FEU INSTITUTE OF LAW RULES AND INSTRUCTIONS FOR CORPORATE LAW CLASSES [2nv Semester, SY 2017-2018] These Rules shall be effective on Wednesday, 24 January 2018. Recitation and lecture on subject proper start also on 24 January 2018. The Course Outline (with Case Lists) of Dean Cesar L. Villanueva will be used during the entire semester. While it is not mandatory, you may use Dean Villanueva's Philippine Corporate Law for reference Bases for Computing Final Grades in the Course Recitation 40% Mid-Term Examination 20% Finai Examination 40% 100% Rules on Recitation a. The class cards are shuffled at the beginning of each class and sometimes during the session. b. If you are called and you are absent, you will receive a grade of 65% for that supposed recitation c. The only accepted excuse to remove a 65% recitation grade is illness to be evidenced by a valid medical certificate, and shall be accepted a maximum of two (2) instances during the entire semester. For other valid instances, the same should be covered by written explanations, and shall be considered on their individual merits. Such excuses to be valid must be submitted immediately at the next meeting after the absence; otherwise, such excuses shall receive no consideration at atl d. As a general rule, names, dates and places are not important in reciting the facts and law of cases assigned, but more importantly the rationale and the principles behind the law and ruling bear more weight. Present a simple story in class before tackling the legal issues. Facts and law relating to other disciplines of law, such as remedial law, except when necessary to understand Corporate Law principles, should not even be discussed during recitations. e. You are encouraged to ask questions in class. You may also write down queries and place them on the desk at the start of the session. There is no such thing as a stupid questionATENEO pe Mania LAW SCHOOL 2nv Semester, SY 2017-2018, DEAN CESAR L. VILLANUEVA OUTLINE IN PHILIPPINE Bese OE VIG UHOFILENA CORPORATE LAW' Arty. TERESA V. TIANSAY 1. xHISTORICAL BACKGROUND 1, Sociedades Anénimas under the Spanish Code of Con Sociedades andnimas were introduced in our jurisdiction in December 1888 with the extension to Philippine territorial application of Articles 151 to 189 of the Spanish Code of Cammerce. which constituted the juridical entities with features of limited Jiabilty and centralized management, but they were more similar to the English joint stock companies than the modern corporations Benguet Consolidated Mining Co. v. Pineda, 98 Phil. 711 (1956 A sociedad andnima was considered a commercial partnership “where upon the execution of the public Instrument in whieh its articles of agreement appear, and the contribution of funcs and personal property becomes a juridical person—an arificial being, invisible, intangible, and existing only in contemplation of law—with power to hold, buy. and sell properly, and to sue and be sued—a corporation—not a general partnership ror a limited partnership... The inscribing of its articles of agreement in the commercial fegisler was not necessary to make it @ Juridical person, such inscription only operated to show that st partook of the form of a commercial corporation” Mead v. McCullough, 21 Phil 95 (1917 2. Philippine Corporate Law:’ A Sort-of-Codification of American Corporate Law When attention was drawn to the fact that there was no entity in Spanish law corresponding 10 the notion of the American “corporation”, the Philippine Commission enacted the Corporation Law (Act N: 4458), to introduce the American corporation as the standard commercial entity in tne Phiippines and to hasten the day when the Spanish sociedad anénima would become odsalete. The statute 1s a sort-o! codification of American Corporate Law. Harden v. Bengue! Consolidated Ming, 58 Phil 141 (1933) ‘The Corporation Law recognized the difference between sociedades andnimas and corporations and the Court refused to apply legal provisions pertaining to the letter to the former Phil Product Cov Primatena Societe Anonyme, 15 SCRA 301 (1385) ‘The Corporation Law as the first corporate statule became effective on 01 Apri 1905. It had piece-meal ‘amendments during its 74-year history, but became antiquated and un-adapted to the changing times, 3. The Corporation Code of the Philippines (Batas Pambansa Bilang 68) ‘The current Corporation Code, which took effect on 01 May 1980, adopted various corporate d enunciated by the Supreme Court under the old Corporation Law, clanified the obligations of corporate directors and officers; expressed in stalutory language established principles and doctrines. and provided for & chapter on close corporations.» Proper Treatment of Philippine Corporate Law ‘Allhough we have a Corporation Code that provides for statutory principles, since Philippine Corpor {aw comes from the U.S. common law system, then Philippine Corporate Law is essentially, and continues to be. a common law system and subject to developments in commercial developments, much of which can be expected to happen in the world of commerce, and some expressed jurisprudential rules that apply ‘and adopt corparate principles into the changing cancepts and inrastructure of the commercial wor'd ui, CONCEPTS 1, Definition of "Corporation’ (Sec. 2) ‘A corperation is an artficial being created by operation of law. invested by law upon