TITLE XI Note: A NS corporation cannot be converted into a Stock

NON-STOCK CORPORATION corporation by mere amendment of the AOI

Sec. 87 RULES APPLICABLE ONLY TO NS CORP

Definition
Sec. 88 CHAPTER 1 : MEMBERS
Purposes
Sec. 89
Members
Non-stock Corporation Definition Sec. 90
- Sec. 87 is the definition of an Ordinary Non-stock Non-transferability of membership
Corporation Sec. 91
Termination of Membership
Note: Political purpose is not part of the purposes mentioned
under Sec. 88. The SEC may reject any AOI if the purpose of the CHAPTER 2: TRUSTESS AND OFFICERS
corporation is to engage in election campaign or partisan
political activity. Sec. 92
Election and Term of trustees
Power to make profits and engage in business Sec. 93
Place of Meeting
GR: NS Corp. is not empowered to engage in business with the
object of making income or profits directly or indirectly CHAPTER 3: Distribution of Assets in Non-stock Corporations

EXPN: Incidental profits obtained from its operations Sec. 94

Rules for distribution
Note: Sec. 95
1. It cannot distribute dividends Plan of distribution of assets
2. Whenever necessary or proper such profits shall be
used for the furtherance of the purpose(s) for which
the corporation was organized Prohibition against distribution of Dividends
- No pecuniary benefit shall inure in favour of the
GR: A NS corp. cannot lawfully engage in any business activity members
for profit o Although the members may avail of, or
- Because it will be contrary to its non-profit nature. derive other forms of assistance from the
EXPN: it is necessary to carry out the purpose(s) of the corporation
corporation. o Hence, a resolution giving grocery items is
not allowed
Note: NS Corp. may invest its accumulated funds for profit
purposes Non- Profit Character
- Hence, it may subscribe to the capital stock of a - NS cannot engage in business with the object of
corporation or invest in commercial papers making profits
o But such power shall part of the AOI or else
it will be ultra vires Note: NON-distribution of earnings or profits by way of
dividends, is NOT CONCLUSIVE
PROVIDED IN ALL CASES: THE end or purpose of such is N OT
for the distribution of profits - Hence, commissary privileges are not allowed
o Ex.
Powers necessary for the furtherance of purposes purchase of items at reduced
- Pon wers merely useful are not implied prices
o If they are not essential re the nature and Refund of capital at the end of the
object of incorporation membership or dissolution of the
Note: Fund-raising activities in most cases is neither necessary corporation
nor incidental to the furtherance of objectives. Read: USEAEA v. USEA 1981
- Hence: AOI must be amended or it must be stated
therein Right to vote
- The BL may set rules ( limitations/expansion of such
How to determine actual purpose or object right)
The objective stated in the AOI and BY-LAWS - AOI/BL may provide WON proxies are allowed
- The corporate form is not controlling - Each member is entitled only to one vote
- Nor the commercial aspect o Unless cumulative voting is authorized in
the AOI/BL
Read: CIR v. Club Filipino - Voting by mail or other similar means may be
authorized
NIELGEM SABAY BEJA|Corporation Law Notes|Dean R. Villanueva 2016|Finals

o But such must be specifically stated in the - NS CORP. cannot be converted to a Stock corp. by
BL mere amendment
o There must be A DISSOLUTION FIRST
Governing Boards o Conversion by mere amendment is
- Such may be created tantamount to distribution of
- Provided it is allowed in the AOI/BL assets/income of the corporation to its
members
In as much as members become
Note: automatic SHs
1. No. Of Trustees that must be members- o This scheme defrauds the public especially
May be more than 15 those who have given support/donations
2. No. Of incorporating trustees-
Not more than 15 Membership

Term of Office Manner or mode of Acquisition

- Can only be acquired in accordance with the BL
GR: Firs elected Trustees are staggered with a 1 year interval - Transfer by virtue of inheritance is not allowed

EXPN: Unless otherwise provided in the AOI/BL Approval of admission of new members
See Sec. 23
Note: Although staggered terms are allowed the rules on
election (Sec. 24) and vacancy (Sec. 29) must be applied Mode
- Not uniform, depends upon the corporation
Trustees subsequently elected - Provided in the BL
Term: 3 consecutive years
- It may be limited to one year (Sec.23) Note: members may be adopted even before the adoption of
corporate BL
Note: Notwithstanding a provision in its AOI that additional members
Founders Share under Sec. 7 is also applicable in accordance of may be accepted pursuant to the BL of the corporation
Sec. 87 par. 2
Amendment of BL
Meetings - Membership fee cannot be increased by a mere
resolution
GR: Board meetings may be held anywhere inside or outside
the Philippines

Note: When the BL provides for the holding of members Nature of Membership Rights
meeting at the principal office of a non-stock corporation - All rights arising therefrom are NON-TRANSFERABLE
conformably with the General rules in accordance with SEC.51 o Unless otherwise provided in the BL
- Meetings cannot take place anywhere else
- EXPN: there is an amendment Power of the Court
Read: Chinese YMCA of Phil. Islands v. Ching
If not place was set: Cannot do it outside the place where the
principal place is located Termination of membership
Only those provided in the BL

The authority to transfer the place of members meetings Expulsion: must be based on just and reasonable grounds
outside the place where the principal office is located must be - After notice and hearing
expressly granted by the BL. - w/o waiver he is entitled to due process
- otherwise he may claim damages

Payment of dues and other assessments

Dissolution Dues (meaning): obligations payable at recurring intervals for

maintenance of an organization
- The assets hall be distributed in accordance with Sec.
94 or Sec. 95 Assessment (meaning): implies burden imposed in
- It is not allowed to distribute any assets of the invictum(invincible) and a single act
corporation or any incidental income or profit made
by the corporation during its EXISTENCE

