concerning the amount of capital stock subscribed and/or paid if false. 16. Sec. 2. Excellence A-35 . CA • A corporation which has failed to file its by-laws within the prescribed period does not ipso facto lose its powers as such. The following are grounds for such rejection or disapproval: 1.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. That the articles of incorporation or any amendment thereto is not substantially in accordance with the form prescribed herein. That the purpose or purposes of the corporation are patently unconstitutional. or at least a majority of the members of a non-stock corporation. That the Commission shall give the incorporators a reasonable time within which to correct or modify the objectionable portions of the articles or amendment. MANGUERA date of filing for a cause not attributable to the corporation. • Obiter: By its failure to submit its by-laws on time. The amendments shall take effect upon their approval by the Securities and Exchange Commission or from the date of filing with the said Commission if not acted upon within six (6) months from the I sweat. Sec. and a copy thereof duly certified under oath by the corporate secretary and a majority of the directors or trustees stating the fact that said amendment or amendments have been duly approved by the required vote of the stockholders or members. shall be submitted to the Securities and Exchange Commission. No articles of incorporation or amendment to articles of incorporation of banks. Such articles. public utilities. building and loan associations. without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code. educational institutions. That the percentage of ownership of the capital stock to be owned by citizens of the Philippines has not been complied with as required by existing laws or the Constitution.

Sacrifice. Whenever any amendment or new by-laws are adopted. Excellence A-36 . duly certified under oath by the corporate secretary and a majority of the directors or trustees. The amended or new by-laws shall only be effective upon the issuance by the Securities and Exchange Commission of a certification that the same are not inconsistent with this Code. and a copy thereof. shall be filed with the Securities and Exchange Commission the same to be attached to the original articles of incorporation and original by-laws. shall so vote at a regular or special meeting. That any power delegated to the board of directors or trustees to amend or repeal any by-laws or adopt new by-laws shall be considered as revoked whenever stockholders owning or representing a majority of the outstanding capital stock or a majority of the members in non-stock corporations. The owners of two-thirds (2/3) of the outstanding capital stock or two-thirds (2/3) of the members in a non-stock corporation may delegate to the board of directors or trustees the power to amend or repeal any by-laws or adopt new by-laws: Provided.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. such amendment or new by-laws shall be attached to the original by-laws in the office of the corporation. I bleed. I soar… Service. (22a and 23a) I sweat. MANGUERA repeal any by-laws or adopt new by-laws.

Francisco v. Article 44. nor warrant the piercing of - - - I sweat. limited liability. Asionics Philippines. However. Matutina Integrated Wood Products. MANGUERA composing it as well as from any other legal entity to which it may be related. NLRC. NLRC. Purpose: To effectively pursue business endeavors C. I bleed. 364 SCRA 375 (2001). 127 SCRA 390 (1984). The strong juridical personality of the corporation facilitates and preserves the “going concern value” of the underlying business enterprise. 2007) Catindig Class Notes: Q: What are the implications of the doctrine? A: (1) Limited Liability (2) Contractual Obligation (3) Non-liability for crime committed by officers (4) Liability for Torts (5) Entitlement for damages (in general) (6)Exercise of corporate powers (e. v. A corporation. aSan Juan Structural v. v. or serve as a mere alter ego or business conduit of a person or an instrumentality. Court of Appeals. NLRC . 343 SCRA 1 (2000). MAIN DOCTRINE: A CORPORATION HAS A PERSONALITY SEPARATE FROM ITS STOCKHOLDERS OR MEMBERS A. 186 SCRA 841 (1990) Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. This feature flows from the legal theory that a corporate entity is separate and distinct from its stockholders. the veil can be disregarded when it is utilized as a shield to commit fraud. 2 of Corp Code. necessarily dilutes any or all of its attributes. LBP v. Inc. to acquire properties etc) etc. upon coming into existence. 3. Importance of Protecting Main Doctrine: AND DISTINCT D. has features that has made it most attractive to businessmen. power to sue. 296 SCRA 631 (1998). right of succession. 362 SCRA 738 (2001). agency or adjunct of another corporation. THE CORPORATE ENTITY 3. I soar… Service. Sacrifice. Sunio v. Court of Appeals. merely a fiction created by law for conveyance and to promote the ends of justice.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. - One of the advantages of a corporate form of business organization is the limitation of an investor’s liability to the amount of the investment. and prevents disruption of the value because of investors who withdraw or who are deceased. Inc. Mere substantial identity of incorporators of two corporations does not necessarily imply fraud. saves transaction costs. Mejia. Sources: Sec. Applications: (a) Majority Equity Directorship: Ownership and Interlocking - - The separate juridical personality of the corporation. illegality or inequity. Manila Hotel Corp.1 Distinct Personality (a) Doctrine of separate juridical personality (Page 677 of CLV’s Commercial Law Review Book. Excellence A-37 .g. is invested by law with a personality separate and distinct from those persons Ownership of a majority of capital stock and the fact that majority of directors of a corporation are the directors of another corporation creates no employer-employee relationship with the latter's employees. Civil Code B. CA. the statutorily granted privilege of a corporate veil may be used only for legitimate purposes. and generally free-transferability of shares of stock. aDBP v. 263 SCRA 490 (1996). This separate and distinct personality is. confuse legitimate issues. Undermining the separate juridical personality of the corporation. NLRC. however. defeat public convenience. v. 290 SCRA 164 (1998). centralized management. On equitable considerations.

[CLV: In past decisions. Intestate Estate of Alexander T.. as an individual. does not indicate fraud or wrongdoing and will not constitute application of the piercing doctrine. corporate officers and shareholders is not enough justification to pierce the veil of corporate fiction in the absence of fraud or other public policy considerations. Inc. NLRC. The mere fact that a stockholder sells his shares of stock in the corporation during the pendency of a collection case against the corporation. Just because two foreign companies came from the same country and closely worked together on certain projects would the conclusion arise that one was the conduit of the other. A corporation may assume any name provided it is lawful. is insufficient to prove that their separate corporate personalities are being used to defeat public convenience. v. In the absence of clear and convincing evidence to show that the corporate personalities were used to perpetuate fraud. such situation would generally warrant alter-ego piercing. justify wrong. v. Good Earth Emporium. v. (The Shareholders and members are covered by the main doctrine but the actors (officers) are not.” LBP v. 364 SCRA 375 (2001). Dalisay. Velarde v. 194 SCRA 544 (1991). Lopez. Bantuas. Cruz v. The facts that two corporations may be sister companies. LBP v. Court of Appeals. Jr. 363 SCRA 307 (2001). Lirag. Ritratto Group. and that they may be sharing personnel and resources. since that president. Court of Appeals. 172 SCRA 405 (1989). It is hornbook law that corporate personality is a shield against personal liability of its officers—a corporate officer and his spouse cannot be made personally liable under a trust receipt where he entered into and signed the contract clearly in his official capacity. without more. or circumvent the law. 419 SCRA 422 (2004). Booc v. 362 SCRA 620 (2001). Court of Appeals. “It is understandable that a shareholder would want to help his corporation and in the process. since by that practice alone does it mean that the said corporation is merely a dummy of the individual stockholder. for they are separate entities. assure that his I sweat. Sesbreno v. v. IAC. MANGUERA stakes in the said corporation are secured. They are covered by agency) The mere fact that one is president of the corporation does not render the property he owns or possesses the property of the corporation. Laguio v. 152 SCRA 487 (1987). DBP v. 370 SCRA 208 (2001).FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. Inc.] - - Being an officer or stockholder of a corporation does not by itself make one's property also of the corporation. does not make such stockholder personally liable for the corporate debt. or defend crime. and that shareholders are in no legal sense the owners of corporate property which is owned by the corporation as a distinct legal person. I soar… Service. Sacrifice. the veil of corporate fiction. I bleed. thus piercing the veil of corporate fiction. (b) Being Corporate Officer: Use of a controlling stockholder’s initials in the corporate name is not sufficient reason to pierce the corporate veil. 262 SCRA 715 (1996). the corporations are to be rightly treated as distinct and separate from each other. - - Having interlocking directors. (c) Dealings Between Corporation and Stockholders: - - - - - - The fact that the majority stockholder had used his own money to pay part of the loan of the corporation cannot be used as the basis to pierce. Marubeni Corp. and there is nothing illegal in a corporation acquiring the name or as in this case. Padilla v. Court of Appeals. PNB v. CA. Remo. Court of Appeals. 364 SCRA 375 (2001). 356 SCRA 671 (2001). Excellence A-38 . Consolidated Bank and Trust Corp. 354 SCRA 279 (2001). Court of Appeals. 362 SCRA 216 (2001). and it is the inherent right of the stockholder to dispose of his shares of stock anytime he so desires. protect fraud. and viceversa. 356 SCRA 61 (2001). and the corporation are separate entities. Court of Appeals. Ty v. since the disposing stockholder has no personal obligation to the creditor. 222 SCRA 466 (1993). The creation by DBP as the mother company of the three mining corporations to manage and operate the assets acquired in the foreclosure sale lest they deteriorate from nonuse and lose their value. the initials of one of its shareholders.

an adjunct. 357 SCRA 626. and the distribution to. Collector of Internal Revenue. 895 (1936). 269 SCRA 15 [1997]) Piercing does not mean that corporation is absolved of liabilities. 363 SCRA 307 (2001). the courts have not hesitated to pierce the corporate veil. CKH Industrial and Dev. 62 Phil. Court of Appeals. - - - - I sweat. and vice-versa Francisco Motors Corp. it would amount to the appropriation by. Mejia. Francisco v. 2007) Jack’s Lecture Whenever the law creates a legal device. I soar… Service. as a justification for a wrong.. 272 SCRA 333 (1997). Corp. its separate juridical personality will be disregarded. Young. to commit a crime. When the legal fiction of separate corporate personality is abused. Stockholders have no personality to intervene in a collection case covering the loans of the corporation since the interest of shareholders in corporate property is purely inchoate. v. Even when the foreclosure on the corporate assets was wrongful done. Court of Appeals. DBP v. - - A. Excellence A-39 . the objective of the law is justice and fairness—if you use that device to perpetrate fraud---the law will not allow that---so you have the doctrine of piercing the veil of corporate fiction When the separate juridical personality of a corporation is used to defeat public convenience. Laperal Dev. v. Manila Gas Corp. to justify wrong. otherwise. because corp assets are owned by the corp and not by the SHs. 354 SCRA 207 (2001). such stockholders of part of the corporation’s assets before the dissolution of the corporation and the liquidation of its debts and liabilities. The majority stockholder cannot be held personality liable for the attorney’s fees charged by a lawyer for representing the corporation. Saw v.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. 309 SCRA 72 (1999). or a business conduit for the sole benefit of the stockholders. Nature of Doctrine (aTraders Royal Bank v. CA. The obligations of a stockholder in one corporation cannot be offset from the obligation of the stockholder in a second corporation. APT v. stockholders have no standing to recover for themselves moral damages. 362 SCRA 738 (2001). Court of Appeals. 358 SCRA 501. Court of Appeals. to protect fraud. Araneta. 300 SCRA 579 (1998). (e) Obligations and Debts: - Corporate debt or credit is not the debt or credit of the stockholder nor is the stockholder's debt or credit that of the corporation. B. Gochan v. Catindig Class Notes Q: Do SHs have insurable interest over corporate assets? A: None. A corporation has no legal standing to file a suit for recovery of certain parcels of land owned by its members in their individual capacity. Sulo ng Bayan v. (d) On Privileges Enjoyed: - The tax exemption clause in the charter of a corporation cannot be extended to nor enjoyed by even its controlling stockholders. Inc. even when the corporation is organized for the benefit of the members. Court of Appeals. Sacrifice. 177 SCRA 789 (1989). MANGUERA personality. since the corporation has a separate juridical (b) Piercing the veil of corporate fiction (Page 682 of CLV’s Commercial Law Review Book. Court of Appeals. Source of Incantation The notion of corporate entity will be pierced or disregarded and the individuals composing it will be treated as identical if the corporate entity is being used as a cloak or cover for fraud or illegality. 195 SCRA 740 (1991). Court of Appeals. such as when the same is used for fraudulent or wrongful ends. Corporation continues to be liable but piercing just includes the officers/actors liable. Corp v. 223 SCRA 261 (1993). 72 SCRA 347 (1976). v. or as an alter ego. Traders Royal Bank v. I bleed.

“The rationale behind piercing a corporation’s identity in a given case is to remove the barrier between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain proscribed activities. it appears to us that the doctrine has been turned upside down because of its erroneous invocation. 309 SCRA 72 (1999). Calica. However. To disregard the separate juridical personality of a corporation. protect fraud. instead of holding certain individuals or person responsible for an alleged corporate act. this corporate fiction may be disregarded when necessary in the interest of justice. Velarde v. 238 SCRA 52 (1994). Excellence A-40 . such that in the case of two corporations. 786 (1952). 189 SCRA 529 (1990). the situation has been reversed. NLRC. (b) Remedy of Last Resort: - - Piercing the corporate veil is remedy of last resort and is not available when other remedies are still available. v Court of Appeals. I bleed. and cannot be employed when the net result would be to perpetrate fraud or a wrong. Ocampo. Rovels Enterprises. or used as a vehicle to promote unfair objectives or to shield an otherwise blatant violation of the prohibition against forumshopping. CA. aUmali v. it is elementary that the wrongdoing cannot be presumed and must be clearly and convincingly established. Adre. Piercing doctrine is meant to prevent fraud. Hence. Gregorio Araneta.. 172 SCRA 876 (1989). Sacrifice. in the case at bar. Ritratto Group. nor to shield them.” aFrancisco Motors Corp. - Umali Doctrines: (1) Piercing remedy is a last resort (2) Intention must to make the corp officers personally liable (c) Purpose of Piercing: - - Piercing is not allowed unless the remedy sought is to make the officer or another corporation pecuniarily liable for corporate debts (?). 205 SCRA 697 (1992). v. 362 SCRA 216 (2001). (d) Basis Must Be Clear Evidence: - The doctrine of piercing the corporate veil is an equitable doctrine developed to address situations where the separate corporate personality of a corporation is abused or used for wrongful purposes. The legal fiction of separate corporate existence is not at all times invincible and the same may be pierced when employed as a means to perpetrate a fraud. the law will regard the corporation as merged into one. officers and incorporators concerned. justify wrong. The theory of corporate entity was not meant to promote unfair objectives or otherwise. 189 SCRA 529 (1990). It is the petitioner as a corporation which is being ordered to answer for the personal liability of certain individual directors. 91 Phil. Court of Appeals. Tuason de Paterno and Vidal. Indophil is an alter ego case) - Piercing the veil of corporation fiction is warranted only in cases when the separate legal entity is used to defeat public convenience. (Umali is a fraud case. 419 SCRA 422 (2004).FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. confuse legitimate issues. v. aPNB v. Umali v. Inc. Villanueva v. Inc. While it is settled that the piercing of the corporate veil has to be done with caution. MANGUERA aIndophil Textile Mill Workers Union-PTGWO v. The organization of the corporation at the time when the relationship between the landowner and the developer were still cordial cannot be used as a basis to hold the corporation liable later on for the obligations of the landowner to the developer under the mere allegation that the corporation is being used to evade the I sweat. I soar… Service. Inc. Lopez. (a) Equitable Remedy: - - Piercing is not available when personal obligations of an individual are to be enforced against the corporation (?) Robledo v. 391 SCRA 176 (2002). or defend crime.

Application of the doctrine of piercing the corporate veil should be done with caution. the wrongdoing must be clearly and convincingly established. or crime was committed against another. as said doctrine only applies when such corporate fiction is used to defeat public convenience. 290 SCRA 198 (1998). The wrongdoing must be clearly and convincingly established. - - The mere assertion by a Filipino litigant against the existence of a “tandem” between two Japanese corporations cannot be the basis for piercing. Marubeni Corp. MANGUERA performance of obligation by one of its major stockholders. 152 SCRA 482 (1987). 211 SCRA 470 (1992). Court of Appeals. fraud. (g) Piercing is a power belonging to the court and cannot be assumed improvidently by a sheriff (?). since it is alleged that the sister corporations are mere alter egos of the directors-petitioners. as a justification for a wrong. 2006) (1) Where a corporation functions for the benefit of a single person who has complete control over the funds and the said person is the sole owner thereof. Inc. aGochan v. “The doctrine of piercing the veil of corporate fiction heavily relied upon by the petitioner is entirely misplaced. 362 SCRA 620 (2001). 363 SCRA 307 (2001). 381 SCRA 244 (2002). In this case. Young. I sweat. 381 SCRA 244 (2002). Lirag. Cruz v.. (f) Applicable to “Third-Parties”: - - - That respondents are not stockholders of the sister corporations does not make them non-parties to this case. it cannot be presumed.D. Dalisay. 902-A. Andrada Electric & Engineering Co. the Court finds that the Remington failed to discharge its burden of proving bad faith on the part of Marinduque Mining and its transferees in the mortgage and foreclosure of the subject properties to justify the piercing of the corporate veil.” Union Bank v. aBoyer-Roxas v. Otherwise. I soar… Service. Sacrifice. v. Andrada Electric & Engineering Co. v. To disregard the separate juridical personality of a corporation. an adjunct. DBP v. It cannot be presumed. PNB v. - Piercing of the veil of corporate fiction is not allowed when it is resorted under a theory of co-ownership to justify continued use and possession by stockholders of corporate properties. PNB v. The party seeking for the piercing of the corporate veil has the burden of presenting clear and convincing evidence to justify the setting aside of the separate corporate personality rule. protect fraud or defend crime. It must be certain that the corporate fiction was misused to such an extent that injustice. Court of Appeals. I bleed.. 302 SCRA 315 (1999). or as an alter ego. on the ground that the petitioning individuals should be treated as the real petitioners to the exclusion of the petitioning corporate debtor. in disregard of its rights. an injustice that was never unintended may result from an erroneous application. (e) Not Applicable to Theorizing: - The piercing doctrine cannot be availed of to dislodge from SEC’s jurisdiction a petition for suspension of payments filed under P. or a business conduit for the sole benefit of the stockholders. Court of Appeals. Court of Appeals. 354 SCRA 207 (2001). The notion of corporate entity will be pierced and the individuals composing it will be treated as identical if the corporate entity is being used as a cloak or cover for fraud or illegality. (2) Where the corporation is merely an instrumentality. and that the sister corporations acquired the properties sought to be reconveyed to FGSRC in violation of directors-petitioners’ fiduciary duty to FGSRC. an adjunct. A court should be mindful of the milieu where it is to be applied. business conduit or alter ego of another corporation. Excellence A-41 .FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. justify wrong. Luxuria Homes. (i) When applied Instances when doctrine applied. ((Page 28 of De Leon. which can only be applied by showing wrongdoing by clear and convincing evidence.

2007) (1) The parent corporation owns all or most of the capital stock of the subsidiary. Normally. Sacrifice. or to avoid payment of higher taxes. Tagario. to perpetuate the violation of a statutory or other positive legal duty. crime or injustice. (5) Where a domestic corporation is controlled by aliens. both firms being owned and controlled by the same persons with the result that the second corporation should be considered a continuation and successor of the first. or to avoid inclusion of corporate asserts as part of the estate of the decedent. (Villa Rey) (9) Where a corporation is organized by an insolvent debtor to defraud his creditors (10)Where a corporation is organized as a device in order to evade an outstanding legal or equitable obligation. not mere majority or complete stock control. (4) Where it appears that a corporation is merely a business conduit of its president. and (3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. Facts are insufficient to apply piercing because no misuse of corporate fiction for fraud. you would apply the control test… (di nia tinuloy yung statement) (Dean Sundiang implies that the control test is used in piercing the veil of corp fiction on the ground that the corp is a mere alter ego. or dishonest and unjust acts in contravention of plaintiff’s legal rights. (Heirs of Ramon Durano v. act. Excellence A-42 . (11)When corporate fiction is used to shield a violation of the prohibition against forum shopping or to avoid a judgment credit. (7) Where all the stockholders or members of a corporation acting as individuals instead of formal corporate action. Uy) (See Child Learning Center v. I soar… Service. (2) The parent and subsidiary corporations have common directors or officers. 2007) (1) Control. (2) Such control must have been used by the defendant to commit fraud or wrong. (8) Where a corporation is formed by a seller of a certificate of public convenience for the purpose of evading his individual contract. I bleed. (See page 240 of JRS) Q: Here are the facts: (1) (2) (3) (4) 100% ownership Same BoD Same officers Same accounting department Is there basis for piercing? A: None. or to confuse legitimate issues. enter into an illegal. MANGUERA (3) Where a subsidiary company is created by a parent company merely as an agency of the latter. will or existence of its own. Test: (Page 695 of CLV’s Commercial Law Review Book. not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind.* (6) Where a corporation is dissolved and its assets are transferred to another corporation to avoid a financial liability of the first corporation to its employees. I sweat. 2005) Catindig Class Notes: You don’t apply the control test in all cases. Factors that will justify the application of the treatment of the doctrine of the piercing of the corporate veil: (Page 696 of CLV’s Commercial Law Review Book. but complete dominion.

I sweat. (6) The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or by the parent corporation. as said doctrine only applies when such corporate fiction is used to defeat public convenience. 362 SCRA 738 (2001). 290 SCRA 198 (1998). 198 (1959). 496 (1946). aBoyer-Roxas v.D. 77 Phil. The piercing doctrine cannot be availed of to dislodge from SEC’s jurisdiction a petition for suspension of payments filed under P. 91 Phil. “The doctrine of piercing the veil of corporate fiction heavily relied upon by the petitioner is entirely misplaced. justify wrong. Sacrifice. (9) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take their orders form parent corporation. Court of Appeals.” Union Bank v. Excellence A-43 . (7) In the papers of the parent corporation or in the statements of its officers. on the ground that the petitioning individuals should be treated as the real petitioners to the exclusion of the petitioning corporate debtor. Piercing is not allowed unless the remedy sought is to make the officer or another corporation pecuniarily liable for corporate debts Piercing doctrine is meant to prevent fraud. Piercing is unavailable to those within the intra-corporate relationship Piercing is unavailable to a non-victim See Page 579 of CLV’s Commercial Law Review Book. be guided by the following: (1) Is there injury? (2) Is there fraud. 211 SCRA 470 (1992).) Inc. In labor cases. 786 (1952). I soar… Service. (4) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation. MANGUERA wrong. Kaisahan ng Mga Manggagawa sa La Campana. but only for the particular transaction or instance. - Piercing is not available when personal obligations of an individual are to be enforced against the corporation (?) Robledo v. v. Tuason de Paterno and Vidal. protect fraud or defend crime. Mejia. 902-A. Francisco v. (8) The parent corporation uses the property of the subsidiary as its own. and cannot be employed when the net result would be to perpetrate fraud or a (iii) Consequences when veil is pierced • - Application of the doctrine to a particular case does not deny the corporation of legal personality for any and all purposes.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. v. or the particular obligation for which the doctrine was applied. (10)The formal legal requirements of the subsidiary are not observed. Old edition) - - Catindig Class Notes Tip: If the question is a piercing problem. (ii) When not applied - Piercing of the veil of corporate fiction is not allowed when it is resorted under a theory of co-ownership to justify continued use and possession by stockholders of corporate properties. I bleed. courts are more lenient in applying the doctrine of piercing the corporate veil because of the policy in favor of labor. (3) The parent corporation finances the subsidiary. Court of Appeals. the subsidiary is described as a department of division of the parent corporation. 238 SCRA 52 (1994). Gregorio Araneta. or its business of financial responsibility is referred to as the present corporation’s own. (5) The subsidiary has grossly inadequate capital. NLRC. Tantoco v. Inc. Koppel (Phil. 106 Phil. injustice? (3) Pay attention if it is a labor case. Yatco.

Only is these and similar instances may the veil be pierced and disregarded. (ii) Alter-ego Piercing: o When corporate entity merely a farce since the corporation is merely the alter ego. need not be I sweat. o (iii) Equity Cases: Rules in Piercing on the ground of: Fraud Alter Ego Equity (1) There must be (1) Even if the -When no fraud or fraud or evil controlling alter ego motive. I soar… Service. of ill-gotten same wealth. to escape liability arising for a debt.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. I bleed. This tend to have a wider leeway in their applications and even without intending to do malice or just by being practical in costing by taking shortcuts such as housing together under closely inter-related operations two or more corporate businesses.. perpetration of for having evidence must be the fraud or in themselves cast shown that such offer the justification away the or stockholder was of wrong. or instrumentality of a person or another entity. PNB v. or to protective responsible for the escape personal characteristic of corporate act. MANGUERA o When piercing the corporate fiction is necessary to achieve justice or equity. the merits) resort)) (2) Others who deal with the corp may (Corporations which treat the interest have been used as of both the instruments for controlling acquisition or as stockholder and being depositaries of the corp as the products. Alter-ego Piercing c. the use of -When the corp fiction pecuniary claims the corporation as is used to confuse pertaining to the an alter ego is in legitimate issues corporations direct violation of -When the corp fiction against the central is used to raise corporate doctrine. and the liability limited liability of stage can only cone (* Piercing must be separate juridical during the hearing of the remedy of last personality. 381 SCRA 244 (2002). or to perpetuate fraud and/or confuse legitimate issues either to promote or to shield unfair objectives to cover up an otherwise blatant violation of the prohibition against forum shopping. Andrada Electric & Engineering Co. Equity cases Rundown on Piercing Application: This Court pierced the corporate veil to ward off a judgment credit. stockholder of circumstances can be (2) The main action managing officer culled by the Court to must seek intends to do no warrant piercing enforcement of evil. to avoid inclusion of corporate assets as part of the estate of the decedent. AREAS where piercing is allowed a. Those technicalities officers or whose acts and (-To warrant stockholders or actuations directly application of piercing vice versa violate this central to make corporate (3) The corporate doctrine. Excellence A-44 . Sacrifice. make officer or stockholder entity has been themselves liable for the corp used in the personally liable debts or obligations. business conduit. (i) Fraud Piercing: o o When corporate entity used to commit fraud or do a wrong Most restricted one because the SC has required that allegations of fraud must clearly be proven to make a stockholder or officer liable for corporate debts and that piercing is available only when there is a claim for recovery against such stockholders or officers. Fraud Piercing b.

Both use only one office and one payroll and are under one management. merge them into one. 2005) • The bare fact that the respondent was the president and general manager of the petitioner corporation when the crimes charged were allegedly committed and was then a stockholder thereof does not itself deprive the court a quo of its exclusive jurisdiction over the crimes charged. I sweat. Umezawa (March 4. 2003) • This is a case of alter ego doctrine or instrumentality rule. Sacrifice.) Pamplona Plantation v. v. I bleed. Ellice Corp) • Here. NLRC (May 30. 2005) 3. the fraud was committed by petitioners to the prejudice of respondent bank. (4) When the underlying business enterprise does not really change and only the medium is changed. They control the affairs of TVI. Child Learning Center Inc. • Here.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. (July 15. Banco Real Development Bank (September 16. v. JRB Realty Inc. • In this case. Excellence A-45 . The property of the corporation is not the property of the stockholders or members or of its officers who are stockholders. Catindig Class Notes Transfer per se is not illegal. in the absence of fraud and other public policy considerations. corporate officers and shareholders is not enough justification to pierce the veil of corporate fiction. officers or employees as a cloak or cover for fraud or illegality or injustice. 2001) • When the concept of separate legal entity is used to defeat public convenience. Mobilia Products Inc. • (Case digest at page 707 of CLV’s Commercial Law Review Book) Lipat v. it is found that TVI is Mendoza and Yotoko’s mere alter ego or business conduit. protect fraud or defend crime the law will regard the corporation as an association of persons. Tagario (November 25. the Labor Arbiter was correct in applying the piercing doctrine to hold the all respondents liable for unfair labor practice and illegal termination of employment.2 Cases De Leon v. or in cases of two corporations. impleaded a separate parties to cases for they are res of the action. Pacific Banking (April 30. 2005) • The veil will be lifted when the corporation is used by any of the directors. justify wrong. 2005) • The existence of interlocking directors. the corporations have basically the same incorporators and directors and headed by the same official. MANGUERA (3) Piercing in alter ego may prevail even no monetary claims are sought against the stockholders or officers of the corporation. IF the transfer is for the purpose of defrauding creditors… Fraudulent transfer of assets refers to the transfer of substantial assets. Mendoza v. 2005) • In this case. Jardine Davies v. Tinghil (Feb 3. I soar… Service. (Gala v. They transferred the assets to TVI to FGT.

but which requires a clear proof of malice or bad faith. (Mambulao vs. PNB. PNB.3 Is a corporation entitled to moral damages? It depends. - - - A corporation. Manero and Mambulao vs. Excellence A-46 . 448 SCRA 413. if besmirched. it cannot experience physical suffering and mental anguish. 2005) • Here. (Even if the judgment-debtor is a stockholder and president of the corporation. Mental suffering can be experienced only by one having a nervous system and it flows from real ills. I soar… Service. ( Filipinas Broadcasting Network v.1999) An educational corporation’s claim for moral damages arising from libel falls under Article 2219(7) of the Civil Code. emotions nor senses.R. and does not qualify whether the plaintiff is a natural or juridical person. moral shock or social humiliation which are the basis for moral damages under Art 2217 of the Civil Code. slander or nay other form of defamation. (Prime White Cement vs. CA. Recovery of a corporation would be under Articles 19. therefore. Therefore. the assignment of the permit in favor of SEM is utilized to circumvent the condition of non-transferability of the exploration permit. slander etc) Liable for: Torts Civil wrongs Not liable for: Criminal liability 3. Generally.4 Corporate Liabilites A Corporation as a person is: Entitled to: Equal Protection Clauses Unreasonable Searches and Seizure Damages under Arts. CATV Services v. sorrows. a juridical person can validly complain for libel or any other form of defamation and claim for moral damages. However. To allow SEM to avail itself of this doctrine and to approve the validity of the assignment is tantamount to sanctioning illegal act which is what the doctrine precisely seeks to forestall. fright.) Apex Mining Corporation Inc v. If arising from libel. APT vs. • In this case. Southeast Mindanao Gold Mining Corp (June 23. being an artificial person. then a claim for damages may be made. 20. 19. IAC.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. cannot experience physical sufferings. that a corporation may recover moral damages if it “has a good reputation that is debased. MANGUERA • The absence of the following elements prevents piercing the corporate veil: (1) Control/Complete dominion (2) Such control must have been used by the defendant to commit fraud or wrong in contravention of the plaintiff’s legal right (3) Control and breach of duty must proximately cause the injury or unjust loss complained of. has no feelings. the sheriff overstepped his authority when he attaches the property of a corporation which had not been adjudged a debtor. wounded feelings. D. 21 Not entitled to: Privilege against Self-incrimination . NO. mental anguish. serious anxiety. and grief of life.1993) The statement in People vs. I bleed. resulting in social humiliation” is an obiter dictum.Moral Damages (except in cases of liblel. may be a ground for the award of moral damages. or moral defamation. (ABS-CBN vs. CA) (a) Contractual I sweat. slander. Sacrifice. Ago Medical and Educational Center. 2005) 3. A corporation. 20. 21 of the Civil Code. which expressly authorizes the recovery of moral damages in cases of libel. 2006) • The doctrine of piercing the veil cannot be used as a vehicle to commit prohibited acts because these acts are the ones which the doctrine seeks to prevent. Ramos (December 9. a corporation may have good reputation which.all of which cannot be suffered by an artificial person. being an artificial person and having existence only in legal contemplation.

Sacrifice. because the rules governing the liability of a principal or master for a tort committed by an agent or servant are the same whether the principal or master be a natural person or a corporation. and whether the servant or agent be a natural or artificial person. Catindig Class Notes Q: Pedro uses corp vehicle. The failure of the corporate employer to comply with the law-imposed duty under the Labor Code to grant separation pay to employees in case of cessation of operations constitutes tort and its stockholder who was actively engaged in the management or operation of the business should be held personally liable. (under the principle of agency. (Page 15 of De Leon. such a grant did not include a direction to commit tortuous acts against third parties. Is the corporation liable? A: Corporation cannot be held liable. has expressly or impliedly ratifies such an act or estopped from impugning the same. Essentially. On the way home. a breach of legal duty. (Naguiat vs. as in this case.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. - Our jurisprudence is wanting to the definite scope of “corporate tort”. Q: What is a derivative suit? A: Since. expressly or impliedly ratifies an act or is estopped from impugning such an act. for it is reasonable to presume that in granting of authority by the corporation to its agent. Q: How can authority given to the agent of the corporation be determined? A: Either by: (a) such direction by the corporation is manifested. Only when the corporation has expressly directed the commission of such tortuous act would the damages resulting therfrom be ascribable to the corporation. acting through its authorized agents are its sole liabilities. MANGUERA Not every tortuous act committed by an officer can be ascribed to the corporation as its liability. would the damages resulting therefrom be imputable to the corporation. by its BoD adopting a resolution to such effect (b) by having taken advantage of such tortuous act. As a remedy. is manifested either by its board adopting a resolution to such effect. • The general rule is that obligations incurred by a corporation. or having taken advantage of such a tortuous act the corporation. He did not go straight home but went to Marikina to visit friends. he collided with another vehicle. Only when the corporation has expressly directed the commission of such tortuous act. “tort” consists in the violation of a right given or the omission of a duty imposed by law. CA A corporation is civilly liable in the same manner as natural person for torts. the act of the board is essentially that of the corporation and therefore corporate assets cannot escape enforcement of the award of damage to the tort victim. PNB vs. 2006) (b) For Torts YES!!! CLV Class Notes Q: When is a corporation liable for tort? A: When: (a) the act committed by an officer or agent (b)under express direction of authority from the stockholders or members acting as a body or through the BoD. I bleed. (c) For Crimes NO!!! I sweat. NLRC) - The act of the board is essentially that of the corporation since the board is the embodiment of the very power and prerogatives of a corporation. Excellence A-47 . I soar… Service. the corporation through its board. And such a direction by the corporation. Direction by the corporation is manifested either by the BoD adopting a resolution to such effect. an agent acting outside the scope of authority…) Tip: Minor deviation  Corp liable Major Deviation Corp not liable Pag happy happy hour not essential need - CLV Class Notes CLV: It is clear from the ruling of the Court in this case that not every tortuous act committed by an officer can be ascribed to the corporation as its liability. or ratification or estoppel. through its board. the stockholders may institute a derivative suit against the responsible members and officers for the damages suffered by the corporation as a result of the tort suit.

I sweat. And as humans. Concepcion) While it is true that a criminal case can only be filed against the officers and not against the corporation itself. Excellence A-48 . (Cometa vs. CA) It has been held that the existence of the corporate entity does not shield from prosecution the corporate agent who knowingly and intentionally causes the corporation to commit the crime. I bleed. with knowledge of the business. however slight his contribution may be. (Ong vs. (Times vs. CA) Catindig Class Notes If a particular offense is not made applicable to a corporation. CLV Class Notes Corporations cannot be held criminally liable because: (1) The veil of corporate fiction cannot be used to avoid penalty imposable for committing an offense (2) Difficulty if not impossibility of imposing penal sanctions. Sacrifice. (Exec. hence. the prohibition extends to the board of directors. Reyes) When a criminal statue forbids the corporation itself from doing an act. then the corporation cannot be made liable. its purpose and effect. The corporation engaged in unlawful business naturally aids and abets in the carrying on of such business and will be prosecuted as principal if. Sec. ASM: Parang I remember in CLV class. negligence is the basis. I soar… Service. it is reasonable to believe that negligence may probably happen but it is reasonable to believe that malice is [not] committed. it does not follow that the corporation cannot be a real party-in-interest for the purpose of bringing a civil action for malicious prosecution for the damages incurred by the corporation for the criminal proceedings brought against its officer. the law makes the officers or employees or other persons responsible for the offense liable to suffer the penalty of imprisonment. and each director separately and individually (People vs. we are not perfect. if the entrustee is a corporation. vs. that this should not be the reason for non-liability of corporation for crimes. MANGUERA CLV Class Notes Q: Why be liable for torts but not on crimes? A: Because in tort. CA) No criminal suit can lie against an accused that is a corporation. (3) Criminal intent as an essential ingredient of a crime would be missing. he consciously contributes his efforts to its conduct and promotion (illegal recruitment in this case). - - - - The trust receipts law recognizes the impossibility of imposing the penalty of imprisonment on a corporation.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S.

Excellence A-49 . (De Leon 2006 at 310 citing 6-A Fletcher 431) • • • • Classification of corporate powers: (1) Expressed (2) Implied (3) Inherent (1) Expressly granted or authorized by law o Corporation Code (Secs 36. Precisely because the corporation is such a prevalent and dominant factor in the business life of the country. MANGUERA o Articles of Incorporation (2) Those that are necessary to the exercise of the express or incidental powers (Section 236(110. executing promissory notes. I sweat. The term powers of corporation has reference to the corporation’s capacity or right under its charter and laws to do certain things (De Leon 2006 at 310 citing 6 Fletcher 230) Distinguished from its “franchise”. (De Leon 2006 at 313) • Classification of implied powers: (1) Acts in the usual course of business2 (2) Acts to protect dents owing to a corporation3 (3) Embarking in different business (4) Acts in part or wholly to protect or aid employees4 (5) Acts to increase business5 Express v. in effect. Key: All acts necessary to run a business under ordinary circumstances. the law has to look carefully into the exercise of powers by these artificial persons it has created. I soar… Service. 3 It is generally held that a corporation may temporarily conduct an outside business to collect a debt out of its profits. A corporation exercises its powers for the purpose of attaining its objects. Secondary franchise is the right granted to an existing corporation to use public property for a public use. delimit its implied powers. as stated in its articles of incorporation. I bleed.4648. with private profit. 4 See Section 36(10). Sacrifice. (Reynoso v. (De Leon 2006 at 310 citing 6-A Fletcher 431) Distinguished from “objects” of a corp. by defining the scope of corporate business or enterprise. see 11.16. 45) (or implied) (3) Those incidental to its existence (Sections 2.62 and 76-81) Examples: Borrowing money. 2000) Meaning of powers of a corporation. making ordinary contracts. Primary franchise is the right to exist as an entity for the purpose of doing the things embraced within its powers and from its secondary franchise. acquiring personal property for use in connection with the business etc. 45) (or inherent) • Implied powers are those powers which are reasonably necessary to execute the express powers and to accomplish or carry our the purposes for which the corporation was formed. Implied Powers Expressed Implied Have to do largely with the main Have to do largely with the 2 4. [These implied powers are expressly recognized by Section 36(11). Thus. 2007) • Underlying Theory on Power of Corporation.37.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. 5 A corporation may conduct contests or sponsor radio or television programs. the power to issue promissory notes is a power and not an object of a corporation. CA. See Section 36(11). POWERS OF CORPORATIONS (Page 793 of CLV’s Commercial Law Review Book. 37-44. or promote fairs and other gatherings to advertise and increase its business.] (Nakakalito na ba? Hahaha) • The purpose or purposes for which for which the corporation was created.

including securities and bonds of other corporations. sell. MANGUERA means and methods of attaining those objects and purposes. subject to the limitations prescribed by law and the Constitution. to contract. (See Section 45) • These incidental powers are expressly recognized by Sections 2 and 45. The test is whether they are fairly incidental to the (former) and reasonably necessary to carry them out in the furtherance of the corporation’s business. 1990) 4. • Examples of incidental powers are: the power of succession. charitable. 7. To make reasonable donations. I soar… Service. therefore impliedly granted. to adopt and use a corporate seal. and business. (See Section 36 (11)). In case of stock corporations. Sacrifice. and other plans for the benefit of its directors. mortgage and otherwise deal with such real and personal property.1 In General Sec. and surrounding circumstances.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. Excellence A-50 . pledge. as the transaction of the lawful business of the corporation may reasonably and necessarily require. To adopt and use a corporate seal. Corporate powers and capacity 11. domestic or foreign. 10. 5. 8. or similar purposes: Provided. • As powers inherent in the corporation as legal entity. to sue and be sued. to have a corporate name. hold. To exercise such other powers as may be essential or necessary to carry out its purpose or purposes as stated in the articles of incorporation. To purchase. lease. (SEC Opinion. place. I sweat. to purchase and hold real and personal property. 9. • Every corporation has implied or incidental power to establish branch offices here or abroad as the need or exigency of the business of the corporation may require. take or grant. Every corporation incorporated under this Code has the power and capacity: 1. 36. I bleed. etc. To adopt by-laws. they exist independently of the express powers. To enter into merger or consolidation with other corporations as provided in this Code. and to admit members to the corporation if it be a non-stock corporation. morals. and to amend or repeal the same in accordance with this Code. The test is whether the powers are found in the words of the charter of the law Incidental or inherent power • Powers which a corporation can exercise by the mere fact of its being a corporation or powers which are necessary to corporate existence and are. 2. Determined by the language of the corporate charter and the applicable law. receive. civic. 6. That no corporation. shall give donations in aid of any political party or candidate or for purposes of partisan political activity. May change according to time. trustees. scientific. to make by-laws. 4. • Some of the powers enumerated in Section 36 are incidental powers which can be exercised by a corporation even in the absence of an express grant. Of succession by its corporate name for the period of time stated in the articles of incorporation and the certificate of incorporation. May 17. or public policy. including those for the public welfare or for hospital. officers and employees. cultural. To establish pension. to issue or sell stocks to subscribers and to sell stocks to subscribers and to sell treasury stocks in accordance with the provisions of this Code. objects and purposes of the corporation. To amend its articles of incorporation in accordance with the provisions of this Code. convey. 3. not contrary to law. retirement. To sue and be sued in its corporate name.

fairly incidental to the express powers and reasonably necessary to their exercise. 23. (De Leon 2006 at 319) • As a rule. such officer may appoint counsel to represent the corporation in a pre-trial hearing without need of a formal board resolution. Makasiar. where a corporation is an injured party. Bacolod Murcia Milling Co. and is reasonably tributary to the promotion of those end. Enciso. The test to be applied is whether the act in question is in direct and immediate furtherance of the corporation’s business. N. 2007) • • 6 No corporation…shall possess or exercise any corporate powers except those conferred by this Code or by its Articles of Incorporation and except such as necessary or incidental to the exercise of the powers so conferred. If so. Excellence A-51 . in relation to Sec. CA. which would also constitute express powers. v. Shipside Inc. 1962 cited in (Page 795 of CLV’s CLR. Court of Appeals. 384 SCRA 548 (2002). 2006) Where the corporation is real party-in-interest. I bleed. 350 SCRA 475 (2001). 2007) Sources of powers of express powers of a corporation: (Page 795 of CLV’s CLR. 352 SCRA 334 (2001).FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. • • • • • • Section 45 recognizes also implied powers of every corporate entity emanating from its express powers. Sacrifice. 36 of Corporation Code. 220 SCRA 75 (1993). Corporation de facto may sue or be sued but a corporation which has been dissolved after the expiration of 3-year winding-up period ceases to exist de jure or de facto. (Page 795 of CLV’s CLR. Under Sec. BPI • Section 36 of the Corporation Code enumerates some of the express powers of corporations (many of which even if not expressly provided for by law would constitute implied powers of every entity. Jr.6 The rule is that in each case it is a question of the logical relation of the act to the corporate purpose expressed in the charter. v. otherwise. For counsel to sign the certification for the corporation. the corporation has the power to do it. v. Chua. it may fairly be considered within charter powers. IF the act is one which lawful in itself. (Montelibano v. nor the General Manager who has no authority to institute a suit on behalf of the corporation even when the purpose is to protect corporate assets. Vda. When the power to sue is delegated by the by-laws to a particular officer. 2007) Section 36 enumerates 10 powers that a corporation enjoys in addition to the special powers that may be provided for in the purpose clause of the articles of incorporation. suits are to be brought by or against the corporation in his own name. no. COA. 162 SCRA 706 [1988]). . Citibank. I soar… Service. its power to sue is lodged with its Board of Directors. 360 SCRA 230 [2001]). de Onorio.” • I sweat. MANGUERA To sue and be sued in its corporate name • This power (Section 36(1)) is an incident to corporate existence. (Central Cooperative Exchange Inc. SSS v. in a substantial and not in a remote and fanciful sense. A minority stockholder who is a member of the Board has no such power or authority to sue on the corporation’s behalf. (Page 794 of CLV’s CLR. he must specifically be authorized by the Board of Directors. Tam Wing Tak v. neither administrator or a project manager could sign the certificate against forum-shopping without being duly authorized by resolution of the Board of Directors (Esteban. and not otherwise.A. v. United Paragon Mining Corp v. 2007) (1) Those provided in the law (Corporation Code) (2) The Purpose clause of the AoI.

” (De Leon 2006 at 324) • • • Property obtained by a corporation which is foreign to the purposes for which it was organized is an unlawful acquisition. (De Leon 2006 at 324) The transfer or sale of shares owned by a corporation in another corporation requires approval by the board of directors of the seller corporation and while a corporation is expressly empowered by Section 36(&) to dispose corporate assets. (SEC Opinion. different from its corporate seal. Such an act does not need the approval of the stockholders if done in pursuance of the purpose or purposes of the corporation as stated in its articles of incorporation. (De Leon 2006 at 326) • When a corporation subscribes to the capital stock of another corporation. (De Leon 2006 at 327) I sweat. Sacrifice. (2006). . v. I bleed. that the instrument to which it is affixed is the act of the corporation. Where a corporation adopts a seal for a special occasion. CA. v. July 13. CA. Under Section 63. . Power to adopt and use a corporate seal • A seal is a device (as an emblem. only when it has “unrestricted retained earnings” to cover the shares to be purchased or acquired. the approval of the stockholders as required by Section 42 is necessary. • The presence of a seal establishes. 415 SCRA 573 (2003). (De Leon 2006 at 326) • Power to acquire shares in other corporation is subject to specific limitations established by the Code. it has only a limited capacity to pay. such power is subject to the provisions of Section 40. I soar… Service. Nevertheless. v. to pay its subscription in full. MANGUERA Leasing Corp. A corporation need properties or assets to carry on its business. Narciso. as a rule. Excellence A-52 . • A corporation may exist even without a seal. certificates of stock issued by corporations are required to be sealed with the seal of the corporation. (De Leon 2006 at 323) • A seal is not required for the validity of any corporate act. Mariveles Shipyard Corp. 416 SCRA 4 (2003). it is required. (De Leon 2006 at 323) • The power under Section 36(7) is qualified by the phrase “as the transaction of the lawful business of the corporation may reasonably and necessary require. prima facie. the use of a corporate seal in certificates of stock must be deemed merely directory rather than mandatory. the seal adopted is the corporate seal only for that time or occasion. (De Leon 2006 at 323) • Any seal adopted and used by the corporation may be altered by it at pleasure. Metro Drug Distribution Inc. But when the purpose is done solely for investment. (18 Am Jur 2d) Power to acquire and convey property • This power (Section 36(7)) which is also expressly conferred under the law has always been regarded as an incident to every corporation. however. This is based upon the fact that while a corporation has an unlimited capacity to contract obligations. (De Leon 2006 at 325) Power to acquire shares or securities • Section 36(7) authorizes a private corporation to acquire shares or securities of other corporations. or word) used to identify or replace the signature of an individual or organization and to authenticate (as under common law) written matter purportedly emanating from such individual or organization. It may refer also to the impression of such a device on documents like certificates of stocks. symbol. (De Leon 2006 at 325) The right or power of private corporations to deal in real as well as personal property is also subject to limitations or restrictions prescribed by special laws and the Constitution.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. special laws and the Constitution. 1961) • A corporation may purchase its own stock.

