MAMANGCONI, ABDULCAHAR S.

BUSINESS ORGANIZATION II – (CORPORATION LAW) FINALS

1. Can the provisions in the By-laws of a corporation affect or prejudice third person who
transacted with the corporation? Explain.

No. The provisions in the By-laws of a corporation cannot affect or prejudice third person
who transacted with the corporation.

Under the law, By-laws cannot affect or prejudice third person who dealt with the
corporation. They operate merely as internal rules among the directors, stockholders and officers.
By-laws are rules and ordinances made by a corporation for its own government to regulate the
conduct and define the duties of the stockholders or members towards the corporation and among
themselves. Hence, the provisions in the By-laws of a corporation cannot affect or prejudice third
person who transacted with the corporation.

 
2. On March 3, 1995, the petition for dissolution of ABC Corporation was approved by the SEC.
On February 5, 1996, the corporation filed a complaint in the RTC for the collection of a sum
of money against Lucio Tan. Upon being served with summons and a copy of the complaint,
Lucio Tan filed a motion to dismiss on the ground that the corporation has no personality to sue
because it has already been dissolved. Will the motion to dismiss prosper?

No. The motion to dismiss is not proper.

Under Section 139 of the Revised Corporation Code, the corporation, once dissolved,
thereafter continues to be a body corporate for three (3) years after the effective date of
dissolution.

Here, the contention of Lucio Tan that the corporation has no personality to sue because
it has already been dissolved cannot be given merit since such corporation remain as a body
corporate for three (3) years after March 3, 1995, the effective date of dissolution.

Hence, Lucio Tan’s motion to dismiss is not proper.

3. XXX Corporation is a multinational company organized and existing under the laws of the
Federal Republic of Germany. On July 6, 1983, petitioner filed an application with the SEC for
the establishment of a RAH (Regional or Area Headquarters) in the Philippines. The application
was approved by the BOI on Sep. 6, 1983. Consequently, on Sep. 20, 1983, the SEC issued a
Certificate of Registration and License to petitioner. XXX Corporation continuously operated its
RAH in the Philippine for 9 years. Romana Lanchinebre was a sales representative of XXX
Corporation. On March 1992, Romana Lanchinebre secured a loan of P25,000.00 from XXX
Corporation. Subsequently Romana made additional cash advances in the sum of P10,000.00. Of
the total amount, P12,170.37 remained unpaid. Despite demand, Romana failed to settle her
obligation. On September 2, 1992, XXX Corporation filed a Complaint for collection of sum
of money against Romana . Instead of filing their Answer, Romana moved to dismiss the
Complaint. This was opposed by XXX Corporation. Decide whether or not the XXX
Corporation has capacity to sue and be sued in the Philippines despite the fact that XXX
Corporation is duly licensed by the SEC to set up and operate a RAH in the country and that it
has continuously operated as such for the last 9 years.

Yes. XXX Corporation has capacity to sue and be sued in the Philippines.

The Revised Corporation Code provides that a foreign corporation lawfully doing
business in the Philippines shall be bound by all laws, rules and regulations applicable to
domestic corporations of the same class. And one of the given capacity of a domestic corporation
which is also granted to a foreign corporation duly licensed to do business in the Philippines is
the capacity to sue and be sued.

Here, XXX Corporation acquired the capacity to sue and be sued in the Philippines since
it obtained a licensed from SEC and operated it RAH in the Philippines for 9 years,

Thus, the XXX Corporation has the capacity to sued and be sued in the Philippines.

4. Plaintiff FFF Corporation is a foreign corporation organized under the laws of the United
States while defendant DDD Corporation is a local domestic corporation organized under
Philippine law. On 25 July 1990 American Natural Soda Ash Corporation (ANSAC) loaded in
Portland , U.S.A., a shipment of soda ash on board the vessel "MS Abu Hanna" for delivery to
Manila . The supplier/shipper insured the shipment with the plaintiff. Upon arrival in Manila the
shipment was unloaded and transferred to the vessel "MV Biyayang Ginto" owned by the
defendant. Since the shipment allegedly sustained wettage, hardening and contamination, it
was rejected as total loss by the consignees. When the supplier sought to recover he value of the
cargo loss from plaintiff the latter paid the claim in the amount of US$58,323.96.

