CORPORATION&ALLIED LAWS-2020Feb17

CORPORATION & ALLIED LAWS
l. p. ignacio ©
REMINDERS, PRINCIPLES & POINTERS in CORPORATION LAW
Moral Damages & the Corporation
• A corporation—being an artificial person which has no feelings, emotions or senses, and which
cannot experience physical suffering or mental anguish—is not entitled to moral damages (Solid
Homes, Inc. v. CA, 275 SCRA 267 (1997)
• Being an artificial person and having an existence only in legal contemplation, it has no feelings,
no emotions, no senses. It cannot, therefore, experience physical suffering and mental anguish,
which can be experienced only by one having a nervous system (ABS-CBN v. CA, 301 SCRA
572 (1999).
• A corporation has no reputation in the sense that an individual has, and besides, it is inherently
impossible for a corporation to suffer mental anguish (NPC v. Philipp Brothers, 369 SCRA 629
(2001)
Moral damages may be awarded to a corporation
• A corporation may have a good reputation which, if besmirched, may also be a ground for moral
damages (Mambulao Lumber v. PNB, 22 SCRA 359 (1968); Jardine Davies v. CA, 333 SCRA
684)
 The statement in People v. Manero and Mambulao Lumber v. PNB that a corporation
may recover moral damages if it has a good reputation that is debased resulting in social
humiliation is an OBITER DICTUM (ABS-CBN v. CA, 301 SCRA 572 (1999)
• A corporation may claim damages if it falls under item 7 of Article 2219 of the Civil Code. This
provision expressly authorizes the recovery of moral damages in cases of libel, slander or any
other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or
juridical person. (Filipinas Broadcasting Network, Inc. v. Ago Medical, 448 SCRA 413, 17 January
2005)
Criminal liability of a corporation
• Since a corporation is a mere legal fiction, no criminal action can lie against a corporation
whether such corporation be a resident or non-resident (Time, Inc. v. Reyes, 39 SCRA 303
(1971).
• The rule is only natural persons are criminally liable. Juridical persons like a corporation are
not liable (West Coast Life, Ins. v. Hurd, 27 Phil. 401 (1914)
• A corporation is a mere legal fiction; it does not have the essential element of malice. (People v.
Tan Boon Kong, 54 Phil 607(1930)
• A corporation itself cannot be criminally liable for felonies described in the Revised Penal Code or
in special laws because it cannot perform physical overt acts of a crime. It cannot even be
imprisoned. Nevertheless, the officers of the corporation may, in their individual capacities be
liable for crimes done in behalf of the corporation. While the act of the officers may impose certain
obligations on the corporation because of the criminal act of its officers, the officer who performed
the criminal act must assume the criminal liability (Executive Secretary v. CA, 429 SCRA 81;
SIngian, Jr. v. Sandiganbayan, 478 SCRA 348).
Criminal liability of corporate officers
• It is basic that only corporate officers shown to have participated in the alleged anomalous acts
may be held criminally liable (Cruzvale, Inc. v. Eduque, 589 SCRA 534, 18 June 2009)
• There are instances where the law specifies the officers who shall be criminally liable/responsible
for acts done in behalf of the corporation and violative of such law, like PD 1612 (the Anti-
Address: Kapatiran Kaunlaran Foundation, Inc. (KKFI) 1
Unit 911-C P. Paredes Street, Sampaloc, Manila (Beside UST near Morayta Street)
* www.villasislawcenter.com / www.facebook.com/villasislawcenter / www.remediallawdoctrines.blogspot.com /
villasislawcenter@gmail.com / mvplawoffice@gmail.com
Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
Fencing Law) and BP 22 (Bouncing Checks Law), or that an officer of the corporation can
be held criminally liable for acts or omissions done in behalf of a corporation (Sia v.
People, 121 SCRA 655 [1983])
Criminal liability under the Corporation Code
In the recent case of Ang-Abaya, et al. v. Ang, et al. (573 SCRA 129 [2008]), the Court had the
occasion to enumerate the requisites before the penal provision under Section 144 of the Corporation
Code may be applied in case of violation of a stockholder or member’s right to inspect the corporate
books/records as provided for under Section 74 of the Corporation Code (Sy Tiong Shiou v. Sy Chim, 582
SCRA 517, 30 March 2009).
Separate personality not a shield to commit crime
The existence of the corporate entity does not shield from prosecution the corporate agent who
knowingly and intentionally caused the corporation to commit a crime. Thus, petitioners cannot hide
behind the cloak of the separate corporate personality of the corporation to escape criminal liability
(Republic Gas Corp. v. Petron Corp., 698 SCRA 666, 17 June 2013)
Interest of stockholders over corporate property
Case: PNB v. Aznar, et al., GR No. 171805/ Aznar v. PNB, GR No. 172021, 30 May 2011
- The interest of stockholders over the properties of the corporation is merely inchoate and
therefore does not entitle them to intervene in litigation involving corporate property.
Creation of a corporation: (Sections 1 & 4, CCP; Sec. 16, Art. XII of the Constitution)
The Congress shall not, except by general law, provide for the formation, organization, or
regulation of private corporations. Government-owned or controlled corporations may be created
or established by special charters in the interest of the common good and subject to the test of
economic viability. (Sec. 16, Art. XII of the Constitution)
CONCESSION THEORY: The corporation cannot exist without concession, i.e., the consent or
approval of the state.
Cases: 1. Tayag v. Benguet Consolidated, 26 SCRA 242 (1968)**

- A corporation is a creature without any existence until it has received the imprimatur of the state
acting according to law. It is logically inconceivable therefore that it will have rights and privileges
of a higher priority than that of its creator. More than that, it cannot legitimately refuse to yield
obedience to acts of its state organs, certainly not excluding the judiciary, whenever called upon
to do so.
2. NDC v. Phil. Veterans Bank, 192 SCRA 257 (1990)

- A private corporation, which is neither owned nor controlled by the government, cannot be
validly created by special law.
- A private corporation created pursuant to a special law is a nullity, and such special law is
unconstitutional for being violative of the constitutional provision.
***A private corporation can only be formed in accordance with a general law on the
subject such as the Corporation Code.
THEORY OF BUSINESS ENTERPRISE: Apart from the issue of whether there was duly
constituted a juridical person, the existence of the business enterprise by which several contracts
and transactions were pursued requires the protection of the commercial expectations of the
public who dealt in good faith with the apparent corporation.
There can be no corporate existence without persons to compose it; there can be no association
without associates.
The theory draws its vitality from the fact that it is not legal fiction alone that creates a corporate
entity but also the consent of those who will form the corporation to engage in a common venture
or business for profit.
Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
Right of succession
- A corporation continuous to exist irrespective of the change in the composition of the members/
stockholders either by death, withdrawal, incapacity, insolvency or regardless of the transfer of
interest or shares of stock.
- Sometimes called the “right of immortality” because the corporate existence goes on
unhampered whatever happens to its stockholders as long as its life is extended before it expires
in the manner provided for by law.
Doctrine of limited or special capacity (Secs. 2 & 36, CCP)
A corporation has only such powers as are expressly granted and those that are necessarily
implied from those expressly granted or those which are incidental to its existence.
Nationality/citizenship of a corporation
Control test – the nationality of a corporation is determined by the controlling stockholders
Place of incorporation test – a corporation is a national of the country under whose law the
corporation was organized (Sec. 123, CCP).
Place of principal business test -- the corporation is a national of the place where its principal
office or center of management is located.
Grandfather Rule: It is a method of determining the nationality of a corporation which in turn is

owned by another corporation by breaking down the equity structure of the shareholders of the
corporation. The percentage of shares held by the second corporation in the first is multiplied by
the latter’s own Filipino equity, and the product of these percentages is determined to be the
ultimate Filipino ownership of the subsidiary corporation. This applies only if the Filipino equity is
less than 60% of the outstanding capital of a corporation that owns shares in a partly nationalized
enterprise—at least 60% must be owned by Philippine nationals (Aquino, Philippine Corporate
Compendium).
case: Narra Nickel Mining v. Redmont, GR 185590, 21 April 2014
- It is the intention of the framers of the Constitution to apply the Grandfather Rule in cases where
corporate layering is present.
- The Grandfather Rule must be applied when the 60-40 Filipino-foreign equity ownership is in
doubt.
- The ‘control test’ can be applied jointly with the Grandfather Rule to determine the observance
of foreign ownership restriction in nationalized economic activities. The Control Test and the
Grandfather Rule are not incompatible ownership-determinant methods that can only be applied
alternative to each other. Rather, these methods can, if appropriate, be used cumulatively in the
determination of the ownership and control of corporations engaged in fully or partly nationalized
activities
Domicile Test
Determined by the state where it is domiciled. The domicile of a corporation is the place fixed by
the law creating or recognizing it; in the absence thereof, it shall be understood to be the place where its
legal representation is established or where it exercise its principal functions (Art. 51, Civil Code).
Venue of suit against a corporation
A corporation can be sued in its principal office not where its branch office is located. To allow an
action against a corporation to be instituted in any place where a corporate entity has its branch offices
would create confusion and work untold inconvenience to the corporation (Clavecilla Radio System v.
Antillon, GR No. L-22238, 18 February 1967).
Piercing the veil of corporate entity
This is an equitable doctrine developed to address situations where the separate corporate
personality of a corporation is abused or used for wrongful purposes (PNB v. Ritratto, 362 SCRA
216 [216]). This is the doctrine to the effect that that the separate personality of a corporation may be

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
disregarded if such entity is used to defeat public convenience, justify a wrong, protect fraud, or
defend a crime (Kopple v. Yatco, 77 Phil 496). But this cannot be availed by one who is not a victim of
fraud or wrong (Traders Royal Bank v. CA, 269 SCRA 15 [1997]).
It is a fundamental principle of corporation law that a corporation is an entity separate and distinct
from its stockholders and from other corporations to which it may be connected. However, this separate
and distinct personality of a corporation is merely a fiction created by law for convenience and to promote
justice. Hence, when the notion of separate juridical personality is used to defeat public convenience,
justify wrong, protect fraud or defend crime, or is used as a device to defeat labor laws, this
separate personality of the corporation may be disregarded or the veil of the corporate fiction pierced.
This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of
another corporation. The corporate mask may be lifted and the corporate veil may be pierced when a
corporation is but the alter ego of a person or another corporation. (Heirs of Pajarillo vs. Court of Appeals,
et al., G.R. No. 155056-57, October 19, 2007). When the separate personality of the corporation is
disregarded, the corporation will be treated merely as an association of persons and the stockholders or
members will be considered as the corporation, i.e., liability will attach personally or directly to the officers
and stockholders (Yao, Sr. v. People, GR No. 168306, 19 June 2007).
 Purpose of piercing the corporate veil

• The purpose behind piercing a corporation’s identity is to remove the barrier between the corporation
and the persons comprising it to thwart the fraudulent and illegal schemes of those who use the
corporate personality as a shield for undertaking certain proscribed activities (Mayor v. Tiu, GR No. 203770,
23 November 2016, 810 SCRA 256).
*equity cases
- When piercing the corporate fiction is necessary to achieve justice or equity.