• Limitations: The limitation under the code is that the donations are: (a) the amount thereof must be reasonable. Excellence A-53 .2 Specific Powers (a) To extend or shorten corporate term (Section 37 compare with Section 81) Sec. AF Realty & Dev. Power to extend or shorten corporate term A private corporation may extend or shorten its term as stated in the articles of incorporation when approved by a majority vote of the board of directors or trustees and ratified at a meeting by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the members in case of non-stock corporations. that’s the right answer.. the agent’s authority must be in writing. Inc. much less when acting through the treasurer. Firme v. otherwise the sale is void. Provide Gratuity Pay for Employees • Such powers are expressly permitted by the Code on the theory that such activities promote better relations between the corporation and its employees. China Banking Corp. Dieselman Freight Services Co. MANGUERA considered to be ultra vires to avoid any liability arising from the issuance of resolution granting such gratuity pay. San Juan Structural v. 1878 of Civil Code. • Basis: Section 36(9) gives recognition to the growing tendency to regard charitable gifts as within the scope of corporate authority.. Court of Appeals. I bleed. (19 Am Jur 2d) • Providing gratuity pay for employees is an express power of a corporation under the Corporation Code. or served personally: Provided. Fontecha. That in case of extension of corporate term. 192 (1995). Corp. 270 SCRA 503 (1997). distribute. Bukal Enterprises and Dev. Sacrifice. v. Sell Land and Other Properties • When the corporation’s primary purpose is to market. Borrow Funds • The power to borrow money is one of those cases where even a special power of attorney is required under Art. 37. Catindig Class Notes Q: What is the catch-all provision as regards powers of corporations? A: Si Cris vinerbatim yung Section 36(11). 296 SCRA 631 (1998). 247 SCRA 183. Lopez Realty v. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid. and cannot be 4. and (b) the donations must not be in aid of any political party or candidate or for purposes of partisan political activity. the sale of land is not within the actual or apparent authority of the corporation acting through its officers. any dissenting stockholder may exercise his appraisal right under the conditions provided in this I sweat. It is based on the modern view that business corporations are not organized solely as profitmaking enterprises but also as economic and social institutions with corresponding public responsibility to aid in the betterment of economic and social conditions in the community in which such corporation are doing business. • The argument that the obtaining of loan was in accordance with the ordinary course of business usages and practices of the corporation is devoid of merit because the prevailing practice in the corporation was to explicitly authorize an officer to contract loans in behalf of the corporation. export and import merchandise. 373 SCRA 385 (2002). 414 SCRA 190 (2003). Power to contribute to charity • Section 36(9) expressly vests in business corporations the authority to contribute for purely charitable purposes. Likewise Articles 1874 and 1878 of Civil Code requires that when land is sold through an agent.. Yeah. There is invariably a need of an enabling act of the corporation to be approved by its Board of Directors.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. v. I soar… Service. CA. haha.

81. without need of meeting. creating. Instances of appraisal right Any stockholder of a corporation shall have the right to dissent and demand payment of the fair value of his shares in the following instances: 1. In case of sale. incur. mortgage. any dissenting stockholder may exercise his appraisal right to have his shares bought back at fair value by the corporation. or of extending or shortening the term of corporate existence. or the incurring. • The extension or shortening of corporate life actually requires the amendment of the articles of incorporation.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. lease. In case of merger or consolidation. (Page 333 of De Leon. at a stockholder's meeting duly called for the purpose. Therefore. (Page 333 of De Leon. or served personally. a meeting must be duly called for the purpose. Written notice of the proposed increase or diminution of the capital stock or of the incurring.” Such right should also be available to a dissenting stockholder if the corporate term is shortened as it is expressly recognized in Section 81(1). and 3. in general amendments of the articles can be made by written assent of the stockholder or members. CLV has a different opinion. Power to increase or decrease capital stock. create or increase any bonded indebtedness unless approved by a majority vote of the board of directors and. 2007) • De Leon: Section 37 grants appraisal right to a dissenting stockholder (right of the stockholder in the cases provided by law to demand payment of the fair value of his shares) “in case of extension of corporate term. exchange. (Page 236 of CLV’s Textbook) (b) To increase or decrease capital stock (Section 38) Sec. But whereas. (n) • Requirements for extending or shortening corporate life: (1) Majority vote of the BoD/T (2) Ratification in a meeting by 2/3 of outstanding capital stock or 2/3 of the members. CLV: The appraisal right should not be triggered when it comes to shortening of corporate life. must be addressed to each stockholder at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid. creating or increasing of any bonded indebtedness. I soar… Service. (Page 816 of CLV’s CLR. 2006) But wait. MANGUERA code. I sweat. (Page 237 of CLV’s Textbook) • Note that the appraisal right applies only to a stockholder of a stock corporation. or of authorizing preferences in any respect superior to those of outstanding shares of any class. pledge or other disposition of all or substantially all of the corporate property and assets as provided in the Code. two-thirds (2/3) of the outstanding capital stock shall favor the increase or diminution of the capital stock. 38. as the case may be. In case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholder or class of shares. the inclusion of the case of shortening of corporate life under Section 81 should not prevail over the specific provision under Section 37. (n) Sec. 2006) • In case of extension of corporate term. Excellence A-54 . Sacrifice. in the case provided for under Section 37. create or increase bonded indebtedness No corporation shall increase or decrease its capital stock or incur. because there is really no violation of the original contractual intent since. which now seeks to extend the corporate relationship beyond the original term provided for in the articles of incorporation. or increasing of any bonded indebtedness and of the time and place of the stockholder's meeting at which the proposed increase or diminution of the capital stock or the incurring or increasing of any bonded indebtedness is to be considered. I bleed. 2. (Page 237 of CLV’s Textbook) • CLV: The exercise of appraisal rights rightly belongs to a case of extension of corporate term because extension actually novates the corporate contract with each shareholder. transfer.

the decrease of capital stock would result in returning part of the investments of the stockholders who dissented. Sacrifice. MANGUERA • A reduction or increase of the capital stock can take place only in the manner and under the conditions prescribed by law. I bleed.. An attempted unauthorized increase of capital stock amounts to an overissue and such stock is absolutely void and cannot be validated by application of the doctrine of estoppel. 2007) • The corporation must submit proof to the SEC that such decrease will not prejudice the rights of creditors. i. (2) The grant of appraisal right in case of increase of capital stock would defeat the very purpose for which the power is exercised. (18 Am Jur 2d 757) • Unauthorized increase of capital stock. Excellence A-55 . but also the capital stock of a corporation is governed by common law doctrines. • No appraisal right in Decrease in Capital Stock.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. Limitations on the power • As a general rule.e. • Nature of Power. as such an act of the corporation constitutes an attempted withdrawal of so much capital upon which corporate directors are entitled to rely. The power to increase or decrease capital stock is not an inherent of the corporation. 1923) • Requirements: (1) Majority vote of the members of the BoD (2) Ratification by 2/vote of the outstanding capital stock. (SEC Opinion no. 2005) • A corporation cannot issue stock in excess of the amount limited by its articles of incorporation. (Page 241 of CLV’s Textbook) • The non-granting of appraisal right to dissenting stockholders in case of increase of capital stock may be rationalized on two grounds: (1) The increase in capital stock does not prevent any stockholder. v. such issue is ulra vires and the stock so issued is void even in the hands of a bona fide purchaser for value • An over-issued stock is also known as spurious stock. such as the trust fund doctrine and pre-emptive rights. (Page 241 of CLV’s Textbook) • Implied Policy under Section 38. although it recognizes that an increase in authorized capital stock redefines the contractual relations in the corporate setting as I sweat. not only because it touches item expressly required to be provided for in the articles of incorporation. Rivera. in a meeting duly called for that purpose with notice previously given (3) Certificate of said corporate act shall be signed by majority of the members of the Board and the Chairman and Secretary of the stockholders’ meeting (4) Certificate must be accompanied by the Treasurer’s Affidavit certifying compliance with the 25%-25% requirements as to stock corporation. (Phil Trust Co. The policy embodied in Section 38 of the Corporation Code therefore. a corporation cannot lawfully decrease its capital stock if such decrease will have the effect of relieving existing subscribers from the obligation of paying for their unpaid subscriptions without a valuable consideration for such release. including a dissenting stockholder from opting out of the contractual relationship by simply selling his shares in the corporation to any interested buyer. An issue of stock by a corporation in excess of the amount prescribed or limited by its articles of incorporation is ultra vires and the stock so issued Is void even in the hands of a bona fide purchaser for value. 05-10. (Page 817 of CLV’s CLR. July 12. I soar… Service. The decrease to of the capital stock of a corporation should not trigger the exercise of the appraisal right for precisely. to raise funds for the operation or even survival of the corporate business.

April 11. the over-all issue is null and void. Central Textile Mills. equally or unevenly. July 30. in the sense that every stockholder should come into the corporate setting fully aware that the expediencies of corporate life may require that eventually. especially of union members. • (If the proposed stock dividend would result in the issuance of shares of stock in excess of the corporation’s authorized capital stock. I soar… Service. the corporation may need to increase capitalization to fund its operations or expansions. Inc. and would constitute unfair labor practice. • A reduction of capital to justify the mass layoff of employees. An increase in the authorized capital stock cannot be lawfully accomplished without an actual increase in the assets of the corporation and additional subscriptions except when such increase is for the purpose of effecting a stock dividend previously authorized. the 25% subscription requirement may be applied only to one class of shares or it may be applied only to one class of shares or it may distribute it to all classes of shares. Madrigal & Co. 2006) • Subscriptions and payments based on additional amount by which capital is increased. Thus. (Page 341 of De Leon. MANGUERA phrase to mean the additional amount by which the capital stock is increased. • Of such increased capital. The SEC has construed the I sweat. Zamora. v. 2006) • Ways of increasing (decreasing) authorized capital stock: (1) Increasing the number of shares authorized to be issued without increasing the par value thereof. 260 SCRA368 (1996). Excellence A-56 . when the corporation has several classes of shares. (Page 337 of De Leon.) (SEC Opinion.) (Page 342 of De Leon. • (Stock dividends are ordinarily declared out of the authorized but unissued shares of the corporation. (Page 341 of De Leon. such funds do not constitute part of the capital stock of the corporation until approval of the increase by SEC. (Page 243 of CLV’s Textbook) • Despite the board resolution approving the increase in capital stock and the receipt of payment on the future issues of the shares from the increased capital stock. (2) By increasing the par value of each share without increasing the number thereof (3) By increasing both number of shares authorized to be issued and the par value thereof. 2006) • A corporation may increase its capital stock by way of stock dividends without touching its unissued shares as long as there as long as there are sufficient retained earnings to cover the increase. 1995) • No treasurer’s affidavit is required to be attached in case of decrease of capital stock. National Wages and Productivity Commission.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. done sequentially? it requires the approval of stockholders owning or representing two-thirds (2/3) of the OCS. does not include the appraisal right on the part of dissenting stockholders. • The Corporation Code contains no prohibition for a corporation to increase its authorized capital stock even if the same has not yet been fully subscribed. 151 SCRA 355 (1987). (SEC Opinon. v. Sacrifice. (Page 336 of De Leon. amounts to nothing but a premature and plain distribution of corporate assets to obviate a just sharing to labor of the vast profits obtained by its joint efforts with capital through the years. and needs to look primarily into its equity investors to fund the same. 1969) Catindig Class Notes Q: Can the SHs in one meeting do all of these three. It is opined that this refers to the total subscription (not to individual subscriptions) and regardless of class. 2006) • Necessity of new subscription for increase. Such dividend declaration may be validly done provided that the corporation simultaneously increases its capital stock and applies the proposed stock dividends as full payment of the subscriptions to the capital stock increase. 2006) Increase by way of stock dividends. I bleed.

creates or increases bonded indebtedness since. Debentures are issued on the basis of the general credit of the corporation and are not secured by collaterals. (Page 243 of CLV’s Textbook) • A corporate bond is an obligation to pay a definite sum of money at a future time at a fixed rate of interest. Sacrifice. • (c) To incur. and must have been in operation for 3 years. 39. In addition. (1) It must be done sequentially. 2007) Catindig Class Notes Q: What are subordinated debts? A: Debts used as capital (d) To deny pre-emptive rights (Section 39) Sec. (Page 245 of CLV’s Textbook) • Note: (1) Where a corporation increases capital stock. unless such right is denied by the articles of incorporation or an amendment thereto: I sweat. (Page 347 of De Leon.) (3) BoD delegated approval of certain transaction to an Executive Committee (Deins ko lam relevance nito-ASM) This process is called RECAPITALIZATION. (2) File 3 amended AoI with the SEC and SEC will approved it sequentially.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. in proportion to their respective shareholdings. payment of interest on stipulated dates. it must fulfill the financial ratios mandated by the SEC in the Interim Guidelines. together with the printed prospectus and titles covering the securities for the bonded indebtedness. There is this decision by Justice Campos. when the corp is in a deficit situation. stockholders are entitled to a pre-emptive right to subscribe to a sufficient number of shares in order to maintain their previous relative voting power. (2) Dissenting stockholders cannot exercise the right of appraisal in this case. the Citibank case. An issuing corporation must also execute and submit a Trust Indenture with a trustee bank and an Underwriting Agreement. (Page 818 of CLV’s CLR. create or increase bonded indebtedness (Section 38) • “Bond” is a security representing denominated units of indebtedness issued by a corporation to raise money or capital obliging the issuer to pay the maturity value at the end of a specified period which should not less than 360 days. Under the SEC Interim Guidelines. and therefore do not constitute bonded indebtedness and will not require approval of the stockholders. an application for registration and issuance of bonds can only be filed by the issuing corporation which has a minimum net worth of P25M at the time of the filing of the application. There is nothing in the Code which prohibits such action. (Page 244 of CLV’s Textbook) • Note that no appraisal right is granted to dissenting stockholders when the corporation either validly incurs. where applicable. (Alam na nila yun. since it is presumed that they would need to incur or create liabilities as part of the normal operations of the business and the pursuit of the purpose of the corporation. 2006) • Nature of Power: The power to incur or create liabilities is an inherent power on the part of business corporations. Particular Requirements of SEC. I bleed. the granting of such appraisal right under such circumstances would drains the corporation of financial resources contrary to the purpose for which the power is exercised to raise funds for corporate affairs. Excellence A-57 . MANGUERA Item 1: Increase the authorized capital stock? 1M 5M Item 2: Decrease ? 5M 2M Item 3: Then Increase again? 2M 5M A: Yes. (SEC Interim Guidelines for the Registration of Bonds) (Page 243 of CLV’s Textbook) • SEC has limited the term “bonded indebtedness” to cover only indebtedness of the corporation which are secured by mortgage on real or personal property. I soar… Service. Power to deny pre-emptive right All stockholders of a stock corporation shall enjoy pre-emptive right to subscribe to all issues or disposition of shares of any class.

if a stockholder with pre-emptive right owns 20% of the outstanding shares of the corporation. or in case of non-stock corporation. nevertheless. without the authorization by the stockholders or members. without further action or approval by the stockholders or members. subject to the rights of third parties under any contract relating thereto. (Page 356 of De Leon. I soar… Service. abandon such sale. • • • A pre-emptive right is the shareholder’s right to subscribe to all issues or disposition of shares or any class in proportion to his present stockholdings. mortgage. For example. That such pre-emptive right shall not extend to shares to be issued in compliance with laws requiring stock offerings or minimum stock ownership by the public. the board of directors or trustees may. exchange. exchange. which may be money. in a stockholder's or member's meeting duly called for the purpose. pledge or otherwise dispose of any of its property and assets if the same is necessary in the usual and regular course of business of said corporation or if the proceeds of the sale or other disposition of such property and assets be appropriated for the conduct of its remaining business. when authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock. he may subscribe 20% of any shares of stock issued by the corporation. mortgage. by the vote of at least to twothirds (2/3) of the members. stocks. (Page 832 of CLV’s CLR. In non-stock corporations where there are no members with voting rights. sell. lease. as its board of directors or trustees may deem expedient. mortgage. 2006) The rule [on pre-emption] aims to safeguard the right of stockholder to preserve unaltered and unimpaired his proportionate influence and interest in the corporation and the relative value of his holdings. the new issue must be offered first to the stockholders who are such at the rime the increase was made in proportion to their existing shareholdings and on equal terms with other holders of the original stocks before subscriptions are received from the general public. exchange. upon such terms and conditions and for such consideration. Nothing in this section is intended to restrict the power of any corporation. 40. in its discretion. pledge or other disposition of property and assets. Excellence A-58 . This principle is known as the right of preemption or pre-emptive right of stockholders (Page 355 of De Leon. the purpose being to enable the shareholder to retain his proportionate control in the corporation and to retain his equity in the retained earnings and also in the net assets in the event of dissolution. by a majority vote of its board of directors or trustees. A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated. I bleed.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. or served personally: Provided. After such authorization or approval by the stockholders or members. to sell. 2006) (e) To sell or otherwise dispose of corporate assets (Section 40) Sec. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid. bonds or other instruments for the payment of money or other property or consideration. or to shares to be issued in good faith with the approval of the stockholders representing twothirds (2/3) of the outstanding capital stock. including its goodwill. That any dissenting stockholder may exercise his appraisal right under the conditions provided in this Code. 2007) Whenever a capital stock of a corporation is increased and new shares of stocks are issued. a corporation may. in exchange for property needed for corporate purposes or in payment of a previously contracted debt. the vote of at least a majority of the trustees in office will be sufficient authorization for the corporation to enter into any Provided. lease. Sale or other disposition of assets Subject to the provisions of existing laws on illegal combinations and I sweat. lease. pledge or otherwise dispose of all or substantially all of its property and assets. Sacrifice. MANGUERA monopolies.

According to the law. hehe) ABC Corp is a Property Devt Corp. A: (a) BoD only Yes. I don’t know whatever happened to this but you have that property in Commonwealth Avenue owned by the Islamic Directorate. If you allow a corporation when it has no retained earnings. Sacrifice. The Supreme Court said the sale was not valid because the people who sold it were not the elected directors and secondly. Tell whether approval of the following will be enough: (a)BoD only’(b)Stockholders only (c) Both. • The property of the corporation is not the property of the stockholders or members. Otherwise. You have a case where the assets of a corporation were foreclosed and the only remaining asset of the corporation was the right of redemption and they sold it. that was the only property of that corporation and therefore. Jollibee must have more than 400 stores all over the country. (Page 246 of CLV’s Textbook) I sweat. even when practically. In the sale. I bleed. SH approval is necessary. it is returning the investment of its stockholders. if the corporation after the sale decides or has the intention to continue its business. in effect.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. When Martial Law was declared. (b) (c) SHs only No. lease. the corporation is an entity is till capable of pursuing its charter purpose. (Page 819 of CLV’s CLR. The Muslim countries in the Middle East donated money for the Muslims to acquire that property. would be within the covered transactions under Section 40 which would require stockholders’ or members’ approval. 2007) Any disposition of corporate asset or property. that will prejudice the creditors. and as such. you need approval not only of the majority of the Board but also of at least 2/3 of the stockholders. For example. It sells property (100 lots) to a manufacturing corporation. (Page 250 of CLV’s Textbook) Catindig Class Notes Q: (2 Kats were asked here. if there is no intention to continue business. may not be sold without the express authority from the board of directors. you don’t have to get stockholder approval. Conisder also the intention to continue the corp business. the test of whether the sale covers all or substantially all of the assets of the corporation is this: will the corporation be capable of continuing its business or accomplishing its purpose. I soar… Service. the Board of Trustees fled to the Middle East and a bunch of people who were not directors sold that property to Iglesia Ni Cristo. (Litonjua v. A corporation can acquire its own shares but it is required that it should have unrestricted retained earnings. which is not in the usual course of business of the corporate. Eternity Corp. Note: If the sale is in accordance with the primary purpose of the corporation then only BoD approval is needed. mortgage or disposition of all or substantially all of the properties or assets of the corpration. exchange. If they sell 5 stores. (Page 246 of CLV’s Textbook) • The exercise of such a power really affects the business enterprise level of corporate set-up. because the corp acts thru its BoD Both Yes. The Court said you need stockholder approval. stockholder approval was required. Thus. as a rule. 2006) Nature of Power • The exercise of the power to sell or dispose of all or substantially all of the assets of the corporation is deemed to undermine the contractual relationship of the corporation and its stockholders. Remember that we said the assets of a corporation constitute a trust fund to answer for its obligations to its creditors. MANGUERA transaction authorized by this section. Excellence A-59 . • • Disposition of properties in the regular course of the business does not need approval by or authority of stockholders or members. (28 1/2a) Jack’s Lecture In non-stock corporations where there are no members with voting rights. the vote of at least a majority of the trustees in office will be sufficient authorization for the corporation to enter into any transaction authorized by this section.

if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purposes for which it was incorporated. I sweat. 272 SCRA 454 (1997). and (4) The authorization must be done at a stockholders’ or members’ meeting duly called for that purpose after written notice. Excellence A-60 . Court of Appeals. etc. Islamic Directorate v. 193 SCRA 717 (1991). v. the sale of all or substantially all of the corporate assets of property may require compliance with the Bulk Sales Law. lease exchange. Power to acquire own shares A stock corporation shall have the power to purchase or acquire its own shares for a legitimate corporate purpose or purposes. PNOC. mortgage. must be approved by the board of directors or trustees. (2) Accomplishing the purpose for which it was incorporated. and assets including its good will. • The disposition of the assets of a corporation shall be deemed to cover substantially all the corporate property (f) To acquire own shares (Section 41) Sec. 2006) Appraisal Right. That the corporation has unrestricted retained earnings in its books to cover the shares to be purchased or acquired: 1. Such a sale or disposition must be understood as valid only if it does not prejudice the creditors of the assignor. • Aside form the requirements of Section 40 . would make the sale null and void. Sale by Board of Trustees of the only corporate property without compliance with Sec. (3) The action of the board of directors or trustees must be authorized by the vote of stockholding representing 2/3 of the outstanding capital stock including holders of non-voting shares or 2/3 of the members as the case may be. To eliminate fractional shares arising out of stock dividends. including but not limited to the following cases: Provided. Peña v.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. I bleed. are as follows: (2) The sale etc. The requisites for the validity of such sale. (Page 252 of CLV’s Textbook) • The appraisal right is accorded to dissenting stockholders as a matter of equity and fairness since they should be allowed to plough their investments into ventures they feel they could get a better return rather with a corporation that is no longer capable of pursuing the business. (Page 252 of CLV’s Textbook) • It should be noted that the exercise of the appraisal right of any stockholder is predicate on the “sale or other disposition of all or substantially all” of the corporate assets. • Any dissenting stockholder may exercise his appraisal right in case of sale of all or substantially all of the corporate assets or property. I soar… Service. (Page 251 of CLV’s Textbook) • Effect of non-compliance. Any disposition which does not involve all or substantially all of the corporate assets. pledge. or otherwise dispose of all or substantially all of all of its property. does not require the approval of the stockholders or members and would not entitle any dissenting stockholder to exercise his appraisal right. which necessarily implies that the assignee assumes the debts of the assignor. Sacrifice. 41. (Caltex Inc. (Page 366 of De Leon. CA. A corporation by the action of its board of directors or trustees supported by the vote of shareholders or members may sell. 2006) • • A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the corporation would be rendered incapable if: (1) Continuing the business. 40 of Corporation Code requiring ratification of members representing at least two-thirds of the membership. MANGUERA and assets.

Sacrifice. To collect or compromise an indebtedness to the corporation. Can the corp buy the shares from the widow? For what good corporate purpose? (g) To invest corporate funds in another corporation or business (Section 42) Sec. That any dissenting stockholder shall have appraisal right as provided in this Code: Provided. (good reputation of the corporation). (17 1/2a) Jack’s Lecture Under Section 42. (SEC Opinions) Catindig Class Notes Q: Can a corporation acquire its own share? A: No.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. To pay dissenting or withdrawing stockholders entitled to payment for their shares under the provisions of this Code. the general rule is that the corporation has no right to acquire its own share unless permitted by legitimate corporate purposes. Q: Is acquisition of own shares the only way to eliminate fractional shares? A: No. That where the investment by the corporation is reasonably necessary to accomplish its primary purpose as stated in the articles of incorporation. however. or served personally: Provided. preferred disappears) Example: There are 5 incorporators. It doesn’t have to get SH approval because that is related to its I sweat. If all signed the Minutes. MANGUERA (1) The corp can exercise its right of first refusal (applies to transferors thru succession) (2) In the Minutes. and to purchase delinquent shares sold during said sale. 42. If the SH refuses to buy. you only need approval by the Board. (n) • The enumeration is by no means exclusive since other purposes. or by at least two thirds (2/3) of the members in the case of non-stock corporations. This is why the Court has said SMC can buy a brewery in Hong Kong without need of getting stockholder approval because that is consistent with the primary purpose of the corporation. Same is true with regard to convertible shares (e. In the same way that the Court has said that Mau Sugar Central could buy a company that manufactures sugar bags. which have legitimate business objectives. no one can complain afterwards. Power to invest corporate funds in another corporation or business or for any other purpose Subject to the provisions of this Code.g. I bleed. I soar… Service. in a delinquency sale. Written notice of the proposed investment and the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid. and 3. preferred to common. the BoD may provide that the corporation shall buy the fractional part of the SH. to help the widow to liquidate her shares of stock. 1 died and survived by his widow. The BoD may allow the SH to round-up or to pay the corporation to get 1 whole share. Q: Can redeemable shares once redeemed be revived? A: No. are acceptable to justify a stock corporation purchasing or acquiring its own shares. at a stockholder's or member's meeting duly called for the purpose. Excellence A-61 . the corporation can invest its funds in another corporation but it is with the same purpose. the approval of the stockholders or members shall not be necessary. a private corporation may invest its funds in any other corporation or business or for any purpose other than the primary purpose for which it was organized when approved by a majority of the board of directors or trustees and ratified by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock. 2. you don’t need stockholder approval. (Page 253 of CLV’s Textbook) • A corporation’s right to purchase its shares is subject to the following limitations: (1) That its capital is not thereby impaired (2) That it be for a legitimate and proper corporate purpose (3) That thee shall be unrestricted retained earnings to purchase the same and its capital is not thereby impaired (4) That the corporation acts in good faith and without prejudice to the rights of creditors and stockholders (5) That the conditions of corporate affairs warrant it. arising out of unpaid subscription.

I soar… Service. subject to the requirements of Section 42. (Can be your secondary purpose) Q: A corporation is engaged in mining. Power to declare dividends The board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be payable in cash. (SEC Opinion No. • Not among the secondary purposes. 54. 43. The law presumes that when stockholders invest. Even holders of no-voting members. MANGUERA the purpose clause of said articles to include the desired business activity among its secondary purposes. idle corporate property may be temporarily leased to make it productive in the absence of express restrictions in the articles of incorporation or by-laws and the leasing is not used as a scheme to prejudice corporate directors. The term “funds” as used in Section 42 include “donations” received by the corporation from other entities. it is with the primary expectation that the corporation. 2006) • All corporations. In order to legally engage in any of its secondary purposes. if there is insufficient power in the cement factory for that will further the primary business. or members join a corporation. Excellence A-62 . • Incident to primary purpose. whatever may be their primary purposes. Sacrifice. ((Page 256 of CLV’s Textbook) • The term “funds” in Section 42 includes any corporate property to be used in furtherance of the business. A corporation may invest its funds in another business which is incident or auxiliary to its primary purpose as stated in its articles of incorporation without the approval of the stockholders or members as required under Section 42. the corporation must comply with Section 42.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. However. will only pursue the primary purpose indicated in the articles of incorporation. in property. Thus. its power to invest is limited by its articles of incorporation. It makes no much money and decides to engage in commercial fishing. and if the board feels that it is propitious to pursue a secondary purpose. Because you need sugar bags to pack the sugar that it is selling. while stock dividends I sweat. In such a case. • Rationale of Rule. A corporation is not allowed to engage in a business distinct form those enumerated in the articles of incorporation without amending (h) To declare dividends (Section 43) Sec. as a means of obtaining the best returns of their investible funds. then it would do so only if the stockholders or members have had a chance to evaluate an decide upon such diversion of corporate funds from the primary business of the corporation. What kinds of approval needed? A: If within the secondary purpose BoD + SHs If outside secondary purpose BoD+SHs+ SEC primary purpose. (Page 376-378 of De Leon. I bleed. a dissenting stockholder shall have no appraisal right. (Page 257 of CLV’s Textbook) Catindig Class Notes Q: Can a cement corporation with excess cash put up a power plant/generator? Build a road? A: Yes. 2003) • A secondary purpose. C: Business means your own business. That any cash dividends due on delinquent stock shall first be applied to the unpaid balance on the subscription plus costs and expenses. Nov. through its board. 3 . The other purposes for which funds may be invested without amending the article of incorporation must be among those enumerated in the articles of incorporation. as the case may be. are entitled to vote on the matter. or in stock to all stockholders on the basis of outstanding stock held by them: Provided. • A non-stock. non-profit foundation may invest its funds in or subscribe to shares of another domestic corporation. are deemed to have the power to invest corporate funds in another corporation or business.

It is the same amount that can loosely be termed as the “trust fund” of the corporation. whether local or foreign. Stock dividend is the amount that the corporation transfers from its surplus profit account to its capital account. The directors sell their shares then they revoke the declaration so the price goes down they buy back the shares. further. except: (1) when justified by definite corporate expansion projects or programs approved by the board of directors. A dividend is that part or portion of the profits of a corporation set aside. It is a payment to the stockholders of a corporation as a return upon their investment. Excellence A-63 . such as when there is need for special reserve for probable contingencies. Jack’s Lecture Most common types. Sacrifice. In the case of property dividends you only need board approval but in the case of stock dividends you need the approval of the stockholders.” Well you tell me now. Now. rather. referring to that portion of the net assets directly or indirectly contributed by the stockholders as consideration for the stocks issued to them upon the basis of their par or issued value. • The capital or capital stock which may not be impaired or depleted by the dividends is not the entire net assets of the corporation. The power granted to stockholders to demand from the Board the declaration of dividends under Section 43 is one for the few instances under the Code where the stockholders themselves exercise a primary power. (n) • Dividends payable out of unrestricted retained earnings. (16a) Stock corporations are prohibited from retaining surplus profits in excess of one hundred (100%) percent of their paid-in capital stock. once cash dividends have been declared they cannot be revoked because you can use that to manipulate the price. (Page 260 of CLV’s Textbook) I sweat. declared and order by the directors to be paid ratably to the stockholders on demand or at a fixed time. and such consent has not yet been secured. You have that Philbanking Corporation case before which became bankrupt because it kept declaring dividends at the time it was incurring losses and the justification: “Eh you see we have always been declaring dividends regularly and if we stop now there might be a bank run. it is the legal capital of the corporation in the strict sense. CA. or (3) when it can be clearly shown that such retention is necessary under special circumstances obtaining in the corporation. instead of the usual ratificatory vote on action taken primarily by the board of directors. a stock dividend has no taxable consequence because it is the same pie but you are slicing it into more pieces. I soar… Service. I bleed. property. stock dividends. dividends other than liquidating dividends (which are not really dividends as they are from caoital) may be declared and paid out “the unrestricted retained earnings” of the corporation. Under the law. NTC v. MANGUERA shall be withheld from the delinquent stockholder until his unpaid subscription is fully paid: Provided. That no stock dividend shall be issued without the approval of stockholders representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose. from declaring dividends without its/his consent. Now when the corporation declares cash dividends and it has no retained earnings this is illegal and SH must return what they received and in fact directors will be made liable.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. Only the board approval is needed to declare cash dividends but the corporation must have retained earnings. For instance. here is somebody whose shares represent 10% of the net worth of the corp. 311 SCRA 508 (1999). katwiran ba yan ng taong matino? They attacked the CB for closing Philbanking. For example they declare that 25% cash dividend so the price moves up. It is a characteristic of a dividend that all stockholders of the same class share in it in proportion to the respective amounts of stock which they hold. cash. The book value of his original • • • • A stock corporation exists to make profit and to distribute a portion of the profits to its stockholders. The corp declared a 100% stock dividend. What will happen? He will still own 10 % of the net worth of the corporation. or (2) when the corporation is prohibited under any loan agreement with any financial institution or creditor. Assuming it has retained earnings.

mataas na yung retained earnings nyo. But it has to be definite in fact. Now. Now. not stock dividends. The par value of the shares is 10 pesos per share but they offer to the public for 16 pesos so the buyers will be paying 6 pesos more. That is between him and the buyer because remember it is the books that are controlling. For instance. The property must be subject to depreciation so if it is land you cannot declare a dividend. If the corporation is prohibited by a loan agreement from declaring dividends without the consent of the creditors or when the consent has not been obtained. Treasury shares. should be considered property. lagpas ng 100% mumultahan kayo ng SEC. There is a strike and the union filed a case for unfair labor practice because many employees were terminated so they said if we lose we will be made to pay backwages and that will amount to a hefty amount so we better start building reserves Now the dividends will be given to the Stockholder (SH) of record. usually if it’s a big loan the creditor will require that as a condition and they will make sure the corp has enough funds to pay 3. For instance they will tell you to open so many outlets within 5 years so when Dunkin Donuts first opened they were required to open 5 outlets within 5 years so the company was not declaring any dividends. For instance you get a franchise from abroad there will be a I sweat. If the SH sells his shares but the transfer has not been recorded in the books of the corporation. MANGUERA development schedule. Whatever retained earnings they were accruing were being used to put up other outlets. And because of that even if a stock dividend has been declared it can still be revoked because it’s the same pie only your slicing it in more pieces so even if you declare it you can revoke as long as the stock certificates have not yet been distributed.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. Now the law provides (taken from a decree issued before) that if the surplus profits exceed 100% of the paid-in capital. We have to put up a bigger plant so they purchased a parcel of land in the CALABARZON and they will need 100 million to put up the new plant so they are not declaring any dividends. That is one of the rackets of SGV. Special circumstances there is a need to build up reserves for contingencies (ex. he doesn’t declare dividends and he’s always saying “expansion” I don’t know how he’s getting away with it! 2. “O. That paid in surplus was not from operations Itong si Agbayani sabi it cannot be declared but the SEC said it can be declared. they will have to prepare a long-form report kasi hindi na kasali sa fiscal year and siyempre tatagain ka for the long-form report. Excellence A-64 . the SEC must look in. The SEC has said that paid-in surplus cannot be declared as dividends whether stock or cash. Kung hindi gumagalaw yung financial statement or hindi gumagalaw yung assets.\ Justified by definite corporate expansion projects approved by the board. you can’t be showing the same resolution for 5 years in a row. according to Agbayani it cannot be declared but the SEC says it can be declared subject to certain conditions. It must be subject to depreciation and then you charge depreciation allowance and you have retained earnings then you can declare that as dividends. you have to declare dividends. you must declare dividends whether cash or stock otherwise you will be fined by the SEC. I bleed. ano ba yan? In this case. It is only when he sells and makes a profit will there be a taxable consequence. We have this client who owned a heavy mix (?) plant and said that the present plant cannot cope with our volume of business.” So at the end of the year in your financial statement wala na yan and of course because of that. it goes to the seller but he will have to deliver that to the buyer. that paid in surplus cannot be declared as a stock or cash dividend because according to the SEC you can only declare dividends from earnings from operations. share plus his stock dividend will be the same. subject to certain qualifications. the SEC will ask for copies of the Board Resolution showing the definite expansion plans. Well. I soar… Service. Sacrifice. Now. One of the tricks for window dressing the financial statement is when the value of the corp is negative you have your real property reappraised. the appraisal will increase the value of the property and that wipes out your negative value that’s why normally your external auditor will put a footnote in your financial statement for several years indicating that there has been a reevaluation. The Board Resolution is sufficient of course. if they are declared. Like this fellow Henry Ng of Unimart. 1. here is a corp that made a public offering. Usually when the corporation declares a dividend it will say “resolve that the corporation declare a cash div of 25% on Feb 25 to SH of record as of Feb 15 2002 and for this purpose the books of the corporation be closed at the end of business hours on Feb 15 and will be open again at 8:00 am of Feb 26 2002”.

it is payable on demand. (Si Ina yata nagrecit nito) (v) Record Date • Record date is fixed by the board of directors for determination of stockholders entitled to vote. (SEC Opinion. Excellence A-65 . or shares of stock of another corporation. (ii) Stock • It is dividend payable in unissued or increased or additional shares of the corporation instead of in cash or in property out of the unrestricted retained earnings of the corporation. To issue cash dividends of 3. the seller might be prejudiced because in setting the price it did not consider the benefit of dividends.1 M is stil part of capital or it is not yet par of URE. (iv) Interim Catindig Class Notes Q: Is this your first time to hear “interim” What do you mean by interim? A: It means “temporary” di ba. Sacrifice. the same being left to the sound and judicious discretion of the directors. Could the corp declare a cash dividend of 3. never a past date. 2007) • Revocable before announcement to the shareholders. MANGUERA (i) Cash • Dividend payable in cash • As soon as cash dividends are publicly declared. and the date of payment. So 4M+100T income in URE. 1962) • It is customary for the directors to fix the time for payment of a dividend. • If no time is fixed by the resolution declaring a dividend. De Leon. 3. and if the resolution declares that it shall be payable at such time as the board of directors may direct and the board fixes no time. If record date is ante-dated.1M might violate the trust fund doctrine. (Page 836 of CLV’s CLR. real or personal. price is the primary consideration. can it decide to give the shares to SHs? A: Yep. A stock dividend may be declared only to the extent of the maximum number of shares authorized in the articles of incorporation. April 11. (Page 246 of CLV’s CLR. I soar… Service. (Page 484 of De Leon. no declaration of dividends during the 1st quarter. such as warehouse receipts. Catindig Class Notes Record date must be a current or prospective date.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. • Declaration may be revoked prior to actual issuance. X Corp has URE of 100T. the corp acquired 4 M. Only in June. 2006 citing SEC Opinion. Q: if a corp has treasury shares. the law implies that it shall be paid within a reasonable time. October 9. In sales of stock. (Page 406. The amount is not enough to cover cash dividends to all SHs. • It is the declaration of the dividends which creates both the dividends itself and the right of the stockholders to demand and receive it. such date shall be the date of the notice of meeting. Declaration of interim dividends is not prohibited by law. 2007) Catindig Class Notes Q: What are dividends? A: It refers to return of investment. 2006) • There is no hard and fast rule describing the interval of time between the date of the declaration of dividends. 2007) Catindig Class Notes Q: IN 2006. if it does not do so. it could be property dividends being assets of a corporation. the stockholders have the right to their pro rata shares. Here.1 M. I sweat. But a corporation cannot discriminate among the shareholders as to the time of payment of dividends. the date of record of stockholders entitled thereto. 1992) • Can be declared by mere Board resolution from unrestricted earnings. I bleed. A: No. (Page 836 of CLV’s CLR. Q: Why not a past date for record date? A: Because of the problem of asymmetric information. It is what a SH would want their Board to declare. (iii) Property • It is dividend distributed to the stockholders in the form of property. And price is determined by information.

BoD creates a reserve. (Section 122) • Note: Dividends (whether cash or stock) can be declared only out of the unrestricted retained earnings.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. or by at least two-thirds (2/3) of the members in the case of a non-stock corporation. I bleed. of both the managing and the managed corporation. 2006) • Note: No dividends can be declared out of capital. (n) Jack’s Lecture A corporation can enter into a management contract. Suffice it to say that the policy of the law to encourage and force the distribution of dividends curtails the discretionary power of directors to retain corporate earnings. The provisions of the next preceding paragraph shall apply to any contract whereby a corporation undertakes to manage or operate all or substantially all of the business of another corporation. (Section 43(2)) Of the requirement which is mandatory is violated. it is nothing but a book-entry procedure). • There may be some question as to whether or not the retention of profits is justified by the “reasonable needs of the business”. then the management contract must be approved by the stockholders of the managed corporation owning at least two-thirds (2/3) of the total outstanding capital stock entitled to vote. • Section 29 of the Tax Code imposes a 10% surtax on corporations improperly accumulating profits or surplus. (Page 837 of CLV’s CLR. the corporation may be compelled by the SEC to declare dividends to its stockholders. whether such contracts are called service contracts. (Page 397. except liquidating dividends distributed at dissolution. 2007) Catindig Class Notes Q: How does a corporation prove that the exceptions apply to them as regards retained profits in excess of 100%? A: BoD issues a RESOLUTION approving corporation expansion (for example). • The prohibition on retention of profits provided in Section 43 is applicable to all stock corporations. at a meeting duly called for the purpose: Provided. operating agreements or otherwise: Provided. development. 44. or (2) where a majority of the members of the board of directors of the managing corporation also constitute a majority of the members of the board of directors of the managed corporation. No management contract shall be entered into for a period longer than five years for any one term. What the law really does here is to regulate management contracts. That such service contracts or operating agreements which relate to the exploration. however. Mgt contracts can be necessary at times. I soar… Service. Like here is a mining company whose directors and officers don’t know I sweat. Excerpts of MINUTES of the Board Resolution may be shown to the SEC. MANGUERA (1) Section 43 (2) Tax Code. Section 29 (vi) Limitation on retention of surplus profits • Stock corporations are prohibited from retaining surplus profits in excess of 100% of their paid-in capital stock except when justified by any of the reasons mentioned. De Leon. That (1) where a stockholder or stockholders representing the same interest of both the managing and the managed corporations own or control more than one-third (1/3) of the total outstanding capital stock entitled to vote of the managing corporation. The purpose is to prevent individual taxpayer from avoiding the progressive rates of income tax by employing the corporate form for the accumulation of taxable income. Excellence A-66 . in addition to other income taxes imposed on corporations. Q: What are those legal provisions as regards retention of surplus profits? A: (i) To enter into management contracts (Section 44) Sec. Sacrifice. Power to enter into management contract No corporation shall conclude a management contract with another corporation unless such contract shall have been approved by the board of directors and by stockholders owning at least the majority of the outstanding capital stock. although stock dividends may be issued out of premium surplus (since in the latter case. or by at least a majority of the members in the case of a non-stock corporation. exploitation or utilization of natural resources may be entered into for such periods as may be provided by the pertinent laws or regulations.

They can enter into a contract with a corporation which has technical expertise to manage its mines. Sacrifice.) After the war. by allowing basically an outsider to involve itself in the management of corporate affairs. Excellence A-67 . I bleed. Nielson wanted to continue the contract because there was a stipulation there that if the contract is interrupted. vs. he was a minority stockholder but he had this compania which had a management contract. The rationale for the ratificatory requirement under Section 44 of the managed corporation is that such a management contract is a deviation form the principle under Section 23 that the corporate affairs shall be managed by the board of directors. A management contract should not be valid for more than 5 years for any one term. (Page 263 of CLV’s Textbook) I sweat. It said that Nielson & Co. One of the arguments raised was that a management contract is a contract of agency. anything about mining. eliminated the award for stock dividend. And if a stockholder of the managed corporation owns more than 1/3 of the managing corporation. This is why the laws says that a management contract should be approved by majority of the Board. It does not involve a representation so you cannot terminate it at any time. When Soriano was still managing PAL. When the war broke out. But the Court rejected that argument. Everytime PAL would buy or sell anything. Nielson & Co. Atlas Mining closed. You can just keep renewing it provided. This was a time when Atlas was incurring losses. would get a certain percentage of the stock dividends that will be declared. he did the same thing with his Rubicon which had a management contract. it had a commission. The Court said that a management contract is a contract for lease of services. by majority of the stockholders. (Yamashita must have been there. (Page 263 of CLV’s Textbook) • The ratificatory procedure should not therefore be applicable to a corporation that is organized primarily as a management company. That’s why when Mr. Lepanto did not agree. sued. of both the managed and managing corporation. to manage its mines. Lepanto where Lepanto entered into a managment contract with Nielson & Co. however. You have that case of Nielson & Co. (Page 423 of De Leon. Fred Ramos of National Bookstore was questioning this/ was waging a proxy fight against Soriano III in Atlas Mines. In addition. (Page 263 of CLV’s Textbook) • Rationale for Ratification Requirements on Part of Managing Corporation. He said that Atlas Mining had a management contract with Soriano Compania which was charging a fee based on the gross income. the Japs took over the mines of Lepanto. The Court. and thereby a departure from such an agreement would require the approval of the stockholders under the principle that it would vary the contractual corporate arrangements. The award reached about 30 Million pesos. Lepanto lost in the SC in December 1966. was not a stockholder and only a stockholder can be given stock dividends. The contract provided that they would be provided a certain percentage of the gross income as their management fee. 2006) • Rationale for Ratification Requirements on Part of Managed Corporation. Therefore. that was an issue he raised. Nielson & Co. MANGUERA be approved by at least 2/3 of the stockholders of the managed corporation. That the management arrangement is a deviation form the principle also that the board of directors in the managing corporation assumed office with the understanding that they would devote their time and resources for the affairs of the corporation. the management contract must • Management Contract is an agreement which a corporation delegates the management of its affairs to another corporation for a certain period of time. that it is not for more than 5 years at any one time. and its entering into a management contract is clearly within the primary purpose of the corporation and in accordance with the contractual understanding with the stockholders of such managing corporation. The law tries to regulate management contracts because it has been used too often to _______ money for the corporation. later. it can be terminated at any time. it will be extended. I soar… Service.) Lepanto went to our office which drafted a motion for reconsideration. was getting a percentage of the gross income of PAL.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. (That case was handled by Ike Bello (for Lepanto) who was devastated by the decision. So Soriano & Co. When Toda(?) took over PAL. In fact.

the capital of the corporation represented by the additional paid-in capital is reduced to the extent of the property dividend declared. series of 2003 addressed to Atty.4 Implied Powers • • Section 45 recognizes also implied powers of every corporate entity emanating from its express powers. (Ballantine.3 Additional material: SEC Opinion No. Basic in corporate law is the rule that paid-in surplus cannot be issued as cash or property dividends because it would. When it comes to a management contract entered into by the managed corporation under the definition of Section 44. I bleed. I soar… Service. Sacrifice. 51 Q: May a corporation issue stock dividends to be paid from its paid-in surplus? A: Yes. Paras re issuance of stock dividends out of paid-in surplus SEC Opinion No. It would be different when the property dividend is declared out of additional paid-in capital. Excellence A-68 . Under this situation. additional paid-in surplus has two general uses—to wipe off deficits during re-organization and as payment for issuance of stock dividends. However.) Rule: The capital surplus or additional paid-in capital can only be declared as stock dividends but not as cash or property dividends. (The declaration of stock dividends from paid-in surplus was allowed taking into consideration that when a corporation converts the premium or contributed surplus into capital by issuing to its stockholders shares of stock representing their respective participation. MANGUERA Corporation Code.” I sweat.7 Implied powers are those powers which are reasonably necessary to execute the express powers and to accomplish 4. This is not allowable since this will involve return of capital to stockholders. 51. the same may be sourced from the corporation’s paid-in surplus because that would only involve a reclassification of one capital account to another. page 136) Catindig Class Notes Tip: Large corporation use SPA system of ExeCom for efficiency. Other modes: (1) (2) (3) (4) SPA system Exe Com Combination of both Management Contract 4. result in a return of capital which is prohibited under Section 43 of the 7 No corporation…shall possess or exercise any corporate powers except those conferred by this Code or by its Articles of Incorporation and except such as necessary or incidental to the exercise of the powers so conferred. The board cannot surrender or abdicate its power and duty of supervision and control for otherwise. the same would not be covered by and thereby need not comply with the ratificatory requirements of Section 44. not with another corporation but with a partnership or an individual. it actually parts with nothing but merely transfers the surplus capital account and issues shares of stock to represent the same. Liezl Z. in the case of issuance of stock dividends. it becomes a mere instrumentality of the management company.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. (Page 263 of CLV’s Textbook) • A management contract cannot delegate entire supervision and control over the officers and business of a corporation to another as this will contravene Section 23. in effect. As a rule in corporate practice. • Cases not covered by Section 44.