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NIELGEM SABAY BEJA|Corporation Law Notes|Dean R. Villanueva
Funa v. MECO
Issue: WON MECO is a GOCC hence subject to COAs audit
Doctrine: it is a non-stock corp but still subject to COAs audit .
Determining factor whether a corporation is private or gocc is
the CREATION OF THE CORPORATION
- MECO was created under the Corporation Code,
hence, it is a PRIVATE NON-STOCK CORPORATION
But it is still subject to COAs audit because it represents the
government and serves as the one responsible for collecting
fees for the benefit of the government
TITLE XII
CLOSE CORPORATION
Section 96
Definition and applicability of Title
Definition
A corporation in which the stock is held in a few hands, or in
few families, and which stock is not at all or only rarely dealt in
buying and selling.
One which the directors and officers have the power to fill the
vacancies in their own numbers, without allowing to the
general body of stockholders and any choice or vote in their
election
Peculiarity of a close corporation
1. Identity between stock ownership and active
management
- All the outstanding stocks is owned by the persons
who are active in the management and conduct of
the business.
- Hence, the public does not own any stocks
2. Essentially an incorporated partnership
- The stockholders consider each other as partners
- But the law treats them as a corporation
Meaning of Close corporation according to the code
(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.
All of these features must concur
2016|Finals
Need for special rules for close corporations
Note: A close corporation is also described as a Corporation de
jure and Partnership de facto
A CC is essentially an Incorporated Partnership
A close corporation is organized primarily for the purpose of
assuring limited liability to all the participants
- The very objective of CC form is to enjoy the
advantages of corporate organization
o Ex: limitation of personal Liability at the
same time to retain internally the
partnership form of doing business
Flexible standard operation procedure with respect to matters
of internal organization
- This is described as PYRAMIDAL in form
BASE: SHs, directors constituting the policy making body and
managing the companys affairs and the officers executing
policies already formulated
Sec Opinion:
While a corporation with more than 20 SHs due to subsequent
transfers may no longer be classified as a close corporation
- The same will not be treated as a publicly held
corporation
o If the corporation has no intention of going
public and
o provided that the subsequent transfers of
shares have the prior approval of the SEC
o and the offering is of limited character
Dean R.
1. Limited Liability C...(03/06/17)
- It can be ran like a partnership or corporation
2. Specify what kind of interest
Section 97
Articles of Incorporation
Permissible provisions in the AOI
1. Classifications of Directors into one or more
classes
2. Quorum and voting requirements
3. Management of the corporation by the SHs
4. Election or appointment of officers directly
by the SHs
Classification of Directors into classes
- This is not allowed in widely-held or ordinary
corporations
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NIELGEM SABAY BEJA|Corporation Law Notes|Dean R. Villanueva
Quorum and voting requirements
The AOI of CC may provide for quorum and voting
requirements in meetings of SHs or directors greater than those
provided in the Corp. Code.
Management of the Corporation by the SHs
- Where the AOI provide that the business of the
corporation shall be managed by the SHs themselves
rather than by a BOD
- Then the SHS shall be deemed to be the directors
with all the liabilities imposed by the code on
directors
Note: in ordinary corporations, the management or conduct of
the business affairs thereof is entrusted to the BOD and cannot
be turned over to the SH except for a few specified matters
concerning its internal affairs
Election or appointment of officers directly by the SHs
- AOI may also provide that all certain specified officers
or EEs shall be elected or appointed directly
- In ordinary stock corporations, corporate officers are
elected by a majority of all the members of the board
of directors
Note: SHs in a close corporation are very much like members in
a partnership
- They owe to one another the same duty of utmost
good faith and diligence that partners owe one
another
Section 98
Validity of Restrictions on transfer of shares
Restrictions on transfer of shares
Conditions for validity:
1. The restrictions must appear in the AOI, BL and
Certificate of stock
- Otherwise, it shall not be binding
2. They should not be more onerous than granting the
existing SHs or the Corporation the option to
purchase the shares of transferring of SH
NOTE:
- it is invalid to set the purchase price to be very much
lower than the FMV
- It is also invalid to prohibit against transfer of stock
without prior consent of the board
Right of first refusal
The SH who wants to sell his shares to third persons
- Must offer it first either to the corporation or the
other SHs
- Usually under the same terms and conditions
2016|Finals
- If no one exercises the option,
o The transferring SH may sell his shares to
third persons
PERIOD to exercise the option
- SEC opinion : 1 month is deemed sufficient for the
SHs or for the corporation to signify their desire
Need for stock transfer restrictions in close corporations
1. Prevent changes in the control of the corporation
2. Maintain delectus personae
Scope of restrictions
- It should not be enlarged by implication
Transfers Covered must be stated in the AOI
Transferees Covered
Appointees Covered
Section 99
Issuance or Transfer of Stock of a close corporation in breach
of qualifying conditions
GR: Nos. 1, 2 and 3 of Section 99
- The transferee is conclusively presumed to have
notice of the restriction or condition
- Hence he is not allowed to prove the lack of notice
o Even if such is true
Note: the corporation can never be compelled to register the
transfer
- But it may voluntarily do so
EXP: The transfer will be binding upon the corporation when it
has been consented by all the SHs or they have amended the
AOI
Note: transfer includes donation
- Breach of the restrictions does not prejudice the
rights of the transferee provided by law
Section 100
Agreements by Stockholder
1. Pre- incorporation Agreement
Shall be valid if such is their intent even after incorporation
(this refers to SHs agreement in general
- Provided it is not inconsistent with the AOI
2. Pooling and voting agreements in particular
3. Any Agreement of the SHs shall not be invalidated on
the ground that they shall be PARTNERS among
themselves
Note: the SHs of a Close corporation actively engaged in the
management of a close corporation shall be personally liable
for CORPORATE TORTS
- Unless the corporation has obtained reasonably
adequate liability insurance
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NIELGEM SABAY BEJA|Corporation Law Notes|Dean R. Villanueva 2016|Finals

Section 103
Note: A president of a Close Corporation who actually manages Amendment of AOI
the business is considered an EMPLOYER The amendment must be proved by the SHs in a meeting called
- Hence, he may be held jointly and severally liable for for the purpose
the obligations of the corporation to its illegally - Mere written assent not enough (Different form Sec.
dismissed employees 16)
- Applicable See Sec. 96

Corporate tort (according to the De Leon, no definite meaning) Section 104

Deadlocks

Section 101 Arbitration of intra- corporate deadlocks by the SEC

When board meeting is unnecessary or improperly held
Unless provided by the BL, the following are valid even without How to resolve DEADLOCK in the management
a meeting: - SEC arbitration upon written petition by any SH

1. Before or after such action is taken, written consent Note: Such authority of SEC cannot be avoided by any
thereto is assigned by all the directors or agreement or provision in the AOI
2. All of the SHS have actual or implied knowledge of the
action and make no prompt objection thereto in - The SEC may order Dissolution if it will be beneficial
writing or for the SH or may provisional or additional M/T/D
- Ratification cannot take place where the action taken at a
meeting held without proper call or notice is beyond the Dissolution in case of Deadlock
corporate powers
(See Sec. 45)
Section 104 and other statutes provide for the dissolution of a
3. The directors are accustomed to take informal action
corporation in case of Deadlock
with the express or implied acquiescence of all the
- This is available to EVENLY DIVIDED BOARD
SHs or
- Not available to uneven board
4. All the directors have express or implied knowledge
o EXP: when the ODD MAN is a DUMMY
of the action in question and none of them makes
Note:
prompt objection thereto in writing
Where dissolution in case of deadlock is proper or more
beneficial -
Note: If a directors meeting is held without proper call or notice
Equity Partnership
- An action taken therein within the corporate power
- small corporations being really partnerships between
o Is deemed ratified by a director who failed
two or three people
to attend
- Who contribute their capital, skills, experience, labor,
o Unless he promptly files his written
should be treated by the court of equity as
objection with the secretary of the
partnerships in many respects
corporation after having knowledge thereof
Compared to a large corporation or who has a chance of
- This is different from Section 53, where an oral
becoming a large one, an equity partnership has a lesser chance
objection is sufficient
of improvement

