Review Guide Corp Law Part I

1/26/21
1 COMMERCIAL LAW REVIEW

CORPORATION LAW
PART I
TITLES I TO III
REVISED CORPORATION CODE OF THE PHILIPPINES
2 GUIDE QUESTIONS
I.1. A judgment was obtained by the Aladdin Bank against the Lion
King Corporation (LKC) on a defaulted loan . It was executed upon
LKC shares registered in the name of its majority stockholder, Mr.
Lee K. Chan, who promptly claimed that the execution was
improper. Is Mr. Chan’s claim valid or not? Why?
I.2. Mr. Ben Cruz engaged the services of a SEC licensed broker,
the Magic Securities Corporation, to trade in listed shares of stock
upon his instructions for his account. Magic Securities through its
salesperson, traded without Mr. Cruz’ knowledge whose account
suffered a loss of P10 million. Mr. Cruz sued Magic Securities as
well as its parent company BSP registered Magic Banking
Corporation for damages arising from fraud. Magic Bank asserted
it cannot be held liable for the alleged fraud committed by its
subsidiary, even if 90% of the latter ‘s shares are owned by Magic
Bank and that both corporations have their principal offices at the
Magic Building BGC. Is Magic Bank’s claim valid or not? why
3 GUIDE QUESTIONS
I.3. The Doon Ka Corporation (DKC) is engaged in
telecommunications thus at least 60% of its shares should be
owned by Filipinos. If DKC has total outstanding shares of 100,000
out of which 80,000 are voting and 20,000 non-voting:
a) How many voting shares must Filipinos own?
b) How many non-voting shares must Filipinos own?
1
1/26/21
b) How many non-voting shares must Filipinos own?
c) How many voting and non-voting shares must Filipinos own?
d) How many voting shares may foreigners own?

a)
e) How many non-voting shares may foreigners own?
a)
f) How many voting and non-voting shares may foreigners own?
4 GUIDE QUESTIONS
1.4. The owner of an office space leased it to the RIPLAW, a

partnership. Since it was unable to pay the rentals, RIPLAW was
sued by the owner. The founding partner of RIPLAW moved to
dismiss the suit saying that the owner should have sued him as
the real party in interest. Who is correct and why?
I.5. The XXX Corporation Board of Directors proposed the

amendment of its articles of incorporation to provide for the denial
of preemptive right. A stockholder Ed Sirano is against the denial
but was told by the corporate secretary that he cannot vote at the
stockholders meeting called for the purpose because he owns
preferred not common shares. Is the corporate secretary correct or
not? Why?
1.6. Mr. Sirano’s preferred shares are also redeemable. Per his
subscription contract with XXX Corporation, he may redeem the
shares after two years at his option. After the lapse of two years,
Mr. Sirano opted to have his shares redeemed. However, the XXX
Corporation refused alleging that it has no unrestricted retained
earnings worse its capital has been impaired due to losses and
presently its debts are more than its assets. May Mr. Sirano
compel XXX Corporation to redeem his shares? Explain.
2
1/26/21
5 GUIDE QUESTIONS
I.7. The AOI that the BB Corporation submitted to the SEC for
registration stated that its primary purpose was to engage in mass
media; however, among its incorporators, directors and
stockholders, were an American and a British national. The SEC
‘s Corporate Registration and Monitoring Department (CRMD)
immediately disapproved the same. Do you agree with CRMD’s
denial or not? Why?
I.8. On February 14, 2019, the White Cheese Corporation (WCC)

applied with the CRMD to shorten its corporate term to one ending
on June 14, 2019, which application was granted on February 21,
2019. A few days after, the Revised Corporation Code became
effective. What should WCC do, if any, to pursue its intention to
end its term on June 14, 2019?
6 GUIDE QUESTIONS
I.9. Is the corporate name “Indian Chamber of Commerce Phils.,
Inc.” distinguishable from “Filipino Indian Chamber of Commerce in
the Philippines, Inc.”? Explain.
I.10. Four brothers decided to form a corporation. Because of their

love for their deceased grandmother and to comply with the
minimum of five incorporators, they included her as one of the
incorporators in the AOI and one of them signed as an “attorney in
fact”. The CRMD unknowingly approved the AOI and issued a
certificate of registration. Later, a whistleblower tipped the CRMD
about the deceased incorporator. If you were the CRMD Director,
how will you decide the matter?
7 GUIDE QUESTIONS
I.11. Mr. Jay Donat is the majority stockholder and CEO of the
Healthy Doughnuts Inc. The Board of Directors in one board
meeting resolved not to proceed with building another branch at
one of the parcels of land owned by the corporation. The wife of
Mr. Donat, Joy, who is likewise a director and the treasurer of the
3
7
1/26/21
one of the parcels of land owned by the corporation. The wife of

Mr. Donat, Joy, who is likewise a director and the treasurer of the
corporation, immediately negotiated the sale of the land to the
adjoining property owner who readily gave her a substantial
amount as earnest money. However, the sale was not finalized
because Joy had never been authorized by the Board to sell the
land. Who is liable to the frustrated buyer for the aborted sale? The
corporation, directors and/or the officer involved? Explain.
I.12 Thereafter, a director of Healthy Doughnuts Pawnshop, Inc.,

Mr. Jose Krispo, then offered to buy the land. At the board
meeting to approve the sale to him, he did not recuse himself but
attended the meeting to meet the quorum, and voted affirmatively
for the resolution otherwise it would not have passed. When the
Board’s attention was called to the anomaly, Mr. Krispo said the
stockholders may ratify the sale to him because the terms therefor
are fair and reasonable. Do you agree with Mr. Krispo or not?
Why?
8 GUIDE QUESTIONS
I.13. Out of four directors of the Zombies Corporation, one died
due to Covid, two others got infected and remained in critical
condition at the hospital. The remaining director wants to know
whether he can form an emergency board considering that the
Corporation has to adopt certain urgent measures under the new
normal otherwise it might go bankrupt. What will your advice be?
I.14. Mr. Joe Misu was found by the US SEC to be
administratively liable for insider trading and imposed upon him a
fine. Immediately after paying the fine, Mr. Misu came home to the
Philippines and was invited by his friend Mr. Jake Bimpop to be his
co- director at the Pluto Construction Corporation (PCC). Mr.Misu
agreed thus Mr. Bimpop assigned to him one share of PCC . That
same day, both of them were elected directors at the PCC regular
stockholders meeting. Later, the other directors learned about Mr.
Misu’s US SEC case, however, Mr. Bimpop prevailed upon them
to just keep quiet about it. After several weeks, the SEC got an
anonymous tip. How should the SEC proceed on the matter?
9 GUIDE QUESTIONS
Explain the following doctrines with references to pertinent
provisions of law and/or jurisprudence:
4
1/26/21
9
Explain the following doctrines with references to pertinent
provisions of law and/or jurisprudence:
1.16 Separate juridical personality
1.17 Piercing the corporate veil
1.18 Trust fund doctrine
1.19 Apparent authority
1.20 Discuss whether or not a corporation may recover or be

awarded moral damages.
10 TITLE I
GENERAL PROVISIONS
DEFINITIONS AND CLASSIFICATIONS
11
DEFINITION AND CLASSES OF CORPORATIONS
Definition of a corporation
• an artificial being created by operation of law,
• having the right of succession and
• the powers, attributes, and properties
• expressly authorized by law or
• incidental to its existence.
Classes of corporation
• stock corporations
• have capital stock divided into shares
• authorized to distribute dividends to shareholders
• non-stock corporations
• no part of income is distributable as dividends to its members,
trustees or officers
• non-profit provided any profit obtained incidental to its
operations shall whenever necessary or proper be used for the
furtherance of the purpose or purposes for which the
corporation was organized
• for charitable, religious educational, professional, cultural,
fraternal, literary, scientific, social, civic service or similar
purposes
• trade, industry, agricultural and like chambers, or
• any combination thereof
• corporations created by special laws or charters
12
5
1/26/21
• any combination thereof

• corporations created by special laws or charters
•
12 CHARTERED OR NON-CHARTERED GOCCs
Adelaido Oriando et al v COA, GR 211293 Jun 4, 2019; J. Leonen
“Based on the above provisions, an entity is considered a
government-owned or controlled corporation if all three (3)
attributes are present: (1) the entity is organized as a stock or non-
stock corporation; (2) its functions are public in character; and (3)
it is owned or, at the very least, controlled by the government.
Examples of government-owned or controlled corporations are the

Leyte Metropolitan Water District and the Boy Scouts of the
Philippines. As found in Feliciano, the Leyte Metropolitan Water
District is a stock corporation organized under an original charter
or special law, i.e., Presidential Decree No. 198 or the Provincial
Water Utilities Act of 1973. It performs a public service by providing
water to its water district and, as a local water utility, it is controlled
by the government considering that its directors are appointed by
the head of the local government unit. It was in Feliciano where
this Court said that "the determining factor of the [Commission on
Audit's] audit jurisdiction is government ownership or control of the
corporation."
As for the Boy Scouts of the Philippines, this Court held in Boy
Scouts of the Philippines v. Commission on Audit that it is a non-
stock corporation created under an original charter, specifically,
Commonwealth Act No. 111. Its functions primarily involve
implementing the state policy provided in Article II, Section 13 of
the Constitution on promoting and protecting the well-being of the
youth; and that it is an attached agency of the then Department of
Education, Culture, and Sports, now Department of Education.”
“In contrast, the Philippine Society for the Prevention of Cruelty to
Animals, the Manila Economic and Cultural Office, and the
Executive Committee of the Metro Manila Film Festival were all
declared not subject to the audit jurisdiction of the Commission on
Audit. The Court in Philippine Society for the Prevention of Cruelty
6
1/26/21
declared not subject to the audit jurisdiction of the Commission on

Audit. The Court in Philippine Society for the Prevention of Cruelty
to Animals v. Commission on Audit held that the petitioner
corporation, though created through an original charter, eventually
became a private corporation when its "sovereign powers" to
arrest offenders of animal welfare laws and the power to serve
processes in connection therewith were withdrawn via an
amendatory law. The second attribute—the public character of the
corporation's functions—was therefore absent. It was in Philippine
Society for the Prevention of Cruelty to Animals where the Court
held that "[t]he 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," adding that "[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
public; otherwise, it is private."
“The Manila Economic and Cultural Office is a non-stock

corporation performing certain 'consular and other functions'
relating to the promotion, protection and facilitation of Philippine
interests in Taiwan." However, none of its members, officers or
trustees were found to be government appointees or public officers
designated by reason of their office. Because of the absence of
the third attribute, i.e., government ownership or control, this Court
held in Funa v. Manila Economic and Cultural Office that
respondent corporation was not a government-owned or controlled
corporation. Instead, it was declared a "sui generis entity" whose
accounts were nevertheless subject to the audit jurisdiction of the
Commission on Audit because it receives funds on behalf of the
government.
As for the Executive Committee of the Metro Manila Film Festival,

the Court declared that is not a government-owned or controlled
corporation in Fernando v. Commission on Audit because it was
not organized either as a stock or a non-stock corporation. Despite
the absence of the first element, the Court held that it is subject to
the audit jurisdiction of the Commission on Audit because it
receives its funds from the government.”
15
7
1/26/21
the audit jurisdiction of the Commission on Audit because it

receives its funds from the government.”
“Corregidor Foundation, Inc. was organized as a non-stock

corporation under the Corporation Code. It was issued a certificate
of registration by the Securities and Exchange Commission on
October 28, 1987 and, according to its Articles of
Incorporation, Corregidor Foundation, Inc. was organized and to
be operated in the public interest:
NINTH: That the Foundation is organized and shall be operated

in the public interest and shall have no capital stock, no premium
profit, and shall devote all of its income from whatever source
including gifts, donations, grants, subsidies or other form of
philantrophy (sic) and income derived from business - gate
receipts, tourists, [and] entrance fees to the accomplishment of
the purpose enumerated herein.
Corregidor Foundation, Inc. was organized primarily to maintain

and preserve the war relics in Corregidor and develop the area's
potential as an international and local tourist destination.”
“Even a cursory reading of the statutory definitions of "government

owned-or controlled corporation" readily reveals that a non-stock
corporation may be government-owned or controlled. These
definitions begin with "a government-owned or controlled
corporation" and refers to a ‘stock or non-stock corporation. .
.’ Furthermore, there is nothing in the law which provides that
government-owned or controlled corporations are always created
under an original charter or special law. As held in Feliciano, there
are government-owned or controlled corporations without an
original charter, that is, those created under the Corporation Code.”
17 CORPORATE PROPERTY OR ASSET
Where the corporation is the registered owner of real property, the
8
1/26/21
17 CORPORATE PROPERTY OR ASSET

