F. AS TO EXISTENCE OF SHARES (SECS.
3 AND 5 OF THE CORPORATION CODE) or
Sec. 3 Classes of Corporation – Corporations formed or organized under
this Code may be stock or non-stock corporations. 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. All other corporations
are non-stock corporations.
Sec. 5 Corporations and incorporators, stockholders and members –
Corporators are those who compose a corporation, whether as stockholders
or as members. Incorporators are those stockholders or members mentioned
in the articles of incorporation as originally forming and composing the
corporation and who are signatories thereof.
- STOCK
- NON-STOCK (SECTIONS 87 AND 88 OF THE CORPORATION CODE)
CIR V. CLUB FILIPINO 5 SCRA 321 (1962)
Corporators in a non-stock corporation are called stockholders or
shareholders. Corporators in a non-stock corporation are called members.
(a) Stock Corporation
(b) Non-Stock Corporation
a. stock corporation – a corporation which has capital stock divided into shares and
is authorized to distribute to holders of such shares, dividends or allotments of the
surplus profits on the basis of the shares held (Sec. 3); or
For a stock corporation to exist, the above requisites must be complied with for even
if there is a statement of capital stock, the corporation is still not a stock corporation if
dividends are not supposed to be declared, i.e. there is no distribution of retained
earning (CIR vs. Club Filipino, Inc. de Cebu, 5 SCRA 321).
b. non-stock corporation – a corporation which does not issue stocks nor distribute
dividends to their members (Sec. 87).
As to laws of incorporation:
c. domestic corporation – corporation formed, organized or existing under Philippine laws;
d. foreign corporation – a corporation formed, organized or existing under any laws
other than those of the Philippines and whose laws allow Filipino citizens and
corporation to do business in its own country or state.
As to whether they are open to the public or not:
e. open – one which is open to any person who may wish to become a stockholder or
member thereto; or
f. close - those whose shares of stock are held by limited number of persons like the
family or other closely-knit group (The Corporation Code of the Philippines, Hector
S. De Leon & Hector M. De Leon, Jr., 2006 ed.)
COLLECTOR OF INTERNAL REVENUE vs. CLUB FILIPINO, INC. DE CEBU
G.R. No. L-12719 [5 SCRA 321]
May 31, 1962
FACTS:
Club Filipino, Inc. de Cebu is a civic corporation with an original authorized capital stock of
P22,000.00, which was subsequently increased to P200,000.00, among others, to it “provide,
operate, and maintain x x x all sorts of games not prohibited under general laws and general
ordinances; and develop and cultivate sports of every kind and any denomination for recreation and
healthy training of its members and shareholders.”
The Club owns and operates a club house, a bowling alley, a golf course, and a bar-restaurant for its
members and their guests, which was a necessary incident to the operation of the club. The club is
operated mainly with funds derived from membership fees and dues.
As a result of a capital surplus, arising from the increased value due to the revaluation of its real
properties, the Club declared stock dividends; but no actual cash dividends were distributed to the
stockholders.
A BIR agent discovered that the Club has never paid percentage tax on the gross receipts of its bar
and restaurant. The Collector of Internal Revenue assessed against and demanded from the Club
the unpaid percentage tax on the gross receipts plus surcharges. The Club requested for the
cancellation of the assessment. The request having been denied, the Club filed the instant petition
for review.
ISSUE:
Whether or not Club Filipino is a stock corporation.
1
HELD:
NO. It is a non-stock corporation.
The fact that the capital stock of the respondent Club is divided into shares does not detract from the
finding of the trial court that it is not engaged in the business of operator of bar and restaurant. What
is determinative of whether or not the Club is engaged in such business is its object or purpose, as
stated in its articles and by-laws. It is a familiar rule that the actual purpose is not controlled by the
corporate form or by the commercial aspect of the business prosecuted, but may be shown by
extrinsic evidence, including the by-laws and the method of operation. From the extrinsic evidence
adduced, the Tax Court concluded that the Club is not engaged in the business as a barkeeper and
restaurateur.
Moreover, for a stock corporation to exist, two requisites must be complied with, to wit: (1) a capital
stock divided into shares and (2) an authority to distribute to the holders of such shares, dividends or
allotments of the surplus profits on the basis of the shares held (sec. 3, Act No. 1459). In the case at
bar, nowhere in its articles of incorporation or by-laws could be found an authority for the distribution
of its dividends or surplus profits. Strictly speaking, it cannot, therefore, be considered a stock
corporation, within the contemplation of the corporation law.
G.R. No. L-12719 May 31, 1962
THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
THE CLUB FILIPINO, INC. DE CEBU, respondent.
FACTS: The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased
from the government), and a bar-restaurant where it sells wines and liquors, soft drinks, meals and
short orders to its members and their guests. The bar-restaurant was a necessary incident to the
operation of the club and its golf-course. The club is operated mainly with funds derived from
membership fees and dues. Whatever profits it had, were used to defray its overhead expenses and
to improve its golf-course. In 1951. as a result of a capital surplus, arising from the re-valuation of its
real properties, the value or price of which increased, the Club declared stock dividends; but no
actual cash dividends were distributed to the stockholders. In 1952, a BIR agent discovered that the
Club has never paid percentage tax on the gross receipts of its bar and restaurant. CIR assessed
against and demanded from the Club taxes allegedly due.
ISSUE: WON Club Filipino is liable for the taxes (WON it is a stock corporation)
HELD: No (it is non-stock)
The Club was organized to develop and cultivate sports of all class and denomination for the
healthful recreation and entertainment of its stockholders and members. There was in fact, no cash
dividend distribution to its stockholders and whatever was derived on retail from its bar and
restaurants used were to defray its overhead expenses and to improve its golf course.
For a stock corporation to exist, 2 requisites must be complied with:
(1) A capital stock divided into shares
(2) An authority to distribute to the holders of such shares, dividends or allotments of the surplus
profits on the basis of shares
held.
In the case at bar, nowhere in the AOI or by-laws of Club Filipino could be found an authority for the
distribution of its dividends or surplus profits. Strictly speaking, it cannot, therefore, be considered a
stock corporation, within the contemplation of the corporation law.
The fact that the capital stock of the respondent Club is divided into shares, does not detract from the
finding of the trial court that it is not engaged in the business of operator of bar and restaurant. What
is determinative of whether or not the Club is engaged in such business is its object or purpose, as
stated in its articles and by-laws. It is a familiar rule that the actual purpose is not controlled by the
corporate form or by the commercial aspect of the business prosecuted, but may be shown by
extrinsic evidence, including the by-laws and the method of operation.
It is conceded that the Club derived profit from the operation of its bar and restaurant, but such fact
does not necessarily convert it into a profit-making enterprise. The bar and restaurant are necessary
adjuncts of the Club to foster its purposes and the profits derived therefrom are necessarily incidental
to the primary object of developing and cultivating sports for the healthful recreation and
entertainment of the stockholders and members. That a Club makes some profit, does not make it a
profit-making Club. As has been remarked a club should always strive, whenever possible, to have
surplus
G. AS TO RELATIONSHIP OF MANAGEMENT AND CONTROL
As to relationship of management and control:
1. holding corporation - it is one which controls another as a subsidiary by the power to
elect management. It is one that holds stocks in other companies for purposes of
control rather than for mere investment.
2. subsidiary corporation – one which is so related to another corporation that the
majority of its directors can be elected either directly or indirectly by such other
corporation. It is always controlled; or
3. affiliate – one related to another by owning or being owned by common management or
by a long-term lease of its properties or other control device. It may be the controlled
2
 or controlling corporation, or under common control; or to more than the maximum are invalid
5. Corporate actuations may be binding even without a formal board meeting, if
4. parent and subsidiary corporation – When a corporation has a controlling financial the stockholder had knowledge or ratified the informal action of the others
interest in one or more corporations , the one having control is the parent corporation, 6. Pre‐emptive right extends to all stock issues
and the others are the subsidiary corporations (Philippine Corporate Law, Cesar 7. Deadlock in board are settled by the SEC, on the written petition by any
Villanueva, 2001 ed.). stockholder
8. Stockholder may withdraw and avail of his right of appraisal

H. CLOSE CORORATION
Q: What cannot be a close corporation? A: MOSBI PEP
- DEFINITION (SECTION 96 OF THE CORPORATION CODE)

1. Mining companies
Q: What is a close corporation? 2. Oil companies
3. Stock exchanges
4. Banks
A: 5. Insurance companies
6. Public utility
1.Whose articles of incorporation provide that: 7. Educational institutions
a. All the corporation’s issued stock of all classes, exclusive of 8. Other corporation declared to be vested with Public interest. (Sec. 96)
treasury shares, shall be held of record by not more than a
specified number or persons not exceeding twenty (20);
b. All the issued stock of all classes shall be subject to one or Note: A “close corporation” is different from a “closed corporation” and a “closely held
more specified restrictions on transfer; corporation”.
c. The corporation shall not list in any stock exchange or make any
public offering of any of its stock of any class.
Whose stocks, at least 2/3 of the voting stocks or voting rights of which are owned or controlled
by another corporation which is a close corporation. - ARTICLES OF INCORPORATION REQUIREMENTS
o SECTION 97 OF THE CORPORATION CODE
Note: The Corporation is not a close corporation even if the shares belong to less than twenty if
not all the requisites are present. (San Juan Structural and Steel Fabricators, Inc. v. CA, G.R.
No. 129459, Sept. 29, 1998) AMENDMENT OF ARTICLES OF INCORPORATION
Procedure:
Q: What are the characteristics of a close corporation?

