Corpo Notes - Atty Ladia PDF

1
CORPORATION LAW
Corporation is one of the types of business

organizations. It is also the most important in
economic development.
INTRODUCTION
Sole proprietorship
One man form of business entity, personally answers

all liabilities, but enjoys all the profits with the
exclusion of others
General rule: Moral damages cannot be granted to

corporations
Exception: Filipinas Broadcasting Network Inc. vs. Ago

Med
In cases of slander, libel and other forms of

defamation (should not qualify because the code does
not qualify whether natural or juridical) Art. 2219 of
the civil code:
Art. 2219. Moral damages may be recovered
in the following and analogous cases:
Limited shareholders responsibility
Paid subscription in full, you are no longer liable
Partnership
Based on mutual trust and confidence
Joint venture
one time grouping of persons whether they be natural

or juridical
(5) Illegal or arbitrary detention or arrest;
does not entail continuity because after

undertaking is completed it is already the end
(6) Illegal search;
(1) A criminal offense resulting in physical injuries;
(2) Quasi-delicts causing physical injuries;

(3) Seduction, abduction, rape, or other lascivious
acts;
(4) Adultery or concubinage;
the
(7) Libel, slander or any other form of defamation;

particular partnership and joint venture would be
similar, but there is already a decision of the Supreme
Court declaring them as different
(8) Malicious prosecution;
when they do not register, it does not exist
(9) Acts mentioned in Article 309;
Foreign corporations enters into an agreement with a

domestic corporation, it must be registered. Generally
they do not need to be registered.
(10) Acts and actions referred to in Articles 21, 26, 27,

28, 29, 30, 32, 34, and 35.
Corporations
They may enter into joint venture, but generally they

cannot enter into a partnership, but there are
exceptions allowed by the SEC: the 3 exceptions must
go hand in hand
1.
The parents of the female seduced, abducted, raped,

or abused, referred to in No. 3 of this article, may also
recover moral damages.
The spouse, descendants, ascendants, and brothers
and sisters may bring the action mentioned in No. 9 of
this article, in the order named.
The articles of incorporation expressly authorized

the corporation to enter into contracts of
partnership;
Advantages (SEE LADIA BOOK)
No. 2 may also be a disadvantage
2.
The agreement or articles of partnership must

provide that all the partners will manage the
partnership; and
No. 5 may also be a disadvantage
3.
The articles of partnership must stipulate that all

the partners are and shall be jointly and severally
liable for all obligations of the partnership.
A corporation is a person, therefore protected by the

due process clause and equal protection clause of the
Constitution
CLASSIFICATION OF CORPORATIONS
DEFINITION AND ATTRIBUTES
4 attributes of a corporation
1.
Artificial being
2.
Created by operation of law
3.
Right of succession
4.
Powers, attributes and properties expressly authorized

by law or incident to its existence.
Doctrine of limited capacity
Only such powers as are expressly granted to it by law

and by its articles of incorporation including others
which are incidental to such conferred powers, those
reasonably necessary to accomplish its purpose and
those which may be incidental to its existence
Section 3 Stock and non-stock
Importance of knowing, determining what provisions of

the code or the law may be applicable
Section 3. Classes of corporations. Corporations formed or organized under this Code may
be stock or non-stock corporations. Corporations which
have capital stock divided into shares and are
authorized to distribute to the holders of such shares
dividends or allotments of the surplus profits on the
basis of the shares held are stock corporations. All
other corporations are non-stock corporations. (3a)
Non-stock- title 10
Stock- section 51
Can do things as the law asks or allows it to do
Stockholders must generally cast their votes in the

meeting; section 4 governed primarily by the law
creating them
If it does anything beyond, it shall be considered as

ULTRA VIRES
Section 4. Corporations created by special

laws or charters. - Corporations created by special
Notes on Corporation Law

Notes come in handy only when you have studied
GTan; ASoguilon; VVillanueva
laws or charters shall be governed primarily by the

provisions of the special law or charter creating them
or applicable to them, supplemented by the provisions
of this Code, insofar as they are applicable. (n)
If incorporated under the laws of the Philippines it is a

domestic corporation
ME Gray vs. CA
Section 3
Parent or Holding/ subsidiaries and affiliates
The two requisites must always concur
Affiliates- no majority vote
1.
That they have a capital stock divided into shares;

and,
2.
That they are authorized to distribute dividends or

allotments as surplus profits to its stockholders on the
basis of the shares held by each of them.
SMC 12%
HERSHEY
CBP
CBPl 12%
12%
Affiliate is subject to common control by the 12 % owners
De jure
Section 4
Created by a special law, they have their own

character
cannot be attached by the state even in a quo

warranto proceeding
They are not immune from suit unless provided by the

law of their creation
De facto
Primarily governed by the law creating them
Their subsidiaries are entirely different or independent

from that of the other
Attached directly only by the state in a quo warranto

proceeding
Close corporation
Corporation by estoppel
There is no exemption it is absolute
Public corporation
So defectively formed, but still considered corporation,

but only in relation to those who cannot deny their
existence section 20 and 21
Political or governmental purposes
Those formed or organized for the government or a

portion of the State or any of its political subdivision
and which have for their purpose the general good and
welfare
Private Corporation
Immediate benefit, aim or advantage of private

individuals
Those formed for some private purpose, benefit, aim

or end
Distinction: public for governmental purpose
Corporation Sole
FORMATION AND ORGANIZATION
An incorporator may also be a juridical person
Close corporation
There is exclusivity of shares of stock
Section 96-105
Restrictions to transfer shares
Only those indicated can own shares
3 stages
1.
Creation
2.
Re-organization or quasi-reorganization
3.
Dissolution/winding-up
Purpose clause
Defining the scope of authority of the corporate

enterprise pr undertaking. Both confirmed and limited
4 limitations of purpose clause
Exemption to the rule because it is composed only of

one person
exists by virtue of colorable compliance
1.
Lawful
2.
Specific or stated concisely
3.
More than one, the primary and secondary must

be specified
4.
Lawfully combined
Provision that states, cannot be issued less than par,

exception is treasury shares because it can be issued
less than par
A corporation commences only upon issuance of the

certificate, prior thereto it has no being and cannot
transact business. Promoters cannot act for a
projected corporation
Article must provide that there will be no public

offering
Metro Manila- paid up capital requirement is 10 M
Open corporation
Non- stock- mere mention of the operating capital
openly admit investors
Mention the authorized capital
Restrictions
example: stock exchange
Domestic/ Foreign
Mandatory in close
Test
Not mandatory in ordinary
Incorporation test

Non-stock
venue of actions for or against the corporations
If value is not more than 100,000
venue of meetings
A corporation cannot use any other name unless it has

been amended
section 51 meetings may only be within

boundaries of the city where the principal office
Section 19
non-stock may be held anywhere in the Philippines, if

provided in its by-laws
where summons may be served
registration of chattel mortgage must be registered in

the register of deeds where the principal office is
located
Clavecilla Radio System vs. Antillon
action not upon a written contract
city where the defendant resides
term of existence
corporate term required
determining what point in time the juridical personality

will cease to exist
enter into
personality
Section 18. Corporate name. - No

corporate name may be allowed by the Securities and
Exchange Commission if the proposed name is
identical or deceptively or confusingly similar to that of
any existing corporation or to any other name already
protected by law or is patently deceptive, confusing or
contrary to existing laws. When a change in the
corporate name is approved, the Commission shall
issue an amended certificate of incorporation under
the amended name. (n)
once it ceases to exist, it no longer has personality
Doctrine of secondary meaning
If confusingly similar it will not be allowed to be

registered
Verification slip from the records officer
Section 19. Commencement of corporate
existence. - A private corporation formed or organized
under this Code commences to have corporate
existence and juridical personality and is deemed
incorporated from the date the Securities and
Exchange Commission issues a certificate of
incorporation under its official seal; and thereupon the
incorporators,
stockholders/members
and
their
successors shall constitute a body politic and
corporate under the name stated in the articles of
incorporation for the period of time mentioned therein,
unless said period is extended or the corporation is
sooner dissolved in accordance with law. (n)
Words corporation or inc. either in full or abbreviated

form must be included
A word or phrase originally incapable of exclusive

appropriation [usually generic] with reference to an
article in the market, because of geographically or
otherwise descriptive, might nevertheless have been
used so long and so exclusively by one producer with
reference to his article that, in that trade and to that
branch of the purchasing public, the word or phrase
has become to mean that the article was his product.
Section 18
Lyceum of the Philippines case, the additional
geographical name does not make it confusingly
similar
that the complainant corporation acquired a prior right

over the use of such corporate name
identical,
deceptive
deceptively
or
confusingly,
it
has
exist for another 3 years only for purposes of

liquidation
When should extension be made?
General rule: Not earlier than 5 years
Exception: unless there are justifiable reasons
May it be extended after expiration?
juridical
Alhambra cigar vs. SEC once it ceases to exist it has

no vested politic, exist only for a period of 3 years only
for liquidation and for that purpose only
Article 5 How many incorporators should there be?
5-15
May a corporation be an incorporator?
General rule: only natural persons

Exception: cooperatives and corporation primarily
organized to hold equities in rural banks
How about minors?
NO, because they must be of legal age
May a corporation organized

consisting solely of foreigners
Yes, there is no nationality requirement only

residence, as long as majority are residents of the Phil
Define incorporators <sec.5>
Those person mentioned in the articles as originally

forming the corporation and who are signatories of the
articles of incorporation.
Must be signatories to be incorporators
by
incorporators
patently
principal office
statement of principal office is required
city and municipality not only province must be

specified
principal office NOT operations office
necessary because it will establish the residence of

corporations

when
Dissolution- it is automatic
2 requisites must be proven
only
actual confusion is not necessary- Philips case it is

enough that there is probable confusion
contract
the
Section 5. Corporators and incorporators,

stockholders and members. - Corporators are those
who compose a corporation, whether as stockholders
or as members. Incorporators are those stockholders

or members mentioned in the articles of incorporation
as originally forming and composing the corporation
and who are signatories thereof.
Except as otherwise provided in the articles

of incorporation and stated in the certificate of stock,
each share shall be equal in all respects to every other
share.
Corporators in a stock corporation are called

stockholders or shareholders. Corporators in a nonstock corporation are called members. (4a)
Where the articles of incorporation provide

for non-voting shares in the cases allowed by this
Code, the holders of such shares shall nevertheless be
entitled to vote on the following matters:
Define corporators <sec.5>
All persons who compose the corporation at any given

time and need not be among those who execute the
articles of incorporation at the start of its formation
and organization.
Originally or subsequently
Section 5 provides:
1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all of the corporate
property;
4.
Incurring,
indebtedness;
Corporators in a stock corporation are called

stockholders or shareholders. Corporators in a nonstock corporation are called members. (4a)
May a corporation be a corporator?
YES. There is nothing to prevent a corporation from

being a stockholder
Incorporator must subscribe to 1 share
There are those that are exclusively reserved to

Filipinos
creating
or
increasing
bonded
5. Increase or decrease of capital stock;

6. Merger or consolidation of the corporation with
another corporation or other corporations;
7. Investment of corporate funds in another
corporation or business in accordance with this Code;
and
8. Dissolution of the corporation.
Except as provided in the immediately
preceding paragraph, the vote necessary to approve a
particular corporate act as provided in this Code shall
be deemed to refer only to stocks with voting rights.
(5a)
An incorporator maybe a corporator as long as he is a

stockholder
section 6
How many directors should there be?
Section 6. Classification of shares. - The

shares of stock of stock corporations may be divided
into classes or series of shares, or both, any of which
classes or series of shares may have such rights,
privileges or restrictions as may be stated in the
articles of incorporation: Provided, That no share may
be deprived of voting rights except those classified
and issued as "preferred" or "redeemable" shares,
unless otherwise provided in this Code: Provided,
further, That there shall always be a class or series of
shares which have complete voting rights. Any or all of
the shares or series of shares may have a par value or
have no par value as may be provided for in the
articles of incorporation: Provided, however, That
banks, trust companies, insurance companies, public
utilities, and building and loan associations shall not
be permitted to issue no-par value shares of stock.
General rule: Not less than 5 not more than 15
Exceptions:
Preferred shares of stock issued by any

corporation may be given preference in the
distribution of the assets of the corporation in case of
liquidation and in the distribution of dividends, or such
other preferences as may be stated in the articles of
incorporation which are not violative of the provisions
of this Code: Provided, That preferred shares of stock
may be issued only with a stated par value. The board
of directors, where authorized in the articles of
incorporation, may fix the terms and conditions of
preferred shares of stock or any series thereof:
Provided, That such terms and conditions shall be
effective upon the filing of a certificate thereof with
the Securities and Exchange Commission.
3.
Shares of capital stock issued without par

value shall be deemed fully paid and non-assessable
and the holder of such shares shall not be liable to the
corporation or to its creditors in respect thereto:
Provided; That shares without par value may not be
issued for a consideration less than the value of five
(P5.00) pesos per share: Provided, further, That the
entire consideration received by the corporation for its
no-par value shares shall be treated as capital and
shall not be available for distribution as dividends.
A corporation may, furthermore, classify its
shares for the purpose of insuring compliance with
constitutional or legal requirements.

1.
2.
Educational corporations registered as non stock

corporation whose number of trustees, though not less
than five and not more than [15] should be divisible by
five [5], meaning they must have either five, ten, or
fifteen trustees and no other;
In close corporations where all the stockholders are
considered as members of the board of directors
thereby effectively allowing twenty members in the
board.
The by-laws of a corporation may provide for
additional qualifications and disqualifications of its
members of the board of directors or trustees.
However it may not do away with the minimum
disqualifications lay down by the Code.
Qualifications of the governing board
Requires mere residency <sec. 23>

Section 23. The board of directors or
trustees. - Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this
Code shall be exercised, all business conducted and all
property of such corporations controlled and held by
the board of directors or trustees to be elected from
among the holders of stocks, or where there is no
stock, from among the members of the corporation,
who shall hold office for one (1) year until their
successors are elected and qualified. (28a)
Every director must own at least one (1)
share of the capital stock of the corporation of which
he is a director, which share shall stand in his name on
the books of the corporation. Any director who ceases
to be the owner of at least one (1) share of the capital
stock of the corporation of which he is a director shall
thereby cease to be a director. Trustees of non-stock
corporations must be members thereof. A majority of
the directors or trustees of all corporations organized

under this Code must be residents of the Philippines.
reasonable per diems: Provided, however, That any

such compensation other than per diems may be
granted to directors by the vote of the stockholders
representing at least a majority of the outstanding
capital stock at a regular or special stockholders'
meeting. In no case shall the total yearly
compensation of directors, as such directors, exceed
ten (10%) percent of the net income before income tax
of the corporation during the preceding year. (n)
May a domestic corporation have a governing board

consisting solely of foreigners?
YES, section 23 majority of them must be residents of

the Philippines, no nationality requirement
Anti-dummy act <sec.2-A>
Minimum for a domestic corporation?
If the business undertaking or activity is only partially

nationalized, aliens can be elected as such directors,
[unless the law provides otherwise] but their number
shall only be in proportion to their equity or
participation in the capital stock of the corporation.
In no case shall the paid- up capital be less than 5k
Disqualifications <sec.27>
The disqualifications provided for is absolute and may

not be done away with. Corporate by-laws may,
however, provide for additional qualifications and
disqualifications.
Section 27. Disqualification of directors,
trustees or officers. - No person convicted by final
judgment of an offense punishable by imprisonment
for a period exceeding six (6) years, or a violation of
this Code committed within five (5) years prior to the
date of his election or appointment, shall qualify as a
director, trustee or officer of any corporation. (n)
Section 27 and 23 minimum disqualifications and

qualifications
Lee vs. CA
By laws may provide for additional
Govt vs. El hogar Filipino, Gokongwei vs. SMC
Is there a minimum authorized capital imposed by the

code?
If there is minimum paid-up logically there should also

be a minimum capital =5000
Minimum paid-up capital for a financing company

metro manila 10 M if located in MM
Shares of stock
Purpose of classification
To specify and define the rights and privileges of the

stockholders;
For regulation and control of the issuance of sale of

corporate securities for the protection of purchasers
and stockholders.
As a management control device.
To comply with statutory requirements particularly

those which provide for certain limitations on foreign
ownership and shares like overseas employment
agencies requiring to own at least 75% of the shares of
stock thereof.
To better insure return on investment which can be

affected through the issuance of redeemable shares or
preferred shares, i.e., granting the holders thereof,
preference as to dividends and/or distribution of assets
in case of liquidation; and,
For flexibility in price, particularly, no par shares may

be issued or sold from time to time at different price
depending on the net worth of the company since they
do not purport to represent an actual of fixed value.
Section 6
Each shall be equal in all respects to every other share
Preferred shares
Specific preference
Capital structure
Foundation- minimum paid-up capital 3M
Authorized capital 1 M
No. of shares 1M shares

par value 1.00
Amount of shares subscribed

50 K
50 K
B
C
250K
D
E
PAID UP =62,500
-
Dividends or during liquidation
Corporation cannot exceed more than 1 M it is the maximum

amount it cannot issue more unless amended
No par
Maximum shares it can issue is 1M shares unless amended
Can sell it with the network of the corporation
Distinction between the subscribed and outstanding

stocks?
Section 137
How much shares should be subscribed?
Must be at least 25% of the authorized capital stock
Paid- up must be at least 25%-minimum
Section 30
Total subscription compliance with minimum 25% total
Any combination would comply with the minimum

required by section 30
Section 30. Compensation of directors. - In
the absence of any provision in the by-laws fixing their
compensation, the directors shall not receive any
compensation, as such directors, except for

Section 137. Outstanding capital stock

defined. - The term "outstanding capital stock", as
used in this Code, means the total shares of stock
issued under binding subscription agreements to
subscribers or stockholders, whether or not fully or
partially paid, except treasury shares. (n)
-
Voting and dividend rights, it refers to the outstanding

capital stocks
Only outstanding stocks are allowed to vote and

receive dividends
Actually the same
Treasury shares
are also subscribed shares
(1) when justified by definite corporate expansion

projects or programs approved by the board of
directors; or (2) when the corporation is prohibited
under any loan agreement with any financial
institution or creditor, whether local or foreign, from
declaring dividends without its/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. (n)
while they remain in the treasury, no voting and

dividend rights
may be reissued by the corporation
once reissued they become outstanding stocks again
common shares
carry the right to vote
preferred shares
grants the holder preference
preference as to dividends
preference as to distribution of the remaining assets

upon dissolution or
both
YOU MUST STATE THE PREFERENCE BECAUSE IF NOT

THEY ARE PRESUMED TO BE EQUAL
It may include such other preferences not inconsistent

with the Code. This is so because Section 6 of the said
law allows a stock corporation to issue preferred
shares subject only to the limitations imposed therein
which are:
a.
They can be issued only with sated par value; and,
b.
The preferences must be stated in the articles of

incorporation and in the certificate of stock, otherwise,
each share shall be, in all respect, equal to every other
share.
Participating
Must be stated because the presumption is that it is

participating
Cumulative
Irrespective of whether or not they where earned
Preferred
May be denied
Unless denied they are still entitled
What if hindi i-declare kahit na may dividends rights

for the previous years? May they be denied dividend
rights because they are non holders of noncumulative? NOTE: YOU CANNOT COMPEL THE
CORPORATION TO DECLARE DIVIDENDS UNLESS IT
EXCEEDS 100 % PAID UP CAPITAL SEC. 43
Section 43. Power to declare dividends. The board of directors of a stock corporation may
declare dividends out of the unrestricted retained
earnings which shall be payable in cash, in property, or
in stock to all stockholders on the basis of outstanding
stock held by them: Provided, That any cash dividends
due on delinquent stock shall first be applied to the
unpaid balance on the subscription plus costs and
expenses, while stock dividends shall be withheld from
the
delinquent
stockholder
until
his
unpaid
subscription is fully paid: Provided, further, That no
stock dividend shall be issued without the approval of
stockholders representing not less than two-thirds
(2/3) of the outstanding capital stock at a regular or
special meeting duly called for the purpose. (16a)
Stock corporations are prohibited from
retaining surplus profits in excess of one hundred
(100%) percent of their paid-in capital stock, except:

It depends because there are three types of noncumulative preferred shares
Discretionary dividend type
Mandatory if earned
Earned cumulative or dividend credit type
Compare cumulative share from non-cumulative,

earned cumulative or dividend credit type
Cumulative share whether or not earned
Non-cumulative earned cumulative or dividend credit
type- only if earned
Par
stated par value; shall not be issued less than par
No par
without stated par value
once fully paid no longer liable
Corporations cannot use its capitals in declaring

dividends; not all can issue no par value section 6
Voting
entitled to vote at any motion brought up in writing
Non-voting
not entitled to vote
What types of shares may be denied of the right to

vote?
Preferred and redeemable shares
Is it correct to state that common shares can never be

denied the right to vote?
Only preferred and redeemable shares are denied

unless provided in this code
PWEDENG MA-DENY YUNG COMMON SHARES, KASI

YUNG FOUNDERS SHARES MERON SILANG EXCLUSIVE
RIGHTS NA SILA LANG ANG MERON, SO PWEDE SILANG
BUMOTO WITH REGARDS TO SOMETHING NA HINDI NA
SAKOP NG COMMON SHARE RIGHTS
Example: founders shares- may be given certain rights

and privileges
Even common shares may be denied the right to vote

of founders shares issued <sec.7>
Section 7. Founders' shares. - Founders'
shares classified as such in the articles of
incorporation may be given certain rights and
privileges not enjoyed by the owners of other stocks,
provided that where the exclusive right to vote and be
voted for in the election of directors is granted, it must
be for a limited period not to exceed five (5) years
subject to the approval of the Securities and Exchange
Commission. The five-year period shall commence
from the date of the aforesaid approval by the
Securities and Exchange Commission. (n)
Do you include non-voting shares in passing a valid

corporate act?
Even non-voting shares are entitled to vote under

section 6
Redeemable shares
The code does not require ordinary corporations to

provide for restrictions, but it does not likewise
prohibit restrictions
Discretionary/optional
Example: right of first refusal
Obligatory or mandatory
The restriction must be contained in the articles of

incorporation
Generally a corporation can reacquire its own shares if

it has unrestricted retained earnings
If provided in by-laws but not in the articles of

incorporation then it will not be binding
Exception: redeemable shares may be reacquired

irrespective of retained earnings
Treasury shares
They are treasury while in the treasury account of the

corporation
May they be reissued by the corporation?
YES
If they are reissued will they be denied the right to

vote?
Once reissued they shall become outstanding stocks

again and purchasers shall be entitled to all the rights
and privileges as the other holders have
Section 57 treasury shares have no voting and

dividend rights. Why not?
Section 57. Voting right for treasury
shares. - Treasury shares shall have no voting right as
long as such shares remain in the Treasury. (n)
Answer: commissioner vs. manning page 62 first par.

Although authorities may differ on the
exact legal and accounting status of so-called treasury
shares, they are more or less in agreement that
treasury shares are stocks issued and fully paid for
and reacquired by the corporation either by purchase,
donation, forfeiture or other means. Treasury shares
are therefore issued shares but being in the treasury
they do not have the status of outstanding shares.
Consequently, although a treasury share, not having
been retired by the corporation re-acquiring it, may be
re-issued or sold again, such shares, as long as it is
held by the corporation as a treasury share,
participates neither in dividends, because dividends
cannot be declared by the corporation to itself, nor in
meetings of the corporation as voting stock, for
otherwise equal distribution of voting powers among
stockholders will be effectively lost and the directors
will be able to perpetrate their control of the
corporation, though it still represents a paid for
interest in the property of the corporation. The
foregoing essential features of a treasury stocks are
lacking in the questioned shares.
In this case, and under the terms of the trust
agreement,
the
shares
of
stock
of
Reese
participated in dividends which the trustee received
and the said shares were voted upon by the trustee in
all corporation meetings. They were not, therefore,
treasury shares.
When the law speaks of outstanding rights it does not

include treasury shares
Treasury shares may be reissued
They are actually assets of the corporation
Once re-issued they become outstanding stocks again

The corporation may cancel them; in effect there will

be a reduction in the outstanding capital stocks
Restrictions and preferences are mandatorily required

in close corporations
If it does not provide restrictions it is not a close
corporation
Specified persons- close corporations
If not one of those specified you are not included

because there is exclusivity in close corporations
Should also be in the by-laws not only in the articles of

incorporation
No transfer clause
Execution clause
Acknowledgment
Treasurer affidavit part of the articles of incorporation
Section 23-27 minimum qualifications, but there may

be additional
Grounds for disapproval
Only substantial and not strict is required
May the SEC refuse or reject registration?
<Section 17>
Section 17. Grounds when articles of
incorporation or amendment may be rejected or
disapproved. - The Securities and Exchange
Commission may reject the articles of incorporation or
disapprove any amendment thereto if the same is not
in compliance with the requirements of this Code:
Provided, That the Commission shall give the
incorporators a reasonable time within which to
correct or modify the objectionable portions of the
articles or amendment. The following are grounds for
such rejection or disapproval:
1. That the articles of incorporation or any amendment
thereto is not substantially in accordance with the
form prescribed herein;
2. That the purpose or purposes of the corporation are
patently unconstitutional, illegal, immoral, or contrary
to government rules and regulations;
3. That the Treasurer's Affidavit concerning the
amount of capital stock subscribed and/or paid is false;
4. That the percentage of ownership of the capital
stock to be owned by citizens of the Philippines has
not been complied with as required by existing laws or
the Constitution.
No articles of incorporation or amendment
to articles of incorporation of banks, banking and
quasi-banking
institutions,
building
and
loan
associations, trust companies and other financial
intermediaries, insurance companies, public utilities,
educational institutions, and other corporations
governed by special laws shall be accepted or
approved by the Commission unless accompanied by a
favorable
recommendation
of
the
appropriate
government agency to the effect that such articles or
amendment is in accordance with law. (n)
Strict or substantial compliance
De facto
But the grounds in section 17 are not exclusive
4 requisites must go hand in hand take out anyone of

them there can be no de facto corporation
When will the corporation commence to exist?
1.
Section 19
There is a valid statute under which the corporation

could have been created as a de jure corporation.
2.
An attempt, in good faith, to form a corporation

according to the requirements of law, which goes far
enough to amount to a colorable compliance with
the law;
3.
A user of corporate powers, the transaction of business

in some way as if it were a corporation; and,
4.
Good faith in claiming to be and doing business as a

corporation.
Are the rights and obligations between officers and

directors of a de jure and de facto the same?
YES. Governed by the same law, rules and regulations
Only important in determining, is for the purpose of

applying the rules with regards to the direct and
collateral attack
The existence of a de jure cannot be questioned even

by the State, either directly or indirectly
Existence of a de facto can be questioned only by the

State directly in a quo warranto proceeding only
Municipality of Malabang vs. Benito
Section 19. Commencement of corporate

existence. - A private corporation formed or organized
under this Code commences to have corporate
existence and juridical personality and is deemed
incorporated from the date the Securities and
Exchange Commission issues a certificate of
incorporation under its official seal; and thereupon the
incorporators,
stockholders/members
and
their
successors shall constitute a body politic and
corporate under the name stated in the articles of
incorporation for the period of time mentioned therein,
unless said period is extended or the corporation is
sooner dissolved in accordance with law. (n)
A corporation de jure can come into existence only

upon the issuance of the certificate of registration by
the SEC? TRUE OR FALSE?
TRUE
EXCEPTION: CORPORATION SOLE <sec. 112>

Section 112. Submission of the articles of
incorporation. - The articles of incorporation must be
verified, before filing, by affidavit or affirmation of the
chief archbishop, bishop, priest, minister, rabbi or
presiding elder, as the case may be, and accompanied
by a copy of the commission, certificate of election or
letter of appointment of such chief archbishop, bishop,
priest, minister, rabbi or presiding elder, duly certified
to be correct by any notary public.
From and after the filing with the Securities
and Exchange Commission of the said articles of
incorporation, verified by affidavit or affirmation, and
accompanied by the documents mentioned in the
preceding paragraph, such chief archbishop, bishop,
priest, minister, rabbi or presiding elder shall become
a corporation sole and all temporalities, estate and
properties of the religious denomination, sect or
church theretofore administered or managed by him
as such chief archbishop, bishop, priest, minister, rabbi
or presiding elder shall be held in trust by him as a
corporation sole, for the use, purpose, behalf and sole
benefit of his religious denomination, sect or church,
including hospitals, schools, colleges, orphan asylums,
parsonages and cemeteries thereof. (n)
What is the missing link so as to consider it a de facto?

A law, because the executive order is unconditional
An unconditional act affords no rights, creates no
office
Legal contemplation it was never passed at all
It can therefore be questioned by any person
If the certificate of registration has not been issued,

may a corporation de facto exist?
NO!
CORPORATION SOLE- upon filing of the verified articles

of incorporation, once filed it is vested with a judicial
capacity
Number 4 requirement, good faith in claiming to be

and doing business as a corporation
Hall vs. Piccio
General rule section 19
Missing link is good faith
Vested with judicial capacity upon issuance of the

certificate by the SEC
The certificate was not yet issued by the SEC, the

members knew and therefore they were not acting in
good faith, therefore anybody can question its
existence
So defectively formed so that they are not to be

considered a de jure or de facto
General partners- liable even beyond his promise even

his personal properties are prone to attachment
However it is not accurate according to atty.

Ladia because there are those that can issue
for example cooperatives- BUREAU OF
COOPERATIVES which register, home
insurance guaranty corporation- HOME
OWNERS
Cagayan Fishing vs. Sandika
Corporations are created by law
Lozano vs. Delos Santos
Commence to exist upon issuance by the CONCERNED

government corporation or agency
Founded on principle of equity
Prior there to it has no being
Exercise corporate powers
The transfer of the property was not valid, it likewise

did not have the right to transfer
Enters with business with 3rd parties
De jure

When there is no 3rd persons involved and the problem

arises between there members, therefore they
themselves know that there is no corporation by
estoppel
o office, it is in legal contemplation, as inoperative as

though it had never been passes
Hall vs. Piccio
No good faith
Albert vs. University
1965 case, no section 21 yet
Applied where the rules governing agency
Admission, conduct or agreement
A person purporting in behalf of a non existing

corporation
Section 21, you arrive at the same decision
Cannot escape when benefited
Chiang Kai Siek vs. CA
General rule: you deal with a corporation, as to estop it
SC based its decision from the provision of the

education act
It cannot immune itself by virtue of its non compliance

with the law
Assuming there was no law?
YES, it may still be sued as a school for the past 32

years the school represented itself as possessed of
juridical personality
General rule: a 3rd party transacting with a non

existent corporation shall be estopped to deny
Asia banking vs. standard products
General rule: absence of fraud a person who has dealt

with a non incorporated corporation shall be stopped
to deny from actions in which it had benefited
Exemptions: when there is fraud the general rule shall

not apply
Will not apply among members themselves there must

be a 3rd party
Exceptions: 1. fraudulently misrepresents the third

person may file an action directly to those members,
2. 3rd party will not be estopped if he is not trying to
escape liability
2 possible remedies
Chiang kai siek case
Albert case
What would be the effect if the corporation failed to

commence transaction?
Automatic
Operated but becomes subsequently inoperative for 5

years only a ground for suspension, proper notice and
hearing
Commencement
Example realty company
Salvatierra vs. Garlitos
As a general rule a person who has contracted it a

corporation lacking personality
What do you understand by the word charter? Is it the

same as articles of incorporation?
Doctrine is not applicable where fraud takes part in the

transaction
Corporate charter is broader
Another exemption
Franchise
International express travel and tours vs. CA
Primary power granted by the state to be and act as a

corporation
No fraud in this case
Secondary franchise is the right or privilege that the

corporation may exercise
How come Kahn was made liable?
Doctrine of incorporation
Applies only if that person is trying to escape from a

contract where he is benefited
You cannot issue investment contracts without a

secondary franchise, kailangan primary muna hindi
pwede mauna secondary kasi sa section 19 it does not
exist until issued with a certificate of registration or
incorporation
In this case petitioner is not trying to escape liability,

but rather the one claiming from the contract
Corporate entity
Would this apply to foreign corporation?
Corporation exist separately and independently from

the stockholders
YES, it may apply
Stockholders cannot bring an action, to bring back the

properties of a corporation
Georg Grotjahn vs. Isnami

-
A foreign corporation cannot gain access to our courts

unless they attain a license to engage in business in
the Philippines but applying corporation by estoppels,
the court allowed
Corporation has no interest in the individual properties

of its members
Sulo ng Bayan vs. Araneta
Corporation cannot bring an action for the recovery of

the properties of its members
Caram vs. CA
Municipality of Malabang case
No law, hence may be questioned by any person
An unconstitutional act is not a law, t confers no rights,

it imposes no duties, it affords no protections, it crates

CORPORATE CHARTER AND ITS AMENDMENTS
10
Stockholders cannot be held liable for the legitimate

obligations of the corporation, they exist separately
and independently from one another
Cruz vs. Dalisay
Final judgment against a corporation cannot be

enforced against stockholders
Rustan Pulp vs. CA
Corporation exist separately and independently
Corporation are juridical entities, they exist only in

legal contemplation, can act only through its
authorized representatives
Soriano vs. CA
They are not personally liable
They where signed for and in behalf of the corporation
Palay inc. vs. Clave
Liabilities incurred by the corporation cannot be

enforced
against
stockholders,
etc.,
even
if
stockholders, etc. happens to own a substantial
interest in the corporation, mere ownership does not
disregard the corporate entity theory
Corporate entity for legal or legitimate purposes only
Two or more corporations, one of them will be treated

as a mere alter-ego
You cannot pierce the veil of corporate fiction when

there are no facts attendant in the case
Corporate Entity Theory
The corporation is possessed with a personality

separate and distinct from the individual stockholders
or members and is not affected by the personal rights,
obligations or transactions of the latter
Instrumentality rule
Where one corporation is so organized and controlled

and its affairs are conducted so that it is, in fact, a
mere instrumentality or adjunct of the other, the
fiction of the corporate entity of the instrumentality
may be disregarded
Courts are concerned with reality and not form
Mere ownership of all or substantially all of the shares

of stock of a corporation is not, in itself, insufficient
ground for disregarding the separate corporate
personality. And for the separate personality of the
corporation to be disregarded, the wrong doing must
be clearly and convincingly established
Fraud must be proven by clear and convincingly

evidence amounting to more than preponderance. It
cannot be justified by speculation and can never be
presumed. And only if it sought to hold the
stockholders liable directly for corporate debt
Palacio vs. Fely
Piercing the veil of corporate fiction
Fely trans and the other corporation is one and the

same
Marvel bldg. vs. David
There must be facts before the court will be justified in

piercing the veil of corporate fiction
Corporation was a mere extension of the personality of

the person

Yutivo and sons vs. Court of Tax Appeals
What where the facts or circumstances arrived by the

court here?
Subscribed capital where all advanced by Yutivo, the

board where the same as Yutivo
Commissioner of Internal Revenue vs. Norton and

Harrison
-
Court applied the general rule
Mere substantial ownership does not mean that it

has a same corporate entity
La Campana Coffee Factory, Inc. vs. KKM
Two corporations managed by the same family,

workers were made interchangeably
Emilio Cano vs. CIR
Sued in there official capacity
Reverse of Soriano vs. CA (signed in their official

capacity)
Tesco vs. WCC
The two corporations where located in the same office
Claparols vs. CIR
Same as NAFLU and A.C. Ransom
Concept builders vs. NLRC
Instrumentality rule. What is the instrumentality rule?

where one corporation is so organized and controlled
and its affairs are conducted so that it is, in fact, a
mere instrumentality or adjunct of the other, the
fiction of the corporate entity of the instrumentality
may be disregarded.
Has no separate mind of its own. What is the degree of

control?
1.
Control, not mere majority or complete stock control,

but complete domination, not only of finances but of
policy and business practice in respect to the
transaction attacked so that the corporate entity as to
this transaction had at the time no separate mind, will
or existence of its own.
2.
Such control must have been used by the defendant to

commit fraud or wrong, to perpetuate the violation of
a statutory or other positive legal duty or dishonest
and unjust act in contravention of plaintiffs legal
rights; and,
3.
The aforesaid control and breach of duty must

proximately cause the injury or unjust loss complained
of.
The absence of one of the elements prevents piercing

the corporate veil. In applying the instrumentality
or alter ego doctrine, the courts are concerned with
reality and not form, with how the corporation
operated and the individual defendants relationship to
that operation.
There must facts and circumstances before warrant

piercing the veil of corporate fiction
The control necessary does not mean stock ownership
MCConnel vs. CA
were located in the same floor
while the mere ownership of all or nearly all of the

capital stock of a corporation does not necessary
11
mean that it is a mere business conduit of the

stockholder, that conclusion is amply justified where it
is shown, as in the case before us, that the operations
of the corporation were so merged with the
stockholders as to be practically indistinguishable from
them. To hold the latter liable for the corporations
obligations is not to ignore the corporations separate
entity, but merely to apple the established principle
that such entity cannot be invoked or used for
purposes that could not have been intended by the
law that created that separate personality.
Tan boon bee vs. Jarencio
Why would a drug company need a printing machine
The property must be in pursuance of a company

business
1. In case any amendment to the articles of

incorporation has the effect of changing or restricting
the rights of any stockholder or class of shares, or of
authorizing preferences in any respect superior to
those of outstanding shares of any class, or of
extending or shortening the term of corporate
existence;
2. In case of sale, lease, exchange, transfer, mortgage,
pledge or other disposition of all or substantially all of
the corporate property and assets as provided in the
Code; and
3. In case of merger or consolidation. (n)
-
Right granted only in specified instances
Are non-voting shares included in amending the articles of

incorporation
Cease vs. CA
100/s
Alter-ego or the extension of the person of forest ware

does the court pierced the veil of corporate fiction
100/s
XYZ-----ABC
To
As to not deprive the holders of their successional
rights
10
Mere ownership of all or substantially all is not a

justification of piercing the veil of corporate fiction
=1M/S
be the 2/3?
Fraud must be proven by clear and convincing

evidence cannot presume or speculate, there must be
facts and circumstances
Section 6 last paragraph
Fraud must be clear and convincing evidence more

than preponderance
Remo Jr. vs. IAC
The resolution was not entered to defraud anyone
Del Rosario vs. National Labor Commission
The wrongdoing must be clearly established
There must be facts to support
Payment of claims cannot thus be presumed
Indophil Textile Mill vs. CALICA
How do you distinguish this ruling to La Campana,

having the same issues:
La campana, one payroll, employees were made
interchangeable. Acrylic had its own standards
PNB vs. Ritratto Group
Control test
Not mere majority but rather complete
Twin ace was only a subsequent interested party
Assets and machineries
Amendment of the articles of incorporation
Express power granted to a corporation
Section 16
Appraisal right
Section 81 to object on certain acts and transactions

Section 81. Instances of appraisal right. Any stockholder of a corporation shall have the right to
dissent and demand payment of the fair value of his
shares in the following instances:

100/s
what
would
Voting shares are excluded except the foregoing instances
1 & 2=absent
1&2=absent but gave their written assent
3 & 4= objected
3&4=objected
5 & 6= approved the amendment
5&6=approved
Would there be a valid amendment
Special amendments 37 & 38 shortening that would

result to dissolution require prior approval by the SEC
Section 37. Power to extend or shorten
corporate term. - A private corporation may extend or
shorten its term as stated in the articles of
incorporation when approved by a majority vote of the
board of directors or trustees and ratified at a meeting
by the stockholders representing at least two-thirds
(2/3) of the outstanding capital stock or by at least
two-thirds (2/3) of the members in case of non-stock
corporations. Written notice of the proposed action
and of the time and place of the meeting shall be
addressed to each stockholder or member at his place
of residence as shown on the books of the corporation
and deposited to the addressee in the post office with
postage prepaid, or served personally: Provided, That
in case of extension of corporate term, any dissenting
stockholder may exercise his appraisal right under the
conditions provided in this code. (n)
Section 38. Power to increase or decrease
capital stock; incur, create or increase bonded
indebtedness. - No corporation shall increase or
decrease its capital stock or incur, create or increase
any bonded indebtedness unless approved by a
majority vote of the board of directors and, at a
stockholder's meeting duly called for the purpose, twothirds (2/3) of the outstanding capital stock shall favor
12
the increase or diminution of the capital stock, or the

incurring, creating or increasing of any bonded
indebtedness. Written notice of the proposed increase
or diminution of the capital stock or of the incurring,
creating, or increasing of any bonded indebtedness
and of the time and place of the stockholder's meeting
at which the proposed increase or diminution of the
capital stock or the incurring or increasing of any
bonded indebtedness is to be considered, must be
addressed to each stockholder at his place of
residence as shown on the books of the corporation
and deposited to the addressee in the post office with
postage prepaid, or served personally.
Commission, which shall have the authority to

determine the sufficiency of the terms thereof. (17a)
The vote must be cast at the meeting called for that

purpose
Written assent would not suffice
When do amendments become valid and effective?
Only upon the approval of the SEC TRUE OR FALSE?
A certificate in duplicate must be signed by

a majority of the directors of the corporation and
countersigned by the chairman and the secretary of
the stockholders' meeting, setting forth:
(1) That the requirements of this section have been

complied with;
Why is it retroactive?
What provision may be amended, altered or repealed
Can you change name, address for example she

married or changed address?
NO. you cannot change that
Fait accompli, are beyond the powers or authority of

the corporation to change, alter or modify. These
would include the following:
Names of the incorporators and
The incorporating directors or trustees,
The name of the treasurer originally or first elected by

the subscribers or members to act as such until his
successor has been duly elected and qualified,
The number of shares and amount originally

subscribed and paid out of the original authorized
capital stock of the corporation,
The date and place of execution of the articles of

incorporation,
The signatories and acknowledgment thereof.
Any increase or decrease in the capital stock

or the incurring, creating or increasing of any bonded
indebtedness shall require prior approval of the
Securities and Exchange Commission.
All other provisions or matters stated or contained in

the articles are subject to amendment.
Founders or signatories hindi pwede palitan
One of the duplicate certificates shall be

kept on file in the office of the corporation and the
other shall be filed with the Securities and Exchange
Commission and attached to the original articles of
incorporation. From and after approval by the
Securities and Exchange Commission and the issuance
by the Commission of its certificate of filing, the capital
stock shall stand increased or decreased and the
incurring, creating or increasing of any bonded
indebtedness authorized, as the certificate of filing
may declare: Provided, That the Securities and
Exchange Commission shall not accept for filing any
certificate of increase of capital stock unless
accompanied by the sworn statement of the treasurer
of the corporation lawfully holding office at the time of
the filing of the certificate, showing that at least
twenty-five (25%) percent of such increased capital
stock has been subscribed and that at least twentyfive (25%) percent of the amount subscribed has been
paid either in actual cash to the corporation or that
there has been transferred to the corporation property
the valuation of which is equal to twenty-five (25%)
percent of the subscription: Provided, further, That no
decrease of the capital stock shall be approved by the
Commission if its effect shall prejudice the rights of
corporate creditors.
Names, nationalities- you cannot
Capital- right granted by law to all corporation
Paid up capital- NO
Restriction and transfer of shares in ordinary stock

corporations
You can, but close corporation cannot
Section 96, otherwise it will not be a close corporation
(2) The amount of the increase or diminution of the

capital stock;
(3) If an increase of the capital stock, the amount of
capital stock or number of shares of no-par stock
thereof actually subscribed, the names, nationalities
and residences of the persons subscribing, the amount
of capital stock or number of no-par stock subscribed
by each, and the amount paid by each on his
subscription in cash or property, or the amount of
allotted to each stock-holder if such increase is for the
purpose of making effective stock dividend therefor
authorized;
(4) Any bonded indebtedness to be incurred, created
or increased;
(5) The actual indebtedness of the corporation on the
day of the meeting;
(6) The amount of stock represented at the meeting;
and
(7) The vote authorizing the increase or diminution of
the capital stock, or the incurring, creating or
increasing of any bonded indebtedness.
Non-stock corporations may incur or create

bonded indebtedness, or increase the same, with the
approval by a majority vote of the board of trustees
and of at least two-thirds (2/3) of the members in a
meeting duly called for the purpose.
registered
Bonds issued by a corporation shall be

with the Securities and Exchange

FALSE because it can be valid upon the date of filing if

not acted upon within 6 months without fault
attributable to the corporation
Section 96. Definition and applicability of

Title. - A close corporation, within the meaning of this
Code, is one whose articles of incorporation provide
that: (1) All the corporation's issued stock of all
classes, exclusive of treasury shares, shall be held of
record by not more than a specified number of
persons, not exceeding twenty (20); (2) all the issued
stock of all classes shall be subject to one or more
specified restrictions on transfer permitted by this
Title; and (3) The corporation shall not list in any stock
exchange or make any public offering of any of its
stock of any class. Notwithstanding the foregoing, a
corporation shall not be deemed a close corporation
when at least two-thirds (2/3) of its voting stock or
voting rights is owned or controlled by another
corporation which is not a close corporation within the
meaning of this Code.
Any corporation may be incorporated as a
close corporation, except mining or oil companies,
stock exchanges, banks, insurance companies, public
13
utilities, educational institutions and corporations

declared to be vested with public interest in
accordance with the provisions of this Code.
The provisions of this Title shall primarily
govern close corporations: Provided, That the
provisions of other Titles of this Code shall apply
suppletorily except insofar as this Title otherwise
provides.
Will be bound by corporate officers if they acted within

the 5 classification page 150
Ramirez vs. Orientalist co.
Transfer clause, executor clause, acknowledgment,

treasury affidavit-NO
Philippine First Insurance case
Mere change in the name of a corporation or by

merely complying with the law is general amendment
It does not change its personality. It is the same

person in a different name. the charter is the same
Amendment of a corporate term
Extending the same can never be made 7 years prior?