Where the corporation is the registered owner of real property, the
heirs of a deceased stockholder may not claim such real property
as part of the estate of the said deceased stockholder. Nor may
the probate court even provisionally order the lessee to remit the
rental to the estate and not to the corporation.(Mayor v Tiu GR
203770 Nov 23, 2016)
Where the owner of a property sued the corporation that owns the
adjoining property for encroachment and obtained a judgment
against said corporation for damages, said judgment cannot be
executed against any of its directors or stockholders who were not
aware of the encroachment nor proven to have acted unlawfully or
were in bad faith. Under the circumstances, they are not
personally or solidarily liable with the corporation. (Vda De Roxas v
Our Lady’s Foundation Inc. GR 182378, Mar 6, 2013)
18 CORPORATION DISTINGUISHED FROM
SOLE PROPIETORSHIP OR PARTNERSHIP
A sole proprietorship has no juridical personality separate and
distinct from that of its owner. It need not be impleaded as party
plaintiff and sufficient if the proprietor himself is the party plaintiff.
Usually, a sole proprietor is indicated in the complaint as “Juan De
La Cruz doing business under the name and style of ’Juan’s
Trading Co.’” or whatever is its name registered at the DTI or not.
(SC Megaworld v Engr Parada, GR 183804 Sep 11, 2013)
A law firm that is the lessee under a contract of lease is the party
who should be sued by the lessor in case of ejectment, not the
managing partner or any partner for that matter. As a partnership,
the law firm is a juridical entity and may be sued as the real party
in interest. (Saludo v PNB, GR 193138 Aug 20, 2018)
19 NATIONALITY OF CORPORATIONS
• Full beneficial ownership of 60% percent of the outstanding
capital stock, coupled with 60% percent of the voting rights, must
be owned by Filipino nationals otherwise the corporation is a non-
Philippine national.
•
• Both the voting control test and the beneficial ownership test must
be applied to determine whether a corporation is a Philippine
9
1/26/21
• Both the voting control test and the beneficial ownership test must
be applied to determine whether a corporation is a Philippine
national.
• A domestic corporation at least 60% of the capital stock
outstanding and entitled to vote is owned by Philippine citizen is
a Philippine national.
•
• SEC MC 8 – the required percentage of Filipino ownership shall
be applied to BOTH (a) the total number of outstanding shares
entitiled to vote in the election of directors: and (b) the total
number of outstanding shares of stock whether or not entitled to
vote.
20 DOCTRINE OF SEPARATE JURIDICAL PERSONALITY
• Separate juridical personality
• Corporation has a personality separate and distinct from that
of its stockholders
• Corporation incurs its own liabilities and is legally responsible
for payment of its obligations
• Property in the name of the corporation is not part of estate of
deceased stockholder even if he had owned 96% of its
shares
• Corporate debt or credit is not the debt or credit of the
stockholder
• General rule is a corporation is not entitled to moral damages;
a corporation with good reputation if besmirched, a ground for
award of moral damages (mere obiter)
•
• Separate juridical personality may be disregarded if it is used
to:
• Perpetuate fraud
• Hide commission of an illegal act
• Evade an existing obligation or personal liability
• Circumvent statute (tax, labor)
• Confuse legitimate issues

University of Mindanao V BSP et al GR 194964 Jan 11, 2016; J.
Leonen
10
1/26/21
21
Leonen
“In attempting to show petitioner's interest in securing FISLAI's
loans by adverting to their interlocking, directors and shareholders,
respondent disregards petitioner's separate personality from its
officers, shareholders, and other juridical persons.
The separate personality of corporations means that they are
"vest[ed] [with] rights, powers, and attributes [of their own] as if
they were natural persons[.]"[106] Their assets and liabilities are
their own and not their officers', shareholders', or another
corporation's. In the same vein, the assets and liabilities of their
officers and shareholders are not the corporations'. Obligations
incurred by corporations are not obligations of their officers and
shareholders. Obligations of officers and shareholders are not
obligations of corporations.[107] In other words, corporate interests
are separate from the personal interests of the natural persons
that comprise corporations.
Corporations are given separate personalities to allow natural
persons to balance the risks of business as they accumulate
capital. They are, however, given limited competence as a means
to protect the public from fraudulent acts that may be committed
using the separate juridical personality given to corporations.”

Leonen
“Petitioner's key officers, as shareholders of FISLAI, may have an

interest in ensuring the viability of FISLAI by obtaining a loan from
respondent and securing it by whatever means. However, having
interlocking officers and stockholders with FISLAI does not mean
that petitioner, as an educational institution, is or must necessarily
be interested in the affairs of FISLAI.
Since petitioner is an entity distinct and separate not only from its
own officers and shareholders but also from FISLAI, its interests
as an educational institution may not be consistent with FISLAI's.
Petitioner and FISLAI have different constituencies. Petitioner's

constituents comprise persons who have committed to developing
23
11
1/26/21
Petitioner and FISLAI have different constituencies. Petitioner's

constituents comprise persons who have committed to developing
skills and acquiring knowledge in their chosen fields by availing the
formal instruction provided by petitioner. On the other hand,
FISLAI is a thrift bank, which constituencies comprise investors.”
Leonen
“While petitioner and FISLAI exist ultimately to benefit their

stockholders, their constituencies affect the means by which they
can maintain their existence. Their interests are congruent with
sustaining their constituents' needs because their existence
depends on that. Petitioner can exist only if it continues to provide
for the kind and quality of instruction that is needed by its
constituents. Its operations and existence are placed at risk when
resources are used on activities that are not geared toward the
attainment of its purpose. Petitioner has no business in securing
FISLAI, DSLAI, or MSLAI's loans. This activity is not compatible
with its business of providing quality instruction to its constituents.
Indeed, there are instances when we disregard the separate

corporate personalities of the corporation and its stockholders,
directors, or officers. This is called piercing of the corporate veil.”

Leonen
“Corporate veil is pierced when the separate personality of the

corporation is being used to perpetrate fraud, illegalities, and
injustices. In Lanuza, Jr. v. BF Corporation:
Piercing the corporate veil is warranted when ‘[the separate

personality of a corporation] is used as a means to perpetrate
fraud or an illegal act, or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, or to confuse legitimate
issues.’ It is also warranted in alter ego cases ‘where a corporation
is merely a farce since it is a mere alter ego or business conduit of
12
1/26/21
issues.’ It is also warranted in alter ego cases ‘where a corporation

is merely a farce since it is a mere alter ego or business conduit of
a person, or where the corporation is so organized and controlled
and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.’
These instances have not been shown in this case. There is no

evidence pointing to the possibility that petitioner used its separate
personality to defraud third persons or commit illegal acts. Neither
is there evidence to show that petitioner was merely a farce of a
corporation. What has been shown instead was that petitioner, too,
had been victimized by fraudulent and unauthorized acts of its own
officers and directors.
In this case, instead of guarding against fraud, we perpetuate

fraud if we accept respondent's contentions.”
25 DOCTRINE OF PIERCING THE CORPORATE VEIL
• Applies in three basic situations
• Defeat of public convenience; when used as a vehicle for
evasion of an existing obligation
• Fraud cases; when used to justify a wrong, protect fraud or
defend a crime
• Alter ego cases, where a corporation is merely a farce since it
is a mere alter ego or business conduit of a person or merely
an instrumentality, agency or conduit of another corporation
•
• Three pronged control test to establish when the alter ego
doctrine should apply (all three elements must concur):
• Control = complete domination of finances, policy and business
practice (instrumentality of control)
• Control used to commit fraud or wrong, dishonest and unjust
act (fraud)
• Control and breach of duty is the proximate cause of injury or
unjust loss complained of (harm)
•
• However, piercing the corporate veil should be done with caution.
• Misuse of corporate fiction causing injustice, fraud or crime
• Wrongdoing clearly and convincingly established
26
13
1/26/21
• Wrongdoing clearly and convincingly established

• Corporate finances, policies and practices dominated by another
corporation/ assumption of management and control of one
corporation by the directors/officers of another
• Mere conduit, no separate mind, will or existence of its own
• One corporation had a hand in the act (of another corporation)
that is complained of
• Holding office in the same building/ same address
• Practical identity/similarity of the officers and directors of the two
corporations
• Confluence of the following factors:
• First corporation is dissolved
• Assets of the first corporation transferred to a second
corporation to avoid a financial liability of the first corporation
• Both corporations are owned and controlled by the same
persons such that second corporation is only a continuation and
successor of the first corporation
•
•
Pioneer Insurance Surety v Morning Star, GR 198436, Jul 8, 2015;
J. Leonen
In any event, petitioner failed to plead and prove the

circumstances that would pass the following control test for the
operation of the alter ego doctrine:
(1) Control, not mere majority or complete stock control, but
complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate
mind, will or existence of its own;
(2) 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
plaintiff's legal right; and
14
1/26/21
plaintiff's legal right; and
(3) The aforesaid control and breach of duty must [have]

proximately caused the injury or unjust loss complained of.[91]
The records do not show that the individual respondents controlled

Morning Star Tour Planners, Inc. and that such control was used to
commit fraud against petitioner. Neither does this suspicion
support petitioner's position that the individual respondents were in
bad faith or gross negligence in directing the affairs of respondent
Morning Star.
28 PIERCING THE CORPORATE VEIL DOES NOT APPLY
“On the scales of justice precariously lie the right of a prevailing
party to his victor’s cap, no more no less and the rights of a
separate entity from being dragged by the ball and chain of the
vanquished party”.
Petitioner sued his broker (E-Securities Corporation) for fraud or
trading without his authority. After obtaining judgment, petitioner
sought to execute against a related corporation on the ground of
the broker being its mere alter ego. The SC ruled that the related
corporation not being a party to the suit cannot be proceeded
against, the court not having had jurisdiction over it. Further, there
was no evidence for or against the application of the doctrine of
piercing the corporate veil. For said doctrine to apply, the related
corporation must have been in complete domination of E-
Securities which in turn had no corporate nor separate existence
of its own and was shown to have been under the control
exercised by the former during the material time when the fraud
was committed. (Pacific Rehouse, et al v CA, GR 199687 Mar 24,
2014)
29 STOCK v NON-STOCK CORPORATIONS
30 CLASSIFICATION OF SHARES
• The AOI must indicate
• Classes of shares
• Rights
• Privileges
15
30 1/26/21
• Rights
• Privileges
• Restrictions
• Par or no par
• Every share equal in all respect to every other share except
as otherwise provided in the AOI
• Doctrine of equality of shares

• In the absence of any provision in the AOI to the contrary, all
shares of stock are equal in features, and have equal voting
rights
•
31 CLASSES OR SERIES OF SHARES
• PREFERRED SHARES
• Entitle the holder to certain preferences over the holders of
common stock
• As to assets – preference in the distribution of corporate
assets in case of liquidation
• As to dividends – entitled to receive dividends to the extent
agreed upon before any given to holders of common stock
but:
• Dividends may be declared only out of unrestricted retained
earnings
• Board has discretion to determine whether or not dividends
are to be declared
• May be issued only with a stated par value
• Has terms and conditions that
• the board of directors, where authorized in the articles of
incorporation, may fix; and
• shall be effective upon filing of a certificate thereof with the
SEC
•
•
REDEEMABLE SHARES
• Usually preferred, which by their terms are redeemable
• At a fixed date
• At the option of either the issuer or stockholder or both at a
16
32 1/26/21
• At a fixed date
• At the option of either the issuer or stockholder or both at a
certain redeemable price
• Subject to corporation, after redemption, still having assets to
cover debts and liabilities inclusive of capital stock (not
insolvent nor will cause insolvency; or in case of a bank,
chronic reserve deficiency)
• may be issued by the corporation when expressly provided in
the articles of incorporation
• may be purchased by the corporation from shareholders upon
the expiration of a fixed period
• regardless of the existence of unrestricted retained earnings
in the books of the corporation, and
• upon such other terms and conditions stated in
• the articles of incorporation and
• the certificate of stock representing the shares,
• subject to SEC rules and regulations
•
•
• Voting shares
• Except as enumerated below, only voting shares may vote to
approve a particular corporate act
• Non-voting shares
• Only preferred or redeemable shares may be deprived of voting
rights; however,
• Holders of non-voting shares shall nevertheless be entitled to
vote on the following matters:
• Amendment of the articles of incorporation;
• Adoption and amendment of bylaws;
• Sale, lease, exchange, mortgage, pledge, or other disposition
of all or substantially all of the corporate property;
• Incurring, creating, or increasing bonded indebtedness;
• Increase or decrease of authorized capital stock;
• Merger or consolidation of the corporation with another
corporation or other corporations;
• Investment of corporate funds in another corporation or
business in accordance with this Code; and
34
17
1/26/21
• Investment of corporate funds in another corporation or

business in accordance with this Code; and
• Dissolution of the corporation.
•
• Par value shares
• No par value shares
• The following cannot issue no par value shares:
• banks, trust,
• insurance and preneed companies,
• public utilities,
• building and loan associations, and
• other corporations authorized to obtain or access funds from
the public whether publicly listed or not
• Deemed fully paid and nonassessable and the holder of such
shares shall not be liable to the corporation or to its creditors in
respect thereto:
• Must be issued for a consideration of at least Five pesos
(₱5.00) per share
• The entire consideration received for no-par value shares:
• Shall be treated as capital and
• Shall not be available for distribution as dividends.
• The issued price of no par value shares may be fixed in the AOI
or by the BOD pursuant to authority conferred by the AOI or the
bylaws, or if not so fixed, by the stockholders representing at
least a majority of the OCS at a meeting duly called for the
purpose (Sec. 61).
• Other classes or series of shares may be issued to comply with
constitutional or legal requirements
•
• Founders' shares
• may be given certain rights and privileges not enjoyed by the
owners of other stock.
• such as exclusive right to vote and be voted for in the election
of directors
• not to exceed five (5) years from the date of incorporation;
• shall not be allowed if violative of the
18
1/26/21
• not to exceed five (5) years from the date of incorporation;

• shall not be allowed if violative of the
• Commonwealth Act No. 108, otherwise known as the "Anti-
Dummy Law";
• Republic Act No. 7042, otherwise known as the "Foreign
Investments Act of 1991"; and,
• other pertinent laws.
• Treasury shares
• issued and fully paid for
• subsequently reacquired by the issuing corporation (with
unrestricted retained earnings) through
• purchase,
• redemption,
• donation, or
• some other lawful means.
• may again be disposed of for a reasonable price fixed by the
board of directors
36 DOCTRINE OF EQUALITY OF SHARES
Castillo et al v Balinghasay et al GR 150976 Oct 18, 2004
“The sole issue is whether the exclusive voting right and right to be
voted upon granted under the articles of incorporation to a class of
shares is null and void. The right of a corporation to classify its
shares is subject to the provision that ‘no share may be deprived
of voting rights except those classified and issued as preferred or
redeemable shares unless otherwise provided” in the old
Corporation Code (which provision was re-enacted in the Revised
Corporation Code). Further, there shall always be a class or series
of shares which have complete voting rights. So, unless said class
of shares were categorized as having no voting rights in the
articles, and it appears not to have been so classified, such shares
have voting rights.”
37 TRUST FUND DOCTRINE
Halley v Printwell Inc. GR 157549 May 30, 2011
Halley was an original incorporator and former director of Business
Media Philippines, Inc. (BMPI) which was sued by Printwell for
unpaid fees. Printwell amended its complaint to implead the
original stockholders and incorporators to recover on their unpaid
19
37
1/26/21
unpaid fees. Printwell amended its complaint to implead the

original stockholders and incorporators to recover on their unpaid
subscription.
The SC held that under the trust fund doctrine, property of a
corporation is a trust fund for the payment of creditors but such
property can be called a trust fund only by way of analogy or
metaphor. As between the corporation itself and its creditors it is a
simple debtor, and as between its creditors and stockholders its
assets are in equity a fund for the payment of its debts. The
doctrine encompasses stockholders’ unpaid subscription but also
other property and assets generally even those distributed or in
possession of stockholders regardless of full payment of their
subscriptions. Under this doctrine a creditor is allowed to maintain
an action upon any unpaid subscription and steps into the shoes of
the corporation for the satisfaction of its debts. Here, the
stockholders were not in good faith in claiming they have paid par
value of the shares and the purported ORs for payment of their
subscription were irregular. Worse, the stock and transfer book
was not presented to show who are the registered stockholders to
whom stock certificates have been issued.
38 RECOVERY OF DAMAGES
BNL Management Corp et al v Reynaldo Uy, GR 210297 Apr 03,
2019; J. Leonen
“For its part, petitioner BNL Management, being a corporation, is
not entitled to moral damages. In Noell Whessoe, Inc. v.
Independent Testing Consultants, Inc.:
A corporation is not a natural person. It is a creation of legal fiction
and "has no feelings[,] no emotions, no senses[.]" A corporation is
incapable of fright, anxiety, shock, humiliation, and physical or
mental suffering. "Mental suffering can be experienced only by one
having a nervous system and it flows from real ills, sorrows, and
griefs of life[.]" A corporation, not having a nervous system or a
human body, does not experience physical suffering, mental
anguish, embarrassment, or wounded feelings. Thus, a
corporation cannot be awarded moral damages.
In the 1968 case of Mambulao Lumber v. Philippine National Bank,
this Court stated, in passing, "[a] corporation may have a good
reputation which, if besmirched, may also be a ground for the
award of moral damages."
This same statement has appeared in People v.
20
1/26/21
award of moral damages."