A:
1. Resolution by at least a majority of the board of directors or trustees;
2. Vote or written assent of the stockholders representing at least 2/3 of the outstanding
1. Stockholders may act as directors without need of election and therefore are capital stock s or 2/3 of the members in case of non-stock corporations.
liable as directors 3. Submission and filing with the SEC of:
2. Stockholders who are involved in the management of the corporation are the original and amended articles together containing all the provisions
liable in the same manner as directors are required by law to be set out in the articles of incorporation. Such articles, as
3. Quorum may be greater than mere majority amended, shall be indicated by underscoring the change or changes made;
4. Transfer of stocks to others, which would increase the number of stockholders a. a copy thereof, duly certified under oath by the corporate secretary and a majority of
3
 the directors or trustees stating the fact that such amendments have been duly
approved by the required vote of the stockholders or members; and
b. a favorable recommendation of the appropriate government agency concerned if
required by law.
Limitations:
1. The amendment of any provision or matters stated in the articles of incorporation is not
allowed when it will be contrary to the provisions or requirement prescribed by the Code or
by special law or changes any provision in the articles of incorporation stating an
accomplished fact;
2. It must be for legitimate purposes;
3. It must be approved by the required vote of the board of directors or trustees and the
stockholders or members;
4. The original articles and amended articles together must contain all provisions required by
law to be set out in the articles of incorporation;
5. Such articles, as amended, must be indicated by underscoring the changes made, and a
copy thereof duly certified under oath by the corporate secretary and a majority of the
directors or trustees stating that the amendments have been duly approved by the required
vote of the stockholders or members must be submitted to the SEC;
6. The amendments shall take effect only upon their approval by the SEC;
However, express approval is not indispensable. This is because the
amendment shall also take effect from the date of filing with the said
Commission if it is not acted upon by the Commission within 6 months from the
date of filing for a cause not attributable to the corporation.
7. If the corporation is governed by special law, the amendments must be accompanied by a
favorable recommendation of the appropriate government agency;
8. No right or remedy in favor of or against any corporation, its stockholders, members,
directors, trustees, or officers, nor any liability incurred by any such corporation,
stockholders, members, directors, trustees, or officers, 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 (Section 145 of the Corporation Code).
Facts not subject to amendments:
1. Names of incorporators;
2. Names of original subscribers to the capital stock of the corporation and their subscribed and
paid up capital;
3. Treasurer elected by the original subscribers;
4. Members who contributed to the initial capital of a non- stock corporation;
5. Date and place of execution of the articles of incorporation;
6. Witnesses to the signing and acknowledgment of the articles
Grounds for Rejection of the Articles of Incorporation or Amendment thereto (Sec. 17)
1. That the articles of incorporation or any amendment thereto is not substantially in
accordance with the form prescribed therein;
2. That the purpose or purposes of the corporation are patently unconstitutional, illegal,
immoral, or contrary to government rules and regulations;
That the Treasurer’s Affidavit concerning the amount of capital stock subscribed and/or
paid is false;
3. That the required 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.
 These grounds are not exclusive.
 Before rejecting the Articles of Incorporation or its amendments, the SEC should give
the incorporators reasonable time within which to correct or modify the objectionable
portions of the articles or amendments.
 Any decision of the Commission rejecting the articles of incorporation or disapproving any
amendment thereto is appealable by petition for review to the Court of Appeals in
accordance with the pertinent provisions of the Rules of Court.
 All the grounds enumerated in Section 17 can be determined on the basis of the Articles
of incorporation itself and the other required documents. Generally, if the Articles of
Incorporation and its supporting documents are in order, the SEC has no recourse but
to issue the Certificate of Incorporation (Philippine Corporate Law Compedium, Timoteo
Aquino, 2006 ed.).
- PRE-EMPTIVE RIGHTS (SECTION 102 OF THE CORPORATION CODE)
Q: What is the difference between pre‐emptive right in an ordinary corporation and in a
close corporation?
A: In an ordinary corporation, the pre‐emptive right extends only to new issues out of the
increased capital stock. In a close corporation, pre‐emptive right extends to all stock, including
treasury stock.
4
 - AMENDMENT (SECTION 103 OF THE CORPORATION CODE)
Q: Corporation A, a close corporation, amended its articles of incorporation and
removed the provision that all shares of stock, exclusive of treasury stock,
shall be held by a specified number of shareholders not exceeding 20.
What is the effect of such amendment to Corporation A?
A: It is a special feature of a close corporation that its shares of stock exclusive of treasury
shares shall be held by not more that 20 stock holders. The deletion of such special feature
would render Corporation A, no longer a close corporation.
Q: What is the required number of vote for the deletion of such special feature?
A: The amendment by deletion of said special feature and of the provision reducing a quorum or
voting requirements requires the vote of 2/3 of all outstanding shares, regardless of their
classifications, restrictions or voting rights. All other matters may be amended by an ordinary
vote by stockholders constituting a quorum.
- RESTRICTION ON TRANSFER OF SHARE
o SECTIONS 98 AND 99 OF THE CORPORATION CODE
Q: What are the conditions for validity of restrictions on transfer of
shares?
1. Such restrictions must appear in the AOI and in the by‐laws as well as
in the certificate of stock, otherwise they shall not be binding on any
purchaser thereof in good faith
2. They shall not be more onerous than granting the existing stockholders
or the corporations the option to purchase the shares of the
transferring stockholders with such reasonable terms, conditions, or
period stated therein
Note: Any transfer made should not result in exceeding the number of
stockholders as allowed by the Code.
Q: What is the nature of restrictions on transfer?
A: It is in the nature of a right of first refusal in favor of stockholders which can
be waived by the stockholder, if the latter fails to exercise the option to
purchase within the period stated in the articles and by‐laws.
- AGREEMENTS BY STOCKHOLDER
- NO NECESSITY OF BOARD (SECTION 101 OF THE CORPORATION CODE)
o DULAY ENTERPRISES INC. V. CA GR NO. 91889 (1993)
Q: What is the effect of unnecessary or improperly held board meeting?
A: Any action by the directors of a close corporation without a meeting shall be
valid if:
1. Before or after such action is taken, written consent is signed by all
the directors
2. All the stockholders have actual or implied knowledge of the action and
make no prompt objection
3. The directors are accustomed to take informal action with the express
or implied acquiescence of all the stockholders
4. All the directors have express or implied knowledge of the action in
question and make no prompt objection thereto.
Manuel R. Dulay Enterprises vs. Court of Appeals
[GR 91889, 27 August 1993]
Facts: Manuel R.Dulay Enterprises, Inc., a domestic corporation with the following as members of its
Board of Directors: Manuel R. Dulay with 19,960 shares and designated as president, treasurer and
general manager; Atty. Virgilio E. Dulay with 10 shares and designated as vice-president; Linda E.
Dulay with 10 shares; Celia Dulay-Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10 shares
and designated as secretary, owned a property covered by TCT 17880 4 and known as Dulay
Apartment consisting of 16 apartment units on a 689 square meter lot, more or less, located at
Seventh Street (now Buendia Extension) and F.B. Harrison Street, Pasay City. The corporation
through its president, Manuel Dulay, obtained various loans for the construction of its hotel project,
Dulay Continental Hotel (now Frederick Hotel). It even had to borrow money from Virgilio Dulay to be
able to continue the hotel project. As a result of said loan, Virgilio Dulay occupied one of the unit
apartments of the subject property since 1973 while at the same time managing the Dulay Apartment
as his shareholdings in the corporation was subsequently increased by his father.
On 23 December 1976, Manuel Dulay by virtue of Board Resolution 18 of the corporation sold the
subject property to spouses Maria Theresa and Castrense Veloso in the amount of P300,000.00 as
evidenced by the Deed of Absolute Sale. Thereafter, TCT 17880 was cancelled and TCT 23225 was
issued to Maria Theresa Veloso. Subsequently, Manuel Dulay and the spouses Veloso executed a
Memorandum to the Deed of Absolute Sale of 23 December 1976 dated 9 December 1977 giving
5
Manuel Dulay within 2 years or until 9 December 1979 to repurchase the subject property for
P200,000.00 which was, however, not annotated either in TCT 17880 or TCT 23225. On 24
December 1976, Maria Veloso, without the knowledge of Manuel Dulay, mortgaged the subject
property to Manuel A. Torres for a loan of P250,000.00 which was duly annotated as Entry 68139 in
TCT 23225. Upon the failure of Maria Veloso to pay Torres, the subject property was sold on 5 April
1978 to Torres as the highest bidder in an extrajudicial foreclosure sale as evidenced by the
Certificate of Sheriff's Sale issued on 20 April 1978.
On 20 July 1978, Maria Veloso executed a Deed of Absolute Assignment of the Right to Redeem in
favor of Manuel Dulay assigning her right to repurchase the subject property from Torres as a result
of the extrajudicial sale. As neither Maria Veloso nor her assignee Manuel Dulay was able to redeem
the subject property within the one year statutory period for redemption, Torres filed an Affidavit of
Consolidation of Ownership 13 with the Registry of Deeds of Pasay City and TCT 24799 was
subsequently issued to Torres on 23 April 1979. On 1 October 1979, Torres filed a petition for the
issuance of a writ of possession against spouses Veloso and Manuel Dulay in LRC Case 1742-P.
However, when Virgilio Dulay appeared in court to intervene in said case alleging that Manuel Dulay
was never authorized by the corporation to sell or mortgage the subject property, the trial court
ordered Torres to implead the corporation as an indispensable party but the latter moved for the
dismissal of his petition which was granted in an Order dated 8 April 1980. On 20 June 1980, Torres
and Edgardo Pabalan, real estate administrator of Torres, filed an action against the corporation,
Virgilio Dulay and Nepomuceno Redovan, a tenant of Dulay Apartment Unit No. 8-A for the recovery
of possession, sum of money and damages with preliminary injunction in Civil Case 8198-P with the
then Court of First Instance of Rizal.
On 21 July 1980, the corporation filed an action against spouses Veloso and Torres for the
cancellation of the Certificate of Sheriff's Sale and TCT 24799 in Civil Case 8278-P with the then
Court of First Instance of Rizal. On 29 January 1981, Pabalan and Torres filed an action against
spouses Florentino and Elvira Manalastas, a tenant of Dulay Apartment Unit No. 7-B, with the
corporation as intervenor for ejectment in Civil Case 38-81 with the Metropolitan Trial Court of Pasay
City which rendered a decision on 25 April 1985, in favor of Pabalan, et al., ordering the spouses
Manalastas and all persons claiming possession under them to vacate the premises; and to pay the
rents in the sum of P500.00 a month from May 1979 until they shall have vacated the premises with
interest at the legal rate; and to pay attorney's fees in the sum of P2,000.00 and P1,000.00 as other
expenses of litigation and for them to pay the costs of the suit.
Thereafter or on 17 May 1985, the corporation and Virgilio Dulay filed an action against the presiding
judge of the Metropolitan Trial Court of Pasay City, Pabalan and Torres for the annulment of said
decision with the Regional Trial Court of Pasay in Civil Case 2880-P. Thereafter, the 3 cases were
jointly tried and the trial court rendered a decision in favor of Pabalan and Torres. Not satisfied with
said decision, the corporation, et al. appealed to the Court of Appeals which rendered a decision on
23 October 1989, affirming the trial court decision. On 8 November 1989, the corporation, et al. filed
a Motion for Reconsideration which was denied on 26 January 1990. The corporation, et al. filed the
petition for review on certiorari. During the pendency of the petition, Torres died on 3 April 1991 as
shown in his death certificate and named Torres-Pabalan Realty & Development Corporation as his
heir in his holographic will dated 31 October 1986.
Issue: Whether the sale of the subject property between spouses Veloso and Manuel Dulay has no
binding effect on the corporation as Board Resolution 18 which authorized the sale of the subject
property was resolved without the approval of all the members of the board of directors and said
Board Resolution was prepared by a person not designated by the corporation to be its secretary.
Held: Section 101 of the Corporation Code of the Philippines provides that "When board meeting is
unnecessary or improperly held. Unless the by-laws 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, written consent thereto is signed by all the directors; or (2) All the stockholders have
actual or implied knowledge of the action and make no prompt objection thereto in writing; or (3) The
directors are accustomed to take informal action with the express or implied acquiesce of all the
stockholders; or (4) All the directors have express or implied knowledge of the action in question and
none of them makes prompt objection thereto in writing. If a directors' meeting is held without proper
call or notice, an action taken therein within the corporate powers is deemed ratified by a director
who failed to attend, unless he promptly files his written objection with the secretary of the
corporation after having knowledge thereof." Herein, the corporation is classified as a close
corporation and consequently a board resolution authorizing the sale or mortgage of the subject
property is not necessary to bind the corporation for the action of its president. At any rate, a
corporate action taken at a board meeting without proper call or notice in a close corporation is
deemed ratified by the absent director unless the latter promptly files his written objection with the
secretary of the corporation after having knowledge of the meeting which, in this case, Virgilio Dulay
failed to do. The corporation's claim that the sale of the subject property by its president, Manuel
Dulay, to spouses Veloso is null and void as the alleged Board Resolution 18 was passed without the
knowledge and consent of the other members of the board of directors cannot be sustained. Virgilio
E. Dulay's protestations of complete innocence to the effect that he never participated nor was even
aware of any meeting or resolution authorizing the mortgage or sale of the subject premises is
difficult to believe. On the contrary, he is very much privy to the transactions involved. To begin with,
he is an incorporator and one of the board of directors designated at the time of the organization of
Manuel R. Dulay Enterprises, Inc. In ordinary parlance, the said entity is loosely referred to as a
"family corporation." The nomenclature, if imprecise, however, fairly reflects the cohesiveness of a
group and the parochial instincts of the individual members of such an aggrupation of which Manuel
R. Dulay Enterprises, Inc. is typical: four-fifths of its incorporators being close relatives namely, 3
children and their father whose name identifies their corporation. Besides, the fact that Virgilio Dulay
on 24 June 1975 executed an affidavit that he was a signatory witness to the execution of the post-
dated Deed of Absolute Sale of the subject property in favor of Torres indicates that he was aware of
the transaction executed between his father and Torres and had, therefore, adequate knowledge
about the sale of the subject property to Torres. Consequently, the corporation is liable for the act of
Manuel Dulay and the sale of the subject property to Torres by Manuel Dulay is valid and binding.
6
 Manuel R. Dulay Enterprises vs. Court of Appeals
[GR 91889, 27 August 1993]
Facts:
 Manuel R. Dulay Enterprises, Inc, a domestic corporation obtained various loans for the
construction of its hotel project, Dulay Continental Hotel (now Frederick Hotel).
 Manuel Dulay by virtue of Board Resolution No 18 sold the subject property to spouses Maria
Theresa and Castrense Veloso.
 Maria Veloso (buyer), without the knowledge of Manuel Dulay, mortgaged the subject property
to private respondent Manuel A. Torres. #fluffypeaches Upon the failure of Maria Veloso to pay
Torres, the property was sold to Torres in an extrajudicial foreclosure sale.
 Torres filed an action against the corporation, Virgilio Dulay and against the tenants of the
apartment.
 RTC ordered the corporation and the tenants to vacate the building.
 Petitioners: RTC had acted with GAD when it applied the doctrine of piercing the veil of
corporate entity considering that the sale has no binding effect on corporation as Board
Resolution No. 18 which authorized the sale of the subject property was resolved without the
approval of all the members of the board of directors and said Board Resolution was
prepared by a person not designated by the corporation to be its secretary.
Issue:
· WON the sale to Veloso is valid notwithstanding that it was resolved without the approval of all the
members of the board of directors.
(YES)
Ruling
· Section 101 of the Corporation Code of the Philippines provides:
Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws 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, written consent thereto is signed by all the directors, or
2. All the stockholders have actual or implied knowledge of the action and make no prompt objection
thereto in writing; or
3. The directors are accustomed to take informal action with the express or implied acquiese of all
the stockholders, or
4. All the directors have express or implied knowledge of the action in question and none of them
makes prompt objection thereto in writing.
If a directors' meeting is held without call or notice, an action taken therein within the corporate
powers is deemed ratified by a director who failed to attend, unless he promptly files his written
objection with the secretary of the corporation after having knowledge thereof.
Dulay Inc. is classified as a close corporation and consequently a board resolution
authorizing the sale or mortgage is not necessary to bind the corporation for the action of its
president. #fluffypeaches At any rate, corporate actiontaken at a board meeting without proper call
or notice in a close corporation is deemed ratified by the absent director unless the latter
promptly files his written objection with the secretary of the corporation after having knowledge
of the meeting which, in his case, Virgilio Dulay failed to do.
· Although a corporation is an entity which has a personality distinct and separate from its individual
stockholders or members, the veil of corporate fiction may be pierced when it is used to defeat
public convenience justify wrong, protect fraud or defend crime.
- DEADLOCKS (SECTION 104 OF THE COROPORATION CODE)
Q: What is deadlock in a close corporation?
A: It is when the directors or stockholders are so divided respecting the management of the
business and affairs of the corporation that the votes required for any corporate action cannot be
obtained and as a result, business and affairs can no longer be conducted to the advantage of the
stockholders generally.
Q: What is the remedy in case of deadlocks in a close corporation?
A: The SEC may be asked to intervene and the SEC may perform such actions that may
be necessary under the circumstances including the appointment of a provisional
director who, as an impartial person will have all the powers of a duly elected director.
7
 - WITHDRAWAL DISSOLUTION (SECTION 105 OF THE CORPORATION CODE)
o FINANCING CORPORATION V. TEODORO 93 PHIL 678
Q: What is the order of distribution of assets on dissolution of non‐stock
corporations?
A:
1. All its creditors shall be paid
2. Assets held subject to return on dissolution, shall be delivered back to their
givers
3. Assets held for charitable, religious purposes, etc., without condition for their
return on dissolution, shall be conveyed to one or more organizations
engaged in similar activities as dissolved corporation;
4. All other assets shall be distributed to members, as provided for in the
Articles or by‐laws
5. In case of there is no provision in the AOI or by‐laws, distribution may be
made in accordance to a plan of distribution adopted by the board of trustees
by majority vote and by at least 2/3 of the members. (Sec. 94)
Q: Can a non‐stock corporation offset unused contributions of members against
the balance of receivables from the same members?
A: No. The unused contributions of members cannot be offset against the balance of
receivables because this would amount to distribution of the capital of the corporation.
Members of Non‐stock Corporation are not entitled to distribution of capital. They
are only entitled to distribution of capital upon dissolution when it is provided for in the
articles of incorporation or by‐laws. (SEC Opinion, Nov. 27, 1985)
FINANCING CORPORATION OF THE PHILIPPINES v. TEODORO
G.R. No. L-4900; August 31, 1953; Montemayor, J.
FACTS:
 Lizares et al., in their own behalf and in behalf of the other minority stockholders of the
Financing Corporation of the Philippines sued the Corporation and J Amado Araneta, its
President and GM, alleging gross mismanagement and fraudulent conduct of the corporate
affairs by Araneta and asking that (1) the corporation be dissolved, (2) Araneta be declared
personally accountable for the unauthorized and fraudulent disbursements of the corporate
assets and violations of the Corporation Law and the by-laws of the Corporation, and (3) the
best means to protect and preserve the assets of Corporation is the appointment of a receiver.
 Among the allegations specified in the complaint were:
1. wrongful and unauthorized diversion from corporate purposes and use for personal benefit;
2. unauthorized and profitless pledging of securities owned by Corporation to secure
obligations amounting to P588,645.34 of another corporation controlled by Araneta;
3. unauthorized and profitless using of the name of the Corporation in the shipping of sugar
belonging to other corporations controlled by Araneta to the benefit of said corporations in
the amount of at least P104,343.36;
4. refusal by Araneta to endorse to the Corporation shares of stock and other securities
belonging to it but which are still in his name;
5. negligent failure to endorse other shares of stock belonging to Corporation but still in the
names of the respective vendors; and
6. illegal and unauthorized transfer and deposit in the US of 6,426,281 shares of the Atok-Big
Wedge Mining Company;
7. refusal to allow minority stockholders to examine the books and records of the Corporation;
8. failure to call and hold stockholders' and directors' meetings;
9. virtual disregard and ignoring of the board of directors who has been and is conducting the
affairs of the Corporation under his absolute control and for his personal benefit and for the
benefit of the corporations controlled by him; and
10. irregularity in the keeping and errors and omissions in the books and failure of the same to
reflect the real and actual transactions of the Corporation.
 Judge Teodoro granted petition for appointment of a receiver (Yulo).
 The Corporation filed the present petition for certiorari with preliminary injunction to revoke and
set aside the order appointing a receiver, alleging that:
1. The appointment of a receiver was merely an auxiliary remedy;
2. The principal remedy sought by Lizares et al. was dissolution;
3. A suit for the dissolution of a corporation can be brought and maintained only by the
State through its legal counsel, and Lizares et al., much less the minority
shareholders, have no right or personality to maintain the action for dissolution.
4. Since the action cannot be maintained legally by Lizares et al., the auxiliary remedy of
appointment of a receiver has no basis.
 The lower court granted the writ of preliminary injunction upon the filing of a bond by the
Corporation.
ISSUE/HELD: WON the appointment of a receiver by the lower court was proper – YES.
PETITION DENIED. WRIT OF PRELIMINARY INJUCTION DISSOLVED.
RATIO:
8
 GENERAL RULE: Minority shareholders of a corporation cannot sue and demand dissolution in
a private suit. The action should be brought by the Government through its legal officer, via a
quo warranto proceeding.
o EXCEPTION: cases wherein the intervention of the State cannot be obtained because the
complaint is a matter strictly between the shareholders and the corporation and does not
involve issues which involve acts/omissions warranting a quo warranto.
o When such action is brought, the trial court has jurisdiction and has discretion to grant the
prayer or not. Having such jurisdiction, the appointment of a receiver pendente lite is left to
the sound discretion of the trial court.
The appointment of a receiver upon petition by the minority shareholders is a power that must be
exercised with great caution, and should be exercised when necessary to protect their rights,
especially when they cannot obtain redress through or within the corporation.
FINANCING CORP v. TEODORO
August 31, 1953
Montemayor, J
Luciano, Noel Christian O.
FINANCING CORPORATION OF THE PHILIPPINES and J. AMADO
ARANETA, petitioners,
vs.
HON. JOSE TEODORO, Judge of the Court of First Instance of Negros
Occidental, Branch II, and ENCARNACION LIZARES VDA. DE
PANLILIO, respondents.
SUMMARY: Three minority stockholders, in their own behalf and in behalf of other minority
stockholders of Financing Corp. of the Philippines, filed a complaint against the corporation and its
President and Gen. Manager, Amado Araneta, claiming gross mismanagement and fraudulent
conduct of corporate affairs. They prayed for the dissolution of the corporation and the appointment
of a receiver pendente lite. The trial court appointed a receiver despite strong objections from the
defendants. The Corporation and Araneta went to the SC on certiorari claiming that the minority
stockholders have no personality to maintain the action for dissolution since it can only be brought
by the Government via quo warranto; since the principal remedy has no basis, then it follows that
the auxiliary remedy of appointment of a receiver pendente lite must also be without basis.
The Supreme Court held that in cases like this, where the State has no interest since the acts
complained of does not constitute a proper quo warranto proceedings, stockholders may maintain
an action for dissolution. Thus, since the trial court had jurisdiction, the grant of the prayer for the
appointment of a receiver pendente lite is left to his sound discretion. The SC also held that from
the allegations of the complaint, the trial court did not abuse its discretion in appointing a receiver
pendente lite.
DOCTRINE: As a GENERAL RULE, minority stockholders CANNOT sue and demand a
corporation’s dissolution. Such action should be brought by the Government through its legal officer
in a quo warranto case, at their instance and request
However, there are cases that hold that such minority members, if unable to obtain redress
and protection of their rights within the corporation, must not and should not be left without redress
and remedy. THUS, there might be exceptional cases wherein the intervention of the State, for one
reason or another, cannot be obtained as when he State is not interested because the complaint is
strictly a matter between the stockholders and does not involve, in the opinion of the Government,
any of the acts/omissions warranting quo warranto proceedings. It is in these cases where minority
stockholders are entitled to have such dissolution
When such action or private suit is brought by them, trial court had jurisdiction and may or
may not grant the prayer; suubject to review by appellate tribunal. Having such jurisdiction, the
appointment of a receiver pendente lite is left to the sound discretion of the trial court.
FACTS: Asuncion Lopez Vda. De Lizares, Encarnacion Lizares Vda. De Panlilio, and Efigenia Vda.
De Paredes, in their own behalf, and in behalf of other MINORITY STOCKHOLDERS of Financing
Corporation Philippines (FCP), filed a complaint against the corporation and J. Amado Araneta (Pres.
And Manager) claiming Gross mismanagement and fraudulent conduct of corporate affairs. They are
seeking:
1. The dissolution of the corporation
2. That Araneta:
a. Be declared personally accountable for the amounts of the unauthorized and
fraudulent disbursements and disposition of assets made by him
(1) For the specific acts of fraud, see Ratio.
b. Be required to account for said assets
3. They also request that pending trial and disposition on the merits, a receiver be appointed
to take possession of the books, records, and assets of FCP preparatory to dissolution and
liquidation
RTC DECISION: (Not on the merits but on the appointment of receiver)
The trial court presided by Judge Teodoro granted the petition for appointment of receiver
and designated Alfredo Yulo as the receiver with a bond of P50,000.
It also denied the subsequent MR filed by defendants
PETITION BY FCP AND ARANETA: They filed a petition for certiorari with preliminary injunction to
revoke the RTC order. They argue:
1. The appointment is merely an auxiliary remedy
a. The principal remedy sought was the dissolution of the FCO
2. According to law, a suit for dissolution of a corporation can be brought and maintained only
by the State through its legal counsel
a. Respondents, being only minority stockholders, have no right or personality to
maintain the action for dissolution
3. Since there is no basis for the principal remedy sought, the auxiliary remedy must also fail.
9

ISSUE: Whether the minority stockholders have personality to maintain the action for dissolution.
HELD: YES! This case falls under the exception.
I. Concepts
A. As a GENERAL RULE, minority stockholders CANNOT sue and demand a
corporation’s dissolution
1. Such action should be brought by the Government through its legal officer in a
quo warranto case, at their instance and request
B. However, there are cases that hold that such minority members, if unable to obtain
redress and protection of their rights within the corporation, must not and should not
be left without redress and remedy
1. Hall v. Judge Piccio
a. Even the existence of a de jure corporation may be terminated in a private
suit for its dissolution by stockholders without the intervention of the State
b. There might be some room for argument on the right of minority
stockholders to ask for dissolution
C. THUS, there might be exceptional cases wherein the intervention of the State, for one
reason or another, cannot be obtained
1. As when he State is not interested because the complaint is strictly a matter
between the stockholders and does not involve, in the opinion of the
Government, any of the acts/omissions warranting quo warranto proceedings
2. It is in these cases where minority stockholders are entitled to have such
dissolution
3. When such action or private suit is brought by them, trial court had jurisdiction
and may or may not grant the prayer
a. Subject to review by appellate tribunal
b. Having such jurisdiction, the appointment of a receiver pendente lite is left to
the sound discretion of the trial court
II. Applying the concepts to the case at bar
A. Allegations of mismanagement and misconduct by the President and General
manager were made, specially in connection with the petition for appointment of
receiver. According to the complaint:
1. There is imminent danger of insolvency
2. There are acts of fraud and mismanagement such as:
a. Diversion of corporate purposes and use for the personal benefit of Araneta
b. Unauthorized and profitless pledging of securities owned by FCP to secure
obligations of another corporation controlled by Araneta
c. Unauthorized and profitless using of the name of FCP in the shipping of
sugar belonging to corporations controlled by Araneta
d. Refusal of Araneta to endorse to FCP shares of stock and other securities
belonging to it but which are still in his name
e. Negligent failure to endorse other shares of stock and securities belonging
to FCP but still in the names of vendors
f. Illegal and unauthorized transfer and deposit in the USA of over 6M shares
of Atok-Big Wedge Company
3. There are also violations of the Corporation Law
a. Refusal to allow minority stockholders to examine books
b. Failure to call meetings
c. Virtual disregard and ignoring the BOD; Araneta has been conducting the
affairs of the corporation to his personal benefit
d. Irregularity in the keeping and errors and omission in the books
4. It was also alleged:
a. Failure to achieve the fundamental purpose of the corporation
b. Since Araneta is in total control, there is danger that the remaining assets be
dissipated
c. Best means to protect and preserve the assets is the appointment of
receiver
B. In conclusion, the SC held that the trial court had jurisdiction over the case and had
jurisdiction to appoint the receiver pendente lite
1. Considering further the allegations of the complaint, Judge Teodoro did not
abuse his discretion in appointing the receiver.
DISPOSITIVE: Petition for certiorari denied.
FORMATION OF CORPORATION
1. ORGANIZING THE CORPORATION
a. PROMOTERS
i. (SECTION 2 (R) OF THE REVISED SECURITIES ACT (BP 178)
ii. SECTION 60 AND 61 OF THE CORPORATION CODE
Q: Who is a promoter?
A: Is a person who brings about or cause to bring about the formation and organization
of a corporation by:
1. bringing together the incorporators or the persons interested in the enterprise,
2. procuring subscriptions or capital for the corporation and
3. setting in motion the machinery which leads to the incorporation of the
corporation itself.
10

