Corporate Law Review – Atty Zarah:

The guarantee of self incrimination does not extend to corporations. (bataan

shipyard case)

There is a reserve right in the legislature to investigate its contracts and find out if it
has exceeded its powers.

Xase 1st international bank – may mga na foreclose na properties; isa doon claim of
plaintiff offered to buy one of the properties of the bank, the offer was accepted—
nag tatalo if perfected ba sale o hindi. – ang defense for the bank, I did not authorize
that officer of mine to deal with you.

Masagana gas corporation – caught by npi in the act of selling lpg products using
others trade marks – dinemanda sila officers, hindi sinama si corporation – kaya
lang in the course of the proceeding; yung authorities confiscated all the property of
the corp.
- considering that ung mga gamit na confiscated belonging to the corp, paki balik,
kasi di naman ako naka demanda, sila officers ang naka demanda.
- court said no. for purposes of liability we will consider you and the officers one
and the same; madedeprive ng corpus delicti kung babalik yung gamit.; in this case
you are just using your corporate identity to cover your officers.

Pris,a Construction – no need piercing if officer assumes personal liability

Almocera – piercing cannot be raised on the first time on appeal. ( piercing is
evidentiary – ginagawa yan pag trial, if raised on the first time on appeal – wala na
acceptance or admission of evidence; depriving other party of its right)

Instrumentality rule (presented0

Paano nga if na pierce – if sheriff cannot find the properties, pwede niya kunin yung
properties of the other corporation as if belongs to the same corporation.

What happened to x and y if at one state of their existence they were pieced? – (
piercing is a case to case basis) they retain their separate personality; such that in
future dealings you don’t pierce unless there is reason to pierce; existence of the
corporations not affected – hindi once pierce forever na
They will continue to enjoy the benefits they have; public will still have to respect
their separate juridical entity as long as it is legal dealings.
Corportion as a creature of law
Creation of a corporation does not just require consent of the incorporatios;
but also the imprimatur of the state; without this they will not be able to enjoy their
juridical status (concession theory)
Art 12 sec 16 corporation – congress can enact only a law in general application. (ex.
Corpo code)
Exception; pwede pa din congress gumawa ng special law this is corporations with
charter; they don’t need to file AOI with sec; they are still private corporations, they
still do proprietary acts (LGU is the public corporation)

Pag outside of the powers of the corporation (as in outside that allowed by law)
kahit anong ratification. Bawal yan’

Kinds of corporation
1. stock
2. non stock: no property shall be given to any member subject to the rules of
disoolution
3. domestic corp
4. foreign corp ( to bring action, doing business must get license
5. de jure and de facto corporation (status of a corporation)
also doctrine of corporation by estoppel – de facto kailangan may certificate
of incorporation din. (parang on its face corporation siya. Can enter into contracts
be sue and sue…) - jurisprudence as far as juridical acts are concerned walang
difference; and may difference lang is nasa challenge; if the state finds out may
infirmity ang corporation pwede ma pawalng bias ng gobyerno ang status of the
corporation. Dejure can successfully resist challenge regarding its status; de facto
cannot resist similar challenge if interpose by the satte in a proper proceeding called
for that purpose.
De Facto – valid existence but voidable. By direct attack subject matter issue is
existence
In estoppel – walang corporation at all –pretending lang na maroon company.
- nothing wrong really as long as there is no third party affected; pag yung
pretension na yun story niya na may corporation talaga siya and nakipag transact
sa kanya as a corporation – lagot na. yung nagpahiram ng pera di pwede sue si
corporation… ang solution is corporation by estoppel, yung daz the pretender is the
corporation for purposes of liability. As to him may corporation. Kahit sabihin niya
di naman siya corporation.

Case of limtong lim – even if you didn’t make any representation as longas you
benefitted the doctrine of estoppel also applies to you.

