1|Revised Corporation Code M o r e n o , Ye l l a h O .

XU College of Law

Illustrative Problems from Commentaries and Jurisprudence on The Revised Corporation Code of The Philippines (2020 Edition)
by Timoteo B. Aquino
Page
(in Question Answer
pdf)
TITLE I
31 Petitioner J. R. Da Silva, is the President of the J.R.S. No. The sale was not valid. The right to operate a
Business Corporation (JRS), an establishment duly messenger and express delivery service, by virtue of a
franchised by the Congress of the Philippines, to conduct a legislative enactment is admittedly a secondary franchise
messenger and delivery express service. On July 12, 1961, (Republic Act No. 3260 1 entitled "An Act granting the J.R.S.
the respondent Imperial Insurance, Inc. (Imperial) Business Corporation a franchise to conduct a messenger
presented with the CFI of Manila a complaint for sum of and express service") and, as such, under our corporation
money against JRS. After JRS submitted its answer, Imperial law, is subject to levy and sale on execution together and
and JRs entered into a compromise agreement whereby JRS including all the property necessary for the enjoyment
admitted its liability. However, the judgment obligation was thereof. The law, however, indicates the procedure under
not paid by JRS. A writ of execution was issued by the CFI which the same (secondary franchise and the properties
and the following properties were sold at the execution necessary for its enjoyment) may be sold under execution.
sale: “whole capital stocks of the defendants J.R.S. Said franchise can be sold under execution, when such sale
Business Corporation, the business (corporate) name, right is especially decreed and ordered in the judgment and it
of operation, the whole assets, furniture, and equipment, becomes effective only when the sale is confirmed by the
the total liabilities, and Net Worth, books of accounts, etc." Court after due notice (Section 56, Corporation Law). The
Was the sale of the (1) secondary franchise, (2) corporate compromise agreement and the judgment based thereon
name, and (3) the shares of stock valid? do not contain any special decree or order making the
franchise answerable for the judgment debt.

The same thing may be stated with respect to corporate

name of JRS and its capital stock. A corporate name and
capital stock are necessarily included in the enjoyment of
the franchise. Like that of a franchise, the law mandates
that property necessary for the enjoyment of said
franchise, can only be sold to satisfy a judgment debt if the
decision especially so provides. No such directive appears
in the decision. Moreover, a trade name or business name
cannot be sold separately from the franchise, and the
capital stock of JRS or any other corporation, for that
matter, represents the interest and is the property of
stockholders in the corporation, who can only be deprived
thereof in the manner provided by law. (J.R.S. Business
Corporation, et al. v. Imperial Insurance, Inc., G.R. No. L-
 2|Revised Corporation Code M o r e n o , Ye l l a h O .
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19891, July 31, 1964).

32 Idonah Slade Perkins, who died on March 27, 1960 in New No. Such reliance is misplaced. In the first place, there is
York City, left among other properties, two stock no such occasion to apply such by-law. Assuming that a
certificates covering 33,002 shares of Benguet contrariety exists between the above by-law and the
Consolidated Inc. the certificates being in the possession of command of a court decree the latter is to be followed. The
the County Trust Company of New York, which, is the view adopted by Benguet is fraught with implications at
domiciliary administrator of the estate of the deceased. On war with the basic postulates of corporate theory. It is
August 12, 1960, Prospero Sanidad instituted ancillary undeniable premise that, a corporation is an artificial being
administration proceedings in the Court of First Instance created by operation of law ... " "A corporation as known to
(CFI) of Manila; Lazaro A. Marquez was appointed ancillary Philippine jurisprudence is a creature without any
administrator but was later substituted by Renato D. Tayag. existence until it has received the imprimatur of the state
On January 27, 1964, the CFI of Manila ordered the according to law.
domiciliary administrator, County Trust Company, to
"produce and deposit" the stock certificates with the
ancillary administrator or with the Clerk of Court. The
domiciliary administrator did not comply with the order,
and so upon motion of the ancillary administrator, the
Court (1) considered as lost for all purposes in connection
with the administration and liquidation of the Philippine
estate of ldonah Slade Perkins the stock certificates
covering the 33,002 shares of stock standing in her name
in the books of the Benguet Consolidated, Inc. (Benguet),
(2) ordered said certificates cancelled, and (3) directed
Benguet to issue new certificates in lieu of the ones
deemed lost, the same to be delivered by Benguet to
either the incumbent ancillary administrator or to the
Probate Division of the Court. Benguet questioned the
order invoking, among others, one of the provisions of its
by-laws which would set forth the procedure to be followed
in case of a lost, stolen or destroyed stock certificate which
provides that in the event of a contest or the pendency of
an action regarding ownership of such certificate or
certificates of stock allegedly lost, stolen or destroyed, the
issuance of a new certificate or certificates would await the
"final decision by [a] court regarding the ownership
[thereof]." Did Benguet validly rely on the by-laws
provision?
37 E Corporation is the registered owner of a parcel of land. F No, the position is not tenable. The acquisition by F
Corporation was able to obtain possession of the parcel of Corporation of the controlling shares in E Corporation does
 3|Revised Corporation Code
land. Later, a case was filed by E Corporation against F
Corporation and a writ of possession was issued against F
Corporation ordering the latter to turn over the parcel of
land to E Corporation. Before the enforcement of the writ
of possession, F Corporation acquired the substantial and
controlling shares of stocks of E Corporation. F Corporation
refused to turn over the parcel of land claiming that its
acquisition of the controlling shares is a supervening event
that justifies the non-enforcement of the writ of
possession. Is the position of F Corporation tenable?
RITCHIE Corporation owns a beach resort with several
cottages. Ed, the President of RITCHIE Corporation,
occupied one of the cottages for residential purposes. After
Ed's term expired, RITCHIE wanted to recover possession of
the cottage. Ed refused to surrender the cottage
contending that as a stockholder and former president, he
has a right to possess and enjoy the properties of the
corporation. Is Ed's contention correct? Explain.
Nine individuals formed a private corporation pursuant to
the provisions of the Corporation Code of the Philippines.
Incorporator S was elected director and president – general
manager. Part of his emolument is a Ford Expedition, which
the corporation owns. After a few years, S lost his
corporate position, but he refused to return the motor
vehicle claiming that as a stockholder with substantial
equity share, he owns that that portion of the corporate
assets now in his possession. Is the contention of S valid?
56 What is a one-man corporation? Do such corporations
enjoy the attributes of corporations? What should be done
to assure this?
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not create a substantial change in the rights or relations of
the parties that would entitle F Corporation to possession
of the property of E Corporation. The rights, including the
right of possession, over the properties of E Corporation
belong to the latter. F Corporation as shareholder is not
entitled to possession of the property because its right is
only inchoate. (Silverio, Jr. v. Filipino Business Consultants,
Inc., G.R. No. J 43312, August 12, 2005, 466 SCRA 584).
No. Ed's contention is not correct. Ed is not the owner of
the properties of the corporation. As shareholder, his
interest over the properties of RITCHIE Corporation is
merely inchoate. RITCHIE Corporation has a personality
separate and distinct from its shareholders and the
properties of the corporation are not the properties of the
shareholders. Hence, as the owner, only the corporation
has the right to enjoy and possess its properties. (1996
Bar)
No. The contention of S is not valid. S is not the owner of
the properties of the corporation. As shareholder, his
interest over the properties of the corporation is merely
inchoate. The corporation has a personality separate and
distinct from its shareholders and the properties of the
corporation are not the properties of the shareholders.
Hence, as the owner, only the corporation has the right to
enjoy and possess its properties.
A one-man corporation is a corporation where all the
outstanding share belong to one person. Although there
may be other incorporators or director, the same persons
hold shares only as nominee of the person who actually
owns the shares. Thus, a corporation functions for the
benefit of one individual, who controls the corporation. It is
commonly called a one-man corporation.
A one-man corporation enjoys the attributes of
corporations. However, it is a precondition that a certificate
of incorporation is issued by the SEC. However, in order to
4|Revised Corporation Code
Marulas Creative Technology, Inc., an e-business enterprise
engaged in the manufacture of computer multi-media
accessories, rents an office and store space at a
commercial building owned by X. Being a start-up
company, Marulas enjoyed some leniency in its rent
payment; but after three years, lessor X put a stop to it
and asked Marulas' president and general manager, Y, who
is a stockholder, to pay back rentals amounting to
Pl00,000.00 or to vacate the premises at the end of the
month. Marulas neither paid its debt nor vacated the
premises. X sued Marulas and Y for collection of the unpaid
rentals, plus interests and cost of litigation. Will the suit
prosper against Marulas? Against Y?
Ronald Sham doing business under the name of SHAMRON
Machineries (SHAMRON) sold to Turtle Mercantile (TURTLE)
a diesel tractor. In payment, Turtle's President and Manager
Dick Seldon issued a check for P50,000.00 in favor of
SHAMRON. A week after, TURTLE sold the tractor to Briccio
Industries (BRICCIO) for P60,000.00. BRICCIO discovered
that the engine of the tractor was reconditioned so he
refused to pay TURTLE. As a result, Dick Seldon ordered
"stop payment" of the check issued to SHAMRON.
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avoid the operation of the doctrine of piercing the veil of
corporate fiction, the corporate business and properties of
the corporation should be kept separate from the
properties and business of the person who owns the
shares. The corporation should not be treated as a mere
conduit; otherwise, the attribute that the personality of the
corporation is separate may be disregarded.
Specifically, with respect to One-Person Corporation, the
attributes of the are also present but the rules on the
doctrine of piercing the veil of corporation fiction also
applies. (1970)
Yes, with respect to Marulas but no, with respect to Y. The
suit against Marulas will prosper because it is the party to
the contract. Marulas is an artificial being with a corporate
personality separate and distinct from its officers and
stockholders. As such artificial being, it is the lessee of the
office and store space and X is the lessor. Hence, if Marulas
did not perform its obligations as a lessee, it is liable to the
lessor X. The obligation to pay the rentals for the office and
store space is the obligation of Marulas, as part of its
corporate liabilities and expenses.
The suit against Y will not prosper because Marulas has a
personality separate and distinct from its officers and
stockholders. Y, as president, general manager and
stockholder of Marulas is therefore not liable for the
obligations of the corporation if be merely acted for and in
behalf thereof. Generally, corporate officers are not obliged
to shoulder the liability of the corporation. (2000 Bar)
The decision of the trial court holding Dick Seldon liable is
erroneous. The President and General Manager of TURTLE
cannot as a rule be held jointly and severally liable with
Turtle Mercantile. Seldon was merely acting in his capacity
as corporate officer when he issued the check to SHAMRON
and when he stopped payment thereof. The corporation
has a personality separate and distinct from its officers,
hence, the obligations of the corporation are not the
obligations of the office even if the same officer
5|Revised Corporation Code
SHAMRON sued TURTLE and Dick Seldon. SHAMRON
obtained a favorable judgment holding co-defendants
TURTLE and Dick Seldon jointly and severally liable.
Comment on the decision of the trial court. Discuss fully.
C Steel and Nail Co., Inc., owned by X, had financial
obligations to its employees. C ceased operation, and was
immediately succeeded on the next day by, and all its
assets were turned over to, the E Steel Corporation, 90% of
the subscribed shares of which were also owned by X. May
the E Steel Corporation be held liable for the financial
obligation of C Steel and Nail Co., Inc., to its employees?
Decide and give reasons.
Tantalus Corporation, of which 97% of the issued
outstanding shares of stock were owned by Roger Mano,
had financial obligations to its employees by way of unpaid
wages and allowances. Tantalus Corporation was dissolved
by shortening its corporate life and all its assets turned
over to Suceso Corporation, of which 95% of the
subscribed shares were held by Roger Mano and his wife.
Then, Tantalus Corporation ceased to operate. May the
employees of Tantalus Corporation proceed against the
Suceso Corporation to recover their unpaid claims?
Discuss.
Mr. Pablo, a rich merchant in his early forties, was a
defendant in a lawsuit, which could subject him to
substantial damages. A year before the court rendered
judgment, Mr. Pablo sought his lawyer's advice on how to
plan his estate to avoid taxes. His lawyer suggested that
he should form a corporation, with himself, his wife and his
children (all students and still unemployed) as
stockholders, and then, transfer all his assets and liabilities
to this corporation. Mr. Pablo followed the recommendation
of his lawyer. One year later, the court rendered judgment
against Mr. Pablo and the plaintiff sought to enforce this
judgment. The sheriff, however, could not locate any
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represented the corporation in the transaction (1995 Bar).
Yes. It is submitted that E Steel Corporation may be held
liable under the doctrine of piercing the veil of corporate
fiction. It appears that E Corporation is a continuation of C
Steel and Nail Co., Inc. The given circumstances indicate
that E Steel Corporation is being used only as a protective
shield of a corporation to evade the financial obligation of
its predecessor-corporation to its employees. While
generally transfer of the assets of the corporation will not
make the transferee liable, the other circumstances in the
present case (such as ownership by X of the shares of C
and E) justify the piercing of the corporate veil (Claparols
v. CIR, 65 SCRA 613). (1978 Bar).
Yes. The employees of Tantalus may proceed against
Suceso who may be held liable under the doctrine of
piercing the veil of corporate fiction. It appears that Suceso
is a mere continuation of Tantalus. The given
circumstances indicate that Suceso is being used only as a
protective shield to evade the financial obligation of its
predecessor-corporation to its employees. While generally
transfer of the assets of the corporation will not make the
transferee liable, the other circumstances in the present
case justify the piercing of the corporate veil (Claparols v.
CIR, 65 SCRA 613). (1978 Bar)..
The plaintiff can ask the court to pierce the veil of
corporate fiction and make the corporation liable for the
judgment obligation. It is true that a family corporation
may be organized to pursue an estate tax planning.
(Delpher Trades Corporation v. IAC, 157 SCRA 349).
However, the factual setting indicates the existence of a
lawsuit that could subject Mr. Pablo to a substantial
amount of damages. It would thus be difficult for Mr. Pablo
to convincingly assert that the incorporation of the family
corporation was intended merely as a case of "estate tax
planning". (See Tan Boon Bee u. Jarenci-0, G.R. No. 41337,
June 30, 1988) (1991 Bar)
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property in the name of Mr. Pablo and therefore returned
the writ of execution unsatisfied. What remedy, if any, is
available to the plaintiff?
Eva owns 90% of the shares of the capital stock of CK
Corporation. On one occasion, CK Corporation, represented
by Eva as the President and General Manager, executed a
contract to sell a subdivision lot in favor of Ed. For failure of
CK Corporation to develop the subdivision, Ed filed an
action for rescission and damages against CK Corporation
and Eva. Will the action prosper? Explain
58 Plaintiffs filed a collection action against ''X'' Corporation.
Upon execution of court’s decision, "X" Corporation was
found to be without assets. Thereafter, plaintiffs filed an
action against its present and past stockholder “Y”
Corporation, which owned substantially all of the stocks of
“X” Corporation. The two corporations have the same
board of directors and “Y” Corporation financed the
operations of “X” Corporation. May “Y” Corporation be held
liable for the debts of “X” Corporation? Why?
R Realty Corporation, lessor, obtained a favorable
judgment in a suit against GEE, lessee, for the latter's
failure to pay rentals. The judgment however was not
executed because of the trial courts finding that P2 million
was paid by GEE to R Realty Corporation tantamount to full
satisfaction of the judgment debt. It turned out however
that Pl million was the consideration in the pacto de retro
sale drawn in favor of R Realty's officers/stockholders, JR
and MR. Furthermore, the other Pl million paid turned out
as payment for a loan extended by JR and MR in favor of
GEE. Can the payments to R Realty's officers/stockholders
be considered payment to the corporation?
