CENTRAL PHILIPPINE UNIVERSITY

College of Law
Iloilo City

REVIEW NOTES IN BUSINESS ORGANIZATION II

(Corporation Law)
Atty. Zacarias D. Bedona, Jr.

1. Omega Corporation has fifteen members of the Board of Directors.

a. Give the number of the Board of Directors to constitute a quorum.

- Quorum shall depend upon the provision provided for in the by-laws of the
corporation. If such by-laws are silent as to the number constituting a quorum,
the general rule shall be followed, which is 50% of the members of the board
plus 1.
In the situation herein provided, since there is no express provision that states
the quorum of Omega Corporation, then the general rule of 50% + 1 shall apply.
Thus, to constitute a quorum, the board of directors present shall be 8.

b. Give the vote needed to consider every decision to be a valid corporate act.

- If the by-laws specifically provides for the number of votes, for example 2/3 or
1/5, to constitute a quorum, it shall be the required number to transact business
and make the meeting valid. If there is no provision in the by-laws, apply 50%
plus 1.
- Section 52 of the RCC provides that the majority of the directors stated in the
AOI or the bylaws shall constitute a quorum to transact corporate business, and
every decision reached by at least a majority of the directors shall be valid as a
corporate act. (alternate answer)

2. On May 15, 2021, XYZ Corporation passed a board resolution removing Peter from
his position as General Manager of the said corporation. The By-Laws of XYZ
Corporation provide that the officers are President, Treasurer, and Corporate Secretary.
Peter filed a complaint with SEC, and he alleged that a General Manager could only be
removed by the affirmative vote of the stockholders representing two-thirds of the
outstanding capital stock. Is the contention of Peter legally valid?

- The contention of Peter is not valid as he cannot be considered as a corporate

officer having been only appointed by the BOD. He is considered as a mere
employee or subordinate official. Therefore, he can be suspended or removed by
 the BOD. This is because the BOD is vested with the power to appoint, and
accordingly such power carries with it the power to remove.

4. Edgar is a board director in Alpha Corporation. A majority of the board of

directors wanted to remove him and to sell his shares at public auction for his critical
temperament, so he can no longer attend and participate in stockholders’ meetings.

Can the board of directors remove Edgar as board director and stockholder without
cause? Explain.

- No, Edgar cannot be removed as board of director and stockholder of Alpha

Corporation.
Section 27 of the RCC provides for the requisites of removal of directors. As
such, Edgar may only be removed as a board of director of Alpha Corporation
upon a valid meeting having been held, with a previous notice that includes the
date, place and the agenda or purpose of the meeting, and such removal must
consist of the vote of stockholders representing 2/3 of the outstanding capital
stock.

5. A is a director in a Travel Corporation, who was elected for a one-year term on

January 15, 2021. On March 5, 2021, A resigned due to health issues, and was replaced
by B, who assumed as director on March 31, 2021. On May 30, 2021, B died. C was
elected in his place. Until which time should C serve as director? Explain.

- As provided for in Section 28 of the RCC, a director elected to fill a vacancy shall
be elected only for the unexpired term of his predecessor.
In the instant case, C shall serve as director for the unexpired term of his
predecessor in office. Fact as it is, A was elected to have one year term, and was
replaced by B. Subsequently upon B’s death, C was elected to replace B’s place
rendering him to serve the unexpired term from which he assumed as director
until January 15, 2022.

6. The Board of Directors of E Corporation unanimously passed a Resolution

approving the taking of steps that in reality amounted to willful tax evasion. Upon
discovery of the unlawful acts, the government filed tax evasion charges against all
members of the Board of E Corporation. The directors invoked that they have no
personal liability being mere directors of Charlie Corporation, an artificial being. Are the
directors correct? Explain.

- The Directors are not correct. The doctrine of piercing the veil of corporate fiction
applies in this case.This doctrine connotes that a corporation is a legal entity
separate and distinct from the person composing it. However, if a corporation is
used as a shield to perpetuate fraud, defeat public convenience, justify wrong, or
 defend crime, this fiction shall be disregarded and the individuals composing it
will be treated identically.

7. The Board of Directors of Yankee Corporation created an Executive Committee

pursuant to its By-Laws to manage the affairs of the corporation between board
meetings. The Board of Directors appointed the following members of the Executive
Committee: The President; and two directors, Henry and George. The Executive
Committee met and decided on the following matters:

a. Shorten the corporate term of Yankee Corporation;

(Not valid)
b. Purchase a delivery truck for its lumber business;
(valid)
c. Declaration of PhP100.00 per share cash dividend;
(Not valid)
d. Purchase a house and lot for its office;
(valid)
e. Declaration and approval of 13th month pay bonus.
(valid)

Are the actions of the Executive Committee valid? Why?