Q: What is the liability of a promoter?
A: All promoter(s) have joint personal liability for a corporation that was never formed. He
remains liable on contracts even after incorporation even though corporation adopts the
contract.
Q: Are promoters agents of a corporation?
A: No. Promoters are not agents of the corporation before it comes into existence.
Upon incorporation, the practice is for the BOD to pass a resolution ratifying the contracts
entered into by the incorporators with the promoter. Then, they become agents of the
corporation.
Q: What are the kinds of underwriting agreement?
A.
1. English – the underwriter sells what the corporation cannot sell
2. Firm Commitment – the underwriter purchases outright the securities and then
resells the same
3. Best Efforts – the underwriter merely sells for commission.
Q: What are the kinds of subscription contracts?
A:
1. GR: Pre‐incorporation subscription – entered into before the
incorporation and irrevocable for a period of six (6) months from
the date of subscription unless all other subscribers consent or if the
corporation failed to materialize. It cannot also be revoked after
filing the Articles of Incorporation with the SEC (Sec. 61)
XPN: When creditors will be prejudiced thereby.
2. Post‐incorporation subscription – entered into after incorporation.
 CAGAYAN SHIPPING DEVELOPMENT V. SANDIKO (65 PHIL 223
(1937)
G.R. No. L-43350 December 23, 1937
CAGAYAN FISHING DEVELOPMENT CO., INC., plaintiff-appellant,
vs.
TEODORO SANDIKO, defendant-appellee.
Arsenio P. Dizon for appellant.
Sumulong, Lavides and Sumulong for appellee.
LAUREL, J.:
FACTS:
Manuel Tabora is the registered owner of four parcels of land. The four parcels were mortgaged for
loans and indebtedness. However, Tabora executed a public document (Exhibit A) by virtue of which
the four parcels of land owned by him was sold to the plaintiff company, which at that time is still
under the process of incorporation.
A year later, the BOD of said company adopted a resolution authorizing its president to sell the four
parcels of lands in question to Teodoro Sandiko. Exhibits B, C and D were thereafter made and
executed. Exhibit B is a deed of sale where the plaintiff sold, ceded and transferred to the defendant
the four parcels of land. Exhibit C is a promissory note drawn by the defendant in favor of the plaintiff.
Exhibit D is a deed of mortgage executed where the four parcels of land were given a security for the
payment of the promissory note. Defendant failed to pay thus plaintiff filed a collection of sum of
money in the Court of First Instance in Manila. The latter rendered judgment absolving the defendant.
Plaintiff has appealed to this court and makes an assignment of various errors.
ISSUE:
WON the sale made by the plaintiff corporation is valid.
HELD:
The contract here was entered into not between Manuel Tabora and a non-existent corporation but
between the Manuel Tabora as owner of the four parcels of lands on the one hand and the same
Manuel Tabora, his wife and others, as mere promoters of a corporations on the other hand. For
reasons that are self-evident, these promoters could not have acted as agent for a projected
11
corporation since that which no legal existence could have no agent. This is not saying that under no
circumstances may the acts of promoters of a corporation be ratified by the corporation if and when
subsequently organized, however, under the peculiar facts and circumstances of the present the
court declined to extend the doctrine of ratification which would result in the commission of injustice
or fraud to the candid and unwary. A corporation, until organized, has no life and therefore no
faculties. Cagayan Fishing Dev’t Corp could not and did not acquire the four parcels of land sold by
Tabora, it also follows that it did not possess any resultant right to dispose of them by sale to the
defendant, Teodoro Sandiko. The corporation had no juridical personality to enter into a contract.
Corporations are creatures of the law, and can only come into existence in the manner
prescribed by law. It should have a full and complete organization and existence as an entity
before it can enter into any kind of a contract or transact any business.
 RIZAL LIGHT & ICE CO V. MUNICIPALITY 25 SCRA 285 (1968)
RIZAL LIGHT & ICE vs. THE MUNICIPALITY OF MORONG, RIZAL and THE PUBLIC SERVICE
COMMISSION
September 28, 1968 / Zaldivar, J.
Facts: (Note: this decision is a consolidation of 2 cases)
 Rizal Light & Ice Co. was granted by the Commission a certificate of public convenience
and necessity for the installation, operation and maintenance of an electric light, heat and
power service in the municipality of Morong, Rizal
 Commission required the petitioner to appear before it to show cause why it should not be
penalized for violation of the conditions of its certificate of public convenience and the
regulations of the Commission, and for failure to comply with the directives to raise its
service voltage and maintain them within the limits prescribed in the Revised Order No. 1
of the Commission, and to acquire and install a kilowattmeter to indicate the load in
kilowatts at any particular time of the generating unit
 The motion was set for hearing and Mr. Pedro S. Talavera, Chief, Industrial Division of the
Commission, was authorized to conduct the hearing for the reception of the evidence of the
parties
 For failure of the petitioner to appear at the hearing, Commission ordered the
cancellation and revocation of petitioner's certificate of public convenience and
necessity and the forfeiture of its franchise
 Petitioner moved for reconsideration of said order on the ground that its manager was not
aware of said hearing
 Finding that the failure of the petitioner to appear at the hearing— the sole basis of the
revocation of petitioner's certificate — was really due to the illness of its manager, the
Commission set aside its order of revocation
 municipality formally asked the Commission to revoke petitioner's certificate of public
convenience and to forfeit its franchise on the ground, among other things, that it failed to
comply with the conditions of said certificate and franchise
 inspections had been made of petitioner's electric plant and installations
 When the case was called for hearing, petitioner failed to appear again so municipality was
then allowed to present its documentary evidence, and thereafter the case was submitted
for decision
 on the basis of the inspection reports, Commission found that the petitioner had failed to
comply with the directives and had violated the conditions of its certificate of public
convenience as well as the rules and regulations of the Commission ordered the
cancellation and revocation of petitioner's certificate of public convenience and the
forfeiture of its franchise
 petitioner moved for reconsideration of the decision but before said motion for
reconsideration was filed, Morong Electric filed with the Commission an application for a
certificate of public convenience and necessity for said service
 Petitioner opposed the application of Morong Electric
ISSUE W/N promoter’s offer to the contract is CONTINUOUS
CORPO EXPLANATION
RIZAL LIGHT:
The promoter’s offer to the contract is CONTINUOUS; once the corp comes into being, the
promoter’s offer is continuing; so long that the corp does not ratify, the rule is PROMOTER’s
CONTRACT is the PROMOTER’s OWN. At any time, when the corp says YES or it RATIFIES, the
obligations automatically shifts to the corp./ juridical person. The Court also clarified in Rizal Light
that in deciding Cagayan Fishing “this Court did not say in that case that the rules is absolute and
that under no circumstances may the acts of promoters of a corporation be ratified or accepted by
the corporation if and when subsequently organized. Of course, there are exceptions. It will be noted
that American courts generally hold that a contact made by the promoters of a corporation on its
behalf may be adopted, accepted or ratified by the corporation when organized.
iii. CARAM JR. V. CA 151 SCRA 372 (1987)
Fermin Caram Jr. vs Court of Appeals
facts: A certain Barretto initiated the incorporation of a company called Filipinas Orient Airways
(FOA). Barretto was referred to as the “moving spirit” of said corporation because it was through his
effort that it was created. Before FOA’s creation though, Barretto contracted with a third party,
Alberto Arellano, for the latter to prepare a project study for the feasibility of creating a corporation
12
like FOA. The project study was then presented to the would-be incorporators and investors. On the
basis of said project study, Fermin Caram, Jr. and Rosa Caram agreed to be incorporators of FOA.
Later however, Arellano filed a collection suit against FOA, Barretto, and the Carams. Arellano claims
that he was not paid for his work on the project study.
ISSUE: Whether or not the Carams are personally and solidarily liable considering that the project
study was contracted before FOA became a corporation.
HELD: No. The Carams cannot be solidarily liable with FOA. The FOA is now a bona fide
corporation. As such, FOA alone should be liable for its corporate acts as duly authorized by its
officers and directors. This includes acts which ultimately led to its incorporation i.e., the project study
made by Arellano. FOA has a separate and distinct personality from its incorporators. It is not
justified to make the Carams, as principal stockholders, to be responsible for FOA’s obligations.
FERMIN CARAM, JR. and ROSE DE CARAM v. CA and ALBERTO V. ARELLANO
151 SCRA 372 (June 30, 1987)
CRUZ, J.
Topic: Corporate Entity, Disregarding the corporate entity
Facts:
1. The services of Barretto was requested to initiate the incorporation of Filipinas Orient
Airways (FOA).
2. Barretto was referred to as the “moving spirit” of said corporation because it was through
his effort that it was created. Before FOA’s creation though, Barretto contracted with a third
party, Alberto Arellano, for the latter to prepare a project study for the feasibility of creating
a corporation like FOA.
3. The project study was then presented to the would-be incorporators and investors.
4. On the basis of said project study, Fermin Caram, Jr. and Rosa Caram agreed to be
incorporators of FOA. Later however, Arellano filed a collection suit against FOA, Barretto,
and the Carams.
5. Arellano claims that he was not paid for his work on the project study.
6. Lower Court: Orders the Carams to jointly and severally pay Arellano P50,000.00 for the
preparation of the project study and his technical services that led to the organization of the
defendant corporation, plus P10,000.00 attorney’s fees
- It was upon the request of Barretto and Garcia that Arellano handled the preparation
of the project study which project study was presented to Caram so the latter was
convinced to invest in the proposed airlines.
- The project study was revised for purposes of presentation to financiers and the
banks. It was on the basis of this study that defendant corporation was actually
organized and rendered operational.
- Garcia and Caram, and Barretto became members of the Board and/or officers of
defendant corporation
- All the other defendants who were involved in the preparatory stages of the
incorporation must be liable
7. The petitioners claim that this order has no support in fact and law because they had no
contract whatsoever with the private respondent regarding the above-mentioned services.
8. Their position is that as mere subsequent investors in the corporation that was later
created, they should not be held solidarily liable with FOA, a separate juridical entity, and
with Barretto and Garcia (their co-defendants in the lower court) who were the ones who
requested the said services from Arellano.
Issue:
Whether or not petitioners themselves are also personally liable for such expenses and, if so, to what
extent? NO. The petitioners did not contract the services of Arellano. It was only the results of such
services that Barretto and Garcia presented to them and which persuaded them to invest in the
proposed airline.
Ruling:
GRANTED. Petitioners are not liable.
Held:
The petitioners were not really involved in the initial steps that finally led to the incorporation of FAO,
which were being directed by Barretto as the main promoter. It was he who was putting all the pieces
together. The airline was eventually organized on the basis of the project study with the petitioners as
major stockholders and, together with Barretto and Garcia, as principal officers. The petitioners were
merely among the financiers whose interest was to be invited and who were in fact persuaded, on
the strength of the project study, to invest in the proposed airline.
There was no showing that FAO was a fictitious corporation and did not have a separate juridical
personality, to justify making the petitioners, as principal stockholders thereof, responsible for its
obligations. As a bona fide corporation, FAO should alone be liable for its corporate acts as duly
authorized by its officers and directors.
The petition is rather hazy and seems to be flawed by an ambiguous ambivalence. It is unnecessary
to examine at this time the rules on solidary obligations, which the parties-needlessly, as it turns out
have be labored unto death.
13
 b. SUBSCRIPTION CONTRACTS Cannot be released from his The corporation may rescind or
i. (SECTIONS 60 AND 72 OF THE CORPORATION CODE) subscription unless all stockholders cancel the contract for non‐
agree thereto and no creditor is fulfillment of the contract by the buyer
Q: Who are required to pay their subscription in full? thereby prejudiced

A:
Corporate creditors may proceed
Creditors may not proceed against
against the subscriber for his
1. Non‐resident foreign subscribers upon incorporation must pay in the buyer for the unpaid price as
unpaid subscription in case the
full their subscriptions unless their unpaid subscriptions are there is no privity of contract
assets of the corporation are not
guaranteed by a surety bond or by an assumption by a resident between them
sufficient to pay their claims
stockholder through an affidavit of liability.

2. In case of no‐par value shares, they are deemed fully paid and non‐
assessable. In purchase amounting to more
May be in any form, written or oral,
than 500 pesos, the Statute of
Q: Is a stockholder entitled to the shares of stock subscribed although not express or implied, and therefore, not
Frauds shall apply
fully paid? covered by the Statute of Frauds

A: Yes. As long as the shares are not considered delinquent, they are entitled to all rights granted Subscription price are considered Purchase price does not become
to it whether or not the subscribed capital stocks are fully paid. assets of the corporation, hence, assets of the corporation unless fully
creditors may go after them paid
Q: What are the distinctions between subscription and purchase?

A.

SUBSCRIPTION PURCHASE Q: What is the rule on right to issuance of certificate of stock?

May be made before or after
incorporation
Subscriber becomes a stockholder
even if he has not fully paid the
subscription
May be made only after
incorporation
Buyer does not become a
stockholder until the fulfillment of the A: A corporation may now, in the absence of provisions in their by‐laws to the contrary, apply
terms of the sale and registration payments made by subscribers‐stockholders, either as:
thereof in the books of the
corporation
1. Full payment for the corresponding number of shares of stock, the par value of
each of which is covered by such payment; or

14
 2. Payment pro‐rata to each and all the entire number of shares subscribed for.
(Baltazar v. Lingayen Gulf Electric Power Co., Inc, G.R. No. L‐16236‐38, June
30, 1965)
o TRILLANA V. QUEZON COLLEGE 93 PHIL 383
Trillana vs Quezon College, G. R. No. L-5003, June 27, 1953
Facts: Damasa Crisostomo subscribed 200 shares of capital stock with a par value of P100 each
through a letter sent to the Board of Trustees of the Quezon College, enclosed with the letter are a
sum of money as her initial payment and her assurance of full payment after she harvested fish. On
October 26, 1948, Damasa Crisostomo passed away. As no payment appears to have been made
on the subscription mentioned in the foregoing letter, the Quezon College, Inc. presented a claim
before the CFI of Bulacan in her testate proceeding, for the collection of the sum of P20,000,
representing the value of the subscription to the capital stock of the Quezon College, Inc. which was
then opposed by the administrator of the estate
issue: What law governs in subscription contract?
Rulling: The Corpo Code applies: why ist enfoceable against the estate? In the absence of
acceptance what will a person not have? NO MEETING OF THE MIND ***the Subscription contract
is still a CONTRACT; for a Corporate Law to apply it should passed first that it is a contract. There is
nothing in the record to show that the Quezon College, Inc. accepted the term of payment suggested
by Crisostomo, or that if there was any acceptance the same came to her knowledge during her
lifetime.
It appears that the application sent by Damasa Crisostomo to the Quezon College, Inc. was written
on a general form indicating that an applicant will enclose an amount as initial payment and will pay
the balance in accordance with law and the regulations of the College. On the other hand, in the
letter actually sent by Damasa Crisostomo, the latter (who requested that her subscription for 200
shares be entered) not only did not enclose any initial payment but stated that "babayaran kong lahat
pagkatapos na ako ay makapagpahuli ng isda." There is nothing in the record to show that the
Quezon College, Inc. accepted the term of payment suggested by Damasa Crisostomo, or that if
there was any acceptance the same came to her knowledge during her lifetime. As the application of
Damasa Crisostomo is obviously at variance with the terms evidenced in the form letter issued by the
Quezon College, Inc., there was absolute necessity on the part of the College to express its
agreement to Damasa's offer in order to bind the latter. Conversely, said acceptance was essential,
because it would be unfair to immediately obligate the Quezon College, Inc. under Damasa's promise
to pay the price of the subscription after she had caused fish to be caught. In other words, the
relation between Damasa Crisostomo and the Quezon College, Inc. had only thus reached the
preliminary stage whereby the latter offered its stock for subscription on the terms stated in the form
letter, and Damasa applied for subscription fixing her own plan of payment, — a relation, in the
absence as in the present case of acceptance by the Quezon College, Inc. of the counter offer of
Damasa Crisostomo, that had not ripened into an enforceable contract
1. PURCHASE AGREEMENT
1. BAYLA V. SILANG TRAFFIC CO 73 PHIL 557 (1942)
Bayla v Silang Traffic Co.
GR. No. L-48195-96, May 01, 1942
Ozaeta, J.:
FACTS: Sofronio Bayla, along with the other petitioners in this case, individually purchased shares of
stock of Silang Traffic Co. Each of the petitioners had different specified terms and conditions of
payment. Similar among them is that 5% is to be paid upon the execution of the contract, and the
remainder in installments of 5% quarterly due within the first month of the quarter. Deferred
payments will incur 6% interest per annum until paid, and failure to pay any of said installments when
they are due will revert the shares back to the seller and the payments already made are to be
forfeited in favor of the company, without resort to court proceedings.
Petitioners have already paid sums of money for the shares of stock they wanted to purchase.
However, they failed to pay the installment which fell due on or before July 31, 1937. On August 1,
1937, the board of directors of Silang Traffic Co. released a resolution stating a rescission was to be
made for the good of the corporation and in order to terminate the then pending civil case involving
the validity of the sale of the shares in question. Those who would agree can refund the installments
already paid. The petitioners agreed to the rescission and demanded for the refund of the amounts
they had paid. Silang Traffic Co. refused to refund the petitioners’ money stating that because of their
failure to pay the installment due on or before July 31, the clause stating that their shares would
revert back to the corporation and their payments forfeited had taken effect, and that there was
15
nothing to refund. Moreover, a later resolution on August 22 already cancelled the resolution of
August 1.
Subscription for shares of stock of a corporation still to be formed shall be irrevocable for a
The trial court absolved the corporation and forfeited the petitioners’ shares and payments to the period of at least 6 months from the date of subscription, unless:
corporation. The Court of Appeals affirmed the decision but allowed the petitioners 30 days to pay
the arrears in their subscription. From this decision, petitioner and respondent appealed to the 1. All subscribers consent to its revocation.
Supreme Court. 2. The incorporation fails to materialize within 6 months or a longer period as agreed
upon.
ISSUE: Were the petitioners’ shares of stock automatically forfeited in favor of Silang Traffic
Corporation upon their failure to pay the installment due on or before July 31?
The irrevocability of pre-incorporation prevents a subscriber from
RULING: No. The Court held that for their stocks to be forfeited to the corporation, a demand must speculating on the stocks of the proposed corporation and protects the
first be given by the corporation for the payments due on or before July 31. It did not automatically corporation from financially irresponsible subscribers.
revert to the corporation. Under Article 1100 of the Civil Code, persons obliged to deliver or do
something are not in default until the moment the creditor demands of them judicially or extra-
judicially the fulfillment of their obligation. The current situation does not fall under the any of the
PRE‐INCORPORATION SUBCRIPTION AGREEMENTS (UST GOLDEN
exceptions. The contract itself did not expressly provide that the failure of the purchaser to pay any NOTES)
installment would give rise to forfeiture and cancellation without the necessity of any demand from
Q: Who are required to pay their subscription in full?
the seller. In fact, it states that there would be a 6% interest on deferred payments which shows that
A:
there was no intention of automatic forfeiture and cancellation of contract. As such, the Court
reversed the decision of the Court of Appeals and ordered Silang Traffic Co. to refund the petitioners’ 1. Non‐resident foreign subscribers upon incorporation
money. must pay in full their subscriptions unless their unpaid
subscriptions are guaranteed by a surety bond or by
2. PRE-INCORPORATION SUBSCRIPTION an assumption by a resident stockholder through an
1. SECTION 61 OF THE CORPORATION CODE affidavit of liability.
i. OFFER THEORY 2. In case of no‐par value shares, they are deemed fully
ii. CONTRACT THEORY paid and non‐assessable.

Sec. 61. 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 Q: Is a stockholder entitled to the shares of stock
subscription, unless all of the other subscribers consent to the revocation, or unless the
incorporation of said corporation fails to materialize within said period or within a longer period as subscribed although not fully paid?
may be stipulated in the contract of subscription: Provided, That no pre-incorporation
subscription may be revoked after the submission of the articles of incorporation to the Securities A: Yes. As long as the shares are not considered delinquent, they
and Exchange Commission. are entitled to all rights granted to it whether or not the subscribed
capital stocks are fully paid.

SEC. 61 Pre-incorporation subscription is mandatory (Sec. 13 & 14) at least 25% of the
authorized capital stock has been subscribed and at least 25% of the total subscription has been
fully paid.
16
 RULING:

RELEASE FROM SUBSCRIPTION OBLIGATION YES.