TRUE or FALSE
FALSE. It can be if there are justifiable reasons for

earlier extension as may be determined by the SEC
Can you extend the corporate term if it has already

expired?
Once the term expires without an amendment having

happen it ceases to exist as a body politic. It is
dissolved automatically on the day it expires.
Alhambra cigar and PNB case
Instances when the SEC allowed extension whose term

has already expired
Why did the court rule that actions of Fernandez

bound the corporation when he is not even a board of
director?
if a man is found acting for a corporation
with the external indicia of authority, any person not
having notice of want of authority, may usually rely
upon those appearances; and if it be found that the
directors had permitted the agent to exercise that
authority and thereby held him out as a person
competent to bind the corporation, or had acquiesced
in a contract and retained the benefit supposed to
have been conferred by it, the corporation will be
bound, notwithstanding the actual authority may
never have been granted.
Actions of the stockholders in such matters is only

advisory and not in any way binding in the corporation
Barreto vs. La previsora Filipina
Everything emanates from the board of directors
Stockholders action is merely advisory except their

approval or vote is necessary to prove a valid
corporate act
Qualifications:
All of them involved are institutions of learning, it was

the case in order to avoid confusion that would arise
later on.
Section 23
Section 23. The board of directors or
trustees. - Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this
Code shall be exercised, all business conducted and all
property of such corporations controlled and held by
the board of directors or trustees to be elected from
among the holders of stocks, or where there is no
stock, from among the members of the corporation,
who shall hold office for one (1) year until their
successors are elected and qualified. (28a)
Every director must own at least one (1)
share of the capital stock of the corporation of which
he is a director, which share shall stand in his name on
the books of the corporation. Any director who ceases
to be the owner of at least one (1) share of the capital
stock of the corporation of which he is a director shall
thereby cease to be a director. Trustees of non-stock
corporations must be members thereof. A majority of
the directors or trustees of all corporations organized
under this Code must be residents of the Philippines.
Contracts must be made by the director and not the

stockholders
No citizenship requirement, at least majority must be

residents
Can have a governing board consisting solely of

foreigners
But we have to take into consideration partly

nationalized industries and other laws which prohibits
or limits foreign ownership
Anti-dummy act
Utilization development of natural resources 60% must

be owned by Filipino citizens, therefore they only own
40%---10 members they can only have 4 seats, but not
entirely correct because the law may provide
otherwise; educational institutions restricted to
Filipinos, but there are exceptions when created by
religious and charitable institutions.
By-laws may provide additional qualifications and

disqualifications
To qualify as a director he must own at least 1 share
Should the stockholder be the equitable or beneficial

owner in order to qualify as a director?
NO, it is not necessary, as long as you are listed in the

books as owner of one share
BOARD OF DIRECTORS/TRUSTEES
What was the position of Fernandez in this case?

TREASURER
Controlled by the board of directors
Authority are however restricted to the day to day
Lee vs. CA
Stockholders may have all the profit but will turn over
the management to the governing board
As long as you are listed in the books as owner of one

share
But unless the law provides the power may be

delegated
General rule
Under the old law he must be the beneficial owner and

legal owner thereof but in the new law it is not
required as long as it stands in his name he is qualifies
Corporations must sit and act as a body
1 A-100t/S
director?
2

B (own in the trust of X) is B qualified to be a
14
3-10
Who wins? Or who gets elected?
2 transferring there voting rights in favor of VT
No vote requirement, the one who gets the most

number of votes gets elected, section24.
What is cumulative voting?
Process of multiplying the number of shares to the

number of director to be elected
Matter of right granted to stockholders in a stock

corporation
Other rights will accrue in favor of them, but not the voting rights
voting rights must be recorder in the books of the corporation
that it is transferred
PNB-IFL- wholly owned subsidiary of PNB
PNB will assign to PNB-IFL nominal shares and PNB-IFL now will
be able to be nominated
Gen. Rule:
Term of one year who will serve as such until there

successors are elected and qualified
Exception:
1 to 5 has 200k/s and members of the same family- majority

800k they have 4M votes they are guaranteed 4 seats
6 to 10 are not related- 1 seat 1M votes
Cumulative to allow the minority to have a rightful

representation in the board
Non-stock corporation can serve for a term of 3 years
Is it allowed in a non-stock corporation?
Educational non-stock- term of the governing board

can be 5 years
Not generally available
May this term exceed one year?
Section 89 unless the articles or by-laws allow

cumulative voting
Yes, they may serve in a hold over capacity until their

successors have been duly elected and qualified
Detective and protective bureau vs. Cloribel
In the by-laws, managing director must be elected

from among themselves
Must be duly elected and qualified
Section 89. Right to vote. - The right of the

members of any class or classes to vote may be
limited, broadened or denied to the extent specified in
the articles of incorporation or the by-laws. Unless so
limited, broadened or denied, each member,
regardless of class, shall be entitled to one vote.
Unless otherwise provided in the articles of
incorporation or the by-laws, a member may vote by
proxy in accordance with the provisions of this Code.
(n)
How are the directors elected?
Voting by mail or other similar means by

members of non-stock corporations may be authorized
by the by-laws of non-stock corporations with the
approval of, and under such conditions which may be
prescribed
by,
the
Securities
and
Exchange
Commission.
1-100T/S
2-100T/S
3-100T/S
to 10=1M/S
Do you include the vote of 1 & 2 to have a quorum to

have a valid meeting?
NO, quorum requirements is 401,000
Other corporate officers other than the governing

board section 25
Section 25. Corporate officers, quorum. Immediately after their election, the directors of a
corporation must formally organize by the election of a
president, who shall be a director, a treasurer who
may or may not be a director, a secretary who shall be
a resident and citizen of the Philippines, and such
other officers as may be provided for in the by-laws.
Any two (2) or more positions may be held
concurrently by the same person, except that no one
shall act as president and secretary or as president
and treasurer at the same time.
Quorum requirement is 501k

Holders of non-voting shares are only entitled to vote in last par.
Of section 6
1-200k
2-200k
3-200k
The directors or trustees and officers to be

elected shall perform the duties enjoined on them by
law and the by-laws of the corporation. Unless the
articles of incorporation or the by-laws provide for a
greater majority, a majority of the number of directors
or trustees as fixed in the articles of incorporation shall
constitute a quorum for the transaction of corporate
business, and every decision of at least a majority of
the directors or trustees present at a meeting at which
there is a quorum shall be valid as a corporate act,
except for the election of officers which shall require
the vote of a majority of all the members of the board.
4-100k
5-100k
6-100k
7-50k
8-40k
Directors or trustees cannot attend or vote

by proxy at board meetings. (33a)
9-5k
10-5k
Is the president required to be a stockholder. YES
The chairman may be another person
The president may also be another person
=1MS
1&2 is absent, 3&4 ayaw tumakbo and hindi nagvote 6-10,
tumakbo and ninominate nila yung sarili nila and cast all their
shares on themselves

15
Prohibited is president to be secretary or treasurer at

the same time
The contract here is so onerous that it would throw the

corporation into insolvency
Board of director must sit and act as a body to arrive

at a corporate act
Francisco vs. GSIS
GSIS cannot evade the binding effect of the telegram
What would constitute a quorum if 5 then 3 must be

present
Only 15 months later that the corporation said there

was a mistake
May the vote of 2 members past a 5 man governing

board pass a valid corporate act?
The silence coupled with the unconditional acceptance

of the other subsequent remittances is binding to the
corporation
Board of liquidators vs. Kalaw
YES. Voting requirement is majority of directors

present at which there where a quorum
1
requirement
and
present=valid
1 and 2 voted yes
3 voted no
voting
Settled jurisprudence has it that where
similar acts have been approved by the directors as a
matter of general practice, custom and policy, the
general manager may bind the company without
formal authorization of the board of directors. In
varying language, existence of such authority is
established, by proof of the course of business, the
usages and practices of the company and by the
knowledge which the board of directors has, or must
be presumed to have, of acts and doings of its
subordinates in and about the affairs of the
corporation. So also, xx authority to act for and bind a
corporation may be presumed from acts of recognition
in other instances where the power was in fact
exercised. xx Thus, when, in the usual course of
business of a corporation, an officer has been allowed
in his official capacity to manage its affairs, his
authority to represent the corporation may be implied
from the manner in which he has been permitted by
the directors to manage its business.
4
5
Is it absolute?
NO, except in the election because it requires the

majority of all the members of the board
If by-laws or
requirement
Artificial beings must act through its members and act

as a body to have a valid corporate act
Exception:
Delegation
Expressly conferred
Where the officer or agent is clothed with actual or

apparent authority
Otherwise it will not bind the corporation
Yao ka sin trading case already asked in the bar
Only bind the corporation to the extent of authority

confined to him or virtue of customs, usage and policy
Must pass first the controller and counsel
What if the notice requirement is not complied with?
Lopez realty vs. Fotencha
articles
provide
higher
voting
Notice requirement must be complied with hence it

should have been with force and effect, but according
to the SC, it may be ratified expressly if there is a
subsequent meeting called for that purpose
In the case at bar, the practice of the

corporation has been to allow its general manager to
negotiate and execute contracts in its copra trading
activities for and in NACOCOs behalf without prior
board approval. If the by-laws were to be literally
followed, the board should give its stamp of prior
approval on all corporate contracts. But that Board
itself, by its acts and through acquiescence, practically
laid aside the by-law requirement of prior approval.
-
Kalaw signed alone and said contracts were submitted

to the board of directors after its consummation and
not before
Buenaseda vs. Bowen
Express ratification is made through a formal board

action
Implied ratification is through: silence or acquiescence,

acceptance benefits and lastly recognition or adoption
An unauthorized act may nevertheless be binding

either by express or implied by estoppels
By virtue of silence the board had impliedly accepted

the act
By recognition or adoption
By virtue of payment of obligations arising thereforeLopez realty
May directors or trustees be disqualified to act as

such?
Impliedly through acts
Asuncion was aware of the corporations obligation
There was implied ratification or she was estopped
Pua casim vs. Neumark and Co.
Considered 3 circumstanced
YES, crime, etc. disqualifications in book
Check which was the proceed of the loan which was

endorsed and deposit in the corporate account
Possess or dispossess any of the qualifications or

disqualifications , cease to hold at least one share
Neumark as president and also stockholder
May directors be ousted from office?
Yu chuck vs. Kong Li Po
General manager usually has the power to hire but the

SC said the contract must be reasonable
At least 2/3 of members representing outstanding

capital stock. Again notice requirement must be
complied with

16
1-200
family
1-5
same

2-200
-
Generally not entitled to receive

because they render it gratuitously
Unless the by-laws allows
Stockholders may also grant pursuant to a majority

vote
Must not exceed net income of 10% tax of the

preceding year
Acting in special capacity
In, sum directors may receive compensation when
3-200
4-100
5-100
electing
6-100
related
6 to 10 not
compensation
7-50
8-40
9-5
1.
10-5
director
Meetings called by the president or the secretary

ordered by the president
It depends if the removal is without cause they cannot
do so because removal without cause shall not deprive
the minority stockholders or members of the right of
representative
If with cause they can even if it will prejudice the
rights of the minority, provided of course additional
requirements by-laws and articles of incorporation
Who will fill up the vacancy created due to the ouster
of a member of the board of directors <section 29>
Section 29. Vacancies in the office of
director or trustee. - Any vacancy occurring in the
board of directors or trustees other than by removal by
the stockholders or members or by expiration of term,
may be filled by the vote of at least a majority of the
remaining directors or trustees, if still constituting a
quorum; otherwise, said vacancies must be filled by
the stockholders in a regular or special meeting called
for that purpose. A director or trustee so elected to fill
a vacancy shall be elected only or the unexpired term
of his predecessor in office.
Any directorship or trusteeship to be filled
by reason of an increase in the number of directors or
trustees shall be filled only by an election at a regular
or at a special meeting of stockholders or members
duly called for the purpose, or in the same meeting
authorizing the increase of directors or trustees if so
stated in the notice of the meeting. (n)
Other than by removal or expiration of term they do

not have the power
When will the vacancies be filled up?
Is notice required, to fill up vacancies due to removal?
What if the vacancy is due to an increase, can it be

filled up in the same meeting where in the number is
increased?
Election due to removal-in the same meeting notice is

not required
Election due to increase in number- it must be so

stated in the meeting
there is a provision in the by-laws to that effect
outstanding
Section 30

2.
When the stockholders, by a majority vote of the

outstanding capital stock grant the same; and,
3.
If the director renders extra-ordinary or unsual service
Central cooperative exchange vs. Tibe
By-laws may allow, stockholders may also allow such
What do you understand by the phrase as such

directors
Western institute vs. Salas
Compensation was granted without by-laws authority
Prohibition is not a sweeping rule
Members of the board may receive when they receive

in a special capacity
Mere act of the board will suffice
Is the 10% ceiling applicable to other officers?
NO. the phrase as such director was used twice

<Section 30>
The SC ruled that the 10% ceiling will not likewise

apply if they acted in a capacity other than as such
directors
Government vs. El Hogar
Judicial intervention is not proper
The appropriates remedy is to those who can make or

unmake the by-laws
Liability of corporate officers
Obligations incurred by those acting for and in behalf

of the corporations are not theres BUT there are
exceptions even if they are acting for and in behalf of
the corporation
Tramat vs. CA
General rule was applied in the case
Ong acted as officers and acted within the scope of his

authority
1.
Court laid down 4 instances when even if acting within

the scope of his authority he is held solidarily liable
He assents (a) to a patently unlawful act of the
corporation, or (b) for bad faith, or gross negligence in
directing its affairs, or (c) for conflict of interest,
resulting in damages to the corporation, its
stockholders or other persons;
17
2.
He consents to the issuance of watered stocks or who,

having knowledge thereof, does not forthwith file with
the corporate secretary his written objection thereto;
3.
He agrees to hold himself personally and solidarily

liable with the corporation;
4.
He is made, by a specific provision of law, to

personally answer for his corporate action.
Watered stocks- issued, fully paid up when in fact they

have not been fully paid or promised as such
Llamado vs. CA
Distinction between section 31 and 34 relative to the

ratification by the stockholders
The second paragraph of section 31 which makes a

director liable to account for profits if he attempts to
acquire or acquires any interest adverse to the
corporation in respect to any matter reposed in him in
confidence as to which equity imposes a disability
upon him to deal in his own behalf is not subject to
ratification by the stockholders. Whereas, in section 34
if a director acquires for himself a business opportunity
which should belong to the corporation, he is bound to
account for such profits unless his act is ratified by the
stockholders owning ore representing at least 2/3 of
the outstanding capital stock.
The corporate entity theory cannot be used as a

defense to escape liability in violation of B.P. 22
If reposed in him in confidence, not subject to

ratification
Where the check is drawn by a corporation the

persons who signed the check shall be liable.
Uichico vs. NLRC
If the acquisition is merely that of a business

opportunity which has not been reposed in him in
confidence, the same may be subject to ratification by
the stockholders.
Labor case corporate directors and officers are

solidarily liable with the corporation for the
termination of employment of corporate employee
done with malice and bad faith
Director x co.
A-REALTY
B
3 fold duty of directors
obedient
diligent
loyal
Business judgment rule
Z owns property and is going abroad never to Return,

he wants to sell for 25M the fair
market value is 30M
D
E
Questions of policy and management are left solely to

the honest decision of the board of directors and the
courts are without authority to substitute its judgment
as against the former. The directors are the business
managers of the corporation and as long as they act in
good faith, its actuations are not subject to judicial
review. Montelibano vs. Bacolod Murcia Milling
questions of policy and management are left solely to
the board of directors
E goes to Z and offers to pay the property for 26 M and later he

sells it for 30M making 4M profit, one of the stockholders learned
and complains that he should submit the profits. E said that he
will move for ratification of his actuation. Can it be ratified?
-
It can be ratified he merely acquired a business

owning to the corporation
It would be different if it was entrusted in his

confidence
Another scenario:
BOD, business manager of the corporation and as long

as they act in good faith, its actuations are not subject
to judicial review
They are not insurer of the property of the company,

they were guarantors that the enterprise undertaken
by the corporation shall be successful
Montelibano vs. Bacolod Murcia Milling Co.
Directors are not liable due to imprudence or honest

error of judgment
Duty of loyalty of corporate directors
31,32,33,34
The law would be impotent if the sale were not

invalidated
31,32,33- specific instances when corporate officers

may violate loyalty
Self-dealing director and interlocking director
What is a self-dealing director?
Director of a corporation dealing

business with his corporation
Are the contracts and dealing of a self0dealing director

valid?
General rule: voidable
May the contracts of a self-dealing director be valid

per se.
32,33 self-dealing and interlocking director
Corporate opportunity doctrine
It places a director of a corporation in the position of a

fiduciary and prohibits him form seizing a business
opportunity and/or developing it at the expense and
with the facilities of the corporation. He cannot
appropriate to himself a business opportunity which in
fairness should belong to the corporation.
Last paragraph of section 31 and the provision of

section 34 make reference to recovery of forbidden
profits

Had A not attended the meeting he would not have known of

the sale it is then a matter reposed in him in confidence
A corporation cannot reaquire its share if it has no

restricted unretained earnings
Strong vs. Rapide
What duty did he violate?
He violated his duty of loyalty
or
transacting
YES. If all the 4 conditions are present they will be

valid per se
18
1.
That the presence of such director or trustee in the

board meeting in which the contract was approved
was not necessary to constitute a quorum for such
meeting;
May corporate
property?
Mead vs. Mccullogh
2.
That the vote of such director or trustee was not

necessary for the approval of the contract;
3.
That the contract is fair and reasonable under the

circumstances; and
interlocking director- a director of one corporation who

deals and transacts business with another corporation
who is himself a director
A-
director of X company also a director of Y corporation
4.
That in case of an officer, the contract has been

previously authorized by the board of directors.
When do they become voidable?
When any of the two requisites are absent it is

voidable, but subject to ratification by 2/3 of the
outstanding capital stock or 2/3 of the member
directors
purchase
the
corporate
BCDE-
Requisites for ratification (subject to ratification by the

stockholders holding or representing at least 2/3 of the
outstanding capital stock or 2/3 of the members.)
Both companies enter into a contract and A sits, is the

contract valid?
Yes on the ground of fraud or if it is unfair
it must be at a meeting called for the purpose
May be subject to the provision of section 32
full disclosure of the adverse interest of the director

concerned must be made
Section 32 contract may become voidable, hence it

may also be ratified
the contract is
circumstances
fair
and
reasonable
under
the
X Co.
Y Co.
Problem if self-dealing director involved owns all or

substantially all of the shares of stock of the
corporation thereby making it easily possible to have
the contract ratified
A owe 20%
A owe 20%
last sentence of section 32 should be made to apply

by determining the reasonableness and fairness of the
contract
25%
Is it generally valid or voidable? VALID
25% VALID
15%
Section 32. Dealings of directors, trustees

or officers with the corporation. - A contract of the
corporation with one or more of its directors or
trustees or officers is voidable, at the option of such
corporation, unless all the following conditions are
present:
1. That the presence of such director or trustee in the
board meeting in which the contract was approved
was not necessary to constitute a quorum for such
meeting;
25% VOIDABLE SUBJECT TO section 32

More than 20 substantial
BOD mismanages corporate officers. Who may file a

suit?
General rule: BOD which can institute a case because

it has all the powers. To allow stockholders to file
would violate the doctrine of corporate entity and may
result to multiplicity of suits
2. That the vote of such director or trustee was not

necessary for the approval of the contract;
3. That the contract is fair and reasonable under the

circumstances; and
Derivative suit
An action based on injury to the corporation-to enforce

a corporate right- wherein the corporation itself is
joined as a necessary party, and recovery is in favor of
and for the corporation.
Remedy granted by law to stockholders to institute a

case to remedy a wrong done directly to the
corporation and indirectly to the stockholders, if the
board refuses to do so. Otherwise if not they would be
left without any recourse
Available suits
individual or personal
Wrong done against his person as a stockholder
Class suit
Filed by a stockholder in representation of other

stockholders
A wrong or redress done, a derivative suit in nature
Intra-corporate remedies
4. That in case of an officer, the contract has been

previously authorized by the board of directors.
Where any of the first two conditions set
forth in the preceding paragraph is absent, in the case
of a contract with a director or trustee, such contract
may be ratified by the vote of the stockholders
representing at least two-thirds (2/3) of the
outstanding capital stock or of at least two-thirds (2/3)
of the members in a meeting called for the purpose:
Provided, That full disclosure of the adverse interest of
the directors or trustees involved is made at such
meeting: Provided, however, That the contract is fair
and reasonable under the circumstances. (n)
Prime white cement vs. IAC
a director of a corporation owes a position in trust
in case of conflict between himself and that of the

corporation, he cannot sacrifice the interest of the
corporation to his own advantage
as a director he should have acted in a manner as not

to unduly prejudice the corporation
he cannot be allowed to enrich himself

Stockholders cannot therefore generally file a case

EXCEPT of course in a DERIVATIVE SUIT
19
Demand to the BOD to institute such action
Negated by the BOD
The one who instituted must be a stockholder at the

date when the act was done, must have been a
stockholder by that time
Demand will not be required if the majority of the BOD

are the ones guilty of the wrong charged
The corporation must be made a party in the case

whatever side will not matter because under Philippine
law misjoinder is not a ground for dismissal
Non-joinder is a ground for dismissal
Any benefit should inure to the corporation
Stockholder bringing the action is entitled to

reimbursement such as attorneys fee ONLY IF the
case is SUCCESSFUL to avoid harassment suit to their
management
being intra-corporate disputes, per Section 5 (b) of

P.D. 902-A
San Miguel vs. Khan
Was a demand made? NO
It is not necessary because he objected in the board

meeting, but still it was adopted therefore it was
useless
Chase vs. Buencamino
Argument that he should be in estoppels since he filed

in the U.S.
Assuming the case prospered in the U.S. would not

estoppels apply as against him? NO for estoppels to
step in it must be a case by the corporation
Reyes vs. tan
Corporate director are guilty of breach of trust
A stockholder may institute an action to remedy a

wrong done
Fraud in the conduct of corporate affairs
Gamboa vs. Victoriano
Is derivative suit appropriate in this case
They are not vindicatory damage done to the

corporation, but rather they where vindicating damage
against him
Pascual vs. Orozco
By virtue of the fact that he is a stockholder, may

maintain a derivative suit
Depend on how, when and what reason
Seeking for the years 1898 all the way 1907
Only became a stockholder in 1903
He can sue only in 1903 forward because he must be a

stockholder
Violation of their rights as individuals, hence derivative

suit is not the remedy
The right of action is personal in nature. He became a

stockholder only in 1902
Evangelista vs. Santos
Derivative suit
Derivative suit is not proper
By a stockholder to address a wrong done against the

corporation and the stockholder indirectly
Claim is not for the benefit of the corporation, but

rather his individual benefit
Essential requisite must have been a stockholder from

the time the act complained of took place
From the cases above cited, these are the

requirements and the procedures that must be
followed in order that a derivative suit may prosper
Cannot institute an action from the years he was still

not a stockholder
1.
That the party bringing the suit should be a

stockholder as of the time the act or transaction
complained of took place, or whose shares have
evolved upon him since by operation of law. This rule,
however, does not apply if such act or transaction
continues and is injurious to the stockholder or affect
him specifically in some other way.
Everett vs. Asia Banking
Stockholders cannot ordinarily commence suit in

equity and such is in the hands of its BOD however
there are exceptions when the BOD will not sue since
they are themselves principals to the fraud.
Republic vs. Cuaderno
The facts constitute sufficient cause of action
It is not the corporate interest to shield one from

criminal prosecution which is personal interest
Perez is not suing in his behalf, but in behalf of the

corporation
Western institute vs. Salas
Assuming it was filed in the proper forum would there

argument that it is a derivative suit prosper? NO. it is
people of the Philippines vs. individual director, it must
be stated in the complaint that it is being instituted as
a derivative suit and for and in behalf of the
corporation
Granting arguendo, that this is a derivative suit, the

same is still outrightly dismissible for having been
wrongfully filed in the regular court devoid of any
jurisdiction to entertain the complaint. The case should
have been filed with the SEC which exercises original
and exclusive jurisdiction over derivative suits, they

The number of his hares is immaterial since he is not

suing in his own behalf or for the protection or
vindication of his own right, or the redress of a wrong
done against him, individually, but in behalf and for
the benefit of the corporation.
2.
He has tried to exhaust intra-corporate remedies, he

has made a demand on the board of directors for the
appropriate relief but the latter had failed or refused to
heed his plea. Demand, however, is not required if the
company is under the complete control of the directors
who are the very ones to be sued (or where it
becomes obvious that a demand upon them would
have been futile and useless) since the law does not
require a litigant to perform useless acts;
3.
The stockholder bringing the suit must allege in his

complaint that he is suing on a derivative cause of
action on behalf of the corporation and all other
stockholders similarly situated, otherwise, the case is
dismissible. This is because the cause of action
actually devolves on the corporation and not to a
particular stockholder.
4.
The corporation should be made a party, either as

party-plaintiff or defendant, in order to make the
20
5.
courts judgment binding upon it, and thus, bar future

litigation of the same issues. On what side the
corporation appears loses importance when it is
considered that it lay within the power of the court to
direct the making of amendment of the pleading, by
adding or dropping parties, as may be required in the
interest of justice. Misjoinder of parties is not a ground
to dismiss action; and,
Corporate authority may be classified into three

classes namely:
1.
Those expressly granted or authorized by law inclusive

of the corporate charter or articles of incorporation;
2.
Those impliedly granted as are essential or reasonably

necessary to the carrying out of the express powers;
Any benefit or damages recovered shall pertain to the

corporation. This is so because in all instances,
derivative suit is instituted for and in behalf of the
corporation and not for the protection or vindication of
a right or rights of a particular stockholder, otherwise,
the aggrieved stockholder should institute, instead, an
individual or personal suit to vindicate his personal or
individual right. Or, for that matter, representative or
class suit for all other stockholders whose rights are
similarly situated, injured or violated, personally or
individually.
3.
Those that are incidental to its existence.
Section 36 to 45- POWER GRANTED BY LAW
Section 36. Corporate powers and capacity. - Every

corporation incorporated under this Code has the power and
capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period
of time stated in the articles of incorporation and the
certificate of incorporation;
Executive committee
Not allowed under the OLD law
How may
constituted?
3. To adopt and use a corporate seal;
executive
committee
created
and
4. To amend its articles of incorporation in accordance
with the provisions of this Code;
Section 35
Section 35. Executive committee. - The bylaws of a corporation may create an executive
committee, composed of not less than three members
of the board, to be appointed by the board. Said
committee may act, by majority vote of all its
members, on such specific matters within the
competence of the board, as may be delegated to it in
the by-laws or on a majority vote of the board, except
with respect to: (1) approval of any action for which
shareholders' approval is also required; (2) the filing of
vacancies in the board; (3) the amendment or repeal
of by-laws or the adoption of new by-laws; (4) the
amendment or repeal of any resolution of the board
which by its express terms is not so amendable or
repealable; and (5) a distribution of cash dividends to
the shareholders.
Said committee may act and bind the corporation by

the majority vote of all its members except with
respect to those matters provided for in sec. 35 these
are:
1.
Approval of any action

approval is also required
2.
The filing of vacancies in the board;
3.
Amendment or repeal of by-laws or the adoption of

new by-laws;
4.
for
which
shareholders
Amendment or repeal of any resolution of the board

which by its express terms is not so amenable or
repealable; and,
5.
Distribution of cash dividends to the shareholders.
May the board alone create an executive committee

without any authority provided for the by-laws?
NO board of directors must sit and act as a body to

have a valid transaction
May a non-member of the board of directors be a

member of the executive committee?
NO, all of them must be members of the board of

directors
BOD cannot act by proxy it would be abdication of

powers
Purpose clauses necessary because it confers and also

limits the actual authority of the corporation
CORPORATE POWERS AND AUTHORITY

5. To adopt by-laws, not contrary to law, morals, or

public policy, and to amend or repeal the same in
accordance with this Code;
6. In case of stock corporations, to issue or sell stocks
to subscribers and to sell stocks to subscribers and to
sell treasury stocks in accordance with the provisions
of this Code; and to admit members to the corporation
if it be a non-stock corporation;
7. 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, subject to the limitations
prescribed by law and the Constitution;
8. To enter into merger or consolidation with other
corporations as provided in this Code;
9. To make reasonable donations, including those for
the public welfare or for hospital, charitable, cultural,
scientific, civic, or similar purposes: Provided, That no
corporation, domestic or foreign, shall give donations
in aid of any political party or candidate or for
purposes of partisan political activity;
10. To establish pension, retirement, and other plans
for the benefit of its directors, trustees, officers and
employees; and
11. To exercise such other powers as may be essential
or necessary to carry out its purpose or purposes as
stated in the articles of incorporation. (13a)
Section 37. Power to extend or shorten corporate
term. - A private corporation may extend or shorten its term as
stated in the articles of incorporation when approved by a
majority vote of the board of directors or trustees and ratified at
a meeting by the stockholders representing at least two-thirds
(2/3) of the outstanding capital stock or by at least two-thirds
(2/3) of the members in case of non-stock corporations. Written
notice of the proposed action and of the time and place of the
meeting shall be addressed to each stockholder or member at
his place of residence as shown on the books of the corporation
and deposited to the addressee in the post office with postage
prepaid, or served personally: Provided, That in case of
extension of corporate term, any dissenting stockholder may
exercise his appraisal right under the conditions provided in this
code. (n)
Section 38. Power to increase or decrease capital
stock; incur, create or increase bonded indebtedness. - No
corporation shall increase or decrease its capital stock or incur,
create or increase any bonded indebtedness unless approved by
a majority vote of the board of directors and, at a stockholder's
meeting duly called for the purpose, two-thirds (2/3) of the
outstanding capital stock shall favor the increase or diminution
of the capital stock, or the incurring, creating or increasing of
21
any bonded indebtedness. Written notice of the proposed

increase or diminution of the capital stock or of the incurring,
creating, or increasing of any bonded indebtedness and of the
time and place of the stockholder's meeting at which the
proposed increase or diminution of the capital stock or the
incurring or increasing of any bonded indebtedness is to be
considered, must be addressed to each stockholder at his place
of residence as shown on the books of the corporation and
deposited to the addressee in the post office with postage
prepaid, or served personally.
A certificate in duplicate must be signed by a majority of the
directors of the corporation and countersigned by the chairman
and the secretary of the stockholders' meeting, setting forth:
(1) That the requirements of this section have been
complied with;
(2) The amount of the increase or diminution of the
capital stock;
(3) If an increase of the capital stock, the amount of
thereof actually subscribed, the names, nationalities
and residences of the persons subscribing, the amount
of capital stock or number of no-par stock subscribed
by each, and the amount paid by each on his
subscription in cash or property, or the amount of
allotted to each stock-holder if such increase is for the
purpose of making effective stock dividend therefor
authorized;
(4) Any bonded indebtedness to be incurred, created
or increased;
(5) The actual indebtedness of the corporation on the
day of the meeting;
(6) The amount of stock represented at the meeting;
and
(7) The vote authorizing the increase or diminution of
the capital stock, or the incurring, creating or
increasing of any bonded indebtedness.
Any increase or decrease in the capital stock or the incurring,
creating or increasing of any bonded indebtedness shall require
prior approval of the Securities and Exchange Commission.
One of the duplicate certificates shall be kept on file in the office
of the corporation and the other shall be filed with the Securities
and Exchange Commission and attached to the original articles
of incorporation. From and after approval by the Securities and
Exchange Commission and the issuance by the Commission of its
certificate of filing, the capital stock shall stand increased or
decreased and the incurring, creating or increasing of any
bonded indebtedness authorized, as the certificate of filing may
declare: Provided, That the Securities and Exchange Commission
shall not accept for filing any certificate of increase of capital
stock unless accompanied by the sworn statement of the
treasurer of the corporation lawfully holding office at the time of
the filing of the certificate, showing that at least twenty-five
(25%) percent of such increased capital stock has been
subscribed and that at least twenty-five (25%) percent of the
amount subscribed has been paid either in actual cash to the
corporation or that there has been transferred to the corporation
property the valuation of which is equal to twenty-five (25%)
percent of the subscription: Provided, further, That no decrease
of the capital stock shall be approved by the Commission if its
effect shall prejudice the rights of corporate creditors.
Non-stock
corporations
may incur
or create bonded
indebtedness, or increase the same, with the approval by a
majority vote of the board of trustees and of at least two-thirds
(2/3) of the members in a meeting duly called for the purpose.
Bonds issued by a corporation shall be registered with the
Securities and Exchange Commission, which shall have the
authority to determine the sufficiency of the terms thereof. (17a)
Section 39. Power to deny pre-emptive right. - 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, unless such right is
denied by the articles of incorporation or an amendment thereto:
Provided, That such pre-emptive right shall not extend to shares
to be issued in compliance with laws requiring stock offerings or
minimum stock ownership by the public; or to shares to be
issued in good faith with the approval of the stockholders
representing two-thirds (2/3) of the outstanding capital stock, in
exchange for property needed for corporate purposes or in

payment of a previously contracted debt.
Section 40. Sale or other disposition of assets. Subject to the provisions of existing laws on illegal combinations
and monopolies, a corporation may, by a majority vote of its
board of directors or trustees, sell, lease, exchange, mortgage,
pledge or otherwise dispose of all or substantially all of its
property and assets, including its goodwill, 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, when authorized by the vote of
the stockholders representing at least two-thirds (2/3) of the
outstanding capital stock, or in case of non-stock corporation, by
the vote of at least to two-thirds (2/3) of the members, in a
stockholder's or member's meeting duly called for the purpose.
Written notice of the proposed action and of the time and place
of the meeting shall be addressed to each stockholder or
member at his place of residence as shown on the books of the
corporation and deposited to the addressee in the post office
with postage prepaid, or served personally: Provided, That any
dissenting stockholder may exercise his appraisal right under the
conditions provided in this Code.
A sale or other disposition shall be deemed to cover substantially
all the corporate property and assets if thereby the corporation
would be rendered incapable of continuing the business or
accomplishing the purpose for which it was incorporated.
After such authorization or approval by the stockholders or
members, the board of directors or trustees may, nevertheless,
in its discretion, abandon such sale, lease, exchange, mortgage,
pledge or other disposition of property and assets, subject to the
rights of third parties under any contract relating thereto,
without further action or approval by the stockholders or
members.
Nothing in this section is intended to restrict the power of any
corporation, without the authorization by the stockholders or
members, to sell, lease, exchange, mortgage, pledge or
otherwise dispose of any of its property and assets if the same is
necessary in the usual and regular course of business of said
corporation or if the proceeds of the sale or other disposition of
such property and assets be appropriated for the conduct of its
remaining business.
In non-stock corporations where there are no members with
voting rights, the vote of at least a majority of the trustees in
office will be sufficient authorization for the corporation to enter
into any transaction authorized by this section.
Section 41. Power to acquire own shares. - A stock
corporation shall have the power to purchase or acquire its own
shares for a legitimate corporate purpose or purposes, including
but not limited to the following cases: Provided, That the
corporation has unrestricted retained earnings in its books to
cover the shares to be purchased or acquired:
1. To eliminate fractional shares arising out of stock dividends;
2. To collect or compromise an indebtedness to the corporation,
arising out of unpaid subscription, in a delinquency sale, and to
purchase delinquent shares sold during said sale; and
3. To pay dissenting or withdrawing stockholders entitled to
payment for their shares under the provisions of this Code. (a)
Section 42. Power to invest corporate funds in
another corporation or business or for any other purpose. Subject to the provisions of this Code, a private corporation may
invest its funds in any other corporation or business or for any
purpose other than the primary purpose for which it was
organized when approved by a majority of the board of directors
or trustees and ratified by the stockholders representing at least
two-thirds (2/3) of the outstanding capital stock, or by at least
two thirds (2/3) of the members in the case of non-stock
corporations, at a stockholder's or member's meeting duly called
for the purpose. Written notice of the proposed investment and
the time and place of the meeting shall be addressed to each
stockholder or member at his place of residence as shown on the
books of the corporation and deposited to the addressee in the
post office with postage prepaid, or served personally: Provided,
That any dissenting stockholder shall have appraisal right as
provided in this Code: Provided, however, That where the
investment by the corporation is reasonably necessary to
accomplish its primary purpose as stated in the articles of
incorporation, the approval of the stockholders or members shall
not be necessary. (17 1/2a)
Section 43. Power to declare dividends. - The board
of directors of a stock corporation may declare dividends out of
22
the unrestricted retained earnings which shall be payable in

cash, in property, or in stock to all stockholders on the basis of
outstanding stock held by them: Provided, That any cash
dividends due on delinquent stock shall first be applied to the
unpaid balance on the subscription plus costs and expenses,
while stock dividends shall be withheld from the delinquent
stockholder until his unpaid subscription is fully paid: Provided,
further, That no stock dividend shall be issued without the
approval of stockholders representing not less than two-thirds
(2/3) of the outstanding capital stock at a regular or special
meeting duly called for the purpose. (16a)
strict compliance is necessary
should be served to those named in the statute
secretary of a dept are not those included in the

statute
E.B. Villarosa vs. Benito
decision En Banc repeals all other pronouncement
Stock corporations are prohibited from retaining surplus profits

in excess of one hundred (100%) percent of their paid-in capital
stock, except: (1) when justified by definite corporate expansion
projects or programs approved by the board of directors; or (2)
when the corporation is prohibited under any loan agreement
with any financial institution or creditor, whether local or foreign,
from declaring dividends without its/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. (n)
section 13 Rule 14 was repealed
the old rules was ambiguous and broad and at all time
illogical
the particular revision under Section 11 of Rule 14 was

explained by retired Supreme Court Justice Florenz
Regalado, thus:
xxx the then section 13 of this Rule allowed
service upon a defendant corporation to be
made on the president, manager, secretary,
cashier, agent or any of its directors. The
aforesaid terms were obviously ambiguous
and susceptible of broad and sometimes
illogical interpretations, especially the word
agent of the corporation. The Filoil case,
involving the litigation lawyer of the
corporation who precisely appeared to
challenge the validity of service of summons
but whose very appearance for that purpose
was seized upon to validate the defective
service, is an illustration of the need for this
revised section with limited scope and
specific terminology. Thus the absurd result
in the Filoil case
necessitated
the
amendment permitting service only on the
in-house counsel of the corporation who is in
effect an employee of the corporation, as
distinguished
from
an
independent
practitioner.
Section 44. Power to enter into management

contract. - No corporation shall conclude a management contract
with another corporation unless such contract shall have been
approved by the board of directors and by stockholders owning
at least the majority of the outstanding capital stock, or by at
least a majority of the members in the case of a non-stock
corporation, of both the managing and the managed corporation,
at a meeting duly called for the purpose: Provided, That (1)
where a stockholder or stockholders representing the same
interest of both the managing and the managed corporations
own or control more than one-third (1/3) of the total outstanding
capital stock entitled to vote of the managing corporation; or (2)
where a majority of the members of the board of directors of the
managing corporation also constitute a majority of the members
of the board of directors of the managed corporation, then the
management contract must be approved by the stockholders of
the managed corporation owning at least two-thirds (2/3) of the
total outstanding capital stock entitled to vote, or by at least
two-thirds (2/3) of the members in the case of a non-stock
corporation. No management contract shall be entered into for a
period longer than five years for any one term.
The provisions of the next preceding paragraph shall apply to
any contract whereby a corporation undertakes to manage or
operate all or substantially all of the business of another
corporation, whether such contracts are called service contracts,
operating agreements or otherwise: Provided, however, That
such service contracts or operating agreements which relate to
the exploration, development, exploitation or utilization of
natural resources may be entered into for such periods as may
be provided by the pertinent laws or regulations. (n)
notes: additional knowledge
special
appearance enter
for that particular
appearance you are not the counsel in the case
Section 45. Ultra vires acts of corporations. - No

corporation under this Code shall possess or exercise any
corporate powers except those conferred by this Code or by its
articles of incorporation and except such as are necessary or
incidental to the exercise of the powers so conferred. (n)
would apply only if it does not involve an intracorporate controversy (controversy between and
among the stockholders)
upon any of the statutory officers or officers fixed in

the by-laws any secretary, any of the directors; any
managers in the by-laws
Section 36
Seal
Where should the corporation be sued?
merely ministerial or permissive
principal office is important because it establishes the

residence of the corporation and determining service
of summons, venue of action
Power to amend
section 16
it can be sued in the city or municipality where its

principal office is found
special 37,38,120
Power to adopt by-laws
Principal office is also important for venue of meetings
section 46-48
Non-stock corporation may provide in its by-laws that

the venue of meeting be anywhere in the Philippines
Power to issue or sell stocks and to admit members
Upon whom service of summons be made?
stock of stockholders and provision governing nonstock
Power to acquire or alienate real or personal property
is there any limitation? YES
Two specific limitation
1.
Section 36, as lawful transactions of business of the

corporation may reasonably and necessarily require
2.
Constitution and law
Section 11. Service upon domestic private juridical

entity- when the defendant is a corporation,
partnership or association organized under the laws of
the Philippines with a juridical personality, service may
be made upon the president, managing partner,
general manager, corporate secretary, treasurer, or in
house counsel.
Delta motor vs. Mangosing