In one case, the trial court rendered judgment ordering the
defendant Mr. X to pay the plaintiff Mr. Y actual damages in
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Yes, the action may prosper against CK Corporation but not
against Eva. The liabilities of CK Corporation are not the
liabilities of its officers because the corporation has a legal
personality separate and distinct from that of its officers
and stockholders. The fact that Eva owns 90%of the capital
stock of CK Corporation is not of itself sufficient
justification to invoke the doctrine of piercing the veil of
corporation fiction. There must be a showing of fraud,
malice or bad faith. (1996 Bar)
Yes. “Y” Corporation may be held liable for the debts of “X”
Corporation. It is submitted that the doctrine of piercing
the veil of corporate fiction can be applied in the present
case. Although mere interlocking directorship is not by
itself sufficient to justify the application of the doctrine,
there are circumstances in the present case that support
such application. Thus, the following facts are present: (1)
X Corporation is without assets; (2) the stockholders are
the same; (3) the directors are identical; and (4) Y financed
the activities of X Corporation. It is believed that the
mentioned circumstances are enough to allow the piercing
the corporate veil (CIR v. Norton & Harrison Company, 11
SCRA 714 [1964]) (2001 Bar).
No. A corporation has a personality distinct and separate
from its individual stockholders or members. The
obligations of the corporation are not the obligations of the
officers and vice versa. It follows that payments made to
the shareholders for obligations in their favor are not
payments to the corporation. Shareowners are not the
owners of the receivables of the corporation and vice
versa. (Good Earth Emporium, Inc. v. CA, G.R. No. 82797,
February 27, 1991)
No. The sheriff does not have the authority to levy upon
properties of a corporation that is not a party to the case.
 7|Revised Corporation Code
the amount of Pl,000,000.00. The sheriff who is enforcing
the writ of execution to enforce said judgment was not able
to locate the properties of Mr. X so he decided to levy upon
the properties of ABC Corporation on the ground that ABC
is a mere conduit of Mr. X. Is the action of the sheriff in
levying the properties of ABC Corporation valid?
65 Petitioner is a corporation sole organized and existing in
accordance with Philippine laws, with Msgr. Trudeau, a
Canadian citizen, as actual incumbent. It presented for
registration a deed of sale to the Register of Deeds of Cebu
who denied it for lack of proof that at least 60% of the
capital property or assets of the corporation sole is owned
or controlled by Filipino citizens. Was the action of the
Register of Deeds correct? Give reasons for your answers.
Global KL Malaysia (GLOBAL), a 100% Malaysian-owned
corporation, desires to build a hotel beach resort in the
Samal Island, Davao City, to take advantage of the
increase traffic of tourist and boost the tourism industry of
the Philippines.
a. Assuming that GLOBAL has US$100 Million to invest
in a hotel beach resort in the Philippines, may it be
allowed to acquire the land on which to build the
resort? If so, under what terms and conditions may
GLOBAL acquire the land? Discuss fully.
b. May GLOBAL be allowed to manage the hotel beach
resort?
c. May GLOBAL be allowed to operate restaurants
within the hotel beach resort? Explain.
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He cannot do so under the pretext that the doctrine of
piercing the veil of corporate fiction is applicable. Piercing
the veil of corporate fiction is a judicial prerogative. Only
the court can apply this doctrine.
No. The action of the ROD was not correct. The
requirement of at least 60% Filipino ownership of the
capital was never intended to apply to a corporation sole,
because the same corporation is only the administrator of
the properties of the corporation sole and it is well settled
that it has no nationality.
a. No, GLOBAL may not be allowed to acquire the land
on which to build the resort. The Constitution limits
land ownership to Filipinos and corporations with
Filipino ownership of not less than 60% of the
outstanding capital. The equity participation of
foreigners in a corporation that will own land is
therefore limited to 40%. In this case, GLOBAL is
100% Malaysian-owned.
However, GLOBAL can lease a parcel of land. The
40% limit on foreign equity applies only to
ownership of land and not to temporary use thereof
like a contract of lease.
a. Yes, GLOBAL can manage the hotel beach resort.
Management of a resort is not a nationalized
activity; hence the law did not prohibit a foreign
corporation from managing a resort in the country.
b. Yes, GLOBAL may be allowed to operate restaurant
 8|Revised Corporation Code
What is the nationality of a corporation organized and
incorporated under the laws of a foreign country but
owned 100% by Filipinos?
93 On September 15, 2013, XYZ Corporation issued to Paterno
800 preferred shares with the following terms:
"The Preferred Shares shall have the following rights,
preferences, qualifications, and limitations, to wit:
1. The right to receive a quarterly dividend of
One Per Centum (1%), cumulative and
participating;
2. These shares may be redeemed, by drawing
of lots, at any time after two (2) years from
date of issue, at the option of the
Corporation; x x x."
Today, Paterno sues XYZ Corporation for specific
performance, for the payment of dividends on, and to
compel the redemption of, the preferred shares, under the
terms and conditions provided in the stock certificates. Will
the suit proper? Explain.
TITLE II
103 A corporation was organized for a term of 50 years, The articles of incorporation shall be amended stating the
expiring in December 2006. Outline the steps to be taken term extension and the amendment must be approved by:
in order that it may extend its corporate life.
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within the beach resort. While operation of a
restaurant business is considered retail trade, a
corporation will not be considered engaged in retail
business if the restaurant is a mere adjunct of the
operation of the resort which is an activity that is not
wholly or partly nationalized. (1995 Bar)
The corporation is a Philippine National under Section 3 of
Republic Act No. 7042 for purposes of applying our
investment laws provided that at least 60% of the directors
are Filipinos. In addition, applying the control test of
corporate nationality, a corporation organized and
incorporated under foreign laws but entirely owned by
Filipinos is a Philippine national. Note, however, that the
corporation is not a domestic corporation under the
Incorporation Test embodied in the Corporation Code (now
the RCCP) because the corporation is one organized in
another country. (1998 Bar)
No. The suit will not prosper. The fact that Paterno holds
preferred shares does not give him the right to compel XYZ
Corporation to pay dividends. It is still within the business
judgment of the Board of Directors to declare dividends
and the Judgment of the Board is always subject to the
requirement that there must be unrestricted retained
earnings. Holders of preferred shares are not creditors and
dividends are not interest that is due.
Paterno cannot likewise compel the corporation to redeem
the shares because the express terms of the stipulation is
to the effect that the shares “may be redeemed” after two
years thereby indicating that the redemption is not
mandatory. Even if Paterno is holding mandatory
redeemable shares, it is subject to the requirement that
enough assets are left to cover debts and liabilities. In
other words, there should be no effect on creditors (2009
Bar).
(1) the majority vote of the board of directors or trustees
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120 The articles of incorporation to be registered in the
Securities and Exchange Commission contained the
following provisions: “First Article. The name of the
corporation shall be Toho Marketing Company.” “Third
Article. The principal office of the corporation shall be
located in Region III, in such municipality therein as its
Board of Directors may designate.” “Seventh Article. The
capital stock of the corporation is One Million Pesos
(P1,000,000), Philippine Currency.” What are your
comments and suggested changes to the proposed
articles?
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and (2) the stockholders representing at least 2/3 of the
outstanding capital stock or by at least 2/3 of the
members, in case of a non-stock corporation. (See Section
16, Corporation Code, now Section 15, RCCP.)
The approved amendment of the articles of incorporation
shall be submitted to the Securities and Exchange
Commission for approval not earlier than five (5) years
(under Section 11, Corporation Code) and now three (3)
years under Section 11 of the RCCP) prior to the original or
subsequent expiry date.
The amendment is deemed approved upon the inaction of
the SEC for 6 months after submission due not the fault of
the corporation or upon its approval. (See Section 16,
Corporation Code, now Section 15, RCCP.) The effectivity of
the amendment relates back to the date of its filing with
the SEC. (1968 Bar).
The name of the corporation should be amended to include
any of the following words, "Inc.," "Incorporated"
"Corporation" or “Corp.” Section 1 of SEC Memorandum
Circular No. 14, Series of 2000 requires any one of those
words to be included in the name of the Corporation. The
form of the Articles of Incorporation under Section 14 of
the RCCP also calls for the use of the words "Inc.,"
"Corporation," or "OPC" (for One Person Corporations).
The Third Article does not comply with the requirements of
the law and SEC rules on the address of the corporation.
The RCCP provides that the Articles of Incorporation must
state the place where the principal office of the corporation
is to be established or located, which place must be within
the Philippines. The RCCP also requires inclusion in the
Articles of Incorporation of the City/Municipality and
Province where the principal office of the corporation is
located. SEC Memorandum Circular No. 6, Series of 2016
dated June 9, 2016 further requires a specific address. For
purposes of complying with the RCCP and SEC
requirements, it is not enough to state the Region where
10 | R e v i s e d Corporation Code
While the incorporation papers of XYZ, Inc. were pending
before the Securities and Exchange Commission (SEC) for
approval, A, the designated Treasurer in the Articles of
Incorporation held real estate property worth P20,000.00
which E turned over for shares he (E) purchased in XYZ,
Inc. Before the certificate of incorporation could be issued,
H, who claims to be the owner of the said real estate
property, filed an action against XYZ, Inc. for the recovery
of possession of the same. Will H’s suit proper? Why?
May a corporation composed entirely of aliens be
organized and incorporated in the Philippines? Explain.
(1970 Bar)
The proposed Articles of Incorporation of X Corporation
provides: "That none of the stockholders shall engage in a
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the principal office is located.
The Seventh Article is incomplete. Section 14(8) of the
Corporation Code (Section 13[h], RCCP) provides that if the
corporation is a stock corporation, the Articles of
Incorporation must contain the (a) amount of its authorized
capital stock, (b) the number of shares into which it is
divided, and in case the shares are par value shares, the
par value of each, and if some or all of the shares are
without par value, such fact must also be stated. The
names, nationalities, and residence addresses of the
original subscribers and amount subscribed and paid by
each must also be stated in the Articles. (1990 Bar
No. H's suit will not prosper. The issuance of the Certificate
of Incorporation is an indispensable requisite for the
existence of a corporation. In the given problem, the
incorporation papers of XYZ, Inc. were still pending before
the Securities and Exchange Commission for approval.
Hence, XYZ, Inc. is not yet a corporation and has no
juridical personality in order to have the power to sue or be
sued in any court. (1978 Bar)
Yes, if nationalization laws do not require ownership by
Filipinos. The RCCP does not provide for a citizenship
requirement. There are businesses that are allowed to be
owned by foreigners. As long as the Constitution and
special laws do not impose a maximum equity participation
of foreigners, the directors and incorporators of a
corporation can all be foreigners. For instance, export
enterprises may generally be 100% foreign owned.
However, there are corporations where the Constitution or
special laws require that at least a 60% or a higher
percentage of the outstanding capital stock to be owned
by citizens of the Philippines. For example, Filipinos must
own at least 60% of the outstanding capital in public
utilities and corporations that own land. In these cases, the
corporation cannot be composed entirely of aliens.
Yes, the provision is valid. The provision constitutes a
reasonable exercise of corporate authority since a
 11 | R e v i s e d Corporation Code
similar, competing or antagonistic business or activity as
that to which the corporation is primarily engaged in. The
foregoing restriction must appear at the back of all
certificates of corporation." Is the provision valid and
binding?
May the composition of the board of directors of the
National Power Corporation (NPC) be validly reduced to
three? Explain your answers fully.
123 “X” Company is a stock corporation composed of the Reyes
family engaged in the real estate business. Because of the
regional crisis, the stockholders decided to convert their
stock corporation into a charitable non-stock and non-profit
association by amending the Articles of Incorporation.
a. Could this be legally done?
b. Would your answer be the same if at the inception,
"X" company is a non-stock corporation? Why?
M o r e n o , Ye l l a h O .
XU College of Law
corporation under the principle of self-preservation, has the
inherent right to preserve and protect itself by excluding
competitors or hostile interest. The provision seeks to
prevent a stockholder from creating an opportunity to take
advantage of the information which he may have acquired
as such to promote his individual interest to the prejudice
of the corporation and other stockholders. The provision is
binding on the stockholders because the Articles of
Incorporation is a contract between the shareholder and
the corporation as well as the State. Any person who
intends to acquire a share in the corporation does so with
knowledge that its affairs are governed by the provisions of
the Articles of Incorporation (SEC Opinion dated August 12,
1998, Sec Bulletin Vol. XXXIII, No. 1, June 1999).
Yes, the composition of the board of directors of the
National Power Corporation may be validly reduced to
three under the Revised Corporation Code. Section 13(f) of
the Revised Corporation Code provides that there must be
not more than 15 directors. There is no minimum number
of directors required under the Revised Corporation Code.
The same is true even if NPC is a government owned or
controlled corporation created by special law because the
provisions of the Revised Corporation Code apply
suppletorily to NPC. (2008 Bar)
a. Yes, the Articles of Incorporation of X Company can
be legally amended to convert it into a non-stock
corporation. What this means is that the
stockholders are deemed to have waived their right
to their respective share in the profits of the
corporation and that is a gain not a loss to the
corporation. However, this should be without
prejudice to the rights of creditors who may be
affected.
 12 | R e v i s e d Corporation Code
Stockholders representing only 55% of the outstanding
capital stock of A Corporation attended the scheduled
meeting. Hence, the required two-thirds vote of the
stockholders to approve the amendments to the Articles of
Incorporation, which was previously approved by the Board
cannot be obtained. The directors propose two courses of
action, namely: (1) to request the stockholders present
during the meeting to approve the proposed amendment
and then adjourn the meeting and allow the board to
convene another meeting in order to get the required
votes; and (2) to solicit the remaining balance of the
required approval/votes by way in writing the absentee
stockholders. Which of the two alternatives can be validly
resorted to by A Corporation?
137 a. Can a corporation validly change its corporate name
under its general power to amend its Articles of
Incorporation?
M o r e n o , Ye l l a h O .
XU College of Law
b. No, my answer will not be the same. In a non-stock
corporation, the members do not have the right to
the assets and profits of the corporation. The
present and future profits of the corporation are
devoted solely to charitable purposes and cannot be
distributed to the members. If the non-stock
corporation is converted to a stock corporation by a
mere amendment of the Articles of Incorporation,
the non-stock corporation is deemed to have
distributed an asset of the corporation among its
members. The only way to form a stock corporation
is to dissolve the nonstock corporation and to re-
incorporate as a stock corporation. (2001 Bar)
Both alternatives may be validly resorted to. The law
provides that the stockholders may assent to the
amendment so long as the assent is in writing and the
written votes/approval should not be less than two-thirds
of the outstanding capital stock of the corporation. (SEC
Opinion dated August 16, 1999, SEC Bulletin Vol. XXXIIJ,
No. 2, December 1999)
However, if the amendments involve extending or
shortening the corporate term and/or increasing or
decreasing the capital stock, only the first alternative may
validly be resorted to because Sections 36 and 37 of the
RCCP require approval of said amendments in a
stockholders' meeting.
a. Yes, a corporation may validly change its name.
However, the corporation must comply with the
procedure for amendment of the Articles of
Incorporation. In fact, the right to change the
corporation name is recognized under Section 18 of
the Corporation Code, now Section 17 of the RCCP,
but subject to the approval of the SEC. Section 18 of
the Corporation Code provided that when a change
in the corporate name is approved, the SEC shall
issue an amended certificate of incorporation under
the amended name. The new provision (Section 17,
RCCP) is substantially the same and states that:
 13 | R e v i s e d Corporation Code
b. Does a change in the name of a corporation result in
its dissolution? Explain your answer.
The Court of Appeals (CA) dismissed outright a Certiorari
Petition on the ground that petitioner BDO Leasing and
Finance, Inc. (BDO) lacked "legal capacity to initiate or file
the instant petition" on account of the change of name of
petitioner BDO from "PCI Leasing and Finance Inc." to "BDO
Leasing and Finance, Inc." The CA opined that since the
Board Resolution and Special Power of Attorney issued by
petitioner BDO authorizing its officer to initiate the
appropriate court action on behalf of the company was still
under the name of "PCI Leasing and Finance, Inc.," and
considering that petitioner BDO has already changed its
name, the aforesaid Board Resolution and Special Power of
Attorney have no more binding effect. Was the dismissal
proper?
145 Mamuhunan was invited by his friends to invest in A Corp.,
a newly organized firm engaged in money market and
financing operation. Because of his heavy investments,
Mamuhunan became the firm’s president and, as such,
purchased a big number of computers, typewriters and
other equipment from Taktak Corp. on installment basis. A
Corp. paid the down payment and Taktak Corp. issued the
corresponding receipt. To his chagrin, Mamuhunan
discovered that the Articles of Incorporation had not been
filed by his friends on that date so he hurriedly attended to
the matter. No sooner had the certificate of incorporation
M o r e n o , Ye l l a h O .
