Corporation Law Finals Notes 13.

It is FALSE that Delectus Personam in

partnership is applicable to corporate
1. CORPORATION- is an artificial being
setting.
created by operation of law, having the
14. It is TRUE that a corporation organized
right of succession and the powers,
in another country and registered to do
attributes and properties expressly
business in the Philippines under the
authorized by law or incident to its
Corporation Code of which 100% of the
existence.
capital entitled to vote belong to
2. The physical acts of the corporation, like
Filipinos is a Philippine National.
signing of documents, can be performed
15. AGREE that a Corporation Sole has no
only by a natural person duly authorized
nationality.
by corporate by-laws or by special act of
16. It is TRUE that corporate officers cannot
the BOD.
be held personally liable for the
consequence of their acts, for as long as
The four attributes of the corporation:
these are for and on behalf of the
3. It is an artificial being with separate and
corporation, done in good faith and
distinct personality;
within the scope of their authority.
4. It is created by operation of law;
17. It is False that the debt or credit of the
5. It has the right of succession;
corporation is also the debt or credit of
6. It has the powers, attributes and
the stockholders
properties expressly authorized by law
18. It is TRUE that the property of the
or incident to its existence.
corporation is not the property of its
7. It is TRUE that the corporation being a
stockholders or members and may not
creature of law, owes its life to the
be sold by the stockholders or members
State, its birth being purely dependent
without express authorization from the
on its will.
corporations BOD/BOT.
8. It is TRUE that corporations can enter
into joint-venture agreements. State the three basic areas where the
9. It is TRUE that a corporation is but an doctrine of the piercing of the corporate veil
association of individuals, allowed to applies:
transact under an assumed name, and
19. Perpetuating fraud
with a distinct legal personality.
20. Defeating public convenience
10. It is FALSE that the legal fiction of
21. Justifying a wrong or defending a crime
separate corporate personality is a
22. It is TRUE that the piercing of the veil
shield for the commission of injustice
cannot be availed of by one who is NOT
and inequity.
a “victim” of fraud or wrong.
11. It is TRUE that Congress can enact a law
23. It is FALSE to say that it is the SEC and
creating a private corporation with a
not the courts which has jurisdiction
special charter.
over piercing of the veil of corporate
12. It is FALSE that stockholders or
fiction cases.
members do not have management
24. It is TRUE that the fact that there was
powers over the assets and operations
merging of personnel, resources, and
of the corporation.
holding offices in the same premises
can be considered sufficient to apply
 the piercing doctrine to hold two
corporations as one.
25. Place of Incorporation Test- a
corporation is considered a national of
the country under whose laws it was
organized.
26. It is FALSE to say that only corporations
whose capital stocks are at least 40%
owned by Filipinos can qualify to exploit
natural resources.
27. It is FALSE to say that a corporation can
be held liable for a crime committed by
its officers and can be put into prison.
28. It is TRUE that, as a rule, a corporation is
not entitled to moral damages because
not being a natural person, it cannot
experience physical suffering or
sentiments like wounded feelings,
serious anxiety, mental anguish, and
moral shock.
29. Stock Corporation is a corporation in
which capital stock is divided into shares
and authorized to distribute to holders
of such shares dividends or allotments
of he surplus profits on the basis of
shares held.
Non-stock Corporation is a corporation
which does not have capital stock or
does not issue stocks and does not
distribute dividends or allotment of
surplus profits to its members.
30. Independent Director is a person who is
independent of management and free
from any business or other relationship
which would or could reasonably be
perceived to materially interfere with
the exercise of independent judgement
in carrying out all the responsibilities as
a director.
31. It is TRUE that a director who has been
elected by virtue of minority’s exercise
of cumulative voting rights may be
removed only for a cause.
32. It is TRUE that no one shall acts as
President and Secretary or as President
and Treasurer at the same time.
33. A Corporation by Estoppel is not a
corporation at all. It is just an equitable
concept which the law utilizes to
protect third parties due to the
misrepresentation of a group of persons
as if they constitute a corporation
causing damage or loss to third parties.
Such group of persons will not be
allowed to take advantage of such
misrepresentation to benefit
themselves at the expense of the
innocent third parties.
34. It is TRUE that no share may deprived of
voting rights except those classified and
issued as “preferred” or “redeemable”
shares.
35. It is TRUE that, shareholders, both
common and preferred, ae considered
risk-takers who invest in capital in the
business who can look only to what is
left after the corporate debts and
liabilities are fully paid.
36. It is FALSE that the life of a corporation
commences from the issuance of the
Certificate of “registration” by SEC upon
filing of the Articles of Incorporation.