On 20 November 1991 plaintiff FFF Corporation as subrogee filed with the RTC Manila a
complaint for damages against DDD Corporation. The plaintiff alleges in its complaint that it is a
foreign corporation existing under the laws of the United States, but failed to appoint a resident
agent however it was duly represented by a well know law firm in the Philippines. The DDD
Corporation filed a motion to dismiss the complaint one of its grounds cited being plaintiff
having no legal capacity to sue. FFF Corporation argued that its lawyer a Law Firm can be
considered as its resident agent.
Decide whether or not FFF Corporation can seek for relief from our courts.

No. FFF Corporation cannot seek for relief from our court.

The Revised Corporation Code provides that no foreign corporation transacting business
in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or
intervene in any action, suit or proceeding in any court or administrative agency of the
Philippines, but such corporation may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized under Philippine laws.

Here, FFF Corporation cannot commence any suit in any Court in the Philippines since is
not licensed to do business in the Philippines, but it may be subjected to the jurisdiction of
Philippine Courts as a defendant, and not as a plaintiff.

Hence, FFF Corporation cannot seek relief from our court considering the lack of license
to do business in the Philippines.

5. Petitioner, a foreign partnership, filed a complaint against a domestic corporation, DSC, before
the court of Rizal for the recovery of damages allegedly caused by the failure of the said
shipping corporation to deliver the goods shipped to it by petitioner to their proper destination.
Paragraph 1 of said complaint alleged that plaintiff is "a foreign partnership firm not doing
business in the Philippines" and that it is "suing under an isolated transaction." Defendant filed a
motion to dismiss the complaint on the ground that plaintiff has no capacity to sue and that the
complaint does not state a valid cause of action against defendant. Acting on said motion to
dismiss, the court dismissed the complaint on the ground that plaintiff being "a foreign
corporation or partnership not doing business in the Philippines it cannot exercise the right to
maintain suits before our Courts."

Decide whether a foreign corporation ―not engaged in business in the Philippines can institute
an action before Philippine courts.

Yes. A foreign corporation not engaged in business in the Philippines can institute an
action before Philippines courts.

As a rule, a foreign corporation not engaged in business in the Philippines can institute an
action before Philippines court isolated transaction to protect its interest like protecting trade
name or trademark from infringement.

In the present case, a foreign corporation can still protect its rights as a juridical entity
even in the absence of the license requirement
 Hence, a foreign corporation can institute an action before Philippine Courts even though
it lacks license to do business in the Philippines.

6. What are the matters in the foreign corporation that are not governed by the Revised
Corporation or the Philippine laws but of the laws of the country of the foreign corporations?

The matters in the foreign corporation that are not governed by the Revised Corporation
Code or the Philippines laws but of the laws of the country of the foreign corporations are as
follows:

1. Those which provide for the creation, formation, organization or dissolution of

corporations; or

2. Those which fix the relations, liabilities, responsibilities, or duties of stockholders,

members, or officers of corporations to each other or to the corporation. Notwithstanding, a
foreign corporation lawfully doing business in the Philippines shall be bound by all laws, rules
and regulations applicable to domestic corporations of the same class.

7. Under the old law BP 68, can two or more partnership join together to incorporate or
registered a corporation? What about under the Revised Corporation Code, can two or more
partnership join together to incorporate or registered a corporation? Explain.

Under BP 68, partnership, regardless of number, cannot join together to incorporate or

registered a corporation because only natural person is allowed to form a corporation. Under
Section 10 of BP 68, “any number of natural persons not less than five (5) but not more than
fifteen (15), all of legal age and a majority of whom are residents of the Philippines, may form a
private corporation for any lawful purpose or purposes. Each of the incorporators of Stock
Corporation must own or be a subscriber to at least one (1) share of the capital stock of the
corporation.”

Under the Revised Corporation Code, however, it allows a partnership not more than 15
in number to form a corporation. Such Code provides that “any person, partnership, association
or corporation, singly or jointly with others but not more than fifteen (15) in number, may
organize a corporation for any lawful purpose or purposes: Provided, That natural persons who
are licensed to practice a profession, and partnerships or associations organized for the purpose
of practicing a profession, shall not be allowed to organize as a corporation unless otherwise
provided under special laws. Incorporators who are natural persons must be of legal age.”
8. Can an ordinary stock corporation be transformed into One Person Corporation? What about a
One Person Corporation, can it be transformed into an ordinary stock corporation? Explain.