- The “dumping ground” where no fraud or alter ego circumstances can be culled to warrant pier
 The doctrine of piercing the veil of corporate fiction does not apply to service of summons.
(Filmerco v. CA, 149 SCRA 193)
Liability when corporate fiction is pierced
When a corporate veil is pierced, the corporation’s liability becomes personal to the person
directly responsible for and who acted in bad faith in committing the illegal dismissal or any act
violative of the Labor Code. (Jose Emmanuel Guillermo v. Crisanto Uson, GR No. 198967, 07
March 2016). And SOLIDARY.
Section 31 makes a director personally liable for corporate debts if he willfully and knowingly
votes for or assents to patently unlawful acts of the corporation. Section 31 also makes a director
personally liable if he is guilty of gross negligence or bad faith in directing the affairs of the
corporation.
Section 31 of the Corporation Code makes a director personally liable for corporate debts if he
willfully and knowingly votes for or assents to patently unlawful acts of the corporation. It also makes a
director personally liable if he is guilty of gross negligence or bad faith in directing the affairs of the
corporation (Park Hotel v. Soriano, 680 SCRA 328, 10 September 2012).**
Principle of limited liability
As a consequence of its status as a distinct legal entity, a corporation incurs its own liabilities and
is legally responsible for payment of its obligations. In other words, by virtue of the separate juridical
personality of a corporation, the corporate debt or credit is not the debt or credit of the stockholder (PNB
v. Hydro Resources Contractors Corp., 693 SCRA 294, 13 March 2013).**
 Section 31 makes a director personally liable for corporate debts if he willfully and knowingly
votes for or assents to patently unlawful acts of the corporation. Section 31 also makes a
director personally liable if he is guilty of gross negligence or bad faith in directing the affairs
of the corporation.
Section 31 of the Corporation Code makes a director personally liable for corporate debts
if he willfully and knowingly votes for or assents to patently unlawful acts of the corporation. It also

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
makes a director personally liable if he is guilty of gross negligence or bad faith in directing the
affairs of the corporation (Park Hotel v. Soriano, 680 SCRA 328, 10 September 2012).
Piercing the veil of corporate fiction & interlocking directors
Absent any allegation or proof of fraud or other public policy considerations, the existence of interlocking
directors, officers and stockholders is not enough justification to pierce the veil of corporate fiction
(Hacienda Luisita, Inc. v. PARC, 660 SCRA 525, 22 November 2011).
Case: International Academy of Management and Economics (I/AME), vs. Litton and Company, Inc., GR
No.191525, 13 Dec. 2017 (CJ Sereno)
Atty. Emmanuel T. Santos was a lessee of a property belonging to Litton. Due to the failure to pay the
lease rentals, Litton filed and won an ejectment case against Santos. Atty. Santos was likewise directed
to pay rental arrears, realty taxes, penalties and attorney’s fees.
The judgment was not executed immediately but was later revived and became final and executory.
A property registered in the name of I/AME—TCT No. 187565— TCT was levied to pay the money
judgment. It was indicated that such was "only up to the extent of the share of Emmanuel T. Santos."
I/AME opposed the levy and moved for its cancellation on the following grounds:
1) It has a separate and distinct personality from Santos; hence, its properties should not be made
to answer for the latter's liabilities.
2) Its right to due process was violated when it was dragged into the case and its real property made
an object of a writ of execution in a judgment against Santos.
3) Since it was not impleaded in the main case, the trial court never acquired jurisdiction over it.
4) The doctrine of piercing the corporate veil applies only to stock corporations, and not to non-
stock, nonprofit corporations such as I/AME since there are no stockholders to hold liable in such
a situation but instead only members. Hence, they do not have investments or shares of stock or
assets to answer for possible liabilities. Thus, no one in a non-stock corporation can be held liable
in case the corporate veil is disregarded or pierced.
5) The piercing of the corporate veil cannot be applied to a natural person—in this case Santos—
simply because as a human being, he has no corporate veil shrouding or covering his person.
No violation of due process
• Facts show that piercing of the corporate veil is merited.

 It was shown "by clear and convincing proof that the separate and distinct personality of the
corporation was purposefully employed to evade a legitimate and binding commitment and
perpetuate a fraud or like wrongdoings. “
 Santos had an existing obligation that he owed monthly rentals and unpaid realty taxes under a
lease contract he entered into as lessee with Litton as lessor. He was not able to comply with this
particular obligation, and in fact, refused to comply therewith. Santos used I/AME as a means to
defeat judicial processes and to evade his obligation to Litton. Thus, even while I/AME was not
impleaded in the main case and yet was so named in a writ of execution to satisfy a court
judgment against Santos, it is vulnerable to the piercing of its corporate veil.
Piercing the corporate veil applicable to all kinds of corporations
 The Supreme Court (SC) did not put in issue whether the corporation is a nonstock, nonprofit, non-
governmental corporation in considering the application of the doctrine of piercing of corporate veil
- Non-profit corporations are not immune from the doctrine of piercing the corporate veil.
- Piercing applies to any organization however organized and in whatever manner it operates.
- Control of ownership does not hinge on stock ownership.
 In a US case it was held that: [t]he mere fact that the corporation involved is a nonprofit
corporation does not by itself preclude a court from applying the equitable remedy of piercing the
corporate veil. The equitable character of the remedy permits a court to look to the substance of
the organization, and its decision is not controlled by the statutory framework under which the
corporation was formed and operated. While it may appear to be impossible for a person to

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
exercise ownership control over a nonstock, not-for-profit corporation, a person can be held
personally liable under the alter ego theory if the evidence shows that the person controlling the
corporation did in fact exercise control, even though there was no stock ownership.
Concept of equitable ownership in non-stock corporation
 An equitable owner is an individual who is a non-shareholder defendant, who exercises sufficient

control or considerable authority over the corporation to the point of completely disregarding the
corporate form and acting as though its assets are his or her alone to manage and distribute.
Piercing is applicable to natural persons
a) When the Corporation is the Alter Ego of a Natural Person

b) Reverse Piercing of the Corporate Veil
When the corporation is the alter ego of the natural person
• I/AME is the alter ego of Santos and Santos - the natural person - is the alter ego of I/AME.
Santos falsely represented himself as President of I/AME in the Deed of Absolute Sale when he
bought the Makati real property, at a time when I/AME had not yet existed.
Santos even admitted in its pleadings before that trial court that he is an alter ego of I/AME.
I/AME is the alter ego of the natural person, Santos, which the latter used to evade the execution
on the Makati property, thus frustrating the satisfaction of the judgment won by Litton.
 REVERSE CORPORATE PIERCING

• In a traditional veil-piercing action, a court disregards the existence of the corporate entity so a
claimant can reach the assets of a corporate insider.
• In a reverse piercing action, however, the plaintiff seeks to reach the assets of a corporation
to satisfy claims against a corporate insider.
• Reverse piercing flows in the opposite direction (of traditional corporate veil-piercing) and makes
the corporation liable for the debt of the shareholders.
OUTSIDER & INSIDER REVERSE PIERCING
 Outsider reverse piercing occurs when a party with a claim against an individual or corporation
attempts to be repaid with assets of a corporation owned or substantially controlled by defendant.
In insider reverse piercing, the controlling members will attempt to ignore the corporate fiction
in order to take advantage of a benefit available to the corporation, such as an interest in a
lawsuit or protection of personal assets.
Here, outsider reverse veil-piercing is applicable. Litton, as judgment creditor, seeks to pierce the
corporate veil of I/AME in order to make its Makati real property answer for a judgment against Santos,
who formerly owned and still substantially controls I/AME.
A US case held that "[o]utsider reverse veil-piercing extends the traditional veil-piercing doctrine to permit
a third-party creditor to pierce the veil to satisfy the debts of an individual out of the corporation's assets."
Reverse corporate piercing is an equitable remedy and should be used cautiously. The
enforcement of judgment under the Rules shall be preferred.
 Reverse corporate piercing is an equitable remedy which if utilized cavalierly, may lead to disastrous
consequences for both stock and non-stock corporations. The ordinary judgment collection
procedures or other legal remedies are preferred.
But to avoid injustice and not to unwittingly condone the act of Santos in trying to frustrate the
decades-old judgment by hiding behind the corporate form to evade paying his obligation under the
judgment, the reverse piercing of the corporate veil of I/AME to enforce the levy on execution of the
Makati real property where the school now stands is applied.
The Instrumentality Rule or The Alter Ego Rule

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
- Under this rule, corporate existence will be disregarded where a corporation (subsidiary) is so
organized and controlled and its affairs so conducted as to make it only an adjunct and instrumentality of
another corporation (parent corporation), and parent corporation will be responsible for the obligations of
its subsidiary. (Black's Law Dictionary, 6th ed.)
- The so-called "instrumentality" or "alter ego" rule states that when a corporation is so dominated
by another corporation that the subservient corporation becomes a mere instrument and is really indistinct
from controlling corporation, then the corporate veil of dominated corporation will be disregarded, if to
retain it results in injustice. (Black's Law Dictionary, 6th ed.)
- The control necessary to invoke the rule is not majority or even complete stock control but such
domination of instances, policies and practices that the controlled corporation has, so to speak, no
separate mind, will or existence of its own, and it but a conduit for its principal (Concept Builders v. NLRC,
257 SCRA 151).
Tests in piercing corporate existence based on the alter ego rule

(PNB v. Hydro Resource Contractors Corp., 693 SCRA 294)
a) Control or Instrumentality Test: Control, not mere majority or complete stock control but
complete domination, not only of the finances but of policy and business practice in respect to the
transaction attacked so that the corporate entity as to this transaction had at all time no separate mind,
will or existence of its own;
b) Fraud Test: Such control must have been used by the defendant to commit fraud or wrong,
to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in
contravention of one’s legal rights; and
c) Harm Test: The aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of.
Public corporation
The true criterion to determine whether a corporation is public or private is found in the totality of
the relation of the corporation to the State. If the corporation is created by the State as the latter’s
own agency or instrumentality to help in carrying out its governmental functions, then that
corporation is considered public; otherwise, it is private. Applying the above test, provinces, chartered
cities, and barangays can best exemplify public corporations. They are created by the State as its own
device and agency for the accomplishment of parts of its own public works (Phi. Society for the
Prevention of Cruelty to Animals v. COA, GR No. 169752, 25 Sept. 2007).**
 Charter Test
If it is created by its own charter for the exercise of a public function, or by incorporation under the
general corporation law.
If the corporation is created by the State as the latter’s own agency or instrumentality to help it
in carrying out its governmental functions, then that corporation is considered public;
otherwise it is private (ibid.).
Creation of public corporations
The Congress shall not, except by general law, provide for the formation, organization, or
regulation of private corporations. Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good and subject to the test of economic
viability. (Sec. 16, Art. XII, Constitution)
The Boys Scout of the Philippines is a public corporation
As presently constituted, the Boy Scouts of the Philippines still remains an instrumentality of the
national government. It is a public corporation created by law for a public purpose, attached to the DECS
pursuant to its Charter and the Administrative Code of 1987. It is not a private corporation which is
required to be owned or controlled by the government and be economically viable to justify its existence
under a special law. Thus the test of economic viability clearly does not apply to public corporations
dealing with governmental functions, to which the category of the BSP belongs (BSP v. COA, GR No.
177131, 07 June 2011).**