23
Luneta vs. A.D. Santos
Importance of the purpose clause
Cannot have the power to acquire
Cannot engage in land transportation
Doctrine of limited capacity
Govt vs. El Hogar
As the lawful transaction

reasonably represent
Director of Lands vs. CA
Exception to the rule in the constitution
Alienable public land
Converts the property to a private land automatically

once converted it can now be registered
Power to make donation
Limitation section 36 par.9
These are circumstances, however, under which a

donation by a corporation may be to its benefit as a
means of increasing its business or promoting
patronage. Thus, paragraph 9 of section 36 expressly
authorizes a corporation to make donations. The only
limitations imposed are the following:
of
its
business
may
Examined the articles of incorporation to arrive at its

decision
National Power vs. Vera
For purpose of prohibiting the NAPOCOR
The court must decide whether or not a logical and

necessary relation exists between the act questioned
and the corporate purpose expressed in the NPC
charter
Importance of PLACE of registration
Residence
Venue
Place of meetings
Place or registration of chattel mortgage
Power to extend its terms
Once its term expires, already dissolved automatically,

thus can no longer ask for extension
After dissolution, it has 3 years to windup
What are the modes of increasing capital stock?
1.
Increasing the par value of the existing number of

shares without increasing the number of shares;
2.
Increasing the number of existing shares without

increasing the par value thereof; and,
1.
The donation must be reasonable;
2.
It must be for public welfare, or for hospital, charitable,

scientific, cultural or similar purpose; and,
3.
Increasing the number of existing shares and at the

same time increasing the par value of the shares.
3.
It shall not be in aid of political party or candidate, or

for purposes of partisan political activity.
Why a corporation increases it capital stock?
Power to establish pension
Include any act to promote and improve the

convenience, welfare and benefit of the employees or
offices
Generate funds, business expansion, or payment of

liabilities, purposes of acquiring other business.
(example: to buy cars for the officers, purpose of
acquiring other business, expansion, other valid
reasons)
Republic vs. Acoje
How do you decrease capital stock and why a

corporation decreases?
While as a rule an ultra-vires act is one committed

outside the object for which a corporation is created
as defined by law, there are however certain
corporate acts that may be performed outside of the
scope of the powers expressly conferred if they are
necessary to promote the interest or welfare of the
corporation. Thus, it has been held that although not
expressly authorized to do so a corporation may
become a surety where the particular transaction is
reasonably necessary or proper to the conduct of its
business, and here it is undisputed that the
establishment local post office is a reasonable and
proper adjunct to the conduct of the business of
appellant company. Indeed, such post office is a vital
improvement in the living condition of its employees
and laborers who came to settle in its mining camp
which is far removed from the postal facilities or
means of communication accorded to people living in
a city or municipality.
Reduce or wipeout existing deficit where no creditors

would thereby be effected
When capital is more than necessary to procreate the

business or reduction of capital surplus
To write down the value of its fixed assets to reflect

those present and actual
NOTE: any increase or decrease of capital stock

requires approval of government agency like SEC it
can never take place unless SEC approves the same
Relevance of decrease of capital?
1.
To reduce or wipe out existing deficit where no

creditors would thereby be affected;
2.
When the capital is more than what is necessary to

procreate the business or reduction of capital surplus;
or,
3.
To write down the value of its fixed assets to reflect

there present actual value in case where there is a
decline in the value of the fixed assets of the
corporation.
Examples: Php 10M capital for grocery business,

mayor didnt want to issue license/permit because
mayor has 3 other grocery stores, only allowed sarisari store permit, reduce capital for sari-sari so that
the money will not sleep in bank
Power to exercise such other powers essential or

necessary to carry out its purpose (implied power)
1.
Acts in the usual course of business;
2.
Acts to protect debts owing to the corporation;
3.
Embarking in a different business;
4.
Acts in part or wholly to protect or aid employees; and,
5.
Acts to increase business
Teresa Electric and Power Co. vs. P.S.C.

24
Example: car rental agencies-Php 10M capital for 20

taxis, after some time each taxi is only 250K,
nagmura ang taxi, to reduce capital is to show actual
assets
Limitation imposed by law
Decrease shall not in any way affect the rights of the

creditors
Philippine Trust Company vs. Rivera
Without the appraisal of SEC, a decrease in capital

stocks has no effect
TRUST FUND DOCTRINE:
Subscription to capital stock of a corporation

constitute a fund to which the creditors have a right to
look upon for satisfaction of their claims and that the
assignee in insolvency can maintain an action upon
any unpaid stock subscription in order to realize assets
for the payment of its debts.
Madrigal vs. Zamora
Decrease in capital has a subterfuge to evade

payment
Thus not valid and effective
Must not prejudice

employees
Bond
Commonly understood as an obligation of a state, its

subdivision or a private corporation, represented by a
certificate or an instrument for the principal and by
detachable coupons for the payment of interests. In its
simplest term, it is one where an obligor obliges
himself to pay a certain sum of money to another at a
day named.
creditors
which
includes
Pre-emptive rights
A right granted by law to all existing stockholders of a

stock corporation to subscribe to all issues or
disposition of shares of any class, in proportion to their
respective stockholdings, subject only to the
limitations imposed under section 39 of the Code.
Yes, if provided by articles of incorporation or by an

amendment
However, pre-emptive rights is unavailable to shares in

trading in stock exchange otherwise stockholders must
waive first their right before they may sell such.
Exceptions
1.
When the shares to be issued is in compliance

with laws requiring stock offerings or minimum
stock ownership by the public
2.
Shares to be issued in good faith with the

approval of the stockholders representing 2/3 of
the outstanding capital stock either
a.
In exchange for property

corporate purpose or,
needed
for
b.
In payment of a previously contracted debt
The exceptions, however will not apply to stockholders

of a close corporation by virtue of a subsequent and
specific provision of the Code which provides that the
pre-emptive right of a stockholder in a close
corporation shall extend to all stock to be issued,
including reissuance of treasury shares, whether for
money, property or personal services or in payment of
a corporate debt, unless the articles of incorporation
provide otherwise, if not entirely absolute, in that it
extends to all issuance and disposition of shares
Such right of pre-emption may be lost by waiver of the

stockholder, expressly or impliedly by his inability or
failure to exercise it after having been notified of the
proposed issuance or disposition of shares
When is it unavailable?
In shares traded openly in stock exchange/market
Is it applicable to close corporations?
See section 96, close corporations must provide it first

on its articles of incorporation, that its articles does
not really deny such pre-emptive rights.
Section 102, will not apply to close corporations
The right of pre-emptive rights is absolute in close

corporations
the
There are different kinds of bond but before they may

be issued or floated by the corporation, the same must
be registered and approved by the SEC subject to the
rules and regulations that may be adopted by that
agency. The procedure and requirements set forth in
section 38 is the same as in increasing or decreasing
the capital stock except that the certificate does not
have to state the matters required in sub-section 2 & 3
thereof.
May it be denied? How?
All issues or depositing shares of any class form part of ACS
Certain
instances
when
a
stockholder
nevertheless be unable to exercise this right:
may
Internationally granted
Issued for public ownership
Pre-emptive rights, why it is granted?
In order that the existing stockholders may maintain

their proportionate right as not to dilute their right
Issued in good faith, with approval of 2/3 of

outstanding capital stock either a) in exchange for
property needed or b) for payment of a previously
contracted debt
Power to deny pre-emptive rights
Pre- emptive rights of stockholders in ordinary stock

corporations may be denied
Section 39. Power to deny pre-emptive

right. - All stockholders of a stock corporation shall
enjoy pre-emptive right to subscribe to all issues or
respective shareholdings, unless such right is denied
by the articles of incorporation or an amendment
thereto: Provided, That such pre-emptive right shall
not extend to shares to be issued in compliance with
laws requiring stock offerings or minimum stock
ownership by the public; or to shares to be issued in
good faith with the approval of the stockholders
representing two-thirds (2/3) of the outstanding capital
stock, in exchange for property needed for corporate
purposes or in payment of a previously contracted
debt.
if the shares are to be issued in compliance with laws

requiring stock offering or minimum stock ownership
by the pubic
In exchange
purposes
In payment of previously contracted debts
This rule, however, does not apply in a close

corporation as the pre-emptive rights of the
stockholders thereof is broadened to include all issues

for
property
needed
for
corporate
25
without exceptions unless, of course, denied or limited

by the articles of incorporations. Section 102 provides:
May 1-5 subscribe to the unsubscribed capital stock to

the exclusion of 6-10?
Section 102. Pre-emptive right in close

corporations. - The pre-emptive right of stockholders in
close corporations shall extend to all stock to be
issued, including reissuance of treasury shares,
whether for money, property or personal services, or
in payment of corporate debts, unless the articles of
incorporation provide otherwise.
If a corporation makes 2M unrestricted retained

earnings, it is the shares and not the number of
persons that matters
May 6-10 complain for a dilution of their interest?
YES, its an internationally recognized right because it

includes all issues and disposition of shares of any
class and all kinds of shares new or old
Denial will not apply to a close corporation, ABSOLUTE
section 96
If the remaining unsubscribed shares are issued, its

an issuance of any class
May a stock holder in a close corporation insist in the

exercise of his pre-emptive rights?
May a corporation sell/dispose all or substantially all of

its corporate assets and liabilities?
YES
1) RESOLUTION 2) AUTHORIZATION 3) RATIFICATION

4) PRIOR WRITTEN NOTICE 5) SALE SUBJECT TO
PROVISIONS OF EXITING LAWS 6) DISSENTING
STOCKHOLDERS HAVE THE RIGHT TO EXERCISE THEIR
APPRAISAL RIGHT
If a corporation sells substantially all of it assets and

properties, will the buyer assume liability?
NO, EXCEPT
1)
Express or implied agreement to the purchase
2)
Where the transaction amounts to consolidation or

merger of the corporations
3)
When purchasing corporation is merely a continuation

of the selling corporation
4)
Where the transaction is entered into fraudulently in

order to escape liability for such debt
Legitimate purpose: for a corporation to reacquire its

own shares
Limitation: it must have surplus/unrestricted retained

earnings
Exception: may redeem irrespective of unrestricted

retained earnings
Yes, section 102
What type or shares are covered by pre-emptive

rights?
Does it include those originally unsubscribed?
NO. Benito vs. SEC
Will the stockholders be able to exercise their preemptive right with respect to the old unissued shares?
Pre-emptive rights is applicable only to new issued

shares and not to the old unissued shares because it is
presumed that the original subscribers is deemed to
have taken his shares knowing that they form a
definite proportionate part of the whole number of
authorized shares
When the shares, left unsubscribed are re-offered, he

cannot therefore claim. DILUTION OF INTEREST
Will the acquiring purchaser be liable for debts of the

former corporation?
Generally no, corporate entity theory because there

may be instances when purchasing corporation may
be held liable
May a corporation acquire its own shares?
Yes
Is there any restriction provided for by law in

reacquiring its own shares?
1)
Exercise of stockholders right to compel close

corporation to purchase his shares
Yes, it must have been unrestricted retained earnings

appearing in the books of corporation
2)
Where corporation has sufficient assets in its books to

cover its debts and liabilities exclusive of capital stock
A corporation can never acquire its own shares if it has

no unrestricted retained earnings
False, exception close corporation and redeemable

shares
EXAMPLE:
1M
SUBSRIBED
1M
PAID-UP
1M
ASSETS
ACS
2M
SUBSCRIBED
1M
PAID UP
ACS
500K
1M PROFITS
500K LIABILITIES
1M
____________________
100K
500K RESERVES
IN
A
CLOSE
CORPORATION IT CAN USE THIS TO REACQUIRE ISSUED STOCKS
100K
X REALTY CORPORATION
TO
10
100K
If 1-5 became 200K each, may 6-10 demand the

exercise their pre-emptive right?
YES

THE ONLY PROPERTY OF

THE CORPORATION
BOARD OF DIRECTORS
DECIDED TO SELL IT
Will it need the approval of the stockholders?
26
NO, if the same is necessary in the usual and regular

course of business of said corporation or if the
proceeds of the sale or other disposition of such
property and assets be appropriated for the conduct of
its remaining business
Steinberg vs. Velasco
For as long as there are debts and liabilities, a

corporation may not reacquire its shares (subject to
exceptions)
If X is a manufacturing company, then it can sell its

only property upon approval of the stockholders
because it will render itself capable of continuing its
business, BUT if the proceeds will be used to purchase
a better one for the continuance of its business, then it
does not need the approval of the stockholders
Creditors of a corporation have the right to assume

that so long as there are outstanding debts and
liabilities, the board of directors will not use the assets
of the corporation to purchase its own stock, and that
it will not declare dividends to stockholders when the
corporation is insolvent.
Conditions for the valid exercise of this power are the

following
Power to invest funds <sec.42>
1.
Resolution by the majority vote of the board of

directors/trustees
2.
Authorization from the stockholders representing at

least 2/3 of the outstanding capital stock or 2/3 of the
members;
3.
The ratification of the stockholders or members must

be made at a meeting duly called for that purpose
4.
Prior written notice of the proposed action and of the

time and place of meeting must be made addressed to
all stockholders of record, either by mail or personal
service;
5.
The sale of the assets shall be subject to the

provisions of existing laws on illegal combinations and
monopolies
6.
Any dissenting stockholder shall have the option to

exercise his appraisal right
IDP vs. CA
Consent of the members was not secured
Edward Nell Co. vs. Pacific Farms
Generally where one corporation sells or otherwise

transfers all of its assets to another corporation, the
latter is not liable for the debts and liabilities of the
transferor, except:
For any other purpose other than the primary purpose,

stockholders consent or approval is necessary
Thus, if its for the secondary purpose, it is necessary
If its in connection with the primary purpose, only

board resolution is necessary
Requirements and steps to be followed for a valid

investment of corporate funds are:
1.
Where the purchaser expressly or impliedly

agrees to assume such debts;
1.
Resolution by the majority of the board of directors or

trustees;
2.
Where the transaction amounts to a consolidation

or merger of the corporations;
2.
3.
Where the purchasing corporation is merely a

continuation of the selling corporation;
Ratification by the stockholders representing at least

2/3 of the outstanding capital stock or 2/3 of the
members in case of non-stock corporations;
3.
Where the transaction is entered into fraudulently

in order to escape liability for such debts.
The ratification must be made at a meeting duly called

for that purpose;
4.
Prior written notice of the proposed investment and

the time and place of the meeting shall be made,
addressed to each stockholder or member by mail or
by personal service, and;
5.
Any dissenting stockholder shall have the option to

exercise his appraisal right
Dela rama vs. Ma-ao Sugar
There is a substantial and not remote connection

between the sugar bags and the sugar manufacture,
thus stockholders approval is not necessary for
validity
A private corporation, in order to accomplish its

purpose as stated in its articles of incorporation, and
imposed by the Corporation Law, has the power to
acquire, hold, mortgage, pledge, or dispose of shares
bonds, securities and other evidences of indebtedness
of any domestic or foreign corporation. Such an act, if
done in pursuance of the corporate purpose, does not
need the approval of the stockholders; but when the
purchase of shares of another corporation is done
solely for investment and not to accomplish the
4.
Section 42. Power to invest corporate

funds in another corporation or business or for any
other purpose. - Subject to the provisions of this Code,
a private corporation may invest its funds in any other
corporation or business or for any purpose other than
the primary purpose for which it was organized when
approved by a majority of the board of directors or
trustees and ratified by the stockholders representing
at least two-thirds (2/3) of the outstanding capital
stock, or by at least two thirds (2/3) of the members in
the case of non-stock corporations, at a stockholder's
or member's meeting duly called for the purpose.
Written notice of the proposed investment and the
time and place of the meeting shall be addressed to
each stockholder or member at his place of residence
as shown on the books of the corporation and
deposited to the addressee in the post office with
postage prepaid, or served personally: Provided, That
any dissenting stockholder shall have appraisal right
as provided in this Code: Provided, however, That
where the investment by the corporation is reasonably
necessary to accomplish its primary purpose as stated
in the articles of incorporation, the approval of the
stockholders or members shall not be necessary. (17
1/2a)
Power to acquire own shares

Section 41. Power to acquire own shares. A stock corporation shall have the power to purchase
or acquire its own shares for a legitimate corporate
purpose or purposes, including but not limited to the
following cases: Provided, That the corporation has
unrestricted retained earnings in its books to cover the
shares to be purchased or acquired:
1. To eliminate fractional shares arising out of stock
dividends;
2. To collect or compromise an indebtedness to the
corporation, arising out of unpaid subscription, in a
delinquency sale, and to purchase delinquent shares
sold during said sale; and
3. To pay dissenting or withdrawing stockholders
entitled to payment for their shares under the
provisions of this Code. (a)
The corporation must at all times have unrestricted

retained earnings to exercise this corporate power

27
purpose of its incorporation, the vote of approval of

the stockholders is necessary.
Gokongwei vs. SEC
Investments made by SMC is necessarily connected

with its primary purpose and this was ratified in a
meeting
What are property dividends?
Those paid in property surplus
Like tables and chairs? Can tables and chairs make

surplus profits?
No, they do not make surplus, bonds, etc.
Where should dividends come from?
Stock dividends are declared as stocks coming from

corporation
Submission of previous action is a sound corporate

practice
Redeemable shares
Closed corporation (see section 105)
Who declares dividends

stockholders have any say?
For any reason, compel the value of shares

withdrawal
shares
provided
corporation
has
sufficient funds to cover its debts and liabilities
Board of Directors, if stock approval of 2/3 outstanding

capital stock
Section 105. Withdrawal of stockholder or

dissolution of corporation. - In addition and without
prejudice to other rights and remedies available to a
stockholder under this Title, any stockholder of a close
corporation may, for any reason, compel the said
corporation to purchase his shares at their fair value,
which shall not be less than their par or issued value,
when the corporation has sufficient assets in its books
to cover its debts and liabilities exclusive of capital
stock: Provided, That any stockholder of a close
corporation may, by written petition to the Securities
and Exchange Commission, compel the dissolution of
such corporation whenever any of acts of the
directors, officers or those in control of the corporation
is illegal, or fraudulent, or dishonest, or oppressive or
unfairly prejudicial to the corporation or any
stockholder, or whenever corporate assets are being
misapplied or wasted.
ACS-1M
SUB-1M
profits of the corporation)
P.U.-1M
to
be
declared?
1M-U.R.E.
Do
(surplus
1-100k
2-100k
To
10-100k
1M
Board decides to declare 1M, how much will each

receive? May the board declare stock dividend
NO. that would be over issuance of shares, violation of

securities regulation code
If shares are reacquired, what happens?
It becomes treasury shares
It must have a free portion
Stockholders consent/ approval is not necessary and

mere board action is sufficient if in accordance with
primary purpose
The corporation may increase its capital
Z co. 1M to X Co. is 2/3 of Xco. Stockholders

reacquired?
The logical relation of act done and primary purpose of

corporation and between the board of directors to
undertake submission of acts is a sound corporate
practice
What is the effect of declaration of dividends with

regards to the assets of a company?
As compared to stock dividends, the declaration of

cash or property dividends have the effect of reducing
corporate assets to the extent of dividends declared.
Neither
would
stock
dividends
increase
proportionate interest of the stockholders of
corporation although it will have the effect
increasing the subscribed and paid-up capital of
corporation. It gives the stockholders nothing in
way of distribution of assets but merely divides
existing shares into smaller units.
Earnings belong to the corporation until declared or

given
Revocation
No revocation of dividend may be has unless it has not

been officially communicated to the stockholders or is
in the form of stock dividends which is revocable at
any time prior to distribution.
Stock dividends- no reduction, you capitalize your

restricted retained earnings, what is issued is a piece
of paper. The restricted earnings remain in the
corporation
Cash and property- reduces corporate assets
Stock dividends increase corporate assets? No, it will

only have the effect of increasing the subscribed and
paid-up capital of the corporation
Dividends
the
delinquent
stockholder
until
his
unpaid
What are dividends?
Corporate profits set aside, declared and ordered by

the Board of Directors to be paid to the stockholders.

No, because in property 2/3 is not required
the
the
of
the
the
his
28
Will there be a corresponding increase in their

proportionate interest?
How did the court decide dividends in the case of

Neilsen
REMAINS THE SAME
Stock dividends cannot be issued to a person who is

not a stockholder in payment of services rendered.
Exception: when stock dividends will result in a

fractional share
Whether cash, property or stock, only stockholders

may receive dividends. Dividends are fruits of
investments. They come from the U.R.E. or surplus
profits of the corporation.
ACS-2M
1-100K 200 (10%)
DIVIDEND RIGHTS STILL THE SAME
SUB-1M
*VOTING AND
TO
10%
PU-1M
ACS
2M
1M
SUB
1M
JULY 31
JULY
PU
1M
10-100K
ACS
2M
SUB
1M
PU
1M
1M
RE
100K
100K
100K
U.R.E.
24
DECLARATION
100T JULY 26-Y(NEW ONE WAS DECLARED

TO Y) JULY 30- 100K
2
TO
RECORDED
10
TO
HAVE
THE
TRANSFER
100K
1M
TO
10
100K
1M
Insofar as 1 and Y who has a better right? Already

declared, but not yet paid?
Right to receive vest upon declaration. Who ever owns

at the time of declaration owns the dividends
May they be compelled?

-
Unless there is a stipulation to the contrary
NO. You cannot declare if it does not come from

unrestricted retained earnings.
TRUST FUND DOCTRINE
1.
1M-U.R.E. (is it true there is no way to compel?)
The power to declare it if paid-up capital is not

maintained or is impaired
2.
2M-U.R.E.
-
May they be compelled to declare dividends
Mandatory if earned, the board may be compelled to

declare dividends
Trust fund must be kept intact for the protection of

creditors who have the right to rely on such
subscription and the paid-up capital for the satisfaction
of their claims
Cannot accumulate surplus unreasonably
Basis is the paid-up capital
Entitled to dividends
if exceeds 100% of the paid-up capital the boards may

be compelled
ACS
2M
1M
U.R.E.
SUB
1M
Irrespective of whether the subscription is full
PU
800K
Illegally declared
1-100K
50K PU
Declare dividend with the belief that it formed part of

the U.R.E., but yun pala sa capital
2-100K
50K
Directors are not liable, unless sec31 acted in bad faith

or gross negligence in the conduct of corporate affairs
Directors even if acting in behalf of the corporation,

may still be held solidarily liable
Power to enter into management contract
New provision
TO
10-100K
1M
Will 1 and 2 receive full amount of dividends?
YES. They are entitled however if they are declared

delinquent, the amount due them shall first be applied
to his delinquency plus expenses.
Delinquency occurs, you are called to pay, but you

failed to pay. In case of stock dividend, the delinquent
stock holder will not be entitled thereto until he has
paid his subscription in full.
Are non-stockholders entitled to receive dividends?
No, tock dividends are civil fruits of the original

investment, and to the owners of the shares belong
the civil fruits.

Section
44.
Power
to
enter
into
management contract. - No corporation shall conclude
a management contract with another corporation
unless such contract shall have been approved by the
board of directors and by stockholders owning at least
the majority of the outstanding capital stock, or by at
least a majority of the members in the case of a nonstock corporation, of both the managing and the
managed corporation, at a meeting duly called for the
purpose: Provided, That (1) where a stockholder or
stockholders representing the same interest of both
the managing and the managed corporations own or
control more than one-third (1/3) of the total
outstanding capital stock entitled to vote of the
managing corporation; or (2) where a majority of the
29
members of the board of directors of the managing

corporation also constitute a majority of the members
of the board of directors of the managed corporation,
then the management contract must be approved by
the stockholders of the managed corporation owning
at least two-thirds (2/3) of the total outstanding capital
stock entitled to vote, or by at least two-thirds (2/3) of
the members in the case of a non-stock corporation.
No management contract shall be entered into for a
period longer than five years for any one term.
The provisions of the next preceding
paragraph shall apply to any contract whereby a
corporation undertakes to manage or operate all or
substantially all of the business of another corporation,
whether such contracts are called service contracts,
operating
agreements
or otherwise:
Provided,
however, That such service contracts or operating
agreements which relate to the exploration,
development, exploitation or utilization of natural
resources may be entered into for such periods as may
be provided by the pertinent laws or regulations. (n)
The requirement for a valid management contract are

as follows:
1.
2.
Resolution of the board of directors

Approval by the stockholders holding or representing a
majority of the outstanding capital stock or majority of
the members in case of non-stock corporation of both
the managing and the managed corporation
The approval of the stockholders or members must be
made at the meeting called for that purpose
The contract shall not be for a period longer than 5
years for any one term, except those which relate to
exploration, development or utilization of natural
resources which may be entered into for such periods
as may be provided by pertinent laws and regulations
Every corporate act emanates from the BOARD
3.
4.
Ultra-vires acts which are not illegal per se may

become binding and enforceable either by satisfaction,
estoppels or equitable grounds
Consequences of ultra-vires acts?
1.
On the corporation itself
The proper forum, in accordance with the provisions of

PD 902-A, as amended and R.A. No. 8799 may
suspend or revoke, after proper notice and hearing,
the franchise or certificate of registration of the
corporation for serious misrepresentation as to what
the corporation can do or is doing to the great damage
or prejudice of the general public
2.
On the rights of the stockholders
A stockholder may bring either an individual or

derivative suit to enjoin a threatened ultra-vires act or
contract. If the act or contract has already been
performed, a derivative suit for damages against the
directors may be filed, but their liability will depend on
whether they acted in good faith and with reasonable
diligence in entering into the contract.
3.
On the immediate parties
The courts have not agreed as to the legal effect of a

corporate contract outside of its authorized business
but Ballatine gives the following summary of the
doctrines evolved:
Is the voting requirements of a majority stockholder

ABSOLUTE?
Not only a majority but 2/3 of the outstanding capital
stock or 2/3 of the members in a non-stock corporation
would be required for the approval of a management
contract in the following instances:
a.
If the contract is fully executed on both sides, the

contract is effective and the courts will no
interfere to deprive either party of what has been
acquired under it
b.
If the contract is executory on both sides, as a

rule, neither party can maintain an action for its
non-performance
c.
Where the contract is executor on one side only,

and has been fully performed on the other, the
courts differ as to whether an action will lie on
the contract against the party who has received
benefits of performance under it. Majority of the
courts, however, hold that the party who has
received benefits from the performance is
estopped to set up that the contract is ultra-vires
to defeat an action on the contract. This is more
in conformity with the doctrine that no person
shall be allowed to enrich himself at the expense
of another
1.
Where the stockholders representing the same

interest of both the managing and managed
corporation own or control more than 1/3 of the total
outstanding capital stock of the managing corporation;
and
2.
Where a majority of the members of the board of

directors of the managing corporation also constitute a
majority of the directors of the managed corporation
3.
Where the contract would constitute the management

or operation of all or substantially all of the business of
another corporation, whether such contracts are called
service contracts. If it will not constitute the
management of all or substantially all of the business
of another corporation the first paragraph of section
44 will apply and not that of the second, that is, only
the vote of the stockholders holding or representing at
least a majority of the outstanding capital stock or
majority of the members in the case of non-stock
corporation will be required.
Privano vs. Dela Rama
Court looked into the purpose clause
The purpose clause empowers and limits
Articles likewise provide that it may deal with any of

its money
deal broad enough to cover the donation it is not

then ultra-vires
How long?
Not illegal per se hence (law of agency) excess powers

are subject to ratification
Not longer than 5 years for any one term

-
Ratified by passing the resolution in question
Exception: exploration, development or utilization of

natural resources
Carlos vs. Mindoro sugar Co.
What is an ultra-vires act or contract?
PTC- trust company as such, it also has implied powers

as to make them more attractable
Doctrine of limited capacity. Corporation can do such

acts and things as it is allowed to do
Not ultra-vires in pursuance of its legitimate business
Japanese war notes vs. SEC
Non-stock corporations cannot make

distribute profits to its shareholders
Acts beyond it will be ultra vires, allowing a collateral

attack
If not illegal per se merely voidable. Can be ratified

expressly or impliedly or even stopped as equitable
grounds

profits
and
30
Ultra-vires because Japanese war notes is a non-stock

corporation
Crisologo-Jose vs. CA (ALWAYS ASKED BY DEAN

SUNDIANG)
When do by-laws become effective?
The negotiable instruments law which holds an

accommodation party liable on the instrument to a
holder for value, although such holder at the time of
taking the instrument knew him to be only an
accommodation party, does not include nor apply to
corporations which are accommodation parties. This is
because the issue or indorsement of negotiable paper
by a corporation without consideration and for the
accommodation of another is ultra-vires
Until and unless the SEC gives it stamped of approval
Suspension of any government agency.

permission must first be secured- section 46
Elements of a valid by-law
1.
It must not be contrary to law, public policy or morals;
2.
It must not be inconsistent with the articles of

incorporation;
3.
It must be general and uniform in its effect or

applicable to all alike or those similarly situated;
4.
It must not impair obligations and contracts or vested

rights; and
5.
It must be reasonable.
Must not be inconsistent with existing laws. Not be

inconsistent with articles of incorporation
By-laws
Corporate officers may guarantee or endorse an

accommodation only if specifically authorized
Section 36 paragraph 11
Section 10
Section 14 and 15
Corporate powers depend on the agreement of the

stockholders rather than any director
It may sell and it may guarantee, contract not

necessarily illegal, it will in the absence of proof to the
contrary presumed within its power. Corporations are
presumed to contract with in its powers- CARLOS CASE
Purpose clause may be stretched to cover PLDT

internet. It may be within its business.
May it sell computers? NO! other line of business. Its
trading!
BY-LAWS
Subject the corporation to a fine, as may be issued by

the SEC
The
None filing would not affect the status of the

corporation, Loyola grand villas case
The word must is not always imperative
Stockholders are conlusively presumed to know the

provisions of the by-laws
How about 3rd persons?
NO. unless there is actual knowledge of the same they

are not presumed to know of the provisions of the bylaws
By-Laws
Rule adopted by the corporation for its internal

governance
Is the adoption of by-laws mandatory?
Fleischer vs. Botika Nolasco
When should the by-laws be adopted or filed? Can it

not be adopted earlier?
Shares of stock are personal properties
Shares of stock may transfer to whom ever he wishes
After incorporation- within 1 month (emanates from

the BOARD)
The by-laws is contrary to law
Prior-more convenient (signed by the incorporators)
Articles of incorporation
Who will sign the adoption clause?
May provide reasonable restriction
Majority of the stockholders or members attested to by

the corporate secretary
By-laws merely internal laws
What happens if the corporation fails to adopt the bylaws from the tie provided by the law? Would there be
an automatic revocation or suspension?
Articles is the contract between and among the parties

and corporation
Govt vs. El Hogar
Proper notice and hearing, must first be complied with
Loyola grand villas vs. CA
Not the SEC, but the HIGC
Must not always imperative
Filing of by-laws mandatory
Empowered by SEC
Merely a ground, there must be proper notice and

hearing
Not affect the status of the corporation as a juridical

person

Did the court categorically ruled here that

provision in the 5th cause of action is valid?
the
Rules governing equity, considering the fact that there

was always lack of quorum
Section 29 BOD if still constituting a quorum may fill

up a vacancy other than by removal, etc.
Gokongwei vs. SEC
Section 48 allows a corporation to amend it by-laws
Section 47 of the code, the by-laws may provide for

the qualification and disqualification
It cannot be said Gokongwei has a vested rights
31
Prevent directors from taking advantage of position to

promote his individual interest to the damage of
others
The validity or reasonableness of a by-laws is a

question of law
Subject to the limitations that reasonableness of a bylaw is a mere matter of judgment
Rule of the majority and not the tyranny of the

minority
May the by-laws be amended altered or appealed?
YES. HOW? Two modes
Meetings
1.
By a majority vote of the directors or trustees and the

majority vote of the outstanding capital stock or
members in a non-stock corporation, at a regular or
special meeting called for that purpose;
Meetings of stockholders
in the by-laws or by-law
Meetings of director or trustees
Meetings are regular and special
Meetings of stockholders
What is regular and what is special?
When are regular meetings of the stockholders held?
Fixed date provided by the by-laws
What if there is no date?
April
Why april?
Point in time the audited financial statement have

been prepared
What if in the date specified in the by-laws or by the

law itself the meeting was not convened, for instance
lack of quorum or force majeure?
It may be postponed on a reasonable date
Notice requirement?
Regular- 2 weeks prior notice
Special- 1 week
May the notice requirement be lessened?
By-laws may provide a longer or a shorter duration
What if the notice requirement is not complied with?
What happened to any act passed in a meeting when

notice requirement was not required with?
Voidable, subject to ratification
Board of directors vs. Tan
Notice requirement is the by-laws is a mandatory

requirement
Improperly served, any action will be invalidated at the

objection of any stockholder or member
Must be held in the proper place
Where should it be held?
Apparent from the foregoing provision is that meetings

of stockholders must, at all times, be held in the city or
municipality where the principal office of the
corporation is located and, as far as practicable, in the
principal office of the corporation.
May the by-laws of a corporation provide

meetings be held anywhere in the Philippines?
2.
By the board of directors alone when delegated by 2/3

of the outstanding capital stock or 2/3 of the members
in a non-stock corporation.
This delegated power, however, is considered revoked
whenever a majority of the outstanding capital stock
or members shall so vote at a regular or special
meeting.
If it is to be amended what is the proceeding?
Section 48 2nd paragraph provides:

Section 48. Amendments to by-laws. - The
board of directors or trustees, by a majority vote
thereof, and the owners of at least a majority of the
outstanding capital stock, or at least a majority of the
members of a non-stock corporation, at a regular or
special meeting duly called for the purpose, may
amend or repeal any by-laws or adopt new by-laws.
The owners of two-thirds (2/3) of the outstanding
capital stock or two-thirds (2/3) of the members in a
non-stock corporation may delegate to the board of
directors or trustees the power to amend or repeal any
by-laws or adopt new by-laws: Provided, That any
power delegated to the board of directors or trustees
to amend or repeal any by-laws or adopt new by-laws
shall be considered as revoked whenever stockholders
owning or representing a majority of the outstanding
capital stock or a majority of the members in nonstock corporations, shall so vote at a regular or special
meeting.
Whenever any amendment or new by-laws
are adopted, such amendment or new by-laws shall be
attached to the original by-laws in the office of the
corporation, and a copy thereof, duly certified under
oath by the corporate secretary and a majority of the
directors or trustees, shall be filed with the Securities
and Exchange Commission the same to be attached to
the original articles of incorporation and original bylaws.
The amended or new by-laws shall only be
effective upon the issuance by the Securities and
Exchange Commission of a certification that the same
are not inconsistent with this Code. (22a and 23a)
Baretto vs. La Previsora
Any corporate act emanates from the board
Directors themselves cannot amend the by-laws if they

were not granted the same
Section 48
The power granted is not subject to revocation T or F?
FALSE
If the by-laws are amended when will they become

valid?

Upon issuance
inconsistent
of
What if the SEC failed to act within 10 months without

fault attributable to the corporation?
T or F any amendment of the by-laws will never

become valid until it gives its stamp of approval even
after 1 year
TRUE. Articles
different
of
the
SEC
that
incorporation
they
and
are
by-laws
not
are
MEETINGS
1. Date fixed
that
32
While there is no provision authorizing a stock

corporation to hold stockholders meetings outside of
the City of Municipality where the principal office is
located, the law allows a non-stock corporation to
provide in its by-laws any place of members meeting
provided that proper notice is sent to all members
indicating the date, time and place of the meeting
which shall be within the Philippines.
T or F the by-laws of a stock corporation may validly
provide that meetings shall be held anywhere in the
Philippines?
FALSE. Non-stock corporations lang pwede provided
nakalagay sa by-laws and provided proper notice is
given
Mandamus would be appropriate remedy if there is a

person authorized but refuses
Quorum and voting requirement
Majority stockholders or members constitute a quorum
Is the presence of the majority owners of the

outstanding capital stock ABSOLUTE to have a
quorum?
NO. when the code requires a higher quorum it must

also be equivalent to the vote required
Do you include non-voting shares in arriving at the

voting requirement to have a valid corporate act?
It depends.
Section 6 last par. If it falls within the penultimate par.

