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
the respondent Imperial Insurance, Inc. (Imperial) J.R.S. Business Corporation a franchise to conduct a
presented with the CFI of Manila a complaint for sum of messenger and express service") and, as such, under our
money against JRS. After JRS submitted its answer, corporation law, is subject to levy and sale on execution
Imperial and JRs entered into a compromise agreement together and including all the property necessary for the
whereby JRS admitted its liability. However, the judgment enjoyment thereof. The law, however, indicates the
obligation was not paid by JRS. A writ of execution was procedure under which the same (secondary franchise and
issued by the CFI and the following properties were sold at the properties necessary for its enjoyment) may be sold
the execution sale: “whole capital stocks of the under execution. Said franchise can be sold under
defendants J.R.S. Business Corporation, the business execution, when such sale is especially decreed and
(corporate) name, right of operation, the whole assets, ordered in the judgment and it becomes e^ective only
furniture, and equipment, the total liabilities, and Net when the sale is con_rmed by the Court after due notice
Worth, books of accounts, etc." Was the sale of the (1) (Section 56, Corporation Law). The compromise
secondary franchise, (2) corporate name, and (3) the agreement and the judgment based thereon do not
shares of stock valid? 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.
 2|Revised Corporation Code M o r e n o , Ye l l a h O .
XU College of Law

(J.R.S. Business Corporation, et al. v. Imperial Insurance,

Inc., G.R. No. L-19891, July 31, 1964).
32 Idonah Slade Perkins, who died on March 27, 1960 in New No. Such reliance is misplaced. In the _rst place, there is
York City, left among other properties, two stock no such occasion to apply such by-law. Assuming that a
certi_cates covering 33,002 shares of Benguet contrariety exists between the above by-law and the
Consolidated Inc. the certi_cates being in the possession command of a court decree the latter is to be followed.
of the County Trust Company of New York, which, is the The view adopted by Benguet is fraught with implications
domiciliary administrator of the estate of the deceased. at war with the basic postulates of corporate theory. It is
On August 12, 1960, Prospero Sanidad instituted ancillary undeniable premise that, a corporation is an arti_cial
administration proceedings in the Court of First Instance being created by operation of law ... " "A corporation as
(CFI) of Manila; Lazaro A. Marquez was appointed ancillary known to Philippine jurisprudence is a creature without
administrator but was later substituted by Renato D. any existence until it has received the imprimatur of the
Tayag. On January 27, 1964, the CFI of Manila ordered the state according to law.
domiciliary administrator, County Trust Company, to
"produce and deposit" the stock certi_cates 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 certi_cates
covering the 33,002 shares of stock standing in her name
in the books of the Benguet Consolidated, Inc. (Benguet),
(2) ordered said certi_cates cancelled, and (3) directed
Benguet to issue new certi_cates 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
certi_cate which provides that in the event of a contest or
the pendency of an action regarding ownership of such
certi_cate or certi_cates of stock allegedly lost, stolen or
destroyed, the issuance of a new certi_cate or certi_cates
would await the "_nal 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
 3|Revised Corporation Code
Corporation was able to obtain possession of the parcel of
land. Later, a case was _led 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 justi_es 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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Corporation of the controlling shares in E Corporation does
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
bene_t of one individual, who controls the corporation. It
is commonly called a one-man corporation.
A one-man corporation enjoys the attributes of
4|Revised Corporation Code
Marulas Creative Technology, Inc., an e-business
enterprise engaged in the manufacture of computer multi-
media accessories, rents an ojce 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
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corporations. However, it is a precondition that a
certi_cate of incorporation is issued by the SEC. However,
in order to avoid the operation of the doctrine of piercing
the veil of corporate _ction, 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.
Speci_cally, 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 _ction 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 arti_cial being with a corporate
personality separate and distinct from its ojcers and
stockholders. As such arti_cial being, it is the lessee of the
ojce 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 ojce 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 ojcers 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 ojcers 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 ojcer when he issued the check to
SHAMRON and when he stopped payment thereof. The
5|Revised Corporation Code
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. 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 _nancial
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 _nancial
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 _nancial 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
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corporation has a personality separate and distinct from
its ojcers, hence, the obligations of the corporation are
not the obligations of the ojce even if the same ojcer
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
_ction. 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 _nancial 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 _ction. 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 _nancial 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 plainti^ can ask the court to pierce the veil of
corporate _ction 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 dijcult for Mr. Pablo
 6|Revised Corporation Code
liabilities to this corporation. Mr. Pablo followed the
recommendation of his lawyer. One year later, the court
rendered judgment against Mr. Pablo and the plainti^
sought to enforce this judgment. The sheri^, however,
could not locate any property in the name of Mr. Pablo and
therefore returned the writ of execution unsatis_ed. What
remedy, if any, is available to the plainti^?
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 _led an action for rescission and damages
against CK Corporation and Eva. Will the action prosper?
Explain
58 Plainti^s _led a collection action against ''X'' Corporation.
Upon execution of court’s decision, "X" Corporation was
found to be without assets. Thereafter, plainti^s _led 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 _nanced 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 _nding 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
ojcers/stockholders, JR and MR. Furthermore, the other Pl
million paid turned out as payment for a loan extended by
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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)
Yes, the action may prosper against CK Corporation but
not against Eva. The liabilities of CK Corporation are not
the liabilities of its ojcers because the corporation has a
legal personality separate and distinct from that of its
ojcers and stockholders. The fact that Eva owns 90%of
the capital stock of CK Corporation is not of itself sujcient
justi_cation to invoke the doctrine of piercing the veil of
corporation _ction. 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 _ction can be applied in the
present case. Although mere interlocking directorship is
not by itself sujcient 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 _nanced 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 ojcers 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)
 7|Revised Corporation Code
JR and MR in favor of GEE. Can the payments to R Realty's
ojcers/stockholders be considered payment to the
corporation?
In one case, the trial court rendered judgment ordering
the defendant Mr. X to pay the plainti^ Mr. Y actual
damages in the amount of Pl,000,000.00. The sheri^ 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 sheri^ 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 trajc 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?
M o r e n o , Ye l l a h O .
XU College of Law
No. The sheri^ does not have the authority to levy upon
properties of a corporation that is not a party to the case.
He cannot do so under the pretext that the doctrine of
piercing the veil of corporate _ction is applicable. Piercing
the veil of corporate _ction 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.
 8|Revised Corporation Code
c. May GLOBAL be allowed to operate restaurants
within the hotel beach resort? Explain.
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, quali_cations, 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 speci_c
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 certi_cates.
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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
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 e^ect 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
 9|Revised Corporation Code
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.
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 ojce 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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enough assets are left to cover debts and liabilities. In
other words, there should be no e^ect on creditors (2009
Bar).
(1) the majority vote of the board of directors or trustees
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 _ve (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 e^ectivity
of the amendment relates back to the date of its _ling
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 ojce of the
corporation is to be established or located, which place
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 certi_cate of incorporation could be issued,
H, who claims to be the owner of the said real estate
property, _led 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)
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must be within the Philippines. The RCCP also requires
inclusion in the Articles of Incorporation of the
City/Municipality and Province where the principal ojce of
the corporation is located. SEC Memorandum Circular No.
6, Series of 2016 dated June 9, 2016 further requires a
speci_c address. For purposes of complying with the RCCP
and SEC requirements, it is not enough to state the Region
where the principal ojce 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 Certi_cate
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
 11 | R e v i s e d Corporation Code
The proposed Articles of Incorporation of X Corporation
provides: "That none of the stockholders shall engage in a
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
certi_cates 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-pro_t association by amending the Articles of
Incorporation.
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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
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 a^airs 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
 12 | R e v i s e d Corporation Code
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?
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?
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corporation. What this means is that the
stockholders are deemed to have waived their right
to their respective share in the pro_ts 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
a^ected.
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 pro_ts of the corporation. The
present and future pro_ts 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 _rst 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
 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 _le
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 ojcer 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 e^ect. Was the
dismissal proper?
145 Mamuhunan was invited by his friends to invest in A Corp.,
a newly organized _rm engaged in money market and
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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 certi_cate of incorporation
under the amended name. The new provision
(Section 17, RCCP) is substantially the same and
states that: "Upon the approval of the new
corporate name, the Commission shall issue a
certi_cate 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 di^erent name. The
situation is no di^erent 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 di^erent 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 e^ect 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 ojcer to institute the Certiorari Petition did
not lose any binding e^ect whatsoever. The ojcer
remains authorized to _le 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
 14 | R e v i s e d Corporation Code
_nancing operation. Because of his heavy investments,
Mamuhunan became the _rm’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
_led by his friends on that date so he hurriedly attended
to the matter. No sooner had the certi_cate of
incorporation 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 _ve 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 _led 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 ajrmed by the Court
of Appeals. SE, as Project Manager of the NIA, _led a
petition for certiorari. The veri_cation and certi_cation
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
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facto corporation. The Articles of Incorporation was not
_led 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
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 disquali_ed 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 certi_cate against forum shopping accompanying the
petition for review. (Santiago Estaban, Jr. v. Vda. de
Onorio, 360 SCRA 230)
15 | R e v i s e d Corporation Code
with the provisions of Section 5, Rule 7 of the Revised Rule
on Civil Procedure on certi_cation against forum shopping.