XU College of Law
"Upon the approval of the new corporate name, the
Commission shall issue a certificate of incorporation
under the amended name."
b. No, the change in name does not result in the
corporation's dissolution. The juridical entity is the
same although under a different name. The situation
is no different from a natural person who does not
cease to exist due to a change of name. (See
Philippine First Insurance Co. u. Hartigan, 34 SCRA
252) (1976 Bar)
No. The dismissal was not proper. A corporation that
changes its name is in no sense a new corporation, nor the
successor of the original corporation. It is the same
corporation with a different name, and its character is in no
respect changed. A change in the corporate name does not
make a new corporation. Hence, with petitioner BDO's
change of name from ''PCI Leasing and Finance, Inc." to
"BDO Leasing and Finance, Inc." having no effect on the
identity of the corporation, on its property, rights, or
liabilities, with its character remaining very much intact,
the Board Resolution and Special Power of Attorney
authorizing its officer to institute the Certiorari Petition did
not lose any binding effect whatsoever. The officer remains
authorized to file a petition for the same entity which is
now named BDO (BDO Leasing and Finance, Inc. u. Great
Domestic Insurance Company, Inc., G.R. No. 205286, June
19, 2019).
No, the two defenses cannot be raised because they are
not available. It cannot be argued that there was a de
facto corporation. The Articles of Incorporation was not
filed with the SEC, hence there can be no attempt in good
faith to incorporate.
The defense that the corporation is a corporation by
estoppel is not also a valid defense. Although there was a
corporation by estoppel, the same can be invoked only for
the purpose of protecting third persons or creditors. It
cannot be invoked by persons who represent themselves
 14 | R e v i s e d Corporation Code
been issued by the SEC, A Corp. became bankrupt after
three months. Upon being sued by Taktak Corporation in its
personal capacity, Mamuhunan raised among its defenses
the doctrine of de facto corporation and corporation by
estoppel. Can the two defensed be validly raised? Explain.
TITLE III
155 Three out of five directors of X Corporation resolved to
assign the corporation's right of redemption over its
remaining assets, the lots mortgaged to a bank. A deed of
assignment was subsequently executed in favor of M who
then redeemed the said properties. However, R, who was
the highest bidder at the public auction, assailed the
validity of the deed of assignment for being an ultra vires
act of the Board of Directors contending that the three
directors who made the resolution were not among those
listed as stockholders of X Corporation in the stock and
transfer book and thus they cannot execute any
transaction for the corporation. Is the argument of R
tenable? Explain your answer.
156 A claim was filed by Ms. CO against the National Irrigation
Administration (NIA) for the latter to pay compensation for
the portion of her property used in the construction of the
canal. The Regional Trial Court rendered a decision in favor
of CO. On appeal, the decision was affirmed by the Court of
Appeals. SE, as Project Manager of the NIA, filed a petition
for certiorari. The verification and certification against
forum shopping were signed by CG, the administrator of
the agency. It was contended that said petition must be
dismissed because of failure to comply with the provisions
of Section 5, Rule 7 of the Revised Rule on Civil Procedure
on certification against forum shopping. No Board
resolution was attached to the petition. Can SE or G sign
the certificate against forum shopping accompanying the
petition?
PAW is a domestic corporation organized to operate a
customs bonded warehouse. To obtain a license for the
operation of a bonded warehouse from the Bureau of
Customs, Mr. AP, the corporation president, solicited a
M o r e n o , Ye l l a h O .
XU College of Law
as stockholders of the corporation by estoppel. However,
Mamuhunan can invoke the defense of good faith to limit
his liability only up to the extent of his investment. Sec 21
of the Corporation Code (now Sec 20 of the RCCP) makes
liable as general partner only those who assume to act as
a corporation knowing it to be without authority.
Yes, R's argument is tenable. Under Section 22 of the
Revised Corporation Code, only persons who own at least
one share of the capital stock of the corporation can be
directors. Ownership of shares is determined by the books
of the corporation. Since the three directors are not
stockholders in the corporate books, they are automatically
disqualified to be directors. The three directors ceased to
be directors when they ceased to be stockholders of X
Corporation. Hence, they cannot validly approve and
execute transactions in behalf of the corporation. (Pena v.
Court of Appeals, G.R. No. 91478, February 7, 1991)
No. The defendant in this case is NIA, which is a
corporation organized under the law. Hence, all actions
shall be done only through the Board of Directors of NIA.
Without being duly authorized by resolution of the Board of
the corporation, neither SE nor CG is authorized to sign the
certificate against forum shopping accompanying the
petition for review. (Santiago Estaban, Jr. v. Vda. de Onorio,
360 SCRA 230)
No, the acts show that the president was duly authorized.
AP, the president of PAW appears to be authorized. The
conduct of the president shows that he had been in the
habit of acting in similar matters on behalf of the company
15 | R e v i s e d Corporation Code
proposal from Mr. SS for the preparation of a feasibility
study. The initial proposal of SS was accepted by AP. Later,
upon AP's request, SS sent another proposal to PAW for an
operations manual and seminar/workshop for its
employees. The manual was sent to the Bureau of Customs
which thereafter issued a license in favor of PAW to operate
a bonded warehouse. SS likewise conducted a three-day
training seminar for the employees of the corporation.
Alleging non-payment, SS subsequently filed a collection
suit against the corporation. PAW resisted the claim on the
ground that the second contract for services did not bind it
because it was entered into by its president without
authority of the Board of Directors. Is the contention of the
corporation valid?
The Board of Directors of X Corporation issued a resolution
authorizing its Treasurer and General Manager, Mr. A, to
secure a loan from Y Corporation, a financing company,
and to sign all papers, documents or promissory notes
necessary to secure the loan. Another resolution was later
approved by the Board authorizing Mr. A to act as the
signatory in securing a discounting line with Y Corporation.
Mr. A was authorized to sign all instruments, documents
and checks necessary to secure the discounting line. Later,
Mr. A signed Deeds of Assignment and assigned postdated
checks of X Corporation to Y Corporation. A endorsed the
checks by signing his name at the back of the checks. The
checks were all dishonored prompting Y Corporation to
demand payment from X Corporation. Corporation denied
liability on the checks raising the defense of lack of
authority of A to sign the Deeds of Assignment and
asserting that A signed the deeds and indorsed the checks
in his personal capacity. Can the defense be validly raised
M o r e n o , Ye l l a h O .
XU College of Law
and that the company had authorized him to act and had
recognized, approved and ratified his former and similar
actions. Furthermore, a party dealing with the president of
a corporation is entitled to assume that he has the
authority to enter, on behalf of the corporation, into
contracts that are within the scope of the powers of said
corporation and that do not violate any statute or rule on
public policy. In this case, AP was the one dealing with SS
from the very beginning.
Besides, SS has reason to believe that AP's conformity to
the contract in dispute was also binding on the
corporation. It is well-settled that 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;
and thus, the corporation will, as against anyone who has
in good faith dealt with it through such agent, be estopped
from denying the agent's authority. (People's Aircargo
Warehousing, Inc. v. Court of Appeals, C.R. No. 117847,
October 7, 1998)
No. The corporation cannot validly raise such defense. A
corporation has the power to borrow funds and dispose of
assets in the ordinary course of business. In the exercise of
such power the Board authorize one or more corporate
officers to sign loan document or deeds of assignment for
the corporation. The Board is the one empowered to do so
because Section 22 of the Revised Corporation Code
(Section 23 of the Corporation Code) provides that 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 corporation
held by the Board of Directors or Trustees. In this case, Mr.
A was duly authorized by the Board of X Corporation to
sign the Deeds of Assignment and to endorse the checks. A
signed the Deeds of Assignment as agent and authorized
signatory of X Corporation under an authority expressly
granted by Board resolutions. Hence, the signature of A on
the Deeds of Assignment binds the Board of Directors and
16 | R e v i s e d Corporation Code
by X Corporation?
X Corporation sold its ice plant to Y Corporation who in
return executed a mortgage over a property to secure
payment of the purchase price. As a result of the sale, X
Corporation terminated all its employees and paid their
separation pay. Y Corporation thereafter, sold the same ice
plant to Z Corporation, Mr. Q, the General Manager of Z
Corporation owns one half interest in said corporation. Due
to failure to pay the balance, X Corporation extrajudicially
foreclosed the property and was the highest bidder in the
public auction. Subsequently the latter sold the ice plant,
subject to the right of redemption by Y Corporation, to Mr.
T who rehired X Corporation's previous employees.
Thereafter, the ice plant was redeemed and possession
was obtained by virtue of the mandatory injunction.
However, Z Corporation did not re-employ the re-hired
employees and through Mr. Q terminated their services.
Can the corporate officers like the general manager be
held personally liable for damages on account of
termination of services of the employees?
Billy Bomba had been employed by DAD Realty
Corporation as a pump operator in 1990 and had since
performed such work at its Maharlika Subdivision. In 1999,
Bomba filed a complaint with the Labor Arbiter against
DAD Realty Corporation and its Vice President Tita Gloria,
for wage differentials, overtime pay, incentive leave pay,
13th month pay, holiday pay and rest day pay. The Labor
Arbiter found that Bomba was indeed entitled to such
sought amounts. Is Vice President Gloria solidarily
obligated with DAD Realty Corporation for the corporate
liability?
Where the board of directors of a corporation consists of 9
members, two having died during their term of office, 1
being abroad, what would be the quorum? How many
affirmative votes would be necessary to pass a resolution?
Explain.
M o r e n o , Ye l l a h O .
XU College of Law
X Corporation itself. (Great Asian Sales Corporation u.
Court of Appeals, No. 105774, April 25, 2002
No. An officer acting in good faith within the scope of his
authority to terminate the services of the employees
cannot be personally liable for damages. In the absence of
evidence that one acted maliciously or in bad faith in
terminating the services of the employees, his act shall be
deemed to be within the scope of his authority and as such
was a corporate act. Hence, he cannot be made personally
liable. (Sunio v. NLRC 127 SCRA 390)
No. A corporation acts through its directors, officers, and
employees. While acting for the corporation, the directors,
officers and employees are not liable to persons with whom
they are transacting. Obligations incurred by them while
they were acting as such corporate agents are corporate
obligations. Although there may be exceptional
circumstances that may justify solidary liability, there is
nothing in the problem that indicates that solidary liability
should be imposed on the officers.
Five members constitute the quorum. The Revised
Corporation Code (and previously, the Corporation Code)
provides that a majority of the number of directors as fixed
in the Articles of Incorporation shall constitute a quorum
for the transaction of corporate business. Vacancy does not
reduce the quorum. If five members are present the
majority thereof or three may pass a resolution unless a
 17 | R e v i s e d Corporation Code
On December 9, 1985, Matatag Corporation revalued its
assets. On the basis of reappraisal, the Board of Directors
also declared cash dividends for all stockholders. On
December 16, 1985, Matatag Corp. amassed substantial
profits in a highly lucrative transaction. Some minority
stockholders, however, did not want to complicate their
income tax problems for 1985 and refused to accept the
cash dividends. They also filed suit to compel the other
stockholders to return to Matatag Corp. the money
received as dividends. Not one of the stockholders who
formed the majority joined in the suit since they were
happy with the money they received. When a case was
filed against the Board, the Board of Directors raised the
"Business Judgment Rule." What is the business judgment
rule and does it have any relevance to this case?
161 "A" as owner of a certain number shares of stock in X
Corporation, entered into a voting trust agreement with B.
On the basis of the voting trust agreement, B announced
his desire to run for a seat in the Board of Directors of X
Corporation. C, another stockholder, objected and
questioned the eligibility of B to be a director of X
Corporation. Is C's contention correct? Why?
The Board of Directors of Seiko Corporation, acting on a
standing authority of the stockholders to amend the by-
laws, so amended the by-laws disqualifying any of its
stockholders, who is also a stockholder and director of a
competitor, from being elected to the board of directors.
Assunta Estrada, a stockholder holding shares sufficient to
assure her of a seat in the board, filed a petition with the
Securities and Exchange Commission for the declaration of
nullity of the amended by-laws. She alleged, among other
things, that as a stockholder she had acquired rights
inherent in stock ownership such as the right to vote and
be voted for in the election of directors. Is her petition
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XU College of Law
greater number is required under the RCCP (previously, the
Corporation Code). (1970 Bar)
Under the Business Judgment Rule, the acts of the Board
within the powers conferred upon them cannot be
reviewed by courts. They are generally binding on the
stockholders and the courts. The BOD is authorized to
exercise absolute but sound discretion on matters
regarding the operation of the Corporation.
Declaration of dividends is one of those actions that are
within the discretion of the Board. Thus, the BJR is relevant
because declaration of dividends is usually binding and
cannot be reviewed by courts (1986 Bar).
No. The contention of C is not correct. A trustee in a voting
trust agreement has legal title over the shares. Section 58
of the Revised Corporation Code provides that the stock
certificate of the trustor shall be cancelled and a new
certificate shall be issued in the name of the trustee. The
books of the corporation shall state that the transfer in the
name of the trustee or trustees is made pursuant to the
voting trust agreement. Since legal title is all that is
required, Mr. B is eligible to run for a position in the Board
of Directors.
No, her petition is not tenable. It is true that a stockholder
has the right to vote and be voted for in the election of
directors. However, such right does not mean that a
stockholder has vested right to be elected to the board of
directors. The election process prescribed under the
Revised Corporation Code should be followed and a
stockholder cannot force other stockholders to elect her as
director.
Her contention that the by-laws is null and void is not
tenable either. Corporations have the power to make by-
laws declaring a person employed in the service of a rival
 18 | R e v i s e d Corporation Code
tenable?
At the annual meeting of ABC Corporation for the election
of five directors as provided for in the articles of
incorporation, A. B, C, D, E, F, and G were nominated. A. B,
C, D, and E received the highest number of votes and were
proclaimed elected. F received ten votes less than E.
Subsequently, E sold all his shares to F. At the next Board
of Directors' meeting following the transfer of shares in the
books of the Corporation, both E and F appeared. E
claimed that notwithstanding the sale of his shares to F, he
remained a director since the Corporation Code provides
that directors “shall hold office for one rear and until their
successors are elected and qualified.” On the other hand, F
claimed that since he would have been elected as director
had it not been for E’s nomination and election, he (F)
should now be considered as a director as he had not
acquired the shares of E. Decide with reasons.
174 The incorporators of a proposed stock corporation want to
include the following provision in the Articles of
Incorporation: “Shares are classified as Class “A” shares
and Class “B” shares. Class “A” shares shall be entitled to
one vote and Class “B” shares shall be entitled to three
votes. Is the provision legally acceptable?
The incorporators of a proposed stock corporation want to
include the following provision in the Articles of
Incorporation: Class A shares shall be entitled to vote one
director and Class B shares, voting as a separate class,
shall be entitled to vote three directors." Is the provision
legally feasible?
187 IAI, Inc. (IAl) by a Stock Purchase Agreement, soId to Al.
lnc. (AI) for the sum of P19.5 Million all its outstanding
shares od stocks in “F” Corp. The agreement was signed by
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XU College of Law
company ineligible for election to its board of directors. It is
well-settled that a director who is ineligible cannot be
elected as such. In addition, a director is subject to
removal if a ground for disqualification exists. One such
ground is a provision that a stockholder is disqualified if his
business is in competition with or antagonistic to the other
corporation. (1998 Bar)
E is disqualified to continue as director. Section 22 of the
Revised Corporation Code (previously Section 23,
Corporation Code) provides that every director must own
at least one share of the capital stock of the corporation of
which he is a director, which share shall stand in his name
in the books of the corporation. Any director who ceases to
be the owner of at least one share in the capital stock of
the corporation of which he is a director shall thereby
cease to be a director. The requirement of owning at least
one share is a continuing requirement. E became
disqualified when he sold all his shares of the corporation;
he thus ceased to be a director.
F's claim is also untenable because a director should be
duly elected as such and he was not elected to be a
director in the annual meeting of ABC Corporation. (1984
Bar)
No, the provision is not acceptable. The provisions of the
RCC requiring votes of stockholders are always determined
on the basis of the number of shares. Each share is entitled
to one vote.