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
PNCC is a private corporation
Although the majority or controlling shares of the Philippine National Construction Corporation (PNCC)
belonged to the Government, the PNCC was essentially a private corporation due to its having been
created in accordance with the Corporation Code, the general corporation statute (Hermanos Oli Mfg. &
Sugar Corp. v. Toll Regulatory Board, 742 SCRA 395, 26 November 2014).**
Corporations incorporated under the Corporation Code, not covered by the Civil Service Law
- Clark Development Corporation, a government-owned or controlled corporation without an

original charter, was incorporated under the Corporation Code. Pursuant to Article IX-B, Sec. 2(1), the
civil service embraces only those government-owned or controlled corporations with original charter. As
such, respondent Clark Development Corporation and its employees are covered by the Labor Code and
not by the Civil Service Law (Salenga v. CA, 664 SCRA 635).**
Corporation by estoppel (Section 21, CCP)
Section 21 of the Corporation Code explicitly provides that one who assumes an obligation to an
ostensible corporation, as such, cannot resist performance thereof on the ground that there was in fact no
corporation. Clearly, petitioner is bound by his obligation under the MOA not only on estoppel but by
express provision of law. (PRISCILO B. PAZ vs. NEW INTERNATIONAL ENVIRONMENTAL
UNIVERSALITY, INC., G.R. No. 203993. April 20, 2015).
Corporation by estoppel is founded on principles of equity and is designed to prevent injustice

and unfairness. It applies when persons assume to form a corporation and exercise corporate functions
and enter into business relations with third persons. Where there is no third person involved and the
conflict arises only among those assuming the form of a corporation, who therefore know that it
has not been registered, there is no corporation by estoppel. (Lozano v. de los Santos, 274 SCRA
452 (1997)
The Doctrine of Relation
Under this doctrine, when the delay in effecting or filing the amended articles of incorporation for
the extension or corporate term is due to an insuperable interference occurring without the corporation's
intervention which could not have been prevented by prudence, diligence, and care, the same will be
treated as having been effected before the expiration of the original term of the corporation.
Corporate name (Sec. 18, CCP)
Statutory limitation: The proposed name must not be:

a. identical; or
b. deceptively or confusingly similar to that of any existing corporation or to any other name
already protected by law; or
c. patently deceptive, confusing or contrary to law; or
d. contrary to existing laws.
TWO REQUISITES THAT MUST BE PROVEN IN ORDER TO FALL INTO THE PROHIBITION
OF THE LAW ON THE RIGHT TO EXCLUSIVE USE OF A CORPORATE NAME
To fall within the prohibition of the law on the right to the exclusive use of a corporate name, two
requisites must be proven, namely:
(1) that the complainant corporation acquired a prior right over the use of such corporate
name; and
(2) the proposed name is either
(a) identical or
(b) deceptive or confusingly similar to that of any existing corporation or to any other
name already protected by law; or
(c) patently deceptive, confusing or contrary to existing law.
(GSIS Family Bank-Thrift Bank [formerly Comsavings Bank, Inc.] vs. BPI Family Bank, 771 SCRA
284, 23 September 2015).
Confusing similarity

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
- In determining the existence of confusing similarity in corporate names, the test is whether the
similarity is such as to mislead a person using ordinary care and discrimination. And even without
such proof of actual confusion between the two corporate names, it suffices that confusion is
probable or likely to occur.
- The overriding consideration in determining whether a person, using ordinary care and
discrimination, might be misled is the circumstance that both petitioner and respondent are
engaged in the same business of banking. "The likelihood of confusion is accentuated in cases
where the goods or business of one corporation are the same or substantially the same to that of
another corporation.” (GSIS FAMILY BANK — THRIFT BANK [Formerly Comsavings Bank, Inc.,
vs. BPI FAMILY BANK, G.R. No. 175278, September 23, 2015)**
The priority of adoption rule
The applicant must be a prior registrant of a corporate name in order to have a prior right under
the priority adoption rule adoption rule (GSIS FAMILY BANK — THRIFT BANK [Formerly
Comsavings Bank, Inc., vs. BPI FAMILY BANK, G.R. No. 175278, September 23, 2015).
The Board and Officers of the Corporation (Sections 23- 35, CCP)
The three-fold duties of the BOD
The members of the board of directors have a three-fold duty: duty of obedience, duty of
diligence, and duty of loyalty. (Alliance Dev’t. Corp. v. Radstock Securities Limited, 607 SCRA 413, 04
December 2009)
Doctrine of Centralized Management
The concentration of powers on the board is a reflection of the “centralized management”

concept. The Stockholders do not manage the corporation. By becoming stockholders of a corporation,
which the law mandates should have a board, the stockholders are deemed to have consented to the
management and control of the corporation by the board.
The concentration in the board of the powers of control of corporate business and appointment of
corporate officers and managers is necessary for efficiency in any large organization. Stockholders are
too numerous, scattered and unfamiliar with the business of a corporation to conduct its business directly.
And so the plan of corporate organization is for the stockholders to choose the directors who shall control
and supervise the conduct of corporate business (Filipinas Port Services v. Go, 518 SCRA 453).
Theory of delegated power
The board of directors is the directing and controlling body of the corporation. It is a creation of
the stockholders and derives its powers to control and direct the affairs of the corporation from them. The
board of directors, in drawing to themselves the powers of the corporation, occupies a position of
trusteeship in relation to the stockholders, in the sense that the board should exercise not only care and
diligence, but utmost good faith in the management of corporate affairs (Valle Verde Country Club Inc. v.
Africa, 598 SCRA 202, 04 September 2009).**
The theory of delegated power of the board of directors similarly explains why, under Section 29
of the CCP, in cases where the vacancy in the corporation’s board of directors is caused not by the
expiration of a member’s term, the successor “so elected to fill in a vacancy shall be elected only for the
unexpired term of his predecessor in office.” The law has authorized the remaining members of the
board to fill in a vacancy only in specified instances, so as not to retard or impair the corporation’s
operations, yet in recognition of the stockholder’s right to elect the members of the board, it limited the
period during which the successor shall serve only to the “unexpired term of his predecessor in office.”
(id.)
DOCTRINE OF CORPORATE OPPORTUNITY
When a director attempts to acquire or acquires, in violation of his duty, any interest adverse to
the corporation in respect of any matter which has been reposed in him in confidence, or when by virtue
of his office, he acquires for himself a business opportunity which should belong to the corporation,
thereby obtaining profits which should belong to the corporation, he must account to the latter for all such
profits he derived from said business opportunity by refunding the same to the corporation (Secs. 31 &
34).
Doctrine of Apparent Authority/ Doctrine of Ostensible Agency/ Holding Out Theory

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
Apparent authority, or what is sometimes referred to as the “holding out” theory, or the doctrine of
ostensible agency, imposes liability, not as the result of the reality of a contractual relationship, but rather
because of the actions of a principal or an employer in somehow misleading the public into believing that
the relationship or the authority exists (Megan Sugar Corp. v. RTC, Br. 68, 650 SCRA 100, 01 June
2011).
Effect when a stockholder executes a Voting Trust Agreement
- A voting trust agreement results in the separation of the voting rights of a stockholder from his
other rights such as the right to receive dividends, the right to inspect the books of a corporation, the right
to sell interests in the assets of the corporation and other rights to which a stockholder may be entitled
until the liquidation of the corporation.
- A voting trust agreement is an agreement in writing whereby one or more stockholders of a
corporation consent to transfer his or their shares to a trustee in order to vest in the latter voting or other
rights pertaining to said shares for a period not exceeding five years upon the fulfillment of statutory
conditions and such other terms and conditions specified in the agreement. (Lee v. CA, 205 SCRA 752
(1992) (Sec. 23)
Creation of an office in the by-laws
Cases: 1. Matling Industrial and Commercial Corp. v. Coros, 633 SCRA 12, (2010)
- The creation of an office pursuant to or under a By-Law enabling provision is not enough to
make a position a corporate office.
- The statement in Tabang, to the effect that offices not expressly mentioned in the By-laws but
were created pursuant to a By-law enabling provision were also considered corporate officers was plainly
obiter dictum).
- The power to elect the corporate officers was discretionary power that the law exclusively
vested in the Board of Directors, and could not be delegated to subordinate officers or agents.
2. March II Marketing, Inc. v. Joson, GR No. 171993, 12 December 2011

-Though the Board of directors may create appointive positions other than the positions of
corporate officers, the persons occupying such positions cannot be viewed as corporate officers under
Section 25 of the Corporation Code. Unless and until the corporation's by-laws is amended for the
inclusion of General Manager in the list of its corporate officers, such position cannot be considered as a
corporate office within the realm of Section 25 of the Corporation Code.
• Conformably with Section 25, a position must be expressly mentioned in the By-Laws in order to
be considered as a corporate office. Thus, the creation of an office pursuant to or under a By-Law
enabling provision is not enough to make a position a corporate office (Matling Industrial and
Commercial Corporation vs. Coros, 633 SCRA 12, G.R. No. 157802 October 13, 2010)
Power to elect corporate officers
• The power to elect the corporate officers was a discretionary power that the law exclusively
vested in the Board of Directors, and could not be delegated to subordinate officers or agents
(Matling Industrial and Commercial Corporation vs. Coros, 633 SCRA 12, G.R. No. 157802
October 13, 2010)
Corporate officer
Cacho v. Balagtas, GR No. 202974, 07 Feb.2018, J. Leonardo-de Castro).
One shall be considered a corporate officer only if 2 conditions are met, viz:
1) The position occupied was created by charter/bylaws, and