No Board resolution was attached to the petition. Can SE
or G sign the certi_cate 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
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 _led
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 _nancing 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
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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
and that the company had authorized him to act and had
recognized, approved and rati_ed 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 ojcers, 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
ojcers 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
16 | R e v i s e d Corporation Code
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 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 ojcers 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 _led a complaint with the Labor Arbiter against
DAD Realty Corporation and its Vice President Tita Gloria,
for wage di^erentials, 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
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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 X Corporation itself. (Great Asian
Sales Corporation u. Court of Appeals, No. 105774, April
25, 2002
No. An ojcer 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, ojcers, and
employees. While acting for the corporation, the directors,
ojcers 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
 17 | R e v i s e d Corporation Code
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 ojce, 1
being abroad, what would be the quorum? How many
ajrmative votes would be necessary to pass a resolution?
Explain.
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
pro_ts 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 _led 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
_led 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-
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should be imposed on the ojcers.
Five members constitute the quorum. The Revised
Corporation Code (and previously, the Corporation Code)
provides that a majority of the number of directors as
_xed in the Articles of Incorporation shall constitute a
quorum for the transaction of corporate business. Vacancy
does not reduce the quorum. If _ve members are present
the majority thereof or three may pass a resolution unless
a 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
certi_cate of the trustor shall be cancelled and a new
certi_cate 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
 18 | R e v i s e d Corporation Code
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 sujcient to
assure her of a seat in the board, _led 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
tenable?
At the annual meeting of ABC Corporation for the election
of _ve 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 ojce for one rear and
until their successors are elected and quali_ed.” 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 classi_ed 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
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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
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 disquali_cation exists. One such
ground is a provision that a stockholder is disquali_ed if
his business is in competition with or antagonistic to the
other corporation. (1998 Bar)
E is disquali_ed 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
disquali_ed 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.
 19 | R e v i s e d Corporation Code
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 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 de_ciency. AI paid
lA1 Pl2 Million and retained the amount of P7.5 million to
answer for any de_ciency in the net worth. Instead of
rewecting a net worth. It turned out that "F' had a
de_ciency of P1.2 Million. Hence, IAl is obligated to
reimburse Al the amount of P13.2 Million (12 Million plus
the de_ciency 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 o^ering to sell the latter 5,000 bags of fertilizer at
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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 ojcer of
a corporation who is authorized to sell the stock of
another corporation has the implied power to perform all
other 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 ojcers of the corporation.
So long as either of these two ojcers 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
20 | R e v i s e d Corporation Code
P100,000 per bag. Ed signed his conformity to the letter-
o^er, 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-
o^er. 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-o^er. Is
there a binding contract for the 5,000 bags of fertilizer?
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.
M o r e n o , Ye l l a h O .
XU College of Law
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 speci_cally informed Ed that it has not
rati_ed 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)
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
 21 | R e v i s e d Corporation Code
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.
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
M o r e n o , Ye l l a h O .
XU College of Law
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.
d. The treasurer of Acme may not hold the same
position (or any other ojcer 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 quali_cations. 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 e^ect 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
 22 | R e v i s e d Corporation Code
(RCCP), a director may be removed from ojce 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?
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 ojcers are the president, vice-president, treasurer
and secretary. Upon complaint _led 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 ajrmative
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 _ll 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.
M o r e n o , Ye l l a h O .
XU College of Law
minority stockholders who cumulate their votes to elect a
representative to the Board of Directors can be assured of
his/her continuance in ojce 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 justi_able cause. Thus, without just cause, the
majority cannot deprive the minority of representation in
the board of directors (1991 Bar).
No. The contention of X is not tenable. The approval of
stockholders is not necessary for the removal of ojcers.
Stockholders' approval is necessary only for the removal
of the members of the Board. The vote of the Board of
Directors is sujcient for the removal of an ojcer. (2001
Bar)
The provision is invalid. Sec 28 of the RCCP provides that
the vacancy, may be _lled 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 _rst 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 _ll the vacancies because they do not constitute
a quorum. Hence, any action of the illegally constituted
Board is not valid. (1986 Bar)
 23 | R e v i s e d Corporation Code
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 _ve 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
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 dijcult years, which called for a sacri_ces on
the part of the company's directors, ABC Manufacturing,
Inc. was _nally earning substantial pro_ts. 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 su^ered a loss of Pl million. The Board
accused X of in_delity and breach of trust, and con_scated
his shares. Is the action of the Board legal?
M o r e n o , Ye l l a h O .
XU College of Law
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
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 in_delity or breach of
trust the corporation cannot take the law in its own hands
and con_scate the shares of X. The corporation must _le
an action in court and must avail of the appropriate
remedy available under the Rules of Court. Con_scation 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 ojcer. If Mr. X
is a director or a corporate ojcer, the action of the Board
is not legal. In the _rst place, it does not appear that there
was gross negligence on the part of X. Mere technical
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 ojcer. 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
con_dence of the stockholders and refuse to grant more
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XU College of Law
error will not make the ojcer 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 conwict of interest with
the corporation. It is believed that the rule applies to
ojcers. However, such grounds are not the present in this
case. If the position of superintendent is not a corporate
ojce and Mr. X is not a director, then it is also believed
that there is no basis for in_delity and breach of trust.
However, the applicable law is labor law and labor law
does not likewise allow con_scation of shares (1989 Bar).
I would advise the creditor to _le 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 _le an action for
damages against C in his capacity as director and ojcer
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 a^airs 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 ojcer, 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.
 25 | R e v i s e d Corporation Code
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
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, ojcers of
the bank questions Mr. X on alleged unauthorized credit
accommodations. In order to remove Mr. X from his post,
the ojcers 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 ojce on the ground of loss of con_dence.
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
M o r e n o , Ye l l a h O .
XU College of Law
B. No. A corporation has a personality separate and
distinct from that of its stockholders and ojcers.
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/ojcers
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 ojcers who caused his illegal
dismissal.
There is no question that managerial employees should
enjoy the con_dence of top management. This is
especially true in banks where ojcials handle big sums of
money and engage in con_dential and _duciary
transactions. However, loss of con_dence should not be
simulated. It should not be used as a subterfuge for
causes which are improper, illegal, or unjusti_ed. Loss of
con_dence 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 ojcers of the corporation
acted jointly in causing the illegal and unjusti_able
dismissal of the plainti^. As such, they should be jointly
and severally held liable to him. Clearly the ojcers 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
26 | R e v i s e d Corporation Code
Northern Luzon. Is the dealership agreement valid?
Explain.
Pedro owns 70% of the subscribed capital stock of a
company which owns an ojce building. Paolo and Juan
own the remaining stock equally between them. Paolo also
owns a security agency, a janitorial company, and a
catering business. In behalf of the ojce building
company, Paolo engages his companies to render their
services to the ojce building. Are the service contracts
valid? Explain.
M o r e n o , Ye l l a h O .
XU College of Law
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 ojce 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
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 ojcer 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 ojce 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 ojcer of the ojce building
company, the contracts have been previously
authorized by the Board of Directors. The contracts
may also be rati_ed by the vote of the stockholders
representing at least 2/3 of the outstanding capital
stock of the ojce building company in a meeting
called for the purpose where any of the _rst two
conditions mentioned above is absent, provided
that the contracts are fair and reasonable under
the circumstances and that full disclosure of the
 27 | R e v i s e d Corporation Code
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 pro_ts. 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.
b) If these conditions are not met, how may this contract
be rati_ed?
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
_rm, provides that "The directors shall be relieved from all
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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
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
rati_ed by the vote of stockholders of Platinum
representing 2/3 of the OCS in a meeting called for
the purpose. The contract may be rati_ed 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 rati_ed.
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 de_nitely
no longer able to avail itself of the opportunity. (SEC
Opinion, March 4, 1982).
 28 | R e v i s e d Corporation Code
liability for any contract entered into by the corporation
with any _rm 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
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?
M o r e n o , Ye l l a h O .
XU College of Law
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
the pro_ts 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 conwict
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 _lling 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
 29 | R e v i s e d Corporation Code
TITLE IV
447 The Articles of Incorporation of X Jewelers Corporation
(Sec. states: “Second: That the primary purpose of this
35) corporation is to engage in the business of manufacturing
goods such as jewelry and to trade the same on
wholesale.” Is it quali_ed to engage in jewelry assaying
and re_ning activities if the same is not expressly
provided for as secondary purpose?
The primary purpose of Corporation A is to carry mineral
exploration and exploitation. Can it engage in manning or
crewing business if the same is not stated as a secondary
purpose?
The purpose clause of the Articles of Incorporation of XYZ
Corporation states: "To engage in and carry on a general
mercantile and commercial business of buying, acquiring,
holding, assembling, importing and exporting, selling or
otherwise disposing of and dealing in any goods,
merchandise, and commodities particularly computer and
its peripherals, electronic, industrial and engineering
items of every kind, and all kinds of products, natural or
arti_cial, of the Philippines or other countries, which are or
may become articles of commerce." Can XYZ Corporation
lawfully enter into computer maintenance service
contracts?