.5 Ultra Vires Acts Sec. Determined by the language of May change according to time. Court of Appeals. (n) Ultra vires refers to an act outside or beyond corporate powers. A mining company has no power to engage in real estate development. A corporation whose primary purpose is to generate electric power has no authority to undertake stevedoring services to unload coal into its pier since it is not reasonably necessary for the operation of its power plant. executing promissory notes. Ultra vires acts of corporations No corporation under this Code shall possess or exercise any corporate powers except those conferred by this Code or by its articles of incorporation and except such as are necessary or incidental to the exercise of the powers so conferred. the corporate charter and the place. Key: All acts necessary to run a business under ordinary circumstances. 45. by defining the scope of corporate business or enterprise. v. for which reason. 5 SCRA 809 (1962). Implied Powers Expressed Implied Have to do largely with the main Have to do largely with the business.” such corporation cannot engage in the business of land transportation.D. and surrounding applicable law. 372 SCRA 587 (2001). including those that may ostensibly be within such powers but are. [These implied powers are expressly recognized by Section 36(11). Philipinas Loan Co. I bleed. Heirs of Antonio Pael v. which is an entirely different line of business.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. objects and purposes means and methods of attaining of the corporation. Excellence A-69 . The test is whether the powers The test is whether they are fairly are found in the words of the incidental to the (former) and charter of the law reasonably necessary to carry 8 • When the articles expressly provide that the purpose of the corporation was to “engage in the transportation of person by water. those objects and purposes. by general or I sweat. Santos. or promote fairs and other gatherings to advertise and increase its business. acquiring personal property for use in connection with the business etc. delimit its implied powers. 356 SCRA 193 (2001). as stated in its articles of incorporation. • • • • Examples: Borrowing money. Court of Appeals. See Section 36(11). Sacrifice. A. 9 It is generally held that a corporation may temporarily conduct an outside business to collect a debt out of its profits. v. NPC v.] (Nakakalito na ba? Hahaha) • The purpose or purposes for which for which the corporation was created. in effect. MANGUERA them out in the furtherance of the corporation’s business. 403 SCRA 452 (2003). A corporation organized to engage as a lending investor cannot engage in pawbroker. I soar… Service. 4. An officer who is authorized to purchase the stock of another corporation has implied power to perform all other obligations arising therefrom such as payment of the shares of stock. Luneta Motor Co. (De Leon 2006 at 313) • Classification of implied powers: (6) Acts in the usual course of business8 (7) Acts to protect dents owing to a corporation9 (8) Embarking in different business (9) Acts in part or wholly to protect or aid employees10 (10) Acts to increase business11 Express v. circumstances. may not acquire any certificate of public convenience to operate a taxicab service. Vera. 10 See Section 36(10). SEC. 170 SCRA 721 (1989). 11 A corporation may conduct contests or sponsor radio or television programs. and. Inter-Asia Investments Industries v. or carry our the purposes for which the corporation was formed. making ordinary contracts. Inc.

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special laws, prohibited or declared illegal. (Twin Towers Condo v. CA, 2003 cited in CLV’s CLR, 2007) Note: If the contract is ultra vires but has been completely performed by both parties, it can no longer be set aside. If it has been performed by one party and the other party doesn’t comply, if he is sued, he cannot raise the defense that the contract is ultra vires because having benefited from the performance of that contract, he will be in estoppel to raise that defense. ULTRA VIRES ACTS: (1) Acts done beyond the powers of the corporation as provided for in the law or its articles of incorporation; (2) Acts or contracts entered into in behalf of the corporation by persons who have no corporate authority; and (3) Acts or contracts which are per se illegal as being contrary to law. (1) Acts done beyond the powers of the corporation as provided for in the law or its articles of incorporation; Montelibano Test: o If the act is one which is lawful in itself o The act in question is not in direct and immediate furtherance of the corporation’s business, and is not fairly incident to the express powers and reasonably necessary to their exercise. (2) Acts or contracts entered into in behalf of the corporation by persons who have no corporate authority; and (3) Acts or contracts which are per se illegal as being contrary to law. The act is illegal per se - Harden Test: o Even when acts are illegal per se, when only public or government policy is at stake and no private wrong is committed, the courts will the parties as they are, in accordance with their original contractual expectations.

For Acts or contracts which are not per se illegal: General Rule: In the absence of an authority from the board of directors, no person, not even the officers of the corporation, can validly bind the corporation. Exceptions: (1) Doctrine of Ratification or Estoppel- Acts of contracts which are not per se illegal can be validated. Even when the contract entered into in behalf of the corporation is outside the usual powers of the corporate officer, the corporation’s ratification of the contract and acceptance of the benefits have made such contract binding upon the corporation. Note: Ratification that would bind the corporation would have to come from the board of directors or a properly authorized representative. Ratification can never be made on the part of the corporation by the same persons who wrongfully assume the power to make the contract, but the ratification must be by the officers as governing body having authority to make such contract. (2) Doctrine of Apparent Authority- If a corporation knowingly permits one of its officers, or any other agent to act within the scope of an apparent authority, it holds him out to the public possessing the power to do so those acts; and thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent’s authority. Note: Existence of apparent authority must be ascertained through: (a) general manner in which the corporation holds out an officer or agent as having the power to act or in, other words, the apparent authority to act in general, with which it clothes him; or (b) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond of his ordinary powers. If the corporation desires to set up the defense that the contract was executed by one not authorized as agent, it must plead such fact. (Ramirez Doctrine) However, once the corporation has discharged its burden under the Ramirez Doctrine, then the burden of proof now shifts to the contracting party to show that indeed by previous acts and actuations, the acting officer had been clothed by the corporation with apparent authority for the public to take such authority at face value. (Yao Ka Sin-Timely Repudiation Doctrine)
CLV Class Notes

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A: YES. (Such guarantee will improve the morale of the employees. Employees with high-morale are good for the business.)

Q: Can two corporations form a partnership? A: No. If two corporations try to form a partnership, none would be created thereby. (Tuason v. Bolanos) The reason behind the rule that corps cannot validly enter into a partnership is because in the partnership all the other partner can bind the partners under the “mutual agency” principle which would be violative of the principle of of “centralized management” under Section 23 of Corp Code which provides that only the BoD can bind the corporation. (Page 801 of CLV’s CLR,2007) Q: Can 2 corporations enter in a joint venture? A: Yes. Corporations have legal capacity to form a joint venture, i.e., one with a limited purpose and duration. Q: What makes a project or undertaking a “joint venture”? A: What makes a project or undertaking a joint venture to authorize the corporation to be a co-venturer therein is the very nature and essence of the undertaking that limits it to a particular project which allows the board of directors of the participating corporation to properly evaluate all the consequences and likely liabilities to which the corporation would be held liable for.( Page 267 of CLV’s Textbook) Q: Bakit pede sa joint venture and hindi sa partnership? A: In a joint venture, being for a particular project undertaking, when the BoD of a corp evaluate the risks and responsibilities involved, they can more or less exercise their own business judgment in determining the extent by which the corp would be involved in the project and the likely liabilities incurred. Unlike in an ordinary partnership arrangement which may expose the corporation to any and various liabilities and risks which cannot be evaluated and anticipated by the board. (Page 267 of CLV’s Textbook) Catindig Class Notes Q: X corp has several VPs. BoD approved issuance of corporate credit card to VPs. The credit company required X Corp to guarantee the card obligation of the VPs. X corp is not in the business of issuing guaranties or sureties. Can X Corp without violating Section 45 guarantee the card obligations? Tip: Consider the primary purpose of the corporation. (Try to relate to the primary purpose of the corp, if you could then there is no ultra vires) Q: Employees applied for limited credit facilities with a grocery store nearby the corp. Can the corp guarantee 50% of the obligations?

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already, in other words, past services. Then, previous debt. So when debt has been converted into equity. Then amount transferred from unrestricted retained earnings to capital. That is what happens when the corporation declares a stock dividend. A bookkeeping entry will be made and the amount corresponding to the stock dividend will be debited from unrestricted retained earnings and transferred to capital. Then outstanding shares exchanged for stocks in the event of reclassification or conversion. For instance, a preferred share is given the option to be exchanged for common shares. When you surrender, you’ll be given common shares. Or say, the corporation decided to change the par value from P100 to P10. So they say, you know, it’s very hard to sell the shares in the stock market because the price is too high. P100! Stockholders will be asked to surrender their stock certificates. In return, they will be given new stock certificates with the par value of P10. Or when you have a merger, stockholders of the absorbed corporation will surrender their shares and in exchange they will be given shares in the surviving corporation. And also, it is illegal to issue shares where the consideration is a promissory note. A promise to pay for future services. Now the stock certificate will be signed by the President, or in his absence the Vice-President, and countersigned by the Secretary (§63; Certificate of stock and transfer of shares). That’s why in one case…you have this Torres case… a retired Judge who was the controlling stockholder in a corporation. And his nephew to whom he had given shares of stock turned out to be recalcitrant and rambunctious so he decided to regain control of the corporation by giving shares to other nephews. And what did he do? He was the president of the corporation and he simply posted entries in the stock and transfer book. O, one share to this fellow, another share to that… The court said that that is not valid. That is not the way to…and besides, he is the president, not the corporate secretary. He is not supposed to handle the stock and transfer book. Catindig Class Notes Q: How to become a SH? A: (1) Subscribing to new shares (2) Purchase of previously issued shares; (3) Succession Q: What are the advantages to the corp pf having subscription agreements? A: The corp can set a date for payment of balance. No need for a call in this case.

5. STOCKHOLDERS
5.1 Subscription to shares (a) How do you acquire shares in a company?
In a corporation, a person may become a shareholder: (1) By subscription contract with an existing corporation for the acquisition of unissued shares. (2) By purchase from the corporation of treasury shares. (3) By transfer from a previous stockholder of the outstanding shares or existing subscription. (De Leon p. 510, 2006) • (I’m not sure if isasama dito yung “making a stock dividend” and assignment -ASM (p528 of De Leon,2006)) • Catindig: Remember the modes of acquiring ownership like succession. What is a share? • Shares of stock issued by the corporation “are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other persons legally authorized to make the transfer.” (Section 63) • Shares of Stock therefore are properties and have intrinsic pecuniary value. (page 362 of CLV’s Textbook)
Jack’s Lecture § 60 [Subscription contract] simply defines what is a subscription agreement and § 61[Pre-incorporation subscription] says a subscription for shares of stock of a corporation still to be formed shall be irrevocable for at least 6 months unless all the subscribers agree or the incorporation fails to materialize. §62 [Consideration for stocks] mentions that consideration may be paid… It says here that stock should not be issued for a consideration less than the par value, or if it is a no-par value share, less than the stated value and the consideration possible may be actual cash which is the most common consideration. Or property. Payment made in the form of property, the SEC will require an appraisal. Usually, the property given will be land so they will require an appraisal. And then, labor actually rendered

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2007) (c) What are (Section 61) pre-incorporation subscriptions? Sec. Sacrifice. I soar… Service. 61. all contracts for the subscription or sale of unissued stock shall be governed solely by the rules pertaining to subscription agreement. C: In case of additional issuance of shares (after incorporation). Pre-incorporation subscription A subscription for shares of stock of a corporation still to be formed shall be irrevocable for a period of at least six (6) months from the date of subscription. (n) Sec. (Page 512 of De Leon. unless all of the other subscribers consent to the revocation. (Page 860 of CLV’s CLR. There can be a subscription only with reference to stock which has never been issued. MANGUERA Catindig: 99% of the time. • (b) What is subscription? (Section 60) Sec. 60. to ensure that subscription due thereon will be paid for the protection of corporate creditors under the trust fund doctrine. That no preincorporation subscription may be revoked after the submission of the articles of incorporation to the Securities and Exchange Commission.  Yong v. 62. anyway the transaction will appear on the Balance Sheet.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. I bleed. (a) Transfer for consideration of treasury shares is a sale by the corporation. 375 SCRA 614 (2002). subscription does not have subscription agreement. Subscription contract Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed shall be deemed a subscription within the meaning of this Title. the return of such properties to the subscriber is a direct consequence of rescission and does not amount to corporate distribution of assets prior to dissolution. 2006) • The Code prohibits the distinction between the sale unissued stock or subscription of such stock. the SEC would take the word of the corporation. 2007) Nevertheless. Tiu. Considering for stocks I sweat. Tip: For incorporation. (Page 511 of De Leon. or unless the incorporation of said corporation fails to materialize within said period or within a longer period as may be stipulated in the contract of subscription: Provided. (b) A transfer of fully paid shares by a shareholder to a third person is a sale. On (d) What could be the consideration for stocks? Sec. but the corporation fails to issue the covered shares. 2006) • Subject Matter. 2007) • When properties were assigned pursuant to a preincorporation subscription agreement. 2007) • However. (n) • Note: The purpose of removing all contracts dealing with unissued shares form the coverage of “sale” is to exclude them from the operations of ordinary contract principles. Rights of unpaid shares Holders of subscribed shares not fully paid which are not delinquent shall have all the rights of a stockholder. (Page 860 of CLV’s CLR. notwithstanding the fact that the parties refer to it as a purchase or some other contract. it is advisable to pay in cash to avoid delay due to valuation. (Page 862 of CLV’s CLR. condonation or mutual withdrawal and the effects of the happening and nonhappening of conditions. a subscription agreement is a species of the genus sale in that it involved the transfer of ownership to a property right (share) for a valuable consideration. Excellence A-73 . (Page 859 of CLV’s CLR. 72. waiver. such as rescission by reason of breach. (n) • Subscription is an offer to acquire a specified number of unissued shares of an existing corporation or one still to be formed.

12 (i) How is the issue price of no-par shares fixed? (Section 62) 12 The basis for determining the documentary stamps due on stock dividends declared would be their book value as indicated in the latest audited financial statements of the corporation. by the stockholders representing at least a majority of the outstanding capital stock at a meeting duly called for • The word issue as used in Section 62 refers to the original issue. Amounts transferred from unrestricted retained earnings to stated capital. 2007) • Stock dividends are in the nature of shares of stock. insofar as they may be applicable. Life Insurance Co. Property. I bleed. when the stock first passes from the corporation to the hands of stockholder. Labor performed for or services actually rendered to the corporation. (Page 528 of De Leon. (Page 863 of CLV’s CLR. and 6. I sweat. Court of Appeals. or in the absence thereof. that is. 2006) • A treasury stock therefore may be sold for reasonable price fixed by the BoD even for less than the par or issued value thereof. 3. or consists of intangible property such as patents of copyrights. being a species of genus sale. and not the par value thereof. (5 and 16) Stocks shall not be issued for a consideration less than the par or issued price thereof. Lincoln Phil. Consideration for the issuance of stock may be any or a combination of any two or more of the following: 1. Outstanding shares exchanged for stocks in the event of reclassification or conversion. Where the consideration is other than actual cash. Shares of stock shall not be issued in exchange for promissory notes or future service. 293 SCRA 92 (1998). tangible or intangible. The same considerations provided for in this section. may be used for the issuance of bonds by the corporation. Commissioner of Internal Revenue v. subject to approval by the Securities and Exchange Commission. (Page 863 of CLV’s CLR. 379 SCRA 423 (2002). Sacrifice. The issued price of no-par value shares may be fixed in the articles of incorporation or by the board of directors pursuant to authority conferred upon it by the articles of incorporation or the by-laws.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. I soar… Service. (Section 9) • When consideration is agreed upon is either cash or property. Previously incurred indebtedness of the corporation. the valuation thereof shall initially be determined by the incorporators or the board of directors. Excellence A-74 . Lincoln Phil. MANGUERA the purpose. 4. 2. it is not necessary for the subscription agreement to be valid that the same must be delivered at perfection. actually received by the corporation and necessary or convenient for its use and lawful purposes at a fair valuation equal to the par or issued value of the stock issued. Life v. the consideration for which is the amount of unrestricted retained earnings converted into equity in the corporation’s books. Actual cash paid to the corporation. 2007) • The terms “actually…paid” and “actually received” in Section 62 is meant to indicate that eventually the consideration must be paid and cannot be given as a discount or amount to watered stock. for a subscription agreement is a consensual (not real) contract.. 5.

2005) Property (1) Necessary or proper in carrying pm the corporate business. the Bod has discretion to sell at prices higher than floor price.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. • They may be accepted as payment for shares subject to the following conditions: (1) The SEC is able to verify the existence and collectibility of the receivables. Any change in value of no par value shares shall apply only to unissued portion of the capital stock of the corporation. and which is necessary or proper for it to own in carrying on its business. Book Value [Paid up capital + Paid in Surplus + Retained Earnings] / [total number of Outstanding shares] Book Value ≠ Fair Value Book value fluctuates because Retained Earnings also changes Q: What is the disadvantage of No-par? A: Its in the record keeping. Sacrifice. and must be something real and tangible as distinguished from something constructive and speculative. (3) In the absence thereof by the stockholders at a meeting duly called for the purpose representing at least a majority of the outstanding capital stock. (3) Capable of being transferred and applied to payment of debts.(Page 531 of De Leon. 2007) • If the consideration is other than actual cash. its value must be worth the value of the stocks issued. July 14.(De Leon. I bleed. 05-11. The property must be of substantial nature. subject to the final approval of the SEC. having pecuniary value capable of ascertainment (at a fair valuation equal to the par or issued value of the stock issued). MANGUERA • The issued price of no-par value shares may be fixed: (1) In the AoI (2) By the BoD pursuant to authority conferred upon it by the AoI or the by-laws. the valuation thereof shall initially be determined by the incorporators or the BoD. Excellence A-75 . It must be of such character that it can be delivered to the corporation. instead of being merely communicated to its I sweat. p 536. or consists of intangible property such as patents or copyrights. July 31. 1979) • See Page 294 of JRS Catindig Class Notes Q: Difference of Par value and no par value shares Par Value Share No Par Value Floor Price Par Value Not less than P5 Ceiling No Ceiling No Ceiling The corp normally sells them at par value and not at book value In both cases. (SEC Opinion No. (ii) If the consideration for shares is other than cash. • Change in the value of issued shares. There are different price for each shares. how is the value thereof determined? (Section 62) • Where consideration is other than actual cash. I soar… Service. the need of the approval of the valuation by the commission. (2) The shares to be issued will be held in escrow until actual payment or collection of the receivables. (SEC Opinion. The property which a corporation may accept in exchange for its stock must be of a kind which the corporation may lawfully acquire and hold in carrying out the purposes of its incorporation. (Page 864 of CLV’s CLR. 2006) • Change in the value of unissued shares. (2) Possesses ascertainable pecuniary value. 2006) Receivables. The stated value of the issued no par value shares cannot be changed anymore in view of Section 6 (par 3). (True Value Rule) Hence.

MANGUERA (3) Disposition of treasury shares (Page 832 of CLV’s CLR.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. which would cover the following instances: (1) Increase in the Authorized Capital Stock. It must also be such as is capable of being applied to the payment of debts and of distribution among the stockholders. (Section 39. 2006) Services • A corporation is allowed to receive as payment for its stocks labor performed for or services actually rendered to the corporation provided the transaction is in good faith and no fraud is perpetrated upon other stockholders and creditors.2 Trust Fund Doctrine TRUST FUND DOCTRINE Nature of Doctrine:  Ong Yong v. (4) IN case the right is denied in the AoI. I bleed. (2) Shares issued in good faith in exchange for property needed for corporate purposes. but not distributed among the stockholders. (Page 832 of CLV’s CLR. (2) Opening for subscription the unissued portion of existing capital stock. I soar… Service. (Page 356 of De Leon. Satisfaction of Previously incurred indebtedness • Section 62(4) expressly allows the set-off or satisfaction of previously incurred indebtedness of a corporation by the issuance of its shares of stock where conflicting rights of creditors are not involved. Excellence A-76 . Tiu. 2007)) • Whenever a capital stock of a corporation is increased and new shares of stocks are issued. (Page 532 of De Leon. Section 39 has widened the coverage of pre-emptive right which now includes re-issuance of treasury shares because of the use of the words “disposition of shares”. 2007) Stock Transactions covered by right. the new issue must be offered first to the stockholders who are such at the rime the increase was made in proportion to their existing shareholdings and on equal terms with other holders of the original stocks before subscriptions are received from the general public. 2007) • Pre-emptive right not available: (1) Shares to be issued to comply with laws requiring stock offering or minimum stock ownership by the public. Profits • If stocks are issued in consideration of profits earned by the corporation. 2006) officers or employees. Sacrifice. - “The assets of the Corporation to the extent of its capital stock represent a Trust Fund for the protection of the creditor’s claim” I sweat. and it must be actually transferred to the corporation and capable of being transferred by the corporation. For example. 401 SCRA 1 (2003). 2006) • The rule [on pre-emption] aims to safeguard the right of stockholder to preserve unaltered and unimpaired his proportionate influence and interest in the corporation and the relative value of his holdings. 2006) (e) Preemptive right of stockholders • A pre-emptive right is the shareholder’s right to subscribe to • all issues or disposition of shares or any class in proportion to his present stockholdings. (3) Shares issued in payment of previously contracted debts. and 5. he may subscribe 20% of any shares of stock issued by the corporation. (Page 536 of De Leon. (Page 832 of CLV’s CLR. the purpose being to enable the shareholder to retain his proportionate control in the corporation and to retain his equity in the retained earnings and also in the net assets in the event of dissolution. such issue is called stock dividends. This principle is known as the right of preemption or pre-emptive right of stockholders (Page 355 of De Leon. if a stockholder with pre-emptive right owns 20% of the outstanding shares of the corporation.

if any is due. it then donated 3M to typhoon victims with BoD approval. any disposition of corporate funds to the prejudice of creditors is null and void. 301 SCRA 152 (1999). Boman Environmental Dev. having been effected without compliance with the statutory requirements. CA. There can be no distribution of assets among the stockholders without first paying corporate creditors. MANGUERA corporation are regarded as equtiy in trust for the payment of corporate creditors. nor can the corporation buy its own shares using the subscribed capital as the consideration therefore. Issuance of stock certificates) that no stock certificate shall be issued until the full amount of the I sweat.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. Corp.3 Case Philippine Trust Co. all assets of the corporation shall first be applied for the payment of all its obligations Under the trust fund doctrine. The requirement of unrestricted retained earnings to cover the shares is based on the trust fund doctrine which means that the capital stock. to which the creditors may look for satisfaction. property and other assets of the corporation are regarded as equity in trust for the payment of the corporate creditors. all subscriptions automatically become due and payable receivables Upon dissolution. except in instances mandated by law The corporation cannot subscriptions receivables waive or condone o o o o o o 5. “A”. of Internal Revenue v. 64. property and other assets of a 5. Sacrifice. o During the life of the corporation. I bleed. (there are exceptions) Upon insolvency. Thus dividends must never impair the subscribed capital stock. NTC v. v.4 Issuance of Certificate of Stock (Section 64) Sec. Catindig Class Notes Q: A corporation has 5M Unrestricted Retained Earnings. CA) • See page 864 of CLV’s CLR Jack’s Lecture It says here (§64. (37) • Certificate of stock is a written evidence of the shares of stock but it is not the share itself. I soar… Service. Comm. 167 SCRA 540 (1988). no part of the subscribed capital stock may be turned over or released to the stockholder (except in the redemption of the redeemable shares) without violating this principle. Court of Appeals. was wholly ineffectual. The donation is unreasonable. (Lincoln Philippines Life v. Is the suit valid? A: Yes. a stockholder filed a suit seeking to enjoin or annul the donation. The reason is that creditors of a corporation are preferred over the stockholders in the distribution of corporate assets. subscription commitments cannot be condoned or remitted. v. The “trust fund” doctrine considers the subscribed capital stock as a trust fund for the payment of the debts of the corporation. has been paid. the capital stock. Until the liquidation of the corporation. 311 SCRA 508 (1999). Hence. Issuance of stock certificates No certificate of stock shall be issued to a subscriber until the full amount of his subscription together with interest and expenses (in case of delinquent shares). Court of Appeals. Rivera (1923) • The resolution releasing the shareholders from their obligation to pay 50 per centum of their respective subscriptions was an attempted withdrawal of so much capital from the fund upon which the company’s creditors were entitled ultimately to rely and. Excellence A-77 . no assets may be returned to the stockholders when there are outstanding obligations Dividends can only be declared out of __restricted retained earnings The corporation is without authority to repurchase its own shares of stock. The corporation cannot reduce its capital stock to the prejudice of the creditors.

the number of shares represented by such certificate.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. (Haha) (d) Lost or Stolen Certificates (Section 73) Sec. 05-02 dated January 31. That is wrong because the subscription agreement is indivisible. usually. every stockholder has a right to have a proper certificate issued to him by the (b) Right of a stockholder to a certificate I sweat. That’s why that old Baltazar case is wrong. (CLV’s Textbook 400) subscription has been paid because. Catindig Class Notes Q: Is the issuance of Certificate of Stock. Sacrifice. 73. the stockholder shall not be entitled to a stock certificate. Catindig: Not exactly true. SEC Opinion (1) Tax Code on capital gains tax Payment thereof is necessary. I bleed. Prepare Minute first and have it signed before issuing a Secretary’s Certificate (3) (4) (5) Section 15. Where Justice Paredes said that… let’s say you subscribed to 1000 shares and you paid only 25% of the price. CA) • Pay attention to Section 15(11). the serial number of the certificate and the name of the corporation which issued the (a) Formalities for Issuance • The certificate of stock must be signed by the President or Vice-President and countersigned by the corporate secretary or the assistant secretary otherwise it is not deemed issued. The registered owner of a certificate of stock in a corporation or his legal representative shall file with the corporation an affidavit in triplicate setting forth. a subscription contract is indivisible. 11th paragraph Right of First Refusal Payment of Documentary stamps Q: Where can you a get a stock certificate? A: From the National Bookstore. He can either spread out that partial payment equally among the 1000 shares so each share will be partially paid or he can apply that as full payment for 250 shares and then ask the corporation to issue stock certificates to him for 250 shares. Lost or destroyed certificates The following procedure shall be followed for the issuance by a corporation of new certificates of stock in lieu of those which have been lost. stolen or destroyed: 1. the stockholder has the option. The Corp Sec must be shown the certificate authorizing the transfer as issued by the BIR. MANGUERA corporation upon demand. Excellence A-78 . if possible. stolen or destroyed. it said. as soon as he has complied with the conditions under Section 64 of the Corp Code (CLV’s Textbook 404) A subscriber must first totally pay his subscription before a certificate of stock covering shares subscribed and paid for could be issued to him. So until the entire consideration is paid. no capital gains tax realized)) (2) Payment of tax due on the transfer of shares Note: Upon issuance of Certificate of Stock to a NOMINEE always make a DEED OF TRUST. I soar… Service. (Except in case of nominee (1share. the circumstances as to how the certificate was lost. in case of transfer MINISTERIAL? A: Yes. 2005 re Bearer Certificates. • • (c) Additional material: SEC Opinion No. • Under Section 63 of the Corp Code. (Bitong v.

the right to make such contest shall be barred and said corporation shall cancel in its books the certificate of stock which has been lost. It is well-settled that unless proven otherwise. That if a contest has been presented to said corporation or if an action is pending in court regarding the ownership of said certificate of stock which has been lost. I soar… Service. stolen or destroyed. The notice shall state the name of said corporation. And then. well you can use the book value which appears on the latest audited financial statement. It would I sweat.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. stolen or destroyed. 2. and the number of shares represented by such certificate. He will be allowed to get the stock certificate but he will be required to post an indemnity bond equal to the value of the shares listed in the stock market. the issuance of the new certificate of stock in lieu thereof shall be suspended until the final decision by the court regarding the ownership of said certificate of stock which has been lost. in which case a new certificate may be issued even before the expiration of the one (1) year period provided herein: Provided. the stockholder must execute an affidavit explaining the circumstances under which the stock certificate was lost. or negligence on the part of the corporation and its officers. no action may be brought against any corporation which shall have issued certificate of stock in lieu of those lost. stolen or destroyed and issue in lieu thereof new certificate of stock. dated 28 January 1999. I bleed. Newspaper of G. Lost or destroyed certificates). once a week for three (3) consecutive weeks at the expense of the registered owner of the certificate of stock which has been lost. Check the signature cards. Except in case of fraud. So he cannot wait for a year. addressed to Ms. (§73. What is verified is that the SH is indeed a SH and not an impostor. Sacrifice. effective for a period of one (1) year. (2) Form: Notarial requirements. • A corporation may actually not heed the procedure under Section 73 of the Corp Code in accordance with SEC Opinion but by doing so.” If it is not listed in the stock market. The stock and transfer agent will say. the “stock and transfer book” is the best evidence to establish stock ownership. same. But the stockholder might want to get the stock certificate right away. CTC+ Government issued ID with picture (3) Address (4) Prepare the notice. Use the signature card. it cannot avail of the “free and harmless” clause provided in Section 73. Excellence A-79 . After verifying the affidavit and other information and evidence with the books of the corporation. Ma. Section 73(2) (1) Verify if the affiant is really the stockholder of record. (R. for such amount and in such form and with such sureties as may be satisfactory to the board of directors. if no contest has been presented to said corporation regarding said certificate of stock. the same admits exceptions.C. and that after the expiration of one (1) year from the date of the last publication. A. he might be applying for a loan and intends to use the shares of stock as collateral for the loan. (CLV’s textbook at 410) Jack’s Lecture Now if a stock certificate was lost. stolen or destroyed. bad faith. said corporation shall publish a notice in a newspaper of general circulation published in the place where the corporation has its principal office. 201a) • While Sec. 73 of Corporation Code appears to be mandatory. the name of the registered owner and the serial number of said certificate. to get a new one. stolen or destroyed pursuant to the procedure above-described. notice of the loss will be published once a week for 3 consecutive weeks in a paper of general circulation. For instance. And then after 1 year from the date of the last publication. unless the registered owner files a bond or other security in lieu thereof as may be required. he can get a new stock certificate. (SEC Opinion. Catindig Notes Section 73 Q: Is the corporation required to verify the accuracy of all the facts in the affidavit? A: No. “Ok. He shall also submit such other information and evidence which he may deem necessary. you just give a bond equal to the value of the shares in the stock market. MANGUERA be an internal matter for the corporation to find measures in ascertaining who are the real owners of stock for purposes of liquidation. such that a corporation may voluntarily issue a new certificate in lieu of the original certificate of stock which has been lost without complying with the requirements under said section. Cecilia Salazar-Santos).

Razon. the transfer must be recorded in the books of the corporation. the following must be complied with: (1) Delivery of the certificate (2) Indorsement by the owner or his agent (3) To be valid to third parties. Sacrifice. And a new stock certificate was issued to the buyer. That’s why in one case…you have this Torres case… a retired Judge who was the controlling stockholder in a corporation. He is not supposed to handle the stock and transfer book. O. 2007 Jack’s Lecture Now the stock certificate will be signed by the President. Same stock number 5. “Well. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates endorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. the old stock certificate has not been endorsed. however. shares of stock are personal property and they may be transferred by delivery of stock certificates endorsed by the owner or his attorney in fact. The court said that the cancellation was valid because actually he has sold and it and he has been paid. except as between the parties. That is not the way to…and besides. So even if a case has been filed for the rescission of the sale. not the corporate secretary. Certificate of stock and transfer of shares). No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation. And Razon said “No. countersigned by the secretary or assistant secretary. the corporation still has to transfer the stock certificates. Excellence A-80 . “Will you please endorse it so that it can be cancelled. MANGUERA • See page 876 of CLV’s CLR. another share to that… The court said that that is not valid. • If not represented by the certificate (such as when the certificate has not yet been issued or where for some reason is not in the possession of the stockholder. (35) How are shares of stocks transferred? • If represented by a certificate. It was just delivered to him for him to (5) Original copy of the publisher’s affidavit.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. There was a case where the seller sold the shares of stock and he was paid. And what did he do? He was the president of the corporation and he simply posted entries in the stock and transfer book. Vicente Chuidian wanted to regain shares of stock which he claimed belonged to his father in E. one share to this fellow. the court said that where the stock certificate was endorsed but it was not delivered. until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction. I soar… Service. 63. the stock certificates were actually in his possession. Certificate of stock and transfer of shares The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice president. No transfer. and sealed with the seal of the corporation shall be issued in accordance with the by-laws. The court said there was no indorsement so he cannot claim that the stock certificate belonged to him.5 Transfer of shares (Section 63) Sec. That’s why you have that case of Razon where Mr. and countersigned by the Secretary (§63.” But the seller did not and refused to return the stock certificate. On the other hand.” So the buyer returned it to the seller and told him. he is the president. the date of the transfer. So the corporation declared it as cancelled. And his nephew to whom he had given shares of stock turned out to be recalcitrant and rambunctious so he decided to regain control of the corporation by giving shares to other nephews. So you need two things: an indorsement of the stock certificate plus delivery. shall be valid. TRANSFER OF SHARES OF STOCK It says here. I bleed. Replacement Certificate (1) (2) Indicate that it is a replacement certificate. And then the corporate secretary says that. the number of the certificate or certificates and the number of shares transferred. then the shares of stock represented by the stock certificates had not been transferred to the buyer. It actually belongs to me. (1) By means of a deed of assignment (2) Such is duly recorded in the books of corporation.” Well. this does not belong to your father. (See page 297 of JRS for illustrative problems) I sweat. or in his absence the Vice-President. And the court says it is a ministerial obligation of the corporation to transfer the shares of stock to the name of the buyer.

63 of Corporation Code. A transferee has no right to intervene as a stockholder in corporate issue on the strength of the transfer of shares allegedly executed by a registered stockholder. If he wants to sell. It only refers to payment due under the subscription agreement. including the corporation. forged the indorsement and because of that. Like you know. it is the original owner who will be recognized and the remedy of that buyer will be to simply sue the corporation for damages. Many people do not claim their stock certificates so they are there in the vault of PLDT. Now you have this case of China Bank which I mentioned earlier where China Bank foreclosed the pledge on the proprietary shares of Valley Golf Club. the corporation will be liable. he must sell the entire 1000 shares. if there is an unpaid subscription and there’s a call (?). Valley Golf Club refused. the SEC has said • Under Sec. no transfer shall be valid except as between the parties until the transfer is recorded in the books of the corporation. Sacrifice. “I will sell 500 and then retain 500. CA. And when there is substitution of debtors. Now if he does that.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. are concerned—as between the parties to the sale. the seller can simply sign at the back and deliver it they’re not like negotiable instruments. And therefore the stockholder. will be recognized. he must get the approval of the board because remember he still owes the corporation for his unpaid subscription and therefore if he will sell the shares. That’s why if the indorsement of the stockholder was forged even if it was an indorsement in blank. the owner of the shares of stock whose signature was forged must be recognized as still the owner and the remedy of the buyer would simply be to sue PLDT for damages. The contract is indivisible. Likewise if the indorsement was forged… somebody stole the stock certificate. It does not refer to amounts due the corporation arising from other transactions. irrespective of good faith. although it has been said that shares of stock are personal property and are quasi-negotiable because to transfer them. v. In other words. Bitanga. He has not paid his monthly dues. the creditor can attach and levy on the shares. 63 that the transfer must be registered to affect the corporation and third persons. So first of all. The Court said no. the corporation issued a stock certificate to that forger so he now has a stock certificate in his name and he goes around and sells that to somebody who bought that in good faith. Excellence A-81 . both the original owner whose stock was stolen and that buyer. in effect he will be substituting somebody for him as debtor for the unpaid subscription. Now the law says no shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation. And therefore the corporation can consider it as cancelled. the records or the stock certificates.the corporation. And Valley Golf Club argued under §63 that it can’t be transferred in the books in the name of China Bank because we have these claims which are not paid. It said that this stockholder has unpaid obligations. para ‘tong Torens title. So what will happen. Batangas Laguna Tayabas Bus Co. the sale of stocks shall not be recognized as valid unless registered in the books of the corporation insofar as third persons. 180 SCRA 266 (1989). 362 SCRA 635 (2001). including • • I sweat. So what will happen? The buyer will get good title and the seller will also have to be recognized. he has not paid his bills and under the by-laws. Valley Golf Club has a lien on the stock certificate for his proprietary share for his unpaid claim. if he subscribed to 1000 shares cannot say. then the corporation will be responsible for his act. But remember whenever there will be an over-issuance of the shares. I have one case where an employee there who was in charge of their custody forged the indorsement of some stock and sold them in the stock market. he will be protected because he has the right to rely on that stock certificate in the name of the seller. I soar… Service. the buyer shall not acquire any right to the share of stock. Now. So the buyer would get good title. Magsaysay-Labrador v. Now if the one who forged it was an employee or officer of the corporation who was precisely in charge of the stock. MANGUERA that a subscription contract is an indivisible contract. So it must be all or nothing. The purpose of registration is two-fold: to enable the transferee to exercise all the rights of a stockholder. I bleed. When it asked Valley Golf Club to register the shares in its name. you are required to be a stockholder of PLDT to get a telephone line. that is novation and you need the consent of the creditor. Why? If the selling stockholder has a creditor and in the books of the corporation the shares are still in his name. the buyer cannot acquire title. the transfer shall be valid even if not recorded in the books of the corporation.” No. endorse and he unjustifiably refused to return the stock certificate. If there is over-issuance. The unpaid claim mentioned here refers to the subscription price. Now. It is explicit under Sec. And it would be PLDT who would bear the loss. But again if this will result in over-issuance.

FRATERNAL ORDER
SCHOOL OF LAW

OF

ATENEO DE MANILA UNIVERSITY

UTOPIA
ARIS S. MANGUERA limitation in this respect, than the general provisions of law. Fleishcher v. Botica Nolasco, 47 Phil. 583 (1925).

the right to vote and to be voted for, and to inform the corporation of any change in share ownership so that it can ascertain the persons entitled to the rights and subject to the liabilities of a stockholder. Until challenged in a proper proceeding, a stockholder of record has a right to participate in any meeting; his vote can be properly counted to determine whether a stockholders’ resolution was approved, despite the claim of the alleged transferee. On the other hand, a person who has purchased stock, and who desires to be recognized as a stockholder for the purpose of voting, must secure such a standing by having the transfer recorded on the corporate books. Until the transfer is registered, the transferee is not a stockholder but an outsider. Batangas Laguna Tayabas Bus Company, Inc. v. Bitanga, 362 SCRA 635 (2001).

The only limitation imposed by Sec. 63 is when the corporation holds any unpaid claim against the shares intended to be transferred. A corporation, either by its board, its by-laws, or the act of its officers, cannot create restrictions in stock transfers, because “Restrictions in the traffic of stock must have their source in legislative enactment, as the corporation itself cannot create such impediment. By-laws are intended merely for the protection of the corporation, and prescribe relation, not restriction; they are always subject to the charter of the corporation.” Rural Bank of Salinas v. CA, 210 SCRA 510 (1992).

A bona fide transfer of shares, not registered in the corporate books, is not valid as against a subsequent lawful attachment of said shares, regardless of whether the attaching creditor had actual notice of said transfer or not. All transfers not so entered on the books of the corporation are absolutely void; not because they are without notice or fraudulent in law or fact, but because they are made so void by statute. Garcia v. Jomouad, 323 SCRA 424 (2000). Pursuant to Sec. 63, a transfer of shares of stock not recorded in the stock and transfer book is non-existent as far as the corporation is concerned. As between the corporation on the one hand, and its shareholders and third persons on the other, the corporation looks only into its books for the purpose of determining who its shareholders are. Ponce v. Alsons Cement Corp., 393 SCRA 602 (2002). Section 63 contemplates no restriction as to whom the stocks may be transferred. It does not suggest that any discrimination may be created by the corporation in favor of, or against a certain purchaser. The owner of shares, as owner of personal property, is at liberty, under said section to dispose them in favor of whomever he pleases, without

5.6 Cases
Sunset View Condominium Corporation v. Campos (1981) • Ownership of a unit is a sine qua non to being a shareholder in the condominium corporation. It follows that a purchaser of a unit who is not yet the owner thereof for not having fully paid the full purchase price is not a shareholder. • By necessary implication, the “separate interest” in a condominium, which entitles the holder to become automatically a shareholder in the condominium corporation, as provided in Section of the Condominium Act, can be no other than ownership of a unit. This is so because nobody can be a shareholder unless he is the owner of a unit and when he ceases to be the owner, he also ceases automatically to be a shareholder. • (The subject matter of this case are under the jurisdiction of the regular courts because the private respondents are “not shareholders” of the condominium corporation. Razon v. IAC (1992)

I sweat, I bleed, I soar… Service, Sacrifice, Excellence

A-82

FRATERNAL ORDER
SCHOOL OF LAW

OF

ATENEO DE MANILA UNIVERSITY

UTOPIA
ARIS S. MANGUERA corporation…Therefore, that as between the parties to the sale, the transfer shall be valid even if not recorded in the books of corporation. • CLV: I agree with the dissenting opinion of Justice Puno: “The rule [Section 63] is intended to protect the interest of the corporation and theird persons who may be prejudiced by the transfer of the shares of stocks. It follows therefore that as between the parties to the sale, the transfer shall be valid even if not recorded in the books of corporation.” • Catindig: I’m not satisfied with the decision because… • Catindig: to know who are the SH, only look at the STB. Rural Bank of Lipa v. CA (2001) • The rule is that the delivery of the stock certificate duly endorsed by the owner is the operative act of transfer of shares from the lawful owner to the transferee. • Requirements to have a valid transfer of stocks: (1) There must be a delivery of stock certificate (2) The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the transfer, and (3) To be valid against third parties, the transfer must be recorded in the books of the corporation. Ponce v. Alsons Cement (2002) • Pursuant to the Corporation Code, a transfer of shares of stock not recorded in the stock and transfer book of the corporation is non-existent as far as the corporation is concerned. • A corporate secretary may not be compelled to issue stock certificates without registration. Republic v. Estate of Hans Menzi (2005) • A stock certificate is merely a tangible evidence of ownership of shares of stock-its presence or absence does not affect the right of the registered owner to dispose of the shares covered by the stock certificate

The indorsement of the certificate of stock is a mandatory requirement of law for an effective transfer of a certificate of stock. • The assertion that the petitioner did not require an indorsement of the certificate of stock in view of his intimate friendship with Chuidian cannot overcome the failure to follow the procedure required by law. • Catindig. This question was asked in the bar. But for me this is not a good case because.. Rural Bank of Salinas v. CA (1992) • Section 5(b) of PD NO. 902-A grants to the SEC the original and exclusive jurisdiction to hear and decide cases involving intracorporate controversies. • An intra-corporate controversy has been defined as one which arises between a stockholder and the corporation. There is no distinction, qualification, nor any exception whatsoever. • A corporation cannot create restrictions in stock transfer • The right of a transferee/assignee to have stocks transferred to his name is an inherent right. • Corporation’s obligation to register is ministerial. BLTB v. Bitanga, 2001 • A transfer of shares is not valid unless recorded in the books of the corporation. • A person who has purchased stock, and who desires to be recognized as a stockholder for the purpose of voting, must secure such a standing by having the transfer recorded on the corporate books-until the transfer is registered, the transferee is not a stockholder but an outsider. • Dissenting Opinion by Panganiban: Under Section 63 of the Corp Code, the sale of the stocks shall not be recognized as valid unless registered in the books of the corporation, but only insofar as third persons, including the corporation are concerned- as between the parties to the sale, the transfer shall be valid even if not recorded in the books of the

I sweat, I bleed, I soar… Service, Sacrifice, Excellence

A-83

FRATERNAL ORDER
SCHOOL OF LAW

OF

ATENEO DE MANILA UNIVERSITY

UTOPIA
ARIS S. MANGUERA • The registration of shares in a stockholder’s name, the issuance of stock certificates, and the right to receive dividends fall within the jurisdiction of the SEC. • The controversy “among stockholders, partners, associates themselves” is intracorporate in nature and falls within the jurisdiction of SEC. • Petitioner’s status as a mere pledge does not, under civil law, entitle him to ownership of the subject shares • Petitioner’s possession of the stock certificates came about because they were delivered to him pursuant to the contracts of pledge. His possession as a pledge cannot ripen into ownership by prescription. Roxas v. CA (1992) • An officers’ power as an agent of the corporation must be sought from the statute, charter, the by-laws or in a delegation of authority of such officer, from the acts of the board of directors, formally expressed or implied from a habit or custom of doing business. Garcia v. Jomouad (2000) • All transfer of shares should be entered on the books of the corporation , and all transfers of shares not so entered are invalid as to attaching or execution creditors of the assignors, as well as the corporation and to subsequent purchasers in good fait, and indeed, as to all persons interested, except the parties to such transfer. • The entry in the minutes of the meeting of the Club’s BoD noting the resignation of a proprietary member does not constitute compliance with Section 63 of the Corporation Code.

The delivery of a duly indorsed stock certificate is sufficient to transfer ownership of shares of stock in stock corporations; The absence of a deed of assignment is not a fatal flaw which renders the transfer invalid.

5.7 Could the transfer of shares be restricted (Section 98)
Sec. 98. Validity of restrictions on transfer of shares Restrictions on the right to transfer shares must appear in the articles of incorporation and in the by-laws as well as in the certificate of stock; otherwise, the same shall not be binding on any purchaser thereof in good faith. Said restrictions shall not be more onerous than granting the existing stockholders or the corporation the option to purchase the shares of the transferring stockholder with such reasonable terms, conditions or period stated therein. If upon the expiration of said period, the existing stockholders or the corporation fails to exercise the option to purchase, the transferring stockholder may sell his shares to any third person.