Of section 6
Five requisites of a valid meeting
1.
It must be held on the date fixed in the by-laws or in

accordance with law
Corporation can do only such things as the law allows

it to do, DOCTRINE OF LIMITED CAPACITY
San Miguel office located in Ortigas Center. May

stockholders meeting be held in PICC center?
YES. Metro Manila, one single city
Must be called by the proper party
Who calls?
2.
Prior notice must be given
President until and unless there is a provision ,

secretary on order of the president
3.
It must be held at he proper place
What if there is nobody who can call?
4.
It must be called by the proper party
5.
Quorum and voting requirements must be met
The petitioner, stockholder may petition the court
What if there is a person who can call, but he fails or

neglects to call the meeting? May a stockholder
petition to authorize a meeting?
Date not complied with, notice, place, not complied

with and the person who called not authorized, what
happens to any resolution called?
Ponce case only applies when there is NO person

authorized to call the meeting. If there is a person, but
neglects his duty. Ponce will not apply.
Writ of injunction may never be issued ex parte
Is there any exception?
Section 28 only instance

Section 28. Removal of directors or
trustees. - Any director or trustee of a corporation may
be removed from office by a vote of the stockholders
holding or representing at least two-thirds (2/3) of the
outstanding capital stock, or if the corporation be a
non-stock corporation, by a vote of at least two-thirds
(2/3) of the members entitled to vote: Provided, That
such removal shall take place either at a regular
meeting of the corporation or at a special meeting
called for the purpose, and in either case, after
previous notice to stockholders or members of the
corporation of the intention to propose such removal
at the meeting. A special meeting of the stockholders
or members of a corporation for the purpose of
removal of directors or trustees, or any of them, must
be called by the secretary on order of the president or
on the written demand of the stockholders
representing or holding at least a majority of the
outstanding capital stock, or, if it be a non-stock
corporation, on the written demand of a majority of
the members entitled to vote. Should the secretary fail
or refuse to call the special meeting upon such
demand or fail or refuse to give the notice, or if there
is no secretary, the call for the meeting may be
addressed directly to the stockholders or members by
any stockholder or member of the corporation signing
the demand. Notice of the time and place of such
meeting, as well as of the intention to propose such
removal, must be given by publication or by written
notice prescribed in this Code. Removal may be with
or without cause: Provided, That removal without
cause may not be used to deprive minority
stockholders or members of the right of representation
to which they may be entitled under Section 24 of this
Code. (n)
Section 51, any meeting shall be valid provided all the

stockholders are present or duly represented and
provided it is within the power of the corporation. 3RD
paragraph of 324
If the voting requirement is met, any resolution passed
in the meeting, even if improperly held or called will be
valid if all the stockholders or members are present or
duly represented thereat. The last paragraph of
section 51 is clear on the matter when it provides:
all proceedings had and any business
transacted
at
any
meeting
of
the
stockholders or members, if within the
powers or authority of the corporation, shall
be valid even if the meeting be improperly
held or called, provided all the stockholders
or members of the corporation are present
or duly represented at the meeting.
Directors/trustees meeting
Regular (monthly) and special (anytime)
May that be restricted (within or outside the Phil)
YES. unless the by-laws provide otherwise.
Is there any notice requirement?
YES. 1 day unless otherwise provided by the by-laws
What happens if notice is not complied with?
If the notice requirement is not complied with the

meeting is illegal and will not bind the corporation
except when subsequently ratified or in the case of a
close corporation where the act of any one director
may bind the corporation even without a meeting
under the special provision of Section 101 of the Code.
Can notice be waived? <sec.53>
Cases of removal or ouster of a director

Section 53. Regular and special meetings
of directors or trustees. - Regular meetings of the

33
board of directors or trustees of every corporation

shall be held monthly, unless the by-laws provide
otherwise.
However this right is not always inherent, because it

may be denied:
1.
Redeemable and preferred shares, however if

founders shares are issued others may be denied
the right to vote.
2.
May be denied by the articles of incorporation or

contracts
Special meetings of the board of directors or

trustees may be held at any time upon the call of the
president or as provided in the by-laws.
Meetings of directors or trustees of
corporations may be held anywhere in or outside of
the Philippines, unless the by-laws provide otherwise.
Notice of regular or special meetings stating the date,
time and place of the meeting must be sent to every
director or trustee at least one (1) day prior to the
scheduled meeting, unless otherwise provided by the
by-laws. A director or trustee may waive this
requirement, either expressly or impliedly. (n)
-
YES. Expressly and impliedly
SEC ruling
A special meeting is valid without notice
where the directors are all present or where
they consent to the meeting. Presence at
the meeting waives the want of notice.
Moreover, it has been ruled that the meeting
of the directors without a formal call first
being had, and notice thereof given to the
members, did not operate to invalidate it or
to render the proceedings which were taken
at it void, for every member of the board
were present, and their joint action had
completely bound the corporation as if the
meeting has been called with due formality,
and everyone of the directors had received
proper notice.
What is the quorum and voting requirement in the

directors meeting?
Majority of the members of the board of directors

(entire membership)
Vote required to pass a valid corporate act?
Majority of those present at which there is a quorum (3

present, vote of 2 sufficient)
Exception, majority of all the members of the board in

case of election of corporate officers, unless the
articles provide for a greater quorum or voting
requirement
Should the director or trustees be physically present?
General rule, must sit and act as a body to have a

valid corporate act
Five man member board, a meeting was called today,

should the physical presence or warm bodies requires
to constitute a quorum?
NO. it is not required. Teleconference or video

conference is allowed, E- commerce law
Membership subject to laws
Stockholder not yet
May director vote by proxy?
NO
If A is a director and a meeting is called for the

purpose of electing a new set of BOD can A vote by
proxy?
YES. Because it is a stockholders meeting
If directors meeting, cannot vote by proxy
Stockholders right to vote
Inherent in stock ownership

When not denied they may do so in person or by proxy
May the right to vote by proxy be denied?
May the articles of incorporation deny?
May the by-laws validly provide that proxy voting is

not allowed?
NO
Only non-stock may be denied proxy voting (may be

broaden, limited or denied)
Proxy voting is a matter of right granted by law
Requirements of a valid proxy?
Section 58
Section 58. Proxies. - Stockholders and
members may vote in person or by proxy in all
meetings of stockholders or members. Proxies shall in
writing, signed by the stockholder or member and filed
before the scheduled meeting with the corporate
secretary. Unless otherwise provided in the proxy, it
shall be valid only for the meeting for which it is
intended. No proxy shall be valid and effective for a
period longer than five (5) years at any one time. (n)
How long may a proxy exist?
Maximum of 5 years
Valid for the meeting in which it is intended
Is proxy revocable?
Generally revocable, unless coupled with interest
Revocation
A proxy, like agency in general is revocable unless

coupled with an interest and revocation need not be
made by formal notice in writing. Revocation may be
expressed to the proxy holder, to the election
committee, by a subsequent proxy to another or by
sale of the shares. Thus it may be revoke orally by
conduct such that appearing and asserting the right to
vote at a meeting by the registered owner of the
shares revokes a proxy previously given.
Must be submitted to a validation committee
By-laws of non-stock corporations may deny proxy

voting
What is voting trust agreement?
One created by an agreement between a group of

stockholders of a corporation and a trustee, or a group
of
identical
agreements
between
individual
stockholders and a common trustee, whereby it is
provided that for a term o years or for a period
contingent upon a certain event, or until the
agreement is terminated, control over the stock owned
by such stockholders, shall be lodged in the trustee,
either with or without reservation to the owners or
persons designated by them the power to direct how
such control shall be issued.
It is a devise of binding stockholders to vote as a unit

and thus assuring a desirable stability and continuity
in management in situations where it is needed.
34
What is the effect of a voting trust agreement relative

to the rights?
Being still the beneficial owner they may transfer

these rights
Lee vs. CA must pass these criteria
Is the right granted to a voting trust agreement

absolute? (to inspect)
1.
That the voting rights of the stock are separated from

the other attributes of ownership;
NO.
2.
That the voting rights granted are intended to be

irrevocable for a definite period of time; and,
3.
That the principal purpose of the grant of voting rights

is to acquire voting control of the corporation.
During the duration of the trust they are irrevocable

unless there is a violation either by fraud
The voting trust agreement filed with the corporation

shall be subject to examination by any stockholder of
the corporation in the same manner as any other
corporate book or record. Provided, that both the
transfer and the trustee or trustees may exercise the
right of inspection of all corporate books and records
in accordance with the provisions of this Code.
Legal title is transferred to the voting trustee
May the voting trustee vote by proxy?
Yes, legal owner may vote by proxy
May the proxy holder vote by proxy?
NO, (AGENT) an agent can have no other agent unless

specifically allowed by the principal
Stockholder executing as a proxy, is he qualified to be

voted as a director?
Why is he qualified to act as a director if the

stockholder executes as a director?
The beneficial owner of the shares in a voting trust is

disqualified to be a director in a voting trust whereas
in a proxy, the owner of the shares may be elected as
such since legal title thereof remains with him
Requisites
Section 59
Section 59. Voting trusts. - One or more
stockholders of a stock corporation may create a
voting trust for the purpose of conferring upon a
trustee or trustees the right to vote and other rights
pertaining to the shares for a period not exceeding five
(5) years at any time: Provided, That in the case of a
voting trust specifically required as a condition in a
loan agreement, said voting trust may be for a period
exceeding five (5) years but shall automatically expire
upon full payment of the loan. A voting trust
agreement must be in writing and notarized, and shall
specify the terms and conditions thereof. A certified
copy of such agreement shall be filed with the
corporation and with the Securities and Exchange
Commission; otherwise, said agreement is ineffective
and unenforceable. The certificate or certificates of
stock covered by the voting trust agreement shall be
cancelled and new ones shall be issued in the name of
the trustee or trustees stating that they are issued
pursuant to said agreement. In the books of the
corporation, it shall be noted that the transfer in the
name of the trustee or trustees is made pursuant to
said voting trust agreement.
The trustee or trustees shall execute and
deliver to the transferors voting trust certificates,
which shall be transferable in the same manner and
with the same effect as certificates of stock.
The voting trust agreement filed with the
corporation shall be subject to examination by any
stockholder of the corporation in the same manner as
any other corporate book or record: Provided, That
both the transferor and the trustee or trustees may
exercise the right of inspection of all corporate books
and records in accordance with the provisions of this
Code.
Any other stockholder may transfer his
shares to the same trustee or trustees upon the terms
and conditions stated in the voting trust agreement,
and thereupon shall be bound by all the provisions of
said agreement.
No voting trust agreement shall be entered
into for the purpose of circumventing the law against
monopolies and illegal combinations in restraint of
trade or used for purposes of fraud.
Unless expressly renewed, all rights granted
in a voting trust agreement shall automatically expire
at the end of the agreed period, and the voting trust
certificates as well as the certificates of stock in the
name of the trustee or trustees shall thereby be
deemed cancelled and new certificates of stock shall
be reissued in the name of the transferors.
The voting trustee or trustees may vote by
proxy unless the agreement provides otherwise. (36a)
Does it need to be notarized?
Yes, otherwise it is ineffective and unenforceable
Only legal ownership is transferred
Is the stockholder executing in a voting

agreement, is he qualified to act as a director?
NO. ceases to be stockholder of record, no longer the

legal owner of shares
May the corporation enforce the voting

agreements executed by its stockholders?
NO. NIDC vs. AQUINO
Not a privy to the contract
Rights liabilities of a stockholder are there in their

individual capacity- corporate entity theory
Voting trust agreements
Normally executed in favor of banking and financial

institutions
So that they can vote a certain set of directors
They will be more secured
Voting pull agreement
Enters into an agreement
Pull all their shares to cast one vote
Covered by rules governing contracts
By pulling their votes they can decline the resolution

passed by the board
END OF MIDTERMS
STOCKS AND STOCKHOLDERS

YES he remains to be the owner
3 modes
trust
trust
35
1.
By a contract of subscription with the corporation;
2.
By purchase of treasury shares from the corporation;

and,
3.
By purchase or acquisition of shares from existing

stockholders.
Section 60 subscription
Any contract
Whether existing or still to be formed
Section 60. Subscription contract. - Any contract for

the acquisition of unissued stock in an existing corporation
or a corporation still to be formed shall be deemed a
subscription
within
the
meaning
of
this
Title,
notwithstanding the fact that the parties refer to it as a
purchase or some other contract. (n)
2nd example galling sa treasury shares hindi sa

unissued share
NO such thing as purchase of unissued stocks
A subscription contract can be conditional provided

there is nothing in the charter or statute prohibiting it
and not against public order, law, etc.
Must it be in writing?
NO, it may be oral
5M should it be in writing to be valid and binding as a

subscription?
NO, statutes of frauds only applies to SALES
Trillana vs. Quezon College
Counter proposal, therefore there was a need for an

acceptance
Under the old law the 4th mode is PURCHASE
Purchase
Reciprocal in nature
Facultative because it is in his own free will, it is void
Purchaser can neither require the issuance
What may be used as a consideration and how much

should be the consideration?
Section 62 provides:
Xco. Inc.
P
Authorized capital
Section 62. Consideration for stocks. Stocks shall not be issued for a consideration less than
the par or issued price thereof. Consideration for the
issuance of stock may be any or a combination of any
two or more of the following:
1M
500
SUBSCRIBED
500
UNISSUED STOCKS (AS LONG AS GALING DITO)
1. Actual cash paid to the corporation;

2. Property, tangible or intangible, actually received by
the corporation and necessary or convenient for its
use and lawful purposes at a fair valuation equal to the
par or issued value of the stock issued;
Z wants to acquire 100K

Entered in June 50% shall be down payment remainder
December 08
o
3. Labor performed for or services actually rendered to

the corporation;
he will not be considered a stockholder unless he has

paid in full
4. Previously incurred indebtedness of the corporation;
August 08 property is ravaged by fire all are turned into shares
Is Z liable to pay the balance of his acquisitions?
YES, no matter how the party refer to it, it is

considered subscription
5. Amounts transferred from unrestricted retained

earnings to stated capital; and
6. Outstanding shares exchanged for stocks in the
event of reclassification or conversion.
Once you subscribe, you become a stockholder which

is entitled to all the liabilities of a stockholder
Where the consideration is other than actual

cash, or consists of intangible property such as patents
of copyrights, the valuation thereof shall initially be
determined by the incorporators or the board of
directors, subject to approval by the Securities and
Exchange Commission.
Z- subscribed to 100T/S of XCo.

Amount he paid 50k
Z did not pay on the date called and was declared a delinquent
share
Corporation paid 100T/S therefore the corporation

reacquired the shares again, what are they called?
Treasury shares
Shares of stock shall not be issued in

exchange for promissory notes or future service.
The same considerations provided for in this
section, insofar as they may be applicable, may be
used for the issuance of bonds by the corporation.
The issued price of no-par value shares may
be fixed in the articles of incorporation or by the board
of directors pursuant to authority conferred upon it by
the articles of incorporation or the by-laws, or in the
absence thereof, by the stockholders representing at
least a majority of the outstanding capital stock at a
meeting duly called for the purpose. (5 and 16)
Y- 80T/S DECEMBER 08
40 % (AUGUST) WAS DESTROYED BY FIRE, IS HE STILL LIABLE TO
PAY THE UNPAID PORTION?
IT WAS AGREED THAT IT WAS A PURCHASE AND WILL

BE A STOCKHOLDER ONLY IF PAID IN FULL IS HE
LIABLE?
NO, because that was a purchase
First example galing sa unissued stock

Amounts transferred from unrestricted retained

earnings to stated capital what does it mean?
Stock dividends will in effect capitalize the unrestricted

retained earnings
36
After 5 years the founders shares may be converted

into common shares or other kinds of shares
May shares of stocks be issued without consideration?
Why?
NO, two reasons by the SC, discriminatory against
other stockholders and second unlawful, it prejudices
the right of the creditors Trust Fund Doctrine
If issued without a consideration
Section 65, they will be considered as watered stocks

Section 65. Liability of directors for
watered stocks. - Any director or officer of a
corporation consenting to the issuance of stocks for a
consideration less than its par or issued value or for a
consideration in any form other than cash, valued in
excess of its fair value, or who, having knowledge
thereof, does not forthwith express his objection in
writing and file the same with the corporate secretary,
shall be solidarily, liable with the stockholder
concerned to the corporation and its creditors for the
difference between the fair value received at the time
of issuance of the stock and the par or issued value of
the same. (n)
Subscribers may be compelled to pay the value
Issuance of a certificate of stock is another thing
What are the requisites for the issuance of a valid

certificate of stock?
1.
2.
B stole and forged the signature

C is purchaser in good faith and for value will C acquire title
It must be signed by the president or vice-president

and countersigned by the secretary or assistant
secretary;
Endorsement from
When issued by owner
Endorsed by owner- strict compliance
ANSWER: a certificate of stock is not regarded as negotiable in

the same sense that a bill or note is negotiable, even if it is
endorsed in blank. Thus, while it may be transferred by
endorsement coupled with delivery thereof, and therefore
merely quasi-negotiable, it is nonetheless non-negotiable in that
the transferees takes it without prejudice to all the rights and
defenses which the true and lawful owner may have except in so
far as the principles governing estoppels may apply.
He acquired it by virtue of a forged instrument; no matter how
innocent the purchaser is because it is subject to all the rights
and defenses
What if A endorsed it?
He is estopped, unless there are other available

defenses
Transfer is required to be recorded in the books of the

corporation, however even if not recorded, it will be
valid between the parties. Non-registration will not
however, affect the validity thereof at least in so far as
the contracting parties are concerned.
It must be sealed with the corporate seal; and the

entire value thereof (together with interest or
expenses, if any) should have been paid.
Section 63. Certificate of stock and

transfer of shares. - The capital stock of stock
corporations shall be divided into shares for which
certificates signed by the president or vice president,
countersigned by the secretary or assistant secretary,
and sealed with the seal of the corporation shall be
issued in accordance with the by-laws. Shares of stock
so issued are personal property and may be
transferred by delivery of the certificate or certificates
indorsed by the owner or his attorney-in-fact or other
person legally authorized to make the transfer. No
transfer, however, shall be valid, except as between
the parties, until the transfer is recorded in the books
of the corporation showing the names of the parties to
the transaction, the date of the transfer, the number of
the certificate or certificates and the number of shares
transferred.
While it appears, that a subscriber to shares of stock

cannot be entitled to the issuance of a certificate of
stock until the full amount of his subscription together
with interest and expenses (in case of delinquent
shares) if any is due, has been paid, a subscriber to
shares of stock, even if not yet fully paid, is entitled to
exercise all the rights of a stockholder and the
corresponding liability that attach thereunder. Thus,
the Code provides:
Section 72. Rights of unpaid shares. Holders of subscribed shares not fully paid which are
not delinquent shall have all the rights of a
stockholder. (n)
Is the issuance of a certificate of stock necessary to

consider the subscriber a stockholder?
NO, shall be considered a stockholder even without a

certificate of stock
Instances when he may not be able to exercise his

rights as such stockholder
Declared delinquent
When he exercises his appraisal right
Are certificate of stocks transferrable?
YES
Are certificate of stocks considered negotiable?
Quasi-negotiable
Why are they considered quasi-negotiable when it may

be transferred through endorsement and delivery?
No shares of stock against which the

corporation holds any unpaid claim shall be
transferable in the books of the corporation. (35)
100t/s
10/s
001

Abc co.
Until registration is accomplished, the transfer,

though valid between the parties, cannot be effective
as against the corporation. Thus the, unrecorded
transfer cannot enjoy the status of a stockholder; he
cannot vote nor be voted for, and he will not be
entitled to dividends. The corporation will be protected
when it pays dividend to the registered owner despite
a previous transfer of which it had no knowledge. The
purpose of registration therefore is twofold: to enable
the transferee to exercise all the rights of a
stockholder and to inform the corporation of any
change in shares ownership so that it can ascertain
the persons entitled to the rights and subject to the
liabilities of a stockholder.
Thus, it was also ruled by the High Court in
Nautica Canning Corp. vs. Yumul that A
transfer of shares not recorded in the stock
and transfer book of the corporation is nonexistent in so far as the corporation is
concerned. This is so because the
corporation looks only through its books for
37
the purpose of
stockholders are.
determining
who
its
Register of deeds where the corporation resides and if

different in the register of deeds of owners domicile
Unson vs. Dinamito
All transferred not register will not have a valid force

and effect
Registration is necessary for the following:
1.
To enable the
stockholders are;
2.
To enable the transferee to exercise his rights a s

stockholders;
Right to transfer may be regulated
3.
To afford the corporation an opportunity to object or

refuse registration of the transfer in case allowed by
law;
May not be unreasonably restricted
Violation of nationalization law- Central Bank
4.
To avoid fictitious and fraudulent transfers; and,
Lambert vs. Fox
5.
To protect creditors who have the right to look upon

stockholders, in case of no-payment or watered
shares, for the satisfaction of their claims.
Valid , may be reasonably regulated, restricted by

agreement of parties
Reasonable agreement by the parties
Duty of the secretary is ministerial, hence mandamus

will lie if the secretary refuses to record the transfer,
but he cannot be compelled when the transferees title
to the said shares has no prima facie validity or
uncertain
Reasonable as to length of time
Padgett vs. Babcock
Any attempt to restrain transfer
SC, in the absence of a valid lien upon its shares
Valid restrictions shares are applicable
Any restriction on a stockholders right to dispose of

his shares must be construed strictly; and any attempt
to restrain a transfer of shares is regarded as being in
restraint of trade, in the absence of a valid lien upon
its shares, and except to the extent that valid
restrictive regulations and agreements exist and are
applicable. Subject only to such restrictions, a
stockholder cannot be controlled in or restrained from
exercising his right to transfer by the corporation or its
officers or by other stockholders, even though the sale
is to a competitor of the company, or to an insolvent
person, or even though a controlling interest is sold to
one purchaser.
Certificate of stocks are transferrable
By endorsement and delivery of the stock certificate to

the transferee
In order to be valid, must be registered in the books. If

not, will only be binding among parties
How may shares of stock be transferred?
corporation
to
know
who
its
Transfer- absolute and unconditional transfer to

warrant registration in the books of the corporation in
order to bind the latter and other third persons.
Other restrictions on the right to transfer shares would
include:
1.
It is not valid, except as between the parties, until

recorded in the books of the corporation;
2.
Shares of stock against which the corporation holds

any unpaid claim shall not be transferable in the books
of the corporation; unpaid claims, refer to claims
arising from unpaid subscription and not to any
indebtedness which a stockholder may owe the
corporation such as monthly dues;
3.
Restrictions required to be indicated in the articles of

incorporation, by-laws and stock certificates of a close
corporation;
4.
5.
Restrictions imposed by special law, such as the Public

Service Act requiring the approval of the government
agency concerned if it will vest unto the transferee
40% of the capital of the public service company;
Sale to aliens in violation of maximum ownership of
shares under the Nationalization Laws;
6.
Those covered by reasonable agreement of the

parties.
Endorsement of stock certificate by owner or attorneyin-fact with delivery
Monserat vs. Ceron
Embassy farms vs. CA
Does it include mortgage?
NO, it is not an absolute transfer
Must be endorsed by owner or attorney-in-fact coupled

with delivery
Will not affect the transfer through mortgage
Endorsed not delivered
Absolute and unconditional transfer
Proper mode and manner must be complied with
Only the transfer or absolute conveyance of the

ownership of the title to a share need be entered and
noted upon the books of the corporation in order that
such transfer may be valid, therefore, inasmuch as a
chattel mortgage of the aforesaid title is not a
complete and absolute alienation of the dominion and
ownership thereof, its entry and notation upon the
books of the corporation is not necessary requisite to
its validity
Razon vs. IAC
Delivered not endorsed
Reverse of Embassy Farms
Endorsement alone is not sufficient nor delivery

without endorsement is not allowed
Endorsement plus delivery is mandatory
Is there any other mode of transferring stock?
Notarized deed
Deed of assignment
Chua guan vs. Magsasaka
Was the mortgage valid and effective as against

subsequent third parties

38
Rural bank of Salinas vs. CA
Valid between contracting parties even if not recorded

in corporation books
If denied or refused without good cause, mandamus

will lie
Right accrues only if refused
Tay vs. CA
Statute of limitations does not apply in registration of

shares of stock
Mandamus may issue if petition has a clear legal right
Must determined from the time of refusal
Never issued in doubtful cases
Petitioner failed to establish a clear legal right and

alleged ownership is without merit
Why are they non-negotiable when they may be

transferred?
Did not acquire ownership by virtue of the contract of

pledge
In a contract of pledge there must be foreclosure
Transferees pays it without prejudice to all the rights

and defenses as the true and lawful owner may have
under the law except insofar as such rights and
defenses are subject to the limitations imposed by the
principles governing estoppels
In the case there was no attempt to foreclose
De los Santos vs. Republic
Petitioner must have a prima facie right
Nava vs. Peers Marketing
Why is he, not considered as the owner of shares?

When it has been said that when endorsed by the
owner it is considered as strict certificate? Because
certificate of stocks are non-negotiable
A stock subscription is a subsisting liability from the

time the subscription is made
The subscriber is as much bound to pay

subscription as he would be to pay any other debt
No stock certificate was issued. Without stock

certificate, which is the evidence of ownership of
corporate stock, the assignment of corporate shares is
effective only between the parties to the transaction
Although a stock-certificate is sometimes regarded as

quasi-negotiable, in the sense that it may be
transferred by endorsement, coupled with delivery, it
is well settled that the instrument is non-negotiable,
because the holder thereof takes it without prejudice
to such rights or defenses as the registered owner or
creditor may have under the law, except insofar as
such rights or defenses are subject to the limitations
imposes by the principles governing estoppels.
Exception to the general rule
Unauthorized issuance of stock certificates
Rural Bank of Lipa vs. CA
By notarized deed
his
100/s
100
Certificate of stocks already issued must be coupled

with delivery, exception (TAN vs. SEC)
Stock certificate has already been issued it must be

coupled with the delivery
After certificate of stock is issued, may it be effectively

transferred even without endorsement or delivery of
the stock certificate?
Person sought to be a stockholder is an officer and has

custody
XYZCo
100 pesos per share
Stolen by B and forged the signature of A
B sells to C will C acquire title? NO
ENDORSEMENT FORM
Endorsement and delivery is not necessary (TAN vs.

SEC)
C armed with the endorsement form certificate, sold to

D (innocent purchaser for value), will D acquire title?
Tan vs. SEC (FULL KNOWLEDGE, HE IS ESTOPPED)
NO, subject to such rights and defenses as the true and

lawful owner may have
Persons sought to be stockholder is officer and has

custody of the book (estopped)
What if C now goes to the corporation and presents the

form?
General Rule for valid transfer
Certificate of stock must be endorsed by owner or

attorney-in-fact coupled with delivery
- Then the corporation shall cancel the old certificate and

issues a new one, now in the name of C, now
registered in the name of C, will C acquire title?
Exceptions
Section 63 uses the word may
Showing that there

transferring shares
Is there a time frame or fixed period as when transfer

can be made?
may
NO, (WON vs. WACK WACK)
Won vs. Wack Wack
be

other
modes
of
A found out what happened and goes

corporation who has a better title C or A?
to
the
- A, A cannot be deprived of his right by virtue of an

unauthorized transfer
Corporation can compel C to deliver the new stock

certificate because he made a representation that the
certificate where good.
Armed with the new certificate issued to C, C delivers

to D a purchaser in good faith and for value will D
acquire title?
39
- D will acquire title took the shares not by virtue of a

forged or unauthorized transfer, but on the reliance
that the stock certificate is valid and owned by C
the corporation may be compelled to recognize both, A

as stockholder (non-negotiable) D, reliance that the
stock certificate is valid and existing and owned by C
Forged transfers
If the corporation should issue a new certificate in

pursuance of a forged transfer, the corporation incurs
no liability to the person in whose favor it is issued and
it may demand its return for cancellation. The
corporation in such case has been guilty of no
misrepresentation. On the other hand, it is the duty of
the purchaser to determine that the indorsement of
the owner is genuine. However, if the new certificate
issued to the purchaser comes into the hands of a
bona fide purchaser for value, the corporation will be
stopped from denying validity thereof, since by issuing
such new certificate it represents that the person
named therein is a stockholder of the corporation. The
corporation is thus forced to recognize both the
original certificate and new certificate-the original,
because the true owner could not be deprived of his
title by a forged transfer, and the new, because of its
representation that the person named therein is the
owner of shares in the corporation. But if the
recognition of both stockholders would result in an
over issue of shares, then only the original and true
owner can be recognized as a stockholder. The bona
fide purchaser of the new certificate will however have
a right of damages against the corporation. The
corporation, in turn, would have a right of action
against the person who made false representations
and in whose favor it issued a new certificate. The true
owner of the shares which were wrongfully transferred
would of course have a right to compel the corporation
to issue him a certificate in lieu of the original one
which was wrongfully cancelled.
Authorized capital stock 1M shares
All are subscribed who will the corporation recognize as

rightful owner A or D? if both will be recognized there
will be over issuance
only A citing citizens national bank vs. state (but if
recognition of both stockholders would result in an
over issue of shares, then only the original and true
owner can be recognized as a stockholder)
by virtue of the doctrine of non-negotiability of

certificate of stocks
The true and lawful owner will never be deprived of his

rights
What happens to D?
- D will have a cause of action against the corporation for

the value of his acquisition cost inclusive of damages,
attorneys fees and cost of suit
D sues the corporation for the value of his acquisition

cost, inclusive of damages, attorneys fees and cost of
suit. What may the corporation do?
- NO defense, no valid defense, because it was

represented to other parties that the certificate of
stocks is valid, subsisting, etc.
A certificate of stock cannot be issued unless he fully

paid the amount subscribed
Subscription to the capital stocks of the corporation

are indivisible
Clear mandate of section 148 of the code is that the

ruling of the court in Baltazar vs. Lingayen Gulf, no
longer holds true
Section 148. Applicability to existing
corporations. - All corporations lawfully existing and
doing business in the Philippines on the date of the
effectivity of this Code and heretofore authorized,
licensed or registered by the Securities and Exchange
Commission, shall be deemed to have been
authorized, licensed or registered under the provisions
of this Code, subject to the terms and conditions of its
license, and shall be governed by the provisions
hereof: Provided, That if any such corporation is
affected by the new requirements of this Code, said
corporation shall, unless otherwise herein provided, be
given a period of not more than two (2) years from the
effectivity of this Code within which to comply with the
same. (n)
Subscription to shares of stocks are indivisible
Also apparent is that once a subscriber has paid his

subscription in full, he becomes entitled to be issued a
stock certificate and in the event that the corporation
refuses to do so, the stockholder my institute a case
for mandamus with damages. Thus, it has been said
that the duty of the corporate officers to issue stock
certificates to those entitled thereto is a ministerial
duty enforceable by mandamus.
Fua Cun vs. Summers and China Banking Corp.
The court erred in holding the plaintiff as the owner of

250 shares of stock; the plaintiffs rights consist in
equity in 500 shares and upon payment of the unpaid
portion of the subscription price he becomes entitled
to the issuance of certificate for said 500 shares in his
favor.
No certificate of stock until the full amount has been

paid.
Watered stock
One which is issued by the corporation as fully paid-up

shares, when in fact the whole amount of the value
thereof has not been paid.
Basis is par value and not the fair market value
Section 62 states that stocks shall not be issued for a

consideration less than par or issued price thereof,
while section 13 states that in no case shall be paid-up
capital be less than five thousand [P5000] pesos.
If issued below par, issued value considered as water
How may watered stocks be issued?
1.
For a monetary consideration less than its par or

issued value;
2.
For a consideration in property, tangible or intangible,

valued in excess of its fair market value;
3.
Gratuitously or under an agreement that nothing shall

be paid at all; or
4.
In the guise of stock dividends when there are no

surplus profits of the corporation.
2nd situation, what cause of action may the corporation

have? Remedy?
Third party complaint against C, but what if he is a
purchaser for value? 4th party claim against B
When may certificate of stocks be issued?

Section 64. Issuance of stock certificates. No certificate of stock shall be issued to a subscriber
until the full amount of his subscription together with
interest and expenses (in case of delinquent shares), if
any is due, has been paid. (37)
Stock certificate now in possession of D. A knew of

what happened and went to the corporation and
complains. Who will have a better title?
40
Why is stock watering illegal?
Those having knowledge thereof, but did not interpose

their objection shall be liable
1.
The corporation is deprived of its capital thereby

hurting its business prospects, financial capability and
responsibility;
2.
Stockholders who paid their subscriptions in full, or

promised to pay the same, are injured and prejudiced
by the reduction of their proportionate interest in the
corporation; and,
3.
Present and future creditors are deprived of the

corporate assets for the protection of their interest.
Corporation is prejudiced
Stockholders, dilution of interest
Creditors are prejudiced, virtue of right to look upon

corporations properties for the satisfaction of their
claims
What is the effect of issuance of watered stocks
1.
As to the corporation - when a corporation is guilty of

ultra-vires or illegal acts which constitute an injury to
or fraud upon the public, or which will tend to injure or
defraud the public, the State may institute a quowarranto proceeding to forfeit its charter for the
misuse or abuse of its franchise.
Section 65. Liability of directors for

watered stocks. - Any director or officer of a
corporation consenting to the issuance of stocks for a
consideration less than its par or issued value or for a
consideration in any form other than cash, valued in
excess of its fair value, or who, having knowledge
thereof, does not forthwith express his objection in
writing and file the same with the corporate secretary,
shall be solidarily, liable with the stockholder
concerned to the corporation and its creditors for the
difference between the fair value received at the time
of issuance of the stock and the par or issued value of
the same. (n)
ACS-100M
1.00
100M/S
SUBSCRIBED-50M
12.00/S
PAR
FAIR
MARKET
VALUE-
VALUE-
UNSUBSCRIBED-50M
A
B
C
2.
As between the corporation and the subscriber- The

subscription is void. Such being the case, the
subscriber is liable to pay the full par or issued value
thereof, to render it valid and effective.
3.
As to the consenting stockholders - They are stopped

from raising any objection thereto;
4.
As to dissenting stockholders - In view of the dilution

of their proportionate interest in the corporation, they
may compel the payment of the water in the stock
solidarily against the responsible and consenting
directors and officers inclusive of the holder of the
watered stocks;
5.
6.
As to creditors - They may enforce payment of the

difference in the price, or the water in the stock,
solidarily against the responsible directors/officers and
the stockholders concerned; and
As against transferees of the watered stock His right
is the same as that of his transferor. If, however, a
certificate of stock has been issued and duly indorsed
to a bona fide purchaser, without knowledge, actual or
constructive, the latter cannot be held liable, at least
as against the corporation, since he took the shares on
reliance of the misrepresentation made by the
corporation that the stock certificate is valid and
subsisting. This is because a corporation is prohibited
from issuing certificates of stock until the full value of
the subscriptions have been paid and could not,
therefore, deny the validity of the stock certificate it
issued as against a purchaser in good faith. Thus,
Ballentine states that whether there is any liability on
the part of the transferee of watered stock is made to
depend upon whether he acquired the same without
notice, either as purchaser or donee. If he had
knowledge thereof, he is subject to the same liability
as his transferor.
What is the nature of the liability of the corporate

directors consenting to the issuance of watered stocks
and the extent of their liabilities?
Solidarily liable with the holder of the watered stocks

to the extent of the water from said shares of stocks
Will all the directors be liable? What if you objected

will you also be liable?
If you do not issue a written objection, you are still

liable
Even passive directors may be liable

D
E
There is a denial of pre-emptive rights and directors
A,B,C,D,E decided to issue the remaining 50M and
subscribed for 10M each at 2 per share.
Is there stock watering if the fair market value is

12.00?
No stock watering
The basis is the par value
The shares where in fact paid more than the par value
indicated in the articles of incorporation
3 days later they sold their 10M share for P11.00 each,
therefore making a profit.
Can you question there actuations? What would be the

cause of action?
It may be questioned.
Duty of loyalty or fiduciary duty as such directors
They cannot advance their own motives to the

damage prejudice of the corporation which they
represents and stockholders as a whole instead of it
being sold outside
500M would have gone to the coffers of the

corporation, 500M should be there for the protection of
creditors
They are placed in a fiduciary relationship
Sila lang ba ang kikita, pano naman yung corporation,

opportunity na yun para kumita
When are unpaid subscriptions due and payable?
Section 67. Payment of balance of subscription. Subject to the provisions of the contract of
subscription, the board of directors of any stock
corporation may at any time declare due and payable
to the corporation unpaid subscriptions to the capital
stock and may collect the same or such percentage
thereof, in either case with accrued interest, if any, as
it may deem necessary.
41
Payment of any unpaid subscription or any percentage

thereof, together with the interest accrued, if any,
shall be made on the date specified in the contract of
subscription or on the date stated in the call made by
the board. Failure to pay on such date shall render the
entire balance due and payable and shall make the
stockholder liable for interest at the legal rate on such
balance, unless a different rate of interest is provided
in the by-laws, computed from such date until full
payment. If within thirty (30) days from the said date
no payment is made, all stocks covered by said
subscription shall thereupon become delinquent and
shall be subject to sale as hereinafter provided, unless
the board of directors orders otherwise. (38)
Remedies of the corporation to enforce payment of

unpaid subscription
1.
By board action in accordance with the procedure laid

down in sections 67 to 69 of the code
By a collection case in court as provided for in section
70
of this Code, bid for the same, and the total amount
due shall be credited as paid in full in the books of the
corporation. Title to all the shares of stock covered by
the subscription shall be vested in the corporation as
treasury shares and may be disposed of by said
corporation in accordance with the provisions of this
Code. (39a-46a)
Who is the winning bidder in a delinquency sale?
Bidder who shall offer to pay the full amount of the

balance on the subscription together with accrued
interest, cost of advertisement and expenses of sale,
for the smallest number of shares or fraction of a
share.
X Co. has 1M authorized capital stock
2.
A subscribed to 100 thousand shares, 50 thousand is

already paid leaving 50 thousand unpaid
Are subscribers of shares of stocks not fully paid, liable

to pay interest?
The corporation is at a loss of 250 thousand, the board

decides to make a call for the payment of the unpaid
subscriptions, however A could not paid, hence
declared delinquent and decides to sell his share at a
public auction
General rule is they are not liable to pay interest

because the code says unless requires in the by-laws
Aside from the mandate of the law that subscribers to
shares of stock must pay the full value of their
subscription, they may likewise be required to pay
interest on all unpaid subscriptions if so imposed in the
contract or in the corporate by-laws at such rate as
may be indicated thereat or the legal rate if not so
fixed. Unless so required or provided, however,
subscribers to shares of stock, not fully paid, are not
liable to pay interest on their unpaid subscriptions. The
code thus provides:
Section
66.
Interest
on
unpaid
subscriptions. - Subscribers for stock shall pay to the
corporation interest on all unpaid subscriptions from
the date of subscription, if so required by, and at the
rate of interest fixed in the by-laws. If no rate of
interest is fixed in the by-laws, such rate shall be
deemed to be the legal rate. (37)
500 thousand is already subscribed
Until a call is made, they are not due and payable, but
still subject to the provisions of the contracts
Procedures in case of sale of delinquent stocks
55 thousand is to be paid, remaining balance plus cost

and expenses
BIDDERS:
X-55K FOR 99,900 shares
Y-55K FOR 99,500 shares
Z-55K FOR 99,000 shares (winning bidder)
Assume there is no bidder, may the corporation bid?
NO. It cannot bid because the law says, subject to the

provisions of this CODE. Section 68 and 41 should be
reconciled. Section 68 states that:
Should there be no bidder at the public
auction who offers to pay the full amount of the
interest, costs of advertisement and expenses of sale,
share, the corporation may, subject to the
provisions of this Code, bid for the same, and the
total amount due shall be credited as paid in full in the
books of the corporation. Title to all the shares of stock
covered by the subscription shall be vested in the
corporation as treasury shares and may be disposed of
by said corporation in accordance with the provisions
of this Code. (39a-46a)
Section 68. Delinquency sale. - The board of directors

may, by resolution, order the sale of delinquent stock
and shall specifically state the amount due on each
subscription plus all accrued interest, and the date,
time and place of the sale which shall not be less than
thirty (30) days nor more than sixty (60) days from the
date the stocks become delinquent.
Notice of said sale, with a copy of the
resolution, shall be sent to every delinquent
stockholder either personally or by registered mail.
The same shall furthermore be published once a week
for two (2) consecutive weeks in a newspaper of
general circulation in the province or city where the
principal office of the corporation is located.
Unless the delinquent stockholder pays to
the corporation, on or before the date specified for the
sale of the delinquent stock, the balance due on his
subscription,
plus
accrued
interest,
costs
of
advertisement and expenses of sale, or unless the
board of directors otherwise orders, said delinquent
stock shall be sold at public auction to such bidder
who shall offer to pay the full amount of the balance
on the subscription together with accrued interest,
costs of advertisement and expenses of sale, for the
smallest number of shares or fraction of a share. The
stock so purchased shall be transferred to such
purchaser in the books of the corporation and a
certificate for such stock shall be issued in his favor.
The remaining shares, if any, shall be credited in favor
of the delinquent stockholder who shall likewise be
entitled to the issuance of a certificate of stock
covering such shares.
Should there be no bidder at the public
auction who offers to pay the full amount of the
interest, costs of advertisement and expenses of sale,
share, the corporation may, subject to the provisions