448 The purpose clause of the Articles of incorporation of ABC
Corporation states: “To acquire by purchase, lease,
donation, or other modes of acquisition and to own own,
use, improve, develop, sell, mortgage, exchange, lease
and hold for investment or otherwise, real estates of all
kinds and to build or cause to be any such land owned,
held or occupied for management or disposition, buildings,
houses or other structure with their appurtenances.” Can
ABC Corporation engage in the of operating memorial
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XU College of Law
dividends to the shareholders.
Yes, jewelry assaying and re_ning activities are implied
powers of the corporation. The purpose clause can be
reasonably stretched or construed to cover matter or
objects that could not have been explicitly mentioned at
the time of incorporation but is closely related to the
expressed corporate purpose or impliedly included
encompassing therein. Jewelry manufacturing stated in
the purpose clause is and covers assaying and re_ning
activities. (SEC Opinion dated December 17, 1999)
No. The corporation cannot engage in crewing business
because the same is not expressly stated and cannot be
implied from the expressed purposes. It is allowed to own,
manage, or operate vessels and recruit the crew thereof
only if it is necessary in carrying out its mineral
exploitation and exploration business. (SEC Opinion, Feb.
17, 1994)
No. The purpose clause does not authorize the
corporation to engage in computer maintenance service.
It is well-settled that a corporation has only such express,
implied or incidental powers, Computer maintenance
service cannot be classi_ed as express, implied or
incidental power. Thus the amendment of the Articles of
Incorporation is necessary for such purpose. (SEC
Opinion, Dec. 23, 1992)
No. A corporation may only exercise powers that are
expressly provided for, or that are implied or incidental to
its existence. Memorial park business is not expressly
included in the purpose clause of the Articles of
Incorporation of subject corporation. Neither is the
activity necessary or incidental in the furtherance of the
corporation’s present business, which is realty.
Accordingly, the corporation cannot, on the basis of its
present purpose clause engage in memorial park
 30 | R e v i s e d Corporation Code
parks?
The primary purpose of G Corporation stated in its Articles
of Incorporation is as follows: “That the purpose for which
the Corporation is formed, is to carry on the business,
insofar as the same may be now or hereafter permitted by
law, of transmitting and receiving, for itself and for others,
communications of every kind, news, music, messages,
instruction, entertainment, pictures, advertising, light and
energy in any form, by means of electricity,
electromagnetic waves, or any other kind of energy, force,
vibrations or impulses, whether conveyed by wires,
radiated through space, or transmitted through any other
medium to supply facilities for such purpose; and to
charge and receive compensation therefore for tolls and
charges. To purchase, hold, operate, use, convey, lease,
rent, mortgage, encumber, or otherwise deal in such real
and personal property in any part of the Philippines, or
elsewhere as the purposes for which the corporation is
formed may permit, and as may be convenient or
necessary for the transaction of the lawful business of the
Corporation.” Can G Corporation sell and distribute
cellular phones, accessories, and other related
telecommunications equipment?
465 Suppose “X" Corporation has an authorized capital stock
(Secs. of Pl million divided into 100,000 shares of stock with par
36-37) value of P10.00 each. Give two ways whereby said
authorized capital stock may be increased to about P1.5
million.
469 “X” Realty, Inc., a corporation engaged in the subdivision
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business. Should the corporation desire to undertake said
business, it should amend its Articles of Incorporation to
include it in its purpose clause. (SEC Opinion, September
I, 1993)
Yes, the sale of cellular phones, accessories and other
telecommunications equipment can be considered an
implied power. They are allowed under Section 35 and
Section 39 of the Revised Corporation Code. Section 35(g)
authorizes the corporation to purchase, receive, take or
grant, hold, convey, sell, lease, pledge, mortgage, and
otherwise deal with such real and personal property,
including securities and bonds of other corporations, as
the transaction of the lawful business of the corporation
may reasonably and necessarily require. Section 39 of the
Revised Corporation Code provides that a corporation
may, by a majority vote of its board of directors or
trustees, sell, lease, exchange, mortgage, pledge, or
otherwise dispose of its property and assets, upon such
terms and conditions and for such consideration, which
may be money, stocks, bonds, or other instruments for
the payment of money or other property or consideration,
as its board of directors or trustees may deem expedient.
In this case, the sale of the properties is reasonably
required by the lawful transaction of its business
expressed in the purpose clause. The sale of those
products is part of its telecommunication services to the
public. Hence, the sale of cellular phones, accessories
and other telecommunications equipment to the public is
part of the powers of the corporation. (SEC Opinion dated
May 31, 2001)
Two ways of increasing the Authorized Capital Stock of
“X” Corporation to P1.5 million are: (1) Increase the
number of shares while maintaining the par value per
share, that is, increase the shares from 100,000 to
150,000 shares with the same par value of P10.00 each.
(2) Increase the par value while maintaining the number
of shares, that is, increase the par value of the 100,000
shares to P15.00 each. (2001 Bar)
Yes, the action of the Board of Directors was correct but it
 31 | R e v i s e d Corporation Code
(Sec. business, has an authorized capital of P800,000.00, all of
38) which has been fully subscribed. At a special meeting of
the board of directors, the majority vote decided on the
basis of the recommendation of its Executive Committee,
that the corporation purchase a _ve-hectare property
o^ered to it because it was ideal for its subdivision
business, the price o^ered was lower than the prevailing
market price and John Roque, the owner of the property,
was willing to accept P200,000,00 worth of shares of the
corporation in exchange of, or as payment for his property.
No cash was involved in the transaction. Thus, the board
approved a resolution increasing the authorized capital
stock from P800,000.00 to P1,000,000,00, stipulating that
the additional P200,000.00 worth of shares be issued in
exchange for the _ve-hectare property and that the
existing stockholders would have no pre-emptive right to
subscribe to the additional shares as the same were being
issued to pay for the property, Was the action of the Board
of Directors correct?
470 X Corporation is in need of land on which to construct
additional factory to be used in the expansion of its
business. Jose Cruz owns a piece of land in Taytay, Rizal,
which is ideal for the purpose, and the corporation o^ers
to buy it at a fair price. Jose is willing to part with the land
on condition that he is paid in shares of stocks of the
corporation. The Board of Directors decided to accept the
terms of Jose, but since the authorized capital stock of the
corporation has been fully subscribed, it proposed to
increase the capital stock so that it can consummate the
sale of the land. The proposal, including the purchase of
Jose's land in exchange for the new shares, was submitted
to the stockholders in a meeting called for that purpose.
Pedro Reyes who has 100 shares in the corporation,
alleging that he and all other stockholders have a pre-
emptive right to the new shares insists that the
corporation issue to him his proportionate quota of the
new shares that he o^ers to buy in cash. Holders of 80%
of the outstanding capital stock are in favor of the Proposal
to increase the capital stock, including the exchange of
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is still not sujcient. Section 38 of the Revised
Corporation Code requires that the resolution of the Board
of Directors be approved by 2/3 of the outstanding capital
stock, and further to be approved by the SEC with respect
to the valuation of the property under Section 61 of the
RCCP. No approval of the stockholders and the SEC has
been obtained. No preemptive right is available if the
stockholders' approval is obtained because Section 38 of
RCCP provides that there is no pre-emptive right with
respect "to shares issued in good faith with the approval
of the stockholders representing 2/3 of the outstanding
capital stock, in exchange for property needed for
corporate purposes or in payment of a previously
contracted debt." (1982 Bar)
No. Pedro Reyes was not well within his right to claim pre.
emptive right. Section 38 of the Revised Corporation Code
provides that all stockholders shall enjoy the pre-emptive
right to subscribe to all issues of shares in proportion to
their respective shareholdings. However, Section 38
provides that such pre-emptive right does not exist when
shares are issued in exchange for property needed for
corporate purposes, provided stockholders representing
2/3 of the subscribed capital stock approve of such
issuance. Therefore, since more than 2/3 of the
outstanding capital stock favored the proposal, Pedro
Reyes cannot insist on the pre-emptive right. (1983 Bar)
 32 | R e v i s e d Corporation Code
Jose's land for new shares of stock. Is Pedro Reyes within
his rights in claiming a pre-emptive right? Explain.
XYZ Corporation has an authorized capital stock of
P100,000,00, divided into 10,000 shares, each with a par
value of P10.00. The subscribed capital stock is
P50,000.00 or 5,000 shares. At the time of incorporation,
$ subscribed to 1,000 shares or P10,000.00. In need of
additional funds, XYZ Corporation proposes to o^er the
unsubscribed 5,000 shares to new stock holders at P15.00
per share or an aggregate amount of P75,000.00. Explain
whether or not S has the right to subscribe to any of the
5,000 shares, and if so, at what price.
471 ABC Corporation has an authorized capital stock of One
Million pesos divided into 50,000 common shares and
50,000 preferred shares. At its inception, the Corporation
o^ered for subscription all the common shares. However,
only 40,000 shares were subscribed. Recently, the
directors thought of raising additional capital and decided
to o^er to the public all the authorized shares of the
Corporation at their market value. Would Mr. X a
stockholder holding 4,000 shares, have pre-emptive rights
to the remaining 10,000 shares?