Section 105
Section 102
Withdrawal of Stockholder or dissolution of Corporation
Pre-emptive right in close corporation
Right of a SH to withdraw/dissolve the corporation
- This extends to ALL stock to be issued
- Whether common or preferred
Right to WITHDRAW
- Including treasury shares
- may be exercised for any reason
o As long as they remain in the treasury
- Provided the corporation has sufficient assets to
o They really have the status of unissued
cover its debts and liabilities exclusive of capital stock
authorized shares to issue(reissue is the
Right to have the corporation dissolved
more proper term) at some future time
- Exercised by filing a written petition to SEC
- It must be founded on a legal ground
Hence, pre-emptive right is a matter of right on the part of the
SH
TITLE XIII
SPECIAL CORPORATIONS
EXCEPT: when limited or curtailed by the articles of
incorporation
CHAPTER 1- EDUCATIONAL CORPORATIONS
- Exceptions under Sec. 39 not applicable

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NIELGEM SABAY BEJA|Corporation Law Notes|Dean R. Villanueva 2016|Finals

Section 106 SECTION 23

Incorporation
2. Stock Educational Corporations
Educational Corporation defined Governed by the rules of Stock corporations re the
number and terms of Director
- Stock/non-stock corporation
- Organized to provide facilities for teaching or RELIGIOUS CORPORATIONS
instructions.
Section 109
Classes of Corporation
Laws applicable
Governed primarily by special laws Section 110
Suppletorily by the general provisions of the corporation code Corporation Sole

Section 111
AOI
Section 107
Prerequisites to incorporation Section 112
Submission of the AOI
Incorporation
Section 113
Re Educational Institution: Acquisition and Alienation of Property
- Educational Institutions other than those established
by religious groups and mission boards Section 114
1. Shall be owned solely by PH citizens Filling of Vacancies
2. or corporations or associations , 60% of the
capital stock of which owned by PH citizens Section 115
Dissolution
NOTE:
- NS educational institution is not allowed to convert to Section 116
a NON-PROFIT educational foundation Religious Societies
o When is the conversion allowed?
Amend the AOI and BL Definition of Religious Corporation
And specify the sources and - Composed entirely of spiritual persons
application of funds in the - And which is organized for the furtherance of a
amendment religion or for perpetuating the rights of the church or
- But a STOCK corporation may be converted to a non- for the administration of church or religious work or
profit education foundation property

Section 108
Board of Trustees
Corporation Sole
Board of Trustees or directors Component|Purpose|power to hold and transmit property
1. NS Educational Corp
a. Trustees : - Corporation sole if a special form of corporation
not less than 5 usually associated with the clergy
nor more than 15 - Introduced into common law due to necessity
- it must be in multiple of 5(mandatory) - The unhappy freak of English law
- TERM of office shall be staggered with 1 year interval - It consist of one person only
(mandatory) - In this legal fiction, church properties is passed upon
o Unless otherwise provide in the AOI/BL death by operation of law
- Trustees subsequently elected shall have a term of 5 - But not to his heirs but to his successor in office
years - The corporation sole is created not just to hold but
- Trustees elected to fill vacancies occurring before the also to transmit
expiration of a particular term, shall hold office only
for the unexpired period - MERE Administrator or properties of the church
- Majority shall constitute a quorum
- Powers and authority shall be defined on the BL - IT HAS NO NATIONALITY
subject to the provisions of Cannot be considered as an alien

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NIELGEM SABAY BEJA|Corporation Law Notes|Dean R. Villanueva
In determining the percentage requirement
- The nationality of the constituents of the diocese and
not the nationality of the actual incumbent of the
parish must be taken into consideration
TITLE XIV
DISSOLUTION
Section 117
Methods of Dissolution
Meaning of Dissolution
This signifies the extinguishment of its franchise to be a
corporation
And the termination of its corporate existence
Power to dissolve corporation
GR: the life of a corporation may be extinguished only by the
act or with the approval of the sovereign power by which it was
established
- Being a creation of the state it may only be dissolved
with the consent of the state
EXP: when the law allows it and in instances when the SH/M do
it without judicial proceedings
De Jure Dissolution
- Dissolution in law adjudged and determined by
judicial sentence or brought about by an act of or
with the consent of the sovereign power
- Or which results from the expiration of the charter
period of corporate life
De facto Dissolution
- One takes place in substance
- When the corporation by reason of insolvency,
cessation of business, or otherwise, suspends all its
operations
o And may proceed to liquidation
o But the franchise still remains
Note: the mere fact that the corporation has quit doing
business does not necessarily constitute even a de facto
dissolution
Two legal steps in corporate dissolution
1. Termination of corporate existence
- At least as far as the right to go on doing ordinary
business is concerned
2. Winding up of its affairs
- Payment of debts
- Distribution of assets among SH/Ms and other
persons interested
2016|Finals
Note: after the formal dissolution, any of its SHs may form
another corporation which will engage in the same line of
business even if it is done during the liquidation period
Methods/causes of corporate dissolution
Voluntary
1. By the vote of the BOD/T
- And the SH/Ms where no creditors are affected
2. By judgement of SEC after hearing the petition for
voluntary dissolution where creditors are affected
3. By amending the AOI to shorten the corporate term
4. In case of corporation sole, by submitting to the SEC a
verified declaration of dissolution approval
Involuntary
1. By expiration of the term provided for in the original
AOI
2. By legislative enactment
3. By failure to formally organize and commence the
transaction of its business within 2 years from the
date of incorporation
4. By order of SEC
Note: Methods are exclusive
Section 118
Voluntary dissolution where no creditors are affected
Voluntary dissolution
Compliance with legal requirements
Note: a mere resolution for dissolution is not sufficient
When corporation deemed dissolved
If the dissolution is effected by the SEC
- It shall be deemed dissolved upon the issuance of
CERTIFICATE OF DISSOLUTION
Voluntary dissolution where creditors are affected
- Judgement rendering the dissolution
By amending the AOI
- Approval of the amendment by the SEC
Shortened term
- Expiration of the term
Corporation Sole
- verified declaration of dissolution
If no dissolution papers are filed
GR: when no papers are submitted with the SEC claiming
dissolution voluntary, it is still deemed legally existing
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NIELGEM SABAY BEJA|Corporation Law Notes|Dean R. Villanueva 2016|Finals