There was no unrestricted retained earnings in the

example given therefore the corporation cannot bid ,
section 41, it states that:
Section 41. Power to acquire own shares. A stock corporation shall have the power to purchase
or acquire its own shares for a legitimate corporate
purpose or purposes, including but not limited to the
following cases: Provided, That the corporation has
unrestricted retained earnings in its books to
cover the shares to be purchased or acquired:
1. To eliminate fractional shares arising out of stock
dividends;
2. To collect or compromise an indebtedness to the
corporation, arising out of unpaid subscription, in a
delinquency sale, and to purchase delinquent shares
sold during said sale; and
3. To pay dissenting or withdrawing stockholders
entitled to payment for their shares under the
provisions of this Code. (a)
42
What if the shares of A were sold without compliance

of the requirements? May A question the sale?
The law prescribes two conditions before an action to

recover delinquent stocks irregularly sold may be
allowed. These are:
1.
The party seeking to maintain such action first pays or

tenders to the party holding the stock the sum for
which the same was sold, with interest from the date
of the sale at the legal rate; and,
The action shall be commenced by the filing of a
complaint within six months from the date of the sale.
2.
The reason for such is the stability of transactions of

the shares of stock
Suppose in the example, since there are no

unrestricted retained earnings, hence the corporation
cannot bid, is the corporation left without any
recourse?
stock subscription in order to realize assets for the

payment of its debts.
A corporation has no power to release an original
subscriber to its capital stock from the obligation of
paying for his shares, without a valuable consideration
for such release; and as against creditors a reduction
of the capital stock can take place only in the manner
and under the conditions prescribed by the statute or
the charter or the articles of incorporation.
Edward Keller and Co. vs. COB
May the stockholder be held liable for the debts of the

corporation? YES. To the extent of their unpaid
subscription
As to the liability of the stockholders, it is settled that
a stockholder is personally liable for the financial
obligations of a corporation to the extent of his unpaid
subscriptions
Is there a prescriptive period wherein a demand for

unpaid subscription should be made?
Section 70. Court action to recover unpaid

subscription. - Nothing in this Code shall prevent the
corporation from collecting by action in a court of
proper jurisdiction the amount due on any unpaid
subscription, with accrued interest, costs and
expenses. (49a)
NO. Garcia vs. Suarez case
Garcia vs. Suarez
Velasco vs. Poizat
The subscriber is as much bound to pay the amount of

the share subscribed by him as he would be to pay any
other debt, and the right of the company to demand
payment is no less incontestable.
Two available remedies: the first and most special
remedy given by the statute consist in permitting the
corporation to put up the unpaid stock and dispose of
it for the account of the delinquent subscriber. The
other remedy is by action in court.
Never became due and payable until there is a call

made
Prescription will not run until and unless there is
demand
Prescription should be determined from the time
demand has been made and not from the time of
subscription
De Silva vs. Aboitiz and Co.
Discretionary on the part of the board of directors to

do whatever is provided in the said article relative to
the application of the part of the 70 percent of the
profit distributable in equal parts on the payment of
the shares subscribed to and fully paid
Lingayen Gulf vs. Baltazar
Exception: pursuant to a bona fide compromise or to

set off a debt due from the corporation, a release
supported by consideration, will be effectual as against
dissenting stockholders and subsequent and existing
creditors. A release which might originally have been
held invalid may be sustained after a considerable
lapse of time
Apocada vs. NLRC
Set-off is without any legal basis

It was premature
Unpaid subscriptions will become due and payable
only upon certain instance
Call or if there is a stipulation in contract
If no call and no stipulation in contract then it will not
be demandable or payable at all
Lumanlan vs. Cura
Trust Fund Doctrine- subscription to the capital of a

corporation constitute a fund to which the creditors
have a right to look for satisfaction of their claims and
that the assignee in insolvency can maintain an action
upon any unpaid stock subscription in order to realize
assets for the payment of its debts.
PNB vs. Bitulak
Where it not for the promise, the defendants would

have not subscribed
Trust Fund Doctrine, it is established doctrine that
subscriptions to the capital of a corporation constitute
a fund to which creditors have a right to look for
satisfaction of their claims and that the assignee in
insolvency can maintain an action upon any unpaid

If declared delinquent, what would be the effect as to

the owner of said shares?
Section 71. Effect of delinquency. - No delinquent

stock shall be voted for or be entitled to vote or to
representation at any stockholder's meeting, nor shall
the holder thereof be entitled to any of the rights of a
stockholder except the right to dividends in
accordance with the provisions of this Code, until and
unless he pays the amount due on his subscription
with accrued interest, and the costs and expenses of
advertisement, if any. (50a)
However if the shares are not delinquent, subscribers
to the capital of a corporation, though not fully paid,
are entitled to all the rights of a stockholder, according
to section 72
stockholder. (n)
May the rules governing delinquency sale apply to a

non-stock corporation? Are there unpaid shares in a
non-stock corporation?
Rules governing stock corporations, when applicable,

also applies to a non-stock corporation
There are delinquent shareholders also in a non-stock
corporation. Example is membership dues
A corporation paid 50% of subscription and was later

on declared delinquent when he could not pay upon
call; A is also a director of the corporation. Will A, upon
declaration of delinquency , still be able to exercise his
right as a director?
Yes, he loses all his right as a stockholder except his

right to receive dividends
He remains to be a director, only qualification to be a
director is he must own at least 1 share and since it
still stands in his name pending the sale, he remains to
be and act as a director
Even if there is sale, he may still be director because
the winning bidder may not bid or pay for all the
shares or there might be remaining shares, which
would be credited in favor of the delinquent
stockholder
43

the
delinquent
stockholder
until
his
unpaid

Could it be issued earlier than 1 year?
Yes it can be, the code states that:
When a certificate of stock is loss or destroyed, what

must be done by the owner thereof?
Section 73. Lost or destroyed certificates. - The

following procedure shall be followed for the issuance
by a corporation of new certificates of stock in lieu of
those which have been lost, stolen or destroyed:
1. The registered owner of a certificate of
stock in a corporation or his legal representative shall
file with the corporation an affidavit in triplicate setting
forth, if possible, the circumstances as to how the
certificate was lost, stolen or destroyed, the number of
shares represented by such certificate, the serial
number of the certificate and the name of the
corporation which issued the same. He shall also
submit such other information and evidence which he
may deem necessary;
2. After verifying the affidavit and other
information and evidence with the books of the
corporation, said corporation shall publish a notice in a
newspaper of general circulation published in the
place where the corporation has its principal office,
once a week for three (3) consecutive weeks at the
expense of the registered owner of the certificate of
stock which has been lost, stolen or destroyed. The
notice shall state the name of said corporation, the
name of the registered owner and the serial number of
said certificate, and the number of shares represented
by such certificate, and that after the expiration of one
(1) year from the date of the last publication, if no
contest has been presented to said corporation
regarding said certificate of stock, the right to make
such contest shall be barred and said corporation shall
cancel in its books the certificate of stock which has
been lost, stolen or destroyed and issue in lieu thereof
new certificate of stock, unless the registered owner
files a bond or other security in lieu thereof as may be
required, effective for a period of one (1) year, for such
amount and in such form and with such sureties as
may be satisfactory to the board of directors, in which
case a new certificate may be issued even before the
expiration of the one (1) year period provided herein:
Provided, That if a contest has been presented to said
corporation or if an action is pending in court
regarding the ownership of said certificate of stock
which has been lost, stolen or destroyed, the issuance
of the new certificate of stock in lieu thereof shall be
suspended until the final decision by the court
which has been lost, stolen or destroyed.
Except in case of fraud, bad faith, or
negligence on the part of the corporation and its
officers, no action may be brought against any
corporation which shall have issued certificate of stock
in lieu of those lost, stolen or destroyed pursuant to
the procedure above-described. (R.A. 201a)
The rationale of the above-quoted law is to avoid

duplication of certificates of stock and the avoidance
of fictitious and fraudulent transfers.
When will the replacement certificate be issued?

The code provides that:

after the expiration of one (1) year from
the date of the last publication, if no contest has
been presented to said corporation regarding said
certificate of stock, the right to make such contest
shall be barred and said corporation shall cancel in its
books the certificate of stock which has been lost,
stolen or destroyed and issue in lieu thereof new
certificate of stock,
unless the registered owner files a bond or

other security in lieu thereof as may be required,
effective for a period of one (1) year, for such amount
and in such form and with such sureties as may be
satisfactory to the board of directors, in which case a
new certificate may be issued even before the
expiration of the one (1) year period provided
herein: Provided, That if a contest has been
presented to said corporation or if an action is pending
in court regarding the ownership of said certificate of
stock which has been lost, stolen or destroyed, the
issuance of the new certificate of stock in lieu thereof
shall be suspended until the final decision by the court
which has been lost, stolen or destroyed.
May corporate officers

unauthorized issuance?
be
YES, the code provides that:
held
liable
for
the
Except in case of fraud, bad faith, or

negligence on the part of the corporation and its
officers, no action may be brought against any
corporation which shall have issued certificate of stock
in lieu of those lost, stolen or destroyed pursuant to
the procedure above-described. (R.A. 201a)
Assuming the last paragraph is not there; would it be

not the same, that they should be held liable due to
fraud, bad faith or negligence?
YES. Section 31 provides that:

Section 31. Liability of directors, trustees
or officers. - Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful acts
of the corporation or who are guilty of gross
negligence or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary
interest in conflict with their duty as such directors or
trustees shall be liable jointly and severally for all
damages resulting there from suffered by the
corporation, its stockholders or members and other
persons.
When a director, trustee or officer attempts
to acquire or acquires, in violation of his duty, any
interest adverse to the corporation in respect of any
matter which has been reposed in him in confidence,
as to which equity imposes a disability upon him to
deal in his own behalf, he shall be liable as a trustee
for the corporation and must account for the profits
which otherwise would have accrued to the
corporation. (n)
Certificate of stock was lost, the owner transfers his

shares by way of a notarized deed will it be valid?
He cannot do so, if a certificate of stock is issued by a

corporation, a mere notarized deed will not suffice
Deed of assignment was not sufficient since there was
no endorsement (Rural Bank of Lipa vs. CA)
Rights and liabilities of stockholders
RIGHTS
1.
Participation in the management of the corporate

affairs by exercising their right to vote and be voted
upon either personally or by proxy as provided for
under sections 50 and 58 of the code;
44
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
To enter into a voting trust agreement subject to the

procedure, requirements and limitations imposed
under section 50;
To receive dividends and to compel their declaration if
warranted under section 43;
To transfer shares of stock subject only to reasonable
restrictions such as options and preferences as may be
allowed by law inclusive of the right of the transferee
to compel the registration of the transfer in the books
of the corporation as provided for in section 63;
To be issued a certificate of stock for fully paid-up
shares in accordance with 64;
To exercise pre-emptive rights as provided for in
section 39;
To exercise their appraisal right in accordance with the
provision of section 81 and in those instance allowed
by law such as section 42 and 105;
To institute and file a derivative suit;
To recover shares of stock unlawfully sold for
delinquency as may be allowed under section 69;
To inspect the books of the corporation subject only to
the limitations imposed by section 73;
To be furnished by the most recent financial statement
of the corporation as by section 75;
To be issued a new stock certificate in lieu of the lost
or destroyed one subject to the procedure laid down in
section 73;
To have the corporation dissolved under section 118 to
121, and section 105 in a close corporation;
To participate in the distribution of the assets of the
corporation upon dissolution under section 122;
In the case of a close corporation, to petition the SEC
to arbitrate in the event of a deadlock as allowed
under section 104; and,
Also in the case of a close corporation, to withdraw
therefrom, for my reason, and compel the corporation
to purchase his shares as provided for under section
105.

45
LIABILITIES
1.
To pay to the corporation the balance of his unpaid

subscriptions subject to the provision of section 67 to
70;
To pay interest on his unpaid subscription if required
by the by-laws or by the contract of subscription in
accordance with section 66;
To answer to the creditors for the unpaid portion of his
subscription under the TRUST FUND DOCTRINE;
To answer the water in his stocks as provided for in
section 65;
To be liable, as general partners, for all debts,
liabilities and damages of a determinable corporation
as envisioned under section 21 (corporation by
estoppel); and,
To be personally liable for torts, in the event that a
stockholder in a close corporation actively participates
in the management of the corporate affairs.
2.
3.
4.
5.
6.
No stock transfer agent or one engaged

principally in the business of registering transfers of
stocks in behalf of a stock corporation shall be allowed
to operate in the Philippines unless he secures a
license from the Securities and Exchange Commission
and pays a fee as may be fixed by the Commission,
which shall be renewable annually: Provided, That a
stock corporation is not precluded from performing or
making transfer of its own stocks, in which case all the
rules and regulations imposed on stock transfer
agents, except the payment of a license fee herein
provided, shall be applicable. (51a and 32a; P.B. No.
268.)
To summarize:
1.
Records of all business transactions which include,

among others, journals, ledger, contracts, vouchers
and receipts, financial statements and other books of
accounts, income tax returns, and voting trust
agreements which must be kept and carefully
preserved at its principal office;
Minutes of all meetings of stockholders or members
and of the directors or trustees setting forth in detail
the date, time, and place of meeting, how authorized,
the notice given whether the same be regular or
special, and if special, the purpose thereof shall be
specified, those present and absent, and every act
done or ordered done there at which ,must likewise be
kept at the principal office of the corporation; and,
Stock and transfer book showing the names of the
stockholders, the amount paid or unpaid on all stocks
for which subscription has been made, a statement of
every alienation, sale or transfer of stock made, if any
the date thereof, and by whom and to whom made
which must also be kept at the principal office of the
corporation or in the office of its stock transfer agent.
CORPORATE BOOKS AND RECORDS
What are these books and records that are required to

be kept?
Section 74. Books to be kept; stock transfer agent. Every corporation shall keep and carefully
preserve at its principal office a record of all
business transactions and minutes of all
meetings of stockholders or members, or of the
board of directors or trustees, in which shall be
set forth in detail the time and place of holding
the meeting, how authorized, the notice given,
whether the meeting was regular or special, if
special its object, those present and absent, and
every act done or ordered done at the meeting.
Upon the demand of any director, trustee,
stockholder or member, the time when any
director, trustee,
stockholder or member
entered or left the meeting must be noted in the
minutes; and on a similar demand, the yeas and
nays must be taken on any motion or
proposition, and a record thereof carefully
made. The protest of any director, trustee,
stockholder or member on any action or
proposed action must be recorded in full on his
demand.
2.
3.
These corporate books and records, inclusive of all

business transactions and minutes of meetings, are
subject to inspection by any of the directors, trustees,
stockholders or members of the corporation at
reasonable hours on business days and a copy of
excerpts of said records may be demanded. In fact, in
so far as financial statement is concerned, the Code
clearly provides:
Section 75. Right to financial statements. Within ten (10) days from receipt of a written request
of any stockholder or member, the corporation shall
furnish to him its most recent financial statement,
which shall include a balance sheet as of the end of
the last taxable year and a profit or loss statement for
said taxable year, showing in reasonable detail its
assets and liabilities and the result of its operations.
The records of all business transactions of

the corporation and the minutes of any meetings shall
be open to inspection by any director, trustee,
stockholder or member of the corporation at
reasonable hours on business days and he may
demand, in writing, for a copy of excerpts from said
records or minutes, at his expense.
Any officer or agent of the corporation who
shall refuse to allow any director, trustees, stockholder
or member of the corporation to examine and copy
excerpts from its records or minutes, in accordance
with the provisions of this Code, shall be liable to such
director, trustee, stockholder or member for damages,
and in addition, shall be guilty of an offense which
shall be punishable under Section 144 of this Code:
Provided, That if such refusal is made pursuant to a
resolution or order of the board of directors or
trustees, the liability under this section for such action
shall be imposed upon the directors or trustees who
voted for such refusal: and Provided, further, That it
shall be a defense to any action under this section that
the person demanding to examine and copy excerpts
from the corporation's records and minutes has
improperly used any information secured through any
prior examination of the records or minutes of such
corporation or of any other corporation, or was not
acting in good faith or for a legitimate purpose in
making his demand.
Stock corporations must also keep a book to
be known as the "stock and transfer book", in which
must be kept a record of all stocks in the names of the
stockholders alphabetically arranged; the installments
paid and unpaid on all stock for which subscription has
been made, and the date of payment of any
installment; a statement of every alienation, sale or
transfer of stock made, the date thereof, and by and to
whom made; and such other entries as the by-laws
may prescribe. The stock and transfer book shall be
kept in the principal office of the corporation or in the
office of its stock transfer agent and shall be open for
inspection by any director or stockholder of the
corporation at reasonable hours on business days.

At the regular meeting of stockholders or members,

the board of directors or trustees shall present to such
stockholders or members a financial report of the
operations of the corporation for the preceding year,
which shall include financial statements, duly signed
and certified by an independent certified public
accountant.
However, if the paid-up capital of the corporation is
less than P50,000.00, the financial statements may be
certified under oath by the treasurer or any
responsible officer of the corporation. (n)
May books and records be examined? Who may

examine? Can they copy them? In whose expense?
Yes, according to the code:

The
records
of
all
business
transactions of the corporation and the minutes
of any meetings shall be open to inspection by
any director, trustee, stockholder or member of
the corporation at reasonable hours on business
days and he may demand, in writing, for a copy
of excerpts from said records or minutes, at his
expense.
Is there any defense available that could be raised? By

the corporate officers to justify the refusal?
Yes, the code provides that:

and Provided, further, That it shall be a
defense to any action under this section that the
person demanding to examine and copy
46
excerpts from the corporation's records and

minutes has improperly used any information
secured through any prior examination of the
records or minutes of such corporation or of any
other corporation, or was not acting in good
faith or for a legitimate purpose in making his
demand.
ownership of shares and the necessity of

self-protection.
Managers
of
some
corporations
deliberately
keep
the
shareholders
in
ignorance
or
under
misapprehension as to the true condition of
its affairs. Business prudence demands that
the investor keep a watchful eye on the
management and the condition of the
business. Those in charge of the company
may be guilty of gross incompetence or
dishonesty for years and escape liability if
the shareholders cannot inspect the records
and obtain information.
What is the stock and transfer? Where should stock

and transfer be kept? Can it be kept elsewhere?
Stock corporations must also keep a book
to be known as the "stock and transfer book", in
which must be kept a record of all stocks in the
names of the stockholders alphabetically
arranged; the installments paid and unpaid on
all stock for which subscription has been made,
and the date of payment of any installment; a
statement of every alienation, sale or transfer of
stock made, the date thereof, and by and to
whom made; and such other entries as the bylaws may prescribe. The stock and transfer book
shall be kept in the principal office of the
corporation or in the office of its stock transfer
agent and shall be open for inspection by any director
or stockholder of the corporation at reasonable
hours on business days.
Stock and transfer agent
Records every movement

Person who monitors movement by the minutes or by
the hours
Non-stock corporation- stock and transfer books
Club share- membership
Are stockholders entitled to financial statements?
Yes, they are entitled to a copy, the code provides

that:
Section 75. Right to financial statements. Within ten (10) days from receipt of a written request
of any stockholder or member, the corporation shall
furnish to him its most recent financial statement,
which shall include a balance sheet as of the end of
the last taxable year and a profit or loss statement for
said taxable year, showing in reasonable detail its
assets and liabilities and the result of its operations.
At the regular meeting of stockholders or
members, the board of directors or trustees shall
present to such stockholders or members a financial
report of the operations of the corporation for the
preceding year, which shall include financial
statements, duly signed and certified by an
independent certified public accountant.
Is there any distinction of the right of inspection of a

stockholder and that of a director?
Yes, as compared to a stockholder or member, the

right of a director or trustee to inspect and examine
corporate books and records is considered absolute
and unqualified and without regard to motive. This is
because a director supervises, directs and manages
corporate business and it is necessary that he be
equipped with all the information and data with regard
to the affairs of the company in order that he may
manage and direct its operations intelligently and
according to his best judgment in the interest of all the
stockholders he represents. Thus, while stockholders
and members are entitled to inspect and examine the
books and records as provided in sections 74 and 75
they may not gain access to highly sensitive and
confidential information. In the case of directors. it is
not denied that they have such access. This would
include, among others,
a.
b.
c.
d.
May this right be exercised, other than by the

stockholders themselves?
Yes, while the right is founded on stock ownership thus

personal in nature it may be made by the
stockholders agent or representative since it may be
unavailing in many instances
What if the right of the stockholder to inspect is

denied? What is his remedy?
1.
2.
Mandamus
Damages either against the corporation or responsible
officer who refused the inspection
Criminal complaint for violation of his right to inspect
and copy excerpts of all business transactions and
minutes of meeting. Section 74 provides that Any
officer or agent of the corporation who shall refuse to
allow any director, trustees, stockholder or member of
the corporation to examine and copy excerpts from its
records or minutes, in accordance with the provisions
of this Code, shall be liable to such director, trustee,
stockholder or member for damages, and in addition,
shall be guilty of an offense which shall be punishable
under Section 144 of this Code. The latter provision
imposes a penalty of a fine of not less than P1,000 but
not more than P10,000 or an imprisonment for not less
than 30 days but not more than 5 years, or both, at
the discretion of the court. If the refusal is pursuant to
a resolution or order of the board, the liability shall be
imposed upon the directors or trustees who voted for
such refusal.
3.
However, if the paid-up capital of the

corporation is less than P50,000.00, the financial
statements may be certified under oath by the
treasurer or any responsible officer of the corporation.
(n)
-
Audited financial statement filed in the SEC, 120 days

from the end of the final year, or must be filed on or
before April of each year
Must be stamp received by the BIR
Those in the stock exchange
Disclosure of any matter that have to do with

increasing and decreasing
If not kulong violation of securities and regulation
act
Why is this
stockholder?
right
of
inspection
granted
to
The right of the shareholders to ascertain

how the affairs of his company are being
conducted by its directors and officers is
founded by his beneficial interest through
Defense of the responsible corporate officer
1.
That the person demanding has improperly used any

information secured through any prior examination of
the records or minutes of such corporation or of any
other corporation;
That he was not acting in good faith or for a legitimate
purpose in making his demand;
The right is limited or restricted by special law or the
law of it creation.
The basis of the right of the stockholder to inspect the

books and records of the corporation for a proper
purpose is to protect his interest as a stockholder.
Thus, it has been said that:
Marketing strategies and pricing structure;

Budget for expansion and diversification;
Research and development;
Sources of funding, availability of personnel,
proposals of mergers or tie-ups with other firms
2.
3.
W.G. Philpotts vs. Philippine Manufacturing Co.
The right of inspection given to a stockholder can be

exercised either by himself or by any proper
representative or attorney-in-fact, and either with or
without the attendance of the stockholder
47
The right may be regarded as personal, in the sense

that only a stockholder may enjoy it; but the
inspection and examination may be made by another.
Otherwise it would be unavailing in many instances.
o
Note: Usually hires an auditor or accountant to

safeguard his interest
Pardo vs. Hercules Lumber Co.
The law is clear, it may be exercised during reasonable

hours on any business days, the by-laws cannot deny
this right all together
The general right given by the statute may not be
lawfully abridged to the extent attempted in this
resolution. It may be admitted that the officials in
charge of a corporation may deny inspection when
sought at unusual hours or under other improper
conditions; but neither the executive officers nor the
board of directors have the power to deprive a
stockholder of the right altogether.
The corporation, or its responsible directors and
officers cannot unduly restrict this right of inspection
and may not arbitrarily set a few days of the year
within which the stockholder may make the inspection.
A by-law unduly restricting the right of inspection is
undoubtedly invalid
Vegaruth vs. Isabela Sugar Co.
Directors of a corporation have the unqualified right to

inspect the books and records of the corporation at all
reasonable hours.
We do not conceive, however, that a director or
stockholder has any absolute right to secure certified
copies of the minutes of the corporation until these
minutes have been written up and approved by the
directors.
May a stockholder of a holding company inspect the

books and records of a subsidiary?
It depends
The right of the stockholders to examine corporate
books extends to wholly-owned subsidiary which is
completely under the control and management of the
parent company where he is such a stockholder. But if
the two entities (subsidiary and parent) are legally
being operated as separate and distinct entities, there
is no such right of inspection on the part of the
stockholder of the parent company.
Assuming you are a stockholder of PNB, and then it

was privatized, may you already have the right to
inspect?
No, unless its charter has been altered or repealed it is

still subject to the same law
3 stages in the life of a corporation
Formation or birth
We now discuss the union of the corporation
The last would be its death or dissolution
MERGER AND CONSOLIDATION
Merger and consolidation
In corporate parlance it is called spin-off

Almost a year ago San Miguel separated its brewery
business
San Miguel Corporation is now a full time holding
company; it can later on absorb the company
Corporations are granted by the code to merge or
consolidate
most common type of corporate recognition
not the same in every case
but most common in the weal financial or insolvent
condition, aim is to bring it back to its financial
capability
also a method of recapitalization
AYALA- HOLDING COMPANY/PARENT COMPANY

SUBSIDIARIES: BPI/GLOBE/AYALA LAND (not whollyowned subsidiary)
o
HOLD ATLEAST 50 +1 shares in order to be a

PARENT COMPANY
A, is a stockholder of Ayala, does he have a right to

inspect the records of its subsidiaries?
If wholly owned pwede, but its subsidiaries are not

wholly owned kaya hindi pwede
Gokongwei vs. SEC
San Miguel corporation owns all of the shares of stock

of San Miguel International
It is wholly-owned
It would be in accord with equity, good faith and fair
dealing to construe the statutory right of petitioner as
stockholder to inspect the books and records of such
wholly-owned subsidiary which are in respondent
corporations possession and control
If being operated as separate and distinct

corporations, there is no such right
Telecommunications- special franchise, it is a
legislative grant
Gonzales vs. PNB
Provisions of the old law was unqualified, when it

granted stockholders the right to inspect

However, whole seemingly enlarging the right of

inspection, the new code has prescribed limitations to
the same. It is now expressly required as a condition
for such examination that the one requesting it must
not have been guilty of using improperly any
information secured through a prior examination and
that the person asking for such examination must be
acting in good faith and for a legitimate purpose in
making his demand
Admittedly, he sought to be a stockholder in order to
pry into transactions entered into by the respondent
bank even before he became a stockholder. His
obvious purpose was to arm himself with materials he
can use against the respondent bank for acts done by
the latter when the petitioner was a total stranger to
the same.
Bank was created by a special law, it has its own
charter and primarily governed by the law creating
them
The bank is only subject to the inspection of the
Central Bank and any information pertaining to the
bank is confidential and shall not be revealed to any
person other than the President of the Philippines, the
Secretary of Finance and the Board of Directors, nor
shall any information relative to the funds in its
custody, its current accounts or deposits belonging to
private individuals, corporations or other entities
except by order of a Court of Competent Jurisdiction,
hence inspection sought to by the petitioner is
violative of the provisions of its charter and is even
subject to penal sanctions
purchase and sale of corporate assets is another

form of corporate reorganization
How do you value the assets of the merging

corporation, do you consider goodwill?
First secure favorably recommendation of government
agency
Section 79. Effectivity of merger or
consolidation. - The articles of merger or of
consolidation, signed and certified as herein above
required, shall be submitted to the Securities and
Exchange Commission in quadruplicate for its
approval: Provided, That in the case of merger or
consolidation of banks or banking institutions,
building and loan associations, trust companies,
insurance
companies,
public
utilities,
educational institutions and other special
corporations governed by special laws, the
favorable recommendation of the appropriate
government agency shall first be obtained. If the
Commission is satisfied that the merger or
consolidation of the corporations concerned is not
inconsistent with the provisions of this Code and
existing laws, it shall issue a certificate of merger or of
consolidation, at which time the merger or
consolidation shall be effective.
48
If, upon investigation, the Securities and

Exchange Commission has reason to believe that the
proposed merger or consolidation is contrary to or
inconsistent with the provisions of this Code or existing
laws, it shall set a hearing to give the corporations
concerned the opportunity to be heard. Written notice
of the date, time and place of hearing shall be given to
each constituent corporation at least two (2) weeks
before said hearing. The Commission shall thereafter
proceed as provided in this Code. (n)
Merger
A union effected by absorbing one or more existing

corporations by another which survives and continues
the combined business
It is the uniting of two or more corporations by the
transfer of property to one of them which continue in
existence, the other or the others being dissolved and
merged therein.
1.
2.
3.
4.
A transfers all assets, properties, rights, obligations,

liabilities to B
5.
B issues shares of stocks in exchange of the transfer

A is then dissolved and B SURVIVES
Parties to a
corporation
merger
are
called
constituent
Consolidation
The uniting or amalgamation of two or more existing

corporations to form a new corporation
In merger there is a surviving corporation, the others
are dissolved, while in consolidation, all constituent
are dissolved and a new one organized
Like all other corporate acts, it emanates from the

board
1.
The board of directors or trustees of each constituent

corporations shall approve a plan of merger or
consolidation setting forth the matters required in
section 76;
Approval of the plan by the stockholders
representing 2/3 of the outstanding capital
stock or 2/3 of the member in non-stock
corporations of each of such corporations at separate
corporate meetings called for the purpose;
Prior notice of such meeting, with a copy or
summary of the plan of merger or consolidation
shall be given to all stockholders or members at least
two (2) weeks prior to the scheduled meeting, either
personally or registered mail stating the purpose
thereof;
Execution of the articles of merger or consolidation by
each constituent corporations to be signed by the
president or vice-president and certified by the
corporate secretary or assistant secretary
setting forth the matters required in section 78;
Submission of the articles of merger or
consolidation in quadruplicate to the SEC subject
to the requirement of section 79 that if it involve
corporations under the direct supervision of any other
government agency or governed by special laws the
favorable recommendation of the government agency
concerned shall first be secured and;
Issuance of the certificate of merger or
consolidation by the SEC at which time the merger
or consolidation shall be effective. If the plan,
however, is believed to be contrary to law, the SEC
shall set a hearing to give the corporations concerned
an opportunity to be heard upon proper notice and
thereafter, the Commission shall proceed as provided
in the Code.
2.
3.
4.
5.
6.

There will only be a single corporation. In case of

merger, the surviving corporation or the consolidated
corporation in case of consolidation;
The termination of the corporate existence of the
constituent corporations, except that of the surviving
corporation or the consolidated corporation;
The surviving corporation or the consolidated
corporation will possess all the rights, privileges,
immunities and powers and shall be subject to all the
duties and liabilities of a corporation organized under
the Code;
The surviving or consolidated corporation shall possess
all the rights, privileges, immunities and franchises of
the constituent corporations, and all property and all
receivables due, including subscriptions to shares and
other choses in action, and every other interest of, or
belonging to or due to the constituent corporations
shall be deemed transferred to and vested in such
surviving or consolidated corporation without further
act and deed; and,
The rights of creditors or any lien on the property of
the constituent corporations shall not be impaired by
the merger or consolidation.
Is there a liquidation process in case of merger or

consolidation?
None, there is nothing to distribute
Associated Bank vs. CA
By virtue of a specific provision in the merger

agreement
Although the subject promissory note names CBTC as
the payee, the reference to CBTC in the note shall be
construed, under the very provision of the merger
agreement, as a reference to petitioner bank, as if
such reference (was a) direct reference to the latter
for all intents and purposes
Section 80 par. 4 states:
The
surviving
or
the
consolidated
corporation shall thereupon and thereafter possess all
the rights, privileges, immunities and franchises of
each of the constituent corporations; and all property,
real or personal, and all receivables due on whatever
account, including subscriptions to shares and other
choses in action, and all and every other interest of, or
belonging to, or due to each constituent corporation,
shall be deemed transferred to and vested in such
surviving or consolidated corporation without further
act or deed; and
Although merger and consolidation is an express

power granted to corporation, it is subject to
limitations, as maybe proscribed by law
What would be the effect of merger or consolidation?
<sec. 80>
Without further acts, meaning it is automatic
When do merger and consolidation become effective?

What if the SEC fails to act on it without fault
attributable to the corporation involved?
It will never become valid until and unless the SEC

gives its stamp of approval
It will be up to the constituent corporation to follow it
up
It will never take effect until the SEC gives its approval
and issues the articles of merger
Granted 3 years to wing up unless there is a

trustee to wing up its affairs
Could there be liquidators and winding up with respect

to the corporation in consolidation and merger?
No, there is none

No assets properties or rights to collect, they are
transferred
No debts and liabilities to pay because they become
the liabilities of the surviving corporations
No properties transferred because they will be the
properties of the surviving corporations
Hardest part is the financial act, regarding how

many shares would be issued, probability of
collection and the like
49
In merger and consolidation, there is

diligence and an economist is usually hired
due
majority of the appraisers shall be final, and their

award shall be paid by the corporation within thirty
(30) days after such award is made: Provided, That no
payment shall be made to any dissenting stockholder
unless the corporation has unrestricted retained
earnings in its books to cover such payment: and
Provided, further, That upon payment by the
corporation of the agreed or awarded price, the
stockholder shall forthwith transfer his shares to the
corporation. (n)
APPRAISAL RIGHT
Define appraisal
Right to withdraw from the corporation and demand

payment of the fair value of his shares after dissenting
from certain corporate acts involving fundamental
changes in corporate structure <sec. 81>
What property? When may this right be exercises?
Section 81. Instances of appraisal right. Any stockholder of a corporation shall have the right to
dissent and demand payment of the fair value of his
shares in the following instances:
Principal Office- QC, it was changed to Manila

A objects and makes a written demand for payment of
fair value of shares. Can he make a demand of
payment of shares?
True or False, no stockholder in a stock corporation

can ever demand if the principal office is amended,
changing it from QC to Manila
1. In case any amendment to the articles of

incorporation has the effect of changing or restricting
the rights of any stockholder or class of shares, or of
authorizing preferences in any respect superior to
those of outstanding shares of any class, or of
extending or shortening the term of corporate
existence;
False, a stockholder in a close corporation may for any

reason compel the close corporation that he be paid
the fair value of his shares
2. In case of sale, lease, exchange, transfer, mortgage,

pledge or other disposition of all or substantially all of
the corporate property and assets as provided in the
Code; and
May a stockholder who hasnt paid his subscription in

full exercise his appraisal rights?
Yes, he can exercise his appraisal rights, by reconciling

the provisions of section 72, section 82 and section 86
3. In case of merger or consolidation. (n)
X Co.
May it be exercised by a stockholder who dissents to

the act of a business other than a primary purpose?
Can he exercise his appraisal rights in the first place?

He hasnt even paid his subscription in full.
stockholder. (n)
X Co. inc
Principal office is in Quezon city, it was changed to
Paranaque
A objects and makes a written demand. May he
exercise his right of appraisal?
-
It is not available in all amendments of the corporation

It must be changing or restricting the rights of any
stockholder
What if the principal office is changed from QC to

TAWI-TAWI, will it change or affect the rights of A?
To some it may change or restrict the rights to others

it may not
How is the right exercised?
According to section 82 of the code:

Section 82. How right is exercised. - The
appraisal right may be exercised by any stockholder
who shall have voted against the proposed corporate
action, by making a written demand on the
corporation within thirty (30) days after the date on
which the vote was taken for payment of the fair value
of his shares: Provided, That failure to make the
demand within such period shall be deemed a waiver
of the appraisal right. If the proposed corporate action
is implemented or affected, the corporation shall pay
to such stockholder, upon surrender of the certificate
or certificates of stock representing his shares, the fair
value thereof as of the day prior to the date on which
the vote was taken, excluding any appreciation or
depreciation in anticipation of such corporate action.
If within a period of sixty (60) days from the
date the corporate action was approved by the
stockholders, the withdrawing stockholder and the
corporation cannot agree on the fair value of the
shares, it shall be determined and appraised by three
(3) disinterested persons, one of whom shall be named
by the stockholder, another by the corporation, and
the third by the two thus chosen. The findings of the

Section 82. How right is exercised. - The

appraisal right may be exercised by any stockholder
who shall have voted against the proposed corporate
action, by making a written demand on the
corporation within thirty (30) days after the date on
which the vote was taken for payment of the fair value
of his shares: Provided, That failure to make the
demand within such period shall be deemed a waiver
of the appraisal right. If the proposed corporate action
is implemented or affected, the corporation shall
pay to such stockholder, upon surrender of the
certificate or certificates of stock representing
his shares, the fair value thereof as of the day prior
to the date on which the vote was taken, excluding
any appreciation or depreciation in anticipation of such
corporate action.
If within a period of sixty (60) days from the
date the corporate action was approved by the
stockholders, the withdrawing stockholder and the
corporation cannot agree on the fair value of the
shares, it shall be determined and appraised by three
(3) disinterested persons, one of whom shall be named
by the stockholder, another by the corporation, and
the third by the two thus chosen. The findings of the
majority of the appraisers shall be final, and their
award shall be paid by the corporation within thirty
(30) days after such award is made: Provided, That no
payment shall be made to any dissenting stockholder
unless the corporation has unrestricted retained
earnings in its books to cover such payment: and
Provided, further, That upon payment by the
corporation of the agreed or awarded price, the
stockholder shall forthwith transfer his shares to the
corporation. (n)
Section 86. Notation on certificates; rights
of transferee. - Within ten (10) days after demanding
payment for his shares, a dissenting stockholder shall
submit the certificates of stock representing his shares
to the corporation for notation thereon that such
shares are dissenting shares. His failure to do so shall,
at the option of the corporation, terminate his
rights under this Title. If shares represented by the
certificates bearing such notation are transferred, and
the certificates consequently cancelled, the rights of
the transferor as a dissenting stockholder under this
Title shall cease and the transferee shall have all the
rights of a regular stockholder; and all dividend
50
distributions which would have accrued on such shares

shall be paid to the transferee. (n)
When may the right to be paid the value of his shares

cease? Can he withdraw his right of appraisal?
Notation is not mandatory, it is even discretionary

because the code provides at the option of the
corporation because it never issued one for that
matter since the subscriptions are not yet fully paid
Yes, he may withdraw, but there must be consent by

the corporation as provided for by section 83 of the
code:
May the corporation be compelled to pay the interest

of A
Section 84. When right to payment ceases.