Suppose that “X” Corporation has already issued the
1,000 originally authorized shares of the corporation so
that its Board of Directors and stockholders wish to
increase its authorized capital stock. After complying with
the requirements of the law on increase of capital stock,
“X” issued an additional 1,000 shares of the same value.
a. Assume that stockholder “A” presently holds 200
out of the 1,000 original shares. Would “A” have a pre-
emptive right to 200 of the new issue of 1,000 shares?
Why?
b. When should stockholder “A” exercise the pre-
emptive right?
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S has a right to subscribe to 1,000 shares. Section 38 of
the Revised Corporation Code provides that “all
stockholders of a stock corporation shall enjoy pre-
emptive right to subscribe to all issues or disposition of
shares of any class, in proportion to their respective
shareholdings” subject to several exceptions which are
not applicable in this case. (1984 Bar)
Yes. Mr. X has pre-emptive right to the remaining 10,000
shares. All stockholders of a stock corporation shall enjoy
pre-emptive rights to subscribe to all issues or disposition
of shares of any class, in proportion to their respective
shareholdings. (1999 Bar)
Note: An alternative answer may be given based on the
case of Datu Benito v. SEC. There will be no pre-emptive
right if the shares were not taken when originally o^ered.
However, there is also an opinion to the e^ect that the
said case is no longer controlling under the Corporation
Code.
a. Yes, “A” would have a pre-emptive right to 200 of the
new issue of 1000 shares. “A” is a stockholder of record
holding 200 shares in “X” Corporation. Section 39 of the
Corporation Code (now Section 38 of the RCCP) provides
that each stockholder has the pre-emptive right to all
issues of shares made by the corporation in proportion to
the number of shares he holds on record in the
corporation.
b. The pre-emptive right may be exercised within the time
prescribed by the Board. Pre-emptive right must be
exercised in accordance with the Articles of Incorporation
or the By-laws. When the Articles of Incorporation and the
By-laws are silent, the Board may _x a reasonable time
within which the stockholders may exercise the right.
(2001 Bar)
 33 | R e v i s e d Corporation Code
483 B Corporation is engaged in selling canned goods on
(Sec. wholesale basis. It is merely renting a bodega and 95% of
39) its assets consist of stocks of goods. On a given day, Mr. X,
a regular customer, purchased all the stocks of B
Corporation. Is the transaction a sale of substantially all of
the assets of the corporation requiring concurrence of
stockholders representing 2/3 of the outstanding capital
stock?
484 X Corporation is engaged in the business of milling or rice.
Around 60% of its assets consist of cash in the bank, 30%
rice milling machine and the remaining ojce equipment
and supplies. X Corporation sold its machine. Can it be
considered sale of substantially all of the assets of the
corporation?
C Corporation sold its assets to W, Inc., after complying
with the requirements of the Bulk Sales Law.
Subsequently, one of the creditors of C Corporation tried
to collect the amount due and they found out that C
Corporation had no more assets left. The creditors then
sued W, Inc., on the theory that the latter is a mere alter
ego of C Corporation. Will the suit prosper?
15. The Board of Directors of "X" Corporation, with the
unanimous authority and approval of its stockholders in a
meeting called for the purpose, sells to "Y" Corporation for
10 million, substantially of the corporation's assets
consisting of pieces of machinery, _xtures and equipment
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No, The sale in the given problem appears to be a sale in
the regular course of business because B Corporations is
engaged in wholesale business. Section 39 of the Revised
Corporation Code provides that nothing in the law is
intended to restrict the power of any corporation, without
authorization by the stockholders or members, to sell or
otherwise dispose of any of its property and assets if the
same is necessary in the usual and regular course of
business or if the proceeds of the sale or other disposition
of such property and assets be appropriated for the
conduct of its remaining business. The sale in the given
problem appears to be a sale in the regular course of
business because X corporation is engaged in wholesale
business.
Yes. The sale is sale of substantially all of the assets of X
corporation. It cannot continue its business without the
machine. There is a sale of substantially all of the assets
of the corporation if it would be rendered incapable in
continuing its milling business. The fact that the machine
comprises only 30% of the total assets of the corporation
is immaterial.
The suit will not prosper. The sale by C Corporation of its
assets to W, Inc., does not result in the transfer of the
liabilities of C corporation to, or in the assumption of said
liabilities by, W, Inc. The facts given do not indicate that
there was transfer of liabilities or that an assumption of
liabilities took place or was stipulated upon by the parties
in their agreement. Furthermore, the sale by C
corporation of its assets is a sale of its property. It does
not involve the sale of the shares of stock of the
corporation belonging to its stockholders. There is,
therefore, no merger or consolidation that took place. C
corporation continues to exist and remains liable to its
creditors. (1996 Bar)
The sale of substantially all of the corporation’s assets is
valid, applying Section 39 of RCCP. The corporation,
through the authority of the Board of Directors and the
unanimous vote of its stockholders obtained in the
meeting for that purpose, in selling substantially all of its
 34 | R e v i s e d Corporation Code
used in the business of said corporation. "Z" a creditor,
now questions the sale as fraudulent, and therefore, null
and void. Decide the case.
485 In the annual meeting of XYZ Corporation, the
stockholders unanimously adopted a resolution proposed
by the Board of Directors to sell substantially all the
_xtures and the equipment used in and about its business.
the President of the Corporaton approached you and
asked for legal assistance to e^ect the sale.
a. What step should you take so that the sale may be
valid?
b. What are the two instances when the sale, transfer,
mortgage, or assignment of stock of goods, wares,
merchandise, provision or materials otherwise than in the
ordinary course of trade and the regular prosecution of the
business of the vendor are not deemed to be a sale or
transfer in bulk.
488 A corporation executed a pay its President/Director, who
(Sec.4 had tendered his resignation, a a certain sum in payment
0) of the latter’s shares and interests in the company. The
corporation defaulted in paying the full amount so that
said former President _led suit for collection of the
balance before the SEC.
a. Under what condition is a stock corporation
empowered to acquire it’s own shares?
b. Is the arrangement between the corporation and
its President covered by the Trust Fund Doctrine?
Explain your answer briewy.
489 One of the stockholders of VM Corporation has been to
answer for its commitm its shares in VM Co VM
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assets complied with the requirements of the law. Hence,
the creditor cannot question the validity of the sale
because it does not per se constitute fraud under the law.
There is no showing that the creditor was defrauded by
the sale of substantially all of the debtor's property. The
creditor has sujcient remedies provided by law for the
recovery of his credit.
a. The requirements of the Bulk Sales Law must be
complied with. The seller should deliver to the purchaser
a list of its creditors, with their addresses and the amount
owing to each, and the purchaser in turn should notify
such creditors of the proposed sale at a stipulated time in
advance.
b. If the sale and transfer is made (a) by a vendor,
mortgagor, transferor or assignor who produces and
delivers a written waiver of the provisions of the Bulk
Sales Law from his creditors as shown by a veri_ed
statement; or (b) by a by a vendor, mortgagor, transferor
or assignor who is an executor, administrator, receiver,
assignee in insolvency, or public ojcer acting under
judicial process, the sale or transfer is not covered by
Bulk Sales Law. (1993 Bar)
a. A stock corporation may only acquire its own shares if
the following conditions are complied with: (1) The capital
of the corporation must not be impaired: (2) A legitimate
and proper corporate objective is advanced; (3) The
condition of corporate a^airs warrants it; and (4) The
transaction is designed and carried out in good faith.
Also, the corporation should have unrestricted retained
earnings in its books to cover the shares to be purchased.
b. Yes, the arrangement between the corporation and its
President is covered by the Trust Fund Doctrine. The
corporation cannot return what was paid by a stockholder
for his shares because the subscribed capital is held in
trust by the corporation for its creditors, (1992 Bar)
No, under the given circumstances VM Corporation
cannot acquire its own shares. Section 40 of RCCP
 35 | R e v i s e d Corporation Code
Corporation is OP Corporation. advancing money to OP
Corporation ents. OP Corporation is now o^ering rporation
to pay its advances. Can the VM Corporation acquire its
own shares which are in the name of OP Corporation by
way of dacion en pago despite the presence of negative
retained earnings in its books?
Sec. XX, a domestic corporation, owns and operates a sugar
41 central. In the year 2000, the President of X invested
P1,000,000.00 of company funds in shares of A, a
domestic corporation engaged in the manufacture of
sugar bags out of sugarcane by-product as basic raw
material. X became the biggest consumer of the bags
produced by A. In 2002, A shutdown its operation due to
high costs of production and huge losses already su^ered.
Stockholder B of X assailed the investment in A as
violative of the Corporation Code. The Board of Directors
of X then met and rati_ed the investment made by the
President. What is the e^ect of the rati_cation by the
Board?
ABC Corporation is engaged in the business of
manufacturing soft drinks. For the past 10 years, it has
bought all its bottles XYZ Corporation. Considering the
volume of its production, it now _nds that it will be more
economical to manufacture its own bottles. The Board of
Directors, after studing and discussing the matter
thoroughly, decides to set aside the amount of
1,000,000.00 for this project. Most of this amount will go
to the cost of equipment and materials.