No, the provision is not legally feasible. Section 23 of the
Revised Corporation Code provides for the procedure for
the election of directors. Adoption of a manner of electing
the directors other than what is provided for in the Revised
Corporation Code is prohibited. (Section 46, RCCP; SEC
Opinion May 23, 1994)
The position of the Board of IAI is not tenable. An officer of
a corporation who is authorized to sell the stock of another
corporation has the implied power to perform all other
19 | R e v i s e d Corporation Code
LG and JV, presidents of lAI and Al respectively. IA1
expressly warranted in the agreement that the net worth of
“F" Corp. is Pl2 Million. lAI agreed that if the networth is
less than P12 Million, IAI will pay Al the deficiency. AI paid
lA1 Pl2 Million and retained the amount of P7.5 million to
answer for any deficiency in the net worth. Instead of
reflecting a net worth. It turned out that "F' had a
deficiency of P1.2 Million. Hence, IAl is obligated to
reimburse Al the amount of P13.2 Million (12 Million plus
the deficiency of Pl.2 Million). However. considering that AI
retained P7.5 Million. the balance to be reimbursed is only
P5.2 Million. Later, LG, the president of lAI proposed in
writing that Al's claim for refund be reduced to P4.09
Million but he promised to pay the cost of certain
superstructure in behalf of AI. AI accepted the proposal.
Later. IAI's Board refused to implement the accepted
proposal on the ground that while the said Board
authorized LG to sell the shares. it did not authorize LG to
make the last proposal. Is the position of IAI's Board
tenable?
Can the President of a Corporation or the Chairman of its
Board of Directors bind the corporation? Explain.
Evans, the President of 3D Corporation, wrote a letter to Ed
offering to sell the latter 5,000 bags of fertilizer at
P100,000 per bag. Ed signed his conformity to the letter-
offer, and paid a down payment of P50,000.00. A few days
later, the Corporate Secretary of 3D informed Ed of the
decision of their Board of Directors not to ratify the letter-
offer. However, since Ed had already paid the down
payment, 3D Corporation delivered 500 bags of fertilizer,
which Ed accepted. 3D made it clear that the delivery
should be considered an entirely new transaction.
Thereafter, Ed sought enforcement of the letter-offer. Is
there a binding contract for the 5,000 bags of fertilizer?
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XU College of Law
obligation arising therefrom, such as securing payment of
the shares of stock. By allowing its president to sign the
Stock Purchase Agreement on it behalf, IAI clothed him
with apparent capacity to perform all acts that are
expressly provided for or impliedly and inherently included
in such power to sell.
Yes, if he is acting within his express, implied or apparent
authority. The president of the corporation and the
chairman of the BOD are both officers of the corporation.
So long as either of these two officers act within the scope
of their express or apparent authority, their acts would be
binding on the corporation. The rule on agency would
cover the binding force of their acts. (1969 Bar)
No, there is no binding contract for the 5,000 bags of
fertilizer. First, the facts do not indicate that Evans, the
President of 3D Corporation, was authorized by the Board
of Directors to enter into the said contract or that he was
empowered to do so under some provision of the By-Laws
of 3D Corporation. Secondly, the facts do not also indicate
that Evans has been clothed with the apparent power to
execute the contract or agreements similar to it. Lastly, 3D
Corporation has specifically informed Ed that it has not
ratified the contract for the sale of 5,000 bags of fertilizer
and that the delivery to Ed of 500 bags, which Ed
accepted, is an entirely new transaction. (1996 Bar)
20 | R e v i s e d Corporation Code
Explain.
Acme Trading Company, Inc. (Acme), a trading company
wholly owned by foreign stockholders, was persuaded by
Paulo Alva, a Filipino, to invest in 20% of the outstanding
shares of stock of a corporation he is forming which will
engage in the department store business (the "department
store corporation"). Paulo also urged Acme to invest in 40%
of the outstanding shares of stock of the realty corporation
he is putting up to own the land on which the department
store will be built (the "realty corporation'').
A. May Acme invest in the said department store
corporation? Explain your answer.
B. May Acme invest in the realty corporation? Discuss
with reasons.
C. May the President of Acme, a foreigner, sit in the
Board of Directors of the said department store
corporation? May he be a director of the realty
corporation? Discuss with reasons.
D. May the Treasurer of Acme, another foreigner,
occupy the same position in the said department
store corporation? May he be treasurer of the said
realty corporation? Explain your answers.
M o r e n o , Ye l l a h O .
XU College of Law
a. The right of Acme to invest in the "department store
corporation" would depend on the paid-up capital of
said corporation as provided for in Republic Act No.
8762 or the Retail Trade Liberalization Act. If the
paid up capital of the "department store
corporation" is less than US$2,500,000.00, Acme
may not invest in the same. If the paid up capital is
US$2,500,000.00 or more, Acme may invest in such
activity.
b. Yes. The Constitution limits land ownership to Filipino
citizens and to companies at least 60% of whose
capital is locally owned. Therefore, Acme may invest
in the "realty corporation" provided that at least
60% of the capital stock of the latter corporation
belongs to Filipinos.
c. No. The Anti Dummy Law allows the election of
aliens as members of the Board of Directors or
governing body of corporations or associations
engaged in partially nationalized activities, in
proportion to their allowable participation or share in
the capital of such entities. As such, with respect to
the "department store" corporation, the President of
Acme may or may not sit in the Board of Directors
depending on whether as per the paid-up capital of
said corporation, Acme is allowed by law to invest in
the same. With respect to the "realty corporation,"
the President of Acme may sit in the Board of
Directors.
 21 | R e v i s e d Corporation Code
189 The purpose of the proposed of X Corporation is the
extraction and treatment of water. The capital of X
Corporation is divided as follows: 70% of the outstanding
capital shall be owned by A Corporation, a 60% and 40%
foreign-owned corporation. The remaining 30% shall
belong to a foreign company. Can X Corporation engage in
the proposed purpose or business?
193 If the minority stockholders in a stock corporation
cumulate their votes so that they could be assured of
being represented in the Board of Directors, what
assurance do they have that the director or directors
representing them would not be removed, considering that
under the Revised Corporation Code of the Philippines
(RCCP), a director may be removed from office with or
without cause by the vote of stockholders holding or
representing at least 2/3 of the outstanding capital stock?
Assuming that the minority block of the XYZ Corporation is
able to elect only one director and therefore, the majority
stockholders can always muster a 2/3 vote, would you
allow the majority stockholders to remove the one director
representing the minority?
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d. The treasurer of Acme may not hold the same
position (or any other officer position) either in the
"department store corporation" or in the "realty
corporation" since the Anti-Dummy Law prohibits the
employment of aliens in such nationalized areas of
business except those that call for highly technical
qualifications. However, in the case of the
"department store corporation", if it can be wholly
owned by foreigners because it is no longer a
nationalized entity as it has paid up capital of more
than $2,500,000, then the treasurer of Acme can
also be the treasurer thereof. (1990 Bar)
Yes. The extraction and treatment of water can be
considered exploration, development, and utilization of
natural resources. Hence, the required Filipino capital is
60% under Article XII, Sec 2 of the Constitution. In the
given problem, 70% of the outstanding capital X
Corporation shall be owned by A Corporation that is
considered as a Philippine National because 60% of its
outstanding capita stock belongs to Filipinos. However, it is
necessary that 60% of the members of the Board of the
proposed corporation are also Filipinos.
Assurance is provided for under Section 27 of the RCCP
because although removal of a director with or without
cause is allowed, it contains a proviso to the effect that
such removal, if without cause, cannot be used to deprive
the minority stockholders of their right to representation
through the use of cumulative voting. Therefore, the
minority stockholders who cumulate their votes to elect a
representative to the Board of Directors can be assured of
his/her continuance in office during his term, unless there
exists just cause for his removal. (1983 Bar)
No, I will not allow the majority stockholders to remove the
director. Section 27 of the RCCP is explicit that the
directors elected by the minority shall be removed only if
there justifiable cause. Thus, without just cause, the
majority cannot deprive the minority of representation in
the board of directors (1991 Bar).
 22 | R e v i s e d Corporation Code
In 1999, Corporation "A" passed a board resolution
removing "X" from his position as manager of said
corporation. The by-laws of "A" corporation provide that
the officers are the president, vice-president, treasurer and
secretary. Upon complaint filed with the SEC, it held that a
manager could be removed by mere resolution of the
board of directors. On motion for reconsideration, “X”
alleged that he could only be removed by the affirmative
vote of the stockholders representing 2/3 of the
outstanding capital stock. Is the contention of “X” legally
tenable? Why?
197 There is a proposal in X Corporation to amend its By-Laws
so that it will provide that in case of vacancy in the Board
of Directors, the losing candidate who garnered the highest
number of votes in the immediately preceding election
shall be the automatic replacement. Is the proposed
provision valid?
Primero, Segundo, Tercero, Pedro and Juan are the original
members of the Board of Directors of a stock corporation.
The only interest of Primero is that 50% of the
corporation’s stocks were pledged to him. Pedro and Juan
died in a vehicular accident.
Primero, Segundo, and Tercero held an emergency Board
meeting to fill up the vacancy in the board. Primero and
Tercero were able to push the selection of Cuatro and Cinco
as new directors over the strong objections of Segundo
who, as corporation president, wanted two others as Board
members.
At another Board meeting, the four members of Primero's
group voted for Seis as the 6th director. When the six-
member Board convened, it decided by a five to one vote
to replace President Segundo with Tercero as the new
President.
Was the election of Tercero as new President valid?
The term of the directors of X Corporation expired on June
1, 2009. However, the annual meeting of stockholder was
postponed, hence, the directors continued to perform their
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No. The contention of X is not tenable. The approval of
stockholders is not necessary for the removal of officers.
Stockholders' approval is necessary only for the removal of
the members of the Board. The vote of the Board of
Directors is sufficient for the removal of an officer. (2001
Bar)
The provision is invalid. Sec 28 of the RCCP provides that
the vacancy, may be filled in an election by the
stockholders or the directors in certain cases. Automatic
replacement is not allowed. Sec 28 cannot be disregarded
because the By-Laws is subordinate thereto.
No. The election of Tercero as new President is not valid. In
the first place, the election of the three new members of
the board was not valid because Primero was not validly
elected as a director since he was not a stockholder. Upon
the death of Pedro and Juan only two remained as duly
elected directors namely, Segundo and Tercero. They could
not fill the vacancies because they do not constitute a
quorum. Hence, any action of the illegally constituted
Board is not valid. (1986 Bar)
No, the hold-over directors cannot appoint a replacement
for Mr. A. The vacancy in the Board already occurred on
June 1, 2009. In other words, the vacancy was not due to
 23 | R e v i s e d Corporation Code
functions in a hold-over capacity. Before the new scheduled
date of the meeting of the stockholders, one of the hold-
over directors, Mr. A, resigned. Can the remaining
directors, who still constitute a quorum, appoint a
replacement for Mr. A?
199 After many difficult years, which called for a sacrifices on
the part of the company's directors, ABC Manufacturing,
Inc. was finally earning substantial profits. Thus, the
President proposed to the Board of Directors that the
directors be paid a bonus equivalent to 15% of the
company's net income before tax during the preceding
year. The President's proposal was unanimously approved
by the Board. A stockholder of ABC questioned the bonus.
Does he have grounds to object?
208 X subscribed and paid for P10,000.00 worth of shares of
stock Rainbow Mines, Inc. as an incorporator and original
subscriber. He was employed as the mine superintendent
and as such, made the design of certain equipment used in
its mines. Due to some technical error in the design, the
corporation suffered a loss of Pl million. The Board accused
X of infidelity and breach of trust, and confiscated his
shares. Is the action of the Board legal?
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resignation but to expiration of the term. Hence, only
stockholders can elect a replacement under Section 28 of
the Revised Corporation Code. The stockholders must elect
the replacement for all the directors in a meeting called for
such purpose. (Valle Verde Country Club, Inc. v. Africa, G.R.
No. 151969, September 4, 2009)
Yes, the stockholder has valid and legal grounds to object
to the payment to the directors of a bonus equivalent to
15% of the company's net income. Section 29 of the
Revised Corporation Code provides that the total annual
compensation of the directors cannot exceed 10% of the
company's net income before income tax during the
preceding year. Moreover, the authority to grant a bonus
compensation to the directors lies with the stockholders,
not the directors, pursuant to Section 29 of the RCCP.
(1991 Bar)
No. Even assuming that there was infidelity or breach of
trust the corporation cannot take the law in its own hands
and confiscate the shares of X. The corporation must file
an action in court and must avail of the appropriate
remedy available under the Rules of Court. Confiscation of
shares is not one of the remedies under the Rules of Court.
It should be noted that there is no indication in the
problem if Mr. X is a director or a corporate officer. If Mr. X
is a director or a corporate officer, the action of the Board
is not legal. In the first place, it does not appear that there
was gross negligence on the part of X. Mere technical error
will not make the officer liable. Section 30 of the Revised
Corporation Code provides that a director or trustee can be
made liable if he must have voted or assented to a
patently unlawful act, or be guilty of bad faith or gross
negligence, or be in conflict of interest with the
corporation. It is believed that the rule applies to officers.
However, such grounds are not the present in this case. If
the position of superintendent is not a corporate office and
Mr. X is not a director, then it is also believed that there is
no basis for infidelity and breach of trust. However, the
applicable law is labor law and labor law does not likewise
24 | R e v i s e d Corporation Code
A, B, and Care shareholders of XYZ Company. A has an
unpaid subscription of P100,000.00, B's shares are fully
paid up, while C owns only nominal but fully paid up shares
and is a director and officer. XYZ Company becomes
insolvent, and it is established that the insolvency is the
result of fraudulent practices within the company. If you
were the counsel for a creditor of XYZ Company, would you
advise legal action against A, B, and C?
As a result of perennial business losses, a corporation's net
worth has been wiped out. In fact, it is now in a negative
territory. Nonetheless, the stockholders did not like to give
up. Creditor banks, however, do not share the confidence
of the stockholders and refuse to grant more loans. (1)
What tools are available to the stockholders to replenish
capital? (2) Assuming that the corporation continues to
operate even with depleted capital, would the stockholders
or the managers be solidarily liable for the obligations
incurred by the corporation? Explain.
Mr. X had been employed as an accountant by Tiwala
Bank. Through the years of exemplary service, he was
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allow confiscation of shares (1989 Bar).
I would advise the creditor to file an action against A for
the latter's unpaid subscription in the amount of
Pl00,000.00. Since the corporation is insolvent, the unpaid
subscription becomes due without need of call. However,
the limit of a stockholder's liability to the creditor is only up
to the extent of his unpaid subscription.
I would likewise advise the creditor to file an action for
damages against C in his capacity as director and officer
because the corporation's insolvency was the result of
fraudulent practices within the company. Under Section 31
of the Corporation Code (now Section 30 of the RCCP),
directors are liable jointly and severally for damages
sustained by the corporation, stockholders or other
persons resulting from gross negligence or bad faith in
directing the affairs of the Corporation.
I will however inform the creditor that there is no cause of
action against B because he has already fully paid for his
subscription. Since the stockholder is not an officer, his
liability as stockholder is only up to the extent of his
subscription. (1997 Bar)
A. A corporation may replenish capital by: (1) Issuing
new shares for subscription; (2) Obtaining advances
from the stockholders of the corporation; (3)
Demanding payment of unpaid subscriptions by the
stockholders.
B. No. A corporation has a personality separate and
distinct from that of its stockholders and officers.
Hence, the stockholders or the managers cannot be
held solidarily liable for the obligation incurred by
the corporation. However, under Section 30 of the
Revised Corporation Code, the managers/officers
may be held liable for gross negligence or fraud.
(1999 Bar)
I would advise Mr. X to institute an action against the
corporation, as well as the officers who caused his illegal
 25 | R e v i s e d Corporation Code
appointed as bank manager of Laguna Branch, and was
given commensurate increase in salary and perquisites.