This same statement has appeared in People v.
Manero. Mambulao Lumber and Manero, however, were not
meant to be used as basis to carve an exception to the rule. There
is still no definitive pronouncement by this Court of any existing
exceptions to the rule. In ABS-CBN Broadcasting Corporation v.
Court of Appeals, this Court even clarified that the statement in
Mambulao Lumber and Manero was mere obiter dictum.
There is no standing doctrine that corporations are, as a matter of
right, entitled to moral damages. The existing rule is that moral
damages are not awarded to a corporation since it is incapable of
feelings or mental anguish. Exceptions, if any, only apply pro hac
vice.
There is no showing here that an exception should apply pro hac
vice in favor of petitioner BNL Management.”
39 TITLE II
INCORPORATI0N AND ORGANIZATION OF
PRIVATE CORPORATIONS
40 REQUIREMENTS FOR INCORPORATION AND REGISTRATION
• Incorporators may be
• Natural persons of legal age except those licensed to practice a
profession; and/or
• Juridical persons such as a partnership, association or
corporation except those organized for the purpose of
practicing a profession;
• Unless, under special laws, such excepted persons are allowed
to be incorporators.
• Incorporators may not be more than 15 in number
• Each incorporator of a stock corporation must own or be a
subscriber to at least one (1) share of the capital stock.
• No minimum capital stock is required
• Articles of incorporation shall be:
• In any official language
• Duly signed and acknowledged or authenticated
• In such form and manner allowed by SEC
41 21
1/26/21
• Duly signed and acknowledged or authenticated

• In such form and manner allowed by SEC
• May be filed with the SEC in the form of an electronic
document, in accordance with its rules and regulations on
electronic filing.
•
• Except as otherwise prescribed by the Code or by special laws,
containing the following substantive matters:
• name of corporation;
• specific purpose or purposes for which the corporation is being
formed. Where a corporation has more than one stated
purpose, the articles shall indicate the primary purpose and the
secondary purpose or purposes: Provided, That a nonstock
corporation may not include a purpose which would change or
contradict its nature as such;
• place where the principal office of the corporation is to be
located, which must be within the Philippines;
• term for which the corporation is to exist, if the corporation has
not elected perpetual existence;
• names, nationalities, and residence addresses of the
incorporators;
• number of directors, which shall not be more than fifteen (15) or
the number of trustees which may be more than fifteen (15);
• names, nationalities, and residence addresses of persons who
shall act as directors or trustees until the first regular directors
or trustees are duly elected and qualified in accordance with
this Code;
•
• if it be a stock corporation,
• the amount of its authorized capital stock,
• number of shares into which it is divided,
• the par value of each,
• names, nationalities, and subscribers, amount subscribed
and paid by each on the subscription, and
• a statement that some or all of the shares are without par
value, if applicable;
22
1/26/21
• a statement that some or all of the shares are without par

value, if applicable;
• if it be a nonstock corporation,
• amount of its capital,
• names, nationalities, and residence addresses of the
contributors, and
• amount contributed by each;
• name of the treasurer who shall
• act as such until after the successor is duly elected and
qualified in accordance with the bylaws,
• receive in the name and for the benefit of the corporation, all
subscriptions, contributions or donations paid or given by the
subscribers or members,
• certify the information set forth in the seventh and eighth
clauses of the articles, including the paid-up portion of the
subscription in cash and/or property received for the benefit
and credit of the corporation.
• such other matters consistent with law and which the
incorporators may deem necessary and convenient such as an
arbitration agreement.
•
• Corporations which will engage in any business or activity
reserved for Filipino citizens shall provide in its articles that
"No transfer of stock or interest which shall reduce the
ownership of Filipino citizens to less than the required
percentage of capital stock as provided by existing laws shall be
allowed or permitted to be recorded in the proper books of the
corporation, and this restriction shall be indicated in all stock
certificates issued by the corporation."
• If the submitted documents and information are fully compliant
with the Code, other relevant laws, rules and regulations, the
SEC shall issue the certificate of incorporation which means that:
• The corporation has commenced its corporate existence and
juridical personality from such date of issuance
• The incorporators, stockholders/members and their successors
shall constitute a body corporate under the name stated in the
articles for the period of time mentioned therein, unless said
period is extended or the corporation is sooner dissolved in
44
23
1/26/21
articles for the period of time mentioned therein, unless said

period is extended or the corporation is sooner dissolved in
accordance with law.
44 CORPORATE TERM
• Perpetual term is the default term upon effectivity of the Code
(Feb 23, 2019)
• Corporations existing as of such date automatically acquired
perpetual term;
• However, a corporation existing as of such date may continue
with its specific term upon a vote of its stockholders
representing a majority of its articles of incorporation:
• A corporate term for a specific period may be extended or
shortened by amending the articles of incorporation:
• no extension may be made earlier than three (3) years prior
to the original or subsequent expiry date(s)
• unless there are justifiable reasons for an earlier extension as
may be determined by the Commission
• such extension of the corporate term shall take effect only on
the day following the original or subsequent expiry date(s).
•
45 REVIVAL OF CORPORATE EXISTENCE
• A corporation whose term has expired may apply (within a definite
period from effectivity of the Code) for revival of its corporate
existence whereby:
• It retains all the rights and privileges under its certificate of
incorporation
• It is subject to all of its duties, debts and liabilities existing prior
to its revival
• It shall be deemed revived upon approval by the SEC and
• It shall be issued a certificate of revival of corporate existence
• giving it perpetual existence,
• unless its application for revival provides otherwise.
• However, banks, banking and quasi-banking institutions,
preneed, insurance and trust companies, non-stock savings
and loan associations (NSSLAs), pawnshops, corporations
engaged in money service business, and other financial
intermediaries may apply for revival only with the favorable
46
24
1/26/21
engaged in money service business, and other financial

intermediaries may apply for revival only with the favorable
recommendation of the appropriate agency.
•
46 CORPORATE NAME
• A person or group of persons desiring to incorporate shall submit
the intended corporate name to the SEC for verification.
• If the name is distinguishable, it shall be reserved in favor of the
incorporators. The incorporators shall then submit their articles of
incorporation and bylaws to the SEC.
• The name must be distinguishable from that
• already reserved or
• registered for the use of another corporation, or
• already protected by law, rules and regulations.
• A name is not distinguishable even if it contains one or more of
the following:
• The word "corporation", "company", incorporated", "limited",
"limited liability", or an abbreviation of one of such words; and
• Punctuations, articles, conjunctions, contractions, prepositions,
abbreviations, different tenses, spacing, or number of the same
word or phrase.
A
47 CORPORATE NAME
• All incorporators shall state in the articles that they undertake to
change the name immediately upon receipt of notice from the
SEC that another corporation, partnership or person has acquired
a prior right to the use of such name, that the name has been
declared not distinguishable from a corporation, or that it is
contrary to law, public morals, good customs or public policy.
• The SEC shall determine whether the name is
• not distinguishable from a name already reserved or registered
for the use of another corporation;
• already protected by law; or
• contrary to law, rules and regulations,
• SEC may then summarily order the corporation to
• immediately cease and desist from using such name
• require the corporation to register a new one
• cause the removal of all visible signages, marks,
25
1/26/21
• require the corporation to register a new one

• cause the removal of all visible signages, marks,
advertisements, labels, prints and other effects bearing such
corporate name
• hold the corporation and its responsible directors or officers in
contempt and/or hold them administratively, civilly and/or
criminally liable under the Code and other applicable laws
and/or
• revoke the registration of the corporation.
•
48 ADDITIONAL JURISPRUDENCE
Fong v Duenas GR 185592 Jun 15, 2015 – pre-incorporation
agreement
Leo Y. Querubin et al v Comelec GR 218787 Dec 8, 2015;

Asuncion v De Ynarte 28 Phil 67 (1914) – primary purpose
Pilipinas Shell Petroleum Corp. v Royal Ferry Services Inc. GR

188146 Feb 1, 2017; Golden Arches Dev Corp v St Francis
Square GR 183843 Jan 19, 2017 – principal place of business v
actual location
Central Textile Mills v NWPC GR 104102 Aug 7, 1996 – authorized

and paid up capital
49 PRINCIPAL PLACE OF BUSINESS

HYGIENIC PACKAGING CORPORATION V NUTRI-ASIA INC. GR
201302 JAN 23, 2019; J. Leonen
“It has been consistently held that an action for collection of sum of
money is a personal action. Taking into account that no exception
can be applied in this case, the venue, then, is ‘where the plaintiff
or any of the principal plaintiffs resides, or where the defendant or
any of the principal defendants resides, ... at the election of the
plaintiff.’ For a corporation, its residence is considered "the place
26
1/26/21
any of the principal defendants resides, ... at the election of the

plaintiff.’ For a corporation, its residence is considered "the place
where its principal office is located as stated in its Articles of
Incorporation.’
In its Complaint, petitioner stated that its principal place of

business is on San Vicente Road beside South Superhighway,
San Pedro, Laguna.Meanwhile, respondent admitted in its Answer
that its principal office is at 12/F Centerpoint Building, Garnet Road
corner Julia Vargas Avenue, Ortigas Center, Pasig
City. Considering that the amount petitioner claims falls within the
jurisdiction of the Regional Trial Court, petitioner may file its
Complaint for sum of money either in the Regional Trial Court of
San Pedro, Laguna or in the Regional Trial Court of Pasig City.
Petitioner's erroneous belief on the applicability of the venue

stipulation in the Sales Invoices led it to file an action before the
Regional Trial Court of Manila. This error is fatal to petitioner's
case.”
50 AMENDMENT OF THE AOI

• Unless otherwise prescribed or by special law, any provision or
matter in the articles may be amended
• for legitimate purposes
• by the majority vote of the board of directors or trustees and
• upon the vote or written assent of the stockholders representing
at least two-thirds (2/3) of the outstanding capital stock,
• without prejudice to the appraisal right of dissenting
stockholders
• the articles of a nonstock corporation may be amended by the
vote or written assent of majority of the trustees and at least
two-thirds (2/3) of the members.
•
• The procedure and form shall be as follows
• The original and amended articles together shall contain all
provisions required by law to be set out in the articles.
• Amendments to the articles shall be indicated by underscoring
the change or changes made.
• A copy duly certified under oath by the corporate secretary and
27
1/26/21
the change or changes made.