M is a stockholder of ABC Corporation and is against the
investment in the bottling project and would like to
withdraw from the corporation by exercising his appraisal
right if the project goes through. He therefore demands
that the project be submitted to the stockholders for
approval, but the board refuses to do so on the ground
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requires the existence of unrestricted retained earnings
before a corporation can acquires its own shares. The
cases does not fall under any of the exceptions to the rule
that unrestricted retained earnings is required. In
addition, the de0recognition of receivables without
receiving any cash from the debtor would further
aggravate the liquidity position of the company. If the
acquisition is allowed, the corresponding recognition of
treasury shares would further increase the amount of
negative equity of the company.
The rati_cation by the Board of Directors makes the
investment valid and binding. The action of the Board is
sujcient to approve such investment because it appears
that the same is in line with the primary purpose of the
corporation, the investment by a sugar company in
another corporation engaged in the manufacture of sacks
for sugar does not require the rati_cation by a 2/3 vote of
the outstanding capital stock, since such was done
pursuant to the primary purpose of the investing
corporation. It is only when the purchase of shares of
another corporation is done solely for investment and not
to accomplish the purpose of its incorporation that the
2/3 vote of stockholders is required. (See De la Rama vs.
Ma-ao Sugar Central Co., Inc.)
a. M should bring his case before the proper Regional Trial
Court because the case is in the nature of an intra-
corporate controversy. The jurisdiction of the SEC to hear
and decide cases involving controversies arising out of
intra-corporate relations between any stockholder and
the corporation has been transferred to the courts of
general jurisdiction by virtue of RA No. 8799.
b. No, the matter does not need the approval of the
stockholders. The action of the Board is sujcient because
under Section 42 of the Corporation Code (now Section
41 of the RCCP),stockholder's approval is not necessary if
the investment is reasonably necessary to accomplish the
corporation's primary purpose. In this case, the
manufacture of bottles is reasonably necessary for the
 36 | R e v i s e d Corporation Code
that there is no need for such approval and that the
calling of a special stockholder's meeting would entail too
many expenses.
M, thus, cannot have the opprotunity to exercise his
appraisal right. He wants to sue the board to compel it to
submit the matter to the stockholders and enjoin it from
pursuing the project until the stockholders shall have
approved it.
a. Before whom M _le his suit? Why?
b. Do you think the matter needs the stockholders'
approval or is the action of the Board of Directors
sujcient? Explain.
21. Stikki Cement Corporation (STIKKI) was organized
primarily for cement manufacturing. Anticipating
substantial pro_ts, its President proposed that STIKKI
invest in (a) power plant project, (b) concrete roads
project, and (c) quarry operations for limestone used in
the manufacture of cement. What corporate approvals or
votes are needed for the proposed investments? Explain.
Sec. X Corp., has an authorized capital stock of P500,000
42 divided into 50,000 shares with each share having a par
value of P10.00, 30,000 shares of which have been
subscribed. Total payment of the shares is P200,000 only.
AS of September 30, 2005, the corporation had an
unrestricted retained earnings of P150,000. May the
corporation declare a stock dividend? If so, to what
extent? Explain.
Taurus Corporation (TC) commenced operations in 1985.
During that year TC’s loss from operations amounted to
P500,000,00. In 1986, TC recouped its losses in 1985,
registering a net after tax pro_t of P500,000.00. In the
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corporation's primary business of manufacturing drinks.
(1983 Bar)
All the proposed actions require only the approval of the
board of directors provided that they are reasonably
necessary to accomplish the primary purpose of the
corporation. A power plant that is meant to cater to the
needs of the cement factory is reasonably necessary to
accomplish the primary purpose. Moreover, construction
of concrete roads leading to the factory or the quarry may
also be deemed necessary for the accomplishment of the
primary purpose. With respect to the quarry operations
for the limestone, the same is an indispensable ingredient
in the manufacture of cement and may therefore, be
considered reasonably necessary to accomplish the
primary purpose of STIKKI. (1995 Bar)
Yes, X Corporation may declare stock dividends. X
Corporation has 20,000 unissued shares and unrestricted
retained earnings amounting to P150,000.00. Thus, it can
declare stock dividends up to 15,000 shares because the
par value thereof is equal to the unrestricted retained
earnings that are available. The fact that the shareholders
have not yet fully paid their shares is not material
because they are already entitled to all the rights of
shareholders. (1970 Bar)
No, the Board of Directors cannot declare cash dividends
out of the revaluation or appraisal surplus. Generally, the
revaluation or appraisal surplus cannot be declared as
dividend because the same cannot be considered
37 | R e v i s e d Corporation Code
same year, the management of the company discovered
that a parcel of land originally acquired in 1985 for
P300,000.00 had at least doubled in value and accordingly
the Board of Directors of TC, with the conformity of the
external auditors and backed up by a valuation report of a
reputable appraiser, recognized a revaluation or appraisal
surplus of P300,000.00. May the Board of Directors of TC
declare a cash dividend out of this surplus? Explain.
After one year of operation, Safe Realty, Inc., wanted to
declare dividends to its stockholders. Ramos, its President,
asked Santos, its Treasurer, whether this is feasible,
considering the _nancial standing of the corporation.
Santos reported that the corporation posted a P1,000,000
pro_t and its real estate has appreciated in value to the
tune of P4,000,000. The Board then declared dividends to
its stockholders computed on the basis of 5,000,000
representing pro_ts and appreciation in value of its real
estate. Is the dividend declaration proper?
During the annual stockholders' meeting, Riza, a
stockholder proposed to the body that a part of the
corporation's unreserved earned surplus to be capitalized
and stock dividends be distributed to the stockholders,
arguing that as owners of the company, the stockholders,
by majority vote, can do anything. As the chairman of the
meeting, how would you rule on the motion to declare
stock dividends?
Palmavera Corporation has an authorized capital stock of
P500,000.00, all subscribed and outstanding as of
December 31, 1981. The corporation also has unrestricted
retained earnings in its books amounting to P375,000.00,
Since the corporation needed the cash surplus to carry out
its expansion projects, the Board of Directors, in its
meeting held on January 5,1989, approved a resolution
declaring and ordering the issuance of 50% stock
dividends in lieu of cash dividends.
a. Was the resolution declaring the issuance of
stock dividends valid? Explain your answer.
b. What step or steps need be taken in order
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earnings of the corporation. The surplus is by nature
subject to wuctuations. In addition, SEC Rules require that
dividends should come from income from operations.
(1987 Bar)
The dividend declaration is improper. The amount
corresponding to the value of property cannot be
declared as dividend because the same cannot be
considered earnings of the corporation. The value of the
property is by nature subject to wuctuations. IN addition,
SEC Rules require that dividends should come from
income from operations.
I would rule against the motion. The resolution declaring
stock dividends should _rst be approved by the Board of
Directors, and it is only thereafter that the Board action
will need to be concurred by 2/3 vote of the outstanding
capital stock (Section 43, Corporation C ode; Section 42,
RCCP), The stockholders, by themselves, cannot order the
distribution of unrestricted retained earnings. (1991 Bar)
a. Yes, the resolution of the Board of Directors declaring -
issuance of stock dividends was valid. However, it still
insujcient for purposes of declaring stock dividend.
(Section 42, Corporation Code, now Section 42 of the
RCCP)
b. The resolution of the BOD for the declaration of stock
dividends shall still be approved by the stockholders
representing not less than 2/3 of the outstanding capital
stock, at a regular or special meeting called for the
purpose. In addition, there must be increase of the
authorized capital stock at least to accomodate the stock
dividens to be approved by the SEC, inasmuch as the
38 | R e v i s e d Corporation Code
that the decision of the Board could be
implemented? State the required vote.
ABC Management, Inc. presented to DEF Mining Corp. the
draft of its proposed Management Contract. As an
incentive, ABC included in the terms of compensation that
ABC would be entitled to 10% of any stock dividend which
DEF may declare during the lifetime of the Management
Contract. Would you approve of such a provision? If not,
what would you suggest as an alternative?
For the past three years of its commercial operation, “X”
an oil company, has been earning tremendously in excess
of 100% of the corporation’s paid-in capital. All of the
stockholders have been claiming that they share in the
pro_ts of the corporation by way of dividends but the
Board of Directors failed to lift its _nger.
a. Is Corporation “X” guilty of violating a law? If
in the ajrmative, state the basis.
b. Are there instances when a corporation shall
not be held liable for not declaring dividends?
Yes. Corporation “X” is guilty of violating
Section 43 of the Corporation Code (now
Section 42 of the RCCP) for retaining surplus
pro_ts in excess of 100% of its paid-in
capital.
At least 2/3 of the stockholders of Solar Corporation,
meeting upon recommendation of the Board of Directors,
declared a 50% stock dividend during their annual
meeting. The notice of the annual stockholders' meeting
did not mention anything about a stock dividend
declaration. The matter was taken up only under the item
"Other Business" in the agenda of the meeting. C.K.
Senwa, a stockholder, who received his copy of the notice
but did not attend the meeting, subsequently learned
about the 50% stock dividend declaration, and wishes to
retain your services as a lawyer for the purpose. Will you
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authorized capital stock of Palmavera Corporation was
fully subscribed already. (Sections 38 and 43, Corporation
Code, now Sections 37 and 42 of the RCCP) (1982 Bar)
No. I would not approve of a proposed stipulation in the
management contract that the managing corporation, as
an additional compensation to it, should be entitled to
10% of any stock dividend that may be declared. Only
stockholders are entitled to dividends. Instead of giving
dividends, the managing corporation should instead be
given net pro_t participation. They can then use the
money to acquire shares of the corporation. (1991 Bar)
A. Yes. Corporation “X” is guilty of violating Section 43 of
the Corporation Code (now Section 42 of the RCCP) for
retaining surplus pro_ts in excess of 100% of its paid-in
capital.