- even if it has ceased its operations The right of SHs to voluntary dissolve the corporation by vote
of a prescribed percentage thereof is not absolute
EXP: Dissolution by judicial decree and the court order has not
been submitted to SEC Section 119
Voluntary Dissolution where creditors are affected
Corporation Sole
Section 115 Section 120
Dissolution by shortening corporate term
Voluntary Dissolution where no creditors are affected
Dissolution by shortening of term
How effected
1. Vote by the BOD/T - The AOI must be amended
2. Resolution duly adopted by the SH/Ms - It must be approved by SEC
3. Even non-voting shares may vote - Upon approval and expiration of the term
4. Publication requirement o No further action or proceeding is required
for its dissolution
Note: in SEC 118, a private corporation may be dissolved
voluntarily without the necessity of going to the SEC or Court Publication of notice of dissolution
for dissolution An affidavit of publication of dissolution of the corporation
- When it does not affect any creditor must be executed by the publisher of the print medium

Issuance of Certificate of dissolution
- SEC is required
- CORP. SOLE : the verified declaration of dissolution
must be approved by SEC
Sale of Assets in anticipation of voluntary dissolution
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.
Distribution of Corporate assets Prohibited
A corporation can validly liquidate its debt prior to its
dissolution
But it cannot distribute any of its assets or property except
upon lawful dissolution and after payment of all its debts and
liabilities
- It cannot distribute until the issuance of CERTIFICATE
OF DISSOLUTION
Right of minority SHs to oppose dissolution
GR: the court will not interfere
- It cannot be dispensed with by alleging that the same
is not required in Section 120
- The publication serves as a protection of the rights of
existing creditors
Note: creditors enjoy the preference in the distribution of
assets before the SHs are finally entitled to return of their
investments
Dissolution by legislative enactment
Reserved power of congress to dissolve corporations
This is subject to the limitation of the constitutional right of the
non-impairment of obligations of contract
Franchise of Public Utilities
- Reserved under the constitution
o Neither shall any such franchise or right be
granted except under the condition that it
shall be subject to amendment, alteration,
or repeal by the congress when the
common good so requires
Limitations to power
1. Consti: the amendment/alteration/repeal of the
corporate franchise of a public utility shall be made
only when common good so requires
2. Sec 145 of the Code
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.

EXP: When the dissolution is in BF or the dissolution was 3. Should not impair OBLICON
superinduced by fraud or undue influence
- Whe it is to unjustly oppress the minority Inherent power of Congress to amend or repeal laws

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NIELGEM SABAY BEJA|Corporation Law Notes|Dean R. Villanueva
Dissolution by failure to formally organize and commence
transaction of business
Cessation of corporate powers (deemed dissolved Sec 22)
- Failure to organize and commence the transaction of
its business or the construction of its works within
two years from the date of its incorporation
Note: the attempted completion of the organization after such
time is ineffective and will not give rise to a de facto
corporation
- However there is no automatic dissolution until
lawfully declared by SEC
o After due notice and hearing
o But the effect of declaration will retroact to
the time the corporation should be deemed
dissolved
Collateral Attack of dissolved corporation
- If dissolved in accordance with Section 22
- In any private suit
Subsequent continuous incorporation
- For 5 years
- A ground for suspension/revocation of registration
- See Sec 22
Effect of Change of name on Corporate Existence
- Mere change of name would not result to dissolution
Effect of insolvency/bankruptcy on corporate existence
Insolvency
- the inability or failure to pay debts as they become
due
- in Bankruptcy cases, it is considered as the
o condition where the total liabilities exceed
the total assets available for their
settlement
Note: possession of assets is necessary to the creation of a
stock corporation
- the loss of its properties does not affect its existence
- the appointment of a receiver does not ipso facto (on
the very fact or on this fact alone) produce its
dissolution nor bar the exercise of corporate rights
Effect of alienation of all assets on corporate existence
Practical or de facto Dissolution
A legal dissolution of a corporation may result from the transfer
of sale of all its properties and assets
- as where it virtually amounts to a surrender of the
corporate charter
- with the consent of the state
2016|Finals
A transfer of ALL property of a corporation whatever is the legal
effect on the life of the corporation may be, is generally for
practical purposes
- a dissolution, particularly when the corporation is
insolvent or nearly so
- an conveys its entire property with a view of going
out of business
State of suspended animation
- even if there is a de facto or practical dissolution
- when the corporation can still repurchase the
properties disposed or other property and resume
business
- the corporation may still exist without property
- hence, there is a state of suspended animation
Ground for Voluntary dissolution
- See Sec 40
- Sec. 118 to 119
Effect of death etc. of SH/M on corporate existence
Stock Corporations
- Dissolution by death of all the members of the
corporation cannot apply to business corporation
- The shares are passed by assignment etc.
- A Corporation has a right of succession
Non-stock
- May leave the corporation incapable of continuing
itself
Effect of Want of officers on corporate existence
- Does not dissolve the corporation
Effect of Concentration of stock on corporate existence
- Does not ipso facto dissolve the corporation
- But the purchase by one of all the shares of a
corporation may operate as a dissolution of the
corporation
o To the extent that in such event, it suspends
the exercise of the rights under the
franchise
o Until the owner transfers stocks in GF so as
to maintain an organization under the
statute
Note: the owner may always assign his shares, while he still
holding the legal or beneficial ownership
Section 121
Involuntary Dissolution
By order of SEC
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NIELGEM SABAY BEJA|Corporation Law Notes|Dean R. Villanueva
All actions filed before the SEC must be prosecuted and
defended by in the name of real party-in-interest
1. Violation by a corporation
See Sec. 144
2. Deadlocks in a close Corporation
3. Mismanagement
See Sec 105
4. Suspension/revocation of cert. Of registration
See Sec. 6 and Sec 144
Sec Opinion: (other grounds for suspension or revocation)
1. Failure to formally organize/2 yrs/5 yrs. - Sec. 22
2. Failure to file BL within the prescribed period
3. Failure to file or register their financial statements,
gen. Info. Sheets, stock and transfer book or
membership book
- The SEC shall send the corporation and the
controlling SH a SHOW-CAUSE-ORDER
- See SEC QUARTERLY BULLETIN 90 NO.3 1994
NON-USER
1. CONTINUOUS INORPERATION for 5 years
MISUSER
1. Fraud in procuring its certificate of registration
2. Serious misrepresentation as to what the Corp. can
do or doing to the prejudice of or damage the general
public
3. Refusal to comply with SECs lawful orders
Dissolution by quo Warranto proceedings
Read REP v. Security Credit and Acceptance Corporation 1967
Right of Minority to sue for dissolution
1. Where there is no redress or remedy available to
them
2. When the violation does not warrant a quo warranto
- As when the State is not interested
- Because the complaint is strictly a matter among the
SHs
Effects of Dissolution
1. Transfer of Legal title to Corporate Property
To the SHs
- They then become co-owners
2. Continuation of corporate business
GR: corp. ceases to be a body corporate
But it may operate as an ORDINARY ASSOCIATION- to
continue to undertake the purposes for which it was
organized
o But it has no juridical personality
Note: any of the SHs may re-incorporate or form another
corporation to engage in the same line of business
- By complying with the registration requirements of
the code
2016|Finals
Creation of a new corporation
SHs are allowed to convey their shareholdings toward to
creation of a new corporation to continue the business of the
old
- Winding up is the sole activity of a dissolved
corporation that does not intend to incorporate a
new
But SHs are not prohibited to negotiate and transfer asserts of
the dissolved corporation(see Sec 40) to a new corporation
Read Chung Ka Bio v. IAC 163 Scra 534 (1998)
Reincorporation of a dissolved Corporation
Read Rebolido v. CA 170 Scra 800 (1989)
Continuation of the body corporate
- Dissolution does not by itself imply extinction of the
rights and liabilities of the corporation
- Nor of its owners or creditors
- The corp. continues a body corporate for 3 years for
purposes of winding-up and liquidation
o It may even hold an election
o But only for that purpose
Section 122
Corporate Liquidation
Liquidation
Means the winding up of the affairs of the corporation
- By reducing its assets in money, settling with
creditors and apportioning the amount of profit and
loss
- Adjusting all debts and claims
- Collecting that is all due to the corporation
Nature of Liquidation
- Not a partition of community property
- But a transfer or conveyance of the title of its assets
to the individual SH
Modes
1. Liquidation by the corporation itself
2. By duly appointed receiver
3. By trustee to the corporation had conveyed the
corporate assets
Liquidation by the corporation itself
- Period of 3 years
- Claims by and against the corporation becomes
unenforceable after the 3 year period
Read Buenaflor v. Camarines Sur Industry corp. 108 Phil 472
(1960)
Extension of period
Gr: not allowed
But a creditor who has a pending action or when the
corporation has a pending suit filed
- May prevent the abatement
55
NIELGEM SABAY BEJA|Corporation Law Notes|Dean R. Villanueva 2016|Finals