coming into existence with a personality separate and distinct fram the persons composing il, ard from any other legal entity to which it may be related. PNB v. Andrada Electac @ Engineering Co. 381 SCRA 244 (2002) * 2, FOUR CORPORATE ATTRIBUTES BASED ON SECTION 2. An Artificial Being: “It has jundical capacity to contract and enter into legat retationships A Creature of the Law: “Its created by operation of jaw and not by mere agreement A Strong Juridical Personality. “It has a right of succession, A Creature of Limited Powers. “il has only such powers, aitnbutes and proper expressly authorized by law or incident fo ts existence as are |A corporation has no powers except for thase which are expressly conferred an it by the Corporation Code and those found in its charler, and are implied by or are incidental to ils existence, It exercises its nose neatedethersise a4 olrences fe secs pata to the Corporation Cade ol the Phipps. ARSE Ge ooy of attooyy ane jrepracena les prtawng fo cofporahons i eeted 10 a8 “CopO” statute knoan as "The Cotparation Law” oF Act Na 145 fee LObCH W Cones ab SCRA 714 (2005). EDS Stange La Mote ud Resorts ¥ nee lingposay 440 SORA4K2 201K 35 2008)powers through its Board of Directors andor its duly authorized officers and agents Pascua! and Santos Ing. v. The Members of the Tramo Wakas Neighborhood Assn. Inc , 442 SCRA 436 (2004), 3. “TRI-LEVEL EXISTENCE” IN THE CORPORATE SETTING: a. “ASSETS-ONLY" LeveL: "The corporation is an aggregation of Assets and resources b. “BUSINESS ENTERPRISE” LEVEL: "The corporation's primary purpose is fo pursue business ¢. “JuRioicat Enriry” LeveL: "The corporation is a medium of pursuing a business enterprise 4, “TRELEVEL RELATIONSHIPS" IN THE CORPORATE SETTING: a. “JURIDICAL ENTITY" LEVEL, tieals of the aspects of the Stale-corporation relationshio, b. «inrea-CorPoraTe” Level, considers that four (4) "corporate contractual relationships", thus ‘+ Between the corporation and iis agents/representalives to act in the real world, je, directors and officers, which is governed aiso by the Law on Agency + Between the corporation and its shareholders or members + Between the shareholders and the corporate directors, trustees and officers + Between and among the shareholders or members in common venture c. “Exrea-Conrorare” LEVEL, views the relationship betwoen the corporation and “outsiders”, thus + Between the corporation and its employees, governed by Labor Laws + Between the corporation and those it contracts with, governed by Contract Laws: + Between the corporation and the public affected by its enterprise. governed essentially by Law on Torts or QuastDeiicts, 5, THEORIES ON THE FORMATION OF CORPORATIONS a. Theory of Concession: A cotporation’s claim of a juridical personality of its own and to transact business as such, is not a matter of absolute right, but @ privilege which may be enjoyed only under such terms as the State may ‘ceem necessary to impose. cf. Ang Pue & Co. v See. of Commerce & Industry, § SCRA 645 (1962) “There is thus a rejection of Gierke's genossenchalt theory. the basic theme of which ‘is the reality of the group 2s a social and legal entity, independent of stale recognition and concession’ A corporation as known to Philippine jurisprudence is a creature wthout any existence unlllt has received the imprimatur of the state acting according to faw. It 1s logically inconceivable therefore that it will have rights ang privileges of a higher prionty than that of its creater. More than that, it cannot legitimately refuse to yield obedience tr acts of is state organs, certainly not excluding the judiciary, whenever called upon to do so. ¥ Tayag « Benguet Consolidated, 26 SCRA 242 (1968) All corporations, big or small, must abide by the provisions of the Corporation Code: even a simple family corporation cannot claim an exemption nor can it have rules and practices other than those established by law. Torres v. Court of Appeais, 278 SCRA 793 (1997) itis a basic postulate that before a carporation may acquite juridical personality, the Stale must give its consent either in the form of a special law or a general enabling act.” and the procedure and conditions provided under the law for the acquisition af such juridical personality must be complied with. Allsough the Slalulory grant fo an association of the powers to purchase, sell, ease and encumber properly can only be construed the grant of a juridical personality to such an association. nevertheless. the failure to comply with the statutory procedure and conditions does not warrant a finding that such association acquired a jurdical personality, even when it adopts constitution and by-laws int’! Express Travel & Tour Services, Inc. v. Court of Appeals, 343 SCRA 674 (2000) b. Theory of Enterprise Entity: “BERLE, 47 Cotumain Law Rev. 243 (1947) ‘A-corporation is but an association of individuals, allowed to transact business under a corporate nam wth a distinct legal personality In organizing itself as a collective body. it waves no constitutional immunities and perquisites appropriate to such a body. PSE v. Court of Appeals 281 SCRA 232 (1997) Corporations are composed of natural persons and their separate corporate personality is no shield for the commission of injustice and inequity, such as io avoid the execution of the property of a siste company. Tan Boon Bee & Co. v. Jarencio, 163 SCRA 205 (1988)