B.Non-declaration of dividends is justi_ed in any of the
following instances: (1) when justi_ed by de_nite
corporate expansion projects or programs approved by
the BOD; or (2) when the corporation is prohibited under
any loan agreement with any _nancial institution or
creditor, whether local or foreign, from declaring
dividends without its or his consent, and such consent
has not yet been secured; or (3) when it can be clearly
shown that such retention is necessary under special
circumstances obtaining in the corporation, such as when
there is need for special reserve for probable
contingencies. (2001 Bar)
I will not accept the case. Section 43 of the Corporation
Code now Section 42 of the RCCP states that no stock
dividend shall be issued without the approval of the
stockholders representing not less than 2/3 of the
outstanding capital stock at a regular or special meeting
duly called for that purpose. The annual meeting of the
stockholders although not a special one called for the
purpose of declaring dividends, is a regular meeting
contemplated by the Code. As such, the notice of meeting
must also state that one of the purposes is to declare
stock dividends.
 39 | 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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accept the case? Discuss with reasons.

Ace Cruz subscribed to 100,000 of JP Development Ace Cruz is entitled to be paid cash dividends for all the
Corporation, which has a par value of P1 per share. He 100,000 shares of stock that was covered by his
paid P25,000.00 and promised to pay the balance before subscription. Section 43 of the Corporation Code (Section
Decent 31, 2008. JP Development Corporation declared a 42 of the RCCP) provides that the dividends are payable
cash dividend on October 15, 2008, payable on December to all stockholders on the basis of outstanding stock held
1, 2008. For how many shares is Ace Cruz entitled to be by them. In addition, Section 72 of the Corporation Code
paid cash dividends? Explain. (Section 71 of the RCCP) states that a shareholder is
entitled to all the rights of a shareholder, including the
right to dividends even if he has not fully paid for his
shares of stock. A delinquent shareholder is even entitled
to dividends provided that the cash dividends shall be
applied _rst to the unpaid balance of the subscription
while stock dividends shall be withheld until full payment
of the subscription.
TITLE V
277 At the annual stockholders' meeting of MS Corporation, I advise GK that he cannot have the disquali_cation
the stockholders unanimously passed a resolution I advise GK
provision in that
the the provisionBy-Laws
amended disqualifying certainprovides that
nulli_es,
authorizing the Board of Directors to amend the corporate the SEC has already issued a certi_cationvalid,
individuals in the amended By-Laws remains that as thesame is
the
By-Laws so as to disqualify any stockholder who is also a inSEC has certified
accordance it tothe
with be inRCCP.
line with
Thethe RCCP. The approval
stockholders’
director or stockholder of a competing business from stockholders' approval of delegating
of the delegation of authority to the Board authority to the
to Board
amend forthe
being elected to the BOD of MS Corporation. The By-Laws By-Law meets
By-laws amendments
the 2/3 fulfills
vote therequirement
required 2/3 vote under
under Secthe48 of
were accordingly amended. GK, a stockholder of MS Corporation
the Code (now
Corporation CodeRCCP).(now Additionally,
Sec 47 it's ofestablished
the RCCP).
Corporation and a majority stockholder of a competitor, Moreover, it is disqualifying
that the provision well-settledstockholders
that the involved
provisionin in the
sought election to the BOD of MS Corporation. His amended
competing By-Laws,
businesses disqualifying
from Board election any is
stockholder
legally soundwho is
nomination was denied on the ground that he was also a director or stockholder
and not contrary to the Corporation Code. of a competing business
ineligible to run for the position. Seeking a nulli_cation of from being elected to the Board of Director is valid. The
the o^ending disquali_cation provision, GK consults you disquali_cation is not inconsistent with the provisions of
about its validity under the Corporation Code of the the Corporation Code.
Philippines. What would your legal advice be?
The Board of Directors of C Corporation, engaged in the The petition has no merit. The Board amended the By-
manufacture of food products, acting on a standing Laws upon authority of the stockholders. As long as the
actingd
authority of the stockholders to amend the By-Laws, authority to amend the By-Laws was delegated to the
on amended the By-Laws so as to disqualify any stockholder, Board by the owners of at least 2/3 of the outstanding
standing who is also a stockholder and director of the competitor, capital stock, the delegation is valid and so is the
authorit
The
from being elected to its Board of Directors. S, a
stockholder holding sujcient shares to assure him a seat
amended By-Laws approved by the Board pursuant to
such delegation. Moreover, the amendment in the By-
O
STOCK- in the Board _led a petition with the Securities and Laws of C Corporation is reasonable and valid. The
Exchange Commission for the declaration of nullity of the doctrine is based on the principle that a director cannot
Holders
 40 | R e v i s e d Corporation Code
amended By-Laws and the cancellation of the Certi_cate
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 _led 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 ojces are at
the Ortigas Center, Pasig, Metro Manila. The principal
corporate ojces 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
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
M o r e n o , Ye l l a h O .
XU College of Law
serve two masters so to speak. There is a danger that the
director will give preference to one corporation. The
disquali_cation 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 a^ected 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 ojce of the corporation, or, if not
practicable, in the city or municipality where the
principal ojce of the corporation is located. The
AOI the present case is speci_c that the principal
place of business of Manila Industrial Corporation is
in Pasig, Metro Manila. Hence, the meeting should
be held in the principal ojce or if not practicable,
in the city where the principal ojce is located,
which is in Pasig. However, if the corporation shows
that it is not practicable to hold the meeting in the
principal ojce 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.
 41 | R e v i s e d Corporation Code
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
foreclosed the mortgaged properties, and as the highest
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 briewy your answer.
TITLE VII
M o r e n o , Ye l l a h O .
XU College of Law
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 _ve years at any one
time.
The legal limitations on voting trusts are as follows: (1)
they must not exceed the period of _ve years at any
time; (2) In the case of a voting trust speci_cally required
as a condition in a loan agreement, said voting trust may
be for a period exceeding _ve 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 right to vote the shares of grantor/s. (1992
Bar)
 42 | R e v i s e d Corporation Code
306 Q College, Inc. o^ered 200 shares to Ms. DC for a
subscription price of P20,000.00. The o^er is stated in a
subscription letter form that states that initial payment
should be made and the subsequent payment should be in
accordance with the terms and conditions of the college.
Later, Ms. DC, instead of sending the subscription form,
sent a letter to the Board of Trustees of Q College which
states: "Please enter my subscription to dalawang daan
(200) shares of your capital stock with a par value of PlOO
each. Enclosed you will _nd (Babayaran kong lahat
pagkatapos na ako ay makapag-pahuli ng isda) pesos as
my initial payment and the balance payable in accordance
with law and the rules and regulations of the Quezon
College. I hereby agree to shoulder the expenses
connected with said shares of stock. I further submit
myself to all lawful demands, decisions or directives of the
Board of Q College and all its duly constituted ojcers or
authorities (ang nasa itaas ay binasa at ipinaliwanag sa
akin sa wikang tagalog na aking nalalaman)." No reply was
sent by Q College to Ms. DC. Ms, DC died without having
paid any portion of the subscription price. Thereafter, Q
College presented a claim in Ms. DC's testate proceeding,
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 _ve individual
incorporators who subscribed to the whole authorized
capital stock of Pl,000,000.00 and who paid P500,000.00.
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 rati_ed 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
M o r e n o , Ye l l a h O .
XU College of Law
No, the claim will not prosper. There was no perfected
subscription contract. Q College did not accept the term of
payment suggested by Ms. DC during her lifetime. As Ms.
DC's letter is at variance with the terms evidenced in the
form, there was no absolute necessity on the part of the
college to express its agreement to DC’s o^er in order to
bind the latter. Conversely, said acceptance was essential,
because it would be unfair to immediately obligate the Q
College under DC’s promise to pay the price of the
subscription after she had caused _sh to be caught. In
other words, the relation between DC and Q College had
only thus reached preliminary stage. There was no binding
contract in the absence as in the present case of
acceptance by the Q College of the counter o^er of DC.
Indeed, the need for express acceptance on the part of the
Q College becomes the more imperative, in view of the
fact that the proposal of DC was to pay the value of the
subscription after she has harvested _sh. There was a
condition that was dependent upon DC’s sole will and,
therefore, potestative in nature, rendering the obligation
void under the New Civil Code.
Yes, the creditors can recover from the subscribers the
latter’s unpaid subscription. Condonation of the obligation
to pay the subscription price violates the Trust Fund
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
 43 | R e v i s e d Corporation Code
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 Certi_cate 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 _rm is formally
organized. Explain briewy 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 _rm?
325 “A,” stockholder of “X” Corporation, assigns his shares of
stock to “B” for a valuable consideration. The certi_cate 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
M o r e n o , Ye l l a h O .