• A copy duly certified under oath by the corporate secretary and
a majority of the directors or trustees, with a statement that the
amendments have been duly approved by the required vote of
the stockholders or members, shall be submitted to the SEC.
•
• The amendments shall take effect upon their approval by the SEC
or if not acted upon for a cause not attributable to the corporation,
within six (6) months from the date of filing.
•
51 DISAPPROVAL OF THE AOI OR ANY AMENDMENT
• The articles or any amendment may be disapproved if
• not compliant with the requirements of the Code:
• not substantially in accordance with the form prescribed herein;
• the purpose or purposes of the corporation are patently
unconstitutional, illegal, immoral or contrary to government
rules and regulations;
• the certification concerning the amount of capital stock
subscribed and/or paid is false; and
• the required percentage of Filipino ownership of the capital
stock under existing laws or the Constitution has not been
complied with.
• PROVIDED: The incorporators, directors, trustees, or officers
shall be given a reasonable time from receipt of the disapproval
within which to modify the objectionable portions of the articles or
amendment. (see Care Best International Inc v SEC)
• No articles or amendment to articles of banks, banking and quasi-
banking institutions, preneed, insurance and trust companies,
NSSLAs, pawnshops and other financial intermediaries shall be
approved unless accompanied by a favorable recommendation of
the appropriate government agency.
•
52 DE FACTO CORPORATION v. CORPORATION BY ESTOPPEL
DE FACTO CORPORATION
• The filing of articles of incorporation and issuance of the
certificate of incorporation are essential for the existence of a de
facto corporation
• It is the act of registration with SEC through issuance of a
28
52
1/26/21
facto corporation
• It is the act of registration with SEC through issuance of a
certificate of incorporation that marks the beginning of an entity’s
corporate existence
• Corporation claims good faith despite defective incorporation or
registration.
CORPORATION BY ESTOPPEL
• No SEC registration
• The persons who assumed to act as a corporation knew it to be
without authority (not in good faith)
• Such persons are liable as general partners for all debts, liabilities
and damages incurred or arising as a result thereof
• Ostensible corporation if sued for a transaction entered or tort
committed cannot use as defense its lack of corporate personality
• A person who assumed an obligation to an ostensible corporation
cannot resist performance of his obligation on the ground that it
was not a corporation
•
53
54 CORPORATION BY ESTOPPEL IN REVERSE

• Doctrine may be applied IN REVERSE:
•
• When the person who contracted or dealt with a non-existent
corporation is estopped to deny its legal existence in any action
leading out of or involving such contract or dealing
•
• As along as there is no fraud and when the existence of the
corporation is attacked for causes attendant at the time the
contract or dealing sought to be enforced was entered into, and
not thereafter
•
• If unjust enrichment (as some form of benefit have already
accrued on the part of one party) will result if not applied
•
• There is unequivocal ratification (validation) that is express or
implied (by conduct)
•
55
29
1/26/21
implied (by conduct)

•
• See The Missionary Sisters of Our Lady of Fatima v Alzona GR
203993 Apr 3, 2015
55 NON-USE OF CORPORATE CHARTER VS CONTINUOUS

INOPERATION
56 TITLE III
BOARD OF DIRECTORS/TRUSTEES AND OFFICERS
57 DOCTRINE OF CENTRALIZED MANAGEMENT
• Board shall exercise the corporate powers, conduct all business,
and control all corporate properties
• General rule is that in the absence of delegated authority from the
BOD, no person, not even an individual director or its officers, can
validly bind a corporation
• Directors must act as a body in a meeting called pursuant to the
law or the corporation’s by laws, otherwise, any action taken
therein may be questioned by an objecting director or stockholder
• Corporation being a juridical entity may act only through its
directors, officers and employees. Debts incurred by these
individuals acting as corporate agents are not their own but the
direct liability of the corporation
•
•
58 BUSINESS JUDGMENT RULE
The power and responsibility to decide whether the corporation
should enter into a contract that will bind the corporation is lodged
in its board of directors, subject to the articles of incorporation, by-
laws, or relevant provisions of law.
DOCTRINE OF APPARENT AUTHORITY
If a corporation knowingly permits one of its officers or any other

agent to act within the scope of an apparent authority, it holds him
out to the public as possessing the power to do those acts, the
coporation will, as against anyone who has in good faith dealt with
30
1/26/21
out to the public as possessing the power to do those acts, the

coporation will, as against anyone who has in good faith dealt with
it through such agent, be estopped from denying said agent’s
authority
59 BUSINESS JUDGMENT RULE

Where the board approved the credit line of a corporation that:
• Has only been in existence for two years when it was granted a
credit facility
• Was thinly capitalized
• Was not an ongoing concern since it never secured the
necessary permits and licenses to conduct business, it never
engaged in any lucrative business, and did not file the necessary
reports with the SEC
• Was unable to furnish any security other than the promissory
notes
The directors who participated in the board approval may have

violated the business judgment rule which underlies Sec 30
thereby becoming personally liable for gross negligence in
directing the affairs of the corporation.
60 DOCTRNE OF APPARENT AUTHORITY
Arturo Calubad Ricaren Dev Corp GR 202364, Aug 30, 2017; J.
Leonen
“When a corporation intentionally or negligently clothes its agent

with apparent authority to act in its behalf, it is estopped from
denying its agent's apparent authority as to innocent third parties
who dealt with this agent in good faith.
“X x x
“The only issue presented for this Court's resolution is whether or

not Ricarcen Development Corporation is estopped from denying
or disowning the authority of Marilyn R. Soliman, its former
61
31
1/26/21
not Ricarcen Development Corporation is estopped from denying

or disowning the authority of Marilyn R. Soliman, its former
President, from entering into a contract of loan and mortgage with
Arturo C. Calubad.”
61 DOCTRINE OF APPARENT AUTHORITY
Arturo Calubad v Ricarcen Dev Corp GR 202364 Aug 30, 2017
“As a corporation, Ricarcen exercises its powers and conducts its

business through its board of directors, as provided for by Section
23 of the Corporation Code:
Section 23. The board of directors or trustees. - Unless otherwise

provided in this Code, the corporate powers of all corporations
formed under this Code shall be exercised, all business conducted
and all property of such corporations controlled and held by the
board of directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from among the
members of the corporation, who shall hold office for one (1) year
until their successors are elected and qualified.
However, the board of directors may validly delegate its functions
and powers to its officers or agents. The authority to bind the
corporation is derived from law, its corporate by-laws, or directly
from the board of directors, ”’either expressly or impliedly by habit,
custom or acquiescence in the general course of business.’"
Arturo Calubad v Ricarcen Dev Corp GR 202364 Aug 30, 2017; J.
Leonen
“The general principles of agency govern the relationship between

a corporation and its representatives. Article 1317 of the Civil Code
similarly provides that the principal must delegate the necessary
authority before anyone can act on his or her behalf.
Nonetheless, law and jurisprudence recognize actual authority and

apparent authority as the two (2) types of authorities conferred
upon a corporate officer or agent in dealing with third persons.
Actual authority can either be express or implied. Express actual

authority refers to the power delegated to the agent by the
63
32
1/26/21
Actual authority can either be express or implied. Express actual

authority refers to the power delegated to the agent by the
corporation, while an agent's implied authority can be measured by
his or her prior acts which have been ratified by the corporation or
whose benefits have been accepted by the corporation.”
Leonen
“On the other hand, apparent authority is based on the principle of
estoppel. The Civil Code provides:
Article 1431. Through estoppel an admission or representation is

rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon.
Article 1869. Agency may be express, or implied from the acts of

the principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his
behalf without authority.
Agency may be oral, unless the law requires a specific form.

Yao Ka Sin Trading v. Court of Appeals instructed that an agent's
apparent authority from the principal may also be ascertained
through:
(1) the general manner by which the corporation holds out an

officer or agent as having power to act or, in other words, the
apparent authority with which it clothes him to act in general, or
(2) the acquiescence in his acts of a particular nature, with
actual or constructive knowledge thereof, whether within or
without the scope of his ordinary powers.
“The doctrine of apparent authority provides that even if no actual

authority has been conferred on an agent, his or her acts, as long
as they are within his or her apparent scope of authority, bind the
principal. However, the principal's liability is limited to third persons
who are reasonably led to believe that the agent was authorized to
33
1/26/21
principal. However, the principal's liability is limited to third persons

who are reasonably led to believe that the agent was authorized to
act for the principal due to the principal's conduct.
Apparent authority is determined by the acts of the principal and

not by the acts of the agent. Thus, it is incumbent upon Calubad to
prove how Ricarcen's acts led him to believe that Marilyn was duly
authorized to represent it.”
Leonen
”As the former president of Ricarcen, it was within Marilyn's scope
of authority to act for and enter into contracts in Ricarcen's behalf.
Her broad authority from Ricarcen can be seen with how the
corporate secretary entrusted her with blank yet signed sheets of
paper to be used at her discretion. She also had possession of the
owner's duplicate copy of the land title covering the property
mortgaged to Calubad, further proving her authority from Ricarcen.
The records show that on October 15, 2001, Calubad drew and
issued two (2) checks payable to Ricarcen representing the loan
proceeds for the first mortgage. The first check was Equitable PCI
Bank check number 0024416 for P2,920,000.00 and the second
check was Equitable PCI Bank check number 0000461 for
P600,000.00. Both checks were deposited in Ricarcen 's bank
account with Banco de Oro, Banawe Branch, and were honored by
the drawee bank.
On December 6, 2001, Marilyn negotiated for an additional

P1,000,000.00 loan with Calubad, under the same terms and
conditions.
From December 15, 2001 to April 15, 2002, Ricarcen paid and
issued several checks payable to Calubad, which he claimed were
the monthly interest payments of the mortgage loans.”
“Calubad could not be faulted for continuing to transact with
Marilyn, even agreeing to give out additional loans, because
34
1/26/21
66
“Calubad could not be faulted for continuing to transact with

Marilyn, even agreeing to give out additional loans, because
Ricarcen clearly clothed her with apparent authority. Likewise, it
reasonably appeared that Ricarcen's officers knew of the
mortgage contracts entered into by Marilyn in Ricarcen's behalf as
proven by the issued Banco De Oro checks as payments for the
monthly interest and the principal loan.
Ricarcen claimed that it never granted Marilyn authority to transact

with Calubad or use the Quezon City property as collateral for the
loans, but its actuations say otherwise. It appears as if Ricarcen
and its officers gravely erred in putting too much trust in Marilyn.
However, Calubad, as an innocent third party dealing in good faith
with Marilyn, should not be made to suffer because of Ricarcen's
negligence in conducting its own business affairs. This finds
support in Yao Ka Sin Trading:
Also, ‘if a private corporation intentionally or negligently clothes

its officers or agents with apparent power to perform acts for it,
the corporation will be estopped to deny that such apparent
authority is real, as to innocent third persons dealing in good
faith with such officers or agents’."
Terp Construction Corporation v Banco Filipino Savings GR
221771 Sep 18, 2019; J. Leonen
A corporation's repeated payment of an allegedly unauthorized
obligation contracted by one (1) of its officers effectively ratifies
that corporate officer's allegedly unauthorized act.
Xxx
Petitioner disavows this obligation and contends that it was merely
an unauthorized offer made by one (1) of its officers during the
negotiation stage of a contract. Petitioner, however, does not deny
that it paid respondent the additional interest during the Margarita
Bonds' holding period, not just once, but twice.
A corporation exercises its corporate powers through its board of
directors.[43] This power may be validly delegated to its officers,
committees, or agencies. "The authority of such individuals to bind
the corporation is generally derived from law, corporate bylaws or
authorization from the board, either expressly or impliedly by habit,
custom or acquiescence in the general course of business[.]"[44]
68
35
1/26/21
authorization from the board, either expressly or impliedly by habit,

custom or acquiescence in the general course of business[.]"[44]
The authority of the board of directors to delegate its corporate
powers may either be: (1) actual; or (2) apparent.
•
221771 Sep 18, 2019; J. Leonen
• Actual authority may be express or implied. Express actual

authority refers to the corporate powers expressly delegated by
the board of directors. Implied actual authority, on the other hand,
"can be measured by his or her prior acts which have been
ratified by the corporation or whose benefits have been accepted
by the corporation."
• Petitioner's subsequent act of twice paying the additional interest
Escalona committed to during the term of the Margarita Bonds is
considered a ratification of Escalona's acts. Petitioner's only
defense that they were "erroneous payment[s]" since it never
obligated itself from the start cannot stand. Corporations are
bound by errors of their own making.
• Escalona likewise had apparent authority to transact on behalf of
petitioner. In Yao Ka Sin Trading v. Court of Appeals:
• The rule is of course settled that "[a]lthough an officer or agent
acts without, or in excess of, his actual authority if he acts within
the scope of an apparent authority with which the corporation has
clothed him by holding him out or permitting him to appear as
having such authority, the corporation is bound thereby in favor of
a person who deals with him in good faith in reliance on such
apparent authority, as where an officer is allowed to exercise a
particular authority with respect to the business, or a particular
branch of its continuously and publicly, for a considerable time."
•
221771 Sep 18, 2019; J. LeoneN
• Apparent authority is ascertained through:
• (1) the general manner by which the corporation holds out an
36
69
1/26/21
• (1) the general manner by which the corporation holds out an

apparent authority with which it clothes him to act in general, or
(2) the acquiescence in his acts of a particular nature, with actual
or constructive knowledge thereof, whether within or without the
scope of his ordinary powers.[50] (Citation omitted)
• Here, respondent relied on Escalona's apparent authority to
promise interest payments over and above the guaranteed 8.5%,
considering that Escalona was petitioner's then senior vice
president. His apparent authority was further demonstrated by
petitioner paying respondent what Escalona promised during the
Margarita Bonds' term.
• It should likewise be noted that at the time this Petition was filed,
Escalona signed the Verification and Certification[51] as the
president of the corporation, signifying that petitioner did not
consider his alleged unauthorized acts as fatal to his continued
involvement in corporate affairs.
•
70 QUALIFICATION, NOMINATION, ELECTION
71 QUALIFICATION OF DIRECTOR
LYDIA LAO ET AL V YAO BIO LIM, ET AL GR 201306 AUG 9,
2017 J. Leonen
“Despite the foregoing circumstances, there were other grounds to

nullify the March 15, 2002 annual stockholders' meeting. As found
by the Court of Appeals, petitioners did not recognize respondents'
rights as stockholders, making the proceedings and elections
during the March 15, 2002 meeting void. The Court of Appeals
discussed:
[D]uring the same meeting, [petitioners] made use of a schedule of
stockholders which was different from the list contained in the
1997 [General Information Sheet]. Obviously, [petitioners] defied
the previously issued Order of both the SEC and the RTC requiring
the use of the 1997 [General Information Sheet], it being the last,
official and recorded submission by the Philadelphia School in
keeping with its reportorial requirement with the SEC. As disclosed
in the records, the 1997 [General Information Sheet] specified the
stockholders of Philadelphia School and their respective
shareholdings. Since the composition in 1997 [General Information
37
1/26/21
stockholders of Philadelphia School and their respective

shareholdings. Since the composition in 1997 [General Information
Sheet] was not changed up to the time the March 15, 2002
meeting was called, the same should have been used as the basis
for the schedule of stockholders and their respective
shareholdings relative to the election of its board of directors. By
so defying the Order of both the SEC and the RTC as regards the
use of the 1997 [General Information Sheet], [petitioners], in effect,
refused to recognize [respondents'] shareholdings and their right to
vote, thus, rendering void all the acts done during the meeting,
particularly the holding of the election of the officers and the
declaration and issuance of the 300% stock dividend.[54]
The foregoing disquisitions of the Court of Appeals render
untenable and irrelevant petitioners' contention that King could not
be considered a legitimate stockholder of PSI during the
stockholders' meeting in 2002. This is because the validity of Ong
Y. Seng's transfer of shares to his son was still at issue and King's
ownership of PSI stocks was finally resolved by this Court only on
April 28, 2011.”
Mary Lim et al v MOLDEX Land Inc GR 206038 Jan 25, 2017; J.
Leonen
Individual respondents who
are non-members cannot be
elected as directors and officers
of the condominium corporation
The governance and management of corporate affairs in a

corporation lies with its board of directors in case of stock
corporations, or board of trustees in case of non-stock
corporations. As the board exercises all corporate powers and
authority expressly vested upon it by law and by the corporations'
by-laws, there are minimum requirements set in order to be a
director or trustee, one of which is ownership of a share in one's
name or membership in a non-stock corporation. Section 23 of the
Corporation Code provides:
Section 23. The Board of Directors or Trustees. - Unless otherwise
38
1/26/21

until their successors are elected and qualified.
Every director must own at least one (1) share of the capital stock
of the corporation of which he is a director, which share shall stand
in his name on the books of the corporation. Any director who
ceases to be the owner of at least one (1) share of the capital
stock of the corporation of which he is a director shall thereby
cease to be a director. Trustees of non-stock corporations must be
members thereof. A majority of the directors or trustees of all
corporations organized under this Code must be residents of the
Philippines. [Emphases supplied]
Leonen
This rule was reiterated in Section 92 of the Corporation Code,

which
Section 92. Election and term of trustees.- x x x No person shall be
elected as trustee unless he is a member of the corporation. x x x
x While Moldex may rightfully designate proxies or representatives,
the latter, however, cannot be elected as directors or trustees of
Condocor. First, the Corporation Code clearly provides that a
director or trustee must be a member of record of the
corporation. Further, the power of the proxy is merely to vote. If
said proxy is not a member in his own right, he cannot be elected
as a director or proxy.
Respondents cannot rely on the Securities and Exchange