2. VELASCO V. POIZAT 37 PHIL 802
VELASCO, petitioner
vs.
POIZAT, respondent
G.R. No. L-11528 March 15, 1918
FACTS:
From the amended complaint filed in this cause upon February 5, 1915, it appears that the plaintiff,
as assignee in insolvency of "The Philippine Chemical Product Company" (Ltd.) is seeking to recover
of the defendant, Jean M. Poizat, the sum of P1,500, upon a subscription made by him to the
corporate stock of said company. It appears that the corporation in question was originally organized
by several residents of the city of Manila, where the company had its principal place of business, with
a capital of P50,000, divided into 500 shares. The defendant subscribed for 20 shares of the stock of
the company, an paid in upon his subscription the sum of P500, the par value of 5 shares . The
action was brought to recover the amount subscribed upon the remaining shares.
It appears that the defendant was a stock holder in the company from the inception of the enterprise,
and for sometime acted as its treasurer and manager. While serving in this capacity he called in and
collected all subscriptions to the capital stock of the company, except the aforesaid 15 shares
subscribed by himself and another 15 shares owned by Jose R. Infante.
A stock subscription is a contract between the corporation on one side, and the subscriber on the
other, and courts will enforce it for or against either. It is a rule, accepted by the Supreme Court of
the United States that a subscription for shares of stock does not require an express promise to pay
the amount subscribed, as the law implies a promise to pay on the part of the subscriber. Section 36
of the Corporation Law clearly recognizes that a stock subscription is subsisting liability from the time
the subscription is made, since it requires the subscriber to pay interest quarterly from that date
unless he is relieved from such liability by the by-laws of the corporation. The subscriber is as much
bound to pay the amount of the share subscribed by him as he would be to pay any other debt, and
the right of the company to demand payment is no less incontestable.
The provisions of the Corporation Law (Act No. 1459) give recognition of two remedies for the
enforcement of stock subscriptions. The first and most special remedy given by the statute consists
in permitting the corporation to put up the unpaid stock for sale and dispose of it for the account of
the delinquent subscriber. In this case the provisions of section 38 to 48, inclusive, of the Corporation
Law are applicable and must be followed.
It is generally accepted doctrine that the statutory right to sell the subscriber's stock is merely a
remedy in addition to that which proceeds by action in court; and it has been held that the ordinary
legal remedy by action exists even though no express mention thereof is made in the statute.

Upon July 13, 1914, a meeting of the board of directors of the company was held at which a majority
of the stock was presented. Upon this occasion two resolutions, important to be here noted, were
adopted. The first was a proposal that the directors, or shareholders, of the company should make
good by new subscriptions, in proportion to their respective holdings, 15 shares which had been
surrendered by Infante.

ISSUE:

Whether or not Poizat is liable for his unpaid subscription.

17

3. PNB V. BITULOK SAWMILL INC. 23 SCRA 1366
PHILIPPINE NATIONAL BANK, plaintiff
vs.
BITULOK SAWMILL INC., defendant
G.R. Nos. L-24177-85 June 29, 1968
FACTS:
The Philippine Lumber Distributing Agency, Inc., according to the lower court, "was organized
sometime in the early part of 1947 upon the initiative and insistence of the late President Manuel
Roxas of the Republic of the Philippines who for the purpose, had called several conferences
between him and the subscribers and organizers of the Philippine Lumber Distributing Agency,
Inc." The purpose was praiseworthy, to insure a steady supply of lumber, which could be sold at
reasonable prices to enable the war sufferers to rehabilitate their devastated homes. At the
beginning, the lumber producers were reluctant to organize the cooperative agency as they believed
that it would not be easy to eliminate from the retail trade the alien middlemen who had been in this
business from time immemorial, but because the late President Roxas made it clear that such a
cooperative agency would not be successful without a substantial working capital which the lumber
producers could not entirely shoulder, and as an inducement he promised and agreed to finance the
agency by making the Government invest P9.00 by way of counterpart for every peso that the
members would invest therein."
Accordingly, "the late President Roxas instructed the Hon. Emilio Abello, then Executive Secretary
and Chairman of the Board of Directors of the Philippine National Bank, for the latter to grant said
agency an overdraft in the original sum of P250,000.00 which was later increased to P350,000.00,
which was approved by said Board of Directors of the Philippine National Bank on July 28, 1947,
payable on or before April 30, 1958, with interest at the rate of 6% per annum, and secured by the
chattel mortgages on the stock of lumber of said agency." The Philippine Government did not invest
the P9.00 for every peso coming from defendant lumber producers. The loan extended to the
Philippine Lumber Distributing Agency by the Philippine National Bank was not paid.
ISSUE:
Whether or not the non-compliance with a plain statutory command, considering the persuasiveness
of the plea that defendants-appellees would "not have subscribed to the capital stock" of the
Philippine Lumber Distributing Agency "were it not for the assurance of the then President of the
Republic that the Government would back it up by investing P9.00 for every peso" subscribed, a
condition which was not fulfilled, such commitment not having been complied with, be justified.
RULING:
NO.
It would be unwarranted to ascribe to the late President Roxas the view that the payment of the stock
subscriptions, as thus required by law, could be condoned in the event that the counterpart fund to
be invested by the Government would not be available. Even if such were the case, however, and
such a promise were in fact made, to further the laudable purpose to which the proposed corporation
would be devoted and the possibility that the lumber producers would lose money in the process, still
the plain and specific wording of the applicable legal provision as interpreted by this Court must be
controlling. It is a well-settled principle that with all the vast powers lodged in the Executive, he is still
devoid of the prerogative of suspending the operation of any statute or any of its terms.
REVIEW
STEPS IN THE CREATION OF A CORPORATION
1. Promotion – A promoter is a person who, acting alone or with others, takes initiative in
founding and organizing the business or enterprise of the issuer and receives consideration
therefor (Sec. 3.10, SRC).
2. Incorporation Steps:
a. Drafting and execution of Articles of Incorporation by the incorporators and other
documents required for registration of the corporation
b. Filing with the SEC of the articles of incorporation
c. Payment of filing and publication fees
d. Issuance by the SEC of the certificate of incorporation
3. Formal Organization and Commencement of the Transaction of Business
These are conditions subsequent, which may be satisfied by substantial
compliance in order that a corporation may legally continue as such.
Formal organization:
a. Adoption of By-Laws and filing of the same with the SEC;
b. Election of board of directors/trustees, and officers;
c. Establishment of principal office;
d. Providing for subscription and payment of capital stock.
18
ARTICLES OF INCORPORATION (AI)  A corporation can change the name originally selected by it after complying with the
 The document prepared by the persons establishing a corporation and filed with the SEC formalities prescribed by law, to wit: amendment of the articles of incorporation and filing
containing the matters required by the Code. of the amendment with the SEC (Sec. 16).
 The Articles of Incorporation have been described as one that defines the charter of the An authorized change in the name of the corporation, whether effected by a special act or
corporation, and the contractual relationships between the State and the corporation, the under a general law, has no more effect upon its identity as a corporation than a
stockholder and the State, and between the corporation and its stockholders (Lanuza v. change of name of natural person upon his identity. It does not affect the property, rights,
CA GR No.131394, March 28, 2005). or liabilities of the corporation, nor lessen or add to its obligations. It is in no sense a new
corporation, nor the successor of the original corporation. It is the same corporation with
a different name and its character is in no respect changed (Rep. Planters Bank vs. CA, 216
Significance:
SCRA 738).
1. The issuance of a certificate of incorporation signals the birth of the corporation’s juridical
personality;
2. It is an essential requirement for the existence of a corporation, even a de facto one.
2. Purpose Clause Significance:
Contents (Sec. 14): a. A person who intends to invest his money in the business corporation will know
where and in what kind of business or activity his money will be invested;
1. Corporate Name (Sec. 18) b. The directors and the officers of the corporation will know within what scope of business
they are authorized to act; and
 The corporation acquires juridical personality under the name stated in the certificate of
incorporation. It is the name of the corporation which identifies and distinguishes it from c. A third person who has dealings with the corporation may know by perusal of the
other corporations, firms or entities. articles whether the transaction or dealing he has with the corporation is within the
authority of the corporation or not.
 A corporation’s right to use its corporate and trade name is a property right, a right in rem
which it may assert or protect against the whole world in the same manner as it may
protect its tangible property against trespass or conversion (Philips Export B.V. vs. CA, 206
Limitations:
SCRA 457).
a. Purpose or purposes must be lawful;
b. Purpose or purposes must be stated with sufficient clarity;
Statutory limitation: c. If there is more than one purpose, the primary as well as the secondary purpose must
The proposed name must not be: be specified; and
a. identical; or d. Purposes must be capable of being lawfully combined.
b. deceptively or confusingly similar to that of any existing corporation or to any other A corporation the primary object of which is without statutory authority can have no
name already protected by law; or lawful existence, even though some of its declared purposes may be lawful.
c. patently deceptive, confusing or contrary to law.
3. Principal Office
Remedies of corporation whose name has been adopted by another:  The articles of incorporation must state the place where the principal office of the
corporation is to be established or located, which place must be within the Philippine (Sec.
1. Injunction 14 [3]).
2. De-registration Purpose: To fix the residence of the corporation in a definite place, instead of allowing it
to be ambulatory (Young Auto Supply Co. vs. CA, 223 SCRA 670).

19
  It is now required by the SEC that all corporations and partnerships applying for registration
should state in their Articles of Incorporation the specific address of their principal office,
which shall include, if feasible, the strict number; street name; barangay; city or
municipality; and specific residence address of each incorporator, stockholder, director or
trustee in line with the full disclosure requirement of existing laws (SEC Circ. No. 3, Series
of 2006).
4. Term of Existence (Sec. 11)
 The corporation shall exist for the term specified in the articles of incorporation not exceeding
50 years, unless sooner legally dissolved or unless its registration is revoked upon any of the
grounds provided by law.
 The corporate life may be reduced or extended by amendment of the articles of
incorporation by complying with the procedural requirements laid down in Sec. 37.
 The extension of corporate term is subject to the following limitations:
a. The term shall not exceed 50 years in any one instance;
b. The amendment is effected before the expiration of the corporate term of existence,
for after dissolution by expiration of the corporation term there is no more corporate life
to extend (Alhambra Cigar vs. SEC, 24 SCRA 269).
c. The extension cannot be made earlier than 5 years prior to the expiration date unless
there are justifiable reasons therefore as may be determined by the SEC.
The mere extension of the corporate term of existence made before the expiration of the
original term constitutes a continuation of the old, and not the creation of a new
corporation. (The Corporation Code of the Philippines, Hector S. De Leon & Hector M. De
Leon, Jr., 2006 ed.)
 The expiration of the term for which the corporation was created does not, however,
produce its immediate dissolution for all purposes (Sec. 122).
DOCTRINE OF RELATION OR RELATING BACK DOCTRINE
The filing and recording of a certificate of extension after the term cannot
relate back to the date of the passage of the resolution of the stockholders to
extend the life of the corporation. However, the doctrine of relations applies if
the failure to file the application for extension within the term of the corporation is
due to the neglect of the officer with whom the certificate is required to be filed
or to a wrongful refusal on his part to receive it (Philippine Corporate Law
Compedium, Timoteo Aquino, 2006 ed.)
5. Incorporators (See VI. Components of a Corporation)
6. Directors and Trustees
The Board of Directors is the governing body in a stock corporation while Board of
Trustees is the governing body in a non-stock corporation. They exercise the powers of
the corporation (Reviewer in Commercial Law, Jose R. Sundiang & Timoteo Aquino, 2005
ed.).
Matters required to be stated in the AI:
a. a statement of the names, nationalities and residences of the incorporating directors or
the persons who shall act as such until the first regular directors or trustees are duly
elected and qualified in accordance with the law
b. the number of directors or trustees, which shall not be less than 5 but not more than 15.
Exceptions:
1. educational corporations registered as non- stock corporation whose number of
trustees though not less than five and not more than fifteen should be divisible
by five; and
2. in close corporation where all the stockholders are considered as members of
the board of directors thereby effectively allowing twenty members in the
board (Corporation Code of the Philippines,Ruben C. Ladia, 2001 ed.).
7. Capitalization
Matters required to be stated in the AI:
a. the amount of its authorized capital stock in lawful money of the Philippines;
b. the number of shares and kind of shares into which it is divided;
c. in case the shares are par value shares, the par value of each;
d. the names, nationalities and residences of the original subscribers;
e. the amount subscribed and paid by each on his subscription;
f. sworn statement of the treasurer elected by the subscribers showing that at least
25% of the authorized capital stock of the corporation has been subscribed;
g. sworn statement of the treasurer elected by the subscribers showing that at least
25% of the total subscription has been fully paid to him in actual cash and/or in
property the fair valuation of which is equal to at least 25% of the said
subscription; and
20
 e. sworn statement of the treasurer elected by the subscribers showing that such paid-up 5. Private Security Agencies (Sec. 4 of RA 5487)
capital being not less that five thousand pesos. 6. Small-scale Mining (Sec. 3 of RA 7076)
7. Utilization of Marine Resources in archipelagic waters, territorial sea, and exclusive
economic zone as well as small-scale utilization of natural resources in rivers, lakes,
bays, and lagoons (Art. XII, Sec. 2 of the Constitution)
8. Ownership, operation and management of cockpits
CAPITAL STOCK REQUIREMENT (Sec. 5 of PD 449)
GENERAL RULE: No minimum authorized capital stock as long as the paid-up capital is not
less than P5,000.00 9. Manufacture, repair, stockpiling and/or distribution of nuclear weapons (Art. II, Sec. 8 of the
EXCEPTIONS: Constitution)
10. Manufacture, repair, stockpiling and/or distribution of biological, chemical and radiological
1. as provided for by special law weapons and anti-personnel mines (Various treaties to which the Philippines is a signatory
and conventions supported by the Philippines)
a. Private Development Banks 11. Manufacture of firecrackers and other pyrotechnic devices (Sec. 5 of RA 7183)
- P4M for class A
- P2M for class B
- P1M for class C
Up to Twenty Percent (20%) Foreign Equity
b. Investment Companies – paid up at least P50,000,000
1. Private radio communications network (RA 3846)
c. Savings and Loan Corporation – to be fixed by the Monetary Board, but not less than
P100T
d. Financing Companies Up to Twenty-Five Percent (25%) Foreign Equity
Paid up: - P10M for Metro Manila
1. Private recruitment, whether for local or overseas employment (Art. 27 of PD
and other 1st class city 442)
- P5M for other classes of cities 2. Contracts for the construction and repair of locally-funded public works (Sec. 1 of
- P2.5 M for others CA 541, LOI 630) except:
4 e. Insurance companies a. infrastructure/development projects covered in RA 7718; and
1. Insurance Broker – P250,000.00 b. projects which are foreign funded or assisted and required to undergo international
2. General Agent – P 250,000.00 competitive bidding (Sec. 2a of RA 7718)
3. Reinsurance Broker – P 0.5 M 3. Contracts for the construction of defense-related structures (Sec. 1 of CA 541)
2. provided that at least 25% of the authorized capital stock has been subscribed and
at least 25% of the total subscription must be paid-up. Up to Thirty Percent (30%) Foreign Equity
1. Advertising (Art. XVI, Sec. 11 of the Constitution)
FILIPINO PERCENTAGE OWNERSHIP REQUIREMENT
No Foreign Equity Up to Forty Percent (40%) Foreign Equity
1. Exploration, development and utilization of natural resources (Art. XII, Sec.
1. Mass Media except recording (Art. XVI, Sec. 11 of the Constitution; Presidential 2 of the Constitution)
Memorandum dated 04 May 1994)
2. Ownership of private lands (Art. XII, Sec. 7 of the Constitution; Ch. 5, Sec. 22 of
2. Practice of all professions CA 141; Sec. 4 of RA 9182)
3. Retail trade enterprises with paid-up capital of less than US$2,500,000(Sec. 5 of RA 8762) 3. Operation and management of public utilities (Art. XII, Sec. 11 of the Constitution;
4. Cooperatives (Ch. III, Art. 26 of RA 6938) Sec. 16 of CA 146)
21
 4. Ownership/establishment and administration of educational institutions (Art. XIV, Sec.
4 of the Constitution)
5. Culture, production, milling, processing, trading excepting retailing, of rice and corn
and acquiring, by barter, purchase or otherwise, rice and corn and the by-products
thereof (Sec. 5 of PD 194;Sec. 15 of RA 8762
6. Contracts for the supply of materials, goods and commodities to government-
owned or controlled corporation, company, agency or municipal corporation (Sec. 1 of
RA 5183)
7. Project Proponent and Facility Operator of a BOT project requiring a public utilities
franchise (Art. XII, Sec. 11 of the Constitution; Sec. 2a of RA 7718)
8. Operation of deep sea commercial fishing vessels
(Sec. 27 of RA 8550)
9. Adjustment Companies (Sec. 323 of PD 612 as amended by PD 1814)
10. 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. 5 of RA 4726)
Up to Sixty Percent (60%) Foreign Equity
1. Financing companies regulated by the Securities and Exchange Commission (Sec.
6 of RA 5980 as amended by RA 8556)
2. Investment houses regulated by the SEC (Sec. 5 of PD 129 as amended by RA
8366)
8. Shares of Stock (See XIII. Stocks and Stockholders)
COMMENCEMENT OF CORPORATE EXISTENCE
 A corporation commences to have juridical personality and legal existence only from the
moment the SEC issues to the incorporators a certificate of incorporation under its official
seal.
 It is the certificate of incorporation that gives juridical personality to a corporation and
placed it under the jurisdiction of the commission.
 In the case of religious corporations, the Code does not require the SEC to issue a
certificate of incorporation. In fact, Sec. 112 clearly states that from and after the filing
with the Commission of the articles of incorporation, the chief archbishop shall become
a corporation sole.
 The issuance of the articles calls the corporation into being but it is not really ready to
do business until it is organized. The corporation must formally organized and commence
the transaction of its business or the construction of its works within two years from the
date of its incorporation or, otherwise, its corporate powers shall cease and it shall be
deemed dissolved (Sec. 22.)
AMENDMENT OF ARTICLES OF INCORPORATION
Procedure:
4. Resolution by at least a majority of the board of directors or trustees;
5. Vote or written assent of the stockholders representing at least 2/3 of the outstanding
capital stock s or 2/3 of the members in case of non-stock corporations.
6. Submission and filing with the SEC of:
the original and amended articles together containing all the provisions
required by law to be set out in the articles of incorporation. Such articles, as
amended, shall be indicated by underscoring the change or changes made;
a. a copy thereof, duly certified under oath by the corporate secretary and a majority of
the directors or trustees stating the fact that such amendments have been duly
approved by the required vote of the stockholders or members; and
b. a favorable recommendation of the appropriate government agency concerned if
required by law.
Limitations:
o The amendment of any provision or matters stated in the articles of incorporation is not
allowed when it will be contrary to the provisions or requirement prescribed by the Code
or by special law or changes any provision in the articles of incorporation stating an
accomplished fact;
o It must be for legitimate purposes;
o It must be approved by the required vote of the board of directors or trustees and the
stockholders or members;
o The original articles and amended articles together must contain all provisions required
by law to be set out in the articles of incorporation;
o Such articles, as amended, must be indicated by underscoring the changes made, and
a copy thereof duly certified under oath by the corporate secretary and a majority of the
directors or trustees stating that the amendments have been duly approved by the
required vote of the stockholders or members must be submitted to the SEC;
o The amendments shall take effect only upon their approval by the SEC;
o However, express approval is not indispensable. This is because the
amendment shall also take effect from the date of filing with the said
Commission if it is not acted upon by the Commission within 6 months
from the date of filing for a cause not attributable to the corporation.
22
 o If the corporation is governed by special law, the amendments must be accompanied by Grounds for Suspension or Revocation of Certificate of Registration (Pres. Decree No. 902-
a favorable recommendation of the appropriate government agency; A)
o No right or remedy in favor of or against any corporation, its stockholders, members,
directors, trustees, or officers, nor any liability incurred by any such corporation, 1. Fraud in procuring its certificate of incorporation
stockholders, members, directors, trustees, or officers, shall be removed or impaired 2. Serious misrepresentation as to what the corporation can do or is doing to the great
either by the subsequent dissolution of said corporation or by any subsequent prejudice of, or damage to, the general public
amendment or repeal of this Code or of any part thereof (Section 145 of the 3. Refusal to comply with or defiance of a lawful order of the SEC restraining the
Corporation Code). commission of acts which would amount to a grave violation of its franchise
4. Continuous inoperation for a period of at least 5 years
5. Failure to file the by-laws within the required period
Facts not subject to amendments: 6. Failure to file required reports
o Names of incorporators;
o Names of original subscribers to the capital stock of the corporation and their subscribed and
paid up capital;
o Treasurer elected by the original subscribers; EFFECTS OF NON-USE OF CORPORATE CHARTER
o Members who contributed to the initial capital of a non- stock corporation; (Sec. 22)
o Date and place of execution of the articles of incorporation;
o Witnesses to the signing and acknowledgment of the articles  If a corporation does not formally organize and commence the transaction of its
business or the construction of its works within 2 years from the date of incorporation, its
corporate powers cease and the corporation shall be deemed dissolved.
Grounds for Rejection of the Articles of Incorporation or Amendment thereto (Sec. 17)  If a corporation has commenced transaction of its business but subsequently becomes
o That the articles of incorporation or any amendment thereto is not substantially in continuously inoperative for a period of at least 5 years, the same shall be a ground
accordance with the form prescribed therein; for the suspension or revocation of its corporate franchise or certificate of incorporation.
o That the purpose or purposes of the corporation are patently unconstitutional, illegal,  If the non-use of corporate charter or continuous inoperation of a corporation is due to
immoral, or contrary to government rules and regulations; causes beyond its control as found by the Commission, the effects mentioned shall not
o That the Treasurer’s Affidavit concerning the amount of capital stock subscribed take place.
and/or paid is false;
o That the required 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.
o These grounds are not exclusive.
o Before rejecting the Articles of Incorporation or its amendments, the SEC should
give the incorporators reasonable time within which to correct or modify the
objectionable portions of the articles or amendments.
o Any decision of the Commission rejecting the articles of incorporation or disapproving
any amendment thereto is appealable by petition for review to the Court of Appeals
in accordance with the pertinent provisions of the Rules of Court.
o All the grounds enumerated in Section 17 can be determined on the basis of the
Articles of incorporation itself and the other required documents. Generally, if the
Articles of Incorporation and its supporting documents are in order, the SEC has no
recourse but to issue the Certificate of Incorporation (Philippine Corporate Law
Compedium, Timoteo Aquino, 2006 ed.).
23
 2. FORMALITIES IN ORGANIZING Inasmuch as Act No. 1510 is the charter of Manila Railroad Company and constitute a contract
a. GENERALLY between it and the Governmemnt, it would seem that the company is governd by its contract and not
i. GOVERNMENT OF THE PHILIPPINES VS. MANILA RAILROAD, 103 by the provisions of any general law upon questions covered by said contract. From a reading of the
PHIL 757 (1929) said charter or contract it would be seen that there is no indication that the Government intended to
impose upon said company any other conditions as obligations not expressly found in said charter or
G.R. No. L-30646 contract. If that is true, then certainly the Government cannot impose upon said company any
conditions or obligations found in any general law, which does not expressly modify said contract.
January 30, 1929
Section 84 of the Corporation Law (Act No. 1459) was intended to apply to all railways in the
THE GOVERNMENT OF THE PHILIPPINE ISLANDS, petitioner, vs. THE MANILA RAILROAD Philippine Islands which did not have a special charter contract. Act No. 1510 applies only to the
COMPANY and JOSE PAEZ as Manager of said Company, respondents Manila Railroad Company, one of the respondents, and being a special charter of said company, its
adoption had the effect of superseding the provisions of the general Corporation Law which are
This is a petition in the Supreme Court of the extraordinary legal writ of mandamus presented by applicable to railraods in general. The special charter (Act No. 1510) had the effect of superseding
the Government of the Philippine Islands, praying that the writ be issued to compel the Manila the general Corporation Law upon all matters covered by said special charter. Said Act, inasmuch as
Railroad Company and Jose Paez, as its manager, to provide and equip the telegraph poles of it contained a special provision relating to the erection of telegraph and telephone poles, and the
said company between the municipality of Paniqui, Province of Tarlac, and the Municipality of number of wires which the Government might place thereon, superseded the general law upon that
San Fernando, Province of La Union, with crosspieces for six telegraph wires belonging to the question.
Government, which, it is alleged, are necessary for public service between said municipalities.
Act No. 1510 of the United States Philippine Commission (vol. 5, P. L., pp. 350-358), and that under
Facts: the provisions of said Act No. 1510 the Government is entitled to place on the poles of the company
four wires only.
The government of the Philippines entered into a contract with the manila rail road company under a
special charter act no. 1510. The government of the Philippines is now demanding from the
defendant that it should provide and equip its telegraph poles with crosspieces to carry six telegraph
wires of the Government. This claim is based on the provisions of section 84 of act No. 1459. Act No.
1459 is the General Corporation Law and was adopted by the United States Philippine Commission
on March 1, 1906. (Vol. 5, Pub. Laws, pp. 224-268.) Section 84 of the said Act provides: The railroad
corporation shall establish along the whole length of the road a telegraph line for the use of the
railroad. The posts of this line may be used for Government wires and shall be of sufficient length
and strength and equipped with sufficient crosspiece to carry the number of wires which the
Government may consider necessary for the public service. The establishment, protection, and
maintenance of the wires and stations necessary for the public service shall be at the cost of the
Government. (Vol. 5, P. L., p. 247.) The defense of the defendant is that it is not bound by the
provisions of the corporation code because it has a charter of his own Act. No 1510. Under that act
the government is entitled to place on the poles of the company four wires only.