During his service as bank manager, Mr. X learned of the
top-management of orders regarding the transfer of three
of his branch’s tellers. Mr. X made representations to retain
the three tellers. Irked by his actuations, officers of the
bank questions Mr. X on alleged unauthorized credit
accommodations. In order to remove Mr. X from his post,
the officers imposed upon the former the burdensome task
of explaining his side within 24 hours. Failure of his part
would then constitute as basis for his suspension and
dismissal.
Mr. X having inadequate time to explain his side, was
dismissed from office on the ground of loss of confidence.
He now comes to you seeking legal advice as to his rights
and who should be made to answer for his present
predicament. If you were the lawyer, what would be your
advice to Mr. X?
211 Leonardo is the Chairman and President, while Rafael is a
Director of PL Corporation. On one occasion, PL
Corporation represented by Leonardo, and NM Enterprises,
a single proprietorship owned by Rafael, entered into a
dealership agreement whereby PL Corporation appointed
NM Enterprises as exclusive distributor of its products in
Northern Luzon. Is the dealership agreement valid?
Explain.
Pedro owns 70% of the subscribed capital stock of a
company which owns an office building. Paolo and Juan
own the remaining stock equally between them. Paolo also
owns a security agency, a janitorial company, and a
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dismissal.
There is no question that managerial employees should
enjoy the confidence of top management. This is especially
true in banks where officials handle big sums of money and
engage in confidential and fiduciary transactions. However,
loss of confidence should not be simulated. It should not be
used as a subterfuge for causes which are improper,
illegal, or unjustified. Loss of confidence may not be
arbitrarily asserted in the face of overwhelming evidence
to the contrary. It must be genuine, not a mere
afterthought to justify earlier action taken in bad faith.
The evidence showed that the officers of the corporation
acted jointly in causing the illegal and unjustifiable
dismissal of the plaintiff. As such, they should be jointly
and severally held liable to him. Clearly the officers of the
bank acted beyond their authority and against what the
law, particularly Article 1701 in relation to Articles 19, 20,
and 21 of the Civil Code provides. (General Bank & Trust
Co. v. Court of Appeals, · · No. L-42724, April 9, 1985).
No. The dealership agreement is voidable at the option of
PL Corporation. The dealership will be considered valid
only if the following requirements are present: (1) The
presence of the self-dealing director (Rafael) in the Board
meeting approving the contract was not necessary for
constituting a quorum for such meeting; (2) The vote of
Rafael at such Board meeting was not necessary for the
approval of the contract; and (3) The dealership contract
is fair and reasonable under the circumstances. In the
present case, the facts do not indicate that the dealership
contract was approved by the Board of Directors of PL
Corporation before it was signed or, assuming such
approval, that the requirements under the law are present
(1996 Bar).
No. The service contracts are not valid; they are voidable
at the option of office building company, in which Paolo
has nominal interest (only 15% of the outstanding capital
stock), as provided in Section 32, in relation to Sec 31 of
 26 | R e v i s e d Corporation Code
catering business. In behalf of the office building company,
Paolo engages his companies to render their services to
the office building. Are the service contracts valid? Explain.
213 Chito Santos is a director of both Platinum Corporation
(PLATINUM) and Kwik Silver Corporation (KWIK). He owns
one percent of the outstanding capital stock of PLATINUM
and 40% of KWIK. PLATINUM plans to enter into a contract
with KWIK that will make both companies earn very
substantial profits. The contract is presented at the
respective board meetings of Platinum and KWIK.
a) In order that the contract will not be voidable, what
conditions will have to be complied with? Explain.
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the RCCP because they are self-dealing transactions
and/or transactions between companies with interlocking
directors. While not stated in the facts, since Paolo was
able to engage the services of his companies, he is
presumably either a Board member or an officer of the
building company. As owner of the service companies he is
also presumably a director thereof. Thus, the service
contracts are voidable at the option of the office building
company, unless all the following conditions are present:
(1) The presence of Paolo in the Board meeting in
which the contracts were approved was not
necessary to constitute a quorum for such meeting;
(2) The vote of Paolo was not necessary for the
approval of the contracts;
(3) The contracts are fair and reasonable under the
circumstances; and
(4) In case Paolo is an officer of the office building
company, the contracts have been previously
authorized by the Board of Directors. The contracts
may also be ratified by the vote of the stockholders
representing at least 2/3 of the outstanding capital
stock of the office building company in a meeting
called for the purpose where any of the first two
conditions mentioned above is absent, provided
that the contracts are fair and reasonable under the
circumstances and that full disclosure of the
adverse interest of the director involved is made at
such meeting. (2008 Bar)
a. The contract will not be voidable if at the meeting
of the Board of Directors of Platinum to approve the
contract, (a) the presence of Chito Santos as
director is not necessary to constitute a quorum for
such meeting; (b) his vote is not necessary for the
 27 | R e v i s e d Corporation Code
b) If these conditions are not met, how may this contract
be ratified?
217 Mr. X, a director of Corporation A is also a director of
Corporation B. Mr. X acquired for Corporation B (not for
himself) a business opportunity identical to the business of
Corporation A. He could not give the business opportunity
to Corporation A allegedly because its policies strongly
impede its chances of winning said business. Is there a
violation of Section 34 of the Corporation Code (now
Section 33 of the RCCP)?
Suppose that the by-laws of "X" Corporation, a mining firm,
provides that "The directors shall be relieved from all
liability for any contract entered into by the corporation
with any firm in which the directors may be interested."
Thus, director "A" acquired claims which overlapped with
"X's" claims and were necessary for the development and
operation of "X 's" mining properties.
a) Is the by-law provision valid? Why?
b) What happens if director "A" is able to consummate his
mining claims over and above that of the corporation's
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approval of the contract; and (c) the contract is fair
and reasonable under the circumstances.
b. If the condition relating to quorum and required
number of votes are not met, the contract may be
ratified by the vote of stockholders of Platinum
representing 2/3 of the OCS in a meeting called for
the purpose. The contract may be ratified if the
following conditions are present: (a) there is no
fraud involved; (b) the contract is fair and
reasonable under the circumstances; and (c) there
is full disclosure of the adverse interest of Chito
Santos at the stockholders’ meeting of Platinum in
which the contract is ratified.
No. If it is true that Corporation A cannot engage
competitively in the subject business because of its
alleged policies, then it may not be said that by delivering
the business opportunity to Corporation B, the director
directly or indirectly competed with the business of or is
disloyal to Corporation A. A business opportunity ceased
to be a corporate opportunity and transforms into personal
opportunity where the corporation is definitely no longer
able to avail itself of the opportunity. (SEC Opinion, March
4, 1982).
A. No. The By-Laws must not be contrary to the
provisions of the Revised Corporation Code. The
subject provision is clearly in violation of Section 33
of the Revised Corporation Code that disallows
directors from taking advantage of corporate
business opportunities.
B. Under Sec 23 of the Revised Corporation Code, “A”
should account for and refund to the corporation all
 28 | R e v i s e d Corporation Code
claims?
ABC Piggery, Inc. is engaged in raising and selling hogs in
the local market. Mr. De Dios, one of its directors, while
traveling abroad, met a leather goods manufacturer who
was interested in buying pig skins from the Philippines. Mr.
De Dios set up a separate company and started exporting
pig skins to his foreign contract but the pig skins exported
were not sourced from ABC. His fellow directors in ABC
complained that he should have given this business to
ABC. How would you decide this matter?
219 The Board of Directors of X Corporation through a
resolution decided to create an executive committee and
to delegate all its powers to the said committee. There is
no provision in the Articles of Incorporation and By-Laws
conferring such power. Is the creation of the Executive
Committee valid?
TITLE V
277 At the annual stockholders' meeting of MS Corporation, the
stockholders unanimously passed a resolution authorizing
the Board of Directors to amend the corporate By-Laws so
as to disqualify any stockholder who is also a director or
stockholder of a competing business from being elected to
the BOD of MS Corporation. The By-Laws were accordingly
amended. GK, a stockholder of MS Corporation and a
majority stockholder of a competitor, sought election to
the BOD of MS Corporation. His nomination was denied on
the ground that he was ineligible to run for the position.
Seeking a nullification of the offending disqualification
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the profits that he realized from the transaction.
This is true even if “A” used his own funds in the
business venture. He acquired the business
opportunity to the prejudice of the corporation.
I would decide in favor of Mr. De Dios. There is no conflict
between the business of ABC Piggery, Inc. and the
separate company of Mr. De Dios. ABC is engaged in
raising and selling hogs in the local market while the
company of Mr. De Dios is engaged in the export of pig
skins. It cannot be said that the opportunity to export
pigskins belongs to ABC Piggery, Inc., which is only
engaged in hog raising and selling. (1991 Bar)
No. The creation of the Executive Committee is not valid.
The executive committee may be created only if the same
is provided for in the By-Laws. In addition, even assuming
that there is a provision in the By-Laws, not all powers can
be conferred to the committee. Section 34 of the Revised
Corporation Code provides that the executive committee
cannot act on the following: (1) approval of any action for
which shareholders' approval is also required; (2) the
filling of vacancies in the Board; (3) the amendment or
repeal of By-Laws or the adoption of new By-Laws; (4) the
amendment or repeal of any resolution of the Board which
by its express terms is not so amendable or repealable;
and (5) a distribution of cash dividends to the
shareholders.
I advise GK that he cannot have the disqualification
provision in the amended By-Laws nullifies, provides that
the SEC has already issued a certification that the same is
in accordance with the RCCP. The stockholders’ approval
of the delegation of authority to the Board to amend the
By-laws meets the 2/3 vote requirement under Sec 48 of
the Corporation Code (now Sec 47 of the RCCP). Moreover,
it is well-settled that the provision in the amended By-
Laws, disqualifying any stockholder who is also a director
or stockholder of a competing business from being elected
to the Board of Director is valid. The disqualification is not
 29 | R e v i s e d Corporation Code
provision, GK consults you about its validity under the
Corporation Code of the Philippines. What would your legal
advice be?
The Board of Directors of C Corporation, engaged in the
manufacture of food products, acting on a standing
authority of the stockholders to amend the By-Laws,
amended the By-Laws so as to disqualify any stockholder,
who is also a stockholder and director of the competitor,
from being elected to its Board of Directors. S, a
stockholder holding sufficient shares to assure him a seat
in the Board filed a petition with the Securities and
Exchange Commission for the declaration of nullity of the
amended By-Laws and the cancellation of the Certificate of
Filing of amended By-Laws. He alleged, among others, that
as stockholder, he had acquired rights inherent in the stock
ownership such as the right to vote and be voted upon in
the election of directors. Reason upon the merits of the
stockholder's petition.
Mr. S worked with PV Corporation as administrator from
May 1, 1981 to December 31, 1983. His contract of
employment was not renewed after it expired but he
continued working for PV Corporation even without a
written contract. In 1987, PV amended its By-Laws making
the position of an administrator co-terminus with the term
of the Board of Directors, which appointed him. Mr. S was
thereafter terminated allegedly because his term was not
renewed after the same expired. Mr. S filed a complaint for
illegal dismissal and PV resisted the complaint arguing that
Mr. S was validly dismissed pursuant to the amended By-
Laws. Is the position of the PV Corporation tenable?
TITLE VI
295 Under the Articles of Incorporation of Manila Industrial
Corporation, its principal place of business shall be in
Pasig, Metro Manila. The principal corporate offices are at
the Ortigas Center, Pasig, Metro Manila. The principal
corporate offices are at the Ortigas Center, Pasig, Metro
Manila while its factory processing leather products, is in
Manila. The Corporation holds its annual stockholders’
meeting at the Manila Hotel in Manila, and its BOD’s
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inconsistent with the provisions of the Corporation Code.
The petition has no merit. The Board amended the By-
Laws upon authority of the stockholders. As long as the
authority to amend the By-Laws was delegated to the
Board by the owners of at least 2/3 of the outstanding
capital stock, the delegation is valid and so is the
amended By-Laws approved by the Board pursuant to
such delegation. Moreover, the amendment in the By-Laws
of C Corporation is reasonable and valid. The doctrine is
based on the principle that a director cannot serve two
masters so to speak. There is a danger that the director
will give preference to one corporation. The
disqualification is only a measure of self-protection against
directors who may betray the corporation by giving
preference to the other. (See Gokongwei, Jr. u. SEC, April
11, 1979, 89 SCRA 336) (1981 Bar, See also 2001 Bar)
No, the position of PV Corporation is untenable.
Amendments to the By-Laws cannot impair the obligation
of existing contracts or any vested right. Petitioner is a
regular employee who is entitled to security of tenure;
hence, his services my only be terminated for causes
provided by law. Such security of tenure cannot be
adversely affected by any amendment in the By-Laws.
a. The Chairman or, in his absence, the President shall
preside at the meeting of the directors, unless the
By-Laws provide otherwise (Sec 52, RCCP).
b. Yes. Sec 50 of the RCCP (previously Sec 51 of the
Corporation Code), provides hat stockholders’
meetings, whether regular or special, shall be held
in the principal office of the corporation, or, if not
practicable, in the city or municipality where the
 30 | R e v i s e d Corporation Code
meeting at a hotel in Makati, Metro Manila. The By-Laws
are silent as to the place of meetings of the stockholders
and directors.
a. Who shall preside at the meeting of directors?
b. Can Ting, a stockholder, who did not attend the
stockholders’ meeting in Manila question the validity
of the corporate resolutions passed at such
meeting?
c. Can the same stockholder question the validity of
the resolutions adopted by the BOD at the meeting
held in Makati?
304 What is a voting trust and what are the legal limitations of
the voting trust agreement?
A distressed company executed a voting trust agreement
for a period of three years over 60% of its outstanding
paid-up capital shares in favor of a bank to whom it was
indebted, with the Bank named as trustee. Additionally, the
Company mortgaged all its properties to the Bank.
Because of the insolvency of the Company the Bank
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principal office of the corporation is located. The
AOI the present case is specific that the principal
place of business of Manila Industrial Corporation is
in Pasig, Metro Manila. Hence, the meeting should
be held in the principal office or if not practicable, in
the city where the principal office is located, which
is in Pasig. However, if the corporation shows that it
is not practicable to hold the meeting in the
principal office or m Pasig, then the holding of the
meeting in Manila, which is a city in Metro Manila
like Pasig, is valid also under Section 50.
c. No. Section 52 of the RCCP (previously Section 53 of
the Corporation Code) allows the Board of Directors
to hold its meetings anywhere in or outside the
Philippines. The holding of the Board meeting in
Makati was therefore proper and the validity of the
resolutions adopted by the Board in that meeting
cannot be questioned. (1993 Bar)
A voting trust is a written agreement duly notarized
whereby one or more stockholders transfer their shares of
stock to a trustee for the purpose of vesting into the
trustee the right to vote and other rights pertaining to the
shares, for a period not exceeding five years at any one
time.
The legal limitations on voting trusts are as follows: (1)
they must not exceed the period of five years at any time;
(2) In the case of a voting trust specifically required as a
condition in a loan agreement, said voting trust may be for
a period exceeding five years but shall automatically
expire upon full payment of the loan; (3) They must be in
writing and notarized; and (4) They must specify the terms
and conditions thereof. (1985 Bar)
No. The demand of the Company does not tally with the
concept of a Voting Trust Agreement. The Voting Trust
Agreement does not entitle the trustee to possession and
control of the properties of the corporation. Neither does it
vest management of the corporation on the trustee. The
Voting Trust Agreement merely conveys to the trustee the
 31 | R e v i s e d Corporation Code M o r e n o , Ye l l a h O .
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foreclosed the mortgaged properties, and as the highest right to vote the shares of grantor/s. (1992 Bar)
bidder, acquired said properties and assets of the
Company. The three-year period prescribed in the Voting
Trust Agreement having expired, the Company demanded
the turnover and transfer of all its assets and properties,
including the management and operation of the Company,
claiming that under the VTA, the Bank was constituted as
trustee of the management and operations of the
Company. Does the demand of the Company tally with the
concept of a VTA? Explain briefly your answer.