- The said committee may act validly by majority vote of all its members except to
shorten the corporate term of Yankee Corporation and the declaration of P100
per share cash dividend.
To explain further, the shortening of the corporate term of Yankee Corporation
shall only be done with proper amendments of the AOI to be submitted to the
SEC which is done by incorporators or shareholders and not by the Executive
committee. With respect to cash dividends, this is not a matter within the
competence of the executive committee.

8. Dy is a minority stockholder of Sparrow Corporation. Go is a member of the Board

of Directors and at the same time President of Sparrow Corporation.

Dy believes that Go is mismanaging Sparrow Corporation, hence, as a stockholder and in

behalf of the stockholders, he wanted to sue Go. Is Dy permitted to institute a derivative
suit for himself and in behalf of the stockholders? Explain.

- Yes, Dy is permitted to institute a derivative suit on behalf of the corporation.

Jurisprudence provides that an individual stockholder is permitted to institute a derivative
suit on behalf of the corporation wherein he holds a stock in order to protect or vindicate
corporate rights, whenever the officials of the corporation refuses to sue, or the ones to
 be sued or hold the control of the corporation. (Agdao Landless Residents Association,
Inc. v Maramion)

9. A, B, C, D, and E, were members of the 2020-2021 Board of Directors of Silver

Spoon Corporation. At the election for 2021-2022, not one of them was elected. They filed
a derivative suit against the newly elected members of the Board of Directors. They
questioned the validity of the meeting and election, because there was no quorum, and
they prayed for the nullification of the election. The 2021-2022 Board of Directors moved
to dismiss the complaint, because a derivative suit is not proper. Decide.

- The motion to dismiss the complaint because the derivative suit is not proper
should be granted.
In Chua v. CA, the court stresses that the corporation is the real party-in-interest
in a derivative suit, and the suing stockholder is only a nominal party.
In the case at bar, it is evident that it is not the Silver Spoon Corporation which is
the party in interest. Likewise, the derivative suit was filed not to protect or
vindicate the corporation’s right but solely to contest the validity of the election for
lack of proper quorum. It is clear that the complaint filed by A, B, C, D and E
constitutes a direct action in order to protect their individual rights and not of that
of the corporation.
Hence, it is not a derivative suit.

10. a. There is a controversy in the election of the Board of Directors of RS

Corporation which is questionable. Is controversy in the election of the Board of
Directors an intra-corporate controversy?

- Yes, controversy in the election of the board of directors is an intra-corporate

controversy.

b. If a suit were to be initiated as an intra-corporate controversy, should the matter

be submitted to SEC or the regular courts?

- If a suit is initiated as an intra-corporate controversy, it falls under the jurisdiction

of the regular courts.
(Diri ka start bwas, Ja.)
11. a. What is your understanding of “treasury shares”?

Treasury shares are shares of stock which have been issued and fully paid for but subsequently
reacquired by the issuing corporation by purchase, redemption, donation or through some other
lawful means.

c. Are said shares considered: (a) issued; (b) fully paid; (c) outstanding?

(b) fully paid for but subsequently reacquired by the issuing corporation by purchase,
redemption, donation or through some other lawful means.

10. a. What is One Person Corporation (OPC)?

A corporation with single stockholder, provided that only a natural person, trust, or an estate
may form a one-person corporation.

b. Who can be stockholder of an OPC?

A single person my form a corporation sole and be the stock holder of an OPC. Provided further
that only a natural person, trust, or an estate may form a one-person corporation.

c. Who may be appointed officers of an OPC?

The single stock holder shall be the sole director or the president of the one-person corporation
and may appoint a treasurer, corporate secretary, and other officers deemed necessary.

d. Is the single stockholder qualified to be president and treasurer or corporate secretary?

A single stockholder is qualified to act as the president and the treasurer at the same time upon
submission of a bond with the SEC such sum may be required. However, he cannot be a
President and a corporate secretary at the same time.

e. Is an OPC required to file Articles of Incorporation and By-laws?

No, the OPCs are required to file its Articles of incorporation however, they ae not required to
submit their by-laws.

11. What is a Foreign Corporation?

Is one formed, organized or existing under nay laws than those of the Philippines and whose
laws allow Filipino citizen and corporation to transact business in its own country. It shall have
the right to transact business in the Philippines after it shall have obtained a license to transact
business in this country in accordance with the Code and a certificate of authority from the
appropriate government agency.