Commission (SEC) Opinions they cited to justify the individual
respondents' election as directors. In Heirs of Gamboa v. Teves,
the Court En Bane held that opinions issued by SEC legal officers
do not have the force and effect of SEC rules and regulations
because only the SEC en bane can adopt rules and regulations.
74
39
1/26/21
because only the SEC en bane can adopt rules and regulations.
Leonen
Following Section 25 of the Corporation Code, the election of

individual respondents, as corporate officers, was likewise invalid.
Section 25 of the Corporation Code mandates that the President

shall be a director. As previously discussed, Jaminola could not be
elected as a director. Consequently, Jaminola's election as
President was null and void.
The same provision allows the election of such other officers as

may be provided for in the by-laws. Condocor's By-Laws, however,
require that the Vice-President shall be elected by the Board from
among its member directors in good standing, and the Secretary
may be appointed by the Board under the same circumstance.
Like Jaminola, Milanes and Macalintal were not directors and,
thus, could not be elected and appointed as Vice-President and
Secretary, respectively.
Insofar as Roman's election as Treasurer is concerned, the same

would have been valid, as a corporate treasurer may or may not
be a director of the corporation's board. The general membership
meeting of Condocor, however, was null and void. As a
consequence, Roman's election had no legal force and effect.
In fine, the July 21, 2012 annual general membership meeting of

Condocor being null and void, all acts and resolutions emanating
therefrom are likewise null and void.
75 ELECTION RESULTS, NON-ELECTION AND SUMMARY

ELECTION
76 TERM, COMPENSATION, DUTY TO REPORT VACANCY
77 DUTIES OF DIRECTORS, TRUSTEES AND OFFICERS
• FIDUCIARY DUTY
• LOYALTY
40
76 1/26/21
77
• FIDUCIARY DUTY
• LOYALTY
• DILIGENCE
• OBEDIENCE/CARE
•
• ADVERSE INTEREST (CONFLICT OF INTEREST)
• SELF-DEALING TRANSACTIONS
• RELATED PARTY TRANSACTIONS (INTERLOCKING

DIRECTORSHIPS)
• CORPORATE OPPORTUNITY DOCTRINE (DISLOYALTY)

78 WHEN DIRECTORS AND TRUSTEES OR, IN APPROPRIATE
CASES, OFFICERS
INCUR PERSONAL OR SOLIDARY LIABILITY WITH THE
CORPORATION
• Those who willfully and knowingly
• Vote for or assent to patently unlawful acts of the corporation
• Act in bad faith or with gross negligence in directing the
corporate affairs
• Guilty of conflict of interest to the prejudice of the corporation,
its stockholders or members and other persons
• When a director or officer has consented to the issuance of
watered stocks or who, having knowledge thereof, did not
forthwith file with the corporate secretary his written objection
thereto
• When a director, trustee or officer has contractually agreed or
stipulated to hold himself personally and solidarily liable with the
corporation
• When a director, trustee or officer is made, by specific provision of
law, personally liable for his corporate action (e.g. Labor law in
case of termination of employees done with malice or in bad faith)
•
•
•
79 COMPARATIVE LIABILITIES OF DIRECTORS, TRUSTEES AND
OFFICERS
80
41
1/26/21
79 COMPARATIVE LIABILITIES OF DIRECTORS, TRUSTEES AND

OFFICERS
80 LIABILITIES OF DIRECTORS OR OFFICERS
Dee Haw Lion Foundation et al v Asiamed Supplies, GR 205638,
Aug 23, 2017; J. Leonen
“Petitioners aver that petitioner Anthony should not have been held
jointly and severally liable for the breach of contract, invoking the
separate personality of a corporation.[37] They point out that no
mention was made of petitioner Anthony's personal liability and
that the officers of a corporation are generally not liable for the
consequences of their acts done on behalf of the
corporation. Further, respondent did not prove that petitioner
Anthony acted with bad faith or malice.”
On the other hand, respondent argued that :

“Petitioner Anthony was properly held jointly and severally liable
together with petitioner DHLFMC because of his patent bad faith in
not paying the amount stipulated in the Contract of Sale. The
circumstances in this case are among the instances when an
officer may be held jointly and severally liable with the corporation
sued. Respondent points out that petitioner Anthony raised this
issue for the first time on appeal.”
Dee Haw Lion Foundation et al v Asiamed Supplies, GR 205638,
Aug 23, 2017; J. Leonen
On petitioner Anthony's liability, the Court of Appeals found that

petitioners admitted that they never represented that petitioner
DHLFMC is a corporate entity with separate personality from
petitioner Anthony. Thus, they are estopped from raising its
separate personality as a defense for petitioner Anthony:
It is important to remember, however, that [respondent]'s

complaint alleged. among other things, that "[petitioner] DEE
HWA LIONG FOUNDATION MEDICAL CENTER, is an entity
representing itself to be a corporation duly organized and
existing under and by virtue of the laws of the Republic of the
Philippines." In reply thereto, [petitioners] answered that
"[petitioners] deny the allegations relating to the corporate
42
1/26/21
Philippines." In reply thereto, [petitioners] answered that

"[petitioners] deny the allegations relating to the corporate
circumstances of [petitioner] DHLFMC in paragraph no. 2 of the
Complaint, ... the truth being that the [petitioners] never
represented that [petitioner] DHLFMC is a corporate entity duly
organized and existing under and by virtue of the laws of the
Republic of the Philippines[.]" From the foregoing, it cannot be
denied that the [petitioners) are estopped from raising a
corporation's separate juridical personality as a defense to shield
[petitioner] Anthony Dee from any liability.[69] (Emphasis supplied,
citations omitted)
Petitioners do not dispute that they specifically denied the

allegation regarding petitioner DHLFMC's corporate
circumstances. Petitioners fail to show how the Court of Appeals
appreciation of this specific denial is an error of law. Petitioners
merely insist that petitioner Anthony was not shown to have acted
in bad faith, and thus, cannot be held solidarily liable with
petitioner DHLFMC.[70] However, petitioners do not point to
anything on record to counter their own specific denial that would
establish DHLFMC's existence as a corporation with separate
juridical personality. Thus, this argument must fail.
J. Leonen
As a general rule, a corporation has a separate and distinct
personality from those who represent it. Its officers are solidarily
liable only when exceptional circumstances exist, such as cases
enumerated in Section 31 of the Corporation Code. The liability of
the officers must be proven by evidence sufficient to overcome the
burden of proof borne by the plaintiff.
Xxx
Pioneer argues that ‘the individual respondents were, at the very
least, grossly negligent in running the affairs of respondent
Morning Star by knowingly allowing it to amass huge debts to
[International Air Transport Association] despite its financial
distress, thus, giving sufficient ground for the court to pierce the
corporate veil and hold said individual respondents personally
liable.’ It cites Section 31 of the Corporation Code on the liability of
directors ‘guilty of gross negligence or bad faith in directing the
83
43
1/26/21
liable.’ It cites Section 31 of the Corporation Code on the liability of

directors ‘guilty of gross negligence or bad faith in directing the
affairs of the corporation’[.]"

J. Leonen
“Pioneer also cites jurisprudence on the requisites for the doctrine

of piercing the corporate veil to apply. It submits that all requisites
are present, thus, the individual respondents should be held
solidarity liable with Morning Star. It cites at length the testimony
of its witness Atty. Vincenzo Nonato M. Taggueg (Atty.
Taggueg) that based on Morning Star's General Information Sheet
and financial statements, Morning Star ‘has been accumulating
losses as early as 1998 continuing to 1999 and 2000 resulting to a
deficit of Php26,168,1768.00 [sic] as of December 31, 2000[.]’
Pioneer contends that the abnormally large indebtedness to

International Air Transport Association was incurred in fraud and
bad faith, with Morning Star having no intention to pay its debt. It
cites Oria v. McMicking on the badges of fraud. Pioneer then
enumerates ‘the unmistakable badges of fraud and deceit
committed by individual respondents’ such as the fact that Morning
Star had no assets, but the two corporations also ‘controlled and
managed by the individual respondents were doing relatively well
[at] the time . . . Morning Star was incurring huge
losses[.]’ Moreover, a new travel agency called Morning Star Tour
Planners, Inc. now operates at the Morning Star's former principal
place of business in Pedro Gil, Manila, with the children of
individual respondents as its stockholders, directors, and officers.”

J. Leonen
“The law vests corporations with a separate and distinct

personality from those that represent these corporations.
44
84
1/26/21
“The law vests corporations with a separate and distinct

personality from those that represent these corporations.
The corporate legal structure draws its "economic superiority" from

key features such as a separate corporate personality. Unlike other
business associations such as partnerships, the corporate
framework encourages investment by allowing even small capital
contributors to be part of a big business endeavor made possible
by the aggregation of their capital funds. The consequent limited
liability feature, since corporate assets will answer for corporate
debts, also proves attractive for investors. However, this legal
structure should not be abused.”
J. Leonen
“A separate corporate personality shields corporate officers acting

in good faith and within their scope of authority from personal
liability except for situations enumerated by law and
jurisprudence, thus:
Personal liability of a corporate director, trustee or officer along
(although not necessarily) with the corporation may so validly
attach, as a rule, only when —
'1. He assents (a) to a patently unlawful act of the corporation, or

(b) for bad faith or gross negligence in directing its affairs, or (c) for
conflict of interest, resulting in damages to the corporation, its
stockholders or other persons;
'2. He consents to the issuance of watered stocks or who, having

knowledge thereof, does not forthwith file with the corporate
secretary his written objection thereto;
'3. He agrees to hold himself personally and solidarity liable with

the corporation; or
'4. He is made, by a specific provision of law, to personally answer

for his corporate action.’”
86
45
1/26/21
for his corporate action.’”

J. Leonen
The first exception comes from Section 31 of the Corporation

Code:
SECTION 31. Liability of Directors, Trustees or Officers. —
Directors or trustees who wilfully and knowingly vote for or assent
to patently unlawful acts of the corporation or who are guilty of
gross negligence or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary interest in conflict
with their duty as such directors or trustees shall be liable jointly
and severally for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other persons.
(Emphasis supplied)
Petitioner imputes gross negligence and bad faith on the part of
the individual respondents for incurring the huge indebtedness to
International Air Transport Association.[66]
Bad faith "imports a dishonest purpose or some moral obliquity

and conscious doing of a wrong, not simply bad judgment or
negligence."[67] "[I]t means breach of a known duty through some
motive or interest or ill will; it partakes of the nature of fraud."[68]