2) The officer was elected (or appointed) by the corporation’s board of directors to occupy
said position.
 If the position is other than corporate president, treasurer or secretary, it must be

expressly mentioned in the bylaws in order to be considered as a corporate office.
 There must be documentary evidence to prove that the person alleged to be a corporate
officer was appointed by action or with approval of the board.
Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
 GIS (general information sheet) neither governs nor establishes whether or not a
position is an ordinary or corporate office.
corporate officer/intra-corporate controversy
To be considered an intra-corporate controversy, the dismissal of a corporate officer must have

something to do with the duties and responsibilities attached to his/her corporate office or
performed in his/her official capacity.
• Balagtas, the EVP/CEO of NBS Travel Inc., was preventively suspended by the Board
due to questionable documents and transactions she entered into without authority.
Balagtas insisted on working despite her suspension. Balagtas claimed that she was
constructively dismissed and filed a labor case.
• In the bylaws, it stated as a corporate office ONE OR MORE VICE PRESIDENT. The
position of EVP is embraced in such term; particular designation/variation of each
vice president (i.e., EVP) need not be specified and enumerated otherwise it will
invalidate the bylaws’ true intention and encroach upon the company’s right and
authority to adopt its internal rules and regulations.
Teleconference now legally possible
In this age of modern technology, the courts may take judicial notice that business transactions
may be made by individuals through teleconferencing. In the Philippines, teleconferencing and
videoconferencing of members of the board of directors of private corporations is a reality, in light of
Republic Act No. 8792. The Securities and Exchange Commission issued SEC memorandum No. 15, on
November 30, 2011, providing the guidelines to be complied with related to such conferences
(Expertravel & Tours, Inc. v. CA and Korean Airlines, GR No. 152392, 26 May 2005).
Question
In the November 2010 stockholders meeting of Greenville Corporation, eight (8) directors were
elected to the board. The directors assumed their posts in January 2011. Since no stockholders' meeting
was held in November 2011, the eight directors served in a holdover capacity and thus continued
discharging their powers. In June 2012, two (2) of Greenville Corporation's directors- Director A and
Director B - resigned from the board. Relying on Section 29 of the Corporation Code, the remaining six
(6) directors elected two (2) new directors to fill in the vacancy caused by the resignation of Directors A
and B. Stockholder X questioned the election of the new directors, initially, through a letter-complaint
addressed to the board, and later (when his letter-complaint went unheeded), through a derivative suit
filed with the court. He claimed that the vacancy in the board should be filled up by the vote of the
stockholders of Greenville Corporation. Greenville Corporation's directors defended the legality of their
action, claiming as well that Stockholder X's derivative suit was improper.
A) Is the filing of a derivative suit by X proper?
B) Whether the remaining directors of the Board of Greenville validly elected the two (2) new
directors to fill in a vacancy caused by the resignation of A and B.
ANS. A) YES. The derivative suit filed by X is proper. It complied with the requisites for a derivative suit
which are as follows: a) the party bringing the suit should be a shareholder as of the time of the act or
transaction complained of, the number of his shares not being material; b) he has tried to exhaust intra-
corporate remedies, i.e., has made a demand on the board of directors for the appropriate relief but the
latter has failed or refused to heed his plea; and c) the cause of action actually devolves on the
corporations, the wrong doing or harm having been, or being caused to the corporation and not to the
particular stockholder bringing the suit (Legaspi Towers 300, Inc. v. Muer, GR No. 170782, 18 June
2012).
B) NO. It should be filled up by the stockholders in a meeting called for the purpose. The
separation is not by resignation but by the expiration of the term. The holdover period is not part of the
term of office of a member of the board of directors. The holdover period is NOT part of the director’s
original term of office, nor is it another term; the holdover period, however, constitutes part of his tenure.
Corollary, when an incumbent member of the board of directors continue to serve in a holdover capacity,
it implies that the office has a fixed term, which has expired, and the incumbent is holding the
succeeding term (Valle Verde Country Club Inc. v. Africa, 598 SCRA 202, 04 September 2009).**

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
Business judgment rule
Question of policy and management are left to the honest decision of the officers and directors of
a corporation, and the courts are without authority to substitute their judgment for the judgment of the
board of directors. The board is the business manager of the corporation, and so long as it acts in good
faith, its orders are not reviewable by the courts. (PSE v. CA, 281 SCRA 232 (1997)
Ultra vires acts (Section 45, CCP) (“beyond the powers”/ “mischievous doctrine”)
Cases: 1. Atrium v. CA, 353 SCRA 23, 28 Feb. 2001

- An ultra vires act is one committed outside the object for which a corporation is created as
defined by the law of its organization and therefore beyond the power conferred upon it by law. The term
“ultra vires” is distinguished from an illegal act for the former is merely voidable which may be enforced by
performance, ratification, or estoppel, while the latter is void and cannot be validated.
2. AF Realty v. Dieselman, 373 SCRA 385, 16 Jan. 2002

- Section 23 of the Corporation Code expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. Just as a natural person may authorize another
to do certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its
functions to individual officers or agents appointed by it. Thus, contracts or acts of a corporation must be
made either by the board of directors or by a corporate agent duly authorized by the board. Absent such
valid delegation/authorization, the rule is that the declarations of an individual director relating to the
affairs of the corporation, but not in the course of, or connected with, the performance of authorized duties
of such director, are held not binding on the corporation.
Illegal vs. Ultra vires acts
A distinction should be made between corporate acts or contracts which are illegal and
those which are merely ultra vires.
The former contemplates the doing of an act which are contrary to law, morals or public policy or
public duty, and are, like similar transactions between individuals, void. They cannot serve as basis of a
court action nor acquire validity by performance, ratification or estoppel.
Mere ultra vires acts, on the other hand, or those which are not illegal or void ab initio, but are
not merely within· the scope of the articles of incorporation, are merely voidable and may become
binding and enforceable when ratified by the stockholders.(JOSE A. BERNAS, et al., vs. JOVENCIO
F. CINCO, et al., G.R. Nos. 163356-57. July 1, 2015, & companion cases)
Meetings (Sections 49-59, CCP)
Notice of meeting
For a stockholders’ special meeting must be met with respect to notice, quorum and place. One
(1) of the requirements is a previous written notice sent to all stockholders at least one week prior to the
scheduled meeting, unless otherwise provided in the by-laws (Guy v. Guy, 790 SCRA 288, 19 April
2016).**
The provisions only require the sending/mailing of the notice of stockholders’ meeting to the
stockholders of the corporation. Sending/mailing is different from filing or service under the Rules of
Court. Had the lawmakers intended to include the stockholder’s receipt of the notice, they would have
clearly reflected such requirement in the law (Guy v. Guy, 790 SCRA 288, 19 April 2016).
Authority to call meeting
[T]he MSC Oversight Committee is neither empowered by law nor the MSC by-laws to call a
meeting and the subsequent ratification made by the stockholders did not cure the substantive infirmity,
the defect having set in at the time the void act was done. The defect goes into the very authority of the
persons who made the call for the meeting. It is apt to recall that illegal acts of a corporation
which contemplate the doing of an act which is contrary to law, morals or public order, or contravenes
some rules of public policy or public duty, are, like similar transactions between individuals, void. They
cannot serve as basis for a court action, nor acquire validity by performance, ratification or estoppel. The
same principle can apply in the present case. The void election of 17 December 1997 cannot be ratified
by the subsequent Annual Stockholders’ Meeting. (JOSE A. BERNAS, et al., vs. JOVENCIO F. CINCO, et
al., G.R. Nos. 163356-57. July 1, 2015, & companion cases)
Proxy voting & Voting Trust Agreement (VTA):

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
- A voting trust agreement results in the separation of the voting rights of a stockholder from his
other rights such as the right to receive dividends, the right to inspect the books of a corporation, the right
to sell interests in the assets of the corporation and other rights to which a stockholder may be entitled
until the liquidation of the corporation.
- A voting trust agreement is an agreement in writing whereby one or more stockholders of a
corporation consent to transfer his or their shares to a trustee in order to vest in the latter voting or other
rights pertaining to said shares for a period not exceeding five years upon the fulfillment of statutory
conditions and such other terms and conditions specified in the agreement (Lee v. CA, 205 SCRA 752
(1992) (Sec. 23)
Quorum – basis of computation
Case: Llanuza v. CA, 454 SCRA 54, 28 March 2005

- The Articles of Incorporation (AI) and not the stock and transfer book (STB) should be the basis
of the quorum. The STB cannot be used as a sole basis for determining the quorum as it does not reflect
the totality of shares which have been subscribed, more so when the AI show a significantly larger
amount of shares issued and outstanding as compared to that listed in the STB.
- Quorum is based on the totality of the shares of which have been subscribed and issued
whether it be founders’ shares or common shares.
- One who is actually a stockholder cannot be denied his right to vote by the corporation merely
because the corporate officers failed to keep its records accurately. A corporation’s records are not the
only evidence of the ownership of stock in a corporation.
- In fact, the acts and conduct of the parties may even constitute sufficient evidence of one’s
status as a shareholder or member.
Shares of stock (Sections 6-9, CCP) & Stockholders (Sections 60-73, CCP)
Watered Stocks
Those issued for consideration less than its par or issued value or for a consideration in any form
other than cash, valued in excess of its fair value.
Any director or officer of a corporation consenting to the issuance of watered stocks or who,
having knowledge thereof, does not forthwith express his objection in writing and file the same with the
corporate secretary shall be solidary liable with the stockholder concerned to the corporation and its
creditors for the difference between the air value received at the time of the issuance of the stock and the
par or issued value of the same (Sec. 65, CCP) (Labitag, Answers to the 2015 Bar Exams).
Sales of shares of stock
In a sale of shares of stock, physical delivery of a stock certificate is one of the essential
requisites for the transfer of ownership of the stocks purchased (Fil-Estate Gold and Dev’t., Inc. v. Vertex
Sales and Trading, Inc., 698 SCRA 272, 10 June 2013).
Doctrine of Equality of Shares
- Except as otherwise provided by the Articles of Incorporation (AI) and stated in the certificate of
stock, each share shall in all respects equal to each other share.
- In the absence of any provision in the AI and in the certificate of stock to the contrary, all stocks,
regardless of their class, nomenclature, enjoy the same rights and privileges and subject to same
liabilities.
Certificate of stock
• Right of transferee to have stocks transferred in his name is an inherent right of ownership of
stocks
• to be valid against third parties and the corporation, the transfer must be recorded in the
books of corporation
• Surrender of the original certificate of stock is necessary before the issuance of a new one so
that the old certificate may be cancelled
(Teng v. SEC and Lay, GR No. 184332; Feb. 17, 2016)
A stock certificate is prima facie evidence that the holder is a shareholder of the corporation, but the
possession of the certificate is not the sole determining factor of one’s stock ownership. A certificate of
stock is merely: – x x x the paper representative or tangible evidence of the stock itself and of the various
Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
interests therein. The certificate is not stock in the corporation but is merely evidence of the
holder’s interest and status in the corporation, his ownership of the share represented thereby,
but is not in law the equivalent of such ownership. It expresses the contract between the corporation
and the stockholder, but it is not essential to the existence of a share in stock or the creation of the
relation of shareholder to the corporation. (GRACE BORGOÑA INSIGNE, DIOSDADO BORGOÑA,
OSBOURNE BORGOÑA, IMELDA BORGOÑA RIVERA, AND ARISTOTLE BORGOÑA, VS. ABRA
VALLEY COLLEGES, INC. AND FRANCIS BORGOÑA, GR. No. 204089, July 29, 2015).
Street certificate
In Santamaria v. HSBC, 89 Phil. 780 (1951), the Supreme Court held that when a stock certificate
is endorsed in blank by the owner thereof, it constitutes what is termed as "street certificate" (Guy v. Guy,
680 SCRA 214, 05 September 2012).
Transfer of shares
In determining the validity of the transfer of shares through purchase, we resort to Section 63 of
the Corporation Code, which pertinently provides:
Section 63. Certificate of stock and transfer of shares. – x x x 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 showing the names of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates and the number of shares transferred.
No shares of stock against which the corporation holds any unpaid claim shall be transferable in
the books of the corporation.
In this regard, the Court has instructed in Ponce v. Alsons Cement Corporation (G.R. No. 139802,
December 10, 2002, 393 SCRA 602, 612) that:
x x x [A] transfer of shares of stock not recorded in the stock and transfer book of the
corporation is non-existent as far as the corporation is concerned. As between the corporation on
the one hand, and its shareholders and third persons on the other, the corporation looks only to
its books for the purpose of determining who its shareholders are. It is only when the transfer has
been recorded in the stock and transfer book that a corporation may rightfully regard the
transferee as one of its stockholders. From this time, the consequent obligation on the part of the
corporation to recognize such rights as it is mandated by law to recognize arises.
Nonetheless, in Lanuza v. Court of Appeals (G.R. No. 131394, March 28, 2005, 454 SCRA 54,
67) the Court has underscored that the STB is not the exclusive evidence of the matters and things that
ordinarily are or should be written therein, for parol evidence may be admitted to supply omissions from
the records, or to explain ambiguities, or to contradict such records, to wit:
x x x [A] stock and transfer book is the book which records the names and addresses of all
stockholders arranged alphabetically, the installments paid and unpaid on all stock for which subscription
has been made, and the date of payment thereof; a statement of every alienation, sale or transfer of stock
made, the date thereof and by and to whom made; and such other entries as may be prescribed by law.
A stock and transfer book is necessary as a measure of precaution, expediency and convenience since it
provides the only certain and accurate method of establishing the various corporate acts and transactions
and of showing the ownership of stock and like matters. However, a stock and transfer book, like
other corporate books and records, is not in any sense a public record, and thus is not exclusive
evidence of the matters and things which ordinarily are or should be written therein. In fact, it is
generally held that the records and minutes of a corporation are not conclusive even against the
corporation but are prima facie evidence only, and may be impeached or even contradicted by
other competent evidence. Thus, parol evidence may be admitted to supply omissions in the
records or explain ambiguities, or to contradict such records.
(GRACE BORGOÑA INSIGNE, DIOSDADO BORGOÑA, OSBOURNE BORGOÑA, IMELDA BORGOÑA
RIVERA, AND ARISTOTLE BORGOÑA PETITIONERS, VS. ABRA VALLEY COLLEGES, INC. AND
FRANCIS BORGOÑA, RESPONDENTS, G.R. No. 204089, July 29, 2015)
Right to transfer/sell shares