TITLE VII
306 Q College, Inc. offered 200 shares to Ms. DC for a No, the claim will not prosper. There was no perfected
subscription price of P20,000.00. The offer is stated in a subscription contract. Q College did not accept the term of
subscription letter form that states that initial payment payment suggested by Ms. DC during her lifetime. As Ms.
should be made and the subsequent payment should be in DC's letter is at variance with the terms evidenced in the
accordance with the terms and conditions of the college. form, there was no absolute necessity on the part of the
Later, Ms. DC, instead of sending the subscription form, college to express its agreement to DC’s offer in order to
sent a letter to the Board of Trustees of Q College which bind the latter. Conversely, said acceptance was essential,
states: "Please enter my subscription to dalawang daan because it would be unfair to immediately obligate the Q
(200) shares of your capital stock with a par value of PlOO College under DC’s promise to pay the price of the
each. Enclosed you will find (Babayaran kong lahat subscription after she had caused fish to be caught. In
pagkatapos na ako ay makapag-pahuli ng isda) pesos as other words, the relation between DC and Q College had
my initial payment and the balance payable in accordance only thus reached preliminary stage. There was no binding
with law and the rules and regulations of the Quezon contract in the absence as in the present case of
College. I hereby agree to shoulder the expenses acceptance by the Q College of the counter offer of DC.
connected with said shares of stock. I further submit
myself to all lawful demands, decisions or directives of the Indeed, the need for express acceptance on the part of the
Board of Q College and all its duly constituted officers or Q College becomes the more imperative, in view of the
authorities (ang nasa itaas ay binasa at ipinaliwanag sa fact that the proposal of DC was to pay the value of the
akin sa wikang tagalog na aking nalalaman)." No reply was subscription after she has harvested fish. There was a
sent by Q College to Ms. DC. Ms, DC died without having condition that was dependent upon DC’s sole will and,
paid any portion of the subscription price. Thereafter, Q therefore, potestative in nature, rendering the obligation
College presented a claim in Ms. DC's testate proceeding, void under the New Civil Code.
for the collection of the sum of P20,000, representing the
value of the subscription to the capital stock. Will the claim
prosper?
312 X Corporation was organized by five individual Yes, the creditors can recover from the subscribers the
incorporators who subscribed to the whole authorized latter’s unpaid subscription. Condonation of the obligation
capital stock of Pl,000,000.00 and who paid P500,000.00. to pay the subscription price violates the Trust Fund
 32 | R e v i s e d Corporation Code
The incorporators, all members of the Board of Directors,
agreed among themselves that the unpaid balance of their
subscription will be paid out of expected cash dividends.
However, no dividends were ever declared. The BOD
decided to condone and cancel the unpaid subscriptions.
This action of the Board was ratified by the stockholders by
unanimous vote of the stockholders at a proper meeting.
The creditors of the corporation sued the subscriber for
their unpaid subscription. Can the creditors recover?
Reason.
Ms. Z subscribed to 100 shares of stock of 3D Corporation
with par value of Pl00.00 each, paying P2,500.00 on her
subscription. Subsequently, Ms. Z asked Mr. Y, the
President of the corporation to release her from her
subscription. Mr. Y consented provided that Ms. X forfeits
to the company what she had already paid. Ms. Z agreed
and Mr. Y gave her a Certificate of Release. Not long
afterwards, 3D Corporation went into insolvency and an
assignee was appointed. The assignee now seeks to collect
from Ms. Z the unpaid balance of her subscription. Decide
the dispute with reasons.
317 Assume that you want to be a participant in the business
independently of your being its legal counsel, and that
more investors are expected after the firm is formally
organized. Explain briefly with legal reasons. Citing the
proper law or laws, how may you lawfully charge your fee
and apply them to the payment of your share in the capital
of the firm?
325 “A,” stockholder of “X” Corporation, assigns his shares of
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Doctrine because it reduces the amount that is supposed
to be held in tryst for them. The same is prejudicial to the
rights and interests of the creditors of the corporation.
Ms. Z is liable. The unpaid subscription becomes due the
moment the corporation is declared insolvent. Hence, the
assignee of the insolvent corporation is well within his
right to collect from Ms. Z the unpaid balance of her
subscription. The release made by the President is invalid,
because under the Trust Fund Doctrine, the capital stock
of the corporation constitutes a fund to which the creditors
have a right to look up to for the satisfaction of their
claims. Hence, the unpaid subscription is part of the
amount that can be used to pay the obligations of the
insolvent corporation. (1979 Bar)
I may use the chargeable fee as payment for shares in the
corporation provided that the corporation ratifies or
adopts the agreement for the services that I rendered
before incorporation. Section 61 of the RCCP provides that
consideration for the issuance of stock may be, among
other enumerated items, ''labor performed for or services
actually rendered to the corporation." Compensation for
services actually rendered to the corporation is credit that
is property with ascertainable value. Hence, I can continue
to perform services for the company after its organization
and thereafter ask as payment shares in the corporation.
With respect to the services performed prior to
incorporation, the agreement with the incorporators or
promoters is not necessarily binding on the corporation.
The corporation can however ratify the same. In such a
case, the services can then be used as consideration for
shares in the corporation. (1973 Bar)
"C" has the better right. A transfer of shares is not binding
33 | R e v i s e d Corporation Code
stock to “B” for a valuable consideration. The certificate of
stock was thereupon delivered to “B.” A few days later, “A”
died. The heirs of “A” in a Deed of Extrajudicial Partition
adjudicated his shares of stock to his son “C.” In the
meantime, “X” Corporation declared cash dividends and
sent the corresponding notice to “A’s” address, “A,” being
the registered owner of the shares of stocks in the boos of
the corporation. “C” received the notice and by virtue of
the aforestated Deed of Partition claimed payment of the
dividend. “B” likewise claimed payment, asserting
ownership of the shares by virtue of the assignment made
by “A.” Who has the better right?
Mr. Cruz purchased from Mr. Guzman shares of stock of a
mining corporation, which shares were covered by several
certificates indorsed in blank by Mr. Virgilio Malic in whose
name the same was registered in the books of the
corporation. It was later discovered that the said shares
have not been sold or otherwise disposed of by Mr. Virgilio
Malic, but had been stolen from where they were kept.
Who is entitled to said shares, Mr. Cruz or Mr. Malic?
Reason.
Ricci has in her name 1,000 shares of the capital stock of
CORPO Corporation as evidenced by a stock certificate.
Eddy delivered the stock certificate to Erica, who now
claims to be the real owner of the shares, having paid for
Ricci’s subscription. CORPO Corporation refused to
recognize and register Erica’s ownership. Is the refusal
justified? Explain.
"A" is the registered owner of Stock Certificate No. 000011.
He entrusted the possession of said certificate to his best
friend "B" who borrowed the said endorsed certificate to
support B's application for passport (or for a purpose other
than transfer). But "B" sold the certificate to ''X," a bona
fide purchaser who relied on the endorsed certificates and
believed him to be the owner thereof.
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on the corporation if the same is not registered in the
books of the corporation. Thus, the transfer must first be
registered in the name of the transferee in the books of
the corporation before he can maintain an action for
dividends. (See Section 62, RCCP, previously Section 63,
Corporation Code)
However, as between "C" and ''B," the transfer is already
valid because the transfer is binding on the parties and
their successors in interest. Thus, "B" can file an action
against "C" to recover the dividends. (1981 Bar)
Mr. Malic is entitled to the shares. The transfer to Mr. Cruz
is not valid because it was not sanctioned by Mr. Malic.
Transfer by Mr. Guzman of the shares to Mr. Cruz confers
no title because the former has no title to the shares. In
addition, the Corporation Code, now the RCCP, provides
that no transfer of the shares of stock shall be valid,
except as between the parties, until the transfer is
recorded in the books of the corporation. The reasonable
was not registered in the name of Mr. Cruz; it follows that
the transfer allegedly effected by Mr. Guzman to Mr. Cruz,
is not valid even against the corporation.
The refusal of CORPO to recognize and register Erica’s
ownership is justified. For a transfer to be valid and
binding on the corporation the share must be indorsed by
the owner or his agent and the transfer must be recorded
in the books the corporation. The stock certificate for the
1,000 shares question is in the name of Ricci and it does
not appear that the same was duly endorsed by Ricci at
the time it was delivered to Erica. (1996 Bar)
a. No, A may not claim the shares from "X". A
estopped from questioning the transfer. "A" placed
"B" in such a position that it appeared to third
parties that he ("B") is the owner of the shares. The
certificate of stock covering said shares was duly
endorsed by "A" and entrusted by him to "B."
b. No, the answer would not be the same. Article 559
34 | R e v i s e d Corporation Code
A. Can "A" claim the shares of stocks from "X''?
Explain.
B. Would your answer be the same if "A" lost the stock
certificate in question or if it was stolen from him?
On October 20, 1994, the Board of Directors of MSC, Inc.,
adopted a resolution authorizing the sale of 19 unissued
shares at a floor price of P400,000.00 and P450,000.00 per
share for Class A and B, respectively. On July 7, 1995, Mr. H
expressed his interest to buy a share and requested that
his name be included in the waiting list. In November
1995, M Corporation likewise expressed interest in
acquiring a share of MSC and one Class “A” was acquired
for 1,800,000 through Urban Bank. The certificate was
actually issued only on January 5, 1996. On December 15,
1995, the Deed of Absolute Sale was executed by MSC and
M. Corpo for such purpose. On December 27, 1995, M
Corporation sent a letter to MSC giving notice to its offer to
resell the share and for the MSC to exercise its pre-emptive
right under the By-Laws. It appears that while the sale
between MSC and M Corp was still under negotiations,
there were negotiations between M Corp and Mr. H for the
purchase by the latter of a share. On November 24, 1995,
Mr. H paid M Corp. 1,400,000. Another payment of
1,400,000 was made by Mr. H to Mr. Corp on December 27,
1995, to complete the purchase price of P2,800,000.00. On
February 7, 1996, MSC was advised of the sale by M Corp.
to Mr. H. MSC thereafter filed an action for damages
alleging that M Corp. should be made to pay the sum of
P1,000,000.00 to MSC, representing the amount MSC had
been allegedly defrauded, together with interest and
damages. Will the action prosper?
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of the New Civil Code provides that one who has
lost any movable or has been unlawfully deprived
thereof, may recover it from the person in
possession of the same. In the present case, if the
certificate of stock was lost or stolen from "A," "A"
has a right to claim the certificate of stock from the
thief, or the latter's transferee, who has no right or
title to the same. (2001 Bar)
No, the action will not prosper. Undeniably, on December
27, 1995, when M Corporation offered for sale one Class
"A" share of stock to MSC for the price of P2,800,000.00
for the latter to exercise its pre-emptive right it legally had
the right to do so since it was already an owner of a Class
"A" share by virtue of its payment on November 28, 1995,
and the Deed of Absolute Share dated December 15,
1995, notwithstanding the fact that the stock certificate
was issued only on January 5, 1996. A certificate of stock
is the paper representative or tangible evidence of the
stock itself and of the various interests therein. The
certificate is not a stock in the corporation but is merely
evidence of the holder's interest and status in the
corporation, his ownership of the share represented
thereby. It is not equivalent to ownership under the law. It
expresses the contract between the corporation and the
stockholder, but is not essential to the existence of a
share of stock or the nature of the relation of shareholder
to the corporation. M Corp. properly complied with the
requirement of the By-Laws on MSC's pre-emptive rights.
MSC failed to repurchase the Class "A" share from M Corp.
Neither can MSC argue that M Corp. was not yet a
registered owner of the share of stock when the latter
offered it for resale in order to void the transfer from M
Corp. to Mr. H. The corporation's obligation to register is
ministerial upon the buyer's acquisition of ownership of
the share of stock. The corporation, either by its board, its
By-Laws, or the act of its officers cannot create restrictions
in stock transfers. (Makati Sports Club, Inc. u. Cecile H.
Cheng, et al., G.R. No. 178523, June 16, 2010
 35 | R e v i s e d Corporation Code
329 Mr. Balimbing signed a written subscription for 100 shares
of stock of Laban and Co., paying 25% of the amount
thereof. The corporation subsequently became insolvent
due to a series of financial reverses. Mr. Balimbing
demanded from the Corporate Secretary the stock
certificates corresponding to 25 shares which he claimed
was already paid. Since the corporation was insolvent, Mr.
Balimbing refused to pay for his remaining unpaid
subscription.
A. Can the Corporate Secretary validly refuse to issue
stock certificates in the name of Mr. Balimbing for 25
shares despite the payment of 25% of the
subscription of 100 shares? Reasons.
B. Is Mr. Balimbing correct in refusing to pay for the
remaining shares, the Company being already
insolvent. Reasons.
340 Mercy subscribed to 1,000 shares of stock of Rosario
Corporation. She paid 225% of said subscription. During
the stockholders’ meeting, can Mercy vote all her
subscribed shares? Explain your answer.
A small stockholder of a Bank filed a suit praying for
injunction to prevent the approval of the appointments of
two persons whom he claimed were being appointed to
their positions only for the purpose of shielding from
criminal prosecution the controlling stockholder, alleged to
be committing fraud in the bank affairs. Defendants were
the Board of Directors of the Bank, the two persons, whose
appointments were being questioned, and the controlling
stockholder of the bank. These defendants moved to
dismiss the suit on the ground that a mere stockholder is
not allowed to question the appointments because they
were corporate acts. Should the case be dismissed?
A group of stockholders of Sesame Corporation filed a
court suit against the members of the BOD to make good
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a. Yes. The Corporate Secretary validly refused to
issue the stock certificate. No certificate of stock
shall be issued unless the full amount of the
subscription prince, he cannot demand the issuance
of the certificates.
b. No. Mr. Balimbing has no right to refuse the pay the
balance of the subscription prince. The subscribed
capital is deemed to be held in trust for the
creditors of the corporation. While as a rule, a call is
necessary to make the obligation to pay due and
demandable, the same is not necessary if the
corporation becomes insolvent. The obligation to
pay arises when the corporation becomes insolvent
because the trust fund is now necessary to
discharge corporate liabilities.
Yes. Sec 72 of the Corporation Code (now Sec 71 of the
RCCP) provides the full payment of subscription is not
required to make one a stockholder and holders of non-
delinquent shares shall have all the rights of a stockholder.
There is no showing in this case that Mercy holds
delinquent shares. Mercy is, thus, entitled to all the rights
of a stockholder upon the perfection of the subscription
agreement, which rights include the right to vote during
the stockholders’ meeting.
No. A stockholder has the right to file a derivative suit to
question the appointments. The directors cannot be
expected to nullify the appointments; hence, a stockholder
can bring a derivative suit on behalf of the corporation. It
would be futile for the stockholder to ask the Board to
bring the suit because said Board was the one responsible
for the questioned appointments.
No. The action will not prosper. The shareholders have no
right to the corporate assets until liquidation. Hence, they
 36 | R e v i s e d Corporation Code
to the shareholders, in proportion to their shareholdings,
the losses incurred by the corporation because of the
defendant BOD’s management. Will the action prosper?
Reasons.
341 A became stockholder of Prime Real Estate Corporation
(PREC) in July 10, 1991, when he was given one share by
another stockholder to qualify him as a director. A was not
re-elected director in July 1, 1992 annual meeting but he
continued to be a registered shareholder of PREC. When he
was still a director, A discovered that on January 5, 1991,
PREC issued free of charge 10,000 shares to X, a lawyer
who assisted in a court case involving PREC.
a. Can A now bring an action in the name of the
corporation to question the issuance of the shares to
X without receiving any payment?
b. Can X question the right of A to sue him in behalf of
the corporation on the ground that A has only one
share in his name?
c. Can the shares issued to X be considered watered
stocks?
The Board of Directors of P Corporation approved a
resolution authorizing the acquisition of up to 100% of the
common stocks of J Corporation. The Board specifically
appointed one of its Directors, Mr. S, to act as attorney-in-
fact and proxy who could vote all the shares of P
Corporation in J Corporation. Mr. S, by virtue of such power,
was able to constitute the Board of J Corporation. The
Board of P Corporation likewise approved that the payment
of the shares of J Corporation shall be made by transferring
the real property of P Corporation to J Corporation.