J. Leonen
The trial court gave weight to its finding that respondent Morning
Star still availed itself of loans and/or obligations with International
Air Transport Association despite its financial standing of operating
at a loss:
Based on the plaintiff's examination of the financial statements
submitted by the defendant Morning Star with the Securities and
Exchange Commission (SEC) for the years 2000 and 2001 with
comparative figures for the years ending 1998, 1999 and 2000,
herein defendant corporation has been accumulating losses as
early as 1998 continuing to 1999 and 2000 resulting to a deficit of
46
1/26/21
herein defendant corporation has been accumulating losses as

early as 1998 continuing to 1999 and 2000 resulting to a deficit of
Php26,168,176.80 as of December 31, 2000. It was also shown
that for the prior years of 1998 and 1999, defendant Morning Star
incurred a deficit of Php3,910,763.00 as of December 31, 1998
and Php2,841,626.00 as of December 31, 1999 and in the
Balance Sheet, it indicated therein the defendants' total assets of
Php150,579,421.00 while the total liabilities amounted to
Php160,222,966.00, thereby making the defendant Morning Star
insolvent. Despite the fact that defendant Morning Star was
already incurring losses as early as 1998 up to the year 2000, the
latter still contracted loans and/or obligations with IATA sometime
in 2002 and which indebtedness ballooned to the huge amount of
Phpl09,728,051.00 and US$496,403.21 as of April 30, 2003, which
obviously it could not pay considering its financial standing.
J. Leonen
Further investigation by the plaintiff shows that it could not find any
assets or properties in the name of defendant Morning Star
because even the land and the building where it held office was
registered in the name of "Morning Star Management Ventures
Corporation", as evidenced by the certified true copies of the
transfer certificates of title (TCT) nos. 192243 and 192244 in the
name of Morning Star Management Ventures Corporation and
unlike the defendant Morning Star, which has practically the same
officers and members of the Board, has only an asset of
Php125,392,960.00 and liabilities of Php4,306,702[.]00 and an
income deficit of Php26,922,598.00 as of December 31, 2001.
Similarly, the Pic [']N Pac Mart, Inc., which has the same set of
officers, said corporation has shown a total assets of
Php5,423,201.30 and liabilities/stockholders equity of
Php5,423,201.30 but with a retained earnings of Php194,412[.]74
as of December 31, 1999. Plaintiff contends that in such a case,
defendant Morning Star has used the separate and distinct
corporate personality accorded to it under the Corporation Code to
commit said fraudulent transaction of incurring corporate debts
and allow the herein individual defendants to escape personal
liability and placing the assets beyond the reach of the creditors.
89
47
1/26/21
and allow the herein individual defendants to escape personal

liability and placing the assets beyond the reach of the creditors.
(Emphasis supplied, citations omitted)
J. Leonen
Piercing the corporate veil in order to hold corporate officers

personally liable for the corporation's debts requires that "the bad
faith or wrongdoing of the director must be established clearly and
convincingly [as] [b]ad faith is never presumed."
Oria v. McMicking enumerates several badges of fraud. Petitioner

argues the existence of the fourth to sixth badges:
1. The fact that the consideration of the conveyance is fictitious or
is inadequate.
2. A transfer made by a debtor after suit has been begun and while
it is pending against him.
3. A sale upon credit by an insolvent debtor.
4. Evidence of large indebtedness or complete insolvency.
5. The transfer of all or nearly all of his property by a debtor,

especially when he is insolvent or greatly embarrassed financially.
6. The fact that the transfer is made between father and son, when
there are present other of the above circumstances.
7. The failure of the vendee to take exclusive possession of all the

property.[
J. Leonen
This court finds that petitioner was not able to clearly and
convincingly establish bad faith by the individual respondents, nor
substantiate the alleged badges of fraud.
48
1/26/21
substantiate the alleged badges of fraud.
First, petitioner failed to substantiate the fourth badge of fraud on

"[e]vidence of large indebtedness or complete insolvency."
In 1993, International Air Transport Association appointed

respondent Morning Star as an accredited travel agent with the
privilege of getting air tickets on credit, and they entered a
Passenger Sales Agency Agreement.[77] None of the parties
made allegations on the financial status or business standing of
respondent Morning Star during the first five years from its
accreditation in 1993.
Petitioner relies on Atty. Taggueg's testimony regarding respondent

Morning Star's financial statements with the Securities and
Exchange Commission.
Atty. Taggueg testified on the comparative figures for the years

ended 1998, 1999, and 2000 and how the company was
"accumulating losses as early as 1998 continuing to 1999 and
2000 resulting to a deficit of Php26,168,1768.00 [sic] as of
December 31, 2000 . . . deficit of Php3,910,763.00 as of
December 31, 1998 and another deficit of Php2,841,626.00 as of
December 31, 1999[.]"[78] He testified that as of December 31,
2000, respondent Morning Star had total assets of
Php150,579,421.00 and total liabilities of Php160,222,966.00.
Atty. Taggueg then testified that despite this insolvency, "Morning

Star Travel still contracted loans and/or obligations from the IATA
sometime in December 2002 which indebtedness with IATA
ballooned to the huge amount of Php109,728,051.00 and
US$496,403.21 as of April 30, 2003 [.]"
Petitioner did not present Securities and Exchange Commission

documents on respondent Morning Star's total assets as of
December 2002. It did not present respondent Morning Star's
financial statements for December 2002, the year it incurred
obligations from International Air Transport Association.
91
49
1/26/21

J. Leonen
The financial statements for years 1998 to 1999 and 1999 to 2000
testified on by Atty. Taggueg are not representative of the financial
status of respondent Morning Star's business. Year 2000 reflected
total assets of P150,579,421.00 and total liabilities of
P160,222,966.00. On the other hand, year 1999 showed total
assets of P134,361,353.00 and total liabilities of
P120,678,345.00.Businesses may earn profits in some years and
operate at a loss in others as a result of changing economic
conditions. These two financial statements do not show that
respondent Morning Star was operating at a loss in 2002. Deficits
in the years 1998 to 2000 do not necessarily mean deficits in
2002. It is unclear if these figures included previous obligations to
International Air Transport Association, or whether some or all of
such obligations were paid in subsequent years as an indication of
respondent Morning Star's credit history.
In any event, it is in the nature of businesses to take risks when

making business judgments, and this includes taking loans and
incurring liabilities.
Atty. Taggueg's association with respondent Morning Star, or this

case, is also unclear. Respondents submit in their memorandum
that "[i]n his testimony[,] Mr. Taggueg admitted that his knowledge
about . . . Morning Star was merely based on his assumptions and
his examination of the [Securities and Exchange Commission]
documents."
Petitioner's reliance on Atty. Taggueg's testimony on respondent

Morning Star's financial statements for previous years fails to
clearly and convincingly establish bad faith by the individual
respondents.
J. Leonen
50
1/26/21
92
J. Leonen
Second, petitioner failed to substantiate the fifth badge of fraud on

the "transfer of all or nearly all of his property by a debtor,
especially when he is insolvent or greatly embarrassed
financially."[85]
Mere allegations that Morning Star Management Ventures

Corporation and Pic 'N Pac Mart, Inc. "were doing relatively well
during the time that respondent Morning Star was incurring huge
losses"] do not establish bad faith or fraud by the individual
respondents. Such allegations alone do not prove that the
individual respondents were transferring respondent Morning
Star's properties in fraud of its creditors.
Neither does the allegation that Morning Star Management

Ventures Corporation has title over the land and building where the
offices can be found establish bad faith or fraud. Petitioner did not
show that this title was originally in respondent Morning Star's
name and was later transferred to respondent Morning Star.
This court has held that the "existence of interlocking directors,

corporate officers and shareholders is not enough justification to
pierce the veil of corporate fiction in the absence of fraud or other
public policy considerations."
J. Leonen
Third, petitioner also failed to substantiate the sixth badge of fraud
that "the transfer is made between father and son, when there are
present other of the above circumstances."
Petitioner submits that:
It would be the height of injustice to allow individual respondents to
get away with their gross negligence to the prejudice of petitioner,
especially since there is now another travel agency in the name of
Morning Star Tour Planners, Inc. operating at the respondent
Morning Star's former principal place of business at 1600 J.
Bocobo St. corner Pedro Gil Malate, Manila x x x
Curiously, among the stockholders, directors and officers of
51
1/26/21
Bocobo St. corner Pedro Gil Malate, Manila x x x

Curiously, among the stockholders, directors and officers of
Morning Star Tour Planners, Inc., are the following: Belinda Wong,
Billy Wong, Barbara C. Wong and Benny C. Wong, Jr., who all
have the same address as individual respondents Estelita Co
Wong and Benny H. Wong.
Given, these vital pieces of information, it is at once indubitable
that respondents have established another travel agency in the
name of their children in order to escape their solidary liability to
petitioner![89] (Citation omitted)
This court has held that "compliance with the recognized modes of
acquisition of jurisdiction cannot be dispensed with even in
piercing the veil of corporate fiction[.]" Morning Star Tour Planners,
Inc. is not a party in this case. It would offend due process rights if
what petitioner ultimately seeks in its allegation is to hold Morning
Star Tour Planners, Inc. responsible for respondent Morning Star's
liability.

Lanuza Jr. et al v BF Corporation, et al, GR 174938, Oct 1, 2014;
J. Leonen
Corporate representatives may be compelled to submit to

arbitration proceedings pursuant to a contract entered into by the
corporation they represent if there are allegations of bad faith or
malice in their acts representing the corporation.
Xxx
Petitioners' main argument arises from the separate personality
given to juridical persons vis-a-vis their directors, officers,
stockholders, and agents. Since they did not sign the arbitration
agreement in any capacity, they cannot be forced to submit to the
jurisdiction of the Arbitration Tribunal in accordance with the
arbitration agreement. Moreover, they had already resigned as
directors of Shangri-La at the time of the alleged default.
Indeed, as petitioners point out, their personalities as directors of

Shangri-La are separate and distinct from Shangri-La.
A corporation is an artificial entity created by fiction of law.[76] This

means that while it is not a person, naturally, the law gives it a
95 52
1/26/21
A corporation is an artificial entity created by fiction of law.[76] This

means that while it is not a person, naturally, the law gives it a
distinct personality and treats it as such. A corporation, in the legal
sense, is an individual with a personality that is distinct and
separate from other persons including its stockholders, officers,
directors, representatives,[77] and other juridical entities.
Lanuza Jr et al v BF Corporation, et al, GR 174938, Oct 1, 2014; J.

Leonen
The law vests in corporations rights, powers, and attributes as if
they were natural persons with physical existence and capabilities
to act on their own.For instance, they have the power to sue and
enter into transactions or contracts. Section 36 of the Corporation
Code enumerates some of a corporation's powers, thus: x x x
Because a corporation's existence is only by fiction of law, it can
only exercise its rights and powers through its directors, officers, or
agents, who are all natural persons. A corporation cannot sue or
enter into contracts without them.
A consequence of a corporation's separate personality is that

consent by a corporation through its representatives is not consent
of the representative, personally. Its obligations, incurred through
official acts of its representatives, are its own. A stockholder,
director, or representative does not become a party to a contract
just because a corporation executed a )C contract through that
stockholder, director or representative.
Hence, a corporation's representatives are generally not bound by

the terms of the contract executed by the corporation. They are not
personally liable for obligations and liabilities incurred on or in
behalf of the corporation.

J. Leonen
As a general rule, therefore, a corporation's representative who did
not personally bind himself or herself to an arbitration agreement
cannot be forced to participate in arbitration proceedings made
53
96
1/26/21
not personally bind himself or herself to an arbitration agreement

cannot be forced to participate in arbitration proceedings made
pursuant to an agreement entered into by the corporation. He or
she is generally not considered a party to that agreement.
However, there are instances when the distinction between

personalities of directors, officers, and representatives, and of the
corporation, are disregarded. We call this piercing the veil of
corporate fiction.
Piercing the corporate veil is warranted when "[the separate

personality of a corporation] is used as a means to perpetrate
fraud or an illegal act, or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, or to confuse legitimate
issues." It is also warranted in alter ego cases "where a
corporation is merely a farce since it is a mere alter ego or
business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of
another corporation."
J. Leonen
When corporate veil is pierced, the corporation and persons who
are normally treated as distinct from the corporation are treated as
one person, such that when the corporation is adjudged liable,
these persons, too, become liable as if they were the corporation.
Among the persons who may be treated as the corporation itself

under certain circumstances are its directors and officers. Section
31 of the Corporation Code provides the instances when directors,
trustees, or officers may become liable for corporate acts:
Sec. 31. Liability of directors, trustees or officers. - Directors or

trustees who willfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross
negligence or bad faith in directing the affairs of the corporation or
acquire any personal or pecuniary interest in conflict with their duty
as such directors or trustees shall be liable jointly and severally for
all damages resulting therefrom suffered by the corporation, its
54
1/26/21
as such directors or trustees shall be liable jointly and severally for

all damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons.
When a director, trustee or officer 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, as to which equity imposes a disability upon him to
deal in his own behalf, he shall be liable as a trustee for the
corporation and must account for the profits which otherwise would
have accrued to the corporation.

J. Leonen
Based on the above provision, a director, trustee, or officer of a

corporation may be made solidarily liable with it for all damages
suffered by the corporation, its stockholders or members, and
other persons in any of the following cases:
• The director or trustee willfully and knowingly voted for or
assented to patently unlawful corporate act;
• The director or trustee was guilty of gross negligence or bad faith
in the conuct of corporate affairs
• The director or trustee acquired personal or pecuniary interest in
confliwt with his duties as such
Solidary liability with the corporation will also attach in the following
instances:
• "When a director or officer has consented to the issuance of
watered stocks or who, having knowledge thereof, did not
forthwith file with the corporate secretary his written objection
thereto”
• When a director, trustee or officer has contractually agreed or
stipulated to hold himself personally and solidarity liable with the
corporation
• When a director, trustee or officer is made, by specific provision of
law, personally liable for his corporate action.
•
99
55
1/26/21
law, personally liable for his corporate action.