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
• Right of transferee to have stocks transferred in his name is an inherent right of ownership of
stocks
• to be valid against third parties and the corporation, the transfer must be recorded in the books of
corporation
• Surrender of the original certificate of stock is necessary before the issuance of a new one so that
the old certificate may be cancelled
Transfer of shares & recording the STB
All transfers of share of stock must be registered in the corporate books in order to be binding on
the corporation.
An owner of shares of stock cannot be accorded the rights pertaining to a stockholder – such as
the right to call for a meeting and the right to vote, or to be voted for – if his ownership of such shares is
not recorded in the Stock and Transfer Book (F & S Velasco Company, Inc. v. Madrid, 774 SCRA 388, 10
November 2015).
 Only absolute transfers of shares of stock are required to be recorded in the corporation’s stock
and transfer book in order to have force and effect as against third persons. Hence, the
attachment lien is not required to be registered in the books of the corporation to be valid and
effective against the corporation and third party. (Chemphil v. CA, 251 SCRA 257, 12 December
1995)
***Restrictions on transfer of stock not allowed. It is a personal and private property; the owner has
the right to dispose off his stock in any manner he/she wishes. The transfer, however, maybe regulated.
Case: Grace Borgoña Insigne, et al. vs. Abra Valley Colleges, Inc. and Francis Borgoña, G.R. No.
204089, July 29, 2015
Insigne, et al. filed a complaint (with application for preliminary injunction) and damages in the RTC
against Abra Valley, praying, among others, that the RTC direct Abra Valley to allow them to inspect its
corporate books and records, and the minutes of meetings, and to provide them with its financial
statements. Abra Valley moved to dismiss the complaint on the ground that Insigne, et al. are not
stockholders; their proofs as such are certificates of stock still in the name of the original owners and they
are not listed as shareholders in the STB.
Insigne, et al. supported their claim of being stockholders by presenting the secretary’s certificate that
they are listed as shareholders, the official receipts of their payments for their subscriptions of the shares
of Abra Valley, SEC certifications stating that Abra Valley had issued shares in favor of Insigne, et al.,
letters, GIS and minutes of stockholders meetings. The RTC dismissed the complaint which the CA
sustained on the ground that Insigne, et al. have no stock certificate.
Are petitioners Insigne, et al. stockholders of Abra Valley; the nature of a certificate of stock
YES. Although Insigne et al. failed to produce a stock certificate in their names, they were able to prove
that they are stockholders of Abra Valley.
A stock certificate is prima facie evidence that the holder is a shareholder of the corporation but the
possession of the certificate is not the sole determining factor of one’s stock ownership. A certificate of
stock is merely: –
x x x the paper representative or tangible evidence of the stock itself and of the various interests
therein. The certificate is not stock in the corporation but is merely evidence of the holder's
interest and status in the corporation, his ownership of the share represented thereby, but is not
in law the equivalent of such ownership. It expresses the contract between the corporation and the
stockholder, but it is not essential to the existence of a share in stock or the creation of the relation of
shareholder to the corporation.
To establish their stock ownership, Insigne duly established that they are stockholders through: the
secretary’s certificate that they are listed as shareholders, the official receipts of their payments for their
subscriptions of the shares of Abra Valley, SEC certifications stating that Abra Valley had issued shares
in favor of Insigne, et al., letters, GIS and minutes of stockholders meetings.

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
Insigne are entitled to demand the production of the STB of Abra Valley
Indeed, transfer of shares of stock not recorded in the stock and transfer book of the corporation is non-
existent as far as the corporation is concerned. As between the corporation on the one hand, and its
shareholders and third persons on the other, the corporation looks only to its books for the purpose of
determining who its shareholders are. It is only when the transfer has been recorded in the stock and
transfer book that a corporation may rightfully regard the transferee as one of its stockholders.
Nonetheless, the STB is not the exclusive evidence of the matters and things that ordinarily are or
should be written therein, for parol evidence may be admitted to supply omissions from the records,
or to explain ambiguities, or to contradict such records.
Since Insigne, et al. established that they are stockholders, they are entitled to demand the production of
the STB.
Capital and common shares and foreign ownership
The term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock
entitled to vote in the election of directors, and thus in the present case only to common shares, and not
to the total outstanding capital stock comprising both of common and non-voting preferred shares
(Gamboa v. Teves, 652 SCRA 690, 28 June 2011).
The Constitution expressly declares as State policy the development of an economy “effectively
controlled” by Filipinos. Consistent with such State policy, the Constitution explicitly reserves the
ownership and operation of public utilities to Philippine nationals, who are defined in the Foreign
Investments Act of 1991 as Filipino citizens, or corporations or associations at least 60 percent of whose
capital with voting rights belongs to Filipinos. The FIA’s implementing rules explain that “[f]or stocks to
be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to
meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate
voting rights is essential.” In effect, the FIA clarifies, reiterates and confirms the interpretation that the
term “capital” in Section 11, Article XII of the 1987 Constitution refers to shares with voting rights, as
well as with full beneficial ownership. This is precisely because the right to vote in the election of
directors, coupled with full beneficial ownership of stocks, translates to effective control of a corporation.
(Gamboa v. Teves, GR No. 176579, 09 October 2012)**
**40% foreign ownership cap relates only to common shares and not to the total outstanding capital stock
(common and non-voting preferred shares).
The full beneficial ownership test

(Roy v. Herbosa, G.R. No. 207246, November 22, 2016)**
As defined in the SRC-IRR, "[b]eneficial owner or beneficial ownership means any person
who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise,
has or shares voting power (which includes the power to vote or direct the voting of such security) and/or
investment returns or power (which includes the power to dispose of, or direct the disposition of such
security) x x x."
The term "full beneficial ownership" found in the FIA-IRR is to be understood in the context of the
entire paragraph defining the term "Philippine national". Mere legal title is not enough to meet the required
Filipino equity, which means that it is not sufficient that a share is registered in the name of a Filipino
citizen or national, i.e., he should also have full beneficial ownership of the share. If the voting right of a
share held in the name of a Filipino citizen or national is assigned or transferred to an alien, that share is
not to be counted in the determination of the required Filipino equity. In the same vein, if the dividends
and other fruits and accessions of the share do not accrue to a Filipino citizen or national, then that share
is also to be excluded or not counted.
Given that beneficial ownership of the outstanding capital stock of the public utility corporation
has to be determined for purposes of compliance with the 60% Filipino ownership requirement, the
definition in the SRC-IRR can now be applied to resolve only the question of who is the beneficial owner
or who has beneficial ownership of each "specific stock" of the said corporation. Thus, if a "specific stock"
is owned by a Filipino in the books of the corporation, but the stock's voting power or disposing power
belongs to a foreigner, then that "specific stock" will not be deemed as “beneficially owned” by a Filipino.
Stated inversely, if the Filipino has the "specific stock's" voting power (he can vote the stock or
direct another to vote for him), or the Filipino has the investment power over the "specific stock" (he can
dispose of the stock or direct another to dispose it for him), or he has both (he can vote and dispose of
Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
the "specific stock" or direct another to vote or dispose it for him), then such Filipino is the "beneficial
owner" of that "specific stock" and that "specific stock" is considered (or counted) as part of the 60%
Filipino ownership of the corporation. In the end, all those "specific stocks" that are determined to be
Filipino (per definition of "beneficial owner" or "beneficial ownership") will be added together and their sum
must be equivalent to at least 60% of the total outstanding shares of stock entitled to vote in the election
of directors and at least 60% of the total number of outstanding shares of stock, whether or not entitled to
vote in the election of directors.
To reiterate, the "beneficial owner or beneficial ownership" definition in the SRC-IRR is