(Atty. Catindig talks of right to purchase shares instead of option to purchase shares)
Catindig Class Notes Section 98 Tag-along provision e.g. Class A and B shares One holder of Class A shares wants to sell his shares. All holders of Class A shares must also sell for the transaction to push through. Mutual Fund Shares (1) Transferability of shares; (2) Right of holder to sell back the shares to the company at any time. Settlement Account -where proceeds, investments are deposited

5.9 Unpaid Subscriptions
Jack’s Lecture Now, the unpaid portion of the subscription, as a rule, does not earn interest unless the by-laws provide for interest

5.8 Cases
Lim Tay v. CA (1998)

I sweat, I bleed, I soar… Service, Sacrifice, Excellence

A-84

And they submitted receipts to prove that they had paid for their subscriptions. for compensation to take place. That’s why in one case. the delivery of the stock certificate will be withheld and any cash dividend will be applied in payment of his subscription.” And the payment for the subscription is not yet due because no call has been made. an employee of a corporation filed a case and got a judgment against the employer but he was also a stockholder. until the corporation makes a call. “7. So they will get approval and say we are printing these official receipts with these serial numbers and it is only after you get approval that you can print and the number of the permit and the date of its issuance will be printed at the bottom of the receipts. “6000. And if the by-laws specify what is the interest. (§72. Somebody else says. the law says the entire balance of his subscription will become due. Payment of balance of subscription). (§71. First. he will lose the rights of a stockholder. then the corporation will now pass… the board will now pass a new resolution ordering that the shares be sold. So if the stockholder still fails to pay. Now normally. Rights of unpaid shares). Now when will the payment of the balance fall due? (§67. And then if he does not pay. Secondly. How many shares am I offered for P75. both debts must be due. And the employer argued that it should not be ordered to satisfy the judgment because…since this employee has an unpaid subscription. Now. our client filed a case and they compromised and agreed to pay in installments over a period of 2 years but then they failed to pay. we are making a call on 25% of the subscription” and he fails to pay. so long as the stockholder is not delinquent. The auction will be the Dutch method of auction. then it will be the legal rate. It has to be uniform. the payment of the subscription is not due unless the subscription agreement contains a stipulation as to when it is to be paid.” The one who is willing to get the least number of shares I sweat. I had a case before. which should not be less than 30 days or more than 60 days from the date the shares became delinquent. Now these receipts were obviously forged because they were dated something like February but the date of the issuance of the permit by the BIR for printing was dated June. Otherwise. the shares will be sold at public auction. the subscription will now be fully paid and the rest will be given to the delinquent stockholder because he is now fully paid. if a call was made. I bleed. “Ok. So they were (§66. “We need more working capital” and so it made a call. at the time the case was being filed against the corporation. if he fails to pay. It was a good project but the problem was they put in too little capital and instead the borrowed massively and so it was the interest payments that was killing them. they will sell his shares and get rid of him. Interest on unpaid subscription).500”. we have here 1000 shares which are delinquent and the balance of the subscription is P75. Sacrifice. And creditors can sue the stockholders for the unpaid subscription if the corporation has no assets. when the printing press prints the receipts. And so if within 30 days from the date payment should have been made. Our client was a foreign company which sold chemicals to a company here. Effect of delinquency) He cannot vote his shares.” “5500. “Gentlemen. that is now delinquent. the corporation is already insolvent and cannot pay. So now I sued the stockholders for their unpaid subscription and the case was assigned to then Judge Miriam Defensor Santiago. the corporation can bid. (§68. Now. that is what will apply. the balance of the subscription should be set-off against the judgment in his favor. But you see. And as a result of that. They said we have already paid for our subscription. In two cases.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. Now. You must make a call on everybody. Although the call was only for 25%. then they will make a call for his share only. let’s say the directors say. he is entitled to exercise all the rights of a stockholder so he can vote his shares and if there are dividends declared. Well. he has still not paid. But if it does not state what will be the interest. so if a call is made and a stockholder fails to pay. Excellence A-85 . the entire balance including the 75% will fall due. the plaintiff will sue first the corporation and then if the corporation… and if he gets a judgment and it cannot be satisfied…there is a sheriff’s return…unsatisfied…then he can now sue the stockholders for the unpaid amount of their subscription. when Miriam Defensor was still a judge. Now. MANGUERA for that price will be the one who will win the bid. So once the stocks are delinquent.000?” Somebody says. Defense of stockholders: payment. In other words. he will receive the dividends. well. then the creditor can already include the stockholders as defendants in that action. if you will allow the board to single out some stockholders and they want to get rid of some stockholder who is questioning so many actions of the board. Now if. “No. it must first get approval from the Bureau of Internal Revenue. The auctioneer will say. I soar… Service. Now a call must be uniform. the price is fixed. If the director said. And once the shares are delinquent. he cannot receive any dividends and if there is any stock dividend. Delinquency sale) And notice of the sale should be sent to the stockholder and that should be published once a week for 2 weeks in a newspaper of general circulation. If there is no bidder.000. if the subscription agreement stipulates that he should pay for the balance of the subscription on certain dates. The court said. Now that unpaid portion of the subscription is an asset because it is a receivable.

in such a case. if you sell that at public auction. Why? Because if. the law requires he must first pay the party who paid for his shares of stock with legal interest. I soar… Service. Now the corporation can decide to sue instead on the unpaid subscription. a corporation is incurring losses. it won’t (?) make sense. MANGUERA (3) Collection from cash dividends and withholding of stock dividends. If no rate of interest is fixed in the by-laws. So if the corporation decides to buy it also. Court action to recover unpaid subscription). Rights of unpaid shares Holders of subscribed shares not fully paid which are not delinquent shall have all the rights of a stockholder. choose to sue instead the stockholder for payment of the balance of his subscription. Because the value of the corporation is negative. (n) • (c) How do you collect unpaid subscriptions? What are the remedies of corporations to enforce payment of stocks? (1) Extra-judicial sale at public auction. unless the board of directors orders otherwise. Payment of any unpaid subscription or any percentage thereof. Now if the owner of the shares want to question the sale. (JRS at 305) • The word “call” is capable of three meanings. (b) notification of such resolution made on the stockholders. and at the rate of interest fixed in the by-laws. Payment of balance of subscription Subject to the provisions of the contract of subscription. When sale may be questioned). for example. Sacrifice. I bleed. computed from such date until full payment. Interest on unpaid subscriptions Subscribers for stock shall pay to the corporation interest on all unpaid subscriptions from the date of subscription. nobody will buy. Failure to pay on such date shall render the entire balance due and payable and shall make the stockholder liable for interest at the legal rate on such balance. as it may deem necessary. all stocks covered by said subscription shall thereupon become delinquent and shall be subject to sale as hereinafter provided. (i) When is a call necessary? (Section 67) Sec. 67. (§70. That’s why in a moment of lucidity. the board of directors of any stock corporation may at any time declare due and payable to the corporation unpaid subscriptions to the capital stock and may collect the same or such percentage thereof. unless a different rate of interest is provided in the by-laws. (2) Judicial Action Call is a declaration by the board of directors that the unpaid subscriptions are due and payable to the corporation.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. 72. (38) (a) Is interest due on unpaid subscriptions? (Section 66) Sec. such rate shall be deemed to be the legal rate. obviously fabricated. (CLV’s Textbook 392) I sweat. And he must file the case within 6 months from the date of the sale. shall be made on the date specified in the contract of subscription or on the date stated in the call made by the board. if any. together with the interest accrued. (§69. namely: (a) a resolution of the BoD for the payment of unpaid subscriptions. if so required by. Excellence A-86 . If within thirty (30) days from the said date no payment is made. (37) (b) Do unpaid shares have rights? (Section 72) Sec. Judge Miriam Defensor Santiago held the defendants liable.(See page 304 of JRS) What does the term unpaid claim mean (for purposes of declaring the shareholder delinquent)? It refers to any unpaid subscription. So they would probably. 66. if any. or (c) the time when subscriptions become payable. in either case with accrued interest. and not to any indebtedness which a subscriber of stockholder may owe the corporation arising from any other transaction.

order the sale of delinquent stock and shall specifically state the amount due on each subscription plus all accrued interest. all stocks covered by said subscription shall thereupon become delinquent and shall be subject to sale as hereinafter provided.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. time and place of the sale which shall not be less than thirty (30) days nor more than sixty (60) days from the date the stocks become delinquent. The same shall furthermore be published once a week for two (2) consecutive weeks in a newspaper of general circulation in the province or city where the principal office of the corporation is located. 70. Delinquency sale The board of directors may. together with the interest accrued. (38) Effect of Deliquency: (1) Deprives the stockholder the right: a) To be voted for. Excellence A-87 . Unless the delinquent stockholder pays to the corporation. or c) To representation at any stockholders’ meeting (2) Deliquent stockholder shall not be entitled to any of the rights of a stockholder but he shall still be entitled to receive dividends. MANGUERA • A call is necessary if no time to make payment is stated in the subscription agreement. (JRS at 305) • A call is not necessary if: (1) there is a time fixed in the agreement for payment (2) if the corporation becomes insolvent (JRS at 305) • Notice of call is necessary to bind the stockholders. unless a different rate of interest is provided in the by-laws. 68. and the costs and expenses of advertisement. by resolution. with a copy of the resolution. computed from such date until full payment. Effect of delinquency No delinquent stock shall be voted for be entitled to vote or to representation at any stockholder's meeting. Failure to pay on such date shall render the entire balance due and payable and shall make the stockholder liable for interest at the legal rate on such balance. If within thirty (30) days from the said date no payment is made. until and unless he pays the amount due on his subscription with accrued interest. if any. the I sweat. nor shall the holder thereof be entitled to any of the rights of a stockholder except the right to dividends in accordance with the provisions of this Code. shall be made on the date specified in the contract of subscription or on the date stated in the call made by the board. (3) Deliquent stocks shall be subject to delinquency sale Note: If the delinquent stockholder is a director. Court action to recover unpaid subscription Nothing in this Code shall prevent the corporation from collecting by action in a court of proper jurisdiction the amount due on any unpaid subscription. as it may deem necessary. he shall continue to be a director but he cannot run for re-election. Payment of any unpaid subscription or any percentage thereof. or b) To be entitled to vote. unless the board of directors orders otherwise. shall be sent to every delinquent stockholder either personally or by registered mail. the board of directors of any stock corporation may at any time declare due and payable to the corporation unpaid subscriptions to the capital stock and may collect the same or such percentage thereof. (49a) (d) How do shares become delinquent? (Section 67) Sec. costs and expenses. I soar… Service. in either case with accrued interest. if any. (50a) (ii) Could the corporation resort to court action? (Section 70) Sec. and the date. on or before the date specified for the sale of the delinquent stock. (JRS at 307) (f) What is a delinquency sale and how is it conducted? (Section 68) Sec. with accrued interest. Sacrifice. if any. I bleed. 67. Payment of balance of subscription Subject to the provisions of the contract of subscription. Notice of said sale. (JRS at 305) (e) What is the effect of delinquency? (Section 71) Sec. 71.

I soar… Service. (5) Sale—such number of shares as may be necessary to pay the amount due on subscription. NLRC (1989) • Unpaid subscriptions are not due and payable until a call is made by the corporation for payment through a board resolution. The stock so purchased shall be transferred to such purchaser in the books of the corporation and a certificate for such stock shall be issued in his favor. for the smallest number of shares or fraction of a share. shall be credited in favor of the delinquent stockholder who shall likewise be entitled to the issuance of a certificate of stock covering such shares. the buyer of the Dshares shall own the certificate of stocks representing the stock dividends. 69. (4) Notice of delinquency served on the subscribers either personally or registered mail and publication in a newspaper of general circulation in the province or the city where principal office is located once a week for two consecutive weeks. Catindig Class Notes The Certificate of Stock representing the stock dividends are considered civil fruits of the delinquent shares. Sacrifice. MANGUERA which shall not be less than 30 days nor more than 60 days form the date the stocks become delinquent. and no such action shall be maintained unless it is commenced by the filing of a complaint within six (6) months from the date of sale. Should there be no bidder at the public auction who offers to pay the full amount of the balance on the subscription together with accrued interest. Notice shall state the amount due on each subscription plus accrued interest. and the date. Excellence A-88 .10 Case Apodaca v. (g) Could a sale of delinquent shares be questioned? (Section 69) Sec. plus interest and other amounts due. unless the party seeking to maintain such action first pays or tenders to the party holding the stock the sum for which the same was sold. I sweat. time and place of the sale 5. balance due on his subscription.the stockholders are given notice of the board resolution by the corporate secretary. for the smallest number of shares or fraction of a share. Hence. and the total amount due shall be credited as paid in full in the books of the corporation. I bleed. bid for the same. if any. with interest from the date of sale at the legal rate. will be sold at public auction. all the stocks covered by the subscription shall be declared delinquent and shall be subject to sale under Section 68. The remaining shares. costs of advertisement and expenses of sale. or unless the board of directors otherwise orders. (47a) Catindig Class Notes Yes. subject to the provisions of this Code. costs of advertisement and expenses of sale. a sale of delinquent shares may be questioned provided there is tender… Procedure for collection and delinquency sale: (1) Call whenever required must be made by the Board (2) Notice of call. or in the sale itself of the delinquent stock. The highest bidder is the person offering to pay the full amount of the balance on the subscription and other amount that are due for the smallest number of shares or fraction of a share.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. • An obligation arising from non-payment of stock subscriptions to a corporation cannot be offset against a money claim of an employee against the employer. When sale may be questioned No action to recover delinquent stock sold can be sustained upon the ground of irregularity or defect in the notice of sale. costs of advertisement and expenses of sale. (3) If the stockholders concerned do not pay within thirty (30) days from the date specified in the contract of subscription or in the call. said delinquent stock shall be sold at public auction to such bidder who shall offer to pay the full amount of the balance on the subscription together with accrued interest. either personally or by registered mail. Title to all the shares of stock covered by the subscription shall be vested in the corporation as treasury shares and may be disposed of by said corporation in accordance with the provisions of this Code. plus accrued interest. the corporation may.

2) (b) by a trustee under a voting trust agreement (Sec 59) (c) by executors. Gochan v. and administrators I sweat. Lim Tay v. without proper foreclosure. 56. the lender cannot demand that the shares be registered in his name. while permitting an executor or administrator to represent or to bring suits on behalf of the deceased. I soar… Service. or other legal representatives duly appointed by the court.75) (7) Right to recover stocks unlawfully sold for delinquent payment of subscription. (Section 55(2)) *Voting may be either straight or cumulative (See Section 24) (b) Executors. 55. That when the shares are owned in an "and/or" capacity by the holders thereof. (c) Joint owners of stock (Section 56) Sec. unless there is a written proxy. the pledgor or mortgagor shall have the right to attend and vote at meetings of stockholders. administrators. any one of the joint (a) Pledgors and Mortgagors (Section 55) Sec.(Page 298 of JRS) Manner of Voting (1) Directly (in person) (2) Indirectly. and administrators Executors. mortgagors. Young. receivers and administrators (Section 55) Sec. the pledgee does not become the owner thereof simply by the failure of the registered stockholder to pay his loan. and derivative suits. administrators. (n) 5. Right to vote of pledgors. Consequently. through a representative (a) by means of proxy (Sections 55. Voting in case of joint ownership of stock In case of shares of stock owned jointly by two or more persons. I bleed. (27a) • Although the Rules of Court. Court of Appeals. (8) Right to file individual suit. mortgagors. Sacrifice. and other legal representatives duly appointed by the court may attend and vote in behalf of the stockholders or members without need of any written proxy. receivers. the consent of all the co-owners shall be necessary. 354 SCRA 207 (2001). When no administrator has been appointed. representative suit. 56. in order to vote the same. 58 and 89 par. receivers. signed by all the coowners. (5) Right to inspect books and records (Section 74) (6) Right to be furnished with the most recent financial statement/financial report (Section 74. (2) Voting rights (Section 6) (3) Right to remove directors (Section 28) (4) Proprietary rights: (i) right to dividends (ii) appraisal right (Section 81) (iii) right to issuance of stock certificate for fully paid shares (Section 64) (iv) Proportionate participation in distribution of assets in liquidation (Section 188-119) (v) Right to transfer of stocks in corporate books (Section 63) (vi) Pre-emptive right (Section 39) • When shares are pledged by means of endorsement in blank and delivery of the covering certificates to a loan.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. do no prohibit the heirs from representing the deceased. unless the pledgee or mortgagee is expressly given by the pledgor or mortgagor such right in writing which is recorded on the appropriate corporate books. 293 SCRA 634 (1998). there is all the more reason to recognize the heirs as the proper representatives of the deceased. authorizing one or some of them or any other person to vote such share or shares: Provided. Excellence A-89 .11 Voting Rights What are the basic rights of shareholders? (1) Direct or indirect participation in management. MANGUERA In case of pledged or mortgaged shares in stock corporations. Right to vote of pledgors. 55.

it is necessary nevertheless that the trustee must still endorse the stock certificate to validate the cancellation of her share and to have the transfer recorded in the books of the corporation in favor of the principal or another trustee. That no share may be (h) Proxies (Section 58) Sec. xxx Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code. Any or all of the shares or series of shares may have a par value or have no par value as may be provided for in the articles of incorporation: Provided. 6. mortgage. (Bitong v. I bleed. Merger or consolidation of the corporation with another corporation or other corporations. 2. trust companies. 4. That banks. Adoption and amendment of by-laws. public utilities. Rule: Consent of all needed is needed in joint ownership. any of which classes or series of shares may have such rights. Excellence A-90 . Amendment of the articles of incorporation. CA) (e) And/or shares • Anyone of the joint owners can vote said shares or appoint a proxy therefore. Sacrifice.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. lease. or both. further. 57. Dissolution of the corporation. Unless otherwise provided in the proxy. pledge or other disposition of all or substantially all of the corporate property. (n) Catindig Class Notes Q: In “AND shares”. Except as provided in the immediately preceding paragraph. I soar… Service. the vote necessary to approve a particular corporate act as provided in this Code shall be deemed to refer only to stocks with voting rights. privileges or restrictions as may be stated in the articles of incorporation: Provided. Increase or decrease of capital stock. 7. 6. Proxies shall in writing. MANGUERA deprived of voting rights except those classified and issued as "preferred" or "redeemable" shares. 3. (n) (g) Non-voting shares (Section 6) Sec. insurance companies. unless otherwise provided in this Code: Provided. owners can vote said shares or appoint a proxy therefor. creating or increasing bonded indebtedness. and building and loan associations shall not be permitted to issue no-par value shares of stock. 5. the holders of such shares shall nevertheless be entitled to vote on the following matters: 1. however. Sale. exchange. Classification of shares The shares of stock of stock corporations may be divided into classes or series of shares. Incurring. I sweat. That there shall always be a class or series of shares which have complete voting rights. (f) Treasury shares (Section 57) Sec. 58. Voting right for treasury shares Treasury shares shall have no voting right as long as such shares remain in the Treasury. (d) ITF shares • • “In trust for” Even when it is shown that the registered owner of shares of stock holds the share in trust for the benefit of the principal. Proxies Stockholders and members may vote in person or by proxy in all meetings of stockholders or members. Investment of corporate funds in another corporation or business in accordance with this Code. Gen. and 8. can each joined owners vote for half of the total shares? A: No. signed by the stockholder or member and filed before the scheduled meeting with the corporate secretary.

or by a member. No proxy shall be valid and effective for a period longer than five (5) years at any one time. to exercise the voting rights of the former. In the books of the corporation. said agreement is ineffective and unenforceable. unless the corporation adopts a policy to receive proxy email thru internet. neither can vote. then it cannot be revoked. A voting trust agreement must be in writing and notarized. (Page 490 of De Leon. and the voting trust certificates as well as the certificates of stock in the name of the trustee or trustees shall thereby be deemed canceled and new certificates of stock shall be reissued in the name of the it shall be valid only for the meeting for which it is intended. That in the case of a voting trust specifically required as a condition in a loan agreement. Excellence A-91 . as principal to another person. (Page 490 of De Leon. all rights granted in a voting trust agreement shall automatically expire at the end of the agreed period. • Proxy refers to the formal written authority given by the owner or holder of the stock. a stockholder can vote by proxy. Or if the stockholder personally showed up at the stockholders’ meeting. who has a right to vote it. Voting trusts I sweat. I soar… Service. which shall be transferable in the same manner and with the same effect as certificates of stock. (i) Voting Trust (Section 59) Sec. Sacrifice. as agent. 59. A certified copy of such agreement shall be filed with the corporation and with the Securities and Exchange Commission. it shall be noted that the transfer in the name of the trustee or trustees is made pursuant to said voting trust agreement. then the proxy will lose the right to vote because the proxy is just an agent and agency can be revoked at any time. then he is personally present. otherwise. If you cannot tell which one is later because they don’t have dates.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. For instance. But if he gave a later proxy. That both the transferor and the trustee or trustees may exercise the right of inspection of all corporate books and records in accordance with the provisions of this Code. The voting trust agreement filed with the corporation shall be subject to examination by any stockholder of the corporation in the same manner as any other corporate book or record: Provided. The trustee or trustees shall execute and deliver to the transferors voting trust certificates. MANGUERA One or more stockholders of a stock corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the shares for a period not exceeding five (5) years at any time: Provided. well. if you have a bank which loaned a substantial amount of money and it required this borrower to pledge his shares of stock as collateral and to give a proxy until the loan is fully paid. the later proxy will prevail over the earlier proxy. I bleed. as I said before. 2006) • The term also refers to the holder of authority or the person authorized by an absent stockholder or member to vote for him at a stockholders’ or members’ meeting. and shall specify the terms and conditions thereof. The certificate or certificates of stock covered by the voting trust agreement shall be canceled and new ones shall be issued in the name of the trustee or trustees stating that they are issued pursuant to said agreement. Unless expressly renewed. However if the proxy is coupled with an interest. (n) Jack’s Lecture Now. 2006) • Purpose of use of proxy: (1) Presence of quorum in meetings (2) Exercise of right to vote though absent (3) Voting and management control Catindig Class Notes Q: Can the Corporate Secretary refuse to recognize a proxy sent thru email? A: Yes. then he cannot revoke the proxy because it is coupled with an interest. said voting trust may be for a period exceeding five (5) years but shall automatically expire upon full payment of the loan. and thereupon shall be bound by all the provisions of said agreement. Any other stockholder may transfer his shares to the same trustee or trustees upon the terms and conditions stated in the voting trust agreement. No voting trust agreement shall be entered into for the purpose of circumventing the law against monopolies and illegal combinations in restraint of trade or used for purposes of fraud.

There is no reason for denying the SHs other than those in close corporations the right to enter into voting or pooling agreements to protect their interests. Pre-incorporation agreements among SHs remain effective even after incorporation if so intended and even if not reflected in AOI. VTA Acquires legal title Irrevocable if validly executed BUT such SH can revoke if there’s a breach of fiduciary obligation Not limited to any particular meeting Even when the owner is present Can be voted as a director. I soar… Service.D. Can A or B or other members of the pool file a suit against C for breach of contract? A: No. These are different devices to accumulate votes. MANGUERA transferors. (Page 502 of De Leon. in the same way. as long as no wrong or fraud is committed or is intended to be committed on other SHs or parties Para 3: gives close corporations freedom to operate as a partnership between and among the SHs. You can also have a pooling agreement where 2 or more SH sign an agreement that they will vote their shares together. Considered as the SH of record in the books of the corp Shares+Voting rights Usually longer but cannot exceed 5 years except in loan agreeements (j) Pooling agreement • Pooling agreement refers to agreement between 2 or more shareholders to vote their shares in the same way or as a unit. (36a) Jack’s Lecture A stockholder can create a voting trust. The direction of business belongs to the Board of Directors and not to the SHs. A. meeting Absence of the owner Cannot be voted as a director unless he is also a SH of record (owns other shares) Voting rights Usually shorter but cannot exceed 5 years Subject Matter Duration Proxy v. Catindig Class Notes Q: A. 2006) • See Section 100 UP Class Notes Para 1: SH agreements in general. and E entered in pooling agreement so as to elect A. except for matter required by the Code to appear in the AOI Para 2: Refers to pooling and voting agreements in particular. Trustee v. Pooling and Agreements Proxy Based on law on agency Principal-agent Proxy cannot exceed Trustee Based on law on trust Trustee-beneficiary The only limit to this Pooling Agreements Based on Contract law Consensual Merely an agreement to I sweat. The bank will want to know what is happening so they will insist that a bank officer should be given a voting trust and sit in the Board to find out what’s happening. The VTA is valid only for 5 years. The voting trustee or trustees may vote by proxy unless the agreement provides otherwise. Sacrifice. Note: SHS who are parties assume liabilities of directors Extent of Power When to vote Capacity to be a director Can only act at a specified SHs’ or members.C. What will happen is that the share of stock under his name will be cancelled and will be issued in the name of the trustee. A was not elected President because C voted for another person. the proxies. and C as directors. but remaining as a corporation insofar as third persons are concerned. the trusts. If the loan is for 10 years it can be for 10 years but if the loan is paid. I bleed. it will be valid for a longer period because the lender imposed that condition to protect his interest especially if it is a big exposure. But.B. Distinction between proxy and voting trust Legal Title Revocability Proxy No legal title Revocable unless coupled with interest.B. automatically the VTA will lapse even if the 10 year period has not yet expired because the voting trust is merely to protect the interest of the bank. Excellence A-92 . The stipulation is void if it is meant to control the discretion of the Directors. Those elected as directors would then vote for A as President of the corporation. if this was imposed as a condition in a loan. and C were elected.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S.B.

Meetings of this nature should be properly recorded and the appropriate tapes and discs properly stored for safekeeping. Jaycel Sato re Voting by Trustees through the internet. (b) SEC Memo Circular No. 26 to Ms. The number of persons to be designate as proxies may be limited by the By-laws. March 22. 26 Q: May a trustee vote through the internet? A: Yes. in person or by mail. in any manner Except when coupled with an interest Maximum of 5 years at a time SEC can pass on validity authority: must be for benefit of trustee (fiduciary obligation) Must be in writing and notatrized Copy must be file with the SEC Transfer of legal title to trustee Absolute voting rights. the total shareholding of the stockholder shall be tallied and the balance thereof. 2004 Revocable by consent or mutual termination. 5. the stocks shall be distributed equally among the proxies. If some of the proxy forms do not indicate the number of shares. Another person exercises voting rights continuously. the number of shares of stock to be represented by each proxy shall be specifically indicated in the proxy form. subject only to fiduciary duty. Another penson exercise voting rights only for a specific meeting (unless otherwise provided) Proxy cannot be a director Revocable at will. 2003 SEC Opinion No.12 Additional Materials (a) SEC Opinion No. March 17. However. shall be allotted to the holder of the proxy form without the number of shares. voting by e-mail alone is not adequate because a userparticipant’s role in such cases is passive considering that his access to the entire proceedings is limited to the information in print transmitted through the internet. xxx (g) If the stockholder intends to designate several proxies. The stockholder may deliver. it should be emphasized that participation of directors in 5.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. Trustee can be a director Irrevocable as long as no misconduct or fraud Maximum 5 years at a time (unless coterminous with loan) vote in the same way No formalities required Merely a contract between SH’s Owner still exercises voting rights meetings through teleconferencing and video conferencing may be deemed acceptable only when adequate safeguards have been accordingly set in place. If all are in blank. liable for damages SEC Memo Circ No. Sacrifice.. If unilateral termination. Excellence A-93 . video streaming with voice packet or video over the internet) to the one being used in video-conferencing or teleconferencing. I soar… Service.e. 4 series of 2004. provided that the internet medium to be used is akin or similar (i. his proxy vote directly to the corporation. where a participant can see or hear the actual proceedings of a board meeting and actively participate in the deliberation of the board. 4 Series of 2004 xxx (b) Stockholders shall have the right to vote at all stockholders’ meetings in person or by proxy. I bleed. if any. Q: How about via e-mail? A: As it is. MANGUERA delegated authority Must be in writing Copy must be filed with the corp secretary Regular voting rights.13 Appraisal right • Appraisal right refers to the right to withdraw form the corporation and demand payment of the fair value of his I sweat.

and 3. (n) • • • • De Leon: Section 37 grants appraisal right to a dissenting stockholder (right of the stockholder in the cases provided by law to demand payment of the fair value of his shares) “in case of extension of corporate term. the inclusion of the case of shortening of corporate life under Section 81 should not prevail over the specific provision under Section 37. all rights accruing to the shares shall be suspended. Excellence A-94 . I bleed. (Page 237 of CLV’s Textbook) CLV: The exercise of appraisal rights rightly belongs to a case of extension of corporate term because extension actually novates the corporate contract with each shareholder. because there is really no violation of the original contractual intent. mortgage. (Page 237 of CLV’s Textbook) Catindig: if the shortening of the corporate term is not intended to dissolving a corporation. (Section 83) (a) Instances of appraisal right (Section 81 & Section 37) Sec. Catindig Class Notes Instances where it may be exercised: (Sundiang) (1) Extension or reduction of corporate term (Section 37 and 81)* I sweat. or served personally: Provided. Power to extend or shorten corporate term A private corporation may extend or shorten its term as stated in the articles of incorporation when approved by a majority vote of the board of directors or trustees and ratified at a meeting by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the members in case of non-stock corporations.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. lease. any dissenting stockholder may exercise his appraisal right under the conditions provided in this code. That in case of extension of corporate term. Section 37 governs because the SH will get more if he remains a SH until liquidation. CLV has a different opinion. CLV: The appraisal right should not be triggered when it comes to shortening of corporate life.” Such right should also be available to a dissenting stockholder if the corporate term is shortened as it is expressly recognized in Section 81(1). 81. authorize preferences superior to those stockholders. Sacrifice. 2006) But wait. (Page 333 of De Leon. (Section 81) • Upon demand. MANGUERA (2) Change in the rights of stockholders. or of extending or shortening the term of corporate existence. or of authorizing preferences in any respect superior to those of outstanding shares of any class. exchange. In case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholder or class of shares. Instances of appraisal right Any stockholder of a corporation shall have the right to dissent and demand payment of the fair value of his shares in the following instances: 1. In case of merger or consolidation. Therefore. Section 81 governs. (4) Corporation decides to sell or dispose of all or substantially all assets of corporation (Section 81) (5) Merger or consolidation (Section 81) shares after dissenting from certain corporate acts involving fundamental changes in corporate structure. Otherwise. or restrict the right of any stockholder (Sections 37 and 81) (3) Corporation authorized the board to invest corporate funds in another business or purpose. pledge or other disposition of all or substantially all of the corporate property and assets as provided in the Code. transfer. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid. (n) Sec. 37. In case of sale. I soar… Service. 2. which now seeks to extend the corporate relationship beyond the original term provided for in the articles of incorporation.

and their award shall be paid by the corporation within thirty (30) days after such award is made: Provided. the stockholder shall forthwith transfer his shares to the corporation. excluding any appreciation or depreciation in anticipation of such corporate action. the rights of the transferor as a dissenting stockholder under this Title shall cease and the transferee shall have all the rights of a regular stockholder. I bleed. His failure to do so shall. upon surrender of the certificate or certificates of stock representing his shares. 82. Can the dissenting SH exercise appraisal right? A: No. the fair value thereof as of the day prior to the date on which the vote was taken. The liquidating dividends may be greater than the fair value. and all dividend distributions which would have accrued on such shares shall be paid to the transferee. Q: X corporation decided to shorten its corporate term (from 50 to 3months). When the corporation is dissolved and shares are common. one of whom shall be named by the stockholder. Notation on certificates. further. If shares represented by the certificates bearing such notation are transferred. Sacrifice. a dissenting stockholder shall submit the certificates of stock representing his shares to the corporation for notation thereon that such shares are dissenting shares.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. If within a period of sixty (60) days from the date the corporate action was approved by the stockholders. I soar… Service. (6) The right of appraisal is extinguished when: a) He withdraws the demand with corporation’s consent (consent of the corporation is necessary) b) The proposal action is abandoned c) The SEC disapproves the action (Section 84) (JRS at 304) Catindig Class Notes Appraisal Q: Can the corp and SH just appoint one appraiser? I sweat. it shall be determined and appraised by three (3) disinterested persons. by making a written demand on the corporation within thirty (30) days after the date on which the vote was taken for payment of the fair value of his shares: Provided. Section 37 governs because the SH will get more if he remains a SH until liquidation. the fair value shall be determined by a majority of the 3 disinterested persons one of whom shall be named by the stockholder another by the corporation and the third by the two who were chosen. (n) Q: X corporation decided to shorten its corporate term (from 50 to 10 years). MANGUERA payment by the corporation of the agreed or awarded price. How right is exercised The appraisal right may be exercised by any stockholder who shall have voted against the proposed corporate action. One of the SHs voted against the reduction of the corporate term. After payment of debts. the withdrawing stockholder and the corporation cannot agree on the fair value of the shares. One of the SHs voted against the reduction of the corporate term. Excellence A-95 . (3) The proposed action is any one of the instances enumerated above (b) (4) The price to be paid is the fair value of the shares on the date before the vote was taken (5) The fair value shall be agreed upon but in case there is no agreement within 60 days from the date the vote was taken. the said shares have residual rights. terminate his rights under this Title. If the proposed corporate action is implemented or affected.he voted against the proposed action. 86. the corporation shall pay to such stockholder. Catindig: Shortening of corporate term is a way of dissolving a corporation. and the certificates consequently canceled. (b) Requirements for a successful exercise of appraisal right (Section 82 and 86) Sec. That no payment shall be made to any dissenting stockholder unless the corporation has unrestricted retained earnings in its books to cover such payment: and Provided. (n) Sec. another by the corporation. That upon Rules for exercise of appraisal right (1) The stockholder must be a dissenting stockholder. Can the dissenting SH exercise appraisal right? A: Yes under Section 81. That failure to make the demand within such period shall be deemed a waiver of the appraisal right. (2) The stockholder must make a written demand on the corporation within 30 days after the vote was taken. The findings of the majority of the appraisers shall be final. everything left goes to the SHs. rights of transferee Within ten (10) days after demanding payment for his shares. at the option of the corporation. and the third by the two thus chosen.

(2) He has exhausted intra-corporate remedies. and the certificates consequently canceled. v. in which case they shall be borne by the latter. the Code does not prohibit this. Who bears costs of appraisal The costs and expenses of appraisal shall be borne by the corporation. Notation Q: Why is there a need for notation? A: To avoid a moral hazard… that the SH might sell shares already subject to exercise of appraisal rigts. 85. I soar… Service.those brought by one or more stockholders/members in the name and on behalf of the corporation to redress wrongs committed against it. Inc. unless the fair value ascertained by the appraisers is approximately the same as the price which the corporation may have offered to pay the stockholder. That if the dissenting stockholder is not paid the value of his shares within 30 days after the award. the wrongdoing or harm having been caused to the corporation and not to the particular stockholder bringing the suit. (n) • shareholders in the name of the corporation to redress wrongs committed against the corporation. Notation on certificates. (n) 5. (c) Effect of demand (Section 83) Sec. the rights of the transferor as a dissenting stockholder under this Title shall cease and the transferee shall have all the rights of a regular stockholder. all costs and expenses shall be assessed against the corporation. His failure to do so shall. Effect of demand and termination of right From the time of demand for payment of the fair value of a stockholder's shares until either the abandonment of the corporate action involved or the purchase of the said shares by the corporation. all rights accruing to such shares. and all dividend distributions which would have accrued on such shares shall be paid to the transferee. 83. (JRS at 300) I sweat. Sacrifice. or the ones to be sued has control of the corporation. at the option of the corporation. and (3) The cause of action actually devolves on the corporation. unless the refusal of the stockholder to receive payment was unjustified. 278 SCRA 216 (1997). It is a remedy designed by equity and has been the principal defense of the minority shareholders against abuses by the majority. his voting and dividend rights shall immediately be restored. (n) A: Yep. 86. Salas. or protect/vindicate corporate rights whenever the officials of the corporation refuse to sue. If shares represented by the certificates bearing such notation are transferred. for which the directors refuse to sue. a dissenting stockholder shall submit the certificates of stock representing his shares to the corporation for notation thereon that Requisites of Derivative Actions: (1) The party bringing suit should be a shareholder as of the time of the act or transaction complained of. Excellence A-96 . Q: Is one share sufficient to file a derivative suit? A: Yes provided the other requisites are present. Derivative action. In the case of an action to recover such fair value.14 Derivative Suits (a) Definition • A derivative suit is an action brought by minority (d) Cost of appraisal (Section 85) Sec. I bleed. including voting and dividend rights. rights of transferee Within ten (10) days after demanding payment for his shares. except the right of such stockholder to receive payment of the fair value thereof: Provided. (e) Notation on stock certificate(s) of dissenting stockholder (Section 86) Sec. terminate his rights under this Title. MANGUERA such shares are dissenting shares.  Western Institute of Technology.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. shall be suspended in accordance with the provisions of this Code.

he is entitled to be reimbursed for the expenses and attorney’s fees he incurred in prosecuting that case for the benefit of the corporation. Now. Example. illegally or with gross negligence. not to himself. that was his claim. so what did it do? It got Caderno. that’s illegal. Well. One company sold its dollar allocation. If he was not yet a stockholder at the time of the act complained of. you have two families who were stockholders of this corporation. this derivative suit is allowed precisely to enable a minority to protect its rights against a majority. Another stockholder questioned that and claimed that this violated his right to pre-emption. the court will not second-guess the board. he cannot sue unless they are still being continued after he became a stockholder. And whatever judgment is rendered in that case will be binding on the corporation. she could not file a derivative suit. First. Therefore the fact that he only owned a few shares. she should be given shares of stock from the authorized but unissued as payment for her legal services. So they must have committed mismanagement. And if the stockholder wins. One family was the one managing it and this family was siphoning the funds and transferring it to their own bank account. That’s why the court has to be careful if it approves any compromise. or fraudulently disposed of their properties…Like in one case. Then the stockholder must exhaust all remedies within the corporation by applying for redress from the board or from the stockholders unless this is excused. the court said it is not the mere fact… that former dean Eduardo de los Angeles owned only a few shares of San Miguel is not a ground to dismiss the case that he filed because the cause of action he is ascertaining pertains to San Miguel Corporation. I soar… Service. the court has said. to appeal to them would be useless since they are the very ones committing the wrong you are complaining about. MANGUERA Inquirer but actually she was just a dummy of Juan Ponce Enrile who was the actual owner of the shares. the plaintiff must have been such at the time of the act complained of. Or the case of San Miguel. If a court awards damages. Hilda Lim argued that he could not file that case because…the SC had issued a TRO restraining him from acting in behalf of the corporation and he was filing a derivative suit. not to the stockholder who filed the derivative suit. the former governor of Central Bank as consultant. There are four requisites for the filing of a derivative suit. just make use of the Requisites provided by the Supreme Court. I bleed. Excellence A-97 . is not relevant. Where she…they had a family corporation and the board passed a resolution saying that to pay for her legal services to the corporation. The court said she cannot file a derivative suit questioning those transactions. In the case of San Miguel Corporation. A derivative suit can be filed. On the other hand. Or the example given in your book is like that Republic Bank case. when you still have this import control. the shares issued in her name were antedated to make it appear that she became a stockholder before the action she was questioning occurred. remember you have the business judgment rule.000 stockholders around the world. It would be too unrealistic and too cumbersome to require a stockholder to appeal first to the stockholders and ask for a stockholders’ meeting. the directors are mismanaging the affairs of the corporation. It was obvious that the purpose was to take advantage of his influence. The court will not set aside the decisions and actions of the board unless they have acted in bad faith. (Jack) (But wait. And since the cause of action a stockholder is ascertaining in a derivative suit pertains to the corporation. there must exist a cause of action which calls for this remedy. Or in the old days. So this is a case of influence peddling and so that contract could be assailed. So this was not a right belonging to the corporation so this was not a derivative suit. You cannot import unless you have a dollar allocation. What happened was that Mr. Now the court said that since she was not really the owner of the shares. Republic Bank was being investigated by the Monetary Board. in 5. the proceeds of the case should accrue to the corporation.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. where you have probably around 20. So that could be the basis of a derivative suit. Then the action must be brought in the name and for the benefit of the corporation because the cause of action you are asserting belongs to the corporation. You sell your dollar allocation. Andres Soriano III bought 2 corporations. well. she filed a derivative suit against Apostol and these other people in the Philippine Daily I sweat. Well. if the directors are mismanaging. which are insignificant. that should go to the corporation. (4) Acts must be brought in the name of the corporation. the cause of action he is enforcing is his own right because he claims that he had a right of pre-emption. You cannot have another stockholder filing another derivative suit. The court said no. He bought them for himself and he used the funds of San Miguel Corporation. Sacrifice. Even if the decisions may have resulted in losses. Hilda Lim. And moreover.14(b) of this reviewer) Jack’s Lecture Now the stockholders are also allowed to file a derivative suit for redress of wrongs committed by the management. Well there was this recent case of Atty. Well. That’s why the majority cannot dismiss a derivative suit filed by the minority. that’s why the plaintiff will be the corporation. You won’t get another dollar allocation again. That’s why you have this case of Nora Bitong. Third.

405 SCRA 220 (2003). where a corporation is an injured party.e. in behalf of the corporation. An individual stockholder is permitted to institute a derivative suit in behalf of the corporation wherein he holds stocks in order to protect to vindicate corporate rights. Salunat. (R. The power to sue and be sued in any court by a corporation even as a stockholder is lodged in the Board that exercises its corporate powers and not in the president or officer thereof. to bring about a redress of the wrong done directly to the corporation and indirectly to the stockholders. Go (2007) Under Section 36 of the Corporation Code. or when a demand upon them to file the necessary action would be futile because they are the ones to be sued. 292 SCRA 503 (1998).. (Filipinas Port Services. Makasiar. a stockholder may sue on behalf of himself and other stockholders and for the benefit of the corporation. Orozco. The relators must be stockholders both at time of occurrence of the events constituting the cause of action and at the time of the filing of the derivative suit. and the corporation is unable or unwilling to institute suit to remedy the wrong. 354 SCRA 207 (2001). In such actions. its power to sue is lodged with its board of directors or trustees. Inc. I bleed. with the corporation as the real party in interest. Court of Appeals. i. v. its power to sue is lodged with its board of directors or trustees. v. Gochan v. In such actions.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. Go (2007) • The whole purpose of the law authorizing a derivative suit is to allow the stockholders/member to enforce rights which are derivative (secondary) in nature. may validly institute a derivative suit to vindicate the alleged corporate injury. Tam Wing Tak v. Who may bring the suit • Since the ones to be sued are the directors/officers of the corporation itself. 350 SCRA 475 (2001). in which case Cruz is only a nominal party • • • • • I sweat. or are the ones to be sued. Sacrifice. the corporation is the real party in interest while the stockholder filing suit for the corporation’s behalf is only nominal party. Hornilla v. is only a nominal party. like petitioner Cruz. The corporation should be included as a party in the suit. 83 (1911). the suing stockholder is regarded as a nominal party. the corporation is the real-party-in-interest while the suing stockholder. Excellence A-98 . Bitong v.N. to enforce a corporate cause of action. MANGUERA while Filport is the real-party-in-interest. 2004) In the absence of a special authority from the Board of Directors to institute a derivative suit for and in behalf of the corporation. There is no showing that petitioner has complied with the foregoing requisites. Santos (2005) • Where corporate directors have committed a breach of trust either by their fraud. (Chua v. a stockholder. Symaco Trading Corp. or negligence. where a corporation is an injured party. whenever officials of the corporation refuse to sue. ultra vires acts. A minority stockholder can file a derivative suit against the president for diverting corporate income to his personal • Under the Corporation Code. Inc. v. A minority stockholder and member of the board has no power or authority to sue on the corporation’s behalf. the president or managing director is disqualified by law to sue in her own name. 19 Phil. read in relation to Section 23. But an individual stockholder may be permitted to institute a derivative suit in behalf of the corporation in order to protect or vindicate corporate rights whenever the officials of the corporation refuse to sue. CA. It is a settled is the doctrine that in a derivative suit. Young. Nor can we uphold this as a derivative suit. or because they hold control of the corporation. since it is required that the minority stockholder suing for and on behalf of the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit. I soar… Service. (Filipinas Port Services. Pascual v. or hold the control of the corporation.

Nature of Relief • In a derivative suit. v. Derivative Action A stockholder or member may bring an action in the name of a corporation or association . 2005) • The allegations of injury to the relators can co-exist with those pertaining to the corporation. 198 SCRA 73 (1991). Lim v. Sacrifice. (Hornilla v. Young. • A lawyer engaged as counsel for a corporation cannot represent members of the same corporation’s board of directors in a derivative suit brought against them. 354 SCRA 207 (2001). by-laws. MANGUERA accounts. SEC. • A derivative suit to question the validity of the foreclosure of the mortgage on corporate assets can be filed without prior demand upon the Board of Directors where the legality of the constitution of the Board lies at the center of the issues. that: (1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and the time the action was filed. the real party in interest is the corporation itself. and therefore a temporary restraining order enjoining a person from representing the corporation will not bar such action. Chase v.N. I soar… Service. Section 1. Section 1. I bleed. The corporation should be included as a party in the suit. (3) No appraisal rights are available for the act or acts complained of. any monetary benefits under the decision of the court shall pertain to the corporation and not to the stockholders or members. Excellence A-99 . Commart (Phils. Gochan v. ultra vires acts or negligence. Exhaustion of Intra-corporate remedies. LimYu. (2) He exerted all reasonable efforts.) Inc.” Hornilla v. Salunat. In case of nuisance of harassment suit. as the case may be provided. A suit to enforce preemptive rights in a corporation is not a derivative suit. To do so would be tantamount to representing conflicting interests. a stockholder may sue on behalf of himself and other stockholders and for the benefit of the corporation . 352 SCRA 216 (2001). and settled is the doctrine that in a derivative suit. 18 SCRA 602 (1966) • Where corporate directors have committed a breach of trust either by their frauds. and (4) The suit[s] is not a nuisance or harassment suit. 2002) Rule 8. not the corporation. • Appointment of receiver can be an ancillary remedy in a derivative suit. laws or rules governing the corporation or partnership to obtain the relief he desires. SC Interim Rules of Procedure for Intra-Corporate Controversies effective April 1. Catindig Class Notes Q: Is Requisite # 3 a good policy? C: No.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. v. It merely gives rise to an additional cause of action for damages against the erring directors. and the corporation is unable or unwilling to institute suit to remedy the wrong. (R. 2003) • (b) Requisites (See Rule 8. 405 SCRA 220 (2003). not the shareholders who actually instituted it. Santos. CFI of Manila. I sweat. to bring about a redress of the wrong done directly to the corporation and indirectly to the stockholders. Salunat. the corporation is the real party in interest while the stockholder filing for the corporation’s behalf is only nominal party. Pundogar. 218 SCRA 118 (1993). DBP v. because it is instituted on behalf and for the benefit of the shareholder. This is what is known as a derivative suit. which is prohibited by the Code of Professional Responsibility. the court shall forthwith dismiss the case. to exhaust all remedies available under the articles of incorporation. and alleges the same with particularity in the complaint. and does not disqualify them from filing a derivative suit on behalf of the corporation. Symaco Trading Corp. • In a derivative action.

FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. I soar… Service. Ca (2004) • A derivative action is a suit by a shareholder to enforce a corporate cause of action. I bleed. the corporation is necessary party to the suit. Sacrifice.15 Case Francis Chua v. • Not every suit filed in behalf of the corporation is a derivative suit. Excellence A-100 . I sweat. MANGUERA 5.

Go. Islamic Directorate of the Philippines v. • A corporation is an artificial being and can only exercise its powers and transact its business through the instrumentalities of its Board of Directors. 2007) • Board Must Act as a Body. Its members have been characterized as trustees or directors clothed with a fiduciary character. • “The physical acts of the corporation. who shall hold office for one (1) year until their successors are elected and qualified. Be that as it may.. jurisprudence tells us that an action of the board of directors during a meeting. I bleed. when legal counsel was clothed with authority through formal board resolution. 247 SCRA 183 (1995). Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be a director. Every director must own at least one (1) share of the capital stock of the corporation of which he is a director. otherwise. Corp. a majority of the directors or trustees of all corporations organized under this Code must be residents of the Philippines. 2003) Consequently under the doctrine of centralized management. A corporation. any action taken therein may be questioned by any objecting director or shareholder.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. 352 SCRA 334 (2001). Thus. De Liano v. which was illegal for lack of notice. (2) conducts all business of the corporation. through its Board of Directors. Court of Appeals.The acts or contracts effected by a bogus board would be void pursuant to Art. • Effect of “Bogus” Board. which share shall stand in his name on the books of the corporation. should act in the manner and within the formalities prescribed by its charter or by the general law.” Firme v. “it is the board of directors or trustees which exercises almost all the corporate powers in a corporation” (Firme v. and through its officers and agents. 414 SCRA 190 (2003). Hornilla v. • Rationale for Centralized Management Doctrine. Lopez Realty v. • As can be gleaned form Section 23 of Corporation Code. It is clearly separate and distinct from the corporate entity itself. Bukal Enterprises and Dev. may be ratified either expressly. 23. Shipside Inc. the corporate powers of all corporations formed under this Code shall be exercised. 405 SCRA 220 (2003). MANGUERA record. since their source of power is originally vested 6. 272 SCRA 454 (1997). Trustees of non-stock corporations must be members thereof. or where there is no stock. directors must act as a body in a meeting called pursuant. The board of directors or trustees Unless otherwise provided in this Code. Excellence A-101 . The concentration in the board of the powers of control of corporate business and appointment of corporate officers and managers is necessary for efficiency in large organization. Court of Appeals. like the signing of documents. • “Board of Directors” is the body which (1) exercises all powers provided for under the Corporation Code. BOARD OF DIRECTORS 6. Court of Appeals. his acts bind the corporation which must be held bound the actuations of its counsel of I sweat.1 Board of Directors (Section 23 et seq) Sec. by the corporation's subsequent course of conduct. it cannot be said that the Board act as agents of the stockholders. Sacrifice. all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks. Consequently. v. Salunat. 1318 of Civil Code because of the lack of “consent”. when authorized by resolution or by its by-laws. can be performed only by natural persons duly authorized for the purpose by corporate by-laws or by a special act of the board of directors. from among the members of the corporation. and (3) controls and holds all property of the corporation. 370 SCRA 349 (2001). (Filipinasl Port Service v. Bukal. I soar… Service. Fontecha. by the action of the directors in subsequent legal meeting. or impliedly.