12. a. Merril Lynch Future v. Court of Appeals, 211 SCRa 824,837.

a. A foreign company has been exporting goods to a Philippine company for several years
now. When the Philippine company failed to pay the latest exportation, the foreign company
sued to collect in the Philippines. The Philippine company interposed the defense that the
foreign company was doing business in the Philippines without a license hence, could not sue
before a Philippine court. Is this defense tenable? Explain your answer.

No, the defense is not tenable.

Under Jurisprudence, the Supreme Court held that, even if a foreign company has no license to
transact business in the Philippines, the fact that the Philippine Company had done business
with the Foreign Company in the Philippines, the former is now estopped to impugn the Foreign
Company’s capacity to sue them in Philippine courts.

In the case at bar, it is clear that the Philippine Company transacts business of receiving export
goods from the Foreign Company for several years. The former is estopped from denying its
corporate existence.

Hence, the defense is not tenable.

13. The term of CCC Corporation in accordance with its Articles of Incorporation ended last
June 1, 2015. The term was not extended. What will happen to the corporation?

Since the CCC Corporation ended its corporate term June 1, 2015 it is considered dissolved.
They may need to incorporate from the start if they have not elected to renew its corporate term.
As the Revised Corporation Code took effect February 23 2019, the election of perpetual
existence will be applied only to corporations that are already in existence. Those corporation
instituted under the Corporation Code of the Philippines, if they decide, may amened its AOI to
be perpetual.

14. SS Corporation and YY Corporation have agreed to be merged into one corporation. To
facilitate the merger, both corporation agreed that the merger be made effective March 15,
2021. The Securities and Exchange Commission (SEC) approved the Articles of Merger on May
30, 2021. What is the effective date of merger? Explain.
Under Article 78 of the Revised Corporation Code, the effective date of the merger is always the
date of the approval of the Articles of Merger by the SEC.

15. FKC Corporation shortened its corporate life by amending its articles of incorporation. It
has no debts but owns a prime property located at Iloilo City. How would the said property be
liquidated among the five stockholders of FKC Corporation?

The prime property located in Iloilo City would be liquidated among the five stockholders of FKC
Corporation is one, by CONVEYANCE OR TO TRANSFER their title from the corporation to the
stockholders to their shareholdings. (Stockholders of F. Guanzon & sons, Inc. v. Register of
Deeds). Or, second, to DISPOSE the Iloilo City property AND DISTRIBUTE ITS PROCEEDS
among the five stockholders in proportion to their respective shareholdings but not for the
purpose of continuing the business for which it was established. (Sec. 122).

16. What is a “Trust Fund Doctrine”?

It is where the capital stock, properties, and other assets of a corporation are regarded as held
in trust for the corporate creditors, who being preferred in the distribution of the corporate
assets, must first be paid before any corporate assets may be distributed among the
stockholders. (Lu v. Lu Ym, Sr)

17. XXX Corporation is a bank. The operation of XXX Corporation as a bank was not doing
well. So, to avert any bank run, XXX Corporation, with the approval of the Monetary Board, sold
all its assets and liabilities to ZZZ Banking Corporation which includes all deposit accounts. In
effect then, ZZZ will service all deposits of all depositors of XXX Corporation.

Will the sale of all assets and liabilities of XXX Corporation to ZZZ Banking Corporation
automatically dissolve or terminate the corporate existence of XXX Corporation?

No. Sec. 134 provides that the dissolution may be effected by:
1. majority vote of the BOD, and
2. by a resolution duly adopted by the majority vote of the outstanding capital stockholders
in a meeting held upon call of the directors.

18. q. Give the number and term of the Trustees of a non-stock corporation.
The number of trustees shall be fixed in the AOI or by-laws which may or may not be more than
15. They shall hold office for not more than three years until their successors are elected and
qualified.

b. Give the number and term of the trustees of non-stock educational corporations.
Trustees of non-stock educational corporations shall not be less than five nor more than fifteen.
Provided, however, that the number of trustees shall be in the multiples of five. (Sec. 106)

Trustees shall hold office for five years.

19. Formalities of the Certificate of Stock.

No certificate of stock shall be issued to a subscriber until the:

(1) full amount of his subscription together with interest and expenses (in case of delinquent
shares), if any is due, has been paid. (Sec. 63)
(2) signed by the Pres or VP
(3) countersigned by the Sec or ASec, and
(4) sealed with the seal of the corporation. (Sec 62, 1st par.)

20. What are individual suits, class suits and derivative suits?

Individual suits- where a stockholder or member is denied the right of inspection

- the wrong is done to him personally and not to the other stockholders of the corporation.

Class suits- where the wrong is done to a group of stockholders, as where preferred
stockholders’ rights are violated

Derivative suit- is a suit by a shareholder to enforce a corporate cause of action.