- No demand for payment under this Title may be
withdrawn unless the corporation consents thereto. If,
however, such demand for payment is withdrawn with
the consent of the corporation, or if the proposed
corporate action is abandoned or rescinded by the
corporation or disapproved by the Securities and
Exchange Commission where such approval is
necessary, or if the Securities and Exchange
Commission determines that such stockholder is not
entitled to the appraisal right, then the right of said
stockholder to be paid the fair value of his shares shall
cease, his status as a stockholder shall thereupon be
restored, and all dividend distributions which would
have accrued on his shares shall be paid to him. (n)
300 T, 150T, 150T and 0 unrestricted retained

earnings
No stockholder may be able to compel the corporation

to pay the value of his shares if the corporation has no
unrestricted retained earnings
False, a stockholder of a close corporation may for any

reason, provided only that the corporation has
sufficient assets to cover its debts and liabilities
o
o
1.
2.
3.
4.
5.
General rule: there should be unrestricted

retained earnings
Exception: section 105 close corporation
Instances when the right of a dissenting stockholder to

be paid the fair value of his shares ceases.
1.
When he withdraws his demand for payment and the

corporation consents thereto;
When the proposed action is abandoned or rescinded
by the corporation;
When the proposed action is disapproved by the SEC
where such approval is necessary;
When the SEC determines that he is not entitled to
exercise his appraisal right;
When he fails to submit the stock certificate within ten
(10) days from demand to the corporation for notation
that such shares are dissenting shares; and,
If the shares are transferred and the certificate
subsequently cancelled.
The procedure and requirements for the valid exercise

of this rights are:
2.
The stockholder must have voted against the proposed

corporate action in any of the instances allowed by law
for the exercise of the right of appraisal;
The written demand for payment must be made by the
dissenting stockholder within thirty (30) days after the
date on which the vote was taken thereon. Failure to
make the demand within the said period shall be
deemed a waiver on the part of the stockholder
concerned to exercise his appraisal right;
Surrender of the certificate of stock by the dissenting
stockholder for notation in the corporate books and
the payment by the corporation of the fair market
value of the said shares as of the day prior to the date
on which the vote was taken. If the stockholder and
the corporation cannot agree on the fair market value
thereof, the same shall be determined in accordance
with the provision of paragraph 2 of section 82;
The fair value of the shares of the dissenting
stockholder must be paid by the corporation only if it
has unrestricted retained earnings in its books to
cover such payment. If the corporation has no
unrestricted
retained
earnings,
the
dissenting
stockholder may not, therefore, be able to effectively
exercise his appraisal rights;
Upon payment of the shares by the corporation, the
dissenting stockholder shall transfer his shares to the
corporation.
4.
3.
5.
6.
Who bears the cost of appraisal?
It depends
The corporation bears the cost if
a.
b.
Dissenting stockholder will be liable for the cost and

expenses of appraisal when
a.
What would be the effect if the stockholder exercises

his appraisal rights? What happens to his voting and
dividend rights if he exercises his appraisal rights?
b.
It will be suspended, with a limitation of 30 days, as

provided for by section 83 of the code:
Section 83. Effect of demand and

termination of right. - From the time of demand for
payment of the fair value of a stockholder's shares
until either the abandonment of the corporate action
involved or the purchase of the said shares by the
corporation, all rights accruing to such shares,
including voting and dividend rights, shall be
suspended in accordance with the provisions of
this Code, except the right of such stockholder
to receive payment of the fair value thereof:
Provided, That if the dissenting stockholder is
not paid the value of his shares within 30 days
after the award, his voting and dividend rights
shall immediately be restored. (n)
How do you compare the rights of a stockholder,

declared delinquent compared to a dissenting
stockholder exercising his appraisal rights
What if a stockholder exercising his appraisal rights is
also a director, will he also lose his rights as a
stockholder?
The shares remain to stand in his name until he is
paid, unless there is a stipulation in the by-laws

The price offered by the corporation is lower than

the fair value of the shares of the dissenting
stockholder as determined by the appraisers;
Where an action is filed by the dissenting
stockholder to recover such fair value and the
refusal of the stockholder to receive payment is
found by the court to be justified.
When the price offered by the corporation is

approximately the same as the fair value
ascertained by the appraisers;
Where the action filed by the dissenting
stockholder and his refusal to accept payment is
found by the court to be unjustified.
The dissenting stockholder may also sell, transfer or

assign his shares
Section 86. Notation on certificates; rights
of transferee. - Within ten (10) days after demanding
payment for his shares, a dissenting stockholder shall
submit the certificates of stock representing his shares
to the corporation for notation thereon that such
shares are dissenting shares. His failure to do so shall,
at the option of the corporation, terminate his rights
under this Title. If shares represented by the
certificates
bearing
such
notation
are
transferred, and the certificates consequently
cancelled, the rights of the transferor as a
dissenting stockholder under this Title shall
cease and the transferee shall have all the
rights of a regular stockholder; and all dividend
distributions which would have accrued on such
shares shall be paid to the transferee. (n)
NON-STOCK CORPORATIONS
What is a non-stock corporation?
A non-stock corporation is one where no part of its

income is distributable as dividends to its members,
51
trustees, or officers, subject to the provisions of this

code on dissolution
What provision of the code will govern non-stock

corporations? Would the provision governing stock
corporations also apply to non-stock corporations?
Yes, 2nd par. Of section 87 provides:
office of one-third (1/3) of their number shall expire

every year; and subsequent elections of trustees
comprising one-third (1/3) of the board of trustees
shall be held annually and trustees so elected shall
have a term of three (3) years. Trustees thereafter
elected to fill vacancies occurring before the expiration
of a particular term shall hold office only for the
unexpired period.
No person shall be elected as trustee unless
he is a member of the corporation.
The provisions governing stock corporation,

when pertinent, shall be applicable to non-stock
corporations, except as may be covered by specific
provisions of this Title. (n)
How is the right to vote exercised in a non-stock

corporation compared to a stock corporation
May a member in a non-stock corporation vote
cumulatively?

incorporation or the by-laws, officers of a non-stock
corporation may be directly elected by the members.
(n)
Qualifications?
1.
2.
He is a member of the association;

Majority thereof must be residents of the Philippines;
and,
Other qualifications as may be provided for in the bylaws.
General rule is NO
May it be granted or allowed by the by-laws?
Yes
Governing board in a non-stock
May the right to cumulative voting be denied in a

stock corporation?
Board of Trustees, however section 138 provides that:
No, Doctrine of Limited Capacity
May members in a non-stock corporation vote by

proxy?
Yes, section 89 provides that:

incorporation or the by-laws, a member may vote by
proxy in accordance with the provisions of this Code.
(n)
May the right to vote by proxy be validly denied in a

stock corporation?
No, it is a matter of right in a stock corporation
May member of a non-stock corporation cast their vote

by text?
Yes, subject to the approval and terms and conditions

of the SEC <sec. 89>
3.
Section 138. Designation of governing

boards. - The provisions of specific provisions of this
Code to the contrary notwithstanding, non-stock or
special corporations may, through their articles
of incorporation or their by-laws, designate their
governing boards by any name other than as
board of trustees. (n)
Disqualifications
Section 27 also applies to a non-stock corporation,

same holds true to the manner of removal <sec. 29 ad
30>
Section 27. Disqualification of directors,
trustees or officers. - No person convicted by final
judgment of an offense punishable by imprisonment
for a period exceeding six (6) years, or a violation of
this Code committed within five (5) years prior to the
date of his election or appointment, shall qualify as a
Section 29. Vacancies in the office of
director or trustee. - Any vacancy occurring in the
board of directors or trustees other than by removal by
the stockholders or members or by expiration of term,
may be filled by the vote of at least a majority of the
remaining directors or trustees, if still constituting a
quorum; otherwise, said vacancies must be filled by
the stockholders in a regular or special meeting called
for that purpose. A director or trustee so elected to fill
a vacancy shall be elected only or the unexpired term
of his predecessor in office.
Voting by mail or other similar means by

members of non-stock corporations may be authorized
by the by-laws of non-stock corporations with the
approval of, and under such conditions which may be
prescribed
by,
the
Securities
and
Exchange
Commission.
How about in stock?
Voting by mail or other similar means may also be

authorized and allowed by the by-laws of non-stock
corporations. Generally, in stock corporations, the vote
must be cast at a duly constituted meeting. The only
exception, in case of the latter, is in the matter of
general amendment of the articles of incorporation
where the written assent of the stockholder may be
sufficient.
How is the governing board constituted in a non-stock

corporation? How many members?
It may exceed 15 in a non-stock corporation unless the

AOI or by-laws provide otherwise, as provided for by
section 92 of the code:
Section 92. Election and term of trustees. Unless otherwise provided in the articles of
incorporation or the by-laws, the board of trustees of
non-stock corporations, which may be more than
fifteen (15) in number as may be fixed in their articles
of incorporation or by-laws, shall, as soon as
organized, so classify themselves that the term of

Any directorship or trusteeship to be filled

by reason of an increase in the number of directors or
trustees shall be filled only by an election at a regular
or at a special meeting of stockholders or members
duly called for the purpose, or in the same meeting
authorizing the increase of directors or trustees if so
stated in the notice of the meeting. (n)
Who elects the other officers?
Directly by the general members unless the by-laws or

articles provide otherwise. <sec.92>
52

incorporation or the by-laws, officers of a non-stock
corporation may be directly elected by the members.
(n)
In stock corporations who elect officers?
Directors
The provision that stock corporations cannot validly

provide that members cannot be voted by
stockholders is only a general rule because there is an
exception section 97 of the code states that:
Section 91. Termination of membership. Membership shall be terminated in the manner and for
the causes provided in the articles of incorporation or
the by-laws. Termination of membership shall have the
effect of extinguishing all rights of a member in the
corporation or in its property, unless otherwise
provided in the articles of incorporation or the by-laws.
(n)
1.
The articles of incorporation of a close

corporation may provide that the business of the
corporation shall be managed by the stockholders
of the corporation rather than by a board of
directors. So long as this provision continues in
effect:
2.
3.
1. No meeting of stockholders need be called to elect

directors;
2. Unless the context clearly requires otherwise, the
stockholders of the corporation shall be deemed to be
directors for the purpose of applying the provisions of
this Code; and
3. The stockholders of the corporation shall be subject
to all liabilities of directors.
The articles of incorporation may
likewise provide that all officers or employees or
that specified officers or employees shall be
elected or appointed by the stockholders, instead
of by the board of directors.
Chinese YMCA vs. Ching
Right of the corporation to choose who the members

are, cannot be inquired or intervened by the court
The appealed decision thus contravened the establish
principle that the courts cannot strip a member of a
non-stock corporation of his membership therein
without cause.
Lions Club International vs. CA
Courts will not generally interfere on matters involving

the internal affairs of an unincorporated association
such as election contest unless the acts complained of
are arbitrary, oppressive, fraudulent, violative of civil
rights and the like
General rule is that the courts will not interfere with
the internal affairs of an unincorporated association so
as to settle disputes between the members, or
questions of policy, discipline, or internal government,
so long as the government of the society is fairly and
honestly administered in conformity with its by-laws
and the law of the land, and no property or civil rights
are involved.
Exceptions are the following:
Nature of membership is non-transferrable and

personal in nature unless the articles of incorporation
or by-laws provide otherwise
-
How is a membership requirement in a non-stock

corporation
a.
A holds a membership certificate

B goes to the corporation and compels the corporation
to record the transfer in his name
-
b.
Membership in non-stock corporations may be

acquired by complying with the provisions of its rules
prescribed in the by-laws. This is in consonance with
the express power granted by law under section 36,
paragraph 6 of the code, authorizing them to admit
members thereof and that authority carries with it the
power to prescribe rules on membership. It has thus
been stated that in the absence of charter or statutory
restrictions, non-stock corporations may determine
who shall be admitted to membership and how they
shall be admitted.
c.
d.
Section
36.
Corporate
powers
and
capacity. - Every corporation incorporated under this
Code has the power and capacity:
6. In case of stock corporations, to issue or sell stocks
to subscribers and to sell stocks to subscribers and to
sell treasury stocks in accordance with the provisions
of this Code; and to admit members to the corporation
if it be a non-stock corporation;
-
They can provide the manner in which to admit

depending on their own rules
The power or authority to terminate members in nonstock corporations is said to be inherent but strict
compliance with the manner and procedure laid down
in the by-laws must be observed, otherwise it may
render the expulsion ineffective and invalid.

When an offense is committed which, although it

has no immediate relation to a members duty as
such, it is so infamous as to render him unfit for
society of honest men, which is indictable at
common law;
When the offense is a violation of his duty as
member of the corporation; and,
When the offense is of a mixed nature, being
both against his duty as a member of the
corporation, and also indictable at common law.
If the conduct of the member comes within any of this

cases, it is a ground for valid expulsion although it
may not be expressly made so by the by-laws
Section
90.
Non-transferability
of
membership. - Membership in a non-stock corporation
and all rights arising there from are personal and nontransferable, unless the articles of incorporation or the
by-laws otherwise provide. (n)
Power is inherent and may be exercised in certain

situations:
Where law and justice so require, and the

proceedings of the association are subject to
judicial review where there is fraud, oppression,
or bad faith, or where the action complained of is
capricious, arbitrary, or unjustly discriminatory
To grant relief in case property or civil rights are
invaded, although it has also been held that the
involvement of property rights does not
necessarily authorize judicial intervention, in the
absence of arbitrariness, fraud or collusion.
Are violative of the laws of the society, or the law
of the land, as by depriving the person of due
process of law
There is lack of jurisdiction on the part of the
tribunal conducting the proceedings, where the
organization exceeds its powers, or where the
proceedings are otherwise illegal
Corporations, stock and non-stock, may be dissolved in

accordance and pursuant to the provisions of Sections
118 to 121 of the Corporation Code and the pertinent
provisions of P.D. 902-A, as amended. If such be the
case, the assets of the corporation are to be
distributed in accordance with law and established
jurisprudence.
If a non-stock corporation is dissolved how will its
properties be distributed?
Section 94. Rules of distribution. - In case
dissolution of a non-stock corporation in
accordance with the provisions of this Code, its
assets shall be applied and distributed as follows:
1. All liabilities and obligations of the corporation
shall be paid, satisfied and discharged, or
adequate provision shall be made therefore;
53
2. Assets held by the corporation upon a

condition
requiring
return,
transfer
or
conveyance, and which condition occurs by
reason of the dissolution, shall be returned,
transferred or conveyed in accordance with such
requirements;
3. Assets received and held by the corporation
subject to limitations permitting their use only for
charitable, religious, benevolent, educational or
similar purposes, but not held upon a condition
requiring return, transfer or conveyance by
reason of the dissolution, shall be transferred or
conveyed to one or more corporations, societies
or organizations engaged in activities in the
Philippines substantially similar to those of the
dissolving corporation according to a plan of
distribution adopted pursuant to this Chapter;
4. Assets other than those mentioned in the
preceding paragraphs, if any, shall be distributed
in accordance with the provisions of the articles
of incorporation or the by-laws, to the extent that
the articles of incorporation or the by-laws,
determine the distributive rights of members, or
any class or classes of members, or provide for
distribution; and
5. In any other case, assets may be distributed to
such
persons,
societies,
organizations
or
corporations, whether or not organized for profit,
as may be specified in a plan of distribution
adopted pursuant to this Chapter. (n)
Non-stock corporations with 4Billion funds, may it be

distributed for and among its members?
- Section 94 number 3 provides:

3. Assets received and held by the
corporation subject to limitations permitting their use
only for charitable, religious, benevolent, educational
or similar purposes, but not held upon a condition
requiring return, transfer or conveyance by reason of
the dissolution, shall be transferred or conveyed to
one or more corporations, societies or organizations
engaged in activities in the Philippines substantially
similar to those of the dissolving corporation according
to a plan of distribution adopted pursuant to this
Chapter;
-
The board of trustees shall, by majority vote,

adopt a resolution recommending a plan of distribution
and directing the submission thereof to a vote at a
regular or special meeting of members having voting
rights. Written notice setting forth the proposed plan
of distribution or a summary thereof and the date,
time and place of such meeting shall be given to each
member entitled to vote, within the time and in the
manner provided in this Code for the giving of notice
of meetings to members. Such plan of distribution
shall be adopted upon approval of at least two-thirds
(2/3) of the members having voting rights present or
represented by proxy at such meeting. (n)
CLOSE CORPORATIONS
Section 96. Definition and applicability of Title. - A
close corporation, within the meaning of this Code, is
one whose articles of incorporation provide that: (1)
All the corporation's issued stock of all classes,
exclusive of treasury shares, shall be held of
record by not more than a specified number of
persons, not exceeding twenty (20); (2) all the
issued stock of all classes shall be subject to one
or more specified restrictions on transfer
permitted by this Title; and (3) The corporation
shall not list in any stock exchange or make any
public offering of any of its stock of any class.
Notwithstanding the foregoing, a corporation shall not

Between and among themselves, they feel and act

alike
Not more than 20 stockholders
Specified persons, if you are not specified, you cannot
be a stockholder
All the issued stocks of all classes is subject to
restrictions
Shall not be listed in the stock exchange not publicly
offered
3 qualifying conditions must be contained in the
articles of incorporation, to be considered as a close
corporation, if not, it will not be considered as such
and will be governed by the general provisions of the
code
Even if 100 % is owned by one person it will not be
considered a close corporation without the 3 qualifying
provisions
Identity of stockholders, specified persons
Active management either as directors or partners in
management
Combination of the corporation and partnership type
of business
May any type of corporation, be organized as such

close corporation?
No, the 3 qualifying conditions must be present
What if 2/3 of the outstanding capital stock is owned

by another corporation which is also a close
corporation, will it be a close corporation?
No, it will only be a closed corporation if 2/3 of the

voting stocks of a close corporation is also owned by a
close corporation. It must be voting stocks
Even if another corporation owns or controls 2/3 of the
voting stocks of a close corporation, the latter may still
be considered as such close corporation if the
corporation owning or controlling the shares is also a
close corporation.
Notwithstanding
the
foregoing,
a
corporation shall not be deemed a close corporation
when at least two-thirds (2/3) of its voting stock or
voting rights is owned or controlled by another
corporation which is not a close corporation within the
meaning of this Code.
If there is no distributive agreement then they may do

so through a plan of distribution under section 95
Section 95. Plan of distribution of assets. A plan providing for the distribution of assets, not
inconsistent with the provisions of this Title, may be
adopted by a non-stock corporation in the process of
dissolution in the following manner:
be deemed a close corporation when at least twothirds (2/3) of its voting stock or voting rights is owned
or controlled by another corporation which is not a
close corporation within the meaning of this Code.
What kind of
corporation?
corporations
cannot
be
1.
2.
3.
4.
5.
6.
Mining or oil companies,

Stock exchange
Banks and insurance companies,
Public utilities
Educational institutions
Corporations vested with public interest
Classification of directors
Ordinary stock- no such right

Close corporation-yes there is such a right
Section 97 is a permissive provision
close
Section 97. Articles of incorporation. - The

articles of incorporation of a close corporation may
provide:
1. For a classification of shares or rights and the
qualifications for owning or holding the same and
restrictions on their transfers as may be stated
therein, subject to the provisions of the following
section;
2. For a classification of directors into one or more
classes, each of whom may be voted for and elected
solely by a particular class of stock; and
3. For a greater quorum or voting requirements in
meetings of stockholders or directors than those
provided in this Code.
54
After classification what then?
After classification, qualification and then restriction as

provided for under the 3 qualifying conditions in
section 96
Cumulative voting is restricted in close corporations if

will be elected solely by a particular class
In a close corporation, the articles of incorporation

may provide for a greater quorum and voting
requirement in meetings of both stockholders or
directors to increase the veto power of minority
stockholders, unlike in a stock corporation wherein
only directors meetings may provide for greater
quorum requirement and in stockholders meeting
which may not be altered or increased, as provide for
in section 25, following the doctrine of limited capacity
The articles of a close corporation may likewise
provide that the business of the corporation shall be
managed by the stockholders rather than by the board
of directors. However the same must contain the
continuing provisions required in paragraph 2 of
section 97, that is:
1.
2.
3.
Unless all the stockholders consent they

may
What if the other stockholders object to register? What

will be the remedy of the transferee?
His remedy is rescission. The effect of rescission is

mutual restitution
How about the stockholder, what is his recourse?
He may compel the close corporation to purchase his

shares at their fair value for any reason, provided the
corporation has sufficient assets in its books to cover
the debts and liabilities exclusive of capital
In a close corporation, there is a withdrawing
stockholder, unlike in an ordinary stockholder where
there is none, they may only do so in the exercise of
appraisal rights
No meeting of stockholders need be called to

elect directors;
Unless the context clearly requires otherwise, the
stockholders of the corporation shall be deemed
to be directors; and;
The stockholders of the corporation shall be
subject to all liabilities of directors.
Section 105. Withdrawal of stockholder or

dissolution of corporation. - In addition and without
prejudice to other rights and remedies available to a
stockholder under this Title, any stockholder of a
close corporation may, for any reason, compel
the said corporation to purchase his shares at
their fair value, which shall not be less than
their par or issued value, when the corporation
has sufficient assets in its books to cover its
debts and liabilities exclusive of capital stock:
Provided, That any stockholder of a close corporation
may, by written petition to the Securities and
Exchange Commission, compel the dissolution of such
corporation whenever any of acts of the directors,
officers or those in control of the corporation is illegal,
or fraudulent, or dishonest, or oppressive or unfairly
prejudicial to the corporation or any stockholder, or
whenever corporate assets are being misapplied or
wasted.
Liability of stockholders acting as directors in a close

corporation
are more extensive since they are
personally liable for corporate torts unless the
corporation has obtained a reasonable adequate
liability insurance, unlike a ordinary stock corporation,
wherein directors thereof are only liable for corporate
torts only if they have been negligent or acted
fraudulently in the performance of their functions.
Restrictions
In ordinary stock corporations, the restrictions must
appear in the articles of incorporation as well as the
certificate of stocks
In a close corporation, the restrictions must appear in
the articles of incorporation, the by-laws and the
certificate of stocks. Otherwise, the same shall not be
binding on any purchaser thereof in good faith
Will have to amend the articles of incorporation to

accommodate other purchasers of share
Will cease to be a close corporation if it amends and
becomes in excess of 20
Agreements may also

corporation <sec.100>
be
entered
in
close
They can even agree to be partners in management

Pre-incorporation
Manner in which the business of the corporation shall
be managed
What if the stockholders do not want to exercise their

right or option to purchase may it be sold to any
person?
Yes, any third person, section 98 provides:
Board resolution
Section 98. Validity of restrictions on

transfer of shares. - Restrictions on the right to
transfer shares must appear in the articles of
incorporation and in the by-laws as well as in the
certificate of stock; otherwise, the same shall not be
binding on any purchaser thereof in good faith. Said
restrictions shall not be more onerous than granting
the existing stockholders or the corporation the option
to purchase the shares of the transferring stockholder
with such reasonable terms, conditions or period
stated therein. If upon the expiration of said
period, the existing stockholders or the
corporation fails to exercise the option to
purchase, the transferring stockholder may sell
his shares to any third person.
Ordinary stock corporations- sit and act as a body at a

duly constituted meeting, they may do so by virtue of
the E-Commerce Act through teleconference or video
conference
Exception to the rule: other officers may be directly

appointed and hired by the stockholders
Close corporations may validly act even without a
meeting provided the conditions are obtained
Section 101. When board meeting is

unnecessary or improperly held. - Unless the by-laws
provide otherwise, any action by the directors of a
close corporation without a meeting shall nevertheless
be deemed valid if:
ordinary stock corporations are liable only if

acted in Bad faith, fraud or negligence in
performance of duty
What if there are already 20 stockholders and they

want to add 2 more, may it compel?
In ordinary stock corporations, they may compel by

mandamus
In close corporations, may not be compelled to admit
because it breaches the qualifying conditions
Since they cannot be compelled, may they admit?
Yes, provided all the stockholders consented or

instead of consenting they decide to amend their
articles of incorporation

1. Before or after such action is taken, written consent

thereto is signed by all the directors; or
2. All the stockholders have actual or
knowledge of the action and make no
objection thereto in writing; or
implied
prompt
3. The directors are accustomed to take informal

action with the express or implied acquiescence of all
the stockholders; or
4. All the directors have express or implied knowledge
of the action in question and none of them makes
prompt objection thereto in writing.
Pre-emptive rights in a close corporation is absolute
55
Section 102. Pre-emptive right in close

corporations. - The pre-emptive right of stockholders in
close corporations shall extend to all stock to be
issued, including reissuance of treasury shares,
whether for money, property or personal services, or
in payment of corporate debts, unless the articles of
incorporation provide otherwise.
Why is it said to be absolute?
Because there is no public offering in a close

corporation, otherwise it will not be considered as
close
In a close corporation the pre-emptive rights is

broadened to include all issues without exception
unless denied or limited by the articles of
incorporation
Section 39 is the governing provision concerning rights
of the stockholder in an ordinary stock corporation and
it may be denied. If it is not denied a stockholder can
exercise his pre-emptive rights for all issues of shares
whether money, property or previously incurred
indebtedness.
A provisional director shall be an impartial

person who is neither a stockholder nor a creditor of
the corporation or of any subsidiary or affiliate of the
corporation, and whose further qualifications, if any,
may be determined by the Commission. A provisional
director is not a receiver of the corporation and does
not have the title and powers of a custodian or
receiver. A provisional director shall have all the rights
and powers of a duly elected director of the
corporation, including the right to notice of and to vote
at meetings of directors, until such time as he shall be
removed by order of the Commission or by all the
stockholders. His compensation shall be determined
by agreement between him and the corporation
subject to approval of the Commission, which may fix
his compensation in the absence of agreement or in
the event of disagreement between the provisional
director and the corporation.
-
Section 39. Power to deny pre-emptive

right. - All stockholders of a stock corporation shall
enjoy pre-emptive right to subscribe to all issues or
respective shareholdings, unless such right is denied
by the articles of incorporation or an amendment
thereto: Provided, That such pre-emptive right shall
not extend to shares to be issued in compliance with
laws requiring stock offerings or minimum stock
ownership by the public; or to shares to be issued in
good faith with the approval of the stockholders
representing two-thirds (2/3) of the outstanding capital
stock, in exchange for property needed for corporate
purposes or in payment of a previously contracted
debt.
1.
2.
3.
4.
5.
6.
7.
Are treasury shares covered in the exercise of preemptive rights in ordinary stock corporations?
As regards amendments
Section 103. Amendment of articles of
incorporation. - Any amendment to the articles of
incorporation which seeks to delete or remove any
provision required by this Title to be contained in the
articles of incorporation or to reduce a quorum or
voting requirement stated in said articles of
incorporation shall not be valid or effective unless
approved by the affirmative vote of at least two-thirds
(2/3) of the outstanding capital stock, whether with or
without voting rights, or of such greater proportion of
shares as may be specifically provided in the articles
of incorporation for amending, deleting or removing
any of the aforesaid provisions, at a meeting duly
called for the purpose.
What happens if there is a deadlock?
Section 104 provides for a remedy

Section 104. Deadlocks. - Notwithstanding
any contrary provision in the articles of incorporation
or by-laws or agreement of stockholders of a close
corporation, if the directors or stockholders are so
divided
respecting
the
management
of
the
corporation's business and affairs that the votes
required for any corporate action cannot be obtained,
with the consequence that the business and affairs of
the corporation can no longer be conducted to the
advantage of the stockholders generally, the Securities
and Exchange Commission, upon written petition by
any stockholder, shall have the power to arbitrate the
dispute. In the exercise of such power, the
Commission shall have authority to make such order
as it deems appropriate, including an order: (1)
cancelling or altering any provision contained in the
articles of incorporation, by-laws, or any stockholder's
agreement; (2) cancelling, altering or enjoining any
resolution or act of the corporation or its board of
directors, stockholders, or officers; (3) directing or
prohibiting any act of the corporation or its board of
directors, stockholders, officers, or other persons party
to the action; (4) requiring the purchase at their fair
value of shares of any stockholder, either by the
corporation
regardless
of
the
availability
of
unrestricted retained earnings in its books, or by the
other stockholders; (5) appointing a provisional
director; (6) dissolving the corporation; or (7) granting
such other relief as the circumstances may warrant.

Powers of the SEC in intra-corporate concerns has

been transferred to the proper commercial courts
Prohibit, even if acting in good faith
Provisional director appointed by the court
Requiring the purchase, irrespective of unrestricted
retained earnings
The provision of the law above-quoted gives the SEC a
very wide discretion in respect to management of a
close corporation in the event of a deadlock. It may:
Cancel or alter any provision in the articles of
incorporation, by-laws or any stockholders
agreement
Cancel, alter or enjoin any resolution or other act
of the corporation or its board of directors,
stockholders or officers
Prohibit any act of the corporation or its board of
directors, stockholders or officers or other
persons party to the action;
Requiring the purchase of the par value of the
shares of any stockholders, either by the
corporation
regardless
of
availability
of
unrestricted
earnings,
or
by
the
other
shareholders,
Appointment of a provisional director
Dissolving the corporation; or
Other relief as the circumstances may warrant.
Section 105
Dishonesty is a ground for dissolution of a close

corporation
Even one stockholder may petition for dissolution
when there is a relief available, dissolution

would not be available in an ordinary
corporation
CLOSE CORPORATION
1. The number of stockholders
cannot exceed 20
2. To the extent that all
stockholders
can
be
deemed
directors,
the
number of directors can
effectively be more than 15
3. Shares of stock are subject
to specified restrictions
4. Shares
of
stock
are
prohibited from being listed
in the stock exchange or
offered for sale to the public
5. Stockholders may take an
active part in corporate
management by vesting
management to them rather
than a Board of Director
6. Those
active
in
management are personally
liable for corporate torts
unless the corporation has
obtained
an
adequate
liability insurance
7. Directors can validly act
even without a meeting
8. Agreements
between
stockholders regarding the
operations of the business
can validly be made
9. To the extent that directors
may be classified into one
or more classes and to be
voted solely by a particular
ORDINARY STOCK
CORPORATION
No limitation as to number of
shareholder
Maximum number of directors
is 15
Generally no restriction
transfer of shares
No prohibition
on
Management is lodged in the

Board of Directors
Directors are liable for torts

only if they have acted
negligently or fraudulently
Directors must, as a rule, act

as a body at a duly constituted
meeting
Not valid and binding since
stockholders
agreement
cannot limit the discretion of
the
Board
to
manage
corporate affairs
Ordinarily,
no
such
classification
and
no
restrictions
on
cumulative
voting
56
class of stock, cumulative

voting may, in effect, be
restricted
10. The
articles
of
incorporation may provide
that all officers shall be
elected or appointed by the
stockholders
11. It may provide for greater
quorum
and
voting
requirements in meetings of
stockholders and directors
12. Restriction on transfer of

shares should be indicated
in
the
articles
of
incorporation, by-laws and
stock certificates
13. Pre-emptive
rights
of
Pre-emptive rights may be
stockholders is broader as it
denied as provided for in
include all issues without
section 39
exception
14. A
stockholder
may
Unless he sells his shares, a
withdraw and compel the
stockholder cannot get back
corporation to purchase his
his investment nor compel the
shares for any reason with
corporation to buy his shares
the limitation only that the
except in the exercise of his
corporation has sufficient
appraisal right
assets to cover its liabilities
exclusive of capital stock
15. The proper forum may
Courts cannot interfere I the
interfere
in
the
business judgment of the
management of a close
directors/stockholders
corporation in case of
BUSINESS JUDGMENT RULE
deadlocks under Section
104,
even
of
the
directors/stockholders
are
acting in good faith
16. Any
stockholder
may
Dissolution may be had only
petition
the
SEC
for
on the grounds provided by
corporate dissolution on
the provisions of the Code on
grounds
among
others,
dissolution and P.D. 902-A, as
provides for in section 105
amended
Manuel Dulay Enterprises vs. CA

-
What was the position of Manuel Dulay here?

President, General Manager and Treasurer
Cannot act both as president and treasurer at the
same time
Since it is a close corporation owned by the family of
Manuel Dulay, save and except the secretary, it should
be governed by Title XII
Petitioner is classified as a close corporation and
consequently a board resolution authorizing the sale or
mortgage of the subject property is not necessary to
bind the corporation for the action of its president. At
any rate, a corporate action taken at a board meeting
without proper call or notice in a close corporation is
deemed ratified by the absent director unless the
latter promptly files his written objection with the
secretary of the corporation after having knowledge of
the meeting which, in this case, petitioner Virgilio
Dulay failed to do.
Virgilio Dulay is a signatory witness, he knows very
well about the deed of absolute sale, he is estopped
Naguiat vs. NLRC
Section 100 par. 5. To the extent that the

stockholders are actively engaged in the management
or operation of the business and affairs of a close
corporation, the stockholders shall be held to strict
fiduciary duties to each other and among themselves.
Said stockholders shall be personally liable for
corporate torts unless the corporation has obtained
reasonably adequate liability insurance.
Section 106. Incorporation. - Educational

corporations shall be governed by special laws and by
the general provisions of this Code. (n)
Officers are elected by the

Board of Directors
Although
the
articles
of
incorporation or by-laws may
provide for greater quorum
and voting requirements in
directors
meeting
under
section
25,
those
for
stockholders meeting cannot
generally be altered
Valid and binding if indicated
in the articles of incorporation
and stock certificates
Family corporations is not automatically a close

corporation the 3 qualifying conditions must be
present.
SPECIAL CORPORATIONS
2 types of special corporations
1.
2.
Educational corporations
Religious corporations
2.1 Corporation Sole
2.2 Religious Societies

What provision governs educational corporations?
Special laws like they Education Act of the Philippines

These institutions of learning, once recognized by the
government as such are mandated by law to be
incorporated within ninety (90) days under the
provisions of the Corporation Code and must, perforce,
comply with the requirements and procedure laid
down there under. Their failure to so will not immune
the educational institution from suit as a corporation.
(Chiang Kai Siek Case)
Favorable recommendation of government agency
involved
Two types of educational corporations
Certificate of completion in the academic field

Vocational and technical ones
o
Recommendation of DECS if certificate of

completion in the academic field
How is the governing

institution instituted?
Non-stock- multiples of 5 only (example: 5,10,15)

Stock- can be anywhere between 5 to 15
Can they consist of 7 or 9 members?
Yes, if stock
Can they be incorporated also as non-stock?
Yes
B.P. 232 allows the organization of an educational
institution that is stock corporation, only if they do not
issue a certificate of completion in the academic field
Qualifications and disqualifications of the membership

in the board of an educational corporation
Educational corporations are governed by special laws

and general provisions, hence if there is no provision
in the special law, you go back to section 25 and 27 of
the general provisions
Stock- must be a stockholder
Non-stock- must be a member
By-laws may provide for additional qualifications and
disqualifications
board
of
an
educational
Section 25. Corporate officers, quorum. Immediately after their election, the directors of a
corporation must formally organize by the election of a
president, who shall be a director, a treasurer who
may or may not be a director, a secretary who shall be
a resident and citizen of the Philippines, and such
other officers as may be provided for in the by-laws.
Any two (2) or more positions may be held
concurrently by the same person, except that no one
shall act as president and secretary or as president
and treasurer at the same time.
The directors or trustees and officers to be
elected shall perform the duties enjoined on them by
law and the by-laws of the corporation. Unless the
articles of incorporation or the by-laws provide for a
greater majority, a majority of the number of directors
or trustees as fixed in the articles of incorporation shall
constitute a quorum for the transaction of corporate
business, and every decision of at least a majority of
the directors or trustees present at a meeting at which
there is a quorum shall be valid as a corporate act,
except for the election of officers which shall require
the vote of a majority of all the members of the board.
Directors or trustees cannot attend or vote by proxy at
board meetings. (33a)
Section 27. Disqualification of directors, trustees or
officers. - No person convicted by final judgment of an offense
punishable by imprisonment for a period exceeding six (6) years,
or a violation of this Code committed within five (5) years prior to
57
the date of his election or appointment, shall qualify as a

Section 111. Articles of incorporation. - In

order to become a corporation sole, the chief
archbishop, bishop, priest, minister, rabbi or presiding
elder of any religious denomination, sect or church
must file with the Securities and Exchange
Commission articles of incorporation setting forth the
following:
Article 14 section 4 par. 2 of the Constitutions

Educational institutions, other than those
established by religious groups and mission boards,
shall be owned solely by citizens of the Philippines or
corporations or associations at least sixty per centum
of the capital of which is owned by such citizens. The
Congress may, however, require increased Filipino
equity participation in all educational institutions. The
control and administration of educational institutions
shall be vested in citizens of the Philippines.
1. That he is the chief archbishop, bishop, priest,

minister, rabbi or presiding elder of his religious
denomination, sect or church and that he desires to
become a corporation sole;
No educational institution shall be established

exclusively for aliens and no group of aliens shall
comprise more than one-third of the enrollment in any
school. The provisions of this sub section shall not
apply to schools established for foreign diplomatic
personnel and their dependents and, unless otherwise
provided by law, for other foreign temporary residents.
-
Term of office of governing board in an educational

institutions
Can serve a term of 5 years. If that be the case, 1/5 of

their number shall expire every year
Non-stock or stock, can they serve for a 1 year term

only?
Yes, the articles of incorporation may provide that it be

1 year only
What are these religious corporations spoken off?
Corporation sole and religious societies
What is a corporation sole?
Consists of one person only and his successor in some

particular station, who are incorporated by law in order
to give them some legal capacities and advantages,
particularly that of perpetuity, which in their natural
persons they could not have had
2. That the rules, regulations and discipline of his

religious denomination, sect or church are not
inconsistent with his becoming a corporation sole and
do not forbid it;
3. That as such chief archbishop, bishop, priest,
minister, rabbi or presiding elder, he is charged with
the administration of the temporalities and the
management of the affairs, estate and properties of
his religious denomination, sect or church within his
territorial jurisdiction, describing such territorial
jurisdiction;
Management is left solely to citizens of the Philippines

Board of Directors manages the corporate affairs,
foreigners cannot therefore be elected in the board
Exceptions are, mission boards and religious orders,
which may have a governing board consisting of
foreigners
4. The manner in which any vacancy occurring in the

office of chief archbishop, bishop, priest, minister,
rabbi of presiding elder is required to be filled,
according to the rules, regulations or discipline of the
religious denomination, sect or church to which he
belongs; and
5. The place where the principal office of the
corporation sole is to be established and located,
which place must be within the Philippines.
The articles of incorporation may include
any other provision not contrary to law for the
regulation of the affairs of the corporation. (n)
Section 112. Submission of the articles of
incorporation. - The articles of incorporation must be
verified, before filing, by affidavit or affirmation of the
chief archbishop, bishop, priest, minister, rabbi or
presiding elder, as the case may be, and accompanied
by a copy of the commission, certificate of election or
letter of appointment of such chief archbishop, bishop,
priest, minister, rabbi or presiding elder, duly certified
to be correct by any notary public.
From and after the filing with the Securities
and Exchange Commission of the said articles of
incorporation, verified by affidavit or affirmation, and
accompanied by the documents mentioned in the
preceding paragraph, such chief archbishop, bishop,
priest, minister, rabbi or presiding elder shall become
a corporation sole and all temporalities, estate and
properties of the religious denomination, sect or
church theretofore administered or managed by him
as such chief archbishop, bishop, priest, minister, rabbi
or presiding elder shall be held in trust by him as a
corporation sole, for the use, purpose, behalf and sole
benefit of his religious denomination, sect or church,
including hospitals, schools, colleges, orphan asylums,
parsonages and cemeteries thereof. (n)
May a corporation be organized by less than 5 natural

persons?
General rule, 5 to 15 natural persons(except

cooperatives and corporations primarily organized to
hold equities in rural banks and may rightfully become
incorporators thereof)
Exception, corporation sole, consist of only one person
May any person form or organize a corporation sole?
No, not any person can form a corporation sole,

section 110 provides:
Section 110. Corporation sole. - For the
purpose of administering and managing, as trustee,
the affairs, property and temporalities of any religious
denomination, sect or church, a corporation sole may
be formed by the chief archbishop, bishop, priest,
minister, rabbi or other presiding elder of such
religious denomination, sect or church. (154a)
Is it required to file the articles of incorporation in the

SEC?
Yes
What should
incorporation?
be
contained
in

the
articles
of
Section 111 and section 112 provides for the contents

and procedures
Is it required to indicate its terms of execution? Why

not?
Not required because they are supposed to exist in

perpetuity
However, it does not mean that it shall continue to
exist forever, it merely means that it has the capacity
of continuous existence during a particular period until
dissolved in accordance with law
When will it acquire judicial personality? How do you

compare this to other types of corporation?
After the filing the verified articles of incorporation

along with the documents required in Section 112 with
the SEC, immediately becomes endowed with
corporate personality, this serves as an exception to
the rule that a corporation acquires juridical
personality only upon the issuance of a certificate of
incorporation by the said government agency.
58
Upon filing of verified articles of incorporation with the

SEC, will not require the approval of SEC
A corporation sole is possessed with the same power,

rights and privileges, to own, acquire and hold or
convey properties like any other corporation? True or
False
False, they have the same power rights and privileges,

but when it comes to alienation and acquisition, it
must possess a court order, however when there is a
regulated method, a court order may be dispensed
with <sec. 113>
Section 113. Acquisition and alienation of
property. - Any corporation sole may purchase and
hold real estate and personal property for its church,
charitable, benevolent or educational purposes, and
may receive bequests or gifts for such purposes. Such
corporation may sell or mortgage real property held by
it by obtaining an order for that purpose from the
Court of First Instance of the province where the
property is situated upon proof made to the
satisfaction of the court that notice of the application
for leave to sell or mortgage has been given by
publication or otherwise in such manner and for such
time as said court may have directed, and that it is to
the interest of the corporation that leave to sell or
mortgage should be granted. The application for leave
to sell or mortgage must be made by petition, duly
verified, by the chief archbishop, bishop, priest,
minister, rabbi or presiding elder acting as corporation
sole, and may be opposed by any member of the
religious denomination, sect or church represented by
the corporation sole: Provided, That in cases where the
rules, regulations and discipline of the religious
denomination, sect or church, religious society or
order concerned represented by such corporation sole
regulate the method of acquiring, holding, selling and
mortgaging real estate and personal property, such
rules, regulations and discipline shall control, and the
intervention of the courts shall not be necessary.
(159a)
No, it will not vest unto the head, the head is acting
merely as a guardian
Roman Catholic Apostolic Adm. Of Davao, inc. vs. Land