•
•
•
•
J. Leonen
Hence, when the directors, as in this case, are impleaded in a

case against a corporation, alleging malice or bad faith on their
part in directing the affairs of the corporation, complainants are
effectively alleging that the directors and the corporation are not
acting as separate entities. They are alleging that the acts or
omissions by the corporation that violated their rights are also the
directors' acts or omissions. They are alleging that contracts
executed by the corporation are contracts executed by the
directors. Complainants effectively pray that the corporate veil be
pierced because the cause of action between the corporation and
the directors is the same.
Thus, in cases alleging solidary liability with the corporation or

praying for the piercing of the corporate veil, parties who are
normally treated as distinct individuals should be made to
participate in the arbitration proceedings in order to determine if
such distinction should indeed be disregarded and, if so, to
determine the extent of their liabilities.
In this case, the Arbitral Tribunal rendered a decision, finding that

BF Corporation failed to prove the existence of circumstances that
render petitioners and the other directors solidarity liable. It ruled
that petitioners and Shangri-La's other directors were not liable for
the contractual obligations of Shangri-La to BF Corporation. The
Arbitral Tribunal's decision was made with the participation of
petitioners, albeit with their continuing objection. In view of our
discussion above, we rule that petitioners are bound by such
decision
100
56
1/26/21

Lanuza et al v BF Corporation, et al, GR 174938, Oct 1, 2014; J.
Leonen
Hence, the issue of whether the corporation's acts in violation of

complainant's rights, and the incidental issue of whether piercing
of the corporate veil is warranted, should be determined in a single
proceeding. Such finding would determine if the corporation is
merely an aggregation of persons whose liabilities must be treated
as one with the corporation.
However, when the courts disregard the corporation's distinct and

separate personality from its directors or officers, the courts do not
say that the corporation, in all instances and for all purposes, is the
same as its directors, stockholders, officers, and agents. It does
not result in an absolute confusion of personalities of the
corporation and the persons composing or representing it. Courts
merely discount the distinction and treat them as one, in relation to
a specific act, in order to extend the terms of the contract and the
liabilities for all damages to erring corporate officials who
participated in the corporation's illegal acts. This is done so that
the legal fiction cannot be used to perpetrate illegalities and
injustices.
Lanuza Jr et al v BF Corporation, et al, GR 174938, Oct 1, 2014; J.
Leonen
When there are allegations of bad faith or malice against corporate
directors or representatives, it becomes the duty of courts or
tribunals to determine if these persons and the corporation should
be treated as one. Without a trial, courts and tribunals have no
basis for determining whether the veil of corporate fiction should
be pierced. Courts or tribunals do not have such prior knowledge.
Thus, the courts or tribunals must first determine whether
circumstances exist to warrant the courts or tribunals to disregard
the distinction between the corporation and the persons
representing it. The determination of these circumstances must be
made by one tribunal or court in a proceeding participated in by all
parties involved, including current representatives of the
57
1/26/21
made by one tribunal or court in a proceeding participated in by all

parties involved, including current representatives of the
corporation, and those persons whose personalities are impliedly
the same as the corporation. This is because when the court or
tribunal finds that circumstances exist warranting the piercing of
the corporate veil, the corporate representatives are treated as the
corporation itself and should be held liable for corporate acts. The
corporation's distinct personality is disregarded, and the
corporation is seen as a mere aggregation of persons undertaking
a business under the collective name of the corporation.
102 LIABILITIES OF DIRECTORS OR LIABILITIES
LUIS JUAN L. VIRATA ET AL V ALEJANDRO NG WEE, ET AL GR
220926 JUL 05, 2017
Ascribing liability to a corporate director, trustee, or officer by
invoking Sec. 31 of the Corporation Code is distinct from the
remedial concept of piercing the corporate veil. While Sec. 31
expressly lays down specific instances wherein the mentioned
personalities can be held liable in their personal capacities, the
doctrine of piercing the corporate veil, on the other hand, is an
equitable remedy resorted to only when the corporate fiction is
used, among others, to defeat public convenience, justify wrong,
protect fraud or defend a crime.[143]
Applying the doctrine, petitioner cannot escape liability by claiming

that he was merely performing his function as Vice-President for
Operations and was duly authorized to sign the Side Agreements
in Wincorp's behalf. The Credit Line Agreement is patently
contradictory if not irreconcilable with the Side Agreements, which
he executed on the same day as the representative for Wincorp.
The execution of the Side Agreements was the precursor to the
fraud. Taken with Wincorp's subsequent offer to its clients of the
"sans recourse" transactions allegedly secured by the Promissory
Notes, it is a clear indicia of fraud for which Reyes must be held
accountable.
EDSA SHANGRI-LA HOTEL ET AL V BF CORPORATION GR
145842 JUN 27, 2008
The above conclusion would still hold even if petitioner Roxas-del
Castillo, at the time ESHRI defaulted in paying BF's monthly
58
103 1/26/21
The above conclusion would still hold even if petitioner Roxas-del

Castillo, at the time ESHRI defaulted in paying BF's monthly
progress bill, was still a director, for, before she could be held
personally liable as corporate director, it must be shown that she
acted in a manner and under the circumstances contemplated
in Sec. 31 of the Corporation Code, which reads:
Section 31. Directors or trustees who willfully or knowingly vote for

or assent to patently unlawful acts of the corporation or acquire
any pecuniary interest in conflict with their duty as such directors
or trustees shall be liable jointly and severally for all damages
resulting therefrom suffered by the corporation, its stockholders or
members and other persons. (Emphasis ours.)
We do not find anything in the testimony of one Crispin Balingit to

indicate that Roxas-del Castillo made any misrepresentation
respecting the payment of the bills in question. Balingit, in fact,
testified that the submitted but unpaid billings were still being
evaluated. Further, in the said testimony, in no instance was bad
faith imputed on Roxas-del Castillo.
REARS CORPORATION, ET AL V NLRC ET AL, GR 117473 APR
15, 1997
We now proceed to rule on the corollary issue of whether or not
individual petitioners Castulo, Pascua and Valenzuela should be
held liable in solidum with the corporation (REAH's) in the payment
to private respondents of separation pay and labor standard
benefits.
As a general rule established by legal fiction, the corporation has a

personality separate and distinct from its officers, stockholders and
members. Hence, officers of a corporation are not personally liable
for their official acts unless it is shown that they have exceeded
their authority. This fictional veil, however, can be pierced by the
very same law which created it when "the notion of the legal entity
is used as a means to perpetrate fraud, an illegal act, as a vehicle
for the evasion of an existing obligation, and to confuse legitimate
issues". Under the Labor Code, for instance, when a corporation
violates a provision declared to be penal in nature, the penalty
shall be imposed upon the guilty officer or officers of the
105
59
1/26/21
violates a provision declared to be penal in nature, the penalty

shall be imposed upon the guilty officer or officers of the
corporation.[7]
105 LIABILITIES OF DIECTORS OR OFFICERS
• REARS CORPORATION ET AL V NLRC ET AL GR 117473 APR
15, 1997
• The findings of the NLRC did not indicate whether or not Reah's
Corporation has continued its personality after it had stopped
operations when it closed its sing-along, coffee shop, and
massage clinic in November 1990. But in its petition, petitioners
aver, among others, that the "company totally folded for lack of
patrons, (disconnection of) light and discontinuance of the leased
premises [sic] for failure to pay the increased monthly rentals
from P8,000 to P20,000."[14] Under the Rules of Evidence,
petitioners are bound by the allegations contained in their
pleading. Since petitioners themselves have admitted that they
have dissolved the corporation de facto, the Court presumes that
Reah's Corporation had become insolvent and therefore would be
unable to satisfy the judgment in favor of its employees. Under
these circumstances, we cannot allow labor to go home with an
empty victory. Neither would it be oppressive to capital to hold
petitioners Castulo, Pascua and Valenzuela solidarily liable with
Reah's Corporation because the law presumes that they have
acted in the latter's interest when they obstinately refused to grant
the labor standard benefits and separation pay due private
respondent-employees.
106 RELATED PARTY TRANSACTIONS
•
SELF DEALING DIRECTORS
INTERLOCKING DIRECTORS
DISLOYALTY
107
108 INTERLOCKING DIRECTORS

CALIFORNIA MANUFACTURING CO. INC. V ADVANCED
TECHNOLOGY SYSTEM INC. GR 202454 APR 25, 2017
60
107
1/26/21
108
CMCI argues that both the RTC and the CA overlooked the
circumstances that it has proven to justify the piercing of corporate
veil in this case, i.e., (1) the interlocking board of directors,
incorporators, and majority stockholder of PPPC and ATSI; (2)
control of the two corporations by the Spouses Celones; and (3)
the two corporations were mere alter egos or business conduits of
each other. CMCI now asks us to disregard the separate corporate
personalities of ATSI and PPPC based on those circumstances
and to enter judgment in favor of the application of legal
compensation.
Whether one corporation is merely an alter ego of another, a sham

or subterfuge, and whether the requisite quantum of evidence has
been adduced to warrant the puncturing of the corporate veil are
questions of fact.[21] Relevant to this point is the settled rule that in
a petition for review on certiorari like this case, this Court's
jurisdiction is limited to reviewing errors of law in the absence of
any showing that the factual findings complained of are devoid of
support in the records or are glaringly erroneous.[22] This rule alone
warrants the denial of the petition, which essentially asks us to
reevaluate the evidence adduced by the parties and the credibility
of the witnesses presented.
We have reviewed the evidence on record and have found no

cogent reason to disturb the findings of the courts a quo that ATSI
is distinct and separate from PPPC, or from the Spouses Celones.
109 INTERLOCKING DIRECTORS
CALIFORNIA MANUFACTURING CO. INC. V ADVANCED
CMCI's alter ego theory rests on the alleged interlocking boards of

directors and stock ownership of the two corporations. The CA,
however, rejected this theory based on the settled rule that mere
ownership by a single stockholder of even all or nearly all of the
capital stocks of a corporation, by itself, is not sufficient ground to
disregard the corporate veil. We can only sustain the CA's ruling.
The instrumentality or control test of the alter ego doctrine requires
not mere majority or complete stock control, but complete
61
1/26/21
The instrumentality or control test of the alter ego doctrine requires

not mere majority or complete stock control, but complete
domination of finances, policy and business practice with respect
to the transaction in question. The corporate entity must be shown
to have no separate mind, will, or existence of its own at the time
of the transaction.[26]
Without question, the Spouses Celones are incorporators,

directors, and majority stockholders of the ATSI and PPPC. But
that is all that CMCI has proven. There is no proof that PPPC
controlled the financial policies and business practices of ATSI
either in July 2001 when Felicisima proposed to set off the unpaid
P3.2 million mobilization fund with CMCI's rental of
Prodopak machines; or in August 2001 when the lease agreement
between CMCI and ATSI commenced. Assuming arguendo that
Felicisima was sufficiently clothed with authority to propose the
offsetting of obligations, her proposal cannot bind ATSI because at
that time the latter had no transaction yet with CMCI. Besides,
CMCI had leased only one Prodopak machine. Felicisima's
reference to the Prodopak machines in its letter in July 2001 could
only mean that those were different from the Prodopak machine
that CMCI had leased from ATSI.
110 SELF-DEALING DIRECTOR

PRIME WHITE CEMENT CORP V IAC ET AL GR 68555 MAR 19,
1993
The situation is quite different where a director or officer is dealing
with his own corporation. In the instant case respondent Te was
not an ordinary stockholder; he was a member of the Board of
Directors and Auditor of the corporation as well. He was what is
often referred to as a “self-dealing” director.
A director of a corporation holds a position of trust and as such, he

owes a duty of loyalty to his corporation.[9] In case his interests
conflict with those of the corporation, he cannot sacrifice the latter
to his own advantage and benefit. As corporate managers,
directors are committed to seek the maximum amount of profits for
the corporation. This trust relationship “is not a matter of statutory
or technical law. It springs from the fact that directors have the
control and guidance of corporate affairs and property and hence
111
62
1/26/21
or technical law. It springs from the fact that directors have the
control and guidance of corporate affairs and property and hence
of the property interests of the stockholders.”[10]
1993
On the other hand, a director’s contract with his corporation is not
in all instances void or voidable. If the contract is fair and
reasonable under the circumstances, it may be ratified by the
stockholders provided a full disclosure of his adverse interest is
made. Section 32 of the Corporation Code provides, thus:
XXX
Although the old Corporation Law which governs the instant case
did not contain a similar provision, yet the cited provision
substantially incorporates well-settled principles in corporate
law.[12]
Granting arguendo that the “dealership agreement” involved here

would be valid and enforceable if entered into with a person other
than a director or officer of the corporation, the fact that the other
party to the contract was a Director and Auditor of the petitioner
corporation changes the whole situation. First of all, We believe
that the contract was neither fair nor reasonable. The “dealership
agreement” entered into in July, 1969, was to sell and supply to
respondent Te 20,000 bags of white cement per month, for five
years starting September, 1970, at the fixed price of P9.70 per
bag. Respondent Te is a businessman himself and must have
known, or at least must be presumed to know, that at that time,
prices of commodities in general, and white cement in particular,
were not stable and were expected to rise. At the time of the
contract, petitioner corporation had not even commenced the
manufacture of white cement, the reason why delivery was not to
begin until 14 months later. He must have known that within that
period of six years, there would be a considerable rise in the price
of white cement. In fact, respondent Te’s own Memorandum shows
that in September, 1970, the price per bag was P14.50, and by the
middle of 1975, it was already P37.50 per bag. Despite this, no
provision was made in the “dealership agreement” to allow for an
increase in price mutually acceptable to the parties. Instead, the
price was pegged at P9.70 per bag for the whole five years of the
63
1/26/21
increase in price mutually acceptable to the parties. Instead, the

price was pegged at P9.70 per bag for the whole five years of the
contract. Fairness on his part as a director of the corporation from
whom he was to buy the cement, would require such a provision.
In fact, this unfairness in the contract is also a basis which renders
a contract entered into by the President, without authority from the
Board of Directors, void or voidable, although it may have been in
the ordinary course of business. We believe that the fixed price of
P9.70 per bag for a period of five years was not fair and
reasonable.
1993
•
The contract with Henry Wee was on September 15, 1969, and
that with Gaudencio Galang, on October 13, 1967. A similar
contract with Prudencio Lim was made on December 29, 1969.[15]
All of these contracts were entered into soon after his “dealership
agreement” with petitioner corporation, and in each one of them he
protected himself from any increase in the market price of white
cement. Yet, except for the contract with Henry Wee, the contracts
were for only two years from October, 1970. Why did he not
protect the corporation in the same manner when he entered into
the “dealership agreement”? For that matter, why did the President
and the Chairman of the Board not do so either? As director,
specially since he was the other party in interest, respondent Te’s
bounden duty was to act in such manner as not to unduly
prejudice the corporation. In the light of the circumstances of this
case, it is to Us quite clear that he was guilty of disloyalty to the
corporation; he was attempting in effect, to enrich himself at the
expense of the corporation. There is no showing that the
stockholders ratified the “dealership agreement” or that they were
fully aware of its provisions. The contract was therefore not valid
and this Court cannot allow him to reap the fruits of his disloyalty.
113 DISQUALIFICATION OF DIRECTOR, TRUSTEE OR OFFICER
• Person shall be disqualified from being a director, trustee or
officer if within 5 years prior to election or appointment, s/he was
• Convicted by final judgment
• Of an offense punishable by imprisonment for a period
64
113 1/26/21
• Convicted by final judgment