37. It is TRUE that the By-Laws of the
Corporation operate merely as internal
rules among stockholders; they cannot
prejudice third persons who deal with
corporation, unless they have
knowledge thereof.
38. It is FALSE that, in the absence of
authority from the Board of Directors,
no person, not even its officers can
validly bind a corporation.
39. Par value shares have a nominal value
in the certificate of stock.
No-par value shares are those which do
not have nominal value.
40. Treasury Shares- are shares of stock
which have been issued and fully paid
for, but subsequently reacquired by the
issuing corporation by purchase,
redemption, donation, or through some
other lawful means.
41. It is TRUE that, in derivative action, the
real party-in-interest is the corporation
itself, not the shareholders who
instituted it.
State the two voting requirements to
amend the Articles of Incorporation:
42. Majority vote of the directors or
trustees; and
43. The vote or written assent of the
stockholders representing at least 2/3 of
the outstanding capital stock or 2/3
members of non-stock corporations.
44. The TRUST FUND DOCTRINE provides
that subscription to the capital of a
corporation constitute a fund to which
the creditors have a right to look for the
satisfaction of their claim.
45. Pre-emptive right grants the
stockholders the option to subscribe to
all new issues or disposition of shares of
any class, in proportion to their
shareholdings. The Right of First Refusal
grants the option to purchase from a
registered stockholder any sale or
transfer of his shares. Unlike pre-
emptive right which is a common-law
right, the right of first refusal can only
arise by means of a contractual
stipulation, or when it is provided for in
the articles of incorporation.
46. It is TRUE that the acts of management
pertain to the board and those of
ownership to the stockholders or
members.
47. It is FALSE to say that the corporate
birthday is the date the Articles of
Incorporation is filed before the SEC.
48. Ultra Vires Acts are acts committed
outside the object for which a
corporation is created as defined by the
law of its organization and therefore
beyond the power conferred upon it by
law. These acts are merely voidable and
may be enforced by performance,
ratification, or estoppel. Illegal Acts are
void and cannot be validated.
49. It is TRUE that, in case of conflict of
interest, and the director (BOD) acts
against the good of the corporation, he
shall be accountable for the profits he
obtained even if he had risked his own
funds.
50. A.) The basis for declaration of
dividends are:
(a) Unrestricted retained earnings; and
(b) Resolution of the Board, or for stock
dividends, Board approval with the
concurrence of 2/3 of the
outstanding capital.
B.) The power to declare dividends
belongs to:
(a) Board of Directors alone—for cash
property dividends
Board of Directors, with the approval of
stockholders representing not less than
2/3 of Outstanding Capital in a meeting
called for the purpose—for stock
dividends.
51. It is FALSE to say that Derivative Suit is
an action brought by “minority”
shareholders in the name of the
corporation to redress a wrong
committed against the corporation, for
which the director refuse to sue.
52. It is TRUE that the stockholder may own
the share even if he is not holding a
certificate of stock.
53. Merger is when a one corporation (the
surviving corporation) absorbs another
one or more corporation/s into a single
corporation.
Consolidation is one where a new
corporation—the consolidated corporation
—is created, and the existence of all the
constituent corporations shall cease.
54. In a close corporation, any stockholder
can petition the Securities and
Exchange Commission to break the
deadlock.
55. It is TRUE that, after dissolution, the
corporation continues as a body
corporate for three years for purposes
of winding up or liquidation.
State the rule on suability of Foreign
Corporation
56. Doing business in the Philippines, with a
license: may be sued or proceeded
against before Philippine Courts or
administrative tribunals on any valid
cause of action recognized under
Philippine Laws. May also sue as well.
57. Doing business in the Philippines,
without a license: not permitted to
maintain or intervene in any action,
suit or proceeding in any court or
administrative agency. But may be
sued.
58. A natural person, trust, or an estate.
59. The person designated by the single
stockholder who shall, in the event of
the single stockholder’s death or
incapacity, take the place of the single
stockholder as director and shall
manage the corporation’s affairs.
60. It is TRUE that a foreigner can be a
member or an officer of a non-stock
corporation.
61. It is FALSE that membership in a non-
stock corporation is personal to the
member, hence, it can be transferred.
State the two classes of Religious
Corporation:
62. Corporation Sole
63. Religious Societies
64. Corporation Sole is a special form of
corporation usually associated with the
clergy and consists of one person only
and his successors, who are
incorporated by law to give some legal
capacities and advantages.
Corporation Aggregate is a religious
organization composed of two or more
persons.
65. Because Securities Regulations is
chiefly intended for the following:
(a) Prevention of excesses and
fraudulent transactions, merely by
requiring that their details be
revealed;
(b) Placing in the market during the
early stags of the offering of a
security, a body of information,
which operating directly through
investment services and expert
investors, will tend to produce more
accurate appraisal of a security.