Reg. Comm, et al.
Act only as a guardian

Ownership devolves upon the congregation or religious
denomination
A corporation consists of one person only and his
successors (who will always be one at a time, in some
particular station), who are incorporated by law in
order to give them some legal capacities and
advantages, particularly that of perpetuity, which in
their natural persons they could not have had
Roman Catholic Church has no nationality and that the
framers of the Constitution, as will be hereunder
explained, did not have in mind the religious
corporations sole when they provided that 60 percent
of the capital thereof be owned by Filipino citizens.
During any vacancy in the office of chief

archbishop, bishop, priest, minister, rabbi or presiding
elder of any religious denomination, sect or church
incorporated as a corporation sole, the person or
persons authorized and empowered by the rules,
regulations or discipline of the religious denomination,
sect or church represented by the corporation sole to
administer the temporalities and manage the affairs,
estate and properties of the corporation sole during
the vacancy shall exercise all the powers and authority
of the corporation sole during such vacancy. (158a)
Director of Lands vs. CA
Alienable public land is converted into private land

when the same has been openly, continuously and
exclusively in possession of the property as concept of
an owner for 30 years, automatically that is
The declaration of dissolution shall set forth:

1. The name of the corporation;
2. The reason for dissolution and winding up;
3. The authorization for the dissolution of the
corporation by the particular religious denomination,
sect or church;
4. The names and addresses of the persons who are to
supervise the winding up of the affairs of the
corporation.
Upon approval of such declaration of
dissolution
by
the
Securities
and
Exchange
Commission, the corporation shall cease to carry on its
operations except for the purpose of winding up its
affairs. (n)
-
Republic of the Philippines vs. IAC
Determination of the character of the land should be in

mind
If they still form part of public domain they cannot be
owned, but if they are converted into private land, the
constitutional prohibition will not apply
If there is vacancy who will fill up the same? What if

there is none, what must the successor do?
According to section 114:

While section 115 of the code provides for the process

and procedure for the dissolution of a corporate sole,
there is nothing in the law itself which would prohibit it
from amending its articles of incorporation
It is believed that authorization for the dissolution by
the particular religious denomination, sect or church,
as required in sub-paragraph 3 of section 115 would
still be necessary in the case of amending the articles
of incorporation to affect dissolution.
o
Expiration of a corporate term will not apply

to a religious corporation
May a corporation sole be dissolved by judicial decree?
General rule: No, because a corporation sole, is by its

very nature ecclesiastical and religious (doctrine of
separation of church and state)
Exception: police power of the state, if its purpose is
being carried out and is instead being used for illegal
purpose, it may be so dissolved
If a corporation exists in equity may it not be

dissolved?
Section 115. Dissolution. - A corporation
sole may be dissolved and its affairs settled voluntarily
by submitting to the Securities and Exchange
Commission a verified declaration of dissolution.
Since a corporation sole is consists only of one person,

will the registration of the property in the name of the
corporation sole vest unto the head thereof the
ownership of the property?
Section 114. Filling of vacancies. - The

successors in office of any chief archbishop, bishop,
priest, minister, rabbi or presiding elder in a
corporation sole shall become the corporation sole on
their accession to office and shall be permitted to
transact business as such on the filing with the
Securities and Exchange Commission of a copy of their
commission, certificate of election, or letters of
appointment, duly certified by any notary public.
What are religious societies?
Under common law, a religious society is a body of

persons associated together for the purpose of
maintaining religious worship.
Is it also required to file its articles of incorporation to

the SEC?
No <sec. 116> may
What should
incorporation?
be
contained
in
the
articles
of
59
3 modes of dissolution
Section 116. Religious societies. - Any

religious society or religious order, or any diocese,
synod, or district organization of any religious
denomination, sect or church, unless forbidden by the
constitution, rules, regulations, or discipline of the
religious denomination, sect or church of which it is a
part, or by competent authority, may, upon written
consent and/or by an affirmative vote at a meeting
called for the purpose of at least two-thirds (2/3) of its
membership, incorporate for the administration of its
temporalities or for the management of its affairs,
properties and estate by filing with the Securities and
Exchange Commission, articles of incorporation
verified by the affidavit of the presiding elder,
secretary, or clerk or other member of such religious
society or religious order, or diocese, synod, or district
organization of the religious denomination, sect or
church, setting forth the following:
1.
2.
By expiration of its term;

By voluntary surrender of its primary franchise
(voluntary dissolution);
By revocation of its corporate franchise (involuntary
dissolution)
3.
Philippine National Bank vs. CFI
When the period of corporate life expires, the

corporation ceases to be a body corporate for
purposes of continuing the business for which it is
organized. But it shall nevertheless be continued as a
body corporate for three years after the time when it
would have be dissolved, for the purpose of
prosecuting and defending suits by or against it and
for enabling it gradually to settle and close its affairs
to dispose of and convey its property and to divide its
assets. There is no need for the institution of a
proceeding for quo warranto to determine the time
and date of the dissolution of a corporation because
the period of corporate existence is provided in the
articles of incorporation. When such period expires
and without any extension having been made
pursuant to law, the corporation is dissolved
automatically insofar as the continuation of its
business is concerned.
The rights of the lessor and the lessee over the
improvements which the latter constructed on the
leased premises are governed by Article 1678 of the
Civil Code. The provision gives the lessee the right to
remove the improvements if the lessor chooses not to
pay one half of the value thereof. However, in the case
at bar the law will not apply because the parties herein
have stipulated in the contract their own terms and
conditions concerning the improvements before the
termination of the lease. Petitioner PNB as assignee of
PBM succeeded to the obligation of the latter under
the contract of lease. It could not possess rights more
than what PBM had as lessee under the contract.
Hence, petitioner was duly bound to remove the
improvements before the expiration of the period of
lease. Its failure to do so when the lease was
terminated was tantamount to a waiver of its rights
and interest over the improvements on the leased
premise.
1. That the religious society or religious order, or

diocese, synod, or district organization is a religious
organization of a religious denomination, sect or
church;
2. That at least two-thirds (2/3) of its membership
have given their written consent or have voted to
incorporate, at a duly convened meeting of the body;
3. That the incorporation of the religious society or

religious order, or diocese, synod, or district
organization desiring to incorporate is not forbidden by
competent authority or by the constitution, rules,
regulations or discipline of the religious denomination,
sect, or church of which it forms a part;
4. That the religious society or religious order, or
diocese, synod, or district organization desires to
incorporate for the administration of its affairs,
properties and estate;
5. The place where the principal office of the
corporation is to be established and located, which
place must be within the Philippines; and
6. The names, nationalities, and residences of the
trustees elected by the religious society or religious
order, or the diocese, synod, or district organization to
serve for the first year or such other period as may be
prescribed by the laws of the religious society or
religious order, or of the diocese, synod, or district
organization, the board of trustees to be not less than
five (5) nor more than fifteen (15). (160a)
Is it required to indicate its term of existence?
Likewise to exist in perpetuity, the law does not

require to indicate its term of existence
When will it acquire juridical personality?
3 modes of
dissolution, 3 modes of
voluntary dissolution and 3 modes of
liquidation and winding up- FREQUENTLY
ASKED IN THE FINALS
What are the 3 modes of voluntary dissolution?
1.
Voluntary dissolution where no creditors are affected;

<sec.118>
Voluntary dissolution where creditors are affected;
<sec. 119>
Shortening of corporate term. <sec. 120>
2.
3.
Voluntary dissolution where no creditors are affected

<sec.118>
The formal and procedural requirements necessary are

the following:
However it is not accurate according to atty.
1.
2.
Ladia because there are those that can issue

for example cooperatives- BUREAU OF
COOPERATIVES which register, home
insurance guaranty corporation- HOME
OWNERS
3.
Only a corporation sole may come into existence

without SEC approval, section 19 will thus govern,
Vested with judicial capacity upon issuance of the
certificate by the SEC
What is dissolution?
6.
Majority vote of the board of directors or trustees;

Sending of notice of each stockholders or member
either by registered mail or personal delivery at least
thirty (30) days prior to the meeting (scheduled by the
board for the purpose of submitting the board action
to dissolve the corporation for approval of the
stockholder or members.);
Publication of the notice of time, place and subject of
the meeting for three (3) consecutive weeks in a
newspaper published in the place where the principal
office of said corporation is located or in a newspaper
of general circulation in the Philippines;
Resolution adopted by the affirmative vote of the
stockholders owning at least 2/3 of the outstanding
capital stock or 2/3 of the members at the meeting
duly called for the purpose;
A copy of the resolution authorizing the dissolution
must be certified by a majority of the board of
directors or trustees and countersigned by the
corporate secretary;
Issuance of a certificate of dissolution by the SEC.
Extinguishment of the corporate franchise and the

termination of corporate existence
Should this be strictly complied with?
How may religious societies be dissolved?
Go to the general rules governing dissolution, because

the rules under special corporations do not provide for
such rule
4.
5.
DISSOLUTION

60
Yes, compliance with the requirements and formalities

prescribed above is mandatory such that failure to
comply therewith will have no effect on the legal
existence of the corporation.
Will dissolution be effective and valid by a mere

resolution of the BOD and stockholders?
incorporation shall be submitted to the Securities and

Exchange Commission in accordance with this Code.
Upon approval of the amended articles of
incorporation of the expiration of the shortened term,
as the case may be, the corporation shall be deemed
dissolved without any further proceedings, subject to
the provisions of this Code on liquidation. (n)
o
No, a mere resolution by the stockholders or the BOD

of a corporation to dissolve the same does not affect
the dissolution but that some other steps,
administrative or judicial is necessary. (Daguhoy
Enterprises vs. Ponce)
Since it is the State which grants its right to exist, it is
only through the State which can allow the termination
of its existence; without consent of the State, it will not
be dissolved.
Voluntary dissolution where creditors are affected

<sec.119>
1.
2.
3.
4.
5.
6.
7.
By virtue of a petition, when there are creditors

affected
The following formalities would thus be required:
Affirmative vote of the stockholders representing at
least 2/3 of the outstanding capital stock or at least
2/3 of the members at a meeting duly called for that
purpose;
Petition for dissolution shall be filed with the SEC
signed by a majority of its board of directors or
trustees or other officers having the management of
its affairs, verified by the president or secretary or one
of its directors or trustees, setting forth all claims and
demands against it.
Issuance of an order by the SEC reciting the purpose of
the petition and fixing the date on or before which
objections thereto may be filed by any person, which
date shall not be less than thirty days nor more than
sixty days after entry of the order.
Before such date, a copy of the order must be
published once a week for three (3) consecutive weeks
in a newspaper of general circulation published in the
city or municipality where the principal office is
situated or in a newspaper of general circulation in the
Philippines.
Posting of the same order for three (3) consecutive
weeks in three (3) public places in such city or
municipality.
Upon five (5) days notice, given after the date on
which the right to file objections has expired, the SEC
shall hear the petition and try any issue made by the
objections filed.
Judgment dissolving the corporation and directing of
its assets as justice requires and the appointment of a
receiver (if necessary in its discretion) to collect such
assets and pay the debts of the corporation.
o
The
foregoing
requirements
are
also
mandatory
Is the appointment of a receiver mandatory?
No, it is merely permissive or discretionary on the part

of the court. The code uses the word may; the law
intended to let the shareholders have the control of
the assets of the corporation upon dissolution and
winding up.
The directors may also undertake liquidation and

winding up of its corporate affairs, and sound business
judgment, on how they will wind up
Dissolution
<sec.120>
by
shortening
Dissolution is tantamount to the imposition of death

penalty
Instead of dissolving the corporation, courts normally
enjoin the further commission of the questioned act
The relief of dissolution will be awarded only where no
other remedy is available and it will not be allowed
where the rights of the stockholders can be, or are,
protected in some other way (Republic vs. Bisaya Land
Trans. Co. Inc.)
What are the grounds for involuntary dissolution?
It is commenced through a verified complaint or motu

proprio by the proper courts
Section 6 of PD 902-A provides for the grounds for
involuntary dissolution as follows:
1.
2.
3.
4.
5.
6.
of
corporate
term
Will be valid upon approval of the SEC, unlike general

amendments, which will be deemed approved if not
acted upon by the SEC within 6 months from the date
of filing for a cause not attributable to the corporation.
Shortening of the corporate term partakes the nature
of an amendment of the articles of incorporation.
Section 16 under general amendments allows written
assent section 37 mandates that the vote must be
cast at a duly constituted meeting.
Section 120. Dissolution by shortening
corporate term. - A voluntary dissolution may be
effected by amending the articles of incorporation to
shorten the corporate term pursuant to the provisions
of this Code. A copy of the amended articles of

Fraud in procuring its certificate of registration;

Serious misrepresentation as to what the corporation
can do or is doing to the great prejudice of or damage
to the general public;
Refusal to comply or defiance of any lawful order of
the Commission restraining commission of acts which
would amount to a grave violation of its franchise;
Continuous inoperation for a period of at least five (5)
years;
Failure to file by-laws within the required period;
Failure to file required reports in appropriate forms as
determined by the Commission within the prescribed
period.
Other grounds are provided for in the corporation code

itself: among them are:
1.
Violation of any provision of the Code under section

144;
In case of deadlock in a close corporation as provided
for in section 105;
In a close corporation, any acts of directors, officers or
those in control of the corporation which is illegal or
fraudulent or dishonest or oppressive or unfairly
prejudicial to the corporation or any stockholder or
whenever corporate assets are being misapplied or
wasted under section 105.
2.
3.
Another way of dissolving a corporation is through

involuntary dissolution
Section 121. Involuntary dissolution. - A
corporation may be dissolved by the Securities and
Exchange Commission upon filing of a verified
complaint and after proper notice and hearing on the
grounds provided by existing laws, rules and
regulations. (n)
Intra-corporate- special commercial courts
Mere dishonesty is also a ground in a close corporation

Other grounds can be found in other special laws like
the Securities Regulation Code and the General
Banking Act as well as the Insurance Code.
Government vs. Philippine Sugar Estate
It is necessary in order to secure judicial foreclosure of

respondents charter to show a mis-user of its
franchise justifying such a forfeiture
Object is to protect the public, and not to redress
private grievances, the mis-user must be such as to
work or threaten a substantial injury to the public, or
such as to amount to a violation of the fundamental
condition of the contract by which the franchise was
granted and thus defeat the purpose of the grant
Courts proceed with extreme caution which has for

their object the forfeiture of corporate franchise, and
forfeiture will not be allowed, except under express
limitation, or for plain abuse of power by which the
corporation fails to fulfill the design and purpose of its
organization. But when the abuse or violation
constitutes or threatens a substantial injury to the
public or such as to amount to a violation of the
fundamental conditions of its charter, or its conduct is
61
characterized by obduracy or pertinacity in contempt

of law, dissolution will be granted
Did the court dissolve the corporation? No, it did not, it
granted the corporation 6 months to cease and desist
the performance of the questioned act otherwise it will
be dissolved
Government vs. El Hogar
3 causes of action, the first is that the corporation

violated the law by holding on the property beyond
that provide for by law, the second is that the
corporation undertook the management f petitioners
belonging to delinquent shareholders of the
association, and lastly that the by-law provision, which
empowers the BD to cancel shares and to return to the
owners thereof the balance returning from the
liquidation
Compare to Philippine Sugar Estate, wherein the court

ruled conditional dissolution. Why decree conditional
dissolution in one and not in the other case?
Because in El Hogar the government was at fault, the

government wasnt able to issue the certificate of title
on time
When the case was instituted, El Hogar was already
able to
dispose the properties in question, in
Philippine Sugar Estate it was still the holding the
properties in order to enrich itself at the expense of
the taxpayers
May a corporation ask for dissolution of the

corporation when there is no prejudice to the general
public?
Yes, in a close corporation, a petition for the

dissolution of the corporation may be instituted by any
one individual shareholder on the ground, even by
mere dishonesty
Effects of dissolution
The dissolution of a corporation not only terminates its

primary franchise to be a corporation, but generally
prevents it from further exercising other or secondary
franchises which have been conferred to its. It
terminates its power to enter into contracts or t o
continue the business as a going concern.
Based on this general rule, the Supreme Court held
that a corporation, whose corporate life expired,
cannot lawfully pursue the business for which it was
organized. It cannot apply for a new certificate or a
secondary franchise for it is incapable of receiving a
grant. Neither can it enforce a contract executed prior
its dissolution for the purpose of continuing the
business of its organization.
In general the rights and liabilities of the corporation
are not extinguished by its dissolution.
Republic vs. Security Credit and Acceptance Corp. et

al.
The corporation here is a lending institution and not a

banking institution
Defendant corporation violated the law because before
a corporation may engage into a banking activity it
must first obtain a secondary franchise from the
Central Bank
Defendant corporation threatens substantial injury to
the general public, dissolution is warrant
If there is a bank run kawawa naman yung depositors
Republic vs. Bisaya Land Transportation Co. Inc
The relief of dissolution will be awarded only where no

other remedy is available and it will not be allowed
where the rights of the stockholders can be, or are,
protected in some other way
Misuse and misapplication of the funds and assets of
the respondent were committed particularly by the
corporate officers, where they can instead be held
personally liable
Since there is another remedy available dissolution is
not warranted
Section 145. Amendment or repeal. - No

right or remedy in favor of or against any corporation,
its stockholders, members, directors, trustees, or
officers, nor any liability incurred by any such
corporation,
stockholders,
members,
directors,
trustees, or officers, shall be removed or impaired
either by the subsequent dissolution of said
corporation or by any subsequent amendment or
repeal of this Code or of any part thereof. (n)
Buenaflor vs. Camarines Sur Industry Corp.
From that time on Camarines Sur was plying in an

activity that was illegal
A corporation where the corporate life has expired it
cannot lawfully pursue the business for which it was
organized.
the Supreme Court held that a corporation, whose
corporate life expired, cannot lawfully pursue the
business for which it was organized. It cannot apply for
a new certificate or a secondary franchise for it is
incapable of receiving a grant.
Awarding it to Camarines Sur is tantamount to a medal
for its illegal acts
It cannot apply for a new certificate or a secondary
franchise for it is incapable of receiving a grant. It was
not even a corporation de facto. And then, there is no
application subscribed by the new corporation
And yet as stated, the new corporation has not filed
any application for certificate of public convenience in
Sabang, and has not published such application.
Assuming the above stated corporation is a close

corporation, would the court decree otherwise?
Yes, because in a close corporation, mere dishonesty

is a ground for the dissolution
Can even be dissolved by petition of only one
stockholder on the grounds stated in the code < sec.
105>
Financing Corporation of the Philippines vs. Teodoro
Minority stockholders may not ask for the dissolution

of a corporation in private suits and that such actions
should be brought by the Government through its legal
officers, except in cases where the intervention
of the State, for one reason or another, cannot
be obtained, as when the State is not interested
because the complaint is strictly a matter
between the stockholders and does not involve,
in the opinion of the legal officer of the
Government, any of the acts or omissions
warranting quo warranto proceeding , in which
minority stockholders are entitled to have such
dissolution. It should be exercised if necessary in
order not to entirely ignore and disregard the rights of
said minority stockholders, especially when said
minority stockholders are unable to obtain redress and
protection of their rights within the corporation itself.
Stockholders should not be left without recourse
Present set up

Any stockholder or member of a corporation can

institute a dissolution proceeding against his own
corporation before the proper forum
Special Commercial Courts, shall hear and decide
intra-corporate disputes
Cebu Port Labor Union vs. State Marine Co
Even a cursory reading of the provision would convey

the idea clearly manifested in the limitation but not
for the purpose of continuing the business for which it
was established, that the 3-year period allowed by
the law is only for the purpose of winding up its affairs.
Gonzales vs. Sugar Regulatory Administration
Instead of applying the corporation code, the court

applied the constitutional provision
Cannot be read as permitting to destroy the
substantive rights
Such would collide with the non-impairment of
contracts clause of the constitution
Complainants will have the right to follow the assets of
the corporation in the hands of SRA or any other
agency for that matter
After dissolution what next?
Liquidation and winding up should follow
62
What is the definition of liquidation and winding up?
Collection of all corporate assets, the payments of all

its debts and settlement of its obligations and the
ultimate distribution of the corporate assets, if any of
it remains, to all stockholders in accordance with their
proportionate stockholdings in the corporation or in
accordance with their respective contracts of
subscription.
If this method is used, the three year period limitation

imposed by section 122 will not apply provided the
designation of the trustee is made within that period
3.
By appointment of a receiver
A receiver may be appointed by the proper forum on

petition or motu proprio upon the dissolution of the
corporation
The appointment of a receiver is, however, permissive
rather than mandatory and the law tends to recognize
that in cases of voluntary dissolution there is no
occasion for the appointment of a receiver except
under special circumstances and upon proper showing
If a receiver is appointed, the 3 year period fixed by
law within which to complete the task of liquidation
will not likewise apply because the dissolved
corporation is substituted by the receiver who may sue
or be sued even after that period
Preference upon liquidation
If there are preferred shares, the preference granted

to such should be complied with
Preferred shares may give the holder thereof,
preference only in the dividends but also in the
distribution of corporate assets upon liquidation or
termination of the corporate existence. If such is the
intent, the contract of subscription must so indicate
lest they are placed on equal footing with common
shareholders
Preference may be participating or non-participating
Dissolved corporations are granted a period of 3 years

to liquidate
Section 122. Corporate liquidation. - Every
corporation whose charter expires by its own limitation
or is annulled by forfeiture or otherwise, or whose
corporate existence for other purposes is terminated
in any other manner, shall nevertheless be continued
as a body corporate for three (3) years after the time
when it would have been so dissolved, for the purpose
of prosecuting and defending suits by or against it and
enabling it to settle and close its affairs, to dispose of
and convey its property and to distribute its assets,
but not for the purpose of continuing the business for
which it was established.
At any time during said three (3) years, the
corporation is authorized and empowered to convey all
of its property to trustees for the benefit of
stockholders, members, creditors, and other persons
in interest. From and after any such conveyance by
the corporation of its property in trust for the benefit
of its stockholders, members, creditors and others in
interest, all interest which the corporation had in the
property terminates, the legal interest vests in the
trustees, and the beneficial interest in the
stockholders, members, creditors or other persons in
interest.
Upon the winding up of the corporate affairs,
any asset distributable to any creditor or stockholder
or member who is unknown or cannot be found shall
be escheated to the city or municipality where such
assets are located.
National Abaca other Fibers Co. vs. Pore
Actions pending for or against the corporation when

the 3 year period expires, are abated since after that
period, the corporation ceases for all intents and
purposes and is no longer capable of suing or being
sued
May be continued by the trustee provided done within
the 3 year period
Should the corporation, therefore, finds it difficult to
finish its liquidation, it may, at any time during the
three year period, convey all its assets and receivables
to a trustee to prosecute and defend suits by or
against the corporation begun before the expiration of
said period
The effect of the conveyance is to make the trustees
the legal owners of the property conveyed, subject to
the beneficial interest therein of creditors and
stockholders
Sumera vs. Valencia
Thus it was held that when a corporation is dissolved

and the liquidation of the assets is placed in the hands
of receiver or assignee, the period of 3 years
prescribed by law is not applicable and the assignee
may institute all actions leading to the liquidation of
the corporation even after the expiration of 3 years.
If the corporation carries out the liquidation of its
assets through its own officers and continues and
defends the actions brought by or against it, its
existence shall terminate at the end of three years
from the time of dissolution; but if a receiver or
assignee is appointed, with or without a transfer of its
properties within 3 years, the legal interest passes to
the assignee, the beneficial interest remaining in the
members, stockholders, creditors and other interested
persons and said assignee may bring an action,
prosecute that which has already been commenced for
the benefit of the corporation, or defend the latter
against any other action already instituted or which
may be instituted even outside of the period of three
years fixed for the offices of the corporation.
Except by decrease of capital stock and as

otherwise allowed by this Code, no corporation shall
distribute any of its assets or property except upon
lawful dissolution and after payment of all its debts
and liabilities. (77a, 89a, 16a)
However the 3 year period is not absolute

Liquidation may be undertaken in either of the 3 ways
1.
By the corporation itself through the BOD
Usual method or procedure of liquidating a corporation

and although there is no law authorizing it, neither is
there anything that prohibits the BOD from
undertaking the same
If this method is resorted to, the board will only have a
period of 3 years to finish its task of liquidation
Claims for or against the corporate entity not filed
within the period will become unenforceable as there
exist no corporate entity against which they can be
enforced
Actions pending for or against the corporation when
the 3 year period expires, are abated since after the
period, the corporation ceases for all intents and
purposes and is no longer capable of suing or being
sued
2.
By a trustee appointed by the corporation
The corporation may opt to convey all corporate

assets to a trustees who will take charge of liquidation

Mere appointment of a receiver without

anything more does imply in the dissolution
of a corporation
Board of Liquidators vs. Kalaw
If there is a trustee, assignee or liquidator, it can

continue prosecuting suit even beyond the 3 year
period fixed by law because he becomes the legal
owner of the rights, assets and properties conveyed to
him
Gelano vs. CA
Trustee as used in the corporation statute must be

understood in its general concept which could include
the counsel to whom was entrusted in the instant
case, the prosecution of the suit filed by the
corporation. The purpose in the transfer of the assets
of the corporation to a trustee upon its dissolution is
more for the protection of its creditors and
stockholders. Debtors like the petitioners herein may
not take advantage of the failure of the corporation to
transfer its assets to a trustee, assuming it has any to
transfer which petitioner has failed to show, in the first
place. To sustain petitioners contention would be to
allow them to enrich themselves at the expense of
another, which all enlightened legal systems condemn.
63
The counsel who prosecuted and defended the interest

of the corporation may be considered as a trustee at
least with respect to the matter in litigation only
May a corporation that is already dissolved, transfer

and assign its assets and properties to a new
corporation which will continue the business of the
dissolved one?
According to atty Ladia: What happens to a

corporation that is already dissolved, that has not
been able to appoint a trustee with in the 3 year
period?
a corporation dissolved which failed to exercise its

rights granted in section 122 after the 3 year period
has elapsed, ceases to exist for all intents and
purposes, it can no longer sue or be sued
according to 122 of the code, the property should be
escheated, accordingly:
Yes, provided all the stockholders gave their consent

(Chung Ka Bio vs. IAC)
Republic vs. Marsman
Chung Ka Bio vs. IAC
Development
Company
Section 122. Corporate liquidation. - Every

corporation whose charter expires by its own limitation
or is annulled by forfeiture or otherwise, or whose
corporate existence for other purposes is terminated
in any other manner, shall nevertheless be continued
as a body corporate for three (3) years after the time
when it would have been so dissolved, for the purpose
of prosecuting and defending suits by or against it and
enabling it to settle and close its affairs, to dispose of
and convey its property and to distribute its assets,
but not for the purpose of continuing the business for
which it was established.
&
During the three year period granted to a corporation

to liquidate or wind up its affairs, the BOD is not
normally permitted to undertake any activity outside
the usual liquidation of the corporation. There is,
however, nothing to prevent the stockholders from
conveying their respective shareholdings toward the
creation of a new corporation to continue the business
of the old. This is because winding up is the sole
activity of the dissolved corporation that does not
intend to incorporate a new. If it does, however, it is
not unlawful for the old board of directors to negotiate
and transfer the assets of the dissolved corporation to
the new corporation intended to be created as long as
the stockholders have given their consent (Republic
vs. Marsman Development Company)
At any time during said three (3) years, the

corporation is authorized and empowered to convey all
of its property to trustees for the benefit of
stockholders, members, creditors, and other persons
in interest. From and after any such conveyance by
the corporation of its property in trust for the benefit
of its stockholders, members, creditors and others in
interest, all interest which the corporation had in the
property terminates, the legal interest vests in the
trustees, and the beneficial interest in the
stockholders, members, creditors or other persons in
interest.
Winding up is the sole activity of a dissolved

corporation that does not intend to incorporate anew.
If it does, however, it is not unlawful for the old board
of directors to negotiate and transfer the assets of the
dissolved corporation to the new corporation intended
to be created as long as the stockholders have given
their consent (Chung Ka Bio vs. IAC)
Upon the winding up of the corporate affairs,

any asset distributable to any creditor or
stockholder or member who is unknown or
cannot be found shall be escheated to the city
or municipality where such assets are located.
What happens to the remaining assets and properties

of the dissolved corporation if liquidation and winding
up as provided in section 122 is not complied with, as
a result of which the 3 year period has elapsed
If the three year extended life has expired without a

trustee or receiver having been expressly designated
by the corporation within that period, the board of
directors o trustees itself, following the rationale of the
Supreme Courts decision in Gelano vs. CA may be
permitted to do so continue as trustees by legal
implication to complete the liquidation. Still in the
absence of a BOD or BOT, those having any pecuniary
interest in the assets, including not only the
shareholders but likewise the creditors of the
corporation, acting for and in its behalf, might make
proper representations with the SEC, which has
primary and sufficiently broad jurisdiction in matters of
this nature, for working out a final settlement of the
corporate concerns (Clemente vs. CA)
o
FOREIGN CORPORATIONS
Definition
Section 123. Definition and rights of foreign

corporations. - For the purposes of this Code, a foreign
corporation is one formed, organized or existing under
any laws other than those of the Philippines and whose
laws allow Filipino citizens and corporations to do
business in its own country or state. It shall have the
right to transact business in the Philippines after it
shall have obtained a license to transact business in
this country in accordance with this Code and a
certificate of authority from the appropriate
government agency. (n)
What if the law of the state of the foreign corporation

does not allow Filipino citizens to do business in their
country?
The phrase and whose laws allow Filipino citizens and

corporations to do business in its own country or
state is not, however, an accurate inclusion in the
definition as ay corporation registered or organized
under the laws of another state is necessarily a foreign
corporation whether or not the state of its
incorporation allow Filipino citizens or corporations to
do business in that forum.
The said phrase was inserted by the framers of the law
only as a condition precedent to the grant of a license
of a foreign corporation to do business in the
Philippines.
According to atty. Ladia the ruling of the

Supreme Court in the case of Clemente vs.
CA is wrong, opinion is further discussed
after the Clemente Case
Clemente vs. CA
Who owns the properties? SOCIEDAD ANONIMA

The termination of the life of a juridical entity does not
by itself cause the extinction or diminution of the
rights and liabilities of such entity or those of its
owners and creditors. If the three year extended life
has expired without a trustee or receiver having been
expressly designated by the corporation within that
period, the board of directors o trustees itself,
following the rationale of the Supreme Courts decision
in Gelano vs. CA may be permitted to do so continue
as trustees by legal implication to complete the
liquidation. Still in the absence of a BOD or BOT, those
having any pecuniary interest in the assets, including
not only the shareholders but likewise the creditors of
the corporation, acting for and in its behalf, might
make proper representations with the SEC, which has
primary and sufficiently broad jurisdiction in matters of
this nature, for working out a final settlement of the
corporate concerns
o
Except by decrease of capital stock and as

otherwise allowed by this Code, no corporation shall
distribute any of its assets or property except upon
lawful dissolution and after payment of all its debts
and liabilities. (77a, 89a, 16a)
the ruling is wrong according to atty.

Ladia
Composed of 100% Americans; organized under the

laws other than the Philippines
The test is the incorporation test

General rule: the place of its incorporation irrespective
of the nationality
Exception: control test would apply in determining the
corporate nationality, i.e., the citizenship of the

64
controlling stockholders determines the nationality of

the corporation
If a foreign corporation wants to transact business in

the Philippines, what must it do?
Obtain a license
How may it do so?
According to sec. 125:

Section 125. Application for a license. - A
foreign corporation applying for a license to transact
business in the Philippines shall submit to the
Securities and Exchange Commission a copy of its
articles of incorporation and by-laws, certified in
accordance with law, and their translation to an official
language of the Philippines, if necessary. The
application shall be under oath and, unless already
stated in its articles of incorporation, shall specifically
set forth the following:
Foreign banking, financial and insurance

corporations shall, in addition to the above
requirements, comply with the provisions of existing
laws applicable to them. In the case of all other foreign
corporations, no application for license to transact
business in the Philippines shall be accepted by the
Securities and Exchange Commission without previous
authority from the appropriate government agency,
whenever required by law. (68a)
Is there any deposit or security requirement?
Yes, within 60 days after the issuance of the license, a

foreign corporation, except those engaged in foreign
banking or insurance, shall deposit with the SEC, for
the benefit of creditors, securities consisting of bonds
or other evidence of indebtedness of the Philippine
government or its political subdivision, or of
government owned or controlled corporation, shares of
stock in registered enterprises as this term is
defined in R.A. 5186, shares of stock in domestic
insurance companies and banks or any combination
thereof with an actual market value of 100,000
Additional securities may be required by the SEC if the
actual market value of the securities on deposit has
decreased by at least 10%. Section 126 of the code
provides:
1. The date and term of incorporation;

2. The address, including the street number, of the
principal office of the corporation in the country or
state of incorporation;
Section 126. Issuance of a license. - If the

Securities and Exchange Commission is satisfied that
the applicant has complied with all the requirements
of this Code and other special laws, rules and
regulations, the Commission shall issue a license to
the applicant to transact business in the Philippines for
the purpose or purposes specified in such license.
Upon issuance of the license, such foreign corporation
may commence to transact business in the Philippines
and continue to do so for as long as it retains its
authority to act as a corporation under the laws of the
country or state of its incorporation, unless such
license is sooner surrendered, revoked, suspended or
annulled in accordance with this Code or other special
laws.
3. The name and address of its resident agent

authorized to accept summons and process in all legal
proceedings and, pending the establishment of a local
office, all notices affecting the corporation;
4. The place in the Philippines where the corporation
intends to operate;
5. The specific purpose or purposes which the
corporation intends to pursue in the transaction of its
business in the Philippines: Provided, That said
purpose or purposes are those specifically stated in
the certificate of authority issued by the appropriate
government agency;
Within sixty (60) days after the issuance of

the license to transact business in the Philippines, the
license, except foreign banking or insurance
corporation, shall deposit with the Securities and
Exchange Commission for the benefit of present and
future creditors of the licensee in the Philippines,
securities satisfactory to the Securities and Exchange
Commission, consisting of bonds or other evidence of
indebtedness of the Government of the Philippines, its
political subdivisions and instrumentalities, or of
government-owned or controlled corporations and
entities, shares of stock in "registered enterprises" as
this term is defined in Republic Act No. 5186, shares of
stock in domestic corporations registered in the stock
exchange, or shares of stock in domestic insurance
companies and banks, or any combination of these
kinds of securities, with an actual market value of at
least one hundred thousand (P100,000.) pesos;
Provided, however, That within six (6) months after
each fiscal year of the licensee, the Securities and
Exchange Commission shall require the licensee to
deposit additional securities equivalent in actual
market value to two (2%) percent of the amount by
which the licensee's gross income for that fiscal year
exceeds five million (P5,000,000.00) pesos. The
Securities and Exchange Commission shall also require
deposit of additional securities if the actual market
value of the securities on deposit has decreased by at
least ten (10%) percent of their actual market value at
the time they were deposited. The Securities and
Exchange Commission may at its discretion release
part of the additional securities deposited with it if the
gross income of the licensee has decreased, or if the
actual market value of the total securities on deposit
has increased, by more than ten (10%) percent of the
actual market value of the securities at the time they
were deposited. The Securities and Exchange
Commission may, from time to time, allow the licensee
to substitute other securities for those already on
deposit as long as the licensee is solvent. Such
licensee shall be entitled to collect the interest or
dividends on the securities deposited. In the event the
licensee ceases to do business in the Philippines, the
securities deposited as aforesaid shall be returned,
upon the licensee's application therefor and upon
proof to the satisfaction of the Securities and
Exchange Commission that the licensee has no liability
to Philippine residents, including the Government of
the Republic of the Philippines. (n)
6. The names and addresses of the present directors

and officers of the corporation;
7. A statement of its authorized capital stock and the
aggregate number of shares which the corporation has
authority to issue, itemized by classes, par value of
shares, shares without par value, and series, if any;
8. A statement of its outstanding capital stock and the
aggregate number of shares which the corporation has
issued, itemized by classes, par value of shares,
shares without par value, and series, if any;
9. A statement of the amount actually paid in; and
10. Such additional information as may be necessary
or appropriate in order to enable the Securities and
Exchange Commission to determine whether such
corporation is entitled to a license to transact business
in the Philippines, and to determine and assess the
fees payable.
Attached to the application for license shall
be a duly executed certificate under oath by the
authorized official or officials of the jurisdiction of its
incorporation, attesting to the fact that the laws of the
country or state of the applicant allow Filipino citizens
and corporations to do business therein, and that the
applicant is an existing corporation in good standing. If
such certificate is in a foreign language, a translation
thereof in English under oath of the translator shall be
attached thereto.
The application for a license to transact
business in the Philippines shall likewise be
accompanied by a statement under oath of the
president or any other person authorized by the
corporation, showing to the satisfaction of the
Securities and Exchange Commission and other
governmental agency in the proper cases that the
applicant is solvent and in sound financial condition,
and setting forth the assets and liabilities of the
corporation as of the date not exceeding one (1) year
immediately prior to the filing of the application.
Other than section 125 and 126. What other

requirements are set under Philippine Law before a
65
foreign corporation may transact business in the

Philippines
Yes. A Resident agent is required. As a condition

precedent to the grant of a license to do or transact
business in the Philippines, the foreign corporation is
required to designate its resident agent on whom
summons and other legal processes may be served in
all actions or legal proceedings against such
corporation
Section 128. Resident agent; service of

process. - The Securities and Exchange Commission
shall require as a condition precedent to the issuance
of the license to transact business in the Philippines by
any foreign corporation that such corporation file with
the Securities and Exchange Commission a written
power of attorney designating some person who must
be a resident of the Philippines, on whom any
summons and other legal processes may be served in
all actions or other legal proceedings against such
corporation, and consenting that service upon such
resident agent shall be admitted and held as valid as if
served upon the duly authorized officers of the foreign
corporation at its home office. Any such foreign
corporation shall likewise execute and file with the
Securities and Exchange Commission an agreement or
stipulation, executed by the proper authorities of said
corporation, in form and substance as follows:
"The (name of foreign corporation) does
hereby stipulate and agree, in consideration of its
being granted by the Securities and Exchange
Commission a license to transact business in the
Philippines, that if at any time said corporation shall
cease to transact business in the Philippines, or shall
be without any resident agent in the Philippines on
whom any summons or other legal processes may be
served, then in any action or proceeding arising out of
any business or transaction which occurred in the
Philippines, service of any summons or other legal
process may be made upon the Securities and
Exchange Commission and that such service shall
have the same force and effect as if made upon the
duly-authorized officers of the corporation at its home
office."
Whenever such service of summons or other
process shall be made upon the Securities and
Exchange Commission, the Commission shall, within
ten (10) days thereafter, transmit by mail a copy of
such summons or other legal process to the
corporation at its home or principal office. The sending
of such copy by the Commission shall be necessary
part of and shall complete such service. All expenses
incurred by the Commission for such service shall be
paid in advance by the party at whose instance the
service is made.
If the foreign corporation conducts business in the

Philippines without the license requirement. What is
the effect?

Section 133. Doing business without a
license. - No foreign corporation transacting business
in the Philippines without a license, or its successors or
assigns, shall be permitted to maintain or intervene in
any action, suit or proceeding in any court or
administrative agency of the Philippines; but such
corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any
valid cause of action recognized under Philippine laws.
(69a)
if they do so, the responsible officers may be

subjected to the penal sanctions provided for in
section 144 of the code, which may either be fine or
imprisonment
What if it is not doing business without a license?
If it is not transacting business in the Philippines, even

without a license, it can sue before the Philippine
Courts
The general rule is that it is not the lack of required

license but doing business without a license which
bars a foreign corporation form access to our courts.
Exception:
1.
In case of a change of address of the

resident agent, it shall be his or its duty to
immediately notify in writing the Securities and
Exchange Commission of the new address. (72a; and
n)
-
No, if there is a resident agent, the designation is

exclusive and service must be made only to the
resident agent or else the service is without force and
effect unless made to him
Thus, while the law allows service upon the SEC or any
of its officers or agents within the Philippines
The two modes may become effective only if the
foreign corporation failed or neglected to designate
such a person or an agent
Summons must be made only to resident agent except
when there is no resident agent appointed
Where such foreign corporation actually doing
business here has not applied for a license to do and
has not designated an agent to receive summons,
then service of summons on it will be made pursuant
to the provisions of the rules of court. If such foreign
corporation has a license to do business, then
summons to it will be served on the agent designated
by it for the purpose, or otherwise in accordance with
the Corporation Law (General Corporation of the
Philippines vs. Union Insurance Soc. Of Canton Ltd.)
2.
The necessity of the appointment of a resident agent

is only for the purpose of receiving summons and
other legal processes in any legal action or proceeding
against the foreign corporation
3.
Who may be appointed as a resident agent?
4.
5.
Section 127 provides that:

Section 127. Who may be a resident agent.
- A resident agent may be either an individual residing
in the Philippines or a domestic corporation lawfully
transacting business in the Philippines: Provided, That
in the case of an individual, he must be of good moral
character and of sound financial standing. (n)
May a partnership be appointed as a resident agent?
Yes, domestic corporation taken in its general sense

not legal sense
If there is a resident agent appointed. May summons

be served to any officers of the corporation?