understood only in determining the respective nationalities of the outstanding capital stock of a public
utility corporation in order to determine its compliance with the percentage of Filipino ownership required
by the Constitution.
Suits and Controversies in the Corporation
Derivative suit
A derivative suit “is an action filed by stockholders to enforce a corporate action.” A derivative
suit, therefore, concerns “a wrong to the corporation itself.” The real party-in-interest is the corporation,
not the stockholders filing the suit. The stockholders are technically nominal parties but are nonetheless
the active persons who pursue the action for and on behalf of the corporation (Florete, Jr. v. Florete, Sr.,
781 SCRA 255, 20 January 2016).
In derivative suits, the corporation concerned must be impleaded as party (ibid.).
For a derivative suit to prosper, it is required that the minority stockholder suing for and in behalf
of the corporation must allege in his complain that he is suing on a derivative cause of action on behalf of
the corporation and all other stockholders similarly situated who may wish to join him in the suit (Go v.
Distinction Properties Dev't. and Construction, Inc., 671 SCRA 461, 25 April 2012).
The stockholder’s right to file a derivative suit is not based on any express provision of the
Corporation Code, but is impliedly recognized when the law makes corporate directors or officers liable
for damages suffered by the corporation and its stockholders (Legaspi Towers 300, Inc. v. Muer, 673
SCRA 453, 18 June 2012).
The filing of a Complaint for the Declaration of Nullity of Elections by a shareholder against the
officers and the corporation due lack of quorum is NOT a derivative suit.
Where a stockholder or member is denied the right of inspection, his suit would be individual
because the wrong is done to him personally and not to the other stockholders or the corporation. Where
the wrong is done to a group of stockholders, as where preferred stockholders’ rights are violated, a
class or representative suit will be proper for the protection of all stockholders belonging to the same
group. But where the acts complained of constitute a wrong to the corporation itself, the cause of
action belongs to the corporation and not to the individual stockholder or member.
For a derivative suit to prosper, it is required that the minority stockholder suing for and in behalf
of the corporation must allege in his complain that he is suing on a derivative cause of action on behalf of
the corporation and all other stockholders similarly situated who may wish to join him in the suit (Go v.
Distinction Properties Dev't & Construction, Inc., 671 SCRA 461, 25 April 2012).
Nuisance or harassment suit
In determining whether a suit is a nuisance or harassment suit, the court shall consider, among
others, the following: (1) The extent of the shareholding or interest of the initiating stockholder or member;
(2) Subject matter of the suit; (3) Legal and factual basis of the complaint; (4) Availability of appraisal
rights for the act or acts complained of; and (5) Prejudice or damage to the corporation, partnership, or
association in relation to the relief sought (Ang v. Ang, 699 SCRA 272, 19 June 2013).
Intra-corporate controversy
An intra-corporate controversy is one which "pertains to any of the following relationships: (1)
between the corporation, partnership or association and the public; (2) between the corporation,
Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
partnership or association and the State in so far as its franchise, permit or license to operate is
concerned; (3) between the corporation, partnership or association and its stockholders, partners,
members or officers; and (4) among the stockholders, partners or associates themselves (Go v.
Distinction Properties Dev't. and Construction, Inc., 671 SCRA 461, 25 April 2012).
Status or Relationship Test and Controversy Test in intra-corporate controversy
- Applying what has come to be known as the relationship test, it has been held that the types of
actions embraced by the following definition include the following suits: (a) between the corporation,
partnership or association and the public; (b) between the corporation, partnership or association and its
stockholders, partners, members, or officers; (c) between the corporation, partnership or association and
the State insofar as its franchise, permit or license to operate is concerned; and, (d) among the
stockholders, partners or associates themselves. As the definition is broad enough to cover all kinds of
controversies between stockholders and corporations, the traditional interpretation was to the effect that
the relationship test brooked no distinction, qualification or any exemption whatsoever.
- The better policy in determining which body has jurisdiction over a case would be to consider
not only the status or relationship of the parties but also the nature of the question that is the subject of
their controversy. Under that nature of the controversy test, the dispute must not only be rooted in the
existence of intra-corporate relationship, but must also refer to the enforcement of the parties' correlative
rights and obligations under the Corporation Code as well as the internal and intra-corporate regulatory
rules of the corporation. The combined application of the relationship test and the nature of the
controversy test, consequently, become the norm in determining whether a case is an intra-corporate
controversy or is purely civil in character. (Strategic Alliance Dev't. Corp. v. Star Infrastructure Dev't.
Corp., 635 SCRA 380, 17 Nov. 2010).
A corporate officer’s dismissal is always a corporate act or an intra-corporate controversy
A corporate officer’s dismissal is always a corporate act, or an intra-corporate controversy which

arises between a stockholder and a corporation (Okol v. Slimmers World, 608 SCRA 97, 11 Dec. 2009).
An accounting demand by a stockholder of association dues from a condominium is intra-

corporate in nature.
The case before the RTC involved an intra-corporate dispute--the Moreno spouses were asking
for an accounting of the association dues and were questioning the manner the petitioner calculated the
dues assessed against them. These issues are alien to the first case that was initiated by Salvacion--a
third party to the petitioner-Moreno relationship--to stop the extrajudicial sale on the basis of the lack of
the requirements for a valid foreclosure sale (Chateau de Baie Condominium Corp. v. Moreno, 644 SCRA
288, 23 February 2011; also Wack Wack Condominium Corp., et al. v. CA, et al., 215 SCRA 850, 23
November 1992).
A complaint by a condominium unit owner against the condominium corporation for violation of
the master deed of restrictions of the condominium and for alleged misrepresentation in their circulated
flyers and brochures as to the facilities or amenities that would be available to the condominium is an
intra-corporate controversy (Go v. Distinction Properties, Dev’t., GR No. 194024, 25 April 2012).
Mode of appeal in intra-corporate dispute

The appropriate mode of appeal in an intra-corporate dispute is a petition for review under Rule
43 of the Rules of Court (Phil Overseas Communications Corporation (POTC) v. Africa, 700 SCRA 453,
03 July 2013; Dee Ping Wee v. lee Hiong Wee, 629 SCRA 145 [2010]).
Corporate Books and Records (Sections 74-75, CCP)
Corporate secretary to make entries in books
Case: Torres, Jr. v. CA, 278 SCRA 793 (1997)

- It is the corporate secretary’s duty and obligation to register valid transfer of stocks and if a
corporate officer refuses to comply, the transferor-stockholder may rightfully bring suit to compel
performance.

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
Shareholder’s right to inspect corporate books/records
[T]he petitioner’s submission that the respondent’s “insignificant holding” of only .001% of the
petitioner’s stockholding did not justify the granting of her application for inspection of the corporate
books and records is unwarranted. The Corporation Code has granted to all stockholders the right to
inspect the corporate books and records, and in so doing has not required any specific amount of interest
for the exercise of the right to inspect. Ubi lex non distinguit nec nos distinguere debemos. When the law
has made no distinction, we ought not to recognize any distinction.
Neither could the petitioner arbitrarily deny the respondent’s right to inspect the corporate books
and records on the basis that her inspection would be used for a doubtful or dubious reason. Under
Section 74, third paragraph, of the Corporation Code, the only time when the demand to examine and
copy the corporation’s records and minutes could be refused is when the corporation puts up as a
defense to any action that “the person demanding” had “improperly used any information secured
through any prior examination of the records or minutes of such corporation or of any other
corporation, or was not acting in good faith or for a legitimate purpose in making his demand.”
The right of the shareholder to inspect the books and records of the petitioner should not be made subject
to the condition of a showing of any particular dispute or of proving any mismanagement or other
occasion rendering an examination proper, but if the right is to be denied, the burden of proof is upon the
corporation to show that the purpose of the shareholder is improper, by way of defense. (TERELAY
INVESTMENT AND DEVELOPMENT CORPORATION vs. CECILIA TERESITA J. YULO, G.R. No.
160924. August 05, 2015)
Merger and Consolidation (Sections 76- 80, CCP)
Cases: 1. Babst v. CA, 350 SCRA 341 (2001)

- In the merger of two existing corporations, one of the corporations survives and continues the
business, while the other is dissolved and all its rights, properties and liabilities are acquired by the
surviving corporation.
2. PNB v. Andrada, GR No. 142935, 17 April 2002, 381 SCRA 244

- A corporation that purchases the assets of another will not be liable for the debts of a selling
corporation provided the former acted in good faith and paid adequate consideration for such assets,
except when any of the following circumstances is present:
1) Where the purchaser expressly or impliedly agrees to assume the debts;
2) Where the transaction amounts to merger or consolidation;
3) Where the purchasing corporation is merely a continuation of the selling corporation;
4) Where the transaction is fraudulently entered into to escape liability.
A merger does not become effective upon the mere agreement of the constituent corporations. All
the requirements specified in the law must be complied with in order for merger to take effect. Here,
Bancommerce and TRB remained separate corporations with distinct corporate personalities.
What happened is that TRB sold and Bancommerce purchased identified recorded assets of
TRB in consideration of Bancommerce’s assumption of identified recorded liabilities of TRB
including booked contingent accounts. There is no law that prohibits this kind of transaction especially
when it is done openly and with appropriate government approval. (BANK OF COMMERCE vs. RADIO
PHILIPPINES NETWORK, INC., ET. AL., G.R. No. 195615, April 21, 2014)
De facto merger
"a de facto merger can be pursued by one corporation acquiring all or substantially all of the properties of
another corporation in exchange of shares of stock of the acquiring corporation. The acquiring corporation
would end up with the business enterprise of the target corporation; whereas, the target corporation
would end up with basically its only remaining assets being the shares of stock of the acquiring
corporation." (BANK OF COMMERCE vs. RADIO PHILIPPINES NETWORK, INC., ET. AL., G.R. No.
195615, April 21, 2014, J. Abad )
Human beings are not embraced in the term "assets and liabilities"; Surviving corporations are
not mandated to absorb employees of the non-surviving corporation
- In legal parlance, human beings are never embraced in the terms "assets and liabilities."
- The Corporation Code does not mandate the absorption of the employees of the non-surviving
corporation by the surviving corporation in the case of merger (BPI v. BPI Employees Union-Davao
Chapter-Federation of Unions in BPI Unibank, 627 SCRA 590, 10 August 2010).
The surviving corporation becomes bound by the employment contracts entered into by the
absorbed corporation.