XU College of Law
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 rati_es 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
on the corporation if the same is not registered in the
books of the corporation. Thus, the transfer must _rst 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 _le an action
against "C" to recover the dividends. (1981 Bar)
44 | R e v i s e d Corporation Code
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
certi_cates 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 certi_cate.
Eddy delivered the stock certi_cate 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
justi_ed? Explain.
"A" is the registered owner of Stock Certi_cate No. 000011.
He entrusted the possession of said certi_cate to his best
friend "B" who borrowed the said endorsed certi_cate to
support B's application for passport (or for a purpose other
than transfer). But "B" sold the certi_cate to ''X," a bona
_de purchaser who relied on the endorsed certi_cates and
believed him to be the owner thereof.
A. Can "A" claim the shares of stocks from "X''?
Explain.
B. Would your answer be the same if "A" lost the stock
certi_cate 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 woor price of P400,000.00 and P450,000.00 per
M o r e n o , Ye l l a h O .
XU College of Law
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 e^ected 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 justi_ed. 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 certi_cate 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
certi_cate 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
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
certi_cate of stock was lost or stolen from "A," "A"
has a right to claim the certi_cate 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 o^ered for sale one Class
"A" share of stock to MSC for the price of P2,800,000.00
 45 | R e v i s e d Corporation Code
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 certi_cate 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 o^er 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 _led 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?
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 _nancial reverses. Mr. Balimbing
demanded from the Corporate Secretary the stock
certi_cates 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 certi_cates in the name of Mr. Balimbing for 25
M o r e n o , Ye l l a h O .
XU College of Law
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 certi_cate
was issued only on January 5, 1996. A certi_cate of stock
is the paper representative or tangible evidence of the
stock itself and of the various interests therein. The
certi_cate 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
o^ered 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 ojcers cannot create restrictions
in stock transfers. (Makati Sports Club, Inc. u. Cecile H.
Cheng, et al., G.R. No. 178523, June 16, 2010
a. Yes. The Corporate Secretary validly refused to
issue the stock certi_cate. No certi_cate of stock
shall be issued unless the full amount of the
subscription prince, he cannot demand the issuance
of the certi_cates.
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
 46 | R e v i s e d Corporation Code
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 _led 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 a^airs. 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 _led a
court suit against the members of the BOD to make good
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,
M o r e n o , Ye l l a h O .
XU College of Law
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 _le 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
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 _le the case is
the corporation. The shareholders may _le a derivative
suit but the reliefs should be in favor of the corporation.
a. a. 10. It is required for the _ling 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
 47 | 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

PREC issued free of charge 10,000 shares to X, a lawyer _le the derivative suit. It does not appear that the
who assisted in a court case involving PREC. act is a continuing one in this case.
a. Can A now bring an action in the name of the b. No. the right to _le a derivative suit pertains to all
corporation to question the issuance of the shares to shareholders. Even a shareholder owning one share
X without receiving any payment? is entitled to such right.
b. Can X question the right of A to sue him in behalf of c. No. Watered shares are those sold by the
the corporation on the ground that A has only one corporation for less than the par or book value. In
share in his name? the instant case, there must be proof that the value
c. Can the shares issued to X be considered watered of the services rendered by X is less than the total
stocks? par value of the shares issued in his name in order
for such shares to be considered as watered stocks.
The Board of Directors of P Corporation approved a No, the action will not prosper. The action of the minority
resolution authorizing the acquisition of up to 100% of the shareholders should be dismissed for being moot and
common stocks of J Corporation. The Board speci_cally academic. Where he issues have become moot and
appointed one of its Directors, Mr. S, to act as attorney-in- academic, there is no justiciable controversy, thereby
fact and proxy who could vote all the shares of P rendering the resolution of the same of no practical use or
Corporation in J Corporation. Mr. S, by virtue of such power, value. Since the resolution of the Board was rati_ed by the
was able to constitute the Board of J Corporation. The stockholders, the acquisition by P Corporation of J
Board of P Corporation likewise approved that the payment Corporation is no longer just the act of the Board but also
of the shares of J Corporation shall be made by transferring o^ the stockholders. By rati_cation, even an unauthorized
the real property of P Corporation to J Corporation. act of an agent becomes the authorized act of the
principal. To declare the resolution null and void will serve
The property to be transferred constitutes substantially all no practical use or value or a^ect any of the rights of the
of the assets of P Corporation. The decision of the Board parties because the approval of the stockholders will still
was later rati_ed by the stockholders representing 74% of remain valid and binding.
the outstanding capital. However, before the stockholder’s
meeting where such rati_cation was made, the minority
stockholders _led a derivative suit asking the Court to
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 _led 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 con_dential 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 speci_ed
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 _nd out whether B Law. Independent of the foregoing, the purpose of the
 48 | R e v i s e d Corporation Code
has indeed such a time deposit and how much. The bank
manager refuses to accede to his demand. A threatens to
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
wanted to examine the books and records of a foreign
subsidiary wholly owned by Bilmoko Corporation. The book
and records of the foreign subsidiary were in the
possession of Bilmoko Corporation. The latter's board of
directors refused to allow the petitioner to examine the
said books and records. contending that the foreign
subsidiary is a separate and distinct corporation domiciled
in another country; hence, the petitioner was not within
the class of persons having an interest in the operations of
the foreign subsidiary.
A. Decide the case.
B. What are the limitations on a stockholder' right to
inspect corporation books and records?
Don Mariano was able to secure a favorable judgment
against Nestor Pe for recovery of a sum of money and the
said judgment had become _nal and executory. Don
Mariano was informed by someone that Nestor Pe might
have a sizable savings deposit with Xena Commercial
Bank, of which Don Mariano was a stockholder, with one
share registered in his name. Immediately he rushed to the
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
agreement specifying the surviving corporation and the
absorbed corporation. Under the agreement of merger
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inspection is likewise not acceptable because it is alien to
all the other rights of the shareholder. (1983 Bar)
a. The case should be decided in favor of the
petitioner. The right of a stockholder to inspect the
books and records of a corporation extends to a
subsidiary wholly owned by the corporation. It is in
consonance with equity, good faith and fair dealing
if the right of the shareholder will be so extended.
b. The shareholder’s right to inspect the corporate
book may be exercised only if the following are
present: (a) when it is exercised at a reasonable
hour on business days; (2) when the stockholder
has not improperly used any information he secured
through any previous examination; and (3) when
the demand is made in good faith or for a legitimate
purpose. Hence, absent any of the foregoing, the
corporation can deny the stockholder’s exercise of
the right to inspect corporate books or records.
Yes, the stand of the Bank Manager is legally tenable. A
stockholder has the right to inspect the corporate books
under Section 73 of the RCCP. However, the right to
inspect the books of a corporation is subject to special
law, like Republic Act No. 1405 or the Bank Deposit
Secrecy Law which operates as an exception to the
general rule. (1985 Bar)
a. No. It is not necessary for the absorbed corporation
to undertake dissolution and winding up procedure.
Once the merger is approved by the SEC, the
 49 | R e v i s e d Corporation Code
dated November 5, 1998, the surviving corporation
acquired all the rights, properties and liabilities of the
absorbed corporation.
A. What would happen to the absorbed corporation?
Must the absorbed corporation undertake dissolution
and winding up procedures? Explain your answer.
B. Pending the approval of the merger by the SEC, may
the surviving corporation already institute suits to
collect all receivables due to the absorbed
corporation from its customers? Explain your
answer.
C. A case was _led against a customer to collect on the
promissory note issued by him after the date of the
merger agreement. The customer raised the defense
that while the receivables as of the date of the
merger agreement were transferred to the surviving
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
preferred shares shall earn cumulative dividends of 6% to
16% as the Board may determine. Assume that the
delegation of power to the Board is valid. Can a
shareholder exercise an appraisal right every time the
Board declares dividends and _xes 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 speci_cally
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
Appraisal right- RIGHT TO Dissent anD
Demand Payment
For the Fair value of MeIR shares
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absorbed corporation is automatically dissolved and
its assets and liabilities are acquired and assumed
by the surviving corporation.
b. No. The approval of the SEC is the operative act
that makes the merger e^ective. Before approval by
the SEC of the merger, the two corporations
involved in the merger are still separate and distinct
from each other.
c. The argument is not meritorious. The receivables
pertain to the surviving corporation whether or not
the same were incurred by the absorbed
corporation before or after the merger agreement,
or before or after the approval thereof by the SEC.
Section 79 of the RCCP does not make any
distinction as to the assets and liabilities of the
absorbed corporation that the surviving corporation
would inherit. (1999 Bar)
& PPRAISAL RIGHT
No, the appraisal right does not arise each time that the
BOD _xes the terms and conditions of the preferred shares
considering that such authority was given to them at the
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
* amenyment to the AOI * Mercer / conSoLIDATION

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Code assets Investment of corporate Funds
& M o r e n o , Ye l l a h O .
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that the payment of the share shall be made by addition, the existence of an appraisal right is
transferring the real property of P Corporation. The provided for under paragraph (2) of Section 81 of
property to be transferred constitutes substantially all of the Corporation Code (now Section 80 of the RCCP)
the assets of the corporation. The decision of the Board because of P Corporation decided to transfer
was later rati_ed by the stockholders representing 74% of substantially all of the properties of the corporation.
the outstanding capital. However, before the stockholder' b. No, the contention is not tenable. The minority
meeting where such rati_cation was made, the minority stockholders themselves cause the unavailability of
stockholders _led a derivative suit asking the Court to the appraisal right by _ling their complaint even
declare null and void the resolution of the Board. before the Resolution of the Board could be
a. Was appraisal right available? presented to the stockholders of P Corporation for
b. The minority shareholders claimed that the appraisal approval or rejection.