Issue: Whether or not the provisions of the corporation law apply between the parties.

Ruling:

24
 ii. RURAL BANK OF SALINAS V. CA 210 SCRA 510 (1992)
Rural Bank of Salinas, Inc. v. CA
210 SCRA 510
FACTS: Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc., executed a Special
Power of Attorney in favor of his wife, Melania to sell or otherwise dispose of and/or mortgage 473
shares of stock of the Bank registered in his name (represented by the Bank's stock certificates nos.
26, 49 and 65), to execute the proper documents therefor, and to receive and sign receipts for the
dispositions. Melania, as Attorney-in-Fact, executed a Deed of Assignment for 472 shares out of the
473 shares, in favor of private respondents Luz Andico (457 shares), Wilhelmina Rosales (10 shares)
and Francisco Guerrero, Jr. (5 shares). Melania Guerrero presented to Rural Bank of Salinas the 2
Deeds of Assignment for registration with a request for the transfer in the Bank's stock and transfer
book of the 473 shares of stock so assigned, the cancellation of stock certificates in the name of
Clemente, and the issuance of new stock certificates in the name of the new owners thereof., Rural
Bank denied such request. Melania filed with the SEC an action for mandamus against Rural Bank of
Salinas, its President and Corporate Secretary.
The Bank in their Answer with counterclaim alleged that upon the death of Clemente, his 473 shares
of stock became the property of his estate, and his property and that of his widow should first be
settled and liquidated in accordance with law before any distribution can be effected so that
petitioners may not be a party to any scheme to evade payment of estate or inheritance tax and in
order to avoid liability to any third persons or creditors of the late Clemente.
Maripol Guerrero filed a motion for intervention (legally adopted daughter of the late Clemente and
Melanie) stating that a Petition for the administration of the estate of Clemente had been filed but her
motion was denied. She then filed before the CFI of Rizal, against Melanie for the annulment of the
Deeds of Assignment for being fictitious, void or simulated. The Bank then filed a motion to
dissmiss/suspend hearing pending resolution of the case for annulment. However, SEC denied such
motion.
SEC rendered a Decision granting the writ of Mandamus and directing petitioners to cancel stock
certificates of the Bank, and to issue new certificates in the names of private respondents, except
Melania Guerrero. Appealed to the CA but CA affirmed the decision of SEC.
ISSUES:
1. WON SEC has the power to adjudicate the case. -Yes
2. WON corporatons may by its board, its by-laws, or the act of its officers create restrictions in
stock transfers.No.
3. WON the Bank being a corporation may refuse to transfer and register stocks. No.
HELD: 1. Section 5 (b) of P.D. No. 902-A grants to the SEC the original and exclusive jurisdiction to
hear and decide cases involving intracorporate controversies. An intracorporate controversy has
been defined as one which arises between a stockholder and the corporation. There is no distinction,
qualification, nor any exception whatsoever (Rivera vs. Florendo, 144 SCRA 643 [1986]). The case
at bar involves shares of stock, their registration, cancellation and issuances thereof by petitioner
Rural Bank of Salinas. It is therefore within the power of respondent SEC to adjudicate.
2. 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 regulation, not restriction; they are always subject to
the charter of the corporation. The corporation, in the absence of such power, cannot ordinarily
inquire into or pass upon the legality of the transactions by which its stock passes from one person to
another, nor can it question the consideration upon which a sale is based. . . . (Tomson on
Corporation Sec. 4137, cited in Fleisher vs. Nolasco, Supra).
The only limitation imposed by Section 63 of the Corporation Code is when the corporation holds any
unpaid claim against the shares intended to be transferred, which is absent here.
3. The right of a transferee/assignee to have stocks transferred to his name is an inherent right
flowing from his ownership of the stocks. Respondent SEC correctly ruled in favor of the registering
of the shares of stock in question in private respondent's names. Such ruling finds support under
Section 63 of the Corporation Code, to wit:
Sec. 63. . . . Shares of stock so issued 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 person legally
authorized to make the transfer. No transfer, however, shall be valid, except as between the parties,
until the transfer is recorded in the books of the corporation . . .
The corporation's obligation to register is ministerial.
In transferring stock, the secretary of a corporation acts in purely ministerial capacity, and does not
try to decide the question of ownership. (Fletcher, Sec. 5528, page 434).
25
The duty of the corporation to transfer is a ministerial one and if it refuses to make such transaction may deem necessary and convenient. (Sec. 14)
without good cause, it may be compelled to do so by mandamus. (See. 5518, 12 Fletcher 394)

b. ARTICLES OF INCORPORATION Q: What are the limitations in the amendment of AOI?

Q: Define articles of incorporation.

A:

A: Articles of Incorporation (AOI) is one that defines the charter of the 1. The amendment must be for legitimate purposes and must not be contrary to
corporation and the contractual relationships between the State and the other provisions of the Corporation Code and Special laws;
corporation, the stockholders and the State, and between the corporation and 2. Approved by majority of BOD/BOT;
its stockholders. 3. Vote or written assent of stockholders representing 2/3 of the outstanding
capital stock or 2/3 of members;
4. The original and amended articles together shall contain all provisions required
Q: What are the contents of AOI? by law to be set out in the articles of incorporation. Such articles, as amended,
shall be indicated by underscoring the change/s made;
A: NaP‐ PlaTINum‐ASONO 5. Certification under oath by corporate secretary and a majority of the
BOD/BOT stating the fact that said amendment/s have been duly
1. Name of corporation approved by the required vote of the stockholders or members, shall
2. Purpose/s, indicating the primary and secondary purposes be submitted to the SEC;
3. Place of principal office 6. Must be approved by SEC. (Sec. 16);
7. Must be accompanied by a favorable recommendation of the
appropriate government agency in cases of:
Note: To determine proper venue in filing of an action a. Banks
b. Banking and quasi‐banking institutions
4. Term of existence c. Building and loan associations
5. Names, nationalities and residences of d. Trust companies and other financial intermediaries
Incorporators e. Insurance companies
6. Number of directors or trustees, which shall not be less than 5 nor more than f. Public utilities
15, except for corporation sole g. Educational institutions
7. Names, nationalities, and residences of the persons who shall Act as directors h. Other corporations governed by special laws. (Sec. 17 [2])
or trustees until the first regular ones are elected and qualified
8. If a Stock corporation, the amount of its authorized capital stock, number of
shares and in case the shares are par value shares, the par value of each Q: When does amendment of AOI take effect?
share;
9. Names, nationalities, number of shares, and the amounts subscribed and paid
by each of the Original subscribers which shall not be less than 25% of A: Upon approval by the SEC. That is upon issuance of amended certificate
authorized capital stock; of incorporation.
10. If Non‐stock, the amount of capital, the names, residences, and amount paid by
each contributor, which shall not be less than 25% of total subscription; name of
treasurer elected by subscribers; and
11. Other matters as are not inconsistent with law and which the incorporators

26
 Q: Is it necessary that the approval of SEC be express?
A: No, implied approval of SEC is also allowed. Thus amendment may also
take effect from the date of filing with SEC if not acted upon within 6 months
from the date of filing for a cause not attributable to the corporation.
Q: What are the provisions of AOI that cannot be amended?
A: Those matters referring to accomplished facts, except to correct mistakes.
E.g.
1. Names of incorporators
2. Names of original subscribers to the capital stock of the corporation
and their subscribed and paid up capital
3. Names of the original directors
4. Treasurer elected by the original subscribers
5. Members who contributed to the initial capital of the non‐stock
corporation
8. Witnesses to and acknowledgement with AOI
i. PROCEDURE AND DOCUMENTARY REQUIREMENTS
o AS TO CONTENTS AND FORM (SECTION 14 AND 15)
o AS TO CORPORATE NAME SECTION 18
1. RED LINE TRANSIT V. RURAL TRANSIT, 60 PHIL 549 (1934)
Red Line Transportation Co. vs. Rural Transit Co.
GR No. 41570 | Sept. 6, 1934
Facts:
 This is a petition for review of an order of the Public Service Commission granting to the
Rural Transit Company, Ltd., a certificate of public convenience to operate a
transportation service between Ilagan in the Province of Isabela and Tuguegarao in the
Province of Cagayan, and additional trips in its existing express service between Manila
Tuguegarao.
 On June 4, 1932, Rural Transit filed an application for certification of a new service
between Tuguegarao and Ilagan with the Public Company Service Commission (PSC),
since the present service is not sufficient
 Rural Transit further stated that it is a holder of a certificate of public convenience to
operate a passenger bus service between Manila and Tuguegarao
 Red Line opposed said application, arguing that they already hold a certificate of public
convenience for Tuguegarao and Ilagan, and is rendering adequate service. They also
argued that granting Rural Transit’s application would constitute a ruinous competition
over said route
 On Dec. 21, 1932, Public Service Commission approved Rural Transit’s application, with
the condition that "all the other terms and conditions of the various certificates of public
convenience of the herein applicant and herein incorporated are made a part hereof."
 A motion for rehearing and reconsideration was filed by Red Line since Rural Transit has
a pending application before the Court of First Instance for voluntary dissolution of the
corporation
 A motion for postponement was filed by Rural Transit as verified by M. Olsen who swears
"that he was the secretary of the Rural Transit Company, Ltd
 During the hearing before the Public Service Commission, the petition for dissolution and
the CFI’s decision decreeing the dissolution of Rural Transit were admitted without
objection
 At the trial of this case before the Public Service Commission an issue was raised as to
who was the real party in interest making the application, whether the Rural Transit
Company, Ltd., as appeared on the face of the application, or the Bachrach Motor
Company, Inc., using name of the Rural Transit Company, Ltd., as a trade name
 However, PSC granted Rural Transit’s application for certificate of public convenience
and ordered that a certificate be issued on its name
 PSC relied on a Resolution in case No. 23217, authorizing Bachrach Motor to continue
using Rural Transit’s name as its tradename in all its applications and petitions to be filed
before the PSC. Said resolution was given a retroactive effect as of the date of filing of the
application or April 30, 1930
Issue: Can the Public Service Commission authorize a corporation to assume the name of another
corporation as a trade name?
Ruling: NO
 The Rural Transit Company, Ltd., and the Bachrach Motor Co., Inc., are Philippine
corporations and the very law of their creation and continued existence requires each to
adopt and certify a distinctive name
 The incorporators "constitute a body politic and corporate under the name stated in the
certificate."
27
  A corporation has the power "of succession by its corporate name." It is essential to its
existence and cannot change its name except in the manner provided by the statute. By
that name alone is it authorized to transact business.
 The law gives a corporation no express or implied authority to assume another name that
is unappropriated: still less that of another corporation, which is expressly set apart for it
and protected by the law. If any corporation could assume at pleasure as an unregistered
trade name the name of another corporation, this practice would result in confusion and
open the door to frauds and evasions and difficulties of administration and supervision.
 In this case, the order of the commission authorizing the Bachrach Motor Co.,
Incorporated, to assume the name of the Rural Transit Co., Ltd. likewise incorporated, as
its trade name being void. Accepting the order of December 21, 1932, at its face as
granting a certificate of public convenience to the applicant Rural Transit Co., Ltd., the said
order last mentioned is set aside and vacated on the ground that the Rural Transit
Company, Ltd., is not the real party in interest and its application was fictitious
2. PHILIPPINE INSURANCE V. HARTIGAN 34 SCRA 252 (1970)
PHILIPPINE FIRST INSURANCE COMPANY, INC.
vs.
MARIA CARMEN HARTIGAN, CGH, and O. ENGKEE
G.R. No. L-26370
(July 31, 1970)
FACTS:
On June 1, 1953, plaintiff was originally named as 'The Yek Tong Lin Fire and Marine Insurance Co.,
Ltd’ an insurance corp. duly presented with the Security and Exchange Commissioner and before a
Notary Public as provided in their articles of incorporation. Later amended its articles of incorporation
and changed its name on May 26, 1961 as ‘Philippine First Insurance Co., Inc.’ pursuant to a
certificate of the Board of Directors.
The complaint alleges that: Philippine First Insurance Co., Inc., doing business under the name of
'The Yek Tong Lin Fire and Marine Insurance Co., Lt.' signed as co-maker together with defendant
Maria Carmen Hartigan, CGH, to which a promissory note was made in favour of China Banking.
Said defendant failed to pay in full despite renewal of such note. The complaint ends with a prayer for
judgment against the defendants, jointly and severally, for the sum of P4,559.50 with interest at the
rate of 12% per annum from November 23, 1961 plus P911.90 by way of attorney's fees and costs.
Defendants admitted the execution of the indemnity agreement but they claim that they signed said
agreement in favor of the Yek Tong Lin Fire and Marine Insurance Co., Ltd.' and not in favor of the
plaintiff Philippine Insurance.
They likewise admit that they failed to pay the promissory note when it fell due but they allege that
since their obligation with the China Banking Corporation based on the promissory note still subsists,
the surety who co-signed the promissory note is not entitled to collect the value thereof from the
defendants otherwise they will be liable for double amount of their obligation, there being no
allegation that the surety has paid the obligation to the creditor. In their special defense, defendants
claim that there is no privity of contract between the plaintiff and the defendants and consequently,
the plaintiff has no cause of action against them, considering that the complaint does not allege that
the plaintiff and the 'Yek Tong Lin Fire and Marine Insurance Co., Ltd.' are one and the same or that
the plaintiff has acquired the rights of the latter.
ISSUE: May a Philippine corporation change its name and still retain its original personality and
individuality as such?
RULING: YES. As can be gleaned under Sections 6 and 18 of the Corporation Law, the name of a
corporation is peculiarly important as necessary to the very existence of a corporation.
The general rule as to corporations is that each corporation shall have a name by which it is to sue
and be sued and do all legal acts. The name of a corporation in this respect designates the
corporation in the same manner as the name of an individual designates the person."
Since an individual has the right to change his name under certain conditions, there is no compelling
reason why a corporation may not enjoy the same right. There is nothing sacrosanct in a name when
it comes to artificial beings. The sentimental considerations which individuals attach to their names
are not present in corporations and partnerships.
Of course, as in the case of an individual, such change may not be made exclusively. by the
corporation's own act. It has to follow the procedure prescribed by law for the purpose; and this is
what is important and indispensably prescribed — strict adherence to such procedure.
A general power to alter or amend the charter of a corporation necessarily includes the power to alter
the name of the corporation. Hence, a mere change in the name of a corporation, either by the
legislature or by the corporators or stockholders under legislative authority, does not, generally
speaking, affect the identity of the corporation, nor in any way affect the rights, privileges, or
obligations previously acquired or incurred by it. Indeed, it has been said that a change of name by a
corporation has no more effect upon the identity of the corporation than a change of name by a
natural person has upon the identity of such person. The corporation, upon such change in its name,
is in no sense a new corporation, nor the successor of the original one, but remains and continues to
be the original corporation. It is the same corporation with a different name, and its character is in no
respect changed. ... (6 Fletcher, Cyclopedia of the Law of Private Corporations, 224-225, citing
cases.)
As correctly pointed out by appellant, the approval by the stockholders of the amendment of its
articles of incorporation changing the name "The Yek Tong Lin Fire & Marine Insurance Co., Ltd." to
28
"Philippine First Insurance Co., Inc." on March 8, 1961, did not automatically change the name of name or one similar to it. That promise is still binding upon the corporation and its responsible
said corporation on that date. To be effective, Section 18 of the Corporation Law, earlier quoted, officers.
requires that "a copy of the articles of incorporation as amended, duly certified to be correct by the
president and the secretary of the corporation and a majority of the board of directors or trustees,
shall be filed with the Securities & Exchange Commissioner", and it is only from the time of such
filing, that "the corporation shall have the same powers and it and the members and stockholders
thereof shall thereafter be subject to the same liabilities as if such amendment had been embraced in Universal Mills Corporation vs. Universal Textile Mills
the original articles of incorporation." It goes without saying then that appellant rightly acted in its old 78 SCRA 62 (1977)
name when on May 15, 1961, it entered into the indemnity agreement, Annex A, with the defendant-
appellees; for only after the filing of the amended articles of incorporation with the Securities &
FACTS:
Exchange Commission on May 26, 1961, did appellant legally acquire its new name; and it was
perfectly right for it to file the present case In that new name on December 6, 1961. Such is, but the
logical effect of the change of name of the corporation upon its actions. This is an appeal from the order of the Securities and Exchange Commission granting a petition by
Therefore, actions brought by a corporation after it has changed its name should be brought under the respondent to have the petitioner’s corporate name be changed as it is “confusingly and
the new name although for the enforcement of rights existing at the time the change was made. The deceptively similar” to that of the former.
change in the name of the corporation does not affect its right to bring an action on a note given to
the corporation under its former name. On January 8, 1954, respondent Universal Textile Mills was issued a certificate of Corporation as a
textile manufacturing firm. On the other hand, petitioner, which deals in the production of hosieries
3. UNIVERSAL MILLS V. UNIVERSAL TEXTTILE 78 SCRA 62 (1977) and apparels, acquired its current name by amending its articles of incorporation, changing its name
from Universal Hosiery mills Corporation to Universal Mills corporation.
78 SCRA 62 – Business Organization – Corporation Law – Tradenames
In 1953, Universal Textile Mills, Inc. (UTMI) was organized. In 1954, Universal Hosiery Mills ISSUE:
Corporation (UHMC) was also organized. Both are actually distinct corporations but they engage in
the same business (fabrics). In 1963, UHMC petitioned to change its name to Universal Mills
Corporation (UMC). The Securities and Exchange Commission (SEC) granted the petition. Whether or not petioner’s trade name is confusingly similar with that of respondent’s.