66. It is FALSE that the SEC is composed of
one chairman and “three”
commissioners who must be all lawyers.
Enumerate at least four cases where the
jurisdiction to resolve them has been
transferred to from SEC to the regular
courts:
67. Fraudulent devices and schemes
employed by directors detrimental to
the public interest and to other firms;
68. Controversies in election, appointment higher.
of directors or trustees;
69. Petition to be declared in state of 73. A BROKER is a person engaged in the
suspension of payments; business of buying and selling securities
70. Appointment of Rehabilitation Receiver for the account of others.
or Management Committee. 74. CALL is transferable option to buy a
71. It is TRUE that SEC is an administrative specified a specified number of shares
agency vested with quasi-judicial at a stated price. PUT is a transferable
powers with the same rank as RTV, so option or offer to deliver a given
that no other RTC, may enjoin the number of shares of stock at a stated
Commissioner of the SEC. price at any given time during a stated
72. Suspension of Payments v. period
Rehabilitation 75. It is TRUE that any security guaranteed
by the Government of the Philippines is
SUSPENSION OF REHABILITATION
an exempt transaction.
PAYMENTS
76. It is TRUE that “Marking the close” is
Applies to Applies to
the buying and selling of securities at
individual business
debtor. organizations— the close of the market in an effort to
single alter the closing price of the security.
proprietorship, It shall be unlawful for an “insider” to sell or buy
partnership, and
a security of the issuer if he knows a fact of
corporation.
special significance which is no generally
The debtor ahs The debtor is
available to the public, except:
sufficient assets insolvent.
to cover his 77. The insider proves that the information
liabilities. was not gained from such relationship;
Secured debtors Secured debtors or
are not affected. are affected by the
78. If the other party selling to or buying
stay order.
from the insider (or his agent) is
Filed by the May be initiated
identified, the insider proves: (1) that he
debtor. by the debtor
(voluntary disclosed the information to the other
rehabilitation) or party; or (2) that he had reason to
by the creditors believe that the other party otherwise is
(involuntary also in possession of the information.
rehabilitation) 79. An Investment Contract is an
There is no The claim of, or investment of money in a common
minimum the aggregate of enterprise with expectation of profits
requirement for claims against the primarily from the efforts of others.
the amount of debtor is at least 80. BULK SALE is the sale of all or
claims. one million or at substantially all of the stocks NOT in the
least 25% of the ordinary course of business.
subscribed capital
stock or partners’ PROBLEMS:
contributions,
whichever is
1. Ace corporation has only 10
stockholders. In the articles of
incorporation as well as in the by-laws,
there is the preemptive right of the
stockholders. The same annotation is
found in every certificate of stock issued
by the corporate secretary. The
stockholders agreed not to list the
shares of the corporation in any stock
exchange. Baldo, a stockholder, sold
his shares of stock to Carlo, who is not a
stockholder of the company. Is the sale
valid?
A: No, the sale is not valid because it
was in violation of the stockholders’
pre-emptive right. Pre-emptive right is
the shareholder’s right to subscribe to
all issues or disposition of shares of any
class in proportion to their
stockholdings. Since a pre-emptive right
is accorded both in the AOI and the By-
Laws, the disposition of shares must
have been offered for subscription first
to the shareholders before any outsider.
In the instant case, since the sale was
made to Carlo, an outsider and not a
stockholder, the pre-emptive right of
the stockholders was violated and
therefore the sale is void.
2. Foreign Corporation doing business in
the Philippines was organized under the
laws of Florida, USA, which under its
Corporation Law, only a stockholder
owning at least 3% of the shares may
inspect the corporate books and
records. Plaintiff Charles who held less
than 3% of defendant corporation
stockholdings, invoked the Philippine
Corporation Law that allowed
stockholders owning less than 3% of
shares to inspect the books. Is the
plaintiff correct? Explain.
A: No, the Plaintiff is incorrect.
According to jurisprudence, by
incorporating in a particular state, a
corporation thereby agrees that the
laws of that state shall be the governing
law with respect to the internal affairs
of a corporation—the internal affairs
would generally refer to matters relating
to the governance of the corporation as
well as the rights and responsibilities of
officers and stockholders. This is true
even if the corporation were to operate
in another state or even foreign
countries.
In the instant case, the right to inspect
corporate books is considered as a
matter relating to the corporation’s
internal affairs as it is one of the rights
of the stockholders. With that being
said, the law of the place of
incorporation prevails, and therefore it
is the law of Florida USA which should
be invoked.
3. Without securing a license from the
SEC, Tony acted as broker in selling the
shares of stocks of Pete. Tony demands
payment of his commercial fees for
compensation of his services from Pete.