"T" cannot use the appraisal right. When shares marked as dissenting are transferred
right was not available because appraisal right may and their certificates are canceled, the original owner loses their dissenting
be exercised only by stockholders who had voted shareholder rights, and the new owner gets regular shareholder rights. Also, to use the
against the proposed action. Is the contention appraisal right, the shareholder must have voted against the corporate action, which
tenable? "T" didn't do. Therefore, "T" can't exercise the right of appraisal.
In a stockholders’ meeting, S dissented from the corporate No, T cannot exercise the right of appraisal. Appraisal right
act converting preferred voting shares to non-voting cease. Section 85 of the RCCP provides that if the shares
shares. Thereafter, S submitted his certi_cates of stock for represented by the certi_cates bearing a notation that
notation that his shares are dissenting. The next day, S they are dissenting shares are transferred, and the
transferred his shares to T to whom new certi_cates were certi_cates are consequently cancelled, the rights of the
issued. Now, T demands from the corporation the payment transferor, like S, as a dissenting stockholder shall cease
of the value of his shares. Can T exercise the right of and the transferee, like T, shall have al] the rights of a
appraisal. Reason briewy. 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)
TITLE XI NON-STOCK CORPORATION
386 The members of ABC Corporation, a non-stock corporation, No. The o^setting will amount to distribution of the assets
contributed an amount for a corporate activity. However, of the corporation. The properties of a non-stock
the total amount that was contributed was more than corporation cannot be distributed and the members
sujcient for the activity; hence, a balance of P500,000.00 cannot reduce the corporate capital unless the corporation
was left with the corporation. There is a proposal to o^set is dissolved. Receivables from the members are
the unused contribution against the balance of the considered assets of the corporation and may not
receivables from the members. Is the proposal in therefore be distributed. (SEC Opinion, November 27,
accordance with law? 1985) UNLESS THE CORPORATION IS DISSOLVED .

The AB Memorial Foundation, Inc. was incorporated as a a. Yes, as long as the amount of donation is
non-pro_t, non-stock corporation in order to establish and reasonable, the donation is allowed under Section
 51 | R e v i s e d Corporation Code
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
Vacancy
Trustees be _lled?
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 a^airs of the corporation was being handled,
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
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XU College of Law
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 justi_ed by
showing that the restaurant's purpose is to raise
funds to support the library and museum.> Und Raising
-
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 _lled up in a special meeting of the members.
(Section 28, RCCP; 1993 Bar)
CLOSED CORPORATION
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
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 foodstu^
under Article 2187 because the liability under the
same prov1S10n is in the nature of strict liability.
(1988 Bar)
OMG TORTS
: )

52 | R e v i s e d Corporation Code
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 noti_ed 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
ground that the same violated the by-laws. Alberto o^ered
to buy the shares at Pl2.50 per share, as _xed 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 _rst
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.
Sec 100 actions taken
. By Directors Close
of a
Corporation wo meeting are considered vaLID
a
n o DIRECTORS
o r eThe
It Written Consent IS Obtained FromMALL , Ye l l a h O .
INVOLVED XU College of Law
NO APPROVAL BY The BOARD In a meeting CaLLeD FOR SUCH MeeTING
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 _fth paragraph of
Section 99 of the RCCP speci_cally imposes personal
liability upon the stockholders who are actively managing
or operating the business and a^airs 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. TORT LIABILITY
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 Certi_cate
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)
 53 | R e v i s e d Corporation Code
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 _led. 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 _ve stockholders of said
corporation? Discuss two methods of liquidation.
"Acme Corporation" _led 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.
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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 a^airs that the votes required for any
corporate action cannot be obtained, with the
consequence that the business and a^airs 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)
1) IS SOLUTION
No, the defense is not valid. In the _rst 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 a^airs. (1968 Bar)
The prime property of "X" Corporation can be liquidated
among the _ve 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
then convey the property and distribute it among the
creditors after paying the corporate debts. It is submitted
that the speci_c 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 a^ected. (2001
Bar) Memorize !!
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
 54 | R e v i s e d Corporation Code
The trial court, however, was not noti_ed 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 a^airs 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 a^airs, culminating in the
_nal 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 _nal settlement of the corporate a^airs 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 _led by creditors,
none of which was expected to be completed or resolved
within _ve years from May 30, 2019. If the creditors had
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
↑am1- operates a network system (referred to as SEN) in several
Lla-
countries. Its servers are in the United States while its
employees are in Hong Kong. SEN is an inline platform that
Rize !!! o^ers 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
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corporation may be considered a trustee of said
corporation with respect to the same case and he can
continue to represent the corporation.
The _nal settlement can be made through the Board of
Directors. The members of the Board of Directors can
continue with the winding of the corporate a^airs until
_nal 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 a^airs,
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
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
 55 | 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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the Philippines can also participate by creating accounts. A in the Philippines: (a) funding the online SEN wallet; (b)
SEN account holder can buy content and services from SEC o^ering and selling services; (c) accepting online
only by using funds from an associated SEN online wallet, payments including Philippine currency; (d) marketing or
which can be funded by using a credit, debit or prepaid advertising; € hiring of independent contractors for
card sold in the Philippines through independent advertising or marketing and for selling pre-paid cards.
contractors. SCEH also markets its products through
independent contractors. Is SCEH doing business in the
Philippines.
Title XV FOREIGN CORPORATION
477 X Corporation is engaged in a scheme whereby an investor Yes, X Corporation is engaged in the business of
is required to become a Business Center Owner (ECO) who distributing securities in the form of investment contract.
must _ll-up and sign its application form. The Terms and To be a security subject to regulation by the SEC, an
Condition printed at the back of the application form investment contract must be proved to be: (1) an
indicate that th: BCO shall mean an independent investment of money, (2) in a common enterprise, (3) with
representative of Power Homes, who is enrolled in the expectation of pro_ts, and (4) primarily from e^orts of
company's referral program and who will ultimately others. In this case, what BCO is really acquiring is the
purchase real property from any accredited real estate possibility of deriving money from the sale of the plans.
developers and as such he is entitled to a referral Once an individual has purchased a Plan, _he turns his
bonus/commission. Paragraph 5 of the same indicates that e^orts toward bringing others into the organization, for
there exists no employer/employee relationship between which he will receive a part of what they pay. His task is to
the BCO and the Power Homes Unlimited, Corp. The BCO is bring prospective purchasers to "Adventure Meetings."
required to pay US$234 as his enrollment fee. His (Power Homes Unlimited Corporation v. Securities and
enrollment entitles him to recruit two investors who should Exchange Commission, G.R. No. 164182, February 26,
pay US$234 each and out of which amount he shall receive 2008; See also 2010 Bar)
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
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
 56 | R e v i s e d Corporation Code
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
the same wherein the pro_ts 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 o^ered 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 o^ered. The purchase price per
package was US$7,000.00. Under the leaseback and
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XU College of Law
Yes, the contracts are investment contracts that are
securities under the law. The companies are o^ering more
than fee simple interests in land, something di^erent from
a farm or orchard coupled with management services.
They are o^ering an opportunity to contribute money and
to share in the pro_ts of a large citrus fruit enterprise
managed and owned by the companies. They are o^ering
this opportunity to persons who reside in di^erent
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 pro_ts. The resulting
transfer of rights in the land is merely incidental.
Consequently, all the elements of a pro_t-seeking
business venture are present. The investor provides the
capital and share in the earnings and pro_ts; 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 pro_ts primarily
through the e^orts of others. T Corporation is o^ering
more than leasehold rights but also the opportunity to
contribute money and to share in the pro_ts 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 pro_ts
primarily through the e^orts 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 _xed is of no moment. There is no
 57 | R e v i s e d Corporation Code
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
e^ective 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 e^ect of
ratifying the purchase agreement (with Leon and Carina) of
October 6, 2013. Is the contention of PPR correct? Explain.
492 Grand Gas Corporation, a publicly listed company,
discovered after extensive drilling a rich deposit of natural
gas along the coast of Antique. For _ve 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 ojcers 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 ojcers sold their shares at huge
M o r e n o , Ye l l a h O .
XU College of Law
distinction between _xed and variable returns. Otherwise,
unscrupulous marketers of investments could evade
securities laws by simply picking a _xed 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 o^ered for sale or distribution within
the Philippines without a registration statement approved
by the SEC. Timeshares are considered securities and prior
to ful_llment 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)
A. The directors and key ojcers of GGC violated SRC
rules on insider trading. The directors and ojcers
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
 58 | R e v i s e d Corporation Code
pro_ts.
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 pro_ts. 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 o^er and
when is it mandatory?
M o r e n o , Ye l l a h O .
XU College of Law
such relationship; or (b) if the other part selling to
or buying from the insider is identi`ed, 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 o^er 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
o^er rules. SRC Rule 19 provides that there is mandatory
tender o^er 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
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)