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
The surviving corporation becomes bound by the employment contracts entered into by the absorbed
corporation. These employment contracts are not terminated. They subsist unless their termination is
allowed by law. The acquisition of all assets, interests, and liabilities of the absorbed corporation
necessarily includes the rights and obligations of the absorbed corporation under its employment
contracts (Phil. Geothermal, Inc. Employees Union v. Unocal Phils. Inc. [now Chevron], 804 SCRA 286,
28 September 2016).
Business-enterprise transfer rule
The rule envisions a situation where the transferee corporation’s interest is not limited to the
assets acquired but covers its business operations, including its goodwill.
As a consequence of the transfer, the selling corporation is merely left with its judicial existence,
devoid of its industry and earning capacity. In effect, the corporation is rendered incapable of continuing
its operation or accomplishing its corporate purpose.
The business-enterprise transfer rule aims to protect creditors of the business by allowing them a
remedy against the new owner of the assets and business enterprise. Otherwise, creditors would be left
‘holding the bag’ because they may not be able to recover from the transferor who has ‘disappeared with
the loot’ or against the transferee who can claim that he is a purchaser in good faith and for value. (Y-l
Leisure Phils. et al., v. James Yu, GR No. 207161, 08 September 2015).
***
Sometime in 1997, Mt. Arayat Dev’t. Co. Inc. (Madci), a real estate development company, sold
shares of a golf and country club to the public. James Yu bought and fully paid 500 golf and 150 country
club shares for P650,000.00. Three years later, James found out that the supposed site of the club was
non-existent. He demanded for the return of his money from Madci. Due to the failure to pay, James sued
Madci, He included Y-l Leisure Phils., Yats Int’l. Ltd. And Y-l Clubs and Resorts, Inc. (YIL) in his complaint
because, in 1999, Madci sold substantially all of its assets, consisting of 120 hectares of land in
Pampanga, to them.
By selling the 120 hectares of land, which all that Madci had for purposes of accomplishing its
objective to operate a golf and country club, to YIL, Madci rendered itself incapable or unable to continue
the business for which it was incorporated. YIL, which was in the business of developing real estate
properties for leisure and tourism purposes, continued the business of Madci and undertook the
development of the golf course. Thus, YIL inherited the liabilities of Madci because it acquired all of the
assets of the latter.
YIL was held jointly and severally liable with Madci in satisfying Yu’s demand for payment. (Y-l
Leisure Phils. et al., v. James Yu, GR No. 207161, 08 September 2015).
In a business-enterprise transfer, the transferee is liable for the debts and liabilities of his
transferor arising from the business enterprise conveyed (Y-l Leisure Phils. et al., v. James Yu, GR No.
207161, 08 September 2015, 770 SCRA 56).
Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the latter
for damages suffered (Y-l Leisure Phils. et al., v. James Yu, GR No. 207161, 08 September 2015, 770
SCRA 56).
Nell Doctrine
- The Nell Doctrine states the general rule that the transfer of all assets of a corporation to
another shall not render the latter liable to the liabilities of the transferor.
-The exception of the Nell Doctrine, which finds its legal basis under Section 40, provides that the
transferee corporation assumes the debts and liabilities of the transferor corporation because it is merely
a continuation of the latter’s business.
- The first exception under the Nell Doctrine, where the transferee corporation expressly or
impliedly agrees to assume the transferor’s debts, is provided under Article 2047 of the Civil Code.
- The second exception under the Nell Doctrine, as to the merger and consolidation of
corporations, is well-established under Sections 76 to 80, Title X of the Corporation Code. If the transfer
of assets of one (1) corporation to another amounts to a merger or consolidation, then the transferee
corporation must take over the liabilities of the transferor.
(Y-l Leisure Phils. et al., v. James Yu, GR No. 207161, 08 September 2015, 770 SCRA 56).
Appraisal Right (Sections 81-86, CCP)

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
Case: Turner v. Lorenzo Shipping Corp., 636 SCRA 13, 24 November 2010
- A stockholder who dissents from certain corporate actions has the right to demand payment of
the fair value of his or her shares. This right, known as the right of appraisal, is expressly recognized in
Section 81 of the Corporation Code.
- The right of appraisal may be exercised when there is a fundamental change in the charter or
articles of incorporation substantially prejudicing the rights of the stockholders. It does not vest unless
objectionable corporate action is taken. It serves the purpose of enabling the dissenting stockholder to
have his interests purchased and to retire from the corporation.
- No payment shall be made to any dissenting stockholder unless the corporation has unrestricted
retained earnings in its books to cover the payment. In case the corporation has no available unrestricted
retained earnings in its books, Section 83 of the Corporation Code provides that if the dissenting
stockholder is not paid the value of his shares within 30 days after the award, his voting and dividend
rights shall immediately be restored
Non-stock Corporations
Board of Trustees
The second paragraph of Section 108 of the Corporation Code, although setting the term of the
members of the Board of Trustees at five years, contains a proviso expressly subjecting the duration to
what is otherwise provided in the articles of incorporation or by-laws of the educational corporation—that
contrary provision controls on the term of office (Barayuga v. Adventist University of the Philippines, 656
SCRA 640, 17 August 2011).
On occupying an office in a hold-over capacity could be removed at any time, without cause,
upon the election or appointment of his successor (Barayuga v. Adventist University of the Philippines,
656 SCRA 640, 17 August 2011).
Voting Rights
The provision in Section 89 of the CCP is explicit on the right of a member to vote by mail. Voting
by mail must be clearly set forth in the by-laws subject to SEC approval and such terms and conditions
that that may be imposed by the Commission before it can be exercised by the members. Considering the
absence of a provision allowing mail voting in the by-laws, all votes cast by mail is violative of the cited
proviso of the Code (SEC Opinion No. 04-50 dated 2-17-04).
Limitations in voting rights of members
Section 89 of the Corporation Code pertaining to non-stock corporations provides that "(t)he right
of the members of any class or classes (of a non-stock corporation) to vote may be limited, broadened or
denied to the extent specified in the articles of incorporation or the by-laws." This is an exception to
Section 6 of the same code where it is provided that "no share may be deprived of voting rights except
those classified and issued as preferred or redeemable shares, unless otherwise provided in this Code.
Hence, the stipulation in the By-Laws providing for the election of the Board of Directors by districts is a
form of limitation on the voting rights of the members of a non-stock corporation as recognized under the
aforesaid Section 89. Section 24 of the Code, which requires the presence of a majority of the members
entitled to vote in the election of the board of directors, applies only when the directors are elected by the
members at large, such as is always the case in stock corporations by virtue of Section 6 (Luis Ao-as, et
al. v. CA, GR No. 128464, 20 June 2006).
Dead members are not counted for quorum and voting purposes
In a non-stock corporation, membership is personal and non-transferrable unless the articles of

incorporation or by-laws states otherwise. Section 91 states that termination extinguishes all the rights of
a member of the corporation, unless otherwise stated in the articles of incorporation. Hence, dead
members are not to be counted in determining the requisite vote in corporate matters of the requisite
quorum in the members' meeting (Tan v. Sycip, 499 SCRA 216, 17 August 2006).
Close Corporations
Cases: 1. Dulay Ent. V. CA, 225 SCRA 678 (1993)

- In a close corporation, a board resolution authorizing the sale or mortgage of a 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
Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
unless the latter promptly files his written objection with the secretary of the corporation after having
knowledge of the meeting.
2. San Juan Structural v. CA, 296 SCRA 631 (1998)

- The mere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate
personalities. So, too, a narrow distribution of ownership does not, by itself, make a close corporation.
Liability for tort
Case: Naguiat v. NLRC, 269 SCRA 564 (1997)

- A stockholder who actively engaged in the management or operation of the business and affairs
of a close corporation shall be personally liable for corporate torts unless the corporation has obtained a
reasonable adequate liability insurance.
CORPORATE TORT: “Tort” consists in the violation of a right given or the omission of a duty imposed by
law. Simply stated, tort is a breach of a legal duty. Article 283 of the Labor Code mandates the employer
to grant separation pay to employees in case of closure or cessation of operations of establishment or
undertaking not due to serious business losses or financial reverses.
Special Corporations
Term of office of trustees in an educational institution
- The second paragraph of Section 108 of the Corporation Code, although setting the term of the
members of the Board of Trustees at five years, contains a proviso expressly subjecting the duration to
what is otherwise provided in the articles of incorporation or by-laws of the educational corporation -- that
contrary provision controls on the term of office.
- One occupying an office in a hold-over capacity could be removed at any time, without cause,
upon the election or appointment of his successor. (Barayuga v. Adventist University of the
Philippines,655 SCRA 640, 17 August 2011).
Dissolution
The power of the SEC
Case: Gamboa v. Teves, 652 SCRA 690, 28 June 2011

- Under Sec. 5(m)of the Securities Regulation Code, the SEC is vested with the power and
function to suspend or revoke, after proper notice and hearing, the franchise or certificate of registration
of corporations, partnerships or associations, upon any of the grounds provided for by law.
Effect of non-filing of by-laws within the prescribed period
Case: Loyola Grand Villas v. CA, 276 SCRA 681 (1997)

- There can be no automatic corporate dissolution simply because the incorporators failed to
abide by the required filing of the by-laws embodied in Section 46 of the Corporation Code.
- There is no outright “demise” of corporate existence. It is however, a ground for dissolution after
due notice and hearing. The SEC may also suspend or revoke, after due notice and hearing, the
franchise of certificate of registration.
At the very least, the corporation may be considered a de facto corporation whose right to
exist may not be inquired into in a collateral manner (Sawadjaan v. CA, 08 June 2005).
A corporation's board of directors is not rendered functus officio by is dissolution
A corporation's board of directors is not rendered functus officio by is dissolution. Since Section
122 allows a corporation to continue its existence for a limited purpose, necessarily there must be a board
of that will continue acting for and on behalf of the dissolved corporation for that purpose (Aguirre II v.
FQB+7, Inc., 688 SCRA 242, 09 January 2013).**
Foreign Corporations
License to do business
Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
The purpose of the law in requiring that foreign corporations doing business in the country be
licensed to do so, is to subject the foreign corporations to the jurisdiction of our courts (Continental
Micronesia, Inc. v. Basso, 771 SCRA 329, 23 September 2015).
Cases: 1. Steelcase, Inc. v. Design International Selections, Inc., 670 SCRA 64 (2012)**
- The appointment of a distributor in the Philippines is not sufficient to constitute "doing business"
unless it is under the full control of the foreign corporation. On the other hand, if the distributor is an
independent entity which buys and distributes products, other than those of the foreign corporation, for its
own name and its own account, the latter cannot be considered to be doing business in the Philippines. It
should be kept in mind that the determination of whether a foreign corporation is doing business in the
Philippines must be judged in light of the attendant circumstances.
- While it is essential to uphold the sound public policy behind the rule that denies unlicensed
foreign corporations doing business in the Philippines access to our courts, it must never be used to
frustrate the ends of justice by becoming an all-encompassing shield to protect unscrupulous domestic
enterprises from foreign entities seeking redress in our country.
2. Agilent Tech Singapore v. Integrated Silicon Tech, GR No. 154618, 14 April 2004**
- Principles regarding the right of a foreign corporation to bring suit in Philippine courts:
1) If a foreign corporation (FC) does business in the Philippines without a license, it cannot sue
before Philippine Courts.
2) If a FC is not doing business in the Philippines, it needs no license to sue before Philippine
Courts on an isolated transaction or on a cause of action entirely independent of any business
transaction.
3) If a FC does business in the Philippines without a license, a Philippine citizen or entity which
has contracted with said corporation may be estopped from challenging the FC’s corporate
personality in a suit before Philippine courts; and
4) If a FC does business in the Philippines with the required license, it can sue on Philippine
courts on any transaction.
- DOING BUSINESS: It implies a continuity of commercial dealings and arrangements, and

contemplates, to that extent, the performance of acts or works or the exercise of some of the functions
normally incident to or in progressive prosecution of the purpose and subject of its organization. To
constitute “doing business,” the activity to be undertaken in the Philippines is one that is for profit-making.
- Two tests to determine whether a FC is doing business in the country:
1) SUBSTANTIVE TEST: Whether the FC is continuing the body of the business or enterprise for
which it was organized or whether it was substantially retired from it and turned it over to another.
2) CONTINUITY TEST: It implies a continuity of commercial dealings and arrangements, and

contemplates, to that extent, the performance of acts or works or the exercise of some of the
functions normally incident to, and in the progressive prosecution of, the purpose and object of its
organization.
"Doing Business" is defined in Sec. 3(d) RA No. 7042 (Foreign Investment Act of 1991) and Rule I,
Sec. 1(f), Implementing Rules and Regulations.
Soliciting purchases does not constitute doing business
To constitute "doing business," the activity undertaken in the Philippines should involve profit-
making. "Soliciting purchases" has been deleted from the enumeration of acts or activities which
constitute "doing business." A foreign company that merely imports goods from a Philippine exporter,
without opening an office or appointing an agent in the Philippines, is not doing business in the
Philippines (Cargill, Inc. v. Intra Strata Assurance Corp., 615 SCRA 304, 15 March 2010).
Participating in a bidding for a modern marine container terminal constitute "doing business"
Participating in the bidding process constitutes "doing business" because it shows the foreign
corporation's intention to engage in business here. The bidding for the concession contract is but an
exercise of the corporation's reason for its existence (European Resources and Technologies, Inc. v.
Ingeniuburo Birkahn + Nolte, Ingeniurgesellschaft mbh, 435 SCRA 246, 26 July 2004).