(6) To observe confidentiality (7) To keep the company’s control environment *** (SEC Code of CG is applicable only to __________) by law and not delegated by the stockholders. Under Section 23 of the Corporation Code. Firme v. The authority of such individuals to bring the corporations is generally derived form law. In stock corporations. 2003) (Page 754 of CLV’s CLR. 2002) Consequently. CA. subject to the articles of incorporation. (Page 754 of CLV’s CLR. there must be present. 2007) • Principle on delegation of Board Power. just as a natural person may authorize another to do certain acts for and on his behalf. or if there be no capital stock. 2007) Duties in General: (UP Reviewer) DUTY VIOLATION UNDER Section 31 Obedience Willfully and knowingly vote for or assent patently unlawful acts of the corporation Diligence Guilty of gross negligence or bad faith directing the affairs of the corporation Loyalty Acquire any personal or pecuniary interest conflict with their duty as such directors trustees (a) Authority (Section 24) Sec. either expressly or impliedly by habit. 1998) (Page 757 of CLV’s CLR. every stockholder entitled to vote shall have the right to vote in person or by proxy the number of shares of stock standing. by laws. at the time fixed in the by-laws. custom or acquisence in the general course of business. and said stockholder may vote such number of shares for as many persons as there are directors to be elected or he may cumulate said shares and give one candidate as many votes as the number of directors to be elected multiplied by the number of his to in in or I sweat. CA. a majority of the members entitled to vote. (People’s Aircargo v. 2007) • The exercise of the corporate powers of the corporation rests in the BoD save in those instances where the Corporation Code requires stockholders’ approval for certain specific acts. the BoD may validly delegate some of its functions and powers to officers. corp rules and industry developments. 24. The election must be by ballot if requested by any voting stockholder or member. the power and the responsibility to decide whether the corporation should enter into a contract is lodged in the Board. Election of directors or trustees At all elections of directors or trustees. which exercise almost all the corporate powers in a corporation. (Great Asian Sales Center v. I soar… Service. Excellence A-102 . I bleed. Bukal. corporate by-laws or authorization form the board. Sacrifice. when there is no showing that there was approval of the purchase by the Board of Directors. or relevant provisions of law. either in person or by representative authorized to act by written proxy. there can be no valid contract that can be enforced on behalf of the corporation over an alleged sale of a parcel land. committees or agents. or where the by-laws are silent.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. However. the owners of a majority of the outstanding capital stock. MANGUERA Director Responsibilities (Corp Gov Reviewer***) Duties of Directors • Duty of Obedience (Section 26/31 of Corp Code) • Duty of Diligence (Section 31 of Corp Code) • Duty of Loyalty (Section 31 of Corp Code) • Duty of Care • Duty of Disclosure • Duty of “extra care” Specific Duties and Responsibilities of a Director (Corp Gov Reviewer) (SEC Code of CG)*** (1) To conduct fair business transactions with the corporation (2) To devote time and attention necessary (3) To act judiciously (4) To exercise judgment (5) To have a working knowledge of the law. in his own name on the stock books of the corporation. at the time of the election.

• See Page 240 of De Leon for Illustration and computation. June 8. Section II)*** I sweat. He must be a stockholder in his own right. (Sec. The appointment must be recorded in the corporate books. 23) (3) He must not have been convicted by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years or a violation of the Corporation Code. I bleed. • Gokongwei. 05-06. Jr. MANGUERA (5) He must possess other qualifications as may be prescribed in the by-laws of the corporation. A contrary rule would create a situation where there would be no board as where all the stockholders or members are corporation or juridical persons. CA. however. SEC. Candidates receiving the highest number of votes shall be declared elected. Sacrifice. For example. • (b) Requirements for election of director Qualifications of Directors: (JRS p. It must be a legal title and not beneficial title. 2005) Director Independence (Corp Gov Reviewer) • It is vitally important that a number of board be independent from management (SEC Code of CG. Any meeting of the stockholders or members called for an election may adjourn from day to day or from time to time but not sine die or indefinitely if. a majority of the member entitled to vote. 193 SCRA 717 (1991) . v. Unless otherwise provided in the articles of incorporation or in the by-laws.The bylaws of the corporation can provide other qualifications and disqualifications in addition to those provided in the Corporation Code. the trustee can be elected as director because he has legal title. Peña v. for any reason. • The Board may provide for additional qualifications of a director (SEC Code of CG) *** (SEC Code of CG is applicable only to __________) • It is clearly deducible from Section 23 that only natural persons can be elected as directors or trustees and they must be elected from among the stockholders or members. (SEC Opinion No. or if there not present or represented by proxy. a corporation which owns shares of stock or is a corporate member in another corporation can designate by board resolution its officer or representative to sit in the latter’s board and thus qualifying him to be elected as director or trustee. 89 SCRA 336 (1979) . members of corporations which have no capital stock may cast as many votes as there are trustees to be elected but may not cast more than one vote for one candidate. or he may distribute them on the same principle among as many candidates as he shall see fit: Provided. I soar… Service.a purported director whose name did not appear in the General Information sheet filed on behalf of the corporation in the SEC was deemed not qualified to act as a member of the Board. no election is held. or if there be no capital stock. committed within five (5) years before the date of his election (Section 27) (4) He must be of legal age.-must be a member. However. That the total number of votes cast by him shall not exceed the number of shares owned by him as shown in the books of the corporation multiplied by the whole number of directors to be elected: Provided. shares shall equal. the percentage of equity participation of foreigners with respect to nationalized activities must be complied with or he must not be a director in a competing corporation. Excellence A-103 .-must own at least one (1) share capital stock of the corporation in his own name. (2) A majority of the directors/trustees must be residents of the Philippines. the owners of a majority of the outstanding capital stock. 276) (1) Stock Corp. Example: the stockholder-trustor in a voting trust agreement cannot be a director because he has beneficial title. That no delinquent stock shall be voted. Non-stock Corp.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. at the meeting.

FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. • (ii) Residence (Section 24) • A majority of the directors/trustees must be residents of the Philippines. its parent or subsidiaries. (SRC Section 38)*** Independent director shall mean a person other than an officer or employee of the corporation. trustee or officer of any corporation. MANGUERA • There is no citizenship requirement demanded of the members of BoD. 23) (iii) Nationality Disqualifications: Corporation Code • must not have been convicted of a crime punishable by imprisonment of exceeding six (6) years • must not have committed any violation of the Corporation code within five (5) years prior to his election General Banking Law of 2000 • Except in rural banks. Excellence A-104 . (SRC Section 38)*** Degrees of Removal (Corp Gov Reviewer) • Not related by blood or marriage to the controlling shareholder • Not related as a fiend or social relation of the controlling shareholder • Not a supplier nor engaged in any business transaction with the company • Does not derive an income as a board director that constitutes the majority of his or her income. (i) Qualifying share (Section 24) • A director must own at least one share of stock. o Thus. (Section 13 of RA No. registered investment companies and private development banks. I soar… Service. 205 SCRA 752 [1992]). no appointive or elective public official. Peña v. 27. shall qualify as a director. (1) In corporations not organized under the Code. which would intervene with the exercise of independent judgment in carrying out the responsibility of a director. (Sec. Disqualification of directors. Inc. CA. Cloribel. v. Detective & Protective Bureau. in case of domestic banks. • • Listed and public companies shall have at least 2 independent directors or 20% of the board which ever is lesser. or any other individual having a relationship with the corporation. citizenship requirements are established. or a violation of this Code committed within five (5) years prior to the date of his election or appointment. 26 SCRA 255 (1969). Section 4 of RA 4093) (2) Under the Constitution. trustees or officers No person convicted by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years. Sacrifice. (Section 4 of RA 720. Beneficial ownership under voting trust arrangement no longer qualifies ( Lee v. 337). (see SRC Rule 38.1)*** (iv) Disqualifications (Section 27) Sec. the General Banking Act requires that at least two-thirds of the members of the BoD must be citizens of the Philippines. I bleed. CA. 193 SCRA 717 (1991). as amended by RA 1097. all the members of the BoD must be citizens of the Philippines. save in cases where such service is incident to financial assistance provided by the government or GOCCs to the bank or unless otherwise provided under I sweat. o For rural banks. whether fulltime or part-time shall at the same time serve as officer of any private bank. aliens may not be elected as directors of corporation engaged in business or industries which are totally or partially nationalized business or industries.

a stockholder may cumulate his shares by multiplying also the number of directors to be elected and distribute the same among as many candidates as he shall see fit. perjury or other fraudulent act of transgressions.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S.every stockholder “may vote such number of shares for as many persons as there are directors” to be elected. and (iii) Arising out of his relationship with a bank. or any other law administered by SEC or Corporation Code. dealer. (ii) Arising out of the person’s conduct as an underwriter. (d) Any person finally found by SEC or a court or other administrative body to have willfully violated. principal distributor. trust company. or a floor broker. judgment or decree by the SEC or any court or other administrative body from: (i) acting as underwriter. such person is also disqualified when he is currently subject to an effective order of a self-regulatory organization suspending or expelling him from membership or participation or from associating with a member or participant of the organization (c) Any person finally convicted judicially or administratively of an offense involving moral turpitude. investment adviser. principal distributor. by reason of paragraphs (a) to (e) hereof to serve or act in the capacities listed in those paragraphs. Sacrifice. quasi-bank. broker. principal distributor. and banking activities (but also includes when covered by an effective interim order). MANGUERA bribery. regulation or order of SEC or BSP. committed within five (5) years prior to the date of his election or approval. (c) How elected (Section 24) Stockholders have the option to adopt any of the following: (1) Straight voting. investment company or an affiliated person of any of them. commodity trading advisor. (g) Any affiliated person who is ineligible. theft. mutual fund dealer. forgery. counterfeiting. commodity trading advisor. induced or procured the violation of. (f) Any person finally found guilty by a foreign court or equivalent regulatory authority of acts. futures commission merchant. dealer. futures commission merchant. any provision of the Securities and Regulation Code. (iii) engaging in or continuing any conduct or practice in connection with any such activity or willfully violating laws governing securities. Mutual fund dealer. abetted. (h) Conviction by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years. trust company. (e) Any person judicially declared to be insolvent.a stockholder is allowed to concentrate his votes and “give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal”. violations or misconduct listed in paragraphs (a) to (e) hereof. quasi-bank. by reason of any misconduct. estafa. investment house. (3) Cumulative Voting by Distribution. floor broker. violations or misconduct similar to any of the acts. I bleed. or by a foreign court or equivalent financial regulatory of similar acts. mutual fund dealer. false oath. investment adviser. I soar… Service. (2) Cumulative Voting for One Candidate. I sweat. or a violation of Corporation Code. fraud. embezzlement. or any rule. Excellence A-105 . existing laws SEC Code of CG*** (a) Any person who has been finally convicted by a competent judicial or administrative body of the following crimes: (i) Involving purchase or sale of securities. counseled. (ii) acting as a director or officer of a bank. investment house or as an affiliated person of any one of them (b) Any person who. misappropriation. is permanently or temporarily enjoined by order. or willfully aided. broker.

29. or. A special meeting of the stockholders or members of a corporation for the purpose of removal of directors or trustees. That such removal shall take place either at a regular meeting of the corporation or at a special meeting called for the purpose. (3) Voting may be in person or by proxy. (2) There must be previous notice to the stockholders or members of the intention to remove. C: According to the SEC. (e) How vacancy filled (Section 29) Sec.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. Q: How? A: Cause the shares to be transferred. or if the corporation be a non-stock corporation. or (2) By ballot when requested by any voting stockholder or member. I think there should be no rounding up because election of foreign BoD is merely a privilege. Requisites for Removal: (Page 278 of JRS) (1) It must be take place either at a regular meeting or special meeting of the stockholders or members called for the purpose. because of agency. Vacancies in the office of director or trustee Any vacancy occurring in the board of directors or trustees other than I sweat. I soar… Service. (d) How removed (Section 28) Sec. after previous notice to stockholders or members of the corporation of the intention to propose such removal at the meeting. must be given by publication or by written notice prescribed in this Code. or any of them. Excellence A-106 . on the written demand of a majority of the members entitled to vote. Removal of directors or trustees Any director or trustee of a corporation may be removed from office by a vote of the stockholders holding or representing at least twothirds (2/3) of the outstanding capital stock. Removal may be with or without cause: Provided. (Section 28) Catindig Class Notes Q: Can directors be removed at anytime? A: Yes if with cause and even without cause if the director does not represent the minority… Q: Can the SH who owns 40% and has 2 nominees get rid of the 2 nominees without action from the Board? A: Yes. MANGUERA the call for the meeting may be addressed directly to the stockholders or members by any stockholder or member of the corporation signing the demand. if it be a non-stock corporation. I bleed. it is required that there is cause for removal. as well as of the intention to propose such removal. in which case. Q: Are directors entitled to compensation? A: General rule is they are not entitled to compensation except when provided by bylaw or by a vote of SHs representing majority of OCS. (JRS) Manner of Election: (1) In any form. must be called by the secretary on order of the president or on the written demand of the stockholders representing or holding at least a majority of the outstanding capital stock. 2007) Catindig Class Notes Q: When is the BoD elected? A: The general rule is the BoD is elected in an annual meeting except if the cause of vacancy is due to removal or if there is no more quorum in the BoD to be able to fill in the vacancy in which case a director may be lected in a special meeting. or if there is no secretary. by a vote of at least two-thirds (2/3) of the members entitled to vote: Provided. Sacrifice. 28. That removal without cause may not be used to deprive minority stockholders or members of the right of representation to which they may be entitled under Section 24 of this Code. (4) The director may be removed with or without cause unless he was elected by the minority. Should the secretary fail or refuse to call the special meeting upon such demand or fail or refuse to give the notice. and in either case. Note: Cumulative voting is not available in non-stock corporations. (3) The removal must be by a vote of the stockholders representing 2/3 of Outstanding Capital Stock or 2/3 members. (Page 764 of CLV’s CLR. Q: Can the number of the BoD be less than 5? A: Yep. there can be rounding up. Notice of the time and place of such meeting.

That any such compensation other than per diems may be granted to directors by the vote of the stockholders representing at least a majority of the outstanding capital stock at a regular or special stockholders' meeting. may be filled by the vote of at least a majority of the remaining directors or trustees. he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the corporation. I soar… Service. “it is the board of directors or trustees which exercises almost all the corporate powers in a corporation” (Firme v. any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence. as such directors. Excellence A-107 . exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year. A directorship or trusteeship to be filled by reason of an increase in the number of directors or trustees shall be filled only by an election at a regular or at a special meeting of stockholders or members duly called for the purpose. the directors shall not receive any compensation. except for reasonable per diems: Provided. however. as such directors. (g) Matters requiring Board of Directors’ action • As can be gleaned from Section 23 of Corporation Code. When a director. (iv) increase in the number of directors. resignation. (ii) expirations of term.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S.g. I sweat. (iii) the ground is other than removal or expiration of term (e. death. (SEC Code of CG)*** • No director should be involved in deciding his or her own remuneration (SEC Code of CG)*** • Compensation may be linked with corporation and individual performance. Compensation of directors In the absence of any provision in the by-laws fixing their compensation. Bukal. if any. its stockholders or members and other persons. said vacancies must be filled by the stockholders in a regular or special meeting called for that purpose. A director or trustee so elected to fill a vacancy shall be elected only or the unexpired term of his predecessor in office. In no case shall the total yearly compensation of directors. by removal by the stockholders or members or by expiration of term. Sacrifice. MANGUERA Director Compensation • Corp Code: Section 30 • Compensation must be sufficient to attract and retain directors needed to run the company successfully. trustees or officers Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation. (2) By board if remaining directors constitute a quorum—case not reserved to stockholders or members. 31. 2003) (h) Liability (i) In General (Section 31) Sec. if still constituting a quorum. abandonment) where the remaining directors do not constitute a quorum. in violation of his duty. Liability of directors. otherwise. or in the same meeting authorizing the increase of directors or trustees if so stated in the notice of the meeting Filling of vacancies in the Board: (Page 279 of JRS) (1) By stockholders or members – if vacancy results because of: (i) removal. 30. (f) How compensated (Section 30) Sec. (SEC Code of CG)*** • Corporations may establish a formal and transparent procedure for developing a policy on executive remuneration and for fixing the remuneration packages of individual directors. as to which equity imposes a disability upon him to deal in his own behalf.. trustee or officer attempts to acquire or acquires. I bleed.

as an integral part of resolving the issues between squabbling stockholders. (Page 759 of CLV’s CLR. MANGUERA • Directors and officers who purport to act for the corporation. the self-interest of the officer or director will be brought into conflict with that of his corporation.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. NLRC. Hence. contracts. Tiu. the law does not permit him to seize the opportunity even if he will use his own funds in the venture. Ong Yong v. (iii) Doctrine of corporate opportunity • If there is presented to a corporate officer or director a business opportunity which: (a) Corporation is financially able to undertake. keep within the lawful scope of their authority and act in good faith. which are properly attributed to the corporation alone. and (c) When Directors or officers act against the corporation in conflict of interest situation. Benguet Electric Cooperative. order the corporation to undertake certain corporate acts. 401 SCRA 1 (2003). he must account all the profits by refunding the same to the corporation unless the act has been ratified by a vote of the stockholders owning or • • I sweat. cannot be overturned or set aside by the stockholders or members and not even by the courts under the principle that business of the corporation has been left to the hands of the Board. 2007) No court can. By embracing the opportunity. or (3) Will acquire any personal or pecuniary interest in conflict of duty. (UP-Elective Class Reviewer at 36) Catindig Class Notes-Ateneo Q: What matters require BoD action? What are the exceptions? A: All corporate powers except such delegated to Executive Committee. Inc. Not liable for mistakes and errors provided they acted in good faith and with due care and prudence. is in line with corporation’s business and is of practically advantage to it. I soar… Service. for the consequences of their acts. since it would be in violation of the business judgment rule. 209 SCRA 55 (1992). (Secs 31 and 34) (ii) Business Judgment rule • BJR: Unless otherwise provided in the Code. and transactions of the Board. (2) Is guilty of gross negligence or bad faith in directing the affairs of the corporation. and (2) Directors and duly authorized officers cannot be held personally liable for acts or contracts done with the exercise of their business judgment. v. do not become liable. I bleed. If he seizes the opportunity thereby obtaining profits to the expense of the corporation. the rule has two consequences: (1) The resolution. Consequently. whether civilly or otherwise. gross negligence or in bad faith. Excellence A-108 . Exceptions: (a) When the Corporation Code expressly provides otherwise. (b) From its nature. SPAs etc. (b) When the Directors or officers acted with fraud. 2007 UP Class Notes Reason for this tile is that nobody would want to be a director if he is liable for a wrong decision. Q: Are directors liable for wrong decision resulting to losses to the corporation? A: No unless… A director is liable if he: (1) Willfully and knowingly vote for and assent to patently unlawful. all corporate powers and prerogatives are vested directly in the BoD. • See also Page 774 of CLV’s CLR. and (c) One in which the corporation has an interest or a reasonable expectancy. Sacrifice. acts of the corporation.

That the contract is fair and reasonable under the circumstances. He proposed to supply janitors. he shall be subject to I sweat. Pedro is a self-dealing director. Alternative Answer: One and a half year is a very long time. (4) If X Corp is a bank. you could enter into it but risk that a BoD or stockholder will contest it. even if he had risked his own funds. That the vote of such director or trustee was not necessary for the approval of the contract. unless all the following conditions are present: 1.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. at the option of such corporation. Could Pedro engage in the same business as the corporation? Could this business import the new breed of hogs? What would be your advice to avoid trouble? Ans: Pedro could not engage in the business of importing the hogs because of his position and he came across the information because the corporation sent him to the convention. Excellence A-109 . however. In case of such conflict-of-interests . I soar… Service. in the case of a contract with a director or trustee. 3. Pedro knew about a new breed of hogs available abroad which is more profitable. and provided the contract is fair and reasonable under the circumstances. trustees or officers with the corporation A contract of the corporation with one or more of its directors or trustees or officers is voidable. That the presence of such director or trustee in the board meeting in which the contract was approved was not necessary to constitute a quorum for such meeting. Pedro proposed to the BoD to buy the new breed of hogs. Catindig: Actually. After one and a half year. On that trip. That the contract is fair and reasonable under the (v) Contracts between corporation with interlocking directors (Section 33) Sec. MANGUERA circumstances. (iv) Dealings with the corporation (Section 32) Sec. and the director acts against the good of the corporation. 2. (Page 783 of CLV’s CLR. such contract may be ratified by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of at least two-thirds (2/3) of the members in a meeting called for the purpose: Provided. Class Notes Q: Pedro owns ABC Corp (Manpower services). 2007) Class Notes Pedro is a director of X Corporation which is engaged in hog business. the BoD have not made any decision yet because of the financial condition of the corp. That if the interest of the interlocking director in one corporation is substantial and his interest in the other corporation or corporations is merely nominal. Pedro told Hans about this and Hands said they would create a new hog corp and import the hogs. That full disclosure of the adverse interest of the directors or trustees involved is made at such meeting: Provided. Sacrifice. Dealings of directors. Note: There should also be full disclosure of the adverse interest. the following requirements must concur: (1) The contract must be fair and reasonable. 33. Pedro was sent on a convention abroad. That in case of an officer. he shall be accountable for the profits he obtained. the contract has been previously authorized by the board of directors. 2006) • Sections 31 and 34 contain the doctrine of corporate opportunity. Contracts between corporations with interlocking directors Except in cases of fraud. Where any of the first two conditions set forth in the preceding paragraph is absent. a contract between two or more corporations having interlocking directors shall not be invalidated on that ground alone: Provided. (2) BoD quorum even without the presence of Pedro. (Page 279 of JRS’ RCL. security guards and clerks at 5% below market charges to X Corp of which he is a director. and 4. You could tell Pedro to write a letter to the corporation and disclose that he would engage in hog business. I bleed. (UP-Elective Class Reviewer at 36) representing at least two-thirds (2/3) of the outstanding capital stock. To ensure that the contract is not voided. 32. Could X Corp. enter into such contract? Ans: Yes. (3) Vote of Pedro is not needed for approval. there must be a minutes on the meeting and a copy of the minutes must be sent to the BSP.

61. having knowledge thereof.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. having knowledge of it. the cattle will be very heavy because of the water. That’s why shares of stock where the corporation did not get its money’s worth came to be called watered stock. when the cowboys would bring their cattle to the market to be sold. (vi) Disloyalty (Section 34) Sec. acquires for himself a business opportunity which should belong to the corporation. thereby obtaining profits to the prejudice of such corporation. Excellence A-110 . 34. we’ve mentioned this before. (n) Jack’s Lecture Now under §65 [Liability of directors for watered stocks].8. it is within the business judgment of the Board to ratify the act. So when they arrive at the market. will be liable if a stock is watered. valued in excess of its fair value. In other words. cattle is called stock. the cattle is heavy and he will pay the price for that weight but what he is paying for . unless his act has been ratified by a vote of the stockholders owning or representing at least two-thirds (2/3) of the outstanding capital stock. while for trustees or officers who violate such duties. notwithstanding the fact that the director risked his own funds in the venture. Disloyalty of a director Where a director. And in the old days of the wild. does not forthwith express his objection in writing and file the same with the corporate secretary.water. And so the cattle are very thirsty and so they will drink a lot of water. So when the cattle is weighed by the buyer. This provision shall be applicable. (vii) Watered Stocks (Section 65) Sec.2) the provisions of the preceding section insofar as the latter corporation or corporations are concerned.  DBP v. When the corporation receives less consideration than the par value of a par value share or the stated value if it is a nopar value share… that is called watered stock. liable with the stockholder concerned to the corporation and its creditors for the difference between the fair value received at the time of issuance of the stock and the par or issued value of the same. shall be solidarily. an officer or director who agrees to the issuance of watered stock or such officer who. Because remember.2. by virtue of his office. • The rule under Sec. has no application to cases where fraud is alleged to have been committed to third parties. Court of Appeals. • • Relate with Section 31 Section 34 applies only to a director and not to a trustee or officer as in the case of Section 31. 23. they will make the cattle eat salt so the cattle will be very thirsty. Sacrifice. he must account to the latter for all such profits by refunding the same. And then along the way. wild west. The following are more common situations involving such conflict of interest: (1) Self-dealing director (Section 32) (2) Fixing compensation of directors and officers (Section 30) I sweat. or who. MANGUERA (3) Interlocking directors (Section 33) (4) Seizing corporate opportunity. the stockholder paid less than the par value or the stated value for the shares of stock and then he was issued a stock certificate. 71. That cattle which is full of water which is being sold for a heavier weight – watered stock. Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be considered substantial for purposes of interlocking directors. 363 SCRA 307 (2001). 33 of Corporation Code allowing annulment of contracts between corporations with interlocking directors resulting in the prejudice to one of the corporation. they will pass by a stream. 65. He is not getting his money’s worth. Liability of directors for watered stocks Any director or officer of a corporation consenting to the issuance of stocks for a consideration less than its par or issued value or for a consideration in any form other than cash. Disloyalty (31.34) (5) Using inside information (SRC Sections 3. and the implication is that only a ratificatory vote of the stockholders would allow a director who violates his duty of loyalty to keep the profits form the venture. does not file with the corporate secretary his written objection. I soar… Service. I bleed.

the committee directly manages the operations of the corporation between meetings of the board. composed of not less than three members of the board. Thus. (Page 882 of CLV’s CLR. • A voting trust agreemen results in the separation of the voting rights of a stockholder from his other rights such as the right to receive dividends and other rights to which a stockholder may be entitled until the liquidation of the corporation. • Excutive Committee is a “governing body” which functions as the board itself.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. (2) the filing of vacancies in the board. (Page 882 of CLV’s CLR. MANGUERA the shareholders. I soar… Service. to be appointed by the board. (Page 882 of CLV’s CLR. and (5) a distribution of cash dividends to I sweat. Excellence A-111 . Uichico v. membership therein shall be governed by the same law/ rules applicable to the board of directors as provided in Section 35. (4) the amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable. The existence of such “water” is determined at the time of the issuance of the stock. (Page 305 of De Leon. (3) the amendment or repeal of by-laws or the adoption of new by-laws. whereby the board of directors delegates to an executive committee composed of some members of the board corporate powers to assure prompt and speedy action and solution to important matters without the need for a board meeting. especially where such meetings cannot be readily be held. Sacrifice. by majority vote of all its members. Executive committee The by-laws of a corporation may create an executive committee. thereby reducing the work load of the latter. 2007) • The term has also been defined as stocks issued by a corporation for which it has in fact intentionally or knowingly received or agreed to receive nothing at all from them or less thatn their par value either in money. or in property or in service. Subsequent in increase in the value of the property used in paying the stock does not do away with the “water” in the stock. 35. 2006) 6.3 Cases Lee v. except with respect to: (1) approval of any action for which shareholders' approval is also required. Said committee may act. CA (1992) • Every director must own at least one share of the capital of the corporation of which he is a director which share shall stand in his name on the books of the corporation. on such specific matters within the competence of the board. 2007) UP Class Notes All directors are liable for issuance of watered stocks unless the director files a written objection with the corporate secretary. June 3. I bleed. NLRC (1997) (i) Executive Committee (Section 35) Sec. Thus. 2007) • Note that the “water” in the stock refers to the difference between the fair market value at the same time of the issuance of the stock (not at the time of discovery of the inadequate consideration or at the time of demand for payment) and the par or issued value of said stock. • Watered stocks are shares issued and fully-paid when in fact the consideration agreed to and accepted by the directors of the corporation was something known to be much less than the par value or issued value of the shares. • Any director which ceases to be the owner of at least one share of the capital stock of the corporation of which he is a director shall thereby cease to be a director. 1998) • Section 35 recognizes an already existing corporate practice in the Philipoines dictated by necessity owing to the growing complexities of modern business. as may be delegated to it in the by-laws or on a majority vote of the board. (SEC Opinion.

3 Additional Material: SEC Opinion No/ 31. I bleed. members of the BoD in a condominium corporation must be elected form the general stockholders of the said corporation. Western Institute of Technology v. 6. Salazar. Q: Does he perform functions outside the context of a board meeting? What are those functions? A: No. SEC Opinion Summary: Only those persons under whose names the Condominium certificate of Titles are issued are considered as members of the condominium corporation. Jose Oscar M. I sweat. Eternity Corp (2006) • The general principles of agency govern the relation between the corporation and its officers or agents.Jose Oscar M. subject to the articles of incorporation. dated May 26. by-laws. Salazar Bormaheco Condominium Metropolitan Avenue. Salas (1997) • Members of the board may receive compensation. MANGUERA • In labor cases. An exception to this rule is in the case of corporate unit owner/member of a condominium corporation. 31-03 Mr. As a general rule. who are comprised of unit owners. Chairman and ViceChairman performs functions related to that of the BoD hence should not ___________. Salazar re who would be elected director in a condominium corporation. particularly. Salazar May 26. • Any sale of real property of a corporation by a person purporting to be an agent thereof but without written authority form the corporation is null and void. in addition to reasonable per diems. • 2 ways by which members of the board can be granted compensation apart from reasonable per diems: (1) When there is a provision in the by-laws fixing their compensation. Jose Oscar M. when they render services to the corporation in a capacity other than as directors/trustees. 2003 requesting opinion on the following queries: Litonjua v. except when the Board ask him to perform other functions. 1205 Makati City Dear Mr. Catindig Class Notes Q: Normally. or relevant provisions of law. what are the functions of the Chairman of the Board? A: He presides over board meetings. series of 2003. An officer or a duly authorized agent or trustee who has been designated by the corporate unit owner/member of the corporation as its representative for the express purpose of qualifying him as director may be eligible to be elected as director. SEC Opinion Whole Document 05-26-2003 Mr. corporate directors and officers are solidary liable with the corporation for the termination of employment of corporate employees done with malice or in bad faith.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. C: Western case has a failure of analysis. and (2) When the stockholders representing a majority of the outstanding capital stock at a regular or special stockholders’ meeting agree to give it to them. 2003 SEC OPINION NO. This pertains to your letter dated May 19. Sacrifice. Excellence A-112 . 2003 to Mr. I soar… Service.

We quote the pertinent portion of the decision of the Supreme Court. the by-laws cannot validly provide that even third parties or non-stockholder or non-members of the corporation can be elected to the board of directors/trustees. and. Whether the surviving spouse of a deceased member of a condominium corporation qualifies as a director therein where there were no judicial proceedings to settle the estate of the deceased and neither was there an extra-judicial partition awarding the unit to the surviving spouse. SEC. (Section 23). Campos. it can act through its officers or authorized agent or representative who has been duly designated in a Board Resolution. By the local customs. agree upon the regime of absolute community. spouses are given the freedom to choose which property regime may govern them during the marriage. . committed within five (5) years prior to the date of his election. which reads as follows: "The private respondents. In one Opinion . 957 (Regulating the Sale of Subdivision Lots and Condominiums. who are comprised of unit owners. conjugal partnership of gains. which provides that: ". in the case entitled Sunset View Condominium vs. . 3. MANGUERA Similarly. (3) He must not have been convicted by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years. in the marriage settlements. or a violation of the Corporation Code. therefore. Issuance of Title — The owner or developer shall deliver the title of the lot or unit to the buyer upon full payment of the lot or unit . Membership in a condominium corporation. (Gokongwei vs. (Section 23). . Article 75. the qualifications of directors/trustees. only members of the corporation can be elected to sit in the board of trustees." I sweat. he automatically ceases to be a director. I bleed. While a corporation cannot act by itself. Accordingly. I soar… Service. this Commission previously opined that under Articles 74 and 75 of the Family Code. the aforementioned general rule admits of certain exceptions. 2. The foregoing is even strengthened by Section 10 of Republic Act No. (2) A majority of the directors/trustees must be residents of the Philippines. complete 1. From the foregoing.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. "(emphasis supplied) Verily. (Section 27). otherwise known as the Condominium Act. are as follows. Presidential Decree No. For non-stock corporations. please take note that in this jurisdiction." Therefore. members of a board of directors in a condominium corporation must be elected from the general stockholders of the said corporation. By the provisions of this Code. In the same light.The property relations between husband and wife shall be governed in the following order: 1. "in the case of a condominium corporation where all the members thereof are corporate members or juridical persons. and. and. Jr. (1) He must own at least one (1) share of the capital stock of the corporation in his own name. pursuant to the Corporation Code. Ownership in a condominium corporation is conferred only upon full payment of the purchase price of the unit. regardless of whether it is a stock corporation or non-stock corporation. By marriage settlements executed before the marriage. Providing Penalties For Violations Thereof). the Commission stated that. shall not be transferable separately from the condominium unit of which it is appurtenance . only those persons under whose names the Condominium Certificate of Titles (CCTs) are issued are considered as members of the condominium corporation. it is unequivocally required that board members. 3. and if he ceases to own at least one share in his own name. Excellence A-113 . SCRA 336). Sacrifice. Nevertheless. The Law provides: "Article 74. What remedy/ies is/are available to prevent the aforementioned persons from acting as director if the aforementioned persons are not qualified if the Board of Directors/Officers of the condominium corporation continue to recognize said persons to perform the duties of a director?" [1] Anent your first query.Whether an attorney-in-fact or representative of a unit owner in a condominium corporation qualifies as a director therein especially if such attorney-in-fact is unanimously elected as director of the corporation. [2] Relative to your second query. whether as directors or trustees. as in the case of corporate unit owner/member of a condominium corporation. (Section 47[5]). (6) Other qualifications as may be prescribed in the by-laws of the corporation. (4) He must not have substantial interest in a competing corporation. who have not fully paid the purchase price of their units and consequently not owners of their units are not members or shareholders of the petitioner condominium corporation. must be elected from among the holders of stock or from the general membership of the corporation in cases of non-stock corporation. an officer or duly authorized agent or trustee who has been designated by a corporate unit owner/member of a condominium corporation as its representative for the express purpose of qualifying him as director. 2. membership in a condominium corporation is evidenced by the Certificate of Title issued upon full payment of the unit. By-laws cannot prevail over the express provision of law requiring members of the board to be stockholders or members of the corporation. . as a general rule. . .The future spouse may. may be eligible to be elected as director. being a juridical person. . 4726. provides: "SECTION 25. (5) Only natural persons can be elected directors/trustees.

In the absence of marriage settlements. if the condominium unit is. Excellence A-114 . except a removal that would effectively deprive minority stockholders/members of the right of representation to which they may be entitled by virtue of the rule on cumulative voting. the law on co-ownership shall not apply. please be advised that the foregoing cited authorities do not restrain or preclude judicial interpretation and application of the law on the actual facts. Such is the mandate contained in Section 28 of the Corporation Code when it provides that "any director or trustee of a corporation may be removed from office by a vote of the stockholders holding or representing two-thirds (2/3) of the outstanding capital stock. shall be recorded as one member. among the excluded properties under Section 92 of the Family Code or where the spouses have chosen a different marriage settlement other than the system of absolute community property. the corporation may inquire into the property regime governing marriage. Assuming therefore. when doubtful and in order to determine true ownership of the condominium unit. I bleed. [3] With regard your last query. However. Hence. the system of absolute community of property as established in this Code shall govern. with or without cause and irrespective of tenure. . .FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. (SGD. However. the property relations between the husband and the wife shall be governed by the system of absolute community of property. I soar… Service. the Corporation Code explicitly allows removal of directors/trustees without cause. or when the regime agreed upon is void. Sacrifice. whether or not they can prove cause of such loss. I sweat. it should be stressed that most modern statutes allow the removal of directors by the shareholders/members of a corporation. the stockholders should feel free to remove directors at anytime that they have lost their trust and confidence in them. MANGUERA Very truly yours. who are co-owners of a condominium unit. unless the spouses agree upon a different system of property relations.) VERNETTE UMALI-PACO General Counsel separation of property. or any other regime. that the husband and wife failed to agree on what property regime to adopt. by a vote of two-thirds (2/3) of the members entitled to vote: . Please be guided accordingly. The provisions on co-ownership shall apply to the absolute community property between the spouses in all matters not provided for in this Chapter. not the directors to make the corporate government responsible to the owners. Therefore. the spouses." Section 23 incorporates the so-called inherent power of "amotion" by a corporation. officers and trustees prior to the expiration of their term. "Amotion" is the power to remove directors. which provides: "Section 90." Thus. or if a corporation be a non-stock corporation." (emphasis supplied) Accordingly. Moreover. The underlying reason for such provision is that the stockholders/members shall be the ultimate masters. should the issue raised herein be litigated in the proper court. the condominium unit may be deemed as a community property and shall be governed by the rules on "co-ownership" pursuant to Article 90 of the Family Code.

Perforce. the matter would come within the area of corporate affairs and management. namely the president. I bleed.1 Corporate Officers Who are the corporate officers of a corporation? • The Corporate Officers are: o The President (who shall be and director) o Treasurer (who may not be a director) o Corporate Secretary (who shall be a resident and citizen of the Philippines o And such other officers as may be provided in the bylaws. NLRC. The officers elected to such positions are bylaws officers. Q: Why is the determination whether an officer is a bylaw officer or a management officer important? A: As regards intracorporate dispute. Secretary and Treasurer Q: Who are the by-laws officers of a corporation? A: If the by-laws provides that the BoD may create positions and provide for their function. NLRC. and if such removal occasions an intra-corporate controversy. Bylaws officers are under the SEC while non-by-laws officers are under the NLRC Q: Who are management officers? I sweat.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. and such a corporate controversy would call for SEC adjudicative expertise.” then such specifically designated positions should be considered “corporate officers”. Coverage of “Corporate Officer” for purpose of determining extent of business judgment of the Board to fire or hire: • For purposes of determining who is a corporate “officer” falling within the business judgment power of the Board of Directors to determine whom to hire and to fire. International Broadcasting Corp. NLRC. would be intra-corporate controversy subject to SEC’s jurisdiction. the Board of Directors may also be empowered under the by-laws to create additional officers as may be necessary. • When the by-laws provide for the position of “Superintendent/ Administrator. Tabang v. not that of NLRC. De Rossi v. I soar… Service. 379 SCRA 653 (2002).. MANGUERA 7. (page 283 of JRS. OFFICERS 7. with which the Board of Directors might have in taking such action. it should cover only: (1) The officers provided by the corporation law. 314 SCRA 245 (1999). its nature is not altered by the reason or wisdom. or lack thereof. The fact that “Comptroller” is not mentioned in the by-laws does not undermine the appointment to such position since under Sec. the Board of Directors is authorized to appoint such other officers as it may deem necessary. The determination of the rights and the concomitant liability arising from any ouster from such positions. Sacrifice.” it is clearly a corporate officer position and issues of reinstatement would be within the jurisdiction of the SEC and not the NLRC. Catindig Class Notes Q: Who are the basic set of officers? A: President. But the by-laws should be amended to reflect the office created. Nacpil v. 25 of Corporation Code. 270 SCRA 613 (1997). and that where a corporate office is not specifically indicated in the roster of corporate offices in the by-laws of a corporation. • When the by-laws provides that one of the powers of the Board is “[t]o appoint a Medical Director.” By-laws may and usually do provide for such other officers. Excellence A-115 . Said officers shall be elected by majority vote of the Board of Directors. In this case the by-laws provided “and such other officers as the Board of Directors may from time to time does fit to provide for. treasurer and secretary. 266 SCRA 462 (1997). Chiefs of Services and such other officers as it may deem necessary and prescribe their powers and duties. and (2) Those provided for in the by-laws of the corporation. 2006) • • An officer’s removal is a corporate act. Ongkingco v. Comptroller/Administrator.

Boyer-Roxas v. 25. who shall be a director. trustee or officer of any corporation. (page 283 of JRS. (2) Amend the Bylaws if there is no such provision. 7. (b) Qualifications (Section 25) • The Corporate Officers are: o The President (who shall be a director) o Treasurer (who may not be a director) o Corporate Secretary (who shall be a resident and citizen of the Philippines o And such other officers as may be provided in the bylaws. do not elect him as director or take away his nominal share. the by-laws or in a delegation of authority to such officer.2 Authority Rule on Corporate Officer’s Power to Bind Corporation • An officer’s power as an agent of the corporation must be sought from the statute. Excellence A-116 . I bleed. MANGUERA A: Those not mentioned in the by-laws and not elected by the BoD. or a violation of this Code committed within five (5) years prior to the date of his election or appointment. The directors or trustees and officers to be elected shall perform the duties enjoined on them by law and the by-laws of the corporation. I sweat. at the same time. (c) Disqualifications (Section 27) Sec. 27. and every decision of at least a majority of the directors or trustees present at a meeting at which there is a quorum shall be valid as a corporate act.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. 52 SCRA 210 (1973). and such other officers as may be provided for in the by-laws. except that no one shall act as president and secretary or as president and treasurer at the same time. quorum Immediately after their election. Unless the articles of incorporation or the by-laws provide for a greater majority. 2006) Note: Any two (2) or more positions may be held concurrently by the same person. I soar… Service. a secretary who shall be a resident and citizen of the Philippines. so you make them officers. UP Class Notes How do you elect Chairman and Vice-Chairman if the bylaws does not provide for it? (1) By laws must give power to the BoD to create other positions and provide for their functions. a majority of the number of directors or trustees as fixed in the articles of incorporation shall constitute a quorum for the transaction of corporate business. Any two (2) or more positions may be held concurrently by the same person. What to do if you want to hire a foreigner? Working Visa and Understudy is more expensive. Directors or trustees cannot attend or vote by proxy at board meetings. Corporate officers. the directors of a corporation must formally organize by the election of a president. trustees or officers No person convicted by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years. except for the election of officers which shall require the vote of a majority of all the members of the board. shall qualify as a director. President. Vicente v. Disqualification of directors. 211 SCRA 470 (1992). • • (a) Minimum set of officers (Section 25) Sec. charter. Catindig: If you want get rid of your President. Except: No one shall act as President and Secretary or as President and Treasurer. Sacrifice. Court of Appeals. Their positions are created by the management. a treasurer who may or may not be a director. Geraldez. from the acts of the board of directors formally expressed or implied from a habit or custom of doing business.

cannot bind the corporation in a sale of its assets. • A corporation may not distance itself from the acts of a senior officer: "the dual roles of Romulo F. Inc.. his knowledge of the repeal of a resolution in another juridical person in which his corporation has an interest. Ocampo. which obviously is foreign to a corporate treasurer’s function. TCL Sales Corp. the corporate secretary is the custodian of corporate records—he keeps the stock and transfer book and makes proper and necessary entries therein. whose power are limited. I bleed. v. 392 SCRA 176 (2002). Mandamus will not issue to establish a right. A secretary’s certificate which is regular on its face can be relied upon by a third party who does not have to investigate the truths of the facts contained in such certification. Court of Appeals. Lim Tay v.” Unless duly authorized. that exercises corporate powers. 349 SCRA 35 (2001). does not acquire ownership rights over the pledged shares and thus cannot compel the corporate secretary to record his alleged ownership of such shares on the basis merely of the contract of pledge. It must be emphasized that the basis for agency is representation and a person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. Jr. 278 SCRA 793 (1997). is ascribed to his principal under the theory of imputed knowledge. Inc. the enumeration of persons to whom summons may be served is “restricted. More specifically. otherwise business transactions of corporations would become tortuously slow and unnecessarily hampered. v.F. Court of Appeals. Sugay v. cannot be invalidated when the buyer relies upon a Secretary’s Certificate confirming authority. Court of Appeals. v. • Although the corporate secretary’s duty to record transfers of stock is ministerial. Atrium Management Corp. 353 SCRA 23 (2001). and as such. and to disburse them in accordance with the authority given him by the board or the properly authorized officers. Court of Appeals. I soar… Service. • A sale that fails to comply with Sec. Rovels Enterprises. Reyes. and in the event he refuses to comply with such duty. not the President. 40 of Corporation Code. Excellence A-117 . • People’s Aircargo v. prior to foreclosure and sale. MANGUERA already established.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. • It is the Board of Directors. Court of Appeals. Torres. Sacrifice. 645 (1998). Corporate Treasurer • A corporate treasurer’s function have generally been described as “to receive and keeps funds of the corporation. 296 SCRA 631. Corporate Secretary • In the absence of provisions to the contrary. the transferorstockholder may rightfully bring suit to compel performance. Sugay should not be allowed to confuse the facts. 355 SCRA 559 (2001). • The President is considered as the corporation’s agent. 267 SCRA 380 (1997). v. may be personally liable for the damaged caused the corporation." R. • A corporate treasurer whose negligence in signing a confirmation letter for rediscounting of crossed checks. but only to enforce one that is Service of Summons on Corporations Prevailing Rule: • Section 11. It is his duty and obligation to register valid transfers of stock in the books of the corporation. Rule 14 of the 1997 Rules of Civil Procedure uses the term “general manager” and unlike the old provision in the Rules of Court. Court of Appeals. Consequently. a treasurer. knowing fully well that the checks were strictly endorsed for deposit only to the payee’s account and not to be further negotiated. Safic Alcan & Cie v. it does not include the term “agent”. Esguerra v. Imperial Vegetable Oil Co.. he cannot be compelled to do so when the transferee’s title to said shares has no prima facie validity or is uncertain. 297 SCRA 170 (1998). limited and exclusive” I sweat. Court of Appeals. San Juan Structural v. 12 SCRA 700 (1961). 293 SCRA 634 (1998). a pledgor.