The property to be transferred constitutes substantially all
of the assets of P Corporation. The decision of the Board
was later ratified by the stockholders representing 74% of
the outstanding capital. However, before the stockholder’s
meeting where such ratification was made, the minority
stockholders filed a derivative suit asking the Court to
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cannot ask for shares in whatever is due to the
corporation. Moreover, even if there is a cause of action
against the directors, the proper party to file the case is
the corporation. The shareholders may file a derivative
suit but the reliefs should be in favor of the corporation.
a. a. 10. It is required for the filing of a derivative suit
that the person who initiates the suit was a
stockholder at the time of the transaction in
question. The transaction in question was entered
into before Mr. A became a shareholder. However, if
the act complained of is a continuing one, A may
file the derivative suit. It does not appear that the
act is a continuing one in this case.
b. No. the right to file a derivative suit pertains to all
shareholders. Even a shareholder owning one share
is entitled to such right.
c. No. Watered shares are those sold by the
corporation for less than the par or book value. In
the instant case, there must be proof that the value
of the services rendered by X is less than the total
par value of the shares issued in his name in order
for such shares to be considered as watered stocks.
No, the action will not prosper. The action of the minority
shareholders should be dismissed for being moot and
academic. Where he issues have become moot and
academic, there is no justiciable controversy, thereby
rendering the resolution of the same of no practical use or
value. Since the resolution of the Board was ratified by the
stockholders, the acquisition by P Corporation of J
Corporation is no longer just the act of the Board but also
off the stockholders. By ratification, even an unauthorized
act of an agent becomes the authorized act of the
principal. To declare the resolution null and void will serve
no practical use or value or affect any of the rights of the
parties because the approval of the stockholders will still
remain valid and binding.
 37 | R e v i s e d Corporation Code M o r e n o , Ye l l a h O .
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declare null and void the resolution of the Board. Will the
action prosper?
TITLE VIII
352 A owns 100 out of 10,000 shares in the Manufacturers’ No. A stockholder's right to inspect does not cover
Bank. He filed a suit against B for damages due to an inspection of bank accounts. The Secrecy of Bank Deposits
alleged breach of contract. A secures a favorable judgment Law makes all bank deposits of whatever nature
against B but fails to obtain full satisfaction thereof. A absolutely confidential in nature and the same may not be
receives a tip that B has a big time deposit with inquired into by any person except under specified
Manufacturers’ Bank. B is not aware that A is stockholder circumstance. The circumstances herein involved do not
in the said bank. A goes to the bank and demands the right fall under any of the exceptions under the Bank Secrecy
to inspect the records of the bank to find out whether B Law. Independent of the foregoing, the purpose of the
has indeed such a time deposit and how much. The bank inspection is likewise not acceptable because it is alien to
manager refuses to accede to his demand. A threatens to all the other rights of the shareholder. (1983 Bar)
sue him on the ground that as a stockholder of the
corporation, he is given by the RCCP the right to inspect all
the books of the corporation. Is A entitled to look at the
bank's records of deposits? Explain.
Petitioner who is a stockholder of Bilmoko Corporation a. The case should be decided in favor of the
wanted to examine the books and records of a foreign petitioner. The right of a stockholder to inspect the
subsidiary wholly owned by Bilmoko Corporation. The book books and records of a corporation extends to a
and records of the foreign subsidiary were in the subsidiary wholly owned by the corporation. It is in
possession of Bilmoko Corporation. The latter's board of consonance with equity, good faith and fair dealing
directors refused to allow the petitioner to examine the if the right of the shareholder will be so extended.
said books and records. contending that the foreign b. The shareholder’s right to inspect the corporate
subsidiary is a separate and distinct corporation domiciled book may be exercised only if the following are
in another country; hence, the petitioner was not within present: (a) when it is exercised at a reasonable
the class of persons having an interest in the operations of hour on business days; (2) when the stockholder
the foreign subsidiary. has not improperly used any information he secured
A. Decide the case. through any previous examination; and (3) when
B. What are the limitations on a stockholder' right to the demand is made in good faith or for a legitimate
inspect corporation books and records? purpose. Hence, absent any of the foregoing, the
corporation can deny the stockholder’s exercise of
the right to inspect corporate books or records.
Don Mariano was able to secure a favorable judgment Yes, the stand of the Bank Manager is legally tenable. A
against Nestor Pe for recovery of a sum of money and the stockholder has the right to inspect the corporate books
said judgment had become final and executory. Don under Section 73 of the RCCP. However, the right to
Mariano was informed by someone that Nestor Pe might inspect the books of a corporation is subject to special
have a sizable savings deposit with Xena Commercial law, like Republic Act No. 1405 or the Bank Deposit
Bank, of which Don Mariano was a stockholder, with one Secrecy Law which operates as an exception to the
 38 | R e v i s e d Corporation Code M o r e n o , Ye l l a h O .
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share registered in his name. Immediately he rushed to the general rule. (1985 Bar)
Bank and demanded from the Bank Manage; that he be
shown the Bank records to see if Nestor Pe really had such
savings deposit. When the Bank Manager refused and
invoked Republic Act No. 1405, Don Mariano cited his right
as a stockholder to inspect corporate records. Is the stand
of the Bank Manager legally tenable? Explain.
TITLE IX
364 Two corporations agreed to merge. They then executed an a. No. It is not necessary for the absorbed corporation
agreement specifying the surviving corporation and the to undertake dissolution and winding up procedure.
absorbed corporation. Under the agreement of merger Once the merger is approved by the SEC, the
dated November 5, 1998, the surviving corporation absorbed corporation is automatically dissolved and
acquired all the rights, properties and liabilities of the its assets and liabilities are acquired and assumed
absorbed corporation. by the surviving corporation.
b. No. The approval of the SEC is the operative act
A. What would happen to the absorbed corporation? that makes the merger effective. Before approval by
Must the absorbed corporation undertake dissolution the SEC of the merger, the two corporations
and winding up procedures? Explain your answer. involved in the merger are still separate and distinct
B. Pending the approval of the merger by the SEC, may from each other.
the surviving corporation already institute suits to c. The argument is not meritorious. The receivables
collect all receivables due to the absorbed pertain to the surviving corporation whether or not
corporation from its customers? Explain your the same were incurred by the absorbed
answer. corporation before or after the merger agreement,
C. A case was filed against a customer to collect on the or before or after the approval thereof by the SEC.
promissory note issued by him after the date of the Section 79 of the RCCP does not make any
merger agreement. The customer raised the defense distinction as to the assets and liabilities of the
that while the receivables as of the date of the absorbed corporation that the surviving corporation
merger agreement were transferred to the surviving would inherit. (1999 Bar)
corporation, those receivables which were created
after the merger agreement remained to be owned
by the absorbed corporation. These receivables
would be distributed to the stockholders
conformably with the dissolution and liquidation
procedures under the RCCP. Discuss the merits of
this argument.
TITLE X
371 The Articles of Incorporation of X Corporation provides that No, the appraisal right does not arise each time that the
preferred shares shall earn cumulative dividends of 6% to BOD fixes the terms and conditions of the preferred shares
16% as the Board may determine. Assume that the considering that such authority was given to them at the
39 | R e v i s e d Corporation Code
delegation of power to the Board is valid. Can a
shareholder exercise an appraisal right every time the
Board declares dividends and fixes the rate thereof within
the limitations provided for in said By-Laws provision?
The Board of Directors of P Corporation approved a
resolution authorizing the acquisition of up to 100% of the
common stocks of J Corporation. The Board specifically
appointed one of its Directors, Mr. S, to act as attorney-in-
fact and proxy who could vote all the shares of P
Corporation in J Corporation. The Board likewise approved
that the payment of the share shall be made by
transferring the real property of P Corporation. The
property to be transferred constitutes substantially all of
the assets of the corporation. The decision of the Board
was later ratified by the stockholders representing 74% of
the outstanding capital. However, before the stockholder'
meeting where such ratification was made, the minority
stockholders filed a derivative suit asking the Court to
declare null and void the resolution of the Board.
a. Was appraisal right available?
b. The minority shareholders claimed that the appraisal
right was not available because appraisal right may
be exercised only by stockholders who had voted
against the proposed action. Is the contention
tenable?
In a stockholders’ meeting, S dissented from the corporate
act converting preferred voting shares to non-voting
shares. Thereafter, S submitted his certificates of stock for
notation that his shares are dissenting. The next day, S
transferred his shares to T to whom new certificates were
issued. Now, T demands from the corporation the payment
of the value of his shares. Can T exercise the right of
appraisal. Reason briefly.
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outset and such delegation is not unlimited (if and when
revised) and would not change or restrict the rights of the
stockholders or class of shares or create preferences in
any respect superior to those of the outstanding shares of
any class.
a. Yes, appraisal right was available. The decision of
the Board is in the nature of investment of
corporate property in another corporation. Sec 42 of
the Corporation Code, (now Sec 411 of the RCCP)
expressly provides an appraisal right to all
dissenting stockholders in actions of such nature. In
addition, the existence of an appraisal right is
provided for under paragraph (2) of Section 81 of
the Corporation Code (now Section 80 of the RCCP)
because of P Corporation decided to transfer
substantially all of the properties of the corporation.
b. No, the contention is not tenable. The minority
stockholders themselves cause the unavailability of
the appraisal right by filing their complaint even
before the Resolution of the Board could be
presented to the stockholders of P Corporation for
approval or rejection.
No, T cannot exercise the right of appraisal. Appraisal right
cease. Section 85 of the RCCP provides that if the shares
represented by the certificates bearing a notation that
they are dissenting shares are transferred, and the
certificates are consequently cancelled, the rights of the
transferor, like S, as a dissenting stockholder shall cease
and the transferee, like T, shall have al] the rights of a
regular stockholder; and all dividend distributions that
would have accrued on such shares shall be paid to the
transferee. In addition, 1t is also required that the
appraisal right is exercised by any stockholder who voted
against the proposed corporate action. T was not the one
who voted for the action. (2007 Bar)
 40 | R e v i s e d Corporation Code
TITLE XI
386 The members of ABC Corporation, a non-stock corporation,
contributed an amount for a corporate activity. However,
the total amount that was contributed was more than
sufficient for the activity; hence, a balance of P500,000.00
was left with the corporation. There is a proposal to offset
the unused contribution against the balance of the
receivables from the members. Is the proposal in
accordance with law?
The AB Memorial Foundation, Inc. was incorporated as a
non-profit, non-stock corporation in order to establish and
maintain a library and museum in honor of the deceased
parents of the incorporators. Its Articles of Incorporation
provides for a Board of Trustees composed of 5
incorporators, which is authorized to admit new members.
The AI also allows the foundation to receive donations from
members. As of January 30, 1993, 60 members had been
admitted by the Board of Trustees.
a. Can the Foundation use the funds donated to it by
its members the purchase of food and medicine for
distribution to the victims of the Pinatubo eruption?
b. Can the Foundation operate a specialty restaurant
that caters to the general public in order to augment
its funds?
c. One of the original trustees died while two others
resigned because they immigrated to the United
States. How will the vacancies in the Board of
Trustees be filled?
TITLE XII
395 Ten classmates, all graduates of Class '7 of the Lo Banos a.
School of Agriculture and Husbandry, decided to form
Gatas Atbp., Inc.," the principal purpose of which is to
produce, package, and sell carabao's milk. The Articles of
Incorporation provided, among others, that the business of
the corporation shall be managed by the stockholders of
the corporation rather than by a board of directors and
restrict the transfer of shares to outsiders.
One of the ten classmates, Mr. Sakit-ulo disgruntled at the
way the affairs of the corporation was being handled,
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No. The offsetting will amount to distribution of the assets
of the corporation. The properties of a non-stock
corporation cannot be distributed and the members
cannot reduce the corporate capital unless the corporation
is dissolved. Receivables from the members are
considered assets of the corporation and may not
therefore be distributed. (SEC Opinion, November 27,
1985)
a. Yes, as long as the amount of donation is
reasonable, the donation is allowed under Section
35(i) of the RCCP.
b. The action is ultra vires. The purposes of the
corporation are limited to the establishment and
maintenance of the library and museum as stated
in the problem; thus, the foundation cannot operate
a specialty restaurant that caters to the general
public. However, it may also be possible to establish
that the act of the corporation is justified by
showing that the restaurant's purpose is to raise
funds to support the library and museum.
c. There is no quorum to do business because there
are only two members of the Board of Trustees
remaining. Consequently, the vacancies will have to
be filled up in a special meeting of the members.
(Section 28, RCCP; 1993 Bar)
a. No Gatas Atbp., Inc. is a close corporation, and its
APO can provide that the business of the
corporation be managed by the stockholders rather
than by a BOD. Thus under Section 96 of the RCCP,
the provision that makes the stockholders
managers, precludes Mr. Sakit-ulo from demanding
that the stockholders meet m order to elect
directors of the company.
b. Yes. Ms. Sakit-tiyan has a cause of action against
the stockholders. The stockholders who are
41 | R e v i s e d Corporation Code
demanded that all the ten stockholders meet to elect
directors. Meanwhile, Ms. Sakit-tiyan, sued all the ten
classmates-stockholders for damages for violation of the
Food, Drugs Cosmetics Act - a cockroach was found in the
milk she drank, the package of which bore the inscription
"produced, packaged, and sold by Gatas Atbp., Inc.”
A. Can Mr. Sakit-ulo demand that a stockholders’
meeting be called to elect directors of the
corporation?
B. Does Mr. Sakit-tiyan have a cause of action against
all the ten classmates-stockholders, albeit no
negligence has been proven?
Mr. A, a member of the board of directors of XYZ
Corporation, a close corporation, engaged the services of
Mr. X to provide technical service to the corporation. No
meeting was held to approve the contract with Mr. X.
However, all director signed the contract. Can the contract
be questioned on the ground that there was no approval by
the board in a meeting called for such purpose?
The stockholders of ABC Corporation, a corporation
organized as a close corporation, were sued by an
employee, Mr. X, for separation pay. At that time the
stockholders are the ones managing the close corporation.
The stockholders do not dispute that the separation pay
was unlawfully withheld. However, they invoke the doctrine
to separate personality in support of their position that
they are not liable. Are the stockholders liable?
Rafael inherited from his uncle 10,000 shares of Sta. Ana
Corporation, a close corporation. The shares have a par
value of 10.00 per share. Rafael notified Sta. Ana that he
was selling his shares at P70 00 per share. There being no
takers among the stockholders, Rafael sold the same to his
cousin Vicente (who is not a stockholder) for 700,000.00.
The Corporate Secretary refused to transfer the shares in
Vicente's name in the corporate books because Alberto
one of the stockholders, opposed the transfer on the
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managers of the close corporation are liable for
corporate torts. Said stockholders are_ made
personally liable for corporate torts unless the
corporation has obtained reasonably adequate
liability insurance. Negligence need not be proven
to warrant liability by manufacturers of foodstuff
under Article 2187 because the liability under the
same prov1S10n is in the nature of strict liability.
(1988 Bar)
No. The contract cannot be questioned on such ground.
Section 100 of the RCCP provides that any action by the
directors of a close corporation without a meeting shall
nevertheless be deemed valid if, among other cases,
before or after such action is taken, written consent of the
action taken is signed by all the directors. In this case, all
the directors signed the contract; hence, the same
partakes of the nature of a written consent that makes a
meeting of the directors no longer necessary.
Yes, the stockholders are liable. The fifth paragraph of
Section 99 of the RCCP specifically imposes personal
liability upon the stockholders who are actively managing
or operating the business and affairs of the corporation.
This covers cases involving tort liability. Tort under Sec 99
consists in the violation of a right given or the omission of
a duty imposed by law. In this case, there was an omission
of a duty to pay separation pay.
Yes. In a close corporation, the restriction as to the
transfer of shares bas to be stated/annotated in the
Articles of Incorporation, the By-Laws, and the Certificate
of stock. This serves as notice to the person dealing with
such shares like Rafael in this case. With such notice, be is
bound by the pricing stated in the By-Laws. (1994 Bar)
 42 | R e v i s e d Corporation Code M o r e n o , Ye l l a h O .
XU College of Law

ground that the same violated the by-laws. Alberto offered

to buy the shares at Pl2.50 per share, as fixed by the by-
laws or a total price of P125,000.00 only.