6. open corporation – investors # not restricted; shares freely transferaable; no

prohibition of trading of stocks in the stock market
7. close corporation – has limited count of investors, maximum of 20, transfer
subject to restriction, not permitted to trade nd list shares in stock market.
8. parent, subsidiary, affiliate

FORMATION AND ORGANIZATION

1. Preparation and submission of the AOI
2. Contents and form of the AOI
a. Corporate name ( this will set the identity of the corporation
i. Limitations on the use of corporate name
 First in time stronger in right (injunction; tro reliefs)
 Bank word is confined to entities doing banking.
 Finance only to finance
 Not deceptively or confusingly similar to an existing
corporation
o Mag append ka 1 or 2 words; pero dapat yung
dadagdag should serve purpose of identitiy and
distinction
o Case ng ----- ni jesus vs kaanib ----
o Generic descriptive and geographic word can be
part of a corporate name
 The limitation lang is if gagamit ka nito
please do not expect you will own this
word to the exclusion of all others ( pale
pilsen SMB and Beer na Beer case)
 Unless you can prove in court that the
word has developed and evolved into
another meaning.
 Doctrine of secondary meaning – generic
word ikaw lang gumagamit sa sobrang
tagal ang iniisip ng iba pag nadinig yun;
ikaw ang naiisip. Good for logo’s and
trade marks (used for so long in an
exclusive manner that it will justify senior
user exclusive right to it) – lyceum case
 If pinayagan ng court – it will just act
under a new name but the same juridical
exixtence
ii. guidelines on the use of the corporate name
iii. Doctrine of secondary meantin
iv. Change of corporate name
b. Purpose Clause
i. What activities do you want? – kailangna clearly stiupulated
 Caveat: stock corps may have several purpose; but they
are required to choose their chosen principal business;
descriptive of the day to day and ordinary operations –
naka sulat sa primary purpose
  Secondary purp – dapat supportive of primary and for
future expansion para wala ng amendment
 Non stock – can have as many purposes that they want.
They can simultaneously undertake all purpose no need
to stipulate primary and secondary
c. Principal office
i. Specific address na required, di na pwede city or municipality
lang.
ii. Serves as corporations residence
 Kailangna na kailangan in case of actions against the
corp
 Even in taxing jurisdiction.
d. Term o f existence
i. Doctrine of relations – can justify delay; as long as adequately
explained sec can accept.
 AOI can be amended except for accomplished facts like
the name of incorporators. – anytime as long as it is
existing
 Should the corporation wish to extend term of existence
that they have to this on the last 5 years of the term
sought to be extended; otherwise corporation
amendment as early or before di aactionan ng sec
unless you can offer a good reason like
a. Meroon joint venture with a term of 30 years.
 Pero pag over na over na. after the last of tenure it is a
defunct and non existent corporation; can no longer do
juridical acts can no longer do the purposes in its
charter; and can no longer na change or amend.
ii.

e. Incorporatiors
i. 5 – 15
ii. sole corporation. – can survive even without a board. Siya na
ang trustee, pag namantay yung successor can take place.
iii. Quorum – number specified in aoi, majority
f. Directors and trustees
g. Capitalizsion – 25% of 25%
h. Shares of stock
i. Doctrine of equality of shares
ii. Classes of shares
 Par no par
 Voting and non voting
 Common andpreferred
 Redeemable, treasury and founders shares.
CONTROL & MANAGEMENT
1. General power of the board
2. Business judgment rule
3. Qualifications of the board members
a. Continuing legal requirement
i. The fact that you have divested all your shares; means that by
operation of law you are disqualified.
b. Selection process is by election in a meeting called for that purpose
4. Election of the board members
a. Non stock – 1 member 1 vote
i. Exception: they are allowed to put up machinations on how to
count their vote. Ex. Depends on amount of donation
ii. In election of trustee (1 vote x # of trustees to be elected)
iii. Cumulation of votes: it must be in the AOI or by laws
b. Stock
i. GR: 1 share/ 1 vote (ex: amendment of aoi)
ii. In election of directions : your count of shares x # of directors
to be elected.
iii. Cumulation of votes: matter of right
iv. There is no such requirement that requires a majority vote.
1. Plurality ang kailangan as long as you belong to the top
5 ka. Kahit 1 lang yang basta asa top 5 ka.
5. Terms
a. Nonstick
i. GR: 3 years
1. Exception: pag may nakalagay sa by laws/ aoi
ii. Educational GR: 5 years
1. Same exceptions sa taas
6. Quorum requirement in board meetings
a. Controlling is the total count in the AOI (kahit 8/10 ang directors.. 6
pa din ang quorum)
i. Yes can change number of quorum but not lower than
majority
ii. Once quorum is established in the beginning; then it stays in
the whole meeting; kahit na mag labasan sila in the middle
iii. Bawal proxy sa directors meeting. – because directors are
chosen by SH because of their personal qualification. They
have netrusted to the BM decision making and their
investment; it is the personal decision of the board that
controls. ; anyway electronic presence is now permissible;
dutyof the corsec to prepare for this.
7. Removal of directors