Subsequently, a warehouse owned by UMC was gutted by fire. News about the fire spread and
investors of UTMI thought that it was UTMI’s warehouse that was destroyed. UTMI had to make
clarifications that it was UMC’s warehouse that got burned. Eventually, UTMI petitioned that UMC
should be enjoined from using its name because of the confusion it brought. The SEC granted
UTMI’s petition. UMC however assailed the order of the SEC as it averred that their tradename is not
deceptive; that UTMI’s tradename is qualified by the word “Textile”, hence, there can be no
confusion.
ISSUE: Whether or not the decision of the SEC is correct.
HELD: Yes. There is definitely confusion as it was evident from the facts where the investors of
UTMI mistakenly believed that it was UTMI’s warehouse that was destroyed. Although the corporate
names are not really identical, they are indisputably so similar that it can cause, as it already did,
confusion. The SEC did not act in abuse of its discretion when it order UMC to drop its name
because there was a factual evidence presented as to the confusion. Further, when UMC filed its
petition for change of corporate name, it made an undertaking that it shall change its name in the
event that there is another person, firm or entity who has obtained a prior right to the use of such
HELD:
Yes. The corporate names in question are not identical, but they are indisputably so similar that even
under the test of reasonable care and observation as the public generally are capable of using and
may be expected to exercise” invoked by appellant. We are apprehensive confusion will usually
arise, considering that x x x appellant included among its primary purposes the manufacturing,
dyeing, finishing and selling of fabrics of all kinds” which respondent had been engaged for more
than a decade ahead of petitioner.
UNIVERSAL MILLS V. UNIVERSAL TEXTTILE 78 SCRA 62 (1977)
78 SCRA 62 – Business Organization – Corporation Law – Tradenames
In 1953, Universal Textile Mills, Inc. (UTMI) was organized. In 1954, Universal Hosiery Mills
Corporation (UHMC) was also organized. Both are actually distinct corporations but they engage in

29
the same business (fabrics). In 1963, UHMC petitioned to change its name to Universal Mills
Corporation (UMC). The Securities and Exchange Commission (SEC) granted the petition.
Universal Mills Corporation vs. Universal Textile Mills
Subsequently, a warehouse owned by UMC was gutted by fire. News about the fire spread and
78 SCRA 62 (1977)
investors of UTMI thought that it was UTMI’s warehouse that was destroyed. UTMI had to make
clarifications that it was UMC’s warehouse that got burned. Eventually, UTMI petitioned that UMC
FACTS:
should be enjoined from using its name because of the confusion it brought. The SEC granted
UTMI’s petition. UMC however assailed the order of the SEC as it averred that their tradename is not
This is an appeal from the order of the Securities and Exchange Commission granting a petition by
deceptive; that UTMI’s tradename is qualified by the word “Textile”, hence, there can be no
the respondent to have the petitioner’s corporate name be changed as it is “confusingly and
confusion.
deceptively similar” to that of the former.
ISSUE: Whether or not the decision of the SEC is correct.
On January 8, 1954, respondent Universal Textile Mills was issued a certificate of Corporation as a
HELD: Yes. There is definitely confusion as it was evident from the facts where the investors of
textile manufacturing firm. On the other hand, petitioner, which deals in the production of hosieries
UTMI mistakenly believed that it was UTMI’s warehouse that was destroyed. Although the corporate
and apparels, acquired its current name by amending its articles of incorporation, changing its name
names are not really identical, they are indisputably so similar that it can cause, as it already did,
from Universal Hosiery mills Corporation to Universal Mills corporation.
confusion. The SEC did not act in abuse of its discretion when it order UMC to drop its name
because there was a factual evidence presented as to the confusion. Further, when UMC filed its
ISSUE:
petition for change of corporate name, it made an undertaking that it shall change its name in the
event that there is another person, firm or entity who has obtained a prior right to the use of such
Whether or not petioner’s trade name is confusingly similar with that of respondent’s.
name or one similar to it. That promise is still binding upon the corporation and its responsible
officers.
HELD:

Yes. The corporate names in question are not identical, but they are indisputably so similar that even
under the test of reasonable care and observation as the public generally are capable of using and
may be expected to exercise” invoked by appellant. We are apprehensive confusion will usually
arise, considering that x x x appellant included among its primary purposes the manufacturing,
dyeing, finishing and selling of fabrics of all kinds” which respondent had been engaged for more
than a decade ahead of petitioner.

30
REVIEWER and loan associations,
schools
Requirements in the formation of a corporation

Who may form a corporation (See SEC. 10) Steps in the formation of a corporation
INCORPORATORS REQUIREMENTS COMMENTS
Mutual Agreement to perform certain acts required for organizing a corporation
Definition stockholders or members compare with Corporators
mentioned in the articles of which include all stockholders 1- Organize and establish a corporation
incorporation as originally or members, whether 2- Comply with requirements of corporation code
forming and composing the incorporators or joining the 3- Contribute capital/resources
corporation and who are corporation after its 4- Mode of use of capital/resource and control/management of capital/resource
signatories thereof incorporation. 5- distribution/disposition of capital/resource (embodied in constitutive
stockholders or members documents)
mentioned in the articles of STEPS COMMENTS
incorporation as originally
forming and composing the a. Promotional Stage (See SEC. Promoter
corporation and who are 2. Definitions) brings together persons who become
signatories thereof interested in the enterprise
aids in procuring subscriptions and sets
Characteristic natural persons excludes corporations and in motion the machinery which leads to
partnerships the formation of the corporation itself
formulates the necessary initial
Number not less than 5; not more may be more than 15 for business and financial plans and, if
than 15 non-stock corp. except necessary, buys the rights and property
educational corp. which the business may need, with the
understanding that the corporation when
does not prevent the “one- formed, shall take over the same.
man (person)
corporation” wherein the
other incorporators may have b. Drafting articles of incorporation (see chart below)
only nominal ownership of (See SEC. 14)
only one share of stock; not
necessarily illegal
c. Filing of articles; payment of fees. AOI & the treasurer’s affidavit duly signed &
Age of legal age acknowledged
must be filed w/ the SEC & the corresponding
Residence majority should be residence a requirement; fees paid
residents of the Philippines citizenship requirement only in failure to file the AOI will prevent due
certain areas such as public incorporation of the proposed corporation & will not
utilities, retail trade banks, give rise to its juridical personality. It will not even
investment houses, savings be a de facto corp.

31

d. Examination of articles; approval or
rejection by SEC.
e. Issuance of certificate of
incorporation.
Under present SEC rules, the AOI once filed , will
be published in the SEC Weekly Bulletin at the
expense of the corp. (SEC Circular # 4, 1982).
Process:
a) SEC shall examine them in order to determine
whether they are in conformity w/ law.
b) If not, the SEC must give the incorporators a
reasonable time w/in w/c to correct or modify the
objectionable portions.
Grounds for rejection or disapproval of AOI:
a) AOI /amendment not substantially in
accordance w/ the form prescribed
b) purpose/s are patently unconstitutional, illegal,
immoral, or contrary to government rules & regulations;
c) Treasurer’s Affidavit is false;
d) required percentage of ownership has not
been complied with (Sec. 17)
e) corp.’s establishment, organization or
operation will not be consistent w/ the declared national
economic policies (to be determined by the SEC, after
consultation w/ BOI, NEDA or any appropriate
government agency -- PD 902-A as amended by PD
1758, Sec. 6 (k))
Decisions of the SEC disapproving or
rejecting AOI may be appealed to the CA by
petition for review in accordance w/ the ROC.
Certificate of Incorporation will be issued if:
a) SEC is satisfied that all legal requirements
have been complied with; and
b) there are no reasons for rejecting or
disapproving the AOI.
It is only upon such issuance that the corporation
acquires juridical personality.
(See Sec. 19. Commencement of corporate existence)
Should it be subsequently found that the
incorporators were guilty of fraud in procuring the
certificate of incorporation, the same may be
revoked by the SEC, after proper notice & hearing.
b. Drafting articles of incorporation (See SEC. 14)
CONTENTS OF AOI COMMENTS
Corporate Name Essential to its existence since it is through it that the
corporation can sue and be sued and perform all legal acts
A corporate name shall be disallowed by the SEC if the
proposed name is either:
(1) identical or deceptively or confusingly similar to
that of any existing corporation or to any other
name already protected by law; or
(2) patently deceptive, confusing or contrary to
existing laws. (Sec. 18)
LYCEUM OF THE PHILS. VS. CA (219 SCRA 610)
The policy underlying the prohibition against the registration of a
corporate name which is “identical or deceptively or confusingly
similar” to that of any existing corporation or which is “patently
deceptive or patently confusing” or “contrary to existing laws is:
1. the avoidance of fraud upon the public which
would have occasion to deal with the entity
32
 concerned;
2. the prevention of evasion of legal obligations
and duties, and
3. the reduction of difficulties of administration and
supervision over corporations.
Purpose Clause A corporation can only have one (1) primary
purpose. However, it can have several secondary
purposes.
A corporation has only such powers as are expressly
granted to it by law & by its articles of incorporation, those
which may be incidental to such conferred powers , those
reasonably necessary to accomplish its purposes & those
which may be incident to its existence.
Corporation may not be formed for the purpose of
practicing a profession like law, medicine or accountancy
Principal Office must be within the Philippines
specify city or province
street/number not necessary
important in determining venue in an action by or against
the corp., or on determining the province where a chattel
mortgage of shares should be registered
Term of Existence cannot specify term which is longer than 50 years at a time
may be renewed for another 50 years, but not earlier than
5 years prior to the original or subsequent expiry date
UNLESS there are justifiable reasons for an earlier
extension.
Incorporators and Directors names, nationalities & residences of the incorporators;
names, nationalities & residences of the directors or
trustees who will act as such until the first regular directors
or trustees are elected;
treasurer who has been chosen by the pre-incorporation
subscribers/members to receive on behalf of the
corporation, all subscriptions /contributions paid by them.
Capital Stock amount of its authorized capital stock in lawful money of
the Philippines
number of shares into which it is divided
in case the shares are par value shares, the par value of
each,
names, nationalities and residences of the original
subscribers, and the amount subscribed and paid by each
on his subscription, and if some or all of the shares are
without par value, such fact must be stated
for a non-stock corporation, the amount of its capital, the
names, nationalities and residences of the contributors and
the amount contributed by each
25% of 25% rule to be certified by Treasurer
paid up capital should not be less than P5,000
Other matters Classes of shares into w/c the shares of stock have been
divided; preferences of & restrictions on any such class;
and any denial or restriction of the pre-emptive right of
stockholders should also be expressly stated in said articles.
If the corporation is engaged in a wholly or partially
nationalized business or activity, the AOI must contain a
prohibition against a transfer of stock which would reduce
the Filipino ownership of its stock to less than the required
minimum.
Any corporation may be incorporated as a close corporation, except:
a) mining or oil companies;
b) stock exchanges;
c) banks;
d) insurance companies;
e) public utilities;
f) educational institutions; &
g) corporations declared to be vested w/ public interest
33
 ii. AS TO PURPOSE (SECTION 14 (2))
7. Purpose Clause Significance:
a. A person who intends to invest his money in the business corporation will know
where and in what kind of business or activity his money will be invested;
d. The directors and the officers of the corporation will know within what scope of business
they are authorized to act; and
e. A third person who has dealings with the corporation may know by perusal of the
articles whether the transaction or dealing he has with the corporation is within the
authority of the corporation or not.
Limitations:
e. Purpose or purposes must be lawful;
f. Purpose or purposes must be stated with sufficient clarity;
g. If there is more than one purpose, the primary as well as the secondary purpose must
be specified; and
h. Purposes must be capable of being lawfully combined.
A corporation the primary object of which is without statutory authority can have no
lawful existence, even though some of its declared purposes may be lawful.
3. UY SIULIONG V. DIRECTOR, 40 PHIL 514 (1919)
G.R. No. L-15429 December 1, 1919
UY SIULIONG, MARIANO LIMJAP, GACU UNG JIENG, EDILBERTO CALIXTO and UY CHO
YEE, petitioners,
vs.
THE DIRECTOR OF COMMERCE AND INDUSTRY, respondent.
FACTS:
The purpose of this action is to obtain the writ of mandamus to require the respondent
to file and register, upon the payment of the lawful fee, articles of incorporation, and to issue to the
petitioners as the incorporators of a certain corporation to be known as "Siuliong y Compañia, Inc.,"
a certificate under the seal of the office of said respondent, certifying that the articles of incorporation
have been duly filed and registered in his office in accordance with the law. That prior to the
presentation of the petition, petitioners associated together as partners, which partnership was
known as "mercantil regular colectiva, under the name of "Siuliong y Cia.;" Petitioners have been
members of said partnership of "Siuliong y Cia.," desired to dissolve the partnership and to form a
corporation composed of the same persons as incorporators, to be known as "Siulong y Compañia,
Incorporada;" That the purpose of said corporation, "Siuliong y Cia., Inc.," is to acquire the business
of the partnership theretofore known as Siuliong & Co., and to continue said business with some of
its objects or purposes; An examination of the articles of incorporation of the said "Siuliong y
Compañia, Incorporada" (Exhibit A) shows that it is to be organized for the purchase and sale,
importation and exportation, of the products of the country as well as of foreign countries; To
discount promissory notes, bills of exchange, and other negotiable instruments; The purchase and
sale of bills of exchange, bonds, stocks, or joint account of mercantile and industrial associations and
of all classes of mercantile documents; commissions, consignments;"xxx.. The respondent contends
(a) that the proposed articles of incorporation presented for file and registry permitted the petitioners
to engage in a business which had for its end more than one purpose; (b) that it permitted the
petitioners to engage in the banking business, and (c) to deal in real estate, in violation of the Act of
Congress of July 1, 1902. The petitioners, insisted that said proposed articles of incorporation do not
permit it to enter into the banking business nor to engage in the purchase and sale of real estate in
violation of said Act of Congress, expressly renounced in open court their right to engage in such
business under their articles of incorporation, even though said articles might be interpreted in a way
to authorize them to so to do.
ISSUE : Whether or not a corporation organized for commercial purposes in the Philippine Islands
can be organized for more than one purpose?
HELD: YES. Considering the purposes and objects of the proposed articles of incorporation which
are enumerated, we are of the opinion that it contains nothing which violates in the slightest degree
any of the provisions of the laws of the Philippine Islands, and the petitioners are, therefore, entitled
to have such articles of incorporation filed and registered as prayed for by them and to have issued
to them a certificate under the seal of the office of the respondent, setting forth that such articles of
incorporation have been duly filed in his office. (Sec. 11, Act No. 1459.)
Therefore, the petition prayed for is hereby granted, and without any finding as to costs, it is so
ordered.
34
 i. AS TO PRINCIPAL OFFICE (SECTION 14 (3))
4. The articles of incorporation must state the place where the principal office of the
corporation is to be established or located, which place must be within the Philippine
(Sec. 14 [3]).
Purpose: To fix the residence of the corporation in a definite place, instead of allowing it
to be ambulatory (Young Auto Supply Co. vs. CA, 223 SCRA 670).
5. It is now required by the SEC that all corporations and partnerships applying for
registration should state in their Articles of Incorporation the specific address of their
principal office, which shall include, if feasible, the strict number; street name; barangay;
city or municipality; and specific residence address of each incorporator, stockholder,
director or trustee in line with the full disclosure requirement of existing laws (SEC
Circ. No. 3, Series of 2006).
4. CLAVECILLA V. ANTILLON 19 SCRA 379 (1967)
CLAVECILLA Radio System v. Hon. Agustin Antillon
Facts:
1. New Cagayan Grocery (NECAGRO) filed a complaint for damages against Clavecilla
Radio system. They alleged that Clavecilla omitted the word “NOT” in the letter addressed
to NECAGRO for transmittal at Clavecilla Cagayan de Oro Branch.
2. NECAGRO alleged that the omission of the word “not” between the word WASHED and
AVAILABLE altered the contents of the same causing them to suffer from damages.
3. Clavecilla filed a motion to dismiss on the ground of failure to state a cause of action and
improper venue.
4. City Judge of CDO denied the MTD. Clavecilla filed a petition for prohibition with
preliminary Injunction with the CFI praying that the City Judge be enjoined from further
proceeding with the case because of improper venue.
5. CFI – dismissed the case and held that Clavecilla may be sued either in Manila (principal
office) or in CDO (branch office).
6. Clavecilla appealed to the SC contending that the suit against it should be filed in Manila
where it holds its principal office.
Issue:
WON the present case against Clavecilla should be filed in Manila where it holds its principal
office.
Held: YES
It is clear that the case from damages is based upon a written contract.
Under par. (b)(3) Sec. 1 Rule 4 of the New Rules of Court, when an action is not upon a written
contract then the case should be filed in the municipality where the defendant or any of the defendant
resides or maybe served upon with summons.
In corpo. Law, the residence of the corporation is the place where the principal office is established.
Since Clavecilla’s principal office is in Manila, then the suit against it may properly be file in the City
of Manila.
As stated in Evangelista v. Santos, the laying of the venue of an action is not left to plaintiff’s caprice
because the matter is regulated by the Rules of Court.
35
 CLAVECILLIA RADIO SYSTEM vs. ANTILLON
Facts: This is an appeal from an order of the Court of First Instance of Misamis Oriental dismissing
the petition of the Clavecilla Radio System to prohibit the City Judge of Cagayan de Oro from taking
cognizance of Civil Case No. 1048 for damages.
New Cagayan Grocery filed a complaint against the Clavecilla Radio System alleging, in effect, that
on March 12, 1963, the following message, addressed to the former, was filed at the latter's Bacolod
Branch Office for transmittal thru its branch office at Cagayan de Oro:
NECAGRO CAGAYAN DE ORO (CLAVECILLA) REURTEL WASHED NOT AVAILABLE
REFINED TWENTY FIFTY IF AGREEABLE SHALL SHIP LATER REPLY POHANG
The Cagayan de Oro branch office having received the said message omitted, in delivering the same
to the New Cagayan Grocery, the word "NOT" between the words "WASHED" and "AVAILABLE,"
thus changing entirely the contents and purport of the same and causing the said addressee to suffer
damages.
New Cagayan filed a complaint against Clavecilla in the MTC.
After service of summons, Clavecilla filed MtD the complaint on the grounds that it states no cause of
action and the venue is improperly laid. New Cagayan interposed opposition to which Clavecilla
filed its rejoinder.
Thereafter, MTC judge Antillon denied MtD for lack of merit.
Clavecilla filed a petition for prohibition and prelim injunction with the CFI praying that judge Antillon
be enjoined from further proceeding with the case on the ground of improper venue.
Respondents filed MtD the petition but was opposed by Clavecilla.
CFI held that Clavecilla may be sued in Manila where it has its principal office or in CDO where it was
served with summons thru the branch manager.
In other word, CFI upheld the authority of MTC to take cognizance of the case.
In appealing, Clavecilla contends that the suit against it should be filed in Manila where it holds its
principal office. After service of summons, the Clavecilla Radio System filed a motion to dismiss the
complaint on the grounds that it states no cause of action and that the venue is improperly laid.
Issue: Whether or not the venue is improperly laid?
Ruling: It is clear that the case for damages filed with the city court is based upon tort and not upon
a written contract. Section 1 of Rule 4 of the New Rules of Court, governing venue of actions in
inferior courts, provides in its paragraph (b) (3) that when "the action is not upon a written contract,
then in the municipality where the defendant or any of the defendants resides or may be served with
summons." (Emphasis supplied)
Settled is the principle in corporation law that the residence of a corporation is the place where its
principal office is established. Since it is not disputed that the Clavecilla Radio System has its
principal office in Manila, it follows that the suit against it may properly be filed in the City of Manila.
i. AS TO CORPORATE TERM (SECTION 11)
 The corporation shall exist for the term specified in the articles of incorporation not exceeding
50 years, unless sooner legally dissolved or unless its registration is revoked upon any of the
grounds provided by law.
 The corporate life may be reduced or extended by amendment of the articles of
incorporation by complying with the procedural requirements laid down in Sec. 37.
 The extension of corporate term is subject to the following limitations:
b. The term shall not exceed 50 years in any one instance;
c. The amendment is effected before the expiration of the corporate term of existence,
for after dissolution by expiration of the corporation term there is no more corporate life
to extend (Alhambra Cigar vs. SEC, 24 SCRA 269).
d. The extension cannot be made earlier than 5 years prior to the expiration date unless
there are justifiable reasons therefore as may be determined by the SEC.
The mere extension of the corporate term of existence made before the expiration of the
original term constitutes a continuation of the old, and not the creation of a new
corporation. (The Corporation Code of the Philippines, Hector S. De Leon & Hector M. De
Leon, Jr., 2006 ed.)
 The expiration of the term for which the corporation was created does not, however,
produce its immediate dissolution for all purposes (Sec. 122).