• Of an offense punishable by imprisonment for a period
exceeding 6 years
• For violating the Code
• For violating the Securities Regulation Code
• Found administratively liable for any offense involving
fraudulent acts
• By a foreign court or equivalent foreign regulatory authority for
acts, violation or misconduct similar the foregoing
• This is without prejudice to qualifications or other
disqualifications, which the SEC, the primary regulatory agency,
or Philippine Competition Commission may impose in its
promotion of good corporate governance or as a sanction in its
administrative proceedings.
•
114 REMOVAL OF DIRECTOR/TRUSTEE
115 VACANCIES IN THE OFFICE OF DIRECTOR OR TRUSTEE

116 CORPORATIONS VESTED WITH PUBLIC INTEREST
• What are corporations vested with public interest?
• Corporations covered by Section 17.2 of the Securities
Regulation Code namely
• those whose securities are registered with SEC;
• publicly listed corporations or those listed with an exchange
or
• public corporations or those with assets of at least Php
50,000,000.00 and having at least 200 shareholders, each
holding at least 100 shares of a class of its equity shares;
• Banks and quasi-banks, NSSLAs, pawnshops, corporations
engaged in money service business, preneed, trust and
insurance companies and other financial intermediaries;
• Other similar corporations, as may be determined by the SEC,
after taking into account relevant factors in requiring an
independent director, such as
• the extent of minority ownership,
• type of financial products or securities issued or offered to
investors,
• public interest involved in the nature of business operations,
and
117
65
1/26/21
• public interest involved in the nature of business operations,

and
• other analogous factors.
117 CORPORATIONS VESTED WITH PUBLIC INTEREST

• What is the main consideration for this category?
• The board of corporations vested with public interest is
required to have independent directors constituting at least
twenty percent (20%) of such board for good corporate
governance.
• See related provision in the SRC
•
• Corporations vested with public interest are further required to
• submit to their shareholders and the SEC, an annual report of
the total compensation of each of their directors or trustees.
• have compliance officers
• submit additional reportorial requirements to the SEC
• not be organized as close corporations
• not issue no par value shares
• comply with stricter requirements concerning related party
transactions
118 INDEPENDENT DIRECTOR
• A person who apart from shareholdings and fees received from
the corporation, is independent of management and free from any
business or other relationship which could, or could reasonably
be perceived to materially interfere with the exercise of
independent judgment in carrying out the responsibilities as a
director.
• Elected by the shareholders present or entitled to vote in
absentia during the election of directors.
• Subject to rules and regulations governing
• qualifications,
• disqualifications,
• voting requirements,
• duration of term and term limit,
• maximum number of board membership and
• other requirements that SEC will prescribe to strengthen his
independence and align with international best practices.
119
66
1/26/21
• other requirements that SEC will prescribe to strengthen his

independence and align with international best practices.
•
119 EXECUTIVE, MANAGEMENT AND OTHER SPECIAL
COMMITTEES
• The bylaws must provide the creation of an executive committee
which shall
• Have at least 3 directors
• May act, by majority vote of all its members
• On specific matter within the competence of the board as may
be delegated to it in the bylaws or by majority vote of the board,
EXCEPT
• approval of any action for which shareholders' approval is
also required;
• filing of vacancies in the board;
• amendment or repeal of bylaws or the adoption of new
bylaws;
• amendment or term is not amendable or repealable; and
• distribution of cash dividends to the shareholders
• The board of directors may create special committees of
temporary or permanent nature and determine the members'
term, composition, compensation, powers, and responsibilities.
120 CORPORATE OFFICERS
• Immediately after their election, the directors must formally
organize and elect:
• a president, who must be a director;
• a treasurer, who must be a resident of the Philippines; and
• such other officers as may be provided in the bylaws.
• If the corporation is vested with public interest, the board shall
also elect a compliance officer.
• The same person may hold two (2) or more positions
concurrently, except that no one shall act as president and
secretary or as president and treasurer at the same time, unless
otherwise allowed in this Code.
•
DBP v Sta Ines Melale Forest Products Corp GR 202364 Aug 30,
67
1/26/21

2017; J. Leonen
The Court of Appeals erred when it ruled that DBP was privy to the
Memorandum of Agreement since Ongpin was concurrently
Governor of DBP and chairman of NDC Board of Directors at the
time the Memorandum of Agreement was signed.
The general rule is that, "[i]n the absence of an authority from the
board of directors, no person, not even the officers of the
corporation, can validly bind the corporation." A corporation is a
juridical person, separate and distinct from its stockholders and
members, having "powers, attributes and properties expressly
authorized by law or incident to its existence."
Section 23 of the Corporation Code provides that "the corporate
powers of all corporations . . . shall be exercised, all business
conducted and all property of such corporations [shall] be
controlled and held by the board of directors[.]"
People's Aircargo and Warehousing Co. Inc. v. Court of
Appeals explains that under Section 23 of the Corporation Code,
the power and responsibility to bind a corporation can be
delegated to its officers, committees, or agents. Such delegated
authority is derived from law, corporate bylaws, or authorization
from the board:

2017; J. Leonen
“Under this provision, the power and the responsibility to decide

whether the corporation should enter into a contract that will bind
the corporation is lodged in the board, subject to the articles of
incorporation, bylaws, or relevant provisions of law. However, just
as a natural person may authorize another to do certain acts for
and on his behalf, the board of directors may validly delegate
some of its functions and powers to officers, committees or
agents. The authority of such individuals to bind the corporation is
generally derived from law, corporate bylaws or authorization from
the board, either expressly or impliedly by habit, custom or
68
1/26/21
generally derived from law, corporate bylaws or authorization from

the board, either expressly or impliedly by habit, custom or
acquiescence in the general course of business, viz.:
‘A corporate officer or agent may represent and bind the

corporation in transactions with third persons to the extent that
[the] authority to do so has been conferred upon him, and this
includes powers which have been intentionally conferred, and also
such powers as, in the usual course of the particular business, are
incidental to, or may be implied from, the powers intentionally
conferred, powers added by custom and usage, as usually
pertaining to the particular officer or agent, and such apparent
powers as the corporation has caused persons dealing with the
officer or agent to believe that it has conferred.’”

University of Mindanao v BSP, et al GR 194964, Jan 11, 2016; J.
Leonen
“Acts of an officer that are not authorized by the board of
directors/trustees do not bind the corporation unless the
corporation ratifies the acts or holds the officer out as a person
with authority to transact on its behalf.
Xxx
Petitioner argues that it did not authorize Saturnino Petalcorin to
mortgage its properties on its behalf. There was no board
resolution to that effect. Thus, the mortgages executed by
Saturnino Petalcorin were unenforceable.
The mortgage contracts executed in favor of respondent do not

bind petitioner. They were executed without authority from
petitioner.”

Leonen
Petitioner must exercise its.powers and conduct its business

through its Board of Trustees. Section 23 of the Corporation Code
69
124
1/26/21
Petitioner must exercise its.powers and conduct its business

through its Board of Trustees. Section 23 of the Corporation Code
provides:
SEC. 23. The board of directors or trustees—Unless otherwise

and until their successors are elected and qualified.
Being a juridical person, petitioner cannot conduct its business,
make decisions, or act in any manner without action from its Board
of Trustees. The Board of Trustees must act as a body in order to
exercise corporate powers. Individual trustees are not clothed with
corporate powers just by being a trustee. Hence, the individual
trustee cannot bind the corporation by himself or herself.
Leonen
The corporation may, however, delegate through a board

resolution its corporate powers or functions to a representative,
subject to limitations under the law and the corporation's articles of
incorporation.
The relationship between a corporation and its representatives is

governed by the general principles of agency. Article 1317 of the
Civil Code provides that there must be authority from the principal
before anyone can act in his or her name:
ART. 1317. No one may contract in the name of another without

being authorized by the latter, or unless he has by law a right to
represent him.
Hence, without delegation by the board of directors or trustees,
acts of a person—including those of the corporation's directors,
trustees, shareholders, or officers—executed on behalf of the
corporation are generally not binding on the corporation.
126
70
1/26/21
corporation are generally not binding on the corporation.
Contracts entered into in another's name without authority or valid

legal representation are generally unenforceable.
Leonen
The unenforceable status of contracts entered into by an

unauthorized person on behalf of another is based on the basic
principle that contracts must be consented to by both parties.
There is no contract without meeting of the minds as to the subject
matter and cause of the obligations created under the contract.[116]
Consent of a person cannot be presumed from representations of

another, especially if obligations will be incurred as a result. Thus,
authority is required to make actions made on his or her behalf
binding on a person. Contracts entered into by persons without
authority from the corporation shall generally be considered ultra
vires and unenforceable against the corporation.
Two trial courts found that the Secretary's Certificate and the board
resolution were either non-existent or fictitious. The trial courts
based their findings on the testimony of the Corporate Secretary,
Aurora de Leon herself. She signed the Secretary's Certificate and
the excerpt of the minutes of the alleged board meeting purporting
to authorize Saturnino Petalcorin to mortgage petitioner's
properties. There was no board meeting to that effect. Guillermo B.
Torres ordered the issuance of the Secretary's Certificate. Aurora
de Leon's testimony was corroborated by Saturnino Petalcorin.
Leonen
Even the Court of Appeals, which reversed the trial courts'

decisions, recognized that "BSP failed to prove that the UM Board
of Trustees actually passed a Board Resolution authorizing
Petalcorin to mortgage the subject real properties[.]"[119]
71
1/26/21
Petalcorin to mortgage the subject real properties[.]"[119]
Well-entrenched is the rule that this court, not being a trier of facts,
is bound by the findings of fact of the trial courts and the Court of
Appeals when such findings are supported by evidence on
record.[120] Hence, not having the proper board resolution to
authorize Saturnino Petalcorin to execute the mortgage contracts
for petitioner, the contracts he executed are unenforceable against
petitioner. They cannot bind petitioner.
However, personal liabilities may be incurred by directors who

assented to such unauthorized act and by the person who
contracted in excess of the limits of his or her authority without the
corporation's knowledge.
• Unless the position or office is expressly mentioned in the by
laws, the person appointed or hired to said position or office is
NOT a corporate officer but an employee. The dismissal of a
corporate officer may give rise to an intra-corporate dispute but
the dismissal of an employee is within the jurisdiction of the
NLRC. (Velasco v Lopez Inc 419 SCRA 422 [2004])
• An enabling clause in the bylaws empowering the board to create
additional officers even with passage of a board resolution to that
effect cannot transform such position into a corporate office
unless the bylaws are amended to include such newly created
corporate office. (Mark II Marketing v Joson 662 SCRA 35 [2011];
Cosare v Broadcom Asia Inc. GR 201298 Feb 5, 2014).
• Contracts entered into by the corporate president without express
prior board approval bind the corporation when such officer’s
apparent authority is established and when these contracts are
ratified by the stockholders. (People’s Aircargo and Warehousing
v CA 297 SCRA 170 [1989])
•
•
72

Review Guide Corp Law Part I

Uploaded by

Document Information

Original Title

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

Review Guide Corp Law Part I

Uploaded by

Copyright:

Available Formats

1/26/21

1 COMMERCIAL LAW REVIEW

b) How many non-voting shares must Filipinos own?

b) How many non-voting shares must Filipinos own?

c) How many voting and non-voting shares must Filipinos own?

d) How many voting shares may foreigners own?

1.4. The owner of an office space leased it to the RIPLAW, a

I.5. The XXX Corporation Board of Directors proposed the

I.8. On February 14, 2019, the White Cheese Corporation (WCC)

I.10. Four brothers decided to form a corporation. Because of their

one of the parcels of land owned by the corporation. The wife of

I.12 Thereafter, a director of Healthy Doughnuts Pawnshop, Inc.,

1.20 Discuss whether or not a corporation may recover or be

• any combination thereof

Examples of government-owned or controlled corporations are the

declared not subject to the audit jurisdiction of the Commission on

“The Manila Economic and Cultural Office is a non-stock

As for the Executive Committee of the Metro Manila Film Festival,

the audit jurisdiction of the Commission on Audit because it

“Corregidor Foundation, Inc. was organized as a non-stock

NINTH: That the Foundation is organized and shall be operated

Corregidor Foundation, Inc. was organized primarily to maintain

“Even a cursory reading of the statutory definitions of "government

17 CORPORATE PROPERTY OR ASSET

21 DOCTRINE OF SEPARATE JURIDICAL PERSONALITY

22 DOCTRINE OF SEPARATE JURIDICAL PERSONALITY

“Petitioner's key officers, as shareholders of FISLAI, may have an

Petitioner and FISLAI have different constituencies. Petitioner's

Petitioner and FISLAI have different constituencies. Petitioner's

“While petitioner and FISLAI exist ultimately to benefit their

Indeed, there are instances when we disregard the separate

24 DOCTRINE OF SEPARATE JURIDICAL PERSONALITY

“Corporate veil is pierced when the separate personality of the

Piercing the corporate veil is warranted when ‘[the separate

issues.’ It is also warranted in alter ego cases ‘where a corporation

These instances have not been shown in this case. There is no

In this case, instead of guarding against fraud, we perpetuate

• Wrongdoing clearly and convincingly established

In any event, petitioner failed to plead and prove the

plaintiff's legal right; and

(3) The aforesaid control and breach of duty must [have]

The records do not show that the individual respondents controlled

29 STOCK v NON-STOCK CORPORATIONS

• Doctrine of equality of shares

• Investment of corporate funds in another corporation or

• not to exceed five (5) years from the date of incorporation;

unpaid fees. Printwell amended its complaint to implead the

award of moral damages."

INCORPORATI0N AND ORGANIZATION OF

• Duly signed and acknowledged or authenticated

• a statement that some or all of the shares are without par

articles for the period of time mentioned therein, unless said

engaged in money service business, and other financial

• require the corporation to register a new one

Leo Y. Querubin et al v Comelec GR 218787 Dec 8, 2015;

Pilipinas Shell Petroleum Corp. v Royal Ferry Services Inc. GR

Central Textile Mills v NWPC GR 104102 Aug 7, 1996 – authorized

49 PRINCIPAL PLACE OF BUSINESS

any of the principal defendants resides, ... at the election of the

In its Complaint, petitioner stated that its principal place of

Petitioner's erroneous belief on the applicability of the venue

50 AMENDMENT OF THE AOI

the change or changes made.