18 SCRA 207 (1966). or any other agent to act within the scope of an apparent authority. 177 SCRA 86 (1982). Catindig Class Notes Q: What are the sources of the powers of officers? A: (1) (2) (3) (4) (5) (6) As provided in the by-laws Those which the BoD may assign or delegate Provided by laws Those inherent in the position Customary (with respect to the corporation/industry) Incidental • • (b) Apparent or ostensible • Apparent authority is naturally the same as and based upon the same principle as authority by estoppel. 15 Golden Country Farms. Exceptions: (1) Doctrine of Ratification or Estoppel. v. Benito.. Note: (a) Actual. 219 SCRA 561 (1993). of the Philippines. usual. the corporation’s ratification of the contract and acceptance of the benefits have made such contract binding upon the corporation. Villarosa & Partners Co. v. E. Inc. 20 Filoil Marketing Corp. 158 SCRA 466 (1988). Ltd. NLRC. can validly bind the corporation. the earlier cases that uphold service of summons upon a construction project manager. and thus. Far East Motor Corp.. 16 Summit Trading and Dev. Avendaño. 310 SCRA 26 (1999). v. Francisco. Note: Ratification that would bind the corporation would have to come from the board of directors or a properly authorized representative. Therefore.14 ordinary clerk of a corporation. Implied authority of an officer or agent of a corporation includes all such incidental authority as is necessary.16 retained counsel. Corp. 146 SCRA 197 (1986)..13 a corporation’s assistant manager. not even the officers of the corporation.B. Even when the contract entered into in behalf of the corporation is outside the usual powers of the corporate officer. it holds him out to the public possessing the power to do so those acts. Corp. 81 SCRA 298 (1978). NLRC. Ratification can never be made on the part of the corporation by the same persons who wrongfully assume the power to make the contract. Ker & Co. 214 SCRA 295 (1992).. like the assistant general manager.. following the rule on statutory construction expressio unios est exclusion alterius. v. Gesulgon v. I bleed. Sacrifice.Acts of contracts which are not per se illegal can be validated. v. Express authority of an officer or agent includes every power or authority expressly conferred upon him by law and the by-laws of the corporation. MANGUERA officer has by reason of his office. 14 13 I sweat.19 no longer apply since they were decided under the old rule that allows service of summons upon an agent20 of the corporation. 279 SCRA 337 (1997). Inc. no person. 18 Villa Rey Transit. v.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. I soar… Service. In the absence of an authority from the board of directors. Court of Appeals. Ltd.15 private secretary of corporate executives. Court of Appeals. as against anyone who has in good faith dealt with it through such agent. 312 SCRA 65 (1999). 135 SCRA 397 (1985). 19 Far Corporation v. Sanvar Development Corp. Marine Dev. v. express or implied • Inherent authority or power of an officer or agent is taken to mean that authority to act and bind the corporation which the Kanlaon Construction Enterprises Co.18 or the corporation’s Chief Finance and Administrative Officer. 17 Republic v. (2) Doctrine of Apparent Authority. and proper to effectuate the main authority expressly conferred. the corporation will.If a corporation knowingly permits one of its officers. Inc. Excellence A-118 ..17 officials who had charge or control of the operations of the corporation. also Vlason Enterprises Corp. be estopped from denying the agent’s authority. G & G Trading Corp. but the ratification must be by the officers as governing body having authority to make such contract. although it may not be sanctioned by express authority. v.

they cannot be held liable personal for the judgment rendered against the corporation. Inc. (Ramirez Doctrine) However. 273 SCRA 419 (1997).3 Liability (a) Liability in general (Section 31) Sec. v. (UP-Elective Class Reviewer at 39) Q: If teller? A: Agency case. 84 Phil. then the burden of proof now shifts to the contracting party to show that indeed by previous acts and actuations. as to which equity imposes a disability upon him to deal in his own behalf. CA. Republic Planters Bank v. Existence of apparent authority must be ascertained through: (a) general manner in which the corporation holds out an officer or agent as having the power to act or in. 31. Liability of directors. 216 SCRA 738 (1992).FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. MANGUERA for the profits which otherwise would have accrued to the corporation. he shall be liable as a trustee for the corporation and must account • • Generally. v. EPG Constructions Co. When a director. Western Agro Industrial Corp. the acting officer had been clothed by the corporation with apparent authority for the public to take such authority at face value. being a party to a simulated contract of management. 13 SCRA 291 (1965). v.) • • • 7. I bleed. 214 SCRA 665 (1992). I soar… Service. Court of Appeals. any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence. trustees or officers Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation. once the corporation has discharged its burden under the Ramirez Doctrine. Ana is the manager of the bank. CIR. Arcilla v. finding or conclusion regarding particular acts committed by said officers and director that show them to have been individually guilty of unmistakable malice. if duly authorized. IAC.. An officer-stockholder who signs in behalf of the corporation to a fraudulent contract cannot claim the benefit of separate juridical entity: “Thus. Rustan Pulp & Paper Mills. 210 SCRA 230 (1992). Court of Appeals. Sacrifice. Excellence A-119 . the apparent authority to act in general. bad faith. 215 SCRA 120 (1992). in violation of his duty. A president cannot be held solidarily liable personally with the corporation absent evidence of showing that he acted maliciously or in bad faith. due to the personality of the corporation being separate and distinct from the persons composing it. it must plead such fact. Walter Bull and Co. SMC shares were given by Pedro to Ana. Banque Generale Belge v. with which it clothes him. or ill-motive in their personal dealings with third parties. Inc. its officers and directors would patently be baseless when the decision contains no allegation. petitioner Uy cannot be permitted to escape I sweat. Ana told Pedro that BSP required higher collateral and told him to increase his collateral for his loan. other words. officers or directors under the old corporate name bear no personal liability for acts done or contracts entered into for the corporation. Court of Appeals. When corporate officers and directors are sued merely as nominal parties in their official capacities as such. Ana is clothed with authority as officer to act in behalf of the bank. trustee or officer attempts to acquire or acquires. The finding of solidary liability among the corporation. 164 (1949). whether within or beyond of his ordinary powers. its stockholders or members and other persons. Could Pedro sue the bank? Ans: Yes. and before she left. (Id. If the corporation desires to set up the defense that the contract was executed by one not authorized as agent. Corporate officers who entered into and signed contracts on behalf of the corporation in their official capacities cannot be made personally liable thereunder in the absence of stipulation to that effect. (Yao Ka Sin-Timely Repudiation Doctrine) UP Class Notes: Pedro went to bank. NPC. or (b) the acquiescence in his acts of a particular nature. Court of Appeals. Emilio Cano Enterprises. she sold Pedro’s SMC shares. with actual or constructive knowledge thereof. v. 188 SCRA 709 (1990). Ana was about to go to Canada. v.

• A corporation. had no evidentiary value whatsoever. Uichico v. AHS/Philippines v. Inc.” Paradise Sauna Massage Corporation v. Del Rosario v. NLRC. signed the Board Resolution retrenching the employees on the feigned ground of serious business losses that had no basis apart from an unsigned and unaudited Profit and Loss Statement which. acting as corporate agents. 271 SCRA 247 (1997). Nicario v. are not theirs but the (b) Dealings with the corporation (Section 32) Sec. Chua v. Greenfields v. 182 SCRA 353 (1990). Corporate officers cannot be held personally liable for damages on account of the employees dismissal because the employer corporation has a personality separate and distinct from its officers who merely acted as its agents. Solid Bank Corp. 257 SCRA 319 (1996). NLRC. • Since a corporation is an artificial person. 181 SCRA 719 (1990). Brent Hospital. being the “person acting in the interest of the employer”—the corporation. That the presence of such director or trustee in the board meeting in which the contract was approved was not necessary to constitute a quorum for such meeting. I sweat. to repeat.  Reahs Corp. I soar… Service. who may be held jointly and severally liable for the obligation of the corporation to its dismissed employees. Phil. The manager of the corporation falls within the meaning of an “employer” as contemplated by the Labor code. • Labor. NLRC. liability under the said contract by using the corporate entity theory. being a juridical entity. • While the limited liability doctrine is intended to protect the stockholder by immunizing him from personal liability for the corporate debts. 273 SCRA 35 (1997). 2. is the employer. Dealings of directors. • Only the responsible officer of a corporation who had a hand in illegally dismissing an employee should be held personally liable for the corporate obligations arising from such act. reiterated in Gudez v. V. in the technical sense only. v. Ng. Court of Appeals. v. 32. it must have an officer who can be presumed to be the employer. NYK International Knitwear Corp. I bleed. the wrongdoing must be clearly and convincingly established. 408 SCRA 544 (2003). 189 SCRA 767 (1990). corporate directors and officers are solidarily liable with the corporation for the termination of employment of corporate employees done with malice or in bad faith. 295 SCRA 619 (1998). who as high-ranking officers and directors of the corporation. Ramos. NLRC.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. officers and employees and obligations incurred by them. NLRC. Maglutac v. 357 SCRA 77 (2001). In this case. trustees or officers with the corporation A contract of the corporation with one or more of its directors or trustees or officers is voidable. NLRC. it is undisputed that the corporate officers have a direct hand in the illegal dismissal of the employees. NLRC. Excellence A-120 . unless all the following conditions are present: 1. • In labor cases. at the option of such corporation. That the vote of such director or trustee was not necessary for the approval of the contract. NLRC. They were the one. and for the separate juridical personality of a corporation to be disregarded as to make the highest corporate officer personally liable on labor claims. 187 SCRA 777 (1990). a corporate officer may nevertheless divest himself of this protection by voluntarily binding himself to the payment of the corporate debts. 183 SCRA 644 (1990). This is one instance when the veil of corporate entity has to be pierced to avoid injustice and inequity. MANGUERA direct accountabilities of the corporation they represent. Sacrifice.. Toh v. • Corporate officers are not personally liable for money claims of discharged employees unless they acted with evident malice and bad faith in terminating their employment. Malayang Samahan ng mga Mangagagawa sa M. NLRC. may act only through its directors. 292 SCRA 304 (1998). 397 SCRA 607 (2003).

such contract may be ratified by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of at least two-thirds (2/3) of the members in a meeting called for the purpose: Provided. (3) Vote of Pedro is not needed for approval. That the contract is circumstances.4 Cases Tramat Mercantile v. • Even if a certain contract is outside the usual power of the president. It requires presentation of evidence of similar act(s) executed either in its favor or in favor of other parties. only when: (1) He assents: (a) to a patently unlawful act of the corporation. and fair and reasonable under the • 4. Catindig: Actually. Pedro is a self-dealing director. however. 7. Excellence A-121 . That in case of an officer. or (b) for bad faith or gross negligence in directing its affairs (c) for conflict of interest. you could enter into it but risk that a BoD or stockholder will contest it Personal liability of a corporate director. (4) If X Corp is a bank. It is not the quantity of similar acts which establishes apparent authority. Could X Corp. in the case of a contract with a director or trustee. (3) He agrees to hold himself personally and solidarily liable with the corporation. having knowledge thereof. that property could be made liable under the questioned transaction. the following requirements must concur: (1) The contract must be fair and reasonable. Where any of the first two conditions set forth in the preceding paragraph is absent. I soar… Service. (2) He consents to the issuance of watered stocks or who. CA (1994) • It should only be the corporation. MANGUERA 3. by specific provision of law to personally answer for his corporate action. whether within or beyond the scope of his ordinary powers. Note: There should also be full disclosure of the adverse interest. (2) BoD quorum even without the presence of Pedro. does not forthwith file with the corporate secretary his written objection thereto. I bleed. as a rule. there must be a minutes on the meeting and a copy of the minutes must be sent to the BSP. I sweat. Its existence may be ascertained through: (1) The general manner in which the corporation holds out an officer or agent as having the power to act or. He proposed to supply janitors. enter into such contract? Ans: Yes.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. security guards and clerks at 10% below market charges to X Corp of which he is a director. the apparent authority to act in general. People’s Aircargo v. That full disclosure of the adverse interest of the directors or trustees involved is made at such meeting: Provided. with actual or constructive knowledge thereof. not the person acting for and its behalf. resulting in damages to the corporation. Sacrifice. the corporation’s ratification of the same and acceptance of benefits make it binding. or (4) He is made. the contract has been previously authorized by the board of directors. trustee or officer along (although no necessarily) with the corporation may so validly attach. That the contract is fair and reasonable under the circumstances. CA (1998) • Apparent authority is derived not merely from practice. its stockholders or other persons. To ensure that the contract is not voided. or (2) The acquiescence in his acts of a particular nature. Catindig Class Notes Q: Pedro owns ABC Corp (Manpower services). with which it clothes him. other words. but the vesting of a corporate officer with the power to bind the corporation.

Excellence A-122 . • Catindig: Quantity does not determine if there is apparent authority. Ocfemia (2000) • A bank is liable to innocent third parties where representation is made in the course of its normal business by an agent even though such agent is abusing her authority. Sacrifice. (UP-Elective Class Reviewer at 40) Rural Bank of Milaor v. I bleed. MANGUERA • (Private respondent should not be faulted for believing that Punsalan’s conformity to the contract in dispute was also binding on the corporation. I sweat. I soar… Service. • Concurring opinion by J Vitug: A corporation may be held in estoppel from denying as against innocent third persons the authority of its officers or agents who have been clothed by it with ostensible or apparent authority.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S.

If the person authorized is absent. the SH present may designate any one of them to preside. 49. (3) Decision of the majority of the quorum or.e. MEETINGS 8. the validity of a corporate act is predicated on the presence of the following requisites: (1) Meeting of the directors or trustees duly assembled as a board. Requisites for a valid meeting of stockholders or members: (1) It must be held at a proper place (Section 51) (2) It must be held at the stated date and at the appointed time or at a reasonable time thereafter. or if not so fixed. (b) When and where held (Sections 50. Sacrifice. (Section 51) (3) It must be called by the proper person (Section 50) (4) There must be a previous notice. I bleed. MANGUERA 8. SEC New Rule Principal Office=Principal Place of Business Q: Why do the SHs hold their meeting at the principal office? A: (1) (2) For Convenience To prevent mischief by management. then the meeting shall be held at the next working day. Kinds of meetings Meetings of directors. on any dare in April of every year as determined by the BoD or trustees. (2) Presence of the required quorum. You can place “last Friday of May” and place that if the last Friday is a holiday. do not put specific date for the meeting. Kinds of directors’/trustees’ meeting: (1) Regular or those held by the board monthly. on any date in April of every year as determined by the board of directors or trustees: Provided. 51 and 53) Sec. in other cases.1 Meetings of the stockholders and the Board of Directors (a) Kinds (Section 49) Sec. They are required to meet for the purpose of electing the BoD. (Page 266 De Leon. or (2) Special or those held by the board at any time upon the call of the president or as provided in the by-laws. Kinds of stockholders’/members’ meeting: (1) Regular or those held annually on a date fixed in the by-laws. or if not fixed. Regular and special meetings of stockholders or members Regular meetings of stockholders or members shall be held annually on a date fixed in the by-laws. i. and (4) Meeting at the place.. trustees. unless the bylaws provide otherwise. or members may be regular or special. 2006) Catindig Class Notes Q: Where should SH meeting be held? A: In the place where the principal office of the corp is located unless where all the SHs agree to hold the meeting elsewhere. (Pede nga less than majority) Q: Who presides? A: Whoever is authorized by the By-laws. Tip: In making by-laws. a majority of the entire board.51) (5) There must be a quorum (Section 52) Requisites for board meeting: Q: Can the SHs not meet at all? A: No. (n) Under Section 25.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. or (2) Special or those held at any time deemed necessary or as provided in the by-laws. Q: What is the quorum required? A: As what the By-laws provide. 50. Excellence A-123 . It is held principally for the purpose of electing another set of directors or trustees. That written notice of regular meetings shall be sent to all I sweat. stockholders. time. and manner provided in the bylaws. I soar… Service. (Secs 50. as a body in a lawful meeting.

unless otherwise provided by the by-laws. 2006) Requisites of notice of meeting: (1) It must be issued by one who has authority to issue it. That Metro Manila shall. the Secretaries and Exchange Commission. That at least one (1) week written notice shall be sent to all stockholders or members. however. MANGUERA Meetings of directors or trustees of corporations may be held anywhere in or outside of the Philippines. shall be held in the city or municipality where the principal office of the corporation is located. Place and time of meetings of stockholders or members Stockholders' or members' meetings. unless the by-laws provide otherwise. for purposes of this section. unless a different period is required by the by-laws. 2006) Catindig Class Notes Q: “Regular meetings of the board of directors or trustees of every corporation shall be held monthly. 53. Regular and special meetings of directors or trustees Regular meetings of the board of directors or trustees of every corporation shall be held monthly. shall be valid even if the meeting be improperly held or called. unless otherwise provided in the by-laws. 51. estoppel. (Page 468 of De Leon. This is mandatory. time and place of the meeting.” Is monthly mandatory? A: No. 26) Sec. (c) Notice required (Sections 50 and 53) • Notice is the writing informing the stockholders or members of the meeting. I bleed. (2) It must be in writing. (24. (24 and 25) Sec. A director or trustee may waive this requirement. unless otherwise provided in the by-laws (4) It must state the business to be transacted thereat. if within the powers or authority of the corporation. Notice of regular or special meetings stating the date. Special meetings of stockholders or members shall be held at any time deemed necessary or as provided in the by-laws: Provided. or ratification. by any stockholder or member. Whenever. may issue an order to the petitioning stockholder or member directing him to call a meeting of the corporation by giving proper notice required by this Code or by the by-laws. Notice of meetings shall be in writing. 2006) • The proper place of the holding of stockholders’ or members’ meeting is that provided in Section 51. (Page 467of De Leon. those who have a right to complain may take steps to set aside any action taken at such meetings even though majority of the stockholders or members were present in the absence of waiver. and the time and place thereof stated therein. time and place of the meeting must be sent to every director or trustee at least one (1) day prior to the scheduled meeting. The petitioning stockholder or member shall preside thereat until at least a majority of the stockholders or members present have been chosen one of their number as presiding officer. unless the by-laws provide otherwise. Sacrifice.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. (3) It must state the date. and if practicable in the principal office of the corporation: Provided. its directory. I soar… Service. either expressly or impliedly. Notice of any meeting may be waived. Special meetings of the board of directors or trustees may be held at any time upon the call of the president or as provided in the by-laws. I sweat. Excellence A-124 . there is no person authorized to call a meeting. upon petition of a stockholder or member on a showing of good cause therefor. whether regular or special. be considered a city or municipality. (Page 469of De Leon. provided all the stockholders or members of the corporation are present or duly represented at the meeting. for any cause. unless the by-laws provide otherwise. expressly or impliedly. • See page 468 of De Leon for illustration • If the meeting is held at an unauthorized place or without proper notice and not all the stockholders or members are present. All proceedings had and any business transacted at any meeting of the stockholders or members. (n) stockholders or members of record at least two (2) weeks prior to the meeting.

(See Section 77. Quorum in meetings Unless otherwise provided for in this Code or in the by-laws. a majority of the number of directors or trustees as fixed in the articles of incorporation shall constitute a quorum for the transaction of corporate business. 54. (n) (5) It must be sent at a certain time before the scheduled meeting as fixed by law. a secretary who shall be a resident and citizen of the Philippines. a secretary who shall be a resident and citizen of the Philippines. who shall be a director. a treasurer who may or may not be a director. quorum Immediately after their election. (n) (d) Quorum required (Sections 25 and 52) Sec. 118) • • The CALL for a meeting is exercised by the person who has the power to call the meeting. (e) Who presides (Section 54) Sec. except that no one shall act as president and secretary or as president and treasurer at the same time. Who shall preside at meetings The president shall preside at all meetings of the directors or trustee as well as of the stockholders or members. Unless the articles of incorporation or the by-laws provide for a greater majority. unless a different period is required by the by-laws. except for the election of officers which shall require the vote of a majority of all the members of the board. It may consist of direction to the secretary of the corporation to notify the stockholders or members of the meeting. the directors of a corporation must formally organize by the election of a president. and every decision of at least a majority of the directors or trustees present at a meeting at which there is a quorum shall be valid as a corporate act. and such other officers as may be provided for in the by-laws. Corporate officers. Directors or trustees cannot attend or vote by proxy at board meetings. 52. quorum Immediately after their election. (Page 268 of De Leon. Sacrifice. a treasurer who may or may not be a director. 25. I bleed. Any two (2) or more positions may be held concurrently by the same person. except that no one shall act as president and secretary or as president and treasurer at the same time. The directors or trustees and officers to be elected shall perform the duties enjoined on them by law and the by-laws of the corporation. a majority of the number of directors or trustees as fixed in the articles of incorporation shall constitute a quorum for the transaction of corporate business. the directors of a corporation must formally organize by the election of a president. 25. the notice must comply with any of the other requirements prescribed by the law of the by-laws of the corporation. Quorum is such a number of the membership of a collective body as is competent to transact its business or do any other corporate act. Sec. (6) Further. I soar… Service. and such other officers as may be provided for in the by-laws. MANGUERA the outstanding capital stock or a majority of the members in the case of non-stock corporations. Any two (2) or more positions may be held concurrently by the same person. Corporate officers. 2006) • See page 476 of De Leon for matters in which the law requires minimum number of votes. except for the election of officers which shall require the vote of a majority of all the members of the board. a quorum shall consist of the stockholders representing a majority of (f) Who could attend and vote (Section 25 and 58) Sec. Directors or trustees cannot attend or vote by proxy at board I sweat. and every decision of at least a majority of the directors or trustees present at a meeting at which there is a quorum shall be valid as a corporate act. Unless the articles of incorporation or the by-laws provide for a greater majority.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. The directors or trustees and officers to be elected shall perform the duties enjoined on them by law and the by-laws of the corporation. Excellence A-125 . unless the by-laws provide otherwise. who shall be a director.

Election of directors and trustees (Sec. 372 SCRA 462 (2001). and (2) demonstrate imminent danger of dissipation of the assets. even sequestered shares may be voted upon by the registered stockholder. .Merger and consolidation (Sec. Lopez v. . is promulgated by the proper court. a registered stockholder has a right to participate in any meeting. Inasmuch as the subject UCPB shares in the present case were undisputably acquired with coco levy funds which are public in character. Cocofed. even if it be shown later on that the shares had been previously sold (but not recorded).Management contracts (Sec. • Until challenged successfully in proper proceedings. In sum. . but such presumption. MANGUERA Nevertheless. 62). thus necessitating their continued sequestration and voting by the government until a decision. • See page 470 of De Leon. . (n) • In a board meeting. however. Catindig Class Notes If not a regular item in the Agenda. . Ericta. Sacrifice. The PCGG may. it shall be valid only for the meeting for which it is intended. Instances When Stockholders Entitled to Vote: . and in the absence of fraud the action of the stockholders’ meeting cannot be collaterally attacked on account of such participation. Sec. Republic v. meetings. Price and Sulu Dev. . at least. 24). Proxies shall in writing. then must specify the matter or item in the notice When Board Meeting is Unnecessary I sweat. 38). therefore. 58 Phil. being merely prima facie would not hold in the face of clear evidence to the contrary. . . No proxy shall be valid and effective for a period longer than five (5) years at any one time. v. be granted such voting right provided it can (1) show prima facie evidence that the wealth and/or the shares are indeed ill-gotten. be exercised by the registered owner.Declaration of stock dividends (Sec. I bleed. Co. as a rule. ruling with finality on their ownership.Adoption. • The right to vote sequestered shares of stock registered in the names of private individuals or entities and alleged to have been acquired with ill-gotten wealth shall. 16). are affected with public interest. 45 SCRA 539 (1972). Proxies Stockholders and members may vote in person or by proxy in all meetings of stockholders or members. v. Martin.Increase and Decrease of capital stock (Sec. 58. not the "two-tiered" one. 43). necessary that the notice should state the purpose for which the meeting is called.Fixing of consideration of no par value shares (Sec.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. then the right to vote them shall be exercised by the PCGG. 36 and 42). Excellence A-126 . It is. amendment and repeal of by-laws (Sec. (g) Agenda • There are certain matters of importance which the law requires to be taken up at meetings of stockholders or members called expressly for the purpose.Investment in another business or corporation (Secs. the foregoing "two-tiered" test does not apply when the funds that are prima facie public in character or.Amendment of articles of incorporation (Sec. I soar… Service. 707 (1933). 195 SCRA 797 (1991). 48). 72). the "public character" test. applies. an abstention is presumed to be counted as an affirmative vote insofar as it may be construed as an acquiescence in the action of those who voted affirmatively. Unless otherwise provided in the proxy. Cojuangco Jr. signed by the stockholder or member and filed before the scheduled meeting with the corporate secretary. 44). Roxas. • The sequestration of shares does not entitle the government to exercise acts of ownership over the shares.

Sacrifice. I bleed. unless he promptly files his written objection with the Secretary of the corporation after having knowledge thereof. and none of them makes prompt objection thereto in writing. Excellence A-127 . or (2) All the stockholders have actual or implied knowledge of the action and made no prompt objection thereto in writing. 2007) I sweat. or (3) The directors are accustomed to take informal action with the express or implied acquiescence of al the stockholders. an action taken therein within the corporate powers is deemed ratified by a director who failed to attend. MANGUERA • Unless the bylaws provide otherwise. any action by the directors of a close corporation without a meeting shall nevertheless be deemed valid if: (1) Before or after such action is taken. I soar… Service. (Page 915 of CLV’s CLR. or (4) All the directors have express or implied knowledge of the action in question.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. Note: if a directors’ meeting is held without a proper call or notice. written consent thereto is signed by all the directors.

The latter shall be informed of his contact number/s. the Secretary shall confirm and note the contact numbers being used by the directors and participants not physically present. shall be numbered and duly marked by the Secretary in such a way that all the directors. d. Every director and participant shall state. I soar… Service. Inquiry on whether the director will attend physically or through tele/videoconferencing. a roll call shall be made by the Secretary. refer to the documents and participate in the meeting. Agenda of the meeting. the Secretary must inquire to elicit a confirmation or correction.The Secretary of the meeting shall assume the following responsibilities: a. 8792) and Section 25 of the Corporation Code of the Philippines (BP68) the following are the guidelines for the conduct of teleconferencing and videoconferencing (i. can easily follow. the Secretary shall request for a repeat or reiteration. 15-01 TO SUBJECT All Concerned Board Meeting Through Teleconferencing or Videoconferencing (Tele/Video Conferencing) In relation to Section 16 of the Electronic Commerce Act (R. 8. MANGUERA inform the director concerned of the contact number/s he will call to join the meeting. If the person speaking is not physically present and the Secretary is not certain of the identity of the speaker.For those attending through tele/videoconferencing. If a motion is objected to and there is a need to vote and divide the Board. These guidelines shall take effect fifteen (15) days after publication in two (2) newspapers of general circulation. conferences or meetings through electronic medium or telecommunications where the participants who are not physically present are located at different local or international places) of the Board of Directors for the information and guidance of all concerned: 1. the Secretary should call the roll and note the vote of each director who should identify himself. Location c. 8. At the start of the scheduled meeting. to sign the minutes of the meeting to dispel all doubts on matters taken up during the meeting. the Secretary shall quickly state the identity of the last speaker. Contact number/s of the Secretary and office staff whom the director may call to notify and state whether he shall be physically present or attend through tele/videoconferencing. In the same way. 3. Philippines. the Secretary may certify the existence of a quorum. he can completely and clearly hear the others who can clearly hear him at the end of the line Ii state whether he has received the agenda and all the materials for the meeting iii. 15 series 2001. If a statement of a director/participant in the meeting via tele/videoconferencing is interrupted or garbled.A. Nov. After the roll call. Excellence A-128 . to store for safekeeping and mark the tape recording/s and/or other electronic recording mechanism as part of the records of the corporation 2. b. including attachments. No. and if need be. Mandaluyong City. If the director chooses tele/videoconferencing. All participants shall identify themselves for the record. 4. If a person fails to identify himself. whether personally or through tele/videoconferencing. 2001.2 Additional material: SEC Memo Circ. the following: a. All documents to be discussed in the meeting. November 20. and on the date of the scheduled meeting. 5. 7. 2001 re: Board meetings through teleconferencing or videoconferencing SEC MEMORANDUM CIRCULAR NO. confirm and note such details as part of the minutes of the meeting. specify type of device used Thereafter. to record the proceedings and prepare the minutes of the meeting d. the Secretary shall repeat what he heard the director/participant was saying for confirmation or correction. to find good tele/videoconference equipment/facilities c. he shall confirm that: i. the Secretary shall I sweat. Sacrifice. I bleed. The notice shall include the following: a. In the absence of an arrangement. The Secretary shall require all the directors who attended the meeting. 20.The Secretary shall send out the notices of the meeting to all directors in accordance with the manner of giving notice as stated in the corporate bylaws.e. physically or electronically present. it is presumed that the director will physically attend the Board meeting. for the record. to safeguard the integrity of the meeting via tele/videoconferencing b. he shall give notice of at least five days prior to the scheduled meeting to the Secretary. before speaking and must clearly hear and/or see each other in the course of the meeting. c. 6. Full Name b. The Secretary shall keep the records of the details.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S.

Sacrifice. 15. (Expertravel & Tours v. I soar… Service. providing the guidelines to be complied with related to such conferences. 2003) • In the Philippines. I bleed. (SEC Opinion No. BAUTISTA Chairperson • It should be emphasized that participation of directors in meetings through teleconferencing and video conferencing may be deemed acceptable only when adequate safeguards have been accordingly set in place. MANGUERA (SGD. 2005) I sweat. Excellence A-129 . teleconferencing and video-conferencing of members of the BoD of private corporations is a reality in light of RA 8792.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. CA. March 22. Meetings of this nature should be properly recorded and the appropriate tapes and discs properly stored for safekeeping.) LILIA R. 26. The SEC Memorandum Circular No.

and by and to whom made. That it shall be a defense to any action under this section that the person demanding to examine and copy excerpts from the corporation's records and minutes has improperly used any I sweat. stock transfer agent Every corporation shall keep and carefully preserve at its principal office a record of all business transactions and minutes of all meetings of stockholders or members. or of the board of directors or trustees. trustee. stock transfer agent. for a copy of excerpts from said records or minutes. shall be applicable. and in addition. whether the meeting was regular or special. shall be liable to such director. trustees. a statement of every alienation. No stock transfer agent or one engaged principally in the business of registering transfers of stocks in behalf of a stock corporation shall be allowed to operate in the Philippines unless he secures a license from the Securities and Exchange Commission and pays a fee as may be fixed by the Commission. stockholder or member for damages. in which must be kept a record of all stocks in the names of the stockholders alphabetically arranged. at his expense. the liability under this section for such action shall be imposed upon the directors or trustees who voted for such refusal: and Provided. The right of directors to inspect the corporate records is broader than that of stockholders because they are the ones involved in the management of the corporation so they would need information to be able to make decisions wisely. writing. P. any stockholder or director can inspect the corporate records and obtain copies at their own expense. 74. The protest of any director. stockholder or member of the corporation to examine and copy excerpts from its records or minutes. trustee. Sacrifice. Corporations are required to keep records of all business transactions and minutes of the meetings of the stockholders and directors and upon demand. stockholder or member of the corporation at reasonable hours on business days and he may demand. stockholder or member on any action or proposed action must be recorded in full on his demand. MANGUERA information secured through any prior examination of the records or minutes of such corporation or of any other corporation. and every act done or ordered done at the meeting. and on a similar demand. B. the yeas and nays must be taken on any motion or proposition. The corporation cannot limit the right to inspect on specific days only.) Jack’s Lecture Section 74 . So stockholders are given this right of inspection so that they will be properly informed and will be able to exercise their right as stockholders intelligently. (51a and 32a. the time when any director. That a stock corporation is not precluded from performing or making transfer of its own stocks. the officers responsible for the withholding of the records are criminally liable under section 144 9. Any officer or agent of the corporation who shall refuse to allow any director. except the payment of a license fee herein provided. The directors and stockholders have the right to examine the records at reasonable hours on business days. 268. in which case all the rules and regulations imposed on stock transfer agents. if special its object. the date thereof. The stock and transfer book shall be kept in the principal office of the corporation or in the office of its stock transfer agent and shall be open for inspection by any director or stockholder of the corporation at reasonable hours on business days. which shall be renewable annually: Provided. in which shall be set forth in detail the time and place of holding the meeting. stockholder or member entered or left the meeting must be noted in the minutes. and a record thereof carefully made. further. those present and absent. shall be guilty of an offense which shall be punishable under Section 144 of this Code: Provided. That if such refusal is made pursuant to a resolution or order of the board of directors or trustees. stockholder or member. If the right of inspection is denied. Upon the demand of any director. No. The records of all business transactions of the corporation and the minutes of any meetings shall be open to inspection by any director.Books to be kept. sale or transfer of stock made.1 What books and records must a corporation keep? (Section 74) Sec. I soar… Service. Books to be kept. Excellence A-130 . trustee. how authorized. the notice given. or was not acting in good faith or for a legitimate purpose in making his demand. I bleed. and the date of payment of any installment. trustee. and such other entries as the by-laws may prescribe. Stock corporations must also keep a book to be known as the "stock and transfer book". in accordance with the provisions of this Code. trustee. the installments paid and unpaid on all stock for which subscription has been made.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. BOOKS AND RECORDS 9.

Excellence A-131 . sale or transfer of stocks. 2. A stock and transfer book. The Court denied his petition because it said he was not exercising his right of inspection properly. sale or transfer of stock made the date thereof and by and to whom made. So he was able to buy shares because of information that became available to him which was not available to others. If he is not acting in good faith. I sweat. therefore.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. is not in any sense a public record. do not leave it in the corp. But the court said it is a wholly-owned subsidiary corporation so its capital gained from San Miguel Corporation. and he's using that as justification for looking into the records. I soar… Service. What are the grounds for not allowing inspection? 1.He filed a petition for mandamus to examine the records of certain transactions entered into by the Philippine National Bank. Tip: If you are a corp sec. Case of Gokongwei vs. but the right exists as concurred by law. MANGUERA and will also be liable for damages. (2) Amount paid and unpaid on all stocks and the date of payment of any installment. His petition was denied. What books are required to be maintained by the corporation? (1) Books of minutes of stockholders meetings. (Lanuza v. he has the right to examine the records of those transactions which he earlier wanted to see. to that other corp. 3. a stockholder who wants to get information on the business plans of the corp. STB • A stock and transfer book is which records the names and addresses of all stockholders arranged alphabetically. a statement of every alienation. because he's a stockholder of another competing corp. and so he will pass on the info. It is not being exercised for a legitimate purpose. the installments paid and unpaid on all stock for which subscription has been made. (3) Alienation. This right is given to stockholders in order to protect their investment of the corp. He bought the one share to be able to look and pry into the records. He said that since he is now a stockholder. San Miguel Corporation was arguing that that is a separate corporation. (3) Record or Book of all business transactions. CA. But that is not the situation here. SEC The Court said Gokongwei had the right to examine the record of San Miguel International. For example. I bleed. He earlier tried to see the records and when that wasn't allowed he bought one share. What are the contents of the stock and transfer book? (1) All stocks in the name of the stockholders alphabetically arranged. like other corporate books and record. (4) Other entries as the by-laws may prescribe. the burden is on the corporation to show that a stockholder or director is not entitled to be allowed to inspect the records of the corporation. There are reasons given in the code for not allowing inspection. and thus is not exclusive evidence of the matters and things which ordinarily are or should be written therein. If the person demanding to examine the records has improperly used any information secured for prior examination For example. and therefore Gokongwei as stockholder of San Miguel Corporation had the right to examine the records of San Miguel International. So what he did was he bought one share. a stockholder who was earlier allowed to examine the records made use of insider trading. (2) Book of minutes of board meetings. 2005) Case of Ramon Gonzales . He filed it as a taxpayer. and the date of payment thereof. and such other entries as may be prescribed by law. because he was earlier denied access to the records.. (4) Stock and transfer book. So he's not exercising the right to protect his investment. Catindig Class Notes Q: What are the 2 corporate books? A: STB and Minutes Book Q: What are the other books? A: Those required by the Tax Code Q: Who keeps the STB? A: The Corporate Secretary. Keep it with you to exercise lawyer’s lien. Or for example a stockholder would want to know the formula of Coca-Cola. Sacrifice.

However. Although it includes the right to make copies. CA) • • 9.. 205 SCRA 39 (1992).3 Who may inspect corporate books and records and what is the extent of this right? (Section 74) Persons given right to inspect corporate books: (1) Any director. 2. 47 Phil. MANGUERA • Is exercisable through agents and representatives. Cannot be denied on the ground that the director is on unfriendly terms with the officers of the corporation whose records are sought to be inspected. v. signed by the BoD. Veraguth v.. Hence. 964 (1924). does not authorize bringing the books or records outside of corporate premises. • • You buy and register STB with SEC What is the probative value of the stock and transfer book? The stock and transfer book is the best evidence of the transactions that must be entered or stated therein. (3) Stockholder of a sequestered company (4) Beneficial owner of shares. Does not include the right of access to minutes until such minutes have been written up and approved by the directors. entries made by the Chairman or President are invalid.2 Case Torres v. I bleed. Veraguth v. 266 (1932). Philippine Manufacturing Co. 266 (1932). 57 Phil. (Bitong v. PCGG.G.” Pardo v. Veraguth v. 2006) What are the requirements for the exercise of the right of inspection? (1) It must be exercised at reasonable hours on business days. (3) Demand is made in good faith or for legitimate purpose The right to inspect corporate books and records: • I sweat. Isabela Sugar Co. CA) • • 9. annual report. W. Isabela Sugar Co. Hercules Lumber Co. plans and programs of the corporation. or stockholder or member. 471 (1919).report on overall condition.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. otherwise it would often be useless to the stockholder who does not know corporate intricacies. Financial records must be furnished to the SH: an audited financial statements which must be audited by the auditor.. 266 (1932). (Page 621 of De Leon. 74 of Corporation Code are: (a) it should be exercised at reasonable hours on business days. Isabela Sugar Co.. (2) Voting trust certificate holder. UP CLASS NOTES SH’s right to copy of the minutes does not come into effect until they ask for a copy. I soar… Service. Africa v.. secretary and treasurer. Excellence A-132 . (2) The stockholder has not improperly used any information he secured through any previous examination. and (c) the demand is made in good faith or for a legitimate purpose. the entries are considered prima facie evidence only and may be subject to proof to the contrary. Cannot be limited to a period of ten days shortly prior to the annual stockholders’ meeting. The two reports can be merged in a single document but the legal requirement is only to furnish financial statement. 40 Phil. 57 Phil. Philpotts v. Sacrifice. Limitation: The only express limitations on the right of inspection under Sec. 57 Phil. (Torres Jr. (b) the person demanding the right to examine and copy excerpts from the corporate records and minutes has not improperly used any information secured through any previous examination of records. trustee. CA (1997) Who are authorized to make entries in the stock and transfer book? • The corporate secretary is the officer who is duly authorized to make entries on the stock and transfer book. as such would be an unreasonable restriction and violates the legal provision granting the exercise of such right “at reasonable hours.

duly signed and certified by an independent certified public accountant.6 Case I sweat. I soar… Service. Catindig Class Notes Q: Who are allowed to inspect corporate books? A: (1) (2) Stockholders or members Their Agents Tip: If the SEC requires you to submit Minutes. Sacrifice. if the paid-up capital of the corporation is less than P50. He must be licensed by the SEC and must pay the required fees. the board of directors or trustees shall present to such stockholders or members a financial report of the operations of the corporation for the preceding year. which shall include a balance sheet as of the end of the last taxable year and a profit or loss statement for said taxable year. showing in reasonable detail its assets and liabilities and the result of its operations.00. SEC (1979) • A stockholder has the power to inspect the corporate books of a controlled subsidiary of the mother corporation of which he is the stockholder. (n) 9. At the regular meeting of stockholders or members.5 What is a stockholder’s right to financial statements and reports? (Section 75) Sec.4 What is a stock transfer agent? (Section 74) • A stock and transfer agent is one who is engaged in the business of registering transfers of stocks in behalf of a stock corporation. which shall include financial statements. 75. However. I bleed. the financial statements may be certified under oath by the treasurer or any responsible officer of the corporation. only give them the excerpts thru the Sec Certificate and not the Minutes.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. MANGUERA Gokongwei v. 9. Right to financial statements Within ten (10) days from receipt of a written request of any stockholder or member. 9. the corporation shall furnish to him its most recent financial statement. Excellence A-133 .000.

when Philippine Guaranty Company used to be an insurance company owned by the Ayalas. In case of merger or consolidation.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. the existence of the separate will cease. is absorbed by another as the surviving corporation. what are the terms of the consolidation or merger. properties. The names of the corporations proposing to merge or A I sweat. The board of directors or trustees of each corporation. when FGU Corp. then SEC will refer that to the regulatory agency for comment. insurance companies. It could then probably be provided in the merger how the directors will be distributed between the two constituent companies and how the officers will be distributed. Recently. • Note: Approval of the SEC is required (JRS at 308) • A consolidation is the union of two or more existing entities to form a new entity called the consolidated corporation. a new corp. the surviving corp. And upon merger or consolidation. Excellence A-134 . Guaranty. FGU Insurance Corporation was merged with this Mitsubishi Mitomo then changed them to BPI and S Insurance Corporation. he said. what will be the interim arrangement while the merger has not yet been approved by the SEC. Merger is one where a corporation absorbs the other and remains in existence whole the others are dissolved. will acquire all the rights. Example. He said that the promissory note is in the name of the absorbed bank. • Jack’s Lecture Section 76 deals with mergers and consolidations. engaged in a line of business regulated by another agency like banks. They state there what is the name of the corp. The merger or consolidation will have to be approved by majority of . Since a merger or consolidation involves fundamental changes in the corporation. I bleed. who will be the constituents. They were probably still using the old forms..the directors of the corporation involved and at least two thirds (2/3) of the stockholders. PNB v. In consolidation. and consolidating corporations are extinguished. what you will pay to those who will not be maintained. one corp. for example if there are two heads of the legal dept. Plan or merger of consolidation Two or more corporations may merge into a single corporation which shall be one of the constituent corporations or may consolidate into a new single corporation which shall be the consolidated corporation. There was a case where this Associated Bank and I think this Philman Bank which were merged. at the same time it will also assume the liabilities and obligations of the absorbed corporations. The one suing him. there will be only one surviving corporation. as well as in the rights of stockholders and creditors. the directors of all the corporations involved must approve a plan of merger or consolidation. and sine the two banks were merged.. 76. Sacrifice. In merger. When he was being sued. one will have to go. MERGERS AND CONSOLIDATIONS • Page 896 of CLV’s CLR. he invoked that as his defense. One borrower obtained a loan and the promissory note he signed was still in the name of the bank which was absorbed and which has ceased to exist. there must be an express provision of law authorizing them. is formed which will absorb two or more existing corporations.1 What is a “constituent corporation”? “consolidated corporation”? (Section 76) Sec. and powers of the constituent corporations. If it involves a corp. they drew up a plan of merger. privileges. 10. Andrada Electric & Engineering Co.. MANGUERA retrenchment. it was merged with FGU Insurance Corporation. was merged with Phil. it is entitled to sue to recover the payment even if the promissory note was issued in the name of the bank which was absorbed. And the merger of consolidation will take effect upon the approval by the SEC. A merger. party to the merger or consolidation. or regarding 10. on the other hand. etc. is another bank. The Court said that is the surviving bank. They said this is what will happen: the authorized capital stock of FGU will be increased and stockholders of Phil. how will you unwind the transaction.. portfolio of business. I soar… Service. Guaranty will surrender the shares of stock in Phil. • Consolidation is one where a new corporation is created. shall approve a plan of merger or consolidation setting forth the following: 1. is a union whereby one or more existing corporations are absorbed by another corporation that survives and continues the combined business. For example. Guaranty in return for shares of stock of FGU. and if for some reason the merger is disapproved by the SEC. 381 SCRA 244 (2002).

(n) • A constituent corporation refers to a party to a merger or consolidation. Long form audit report for the surviving corporation is required if it is insolvent. hereinafter corporations. with respect to the consolidated corporation in case of consolidation. and 4. A statement of the changes. 3. I bleed. Excellence A-135 . Notice of such Submission of Financial Statements Requirements: For applications of merger. if any. if any. Such other provisions with respect to the proposed merger or consolidation as are deemed necessary or desirable. I soar… Service. (UP-Elective Class Reviewer at 44) • A consolidated corporation is the outcome of the union of two or more existing corporation to form a new corporation. (SEC Opinion 14. (3) Statement of changes. and. provided such amendment is approved by majority vote of the respective boards of directors or trustees of all the constituent corporations and ratified by the affirmative vote of stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of two-thirds (2/3) of the members of each of the constituent corporations. (Jack) I sweat. (2) Terms and mode of carrying it. of 2002. Said notice shall state the purpose of the meeting and shall include a copy or a summary of the plan of merger or consolidation. the audited financial statements of the constituent corporations (surviving and absorbed) as of the date not earlier than 120 days prior to the date of filing of the application and the long-form audit report for absorbed corporation(s) are always required. all the statements required to be set forth in the articles of incorporation for corporations organized under this Code. the board of directors decides to abandon the plan. (n) meetings shall be given to all stockholders or members of the respective corporations. Such plan. Any amendment to the plan of merger or consolidation may be made. (Id. Any dissenting stockholder in stock corporations may exercise his appraisal right in accordance with the Code: Provided. at least two (2) weeks prior to the date of the meeting.2 What corporate approvals are required? (Section 77) Sec. either personally or by registered mail.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. together with any amendment.) • Q:What corporate approvals are required? • A: Plan of merger or consolidation shall contain the following: (1) Names of the corporation involved. That if after the approval by the stockholders of such plan.3 What is a plan of merger or consolidation (Section 76) • They state there what is the name of the corp. 77. in the present AoI of the surviving corporation or the AoI of the new corp to be formed in case of consolidation. the same shall be submitted for approval by the stockholders or members of each of such corporations at separate corporate meetings duly called for the purpose. what are the terms of the consolidation or merger. referred to as the constituent 2. 10.. The terms of the merger or consolidation and the mode of carrying the same into effect. s. Stockholder's or member's approval Upon approval by majority vote of each of the board of directors or trustees of the constituent corporations of the plan of merger or consolidation. Sacrifice. MANGUERA consolidate. • 10. who will be the constituents. The affirmative vote of stockholders representing at least two-thirds (2/3) of the outstanding capital stock of each corporation in the case of stock corporations or at least two-thirds (2/3) of the members in the case of non-stock corporations shall be necessary for the approval of such plan. shall be considered as the agreement of merger or consolidation. in the articles of incorporation of the surviving corporation in case of merger. 15 November 2002). the appraisal right shall be extinguished.

As to each corporation. The surviving or consolidated corporation shall be responsible and liable for all the liabilities and obligations of each of the constituent corporations in the same manner as if such surviving or consolidated corporation had itself incurred such liabilities or obligations. The rights of creditors or liens upon the property of any of such constituent corporations shall not be impaired by such merger or consolidation. in case of consolidation. As to stock corporations. shall be deemed transferred to and vested in such surviving or consolidated corporation without further act or deed. the number of members. shall be the consolidated corporation designated in the plan of consolidation. The surviving corporation therefore has a right to institute a collection suit on accounts of one of one of the constituent corporations. 80. The surviving or the consolidated corporation shall possess all the rights.. or in the case of non-stock corporations. or belonging to. action or proceeding brought by or against any of such constituent corporations may be prosecuted by or against the surviving or consolidated corporation. and 5. the number of shares outstanding. articles of merger or articles of consolidation shall be executed by each of the constituent corporations. The separate existence of the constituent corporations shall cease. 78. including subscriptions to shares and other choses in action. 3.4 What are articles of merger or consolidation (Section 78) Sec. Andrada Electric & Engineering Co. privileges. the number of shares or members voting for and against such plan. while the other is dissolved and all its rights. Articles of merger or consolidation After the approval by the stockholders or members as required by the preceding section. and any pending claim. 10. The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights. one of the corporations survives and continues the business. and all receivables due on whatever account. Effects or merger or consolidation The merger or consolidation shall have the following effects: 1.5 What are the effects consolidation (Section 80) of a merger Sec. and the liabilities of one entity cannot be enforced against another entity. 4. (n) 10. and When the procedure for merger/consolidation prescribed under the Corporation Code are not followed. immunities and powers and shall be subject to all the duties and liabilities of a corporation organized under this Code. 350 SCRA 341 (2001). and corporate separateness between the constituent corporations remains. I soar… Service. except that of the surviving or the consolidated corporation. Babst v. (n) • or • Effects. Excellence A-136 . privileges. Date of effectivity of merger or consolidation is the issuance of the certificate of merger or consolidation by the SEC. 381 SCRA 244 (2002). MANGUERA all and every other interest of. and 3. I bleed. The plan of the merger or the plan of consolidation. in case of merger. real or personal. there can be no merger or consolidation. and. to be signed by the president or vice-president and certified by the secretary or assistant secretary of each corporation setting forth: 1. Court of Appeals. or due to each constituent corporation. 2. shall be the surviving corporation designated in the plan of merger. PNB v. respectively. properties and liabilities are acquired by the surviving corporation. I sweat. Sacrifice. • It is settled that in the merger of two existing corporations. (See codal or page 308 of JRS) UP Class Notes Due diligence work-know your husband/wife before marrying her. and all property. 2. immunities and franchises of each of the constituent corporations.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. The constituent corporations shall become a single corporation which.