21. Books to be kept at the principal office. p.561

1. AOI and by-laws and all their amendments;

2. Current ownership structure and voting rights of the corp.;
3. Names and addresses of all members of BOD/T & ExeCom;
4. Record of all business transactions;
5. Record of the resolutions of the BOD/T & Stock Holders/Members;
6. Copies of the latest reportorial requirements submitted to the Commission; and
7. Minutes of all meetings of Stockholders/Members, or of the BOD/T.

22. What is quorum for stockholders or members? What is quorum for Board of Directors
and Board of
Trustees?

Stockholders- majority (1/2+1) of the outstanding capital stock

Members- majority (1/2+1) of members
BOD/BOT- majority (1/2 +1)

22. What constitutes valid removal of directors or trustees?

1. There must be a valid meeting, either regular or special called for that purpose
2. Notice- time, place, date, and intention
3. by a vote of at least 2/3 of outstanding capital stock (stock) or members (non-stock)

23.
a. Is service of summons to a director of a domestic private corporation who owns at least
2/3 of Outstanding Capital Stock binding on the corporation? Discuss your answer.
It depends. If the content of the summons is a personal matter, hence, it does not bind the
corporation. If the content of the summon is a juridical matter, hence it binds the corporation.

b. Is the Chairman or President of a private corporation authorized to make entries on the

stock and transfer book? Why?
No. Because under Sec. 73, only a Stock Transfer Agent can make entries on the stock &
transfer book.

24. a. Who may remove corporate officers? Explain.

BOD/T or;
RTC- intra-corporate

b. Who may remove directors or trustees? Explain.

Stockholders- stock
Members- non-stock

25. The majority and controlling members of the Board of Directors of X Corporation passed
a Resolution granting compensation to the Chairman, Vice Chairman, Corporate Treasurer and
Corporate Secretary. The majority or controlling members of the Board are also the officers of
the said corporation. (WIT case)

a. Is the grant of salary or compensation to the directors valid? Explain. (5 points)

In the absence of any provision in the by-laws fixing their compensation, the directors shall not
receive any compensation. Exceptions are (1) Reasonable per diems and (2) Any compensation
other than per diems may be granted to directors by the vote of the stockholders representing
at least a majority of the outstanding capital stock at a regular or special stockholders’ meeting.

b. Is the grant of salary or compensation to the directors who are also officers of the
corporation valid? Explain.

In the case of Western Institute of Technology v. Salas, it was held that the grant of salary or
compensation to directors who are also officers of the corporation is valid because it fits in the
exception to the rule, to wit:

xxx xxx xxx

(2) Any compensation other than per diems may be granted to directors by the vote of the
stockholders representing at least a majority of the outstanding capital stock at a regular or
special stockholders’ meeting.
Clearly therefore, the prohibition with respect to granting compensation to corporate directors
under Sec. 29 is not violated. Hence, it is valid.

26. a. What is the place and time of meetings of the directors or trustees?
- Held anywhere inside or outside of the PH unless the bylaws provides.
- Regular meeting: held MONTHLY, unless the by-laws provide otherwise
- Special Meeting: held ANYTIME upon the call of of the President or as provided in the
by-laws

b. What is the place and time of meetings of stockholders or members? (

- Held in the principal office of the corp. or in the city/municipality where the principal office
of the corp. is located.
- -Regular Meeting: held ANNUALLY on the day fixed in by-laws or if not fixed, in any date
after April 15 of every year as determined by BOD/BOT.
- Special Meeting: held ANYTIME deemed necessary or as provided in the by-laws.

27. a. What are derivative actions of stockholders or members? (5 points)

1. The party bringing suit should be a shareholder during the time of the act of transaction
complained of, the number of shares not being material;
2. The party has tried to exhaust intra-corporate remedies, but the latter has failed or refused to
heed his plea; and
3. The cause of action actually devolves on the corporation; the wrongdoing or harm having
been or being caused to the corporation and not to the particular stockholder bringing the suit.
(Reyes v. Zenith Insurance Corp.; Lisam Enterprises, Inc. v. Banco de Oro Unibank, Inc.)

b. Distinguish derivative actions from representative actions of stockholders or members.

(5 points)
Derivative actions are filed by a shareholder to enforce a corporate cause of action, while
representative actions are filed by a certain group of stockholders where the wrong is done to
them.

28. CIR v. St. Luke’s Medical Center, Inc. (G.R. No. 195909, 26 September 2012}; Lung
Center of the Philippines v. Quezon City (G.R. 144104, 29 June 2004)

a. Non-Profit, charitable, or non-stock corporation.

CIR v. St. Luke’s Medical Center:

-Non-profit does not necessarily mean charitable.

Lung Center of the Philippines v. Quezon City

-Charitable institution.
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