36
 1. ALHAMBRA CIGAR & CIGARETTE V. SEC 25 SCRA 269 (1968)
Alhambra Cigar & Cigarette Manufacturing Company, Inc. vs Securities and Exchange
Commission
24 SCRA 269 – Business Organization – Corporation Law – Corporate Lifespan
On January 15, 1912, Alhambra Cigar & Cigarette Manufacturing Company, Inc. was incorporated.
Its lifespan was for 50 years so on January 15, 1962, it expired. Thereafter, its Board authorized its
liquidation. Under the prevailing law, Alhambra has 3 years to liquidate.
In 1963, while Alhambra was liquidating, Republic Act 3531 was enacted. It amended Section 18 of
the Corporation Law; it empowered domestic private corporations to extend their corporate life
beyond the period fixed by the articles of incorporation for a term not to exceed fifty years in any one
instance. Previous to Republic Act 3531, the maximum non-extendible term of such corporations was
fifty years.
Alhambra now amended its articles of incorporation to extend its lifespan for another 50 years. The
Securities and Exchange Commission (SEC) denied the amended articles of incorporation.
ISSUE: Whether or not a corporation under liquidation may still amend its articles of incorporation to
extend its lifespan.
HELD:
No. Alhambra cannot avail of the new law because it has already expired at the time of its passage.
When a corporation is liquidating pursuant to the statutory period of three years to liquidate, it is only
allowed to continue for the purpose of final closure of its business and no other purposes. In fact,
within that period, the corporation is enjoined from “continuing the business for which it was
established”. Hence, Alhambra’s board cannot validly amend its articles of incorporation to extend its
lifespan.
2. BENGUET CONSOLIDATED V. PINEDA 98 PHIL 711 (1956)
Benguet Consolidated Mining Co. vs Mariano Pineda
DOCTRINE
1.CORPORATION LAW; PROHIBITION AGAINST EXTENSION OF CORPORATE EXISTENCE BY
AMENDMENT OF THE ORIGINAL ARTICLES, APPLICABLE TO “SOCIEDADES ANONIMAS."—
The prohibition contained in section 18 of Act No. 1459, against extending the period of corporate
existence by amendment of the original articles, was intended to apply, and does apply, to
sociedades anonimas, already formed, organized and existing at the time of the effectivity of the
Corporation Law (Act 1459) in 1906.
2. ID.; ID.; PROHIBITION VALID AND IMPAIRS NO VESTED RIGHTS.—The aforesaid statutory
prohibition is valid and impairs no vested rights or constitutional inhibition where no agreement to
extend the original period of corporate life was perfected before the enactment of the Corporation
Law.
3.WHEN “SOCIEDAD ANONIMAS", MAY NOT CLAIM TO REFORM INTO A CORPORATION
UNDER SECTION 75 OF THE ACT.—A sociedad anónima, existing before the Corporation Law,
that continues to do business as such for a reasonable time after its enactment, is deemed to have
made its election and may not subsequently claim to reform into a corporation under section 75 of
Act No. 1459. Particularly should this be the case where it has asserted its privileges as such
sociedad anónima before invoking its alleged right to ref orm into a corporation
98 Phil 711 – Business Organization – Corporation Law – Sociedad Anonima – Corporate Existence
Benguet Consolidated Mining Company was organized in 1903 under the Spanish Code of
Commerce of 1886 as a sociedad anonima. It was agreed by the incorporators that Benguet Mining
was to exist for 50 years.
In 1906, Act 1459 (Corporation Law) was enacted which superseded the Code of Commerce of
1886. Act 1459 essentially introduced the American concept of a corporation. The purpose of the
law, among others, is to eradicate the Spanish Code and make sociedades anonimas obsolete.
In 1953, the board of directors of Benguet Mining submitted to the Securities and Exchange
Commission an application for them to be allowed to extend the life span of Benguet Mining. Then
Commissioner Mariano Pineda denied the application as it ruled that the extension requested is
contrary to Section 18 of the Corporation Law of 1906 which provides that the life of a corporation
shall not be extended by amendment beyond the time fixed in their original articles.
Benguet Mining contends that they have a vested right under the Code of Commerce of 1886
because they were organized under said law; that under said law, Benguet Mining is allowed to
extend its life by simply amending its articles of incorporation; that the prohibition in Section 18 of the
Corporation Code of 1906 does not apply to sociedades anonimas already existing prior to the Law’s
enactment; that even assuming that the prohibition applies to Benguet Mining, it should be allowed to
be reorganized as a corporation under the said Corporation Law.
ISSUE: Whether or not Benguet Mining is correct.
HELD: No. Benguet Mining has no vested right to extend its life. It is a well settled rule that no
person has a vested interest in any rule of law entitling him to insist that it shall remain unchanged for
his benefit. Had Benguet Mining agreed to extend its life prior to the passage of the Corporation
Code of 1906 such right would have vested. But when the law was passed in 1906, Benguet Mining
was already deprived of such right.
To allow Benguet Mining to extend its life will be inimical to the purpose of the law which
sought to render obsolete sociedades anonimas. If this is allowed, Benguet Mining will
37
unfairly do something which new corporations organized under the new Corporation Law
can’t do – that is, exist beyond 50 years. Plus, it would have reaped the benefits of being
a sociedad anonima and later on of being a corporation. Further, under the Corporation
Code of 1906, existing sociedades anonimas during the enactment of the law must choose
whether to continue as such or be organized as a corporation under the new law. Once a
sociedad anonima chooses one of these, it is already proscribed from choosing the other.
Evidently, Benguet Mining chose to exist as a sociedad anonima hence it can no longer elect
to become a corporation when its life is near its end
Q: Is a provision in the by‐laws of the corporation declaring a person
engaged in a competing business ineligible for nomination for elections
to the board of directors valid?
A: Yes, provided that before such nominee is disqualified, he should be
given due process to show that he is not covered by the disqualification
(Gokongwei v. SEC, G.R. No. L‐ 45911, Apr. 11, 1979).

ii. AS TO NUMBER AND RESIDENCY OF INCORPORATORS (SECTIO Note: The disqualification of a competition from being elected to the board is
10) a reasonable exercise of corporate authority.

Q: Is permanent representation allowed in the BOD?

Q: Who has jurisdiction over election contests in stock and non‐stock

A: No, the board of directors of corporations must be elected from among the
stockholders or members directors every year. Estoppel does not set in to legitimize what
is wrongful. (Grace Christian High School v. CA, G.R. No. 108905, Oct. 23, 1997)
Q: What are the limitations on the election of directors/ trustees?
corporation?
A: As amended by R.A. 8799 (The Securities Regulation Code), the
jurisdiction of the SEC under Sec. 5 P.D. No. 902‐A (SEC Reorganization
Act) is now transferred to Courts of General Jurisdiction (Regional Trial
Court). Thus, RTC now has jurisdiction over election contest.

A: Q: In case where there are 2 lists of BOD submitted to SEC, which one
is controlling?
At a meeting of stockholders or members called for the election of
directors or trustees, there must be present either in person or
by representative authorized to act by written proxy, the owners of A: It is the list of directors in the latest general information sheet as filed
the majority of the outstanding capital stock or majority of the with the SEC which is controlling. (Premium Marble Resources, Inc. v. CA,
members entitled to vote. G.R. No. 96551, Nov. 4, 1996)
2. The election must be by ballot if requested;
3. A stockholder cannot be deprived in the articles of incorporation or
in the by‐ laws of his statutory right to use any of the methods of
voting in the election of directors;
Q: What is the next step after the election of directors?
4. No delinquent stock shall be voted;
5. The candidates receiving the highest number of votes shall be
declared elected. (Sec. 24)
A: The directors must formally organize by the election of corporate officers. (Sec. 25)

Q: WHO ARE THE CORPORATE OFFICERS?

38
 iii. AS TO MINIMUM CAPITALIZATION (SECTIO 12)
A:
Q: What are the procedural requirements in increasing or decreasing
1. President – Must be a director at the time the assumes office, not at the time capital stock?
of appointment; A:
2. Treasurer – May or may not be a director; as a matter of sound corporate
practice, must be a resident 1. Majority vote of the BOD;
3. Secretary – Need not be a director unless required by the by‐laws; must be a 2. Ratification by stockholders representing 2/3 of the
resident and citizen of the Philippines; (Sec. 25); and outstanding capital stock;
4. Such other officers as may be provided in the by‐laws.

Note: An officer is also considered a corporate officer if he has been appointed by the
board of directors. (Easycall Communications Phils., Inc. v. Edward King, G.R. No.
145901, Dec. 15, 2005)
Any two 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. (Sec. 25)
3. Written notice of the proposed increase or diminution of the capital
stock and of the time and place of the stockholder’s meeting at which
the proposed increase or diminution of the capital stock 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, or served personally

4. A certificate in duplicate must be signed by a majority vote of the

directors of the corporation and countersigned by the chairman and
Q: What are the distinctions between a corporate officer and a corporate employee? the secretary of the stockholder’s meeting, setting forth:

A: a. That the foregoing requirements have been complied with;

CORPORATE OFFICER
Position is provided for in the by‐laws or
under the Corporation Code.
RTC acting as a special commercial court
has jurisdiction over intra‐ corporate
controversies.
b. The amount of increase or diminution of the capital stock;
CORPORATE EMPLOYEE c. If an increase of the capital stock, the amount of capital stock
or number of shares of no par stock actually subscribed, the
Employed by the action of the managing names, nationalities and residences of the persons
officer of the corporation. subscribing, the amount of capital stock or number of no par
stock subscribed by each, and the amount paid by each on his
subscription in cash or property, or the amount of capital stock
or number of shares of no par stock allotted to each
stockholder if such increase is for the purpose of making
LA has jurisdiction in case of labor effective stock dividend authorized
disputes. d. The amount of stock represented at the meeting; and
e. The vote authorizing the increase or diminution of the capital
stock
Note: The increase or decrease in the capital stock or the incurring, creating or
increasing bonded indebtedness shall require prior approval of the SEC.

39
 Q: What is the additional requirement with respect to the increase of capital
stock?
A: The application to be filed with the SEC shall be accompanied by the sworn statement
of the treasurer of the corporation, showing that at least 25% of the amount subscribed
has been paid either in cash or property or that there has been transferred to the
corporation property the valuation of which is equal to 25% of the subscription.
Q: What shall be the basis of the required 25% subscription?
A: It shall be based on the additional amount by which the capital stock increased and
not on the total capital stock as increased.
Note: There will be no treasurer’s affidavit in case of decrease in capital stock.
Corporation need not exhaust its original capital before increasing capital stock.
Q: What is the additional requirement with respect to the decrease of capital
stock?
A: The same must not prejudice the right of the creditors.
Q: What are the ways of increasing or decreasing the capital stock?
A: By increasing or decreasing the:
1. Number of shares and retaining the par value;
2. Par value of existing shares without increasing or decreasing the number of
shares;
3. Number of shares and increasing or decreasing the par value.
Q: The stockholders of People Power, Inc. (PPI) approved two resolutions
in a special stockholders' meeting:
a) Resolution increasing the authorized capital stock of PPI; and
b) Resolution authorizing the Board of Directors to issue, for cash
payment, the new shares from the proposed capital stock
increase in favor of outside investors who are non‐
stockholders.
The foregoing resolutions were approved by stockholders representing
99% of the total outstanding capital stock. The sole dissenter was Jimmy
Morato who owned 1% of the stock.
Are the resolutions binding on the corporation and its stockholders
including Jimmy Morato, the dissenting stockholder?
A: No. The resolutions are not binding on the corporation and its stockholders
including Jimmy Morato. While these resolutions were approved by the
stockholders, the directors' approval, which is required by law in such case,
does not exist. (1998 Bar Question)
Q: What remedies, if any, are available to Morato?
A: Jimmy Morato can petition the Securities and Exchange Commission to
declare the two (2) resolutions, as well as any and all actions taken by the
Board of Directors thereunder, null and void. (1998 Bar Question)
Q: What is bonded indebtedness?
A: It is a long term indebtedness secured by real or personal property
(corporate assets).
40
 Note: The requirements for the power to incur, create or increase bonded Q: Is there an automatic rejection of the AOI or any amendment thereto?
indebtedness is also the same with the power to increase or decrease capital
stock.
A: No, the SEC shall give the incorporators a reasonable time within which to correct or
Not all borrowings of the corporation need stockholders’ approval. Only bonded indebtedness modify the objectionable portions of the AOI or amendment.(Sec. 17[1])
requires such approval.

Q: What is the effect of non‐use of corporate charter and continuous inoperation of a

iv. AS TO SUBSCRIPTION AND PAID-UP REQUIREMENTS (SECTIO corporation?
13)
v. GROUNDS FOR DISAPPROVAL (SECTION 17)
A:
Q: What are the grounds for the rejection or disapproval of AOI or amendment thereto by
the SEC? 1. Failure to organize and commence business within 2 years from incorporation
– its corporate powers ceases and the corporation shall be deemed dissolve.
A:

1. If such is not substantially in accordance with the form prescribed Continuous inoperation for at least 5 years – ground for the
2. The purpose/s of the corporation are patently unconstitutional, illegal, immoral, suspension or revocation of corporate franchise or certificate of
or contrary to government rules and regulations incorporation (Sec. 22).
3. The treasurer’s affidavit concerning the amount of capital stock subscribed
and/or paid is false
4. The required percentage of ownership of the capital stock to be owned by Note: The above shall not be applicable if it is due to causes beyond the control
Filipino citizens has not been complied with. (Sec. 17) of the corporation as determined by SEC.
Note: The above grounds are not exclusive. The grounds according to P.D. No. 902‐A
are:

Q: Is the dissolution or revocation due to failure to operate or inoperation

automatic?
1. Fraud in procuring its certificate of incorporation;
2. Serious misrepresentation as to what the corporation can do or its doing to
the great prejudice of, or damage to, the general public; A: No, SEC is of the opinion that there should be proper proceedings for the revocation of AOI in
3. Refusal to comply with, or defiance or a lawful order of the SEC restraining compliance with due process.
the commission of acts which would amount to a grave violation of its
franchise;
4. Continuous inoperation for a period of at least five (5) years after
commencing the transaction of its business (Sec. 22);
5. Failure to file the by‐laws within the required period;
6. Failure to file required reports.