For purposes of transformation. 94 and 95 of Corporation Code. SEC Opinion dated 10 December 1992). 11. may be organized: 1. A foreigner may be member or an officer of a non-stock corporation. trustees. SEC Opinion dated 13 May 1992). Manila Sanitarium and Hospital v. I soar… Service. civic or other similar purposes. Menil. Unless. series of 2002. its assets shall be distributed in accordance with the rules as provided for under Secs. A religious order can incorporate as a non-stock corp. 12. Thereafter. 12 September 1999 [unrep. religious. • In the event of dissolution of a non-stock corporation. effects or profit was ever used for personal or individual gain. it is fundamental that the non-stock corporation be dissolved first under any of the methods specified Title XIV of the Corporation Code. Excellence A-137 . literary. or officers. 21 November 2002). educational. 11505466. • Non-Applicability of the Nationalization Laws. I sweat. it is so provided in the Articles of Incorporation or ByLaws. (Page 902 of CLV’s CLR) (See page 302 of JRS) • A non-stock corporation may only be formed or organized for charitable. MANGUERA Conversion of Non-Stock Corporation to Stock Corporation • The conversion of a non-stock educational institution into a stock corporation is not legally feasible. fraternal. it must have no shares of stock and it must not be authorized to declare dividends. for the management of its properties. Gabuco. (SEC Opinion dated 24 February 2003. scientific.]) • The incurring of profit or losses does not determine whether an activity is for profit or non-profit. 87 of Corporation Code that no part of the income of a non-stock corporation may be distributable as dividends to its members. non-stock. the Commission has previously ruled that a non-stock corporation cannot be converted into a stock corporation by a mere amendment of the Articles of Incorporation. and not for the purpose of carrying out the objectives of the enterprise. and the courts will consider whether dividends have been declared or its members or that is property. cultural. Although the non-stock corporation may obtain profits as an incident to its operation such profits are not to be distributed among its members but must be used for the furtherance of its purposes. People v. It may not engage in undertakings such as the investment business where profit is the main or underlying purpose. the members are not entitled to any beneficial or vested interest over the assets of the non-stock corporation. They may be organized for charitable purposes (Suspicio de San Jose. NON-STOCK CORPORATIONS • Definition: A non-stock corporation is one organized for an eleemosynary purpose and where no part of its income is distributable to its members. “Thus. JACK’S LECTURE NON-STOCK CORPORATIONS For a corporation to be non-stock. subject to the provisions on dissolution. (SEC Opinion No. 7 SCRA 14 (1963). Tahanang Walang Hagdanan). 2. G. professional. who must be a Filipino citizen and a resident of the Philippines. non-profit corporations hold their funds in trust for the carrying out of the objectives and purposes expressed in its charter. (SEC Opinion dated 24 February 2003. as it violates Sec.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. trustees or officers. the prohibition of foreign citizens becoming officers in corporations engaged in business does not apply to the activities of a non-stock corporation which do not fall within the coverage of a nationalized industry or area of business reserved by law exclusively to Filipino citizens.R. Sacrifice. social. the members may organize as a stock corporation directed to bring profits or pecuniary gains to themselves. The law mentions the different purposes for which a non-stock corp. Save for the position of the Secretary. I bleed. In other words.

Cultural. 3. Usually they will have different kinds of members. that it should be filed in the RTC. a case of loyalty to the organization. Or where a member playing golf would make a game terrible for everybody: they use their temper. Civic Service. Like for instance. the country clubs. he cannot make use of the facilities. MANGUERA action because under the by-laws. Motion for Reconsideration in the RTC granted. he must appeal to the members. Voting by mail or others means like by fax may be allowed. or officers. Scientific. He sued for moral damages in the RTC. They will usually provide that whoever is the President of the Phils. After the honorary members. so that's his loyalty. trustees. they sometimes create these associate members. there are the regular members. mortgage it. Educational: many of the religious sectarian schools are organized as non-stock corporations (Ateneo de Manila. If he's disapproved. But the SEC dismissed on the ground that it has no jurisdiction. Literary.1 Distinguish non-stock corporations from stock corporations as to: Purpose Distribution of Income Non-Stock Eleemosynary Purposes No part of its income is distributable as dividends to its members. and these are those who own a proprietary share. organizes a competing regatta in Subic to compete with the regatta there. may Scope of Right to Vote No share may be deprived of voting rights except those classified as preferred or redeemable shares. If you do not provide for such. each member will be entitled to vote. Social. Sacrifice. etc. Others: Professional (bar associations. So the honorary members and these associate members are given only playing rights and are not allowed to vote. and the mayor of the place are honorary members. a member of the Manila Yacht Club. which he did. The only thing he can do to that share is that he can sell it. For example. And usually the by-laws will provide that only those who own proprietary shares can vote. but the RTC dismissed it because it's an intra-corporate dispute and should be filed in the SEC. quarrelsome. Excellence A-138 . to allow for continuity in policies. So it was premature. For instance. You can provide that only one third (1/3) of the directors would be elected every year so the terms every three years would be staggered. accountants. they throw the club. Ex. (Section 6) Voting by proxy is a right of a stockholder. and they can use the Philippines. if a member wants to question his suspension by the board. engineers). then 1/3 will be elected every year. If he has a reputation for not getting along with others. I bleed. broadened. Fraternal. Membership shall be terminated in the manner and for causes provided in the articles or by-laws. Non-stock corporations may have more than fifteen (15) directors. But membership is nontransferrable. Eventually Quisumbing just sold his share.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. If somebody owns a proprietary share in a country club. The right to vote may be limited. The country club could suspend him as what was done in the case of Norberto Quisumbing for picking a fight with a caddy. or similar purposes ( Chambers of Commerce). The country club filed a motion to dismiss because they said the complaint does not state a cause of 11. He has to apply for membership. These are members who do not have a proprietary share but they will be allowed to make use of the playing rights of one who owns a proprietary share provided they pay also monthly dues. But you can provide that everybody will be elected every year. the son does not automatically become a member. So to broaden the base of people to whom they can collect monthly dues. broadened or denied. (Section 24) Voting by allowed mail is not Voting by Proxy Voting by mail I sweat. La Salle) 4. You may even have 21. In alumni associations if you want to broaden representation in the board. Petition for prohibition by the club in the CA was granted. A member may vote by proxy unless that is prohibited in the by-laws. AoI or bylaws may prohibit the voting by proxy Voting by mail or other similar means may be authorized by the by-laws of the non-stock corporation with the approval of and under Stock Any legal purpose Stock Corporation distribute dividends. denied or broadened by AoI or BL. but unless the right is limited. But it's expensive to run and maintain a country club. He has not exhausted the intra-corporate remedy provided by the by-laws. I soar… Service. if he dies and his share is inherited by his son. or denied in the articles or the by-laws. subject to the provisions of this Code on dissolution Each member entitled to one vote unless limited. they wouldn't want to have such person as member. but he cannot be a member if he's not accepted.

I soar… Service. agricultural and like chambers. 87. In a stock corp. civic service. Note: Metro Manila shall be considered a city of municipality. (n) Place of meetings At any place within the Philippines Distribution of Assets See Section 94 below The members are not entitled to any beneficial • Stock Corporation may distribute dividends. shall be applicable to non-stock corporations. Feb 23. social. Purposes Non-stock corporations may be formed or organized for charitable. be used for the furtherance of the purpose or purposes for which the corporation was organized. cultural. the number of directors shall not be less than five nor more than 15. scientific. MANGUERA such conditions which may be prescribed by the SEC. (SEC Opinion. like trade. subject to the provisions of this Title. (b) Distribution of Income (Section 87) Sec. or similar purposes. subject to the provisions of this Code on dissolution: Provided. professional. Transferability interest of Non-transferable. (Section 23) Must be held in the city or municipality where the principal office of the corporation is located. except as between the parties. 2003) satisfied. rights and shares are transferable. until the transfer is recorded in the books of the corporation. literary. (a) Purposes (Section 88) Sec. Note: No transfer shall be valid. BoD shall hold office for 1 year until their successors are elected and qualified. 88. the BoD may declare dividends out of the unrestricted retained earnings I sweat. industry. Definition For the purposes of this Code. (n) • Stock corporations may be formed or organized for any purpose as long as it is not contrary to law. The right to vote may be transferred by proxy or voting trusts. and if practicable in the principal office of the corporation.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. That any profit which a non-stock corporation may obtain as an incident to its operations shall. Sacrifice. when pertinent. or officers. unless the articles of incorporation or the bylaws otherwise provide. Shares of stock are personal property and may be transferred by delivery of the certificate or certificates endorsed by the owner or his attorneyin-fact or other person legally authorized to make the transfer. (Sec 63) In stock corporation. trustees. (Section 51) Assets are distributed to the stockholders of the corporation after claims of the creditors are or vested interest over the assets of the non-stock corporation unless it is so provided in the AoI or BL. educational. As to term. except as may be covered by specific provisions of this Title. fraternal. (UP-Elective Class Reviewer at 44) Governing Board Number and Term Number: May be more than 15 Term: 3 years. subject to the special provisions of this Title governing particular classes of nonstock corporations. a non-stock corporation is one where no part of its income is distributable as dividends to its members. The provisions governing stock corporation. Excellence A-139 . religious. I bleed. or any combination thereof. whenever necessary or proper.

Shares of stock are personal property and may be transferred by delivery of the certificate or certificates endorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. Note: No transfer shall be valid. (n) (c) Scope of right to vote (Section 89) Sec. and subsequent elections of trustees comprising one-third (1/3) of the board of trustees shall be held annually and trustees so elected shall have a term of three (3) years. The right to vote may be transferred by proxy or voting trusts. officers of a non-stock corporation may be directly elected by the members. Stock corp. 89. the board of trustees of non-stock corporations. shall be entitled to one vote. shall. except as between the parties. (Sec 63) (UPElective Class Reviewer at 45) • Stock corporation. Election and term of trustees Unless otherwise provided in the articles of incorporation or the bylaws. the Securities and Exchange Commission.Voting by proxy is a right o f a stockholder. I bleed. Unless otherwise provided in the articles of incorporation or the bylaws. 90. regardless of class. Right to vote The right of the members of any class or classes to vote may be limited. Non-transferability of membership Membership in a non-stock corporation and all rights arising therefrom are personal and non-transferable. Unless otherwise provided in the articles of incorporation or the bylaws. • In a stock corp. as soon as organized. so classify themselves that the term of office of one-third (1/3) of their number shall expire every year. unless the articles of incorporation or the by-laws otherwise provide. (n) (d) Voting by proxy (Section 89) • Non-stock Corp. each member. (n) Voting by mail or other similar means by members of non-stock corporations may be authorized by the by-laws of non-stock corporations with the approval of.Voting by mail is not allowed (UP-Elective Class Reviewer at 44) I sweat. MANGUERA which shall be payable in cash. (UPElective Class Reviewer at 44) (f) Transferability of interest or membership (Section 90) Sec. broadened or denied. broadened or denied to the extent specified in the articles of incorporation or the by-laws.AoI or bylaws may prohibit the voting by • proxy Stock Corp. and under such conditions which may be prescribed by. Excellence A-140 . Sacrifice. rights and shares are transferable. No person shall be elected as trustee unless he is a member of the corporation. 92.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. (Section 6) (g) Governing board number and term (Section 92) Sec.No share may be deprived of voting rights except those classified as preferred or redeemable shares. Trustees thereafter elected to fill vacancies occurring before the expiration of a particular term shall hold office only for the unexpired period. property or stock. Unless so limited. (Section 24) (e) Voting by mail (Section 89) • Non-stock corporation. until the transfer is recorded in the books of the corporation.Voting by mail or other similar • means may be authorized by the by-laws of the non-stock corporation with the approval of and under such conditions which may be prescribed by the SEC. a member may vote by proxy in accordance with the provisions of this Code. I soar… Service. which may be more than fifteen (15) in number as may be fixed in their articles of incorporation or by-laws.

and if practicable in the principal office of the corporation.Officers may be directly elected by the • members unless otherwise provided in the AoI or bylaws. societies. and 5. (Section 51) (UP-Elective Class Reviewer at 45) • Stock Corp. further.Assets are distributed to the stockholders of the corporation after claims of the creditors are satisfied. SEC Opinion dated February 24. MANGUERA satisfied and discharged. shall be returned. its assets shall be applied and distributed as follows: 1. That the place of meeting shall be within the Philippines. 2003 I sweat. As to term. Assets held by the corporation upon a condition requiring return. That proper notice is sent to all members indicating the date. but not held upon a condition requiring return. 11. Note: Metro Manila shall be considered a city of municipality. or any class or classes of members. BoD shall hold office for 1 year until their successors are elected and qualified. whether or not organized for profit. Assets other than those mentioned in the preceding paragraphs. Excellence A-141 . shall be distributed in accordance with the provisions of the articles of incorporation or the by-laws. societies or organizations engaged in activities in the Philippines substantially similar to those of the dissolving corporation according to a plan of distribution adopted pursuant to this Chapter.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. 2. time and place of the meeting: and Provided. (Section 23) (UP-Elective Class Reviewer at 45) (h) Election of officers (Section 92) • Non-stock corp. Benedicta Bello re Conversion of non-stock educational institution into a stock corporation. In any other case. I bleed. Stock Corp. (n) • In stock corporation. dated February 24. Assets received and held by the corporation subject to limitations permitting their use only for charitable. 93. to the extent that the articles of incorporation or the by-laws. as may be specified in a plan of distribution adopted pursuant to this Chapter. and which condition occurs by reason of the dissolution. 4.Only the BoD elect the corporate officers (UPElective Class Reviewer at 45) (i) Place of meetings (Section 93) Sec.Must be held in the city or municipality where the principal office of the corporation is located. Rules of distribution In case dissolution of a non-stock corporation in accordance with the provisions of this Code. transfer or conveyance by reason of the dissolution. transferred or conveyed in accordance with such requirements. Place of meetings The by-laws may provide that the members of a non-stock corporation may hold their regular or special meetings at any place even outside the place where the principal office of the corporation is located: Provided. benevolent. shall be transferred or conveyed to one or more corporations. (j) Distribution of assets in case of dissolution (Section 94) Sec. (n) • Stock corp. determine the distributive rights of members. educational or similar purposes. assets may be distributed to such persons. Sacrifice. religious. 3. or adequate provision shall be made therefore. All liabilities and obligations of the corporation shall be paid. I soar… Service.2 Additional material: SEC Opinion letter. transfer or conveyance. 2003 to Ms. or provide for distribution. organizations or corporations. if any. 94. the number of directors shall not be less than five nor more than 15.

the members are not entitled to any beneficial or vested interest over the assets of the non-stock corporation. in the event of dissolution of a non-stock corporation such as your school. no part of the income of a non-stock corporation may be distributable as dividends to its members. non-stock. non-profit corporations hold their funds in trust for the carrying out of the objectives and purposes expressed in its charter. Thereafter. its assets shall be distributed in accordance with the rules as provided for under Sections 94 and 95 of the Corporation Code. Excellence A-142 . trustees or officers. Pursuant to Section 87 of the Corporation Code. MANGUERA Firstly. Sacrifice. the Commission has previously ruled that a non-stock corporation cannot be converted in to a stock corporation by a mere amendment of the Articles of Incorporation. it is fundamental that the non-stock corporation be dissolved first under any of the methods specified under Titled XIV of the Corporation Code. the conversion of a non-stock educational institution into a stock corporation is not legally feasible. Unless. In other words. the members may organize as a stock corporation directed to bring profits or pecuniary gains to themselves. I bleed. Secondly.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. it is so provided in the Articles of Incorporation or ByLaws. I soar… Service. Thus. For purposes of transformation. I sweat.

It can cancel or alter any provision in the articles or by-law.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. made in recognition of the fact that the overwhelming majority of the corporations are family corps. For it to be a close corp. Excellence A-143 . then he must offer it to the corporation before offering to an outsider. They may direct or prohibit the action taken by any one of those mentioned . It can be provided that you will need three fourths (3/4) majority to approve any action by the board. if the stockholders will be the directors. action of the directors without need of a meeting will be valid if all the directors sign a written consent. And unless the by-laws provide otherwise. b) we will have nine (9) directors. subject to the restrictions in article 10 of the articles of incorporation. MANGUERA d) the articles may provide that if it's the stockholders and not the board who will manage the affairs and that there is no need for formal meetings.. The law says that the mere fact that a corp. then you'll have to put there a buy-out provision. Or if the directors are used to taking informal action. The laws says that the stockholders may enter into pre-incorporation agreement before they incorporate. Or it may also provide that if no stockholder is willing to buy the shares. they have to appear in the articles of incorporation. class b. insurance companies. but it is the wife who is actually running the corp. the president can come from one family. The husband is just the nominal figurehead. In many family corporations here. Or if the stockholders have actual or implied knowledge but do not object in writing. you have three brothers who form a close corp. or the directors all have express or implied knowledge of the action taken and none of them objects. the set-up is such that the husband is the president. Like 3 directors may be elected only by class a shares. like there would be two thirds. the treasurer from the 3rd family. Or they may alter. It is up to the prospective buyer to look into the articles to find out what are those restrictions. A close corp. I soar… Service. in the by-laws. Only the members of the family of the first brother can own class a shares. you could be paralyzed by inaction. and that pre-incorporation agreement will remain binding even after they have incorporated because that agreement will lay down the modus vivendi after they have incorporated. and class c shares can be owned only by members of the 3rd brother. engaged in mining. and must be printed at the back of the stock certificate. public utilities. Or it may require the purchase of the shares of any stockholder by the corporation or by other stockholders even if there are no retained earnings. Tesoro Handicraft. 3/4 majority for quorum in a stockholders meeting. For example. Has a technical meaning in the law. The corporation shall not be listed in any stock exchange. class c. Example. and such is intolerable. In fact usually in a corporation like this. stock exchanges. it could be agreed that each family will have 3 directors. the general manager from another family. and 3 will be elected by holders of class a shares. schools. oil companies. vested with public interest are not allowed to be close corps. The articles must contain the features mentioned in the law. the wife is the treasurer. banks. And so the law provides for remedies for that. I sweat. Only members of 2nd brother can own class b shares. You anticipate.. Why? Because each group would want to be protected for otherwise if the two groups combine they can get anything approved. is controlled by another corp. the articles must provide that it cannot have more than 20 stockholders. directors. Only if they are not willing to buy can he offer it to an outsider. Ex. or officers. For restrictions for the transfer of shares to be binding on third parties. The law says the articles may provide for classification of shares and qualifications for owning them. that in case you have this 12. 3 by class b. Everybody has a right to veto. any action by the stockholder. The SEC can arbitrate. You''ll be paralyzed inaction. They may also agree on how the shares will be voted. prohibit or cancel any resolution or action of the corporation. does not make it a close corp. like you are required 3/4 majority a the quorum of the board. So you can just put there for example. Because they're engaged in lines of business vested with public interest and so they should be subject to regulation and close scrutiny. So they may provide: a) we will classify these shares into class a. and 3 by class c shares. The law says that in close corps. c) can provide for a greater quorum or voting requirements. stockholders. there is right of pre-emption to call issuances of shares even if the shares have been issued for property or payment for past services or payment to convert debt to equity. When you have these close corporations with everybody having a veto power. They can cancel for example the greater quorum requirement. And so the third group would want to be protected. But corps. then they will be subject to the same liabilities as directors. it's advisable that you put a buy-out provision. and corps. Sacrifice. like usually it will be provided that if a stockholder wants to sell his share. I bleed. There should be restrictions on the transfer of the shares. and then every year they will rotate the position. he must first offer it to the other stockholders. CLOSE CORPORATIONS Jack’s Lecture This is a new title.

Suppose they cannot agree who will buy whom. Notwithstanding the foregoing. He will have the rights of a duly elected director. they can provide that the one who's willing to pay the higher price will be the one who will prevail. within the meaning of this Code. public utilities. Any corporation may be incorporated as a close corporation. Requirements for close corporations: (1) The AoI must state that the number of stockholders shall not exceed 20. That the provisions of other Titles of this Code shall apply suppletorily except insofar as this Title otherwise provides. It is hoped that people reacquaint themselves with the concepts of mutual aid and security that are the original driving forces behind the formation of family corporations and use these tenets in order to facilitate more civil. Excellence A-144 .. or appointing a provisional director. and (3) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class. Superiority of contractual intent on proprietary matters pursued in juridical vehicle. 96. A family corporation should serve as a rallying point for family unity and prosperity. hard-earned life savings into going concerns capable of providing them and their families with a modicum of material comfort and financial security as a reward for years of hard work. settlements of family corporate disputes. 418 SCRA 431 (2003). if not more amicable. an outsider who is not a stockholder or a creditor. granting other reliefs as the circumstances may warrant. (2) all the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title. except mining or oil companies. 12. banks. risks and benefits in the business enterprise. A family corporation should serve as a reward for years of hard work. Ellice Agro-Industrial Corp. He's the tiebreaker.1 What are the requirements for the formation of a close corporation? (Section 96) Sec. By-laws and Certificate of Stock) o Restriction on the transfer must not be more onerous than granting the existing SH or corporation the option to purchase shares. Or dissolving the corporation. not as a flashpoint for familial strife. Implementing vehicle of contractual understanding on sharing of control. shall be held of record by not more than a specified number of persons. I bleed. Rationale. like regarding the book value of something. The provisions of this Title shall primarily govern close corporations: Provided. educational institutions and corporations declared to be vested with public interest in accordance with the provisions of this Code. (CLV) The concept of a close corporation organized for the purpose of running a family business or managing family property has formed the backbone of Philippine commerce and industry. I soar… Service. Through this device. is one whose articles of incorporation provide that: (1) All the corporation's issued stock of all classes. MANGUERA continuing deadlock then a stockholder can demand to buy out the shares of another stockholder. a corporation shall not be deemed a close corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation within the meaning of this Code. I sweat. He can vote. stock exchanges. Filipino families have been able to turn their humble. And you can put there a formula on what would be the valuation. that will be an extreme case. • • • • Concept. (2) The AoI must contain restriction on the transfer of issued stock (which must appear in the AoI.  Gala v. Definition and applicability of Title A close corporation. exclusive of treasury shares. Sacrifice.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. insurance companies. (CLV) (It’s like an incorporated partnership) Jack Tip: Provide for a buy-out provision with valuation. The law says that the provisional director is supposed to be an impartial person. not exceeding twenty (20). (3) The stocks cannot be listed in the stock exchange nor publicly offered. Convergence of ownership and management.

51 Meetings 12. each of which may be voted for and elected solely by a particular class of stock. 12. I bleed. There shall always be a class/series of shares which I sweat. No share may be deprived of voting rights. There are no classification of BoD. Before or after such action is taken. (UP Class Notes at 46) There can be classification of directors into one or more classes. The three requisites must concur. (3) Stock exchanges. unless the by-laws provide otherwise. or There are no classification of BoD.3 Distinguish a close corporation from a regular corporation as to: Close Corporation Management AoI of close corporation may provide that the business of the corporation shall be managed by the SHs rather than by a board of directors. (4) Banks. The SHs shall be deemed to be directors for the purpose of applying the provisions of the Code. See Sections 50. Excellence A-145 . All the directors have express or implied knowledge of the action in question and none of them makes prompt objection thereto in writing Voting SHs are separate and distinct from directors The AoI may provide for a classification of directors into one or more classes. I soar… Service. (5) Insurance companies. (6) Public Utility. or 2. All the stockholders have actual or implied knowledge of the action and make no prompt objection thereto in writing. Sacrifice. MANGUERA Note: • The corporation is not a close corporation even if the shares belong to less than twenty if not all the requisites are present. (JRS at 318) • A corporation shall not be deemed a close corporation when at least 2/3 of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation. The AoI may provide that all officers of employees shall be elected by the SHs No meeting of stockholders need be called to elect directors.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. (2) Oil companies. The directors are accustomed to take informal action with the express or implied acquiescence of all the stockholders. written consent thereto is signed by all the directors. (8) Other corporation declared to be vested with public interest.2 What entities may not be organized as a close corporation? (Section 96) The following cannot be a close corporation: (1) Mining companies. unless the context clearly requires otherwise. The directors or trustees shall not act individually nor separately but as a body in a lawful meeting. (7) Educational institutions. or 3. except preferred and redeemable shares. any action by the director of the close corporation without a meeting shall nevertheless be deemed valid if : 1. Regular Corporation BoD 4.

business of corporation maybe managed by the SHs rather than the BoD. without the SH or corporation exercising the option to purchase. shall have the power to arbitrate the dispute. including re-issuance of treasury shares. the SEC can compel the purchase or sale of shares. upon written petition of any SH. 97. SEC can dissolve the corporation. SEC can cancel or alter any provision in the AOI or by-laws. as a result of such deadlock the business and the affairs of the corporation can no longer be conducted to the advantage of the SHs generally. the AoI or By-laws can provide for a greater majority in quorum. the transferring SH may sell his shares to pay third persons Resolution deadlocks of Withdrawal right Arbitration When. (Other remedies: appointment of a provisional director by the SEC. See Section 39 Appraisal right See Section 104 (a) Management (Section 97) Sec. whether for money. restrictions must appear in the AOI and the by-laws as well as the certificates of stock. 3. Shall not extend to shares to be issued in good faith with the SHs approval in exchange or in payment of previously contracted debt. the same shall not be binding on a purchaser in good faith. Excellence A-146 . Such pre-emptive right shall not extend to shares to be issued on compliance with laws requiring stock offerings or minimum stock ownership by the public. I soar… Service. See Section 52 There are no classification of BoD. or period stated. Shall not take effect if denied in the AoI or amendment thereto.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. At the end of the period. Articles of incorporation I sweat. Sacrifice. property. AOI may provide for a classification of shares or rights and the qualifications for owning or holding the same and restriction on their transfers as they may be stated therein. the SEC. each of whom may be voted for an elected solely by a particular class of stock. alter. 2. SEC can cancel. or personal services. I bleed. conditions. Pre-emptive right Quorum AoI may provide for a greater quorum requirement in meetings than those provided in the Code. restrictions shall not be more onerous than granting the existing SHS or the corporation the option to purchase the shares of the transferring SH with such reasonable terms. unless the AOI otherwise provides Board Authority Restrictions on transfer of shares AoI may provide for a classification of directors into one or more classes. or in payment of corporate debts.24 AoI may provide for greater voting requirements in meetings of SHs or directors than those provided by the Code. or enjoin or prohibit any act or acts or resolution of the BOD. Extends to all stocks to be issued. For stockholders. the AoI can provide for a different percentage in quorum. SHs. otherwise. See Section 23. MANGUERA have COMPLETE VOTING RIGHTS Each share shall be EQUAL in all respects to every share unless otherwise prvided by AoI For BoD. or officers) Limitations on the exercise of the pre-emptive right: 1.

FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. 97. For a classification of directors into one or more classes. subject to the provisions of the following section. Unless the context clearly requires otherwise. or 4. (b) Meetings (Section 101) Sec. and 3. instead of by the board of directors. Articles of incorporation The articles of incorporation of a close corporation may provide: I sweat. For a greater quorum or voting requirements in meetings of stockholders or directors than those provided in this Code. Before or after such action is taken. instead of by the board of directors. The stockholders of the corporation shall be subject to all liabilities of directors. or 2. I bleed. So long as this provision continues in effect: 1. unless he promptly files his written objection with the secretary of the corporation after having knowledge thereof. The directors are accustomed to take informal action with the express or implied acquiescence of all the stockholders. an action taken therein within the corporate powers is deemed ratified by a director who failed to attend. any action by the directors of a close corporation without a meeting shall nevertheless be deemed valid if: 1. Excellence A-147 . written consent thereto is signed by all the directors. xxx The articles of incorporation may likewise provide that all officers or employees or that specified officers or employees shall be elected or appointed by the stockholders. (c) Voting (Section 97) Sec. The articles of incorporation of a close corporation may provide that the business of the corporation shall be managed by the stockholders of the corporation rather than by a board of directors. subject to the provisions of the following section. I soar… Service. 2. For a greater quorum or voting requirements in meetings of stockholders or directors than those provided in this Code. The articles of incorporation of a close corporation may provide: 1. No meeting of stockholders need be called to elect directors. MANGUERA action and make no prompt objection thereto in writing. Articles of incorporation The articles of incorporation of a close corporation may provide: 1. each of whom may be voted for and elected solely by a particular class of stock. 101. and 3. Sacrifice. each of whom may be voted for and elected solely by a particular class of stock. or 3. 2. For a classification of shares or rights and the qualifications for owning or holding the same and restrictions on their transfers as may be stated therein. the stockholders of the corporation shall be deemed to be directors for the purpose of applying the provisions of this Code. All the directors have express or implied knowledge of the action in question and none of them makes prompt objection thereto in writing. For a classification of shares or rights and the qualifications for owning or holding the same and restrictions on their transfers as may be stated therein. and 3. 2. The articles of incorporation may likewise provide that all officers or employees or that specified officers or employees shall be elected or appointed by the stockholders. For a classification of directors into one or more classes. All the stockholders have actual or implied knowledge of the (d) Quorum (Section 97) Sec. When board meeting is unnecessary or improperly held Unless the by-laws provide otherwise. 97. If a director's meeting is held without proper call or notice.

if any. property or personal services. Validity of restrictions on transfer of shares Restrictions on the right to transfer shares must appear in the articles of incorporation and in the by-laws as well as in the certificate of stock.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. or other persons party to the action. (6) dissolving the corporation. if the directors or stockholders are so divided respecting the management of the corporation's business and affairs that the votes required for any corporate action cannot be obtained. Unless the context clearly requires otherwise. (3) directing or prohibiting any act of the corporation or its board of directors. Excellence A-148 . 98. or officers. shall have the power to arbitrate the dispute. (4) requiring the purchase at their fair value of shares of any stockholder. So long as this provision continues in effect: 1. Said restrictions shall not be more onerous than granting the existing stockholders or the corporation the option to purchase the shares of the transferring stockholder with such reasonable terms. or any stockholder's agreement. the Commission shall have authority to make such order as it deems appropriate. No meeting of stockholders need be called to elect directors. bylaws. The stockholders of the corporation shall be subject to all liabilities of directors. conditions or period stated therein. whether for money. Pre-emptive right in close corporations The pre-emptive right of stockholders in close corporations shall extend to all stock to be issued. the existing stockholders or the corporation fails to exercise the option to purchase. the transferring stockholder may sell his shares to any third person. the stockholders of the corporation shall be deemed to be directors for the purpose of applying the provisions of this Code. either by the corporation regardless of the availability of unrestricted retained earnings in its books. (g) Pre-emptive Right (Section 102) Sec. 97. and whose further qualifications. including an order: (1) canceling or altering any provision contained in the articles of incorporation. Articles of incorporation xxx The articles of incorporation of a close corporation may provide that the business of the corporation shall be managed by the stockholders of the corporation rather than by a board of directors. stockholders. the same shall not be binding on any purchaser thereof in good faith. For a greater quorum or voting requirements in meetings of stockholders or directors than those provided in this Code. instead of by the board of directors. unless the articles of incorporation provide otherwise. (2) canceling. may be determined by the Commission. 2. or by the other stockholders. (5) appointing a provisional director. Deadlocks Notwithstanding any contrary provision in the articles of incorporation or by-laws or agreement of stockholders of a close corporation. (h) Resolution of deadlocks (Section 104) Sec. I bleed. I sweat. otherwise. 102. and 3. A provisional director shall be an impartial person who is neither a stockholder nor a creditor of the corporation or of any subsidiary or affiliate of the corporation. The articles of incorporation may likewise provide that all officers or employees or that specified officers or employees shall be elected or appointed by the stockholders. I soar… Service. altering or enjoining any resolution or act of the corporation or its board of directors. officers. stockholders. or (7) granting such other relief as the circumstances may warrant. Sacrifice. upon written petition by any stockholder. (e) Board Authority (Section 97) Sec. A provisional director is not a receiver of the corporation and does not have the title and powers of (f) Restrictions on transfer of shares (Section 98) Sec. In the exercise of such power. If upon the expiration of said period. MANGUERA xxx 3. 104. or in payment of corporate debts. with the consequence that the business and affairs of the corporation can no longer be conducted to the advantage of the stockholders generally. including reissuance of treasury shares. the Securities and Exchange Commission.

until such time as he shall be removed by order of the Commission or by all the stockholders. (Jack) 12. which may fix his compensation in the absence of agreement or in the event of disagreement between the provisional director and the corporation. 105.6 Case San Juan Structural and Steel Fabricators v. by written petition to the Securities and Exchange Commission. I bleed. which shall not be less than their par or issued value. (JRS at 319) 12. In Appraisal Right. Sacrifice. fair value of shares is given but in Withdrawal Right. or whenever corporate assets are being misapplied or wasted. compel the said corporation to I sweat. (In Appraisal Right. if any maybe determined by the SEC. any stockholder of a close corporation may. when the corporation has sufficient assets in its books to cover its debts and liabilities exclusive of capital stock: Provided. or oppressive or unfairly prejudicial to the corporation or any stockholder. His compensation shall be determined by agreement between him and the corporation subject to approval of the Commission. as an impartial person will have all the powers of a duly elected director (not a receiver).4 What is a provisional director? (Section 104) • A provisional director is an impartial person who is neither a stockholder nor a creditor of the corporation or of any subsidiary or affiliate of the corporation. I soar… Service. whereas a SH of a close corporation may. officers or those in control of the corporation is illegal. compel the said corporation to purchase his shares at their par value. when the corporation has sufficient assets in its books to cover his debts and liabilities exclusive of capital stock. Excellence A-149 .FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. for any reason. he is not a receiver and does not have the title and powers of a custodian or receiver but rather has all the powers of a duly elected director. or dishonest. the fair value given cannot be less than the par or issued value of the shares. A provisional director shall have all the rights and powers of a duly elected director of the corporation. the SEC may be asked to intervene and the SEC may perform such action that may be necessary under the circumstances including the appointment of a provisional director who. That any stockholder of a close corporation may.5 Compare the appraisal right of a stockholder of a regular corporation with the withdrawal right of a stockholder of a close corporation (Section 105) Sec. for any reason. MANGUERA purchase his shares at their fair value. compel the dissolution of such corporation whenever any of acts of the directors. Withdrawal corporation of stockholder or dissolution of In addition and without prejudice to other rights and remedies available to a stockholder under this Title. whose further qualifications. • He’s a tie-breaker. UP Class Notes Appraisal right in regular corporations can be opted by the dissenting stockholder only in cases where the fundamental change in the corporate structure or operations is involved. 12. CA (1998) • The corporation is not a close corporation even if the shares belong to less than twenty if not all the requisites are present. there must be present unrestricted retained earnings in the books of the corporation) a custodian or receiver. • In case of irreconcilable disputes among the directors or shareholders. including the right to notice of and to vote at meetings of directors. or fraudulent.

Pre-requisites to incorporation Except upon favorable recommendation of the Ministry of Education and Culture. 106. The powers and authority of trustees shall be defined in the by-laws. everybody has to be elected. MANGUERA Unless otherwise provided in the articles of incorporation on the bylaws. the Securities and Exchange Commission shall not accept or approve the articles of incorporation and by-laws of any educational institution. A majority of the trustees shall constitute a quorum for the transaction of business. and every year only one fifth (1/5) is elected. however. But you can provide that they will all be elected instead for a term of one year. so classify themselves that the term of office of one-fifth (1/5) of their number shall expire every year. Board of trustees Trustees of educational institutions organized as non-stock corporations shall not be less than five (5) nor more than fifteen (15): Provided.3 Board of Trustees (Section 108) Sec. or other institutions of learning shall.1 Incorporation (Section 106) Sec. Sacrifice. Incorporation Educational corporations shall be governed by special laws and by the general provisions of this Code. 107. 108. (169a) 13 . That the number of trustees shall be in multiples of five (5). again to provide for continuity in policies. 13. where the trustees should be divided into multiples of five. I sweat.2 Pre-requisites to incorporation (Section 107) Sec. so every year. And unless otherwise provided in the articles of incorporation or by-laws.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. the number and term of directors shall be governed by the provisions on stock corporations. I soar… Service. colleges. Trustees thereafter elected to fill vacancies. occurring before the expiration of a particular term. Excellence A-150 . shall hold office only for the unexpired period. the terms of the trustees should be five years. or fifteen trustees if they are organized as nonstock corporation. I bleed. So you should have five. the board of trustees of incorporated schools. (168a) 13. ten. For institutions organized as stock corporations. as soon as organized. EDUCATIONAL CORPORATIONS Jack’s Lecture For educational corporations. Trustees elected thereafter to fill vacancies caused by expiration of term shall hold office for five (5) years. (n) 13.

I bleed.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. that the rules allow them to incorporate they desire to incorporate to manage their properties in the place where located. who are incorporated by law to give some legal capacities and advantages. by forming a non-stock corporation 2. by corporation sole 3. Nationality A corporation sole does not have any nationality but for purposes of applying our nationalization laws. 14. MANGUERA order or society and that at least 2/3 of the members have agreed to incorporate. Such corporations may be classified into corporations sole and religious societies. Classes of religious corporations Religious corporations may be incorporated by one or more persons. By filing a verified declaration of dissolution. Excellence A-151 . Land Registration Commission that although the Bishop was a foreigner. The last is the religious aggregate or religious society. and the rules of his religion allow him to incorporate as a corporation sole and that he is charged with the administration of its properties and in fact he will be required to submit an inventory and the manner in which the successor will be chosen and the place where he will hold his office. (Canete v. he has to get authorization from the Regional Trial Court unless the rules of the religious sect allow him to dispose of or mortgage real property and that is usually the case.1 Classes of religious corporations (Section 109) Sec. of Davao. LRC. 109. (Roman Catholic Apostolic Church v. by religious aggregate or society Corporation sole may constitute of one person only so the head of a religious sect would incorporate himself for the purpose of administering the properties of a religious sect. Religious corporations shall be governed by this Chapter and by the general provisions on non-stock corporations insofar as they may be applicable. Under the law if a corporation sole wants to dispose of or mortgage real property. Sacrifice. they are the single biggest bloc of stockholder of San Miguel Corporation. v. To incorporate what you will file with the SEC is an affidavit. The Iglesia ni Kristo is incorporated as a corporation sole. Members of the sect who left and who formed a separate religious group are not entitled to any right to vote over the properties of their former sect. 1957) Effect of Separation of Members. The affidavit will state that the affiant is the head of a religious denomination or sect and would want to become a corporation sole. CA. The recollects are incorporated to manage their properties. I soar… Service. RELIGIOUS CORPORATIONS Jack’s Lecture There are three (3) ways by which a religious organization can provide for the administration of its properties: 1. 1989) Dissolution. he could register a parcel of land in his name because he is a mere administrator the property really belongs to the faithful and since they are Filipinos they could register the land in the administrator’s name. The court has held in Roman Catholic Apostolic Adm. The Roman Catholic Archbishop of Manila is a corporation sole so if Cardinal Sin dies the new archbishop will simply submit his appointment and he need not incorporate again because the corporation is different from the occupant of the position. (JRS at 323) I sweat. It can incorporate for the purpose of managing its properties and the articles would indicate that the members constitute a religious 14. nationality is determined not by the nationality of its head but by the nationality of the members constituting the sect in the Philippines even if it is headed by the Pope. Inc. (n) (a) Corporation Sole • Corporation sole is a special form of corporation • • • • usually associated with the clergy and consists of one person only and his successors.

rabbi or presiding elder of any religious denomination. bishop. orphan asylums. sect or church are not inconsistent with his becoming a corporation sole and do not forbid it. sect or church theretofore administered or managed by him as such chief archbishop. according to the rules. and accompanied by a copy of the commission. he is charged with the administration of the temporalities and the management of the affairs. minister. The place where the principal office of the corporation sole is to be established and located. purpose. a corporation sole may be formed by the chief archbishop. minister. MANGUERA contrary to law for the regulation of the affairs of the corporation. sect or church. benevolent or educational purposes. priest. Submission of the articles of incorporation The articles of incorporation must be verified. minister. and may receive bequests or gifts for such purposes. schools. minister. the chief archbishop. minister. I bleed. rabbi or presiding elder of his religious denomination. and accompanied by the documents mentioned in the preceding paragraph. by affidavit or affirmation of the chief archbishop. priest. That as such chief archbishop. Sacrifice. sect or church and that he desires to become a corporation sole. certificate of election or letter of appointment of such chief archbishop. sect or church must file with the Securities and Exchange Commission articles of incorporation setting forth the following: 1. priest.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. rabbi or other presiding elder of such religious denomination. the affairs. From and after the filing with the Securities and Exchange Commission of the said articles of incorporation. minister. 110. priest. bishop. sect or church to which he belongs. rabbi or presiding elder. such chief archbishop. bishop. colleges. sect or church. property and temporalities of any religious denomination. regulations or discipline of the religious denomination. minister. bishop. minister. (154a) (ii) How formed (Section 111 and Section 112) Sec. bishop. before filing. sect or church. priest. parsonages and cemeteries thereof. rabbi or presiding elder shall become a corporation sole and all temporalities. charitable. 111. behalf and sole benefit of his religious denomination. sect or church within his territorial jurisdiction. which place must be within the Philippines. That the rules. priest. Such corporation may sell or mortgage real property held by it by obtaining an order for that purpose from the Court of First Instance of the province where the property is situated upon proof made to the satisfaction of the court that notice of the application for leave to sell or mortgage has been given by publication or otherwise in such I sweat. rabbi or presiding elder. priest. bishop. I soar… Service. Acquisition and alienation of property Any corporation sole may purchase and hold real estate and personal property for its church. bishop. (n) Sec. bishop. Articles of incorporation In order to become a corporation sole. and 5. rabbi or presiding elder. (n) (i) Who may form and for what purpose (Section 110) Sec. (iv) Power to acquire and alienate property (Section 113) Sec. as trustee. 2. including hospitals. 112. minister. as the case may be. verified by affidavit or affirmation. priest. for the use. describing such territorial jurisdiction. priest. estate and properties of his religious denomination. 113. The articles of incorporation may include any other provision not (iii) Need for by-laws • No need for by-laws since the business is conducted by only one man. bishop. The manner in which any vacancy occurring in the office of chief archbishop. 3. regulations and discipline of his religious denomination. rabbi of presiding elder is required to be filled. 4. duly certified to be correct by any notary public. Corporation sole For the purpose of administering and managing. estate and properties of the religious denomination. Excellence A-152 . rabbi or presiding elder shall be held in trust by him as a corporation sole. That he is the chief archbishop.

rules. Religious societies Any religious society or religious order. setting forth the following: 1. or any diocese. or district organization of the religious denomination. regulations. holding. The reason for dissolution and winding up. That at least two-thirds (2/3) of its membership have given their written consent or have voted to incorporate. sect or church. That in cases where the rules. (159a) (v) Filling of vacancies (Section 114) Sec. The names and addresses of the persons who are to supervise the winding up of the affairs of the corporation. sect or church represented by the corporation sole: Provided. the corporation shall cease to carry on its operations except for the purpose of winding up its affairs. Upon approval of such declaration of dissolution by the Securities and Exchange Commission. or letters of appointment. The authorization for the dissolution of the corporation by the particular religious denomination. rabbi or presiding elder in a corporation sole shall become the corporation sole on their accession to office and shall be permitted to transact business as such on the filing with the Securities and Exchange Commission of a copy of their commission. at a duly convened (vi) Dissolution (Section 115) Sec. the person or persons authorized and empowered by the rules. 116. secretary. MANGUERA declaration of dissolution. sect or church. sect or church. or diocese. sect or church of which it is a part. Sacrifice. certificate of election. 3. and the intervention of the courts shall not be necessary. bishop. or discipline of the religious denomination. upon written consent and/or by an affirmative vote at a meeting called for the purpose of at least twothirds (2/3) of its membership. sect or church. priest. 2. 114. I bleed. The name of the corporation. articles of incorporation verified by the affidavit of the presiding elder. 115. Excellence A-153 . The application for leave to sell or mortgage must be made by petition. such rules. priest. Filling of vacancies The successors in office of any chief archbishop. minister. and may be opposed by any member of the religious denomination. minister. synod. (158a) (b) Religious societies or corporations aggregate (Section 116) Sec. or diocese. estate and properties of the corporation sole during the vacancy shall exercise all the powers and authority of the corporation sole during such vacancy. bishop. duly certified by any notary public. properties and estate by filing with the Securities and Exchange Commission. 4. That the religious society or religious order. priest. synod. bishop. rabbi or presiding elder acting as corporation sole. incorporate for the administration of its temporalities or for the management of its affairs. duly verified. rabbi or presiding elder of any religious denomination. sect or church. or district organization of any religious denomination. Dissolution A corporation sole may be dissolved and its affairs settled voluntarily by submitting to the Securities and Exchange Commission a verified I sweat. selling and mortgaging real estate and personal property. by the chief archbishop. sect or church incorporated as a corporation sole. I soar… Service. regulations and discipline of the religious denomination. regulations and discipline shall control. or district organization is a religious organization of a religious denomination. synod. religious society or order concerned represented by such corporation sole regulate the method of acquiring. unless forbidden by the constitution.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. During any vacancy in the office of chief archbishop. and that it is to the interest of the corporation that leave to sell or mortgage should be granted. or clerk or other member of such religious society or religious order. may. or by competent authority. regulations or discipline of the religious denomination. 2. The declaration of dissolution shall set forth: 1. (n) manner and for such time as said court may have directed. minister. sect or church represented by the corporation sole to administer the temporalities and manage the affairs.

or district organization to serve for the first year or such other period as may be prescribed by the laws of the religious society or religious order. 2004) Re: Term of Existence of Religious Corporations I sweat. (Nov. The names. or district organization desiring to incorporate is not forbidden by competent authority or by the constitution. That the religious society or religious order. or diocese. Nov. synod. where the Articles of Incorporation does not provide for a term of existence. or the diocese. synod. then a church member who is expelled from the membership by the church authorities. Basa (2001) • Since in matters purely ecclesiastical the decisions of the proper church tribunals are conclusive upon the civil tribunals. whether classified as a corporation sole or a corporation aggregate. 2004 to Ferrer and Ferrer Law Office re term of existence of religious corporation. Moreover. 28. or diocese. nationalities. 3. I bleed. synod. which place must be within the Philippines. or a priest or minister who is by them deprived of his sacred office. or district organization. synod. Long v. properties and estate. 5. the law intends that religious organizations may exist perpetually (SEC Opinion dated Dec. and residences of the trustees elected by the religious society or religious order. As such. 23. is without remedy in the civil courts. 04-45. 28. Basa. That the incorporation of the religious society or religious order. Sacrifice. 14. regulations or discipline of the religious denomination. or church of which it forms a part.2 Case Long v. Excellence A-154 .FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. 366 SCRA 113 (2001). it shall be understood that the intention is for the corporation to exist for an indefinite period (SEC Opinion dated Oct. the board of trustees to be not less than five (5) nor more than fifteen (15). 10. The place where the principal office of the corporation is to be established and located. or district organization desires to incorporate for the administration of its affairs. 160 of the former Corporation Law) does not provide for a term of existence of religious corporations. and 6. rules. (160a) 14. MANGUERA Section 116 (as well as Sec. 1981). 1995) meeting of the body. sect. I soar… Service. 4.3 Additional Material: SEC Opinion No. SEC Opinion No. 04-45. or of the diocese.

as the same would constitute new business. the corporation ceases to exist for all purposes. Court of First Instance of Rizal. Here the board and the stockholders will approve the dissolution but a petition will be filed signed by the majority of the directors and verified by the president. the corporation ceases to be a body corporate for the purpose of continuing the business for which it was organized. I bleed. In a case where a suit was filed and the corporation said. In all the methods of voluntary dissolution. XXI. 394 SCRA 386 (2002). That will be set for hearing and not less than thirty (30) days nor more than sixty (60) days after the entry of the issuance of the order and a copy of the order will be published once a week for three consecutive weeks in a newspaper of general circulation and that will also be posted for three weeks in three public places like the bulletin board of a municipal hall. Modes of Dissolution: (1) Voluntary Dissolution (2) Involuntary Dissolution (3) Shortening of term. we have already been dissolved and they submitted a board resolution. 516 (2002). (JRS at 314). Republic v. Pasig. • The termination of the life of a juridical entity does not by itself cause the extinction or diminution of the rights and liability of such entity. The first one is if no creditors are affected. 24 SCRA 269 (1968). under the law there are three provisions governing voluntary dissolution. • When the period of corporate life expires. PNB v. and (4) Expiration of term (JRS at 311) (5) Failure to organize and commence business within two years from the date of issuance of certificate of incorporation. Sacrifice. Court of Appeals. you need a resolution approved by a majority of directors and a resolution approved by at least 2/3 of the stockholders In Section 118. since it is allowed to continue as a juridical entity for 3 years for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs. I sweat. (2) The corporation ceases as a body corporate to continue the business for which it was established. Br. and to distribute its assets. v. 209 SCRA 294 (1992). Jack’s Lecture DISSOLUTION There are different ways to dissolve a corporation one is voluntarily and the other involuntarily. Excellence A-155 . • A corporation cannot extend its life by amendment of its articles of incorporation effected during the three-year statutory period for liquidation when its original term of existence had already expired. I soar… Service. SEC.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. Alhambra Cigar & Cigarette Manufacturing Company. For dissolution to be effective “[t]he requirements mandated by the Corporation Code should have been strictly complied with. (3) Continuation of a body corporation (the corporation continues as a body corporate for 3 years for purposes of winding up or liquidation) (4) After the expiration of the 3 year winding up period. secretary or one of the directors which will indicate the claims of creditors. MANGUERA • A board resolution to dissolve the corporation does not operate to so dissolve the juridical entity. Tancinco. 371 SCRA 509. to dispose of and convey its property. post office.” Vesagas v. (6) Legislative Dissolution (CLV’s CLR at 936) Effects of Dissolution: (1) Transfer of Legal title to corporate property. The Second one. where no creditors are affected the directors and the stockholders pass the resolution dissolving the corporation and that will be filed in the SEC for approval. the SC held that it is not enough to dissolve a corporation. Inc. is under Section 119 where creditors are affected. DISSOLUTION Dissolution of a corporation is the extinguishment of the franchise of a corporation and termination of its corporate existence. the plaza and then 15.