Foreign corporations can sue before the

Philippine Courts if the act or transaction involved
is an isolated transaction or the corporation is
not seeking to enforce any legal or contractual
rights arising from, or growing out of, any
business which it has transacted in the
Philippines
Neither is a license required before a foreign
corporation may sue before the forum if the
purpose of the suit is to protect its trademark,
trade name, corporate name, reputation or
goodwill;
Or where it is based on a violation of the Revised
Penal Code;
Or merely defending a suit filed against it
Or where a party is stopped to challenge the
personality of the corporation by entering into a
contract with it.
Rules laid down by the SC

A.
As to whether or
not it can sue
A
foreign
corporation
transacting
or
doing
business in the Philippines
with a license can sue
before Philippine Courts
Subject
to
certain
exceptions,
a
foreign
corporation doing business
in the country without a
license
cannot
sue
in
Philippine Courts
If it is not transacting
business in the Philippines,
even without a license, it
B.
As to whether or
not it can be sued
A
foreign
corporation
transacting business in the
Philippines
with
the
requisite license can be
sued in the Philippine Courts
A
foreign
corporation
transacting business in the
Philippines without a license
can be sued in Philippine
Courts
if it is not doing business in
the Philippines, it cannot be
sued in Philippine Courts for
66
petitioner has been in the Philippines engaged in

continuing business or enterprise for which it was
organized, when the sixteen bundles were erroneously
discharged in manila, for it to be considered as
transacting business in the Philippines. The fact is that
the bundles, the value of which is sought to be
recovered, were landed not as a result of a business
transaction, isolated or otherwise, but due to a
mistaken belief that they were part of the shipment of
forty similar bundles consigned to persons or entities
in the Philippines, there is no justification therefore, for
invoking the section
can
sue
before
the
lack of jurisdiction
Philippine Courts
A foreign corporation not doing business in the

Philippines, may it be sued?
-
If it is not transacting business in the country it cannot

be sued for lack of jurisdiction
Is there any sanction that can be enforced to foreign

corporations which are doing business without the
required license?
Penal sanctions under section 144

Any violation of the code is subject to such penal
sanctions
What would constitute doing business?
The true test, however, seems to be whether the

foreign corporation is continuing the body or
substance of the business or enterprise for which it
was organized or whether it has substantially retired
from it and turned it over to another. The term implies
a
continuity
of
commercial
dealings
and
arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of some
of the functions normally incident to, and in
progressive prosecution of, the purpose and object of
its organization (Mentholatum Co. Inc. vs. Mangaliman)
Mentholatum vs. Mangaliman
The true test, however, seems to be whether the

foreign corporation is continuing the body or
substance of the business or enterprise for which it
was organized or whether it has substantially retired
from it and turned it over to another. The term implies
a
continuity
of
commercial
dealings
and
arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of some
of the functions normally incident to, and in
progressive prosecution of, the purpose and object of
its organization
Whatever transaction the Philippine-American Drug
Co. had executed in view of the law, the Mentholatum
Co. did it itself. And the Mentholatum Co. being a
foreign corporation doing business in the Philippines
without the license required by section 68 of the
Corporation Law, it may not prosecute this action for
violation of trade mark and unfair competition
There were 3 contracts entered into, how come they

were still not considered as doing business? (Antam
Consolidted, Inc. vs. CA)
Every case shall be judged in the light of its peculiar

circumstances, where a single act or transaction
however, is not merely incidental or casual but
indicates the foreign corporations intention to do
other business in the Philippines, said single act or
transaction constitutes doing or engaging in or
transacting business in the Philippines
In the case at bar, the transaction entered into by the
respondent with the petitioners are not a series of
commercial dealings which signify an intent on the
part of the respondent to do business in the Philippines
but constitute an isolated one which does not fall
under the category of doing business.
The records show that the only reason why the
respondent entered into the second and third
transactions with the petitioner was because it wanted
to recover the loss it sustained from the failure of the
petitioners to deliver the crude coconut oil under the
first transaction and in order to give the latter a
chance to make good on their obligation. From these
facts alone, it can be deducted that in reality there
was only one agreement between the petitioners and
the respondent.
The three seemingly different transactions were
entered into by the parties only in an effort to fulfill the
basic agreement and in no way indicate an intent on
the part of the respondent to engage in a continuity of
transactions with petitioners which will categorize it as
a foreign corporation doing business in the Philippines
3 contracts, but according to the court was not doing
business in the Philippines
Far East Intl import vs. Nankai Kogyo Co. Ltd.
Only one contract , but according to the Supreme

Court was doing business in the Philippines
Every case shall be judged in the light of its peculiar
circumstances, where a single act or transaction
however, is not merely incidental or casual but
indicates the foreign corporations intention to do
other business in the Philippines, said single act or
transaction constitutes doing or engaging in or
transacting business in the Philippines
In the instant case, the testimony of Atty. Pablo
Ocampo, that appellant was doing business in the
Philippines corroborated by no less than Nabuo
Toshida, one of appellants officers, that he was sent
to the Philippines to look into the operation of mines,
thereby revealing the defendants desire to continue
engaging in business here, after receiving the
shipment of the scrap iron under consideration,
making the Philippines a base thereof.
In such a case, the single act of transaction is not
merely incidental or casual, but is of such character as
distinctly to indicate a purpose on the part of the
operations for the conduct of a part of corporations
ordinary business
Why is foreign corporations barred access from our

courts if they do business without a license?
Marshall-Wells Co. vs. Henry W. Elser and Co.
Marshall-Wells Co. vs. Henry W. Elser and Co.
The object of the statute was to subject the foreign

corporation doing business in the Philippines to the
jurisdiction of its courts. The object of the statute was
not to prevent the foreign corporation from performing
single acts, but to prevent it from acquiring a domicile
for the purpose of business without taking the steps
necessary to render it amenable to suit in local courts.
Bulakhidas vs. Navarro
It is settled that if a foreign corporation is not engaged

in business in the Philippines, it may not be denied the
right to file an action in Philippine courts for isolated
transactions
The object of section 68 and 69 of the Corporation law
was not to prevent the foreign corporation from
performing single acts, but to prevent it from acquiring
a domicile for the purpose of business without taking
the steps necessary to render it amenable to suit in
the local courts. It was never the purpose of the
Legislature to exclude a foreign corporation which
happens to obtain an isolated order for business from
the Philippines, from securing redress in the Philippine
courts
If a corporation appoints a distributor or a

representative, will it necessarily imply doing business
in the country?
If the foreign corporation maintained an independent

status during the existence of the disputed contract.
Appointment of a distributor or representative in the

Philippines, unless it has an independent status
(transacts and does business in its own name and for
its account and not of the foreign corporation)
if that be the case the mere appointment of a
distributor will not constitute doing business
The Swedish East Asia Co., Ltd. Vs. Manila Port Service
How do you know if it has an independent status?
It must stated that the section is not applicable to a

foreign corporation performing single acts or isolated
transactions. There is nothing to show that the
Communications Materials and Design vs. CA

67
Communications Materials and Design vs. CA
Le Chemiste Lacoste vs. Fernandez
A perusal of the agreements between petitioner ASPAC

and the respondents show that there are provisions
which are highly restrictive in nature, such as to
reduce petitioner ASPAC to a mere extension or
instrument of the private respondents
ITEC was doing business without a license, however
ASPAC is estopped
by entering into the Representative Agreement with
ITEC, petitioner is charge with knowledge that ITEC
was not licensed to engage in business activities in the
country, and is thus stopped from raising in defense
such incapacity of ITEC, having chosen to ignore or
even presumptively take advantage of the same
In top-weld we ruled that a foreign corporation may be
exempted from the license requirements in order to
institute an action in our courts if its representative in
the country maintained an independent status during
the existence of the disputed contract. Petitioner is
deemed to have acceded to such independent
character when it entered into the Representative
Agreement with ITEC
The French company may gain access to our courts, in

the first place it was not doing business in the
Philippines
The marketing of its products in the Philippines is done
through an exclusive distributor, Rustan Commercial
Corporation. The latter is an independent entity which
buys and then markets not only products of the
petitioner but also many other products bearing
equally well-known and established trademarks and
trade-names
Western Equipment and Supply Co. vs. Reyes
The company is not here seeking to enforce any legal

or contract rights arising from, or growing out of any
business which it has transacted in the Philippine
Islands. The sole purpose of the action is to protect its
reputation, its corporate name, its goodwill, whenever
that reputation, corporate name or goodwill have
through the natural development of its trade,
established themselves
And it contends that its rights to the use of its
corporate and trade name, is a property right, a right
in rem, which may assert and protect against all the
world, in any of the courts of the world even in
jurisdictions where it does not transact business just
the same as it may protect its tangible property, real
or personal, against trespass, or conversion
Since it is the trade and not the mark that is to be
protected a trademark acknowledges no territorial
boundaries or municipalities or states or nations, but
extends to every market where the traders goods
have become known and identified by the use of the
mark
Assuming Rustans had no independent status would

the SC grant Lacoste access to our courts?
Even if Lacoste did business in the Philippines it can

bring action because the case involves a violation of
our penal code
Such was a violation of article 189 of the RPC, if
prosecution follows after the completion of the
preliminary investigation being conducted by the
Special Prosecutor the information shall be in the
name of the People of the Philippines and no longer
the petitioner which is only an aggrieved party since a
criminal offense is essentially an act against the State.
It is the latter which is principally the injured party
although there is a private right violated
The records show that the goodwill and reputation of
the petitioners products bearing the trademark
Lacoste date back even before 1964 when Lacoste
clothing apparels were forst marketed in the
Philippines. To allow Hemandas to continue using the
trademark Lacoste for the simple reason that he was
the first registrant in the Supplemental Register of a
trademark used in international commerce and not
belonging to him is to render nugatory the very
essence of the law on trademarks and trade names
Atlantic Mutual Insurance Co. vs. Cebu Stevedoring Co.
The law denies to a foreign corporation the right to

maintain suit unless it has previously complied with a
certain requirement, then such compliance, or the fact
that the suing corporation is exempt there from,
becomes a necessary averment in the complaint
These are matters peculiarly within the knowledge of
appellants alone, and it would be unfair to impose
upon appellee the burden of asserting and proving the
contrary. It is enough that foreign corporations are
allowed by law to seek redress in our courts under
certain conditions: the interpretation of the law should
not go so far as to include, in effect, an inference than
those conditions have been met from the mere fact
that the party suing is a foreign corporation
General Garments Corporation vs. Director of Patents
A foreign corporation which has never done business

in the Philippine Islands and which is unlicensed and
unregistered to do business here, but is widely and
favorably known in the Islands through the use therein
of its products bearing its corporate and trade name
has a legal right to maintain an action in the Islands
Mentholatum case was subsequently derogated when
Congress, purposely to counteract the effects of said
case, enacted R.A. 638, inserting Section 21-A in the
Trademark Law, which allows a foreign corporation or
juristic person to bring an action in Philippine Courts
for infringement of a mark or trade-name, for unfair
competition, or false designation of origin and false
description, whether or not it has been licensed to do
business in the Philippines under Act Numbered
Fourteen hundred and fifty-nine, as amended,
otherwise known as Corporation Law, at the time it
brings complaint.
Puma Sporschufabriken Rudolf Dassler, K.G. vs. IAC

and MIL-ORO MFG. Corp.
Treaties for part of the law of the land

Quoting the Paris Convention and the case of Vanity
Fair Mills Inc. vs. T. Eaton Co. this court further said:
By the same token, the petitioner should be
given the same treatment in the Philippines
as we make available to our own citizens.
We are obliged to assure to nationals of
countries of the Union an effective
protection against unfair competition on the
same way that they are obligated to
similarly protect Filipino Citizen and firms
The ruling in the aforecited case is in consonance with

the Convention of the Union of Paris for the protection
of Industrial Property to which the Philippines became
a party. Article 8 thereof provides that a trade name
shall be protected in all the countries of the Union
without the obligation of filing or registration, whether
or not it forms part of the trademark

Olympia Business Machines Co. vs. E. Razon
How do you distinguish this case with Atlantic?

In Atlantic it dismissed the case, while in Olympia it did
not
Time Inc. vs. Reyes
We fail to see how these doctrines can be a propos in

the case at bar, since the petitioner is not
maintaining any suit but is merely defending one
against itself; it did not file any complaint but only a
corollary defensive petition to prohibit the lower court
from further proceeding with a suit that it had no
jurisdiction to entertain
What law govern foreign corporation doing and

transacting business in the Philippines with a license
Laws of the Republic of the Philippines save and

except that would normally be those matters which
concern its formation, organization or dissolution, or
those fixing the relationship, liabilities, responsibilities,
or duties of the stockholders, members or officers of
the foreign corporation or their relations to each other.
In effect, intra-corporate or internal matters not
affecting creditors or the public in general are
governed not by Philippine laws but the law under
which the foreign corporation was formed or organized
Section 129. Law applicable. - Any foreign

corporation lawfully doing business in the Philippines
shall be bound by all laws, rules and regulations
applicable to domestic corporations of the same class,
except such only as provide for the creation,
68
formation, organization or dissolution of corporations

or those which fix the relations, liabilities,
responsibilities, or duties of stockholders, members, or
officers of corporations to each other or to the
corporation. (73a)
the appropriate government agency in the proper

cases.
The Securities and Exchange Commission
shall also mail to the corporation at its registered
office in the Philippines a notice of such revocation
accompanied by a copy of the certificate of revocation.
(n)
Will the pre-emptive rights of a foreign corporation be

governed by the same section of the code? Is the preemptive rights of a stockholder in a domestic
corporation same as the pre-emptive of a stockholder
of a foreign corporation.
Voluntary withdrawal of license
No
All 3 conditions must be complied with
M.E. Grey vs. Insular Lumber Company
PNB vs. Gonzales, will this apply to a foreign

corporation? How do you distinguish this case from a
Philippine law?
Since it concerns the rights of stockholders it is the law
of New York that should govern
Is the license to do business of a foreign corporation

subject to suspension or revocation? What are the
grounds?
Section 136. Withdrawal of foreign

corporations. - Subject to existing laws and
regulations, a foreign corporation licensed to transact
business in the Philippines may be allowed to withdraw
from the Philippines by filing a petition for withdrawal
of license. No certificate of withdrawal shall be issued
by the Securities and Exchange Commission unless all
the following requirements are met;
1. All claims which have accrued in the Philippines
have been paid, compromised or settled;
2. All taxes, imposts, assessments, and penalties, if
any, lawfully due to the Philippine Government or any
of its agencies or political subdivisions have been paid;
and
Section 134. Revocation of license. Without prejudice to other grounds provided by special
laws, the license of a foreign corporation to transact
business in the Philippines may be revoked or
suspended
by
the
Securities
and
Exchange
Commission upon any of the following grounds:
3. The petition for withdrawal of license has been

published once a week for three (3) consecutive weeks
in a newspaper of general circulation in the
Philippines.
1. Failure to file its annual report or pay any fees as

required by this Code;
P.D. 902-A
2. Failure to appoint and maintain a resident agent in
the Philippines as required by this Title;
P.D. 902-A was amended by R.A. 8799 or the

SECURITIES REGULATION CODE in the year 2000
The jurisdiction of SEC for cases falling under section 5

thereof was transferred to the courts of general
jurisdiction designated by the SC, they were called
special commercial courts, the only exceptions were
revocation of corporate franchise and calling of
elections
However the SEC retained receivership or suspension

payments within June 20,2000
5. A misrepresentation of any material matter in any

application, report, affidavit or other document
submitted by such corporation pursuant to this Title;
6. Failure to pay any and all taxes, imposts,

assessments or penalties, if any, lawfully due to the
Philippine Government or any of its agencies or
political subdivisions;
Jurisdiction of special commercial courts are exclusive

and original, jurisdiction is conferred by law; 1 Special
Commercial Court per region except MAKATI and
QUEZON CITY which has two
Devices or Schemes
Pyramid
scheme
Commercial Courts
Syndicated estafa- not bailable
8. Transacting business in the Philippines as agent of

or acting for and in behalf of any foreign corporation or
entity not duly licensed to do business in the
Philippines; or
Alleje case
Falls squarely under sec. 5 (a) Special Commercial

Courts
9. Any other ground as would render it unfit to

transact business in the Philippines. (n)
Allegation corporate officers employing schemes in

diverting
SEC does not have the sole authority to suspend or

revoke the license of a foreign corporation doing
business in the Philippines, other government agencies
like the Central Bank , the Insurance Commission may
also do so within their respective dominion, despite
the provision of section 134
If the SEC believes that revocation is warranted,
section 135 provides that:
Not only detrimental to corporation, but general

membership
Fraud must be stated with particularity
Abad vs. CFI of Pangasinan
Fraud must be stated with particularity otherwise it

may be filed to any court
Intra-corporate
3. Failure, after change of its resident agent or of his

address, to submit to the Securities and Exchange
Commission a statement of such change as required
by this Title;
4. Failure to submit to the Securities and Exchange
Commission an authenticated copy of any amendment
to its articles of incorporation or by-laws or of any
articles of merger or consolidation within the time
prescribed by this Title;
7. Transacting business in the Philippines outside of

the purpose or purposes for which such corporation is
authorized under its license;
Section 135. Issuance of certificate of

revocation. - Upon the revocation of any such license
to transact business in the Philippines, the Securities
and Exchange Commission shall issue a corresponding
certificate of revocation, furnishing a copy thereof to
(misrepresentation)-Special
69
Exclusive
and
original
commercial courts
jurisdiction
of
special
Sole criteria is there must be an intra-corporate

relationship
Pertaining to a controversy (speaks also of intrapartnership controversy, that partnership must be

registered with the SEC)
Rule now
1.
Necessarily be an intra-corporate relationship; and,
2.
The controversy must arise out of said relationship
Intra-corporate relationship alone will not suffice to put

it in the ambit of special commercial courts and courts
of general jurisdiction may take cognizance
Case of a transferee of shares of stock to compel the

corporation to recognize him as a stockholder
How can it be intra-corporate when he is not yet fully

paid
When the transferee has done all he can be required

to do to render the transfer effectual and the
corporation refuses to register the transfer, the
requirement of the registration is waived and the
transferee is considered technically a stockholder who
may sue to enforce the right to have the transfer
registered
Florendo vs. rivera, Embassy Farms
The transferor withheld the delivery, they are not yet

prima facie; it will not be considered intra-corporate
Controversies in the appointment (asked in the bar)
Cases involving election, appointment and removal
In Andaya the court said that a corporate officer

elected or appointed by the BOD is always a corporate
act
The fact that petitioner sought payment of his back

wages, other benefits as well as moral and exemplary
damages and attorneys fees in his complaint will not
operate to prevent the SEC from exercising its
jurisdiction under P.D. 902-A. The jurisdiction will not
wrest on the NLRC just because of that
Tabang vs. NLRC
Jurisdiction lies originally and exclusively to special

commercial courts and not in the NLRC
SEC has jurisdiction over cases of removal from

employment of corporate officers
The relationship of a person to a corporation, whether

as officer or as agent or employee or not determined
by the nature of the servides performed, but by the
incidents of the relationship on they actually exist
Corporate officers dismissal is always a corporate act

or intra-corporate controversy
Midland construction vs. Movilla
NLRC will be possessed of jurisdiction exception will

not apply to mere recovery
Main consideration
Asserts his right to the office or questions the

propriety or validity of his ouster or removal, it will be
the special commercial courts and not the NLRC
Securities Regulation Code
Transferred jurisdiction
Commercial Courts
of
the

SEC
to
Special
Suspension of payment, appointment of management

receivership
What is the reason for suspension of all claims?
The reason for suspending actions for claims against

the corporation is not really to enable the
management committee or the rehabilitation receiver
to substitute the defendant in any pending action
against it before any court, tribunal or body. The real
justification is to enable the management committee
or rehabilitation receiver to effectively exercise his
powers free from any Judicial or extra-judicial
interference that might unduly hinder or prevent the
rescue of the debtor company. To allow such other
actions to continue would only add to the burden of
the management committee pr rehabilitation receiver,
whose time, effort and resources would be wasted in
defending claims against the corporation instead of
being
directed
towards
restructuring
and
rehabilitation.(PAL vs. Spouses Sadic and Kurangking)
To enable the receiver to effectively exercise his or her

power free form any judicial or extra-judicial that may
disturb
3 types of suspension of payments
1.
Simple suspension of payments
where deferment of payment of claims against a

distress company; ask the court to be given time to
the payment of liability by postponing the payment
When it has sufficient assets and liabilities but forces

the impossibility of meeting them when they
respectively fall due
2.
Suspension of receiver with a management committee

with a rehabilitation play or suspension of payments
accompanied by a proposal for rehabilitation (with or
without rehabilitation)
corporation has sufficient assets to cover its liabilities,

but sees the possibility; is or without rehabilitation
plans; normally would attach the rehabilitation plan
For purpose of economic development
3.
Suspension of payments when the corporation has no

sufficient assets to its liabilities
May it still be revived?
Yes, it may still be revived
How can a corporation with more liabilities than assets

continue its operations profitably?
Even if the distressed company has no sufficient

assets and liabilities it can go for suspension
It asked for a management committee without a

receiver plan (Victorius Milling case)
Convert their claims into equity
Their liability was almost wiped out they became

stockholders instead of creditors
After 5 years those who converted sold it back to the

corporation, thereby making profits
Amendment is for the economic development of the

country
What if walang amendment, e mas maraming liabilities

kesa assets
Suspension order- all actions for claims against the

corporation are accordingly suspended at whatever
stage the proceedings maybe
Effect of suspension- you cannot foreclose
70
What are claims?
Debts or demands of pecuniary nature. Assertion of a

right to have money paid
Claims against the corporation shall be suspended,

assertion of a right to have money paid; it must
present a monetary claim, liquidated or unliquidated
Nullification of corporations does

monetary claim of pecuniary nature
not
present
Union vs. CA
It does not allow a mere individual to file the petition

which is limited to corporations partnership or
associations.
Where no authority is granted to hear petitions of

individuals for suspension of payments, such petition
are beyond the competence of the SEC
What happens if there is a suspension order?
Explain the key phrase quality is equity
All creditors stand on equal footing, secure or

unsecure, holding or lien or without a lien, no creditor
may enforce his lien while rehabilitation is going
(Alemar case)
No preference shall be given
RCBC vs. IAC
Decided on motion for reconsideration
It court 7 years to decide authentication
Rule of the thumb
Automatic suspension even if not decreed in the

decision itself
Once lifted the preferred creditors will regain their

preference
Appointment of a management committee
Take over the management

distressed corporation
committee
of
the
Extraordinary and drastic remedy
Without any remedy
What is an intra-corporate controversy?
Section 5(B)
Sole criteria is whether there exists an intra-corporate

dispute is that if there is an intra-corporate
relationship
Why is there suspension of all actions against claims

when a receiver is appointed?
To enable the management committee to exercise its

powers
Sy Chim vs. Sy Siy Ho (before a management

committee may be opt by a court)
2 requisites for a valid appointment of management

committee
1.
Imminent danger of dissipation, loss, wastage or

destruction of assets or other corporate properties
2.
Paralysis
of
business
operations,
the
mere
apprehension of future misconduct based upon prior
management

Save and except in the case of a close corporation in

case of deadlock management committee is allowed to
take over right away
Jacinto case
2nd par of page 676
2 requisites where present
Wala ng mapautang, there was a paralyzation
Sy Chim
Did not appoint a management committee
In the absence of a strong showing of an imminent

danger of dissipation, loss wastage or destruction of
assets or other properties of a corporation and
paralysis of its business operations, the mere
apprehension of future misconduct based upon prior
mismanagement will not authorize the appointment of
a management committee
Section 5 and 6(D) governed by separate rules; interim

rules and intra-corporate controversy
Venue of actions
Rules of court- where the parties are residing
Intra-corporate- no matter where the parties are

residing it will be in the city or municipality where the
principal office is located
Rehabilitation proceedings venue
In rem
Acquired upon publication without furnishing the

creditors a copy of the petition and attachments
thereof
A creditor may now file the suspension proceedings;

provides that creditors owns at least 25%
Intra-corporate- rule 1 section 6
Service of summons- rule 2 section 5
Summons may be made to anyone
In case of intra-corporate dispute, elections, fraud, etc;

if they are governed by interim rules of procedure on
intra-corporate controversies
Venue
Special commercial courts where principal office is

located/established (section 5 rule 1)
Matters of payment/suspension must be filed in the

city/ municipality where corporation is located
Under old rule, creditors have no right to institute an

action for receivership; now creditors, if they sold 20%
they can institute an action for receivership
Section 5
Service of summons may be made by fax/e-mail
E.B. Villarosa vs. Benito
Will apply only

controversy
If the controversy arose out of an intra-corporate

dispute rules on interim rules of procedure of intracorporate controversies shall govern
Rule 4 section 17- immunity from suit
if
it
is
not
an
intra-corporate
71
Rehabilitation receiver shall not subject to any action,

claim or demand in connection with any act done
omitted by him in good faith in the exercise of his
functions and powers herein conferred
Claim
Right to payment, whether or not it is reduced

judgment, liquidated or unliquidated, fixed
contingent, matured or unmatured, disputed
undisputed, legal or equitable and secured
unsecured
to
or
or
or
Investment contracts
A contract, transaction or scheme whereby a person

invests his money in a common enterprise and is led
to expect profits primarily from the effects of others
The management committee

receiver are empowered to:
and
1.
Take custody
corporation
all
2.
Evaluate assets and liabilities, earnings operations of

the corporation
3.
Determine the best way to protect the investors and

creditors
4.
Study, review evaluate the feasibility of continuing

operation and structures
5.
Submit recommendations
rehabilitation plan
6.
Rehabilitate the corporation if determined to be

feasible by the RTC
7.
Report to the RTC until the corporation is dissolved
and
control
of
to
the
rehabilitation
assets
RTC
of
the
regarding
THE SECURITIES REGULATION CODE (RA8799)

- Also known as the Blue Sky Law since it was enacted to
protect the public from unscrupulous promoters who stake
business which have no basis and sell shares and interest
therein to investors, who are then left holding certificates
representing nothing more than a claim to a square of the blue
sky.
-SEC. 2. Declaration of State Policy. The State shall establish a
socially conscious, free market that regulates itself, encourage
the widest participation of ownership in enterprises, enhance the
democratization of wealth, promote the development of the
capital market, protect investors, ensure full and fair disclosure
about securities, minimize if not totally eliminate insider trading
and other fraudulent or manipulative devices and practices
which create distortions in the free market.
BROKER - person who buys and sells securities for the account of
others.
DEALER - person who buys and sells securities for his/her own
account in the ordinary course of business.
NOTE: No person shall engage in the
business of buying or selling securities in the
Philippines as a broker or dealer, or act as a
salesman, or an associated person of any broker
or dealer unless registered as such with the
Commission. (Sec 28)
SECURITES - shares, participation or interests in a corporation or
in a commercial enterprise or profit-making venture and
evidenced by a certificate, contract, instrument, whether written
or electronic in character. It includes:
CODE: COFDIPS
a)
b)
c)
d)
e)
Certificates
of
assignments,
certificates
of
participation, trust certificates, voting trust certificates
or similar instruments;
Other instruments as may in the future be determined
by the Commission;
Fractional undivided interests in oil, gas or other
mineral rights;
Derivatives like option and warrants;
Investment contracts, certificates of interest or
participation in a profit sharing agreement, certificates
of deposit for a future subscription;

f)
g)
Proprietary or non proprietary membership certificates

incorporations; and
Shares of stock, bonds, debentures, notes, evidences
of indebtedness, asset-backed securities;
GR: Securities shall not be sold or offered for sale or distribution

within the PH, without a registration statement filed with and
approved by SEC. Prior to such sale, information on the
securities, in such form and with such substance as the
Commission may prescribe, shall be made available to each
prospective purchaser. (Sec 8)
EXCEPT: Exempt Securities under Sec 9
a)
Any security issued or guaranteed by the
Government of the PH, or by any political subdivision
or agency thereof, or by any person controlled or
supervised by, and acting as an instrumentality of said
Government.
b)
Any security issued or guaranteed by the
government of any country with diplomatic relations
with the PH, or by any state, province or political
subdivision thereof on the basis of reciprocity:
Provided, that the SEC may require compliance with
the form and content of disclosures the Commission
may prescribe.
c)
Certificates issued by a receiver or by a
trustee in bankruptcy duly approved by the proper
adjudicatory body.
d)
Any security or its derivatives the sale or
transfer of which, by law, is under the supervision and
regulation of the Office of the Insurance Commission,
Housing and Land Use Regulatory Board, or the Bureau
of Internal Revenue.
e)
Any security issued by a bank except its own
shares of stock.
AND Exempt Transactions under Sec 10
a)
A judicial sale, or sale by an executor,
administrator, guardian or receiver or trustee in
insolvency or bankruptcy.
b)
By or for the account of a pledge holder, or
mortgagee or any other similar lien holder selling or
offering for sale or delivery in the ordinary course of
business and not for the purpose of avoiding the
provisions of this Code, to liquidate a bona fide debt, a
security pledged in good faith as security for such
debt.
c)
An isolated transaction in which any security
is sold, offered for sale, subscription or delivery by the
owner thereof, or by his representative for the owners
account, such sale or offer for sale, subscription or
delivery not being made in the course of repeated and
successive transactions of a like character by such
owner, or on his account by such representative and
such owner or representative not being the
underwriter of such security.
d)
Distribution by a corporation, actively
engaged in the business authorized by its AOI, of
securities to its stockholders or other security holders
as a stock dividend or other distribution out of surplus.
e)
Sale of capital stock of a corporation to its
own stockholders exclusively, where no commission or
other remuneration is paid or given directly or
indirectly in connection with the sale of such capital
stock.
f)
Issuance of bonds or notes secured by
mortgage upon real estate or tangible personal
property, where the entire mortgage together with all
the bonds or notes secured thereby are sold to a single
purchaser at a single sale.
g)
Issue and delivery of any security in
exchange for any other security of the same issuer
pursuant to a right of conversion entitling the holder of
the security surrendered in exchange to make such
conversion: Provided, That the security so surrendered
has been registered under this Code or was, when
sold, exempt from the provisions of this Code, and that
the security issued and delivered in exchange, if sold
at the conversion price, would at the time of such
conversion fall within the class of securities entitled to
registration under this Code. Upon such conversion
the par value of the security surrendered in such
exchange shall be deemed the price at which the
securities issued and delivered in such exchange are
sold.
h)
Brokers
transactions,
executed
upon
customers orders, on any registered Exchange or
other trading market.
i)
Subscriptions for shares of the capital stock
of a corporation prior to the incorporation thereof or in
pursuance of an increase in its authorized capital stock
under the Corporation Code, when no expense is
incurred, or no commission, compensation or
remuneration is paid or given in connection with the
sale or disposition of such securities, and only when
the purpose for soliciting, giving or taking of such
subscriptions is to comply with the requirements of
such law as to the percentage of the capital stock of a
corporation which should be subscribed before it can
72
be registered and duly incorporated, or its authorized

capital increased.
j)
The exchange of securities by the issuer with
its existing security holders exclusively, where no
commission or other remuneration is paid or given
directly or indirectly for soliciting such exchange.
k)
The sale of securities by an issuer to fewer
than twenty (20) persons in the Philippines during any
twelve-month period.
l)
The sale of securities to any number of the
following qualified buyers: (i) Bank; (ii) Registered
investment house; (iii)insurance company; (iv) Pension
fund or retirement plan maintained by the Government
of the Philippines or any political subdivision thereof or
managed by a bank or other persons authorized by the
Bangko Sentral to engage in trust functions; (v)
investment company or; (vi) Such other person as the
Commission may by rule determine as qualified
buyers, on the basis of such factors as financial
sophistication, net worth, knowledge, and experience
in financial and business matters, or amount of assets
under management.
PROTECTION OF SHAREHOLDERS INTEREST
1.
2.
3.
22)
Tender Offers (Sec 19)

Proxy solicitation (Sec 20)
Internal record keeping and accounting (Sec
TENDER OFFER A publicly announced intention acting alone or

in concert with others to acquire equity securities of a company.
(2002 Bar Exams)
Instances when Tender Offer is Required
1.
When the person intends to acquire 15% or
more of the equity share of a public company pursuant
to an agreement made between or among the person
and one or more sellers;
2.
When the person intends to acquire 30% or
more of the equity share of a public company within a
period of 12 months;
3.
When the person intends to acquire shares
that would result in an ownership of more than 50% of
the equity shares of a public company.
PROXY SOLICITATION
NOTE: A broker or dealer who holds or acquires the proxy for at
least ten per centum (10%) or such percentage as the
Commission may prescribe of the outstanding share of the
issuer, shall submit a report identifying the beneficial owner
within ten (10) days after such acquisition, for its own account or
customer, to the issuer of the security, to the Exchange where
the security is traded and to the Commission. (Sec 20.5)
FRAUDULENT TRANSACTIONS
MANIPULATIONS
AND
OTHER
MARKET
1.
Wash Sale (Sec 24.1(a)(i)) any transaction in a

security which involves no change in the beneficial ownership
thereof.
2.
Matched Order (Sec 24.1(a)(ii)) order or orders for

the purchase or sale of security with the knowledge that a
simultaneous order or orders of substantially the same size, time
and price for the sale or purchase of such security has, or will be
entered by or for the same or different parties.
Note: Wash sale and matched orders become illegal
when they are used as a means to create false
appearance of active trading in the security
concerned.
3.
Marking the close placing the purchase order, at or

near the close of the trading period. The price that was closed
will then be the price that will be posted on the following trading
day.
4.
Painting the tape involves a series of transactions

that are reported publicly to give the impression of an activity in
a security.
5.
Squeezing the float the part of an outstanding

security intentionally held by dealers or other persons with a
view of reselling them later for profit.
6.
Hype and dump Act employed by a person or group

of persons of purchasing the outstanding capital stock of a
dormant public shell company for a nominal amount and merge
it with their privately held company. They would then gain
control of the majority stocks of the merged entity. Stock
certificates are often re-issued in the name of the merged entity
to relatives and associates who act as nominees of the person or
persons employing the device. They would then look for a
broker-dealer who would be willing to make a hype of the
securities.
The broker-dealer then generates volume and
advance bid price. When the market reaches a high price, they
would dump their shareholdings and bail out.

7.
Boiler Room Operations involves an intensive

selling campaign through numerous salesmen by telephone or
through direct mail offerings for securities of either a certain type
or from a specific issuer. Investors are induced to purchase
through hard-sell based on unfounded predictions and mailing of
misleading market letters.
Note: Marking the close, Painting the tape, Squeezing
the float, Hype and dump, Boiler Room Operations
become unlawful if it is effected to either raise the
price or induce the purchase of a security or of a
controlling, controlled, or commonly controlled
company by others or to depress the price to induce
the sale of a security, whether of the same or of a
different class, of the same issuer or of a controlling,
controlled company or common controlled company by
others or to create active trading to induce the
purchase through said devices or schemes.
8.
Circulating or Disseminating Information

circulating an information that any of the security listed in the
exchange will or is likely to rise or fall because of manipulative
market operations of any one or more persons conducted for the
purpose of raising or depressing the price of the security and
thus inducing the purchase of such security.
9.
Making False or Misleading Statements with

respect to any material fact which he knew or had reasonable
ground to believe was so false or misleading for the purpose of
inducing the purchase or sale of such security.
10.
Pegging or Fixing Or Stabilizing the price of

security effected either alone or with others through any series of
transactions for the purchase or sale thereof, if done for such
purpose.
11.
Short sale selling of security which the vendor does

not own unless done in accordance with the rules and regulations
of the SEC.
12.
Insider Trading the act of an insider to buy or sell

security of the issuer while in possession of material information
with respect to such security that is not generally made known to
the public unless (a) The insider proves that the information was
not gained from such relationship; or (b) If the other party selling
to or buying from the insider (or his agent) is identified, the
insider proves: (i) that he disclosed the information to the other
party, or (ii) that he had reason to believe that the other party
otherwise is also in possession of the information.
Note: When is information material nonpublic? - if: (a) It has not been generally disclosed to
the public and would likely affect the market price of
the security after being disseminated to the public and
the lapse of a reasonable time for the market to
absorb the information; or (b) would be considered by
a
reasonable
person
important
under
the
circumstances in determining his course of action
whether to buy, sell or hold a security.
Note: Who is an insider? - Insider means: (a)
the issuer; (b) a director or officer (or person
performing similar functions) of, or a person controlling
the issuer; (c) a person whose relationship or former
relationship to the issuer gives or gave him access to
material information about the issuer or the security
that is not generally available to the public; (d) a
government employee, or director, or officer of an
exchange, clearing agency and/or self-regulatory
organization who has access to material information
about an issuer or a security that is not generally
available to the public; or (e) a person who learns such
information by a communication from any of the
foregoing insiders.
INDEPENDENT DIRECTOR
Person other than an officer or employee of the
corporation, its parent or subsidiaries, or any other individual
having a relationship with the corporation, which would interfere
with the exercise of independent judgment in carrying out the
responsibilities of a director.
Corporations which require an Independent Director
1.
An exchange; or
2.
Any corporation with a class of equity securities listed
for trading on an Exchange or with assets in excess of P50M and
having 200 or more holders, at least 200 of which are holding at
least 100 shares of a class of its equity securities or which has
sold a class of equity securities to the public pursuant to an
effective registration statement shall have at least two (2)
independent directors or such independent directors shall
constitute at least 20% of the members of such board, whichever
is the lesser.
OPTION TRADING
Put a transferrable option or offer to deliver a given

number of shares of stock at a stated price on any given time
during the stated period.
Call a transferrable option to buy a specified number

of share at a stated price
73
Straddle a combination of put and call.
SETTLEMENT OFFERS
At any time, during an investigation or proceeding
under this Code, parties being investigated and/or charged may
propose in writing an offer of settlement with the Commission.
The Commission may only agree to a settlement offer based on
its findings that such settlement is in the public interest. Any
agreement to settle shall have no legal effect until publicly
disclosed. Such decision may be made without a determination
of guilt on the part of the person making the offer.
DAMAGES
All suits to recover damages shall be brought before
the Regional Trial Court, which shall have exclusive jurisdiction to
hear and decide such suits. The Court is authorized to award
damages in an amount not exceeding triple the amount of the
transaction plus actual damages.
NOTES
If there are goods involved in the multimarket, it is

beyond the jurisdiction of SEC (Ex First Quadrant)
Criminal charge for violation of SRC is a specialized

dispute, hence it must be first referred with SEC (Baviera vs.
Paglinawan G.R. No. 168380
Feb 8, 2007)
T3 Rule in trading of Securities Trading day + 3

more days you must comply with your obligations.


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1

Corporation is one of the types of business

One man form of business entity, personally answers

General rule: Moral damages cannot be granted to

Exception: Filipinas Broadcasting Network Inc. vs. Ago

In cases of slander, libel and other forms of

Limited shareholders responsibility

Paid subscription in full, you are no longer liable

Based on mutual trust and confidence

one time grouping of persons whether they be natural

(5) Illegal or arbitrary detention or arrest;

does not entail continuity because after

(6) Illegal search;

(1) A criminal offense resulting in physical injuries;

(2) Quasi-delicts causing physical injuries;

(7) Libel, slander or any other form of defamation;

(8) Malicious prosecution;

when they do not register, it does not exist

(9) Acts mentioned in Article 309;

Foreign corporations enters into an agreement with a

(10) Acts and actions referred to in Articles 21, 26, 27,

They may enter into joint venture, but generally they

The parents of the female seduced, abducted, raped,

The articles of incorporation expressly authorized

Advantages (SEE LADIA BOOK)

No. 2 may also be a disadvantage

The agreement or articles of partnership must

No. 5 may also be a disadvantage

The articles of partnership must stipulate that all

A corporation is a person, therefore protected by the

Created by operation of law

Powers, attributes and properties expressly authorized

Doctrine of limited capacity

Only such powers as are expressly granted to it by law

Section 3 Stock and non-stock

Importance of knowing, determining what provisions of

Can do things as the law asks or allows it to do

Stockholders must generally cast their votes in the

If it does anything beyond, it shall be considered as

Section 4. Corporations created by special

Notes on Corporation Law

laws or charters shall be governed primarily by the

If incorporated under the laws of the Philippines it is a

Parent or Holding/ subsidiaries and affiliates

The two requisites must always concur

Affiliates- no majority vote

That they have a capital stock divided into shares;

That they are authorized to distribute dividends or

Created by a special law, they have their own

cannot be attached by the state even in a quo

They are not immune from suit unless provided by the

Primarily governed by the law creating them

Their subsidiaries are entirely different or independent

Attached directly only by the state in a quo warranto

There is no exemption it is absolute

So defectively formed, but still considered corporation,

Political or governmental purposes

Those formed or organized for the government or a

Immediate benefit, aim or advantage of private

Those formed for some private purpose, benefit, aim

Distinction: public for governmental purpose

FORMATION AND ORGANIZATION

An incorporator may also be a juridical person