Yes. A stock corporation can be transformed into a one person corporation. The Revised
Corporation Code provides that when a single stockholder acquires all the stocks of an ordinary
stock corporation, the latter may apply for conversion into a One Person Corporation, subject to
the submission of such documents as the Commission may require. If the application for
conversion is approved, the Commission shall issue a certificate of filing of amended articles of
incorporation reflecting the conversion. The moment that all stocks of an ordinary stock
corporation is acquired by a single stockholder, such single stockholder may apply for the
conversion of the stock corporation into a one person corporation, subject to the submission of
all documents which the SEC may require.

Yes. A one person corporation can also be transformed into an ordinary stock
corporation. The Revised Corporation Code provides that a One Person Corporation may be
converted into an ordinary stock corporation after due notice to the Commission of such fact and
of the circumstances leading to the conversion, and after compliance with all other requirements
for stock corporations under this Code and applicable rules. Such notice shall be filed with the
Commission within sixty (60) days from the occurrence of the circumstances leading to the
conversion into an ordinary stock corporation. If all requirements have been complied with, the
Commission shall issue a certificate of filing of amended articles of incorporation reflecting the
conversion.

9. All the stockholders of China Bank want to sell their shares to Lucio Tan at a very promising
price. Lucio Tan wants to transform China Bank into a One Person Corporation as the single
stockholder. Before buying all the shares of stocks of China Bank, Lucio Tan went to you for a
legal opinion whether his plan of converting China Bank from a stock corporation into a One
Person Corporation is legally possible. What would be your legal opinion?

My legal opinion would be yes, the conversion of China Bank from a stock corporation to
One Person Corporation is legally possible. This is because under the Revised Corporation Code,
an ordinary stock corporation may be converted into a One Person Corporation if Lucio Tan can
acquire all the stocks of the China Bank, provided he complies all the documentary requirements
for such conversion.

10. Angel was the single stockholder of XYZ-OPC, a One Person Corporation duly registered in
the SEC. The corporation was indebted to Lucio Tan for 100 million pesos and the same is due
and demandable already. Can Lucio Tan file a suit for collection of sum of money against Angel
as the single stockholder of XYZ- OPC? Explain.

It depends. The general rule is that a corporation has a legal personality distinct and
separate from its incorporators or members, any liability of the corporation is limited to its
properties and does not spill over to its incorporators, directors, stockholders, officers or
members, and under the Revised Corporation Code, this limited liability is applicable to OPC.
However, if the single stockholder cannot prove that the properties of the OPC are independent
of his properties, then he becomes solidarily liable with the debts and obligation of the OPC.

Further, the single stockholder has the burden of prove that the OPC is adequately
finance. The Revised Corporation Code provides that a sole shareholder claiming limited
liability has the burden of affirmatively showing that the corporation was adequately financed.
Where the single stockholder cannot prove that the property of the One Person Corporation is
independent of the stockholder’s personal property, the stockholder shall be jointly and severally
liable for the debts and other liabilities of the One Person Corporation. The principles of piercing
the corporate veil applies with equal force to One Person Corporations as with other
corporations.

11. Lucio the single stockholder of ABC Corporation a One Person Corporation named and
designated Angel as his nominee in the Article of Incorporation of ABC Corporation in case of
his death, permanent or temporary incapacity. The written consent of Angel as nominee
was delivered to the SEC 15 days after the Certificate of Incorporation was issued by the SEC to
ABC Corporation. 10 days before Lucio died, he named and designated another nominee
replacing Angel without amending the Articles of 
Incorporation. Dacera the new designated nominee knew that she was appointed as nominee of
Lucio one day after the death of Lucio. Hence, she immediately wrote her written consent and
submit it to the SEC three days after Lucio died. Who between Angel and Dacera has the better
right to manage the affairs of ABC Corporation after the death of Lucio? Explain.

Angel has the better right to manage the affairs of ABC Corporation after the death of
Lucio.

Under the Revised Corporation Code, a single stockholder may, at any time, change its
nominee and alternate nominee by submitting to the Commission the names of the new nominees
and their corresponding written consent. For this purpose, the articles of incorporation need not
be amended.

In this case, Lucio must still give notice to the SEC by submitting to the commission the
names of the new nominees and their corresponding written consent. However, the appointment
of Dacera is invalid since it lacks with the required due notice to the SEC and her corresponding
written consent.

Hence, Angel has a better right to manage the affairs of the ABC Corporation after the
death of Lucio.

12. BEA Corporation a stock corporation was dissolved. Under the Revised Corporation Code,
the corporation, once dissolved continues to be a juridical person for 3 years for purposes of
prosecuting and defending suits by and against it and enabling it to settle and close its affairs,
culminating in the final disposition and distribution of its assets. If said 3 year period expired
without a trustee or receiver being designated by BEA Corporation, how can a final settlement of
the corporate affairs be made? Explain.