- By asking the proper court for the appointment of the
receiver or trustee within the winding up period
- The trustee may sue or be sued beyond the 3 year
period
o When there is no time limit within which
the trustee must finish the liquidation
Note: A counsel who prosecuted and defended the interest of a
dissolved corporation may be considered a trustee with respect
to the matter in litigation
And the BOD may be permitted to complete the liquidation by
continuing as trustees by legal implication
Read Gelano v. CA 1981
Clemente v. CA 1995
Reburiano v. CA
Action against Liquidators/Sh
Dissolution does not extinguish the debts of the corporation
See Sec145
Approval of Sec not Required
Authority of HOLD Over officers
- They have the authority to wind-up or liquidate
- The disposition of the remaining undistributed assets
must necessarily continue after such period
Liquidation by Reciever
Who will appoint?
Equality among creditors
Subject to the rules on preference of credit
Read Alemars Sibal and Sons inc. v. Elbinias 1990
Alemars Sibal and Sons Inc. v. NLRC 2000
Duration of Receivership
Indefinite except if specifically limited
- He may act beyond the period
Appointment of receivership
Discretionary
A receiver may also be appointed even if there is no dissolution
- When there has been a final and executor judgement
against the corporation which is in unstable financial
condition
- Or to protect the right of the minority
Receivership is the last remedy
- Must not be resorted to unless there is no other
remedy available
Liquidation by a trustee
Conveyance of Corporate Property
- By a resolution by SH/M made within the 3 year
period
Effect of Conveyance
- Trustee : Legal owner
- Creditors/SH etc. : beneficial owner
Period
- Until liquidation is terminated
- Even after the 3 year period

Authority Read Reburiano v. CA 1999

- Ministerial officer only
- It is limited to what the statue has granted
- The appointment suspends the authority of a
corporation and its D/T/O over its property and
effects
- It is equivalent to an injunction to restrain the
corporations officers from intermeddling with the
property of the corporation in any way
Status
He acts for the court, SH, crediotrs
For all the parties
- Rep of the corporation
Stay of pending actions
PD 902-A
Allocations of claims against the corporation under
management or receivership pending before any court, tribunal
or body shall be suspended accordingly
National Abaca & other Fiber Corp. v. Pore 1961
When NO receiver or trustee is appointed
After dissolution
Even after the 3 year period
1. The BOD/T may be permitted to continue as a trustee
- By legal implication to complete the liquidation
2. If no board, those who have pecuniary interest in the
assets
3. The only Surviving director or SH
Subject to no. 2 in case the survivor dies and another
survivor replaces him
4. The counsel who prosecuted or defended the interest
of the corporation
Read Clemente v. CA 1995
Premier Development banks v. Flores 2008