In other words the court is saying that you do not dissolve a corporation for every infraction. it is the receiver who may wind up the affair of the corporation. This could be done by filing a quo warranto case under rule 66 of the ROC on the ground mentioned there or a corporation can be dissolved for certain violation of the corporation code as mentioned in the Corporation Code or PD 902-A and also a minority stockholder may file a petition to dissolve the corporation where the majority is mismanaging the assets of the corporation. Sacrifice. I bleed. the case will be abated whether the corporation is plaintiff or whether it is defendant but recent jurisprudence has rendered that obsolete. The third one you will just shorten the corporate life and this is the simplest and fastest way of dissolving the corporation voluntarily like when Ford Philippines decided to close its subsidiary they simply amended the articles of corporation that the corporation will exist until December 31. MANGUERA But in one case. Building and loans association like banks are required to dispose of within 5 years of any properties they foreclosed they disposed of the properties after 6 years but they exerted their best efforts. that will not apply. The SC held in the leading case of El Hogar Filipino. the trust will subsist until the affairs of the corporation are wound up and until any creditor can sue the trustee provided that the applicable prescriptive period has not yet lapsed. it was accepting deposits from the public. this was the rule before if any case is not finished within the three year period. it should devote its time prosecuting and defending law suits. Then you can have a involuntary dissolution. now tell me if one employee did not have such a nameplate you are going to dissolve a corporation because that is a legal requirement? It has to be a serious violation! I sweat. 1978. they hired real estate brokers. that they leased the space that they did not need for their office. 399(1927) the first corporation organized under the Corporation Act. But if it is the trustee. The Court said the employees of a railroad are required to wear uniform indicating their positions in their nameplate. Excellence A-156 . This is voluntary either the directors themselves may take care of winding up the affairs of the corporation or they may appoint a trustee like when Ford Philippines decided to close its subsidiary here one of the last acts of the BOD was to pass a resolution appointing Ricardo Romulo as trustee vesting upon him legal title to all the assets of Ford Philippines to be used to pay off its creditors and to dispose of its properties of Ford Philippines. winding up its affairs disposing its properties so they can be used to pay off its creditors and to distribute balance to the stockholders. The SEC will require to get a tax clearance from the BIR and the stockholders will be required to sign an undertaking that they will answer for the claim of the creditors to the extent of the liquidating dividends they will receive. the government filed a case to dissolve that corporation and invoked 17 grounds. 50 Phil. During the three year period. that is not illegal they are maximizing their property. they acquired this land and building. they advertised in newspapers but they just could not find buyers.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. the SC dissolved a corporation which was engaging in banking without authorization from the monetary board. There are two ways of providing for the winding up of its affairs under the law. and fraudulently disposing of its properties and a receiver may be appointed in an action for involuntary dissolution. the court considered that as a serious violation. That rule is applicable if it is the directors winding up the corporation. the SC denied the petition. the SC held that it is not illegal. to be bought out well the court said that that is void but that is not sufficient ground to dissolve the corporation. dissipating its assets. the infraction must be serious. the court said that that is a harsh remedy unless the situation is really beyond redemption you should not impose that remedy. that they provide a provision in the by-laws that stockholders can be compelled to surrender their shares. So if his the SEC will set that for hearing and determine w/n the corporation should be dissolved. For three years . to distribute the balance as liquidating dividends. I soar… Service. if the corporation is under receivership. When a minority stockholder files a case and asks to dissolve the corporation. The corporation has three years after it should have been dissolved for the purpose of winding up its affairs. The SEC has said the three year period should be counted from the time the dissolution was approved by the SEC even if the directors and stockholders pass a resolution dissolving the corporation that is not effective until it has been approved by the SEC. the corporation will continue to exist it will no longer be a going concern but only for the purpose of winding up that is why the SC has said that the corporation cannot for example renew its contract of lease because it is no longer a going concern. Supposed to be. because dissolution is imposing the death penalty upon the corporation.

and the material allegations of the petition are true.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. Voluntary dissolution where no creditors are affected If dissolution of a corporation does not prejudice the rights of any creditor having a claim against it. then in a newspaper of general circulation in the Philippines. the SC held that the directors may be considered as trustees after three years so that they can continue to wind up the affairs of the corporation and in effect the three year period has become ineffectual. (62a) I sweat. after sending such notice to each stockholder or member either by registered mail or by personal delivery at least thirty (30) days prior to said meeting. 363 SCRA 840 (2001). Court of Appeals. and that its dissolution was resolved upon by the affirmative vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the members at a meeting of its stockholders or members called for that purpose. fix a date on or before which objections thereto may be filed by any person. it shall render judgment dissolving the corporation and directing such disposition of its assets as justice 15. the dissolution may be effected by majority vote of the board of directors or trustees. given after the date on which the right to file objections as fixed in the order has expired. If the petition is sufficient in form and substance. Excellence A-157 . is for the board to appoint a trustee but more recent jurisprudence has fashioned a practicable solution to that the lawyer handling the cases may be considered as trustee of the corporation and therefore the cases will not be abated but should continue. Upon five (5) day's notice. the Commission shall proceed to hear the petition and try any issue made by the objections filed. I soar… Service. and shall set forth all claims and demands against it. MANGUERA • When a corporation is contemplating dissolution. it must submit tax return on the income earned by it from the beginning of the year up to the date of its dissolution and pay the corresponding tax due. then in a newspaper of general circulation in the Philippines.1 What are the various methods of dissolving corporations? (a) Voluntary (i) Requirements where no creditors are affected (Section 118) Sec. the petition for dissolution shall be filed with the Securities and Exchange Commission. (ii) Requirements (Section 119) where creditors are affected Sec. Before such date. which date shall not be less than thirty (30) days nor more than sixty (60) days after the entry of the order. A copy of the resolution authorizing the dissolution shall be certified by a majority of the board of directors or trustees and countersigned by the secretary of the corporation. The Securities and Exchange Commission shall thereupon issue the certificate of dissolution. by an order reciting the purpose of the petition. Sacrifice. 118. and by a resolution duly adopted by the affirmative vote of the stockholders owning at least two-thirds (2/3) of the outstanding capital stock or of at least two-thirds (2/3) of the members of a meeting to be held upon call of the directors or trustees after publication of the notice of time. In one case. place and object of the meeting for three (3) consecutive weeks in a newspaper published in the place where the principal office of said corporation is located. The Court has said that the remedy there if the three years will end and there are still pending cases. and a similar copy shall be posted for three (3) consecutive weeks in three (3) public places in such municipality or city. Voluntary dissolution where creditors are affected Where the dissolution of a corporation may prejudice the rights of any creditor. verified by its president or secretary or one of its directors or trustees. The petition shall be signed by a majority of its board of directors or trustees or other officers having the management of its affairs. I bleed. cause of action is based on a written contract he has ten (10) years to sue the trustee. or if there be no such newspaper. 119. the Commission shall. and if no newspaper is published in such place. a copy of the order shall be published at least once a week for three (3) consecutive weeks in a newspaper of general circulation published in the municipality or city where the principal office of the corporation is situated. and if no such objection is sufficient. BPI v.

the adoption of by-laws. requires. 19 SCRA 58 [1967]. RCa) (b) Involuntary (Section 121) Sec. (n) Grounds for Involuntary Dissolution: (1) Failure to organize and commence business within 2 years from incorporation. (b) Expiration of Term (c) Shortening of Corporate Term (Sec. • Corporate dissolution due to mismanagement of majority stockholder is too drastic a remedy. v. “Organization” relates merely to the systematization and orderly arrangement of the internal and managerial affairs and organs of the corporation. Chase v. the corporation shall be deemed dissolved without any further proceedings. 93 Phil. 50 Phil.mala prohibita. A copy of the amended articles of incorporation shall be submitted to the Securities and Exchange Commission in accordance with this Code. Involuntary Dissolution A corporation may be dissolved by the Securities and Exchange Commission upon filing of a verified complaint and after proper notice and hearing on the grounds provided by existing laws. I soar… Service. 711. Security Credit & Acceptance Corp. dissolution takes effect on this date since SEC approves of it anyway. (n) • SEC Internal rules require the following: (1) Notice of the dissolution to be published in a newspaper of general circulation for 3 consecutive weeks. (CLV’s CLR at 939) (a) Quo Warranto (Republic v. Sacrifice. MANGUERA (d) Non-user of Charter and Continuous Inoperation (Sec. 136 SCRA 365 (1985). Teodoro. Government v. if the petition contains a date of dissolution earlier than the date of SEC approval. providing for the subscription and payment of the capital stock.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. of the Phil. (2) Continuously inoperative for 5 years (3) Continuance of business not feasible as found by the management committee or rehabilitation receiver. and may appoint a receiver to collect such assets and pay the debts of the corporation. Bisaya Land Transportation Co. However. 120. Pineda. Buencamino. Benguet Consolidated Mining Co. (Rule 104. Republic v. rules and regulations. as the case may be. 98 Phil. and such other steps as are necessary to endow the legal entity with the capacity to transact the legitimate business for which the corporation was created. Excellence A-158 . Upon approval of the amended articles of incorporation of the expiration of the shortened term. especially when the situation can be remedied such as giving minority stockholders a veto power to any decision. 163 SCRA 534 (1988). which are persistent despite SEC warnings. subject to the provisions of this Code on liquidation.. Dissolution by shortening corporate term A voluntary dissolution may be effected by amending the articles of incorporation to shorten the corporate term pursuant to the provisions of this Code. (f) Demand of Minority Stockholders for Dissolution. 81 SCRA 9 [1978]. (c) Shortening of corporate term (Section 120) Sec. Financing Corp.. v. I sweat. 399 [1927]). Chung Ka Bio v. 22) • “Organize” involves the election of officers. but too numerous infractions. • The failure to file the by-laws does not automatically operate to dissolve a corporation but is now considered only a ground for such dissolution. Intermediate Appellate Court. 120) UP Class Notes Dissolution takes effect upon its approval of the SEC. (4) Fraud in procuring Certificate of Registration/ (5) Serious Misrepresentation (6) Failure to file reports (JRS at 313) (7) Refusal to adopt or approve by laws (PD 902-A) (8) Ultra vires. 404 (1953). El Hogar Filipino. I bleed. 121.

all interest which the corporation had in the property terminates. Sacrifice. and the remaining balance if any is to be distributed to the stockholders. I soar… Service. 15. I bleed. 1979) Liquidation is a process by which all the assets of the corporation are converted into liquid assets (cash) in order to facilitate the payment of obligations to creditors.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. though there is the alternative method of assigning the property of the corporation to the trustees for the benefit of its creditors and shareholders. to dispose of and convey its property and to distribute its assets. (3) Submission by majority stockholders/principal officers an Undertaking to personally answer for any outstanding corporate obligations of the corporation. Corporate liquidation Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise. At any time during said three (3) years. PVB Employees Union-N. Excellence A-159 . but the SEC has not yet approved.B. members. Upon the winding up of the corporate affairs. 122. It begins on the day after the approval of the SEC of the dissolution. The normal method of procedure is for the directors and executive officers to have charge of the winding up operations.2 What is liquidation? (Section 122) Sec. the corporation is authorized and empowered to convey all of its property to trustees for the benefit of stockholders. 16a) (2) List of corporate creditors. the Legislature intended to let the shareholders have the control of the assets of the corporation upon dissolution in winding up its affairs. the BOD may make advances to the SHs and other persons-in-interest. It is the winding up of a corporation so that assets are distributed to those entitled to receive them. the violation of which will amount to its abuse. in corporation law. discharging liabilities and dividing surplus or loss. 360 SCRA 33 (2001). and the beneficial interest in the stockholders. however. and a BIR clearance on the tax liabilities of the corporation. any asset distributable to any creditor or stockholder or member who is unknown or cannot be found shall be escheated to the city or municipality where such assets are located. It is the process of reducing assets to cash. such discretion must. and other persons in interest. always be exercised with caution and governed by legal and equitable principles. members. Except by decrease of capital stock and as otherwise allowed by this Code.E. and in making such appointment the court should take into consideration all the facts and weigh the relative advantages and disadvantages of I sweat. for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs. or whose corporate existence for other purposes is terminated in any other manner. “While the appointment of a receiver rests within the sound judicial discretion of the court. MANGUERA except upon lawful dissolution and after payment of all its debts and liabilities. 77 and 78 of Corporation Law. In the meantime. (77a. creditors. July 5. no corporation shall distribute any of its assets or property Methods of Liquidation • Liquidation. Vega. the legal interest vests in the trustees. 89a. with their consent to the shortening of corporate term. UP Class Notes What is liquidation? Process of converting corporate assets / properties into cash for proper distribution to persons entitled thereto. members. • There can be no doubt that under Secs. From and after any such conveyance by the corporation of its property in trust for the benefit of its stockholders. shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved. and (4) Latest financial statements which must not be earlier than the date of the stockholders’ meeting approving amendment to the articles of incorporation. where a petition for dissolution has already been submitted.U.(SEC Opinion. creditors and others in interest. connotes a winding up or settling with creditors and debtors. creditors or other persons in interest. v. but not for the purpose of continuing the business for which it was established.

” Republic v. (UP Class Notes at 49) Who are liable after dissolution and winding up? • Although a corporate officer is not liable for corporate (b) For how long may the liquidation of a corporation may be undertaken? • Every corporation whose corporate existence has been terminated in any manner shall nevertheless be continued as a body corporate for 3 years after its dissolution. for at the very least. (2) The chosen liquidator who acts as a trustee (3 year winding up period not applicable) (3) Creditors (acting as receiver) who petitioned for the declaration of bankruptcy of the corporation. after the lapse of the said three-year period. (c) What could and should be done during the period of liquidation? • Prosecuting and defending suits by or against it and (a) Who may corporation? undertake the liquidation of a enabling it to settled and close its affairs. M. v. Marsman Dev. (JRS at 314) (d) What happens if an asset cannot be distributed? • Any asset distributable to any creditor or stockholder or member who is unknown or cannot be found shall be escheated to the city or municipality where such asset is located. when such corporate officer [ceases] corporate property to apply to his own claims against the corporation. (1) The BoD. and assuming that judicial enforcement of taxes may not be initiated after said three years despite the fact that actual liquidation has not terminated and the one in charge thereof is still holding the assets of the corporation. made within the three years.) (UP Class notes at 49) (4) By management committee or rehabilitation receiver. .. Sacrifice.” China Banking Corp. he shall be liable to the extent thereof to corporate liabilities. the assessment aforementioned. Michelin & Cie. anytime during the 3 year period.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. “Is immaterial that the present action was filed after the expiration of the three years . the SC held that the directors may be considered as trustees after three years so that they can continue to wind up the affairs of the corporation and in effect the three year period has become ineffectual. since knowing fully well that certain creditors had similarly valid claims. obviously for the benefit of all the creditors thereof. but not for the purpose of continuing the business for which it was established. 122 which bars an action for the recovery of the debts of the corporation against the liquidator thereof. to dispose of and convey its property and to distribute its assets. Excellence A-160 . In one case. (3 year winding up period not applicable. 44 SCRA 418 (1972). (UP Class Notes at 49) obligations. I soar… Service. • appointing a receiver to wind up the corporate business. MANGUERA Jack’s Lecture The Court has said that the remedy there if the three years will end and there are still pending cases. . 58 Phil. I bleed. the corporation is authorized and empowered to convey all of its property to trustees for the benefit of SHs and other persons in interest. such as claims for wages. however. Co. 261 (1933) There is nothing in Sec. is for the board to appoint a trustee but more recent jurisprudence has fashioned a practicable solution to that the lawyer handling the cases may be considered as trustee of the corporation and therefore the cases will not be abated but should continue. definitely established the Government as a creditor of the corporation for whom the liquidator is supposed to hold assets of the corporation. he took advantage of his position as general manager and applied the I sweat.

De Guzman v. Clemente v. might make proper representations with the appropriate body for working out a final settlement of the corporate concerns. following the rationale of the decision in Gelano. CA (1999) • The board of directors may be permitted to complete the corporate liquidation by continuing as “trustees” by legal implication. repeal of a law. 242 SCRA 717 (1995).. the Board of Directors itself. I soar… Service. those having pecuniary interest in the assets. Court of Appeals. • If the 3-year extended life has expired without a trustee or receiver having been designated. 301 SCRA 342 (1999). 15. • The termination of the life of a juridical entity does not by itself cause the extinction or diminution of the rights and liabilities of such entity nor those of its owners and creditors. including the shareholders and the creditors of the corporation. 384 SCRA 48 (2002). Court of Appeals. Knecht v. acting for and in its behalf. the counsel of the dissolved corporation was considered a trustee. the Board of Directors was permitted to complete the corporate liquidation by continuing as “trustees”. MANGUERA Reburiano v. shall be removed or impaired either by the subsequent dissolution of said corporation or by any subsequent amendment or repeal of this Code or of any part thereof. Court of Appeals. Excellence A-161 . Sacrifice.” This provision safeguards the rights of a corporation which is dissolved pending litigation. NLRC. . or any other fact of similar nature would not serve as an effective bar to the enforcement of such right. any supervening fact. 145 “No right of remedy in favor or against any corporation . • In Gelano case. In the later case of Clemente v. corporation's assets in payment exclusively to his own claims. United Cigarette Corp. I bleed. such as the dissolution of the corporation.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. and in the absence of a Board. Reburiano v. • Since the law specifically allows a trustee to manage the affairs of the corporation in liquidation. may be permitted to so continue as “trustees” to complete liquidation. 3 Cases Clemente v. CA (1995) • Corporation continues to be a body corporate for 3 years after its dissolution for purposes of prosecuting and defending suits by and against it and for enabling it to settle and close its affairs. . 211 SCRA 723 (1992). I sweat. Under Sec.

however. it must get permission from that other country also and it will get permission by getting a license to do business and our code now requires reciprocity so normally like if it is an American corporation it will submit a certification from the Secretary of State of that particular state under which it was incorporated like New York. it has a juridical personality by legal fiction. nor having a nominee director or officer to represent its interest in such corporation. whether called “liaison” offices or branches. to determine its amenability to the jurisdiction of the courts they apply a liberal interpretation. it is just a coordinating and communication center. 16. entity or corporation in the Philippines. supervision or control of any domestic business. organized. Sacrifice. So it has personality because of the law under which it was incorporated and since it exists only because of the law under which it was incorporated. computer and fax machine. Foreign companies are setting up regional headquarters here because it has subsidiaries in Southeast Asia or licensees and franchisees and its function is to supervise and coordinate with those subsidiaries or franchisees so normally a regional headquarter would have a one room office here probably with country manager and secretary. We said that a corporation is an artificial person. one is by setting a branch office. or the exercise of some of the functions normally incident to.corporation formed. MANGUERA If a foreign corporation wants to do business here it has to appoint a resident agent who may be a corporation. that the phrase “doing business” shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business. the USSC says minimal contact that would satisfy the requirements of due process is sufficient. organized or existing under any law other than those of the Philippines. I soar… Service. nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account. or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state. There are different ways by which a foreign corporation can establish its presence here. 16. I bleed. commercial gain or of the purpose and object of the business organization: Provided. and/or the exercise of rights as such investor. and contemplate to that extent the performance of acts or works. Excellence A-162 . although his only function is to receive summonses in behalf of the corporation.1 What constitutes doing business in the Philippines (See Section 3(d) RA 7042 as amended) RA 7042. for tax purposes there are no trade-offs because a branch and a subsidiary are taxed in the same way but a subsidiary may be beneficial in the sense that it limits the exposure of the mother company to its subscription instead of risking all the assets of the mother company. services contracts. California because the Secretary of State is the custodian of the laws and he will certify that under the laws of New York. Section 3[d] The phrase “doing business” shall include soliciting orders. if it wishes to participate in the economic processes of another country. another is by setting up subsidiary. and any other act or acts that imply a continuity of commercial dealings or arrangements. (Section 123) Jack’s Lecture Section 123 defines what is a foreign corporation. one formed. In fact the different states have these long-arm statutes by which state the instances when a foreign I sweat. participating in the management. Filipinos are allowed to do business in New York. opening offices. When you talk of foreign corporation doing business you will ask for what purpose are we trying to determine whether or not a foreign corporation is doing business. a telephone.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. if individual he must be of good moral character. Is it for the purpose of determining whether or not it can be sued? If that is the purpose. appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totaling one hundred eighty (180) days or more. partnership or individual. and whose laws allow Filipino citizens and corporations to do business in its own country or state. firm. and in progressive prosecution of. FOREIGN CORPORATIONS Foreign corporation. sound financial standing. Note the element of reciprocity is included in the definition of a foreign corporation as an ingredient of a foreign corporation. When is a foreign corporation doing business? American jurisprudence makes a distinction. Another is the regional headquarters which does not do business.

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corporation may be sued. There is one state Georgia has this provision that if a foreign corporation commits a tort, it will be considered to be doing business and can be sued. The USSC has said times have changed now the means of communications are very rapid so that if you have a representative here he can quickly communicate with the home office so it can take steps to defend itself. On the other hand, if you are talking of determining whether a foreign corporation is doing business for the purpose of prosecuting officers criminally, that is penal, it must be strictly construed. In the middle is the question of whether or not the foreign corporation is doing business and therefore is taxable as a resident foreign corporation. So many decisions have been handed down to determine whether the foreign corporations are doing business but there are three principal guidelines.

2.

It must involve a substantial portion of the business of the primary purpose of the corporation. In one case, there was a foreign shipping company which pass by here and hired a Filipino a cook in one of its vessels, the SC held that that is not doing business hiring a cook is not a substantial portion of its business its business is transporting passengers and cargo.

3.

If the contract is consummated abroad then the foreign corporation is not doing business here. In the case of Columbia Pictures vs. CA, Columbia Pictures filed a case because its films were being pirated here and it was argued that it was doing business without a license, the SC said no because the contracts are consummated abroad. In the Avon Plc case, the Court said that a foreign insurance company which accepted reinsurance is not doing business here because the contract is executed abroad.

1.

Transactions must not be isolated. Transactions must be habitual like in the Mentholatum case. In the Amsterdam case where a foreign shipping company it has a vessel which roam around going to places where they can find cargo and they just pass by here in 1963, the court said that it is an isolated transaction and not doing business here. In one case, a foreign corporation bought copra, seller failed to deliver and they negotiated and they agreed to give him more time still he failed to deliver then they negotiated again and he was given more time still he failed to deliver and finally the foreign corporation filed suit, the seller claimed doing business without a license, the SC said no that is an isolated transaction. The better rule(according to Jack) is that that is buying that is not doing business you do not make profit from buying that is settled in American jurisprudence. You make profit from selling not from buying. In the Hang lung bank case, the SC said that it is not doing business here so it can sue. However, an isolated transaction which indicates an intention to habitually do business may constitute doing business. If the foreign corporation leased space for example at the Luneta Hotel and they sent their officers here. There was indication of their intention to do business.

What constitutes doing business in the Philippines for foreign corporations? • Under the continuity test, doing business implies a continuity of commercial dealings and arrangements, and contemplates to some extent the performance of acts or works or the exercise of some functions normally incident to and in progressive prosecution of, the purpose and object of its organization. • Under the substance test, a foreign corporation is doing business in the country if it is continuing the body or substance of the enterprise of business for which it was organized. (JRS at 315) How do we determine whether a foreign corp is doing business in the Philippines? (Based on Justice Aquino’s outline) • There is no general rule or governing principle that holds for the determination of whether or not a foreign juridical entity is doing business in the Philippines to enable our court to acquire jurisdiction over it. When such foreign corporation however participates in a bidding process, its mere participation manifests an intention to engage in business in

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under oath and, unless already stated in its articles of incorporation, shall specifically set forth the following: 1. The date and term of incorporation; 2. The address, including the street number, of the principal office of the corporation in the country or state of incorporation; 3. The name and address of its resident agent authorized to accept summons and process in all legal proceedings and, pending the establishment of a local office, all notices affecting the corporation; 4. The place in the Philippines where the corporation intends to operate; 5. The specific purpose or purposes which the corporation intends to pursue in the transaction of its business in the Philippines: Provided, That said purpose or purposes are those specifically stated in the certificate of authority issued by the appropriate government agency; 6. The names and addresses of the present directors and officers of the corporation; 7. A statement of its authorized capital stock and the aggregate number of shares which the corporation has authority to issue, itemized by classes, par value of shares, shares without par value, and series, if any; 8. A statement of its outstanding capital stock and the aggregate number of shares which the corporation has issued, itemized by classes, par value of shares, shares without par value, and series, if any; 9. A statement of the amount actually paid in; and 10. Such additional information as may be necessary or appropriate in order to enable the Securities and Exchange Commission to determine whether such corporation is entitled to a license to transact business in the Philippines, and to determine and assess the fees payable. Attached to the application for license shall be a duly executed certificate under oath by the authorized official or officials of the jurisdiction of its incorporation, attesting to the fact that the laws of

the Philippines, therefore participating in the bidding process is “doing business” in this jurisdiction. More directly put, when a foreign corporation performs acts for which it was created, regardless of volume, it is doing business. (European Resources v. Ingenieuburo Birkahn, 2004) Does an “isolated transaction” by a foreign corporation qualify as “doing business” in the Philippines? • It depends. If a single or isolated transaction is incidental and casual transaction, it cannot qualify as “doing business” since it lacks the element of CONTINUITY. However, where a single or isolated transaction is not merely incidental or casual but indicates the foreign corporation’s intention to do other business in the Philippines, said single act or transaction constitutes “doing business” in the Philippines. (JRS at 315)

16.2 Requirements for the establishment of a branch (Section 123)
Sec. 123. Definition and rights of foreign corporations For the purposes of this Code, a foreign corporation is one formed, organized or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state. It shall have the right to transact business in the Philippines after it shall have obtained a license to transact business in this country in accordance with this Code and a certificate of authority from the appropriate government agency. (n)

(a) Documentary Requirements (Section 125)
Sec. 125. Application for a license A foreign corporation applying for a license to transact business in the Philippines shall submit to the Securities and Exchange Commission a copy of its articles of incorporation and by-laws, certified in accordance with law, and their translation to an official language of the Philippines, if necessary. The application shall be

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Commission for the benefit of present and future creditors of the licensee in the Philippines, securities satisfactory to the Securities and Exchange Commission, consisting of bonds or other evidence of indebtedness of the Government of the Philippines, its political subdivisions and instrumentalities, or of government-owned or controlled corporations and entities, shares of stock in "registered enterprises" as this term is defined in Republic Act No. 5186, shares of stock in domestic corporations registered in the stock exchange, or shares of stock in domestic insurance companies and banks, or any combination of these kinds of securities, with an actual market value of at least one hundred thousand (P100,000.) pesos; Provided, however, That within six (6) months after each fiscal year of the licensee, the Securities and Exchange Commission shall require the licensee to deposit additional securities equivalent in actual market value to two (2%) percent of the amount by which the licensee's gross income for that fiscal year exceeds five million (P5,000,000.00) pesos. The Securities and Exchange Commission shall also require deposit of additional securities if the actual market value of the securities on deposit has decreased by at least ten (10%) percent of their actual market value at the time they were deposited. The Securities and Exchange Commission may at its discretion release part of the additional securities deposited with it if the gross income of the licensee has decreased, or if the actual market value of the total securities on deposit has increased, by more than ten (10%) percent of the actual market value of the securities at the time they were deposited. The Securities and Exchange Commission may, from time to time, allow the licensee to substitute other securities for those already on deposit as long as the licensee is solvent. Such licensee shall be entitled to collect the interest or dividends on the securities deposited. In the event the licensee ceases to do business in the Philippines, the securities deposited as aforesaid shall be returned, upon the licensee's application therefor and upon proof to the satisfaction of the Securities and Exchange Commission that the licensee has no liability to Philippine residents, including the Government of the Republic of the Philippines. (n)

the country or state of the applicant allow Filipino citizens and corporations to do business therein, and that the applicant is an existing corporation in good standing. If such certificate is in a foreign language, a translation thereof in English under oath of the translator shall be attached thereto. The application for a license to transact business in the Philippines shall likewise be accompanied by a statement under oath of the president or any other person authorized by the corporation, showing to the satisfaction of the Securities and Exchange Commission and other governmental agency in the proper cases that the applicant is solvent and in sound financial condition, and setting forth the assets and liabilities of the corporation as of the date not exceeding one (1) year immediately prior to the filing of the application. Foreign banking, financial and insurance corporations shall, in addition to the above requirements, comply with the provisions of existing laws applicable to them. In the case of all other foreign corporations, no application for license to transact business in the Philippines shall be accepted by the Securities and Exchange Commission without previous authority from the appropriate government agency, whenever required by law. (68a)

(b) Deposit Requirement (Section 126)
Sec. 126. Issuance of a license If the Securities and Exchange Commission is satisfied that the applicant has complied with all the requirements of this Code and other special laws, rules and regulations, the Commission shall issue a license to the applicant to transact business in the Philippines for the purpose or purposes specified in such license. Upon issuance of the license, such foreign corporation may commence to transact business in the Philippines and continue to do so for as long as it retains its authority to act as a corporation under the laws of the country or state of its incorporation, unless such license is sooner surrendered, revoked, suspended or annulled in accordance with this Code or other special laws. Within sixty (60) days after the issuance of the license to transact business in the Philippines, the license, except foreign banking or insurance corporation, shall deposit with the Securities and Exchange

(c) Appointment of resident agent (Section 128)
Sec. 128. Resident agent; service of process The Securities and Exchange Commission shall require as a

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Presidential Memorandum dated May 4. n. MANGUERA condition precedent to the issuance of the license to transact business in the Philippines by any foreign corporation that such corporation file with the Securities and Exchange Commission a written power of attorney designating some person who must be a resident of the Philippines. o. c. s. it shall be his or its duty to immediately notify in writing the Securities and Exchange Commission of the new address. service of any summons or other legal process may be made upon the Securities and Exchange Commission and that such service shall have the same force and effect as if made upon the duly-authorized officers of the corporation at its home office. u. Any such foreign corporation shall likewise execute and file with the Securities and Exchange Commission an agreement or stipulation. Sacrifice. then in any action or proceeding arising out of any business or transaction which occurred in the Philippines. Sec. the Commission shall. e.Practice of all professions a. Engineering Medicine and allied professions Accountancy Architecture Criminology Chemistry Customs Brokerage Environmental Planning Forestry Geology Interior Design Landscape Architecture Law Librarianship Marine Deck Officers Marine Engine Officers Master Plumbing Sugar Technology Social Work Teaching Agriculture I sweat. 2005. p. which are governed and regulated by the General Banking Law of 2000. All expenses incurred by the Commission for such service shall be paid in advance by the party at whose instance the service is made. XVI. b. h. on whom any summons and other legal processes may be served in all actions or other legal proceedings against such corporation. or shall be without any resident agent in the Philippines on whom any summons or other legal processes may be served. 389 dates Nov. r. List A List A. (72a. k. executed by the proper authorities of said corporation. d. in consideration of its being granted by the Securities and Exchange Commission a license to transact business in the Philippines. t. l. f." Whenever such service of summons or other process shall be made upon the Securities and Exchange Commission.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. Foreign ownership is limited by mandate of the Constitution and specific laws. and n) 16. and other laws administered by the BSP. that if at any time said corporation shall cease to transact business in the Philippines. within ten (10) days thereafter. In case of a change of address of the resident agent. 11 of the Constitution. 2004) The 6th Regular Foreign Investment Negative List took effect in January 8. j. No foreign equity 1. g. Excellence A-166 . Mass Media Except recording (Art. q. I bleed. in form and substance as follows: "The (name of foreign corporation) does hereby stipulate and agree. The sending of such copy by the Commission shall be necessary part of and shall complete such service. 1994) 2. The list does not include banking and other financial institutions.3 Permitted areas of investment (see Sixth Regular Foreign Investment Negative List (Lists A and B) annexed to EO No. and consenting that service upon such resident agent shall be admitted and held as valid as if served upon the duly authorized officers of the foreign corporation at its home office. m. i. I soar… Service. 30. transmit by mail a copy of such summons or other legal process to the corporation at its home or principal office.

Sec. Sec. Sec.Ownership. Utilization of Marine Resources in archipelagic waters. 1 of R.A. stockpiling. bays. lakes. repair. Advertising (Art. of the Constitution) 18. stockpiling and/or distribution of nuclear weapons (Art. MANGUERA v. and management of cockpits (Sec. Projects which are foreign funded or assisted or required to undergo international competitive bidding (Sec. Cooperatives (Ch III. 7 Constitution. Sec. XII Sec. XIV Sec. goods. Sec. Adjustment Companies (Sec. development. or municipal corporations (sec. I bleed. 27 of RA 8550) 25. XII Sec. 22 of CA 141. territorial sea. processing. 5 of RA 7183) Up to 20% Foreign Equity 12. chemical weapons and anti-personnel mines (various treaties to which the Philippines is signatory. radiological. and commodities to government owned or controlled corporation. I soar… Service. 5181) 3. except retailing or rice and corn and acquiring. Excellence A-167 . Contracts for construction of defense-related structures (Sec. 1 of Commonwealth Act No. 1 of CA 541) (Art. 4 of the Constitution) 21. XII. 4 of RA 9182) 8. Ownership of Private Lands (Art. Sec. 26. Art.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. Sacrifice. Private recruitment.Private Security Agencies (Sec. Fisheries a.500.Manufacture. company. 16 of CA 146) 20. Operation and management of public utilities (Art. rice and corn and the by-products thereof (Sec. and lagoons (Art. 2 [a] of RA 7718) 15. II Sec 8 of the Constitution) 10. whether for local or overseas employment (Art. 14. 27 of PD 442) Contracts for the construction and repair of locally funded public works (Sec. 1 of RA 5183) 23. XII. 630.2 Constitution Up to 40% Foreign Equity 17. Manufacture of firecrackers and other pyrotechnic devices (Sec. Manufacture. purchase. Project proponent and facility operator of a BOT Project requiring a public utilities franchise (Art. milling.Retail Trade Enterprises w/ a paid up capital of less than US $ 2. Exploration. and exclusive economic zone as well as small scale utilization of natural resources in rivers. XII. Section 14 of the Constitution. utilization of natural resources (Art. and conventions supported by the Philippines) 11. Culture. 5 of PD 499) 9. XVI. except: I sweat. trading. Contracts for the supply of materials. or otherwise.Small Scale Mining (Sec. 11 Constitution. Infrastructure / development projects covered in RA 7718. Sec. 4. by barter. 5 of RA 8762 4. and/or distribution of biological. XII Sec. LOI No. 15 of RA 8762) 22. Ch. 11 Constitution) 7. and b. operation. Ownership / establishment and administration of educational institutions (Art. 323 of PD 612 as amended by PD Up to 25% Foreign Equity 13. 541. 5 of PD 194. Sec. production. RA 7076) Up to 30% Foreign Equity 16. No. 5 Sec. Sec. 11 Constitution. Operation of deep-sea commercial fishing vessels (Sec. 2[a] of RA 7718) 24. agency. RA 5487) 6.00. repair. RA 6938) 5. 3. Private radio communications network (RA 3846) 19.

I bleed.Domestic market enterprises which involve advanced technology or employ at least 50 direct employees with paid in equity capital of less than the equivalent of US $ 100. risk of health. MANGUERA g.Manufacture. 6 RA 5980 as amended by RA 8556) 28. b. Sacrifice. and accessories Armament training devices Others as may be determined by the Secretary of the DND However. However. d. 5 of PD 129 as amended by RA 8366) List B List B: Foreign ownership is limited for reasons of security. f. sniper scope.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. Investment houses regulated by the SEC (Sec. massage clinics and other like activities regulated by law because of risks posed to the public health and morals (RA 7042 as amended by RA 8179) 5. e. l. components.Manufacture and distribution of dangerous drugs (RA 7042 as amended by RA 8179) 4. is exported.Domestic market enterprises with paid in equity capital of less than the equivalent of US $ 200. 129. parts and components thereof Space vehicles and component systems 16. c. storage. naval) and auxiliaries Weapons repair and maintenance equipment Military communications and equipment Night vision and equipment Simulated content radiation devices. and/or distribution of products and/or ingredients requiring PNP clearance Telescopic sights. and morals. Provided further that the extent of foreign equity ownership allowed shall be specified in the said authority / clearance (RA 7042 as amended by RA 8179) 2.Manufacture. and protection of small and medium scale enterprises Up to 40% Foreign Equity 1. grenades.Sauna and steam bathhouses. repair. bombs. Excellence A-168 . the manufacture or repair of these items may be authorized by the Secretary of the DND to nonPhilippine nationals. and fire control systems and components Guided missiles systems and components Tactical aircraft (fixed and rotary winged). as determined by the said agency. m. Financing Companies regulated by the SEC (Sec. repair. h. storage. i. I soar… Service. defense. i. 5 of RA 4726) Up to 60% Foreign Equity 27. provided that a substantial percentage of the output. Guns and ammunition for warfare Military ordinance and parts thereof (torpedoes. k. bombing. and/or distribution of products requiring Department of National Defense (DND) clearance: a. missiles) Gunnery.e.4 Laws applicable to foreign corporations licensed to transact business in the Philippines (Section 129) Sec. race track operation (RA 7042 as amended by RA 8179) 6. depth charges. Law applicable I sweat. Ownership of condominium units where the common areas in the condominium project are co-owned by the owners of the separate units or owned by a corporation (Sec.000 (RA 7042 as amended by RA 8179) 7. provided that a substantial percentage of the output as determined by the said agency is exported.All forms of gambling. j. Combat vessels (air. the manufacture or repair of these items may be authorized by the Chief of the PNP to non-Philippine nationals.000 (RA 7042 as amended by RA 8179) 1814) 26. Provided further that the extent of the foreign equity ownership allowed shall be specified in the said authority/clearance (RA 7042 as amended by RA 8179) 3. and other similar devices. land.

organization or dissolution of corporations or those which fix the relations. This is limited to Filipino citizens save in cases prescribed by law 2. 1998) 6. or its successors or assigns.000 (Sec. I bleed.500. 193 s. The SC had said that if a foreign corporation is doing business here without a license. Doing business without a license in the No foreign corporation transacting business in the Philippines without a license. or duties of stockholders. 1979) 16. if the foreign corporation not doing business can sue. on isolated transactions Jack’s Lecture If a foreign corporation is being sued. XII Sec. a contract it entered into is valid. it is not rendered void so the court said the legislature made a judgment call that imposing penal sanctions and denying access to the courts are sufficient penalties for doing business without a license.000.5 Consequences of doing business Philippines without a license (Section 133) Sec. MANGUERA laws. Sacrifice. Full foreign participation is allowed provided that within the 30 year period from start of operation. Full foreign participation is allowed for retail trade enterprises: (a) with paid-up capital of US $ 2. Excellence A-169 . 5 of RA 8762) 3. liabilities. Domestic investments are also prohibited (Art. but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine I sweat. Full foreign participation is allowed through financial or technical assistance agreement w/ the President (Art. rules and regulations applicable to domestic corporations of the same class. provided that the paidup capital per store is not less than US $ 250.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. (69a) Any foreign corporation lawfully doing business in the Philippines shall be bound by all laws. Conventions & Treaties to w/c the Philippines is signatory 4. In the farm machinery case. I soar… Service. members. responsibilities. or (b) specializing in high end or luxury products. or officers of corporations to each other or to the corporation. No foreign national may be allowed to own stock financing companies or investment houses unless the country of which he is a national accords the same reciprocal rights to Filipinos (Sec. 6 of RA 5980 as amended by RA 8556. 2 Constitution) 5. shall be permitted to maintain or intervene in any action. PD 129 as amended by RA 8366) Suability of Foreign Corporations: (CLV’s CLR at 947) Doing business in the Philippines with a license Doing business in the Philippines without license Not doing business in the Philippines. II Sec. (73a) UP Class Notes 1.000 or more provided that investments for establishing a store is not less than US $ 830. Section 133 says that if the foreign corporation will be doing business without a license it cannot sue or intervene in any action in court or administrative agency. the court made an obiter dictum that a foreign corporation not doing business can be sued. 5 PD 194. NFA Council Resolution No. 8 Constitution. dela Osa. the reasoning of Justice Makasiar. except such only as provide for the creation. the summons must be served on the resident agent. 133. then it should also be allowed to be sued is wrong because that will violate due process because it has no presence here. Although the foreign corporation did not have license to do business when it entered into in that contract. The corporation is also required to file with the SEC a power of attorney or resolution which says that if it has no resident agent it agrees that the summons be served with the SEC which will forward the summons and the complaint to the foreign corporation. The legislature did not provide that the contract it entered into is void. Our courts cannot acquire jurisdiction over it. The May sue and can be sued in the Philippines Cannot sue. formation. If a foreign corporation is not doing business it can sue because it is not required to get a license but it can not be sued because it has no presence here it will violate due process. the foreign investor shall divest a minimum of 60% of their equity to Filipino citizens (Sec. If no resident agent and any officer who will be in the Philippines may be served with summons. but may be sued in the Philippines May sue May be sued (Facilities Mgt v. it could sue if later on it acquired a license to do business. suit or proceeding in any court or administrative agency of the Philippines.

(Section 160 RA 8293) (Handbook of Conflict of Laws at 148) 16. a copy of the articles of merger or consolidation duly authenticated by the proper official or officials of the country or state under the laws of which merger or consolidation was effected: Provided. Other than in cases of isolated transactions. MANGUERA Whenever a foreign corporation authorized to transact business in the Philippines shall be a party to a merger or consolidation in its home country or state as permitted by the law of its incorporation. affidavit or other document submitted by such corporation pursuant to this Title. however.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. In the case of a foreign corporation it must show it is either not doing business or it doing business and it is licensed. the court said that if a foreign corporation is doing business without a license. Except in two cases. Revocation of license Without prejudice to other grounds provided by special laws. in the Merrill Lynch case. 134. file with the Securities and Exchange Commission. 4. the law says that if it is doing business but it has no license it cannot sue. A misrepresentation of any material matter in any application. I soar… Service. (n) remedy is to make the action an action quasi in rem you attach its property serve it summons. he will be in estoppel having benefited from the contract. I bleed. unfair competition or false description of products and infringement of patent. 3. 5. such foreign corporation shall. the license of a foreign corporation to transact business in the Philippines may be revoked or suspended by the Securities and Exchange Commission upon any of the following grounds: 1.7 Revocation of license and issuance of certificate of revocation (Section 134 and 135) Sec. it the other party was aware of it. may a foreign corporation not doing business in the Philippines sue? Yes • To protect its reputation. However. That if the absorbed corporation is the foreign corporation doing business in the Philippines. 132. it can not claim that the plaintiff cannot sue. 2. If a foreign corporation is suing it must alleged either that it is not doing business or it is doing business but it is licensed because a plaintiff must indicate in the complaint that it has the legal capacity to sue. after change of its resident agent or of his address. Failure to appoint and maintain a resident agent in the Philippines as required by this Title. within sixty (60) days after such merger or consolidation becomes effective. Excellence A-170 . the latter shall at the same time file a petition for withdrawal of it license in accordance with this Title. That the requirements on merger or consolidation as provided in this Code are followed. Sacrifice. report.6 Merger or consolidation involving licensed foreign corporation (Section 132) Sec. the SC has followed this most of the subsequent cases. If the corporation is doing business whether or not it is licensed it can be sued. Failure. to submit to the Securities and Exchange Commission a statement of such change as required by this Title. 16. Failure to submit to the Securities and Exchange Commission an authenticated copy of any amendment to its articles of incorporation or by-laws or of any articles of merger or consolidation within the time prescribed by this Title. corporate name and goodwill (Sec 3 of RA 8293) • For infringement of trademark or trade-name. Failure to file its annual report or pay any fees as required by this Code. and in proper cases with the appropriate government agency. I sweat. Merger or consolidation involving a foreign corporation licensed in the Philippines One or more foreign corporations authorized to transact business in the Philippines may merge or consolidate with any domestic corporation or corporations if such is permitted under Philippine laws and by the law of its incorporation: Provided.

MANGUERA 3. Excellence then. if any. 6. 8. but a habit. assessments. I soar… Service. Sacrifice. All taxes. Excellence A-171 . The Securities and Exchange Commission shall also mail to the corporation at its registered office in the Philippines a notice of such revocation accompanied by a copy of the certificate of revocation. No certificate of withdrawal shall be issued by the Securities and Exchange Commission unless all the following requirements are met. 136. and The secret of living a life of excellence is merely a matter of thinking thoughts of excellence -Living Above Mediocrity Excellence is Being -Marsius Tigris I sweat. a foreign corporation licensed to transact business in the Philippines may be allowed to withdraw from the Philippines by filing a petition for withdrawal of license. All claims which have accrued in the Philippines have been paid.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. is not an act. 135. (n) Sec. furnishing a copy thereof to the appropriate government agency in the proper cases. 1. (n) We are what we repeatedly do. Withdrawal of foreign corporations Subject to existing laws and regulations. and penalties. Transacting business in the Philippines as agent of or acting for and in behalf of any foreign corporation or entity not duly licensed to do business in the Philippines. I bleed. Failure to pay any and all taxes.8 Withdrawal of foreign corporation (Section 136) Sec. compromised or settled. if any. imposts. 7. Issuance of certificate of revocation Upon the revocation of any such license to transact business in the Philippines. -Aristotle 16. Transacting business in the Philippines outside of the purpose or purposes for which such corporation is authorized under its license. assessments or penalties. imposts. 2. Any other ground as would render it unfit to transact business in the Philippines. lawfully due to the Philippine Government or any of its agencies or political subdivisions have been paid. lawfully due to the Philippine Government or any of its agencies or political subdivisions. The petition for withdrawal of license has been published once a week for three (3) consecutive weeks in a newspaper of general circulation in the Philippines. the Securities and Exchange Commission shall issue a corresponding certificate of revocation. or 9.

I bleed.FRATERNAL ORDER SCHOOL OF LAW OF ATENEO DE MANILA UNIVERSITY UTOPIA ARIS S. MANGUERA I sweat. Sacrifice. I soar… Service. Excellence A-172 .

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