41
 6. ASUNCION V. DE YRIARTE 28 PHIL 67 (1914)
G.R. No. 9321. September 24, 1914.]
NORBERTO ASUNCION, ET AL. vs. MANUEL DE YRIARTE
FACTS: The proposed incorporators began an action in the CFI to compel the chief of the division of
archives to receive and register said articles of incorporation and to do any and all acts necessary for
the complete incorporation of the persons named in the articles. The court below found in favor of the
defendant and refused to order the registration of the articles mentioned, maintaining and holding
that the defendant, under the Corporation Law, had authority to determine both the sufficiency of the
form of the articles and the legality of the object of the proposed corporation. This appeal is taken
from that judgment
The chief of the division of archives, the respondent, refused to file the articles of incorporation, upon
the ground that the object of the corporation, as stated in the articles, was not lawful and that, in
pursuance of section 6 of Act No. 1459, they were not registerable.
Hence, this action to obtain a writ of mandamus.
ISSUE: Whether or not the chief of the division of archives has authority, under the Corporation Law,
on being presented with articles of incorporation for registration, to decide not only as to the
sufficiency of the form of the articles, but also as to the lawfulness of the purposes of the proposed
corporation.
HELD: YES.
CORPORATION LAW; POWERS AND DUTIES OF CHIEF OF DIVISION OF ARCHIVES,
EXECUTIVE BUREAU. — The chief of the division of archives, for and on behalf of the division, has
authority under the Corporation Law (Act No. 1459) to determine the sufficiency of the form of articles
of incorporation offered for registration with the division.
Section 6 of the Corporation Law reads in part as follows:
“Five or more persons, not exceeding fifteen, a majority of whom are residents of the Philippine
Islands, may form a private corporation for any lawful purpose by filing with the division of archives,
patents, copyrights, and trademarks of the Executive Bureau articles of incorporation duly executed
and acknowledged before a notary public, . . .”
Simply because the duties of an official happen to be ministerial, it does not necessarily
follow that he may not, in the administration of his office, determine questions of law. We are
of the opinion that it is the duty of the division of archives, when articles of incorporation are
presented for registration, to determine whether the objects of the corporation as expressed in the
articles are lawful. We do not believe that, simply because articles of incorporation presented for
registration are perfect in form, the division of archives must accept and register them and issue the
corresponding certificate of incorporation no matter what the purpose of the corporation may be as
expressed in the articles. The chief of the division of archives, on behalf of the division, has also the
power and duty to determine from the articles of incorporation presented for registration the
lawfulness of the purposes of the proposed corporation and whether or not those purposes bring the
proposed corporation within the purview of the law authorizing corporations for given purposes.
MANDAMUS TO COMPEL HIM TO PERFORM DUTIES. — The duties of the chief of the division of
archives, so far as relates to the registration of articles of incorporation, are purely ministerial and not
discretional; and mandamus will lie to compel him to perform his duties under the Corporation Law if,
in violation of law, he refuse to perform them
On the contrary, there is no incompatibility in holding, as we do hold, that his duties are ministerial
and that he has no authority to exercise discretion in receiving and registering articles of
incorporation. He may exercise judgment — that is, the judicial function — in the determination of the
question of law referred to, but he may not use discretion. The question whether or not the objects of
a proposed corporation are lawful is one that can be decided one way only. If he err in the
determination of that question and refuse to file articles which should be filed under the law, that
decision is subject to review and correction and, upon proper showing, he will be ordered to file the
articles.
Discretion, it may be said generally, is a faculty conferred upon a court or other official by
which he may decide a question either way and still be right. The power conferred upon the
division of archives with respect to the registration of articles of incorporation is not of that
character. It is of the same character as the determination of a lawsuit by a court upon the
merits. It can be decided only one way correctly.
i. COMMENCEMENT OF CORPORATE EXISTENCE (SECTION 19)
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.
COMMENCEMENT OF CORPORATE EXISTENCE
A corporation commences to have juridical personality and legal existence only from the
moment the SEC issues to the incorporators a certificate of incorporation under its official seal.

42
 It is the certificate of incorporation that gives juridical personality to a corporation and A: The AOI prevails because the by‐laws are intended merely to supplement
placed it under the jurisdiction of the commission. the former.

In the case of religious corporations, the Code does not require the SEC to issue a certificate of
incorporation. In fact, Sec. 112 clearly states that from and after the filing with the Commission Q: What is the binding effect of by‐laws? A:
of the articles of incorporation, the chief archbishop shall become a corporation sole. 1. As to members and corporation – They have the force of contract
between the members themselves.
The issuance of the articles calls the corporation into being but it is not really ready to do
business until it is organized. The corporation must formally organized and commence the
transaction of its business or the construction of its works within two years from the date of its 2. As to third persons – They are not bound to know the by‐laws
incorporation or, otherwise, its corporate powers shall cease and it shall be deemed dissolved which are merely provisions for the government of a
(Sec. 22.) corporation and notice to them will not be presumed.

b. BY-LAWS Note: By‐laws have no extra‐corporate force and are not in the nature of
legislative enactments so far as third persons are concerned.
Q: What are by‐laws?

A: Rules and regulations or private laws enacted by the corporation to regulate, govern and
control its own actions, affairs and concerns and of its stockholders or members and directors and Q: Give the procedures in adopting by‐laws.
officers in relation thereto and among themselves in their relation to it.

A: The by‐laws may be adopted before or after incorporation. In all cases,

Q: What are the requisites for the validity of by‐ laws? the By‐laws shall be effective only upon the issuance by the SEC of a
certification that the by‐laws are not inconsistent with the AOI.

A:
1. Pre ‐ incorporation – It shall be approved and signed by all the
1. Must be consistent with the Corporation Code, other pertinent laws and incorporators and submitted to the SEC, together with AOI.
regulations
2. Must not be contrary to morals and public policy
3. Must not impair obligations and contracts or property rights of 2. Post ‐ incorporation
stockholders a. Vote of the majority of the stockholders representing the
4. Must be consistent with the charter or articles of incorporation outstanding capital stock or members;
5. Must be reasonable b. By‐laws shall be signed by the stockholders or members voting
6. Must be of general application and not directed against a particular for them;
individual. c. It shall be kept in the principal office of the corporation and
subject to the inspection of the stockholders ore members
during office hours
Q: In case of conflict between the by‐laws and the articles of d. Copy thereof, duly certified by the BOD or BOT countersigned
incorporation which prevails? by the secretary of the corporation, shall be filed with the SEC
and shall be attached with the original AOI. (Sec. 46)
43
 Q: What is the effect of non‐filing of the articles of incorporation within the required
period?
A: Failure to submit the by‐laws within 30 days from incorporation does not
automatically dissolve the corporation. It is merely a ground for suspension or revocation
of its charter after proper notice and hearing. The corporation is, at the very least, a de
Q: What are the distinctions between AOI and by‐laws?
facto corporation whose existence may not be collaterally attacked. (Sawadjaan v. CA,
G.R. No. 142284, June 8, 2005)
2. By the board only after due delegation by the stockholders
owning 2/3 of the outstanding capital stock/members. Provided, that
such power delegated to the board shall be considered as revoked
whenever stockholders owning at least majority of the outstanding
capital stock or members, shall vote at a regular or special meeting.
(Sec. 48)

Q: What are the contents of by‐laws? AOI BY‐LAWS

Condition subsequent; its absence merely
Condition precedent in the acquisition of
1. Time, place and manner of calling and conducting regular or special furnishes a ground for the revocation of
corporate existence
meetings of directors or trustees the franchise
2. Time and manner of calling and conducting regular or special meetings of
the stockholder or members
3. The required quorum in meeting of stockholders or members and the
manner of voting therein Essentially a contract between the
4. The form for proxies of stockholders and members and the manner of voting corporation and the stockholders/
For the internal government of the
them members; between the stockholders/
corporation but has the force of a contract
5. The qualification, duties and compensation of directors or trustees, officers member inter se, and between the
between the corporation and the
and employees corporation and the State;
stockholders/ members, and between the
6. Time for holding the annual election of directors or trustees and the mode or stockholders and members;
manner of giving notice thereof
7. Manner of election or appointment and the term of office of all officers other
than directors or trustees
8. Penalties for violation of the by‐law
9. In case of stock corporations, the manner of issuing certificates May be executed after incorporation. Sec.
10. Such other matters as may be necessary for the proper or convenient 46 allows the filing of the by‐ laws
transaction of its corporate business and affairs. (Sec. 47) Executed before incorporation simultaneously with the Articles of
Incorporation
Q: What are the ways of amending, repealing or adopting new by‐laws?

A:

1. Amendment may be made by stockholders together with the

Board – by majority vote of directors and owners of at least
a majority of the outstanding capital stock/members; or
44
 Amended by a majority of the directors/
trustees and stockholders representing
2/3 of the outstanding capital stock, or 2/3
of the members in case of non‐stock
corporations
May be amended by a majority vote of the
BOD and majority vote of outstanding
capital stock or a majority of the member in
non‐stock corporation
HELD: No. A private corporation like LGVAI commences to have corporate existence and juridical
personality from the date the Securities and Exchange Commission (SEC) issues a certificate of
incorporation under its official seal. The submission of its by-laws is a condition subsequent but
although it is merely such, it is a MUST that it be submitted by the corporation. Failure to submit
however does not warrant automatic dissolution because such a consequence was never the
intention of the law. The failure is merely a ground for dissolution which may be raised in a quo
warranto proceeding. It is also worthwhile to note that failure to submit can’t result to automatic
dissolution because there are some instances when a corporation does not require a by-laws.

8. PMI COLLEGES V. NLRC G.R. NO. 121466 (AUG. 15 1997)

Power to amend/repeal articles cannot be Power to amend or repeal by‐laws or
delegated by the stockholders/ members to adopt new by‐ laws may be delegated by PMI Colleges vs National Labor Relations Commission
the board of directors/ trustees the 2/3 of the outstanding capital stock or
2/3 of the members in the case of non‐ 277 SCRA 462 – Business Organization – Corporation Law – By-laws and Innocent Third Persons
stock corporation In 1991, PMI Colleges hired the services of Alejandro Galvan for the latter to teach in said institution.
However, for unknown reasons, PMI defaulted from paying the remunerations due to Galvan. Galvan
made demands but were ignored by PMI. Eventually, Galvan filed a labor case against PMI. Galvan
got a favorable judgment from the Labor Arbiter; this was affirmed by the National Labor Relations
Commission. On appeal, PMI reiterated, among others, that the employment of Galvan is void
because it did not comply with its by-laws. Apparently, the by-laws require that an employment
7. LOYOLA GRAND VILLAS V. CA G.R. NO. 117188 (AUG. 7, 1997) contract must be signed by the Chairman of the Board of PMI. PMI asserts that Galvan’s
employment contract was not signed by the Chairman of the Board.
Loyola Grand Villas Homeowners (South) Association, Inc. vs Court of Appeals ISSUE: Whether or not Galvan’s employment contract is void.
276 SCRA 681 – Business Organization – Corporation Law – Failure to File By-Laws HELD: No. PMI Colleges never even presented a copy of the by-laws to prove the existence of such
provision. But even if it did, the employment contract cannot be rendered invalid just because it does
In 1983, the Loyola Grand Villas Association, Inc. (LGVAI) was incorporated by the homeowners of
not bear the signature of the Chairman of the Board of PMI. By-Laws operate merely as internal rules
the Loyola Grand Villas (LGV), a subdivision. The Securities and Exchange Commission (SEC)
among the stockholders, they cannot affect or prejudice third persons who deal with the corporation,
issued a certificate of incorporation under its official seal to LGVAI in the same year. LGVAI was
unless they have knowledge of the same. In this case, PMI was not able to prove that Galvan knew
likewise recognized by the Home Insurance and Guaranty Corporation (HIGC), a government-
of said provision in the by-laws when he was employed by PMI.
owned-and-controlled corporation whose mandate is to oversee associations like LGVAI.
Later, LGVAI later found out that there are two homeowners associations within LGV, namely: Loyola
Grand Villas Homeowners (South) Association, Inc. (LGVAI-South) and Loyola Grand Villas
Homeowners (North) Association, Inc. (LGVAI-North). The two associations asserted that they have
to be formed because LGVAI is inactive. When LGVAI inquired about its status with HIGC, HIGC
advised that LGVAI was already terminated; that it was automatically dissolved when it failed to
submit it By-Laws after it was issued a certificate of incorporation by the SEC.
ISSUE: Whether or not a corporation’s failure to submit its by-laws results to its automatic
dissolution.

45
 9. PENA V. CA 193 SCRA 7117 (1991)
G.R. No. 91478 February 7, 1991
ROSITA PEÑA petitioner,
vs.
THE COURT OF APPEALS, SPOUSES RISING T. YAP and CATALINA YAP, PAMPANGA BUS
CO., INC., JESUS DOMINGO, JOAQUIN BRIONES, SALVADOR BERNARDEZ, MARCELINO
ENRIQUEZ and EDGARDO A. ZABAT, respondents.
Cesar L. Villanueva for petitioner.
Martin N. Roque for private respondents.
193 SCRA 717 – Business Organization – Corporation Law – Board resolutions may be questioned
by third persons – Board Meetings – Quorum – Sale of Corporate Properties
In 1962, the Pampanga Bus Company (PAMBUSCO) took out a loan from the Development Bank of
the Philippines (DBP). PAMBUSCO used the parcels of land it owns to secure the loan. In October
1974, due to PAMBUSCO’s nonpayment, DBP foreclosed the parcels of land. Rosita Peña was the
highest bidder. Meanwhile, in November 1974, the Board of Directors of PAMBUSCO had a meeting.
The meeting was attended by only 3 out of the 5 Directors. In the said meeting, the Board, through a
resolution, authorized one of the directors, Atty. Joaquin Briones, to assign the properties of
PAMBUSCO. Pursuant to the resolution, Briones assigned PAMBUSCO’s assets to Marcelino
Enriquez. Enriquez, knowing that the properties were previously mortgaged and foreclosed,
exercised PAMBUSCO’s right to redeem. So in August 1975, he redeemed the said properties and
thereafter he sold them to Rising Yap.
Yap then registered the properties under his name. He then demanded Peña to vacate the
properties. Peña refused to do hence Yap filed a complaint. In her defense, Peña averred that Yap
acquired no legal title over the property because the board resolution issued by PAMBUSCO in
November 1974 is void; that it is void because the resolution was issued without a quorum; that there
was no quorum because under the by-laws of PAMBUSCO, a quorum constitutes the presence of 4
out of 5 directors yet the meeting was only attended by three directors. As such, the authority granted
to Briones to assign the properties is void; that the subsequent assignment by Briones to Enriquez is
void; that Enriquez acquired no title hence, likewise, Yap acquired no title. Yap insists that Peña has
no legal standing to question the board resolution because she is not a stockholder.
ISSUE: Whether or not the board resolution is valid.
HELD: No, it is void. The by-laws are the laws of the corporation. PAMBUSCO’s by-laws provides
that a quorum consists of at least four directors. Hence, the meeting attended by only three directors
did not comply with the required quorum. As such, the three directors were not able to come up with
a valid resolution which could bind the corporation. Anent the issue of Peña being a third person,
she can question the board resolution. The resolution here is liken to a contract. Under the law, a
person who is not a party obliged principally or subsidiarily in a contract may exercise an action for
nullity of the contract if he or she is prejudiced in his or her rights with respect to one of the
contracting parties, and can show the detriment which would positively result to him or her from the
contract in which he or she had no intervention.
Further, the sale of the properties of PAMBUSCO did not comply with the procedure laid down by the
Corporation Law. Under the law, the sale or disposition of an and/or substantially all properties of the
corporation requires, in addition to a proper board resolution, the affirmative votes of the stockholders
holding at least two-thirds (2/3) of the voting power in the corporation in a meeting duly called for that
purpose. No doubt, the questioned resolution was not confirmed at a subsequent stockholders
meeting duly called for the purpose by the affirmative votes of the stockholders holding at least two-
thirds (2/3) of the voting power in the corporation.
Further still, the Supreme Court discovers a few other anomalies with PAMBUSCO. One is that
PAMBUSCO has been inactive since 1949 as per the records provided by the Securities and
Exchange Commission. Its general information sheet with the SEC has not been updated regularly
even. And the three directors present were not even listed as current directors of PAMBUSCO.
1. ADOPTION PROCEDURE (SECTION 46)
Sec. 46. by-laws Adoption. – Every corporation formed under this code, must, within one month
after receipt of official notice of the issuance of its certificate of incorporation by the Securities
and Exchange Commission, adopt a new 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 capital stock, or of at least a majority of the
outstanding capital stock, or of at least a majority of the members, in the case of non-stick
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; and a copy thereof, duly certified to by a
majority of the directors or trustees and 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.
46
In all cases, by-laws shall be effective only upon the issuance by the Securities and Exchange Elements of valid by-laws
Commission of a certification that the by-laws are not inconsistent with the Code. 1. Must not be inconsistent with the general law and the Corporation Code.
2. Must not be inconsistent with public policy.
3. Must be general in application and not directed against particular individuals.
The Securities and Exchange Commission shall not accept for filing the by-laws or any
4. Must not be inconsistent with the articles of incorporation.
amendment thereto of any bank, banking institution, building and loan association, trust
company, insurance company, public utility, educational institution or other special corporations 5. Must not impair obligations and contracts.
governed by special laws, unless accompanied by a certificate of the appropriate government 6. Must not be in restraint of trade.
agency to the effect that such by-laws or amendments are in accordance with law. 7. Must not restrict religious freedom.

By-laws validity
Necessity of by-laws As a rule, the by-laws of a corporation are valid if they are reasonable and calculated to carry
The corporation must adopt the code of by- laws for its internal government. into effect the objects of the corporation, and are not contradictory to the general policy of the
laws of the land.

2. CONTENTS (SECTION 47)

Corporation has inherent power to adopt by-laws
Sec 47. Contents of by-laws. – Subject to the provisions of the Constitution, this Code, other
One of its legal incidents and is usually expressly granted by law of the charter
special laws, and the articles of incorporation, a private corporation may provide in its by-laws for:
subject to such limitations as may be contained in the statute or the charter,
subject to such limitations as may be contained in the statute or charter, and the
general requirements of validity. If a corporation fails to file its by-laws within the
period required by law its certificate of incorporation may be suspended or even 1. The time, place and manner of calling and conducting regular or special meetings of
revoked. the directors or trustees.

Section 46 allows the adoption and filing of the by-laws before incorporation provided 2. The time and manner of calling and conducting regular or special meetings of the
the same is approved by all the incorporators and submitted to the Securities and stockholders or members.
Exchange Commission together with the articles of incorporation.

3. The required quorum in meetings of stockholders or members and the manner of

voting therein.

By-laws cannot provide for unreasonable restriction

Restriction upon the traffic in stock must have their source in legislative enactment,
as the corporation itself cannot create such impediments. By-laws are created for
protection and not for restriction.
4. The form for proxies of stockholders and members and the manner of voting them.
5. The qualifications, duties and compensation of directors or trustees, officer and
employees.

6. The time for holding the annual election of directors or trustees and the mode or manner
47
 of giving notice thereof. stock corporations, shall so vote at a regular or special meeting.

Whenever any amendment or new by-laws are adopted, such amendment or

7. The manner of election or appointment and the term of office of all offices other than new by- laws shall be attached to the original by- laws in the office of the
directors or trustees. 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
8. The penalties for violation of the by- laws. articles of incorporation and original by- laws.
4.

9. In the case of stick corporations, the manner of issuing stock certificates. Amender or new by-laws shall only be effective upon the issuance by the SEC
of a certification that the same are not inconsistent with this code.

10. Such other matter as may be necessary for the proper or convenient
transaction of its corporate business and affairs. The authority to make or adopt the original by-laws of a corporation cannot be
given to the board of directors or trustees. The stockholders of a stock
corporation or the members of the non-stick corporation adopt or make the
The enumerations of contents of by-laws are not exclusive and neither does the provision
original by-laws.
require all the matters mentioned to appear in the by-laws.

The By-laws must not violate the Constitution, the Corporation Code, other special laws and the
articles of incorporation.
An amendment of by-law renders stockholder ineligible as director
A corporation which has failed to file its by- laws within the prescribed period does not ipso
facto lost its powers as such. It is well-settled xxx that corporations have the power to make by-laws declaring a person
employed in the service of a rival company to be ineligible for the corporation’s Board of
Directors. An amendment which renders ineligible, or if elected, subjects to removal, a director if
he be also a director in a corporation whose business is in competition with or is antagonistic
to the other corporation is valid. This is based upon the principle that where the director is so
3. AMENDMENTS (SECTION48) employed in the service of a rival company, he cannot serve both, but must betray one or the
other. Such an amendment advances the benefit of the corporation and is good.
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
Meetings Necessity
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 2/3 of the
outstanding capital stock or 2/3 of the members in a non-stick corporation A majority of the stockholders or members can bind the corporation only at a meeting regularly
held and conducted. To constitute a legal meeting, so as to render the acts and vote of the majority
may delegate to the repeal any by-laws or adopt new by-laws: provided, that
binding the meeting must be regularly called by one having authority. In the absence of provision
any power delegated to the board of directors or trustees shall be
to the contrary such authority exists in the directors or managing agents.
considered as revoked whenever stockholders owning or representing a
majority of the outstanding capital stock or a majority of the members in non-

48