Read Rubberworld v. NLRC 2000 Distribution of Corporate Assets

56
NIELGEM SABAY BEJA|Corporation Law Notes|Dean R. Villanueva
GR: Except by decrease of its capital stock ( Sec 38) and
otherwise provided by the code ( sec 8,9,41, 43, 104-par 1(4)
and 105)
- No corporation shall distribute its assets except upon
lawful dissolution and after payment of the debts and
liabilities
- In accordance with the trust fund doctrine
Distribution in exchange of Stock
- Property contributed to the corporation exchange of
shares of stock and forming part of the assets of the
corporation cannot be withdrawn by the subscriber
- But only by the approval of the board and SHs
- But assignment is not prohibited
Distribution in pursuance of liquidation
the purpose of the liquidation, as well as the
distribution of the assets of the corporation, is to
transfer their title from the corporation to the
stockholders in proportion to their shareholdings,
and this is in effect the purpose which they seek to
obtain from the Register of Deeds of Manila, that
transfer cannot be effected without the
corresponding deed of conveyance from the
corporation to the stockholders. It is, therefore, fair
and logical to consider the certificate of liquidation as
one in the nature of a transfer or conveyance. (SH of
Guanzon & Sons Inc. v. RD)
By the act of SH
- Provided the creditors are paid and no one is
prejudiced
Priority of Application of Assets
Note: this is only important when the assets are not
sufficient
1. In case of insolvency, the corporate creditors
a. Secured creditors are preferred
b. Unsecured
ARTICLE 2246. Those credits which enjoy preference with respect to specific
movables, exclude all others to the extent of the value of the personal property to
which the preference refers.
ARTICLE 2247. If there are two or more credits with respect to the same specific
movable property, they shall be satisfied pro rata, after the payment of duties,
taxes and fees due the State or any subdivision thereof. (1926a)
ARTICLE 2248. Those credits which enjoy preference in relation to specific real
property or real rights, exclude all others to the extent of the value of the
immovable or real right to which the preference refers.
ARTICLE 2249. If there are two or more credits with respect to the same specific
real property or real rights, they shall be satisfied pro rata, after the payment of
the taxes and assessments upon the immovable property or real right. (1927a)
ARTICLE 2250. The excess, if any, after the payment of the credits which enjoy
preference with respect to specific property, real or personal, shall be added to
the free property which the debtor may have, for the payment of the other
credits. (1928a)
2. SH/M/D/O
- Who are also creditors as a result of legitimate or
proper loan or claim
2016|Finals
3. REMAINDER- distributed among the SH/M in
proportion to their shareholdings or interest
- In the absence of any provision to the contrary
o Preferred (preferred re the surplus of
proceeds of the assets)
Note: the amount of capital refund that a Sh may get in case if
liquidation will depend upon the financial condition at that time
In case, after payment to SH, unpaid debts debts shall appear
the SH are liable to pay the debts to the extent of the value of
the assets received by them
Note: the distributive shares of the assets of the corporation
upon its dissolution are available for general distribution among
the whole class of SHs
Reason: upon the dissolution of the corporation the
asset become the trust fund with the title of the SHs
becoming equitable right to distributive share therein
- The SHs are not mere creditors as to the liquidating
dividends
o The money actually belongs to them
severally in equity
o Therefore not available for general
distribution
Liquidation need not be approved by SEC
REFUND of SH of their investment
With Stock corporations are dissolved, the assets are first
applied to the payment of their obligations and the balance
shall be used as refund to SH the amount they invested
Shares with par value
GR: Refund shall only be the amount equal to the PAR VALUE
of each of the shares which they hold
- Even if they have paid more than the par value when
they acquired the shares
EXP: when the AOI/BL/Certificate provides for the amount of
the refund
No par value
The amount they have paid to the corporation for the shares
- If received at the different prices and time
o Then the amount depends the price of each
EXP: AOI provision to the contrary
Shares acquired from prior SH
The amount ORIGINAL SH could have been entitled
TITLE XV
FOREIGN CORPORATION
Definition (General)
57
NIELGEM SABAY BEJA|Corporation Law Notes|Dean R. Villanueva
It is a corporation created by or under the laws of another state
or country
- In the incorporating state it is called a DOMESTIC
CORPORATION
Jurisdiction
GR: A foreign corporation can have no legal existence or status
beyond the bounds of the state or sovereignty by which it is
created or incorporated and organized
EXP:
1. Another state consented
2. Subject to restriction that another state may impose
Consent Doctrine
Expressed or implied
- A foreign corporation can exercise none of the
functions and privileges conferred by its charter in
another state except by the COMITY and CONSENT of
such state or country
Imposed restrictions and conditions
The state in extending to foreign corporations the privilege of
doing business may impress such privilege with whatever
conditions and restrictions it deems fit to impose.
Objectives of regulation of foreign corporation
1. To place them on an equality with domestic
corporations
2. To subject them to inspection so that their condition
may be known
3. To protect the residents of the state doing business
with them by subjecting them
License and Certificate of authority required of foreign
corporation
Foreign corporations are not permitted to transact or do
business in PH until they have secured a
1. license for that purpose from SEC
2. Certificate of Authority from the appropriate
Government Agency
But the absence of such license/certificate does not mean
that the foreign corporation is a juridical person
When may a FC even without a license?
When the FC sues on an isolated transaction
Nationality of corporations with Foreign equity
Determination of nationality
1. Incorporation Test
- The nationality of a corporation is that of the state of
incorporation regardless of the nationality of its SHs
2016|Finals
2. Control test
- Depends on the nationality of the controlling SHs
Control Test Guidelines
60 % of the Capital of the corporation must be owned by
Filipino citizens to be considered a PHILIPPINE CORPORATION
Example:
If there are 100,000 capital stocks and 60% of such is owned by
Filipino Citizen
- All of such share shall be recorded is Filipino owned
If less than 60%, as when only 50% is owned by Filipinos
- Only 50,000 shares will be registered as Filipino
owned
- And the other 50,000 shall be registered as owned by
aliens
Basis of computation of 60-40 percentage requirement
1. The basis the total outstanding capital stock
- Irrespective of the amount of the par value of the
shares
2. Once it is established that the corporation is a Filipino
Corp., it is no longer necessary to conduct any further
inquiry as to the ownership of the shareholders
- Since the entire company is considered a Filipino
entity
3. But, while a corporation with a 60% Filipino equity
ownership may be considered a Filipino corporation
- It is not allowed to enter into a joint venture
agreement with corporations or partnerships
(See PH Constitution)
Note:
1. Preferred stocks without voting rights are considered
in the computation
- Unless the law covering the type of business to be
undertaken provides otherwise
2. Filipino Citizens who reacquired Filipino Citizenship
under RA 9225
- Their Shares are considered Filipino Investments
Purpose of the 60% requirement
To ensure that corporations and association allowed to operate
a public utility should be controlled by Filipino Citizens
Determining Board Seats allowable for foreign corporations
Constitution:
The allowable foreign investment in a public utility is only up to
the extent of 40% of the outstanding capital stock and foreign
58
NIELGEM SABAY BEJA|Corporation Law Notes|Dean R. Villanueva 2016|Finals

participation in the governing body shall be limited to their Section 128

proportionate share in the capital Resident Agent; Service of process
Determination of required Filipino interest in a corporation for
purposes of land ownership
Application for and issuance of License
Constitution:
Save in cases of hereditary succession, private lands may be Requirements
transferred to corporations provided they are qualified to
acquire or hold lands of public domain 1. Submission of the required documents
a. Certified copy of its AOI
Corporations allowed to acquire private lands: i. With translation to an official
60 % of the capital stock are owned by Filipinos language of PH if necessary
b. Application for a license which shall be
Determination of required Filipino Interest in a corporation for under oath
purposes of land ownership i. Which must specially set
forth the matters
- Private lands may be transferred to corporations enumerated by law
provided they are qualified to acquire or hold lands of ii. Unless already stated in the
public domain AOI
o Requirements 2. Accompanying documents to application
1. 60 % of the capital stock belongs a. Duly executed certificate under oath
to the Philippines by the authorized official or officials of
2. There must be beneficial the jurisdiction of its incorporation
ownership and not just control Attesting to the fact that the laws
over the corporation of the country or state of the
3. A Philippine national is qualified applicant allow Filipino Citizens
to own land and corporations to do business
therein
Note: if the foreign shareholding exceeds 40% And the applicant is an existing
- It is not the Foreign Shareholding which is affected Corporation of good standing
- But the capacity to own land of the corporation With the translation of the
certificate in English under oath of
Who is a PHILIPPINE NATIONAL? the translator if it is in a foreign
According to the Foreign Investment Act- language
1. Citizen of the Philippines b. A sworn statement of the president or
2. A domestic partnership or association wholly owned any authorized officer of the
by citizens of the PH corporation
3. A corporation organized under the laws of the PH of Showing to the satisfaction of the
which at least 60% of the capital stock outstanding SEC and other government agency
and entitled to vote is owned and held by Filipino in proper cases that the applicant
Citizens is solvent and in sound financial
4. Or A corporation organized abroad and registered as condition
doing business on the Philippines under the And setting forth its assets and
Corporation code of which 100% of the Capital stock liabilities of the previous year
outstanding and entitled to vote is wholly owned by c. A certificate of Authority from the
Filipinos or appropriate government authority
5. Trustee of funds for pension or other employee whenever required by law
retirement or separation benefits, where the trustee d. A written power of attorney
is a Philippine national and at least 60% of the fund designating a resident agent on whom
will accrue to the Benefit of Philippine National summons and other legal processes
against the corporation may be served
Section 124 And a written agreement or
Application to existing foreign Corporation stipulation consenting that such
service shall be served upon SEC if
Section 125 at any time it shall cease to
Application for License transact business in the
Philippines
Section 126 Or shall be w/o any resident
Issuance of a license agent.