Special fact doctrine – while a director doesn’t not stand in fiduciary relation to the
stockholder; he is under a legal obligation to make a fair and full disclosure of
pertinent official information where special circumstances exist giving rise to the
obligation to disclose (Strong vs Republic)

CORPORATE OFFICERS
1. Categories
a. Statutory
b. Position appears in the bylaws of the corp
2. Qualifications
3. Binding effects of acts
a. GR: no one not even the officers can legally bind the corporation; as a
rule it is the board that has the call as far as decision and acts that
would bind the corporation are concerned
b. However, officers and other agents if they were armed or given by the
board authority to act on behalf of the corporation then that’s ok they
can act accordingly, but must come from the board allowing them to
do certain acts that bind the corporation; they shall carry the mandate
of the board. or
c. The authority to bind the corporation should appear in the BY LAWS (
best proof resolution to that effect)
*1 is called stipulation per au trui
Sec 41 – acquisition of corporate shares
* includes fractional shares
Sec 42 – investment of corporate funds
 NO need for board approval day to day operational business or primary
purpose
 But if wala sa primary purpose or investment in another coporation –
kailangan approval by the stock holders.
Pag outside of the powers of the corporation – do not apply 42; use ultravires na
approach.

Delinquent SH – cash div, to offset balance; stock div bawal offsetting wiwithold ng
corporation yung certificate.
Reason: cash div creates creditor and debtor relations; legal compensation can take
place. – theya re mutual debtor and creditor of each other; pag stock div kasi hindi
creditor debtor ang relation ship nila.
On going appraisal right – dividends suspend. Kasi pwede ma approve or di ma
approve. – delivery lang ang na suspend.
Can declaration of dividends be forced? Pwede ba siya maging subject ng intra
controversy  GR: NO, business judgment rule. Exception (sec 43) if based on the
books excess 100% of their paid in capital.; Exception to the exception: corporate
expansion, pursuan to a loan agreement, contingent liabilities (like suit in court)

Sec 44 – Management contract

 Dapat contract that will cover all or substantially all of the business of the
corporation
 Board approval
 Majority of the SH - simple majority of both corporations (managed and
managing corp)
 Can be done because: collateral of the loan is the business, or kailangan ng
expertise.

Sec 46 – BY LAWS
 Submit sabay with AOI or within 40 days from submission of AOI
 AOI external affairs; Bylaws Internal affairs
 While not condition precedent it is condition subsequent; can be a ground to
revoke franchise
 Still due process needed; de facto siya. Hindi automatic dismissal

Stock holders resolution is required for amendment of by laws. It cannot be done by

incorporating it in the bylaws. (bawal ilagay siya there permanently ha.)
shareholders lang pwede if they want to give it up or recall authority given

Merger – kung may creditor na naghahabol; kanya kanya pa din kayo pag di na
approve ni SEC ang merger.  good faith is not required; creditors consent not
required, kasi everything will be taken cared of by the surviving corporation.

SUBSCRIPTION CONTRACT
 Ano inaaquire?  UNISSUED SHARES
 Kahit tawagin niyo ung conrata ng kahit ano, as long as the subject matter is
unissued shares; contract is one of subscription within the purview of the
corporation code
 In subscription you have to comply and observe provisions of the code when
it comes to subscriptions
a. Parties to the contract have no choice but to treat subscription
agreement as one indivisible in character ( indivisibility suddenly
kicks in as long as the contract is one of subscription __ no stock cert
until full payment of subscription)
i. Application of payments made.
1. One default in installment everything becomes due and
demandable
b. Rule against watered down shares/ Price
1. For subscription to be legally in order so there is no
violation of the CC the price of the share covered y the
 subscription cannot be made lower than par value or
issued value for shares without par value; should the
consideration be less than the stated par value, could go
as low as 1php, no par couldn’t go lower than 5 php. If
price is diluted lower than par may watering of shares;
subscription receivables partake of property of the corp
(trust fund doctrine, tinitignan ng lender ano
properties mo, magkano receivables mo? Kasama sa
receivables mo is yung subscription….)
c. Pag di naka bayad, should the SH become delinquent
i. Corporation has the option to sell the delinquent shares
1. When you enter in an Subscription agreement; no
choice but to make the shares a collateral – there is a
statutory lien over the shares that were subscribed.
ii. If consideration is other than cash – has to be cleared with the
sec.
1. Requires approval
a. Promissory notes – not allowed
b. Intellectual property – yes
c. Services that were rendered – yes
i. All to ensure there is no dilution of the
share value
 Stock cert obtained upon payment of the full subscription.
 Stock cert – kahit walang deed of assignment basta the stock certificate has
been endorsed
 If the transfers is not yet recorded in books, corp obligated to release to
transferor who holds the dividends in trust for the transferee; recourse of
transferee is with transferor.