While the by-laws of Sta. Ana provides that the right of first
refusal can be exercised "at a price not exceeding 25%
more than the par value of such shares, "the Articles of
Incorporation simply provides that the stockholders of
record” shall have preferential right to purchase said
shares." It is silent as to pricing.

Is Rafael bound by the pricing proviso under the by-laws of

Sta. Ana Corporation?
Robert, Rey, and Ben executed a joint venture agreement
to form a close corporation under the Corporation Code,
the outstanding capital of which the three of them would
equally own. They also provided therein that any corporate
act would need the vote of 70% of the outstanding capital
stock. The terms of the agreement were accordingly
implemented and the corresponding close corporation was
incorporated. After three years, Robert, Rey, Rey and Ben
could not agree on the business in which to invest the
funds of the corporation. Robert wants the deadlock
broken. What are the remedies available to Robert under
the RCCP to break the deadlock? Explain.
Title XIV
426 "X" Corporation brought an action against Y for the
collection of a sum of money. Y set up the defense that X
had no legal capacity to sue because it was no longer in
existence a week before the suit was filed. The
stockholders held a meeting whereat a resolution was
adopted unanimously dissolving said corporation. Is the
defense valid? Give reasons.
X" Corporation shortened its corporate life by amending its
articles of incorporation. It has no debts but owns a prime
property located in Quezon City. How would the said
property be liquidated among the five stockholders of said
corporation? Discuss two methods of liquidation.
Robert can petition the SEC to arbitrate the dispute. Under
Sec 103 of the RCCP, if the directors or stockholders are so
divided respecting the management of the corporation’s
business and affairs that the votes required for any
corporate action cannot be obtained, with the
consequence that the business and affairs of the
corporation can no longer be conducted to the advantage
of the stockholder, the SEC shall have the power to
arbitrate the dispute. (1995 Bar)
No, the defense is not valid. In the first place, the SEC has
not yet approved the dissolution. Secondly, even if there
was a duly approved dissolution, the corporate existence
does not automatically cease. The corporation has three
years after dissolution to liquidate its affairs. (1968 Bar)
The prime property of "X" Corporation can be liquidated
among the five stockholders through any of the following
modes: (1) liquidation through the Board of Directors; (2)
liquidation through a trustee to whom the properties are
conveyed; and (3) liquidation through a receiver. The
board, the trustee, or the receiver as the case may be will
43 | R e v i s e d Corporation Code
"Acme Corporation" filed a complaint for collection against
"D." While the case was pending, Acme Corporation
amended its OI to shorten its terms of existence up to
December 31, 2015. The SEC approved the amendment.
The trial court, however, was not notified thereof, so that
the proceedings therein continued until May 5, 2016, when
“D,” learning of the dissolution, questioned the personality
of the corporation to continue prosecuting the dissolved,
but had not taken steps to wind up its affairs and transfer
its assets to a trustee or assignee within the 3-year period
under the law, it had ceased to exist for all purposes.
Decide the case with reasons.
The corporation, once dissolved, thereafter continued to be
a body corporate for three years for purposes of
prosecuting and defending suits by and against it and of
enabling it to settle and close its affairs, culminating in the
final disposition and distribution of its remaining assets. If
the three-year extended life expires without a trustee or
receiver being designated by the corporation within that
period and that time (expiry of the three-year extended
term), the corporate liquidation is not yet over, how, if at
all, can a final settlement of the corporate affairs be made?
The Securities and Exchange Commission approved the
amendment of the Articles of Incorporation of GHQ
Corporation shortening its corporate life to only 25 years in
accordance with Section 136 of the RCCP. As shortened,
the corporation continued its business operations until May
30, 2019, the last day of its corporate existence. Prior to
said date, there were a number of pending civil actions, of
varying nature but mostly money claims filed by creditors,
none of which was expected to be completed or resolved
within five years from May 30, 2019. If the creditors had
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then convey the property and distribute it among the
creditors after paying the corporate debts. It is submitted
that the specific property may either be sold and the
proceeds thereof distributed to the stockholders after
paying corporate debts or they may actually physically
divide the property if no creditor will be affected. (2001
Bar)
D’s contention is untenable. If there is still a pending case
when the 3 year period to liquidate expired and there is no
trustee that is appointed, the counsel of the corporation
who prosecuted and represented the interest of the
corporation may be considered a trustee of said
corporation with respect to the same case and he can
continue to represent the corporation.
The final settlement can be made through the Board of
Directors. The members of the Board of Directors can
continue with the winding of the corporate affairs until
final liquidation. They can act as trustees or receivers for
this purpose.
I will advise them that the cases could be pursued beyond
the last day of the corporate existence. Although Section
139 of the RCCP provides that the corporation continues to
be a body corporate for three years after its dissolution for
the purpose of prosecuting and defending suits by and
against it and for enabling it to settle and close its affairs,
the expiration of the said period does not mean that the
pending cases will be terminated. Pending suits upon the
expiration of the 3-year period after its dissolution may be
prosecuted by the lawyer who is handling the cases and
 44 | R e v i s e d Corporation Code
sought your professional help at that time about whether
or not their cases could be pursued beyond May 30, 2019,
what would have been your advise?
446 SCEH is a corporation organized in Hong Kong and
operates a network system (referred to as SEN) in several
countries. Its servers are in the United States while its
employees are in Hong Kong. SEN is an inline platform that
offers various contents and services including online
community and gaming system. A person who wants to
participate must create a SEN account. Hence, even if
SCEH has no physical presence in the country, people in
the Philippines can also participate by creating accounts. A
SEN account holder can buy content and services from SEC
only by using funds from an associated SEN online wallet,
which can be funded by using a credit, debit or prepaid
card sold in the Philippines through independent
contractors. SCEH also markets its products through
independent contractors. Is SCEH doing business in the
Philippines.
Title XV
477 X Corporation is engaged in a scheme whereby an investor
is required to become a Business Center Owner (ECO) who
must fill-up and sign its application form. The Terms and
Condition printed at the back of the application form
indicate that th: BCO shall mean an independent
representative of Power Homes, who is enrolled in the
company's referral program and who will ultimately
purchase real property from any accredited real estate
developers and as such he is entitled to a referral
bonus/commission. Paragraph 5 of the same indicates that
there exists no employer/employee relationship between
the BCO and the Power Homes Unlimited, Corp. The BCO is
required to pay US$234 as his enrollment fee. His
enrollment entitles him to recruit two investors who should
pay US$234 each and out of which amount he shall receive
US$92. In case the two referrals/enrollees would recruit a
minimum of four (4) persons each recruiting two (2)
persons who become his/her own down lines, the BCO will
receive a total amount of US$147.20 after deducting the
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the latter will act as the trustee for such purpose.
Yes, SCEH is doing business in the Philippines and
consequently it must secure a license to do business. The
applicable rule is the Twin Characterization Text, which
essentially means a foreign corporation is doing business
if the transaction is in the pursuit of the main business of
the foreign corporation and there is an intent to continue
the same. In the present case, the following indicates that
SCEH is continuing the substance and body of its business
in the Philippines: (a) funding the online SEN wallet; (b)
offering and selling services; (c) accepting online
payments including Philippine currency; (d) marketing or
advertising; € hiring of independent contractors for
advertising or marketing and for selling pre-paid cards.
Yes, X Corporation is engaged in the business of
distributing securities in the form of investment contract.
To be a security subject to regulation by the SEC, an
investment contract must be proved to be: (1) an
investment of money, (2) in a common enterprise, (3) with
expectation of profits, and (4) primarily from efforts of
others. In this case, what BCO is really acquiring is the
possibility of deriving money from the sale of the plans.
Once an individual has purchased a Plan, _he turns his
efforts toward bringing others into the organization, for
which he will receive a part of what they pay. His task is to
bring prospective purchasers to "Adventure Meetings."
(Power Homes Unlimited Corporation v. Securities and
Exchange Commission, G.R. No. 164182, February 26,
2008; See also 2010 Bar)
 45 | R e v i s e d Corporation Code
amount of US$36.80 as property fund from the gross
amount ofUS$184. After recruiting 128 persons in a period
of eight (8) months for each Left and Right business groups
or a total of 256 enrollees whether directly referred by the
BCO or through his down lines, the BCO who receives a
total amount of US$11,412.80 after deducting the amount
of US$363. 20 as property fund from the gross amount of
US$1 l , 776, has now an accumulated amount of US$2,
700 constituting as his Property Fund placed in a Property
Fund account with the Chinabank. This accumulated
amount of US$2, 700 is used as partial/full down payment
for the real property chosen by the BCO from any of
(petitioner's] accredited real estate developers. Is X
Corporation involved in the distribution of securities?
477 W.J. Howey Company
T Corporation has a business plan under which it will
assign leasehold rights over the lots and condotel units for
a valuable consideration and the assignees will enroll said
units und a management contract with T Corporation or its
authorized condotel operator to undertake the leasing of
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Yes, the contracts are investment contracts that are
securities under the law. The companies are offering more
than fee simple interests in land, something different from
a farm or orchard coupled with management services.
They are offering an opportunity to contribute money and
to share in the profits of a large citrus fruit enterprise
managed and owned by the companies. They are offering
this opportunity to persons who reside in different
localities and who lack the equipment and experience
requisite to cultivation, harvesting and marketing of citrus
us products. The respective shares of the purchasers are
evidenced by contracts that are convenient instruments of
determining the shares in the profits. The resulting
transfer of rights in the land is merely incidental.
Consequently, all the elements of a profit-seeking
business venture are present. The investor provides the
capital and share in the earnings and profits; the promoter
manages, controls, and operates the enterprise. Thus,
investment contracts are involved regardless of the legal
terminology in which such contracts are clothed.
Yes the transactions are investment contracts that are
investment contracts that are under SRC. What is involved
is a scheme whereby a person invests his money in the
common enterprise and is led to expect profits primarily
through the efforts of others. T Corporation is offering
46 | R e v i s e d Corporation Code
the same wherein the profits will be realized and rem1tte
tot e assignee on top of the guaranteed aggregate 30-day
use per year of the condotel unit. Does the scheme involve
investment contracts?
ETS sold payphones to the public via independent
distributors. The payphones were offered packaged with a
site lease, a 5-year leaseback and management agreement
and a buyback agreement. All but a tiny fraction of
purchasers chose this package although other
management options were offered. The purchase price per
package was US$7,000.00. Under the leaseback and
management agreement, purchasers received $82 per
month, a 14% annual return. Purchasers were not involved
in the day-to-day operation of the payphones that they
owned. ETS selected the site for the phone, installed the
equipment, arranged for connection and long-distance
service, collected coin revenues, and maintained and
repaired the phones. Under the buyback agreement, ETS
promised to refund the full purchase price of the package
at the end of the lease or within 180 days of a purchaser's
request. The payphones did not generate enough revenues
for ETS to make payments required for the leaseback
agreement so the company depended on funds from new
investors to meet its obligations. Are the packages
securities?
Philippine Palaces Realty (PPR) has been representing itself
as a registered broker of securities, duly authorized by the
SEC. In October 6, 2013, PPR sold to spouse Leon and
Carina one timeshare of Palacio del Boracay for
US$7,500.00. However, its Registration Statement became
effective only on February 11 2014 after the SEC issued a
resolution declaring was authorized to sell securities,
including timeshares. On March 30 1998, Leon and Carina
wrote PPR rescinding they paid b se agreement and
demanding the refund of the amount them by they paid,
because the Palacio del Boracay timeshare was sold to PPR
contended the grant of SEC authority has the effect of
ratifying the purchase agreement (with Leon and Carina) of
October 6, 2013. Is the contention of PPR correct? Explain.
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more than leasehold rights but also the opportunity to
contribute money and to share in the profits of leasing
condotel units managed and currently owned by T
Corporation.
Yes, the packages that were sold are securities. What is
involved is a scheme whereby a person invests his money
in the common enterprise and is led to expect profits
primarily through the efforts of others. In this easer, the
investments were made on the promise of monthly
income on the leaseback agreement. The fact that the
rate of the income is fixed is of no moment. There is no
distinction between fixed and variable returns. Otherwise,
unscrupulous marketers of investments could evade
securities laws by simply picking a fixed rate of return.
(Securities and Exchange Commission v. Edwards, No. 02-
1196, January 13• 2004, 540 U.S. 1)
The contention of PPR · t k . . is no correct. PPR was
engaged in what is known as gun jumping. Section 8.1 of
the Securities Regulation Code provides that securities
shall not be sold or offered for sale or distribution within
the Philippines without a registration statement approved
by the SEC. Timeshares are considered securities and prior
to fulfillment of all the other requirements of the SRC, PPR
1s absolutely proscribed from dealing with unregistered
timeshares (Timeshare Realty Corporation v. Cesar Lao, et
al., G.R. No. 158941, February 11, 2008). (2009 Bar)
 47 | R e v i s e d Corporation Code
492 Grand Gas Corporation, a publicly listed company,
discovered after extensive drilling a rich deposit of natural
gas along the coast of Antique. For five months, the
company did not disclose the discovery so that it could
quietly and cheaply acquire neighboring land and secure
mining rights to the land. Between the discovery and its
disclosure of the information to the Securities and
Exchange Commission, all the directors and key officers of
the company bought shares in the company at very low
prices. After the disclosure, the price of the shares went
up. The directors and officers sold their shares at huge
profits.
A. What provision of the Securities Regulation Code
(SRC) did they violate, if any? Explain.
B. Assuming that the employees of the establishment
handling the printing work of Grand Gas Corporation
saw the exploration reports which were mistakenly
sent to their establishment together with other
materials to be printed. They too bought shares in
the company at low prices and later sold them at
huge profits. Will they be liable for violation of the
SRC? Why?
495 Union Mines, Inc. has total assets of 60 million with 210
stockholders holding at least 100 shares each. The
company has two principal stockholders, ABC which owns
60% of the shares of stock, and XYZ which owns 17%. ABC,
in turn, is owned to the extent of 21.3% by Acme, Inc.;
29.69% by Golden Boy, Inc., 9% by XYZ; and the rest by
individual stockholders. None of the parties is a publicly-
listed company. XYZ now proposes to buy Acme’s and
Golden Boy’s shares in ABC, which would give it direct
control of ABC and indirect control of Union mines. Is the
proposed acquisition by XYZ subject to the mandatory
tender rule? Why or why not? What is a tender offer and
when is it mandatory?
M o r e n o , Ye l l a h O .
XU College of Law
A. The directors and key officers of GGC violated SRC
rules on insider trading. The directors and officers
are insiders within the contemplation of the SRC,
hence, they must comply with the disclosure
requirement under the said law. Section 27 of the
SRC provides that it shall be unlawful for an insider
to sell or buy securities of the issuer, while in
possession of material information with respect to
the issuer or the security that is not generally
available to the public, unless: (a) the insider
proves that the information was not gained from
such relationship; or (b) if the other part selling to
or buying from the insider is identified, the insider
proves: xxx
B. Yes, the employees of the establishment handling
the print' job shall be liable. The obligations
imposed under Section 27: also imposed on the
same employees. The employees are al insiders
because they are persons whose relationship or
form so relationship to the issuer gives or gave him
access to material information about the issuer or
the security that 1s not generally available to the
public. (Section 3.8[c], SRC) (2008 Bar)
Yes, the proposed acquisition by XYZ is subject to
mandatory tender offer rule. With 210 shareholders
holding at least 100 shares each Union Mines is a public
company although not listed in the company'. Acquisition
of shares in Union Mines is therefore subject to the tender
offer rules. SRC Rule 19 provides that there is mandatory
tender offer if at least 36% of the outstanding shares of a
public company is to be acquired in one transaction or a
series of transaction during a 12-month period or even if
any acquisition is less than 35% threshold but the result
thereof is the ownership of more than 51 % of the total
outstanding shares of a public company. If XYZ will acquire
of shares of Acme, Inc. and Golden Boy, Inc. in Union
Mines and such shares are added to the existing shares of
XYZ in Union Mines, then XYZ will own more than 51% of
the outstanding capital stock in Union Mines. It should be
48 | R e v i s e d Corporation Code M o r e n o , Ye l l a h O .
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noted that the rules apply even if one will acquire the
shares in the corporation that owns the shares of a public
company including a subsidiary. (2010 Bar)