59
NIELGEM SABAY BEJA|Corporation Law Notes|Dean R. Villanueva
Rule and regulation Implementing RA 7042
A foreign Corporation is required to submit the following
documents to secure a license
1. Name verification slip
2. Certified copy of board resolution authorizing the
establishment of an office in the PH
a. Designating the resident agent
b. In the absence summons shall be served to
SEC
3. Financial statements for the immediately preceding
year
4. Certified copies f the AOI/partnership
5. Proof of inward remittance such as bank certificate of
inward remittance of credit advises
6. And other documents required by SEC
Issuance of license
Registration of a foreign corporation with SEC requires that the
same is doing business in the PH
- hence, a firm name belonging to a foreign
corporation cannot be registered in PH for the
purpose of precluding the possibility of any group
capitalizing on said firm name in the Philippines
The commission may exempt foreign corporations from its
licensing requirements upon appropriate application for
exemption to promote equity, justice, and national interest.
- Thus it may determine on a case to case basis
whether a particular or limited undertaking of a
foreign corporation constitute an act of doing
business or transacting business in the Philippines
(SEC OPINION)
Conditions subsequent to issuance of license
The corporation may continue as long as it retains the authority
to act as a corporation under the laws of the state of its
incorporation
EXP: when such license is sooner surrendered, revoked,
suspended or annulled in accordance with the Code or Special
laws
Additional
a. It shall transact only for the purpose(s) for
which it is authorized under its license
b. Within 60 days after the issuance of the
license
The licensee (except banking or
foreign corporations) shall deposit
with SEC Securities in the actual
market value of at least 100k
For the benefit of
present and future
creditors in PH
c. Within 6 months after each fiscal year of
the license
2016|Finals
o It shall deposit additional securities
equivalent in actual market value to 2% of
the amount by which the licensees gross
income for that fiscal year exceeds five
million
Such deposit will be increased if
the actual market value of the
securities has decreased by at
least 10% at the time they were
deposited
Cases| FOREIGN CORPORATION
CARGILL INC. V. INTRA STRATA ASSURANCE CORPORATION
Facts:
Cargill is a corporation organized under the laws of the State
of Delaware
NMC executed a contract on 1989 whereby NMC agreed to
sell Cargill 20k to 40k metric tons of molasses
The contract provides that Cargill will open a letter of Credit
with BPI
In the red clause of the Letters of Credi- NMC was allowed
to draw up to $500k representing the minimum price of the
contract upon presentation of some documents
Red Clause (google)
The red clause letter of credit is a specific type of letter of credit in
which a buyer extends an unsecured loan to a seller. Red
Clause Letters of Credit permit documentary credit beneficiaries to
receive funds for any merchandise outlined in the letter of credit
These letters are commonly used by beneficiaries who act as
purchasing agents for buyers in another country.
The contract was amended for three times
On the third amendment NMC was required to put up a
performance bond equivalent to $451,500
The bond was to guarantee NMCs performance to deliver
the molasses during the prescribed shipment periods
In compliance of such, INTRA STRATA issued a
performance bond worth $11.2K to guarantee NMCs
delivers of the 10.5k tons of molasses
And Intra also issued a surety bond worth $9.9K to
guarantee the repayment of the downpayment as provided
in the contract
But NMC was only able to deliver 219 metric tons of
molasses
Hence, Cargill sent demand letters to respondent claiming
payment under the performance and surety bonds
NMC refused to pay
Hence, CARGILL filed a complaint for sum of money against
NMC and Intra
Cargill and NMC entered into a compromise agreement w/c
the trial court approved
NMC however again failed to comply with the agreement
Hence, Cargill proceeded with the case
RTC: Intra Strata and NMC are solidarily liable to pay Cargill P16.9M
60
NIELGEM SABAY BEJA|Corporation Law Notes|Dean R. Villanueva
CA: Cargill has no capacity to file a suit since it is a foreign corporation
doing business in the Philippines without a License. That the purchase
of molasses is in pursuance of its basic business and not a mere
isolatrd and incidental transaction
Issue(s):
1. WON Cargill is doing or transacting business in the PH
2. WON Intra is estopped from invoking the defense that
petitioner has no legal capacity to sue in PH
Ruling:
Doing Business in the Philippines and Capacity to Sue
Sec. 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.
Section 1 of Republic Act No. 5455 (RA 5455),[14] provides that:
x x x the phrase doing business shall include
5. soliciting orders,
6. purchases,
7. service contracts,
8. opening offices, whether called liaison offices or
branches;
9. appointing representatives or distributors who are
domiciled in the Philippines or
10. who in any calendar year stay in the Philippines
for a period or periods totalling one hundred
eighty days or more;
11. participating in the management, supervision or
control of any domestic business firm, entity or
corporation in the Philippines;
12. and any other act or acts that imply a
continuity of commercial dealings or
arrangements, and contemplate to that extent
the performance of acts or works,
13. or the exercise of some of the functions
normally incident to,
14. and in progressive prosecution of,
commercial gain or of the purpose and object
of the business organization.
The determination of whether a foreign corporation is doing
business in the Philippines must be based on the facts of
each case.
What must be proved by the respondent?
That Cargills business activities in the Philippines were not just casual
or occasional
- But so systematic and regular to manifest continuity and
permanence of activity to constitute doing business in the
Philippines
Cargill and NMC amended their contract three times to give a chance to
NMC to deliver to petitioner the molasses, considering that NMC
already received the minimum price of the contract. There is no
showing that the transactions between petitioner and NMC signify the
intent of petitioner to establish a continuous business or extend
its operations in the Philippines.
The Implementing Rules and Regulations of RA 7042 provide under Section 1(f), Rule I,
that doing business does not include the following acts:
1. Mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise
of rights as such investor;
2016|Finals
2. Having a nominee director or officer to represent its interests in such corporation;
3. Appointing a representative or distributor domiciled in
the Philippines which transacts business in the representative's or distributor's own name
and account;
4. The publication of a general advertisement through any print or broadcast media;
5. Maintaining a stock of goods in the Philippines solely for the purpose of having the same
processed by another entity in the Philippines;
6. Consignment by a foreign entity of equipment with a local company to be used in the
processing of products for export;
7. Collecting information in the Philippines; and
8. Performing services auxiliary to an existing isolated contract of sale which are not on a
continuing basis, such as installing in the Philippines machinery it has manufactured or
exported to the Philippines, servicing the same, training domestic workers to operate it, and
similar incidental services.
Activities within Philippine jurisdiction that do not create
earnings or profits to the foreign corporation do not
constitute doing business in the Philippines
the contract between petitioner and NMC involved the
purchase of molasses by petitioner from NMC. It was NMC,
the domestic corporation, which derived income from the
transaction and not petitioner. To constitute doing business,
the activity undertaken in the Philippines should involve
profit-making.[20] Besides, under Section 3(d) of RA 7042,
soliciting purchases has been deleted from the enumeration
of acts or activities which constitute doing business.
Other factors which support the finding that petitioner is not
doing business in the Philippines are:
(1) petitioner does not have an office in the
Philippines;
(2) petitioner imports products from the
Philippines through its non-exclusive local broker, whose
authority to act on behalf of petitioner is limited to soliciting
purchases of products from suppliers engaged in the sugar
trade in the Philippines; and
(3) the local broker is an independent contractor
and not an agent of petitioner.
To be doing or transacting business in the Philippines for
purposes of Section 133 of the Corporation Code, the
foreign corporation must actually transact business in the
Philippines, that is, perform specific business transactions
within the Philippine territory on a continuing basis in its own
name and for its own account. Actual transaction of
business within the Philippine territory is an essential
requisite for the Philippines to to acquire jurisdiction over a
foreign corporation and thus require the foreign corporation
to secure a Philippine business license.
Held: CAs decision reversed. RTCs decision reinstated
Global Business Holdings Inc. v. Surecomp Software
Facts:
Surecomp is a foreign corporation organized under the laws
of Netherlands
61
NIELGEM SABAY BEJA|Corporation Law Notes|Dean R. Villanueva
1999 Surecomp entered into a software license agreement
with ABC for the use of its IMES System in the Banks
computer system for a period of 20 years
2000 ABC merged with petitioner Global with Global as the
surviving corporation
When global took over ABC, it found that the system was
unworkable for its operations
It informed Surecomp of its decision to discontinue with the
agreement to stop further payments thereon
For Globals failure to pay, Surecomp filed a complaint for
breach of contract with damages before the RTC
In its complaint, Surecomp alleged that it is a foreign
corporation not doing business in the Philippines and is
suing on an isolated transaction
Global filed a motion to dismiss on the ff grounds:
15. Surecomp had no capacity to sue because it was
doing business in the Philippines w/o a license
16. That the claim on which the action was founded
was unenforceable under the Intellectual property
code of the Philippines
RTC: Denied Globals motions to dismiss
CA: Affirmed
Issue(s):
WON Global is estopped for questioning Surecomps capacity to sue
RULING:
GLOBAL IS ESTOPPED from challenging Surecomps capacity to sue
In order to subject a foreign corporation doing business in the country
to the jurisdiction of our courts,
1. it must acquire a license from the Securities and Exchange
Commission and
2. appoint an agent for service of process
EXP: Estoppel
A foreign corporation doing business in the Philippines without license
may sue in Philippine courts a Filipino citizen or a Philippine entity that
had contracted with and benefited from it.
A party is estopped from challenging the personality of a
corporation after having acknowledged the same by entering into
a contract with it.
The principle is applied to prevent a person contracting with a
foreign corporation from later taking advantage of its
noncompliance with the statutes, chiefly in cases where such
person has received the benefits of the contract
Due to Globals merger with ABC and because it is the surviving
corporation, it is as if it was the one which entered into contract with
Surecomp. In the merger of two existing corporations, one of the
corporations survives and continues the business, while the other is
dissolved, and all its rights, properties, and liabilities are acquired by
the surviving corporation.
Steel case Inc. v. Design International Selections
2016|Finals
FACTS:
Steel case is corporation existing under the laws of
Michigan
It was engaged in the manufacture of office furniture with
dealers worldwide
Respondent Design International Selections (DISI) is a
corporation existing under Philippine laws
Steel and DISI entered into a dealership agreement
Whereby DISI was granted the right to market, sell etc.
Steels products in the Philippines
After some years it was terminated with neither party
admitting any fault
Steelcase filed a complaint for sum of money against DISI
Steel alleged that DISI had an unpaid account worth $600k
RTC: dismissed the complaint
CA: Affirmed RTC
Issue(s):
1. WON Steel is doing business in the Philippines w/o a
license
2. WON DISI is estopped from challenging the steelcases
legal capacity to sue
Ruling:
1. STEEL CASE is an UNLICENSED FC NOT DOING
BUSINESS IN PH
Foreign Investment Act Sec 3(d)
That the phrase doing business shall not be deemed to include
1. mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business, and/or
the exercise of rights as such investor;
2. nor having a nominee director or officer to represent its
interests in such corporation;
3. nor appointing a representative or distributor domiciled
in the Philippines which transacts business in its own
name and for its own account;
The following acts shall not be deemed doing
business in the Philippines:
1. Mere investment as a shareholder by a foreign
entity in domestic corporations duly registered to do
business, and/or the exercise of rights as such
investor;
2. Having a nominee director or officer to represent its
interest in such corporation;
3. Appointing a representative or distributor
domiciled in the Philippines which transacts
business in the representative's or distributor's
own name and account;
62
NIELGEM SABAY BEJA|Corporation Law Notes|Dean R. Villanueva 2016|Finals