Right of stockholder
a. Right to attend the meetings
o Even if hindi ka voting share you still should get notices
o President by default presides, by laws can provide someone else like
chairman of the corporation.
o Non stock have the option to change place of SH meeting kahit hindi
sa city or municipality ng principals office basta Philippines
o 2 weeks before general meeting; 1 week special meeting; BY LAWS
will prevail
o Quorum: GR: majority E: law requires other wise, or by laws requires
otherwise.
b. Right to Vote
o Delinquency suspends voting rights and right to be voted upon to the
board.
 o Unpaid but not yet delinquent can attend and vote; unless
subscription contract states right to vote says that you must be fully
paid to vote.. (called a conditional subscription)
o Sequestered shares –belongs to the SH unti the issue of reversion to
the state is issued with finality. PCGG only monitors closely the shares.
 However when there is a prima facie evidence that the shares
were really ill gotten, public funds used to get it, owner will
likely dissipate the shares, pcgg can exercise representation
and voting rights there on.
o Plendge/ mortgage – pledger and mortgagor as a rule who can vote
the shares.
o When share holder dies - executor administrator in stock
corporations
 Not applicable to non stock corporation  membership does
not survive death of member as a rule. Because membership is
personal, when he dies automatically severed. Unless bylaws
provide otherwise
 Of majority of the members – sa non stock psag patay na di na
bilang majority lang ng buhay, yan quorum unless bylaws
allow transfer of membership
o Related sila like families mag asawa may ari – rules of qo ownership
* proxy is irrevocable if and when coupled with interest
voting trust agreemenst should be given to sec and the corporation
trustor and trustee can access books of the corporation – max duration 5years
exemption loan coterminous

access record and books

preemptive right -
- can appear in articles of incorporation
if original di siya denied, to amend daw to deny pwede ba ?
close corporation
consent restriction – burdensome than what the law allows; more onerous than
letting the corporation purchase them kasi parang ginawa mong owners ng stock
mo ang board.
option restriction – allowed by law

appointment of trustee does not need to be formulaized, as long as it can be implied

from the conduct of the corporation that he is their taxi – trusteeship is the solution
kasi after talaga ng 3 years walang wala na siya

quick notes on rehabilitation

* commencement order – will adjudicate among other things; issua a directive
against creditors of the corporation to suspend in the meantime the creditors
respective claim on the corporation
villamor case – while waiver of income is loss - unless it puts the company in
imminent danger paralysis of operation such not enough for rehabilitation
also in the same case that the CA has no power to appoint a receiver or mgt com, it
has rtc which has jurisdiction.

There is no reason why criminal action against the officer is not suspended

TRANSPO
Breach of contract of carriage
 Person to be sued : common carrier ( cc vs passenger/ cargo owner)
o Oral contract 6 years
o Written – 10 – years
COGSA – goods through sea from foreign country to the Philippines
 Law of the country if coming from the Philippines
 Prescribed 1 year period ( no interruption)
o Only for
 Damage condition
 Loss of cargo
o No need to file notice of claim first before legal action – it is not a
condition precedent but cargo owner can if he wants to give notice.
 Misdelivery or delay not covered by cogsa apply law of the
country and provisions of the civil code.
o If DOMESTIC lang (w/in the Philippines) Art 366 of code of
commerce requires that if the claim is for the DAMAGED condition of
the cargo, there has to be a prior notice of claim this time.  24 hours
if damaged not patent; Immediately if Patent; can be changed by
corporate stipulation.

WARSAW
 Claims
o Injury or death of passenger
o Delay in the transpo of cargo or luggage
o Loss or damage to cargo or luggage
 Period to file: 2 Years
 Subject tayu
o Both in warsaw
o One country going back to another country (1 country signatory)
 Paano mag moral damages?
o Use our local laws; warsaw did not supercede civil code when the
provisions of it is still relevant. Pero this time maiiba prescriptive
period
 Yung 2 years para sa covered claims lang
 The rest babalik ka sa civil code.