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
Exception: When a corporation doing business in the Philippines without a license may sue in
Philippine courts.
A foreign corporation doing business in the Philippines without license may sue in Philippine
courts a Filipino citizen or a Philippine entity that had contracted with and benefited from it. A party is
estopped from challenging the personality of a corporation after having acknowledged the same by
entering into a contract with it. The principle is applied to prevent a person contracting with a foreign
corporation from later taking advantage of its non-compliance with statutes, chiefly in cases where such
person has received the benefits of the contract (Global Business Holdings, Inc. [formerly Global
Business Bank, Inc.] v. Surecompsoftware, B.V., GR No. 173463, 13 October 2010).
ALLIED LAWS
The SEC & ITS JURISDICTION
Case/problem (MANUEL LUIS C. GONZALES AND FRANCIS MARTIN D. GONZALES, v. GJH

LAND, INC. G.R. No. 202664, November 20, 2015)
A commercial case—an intra-corporate—dispute was filed before the Regional Trial

Court of Muntinlupa City. The case was, however, raffled not to a designated Special Commercial
Court but to a regular court. The regular court dismissed the case for lack of jurisdiction over the
subject matter. Is the dismissal proper? What is the proper course of action if a commercial case
was raffled to a regular court instead of a special commercial court?
Is the dismissal proper?
No, the dismissal is not proper. The RTC has jurisdiction over the subject matter.
Jurisdiction over the subject matter of a case is conferred by law, whereas a court's
exercise of jurisdiction, unless provided by the law itself, is governed by the Rules of Court or
by the orders issued from time to time by the Court. The matter of whether the RTC resolves
an issue in the exercise of its general jurisdiction or of its limited jurisdiction as a special
court is only a matter of procedure and has nothing to do with the question of jurisdiction.
The proper course of action.
The proper course of action was not for the commercial case to be dismissed; instead,
the regular court should first refer the case to the Executive Judge for re-docketing as a
commercial case; thereafter, the Executive Judge should then assign said case to the designated
Special Commercial Court in the station, if only one court is designated as such.
Where the RTC acquiring jurisdiction over the case has multiple special commercial
court branches, the Executive Judge, after re-docketing the same as a commercial case,
should proceed to order its re-raffling among the said special branches.
If the RTC acquiring jurisdiction has no branch designated as a Special Commercial

Court, then it should refer the case to the nearest RTC with a designated Special Commercial
Court branch within the judicial region. Upon referral, the RTC to which the case was referred to
should re-docket the case as a commercial case, and then: (a) if the said RTC has only one
branch designated as a Special Commercial Court, assign the case to the sole special branch; or
(b) if the said RTC has multiple branches designated as Special Commercial Courts, raffle off the
case among those special branches.
Case/problem: (Roman, Jr. v. SEC, 791 SCRA 638, 01 June 2016)
In a verified letter-complaint before the SEC, some shareholders of Capitol, Inc.

questioned the actions of the officers of Capitol in purchasing a real estate property and entering
into a joint venture agreement for the development of said property, among others. The SEC
acted on the letter-complaint and required the officers concerned to file their answer. The SEC
further created a MANCOM to oversee the affairs of the corporation.
Does the SEC have jurisdiction over the letter-complaint which is in the nature of an intra-
corporate dispute?
YES.
Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
Beyond doubt is the authority of the SEC to hear cases regardless of whether an action
involves issues cognizable by the RTC, provided that the SEC could only act upon those which
are merely administrative and regulatory in character. In other words, the SEC was never
dispossessed of the power to assume jurisdiction over complaints, even if these are riddled with
intra-corporate allegations, if their invocation of authority is confined only to the extent of ensuring
compliance with the law and the rules, as well as to impose fines and penalties for violation
thereof; and to investigate even motu proprio whether corporations comply with the Corporation
Code, the SRC and the implementing rules and regulations.
It is beyond question that the Securities and Exchange Commission (SEC), as a

regulator, has broad discretion to act on matters that relate to its express power of supervision
over all corporations, partnerships or associations who are the grantees of primary franchise
and/or license or permit issued by the Government. Such grant of express power of supervision,
necessarily includes the power to create a management committee following the doctrine
of necessary implication.
Criminal cases for violation of the RSA/SRC: DOJ or SEC?
Manuel filed with the DOJ a criminal complaint for violation of Section 8.1 of the
Securities Regulation Code against the officers of SC Bank for selling securities without the
required registration. The DOJ dismissed the complaint holding that it should have been filed with
the SEC. Manuel interposed a motion for reconsideration. Would you grant the motion? Why or
why not?
I will deny the motion for reconsideration. A criminal complaint for violation of any
law or rule administered by the SEC must first be filed with the latter. If the Commission
finds that there is probable cause, then it should refer the case to the DOJ. Since Manuel
failed to comply with the foregoing procedural requirement, the DOJ is correct in dismissing the
complaint.
A criminal charge for violation of the Securities Regulation Code is a specialized

dispute. Hence, it must first be referred to an administrative agency of special competence, i.e.,
the SEC. Under the doctrine of primary jurisdiction, courts will not determine a controversy
involving a question within the jurisdiction of the administrative tribunal, where the question
demands the exercise of sound administrative discretion requiring the specialized knowledge and
expertise of said administrative tribunal to determine technical and intricate matters of fact. The
Securities Regulation Code is a special law. Its enforcement is particularly vested in the
SEC. Hence, all complaints for any violation of the Code and its implementing rules and
regulations should be filed with the SEC. Where the complaint is criminal in nature, the
SEC shall indorse the complaint to the DOJ for preliminary investigation and prosecution
as provided in Section 53.1 of the RSA. (Baviera v. Paglinawan, GR No. 168380, 08 Feb. 2007)
Ponzi scheme
Ponzi scheme is a type of investment fraud that involves the payment of purported
returns to existing investors from funds contributed by new investors. Its organizers often
solicit new investors by promising to invest funds in opportunities claimed to generate high
returns with little or no risk. In many Ponzi schemes, the perpetrators focus on attracting new
money to make promised payments to earlier-stage investors to create the false appearance that
investors are profiting from a legitimate business. It is not an investment strategy but a gullibility
scheme, which works only as long as there is an ever increasing number of new investors joining
the scheme. It is difficult to sustain the scheme over a long period of time because the operator
needs an ever larger pool of later investors to continue paying the promised profits to early
investors. The idea behind this type of swindle is that the "con-man" collects his money from his
second or third round of investors and then absconds before anyone else shows up to collect.
Necessarily, Ponzi schemes only last weeks, or months at the most (People v. Tibayan & Puerto,
GR No. G.R. Nos. 209655-60, January 14, 2015).
***** ***** *****

©LPI

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626

CORPORATION&amp;ALLIED LAWS-2020Feb17

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CORPORATION&amp;ALLIED LAWS-2020Feb17

Uploaded by

Copyright:

Available Formats

CORPORATION & ALLIED LAWS

REMINDERS, PRINCIPLES & POINTERS in CORPORATION LAW

Moral Damages & the Corporation

Moral damages may be awarded to a corporation

Criminal liability of a corporation

Criminal liability of corporate officers

Criminal liability under the Corporation Code

Separate personality not a shield to commit crime

Interest of stockholders over corporate property

Cases: 1. Tayag v. Benguet Consolidated, 26 SCRA 242 (1968)**

2. NDC v. Phil. Veterans Bank, 192 SCRA 257 (1990)

Control test – the nationality of a corporation is determined by the controlling stockholders

Grandfather Rule: It is a method of determining the nationality of a corporation which in turn is

case: Narra Nickel Mining v. Redmont, GR 185590, 21 April 2014

Venue of suit against a corporation

Piercing the veil of corporate entity

Address: Kapatiran Kaunlaran Foundation, Inc. (KKFI) 3

 Purpose of piercing the corporate veil

- When piercing the corporate fiction is necessary to achieve justice or equity.

Liability when corporate fiction is pierced

Principle of limited liability

Address: Kapatiran Kaunlaran Foundation, Inc. (KKFI) 4

Piercing the veil of corporate fiction & interlocking directors

No violation of due process

• Facts show that piercing of the corporate veil is merited.

Piercing the corporate veil applicable to all kinds of corporations

Address: Kapatiran Kaunlaran Foundation, Inc. (KKFI) 5

Concept of equitable ownership in non-stock corporation

 An equitable owner is an individual who is a non-shareholder defendant, who exercises sufficient

Piercing is applicable to natural persons

a) When the Corporation is the Alter Ego of a Natural Person

When the corporation is the alter ego of the natural person

 REVERSE CORPORATE PIERCING

OUTSIDER & INSIDER REVERSE PIERCING

The Instrumentality Rule or The Alter Ego Rule

Address: Kapatiran Kaunlaran Foundation, Inc. (KKFI) 6

Tests in piercing corporate existence based on the alter ego rule

Creation of public corporations

The Boys Scout of the Philippines is a public corporation

Address: Kapatiran Kaunlaran Foundation, Inc. (KKFI) 7

- Clark Development Corporation, a government-owned or controlled corporation without an

Corporation by estoppel (Section 21, CCP)

Corporation by estoppel is founded on principles of equity and is designed to prevent injustice

The Doctrine of Relation

Corporate name (Sec. 18, CCP)

Statutory limitation: The proposed name must not be:

Address: Kapatiran Kaunlaran Foundation, Inc. (KKFI) 8

The priority of adoption rule

The three-fold duties of the BOD

Doctrine of Centralized Management

The concentration of powers on the board is a reflection of the “centralized management”

Theory of delegated power

DOCTRINE OF CORPORATE OPPORTUNITY

Doctrine of Apparent Authority/ Doctrine of Ostensible Agency/ Holding Out Theory

Address: Kapatiran Kaunlaran Foundation, Inc. (KKFI) 9

Effect when a stockholder executes a Voting Trust Agreement

Creation of an office in the by-laws

2. March II Marketing, Inc. v. Joson, GR No. 171993, 12 December 2011

Power to elect corporate officers

1) The position occupied was created by charter/bylaws, and

 If the position is other than corporate president, treasurer or secretary, it must be

corporate officer/intra-corporate controversy

To be considered an intra-corporate controversy, the dismissal of a corporate officer must have

CORPORATION&ALLIED LAWS-2020Feb17

CORPORATION&ALLIED LAWS-2020Feb17

*** * ***