4. The publication of a general advertisement through

any print or broadcast media;

5. Maintaining a stock of goods in

the Philippines solely for the purpose of having the
same processed by another entity in the Philippines;

6. Consignment by a foreign entity of equipment with

a local company to be used in the processing of
products for export;

7. Collecting information in the Philippines; and

8. Performing services auxiliary to an existing isolated

contract of sale which are not on a continuing basis,
such as installing in the Philippines machinery it has
manufactured or exported to the Philippines, servicing
the same, training domestic workers to operate it, and
similar incidental services. (Emphases supplied)

the appointment of a distributor in the Philippines is not

sufficient to constitute doing business
- unless it is under the full control of the foreign corporation
In the case at bar, DISI is independently owned by BANTUG
DISI also distribute products aside those from Steel
DISI and STEEL had a buy and sell agreement

2. DISI is estopped from challenging Steelcases capacity

to sue

Entering into a dealership agreement with

Steelcase charged DISI with the knowledge that Steelcase
was not licensed to engage in business activities in
the Philippines.
By acknowledging the corporate entity of Steelcase and
entering into a dealership agreement with it and even
benefiting from it, DISI is estopped from questioning
Steelcases existence and capacity to sue.
To put it in another way, a party is estopped to challenge the
personality of a corporation after having acknowledged the
same by entering into a contract with it

Ruling: CA reversed
Steels complaint reinstated and remanded to RTC for appropriate
action

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