A final settlement of the corporate affairs can still be made by the counsel of record being
considered as the trustee required by law, even though no trustee or receiver is designated. In one
jurisprudence, it was held that in a dissolved corporation, in the event that no trustee is
designated, the counsel of the corporation will be considered as the trustee.

13. KAWASA Corporation amended its Articles of Incorporation shortening its corporate term
into 20 years. The amended Articles of Incorporation of KAWASA Corporation was duly
approved by the SEC. As shortened April 13, 2021 will be the last day of its corporate existence.
Prior to said date, there were pending suits of money claims by the creditors of GANDA
Corporation, none of which was expected to be completed, decided or resolved by the court
before April 13, 2021. If the creditors sought your professional help on whether or not their cases
could be pursued beyond April 13, 2021, what would be your legal advice?

My legal advice would be to tell them that the termination of the corporate existence will
not affect the transactions to settle affairs with the creditors.

Under Section 139 of the Revised Corporation Code, every corporation whose charter
expires pursuant to its article of incorporation shall nevertheless remain as a body corporate for
three (3) years after the effective date of dissolution, for the purpose of prosecuting and
defending suits by or against it and enabling it to settle and close its affairs, dispose of and
convey its property, and distribute its assets. Here, KAWASA Corporation remains as a body
corporate for three (3) years after April 13, 2021, and it will not affect its transaction to settle
affairs with creditors.
14. X Corporation has only 10 stockholders. In the articles of incorporation, as well as in the by-
laws, there is preemptive right of the stockholders. The same annotation is found in every
certificate of stock issued. The stockholders agreed no to list the shares of the corporation in
any stock exchange. Angel Locsin, a stockholder, sold her shares of stock to Piolo Pascual, who
is not a stockholder of the corporation. Is the sale valid? Explain.

Yes. The sale is valid.

As a rule, preemptive right must be exercised in accordance with the Articles of

Incorporation or the By-Laws.

In this case, it did not prohibit the disposition of shares of the stockholders even though
the stockholders agreed no to list the shares of the corporation in any stock exchange.

Hence, Angel Locsin may sell of her shares of stock.

15. a. What is the Twin-characterization Test?

The twin characterization test is, as discussed by the Supreme Court in one case, a
foreign corporation is considered “doing business” in the Philippines when (1) the company is
continuing the body or substance of the business or enterprise for which it was organized or
whether it has substantially retired from it and turned it over to another, and (2) the company is
engaged in activities which implies a continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the exercise of some of the
functions normally incident to, and in progressive prosecution of, the purpose and object of its
organization. The twin characterization test aims to identify whether transactions made by the
foreign corporation constitute continuing the body or substance of its main business in our
country, and determine if it intends to continue the same for some time.

b. What is the Doctrine of Apparent Authority?

Under the doctrine of apparent authority in the case of Banate et. al. vs. Philippine
Country Side Rural Bank, acts and contracts of the agent, as are within the apparent scope of the
authority conferred on him, although no actual authority to do such acts or to make such
contracts has been conferred, bind the principal. The principal’s liability, however, is limited
only to third persons who have been led reasonably to believe by the conduct of the principal that
such actual authority exists, although none was given. In other words, apparent authority is
determined only by the acts of the principal and not by the acts of the agent. There can be no
apparent authority of an agent without acts or conduct on the part of the principal; such acts or
conduct must have been known and relied upon in good faith as a result of the exercise of
reasonable prudence by a third party as claimant, and such acts or conduct must have produced a
change of position to the third party’s detriment.
16. Distinguish Written proxy from Voting Trust Agreement.

In written proxy, the legal title remains with the beneficial owner. It also votes merely as
an agent. The owner also of the shares with a proxy may be elected as director. More so, written
proxy is generally revocable, unless coupled with interest; generally can only vote at a particular
meeting; and can only vote in person and no need for notarization.

On the other hand, in voting trust agreement, the beneficial owner of shares ceases to be a
stockholder of record of the corporation. Here, only the legal title is transferred to the trustee.
Also, the trustee votes as an owner and the beneficial owner is disqualified to be a director. More
so, it is irrevocable. The trustee can also act and vote at any meeting during the duration of the
VTA. In VTA, it may vote in person or by proxy and lastly, the VTA must be notarized.