Is the demand valid? Explain.
A: The demand is invalid. Under the
Securities Regulation Code, a person is
precluded from engaging in the
business of buying or selling of
securities in the Philippines as a broker,
dealer, or act as a salesman, or an
associated person of any broker or
dealer without registering as such with
the SEC. The right of the broker to
demand payment of commercial fees
for compensation of his services
emanates from his being as such after
 due registration with the SEC. Since
Tony is not licensed by the SEC, his
being a broker and his sale of Pete’s
shares are bereft of legality which do
not entitle him to payment of
commercial fees, hence, the demand is
invalid.
4. X Corporation owns 65% of the
outstanding shares, entitled to vote in
“A” Corporation. The 70% shares
outstanding in “X” Corporation are
owned by Pedro, a Filipino, and four of
its five directors are also Filipinos. What
is the nationality of “X” Corporation?
What is the nationality of “A”
Corporation?
A: X Corporation (and even A
Corporation) is a Philippine National.
The Foreign Investment Act provides
that where a corporation and its non-
Filipino stockholders own stocks in a
SEC-registered enterprise, at least 60%
of the capital stock outstanding and
entitled to vote of each of both
corporations must be held and owned
by citizen of the Philippines and at least
60% of the members of the Board of
Directors of each of both corporations
must be citizens of the Philippines, in
order that the corporation shall be
considered a Philippine national. Here,
more than 60% of X Corporation’s
outstanding share is owned by a
Filipino, and more than 60% of its Board
of Directors are Filipino Citizens. Having
said so, X Corporation is considered a
Philippine National.
5. Mr. “M” 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 investment, Mr. “M” became the
firm’s president and, as such, purchased
a big number of computers and other
electronic equipment from “T’
Corporation on installment basis. “A”
Corp. paid the downpayment and “T”
Corp. issued the corresponding receipt.
To his dismay, Mr. “M” discovered that
the Articles of Incorporation had not
been filed by his friends, so, on the
date, he hurriedly attended to the
matter. No sooner had the certificate of
incorporation been issued by the SEC.
“A” Corp. became bankrupt after three
(3) months. Upon being sued by “T”
Corp. in his personal capacity, Mr. “M”
raised among its defenses the doctrine
of de jure corporation and corporation
by estoppel. Can the two defenses be
validly raised?
A: The two defenses cannot be raised
because they are not available to Mr. M.
There is no de facto corporation
because the Articles of Incorporation
was not filed with the SEC. There can be
no attempt in good faith to incorporate
if no Articles of Incorporation was filed
with the SEC. In addition, Mr. M cannot
raise the defense that his corporation is
a de facto corporation to defeat a claim.
Until the personality is attacked by the
State, the de facto corporation can
continue as a corporation.
The allegation that there was a
corporation by estoppel may be correct
but the same is not a defense against
claimants. The concept of corporation
by estoppel is precisely for the purpose
of protecting third persons or creditors.
The defense is established in favor of
third persons with whom the
corporation deals but not in favor of
 those who represent themselves as another corporation, taken alone, is not
such corporation although it is not, like sufficient to justify the two corporations
Mr. M. being treated as on entity. If the
subsidiary is used to perform legitimate
However, Mr. M can raise his good faith functions, a subsidiary’s separate
as a defense and claim that his liability existence shall be respected and the
is only up to the extent of his liability of the parent company shall be
investment. Section 20 of the RCCP confined to those arising from their
makes liable as general partners those respective business. This rule I to be
who assume to act as a corporation followed even if the new corporation
knowing it without authority to do so. was the result of a spin-off of a former
division of the parent company. Since
6. Can a corporation be held liable for Magnolia Corp. and Ginebra Feeds. Inc.
criminal offense? If convicted, can it be are to be regarded as distinct and
imprisoned? separate entities from Ginebra Corp.,
they are also to be considered as
A: Generally, if the crime is committed separate and distinct and bargaining
by a corporation or other juridical units.
entity, the directors, officers,
employees, or other officers thereof
responsible for the offense shall be
charged and penalized, precisely
because of the nature of the crime and
the penalty therefor. A corporation
cannot be arrested and imprisoned,
hence, it cannot be penalized for a
crime punishable by imprisonment. But
for crimes with a fine as an imposable
penalty, like criminal liability for
violations of certain provisions of the
RCCP, then the penalty of payment of
fine can be imposed on the corporation
itself.

7. Ginebra Corp. spun-off its ice cream

division to a new Magnolia Corp. and
the feeds and livestock division into
Ginebra feeds, Inc. Will the employees
in the spun-off divisions continue to be
considered within the Ginebra Corp.
bargaining unit?

A: No. The rule is that, the mere fact

that a corporation owns all the stocks of